A wave of consolidation is underway in healthcare as sweeping changes in the industry drive growth in merger and acquisition activity among hospitals and health systems nationwide. Widespread consolidation brings new economies of scale and changing dynamics with insurers and creates a business case for some growing systems and hospital networks to reorganize management of outsourced lab services. Bringing these services back 'in-house' is now more financially feasible as providers expand in size and scale, and it helps combat perverse incentives of overutilization that are inherent in many lab outsourcing arrangements currently in place.
| • Gains through control — Managing use, mix and pricing of lab services offers a means to enhance revenue and coordinate care, providing the building blocks for utilization management and risk-based reimbursement. • Contracting with insurers — Integrated systems provide the size needed as an incentive for insurers to contract directly. • Service to physicians — In-sourcing and integration of laboratory services results in improved information access for medical staff. Lab services represent the foundation of information for diagnosis and treatment. • Economies of scale — Integrated systems achieve critical mass with the potential to increase efficiencies in equipment, staff, supplies, IT and facilities. |
Folding lab services back into the clinical enterprise and integrating these services for optimal functioning makes sense on various other levels as well. Lab services are a critical component of the clinical networks that need to be established to seamlessly manage population health. There are also widespread changes to payment structures under health reform that have providers taking on greater accountability for managing costs and quality across the continuum of care. Integrated lab structures with tighter data links improve connectivity and information access for clinicians to aid in proper diagnosis and treatment of patients. They foster streamlined functionality within the lab setting and reduce duplication in data capture and testing. There is also a huge component of costs within labs that is manageable and can be reduced through consolidated structures focused on efficiency and quality.
Regional laboratory services integration
Academic medical centers are uniquely positioned to be leaders in lab transformation through "regional laboratory services integration" with affiliate hospitals and have an opportunity to achieve real cost savings and revenue growth in return. AMCs are the natural organizers of care within their markets given their broad set of established relationships with referring institutions, and integrating lab services with select hospital partners to evolve within the context of changing circumstances is consistent with that role. Many AMCs are already equipped with the right set of capabilities within their pathology departments and clinical lab professionals to function as a full-service, regional lab resource offering both routine and esoteric tests. They have the necessary expertise to identify significant trends and patterns in lab data that can be used to adjust clinical pathways, and their participation in research allows for the consideration of lab data in conjunction with other observations for better evaluation, monitoring and treatment of disease and ultimately improved patient care.
AMCs also face a growing strategic imperative to become part of more integrated care structures, and lab transformation helps move them closer to achieving that goal. It serves as a practical way for the AMC to begin to reconnect with their traditional referral base and align with other leading providers in the community to better coordinate the flow of information and care across settings, bring down the average cost per discharge and prepare for the shift to population health. Lab integration may also serve as a valuable prototype for subsequent integration projects if an AMC is looking to build bridges and transform into a fully integrated health system.
Cost savings and new revenue opportunities
While there are some challenges, as with any type of organizational change, the benefits of lab transformation typically far outweigh the risks. The cost savings from lab integration typically range from about 10 to 20 percent of total lab expenses, which can translate into millions of dollars in cost improvements for large academic providers at a time when other financial resources are increasingly constrained.
AMCs can apply a portion of the savings from lab integration to begin competing for outreach business and turn laboratory services into a revenue source. Most AMCs have multiple affiliations with community-based physicians and hospitals that they can leverage, along with their strong brands, to develop, implement and grow a successful outreach program. The challenge is achieving the necessary balance of quality, service and sales to become an effective competitor of large commercial labs. It often requires significant improvements in customer orientation and some capital investments in physician office connectivity, convenient draw stations and service support to successfully take them on. However, if effective, the AMC is typically well-positioned to achieve a prominent share of the outreach market and reduce its dependence on hospital-based revenues that continue to decline. An outreach program can also create a valuable connection between the AMC and the medical community at large.
Assessing lab transformation readiness
Determining whether laboratory transformation is a strategy that makes sense for your AMC requires a careful assessment of laboratory operations, performance and utilization within the organization, as well as a keen eye on current market dynamics, competitor initiatives and potential market changes that may impact your ability to compete for lab market share. Key questions to begin to assess your AMC's readiness for lab transformation include:
• Is there a sufficient number of labs related to my organization, whether through direct control or some other affiliation?
• Do I have qualified laboratory leadership in place able to think about lab services beyond the institution and more broadly into the marketplace?
• Does my AMC have an orientation that will support reconfiguration of lab operations as needed to drive the effective use of resources and bend the cost curve?
• Does my AMC have the required resources, entrepreneurial commitment and know-how to implement a comprehensive outreach strategy?
• What does the competitive landscape look like and how much of the physician outreach market is controlled by national laboratory companies?
An AMC embarking on lab transformation should involve key stakeholders to help overcome organizational politics and help secure broad buy-in to the final laboratory configuration. If significant lab improvement opportunities are uncovered through an assessment process, next steps would include detailed modeling, feasibility testing and implementation of the preferred arrangement.
When done right, successfully integrated regional lab affiliations share many of the characteristics summarized in Figure 1.0. While much attention is generally given to optimizing internal alignment and IT services/support, it is important to note that successful lab integration is often most dependent on how effectively participants instill a culture of 'systemness,' shared goals and organizational values, into the integrated operation.
More Articles on Academic Medical Centers:
HCA East Florida, Nova Southeastern University Pitch New Teaching Hospital
The "Curse" of Academic Medical Center, Community Hospital Mergers
How Ideas Become Innovations: Roundtable With Healthcare Innovation Leaders From UCLA, Ohio State