Pathology vs. Economics: Hard Lessons from the Field

By Dan A. Milner - April 04, 2022

Pathology vs. Economics: Hard Lessons from the Field

Cancer cost $80.2 billion in the United States in 2015, and yet cancer mortality in the U.S. averages 35 percent per year. The global market for cancer therapeutics in 2017 was $121 billion, growing at a rate of 7.4 percent per year. Cancer mortality in Africa is 80 percent, with the root cause for mortality being access. That can mean access to the health care system, access to specific treatment or access to supportive services. Providing a rapid, accurate diagnosis with a short turnaround time (less than 72 hours) is part of an optimized cancer continuum that includes early detection, surgery and chemotherapy. An optimized cancer continuum in Africa would mean patients, providers and insurers create new market opportunities for the cancer supply systems and, if done with equity, improve economic markets overall in African countries.

The American Society for Clinical Pathology’s (ASCP’s) Center for Global Health (CGH) is heavily invested in supporting the development of cancer programs in low- and middle-income countries (LMICs) supported by our mission of “100 percent access for all patients everywhere.” Our Partners for Cancer Diagnosis and Treatment in Africa program, and our work with the President’s Emergency Fund for AIDS Relief (PEPFAR) has helped us make strides in these countries, despite the challenges of engaging primarily with governments and government hospitals in LMICs.

While the LMICs in which we work are motivated to improve cancer care in their countries, there are frequently learning curves. These are most often seen in attempting to implement new processes or training a sustainable workforce, but one learning curve that is faced regularly is that of the economics of pathology.

And they’re not always easy curves to navigate.

Incentivizing public laboratories, determining the right price in order to sustain service or helping laboratories understand how markets are determined—these are challenging economic principles, but they are essential to developing better cancer care in LMICs.

The Dos and Don’ts of Incentives
In the world of diagnostic pathology, there have been many iterations of payer systems, but a common concept is that a pathologist gets paid in an incremental way for every case they sign out. This then creates an incentive system of “the more you sign out, the more you make.” Integral to this system is the efficiency of the machinery and processes used to produce glass slides from a human tissue biopsy; it may cost $50,000 to create 2,000 glass slides, but it will only cost $55,000 to produce 10,000 glass slides. In other words, there is a great economy of scale once the system is in place. Thus, another natural incentive of the system is “the more cases processed, the less it costs per case,” and thus, more revenue received for the same work.

In LMICs, the collective “we” (which includes academic institutions, WHO, NGOs, pharma, PEPFAR and a few others) has pressed upon Africa rapid, accurate, point of care testing for the past several decades, largely for infectious disease. And it’s worked, saving an enormous number of lives.

But cancer doesn’t really work that way as we need this complex continuum to include a pathology system for the actionable diagnosis—important, because there isn’t an alternative. Government hospital pathologists (and staff) in these LMICs are paid a set salary—often abysmally low—regardless of how many cases they process or sign out. There is typically no bonus if they sign out more. There is no benefit to processing more cases. And in fact, there is a deficit because they will run out of supplies, have to wait for more from central supply and potentially get in trouble with the government for “poor management.” There is no revenue increase from more case production.

Meanwhile, a private practice laboratory in the same town makes money because people are willing to pay them for any diagnosis they will make. It has been shown that quality in private labs is not necessarily superior to public labs. But the incentive is there for the private labs—people will pay for an answer even if it’s wrong. Thus, we face a conundrum: How do we incentivize the public cancer diagnostic units in such a way that more volume moves through the labs faster and is sustainable? Some solutions may include restructuring payments, quality metrics-based bonuses or reducing costs through technology innovation.

One such advanced solution in this arena would be the advent of point of care tests that allow a needle biopsy sample to be placed directly in a diagnostic kit, with the result of needed treatments for the patient. It sounds futuristic, but it does exist for breast cancer and chronic myelogenous leukemia, and it can avoid the need for histology altogether. But as this disruptive innovation (or creative destruction) could put pathologists out of a job, it probably wouldn’t have the desired incentivizing effect.

Trying to find novel incentives, however, runs the risk of creating perverse incentives. For example, for the prevention of malaria, there are a few options in the current toolkit of governments and non-NGOs, including insecticide impregnated bed nets, intermittent prophylactic therapy, vaccines (trials), indoor residual spraying and rapid diagnosis and treatment. From the bed net programs, an interesting lesson was learned early on when these devices, which not only protect the family that sleeps underneath the net, but also the families in the neighboring houses due to a peripheral kill effect, were provided to families near water which was a food source. Fathers would use the free bed nets to create fishing nets (as the nearly indestructible nets worked better than cotton ones) and gather fish from the lake rather than use them to protect their children from malaria. The outcome was twofold: There were more fish and less mouths, as mortality from malaria is highest in children, although the latter aspect of this was certainly not intentional or intended. Subsequently, to prevent this incentive from being a good intention gone bad, implemented as part of the bed net programs was the monitoring and evaluation of any bed net distribution program, including inspecting the nets in place.

Another example of a prevented perverse incentive was in a research protocol that aimed to place rapid diagnostic tests (RDTs) for malaria along with the treatment for malaria into the hands of small shop owners in rural villages. These shop owners would be able to sell the test (for a small fee), read the test for the patient and then sell the patient the drug (for another small fee). It’s easy to see where the perverse incentive could have come in, with the potential for dishonest shop owners claiming a patient had a positive test result, and consequently needing to buy a certain drug, when in reality the test was negative. It was noted in the ethical review that there should be a careful log of positive tests and ACT stocks maintained so that if any drugs were missing without a positive test, the shop owners paid a fee. This disincentivized them to double sell in the setting of a negative test.

Telepathology can improve the output of the laboratory by helping the pathologists get through their caseloads quickly and accurately.

Getting the Price Right
One of the recent challenges ASCP has faced in working with countries to develop better cancer care programs has revolved around simple pricing and a lack of understanding across the health care infrastructure of the fixed costs and marginal costs associated with taking a piece of human tissue and turning it into a diagnostic glass slide. ASCP performed a business case model exercise for five different countries, obtaining their actual data and current pricing and projecting where they need to be to add on additional services that are crucial to proper cancer care.

As an example, one government hospital laboratory charges a flat fee (around US$25) for histology services to the mid-tier patient (as opposed to free care patients, or top tier patients, who may be charged less or more). The average cost per patient to produce the H&E slides is US$5. On average, that is a reasonable margin, but a given patient may have only one H&E slide or they may have 20 H&E slides (keeping in mind the economy of scale after the first slide). Most cases are small biopsies of only one or two slides, but the business model provided suggests this lab only need to increase their total charge to US$32 per patient (for every patient) which would result in sufficient revenue to cover the immunohistochemistry services, which is only needed for 30 percent of cases.

Another laboratory in a different country with double the population, charges around US$1.75 per patient for the mid-tier patients—a price set over a decade ago. This current fee doesn’t even cover the basic services provided, but prices were set centrally by the hospital without any insight into the market. Thus, the solution for this laboratory is to advocate for the hospital to increase the overall charge to a modern rate which will cover current services as well as the new service.

For both of these hospitals as well as the other sites, ASCP also suggested negotiating directly with the insurance companies for increased reimbursement for all cases at a rate that would cover the new service but distribute the cost across all patients. Additional approaches can include seeking grant funding to supplement the laboratories’ budgets as well as seeking private laboratory referrals to provide immunohistochemistry services for a broader population at a fee (where revenue is already being collected). However, because all of these sites are charging very low fees relative to the U.S., the real solution must include increased volumes of cases.

A second challenge ASCP has faced in these activities is resistance to economies of scale and scope. As part of histology, a standard tissue processor can hold approximately 200 cassettes (each containing tissue from a single patient), which means that the daily output of the machine is around 400 blocks.

Typically, these processors can run at least twice in a 24-hour period. If you run the processor with one tissue block in it, the cost per sample is total cost divided by one. That’s clearly a bad situation. If you run the processor completely full, the cost per sample is fixed cost plus marginal cost (each additional cassette is pennies) divided by 200. That’s clearly the best situation. However, the vast majority of the laboratories with which ASCP has engaged sign out about 10 to 30 cases per day which represents only 5 percent to 15 percent efficiency of the system. The goal should be to increase the input, i.e., the number of cases received from the clinicians, to improve this economy of scale. One barrier is a current assumption that 10 to 30 cases is a “heavy workload.” A typical pathologist in the U.S. can sign out 50 to 100 cases per day (depending on complexity) and most labs have multiple pathologists. Many of our African partner labs only have one or two pathologists. Telepathology, as an intervention, can improve the output of the laboratory by helping the one or two pathologists get through their caseloads quickly and accurately, resulting in higher throughput for the lab.

In addition, for routine histology, unstained slides are produced before they are stained for the routine stains. For immunohistochemistry, the exact same unstained slides are used for this new test. Thus, in a functional laboratory, there is economy of scope by adding the new test to the same laboratory because 50 percent of the process is already in place. Some laboratories, however, have suggested that the new service be placed in a secondary location away from the main laboratory, for political and financial reasons which ultimate increases the fixed costs (duplication of machinery) and lowers the quality of the product (inexperience with process) while losing out on the economy of scope. Advocating for centralized laboratories with concentrated expertise is one approach to recapture this economy of scope.

Understanding the Market
On a recent visit to a new site, an interesting situation about market makers and the pathology market came to light. Currently, there is a pathology laboratory (which functions well but not optimally—bringing it up to optimal performance is what ASCP will work on) but no oncologist in country to act on the cancer diagnosis. To date, there is no private practice pathology laboratory in the country, unlike other countries in which ASCP works where there are numerous private versions of the public labs ASCP assists.

Why? Because as any economist would point out, without an oncologist to provide treatment services, there is simply no market for pathology services. This particular country is in close proximity to another country with many public and private cancer diagnosis capabilities and treatments—individuals from this smaller country with money go to the other country for established care.

We shared our prediction with the in-country collaborating team that within a few months to a year of the oncologist being available for treatment services, a private laboratory will enter the new pathology services market. This market is essentially created by the arrival of the oncologist. Although we can say we are “predicting” this, it is actually based on the numerous case studies and anecdotal histories of the other sites where ASCP has worked which show this pattern.

In a fascinating twist, another country in which ASCP works had a single laboratory a decade ago. It was a private laboratory and provided diagnoses at a relatively high cost. This laboratory complained recently about the “unfairness” that another private lab has opened. The new lab also charges to make a profit, but provides a faster service and more accurate diagnoses than the old lab.

That’s not unfair—that’s simply economics.

ASCP is now consulting with the original lab to help them improve on their services and learn to invest in themselves to improve their margins.

Assisting countries in developing better cancer programs comes with a host of known challenges. But so often overlooked are those challenges that revolve around the financial side of improving cancer diagnoses—essential for effective treatments and better care. By helping the countries we work with understand these issues, we set everyone up for success.

Dan A. Milner

Chief Medical Officer for ASCP