As federal and private payers increasingly demand a bigger bang for their buck, clinical laboratories must do more than just provide test results—they must show how they contribute to improved clinical outcomes while helping payers hold down costs.

That’s a tall order for an industry that often struggles with change and that historically has tied increased test volumes to increased revenues. But the current transition from “volume to value,” driven by changes in how labs will be reimbursed going forward, is clearly picking up steam.

In January, the Centers for Medicare and Medicaid Services (CMS) announced a new payment framework and ambitious new goals, designed to increase accountability for both quality and total cost of care and to place a greater focus on population health management versus fee-for-service.

Due to the Affordable Care Act, by 2014, an estimated 20% of Medicare reimbursements had shifted to value-based alternative payment models, directly linking reimbursement to the health and well-being of patients, according to CMS. The agency has set a goal of having 30% of Medicare payments in alternative or population-based payment models by the end of 2016 and 50% by the end of 2018.

Tackling Population Health

For laboratories that have been continuing to operate under the old, volume-based model, these reimbursement shifts are a wake-up call to change the way they operate. Some laboratories have already started to make the move toward a value-based business model. TriCore Reference Laboratories in Albuquerque, New Mexico, for example, has launched several pilot projects related to population health management. As a dominant clinical laboratory in New Mexico, TriCore has access to 70% of the clinical data of people who live in the state, allowing it to provide targeted intervention to its patient population.

“We use chronological and longitudinal data to assist physicians in optimizing diagnostic and treatment processes. This improves outcomes, quality of care, and reduces overall costs,” said Khosrow Shotorbani, CEO of TriCore. “That is the basis for our new business model. We are able to intervene real-time to improve care for people with chronic conditions. It is a unique value proposition for a lab.”

Shotorbani cited the case of newly diagnosed hepatitis C (HCV) patients, about half of whom are unaware they have the disease in spite of a positive result. Often times a follow-up doesn’t occur until the disease escalates, contributing to poor outcomes and higher costs. By prompting physicians to follow up with HCV patients, TriCore is able to help improve patient care and save costs.

TriCore is not yet getting paid for this targeted intervention, but Shotorbani envisions a day in the not-too-distant future when Medicare and managed care providers will pay extra for such a service. “We’re entertaining the idea of a subscription model, at-risk model, or a per-click model,” he explained. “For example, the Health Information Exchange in New Mexico is paid 20 cents per member per month for access to longitudinal data. That said, most HIEs including our own do not have the ability or appetite to push data to providers in real-time. They are simply repositories without a viable business model, creating a void for labs to partner and fill the value. Right now, we are testing several proof-of-concept models.”

Shotorbani admits that TriCore has a distinct geographic advantage with the access it has to clinical data of the population in New Mexico, but he believes most labs can use the data they have to affect patient outcomes. “Most labs can do this, but it won’t be easy,” he said. “It requires a cultural transformation. We think we’re about three to five years ahead of the curve. We don’t view this as added value—we view this as our core business.”

Defining and Measuring Value

While laboratories sit on a treasure trove of data, many don’t know what to do with it other than simply provide raw data to payers when asked. But it’s not the data itself that gives labs leverage—it’s how labs package the data, said Mike Hallworth, chair of the International Federation for Clinical Chemistry Task Force on the Impact of Laboratory Medicine and Outcomes, a group established in 2012 to evaluate the available evidence supporting the impact of laboratory medicine in healthcare.

Isolating the value of the testing process from the overall process of patient management is complicated, Hallworth and colleagues noted in a Clinical Chemistry article (2015;61:589–99). “Value can be defined clinically or economically,” they wrote. “Clinical value is linked to the improvement of health-related outcomes, whereas economic value is tied to cost-efficiency or effectiveness.”

The task force has proposed an approach to measuring value in which the net value of a testing process is defined as “delivered benefits minus delivered harm (undesirable effects of testing).” Labs have a long way to go in demonstrating the link between a particular testing strategy and a defined outcome, Hallworth said.

“Substantial progress … is essential if we are to demonstrate and enhance the value of laboratory medicine and prevent the loss of valuable information in a miasma of meaningless data,” Hallworth said.

Turning Data Into Knowledge—and Action

Data analytics is essential to making the connection between the “miasma of meaningless data” and packaging the data in a way that can be used to improve outcomes. Mayo Clinic and Mayo Medical Laboratories (MML) are on the cutting edge of data analytics with a partnership formed in 2013 with UnitedHealth Group to launch Optum Labs, an open, collaborative research and development facility.

“We have 150 million de-identified lives in the database,” explained Don Flott, director of utilization and integration services for MML. “We do validation studies on algorithms, which enables us to determine whether a particular treatment is better, the same, or worse than others. This allows us to go to a provider organization or a payer and say, ‘Look, if folks were following this algorithmic approach for the workup of bone marrow—where often, more cytogenetic or FISH testing is ordered than is necessary—you would see savings on population as well as per member per month.’”

MML is also working on the inpatient side to drive down tests per discharge. Using precise protocols for test ordering, MML can help the system reduce unnecessary test ordering by up to 40%, Flott said.

“Alternative payment systems are already here, so the question is whether the laboratory is going to be part of the solution to help bend the cost curve or if it is going to be left out. The laboratory has to help drive waste out of the system,” Flott said.

Reducing Inappropriate Testing

Reducing inappropriate testing is not just a strategic goal for health systems and labs—it’s a financial necessity, said Troy Reiff, RN, chief operating officer for St. Vincent Seton Specialty Hospital in Indianapolis.

Overwhelmed by patient data clustered in disparate data silos, St. Vincent implemented a healthcare relationship management (HRM) platform from to integrate its data and reap new insights.

“We were always looking in the rearview mirror,” Reiff explained during a March 18 AACC webinar, sponsored by an educational grant from “We couldn’t proactively understand where we were going and how to manage specific disease states. We always had data but weren’t able to use it in a meaningful way.”

Since implementing the HRM platform, St. Vincent has been able to guide physician behavior, optimize utilization, increase patient satisfaction, and reduce costs. The software gives the hospital a real-time view of the patient experience in the laboratory, from registration to logistics, finance, and customer service. The real-time view includes utilization metrics, such as how many panels are ordered per patient and details on tests that are ordered.

“With actionable data, we can make meaningful changes on the frequency of labs and ensure that the right labs are being ordered at the right time,” Reiff said. “It’s a win-win on how we practice medicine.”

Since implementing the HRM, St. Vincent Seton has reduced unnecessary testing by 6.5% and reduced cost per patient per day, even with a 5% increase in patient acuity. At a time when value is king and every dollar counts, such results can go a long way in helping labs and health systems thrive in today’s rapidly changing marketplace.

Kimberly Scott is a freelance writer who lives in Lewes, Delaware.  +Email: [email protected]

Learning to Be a Value-Driven Lab

Are you interested in learning how your organization can become a valuedriven lab? Then don’t miss AACC’s Laboratory Solutions Summit, this September 16–17. This virtual conference will showcase dozens of ideas from laboratory professionals around the world who will discuss how changes they’ve made in test strategy, technology, or management are enabling better health through laboratory medicine.

During this interactive meeting—conducted completely online—participants will interact with presenters through live question and answer sessions, with abstract presenters in a virtual poster hall, with exhibitors in a virtual exhibit, and with colleagues through public and private chats.

Learn more: