College of American Pathologists
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Survival tips for the informatics and retail revolutions

July 2003
Anne Paxton

The train may be leaving the station, but it’s not too late for
laboratories to get on board for the health care information technology revolution. That’s the appraisal of Bruce Friedman, MD, director of ancillary information systems and professor of pathology at the University of Michigan Medical School and Health System, Ann Arbor.

Outlining laboratory business strategies at the May 2003 Executive War College on lab and pathology management sponsored by The Dark Report, Dr. Friedman said the key to survival in the $24 billion market will be solidifying the role of the laboratory as an integrator of information: “We need to shift the raison d’être of the central lab from primarily data creation to data creation plus data integration and management.”

Given current patterns in near-patient testing and self-testing, by 2005 about 40 to 50 percent of tests will have moved out of the physical space of the central laboratory, he estimates. But laboratory professionals should accommodate and even embrace this shift, not fight it. Dr. Friedman sees 10 trends to which laboratories must adapt.

  1. Central lab model receding
    Until recently, the centralized laboratory model—laboratory factories with high test volume and low unit cost—has dominated. And the expensive infrastructure it requires and low cost per test because of economies of scale have made it hard for new health care delivery and lab testing models to emerge, he said.

    Now, however, a variety of factors, including patient and clinician demand, are weakening that model. “I know our patients don’t want to fight for a parking spot in Ann Arbor at the mother ship. They want to go to remote stand-alone clinics,” said Dr. Friedman.

    For their part, clinicians and nurses are demanding faster test turnaround and more control over laboratory testing devices, and many IVD manufacturers are marketing their point-of-care devices directly to clinicians in critical care units.

    “Those of us who have been in the laboratory have as a trump card the cost per test, because we can perform tests more cheaply in centralized labs,” he said. “I’ll tell you some news. The clinicians really don’t care that much about cost per test. What they’re trying to do is optimize their operations and information flow in the CCU.”

    Opportunities for the decentralization of testing have made the central laboratory less relevant: “When a consumer buys a glucometer in his neighborhood retail pharmacy and performs glucose tests on himself, he converts his bedroom into a laboratory.”

    “We now have the problem of capturing and integrating results being generated in remote testing locations. From a laboratory information management perspective, the key question has to be how to integrate all that information—not just the information generated in the central lab.” New standards have been developed for integrating POC test results into the longitudinal LIS database.

    “Lab professionals have generally considered decentralized testing to be synonymous with bread-and-butter testing, or routine testing,” Dr. Friedman said. “But with chips and downsizing of instruments, there are now companies offering sophisticated genetic testing using devices not much bigger than your hand.”

    “So we can no longer talk about decentralized testing as being unsophisticated. We may end up with sophisticated genetic testing being performed by an instrument with a very small footprint, which would easily migrate out of the central lab.”

    “In my view,” he added, “the LISs we’re working with today will have difficulty serving this new decentralized market, because the business model for which they were designed was based largely on information flows from the central laboratory and interfaces to high-throughput analytic instruments housed in the central laboratory. And this will require a new Web-based LIS architecture.”

    New competition will also be a factor as decentralization proceeds, he believes. “For example, internists, many of whom are involved with the development of genomics and proteomic testing, will vie with pathologists for this new laboratory testing. In fact, a new field is evolving called clinical proteomics, and to the extent that labs shun this new area or don’t develop expertise in it quickly, it could migrate to other hospital-based professionals who will begin to compete with the current laboratory professionals.”

  2. Acute-care testing merging with home health
    But other tests are also moving to remote venues, Dr. Friedman added, pointing to the merger of acute-care laboratory testing with home health care. “There is a concerted effort being undertaken to reduce health care costs as less sick patients migrate from the ICU to general care, and inpatients migrate to outpatient units and home,” he said. “So shortly we’re going to need to perform much more testing in the home care environment. As part of this maturation, I hope laboratory professionals will be asked—or will volunteer—to help maintain quality oversight and training of home workers, some of whom will perform this home testing.”

    Personnel associated with entrepreneurial integrated delivery networks will pursue home health as a logical extension of other health services that they offer to shave costs and retain patients, he predicted: “I’ve discovered that many consumers do not want their genetic testing performed in hospital laboratories because they’re afraid of the relatively widespread access to hospital databases, so they may seek out some of the small biotechnology companies performing genetic testing on the Web as a way of keeping their results confidential.”

    Such genetic testing may not limit itself to one-shot reporting. “The reporting lab may need to create a lifetime relationship with the patient because the meaning of certain genetic tests may be different tomorrow than it is today. And this may create a new business model for some of these labs.”

  3. Lab data repositories dis-integrating
    As the central laboratory model becomes less influential, Dr. Friedman asserted, more “islands” of lab data may be created. “Many of us in the laboratory who are enamored of the centralized lab model have a distaste for point-of-care testing because it’s not quite as neat a package as we’re used to from the perspective of lab operations and management,” he said. “It’s important for laboratory personnel to take the appropriate steps to reintegrate the data being generated outside of the central laboratory. As data migrate out of the hospital lab, it falls to us to get our arms around such data and reintegrate it into the LIS database.”

    He sees pathology informatics as the discipline that will assist in reintegrating the data and interpreting the now complete longitudinal lab database: “Whether lab professionals will be compensated for this larger data integration and management role is up for grabs. But my belief and hope is that the hospital lab will remain as a data hub through which diverse data streams will converge, and that pathology informaticians will be increasingly called upon to help plan this data reintegration from diverse data sources.”

  4. Demand for data portability and security
    The fourth trend Dr. Friedman perceives is patient and government demand for greater portability and confidentiality. “We’re certainly spending a lot of resources complying with HIPAA,” he said, referring to the newly effective Health Insurance Portability and Accountability Act of 1996. “One thing is certain—all laboratory professionals will need to work very closely with their LIS vendors, on whom a substantial portion of the burden for HIPAA compliance has settled. Increased regulatory requirements will obviously increase the cost of data management and data reporting.”

  5. Two data domains evolving
    Dr. Friedman sees two major lab data domains evolving. One is hospitals with their clinical data repositories. The other is private physician offices with their practice management systems, or PMS, which are evolving into office-based electronic medical records. “What’s unique about our role as pathology professionals is that we have the opportunity to bridge these two data domains,” he said.

    “Physicians many times want interfaces between the hospital’s lab portal product or LIS and the PMS they have running in their offices, so lab professionals, particularly those with an outreach component to their business, are now torn between the dual challenge of enhancing and integrating data on the hospital side and on the physician office side.”

    Complicating this, he said, is that many PMS vendors view their products as office electronic medical record platforms that can accommodate laboratory—and even retail pharmacy—ordering. They may thus be unwilling to help develop interfaces between their products and lab portal software, wanting instead to have the lab order-entry capabilities as part of their own software. Dr. Friedman believes “hospital-based labs are in the unique position of being
    able to span this gap between hospital and physician office clinical data management.”

  6. Lab portals becoming widespread
    Lab portal software, which enables order-entry and results-reporting lab transactions over the Internet, will make it easier for labs to harmonize hospital-based and MD office-based information management, Dr. Friedman said. “I believe all information management will eventually take place on the Web. It provides an inexpensive means of developing and delivering new lab products and services to physicians, patients, and health care consumers, it supports enhanced physician decisionmaking, and it promotes consumer health because consumers are increasingly sophisticated about buying products on the Web and can thus take advantage of Web-enabled lab transactions.”

    Two groups of vendors can supply a lab portal product to clinical laboratories: classic LIS vendors that provide such products as an extension of their standard product line, and a group of small startup companies specializing in this type of software. “So you have a choice. But you may have to get used to working with two or more vendors to provide all the IT functionality you’ll need in your laboratory,” he cautioned.

    One important feature of lab portal applications is that they can be run remotely from the hospital. “The server running the lab portal software and the laboratory database does not necessarily have to be physically located within your hospital computer room. It can exist hundreds of miles away without any degradation of service. This is referred to as the application service provider model.”

    “So the lab portal software uses the Internet infrastructure to provide physician office connectivity for the hospital-based lab, and this enables your outreach program to provide Web-based order entry and results reporting to your physician clients in their offices, and to compete effectively with the commercial labs that may have provided this service for a long time.”

    Installing a lab portal product can give hospital labs an edge over commercial laboratories, Dr. Friedman said. “You can replicate the data in your hospital LIS through your lab portal database—that is, provide your customers with a longitudinal record of past test results. So in addition to providing an order-entry results-reporting platform to physicians in their offices, you can provide an archival view of two or three years’ worth of lab data, depending on the size of the LIS database—which is a feature the commercial reference labs can’t provide for their customers.”

    Such Web-based services mediated through lab portals will promote efficiencies in the physician office and speed development of the office-based electronic medical record, Dr. Friedman believes: “Lab portal vendors are also developing their products to provide not only for lab ordering, but radiology ordering and even cardiac diagnostic ordering and transmission of prescriptions to local pharmacies.”

    “This development trajectory for lab portals will culminate in their full flowering as what might be called clinical support portals,” he added.

    Initially, the market for lab portal software has been commercial reference labs. “A next step in the evolution of lab portal software will be greater integration between PMSs and lab portals as interfaces between the two systems are developed. The next logical step will be the development of additional ordering capabilities in the lab portals, such as radiology and diagnostic cardiology. Meanwhile,” he continued, “the lab portal vendors will be selling their products to large health systems and their embedded laboratories, which may choose to use them as an order-entry and results-reporting front-end or as a wrapper around their installed legacy systems. The final step may be integrating home health testing, such as telehealth and personal health records, into these evolving lab portal systems.”

  7. Classic LIS coexisting with decentralized LIS
    “In my judgment, today’s lab portals will serve as the kernel for the evolution of a new form of LIS architecture that I’ll call the decentralized version, and I think the classic or centralized LIS will coexist with this type of decentralized LIS,” Dr. Friedman said.

    “The centralized LIS has developed incredible sophistication in understanding internal work processes within hospitals. However, it’s never been quite as efficient in supporting lab outreach to physician practices or hospital-based point-of-care testing, so I believe the lab portals will be used to support this type of lab activity. Because of their more modern Web architecture, they can also accommodate to integration of point-of-care health testing, home health, and other decentralized lab activities.”

    “If you have a lab network, you can install a lab portal-type product, which can then provide the logic to triage the specimens when they’re ordered anywhere in the system and shunt them to the appropriate performing laboratory within that network.” A lab portal can also accommodate direct-access testing in support of biotech companies that want to go retail and sell genetic testing directly to consumers, Dr. Friedman added. All one needs to do is “bolt on” lab portal software to the performing laboratory so that customers can order the genetic test on the Web and receive the test result the same way.

    “Interconnectedness is inherent in the Internet standards on which lab portal software or decentralized LISs are based,” Dr. Friedman said. “This provides tremendous flexibility if one wants the laboratory to pursue e-commerce goals.”

  8. Direct-access testing on the rise
    While some aspects of direct-access testing have potential for mischief, Dr. Friedman believes the retail sale of lab tests to consumers marks a turning point for the clinical lab industry. Quest’s direct-access testing Web site,, he noted, offers a wide array of sophisticated lab tests directly to consumers. “That the largest reference lab in the U.S. is now offering such services in some 12 states can be viewed as a professional challenge to all of us because such a large commercial laboratory has decided to invest substantial financial resources into DAT. The company is making a very large bet on direct-access testing, and I think it will take off.”

    “I may be overly optimistic, but I think that in the more than 20 states where DAT is legally permissible, hospitals and their owned health insurance plans will begin to consider offering direct-access testing to their subscribers as a member benefit, particularly for tests like PSA and cardiac profiles where a substantial health benefit can be demonstrated,” he added. The cost to the plan for such a program is minimal, and the program can be easily marketed as an insurance subscriber benefit and as a public health benefit. “And if such a phenomenon takes off,” he said, “direct-access testing in the U.S. could easily jump to as much as 10 percent of testing performed in the U.S.”
  9. Lab testing results becoming more complex
    “Clinicians are faced with increasingly complex laboratory testing results, and I believe LMCs—laboratory medicine consultations—will become a new way of generating revenue in the laboratory,” Dr. Friedman said. “As tests become increasingly commoditized, this is a new opportunity for a downstream lab product based on the integration of test results and clinical information from various databases as well as the clinical data repository.”

    Such lab consultations will be particularly important in this era of genomics and proteomics, when primary care providers and other physicians will soon become overwhelmed with the complexity of the lab data presented to them, he says. “This is an opportunity for the laboratory world to start adding value and provide a safer environment for patients by helping clinicians arrive at correct diagnoses and even determine appropriate therapy for patients.”

    “Billing for lab medicine consulting requires a case-by-case physician order. In the past we shied away from formal billed-for lab-initiated consults because of this requirement. But I believe obtaining an order for consultation or reflexive testing is now going to become much easier because of lab portal software,” Dr. Friedman said.

    “I’m suggesting if we start now, we’ll be prepared for the genomic and proteomic revolution in lab medicine.”

  10. Wireless technology changing business relationships
    “Mobile phones that are enabled to browse the Web and wireless tablet computers will present the opportunity for new working relationships between laboratory professionals and our physician customers,” Dr. Friedman predicted. Physicians on rounds will be able to view their patients’ test results using lab portal applications.

How can hospital laboratories and lab professionals best adapt to these IT trends? Dr. Friedman believes they need to accept that the role of hospital-based lab professionals is both information creation and information management. Among the steps he advises are:

  • Developing familiarity with home health and telehealth programs and supporting technology.
  • Recruiting pathologists and lab professionals who are not closely wedded to the central lab model.
  • Seeking out vendors who can accommodate new (that is, Web-enabled) ways of doing business.
  • Reinforcing the notion of hospital lab personnel as the final integrators and formatters of lab data from multiple sites and as having final QC oversight.
  • Capitalizing on strategic advantages of hospital-based labs over commercial labs.
  • Creating opportunities for laboratory medicine consultations.
  • Exploring the purchase and deployment of lab portal software.
  • Considering direct-access testing in states where it is permitted.

In the process, laboratory professionals must maintain some degree of control over the quality of laboratory data and processes throughout health systems. “Sometimes we throw up our hands and say this is too much aggravation. But the worst reaction is to abdicate responsibility, because if you continue to maintain some oversight—even though you may not be reimbursed for the responsibility—you’ll still have a place at the table for all lab testing discussions.”

Adapting to the revolution in information technology will mean more than mere survival. “As laboratories move from purely wholesale to partly retail businesses, it will have a salutary effect on all lab operations,” Dr. Friedman said. “It will make us much more service-oriented than we’ve been in the past—and make the value of lab professionals much more obvious and appreciated by patients and consumers alike.

Anne Paxton is a writer in Seattle.