This is an excerpt from a 2,400-word article in the Nov. 20, 2017 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.
CEO SUMMARY: Here at the dawn of the new era of value-based healthcare, THE DARK REPORT has uncovered a new trend: The diverging paths of hospital labs and independent lab companies that will severely test the endurance of the independents, radically alter ancillary industries and create fierce new competition among specialty labs.
OVER THE PAST 24 MONTHS, the paths of many hospital and health system laboratories have begun to diverge from that of independent lab companies.
The reasons for this divergence are complex and have less to do with how private health insurers are reducing reimbursement for lab tests and are more related to the way the healthcare system is changing.
This development is significant because it means hospital labs will evolve to serve different marketplace needs than those served by independent clinical lab companies. It will also change the relationships that hospital laboratories have had with independent lab companies in several ways.
At least four distinct drivers are propelling this divergence. They are:
- The need for hospitals and health systems participating in ACOs and integrated delivery networks, driven by value-based healthcare models. to have a full longitudinal record of every patient’s lab test data—whether the tests were performed in inpatient, outpatient, or outreach settings.
- Need for the patient’s longitudinal lab test data to have the same test methodologies and reference ranges.
- Changes in the reasons why office-based physicians may prefer to use the lab testing services of their local hospital or health system laboratory versus independent lab companies.
- Changes to the way hospitals contract for anatomic pathology testing services that traditionally have been provided to hospitals by private pathology group practices on contract.
Under the new value-based healthcare model, hospitals and health systems operating as part of accountable care organizations— or contracting with health insurers—must have a complete record of each patient’s lab test data to support the ACOs’ and health insurers’ need to monitor their patients’ care over time, as well as to demonstrate that the hospitals and health systems are delivering care that supports the ACOs’ and health insurers’ efforts to improve patient outcomes and control costs.
Supporting ACOs’ Needs
Hospital- and health system-based pathologists and lab administrators have learned the value of a complete record of a patient’s lab test results in the new era of value-based healthcare. Not only is it important to have patients’ complete test result histories that use the same test methodology and reference ranges, but it is clinically valuable to have the results of all lab tests done for each patient in inpatient, outpatient, and outreach settings. This understanding gives hospitals and health systems what could be called a home-field advantage versus independent clinical lab companies.
THE DARK REPORT is first to identify this divergence and attempt to describe it in ways that help hospital lab administrators, pathologists, and executives at independent clinical laboratory companies meet the changing needs of the marketplace. As this divergence becomes more obvious, fundamental changes will reshape the goals, motives, and lab test service mix of hospitals compared with those of independent lab companies in five significant ways.
Changes for related industries
First, IVD manufacturers will need to develop analyzers, automation, and testing systems customized to the new needs of hospital labs, compared to those of independent lab companies.
Second, companies that sell software and laboratory information systems to labs will need to customize their products to the new requirements of hospital and health system laboratories. These products will have functions distinct from those products the IT companies sell to independent lab companies.
Third, reference and esoteric lab companies that serve hospitals and health systems will need to do more than simply be a source of send-out testing. The success of these labs will depend on how well they collaborate with major hospital labs to improve patient outcomes and reduce costs.
Fourth, as hospital labs build new clinical relationships with office-based physicians in their communities, their efforts could tip the competitive balance in favor of hospital and health system labs over commercial lab companies.
Fifth, providers of anatomic pathology services—be they the local private group practice, a large regional pathology practice, or a pathology lab company—will undergo a reordering as administrators of hospitals and health systems renegotiate the mix of surgical pathology services to match their institution’s clinical and financial needs. In some cases, pathologists may become employees of the hospital or health system.
Home field advantage?
In tomorrow’s value-based healthcare system, the winners will be those integrated delivery networks, including ACOs, hospital labs and integrated health systems, that achieve effective integration of clinical care while practicing precision medicine that keeps patients healthy and out of hospitals and lowers the cost of care.
These goals play to the strengths of hospital and health system labs that start with a home-field advantage.
These are the clinical and market forces that will cause the paths of hospital and health system labs to diverge from the paths of independent lab companies. This divergence will go as fast as the shift from fee-for-service payment to value-based reimbursement occurs, thus causing a major realignment in the lab marketplace.
Rise Of Specialty Labs
Over the past decade, the clinical laboratory industry has experienced one other important trend: a sharp rise in the number of specialty lab companies. Typically, these lab companies offer a specific menu of tests directed at certain medical specialties.
The largest number of specialty lab companies are in cardiology and cardiovascular testing; toxicology, pain management, and pharmacogenomics testing; and molecular diagnostics and genetic testing.
Thirty years ago, hospital labs served the inpatient and outpatient sectors while independent lab companies held an overwhelming share of the office-based physicians in the outreach sector. Today, hospital lab outreach programs, the two large national lab companies, and the numerous specialty lab companies compete intensely for the test referrals coming from office-based physicians, making competition for lab test referrals from office-based physicians the most intense it has been since the early 1990s.
Competition For Specimens
Despite the substantial reduction in the number of independent lab companies offering standard test menus, the still-growing number of specialty testing lab companies has filled that vacuum. These specialty lab companies fight furiously to win the lab test referrals of those specialist physicians who can refer the largest number of patient specimens for their proprietary tests.
Is your independent or specialty lab prepared for the new challenges of the value-based, integrated healthcare era? Please share your thoughts with us in the comments below.