Integrated community-based diagnostics services: a critical success factor in value-based reimbursement

May 18, 2014

The healthcare environment is rapidly evolving, and laboratories are very much involved in this dynamic change. Labs are faced with the challenge of increasing cost pressures complicated by rising demands for new testing methodologies and enhanced service levels. The most effective way to address these otherwise competing priorities is through growth. As part of this growth, we need to shift from thinking about outreach, a more commercial laboratory-oriented concept, toward a laboratory medicine and pathology focus where both anatomic and clinical pathology are integrated across the community’s continuum of patient care. This is the future of healthcare. Community diagnostics integration is extremely significant both for patients and for community healthcare systems. 

As we move toward Accountable Care Organizations (ACOs) and Medical Homes, to mention two new reimbursement models, the community medical laboratory will play a vital role. In this context, it becomes clear that commodity-oriented testing that has been sent out of the community over the years as a “cost-saving” measure in our fee-for-service environment is very expensive in a value-based reimbursement world, when viewed from the perspective of a patient’s episode of care. The health system also benefits from the greater utilization of the laboratory’s plant and equipment, not to mention the incremental revenue that will be received by the health system when the volume that is currently leaving the community is insourced. It is important to remember that the medical laboratory and pathology are responsible for the majority of the information in the medical record and that they touch every patient’s episode of care in nearly every care setting.

Looking forward

The Advisory Board Company’s January 2014 “The Impact of Health Reform on Laboratory Service: Laboratory Strategies to Fulfill CMS’s “Triple Aim” Vision,” outlines the goals of healthcare reform1

  • Reduce the per capita cost of healthcare 
  • Improve the quality of episodic care 
  • Improve the health of populations.  

The Advisory Board notes that the hospital laboratory has traditionally been a cost center for providers, but C-suites now view this service line as an area of opportunity to fulfill CMS’s health reform objectives. As health reform pressures mount, hospital laboratories are assuming new roles and responsibilities in areas such as operational efficiency, quality of care, and population health.

CMS Goal #1: reduce the per capita cost of healthcare

To address this challenge, many organizations have historically applied Lean Six Sigma techniques to enhance operational efficiencies. Through these initiatives, laboratory managers hope to standardize workflows and eliminate waste. These important approaches produce valuable results; however, these benefits pale in comparison to the benefits produced through the growth that occurs when local laboratory services are provided community-wide. It has been estimated by Applied Management Systems that volume growth can reduce the unit cost of testing by greater than 20%.2 In addition, when the current fragmented community testing environment is replaced with integrated testing services across the continuum of care, significant cost reductions can occur community-wide through more efficient workflows in physicians’ offices and a reduction in duplicate testing. To drive efficiencies further, hospital laboratories and pathology staff are well positioned to develop and implement diagnostic pathways, with the assistance of multidisciplinary community clinical committees, once community diagnostic integration has occurred.

CMS Goal #2: improve the quality of episodic care

In addition to introducing efficiencies, community lab diagnostic integration also improves care by expediting the diagnostic process through improved turnaround times and enhanced specimen integrity through local services, and by eliminating the confusion that can occur when multiple labs are involved with a patient’s care as they move between care settings. The latter is a trend that will be increasing in the future.

CMS Goal #3: improve the health of populations

Hospital pathology and laboratories can also establish their value in population health management through their roles in risk stratification and decision support. As the primary providers of clinical data and information, the lab and pathology significantly influence clinical decisions. However, for this primary source of information to be of maximum value in continuous clinical improvement processes, it must be standardized. The ultimate goal of continuous improvement processes is to transition data into information and then into knowledge. This will occur much more efficiently with clean, statistically combinable laboratory information. In the short term, this will occur only when a single lab provides the results across all patient care settings.  

The current environment involves multiple laboratory providers that generate extremely fragmented and inconsistent laboratory data. Consequently, this system will not support meaningful outcomes analysis because the data is not statistically combinable.

To create statistically combinable data from multiple performing labs, the results must either be standardized or harmonized, which requires significant ongoing non-reimbursed effort and significant cooperation across all labs that are providing services—an unlikely event.

Accordingly, a single laboratory providing the vast majority of the community’s testing needs (inpatient and outpatient) and managing the remainder of the community send-out volume is ideal. 

Consider the benefits

A well-managed community diagnostics integration program, initially anatomic and clinical pathology, will generate the following community benefits:

  • Expedited care
  • More efficient clinical workflows and reliable specimen integrity
  • Minimal redundancies and service duplications 
  • Rapid access to community-wide diagnostics information
  • Efficient access to diagnostics consultative support and expertise 
  • An ability to implement and maintain the community’s view of diagnostics best practices
  • Support for and participation in outcomes analysis, such as expertise and clean data.
  • This effort benefits the hospital inpatient setting as well by providing the following:
  • Expanded lab capabilities and test menu to support a more complex inpatient census
  • Efficient and effective pathology and lab support to optimize patient throughput
    • Rapid access to diagnostics information
    • Efficient access to diagnostics expertise and consultative support
  • Broader laboratory accountability focusing on lowering the episode of care costs and optimal lab unit costs
  • A lower cost per hospital discharge.

In addition, because of the lab’s excess capacity and its operational leverage once integrated across the community, the potential exists for the hospital laboratory to generate a significant contribution margin to help fund the broader healthcare transition.

Investing in the future

Community diagnostics integration across the full continuum of care will be essential to achieve the necessary efficiencies that ACO and value-based payment will require. The lab is essential to orchestrating an organization’s operational efficiency through integration, specimen management, and connectivity. The anatomic pathology and clinical laboratory staff should play key roles in the integration of community-wide diagnostics processes. Choosing the right tools to support community diagnostics integration efforts will provide cost savings and improved workflow efficiencies. Most importantly, establishing a community care diagnostic solution is critical as it greatly improves the delivery of meaningful results to healthcare providers, allowing for patient-care decisions to be made in a more efficient manner. The ACO model, as an example, will benefit from the local lab’s community-wide support of the diagnostic process by leveraging its ability to evaluate and manage tests, integrate information within the healthcare network, and offer meaningful diagnostic support and consultation to providers.

Keith Laughman serves as Executive Vice President, Community Care Solutions, for Sunquest Information Systems.


  1. The Advisory Board Company. The Impact of Health Reform on Laboratory Service: Laboratory Strategies to Fulfill CMS’s “Triple Aim” Vision. January 2014. Accessed April 4, 2014.
  2. Applied Management Systems, Inc. 2014. Accessed April 4, 2014.