CEO SUMMARY: An accountable care organization with a strong clinical laboratory component is taking shape in Nebraska. The University of Nebraska Medical Center has developed a partnership with the Nebraska Methodist Health System to form an ACO called the Accountable Care Alliance. It will serve Nebraska and perhaps other parts of the Midwest. Both the pathologists and the referring physicians see opportunities to cut costs and improve clinical quality.
SINCE THE AFFORDABLE CARE ACT was signed into law in 2010, clinical laboratory directors have been asking how labs will fit within accountable care organizations (ACOs).
While physicians and hospitals are forming ACOs nationwide, clinical laboratories have mostly been missing from these operations. Many observers believe clinical laboratories might be among the last pieces of the puzzle to find a niche inside ACOs.
But now, in Nebraska, comes an early example of how ACOs and clinical laboratories are finding new ways to work together. An ACO with a strong lab component is taking shape in Omaha.
“The University of Nebraska Medical Center (TNMC) and the Nebraska Methodist Health System (NMHS) have formed an ACO called the Accountable Care Alliance,” stated Steven H. Hinrichs, M.D., Professor and Chair of the Department of Pathology and Microbiology at TNMC in Omaha. “This ACO will serve Nebraska and perhaps other parts of the Midwest.
“Health systems in Nebraska tend to be disparate and not well connected,” observed Hinrichs. “But here at the University of Nebraska Medical Center, we believe we can work together. Health reform gives us the opportunity to do so.”
The ACO brings together two rather large lab organizations. “The laboratory at 624-bed TNMC performed 5.04 million billable tests last year and had lab revenue of $297.4 million,” said TNMC Lab Director David Muirhead. “The lab at 430-bed NMHS did 1.5 million billable tests and had lab revenue of $30.9 million last year. TNMC has 238 full-time equivalent staff and 28 pathologists while NMHS has 146 FTEs and 12 pathologists.”
For Labs, Place at the Table
“The ACO was announced in 2011 and the two labs entered into a collaboration in May of this year to form the Nebraska Collaborative Laboratory (NCL),” noted Hinrichs. “Initially the two labs will create a single esoteric laboratory.
“This lab will perform high-level molecular testing for breast cancer, lung cancer, and sarcomas,” he noted. “In addition, both entities have cooperated on purchase agreements for blood products and for reference laboratory work, saving $1 million in our first year.
“At a minimum, we aim to be a strong regional player,” he continued. “By having the two labs collaborate and with the formation of an ACO involving our parent medical centers, we can move in that direction. We have the brainpower from the university and the hospitals. What we were missing was the volume. Combining our labs’ volumes gives us this opportunity.
Could Labs Be Leaders?
“For our laboratory directors, the question is ‘Where do we start?’” asked Hinrichs. “Our perspective is that our laboratories could lead the operation of the ACO in a number of ways and thus bring the larger organizations together.
“Our first step in the process was to create common standards across our respective lab organizations,” noted James Wisecarver, M.D., Ph.D., Medical Director of the Clinical Laboratories at TNMC. “Working together, we had both labs do joint purchasing. We also aligned lab test orders and reports for referring physicians.
“Next we developed joint operations with the idea that each lab could fill the other lab’s biggest needs,” he said. “In working on these initiatives, we recognized the power of this collaboration.”
“By having our two labs join efforts, we could keep many lab tests in house,” explained Thomas Williams, M.D., Director of Clinical Laboratories at NMHS. “This would reduce the volume of tests referred to the major reference laboratories, thus improving turnaround time for inpatients and saving additional costs. That was how the two labs came together to form this partnership we have now.
“These insights came as we did our first joint request for proposals (RFPs) for blood supplies,” Williams stated. “This was followed by an RFP for reference testing because we wanted the best price possible. The substantial savings and benefits from just these two deals showed us that combining our two labs would create a viable organization.
“What was interesting was, at this point in our joint activities, we saw a substantial number of opportunities to improve economies of scale,” said Williams. “That’s when we recognized that a sophisticated FISH laboratory would be a great benefit.
“At the time, neither of our two labs performed FISH (fluorescence in situ hybridization) testing,” he added. “There were other FISH labs here in Omaha. If we wanted to save money on reference testing, FISH was one test we could do in house. Because we were not doing FISH testing previously, those tests were going out to reference labs.”
In a press release, Julia Bridge, M.D., NCL’s medical director, explained that, by adding FISH testing, Nebraska Collaborative Laboratory can provide supplemental diagnostic information that is based on a patient’s tumor DNA, to determine the most effective course of treatment with the fewest side effects. Molecular FISH testing helps clinicians avoid treatments that will not produce a desired result in an individual patient based on the presence or absence of a gene alteration in the tumor sample, she explained.
Managing Cost of Lab Tests
“Many labs nationwide are concerned about the cost of send out tests and that was true of us, particularly after we formed the ACO,” Hinrichs said. “Within the ACO, our labs have the responsibility to eliminate needless testing, especially if the test in question is costly.
“Genetic tests are a good example because they can cost $5,000 to $10,000 each and not all genetic tests have been validated in terms of their clinical utility,” noted Hinrichs. “Another example comes from vitamin D tests run by labs.
“Often physicians routinely order the wrong test for Vitamin D” he commented. “With fee-for-service reimbursement, any lab getting those vitamin D test orders will perform those tests and many of these are needless tests.
“But in an ACO, the financial incentives are different,” added Hinrichs. “We no longer build the business based on volume. Instead, we focus on value—which some people define as the highest quality for the lowest cost.
“Thus, to improve the process of lab test ordering, we suggested that the ACO allow us to form a lab-test utilization review committee,” he said. “Our hospital administration approved the idea.
“This committee includes a laboratory director and referring physicians,” stated Hinrichs. “The committee’s goal is to identify high-cost tests that have low potential in terms of diagnostic value.
Best Practice Tests
“Our history has been to send out tests that have high-cost and low diagnostic potential,” noted Hinrichs. “But now, we want our lab to focus on performing high-value tests in-house with high diagnostic potential. That simple change had a significant effect on the costs associated with our outpatient reference testing.
“The committee members recommend best practice tests for patients with certain conditions,” Hinrichs added. “Once the entire committee agrees, that test can be added to our lab information system and to the hospital information system.
“This is a comprehensive process,” he said. “We can assist physicians when they order these tests. Within the LIS and the HIS, we can give the doctors notes about the tests they are ordering or screens to ask if they want this test and, if they do, we can explain its typical clinical use.
“This shows how we are integrating best practices into the LIS and the HIS,” stated Hinrichs. “In doing so, we are guiding physicians at the point of care—at the moment when they order a test.”
Muirhead agreed, saying, “Our goal is to create a lab formulary that would be the counterpart to a pharmacy formulary. We believe laboratorians need to lead by playing a big role in identifying the most appropriate tests.”
“Our history has been to send out tests that have high-cost and low diagnostic potential,” noted Hinrichs. “But now, we want our lab to focus on performing high-value tests in-house with high diagnostic potential. That simple change also had a significant effect on the costs associated with our outpatient reference testing.”
In ACO, Referring Docs Make Suggestions for Lab Testing
ONCE AN ACCOUNTABLE CARE ORGANIZATION was started, all members of the clinical team offered suggestions about how to control spending and improve quality. According to David Muirhead, Laboratory Director at The University of Nebraska Medical Center, that included ideas on ways to improve how physicians utilize lab testing services.
“It has been a pleasant surprise to hear all the suggestions the physicians have made about how to improve care and keep costs down,” Muirhead said. “They asked, for example, if the medical center needs to do a blood draw on every patient three times a day. Because we were focusing on high-dollar tests, we didn’t even think that kind of question would come up.
“But the physicians started looking at their own processes and their interactions with patients,” he noted. “They asked if we needed to do a urine test every day, for example.
“By asking these kinds of questions, the physicians are looking at the laboratory as more than a place that generates test results. They are looking to the lab as a source of information and knowledge,” concluded Muirhead. “That’s something we haven’t seen before and we welcome that kind of input because it makes both our lab and our ACO much better at delivering value to patients.”