CEO SUMMARY: With each passing year, the primary role of hospital and health system labs evolves in a different direction than that of independent lab companies. This trend is a response to the creation of integrated delivery networks paid on value and how they are scored on their ability to keep patients out of hospitals while delivering improved patient outcomes. Hospital labs must adapt their testing services and lab operations to meet these needs in the inpatient, outpatient, and outreach sectors.
OVER THE PAST 24 MONTHS, the paths of many hospital and health system laboratories have begun to diverge from that of independent lab companies.
The reasons for this divergence are complex and have less to do with how private health insurers are reducing reimbursement for lab tests and are more related to the way the healthcare system is changing.
This development is significant because it means hospital labs will evolve to serve different marketplace needs than those served by independent clinical lab companies. It will also change the relationships that hospital laboratories have had with independent lab companies in several ways.
At least four distinct drivers are propelling this divergence. They are:
• Need for hospitals and health systems participating in ACOs and integrated delivery networks to have a full longitudinal record of every patient’s lab test data—whether the tests were performed in inpatient, outpatient, or outreach settings.
• Need for the patient’s longitudinal lab test data to have the same test methodologies and reference ranges.
• Changes in the reasons why office-based physicians may prefer to use the lab testing services of their local hospital or health system laboratory versus independent lab companies.
• Changes to the way hospitals contract for anatomic pathology testing services that traditionally have been provided to hospitals by private pathology group practices on contract.
Hospitals and health systems operating as part of accountable care organizations— or contracting with health insurers—must have a complete record of each patient’s lab test data to support the ACOs’ and health insurers’ need to monitor their patients’ care over time, as well as to demonstrate that the hospitals and health systems are delivering care that supports the ACOs’ and health insurers’ efforts to improve patient outcomes and control costs.
Supporting ACO’s Needs
Hospital- and health system-based pathologists and lab administrators have learned the value of a complete record of a patient’s lab test results. Not only is it important to have patients’ complete test result histories that use the same test methodology and reference ranges, but it is clinically valuable to have the results of all lab tests done for each patient in inpatient, outpatient, and outreach settings. This understanding gives hospitals and health systems what could be called a home-field advantage versus independent clinical lab companies.
THE DARK REPORT is first to identify this divergence and attempt to describe it in ways that help hospital lab administrators, pathologists, and executives at independent clinical laboratory companies meet the changing needs of the market-place. As this divergence becomes more obvious, fundamental changes will reshape the goals, motives, and lab test service mix of hospitals compared with those of independent lab companies in five significant ways.
Changes For IVD Firms
First, IVD manufacturers will need to develop analyzers, automation, and testing systems customized to the new needs of hospital labs, compared to those of independent lab companies.
Second, companies that sell software and laboratory information systems to labs will need to customize their products to the new requirements of hospital and health system laboratories. These products will have functions distinct from those products the IT companies sell to independent lab companies.
Third, reference and esoteric lab companies that serve hospitals and health systems will need to do more than simply be a source of send-out testing. The success of these labs will depend on how well they collaborate with hospital labs to improve patient outcomes and reduce costs.
Fourth, as hospital labs build new clinical relationships with office-based physicians in their communities, their efforts could tip the competitive balance in favor of hospital and health system labs over commercial lab companies.
Fifth, providers of anatomic pathology services—be they the local private group practice, a large regional pathology practice, or a pathology lab company—will undergo a reordering as administrators of hospitals and health systems renegotiate the mix of surgical pathology services to match their institution’s clinical and financial needs. In some cases, pathologists may become employees of the hospital or health system.
The divergence of hospital laboratories from other types of clinical laboratories is rooted in the evolution of the changes remaking the health system. Some of the principles transforming healthcare are:
• Having physicians provide care to achieve early diagnosis, manage patients with chronic diseases, and reduce hospitalizations.
• Having integrated healthcare systems eliminate silos so that they can provide seamless care for patients from cradle to grave.
• Adopting personalized (or precision) medicine initiatives.
• Using data to help managed care organizations adopt population health management and personalized medicine strategies.
• Requiring hospitals, physicians, and other providers to report patient outcomes data.
• Encouraging patients to be more financially responsible for the cost of care by selecting hospitals, physicians, and other providers based on outcomes and prices.
Hospitals and health systems that are early adopters recognize that their labs will be required to provide all patient testing so that physicians and other providers will have the information they need to deliver appropriate and timely care whenever and wherever a patient enters the healthcare system. What’s more, accountable care organizations and patient-centered medical homes that send their patients to these hospitals and health systems also will want continuity in lab test data and each patient’s cumulative lab test result history in their EHRs.
Support For Integrated Care
As hospitals and health systems consolidate and deliver more personalized medicine, their labs will need to support these models of clinical care. To achieve full integration of care delivery, healthcare organizations need to connect all clinical service lines and the associated support services within their institutions seamlessly.
This clinical service integration was one motivation for NYU Langone Health of New York City to enter into an outreach laboratory joint venture with Sonic Healthcare USA last summer.
“[This lab joint venture is] significant because outreach is an important component of our physicians’ diagnostic process,” stated Mark Pollard, Vice President of Hospital Operations at NYU Langone in an interview with THE DARK REPORT. (See TDR, Sept. 18, 2017.)
NYU Langone recognized how a partner could help it standardize lab processes throughout the health system, including test results, testing methods, and reference ranges.
“With more than 2,000 physicians in the NYU Langone ambulatory healthcare network, the opportunity to standardize test results is significant,” Pollard explained. “Not only is standardization important for physicians and patients, but it is also important so that we can mine our own clinical data.
Population Health Measures
“That lab data will give us a much better understanding of population health measures,” he said. “Standardized, uniform lab test data will allow us to develop more predictive models for treatment and clinical interventions across our entire patient population. By partnering with a single laboratory provider we hope to enhance our ability to get at that outreach lab test data.”
The example of NYU Langone Health demonstrates why the integration of all service lines will have a favorable effect on hospital and health system laboratories because it puts them in the favored position to continue as the primary providers of lab testing services throughout their parent organizations.
The natural advantages of hospital and health system labs are obvious: faster turnaround time for reporting results; a complete cumulative patient lab test record that includes inpatient, outpatient, and outreach test results; and local clinical pathologists and PhDs who know the patients and the physicians.
In tomorrow’s healthcare system, the winners will be those integrated delivery networks that achieve effective integration of clinical care while practicing precision medicine that keeps patients healthy and out of hospitals and lowers the cost of care. These goals play to the strengths of hospital and health system labs that start with a home-field advantage.
These are the clinical and market forces that will cause the paths of hospital and health system labs to diverge from the paths of independent lab companies. This divergence will go as fast as the shift from fee-for-service payment to value-based reimbursement occurs, thus causing a major realignment in the lab marketplace.
Contact Robert L. Michel at 512-264-7103.
As Clinical Laboratory Industry Evolves, Different Lab Test Sectors to Gain Market Share
COMPARED WITH THE SITUATION THREE DECADES AGO, the clinical laboratory industry today has more variety in the types of lab organizations that provide diagnostic testing services to the nation’s hospitals, nursing homes, physicians, and other providers.
At the start of the 1990s, there were essentially three categories of labs. They were hospital labs, independent lab companies, and anatomic pathology labs. Only a handful of reference and esoteric testing labs existed. Specialty lab testing companies were few in number. Physician office laboratories (POLs) were plentiful, but had limited test menus.
At that time, few hospital labs did outreach lab testing for office-based physicians. A large number of private regional lab companies and about 10 publicly-traded lab firms dominated the independent lab sector. All of the test menus of the independent labs were similar. The basic differentiators were the size of the region served and the volume of tests performed.
Major Market Differences
That is not the case today. The major differences from 30 years ago include:
- Many hospitals and health systems have viable lab outreach businesses.
- The two multi-billion-dollar public lab companies have a national duopoly that serves office-based physicians while a small number of private independent lab companies barely survive serving small towns and nursing homes.
- There is a robust sector of large reference and esoteric testing lab companies serving hospitals and health systems primarily.
- Investors are funding a fast-growing sector of specialty lab companies that offer a limited menu of proprietary or patented lab tests.
- An aging workforce and consolidation among hospitals and health systems are forcing smaller pathology groups to sell, merge with others, or simply go out of business.
- Physician office labs offer expanded test menus due to more waived tests and the automation and miniaturization of laboratory analyzers.
Rise Of Specialty Labs
Over the past decade, the clinical laboratory industry has experienced one other important trend: a sharp rise in the number of specialty lab companies. Typically, these lab companies offer a specific menu of tests directed at certain medical specialties.
The largest number of specialty lab companies are in cardiology and cardiovascular testing; toxicology, pain management, and pharmacogenomics testing; and molecular diagnostics and genetic testing.
Thirty years ago, hospital labs served the inpatient and outpatient sectors while independent lab companies held an overwhelming share of the office-based physicians in the outreach sector. Today, hospital labs with outreach programs, the two large national lab companies, and the numerous specialty lab companies compete intensely for the test referrals coming from office-based physicians, making competition for lab test referrals from office-based physicians the most intense it has been since the early 1990s.
Competition For Specimens
Despite the substantial reduction in the number of independent lab companies offering standard test menus, the still-growing number of specialty testing lab companies has filled that vacuum. These specialty lab companies fight furiously to win the lab test referrals of those specialist physicians who can refer the largest number of patient specimens for their proprietary tests.
Integrated Clinical Lab Data Record: Will This Give Advantage to Hospital Labs Moving Forward?
IN THE FEE-FOR-SERVICE WORLD OF SILOED HEALTHCARE, it was not essential for providers to have access to a full and complete medical record of patients, including lab test data produced from inpatient, outpatient, and outreach settings. That is no longer true.
In the era of fee-for-service medicine, clinical care was provided in silos. In the coming era of value-based reimbursement, the goal is to provide seamless clinical care, typically provided in integrated delivery networks.
In the FFS world of siloed healthcare, it was not essential for providers to have access to each patient’s full medical record, including a complete record of that patient’s lab test data from inpatient, outpatient, and outreach settings. But as health systems seek to deliver value-based care, all providers need each patients’ complete record of lab test results if they are to deliver timely and appropriate care that does not duplicate earlier testing.
“It quickly becomes obvious to these [health system] administrators that longitudinal data on patient care must be available if they are to succeed in any integrated model of care delivery, such as ACOs or patient-centered medical homes,” said Linda Flynn, Founder and CEO of L.S. Flynn & Associates, of Florence, Ky. (See TDR, Sept. 9, 2013.)
Real-time Lab Data Access
“For example, clinical care cannot be managed efficiently if a hospital or primary care clinic can’t get the lab test data it needs at the point of care,” she added. “Similarly, if the lab test data is not in a readable format in the physician’s electronic health record (EHR) system or hospital’s EHR, that also interrupts timely and accurate care.
“One hospital client is currently organizing its ACO and this is a significant problem,” Flynn added. “The ACO administrators recognize that physicians cannot easily work with lab test data produced by several different lab companies because of the different test methodologies, different names for the same tests, and different reference ranges.”
“By not paying attention to what their labs do, hospitals have allowed specimens from hospital patients—whether inpatients, outpatients, or outreach patients—to go to other labs,” she said. “Now, as they participate in ACOs, hospital administrators are recognizing that this situation needs to be changed.”
Uniform Lab Test Record
In fact, the need for a uniform longitudinal patient record with the same test methodologies was one important goal in an outreach laboratory joint venture announced last August between NYU Langone Health of New York City and Sonic Healthcare USA.
“One interesting element in this lab partnership is that NYU wanted more standardization in how lab testing was handled throughout the health system,” stated Noel Maring, Vice President of Hospital Affiliations for Sonic. “For example, NYU has had six or more laboratory companies serving their different operations. That meant NYU’s physicians—in the inpatient, outpatient, and outreach settings—were forced to deal with the different testing methods and different reference ranges of these six lab providers. The laboratory joint venture will solve that problem in ways that make physicians more productive and improve patient care.” (See TDR, Sept. 18, 2017.)