Tennessee Lab Network To Become Operational

Another regional lab network model completes strategic business plan, schedules start date

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CEO SUMMARY: Although news of regional laboratory networks disappeared from the pages of lab industry publications, the movement is far from dead. In Tennessee, 13 hospital laboratories are about to launch the Middle Tennessee Healthcare Network. Organizers believe they have solutions to the management problems which plagued early networks.

THREE YEARS OF EFFORT is about to bear fruit. Organizers of Nashville’s Middle Tennessee Healthcare Network (MTHN) expect CEOs of the parent hospitals to bless the completed business plan and authorize formal launch of operations within the next 60 days.

It will be one of the larger regional laboratory networks to achieve operational status during 1997. Eleven hospital systems own equity. A total of 13 hospital laboratories will provide testing services to the Central Tennessee area.

Started in 1994

“We started on this road in June 1994,” recalled Ran Whitehead, Laboratory Administrator at Baptist Hospital and a member of MTHN’s executive steering committee. “At that time a number of hospitals were exploring ways to combine efforts to counter marketplace pressures of managed care and Columbia/HCA.

“It was JoAnne Schroeder, the labo- ratory administrator at Maury Regional Hospital, who got lab administrators at five of the original nine hospitals to meet and discuss the viability of a laboratory network,” he continued. “As the group studied their business options, they quickly realized the vulnerability of their existing contracts for outreach testing.

“With a professional sales and marketing program, we felt the network could double that volume of business for its members…”

“From the start, a major goal of the Middle Tennessee Healthcare Network was to protect existing managed care contracts and pursue additional managed care work,” added Whitehead. “A market feasibility study was completed by the summer of 1995. According to this study, our member hospital laboratories held 13% of the market share for outreach laboratory testing. With a professional sales and marketing program, we felt the network could double that volume of business for its members.”

Once specific business goals were identified, the next step was to develop a business plan and determine the organizational structure for the model. “From the start, we looked at all options,” declared Kim Charlton, Laboratory Administrator at St. Thomas Hospital. “We considered logical partners, such as reference laboratories. We also began to focus on strategic business models which would best fit our needs.

“For example, should the network operate a shared esoteric laboratory,” she asked, “or should there be centers of excellence, with testing shared across a number of laboratory sites? These were difficult questions because political as well as operational consequences surrounded every option.

“It was about this time that the hospital network hired an executive to support the various business initiatives under discussion at the network,” said Whitehead. “Roy Wright became the executive director in December 1995. Because the laboratory network concept was recognized to be a feasible project, Roy made it his priority.”

The first business plan was developed during the summer of 1996. Experts assisting to develop the business plan recommended a common laboratory information system, accompanied by a $6 million price tag. “That caused some of the participating hospitals to become resistant to spending such large sums of money relative to the expected return,” noted Whitehead. “It made us rethink how we wanted to use the capital which the hospitals were willing to provide.”

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Challenge Assumptions

The solution was to assign one laboratory manager with the task of challenging the assumptions in the business plan, developing vendor contracts and commitments, then proposing a capital budget and spending plan. “One laboratory administrator was delegated by the board to tackle this project. Her hospital released her from regular duties for 90 days so she could devote full time to study the business plan and implement the necessary action items.”

Kim Charlton, assisted by Whitehead, Schroeder and Wright, assumed responsibility for this project in November 1996. By February 1, 1997, RFPs (request for proposals) were issued for several business services. These included reference laboratories, LIS options, courier arrangements, legal opinions as to organization structure, esoteric testing and marketing resources.

“A key element for the network was its choice of a reference laboratory partner,” stated Charlton. “The partner had to be willing to share risk with the network and connect ten disparate LIS systems. An intense RFP process resulted in the choice of Specialty Laboratories. Our network will share risk with Specialty, operate a combined courier system, offer dedicated customer service support, LIS solutions and Specialty will participate on the network’s operations council.

“It was a full-time effort to accomplish this in 90 days,” stated Charlton. “In February, we provided the board with recommendations on three basic issues: two reference laboratory partners, specific capital needs and the organizational structure for the network. There was unanimous approval to proceed.”

That was the point at which the participating hospital systems could opt in or out as an equity participant. Eleven of the thirteen chose to become equity participants.

The regional laboratory network is chartered as a limited liability company (LLC). In the six months since the February meeting, implementation milestones leading to operational status became priority.

“A significant amount of legal work and review for our chosen business organization has taken place,” noted Whitehead. “We are carefully developing a pricing plan for esoteric and reference testing to meet anti-trust and other regulatory guidelines. Our network does not use the messenger model for this function.”

“Details for implementing the business plan were identified,” added Charlton. “We also recently completed a search for the executive director of the network. JoAnne Schroeder will leave her current position at Maury Regional Hospital and become a full-time executive director for MTHN. Recruiting for our needs in sales and marketing was launched and we intend to maintain a constant presence in our market area.”

Operational Launch

With the operational launch of Middle Tennessee Healthcare Network just around the corner, another model of regional laboratory services enters the marketplace. Given the politics of bringing 13 hospital laboratories into a single service organization, the three- year gestation period was not unusual.

MTHN has three traits common to successful regional laboratory networks. First is the recognition of the need for a full-time executive director, during both the development and implementation phases. Second is the emphasis on professional sales and marketing. Third is an economic structure which makes the network operationally self-sustaining.

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