Message to Labs: Improve Outcomes, Get Paid More Money!

Time to drop lab 1.0, achieve Clinical Lab 2.0

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CEO SUMMARY: By now, there is widespread recognition among pathologists and clinical lab managers that the era of fee-for-service reimbursement is giving way to new forms of payment that reward value. First-mover lab leaders are in the earliest stages of developing enhanced lab testing services that contribute to improved patient outcomes while reducing costs. These innovators use the term “Clinical Lab 2.0” to describe the attributes of enriched diagnostic services that will make labs successful in clinical settings where adding value means greater reimbursement.

FOR PATHOLOGIST JAMES CRAWFORD, MD PhD, the fundamental question most clinical laboratory directors should address today is simple. “How can we get beyond just running our labs and begin—as experts in laboratory medicine— to influence the totality of healthcare?” he asked as he introduced a day-long session last month at the Executive War College on Clinical Lab 2.0. (See TDR, May 15.)

Speaking of the need for labs to migrate toward this new business model, Crawford, who is the Senior Vice President and Executive Director of Laboratory Services for Northwell Health in Lake Success, N.Y., stated “Moving to Clinical Lab 2.0 is about delivering more value. But getting paid for delivering that additional value is the issue with which all of us in the clinical lab industry must wrestle.”

The focus of the concept of Clinical Lab 2.0 is for the lab to engage with physicians and other healthcare stakeholders in new ways. “Going forward, the labs that succeed will be those that provide diagnostic services that improve patient outcomes while simultaneously lowering the overall cost of care,” he said.

“Labs can do this in two ways,” continued Crawford. “First, they can support precision medicine by increasing their collaboration with providers and patients. Second, they can support population management by leveraging the information from lab test data with other clinical, demographic, and financial data.”

Clinical labs are just beginning to discuss how to transition their operations away from Clinical Lab 1.0, which is about taking lab test orders from physicians and then delivering lab test results back to them, said Crawford.

Representing one of five of the nation’s more progressive clinical lab organizations involved in developing a program called Project Sante Fe, Crawford explained that the project’s member labs are developing enriched diagnostic testing services that contribute to improved patient outcomes and significant reductions in cost. Their goal is to publish the findings from these efforts in peer-reviewed journals.

By publishing these outcomes from well-designed studies, the Project Santa Fe labs hope to accomplish two goals. First, the studies will serve as roadmaps that other labs can follow to achieve similar improvements in patient outcomes.

Second, healthcare policymakers and hospital and health system administrators will have clinical evidence of how they can use clinical lab testing services to improve the precision medicine and population health management services they deliver.

Evidence of Clinical Utility

“Whether it is Medicare or private insurers,payers are asking labs to provide evidence of the clinical accuracy and clinical utility of their tests,” observed Crawford. “The Project Santa Fe labs are now engaged in collecting and publishing that evidence. This evidence is essential as the healthcare system shifts away from volume-based payment and adopts value-based reimbursement strategies.

The five labs participating in Project Santa Fe are:

Geisinger Health, Danville, Pa.
Henry Ford Health, Detroit
Kaiser Permanente-Northern California, Berkeley
Northwell Health
TriCore Reference Laboratories, Albuquerque, N.M.

“We know our labs already deliver a lot more value beyond the 3 cents on the dollar that lab testing represents in the health system,” Crawford said. “But getting recognized for that value and getting paid for it are two different things.

“At Northwell Health, we will have that discussion during the upcoming budget negotiations that begin later this year with our adminstration,” he said.

Crawford, who is also the Chair of Pathology and Laboratory Medicine at Hofstra Northwell School of Medicine, outlined the steps laboratories need to take as they move from Clinical Lab 1.0 to Clinical Lab 2.0.

Transactions to Integration

“We need to focus on how clinical labs can integrate information—which is our primary product—by using our expertise to proactively bring that knowledge forward to our stakeholders,” he observed. “Right now, lab test results are a commodity. Providing leadership in extracting the value of our information enables us to justify our existence as we move to Clinical Lab 2.0.

“To do that, labs must compete. But how do we compete within the hospital and in the outreach market on the basis of price for payers and other stakeholders?” asked Crawford. “We need to make our decision makers—meaning the CEO, COO, CFO, and other administrators one level down from the C-suite—recognize how and why the lab is an essential system asset.”

Crawford is referring to the efforts by several national labs to approach hospitals and health systems with offers to manage or purchase the inpatient lab and outreach lab business.

“These decision makers need to understand that they would be crazy to separate their clinical lab from their health system simply because they view lab tests as commodities!” he explained. “How to bring that message forward is one of the goals of Project Santa Fe.

“One way to demonstrate to the C-suite that clinical labs are not a commodity is to show that we are, in fact, incredible experts who deliver high quality and accurate analyte results,” said Crawford. “For example, as much as we may feel that our anatomic pathology and molecular diagnostic acumen is world class, we need to recognize that, as soon as our data goes over the electronic transom, what we produce is just another piece of data.

“Even those who are consumers of anatomic pathology data may have no idea about how hard it is to practice anatomic pathology at a high-quality level,” he added.

“That’s why our labs—in the Clinical Lab 2.0 business model—need to demonstrate that we are, in fact, subject matter experts in the practice of medicine,” he said. “When we do that, we will be welcomed more broadly.

“Why do I say that? Because our pathologists and lab scientists are the first ones to know when someone has cancer,” continued Crawford. “Similarly, we are the first to know the cause of a patient’s inflammatory disease. We are the first to know just about everything about a patient’s condition.

Serving all Stakeholders

“By looking at our data as subject matter experts, we can explain what that data means in ways that others cannot,” he emphasized. “We know that our lab test data makes it possible for us to identify risk.

“We can use lab test data to close gaps in care, and so on,” added Crawford. “We also know that we can use our lab data to drive innovation in patient care and to improve the financial health of our hospitals and health systems.”

At this point, Crawford explained that lab directors need to identify and serve their stakeholders. “In other words, who is paying for our information?” he asked

“Stakeholders are health insurers, health systems, employers, and increasingly they are consumers,” he noted. “In Clinical Lab 1.0, consumers were often not part of the equation. But today, so much of the cost of care is being shifted to consumers. This forces them to assume a bigger role as healthcare decision makers. A lab operating as Clinical Lab 2.0 recognizes this fact and provides services that a consumer recognizes as value.

For Consumers, Price Is Right

“For consumers, price is such an important issue that it doesn’t take much for them to feel that they should go to a lower-priced product even if there are problems with that product,” added Crawford. “For all these reasons, we must acknowledge that consumers are an important stakeholder for clinical labs.

“As with any group of stakeholders, they want value. By definition, value is what someone is willing to pay regardless of whether we’re talking about lab test results or other products and services,” he said.

“To serve our stakeholders well, we need to determine if we are meeting their needs,” he said. “A key part of Clinical Lab 2.0—and a major goal of the Project Santa Fe labs—is to generate and publish the evidence demonstrating how our labs meet their needs.

“Proving you are the lab that stake-holders should use is harder to do than you might think,” he warned. “It takes leadership from the lab to drive programs for the total delivery of care, not simply the generation of lab test results. Clinical Lab 2.0 is about leadership, not followship. Our job is to provide leadership.

Communication Is Key

“However, as pathologists and clinical lab directors know, the problem is that serving our stakeholders has never been easy,” stated Crawford. “That’s because the stakeholders our labs serve—starting with the C suite—don’t appreciate us fully and don’t appreciate the expertise required for our practice.”

He offered an example of how clinical lab expertise is unappreciated. “The State of the New York remains the only state in the union that prohibits pathologists from talking to patients about their test results,” he noted. “In hearings, I have testified along with others that we talk to patients about their results. I haven’t gone to jail for it, but I have had members of hearing committees ask me, ‘How you can do that? You are not knowledgeable about the meaning of your test results.’

“I argue to the contrary—that we are precisely the individuals who bring insight and understanding to the clinical information we produce,” he said.

“Think about that for a minute. State legislators believe that, as a board-certified pathologist, I don’t know the meaning of my data,” he said. “We have had some modest success in correcting that problem. However, it illustrates what the profession of laboratory medicine is up against.

Time to Buck Tradition

“The business model of Clinical Lab 2.0 is about ceasing to be the traditional transactional laboratory and instead, becoming an integrated part of our hospitals and health systems,” he asserted. “If we remain in the first category—as a transactional laboratory—we are at risk of not controlling our destiny. But if we are an integrated laboratory and we provide leadership in our hospitals and health systems, then our labs can begin to influence the decisions that are made that affect the financial and clinical existence of all our labs.

“Fortunately, the healthcare system is ready for clinical labs to assume a more integrated role,” Crawford said. “Thanks to the rapid changes occurring in healthcare, there has never been a better opportunity for labs to provide leadership in programs and projects that provide better care.

“This is true of our lab at Northwell,” he added. “On a daily basis—and sometimes on an hourly basis—we identify opportunities to support better clinical and financial outcomes for our health system.”

Contact James Crawford, MD, PhD, at 516-719-1060 or


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