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The community-based comprehensive laboratory system: a promising future for anatomic and clinical pathology.

A promising future for anatomic and clinical pathology

With the right partners and patient-focused values, community laboratory alliances can offer competitively priced lab services to major healthcare organizations. Find out how one alliance won a major contract while competing against a commercial lab that offered to supply services for 65% less than the alliance's original fee schedule.

As the 20th century comes to a close and we proceed into the 21st century, clearly a major dichotomy has developed in the approach to laboratory services. The dichotomy is created by two major differences in philosophy. One of these philosophies is exemplified by the national commercial laboratories, which treat a laboratory test as a commodity and therefore commercialize laboratory services. The other philosophy, exemplified by the community-based comprehensive laboratory, is built on the premise that laboratory tests are patient care and that the system should care about people, especially when they become patients.

What is a commodity? A commodity is something useful or valued. Most healthcare professionals would agree that laboratory tests are useful; however, it is the primary definition of a commodity as an article of commerce that is more important to those who would commercialize laboratory services. Because of this, when evaluating laboratory tests and their performance, the deciding factor is an economic one. Making certain that the production of a laboratory test generates a profit sometimes means that human beings are thought of as covered lives; the dollar determines all decisions and the dignity of the individual is often overlooked.

In a community-based laboratory, patient care in the form of providing comprehensive pathology and clinical laboratory services is the focus. We are dealing with human beings whose quality of life may depend on the information we provide. Every laboratory service is based on the notion that something will or will not happen to a patient because of the test result produced. Of course, since the discipline of medicine finds itself under the pressures of today's socioeconomic milieu, this approach must be cost effective.

Critics may argue that a high-quality, patient-oriented system is not cost effective and can never deliver the cost savings of the large commercial laboratories. But cost-effective systems can be built. The right way to start is by asking the right question: What is the most efficient number of tests the physician can order that will provide the maximum amount of information, most rapidly, most accurately, and at the lowest cost to the patient?

A regional laboratory alliance is born

In some parts of the country, community-based laboratory systems are successfully meeting the challenge posed by national competition. One of these is the Regional Laboratory Alliance (RLA) in the Kansas City area, which began service last year with HealthNet, a major regional healthcare plan. This comprehensive pathology and clinical laboratory system, made up of nine hospital laboratories and 23 patient service centers, is succeeding by offering all of the advantages of national systems, plus the type of caring and concern for the patient that only a community-based network can provide.

Financial benefits. This community-based system is proving cost savings to managed care professionals, employers, and third-party payers in the following ways:

* Vertical integration of hospital laboratories and community testing sites means less redundancy and more economies of scale.

* A single, shared database tracks test orders, results, and patient test histories and demographics.

* Sharing a billing system, marketing, and technical data reduces costs for all providers in the network.

* Continuity of inpatient and outpatient testing helps reduce test duplication, length of hospital stays, and needlessly repeated office visits.

* More than 99% of testing is performed locally, improving turnaround time (TAT).

* Healthcare organizations work with a single lab entity for contracting and billing.

* Phlebotomy stations and courier networks allow complete geographic coverage.

* Complete lab information is available to the healthcare organization.

Benefits to patients, physicians, and communities. Because RLAs are local, they usually have a better understanding of the healthcare reform process taking place in their particular communities than do the commercial laboratories. Thus, they are often better equipped to design networks that satisfy the needs of patients in their area. This is where caring, concern, and compassion - benefits that are so hard to measure in economic terms - can build a stronger, more viable system than a single-minded focus on the bottom line.

Here are a few ways laboratory alliances put the people in their systems first:

* Physicians work with local laboratory professionals, whom they know personally.

* Physicians and patients have a choice of laboratories within the network.

* Physicians have access to each patient's laboratory information throughout the entire episode of care.

* Local pathology professionals are readily available to physicians for consultations, affording the ability for an individual level of care.

* Comprehensive test menus are designed for the needs of local physicians, simplifying the ordering process and improving TAT.

* Patients and physicians have seven-day-a-week, 24-hour-a-day phlebotomy, Stat, and emergency testing.

How a regional laboratory alliance is built

In March of 1995, eight Kansas City laboratory managers met to discuss the formation of a laboratory alliance. These managers represented the only hospital laboratories in the area that had not yet been sold or had not yet joined a for-profit managed care system. They clearly recognized that the national laboratories were dedicated to "carving out" laboratory services from employer benefits packages, thereby forcing them out of the market and out of business.

At about this time, a major managed care organization - HealthNet - approached the newly formed group, and told it of a commercial laboratory's offer to provide services for 65% less than current fee schedule. If won by the commercial lab, this contract would jeopardize the outreach laboratory services of the whole group, including all specimens from physicians' offices and draw stations. The managers realized this contract would be a test of the alliance's viability-it must either win the contract or face a crippling loss of revenues.

Early in the process, the eight were joined by an independent reference laboratory. Then, recognizing the need for tertiary reference testing and the risk of possible antitrust violations, RLA invited Mayo Medical Laboratories to become part of the group.

Because the Mayo Clinic already was acting as a reference system for other laboratory networks across the country, and had developed the "messenger model" [ILLUSTRATION FOR FIGURE OMITTED], for handling data in a lab network, the laboratory made a perfect addition to RLA. It would be its "messenger" capabilities that would tie the whole network together.

Throughout these early stages, the managers were careful to seek the support and buy-in of pathologists from every part of the network. The RLA sought the approval of each of its member hospitals as well, before proceeding with weekly strategic planning sessions, since there would be a single fee schedule with Mayo Medical Laboratories being the negotiator as exemplified in the so-called "messenger model." With a single, focused objective - to win the HealthNet contract - the group used the planning sessions to achieve the following results:

* Formal presentations of the RLA to senior management from the managed care plan and member hospitals took place. The RLA received approval from both groups.

* A joint presentation with Mayo Medical Laboratories to all RLA hospital pathologists was scheduled; Mayo explained its role in the RLA, as well as disease management strategies.

* A letter of understanding was signed by Mayo Medical Laboratories and the RLA laboratories.

* RLA pathologists began planning the delivery of anatomic pathology services to the managed care plan.

* RLA members designed an electronic system for tracking test orders and results throughout the network and developed shared testing criteria.

* An image brochure was developed outlining the mission and structure of the new RLA.

* A marketing campaign was launched to build awareness of the RLA among physicians and the community.

* A formal proposal was submitted to the managed care plan; then, after contract negotiations, HealthNet and the RLA approved and signed the contract.

Keys to the RLA business plan

Along the way, the RLA recognized the need for a sound business plan that would define goals and objectives for every provider in the network. Here are the steps it used in drafting its successful plan - steps that can be followed by anyone working to create a laboratory alliance in their region.

1) Define the objectives and mission of the alliance.

2) Define the organizational structure and the responsibilities of members.

3) Address legal issues of forming a network using good legal counsel. Hold all deliberations in an open forum, and be aware in advance of any antitrust issues that may arise.

4) Know your market and your competition. Identify the providers you want as customers and understand what distinguishes you from your competitors. Define your products and services. (See "Don't miss the mark," February 1997 MLO, p. 49)

5) Determine how you will promote and sell your products and services.

6) Prepare a budget that accounts for all revenues and costs that will be generated by operating the alliance. Determine how much new revenue each member can expect to earn.

7) Finally, develop a timetable for set-up and start-up of the alliance.

Winning the contract

In the end, RLA beat out a major national laboratory to win the HealthNet contract. RLA won this victory by bringing some new ideas to the table, but also by reminding providers of what has always been true about a laboratory's role in a community:

* Laboratory services are a vital form of patient care and the most important tool available to physicians in the diagnosis and treatment process.

* Patients matter because they are human beings and their health and welfare absolutely depend on the quality of the information and services provided by laboratory professionals.

* By vertically integrating, community laboratories have a greater ability to lower costs, utilize services efficiently, shorten hospital stays, and improve service levels. They understand the needs of their patients and providers, and know how to bring about real, beneficial changes in their systems.

* "Local" means "personal." Local laboratories and pathologists are an invaluable resource for physicians, and can do more to improve the delivery of care and reduce waste and redundancy than any national laboratory.

Finally, the integrating fiber in this entire community-based system is caring and concerned laboratory professionals and pathologists committed to the dignity of the human individual.

Pierre W. Keitges, MD, PC, is the former president of Physicians Reference Laboratory, based in Overland Park, Kansas.
COPYRIGHT 1997 Nelson Publishing
Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Author:Keitges, Pierre W.
Publication:Medical Laboratory Observer
Date:Oct 1, 1997
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