CEO SUMMARY: Once again, THE DARK REPORT’S annual list of lab industry trends deals less with government regulation and influence on laboratory operations and more with the impact of new technologies and new management philosophies. Marketplace acceptance of these lab industry trends is occurring swiftly. Throughout 2000, early adopter labs moved readily to respond to these new technologies.
THERE’S DEFINITE “IMMEDIACY” to THE DARK REPORT’S 2001 list of major trends affecting clinical laboratories throughout the United States and the world.
I use the word “immediacy” for an important reason. Each trend on this year’s list describes market forces which are already at play within the clinical lab industry and the healthcare industry which it serves.
As you will read on the pages which follow, early adopter laboratories are already developing strategies and devoting capital and management resources to respond to these trends.
That is a distinguishing characteristic about this year’s list of trends. These are not futuristic trends which require as-yet uninvented technology
to become reality. To the contrary, in virtually every case, each trend is happening now, propelled by technologies and market forces which exist today.
Clients and regular readers of THE DARK REPORT know that the cycle of change in the American healthcare system is becoming shorter and faster. This year’s list of eight trends perfectly illustrates that fact. Each trend represents an active and dynamic force for change and there are examples of laboratories already reacting to each trend.
In fact, that statement aptly validates the value of useful business intelligence. When a lab executive is unaware of what “early adopter” labs are already doing to respond to a marketplace trend, it is easy to dismiss the importance of preparing his/her lab to deal with that same trend.
It is an important responsibility of THE DARK REPORT to provide this type of early intelligence and analysis. Accurate information always makes it easier to make the right management decisions early enough in the market cycle to generate positive outcomes.
Profiles of Early Adopters
During the next few months, and especially at the upcoming Executive War College on May 8-9, 2001 in Cincinnati, THE DARK REPORT will be providing the first insights and information about early adopter labs dealing with the trends listed on pages 3-11.
Our coverage of Caresoft, Inc. and why it chose to launch a service offering consumers access to their personal lab results was a first in the lab industry. We plan upcoming intelligence reports on several important topics, including anatomic pathology tissue banking, regional clinical data repositories, and use of lab test data to improve the quality of care while slashing the cost of care.
As we provide solid factual back- ground to support each of the eight lab industry trends presented in this issue, our goal is to help shape and change the way our clients understand these issues and manage them. That is one of our value propositions to our clientele.
Road Map For Success
As Editor-In-Chief, I constantly travel around the country to visit many of the early adopter labs. These laboratories are doing today what all labs will need to do in the next 24 to 36 months. Their successes and failures provide us with a roadmap to confidently take the right course the first time. It allows us to avoid the mistakes which others have already made.
I would also like to say a word about some topics that go unaddressed in this year’s list of important lab industry trends. The government’s influence on the lab industry goes unmentioned, as does HIPAA. There are several reasons for this.
First, unless it’s a radical change from past practices, much of the government’s influence on healthcare, and the lab testing industry is incremental. Changes to Medicare, Medicaid, and various regulatory schemes are most frequently enacted in response to events which have already occurred in the healthcare marketplace. For this reason, THE DARK REPORT concentrates on the types of trends which usually happen first, causing a government action in response to their impact.
As we provide solid factual background to support each of the eight lab industry trends presented in this issue, our goal is to help shape and change the way our clients understand these issues and manage them.
Second, within the lab industry, there is an unmatched expert in the workings of government health programs and how their actions affect clinical lab business practices. That is Dennis Weissman and his Washington G-2 Reports. We believe Weissman’s publication and its focus on regulatory and legal issues complements THE DARK REPORT and our focus on laboratory management issues and themes. We avoid redundancy by emphasizing our core competency.
Third, HIPAA’s influence will be global, touching all aspects of the American healthcare system. But the core lab management issues represented by HIPAA are integral to, and a result of, the trends presented here.
Lab Industry Trend #1: Consumers Are Here!
PREDICTIONS THAT CONSUMERS would take a more active role in their laboratory testing came true in 2000.
The most visible evidence of this fact is the arrangement between Caresoft, Inc. and Quest Diagnostics Incorporated. Beginning in the spring of 2000, patients of Quest Diagnostics could view their personal lab tests results on Caresoft’s Web site, mydailyapple.com.
Both companies were surprised at how quickly patients responded. In the approximately 35 states where laws allow patients direct access to their personal lab test results, consumers responded to this added-value service.
But there is more to the story about consumer involvement in lab testing. Remember the company in Kansas City that set up shop in a retail strip mall and was performing lab tests for any consumer that walked in the door and plunked down the cash? The company was purchased by Quest Diagnostics, which continues to run that laboratory as a consumer-initiated testing business.
Taken together, these two developments demonstrate that Quest Diagnostics believes the time is ripe to directly engage consumers and offer them enhanced lab testing and information services. Its experience, supported by consumer focus groups and surveys, provides solid evidence that clinical laboratories must begin to give the same level of attention to the needs of patients as they do to physicians and payers.
Another factor is about to accelerate consumer involvement in their laboratory tests. Various companies want to connect the consumer with his/her physician, hospital, and other healthcare providers through e-mail and other electronic links.
One such project is under way in Winona, Minnesota. In a town of 25,000 people, the local hospital, an ISP (internet service provider company) and Cerner Corporation are actively working to connect all the residents with their physicians and hospitals. Certain lab test results are already available to patients in Winona through their Internet connection.
In Cincinnati, three health systems, representing 20 hospitals, have already formed a private intranet with a common clinical data repository. In the first phase of this project, Cincinnati area physicians with privileges at these hospitals can access their patients’ lab test results, radiology results, and transcriptions through the private intranet. Eventually it will be possible for patients to access their clinical records, including lab test results, and communicate with their physicians.
These are important developments. Executives from both projects will be at the Executive War College in May to discuss issues such as privacy, security, access, and “who owns the data.” The ramifications of these efforts are clear: consumers are getting wired into the healthcare system. Clinical labs and pathologists had better prepare to meet the new expectations and needs of their patients.
Lab Industry Trend #2: Clinical Data Repositories
WHAT MAY ACTUALLY SPELL the death of clinical laboratories as they are organized and operated today is the development of a new generation of clinical data
After all, what do clinical laboratories provide to the healthcare system that has tangible value? There are at least three lab functions which have clear value. One, labs perform the tests and report the results. Two, labs store the results and maintain the integrity of the data base. Three, labs provide expertise on how to select appropriate diagnostic technology, accurately perform the tests, and evaluate the results to help individual patient diagnosis, prognosis, and treatment monitoring.
From this perspective, one of the three value components offered by clinical labs can be replaced. It is the function of data repository and reporting entity. As health systems move to the next generation of clinical data repository, they position themselves to become the primary connection between the lab and its referring physicians.
Using new technologies, it is becoming easier and cheaper to create a master clinical data repository and connect all classes of healthcare providers to this repository. This new generation of clinical data repository can handle laboratory test results data, as well as pharmacy, radiology, and other types of clinical data.
This marketplace development is both a threat and an opportunity. It is a threat because it interrupts the direct ordering and reporting link that laboratories traditionally maintained with their physician clients. Now the unified clinical data repository is the entity which stands between laboratory and referring physician.
It is a threat in another way. If lab test data from multiple hospitals can be assembled in this master clinical data repository, it will be easier for independent commercial laboratories to add their lab test data to this master clinical data repository. By normalizing the results, it becomes feasible to give the clinician a complete lab test record for his patient, regardless of which lab performed the tests.
Of course, there is an opportunity for laboratories. As these unified clinical data repositories are organized and become operational, lab administrators and pathologists can play a critical role in helping the organizers design the data repository so that lab test data can be accessed in a number of added value ways. Any tools which improve lab test ordering patterns, help the clinician make better decisions from the lab tests he/she does order, and improves the quality of care will guarantee that the laboratory remains a key provider to the local healthcare community.
During 2000, a number of hospital systems and region-wide projects launched a comprehensive master clinical data repository combined with electronic access by physicians and other providers. In every case, lab test data was an important component of these new data repositories.
Lab Industry Trend #3: Web-Based Test Reporting
CERTAINLY IT WAS AMBITIOUS of THE DARK REPORT to predict that it would take only 24 months for Web-enabled lab test ordering and results reporting between labs and physicians’ offices to become the standard of practice.
That prediction, made in November 1999, now has one year to run. To date, events have played out slower than expected. But the earliest sites that implemented Web-enabled lab test ordering and results reporting have demonstrated that such services do slash costs, give physicians extra services, and speed up the delivery of lab test results.
THE DARK REPORT is preparing a detailed study of the events which have occurred since the November 1999 prediction. Early results from this study reveal that an interesting pattern has emerged.
Web-enabled lab test results reporting is the feature most frequently implemented by laboratories. It is much simpler and cheaper to implement Web-enabled lab test results reporting than it is to implement Web-enabled lab test ordering.
Web-enabled lab test ordering systems require the software to perform a variety of functions to link several different computer platforms. For example, to prepare the test requisition, the software package must draw patient demographic and billing data from the physician’s practice management system. With the multitude of physician practice management software products installed in the field, this is a daunting challenge.
Getting ICD-9 codes is another issue, along with the requirement to link the test ordering software with the lab’s test catalog and ordering rules and perform compliance checks. More sophisticated programs would also check the patient’s insurance eligibility.
Compare that checklist of implementation requirements to those of Web-enabled lab test results reporting. The implementation requirement is relatively simple. Simply take the lab’s existing data repository and develop a method to present the patient’s test data in a variety of relevant ways for the physician.
Thus, it is a much simpler, cheaper, and faster process to implement Web-enabled lab test results reporting than it is to implement Web-enabled lab test ordering. That fact is reflected in the marketplace. During 2000, a growing number of labs opted to move first to Web-enabled lab test results reporting for their physician clients.
Another important factor encourages labs to choose reporting first over ordering. It is physicians who use the test results and personally review them. But most physicians do not personally complete test requisitions. They delegate that task to their nurses and staff. Thus, by offering the physicians Web access to their patients’ lab test results, labs provide an added value service which builds physician loyalty.
For these reasons, expect Web-enabled lab test results reporting to become more widespread, followed, at a slower rate, by Web-enabled lab test ordering.
Lab Industry Trend #4: Lab Regionalization
REGIONALIZATION of laboratory testing services will be a dominant and unchanging theme of this decade.
Economic pressures to squeeze costs out of laboratory tests will continue to encourage individual labs within a defined geographical area to collaborate. Much has been written about these collaborations, which take the form of lab consolidations, joint ventures, alliances, and regional laboratory networks.
What has been less reported is the unusual successes of specific lab regionalization projects. Once the process of lab regionalization has been started, it is seldom abandoned, even though forward progress can be frustratingly slow.
During 1999 and 2000, laboratory regionalization moved to another level of involvement and sophistication. A new form of regionalization, the “shared laboratory organization,” has begun to appear in certain areas around the country.
A shared laboratory organization is created when competing integrated healthcare networks (IHN) within a metropolitan area, after consolidating their laboratories, decide the next level of cost savings and service gains can come from putting the management of their individual lab systems under common management. The biggest of these projects is the effort by Aurora Health System of Milwaukee and Advocate Health System of Chicago to operate their two consolidated lab systems under one management team.
Also, quietly operating with little public attention are the 35 or 40 regional laboratory networks across the United States. These lab networks are delivering value to their members.
LabNet of Ohio, a network of 16 labs, has successfully insourced 100% of its reference and esoteric testing to members of the network. This has reduced lab test costs to members, improved test result turnaround time, and generated more test volume for member labs.
In New England, there is a lab network supported by 100% of the hospitals in that state. These labs have normalized their test methodologies and are in the second year of a project to annually test a segment of the state’s population for HbA1c and follow those patients from year-to-year. In year two, this effort has already identified undiagnosed diabetes patients and allowed their physicians to begin appropriate management of that disease.
Remember the problem of laboratory excess capacity? That is the unused laboratory capacity that someone is paying to keep on line, even though it goes unused. Every city in the United States still has excess lab capacity. That creates the carrot and the stick situation that leads to regionalization.
On one hand, pressures to reduce costs will force labs to either fill up their unused capacity or eliminate it through downsizing. On the other hand, regionalization offers mutual benefits to all participating labs, while allowing labs to fill up that excess capacity in productive ways.
Lab Industry Trend #5: E-Health Services
IDENTIFYING TRENDS IS RELATIVELY easy. The tough challenge is to accurately identify the specific ways that a particular trend will change the world as we know it today.
Last year, THE DARK REPORT added e-health services to its list of important lab industry trends. That was the easy part. After all, consumers had made healthcare their number one topic for Internet searches in 1999, dethroning pornography for the first time since the birth of the World Wide Web.
The growth of retail services on the Internet, such as Amazon.com, E-Bay, Priceline.com, and E-Trade, became a huge phenomenon. E-commerce had come of age and was a legitimate way to offer products and services to the buying public.
Attention began shifting to the business-to-business (B2B) applications of e-commerce, including healthcare. Certainly there is consensus among laboratorians that e-commerce services will transform our national and local healthcare systems in all sorts of ways. But there is no consensus on how fast this will occur, nor the specific services which will be affected.
Events of 2000 provide precious little insight into this trend. For the most part, various segments of the healthcare system began to announce e-commerce initiatives, with little understanding of what these new companies might actually accomplish. Thus, health insurers responded to the WebMD challenge by announcing the formation of MedUnite.
Medical suppliers and vendors, in various groupings, organized e-commerce buying exchanges. A host of consumer health Web sites, such as Drkoop.com, appeared but struggled to make money.
Accordingly, if 1999 was a year where e-health companies appeared in great numbers, 2000 was a year where many of these same companies failed or were forced to merge because they couldn’t make money fast enough.
That leaves the lab industry with an interesting challenge. Without question, e-commerce is going to successfully enter the healthcare marketplace. But there is no clear consensus on when and how this will occur. That makes it difficult for lab executives and pathologists to develop viable business strategies to accommodate the arrival of e-health services.
That probably means that the best strategy is one of “watchful waiting.” As events happen in the marketplace, the goal is to evaluate the impact of these events and deal with them as necessary.
Despite the lack of certainty about when and how e-health services will transform the current healthcare system in the United States, there is universal consensus among experts studying this trend that three things will be true of e-health. First, it will eliminate unnecessary costs in a ruthless manner. Second, it will put buyers (for labs, read: physicians and patients) in control of choosing their provider. Three, it will enable labs to offer a new class of added value services never before imagined.
Lab Industry Trend #6: Incremental Automation
INCREMENTAL AUTOMATION is a term to describe the movement toward automating specific steps in the lab testing process, eventually leading to total lab automation in core lab settings.
Much has been written in THE DARK REPORT about the failure of the first generation of total laboratory automation (TLA) technology to deliver the economic and productivity benefits that it promised. There is now general recognition of this truth by both the lab community and its vendors.
Less has been written about the next generation of lab automation solutions which have begun to reach the laboratory marketplace. That is not surprising. It has taken the diagnostic vendors three and four years to engineer new solutions into their instrument systems.
Only in the last year or two have the buying patterns of laboratories begun to form a clearer picture of what is working and what is not. Not surprisingly, automation solutions that labs seem to be choosing center around pre-analytical processes and workstation automation.
It is increasingly common to walk into high volume core laboratories and see an automated specimen sorting system installed between the accessioners and the bench. Instead of an automated transport line, staff generally walks specimens to and from this equipment. These labs invariably are pleased with the economics and performance of such systems.
Workstation automation is the other key theme. This generally takes the form of self-contained instrument systems which are “load and walk away” or automated component instrument systems, which link two or three related instruments and thus also offer “load and walk away” benefits.
Assuming that laboratories continue to acquire and implement these types of automation solutions, then it is likely that the industry is years away from the vision of a true “total automated laboratory;” where a human loads the specimen at the front end and all functions of testing, retesting, storage, and destruction are fully automated.
The entire field of clinical laboratory automation is going to get a big shot in the arm from a source unexpected just three or four years ago. The widespread shortage of medical technologists and medical technicians is now forcing laboratories to implement any solution which maintains throughput and quality, but uses less skilled labor. (See lab industry trend #8, below.)
The shift in lab management thinking stimulated by the shortage of trained med techs leads THE DARK REPORT to make an important observation. Unexpected changes in the healthcare marketplace can stimulate a host of unimagined developments. Through most of the 1990s, acquisition of TLA solutions was primarily driven by cost reduction and ROI targets. Through the 2000s, acquisition of lab automation solutions will be driven by the need to do testing with less labor inputs.
Lab Industry Trend #7: Med Tech Availability
THERE’S BEEN PLENTY OF NEWS about the shortage of qualified medical technologists and medical technicians to serve in clinical laboratories.
But the news about a new phenomenon related to the shortage of med techs has gone unreported. During travels to labs throughout the United States in 2000, THE DARK REPORT observed a distinct shift in management strategies for staffing laboratories.
Virtually every laboratory of size in the United States has open positions for med techs which they are unable to fill. This situation has existed long enough to make lab administrators realize that sufficient skilled labor is now an unattainable goal. They are forced to run laboratories which are, for all intents and purposes, chronically understaffed.
To cope with an inadequate and dwindling supply of skilled med techs, lab administrators are adopting a new business strategy. They intend to redesign and restructure their laboratories to operate with less skilled labor.
This shift in management thinking is directly linked to the recognized shortage of trained medical technologists and medical technicians. Instead of attacking supply, by raising salaries and recruiting greater numbers of candidates into med tech training programs, lab administrators are choosing a different solution.
They are choosing to restructure their laboratory organizations which do the same work with less labor. This has several interesting and important ramifications. First, it means that instrument and automation solutions will be judged less on their ability to deliver a desired economic return on investment (ROI) and more on their ability to improve specimen throughput with less over-all lab labor.
This shift in purchase motivations will encourage diagnostic vendors to design equipment solutions which stress reduced labor as much as improved quality of test result.
Second, the ever-shrinking supply of med techs is going to drive a speedy revolution in lab management thinking. To operate a laboratory with minimum labor inputs, clinical lab administrators and pathologists will be increasingly required to adopt management methods from the manufacturing and distribution sectors.
Third, the shortage of trained med techs will transform near-patient and point-of-care testing into a viable and rational solution. In effect, the pool of trained med techs will staff core labs which do complex reference and esoteric testing. Routine testing will migrate outward in the clinical setting, performed on automated instruments which make it feasible for non-laboratorians to perform those tests.
Thus, headlines about “med tech shortages,” have overlooked the real impact of this trend upon the way laboratories will be organized and operated. As noted above, the chronic lack of med tech man-power has already caused lab administrators to implement new solutions to solve the problem.
Lab Industry Trend #8: Management Philosophy
MANAGEMENT PHILOSOPHY IS included in all THE DARK REPORT’S list of significant lab industry trends for an important reason.
Lab executives and pathologists face sustained pressure to reduce the cost of lab testing while simultaneously boosting the value of lab services to hospitals, physicians, patients and payers.
The old models of management philosophy cannot deliver the performance improvements demanded by today’s healthcare system and the society it serves. Competitive advantage and ongoing success lies with those clinical laboratories which understand and embrace the tools and techniques of the new management philosophy.
This philosophy is rooted in a “customer-first” focus for the lab organization, combined with a work system based on developing processes which, by design, can only produce services and products of the absolute highest quality.
These are not impossible or contradictory goals. Examples from other industries provide graphic evidence. In less than 20 years, the 50¢-per-minute long distance call over a copper wire land line has been replaced by a pennies-per- minute “call-anywhere” product delivered on a miniaturized, wireless telephone.
The vinyl 12″ record album of 1980, played on a bulky turntable, is now a computer music file played on a hand-held device with a miniature hard drive that holds up to 150 hours of music!
The new management philosophy is built around the principles of W. Edwards Deming and similar management gurus. It has found widespread application in the form of ISO-9000 guidelines, as well as other management systems.
During 2000, a credible beachhead for these management systems was established within the laboratory industry. Quest Diagnostics Incorporated followed up its 1999 certification of Quest Nichols Institute as an ISO-9001 facility with the ISO-certification of four other laboratory divisions during 2000.
Kaiser Permanente’s Northwest Division Laboratories in Portland, Oregon attained its ISO certification in 2000. Within Kaiser, other lab divisions are actively pursuing ISO certification. THE DARK REPORT also knows of a integrated delivery network (IDN) which recently declared its intent to achieve ISO-9000 certification.
During 2000, Ortho-Clinical Diagnostics, the diagnostics division of Johnson & Johnson, launched a consulting service for clinical labs which applies the principles of “lean thinking” and Six Sigma to laboratory organization and work flow design.
These developments support a conclusion that 2000 was the seminal year for the introduction of these new management systems into the operation of clinical labs. From this point forward, a steadily growing number of lab organizations will announce that they have converted to these new management systems.