Hospital Lab Outreach Still Effective Revenue Strategy

When payment rates decline, hospital laboratory outreach programs help bring in needed income

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CEO SUMMARY: Despite the challenges hospital and health system laboratory outreach programs face today, there are many ways they can remain viable, according to an outreach expert from Mayo Medical Laboratories. By taking specific steps to increase volume and the value they provide, lab outreach programs can keep their costs down while bringing in more revenue and staying relevant to their parent hospitals, health systems, and clients at the same time.

HOSPITAL  AND HEALTH SYSTEM LABORATORIES running outreach programs face unprecedented challenges today as payers cut reimbursement levels and exclude many local labs from their networks.

Despite these challenges, however, outreach programs can remain viable by taking specific steps to increase volume and the value they provide to hospitals and health systems, said Jane M. Hermansen, MBA, MT(ASCP), Manager of Outreach and Network Development for Mayo Clinic, in Rochester, Minn. She made her remarks at THE DARK REPORT’S Executive War College in New Orleans earlier this month.

Hermansen made her assessment that outreach programs can provide significant value to hospitals and health systems based on her experience working for Mayo Medical Laboratories, which consults with some of the best hospital lab outreach programs in the nation. She offered examples from many of these best-in-class outreach programs and found they shared three similarities.

“All of these programs want to do one of three things,” she said. “First, they want to save money. Second, they want to make money, and third, they definitely want to stay relevant in the lab testing services they provide to referring physicians.

“Another important benefit is that lab outreach programs can help hospital labs keep costs down by adding volume to the hospital’s laboratory that the hospital might otherwise not have,” she added.

Support for Care Continuum

One way clinical labs can remain relevant to parent hospitals or healthcare systems is to do testing that supports the entire continuum of care. “Doing so means the clinical laboratory will have clinical lab test data on every patient in the healthcare system—whether inpatient, outpatient or outreach,” stated Hermansen. “This complete and longitudinal record of patient lab test results is a critical component for labs today.

“To support the entire continuum of care, every hospital and health system lab should consider it essential to perform 100% of the testing ordered within its parent organization,” she advised. “Once a lab achieves that level, the lab and the health system will own the clinical lab data on those patients. That creates a competitive advantage over health systems that do not have that same data.

“In addition, your lab will own that patient interaction, which is important because—compared with other clinical services in the healthcare continuum— laboratories have four to five times more interactions with patients than does any other clinical service,” she said.

“What’s more, much of the medical record data on each patient comes from clinical lab data,” Hermansen added. “That means hospital labs have an opportunity not only to deliver results, but also to manage that patient’s impression of the healthcare system. Further, if their interaction with the hospital lab is favorable, they’re more likely to remain as patients in the system.”

Nursing Home Opportunities

Supporting the entire continuum of care means lab directors at hospitals and health systems now serving nursing homes may need to rethink any ideas they may have about abandoning that business.

Understandably, lab directors are worried about the deep cuts in payment that the Medicare program established in the 2018 Clinical Laboratory Fee Schedule, implemented Jan. 1 under the Protecting Access to Medicare Act. However, even before those low payment rates went into effect, many labs serving nursing homes considered exiting the nursing home business.

Leaving that business would be a critical mis-step, despite the inherent challenges, Hermansen advised.

“Hospital labs should think about serving nursing homes as respecting and supporting the continuum of care,” she explained. “If your lab provides integrated test results across the continuum, your parent hospital’s chances of caring for that patient effectively are much better. But if your lab stops serving nursing homes, your hospital could lose access to that patient’s continuum of care data.

Big Value in Big Data

“Then, if that patient is readmitted, the hospital would be on the hook for the costs of care and for any readmission,” she added. “Doing a cost-benefit analysis that compares the cost of a laboratory test with the cost of a readmission would clearly show the benefit of having the hospital lab continue to serve its nursing home patients.”

Instead of leaving the nursing home business, hospital and health system labs should analyze their contracts with these facilities to ensure that payment for these testing services reflects the lab’s actual costs, Hermansen suggested.

“When one East Coast hospital lab did this analysis, it found that it had discounted contracts for some work under Medicare Part A for patients in skilled nursing facilities,” explained Hermansen. “Under those discounted contracts, the lab was getting paid about 50% of what Medicare would normally pay for those tests—meaning the lab was barely covering its costs.

“In addition, those contracts had expired, but this hospital lab had continued to operate under those expired payment rates,” she said. “At that point, the hospital lab had to raise its rates, and the nursing home accepted that change.

“That example suggests that hospital and health system labs have an opportunity to renegotiate their contracts with nursing homes in this payment environment,” Hermansen said. “In addition, it might be time to renegotiate with other payers as well.”

In any negotiation, a hospital’s lab outreach program should consider the inherent strength it has in negotiations with nursing homes today because the large national lab companies are unwilling to serve nursing homes, she said.

“Managers of hospital labs need creative ways to work with their customers because nursing homes need laboratory services for this population. If the local hospital lab doesn’t serve nursing homes, who will?” Hermansen asked. “Are there other laboratories pounding on their doors, begging at the opportunity? No.

Covering Phlebotomy Costs

“At Mayo Medical Laboratories, we work with a hospital lab that had two nursing home clients recently offer to cover the lab’s phlebotomy costs,” she reported. “One nursing home offered to pay $500 per month if the hospital lab would do the phlebotomy draws and bill separately for the testing.

“A second, larger nursing home offered to pay $1,000 a month for the phlebotomy service,” Hermansen added. “The hospital laboratory is no longer on the hook for those phlebotomy costs and can still do the testing.

“At a third health system lab we know, a nursing home offered to do the phlebotomy draws if the lab would train its nursing staff to do so,” she said. “Then all the laboratory needed to do was pick up and transport those specimens.”

Add Tests; Cut Send-Outs

Another way hospital lab outreach programs can increase revenue is by changing the type of testing the lab does. “Some health system lab outreach programs are expanding their test menus and thereby reducing the number of send-out tests they do,” Hermansen suggested. “Doing so means going through the make-versus-buy process to justify not sending some laboratory tests out, but it’s a relatively easy calculation.

“When your lab shifts its test mix correctly, it will likely add more esoteric tests,” she said. “That means your lab may no longer be doing mostly $10 CBCs. Instead, it may be doing many more $30 esoteric tests.

“A hospital lab also can make it a priority to do more work for other hospitals,” Hermansen recommended. “In that way, your lab will shift more testing to a hospital-client bill, which means it would be easier to send out and collect when compared with an insurance bill.”

Hospital Labs Could Serve Large Local Employers

ONE OF THE LARGEST EMPLOYERS in Central Florida is the Walt Disney Company, which has a well-earned reputation for aggressively seeking the best healthcare deals for its 70,000 workers.

In February, Naseem Miller reported for the Orlando Sentinel that the Disney company introduced a health insurance plan for its Central Florida employees that bypasses insurance companies and instead relies on two local hospital systems. Disney contracted directly with the area’s two largest health systems, Orlando Health and Florida Hospital.

By eliminating the insurance middlemen, Disney jettisoned the contracts those insurers had with large national labs. Cigna, for example, has a contract with Quest Diagnostics, which stood to lose some of that lab test business it had previously, said Jane M. Hermansen, MBA, MT(ASCP), the Mayo Clinic’s Manager, Outreach and Network Development.

“This is the perfect example of how hospital lab outreach programs can be included in these types of arrangements,” she added. “Do you think Disney got the very cheapest laboratory testing it could get? Probably not, but they are supporting the local community and creating an opportunity for the clinical labs of those hospitals.

“Now those 70,000 Disney employees and other covered lives under that health insurance plan will be using the hospital laboratories because Quest is carved out,” she said. “Other employers are likely to be interested in doing so as well.

“If your hospital lab has a local employer sending testing out of your community, you should do whatever you can to bring that testing into the community,” she urged. “Other employers are likely to be interested in following Disney’s example.”

Marshfield Clinic’s Lab

One stellar example is the lab that is part of the Marshfield Clinic in Marshfield, Wis. “This lab has three lines of business, two of which are outside of traditional insurance billing,” explained Hermansen. “One line of business is the typical clinical lab testing for outreach patients. The second is for veterinarians, for which the lab has dedicated equipment and veterinary pathologists on staff.

“The third line of testing is for industry clients such as organizations involved in biotech, medical devices, animal health, pharmaceutical companies, universities, and contract research organizations,” she said.

“Adding pathologists who specialize in veterinary work may not be possible, but hospital and health system labs certainly can add sub-specialist pathologists, such as hematopathologists,” Hermansen advised. “If your hospital lab has hematopathologists on staff, you can reach out to oncologists in the community to bring in those additional samples.

Opportunities with Mass Spec

“Mass spectrometry MALDI-TOF is another example of lab testing that can help expand market share, particularly if your lab serves rural areas,” she said. “With the right equipment, your lab could become a regional core laboratory for microbiology.

“This strategy can be effective in rural communities, especially in highly-regulated states such as New York,” Hermansen commented. “In those states it’s difficult to find technologists to do microbiology testing.

“But if your hospital lab has the right equipment, and is within an hour or so drive by courier, your lab could offer core microbiology testing and deliver those results quickly,” she concluded. “That could be a differentiator in a rural market and contribute to greater market share and larger outreach lab revenue.”

These examples of how hospital and health system lab outreach programs are succeeding using different strategies demonstrate that opportunities still exist for hospital and health system labs.

Economics of Successful Hospital Laboratory Outreach

AS VALUE-BASED REIMBURSEMENT METHODS become more common, managers in hospital and health system labs must be on the alert to demonstrate that a cost center analysis of their labs may fail to capture all the revenue they produce, said Jane M. Hermansen, the Mayo Clinic’s Manager, Outreach and Network Development.

For this reason, hospital laboratories need to know how much they generate in revenue and how much it costs the lab to produce that revenue. “Knowing these numbers is incredibly important,” she added.

A study Mayo Medical Laboratories did showed that removing outreach testing from a hospital laboratory had a significant effect on the lab’s overall costs. “For example, at one particular hospital, our study showed there was a 24% increase in costs if the outreach volume was removed from the laboratory cost structure.

“Stated differently, these economic facts support the strategy of building hospital laboratory outreach programs,” noted Hermansen. “The additional outreach volume brings down the average cost per test for the entire laboratory, even as it brings in additional revenue.”

Contact Jane Hermansen at 800-533-1710 or


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