CEO SUMMARY: In recent years, the laboratory outreach program at the Robert Wood Johnson University Hospital in New Brunswick, New Jersey, has achieved impressive rates of growth in specimen volume and net revenue. One reason for this success is that the lab outreach program monitors key data in real time and responds nimbly to the service requests of office-based physicians. It uses Lean to create operational efficiencies and closely monitors its cost of testing versus actual reimbursement.
HOW DOES A HOSPITAL MEASURE the success of an outreach program? Many hospitals evaluate success in terms of lab test volume. But for laboratory managers at the Robert Wood Johnson University Hospital (RWJUH) in New Brunswick, New Jersey, the key success factors for their laboratory outreach program include test accuracy, client satisfaction, and net revenue.
“Everyone recognizes how a successful laboratory outreach program can benefit its parent hospital,” noted Charles V. Wilson, MHA, MT (ASCP), who is the Administrative Laboratory Director for the RWJUH. “But too often, managers of hospital laboratory outreach programs are guilty of failing to use the right mix of financial and productivity measures to guide their strategies and decisions.”
Real Time Data Collection
That has not been the case at RWJUH. Since ramping up the laboratory outreach program in 2009, the RWJUH lab management team has been diligent in collecting accurate data in real time, then using that information to guide decision-making.
“In the first years of our outreach program, we moved at a deliberate pace so we could understand this business,” explained Wilson. “We were determined to establish the right infrastructure to support profitable growth in specimen volume, client satisfaction, and net revenue.”
Wilson made these comments during a session at the Executive War College on Lab and Pathology Management that took place last spring in New Orleans. It was 2008 when Wilson arrived at the 630-bed acute-care facility. During 2010, net revenue from the laboratory outreach program increased on a monthly basis.
Wilson credits this growth to the close monitoring of a wide array of data. “We use a financial dashboard program that provides information on the volume of tests at any given time, including clean claims, and other revenue data,” he said. “An equally important factor in the success of the lab outreach program is our team of experienced and motivated staff.
“It is common to assess a lab’s activity by talking about how many lab tests it performs,” he commented. “But there is no value in performing lab tests if you are not getting paid for the work. Your laboratory’s value to your hospital is strongly associated with its ability to contribute to the bottom line. The laboratory must establish itself as a revenue producing center, as opposed to a cost center.
“It is much easier for a hospital laboratory outreach program to achieve a high revenue contribution when it pays attention to several key indicators,” commented Wilson. “Along with high throughput, it is important to receive clean test orders, which, in turn, helps the lab submit a very high ratio of clean claims to payers.
“When I arrived at Robert Wood Johnson in November 2008, the laboratory was not involved in outreach,” he said. “To get started and to achieve a high rate of growth, we identified three things that we would need.
Using Outside Vendors
“First, we needed a dedicated IT system that would allow us to provide advanced informatics solutions to our office-based physician clients,” he stated. “Second, we wanted a dedicated billing system that was independent of the hospital’s internal billing and collections department.
“The third essential need was a dedicated staff,” added Wilson. “We wanted a top-notch lab outreach manager, a business development liaison, and a field service coordinator.” Before joining RWJUH, the outreach manager and field service coordinator had worked with Wilson and so they could “hit the ground running,” he said.
In addition, Wilson was careful to choose vendors he believed could support the rapid growth of the RWJUH laboratory outreach program. This included a company that provides connectivity to office-based physicians and another company that provides a sophisticated laboratory billing and accounts receivable system.
“This billing and A/R system features a detailed, real-time financial dashboard that continuously monitors our financial performance,” he said. (See sidebar on page 13.)
Wilson believes that a solid business plan is essential for overall guidance and support of the outreach program. He recommends that the business plan be for five years and contain a detailed financial pro forma.
“This business plan should include a core planning team for patient registration, IT, finance, and other essential departments,” he noted. “To gain full support and commitment, these departments must be sold on the fact that the lab outreach program is a hospital program. It is important for everyone to understand that all the outreach work coming into the laboratory helps contribute to the financial success of the hospital.
Making Lab More Efficient
“After getting off to a good start financially, our next strategy was to focus on laboratory operations,” noted Wilson. “The lab operated well and we introduced Lean to create the efficiencies required to deliver exceptional value to patients and referring physicians.
“Office-based physicians are often difficult to please due to the high degree of customization required,” Wilson added. “If your lab outreach program doesn’t consistently deliver customized value-added service, it will be difficult to retain your clients.
Doing More than other Labs
“Service differentiation is the key to success with any lab outreach program,” he continued. “We do what other competing labs can’t or won’t do to meet the needs of client physicians.
“The truth is, most labs could do it. But many labs are stuck doing what they’ve always done,” noted Wilson. “The number one cause of failure of lab outreach programs is ‘hospital-centric thinking.’ The lab outreach program must be run as a nimble and savvy business entity.
“In order to be successful, your lab outreach program must consistently meet the expectations of your clients,” Wilson added. “That means staff have to be willing to flex in order to do whatever is needed to support how these physicians practice medicine and serve their patients.
“In addition, you and your staff need a firm understanding of your lab costs,” he added. “This is essential to success. If the cost of providing the testing services is more than your reimbursement, then the more work your lab does, the more money your laboratory will lose.
“You must assess your reimbursement against accurate costs and accurate charges,” Wilson said. “Your entire lab staff needs to understand the relationship between costs, charges, and the actual amount reimbursed by payers.
“Inaccuracies with regard to costs and charges result in net losses even when lab test volume increases,” he explained. “Therefore, all laboratorians must develop an understanding of the terms and metrics that drive reimbursement.
“There are practical benefits when the lab staff understands lab finances,” he said. “They may be uncomfortable in this role at first, but you must find a way to get them on board.
“An effective financial dashboard is absolutely essential when managing costs and lab test volume,” he continued. “We’ve built such a dashboard and it allows us to see our entire revenue cycle at a glance—everything including unbilled charges, accounts receivable, and collections. These are key performance indicators. We look at them frequently to see how we can improve our lab outreach revenue from one cycle to the next.
“Our goal is to quickly spot trends so we can immediately address problems or pursue opportunities,” Wilson said. “An extremely valuable metric to monitor is the days sales outstanding or DSO.
“DSO is essentially a measure of your revenue cycle or how quickly you process your claims,” he commented. “Our DSO is consistently less than 30 days. Most laboratories would be pleased to be under 40 days.”
Based on the steady increase in specimen volume and net revenue, Wilson’s laboratory has been given capital to support ongoing growth. “Reinvestment in the infrastructure of the laboratory is essential,” he continued. “Our sizable laboratory capital budget for this year allowed us to add a new chemistry line, hematology analyzers, flow cytometers, and do complete renovations to several areas of the department.
“We are also doing a Lean analysis of our pre-analytic operations and looking to upgrade our client service center,” he explained. “Our lab outreach program continues to gain momentum which brings more support from administration and other departments in the hospital.
“We see a bright future for our lab outreach program,” concluded Wilson. “It also positions us to support efforts to more effectively integrate patient care.”
Using Clean Claims to Bolster Success of Lab Outreach
CLEAN CLAIMS MAY BE THE SINGLE BEST WAY to insure the success of a hospital laboratory outreach program. That’s the opinion of Charles V. Wilson, MHA, MT (ASCP), who is Administrative Laboratory Director for the Robert Wood Johnson University Hospital (RWJUH).
“Clean test orders are absolutely the key,” declared Wilson. “And the secret to increasing the ratio of clean claims is to do a better job of getting lab test requests which are accurate and complete at the time the tests are ordered.
“The cleaner the test request forms, the faster they will go through your lab’s revenue cycle,” he continued. “Having accurate patient insurance and test information is critical to success.”
Smaller Labs Should Do as National Labs Do: Jettison Unprofitable Physician Client Accounts
NATIONAL LABS are profitable because they have the size and volume to generate billions in revenue every year. But the nation’s largest labs also manage their accounts according to certain protocols that are effective at maintaining profitability.
“With regard to billing and collections, national labs do two things very well,” stated Larry Siedlick, CEO of the ARx Group, in Hauppauge, New York, which provides laboratory billing and revenue management services. ARx provides these services to the lab outreach program at Robert Wood Johnson University Hospital and other lab clients.
“First, they use accurate information to recognize that not all clients are ‘good’ clients,” noted Siedlick. “This leads to the second thing they do well, which is to get rid of clients who don’t pay their bills or don’t pay quickly. These lab companies are very disciplined about that.
“For smaller labs, this means you should be wary about clients who have left the national lab firms,” he added. “If your lab is taking this marginal business after the client was dropped by one of the national lab firms, it could cost your organization a small fortune.
“The national labs use good information to assess the profitability of individual client accounts and that’s what your lab should also do,” Siedlick noted. “The minimum information you need to assess each client is the volume, the gross charge, the cash collected for that client, the cash per accession or per requisition, and whether that client is profitable for your lab or not.
“It is also essential to know if the client pays its claims in a timely manner,” he said. “This information is required to make good decisions quickly.
“Along with information about problem clients, you need to get the right information to bill and get paid,” Siedlick continued. “That’s another thing the national labs do well: They get the right patient and insurance information at the time of service. Your lab needs the correct policy numbers, the correct subscriber relationship, the correct date of birth, and other relevant details.”
How a laboratory manages its claims and denials is another opportunity to boost collected revenue. “Better management of unbilled lab claims is a key part of laboratory billing and collection because the dollars associated with these claims can add up quickly,” Siedlick said.
Working Denied Claims
“Similarly, better management of denied claims can generate substantial amounts of revenue,” he commented. “Claims submissions is the main issue here and it is important to recognize that, no matter how much your lab’s billing and collections team improves the claims it submits, most managed care organizations find a way to deny some percentage of claims.
“It’s no surprise, then, that to manage denials well, it is necessary to have information on which claims were denied and why,” continued Siedlick. “Your lab should follow up on each claim that is denied.
“This task is harder if the payer uses paper to send back the explanation of benefits (EOBs),” he added. “It means someone in your lab’s billing department must manually go through each denial line by line. It is easy to miss essential information in this situation.
“This job is easier with payers that supply electronic remittance advices (ERAs),” he said. “Digital ERAs are easier to analyze and adjust. Plus, this digital format makes it possible to use software to review these lab claims and find the problem areas. The faster a lab can find the problem and fix that claim, the faster it will be paid by the managed care company.”