CEO SUMMARY: In the 1990s, managed care was the dominant change agent to the nation’s healthcare system. During the 2000s, it will be patient safety. However, unlike the unpleasant consequences of HMOs, capitation, and utilization risk, patient safety will prove to be a benevolent trend for physicians, hospitals, and laboratories.
THROUGHOUT the American healthcare system, priorities are shifting to include improvements in patient safety as a major objective.
Because of this fact, patient safety is a unique and identifiable trend within the American healthcare system. More importantly, patient safety is a trend that is making fast inroads.
Accrediting bodies are working swiftly to incorporate patient safety goals into their organization’s accrediting guidelines. Because almost every healthcare organization of significance is accredited in some way, it is guaranteed that accrediting requirements designed to improve patient safety will force healthcare organizations to change many aspects of how they provide healthcare services.
But accrediting bodies are not the only force for change in healthcare. Policymakers in government and not-for-profit institutions are funding studies to identify where patient safety initiatives can yield the greatest benefit. As this data is made public, employers and consumers will demand high quality healthcare without medical errors.
In studying the patient safety movement and speaking to a variety of experts in this field, it is my conclusion that patient safety will be the primary change agent of this decade. Moreover, I believe the clinical laboratory industry will be extensively reshaped by patient safety during the coming years.
Today there is common agreement that the decade of the 1990s was dominated by managed care. It was the primary change agent until about 1998, when consumer rejection of the closed-panel gatekeeper HMO model became obvious to both employers and insurers.
Three Primary Changes
I can identify at least three primary changes that managed care brought to the laboratory industry by the end of the 1990s. First is the payer contracting model which gives all the business to just one or more selected laboratories. Non-contract laboratories in that region are excluded from providing services to that plan’s beneficiaries.
Second is rock-bottom reimbursement by private payers. Whether capitation (which is still with us) or highly-discounted fee-for-service, payers at the end of the 1990s were paying a lot less for laboratory testing services than at the beginning of the decade.
Third is consolidated laboratory services. Because large regional HMOs wanted to transact business with a single laboratory provider capable of serving all beneficiaries in that region, laboratories found it desirable to develop those regional capabilities. Consolidation and regional laboratory networks were common solutions.
IDNs Were A Response
Everyone is familiar with the acquisitions and consolidations in the commercial laboratory sector. However, most hospital laboratories overlook the fact that multi-hospital “integrated delivery networks” (IDNs) came into existence because hospital administrators recognized the same need to have regional coverage as a way to support exclusive managed care contracts and have clout in contract negotiations with payers.
Plenty has been written on these pages about how hospital laboratory consolidation was a direct consequence of several hospitals coming under common ownership and management. This was a consequence of consolidation by the parent institutions.
Certainly managed care stimulated some other changes to the clinical laboratory industry during the 1990s. But the three items I’ve listed here are overwhelmingly dominant. And—they are permanent! No one today talks of undoing consolidated laboratories. There is no expectation that fee-for- service reimbursement will return to a provider’s “usual and customary” fees. The same is true for exclusive contracting. Payers like dealing with a select number of laboratories.
Reasons Behind The Trend
This explanation serves two purposes. One, it demonstrates why I define managed care as the primary change agent of the last decade. Two, it identifies three important characteristics of the laboratory industry that were changed because of managed care.
That brings us to the present. Just as managed care was a dominant change agent during the past decade, I believe patient safety will be the dominant change agent for this decade.
For laboratory executives and pathologists, this is invaluable insight. When developing strategic plans for laboratory organizations, it provides context for understanding what types of forces will shape healthcare throughout this decade. It makes it easier to anticipate and prepare the laboratory staff to deal with these challenges.
For laboratories and pathology practices, strategic planning should center around two themes. First, what are the factors which make patient safety such a potent change agent? Second, how will patient safety initiatives change the way laboratories are organized and managed?
In earlier issues of THE DARK REPORT, we’ve written about why patient safety has emerged as a powerful trend. The trigger to this movement was the Institute of Medicine’s (IOM) widely-publicized report on medical errors. It estimated that between 45,000 and 98,000 people die in hospitals each year as a result of medical errors.
Essentially, the patient safety movement is a way for employers to get the attention of healthcare providers and encourage them to reduce medical errors, to reduce the overall cost of care, and to improve outcomes.
What gave a different impetus to the IOM’s report was the return of double-digit increases in annual healthcare spending. The nation’s employers had recognized that the closed-panel gatekeeper model HMO was a failure in suppressing healthcare cost increases. Employers were looking for a way to control healthcare costs while improving quality.
Employer organizations like the Leapfrog Group and the Midwest Employers Group on Health developed a healthcare spending strategy that uses patient safety as the theme for reducing medical errors, while simultaneously reducing the costs associated with medical errors. Essentially, the patient safety movement is a way for employers to get the attention of healthcare providers and encourage them to reduce medical errors, to reduce the overall cost of care, and to improve outcomes.
Employers know that healthcare providers must manage their organizations differently if they are to meet patient safety goals. First, providers will need to accurately measure the existing status of medical errors. Measurements will be much more rigorous and detailed than was common in past years.
Second, providers will need a management method to use measurement data in a way that allows them to reduce medical errors. Again, compared to past years, this requires a different management mindset—and a different toolbox of management methods.
Third, along with measuring progress toward fewer medical errors, providers will be asked to improve quality. “Evidence-based medicine” is a hot topic in recent years because it requires clinicians to document that specific medical procedures are clinically effective and cost effective.
All of these factors logically point toward an interesting conclusion: to achieve deliberate and sustained improvement in the reduction of medical errors while simultaneously improving quality, healthcare providers will be forced to change both the management methods they’ve traditionally used, as well as the structural form of their organization.
Looking At Laboratories
Let me focus specifically on laboratories from this point forward. I put forward the premise that the overall performance of clinical laboratories has not changed significantly since the mid-1980s. From the time a specimen is collected, through accessioning, testing at the bench, resulting, coding, and billing, most of the nation’s laboratories are doing about the same quality today as they did 15 years ago.
One confirmation of this comes from labs undergoing IS0-9000 and Six Sigma management projects. When individual work processes are accurately measured, they typically score at 2.2 to 3.3 sigma. Three-sigma performance is 99.37% accuracy, or 7,300 “defects” per million events.
Operationally, laboratories today are performing all functions at about the same level of quality as they did prior to 1990. Probably the major gain in quality has come from diagnostic technology which has improved the sensitivity and specificity of individual assays.
Here is where patient safety will be the impetus to change this operational status quo. Accrediting agencies, payers, and employers will want laboratories to provide specific and detailed information on error rates and quality. Moreover, laboratories will need to document that, over time, they are continuously improving.
That means taking existing work processes, which today might generate a three-sigma level of quality in the typical laboratory, and moving them to higher levels of performance. A Six Sigma-level of quality means 3.4 errors per million events. To achieve this, laboratory administrators and pathologists will need a different management philosophy and a different set of tools than those used in the past 15 years.
These different management philosophies will be rooted in the quality principles first developed by W. Edwards Deming, Joseph Juran, and other pioneers in this field. What will be different for laboratories, indeed, the entire healthcare industry, is that accrediting requirements will reinforce the use of these types of management approaches.
Remember that old saying “if you want to understand why something is happening, follow the money?” In the case of patient safety, the money motive comes from employers. With good reason, their tolerance for a historical level of medical errors is ending. Episodes like the transplantation of incompatible organs into the young girl at Duke University Medical Center is an outcome from the “old” management method used by healthcare. Employers and consumers are changing their expectations about quality. Physicians, hospitals, and lab- oratories must recognize this change and respond appropriately.
Benevolent Change Agent
Unlike managed care as the change agent of the 1990s, patient safety will be a benevolent change agent in the 2000s. Everyone in the laboratory wants to do a better job. The goal of reducing medical errors and improving quality has universal appeal, just like motherhood and apple pie.
However, I believe that, unlike managed care, the patient safety trend will generate deep-rooted changes in laboratory operations. By the end of this decade, the structural form of lab- oratories will be much different than we know today. This will be a direct result of two things: the application of a different philosophy of management and the contribution of new technologies in diagnostics, information management, and the Internet.
Finally, I think it is important to remind you of something we’ve noted many times in THE DARK REPORT. One consequence of these changes will be that provider performance will be measured, ranked, and made public. This will be true of individual physicians, hospitals, pathologists, and lab- oratories. Now is the time to assess your laboratory’s performance and prepare for this eventuality.
Presentations on how patient safety initiatives will impact laboratories will be part of this year’s Executive War College on May 6-7. Those who attend will get a head start on understanding this important healthcare trend.