Book:The Comprehensive Guide to Physician Office Laboratory Setup and Operation/The clinical environment/Economic issues related to the POL

1.9 Economic issues related to the POL

When examining the economics of the POL, four considerations leap to mind: billing, insurance reimbursements, profitability/sustainability, and return on investment (ROI). In truth, all these considerations are closely related to each other, with the goal of at least meeting operating costs while providing quality care to patients. However, plenty of challenges must be navigated along the way, from meeting state and federal regulatory requirements to billing properly. For the POL in particular, the practice must decide which tests to offer, finding balance between the most commonly ordered IVD tests—such as dipstick urinalysis, complete blood counts, and prothrombin time—and those that will potentially see rapid revenue growth, including anemia tests, chronic inflammation tests, and the glycated hemoglobin (HbA1c) diabetic test.

Determining ROI on diagnostic services isn't straightforward, however. In their 2020 paper published in British Journal of Healthcare Management, Price et al. note that ROI "is most applicable when both costs and benefits are quantifiable." Quantifying the benefits of adding clinical laboratory testing to your physician office isn't always a straightforward process, to be sure. For example, "patient satisfaction" is more a qualitative measurement of ROI. Additionally challenges appear when trying to determine ROI when adding in technology-based tools like a laboratory information system (LIS), as there are usually multiple stakeholders involved in the overall value proposition. Price et al. add:

The combination of the return on investment with the value proposition provides a framework for identifying the expectation of the benefits of a new test (or a technology) tailored to the contribution (and needs) of each of the stakeholders. It informs the business case for change, as well as becoming the benchmark for delivering that change. To assist with this task, there are various tools available, such as time-driven activity-based costing and patient level information costing systems ...

However, one of the major issues POL operators must deal with when considering cost/benefit analysis is healthcare reform and reimbursement changes. For example, until CMS intervened in 2010, physicians could bill Medicare per drug panel, meaning an 11-panel urine drug screen could be billed 11 times. CMS amended their rules in 2010 to prevent this type of unintended billing behavior, making drug testing less lucrative in general, especially for the POL. Another example can be found in the Protecting Access to Medicare Act (PAMA), passed in April 2014. Though its original purpose was to delay Medicare payment cuts to physicians until March 2015, Medicare cuts targeting the clinical laboratory fee schedule in 2017 were said to pose an economic threat to small laboratories, including POLs. CMS was set to switch to market-based rate changes that researchers like Kalorama Information and organizations like the National Independent Laboratory Association (NILA) and the American Association for Clinical Chemistry (AACC) believed would adversely affect small laboratories. Additionally problems came out of PAMA, with a non-representative sample of provider payment data skewing common test reimbursement abnormally lower. This has led to much debate about what to do with PAMA. An April 2021 Medicare Payment Advisory Commission report suggested the use of a random sampling of labs' payment data to guide reimbursement, with associations like NILA and the American Clinical Laboratory Association (ACLA) appearing to support the change in 2022.

The economics of data management, which tools to use, and what data to save represent additional considerations for the POL. "To improve clinical lab profitability in today's healthcare environment, it is essential for any practice to establish an ongoing process to produce data relevant to the management of its patient base," Medical Source, Inc. CEO Keith LaBonte said in 2011, also noting the importance of identifying relevant data and implementing effective processes for staff to collect and organize that data in data management systems.

For more on estimating ROI for your POL, see the U.S. Agency for Healthcare Research and Quality's (AHRQ's) 2016 Toolkit for Using the AHRQ Quality Indicators section "Return on Investment Estimation". While the estimation tools are targeted at hospitals, many of the same principles may apply to your POL.