Gnat, Nuisance, Irritant, PAMA—Which Doesn’t Belong?

It’s a trick question. They all fit, including PAMA (The Protecting Access to Medicare Act). Really? What about all the doom and gloom articles portending the end of clinical laboratory outreach? It is propaganda, blown way out of proportion, disproportionate to its importance … you get the drift.

Here are the facts:
1. In an analysis done by Chi Solutions, Inc., an Accumen company, data proves that the declines in reimbursement due to PAMA are an important trend to watch but not the end of the world. PAMA is like a gnat—a minor irritant if you have a healthy outreach program.
2. On average, the impact to the average clinical laboratory outreach program is a 3% reduction in margin over 5 years. Really? That’s it? Yes. Here’s an article that offers some additional insight.
3. Unless your outreach program is only borderline profitable now, then PAMA is not going to put you out of business.
4. Now if you don’t measure your profitability, then shame on you. Not all outreach programs are profitable, just like not all businesses are profitable. Chi’s more than 30 years of consulting experience and data from 15 years of our Annual National Laboratory and Outreach Survey show that the average contribution margin is in the 25-30% range.

How do you offset the 3% drag on margin? That’s easy. You already know the answer to that question. And don’t tell me that you have done everything you can on cost reductions. Even in this day and age after all the consolidation, automation, lean, and other efficiency improvements, Chi/Accumen can still find between 18-22% savings from lab for the average health system.

How can that be true? It’s because there are cost reductions in every organization that we “pretend” we don’t know about. I’m talking about the things that we would rather avoid that are politically challenging, disruptive, unpopular, or just plain hard to do. It is human nature—we only do those things when our backs are to the wall, when there is no other alternative.

So, all you have to do to offset the 3% reduction in margin from PAMA is implement one of the many cost reductions that you would rather pretend you don’t know about.

Kathleen A. Murphy, PhD
Senior Advisor
Chi Solutions Inc., an Accumen Company

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