Tennessee Lab Network In Start-Up Preparations

Three years of rigorous business planning encouraged 12 hospital labs to participate

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CEO SUMMARY: Planning for the Middle Tennessee Healthcare Network’s proposed regional laboratory network took longer than expected, but not without good cause. Organizers of this laboratory network did their homework and created a solid business plan. Approval by CEOs from the participating 12 hospitals to launch operations was unanimous.

FEBRUARY WAS A MILESTONE MONTH in the business development of the Middle Tennessee Healthcare Network (MTHN). Papers of incorporation were filed and the regional laboratory network was officially brought into existence.

Middle Tennessee Healthcare Network is comprised of 12 hospital laboratories, covering greater Nashville and central Tennessee. The business design of MTHN represents a new organizational model for regional laboratory networks.

After observing the experience of other regional laboratory networks, MTHN expects to avoid their mistakes while emulating their successes. “It would be fair to say that we were careful about certain issues. These related to invested capital, governance, and ongoing funding for network operations,”said JoAnne Schroeder, CEO and General Manager of the fledgling regional laboratory network. “We tried to anticipate problems and build solutions into our business structure.

“It took three years of sustained business planning to attain operational status,” she commented. “Our hospital CEOs finally gave us the official go-ahead this January. We incorporated as a limited liability corporation (LLC) in February.”

Armed with authorization to proceed, MTHN is now assembling the management resources necessary to launch operations. Recruiting is under way for several positions. Unlike most regional laboratory networks, MTHN’s business plan recognizes the need for full-time, paid administrative staff if the laboratory network is to be competitive and economically self-sustaining.

Since December 1995, MTHN’s participating hospitals funded the full-time position of CEO and General Manager. JoAnne Schroeder assumed duties as General Manager of the MTHN Laboratory Services Organization (LSO) in February, 1998. Three other administrative jobs are budgeted.

“Our initial search for a full-time director of sales and marketing yielded three candidates,”? noted Schroeder. “The final round of interviews is about to commence. We expect to have that position filled shortly.

“During the planning process, we recognized the importance of laboratory information systems,”? she continued. “The more advanced our LIS capabilities, the more competitive we can be in generating new business from physicians. That is why we intend to hire a full time director of information systems.

“Economics of a properly-designed regional laboratory network are compelling. That is why laboratory testing survived the decision-making process. “

“Given the growth of managed healthcare in Tennessee, it became obvious to us that our network would require a managed care specialist. This individual will be responsible for gaining provider status with different managed care organizations (MCOs) and servicing the needs of those MCOs. We have yet to start the search for this position.”

The fact that MTHN is willing to fund dedicated, full-time positions for administration, marketing and information systems sets it apart from most regional laboratory networks. It is more common for regional laboratory networks to rely on volunteer efforts by laboratory directors in the network.

“The pace of change in the Tennessee healthcare market is fast,” observed Schroeder. “We were not naive about the number of hours it would take to administer this network and market our laboratory testing services to both physician offices and managed care plans. Part-time volunteer help from our laboratory directors would be insufficient to maintain our implementation timetable. That is why we created a business plan which funds dedicated, full-time administrative positions within the network.”

Business Vehicle

The original founders intended MTHN to be the business vehicle for a variety of healthcare services. Yet after three years of meetings and study, only laboratory testing has moved toward operational status.

Schroeder offers thoughts on why this is true. “The original hospitals which founded MTHN wanted to provide a variety of clinical services to Nashville and central Tennessee. They could see the value of creating a shared service infrastructure for healthcare services in this region.

“Because managed care is a growing influence in our area, sharing clinical services was seen as a way for smaller integrated healthcare systems in our network to be part of a regional infrastructure,”? she continued. “MTHN would also permit the hospitals to eliminate duplicate resources, save money and improve clinical services in the areas served by MTHN.

Easiest To Organize

“As it turned out, everyone recognized that laboratory testing services would be the easiest to organize on a region-wide basis,” said Schroeder. “Economics of a properly-designed regional laboratory network are compelling. That is why laboratory testing survived the decision-making process while regionalization of other clinical services has yet to occur within the Middle Tennessee Healthcare Network organization.”

Despite the fact that regional laboratory network services of MTHN have yet to be formally launched, participating hospital laboratories already enjoy the benefits of a new reference testing contract. The economics of this arrangement are worthwhile.

“While developing our business plan, we identified a number of support services required by the network,” observed Schroeder. “After an extensive RFP process, we picked Specialty Laboratories of Santa Monica to be our reference laboratory partner.

“Among other things, this contract permits our participating hospital laboratories to save money on their send-out testing,” she continued. “Thus, the network is delivering benefits to its member laboratories even before implementation of outreach testing services.”

Lab Industry Milestone

Once Middle Tennessee Healthcare Network’s regional laboratory service organization becomes fully operational, it will represent an important milestone for the clinical laboratory industry. Other business models of regional lab networks have struggled to find success. But MTHN’s business model is unlike that of any other lab network.

It seems that MTHN’s organizers have carefully crafted a financially viable business plan. Assuming that the management team can do a good job of implementing the business plan, it would appear that MTHN has the potential to develop into a strong laboratory competitor in Nashville and central Tennessee.

Should that occur, then Middle Tennessee Healthcare Network’s success will further validate the concept of regional laboratory networks as a viable market response to managed healthcare.

Market Fears Motivate MTHN Lab Network

It was fear of fast-growing Columbia/HCA which spurred competing hospitals in Nashville to create the Middle Tennessee Healthcare Network (MTHN).

“MTHN was founded in 1995,” stated JoAnne Schroeder, CEO and General Manager of MTHN’s Laboratory Services Group. “You could probably say that Columbia was the 800-pound gorilla which motivated ten competing hospital systems to unite and form MTHN. Their goal was to use MTHN as the business delivery vehicle for a variety of shared clinical services.”

As MTHN organizers began to develop the business vehicle, they quickly recognized that laboratory services would be a viable clinical service for the network to offer. “Early in the planning phase we recognized a threat and an opportunity involving outreach laboratory services,” said Schroeder.

“The threat involved potential loss of managed care contracts for laboratory testing,”? she explained. “Our hospital labs already owned a substantial share of physician office testing We wanted to protect that. Conversely, we also recognized that we had the opportunity to double our existing outreach business if we could network our laboratories in an efficient manner.”

From 1995 forward, planners concentrated on developing laboratory testing services. It will be MTHN’s first shared clinical service to become operational.

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