Successful Laboratories in the Future Will Brand Themselves, Add Value

“There is an opportunity for the laboratories to become more proactive with health plans. Pathologists are reading the literature and know specifically which diagnostics tests should be performed before expensive imaging procedures
are ordered.”
—Kerry Kaplan, President, Healthcare Connections

CEO SUMMARY: At the most recent Executive War College, Kerry Kaplan, President of Healthcare Connections in Natick, Massachusetts, discussed the results of his national survey of managed care executives. In part one of this interview, Kaplan described the results of his survey, along with advice on how laboratories can build a positive, ongoing partnership with local managed care plans. In part two, he explains what steps pathologists and lab directors can take to become partners with their health plan customers to improve the delivery of healthcare. He also explains how labs have an opportunity to work more closely with payers that are interested in saving money on complex, expensive cases. Kaplan ends by stressing the need for labs to have a branding strategy.


EDITOR: In part one of this interview, we discussed the results of your informal survey of managed care executives. Conducted prior to the Executive War College last May in Miami, you interviewed nine health plan executives to learn how they viewed laboratory services and what labs should know about the changing needs of health insurance plans. You explained that health plans are generally disappointed with what they get from the clinical laboratories with which they work. (See TDR, July 28, 2008.) Let’s start part two by discussing why, in today’s managed care contracting environment, lowest price seems to be the main bargaining chip. How does a lab shift the discussion to value?

KAPLAN: This cuts directly to the key issue. It’s a fact that, in any industry, lowest price is not a winning strategy in the long term. If a company gets the business only because it offered the lowest price, it will lose that customer the first time another company comes along and offers that customer a cheaper price. The winning strategy is to offer a competitive price combined with value that competitors can’t match. That helps retain the customer over the long term.

EDITOR: This was the point you made in part one, relative to the comments made at the 2007 Executive War College by David King, the Chairman and CEO of Laboratory Corporation of America.

KAPLAN: In simplest terms, during his remarks, King said that laboratory services have become a commodity item with most managed care companies. That comment was not popular with some listeners in the audience, who overlooked the fact that King was discussing the need for a laboratory to have a value proposition to earn additional reimbursement. His point was, that for a laboratory to win contracts on any factor other than lowest price, the lab must learn how to provide added value to its health plan customer.

EDITOR: Do you have an example?

KAPLAN: As we discussed in part one, laboratories must become a partner with health plans and help them achieve two goals. First, the lab must play a role in lowering the health plan’s costs. Second, labs need to recognize how health plans are adopting protocols based on evidence-based medicine (EBM). Labs can then help health plans achieve improved outcomes for beneficiaries.

EDITOR: Was this a finding in your survey?

KAPLAN: Yes. The managed care CEOs and medical directors all told me that there is a significant new opportunity for labs to participate in helping payers to develop these EBM protocols. Even better, this opportunity is growing in both importance and influence. Those physicians who were at the forefront of EBM 10 years ago acknowledge that we currently apply these protocols to
about only 4% of clinical decisions.

EDITOR: It makes sense that labs would have a significant opportunity in this area, because laboratory testing underpins many protocols for diagnosis and treatment.

KAPLAN: That’s exactly what we learned from the managed care executives we interviewed. For example, they all had examples where laboratory tests must first be performed before the doctor orders any expensive imaging. My guess is that, on average, physicians only order those lab tests about 55% of the time before they authorize high-cost imaging tests they want done for their patients. Further, because of a published Rand study, we know that, when you see a doctor in this country, you get the appropriate treatment only about 55% of the time. (See TDR, July, 7, 2003.)

EDITOR: This is an interesting direction for pathologists and laboratories.

KAPLAN: That’s because it is an opportunity for the pathologists and laboratories to become more proactive with health plans. Pathologists constantly read the current literature and know specifically which diagnostics tests should be performed before expensive imaging procedures are ordered. Take the example where a pathologist knows: one, the indications for particular patients; and, two, knows the proper test is being done only about half the time before the imaging is ordered. That’s an opportunity for that pathologist to meet with the medical director of the managed care plan and ask, ‘Do you notice what we notice?’ Once you ask that question at the medical director level, you’re operating as a partner with the health plan.

EDITOR: That’s a different approach for labs. But pathologists are very sensitive about “offending” referring clinicians by commenting on ways to improve lab test ordering patterns. So conversations with payers on these ways to improve adherence to clinical guidelines seldom occur for precisely that reason.

KAPLAN: I acknowledge that concern. However, laboratories don’t need to remain totally silent about opportunities for the health plan to implement EBM guidelines that benefit patients (who, on average, get recommended care only 55% of the time). This is an opportunity to encourage more efficient use of limited healthcare resources. Remember, health-care is changing. Clinical habits of the 1990s will not be added-value in our evolving healthcare system.

EDITOR: That is an important point.

KAPLAN: Recognize how significant these savings can be when a laboratory has an effective partnership with a local health plan. Payers are interested in saving money on complex, expensive cases because that’s where the money is. At the same time it’s an opportunity for labs to help health plans cut costs and simultaneously improve quality. When doing both at once, your lab helps the health plan to deliver EBM. Now your lab is a commodity vendor and a partner—at the same time!

EDITOR: Are you saying that laboratories now need to pay attention to costs and quality standards?

KAPLAN: That’s correct. Over the next generation, two factors will drive health plan decision-making. One is reimbursement, meaning what health plans pay providers, including labs. That’s always been true and will continue to be true well into the future. The second factor to drive decision-making is EBM, which will guide health plans as they determine what to cover and how much to reimburse.

EDITOR: That’s an opening which laboratories seldom consider.

KAPLAN: Which is unfortunate. As the healthcare system develops EBM guidelines and supports better clinical out- comes with pay-for-performance (P4P) incentives to providers, this plays to the strengths of laboratories. After all, laboratories produce the lion’s share of the data that resides in a patient’s permanent record and pathologists constantly evaluate how clinicians use laboratory tests.

EDITOR: Could you address the lab industry’s opportunities in genomics?

KAPLAN: Yes. We are only now getting the earliest insights into how genomics will affect the healthcare system. That is one reason why I say the healthcare system is both imploding and exploding. We have millions of aging baby boomers who need healthcare. Going forward they will access an ever-widening range of results from genomics tests. Yet, at the same time, all this is happening in a healthcare system that is, in essential ways, not much changed from 100 years ago—particularly in the way that guidelines tend to require everyone to be treated the same. Thus, our healthcare system will be sorely stressed to respond to genetic tests which tell us that every individual needs to be treated uniquely and differently.

“The answer is simple. If you meet with the medical director to discuss what’s happening with genomics, then that’s an example of being a partner.”
-Kerry Kaplan

EDITOR: From that perspective, your advice that laboratories become a resource for health plans makes sense.

KAPLAN: The lesson for lab directors and pathologists is that they should be on the front side—addressing the issue of how to use genomic test results appropriately— rather than on the back side. That might mean educating health plans about which tests they should cover and which ones they should not cover. I am suggesting that you reposition your lab. Don’t be the lab that gets the memo from the payer saying, ‘From now on we’re not going to cover this test because it doesn’t do any good.’ Rather, be the lab that advises the health plan’s medical director when he or she writes that letter.

EDITOR: This is certainly a paradigm shift in how labs think about their relationship with health plans. How can they become the laboratory that advises plans about how to write these letters?

KAPLAN: The answer is simple. If you meet with the medical director to discuss what’s happening with genomics, then that’s an example of being a partner. This cropped up repeatedly in our survey. One respondent said, ‘The main thing we need help with is genomics.’ That means labs have a significant opportunity to affect what health plan executives think about genomics.

EDITOR: It illustrates the truth that, “if you don’t ask, you don’t get.”

KAPLAN: How many labs take the time to meet with the four health plan executives I listed earlier in part one (the CEO, the COO, the medical director, and the head of large case management) and ask such a question? That leads me next to one of the most startling responses we got to our survey. One health plan executive asked, ‘Are labs willing to overlook their short-term self-interest and be more active in educating doctors about the necessity of expensive tests?’

EDITOR: That’s an interesting question.

KAPLAN: What that executive said is this: ‘We

want providers to help us figure out what’s right and wrong—regardless of short-term profits—and we are willing to reward providers for not doing certain tests if it will save us money.’ That will put the burden on those lab directors who understand that their lab can make $900 on a certain esoteric test, but in terms of diagnostic or clinical usefulness, those test results are not worth $900 to the patient, the physician, and the health plan. If I tell the payer that such a test is essentially worthless, that would cost the lab its margin on that test.

EDITOR: That is a game-changer when that health plan executive asks a lab to over- look its short-term interest so that the lab can help the health plan to deliver better care. That can work, but only if the health plan will reward the laboratory for this knowledge and help it develop effective EBM guidelines.

KAPLAN: Essentially, health plans want their providers to say, ‘For years, we have made a lot of money on these certain tests (or procedures or office visits) and some of these tests are not worth the money you’re spending.’ It’s very simple: Payers want help figuring out ways to save money while also improving quality. If they don’t get that help from their providers and labs, this long- standing adversarial relationship between payers and providers will continue and nothing will change for the better.

EDITOR: One last topic I’d like to ask you about involves the growth of consumer- directed healthcare.

KAPLAN: Steady expansion of enrollment in consumer-directed health plans (CDHPs) means that the time has come for laboratories and pathology group practices to brand themselves. This branding must happen in four dimensions, with consumers and patients, with physicians, with managed care plans, and with employers.

EDITOR: Is this advice based on the trend for consumers to make their choices for physicians, hospitals, and other providers?

“As a consumer, I want to know why this lab is a quality provider and how convenient it is to where I live. Today, in 2008, I have no idea how to answer these questions…”
-Kerry Kaplan

KAPLAN: Yes! Here’s an example. Recently, my doctor gave me a requisition for some lab work. First, I didn’t know whether my health insurance plan would cover the full or partial cost of the testing. Second, I want to have the test performed, but I have no idea which lab companies provide services in Portland, Oregon—where I live. Third, I have no idea of whether one laboratory serving Portland has better quality services than another. Even though I am a sophisticated healthcare consumer, I don’t even know where to start my search for a good lab provider in the town where I live!

EDITOR: Traditionally, laboratories have been invisible to the consumer, since they marketed directly to the physicians who order tests.

KAPLAN: I understand that. But we are moving toward a healthcare system where high deductibles and CDHPS motivate consumers to be more active in selecting—and directly paying—their providers. For that reason, laboratories must be visible to consumers and must develop brand recognition. Do I go on-line? Are laboratories in Portland, Oregon, listed in search engines such as Google and Yahoo? Do these laboratories have Web sites that inform me, as a consumer, about why I should use their laboratory testing services?

EDITOR: Kerry, the answer to that question is that Web queries generally pro- duce a list of the patient collection sites operated by different labs in a city.

KAPLAN: Your answer demonstrates my point. If a laboratory has done a good job branding their clinical quality, their patient service, and other important attributes, then look what happens next time my doctor gives an order for lab tests he wants me to have. At that moment, because of branding, I know a clinical laboratory that says ‘We’re technically the best. There’s no waiting at our lab. Call this number for immediate service.’ I am ready to select this lab, and my decision is going to based on more than simply cheapest price.

EDITOR: You make a strong point.

KAPLAN: Outside of healthcare, this is basic business practice. As a consumer, I want to know why this lab is a quality provider and how convenient it is to where I live. Today, in 2008, I have no idea how to answer these questions for labs and other types of health-care providers. Yet, in today’s economy, every major industry has a significant presence on the Web. It’s easy for me to go to the Internet when I’m ready to buy the best car, the best lawn mower, or the best refrigerator. With just a few mouse clicks, I have immediate access to all kinds of sources, including consumer reviews, customer satisfaction data, and price/feature comparison data. This is why I describe the American healthcare system as being perfectly poised for the 20th century. Labs and other healthcare providers are way behind the curve on their use of the Internet and building their brand.

EDITOR: You are making a serious criticism of healthcare.

KAPLAN: Let me give this a more personal perspective for your clients and readers. I have veins that roll, making it hard to draw blood from me. That means I want the best phlebotomist. I know that the skills of phlebotomists fall on a bell curve, as does every group of professionals. Phlebotomy is the number one concern of this consumer and your phlebotomist is the face of your lab to me. That person is my only experience with your lab and how she or he treats me is likely to determine whether I come back to your lab or not. Period. End of story.

EDITOR: Kerry, this has certainly been a unique perspective on how health plan executives view labs and lab testing services.

KAPLAN: For those lab directors and pathologists who understand this perspective, I believe they have an unprecedented opportunity to build a successful partnership with health plans in ways that benefit patients and physicians. Not every managed care company will respond to the types of business strategies I describe. However, there will be payers that want to do the right things. So labs should be persistent in finding these health plans and developing partnerships with them.

EDITOR: Thanks for a stimulating discussion about labs and payers.

KAPLAN: Thanks for the opportunity to discuss these issues.

Survey of Nine Managed Care Executives Reveals Opportunities for Labs & Path Groups

PRIOR TO LAST MAY’S Executive War College, Kerry Kaplan, President of Healthcare Connections of Natick, Massachusetts, did an informal survey of nine managed care executives across the nation.

The goal was gain insights about the challenges and business priorities they have going forward. It was also to find out what they would suggest that laboratories do to provide added value to health plans. In part one of the interview, the list of nine executives was provided, along with the three questions asked by Kaplan. Here are the payer’s answers to his third question.

Question Three:

  • “We’re really looking for the timely availability of valuable data. Can they stream information ‘just in time?’ We’d welcome a pilot project on that.”
  • “If a lab wants to approach us to help with chronic disease, improving compliance with care—we would welcome that!”
  • “Labs need to standardize test results.”
  • “We need help to be able to identify which patients will respond to treatment.”
  • “We need experts to help us with evidenced-based medicine (EBM).”
  • “Help us get the lab out of the hospitals, it’s three to 10 times more expensive for lab tests performed in the hospital than in reference labs.”
  • “The main thing we need help with is genomics. It’s scary.”
  • “Labs need to ‘brand’ themselves. With growing enrollment in consumer-directed health plans (CDHPs), prices will be transparent. Labs need to prove their value proposition to physicians, patients, and payers.”
  • “Labs need to be transparent in quality. We know labs get it wrong 30% of the time.”
  • “Are labs willing to overlook their short-term self-interest and be more active in educating physicians about the medical necessity and appropriate utilization of expensive tests?”


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