16th Laboratory and Outreach Survey Findings Final Cle10 v5-3

16th Annual National Hospital/
Health System Laboratory and Outreach Survey:

Findings and Strategic Implications
September 2017
Prepared by:
Accumen Inc. | Chi Solutions, Inc.

5414 Oberlin Drive, Suite 200
San Diego, California 92121
858.777.8160 | 800.860.5454
www.accumen.com | www.chisolutionsinc.com
CLE10-V5
Disclaimer: This Outreach Survey report is provided by Accumen Inc. and its subsidiary Chi
Solutions, Inc., for the purpose of providing their clients, survey recipients, and others with a
resource regarding certain developments in the laboratory industry. These findings do not
constitute a legal opinion or an interpretation of any legal principles cited, nor are they intended
as a prediction of any future industry developments or the consequences thereof.
16th Annual National Hospital/Health System
Laboratory and Outreach Survey Findings
Table of Contents
▪ Introduction ........................................................................................................................ 1
▪ Executive Summary........................................................................................................... 1
▪ Respondents that Operate Their Hospital/Health System Laboratory ............................. 2
▪ Primary Strengths of Hospital/Health System-Based Laboratories.................................. 2
▪ Improvement Opportunities for Hospital/Health System-Based Laboratories ................. 3
▪ Capacity to Take on Additional Testing ............................................................................ 3
▪ Blood Utilization Practices/Programs ................................................................................ 4
▪ Test Utilization Practices/Programs .................................................................................. 5
▪ Lean Six Sigma Implementation ....................................................................................... 5
▪ Benchmarking Utilization ................................................................................................... 6
▪ Respondents with Laboratory Outreach Programs .......................................................... 7
▪ Reasons for Not Developing Laboratory Outreach ........................................................... 8
▪ Laboratory Outreach Program Type ............................................................................... 10
▪ Primary Strengths of Outreach Programs ....................................................................... 10
▪ Improvement Opportunities for Outreach Programs....................................................... 11
▪ Primary Laboratory Outreach Competitors ..................................................................... 12
▪ Market Share Experience versus Competitors ............................................................... 13
▪ Connectivity System Elements........................................................................................ 14
▪ Market Segment Growth Opportunities........................................................................... 15
▪ Sales and Field Service Representative Compensation and CRM Usage .................... 15
▪ Annual Outreach Net Revenue ....................................................................................... 16
▪ Outreach Profitability ....................................................................................................... 17
▪ Outreach Billing and Collections ..................................................................................... 18
▪ Access to Outreach Revenue, Billing Information, and Bad Debt and Days Sales
Outstanding (DSO) .......................................................................................................... 19
▪ Price Determination ......................................................................................................... 20
▪ Access to Information ...................................................................................................... 21
▪ Appendix
▪ Laboratory Type ........................................................................................................ 23
▪ Facility Descriptors .................................................................................................... 23
▪ Laboratory Test Volume and Operating and Reference Lab Expenses .................. 24
▪ FTEs at Primary Laboratory ...................................................................................... 24
▪ Characteristics of Outreach Programs ...................................................................... 25
©2017 Accumen Inc. and Chi Solutions, Inc. Proprietary and Confidential
Introduction
In this report, Accumen Inc. (Accumen) and its subsidiary Chi Solutions, Inc. (Chi) present
observations on key findings from their latest Annual National Hospital/Health System
Laboratory and Outreach Survey (herein referred to as our annual survey). This report provides
a comprehensive analysis of laboratory industry trends for health system executives and those
responsible for laboratory outreach programs.
Executive Summary
New Information
Due to the addition of several general questions, we now have the following new findings:
▪ The vast majority of respondents (92 percent) operate their own laboratory.
▪ Most laboratories have spare capacity to take on additional testing (44 percent of
laboratories had a lot of capacity, and 56 percent indicated that they had some capacity).
▪ Seventy-five percent of laboratories have significant opportunities to reduce blood
utilization.
▪ Seventy-four percent of laboratories have opportunity to reduce test utilization.
Favorable Developments
▪ Outreach programs are either gaining or holding their own against the national
laboratories in terms of market share.
▪ The physician office market remains the most viable segment for growth.
Unfavorable Findings
▪ Many outreach programs are operating with less than adequate systems for billing,
connectivity, incentive compensation, measuring and monitoring profitability, and
management reports.
▪ Despite running successful businesses, hospital laboratories are still viewed and treated
by many hospitals/health systems as “cost centers” rather than “profit centers.”
Outreach programs enjoy continued success against many odds, operating in a highly
competitive market with less than competitive offerings and sophistication compared to the
national laboratories. This business model has much potential for the foreseeable future but will
require more sophisticated business systems and structure to be valued inside of
hospitals/health systems.
Page | 1
©2017 Accumen Inc. and Chi Solutions, Inc. Proprietary and Confidential.
Respondents that Operate Their Hospital/Health System

Laboratory
Figure 1: Respondents that Operate Their Hospital/Health System Laboratory
100%
90%
92%
80%
70%
60%
50%
Percent that Operate Their
Hospital/Health System Lab
2017
This is the first year we have asked this question. It provides valuable information on the
percentage of hospitals and health systems that operate their own laboratory. Only eight
percent of laboratories are outsourced today, a much smaller percentage than expected given
all the attention towards partnerships with national laboratories. The other (less frequent)
partnering option for health systems is to contract with pathology groups.
Primary Strengths of Hospital/Health System-Based

Laboratories
Figure 2: Primary Hospital/Health System-Based Laboratory Strengths
Quality of Testing 81%

Turnaround Time 78%
Pathology Support 53%
Productivity 53%
Specimen Processing 44%
Robust Test Menu 38%
Managing to a Low Cost per Test 38%
Workflow 34%
Automation 34%
Reference Testing 28%
Use of Overtime, Per Diems 28%
Systems to Measure and Manage Quality and Performance 25%
Lab Supply Chain 19%
Staffing and Scheduling Tools 13%
Staffing Levels 13%
Consolidation 13%
0% 20% 40% 60% 80% 100%
Page | 2
The strengths of hospital/health system-based laboratories remain unchanged with an emphasis

on quality of testing, turnaround time, and pathologist support. Although most physicians
assume quality is the same across all laboratories—hospitals and independent laboratories
alike—those of us in the industry know better. The quality that comes from local testing with
continuity of results across the healthcare spectrum cannot be compared to that of specimens
transported thousands of miles away to a national laboratory. Local laboratories also have a
huge advantage for providing rapid turnaround time for results. Same-day results are provided
for routine tests. Lastly, local pathologists provide continuity and personalized consultation that
is unmatched by national laboratories.
Improvement Opportunities for Hospital/Health System-

Based Laboratories
Figure 3: Hospital/Health System-Based Laboratory Improvement Opportunities
Systems to Measure and Manage Quality and Performance 55%

Staffing Levels 39%
Staffing and Scheduling Tools 27%
Managing to a Low Cost per Test 27%
Workflow 18%
Specimen Processing 18%
Need for Automation 18%
Use of Overtime, Per Diems 15%
Need for Consolidation 15%
Reference Testing 12%
Pathology Support 12%
Robust Test Menu 9%
Lab Supply Chain 9%
Productivity 9%
Turnaround Time 3%
Quality of Testing 3%
Other* 3%
0% 20% 40% 60% 80% 100%
New trends have emerged this year due to survey revisions. This is the first year that we asked
the question framed as identifying improvement opportunities for laboratory overall. The top
three responses were systems to measure and manage quality and performance (55 percent),
staffing levels and tools to manage (39 percent and 27 percent, respectively), followed by
managing to a low cost per test (27 percent). You will see two themes interwoven throughout
this report:
1. The lack of systems to manage quality, cost and profitability.
2. The conflict between revenue growth and cost reduction.
Capacity to Take on Additional Testing

A majority of survey respondents indicated their laboratory had capacity to take on additional
testing. Of those respondents, the degree of capacity they have is indicated in Figure 4. Forty-
four percent indicated that they had a lot of capacity, and 56 percent indicated that they have a
Page | 3
little capacity. This is one of the key leverage points for outreach. Almost all hospital
laboratories have capacity, especially to take on routine testing on off shifts. Leveraging sunk
costs for facilities, sophisticated equipment, and automation to do additional testing is common
sense and good business.
Figure 4: Amount of Capacity for Additional Testing
Have a
Lot of
Have a
Capacity
Little
44%
Capacity
56%
Blood Utilization Practices/Programs

Table 1: Blood Utilization Practices/Programs
# of % of
Blood Utilization Practices/Programs Responses Responses
Does Not Exist 2 5%

Exists, Early Stages, No Measurement 7 18%
<10% Reduction in Blood Usage 9 23%
10-20% Reduction in Blood Usage 11 28%
20-30% Reduction in Blood Usage 1 3%
>30% Reduction in Blood Usage 9 23%
Total 39 100%
Three-quarters of hospitals have significant opportunities to reduce blood utilization, with 74

percent of respondents identifying less than a 20 percent reduction. However, recent studies
have reported that an estimated 40 to 60 percent of transfusions are unnecessary, excessive, or
avoidable. Despite knowledge of both inappropriate and avoidable transfusions for many years,
most hospitals appear to be in the early stages of implementation of patient blood management
programs. Significant improvements in clinical outcomes and cost reductions await.
Page | 4
Test Utilization Practices/Programs

Table 2: Test Utilization Practices/Programs
# of % of
Test Utilization Practices/Programs Responses Responses
Does Not Exist 8 26%

Exists, Early Stages, No Measurement 15 48%
Deployed, with Measurement (to Include Cost Savings
7 23%
Post Implementation)
Mature, with Advanced Measurement (to Include
Baseline Cost Savings/Post Cost Savings and 1 3%
Scorecards)
Total 31 100%
Only 26 percent of laboratories have sophisticated test utilization management systems. A

majority (74 percent) have opportunity to both increase quality and lower cost through improved
test utilization. Many hospitals struggle with looking at test utilization as a core initiative or a
priority, since laboratories may be less than three percent of the health care bill, and for some,
have not recognized that doing more tests does not always lead to better patient care.
Lean Six Sigma Implementation

Figure 5: Formally Implemented Lean Six Sigma in Lab
Yes
50%
No
50%
Another surprising result: only half of laboratories have formally implemented Lean and/or Six
Sigma. Laboratory was an early adopter. Application in the rest of healthcare is evolving slowly
compared to other industries such as manufacturing and business. It’s hard to walk away from
the promise of the highest quality at the lowest cost. We believe that Lean Six Sigma will
become more mainstream in healthcare in the future.
Page | 5
Benchmarking Utilization
Table 3: Benchmarking Utilization
Yes No Uncertain
Do you participate in a benchmarking program that

31% 50% 19%
compares your lab costs to other similar organizations?
Are you benchmarked against other organizations with
16% 55% 29%
comparable outreach volume?
Less than one-third (31 percent) of laboratories participate in a benchmarking program. Strong
external providers include Premier and Truven Health Action OI (33 percent each) followed by
22 percent of hospitals and systems that have developed their own tools. We believe that
internal system comparisons are not sufficient to drive improvement—how would you know if
your goals are appropriate if there is no external peer comparison? You can’t make good
decisions in a bubble.
Figure 6: Benchmarking Program Utilized
Truven
Health ActionOI®
Premier
33%
33%
Internal System-
Chi IQ® Wide
11% Benchmarking
22%
From a laboratory perspective, hospital-wide offerings are not as accurate or detailed as a

laboratory-only offering. Moreover, only 16 percent of offerings compare laboratories with
comparable outreach volume. This is a major omission and leads to flawed results. Outreach
has a material impact on unit costs due to the requirement for and extensive support staff for
sales, service, couriers, phlebotomists, billers, IT, etc. Our recent book on outreach, The Profit
Machine in the Hospital Basement, has a case study that demonstrates the impact of
comparisons to like peers,1 as illustrated in Table 4 below. One of our clients with a sizable
outreach program was viewed as a poor performer (30th percentile) when compared to a
standard peer group. Using the same data against a peer group of comparably-sized outreach
programs, performance jumped nearly to the top quartile (73 rd percentile).
1Murphy K, The Profit Machine in the Hospital Basement. Ellsworth Press: 2016, p. 72-73.
Page | 6
Table 4: Impact of Benchmarking Against Outreach Peer Group
Percentile Performance1,2
Metric Standard Peer Group Outreach Peer Group Comment
Unit Cost 30th 73rd Cost of outreach infrastructure

Source: Murphy K, The Profit Machine in the Hospital Basement. Ellsworth Press: 2016.
1100th percentile is top performer.
2The same lab compared to two different peer groups.
Another consideration is, where is the benchmarking for revenue? It is meaningless to look at
the cost structure of any business without including revenue, because it is the relationship
between the two that is important. This would never occur in any other type of business. Here’s
the catch: to view the laboratory in this way requires that the laboratory be recognized as a
business by the hospital/health system, that it has the systems and structure to measure and
monitor profitability. As we will see later, that is unfortunately not the case today.
Respondents with Laboratory Outreach Programs

Figure 7: Respondents that Have a Laboratory Outreach Program
100%
90%
80%
76%
70%
60%
50%
Percent with Lab Outreach
Programs
2017
This year, 76 percent of respondents had outreach programs. This number may be dropping as
indicated by the 15-year trend below. For many years, the trend was about 80 percent, or even
higher for a couple years, but now two consecutive years have fallen below 80 percent. This
finding would be consistent with concerns that some executives have about the viability of
outreach with declines in reimbursement. Although these concerns are unfounded in our view
and will be addressed later in this report, outreach programs will have to be run as efficient
businesses to remain profitable into the future.
Some might consider outreach to be too much work or too risky, or that it is too difficult to
compete. Over time, we anticipate the number of outreach programs to drop. Those with
marginal profitability or uncompetitive offerings will no longer be sustainable, leaving larger,
more profitable programs to take over.
Page | 7
Figure 8: Respondents with Laboratory Outreach Program – Trend
100% 94%
90%
90% 80% 79% 79% 78% 79% 82% 80% 80%
74% 76%
80%
70% 64%
60% 50%
47% 48%
50%
40%
30%
20%
10%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Percentage of Respondents with Lab Outreach Programs
Reasons for Not Developing Laboratory Outreach

The 24 percent of respondents without laboratory outreach programs identified their reasons for
not developing outreach, selecting as many reasons as applicable from a list of commonly cited
barriers.
Table 5: Reasons for Not Developing Lab Outreach
Percent Respondents
Reasons Rank without LOP
Not a Priority 1 38%

Lack of Capital 1 38%
Don’t Know Market Potential 1 38%
Startup Cost 2 25%
Strong Competition 2 25%
Facility Inadequacies 2 25%
Concern About Profitability 2 25%
Senior Administration Disinterest 2 25%
Managed Care Issues 3 13%
HIS/LIS Inadequacies 3 13%
Fear of Regulatory Compliance Risk 3 13%
Technical Manpower Inadequacies 3 13%
Uncertainty of Future Market 3 13%
Other* 3 13%
*Other responses include: rural area.
Page | 8
The reasons for opting out of outreach are varied and illustrate common misunderstandings as
shown in Table 6 below. Of those not in outreach today, 25 percent plan to implement an
outreach program in the next year (Table 7). We regularly see new entrants and even some
that have exited in the past re-enter the market under different circumstances.
Table 6: Top 10 Reasons for Not Developing Lab Outreach and Counter-Arguments
Reason Counter-Argument
Not a Priority Measure profitability monthly to see value

Lack of Capital Contrary to popular belief, not capital intensive
Don’t Know Market Potential Easily measured
Startup Costs Minor by comparison to other business startups
Strong Competition True, but hospitals compete well with national labs
Facility Inadequacies Not an issue; most labs have spare capacity (page 4)
Concern About Profitability Easy to measure
Senior Administration Disinterest Measure profitability monthly to see value
Managed Care Issues Leverage hospital/system value to negotiate lab

contracts
HIS/LIS Inadequacies Easily overcome
Table 7: Anticipated Timetable for Developing Lab Outreach
Anticipated Timetable for Developing a

Laboratory Outreach Program
Respondents % Total
1 Year 2 25%
2 Years 0 0%
Later 1 12%
No Plans 5 63%
Total 8 100%
Page | 9
Laboratory Outreach Program Type

Table 8: Outreach Program Type
# of % of
Program Type Responses Responses
Multiple-Hospital Health System 12 46%

Single Hospital Lab-Based 10 38%
Independent Lab, Owned by Hospital or Health System 2 8%
Two or More Health Systems 1 4%
Independent Lab, Not Owned by Hospital or Health 1 4%
System
Total 26 100%
The most common type of outreach program is the multiple-hospital health system (46 percent)
followed by single hospital-based programs (38 percent). There is one known example of an
outreach program shared by two health systems. This is a wonderful example for
regionalization that could become more popular in the future.
Primary Strengths of Outreach Programs

Figure 9: Primary Outreach Program Strengths
Turnaround Time 70%

Excellent Quality Reputation 65%
Strong Customer Service 65%
Access to Hospital EMR 57%
Pathologist Services and Reputation 52%
Strong Physician Staff Loyalty 52%
Hospital/System Acquiring Medical Practices 48%
Profitability 48%
Connectivity to Physician Office EMR or PMS 39%
Strong Support from Hospital Administration 35%
Convenient Patient Service Centers 35%
Key Managed Care Contracts 30%
Flexible Pricing 30%
Dedicated Sales Force 26%
Aggressive, Knowledgeable Sales Team 22%
Success in Penetrating Large Clinics 13%
Excellent Billing Service 9%
Other* 4%
0% 20% 40% 60% 80% 100%
*Other responses include: stat testing capability.
Responses identifying strengths of outreach programs are similar to those for laboratories in
general with the addition of access to the hospital EMR. This provides a strong competitive
advantage for hospitals over the national and regional independent laboratories.
Page | 10
Improvement Opportunities for Outreach Programs

Figure 10: Outreach Program Improvement Opportunities
Billing and Collections 41%

Ineffective IS Connectivity to Physician Offices 36%
Pressure to Further Reduce Costs 32%
No Dedicated Sales Staff 27%
Staffing Shortage 27%
Hospital Pricing 27%
Mediocre Sales Capability 23%
No Marketing Plan 23%
Pricing Inflexibility 18%
Profitability 14%
Lack of Outreach Experience 9%
Limited Presence in Market 9%
Physician Staff Loyalty 9%
Don't Know Market Opportunity 9%
Other* 9%
Customer Service Problems 5%
Need to Install a New LIS 5%
0% 20% 40% 60% 80% 100%
*Other responses include: managed care contracts, competition from owner hospital labs.
Improvement opportunities have remained largely unchanged over the years. Hospitals
generally struggle with billing, IT, sales, and pricing. It’s interesting to note that pressure to
reduce costs and staffing shortages are part of the common theme (conflict between revenue
growth and cost reduction) mentioned earlier. Even laboratories with successful outreach
programs are often viewed as cost centers rather than profit centers. There is a chapter
dedicated to this topic in The Profit Machine in the Hospital Basement (Chapter 2: Why Is
Outreach So Misunderstood?).2
2
Murphy K, The Profit Machine in the Hospital Basement. Ellsworth Press: 2016, p. 11-22.
Page | 11
Primary Laboratory Outreach Competitors

Figure 11: Primary Outreach Program Competitors
Regional
Independent Lab
Quest 4%
Other*
Diagnostics 4%
22%
LabCorp
70%
1Other includes: specialty boutique genetic labs, like GeneDx.
Figure 12: Primary Outreach Program Competitors – Five-Year Trend
80.0%
70%
70.0%
60.0%
50.0% 47%
40%
40.0% 38%
35%
33% 34%
30.0% 28%
23%
22%
20.0% 16%
13% 16% 15%
12%
10% 11% 9%
10.0%
4%
0%
0.0%
2013 2014 2015 2016 2017
Quest LabCorp Regional Hospital Outreach Program Regional Independent Laboratory
For the first time, LabCorp has become the primary competitor. If this continues, it would
reverse a long-time trend of Quest as the primary competitor of outreach programs. We will
have to monitor this going forward. Quest’s numbers have been dropping over the last five
years, but this is the first year with such a precipitous change.
Page | 12
Market Share Experience versus Competitors

Figure 13: Market Share Experience – Five-Year Trend
Vs. Quest Diagnostics Vs. LabCorp

100% 100%
90% 90%
92% 95% 96%
80% 80%
85% 84% 88% 81% 80% 82% 86%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30% 20%
15% 16% 12% 19% 18% 14%
20% 20%
8% 5% 4%
10% 10%
0% 0%
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Losing Gaining/Holding Losing Gaining/Holding
Vs. Regional Hospital Outreach Vs. Regional Independent Lab

Program
100% 100%
90% 90%
91% 89% 90% 91% 89% 94%
80% 80%
88% 88% 88% 85%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
12% 12% 12% 11% 15%
20% 9% 11% 10% 20%
9% 6%
10% 10%
0% 0%
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
Losing Gaining/Holding Losing Gaining/Holding
If we look at changes in market share over the last five years, we see an interesting
phenomenon. Outreach programs are gaining or holding against the national and local
independent laboratories. The only competitor that they are struggling against is other regional
hospital-based outreach programs. This is a true sign of success for outreach. In the past,
outreach programs often respected each other’s market and did not compete directly. As
markets become more competitive, all bets are off, and we are seeing outreach programs
become more active in others’ markets.
Page | 13
Connectivity System Elements

Figure 14: Connectivity System Elements Offered Now and Implemented Soon
Electronic Access to Lab Results 95%

0%
Interfacing with Client’s EMR or PMS 73%
14%
Secure Patient Access to Their Lab Reports 68%
5%
Interfacing to Hospital EMR 68%
14%
On-Demand Result Printing 68%
5%
Online Test Ordering 68%
9%
Medical Necessity Checking 59%
9%
Presentation of Results Trending 55%
5%
Lab Request Form Options 55%
14%
Online Accessioning 50%
9%
Lab Order Management and Tracking 36%
18%
Supplies Ordering 27%
9%
Access to Non-Lab Services 23%
5%
Pharmacy Prescribing Service Option 9%
9%
0% 20% 40% 60% 80% 100%
Offered Now Implemented Soon
Information technology in hospitals has always lagged behind that of the national laboratories.
The standard offering is now a bi-directional interface between the laboratory and the physician
office electronic medical record (EMR). Physicians want a “seamless” interface that allows
them to order laboratory tests and view results from their own IT systems.
As the figure above shows, most hospital outreach programs are way behind the curve
compared to the national laboratories when it comes to more advanced connectivity system
elements. Short-term allegiance to the hospital may slow the move to switch to competitors, but
market share will undoubtedly erode over time without a robust IT offering. The impact on
physician office productivity is too great to ignore.
Page | 14
Market Segment Growth Opportunities

Figure 15: Top Market Segment Growth Opportunities
Physician/Clinic 59%
Hospital Reference Testing 55%
Anatomic Pathology 50%
Nursing Home 36%
Genomic/Proteomic Test Offering 23%
Ambulatory Surgery Centers 18%
Clinical Trials 18%
Industrial Testing/Occupational Health 14%
Home Health Agency 14%
Direct Patient Access 9%
0% 20% 40% 60% 80% 100%

Percentage of Respondents that Consider Market Segment a Top 3 Growth Opportunity
The physician office market segment is still the best opportunity for growth. It is the easiest to
service and the most profitable. Once this opportunity has been exhausted, other market
segments may be explored, with the exception of nursing homes. Unless there is an ownership
or strong affiliation with the health system, our recommendation is to avoid the nursing home
market. It is service-intensive and only marginally profitable. Why would you want to use
scarce resources on this segment when you could gain lower maintenance/higher margin
physician office business?
Sales and Field Service Representative Compensation and

CRM Usage
Figure 16: Satisfaction with Sales and Field Service Representative Compensation
Satisfied with Sales Rep Satisfied with Field Service

Incentive Compensation Rep Incentive Compensation
Yes Yes
No Incentive 29% No Incentive 25%
Compensation Compensation
59% 63%
No
No 6%
6%
Not Fully Not Fully
Satisifed Satisifed
6% 6%
Page | 15
Figure 17: Currently Using a CRM or LIS Tool to Manage Client Issues/Field Service Activities
Planning on Acquiring
One Soon
5%
No Yes
59% 36%
Sales and marketing is one of the most striking weaknesses of hospital-based programs. Sixty
percent of respondents do not have an incentive compensation program and, of those that do,
30 percent are dissatisfied with the plan. Similar findings occur with CRM capability.
An unwillingness to consider incentive programs for sales and service staff is a constraint to
growth. It guarantees that the program will be small because higher performing salespeople will
not tolerate non-competitive compensation.
Annual Outreach Net Revenue

Table 9: Annual Outreach Net Revenue
2016
Study1
Median $12.8 million

Average $24.9 million
1FifteenthComprehensive National Laboratory Outreach Survey, Chi
Solutions, Inc., August 2016.
The numbers of respondents for net revenue and profitability were too low in 2017 for reliable
data and conclusions. For continuity of the report, data shown for these two metrics is
reproduced from the 2016 report.
The average and median size of outreach programs has risen to $25 million and $13 million in
net revenue, respectively. Size has more than doubled (average) and almost tripled (median)
compared to the first 10 years of our survey! To have achieved this type of growth and market
share despite inherent weaknesses compared to the national laboratories is nothing short of
remarkable. Imagine the potential for a hospital-based laboratory with full capabilities!
Page | 16
Outreach Profitability
Figure 18: Analysis of Outreach Profitability
Has Your Outreach Provided with Periodic

Profitability Been Analyzed Outreach Profitability Reports
Yes
Yes
32%
38%
No No
36% 48%
Uncertain Uncertain
32% 14%
Figure 19: Analysis of Outreach Profitability – Trend
Has Your Outreach

Profitability Been Analyzed –
2017 Survey
Yes 2016: 26%

32%
No
2015: 60%
Uncertain 36% 2014: 42%
32%
2013: 40%
Outreach profitability analysis has decreased dramatically from a high of 60 percent of

respondents in 2015. When the economic value of outreach is not understood, the program is
likely to become a target in future cost cutting rounds.
Table 10: Profitability Comparison

Hospital Lab Contribution Margin
(Revenue less Dedicated and Incremental 2015
Outreach Costs) Study1 Net Profit Margin2
Median 23.0% Quest Diagnostics: 7.5%

Average 32.9% LabCorp: 8.5%
1Fourteenth Comprehensive National Laboratory Outreach Survey, Chi Solutions, Inc., August 2015. 2015 numbers
are reported due to insufficient number of responses to this question in 2016 survey.
2Laboratory Economics, Vol 10, No 3, March 2015.
Page | 17
The profitability of hospital-based outreach programs is far superior to that of the national
laboratories. The average and median of 33 percent and 23 percent, respectively, for hospitals
is three to four times that of the national laboratories. The pre-tax profit for these companies is
in the mid-high teens—still one half or less than hospital laboratories.
Does this surprise you? How does this fit with the national laboratories marketing themselves
as lower cost and, therefore, superior to hospital laboratories? If their costs are lower, then why
aren’t the margins higher? Better margins for hospital laboratories are the result of higher
reimbursement and lower cost (leveraging the facilities, equipment, and automation of the
hospital laboratory for outreach). National laboratories may have the advantage of scale for
supply cost, but the business model brings substantial diseconomies of scale for logistics and
other labor-intensive activities. With single-digit margins, it is easy to see why the national
laboratories are concerned about the reimbursement reductions taking effect this year because
of the Protecting Access to Medicare (PAMA) legislation.
We have covered this topic in depth in presentations at national conferences and publications
over the past two years. An analysis and discussion of PAMA can be found in Kathy Murphy’s
and Jeff Myers’s presentation for Executive War College 2017 3 and a Medical Laboratory
Observer (MLO) article authored by Jeff Myers.4 Despite the declines in reimbursement
anticipated over five years, the impact to margins for hospital-based outreach programs is fairly
minor at three percent. There are more than adequate cost reduction opportunities still present
to offset reimbursement declines and maintain margins.
Outreach Billing and Collections

Figure 20: Outreach Billing and Collections Performed By
Laboratory
Outreach
Department
14%
Contracted
Hospital Finance Outside Service
Department 14%
73%
Most hospital based outreach programs still use the hospital billing department (73 percent)
despite poor performance for the laboratory as a customer. Though still small at 14 percent, the
3Murphy K, and Myers J, “Medicare Fee Cuts Are Coming: Smart Steps Labs Can Take to Anticipate Lost Revenue,
Protect Market Share, and Sustain Physician Satisfaction.” Presentation at Executive War College, May 2, 2017.
4Myers J, “The Washington Report: Smart Steps for Labs and Hospital Outreach as CMS Prepares to Cut Medicare
Fees.” Medical Laboratory Observer (MLO), April 2017.
Page | 18
percentage of hospitals that outsource laboratory billing to an expert in laboratory billing has
gradually increased over the years. Larger programs are more likely to perform their own billing
or outsource to laboratory experts to improve the collections of large volumes of low-dollar
claims as well as provide management reports to run the business.
Access to Outreach Revenue, Billing Information, and Bad

Debt and Days Sales Outstanding (DSO)
Figure 21: Access to and Tracking True Outreach Revenue
Access to True Collected Method of Separating and Tracking True

Revenue Outreach Lab Collections
By Patient Type 56%
Yes By Client Account 39%
27%
By Location Code 33%
No
Uncertain 55% During Registration Process 17%
18%
Separate Chargemaster 17%
Utilize Two Separate Billing Systems 6%
Unable to Separate 6%
0% 20% 40% 60% 80% 100%
Examples of poor performance by hospital billing departments for laboratory billing include:
▪ Only 27% have access to true collected revenue.
▪ Twenty-three percent write off all denials.
▪ Eighty percent do not know their bad debt.
▪ Eighty-three percent do not know their DSO.
▪ Only five percent are confident that they are collecting everything they can.
Surely, this is no way to run a $25 million business!
Table 11: Access to Billing Information
Yes No
Do you use your hospital’s provider number for billing? 76% 24%
Yes No
Do you have a process to review claims that have been

77% 23%
denied for medical necessity and resubmit for payment?
Yes No
Are you confident that you are collecting everything you can? 5% 95%
Page | 19
Table 12: Knowledge of Bad Debt Rate and Days Sales Outstanding
Know Bad Debt Rate as Percent of Net Know Outreach Days Sales Outstanding
Revenue (DSO)
Know the Bad Debt Rate 20% Know the DSO 17%
Don’t Know 80% Don’t Know 83%
Price Determination
Figure 22: Determining Factor for Price
Medicare Fee
Schedule
18%
RVU-Based
Cost-Based
Formula
Formula
9%
36%
Market
Uncertain Hospital Fee Prices of
14% Schedule Competitors
14% 9%
Pricing has been rising in importance as a barrier to growth for hospital outreach programs.
Only nine percent of respondents report that they have a market-based system of pricing. The
higher reimbursement for hospitals has become a double-edged sword. With increasing
deductible and co-pays, more and more financial burden has shifted to patients. Complaints
about hospital pricing are at an all-time high, and hospitals suffer from negative feedback in the
community. The national laboratories as well as many insurers have marketing campaigns to
steer business away from hospitals because of pricing.
While high prices improve profitability, they also stymy growth and, in some cases, erode
market share at a time when price sensitivity is high. Many of the larger, more sophisticated
outreach programs have shifted to the national laboratory fee schedule to remain competitive.
We believe that, over time, outpatient and nonpatient laboratory testing will be reimbursed on
one, common fee schedule for all. For many years, we have been predicting this shift. PAMA is
the beginning of it. The rest will occur over time from a combination of regulation and market
forces. A more detailed discussion of this topic appears in Kathy Murphy’s and Jeff Myers’s
presentation for Executive War College 2017.5
5
Murphy K, and Myers J, “Medicare Fee Cuts Are Coming: Smart Steps Labs Can Take to Anticipate Lost Revenue,
Protect Market Share, and Sustain Physician Satisfaction.” Presentation at Executive War College, May 2, 2017.
Page | 20
Access to Information
Figure 23: Access to Service Metrics
CLIENT SERVICES:
Rate of Abandoned Calls 50%
Number of Calls Per Day Per Service Rep 39%
Hold Time for Incoming Calls 39%
COURIERS:
Lost Specimens 56%
Missed Pickups 56%
SPECIMEN PROCESSING:
Volume of Tests 72%
Volume of Requisitions 67%
Tests Per Requisition 67%
Quantity Not Sufficient 61%
Data Entry Errors 56%
Specimen Integrity Compromised 39%
Volume of Requisitions or Tests by Hour of… 28%
Information Flow Issues, Compromising… 17%
Variances to Average by Client 11%
TESTING:
Corrected Reports 61%
Quality Control Failures 50%
Turnaround Time for Key Tests by Client 44%
BILLING:
Gross Revenue Per Requisition 44%
Net Revenue Per Requisition 33%
Payor Mix by Client 28%
Profitability by Client 22%
Net Revenue Per Sales Rep 17%
Denials by Client 11%
Profitability by Sales Rep 6%
0% 25% 50% 75% 100%
Figure 24: Access to Information
Have Information, Management

Reports, and Key Performance
Indicators to Manage Business
No
Yes 76%
24%
This last metric of access to information is yet another example of how difficult it is for
laboratories to run an entrepreneurial business from within a hospital. Less than 25 percent of
respondents have access to the information that they need to run their business. It’s not hard to
imagine the unrealized potential.
Page | 21
Appendix
Page | 22
Laboratory Type
Table 13: Laboratory Type
# of % of
Laboratory Type Responses Responses
Hospital-based Lab(s) (Full Test Menu) 28 70%

Central/Core Lab(s) for Health System 7 18%
Other1 4 10%
Rapid Response Lab(s) in Hospital (Limited Test Menu) 1 3%
Total 40 100%
1Other responses include: regional reference laboratory, medical laboratory non-diagnostics laboratory, central core lab
with 3 rapid response labs that do more than stat testing, part of a large health system, POL, in-house.
Facility Descriptors
Figure 25: Facility Descriptors
Location Institution Type
Urban
38%
Teaching
Community 13%
Rural Metro
16% 75% Academic
47% 13%
Rural (area population <100,000)

Urban (area population >100,000 but <1 million)
Metropolitan (area population >1 million)
Children's Hospital Ownership
Yes
16%
Not-for-Profit For-Profit
72% 25%
No
84%
Government
3%
Page | 23
Laboratory Test Volume and Operating and Reference Lab

Expenses
Table 14: Laboratory Test Volume and Operating and Reference Lab Expenses
Total Test Volume Sent to

Total Test Volume1 Outside Laboratories
High 11,000,000 High 300,000

Median 1,460,000 Median 34,560
Low 18,000 Low 3,600
Average 2,596,499 Average 66,891
Total Laboratory Operating

Expense2 Total Reference Lab Expense
High $115,000,000 High $7,000,000

Median $10,350,000 Median $1,353,125
Low $114,375 Low $70,000
Average $21,711,122 Average $2,083,459

1Total inpatient, outpatient, and outreach volume, excluding all non-testing
billable volume such as venipunctures, blood products, and interpretations.
2Excluding blood.
FTEs at Primary Laboratory

Table 15: Primary Laboratory FTEs
Total Paid FTEs at Primary

Laboratory
High 650
Median 85
Low 3
Average 125
Page | 24
Characteristics of Outreach Programs

Table 16: Characteristics of Outreach Programs
Number of Full-Time Sales Number of Full-Time Field Number of Freestanding
Reps Service Reps1 Patient Service Centers
High 10.0 High 6.0 High 100.0

Median 1.0 Median 2.0 Median 5.0
Low 0.2 Low 1.0 Low 1.0
Average 2.1 Average 2.5 Average 10.5
Number of Freestanding Stat Number of In-Office Years Outreach Program Has

Labs2 Phlebotomists Been in Place
High 8.0 High 400.0 High 40.0

Median 7.0 Median 4.5 Median 20.0
Low 1.0 Low 1.0 Low 3.0
Average 5.6 Average 36.3 Average 19.6

1Findings based on 11 survey responses.
2Findings based on 5 survey responses.
Page | 25

16th Laboratory and Outreach Survey Findings Final Cle10 v5-3

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16th Laboratory and Outreach Survey Findings Final Cle10 v5-3

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16th Annual National Hospital/

Health System Laboratory and Outreach Survey:

Accumen Inc. | Chi Solutions, Inc.

Respondents that Operate Their Hospital/Health System

Primary Strengths of Hospital/Health System-Based

Quality of Testing 81%

The strengths of hospital/health system-based laboratories remain unchanged with an emphasis

Improvement Opportunities for Hospital/Health System-

Systems to Measure and Manage Quality and Performance 55%

Capacity to Take on Additional Testing

Figure 4: Amount of Capacity for Additional Testing

Blood Utilization Practices/Programs

Does Not Exist 2 5%

Three-quarters of hospitals have significant opportunities to reduce blood utilization, with 74

Test Utilization Practices/Programs

Does Not Exist 8 26%

Only 26 percent of laboratories have sophisticated test utilization management systems. A

Lean Six Sigma Implementation

Do you participate in a benchmarking program that

Figure 6: Benchmarking Program Utilized

From a laboratory perspective, hospital-wide offerings are not as accurate or detailed as a

Table 4: Impact of Benchmarking Against Outreach Peer Group

Metric Standard Peer Group Outreach Peer Group Comment

Unit Cost 30th 73rd Cost of outreach infrastructure

Respondents with Laboratory Outreach Programs

Figure 8: Respondents with Laboratory Outreach Program – Trend

Percentage of Respondents with Lab Outreach Programs

Reasons for Not Developing Laboratory Outreach

Table 5: Reasons for Not Developing Lab Outreach

Not a Priority 1 38%

Not a Priority Measure profitability monthly to see value

Managed Care Issues Leverage hospital/system value to negotiate lab

Table 7: Anticipated Timetable for Developing Lab Outreach

Anticipated Timetable for Developing a

Laboratory Outreach Program Type

Multiple-Hospital Health System 12 46%

Primary Strengths of Outreach Programs

Turnaround Time 70%

*Other responses include: stat testing capability.

Improvement Opportunities for Outreach Programs

Billing and Collections 41%

Primary Laboratory Outreach Competitors

1Other includes: specialty boutique genetic labs, like GeneDx.

Figure 12: Primary Outreach Program Competitors – Five-Year Trend

Quest LabCorp Regional Hospital Outreach Program Regional Independent Laboratory

Market Share Experience versus Competitors

Vs. Quest Diagnostics Vs. LabCorp

Vs. Regional Hospital Outreach Vs. Regional Independent Lab

Losing Gaining/Holding Losing Gaining/Holding

Connectivity System Elements

Electronic Access to Lab Results 95%

Offered Now Implemented Soon

Market Segment Growth Opportunities

0% 20% 40% 60% 80% 100%

Sales and Field Service Representative Compensation and

Satisfied with Sales Rep Satisfied with Field Service

Annual Outreach Net Revenue

Median $12.8 million

Has Your Outreach Provided with Periodic

Figure 19: Analysis of Outreach Profitability – Trend

Has Your Outreach

Yes 2016: 26%

Outreach profitability analysis has decreased dramatically from a high of 60 percent of