Is There Room for Improvement in the Laboratory?

The biggest room in the laboratory is room for improvement.  Improvement you say?  Does that mean we cannot “do what we have always done to get what we always got?”  Does this mean that we must consider lab design and space planning?  Actually, it does not.

It means that in order to begin a culture of continuous improvement, you must streamline the massive amounts of data found in the laboratory into accessible, accurate, and actionable intelligence that identifies key performance metrics which in turn prioritize the biggest opportunities for impact.

The foundation of this fundamental form of process improvement is known as benchmarking which is a powerful tool to improve cost and productivity, along with quality, utilization, and growth of outreach, in the most scalable and sustainable entity in a health system—the lab.  It is designed to identify not only how your laboratory is performing but how it compares to the performance of your peers.  This comparison is only accurate when based on an array of operating characteristics specific to the lab including test complexity and volume.

In the hospital segment, and specifically in the clinical laboratory, more esoteric testing and expensive technology and equipment has driven health system executives to find more “room” to create a culture of continuous improvement.

Often we are asked, “What is the biggest challenge that prevents implementation of a dynamic benchmarking process?”  The answer:  change.  “People hate change” is often the response when a strategic initiative like benchmarking is discussed.  Today’s health care climate is largely impacted by “churn and change,” and there is no indication that will ever cease to exist.  It has been proven that people actually love change when they are fully engaged in the process.  Benchmarking offers the opportunity to analyze strengths and identify opportunities.  As a team, laboratory professionals realize the outcome of their efforts through regular reporting of key metrics where process improvement is continuous.

At Chi, we have been offering benchmarking services for more than a decade.  Since January 2015, we have offered this service as a web-based solution with resounding results.  To support our belief in the power of benchmarking, we have offered two webinars:  Part I ‒“Benchmarking: Knowledge is Power” and Part II ‒ Benchmarking: The Customer Perspective.  Part I focused on informing laboratory professionals on how to utilize the power of benchmarking to measure performance and drive change that drops money to the bottom line.  Part II was in dialogue format with a customer who not only does benchmarking but took it to a more granular level through Chi Sectionals™.  If you want to make the best better, consider viewing the webinar recordings.

So, are you ready to gather three simple data sets to being making room for improvement in your laboratory?  Contact me now and I will help you realize the power of benchmarking and help you get started today!

Julie A. Stein
Marketing Director
Chi IQ® Product Manager


The Art of Laboratory Sales

Sales is always among the top five weaknesses reported by hospitals and health systems in our annual Comprehensive National Laboratory Outreach Survey. Why? Because sales is an enigma to hospitals. Sure, hospitals have marketing and communications, but sales? Not really. Sales is a very different skill set than marketing and is only recently gaining importance as health systems consolidate and compete. The converse is true about the laboratory industry. The large national laboratories (Quest Diagnostics and LabCorp) have had experienced, highly skilled, highly trained, and highly compensated “hunters” (sales representatives totally focused on growth) for decades. Most hospital outreach programs have “hybrid” representatives that juggle both sales and service and are not as well trained, compensated, or productive as their for-profit competitors. The difference in results is staggering, especially when viewed on a cumulative basis.

gooseLet’s start with how the business is built from the ground up. Laboratory is the proverbial goose that laid the golden egg for health systems. Each year the number of eggs gets larger and larger because of the power of a recurring revenue model (from maintaining the base business) combined with the growth of new business. Growth can be exponential because of an industry secret called the rule of 78.

Here’s how it works. Each month a new account (golden egg) is added. As long as there is no attrition, the business grows by 78 times the value of the account in the first year. The typical physician office client (internal medicine, family practice, or OB/GYN) averages about $5,500 to $6,000 in revenue per month. The total number of cells in the spreadsheet for one year is 78. Therefore, a quick way to calculate annual sales at various revenue targets is to multiply the average revenue per customer by the number of cells in a year ($5,500 x 78 = $429,000 in annual revenue). Refer to the example below:

The growth compounds over time. The rule for Year 2 is 222 times revenue. For Years 3, 4, and 5 apply the rules of 366, 510, and 654, respectively. Growth builds year over year way beyond what would be expected in a normal business. The same numbers as above extrapolate to $3.6 million in Year 5. The longer the term, the more powerful the impact. This is the secret behind multi-billion dollar companies Quest and LabCorp. They are built on decades of year over year compounding revenues.

Now that we are beginning to get an appreciation for how revenue grows, let’s go back to our example. The rule of 78 example was for one sales representative.
 What if you had multiple sales representatives?
 What if you also had service representatives that maintained and upgraded the base business at half the new revenue rate of a sales representative?
 What if you could attract the best hunters, representatives who could generate (and make) two to three times the revenue of the average representative?

Explore how to build a sales infrastructure based on people, process, and technology to drive exceptional performance for your laboratory in my forthcoming book, The Profit Machine in the Hospital Basement: Turning Your Lab into an Economic Engine.

Kathleen A. Murphy, PhD
Chief Executive Officer
Chi Solutions Inc.