CEO SUMMARY: Hospitals may soon insist that payers allow their in-house labs to provide outpatient testing regardless of exclusive managed care contracts with national lab companies. The migration to accountable care organizations (ACOs) and medical homes makes it essential that physicians have access to lab data across the entire continuum of care. Standardization of reporting formats and reference ranges are needed to allow meaningful tracking and trending of patient data within the electronic health record.
FOR DECADES, HOSPITAL ADMINISTRATORS have failed to recognize the potential value of clinical laboratory testing. This failure is about to change—and fast!
Hospital administrators are waking up to the new reality. Whether the setting is inpatient or outreach, their physicians need real time access to standardized lab test data to support integrated clinical care and improved patient outcomes. A fragmented or incomplete record of a patient’s lab test data can no longer be tolerated.
If this premise is true, then big changes are ahead for two competing sectors of the lab testing industry. Hospital and health system laboratories may benefit at the expense of the national lab companies.
THE DARK REPORT is learning about how progressive hospitals and health systems are responding to the different needs required to participate in an integrated care delivery organization. This is true whether it is an ACO, a medical home, or another business model of integrated care.
Administrators in hospitals and health systems that are part of ACOs have two distinct clinical and operational needs— each of which utilizes clinical lab testing in essential ways. One need is to improve the care delivered to inpatients to meet payer requirements for value-based payment. This requires populating the electronic health record with lab test data that has standardized reporting formats and standardized reference ranges. Both are required to allow physicians to track and trend patient data in a meaningful way.
Access to More Specimens
The second need of hospitals and health systems is to have access to increased volumes of lab test specimens that can be processed on their existing lab automation systems. This supports inpatient testing and generates a lower average cost per test for the hospital (and the ACO in which it participates).
The other important benefit is that, by integrating lab test data across the inpatient and outpatient environments, the ACO or medical home can track patient progress and avoid costly duplication of testing.
These are the reasons why, during planning sessions, the conversation quickly turns to laboratory testing. As hospital administrators work to improve inpatient services and integrate care within their ACOS, it becomes obvious that clinical lab test data is needed at the point of care so that physicians can track patients’ progress from one setting to another. As noted earlier, that also avoids costly and duplicative testing.
Longitudinal Data Needed
This fact is well-known to pathologists and clinical lab managers. Longitudinal data on patient care must be available if any integrated model of care delivery— such as ACOs or patient-centered medical homes —is to be successful.
Another element that has the full attention of hospital administrators is healthcare’s new reimbursement models. In ACOs and medical homes, physicians and hospitals often operate under shared- savings contracts. Each party can share in the savings produced by reducing health-care costs. The opposite is also true, as ACO providers operating under shared-risk contracts must cover any costs above a budgeted amount.
Administrators of ACOs recognize that their organizations must do more to prevent illness while also keeping costs low. That is why, in strategy discussions across the country, the value of laboratory testing is gaining new recognition.
At the same time, hospitals and health systems find themselves dealing with a number of serious problems. In some manner, each problem involves either how lab testing is performed or whether an accurate and complete history of a patient’s lab test data is available in the electronic health record (EHR).
Problems occur when hospitals and health systems cannot get a complete record of all the lab test data generated by their patients during previous visits. Similarly, when the patient shows up in the hospital, physicians there benefit by having access to lab test data generated during the patient’s visits to office-based physicians.
For example, the ACO’s providers struggle to manage care efficiently if either the hospital or the primary care clinic cannot get the patient’s lab test data it needs at the point of care. Similarly, if the lab test data is not in a readable format in the physician’s electronic health record system or hospital’s EHR, that also interrupts timely and accurate care.
THE DARK REPORT is hearing that multiple hospitals are dealing with these same issues. These are early-adopters that own one or more primary care physician groups. Under hospital ownership, most of these primary care groups run clinics where they have phlebotomists who collect lab specimens.
In such arrangements, a longstanding lab industry practice creates a problem for the hospital attempting to develop an integrated clinical delivery organization. Once the primary care clinic collects the specimens, the clinic must then separate the specimens and send them to different laboratory providers.
Some specimens go to the hospital’s in-house clinical laboratory. Other specimens are sent to the large national labs because of managed care contracts that exclude the parent hospital’s laboratory as a provider. The federal Medicare program doesn’t have exclusive contracts with the national labs and so the hospitals can do that testing for the primary care clinics.
As ACO administrators meet to discuss how to move forward with integrated care, they recognize that having multiple laboratories provide test data for the same patient creates a lack-of-continuity problem. That directly impedes the efforts of physicians to achieve improved patient outcomes while lowering the overall cost of care.
It means that physicians must sort through different lab test methodologies, different names for the same tests, and different reference ranges.
If the hospital laboratory was to provide testing for inpatient, outpatient, and outreach services, it would create a unified patient record that is available in the physicians’ EHR, and the hospital’s EHR.
There are also financial issues caused by having multiple laboratories serve the patient population of an ACO. For example, if the hospital retained the specimen volume originating in the physicians’ offices, it would see a substantial reduction in the average cost per test within its in-house laboratory.
Administrators at certain hospitals are telling lab management consultants that they are concerned about their inability to track patients’ lab test data so that they can show trends over time. Cancer is a good example. To treat cancer patients, physicians must be able to track patient lab test data over many months.
Where Patients Are Treated
But tracking an individual patient is a challenge because cancer patients often move from one location to another. In the fee-for-service model of healthcare, when the patient moves from a clinic to a hospital for treatment, there is no continuity of care data on that patient. That makes it difficult for physicians to access the results of tumor marker testing and other relevant lab test data.
Here is where the evolution of health-care may bring about a fascinating change in the relationships between hospitals, managed care companies, and the national laboratories. It is being reported to THE DARK REPORT that hospital administrators are becoming frustrated at the fact that the national labs actually exacerbate this prob- lem of continuity in patient data.
Frequently the national lab companies cannot transmit their lab test results to the hospitals in the same format that the in- house hospital labs use. Also, methodologies and the reference ranges used by the national lab companies are different than the test menu of the hospital’s laboratory.
Such a situation makes it nearly impossible for the hospitals to do effective tracking and trending of lab data for its patients. But it is something they could easily do if those lab tests from the primary care clinics they owned were performed by the hospital lab.
Managed Care Lab Contracts
And here is where the lab test contracting practices of health insurers contribute to this problem. If health insurers require hospitals and their primary care clinics participating in an ACO to separate the components of the lab work, how can the hospital provide integrated services to patients?
This is why a small number of first-mover hospitals are developing strategies and—if necessary—preparing to engage the health insurers and the national lab companies. Their goal is to find a solution that provides them with a patient health record that includes complete and standardized test data.
What may add urgency to changing the status quo in the clinical lab testing marketplace is that a sizeable number of ACOs are already delivering integrated care. Participating hospitals stand to earn performance incentives if they can improve patient outcomes and reduce healthcare costs by a significant amount in a contract year.
Tracking and Trending
Simply said, these institutions need to have standardized lab test data as soon as possible. It is an issue that must be resolved if the hospital and the ACO are to deliver improved patient outcomes while controlling costs.
For that reason alone, THE DARK REPORT predicts that hospital administrators will become much more forceful in their negotiations with managed care companies about including their laboratories in provider networks.
Market May Encourage Different Strategies for ACOs to Achieve Uniform Lab Test Data
WHEN MANAGED CARE CONTRACTS require the primary care clinics owned and managed by hospitals participating in accountable care organizations (ACOs) to send most of their clinical laboratory testing to the large national laboratories, it confounds the ability of the ACOs to deliver integrated care.
However, the shift to hospital-owned physician practices might help to change the contracting practices involving clinical lab testing services. Typically, a physician practice has contracts with managed care organizations for the patient services that they provide. These contracts direct the physician practice to use the payer’s network laboratories. Too often, these networks exclude hospital laboratories as providers.
As a strategy, the hospitals that own physician practices can actually take advantage of these contracts. They can do this by having the physician practice continue to bill for testing while the parent hospital laboratory owner provides the actual testing through an internal transfer fee arrangement.
The benefit of this strategy is that the the hospital or health system is positioned to secure patient testing across the care continuum with integrated reporting and with an economic incentive.
Working with National Labs
A second strategy is for a hospital or health system to work with the national laboratories to be recognized as one of their lab testing sites. The national laboratories call this “reverse testing” and it is a rare arrangement at this time. What may change this situation is the pressure a hospital brings to bear to gain an integrated patient laboratory data record.
Because many hospitals and health systems utilize the national laboratories as their reference laboratory providers for the esoteric testing that is not on their in-house test menu, national laboratories may be interested in stronger partnering arrangements with their customers. That is why a reverse testing program could help to solidify those business relationships.
The third strategy is for hospitals and health systems to negotiate directly with health insurers. Once payers recognize the importance of having standardized lab test data that is fully integrated within the patient’s electronic medical record, it will be harder for the payer to continue supporting a non-integrated model of lab testing.
Need to Educate Payers
For this strategy to succeed, hospitals will need to educate payers about the value of lab test data. It means that the managed care negotiators at hospitals must first understand the value that their in-house labs can contribute to improved patient outcomes and reduced cost of care.
This strategy also helps hospitals meet another important challenge. That is the sizeable co-pays and deductibles that health insurers levy on patients when out-of-network laboratories perform testing. Payers commonly won’t require patients to pay large deductibles if the testing is done by one of the national lab companies contracted by the payers.
Hospital administrators are beginning to realize that, if the outreach patients being seen by their primary care clinics are to avoid having to pay these high deductibles for lab testing, then they must convince payers to add their hospital laboratories to the provider networks.
Collectively, these developments in the healthcare marketplace indicate that a long-standing status quo in the lab testing outreach market may be poised for an interesting transformation.