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Laboratory 2.0: Changing the conversation

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Kevin B. O’Reilly

July 2016—Bundled payments, physician employment, and unconventional competitors are cannibalizing the volume-based business model that for decades has defined laboratory medicine. And labs have little room within their customary confines—the three percent of health system spending they directly account for—to play a central role in American medicine’s transformation.

TriCore Reference Laboratories CEO Khosrow Shotorbani, MT(ASCP), put the matter succinctly to a group of laboratory leaders and other health care experts who met in Santa Fe, NM, this spring to tackle the conundrum of how to move from volume to value.

“The question is,” Shotorbani said, “how do we survive in the future? If there is no margin, there is no mission.”

Altering the discourse and, ultimately, the practice of laboratory medicine is the ambitious goal of the invite-only brainstorming sessions among two dozen heavy hitters in health care. The think-tank-style venture, dubbed Project Santa Fe, includes leaders from five of the most innovative clinical laboratory operations in the country: TriCore; the Henry Ford, Geisinger, and Kaiser Permanente Northern California health systems; and New York’s Northwell Health (formerly known as North Shore-LIJ Health System).

Shotorbani

Shotorbani

The project brings to mind the R&D that took place just 30 miles away in Los Alamos, NM, where more than 70 years ago the scientists of the Manhattan Project raced to beat the world’s totalitarian powers in developing a nuclear weapon. Project Santa Fe participants, too, see themselves in a contest where time is of the essence. What’s needed to beat the clock before fee-for-service dies, they say, is an enterprising, aggressive strategy that aims for a wholly new understanding of the laboratory’s role in medicine. Call it lab 2.0. That is the term Shotorbani uses.

“The lab of today is by no means in a position to deal with the world of value-based health care,” he tells CAP TODAY. “The laboratories of the past focused on patient service centers, the cost per unit, their turnaround time, their contribution margins, and their test menus. We think that lab 2.0 should focus on cost per care episode or cost per population, moving from volume to value. That requires a whole new business model. . . . That’s not just going to require grabbing something off the shelf and you’re there. It will be a significant challenge to move from this model to the other one.”

“When we talk about value, it means people being willing to pay for outcomes, not just for efforts,” Shotorbani added. The big problem, he said, is there is precious little capacity for laboratories to improve and create health care value within the domain over which they exert direct control.

“The laboratory industry is reaching Six Sigma performance in the analytical stage”—3.2 defects per 1 million transactions. “That’s almost perfect. The sad part is that on the preanalytical we do a lousy job of really helping the physicians choose the right test. And on the back end, we do an equally poor job of helping them interpret the test and to map it onto the next stages of therapeutic treatment,” he said. “Our current payment is tied to the analytical stage, yet our customers are moving toward pay for performance.”

Physicians do not follow up on about six in 10 outpatient test results, and tests are overused about 30 percent of the time and underused about as often, Shotorbani noted. Tests are misused between five and 50 percent of the time, he said, depending on the disease. He cited a Sept. 27, 2010 Wall Street Journal article, “What the Doctor Missed,” that drew together research showing that physicians’ failure to order the right test is a contributing cause in 55 percent of costly, often deadly medical errors. Clinicians’ incorrect interpretation of diagnostic tests is a factor in nearly 40 percent of malpractice cases.

“One of the opportunities,” Shotorbani said, “is a continuous diagnostic process.” That is, laboratories should vigorously seek moments in the continuum of care where they can—through use of their clinical data and expertise—intervene to help clinicians achieve better patient outcomes while improving the bottom line.

“What if,” he asked those gathered in Santa Fe, “we could bend the cost curve and reduce diabetes by 10 percent? Because that’s a very labor-intensive condition, right? We spend over $240 billion annually on diabetes. In contrast, we spend about $31 billion repairing our roads.”

If laboratories could use their data to predict health trends across payer populations and enable clinicians to target interventions, Shotorbani said, they would be providing value that lies outside the three percent spent on laboratory services and reaches deep inside the other 97 percent of the country’s medical expenses.

“This is our net worth—three pennies out of each dollar that we spend in health care,” he said. The choices facing laboratory medicine are to squeeze more value out of that three percent—“which is impossible,” Shotorbani said—or to work in concert with clinicians, health care providers, and payers to slash the estimated 30 percent of all health spending that is wasted.

“If we do nothing, we will be heading toward the cliff of a subsidy model, and we all know subsidized organizations don’t have a sustainable business model. If we stay in the lab, we will die as a lab, from the business model perspective,” Shotorbani says.

The spark behind the think tank meeting is “that we don’t have a current playbook on how to do business under bundled payment or under accountable care,” Shotorbani says. But he has well-formed notions about the shape that playbook may take, based on the work he and his TriCore team have done already. Project Santa Fe’s other participants also showed how their clinical laboratories have harnessed the power of laboratory data to change care in ways that cut costs or bring in revenue for their organizations.

“The value proposition is different than what the traditional lab outreach has been,” Shotorbani says. “Instead of saying, ‘We perform 1,700 different tests at a certain cost per unit, and contribution margins,’ we now can say, ‘We can identify where there are high-risk patients and where there are patient care gaps.’ This conversation is very different, and how we get paid has to be different.”

The mission statement the group agreed on says that Project Santa Fe “will be a coalition of like-minded national leaders and reputable institutions in laboratory diagnostics, coming together to create and help drive the new frontiers that will define the future economic valuation and placement of our diagnostic services. This think tank will innovate a new CPT-neutral and disruptive ‘value’ paradigm, safeguarded by shared intellectual property.”

The inaugural meeting of Project Santa Fe was such a success that its participants immediately agreed to reunite next spring. The first item to come out of the project will be a white paper on the strides these laboratories have made in creating health care value. Participants agreed to give CAP TODAY, whose publisher attended the Santa Fe meeting, a peek at these next-level achievements and talk in detail with this reporter about how they were accomplished.

Robert Michel, editor-in-chief of The Dark Report and principal organizer of the Executive War College and Lab Quality Confab meetings, was invited to monitor the group’s sessions and toss in his questions and insights.

“It’s my sense from sitting in on these discussions that this is a group of laboratory leaders who have observed how slowly the profession of lab medicine has responded to a lot of very strong signals in the health care marketplace,” he tells CAP TODAY. “They have volunteered, if you will, to create a tight little working group to identify opportunities for labs to demonstrate clear value in ways that would bring the financial solvency laboratories need to operate and establish a recognized role for pathologists, clinical chemists, and laboratory scientists in how health care providers draw upon their knowledge and expertise.”

Michel

Michel

For years, pathologists and laboratory professionals have “pointed out the health care system fails to leverage the true potential of laboratory testing to dramatically improve patient outcomes while contributing to significant reductions in the overall cost of care,” Michel adds. “My impression of the Project Santa Fe team is that they’d like to change the status quo.

Readers might use the metaphor of being the point of the spear. If we can bring together a small group of very credible players who are motivated to be innovative and to go on the record with their successes and setbacks, they can be the point of the spear and create the opening for laboratory medicine to assume that wider role that pathologists have discussed from the podium for decades.”

One essential point that Project Santa Fe’s leaders seem to grasp, Michel says, is that their message must reach well beyond the laboratory arena to other stakeholders in health care policy and payment.

“If their innovations, and the data that supports the outcomes that result from their innovations, are to change the status quo, then they need to address the central health care decision-makers,” he says. “This will involve having the results of these initiatives that use laboratory testing to higher effect published in prominent peer-reviewed journals and presented at the meetings that hospital and health system administrators attend so they understand the power of the resource that the clinical laboratory and the anatomic pathology lab represent.”

But will all this talk in Santa Fe translate into industry-shaping change?

“This ad hoc working group represents some of the most respected health care systems in the United States,” Michel says. “That gives them the potential to be effective change agents if they realize the high goals they have discussed in this first get-together.”

While most of the Project Santa Fe discussions targeted the role clinical laboratory data can play in creating value, anatomic pathology also had a place at the table in the person of Jeffrey Prichard, DO, director of surgical pathology at Geisinger Health System. He demonstrated how the AP quality management system implemented at Geisinger saved more than $150,000 in labor costs between 2009 and 2015 and slashed at least $1 million in care costs by resolving diagnostic reporting bottlenecks.

When it comes to improving quality management and, concordantly, creating value, Dr. Prichard and his AP colleagues are “constantly trying to play catch-up,” he said. “There’s value in the CP data. It makes us important. I want to make AP important. That’s what I care about.”

For too long, the AP approach to quality management has consisted of “the bare minimum to pass an inspection,” he said. “You know, once a year you get together and of a dozen things, maybe one of your clients says, ‘You’re not so good at this.’ You put it on the list for next year. We’ll monitor it for you. That’s all we do in AP and I’m embarrassed.”

So Dr. Prichard and his colleagues set out to “find a new paradigm” that would allow frictionless monitoring and quality feedback on the many hand-offs in AP, from patient to clinician, through the laboratory’s process and back.

In 2007, Geisinger started developing a homebrew add-on to the Cerner CoPathPlus AP laboratory information system. Dubbed QA Tracker, the Web-based tool went live in 2009 and offers professionals at each step in the AP process the opportunity to report problems through a structured modality.

“What’s happening is the quality data in AP is something called crowdsourcing,” Dr. Prichard said. “I can’t find it, but everybody there knows what makes their day not work. They know what makes my specimens stop somewhere in the process. So, in histology they say if those grossers would cut their placentas thin enough, it wouldn’t explode in my water bath after processing, and I wouldn’t have to reprocess it and it wouldn’t stop the specimen.”

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