Changing Lab Industry Trends Identified at War College

Laboratories Facing New Management Challenges

CEO SUMMARY: Clinical laboratories and pathology group practices are beginning to respond to a new set of marketplace trends. Speaker after speaker at this EXECUTIVE WAR COLLEGE included new business strategies not heard in past years. Probably the most notable difference is a growing emphasis on developing and delivering value-added services which go beyond simply reporting the lab test results to the referring physician. Labs are also formulating business strategies to meet changing consumer needs. Not surprisingly, Internet-based lab services continue to be a subject of high interest among laboratory professionals.

MOST LABORATORIANS AGREE THAT the decade of the 1990s was marked by nonstop financial turmoil and wrenching operational change for clinical labs and pathology group practices.

In contrast, the early part of this decade is relatively calm, giving labs and pathology groups the opportunity to assess current healthcare market trends and develop appropriate business strategies to profit from these trends.

Latest In Lab Industry Trends

Earlier this month, more than 400 senior lab executives and pathologists gathered in Cincinnati for the Sixth Annual Executive War College on Lab and Pathology Management. A distinguished faculty of almost 50 presenters was there to share the latest in market trends, business strategies, and operational innovations that affect laboratories.

In contrast to earlier War Colleges, I noticed that this year’s gathering was highly optimistic and relaxed. Most lab administrators and pathologists commented that their laboratories were financially stable and not under the extreme cost-cutting duress that was so prevalent from the mid-1990s forward.

Such optimism is a notable fact. A significant number of attendees are hospital-based laboratorians. Their statements about the financial stability of their laboratories is congruent with the strong profits posted by public lab and pathology companies. Taken together, these are confirming signs that the lab industry is enjoying widespread financial stability.

Wealth of Management Ideas

Two things make the Executive War College a unique place to gauge the “state of the lab industry.” First, almost 50 innovative laboratorians provide presentations on a wealth of lab and pathology management topics. These are cutting-edge lab organizations and their business initiatives represent “best of class” in lab management thinking.

Second, the 400+ attendees represent an extraordinary cross section of senior laboratory executives and pathologists. The War College audience also includes a growing contingent of international lab executives. This year’s participants included laboratorians from Australia, New Zealand, Brazil, and even the Persian Gulf country of Oman.

These individuals are movers and shakers in their own right. Their observations and criticisms about the presentations are rich with insight and knowledge.

Add these two influences together, and it creates an exceptional opportunity to judge what’s happening in the laboratory and pathology professions today—and what’s about to happen in the next 24 to 36 months.

This year I could identify five broad themes on lab management from the speakers and the attendees. These themes represent basic influences and trends shaping healthcare and laboratory testing services. Here is a brief synopsis of each:

THEME 1 
EMPHASIS ON OPERATIONAL EXCELLENCE

Now that most of the nation’s leading laboratory innovators have consolidated lab functions and joined regional lab networks, the “era of widespread lab consolidation” seems to be at an end.

The management focus at these labs is shifting toward two basic goals. First, to improve productivity and lower costs within the laboratory. Second, to improve the quality of service to physicians and patients by reducing lab errors in such areas as couriers, specimen handling, bench testing, and billing/collections.

This shift in management thinking can be categorized “operational execution.” Now the emphasis is on work processes within the lab and how to improve the productivity of every aspect of laboratory operations.

At this year’s War College, some of the most popular sessions involved case studies of laboratories which were improving their execution of work processes. For example, Ken Geromini, CEO of Life Laboratories, a modest-sized lab in Springfield, Massachusetts, explained how the use of new productivity measuring tools offered through Premier, Inc. generated $440,000 in value improvement.

Similarly, BayCare Health System Laboratories in Tampa, Florida reported similar successes with Six Sigma and lean thinking tools. Victor Hruszyzck, VP of Lab Services, chronicled how, with the help of the consulting division of Ortho Clinical Diagnostics, BayCare Labs rationalized work flows, identified systemic glitches in work practices, and generated a variety of improvements. For example, productivity per technical FTE jumped from 86,700 tests per year to over 125,000 tests per year, a gain of 44%!

THEME 2 
CHANGING INFLUENCE OF MANAGED CARE

Managed care is lessening as a source of financial pressure and inadequate reimbursement upon labs and pathology groups. During podium presentations, there were few references to financial issues and patient access problems attributable to managed care contracting practices.

This is a definite change from previous years, when lab administrators emphasized the strategic need for their labs to participate in the major man- aged care contracts in their region.

This year, many labs are viewing managed care as an opportunity. They want to develop value-added lab services which managed care companies find useful.

Typical of this new business attitude is Bio-Reference Laboratories, Inc. of Elmwood Park, New Jersey. During his presentation, CEO Marc Grodman, M.D. detailed several business initiatives the lab is funding to take raw lab test data and convert it into useful knowledge that adds value to both clinicians and payers.

This theme was solidly endorsed by Richard Migliori, M.D., Chief Clinical Strategist at Ingenix, a division of United Healthcare Corporation of Minneapolis, Minnesota. Dr. Migliori demonstrated to the War College audience how new software programs were combining medical claims, prescriptions, lab data, and other clinical information to identify opportunities to improve care.

In particular, Dr. Migliori explained the way Ingenix was making this new knowledge available to clinicians. Using such knowledge, which had earlier been unavailable, physicians were now able to make more informed decisions about patient care.

This information was helping them to eliminate oversights and treatment errors that might have otherwise gone undetected. More importantly, these new data sets were giving physicians very precise tools to use in improving healthcare outcomes.

THEME 3 
IMPACT OF INTERNET AND NEW INFORMATION TECHNOLOGIES

Based on presentations and comments during the War College, it is clear that the nation’s early-adopter labs are closely tracking efforts to shift healthcare operations and clinical services onto Web-based platforms.

These laboratories are formulating strategic plans to respond to the Internet and use new technologies for collecting, storing, and evaluating laboratory test data.

Osama Sherif, the COO of Dynacare, Inc., presented the details of Web-accessed lab test results reporting for client physicians. Equally fascinating was the presentation by Caresoft, Inc. Executive Vice President Nathan Schultz. His company’s Web site, www.mydailyapple.com, is the portal that patients of Quest Diagnostics Incorporated use to access and view their lab test results.

Many of the labs making presentations outlined their phase-one Internet business strategy. They are actively investing management resources and capital to implement their first generation of Web-based lab testing services.

THEME 4 
NEW APPRECIATION OF CORPORATE MANAGEMENT METHODS

For the first time in the six-year history of the Executive War College, almost every lab administrator and pathologist speaking at the podium described his or her lab’s business strategies in terms of management philosophies studied and copied from companies outside healthcare.

This is an important change and marks the beginning of a healthy trend. For years, laboratorians have paid little attention to management methods and innovations used outside healthcare. But this year, speaker after speaker described how their lab or pathology group was drawing management wisdom and methods from the likes of General Electric, Home Depot, Emerson Electric, Intel, and other corporations with a reputation for management excellence.

In fact, several speakers referred to the management concept of “disruptive technology,” presented at last year’s War College. Although non-specific to laboratory management, the concept of disruptive technology and its ability to displace market leaders without warning clearly influenced the strategic management thinking of several War College attendees from 2000.

The frequency with which lab administrators and pathologists mentioned management precepts used by non-healthcare corporations caught me by surprise this year. It’s a sign that the lab and pathology profession may finally be abandoning its traditional and rather insular attitude of “if it’s not been tried in a laboratory, it’s probably not something I’ll find useful.”

If true, this is a breakthrough trend. The willingness of lab administrators to go outside healthcare for management inspiration can stimulate a renaissance in the management of laboratories and pathology groups.

THEME 5 
RECOGNITION OF IMPENDING CHANGES TO WAY LABS ARE ORGANIZED & OPERATED

This is the “trend before the trend.” There is growing recognition that new technologies under development will fundamentally change the way laboratories are organized and operated.

Speakers at this year’s Executive War College noted that several factors were already stimulating them to think differently about the way their laboratory is organized. Influences ranged from the shortage of medical technologists and new automation solutions in lab equipment to Internet-based lab information services and the impending dispersal of routine testing as a result of innovations to point-of-care testing (POCT) devices.

Many speakers made the same strategic observation. They can foresee that Internet-based communications will combine with new technologies for diagnostic testing. These new tools will give lab administrators the freedom to create laboratory structures capable of accurately performing tests in settings different from the current core laboratory structure.

Of course that day has yet to arrive. But what is notable is that early-adopter laboratories have already plugged this assumption into their strategic business plan. They are building a structural flexibility into their planning process.

As a result, these labs are preparing themselves for the day when it will be better and more economical to use an unorthodox organizational structure to operate their laboratory. This might mean that the LIS function and laboratory data storage is done by a remote host ASP (application service provider). It might utilize new technologies to do many routine tests closer to the point-of-care, even as the laboratory maintains its traditional responsibility for test accuracy, reproducibility, and interpretation of results.

In essence, this year’s faculty presenters were serving notice that they are ready to change the operational form of their lab away from the traditional core lab organization—but only as new technology enables them to do this and still provide high quality testing to the referring physicians.

Common Themes

These five trends presented represent the common themes contained within the 50 presentations at this year’s Executive War College. Validation came from the comments of the 400+ attendees in conversations during the course of the event.

Clearly the course of laboratory management is assuming new directions. In particular, I think the emphasis on “operational excellence” and the desire to learn new management methods to achieve this is an important development.

Greater Lab Productivity

Acquiring more sophisticated management expertise gives lab administrators and pathologists the tools they need to achieve cost reductions without resorting to employee layoffs. It also means they can achieve much greater productivity improvements than was typically seen in the last decade.

This heightened interest in the art and science of management is timely. It gives lab administrators the tools they need to get the most “bang for the buck” from the Internet and various new diagnostic technologies soon to arrive.

Hospital Labs Emphasizing Enhanced Test Services

ONE INTERESTING OBSERVATION which emerged from this War College is the fact that a growing number of hospital laboratories are turning their attention to how they can add more value to their referring physicians.

Typical of this phenomenon is HealthMidwest, a nine-hospital health system with a consolidated core lab based in Kansas City. Director of Laboratories and Pathology, L. Patrick James, M.D., told a fascinated War College audience how, post-consolidation, the laboratory turned inward to identify opportunities to improve the care at the health system.

One project was to integrate lab activities with pharmacy activities. The goal was to improve how microbiology test data was used to support the ordering of appropriate antibiotics. Annual savings approaching $1 million resulted from this combined lab-pharmacy initiative.

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