College of American Pathologists
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cap today

Long reach of IDN labs stretching even farther
Labs cite variety of "best practices"

October 2004
Ed Finkel

The large commercial laboratory chains have faced increasing competition over the past decade-plus in regional service areas—and, in some cases, an entire state or more—from outreach programs at integrated delivery network (IDN) laboratories.

Faced with idle capacity in their core labs and desirous of additional, high-profit-margin income, multi-hospital systems have gone beyond their traditional testing work in affiliated doctors’ offices and specialty clinics to market their services to outside physicians’ offices and specialty clinics, ambulatory surgery centers, nursing homes, insurance plans, and even other hospitals.

They haven’t significantly hurt the business of the large chains, but these IDN labs have made a difference in their organizations’ bottom lines by combining a close knowledge of their local service areas, personal touch through one-on-one contacts, and their ability to identify and tap into niche markets, both in terms of types of clients and types of tests offered, say lab directors.

TriCore Reference Laboratories, formed in 1998 through a merger of the labs in Presbyterian Health Care Services, University of New Mexico Health Sciences Center, and St. Vincent’s Hospital, is a seven-lab and multi-location draw-site system that performs 5.2 million tests and earns about $70 million in revenue annually, says Toby Simon, MD, chief medical officer.

About 35 percent of that business is thanks to outreach work, he says, which comes from throughout New Mexico as well as southwest Colorado and the El Paso, Tex., area. TriCore’s niches have been "following the strength of the laboratory," says Dr. Simon. "We’re getting stronger and stronger in forensic toxicology. As the reference laboratory for our region, it’s important to build to the more esoteric tests, the molecular testing, the anatomic pathology consultation. That will help all of your clients, particularly the smaller hospitals."

In Charlotte, NC, nursing homes have provided bountiful outreach business for Presbyterian Healthcare System, a three-site hospital with nine patient service centers that does about 1.6 million tests and $39 million in outreach business within a 60-mile radius of the city, says Kathy Sloan, director of business operations.

"We have probably 85 to 90 percent of nursing-home facilities in our market area," Sloan says. "A couple of our competitors had dropped them. Nursing homes are very high maintenance accounts, but once you establish a solid relationship with the facility, everything works out well."

In terms of types of testing, Presbyterian, which launched its outreach business in 1991, has been enlarging its cytogenetics and pathology departments and focusing on prenatal care tests, including first trimester and quad tests, Sloan says.

Cytogenetics has been a staple business for Parkview Health, a six-hospital group in northeast Indiana with a core lab in Fort Wayne that performs about 850,000 tests and does $15 million in sales in its outreach business, says Alice Friedt, Parkview Health Laboratories director of operations. In business since 1991, the outreach unit does about one-third of the state’s genetic testing, she says.

"Our main focus is physicians’ offices. We also have 50 nursing homes as clients. And we do a lot of industrial health fairs," Freidt says.

Only in its second month of operation, the five-location outreach business at Memorial Hermann Healthcare System in Houston has not targeted many niches as of yet, but it plans to, says Jim Faucett, vice president of laboratory and oncology services.

"We’re just at a stage where we’re trying to build bread-and-butter testing," he says. "We do have a number of things we have our eye on, when we get our feet under ourselves a little more."

Hospitals that have formed outreach programs have worked hard to assess their markets and then promote their services. Before its launch July 13, Memorial Hermann conducted a "pretty thorough" feasibility study that used one-on-one interviews and broader, more statistically based survey instruments, Faucett says.

"It looked favorable, so we moved forward," he says. "The most meaningful information was probably gleaned from the one-on-one contacts." They spoke with a number of physicians and office contacts, and they did both a mail and an e-mail survey. "We tried to assess the strengths and weaknesses of our competitors and what we could bring to the table, as well as general feedback," he says.

Memorial Hermann has two marketing representatives who are contracted through laboratory consulting firm Park City Solutions, Faucett says. "We figured we had enough on our plate with implementation," he explains. The marketing staff is concentrating at first on affiliated physicians’ offices and "as time goes on, we intend to broaden that as well as broaden our techniques," he says.

TriCore, based in Albuquerque, continues to look at the state and region and assess market prospects area by area, both geographically and medically. Such assessments helped convince the group to expand into El Paso and southwest Colorado, where TriCore has draw sites in Cortez and a newly opened site in Durango.

"It’s promoted by our sales and service department, by physician contact, by visits to the areas," Dr. Simon says. "It’s personal contact more than literature or advertising. In some cases we get all of our work through the local hospital. We like to pride ourselves on the fact that we work with the pathologists and the local hospitals rather than against them." They also work with insurance providers on a statewide and regional basis.

Marketing efforts in Presbyterian’s "very competitive" market around Charlotte have fluctuated up and down as CEOs have come and gone, Sloan says. "Because we are part of the hospital, we have to run our business in line with the philosophy of the current CEO," she says. "Now, we have a very proactive administrator who wants the lab to beef up sales."

The marketing and sales department, which has had as little as one position, now has five, Sloan says. "The large competitors that we compete against are strictly labs," she says. "They can spend all their capital dollars on lab-related equipment. We have a little bit of a disadvantage because we have to compete for capital dollars with the rest of the departments in the hospital." But, she says, "We feel we do pretty well based on those circumstances."

Parkview Health uses two people to market its outreach services and "almost no advertising," Friedt says. "A lot of it is, you market by your reputation. We have the benefit of our local presence," she says. "We’re different from independent laboratories because we know we carry on our name the name of our health system. People look at us as part of the health system."

For this reason, she says, it’s important that her reps work from a more "global" perspective. "If [customers] have a complaint about radiology, we hear about it," Friedt says. "We do look at, strategically, where does our health system want to go? That does make us different from an independent reference lab, that just looks at profit margins."

To ensure that their sales force convinces customers to buy in and stay in, IDN labs must pay careful attention to recruiting and training their sales people, and then structuring their support and technical services to meet or exceed customer expectations.

TriCore inherited a small sales force from its three component parts that it has continued to build upon and uses a 21DA2-day training session at the outset, Dr. Simon says. "We have brought in training from outside for our sales people," he says. "Our director of sales has put on a regular training program that we now put together internally. They’ve taken that training function pretty seriously, bringing in different speakers so they’re knowledgeable about different areas."

Parkview Health, which, at the outset of its outreach work purchased a small independent laboratory managed at that time by SmithKline Beecham, kept a marketing person from there who hired two people. Training has not been much of an issue because "I’ve had no turnover," Friedt says. "In the past, we have sent someone to a formal sales training course and she brought back the information for the others."

Presbyterian has one long-time employee who has been in the lab sales business 20-plus years, one who ran her own lab, and one hired from a competitor, Sloan says. What little training has been needed has been done internally. "We’re very fortunate to have three folks who have experience selling lab services in the past, who know what to do and what not to do," she says.

The two salespeople from Park City Solutions went through a screening program before being formally assigned to Memorial Hermann and then an off-site training program about the system’s outreach services, Faucett says.

Talented salespeople only go so far if technical and support services are not structured with the customer in mind. Parkview Health has "centralized the things it made sense to centralize," such as microbiology and immunology, in its core lab, Friedt says. But they make it as convenient for customers as possible. "We operate under the theory that if it’s done there, it stays there," she says.

The laboratories that make up TriCore have needed to bolster their work in the evenings, nights, and weekends as they’ve branched out, Dr. Simon says. "Most of the big laboratories run their labs overnight," he says. "As you reach out into these other areas, you have to do as larger laboratories do."

On the support side, Presbyterian has worked to improve its efforts by putting everyone, from salespeople to the LIS staff to couriers through customer service training, Sloan says. "We try to minimize the number of transfers when anybody calls," she says. "We try to take care of the call right on the phone." They developed scripting so it’s clear they’re pleased to have the person call. "We have had a lot of positive feedback on that," she says.

Like any other business, IDN outreach efforts have worked to develop pricing structures that reflect market realities and leave room to make a profit as well as efficient billing procedures that ensure money gets collected in a timely fashion.

Parkview Health considers three factors in coming up with the right price: cost, reimbursement, and the marketplace, Friedt says. "It always has to be priced above cost," she says. "We try to stay competitive with the market. We are very conservative when it comes to compliance."

Compliance is heavily on Presbyterian’s mind in setting its pricing, which is also never below cost, Sloan says. "We’ve lost clients because of compliance reasons in the past," she says. "We don’t want to extend our neck out and do something wrong. Our salespeople are very aware of that. We’ve said, ’These are your boundaries.’ They know where they stand. They don’t go over the line."

The marketing, sales, and service group at TriCore looks at Medicare, insurer payments, and market rates to develop a pricing schedule, Dr. Simon says. And Memorial Hermann has not set out to be the lowest-cost provider, Faucett says. "We’ve developed a strategy that we think is market competitive, and we have implemented an outreach fee schedule accordingly," he says. "We’ve had a very good response from our physicians."

On the billing side, Parkview Health has a separate department for its laboratory. "We keep all the financials for the outreach business separate from the hospitals," Friedt says. "Client bills, insurances, Medicare and Medicaid and everything."

TriCore has found billing to be an area that requires flexibility. "We have to make sure we get the appropriate information," Dr. Simon says. "We pride ourselves on being able to bill all the third-party carriers, except for competitors. We see a shift toward more and more patient-insurance billing as opposed to client billing."

Memorial Hermann plans to use its central hospital billing department for routine cases. "We’re managing the exceptions—claims denied, that sort of thing," Faucett says. "All the billing and financial tracking can be segregated and monitored."

The laboratory at Presbyterian did not have a positive experience using its hospital’s central billing system, where it found itself "writing off millions of dollars" in high-volume, low-dollar accounts. So about four years ago, the lab outsourced billing to Cleveland-based Quadax Inc. "We send them a daily file of all of the lab orders," Sloan says, "and they perform all the back-end billing."

Before making the switch, "we didn’t know if we were making money," she says. "It was very eye-opening and satisfying to see that we were making money and doing the right thing by growing our outreach business."

To ensure the continued growth of this business, IDN labs are doing everything they can to monitor financial, productivity, and customer service indicators and forecast sales.

TriCore monitors its financial performance quarterly with tools that can break down results by region or specialty, Dr. Simon says. Productivity is monitored through indicators like number of tests per full-time employee. An annual customer survey, which gives windows into turnaround time and problems with couriers, can be broken down by type of customer and is reviewed by the board’s quality steering committee.

As for forecasting future sales, Dr. Simon says, "We have to do a pro forma in each area to indicate what the likely volumes are, what we expect the mix to be, then we have to determine how much we can invest in the area."

Presbyterian monitors its volume and revenue by client each month, watching for trends, Sloan says. "If there are any who seem to be dropping off, we send one of the client reps out there to see if there’s anything we can do," she says. An annual customer satisfaction survey, returned by 35 to 40 percent, offers suggestions that the lab takes seriously, as does feedback over the phone, she says.

The lab’s sales forecasting "is not very scientific," Sloan says. "Since our market is relatively small, we look at what the trends are. Our salespeople really keep their ears to the ground when they’re out in the field. We use that knowledge plus the results from the client survey to focus on in future years."

Parkview Health keeps a separate ledger for its outreach business to monitor growth and net revenue and tracks productivity on a cost-center basis as well as the lab as a whole, Friedt says. Customer surveys are sent to outreach clients about once every other year. The lab forecasts future sales volume "at a very detailed level," she says. "Because we have a smaller market, we can say, ’I’m looking at this client, and this client, and I think we have a good chance to bring these people on.’"

Ed Finkel is a writer in Evanston, Ill.