Uncovering Revenue Sources Through Transformation of the Hospital Lab

Becker’s Hospital CFO

By Kelly Gooch
May 11, 2016

The rising cost of care delivery means cost reduction is a top priority at hospitals across the U.S.

In fact, almost 60 percent of U.S. hospital executives said their institutions must substantially change their business models in the near term if they are to survive financially, according to new research sponsored by Prudential Retirement, a business unit of Prudential Financial.

To cut costs, organizations are looking at everything from patient services to tighter supply controls, down to energy efficiency initiatives. In the area of patient care, one of the key services that hospitals may often overlook is labs — some of which run well below capacity and efficiency.

Though the lab represents a small part of hospital spend — 3 to 5 percent — patient care comes to stop without high performing labs. Labs are woven throughout the care continuum with critical information from lab tests impacting more than 70 percent of medical decisions and comprising upwards of 80 percent of a patient’s EMR, according to Accumen, a lab transformation company based in San Diego.

“Without lab data, a hospital can’t function, and — without an integrated and high-performing lab — hospitals will struggle to achieve levels of peak performance,” says Accumen CEO Jeff Osborne.

How does lab transformation work?

As health systems continue to expand their presence in the communities they serve and further align with value-based care models, labs have an opportunity to elevate their contribution to improve and integrate patient care from within the system.

Transforming a lab into an integrated and high-performing environment starts with the idea of reimagining the lab and the potential that exists to go beyond the current paradigm of test in, result out.

Transformation begins with a lab health check — looking at speed, accuracy and efficiency.

“In meaningful terms, are physicians receiving the right test results as quickly as possible so they can diagnose and treat patients faster? Are specimens collected with accuracy — no contamination, mislabeled specimens or redraws?” says Mr. Osborne. “It’s about understanding the current experience and capabilities of the lab, allowing the actual data to speak to performance and where the opportunities might exist. This is how a successful transformation journey begins — meeting the lab at the point of need and opportunity.”

Opportunities to save

Accumen, for instance, helps hospital labs evolve to operate at peak performance. Services that can help labs reduce the cost of necessary purchases — like needles and tubes — by up to 30 percent by renegotiating contracts through better management of inventories.

In the critical and rapidly evolving area of lab test menus there also exist multiple improvement opportunities to streamline, optimize and modernize testing. One such example is consolidation — internal strategic placement of tests within the hospital lab network, in-sourcing of tests that have previously been sent out to reference labs, or strategies for improved test utilization. For in-sourcing of tests, Mr. Osborne gave the example of a hospital lab that sent Vitamin D tests out to a reference lab. After realizing those tests could be brought back in-house, the lab saved $1.6 million annually on that one test.

Another area for hospital labs to potentially save is in blood utilization and eliminating unnecessary blood transfusions. According to Accumen, anywhere from 40 to 60 percent of transfusions administered in the U.S. are unnecessary.

While transforming a hospital lab can be beneficial for hospitals, achieving sustainable change takes time. Mr. Osborne estimates it can take three to five years to get a hospital lab at peak performance.

But he says the journey is well worth it, since hospitals typically have an opportunity through a strategic transformation plan to save more than 20 percent on their annual lab costs, which for an average lab will be anywhere from $16 to $20 million a year.

Sentara Laboratory Services

Sentara Laboratory Services (SLS), part of Norfolk, Va.-based Sentara Healthcare, is an example of how lab transformation can work. More than 700 laboratory professionals at 12 Sentara hospitals offer diagnostic services for in-house and community clients, according to a news release.

SLS, which recently was named Lab of the Year by peer-reviewed journal Medical Laboratory Observer, has an organizational structure that supports a clinical specialist in each discipline. The clinical specialist in each field is able to choose automated platforms in their disciplines that will fit the needs of the system. Since this technical expert is a system position, they can implement this automated equipment across the 12-hospital system thereby increasing standardization.

SLS also has been able to complete renovations and updates to their hematology lines and chemistry lines, which allows them to increase work load and gain efficiencies without any additional strain on staffing, says Lab Director Lou Ann Wyer.

SLS has brought a fourth-generation HIV test in-house. Microbiology will also implement Matrix-assisted laser desorption ionization time of flight (MALDI TOF), which will allow SLS to identify organisms in less than three minutes.

“That will be a significant savings to the bottom line of the organization as patients have their bacterial infections identified quicker. Patients can be treated with the appropriate antibiotic and ultimately this can contribute to the decrease in length of stay,” Ms. Wyer says.

In addition, SLS, which routinely looks at sendout volumes of tests and decides which tests make the most sense to bring in-house, recently insourced some women’s health panels and oncology mutation markers to its molecular lab. SLS has been able to save about $200,000 a year alone by insourcing the women’s health panels. They will also bring in next-generation DNA sequencing this year, which will allow SLS to produce a large amount of data from a minute sample, providing better patient care and decreasing repeat biopsies. SLS will ultimately be able to get over 100 gene panels from one small sample of a tumor from patient and target specific mutations that are driving that person’s specific cancer, according to Lab Director Tabetha Sundin, PhD.

“Anytime that we are able to insource a test, we gain efficiencies in both time and cost savings. So we can typically do things faster and cheaper in-house, and we’re able to provide better patient care due to that savings of time and money,” Dr. Sundin says.

Outside of these efforts, SLS has partnered with the Sentara IT team to educate patients in signing up for MyChart, the Sentara eCare app, which allows patients to view their health information on their personal electronic devices.

Additionally, SLS features a self-testing program for consumers, who can order blood tests and pay online without a physician order and present at any Sentara draw site. Sentara laboratories also created a common IT platform that is being implemented across all 12 hospitals. The platform aims to speed delivery of lab results and add convenience for patients, who can present to any Sentara laboratory in the system for blood draws and other services.