Palmetto Health Diagnostic Laboratories

A Case Study in Laboratory Development

Situation

Palmetto Richland Memorial Hospital (PRMH), located in South Carolina’s capital of Columbia, is one of three hospitals that form the Palmetto Health Alliance system. PRMH started an outreach program to realize its goals of developing a statewide reference laboratory and turning the laboratory into a profit center for the hospital. Like many other institutions venturing into outreach, PRMH placed an incumbent employee in the newly created role of outreach manager, and at the end of that fiscal year, the outreach program generated $10,000 in new revenue. Without a professional salesperson and using a sales approach developed on the fly, PRMH’s program grew modestly over the next two years, posting $335,000 net revenue per month by the end of Year 2 of the program. Dissatisfied with these moderate gains, Palmetto sought the assistance of an outside firm specializing in outreach laboratory sales and marketing.

Strategy

In Year 4 of the program, Palmetto engaged Chi Solutions, Inc., to perform a complete outreach analysis. Chi specialists worked both on- and off-site to conduct an in-depth market opportunity assessment as well as an operational readiness and compliance review. The Chi analysis concluded that to profitably expand the outreach program statewide in a highly competitive market, Palmetto needed to create a distinct identity for the laboratory, view the laboratory as a profit center, and be willing to invest resources to grow the outreach business.

Acting on these recommendations, Palmetto hired Chi late in Year 4 to analyze and redesign the laboratory’s central processing operation, develop a sales plan and strategic options, and manage the outreach sales and marketing program. At the beginning of Year 5, Palmetto Health Diagnostic Laboratories was created.

Challenge

Primary Challenges:
  1. Create a professional sales team to compete with well-trained and strategically-focused commercial laboratory representatives.
  2. Enhance and create new internal operational systems to provide quality and consistency of deliverable laboratory services equal to or better than competitors.
  3. Outsource billing functions to obtain better data, pricing control, and billing submissions/collections.
Secondary Challenges:
  1. Obtain financing for, evaluate, and integrate physician web-based order-entry and electronic results retrieval connectivity system.
  2. Expand key managed care contracts and develop marketing plan to establish laboratory as a competitive player in the marketplace.
  3. Tighten system between contracted pathology service company and laboratory to offer seamless one-stop solution for laboratory clients.

Results

Growth and Profitability:
  • New outreach sales now generate over $350,000 per month in net revenue and total more than $4.4 million for the period since Chi began managing the outreach program (Year 5 to mid way through Year 7).
  • Outreach charges for Year 7 have grown in excess of $20 million.
  • Net revenue for Year 7 will surpass $9.1 million from over 550,000 tests performed.
  • Total outreach generates an average of $802,000 in net revenue per month.
  • Outreach test volume and revenue have nearly doubled from same-month comparisons over the last two years.
Sales:
  • Sales team includes two new sales representatives added in at the beginning of Year 5 and an Account Service.
  • Representative added in Year 7.
  • Expansion into sales plan’s secondary market is underway, including seeking sites to create patient access and market presence.
  • Implementation of a physician electronic order entry and results retrieval connectivity system with ability to interface PMS and EMR systems began mid-way through Year 7, opening the door to begin testing for many more large multi-practice physician groups.
Operations:
  • Central processing was reorganized to improve efficiency, provide checks to reduce errors, and create ability to handle large increases in volume without changes in process flow or excessive addition of staff.
  • Key metrics were defined, measured, and displayed each month and all key department leaders reviewed in a monthly laboratory sales/operations meeting.
  • Client service manager and phlebotomy supervisor positions were created to ensure proper focus and delegation of responsibilities and allow key laboratory leaders to focus on laboratory strategic initiatives and operations.
  • Billing functions were successfully transitioned to a third-party service provider in Year 5.
Value:
  • Palmetto Health Diagnostic Laboratories is recognized as an established quality regional laboratory whose success in outreach fits well into the hospital’s overall strategy to provide access to healthcare and serve its community.
  • The laboratory has established itself as a profit center for the hospital which has accelerated its ability to expand testing capabilities and better contract with vendors.
  • The laboratory has filled excess disposable capacity through the coordination of proper sales projections and operational planning and now operates consistently in the top three most efficiently managed departments in the hospital according to hospital benchmarking metrics.