Gearing Up the Laboratory to Exceed Expectations of External Customers

Level three of Laboratory Value Pyramid

CEO SUMMARY: This is the third installment of THE DARK REPORT’S description of the Laboratory Value Pyramid. It describes “Level Three: Deliver Value that Exceeds Expectations.” This is the level where the laboratory organization now shifts its emphasis from internal operation of the lab to external; to how it contributes added value to its parent hospital and the healthcare community it serves. Level three is where the lab organization can position itself as a recognized contributor to improved patient outcomes that also lower the cost of healthcare.

Part Three of a Series

THIS INSTALLMENT OF OUR ONGOING SERIES about the Laboratory Value Pyramid describes the third level of the pyramid.
This is the level where the lab organization shifts its emphasis away from internal operations and focuses its efforts externally to deliver value to different stakeholders outside the laboratory.

The Laboratory Value Pyramid is comprised of four levels. Level one and level two were introduced by THE DARK REPORT in the issues dated September 22, 2014 and November 24, 2104, respectively. This four- level pyramid is designed specifically to give the strategic leaders of lab organizations a vision and an ideal that can be attained by their lab team.

It is generally accepted today that the American healthcare system is undergoing a major transformation. The delivery of healthcare is changing in fundamental ways. The cornerstones going forward will be proactive care to keep people out of hospitals, precision care to deliver customized health services tailored to the needs of individual patients, and a fully-integrated healthcare delivery system. Kaiser Permanente is organized around many of these attributes.

An equally important element of health- care’s transformation will be radical changes in how hospitals, physicians, clinical laboratories, and other types of providers will be paid. Since money is the necessary element for financial stability, lab administrators and pathologists must pay attention to how payers alter the ways that they pay providers.

For decades, not-for-profit hospitals, particularly those organized by religious orders and faith-based groups, have stated a basic truth to their physicians and staffs: “No margin, no mission.” Stated another way, if the hospital cannot deliver its health services in such a manner so that there is a  positive margin once costs are subtracted against revenue, then that hospital will be forced to close and will no longer be able to serve the community.

Healthcare’s transformative forces are powerful and they continue to gather momentum. As more clinical laboratories and anatomic pathology groups find them- selves dealing with the trends described earlier in their communities and regional markets, it will become clear to the laboratory medicine industry at large that any lab organization that attempts to maintain the status quo will be relying on a losing strategy.

Some Labs Will Disappear

Simply said, with each passing year, the labs that remain static with their operations, their provider relationships, and their busi- ness plans will be the ones to disappear. Some labs will simply close their doors and file bankruptcy. But most will be absorbed by a financially-stronger organization.

For these reasons, the senior administrators, executives, and pathologist business leaders of every lab must begin to act with urgency and with foresight. It is their leadership that will guide their respective clinical labs and pathology groups through the tough challenges that lie ahead.

That is why the laboratory value pyramid is a timely concept. It is designed to provide the leaders of clinical labs and pathology groups with a conceptual frame- work that they can use to move their laboratory from its current state to an ideal future state.

Favorable Comments

Response to the laboratory value pyramid has been consistently positive. It has been shown at lab conferences in both North America and Europe and earned favorable comments from lab managers, industry vendors, and lab consultants.

Much the same reaction was recorded after the publication in THE DARK REPORT of part one and part two of this series. Readers saw how it would help their labs and have expressed interest in learning more.

Before describing the specific attributes of level three of the laboratory value pyramid, it will be helpful to present a quick review of level one and level two.

Review of Level One

By design, a lab that meets the criteria of Level One: Achieve Normalcy and Predictability is moving away from traditional management and organizational models that have predominated in the lab- oratory medicine profession for decades.

In level one, the focus is internal and the laboratory must shift from the system of detection/failure to a system of prevention. To do this requires use of real time, visible lab process improvement metrics that are presented alongside traditional QC data.
A culture of continuous improvement must be infused throughout the entire lab and team members at all levels must be empowered to identify and eliminate the sources of recurring and systemic errors.

Another important characteristic of the level one lab is that it now openly engages outside experts to help bring in the knowledge and expertise needed for the lab to succeed with the system of improvement and deliver more value. (See TDR, September 22, 2014.)

Review of Level Two

With the foundation of level one in place, the lab can pursue Level Two: Establish and Meet Standards of Value. The focus of this level is also internal and has the final stages a lab must pass through to be pre- pared to go external to deliver more value to its customers.

Benchmarking is now well-established and used to establish criteria for value. The lab staff has moved past the “volume mentality” (an accurate lab test result delivered on time) to a “value mentality” (where lab test data is converted into actionable intelligence that improves out- comes and reduces costs).

Quality parameters are infused throughout all lab activities and include measurements of physician, patient, and payer satisfaction, for example. Best practices are pursued in all activities, including production, supply chain, and finance.
The level two lab will think and act like a business, with accountability visible at all levels of the organization. The lab team is trained to produce detailed business case analyses to justify major lab investments by senior administration. Staff is trained in identifying opportunities to add value and the culture supports assessing activities with a value-added perspective. Continuous improvement is now a permanent aspect of the lab’s work- ing culture.

Probably the biggest challenge for a lab to achieve level two involves information technology. As part of level two, labs must adopt IT systems that generate real- time data in support of two activities. One is associated with lab operations and work processes. The other is involved in combining 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)

Both level one and level two have the lab focused on its internal functions. It is necessary for the lab to not only put its own house in order before going outside its walls to deliver value, but the lab must also put the right informatics capabilities in place and be comfortable with using outside experts before it can venture out- side its own four walls to identify and deliver services that add value to its customers and other stakeholders.

With these accomplishments behind it, the lab is ready to tackle Level Three: Deliver Value that Exceeds Expectations. This is the level of the laboratory value pyramid where the lab can confidently shift its sights out- side the lab to identify ways that it can deliver more value. The attributes of level three are described on the pages that follow.

Laboratory Value Pyramid


Understanding Level 3:
Deliver Value that Exceeds Expectations

One primary purpose of the laboratory value pyramid is to provide a step-by-step process to allow any laboratory to assess its current state, then work to evolve via the four levels into a “best practices” organization. Level three attributes include:

  • Apply knowledge of your core competencies that were created in level one and level two to other areas outside the walls of the lab.
  •  Shift from a state of being held hostage by IT, LIS, HIS, and middleware to a state where the lab is proactive and is driving improvements in its informatics capabilities that are designed to create more value from lab data and the lab’s consulting services.
  • Justify the cost of IT projects that integrate essential lab patient info into algorithms that diagnose more accurately and sooner, thus contributing to shorter hospital stays, reduced diagnostic workups, and less chance of readmission within 30 days.
  • Shift from service provider of lab results to a vital contributor in generating clinical value. This is the transition often described as “from volume to value.”

Level Three: (Lab Focus Is External) Deliver Value that Exceeds Expectations

TWO KEY ELEMENTS DISTINGUISH Level Three: Deliver Value that Exceed Expectations from the two previous levels of the laboratory value pyramid. First, the emphasis switches to external. Second, by design, level three activities deliver increased value to the lab’s customers and end users and can be the source of expanded lab budgets and increased revenue.


Your lab is competent at level three:

  • When your reputation and outcomes are recognized outside of your hospital and institution by your peer groups.
  • Regular requests for speaking engagements, requests for publications, citations in publications and similar outside recognition start to happen.

Level three is also the step in the laboratory value pyramid where the lab organization completes its evolution from a simple provider of lab results (accurate results delivered on time) to an essential member of the integrated clinical care team (contributing measurable clinical value).

It must also be emphasized that this evolution from level one and level two to level three is based on effective use of modern quality management methods. That includes appropriate introduction of a quality management system (QMS), such as ISO 15189 and daily use of continuous improvement methods that utilize the techniques of Lean and Six Sigma, for

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

  • Is now a vital contributor in the flow of patients with the hospital, health system, physician office, skilled nursing facility, or other care setting, including handling, processing, and patient well-being. This is the application of the knowledge and core competencies that the lab created in levels one and two and is now being applied to healthcare settings outside the walls of the lab.
  • Lab is now solidly in control of its information technology (IT) systems and is using the LIS, HIS, middleware and other informatics solutions to access the data and metrics needed to create value for end users of lab test- ing, along with ongoing support for continuous improvement of the lab’s internal and external operations.
  • Lab is using its ability to access other sources of patient data to combine With its lab test data to develop algorithms that diagnose more accurately and sooner, thus contributing to shorter hospital stays, reduced diagnostic workups, and less chance of readmission within 30 days.
  • Lab administration and lab staff fully understand the goals of the parent hospital and the health- are community it serves. Similarly, the entire lab team understands how value is defined and measured. The lab then uses this knowledge to creatively identify projects where lab data and analysis are a vital component of improving value for the hospital and the health system. Examples are reduction in MRSA out- breaks/cases annually within the hospital or reducing TAT for Troponin from receipt of test order by emergency department staff to delivery of test results to the ER physician.
  • Lab has gained recognition as a core competency of its parent hospital or health system specifically because of continuing and numerous examples of where the laboratory has contributed to value creation as defined and measured by the hospital and health system.


At Level Three, Labs Can ‘Go External’ to Share Methods, CTQs with Other Hospital Departments

WHEN THE LABS OF A MULTI-HOSPITAL HEALTH SYSTEM are ready to move up the Laboratory Value Pyramid and go from level two to level three, the skills and systems established in the first two levels will form the essential foundation for this effort.

Among the different lab sites within the integrated health system, it is likely that the central lab is farthest along in establishing standards of value. Thus, one of the best ways to contribute added value outside that lab-and grab low-hanging fruit-is to look at all the other labs in the network for opportunities to consolidate, standardize, remove costs, and create value.

By applying what has been learned by the lab team at the central lab facility as it moved through the first two levels of the laboratory value pyramid, that team can easily teach and apply the same principles at the other lab sites in the network.

Remember that, in level one and level two, outside resources were engaged to assist in identifying Critical to Quality parameters (CTQ’s) appropriate to that primary lab. Now this same approach can be used to identify the CTQ’s for the other lab sites.

This effort should apply today’s auto- mated technology, the proper use of integrated middleware, and the true scalability of today’s testing platforms with identical reagents across all platform sizes to achieve full and tight integration across all the laboratory sites within the network.

At the same time, it is appropriate to use the knowledge gained in level one and level two to build a business case and plan for the lab network that would include justification of costs and capital investment. Present this business case and an implementation plan to the C suite or senior administration. As these best practice methods and the CTQs are deployed across all the lab sites within the health system, the entire lab network will be on its way to displaying true level three characteristics- while also delivering added value outside the labs themselves.

This is also a good time to consider another way to contribute value. It may be appropriate to suggest to senior administration that the laboratory team be allowed to take the same methodology that enabled the lab network to advance through level one and level two of the value pyramid and to now work with other clinical departments to introduce those same methods into their service offerings.

The justification would be to achieve outcomes similar to what was achieved in the lab network that allowed the labs to establish and meet Standards of Value.

There is an example of an integrated health network in the Mid-Atlantic region, where over three years, this exact scenario played out. After the lab had essentially went through the steps of level one and level two, it then took the outcomes and the learnings from within the lab and worked to share those across multiple hospitals and departments within the health system.

As this happened, the lab became the “incubator and breeder” of process improvement expertise and replicated their methodologies across the enterprise. The cost benefits to the enterprise were over a $1 million per year with the added benefits of improved patient care, improved employee satisfaction and retention, decreased waste, and increased productivity.


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