Another Portent Of Change

Another Portent Of Change

How many laboratory executives and pathologists consider themselves futurists? Probably not many, because healthcare’s traditional fee-for-service arrangements provided little financial incentive to alter the status quo.

Yet I would argue that the radical restructuring of healthcare currently underway demands that laboratory executives acquire the talent for anticipating the future. In 1992, how many laboratory executives expected managed care to rapidly grow to as much as 50% to 60% of their revenue base in five years?

Obviously not many, because the laboratory industry willingly offered capitated rates which barely covered marginal costs. Did these same executives anticipate the growth of managed care Medicaid programs, or the absolute declines in Medicare reimbursements which the industry was forced to endure? The evidence says they did not. Financial effects from this lack of foresight are now visible. In California, Physicians Clinical Laboratories entered Chapter 11 bankruptcy and the financial decline of Unilab is well known.

Among the national chains, Corning Incorporated was forced to divest what, in rapid order, was called Metpath, then Corning Clinical Laboratories and now Quest Diagnostics Incorporated. Laboratory Corporation of America currently struggles to keep almost $1 billion of unhappy lenders away from their door. Now that the financial consequences from this lack of foresight have been realized, I’ll bet these laboratories, armed with 1997’s 20-20 hindsight, would have priced managed care services differently in 1992.

The fact that commercial laboratories did not accurately predict the future has brought that segment of the industry to a financial crisis. What commercial laboratories look like in 24 months will be very different from what they are today. The lack of accurate foresight about capitation prices is precisely the example I want to use to illustrate the importance of thinking about the future.

In this issue of THE DARK REPORT, you will read one man’s predictions about the two major revolutions that laboratory information systems (LIS) must undergo during the next five years. Because all laboratory operations are intensely linked to LIS, the financial success or failure of a laboratory will increasingly depend on whether the laboratory is using an effective laboratory information software program.

But this man’s message has an even more important ramification. If coming generations of LIS are to include process control features similar to those used in manufacturing plants, will today’s crop of laboratory executives be ready with the knowledge and expertise to use those features to the benefit of the laboratory and the integrated healthcare systems which they serve?

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