Straight talk from core lab survivors
Adapt, migrate, or die. Those are the options for the animal
world when drastic changes in the environment pose a threat, and
they apply equally well to the laboratory world, says Phyllis Mashburn,
laboratory director for Baptist Memorial Health Care System, Memphis,
Tenn. For her hospital network, and for many others across the country,
creating a core laboratory was a way of adapting and migrating simultaneously,
in the face of intensifying competition for health care dollars.
But how do core laboratories’ outcomes compare with the projections?
Consultant Tom Bingham, who has helped several U.S. organizations
form such entities, cautions that the core laboratory may not be
the silver bullet the laboratory needs to resolve its financial
difficulties. Bingham is a consultant with Bingham and Bingham,
Burnstown, Ontario, Canada.
"The lab is an easy target whenever there’s fiscal restraint,"
he says. "It’s the one area of the hospital where the services don’t
really need to be provided in-house. There are a lot of examples
of extremely efficient operations from core labs, but also of ones
that are not working that well."
Mashburn and Bingham were part of a panel of experts at the June
2000 meeting of the Clinical Laboratory Management Association.
The panel members drew on personal experience to relate the trials
and rewards of creating a core laboratory with a multihospital system,
a large group practice, and a partnership between a hospital and
an independent laboratory.
Although all agreed the outcomes validated the move to a core
laboratory, the process included the troublesome, the unexpected-and
even the horrendous. The core laboratories in their cases can boast
of results ranging from the impressive to the stunning:
- Memphis Pathology Laboratory, the core laboratory for Baptist Memorial’s 16 hospitals, was spun out in 1986 when it had 350 employees
and 200 clients. While growing to a $30 million operation with 1,200 clients, it has trimmed its staff to 280 employees.
- Bon Secours Richmond Health System in Virginia, which is composed of four hospitals, formed a core laboratory 4 1/2 years ago, and
its full-time equivalent staff has dropped from 200 to 146, with payroll decreasing 28 percent and cost per billable test declining 40 percent.
- American Health Network, Indianapolis, a $120 million multispecialty group practice with 169 physicians, formed a core laboratory in
1997. It has increased its average volume per laboratory by 283 percent, decreased its average overall cost by 37 percent, and reduced
labor expenses by 37 percent, all while raising its medical technologists’ wages by 23 percent.
Few hospital systems form a core laboratory in isolation, and determining when the savings can be tied directly to the core laboratory can be a challenge. "A lot of things people are expressing as cost savings are legitimate-no question," says Bingham. "But they relate to standardization and consolidation of physical facilities." Creating a core laboratory, in his view, means breaking down the walls between chemistry and hematology, possibly rolling in blood bank and microbiology, integrating specimen accessioning, and cross-training staff.
In Bingham’s experience, the benefits of a core laboratory hinge on the efficiency of an organization’s existing laboratory operations. "If you’re at the 75th percentile of your peer group and you create a core lab, the impact of that will be two to five percent," he says. "If you’re currently running at the mean of your peer group in cost and productivity, it’s more likely your savings will be up to 10 percent, and if you’re at the 25th percentile, or well below the mean of your group, then savings related to the core
laboratory will be closer to 15 percent."
Opting to consolidate The institutions represented by the panelists at the CLMA’s core laboratory session took different
routes in forming their core laboratories. Billie Vaughn, administrative director for Bon Secours HealthPartners Laboratories, Richmond,
remembered that the current CEO of parent company Bon Secours Health System Inc. foresaw several years ago that the system would
grow into multiple hospitals. "And when it did, he looked to the laboratory as the first place we consolidate services because
of all the redundancies," she says.
Ginger Wooster, laboratory manager for American Health Network, says her core laboratory was formed in stages by Anthem Insurance’s
network of primary care physicians in Indianapolis. "A core laboratory wasn’t our initial intent," she explains. "But we had 65 variations of laboratory services, and it doesn’t take rocket science to see that’s not a very efficient way to provide laboratory service to physicians."
For two reasons, the "core" laboratory started as four labs instead of one. "First, we had to make it happen with zero capital
investment, so we couldn’t build a physical plant, and there was no one physician office large enough to be a central lab," Wooster
says. "The other reason was political. The physician leaders were not ready to part with their lab." By 1998, when the physicians
purchased the network, several years of data showed that a single core laboratory would make more sense.
Memphis Pathology Laboratory also developed in phases. In 1984, Baptist Memorial Hospital-at that time the largest hospital in
the world under one roof, with 2,000 beds-sought to increase its referral base by purchasing small rural hospitals in Arkansas
and Mississippi. "With that, they wanted to consolidate the labs and create a nonprofit core lab to serve the hospital system.
So they ran the Baptist Regional Laboratories out of Baptist Memorial Hospital for about a year and a half," Mashburn recounts. "In
July 1986, we spun the lab out across the street and down the block, with a pneumatic tube system to the main unit."
At the same time, Baptist purchased a small for-profit laboratory from two local pathologists to get into the for-profit outreach
marketplace. But in 1996, the laboratory was forced to reinvent itself. That year, "Medical necessity hit, the laboratory went
into a financial tailspin, and we realized we had to get out in the marketplace and educate our clients on medical necessity and
focused medical review," says Mashburn. "At the same time, the administration was saying, ’Okay, we’ve got a big lab across the
street that used to make money and is now losing it.’"
Baptist considered forming a relationship with a competing commercial laboratory, eventually vetoing the idea. "But we couldn’t survive alone," Mashburn stresses.
That realization motivated Baptist, in 1998, to form a joint venture with MDS Laboratories, the largest laboratory in Canada and a company with several joint laboratory ventures in the United States. "We sought MDS because it is an international diagnostics company with expertise in multihospital integrated laboratory networks," she says.
This year the joint venture was formalized as Memphis Pathology LLC, a for-profit entity. "We brought a broad client base, expertise
in diagnostic and esoteric testing, and customer service," explains Mashburn. "What MDS brought was expertise in sales and marketing,
information systems, revenue cycle management, automation, and the capital for growth and infrastructure."
Who stands to benefit
Organizations that are best served by a core laboratory meet specific criteria, according to Bingham. One good prospect is "a laboratory
that is really a community of independent islands, each functioning independently, with very little collaboration between the various
elements," he says. Another would be an organization with a "we-they" syndrome, in which different departments or hospitals are at odds
or in which the individual entities are at odds with clients. "If that is the philosophy prevalent within the organization, then a shakeup associated with a core laboratory may be a solution," he adds.
Management structure also plays a role. "Too many chiefs, not enough Indians is the situation where the ratio of management or supervisory to nonsupervisory staff starts to get to one in less than 15," Bingham says. "Then a core laboratory may be a good option."
Physical space is another key factor. "For organizations that are looking at growing their business and lack the space, the
traditional lab is a very difficult environment to bring additional work into," he notes. "It’s been demonstrated that moving to a
core laboratory gets around the problem of having to add more space."
The main advantage of the core laboratory is the economies of scale it affords-not only in reducing staff but also in negotiating
At American Health Network, says Wooster, "One practice had
a piece of instrumentation and had negotiated a really great reagent
rental contract with the company. He thought he was doing really
well. But when you take the collective volume of our company,
and you’re looking at 262,000 billed tests a year versus 3,000
billed tests that that particular practice did, we were able to
renegotiate that contract on that same instrumentation. It was
an instant $400,000 annual savings. We were able to do that across
the board consistently with all the equipment we have."
The formation of HealthPartners Laboratories led to tighter
overall operations as well as negotiating clout, according to
Vaughn. "We looked at contracts and found some of them had not
been reviewed or revised for appropriateness for quite some time.
The picture was pretty grim," she says. "So we immediately began
looking at renegotiating contracts with vendors."
Similarly, American Health Network’s core laboratory gave the
practice additional leverage in Indiana, enabling it to negotiate
with payers to eliminate the carve-out for laboratory testing.
"The physicians said if you want us in your network, you let us
do our own lab testing, and it worked with all but three out of
several hundred payers," notes Wooster. "So that was definitely
an advantage that we didn’t see when we didn’t have a core laboratory."
Consequently, the laboratory’s volume per physician has grown
by 95 percent since 1997. "You think it’s overutilization. But
it really isn’t," she says. "It’s because we’ve been able to bring
back those tests that we had to carve out previously."
Laying the groundwork Careful preparation can help core
laboratories deal with the often sensitive issue of staff cuts.
"We were very fortunate at Bon Secours when we began the consolidation
process, because we started planning nine to 12 months before
the first hospital was consolidated," Vaughn explains.
"We had teams in place that planned how we were going to address
human resource issues, financial issues, communication, education
of physician issues," she says. "There were lots of champions
in the administration that sat with us throughout the planning
process. We were able to consolidate and decrease FTEs without
Physician office laboratories face unique situations-for instance,
they are required to have a physician on-site to operate as a
laboratory. "Because our pathologist is doing fine-needle aspirates,
and he has other obligations, he’s not on-site the entire operation
time. So we have a lot of downtime," says Wooster. "If we had
a physician on-site the entire testing time, we could gain efficiencies
and reduce FTEs even more." Despite closing laboratories in several
physician offices, however, the core laboratory did not have to
reduce the total number of FTEs.
"We reduced FTEs through attrition," says Baptist’s Mashburn,
"but also increased our workload through automation and handling
processes within the laboratory." Increased volume has lowered
costs in several ways.
"Memphis Pathology has saved money in the courier department
as well as in the billing department through process management,
and its affiliation with MDS will permit even more savings," Mashburn
predicts. "We are not only integrating within our hospital system,
but we’re now going to start integrating and finding cost savings
throughout the joint ventures with MDS across the country." For
example, the MDS-affiliated laboratories plan to trim billing
costs by employing a common system and a collection agency.
The growth in outreach testing reported by these three core
laboratories is another quantifiable benefit of efficiency, according
to Bingham. The core laboratories Bingham has studied have significantly
increased their client base while reducing the number of customer
HealthPartners Laboratories has had a similar experience. It
has a large outreach program, Vaughn says-about 40 percent of
its total volume-and plans to grow that volume because it projects
inpatient volume will remain flat. Vaughn credits the consistency
of service delivery with significantly improving turnaround time
in Bon Secours’ emergency rooms as well as for routine testing.
Her laboratory also has seen a significant decrease in the number
of mislabeled and improperly labeled specimens coming into the
laboratory. But she is particularly pleased with the revenues
the laboratory has gained from charge capture. Billing had been
in disarray, and capturing charges-though technically not a "savings"-has
been part of the core laboratory’s concentrated effort to keep
its revenues up. "We discovered that quite a number of tests were
not being billed appropriately," says Vaughn. "It was a scary
Spurs to innovation
Improving courier routes has helped Memphis Pathology secure specimens
more quickly, according to Mashburn. "Another thing we do is ’mini-log’
the specimens quickly as they come in the door. We do the demographic
piece afterwards because we want to get the specimen up into the
section as quickly as possible, turned around, and back to the
Memphis Pathology also is focusing on process improvement in
the specimen management area. "We now have the specimen test-ready
when it leaves specimen management," explains Mashburn. "Before,
we would do some spinning down in specimen management, then you’d
send it to the lab and they would aliquot the sample. But now
when it leaves specimen management, it goes straight to the instrument."
Improved process management at Memphis Pathology also has increased
physicians’ attention to medical necessity requirements. "When
the requisition gets back to the maxi-log area for demographics,
if it’s missing the diagnosis, the date of birth, or insurance
information, we have a missing information test pneumonic format,"
explains Mashburn. "We order that test, we check off what we need-like
date of birth or diagnosis-we release that test, and it prints
on the physician’s printer in his office. Then he has 24 hours
to return it by fax or courier. If he doesn’t, he gets the bill.
They like that," Mashburn adds ironically.
Bon Secours’ laboratory enhanced its efficiency by shifting to
bar-code labeling. "It knocks out some of the steps for sample
ID when they come into the accessioning department, where you
can just bar-code the samples in. That has really helped us gain
some time on the front end," Vaughn says. Inpatient phlebotomy
was redeployed to nursing several years ago in all four of Bon
Secours’ facilities, she notes, and this move has been especially
successful in the rapid response laboratories.
Outsourcing courier services is another approach that has paid
off for HealthPartners Laboratories. "Of the thousands of runs
they do a month, the most I’ve ever seen is three missed pickups,"
Vaughn says. "We’ve established runs per facility by looking at
test volumes hour by hour. And we’re constantly looking at routes
and runs; if there are only a couple of specimens at a certain
time, we might delete that run."
Exceptions to the rule
While every institution could benefit from efficiencies like these,
not everyone has embraced the core laboratory concept. In teaching
institutions, for example, different dynamics rule, Bingham points
"Because of the education requirements within the university-
affiliated hospitals and the sheer size of most of those facilities,
the tendency has been in the past not to move to the core lab,"
he says. "There tends to be a lot more history associated with
the individual departments. Plus there’s the argument that moving
to the core lab has implications for the number of qualified supervisory
"Many education centers argue that they have a teaching responsibility,
and a core lab would dilute the expertise they have built up over
the years. So there has been a traditional reluctance of teaching
facilities to move to core labs," he continues. "There are certainly
lots that have, but there is an argument made by many to stall
But even the largest institutions have successfully made the
switch, he points out. Bingham recently concluded a project with
the New York Health and Hospitals Corporation, where Bellevue
Hospital became the core laboratory, providing services to all
hospitals in the network, including Harlem, Lincoln, and Metropolitan
hospitals. "These were large facilities, and now they operate
as stat labs. There’s a significant amount of savings associated
with that particular move," he says. Bingham urges teaching hospitals
to consider moving to core laboratories. "I don’t think the arguments
that have been used for a long time necessarily hold in today’s
environment," he adds.
The tendency, particularly in joint venture arrangements, is
to gravitate toward the for-profit core laboratory, away from
not-for-profit models, Bingham notes. But what happens when core
laboratories try to combine not-for-profit entities into a for-profit
one? Mashburn says the change has been positive at her institution.
"Before we became one laboratory, [when] we ran a for-profit
and not-for-profit out of the same building and referred work
back and forth to one another, we had to keep separate human resources
departments, separate supplies, and separate fiscal years-it was
somewhat of a nightmare," she says. "Now that we’re one laboratory,
that’s all gone away."
Morale: intangible but essential
The benefits of restaffing as a core laboratory are clear and
quantifiable, particularly with regard to responding to emergencies
and on backshifts, says Bingham. "[The benefits] are directly
the result of the fact that the staff is cross-trained and there
is no longer a problem with backups, with overwork in one area
and too much staff standing around doing nothing in another,"
he says. But as questions from the audience at the CLMA session
indicated, staff morale is an ongoing concern for core laboratories
and would-be core laboratories.
In hindsight, Vaughn says, her laboratory would have addressed
staff morale differently. "We came to the conclusion that we spent
so much time on the rapid response laboratory personnel-trying
to educate them and get them on board and alleviate their fears
of job loss-that we didn’t spend as much time with the core lab
personnel, and that was a mistake," she says. "We thought in the
back of our minds they would not feel they would be sacrificed,
they would always have a place, and they weren’t going to lose
their jobs. And I think we neglected to really think about other
impacts to core laboratory personnel."
Equity issues remain, she adds. Bon Secours’ four facilities
had separate human resources departments at the time of consolidation.
The laboratory is now under a division called "shared services,"
for which there is one human resources department. "HealthPartners
Laboratories has 17 different cost centers within the regional
laboratory and they remain hospital-based," Vaughn says. "Even
though all laboratory staff now recieve the same benefits, and
job positions fall into the same pay grades, equity issues remain.
The issue is really tough. It takes a lot of dollars to equilibrate,
and we’re still working on that."
Wooster’s core laboratory also tried to sustain morale from
the start. "When we first decided that a core lab made the most
sense in the physician office setting, we went to the existing
laboratory staff and we really made them part of the decision
process," she explains. "We couldn’t eliminate all the stress,
because anytime there’s uncertainty, they’re always thinking,
’How will it impact me?’ But it helped ease the uncertainty."
"I wish we could say we were able to keep all the staff," she
continues, "but as we closed the labs, that was the hardest part,
to have to let a lot of very qualified people go. We tried to
offer them a spot at the other lab, but logistically that wasn’t
possible, so we did lose a lot of people." Her laboratory continues
to foster a team effort-which, she concedes, is much easier to
accomplish with 6.3 FTEs than with several hundred.
Mashburn adds that, "When we were first spun out, we had a very
difficult time because our pay scales and benefits were not quite
as good as the hospitals’. So we had a problem with people leaving
the core lab and going to the hospital across the street or five
miles down the road." The disparities have been partially resolved,
but the hospital still offers somewhat better benefits.
Bingham found that, in many hospitals, the move to a core laboratory
significantly strained staff members’ morale. "Where cross-training
was occurring, many of the veteran, long-serving employees were
stressed out," he says. "Several had opportunities to leave and
left. The more senior people who had always worked days or always
worked chemistry did not want to work in a cross-trained environment
after 20 years of work."
Despite that turmoil, newer employees saw the move as a challenge,
Bingham says. They liked the idea of being cross-trained because
they believed it would allow them to provide added benefit to
employers and expand their future job options.
The logistics of handling cross-trained staff, however, are
not simple. Resolving scheduling issues is still a "work in progress,"
Vaughn says. "We are purchasing a software package that will be
competency-based, so we can centralize scheduling based on competency."
After five years as a regional laboratory, "We still have not
accomplished scheduling such that our medical technologists can
rotate from hospital to hospital as needed," she says. "Rather,
we’ve had to concentrate on those long-term employees in the core
laboratory. It’s been a painful experience just getting chemists
retrained in hematology."
Baptist has engaged one of its bigger clients, the University
of Tennessee, to "come in and lecture and bring some of the technologists
up to speed on different areas in the laboratory,"says Mashburn.
But Baptist does not maintain expertise at each site. "For our
model, the med techs’ competencies are standard, so you expect
them to be competent at difficult tasks. But if there’s something
out of the ordinary, that requires more expertise or a consult,
they typically are sent over to the core laboratory."
The core lab of the future
HealthPartners Laboratories expects to continue re-engineering
its core laboratory, with a potential goal of becoming a nonhospital-based
entity in Richmond. "We are currently implementing a preanalytical
redesign, which addresses accessioning, distribution, referral
lab, and client service areas," says Vaughn. "This implementation
is being facilitated through a new position, our support services
coordinator. A big thrust of her job is to establish rapport across
various depatments, and this is especially of benefit in working
with our nursing departments."
"Furthermore," she continues, "we have consolidated histology,
cytology, and microbiology, and we’re now starting to look at
remote crossmatching, so that the majority of blood banking will
eventually be done in the core laboratory."
"We’ve redesigned without automation," she adds, "which is a
real challenge, because we don’t have a lot of capital for automation.
But we now have our own billing department in the laboratory for
outreach, and we’re continuing our effort to show the administration
that we’re a revenue-producing center. As we’re able to prove
that, we find they are more prone to give us capital dollars to
move forward with our strategic plan in the upcoming three years."
Memphis Pathology’s immediate plans include moving to a new
34,000-square-foot building in December. "We are through process
management, consolidating testing, moving instrumentation, and
cross-training in order to create that footprint, because when
we get into our new site, we will come up on new LIS software
as well as new billing software," Mashburn explains. "We’ve already
come up on new purchasing software, and we will have automation
in our specimen management area. And that will position us to
move to the next phase of the project, which is basically to focus
on our marketing and sales so we can increase our business."
If she had to create a core laboratory over again, Wooster says
her first action would be to upgrade the computer system. "I would
start off with the computer system I have now rather than the
one we initially had," she says. "Although it was horrendous to
go through the changeover, our new system reduced our calls for
misplaced reports by 80 percent. We were spending too much time
on the phone with physician practices who had not received our
laboratory report-and yet our system said it was sent."
But a more common theme is the importance of constantly focusing
on human factors. "The one thing we could do better is talking
to employees and medical staff, especially employees, because
it’s been an uphill climb," says Vaughn. When they are asked where
they work, employees now say "HealthPartners" instead of the name
of their individual facility. "But that’s been a long time coming,"
Vaughn also would change how the laboratory interacted with
the pathologists who subcontract to HealthPartners-they are the
ones who could not reach an agreement on a merger, which resulted
in two separate groups. "If you can get the pathologists to make
one group from the outset, you’re light-years ahead," she says.
Some organizations do not succeed in their core laboratory approach.
In Bingham’s view, this often occurs because they go for "the
gain without any pain" at an organizational level. They might
have moved quickly to downsize the supervisory and management
group and start cross-training personnel. However, they may have
failed to move forward on actions that require investment, such
as remodeling the laboratory, putting in front-end automation,
and allowing time to train staff.
Bingham points to organizational structure as a key element
in core laboratories’ success. In the early planning stages, such
factors as jealousy and turf often tend to be downplayed, but
they can lead directly to failure.
"In many cases, one organization is made a winner and the other
a loser," he says. "In that environment, you’re doomed, because
too many people feel they’ve lost. A lot of performance-related
issues used as reasons for unbundling a merger really are the
inability of that organization to meet the needs of both organizations.
It has nothing to do with the physical fact that you have a core
The most successful core laboratories, he notes, are produced
when two parties say, "Let’s create something new that we jointly
own,’’ rather than pitting Hospital A against Hospital B. Addressing
human resources issues early and at a senior level in the organization
will help ensure they don’t scuttle the core laboratory before
it’s had a chance to succeed.
Still, a core laboratory may not be the best option, Bingham
says. "Some mergers have started to push the outer limits on size,
because when something becomes too big you start to lose some
efficiency," he explains. "If you have two large organizations
running very high levels of productivity, the cost of packing
up specimens in one site and sending them over to the other may
in fact save minimal or no dollars. So there are some facilities
where I’ve said I really don’t think it would work."
Anne Paxton is a freelance writer in Seattle.