Operational & Financial Efficiency

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Laboratory automation mitigates the effect of industry challenges while strengthening operational & financial efficiency

Vol. 25 • Issue 1 • Page 14
Cover Story

Mounting difficulties for the medical laboratory industry continue to impact the operational and financial viability of hospital and health system laboratories. Along with the enduring pressure to reduce costs and increasing staff shortages due to an aging workforce rapidly approaching retirement, laboratories face a rising demand for higher service levels (faster turnaround time and more comprehensive in-house test menus) from accountable care organizations (ACOs) and other entities. Juxtaposed with this situation is a pernicious reduction in payment and reimbursement for laboratory services, largely influenced by Medicare’s nearly three-decades-long fee schedule decline. The largest blow to reimbursement yet is expected from CMS’s current attempt to implement much lower fees in 2017, an effort based largely on median private payer rates to the major commercial laboratories, which ignores payments made for hospital laboratory outreach. Again, laboratories are confronted by the old refrain: do more with less!

Evidence confirms the use of automation in hospital labs provides cost and productivity benefits that can

Operational Financial Efficiency

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mitigate the effect of some of these industry challenges and optimize workflow. To validate this assertion, Chi Solutions, Inc. turned to its proprietary laboratory benchmarking database. Chi’s uses a Test Complexity Index (TCI) to assign a relative value unit for each CPT code. The TCI considers the test mix in addition to test volume when comparing a laboratory to its peer group, an important step as many laboratories may have broader in-house test menus with more complexity. For accuracy, the TCI is employed to neutralize test mix differences for comparative purposes, ensuring more precise laboratory-to-laboratory comparisons and eliminating the “apples to oranges” argument.

Of 102 clients studied from the benchmarking database, 76 do not consider their labs automated, while 26 perceive their laboratories as such. A survey was conducted of nearly all of the 26 automated laboratories to gauge their levels of automation based on the prevalence of eight common laboratory

operational financial efficiency

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automation modules (Figure 1). The major finding of this survey is the most widely used modules are in the analytical areas of chemistry-immunochemistry and hematology (nearly all included an automated differential maker). De-capping and centrifugation are the most employed pre-analytical modules, while on the post-analytical side, more than half the surveyed labs have specimen storage and retrieval.

Productivity and Expense

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To quantify the impact of automation, operational data for the 102 clients from the database was first examined to determine the productivity of the automated and non-automated laboratories. This analysis included a review of both total and technical productivity. As Figure 2 shows, automated laboratories experience a 17.7 percent higher total productivity (5.91 versus 5.02 billable tests per paid hour) and a 33.6% higher technical productivity (13.40 versus 10.03 billable tests per paid hour). These findings illustrate automation’s ability to enhance productivity.

operational financial efficiency

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The next step in the study identified the automated and non-automated labs’ total and performed expense per billable test (Figure 3). Total expense omits the overhead associated with facilities and laboratory information systems, as well as any pathology fees. Performed expense includes only the portion of expenses that are relevant to testing performed onsite, thereby removing the cost of reference laboratory testing. This analysis determined automated labs have a 12.4% lower total

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expense per billable test ($10.63 versus $12.14) and a 13.9% lower performed expense per billable test ($9.72 versus $11.29). As noted with productivity above, automation has a corresponding positive effect on expense.

To further highlight automation’s influence, Chi isolated productivity and expense metrics for the 10 most automated laboratories in its study. This group includes facilities from Chi’s survey of 26 automated laboratories that report utilization of six or more of the common automation modules.

The productivity experienced by the top 10 automated labs demonstrates a higher degree of automation can drive profound results (Figure 4). Total productivity for the top 10 is 19.8% higher than for all automated laboratories in the study and a remarkable 41.0% higher than for non-automated labs. For technical productivity, the gain for the top 10 versus non-automated labs is a staggering 44.5%.

This dramatic distinction in performance for more fully automated laboratories holds true for expense as well. Figure 5 reveals a 13.8% lower total expense per billable test and a 13.1% lower performed expense per billable test for the top 10 automated laboratories compared to all automated laboratories in the study. The difference between the top 10 and non-automated laboratories is even more pronounced at 24.5% lower for total expense and 25.2% lower for performed expense.

Drawing upon the information from Chi’s benchmarking database, it becomes apparent fully automated hospital and health system labs are realizing a 25% lower cost structure compared to their non-automated counterparts. In today’s environment of persistent industry and regulatory challenges, labs should consider employment of a robust automated system to counter the effects of future performance demands, and financial threats and restrictions.

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About Author

James M. Root, MBA

James M. Root is advisor and senior consultant, Chi Solutions Inc.

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