Blue Cross: Lab and radiology drive high outpatient costs; repricing model could cut $99 million for six hospitals

James Morrow (transcript also lists James Moore), chief data officer, Blue Cross Blue Shield of Vermont, told the Senate Health & Welfare Committee that Blue Health Intelligence analytics show Vermont’s plan-level costs are substantially higher than regional and national averages.

“Blue Cross Blue Shield comes in at $10.17 per member per month,” Morrow said, while New England’s age-and-gender–adjusted average rises to about $7.62 and the national average is roughly $6.65. He said those demographic adjustments do not fully explain the gap.

Morrow and colleagues walked the committee through a service-category breakdown that identifies outpatient hospital services as the largest outlier. “Outpatient is about double the regional average,” Morrow said, citing roughly $4.32 per member per month in Vermont versus about $2.10 regionally. Within outpatient, he singled out medications, radiology and lab services as the highest-cost, fastest-growing components.

At the hospital- and code-level, Blue Cross reported both higher utilization and higher unit cost. Using a pathology example, the company showed plan costs of $3.03 per member per month versus a regional $1.11, with utilization about 88 services per 1,000 members versus 45 in the region and a per-service unit cost of about $415 vs. $295.

Blue Cross also presented consultant work that aligns commercial lab and radiology claims with Medicare fee schedules. For six larger prospective-payment hospitals the lab percentages ranged from about 358% to 941% of Medicare reimbursement; radiology percentages for hospitals in that same group ranged from roughly 755% up to about 1,292% of Medicare in one example. Morrow said a reasonable benchmark used elsewhere for lab is closer to 90–100% of Medicare, but that lab reimbursement practices make direct comparisons complex.

Blue Cross modeled the effect of two adjustments: removing the higher-priced outpatient infusion drugs addressed by Act 55 and repricing lab and radiology claims to more conservative targets (examples used in the analysis: lab at about 300% of Medicare; radiology at about 500% of Medicare). For the six hospitals in the sample, Blue Cross reported outpatient claims falling from about $488,000,000 to $389,000,000 after those adjustments—a reduction of approximately $99,000,000, or about 20% of outpatient spend for that cohort.

Committee members repeatedly pressed on how quickly such changes could be implemented and whether rapid reductions would destabilize hospital budgets. Blue Cross staff and their consultant said they are cautious about immediate, deep cuts; one presenter said moving lab to 90–100% of Medicare or radiology to 225–250% in a single year could threaten stability and instead supported phased targets (the analysis used 300% and 500% as nearer-term, more stable targets).

Members also asked how broadly the dataset applies. Morrow said the analysis includes all Blue Cross covered lives in Vermont—qualified health plans, the federal employee program, and members from other Blue plans who received services in Vermont. Critical access hospitals were included in the overall assessment and Blue Cross said a separate, more detailed critical-access analysis is in progress.

On quality and appropriateness, committee members asked whether Blue Cross could share clinical-outcomes or appropriateness measures. Blue Cross said the Blue Health Intelligence platform can rate quality and appropriateness and that they have not yet operationalized the data for program use, but they are willing to discuss sharing metrics and to support state quality measurement work.

The committee concluded the presentation by thanking Blue Cross and noting the data will inform upcoming work on S.190 and related primary care and pricing legislation. Blue Cross said it plans to begin contracting discussions with hospitals in about three weeks and will provide follow-up analysis for the committee.