News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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Good News for Labs: HHS Delays Implementation Deadline for ICD-10 to 2013, Version 4010/4010A1

Pathologists and lab directors concerned about training staff to implement the new ICD-10 code sets can relax-but only just a bit! The federal Department of Health & Human Services (DHHS) has pushed back the compliance deadline for implementing the International Classification of Diseases, 10th Revision (ICD-10) code sets. The new implementation deadline of October 1, 2013; replaces the existing deadline of October 1, 2011.

As it announced this extension in implementation of ICD-10 on January 15, HHS also set a date of January 1, 2012, for implementing the so-called X12 standard, Version 5010, for certain electronic health care transactions. Version 5010 is an important prerequisite to adopting ICD-10 and includes updated standards for claims, remittance advice, eligibility inquiries, referral authorization, and other administrative transactions. Version 5010 accommodates the ICD-10 code sets, which are not supported by Version 4010/4010A1, the current X12 standard, HHS said.

These two implementation dates give labs additional time to prepare and train for using the new codes. Labs will find the implementation of ICD-10 to be a costly process, in part because ICD-10 uses 155,000 seven-digit codes, compared with the existing 17,000 codes in ICD0-9. Bloomberg news reported on January 14 that the new codes will be a “nightmare” for healthcare providers.

In a report last year, Nachimson Advisors, LLC, estimated that every provider will incur conversion costs in at least six ways. Organizations representing physicians and laboratories, including the American Medical Association and the American Clinical Laboratory Association (ACLA)  commissioned the report, which projected the ICD-10 implementation costs for small, medium, and large physician groups.

The Nachimson Report calculated that the typical small group of three physicians would incur costs of $83,290 to comply with ICD-10. A typical medium-sized group of 10 physicians would spend $285,195, and a typical large physician practice of 100 providers would spend $2.7 million. (See “ICD-10 Conversion Costs Underestimated by HHS,” The Dark Report, Oct. 20, 2008.) These costs include expenses for:

1) education;

2) process analysis;

3) changes to superbills;

4) information technology;

5) documentation; and,

6) cash flow disruption

Conversion costs will be even higher for labs. That’s because labs must fund extensive changes in their information systems. Labs will also need to train not only staff, but also referring physicians. One large national lab estimated that it will spend $40 million to convert to ICD-10.

Armed with the knowledge about these high costs to implement ICD-10 and train referring physicians on the new codes, physician groups and ACLA have lobbied Congress to order HHS to delay implementation. HHS received more than 3,000 comments on the ICD-10 proposal, said Kerry Weems, acting administrator of the federal Centers for Medicare & Medicaid Services (CMS).

“A number of commenters asked for a delay in the compliance dates for both ICD-10 and Version 5010, citing implementation costs, the need to train health care personnel, and to assure ample time for testing between trading partners,” noted Weems. “HHS recognized these concerns and the final rules delay the implementation dates between the proposed and final rules by 21 months for the 5010 standards, and by 24 months for the ICD-10 codes.”

Medical laboratories and pathology group practices should already have a strategy in lace for handling the transition to ICD-10 codes. This two-year extension may be welcome today, but the United States is a full two decades behind the rest of the world in its use of ICD-10 codes. So further delays in ICD-10 implementation beyond 2013 should not be expected.

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There Ain’t No Such Thing as a Free Lunch (TANSTAAFL): Quality Costs Money

Wall Street has yet to grasp this essential truth of laboratory medicine-lab test quality comes with its own price tag

At this moment in time, Quest Diagnostics Incorporated‘s  (NYSE:DGX) advertised value proposition to other labs—”industry-leading quality and technical proficiency”—has diminished credibility with pathologists and lab industry executives. They are questioning how the nation’s largest lab company could allow systemic errors that caused it to report inaccurate Vitamin 25(OH) D test results to tens of thousands of patients for 18 months during 2007 and 2008.

These same pathologists represent an important source of reference and esoteric testing referrals to the nation’s largest lab company. Thus, the disclosure of systemic failures in its Vitamin D testing program may have implications for Quest Diagnostics over the long term. Many health systems, hospitals, and laboratories across the United States refer reference and esoteric tests to Quest Diagnostics. Quality and test result integrity are a primary buying motive for the pathologists and lab directors in these organizations. As scientists, they want confidence in the analytical integrity of the test results they provide to their own clinicians.

Two national reference laboratories with solid reputations for quality and lab test result integrity are ARUP Laboratories and Mayo Medical Laboratories. These reputations for quality and integrity are key assets at ARUP and Mayo. Both firms compete successfully against the two blood brothers because many referring laboratories believe the scientific integrity at ARUP and Mayo is not compromised in ways that may occur in publicly-traded lab companies. Of interest, both these laboratories earn adequate profit margins while competing effectively on price, service, and quality against the national lab companies.

Quest Diagnostics now finds itself facing a tough challenge in the reference/esoteric testing marketplace. Among its peers in the scientific and laboratory medicine communities, the quality and integrity of its lab test results will be seriously questioned. And because pathologists have long memories, this can be an issue for years into the future.

That has been the experience of Specialty Laboratories, Inc. During the 1990s, this was a go-go reference and esoteric testing laboratory. Fast-growing, it had a reputation for first-rank science and regularly introduced new proprietary assays to the medical community. But, in April, 2002, federal and state laboratory regulators yanked Specialty’s license to do business with Medicare. The story centered around internal whistleblowers and regulatory directives that were not fully addressed by Specialty’s executive team. There were questions about the integrity of test results for some lines of lab tests performed at Specialty. (“State, Federal Regulators Target Specialty Labs,” The Dark Report, April 22, 2002.)

Within a few months, Specialty Labs was able to reclaim its Medicare license after fixing deficiencies and passing its inspections. However, loss of its Medicare license was a body blow to Specialty Laboratories. Across the nation, pathologists and laboratory directors stopped sending specimens to Specialty Labs. Overnight, the company experienced a precipitous decline in specimen volume and revenue. Facing grim financial prospects, in January 2006 it was sold to AmeriPath. Ironically, Quest Diagnostics found itself the owner of Specialty Laboratories when it acquired AmeriPath last year.

The example of Specialty Labs illustrates why quality, integrity, and trust matter-a great deal! Pathologists and lab directors face personal liability if their laboratory delivers inaccurate results to patients and physicians. Their personal reputations ride on the performance of their laboratory. As physicians, they understand the consequences to patient care when a laboratory fails to report accurate test results. Their own laboratory must maintain its reputation for integrity and quality if it is to retain the trust of the clinicians and patients it serves.

Further, these same pathologists and lab directors regularly interview and hire scientists and medical technologists from both of the national laboratory companies. They hear lots of stories about the internal operations of these two billion-dollar lab companies. There are few secrets about events that unfold inside the two blood brothers. For example, lab scientists directing Vitamin D testing at their own labs quickly recognized, early in 2007, that Quest Diagnostics was struggling with its home brew mass spectrometry Vitamin D assay.

The lab community has watched both national labs continually cut costs over the past ten years. Competing labs conduct hiring interviews with the wave after wave of terminated employees hunting for jobs after each RIF (reduction in force) trims back staff to save money. Pathologists and lab directors understand the consequences of sustained cost cutting. Eventually, a laboratory’s cost cutting reaches a point where the resources, staff time, and operational capability required to sustain a high level of analytical accuracy and integrity can be compromised.

That is why many laboratory professionals are asking if the inaccurate Vitamin 25(OH) D results performed over an 18-month period on tens of thousands of patients is a sign that should not be ignored. Has Quest Diagnostics reached the threshold where further cost-cutting to satisfy Wall Street will undermine the quality and integrity of its lab test results?

Of all the customers of the two national laboratories, pathologists are the best informed about how constant budget reductions can undermine the quality and integrity of laboratory test results. They know that lab test quality is an expensive proposition.

Thus, no one should be surprised if, going forward, both national laboratories find it more difficult to expand the reference and esoteric business which comes to them from other laboratories across the nation. Should either firm experience even modest declines in the year-over-growth in this business segment, it will be a significant sign. Questions associated with test integrity may be motivating an important source of reference and esoteric testing to steer their specimens to other laboratory providers.

Should this happen, no one should be surprised. If a decade of sustained cost-cutting has finally reached the point where laboratory customers question the quality of the test results produced by major lab companies, it will only be the market imposing its discipline. The market will be reminding Wall Street investors that spending to sustain quality protects market share and profits. After all, as the libertarians say, “There ain’t no such thing as a free lunch (TANSTAAFL)”!

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Statewide Medical Home Programs Launched in Rhode Island and North Dakota

Patient-Centered Medical Home (PCMH) is the latest concept in managed care. Primary care physicians, relegated to gatekeeper status in the HMO model of the 1990s, are elevated to the status of healthcare guru, taking the role of coordinating care, counseling, and educating patients. Launching the first statewide Patient-Centered Medical Home (PCMH), programs are Rhode Island and North Dakota.

The PCMH concept, which has been endorsed by the AMA, is a care delivery model that provides patients continuous access to a personal physician for the majority of their healthcare needs. There are 22 medical home pilots underway throughout the nation, but Rhode Island and North Dakota are first to take the concept statewide.

The leading advocate for the PCMH is the Patient Centered Primary Care Collaborative, a 200-member group that includes major employers, consumer groups, labor unions and healthcare providers and payers. It contends this healthcare model could improve the health of patients, while ensuring viability of the healthcare delivery system through reduced costs associated with shorter hospital stays, fewer hospital readmissions, and emergency department visits.

A statewide pilot of the Rhode Island Chronic Care Sustainability Initiative was launched last October on the heals of a 2004 state law mandating that health plans work to improve accountability in healthcare affordability, accessibility and quality. The pilot includes the state’s three biggest health plans, including the state’s Medicaid plan, Neighborhood Health Plan of Rhode Island’s Rhody Health Partners; Blue Cross and Blue Shield; and United Healthcare. These plans will pay the five participating primary care practices a fee of $3 per member, per month to cover the services of a care-management nurse.

Rhode Island insurers are optimistic about the model’s potential for reducing healthcare costs and improving outcomes. They also suggest that the new care model, which provides compensation for extra time spent caring for patients, will improve physician satisfaction. Not only with this be due to increased reimbursement, but also because the physicians will have the ability to provide consistent care across the board, regardless of the patient’s health plan.

North Dakota has already completed a two-year pilot of its MediQHome Quality Project, a PCMH pilot focused on diabetes care. The pilot demonstrated an estimated $102,000 savings in the care provided to 192 diabetes patients. The state launched its full-fledged, statewide PCMH program on January 1, 2009.

Under the North Dakota program, Blue Cross Blue Shield of North Dakota, the state’s largest health plan, has agreed to pay primary care physicians a semiannual $50 care-management fee for Blues members treated for coronary artery disease, diabetes or hypertension. However, according to a report from Modern Healthcare,  Jon Rice, North Dakota Blues CEO/senior vice president, questions the need for a “medical home infrastructure” to achieve better outcomes and cost savings. He points out that the pilot focused on a single health issue, but has yet to prove its mettle as a broad-based quality improvement program.

This mirrors the position of TransforMed, a nonprofit subsidiary of the American Academy of Family Physicians that is concerned with creating a financially sustainable healthcare model through a nationwide medical home system. TransforMed urges that an effective medical home program must address all patients in a primary care practice, not just certain diseases.

If there is a downside to the medical home trend, it is that it adds to the workload for doctors, even as the pool of primary care physicians dwindles. Practicing primary care physicians are leaving the field to enter higher-paying specialties. Fewer medical school students are opting to enter primary care.

Dark Daily expects that one consequence of the medical home movement will be for physicians to shift their lab test utilization patterns toward greater use of predictive testing and risk assessment testing. That’s because a major goal of the medical home arrangement is to encourage early diagnosis and active intervention to help the patient maintain optimal health.

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The Dangers of the Decrease In Primary Care Physicians

Top Ten Lab Industry Stories for 2008 Announced by The Dark Report

It’s no surprise that topping The Dark Report’s list of Top Ten Most Important Stories of 2008 for the laboratory industry is the successful repeal of the Medicare Part B Laboratory Services Competitive Bidding Demonstration Project. Across the nation, labs feared the consequences were federal health officials to have implemented the flawed scheme that was scheduled to commence in the San Diego-Carlsbad-San Marcos SMA (statistical metropolitan area) by July 1, 2008.

Our list of the Top Ten Most Important Lab Industry Stories of 2008 leads off the latest issue of The Dark Report, published last week and arriving at client’s locations here and abroad. This annual listing is closely-watched because it provides a clear assessment of major trends unfolding in laboratory medicine.

Editor-In-Chief Robert Michel, after explaining why repeal of Medicare Competitive Bidding was the single most important development during 2008, characterized the balance of 2008 as otherwise a quiet and relatively uneventful year. He wrote “No other story on the Top Ten list approaches the magnitude of importance and implications of Medicare competitive bidding repeal. However, that is a good thing because it means that, over the course of 2008, there were few events that represented disruptive or unwelcome change to the majority of laboratories and pathology group practices.”

In fact, Editor Michel picked the huge increase in the volume of Vitamin D testing as the second most important lab industry story for 2008. “This phenomenon is directly related to widespread media stories about: 1) the alarming increase in the number of people with Vitamin D deficiency; and, 2) the negative health consequences for individuals who are deficient in Vitamin D,” noted Michel in The Dark Report. “Attention to Vitamin D deficiency during the past two years shows how speedily a new clinical guideline can become accepted, particularly when it is something that is easy for consumers to understand.”

Top story number ten was described as “2008-Not a Year for Big Lab Deals as Relative Calm Rules Lab Market.” Michel observed that no major or disruptive laboratory acquisitions took place during the year. He noted how this was unusual for a trend that reaches back to the mid-1980s. However, it remains true that Wall Street is keenly interested in molecular diagnostics. That was reflected in the willingness of Roche Holdings (NYSE: RHHBY) to pay the premium price of $3.4 billion last April to acquire then $290 million Ventana Medical Systems. (See Dark Daily, “Roche Purchases Ventana by Offering Higher Price”, February 22, 2007).

Subscribers and readers of Dark Daily are invited to send in their picks for the most important medical laboratory stories for 2008, along with their reasons why the story is significant. We will publish the best of these submissions. E-mail to:

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2008’s Top Ten Lab Stories Lacked Disruptive Impact