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Where smart labs go when the money’s gone

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Kevin B. O’Reilly

August 2014—Payment rates declining. Bad debt rising. Test orders falling. Diagnostic equipment manufacturers checking in on test-volume commitments. A wrenching transition from fee-for-service care to population-based medicine. These are a few of the trends that laboratories across the country are seeing and that keep lab directors up at night, heavy lidded, checking their email, illuminated by the glow of their smartphones.

Laboratories are facing tough times, says Stanley Schofield of NorDx. “You need to use your imagination on how to do things differently, and you must have execution.”

Laboratories are facing tough times, says Stanley Schofield of NorDx. “You need to use your imagination on how to do things differently, and you must have execution.”

Strategies that once reliably yielded success in the laboratory business are no longer sufficient, says W. Stanley Schofield. He is president of NorDx, which operates 11 labs and 23 patient service centers and is owned by the MaineHealth system, also affiliated with four other health care organizations in the state. Schofield is cofounder and managing principal of the Compass Group, a 501(c)(6) business league whose 24 lab members represent more than 300 of the nation’s most prestigious hospitals and health systems.

Labs are being called upon to simultaneously add value, cut costs, and improve the quality of the work they do, Schofield says. Moreover, the pressure is on for laboratories to show how their performance compares with that of their peers.

“Today, labs are known for, and their value is seen to be in, delivering accurate test results in a timely fashion,” Schofield tells CAP TODAY. “In the future, the value of the laboratory is that it will help manage that the right test was done on the right patient for the right reason, and that the right cost will be available. And that they manage the data, rather than just report the data. That is one of the huge transitions that labs have to go through right now, and that we are preparing for.”

To succeed, Schofield told a crowd of more than 800 at this year’s Executive War College, laboratories must follow five rules: add clients, keep clients, create revenue opportunities, get paid, and reduce expenses.

An essential ingredient in fulfilling these mandates is having the information to help make tough calls on purchasing, staffing, and test menus while demonstrating value to clients, payers, and C-suite decision-makers. After many years of double-digit growth (for which Schofield credits a dedicated and highly skilled staff), NorDx’s recent expansion has come through the integration of new hospitals and physician practices into MaineHealth.

That stands in stark contrast to what Schofield called the “old school” methods of adding clients.

“What we used to do in outreach is have a few doctors in the neighborhood, or two or three nursing homes, and call that outreach,” he said. “You worked with the providers you knew, and you’d go out and sell a few new ones.”

But that well is running dry, Schofield contends, even as NorDx provides laboratory services to more than 100 nursing homes.

“Now we’re doing more. We’re doing integrations and standardizations. We have been a lead organization for the health system in terms of clinical integration,” he said. “All these health systems come together, and they do all these contracts, and they have to prove they’re clinically integrated and prove they make a difference. We in the lab are the trailblazers for that.

“So, the model we have is that we integrate the entire hospital lab. It’s a total outsource—staff, equipment. It’s possible to generate 15 percent total savings in the lab to the hospital. We have an emphasis. We are not just chasing tests, but providing high-quality service at the lowest possible cost point to a hospital that has not achieved that on its own.”

Hospital management agreements now account for 70 percent of NorDx’s business. Yet it was never a foregone conclusion that leadership at the new MaineHealth sites or affiliates, spread across the sparsely populated state, would readily agree to laboratory consolidation. It takes meaningful data on metrics, such as the cost per lab test, to make the case.

“A hospital says, ‘My lab costs $2 million. You say you can come in here and run it for $1.8 million. Prove it to me.’ That’s where we would show them the cost per test at the core lab, and it turns out to be one-third of the cost at their hospital lab,” Schofield tells CAP TODAY. “That’s where this kind of information is valuable, at the administrative and financial level.”

NorDx works with Applied Management Systems, a Burlington, Mass., consulting firm that, among other things, provides benchmarking services to help labs compare their performance with that of more than 1,000 other U.S. laboratories.

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