Health systems are navigating an increasingly complex landscape marked by financial strain, workforce shortages and evolving payment models. In this environment, many are weighing whether to retain or divest their clinical laboratories.
During a recent presentation hosted by Becker’s Healthcare, William Morice II, M.D., Ph.D., CEO and president of Mayo Clinic Laboratories, shared insights on why hospital-owned labs are not only worth keeping but foundational to organizational success.
Here are four key takeaways from the session:
1. Viewing the lab as a strategic asset
Dr. Morice emphasized that laboratories are often underutilized, in part because organizations may struggle to measure their true impact. Most healthcare leaders, he noted, lack clarity on how laboratory operations connect to financial sustainability.
According to Dr. Morice, labs generate a significant amount of the quantitative data within a patient’s health record. That data, in turn, informs the majority of clinical and operational decisions — making the laboratory an essential component of patient management.
“Managing means not just watching, but cultivating and growing like a garden,” Dr. Morice said. “Whether it’s increasing efficiency, deploying algorithms and finding new ways to create revenue through potential partnerships. It’s amazing but none of it can be achieved if you don’t actively manage the lab today.”
2. Unlocking growth opportunities
Mayo Clinic Laboratories partnered with an independent analytics firm to examine Medicare cost report data from more than 3,000 short-term acute care and children’s hospitals.
The analysis revealed a clear advantage for organizations that retained their laboratory operations. Hospitals with the highest growth in outpatient lab charges achieved a 15 percent annual compound growth rate, significantly outperforming the benchmark average of 7.3 percent.
“Outpatient care is a primary revenue creator for most healthcare organizations,” Dr. Morice said. “If you retain your laboratory, you can really grow the revenue that it creates.”
The study also showed that retaining laboratory operations delivers benefits beyond lab-specific revenue. Hospitals that kept their labs in-house grew net patient revenue at a 1.4 percent higher compound annual growth rate. While that figure may appear modest, Dr. Morice emphasized its long-term significance — in one example, the difference amounted to $1.8 billion in additional revenue over five years.
This broader financial performance is closely tied to increased utilization of other high-margin services, such as radiology and infusion therapy. When a hospital maintains control of its laboratory, they are better able to provide seamless inpatient and outpatient care coordination.
“In many respects, the laboratory is the tip of the spear that can lead to unwinding in other areas, some of them with very high fixed costs that you really need to try and maximize their utilization,” Dr. Morice said.
3. Improving patient outcomes
Lab ownership also contributes to improved patient outcomes. For example, hospitals that maintained in-house labs had shorter average lengths of stay — 4.8 days compared to 5.25 — resulting in more than $300 million in savings over five years for a 15-hospital system.
“If you look at the control of the laboratory, it really is reflected in some significant, measurable healthcare outcomes or quality measures,” said Dr. Morice. “We can drive better patient care and better outcomes by retaining the laboratory. There’s still diagnostic testing infrastructure that you’re going to have to have on premises to support the care of your patients. When you relinquish control, you lose the ability to use those volumes to help maintain and lower your costs.”
4. Positioning your lab for success
Dr. Morice encouraged health systems to take a proactive approach to laboratory strategy by leveraging lab data to drive efficiency, expanding outreach programs to boost external test volumes and investing in innovations such as digital pathology.
While selling a lab might generate short-term capital, Dr. Morice cautioned that the long-term impact, including diminished revenue, lower care quality and reduced strategic control, often outweighs any immediate gains. He emphasized the importance of using measurable performance indicators, such as contribution margin and length of stay, to articulate the lab’s value to organizational leaders.
“When you’re working with a management team, whoever they are, they’re going to have to buy into your value and to you being a part of the solution as a first step,” Dr. Morice said. “Data will show what an important part we are to the financial performance of a healthcare organization.”
