Key Lab Trends Described At Executive War College

Speakers emphasized opportunities for labs while recognizing Medicare price cuts as a given

CEO SUMMARY: Innovative clinical labs and pathology groups are absorbing this year’s Medicare Part B price cuts while continuing to pursue opportunities to add value. A common theme from many speakers at last week’s Executive War College in New Orleans is that the lab must get mastery of its LIS and informatics specifically to enable it to convert raw lab test data into clinical intelligence that physicians can use to improve patient outcomes and reduce the cost of care.

ONE SURPRISING OUTCOME from last week’s 23rd annual Executive War College in New Orleans was that innovative clinical labs and pathology groups have tremendous opportunities, but only if they proactively pursue them!

If this year’s deep Medicare fee cuts are the dark cloud hovering over the lab industry, then precision medicine and new diagnostic technologies are the trends that promise sunny days ahead—at least for those lab organizations willing to act now to deliver added-value lab testing services.

For the more than 800 attendees, the Executive War College was an opportunity to learn about the fast-moving transformation of the U.S. healthcare system, as well as the positive opportunities labs have to serve the new modes of healthcare delivery.

“The speakers this week taught us that delivering high-quality, state-of-the-art clinical testing services to referring physicians takes plenty of focus and resources to do correctly—whether it’s anatomic pathology, clinical laboratory, or genetic and molecular testing,” stated Robert L. Michel, Editor-in-Chief of THE DARK REPORT, at the closing session of the Executive War College.

“It continues to be true that insurance companies want to pay less per test and at the same time are making coverage for new assays more difficult,” he continued. “Insurers also make network access more difficult for those of you who want to offer testing to patients in your region.”

For labs that specialize in clinical testing, anatomic pathology, and genetic and molecular tests, the two-day conference was an opportunity to understand how the biggest trends affecting the healthcare system are buffeting labs and changing the way care is delivered.

“The drum beat we’ve heard at this conference for several years now is that health systems are focusing on the integration of care, specifically to be proactive and not reactive in how they deliver care to patients,” noted Michel. “No longer do integrated health systems wait for patients to show up sick in the hospital, the emergency room, or an urgent care setting with some chronic and costly condition.

“Instead, the nation’s most innovative health systems want their clinical labs to help physicians identify illness in patients early to ensure that these patients get the screening tests they need,” he added. “If a patient’s lab test numbers move in the wrong direction, then the system wants that patient to get the care needed before test numbers indicate the patient has acquired a chronic condition that is more costly to treat.”

Labs as Information Firms

“In her keynote presentation, Mara Aspinall, President and CEO, Health Catalysts, explained why labs of all kinds are becoming information companies that collect the data the health system needs through testing, then managing and storing the data that testing produces,” noted Michel. “Aspinall expects the successful lab of tomorrow will be in the information business with a wet lab on the side.”

In her keynote presentation, Are the Paths of Hospital and Health System Labs Diverging from the Paths of Independent Labs?, XIFIN Executive Chairman Lâle White said that, yes, hospital and health system labs have different needs and goals than those of independent labs.

She explained that changes in reimbursement—particularly from Medicare and Medicaid—are having an effect on the entire industry that is causing a divergence among labs. Independent labs will move away from what hospital and health system labs do. In other words, the different sectors of the lab industry will serve different constituents.

Price Stability in Lab Sector

“We will continue to see stability in the molecular diagnostic pricing arena and in pharmacogenetics, and we will see investor funding coming back to the marketplace,” said White. “That means we’ll see more molecular proprietary testing labs resurface and specialty labs come into play.”

White predicted that labs will continue to specialize, just as physicians specialize. “Independent labs will build their menus with specialty tests to balance the diversity of their menus. At the same time, they will provide education to physicians about how to order these tests.”

She also predicted that the number of independent labs offering full test menus will decline because a full menu of tests means these labs will no longer be interested in offering low-margin testing. “As in other industries serving the healthcare sector, labs will consolidate with other labs and form partnerships and joint ventures,” continued White. “Expect to see ongoing industry consolidation in routine testing because labs will need economies of scale to support the needed lower-cost structure and the new reimbursement structure.”

Two Speakers Describe Increased Interest of Pharmaceutical Companies in Lab Testing

IN HIS CLOSING REMARKS during last week’s Executive War College, Robert L. Michel, Editor-in-Chief of THE DARK REPORT, spoke to the comments of several speakers about the growing interest of pharmaceutical companies in clinical diagnostics, including controlling diagnostic patents and intellectual property.

Michel highlighted the presentation from Mara Aspinall, President and CEO of Health Catalysts in Tucson, Ariz. In her presentation, she said, “Diagnostics is an information business with a wet lab on the side.” By itself, diagnostic testing has some value to the healthcare system. The bigger question is what value do the results of diagnostic testing have, she said. “Diagnostics is great because we have the data. But so what? What do we do with that data?” she asked. “As clinical labs, we need to be the data interpreter because data alone is not useful.”

With data, labs can provide the link to appropriate therapeutics. “To do that, we need to get cozy with drug developers because diagnostics will thrive as more therapeutics thrive,” she said.

“Clinical labs and pathology groups should incorporate Aspinall’s recommendations into their labs’ business and clinical strategies,” stated Michel. “She provided powerful evidence that pharmaceutical companies want more involvement in diagnostics, particularly the companion diagnostic tests used to identify patients who will benefit from specific cancer drugs.

“This theme is one that William G. Morice II, MD, PhD, also made,” continued Michel. Morice is the President of Mayo Medical Laboratories and Chair of the Department of Laboratory Medicine and Pathology at Mayo Clinic in Rochester, Minn. “In his presentation, Morice explained that pharmaceutical companies and private equity investors are increasingly willing to invest in diagnostic companies and, as they do, they have the potential to reshape the lab testing market.

“This point about the role of pharmaceutical companies is another important strategy for labs to follow,” Michel explained. “Pathologists and clinical labs have long controlled diagnostics on behalf of patients.

“However, today, pathologists and the clinical lab industry have collaborators who want to control diagnostics,” he continued. “Their motives are not the same motives that labs have.

“Labs are motivated by improving patient care. But pharmaceutical companies are motivated by profit and by controlling and owning the diagnostic patents and data used in lab tests,” commented Michel. “Pharma companies have huge amounts of money to bring to lab testing and we need to be aware of how that money could be used to reshape laboratory testing.”

JVs with Outreach Labs

She described how, for example, labs that specialize in reference testing will seek economies of scale by partnering with outreach labs. Also, independent labs will create joint ventures with hospital labs, she predicted.

One reason for these changes is how labs will be affected by the lower Medicare lab prices introduced on Jan. 1 under the Protecting Access to Medicare Act, White said, adding, “And, PAMA’s impact wasn’t just to Medicare. It has affected what Medicaid pays too.

“As an industry, we realize that Medicaid cannot pay higher than what Medicare pays and most Medicaid payers were paying significantly lower than the Medicare rates to begin with,” observed White. “But now that Medicare has cut what it pays labs nationwide, Medicaid programs in many states also are cutting payment for lab testing. In some states in which the Medicaid program already just pays 60% of what Medicare pays, labs in those states are seeing new, deep cuts in payments from their state Medicaid programs.”

During a unique session that featured executives from two health system labs and two independent lab companies, a number of interesting insights emerged from the free-wheeling panel discussion.

One such insight was the shift in how lab testing is performed at HealthPartners in Bloomington, Minn. “Our health system is moving specific tests out of the core laboratory so that they can be run in physicians’ offices and other near-patient settings,” noted Rick L. Panning, Senior Administrative Director, Laboratory, for HealthPartners.

“The higher costs of shifting these tests is offset by a faster time to diagnosis in the physicians’ offices and greater daily productivity for the physicians,” he added. “Another strategy involves patients with the greatest needs, such as those who are frail and elderly. Our health system sends phlebotomists to those patients for blood draws. We do 500 at-home blood draws per day, for example, and have an increasing portfolio of point-of-care testing to go along with our phlebotomy service.”

“Panning’s point is important for any integrated healthcare system,” Michel commented. “Making physicians as productive as possible and increasing test turnaround time so that physicians can get patients on the appropriate therapy sooner represents a new opportunity for labs.”

Another useful perspective was offered by Jon R. Cohen, MD, Senior Vice President and Group Executive, Diagnostic Solutions for Quest Diagnostics. For labs seeking to get ahead of the curve, Cohen offered a suggestion: understand your lab’s cost of testing. The reason? Many labs do not know how much they spend per test.

“In the lab management partnerships we’ve done with healthcare systems and hospitals around the country, virtually every single hospital health system has no idea of what their cost of testing is,” stated Cohen. “This lack of knowledge about the cost of testing is a vestige of how labs and hospitals are paid. It’s not the lab director’s fault,” he said. “The lab director gets a budget and runs the lab within that budget.

“But to actually understand the specific costs of each type of assay is a difficult and time-consuming exercise,” continued Cohen. “For that reason, most labs don’t do that work. However, as competition increases, labs will need to know precisely how much it costs to run each test.”

Collaborations, Joint Ventures Coming to Clinical Lab Industry

USE OF COLLABORATIONS AND JOINT VENTURES BY LABS was one insight during the opening general session of the Executive War College. During his remarks, James M. Crawford, MD, PhD, Senior Vice President, Laboratory Services, for Northwell Health in Great Neck, N.Y., explained that the Northwell system was emphasizing preventive care and population health in a sophisticated strategy that uses molecular and genetic testing.

Crawford’s lab needs to support clinical initiatives in preventive health, precision medicine, and population health with gene sequencing capabilities. “For our lab to participate in new precision medicine initiatives, the question we asked was this,” said Crawford. “Was it better to buy gene sequencing instruments and hire the lab scientists to do sequencing within our lab, or could we collaborate with outside companies and still get high-quality, timely gene sequences? Our decision was find a partner.”

“Northwell’s strategy is instructive because it did not establish its own gene sequencing system,” Michel said. “Instead, Northwell partnered with a division of BioReference Laboratories to have this sequencing division do the testing for them. The gene sequences and DNA data go to the Northwell laboratory, which does the interpretation and sends the results to the ordering physicians.

“That’s a new lab business model and it involves collaboration,” noted Michel. “What Northwell lab’s experience tells us is that your lab doesn’t have to do it all internally and you don’t need to own everything. This example shows how, in the new healthcare system, it is less about vertical integration (with the health system owning all needed services) and more about horizontal integration that stresses collaborations and joint ventures with other entities that have the requisite experience and resources.”

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