Labs Push to Cut Costs As Budgets, Prices Shrink

Repeated budget cuts and lower test prices are now forcing labs to aggressively cut costs

CEO SUMMARY: Cost-cutting is now the prime directive at progressive labs because nearly every laboratory organization in the United States is under sustained financial pressure. This is due to shrinking budgets for hospital labs and more aggressive price-cutting by private payers. Even Obamacare is a factor, because of the Medicare Part B price cuts it mandates for five consecutive years. For this reason, proven ways laboratories can use to cut costs will be the main theme at the Lab Quality Confab that takes place on October 1-2, 2013.

CUTTING COSTS IS NOW A PRIMARY TREND in the clinical lab industry these days. Not only is there is less money for hospital lab budgets, but both government and private payers are regularly decreasing the prices they pay for lab testing services.

Labs thus find themselves in a financial squeeze. They have less money available to pay for lab operations. At the same time they must perform more lab tests as specimen volume increases.

This financial squeeze has created new urgency for every lab to identify and eliminate unnecessary costs throughout its organization. Failure to do so subjects the lab to financial risk.

Unless that financial risk is addressed, the poorly-performing lab typically must do one of two things: a) be acquired by a financially-stronger lab, thus losing its independence; or, b) it must radically downsize staff and operations to align costs with shrinking budgets and declining net revenue.

Evidence that these things are already happening can be seen in any number of deals that occurred over the past year. For example, Quest Diagnostics Incorporated acquired the assets of the University of Massachusetts-Worcester’s laboratory outreach program in October, 2012. That outreach lab was experiencing revenue erosion as private payers cut the prices they paid the UMass lab for lab testing services.

More recently, Quest Diagnostics purchased the laboratory outreach business of Dignity Health of Stockton, California. Following that sale, newspapers reported that layoffs involving as many as 148 lab employees were planned.

For its part, Laboratory Corporation of America recently purchased Genesis Clinical Laboratories, the lab outreach program of McNeal Hospital that was based in Berwyn, Illinois. LabCorp is expected to downsize operations at the Genesis core lab facility.

New Reality: Less Money

The new reality for the clinical lab industry is this: labs will be paid less for the same volume of testing. Anyway you want to cut it, government and private payers—as well as employers—are becoming bolder at cutting prices for lab tests.

Clear evidence of this are the actions taken by Aetna, Inc., to reduce the prices it pays labs. This spring, Aetna sent letters to labs stating that it would pay much lower prices for many important and high volume CPT codes, effective July 1, 2013.

We reported that Aetna’s letter included such prices as:

  • $6.54 for CPT 80053-Comprehensive Metabolic Panel
  • $4.00 for CPT 85027-Complete CBC Automated
  • $35.05 for CPT 88305-Level IV Surgical Pathology, Gross and Microscopic

There is another disturbing dimension to this price-cutting crusade. At the same time that lab test prices are being cut, almost all payers are aggressively denying coverage for many new molecular and genetic tests.

Any pathologist or lab manager who doubts the truth of this statement need look no further than how both government and private payers have dealt with the introduction of the 114 new molecular test CPT codes since January 1, 2013.

Even today—eight months into the calendar year—many laboratories will tell you that they do not have satisfactory and reasonable decisions on coverage and pricing for the molecular CPT codes that are most important to them.

In my view, this is not an accident. There is plenty of evidence to argue that both the Medicare program and private payers were willing to let a train wreck happen on January 1 in order to use the disruption in claims adjudication to reconfigure how the entire system handles molecular tests and genetic assays.

As a result of this situation, the financial damage to any number of lab organizations has been extensive. For example, Pathwork Diagnostics and Predictive Biosciences both shut down their labs and closed their doors in April and May, respectively.

THE DARK REPORT’S coverage of this situation only scratches the surface of the financial turmoil caused by the molecular CPT code fiasco. After all, a very large number of lab companies in this country saw their cash flow stop or drop precipitously after January 1 because government and private health programs were not fully prepared to process and settle claims submitted under the new molecular CPT codes.

Expect More Lab Price Cuts

Collectively, these actions by government and private payers make a persuasive argument that further price cuts and restricted coverage guidelines will continue next year and into the future. That means lab executives and pathologists who are business leaders of their pathology groups must have strategies for cutting costs in their lab organizations.

In today’s financially-strapped lab testing marketplace, no lab is exempt from the need to control costs, reduce waste, and boost labor productivity. That is the reason for the heightened interest in process improvement programs that incorporate Lean, Six Sigma, and ISO 15189 accreditation, for example.

This interest in more effective strategies to cut lab costs was front and center at last May’s Executive War College on Laboratory and Pathology Management that took place in New Orleans. Sessions with the highest attendance were those that dealt with cutting costs and achieving much higher levels of productivity within the lab.

To further support this interest by lab managers to learn and use proven strategies for cutting costs while maintaining their lab’s high quality of lab testing services, the upcoming seventh annual Lab Quality Confab meeting has put effective cost-cutting front and center in its sessions. It will take place on October 1-2, 2013, at the Astor Crowne Plaza Hotel in New Orleans.

For seven years, Lab Quality Confab is the place where serious cost-cutters and quality management practitioners come together to share case studies and teach the secrets of using Lean, Six Sigma, and continuous process improvement techniques.

Every lab administrator, pathology practice administrator, or pathologist wanting to achieve substantial cost reductions in a controlled manner that protects and improves quality and service would be well-served to send their team to Lab Quality Confab this year. They will learn from first-rank lab organizations, ranging from ARUP Laboratories and Mayo Medical Laboratories to Massachusetts General Hospital and Baylor Health System.

These are cost-cutting ideas and programs that bear immediate fruit. Each year, attendees report they were able go back home and apply what they learned to save tens of thousands of dollars for their labs by the end of the year.

Lab leaders have a responsibility to do more than just lay off staff to meet shrinking budgets. The knowledge and techniques shared at Lab Quality Confab can help every lab perform more work with less money, even while motivating staff to successfully meet these challenges.

Reducing Lab Costs Is Theme of October Lab Conference

FOR THE PAST DECADE, innovative laboratories have used proven management techniques to drive down costs in all sectors. These methods also boost the productivity of equipment and staff while improving the quality of lab testing and lab services.

The toolset includes Lean approaches, Six Sigma methods, process improvement and workflow redesign strategies, and the growing adoption of quality management systems (QMS). However, although most lab executives and pathologists are aware of these cost-cutting tools, it is likely that their respective laboratory organizations do not employ them to their full potential.

That means that a large proportion of lab organizations across the nation are missing the opportunity to greatly reduce existing costs, without sacrificing quality!

This is why the upcoming seventh annual Lab Quality Confab conference is putting laboratory cost reduction front and center. It will take place on October 1-2, 2013, at the Astor Crowne Plaza Hotel in New Orleans, Louisiana.

More than 50 top-performing lab leaders will lead sessions and lab case studies designed to give attendees a blueprint that they can use in their own lab to eliminate unnecessary costs, save substantial amounts of money, and improve quality—all at the same time.

Keynote speakers include James Westgard, Ph.D., on finding the hidden weaknesses in QA/QC and how to fix them; Denise Geiger, Ph.D., on how her lab saved her hospital $3 million in recent years by reducing hospital-acquired infections; and Richard Zarbo, M.D., Ph.D., on how CAP 15189 accreditation across multiple sites at Henry Ford Health has significantly lowered costs while boosting patient satisfaction. www.LabQualityConfab.com for full agenda and registration details.

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