Profitability vs. Quality: Can labs have It all?

by Francisco Munoz
B.Sc. Hon, MBA, PinpointBPS® Champion

Cost and quality in the laboratory doesn't always have to come with compromise. Why?

There is a growing perception among laboratory leaders that a positive bottom-line impact can, at a maximum, only be achieved at the cost of quality. Francisco Munoz, PinpointBPS® Champion and Director at LTS, argues that improving laboratory profitability and maintaining - or indeed, enhancing - quality levels need not be mutually exclusive.

e're witnessing a shift in the traditional cost versus quality versus time equation. New, innovative methodologies are allowing us to not only find ways of enhancing quality and improving laboratory turnaround time, but also ensure that we manage our cost better and have a greater impact on the laboratory bottom-line.

Laboratories need to deliver more with less

In the current climate of austerity, health services are under pressure to do more with less. On top of all the pressures derived from government initiatives - from the creation of accountable care organisations and consolidation of clinical support services (pathology, imaging, pharmacy, sterile services, etc.), to annual cuts and cost savings - secondary care operators today must deliver more activity as a result of changes in population and demand.

For public sector pathology organisations trying to balance the books, this calls for the implementation of cost improvement plans and capacity management plans. Meanwhile, for the private sector it also means a reduction in investment and aggressive transformation initiatives, to maintain a healthy bottom line.

Must bottom-line improvements compromise quality?

There is a general perception that enhancing the bottom line means cutting corners and reducing quality. Clinicians have argued that a focus on the bottom line increases the risk to the patient and deteriorates patient quality. This is one of the key arguments against privatisation or change within public services (such as service consolidation) currently being used by many opposing this service delivery model.

Any intervention in the laboratory designed to improve bottom-line performance must be accompanied by the certainty that it will maintain or improve quality

However, these arguments are rarely accompanied by facts and data. Instead, they tend to be based on opinion and perception. Laboratory performance and by extension bottom-line performance are largely dependent on the balance between clinical quality (compliance quality system, errors, repeats, samples lost, etc.), turn-around time (TAT) effectiveness and cost.

Historically, an improvement in any two of these three factors has necessarily meant a deterioration in the other. I believe that this is rapidly changing. In fact, at LTS we believe that any intervention in the laboratory designed to improve bottom-line performance must be accompanied by the certainty that it will maintain or improve quality, while delivering current TAT benchmarks.

Francisco Munoz is contributing as part of the PinpointBPS® Thought Leader Community

Connect with leading thinkers in pathology and contribute to the discussion on achieving true innovation in laboratory performance improvement.

How to enhance the bottom line and improve quality

In fact, laboratories should never compromise on quality or patient outcomes. Below, I outline how laboratories can achieve improvements across all three key areas of their performance.

1. Investigate your workflow and processes - they tend to hold significant savings

While 15% to 25% of savings can be expected through consolidation, those savings can be eroded if process challenges aren’t fully understood and effectively managed.

Detailed workflow analysis and optimisation can create efficiencies that allow for cost avoidance and improved use of the expensive assets.

Improving the bottom line through cost reductions and efficiency can be achieved using one or more of various methods, including PinpointBPS®, Lean, Six Sigma, Agile, etc. In particular, innovative methodologies such as PinpointBPS® allow laboratories to understand the impact that process improvement would have in the laboratory, before any changes are implemented. This allows laboratories that are seeing increases in sample volumes to assess the effects on staff utilisation in areas such as sample processing.

As an example, laboratories seeing growth in test volumes tend to address this by increasing resources. Meanwhile, in order to cope with these increases and pressures, other organisations are looking at the potential for savings and improved capacity that consolidation between laboratories can bring. In our experience, most collaborations can create savings of between 15% and 25% through consolidation; however consolidation (including distributed network arrangements) itself can erode those savings through challenges such as development of target operating model, clinical support and the transition investment required. 

2. Gain a holistic understanding of what impacts laboratory turnaround time

Logistic routes are optimised in terms of transport efficiency rather than laboratory pre-analytics and automation capacity. This creates bottlenecks at registration and pre-analytics stages.

When talking about time and the delivery of results, most laboratories refer to TAT. There are two key factors that laboratories can manipulate when looking at the impact that improved TATs would have on bottom line for the laboratory:

a.) Right test at the right time: Asking some basic questions of the current tests can help determine how these tests are delivered. What is the flexibility of current TATs per test? How are the test results used? When are tests results being acted upon? How long is the sample stable for? All these questions can help the laboratory manager to plan and change daily workflow, allowing for greater flexibility when matching demand and capacity.

b.) Tests and logistics: Many laboratories procure logistics solutions based on the cost effectiveness of the logistics provider. This means that logistic routes are optimised in terms of transport efficiency rather than laboratory pre-analytics and automation capacity. In most instances, biochemistry laboratories receive two deliveries a day from a community setting. This creates bottlenecks at registration and pre-analytics stages that require more resources in place to deal with the influx. Depending on laboratory size and volume, a higher cost of a more flexible logistics solution can significantly reduce the cost of pre-analytics and increase capacity, while maintaining TATs.

3. Know how to use quality to boost the bottom line

Payment per test reported puts laboratory managers between a rock and a hard place, having to balance test volume and patient quality.

Quality in the laboratory is invisible when it is good, but impossible to ignore when bad. Total Quality Management (TQM) must focus on patients, users, processes and commissioners. From a laboratory operations point of view, when it comes to quality, there are two key areas that require attention:

a.) Improving the quality of care for patients: This would focus on the reduction of errors and demand management initiatives. At LTS, we have seen how demand management initiatives can act as a perverse incentive for laboratories. In the model where laboratories are paid per test reported, demand management can have a significant impact on revenues by reducing activity or the number of costly tests delivered. This often places laboratory managers between a rock and a hard place, as the duality of the situation (doing the best for both the patient and the laboratory) requires achieving a difficult balance. 

Quality improvements in the laboratory - such as a reduction in number of errors - have a clear and positive impact on finance that offsets additional costs.

Other models of pathology provision use a capitated approach for payments where the laboratory gets paid a fixed annual amount per person within the catchment area, no matter how many tests are delivered. In Madrid, Spain where this model is used, collaboration between clinicians, commissioners and the laboratory has greatly increased. This has led to the introduction of demand management innovations such as patient electronic interaction with the laboratory, introduction of algorithms in electronic ordering systems and the introduction of business intelligence dashboards - such as PinpointBPS® Utilization - to compare performance on test ordering by clinician, practice, test and speciality.

b.) Quality assurance: This is the function that ensures that the right results are delivered for patients. The introduction of the new ISO 15189 standard has changed the role of quality assurance within the laboratory. At LTS we have seen many laboratories increasing the resources dedicated to quality as a result of these new requirements. While this may be seen as an increase in resources, quality improvements in the laboratory (as the reduction in the number of errors) have a clear positive impact on quality and finance that offsets any additional costs.

The bottom line? Minimise uncertainty for true financial improvement

The steps outlined above illustrate clearly what complex systems laboratories are; they require intervention at different levels. There is a perception among some laboratory leaders that a positive bottom line impact can only be achieved in a maximum of two elements of the improvement equation at any one time. This is because laboratories have to date not fully understood what impact improvement interventions might have on all three axes before implementation. This lack of certainty and foresight means that certain decisions are not made and initiatives not implemented because of a high perceived risk upon one of the three factors.

The underlying laboratory performance improvement principles from PinpointBPS® allow every laboratory to assess the true bottom line impact of implementing initiatives in any of the three areas of improvement. What’s more, the PinpointBPS® service allows any manager or transformation team to assess and evaluate the impact that intervention would have on all three axes, making decisions simpler - and with more impact.

About the author
Francisco Munoz is a director at LTS, PinpointBPS Champion. He has more than a decade of experience of strategy and healthcare performance optimisation and specialises in supporting laboratories to achieve their goals, efficiency and productivity savings. He is situated in London, United Kingdom.