CEO SUMMARY: Laboratory administrators at rural hospitals generally believe there is no point in establishing a laboratory outreach program. Potential clients are few, and distances between small towns are great. But neither of these obstacles prevented Olympic Memorial Hospital from successfully offering laboratory outreach services to its rural market area. Olympic even acquired an independent laboratory to build outreach volume. This second installment of our two-part series tells the story of how Olympic created the outreach effort and what made it both successful and profitable.
FEW LABORATORIANS BELIEVE THAT RURAL HOSPITALS can launch and sustain viable laboratory outreach programs. That is why the success of Olympic Memorial Hospital’s laboratory outreach program should cause laboratorians to rethink the common wisdom on this subject.
Olympic Memorial Hospital is a 120-bed facility located in Port Angeles, on the northernmost coast of Washington’s Olympic Peninsula. Port Angeles borders the Olympic National Forest, one of the largest old-growth forests remaining in the continental United States. The geographic isolation of Port Angeles is reinforced by its population of only 17,000 people.
“The reasons we wanted to do a laboratory outreach program are the same reasons why any rural hospital laboratory should want to offer laboratory outreach services,” stated Eric Cook, Director of Laboratory Services at Olympic. “One is profitability. It is good to bring more dollars into the hospital.
“Second is our commitment to the community,” he continued. “If we can operate a larger laboratory, we can do more testing locally instead of sending it out. We can be a better laboratory for the operating room, the emergency room and our critical care unit. Of course, we are also a better laboratory for the physicians practicing in our community and service area.”
The impetus for Olympic’s laboratory outreach efforts came with the advent of a new hospital administrator. “He arrived in the middle of 1994,” explained Cook. “I was still addressing laboratory problems and helping the staff to come together and work as a team. Yet he immediately began to hint that we should be pushing harder for outreach business.”
Cook is referring to laboratory problems he was fixing after his arrival in early 1993. For six months prior to his hire, the laboratory operated without a department director. As a result, morale was low among the staff and performance was unacceptable. Cook’s management strategies to turn this situation around were discussed in the first installment.
“When my administrator asked me to begin building outreach business, I was hesitant,” noted Cook. “There was some fear and trepidation that we did not have the laboratory situation corrected. There were also the usual reasons not to do something different, and outreach is certainly different.
“Also, like most hospital laboratories, our staff had an inward focus,” he added. “They didn’t want to deal with issues originating from outside the four walls of the hospital. That attitude would have to be overcome if our outreach program was to succeed.
“The other source of hesitation was me! I had no prior experience at formulating a business plan,” Cook confessed. “This was the first opportunity in my career to create a new business operation. But with the encouragement of my administrator, we established simple goals for our first year.”
The key objective was to create the operational structure within the lab to acquire and service laboratory outreach accounts. “This alone is not a small goal,” said Cook. “With just 32 FTEs in the lab, it meant that everyone would have to accommodate changes to their duties and job description if we were to service outreach accounts properly.
“There had to be buy-in from the entire laboratory staff for this outreach project to succeed,” he noted. “In our case, we identified a technical leader who would provide continuity of contact with clients. A client service team was organized. We looked for med techs who were real doers at the bench, because they would take primary responsibility for getting in/outpatient and outreach specimens tested.”
“Keep in mind the balancing act which is under way as we do this,” explained Cook. “We still had to maintain service to all departments of the hospital, and we had to accomplish all the goals with a very small staff of people. Everyone around here has to wear multiple hats if the work is to be done on time and with good quality.”
“One bold move we made was to hire a courier before we had a good job description. That turned out to be a blessing because it forced us to really get out and market our services to keep her busy.”
Not surprisingly, the sales and marketing role was the most difficult part of the organizational realignment to accomplish. “I admit we spent a lot of time passing that potato around. As you know, many laboratorians are introverted people. But we had to identify someone who would go out, contact physicians and ask for the business,” stated Cook. “The person for this job was identified. It was me!
“That was an experience. I found myself out there beating the bushes with our client services person. We were both doing something people at this hospital had never done before. We made appointments, went in and asked what we were doing right and what we were doing wrong. We always ended by asking them to use the laboratory services of the hospital.”
Although serving as a sales rep might have been somewhat intimidating and out of his “comfort zone,” Cook’s experience and sales success should be sobering to all laboratory administrators. “I started making these calls in April. By June our first accounts began to come in. What I found surprising is that about 50% of the offices I called upon gave me some form of increased test volume. You see, a number of physicians used our laboratory for stat testing. I was able to persuade them to send us more of the bread and butter test volume.”
Cook’s call activity was neither daunting nor burdensome. “I averaged about two or three sales calls per week. What I learned about making sales calls is that preparation is essential if the sales call is to go well. The sales call itself may last only about 30-45 minutes. But there is preparation before the call, travel time, debriefing the staff and follow-up with the prospect.”
“It is important to note that none of this activity is complementary with hospital thinking,” mused Cook. “After 15 years in hospitals, it seems they believe you can spend half an hour and you are done with that sales call. End of story. It was an eye-opening experience for me to go out and do what the reference laboratories have been doing for years. The sales process really does require a professional support system and proper resources to succeed.
“I believe one reason our sales effort succeeded was because responsibility for the different functions was vested in me as the laboratory director,” he continued. “Marketing, operations, client services, and technical support are all my responsibility. When I went into a doctor’s office and they asked for three things before giving us their account, I could make that commitment, then go back to the laboratory and insure those things occurred.”
“Another element which helped our outreach program succeed was the consistency of our sales calls,” Cook explained. “We averaged two to four calls per week. Admittedly, there were times when I would lose a week or two because of other priorities, but I was diligent about making up the lost calls. As a result, we had a steady volume of new client accounts or increased test referrals from existing clients.”
This sales activity was launched in the final months of 1994. It did not take long before the impact was felt in the laboratory. “I was surprised. By the end of the first quarter of 1995, we could see a measurable increase in the number of specimens going through the laboratory,” recalled Cook. “It gave the entire team in the laboratory a good feeling to know that they were having a positive impact.”
Cook understates the importance of this team perspective. After spending 18 months rebuilding morale and improving service levels, the outreach program had become a unifying project. People in the laboratory had a positive goal, even though increased specimens from the outreach community meant more work inside the laboratory.
“As I think back, that is what occurred,” responded Cook. “As more outreach business hit our front door, the med techs began to develop pride in our laboratory. As they got busier, grumbling about issues in the hospital disappeared. The entire staff began to focus on giving our both our hospital and outreach clients the best service possible.”
Increased specimen volume did require staffing changes. “Up front, we felt like the laboratory had excess capacity, both in terms of labor and capital resources. We believed we could handle increased volume without increasing staff,” Cook said. “The major adjustment was to inaugurate new evening test schedules.
“The technical leader we had earlier identified was responsible for organizing the evening operations. The group involved actually did the planning and implementation with little input from me. We used the same number of FTEs, but we scheduled them differently, eliminating an 11:30 a.m. shift and adding a swing shift.”
The impact of the outreach program was significant and rapid. During 1995, specimen volume climbed 17.5% over 1994. “As the staff saw more specimens coming in, they pointed out the need for new instruments,” stated Cook. “It was recognized that certain instruments lacked the throughput to handle the additional work and still maintain service to our inpatient population.”
Hospital administration was favorably disposed to acquire the necessary instrumentation, as cash flow from the increased outreach business was available to fund those purchases. Hospital administration also did another unusual and surprising thing.
“We bought a laboratory in our service area,” said Cook. “This laboratory was located in Sequim, about 12 miles east of the hospital. It generated about $250,000 annually in gross revenue from its location in a medical office building. It was staffed with seven employees. The owner was a local doctor preparing for retirement and looking to sell.”
Olympic’s Growing Market Share Encourages Lab Network Strategy
WHEN OLYMPIC MEMORIAL HOSPITAL REACHED A POINT of diminishing returns in its laboratory outreach service area, a new business strategy was required to sustain growth in specimens and revenue. This strategy is to network laboratories with neighboring hospitals. The experience at Olympic shows how successful an outreach program can be, even in a sparsely populated rural market. But sustained growth requires all rural hospitals in a region to come together and form a laboratory provider network. This network can offer competitive services throughout the region which are impossible for a single hospital to offer.
“After watching how a steady increase in specimen volume has improved the economics of our laboratory, we now appreciate the value of growth,” stated Eric Cook, Laboratory Director at Olympic Memorial Hospital. “Since we have captured much of the market in our natural service area, we want to develop other strategies to sustain growth. The most logical approach is to explore laboratory networking opportunities with other hospitals similar to us.” According to Cook, laboratory managers from the hospitals in Forks and Port Townsend are meeting with Olympic to discuss opportunities for working together. “The first initiative which made sense was to combine purchasing. We are developing that. As our meetings continue, I expect that increased trust will foster other, closer alliances involving testing, pathology and who knows what else.”
Here is another example of a regional laboratory strategy emerging from the competitive market forces in this rural area. At some point in the market cycle, the only way for laboratory administrators to improve their competitive position, enhance services, lower costs and stabilize employment is to work in a cooperative fashion. This is as true for rural areas as it is for urban areas.
Support Local Community
According to Cook, the doctor considered selling to a larger commercial laboratory, but his preference for keeping business in the local community led him to sell to Olympic Memorial Regional Hospital. “We had two challenges in this acquisition. One, we had to maintain a profit from the day we purchased it. Two, we had to maintain employment of the existing staff. That was not difficult, since Sequim and Port Angeles are reasonably close and it is feasible for employees to work at either site.”
The positive impact of the acquisition was immediately felt. “With new specimens flowing into our lab, we needed to acquire discrete analyzers to replace our batch analyzers,” recalled Cook. “This also provided us the opportunity to acquire additional assays which we can do in-house. This improves the lab’s service to the clinicians. It is another way the hospital is directly benefiting from the laboratory’s successful outreach program.”
Olympic Memorial Hospital’s experience with laboratory outreach is a great lesson for rural hospitals all over the United States. Why did Olympic achieve something most rural hospital laboratorians believe is impossible, unfeasible or uneconomical? Because there was a hospital administrator and a laboratory director with the vision to see the opportunity and a willingness to invest time and money to make it real.
As laboratory director, Eric Cook took political and career risks to sell the concept of laboratory outreach, organize the program and bring it into reality. Moreover, it was Cook who made the sales calls and took responsibility for the commitments made to new physician clients of the laboratory. His persistence in maintaining a sales call cycle should should also be recognized as a critical success factor.
This is real leadership from within the laboratory and the benefits are obvious. Today Olympic Memorial Hospital boasts a better-equipped laboratory and enhanced laboratory testing services than three years ago. Olympic also gets a cash flow kicker from outreach revenues while enjoying year-to-year declines in its average cost per test.
Stable Lab Employment
Employment is stable within the laboratory even as increased outreach business creates new career opportunities for the technical staff. The laboratory team at Olympic demonstrates high morale because they are achieving uncommon goals. Physicians in the surrounding communities receive a higher level of laboratory services even as their business supports the local healthcare community. At a time when most rural hospital laboratories are scrambling to maintain services and revenues, Olympic serves as an important reminder: positive action creates positive consequences.