Elevate the Data to Reach Resource,

Revenue, and Cost Reduction Goals

in the Clinical Laboratory

Jeff Myers, CPA

Vice President, Consulting

Chi Solutions, Inc. – An Accumen Company

Denise Irons, MT (ASCP)

Director of Laboratory Information Systems

Baystate Medical Center

July 28, 2016

Key Hospital Statistics

Key Hospital Statistics (Overall U.S)

Source: Moody's Investors Service, “U.S. Not-for-Profit Hospital 2014 ” report, September 2015.

4.6%

5.2%

9.6%

2.6%

Annual Operating Expense Growth Rate (Median)

Annual Operating Revenue Growth Rate (Median)

Operating Cash Flow Margin (Median)

Operating Margin (Median)

KEY RATIOS

Source: Kaiser State Health Facts, accessed in 2015 and based on 2013 data.

Note: Adjusted expenses per inpatient day included expenses incurred for both inpatient and outpatient care; inpatient days are

adjusted higher to reflect an estimate of the volume of outpatient services.

$2,289

$1,878

$1,791

Nonprofit Hospitals

State/Local Government Hospitals

For-Profit Hospitals

HOSPITAL ADJUSTED EXPENSES PER INPATIENT DAY – Average

Impact of Hospital Management System

Laboratory Industry Background

Medical Laboratory Industry – Overview

• The medical laboratory market is estimated at $73 billion today.

– The market peaked in 2012 at $76.1 billion.

• Laboratory testing is “mission critical.”

– 75% of all healthcare intervention requires lab data or

information.

– 80% of a hospital EMR is composed of lab data and

information.

Utilization of testing will be critical to the healthcare

delivery system in the U.S. in the future—focus on

redundant testing, appropriate testing, and earlier

diagnosis and treatment.

Source: G2 U.S. Clinical Laboratory and Pathology Testing 2013-2015: Market Analysis, Trends and Forecasts, Figures 1.1; Truven

Health Analytics; CMS Hospital Directory.

Test Volume by Laboratory Type

Source: G2 U.S. Clinical Laboratory and Pathology Testing 2013-2015: Market Analysis, Trends and Forecasts, Figure 1.4; Truven

Health Analytics; CMS CLIA Oscar Database.

Hospital 53.1%Independent

34.2%

POL7.4%

Other5.2%

LABORATORY INDUSTRY TEST VOLUME BY FACILITY TYPE 2012

Hospitals control the majority of the market.

Inpatient

51%

Outreach/

Outpatient

49%

$6.91 $2.80 $1.41 $0.82

$0.00 $2.00 $4.00 $6.00 $8.00 $10.00 $12.00 $14.00

DIRECT COST/TOTAL TEST (AVERAGE)

Labor and Benefits/Total Test Supply Cost/Total Test

Reference Cost/Total Test Other Cost/Total Test

Direct Cost/Total Test = $11.94

Trend: Costs are increasing; reimbursement is decreasing!!

Benchmarking Metrics – Overall U.S. Average

Productivity and Supply Chain

$1

.50

$2.2

3

$4.3

7

$6.1

6

$6.4

5

$10

.80

$28

.2019.2

14.0

10.5

5.0 6.8

1.9 1.8

0.0

5.0

10.0

15.0

20.0

25.0

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00T

ests

/Ho

ur

Su

pp

ly C

ost

SUPPLY COST AND TESTS/HOUR BY LAB SECTION

Supply Cost Tests/Hour

Performance improvement occurs at the

department level!

Department Benchmarking Metrics

• Labor Expense – Payroll data for budget reconciliation:

– Payroll by job code.

– General ledger by cost center.

• Productivity – Tracked at the department (cost center) level:

– Payroll.

– LIS volume.

• Budget tracked bi-weekly with employee name and pay type

detail in order to increase visibility.

Data Outcome: Productivity metrics tracked at entity and

department level and compared to similar entities and prior

year performance!

Data Elements for Productivity Improvement

$21.3M Cumulative Volume Adjusted Savings; 31% Productivity Improvement

$9.48 $9.06 $8.85

$8.26 $7.75

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2011 2012 2013 2014 2015

Labor & Benefits 3% Merit

Volume 4,619 4,317 4,797 5,230 5,839

Cost/Test Savings

vs. Baseline$0.42 $0.63 $1.22 $1.73

Annual Savings(4,317 x $0.42)

= $1.8M

(4,797 x $0.63)

= $3.0M

(5,230 x $1.22)

= $6.4M

(5,839 x $1.73)

= $10.1M$21.3M

Tests/Paid Hr 4.19 4.31 4.65 5.08 5.50

Productivity

Improvement3% 11% 21% 31% 31%

Case Study – Productivity

• Invoices and contract compendium for negotiation and

cost/benefit analysis.

– Volume tracked in order to monitor optimal performing

location (reference lab, central lab, or in-house).

– Cost per test tracked in order to monitor contract negotiation

efforts.

Supply Chain Management

$4.90

$4.19 $4.07 $3.80 $3.77

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

2011 2012 2013 2014 2015

SUPPLY CHAIN COST PER TEST

Supply Chain Cost per Test Inflation + Complexity

Volume 4,619 4,317 4,797 5,230 5,839

Cost/Test

Savings vs.

Baseline

$0.71 $0.83 $1.10 $1.13

**Annual

Savings

(4,317 x $0.71)

= $3.0M

(4,797 x $0.83)

= $4.0M

(5,230 x $1.10)

= $5.8M

(5,839 x $1.13)

= $6.6M$19.4M

% Reduction

(from baseline)15% 17% 22% 23% 23%

*11 month partnership fiscal year

**Savings inclusive of 2% - 4% inflation & complexity per year (14.7% cumulative)

Baseline• $19.4M Cumulative Volume

Adjusted Savings

• 23% Reduction from Baseline

• 88 Total Contracts Negotiated

• 24 Tests Repatriated

Key Successes

Case Study Supply Chain (Supplies and

Reference)

Supplier Project Scope Savings $ % Savings

Beckman Coulter DxH Hematology Annual Reagents & Service $212,000 48.8%

Siemens Siemens Advia Hematology contract extension $170,000 28.1%

Roche Molecular - New Cobas 4800 for MRSA (Cobas#1) $163,403 23.0%

Abbott Abbott iSTAT POC Agreement $155,470 43.2%

Instrumentation Labs Coagulation (contract includes SRS) $145,000 23.2%

Ortho Clinical Johnson & Johnson Health Care System: OCD Provue $142,794 22.4%

Cardinal Health 2014 Lab Distribution Agreement $130,000 5.4%

Cardinal Health 2012 Lab Distribution Agreement $125,000 5.0%

Siemens Siemens Centaur for Immuno @ SPL $115,000 33.8%

Roche Molecular - New kit pricing for MRSA/SA (Cobas #2) $107,500 19.6%

Diasorin Diasorin Liasion + Vitamin D (ALAB20130214-1) $83,450 37.8%

BD - Becton Dickson BD Safety Needles & Tubes $80,000 11.9%

Diasorin Renegotiation on Vitamin D & other tests $77,000 64.2%

Beckman Coulter Microbiology (ID & Sensitivity) $60,000 28.9%

Roche Inform II POC Meters, upgrade. Glucose testing $35,000 5.0%

Siemens Siemens Centaur XP (LB00054) $34,000 9.2%

Bio-Rad Bio-Rad go direct initiative $33,573 13.7%

Quidel Sofia Influenza Rapid Flu Testing kits $33,090 20.0%

BD - Becton Dickson Switch from Hardy to BD on Micro Loops $32,000 66.7%

Quidel Quidel go direct initiative (Sofia + all other products) $30,000 22.7%

BD - Becton Dickson Manual Micro $25,456 7.7%

Owens & Minor 2014 Lab Distribution Agreement $25,000 1.5%

Clinical Geonomics Enterix InSure Stool Test $20,863 24.1%

Beckman Coulter Beckman Immage (SPALA046-1) $20,000 22.5%

Beckman Coulter Beckman Coulter Urinalysis $17,000 14.2%

Roche Molecular - New Cobas 4800 for CTNG (Cobas#1) $16,592 20.6%

Abbott Abbott Diagnostics Architect @ SMH $9,168 4.0%

INOVA Contract extension DSX: Immunology Testing for SPL $8,150 5.0%

Hologic Hologic - FFN Cassettes: ALAB20140114-1 $7,500 3.0%

BD - Becton Dickson MGIT $7,255 20.5%

Alere Alere Roche Glucose informatics license $6,000 9.9%

Alere Alere Hemocron RALS POC software upgrade $4,530 32.9%

Beckman Coulter Roller 20 ESR (Sed Rate) $3,800 17.0%

BD - Becton Dickson Transition from Universal Viral Transport (UVT) to Cobas PCR Urine Kit$3,225 41.3%

Siemens MicroScan WalkAway for MicroBiology $3,054 1.5%

Case Study – Supply Contracts Negotiated

Supplier Project Scope Savings $ % Savings

San Diego Blood Bank SDBB contract extension $247,352 3.0%

ARUP ARUP Lab Services Agreement $247,000 20.2%

Ambry Genetics Ambry Genetics for SCMG (third party billing) $175,000 21.2%

San Diego Blood Bank SDBB contract extension $92,000 1.4%

VPL Transition from Clarient / ADJ Corp to Vantage Point Lab $88,000 11.0%

ARUP ARUP negotiations for SCMG volume increase $76,000 6.2%

ARUP ARUP negotiations for SCMG volume increase (round 2) $72,000 6.3%

ARUP ARUP negotiations on Micro PCR tests vs ACL Micro bid $71,500 5.5%

Stericycle Stericycle Service Contract $26,904 68.3%

VPL BCR/ABL testing; transition from ARUP to VPL $12,911 20.0%

Leica Purchase of x2 Leica Tissue Peloris processors $10,000 9.9%

Reference Lab and Blood Contracts Negotiated

• Patient Blood Management – Transfusion detail for physician

scorecards (LIS, HIS). Spend reduction and utilization (GL,

Patient Census). Outcomes data for DRG benchmarking (HIS).

• Transfusion detail tracked at unit and chart level with

responsible physician included. Data distilled into physician

scorecards and benchmarked by physician specialty.

• Spend and utilization tracked at specialty level in order to hone

in on areas of opportunity/improvement. Data is normalized for

swings in patient volume.

• Discharges DRGS used to benchmark and compare physicians

transfusing like patients.

Blood Utilization

Percent of RBC Units Transfused w/HgB <7

Percent of RBC Units Transfused / Adjusted Patient Discharges

Patient Blood Management (Patient Quality)

• 40% reduction in number of

patients transfused

(~1,000/mo. to ~600/mo.)

• 31% reduction in blood

products transfused

• 46% improvement in red blood

cells transfused with a Hgb

less than 7

Key Successes

$8.9 $8.0

$6.8 $6.2 $6.5

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

2011 2012 2013 2014 2015

BLOOD SPEND BY FY (IN $M)

Annual Blood Spend

$8.2M Cumulative Savings; 34% Savings per APD from Established Baseline

Year 2011 2012 2013 2014 2015 Total

Annual

Savings vs.

Baseline

$900K $2.1M $2.7M $2.5M $8.2M

Blood

Spend per

APD

$74.54 $65.49 $54.22 $49.02 $49.66 34%

Baseline

Patient Blood Management (Financial Savings)

• Quality and Service – Ordered test detail for TATs and quality

metrics (LIS).

• Ordered tests tracked with order, collect, in-lab, and result

timestamps in order to monitor all tests at accession level.

• Quality results ingested into data warehouse and normalized

across all hospitals within system.

• TU – Ordered test detail and supply costs for test reduction

analysis (LIS, GL, Purchasing).

• Test monitored by ordering physician, location, and specialty in

order to increase accountability and identify areas for education.

Quality and Service

The Cost of Quality$

C

OS

T

$$$

LOW QUALITY OF CONFORMANCE HIGH

Failure Cost

Prevention

and Appraisal

Cost

Total Quality Cost

Most labs are here

Where labs should be

1. Failure costs:

– The earlier it is detected, the less it costs to correct.

– With significant non-labor expense, when corrected, costs

will reduce.

– With significant labor expense, when corrected, productivity

will increase.

– Are commonly “hidden” costs in a laboratory’s budget—costs

are rarely quantified, especially on the quality report.

2. When cutting 10% from budget, not all departments are created

equal!

3. Increase in prevention and appraisal costs should result in

decreased failure costs.

Key Insights from Quality/Service

Revenue Cycle

Denise Irons – Baystate

Revenue Cycle

• Connectivity

• Front End

• Back End

• Keys to Growth

Elevate the Data to Reach Resource, Revenue, and Cost

Reduction Goals in the Clinical Laboratory

Jeff Myers, CPA

Vice President, Consulting

Chi Solutions, Inc.

(734) 662-6363, ext. 503

jmyers@chisolutionsinc.com

Denise Irons, MT (ASCP)

Director of Laboratory Information Systems

Baystate Medical Center

(413) 794-0980

denise.irons@baystatehealth.org

Q&A

Thank you for attending!