For labs, opportunity knocks as wallets close

While individual institutions may see modest growth—two percent, five percent—in inpatient admissions, Michel called that cold comfort. “At the same time you’re seeing growth in your inpatient count, you’re capturing a smaller proportion of all the health care services in your community.”

Michel’s argument was clear: “The marketplace that your lab served has reached a tipping point, and it’s not going to be the same environment going forward that it’s been over the last five or 10 years.”

Darwin might have had a field day poring over these evolutions in medicine, but for labs, the message allows scant room for intellectual enjoyment. Labs need to develop new strategies. Quickly.

A good starting place, Michel suggested, is to wrestle with the question he posed earlier: If people other than physicians are deciding where to have tests performed, how will they choose one lab provider over another? Michel said these nonphysician owners would be looking for the best value proposition.

“There’s going to be opportunity in all of this for innovative lab organizations,” Michel told his audience, “but it’s not going to come easily. It’s going to require initiative. It’s going to require you stimulating your lab team to be proactive—What can we do? What can we try?”

As an example, he talked about patients who now have annual deductibles of, say, $1,500 per individual or $5,000 per family. “Your labs are going to need to collect the entire bill, probably through June, July, August of a calendar year. Is your lab prepared to be collecting 100 percent of lab test claims? You may need to have a cash drawer in every phlebotomy station, because it’s smart to collect at time of service. That’s what the doctors and the radiologists and the ancillary care providers are doing.”

Labs will also need to sell the value of testing, rather than tout low prices.

At John T. Mather Memorial Hospital, in Port Jefferson, NY, the laboratory managed to do just that when it targeted Clostridium difficile and methicillin-resistant Staphylococcus aureus. The lab, which runs 2.3 million tests annually, added a PCR assay, which meant an additional $448,400 in screening costs of high-risk patients from 2008 to 2012. The number of MRSA infections, however, dropped from 74 in 2007 to 18 in 2012. That translated to $1.96 million in cost avoidance, or a net savings of $1,511,600.

The new testing algorithm, added at the same time, created a stratified protocol in which the lab continued to use its ELISA but triaged a certain percentage of patients to PCR. In four years of doing this, the number of C. difficile infections dropped from 70 to 26, Michel said. The increased lab costs came to $86,460, but the cost avoidance was $1.54 million, with the net savings an impressive $1,453,540.

“This is how you organize your lab to deliver value,” Michel said.

Labs should have plenty of incentive to make similar changes of their own, given that the government’s wallet is empty, he said.

Asking for a show of hands, he noted that only 10 percent (a figure he deemed generous) of audience members had been paid for certain molecular tests since Jan. 1. “You all should be very angry about this,” he said. And since private payers are waiting for Medicare to act, “You’re not getting paid by the private payers, either.”

Nor will matters improve. “It’s going to get worse before it gets better,” he predicted. Policymakers and claims administrators can’t keep up with technology changes or demand for services. The only change Michel sees ahead is even deeper cuts, from both public and private payers.

“Don’t be caught asleep at the switch,” he warned.

On the bright side, however, those who remain awake will find something worth cheering. “There will be 320 million Americans who continue to get lab testing,” Michel concluded. “That’s not going to change. Some lab is going to be performing these tests. Why shouldn’t that lab be your lab?”

Karen Titus is CAP TODAY contributing editor and co-managing editor.