Executive War College Sessions Center Upon Three Trends

Declining lab reimbursement dominates discussions as labs cope with revenue hits

CEO SUMMARY: There was an interesting blend of anxiety and optimism as a record crowd gathered in New Orleans last week for the 18th annual Executive War College on Laboratory and Pathology Management. The anxiety was rooted in the shrinking prices paid by payers for lab testing services. The optimism was based on recognition that individual clinical laboratories and pathology groups have the opportunity to deliver substantial value by helping improve patient outcomes while reducing the cost of care.

THREE MAJOR THEMES dominated the sessions at last week’s 18th annual Executive War College. One theme was lack of money across the entire healthcare system and its negative impact on the finances of medical laboratories.

The second theme was the need for clinical labs and pathology groups to convert lab test data into information that adds value to physicians and patients. It was a call for labs to move away from simply reporting lab tests results and to develop enriched consultative services that directly help clinicans achieve better patient outcomes.

The third theme involved the rate of change in healthcare and the fact that this rate of change was accelerating. All three of these themes have profound implications for clinical laboratory executives and pathologists.

On the issue of money and adequate reimbursement for laboratory tests, there was universal recognition that, over the past 24 months, both government and private payers have implemented reimbursement policies that are significantly reducing the money paid for clinical laboratory testing.

“If there is one single thing to take away from the presentations of the past three days, it’s that there is not enough money for healthcare—whether it comes from the federal, state, county, or city governments,” said Robert L. Michel, publisher of THE DARK REPORT, which sponsored the three-day conference in New Orleans, Louisiana. “Every lab organization should build that knowledge into its core strategic assumptions.

“Remember that the crisis in public funding is not limited to healthcare,” con- tinued Michel. “At every level of government, there is intense competition to spend more on education, on social services, on defense, and on infrastructure, such as highways and bridges. Healthcare is just one voice among many.

“At the same time, policy makers in Washington are trying to shift a 70-year pattern of taxation and spending to accommodate the demographics of an aging population and rising levels of chronic illness, both of which are outrunning the ability of the system to pay for the services these people need,” he emphasized. “At some point, reality intrudes on all of this and that was one strong message delivered by our speakers here this week.”

The payment morass associated with the 114 new Tier I and Tier II molecular test CPT codes was given plenty of attention. Many speakers discussed how Medicare contractors have not paid invoices that clinical labs have submitted since January 1, 2013, for these molecular CPT codes.

During a general session on Tuesday, when Michel asked for a show of hands of labs that had not received any payments since the beginning of the year, about 50 lab representatives responded. By contrast, only about 10 lab representatives raised their hands in response to a question about whether they had received any payments for molecular test claims submitted in this same time.

Seeing the Big Picture

Moving past the immediate consequences of declining reimbursement and payers scrambling for ways to pay labs less in the short term, the second theme at this year’s Executive War College was equally important. That is the shift within the American healthcare system away from fee-for-service reimbursement and toward value-based reimbursement.

Speakers were emphatic that this was the single biggest issue requiring a response by all lab organizations. Clinical laboratories and anatomic pathology groups need to demonstrate that lab testing has value beyond simply providing lab test results. Labs can do this by demonstrating that they can deliver this extra value in the form of lab test information that is actionable by clinicians and directly improves patient outcomes while lowering the overall cost per healthcare encounter.

During his presentation, David A. Dexter, President and CEO for Sonora Quest Laboratories, LLC, in Phoenix, Arizona, framed this need to demonstrate value quite succinctly. “The facts are that lab results are essential to preventive care, wellness, and chronic disease management,” he said.

Laboratory Is Enabler

“Lab results impact more than 70% of all diagnostics decisions and are 50% of the data elements in an electronic health record,” continued Dexter. “Lab data are essential for an effective health information exchange (HIE) and for coordinated patient care. The laboratory is an enabler for the entire health care system.

“Why is this so important?” he asked. “It’s important because we face transformational change in healthcare. All health-care stakeholders, including labs, have to reassess and refresh their value proposition in this new era of healthcare reform.

“Labs need to reassess their value proposition because the walls of traditional healthcare delivery are blurring,” he added. “At this moment, no one knows what the new healthcare delivery system will look like. Therefore, many health systems and provider organizations are hedging their bets. Yesterday’s competitor is often tomorrow’s collaborative partner. Believe it!”

Dexter provided examples of such hedging that included hospitals and health systems buying health plans and health insurers developing or acquiring office-based physicians. “Different health insurers recently acquired LifePrint Clinics and Concentra Clinics in Arizona to manage patients with chronic disease. Another reason health systems and other providers are hedging is because accountable care organizations (ACOs) may not succeed,” he said.

“If you are a hospital system, you might venture onto the episodic side of care and might be left holding the bag if ACOs significantly reduce your hospital’s inpatient census,” observed Dexter.

Adaptation Required

Such significant shifts in the healthcare marketplace mean it is important for labs to adapt as well, he said. “If you are a lab, you must realize and act on a fundamental industry paradigm shift. Under the old paradigm the lab was in the business of diagnostic testing,” stated Dexter. “In the new paradigm, the lab is in the business of diagnostic testing and information services.

“This is Sonora Quest’s vision: To be the trusted leader in diagnostic testing and information services,” he added. “It isn’t enough just to have IT capability and technology. You must leverage it.”

Richard Atkin, President of Sunquest Information Systems, delivered a similar message. “The foundation of an efficient and effective healthcare system is an efficient and effective laboratory operation,” he said. “The best patient outcomes and the lowest cost of treatment are enabled by fast, accurate, error-free lab results. But to deliver these results requires IT solutions that operate and interoperate seamlessly across the entire continuum of care.

“In fact, physicians and caregivers today require intuitive and accessible informatics solutions to allow greater time for patient care,” Atkin said. “Recognizing these facts, chief information officers in hospitals and other care settings have three main priorities.

“They are: 1) strengthening the ‘information value chain’; 2) building IT business skills; and, 3) getting closer to business,” he explained. “The reason CIOs want to get closer to business is because they want to replace retrospective analysis with real-time analysis of patient care as it is being delivered. That is one reason why healthcare organizations are looking for real-time data on patient care within one hour of the activity.”

Real Time Data Required

Among the organizations that will be looking for real-time data analytics are accountable care organizations (ACOs). Dexter defined ACOs as partnerships between health insurers, hospitals, and primary care physicians to manage all healthcare for members of the organization. “The ultimate goal of ACOs is to improve quality and patient care outcomes through focused coordinated care in a manner that reduces the total healthcare cost,” stated Dexter.

“For labs, the development of ACOs is important because more than 400 ACOs have been certified to operate in the United States and 200 others are being developed,” he said. “An estimated 25 million to 30 million patients are in ACOs today and that number is expected to grow exponentially. Yet, despite this rapid growth, labs are generally last at the ACO contract table.”

Atkin agreed, saying ACOs will emphasize quality care through provider networks even as they seek to decrease reimbursement rates. “That means hospitals have to find new ways to manage costs,” he said.

“We expect that ACOs will want their labs to contribute to operational cost savings through fewer errors, improved specimen routing, and the ability to make proactive and preventive care decisions in collaboration with referring physicians.

“One way ACOs will seek to drive down costs is through bundled payments, and programs in which all providers share any financial savings and the financial risks of any losses,” Atkin said. “In ACOs, we may see reimbursement for an individual lab test cease to exist. In addition, ACO patients will pay an increasingly greater share of their medical expenses.”

Atkin also recommended that laboratories address the integrity and quality of their internal work processes. In speaking to the efforts of his company, Sunquest, to work with the Food & Drug Administration to clear his company’s software products under the medical device regulations, he stated that “every lab should be striving to achieve best practices in internal operations and work processes.”

“As this is done, the laboratory should use a third party to endorse these best practice achievements,” continued Atkin. “This recognition is something that will be meaningful to patients, payers, and employers, as well as other providers. It reflects the growing recognition by purchasers of healthcare services that the bar on quality is being raised.”

Pace of Change

The third theme of the 2013 Executive War College was that of an accelerating pace of change across the length and breadth of healthcare. “Not in the past five decades have such swift and deep changes been seen in the healthcare system of the United States,” stated Michel in his opening address.

“What underpins this change is the transition we are making from primarily fee-for-service reimbursement to new forms of payment to providers that incorporate outcomes and overall cost of care,” continued Michel. “By changing the way money flows from payers to providers, healthcare policymakers are guaranteeing that hospitals, physicians, labs, and other providers will be responsive to supporting the new goals.

“Therefore, we should all expect continued and swift evolution of healthcare,” concluded Michel. “Labs are well advised to be nimble and open to change.”

Different Issues for Labs In 2013 and Beyond

IT WAS BOB DYLAN WHO SANG “The Times They Are a-Changin” and made it a big hit back in 1964. However, even today, his words are useful to clinical labs and pathology groups.

The pace of change unfolding in both healthcare and the lab testing industry was on full view at last week’s Executive War College. A record crowd was surprisingly optimistic about the opportunities that lie ahead. At the same time, attendees were realistic about the set-backs and challenges that must be addressed by every laboratory if it is to successfully make the transition from today’s fee-for-service healthcare system to one where value-based reimbursement and bundled reimbursement are the norms.

In particular, there was plenty of discussion about the Affordable Care Act of

2010 (ACA) and how its mandates are expected to play out in coming years. All healthcare providers recognize that the goal of the legislation is to bring health insurance coverage to 30 million Americans.

On one hand, this seems to be a positive thing for all providers, including clinical labs. On the other hand, there is already a recognition that the myriad elements of the ACA and the scarcity of funds to implement these elements may portend financial woes for hospitals, physicians, and laboratories.

These facts were recognized during the presentations and mostly accepted by the audience. There was a strong sense of skepticism that the ACA will play out as planned. It was for that reason that speakers recommended that labs take a position of “watchful waiting” as they develop and refine their strategies for dealing with the coming changes triggered by the ACA.


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