Benchmarking with the Best To Be a World Class Laboratory

Level Four of Laboratory Value Pyramid

CEO SUMMARY: This fourth installment of this special series about the laboratory value pyramid introduces “Level Four: Use Benchmarks to Achieve Best-in-Class.” This is the highest level of the four level pyramid. When a lab organization performs at this level, it will be delivering substantial measurable value to all stakeholders and it will have the metrics to substantiate this value. At the same time, the performance of a level four lab can be validated by its use of recognized third-party benchmarks that show it is performing equal to the best labs in the United States and across the globe. It will also have customer survey data showing it meets and exceeds its customers’ expectations.

Part Four of a Series

FOLLOWING PUBLICATION of each installment in this special series introducing the laboratory value pyramid, there has been increased interest among lab executives and pathologists in the concept and how it can benefit their own laboratory organizations.

Such a positive response is a sign that the profession of laboratory medicine is ready for a different approach to how laboratories are organized and operated during a time when the healthcare system in the United States is undergoing rapid transformation.

This fourth installment in THE DARK REPORT’S series about the laboratory value pyramid deals with Level Four: Use Benchmarks to Achieve Best-in-Class. At level four, the focus is external and the lab emphasizes the value of its lab testing services to all stakeholders outside the four walls of the lab.

When the performance of a laboratory is consistent with the attributes of level four, it will be delivering value that meets and exceeds the expectations of all its customers and stakeholders. This includes the parent hospitals and health systems, physicians, patients, payers, and even employers in the community.

The level four laboratory will have the metrics to benchmark itself against the best labs in the United States and worldwide. It will be easily recognized by outsiders as a best-in-class laboratory organization.

A major objective shared by the team that developed the concept of the laboratory value pyramid is that lab leaders need clarity in how to guide their respective lab organizations forward during challenging times. As noted in earlier installments of this series, it is a time of unprecedented change and all types of healthcare providers are experiencing tough financial times, not the least because of falling prices.

This is as true for hospitals and office-based physicians as it is for clinical laboratories and anatomic pathology groups. Reimbursement is shifting away from fee-for-service and toward bundled reimbursement and budgeted payments.

The emphasis in clinical care is moving away from reactive care and toward preventative and proactive care. This means keeping people out of hospitals-the most expensive type of healthcare-by emphasizing early diagnosis and active management of chronic conditions. One consequence is that providers have incentives to be more careful in how they utilize lab tests.

The third trend with the greatest potential to be disruptive is the transition to precision medicine. Whereas patients have been treated according to the average, as determined in large clinical studies, precision medicine requires the physician to tailor healthcare services according to the unique circumstances of each individual patient.

Here is where clinical labs and pathology groups are poised to deliver tremendous value. The future of personalized medicine and precision care will be informed by genetic testing and molecular diagnostics-exactly the disciplines within laboratory medicine where pathologists, Ph.D.s, and all types of clinical laboratory scientists are at the forefront within the house of medicine.

Here is a review the first three levels of the laboratory value pyramid.

Level One: Achieve Normalcy and Predictability

In starting its journey forward, the level one lab starts the process of evolving away from the traditional management and organizational models that were appropriate for the healthcare system of recent decades. In their place, the lab begins to adopt the management models used by the world’s top-performing organizations.

During level one, the lab maintains an internal focus and the goal is to put its operational house in order. This requires abandoning the system of detection/failure and adopting a system of prevention. Such a transition involves shifting to a culture of continuous improvement.

To guide lab staff, the level one lab introduces real-time, visible lab process improvement metrics and uses these in tandem with traditional QC data. All team members learn how to identify and attack sources of recurring and systemic errors. (See TDR, September 22, 2014.)

Level Two: Establish & Meet Standards of Value

In level two, the lab continues its internal focus. The goal is to lay the foundation for the added-value lab testing services it will develop and deliver as it reaches levels three and four.

Internal benchmarking is well-established and aids lab staff in establishing criteria for value. Level two is where the lab staff moves away from the “volume mentality” (an accurate lab test result delivered on time) and concentrates on a “value mentality” (where lab test data is converted into actionable intelligence that improves outcomes and reduces costs).

Not only are quality parameters an established part of the daily routine in all activities, but the lab staff-because of the benefits of the system of prevention adopted in level one-can now concentrate on using measurements of the satisfaction of physicians, patients, and payers to guide continuous improvement projects.

As it works to achieve level two, the lab regularly thinks and acts like a business. There is visible accountability at all levels of the organization and the lab team has the skills to develop the business case analyses needed to support major lab investments by senior administration.

The single most important capability to develop during level two involves information technology. In coming years, the importance of integrated informatics and healthcare big data makes it essential for the lab to adopt IT systems that generate real-time data in support of two activities.

The first is sophisticated informatics support of lab operations and work processes. The second is to use IT to combine lab test data with other types of clinical data in ways that help the lab deliver more value to the parent organization, physicians, patients, and health insurers. (See TDR, November 24, 2014.)

Level Three: Deliver Value That Exceeds Expectations

At level three, the lab shifts its focus from how it operates internally to how it delivers value externally. It is able to draw upon the established characteristics of system of prevention, continuous improvement, and its more advanced information technology to create value for clinicians.

The lab has now become a recognized source of value in the flow of patients at hospitals, health systems, physician offices, skilled nursing facilities, and other care settings. This is true both in contributing to improved patient outcomes as it is to patient handling, processing, and patient well-being.

Importantly, it is the sophisticated use of information technology at level three that enables the lab to leverage all its capabilities and generate more value with its lab testing services. This is consistent with healthcare’s move toward big data in support of precision medicine. Also, this information technology capability provides the lab with the metrics to demonstrate its value to all stakeholders.

Laboratory Value Pyramid


Understanding Level 4: Use Benchmarks To Achieve Best-in-Class

Four levels make up the laboratory value pyramid. Each level is a progressive step forward for any lab organization that wants to start from current state and pursue a desired future state of excellence and best-in-class performance. The laboratory value pyramid describes a simple step-by-step process to achieve that goal. Below are the attributes of level 4:

  • Your lab’s practices and competencies are recognized as best-in-class by your peer groups and third party reviewers.
  • You are consulting with other hospitals and systems to help them replicate what you have done within your institution.
  • Your lab is recognized as among “the best in the business” because of how your lab team uses all the attributes from the first three levels of the laboratory value pyramid.
  • Examples of world-class labs can be found within prestigious institutions like Mayo, Geisinger, Stanford, Vanderbilt, Kaiser, Cleveland Clinic, and MGH.
  • Extra credit! Your lab has created the database structure that allows it to mine the value of lab test data.

Level Four: (Lab Focus Is External) Use Benchmarks to Achieve Best-in-Class

EVERY LAB ORGANIZATION should aspire to achieve the attributes of Level Four: Use Benchmarks to Achieve Best-in-Class because this is the level of performance where the lab is delivering optimal clinical value at highest quality and lowest cost.

It is also where the lab organization will realize maximum financial success, precisely because it delivers added value that differentiates it with its customers, including patients, physicians, parent hospitals, or payers.

Pathologists and lab executives studying the laboratory value pyramid are reminded that the essential foundation for the success of the level four lab is the ongoing use of a quality management system like ISO 15189, supported by effective use of Lean and Six Sigma techniques.

Business Skills

Another distinguishing characteristic of the level four laboratory is that all of its managers have the same business skills expected of managers in the nation’s most successful companies. Managers use these skills to achieve stretch goals and create a culture of productivity and contribution across the entire lab team.

Level four managers understand how to make the financial case and demonstrate ROI for capital requests, along the information that supports the clinical care case for these capital investments. These are the resources every lab needs to deliver the advanced clinical services that contribute added value to stakeholders.

The end state for level four of the value pyramid is achieved when the lab organization can show these characteristics:

  • Your lab’s practices and competencies are recognized as best-in-class by your peer groups and third party reviewers from outside your parent organization.
  • Your lab is managed with business best practices across all operational activities in support of deliveringvalue to clinicians. This performance is documented by performance metrics that equal the external benchmark data of the nation’s other best-in-class laboratory organizations.
  • Your lab is sophisticated in its use of information technology. It is capable of assembling clinical data with lab test data and using algorithms to identify ways to help physicians use lab test data to improve patient outcomes and reduce the cost of care. It has the metrics to document these improvements.
  • Your lab managers are engaged to consult with other hospitals and systems to help them replicate what you have done within your institution.
  • Your lab is recognized as among “the best in the business” because of how your lab team uses all the attributes from the first three levels of the laboratory value pyramid.
  • Examples of world-class labs can be found within prestigious institutions like Mayo Clinic, Geisinger Health System, Stanford University Medical Center, Vanderbilt University Medical Center, Massachusetts General Hospital, andCleveland Clinic.
  • Extra credit! Your lab has created the database structure that allows it to mine the value of lab test data and deliver that value to stakeholders, including physicians, parent hospitals, patients, payers, and employers.

Because the level four laboratory is a learning organization and organized around the continuous improvement mindset, it has no limits to the value it can deliver. More specifically, the level four lab that has mastered the skills of meeting customers’ expectations and using quality management methods to sequentially raise the quality of lab testing services while reducing the cost of those services can be expected to enjoy sustained success.

Using Ranking and Measurement to Advance Lab’s Performance to Level Four: Best-in-Class

IN THE PURSUIT OF LEVEL FOUR of the laboratory value pyramid, accurate and timely measurements play a key role.

In levels two and three, the lab began to identify and use relevant key performance metrics (KPMs) to monitor performance and guide lab staff on continuous improvement projects.

These KPMs, along with the input from outside subject matter experts (SMEs), are the important components for the development of the critical-to-quality parameters (CTQs) that become the primary measurement sets for evaluating the lab’s performance.

A level four laboratory uses KPMs and CTQs for two purposes. First, these metrics support internal benchmarking and inform the lab teams as they pursue higher quality, lower costs, and increased value of lab testing services.

Second, KPMs and CTQs allow the laboratory to benchmark itself externally-against the best in the nation and the best in the world. It is these objective sets of data that enable a lab to accurately measure its performance against top-performing peers.

Of equal importance, these public measurements of a lab’s performance relative to best-in-class peers is necessary for the lab to successfully obtain working capital and other resources from its parent hospital or organization that is required to further improve the quality and value of the clinical services it provides to all its customers.

Not to be overlooked is the use of CTQs to mentor the lab’s new leaders who are positioned vertically and horizontally throughout the lab and its parent organization. These mentors, as responsible help managers, sustain the gains and constantly improve the value created by the lab as it moves up each level of the laboratory value pyramid.

Role of KPMs and CTQs

KPMs and CTQs also have an important role in helping the lab tap the substantial value that can be provided by the IVD manufacturers and IT vendors. Savvy use of these metrics makes it easier for such lab vendors to help their topperforming lab customers achieve ever-higher levels of productivity, cost management, and quality.

It is also true that CTQs must continually evolve, but the quality management methods and process redesign efforts remain constant. This applies to all four levels of the pyramid.

Finally, remember the quote in the story about level two of the pyramid: “CTQ’s are to Value as Westgard Rules are to QC.” (See TDR, November 24, 2014.) This was to emphasize that best-of-class laboratories are just as diligent in pursuit of excellence in these metrics as they are in improving the lab’s QC outcomes.

This success can be measured by regular increases in specimen volume, adequate revenue and budgets, and recognition by physicians, patients, and payers in the community that it is the preferred provider of lab testing services.

Probably the most significant differentiator of a level four lab is its sophisticated use of information technology, particularly to analyze lab test results and clinical big data. As the transformation of healthcare proceeds, labs are uniquely positioned to analyze lab test data in conjunction with other types of clinical data and develop actionable intelligence for physicians that improves patient outcomes.


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