CEO SUMMARY: Intermountain Healthcare is one of the nation’s largest and most respected institutions. Its quality improvement efforts are well documented. Intermountain is pursuing an ambitious goal to limit cost increases to the rate of inflation. To reach this goal, every clinical department is being asked to contribute savings and increase efficiency. The clinical lab is already achieving significant results as Intermountain’s Clinical Services seeks to cut $25 million in costs over five years.
HOSPITAL LABORATORIES ARE UNDER increased pressure to cut costs by substantial amounts. This is often done as part of a larger cost-cutting initiative at the parent hospitals or health systems of these laboratory organizations.
One good example of this trend is Intermountain Healthcare, based in Salt Lake City, Utah. It is now one year into a five-year program designed to achieve $400 million operating expense reductions by 2016. Every department will contribute, including the clinical laboratory.
“Intermountain’s goal is to limit annual cost increases to near the Consumer Price Index (CPI) inflation rate,” explained Stephen Mikkelsen, MS, MT(ASCP), the Laboratory Services Operations Director. Mikkelsen outlined Intermountain’s cost-cutting efforts at THE DARK REPORT’S Lab Quality Confab in San Antonio, Texas, in November.
“Many people think this low rate increase is unobtainable,” he noted. “For clinical departments, that means $400 million in cuts system-wide. In the clinical services, we have to cut $25 million.”
The not-for-profit health system serves residents in Utah and southeastern Idaho. Intermountain has 33,000 employees, 22 hospitals and about 1,000 physicians in its Intermountain Medical Group. It also has an affiliated health insurer, SelectHealth.
“The cost controls are an essential element in Intermountain’s effort to evolve into a shared accountability organization, one that accepts responsibility for the quality, cost, and overall care of a defined population,” commented Mikkelsen. “Accountability is shared among hospitals, physicians, patients, payers, and suppliers.
Suppliers Viewed as Partners
“Not only must we limit what we charge, but our partners and suppliers also must limit what they charge,” continued Mikkelsen. “If you want to partner with us, you need to help us achieve our goals. To work with us, a provider or partner cannot simply maximize profit at our expense.”
“That is part of the definition of ‘shared accountability’,” he said. “Payers need to reduce their premiums and physicians must charge less too.”
“Integral to the shared accountability strategy at Intermountain is a goal to improve the quality of care on the theory that high quality leads to lower costs,” observed Mikkelsen. “We have one of the nation’s most respected authorities on healthcare quality to lead this effort.
“That individual is Brent C. James, M.D., M.Stat., who is the Executive Director of Intermountain’s Institute for Health Care Delivery Research and Vice President of Medical Research and Continuing Medical Education. “Dr. James is taking steps to inject quality into everything that we do, along with eliminating the unwarranted variation that is so common in healthcare today.”
James was one of the authors of the recent report from the Institute of Medicine, Best Care at Lower Cost, The Path to Continuously Learning Health Care in America. The report cites examples from Intermountain’s quality improvement efforts.
Cutting Lab Costs
For its part, the clinical laboratory intends to cut operating expenses by $5 million over five years. “This will generate cost reductions supporting the clinical services goal of $25 million,” noted Mikkelsen. “Our lab’s annual operating budget is $135 million. To do so, our lab must improve quality and efficiency while eliminating unwarranted variation.”
Intermountain’s laboratory service performs more than 11 million billable tests annually. Its core lab in downtown Salt Lake City does 3.7 million of those tests. Collectively, the labs in each of its 22 hospitals perform the remaining 7.3 million tests.
“Our vision is to standardize care among all of our 2,500 contracted and employed physicians,” stated Mikkelsen. “The problem is that, when 2,500 doctors are asked how they treat their patients, you’ll get 2,500 different answers.
“We are working to determine, for example, if lab test results we deliver to doctors will contribute to patient care,” he continued. “Some tests obviously contribute to patient care, such as cardiac markers.
“But in other areas, the contribution to improved clinical outcomes from lab tests ordered by a physician may be less clear,” stated Mikkelsen. “On this point, we are working with primary care physicians to evaluate the tests we currently run to see what outcomes they produce. In a year, we hope to publish the results of our efforts.
Improving Use of Lab Tests
“Here is another question: How do we know that the physicians who get our test results use them correctly?” he asked. “To answer this question, we work closely with cardiologists, ob-gyns, primary care, and other physicians. Also, we analyze data by reviewing lab and patients’ records to see where we can improve how tests are used.
“A good example is prenatal testing. If the patient is healthy and not at high risk, the American College of Obstetricians and Gynecologists (ACOG) has a list of tests that physicians should order,” he commented. “To determine if our physicians followed ACOG guidelines, we recently reviewed the tests doctors order across our entire enterprise, including all 22 hospitals.
“The variation won’t surprise laboratory professionals,” said Mikkelsen. “Tests that were ordered ranged from $275 to over $500. That was a head scratcher because—if we have guidelines from ACOG—why the variation in ordering practices? That led to more questions. Can we standardize what we order for patients? Can we eliminate some tests? If so, can we save the health system and patients some money?
“We next asked cardiologists about new cardiac marker tests,” recalled Mikkelsen. “If new tests are more sensitive and specific, why do we use older tests that are not as sensitive or specific?
Physicians Recognize Value
“One consequence of these reviews is that clinicians now recognize that we are the experts on lab tests,” he noted. “That has increased their willingness to ask for our advice about tests. In this way, we started to come to a consensus.
“Here is a case in point,” he continued. “A worried patient came to my office with a lab order for 92 tests. Her doctor wanted to confirm his diagnosis that she might have lupus with the use of these 92 lab tests.
“What concerned the patient was that she had no medical insurance and had to pay for the tests herself,” stated Mikkelsen. “She was in tears, since she had no idea how she would pay for these tests. She asked if all 92 tests were necessary.
“When I met with her doctor, the doctor admitted being unsure about which tests to order and so asked my advice,” he added. “Together, we went through the published research and decided she needed only four tests, each of which was appropriate and affordable for this patient.
“But even more important were the lessons learned,” emphasized Mikkelsen. “As a result of this case, that doctor has a closer relationship with the lab and said he would now call the lab more frequently.
“We think we are well positioned to achieve the clinical services’ five-year cost reduction target of $25 million,” concluded Mikkelsen. “We think we can gain $1.5 million per year in savings through improved utilization. The other $3.5 million per year must come from greater productivity and reduced waste in our clinical labs.”
Transforming Core Lab into Service Center Helps Drive Down Average Cost Per Lab Test
AT INTERMOUNTAIN HEALTHCARE, the central laboratory serves as both a high-volume core lab and as a pseudo-reference lab. “As the health system’s biggest lab, it has the highest volume, the most automation, and the lowest costs per tests,” said Steven Mikkelsen, MS, MT(ASCP), Intermountain’s Laboratory Services Operations Director.
“Essentially, our core lab is a service center for all the other labs,” he explained. “We want to drive as much volume to it as possible. The average cost in the core lab in 2012— including molecular and high complexity, flow cytometry, and general chemistry tests—was $9.48 per test. In the other 21 hospitals, the average cost per test was in the $12 to $15 range because they do not have the same economies of scale.
“The labs in the other hospitals run only those tests needed to support the emergency departments, intensive care units, and some inpatient care,” explained Mikkelsen. “They send all their esoteric tests or samples that are more stable to the core lab.
It was 2009 when we made the core lab into a service center with the expectation that costs would come down,” he noted. “In the first couple of years, the costs in the core lab were about $10 or $11 per test.
That declined to $8.39 per test in 2011, which was great,” he added. “Our average cost per test rose last year to $9.48 because of the increased spending we incurred to add a significant number of molecular and high complexity tests. This year , our costs will come back down because of that investment. “We are also better at sharing the core lab’s efficiencies with the referring hospitals,” noted Mikkelsen. “The core lab bills the outlying hospital labs at cost for any tests it runs for them.
“Because the core lab’s costs are lower than the costs to run those tests in their own facilities, the hospitals see some savings,” he stated. “At year end, if there is any net operating income above break even, we return that amount back to the labs in the outlying hospitals. This year we returned over $2.6 million back to those hospitals.”