It’s no secret that healthcare is changing at a rapid pace. Hospitals and health systems face overwhelming pressure to respond to those changes while keeping safety, quality, and patient experience at the forefront of every new initiative. In this dynamic environment, a health system’s lab and imaging departments may be overlooked — and that’s a big mistake. Approximately 70 percent of major clinical decisions are based on lab results, and more than 80 percent of hospital visits include at least one imaging test.
Does your hospital or health system have a strong ancillary services strategy in place?
Ancillary services are poised to face downward pressure over the next decade, as payers look to redirect patients away from hospital-based lab and imaging services. Lower cost, independent laboratories and imaging centers are increasingly seen as superior in this value-driven environment.
In the midst of healthcare’s current challenges, forward-thinking health system leaders can capitalize on significant opportunities to reduce costs and improve performance across ancillary services — positioning their organizations to be the best choice from a value-based care perspective.
Pressures facing lab and imaging departments
Health systems’ lab and imaging departments are most often not operating at peak efficiency without realizing it. Strong healthcare leaders are looking beneath the surface to gain a clearer sense of their organization’s current state with regard to ancillary services. What they are finding paints a concerning picture.
Labs’ untapped potential
Labs are leaving their revenue potential on the table. Between 2018 and 2020, PAMA legislation reduced Medicare Part B reimbursement for lab testing by 29.3 percent. Additionally, most health system labs operate between the 50th and 75th percentile of benchmark productivity, despite advances in lab automation. This means that without clinical and operational improvements, most health system labs and imaging departments will fall behind.
Current levels of waste and inefficiency have reached epidemic proportions, according to national data. For example:
1. Unnecessary hospital supply chain spending accounted for more than $25 billion in 2018.
2. Supply chain overspending increased more than 10 percent between 2017 and 2018.
3. 40 to 60 percent of blood transfusions are avoidable or unnecessary.
4. Every year hospitals spend more than $30 billion on blood acquisition and transfusion-associated costs.
Imaging’s hidden challenges
When it comes to imaging, many health systems have a false sense of security. This is, in part, because the imaging department is often the second largest revenue generator within a hospital or health system, typically accounting for 30 percent of a hospital or health system’s operating profit. Because imaging tends to be a profitable department,
leaders may not think to look more deeply. But upon closer analysis, a profitable bottom line can hide a multitude of inefficiencies.
“A health system’s imaging department is an enormous source of value creation, but clinical directors and c-suite executives alike have limited awareness of the department’s contributions to clinical quality and efficiency,” said Geoff Rubin, MD, past chairman of Durham, N.C.- based Duke University department of radiology and the department’s current George Barth Geller Distinguished Professor of Radiology. “The distribution of imaging services across multiple locations within an organization can add layers of complexity that are ripe for optimization; however, the limited availability of performance measures and limited focus on process optimization results in unrealized opportunities.”
Although they may be profitable now, several factors are combining to squeeze imaging departments’ profit margins. Six of the biggest threats are:
1. Dramatic cuts in reimbursement that will continue to reduce department revenue.
2. Imaging equipment is expensive and always accompanied by costly service and maintenance contracts.
3. A shortage of radiological technologists that results in agency staffing and overtime, both of which keep labor costs high.
4. Imaging departments forced to make increased technology investments in order to stay current with rapidly changing technology — or risk losing market share to competitors.
5. Payers that are becoming more involved in site-of-service decisions, driving some patients to lower-cost outpatient imaging centers.
6. An increasing number of nimble, standalone competitors creating competition for hospital-based imaging services.
Time is running out for health systems to improve imaging operations before changes to payment structures take a bite out of profits. Beginning Jan. 1, 2021, errors in reporting appropriate use criteria consultation information will cause Medicare claims for imaging services to be denied.
Additionally, diagnostic imaging that uses computed radiography rather than direct digital image processing will be subject to a seven-percent payment reduction through 2022, which will increase to 10 percent in 2023. The health systems that can take deliberate, focused action to get ready for these changes are the ones that will succeed in this new environment.
The rewards of an increased focus on ancillary services
From lab to imaging, ancillary services are among a health system’s most important — and likely underutilized — revenue drivers. Health system lab and imaging departments have the potential to be two of an organization’ most robust profit centers.
“Ancillary services may not be the first departments that come to mind when healthcare organizations are looking for improvement opportunities, but they should be,” said Gary Huff, former CEO of LabCorp’s Diagnostic Division. “Although a hospital’s lab typically represents only about 3 percent of its operating expenses, the lab has the potential to contribute revenue if it is run efficiently and effectively. Data-driven analysis is the first step toward revealing the opportunities that are available in a health system’s lab and imaging departments.”
You’re ready for the next level. Here are your next 10 steps.
Your health system is ready to focus on ancillary services. Where is the best place to start? By taking a thorough approach to your organization’s ancillary services strategy, health system leaders gain clarity on the current state of operations, visualize potential cost and performance improvements, and execute meaningful, sustainable change.
Here are a few of the most powerful levers your organization can use to move the needle on ancillary services’ cost and performance.
For Lab
Begin by identifying opportunities to increase efficiency and operational effectiveness. Then, design and implement a plan to make sustainable improvements.
1. Service line optimization — In a high-volume environment like a clinical laboratory, production and operations must operate at a high level 24/7. Improving processes and eliminating waste across elements like labor, space utilization, workflow and scheduling (of both staff and patients) can have a powerful effect on your laboratory’s overall performance.
2. Lab supply chain integration — Reviewing agreements and identifying opportunities for improvement to current partnerships and resources can immediately, and directly, impact the bottom line without affecting quality.
3. Reference optimization — Third-party reference spending can vary widely among healthcare organizations. Using industry benchmarks and expert insights can help health systems determine which quartile their reference labs are falling within and where they can improve to compete with other like-size, or larger, systems.
4. Patient blood management — Implementing a comprehensive patient blood management program helps health systems steward this precious resource, reducing blood product cost and utilization of transfusions.
5. Test utilization management — Deploying test utilization best practices can help an organization’s lab partner with their physicians across multiple departments and case types to ensure the most appropriate tests is ordered for each patient, reducing cost and improving patient safety scores.
For Imaging
Keep the focus on improving patient satisfaction and quality while optimizing operations, reducing supply and service costs, and implementing efficiencies within your imaging department.
1. Patient access management — Ensure great outcomes and satisfied patients by analyzing the entire patient journey, from the moment of referral all the way to the test result. Work to remove points of friction throughout the process.
2. Operations optimization — The first step toward designing useful improvements is to observe current practices and conduct in- depth workflow analyses to identify opportunities. Throughout the process, keep in mind the impact of demand, staff, and equipment utilization on patient care and subsequent satisfaction.
3. Capital equipment planning — Move beyond vendors’ recommendations and devise a smart plan for future acquisitions by considering clinical, financial, and technological elements. An external resource or partner can be a valuable, impartial third party to provide an evaluation across your department.
4. Physician referrals and leakage — When patients get physician referrals for imaging, what happens next? Analyze the factors contributing to leakage, including geographic and demographic patterns, specific test requirements, and patient dissatisfaction. This is another area a partner can provide unique assistance.
5. Supply chain management — Identify opportunities to reduce waste and increase savings across the imaging supply chain, from service contracts to interventional radiology-specific supplies.
It’s time to get ready
Innovative health system leaders have a golden opportunity to pull ahead of competitors and offer high-quality, high-value patient care. Ancillary services can function as a key driver of cost and performance improvements for your health system. The question is: are you ready?
More articles on clinical leadership and infection control:
117M+ children may have missed out on measles vaccine amid pandemic
5 insights from a hospital that’s treated 3,500+ COVID-19 patients
7 states without stay-at-home orders (and why)
At the Becker's 11th Annual IT + Revenue Cycle Conference: The Future of AI & Digital Health, taking place September 14–17 in Chicago, healthcare executives and digital leaders from across the country will come together to explore how AI, interoperability, cybersecurity, and revenue cycle innovation are transforming care delivery, strengthening financial performance, and driving the next era of digital health. Apply for complimentary registration now.