In outreach, IT has become the equivalent of “location” in real estate: the most important thing—times three.
The No. 1 weakness of outreach programs, and the biggest competitive problem that 58 percent of hospitals have cited, is ineffective connectivity to physicians’ offices. That’s the finding of Kathleen Murphy, PhD, president of Chi Solutions Inc., Ann Arbor, Mich., in her sixth national outreach survey, released in 2007. (See “Chi’s survey results,” page 92.)
On the flip side, talk to laboratory enterprises in the East, Midwest, and West, and you’ll hear a common theme, whether they are community hospitals or multihospital partnerships: Many of those that are notching bottom-line wins in their outreach programs are leveraging information technology as a strategic advantage over their competitors.
“People need to make an investment in a good connectivity system that will allow physician offices to order tests, provide results to them, and download results into the physician practice EMR,” Dr. Murphy says. These are features, she adds, that are increasingly becoming mandatory for outreach programs.
Central DuPage Hospital in Winfield, Ill., is an example of how outreach plus information technology can transform the revenue column. The hospital has had a reference laboratory for more than 20 years, but it didn’t exactly have a head start over its competitors in outreach.
In 2005, “we didn’t have a computer system,” says Gene Heidt, director of laboratory services at the system’s 370-bed hospital, five urgent care facilities, and nursing homes and assisted-living facilities. “We had paper requisitions, and that was one reason why our reference laboratory was not growing. There was an LIS but no system for placing orders electronically and retrieving results.”
That was the first obstacle that had to be overcome, and Central DuPage chose an Atlas LabWorks system for physician ordering. “It pretty much has unlimited scalability, as does our McKesson LIS,” Heidt says. “To handle those, as well as the interfaces to the EMR, we’ve had to add systems and support analysts to our LIS department.”
In the process, the hospital went from $1.8 million in billed tests in February 2005 to $3.2 million now—and more than half of that is outreach testing, as compared with pre-2005, when 75 or 80 percent was testing for the hospital.
Next, the laboratory made a big play to serve a larger region, setting up an elaborate courier system with additional routes, as well as two outside courier systems as a supplement. While it formerly served physicians within a 10-mile radius of the hospital, “now we sell throughout the northern half of Illinois, we’re getting ready to sell to the southern half, and we have two sales reps in Indianapolis,” Heidt says.
How does the hospital pitch the outreach program? “We’ve emphasized that smaller is better, we’re an alternative to the national labs, our pathologists are very accessible to reference lab clients, and we really push individualized customer service by our sales and service reps,” Heidt says. “We don’t screen telephone calls, and there are no machines answering phones anywhere in the laboratory.
“Our pathology group, which is independent and not employed by the hospital, is very supportive of our intent to grow outreach, and is willing to talk and meet with potential and existing physician customers.”
The test menu has changed with the new focus on outreach, he says. “We have a greatly expanded menu we perform in-house, including a molecular diagnostics program we are just beginning. We expect to expand molecular testing quite a bit in the next 12 to 24 months.”
Since the hospital has no laboratory in the emergency department, the laboratory has put special emphasis on tracking turnaround time. “In the ED we track things like urine pregnancy tests, PT, PTT, CMPs, CBCs, and troponin from receipt in the laboratory to results, and we’ve shown great improvement since we’ve focused on this. We’re now getting 85 percent of our troponin results answered in less than 30 minutes,” Heidt says.
Central DuPage has expanded its medical technologist staff by about 25 percent—except in cytology where staff have doubled. “For a hospital, we have a very large cytology lab. That’s because we’ve been successful with a lot of very large OB accounts, and we do about 110,000 ThinPrep tests a year.”
Despite its expansion and the rapid increase in the lab’s outreach volume, Heidt emphasizes that Central DuPage’s share of the Chicago metropolitan area market of about 9 million people is maybe five percent—tiny compared with that of Quest and LabCorp. Quest has at least 70 percent of the market.
“What’s unique in Illinois compared to Indiana is you only see majors in this market. Indiana has a lot of hospitals with active outreach programs, but in Illinois you don’t see that.” Nevertheless, Central DuPage has its eye on the 2 million people in Indianapolis. “We want to continue to grow 15 percent a year,” Heidt says.
The University Medical Center at Princeton (UMCP), Princeton, NJ, is a relatively new entrant in the outreach arena, says Charles V. Wilson, MHA, MT(ASCP), administrative director for pathology and clinical laboratories. “UMCP has always been involved in doing testing for outside physicians—but mainly our anatomic pathology work. We had a presence, but it was a very small presence.”
About two years ago, “we started to strategize about it and in 2006 we were really doing all the legwork.” Under the guidance of Mayo Medical Laboratories, they sent out surveys and made site visits to preexisting pathology clients and potential clients. “And they demonstrated a real preference,” Wilson says. “It was overwhelming: About 74 percent of the clients in our written survey said they would prefer to send their work to a local hospital laboratory. Many of the people surveyed have privileges here, but for whatever reasons had not done their testing here.
“That’s what really set the ball rolling. It gave us what we needed to move forward and get administrative backing.”
One of the first steps was to purchase an IT system for outreach. UMCP opted for Labtest.com, made by Lifepoint Informatics. “It’s Web-based and very easy to use, and it interfaces quite well with our hospital’s systems,” Wilson says.
The major players in UMCP’s area are Quest and LabCorp. “Based on the surveys we received, most offices were using Quest, but LabCorp did gain an appreciable market share in January 2007 with the national contracts it signed with United Healthcare and Oxford,” Wilson says.
Following the surveys, “we really looked at our infrastructure. We put together a design for a core lab that could handle the increased volume, we looked to develop our client services area, and we looked to gain approval for dedicated outreach staffing.”
Since the outreach expansion started, overall staffing levels have dropped, while the number of FTEs in outreach has risen to five. “Our plan was to just develop a more efficient operation. I never like to look at efficiencies around FTEs, because people get very nervous. One of the outcomes, though, is that you’re able to realize capacities, so we were able to redeploy some of our staff.”
UMCP decided to change the laboratory’s layout by merging chemistry, hematology, and processing into one core laboratory. “Right now these are in three separate physical locations, which doesn’t lead to efficiency for your high-volume tests,” Wilson notes. The groundbreaking is slated for this spring. “Although the pneumatic tube system doesn’t go throughout the whole hospital, and that’s a challenge for us, we decided not to expand the tube system appreciably since we’ll be moving into a new building in 2011.”
Wilson stresses the need to staff and equip an outreach program appropriately. “The program from its inception was very well thought out,” he says. “We had a comprehensive business plan covering finance, registration, marketing, IT, billing, and other areas. We hired staff specifically for outreach in 2006 and 2007, plus our own couriers with their own vehicles, a field services coordinator, a business development liaison, and a manager of outreach services (“and it’s not me,” he adds—“unlike most programs where the director is the manager”).
He sees the courier system as another strategic advantage over competitors. “They’re able to provide prompt service, they dress very professionally in clothing we’ve chosen, they’re able to speak knowledgeably about the specimens because they go through external training on specimen integrity, and they do all the checks and balances on samples before they leave the doctor’s office.”
UMCP’s pickup schedule is two or three times a day, at times the physicians prefer, whereas some of its competitors limit it to one pickup at the end of the day, he says.
The impact of all the planning and follow-through has been impressive. “Our outpatient volume in 2007 increased 16 percent. And that was a result of outreach,” Wilson says. But UMCP’s outreach program has a broader goal. “We view this outreach as not only growing business for the laboratory but growing business for the health care institution in general.
“Where an individual’s laboratory tests go, patient visits and everything else will follow.”
Pathology Associates Medical Laboratories, or PAML, in Spokane, Wash., a wholly owned subsidiary of Providence Health and Services (PH&S), has focused so much on IT solutions that it has turned them into a profit corner, says PAML president Thomas Tiffany, PhD, DABCC, FACB. Operating under Providence Healthcare which is a PH&S service provider in Washington/Montana PAML provides outreach and reference lab services in Washington, Idaho, Oregon, Montana, Southern California, Alaska, and Utah.
The model PAML followed starting in the mid-1990s was to purchase laboratories, convert them to partnerships with hospitals, and perform pre- and postanalytical work for the business PAML draws in and it has been famously successful.
PAML’s newest joint venture, signed in December 2007, is with the MountainStar Hospitals in the Salt Lake City region, part of a health care network owned by Hospital Corp. of America. The new venture is called MountainStar Clinical Laboratories. PAML now has five joint ventures with hospitals, and one technical joint venture with a successful startup company, Signature Genomics Lab, which is employing DNA arrays for cytogenetics.
When it approaches potential partners, PAML has several selling points, Dr. Tiffany says. “Like everyone else, more and more hospitals are having to stretch the contributions they need to meet net operating income. But most have a small amount of outreach. So the first thing we talk about is what the advantages are of increasing that.”
“They have high fixed costs in the laboratory, they have to keep it open 24/7, they have the instruments and the tech staff. But typically they don’t have the IT structure, and they certainly don’t have the personnel for marketing and really servicing those physicians who are on their campuses.”
“We say to the hospitals, ‘You can get into the outreach business and we have the tools to help with pre- and postanalytical work, plus the billing, the finance, and the other pieces that are all integrated in our software packages.’” With its 1,300 employees, PAML has been able to set up centralized electronic billing for all of its partner hospitals 22 separate entities.
“We can help them set up an outreach business, making sure it’s profitable or bringing in good revenues. We reduce the cost per test in those hospital laboratories. And the unspoken part is we also increase the testing acumen in those labs so they can better service their specialty physicians serving patients in their hospital.”
PAML is especially attuned to compatibility of information technology. In its long-standing partnership with PacLab Laboratories, which provides lab services in Seattle and western Washington, PAML has to deal with 11 different hospitals and five or six different LISs.
“Of course, nobody got together in the hospital world and decided we’re all going to have one LIS, and when you set up a partnership you can’t expect the hospital to spend several million dollars to replace its LIS. So we have Sunquest, Cerner, Meditech, and Soft Computer—and we have to develop the smarts, the algorithms, and interfaces to be able to deal with multiple LISs.”
The company’s universal master code translator allows it to have bidirectional communication with all the hospitals’ LISs. That way PAML can send in test orders using each hospital’s own order codes. “We don’t expect them to translate their test orders and standardize on their own,” Dr. Tiffany says. “We do the translation within our interface engine.”
While many laboratories are setting up interconnectivity, he adds, “we think we are unique with our physician connectivity. We’re on a third-generation interface engine from Sun Microsystems, the Java CAPS [Composite Application Platform Suite], and that interface engine is integrated with our universal master code translator, our enterprise master patient index, and a physician index—which lets us keep track of physicians’ different locations in order to deliver reports to them.”
In the master patient index, which is Web-embedded, PAML has registered 7 million patients who may also be tracked as they visit different sites, whether hospitals, long-term care facilities, or physician offices.
PAML has capitalized on the products developed through its joint ventures by starting a new division called Outreach Advantage. “It takes the software products we’ve developed with our partnerships and essentially makes them available to large integrated delivery network systems,” Dr. Tiffany says.
OA Logistics, for example, is a computerized routing system that sets up courier routes and includes handheld GPS equipped devices that couriers can use to record what they’re picking up at each physician’s office. A bonus for users is that “it allows us to eliminate kind of guessing where someone is. If we need to, we can find where the couriers are and redeploy them.”
The Outreach Advantage tools give PAML great latitude to help its laboratories. “We can pretty much work with the large hospital systems that want to be more efficient and effective with their outreach program,” Dr. Tiffany says. “We’re making sure we keep our eye on what we’re doing now and continue our good service, but remain able to provide the right teams and resources to help the outreach programs expand.”
Jack Shaw, executive director of JVHL (Joint Venture Hospital Laboratories), Allen Park, Mich., sees a major change taking shape as laboratories reconceptualize themselves as information providers.
“Five years ago, the plans wanted to know their members had access to quality laboratory services at a reasonable price. Now we are in the information business, and while access, quality, and price are still important, the plans now want a results stream for their management programs for physician pay for performance. They require not just utilization information, but they want to do data mining; they want the amount and percentage of each test and they want the results as well.” This has become a pattern all over the country, he says.
JVHL was formed in 1994 as a way to compete with the national laboratories. “We wanted to head off the encroachment of commercial laboratories in our market,” Shaw says, “and so four health systems formed JVHL to respond to one managed care company’s requirement that we be considered competitive with Quest, plus willing to accept capitation and able to provide the geographic coverage to match the plan’s membership.
“By combining as JVHL, we succeeded in getting that first managed care contract 80,000 covered lives in the Detroit market rather than see it go to Quest. That was how we cut our teeth.”
Nine systems now own JVHL, and today it has a network of 120 hospitals, almost all in Michigan about 2.3 million covered lives. “That’s a total of 19 contracts including all the significant HMO plans in Michigan.”
In addition to HMO plans, JVHL has PPO and indemnity contracts, such as with United Healthcare, to provide lab services in Michigan and be on an equal contractual status with LabCorp for United lab services.
Continuing access to outreach business was the primary motivator. “We wanted to make sure hospitals’ outreach business had access to the work. So when United Healthcare said we’re writing a contract with LabCorp, we said our hospitals want to do this as well; there’s no reason to exclude us from the market. So we share the United business with LabCorp.”
JVHL negotiates lab services contracts, manages the cash flow of all claims for the contracts, performs eligibility checking, and conducts educational programs. “And we combine the test utilization and information for these contracts onto a single LIS platform so the plans see the information as if JVHL is the provider,” Shaw says.
“Our primary business focus is to give our network hospitals access to outreach testing that would go otherwise to commercial laboratories. In general, we’ve said we want to compete only for outreach testing. We don’t want to move work from traditional hospital contracts to JVHL contracts, because generally that would mean the hospital might get less money for that same work. But we’ve made a few exceptions to get significant contracts, such as the statewide Blue Cross Blue Shield network HMO contract, which doubled our number of lives.
“There is often a gray area between outreach and outpatient work,” he points out. “Sometimes that works to our advantage and sometimes it doesn’t.” A significant part of what JVHL does is make sure it’s clear what type of work is being contracted for and whether it’s coming through JVHL or the hospital. “The plans have welcomed that. We try our best to eliminate any confusion and reduce the gamesmanship,” Shaw says. Medicare, he notes, is now using the term “non-patient” more broadly to include cases when a hospital performs the work but the only interaction with the patient is for the laboratory service; this will differentiate outpatient and outreach business more clearly.
JVHL’s biggest competitor is Quest, and insurance giant Aetna has a contract with Quest. But in Michigan physicians have a choice, because JVHL also has a contract with Aetna. “They can continue to use their hospital laboratories through JVHL; they are not required to switch over to Quest.”
“So do physicians sometimes make that choice? Yes, and there are some Michigan BCBS programs that have contracted with Quest, so we don’t own the market by a long shot.” But he counts it as success that JVHL has access through its contracts to about 23 percent of Michigan’s population of 10 million.
JVHL is now gearing up to implement a new software platform. About 8 million tests flowed through JVHL in 2007, and about 3 million results were provided to the plans. “I would say our goal by the end of 2009 is to be able to give the plans 100 percent of results. And to do that we need to have interfaces and portals for the labs to send us the results. That is our major strategic objective to improve our services for the next year and three quarters.”
Shaw’s opinion on mergers of outreach programs is guarded. “Certainly there are examples of joint ventures between hospitals and commercial laboratories where the outreach business is really being run by the commercial labs.” But the bloom is quickly off the rose. “What I have seen is they inevitably get divorced. Maybe the deal is not what they thought it would be, or they decided outreach wasn’t such a bad business to be in as they initially thought, or they wanted to be able to tie all their inpatient and outpatient results together.”
He points to one hospital system in Cincinnati that sold its outreach business to Quest a couple of years ago. “They were happy with the one-time dollars they got, because the hospital liked to get that big check. But we’ve certainly seen lots of examples where the hospital at some point takes that business back. The contract often expires and it’s not renewed.”
He describes JVHL as a for-profit company that makes no money, because it returns 96 percent of its revenue to its partner hospital laboratories that are doing the work and keeps four percent for administration. “What’s retained is only enough money to run operations on behalf of the hospitals.”
It’s a good sign of the profitability of outreach programs that they have increasingly become acquisition targets, Chi Solutions’ Dr. Murphy says—not only for U.S. purchasers like LabCorp and Quest, but also for international companies such as Sonic Healthcare Ltd., based in Australia.
Could prospects for outreach programs shrink, however, if the economy’s shaky state becomes a full-out recession? Shaw thinks a recession could dampen JVHL’s capital rate growth. “We may have to stay relatively slack on incremental growth, and it could affect health insurance, flipping some services over to Medicaid, which clearly pays less. So our business mix may shift, but we’ve seen steady growth for the last 14 years, and we think it will continue.”
Dr. Tiffany is not sure the economy is getting the attention it needs from laboratories. “My biggest concern would be what’s going to happen to capital. We’re on this lower interest rate kick, but you have to have the capital to borrow, and the requirements are getting more stringent.” This may be a factor that accelerates the mergers and acquisitions of outreach programs.
But Dr. Murphy says basic good business sense will make it possible for outreach programs to continue to thrive. “It’s always fascinating to me how people in hospital outreach programs have very poor access to the kinds of information they need to run their business. They’re often run like a mom-and-pop business instead of a real enterprise,” she says.
Dabbling in outreach and trying to conduct it on the cheap gets laboratories nowhere, she says. “The bottom line is if you’re going to do outreach, do your homework, develop a business plan, and get support from the administration to do it well.” The trends are showing that if laboratories can do that, she says, they’ll be successful.
Anne Paxton is a writer in Seattle.