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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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Clinical Lab 2.0 Advances as Project Santa Fe Foundation Secures Nonprofit Status, Prepares to Share Case Studies of Medical Laboratories Getting Paid for Adding Value

Clinical laboratory leaders interested in positioning their labs to be paid for added-value services will get knowledge, insights, and more at upcoming third annual Clinical Lab 2.0 Workshop in November

It’s a critical time for medical laboratories. Healthcare is transitioning from a fee-for-service payment system to new value-based payment models, creating disruption and instability in the clinical lab test market. In addition, payers are cutting reimbursement for many lab tests.

These are among the market factors leading some pathologists and clinical lab leaders to seek new or alternative sources of revenue to keep the lights on and the machines running in their laboratories. Some might say, it’s a dark time for the lab industry.

However, in an exclusive interview with Dark Daily, Khosrow Shotorbani, President and Executive Director of the Project Santa Fe Foundation (PSFF) and founder of the Clinical 2.0 movement, said clinical laboratories should not fear the future. 

“This is not the time to be shy or timid,” he declared. “The quantitative value of medical laboratory domain is significant and will be lost if not exploited or leveraged.”

Shotorbani has reason to be positive. In recent years the Project Santa Fe Foundation (PSFF) has emerged to advocate for, and teach, the Clinical Lab 2.0 model. Clinical Lab 2.0 is an approach which focuses on longitudinal clinical laboratory data to augment population health in new payment arrangements.

Earlier this year, PSFF filed for 501(c) status, according to a news release. It is now positioned as a nonprofit organization, guided by a board of directors whose mission is “to create a disruptive value paradigm and alternative payment model that defines placement of diagnostic services in healthcare.”

Progressing Toward Clinical Lab 2.0

At the 24th Annual Executive War College on Lab and Pathology Management held in New Orleans last May, the nation’s first ever Clinical Lab 2.0 “Shark Tank” competition was won by Aspenti Health, a full-service diagnostic laboratory specializing in toxicology screening.

“This project, as well as all of the other cases that were presented, were quite strong and all were aligned with the mission of the Clinical Lab 2.0 movement,” said Shotorbani, in a news release. “This movement transforms the analytic results from a laboratory into actionable intelligence at the patient visit in partnership with front-liners and clinicians—allowing for identification of patient risks—and arming providers with insights to guide therapeutic interventions.

“Further, it reduces the administrative burden on providers by collecting SDH [social determinants of health] predictors in advance and tying them to outcomes of interest,” he continued. “By bringing SDH predictors to the office visit, it enables providers to engage in SDH without relying on their own data collection—a current care gap in many practices. The lab becomes a catalyst helping to manage the population we serve.”

Aspenti Health’s Shark Tank entry, “Integration of the Clinical Laboratory and Social Determinants of Health in the Management of Substance Use,” focused on the social factors tied to the co-use of opioids and benzodiazepines, a combination that puts patients at higher risk of drug-related overdose or death.

The project revealed that the top-two predictors of co-use were the prescribing provider practice and the patient’s age.

“They did an interesting thing—what clinical laboratories alone cannot do—the predictive value of lab test data mapped by zip code for patients admitted in partnership with social determinants of health. This helps to create delivery models to potentially help prevent opioid overdose,” said Shotorbani, who sees economic implications for chronic conditions.

“If clinical laboratories have that ability to do that in acute conditions such as opioid overdose, what is our opportunity to use lab test data in chronic conditions, such as diabetes? The cost of healthcare is in chronic conditions, and that is where clinical lab data has an essential role—to support early detection and early prevention,” he added.

“This is often described as the transition from volume to value because this trend will fundamentally change how all clinical laboratories and anatomic pathology groups are paid,” said Khosrow Shotorbani (above), MBA, MT(ASCP), Executive Director of the Project Santa Fe Foundation (PSFF), during his presentation at the 22nd annual Executive War College in New Orleans. “This shift from volume to value also will create new winners and losers in the clinical lab industry,” he declared. “Not every lab organization will take the timely action required to introduce the value-based laboratory testing services that hospitals, physicians, and payers will need. (Photo copyright: Albuquerque Business First.)

Clinical Laboratory Data is Health Business Data

One clinical laboratory working toward that opportunity is TriCore Reference Laboratories in Albuquerque, N.M. It recently launched Diagnostic Optimization with the goal of improving the health of their communities.

“TriCore turned to this business model,” Shotorbani explained. “It is actively pursuing the strategy of intervention, prevention, and cost avoidance. TriCore is in conversation with health plans on how its lab test data and other data sets can be combined and analyzed to risk-stratify a population and to identify care gaps and assist in closing gaps.

“Further, TriCore is identifying high-risk patients early before they are admitted to hospitals and ERs—the whole notion of facilitating intervention between the healthcare provider and the potential person who may get sick,” he added. “These are no longer theoretical goals. They are realizations. Now the challenge is for Project Santa Fe to help other lab organizations develop similar value-added collaborations in their communities.”

Renee Ennis, TriCore’s Chief Financial Officer, told American Healthcare Leader, “Women go in (to an ER) for some condition, and the lab finds out they are pregnant before anyone else,” she said, adding that TriCore reaches out to insurers who can offer care coordinators for prenatal services.

“There is definitely a movement within the industry in this direction [of Clinical Lab 2.0],” she added. “But others might not be moving as quickly as we are. As a leader in this transition, I think a lot of eyes are on what we are doing and how we are doing it.”

Why Don’t More Lab Leaders Move Their Labs to Clinical Lab 2.0?

So, what holds labs back from pursing Clinical Lab 2.0? Shotorbani pointed to a couple of possibilities:

  • A lab’s traditional focus on volume while not developing partnerships (such as with pharmacy colleagues) inside the organization; and
  • Limited longitudinal data due to a provider’s sale of lab outreach services or outsourcing the lab.

“The whole notion of Clinical Lab 2.0 is basically connecting the longitudinal data—the Holy Grail of lab medicine. That is the business model. Without the longitudinal view, the ability to become a Clinical Lab 2.0 is extremely limited,” added Shotorbani.

New Clinical Lab 2.0 Workshop Focuses on Critical ‘Pillars’

Project Santa Fe Foundation will host the Third Annual Clinical Lab. 2.0 Workshop in Chicago on November 3-5. New this year are sessions aligned with Clinical Lab 2.0 “pillars” of leadership, standards, and evidence. The conference will feature panels addressing:

Click here to register online for this informative workshop, or place this URL in your browser https://dark.regfox.com/clinical-lab-20-workshop-by-project-santa-fe-foundation.

—Donna Marie Pocius

Related Information:

Project Santa Fe Foundation Files for 501( c) Status, Expands Board of Directors

Aspenti Health Wins Clinical Lab 2.0 Innovation Award Demonstrating the Clinical Laboratory as a First Responder to the Opioid Crisis

Renee Ennis Wants Lab to A Have a Seat at the Table

Aspenti Health Takes Home Grand Prize in Nation’s First Clinical Lab 2.0 Shark Tank Competition Showcasing Added Value, Clinical Success Stories

CMS Seeks ‘New Direction’ for its Innovation Center as the Agency Evaluates Current Value-Based Payment Models for Medicare Services, including Medical Laboratory Testing

Federal agency receives input on eight focus areas as it looks for ways to enable providers ‘to design and offer new approaches to delivering care’

Medical laboratories and anatomic pathology groups preparing for the transition from fee-for-service healthcare will want to keep a close eye on the Centers for Medicare and Medicaid Services (CMS). The federal agency’s administrator plans to set a “new direction” for CMS as it shifts to value-based reimbursement models for Medicare services that could impact clinical laboratory revenues.

In an informal Request for Information (RFI), the Center for Medicare and Medicaid Innovation (CMMI) sought feedback on a “new direction to promote patient-centered care and test market-driven reforms that empower beneficiaries as consumers, provide price transparency, increase choices and competition to drive quality, reduce costs, and improve outcomes.”

CMS to ‘Move Away’ from Engineering Healthcare ‘From Afar’

The agency requested input on eight focus areas:

1. Increased participation in Advanced Alternative Payment Models (APMs);

2. Consumer-directed care and market-based innovation models;

3. Physician specialty models;

4. Prescription drug models;

5. Medicare Advantage innovation models;

6. State-based and local innovation;

7. Mental and behavioral health models; and,

8. Program integrity.

Comments from healthcare providers, clinicians, states, payers, and stakeholders were accepted through November 20, 2017.

In a Wall Street Journal (WSJ) op-ed, CMS Administrator Seema Verma explained the agency’s process moving forward. “We will move away from the assumption that Washington can engineer a more efficient healthcare system from afar—that we should specify the processes healthcare providers are required to follow,” she wrote.

CMS Administrator Seema Verma (above) plans to lead the Center for Medicare and Medicaid Innovation “in a new direction” and may be signaling a willingness to give providers more flexibility with value-based care payment models for Medicare services. (Photo copyright: Healthcare Dive.)

The RFI states the new model design will follow six guiding principles:

1. Choice and competition in the market;

2. Provider choice and incentives;

3. Patient-centered care;

4. Benefit design and price transparency;

5. Transparent model design and evaluation; and,

6. Small scale testing.

Providers Need Freedom to Design New Approaches to Healthcare

Verma said CMS plans to review all Innovation Center models to determine “what is working and should continue, and what isn’t and shouldn’t.” She voiced concern that the complexity of some of the current models may have encouraged consolidation in the healthcare system, resulting in fewer choices for patients.

“We must shift away from a fee-for-service system that reimburses only on volume and move toward a system that holds providers accountable for outcomes and allows them to innovate,” Verma wrote in the WSJ op-ed. “Providers need the freedom to design and offer new approaches to delivering care. Our goal is to increase flexibility by providing more waivers from current requirements.”

Actual Progress of Value-based Healthcare ‘Herky-Jerky’

In its reporting on the recent CMS announcements, Healthcare DIVE suggested that the U.S. Department of Health and Human Services (HHS) “is looking to make some potentially major changes” in value-based payment models.

However, Neil Smiley, CEO of Loopback Analytics, which assists healthcare organizations with managing outcome-based care, believes the transition to value-based care may face stiffer headwinds under the new administration. He points to an August CMS proposal that canceled some mandatory bundled payment programs and scaled back others as an indication that healthcare transformation could be slowing.

“The pace at which CMS committed to rolling out value-based care is fundamentally different from the pace we’re currently seeing,” he told Health IT. “The progress toward value-based care, instead of this steady momentum they expected, is more of a herky-jerky fashion.”

Modify, Don’t Abandon Existing Payment Models, suggests HCTTF

The Health Care Transformation Task Force (HCTTF), a 42-member industry consortium, was among the stakeholders who responded to CMS’ RFI. In a 22-page letter, the task force reiterated its support for the healthcare system’s transformation to value-based payment and care delivery, while outlining areas for improvements. The group urged CMS to continue to develop new models while modifying, rather than abandoning, existing models that show promise and need time to achieve a lasting return.

“We would like CMS to continue support for promising models while balancing the current portfolio with new, innovative payment models,” Clare Wrobel, Director of Payment Reform Models at HCTTF, told Home Health Care News. “[But] it would be a mistake to discard current models that providers have already invested in and are showing real promise.”

Smiley, meanwhile, suggests clinical laboratory managers, pathologists, and other healthcare providers keep watch as healthcare transformation continues to evolve.

“The fee-for-service model, love it or hate it, is not dying. The organism has adapted,” he told Health IT. “For those that were aggressive early adopters of value-based care and really believed what they were hearing, and have gone fully after value-based care, some of them may feel a little exposed. If they go too hard too fast, they may suffer economically if they misjudge the pace at which this moves.”

—Andrea Downing Peck

Related Information:

Centers for Medicare and Medicaid Services: Innovation Center New Direction

Medicare and Medicaid Need Innovation

CMS Seeks ‘New Direction’ for Innovation Center

Comprehensive Care for Joint Replacement Payment Model

Task Force Calls on CMS to Encourage Alternative Payment Models

CMS Request for Information: Innovation Center New Direction

Task Force Urges CMS to Preserve Value Based Payment Models

Helping Medical Laboratories Add Value to Health Systems, Providers, and Payers by Moving from Clinical Lab 1.0 to Clinical Lab 2.0

November workshop to teach Clinical Lab 2.0 to forward-thinkers among clinical laboratories, IVD manufacturers, and lab IT vendors offered many examples where clinical laboratory diagnostics can add value and improve patient outcomes

DATELINE: ALBUQUERQUE, New Mexico—Here in this mile-high city, a special Project Santa Fe Workshop devoted to teaching the principles of Clinical Lab 2.0 attracted an impressive roster of innovators and forward-thinkers in clinical laboratory medicine. In attendance were leaders from a select number of the nation’s first-rank health systems and hospitals, along with executives from In Vitro diagnostics (IVD) manufacturers, lab IT companies, other lab service companies, attendees from the Centers for Disease Control and Prevention, and from institutions in Canada, Germany, Israel, India, and the UK.

Their common goal was to learn more about the emerging clinical and business model for medical laboratories known as “Clinical Lab 2.0.” A key objective of the workshop was to help those lab leaders in attendance develop strategic action plans for their own lab organizations, so as to take advantage of the insights coming from the vast information streams generated by their clinical laboratories. These services would be in support the evolving needs of health systems, hospitals physicians, and health insurers to more effectively provide integrated patient-centered clinical care.

Medical Laboratories Can Use Clinical Lab 2.0 as a Path to Adding Value

Clinical Lab 2.0 is the clinical and business model of the future for medical laboratories, assert the developers of this concept. “Clinical Lab 2.0 describes the attributes needed by all medical laboratories that want to succeed in a healthcare system organized to provide precision medicine, keep people out of hospitals, and where providers—including labs—are reimbursed based on the value they provide,” stated Khosrow Shotorbani, CEO of TriCore Reference Laboratories, one of the organizers of the Project Santa Fe Clinical Lab 2.0 Workshop.

“Clinical Lab 2.0 is the path medical labs will need to follow if they are to continue providing relevant lab testing services and generate the reimbursement necessary for them to maintain a high level of clinical excellence and financial stability going forward,” he added. “This is the next generation of medical laboratory organization and operation.”

Lab 1.0 Was Lab Clinical/Business Model for 50 Years

For more than 50 years, Clinical Lab 1.0 was the model for labs,” noted James Crawford, MD, PhD, Executive Director and Senior Vice President of Laboratory Services at Northwell Health Laboratories and an organizer of the Project Santa Fe Clinical Lab 2.0 Workshop. “Lab 1.0 is transactional, focusing on generating high quality analytical data on specimens received, but without assembling these data into integrative clinical care programs. In the simplest sense, Clinical Lab 1.0 focused on generating ever-greater numbers of specimens to drive down average cost-per-test, while maximizing revenue in a fee-for-service system.

This chart shows the attributes of Clinical Lab 1.0 and compares those to the attributes of Clinical Lab 2.0. Lab 1.0 is transactional and based on increasing test volume to lower costs and maximize fee-for-service revenue. Clinical Lab 2.0 is integrative in ways that add value to lab testing services. (Graphic copyright Project Santa Fe.)

“But fee-for-service payment is going away,” he said. “Increasingly, clinical laboratories will be paid based on the value they provide. This payment can be in the form of bundled reimbursement, as a per-member-per-month payment, or as a share of the budgeted payment made to a health system, an accountable care organization (ACO), or a multispecialty provider network. As these alternative forms of provider payment become dominant, to earn a fair share of reimbursement, all medical laboratories will need a clinical strategy to deliver lab testing services that measurably contribute to improved patient outcomes while reducing the overall cost of care. This requires looking at medical laboratories’ contribution to effective delivery of the full dollar of the healthcare spend, not just the three-cents-on-the-dollar representing laboratory testing.”

Innovators in Clinical Laboratory Industry Identify New Ways to Add Value

There are already a handful of innovative clinical laboratory organizations that have clinical experience in moving past the Lab 1.0 paradigm of reporting an accurate test result within the accepted turnaround time. Leaders within these labs are collaborating with physicians and frontline care givers specifically to help them better utilize lab tests in ways that directly improve the speed and accuracy of the overall diagnostic sequence, as well as achieving therapeutic optimization as rapidly as possible. These collaborations are tracking the improvement in patient outcomes while demonstrating how better use of lab tests can lower the total cost per episode of care.

During the Clinical Lab 2.0 workshop, case studies were presented demonstrating how clinical laboratory leaders are taking the first steps to practice Clinical Lab 2.0 so as to achieve added value with medical laboratory tests. The case studies included:

·       A project to improve diagnosis and treatment of sepsis at Geisinger Health System.

·       A project at Henry Ford Health to collaborate with physicians to more appropriately utilize lab tests and build consensus in support of a new lab test formulary.

·       A multi-hospital initiative at Northwell Health to collaborate with physicians and nurses in the use of creating testing to make earlier, more accurate diagnoses of acute kidney injury during inpatient admissions, and better guide decisions to treat.

·       A partnership involving TriCore Reference Laboratory and certain health insurers in New Mexico where the laboratory—using lab test data (some generated by emergency room testing) and other clinical data—alerts the insurers to women who are pregnant, thus allowing the insurers to provide timely guidance to the women’s care teams with the goal of improving prenatal care.

The Project Santa Fe Clinical Lab 2.0 Workshop convened on November 13-14 in Albuquerque, N.M. A broad spectrum of innovative professionals from the five Project Santa Fe member laboratories (above) were there to teach the lessons learned from their first successful efforts to collaborate with physicians and create added value from medical laboratory diagnostics. Other attendees included progressive lab leaders from several of the nation’s most prominent health systems, along with thought leaders from the IVD, lab software, and lab association sectors. (Photo copyright Project Santa Fe.)

Project Santa Fe Workshop: A Well-Attended Lab ‘Think Tank’

Participants attending the Clinical Lab 2.0 workshop included hospital lab administrators, pathologists, and clinical laboratory industry executives. The importance of this workshop is reflected in the educational grants and financial support provided by leading in vitro diagnostics manufacturers, lab IT companies, and other lab industry vendors. The lab industry vendors included:

·       Abbott Laboratories

·       ARUP Laboratories

·       Beckman Coulter

·       DiaSorin

·       MedSpeed

·       Roche Diagnostics

·       Siemens Healthineers

·       Sysmex

Also providing educational grants and similar support were:

·       American Clinical Laboratory Association

·       CAP Today

·       Centers for Disease Control and Prevention

·       Mayo Medical Laboratories

·       The Dark Report

Project Santa Fe was launched in 2016 by clinical lab leaders from five of the nation’s most respected integrated health systems:

·       TriCore Reference Laboratories;

·       Henry Ford Health;

·       Geisinger Health;

·       Kaiser Permanente Northern California; and,

·       Northwell Health.

Described as a think-tank venture, the organizers are committed to implementing projects that demonstrate how lab tests can be used in ways that add value, and then publish the resulting projects, along with data about improved patient outcomes and reductions in healthcare costs, in peer-reviewed journals. Multi-institutional studies will be required to validate the findings and outcomes from the added-value clinical collaborations initiated at the different medical laboratory organizations participating in Project Santa Fe.

Another primary goal is to share the lessons learned from these innovative projects with other like-minded pathologists, lab administrators, and lab managers. In May, Project Santa Fe organizers led a one-day workshop to teach Clinical Lab 2.0 at the Executive War College on Laboratory and Pathology Management. The workshop in Albuquerque on November 13-14 was the second learning opportunity available to medical laboratory professionals. A November 2018 workshop is planned.

—Robert L. Michel

Related Information:

Project Santa Fe Workshop

Improving American Healthcare through “Clinical Lab 2.0”: A Project Santa Fe Report

Laboratory 2.0: Changing the Conversation

CEO Describes Characteristics of the Clinical Lab 2.0 Model: Five Health System Labs Using Project Santa Fe To Demonstrate Value

Moving to Clinical Lab 2.0: Deliver More Value! Get Paid More Dollars!

Lab Innovators Advocate Need for Clinical Lab 2.0: Lab 1.0 Is the Low-Paid Commodity Lab, While Lab 2.0 Gets Paid More for the Value It Contributes

Using the Laboratory Value Pyramid and Clinical Lab 2.0 to Position Your Lab to Add Value in the Era of Population Health, Precision Medicine, and Value-Based Payment

Medicare Clinical Laboratory Price Cuts and Cost-cutting Predicted to be 2018’s Two Biggest Trends for Medical Laboratories in the United States

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:

  1. 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.
  2. 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:

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

Success of Harvard Pilgrim Value-Based Pharma Contracts Might Indicate a Transition Away from Fee-for-Service to Value-Based Care in Other Healthcare Areas

New value-based healthcare payment models could have far-reaching effects on medical laboratories and the testing they provide

Hospitals, physicians, and medical laboratories recognize the transition from “volume to value” that’s underway in the American healthcare system. Fee-for-service payments for clinical services (regardless of whether they are needed or effective) will soon cease and providers will be increasingly paid on how much value they deliver to patient care. This will fundamentally alter the complete care continuum, from hospital stays to pathology consults to clinical laboratory testing services.

One such change involves value-based drug contracts with pharmaceutical manufacturers. According to an article in The Boston Globe, in an effort to reduce the ever-increasing cost of prescription drugs while still “giving patients access to costly treatments,” Harvard Pilgrim Health Care (Harvard Pilgrim)—one of Massachusetts’ largest health insurers with more than 1.3 million members—is negotiating value-based agreements with major pharmaceutical manufacturers. How much money Harvard Pilgrim pays for certain drugs will depend on how much the healthcare organization contributes to curing/improving their patients’ conditions.

Value-Based Pharmaceutical Agreements

Harvard Pilgrim first made news for their value-based drug contracts in 2015 when they contracted with three companies:

Harvard Pilgrim currently has 12 value-based pricing contracts with pharmaceutical companies.  According to a news release, the contracts enable Harvard Pilgrim to monitor “specific criteria in patients following discharge” for the effectiveness of medication. “If the medicines fail to meet the agreed upon outcomes criteria in real patients, Harvard Pilgrim will be charged a lower amount,” the news release states.

a majority of health plans are interested in forming outcomes-based contracts with biopharmaceutical manufacturers

The graph above is from an analysis by Avalere Health, a strategic advisory company in Washington, DC, that develops solutions for healthcare. It shows how, according to Avalere, “a majority of health plans are interested in forming outcomes-based contracts with biopharmaceutical manufacturers that tie product reimbursement to patient outcomes.” (Image copyright: Avalere Health.)

These contracts link a drug’s cost to its overall effectiveness in ways that make companies accountable for results in terms of real-world patient outcomes, rather than controlled trial results. Michael Sherman, MD, Harvard Pilgrim’s Chief Medical Officer and SVP of Health Services, stated in the news release that they put drug companies “at risk for delivering” on their promises.

According to Harvard Pilgrim Health Care President and CEO Eric Schultz, value-based agreements between insurance, hospitals, medical laboratories, and drug companies are becoming increasingly important. At the 2017 America’s Health Service Plans (AHIP) Institute and Expo, Schultz stated that in terms of value-based contracting, “right now, it’s all about clinical outcomes,” a FierceHealthcare article covering the event noted. Shultz believes this is a good thing for patients that could positively impact all areas of healthcare.

Harvard Pilgrim is not alone in shifting to value-based healthcare (AKA, value-based purchasing and Pay-for-Performance). According to a news release, the University of Pittsburgh Medical Center (UPMC) Health Plan recently created the Center for Value-Based Purchasing for Pharmaceuticals. According to William Shrank, MD, UPMC Health Plan’s Chief Medical Officer, the Center is determined to evaluate outcomes and effects of the new payment models, which have the potential to “rapidly influence pharmaceutical purchasing nationwide and promote greater value in medication use.”

Can Medical Laboratories Participate in Value-based Models?

The rise of value-based healthcare models affects more than just pharmaceutical companies; medical laboratories nationwide are considering how value-based systems might affect their work and mission as well. In an Orchard Software whitepaper titled, “The Value of the Laboratory in the New Healthcare Model,” Daniel J. Scully, CEO of New York’s Buffalo Medical Group, stated that the “50-million dollar” question for laboratories is “does the laboratory offer enough value in service and speed of results” for the new value-based healthcare models?

Clinical laboratories play such a vital role in healthcare quality—providing accurate diagnosing and crucial monitoring, as well as data collection and risk assessment—they may find themselves affected by value-based healthcare changes. Because of the high costs of equipment and testing, laboratories may also find themselves scrambling to eliminate costs and improve on efficiency, by monitoring resources and testing outcomes in connection to patient needs.

Clinical pathologists may also find themselves more frequently called upon to assist in guiding clinicians to more “effectively utilize lab services to achieve better care,” according to the Orchard Software white paper.

Clinical Associations Say Medical Laboratories Crucial to Success of Value-based Healthcare

The American Association for Clinical Chemistry (AACC) and the American Society for Clinical Pathologists (ASCP) have both addressed what the change to a value-based healthcare system may mean for clinical pathologists.

An ASCP white paper states that clinical pathology data has become increasingly important as “clinical laboratory data are now used to measure provider performance, both individual and organizational, as well as to inform value-based purchasing that optimizes healthcare resources and decreases costs.”

In a position statement, the AACC noted that laboratory testing was crucial to this new model, and that “laboratory professionals are uniquely positioned” to help increase value within healthcare by helping “clinicians identify the most effective testing protocol and interpret the results accurately. Clinical laboratorians can further reduce healthcare costs by developing new, more precise tests to personalize patient care and creating computerized clinical decision support interventions to aid test selection.” Some types of testing, however, particularly expensive molecular and genetic testing, may end up a target of similar value-based agreements between the labs that perform these tests and the provider organizations that use the tests.

Much of the focus on value-based healthcare is currently on value-based pharmaceutical contracts, such as those from Harvard Pilgrim. Nevertheless, clinical laboratories will likely play vital roles in providing care, guiding testing, and evaluating care outcomes under these new payment models. They also could find themselves part of a larger debate concerning overuse of testing or data collection.

Changes to healthcare from pay-for-service to pay-for-value will undoubtedly have far-reaching effects as healthcare fields attempt to cut costs while providing better services. Every clinical laboratory must be proactive in finding its place in these new models.

Amanda Warren

Related Information:

Harvard Pilgrim Expands Use of Novel Drug Purchasing Deals

Value for Consumer Drugs—Harvard Pilgrim Leads the Way

Harvard Pilgrim Signs Outcomes-Based Contracts with AstraZeneca for Brilinta and Bydureon

UPMC Health Plan Establishes Unprecedented Center for Value-Based Purchasing for Pharmaceuticals

Harvard Pilgrim Signs Second Groundbreaking Contract with Amgen for Repatha

Lilly’s Trulicity Joins Pay-for-performance Trend with Harvard Pilgrim Deal

Advancing Value-Based Healthcare: Laboratory Medicine’s Essential Role

The Value of the Laboratory in the New Healthcare Model

AHIP 2017: Harvard Pilgrim, Eli Lilly CEOs Talk Drug Prices and Paying for Value

Health Insurers Go All in on Value-based Drug Pricing

Health Plans Are Interested in Tying Drug Payments to Patient Outcomes

Harvard Pilgrim Bets on Value-based Drug Payments with New Deals

Harvard Pilgrim to Pay for 2 Autoimmune Drugs Based on Outcomes, Value

Value-based Contracts Key to Solving U.S. Drug Pricing ‘Crisis’

Nearly One-Third of Traditional Medicare Payments Now Based on Value-Based Reimbursement and Alternative Payment Models

Ongoing Growth in Volume of Clinical Laboratory Tests That Support Precision Medicine Due to Physician Acceptance; Payers Still Have Concerns

Pathologists and Clinical Lab Executives Take Note: Medicare Has New Goals and Deadlines for Transitioning from Fee-For-Service Healthcare Models to Value-Based Reimbursement

Up to 50% of Aetna, UnitedHealth Group, and Anthem Reimbursements Go to Value-Based Contracts; Clinical Laboratories Must Implement Value-Based Strategies to Remain Competitive

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