CAP TODAY Pathology/Laboratory Medicine/Laboratory Management
Anne Paxton
August 2017—In the game of Risk, dominating the board hinges not only on clever strategy but also on rolls of the dice. In the real-world game that is the enormous laboratory market, there is a parallel: Rationally calculating the profitability and risk of mergers or acquisitions is crucial, but many such business moves involve a gamble.
Right now, the main thing the laboratory industry appears to be betting on is upheaval.
Top executives and consultants in clinical laboratory testing tell CAP TODAY that hospital labs retain about two-thirds of the testing market, many hospital outreach programs remain strong, and it’s not necessarily time for them to bail. But as the national labs continued to rack up more outreach purchases this spring, these experts suggest that hospital labs need to gird for new game rules.
Second of two parts. In July, ‘Outreach: forge ahead or accept purchase bid?’
The severe cuts in clinical laboratory test reimbursement expected from the Protecting Access to Medicare Act of 2014, which are slated to take effect Jan. 1, 2018, are getting much of the blame. “Everyone is sweating bullets” about the potential impact of the CMS’ plans, says laboratory consultant Paul Camara, a principal with Applied Management Systems, Burlington, Mass.
Fresh political unknowns surrounding reimbursement policy, the nationwide rise in physician employment, and growing pressure to demonstrate value and not just deliver a test result are also unsettling. These factors present major challenges for laboratories—particularly hospital outreach programs—built on assumptions about revenue and test-ordering practices that may now be out of date.
The combined impact of these emerging forces will be dramatic, warns Khosrow Shotorbani, MBA, MT(ASCP), CEO of TriCore Reference Laboratories, Albuquerque, NM. With 30 percent cumulative growth over the past three years, TriCore is not hurting for business, but “PAMA is going to change the ecosystem of the laboratory business in a massive way because the current business model is going to have to change,” he predicts. “Even if you learn to live with the new PAMA reimbursement, our addressable market is shrinking.”
Nationwide, outreach programs’ average net revenue per laboratory test fell 13 percent between 2007 and 2015, according to the 2016 laboratory outreach survey by Chi Solutions. Among survey respondents, programs jointly owned by independent labs and hospitals tripled, and the percentage of multiple-hospital core-lab-based outreach programs more than doubled while single-hospital outreach program numbers dropped. Net new sales growth was weak for more than half of respondents.