Molecular Diagnostics’ “Gap in Expectations”

Offering molecular tests to clinicians continues to be a financial challenge

CEO SUMMARY: This year’s Executive War College provided strong evidence that the twin trends of molecular diagnostics and Lean management methods are taking root within the laboratory industry. Each is a trend in its infancy. Molecular diagnostics will require considerable time before it exerts substantial impact on labs across the country. In contrast, Lean management is expected to find much faster acceptance.

THERE ARE TWO EMERGING TRENDS in the laboratory industry. Each is powerful and will alter laboratory management in ways never before seen within our healthcare system.

The first trend is molecular diagnostics and its use by clinicians in patient care. The second trend is the adoption of quality management systems by laboratories, particularly those methods known as Lean and Six Sigma.

Each trend is in its infancy. For that reason, laboratories and pathology group practices have the opportunity to study and anticipate the impact each will have on laboratory management. However, the pace of adoption will be radically different for each trend.

These conclusions were major insights from the ninth annual Executive War College on Lab and Pathology Management, which took place on April 27-28 in New Orleans. In assessing the experience and recommendations of over 40 speakers, there were several clear and definitive themes. These themes emerged from the strategic thinking and clinical initiatives noted in presentations from several of the nation’s leading laboratories and pathology group practices.

For example, molecular diagnostics is still taking baby steps when it comes to clinical applications of genetic and proteomic technologies. Most laboratories with active molecular testing programs today are national specialty testing laboratories or academic/tertiary center laboratories. Only a handful of community hospital laboratories have established molecular testing programs.

Why is that only a relatively small number of laboratories currently offer molecular tests to clinicians? The answer is financial. These early-adopter laboratories report that reimbursement is barely adequate to cover the cost of tests based on molecular technology. In most cases, laboratories offering molecular tests to clinicians are subsidizing the cost of this testing through other sources, including grants, clinical studies, and direct-to-consumer offerings, such as paternity testing.

Collectively, when addressing this topic, most speakers at this year’s Executive War College predicted that molecular diagnostics will not take off until reimbursement for new molecular tests reaches levels which adequately cover a laboratory’s full cost of offering such testing.

Who Will Pay?

Sufficient reimbursement was the number one strategic concern expressed by every speaker involved in clinical molecular testing programs. Even in cases where payers agree to cover certain molecular assays, the reimbursement approved for those tests is sometimes too meager to sustain a lab’s molecular testing program.

The other major stumbling block in the field of molecular diagnostics is the operational complexity of establishing and running such a program. Equipment is expensive. Technical skills required to perform these tests are in short supply, making the labor component of molecular testing both expensive and difficult to recruit.

An additional hurdle is the time and expense required to educate physicians about new molecular lab tests. Experienced laboratories report that physician education is a key factor in the success of a molecular test. Physicians must know when it is appropriate to order the test, how to interpret and act upon the results, and how to properly follow-up the initial diagnosis with appropriate tests for monitoring and measuring therapy. To accomplish these goals, laboratories must devote time, manpower, and resources into physician education. That is another factor in making molecular testing an expensive proposition for most community hospital laboratories.

Potential For Rapid Change

It was the collective sense of most speakers that clinical molecular testing is a difficult, financially-challenging, and complex line of testing to offer in today’s clinical environment. Along with this observation was invariably a caveat—molecular diagnostics has the potential to become, almost overnight, the must-do for every laboratory. That would be true if a new test technology changed the standard of care.

As it comes of age, there is wide agreement that molecular diagnostics has the potential to transform laboratory medicine. There is a parallel trend which has comparable potential to radically transform laboratories. That trend involves the implementation of quality management systems, particularly those known as Lean and Six Sigma.

At this year’s Executive War College, several strategic case studies highlighted the experience of the first major laboratories in the United States to use Lean methods to radically make over their high volume core laboratories. Fairview Health Services of Minneapolis, Minnesota and West Tennessee Health System of Jackson, Tennessee introduced Lean into their core chemistry-hematology laboratories on a 16-week implementation schedule. Unlike earlier quality management systems like TQM (total quality management) and CQI (continuous quality improvement), Lean and Six Sigma can create substantial improvement in a short amount of time.

In fact, Rick Panning, President of Laboratory Services at Fairview, observed that all levels of administrators in this eight-hospital health system had regularly undergone quality management training for almost fifteen years. Fairview’s senior health administration was already committed to quality management. It turned to Lean as a way to accelerate the results generated by quality projects.

Achieving Faster Results

Fairview believed Lean techniques could compress the time required to identify opportunities for improvement and cost reduction, and the time required to implement those changes. The Lean project in its first hospital laboratory was actually the “proof of concept” project. Once it was validated that Lean techniques required just three or four months to deliver major gains, Fairview Health Services proceeded to schedule Lean projects in all its hospital laboratories. It also began to introduce Lean into other clinical areas, such as the emergency department, radiology, pharmacy, etc.

West Tennessee Healthcare of Jackson, Tennessee told a similar success story to the Executive War College audience. Gains of 50% in the average turnaround time for inpatient testing, productivity improvement of 60% for laboratory labor, and comparable gains in quality were a few of the outcomes described by Leo Serrano, Administrative Director of Laboratory Services at this innovative health system.

The effectiveness and relevance of Lean management methods in laboratory settings was solidly demonstrated by both presentations. These were two of the nation’s better-managed hospital laboratories—yet each harvested gains of 50% or more in just the first 12- to 16-week project. The message was not lost on the audience.

Because Lean and Six Sigma management systems can deliver substantial cost reductions, I believe that laboratory directors and pathologists will embrace these solutions with less resistance than might have been true of when TQM and CQI were the buzzwords of their hospital administrators.

There are already signs that the Lean trend is gathering momentum within the laboratory industry. A growing number of hospital laboratories are launching Lean and Six Sigma projects. I am confident that, if those projects are done with the help of experienced and knowledgeable Lean experts and Six Sigma black belts, they will deliver results com- parable to those shared on these pages. As word of such successes gets out, there will be both an incentive and a pressure for other laboratory leaders and pathologists to generate similar results from their laboratory organization.

Molecular Testing Hits Kaiser In a Big Way

EVERYTHING IS ON A BIG SCALE AT Kaiser Permanente Northern California’s regional laboratory. It accessions 28,000 patients daily. So when Kaiser administration wanted to introduce a molecular test into general clinical use, the impact on the regional lab was huge.

“Our lab’s molecular hurricane was triggered by the new cervical cancer screening guidelines,” said Gene Pawlick, M.D., Director of Kaiser’s regional laboratory in Berkeley, California. “When Kaiser decided to embrace the new guidelines, we were told to gear up to support this new clinical standard of practice.

“It meant that our laboratory, which had performed about 5,000 of Digene’s HPV tests in 2003, would be performing 400,000 DNA with Pap® tests annually by the end of 2004,” explained Pawlick to a fascinated War College audience. “Fortunately for our laboratory, administration also declared that our laboratory budget would be increased to accommodate the additional volume of this expensive test.

“But that still left us with the challenge of preparing our laboratory to perform these 400,000 tests,” he added. “We’ve been scrambling to put the equipment and medical technologists into place to support this volume of testing.

“Among the lessons and insights I want to share with you is this: at any time, a new molecular technology has the capability of changing longstanding clinical practices—literally overnight! That’s a serious threat to a laboratory, particularly if Medicare, Medicaid, and private payers are slow to respond with coverage and appropriate levels of reimbursement. In our laboratory, we now better appreciate the importance of tracking new molecular technologies as they find their way into diagnostic testing,” advised Pawlick.

Fast-Moving Trend

Publicity about these successes insures that the trend for laboratories to adopt Lean management methods will grow. That is why I predict that the Lean trend will move through the laboratory industry at a much faster pace than the molecular diagnostics trend.

Having looked individually at the twin trends of molecular diagnostics and Lean, an interesting question presents itself. What if, on their separate, but parallel tracks, molecular diagnostics and Lean interact with each other in unexpected ways? Each promises paradigm-shifting improvements in laboratory operations and clinical capabilities. Could these two trends, when mixed in one lab, morph into an exponential agent of change?

Imagine that outcome! It could mean that laboratories offer clinicians an extraordinary array of sensitive new molecular tests—delivered in a low cost service package. It would be the equivalent of today’s $500 Pentium PC with the 50-gigabyte hard drive. Hard to imagine in 1984, but a reality in 2004!

Lean Boosts Two Labs: It Eliminates STAT Tests

CAN A LEAN PROJECT DELIVER BIG GAINS to a laboratory which is already recognized as a top performer? Two innovative laboratory directors agree: the answer is yes!

“It’s been seven months since our first Lean project in the core laboratory at Southdale Hospital,” observed Rick Panning, President, Laboratory Services at the eight-hospital Fairview Health Services in Minneapolis, Minnesota. “We cut our average turnaround time from request to verified result by 50% in the first 16 weeks of this project. “However, in the months since that project was completed, we’ve continued to improve our service consistency. There are no longer STAT tests in this laboratory,” said Panning. “Moreover, feedback from nurses and physicians is positive. Individuals from our lab’s first Lean team are leading the introduction of Lean methods into other clinical areas around the hospital.”

“We’ve achieved some remarkable gains,” declared Leo Serrano, Administrative Director of Laboratory Services at West Tennessee Healthcare in Jackson, Tennessee. “TAT for specimen collection to receipt in the lab fell from an average of 27 minutes to 6.3 minutes! In the eleven months since the start of our first lean project, there is not one documented case of a patient ID error attributable to a laboratory employee. Our lab is now organized around single piece flow, not batch work. We are believers in Lean management methods.”


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