Given the high value of performing lab testing for a health system’s patients locally within the system — patient loyalty, improved access to services, optimal turnaround time, pathologists’ and technologists’ consultative access, reduced costs per test due to economies of scale, single EMR, utilization management support, etc. — does it make sense to engage in lab outreach at lower reimbursements even if only lowering incremental costs? This is the question ARUP posed to lab outreach industry experts Dr. Kathy Murphy and Sonny Varadan during our laboratory outreach webinar, and here’s what they had to say on the topic.
Kathy Murphy, PhD — Chief Executive Officer at Chi Solutions
I’ve always believed that through regionalization and consolidation, as well as outreach, hospital-owned laboratories can be every bit as economic as the national labs. And as we start to take things away from our local communities, not only is it good service, but I think there has to be some economics of scale. I mean, how crazy is it to be flying specimens all over to one of a dozen regional labs owned by one of the national labs, when it can be done locally better, cheaper, with better quality and better continuation of care?
“How crazy is it to be flying specimens all over to one of a dozen regional labs owned by one of the national labs, when it can be done locally better, cheaper, with better quality and better continuation of care?”
Sonny Varadan, MBA, PMP — Director for IT Strategy and Client Connectivity at a major reference laboratory
You have to take both the short-term and the long-term view. It comes back to how much longer can you sustain growth in a profitable manner with a low margin. Yes, volume does drive the cost down, but hospital outreach labs are local, and that’s why they’ve been very successful, either with affiliations or same-day testing service. There’s an advantage to keeping the business local. But, there comes a point where, as technology becomes cheaper — and I’m talking instrumentation or setting up a rapid response lab or a stat lab, which some of the larger labs do — and the expectations in terms of the turnaround time for these routine tests also change or cost does play a dynamic, then that is where hospitals have to make a decision on, the growth is slowing, my cost model is not effective anymore because there’s only so much testing I can drive into my labs, and there’s a decision to keep outreach as a core competency or not. So, that’s something which we should never forget. That is why I highly recommend that every hospital system evaluate at least on a yearly or biannual basis, weighing the merits, pros, and cons of being in that market and space.
“I highly recommend that every hospital system evaluate on at least a yearly or biannual basis, weighing the merits, pros, and cons of being in the outreach market.”
To read more of Sonny and Kathy’s insights into the future of laboratory outreach, download “Where Do We Go From Here? Laboratory Outreach in a Value-Based Era“.