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Hosted by Robert Michel
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Federal Advisory Committee Seeks Public Comments on Revising CLIA Regulations, says Keynote Speaker at 13th Annual Lab Quality Confab in Atlanta

At The Dark Report’s annual Lab Quality Confab for clinical laboratory administrators, managers, and quality team members, experts outline how disruption in healthcare requires labs to improve processes and cut costs

ATLANTA, Oct. 15, 2019—Clinical laboratory professionals have a chance to advise the federal Centers for Disease Control and Prevention (CDC) on how the federal government could revise the regulations under the Clinical Laboratory Improvement Amendments of 1988 (CLIA). That’s according to one of the keynote speakers on Wednesday at The Dark Report’s 13th Annual Lab Quality Confab (LQC), which began here on Tuesday.

Reynolds M. Salerno, PhD, Director of the Division of Laboratory Systems (DLS) for the CDC in Atlanta, explained that the agency is collecting comments from the public and from its Clinical Laboratory Improvement Advisory Committee (CLIAC) on how to revise the CLIA regulations.

This is an opportunity for clinical laboratory directors, pathologists, and other lab professionals, to comment on the proposed revisions to CLIA before or during the upcoming CLIAC meeting on Nov. 6.

The agenda for the meeting is posted on the CDC’s website.

Public to be Heard on CLIA Regulations

“For the first time in its 26-year history, the council has called for three workgroups to address how to revise CLIA,” Salerno said. The workgroups will address these topics:

“It’s a dramatic step for the government to ask the laboratory community how to revise the CLIA regulations,” Salerno commented. Chartered in 1992, the advisory council meets twice a year, once in April and once in November.

CLIAC issued a summary report of its April 10-11 meeting. It also published an agenda for its upcoming meeting in Nov. 6.

In the coming weeks, Dark Daily will publish more information on how clinical laboratory professionals can comment on the important issue of CLIA revisions.

Digital slides from Salerno’s keynote address are posted on LQC’s presentations website.

Clinical Laboratory Testing is Increasing in Value, Keynote Speaker Says

As a service to clinical laboratories, Salerno outlined many of the services the CDC’s Division of Laboratory Systems provides for free to clinical labs, including information on such topics as:

During his remarks at the 13th Annual Lab Quality Confab in Atlanta, Salerno had good news for the clinical laboratory professionals in attendance. He said that lab testing was becoming a more valued commodity in healthcare because physicians and other providers were growing increasingly confident in lab test results. [Photo copyright: The Dark Report.]

Healthcare System Disruption Impacts Providers, Including Clinical Laboratories

Other keynote speakers addressed how disruption in the US healthcare systems affects provider organizations in significant ways. For clinical laboratories, such disruption has resulted in reduced payment and demands for quality improvement and shorter turnaround times.

For all these reasons, quality management systems may be every clinical laboratory’s best strategy to survive and thrive, the keynote speakers said.

The first keynoter was Robert L. Michel, Editor-in-Chief and Publisher of The Dark Report. Michel’s remarks focused on how price cuts from Medicare, Medicaid, private payers, and the drive for value-based payment, are requiring labs to do more with less. For this reason, quality management systems are necessary for all labs seeking to improve results, eliminate errors, and cut costs, he said.

“The people closest to the work know how to fix these problems,” he added. “That’s why labs know they must train their staff to identify problems and then report them up the chain so they can be fixed,” Michel commented. “Labs that are best at listening to their employees are getting very good at identifying problems by measuring results and monitoring and reporting on their own performance.”

Michel identified three principle factors that are disrupting healthcare:

  • The shift from reactive care in which the health system cares for sick patients to proactive care in which the health system aims to keep patients healthy and out of the hospital and other costly sites of care.
  • The transition away from fee-for-service payment that encourages providers to do more for patients, whether more care is needed or not, to value-based payment that aims to reward providers for keeping patients healthy.
  • The consolidation among hospitals, health systems, physicians, and other providers. A trend that requires clinical laboratories to find new partners and new ways to improve lab services and reduce costs.

Informatics Performance Data Help Clinical Laboratories Respond to Change

“The attributes of new and successful labs are that they will have faster workflow and shorter cycle times for clinical lab tests and anatomic pathology specimen results,” Michel explained. “That means that labs will attack non-value-added processes by implementing continuous improvement strategies [such as Lean and Six Sigma] and by the sophisticated use of informatics.”

Making use of performance data enables clinical laboratory directors to make changes in response to disruptions that affect healthcare. “If you have good informatics, then seven or eight of every 10 decisions you make will be good decisions, and with the other two and three decisions, you’ll have time to pull back and adjust,” Michel commented.

The second keynote speaker, Jeremy Schubert, MBA, MPH, Division Vice President of Abbott, reiterated what Michel said about how the health system is moving away from fee-for-service payment. Instead of focusing on caring for sick patients exclusively, he said, health insurers are paying all healthcare providers to keep patients healthy.

“Healthcare today is about the whole life course of the individual,” Schubert explained. “Patients no longer want healthcare only when they’re sick. Instead, they want to be healthy. And health creation is not just about a person’s physical health. It’s about their mental health, their emotional health, and their social wellbeing.

“In fact,” he continued, “you can learn more about a person’s health from their Zip code than from their genetic code.”

That is essentially what TriCore Reference Laboratories (TriCore) has been doing in New Mexico, Schubert added. During his presentation, Michel mentioned TriCore as being one of four clinical laboratories participating in Project Santa Fe, a non-profit organization that promotes the movement from Clinical Lab 1.0 to Clinical Lab 2.0. (See “TriCore Forges Ahead to Help Payers Manage Population Health,” The Dark Report, May 20, 2019.)

“If you want to be a quality engine in healthcare you have to be operating at Lab 2.0. Who is best qualified to interpret information? It’s the lab,” Schubert said. Then he challenged labs to begin pursuing the goal of achieving Lab 3.0, saying “Lab 3.0 is being able to interface with the patient to address each patient’s problems.”

The 13th Annual Lab Quality Confab (LQC) in Atlanta continues through the 17th with post-event workshops in Six Sigma and mastering quality management systems. In attendance are 300 clinical laboratory administrators, managers, and quality team members who are learning a complete array of professional training methods.

To register to attend, click here or enter https://www.labqualityconfab.com/register into your browser, or call 707-829-9485, or e-mail lqcreg@amcnetwork.com.

—Joseph Burns

Related Information:

Clinical Laboratory Improvement Advisory Committee Agenda for meeting Nov. 6

Clinical Laboratory Improvement Advisory Committee Summary Report

TriCore Forges Ahead to Help Payers Manage Population Health

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

Clinical Laboratory Leaders Agree: Showing Value Is More Important than Ever as Healthcare Transitions Away from Fee-for Service Reimbursement

How medical laboratories can show value through process improvement methods and analytics will be among many key topics presented at the upcoming Lab Quality Confab conference

Quality management is the clinical laboratory’s best strategy for surviving and thriving in this era of shrinking lab budgets, PAMA price cuts, and value-based payment. In fact, the actions laboratories take in the next few months will set the course for their path to clinical success and financial sustainability in 2020 and beyond.

But how do medical laboratory managers and pathologists address these challenges while demonstrating their lab’s value? One way is through process improvement methods and another is through the use of analytics.

Clinical pathologists, hospital lab leaders, and independent lab executives have told Dark Daily that the trends demanding their focus include:

  • Ensuring needed resources and appropriate tests, while the lab is scrutinized by insurance companies and internally by hospital administration;
  • PAMA’s (Protecting Access to Medicare Act of 2014) effects on reimbursement;
  • Consumers’ demand for lower cost and better access to quality healthcare;
  • Serving patients in a wider continuum of care; and
  • Collaborating instead of competing with other labs in the market.

“The laboratory and resources we are given are being scrutinized in a different way than they have been historically,” said Christopher Doern, PhD, Director of Microbiology and Associate Professor of Pathology, Virginia Commonwealth University Health System (VCU Health) Medical College of Virginia, Richmond, in an exclusive interview with Dark Daily.

“Our impact on patient care, in many cases, is very indirect. So, it is difficult to point to outcomes that occur. We know things we do matter and change patient care, but objectively showing that is a real struggle. And we are being asked to do more than we ever had before, and those are the two big things that keep me up at night these days,” he added.

This is where process improvement methods and analytics are helping clinical laboratories understand critical issues and find opportunities for positive change.

“You need to have a strategy that you can adapt to a changing landscape in healthcare. You have to use analytics to guide your progress and measure your success,” Patricia Nortmann, System Director of Laboratory Services at St. Elizabeth Healthcare, Erlanger, Ky., told Dark Daily.

Clinical Laboratories Can Collaborate Instead of Compete

Prior to a joint venture with TriHealth in Cincinnati, St. Elizabeth lab leaders used data to inform their decision-making. Over about 12 years preceding the consolidation of labs they:

  • Centralized the outreach core lab;
  • Installed front-end automation in chemistry;
  • Standardized the laboratory information system (LIS) and analyzer platforms across five affiliate hospitals; and
  • Implemented front-end automation outside the core area and in the microbiology lab.

“We are now considered a regional reference lab in the state of Kentucky for two healthcare organizations—St. Elizabeth and TriHealth,” Nortmann said. 

Thanks to these changes, the lab more than doubled its workload, growing from 2.1 million to 4.3 million outreach tests in the core laboratory, she added.

Christopher Doern, PhD (left), Director of Microbiology and Associate Professor of Pathology at Virginia Commonwealth University Health System; Patricia Nortmann (center), System Director of Laboratory Services at St. Elizabeth Healthcare; and Joseph Cugini (right), Manager Client Solutions at Health Network Laboratories, will present practical solutions and case studies in quality improvement and analytics for clinical laboratory professionals at the 13th Annual Lab Quality Confab, October 15-16, 2019, at the Hyatt Regency in Atlanta, Ga. (Photo copyright: The Dark Report.)

Using Analytics to Test the Tests

Clinical laboratories also are using analytics and information technology (IT) to improve test utilization.

At VCH Health, Doern said an analytics solution interfaces with their LIS, providing insights into test orders and informing decisions about workflow. “I use this analytics system in different ways to answer different questions, such as:

  • How are clinicians using our tests?
  • When do things come to the lab?
  • When should we be working on them? 

“This is important for microbiology, which is a very delayed discipline because of the incubation and growth required for the tests we do,” he said.

Using analytics, the lab solved an issue with Clostridium difficile (C diff) testing turnaround-time (TAT) after associating it with specimen transportation.

Inappropriate or duplicate testing also can be revealed through analytics. A physician may reconsider a test after discovering another doctor recently ordered the same test. And the technology can guide doctors in choosing tests in areas where the related diseases are obscure, such as serology.  

Avoiding Duplicate Records While Improving Payment

Another example of process improvement is Health Network Laboratories (HNL) in Allentown, Pa. A team there established an enterprise master patient index (EMPI) and implemented digital tools to find and eliminate duplicate patient information and improve lab financial indicators.

“The system uses trusted sources of data to make sure data is clean and the lab has what it needs to send out a proper bill. That is necessary on the reimbursement side—from private insurance companies especially—to prevent denials,” Joseph Cugini, HNL’s Manager Client Solutions, told Dark Daily

HNL reduced duplicate records in its database from 23% to under one percent. “When you are talking about several million records, that is quite a significant improvement,” he said.

Processes have improved not only on the billing side, but in HNL’s patient service centers as well, he added. Staff there easily find patients’ electronic test orders, and the flow of consumers through their visits is enhanced.

Learn More at Lab Quality Confab Conference

Cugini, Doern, and Nortmann will speak on these topics and more during the 13th Annual Lab Quality Confab (LQC), October 15-16, 2019, at the Hyatt Regency in Atlanta, Ga. They will offer insights, practical knowledge, and case studies involving Lean, Six Sigma, and other process improvement methods during this important 2-day conference, a Dark Daily news release notes.

Register for LQC, which is produced by Dark Daily’s sister publication The Dark Report, online at https://www.labqualityconfab.com/register, or by calling 512-264-7103.   

—Donna Marie Pocius

Related Information:

13th Annual Lab Quality Confab October 15-16, 2019. Hyatt Regency, Atlanta, Ga.

Clinical Laboratory Innovators in Lean, Six Sigma, and Process Improvement to Gather in Atlanta October 15-16, 2019

Innovative Clinical Laboratories of Hospitals and Health Systems Now Working to Standardize and Rationalize Lab Tests and Lab Services

It’s the next wave in the long-running trend of hospital laboratory consolidation, as the need to trim costs and support thriving medical laboratory outreach programs continues

There’s an important new development in the hospital/health system sector of the clinical laboratory industry that continues the longstanding trend of consolidating multi-site lab operations. It is to rationalize and standardize medical laboratory operations across all lab sites within the health system. Effectively, this standardization trend represents the next cycle of clinical laboratory consolidation.

One recent example of this trend can be found at Atrium Health, the hospital health network based in Charlotte, N.C. (formerly known as Carolinas HealthCare System until earlier this year). Becker’s Hospital Review states that Atrium Health is the “seventh largest nonprofit system in the country based on number of acute-care hospitals (35).”

Creating Standardized Medical Laboratory Testing Services at Multiple Sites

Over the past four years, the clinical laboratory team at Atrium Health has worked to design, build, and operate a new, state-of-the-art core laboratory. At the same time, there were sequential projects to integrate the lab testing services and operations of nine other medical lab sites within the health system to better align the test menu, lab instruments, and workflow at these sites with the activities of the core laboratory.

According to Modena Henderson, MHA, the Vice President of Laboratory Services at Atrium Health, in an interview with Dark Daily, there were multiple primary goals in this project to rationalize and standardize lab testing at all the participating lab sites. They include:

  • Standardizing lab test methodologies, reference ranges, and test menu;
  • Standardizing analyzers and test platforms across all labs;
  • Using Lean, Six Sigma, and other process improvement methods to streamline workflow and reduce test turnaround time;
  • Improve productivity of lab staff;
  • Increase quality while reducing or eliminating unproductive activities;
  • Using real-time analytics middleware to keep lab management informed on a daily basis, and,
  • Collaborating with emergency departments, wards, and outreach physicians to deliver more value with clinical lab testing services.

Using the ‘Three Ps of Project Management’ Approach in Health System Labs

The centerpiece of this program of lab rationalization and consolidation was the design and build-out for a new core clinical laboratory facility. Henderson said her team followed the principals of the “Three Ps of Project Management”—People, Process, Performance—to model the new lab facility, then guide how it was constructed and brought into daily clinical service.

“The Atrium Health laboratory regionalization project is an example of the next step that many innovative hospital laboratories are taking,” stated Robert L. Michel, Editor-in-Chief of The Dark Report. “Every lab has the same double challenge. First is financial. Hospital lab budgets are shrinking as growth in inpatient admissions slows. Outreach revenues are declining as Medicare and private payers slash lab test prices.

“Second, labs must come up with the capital needed to acquire and deploy the expensive and sophisticated new genetic and molecular tests that physicians and patients want,” he continued. “Hospital and health network labs must offer these new tests to keep their parent organizations at the cutting edge of clinical care.

Clinical Labs See Value in Standardizing Test Methodologies, Menus

“Thus, it is logical for the clinical labs of health networks to begin the process of rationalizing and standardizing their test menus, methodologies, and analyzers at every site within the system that performs medical lab testing,” emphasized Michel. “This is a development that we have watched gather momentum.”

Keynote Speaker Robert L. Michel, Editor-in-Chief of The Dark Report and Dark Daily will discuss how clinical laboratories of hospitals and health networks are rationalizing and standardizing their medical laboratory testing services to achieve the goals of managing lab costs, boosting quality, and increasing lab outreach revenue. The 12th annual Lab Quality Confab takes place on Oct. 9-10, 2018, at the Hyatt Regency Atlanta. (Photo copyright: The Dark Report.)

Michel offered two examples of sizable programs to rationalize and standardize clinical lab tests and services across a large health system. One is in Michigan, at Ascension Health. The other is in the Canadian Province of Québec. Both are large and ambitious undertakings, both in the number of lab sites involved and the large geography served by these clinical laboratories.

Consolidation Project in Québec involves 123 Clinical Lab Facilities

Québec’s provincial health system wants to consolidate 123 clinical laboratories in the province into 11 groups (clusters) of labs. Each lab group, or cluster, will have a core lab and rapid response labs. Test menus and methodologies will be standardized throughout the province. In an interview with The Dark Report, Ralph Dadoun, PhD, Project Director for Optilab Québec, plans to accomplish the consolidation without adding costs.

In Michigan, Ascension’s clinical lab leadership is working to integrate and standardize the labs that are operated by seven system organizations. This includes 14 hospitals and 18 existing laboratories located throughout the entire State of Michigan. In an interview with The Dark Report, Carlton Burgess, MSM, Vice President of Laboratory Services at Ascension Health’s St. John Providence Clinical Pathology Laboratory in Grosse Pointe Woods, Mich., stated that the goal is to have all the labs in the state work together in a seamless, integrated fashion.

Regional Lab Integration at North Carolina’s Biggest Health System

“To achieve this, the labs will be linked in four regions—a process we describe as regional integration,” explained Burgess. “Each region has a core lab and rapid response labs and each region will be responsible for building lab volume through increased outreach testing. In addition to changing how labs serve each region, our statewide standardization project has three objectives:

  • “Repatriate existing send-out lab testing back into Michigan;
  • “Establish standard test menus for each facility; and,
  • “Renew each lab’s focus on growing lab outreach business.

“Every lab administrator and pathologist working in hospital and health network laboratories should be tracking this new trend of regionalization and standardization of hospital labs,” observed Michel. “That’s because labs already moving down this path are setting new standards for the entire clinical laboratory industry. This goes beyond cost and productivity, because these labs are putting the systems in place that will allow them to deliver more value to physicians and thus be paid more for that value by private health insurers.”

Innovative Lab Leaders to Speak at Lab Quality Confab in Atlanta

Lab leaders from Ascension Health will be keynote speakers at the upcoming 12th Annual Lab Quality Confab that takes place on October 9-10, 2018, at the Hyatt Hotel in Atlanta. They will also conduct multiple learning sessions to share their successes and lessons learned in building a new core laboratory and using that as a foundation to rationalize and standardize test methods, reference ranges, menus, lab automation, and analyzers at every clinical lab facility in the Ascension Health system. Sessions by Ascension Health lab leaders include:

  • Leveraging Lean to become a Best-in-Class Lab Performer: How We Built and Automated a New Core Lab while Integrating Lab Operations and Helping Staff Embrace a New Culture; Modena Henderson, Vice President, Laboratory Services, and, Steven Harris, Assistant Vice President, Atrium Health.
  • Achieving Standardized, High-Performance Lab Testing Services at Multiple Hospitals Using Lean Methods and Effective Engagement with Lab Staff and Nurses; Gary Catarella, MBA, MT(ASCP), Assistant Vice President, Hospital Operations, Atrium Health.
  • Lessons We’ve Learned in Our Step-by-Step Journey to Transform Lab Operations and Integrate Testing across All Sites: Engaging Staff, Sustaining Change, Working with Vendors and Consultants—Interactive Roundtable Discussion; Modena Henderson, Vice President, Laboratory Services; and, Steven Harris, Assistant Vice President, Atrium Health.

Using Lean, Six, Sigma, ISO 15189 in Clinical Laboratory Operations

Lab Quality Confab this year features 60 speakers and 40 presentations from lab administrators, pathologists, and other lab managers on their successes and innovations using Lean, Six Sigma, ISO 15189, and other process management methods. You can view the full agenda here (or copy and paste this URL into your web browser: https://www.labqualityconfab.com/agenda).

This year’s Lab Quality Confab is on track to be the largest in its 12-year history. Limited spaces are still available. To ensure your place, register today at: https://www.labqualityconfab.com/register (or copy and paste this URL into your web browser: https://www.labqualityconfab.com/register).

Also, you can bring your lab team and make this Lab Quality Confab a group learning opportunity. When you bring four or more from your organization, each can register for $695 for this two-day learning event. One benefit you’ll gain from bringing your team is that it will give them the knowledge, the tools, and the confidence to help your lab reduce costs without compromising quality, while supporting sustained revenue growth from your hospital lab’s successful outreach program.

—Michael McBride

Related Information:

Full Agenda and Other Details for 12th Annual Lab Quality Confab

To Register for 12th Annual Lab Quality Confab

10 Things to Know about Atrium Health, Formerly Carolinas HealthCare System

Québec’s Laboratory Consolidation Plan Aims to Save $13.5 Million: Optilab Québec to move 123 labs into 11 lab groups

Michigan’s Ascension to Standardize Labs Throughout the State: Goals Are Common Test Methods, Menus, Practices

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

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

‘Best of class’ clinical laboratories and anatomic pathology groups shared case studies in effective cost-cutting and steps they are taking to add value to lab testing services

NEW ORLEANS, LOUISIANA—Here in the Crescent City this week, almost 300 clinical laboratory managers and pathologists gathered to learn and master the latest innovations in managing cost in medical laboratories, while introducing high-value medical laboratory testing services that help physicians deliver better outcomes for their patients.

This is not an easy tightrope to walk for clinical lab leaders. Across the United States, most medical labs and pathology groups are dealing with shrinking budgets and falling prices for lab testing. This means less money to perform the same or growing volume of patient specimens arriving daily at their labs. (more…)

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