Overview
Most affordability efforts focus on high-cost care such as surgery, hospitalizations, and specialty pharmacy, but almost all of that care begins with a diagnostic test. In Avalon’s webinar, Dr. Varsha Chandramouli, Chief Medical Officer, drew on her experience as a family physician and health plan CMO to examine where diagnostic decisions help or hurt affordability across routine labs, radiology, genetic testing, and oncology. She also showed how plans can turn those insights into action.
Why Diagnostics Drive Affordability
U.S. healthcare spending reached about $5.7 trillion in 2025, and employers face an expected 9.5 percent cost increase in 2026. Roughly 70 percent of medical decisions rest on diagnostic results, yet diagnostics receive little scrutiny. For an ASO employer, lab and radiology cost only about $15 to $20 per member per month, so they rarely top the cost-containment agenda. Even so, about 30 percent of routine diagnostic tests are unnecessary, about one in three genetic tests is ordered in error, and the same test can vary up to five times in cost by site of service.
Dr. Chandramouli compared a diagnostic test to a stone dropped in a pond. Every dollar spent on low-value testing can drive two to six dollars of unnecessary downstream care. The effect runs both ways, since missed or delayed tests lead to later-stage diagnoses and worse outcomes. She identified four ways decisions go off track: unnecessary or duplicative testing, missed or delayed testing, poorly chosen or mismatched testing, and high-cost site of service.
Labs, Radiology, and Genetic Testing
In Avalon’s 2025 data, routine lab spend per member rose 3.7 percent while utilization rose only 0.5 percent, pointing to price, panel expansion, and site of service as the drivers. A comprehensive metabolic panel costs 6.8 times more in a hospital outpatient setting than at an independent lab, with no clear quality advantage. In one illustrative claim, a thyroid panel order expanded into seven CPT codes. A post-service, pre-payment edit allowed the two appropriate tests and denied five add-ons, making the claim about 80 percent lower with no prior authorization or delay.
About 8 percent of routine radiology claims fell outside established care standards. Because most of these studies cost under $500 and are appropriate, prior authorization is a poor fit. Three sample edits showed potential savings of 5.7 percent, or 75 cents per member per month.
Genetic spend per member rose 35 percent in 2025. With about 10 new tests entering the market daily and about 40,000 billed under a single unlisted code, claims often can’t show what was actually run. A composite lung cancer pathway showed how single-gene testing, unmatched results, and slow authorization can stretch time to treatment to 30 to 40 days.
Results
Avalon’s Lab Values Management program cut time to testing and guideline-concordant treatment in non-small cell lung cancer from 30 to 40 days to seven. Multi-biomarker testing saved about $125,000 per Stage II patient compared with single-biomarker testing. Across selected health plans, automated policy enforcement averted $133.4 million against $858.2 million in lab spend, about 15.5 percent. That included $63.1 million (9.3 percent) in routine test management and $70.3 million (about 39 percent) in genetic test management.
Turning Insight into Action
Dr. Chandramouli outlined a three-step approach, built on no prior authorization and no delay to testing or results:
- Identify: Start with a claims-based opportunity assessment by population, test category, provider, and site of service.
- Act: Apply more than 130 evidence-based policies, overseen by an independent Clinical Advisory Board and enforced through automated post-service, pre-payment edits.
- Measure: Track averted cost, behavior change, and member out-of-pocket costs, not just paid savings.
Healthcare doesn’t become more affordable by managing everything. It becomes more affordable by improving the decisions that drive everything, and those decisions begin with a diagnostic test.
