CEO SUMMARY: Do clinical laboratories in any of the world’s most developed countries have a performance advantage that makes them “best of breed?” Recently, a laboratory in the United States and a laboratory in the United Kingdom had the opportunity to evaluate their financial, productivity, and quality performance against each other. The results were unexpected—and point to a conclusion that most laboratories in developed countries are performing very well.
IN THE SEARCH FOR “BEST PRACTICES” and “world class laboratories,” is the American system of laboratory management pre-eminent in the world?
Are laboratories in the United States consistently better than those of other countries at utilizing resources and delivering a higher level of laboratory services? Answers to these questions are important because the urgency for lab administrators and pathologists to maximize the performance of their labs increases steadily.
Recently a lab director from the United States and his counterpart from the United Kingdom were given the rare opportunity to compare their laboratory organizations and report on the differences and similarities in performance of their laboratories.
“Our conclusions startled both of us,” declared John J. (Jack) Finn, CEO and President of Centrex Clinical Laboratories, Inc. of New Hartford, New York. “Given fundamental differences in the health system of the United States and the United Kingdom, we did not expect to find such close alignment on many operational elements.
“I agree with that statement and further say that our side-by-side case study provides useful management insights for laboratory leaders on both sides of the Atlantic,” added Peter Wisher, Divisional General Manager of Path Links Greater Lincolnshire Pathology, a consolidated lab organization based in a rural region 200 kilometers north of London, England.
What brought these two laboratory leaders together was an invitation to compare their laboratories and report on the findings at the second annual “Frontiers in Laboratory Medicine” (FiLM), held in Manchester, England on February 3-4, 2004. This “U.K. War College” is co-produced by THE DARK REPORT and the Association of Clinical Biochemists (ACB). As with the Executive War College in the United States, it brings together laboratory leaders from both countries to explore the management successes of early-adopter laboratories.
Centrex Clinical Laboratories and Path Links comprised one of two side-by-side case studies. Both Centrex and Path Links are based in a semi-rural to rural region with comparable distances and population. The objective of this presentation was to evaluate and report on the significant similarities and differences between the two laboratories.
“Structurally, our two laboratory organizations are uncannily similar,” observed Wisher. “Path Links was one of the first projects in the United Kingdom to create a consolidated, regional laboratory organization that unified laboratory testing services across multiple hospitals and clinics in five towns and cities to form a single, county-wide lab service organization. That was accomplished in 1997.
Integrated Regional Labs
“From that perspective, both Path Links and Centrex are integrated regional laboratory organizations,” added Finn. “We each have a single IT system serving all sites, highly-integrated courier logistics, centralized histology, and centralized immunology.
“Our labs serve a population of about 1 million people each, along with hospitals as large as 500 to 600 beds,” he continued. “Thus, our test menus are extensive and include support for point-of-care testing (POCT) done in hospitals and physician clinics.”
The most fundamental difference in the two laboratory organizations was source of funding. “In the United Kingdom, funding for laboratory services comes from the Strategic Health Trust (SHT),” explained Wisher. “Our budgets and capital requests are established by the National Health Service (NHS) Acute Trust. In general, our annual funding has changed by rather modest percentages. Relative to the United States and its reimbursement cutbacks, we’ve had more stable, albeit tight, finances. That’s allowed us to concentrate on our clinical mission. The fact that we have no laboratory competitors also simplifies our management decisions.”
“That’s not the case at Centrex,” countered Finn. “Financial considerations are ever-present in almost every management decision. Our funding comes from public and private payers and we must compete for lab testing business and the revenues attached to them. Also, compliance is a major issue in our laboratory. Medical necessity regulations limit the types of tests that physicians can order.”
Test Ordering Limitations
“We are fortunate not to have those compliance requirements,” Wisher responded. “There is more freedom for clinicians to order the tests they deem necessary. However, because physicians are aware that the overall healthcare budget is limited, pathologists in the U.K. are able to take a more aggressive role in providing instruction and direction in how physicians should order laboratory tests.”
What may be of greatest interest to clients and regular readers of THE DARK REPORT are the financial and productivity measures achieved by Centrex and Path Links. Both Finn and Wisher were surprised when they put their labs’ numbers side-by-side.
“Each laboratory counts the number of tests differently,” said Finn. “However, the scale of our testing is proportional. Centrex does 3.1 million tests per year and Path Links performs 4.4 million tests per year. Using an agreed formula for average-cost-per-test, we found the number to be similar: US $8.90 (£4.53) at Centrex versus US $7.84 (£4.26) at Path Links.”
“Most of the cost differential could be attributed to the increased specimen transport costs in the U.S.,” explained Finn. “Centrex operates 20 specimen collection centers and its couriers drive 1.5 million miles annually. At Path Links, patients travel farther to have samples collected, a consequence of having no lab competitors in the region.
“We are confident this is a reason- able comparison because other measures track within 10% or 15% between our two labs,” Wisher explained. “For example, Centrex and Path Links had, in U.S. dollars, a personnel cost-per-test of $4.80 and $4.31, respectively. Supply cost-per-test was $1.96 and $2.19, respectively.”
One fascinating opportunity in this side-by-side case study was the potential to gauge annual test utilization across the population served. “Centrex and Path Links both serve a population of about 1 million people,” observed Finn. “Because Path Links is the only laboratory in its service region, it is easy to divide the annual tests performed by the population and come up with a test utilization ratio of 3.4 tests per person per year.
Annual Test Utilization
“That’s harder to calculate for our market,” he said. “Although Centrex is doing most of the hospital inpatient testing in our service region, there are other laboratories providing laboratory testing services to office-based physicians. Since we do 3.1 million tests per year, but don’t do 100% of the testing for the 1 million people living in our service area, it is probable that our annual test-per-person-per-year ratio is reasonably close to Path Link’s figure of 3.4 tests.”
From the British perspective, Wisher was envious of the extensive consolidation and standardization across all laboratory sites that Centrex has achieved. “One clear limitation we have in consolidating tests across several hospitals is the time required to transport specimens,” he observed. “Our road network does not support fast travel times. For that reason, Path Links has not been able to concentrate as much testing in its core laboratory sites as is true with Centrex.
“I am also impressed with Centrex’ success at consolidating microbiology,” added Wisher. “In the United Kingdom, clinicians are reluctant to support moving microbiology out of their hospital. There are few examples in our country where microbiology consolidation has successfully been implemented. It is on our ‘to-do’ list and Path Links now has plans to consult with Centrex on how we can best accomplish this step.”
Asked to state their conclusions about this pioneering side-by-side look at comparable laboratories in the United States and the United Kingdom, both Finn and Wisher had similar things to say. “Despite the differences in funding, I was surprised at the consistent similarities in our laboratory organizations,” noted Finn.
“I believe each of us could be dropped into the other’s laboratory and perform well without much orientation,” responded Finn. “Both the test menus and instrument systems are similar. Probably the most surprising conclusion we made was how our cost and productivity performance measures were right on top of each other. Neither laboratory had a clear and significant performance advantage.”
“For my part, I was surprised to see how pervasive the economic element was in the decisions made at Centrex,” explained Wisher. “We have yet to reach that point in my country. On the other hand, so many of the operational issues and strategic goals are uncannily alike.
“Because the Centrex and Path Links productivity measures are so close, it supports a conclusion that both laboratories operate with a high degree of efficiency,” continued Wisher. “From the U.K.’s perspective, that is one validation that laboratory consolidation and regionalization does deliver worthwhile benefits. In my country, laboratory consolidation is just beginning. That is not the case in the United States and Canada, where consolidation and regionalization became widespread almost ten years ago.”
For laboratory managers and pathologists, the results of this unique, international side-by-side case study provides several useful insights. First, despite the differences in how lab services are funded in the United States and the United Kingdom, these two examples of a rural, consolidated laboratory organization posted remarkably similar cost and productivity outcomes. This argues that the fundamental principles of laboratory management, along with test technology and instrument systems, probably don’t vary much in developed countries.
Second, the differences in the experience of labs in the U.S. and the U.K. reveal opportunities for each to teach the other. In the case of the U.S., labs here are much better at getting the capital necessary to fund improvements. American lab managers are better at combining financial and clinical parameters into their decisions.
In the U.K., the emphasis on clinical support and the closer relations maintained between pathologists and clinicians is a strength. The types of clinical collaborations achieved by labs in the U.K. would have high value if duplicated in the United States.
For lab directors and pathologists interested in participating in upcoming side-by-side U.S./U.K. case studies, contact Editor Robert Michel at the offices of THE DARK REPORT.