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Accumen Survey Highlights Costs as Primary Challenge Facing Hospital Labs

NEW YORK – A recent survey of healthcare systems by consulting and lab optimization firm Accumen paints a picture of a lab industry buffeted by cost pressures and the COVID-19 pandemic and struggling to chart a clear path forward.

At the same time, the survey evinced some optimism regarding portions of the lab business, with responses suggesting a high level of interest in hospital outreach in particular, which has been one of the more embattled parts of the industry in recent years.

Accumen relaunched the survey this year after having discontinued it for several years, said Kimberly MacDowell, the company's chief marketing officer. It collected data from 242 respondents representing a range of geographies and system sizes, with 50 percent of respondents serving rural populations, 33 percent serving urban areas of between 100,000 and 1 million people, and 17 percent serving metropolitan areas with more than 1 million people. Community hospitals comprised 48 percent of respondents, with critical access hospitals accounting for 26 percent, academic hospitals for 13 percent, and city hospitals for 13 percent of respondents.

One of the most commonly expressed concerns for the surveyed labs was managing costs, which is little surprise given the multiple pressures driving down reimbursement, especially for hospital labs. Most notably, the Protecting Access to Medicare Act (PAMA) has driven down reimbursement rates, particularly at hospital labs, which have traditionally received higher payment rates for testing than the large national labs that have contributed much of the pricing data used to set rates under the law.

Additionally, private payors have continued to squeeze hospital lab pricing. Insurer Anthem, for instance, has been implementing a rate-alignment strategy in a number of states, through which it aims to make more uniform reimbursement for testing regardless of what kind of lab performed the work. Again, this has an outsized impact on hospital labs given their traditionally higher reimbursement.

Among the surveyed labs, 45 percent said that cost reduction was their top strategic priority for 2021.

The survey also suggested, however, that many labs are not necessarily pursuing this priority as seriously as they might. Of the responding labs, 33 percent said they had a cost benchmarking program in place, while 46 percent said they did not, and 21 percent were uncertain.

"When it comes to managing costs, benchmarking is an absolute must as a logical starting point," said Joe McGann, vice president, general manager lab excellence, at Accumen, noting that given the concerns around cost, the lack of benchmarking "was a huge surprise to us."

"You need to know where you stack up [compared to other labs] and how big the task at hand is and plan accordingly," he said. "Are you in the 75th percentile in terms of cost efficiencies or the 25th percentile? That starting point will tell you the amount of investment of time and effort it is going to require to achieve that priority."

McGann suggested that this was symptomatic of larger issues many labs have around visibility into their testing costs.

"When you look at a lot of our clients, they do not have that cost information available," he said. "Many of them know that they have problems in terms of their costs and that they need to get them lower if they want to be competitive, but because they have never been under pressure before like they have over the last few years with declining reimbursement now accentuated by the COVID crisis, they just don't know how to go about doing it."

Many have projected that these cost pressures would lead hospital systems to sell or outsource portions of their lab business, with large national labs like Quest Diagnostics and Laboratory Corporation of America taking advantage of the situation to acquire many systems' outreach operations.

In fact, outreach acquisitions have progressed at a relatively slow pace, with such transactions trending downward over the last year or two. The Accumen survey provides potential insight into why, as many surveyed labs appear to believe outreach can still be a solid business for a hospital system.

Of the healthcare systems surveyed, 44 percent had a lab outreach program, leaving more than half without one. When asked why they did not have an outreach business, however, the majority of labs cited a lack of financial resources, as opposed to concerns about outreach's viability as the top reason they hadn't established a program.

The number one reason for not having an outreach program was startup costs, which 35 percent of respondents cited. A lack of capital was cited as the top reason by 24 percent of systems. Meanwhile, concerns about competition and profitability were highlighted by only 18 percent and 12 percent of respondents, respectively — indicating that most healthcare systems still consider outreach a solid business, even if they don't currently have the resources to start one.

"It's been proven over and over again for many years not only by commercial labs like LabCorp and Quest but also hospital labs, that the outreach business is very profitable, if done well," McGann said.

Doing it well is easier said than done, though, he noted, adding that he believed this was why many of the hospital systems citing startup and capital costs as reasons they had not started outreach programs had decided against investing that money.

"You need to do 10, 11, 12 things well," to build and sustain a successful outreach program," he said. "And more times than not, you only get one crack at it."

And while testing costs might not be the major factor steering systems away from outreach, they were among the most commonly cited challenges to growth among outreach labs, with 72 percent of respondents saying "noncompetitive pricing" was one of their biggest obstacles to growth.

PAMA came much lower on the list of concerns, with only 22 percent of systems ranking it among the top three challenges to growing their outreach programs.

In terms of the SARS-COV-2 pandemic, McGann suggested that its impact appears most clearly in questions the survey asked around labs' current challenges, where staffing, turnaround time, and supply chain issues were the most frequently cited top priorities (by 26 percent, 23 percent, and 17 percent of labs, respectively), while lowering cost per test was least frequently cited (9 percent).

"The timing of the survey was right in the middle of the COVID [outbreak]. … I think the challenges that were cited was more about that timing," he said, noting that things like turnaround time and supply chain are not typically major issues for labs but that both moved to the fore during the pandemic.