CEO SUMMARY: Tasked with cutting $2 million from their lab’s annual operating budget, the lab team at Broward Health System instituted changes that included a lab test formulary and ordering algorithms. In collaboration with physicians, these changes reduced the use of outmoded tests while ensuring that the correct test or blood product was ordered for the right reasons. The lab produced savings of $871,000 in the first 12 months.
TODAY, PRIORITY NUMBER ONE at clinical labs in hospitals and health systems across the country is to cut costs. Thus, a $2 million cost reduction target at the nation’s 10th largest public healthcare system did not surprise the new lab administrator when he arrived in July 2012 to start his new duties.
But how to achieve this $2 million cost reduction from the system’s annual lab operating budget was the question Leo Serrano, FACHE, DLM(ASCP), faced in his new role as Corporate Director of Laboratory Services at Broward Health System in Fort Lauderdale, Florida. Broward Health Medical Center, at 700 beds, is the largest hospital in the health system.
It will surprise many pathologists and clinical lab managers that the primary strategy Serrano used to cut almost $900,000 in lab costs in just 12 months was to implement appropriate blood product utilization and a lab test formulary. The formulary was supported by the introduction of algorithms and computerized physician order entry (CPOE) for lab test orders.
This strategy is counter-intuitive. That’s because the conventional wisdom holds that requiring physicians to adhere to laboratory test formularies and new lab test algorithms is a sure-fire way to incite resistance from physicians.
Physicians often view these actions as impinging on their ability to practice medicine as they see fit. Such physician resistance could have surfaced at Broward Health. How this was successfully handled and avoided by the clinical laboratory team has much to teach other clinical lab organizations.
However, the toughest challenges often produce the most spectacular results and this was true of the lab cost-cutting initiatives at Broward Health. Attacking lab test utilization was recognized to be the single biggest opportunity to shrink lab costs while improving patient care.
“When I arrived at Broward Health, I saw that there were no constraints on lab test ordering,” recalled Serrano, who was speaking at the Lab Quality Confab last month in New Orleans. “Physicians ordered whatever tests they wanted—even very expensive tests—regardless of whether there was any indication of clinical need.”
In deciding to tackle lab test utilization, Serrano, Lab Medical Director Fred Reineke, M.D., and the lab team knew that many cards were stacked against them. “This is one of the hardest tasks I’ve ever taken on,” Serrano stated. “We fully expected there to be physician resistance as the lab worked to introduce these new processes.
“However, our lab team believed it could overcome that resistance by insisting that physicians be responsible for making most of the clinical decisions,” noted Serrano. “These clinical decisions would not be made by the pathologists and the lab staff.”
This approach proved to be quite effective. The first positive outcome came as Serrano and Reineke presented physicians with the clinical and financial reasoning behind the lab’s recommendations for controlling the ordering of expensive esoteric tests. They did this by introducing an approval process, a lab test formulary, and lab test algorithms.
“It turned out that our physicians were open to the input from our laboratory professionals,” explained Serrano. “They are aware of the changes happening in healthcare and medicine. They realize that, in order to improve patient safety and patient outcomes, they will benefit from increased precision in the ordering of the rapidly-growing number of laboratory tests at the appropriate time and for the right clinical reason.”
But being open to the introduction of a new lab test formulary and associated algorithms is not the same as changing physicians’ habits day in and day out when they are ordering medical lab tests. The lab team at Broward Health ran straight into this obstacle.
“Our lab’s job was to begin to control lab utilization,” recalled Serrano. “But we are lab people dealing with clinicians. We felt it would be inappropriate for laboratorians to tell physicians what to do in their environment. That is why we adopted another approach.
“We explained why we would like to include or exclude specific tests from the formulary,” he continued. “The Physician-led Lab Formulary Committee would make the decisions, consult with their peers, and share with their peers.”
This step included several elements. “We outlined all the reasons behind our actions,” noted Serrano. “We explained that reimbursement pressures are stronger than ever. At Broward Health, we have many uninsured and underinsured patients who leave our health system with unpaid bills. This meant we could easily justify our initial efforts at monitoring high cost, esoteric tests.
“Next, we addressed the fact that several tests on the test menu were unnecessary, outdated, or inappropriate,” he added. “Not only do these tests incur costs to our lab, but, when ordered, they may also increase the cost of care. Yet, doctors don’t want the lab to take away tests with which they are comfortable!
“There is a separate issue that must be addressed if a lab like ours is to control utilization effectively,” noted Serrano. “It is the regular introduction of new lab tests. That happens continuously these days. Pathologists know all too well what comes with many of these new lab assays.
Introducing New Lab Tests
“As a new test is introduced, the company that developed the test goes to physician offices and explains how wonderful their proprietary lab test is,” noted Serrano. “The challenge comes from the fact that many of these tests may have little or limited clinical value and they increase costs. Physicians have no idea if these tests are useful or not, nor how much they cost the patient or the insurance company.
“This is the opportunity for every hospital laboratory to step in because clinicians treating patients today get information from a wide variety of sources,” noted Serrano. “Our job in the lab is to filter this information. This is where the lab staff, the medical director and the pathology group need to work with clinicians.
“Keep in mind that, along with the cost pressures that labs and hospitals face, physicians have time constraints,” he commented. “Their time with patients is shrinking. That means they need help sorting through the maze of tests available today.
Focus on Patient Care
“Our first step in controlling utilization was to establish our lab formulary,” stated Serrano. “From the beginning, we understood that the lab and the pathologists could not dictate how to make these changes. Any attempt by the lab to tell physicians how to practice would trigger a revolt.
“As treating physicians, they bear the ultimate responsibility to improve the outcomes of their patients,” he continued. “Our lab’s job is to help them do so by communicating to them how we can help them. That’s it in a nutshell: We need to communicate with them. And you can never have too much communication.
“How did we do so?” he asked. “We used a simple approach. A multispecialty committee of physicians was created and the lab simply facilitated communication within this committee. Our role was to offer assistance, guidance, and support. We were not voting members of the committee.
“This role as a guide to the committee increases receptivity,” he added. “As guides, the lab team helps physicians to see that this is not a mandate from administration.
Computerized physician order entry (CPOE) played a big role in the lab’s effort to cut costs. CPOE use was linked to “best practices” initiatives at Broward Health.
“Best practices turned out to be a key because, at that time, Broward Health was installing a CPOE system,” recalled Serrano. “As part of the CPOE introduction, the hospital had made a commitment to follow best practices.
“At the start of the CPOE process, Broward Health created two committees,” he said. “One was the Evidence-Based Care (EBC) committee and the other was the Physician Advisory Committee (PAC).
“The EBC, a committee composed of a variety of healthcare professionals, was charged with streamlining processes and reducing variation,” noted Serrano. “The PAC was a committee in which only the physicians could vote. It was designed to review and approve the recommendations of the EBC.
“To do this job, the EBC collected standing orders from all facilities and combined them and standardized them,” said Serrano. “The committee then compared these with evidence-based best practices. If there were any disagreements, the EBC and the PAC would meet to solve any problems. Then the PAC could implement the best practice guidelines as powerplans.
“Our laboratory contributed to this effort by designing lab test order sets that allowed for standardization in practices and a reduction in variation,” stated Serrano. “We did this by removing outdated and duplicative tests.
“One example was a cardiac panel the physicians had used for many years,” he noted. “That panel included tests that were essentially duplicates. We advocated the elimination of tests that experts recommend should be dropped while still providing physicians with some flexibility in ordering.
“We gave physicians much leeway,” emphasized Serrano. “But for certain tests, such as comprehensive metabolic panels, frequency recommendations were established. For example, a physician could order certain tests only once every other day.
“When a physician wants to order that test more often, the CPOE system issues a warning and makes a recommendation,” he said. “Should the physician want to override the warning, he or she can do so but then the system would flag the physician as an outlier.
“Implementation and use of this CPOE system was timely because expenses for repeated and unnecessary testing were out of control.” recalled Serrano. “It created the opportunity for our lab team to consult with specialists in all of the various clinical disciplines to discuss high-cost esoteric tests. In those meetings, we explained what we were paying for lab testing. We also explained that high costs for testing could have a detrimental effect on financial performance. We further stressed that patient outcomes trumped costs.
“At that point, physicians asked us to write a policy,” he stated. “They also agreed to give the Department of Pathology and the medical laboratory director the authority to approve or not approve the ordering of high-cost tests.
“We established a policy in which any high-cost non-standard esoteric test of $1,000 or more would require the approval from the medical laboratory director or his designee,” noted Serrano. “As part of this approval, the medical director or designee would contact the ordering physicians to discuss the reason for the test. They would need insurance prequalification and have to answer this question: Does this test change the treatment or outcome for the patient?
“Acceptance of this policy by physicians was not universal,” added Serrano. “Despite the fact that the physicians themselves had given us the approval to make these changes, some clinicians were unhappy about having to order high-cost tests in this manner.
Ordering High-Cost Tests
“Next, we explained the reasons behind these policies and also the consequences of ordering these tests in the inpatient setting and the outpatient setting,” commented Serrano. “With that explanation, they understood that by taking these extra steps, the physicians were helping us get paid for high-cost lab testing.
“This gave our laboratory a big win,” said Serrano. “In its first six months of implementation, just this one policy on high-cost testing saved the hospital nearly $100,000. That was significant and health system administration took notice of this success.
“One lesson we have learned is that the primary activity of the Lab Formulary Committee is to communicate this information regularly and repeatedly,” he continued. “A lab formulary will have very little effect on ordering unless there is active engagement between the physicians and the clinical laboratory. “One example of how our lab test algorithms affected lab test ordering involved flow cytometry, FISH, and cytogenetic testing,” noted Serrano. “Before the lab utilization process took effect, physicians would check all the boxes on a requisition.
“Our first action was to explain to the physicians how much unnecessary cost was inflicted on the entire organization because of this ordering practice,” he said. “Physicians quickly understood the need to voluntarily give up ordering and have the pathologists do it instead, in accordance with newly-established guidelines.
Controlling Lab Test Costs
“This was significant in controlling costs,” Serrano observed. “Today, whenever bone marrows or biopsies are done, it is our pathologists who order the flow cytometry, the cytogenetic tests and the FISH tests.
“Having made all these changes, we counted up the savings that resulted from our efforts over the first 12 months of this cost-cutting program, starting in July 2012 and ending July 2013,” he stated. “The total was $871,000—about 40% of our cost-cutting goal.”
Serrano listed the specific activities and the amount saved. “Just on esoteric test approvals and unnecessary test reductions, the savings were $220,000,” he noted. “Our lab increased revenue $68,000 by shifting, in an appropriate manner, some tests away from inpatient orders and over to outpatient orders.
Other Sources of Savings
“Other significant sources of savings came from reduced send-out testing that saved $74,000 and reduced in house testing that saved $97,000,” he continued. “We also reduced platelet waste and cut costs for red blood cells by a total of $412,000.
“While our lab hasn’t quite reached $2 million in savings, we are well on the way and lab utilization is a huge part of the savings,” said Serrano. “It is the foundation for our next wave of cost-cutting efforts.”
Effective Use of Lab Formulary Committee Engages Physicians to Improve Utilization
ONE MAJOR CHANGE instituted by the laboratory at Broward Health Services in Fort Lauderdale, Florida, was the creation of a system-wide lab test formulary.
“It is true that runaway lab test ordering cannot be controlled without collaboration between the laboratory and the physicians,” stated Leo Serrano, Corporate Director of Laboratory Services at Broward Health. “That is why our lab took several steps to engage physicians in this process.
“One thing we did was create a lab test formulary committee,” he said. “This is a medical staff committee, not an administrative committee. Thus, it reports to the Combined Medical Executive Committee because we presented it as a quality management tool of the medical staff.
“Committee members are physicians from a variety of settings and are nomi- nated by the various medical staff chiefs,” observed Serrano. “Two pathologists serve on the committee, but they are non-voting members. Their primary duties are to offer expertise in laboratory medicine.
“The lab test formulary is developed by physicians at our health system,” he added. “It is the responsibility of the physicians to write the formulary along with help from the senior laboratory staff. Each hospital nominated two physician volunteers to sit on the committee.
“Members of the committee,” he continued, “include a physician from community health, an emergency physician, a pediatrician, a surgeon, an ob-gyn, a family practice physician, two nephrologists, two internal medicine specialists, a pulmonologist, and a hospitalist. Also on the committee are representatives who work within the hospital and who work in ambulatory settings.
“The lab formulary committee established three testing tiers,” explained Serrano. “The first tier is the largest one. It includes routine tests that any provider could order and has some guidelines for frequency of ordering.
“The second tier of tests is much smaller,” he added. “It is limited and these tests can only be ordered by specialists, senior fellows, or consultants. On the third tier are the most expensive tests. These require the approval of the medical laboratory director or designee.
“Immediately, the formulary had the desired effect by limiting the ordering of esoteric and questionable tests first,” observed Serrano. “It had a direct effect on reducing costs and yet it still gave physicians as much clinical leeway as possible.
“This approach helped us avoid telling physicians how to practice,” concluded Serrano. “By using the formulary, peer physicians are providing useful guidance to their colleagues on how to more appropriately order laboratory tests.”
Broward Health Lab Team Provides Enriched Data
GIVING MORE INFORMATION and enriched data to physicians was one element of the lab’s strategy to control lab test costs at Broward Health System.
“As part of our lab’s cost-cutting efforts, we decided we should give something back, such as test ordering assistance,” stated Leo Serrano, Corporate Director of Laboratory Services at Broward Health. “You can’t keep taking away without giving something back.
“Thus, we started publishing a monthly newsletter called Laboratory Info for Physicians,” he continued. “In this newsletter we provided information about our pathologists, including their clinical background, and even some details about their family lives.
“We also provided clinicians with ongoing updates about lab tests,” he stated. “This explained why certain tests are so outdated that the results are of little use in clinical care. We included recommendations on which lab tests should replace the outdated assays.
“The newsletter proved to be an effective way to publish lab testing algorithms,” he added. “One of the first algorithms we published helped physicians sort through the issues involved in thyroid testing.
“That caused physicians to ask us for more algorithms,” recalled Serrano. “To get more algorithms, we asked ARUP Laboratories and the Mayo Clinic if we could use their algorithms and they both agreed, saying their information was available to the public and free to use. We now have an entire file of lab test algorithms that we make available on the physician portal.”