“The question that every clinical laboratory must now ask is this: will my lab be a technology differentiator or a technology enabler?”
Rob Alger, Advanced Health Technology
CEO SUMMARY: Many hospital-based laboratories have a different mission than commercial laboratories. They must support the variety of provider types that participate inside the integrated healthcare system. Advanced Health Technologies (AHT) serves this market. Earlier this month, THE DARK REPORT traveled to Chicago for a personal visit with AHT’s President, Rob Alger. In this exclusive interview, Alger reveals why AHT pioneered a web-based solution for lab test ordering and reporting. He also explains why Internet technology will revolutionize the clinical lab industry and the healthcare system.
EDITOR: You have incisive views about how and why web-based lab test ordering/reporting is about to transform the clinical laboratory industry. Would you share them with us?
MR. ALGER: Certainly. Starting early in the 1990s, national laboratory companies used information technology as a differentiator. The laboratory owned the test ordering/reporting system and used it to lock in doctors as clients.
EDITOR: You are referring to the PC-based computer systems that the three blood brothers would put into physician offices?
MR. ALGER: Precisely. However, as lab consolidation created the oligopoly situation we now see in the market, this oligopoly brought about the non-differentiated lab testing product we now see.
EDITOR: In other words, although the lab industry has consolidated into just a few giants, the service menu and quality of its testing is seen as about the same by most doctors and insurers.
MR. ALGER: Yes, and because these lab services are non-differentiated, they end up being sold on cost. The range of capitation rates for laboratory services demonstrates this point. Since capitation rates were too low to recover costs, most commercial laboratories lost huge amounts of money in recent years.
EDITOR: I suspect that you are leading up to another influence that commodity pricing has had upon the lab industry.
MR. ALGER: Even as lab services became undifferentiated, insurers and HMOs developed exclusive lab provider panels. If doctors want access to the patients, they must use the lab designated by the insurer. In many cities, it is very common to find larger physician groups having to use several laboratories.
EDITOR: How is that a problem?
MR. ALGER: Remember those proprietary computer systems? Each lab created its own, and it sits in the doctor’s office. Consequently, many physicians have several lab PC workstations and dedicated printers. This takes up valuable space and they are unhappy about that.
EDITOR: This means that doctors want a different solution.
MR. ALGER: Definitely. And there is another technology accelerating the obsolescence of proprietary lab test ordering/reporting systems. That is the Internet, which creates a common technology platform for delivering laboratory and other clinical services.
EDITOR: Your observation is that both of these market developments cause physicians to be unhappy with the current arrangement for ordering and reporting laboratory tests.
MR. ALGER: True. The question that every clinical laboratory must now ask is this: will my lab use information technology to be a differentiator or an enabler?
EDITOR: What you are suggesting is that the days of closed, proprietary lab systems is ending. The business strategy of using proprietary technology for differentiation is no longer effective. Instead, the lab’s strategy must be to offer lab information services in a different manner.
MR. ALGER: I agree with that. Moreover, I see two distinct segments in the marketplace. Among commercial laboratories offering services nationally or regionally, cost is the big driver. Because of the low reimbursement for most high-volume tests, commercial lab- oratories are motivated to reduce costs wherever possible.
EDITOR: What is the second segment?
MR. ALGER: Integrated delivery networks (IDNs). As hospital-based systems, these IDNs have unique needs for laboratory services. For one thing, IDNs want to create an affinity, a bond, with physicians. IDNs need to give physicians the tools to make it easier to practice medicine and participate in both clinical and operational integration with other providers in the IDN.
EDITOR: Are these two segments leading to different kinds of web-based information system solutions?
MR. ALGER: I believe so. For example, commercial labs will be emphasizing a web-based test ordering system which is closely designed to meet the needs of the phlebotomist or nurse. These individuals, drawing blood at the point of care, have the most interaction with the laboratory at a critical point in originating both the specimen and information required to properly complete testing, billing, and compliance.
EDITOR: That is logical. Commercial labs want to make it as easy as possible for anyone in the physician’s office to originate a test requisition, send the specimen, and receive results. If the lab’s ordering/reporting software is complicated and involved, that is a competitive disadvantage for the commercial laboratory. What will be different with systems for IDNs?
MR. ALGER: Their design will be structured around a different issue: if a lab test has been ordered, where does it go within the IDN? Lab information systems serving IDNs have to help the individual at the point of care determine where the specimen will go, which entity within the IDN will perform the test, and which parties should get test results.
EDITOR: Unlike the relationship between a commercial lab and a doctor’s office, the IDN has more places where lab testing can occur. Point-of-care, near patient, rapid response labs, physician office labs, and the hospital core lab are all capable of performing lab tests.
MR. ALGER: That is why lab test ordering/reporting solutions for an IDN are radically different. Web-based solutions for IDNs will have ordering rules and similar features that are not necessary in a commercial laboratory’s web-based solution. Also, IDNs tend to emphasize their clinical relationship with the provider, which requires a different approach to the user interface.
EDITOR: Go beyond the fundamental differences of the web-based solutions necessary for commercial labs and IDNs. What market trends do you see that will shape how the Internet changes current clinical laboratory practices?
MR. ALGER: I see at least two important forces now at play. The first is real-time management of information by physicians. The second is integrating lab test results with therapeutics.
EDITOR: Please elaborate.
MR. ALGER: Physicians today are in a state of work and information overload. They are ready to embrace any lab information solution which addresses these problems. At one level, can the system automatically notify both patient and physician once lab test results become available? At the next level, can the system assist the doctor in making complex therapeutic decisions, based on those lab test results?
EDITOR: You are alluding to the value of e-commerce to deliver information in real time, both to patients and physicians. They can then act upon this information in a convenient manner.
MR. ALGER: Yes, but the Internet also gives the doctor another benefit. It promises to allow him to customize the way he looks at test results. Lab data repositories, accessed via the web, will permit the doctor to intuitively arrange data in new ways, while preserving the specific look that he prefers.
EDITOR: What about the second trend?
MR. ALGER: Matching diagnostics with therapeutics is inevitable. After all, 80% to 90% of all pharmacy prescriptions are based on laboratory test results.
EDITOR: But how rapidly will this occur?
MR. ALGER: Perhaps much faster than most laboratorians appreciate. PBMs (pharmacy benefits managers) are worth a study by lab executives and pathologists. PBMs are leaders in using certain data sets to create disease management services. There is plenty of “managed pharmacy” and virtually no “managed laboratory.” I’ve often wondered why laboratories seem to disconnect themselves from disease management. Historically, they appear to focus on the “diagnostic moment” and then fade from further involvement in the patient’s case.
EDITOR: Why should laboratorians pay attention to PBMs?
MR. ALGER: PBMs are knowledge managers. Inventory and product are not their focus. Their offer the service of advising how to dispense and manage drugs. I should point out that brick and mortar pharmacies thought there was only one way, their way, to deliver pharmaceutical services. PBMs proved them wrong. Clinical laboratories should take note. As brick and mortar institutions, they are vulnerable to knowledge managers who apply the PBM business model to diagnostic testing. I believe that laboratorians need to define themselves as knowledge managers, not asset and process managers.
EDITOR: That makes sense. Are there other ways that the Internet threatens the commercial laboratory industry as we know it today?
MR. ALGER: I believe so. The economics behind laboratory logistics seem to indicate that rapidly evolving point-of-care technology will erode the existing marketplace owned by commercial laboratories.
EDITOR: Are you referring to the costs of transporting specimens from the physicians offices to the huge regional laboratories operated by the blood brothers?
MR. ALGER: Yes. It is expensive to maintain an in-house courier system. Look at how the Internet retailers are using Federal Express, UPS, and Airborne Express to replace traditional distribution channels. Without question, the overnight package delivery companies will become major vendors to the clinical laboratory industry.
EDITOR: What other type of healthcare provider might be at risk in the new world of the Internet?
MR. ALGER: Hospitals have risk. Traditionally, hospitals have been the controlling entity at the local level. But will this “hospital control model” be relevant in a healthcare environment that is dispersed and emphasizing ambulatory care? What has allowed hospitals to maintain control is their ability to collect and manage data. But healthcare data is fungible, just like cash.
EDITOR: Meaning that virtually any entity beside the hospital can accept healthcare data and manage it.
MR. ALGER: Yes. The Internet levels the playing field and allows new types of competitors to enter the market and compete with hospitals for that data management function. I don’t know if the hospital industry understands this yet.
EDITOR: What other insights would you offer our clients and readers?
MR. ALGER: I believe that healthcare is moving away from closed proprietary business models and towards a team, or project, business model.
EDITOR: Explain that please.
MR. ALGER: A good metaphor is the movie industry. During Hollywood’s golden decades, studios handled every detail, from creative to production to distribution. That has all changed. Now, each movie is actually assembled from a unique team of contributors. This team works until the movie is completed. Healthcare is heading in the same direction. Various components of the healthcare system, whether it’s hospitals, insurers, physicians, or other provider types, will be assembled into project teams to tackle the project at hand.
EDITOR: What you are saying, then, is that the Internet becomes the equalizer. It allows information to flow cheaply among users. Within healthcare, the lowered cost of transmitting information will change the basis upon which laboratories and other providers compete.
MR. ALGER: Yes. It means that core competencies matter more than horizontal or vertical integration. Thus, many hospital institutions and commercial laboratory organizations that exist today may transform into very different organizations in coming years.
EDITOR: Rob, how quickly do you see web-based laboratory ordering/reporting products transforming the marketplace?
MR. ALGER: Swiftly. It will occur in months, not years. Advanced Health Technology already has operational contracts with more than 60 IDNs. Our challenge is to keep up with the demand for our web-based products.
EDITOR: Any final thoughts?
MR. ALGER: Only this. As fast as the Internet is revolutionizing every aspect of business, it is essential for every clinical laboratory to have its own plan of action. This technology revolution is backed by billions of dollars. For that reason, no laboratory administrator should feel safe in following a “wait and see” strategy. By the time he/she recognizes the right decision, the healthcare market will have probably already determined winners from losers.