Industry Report: Clinical Laboratories at a Crossroads

Powerful forces are reshaping the clinical-laboratory industry. Deep reimbursement cuts threaten to upend traditional business models. Ongoing commoditization continues to exert margin pressure. Capital requirements are rising as budgets erode. And uncertainty is widespread about how best to manage costly esoteric testing in a value-based world.

Many hospitals facing these and other challenges have concluded that selling their laboratories represents the most prudent path forward. The decision is understandable, given the often-substantial cash infusion and lower overhead a sale and outsourcing can produce.

But selling a laboratory outright or entering into a managed-services agreement are not without strategic risk. Organizations that outsource laboratory operations effectively relinquish control of an irreplaceable information asset essential to clinical diagnoses, treatment, and research. That means the hospital’s flexibility and autonomy necessarily will be reduced as value-based care continues to evolve.

Untapped Potential

By resisting the temptation to sell and committing instead to pro-active laboratory stewardship, hospitals can position the diagnostic laboratory as a vital clinical and financial engine at the core of the organization’s expanding risk-based competencies. Leaders who fully grasp the unique role of the laboratory as the hospital’s most important resource for diagnoses, prevention, and research quickly arrive at a new appreciation of its enormous potential.

Unlocking that potential to execute effectively in a value-based environment depends on improving laboratory-utilization management. Visibility into utilization patterns through advanced analytics and subsequent reductions in overutilization via evidence-based decision support can improve outcomes while enabling more-informed risk management in capitated and bundled payment arrangements.

Equally important, enhanced utilization can also boost laboratory margins and increase capacity to support expanded outreach opportunities. More transparent utilization strengthens the hospital’s negotiating stance with payers. Finally, retaining laboratory operations means clinical-laboratory data will be secure and available to support a wide range of population-health initiatives in the years ahead.

Change Healthcare, in partnership with Mayo Clinic, has developed a powerful laboratory application to help hospitals achieve these goals. Known as CareSelect Lab, the solution incorporates sophisticated analytics and one of healthcare’s most comprehensive sets of evidence-based laboratory guidelines for managing utilization.

As such, it is among the most advanced laboratory decision-support solutions available in the market today. CareSelect Lab has the capacity to help move hospitals past the difficulties of the current environment to uncover and exploit the laboratory’s vast clinical and financial potential into the future.

Troubled Waters

No sector of healthcare has been immune to the ongoing effects of decreased reimbursement and competitive pressures. But hospital-based clinical laboratories have been especially hard hit.

Over the past two years, laboratories have struggled to overcome the impact of successive Medicare-reimbursement cuts mandated by the 2014 Protecting Access to Medicare Act (PAMA). In 2018, the law, designed to more closely align Medicare payments with rates paid by commercial carriers, began ratcheting down reimbursement on approximately 75% of laboratory tests that qualify for Medicare payment.¹

The Centers for Medicare and Medicaid Services (CMS) estimate the cuts will shrink total Medicare laboratory spend by up to 30% over three years,² with a commensurate impact on individual laboratory revenues. Hospital reference laboratories are further bracing for additional reductions of up to 15% annually across the subsequent three-year period.³

The cuts, which some observers believe will drive many smaller laboratories out of business,⁴ price competition in the industry. Initiated by national reference laboratories in pursuit of market share, the ongoing price pressure and resulting commoditization of most common tests show no signs of abating as payers increasingly limit network participation to the lowest-cost clinicians and ancillary providers.

In the face of these economic pressures and the uncertainty that lies ahead, backing away from clinical-laboratory management may seem like a logical response. But before that step is taken, it’s important for organizations to recognize the central role laboratories can play in optimizing value-based care through improved time-to-diagnosis, care coordination, identification of high-risk patients, and wellness screening and monitoring.

By retaining the lab and committing to effective stewardship through better utilization, hospitals will positively affect not only clinical outcomes and financial performance but ultimately the viability of the organization as a whole.

A Vital but Improperly Used Resource

Approximately 13 billion laboratory tests are performed annually by more than 200,000 clinical labs in the United States.⁵ About 3,500 laboratory tests⁶ are commonly used to support upward of 70% of all medical decisions made by providers.⁷ Despite the laboratory’s critical role in diagnosis and treatment, laboratory services represent just 2.3% of total U.S. healthcare expenditures.⁸

Unfortunately, the ubiquity of testing—combined with low standardization and high variability among physician practices—results in chronic improper utilization of many routine tests. By some estimates, 10%-25% of all hospital-performed laboratory tests in the inpatient setting are not indicated.⁹ A recent European study found that two-thirds of reordered tests were either likely clinically unimportant or unnecessary.¹⁰

Redundant or improperly ordered tests add cost and also can increase patient risk. One recent study suggested that phlebotomy overuse can lead to hospital-acquired anemia, which may result in additional testing, prolonged hospitalizations, unnecessary transfusions, and increased mortality for cardiopulmonary-disease patients.¹¹

Nor is inappropriate utilization solely limited to excessive test volume. Underutilization, or the failure to employ appropriate tests when clinically indicated, has a significant impact on outcomes and helps drive costs higher. Consider:

• Only 24% of individuals with diabetes receive the appropriate number of hemoglobin tests, which are critical to reducing complications like blindness, amputation, and kidney failure.¹² 
• Just 38% of adults receive colorectal cancer screening, even though annual fecal occult blood tests and stool samples could prevent thousands of deaths each year.¹³
• Only 16% of toddlers at high risk of sepsis receive a urine test, which helps prevent recurrent infections, renal damage, and chronic renal failure.¹⁴
• Only two-thirds of adults (68%) had their cholesterol levels checked over a five-year period, and among those with high LDL levels, only 31% had it under control.¹⁵

The Value of Decision Support

Whether the objective is strengthening preventative care or reducing unnecessary testing, effective stewardship depends on appropriate utilization management informed by evidence-based decision support. Numerous examples highlight the value of laboratory-based systems that interact with clinicians at the point of care.

One intervention that eliminated clinicians’ ability to electronically order daily reoccurring tests, for instance, reduced per-patient, per-day tests by up to 20% and cut hospital costs by $300,000 over a two-year period.¹⁶ A similar study limiting clinicians to ordering five common tests only once in a 24-hour period produced an immediate 12% reduction in test volume and a sustained 21% decrease in all inpatient laboratory draws through the following year.¹⁷

Another study involved a frequently used genetic test designed to diagnose HFE-related hereditary hemochromatosis. Because published clinical guidelines indicated all patients with the illness have transferrin saturation levels significantly higher than those not at risk for the condition, the authors restricted orders for the test to patients with transferrin saturation greater than 45%. The result: The ordered tests detected 100% of new patients with HFE-related hereditary hemochromatosis.¹⁸

Importantly, a reduction in testing volume does not correlate to an increase in adverse patient outcomes. One study found an 8% cumulative reduction in testing over three years had no effect on readmission rates or mortality.¹⁹

CareSelect^® Lab

CareSelect Lab is a performance-improvement solution that enables hospitals and health systems to transform their lab into a value center. Point-oforder EHR integrations enable clinical leadership to audit, analyze, and guide provider ordering to manage acute areas of overutilization and mitigate the inappropriate ordering of laboratory tests.

CareSelect Lab is unique in that its underlying clinical guidance includes more than 1,800 bestpractice alerts authored, curated, and maintained by Mayo Clinic physicians, scientists, and allied health staff. The guidelines are grounded in evidence-based research, industry best practices, and vetted Mayo Clinic policies and procedures. They collectively constitute one of the most comprehensive and detailed set of evidence-based tools for clinical laboratory-testing available today.

CareSelect also is capable of adjudicating the appropriateness of every unique laboratory, pathology, and genetic test order in real time and from the clinician’s EHR workflow. The guidelines are organized into four broad rule categories:

• Frequency: Addresses the problem of unnecessary repetitive test ordering
• Value-Based Testing: Provides a list of tests and associated rules to guide appropriateness ordering
• Cost Information: Provides generic cost information on selected tests at the point of care
• Interfering Substances: Identifies laboratory tests which may be affected by medications or over-the-counter drugs

The CareSelect Lab solution is deployed initially in a surveillance mode to develop a clear understanding of current utilization patterns while minimizing clinician impact. This approach allows laboratories and hospitals to develop a detailed baseline of existing ordering volume by test type and clinician.

Extensive benchmarking and analytics tools enable organizations to compare provider ordering patterns, identify gaps in care, and develop organization-specific strategies to manage overall test utilization. Only after this data has been established and areas of overutilization have been identified are the clinician guidelines activated at the point of care.

A Road to the Future

Those able to look beyond the challenges currently affecting the clinical-laboratory industry and resist pressure to sell or outsource their laboratory operations will be well-positioned to capitalize on a once-in-a-generation opportunity to fundamentally reimagine the role of the clinical laboratory.

By reducing overutilization with advanced decision support, laboratory leaders can be assured they’ll have a seat at the table to assist with their organization’s response to value-based care. At the same time, they’ll be able to manage laboratory costs more effectively to improve margins.

Reduced utilization, meanwhile, creates capacity for expanded-profitable outreach activities. Perhaps most importantly, laboratories will be positioned to positively affect outcomes and lead important population-health initiatives as value-based care matures.

^{_{1 “PAMA is here, and most hospital leaders are unaware of its impact,” Modern Healthcare, Nov. 28, 2018}}

^{_{2 Kimberly Scott, “Survival of the Fittest in a Post-PAMA World,” AACC, March 1, 2018}}

^{_{3 Ibid.}}

^{_{4 Ibid.}}

^{_{5 “Laboratory Medicine: Advancing Quality in Patient Care,” AACC, Oct. 7, 2015}}

^{_{6 “Advancing Value-Based Healthcare: Laboratory Medicine’s Essential Role,” AACC, May 30, 2017}}

^{_{7 “Clinical Laboratory Testing: Life Saving Medicine Starts Here,” American Clinical Laboratory Association}}

^{_{8 “Laboratory Medicine: Advancing Quality in Patient Care,” AACC, Oct. 7, 2015}}

^{_{9 Change Healthcare internal research}}

^{_{10 “Close-up on Diagnostic Test Overuse,” AACC, March 15, 2018}}

^{_{11 Jaime Rosenberg, “Evidence-Based Guidelines to Reduce Excessive Laboratory Testing,” American Journal of Managed Care, Oct. 25, 2017}}

^{_{12 “When Rhetoric Doesn’t Match Reality – Why Claims of Overutilization Ignore the Real Dollar Signs,” ACLA Blog, American Clinical Laboratory Association, Aug. 17, 2018}}

^{_{13 Ibid.}}

^{_{14 Ibid.}}

^{_{15 “Use of Selected Clinical Preventive Services Among Adults – United States, 2007-2010,” Morbidity and Mortality Weekly Report, Centers for Disease Control and Prevention, June 1, 2012}}

^{_{16 Iturrate, E., et al., “Optimize Your Electronic Medical Record to Increase Value: Reducing Laboratory Overutilization,” American Journal of Medicine, February 2016}}

^{_{17 Eaton, et al., “Evidence-Based Guidelines to Eliminate Repetitive Laboratory Testing,” JAMA Internal Medicine, Dec. 1, 2017}}

^{_{18 Zhou, et al., “A Novel Approach to Improving Utilization of Laboratory Testing,” Archives of Pathology & Laboratory Medicine, February 2018}}

^{_{19 Eaton, et al., “Evidence-Based Guidelines to Eliminate Repetitive Laboratory Testing,” JAMA Internal Medicine, Dec. 1, 2017}}