An objective approach to selecting a referral laboratory

By: Gareth Lewis   
By: M. Omar Shokeir   
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With a wide array of sophisticated laboratory procedures
continually emerging, clinicians are provided with increasing choices of
laboratory tests. Pressure to provide quality services while operating
cost-effectively makes performing all requested testing in-house unfeasible.
As a result, primary laboratories refer selected tests to secondary
laboratories — also known as referral laboratories.

Table 1

Table 1: Summary of the evaluation criteria used in the RFP for consolidation of referral testing at Calgary Laboratory Services. This table provides the section weightings to be used for the evaluation of bidding referral laboratories. Due to the length and complex nature of the evaluation criteria, the full list of questions and test menus is not included. Please contact the corresponding author for information regarding the full RFP evaluation.

Determining which tests should be performed in-house and
which are better referred is an important decision. Rigorous make-versus-buy
analyses should inform this decision.1 In-house costs per test
may be compared with the fee charged by the best referral laboratory
available to determine the more financially prudent option.1 The
laboratory director, in consultation with each institution’s medical staff,
should decide which tests to perform in-house and which to refer.2
The College of American Pathologists (CAP) Standards for Laboratory
Accreditation state that the laboratory director must “select and monitor
all reference laboratories for quality of service.”3

Selection of a suitable referral laboratory should not be
based on cost alone but also on a laboratory’s reputation and quality.4
Therefore, developing effective processes and procedures for selecting and
utilizing the services of a referral lab is essential.

Primary laboratories often use multiple referral
laboratories. Although defensible in some contexts, this practice may result
in additional costs, including increased shipping and handling costs, likely
paying list price, chaotic specimen tracking, and confirming multiple
laboratory accreditations. Moreover, results-reporting methods for referral
laboratories will vary (e.g., mail, fax), requiring the primary laboratory
to incur the added costs of linking the referral test results to patient
records in the laboratory information system (LIS).

Calgary Laboratory Services

Calgary Laboratory Services (CLS) is a multidisciplinary
medical diagnostic laboratory performing approximately 20 million tests for
more than 1 million Calgary Health Region patients annually. Considering the
volume of testing performed at CLS, only a small portion of requested tests
are referred. Most of the referral laboratories are out-of-province, with
many even out-of-country. Despite the small percentage of referral tests,
CLS uses approximately 38 different referral laboratories. Consolidation was
intuitive.

In addition to meeting quality standards, it is possible
that consolidation of referral tests to one or two laboratories, instead of
the vast variety of laboratories like CLS currently uses, would benefit the
laboratory in several different ways. Consolidating most, if not all, of a
primary laboratory’s referred testing to a single referral laboratory can
afford benefits, including economies of scale, building critical masses of
expertise in sub-specialty areas, “one-stop shopping,” one bill, and the
potential to implement an electronic order/results interface with the
consolidating referral laboratory. Consolidation also may result in a
reduction in errors and lost specimens, and the potential of a computer
interface.

Owing to the increasingly esoteric nature of referral testing, consolidating all referral testing to one or two referral laboratories is likely unattainable.

Dealing with a smaller selection of referral laboratories
also will help with the chore of ensuring the referral laboratories’
accreditation standards are regularly maintained. Whatever the choice, this
is, of course, an individual determination. A full analysis of this issue
should determine if the benefits of consolidation outweigh the potential
disadvantages.

The expected benefits of consolidating referral testing
led CLS to develop a request for proposal (RFP) for selecting a primary
referral laboratory that could provide a comprehensive test menu, volume
discounts, and electronic order/results interfacing. Objective evaluation
criteria were developed to help select a winning bidder.

RFP criteria

Referral laboratory selection criteria have previously
been discussed by Baer4 and Blum.5 This work served as
the starting point for developing CLS’ RFP evaluation criteria. Clinical and
Laboratory Standards Institute’s recommendations for selecting a referral
laboratory,6 local College of Physicians and Surgeons of
Alberta’s laboratory accreditation requirements,7 and internal
policies were used to shape the evaluation criteria. Referral
laboratory selection standards discussed by the CAP3 and the
International Standards Organization 15189 were also incorporated.8

The RFP requirements can be broken down into three
components: mandatory requirements, weighted questions, and costing
information. Bidding laboratories not meeting all of the mandatory
requirements are not given further consideration. Qualifying bidders are
then evaluated using weighted questions, and on cost per test based on the
RFP test menu. Submitting extensive documentation is required to verify the
responses to the weighted questions.

Once primary scoring (weighted questions and costing) has
been completed, top bidding laboratories are short-listed. The short-listed
laboratories undergo an on-site audit by a selection committee, and then a
final score is calculated. The bidding laboratory with the highest combined
on-site inspection and primary evaluation scores would be the laboratory
with which CLS would enter into contract negotiations. See Table 1 for the
evaluation criteria weighting.

Weighted questions

Each quality and service criterion has been assigned a
score used to compare facilities. Due to the subjective nature of a 1- to
5-point scale, the questions in the RFP have as many yes/no answers as
possible.

Weighted questions evaluate the laboratories based on
their capabilities, efficiency of service, and quality-management system,
with the three categories making up 15%, 20%, and 20% of the primary score
respectively. Bidding laboratories are also required to provide client
contact information, which is used to conduct three client surveys and make
up 15% of the primary score (5% each). Cost factors are 30% of the
preliminary score and are based on the primary and secondary test menus.

Test menu

As outlined by Baer,4 to ensure every bidding
laboratory presents comparable cost data, each is asked to present the price
for a specific test based on the actual numbers of tests ordered the
previous year. Two different test menus were developed for the RFP that
incorporated all of CLS’ referral tests.

The primary test menu includes CLS’ highest cost and
volume tests based on referral data from the previous year. Bidders are
required to submit pricing information for the tests on this menu. A score
for a bidding lab is calculated for the primary menu based on a calculation
that determines the cost difference of each test, and the overall percentage
savings to CLS.

The secondary test menu includes CLS’ low-volume referral
tests. The secondary test list is similar to Baer’s “percent-off list.”
Evaluation of the secondary test menu is determined using a formula that
calculates the percent of tests quoted, and the price of the individual
tests relative to what CLS currently pays. Since this secondary test menu is
optional for laboratories to bid on, Baer had difficulty evaluating it.4
The percentage-weighted formula used in the RFP is designed to reduce this
complication and allow a score to be calculated for this menu.

Selection of a suitable referral laboratory should not be
based on cost alone but also on a laboratory’s reputation and quality.

The primary test menu score makes up 20% of the
preliminary score (or 66% of the cost score), while the secondary test menu
score makes up 5% (or 15% of the cost score). The remaining 5% is made up of
general cost questions.

Service and quality are important characteristics of any
laboratory and, accordingly, are major determining factors in awarding a
contract.5 Cost accounts for 30% of the preliminary score, making
it a significant, but not the predominant, component of selecting a referral
laboratory. Cost becomes a determining factor only when all the bidding
laboratories are relatively equal in quality.

On-site inspection and lab selection

On-site inspections provide insight into the operation of
a referral laboratory to which a primary laboratory is considering sending
tests.2 Through direct observation, a primary laboratory is able
to obtain a great deal of information unavailable in any other way.
Therefore, the RFP evaluation committee conducts on-site inspections for
each of the short-listed bidding laboratories.

Satisfactory results from the on-site audit are critical
for a bidding laboratory to receive further consideration. The on-site
evaluation score makes up 30% of the final score, with the remaining 70%
carried over from the preliminary score. The winning bidder would be the
laboratory with the highest final score.

Choosing a referral laboratory can be tedious, time
consuming, and difficult, but as laboratory accreditation bodies adopt more
stringent standards for referred testing, primary laboratories must develop
processes to follow when selecting and utilizing referral laboratories;
service and quality need to be major determining factors.

Evaluation of referral laboratories must be an ongoing
process. The primary laboratory, therefore, should set up meetings at
regular intervals with the referral laboratory.9 Dealing with a
smaller selection of referral laboratories permits regular assessment of
their standards. To maintain accreditation standards, it is not essential
that CLS assess each of the referral laboratories’ member institutions or
referral laboratories individually, provided that the referral laboratories
have policies to ensure up-to-date accreditation and proficiency testing.

Owing to the increasingly esoteric nature of referral
testing, consolidating all referral testing to one or two referral
laboratories may be unattainable. Establishing internal procedures for
determining where to send esoteric tests and criteria for their approval
injects efficiency and clarity into what, otherwise, would be an irregular
and chaotic process.

Additional areas that a primary laboratory should address
before developing an RFP for consolidating referred testing include
operating regular make-versus-buy analyses, developing a rational and
defensible list of standard patient-pay tests, and establishing reflex rules
for referral tests, especially to prevent unnecessary repeat testing. In
addition, a method for ensuring that the primary laboratory is reimbursed
for all third-party tests performed should be established.

Despite the small percentage
of referral tests, Calgary Laboratory Services uses approximately
38 different referral laboratories.

The true effectiveness of the comprehensive RFP
evaluation criteria developed by CLS has not yet been tested. Due to
province-wide restructuring of the health services board in Alberta, CLS was
unable to send the RFP out for tender prior to the publication of this
article. It is believed, however, that these evaluation criteria can provide
objective guidance to any laboratory wanting to consolidate the majority of
its referral testing.

By taking the time to construct an appropriate request
for proposal listing objective evaluation criteria, any laboratory can move
through the sometimes complicated process of coming to a decision regarding
the selection of a referral partner. The full list of questions and test
menus are not included here, but information regarding the full RFP
evaluation can be obtained by contacting Gareth Lewis at Calgary Laboratory
Services.

Gareth Lewis, BSc Hon, MBA/MBT (candidate) is an analyst in the Medical Director’s Office of Calgary Laboratory
Services, and is an MBA and master of Biomedical Technology candidate at the
University of Calgary in Alberta, Canada. He can be reached via e-mail at
Gareth.Lewis@cls.ab.ca
. M. Omar Shokeir, MD, F(RCP)C, F(CAP),
is medical director and acting COO of Calgary Laboratory Services and
clinical associate professor in the Department of Pathology and Laboratory
Medicine at the University of Calgary.

References

  1. Nelson JC. Using referral labs efficiently, Part 1:
    The make-or-buy decision. MLO. (1991a);23(6):28-31.
  2. Nelson JC. Using referral labs efficiently, Part 2:
    Tips on evaluating and monitoring quality. MLO.
    (1991);23(7):35-40.
  3. College of American Pathologists (2007).
    Laboratory General Checklist.
    GEN.40125, GEN.41350, GEN.41370,
    GEN.41430, GEN.41440. September 2007.
    http://www.cap.org/apps/cap.portal?_nfpb=true&cntvwrPtlt_actionOverride=%2Fportlets%2FcontentViewer%2Fshow&_windowLabel=cntvwrPtlt&cntvwrPtlt%7BactionForm.contentReference%7D=laboratory_accreditation%2Fstandards%2Fstandards.html&_state=maximized&_pageLabel=cntvwr .
    Accessed May 20, 2008.
  4. Baer DM, Good R, Orr J. A quality approach to
    referral lab contracting: What to look for, what to avoid when
    contracting with a referral laboratory. MLO. 1997;29(7):62,64-67.
  5. Blum RA, Dearing L, Cameron I. Choosing a reference
    laboratory? MLO. 2004;36(8):30-33.
  6. Clinical and Laboratory Standards Institute, CLSI
    (1998). Selecting and Evaluating a Referral Laboratory Approved
    Guidelines. GP9-A 18(15).
  7. International Organization for Standardization .
    Medical Laboratories – Particular Requirements for Quality and
    Competence. ISO 15189:2007.
  8. College of Physicians and Surgeons of Alberta. Basic
    Laboratory: Standards and Guidelines. Updated: May, 2008.
    http://www.cpsa.ab.ca/facilitiesaccreditation/lab_standards.asp . Accessed May 20, 2008.

Nelson JC. Using referral labs efficiently, Part 3: How to get the best service from a referral laboratory. MLO. 1991.28(8):63,66-69.

An objective approach to selecting a referral laboratory
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BSc Hon, MBA/MBT (candidate) is an analyst in the Medical Director's Office of Calgary Laboratory Services, and is an MBA and master of Biomedical Technology candidate at the University of Calgary in Alberta, Canada.
MD, F(RCP)C, F(CAP), is medical director and acting COO of Calgary Laboratory Services and clinical associate professor in the Department of Pathology and Laboratory Medicine at the University of Calgary.

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