NYU Langone and Sonic Healthcare Create Laboratory Outreach Joint Venture

Joint venture will serve 2,000 office-based doctors employed at NYU Langone Health system

CEO SUMMARY: NYU Langone Health recognized the clinical and financial advantages of providing competitive lab outreach testing services to its employed physicians. The laboratory joint venture with Sonic Healthcare USA will allow NYU Langone to increase use of its hospital labs and will facilitate standardizing its testing methods, results, and reference ranges. The first phase of the JV will begin Oct. 1, when NYU Langone will replace and enhance the services other third party labs currently perform.

BUILDING A PROFITABLE HOSPITAL LABORATORY OUTREACH BUSINESS continues to be attractive to some hospital administrators. On Aug. 15, NYU Langone Health and Sonic Healthcare USA announced an agreement to form a laboratory outreach joint venture.

The partners will operate the JV under the name NYU Langone Diagnostics LLC. In the first phase of business development, the JV will focus on serving more than 2,000 physicians that NYU Langone employs throughout the five boroughs of New York City and the two counties (Nassau and Suffolk) on Long Island.

Through the JV, NYU Langone expects to improve lab test turnaround times. “We hope to provide faster turnaround times by leveraging Sonic’s laboratory testing capabilities in their facility on Long Island to supplement our own hospital labs,” said Mark Pollard, Vice President of Hospital Operations for NYU Langone Health. “We already have fast turnaround times in our inpatient settings, and now we hope to offer similar capabilities for outreach testing.

“The ideal is to report outreach test results within 24 hours,” he said. “That’s not always the case, either because of the distance that specimens must travel to a commercial lab or what happens to those tests once they get there. But we’re confident we will hit that 24-hour turnaround time in this relationship.”

Improved TAT is possible because Sonic has the necessary infrastructure in the New York market to serve NYU Langone, Pollard added. “One of our main criteria when considering this potential partnership was the need for a strong infrastructure to manage this business,” he commented.

NYU Langone will continue to manage its inpatient laboratories, but, as part of the JV agreement, it will make Sonic its primary lab for reference and esoteric testing. “The NYU Langone partnership initially is an 80-20 arrangement in which NYU Langone has an 80% stake and Sonic has a 20% stake,” stated Noel Maring, Vice President of Hospital Affiliations for Sonic. “We have an option to grow our stake to 51%.”

Administrators at NYU Langone recognized the clinical and financial opportunities that a dynamic outreach lab business could produce. At the same time, NYU saw the wisdom of finding a partner to take over its lab outreach program. This joint venture will replace and enhance the services other third-parties currently perform for NYU Langone physicians.

“We may be good at running clinical laboratories and providing high quality clinical laboratory test results, but we don’t have the infrastructure to support a diverse and broad outreach laboratory business, including such functions as courier services and laboratory customer service functions,” Pollard said.

“Framing the discussion with the hospital from that perspective helped us to think differently about how we could provide a better model of outreach laboratory testing if we had somebody who could fill in the gaps outside of our hospitals’ core services,” he added.

Many Hospitals Assessing Lab Outreach Due to Cuts to Medicare Lab Test Fees on Jan. 1

AS JANUARY 1 APPROACHES, hospitals and health systems are becoming increasingly concerned about what effects the deep price cuts to Medicare Part B clinical laboratory fees will have on their lab operations.

“These Medicare fee cuts will make it necessary for hospitals to make important decisions about their lab outreach businesses,” stated Noel Maring, Vice President of Hospital Affiliations for Sonic Healthcare USA. “Many hospitals are considering the cost-effectiveness of continuing in the lab outreach business after Jan. 1, when the Medicare price cuts will reduce what they are paid for lab tests. As a result, several health systems around the country have chosen to exit the outreach lab business. Our joint venture model provides hospitals with another more cost-effective option to stay in the lab outreach business.

“Almost every New York hospital has looked at this issue carefully,” he added. “It was certainly a consideration for NYU Langone when it decided to form a joint venture with Sonic.”

The outreach-only lab joint venture that Sonic Healthcare USA announced with the NYU Langone Medical Center in New York City in August is one example of a health system choosing a partner to assist in managing its lab operations, said Maring.

“Effective Oct. 1, we will begin ‘insourcing’ the lab business from NYU physicians to NYU hospitals and to Sunrise Medical Laboratories, our lab division on Long Island,” explained Maring. “In an organized fashion over the next six to nine months, this lab testing volume will move from various commercial and hospital laboratories to NYU and Sunrise laboratories. “NYU Langone is a not-for-profit health system that wants to work more closely with the 2,000 physicians it employs throughout the five boroughs of New York City and in the two counties on Long Island,” he said. “At a later date, our lab joint venture may consider working with other NYU Langone physicians—meaning those not employed but affiliated.

“In this venture, Sonic shares in the cost, in the revenue stream, and in the associated profits,” continued Maring. “The JV’s primary goal is to use all the lab facilities of the two organizations in the most efficient manner possible, while providing improved service levels to NYU physicians.

“As its part of the lab outreach joint venture, Sonic’s Sunrise lab will do pre- and post-analytical functions as well as provide testing services to the JV,” he noted. “Pre-analytical processes will be standardized at all JV lab sites, and NYU hospitals will continue to perform some outreach testing.

“One interesting element in this lab partnership is that NYU wanted more standardization in how lab testing was handled throughout the health system,” Maring observed. “For example, NYU has had six or more lab companies serving their different operations. That meant NYU’s physicians— in the inpatient, outpatient, and outreach settings—were forced to deal with the different testing methods and different reference ranges of these six lab providers. The lab JV will solve that problem in ways that make physicians more productive in delivering improved patient care.”

Making Outreach a Strength

Now that NYU Langone is working with Sonic, Pollard said the medical center has confidence that its lab outreach business will be one of the strengths of its operations. Hospitals and health systems are questioning whether they should continue their outreach operations, sell them to a lab services company, or form a joint venture as NYU Langone has done.

“During the past 18 months, we have considered our options for the outreach business, but now, with Sonic, we have a unique venture in the NYC marketplace,” he said. “Our health system feels strongly about maintaining an active role in the management and the production of outreach laboratory testing results. This partnership is a way for us to stay in that business.

“Not only will we stay in this business, but we will actually provide a better command and control over that whole book of business,” Pollard added. “That’s significant because outreach is an important component of our physicians’ diagnostic process.”

NYU Langone also recognized how a partner could help it standardize lab processes throughout the health system, including test results, testing methods, and reference ranges.

“With more than 2,000 physicians in the NYU Langone ambulatory healthcare network, the opportunity to standardize test results is significant,” Pollard explained. “Not only is standardization important for physicians and patients, but it is also important so that we can mine our own clinical data.

“That data will give us a much better understanding of population health measures,” he said. “Standardized, uniform test data will allow us to develop more predictive models for treatment and clinical interventions across our entire patient population.

“By partnering with a single laboratory provider we hope to enhance our ability to get at that outreach lab test data in a more timely manner,” he added. “The lab test results will all reside in our Epic electronic health record system which will mean we’ll have more and richer data as a result of this partnership.

“Because our outreach business is high volume and geographically dispersed, a robust courier system and accurate technology for tracking specimens are essential,” he continued. “Equally important is high-quality customer service for patients who have questions about lab results or billing, and that supports the physician offices. Sonic brings all these resources to the table.”

Another advantage is the ability to increase the utilization of the existing inpatient laboratories. “The partnership with Sonic gives us an opportunity to build up our volume by bringing more of the outreach testing back into the hospital labs,” noted Pollard. “That additional blended test volume will help us lower the average cost of inpatient testing.”

Regional Expansion

One interesting factor in the alignment of the partners in this venture is how the health system has expanded its regional footprint. “In recent years, NYU Langone Health System has acquired physician practices in Brooklyn and in Nassau and Suffolk counties,” observed Pollard. “It turns out our expansion into these areas aligned nicely with where Sonic and its Sunrise Medical Laboratory division have existing operations. So, right off the bat, our lab joint venture begins with good synergy.”

Contact Noel Maring at 512-439-1677 or NMaring@SonicHealthcareUSA.com.

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