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Fostering Resilience & Seizing Opportunities in Diagnostics​

November 21, 2024

Innovation is the linchpin of diagnostics, and it is facing unprecedented pressure. At the 2024 California Clinical Laboratory Association (CCLA) Conference, XiFin CEO Lâle White explored these dynamics, emphasizing how diagnostics and laboratories redefine healthcare outcomes amid regulatory and economic challenges. Here are a few highlights from her talk.

Laboratories are a critical part of the healthcare ecosystem. Labs are frequently the first to detect chronic and genetic conditions, equipping patients to manage their health proactively. Genetic testing, for instance, empowers patients to make lifestyle changes in line with their genetic predispositions, an essential aspect of preventative healthcare. Yet, despite these contributions, diagnostics faces significant challenges due to its small market share—representing only 3% of healthcare spending—which limits the industry’s lobbying power and financial resilience against regulatory changes.

Economic and Demographic Pressures

The Protecting Access to Medicare Act (PAMA) has led to sweeping payment cuts across the Clinical Laboratory Fee Schedule. For example, 72% of Clinical Laboratory Fee Schedule tests have faced payment cuts since PAMA went into effect. Furthermore, demographic shifts are increasing healthcare costs, placing pressure on Medicare.

As many as 95% of seniors have a chronic condition, and 80% have more than two chronic conditions. This has a significant impact on healthcare costs, and Medicare in particular. Medicare outlays, $944 billion in 2022, are projected to increase to over $2 trillion by 2033. These demographic changes put so much pressure on the healthcare system that it restricts innovation.

The Shift to Medicare Advantage and Its Consequences

In September, the Centers for Medicare and Medicaid Services (CMS) announced that average premiums, benefits, and plan choices for Medicare Advantage (MA) and the Medicare Part D prescription drug program will remain stable in 2025. However, average premiums are projected to decline in both the MA and Part D programs from 2024 to 2025.

Medicare Advantage plans are also driving higher claim denials for diagnostic providers. More Medicare beneficiaries have selected lower-cost Medicare Advantage programs than traditional fee-for-service Medicare programs. Today, almost 51% of Medicare-eligible patients are in a Medicare Advantage program, which is expected to grow to 62% in the next 10 years.

XiFin data shows that Medicare pays, on average, 98% of clean claims. Medicare Advantage programs, however, on average, only pay approximately 85% of clean claims. The gap is even more significant when it comes to limited coverage tests. Medicare pays approximately 95% of those claims, whereas Medicare Advantage programs only pay 75% to 85%, depending on the payor.

Not only do Medicare Advantage programs deny claims more frequently than traditional Medicare fee-for-service plans, but they also tend to require more prior authorizations. Because of the administrative burdens created by Medicare Advantage programs, many providers abandon the tests almost 50% of the time, even before the order gets to the lab, effectively reducing patient access to valuable diagnostics and driving up costs.

A 2024 Healthcare Financial Management Association (HFMA) CFO study revealed that 19% of health systems have stopped accepting at least one Medicare Advantage plan, and 61% are planning to or are considering. Sixty-two percent of CFOs believe collecting from MA is “significantly more difficult” than two years ago. In addition, a 2024 analysis from the Medicare Payment Advisory Commission, an independent and nonpartisan congressional agency, determined that Medicare Advantage plans cost 23% more than traditional Medicare. Those costs have been partly attributed to a widespread practice of inflating patients’ illness complexity to garner higher reimbursement rates—so-called upcoding.

Stringent prior authorization requirements can also negatively affect patient care. When faced with uncertainty about reimbursement, providers might be forced to choose diagnostics or therapeutics that are more likely to be approved than those that are clinically superior but carry a substantial risk of going unreimbursed. Consequently, the financial pressures and administrative complexities imposed by tighter payor coverage policies strain healthcare providers’ financial and operational performance and potentially compromise patients’ quality of care.

The Path Forward

The diagnostics industry stands at a crossroads. As economic, regulatory, and operational pressures converge, laboratories must continue to embrace technological advances, advocate for supportive policies, and educate stakeholders on the irreplaceable role of diagnostics in modern healthcare. We can preserve and grow our impact by uniting under a shared vision and leveraging AI and data-driven solutions, securing a future where diagnostics continues to improve patient outcomes and system efficiency.

Diagnostics must foster resilience as an industry through coalition-building, advocacy, and strategic partnerships. Unlike larger, more influential healthcare sectors, labs often lack the resources and sway to drive legislative change. Partnering with other healthcare stakeholders—such as hospitals, patient advocacy groups, and technology vendors—can amplify the industry’s voice, particularly in regulatory conversations around the FDA and PAMA. Strong coalitions can support a cohesive, data-driven narrative to educate legislators, highlighting the critical role of diagnostics in patient care and cost management.

Although flawed, the VALID Act does offer hope by proposing a balanced framework for diagnostics regulation, accounting for the laboratory industry’s unique challenges. Yet, we must continue advocating for simplified regulations that enable innovation without imposing excessive costs. Engaging legislators directly, educating them on lab operations and value, and leveraging data effectively will support efforts to preserve and enhance the lab industry’s role in healthcare.

Further Insights on Innovation

Innovation is essential in healthcare, and it takes many forms. Providers and patients depend on new diagnostic tests, procedures, medical devices, and healthcare services to more precisely treat common or exceptionally rare diseases. Innovation also improves processes, making them faster, less invasive, and more efficient. In today’s more distributed healthcare system, innovation is also required to make healthcare systems more connected, secure, and interoperable.

At XiFin, we recognize that healthcare providers are facing unprecedented challenges that are stifling their ability to innovate. Authored by XiFin CEO Lâle White, the new white paper, “Overcoming Impediments to Healthcare Innovation Requires Systemic Change,”  explores three critical forces hindering healthcare advancements: rising costs, regulatory burdens, and complex payor structures. Download here.


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DenialsPrior AuthorizationRevenue Cycle ManagementRegulatoryMedicareMedicare Advantage

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