CEO SUMMARY: Probably no single individual has greater insight about the changes now occurring to web-based laboratory test ordering and results reporting than Healtheon Corporation’s Nancy Ham. As Vice President of Connectivity & Institutional Services, Nancy is responsible for Healtheon’s clinical laboratory product, called Healtheon Dx. THE DARK REPORT recently traveled to Healtheon’s corporate headquarters in Santa Clara, California to learn first-hand about Healtheon and its plans for the clinical laboratory industry. In this interview, Nancy Ham shares her perspectives on upcoming changes to the laboratory marketplace.
EDITOR: In this interview, I would like for you to share with our clients and readers the global influences that you see driving the implementation of web-based laboratory test ordering and results reporting products. In a future interview, we can discuss the specific business strategies and products of Healtheon Corporation.
MS. HAM: There are really two market forces now encouraging the development of web-based products for clinical laboratory services. One market force is centered around the needs of physicians. The other market force is rooted in the economics of clinical laboratory operations.
EDITOR: When you refer to the needs of physicians, does that involve changes in their expectations about the kinds of laboratory services they want for their medical practice?
MS. HAM: Yes. Physicians are becoming Internet-savvy. The shift towards Internet usage is of seismic proportions. Physicians are adopting the Internet at a rate that goes off the scale. Upwards of 80% of all physicians now regularly log on from either home or office. As they gain knowledge and sophistication about the world wide web, these physicians want their suppliers and vendors to offer web-based services.
EDITOR: You describe a process where physicians’ expectations are increasing. Their personal knowledge of the Internet encourages them to raise the bar on the level of services they deem essential, including clinical lab services.
MS. HAM: That’s certainly true. What is important for your readers to understand is that doctors will be requesting, even insisting, that their laboratory providers offer web-based laboratory services. Physician- initiated demand is unlike what laboratories have experienced in past years. We will talk more about that in a minute.
EDITOR: The other market force you mentioned involves the economics of clinical laboratory operations.
MS. HAM: Correct. Continual enhancements to Internet technology are now constantly changing the cost/benefit relationships available to clinical laboratories. We believe these improved cost/benefit relationships now allow laboratories to “raise the bar” with the services they offer their client physicians.
EDITOR: Let’s focus exclusively on laboratory information management and systems for a moment. How and why is the Internet changing today’s lab information system technology?
MS. HAM: For one thing, the Internet represents a fundamentally new way for commercial laboratories to compete. It moves labs away from proprietary systems to an open platform.
EDITOR: Please explain.
MS. HAM: In the early 1990s, commercial laboratories introduced PC computer-based lab ordering/test reporting systems to physicians. The pitch to doctors was “use my lab and you get this wonderful ordering/reporting system which does things competing labs cannot.”
EDITOR: So, for example, SmithKline Beecham Clinical Laboratories (SBCL) could go to a client of Allied Clinical Labs and say “our SCAN system can do things which you need, and which Allied’s system can not.”
MS. HAM: Basically yes. But in the second half of the 1990s, proprietary lab systems began to impede both clinical and operational integration. It is not uncommon today to see doctor’s offices where two or three of these lab systems sit side-by-side taking up desk space.
MS. HAM: The Internet simplifies this for both the doctor and the laboratory. There is no more DOS-based PC computer. Rather, the Internet connection allows the laboratory to deliver premium service to any physician client, regardless of volume.
EDITOR: Explain that, please.
MS. HAM: The Internet reduces a laboratory’s cost to create and maintain a proprietary system. First, all the hard- ware provided to the physician by the laboratory disappears. Dedicated telephone lines, PC stations, line printers, even faxes can be removed.
EDITOR: And second?
MS. HAM: The cost of developing and maintaining a proprietary lab information system is immense. As ongoing technology enhancements occur to software and hardware, costs of upgrading a closed, proprietary lab system go up.
EDITOR: Thus, at a lab the size of Quest Diagnostics Incorporated or Laboratory Corporation of America, the expense of maintaining their proprietary IT staff is burdensome.
MS. HAM: Yes, but more importantly, the cost to service an individual client is significant. That is why only high-volume clients have premium lab information services. Smaller doctors’ offices generally get only a line printer or fax.
EDITOR: I think I get it. The national laboratories see web-based test ordering/reporting technology as a way to provide a high level of service to almost any physician client while reducing the total cost of providing electronic test ordering/reporting to individual clients.
MS. HAM: Basically correct, but there is more. Any lab which outsources this function also minimizes its exposure to laboratory compliance issues. For example, the lab ceases to provide dedicated telephone lines, PC workstations, printers, and faxes to the doctors’ offices. Compliance issues related to those items are minimized if not eliminated.
EDITOR: May I can summarize at this point? First, you’ve noted that physician expectations will cause them to demand this type of service from clinical laboratories. Is that right?
MS. HAM: Certainly. Any laboratory which provides testing services to a doctor’s office should expect its physician client to raise the issue of a web-based ordering/reporting capability.
EDITOR: Second, you’ve noted that commercial laboratories are motivated to switch their clients from a proprietary, PC-based solution to a web-based solution for the following reasons: 1) it lowers the cost of providing an individual client with ordering/reporting services; 2) it allows them to eliminate the cost of supporting their legacy systems and focus management priorities on other issues; 3) it reduces compliance risk, particularly involving lab-provided office equipment; and 4) it gives any commercial laboratory a cost-effective way to offer prime service to every client, regardless of the volume of specimens originated by that client.
MS. HAM: I would say that is a reasonable summary of the key motivations.
EDITOR: Another issue of high interest to our readers is the cost of handling lab information via the Internet. I understand the Healtheon business model is built upon a fee for individual transactions.
MS. HAM: Our goal is to replace the fixed, and expensive, overhead of these existing proprietary lab systems with a cost-effective capability. Depending on the type of transaction, that fee will vary. Medical claims, for example, range from 25¢ to 35¢ while clinical lab transactions average about 75¢, based on volume.
EDITOR: In your economic models, do these types of fee arrangements lower the cost of providing test ordering/reporting services to physician offices?
MS. HAM: Yes. In fact, currently these are fixed costs to the laboratory. Moving to a transaction-based arrangement converts these into variable costs. That is one reason why a web-based ordering/reporting system allows the laboratory to offer the same level of service to any physician client, regardless or the specimen volume originated by that client.
EDITOR: Given your view of the mar- ketplace for clinical laboratory services, what recommendations would you make to laboratory executives and pathologists?
MS. HAM: That is simple. Every clinical laboratory should have an Internet strategy. If its strategic business plan doesn’t include an Internet strategy, the lab should immediately tear up that business plan and write a new one that does address the Internet.
EDITOR: Wow! That is a strong recommendation.
MS. HAM: Certainly, but the Internet does three wonderful things for every laboratory. First, it allows the lab to give premium service to every physician client, regardless of that client’s actual test volume. Second, it improves the billing and collections process, yielding a sizable benefit to the laboratory. Third, it lowers the distribution cost of test ordering and test reporting. After all, teleprinters are now a 10-to 12-year old technology.
EDITOR: What about the competitive position of the lab in the marketplace?
MS. HAM: Your readers should understand how rapidly web-based technology is entering the physicians’ marketplace. Early laboratory adopters will be grabbing market share at the expense of slower laboratories. All mid-to-high-volume lab clients are at risk. The reason is simple. The biggest physician group practices are not choosing a web solution because it is Goodlab.com or Betterlab.com. They are choosing a solution which is compatible with their practice administration software and improves their ability to capture essential information and practice good medicine. That is why the conversion to web-based solutions is a customer-driven transformation, not lab-driven.
EDITOR: Thank you, Nancy, for your fascinating insights on this subject. You’ve given our readers plenty to think about!