CEO SUMMARY: In coming years, there will be multiple challenges and opportunities for the nation’s clinical laboratories and pathology groups. That was one common theme heard from the 90 speakers and panelists at the 19th annual Executive War College on Laboratory and Pathology Management that took place on April 29-30 in New Orleans. Lab managers will need to manage in a more proactive manner to keep their labs at the forefront of innovation.
PLENTY OF CHALLENGES AND OPPORTUNITIES lie ahead for clinical laboratories and anatomic pathology groups. That was one theme that emerged from this year’s Executive War College on Laboratory and Pathology Management.
The message from the leaders of successful laboratories was that opportunities still exist to increase specimen volume and revenue, but laboratory managers will need to work harder to achieve those growth goals in today’s tough healthcare marketplace.
In addition to this news, there was a sober assessment of the newly-enacted “Protecting Access to Medicare Act” (PAMA). One section of the law defines how Medicare officials will use market data to set prices for the Part B Clinical Laboratory Fee Schedule (CLFS).
Attendees at the Executive War College learned why, beginning in 2017, Centers for Medicare and Medicaid Services will be given the authority under PAMA to slash CLFS prices. Evidence indicates that Medicare officials will probably target the 20 highest volume lab tests for aggressive price cuts.
The Executive War College took place on April 29-30 in New Orleans. More than 800 clinical lab executives, pathologists, and practice administrators made this year’s conference the biggest in its 19 years of operation.
The theme of opportunity and challenge was established during the opening session. In his presentation, Stan Schofield, President of NorDx Laboratories of Scarborough, Maine, presented the “Five Rules and Four Questions that Every Lab Leader Must Know.” NorDx is a lab company owned by MaineGeneral Health, a six-hospital health system.
Five Rules for Lab Managers
Schofield listed these five rules as essential for any clinical lab striving to maintain state-of-the-art clinical services in a financially-sustainable manner:
- Add clients
- Keep clients
- Create revenue opportunities
- Get paid
- Reduce expenses
These rules may seem basic, but it was a unique twist introduced by Schofield that captured the attention of the audience. “Failure awaits any lab manager that follows these rules in the ‘old school’ or traditional manner,” he warned. “Success depends on using a ‘new school’ implementation of each rule.”
Schofield then explained the old school versus new school approach for each of his five rules. “Take rule number two, which is to keep clients,” he said. “Old school implementation was: 1) to have account reps visit clients and provide lunches; 2) conduct an annual business review of each client; 3) provide IT connectivity to the client; and, 4) keep the office staff happy at each client.
New School vs. Old School
“Now compare that with the new school implementation of this rule,” noted Schofield. “Today, the innovative lab will: 1) utilize a tailored metrics program to monitor, in real time, the lab’s quality and services to clients; 2) issue report cards to clients quarterly that detail the lab’s quality and service performance; 3) monitor the patient experience and strive to continually improve patient service; and, 3) participate in all payer agreements between insurers and the lab’s parent hospital or health system.”
Schofield’s message was that successful lab managers are actively managing every aspect of the lab’s performance. He or she is prepared to intervene in real time to ensure the full satisfaction of every patient and client physician.
“To keep up with the fast-moving evolution in healthcare, it is essential that every laboratory understand its value proposition and work to add more value,” stated Schofield. “Labs are already rich in data. What will make your lab a winner going forward is how your lab team uses data to help physicians order the right test for the right patient at the right time, and at the right cost.
“This is equally true of delivering more value to ACOs, medical homes, and payers,” added Schofield. “New school lab management requires managers to be proactive in developing lab test services that physicians and payers recognize as contributing to improved patient outcomes and an overall lower cost per episode of care.”
Supporting Integrated Care
Another general session speaker mirrored these same key points. At the University of Miami Health System in Miami, Florida, both the clinical laboratory and the anatomic pathology department are focused on supporting integrated clinical care.
“It is timely for lab administrators and pathologist business leaders to recognize how quickly fee-for-service payment will yield in favor of value-based reimbursement,” declared Richard J. Cote, M.D., FCRPath, FCAP. “To succeed in this transition, the winning lab must provide value-added lab testing services that the market wants to buy.”
Cote is Chairman of the Department of Pathology at the University of Miami School of Medicine. “Everyone at this meeting knows that healthcare is evolving away from reactive and acute care,” observed Cote. “In its place, healthcare is emphasizing proactive care and wellness. To become one of the winners in the era of integrated care, every lab organization needs to demonstrate expertise in helping physicians better utilize lab tests, as measured by improved patient outcomes and a smaller spend on lab test dollars associated with specific diagnoses.
“But that does not go far enough,” he continued. “Labs serving ACOs, medical homes, and other integrated clinical organizations can add value by mining lab test data and the clinical information in EHRs specifically to identify at-risk patients. This allows physicians to intervene in a timely way and that is a win for the patient, for the physician, and for the payer.”
Cote was direct in his recommendations to the Executive War College audience. “It will soon be true that how your laboratory organization delivers value will define the reimbursement it earns,” he said. “In fact, it is already true in many regional markets that the ‘perceived value’ of the pathology and clinical lab service are driving market share to those labs that support accountable care and at-risk delivery models.”
The comments of Schofield and Cote illustrate the wider theme heard consistently from other speakers throughout the conference. There continue to be opportunities for clinical labs to grow, expand their clinic service offerings, and earn adequate reimbursement. But this won’t happen unless lab managers are persistent in improving the operational performance of their labs while creating high-value lab testing services.
That covers the good news element affirmed by multiple speakers. The bad news element centered upon certain clauses in the “Protecting Access to Medicare Act.” Because this law had only been signed by the president on April 1, the majority of attendees at the Executive War College were unaware of the law’s significant details.
That is why many attendees were surprised to learn that PAMA is the “single biggest change to the clinical laboratory industry since enactment of CLIA 1988,” according to Robert L. Michel. He is the Founder of the Executive War College and Editor-in-Chief of THE DARK REPORT. He made that statement in his opening keynote presentation.
“The significant thing about this legislation is its potential to trigger the most radical disruption to the clinical lab testing marketplace in four decades!” declared Michel. “That is due to the sections of PAMA that direct CMS to collect market data on lab test prices, then use that data to establish prices for the Part B Clinical Laboratory Fee Schedule.”
“The significant thing about this legislation is its potential to trigger the most radical disruption to the clinical lab testing marketplace in four decades!”
Michel believes that one key to understanding the language of PAMA on market pricing is the report issued to CMS by the Office of the Inspector General in June 2013. The report is titled: “Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings.”
The OIG used a survey of prices paid by state Medicaid and Federal Employee Health Benefit Plans for lab tests to determine that the Medicare program could save $910 million annually on CLFS payments if it cut the prices for the 20 highest-volume lab tests to the much-lower Medicaid prices.
“What is significant about this finding for the entire clinical laboratory industry is the determination by the OIG that, for the year 2010, these 20 highest-volume clinical lab tests represented 47% of all the Part B CLFS claims processed, and 56% of total CLFS payments,” explained Michel.
“The potential for financial disruption on a huge scale exists,” he continued. “Assume that, beginning in 2017, CMS slashes the price for each of these 20 high-volume lab tests at the maximum rate allowed under PAMA.
CMS Can Cut CLFS Prices
“Between 2017 and 2022, the law permits CMS to cut the price on a single test by a cumulative 75%,” Michel stated. “Imagine the financial carnage that would occur to those independent clinical labs and hospital laboratory outreach programs in cases where their payer mix includes 50% or more of Medicare payments.”
To illustrate the potential for deep price cuts to individual tests on the CLFS, Michel used the example of CPT 82025– CBC w/Auto Diff. The OIG noted that, in 2010, the CLFS price for this CPT code was $10.89. However, that price could fall to just $4.89 by the year 2022 if Medicare were to apply the maximum percent price cuts each year to that CPT code.”
Michel noted that, since this section of the bill does not take effect until January 1, 2017, the lab industry has more than two years to work with Congress to amend the Protecting Access to Medicare Act in ways that would minimize potential financial disruption to the nation’s community labs.
Opportunities vs. Challenges
Lab administrators and pathologists attending this year’s Executive War College were given a clear mix of advice by the speakers. Yes, opportunities remain to increase specimen volume, revenue, and operating margin. But achieving these goals requires a higher level of commitment and management acumen than ever before.
Meanwhile, because of all the challenges in healthcare today, it is essential for both clinical labs and anatomic pathology groups to manage costs in the lab more efficiently and use process improvement methods to deliver more value to physicians, patients, and payers.
New Federal Law Has Potential to Disrupt Lab Marketplace
SEVERAL SPEAKERS at this year’s Executive War College in New Orleans commented on the potentially disruptive elements of the newly-enacted “Protecting Access to Medicare Act” (PAMA) that had been signed into law just four weeks before this conference.
During his presentation, Robert L. Michel, Editor-In-Chief of THE DARK REPORT, explained how PAMA directs Medicare officials to collect market data on clinical laboratory test prices from labs during 2016. The Medicare program will then use that data to set fees for the Part B Clinical Laboratory Test Schedule (CLFS).
Michel found it significant that Congress had placed a cap on the amount that CMS could reduce the price of any single lab test in any given year, beginning in 2017. “Why would Congress put language in PAMA to cap single test price cuts at a maximum of 10% per year for 2017, 2018, and 2019, then 15% per year for 2020,2021, and 2022?” he asked. “The probable answer is that Congress did not want CMS to implement its plan to slash the prices for high-volume clinical laboratory tests starting in 2015.
“If it were true that CMS intended to implement substantial cuts to CLFS in 2015, then it makes sense that Congress put language into PAMA that forestalled those intended price cuts in 2015,” speculated Michel. “However, even after the requirement that CMS gather market data in 2016, Congress felt that it needed to further constrain CMS by specifying the limits to how much CMS could cut the price of an individual test.
“That is why the PAMA language specifies that CMS cannot cut the price of a specific test by more than 10% in each of 2017, 2018, and 2019,” he concluded. “Price cuts in 2020, 2021, and 2022 can be no more than 15% in each of those years.”