"Newsmaker Interview"

Dr. Bruce Friedman Identifies Market Dynamics Driving Evolution of Lab Information Services

He sees five dynamics actively shaping the future content and delivery of laboratory information

CEO SUMMARY: Probably no one is better positioned to identify the evolution of laboratory information services than Bruce Friedman, M.D., Professor of Pathology at the University of Michigan Medical School in Ann Arbor. For almost 20 years, he has hosted the pre-eminent meeting in laboratory informatics, known as AIMCL—Automated Information Management for Clinical Laboratories. Dr. Friedman recently chaired the Laboratory Web Informatics Day at the Executive War College in New Orleans. He shares his thinking about the important forces currently driving the rapid evolution of laboratory information services and products.

“These five trends will have great impact on the way clinical lab data is generated, reported, stored, and accessed.”
—Bruce A. Friedman, M.D.

EDITOR: Many laboratory executives and pathologists are now grappling with the concept of e-health services. The transformation of the Internet into a useful and effective platform for managing laboratory and other clinical information is happening at lightening speed. Do you see a rapid adoption of Web-enabled lab information products by our industry?

DR. FRIEDMAN: Yes, it will be a fast transformation. Of equal interest, I believe it will be impossible to identify any single product or technology in the e-laboratory domain that will spark the changeover from today’s methods of collecting, processing, and sharing laboratory information. Instead, we will see a stream of new technology breakthroughs that reinforce and complement each other.

EDITOR: Give me an example.

DR. FRIEDMAN: Let’s look at wireless transmission of laboratory data to customers. To accomplish this, emerging products incorporate Internet technology and combine that with wireless transmission methods developed by the telecom industry. The internet appliance device, whether cell phone with a browser and screen or a palmtop computer, incorporates computer hardware chips and software technologies developed from the information technology industry.

EDITOR: Your point, then, is that each new generation of laboratory information products and services will utilize technologies from any number of technology disciplines.

DR. FRIEDMAN: Exactly, which already makes it difficult to predict, with any precision, how fast and in what ways the management of laboratory information will evolve in the coming years.

EDITOR: It’s part of your business to evaluate new lab information system products. From a broad perspective, what forces do you see in the marketplace that will shape and influence the way clinical labs capture and use laboratory information?

DR. FRIEDMAN: May I tackle that question as one of business strategy? During the past 60 days, I led the Laboratory Web Informatics Day at your Executive War College in New Orleans, then hosted a record crowd at my Automated Information Management of Clinical Laboratories (AIMCL) in Ann Arbor. All that interaction with speakers and attendees gave me new insights about how the next wave of laboratory information services will unfold. If laboratory administrators and pathologists can understand the underlying drivers that are shaping laboratory information services, then it will help them develop a business strategy for their laboratory organization which keeps it at the cutting edge.

EDITOR: In other words, the strategic overview is what should guide the specific initiatives of the lab in both in clinical services and business goals.

DR. FRIEDMAN: That’s correct. Right now, I see five fundamental forces unfolding in the healthcare marketplace. From a strategic perspective, I believe these five market dynamics will have as much to do with reconfiguring laboratory information systems as the underlying LIS hardware and software technologies.

EDITOR: Are you saying, then, that these are forces, some outside the lab industry, which will cause change?

DR. FRIEDMAN: Essentially yes. Let me describe these five trends, then we can look at their collective potential as lab industry change agents.

EDITOR: Okay. What’s first?

DR. FRIEDMAN: With no order of priority, number one is the globalization of clinical laboratories. I see signs that laboratory organizations are beginning to look across national borders for useful tools in laboratory medicine, laboratory management, and lab information.

EDITOR: What market signs do you see involving the globalization of lab services?

DR. FRIEDMAN: I actually tumbled onto this insight in a roundabout way. We used the AACC’s foreign mailing list for my AIMCL program this spring and got 40 attendees from abroad. At your Executive War College in May, I spoke to lab owners from Germany, New Zealand, and Australia. When I spoke at an AACC program in New York City earlier this year, there were people from 22 different countries in attendance. Also, AACC is now running CME programs abroad.

EDITOR: I see a similar phenomenon with clients and readers of THE DARK REPORT. We have subscribers on five continents and the number of overseas clients is increasing. So how does globalization of lab services play out?

DR. FRIEDMAN: Simple. With overnight package delivery services, specimens can be sent anyplace in the world in 48 hours. Combine that with Internet-connectivity between labs and referring physicians for test order entry and results reporting, and you have the capability to conduct laboratory business anywhere on earth from anyplace on earth. My prediction is that international interaction will increase at a steady rate. There will be cross-pollination from a number of things, like CMEs. Medicine itself will increasingly cross borders. It has to happen. As it does, laboratory organizations will become international.

EDITOR: What is the second market trend on your list?

DR. FRIEDMAN: Number two is the technology that most American laboratories are starting to evaluate. It is the ASP (application service provider) and e-business information package. This ASP model is also a first cousin to the emergence of laboratory portals and e-health content wrapped around information pertaining to lab testing.

EDITOR: You’re describing the remote hosting of laboratory applications and information, accessed through Web browsers.

DR. FRIEDMAN: With ASP technology, the actual LIS server and functionality is going to move to a site remote from the physical laboratory. Lab test orders, lab results, and content will all be delivered on the Web.

EDITOR: Does this lead to a different form of laboratory organization?

DR. FRIEDMAN:It can lead to modular outsourcing. For example, let’s say I have a 500 square foot laboratory in a specialty clinic located 50 miles from my reference lab. If prices are reasonable, I may choose to outsource both my lab information management and the actual production of test results to some outside party. As long as the diagnostics instruments speak TCP/IP, they can communicate test data directly to my ASP provider for storage in my remote LIS database. Under this outsourcing arrangement, I may choose to pay a specific amount of money for each test result that hits the database. But my outsource “lab services” vendor will actually handle specimen collection and test performance.

EDITOR: This new business model creates new flexibility in how lab testing can be performed and reported, doesn’t it?

DR. FRIEDMAN: Certainly. Technology is making it feasible for testing to occur on instruments located in a physician’s office or even in a local community pharmacy, but clinical laboratory expertise is still required to maintain quality and accuracy, as well as to evaluate the results generated by instruments in locations distant from the core lab.

EDITOR: It sounds like the arrival of the long-predicted “virtual laboratory.”

DR. FRIEDMAN: For several years I’ve talked about the organizational model where some labs may not physically perform any testing at all. The totally virtual lab simply outsources all testing but retains strategic functions such as QC, marketing, customer liaison, and information management. Essentially, it retains its business strategists and its data managers, who do the marketing and integration of clinical data inputted from multiple test-performing sites. It allows laboratorians to concentrate on the clinical application of laboratory medicine.

EDITOR: So you think we may be getting closer to the day when a virtual laboratory is actually feasible. What is your third trend?

DR. FRIEDMAN: Number three on my list is the growing interest of national reference and esoteric labs in becoming a lab information services provider to their client hospital labs.

EDITOR: You must be referring to companies such as American Medical Laboratories, ARUP Laboratories, Mayo Medical Laboratories, Specialty Laboratories and the like. But what aspect of their lab information services would be transformational within the laboratory marketplace?

DR. FRIEDMAN: There are two aspects. One is that reference labs can develop expertise in lab information technology and share that across the organizational boundaries of hospital labs and regional lab networks. The other reason is the coming explosion in the sheer volume of lab data which must be stored in a data- base and made accessible when needed.

EDITOR: Elaborate, please on why you think reference laboratories will become vendors of lab information management tools.

DR. FRIEDMAN: Let me answer that by describing what I saw recently on a lab tour. After my presentation at the Executive War College, Dr. James Peter, the Chairman of Specialty Labs, came up and invited me to tour his laboratory in Santa Monica, California. Within the last month, I did get to Specialty Laboratories and I saw several interesting things. Specialty Labs is developing information service capabilities that fit right in with the kinds of services that traditional LIS vendors are attempting to bring to market.

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EDITOR: Then what you’ve observed is that Specialty Labs, along with other national reference labs, is preparing to move beyond simply performing tests and will provide other services to hospital lab clients.

DR. FRIEDMAN: Yes on two counts. First, Specialty Labs has developed its DataPassportMD® product suite, involv- ing Web-enabled lab test ordering, host-to-host links, and clinical data repository services. But the thing that really caught my eye was their interest in offering information technology and lab data base support for lab networks. Specialty Lab’s arrangement with Florida Reference Laboratory Network is an example of this strategy.

EDITOR: Are you saying that, by providing services in lab information management and data storage, the reference lab eliminates one of the political impediments to regional laboratory networks?

DR. FRIEDMAN:Certainly, since anyone who’s been involved in regional laboratory networks knows that participating lab members are concerned about ownership of the lab test data, where it is stored, and who gets access. Having a reference laboratory manage this function and act as a neutral broker can make that reference laboratory into a valuable partner for the lab network. It’s quite a different proposition than either Quest Diagnostics Incorporated or Laboratory Corporation of America can offer a hospital laboratory.

EDITOR: Tell me how this service ties in with the explosion of lab data.

DR. FRIEDMAN: One of the hot topics at the AIMCL meeting this spring was the explosion of lab test data from the genomics area. I am concerned that labs will not have sufficient storage to keep up with the huge volumes of data that will be generated by genetic testing. So far, the ASP model looks like the best solution.

EDITOR: Explain that, please.

DR. FRIEDMAN: When a lab is using a remotely-hosted ASP, it only has to call its provider and ask it to “bolt on” another terrabyte of storage capability at the back end. But Dr. Peter discussed with me his idea that reference labs would not only perform the test, but would store the data for the referring lab.

EDITOR: Yes, go on…

DR. FRIEDMAN: Well, this would take reference labs out of their current business model of simply performing tests. It would convert them into a service provider with long-term revenue coming from the information services it provides to laboratories.

EDITOR: That’s quite feasible. In today’s business model, the reference lab offers “commoditized” testing, usually at the lowest price. This would shift reference labs into a business model where information services such as data storage and retrieval have added-value to their hospital laboratory clients.

DR. FRIEDMAN: So stay with me, because this raises another fascinating issue, which is the notion of a virtual clinical data repository, where hospitals and patients would have patient data stored in multiple, physically-separate data bases…

EDITOR: …you are describing multiple server farms…

DR. FRIEDMAN: …precisely, and “pointers” (addresses for the physically distributed data) would be used to find and integrate the laboratory test results and clinical results for a single patient.

EDITOR: What you described sounds like Napster, the software college students use to search each others computers to find MP3 music files that they can copy and download to their hard drive.

DR. FRIEDMAN: That’s a perfect comparison. Napster demonstrates that the tech- nology already exists to search all computers hooked onto the Internet for specific pieces of information, like the lab test results for an individual patient. Can we assume, though, that the courts will not intervene as quickly with the distributed lab data solution as they have done with Napster?

EDITOR: This fits in with what Clinical Laboratories, Inc. of Throop, Pennsylvania is doing. They are creating a patient data “lockbox.” They will allow their patients to put lab test data into the lock- box so that any physician treating them can have access to that data, regardless of where the doctor is located.

DR. FRIEDMAN: “Lockbox” is a good description. It closes the loop on efforts, early in the 1990, to create CHINs (community health information networks).

EDITOR: What is your fourth trend?

DR. FRIEDMAN: Number four is the involvement of in vitro diagnostics companies in laboratory information management services.

EDITOR: Does that mean a shift away from purely selling test instruments and reagents to laboratories?

DR. FRIEDMAN:Diagnostics companies are perfectly positioned to offer information management products because they have the instruments and reagents which generate the lab test results. I believe they can link their existing business, that of providing instruments and reagents, to a new business, which is moving lab test data into clinical repositories which they might be able to manage for the laboratories.

“…this raises another fascinating issue, … the notion of a virtual clinical data repository, where hospitals and patients would have patient data stored on multiple data bases…”

EDITOR: You’re describing a shift to long-term revenue flowing from information management services, just like the reference laboratory example you discussed earlier.

DR. FRIEDMAN: That’s right. Both diagnostics companies and reference laboratories have an “inside” leverage point to generate lab data for their client laboratories, then offer database and data access as well.

EDITOR: What you describe is a marketplace where three different players want to offer clinical laboratories identical services involving lab data storage, lab data access, and lab data processing.

DR. FRIEDMAN:Yes. It brings the traditional LIS vendors into competition with diagnostic vendors and reference laboratories. However; each of these players comes to the table with a different set of core competencies. All three industry groups will pursue the revenue opportunities generated from lab information services.

EDITOR:Would you discuss the fifth trend you believe will alter the laboratory services are organized and delivered?

DR. FRIEDMAN: My list cannot ignore the pharmaceutical companies. They are the fifth trend. I believe that laboratory testing will become so important to the way drugs are prescribed that drug companies will have a major impact on changing the way clinical laboratories conduct business.

EDITOR: Are you referring to the emerging science of pharmacogenomics?

DR. FRIEDMAN: Yes, much of which will be organized around SNiP scoring. (Single nucleotide polymorphism). SNiPs are the minute differences between individuals’ DNA that are hypothesized to be responsible for why one person may respond favorably to a specific drug while another individual might have a negative reaction.

EDITOR: So an important component of clinical testing will be SNiP scoring. But since SNiP scoring measures differences, or “deltas”, will there still be huge test result storage requirements in the lab?

DR. FRIEDMAN: I think so. There is synergy between pharmaceutical drugs, drug interactions, and clinical lab tests as the necessary green light before a doctor prescribes a drug for a specific patient.

EDITOR: This is the prescription model currently typified by Clozaril and Herceptin, I would assume.

DR. FRIEDMAN: Yes. And it’s very easy to see why pharmaceutical companies will have a strong interest in generating and storing laboratory information. I believe the drug industry will push for the integration of the two data bases; merging pharmaceutical data and lab test data. Pharma has a huge stake in this process—the ability to recycle previously-developed drugs, withheld from the market because they caused adverse reactions, presumably in patients with minute genetic variations. Diagnostic tests could screen out such patients, allowing these drugs to enter the market.

EDITOR: What mechanisms do you think will be used by the drug companies to change current clinical lab industry practices?

DR. FRIEDMAN: I believe it will come through the increased use of SNiP scoring. At some point, it will be good medicine to do a complete SNiP score on every individual admitted into the hospital or who is a candidate for drug therapy. I think the first clinical area where SNiP scoring will be cost-justified is in organ transplants. It will make it easier to search for an appropriate organ, as well as easier to perform successive transplants. And don’t forget, every transplant patient becomes a candidate for long-term drug therapy.

EDITOR: Then your view is that ongoing developments in pharmacogenomics will lead drug companies to invest in a spectrum of diagnostic testing capabilities.

DR. FRIEDMAN: Essentially correct. Because the science and the technology of this field are moving so fast, it is difficult to predict the precise ways in which drug companies will reshape laboratory testing as we know it today.

EDITOR: Dr. Friedman, your list of five market forces demonstrate that many different influences will be reshaping the clinical laboratory industry during the next 36 months. I would like to go back to your first item, the ASP and e-health trend. Could you speak further on how fast this may cause hospitals to abandon their existing fat client LIS products and adopt ASP-based lab information products?

DR. FRIEDMAN: I thought it was going to be slow until I heard Tim Rich, President of the Antrim Division for Sunquest, speak at the Executive War College. He talked about how Sunquest took some Antrim software off the shelf and used it to create an ASP-based LIS product. They wanted a quick, low-cost ASP solution for small hospital labs.

EDITOR: Yes…

DR. FRIEDMAN: Here’s the interesting part. According to Rich, the up-front capital cost to the hospital labs was about $25,000 and it took only six weeks to install the software and go live with the system. Better yet, operating cost of the installed ASP LIS software was less than half that of licensed LIS software run- ning on a local hospital computer! That’s when it occurred to me, with this type of huge financial advantage, hospitals and hospital labs will be compelled to switch to the ASP model, and it will happen sooner, not later.

EDITOR: Economic advantage is always a motivation to swift action.

DR. FRIEDMAN: True, but there is another aspect to the ASP model which will also help it win rapid acceptance in the hospital laboratory marketplace.

EDITOR: Please explain.

DR. FRIEDMAN: Everyone has seen the angst that occurs when hospital laboratories consolidate. By using an ASP with remote hosting, that angst goes away. There is no political baggage about which hospital is going to run the LIS, because none of them run it!

EDITOR: Have any of the traditional LIS vendors commented on how quickly they believe the LIS market will flip to ASP-based lab information services?

DR. FRIEDMAN: At Triple G Systems, President Lee Green predicts that as much as 50% of his company’s revenues will come from ASP-based LIS installations within relatively short time, such as two years. Tim Rich of Sunquest/ Antrim believes it will be a rapid transition, but he has not made specific revenue projections.

EDITOR: Last fall, THE DARK REPORT predicted that lab test ordering and results reporting between labs and physician offices will move to Web-browser enabled systems in as little as 24 months. How fast do you think fat client-based LIS systems, which collect the test data from instruments and move it to the data repository, will be replaced by thin client LIS products?

DR. FRIEDMAN: I think fat client-based LIS software will disappear rapidly. The overhead on computers running fat client software is extremely high. Hospitals cannot afford to maintain these systems when such a cheaper alternative is available. That makes inexpensive PCs or Internet appliances running only browsers a very attractive alternative.

EDITOR: Are there any technology barriers to this transition?

DR. FRIEDMAN: Not that I can see. Today, in Japan, cellular telephones with screens and browsers are the most common means for surfing the Web–not PCs.

EDITOR: Dr. Friedman, do you have any concluding observations to add to your provocative concepts about the future of lab information services?

DR. FRIEDMAN: Just one. I would recommend that laboratory executives and pathologists think “out of the box” when it comes to how their laboratory generates, reports, stores, and processes laboratory test data. The true product of a clinical laboratory is information. That’s why it is a critical success factor for lab administrators and pathologists to use emerging lab information technology to the benefit of their lab and their client physicians.

EDITOR: Dr. Friedman, thanks for sharing your insights about the rapid evolution of laboratory information services!

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