New Lab Management Directions Now Visible

Lab War College reveals that early-adopter lab directors are embracing “new” methods

CEO SUMMARY: Seat-of-the-pants laboratory management is on its way out, replaced by numbers-driven methods. Judging by the presentations given at this year’s Executive War College on Lab and Pathology Management, a growing number of laboratory administrators and pathologists are actively introducing quality management methods into their laboratory operations and generating remarkable results.

IF THERE WAS A SURPRISE CONCLUSION to be drawn from the 35 presentations at this year’s Executive War College on Lab and Pathology Management, it was the decided emphasis on “numbers-driven” management of laboratory operations.

Almost every faculty speaker this year stressed the importance of using accurate data as part of the decision- making process. Having accurate information was recognized as an essential component of their laboratory’s management successes. This was true whether the subject was productivity improvement and cost reduction or helping clinicians get more value from laboratory test results.

Held in New Orleans on May 6-7, this was the eighth annual Executive War College. Each year, as many as 400 lab administrators, pathologists, and lab industry executives attend. By intent, presentations emphasize cutting-edge efforts by the lab industry’s early-adopters.

For this reason, the Executive War College is a reliable place to gauge the state of laboratory management and identify specific trends. Each year, as speakers lay out the management challenges and strategic priorities for their laboratories, common themes emerge. These themes invariably are in response to recent changes in the healthcare marketplace and make it possible to identify new trends.

For example, last year, in May 2002, one theme which emerged was the statement by many speakers that the lack of accurate financial and productivity data for their hospital laboratory made it difficult to make informed management decisions. Following the 2002 War College, I observed that the speakers’ repeated frustration over the lack of accurate and timely performance measures was, of itself, something not heard in past years.

Need For Accurate Data

This was a sign that lab managers, under pressure to improve productivity, reduce lab costs, and improve quality, needed better data than was produced by their hospital’s accounting system. It was an accurate analysis, and was validated by the comments of speakers at this year’s War College.

For the first time in the eight years that THE DARK REPORT has produced the Executive War College, almost every speaker declared that strategic management priorities were established based on evaluation of their lab’s current performance. Reasonably accurate data was available to support these decisions, and provided the base- line for measuring improvements.

I believe two factors can explain this change. First, during the 1990s, most lab directors and pathologists were managing reactively. One big gorilla in the room was managed care, which was pushing reimbursement downward for lab tests and negotiating sole-provider contracts. The other big gorilla in the room was the boom in hospital mergers and acquisitions. As multi-hospital health systems were formed, many hospital administrators directed that individual laboratories be consolidated into a single management structure.

For most of that decade, the need for detailed and precise productivity data was less relevant than the need to swiftly align lab testing costs with lower reimbursement and deal with the human issues of a multiple-site hospital laboratory consolidation project.

These two trends eased by the end of the decade. But they set the stage for the next cycle in the clinical laboratory profession. During the past four years, hospital administration has begun to ask their laboratories to reduce the overall cost of laboratory testing, maintain quality, and add new diagnostic technology as appropriate.

To accomplish these goals, laboratory administrators and pathologists have begun to pay closer attention to the operational details of their laboratory. I believe this is why, at the 2002 War College, so many speakers expressed frustration about the lack of detail and accuracy of the financial data provided them by their parent hospital.

Apparently hospital CFOs have been listening. At the 2003 War College, most speakers provided rather complete and detailed data about lab productivity, average cost-per-test, and the lab’s impact on improving clinical outcomes. I interpret this a sign that the nation’s laboratory administrators are developing more sophisticated skills in laboratory management, particularly in the use of detailed productivity data to drive strategic decision-making.

Three Uses Of Data

During the 2003 War College, speakers talked about three distinct areas of laboratory management which were driven by laboratory data. In the pages which follow, I summarize each. First is the use of data to guide clinical use of laboratory tests. Second is the use of data to drive lab operations. The third is an emerging phenomenon: the use of data to direct extensive redesign of workflow and laboratory processes, based upon the application of quality management methods.

The “new” emphasis on accurate, detailed, and timely data about laboratory productivity and finances is a logical development. During the 1980s, fee-for-service medicine made it relatively easy for a laboratory to stay financially sound. Not surprisingly, during that decade lab managers generally emphasized quality and providing appropriate laboratory testing services to clinicians.

Survival In The 1990s

In the 1990s, declining reimbursement and widespread laboratory restructuring
took center stage. The emphasis during this decade was on survival, in response to major financial and structural changes in laboratory operations.

In the next few years, the most successful lab administrators and pathologists will be those who are skilled at leading people and supporting sustained productivity gains in their laboratory organization.

I would suggest that the 2000s will be the time of “sophisticated laboratory
management.” In contrast to the 1980s and 1990s, survival and prosperity in this decade will be dependent on proactive lab management. In the next few years, the most successful lab administrators and pathologists will be those who are skilled at leading people and supporting sustained productivity gains in their laboratory organization.

The market pressure for this type of management acumen directly springs from several parallel and complementary trends. Patient safety means that providers must track outcomes and develop ways to eliminate medical errors. Public ranking of provider performance provides plenty of incentive to improve laboratory operations and deliver measurable gains in the quality of laboratory testing services. Consumer-driven healthcare only reinforces all of the above, since the consumer will spend his or her money with those labs which offer the best combination of lower price and higher quality.

During the past two years, THE DARK REPORT has been the first source in the laboratory industry to identify these trends. Our clients and readers have had early warning about these market developments, giving them time to prepare strategies in response to these trends.

As early adopter laboratories gain experience in coping with evolving trends, they are invited to speak at the Executive War College. This provides public access to the real-world responses by these early-adopter laboratories, along with the management lessons about what works—and what doesn’t— in dealing with various evolving trends.

Based on the presentations by 35 able speakers at this year’s War College, I believe the laboratory industry is at the verge of an interesting crossroads. For the first time ever, employers are placing specific demands upon hospitals, physicians and other healthcare providers to improve patient safety, accompanied by the threat of losing access to patients for those providers who don’t respond effectively.

Impetus For Change

Further, the drive to implement evidence-based medicine reinforces this dynamic, because it forces physicians to measure and evaluate clinical procedures in a more rigorous way. Finally, the return of big annual increases in healthcare costs creates pressure to control spending. Collectively these are reasons why lab managers want accurate and detailed financial and productivity data for their laboratory.

Executive War College 2003 – Theme #1
Emphasis on Care Protocols To Direct Clinical Use of Tests

EVIDENCE AT THE 2003 War College indicates that the nation’s clinical laboratories can again direct lots of energy and attention to clinical excellence. Having survived the tumultuous decade of the 1990s, with its closed-panel HMOs, capitated reimbursement, and ubiquitous lab consolidation, lab directors and pathologists are again putting significant resources into helping clinicians make better use of laboratory tests. In particular, many laboratories are engaged in significant efforts to work with clinicians to develop effective guidelines.

The contrast from past War Colleges is striking. This is the first year when most laboratory case studies listed clinical support for physicians as one of their primary strategic priorities. In past years, the problems of coping with declining reimbursement and wide-scale laboratory restructuring had relegated clinical support to a secondary role.

That is no longer the case. In Nashville, Tennessee, at Vanderbilt University Medical Center (VUMC), the health system is far along in its goals of reducing unnecessary variability in patient care. To accomplish this, it created WizOrder, a clinical decision support system for physicians.

WizOrder provides the physician with real-time clinical data, including laboratory results. It contains care protocols developed by the VUMC physician staff, along with reference information.

Implementation of this clinical decision support system has impacted VUMC’s laboratory in several ways. Its pathologists and Ph.D.s play a key role in developing treatment pathways that utilize laboratory tests, boosting the value of lab medicine to clinicians. As another benefit to WizOrder, in hospital departments where the clinical decision support system is implemented, the volume of laboratory testing has declined 40%.

The laboratories at Geisinger Health System (in Danville, Pennsylvania) have a similar focus on supporting “best clinical practices” within the healthcare systems. The lab uses the term “stewardship” to describe its role in supporting improvements in clinical outcomes, reducing unnecessary variability in care, and controlling lab test utilization.

Across all the case study presentations made at the 2003 Executive War College, there was a decided emphasis on using accurate data to create clinical guidelines and support physician use of these guidelines. In the two case studies referenced here, electronic medical record (EMR) systems used by both healthcare systems makes it easier to increase the value-added of laboratory testing services.

The activities of laboratories presenting at this year’s gathering demonstrate how the growing pressure to incorporate evidenced-based medicine is influencing lab operations.

Executive War College 2003 – Theme #2
More Data Collection Supports General Laboratory Operations

DELIVERING IMPROVEMENTS in day-to-day laboratory operations is now a data-driven process throughout the United States.

Most speakers at the 2003 War College presented detailed data on their lab’s productivity and financial performance. For this group of early adopters, managing “off the cuff” is passé. What set this year’s crop of speakers apart from past years is their confidence that the numbers they have on their lab’s performance are accurate.

That would be a sign that hospitals are improving the reliability and accuracy of their internal accounting systems. In turn, this reflects the pressures on all segments of the healthcare system to deliver better quality outcomes at lower costs.

As a theme of this year’s Executive War College, the recognized improvement in the quality of financial and productivity data available to laboratory directors is also directly linked to the other themes presented in this article. Both the effort to provide better clinical guidance to referring physicians and the growing adoption of quality management systems from the corporate world can succeed only if lab managers are able to work with better performance data.

It is important to distinguish that this financial and productivity data is different from the measures of past years. The top-performing laboratories in the United States are not organizing their laboratory around traditional measures of laboratory QA/QC, often provided in peer-ranking services. To the contrary, these exceptional laboratories are organized around data sets which reflect the specific strategic goals of their parent organization. Not the least of these is customer expectations, from physicians who use the laboratory and the patients themselves.

From this perspective, there is a double-shift from the patterns of past years. First, today’s “best-of-class” laboratories are getting fuller and more detailed data sets on their lab’s financial performance and productivity. This improves the ability of the lab’s leaders to make better decisions—and have more confidence in those decisions.

Second, these “best-of-class” laboratories are shooting for different targets than hospital laboratories of past years. Rather than managing closely to peer laboratory ranking programs, these labs are tightly organized to serve the goals—and specific quality monitors—of their parent health systems. Customer satisfaction is usually a key component.

One insight that springs from this marketplace development is that laboratory managers are building additional skills to complement their scientific training and existing management knowledge. Across our industry, a select group of laboratory leaders is mastering the art of collecting good data, then using that data to drive deliberate change in their laboratory organization.

Executive War College 2003 – Theme #3
Major Efforts Now Underway To Redesign Lab Workflow

THERE IS A SMALL, but growing number of clinical laboratories willing to undertake a radical redesign of both individual laboratory processes and overall workflow through the entire lab organization.

These early-adopter laboratories are willing to endure the considerable pain of a radical redesign of their lab- oratories to achieve cost savings and quality improvements of a high order. The goal is not to save 5% or 10%— the goal is to pursue savings of 30% to 50%, with measurably better quality—and realize these gains in just a few months!

What is common to these pioneering efforts to boost productivity and quality by radical amounts is the utilization of the management methods and philosophies developed by the world’s best-performing corporations. These range from ISO-9000 to Six Sigma and Lean.

At this year’s Executive War College, there were spectacular examples of laboratory organization redesign and process re-engineering. At HealthPartners, an integrated delivery network in Minneapolis, Minnesota, organizational redesign of laboratory services yielded a 45% reduction in annual lab expenses! During the one-year project, lab expenses declined by $3.6 million from a budget of $8.0 million.

DSI Laboratoriesin Fort Myers, Florida reported on its Lean project to streamline work processes at the core lab in one of its three hospitals. At the end of a 90-day project, the nine-instrument chemistry/hematology line in this core setting could be operated by one med tech at peak times. For practical management purposes, this section is now staffed with only two med techs.

Even academic laboratories are recognizing the value of management systems like Six Sigma and Lean. Fairview Health Systems in Minneapolis, Minnesota reported on its progress at launching Six Sigma and Lean projects in several of its hospital laboratories.

These are typical of presentations from this year’s Executive War College. They represent the cutting edge of a developing trend in laboratory management. Because of the importance of these trends, upon request, THE DARK REPORT will make available audio cassette tapes of these presentations to current clients and subscribers, at no charge.

There is a simple reason why this particular laboratory management trend will be revolutionary: the application of quality management systems in clinical laboratory operations has the potential to generate savings of 50% and 60%, while eliminating waste, reducing errors and improving quality.

The early-adopter case studies presented at this year’s Executive War College provide compelling proof that, not only do these management techniques work, but once lab staff understand them, it becomes their preferred management style.

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