Framing the Issue:

  • Demand for medical and clinical laboratory techs is expected to grow in coming years, the Bureau of Labor Statistics predicts.
  • The aging population will drive increased demand as more people need to have medical conditions, such as cancer or type 2 diabetes, diagnosed through laboratory procedures.
  • The number of medical and clinical lab jobs is expected to grow 22 percent, from 325,800 in 2012 to 396,400 in 2022, the BLS states.
  • Hospital lab officials worry that the supply of workers will not keep up with demand.
  • Lab personnel vacancy rates ranged, by department, from 4 percent in cytogenetics, lab safety, histology and immunology to 8 percent in phlebotomy, found a 2012 American Society for Clinical Pathology survey.
  • The retirement rate among lab personnel ranges from 4 percent in cytogenetics and phlebotomy to 10 percent in chemistry/toxicology and immunology, the survey found.

Hospital clinical labs are getting hit on two fronts. On the inpatient side, Medicare payment pressures are forcing labs to cut expenses. The outpatient side is confronting clinical laboratory fee schedule reductions, a new bundled payment system and uncertainty about Medicare pricing revisions.

Medicare payment cuts have cost hospitals more than $117 billion since 2010, according to the American Hospital Association. In 2013, Medicare hospital reimbursement was 6 percent below the cost of care.

Hospitals' belt-tightening efforts include their clinical labs, where inpatient services fall under DRG payments. "With health care dollars in general constantly being squeezed, it feels like a never-ending treadmill," says William Hunt, administrative director of laboratories at Pennsylvania Hospital, part of the four-hospital University of Pennsylvania Health System.

As a result, hospital clinical labs are using a number of strategies to lower their costs on the inpatient side. A big focus is leveraging information technology to improve test utilization. "Laboratories are trying to really impact the value of what the physicians are ordering," says Donna Beasley, a consultant with Huron Healthcare.

One way to save is to analyze the clinical effectiveness of pricey tests that must be processed by an outside reference lab and to create a system to manage their use. Often, physicians don't realize the tests must be sent out, and that the results won't come back until the patient has been discharged. In such cases, the lab test "isn't going to affect the clinical outcome of the patient while he or she is in the hospital, but it is going to add to the cost of the inpatient stay for the health system," Beasley says.

To get at the problem, some hospitals have developed multiple strategies to manage test utilization. As an example, some have defined tier levels of laboratory testing and use their computerized provider order entry system to support their utilization protocol. For instance, Tier 1 tests may be ordered by any physician, while Tier 2 tests might only be ordered by certain specialists, Beasley explains. Other providers would need to get a secondary authorization to be able to order the tests.

Tier 3 tests would have even more ordering limitations because these would be very expensive; in this case, any ordering physician would be required to get additional authorization. "Fully utilizing the CPOE system to have pop-ups and hard stops to help direct compliance is key to test-utilization management success," Beasley says.

Avoiding unneeded or redundent tests

St. Louis-based BJC HealthCare has begun to look at high-priced tests to develop a management approach, says Edward Peterson Jr., director of laboratories at Barnes-Jewish Hospital. The idea is to identify tests that don't make a difference in terms of patient diagnosis, treatment, length of stay or discharge.

"Genetic testing can be several thousand dollars," Peterson says. "If you're an inpatient, that goes toward the DRG. So, what are you really getting for that $3,000 test? Probably nothing."

In cases in which a costly test is called for but would provide no clinical benefit during patient hospitalization, it's better for physicians to order the test on an outpatient basis to be processed and billed by an outside reference lab. The Centers for Medicare & Medicaid Services hasn't figured out how to price new, complicated molecular diagnostic and genetic tests and has allowed its contractors to establish prices, says John Warren, senior director of health policy at the law firm McDermott Will & Emery LLP.

Utilization of low-price, high-volume tests also is on hospitals' radar screens. For example, some Barnes-Jewish Hospital patients were getting two or three A1C tests during their hospital stays even though the test measures blood sugar control for the previous three months, so more than one A1C is unnecessary. "If I'm doing more A1Cs than [necessary], that takes me away from tests that I should be doing," Peterson says.

The hospital created a pop-up in its CPOE system that alerts physicians when an A1C already has been run for a patient and provides the test results. That measure quickly reduced repeat A1Cs by 70 percent, Peterson says.

Getting smarter with blood

Blood management also is a priority at many hospitals because blood products are a major lab expense, Beasley says. Studies have shown that patients are unnecessarily transfused too often, especially in nonemergency situations. Hospitals are developing transfusion criteria tailored to various patient circumstances and building the criteria into their CPOE systems to guide physicians.

Some hospitals focus on red cell transfusion criteria, but they also should establish criteria for "yellow products" — plasma, cryo and platelets, Beasley says.

The BJC system has embarked on a program aimed at reducing nonemergent transfusions initially by 10 percent and by as much as 25 percent in the long run, Peterson says. Physician education is a major component of the project, and several blood management experts have given talks for faculty and residents.

In addition, the CPOE system asks physicians who order transfusion for patients with hemoglobin levels of 7 g/dL or higher to justify the request. Data are shared with doctors, so individual physicians can see how many units they transfused outside the criteria, Peterson says.

The project was sparked by the success of Missouri Baptist Medical Center, one of BJC's facilities. The medical center, which launched blood management in 2008, has reduced transfusions by 20 to 25 percent, Peterson notes.

Barnes-Jewish Hospital's lab spends a little more than $17 million a year on the more than 80,000 blood products transfused each year. The system has tasked the hospital with cutting $2.8 million out of its $85 million budget this year, Peterson says. A 10 percent reduction in nonemergent blood transfusions would generate $1.7 million and go a long way toward reaching the savings target.

Pennsylvania Hospital has a similar blood management program and is trying to improve compliance, Hunt says. He is part of a multidisciplinary team looking at blood product utilization, the transfusion triggers, and why the criteria aren't being followed. "There are reasons to not follow the guidelines," Hunt says. "It's not that we're trying to put people into a straitjacket. It's just that we would like a better explanation."

More buyers, better standards

The pressure to cut laboratory expenses has prompted some hospitals to form group purchasing arrangements to negotiate lower prices on equipment and supplies, blood products, and reference lab services.

BJC HealthCare created the BJC Collaborative with CoxHealth, Springfield, Mo.; Memorial Health System, Springfield, Ill.; and Saint Luke's Health System, Kansas City, Mo. One of the first laboratory initiatives will be to seek a bid on outside reference lab services. "Instead of 13 hospitals bidding for the contract, we're now looking at 35 hospitals bidding together," Peterson says.

The collaborative also is analyzing whether hospitals could generate savings on some services through cumulative volume. The 35 hospitals individually might not have enough volume on a particular test to offer it cost-effectively in-house, Peterson explains. However, the collaborative might have enough volume so that if one or two hospitals provide the test, they could achieve a lower price than outside reference labs.

Standardization is another way some hospitals are generating cost savings. The BJC system is standardizing equipment across all its labs, Peterson says. This will cut down the number of vendors and create negotiating power as the 13 hospitals bid as one. Having the same equipment systemwide also means it's easier to share staff, which is important now due to a medical technologist shortage, Peterson notes.

Patients and physicians also benefit because standardized equipment means the reference ranges for lab tests are the same across the system no matter where the patient goes.

BJC HealthCare also is investing in standardizing its lab information system. Today, three systems are used. The LIS interfaces with lab instrumentation, so standardizing both creates an integrated system and makes instituting changes when necessary much easier, Peterson says.

Centralized services, improved efficiency

Hospital systems are starting to centralize some lab functions to save money. University of Pennsylvania Health System slowly has been centralizing certain services for some time, Hunt says. For example, histology services for three hospitals are conducted at one location.

BJC is starting construction on a $58.2 million lab on its main campus that will take the place of the three existing labs serving Barnes-Jewish Hospital and St. Louis Children's Hospital. In addition to consolidating campus lab services, the new lab will handle certain tests that don't require quick turnaround from facilities across the system.

About $23 million of the $58.2 million tab is for equipment. The new lab, slated to open in 2015, will be almost totally automated, Peterson says. "We're creating an environment where we will touch the specimen only once for 90 percent of what we do," he says. "I can take that specimen, put it on an automation line and never touch it again."

Introduction of a positive patient identification system means that lab staff won't have to manually enter such information as who collected a specimen and when.

The reduction of manual labor enabled by automation will eliminate inefficiencies and improve patient care by speeding test turnaround times, Peterson says. Consolidation of lab services on the main campus combined with automation will allow BJC to reduce the number of lab positions. Any staff reductions would take place through attrition and early retirement, Peterson says. Of the 435 FTEs at the Barnes-Jewish Hospital lab, nearly one-quarter are between the ages of 51 and 71.

The staff downsizing made possible by the new lab will only temporarily stave off a predicted medical technologist shortage. Another idea is to bring back BJC's med tech training program. "We're going to be putting a business case together to show that it is more cost-effective to have a school of medical technology than trying to replace them," he says. Right now, his vacancy rate is 5 to 6 percent, which translates into 20 to 26 openings at any given time.

Evaluating point-of-care testing

The push to cut lab costs plays a role in hospitals' decision-making regarding point-of-care testing. Tests at the point of care typically cost more than those done in the lab, so hospitals must be judicious in determining when and where such testing makes sense.

University of Pennsylvania Health System has a committee that evaluates point-of-care testing requests. "If you want point-of-care testing, you need to sell it [by explaining] what it will do to improve patient care," Hunt says. "It's not a bad thing. If you think this is needed, you should be able to articulate why."

When doing assessments, hospitals should look not only at the cost of the test, but also at the return on investment to patients and the hospital, Peterson says. Included in that equation are such considerations as whether point-of-care testing reduces test-to-treatment time, patient length of stay or readmissions. Peterson points to a cardiac marker called Troponin I that is used in emergency departments. Although doing the test at the point of care costs more than it does in the lab, the turnaround time is faster. "If you're in cardiac distress, wouldn't you want to know the results in 10 minutes rather than 55 minutes?" he says.

In the ED, point-of-care testing can speed test results, which speeds patient disposition, which improves throughput, Peterson says. "In that case, not only does it improve patient care potentially, but it improves the bottom line."

Test quality also is a major factor. "Is the sensitivity, the specificity, the precision around the particular assay comparable to what we do in the lab?" Peterson says. "You can do it at the bedside, but if the quality of the assay is not as good, you might not want to do that."

The outpatient equation

On the outpatient side of hospital laboratory business, several CMS reimbursement changes are shaking up labs.

Hospital outpatient lab tests traditionally were paid under the clinical laboratory fee schedule. Beginning in January 2014, CMS began bundling outpatient labs into outpatient prospective payment system reimbursement for the primary service when they occur on the same day and are ordered by the same provider.

For 2014, CMS increased payment rates under the OPPS by a factor of 1.7 percent. "But within the industry, the thought is that it does not cover all of the indirect costs associated with laboratory testing," Beasley says.

Several organizations, including the AHA and the American Society for Clinical Pathology, have expressed concern about the change. The ASCP says the policy may result in underutilization of laboratory services, inadequate compensation for services and increased administrative burden associated with distinguishing referral origin.

If the outpatient lab test is the only hospital service provided that day or is ordered on the same day but by a different provider and for a different purpose than the primary hospital service, Medicare will continue to pay using the clinical laboratory fee schedule. The fee schedule also applies to tests processed by the hospital lab for people who aren't hospital patients.

The 2014 clinical laboratory fee schedule update was negative 0.75 percent. This decrease follows lab payment reductions resulting from the Affordable Care Act, from the package that offset the cost of the 2012 Medicare physician payment fix and from budget sequestration.

Warily watching CMS

With Congress again debating how to fix the Medicare physician payment formula, clinical labs are worried they'll be a target. "The clinical lab fee schedule is seen as low-hanging fruit for pay-fors," says Warren, from McDermott Will & Emery. A coalition of 42 organizations representing clinical labs, lab professionals and device-makers in February 2014 sent letters urging lawmakers not to propose further across-the-board Medicare cuts to clinical laboratory services.

Labs also are worried about CMS's decision to begin reviewing payment for the 1,250 existing clinical laboratory fee schedule codes over the next five years to determine whether technological changes have made payment rates inaccurate. Factors the agency will look at include tools, machines, supplies, labor and instruments.

"CMS hasn't said much about how they're going to make the price adjustments — how they're going determine whether a service is more or less expensive now," Warren says. The agency plans to put a list of codes to be adjusted and its price suggestions for each in the Medicare physician fee schedule proposed rule every year. Then it will take comments before posting the final prices in the final physician fee schedule rule each year.

Some experts wonder if CMS's five-year timetable is feasible. "If they look at a couple hundred codes a year and find four or five that need to be changed, then, no, it's not aggressive," Warren says. "But if they look at a couple hundred codes and realize a whole bunch need to be changed, then it is pretty aggressive. Given all the other constraints the agency faces, its workload and the staff who are allocated to the process, it's going to be a tough row for them to hoe."

Geri Aston is a contributing writer to Hospitals & Health Networks.

Executive Corner

With reimbursement shrinking, many hospital labs find themselves on the border between profit center and loss center, notes Kim Futrell in her 2013 white paper "The Value of the Laboratory in the New Healthcare Model." As payment shifts from fee-for-service to value-based models, labs are struggling to demonstrate their value. Successful labs will focus on reducing overall costs to contribute to organizationwide savings and on providing value by supporting clinicians in their daily patient encounters, writes Futrell. Here are some suggestions.

Create ordering guidelines

The enormous and ever-growing array of lab tests combined with malpractice concerns can cause inappropriate utilization. Physicians sometimes order the wrong test, don't order useful tests or order redundant tests, writes Futrell, a laboratory management expert at the lab IT firm Orchard Software. Working with physician champions, laboratory leaders can implement evidence-based, best-practice ordering guidelines to support physician decision-making. These tools cut costs and improve patient care.

Leverage CPOE

Once best-practice order guidelines are in place, program them into the CPOE system and track physician performance. Electronic alerts can reduce the number of redundant lab tests and improve physician compliance with ordering guidelines. These tools can be particularly effective in managing use of high-priced lab tests that don't impact the inpatient stay and utilization of blood products, says Donna Beasley, a consultant with Huron Healthcare. Labs should share their findings on guideline compliance with physicians and have a formal standardized auditing and communication process, the results of which often are tied to patient credentialing.

Support population health

Up to 70 percent of the data necessary for clinical diagnosis feeds into the electronic health record from the laboratory, Futrell notes. In value-based reimbursement models, those lab data support the analytics needed for certification as a patient-centered medical home or accountable care organization. It also is instrumental for identifying patient risk to guide resource allocation and inform risk-sharing contracts.