Feature Story

Retail detail—hospitals mull direct access testing

January 2003
Karen Southwick

Hospital laboratories are in danger of being left behind in the emerging market for direct access testing, in which consumers order lab tests without physician intervention and pay for them out of pocket.

“Reference labs are leading the way [in direct access testing],” warns Bruce A. Friedman, MD, professor of pathology at the University of Michigan Medical School in Ann Arbor and an expert in pathology informatics. But ultimately, he adds, hospital labs “will have a higher stake” than reference labs in direct access testing, or DAT, if they want to maintain their market share and possibly lower costs.

“DAT is one facet of a much larger phenomenon of consumers taking control of their health care,” Dr. Friedman adds. “It’s not going to be possible to stem the tide, and it’s my belief that DAT will find its way into the testing repertoire of hospital-based labs.” If such tests are used responsibly, “they can be an important adjunct to health care,” he says.

However, if hospital labs decide to offer DAT, they should realize they’re getting into a retail business—which requires an approach quite different from their traditional focus, says Lawrence Killingsworth, PhD, chief science and technical officer for Sacred Heart Medical Center Laboratories and Pathology Associates Medical Laboratories, both in Spokane, Wash. He directed a task force that implemented the two organizations’ venture in direct access testing.

Both men spoke at a recent teleconference on DAT sponsored by the American Association for Clinical Chemistry and the Association for Pathology Informatics. Dr. Friedman addressed strategic business issues, while Dr. Killingsworth shared his experience in setting up a pilot project scheduled to be fully implemented this year. They were joined by a health care ethicist, Dianne M. Bartels, RN, MA, PhD, associate director of the University of Minnesota Center for Bioethics in Minneapolis, who discussed the ethical considerations of direct testing.

DAT strategy

Direct access testing has its antecedents in home testing kits for pregnancy and glucose, Dr. Friedman notes. While opponents of DAT cite the possibility of false-positives or -negatives, “the same pitfalls apply to home kit testing,” he says, and have not stopped the self-testing model from proliferating.

To be profitable for a reference laboratory, DAT must become a high-volume business, Dr. Friedman says, noting that prices will fall as more competitors enter the market. He points to Quest Diagnostics as one national lab “aggressively pursuing DAT,” but he adds that Quest must be careful not to alienate its physician office customers in doing so. Another player is HealthcheckUSA, a Web-based DAT broker that outsources its testing to commercial labs. In the future, he predicts, biotechnology companies could enter the market by offering genetic tests directly to the public. Already, Genelex offers a DNA “prescription drug reaction profile,” with CYP2D6, CYP2C9, and CYP2C19 screens that predict response to about one-fourth of prescribed drugs.

Few hospital laboratories have entered the DAT business, in part because many laboratory executives don’t have an entrepreneurial mindset, Dr. Friedman says. But they should consider it. Since the labs are embedded in large health delivery networks, they could use DAT as a marketing tool to attract customers without worrying about profit, he suggests. Then, too, having consumers order their own tests could lower costs for a health care system by reducing the number of physician visits.

Dr. Friedman, who describes himself as a proponent of lab Web sites, says that while DAT order entry and results reporting can be offered online, costs are associated with developing such a sophisticated application. “There’s no ‘free lunch,’” he says. However, many hospital labs have already invested in an online Web-based order-entry and results-reporting infrastructure for physicians and need only tweak it for consumers.

Eventually, Dr. Friedman predicts, some third-party payers will cover DAT because it promotes wellness. For example, hospital-owned insurance plans could offer “lab accounts” to their subscribers, and employers with flexible spending accounts could include DAT as an option. This will fuel more growth, he says, and is all the more reason for hospital labs to at least consider offering DAT.

Case study: Results Direct

Results Direct is operated by Pathology Associates Medical Laboratories, a for-profit subsidiary of Sacred Heart. The organizations wanted to get into DAT to leverage their existing infrastructure and to minimize fixed costs by spreading them over a larger volume of tests, explains Dr. Killingsworth. The multidisciplinary task force set up to oversee the project first looked at other DAT ventures and surveyed consumers in the Spokane area to find out how they would use direct testing.

“At first we were disappointed,” he says, because more than 70 percent of respondents considered themselves “somewhat unlikely” or “not likely” to use DAT. But the marketing staff was wildly enthusiastic, Dr. Killingsworth says, because 20 percent of those surveyed said they were likely to use DAT—a response the staff considered phenomenal for a new service. “Convenience” was the No. 1 reason consumers cited for being likely to use the service; No. 2 was “no need for a physician order.”

The task force predicted that consumers of Results Direct would be young to middle-aged, but in fact they tend to be in their 50s and older, Dr. Killingsworth reports. The surveyed group wanted results mailed to them or available for on-site pickup; e-mail and secure Web access scored lower. For now, Results Direct is not offering results online, though that will change when the program is made more broadly available. Consumers can already order tests and pay for them via the Web.

In designing the DAT product, the task force had to choose a test menu, decide what language to use in reporting results, set pricing, and establish a customer support line. On the test menu are a chemistry survey and panels for allergy, thyroid, cardiac lipid and risk, and diabetes screen and management, and tests for mononucleosis, pregnancy, testosterone, drugs, and more. They’re all automated tests that can be offered at reasonable prices with rapid turnaround, Dr. Killingsworth notes. Results Direct decided not to offer HIV and STD tests because of the need for associated counseling.

Prices range from $20 each for tests such as CBC, glucose, and urinalysis to $175 for a panel of 20 allergens. Most of the major panels, such as those for chemistry and diabetes, fall in the $40 range. “We had to consider our costs, the competition, and our current list prices,” says Dr. Killingsworth.

So far, Results Direct, in limited release, has had few complaints from physicians. Those who have expressed concerns are worried about encroachment onto their practices and liability-related issues if they receive test results for patients they cannot contact. “We agreed that no one would receive the results other than the patient, and that [latter] concern went away,” Dr. Killingsworth says.

Patients must provide a phone number to order tests, and the health center medical director calls any patient whose test results are critical values. Each printed test report is accompanied by a brief interpretation and a recommendation to contact a physician about a positive result or any symptom of the condition in question.

Turnaround times have been about two days since the pilot launched Sept. 1, 2002. Results Direct was scheduled to begin serving all of Spokane in January and the rest of Washington some months later. The plan is to franchise the model to other labs within the next six months. “We want to have our product available when people are ready to use it,” Dr. Killingsworth says, citing increasing interest among hospital labs exploring DAT. Ninety-five facilities participated in the AACC teleconference. Forty-five of those participants responded to an informal poll about whether they were interested in DAT. Thirty-five percent said they are studying it, and 19 percent plan to implement a program within a year.

“We have a template and a proven program,” Dr. Killingsworth says. It’s not just a matter of boosting volume but of dealing with a new kind of business. For instance, hospital laboratories probably haven’t had to deal with “something as simple as making sure a customer credit card is valid,” he says. “We had to set up a whole application for that.”

Marketing is critical to the success of a DAT program, he adds. In fact, the number of clients spikes every time Results Direct runs an advertisement. “You have to advertise to keep up the demand,” Dr. Killingsworth says, “although how much advertising to do remains to be determined.” Results Direct has distributed brochures to all Pathology Associates Medical Laboratories patient service centers and advertised in local media and on its courier vehicles.

Although Dr. Killingsworth declines to give financial figures for Results Direct, which is set up as an independent cost and revenue center, he does say costs have been minimal. “We had to set up customer phone support and develop some new IT applications,” he says, such as a Web site with information on the type of tests available, location of health care sites, pricing, and payment options.

To be successful with DAT, labs must “shift to a retail mentality,” he says. They must be able to monitor test volumes separately from other laboratory business and track revenue from consumers. “This has been a good line of business for us,” he maintains. “If we hadn’t put it in place, we’d be trying to figure out how to do it now.”

Ethical concerns

Dr. Bartels, an ethicist who specializes in genetic counseling, says as DAT becomes more complex, providers must be prepared to help consumers understand the results—“especially in the realm of genetic testing, since even physicians are not prepared to interpret this. How could consumers be prepared to interpret results on their own?”

Moreover, information from direct tests could make its way into patients’ medical records, particularly if they share it with a physician—and could result in insurance or employment discrimination.

Protecting privacy is paramount to a successful DAT business, says Dr. Bartels, who does not advocate for or against DAT but merely wants providers to understand the risk-benefit ratio. But if providers want to use targeted marketing, they’re likely to require information from pharmacies or other sources. For example, advertising for liver function tests might target people on cholesterol drugs. “What kind of incentives will marketers give to obtain this information?” she asks. “Will privacy be at risk?”

With DAT, consumers can drive demand not only by ordering tests but also by asking physicians for followup exams, in much the same way that pharmaceutical advertising has prompted patients to ask for brand-name drugs, she says. This could raise health care costs and contribute to a resource allocation problem.

A bottom-line ethical question for laboratory providers is whether direct tests give consumers needed information they might otherwise not have or whether their benefits are oversold. DAT’s advantage is that it allows consumers, rather than physicians or third-party payers, to decide which tests are relevant for them, Dr. Bartels notes. On the other hand, people may be manipulated into ordering unneeded tests. Consider the example, she says, of advertising she has seen purporting to “save the life of your child with newborn screening tests.”