How lab trends and an evolving healthcare landscape are shaping health systems' lab strategies

23 May 2023

Historically, laboratories have been regarded as cost centers despite their key role in driving health outcomes and hospital revenues. Now that outlook is starting to change.

During Becker's Hospital Review's 13th Annual Meeting, in a workshop sponsored by Labcorp, Bryan Vaughn, senior vice president of hospitals and health systems at Labcorp, moderated a discussion about the value of labs and how healthcare organizations can unlock further benefits via partnerships. Panelists were:

  • Mahul Amin, MD, Vice President and Divisional Medical Director, Health Systems Operating Division and West division; Senior Leadership Team, Oncology, Labcorp
  • Courtney Midanek, Managing Director, Kaufman Hall
  • BG Porter, Chief Executive Officer, Accumen

Four key takeaways were:

  1. Laboratory medicine is an important but underappreciated part of healthcare. Historically, the lab has not been a top priority for healthcare leaders because lab-related activities account for only 2% to 3% of total health system spend. Yet, it is estimated that 60% to 70% of medical decisions are made based on lab data.

    Dr. Amin urged hospital administrators to update their views on what the lab can do for their institutions: "The lab should not be viewed as a cost center, but as a value-generating business unit that can allow expansion of revenues with the right test menu. With the advance of analytics, lab data can be mined for further value in the system and lab stewardship can help [reduce] resource utilization, which can help bend the cost curve."
  2. Post-COVID, the importance of managing and optimizing the lab has risen in importance for healthcare executives. There is growing awareness of the need to reduce variability in lab operations and "hardwire" them with evidence-based practices.

    To initiate this process of standardization, Mr. Porter said leaders should do an internal assessment to clarify what are the lab's current revenues, growth potential, quality and service indicators and people metrics. "Taking a balanced diagnostic assessment and understanding what the potential can be is the way you lay the groundwork to explore how to move forward as an organization."

    Once they have clarity on what their lab's potential is, leaders can choose to strengthen operations, grow operations, partner, or monetize and exit. "You've got strategic degrees of freedom," Mr. Porter added.
  3. As the healthcare environment evolves, the partnership strategy becomes more appealing. Provider organizations' interest in partnering with external labs is underpinned by several trends, including a decline in reimbursement rates and the growth of outreach labs. Outreach labs provide commoditized lab services not tied to inpatient or outpatient encounters—but that hospitals can still avail themselves of—and because their prices are often lower, they tend to be preferentially placed in payers' narrow networks. "[Payers] are not willing to pay premium prices for commoditized lab testing and we're starting to see that reflected in utilization and reimbursement rates," Ms. Midanek said.
  4. When partnering with an outreach lab, agreeing on shared values and principles is critical. Those principles should be grounded in what would be best for patients, physicians, employees and other stakeholders across the organization, as well as resonate with having a seamless transition, ensuring equity of care and implementing best practices.

To start a discussion about how Labcorp might assist you with your health system’s unique challenges, contact us today.

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