CEO Describes Characteristics Of the Clinical Lab 2.0 Model

Five health system labs using Project Santa Fe to demonstrate value

CEO SUMMARY: Moving away from volume-based care will not be easy for clinical labs. After all, high volume sustains labs. But labs seeking to transition away from fee-for-service to value-based care must have a seat at the table where decisions are made, said a lab CEO who is part of Project Santa Fe, which wants to foster the movement to what’s called Clinical Lab 2.0. If lab directors are not involved in developing the next generation of lab medicine, then others will decide the lab’s fate, the CEO said.

First in a Series

EVERY LAB IN THE UNITED STATES shares a common predicament in the next few years: how to make the transition from fee-for-service payment to value-based reimbursement without going broke.

This transformation in healthcare is good news and bad news for clinical laboratories and pathology groups. The good news is that new genetic knowledge will give labs molecular diagnostic and genetic testing tools that deliver incredible value to physicians and patients.

The bad news is that labs will no longer get fee-for-service payments for each lab test. Instead, under value-based shared savings, shared-risk, and bundled payment models, labs will need to demonstrate the value they contribute to improved patient outcomes and reduce the total cost of care to earn an adequate proportion of the global payment that all providers will share.

“This is often described as the transition from volume to value because this trend will fundamentally change how all labs are paid,” said Khosrow Shotorbani, MBA, MT(ASCP), CEO of TriCore Reference Laboratories in Albuquerque, N.M., in his presentation at the 22nd annual Executive War College earlier this month in New Orleans.

“This shift from volume to value also will create new winners and losers in the clinical lab industry,” he declared. “Not every lab organization will take the timely action required to introduce the value-based lab testing services that hospitals, physicians, and payers will need.

“New and different forms of value-based care, such as capitation and bundled-payment, are already replacing fee-for-service,” stated Shotorbani. “Yet only a handful of labs currently have plans for surviving and thriving under these new payment models. TriCore Reference Laboratories wants to lead this transition by developing lab test services and products that deliver added value in non-traditional ways to all the healthcare stakeholders, whether they are patients, physicians, hospitals, payers, or the local community.”

As part of this effort to show payers and healthcare policymakers that better use of lab tests results in better patient care and lower costs, Shotorbani was one of the organizers behind a demonstration project called Project Santa Fe last year. This project involves the lab divisions of five nationally-respected health systems. They are:

Geisinger Health, Danville, Penna.
Henry Ford Health, Detroit, Mich.
Kaiser Permanente-Northern California, Berkeley, Calif.
Northwell Health, Lake Success, N.Y.
TriCore Reference Laboratories, Albuquerque, N.M.

The common interest of these five lab organizations is to validate the concept of Clinical Lab 2.0. This model for medical laboratory testing is designed to deliver undisputed value that earns an adequate share of reimbursement from bundled payment, budgeted payment, and similar value-based reimbursement models.

“The labs involved in Project Santa Fe came together because they recognized that, if lab tests continued to be considered a commodity, the consequence would be further cuts to their lab budgets,” Shotorbani noted. “The goal of Project Santa Fe is to have these five nationally-respected lab divisions demonstrate the value of lab tests on total care, across the spectrum of diseases and health conditions.

“These demonstration projects will be conducted as well-designed clinical studies with careful collection of data from before, during, and after the study,” he said. “Then, two things will happen.

“First, the labs will publish the results of these clinical studies in peer-reviewed journals,” continued Shotorbani. “This means that health system administrators, health insurance medical directors, and healthcare policymakers will learn about the substantial improvements in patient outcomes and the potential for proper utilization of lab tests to lower the overall cost-per-episode-of-care significantly.

Bending the Cost Curve

“Second, the five Project Santa Fe lab organizations are committed to attempting to replicate in their own health systems the success of one member lab’s clinical study involving improved utilization of lab tests,” continued Shotorbani. “As this happens, the participating labs will diligently gather data and work together to publish the outcomes in peer-reviewed medical journals.

“Our belief is that these clinical-study efforts—when published in scientific and health policy journals—will provide convincing evidence to policymakers and clinical leaders that clinical labs have great potential to bend the cost curve downward and improve patient outcomes,” he said. “Medicine is driven by data and the results of well-designed studies and clinical trials. Our Project Santa Fe labs are already engaged with their clinicians in these efforts and the first clinical success story is being prepared for submission for review and publication.

“It’s imperative that lab directors and pathologists act quickly on projects that demonstrate and deliver more value from lab tests,” he added. “That’s because health systems are already reorganizing specifically to deliver value-based care. During these formative months, labs must be involved in these efforts.”

Engaging With Leadership

It is important for lab leaders to become engaged with their health systems’ administrative leadership, Shotorbani urged. “Ask yourself: Does my lab have a seat at the table in my health system’s strategic plan?” he said during his presentation. “If my lab does not have a seat at the table, then we are on the menu for cuts. Think about that. If our labs are missing from these discussions, we’re not involved in health system strategic thinking. That means another provider is having that conversation and grabbing for a bigger share of the value-based payment.

“Another important question that your lab should ask is: ‘Who is our champion in the C suite?” he suggested. “Does my lab have an advocate at the highest levels of our organization?”

“It’s time for pathologists and lab directors to think strategically in a way they have never done before,” Shotorbani advised. “I’m going to challenge the traditional wisdom. Today, clinical lab testing is a $70 billion industry that, in my opinion, is based on a simple transactional process: Accept a laboratory test order, transmit a laboratory test result. Labs insist that they cannot deliver a value unless they have an order.

Mining Data for Value

“At the same time, labs sit on a massive volume of data, yet they do nothing with those data,” observed Shotorbani. “These data have inherent potential because of their predictive value.

“But the lab industry has yet to create a business model around such data because our workflow is traditional: order in; result out,” he added. “Look at our operations: Our labs are not doing anything differently today than what we’ve done for the past two decades.

“Even in our own shop, we mostly do the same thing—although, in the past three years—we have initiated fundamental changes designed to allow us to create value from our lab test data,” he noted. “Our lab has a ways to go, but our change of direction has now commenced, guided by the concept of Clinical Lab 2.0.

“At this moment, few labs are moving away from their traditional volume-based business model,” warned Shotobani. “Academic medical centers have been particularly slow. Value-based care goes against the grain of academics. For years, they basically pursued high-margin, high-cost tests because the lab was an esoteric area for research. That is basically what academia does.

“Academic labs typically wanted to build their volume of molecular and genetic tests, and that volume went up sharply,” he added. “But then what happened? As academic labs increased their molecular and genetic test volumes, the payer market changed. Payers began building barriers against new molecular and genetic tests while taking the first steps to introduce utilization constraints and value-based reimbursement arrangements.

“That same change is now happening in every segment of the lab industry,” he said. “As payers move from volume to value, the conversation in your lab should no longer be about the margin of the test. It needs to be about the disease burden in the population and how your lab can contribute to better outcomes.

“Your lab team should begin to ask: ‘In our community, who is assessing the disease burden in the population? Can we leverage lab test data to help them with that problem?’” advised Shotorbani.

“At TriCore, our efforts to supply solutions have given us an interesting insight,” continued Shotorbani. “We’ve learned that, by matching data from high volume, low-cost lab tests with other clinical and demographic data, we can generate considerably more value for the healthcare system! In the era of population management and precision medicine, the high-asset, high-margin tests are still useful, but they are secondary.

“This is why, in the Clinical Lab 2.0 model, the lab must become adept at producing actionable information,” he explained. “Further, the lab can deliver this actionable data to more than the referring physician. It can work with regional health plans, the state Medicaid program, and with local hospitals and health systems.

TDR Academic Journal Article2

Importance of HgA1c Test

“As health systems change their perspective on which lab tests have value, the lab test for hemoglobin A1c, for example, becomes much more important,” he said. “It has value because it’s used to manage the care of diabetic patients under capitation or a bundled payment model.

“With bundled payment, that A1c test allows labs to deliver value in ways they could not do so before,” observed Shotorbani. “A1c results have inherent, immediate clinical value. But, a lab can go the next step and reveal the trend in sequential A1c values to a health provider or health plan to help them put the focus on at-risk patients.

“We have used delta checks for decades inside the lab as part of quality checks. Why not move these out to our clinical colleagues?” he suggested. “Individual patient delta checks are inexpensive, high-value, precision medicine that the lab can deliver.

Assessing Disease Burden

“Today, the nation’s most innovative labs are taking the first steps to solve the problem of measuring the disease burden of a population in ways that are clinically-actionable,” Shotorbani added. “Take, for example, how the lab at Northwell Health is collaborating with physicians to achieve earlier and more accurate diagnosis of inpatients with acute kidney injury (AKI). There are other examples emerging from the labs participating in Project Santa Fe.

“For this presentation, I want to challenge the conventional wisdom on another point,” he stated. “For decades, we have all chased the notion of the core lab concept. Under this concept, we aim to eliminate duplication of testing in multiple lab sites because in the core lab we can increase our volume, decrease excess capacity, and maximize our contribution to the profit margin of the hospital or health system.

“None of these concepts will disappear and the core lab is foundational to Clinical Lab 2.0,” continued Shotorbani. “But, as health systems put greater emphasis on managing the health of populations, there will be greater value from point-of-care testing (POCT) at the right place and for the right reasons.

“As TriCore moves forward with our strategic plan, we recognize that our lab can contribute increased value by providing POCT in ways that make the test results actionable at the point of care,” he noted. “Yes, POCT increases our lab’s cost per unit, but it contributes to coordinated population health management because it gives clinicians a faster answer for diagnosis and makes it possible to begin the right therapy while the patient is still in the clinic.

“In the future, we expect point-of-care testing will be a much bigger part of TriCore’s cost infrastructure,” continued Shotorbani. “With POCT, we can facilitate real time interventions that have the potential to keep many patients out of the hospital. That’s different from the traditional approach where our goal was to get patients into the hospital, get them fixed, and then bill them or their insurers.

Serving a New Customer

“MBAs will recognize that moving to POCT will require labs to recognize that we have a new customer,” he predicted. “In business school, the first question you’re asked is, ‘What is our business?’ Next it’s ‘What should be our business?’ Then it’s, ‘Who’s our customer and who should be our customer?’

“Remember those core strategic questions,” he advised. “Because during the transformation of the healthcare system, your lab’s customers will be different.

“Under Clinical Lab 2.0, our labs will deal with organizations that carry the financial risk of delivering care,” he noted. “In some cases, hospitals and health systems will bear the financial risk. In other cases, physicians will bear risk and in some places, accountable care organizations (ACOs) will be risk-bearing.

“That includes two-sided risk for many ACOS, meaning they will benefit financially if they keep costs down, but they will pay penalties if costs go above a certain level,” explained Shotorbani. “For all these reasons, every lab needs to pay attention to who is the customer. Clinical Lab 2.0’s diverse customer set will include healthcare professionals across the entire industry, such as payers, CMOs, CQOs, community healthcare professionals, and care managers.”

(To be continued.)

Contact Khosrow Shotorbani at 505-938-8924 or

Longitudinal Lab Data for Value-Based Care Requires Enterprise-Wide Master Patient Index

ANYONE WHO HAS MANAGED a stock portfolio knows that the best predictor of performance is not a snapshot. Instead, investors need a long-term view of performance over time, said Khosrow Shotorbani, MBA, MT(ASCP) CEO of TriCore Reference Laboratories. Healthcare is similar.

“As we move away from Clinical Lab 1.0 to Clinical Lab 2.0, we need data in a longitudinal view,” he explained. “That means we need data on everything we can collect on a patient, including inpatient, outpatient, outreach, ambulatory, emergency department, and urgent care. To achieve this, we need innovative technology and the architectural support to develop an enterprise-wide master patient index. The EMPI is the longitudinal view of every patient in the system.

“The EMPI is like the foundation of your home,” he explained. “That’s what everything else is built on.  If your laboratory doesn’t have a foundational EMPI, then you are either under-counting or over-counting, neither of which will work.

“Once you have an EMPI, you can move toward using the data in your EMPI to do analytics,” he said. “The EMPI will have real-time data you can use to develop a business model of the future.

“We want to augment actuarial data with lab data so that we can do predictive modeling for end-targeted interventions,” he added. “Here is what may be the most important hypothesis of our strategic plan of moving from volume-based to value-based care: Clinical Lab 2.0 enables us to do risk stratification of patients so that our lab can identify any gaps in care and help manage the high-risk patients with targeted interventions before they become high-cost patients.”


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.