Level Two of Value Pyramid Defines Internal Benchmarks

Defining the ‘Laboratory Value Pyramid’ as a Way to Deliver More Value

CEO SUMMARY: In this second installment of our series on the laboratory value pyramid, we introduce “Level Two: Establish and Meet Standards of Value.” This second level continues the lab’s focus on its internal operations and activities. The goal is for the lab to develop the working culture and staff training required to identify relevant internal standards of value. It will then benchmark its progress against these standards of value as preparation to pursue Level Three and Level Four.

Part Two of a Series

IN THIS SECOND INSTALLMENT about the laboratory value pyramid, we provide the details about the second level of this four-level concept.

Wherever it has been shown to experienced lab administrators, pathologists, and lab professionals, there has been positive feedback about the laboratory value pyramid. This early feedback from knowledgeable audiences is useful evidence that the concept of a laboratory value pyramid is relevant—particularly at a time when healthcare is undergoing a major transformation that includes new ways to reimburse providers, including labs.

The laboratory value pyramid was introduced in part one of this series. (See TDR, September 22, 2014.) 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.

At the same time, the design and function of the laboratory value pyramid will complement the future state of the providers that are served by the lab. This is essential because labs undergoing their own transformation need the full support of the parent hospital or organization.

Clinical laboratories and pathology groups must be closely-tuned to needs of its users. As hospitals and physicians adapt to the new realities of healthcare in the United States, successful labs will be those who have transformed themselves ahead of their referring physicians and can thus deliver lab testing services that add value and improve patient outcomes.

As we noted in part one of this series, lab administrators and pathologists who understand these once-in-lifetime changes in the paradigms of healthcare and laboratory medicine are faced with their own unique challenge: What is the next paradigm in laboratory medicine? What should change in how laboratories are organized and how they deliver clinical lab testing services?

It was to answer these questions and give lab professionals a useful roadmap that several collaborators, including THE DARK REPORT, a veteran lab industry executive and a team within a major in vitro diagnostics company, came together and developed the laboratory value pyramid.

As a reminder, in this series, THE DARK REPORT will present each level of the value pyramid as a separate intelligence briefing. This is intentional. The collaborators involved in creating the concept of a Laboratory Value Pyramid want each level to be fully understood before introducing the next level in this four-step progression.

Best In Class’ Laboratories

In its current configuration, the Laboratory Value Pyramid puts an internal emphasis on level one and level two. An external emphasis is put on level three and level four. By way of explanation, every clinical laboratory must first put its own house in order. Only then can it begin the journey to deliver greater value to physicians, patients, and payers while, as part of this effort, achieving “best in class” in its operations and service delivery.

As discussed in part one of this series, the first step in this journey is for the laboratory to establish normalcy and stability in its daily operations. The goal is to eliminate the daily chaos that has traditionally been accepted as a normal part of clinical laboratory operations.

The chaos is due to the variety of ways that individual work processes fail at inconvenient moments. One source of chaos is caused when specimens are lost in transport from phlebotomy sites to the lab, or when specimens “disappear” in accessioning or at the bench. In response, med techs and lab staff begin to search to find the specimens (which are often misplaced).

Batched testing can often cause chaos if the incoming flow of specimens unexpectedly exceeds the capacity of the lab analyzers or assigned staffing. What is important is to understand that a lab that reaches level one has eliminated this type of chaos because it has adopted a system of prevention mindset and culture. It can thus regularly attack the systemic source of errors in each work process and create predictability and normalcy.

It is this state of normalcy and predictability that is necessary for a laboratory to prepare to attain level two. With systemic sources of errors and chaos eliminated because of level one activities, the lab can now focus on the competencies of its staff in all the necessary management skills required to sustain normalcy while learning how to deliver more value to all of its customers, as defined in the characteristics of a level two laboratory.

Becoming A Level Two Lab

As you will read on pages 14 and 15, the challenge of achieving the laboratory value pyramid’s level two is to create a staff culture that is rooted in the system of prevention and where all the contributors understand: a) the management techniques and tools of continuous improvement; b) how to add value as defined by the customer; and c) how to use real-time metrics to guide decisions.

As one of the collaborators points out, the key to level two is to put people, process, and products together so as to achieve a best practice organization. The secret to a best practice organization is that it has more value than just the sum of the individual parts.

People: When considering people, three distinct groups must be recognized, and must be treated as customers. The first group is the lab’s staff. The second group is made up of all employees working within the parent institution and outside the walls of the laboratory. The third group is comprised of all the lab’s customers who are not employees of the institution.

How People Contribute Value

The level two lab will understand how each of these groups of people impact the organization of the laboratory and how it delivers its services. This understanding is used to optimize the lab’s interactions with each group in ways that complement the lab’s efforts to achieve its goals of delivering more value.

Process: Think of this in three dimensions. The first dimension is the front-end order and supply side of the lab operation. The second dimension is the lab operation itself, metaphorically, the lab factory that produces products.

The third dimension is the activities downstream from the actual testing (analytical stage) performed by the laboratory. This downstream activity deals with the lab’s factory output, including data, information, knowledge, physical tube, and waste. Each of these three dimensions requires focused effort for the lab to move to its eventual goal of a “best in class” organization. Outside subject matter experts (SMEs) are the best way to gain the needed knowledge and apply such knowledge to achieve world-class performance in the lab.

Products: Yes, products exist as the third dimension of Process described above. But products also deserve a special call-out because of their importance to creating value for the lab, especially in the evolving U.S. healthcare environment.

Differentiating with Value

Here is where the lab must be creative to establish value that differentiates its products from that of other labs. The wrong paradigm is to think of the product as a lab test result. Labs that retain this paradigm will disappear.

Two elements can help the lab identify opportunities to add value to its products. One is to regularly survey customers to understand their definition of quality and their unmet needs. The second is to have a seat at the table in the parent organization to gain the insights needed to determine what is most important to the institution.

THE DARK REPORT invites your comments as each level of this four-level laboratory value pyramid is described. The challenge of mapping what labs should look like in the future is great, but the rewards for getting it right are worthwhile.


Laboratory Value Pyramid

Pyramid 112414
Understanding Level 2:

Establish & Meet Standards of Value

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 two attributes include:

  • Uses benchmarking of its internal activities to establish criteria for value.
  • Lab staff culture centered upon lab performance mentality (and not a lab-result-only mentality).
  • Quality parameters incorporated across all functional areas of lab, such as patient results, customer/employee satisfaction, best practices in production, supply chain, financial, and similar.
  • Lab managed as well-run business with same accountability of management and staff found in top-performing businesses. Outside subject-matter experts (SMEs) engaged regularly to help establish best practices in clinical, operational, and financial areas.
  • Laboratory staff recognizes value-added work processes from non-value- added. Staff uses Lean, Six Sigma, and performance improvement methods to continually increase value in measurable ways.
  • Lab’s information technology, including LIS, can deliver real-time data about work processes and lab operations and has capability to generate lab test data and combine it with other clinical data in ways that deliver more value to the parent organization, physicians, patients, and payers.

Level Two: (Lab Focus Is Internal)

Establish & Meet Standards of Value

ONCE A LAB ORGANIZATION MEETS the criteria of Level One: Achieve Normalcy and Predictability, it has the necessary foundation to tackle Level Two: Establish and Meet Standards of Value.

Level two is an internal focus, just like level one. That’s because the lab is still putting its own house in order before shifting full concentration to its external customers, as defined in level three and level four of the laboratory value pyramid.

Stated in another way, once a laboratory has achieved level two, it has achieved alignment of these factors: 1) lab staff is trained and using system-of-prevention mindset; 2) all operational processes are undergoing continuous improvement; and, 3) the lab’s information technologies are capable of supporting big data applications that use lab test results to deliver more value to the lab’s customers. These include the lab’s partner organization (such as a hospital or health system), physicians, payers, and patients.

The level two lab can be described as having these attributes:

Uses benchmarking of its internal activities to establish criteria for value.

Mentality of lab staff and culture is centered upon lab performance mentality (and not a lab-result-only mentality).

Quality parameters are incorporated across all functional areas of the lab, such as patient results, customer and employee satisfaction, production best practices, supply chain best practices, financial best practices, and similar.

  • Lab is managed as a well-run business that includes the accountability of management and staff found in top-performing businesses.
  • Lab regularly creates a complete business case analysis including financial justification for major lab investment requests and submits it to the “C suite” for consideration. Outside subject-matter experts (SMEs) are regularly engaged to help establish best practices in clinical, operational, and financial areas.
  • Lab staff can recognize value-added work processes from those that are non-value-added. Staff uses Lean, Six Sigma, and performance improvement methods to continually increase value in measurable ways.
  • Lab’s information technology, including the laboratory information system, is capable of delivering real-time data in two dimensions. One dimension is data about work processes and lab operations. The other dimension involves the lab test data and the ability to combine it with other clinical data in order to deliver more value to the parent organization, physicians, patients, and payers.

When performing at level two, a clinical laboratory has moved beyond a traditional mindset of the clinical service that delivers accurate lab test results on time. The level two lab now has a razor-sharp focus on delivering value to its parent organization and customers.

High-Performance Laboratory

The level two lab has used its level one accomplishments as the springboard to cre- ate a high-performance organization that fully engages lab staff at all levels in the pursuit of excellence. All the people within the lab are fully trained in the principles of the system of prevention and are competent in applying these principles to further the performance of their laboratory.

Evidence of this operating state and level two achievement is when the lab staff is highly interactive in working with other departments within the hospital and health system on optimizing shared practices.

The level two lab regularly conducts customer satisfaction surveys with all of the lab’s users and customers and uses the findings to drive the next round of continuous improvement projects that add more value to the lab’s end users.

When Your Boss Is Watching

You will know your lab is competent at level two when the owners, directors, and C-suite executives outside the lab want to know about the core competencies established by your lab, along with how your team nurtured the staff culture of continuous improvement and delivering more value to customers.

Another sign of the level two lab is when your boss and his/her boss both ask you and your lab team to help other areas of the parent organization achieve the same level of performance.

When done right, leaders of the level two lab will have earned themselves a “seat at the table” within the institution to participate when resources are allocated, budgets are set, strategies are formulated, business decisions are made, and capital equipment funds are allocated. Inclusion in these strategic management activities of the parent organization is another sign of level two achievement.

Remember that the level two lab also has a robust information technology capability that allows real-time assessment of clinical data. This is necessary for the lab to begin its pursuit of level three.

More Detailed Descriptions about the Attributes of a Lab Working to Achieve Level Two

UPON ACHIEVING LEVEL TWO of the laboratory value pyramid, the lab has demonstrated its mastery of core management, business, and financial essentials. In particular, the level two lab is passionate about using a handful of key metrics to maintain its focus of delivering highest quality services at the most competitive cost.

Collaborators in the development of the laboratory value pyramid note that Key Performance Metrics, or CTQs (critical-to- quality) are the cornerstones to sustaining level one and two achievement. Moreover, they note that just a handful of CTQs— about 10 or so—are needed to guide and direct lab staff in the core process of producing valued patient diagnostic information (lab test results and information that is actionable by clinicians).

A level two lab is open and alert to “borrowing from the best.” Lab staff is always watching, learning, and “stealing” from best-in-class manufacturing and distribution leaders, including such companies as Toyota, Federal Express, General Electric, and Johnson & Johnson. The level two lab regularly engages outside subject matter experts (SMEs) to help its lab team learn useful management techniques and successfully deploy them across the lab.

Part of the activity to achieve level two is to identify the most useful CTQs and determine “in control” limits for each CTQ. Next, a process is set up to measure them, ideally in real-time, but no less than over a 24-hour “production cycle or turn.”

Keep in mind this is not Levy Jennings or Westgard QC charts for control values! Rather, these CTQs are separate and measure the true heartbeat of the lab’s daily operation. They need to be continuously monitored as well. One of the collaborators in the development of the laboratory value pyramid says, “Think of it this way, CTQ’s are to Value as Westgard Rules are to QC.”

As a level two laboratory, the resources of people, processes, and products have been developed to a high-level of internal performance. This positions the laboratory to begin its progress toward achieving level three in the laboratory value pyramid.


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