American Association for Clinical Chemistry
Better health through laboratory medicine
February 2007 Clinical Laboratory News: Building a Laboratory Outreach Business

February 2007: Volume 33, Number 2

Building a Laboratory Outreach Business
Automation, Value Help Boost Growth and Manage Expansion 
by Julie McDowell

Clinical laboratories continue to confront budget constraints and a dwindling labor supply in 2007, while pressure grows to do more testing at a faster rate. Nevertheless, some hospital laboratories are pursuing new commercial interests, daring to compete with reference laboratories by launching or expanding outreach testing services. In addition to providing high quality test results, to be successful, outreach labs must focus on the bottom line and avoid mistakes that may interfere with profit growth—whether it be customer service problems or specimen transport delays. To tackle these issues, clinical labs are looking toward automation and consolidation, as well as management strategies that quantify performance data on the various elements affecting the overall health of the laboratory business—from testing value to employee retention and turnover.

Historically, hospital laboratories have focused on technology and quality as it applies to test performance, according to Earl C. Buck, Vice President of Operations Management for Chi Solutions (Ann Arbor, Mich.), a laboratory consulting and management support firm whose clients include hospitals, clinics, and independent laboratories. “In the past, hospital labs did not focus on customer service, and therefore they lost the non-patient market,” he explained. “Specimens that came into hospital labs from doctors’ offices went to the bottom of the priority list because the labs considered the hospital patients more important than the patients from physician offices. This allowed a whole new segment of the industry to be created—the independent and commercial labs.”

Many hospital labs were also not attentive to the financial aspects of their operations, and only recently have lab directors tried to bring down costs per test, and capture revenue from other markets, according to Buck. Costs associated with retaining and recruiting employees were rarely considered. But, the harsh realities of today’s employment market create nightmares for lab directors and managers. Hospital administrators may want to expand the lab’s outreach business by adding more testing volume, but such business plans won’t succeed if labs don’t have the staff to handle their current volume. According to a 2005 wage and vacancy survey conducted by the American Society for Clinical Pathology, nearly 44% of 749 laboratorians surveyed reported they were experiencing difficulties recruiting or hiring medical laboratory personnel, with the labs reporting a mean time of over 2 months to fill medical technologist positions. Increasing competition for well trained personnel, and lower compensation for laboratory jobs compared to other careers contribute to these problems, according to the survey’s findings.

But despite these obstacles, hospital labs appear to be holding their own in the outreach market. When an ongoing survey conducted by Washington G-2 Reports (New York, New York) asked hospital outreach programs in 2006 to evaluate their market share competitive experience, more than 50% of 83 respondents said that they are holding market share against local and national commercial lab competitors, including LabCorp (Burlington, N.C.) and Quest Diagnostics (Lyndhurst, N.J.). In addition, 25–31% of respondents reported that they are gaining market share, while 12% said they are losing market share. Nevertheless, the national reference lab giants are formidable competitors. A survey of 175 hospital outreach programs conducted in 2006 found that 38% identified competition from LabCorp and Quest as the biggest challenge they faced in growing their outreach business (Laboratory Industry Report, October 2006, p. 1).

Entering the Outreach Market

One example of a hospital lab trying to expand outreach capabilities is the Clarian Pathology Lab, which opened in May 2006 in Indianapolis, Ind. This laboratory is part of the Clarian Health Partners system, which was created in 1997 with the merger of three facilities—the Indiana University Hospital, Riley Hospital for Children, and the Methodist Hospital, all located in Indianapolis. Clarian now owns or operates 17 hospitals and health care facilities across the state, including two recently opened hospitals in suburban Indianapolis. In addition to serving this growing network, the laboratory also wants to expand their testing business to affiliated physicians’ offices, which are electronically linked in to the Clarian computer network. “Our hospitals didn’t concentrate on where the private practice offices sent their testing work, so a lot of that goes to one of the large reference lab facilities,” explained Kenneth D. Ryder, MD, PhD, Clarian Health’s Director of Laboratories. “In our current environment, we feel we have the infrastructure necessary to provide the types of services required by private practices. One advantage is a common computer network. We were also interested in tapping in to the non-Clarian physician group markets.”

But in order to expand these outreach services, Clarian’s laboratory operations had to be completely redesigned. Prior to the merger, Indiana University and Riley Hospital for Children shared a clinical laboratory because they are adjacent to one another. Samples were transported to this laboratory through a pneumatic tube system. Methodist Hospital, which is over a mile away from the other two hospitals, had its own clinical laboratory (see box below).

Moving Testing into the Future

The three-story Clarian Pathology Laboratory (photo insert) now serves as the core clinical laboratory for the Methodist Hospital, Riley Hospital for Children, and the Indiana University Hospital, as well as the outreach testing service. A 1.5-mile monorail called the People Mover connects the facilities, with stops at the laboratory, Methodist Hospital, as well as one stop for the adjoining Indiana University Hospital and Riley Hospital for Children.

“Shortly after the merger, the hospitals were connected by an elevated monorail system, known as the People Mover, that transports visitors and employees between the hospitals,” explained Ryder. The two clinical laboratories were then consolidated into a new facility—the 164,000 square-foot, three-story Clarian Pathology Lab. “Right in the middle of the hospitals—about 0.7 miles from each facility, they built a new clinical laboratory, complete with its own People Mover station,” he said.

With the People Mover in place, Clarian could begin to build a pneumatic tube system connecting the laboratory and the hospitals, using this existing linear transportation infrastructure. This tube system—which spans 1.5 miles—was the longest pneumatic tube network when it opened in January 2006. However, because of this long distance, engineers encountered significant obstacles before the system was operational. “When we ran the first specimens through the tube system, they came back looking like cherry Kool Aid,” recalled Ryder. “At high speeds running over half mile distances, the specimens were getting very jostled and coming back completely hemolyzed.” The laboratory ended up getting rid of one type of test tube because it had too much head space, which increased the hemolysis. Another problem was the existing pneumatic tube infrastructure linking Riley and Indiana University Hospitals. Since this infrastructure was about 20 years old, it had to be completely overhauled so it was compatible with the new tube system.

“Currently, the tube system runs at about 90% maximum speed, because at 100% speed, there was still some hemolysis,” said Ryder. With two specimen process stations in the lab that can send and receive specimens every 10 seconds, there are now a total of six high speed lines between the laboratory and hospitals. On average, it takes about 5 to 10 minutes for the samples to get from the hospitals to the lab.

Going Robotic

As plans for the Clarian Pathology Laboratory began moving from the blueprint to construction phase, Ryder was designing what the inside of the laboratory was going to look like and how it would operate. It was clear to him that if Clarian’s testing volume was going to be ramped up with the expansion of the outreach services, processing would have to move at a breakneck pace. But prior to the hospitals’ merger, all of the laboratories were grappling with significant delays. While the pneumatic tube system would cut down on specimen transportation times, Ryder wondered how the lab would transform into a competitive outreach operation—where customer service and rapid turn around times are vital to success, especially when competing with large reference laboratories.

“In 2006, we did 9.5 million tests, which is 18 results per minute all day, every day,” he said. “Humans just can’t keep up with that. As my staff and I visited laboratories around the country to observe other high-volume operations, we concluded that robotics was the way to go.” Under contract with Beckman Coulter (Fullerton, Calif.), the Clarian lab implemented a robotics system, which resulted in cutting testing times in half. Before the robotic system, it would take about 75 minutes for processing—from the time the sample arrived to when the result was reflected in the medical record. With automation, that time has been cut down to about 35–40 minutes.

With the help of automated processing, Ryder was confident the lab could shoulder more volume—from both inside and outside the Clarian network. “In hospitals, the acuity ratios are going up, so the people in hospitals are sicker and the doctors want the test results faster,” he said. The only way to do more tests, and to do them faster, is to work on the front end and the back end. For a place the size of Clarian, automation and autovalidation are the only ways to go.”

Combining Cultures

In addition to getting the pneumatic tube system up and running, another challenge was combining the staffs from the three facilities, many of whom where panicked about all the changes. With the consolidation of the laboratory operations and the introduction of robotics, many laboratorians were concerned about losing their jobs.

“People’s fear about losing their jobs and getting people to work together were the two biggest challenges of this whole endeavor,” said Ryder. “I told everyone from the beginning that the intent of these changes was to grow the outreach business and not reduce staff, but some people just did not believe me.”

One of the initial transition issues confronted by the lab was coming up with consensus reference ranges. Both Riley/Indiana University and Methodists labs were using different reference ranges. In the spirit of compromise, Ryder conducted literature searches and researched national standard reference ranges. As a result, the current ranges are based on scientific data and literature citations. “To this day, I can cite a literature source for every reference range and critical value we have,” Ryder proudly noted. “If you base these decisions on national standards and literature citations, then reasonable people will come around.”

Now, 10 months after the Clarian Pathology Lab opened, there have been no jobs lost and only minor personnel changes. With the robotics system in place, the focus is now on growing the outreach business, as well as bringing process improvement programs to improve quality and reduce testing errors. “We’ve diverted quite a few of our people to develop the infrastructure to support outreach testing,” said Ryder. “We’ve shifted some people from routine testing to test development, and now that we’ve gotten outreach off the ground, we are looking to implement Six Sigma.”

Pursuing Success through Balance and Measure

In addition to improving their technical capabilities to handle more testing, clinical laboratories must also retool their management plans in order to embrace the outreach market. In order to compete with commercial reference labs, directors must continue to eliminate testing errors but also deliver stellar customer service, while at the same time boosting revenue and reigning in expenses. “We’ve always thought of ourselves as focused on quality,” said Chi Solution’s Buck. “However, we need to shift our thinking to focus more on value and the value proposition that we are bringing to our customers.”

Buck recommends that labs develop a business strategy that sets goals and measures performance. One tool is a management system called the Balanced Scorecard, which was first introduced in 1992 by Robert S. Kaplan and David P. Norton in an article published in the Harvard Business Review. The Balanced Scorecard system measures organizational performance based on four perspectives: financial performance or value, customer service, internal process, and learning and growth, which is referred to as work culture in the laboratory. Finding balance is the key to the system—changes in one quadrant will impact the other three. For example, in order to improve financial performance, quality must improve, as well as the work culture, because high turnover and low retention can negatively impact an organization’s bottom line (see box below).

Scoring One Company’s Performance

As both a hospital clinical laboratory system and an outreach lab business, Carilion Labs (Roanoke, Va.) serves clients in southern Virginia and Tennessee –from Virginia Beach through Richmond and into Knoxville—in addition to supporting labs in seven hospitals. Last year, company officials developed a business plan focused on aggressive growth of their outreach testing through purchasing regional labs and partnering with local health systems. They used the Balanced Scorecard system (below) to identify areas in the four perspectives: value, customer service, internal, and learning and growth, or work culture, that will allow them to meet their growth objectives. “To improve the financial outlook of the system, we need to grow the outreach market, and we can only do that by providing high quality laboratory services and truly understanding the needs of our customers,” said Eugene Bustria, Senior Vice President of Carilion Labs. “Therefore, our Scorecard is built around that and we’ve identified a number of strategic initiatives which, if executed will enable us to deliver on that plan.”

Many of the scorecard’s elements center on improving turn around times. This includes looking at measures related to missed courier pickups and the number of routes that are delayed more than 30 minutes. “If there is a delay, there will be a potential turn around time problem, and then dissatisfied customers and the potential to lose business,” said Bustria.

Other important measures revolve around client connectivity systems, which are offered by all the large reference labs. “We recognize that if we are to compete in the outreach marketplace, we needed to do a better job with the deployment of our client connectivity solutions systems, which provide our clients with online order entry capabilities and electronic delivery of results. We also need to expeditiously implement electronic medical record and practice management system interfaces into our laboratory system,” said Bustria. Scorecard measures related to this include percentage of connectivity uptime, and the amount of time it takes to build an interface between the client’s and Carilion’s LIS system. Long delays may result in lost business opportunities.

Bustria believes that the Balanced Scorecard works because it is tied to the organization’s key objectives. However, it should not be deployed without regular analysis and evaluation. “It needs to be a continuous process,” he explained. “The Scorecard should spark discussion and present the management team with business issues to reflect on. The process requires thought and discussion and truly understanding the issues before rushing to solutions. We will start off the year with a number of measures which are reviewed monthly, and revise or adjust our measures when necessary.”

Balanced Scorecard for Carilion Labs


For More Information
Additional information on the Balanced Scorecard system can be found on the Balanced Scorecard Collaborative (BSCol) Web site. The BSCol is run by system’s founders, Robert S. Kaplan, Chairman, and David P. Norton, President and CEO.

“When taken collectively, these four perspectives help us focus on the value that we are bringing our customers,” explained Buck. “Balance is the key here. This system forces us to be balanced in our approach in all of the strategies, so we’re not only looking at quality, but also customer service, financial performance, and how we treat our people.”

Part of designing this strategy is detailing performance indicators for each perspective that the laboratory will focus on for the future—whether it be for the next fiscal quarter or the next year. For example, in the work culture perspective, the laboratory directors might decide to focus on two indicators—employee turnover and satisfaction. A system will be developed so turnover and retention is monitored and measured, and regular employee satisfaction surveys will be conducted. “Laboratories need to have a metric related to employee satisfaction, whether it’s an overall or specific score that comes out of these surveys,” said Buck. Managers need to look at improving employee satisfaction, because happy employees drive better performance and create happy customers, he added.

An important aspect to collecting this data is also sharing the data with employees on a regular basis—whether it’s every week, month, or quarter—because employees need to know how they are performing and making progress. The indicators also have to relate to everyone in the laboratory. “The Balanced Scorecard only works if everyone in the laboratory can relate to it,” said Buck. For example, indicators in the internal or quality perspective for labs will typically involve a turn around time measure. “Laboratory managers need to be able to explain to everyone on staff—from administrative assistants to med techs—how what they do directly impacts the performance of the people who focus on turn around time, and how their role is important in helping the rest of the staff achieve desired turn around times,” he added.

The Balanced Scorecard is not just valuable for commercial laboratory operations. Hospital labs can also improve performance by measuring indicators related to budget and financial performance, and how well they are serving patients and clinicians. However, Buck warned that implementing this system takes years to really take root. “This is a journey, there isn’t a magic formula or set schedule,” he added. “It takes each organization about three to five years to truly understand the right performance indicators for their operations, as well as the right methods for measuring them. The key is to make the indicators clear to your employees, emphasizing what’s going to be the focus, what the goals are, and how achieving them helps the laboratory succeed by improving financial performance, customer service, quality, and work culture.”