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Approaching the lab amid hospital consolidations: 5 considerations from industry experts

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Industry trends increasingly point toward hospital and health system merger and acquisition activity making a robust comeback in 2021 and beyond, prompting healthcare executives to proactively consider the lab's role in consolidations. 

During a Feb. 24 webinar hosted by Becker's Hospital Review and sponsored by Accumen, experts shared why labs should be one of the first service lines to fully integrate when hospitals merge and consolidate, considerations for consolidating labs and how to best approach outreach lab programs. 

Joe McGann, vice president and general manager of lab operations at Accumen, moderated the discussion. 

The panelists were: 

  • Jeff Downs, vice president and general manager of consulting at Accumen 
  • Jeff Myers, vice president and general manager of consulting at Accumen
  • Tom Hirsch, president of Laboratory Billing Solutions

Five takeaways: 

1. Hospital labs are a classic example of a high fixed costs and low variable costs service line, making them a strategic place to start when it comes to consolidation. "The variable costs are very low to the overall cost of operations, and what that means is anytime you add volume to the lab, the cost is very low on a per unit basis — and then you're leveraging that fixed cost." Mr. Downs said. "When you take these things into consideration, you really have an opportunity to look at the sections within the laboratory where there's excess or unused capacity and you therefore have the opportunity to shift volume in a consolidation to drive down that per unit cost per test."

2. Consolidate tests with turnaround times that aren't critical, the panelists suggested. "If it doesn't need to be turned around rapidly, that's a good indicator of a test that could potentially be a good candidate for consolidation," Mr. Downs said, adding that a general rule of thumb is any lab function where turnaround time is greater than two hours. Test menus should also be evaluated to cut old or outdated tests. "The typical areas of consolidation are microbiology, molecular diagnostics, some special chemistry testing on unique platforms, toxicology and anatomic pathology," Mr. Hirsch said.

3. Prioritize clinical leadership and ensure they're included in the integration process. "It's also important that we engage pathology and clinical leadership to get buy-in and support on the integration process that we're envisioning, and any testing location changes or method standardizations that take place," Mr. Hirsch said. If clinical leadership isn't fully invested and does not voice its support to its clinical peers, the integration will not be successful.

4. Instrument standardization doesn't need to be the first main step when integrating. Labor productivity improvements or direct cost savings can take place "without the need to standardize equipment platforms upfront or information systems," Mr. Downs said. Instead, focus on other tactical activities initially, such as appointing a lab leader to oversee supply and equipment contracting moving forward. "You don't want one of the hospitals buying a coag instrument when you're looking to standardize with a certain manufacturer and platform across the system," Mr. Hirsch said. "So, you need to be engaged initially on any capital decisions when contemplating consolidation.”

5. Carefully weigh options with respect to outreach lab programs, Mr. Myers said. The first option is to strategically re-price and grow the outreach program. The challenge with this approach is it requires a separate LLC to drive a separate negotiated payer contract. The second option is to reprice all outpatient and outreach labs to market rates and renegotiate with payers. The last option is to monetize the asset and sell it to a national laboratory. The market has dictated changes to reimbursement, including no longer providing favorable reimbursement rates to health systems over commercial labs, making the status quo strategy of simply maintaining the outreach program unsustainable. "The point I really want to make is that a decision has to be made from a strategic perspective," Mr. Myers said. "No longer can we go with the status quo model, and if there's not a commitment to truly grow outreach strategically, then selling to a Labcorp and Quest is not necessarily the wrong answer."

Click here to view the full webinar presentation. 

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