Chi Chronicles A Laboratory Thought Leadership Blog

Benchmarking Clinical Laboratories: Where’s the Revenue?

There is a fundamental, inherent flaw in the current methodology for benchmarking clinical laboratories—we only measure half of the value equation. Why do we only measure costs and not revenue? It is because most hospitals still view lab as a cost center rather than profit center.

The reality is that hospital laboratory businesses are growing in size. In our 13th Comprehensive National Laboratory Outreach Survey, the average and median outreach programs were $19 million and $11 million, respectively, with an average contribution margin of 28 percent. Businesses of this size and profitability deserve some respect! At minimum, the revenue should appear in the value equation. It is nonsensical to measure only costs. It goes against the rules; it’s like:

  • Peanut butter without jelly.
  • Biscuits minus gravy.
  • Adam without Eve.
  • Milk without cookies.

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    Who is Driving Your Laboratory Margin, Customer Service, and Quality Improvements?

    Now more than ever, hospitals and health systems laboratories are faced with the task of reducing costs and increasing efficiencies while delivering better patient care. Have you considered who will drive your laboratory improvement initiatives? Will it be internal staff, performance improvement staff, or consultants? As I speak to laboratory leaders everyday, it is apparent there is a lack of general consensus and understanding of who will deliver the best outcomes.

    Are you considering using internal laboratory staff? Laboratory staff members are excellent technical resources but often lack project management skills and experience. Also, including project management responsibilities will add even more strain to an already noticeable laboratory workforce shortage. Published statistics illustrate the significance of the shortage:

    • The Bureau of Labor Statistics predicts a need for 14,000 new laboratory professionals annually with educational programs producing less than 5,000 new lab professionals each year.1
    • For every seven lab professionals exiting the profession due to retirement, only two are being replaced.2
    • With unemployment rates near double-digit levels across most of the nation, one would think that such a critical role in the healthcare profession would be in high demand. Unlike any other profession, demand actually exceeds supply with over 40,000 lab vacancies currently in the U.S.3

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      Who Are Your Peers…in Laboratory Benchmarking and in Life?

      One of our clients called me in a panic because she was told she had to reduce 20 FTEs in the hospital laboratory. The basis for the decision was a ranking in the 30th percentile for unit cost (where the 100th percentile is the best performer). The analysis was performed by a general consulting firm that did not understand the complexities of the laboratory. We used the exact same data submission and changed only the peer group, comparing this laboratory to other laboratories with comparable outreach volume (greater than 50 percent). Laboratory performance improved by 43 percentiles! The results are shown in the table below:

      Laboratory Benchmarking Peer Group Table

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        Laboratory Pricing – Overcoming the Patient Disincentive

        “In this world nothing can be said to be certain, except death and taxes.” With all due respect to Benjamin Franklin, who penned these words in a 1789 letter, regrettably we can add “health care expenses” to this list of certainties.

        In the last five years, individuals have taken the biggest brunt of rising health care costs in the form of rising out-of-pocket costs including deductibles; an increased share of employer-sponsored health insurance premiums; increased co-pays and co-insurance percentages; and an increase in non-covered, elective services. Just since 2009, the following shifts in health care have occurred:

        • Patient deductibles have increased 50 percent to an average deductible of $1,217 per individual.
        • Nearly 20 percent of workers overall have to pay at least $2,000 in deductibles or expenses before insurance benefits begin.
        • Employees of small firms are impacted even more, as one-third of employees at smaller firms are paying at least $2,000 per annum in deductibles.
        • In addition to the previous points which are only the first part of the cost shift, employees are covering more of their employer-sponsored insurance costs (37 percent of the overall premium cost) as well as covering higher co-pays for physician office visits.
        • Non-covered services are 100 percent the responsibility of the individual.

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          Overcoming Denial About Laboratory Benchmarking: Room for Improvement

          I’ll always remember my first consulting project. A senior VP of a community hospital in the mid-Atlantic region asked us to validate a report by the state hospital association that his lab was overstaffed by 33 percent. During my first visit, I knew the report was at least directionally correct without having looked at any data. The lab was not busy. Techs were mulling around. There were the surreptitious glances from the staff and the occasional magazine on the bench. Lab management insisted that they were appropriately staffed.

          You know this story does not end well; we confirmed the hospital association report despite fervent claims to the contrary. What was surprising to me was that these folks were not being disingenuous. They truly believed that they were busy, that they were working hard! How could there be such a gap in perception? Continue reading

            A Trusted Advisor

            Recently, I started thinking about the phrase “trusted advisor,” which is something that we aspire to be at Chi. What exactly is that? How do I fill that role for others, and who are mine? I started a list of the people who serve as my trusted advisors:

            • Suzy, the hairdresser who has been cutting my hair for almost 15 years.
            • Claudia, the accountant who has been doing our taxes for years.
            • Greg, the family lawyer who handles all of our legal affairs.
            • Deb and Mark, our financial advisors who help us plan for the future.
            • Pam, the realtor we have used for our last two moves.

            What do these people have in common? They know me and my family, they bring an expertise to our lives that we don’t have, and they make things easier for us. Continue reading

              What Benchmarking Is…and Is Not

              Benchmarking is a valuable tool for internal comparison within systems, internal comparison within one lab over time, or external comparison to other labs of similar size and complexity. It is not a precision tool—it provides directional guidance, but it is not an absolute.

              After all, there are dozens of factors that come into play: the comparison criteria, the composition of the peer group, the services you offer, the extent of automation, whether phlebotomy is performed by the lab or nursing, whether you have an outreach program, the size of your business. The list can go on for pages because labs are complex. They are anything but homogeneous. Continue reading

                Point of Inflection

                Have you ever trained for a marathon? Most people I know cannot simply wake up and run 26.2 miles without any preparation or training. In most cases, the date of the race is set for some point in the future. When I ran the Marine Corps Marathon, the race date was sixteen weeks out when I started training. Knowing that, I had an opportunity to prepare myself to have a successful race, maybe even achieve a personal record! I used that race date as my “point of inflection.”

                Mike Kachure Marine Marathon runner at Vietnam Memorial Amherst OH_Photo by Tom Mahl
                Mike Kachure, Marine Marathon runner at Vietnam Memorial Amherst, Ohio – Photo by Tom Mahl

                An inflection point is a time in the future being driven by certain factors at which, if one prepares well, extraordinary results can be achieved. The question was, “What action was I going to take to achieve my desired race outcomes?” I could train hard, eat right, and have a disciplined regimen, or I could slack off, get lazy, and miss training days—basically remain status quo. How I spent the next sixteen weeks leading up to this point of inflection would be critical to the outcome. Continue reading

                  Overcoming Obstacles: How Growing Wisteria is Similar to Growing Laboratory Revenue

                  I planted a wisteria tree seven years ago and have been waiting for its characteristic long, soft, purple flowers and magical scent. While it is one of the most beautiful of flowering vines, wisteria is a bane to all but the most masterful gardeners. Even under the best conditions, it can take several years to flower.

                  Because it is notoriously difficult, advice and folklore abound on how to get wisteria to flower:

                  wisteria1

                  • Some recommend fertilizing with a high phosphate fertilizer to strengthen flower production.
                  • The time of annual pruning and technique are important: once in late January or February and then again in March, down to six and three buds, respectively.
                  • Shocking the plant works sometimes—hitting the trunk with a baseball bat or shovel and root pruning (cutting through the roots with a shovel) to make it think it is endangered so that it will send out flowers (and seeds) to survive.

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