CEO SUMMARY: Popular wisdom says that California’s managed care market is a financial disaster for clinical laboratories. Yet here’s an exciting story about a community hospital that launched a brand-new laboratory outreach program in 1997 and found solid success. During the last two years, specimen volume is up, profits are increasing, and the laboratory is adding additional value to the hospital.
SITTING IN A LITTLE CORNER of Los Angeles’ San Fernando Valley, West Hills Hospital and Medical Center, a 236-bed community hospital, is an unlikely candidate for a thriving laboratory outreach program.
Yet, during the last 24 months, it launched a daring laboratory testing outreach program into California’s highly competitive managed care marketplace. The numbers tell the tale.
Billable tests from outreach testing have climbed to 7,000 per month. Net revenues from outreach testing reached $550,000 for year-to-date by June 1999. Hospital officials confirm that the outreach testing program runs in the black.
What is truly unique about the West Hills Hospital and Medical Center (WHHMC) story is its total dependence on outsourcing for the functions of sales, marketing, courier, client services, billing, collections, and draw station management.
“I had a new hospital CEO who challenged me to do this,” said Joseph McCauley, Laboratory Director at WHHMC. “Upon arriving in 1997, he directed the lab to accomplish three things. First, control costs. Second, improve the lab’s turnaround time. Three, add additional value in how the lab supports the hospital.
“He also made it clear that these goals were achievable and I would be responsible,” recalled McCauley. “To hit these goals, we both agreed that WHHMC would have to create its first-ever outreach laboratory testing program.”
Despite 25 years of service at the WHHMC laboratory, McCauley was not threatened by the change. “This is survival,” he declared. “As lab director, I have to take action if I want to provide stability and a future for both myself and the 50-some employees of our lab.”
Need To Change
McCauley had already recognized the need to change the laboratory in order to survive. WHHMC is owned by Columbia/ HCA Healthcare Corporation. McCauley was part of a task force to evaluate lab regionalization among Columbia’s California hospitals.
“I recognized the opportunity for our laboratory to do more,” noted McCauley. “We’ve always had the latest and best of analyzers. We operate a second and third shift, essentially to do stat tests for inpatients. So there was unused capacity in this laboratory, just like at most other hospital labs.
“My hospital’s business plan identified specific goals for the laboratory,” he continued. “We determined that outreach specimens would generate the benefits and revenues we sought.”
McCauley realized that the true measure of success would be for his lab to increase its value to the hospital. “Our motive in developing outreach business was to improve services to our inpatients and offer enhanced benefits to our physician staff and referring doctors,” explained McCauley.
Four Objectives Identified
“Four discrete objectives were identified” he added. “One, fully utilize staffing on second and third shifts. Two, fully utilize equipment during every 24-hour cycle. Three, perform tests every 24 hours instead of several times per week. Four, generate additional revenue for the hospital.”
Outsourcing as a way to create the outreach program was born of necessity. “My CEO wouldn’t allow me to hire more FTEs,” commented McCauley. “But he did authorize funding for the outreach program.
“Further, he was aware of a company in Southern California which provided contract services for hospital laboratory outreach programs,” added McCauley. “That is how I got the idea to contract out the functions of sales, marketing, courier, and billing.
“We avoided the ‘must build it ourselves’ syndrome,” he noted. “We are experts in laboratory medicine and hospital lab operations. But we are not experts in such sophisticated commercial lab business skills as sales, pricing, client service, billing, and collections.
“So we enlisted experts to help us us get started the right way,” McCauley stated. “Experts knew exactly what we needed. They were a cost-effective way to rapidly launch our laboratory outreach program.”
Advance Survey Of Clients
Before start-up, McCauley and his team did a survey of their potential physician-clients. “Commercial labs know how to be customer-friendly,” observed McCauley. “In contrast, hospital labs focus on inpatient needs. They generally don’t respond well to requests for individualized service.
“For West Hills to succeed, we understood that we would have to meet the needs of the office-based physician,” he said. “Our survey told us they wanted easy registration of patients. We had to offer better turnaround times than competing labs. Our prices needed to be competitive. The physicians also emphasized that responsiveness to their requests was an important factor.
“We were in a position to offer these things.” recalled McCauley. “For example, turnaround time was easy. We have staff working throughout the day and offer that service already. The Meditech information system at our hospital was already linked into physician offices. Thus, doctors would be able to access inpatient and outpatient lab test results for their patients. Competing labs cannot match this feature.”
By using outsourcing arrangements, McCauley was able to speedily move his outreach program to market. “We got help in budgeting, setting test prices, and designing the operational logistics, such as courier routes, draw station needs, billing, collection, requisition design, and test reporting,” he said.
“Initially, our outsourcing company provided four sales people,” stated McCauley. “These sales reps worked a 20-mile radius from our hospital. Once we picked up business from within this geography, we stabilized at 1.5 sales reps in the field.”
One interesting aspect of this outreach program is that WHHMC will not sign managed care contracts. “We avoid performing lab tests for insurers that offer inadequate reimbursement,” explained McCauley. “Therefore, our clients refer us only specimens for patients who have fee-for-service or Medicare coverage. Our clients send their remaining lab specimens to the major commercial laboratories as directed by the payer.”
WHHMC does participate in a few PPO arrangements. About 45% of its outreach business is Medicare. According to McCauley, physicians are willing to split specimens between his hospital lab and the commercial laboratories because of their affinity to the hospital and the added service they get from the hospital lab.
“Turnaround time is one example of how we can offer a service advantage. The increased volume of specimens allows us to run more tests on a daily basis,” noted McCauley. “I actually have doctors who now walk up to me in the hall of the hospital and say ‘It’s incredible. None of the hospitals around this community can provide me the type of lab services that I get here!’ Better yet, they tell that to my hospital CEO.”
WHHMC uses NTI Florida as its outsourcing vendor. Through a subsidiary called United WestLab, Inc., NTI provides sales and marketing, courier services, client services, billing and collections, draw station management, and some specimen processing.
“They have about 10 FTEs devoted to our contract,” noted McCauley. “For NTI’s total package of services, we pay about $45,000 per month. It’s a cost-plus arrangement, so they don’t share in the revenues.”
Requisitions for physician office accounts include United WestLab’s name underneath the WHHMC name. “This allows us to identify patients involved in the outreach program,” explained McCauley. “As these patients are entered into the hospital’s computer systems, their requisitions are zeroed out and transferred to United WestLab for billing and collections.
“Reimbursement checks come directly to the hospital,” he continued. “We use a single provider number and, from day one, the system has been easy to audit and manage.”
Since the outreach program’s inception, the volume of monthly billable tests has climbed by more than 28%. “To handle this extra volume, we added one FTE to the graveyard shift on weekdays, giving us two on that shift,” noted McCauley. “This allowed us to mop up all the work and have reports ready by 5:00 a.m. the next morning.”
West Hills Hospital seems to have had a relatively smooth start-up with its outsourced lab outreach program. “Bringing in experts who knew how to operate a commercial lab business helped us avoid a lot of mistakes,” said McCauley. “But I did things like review every single bill that went out during the first six months. I was determined that our team would get it right and that our clients would always get top service.
“Probably the biggest surprise we got were problems within the laboratory itself,” recalled McCauley. “For example, some of the lab staff began to gripe about the additional work. That was frustrating, because we were expending all this effort to help them keep their jobs and avoid the type of layoffs so frequently seen at hospital labs these days.
“The other surprise was the length of time it took for collections to hit the door,” he added. “It was probably six months before a regular flow of checks began arriving. I was also surprised that net revenue has averaged only about 60% of gross billings.”
Overall, McCauley rates the outreach program as a solid success. “First, our outreach program is delivering a monthly flow of profits to the hospital. Second, we now offer faster TAT for an expanded menu of tests, both to inpatients and outpatients. In particular, our physicians appreciate this benefit to clinical practices.
Outstanding Doctor Loyalty
“Third, doctor loyalty and support is outstanding,” he continued. “We definitely see a difference in physician referral patterns which favor our hospital. Fourth, the outreach program has become a vehicle for offering other hospital services, such as MRI. Our sales and customer service people take advantage of opportunities to present these services to our clients.
“In closing, I would like to say that this laboratory outreach sales program has really helped us change our entire laboratory organization for the better,” declared McCauley. “Not only is our staff excited and proud, but our physician clients definitely appreciate the expanded services we now provide.”