Chi Solutions Inc, Ann Arbor, Mich, has conducted a national survey tracking and analyzing hospital laboratory outreach developments and their associated metrics. In the 15th year of the survey, Chi has published a report that captures historical and recent laboratory outreach progress and relevant issues.
Using a 2001–2010 base period, the study’s median size laboratory outreach program grew from $4.4 million to $12.8 million, while the average size program grew from $10.6 million to $24.9 million in 2016. More than 30% of the outreach programs self-reported gaining market share, while approximately 54% to 63% reported holding steady on market share.
Survey data suggest that the trend is for more laboratory outreach programs to be based out of multiple-hospital core laboratories, as compared to single-hospital laboratories. The leading strengths of such programs include excellent turnaround time, strong customer service, and pathologist services with strong reputations. Weaknesses are that only 44% have in-office phlebotomists, 43% report not having full-time sales representatives, and nearly half have ineffective IT connectivity to physician offices. In spite of such shortcomings, laboratory outreach has continued to compete and grow in the open marketplace.
The average net revenue per test for Quest Diagnostics and LabCorp is about 20% lower than that experienced by the typical laboratory outreach program. However, in a special side-study of very large outreach programs ($54 million to $65 million in size) conducted in 2015, the revenue per test differential was just 7% lower.
All laboratories—independent and hospital outreach—are concerned about the impact of the recently enacted Protecting Access to Medicare Act, which allows the Centers for Medicare and Medicaid Services (CMS) to revise the Medicare Clinical Laboratory Fee Schedule (CLFS), and is now slated to go into effect January 1, 2018. There was a recent delay by CMS to determine whether hospital laboratory outreach payments from private payors would be included in the calculations for the new CLFS. The final rule is that only laboratories billing with their own national provider identifier (NPI) are to submit payment data. Almost all hospital laboratory outreach programs bill under the hospitalwide NPI, which does not qualify them to submit payment data to CMS; the laboratory outreach program must bill under its own NPI to participate. Since very few programs meet this definition, final CLFS pay rates will have been influenced only marginally by hospital laboratory outreach programs.
Recognizing that the CLFS will not be greatly influenced by hospital laboratory outreach payments, Chi also studied the net impact of the new CLFS. According to the Chi researchers, the effects will be minimal, not extreme. Chi projects that collectively, from all payors, there will be an overall laboratory outreach revenue reduction of 3% per test.
The 2015 survey showed that the outlook for profitability of laboratory outreach is favorable. Independent laboratories with outreach activity reported median net profit before taxes of 11.3% and an average of 10.9%. For hospital laboratory-based outreach, the reported contribution margin (revenue less dedicated and incremental outreach costs) was in the 23.0% to 32.9% range.
Breaking this profitability down by structure type, multifacility core laboratory-based outreach had a median contribution margin of 20.3% and an average contribution margin of 30.9%. The single-hospital laboratory-based outreach was more profitable, with a median contribution margin of 24.0% and an average contribution margin of 34.6%.
According to Chi, one of the most surprising results of the survey was that only 26% of study participants indicated their laboratory outreach program’s profitability is analyzed, while 39% were unsure if it had been analyzed, and 35% knew for certain it hadn’t been analyzed.
One of the biggest challenges reported by laboratories across the United States is connectivity. In 2016, 60%–70% of study respondents reported they had or planned soon to have in place the basic IT connectivity capabilities.
Nearly 70% of outreach programs employ sales representatives that focus on laboratory and diagnostic services only. The remaining programs have shared services representatives that sell all hospital services. Of the latter group, 52% feel the success of the representatives is less than if they focused on laboratory outreach only. In addition, only 28% have an incentive program for sales representatives.
In sales performance terms, 26% of sales representatives were good producers—in the range of $6,000–$10,000 in net new business per month. At the lower end, 57% of respondents reported their sales representatives producing at only $2,000 or less per month in net new business.
To access the report, visit Chi Solutions.
