CEO SUMMARY: To prepare for the transition from fee-for-service to value-based payment, Western Connecticut Health Network, a three-hospital health system, announced a laboratory joint venture with Sonic Healthcare. Benefits will include lower test costs, more competitive prices, and the ability to offer same-day turn-around in Western Connecticut. Another benefit is that physicians in towns WCHN serves will continue to work with pathologists they’ve known for years.
ONE BENEFIT OF THE LAB JOINT VENTURE PARTNERSHIP that the Western Connecticut Health Network announced last month with Sonic Healthcare is that as much as 80% of clinical lab testing will remain in WCHN’s three-hospital network.
Keeping lab testing local will allow WCHN to compete more effectively against labs in Connecticut that send tests out of state, stated Noel Maring, Sonic’s Vice President of Hospital Affiliations. Running tests in Western Connecticut will allow WCHN to offer same-day turnaround, which its competitors can’t match, he added. Also, of course, physicians in the towns WCHN serves will continue to work with pathologists with whom they have long-standing relationships.
“This joint venture is a hybrid lab model,” Maring told THE DARK REPORT. “It’s not a commercial lab model, and it’s not a hospital lab model. It is designed to serve WCHN’s outreach business and inpatient testing in a number of ways.
“The joint venture partnership which is called the Constitution Diagnostics Network, will leverage the benefits of a hospital lab with local testing because 75% to 80% of the tests will be done in the local communities, meaning Norwalk, New Milford, and Danbury. That’s our goal: keep as much of the testing local as possible.
“In addition, we will optimize the integration between the hospital laboratories in western Connecticut and our lab operations at Sunrise Clinical Laboratories, our northeast regional laboratory in Hicksville, N.Y., on Long Island, and our Sonic Reference Lab in Austin, Texas,” he explained. “Large lab companies prefer to move as much testing as possible out of the local markets and send it to their own large labs. Our model is different from that because we will keep as much of the outreach lab testing within the local market.
Additional Lab Cost Savings
“The highest cost in any lab is labor and we will address that cost as well,” he continued. “Staff reductions are not anticipated. The JV partners project that increased outreach volume coming into the hospital lab will optimize the labor already in place. Doing that will reduce the labs’ average cost per test, including inpatient tests as well as the outreach volume. This is how the existing labor force in the WCHN hospital labs will become more productive.
“Next, for most hospital labs, the second highest cost after personnel is supplies, equipment, and reagents,” Maring commented. “We will use our global cost structure to reduce the cost of testing at the WCHN laboratories.
“Outreach volume will increase because Sonic will introduce the skill sets it has in sales and marketing for lab testing,” added Maring. “Also, additional lab sales reps will be added to the market.
Bolstering Lab Sales Effort
“Sonic does have some existing sales staff in this region,” he said. “Expectations are that at least three more salespeople could be added in Western Connecticut in the coming years. That decision will be based on test volume and growth in market share.
“I don’t want to give details specific to this partnership, but generally, our experience is that there is a 12% to 20% overall cost reduction opportunity in the hospital laboratory when we deploy Sonic’s global cost structure, labor optimization programs, and efficiency improvements in these types of partnerships.
“Another element of this lab JV that works in WCHN’s favor is WCHN’s outreach business will use our pre- and post- analytical capabilities,” continued Maring. “This will address the need for the hospital lab outreach program to have robust electronic interfaces with those doctors sending in outreach tests who may not use the hospital’s electronic health record (EHR) system.
“Sonic has existing interfaces with multiple EHR vendors,” he explained. “The result is that physicians in Western Connecticut will be able to order outreach testing on our pre- and post-analytical systems. So before the patient gets to the patient service center, the order from the doctor’s office will already be in the system. Then after the test is run, the results will get sent back to the physician’s EHR whether they’re using Cerner’s EHR (used by WCHN), or some other EHR.
“Collectively, these capabilities mean that the JV will get the most out of the WCHN lab in Danbury, which runs seven days a week, 24 hours a day,” observed Maring. “For a select menu of routine tests ordered from a physician’s office, the lab will report these test results back to the doctors that same day.
“We call this service, ‘In by noon, out by 5 pm,’” Maring said. “That select menu includes routine tests, chemistries, CBCs, drug levels, and other similar assays.
“Doing that can give us a competitive advantage over other commercial labs that send those tests out of state. Because we can keep tests in state, other labs will be unable to match our turnaround time,” Maring predicted. “Local testing will allow us to extend the network’s ability to grow throughout Connecticut.
“In fact, it would be possible to use WHCN’s core lab in Danbury Hospital to provide a higher level of lab services to the physicians in Western Connecticut and beyond,” he explained. “Currently, all commercial lab work is exported out of the state.
Local Competitor Acquired
“The one local lab competitor to WCHN was Connecticut Laboratory Partners in Newington. It ran the laboratory testing for Hartford Healthcare,” Maring said. “But last year, Quest Diagnostics acquired CLP, downsized that lab, and moved that testing to Massachusetts.
“Our lab JV can counter that move easily because it will do much of its testing locally, within Connecticut,” he added. “This better serves value-based healthcare, because a faster-turn-around time for lab test results helps physicians improve patient care.”
Contact Noel Maring at 512-439-1677 or NMaring@SonicHealthcareUSA.com.