Controlling reference testing costs; group purchase discounts and computerized test audits helped this lab slash send-out costs Essay

It was a frustrating situation.

From 1979 to 1982, the cost ofreference laboratory service to our 340-bed acute-care hospital rosemore than 123 per cent. In each of those years, we had negotiatedsuccessively deeper discounts with our principal reference lab. Yet ourreference costs were spiraling despite an actual drop in cost per test,as shown in Figure I. With New York State’s own complex version of prospectivepayment on the horizon, we knew we had to do something. Reference workwas growing at a much faster rate than in-house testing, which rose some12 per cent a year. Send-outs constituted less than 1 per cent of thelaboratory’s total volume, while eating up roughly 10 per cent ofits gross costs. Furthermore, these fees were almost never fullyreimbursed, dollar for dollar, by third-party payers. We began to look for strategies to cut reference testing costs andimprove utilization.

Our first step was to switch to a referencelaboratory that offered us a better deal. At the time, the hospital labwas actively involved with the Joint Purchasing Corporation of New York,an intermediary organization for hospital service providers, indeveloping a group buying contract with major reference laboratories.Under the JPC’s guidance, a committee of physicians, labadministrators, and clinical chemists developed criteria, terms andconditions for a proposed contract. The effort paid off in early 1983, when a number of area hospitalssigned a highly economical group purchasing contract with one majorregional reference lab. This contract alone, with its 60. per centdiscount off list price, would have reduced our reference test costs forthe year, even without a cut in send-out volume.

Utilization control, our second tactic, began with a thoroughreview of ordered reference tests and studies. It was soon clear thatour log books were not organized to provide easy access to the data weneeded. If our busy pathologist/laboratory director was to participatefully in the review process, we would need a mechanism for retrievingdata rapidly in a variety of formats. Under our existing system, onehad to flip through a sheaf of test request slips to assemble meaningfulinformation on individual physician ordering patterns, includingredundant, excessive, or inconsistent orders, and other possibleutilization problems. A microcomputer appeared the most likely solution to storing,organizing, and printing our reference test data. In late 1982, wepurchased a Radio Shack Model II, and began recording data in thebeginning of 1983. Once the system was implemented, it involved noadditional clerical work, since the computer took the place of ourregular manual log of reference tests.

As for software, any good database management system or flexible filing program that allows the userto sort data by various parameters is adequate for this purpose. During the first month of computer monitoring, we did nothing outof the ordinary to influence the ordering behavior of attending,consulting, or house staff physicians. When the month ended, weprepared a cumulative printout. To identify ordering patterns or heavyreference lab users, the report arranged the send-out list byphysicians’ last names, and separated the house staff orders fromthose of attending and consulting physicians.

Figure II shows anabbreviated version of one of these reports. In one stroke, the neatly labeled printout solved two of our mainhurdles: It clearly showed the volume and test mix of each physicianusing reference lab services, and capsulized the extent and costs ofsuch testing in an easily readable form. We presented a copy of the report at the next meeting of themedical board. Attendees received it with interest and recognized theneed to cut these costs. We deliberately refrained, however, from usingthe meeting as a forum to establish ordering policies or guidelines.

Instead, we opted for an approach that we believe is the key to theprogram’s success. Rather than make a unilateral attempt to changeordering habits, we focused on offering the laboratory’s servicesfor test ordering consultation. After the meeting, we discussed thedata with the director of medicine and various attending phsicians,individually or in small groups. We suspected from a review of theliterature that this one-on-one method would prove more effective thanany mandated change. So far, experience has proven us right. Over the next two months, all reference tests requests–some 10 perday on average–were entered into the computer, a task that takes about10 minutes daily. Each day’s activities were printed in accession log format and reviewed by the laboratory manager, who alerted thedirector to any unusual or unlikely-looking requests.

The director thencalled physicians immediately to check out such orders. These calls, which usually took about two minutes, stressed thefollowing points: the clinical need for the test ordered; less costlyalternatives, where appropriate, that yielded equal or betterinformation than the test requested; correction of occasional clericalor other errors; and cost containment, a topic discussed frequently withclinicians to reinforce their sense of responsibility in this area. In some 90 per cent of all cases where the laboratory directorintervened, the ordering physician voluntarily canceled or changed thetest in question. The other 10 per cent justified their choices orsimply remained adamant.

Almost every cancellation due to erroneous ordering resulted from one of the following: improper test selection byinexperienced house staff; improper clerical transcription ofphysicians’ orders; or simple lack of knowledge of a test’smedical value in relation to its cost-effectiveness. In the following months, referred laboratory fees began to drop.Part of the savings arose from the new reduced fee schedule, of course.

But the actual number of tests ordered in the survey months alsodeclined slightly from the same period in the previous year. Inaddition, test mix appeared to be shifting somewhat from very costlyprocedures to more moderately priced tests. The monthly summary serves as a guide for the laboratorydirector’s review and follow-up, while the laboratory manager usesit for statistical and record-keeping purposes. These concise reports,which present data in several formats, allow selective intervention whenindicated. The computer can produce reports to monitor compliance withlaboratory guidelines or identify specific procedures for review. Wesoon learned, for example, that physicians were routinely orderingseveral different panels, containing some expensive and often redundanttests, to rule out pheochromocytoma on hypertensive patients. Thedirector discussed alternative diagnostic approaches with cliniciansmost likely to use the procedures.

As a result of these discussions, weselected VMA and total metanephrines as our panel of choice for thisscreening, and the hospital’s physicians readily accepted it. Wediscovered and stopped other irregularities as well–such as extensiveesoteric tests ordered by a staff physician out of intellectualcuriosity. The laboratory director’s close involvement is the mostimportant element in our utilization program. His status as a physicianand colleague enables him to present alternate choices to the medicalstaff without arousing resistance or resentment; he has the bestinformation at hand, and the patient’s welfare in mind. Mostclinicians, in fact, have been grateful for “freeconsultations” to learn the latest consensus on cost-effectiveordering. The computer-generated reports, in turn, have become thelaboratory’s most valuable utilization tool. They provide a vitalelement of objectivity to discussions on a highly sensitive subject.These reports make clinicians instantly aware of their referencelaboratory ordering activities for the entire month, and remind themthat an efficient monitoring method is in ongoing use.

Since thecomputer performs all the searches, sorts, and collations, thepathologist can afford the time for regular participation, which usuallyrequires no more than five to 10 minutes a day. The results have been impressive. In the first year, thecombination of our computerized audit and group buying contract reducedreference testing costs by 31 per cent, or $27,000 less than our 1982expenses. The laboratory and the hospital have done more than save money.

Wehave improved service and enhanced diagnostic efficiency. Our reviewsystem stimulates consultation between the pathologist and the orderingphysician, resulting in performance of tests that gives us the most forour money. Everyone gains–the hospital, the physician, and thepatient.


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