>CEO SUMMARY: In 2008, the administration at the Northwell Health system on Long Island considered selling its inpatient and outpatient laboratory services to a commercial laboratory company. In response, the leaders of the Northwell Health Laboratories proposed a plan to show how the health system would benefit clinically and financially by retaining the laboratories. Ten years later, the lab team published the details of how that strategy was successful in boosting outreach lab revenue from $46.1 million in 2008 to $236.4 million in 2018.
Second of Two Parts
To survive and thrive as healthcare transforms away from delivering care based on volume, clinical laboratories and anatomic pathology groups need strategies to deliver value.
In 2008, the leadership at Northwell Health, and in the system’s medical laboratories, recognized the need for the laboratory to add value in how it served the health system, its patients, and its physicians and other providers.
To do so, the lab developed a multi-part strategy in the fall of that year to increase lab test volume and revenue from lab testing while also improving patient care and controlling costs. At the time, Northwell Health in New Hyde Park, N.Y., was a 15-hospital system. Today, the health system has 23 hospitals and an extensive network of physician offices and other clinical assets.
In part one of this multi-part series, we explained the steps the leadership of Northwell Health Laboratories began in the fall of 2008 and continued through 2018 to add value to support the growth of its parent health system. (See, “How Northwell’s Lab Team Demonstrated Value Over 10 Years,” TDR, Jan. 6.)
This series is based on a report published in December 2019 in the Archives of Pathology and Laboratory Medicine (APLM), a peer-reviewed medical journal, titled, “Northwell Health Laboratories: The 10-Year Outcomes After Deciding to Keep the Lab.”
In part two of this series, we report on how the lab integrated a pan-system structure in the Department of Pathology and Laboratory Management (DPLM) to deliver value consistent with the concept that all healthcare is local, along with how the lab’s leadership rigorously tracked quantitative data to demonstrate how the lab contributed to improved patient outcomes and cost management.
These two steps were critical for the lab to increase test volume and revenue, while making clear to health system leadership that the lab was an essential system asset.
Beginning in January 2009, James M. Crawford, MD, PhD, Senior Vice President, Laboratory Services at Northwell Health, worked with other lab leaders to integrate the structure of the DPLM.
54 Pathologists in the System
At the time, 50 of the lab’s 54 pathologists were paid salaries as employees of their respective hospitals, and those hospitals were responsible for the professional component revenue cycle.
During the year, the DPLM converted 52 of those pathologists to department employees, and five years later, the DPLM hired the other two away from their positions in private practice. Each of the hired pathologists was added as a department employee.
Over the same period, the DPLM acquired all professional component billing from the hospitals. This step was a key factor in the lab’s success in the following years because it allowed the lab to manage all claims-coding, billing, and collections.
By managing these functions more closely, the lab could submit more clean claims and devote more resources to documenting claims, successfully appealing rejected claims, and improving collections, particularly for the small dollar amounts characteristic of laboratories.
These early actions paid dividends. “The 2009 restructuring of pathologist employment increased professional Part B revenue by 78% when compared to 2008 ($69.04 collected per work relative value unit (wRVU)
in 2009, versus $38.86 per wRVU in 2008), through better performance of the revenue cycle,” Crawford and colleagues wrote in the APLM article.
Also at that time, the lab named two system vice chairs (one for Anatomic Pathology and one for Laboratory Services), hired one departmental division chief from the outside, and promoted six other departmental division chiefs from within the department.
Two years later (in 2011), the lab integrated the central region anatomic pathology services, meaning those serving North Shore University Hospital, Long-Island Jewish Hospital, and the core lab outreach program.
In 2012, two regional associate chairs were appointed to oversee community hospital pathology practices in the health system’s eastern and western regions. When Northwell Health acquired other hospitals in subsequent years, the pathologists from those facilities were hired into the department after they completed any prior contractual arrangements.
The management of the laboratory service line also was streamlined and integrated into the DPLM. By integrating these services, the DPLM created what the authors called “pan-system divisions” that enabled standardization and delivery of clinical services in cytopathology, hematopathology, pediatric pathology, autopsy, blood banking and transfusion medicine, cytogenetics and molecular pathology, and infectious disease diagnostics.
In 2012, point-of-care testing was added as the Near-Patient Diagnostics division. In 2014, Pathology Informatics was added as a division. This pan-system structure allowed the lab to develop strategies throughout the department to support the health system’s goals of improving patient care, increasing revenue, and controlling costs.
Single Service Line
A significant step in the process of streamlining departmental operations was having all laboratory practices adopt a coordinated administrative and performance structure. This structure ensured that all lab staff and leaders interacted with health system and local hospital-based leadership as members of a single service line, instead of operating as separate clinical practices.
“The purpose of the systemwide service line was to support local care, and, speciﬁcally, to support the ability of local hospital-based clinical laboratory staff and pathologist leadership to provide local care (ambulatory as well as inpatient), as well as to support their working relationships with local clinical staff (physician, nursing, and other), patients, and their communities,” the authors wrote.
“The service line was a resource for provision for local care, not a mechanism for pulling test volume out of local sites,” the authors added. “The core lab was both an in-system reference lab and an engine for driving the necessary infrastructure for pan-system operations and management of the laboratory service line.”
Integration of Pathology
A key step in enhancing service line operations came in February 2011 when DPLM integrated the anatomic pathology services of two tertiary hospitals with the core laboratory’s anatomic pathology outreach service: North Shore University Hospital (738 beds) and Long Island Jewish Hospital (583 beds).
Integrating pathology services from the two hospitals allowed the DPLM to boost pathologists’ productivity by 30% by converting 27 pathologists in three separate generalist practices into an integrated single group practicing sub-specialty anatomic pathology. This step allowed Northwell to expand its outreach market share.
“By making available a fully sub-specialized practice group for the core laboratory outreach program, ‘full service’ subspecialty support of physician practices throughout the market region became more attractive to potential clients,” the authors explained.
At the same time, this central sub-specialty anatomic pathology unit functioned as a real-time in-system ‘‘stat’’ consultancy for pathologists reading local cases, particularly those in community hospitals.
These streamlined operations fueled laboratory service-line growth through 2018, the authors reported. Including testing for in-system hospitals and outreach, net revenue in the core laboratory grew from $73 million in 2008 to $320 million by 2018. (See table on page 17 for financial performance and volume growth from 2008 through 2018.)
Again, the lab’s strategies paid dividends. From 2008 through 2018, revenue grew at an annualized rate of 16%, and the lab’s net ﬁnancial margin grew more than 10-fold. During this time, the lab managed expenses tightly.
As measured in professional wRVUs, anatomic pathology (AP) services for community hospitals remained stable, although there was some variation due to changes in the network afﬁliations of multispecialty physician groups. AP volume at three tertiary hospitals grew mostly as a result of increases in cancer service volume at Long Island Jewish Hospital, Lenox Hill Hospital (652 beds) in New York, and Southside Hospital reported.
Eight-fold Increase in Work
From 2009-2013, AP work from outreach sources increased more than eight-fold. Subsequent ﬂuctuations from 2014 to 2018 reflected the entry or departure of multispecialty physician groups that changed their laboratory network afﬁliations.
As measured against goals lab leaders outlined in 2008, performance improved. Leadership predicted an increase in outreach revenue, for example, and did so as a result of more than doubling the number of billable tests from 3.7 million in 2008, generating $46.1 million in revenue, to 9.8 million billable tests in 2018, producing $236.4 million in revenue.
Not only did performance improve, but the lab met the overall goals declared in 2008. The lab also increased outreach market share in its service area from an estimated 5% in 2008 to 9% in 2018. “In particular, core laboratory outreach volumes grew at an annualized rate of 10.3%, and revenue grew at an annualized rate of 17.8%,” the authors wrote.
In 2008, laboratory leadership had predicted it would sustain its nursing home client base of 360,000 tests in 2008. By 2018, it had increased that volume to 473,000 tests. The one exception to this growth was a decline in clinical trials business from 258,000 tests in 2008 to 118,000 tests in 2018, the authors reported.
By January 2018, the DPLM consisted of a centralized core lab with the associated subspecialty anatomic pathology services unit; 16 hospital-based clinical laboratories of which 13 were rapid-response laboratories, and three were full-service laboratories; plus one clinical laboratory for a stand-alone combined ambulatory center and emergency department. The department had an operating budget in 2018 of $521 million and 2,100 employees, including 108 employed pathologists and eight clinical PhD scientists.
Not including the tests the Northwell Health Laboratories managed for outside labs, the clinical lab at Northwell handled 30 million billable tests in 2018, including 200,000 surgical pathology case accessions, and 150,000 cytology case accessions.
The lab also operated 51 patient service centers. That same year, it did 430,000 ambulatory blood draws, 220,000 nursing home blood draws, 84,000 home phlebotomy blood draws, and 500,000 courier pick-ups. The lab staff answered one million customer service calls, supported 1,000 client result-and-order electronic health record interfaces, and supported 200 physician office laboratories.
The process of streamlining the DPLM included providing support for hospital-based laboratory services. By 2018, the substantial growth in core lab test volumes enabled cost-effective performance of in-system reference testing for system hospitals.
Starting in 2012, the lab began routine collection of hospital performance data for the pan-system laboratory service. These data demonstrated the success of
DPLM’s support of hospital-based lab services in three ways:
- Hospital-based costs-per-test (minus blood) rose from only $10.31 in 2012 to $12.22 in 2018 for an annualized rate of 5%.
- Billable laboratory tests-per-adjusted-discharge rose from 32.9 in 2012 to 38.1 by 2018, an annualized rate of 2.5%. From these increases, the authors used the 451,808 adjusted discharges system-wide in 2018 as the basis for calculating that the lab held costs to an equivalent of just a $4.5 million rise in the annual cost of hospital-based laboratory testing system-wide from 2012 to 2018.
- Blood costs per adjusted discharge remained essentially unchanged at $67.72 in 2012 versus $68.48 in 2018.
2% Annual Rise in Costs
“Overall, the imputed systemwide increases of $4.5 million in the unit costs of laboratory services per discharge from 2012 to 2018 were compared with total hospital laboratory spending of $242 million in 2018,” the authors wrote. “This is less than a 2% rise in laboratory costs per adjusted discharge during a six-year period.”
In addition, this rise in hospital laboratory costs was linked on a site-by-site basis to growth in high-acuity clinical programs at speciﬁc hospitals including cancer services, cardiothoracic surgery, trauma care, and transplantation, and thus was appropriate given the health system’s goals, the authors explained.
One metric important to all labs is productivity as measured by billable tests per technical fulltime equivalent (FTE) staff, which has remained constant at DPLM. A modest increase in productivity in billable tests per total laboratory FTE reﬂects improved efﬁciencies among non-technical staff, the authors added.
The authors also addressed the how the lab’s quality improvement and cost control program affected patient care. The authors addressed this issue clearly. “The fundamental mission of a clinical laboratory is delivering high-quality patient care,” they wrote. “A default premise of the entire laboratory industry is that clinical laboratories provide accurate, safe, and timely results, and there are extensive regulations and compliance requirements to ensure that this premise is true.
“The question is, therefore, does a wholly-owned in-system laboratory network enable better patient care than an alternative arrangement?” they asked. “Establishing an evidence base to answer this question remains a challenge because the lab industry has focused extensively on the evidence base of quality and safety, without necessarily addressing whether one model of lab service delivery is better than another in support of clinical care.
“In these 10 years, Northwell Health Laboratories has attempted to provide strategic in-system leadership for innovation and enhancement of patient care, and responsiveness to challenges and operational difﬁculties,” they wrote.
The authors gave three examples of improvements the lab made in patient care:
- Showing national and international leadership in responding to the H1N1 inﬂuenza virus pandemic in 2009
- Demonstrating how in-system consolidation of AP services can help drive sub-specialization to support high-acuity patient care
- Improving diagnostics for respiratory virus infections.
“The consistent year-to-year effort to advance the delivery of healthcare is an essential element of being an effective in-system laboratory,” the authors commented. “Patient care is also served through leadership and volunteerism provided by pathology medical and managerial personnel at all levels of the institution and throughout its extensive geography.”
In the APLM report, the authors concluded that the metrics the lab published support the lab leaders’ premise that retaining the Northwell Health Laboratories as a wholly-owned system asset was a good decision, they wrote. “It is therefore a reasonable statement that the decision to retain Northwell Health Laboratories as a wholly-owned health system asset was justiﬁed by outcomes in the 10 years after 2008,” they explained.
Looking ahead, Northwell Health’s lab team seeks to leverage their labs’ assets to drive a higher level of system performance in the delivery of cost-effective healthcare while the parent health system adapts to newer models of payment for healthcare services, the authors concluded.
Authors Explain Three Concerns As To How a Hospital Lab Could Fall Short of Its Potential
Performance of the lab, as demonstrated by the data, show that Northwell Health Laboratories achieved the goals lab leaders set in 2008 when presenting a plan to Northwell Health administrators to retain the lab as a health system asset.
It is also true that there could be some areas in which the Northwell Health Laboratories may be falling short of potential, the authors explained in the report published in December in the Archives of Pathology and Laboratory Management.
It’s highly unusual for lab executives to publicly express concerns about the strategies they implement. That fact alone makes the disclosure of these three areas instructive for lab directors and pathologists.
The three areas of concern involve the use of the lab’s quantitative data, the lab’s use of healthcare resources to support value-based payment, and whether consumers recognize the value they get from lab tests.
First, the authors wrote, clinical laboratories have a vast reservoir of quantitative clinical data. A health system such as Northwell Health can combine that lab data with data from the following sources:
- Northwell’s electronic health record system,
- The pharmacy department, and,
- Billing, revenue, and managed care
“That combination of data should be a powerful driver for innovating healthcare delivery, they wrote. “Moreover, innovation is a team effort, which requires the clinical lab to work closely with medical, nursing, pharmacy, administrative, ﬁnancial, and other health system teams,” they added.
“The Northwell Health Laboratories staff feel we have not achieved our potential for the pace of innovation and con- sider this gap in pace-of-innovation as an ever-present challenge,” they wrote.
The second concern is that the market for healthcare services is trending away from volume-based payment and toward value-based models. “While Northwell Health Laboratories have made early inroads on clinical wellness programs to improve patient outcomes, we again feel that we have not yet harnessed the full potential of the clinical laboratory for effective utilization management of healthcare resources,” the authors commented. The third concern is that Northwell Health’s consumers may not recognize the value the lab delivers. “Regardless of the 10-year outcomes, the threats to Northwell Health Laboratories remain,” they explained. “In particular, the ﬁnancial beneﬁts provided to the parent health system may not be sustainable, owing to downward pressure on laboratory revenue, and competition from regional and national laboratories. “Managed care agreements with Northwell may not respect the in-system posture of Northwell Health Laboratories,” they wrote. In addition, Northwell’s consumers may not recognize the value the Northwell laboratories provide as opposed to other alternatives.
“We hope that our continued efforts to develop evidence in support of the value-added contributions of the in-system laboratory through ‘Clinical Lab 2.0’ activities will continue to provide strong justiﬁcation that we are a laboratory of merit to all of our stakeholders,” they conclude.
How Lab Achieved Multiple 10-Year Goals
Few hospital or health system clinical laboratories are willing to publish the metrics that provide insights about their effectiveness at capturing additional market share, generating more specimen volume, and increasing revenue.
However, this is exactly what the lab team at Northwell Health’s Department of Pathology and Laboratory Management did when it published a paper in the Archives of Pathology and Laboratory Medicine that described the lab’s 10-year strategy to deliver more value to its parent health system. Presented below are some of the lab’s achievements from the years 2008 through 2018.
Northwell Lab’s Goals: Generate Outreach Revenue
3.7 million billable tests;
$46.1 million revenue
9.8 million billable tests;
$236.4 million revenue
Increase Market Share
2008: estimated 5% market share
2018: estimated 9% market share
Grow Clinical Trials Business
2008 Actual: 258,000 tests
2018 Actual: 118,000 tests
Sustain Nursing Home Client Base
2008 Actual: 360,000 tests
2018 Actual: 473,000 tests
NOTE: The actual outcomes for 2008 to 2018 are given for the strategic goals declared by Northwell Health laboratory leadership at the time of decision-making in October 2008.
Results from Northwell Lab’s Value Initiatives Offer Lessons for All Hospital Laboratories
What the Northwell Health Laboratories accomplished over the 10 years from 2009 through 2018 is useful to other health systems considering the option to sell their inpatient or outreach clinical laboratory services to commercial lab companies.
The authors of the report in the Archives of Pathology and Laboratory Medicine (APLM) made this point in, “Northwell Health Laboratories: The 10-Year Outcomes After Deciding to Keep the Lab.”
“The lab’s 10-year outcomes are presented as an example for other health systems that are facing such decision-making in the current time frame,” the authors commented.
Over those 10 years, Northwell Health’s lab’s leadership demonstrated that an in-system laboratory can be a strong asset, as James M. Crawford, MD, PhD, Senior Vice President, Laboratory Services at Northwell Health, explained at an industry conference in 2018.
During a presentation at the Executive War College in New Orleans in 2018, Crawford reported how the lab transitioned from a high-performance Clinical Lab 1.0 model with a transactional and volume-based approach to laboratory operations to becoming a leader of the Clinical Lab 2.0 model of delivery value-based care. Also, Crawford explained, the improvement over those 10 years represented an evolutionary process from the inception of the Northwell Health laboratory in 1993.
All of the accomplishments are important for clinical labs that other hospitals and health systems operate, the journal authors commented. “Corporate decisions to monetize the clinical laboratory are of high interest in the current laboratory industry,” they wrote. “The emerging trend has changed from binary (divest or not) to somewhere in between, with some health systems choosing joint ventures with commercial laboratories.”
The outcomes the Northwell Health Laboratories achieved could provide a template for quantitative assessment of the outcomes of laboratory relationships with commercial entities that health systems have established, the authors wrote. Alternatively, the APLM report could provide a benchmark for health systems assessing how to retain their clinical laboratories as a wholly-owned system asset.
Contact James Crawford, MD, PhD, at 516- 719-1060 or JCrawford1@northwell.edu.