Pathology Group Establishes Lab Test Exchange Networks

Regional laboratory networks are back, but with a new form and structure

CEO SUMMARY: After several decades of steadfastly maintaining their independence from other pathology groups in their community, progressive hospital-based pathology groups are beginning to create regional laboratory testing networks. These collaborations generally start small and often involve just a few simple testing services. In North Carolina, one pathology group has created two separate test exchange networks. One is with a pathology group and the other is with a physician group.

COLLABORATIVE LAB TEST NETWORKS ARE BACK! But unlike the mostly-failed efforts at creating regional laboratory networks during the mid-1990s, current test exchange arrangements are often simple and anchored by a common laboratory informatics platform.

THE DARK REPORT was first to identify and describe this nascent market trend. In a very quiet fashion, clinical labs and pathology groups have begun to ask their LIS vendors to add functions that enable and support various type of collaborative activities among laboratories participating in a collaborative testing arrangement. (See TDR, February 28, 2011.)

In Milford, Massachusetts, Psyche Systems Corporation, a laboratory information systems (LIS) software company, has fielded regular requests from different lab clients to support collaborative testing arrangements they are creating. Recognizing that this trend was likely to grow, Psyche coined a name—Test Exchange Network, or TEN—to describe the new lab informatics business model, and then trademarked it.

During the 1990s, in many communities around the country, it was primarily hospital and health system laboratories that engaged in regular meetings to establish a regional laboratory network. The goals were usually to save money by achieving economies of scale and to negotiate region-wide managed care contracts as a single entity.

The majority of these hospital lab-based regional networks never developed into viable organizations. However, the best of these regional laboratory networks have enjoyed great success for as long as two decades. Among them are Joint Venture Hospital Laboratory Network (JVHL) in Detroit (founded in 1992) and PACLAB in Seattle (founded in 1996.) (See TDR, May 12, 1997.)

In contrast to lab networks of the 1990s, the emerging lab test networks of the 2010s involve smaller labs and often include anatomic pathology groups. Another distinguishing trait is that the collaborative arrangement is often something simple. The goal of the test exchange network is not to tightly integrate the operations of participating laboratories, but rather to allow one lab to tap the resources of another lab in a way that is fast, efficient, and useful to both parties.

Two motivations drive these networks. One is the constant pressure of declining reimbursement. The other is competition from national laboratory companies that causes smaller laboratories in the community to come together and develop collaborative services.

In Winston-Salem, North Carolina, Pathologists Diagnostic Laboratory (PDL) is involved in multiple lab testing collaborations. PDL handles over 100,000 accessions annually. It has nine pathologists.

“In our case, we’ve used the test exchange network as an incubator to help another pathology group start up their own independent laboratory in their service area,” noted Michael G. Hitchcock, MBChB, Medical Director at PDL. “Our laboratory supports this start-up lab with facilities it might otherwise not be able to afford.”

In fact, PDL collaborates in two distinct networks. “One TEN involves the start-up lab I just mentioned,” explained Hitchcock. “The second TEN is with a group of physicians in the region.”

“This way of operating brings a new competitive dynamic into the marketplace and that’s the fascinating aspect of it,” he added. “Whether it is an unrelated pathology practice that is just getting started or a client physician practice ramping up their in-house pathology services, there are substantial hurdles and lots of overhead.

“By collaborating on resources and, in particular, by piggy-backing on a single LIS that is already up and running, they can introduce and support lab testing services more safely and at lower cost than if they had to start from nothing,” Hitchcock said. “This also speeds up the entry to market for these new labs.”

In both networks, it is PDL’s automated testing capabilities and its LIS in Winston-Salem that are used by the other parties. Each of these collaborating laboratories operate in other cities in North Carolina.

LIS Anchors The Network

“Our information system is the Pysche WindoPath LIS,” stated Hitchcock. “This LIS has the capability to partition the database. That means our test network collaborators can independently use our LIS. Because of the internal firewalls that are programmed into this LIS, only the laboratory in the network which is working on the case can view that lab’s patient data.  Lab partners cannot view PDL’s patient data.

“For any laboratory interested in developing a collaborative laboratory test network, this is an essential feature,” commented Hitchcock. “Federal privacy rules under the Health Insurance Portability and Accountability Act (HIPAA) mandate this level of data protection and patient privacy.”

In one test exchange Network, PDL collaborates with another pathology practice located in a different North Carolina city. This TEN is designed to support their newly-formed independent pathology lab company.

Collaborative Test Network

“With this start-up lab, we have the reverse situation of our other collaborative test network,” stated Julie Williams, PDLPath’s Director of IT. “Pathologists working in a community hospital recently established their own independent laboratory company.

“In this collaborative laboratory testing network, we receive the specimens from their referring clients,” she said. “Our laboratory does all the technical component services. This includes grossing, processing, staining, and preparation of the slides. Our laboratory directly bills the payers for the technical component (TC).

“We then send the slides to this pathology group,” Williams stated. “They do the analysis, sign out the case, and bill for the professional component (PC).

“In this collaboration, we do all the technical work in our laboratory,” she stated. “Because we have cytotechnologists and their group doesn’t, we perform all the normal Pap tests and HPV tests. Abnormal Pap tests and histology cases go directly to these referring pathologists for them to read.

“Their pathologists sign out these cases using our LIS and their database partition within our LIS,” noted Williams. “We also handle distribution of the reports for this pathology group. Each of their client physicians is set up in our LIS and these physicians can access the reports via an electronic interface.

Flexibility Of The Network

“One aspect which illustrates the flexibility of these types of collaborative laboratory testing networks is accessioning,” she said. “This pathology group collects its specimens, then can accession them at their site.

“Their laboratory staff enters the information into their database partition on our LIS,” Williams explained. “This is possible because they have WindoPath site licenses that allow them to access their own database that exists within our laboratory information system.

“Once their pathology group assigns the case numbers and enters the data into the LIS, these specimens come to our laboratory to be processed,” she said.

“This collaborative lab testing arrangement minimized the front-end capital needed by these pathologists to establish their independent laboratory company,” explained Williams. “It also reduced their business risk. That’s because they took advantage of our excess capacity and available resources as their sales team went into the market and brought on new physician clients.

“As the volume of specimens increases, these pathologists can then build out their own technical laboratory,” she commented. “It also allows them to hire cytotechs and other staff based with confidence that they have enough specimens to support these positions.

“In fact, in the next month or so, their laboratory will begin operation,” continued Williams, “but our test exchange network won’t end. Rather, we will continue to collaborate by performing certain tests, such as gonorrhea, chlamydia, and HPV testing. These are tests which their lab is not yet equipped to perform.”

TC/PC Test Network

PDL’s other test exchange network was actually the first one it established. It used the concept of a collaborative lab testing network to enable high grade LIS functionality in a new category of anatomic pathology case referrals. “We started this first collaborative testing arrangement about 18 months ago with a physician group in another North Carolina city,” commented Hitchcock.

“This group of physicians had established an in-house histology laboratory,” he continued. “They do the technical component of the work and bill for the technical component (TC). Then they pay for access to our IT system and, as owners and operators of our own separate pathology laboratory, we perform the professional services and bill for the professional component (PC).

“Prior to developing this business model, we evaluated several other payment models to ensure compliance with federal and state laws,” added Hitchcock. “This collaborative test network meets those requirements and our legal team says that our laboratory test network utilizing this TC/PC arrangement puts us on the safest possible end of the compliance spectrum.

TC/PC Compliance

“As most pathologists know, when a physician group wants to globally bill for the TC and the PC, one of the compliance requirements to bill Medicare is that the pathologist contracted to read the physician group’s slides must perform that professional service in the offices of the physician group,” he noted.

“In the case of our client, this would require them to hire a pathologist to work as part of their group practice,” said Hitchcock. “Alternatively this physicians group would need to contract with a pathologist to come to their office to read the slides and sign out the cases.

“Our test exchange network offers several benefits to both parties,” declared Hitchcock. “First, the foundation of the arrangement is an arm’s length contact between the participating labs which meets all compliance considerations.

“Second, because our LIS database was partitioned, the physician group only pays for their specific use of the LIS,” he noted.

“Third, because we both use the same LIS, the pathology informatics is integrated between all participating sites and all parties involved in this collaborative testing arrangement,” Hitchcock added. “This improves productivity, reduces errors, and contributes to better patient care.

Reference Laboratory

“Fourth, our pathology laboratory is set up to offer an extensive menu of tests,” Hitchcock said. “The physician group can refer those cases to us for special stains or other expertise when necessary. That saves a big capital expense for them, while allowing them to access our economies of scale.

“This collaborative arrangement benefits the referring physicians in another way,” observed Hitchcock. “It gives them immediate access to the expertise of our subspecialist pathologists—and that wouldn’t typically be true if they were to hire their own pathologist, for example. We are also of sufficient size to have 24/7 coverage.”

The emergence of these new forms of regional laboratory networks should not be a surprise. Pathologists and laboratory administrators have long recognized that collaboration with certain laboratory services can generate substantial cost savings while allowing the different participants to then deliver enhanced lab testing services to their client base.

Ceding Control To Network

In past years, what prevented the business model of a regional laboratory network— or a collaborative laboratory testing arrangement—to become more common was typically the unwillingness of individual laboratories to cede control of some aspect of their business to the network.

This has been particularly true of anatomic pathology group practices. THE DARK REPORT has regularly observed that, despite the multi-decade sustained sales and marketing success of the clinical laboratory testing services provided by JVHL in Detroit and PacLab in Seattle, the anatomic pathology (AP) groups serving the member hospital labs in each network have never come together on their own to collaborate in a similar and comprehensive fashion.

Networks In Seattle & Detroit

Yet, as an AP testing network, in both the Detroit and Seattle metro areas, these pathology groups have had an ideal opportunity to piggy-back on the sales programs of each regional laboratory network. The benefit would be an increased volume of AP case referrals, probably at a lower sales cost because of the economies of using the existing sales teams at JVHL and PacLab.

Thus, it should be considered an important development in the laboratory testing marketplace that, in various cities and for different reasons, local clinical labs and anatomic pathology groups are now coming together to develop different models of collaborative lab testing services. This is a new phenomenon and is clearly a response to shrinking reimbursement and intensified competition from national laboratory companies.

New Models Of Healthcare

Further, with accountable care organizations and medical homes expected to play a greater role in healthcare in coming years, it may turn out that collaborative lab test networks may be helpful as local laboratories restructure to serve these new healthcare business models.

THE DARK REPORT invites pathologists and lab administrators currently involved in similar collaborative lab test networks to contact us with details about their lab testing network’s activities.

Cornerstone of Lab Test Exchange Network Is Partitioned Patient Data on Single LIS

BY DEVELOPING COLLABORATIVE LAB TESTING NETWORKS, Physicians Diagnostic Laboratory (PDL) boosted its lab test volume by about 10%.

“From a business perspective, these are important relationships,” explained Michael G. Hitchcock, MBChB, Laboratory Director at PDL, in Winston-Salem, North Carolina. “In one collaborative lab test network, we have a contract with a physician group. In the other collaborative lab test network, we have a contract with a start-up laboratory launched by pathologist who serves a large multi-hospital health system in another city.

“Separate from the profitability issue, we found it be a good exercise in relationship building for us to work with pathologists at that health system,” he noted. “We don’t serve the same geography, so in that way it was a professional pleasure to help them launch their new lab in a way that avoided the types of missteps they might have otherwise experienced.”

In building the two different laboratory test exchange networks (TEN), Hitchcock said that the common use of a single laboratory information system (LIS) is a key factor in the success of these collaborations.

“Every pathologist and lab administrator knows how expensive and time-consuming it is to purchase an LIS, then make it function in support of the laboratory,” noted Hitchcock. “When we began discussions with our partners in these two collaborative lab testing networks, we all quickly realized that working from a single LIS would be both better and cheaper for all parties.

“In this regard, we found our LIS vendor, Psyche Systems in Milford, Massachusetts, to be surprisingly flexible in pricing the software at a low enough price so that smaller labs could use it on larger systems,” Hitchcock commented.

Partition The Database

“Equally important, they were ready to facilitate writing the code to support every conceivable business model that we could throw at them,” he said. “They made it possible to partition the database so that multiple laboratories could work from our single LIS, yet still fully comply with federal and state patient privacy laws.

“Our experience with the use of a common laboratory information system that has partitioned databases to serve each participating laboratory in the test exchange network has been positive,” noted Hitchcock. “This also demonstrates how integrated informatics solutions can support laboratories seeking to collaborate.”


Could the Spread of EHRs Foster Growth of Collaborative Test Exchange Networks?

PHYSICIANS ARE ADOPTING electronic health record (EHR) systems in growing numbers. This trend is likely to foster the spread of another trend, that of test exchange networks, says Jane Pine Wood, an attorney with the national law firm of McDonald Hopkins.

“As more physicians adopt electronic health record (EHR) systems, they have the ability to use these systems in a variety of ways,” noted Wood. “For example, EHRs can send requests to lab information systems (LIS). This is one way that expanded use of EMRs can make it easier for labs to establish collaborative test networks.”

Using The Same LIS

Among her clients, Wood has seen many examples of situations in which one lab allows another lab to use its laboratory information system for a discreet project or for certain tests, just as Physicians Diagnostic Laboratory (PDL) of Winston-Salem, North Carolina, is doing.

“I have clients who have similar lab test- ing collaborations and who have done so using home-grown LISs,” she commented. “Over the years, we’ve had clients operate test exchange networks. What is different today, compared to earlier years, is the widespread use of EHRs by physicians.

“When putting these deals together, the key is that all collaborating laboratories in the network need to have a lawyer review the agreements,” Wood advised. “There are con- tractual issues to consider in the agreement itself, as is true with any basic vendor agree- ment. But there are also federal privacy issues and inducement issues that must be appropriately addressed as well.

“The collaborative test network would need to have all the firewalls in place, for example,” continued Wood. “A firewall is needed to limit access to patient data. As well, the LIS needs to be configured to restrict access to patient data only to those providers authorized to provide care to the patient.

“The LIS should also track who accessed a patient’s records and which files they accessed,” she said. “Each participating laboratory in the network should be restricted to viewing only its own patients’ information. This is a basic privacy issue under the federal Health Insurance Portability and Accountability Act (HIPAA).

“In addition, laboratoraties participating in a collaborative network must take care that there is no inducement, meaning the lab with the LIS cannot offer anything of value to induce the other party to send more work to the lab running the LIS,” observed Wood. “This is a basic compliance issue under the Stark law and the Medicare anti-kickback laws.

“A laboratory cannot pay physicians or another lab to send it work and vice versa,” she added. “Labs dealing with physicians need to ensure compliance with the Stark law and any lab working with another lab would be concerned about the Medicare and Medicaid antikickback law.

Legal Review Advised

“To be safe, any clinical laboratory or anatomic pathology group that has an arrangement that involves both a referral source and the use of an interface—such as the common use of an LIS by a laboratory test exchange network—should have an attorney review the arrangement, plus all the related agreements to ensure that the lab is in compliance with appropriate state and federal and state compliance requirements,” she concluded.


Lab Start-Up Saves Money on IT Solution

ONE CLEVER ASPECT to the collaborative laboratory testing networks created by Physicians Diagnostic Laboratory (PDL) is how use of a common LIS by the participating network laboratories can save money and accelerate entry into the marketplace.

“Running the program on a site license, minimizes the start-up lab’s investment and allows it to get started quickly,” stated Julie Williams, PDL’s Director of IT. “It also allows them to learn the database, which is the most important part of the LIS.

“Learning the database means that, at such time they may want to purchase the full LIS program, they are knowledgeable about how it works,” she noted. “Further, that full LIS will run the same database that they’ve been using as part of the laboratory test exchange network.

“This avoids the substantial up-front expense of acquiring a full LIS and implementing it at the start of their business plan, when cash flow is at a minimum,” continued Williams. “As part of the lab test network, they pay a fair market rate for the use of our LIS, along with qualifying for the volume discount that comes as a result of our combined specimen volume.

“Another source of savings for the start-up laboratory is that they don’t need to hire their own IT staff or quality assurance staff,” Williams added. “That is because we already have these skilled individuals fully-trained and already in place.

“By using our LIS and support resources in this manner, the start-up lab gains the privilege of using a mature large laboratory information system without the steep initial investment cost that would come with buying such an LIS,” concluded Williams. “The start-up lab also gains valuable experience in how the LIS supports the entire range of daily testing activities.”


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