Sep 20, 2017 | Coding, Billing, and Collections, Laboratory Management and Operations, Laboratory News, Laboratory Operations, Laboratory Pathology, Managed Care Contracts & Payer Reimbursement, Management & Operations, News From Dark Daily
To offset the loss of revenue from the price cuts to Medicare Part B clinical laboratory tests, labs will need to aggressively—but wisely—slash costs to balance their budgets
Any day now, Medicare officials will announce the Medicare Part B Clinical Laboratory Fee Schedule (CLFS) for 2018. Both the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) have issued reports indicating that these fee cuts will total $400 million just during 2018, which Dark Daily reported on in July.
Many experienced industry executives expect this to be the single most financially disruptive event to hit the clinical laboratory profession in more than 20 years. This will not only have a substantial negative financial impact on all labs—large and small—but two sectors of the clinical lab industry are considered to be so financially vulnerable they could cease to exist.
At Greatest Risk of Financial Failure are Community Laboratories
The first sector is comprised of smaller community lab companies that operate in towns and rural areas. These labs are at the greatest risk because they are the primary providers of lab testing services to the nursing homes and skilled nursing facilities in their neighborhoods. And because they have a high proportion of Medicare Part B revenue.
Thus, the expected Medicare price cuts to the high-volume automated lab tests—such as chemistry panels and CBCs (complete blood count) that are the bread-and-butter tests for these labs—will swiftly move them from minimal profit margins to substantial losses. Since these labs have a cost-per-test that is significantly higher than the nation’s largest public lab companies, they will be unable to financially survive the 2018 Medicare fee cuts.
The second sector at risk is comprised of rural hospitals and modest-sized community hospitals. What officials at CMS and their consulting companies overlooked when they created the PAMA (Protecting Access to Medicare Act) private payer market price reporting rule is that these hospitals provide lab testing services to nursing homes and office-based physicians in their service areas.
Because of the low volumes of testing in these hospital labs, they also have a larger average cost-per-test than the big public labs. Thus, the 2018 cuts to Medicare Part B lab test prices will erode or erase any extra margin from this testing that now accrues to these hospitals.
Rural and Small Community Hospitals Rely on Lab Outreach Revenue
The financial disruption these Medicare lab test price cuts will cause to rural and community hospitals is a real thing. These hospitals rely on outreach lab test revenues to subsidize many other clinical services within the hospital. One rural hospital CEO confirmed the importance of lab outreach revenue to her organization. Michelle McEwen, FACHE, CEO of Speare Memorial Hospital in Plymouth, N.H., spoke to The Dark Report in 2012 about the financial disruption that was happening when a major health insurer excluded her hospital’s laboratory from its network.
Speare Memorial is a 25-bed critical access hospital in the central part of the state between the lakes region and the White Mountain National Forest. McEwen was blunt in her assessment of the importance of clinical laboratory outreach revenues to her hospital. “The funds generated by performing these [outreach] lab tests are used to support the cost of providing laboratory services to all patients 24/7, including stat labs for emergency patients and inpatients,” McEwen explained. “These funds also help support other services in the hospital where losses are typically incurred, such as the emergency room and obstetric programs.” (See “Critical Access Hospitals Losing Lab Test Work,” The Dark Report, April 2, 2012.)
For the second consecutive year, Lab Quality Confab (LQC) is offering an extended session on clinical laboratory accreditation and certification in New Orleans on October 24-25. CMS has indicated it will participate in this year’s session. It was an historic first for the clinical laboratory industry when last year’s Lab Quality Confab convened a panel that included experts in CLIA laboratory inspection and compliance from the four deeming organizations. From left to right: Moderator Nora L. Hess, MBA, MT(ASCP), PMP, Senior Consultant, Operations Management, Chi Solutions, Inc., Ann Arbor, Mich.; Kathy Nucifora, MPH, MT(ASCP), Director of Accreditation, COLA, Columbia, Md.; Stacy Olea, MBA, MT(ASCP), FACHE, Executive Director of Laboratory Accreditation Program, The Joint Commission, Oakbrook Terrace, Ill.; Randall Querry, Accreditation Manager, Clinical, American Association for Laboratory Accreditation (A2LA), Frederick, Md.; Robert L. Michel, Editor-in-Chief, The Dark Report, Spicewood, Texas; and Denise Driscoll, MS, MT(ASCP)SBB, Senior Director, Laboratory Accreditation and Regulatory Affairs, College of American Pathologists, Northfield, IL. (Photo by Linda Reineke of Riverview Photography. Copyright: The Dark Report.)
All Medical Laboratories Will Suffer Financial Pain from Medicare Price Cuts
But it is not just community lab companies and rural hospitals that are at risk of financial failure as the Medicare Part B cuts are implemented by CMS on Jan. 1, 2018. Any clinical laboratory serving Medicare patients will experience a meaningful drop in revenue. Many larger hospital and health system laboratories are recasting their financial projections for 2018 to identify how big a drop in revenue they will experience and what cost-cutting strategies will be needed to at least break even on their lab outreach business.
This explains why the first big trend of 2018 will be substantial revenue cuts from the Medicare program. It also explains why the second big trend of 2018 will be smart cost-cutting as labs attempt to balance their books and lower spending proportional to the reduced income they project.
Labs Have a Decade of Successful Cost-Cutting, More Cuts are Difficult
Aggressive cost-cutting, however, puts the nation’s medical laboratories at risk for a different reason. For the past decade, most well-run labs have already harvested the low-hanging fruit from obvious sources of cost reduction. They installed latest-generation automation. They re-engineered workflows using the techniques of Lean, Six Sigma, and process improvement.
During these same years, most medical laboratories also reduced technical staff and trimmed management ranks. That has created two new problems:
- First, there are not enough managers in many labs to both handle the daily flow of work while also tackling specific projects to cut costs and boost productivity. Basically, these labs are already at their management limit, with no excess capacity for their lab managers to initiate and implement cost-cutting projects.
- Second, technical staffs are already working at near peak capacity. Increased use of automation at these labs has reduced lab costs because labs were able to do the same volume of testing with fewer staff. However, the reduced staffs that oversee the lab automation are now working at their own peak capacity. Not only are they highly stressed from the daily routine, they also do not have spare time to devote to new projects designed to further cut costs.
Each Year Will Bring Additional Cuts to Medicare Part B Lab Prices
This is why all clinical laboratories in the United States will find it difficult to deal with the Medicare Part lab test fee cuts that will total $400 million during 2018. And what must be remembered is that, in 2019 and beyond, CMS officials will use the PAMA private payer market price reporting rule to make additional fee cuts. Over 10 years, CMS expects these cuts will reduce spending by $5.4 billion from the current spending level.
Taken collectively, all these factors indicate that many medical laboratories in the United States will not survive these Medicare fee cuts. The basic economics of operating a clinical laboratory say that less volume equals a higher average cost per test and higher volume equals a lower average cost per test.
Medical Labs with Highest Costs Most at Risk of Failure from Price Cuts
What this means in the marketplace is that labs with the highest average cost per test make the least profit margin on a fee-for-service payment. The opposite is true for labs with the lowest average cost per test. They will make a greater profit margin on that same fee-for-service payment.
Carry this fundamental economic principle of medical laboratory operations forward as Medicare Part B lab test fee cuts happen in 2018. Labs with the highest average cost per test will be first to go from a modest profit or break-even to a loss. As noted earlier, the clinical lab sectors that have the highest average cost per test are smaller community labs, along with rural and community hospitals. That is why they will be first to go out of business—whether by sale, bankruptcy, or by simply closing their doors.
Learning How to Cut Lab Costs While Protecting Quality
Every pathologist and lab administrator seeking the right strategies to further cut costs in their lab, while protecting quality and enhancing patient services, will want to consider sending a team from their laboratory to the 11th Annual Lab Quality Confab that takes place in New Orleans on October 24-25, 2018.
Anticipating the greater need for shrewd cost-cutting that also protects the quality of the lab’s testing services, this year’s Lab Quality Confab has lined up more than 51 speakers and 39 sessions. Of particular interest are these extended workshops that come with certifications:
- Lean Six Sigma Yellow Belt Training and Certification, led by Maureen Harte, MT(ASCP), LSSBB, Master Black Belt, of HartePro Consulting.
- Mastering Strategic Leadership in Pursuit of Clinical Lab 2.0, led by Karan Arora, Senior Global Marketing Director, Digital Health, Abbott Laboratories.
- Getting More from Lean for Lab Leaders: Henry Ford Production System Lean Gold Certification, led by Richard J. Zarbo, MD, DMD, System Chairman, Pathology and Laboratory Medicine at Henry Ford Hospital.
Sessions will address proven ways to:
- Use real-time analytics to improve workflow in molecular laboratories;
- Introduce automation in microbiology; as well as
- New breakthroughs in core lab automation; and
- Success stories in reducing lab test utilization.
Lab Quality Confab is recognized for its use of lab case studies—taught by the nation’s early adopter lab organizations. Certification classes are available to gain proficiency in the use of Lean methods and Six Sigma tools, such as:
Given the strong interest in smart ways to cut costs, boost productivity, and balance revenue-versus-cost, registrations for this year’s Lab Quality Confab is running at a record pace. The full agenda can be viewed at this link (or copy this URL and paste into your browser: http://www.labqualityconfab.com/agenda).
Of special interest to lab leaders preparing to stay ahead of the financial impact of the Medicare Part B fee cuts, Lab Quality Confab offers deep discounts for four or more attendees from the same lab organization. This allows your lab’s most effective cost-cutters to see, hear, and learn together, so that when they return they can get a flying start helping you align your lab’s costs to the expected declines in revenue that will happen on Jan. 1, 2018.
Reserve your place today and register now http://www.labqualityconfab.com/register.
—Robert L. Michel, Editor-in-Chief
Related Information:
Information, Agenda, and to Register for Lab Quality Confab Taking Place on October 24-25, 2017
In 2017, to Offset Declining Reimbursement and Shrinking Budgets, Savvy Clinical Laboratories Are Using LEAN to Improve Service and Intelligently Cut Costs
Lean-Six Sigma Medical Laboratories Begin to Innovate in Ways That Add Value to Physicians, Payers, and Patients
An Interview with Robert Michel, Editor-in-Chief of The Dark Report
At Lab Quality Confab in New Orleans this Week, Speakers Addressed Major Issues Faced by Medical Laboratories, including the Need for Labs to Deliver More Diagnostic Value to Physicians
Jul 26, 2017 | Compliance, Legal, and Malpractice, Laboratory Management and Operations, Laboratory News, Laboratory Operations, Laboratory Pathology
Decline in hospital-acquired conditions (HACs) overall since 2010 attributed to increased attention to safety protocols and practices by hospital staff in cooperation with clinical laboratory services
It’s now been almost nine years since the Medicare Program stopped paying hospitals and other providers for certain hospital-acquired conditions (HACs). Included in this list are hospital-acquired infections (HAIs). The goal is to substantially reduce the number of HACs and HAIs, thus improving patient outcomes, while substantially reducing the healthcare costs associated with these conditions.
So, almost nine years into these programs, has there been progress on these goals? This is a question of key interest to Medical laboratories and pathology groups because they have a front-line role in working with clinicians to diagnose and treat HAIs, while also looking to identify the transmission of HAIs within the hospital.
A recent report by the Agency for Healthcare Research and Quality (AHRQ), a division of the US Department of Health and Human Service (HHS), indicates that there has been progress in the goal of reducing HACs. The AHRQ report noted a 21% decline in HACs between 2010 and 2015. Data collected during that time indicates a reduction of more than 3.1 million HACs and nearly 125,000 patient deaths due to HACs.
In 2015 alone, nearly one million fewer HAC incidents occurred. The reduction saved “approximately $28 billion in healthcare costs,” an outcome which, the AHRQ report notes, is the result of increased attention to safety protocols in hospitals and a “period of concerted effort by hospitals throughout the country to reduce adverse events.”
Clinical Pathologists/Laboratories Play Key Role in HAI Prevention
Though many reported incidents are associated with adverse drug events, HAIs have been significantly reduced in recent years due to focused efforts on infection prevention. The report notes that clinical pathologists have become vital players in infection prevention programs, and that increased coordination between hospital medical laboratories and clinicians played a crucial role in the reduction.
Eileen O’Rourke is an Infection Preventionist at the Lankenau Medical Center in Philadelphia. And she has served as a leader and consultant for hospital-based infection prevention programs in Pennsylvania since 1984. In an article on the Wolters Kluwer Pharmacy OneSource blog, O’Rourke noted that successful infection prevention and control requires development of “a highly visible and administratively supported infection prevention and control program with qualified and trained personnel.” Clinical pathologists are part of that support team, providing surveillance, testing, and interpretation of data essential for identifying epidemiological origins of infection and pathogen distribution. And the vital services that clinical laboratories provide to reduce HAIs center on surveillance, prevention, and control.
The chart above was calculated on US Dollars in 2012. Since then, thanks to contributions by medical laboratories and pathologists in collaboration with hospitals, those costs have decreased significantly. (Image copyright: MLive.com.)
In an article for Lab Testing Matters, John Daly MD, Chief Medical Officer at the Commission on Office Laboratory Accreditation, and former Director of Clinical Laboratories for the Duke University Health System, highlights the importance of surveillance. He states that it is “an essential element of an infection control program” providing “data to identify infected patients and determine the site of infection” as well as “factors that contributed to the infection.” Medical laboratories must, Daly stresses, provide “easy access to high-quality and timely data and give guidance and support on how to use its resources for epidemiologic purposes.”
Daly argues that medical laboratories function as liaisons to clinical services, working to “improve the quality of specimens sent to the laboratory and promoting appropriate use of cultures and other laboratory tests.” The laboratory should, according to Daly, be involved in all aspects of the infection control programs. This ensures:
- Proper specimen collection;
- Accurate and rapid testing; and
- Accurate reporting of laboratory data.
Laboratory Data Provide ‘Early Warning’ for HAI Surveillance Systems
Robert A. Weinstein, MD, wrote in his 1978 article, “The Role of the Microbiology Laboratory in Surveillance and Control of Nosocomial Infections,” that medical laboratories and pathologists are central to prevention and control of HAIs. Laboratory records, Weinstein remarked, serve as important data sources that can identify early spread of infection, thus becoming an “early warning system” for a potential outbreak of infections. The sampling that laboratories perform identifies not only the strain of infection, but the method by which infection is spread, and the best treatment options. Nearly 40 years later his statements ring truer than ever, as anatomic pathology laboratory data continues to reveal patterns of infection faster and more precisely than ever before.
Sarah Mahoney, PhD, is a research scientist at Navitor Pharmaceuticals in Cambridge, Mass. In an article published in the American Journal of Clinical Pathology, she states that in surveilling patterns of infection, pathologists also decipher the source of infection. Mahoney wrote that it is “necessary to identify the causative organism” for surveillance and management control of HAIs. She also noted that pathologists must strive to discriminate between “hospital- and community-acquired infection” in order to provide clinicians with guidance for treatment, and to map “infection transmission within a clinical setting.”
Hospitals Rely on Medical Laboratories and Pathologists to Help Reduce HAIs
The concerted effort to reduce HACs and HAIs was inspired by incentives put forth by the US government. In 2008-2009, the Centers for Medicare and Medicaid Services (CMS) ceased paying for hospital-acquired conditions, including HAIs. Since that time, hospitals have worked to prevent and better manage HAIs. In the years since those incentives went into effect, hospitals have increasingly relied on medical laboratories and pathologists to provide necessary testing to prevent HAIs.
The CDC’s Antimicrobial Stewardship Programs create a further need for lab professionals to be involved in the identification, prevention, and treatment of HAIs. The core elements of the program state that the role of diagnostic laboratory testing—especially rapid diagnostic tests—is imperative in providing the necessary data needed to combat HAIs. The pressure is on for hospitals to reduce HAIs further to save lives and reduce costs. Thus, there is increased pressure on medical laboratories as well.
In an article in the College of American Pathologists’ online journal Cap Today,
Larry Massie, MD, Professor of Pathology at the University of New Mexico, and Chair of Pathology and Laboratory Medicine for the New Mexico VA Health Care System in Albuquerque, states that turn-around time is crucial for HAIs, but that laboratories often have difficulty keeping up with large volumes of samples. Massie suggests the use of new technologies could speed up turnaround time, particular for large healthcare providers.
The fight to reduce HAIs and HACs is showing significant progress, and clinical laboratories, working in tandem with clinicians and prevention programs, are a fundamental part of the success of HAI reduction. Clinical pathologists and laboratories often are the front line in prevention and management of HAIs, and the work they do in identifying infections is essential in the assessment and control of those infections.
— Amanda Warren
Related Information:
National Scorecard on Rates of Hospital-Acquired Conditions 2010 to 2015: Interim Data from National Efforts to Make Health Care Safer
How Hospitals Can Reduce Hospital-Acquired Infections
HAI Data and Statistics
Hospital Acquired Infection: Molecular Study and Infection Control Guidelines
Rapid Sequencing and Characterization of Pathogens in Hospital-Acquired Infections
The Role of the Microbiology Laboratory in Surveillance and Control of Nosocomial Infections
Core Elements of Hospital Antibiotic Stewardship Program
Pressure’s on to Halt Nosocomial Infections
Hospital Acquired Infections
Surveillance of Hospital-acquired Infections: A Model for Settings with Resource Constraints
The Laboratory and Infection Control
Role of the Microbiologist in Infection Control and Hospital Epidemiology
Study Finds Occupying Hospital Bed Previously Used by Patient Receiving Antibiotics Increases Odds of Developing C.diff Infection
Oct 21, 2016 | Coding, Billing, and Collections, Compliance, Legal, and Malpractice, Laboratory Instruments & Laboratory Equipment, Laboratory Management and Operations, Laboratory News, Laboratory Operations, Laboratory Pathology, Management & Operations
With record attendance of 300 Lean-Six Sigma experts, this week’s conference was a high-energy event that provided medical lab professionals and pathologists with case studies of how to improve lab operations and contribute to better patient care
DATELINE: NEW ORLEANS—Yesterday was the conclusion of the 10th Annual Lab Quality Confab, which showcased innovators in clinical laboratories and anatomic pathology groups. Attendees traveled here from six different countries.
One new trend that emerged from this year’s presentations is that progressive medical labs are beginning to direct their Lean-Six Sigma, and process improvement efforts toward projects designed to add value to client physicians and hospitals. These projects include added-value features of benefit to patients and health insurers.
How Clinical Laboratories Are Succeeding with Lean Projects
This is a shift from prior years. At earlier Lab Quality Confabs, most speakers were describing how their labs were using Lean and quality management methods to improve workflow within their labs, increase the productivity of automation and staff, reduce errors, and cut costs. This was an “inside-the-lab” mindset.
That was not the case here in New Orleans this week. Yes, there were plenty of sessions where workflow redesign, productivity improvement, and cost reduction were discussed. But, at the same time, a significant number of labs doing presentations were describing projects that took the lab team outside of their laboratory to engage with physicians and nurses specifically to help them use clinical laboratory test data in ways that would improve patient care, reduce length-of-stay for hospital patients, and trigger worthwhile reductions of the cost of care. This is an “outside-the-lab” mindset. (more…)
Sep 21, 2016 | Compliance, Legal, and Malpractice, Laboratory Instruments & Laboratory Equipment, Laboratory Management and Operations, Laboratory News, Laboratory Operations, Laboratory Pathology, Laboratory Testing, Management & Operations
Nation’s most experienced lab operations managers, cost-cutters, and Lean experts will gather to share successes and proven ideas at Lab Quality Confab on October 18-19, 2016
Most hospitals and health systems are in the first stages of developing their budgets for 2017. Clinical laboratory administrators and pathologists at these institutions report three common factors are driving the next budget cycle: falling reimbursement, flat or declining inpatient admissions, and directives to cut their lab budgets.
“At our health system, the challenge is a bit different,” said one lab administrator at a large Midwest hospital. “Inpatient volumes are increasing, but we get less money from health insurers per admission. For that reason, our budget planning requirement is to accept a smaller budget than last year, while planning to handle more specimen volume in 2017, compared to this year.” (more…)
