Inside the Lab Industry: Molding the Lab Business Along the Patient-Centric Medicine Model

For decades, the typical business model for outreach laboratories has been to perform a test, turn around results, and send out a bill. But as was discussed during G2 Intelligence’s recent Volume to Value conference in Fort Lauderdale, Fla., that era is drawing to a close. Instead, labs must be more patient-centric. It is a term that could comprise a variety of meanings. According to the National Institutes of Health, the patient-centric model is “health care that establishes a partnership among practitioners, patients, and their families (when appropriate) to ensure that decisions respect patients’ wants, needs and preferences.” It can also include medical homes—a single locale where a patient’s care is coordinated, often through an accountable care organization (ACO). “It’s reached a tipping point” in terms of acceptance, said John T. Daly, M.D., the chief medical officer for COLA. The current payment models are also being forced to change. Paul Epner, an industry consultant in Chicago and director of the Society to Improve Diagnosis in Medicine, noted that the costs for diagnostic services such as lab are growing faster than most other components of health care delivery. The result: Labs will be pressured to cut costs and improve efficiency. “The problem is, there’s no patient involved—just inputs and outputs . . . putting your head down and doing the labwork,” Epner said. Specific Role for Labs Remains Unclear However, the specific role of laboratories in a patient-centric model remains for the most part undefined. “We are in a period of uncertainty,” Daly said. He noted that the payment policies being promoted by the Centers for Medicare and Medicaid Services in order to encourage patient-centric care are putting financial pressures on smaller labs and pathology practices. Such trends are also exacerbated by the fact that more and more pathologists are becoming employees of providers rather than owning stakes in their own practices. Moreover, the longtime business models for most labs and pathology practices have contributed to the perception among most hospital and health system managers that “they are a commodity,” Daly said, putting them at risk of being marginalized in the move over to patient-centric care. Outreach labs also typically cover a sometimes sprawling geographic service area—one that can offer a variety of branches where patients can undergo draws for testing. Multiple locales do not necessarily serve the medical home model well. “At the same time, it’s a moment for opportunity,” Daly said. Patient Finances, IT, and the Sonora Quest Experience Although lab and pathology leaders have been encouraged to use their skills to enhance the value of the care they provide, another patient-centric focus could be on finances. As cost-shifting by payers continues to grow, so do their deductibles and out-of-pocket costs. This may be prompting some patients to become more proactive regarding the care they receive. Daly noted that IT is a critical component of patient-centric care and could be used to create algorithms to prompt specific tests and lab formularies. However, hospitals and outreach labs have not been equal in the IT realm. The latter’s ability to electronically assemble data on an individual patient and use it to its clinical and financial advantage has been easier said than done. David N. Moore, chief information officer for Sonora Quest Laboratories in Tucson, Ariz., observed that until recently, few labs had the ability to even differentiate between two patients with similar names—a distinct problem for his outreach network. Although Sonora Quest is majority-owned by Banner Health, one of the state’s major hospital networks, it also provides outreach services to about half of Arizona’s major hospitals. Banner has also formed seven ACOs within Arizona, putting pressure on Sonora Quest to be able to service their patient populations. Those pressures were compounded by recent changes in Arizona law that allowed patients to access their own laboratory records. So Sonora Quest was insistently prodded to update its IT infrastructure, according to Moore. “All those requirements were tied in to the need to be able to track patient data,” Moore said. “For me, it was obvious—we had to form our own patient IDs.” The results have not only made its lab network more able to compete within a patient-centric model, it has also been a boon to Sonora Quest’s bottom line. As a result of its own internal upgrades and working with Arizona’s regional health information exchanges, Sonora Quest has been able to streamline the search for complete patient records from a couple of weeks to several minutes, according to Moore. Sonora Quest currently receives about 600 patient requests for records each week. At the same time, Sonora Quest has become much more effective in collecting copayments from patients at the time of service. It’s a critical issue given that the ACO Banner formed with the Arizona Blues includes a $50 laboratory copayment. And while just 3 percent of patients who enter Sonora Quest’s 73 service centers owe the lab any money, it still amounts to $14,000 per day. Now, every patient’s balance is assessed when they check in. And a large number pay what they owe immediately, Moore said. However, Moore also noted that by upgrading its IT, Sonora Quest can also support hospitals and ACOs in a variety of patient-centric metrics. They include monitoring incoming orders in conjunction with a patient’s electronic medical records in order to warn of the possibility of missed tests and provide accurate lab utilization and cost data for specific periods of time. Creating a Value Chain But just getting a handle on costs or volume is not going to be enough to adapt to a patient-centric model of care. Epner noted that lab tests are only as valuable as they are to the entity consuming them. If a hospital or other provider ignores or misreads a lab test, it is of no value—either to the provider or the patient. Ditto for unnecessary tests. “We can turn out an accurate result for a test that should have never been ordered—and we are not necessarily providing value for anybody,” Epner said. As a result, Epner encouraged labs such as Sonora Quest to provide specific volume and cost data—but it must be given to physicians individually with the intent of changing their behavior to the benefit of their patients. Epner cited a couple of studies that focused on physicians receiving specific feedback on a regular basis about their testing patterns and volume. In both of those studies, doctors who had engaged in inappropriate testing improved their performance. Epner also noted that Kaiser Permanente’s Southern California division has created 18 outpatient “safety nets” with the intent of cutting costs and improving care. Focused testing has proven vital in improving levels of accurate prostate cancer and chronic kidney disease diagnoses—as well as cutting down on malpractice suits. And labs are being called in for testing when certain patients show high refill rates for certain kinds of prescriptions—uncovering potential drug abuse and overdose issues. “This is the kind of value where you are changing patient outcomes,” Epner said. “You’re not necessarily going to run more tests—although sometimes you are—but you are focused on the appropriateness of care and solving patient problems.”