CEO SUMMARY: This year’s Executive War College on Lab and Pathology Management delivered major surprises, along with first news of breakthrough innovations and emerging trends. Managed care contracting for lab testing services was this year’s premier topic and there was keen interest in the remarks on this subject by LabCorp’s new CEO, David King. Another well-received presentation was that of Larry Siedlick, CEO of Sunrise Medical Laboratories.
DURING LAST WEEK’S RECORD-BREAKING Executive War College in Miami, the two best crowd pleasers were CEO David King of Laboratory Corporation of America and CEO Larry Siedlick of Sunrise Medical Laboratories.
Both delivered presentations that were popular with the audience and provided powerful insights. Yet each had a different message. David King, in his first major lab industry address since assuming responsibilities as LabCorp CEO early this year, spoke about the current and coming changes in how managed care companies contract for laboratory testing services.
For Siedlick, CEO of one of the nation’s better-performing independent laboratory companies, the message was the importance of effective management of lab resources and close attention to staff morale, productivity, and achievement. Siedlick provided details of his lab’s performance in these areas to illustrate the power of these management initiatives to create a productive, highly competitive regional laboratory organization.
Foremost on the minds of many attendees, however, was what King would say about the managed care contracting marketplace. Implementation of the unprecedented 10-year exclusive national contract between his company and UnitedHealth Group since January 1 has roiled the competitive marketplace for lab testing services in many regions of the country.
Speaking on day two of the Executive War College, King directed his remarks to the reasons why things are changing in the managed care industry and why these changes are triggering different approaches to how health insurers contract for laboratory testing services. “Some of us in the lab industry are focused on the rear view mirror, but there’s a new traffic pattern in front of us, requiring us to look ahead,” King said. “In looking ahead, labs will need to shift the discussion with payers to emphasize the value of laboratory testing in order to survive and win.”
Unwelcome News For Labs
King had unwelcome news for laboratory administrators and pathologists. He believes that managed care is ready to target the cost of laboratory testing in the same way that it has recently begun to address the costs of imaging and therapeutic drugs. “Because of consolidation and other factors, managed care has now arrived in the lab space,” he noted. “Managed care is aware that they spend a lot of money on lab services. Further, payers are beginning to pay close attention to the fact that they spend more money for some lab companies than they spend for other lab companies.”
King believes it is imperative that laboratories take proactive steps to educate payers and restore a recognition of the value that laboratory testing provides to the healthcare system. He used a dictum of management guru Peter Drucker to introduce a four-point program. “Peter Drucker said, ‘The best way to predict the future is to invent it,’ ” commented King. “There are four ways that laboratories can invent the future as it relates to how our services are used.
“First, labs need to become more efficient,” stated King. “Processes should be improved through standardization and by incorporating automation to the greatest extent possible.
“Second, it is time that laboratories recognize the specific ways in which laboratory testing is a commodity business, then develop strategies to emphasize the value proposition of laboratory testing services,” explained King. “For example, electricity is a commodity, but is simultaneously a critical component of our economy. In similar ways, part of the laboratory test menu comprises high volume, routine tests. Yet, commodity or not, these tests are mission critical to the health system. It is the critical contribution to care that comes from this part of the test menu which must be emphasized.
“Third, once labs are willing to acknowledge the ways in which some lab tests are a commodity, they will see that growth comes by improving quality and service,” he added. “No lab is providing inferior quality. Quality is exceptionally high. But we can always improve. Also, we have an opportunity to improve the service labs provide to support lab testing and to deliver results to clinicians. After all, customers and users of laboratory testing often define quality on the basis of the level of customer service their laboratory delivers to them.
“Fourth, labs can achieve growth through innovation, by extending product lines, and by extending their geographic reach,” observed King. He noted that one way labs can extend their geographical reach is through consolidation, stating that “consolidation does not necessarily mean by acquisition, but can include cooperation.
“By participating in collaborative joint ventures, labs can demonstrate value by extending their reach,” King continued. “Collaboration is also a way to combine various strengths. Large clinical labs such as Quest Diagnostics and LabCorp have enormous advantages in the marketplace through group purchasing of supplies, for instance. But local and regional labs have advantages in the marketplace because they have relationships with hospitals and physicians that the large national labs do not have.
“Our laboratory organizations have much in common and so much can be gained by collaborating,” he said. “We have a lot to gain not by bashing each other, but by looking for ways to mutually benefit through collaboration.”
On day one of the Executive War College, Larry Siedlick, the CEO of Sunrise Medical Laboratories, located in the Long Island town of Hauppauge, New York, struck a very different note during his popular case study presentation. In telling the story about Sunrise Laboratories’ management strategies and successes, Siedlick provided a series of management precepts, delivered with wit and backed by the performance benchmarks achieved by Sunrise Labs as a result of effective implementation.
“Founded in 1972, Sunrise Medical Laboratories is the largest private regional laboratory in the Greater New York area,” stated Siedlick. “We have more than doubled our size in the last seven years, growing annual revenue from $29.5 million in 2003 to a projected $72 million for 2007. “We have four strategies for growth,” he continued. “First, we believe in strong financial controls, along with the discipline to manage spending carefully and avoid loss-leader pricing. Our second strategy is to sustain a service culture across all aspects of our laboratory organization.
A Sales-Driven Company
“Third, Sunrise is a sales-driven company,” he explained. “We are diligent and focused on bringing aboard profitable new clients. Next, Sunrise always wants to be an early adopter of new technology and this reinforces our fourth strategy of using IT [information technology] connectivity as a competitive advantage with office-based physicians and other referring clients.”
Siedlick then discussed aspects of Sunrise’s financial strategies, particularly as it applies to collecting receivables. “Many laboratories miss this concept,” he noted. “Probably the single most important success factor in laboratory operations is the ability to effectively collect the money which is owed to your laboratory. We assert that the profit and growth of a laboratory is directly proportional to its billing capabilities and effectiveness.”
Managing Human Resources
Where Siedlick captured the audience’s full attention was his observations about managing the human resources of the laboratory. “People are your lab’s best asset and source of competitive differentiation,” he noted. “Our number one priority at Sunrise is to recognize our staff as internal customers. We emphasize teamwork. We are responsive to the needs of individuals and management is accessible.
“Let me use the example of customer service to illustrate this,” he continued. “We believe customer service is a personality trait and not a learned skill. We also manage from a conviction that is different from most companies, where managers hire people for what they know, then fire them for who they are!
“At Sunrise, if given a choice to fill a customer service position with someone who has all the technical knowledge versus someone who is innately helpful, we would hire the individual with the helpful traits in their personality. That is why we go to great pains during the hiring process to find out who people are.”
Sunrise Medical Laboratories is proud of its use of innovative IT technologies. In fact, on the previous day, at the Executive War College’s full-day program on using interface gateways to connect laboratory informatics with physician office EMR (electronic medical record) systems, Sunrise Chief Information Officer Eric Crugnale presented a case study on how Sunrise is one of the nation’s leaders in this regard.
Sunrise currently has 80 EMR interface gateways working in physician offices. It maintains active interface gateways with 20 different EMR products. It also has more than 500 client sites that support electronic test ordering and results reporting.
“Our demonstrated ability to rapidly connect electronically with new clients is a competitive advantage that helps drive our sales program,” stated Siedlick. “All of these pieces work together to make us a tough competitor in our regional service market.”
Probably the comment that got the largest rise from the audience was when Siedlick was discussing specific management areas that his team might have done better in recent years. He generated much knowing laughter from the audience when he noted that Sunrise might have done better “at making some people ‘available to the industry sooner’.”
Opportunities For Labs
The presentations delivered by both David King of LabCorp and Larry Siedlick of Sunrise Medical Laboratories were well-received by the audience. In their own way, each speaker identified how the current healthcare marketplace is creating opportunities for individual laboratories. They each encouraged lab administrators and pathologists to lead their laboratory organization through a candid assessment of the marketplace, with the goal of developing and implementing new strategies to take advantage of these evolving market opportunities.
Overall, this year’s Executive War College was a high-energy gathering. More than 640 lab directors and pathologists from 15 countries around the world had gathered to hear 50 speakers. It was the second consecutive year for record attendance and a sold-out hotel. In coming issues of THE DARK REPORT, there will be briefings and analyses about key presentations and emerging trends in the management of clinical laboratories and anatomic pathology group practices.
Could Laboratories Help Manage Costs of Imaging?
DURING HIS PARTICIPATION ON A PANEL addressing issues in managed care contracting for laboratory testing services, David King, CEO of Laboratory Corporation of America in Burlington, North Carolina, suggested laboratories could help health plans manage utilization of diagnostic imaging.
King used the example of cardiologists, noting that these specialists are among the most frequent users of imaging technology. “Imaging technology is improving at a remarkable rate, and every cardiology center performs these scans,” King said. “They do them because they get paid to do them and yet a significant percentage of these scans are not needed. This unnecessary utilization is one of the flaws in our healthcare system. But this flaw also represents an opportunity for labs.
“Laboratories can say to managed care plans that ‘before these scans are done, have physicians order a full lipid panel and other laboratory tests relevant for the patient’,” explained King. “Results from these tests will support the appropriateness of the imaging procedure. Laboratories can be effective with this strategy because the goal is to ensure that the patient gets the right care.
“Another way laboratories can contribute value is to produce standardized data sets and meaningful reports on trend lines,” King added. “These are the things that we can do to assist managed care companies and to increase the value of the services labs deliver.
“In today’s competitive healthcare marketplace, standardized data is one of the most important issues for managed care companies,” added King. “So the question is: what is the value to payers of unified information—of standardized laboratory data sets across large populations of patients? Payers are already expressing an interest in using such data, were it to become available. The challenge for the lab industry is to develop a way to normalize that data and provide it to payers in ways that increase its value to payers.”