Savvy medical laboratory managers conduct internal audits of processes involved in deficiency citations so they can uncover how deficiencies occur and help eliminate recurrences
One trend that places clinical laboratories at risk involves increased regulation of lab processes, along with more thorough accreditation inspections. Compared to past years, both developments mean more ways for lab assessors to find greater numbers of deficiencies.
However, leading laboratory accreditation and quality improvement experts say that many deficiencies could be avoided if lab leaders conducted their own internal audits and continuous quality improvement projects ahead of visits by accrediting authorities.
In an exclusive interview with Dark Daily, Randall Querry, Director of Government Relations at the American Association for Laboratory Accreditation (A2LA) said, “Clinical laboratories can do a better job of preparing for the external assessment by doing an internal audit. That is, watching personnel perform tests and noting if they aren’t following the same sequences that standard operating procedures address before the external assessors arrive.”
“This doesn’t have to be an ‘us against them’ exercise. We are
all in this together for continual improvement and to ensure we’re doing a
better job at the end of each day—that we have had a win,” said Querry
said.
How Should Clinical Laboratories Conduct Internal Audits?
So, what is the best method for clinical laboratory leaders to
conduct their own audits of operations and avoid citations of deficiencies?
Lucia Berte, President of Laboratories Made Better, suggested medical laboratories should “Pick a sequence and follow it through.” In the Dark Daily interview, she suggested labs should focus on:
The sequence of receiving samples in the
laboratory to make certain they are properly accessioned, processed, and
distributed;
Steps to setting up and running an analyzer; and
The process of ensuring tests’ critical values
are reported to ordering clinicians and how reports are made.
An internal audit may suggest areas where the clinical lab
is not on target to meet regulatory and accreditation criteria. Or, the lab may
discover what Querry calls “gray areas”—places where criteria are currently
being met, but a trend suggests there could be problems down the road.
“And in those cases, it’s always good to identify areas of
improvement for preventative action. They may not be a top priority—such as a
deficiency—but the areas are on the radar screen as something to address to prevent
it becoming a worsening problem,” Querry said.
Quality Improvement Processes to Address Deficiencies
Berte notes that citations in one area of the lab may
suggest the need for continuous improvement projects across all laboratory
departments or sections. For example, an accrediting body may cite chemistry
for a deficiency while hematology and other departments do okay. However, that
determination can be deceiving.
“There is always an underlying process. And the better
question for the clinical laboratory is ‘can we make an improvement project out
of this that can solve this problem not only for the area where it was cited,
but perhaps prevent this problem from occurring in other lab [departments]
prior to the next external accreditation assessments?’” Berte said.
Lack of Uniformity among a Clinical Laboratory’s
Departments
Berte says a common deficiency is “lack of a uniform
competency assessment program” for staff throughout the lab. Assessors expect
laboratory departments to have the same competency assessment in regard to
processes, records, and the way documents are created, she explained.
Lucia Berte (above), President of Laboratories Made Better, advises improving quality of documents as a project across the entire lab. “We still have a lot of silo-mentality in labs—where chemistry is different from hematology which is different from transfusion. Labs should have a uniform approach to the way their documents are written, and this is not necessarily the case,” she told Dark Daily. (Photo copyright: Whitehat Communications.)
Competency-related Citations
Berte also said competency-related citations may happen when
documents read by auditors are not in sync with what the officials see in the clinical
lab during inspections. “People not doing things in the order in which things
have to happen. That’s the disconnect.”
Querry, speaking from the perspective of an assessor, adds,
“We see a discrepancy and ask—do they have the appropriate work procedures with
them at the workstation? Is it accessible? Where is this discrepancy? We
identify it and then it’s up to the lab to address it—in training, and between
the written procedure and the process.”
Consistency, he says, is important especially in
organizations where staff rotate among lab areas and different shifts.
Quality System Essentials for Clinical Laboratories
The website for the Clinical and Laboratory Standards Institute (CLIA) states that implementing a quality management system in the lab involves use of “quality system essentials (QSEs).” QSEs are key to lab workflow, communication, and training. They include documents and records management, assessments, and continual improvement.
Querry emphasizes that trying to predict what the hot citations may be in 2020 is not as important as focusing on the technical competence of the lab and its resources.
“We are not out to play gotcha. We are going in there, looking
at all the systems, and doing a sampling of testing in various departments of
the lab. It’s up to the lab to show us it is technically competent to perform
those tests. And they have the equipment and records that the equipment has
been checked and calibrated and maintained. We have an examination process,” he
said.
Experts agree, clinical laboratories that prepare for
external assessments with internal audits and continuous improvement programs
may reduce deficiencies during inspections.
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
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.)
All Medical Laboratories Will Suffer Financial Pain from Medicare Price Cuts
But it is not just community lab companies and rural hospitals that are at risk of financial failure as the Medicare Part B cuts are implemented by CMS on Jan. 1, 2018. Any clinical laboratory serving Medicare patients will experience a meaningful drop in revenue. Many larger hospital and health system laboratories are recasting their financial projections for 2018 to identify how big a drop in revenue they will experience and what cost-cutting strategies will be needed to at least break even on their lab outreach business.
This explains why the first big trend of 2018 will be substantial revenue cuts from the Medicare program. It also explains why the second big trend of 2018 will be smart cost-cutting as labs attempt to balance their books and lower spending proportional to the reduced income they project.
Labs Have a Decade of Successful Cost-Cutting, More Cuts are Difficult
Aggressive cost-cutting, however, puts the nation’s medical laboratories at risk for a different reason. For the past decade, most well-run labs have already harvested the low-hanging fruit from obvious sources of cost reduction. They installed latest-generation automation. They re-engineered workflows using the techniques of Lean, Six Sigma, and process improvement.
During these same years, most medical laboratories also reduced technical staff and trimmed management ranks. That has created two new problems:
First, there are not enough managers in many labs to both handle the daily flow of work while also tackling specific projects to cut costs and boost productivity. Basically, these labs are already at their management limit, with no excess capacity for their lab managers to initiate and implement cost-cutting projects.
Second, technical staffs are already working at near peak capacity. Increased use of automation at these labs has reduced lab costs because labs were able to do the same volume of testing with fewer staff. However, the reduced staffs that oversee the lab automation are now working at their own peak capacity. Not only are they highly stressed from the daily routine, they also do not have spare time to devote to new projects designed to further cut costs.
Each Year Will Bring Additional Cuts to Medicare Part B Lab Prices
This is why all clinical laboratories in the United States will find it difficult to deal with the Medicare Part lab test fee cuts that will total $400 million during 2018. And what must be remembered is that, in 2019 and beyond, CMS officials will use the PAMA private payer market price reporting rule to make additional fee cuts. Over 10 years, CMS expects these cuts will reduce spending by $5.4 billion from the current spending level.
Taken collectively, all these factors indicate that many medical laboratories in the United States will not survive these Medicare fee cuts. The basic economics of operating a clinical laboratory say that less volume equals a higher average cost per test and higher volume equals a lower average cost per test.
Medical Labs with Highest Costs Most at Risk of Failure from Price Cuts
What this means in the marketplace is that labs with the highest average cost per test make the least profit margin on a fee-for-service payment. The opposite is true for labs with the lowest average cost per test. They will make a greater profit margin on that same fee-for-service payment.
Carry this fundamental economic principle of medical laboratory operations forward as Medicare Part B lab test fee cuts happen in 2018. Labs with the highest average cost per test will be first to go from a modest profit or break-even to a loss. As noted earlier, the clinical lab sectors that have the highest average cost per test are smaller community labs, along with rural and community hospitals. That is why they will be first to go out of business—whether by sale, bankruptcy, or by simply closing their doors.
Learning How to Cut Lab Costs While Protecting Quality
Every pathologist and lab administrator seeking the right strategies to further cut costs in their lab, while protecting quality and enhancing patient services, will want to consider sending a team from their laboratory to the 11th Annual Lab Quality Confab that takes place in New Orleans on October 24-25, 2018.
Anticipating the greater need for shrewd cost-cutting that also protects the quality of the lab’s testing services, this year’s Lab Quality Confab has lined up more than 51 speakers and 39 sessions. Of particular interest are these extended workshops that come with certifications:
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:
Developing single-piece and small batch workflow to cut TAT and lift productivity.
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.
Nation’s most experienced lab operations managers, cost-cutters, and Lean experts will gather to share successes and proven ideas at Lab Quality Confab on October 18-19, 2016
Most hospitals and health systems are in the first stages of developing their budgets for 2017. Clinical laboratory administrators and pathologists at these institutions report three common factors are driving the next budget cycle: falling reimbursement, flat or declining inpatient admissions, and directives to cut their lab budgets.
“At our health system, the challenge is a bit different,” said one lab administrator at a large Midwest hospital. “Inpatient volumes are increasing, but we get less money from health insurers per admission. For that reason, our budget planning requirement is to accept a smaller budget than last year, while planning to handle more specimen volume in 2017, compared to this year.” (more…)
