"PART TWO OF TWO PARTS:"

Picking Winners and Losers For the Molecular Test Menu

Experience Teaches Valuable Lessons at Beaumont

CEO SUMMARY: In the 15 years it has operated a molecular diagnostics testing program, Beaumont Reference Laboratory (BRL) has learned important lessons on how to evaluate which specific molecular assays are ready for clinical introduction. It has also learned effective ways to anticipate the clinical and financial success of such assays. Part II of this two-part series details some of the management strategies and methods BRL uses to sustain its financially-viable molecular testing program.

SUCCESS WITH A MOLECULAR TESTING PROGRAM requires skill at determining which specific tests will be clinical and financial winners and which will be losers.

Part II of this two-part series on molecular testing at William Beaumont Hospital (WBH) in Royal Oak, Michigan provides insights on identifying molecular assay “winners” and losers.” This series is based on a presentation by Frederick L. Kiechle, M.D., Ph.D., Chairman of the Department of Clinical Pathology at William Beaumont Hospital and Medical Director of Beaumont Reference Laboratory, at the Executive War College, held last May in New Orleans.

Part I, published in the August 1, 2005 issue of THE DARK REPORT, dealt with how WBH’s Department of Clinical Pathology and BRL developed its molecular laboratory and expanded both the test menu and specimen volume over the past 11 years. It identified the key objectives and management strategies employed at WHB and BRL to grow a successful molecular program. Part II focuses on how BRL identifies the most promising molecular tests, evaluates market demand, determines which clinicians are likely to order such tests, and maximizes the revenue potential of such molecular assays.

“In the 11 years since we started our clinical molecular testing program, we’ve gained plenty of experience in how to evaluate the potential of different molecular assays,” noted Kiechle. “There’s an interesting tightrope to be walked, because the laboratory must meet the needs of clinicians by offering some tests which are not adequately reimbursed, while supporting the program with other molecular assays which can be considered financial “winners.”

As most pathologists and lab managers know, certain molecular assays are rapidly displacing conventional testing methods as the clinical standard of practice. As molecular assays based on new technologies enter the clinical marketplace, more laboratories will be establishing a molecular diagnostics testing program. The WBH/BRL experience provides valuable lessons about the timing for moving from an existing assay to a molecular version.

“Currently, our molecular testing menu is organized around five areas of clinical opportunity,” observed Kiechle. “They are: 1) inherited disorders; 2) genetic risk factors; 3) infectious diseases; 4) hematology; and 5) pharmacogenomics—studying the genetic factors of drug response.

At BRL, the process of evaluating a new molecular assay always begins with a market study. “One way to identify molecular tests in high demand in your market is by looking at the test utilization patterns of the physicians practicing in the community,” stated Kiechle. “Some subspecialties use a higher volume of molecular tests than others. It’s essential to know what these subspecialties are, what tests they order, and how many tests are ordered per physician.

“To do this properly, a laboratory must think externally. It must get into the local physician community and spend time visiting client-physicians, gathering relevant information, and learning which physicians are adopting new clinical procedures that will require molecular tests to help in diagnosis and monitoring the patient,” noted Kiechle. “This is a listening, learning, and data-gathering exercise. It takes time and resources, but the resulting information allows the laboratory to make sound decisions about which molecular assays have the best potential and when the timing is right to add them to the test menu.

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“For example, there is a significant difference in how internal medicine physicians and ob-gyns utilize molecular tests for Chlamydia trachomatis and Neisseria gonorrhea,” he continued. “In our market area, we identified and surveyed 135 internal medicine doctors and 68 ob-gyns. Utilization of these tests, when calculated as an average number of tests ordered per physician per month, was significantly different.

“As the table shows (see sidebar above), internal medicine physicians only order, per month, an average of about one-third of one test each for Chlamydia and Neisseria,” observed Kiechle. “In contrast, each month, ob-gyns are ordering, on average, almost five tests each for Chlamydia and Neisseria. HPV, combined with the liquid preparation Pap smear, is often ordered by ob-gyns, as is Factor V Leiden.

“This information helped us develop a market strategy when we were ready to introduce these tests,” added Kiechle. “It allowed us to concentrate on those physicians expected to regularly utilize these tests because of their patient populations and practice patterns. Further, the ordering patterns for the tests shown in this table has remained fairly constant.

Medical Specialties

“During the early years of our outreach testing program, our focus was on the specialties of family practice, pediatrics, internal medicine, cardiology, endocrinology, gastroenterology, nursing homes, ob-gyn, and urology,” said Kiechle. “In 2002, our eleventh year in the outreach business, our out- reach lab did a total of 2,976,494 procedures, with 2,806 ordering physicians. Among the different medical specialties, the big winners for us were internal medicine and family practice, accounting for two-thirds of the total procedures.

“Nursing homes came in third, with 13% of the volume,” he added. “Pediatrics accounted for 4%, while cardiology, endocrinology, and gastroenterology came in at less than 3% each. Urology was the big surprise, with less than 1% of total volume.

Test Ordering Patterns

“Once we have looked at the practice and lab test ordering patterns of physicians, we next study the patient numbers,” Kiechle said. “It is important to monitor these numbers against any anomalies that may appear.

“An example involving cytology illustrates this point,” he continued. “The next table shows the changes in cytology procedures between 2000 and 2004. Even as the number of clients referring tests has increased, the total numbers of cytology procedures has flattened out in the past two years. We attribute this anomaly to the change in the frequency of Pap smear revisits as a result of HPV testing.

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“The clinical setting also affects physician test ordering patterns. Beaumont Health System operates two hospitals. The biggest is 1,061-bed William Beaumont Hospital in Royal Oak, a tertiary care hospital. The second is Beaumont Troy Hospital, a 254-bed community and teaching hospital. BRL is the outreach laboratory within our health system,” explained Kiechle.

“That gives us two inpatient environments and an outreach setting where clinicians can order molecular tests,” he noted. “As Table 3 illustrates, Factor V Leiden is more popular in the inpatient setting than it is in the outreach program at BRL. It’s the reverse with HPV, which is extremely popular in the outreach business.

Two Things Needed

“The lesson here is that it is important to know two things about a specific molecular test,” said Kiechle. “First, will it be more popular in the inpatient/outpatient arena or in the outreach community? Second, is the patient population large enough to generate the specimen volume needed to support the economics of offering this specific assay? Table 3 demonstrates how HPV specimens originate primarily from the outreach marketplace.”

Once BRL has evaluated physician ordering patterns and the patient population available to support a specific molecular assay, its next analysis involves the economics of individual molecular tests. Here is where the financial winners and losers are identified.

“We looked at 26 tests from the year 2003,” Kiechle stated. “It is important to look at those loss leaders—what I call the molecular losers. Table 4 summarizes this study and shows that six molecular tests lost $200,368 while 20 tests made $1,950,662.

“As these numbers imply, there are often good clinical reasons why a hospital laboratory would offer a test in- house that might not be fully reimbursed,” he explained. “From a clinical, as well as financial, perspective, it is vital for the laboratory to stay abreast of which assays are available and what types of assays are moving through the development pipeline.

Offering Clinical Value

“We added an assay—FLT3 gene mutation—to our hematology section because our medical director was impressed with its clinical value,” noted Kiechle. “Everyone recognized how the results of this test carry enormous weight in swaying diagnosis.

“What may at first appear to be a molecular test winner, could in fact be a loser when all the numbers are factored in,” stated Kiechle. “It is critical to know how much the major payers are reimbursing for a specific test before deciding to bring it on board.

“Generous reimbursement for some higher-volume molecular tests can be used to offset the losses that accrue to molecular tests brought on for important clinical reasons,” he commented. “The laboratory needs to diligently collect and maintain accurate data on the financial performance of each molecular test. This is important because it is how the laboratory can monitor and sustain its financial viability.

“In the case of CMV, its loser status is partially attributable to the fact that we do this test STAT because of our transplant program. If we didn’t do these tests STAT, the numbers would not be so bad. This is one more example of a non-economic reason that justifies bringing on a test,” said Kiechle.

“In fact, Table 6 and Table 7 show lists of molecular ‘winners and losers’ in our molecular testing program,” he explained. “On the losers list, we lose money on HIV and HCV because of third-party payer contracts. We are reimbursed $12.78 for each HIV viral, which has a Medicare reimbursement rate of $118.00. Blue Cross/Blue Shield reimburses HCV viral load at $12.48, while Medicare reimburses at $59.00. This variation among payers is the reason why it is vital to know precisely what your laboratory will be paid for the tests it performs.

Best Margins On Tests

“It is the opposite for Chlamydia trachomatis (CT) and Neisseria gonorrhea (NG),” offered Kiechle. “These two tests are our best margin drivers. It was the introduction of CT and NG that pushed the financial performance of our molecular laboratory program from red ink to black ink back in 1994-5. These are very popular tests in this community.

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BRL has learned valuable lessons about monitoring annual growth in its molecular program. “To project the impact of growth on the individual sections of the laboratory, it’s important to have hard data,” Kiechle stated. “On a daily basis, BRL tracks the number of requisitions received from each of the two major client bases—physician offices and nursing homes.

Daily Test Volumes

“We also track our Monday-to-Friday cycle. The greatest total volume of requisitions is received on Monday, with the lowest number of requisitions from physician offices on Wednesday. Many of these offices close Wednesday afternoons. Using these data as a global baseline, we monitor for fluctuations in volume,” noted Kiechle.

“We also monitor the volume generated by our target specialty practices,” he continued. “Every year we calculate the number of requisitions per physician and the number of procedures per requisition. This information is useful for our sales team in targeting areas for growth. The information is also used to project equipment and personnel needs.”

A consistent management theme at BRL is the collection of good information prior to making decisions. BRL has taken the time to evaluate and understand how physicians within its regional market order and use molecular tests. It has estimated the potential size of the market and developed a business plan that allows it to generate enough specimens to ensure both financial and clinical success with individual molecular assays.

It should be also noted that a portion of the increased revenues from BRL’s molecular testing program are invested back into the laboratory. This allows BRL to hire and retain the management talent it needs to collect information and evaluate the performance of these molecular tests.

It is no accident that the molecular testing program at William Beaumont Hospital and Beaumont Reference Laboratory is financially-sustainable. The leadership team at BRL is diligent about execution of its business strategies. It is a reminder to all laboratories that “doing the homework” provides the detailed information needed to drive effective decisions.

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