Lab Innovators Advocate Need for Clinical Lab 2.0

Lab 1.0 is the low-paid commodity lab, while lab 2.0 gets paid more for the value it contributes

CEO SUMMARY: It is generally recognized that the clinical lab industry faces a financial squeeze of unprecedented dimensions. Lab test prices are falling steadily and more major cuts are coming to Medicare Part B fees in just 11 months. At the same time, obtaining favorable coverage and reimbursement decisions from payers is becoming tougher. This is why a group of forward-thinking lab leaders is advocating that labs embrace the clinical and financial concept of clinical lab 2.0.

IN THE UNITED STATES, the clinical laboratory industry is about to face an unprecedented financial crisis. This crisis will result from the successive fee cuts to be enacted by Medicare and private payers in 2018 and beyond.

The coming financial crisis will create new winners and new losers among the nation’s labs. This will be true for both clinical labs and anatomic pathology groups.

The losers will be lab organizations that continue to operate under the traditional lab 1.0 clinical and financial model. The winners will be labs that move swiftly to transform themselves into the clinical lab 2.0 model.

Stated differently, the test results produced by labs operating under the lab 1.0 business model are considered to be commodities by payers. It is why payers award their business to the lab with the lowest prices. After all, argue the payers, why should they pay more for one lab’s chemistry test results than another lab’s—if the quality is equal and the test results are accurate?

That is not the case for the lab testing services provided by labs moving to adopt the lab 2.0 business model. These labs are developing lab testing services that go beyond simply reporting an accurate test result in the accepted turnaround time.

Instead, these labs offer physicians, patients, and payers lab testing services that directly contribute to improvements in patient care and the overall cost per episode of care that can be demonstrated by appropriate metrics. For this added value, payers will reimburse more for these enriched lab testing services.

Stated a third way, clinical lab 1.0 is the commodity lab, generally paid on the basis of lowest price. By contrast, clinical lab 2.0 is the value-added lab that is paid for the recognized benefits that result from the enriched lab testing services it delivers.

The term “clinical laboratory 2.0” was coined by the handful of clinical lab innovators who are participating in Project Santa Fe. (See CAP Today, “Lab 2.0: Changing the conversation,” July, 2016.) It describes the lab that adds value with how it helps clinicians use its tests and clinical services to improve patient outcomes and contribute to reductions in the overall cost of care, as defined above.

The operational differences and clinical focus of these two lab models are radically different. The clinical lab 1.0 is fixated on producing an accurate test result that is reported within the allotted turnaround time. Its staff spends relatively little time outside the four walls of the lab collaborating with stakeholders to help improve the utilization of lab tests.

Improving patient outcomes

By contrast, clinical lab 2.0 is the emerging model in which the entire staff understands that the primary goal of the organization is to identify opportunities to use tests in ways that improve patient care, then collaborate with physicians, patients, payers, employers, and others to help them utilize lab tests and test results in ways that are transformational to both patient care and the cost of the overall episode of care.

One attribute of clinical lab 2.0 is that the organization is an intense user of information technology. That’s because value is created when lab test data is combined with clinical, demographic, and other types of data.

Another attribute of clinical lab 2.0 is that its primary focus is external, in the clinical care environment. Its lab team spends much time outside the four walls of the lab interacting with physicians, nurses, and other caregivers.

At the upcoming Executive War College, scheduled for May 2-3, in New Orleans, “Clinical Lab 2.0” will be one major theme, along with sessions about PAMA Medicare fee cuts expected in 2018, analysis of how the new Congress and administration are handling healthcare issues, and new developments in lab management, operations, and finances.

Two Labs In The Forefront

Two lab organizations now taking steps to evolve their labs from the lab 1.0 model to the lab 2.0 model are Geisinger Health, of Danville, Pa., and TriCore Reference Laboratories, of Albuquerque, N.M. In the opening general session of the Executive War College, TriCore CEO Khosrow Shotorbani will discuss clinical lab 2.0 and offer examples of how his lab is combining lab test results with other clinical data to provide enriched informa-tion to physicians and payers in New Mexico. He will share both the clinical and the financial metrics from programs delivering value-added lab testing services to physicians and their patients.

The next presentation will be by Myra L. Wilkerson, MD, Chair, Division of Laboratory Medicine at Geisinger Health. Geisinger is one of the nation’s leaders at providing integrated care and has been at the forefront of building a biobank and a repository for genetic data on its patients.

Wilkerson will provide an inside perspective on what Geisinger is learning as it strives to implement precision medicine and addresses the need to be more proactive about managing patients with chronic conditions. She will also demonstrate how her laboratory organization is tailoring its services to deliver more value and to support the new clinical approaches being used at Geisinger Health.

Why Project Santa Fe and Clinical Lab 2.0 Are Important to the Clinical Laboratory Industry

FOR 30 YEARS, the clinical laboratory indusry has seen lab test prices spiral downward because the public lab companies with the lowest test costs used their market power to underbid competing labs, whether the competitors were independent labs or hospital/health system labs.

Now the healthcare system wants to end fee-for-service reimbursement and pay providers—including labs—using different methodologies. This is the source of the much-used phrase, “from volume to value.”

Leaders of five major health system lab organizations recognized that they will not win higher reimbursement from payers unless their respective labs can deliver test services worth more to the healthcare system than an accurate test result delivered on time. They understood the need to shift the basis of the discussion on lab test prices and lab budgets away from price. Instead, they must demon- strate to payers how their labs can deliver lab test services that improve patient outcomes while also helping to lower the overall cost per episode of care.

This strategic thinking underpins the creation of Project Santa Fe. In March, 2016, teams from five health system labs met in Santa Fe, N.M., with the goal of collaborating to create “clinical lab 2.0,” a clinical and business model for lab testing that is organized to deliver high value-added lab testing services to all healthcare stakeholders, and for which stakeholders will reimburse appropriate to the value provided by their labs.

The Project Santa Fe participants are the laboratory divisions of:

  • Geisinger Health, Danville, Pa.
  • Henry Ford Health, Detroit, Mich.
  • Kaiser Permanente-Northern California, Berkeley, Calif.
  • Northwell Health, Great Neck, N.Y.
  • TriCore Reference Laboratories, Albuquerque, N.M.

Participants in Project Santa Fe have written that they “want to provide thought leadership and develop the evidence base for the valuation of clinical laboratory services in the next era of American healthcare.”

The idea is for Project Santa Fe to serve as a think tank for innovation. Using clinical pilot programs, its participants will introduce value-based lab testing services to their organizations and document the outcomes, both in how patient care improved and reductions in healthcare costs.

Several of these labs have already completed pilot programs. The results have been shared and other Project Santa Fe labs are in the process of implementing the same pro- grams to demonstrate that they can be repli- cated by other hospitals and health systems.

It is the goal of Project Santa Fe to publish the results of their programs to add value with lab testing services in peer-reviewed journals so that health system CEOs and healthcare policymakers will have the evidence of how lab testing can contribute significant value—and thus should be funded amply to support improvements in patient care.

Workshop on Lab Value

At the upcoming Executive War College on May 2-3, in New Orleans, leaders from the Project Santa Fe laboratories will deliver sessions on clinical lab 2.0, how to develop value, and how to collaborate with clinicians to help them improve patient outcomes.

There will also be a full-day workshop on May 4, titled: “Moving to Clinical Lab 2.0: Deliver More Value! Get Paid More $$$!” Project Santa Fe labs will discuss, in detail, how they are refocusing their labs to deliver more value. Executives will share successes from pilot programs to improve diagnosis and treatment of acute kidney injury, how to leverage lab informatics, and how to create collaborations with physicians and nurses.


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