Hospital Laboratories Can Become Profit Centers

ASCENDING FROM THE BASEMENT

……Hospital Laboratories Can Become Profit Centers

Market Insight

January 2012

A Break-Even Analysis Defines a Business Opportunity

…. But What are the Pivotal Questions to Pose?

2

WHY ?

HOW ?

WHAT ?

In 2011, Frost & Sullivan crafted a research analysis to

gain insight into the business strategies hospital

laboratory directors implemented to realize a profit.

A convenience sample of 40 directors from a national panel

participated in a web survey

Results were compared to opinions expressed by key informants

from five of the largest commercial laboratories in the United States

Strategies streamed from one core value concept – laboratory test

services are not a commodity

Call to Action

Right Service

to the

Right Patient

at the

Right Time

for the

Right Price

The Practice of Medicine is both an Art and a Science

In a hospital setting, laboratory test services are a principal part

of the arsenal that enable physicians to determine appropriate

care for a consumer.

Laboratory test services are labor-intensive, in varying degrees.

Medical and clinical staff interpret and analyze results in light of

patient history and symptom presentation.

In a hospital setting, lab orders are often “STAT,” and in some

cases, findings will be transmitted to surgical suites or intensive

care units.

Reimbursement does not reflect the value of laboratory test

services. Most hospital laboratories are cost centers. A growing

number, however, have implemented business strategies to

become profitable. Source: Frost & Sullivan

Key Questions

Paths to

Profitability

In general, are hospital laboratories

considered cost centers or profit

centers?

Is your hospital laboratory considered a

cost center or a profit center?

67 Percent Perceived Hospital Laboratories in General as Cost Centers

How has the demand for hospital

screening, diagnostic and esoteric tests

changed in the past 12 months?

How would you described the value

proposition of your laboratory?

What are your expectations in forging

relationships with community providers

or a reference laboratory?

How price sensitive is the market for

outreach test services and referral test

services?

What are the three principal reasons for

referring test services to a commercial

laboratory?

How important is the pathologist’s

consultative role in assisting physicians

in testing or treatment decisions?

54 Percent Reported their Laboratories as Profit Centers Source: Frost & Sullivan

Hospital Laboratory Value Proposition

6

3. Income

Generator 1. Critical and

Essential

Service

4. Service

Orientation

2. Profit Center

(Outreach

testing)

88 percent believed the market

was extremely (33 percent) or

highly (55 percent) price sensitive

Source: Frost & Sullivan

Value as a Critical and Essential Service

7

……Since laboratory decisions are the basis for about 80 percent

of all medical follow-up, the Laboratory is a critical partner in the care

of patients Nonprofit, New York Hospital (300 to 500 beds)

…… Laboratory test results needed to ensure optimal patient care

and safety are available on a timely basis and on site

Government Massachusetts Hospital (300 to 500 beds)

…… Leverages much of hospital decisions regarding patient care

delivered within the first 24 hours of admission Nonprofit, North Carolina Hospital (701 to 900 beds)

…… We provide 70 percent of the testing information required for

the physicians decisions/treatment/diagnosis of their patients Nonprofit, Colorado Hospital (300 to 500 beds)

Source: Frost & Sullivan

Value as a Profit Center

8

…… A profit center because even though we do not recover all

revenues, we do recover the majority of outpatients revenues.

Nonprofit, Florida Hospital (701 to 900 beds)

…… Incremental volumes from outpatient and outreach work will

help the hospital with added revenues with low incremental expenses

Nonprofit New Hampshire Hospital (300 to 500 beds)

…… With the growth in outreach there is a lot of value in the

hospital laboratory….typically turn around time of most tests are

faster than that of reference labs Nonprofit, Georgia Hospital (501 to 700 beds)

…… Hospital labs can be a profit center if outreach is ventured

properly Private, Florida Hospital (501 to 700 beds)

Source: Frost & Sullivan

Business Case for Joint Ventures with Commercial

Laboratories that Can Support Outreach Marketing

9

78 percent Cost Efficiency for Low Volume Tests

70 percent Breadth of Test Menu

65 percent Test Turnaround Time

53 percent Medical Expertise

48 percent LIS and HIS Connectivity

10 percent C-level Decision

Lab Directors Opinion

Factors that can secure outpatient testing contracts Source: Frost & Sullivan

Change in Demand Reported by Hospital Lab Directors

for Test Services in the Past 12 months

10

60 percent reported an Increased Demand for Diagnostic Tests

60 percent reported an Increased Demand for Screening Tests

75 percent reported an Increased Demand for Esoteric Tests 1

2

3

Source: Frost & Sullivan

Next Steps

11

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For more Information on this Research

13

Source: Frost & Sullivan

Britni Myers

Corporate Communications

Healthcare

210.477.8481

[email protected]

Virginia Cardin, Dr.P.H.

Senior Research Consultant

Healthcare and Life Sciences

210.247.3814

[email protected]