Clinical

Laboratory
Management
SECOND EDITION
Clinical
Laboratory
Management
SECOND EDITION

Lynne S. Garcia, EDITOR IN CHIEF

LSG & Associates, Santa Monica, California

EDITORS:

Paul Bachner John C. H. Steele, Jr.

Department of Pathology & Laboratory Medicine, University Clinical Pathology Laboratories, Department of Pathology,
of Kentucky Chandler Medical Center, Lexington, Kentucky Medical College of Georgia, Georgia Regents University,
Augusta, Georgia
Vickie S. Baselski
Clinical Microbiology, University of Tennessee Health Alice S. Weissfeld
Science Center at Memphis, Memphis, Tennessee Microbiology Specialists Inc., Houston, Texas

Michael R. Lewis David S. Wilkinson

Department of Pathology, Fletcher Allen Health Care, Department of Pathology, VCU School of Medicine,
Burlington, Vermont Richmond, Virginia

Andrea J. Linscott Donna M. Wolk

Department of Pathology, Ochsner Medical Center, Clinical Microbiology, Department of Laboratory Medicine,
New Orleans, Louisiana Geisinger Health System, Danville, Pennsylvania, and Wilkes
University, Wilkes-Barre, Pennsylvania
Dale A. Schwab
Nichols Institute, Quest Diagnostics, Inc., San Juan
Capistrano, California

WASHINGTON, DC
 Copyright © 2014 American Society for Microbiology. ASM Press is a registered trademark
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Library of Congress Cataloging-in-Publication Data

Clinical laboratory management / Lynne S. Garcia, editor in chief, LSG & Associates, Santa Monica,
CA ; editors, Paul Bachner, Department of Pathology & Laboratory Medicine, University of
Kentucky Chandler Medical Center, Lexington, KY [and eight others]. — 2nd edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-55581-727-5 — ISBN 978-1-55581-728-2 (e-ISBN) 1. Medical laboratories—
Administration. 2. Pathological laboratories—Administration. I. Garcia, Lynne Shore, editor of
compilation. II. Bachner, Paul, editor of compilation.
[DNLM: 1. Laboratories—organization & administration. 2. Clinical Laboratory Techniques.]
R860.C56 2014
610.72’4—dc23
2013036960
doi:10.1128/9781555817282

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Address editorial correspondence to: ASM Press, 1752 N St., N.W., Washington, DC
20036-2904, USA.

Send orders to: ASM Press, P.O. Box 605, Herndon, VA 20172, USA.

Phone: 800-546-2416; 703-661-1593. Fax: 703-661-1501.

E-mail: [email protected]
Online: http://www.asmscience.org
Contents

Contributors xxiii
Preface xxvii
Acknowledgments xxviii

SECTION I
Basic Concepts and the Current Healthcare Environment 1
1 Principles of Management 3 Organizing 28
Organizational Chart • Time Management • Policies • Procedures •
Jeffrey Casterline and John R. Snyder Workflow • Staffing

Introduction 3 Directing 31
Communicating • Delegating • Motivating • Managing Change •
Leadership, Management, and Administration 4 Coaching
Leadership • Management • Administration
Controlling 35
Management Concepts 6 Setting Performance Standards • Evaluating Employee
Cultural Lag • Review of Management Thought Performance • Problem Solving • Decision Making
Decision Making 11 Summary 38
What Is Decision Making? • Types of Decisions • Individual versus KEY POINTS 38
Group Decision Making • The Problem-Solving/Decision-Making
GLOSSARY 38
Process • Risk
Management Ethics 17 REFERENCES 39
Definitions • Characteristics of High-Ethics Organizations • APPENDIXES 40
Benefits of Strong Workplace Ethics • Management Roles and
Responsibilities
Summary 19
3 Relevant Economic and Business
KEY POINTS 19 Concepts 43
GLOSSARY 19 Roxanne Mercer and Ann L. Harris
REFERENCES 20
OTHER READING 21 Introduction 43
APPENDIX 22 Overview of Laboratory Industry Trends during the Past Decade •
Forecast for the Future
Strategic Business Planning Overview 45
2 Management Functions 23 Market Assessment • Key Strategies
Laurence P. Vetter Competitive Environment 47
Clinical Laboratory Competitive Market • Business Entities,
Introduction 23 Strategic Alliances, Joint Ventures, Mergers and Acquisitions, and
Integrated Networks
Planning 24
Strategic Planning • Selecting a Planning Group • Environmental The Economic Environment 49
Analysis • SWOT Analysis • Vision and Mission Statements • Goals Four Stages of the Business Cycle • The National Economy:
and Strategies • Prioritization • Accountability • Measuring Success Fiscal and Monetary Policies • Assess Infrastructure and Develop
(Metrics) Production Strategies • Cost Accounting Principles • System-Wide

v
vi CONTENTS

Approach to Establishing a Fee Schedule • Consumer Price Index • Regulation of Workplace Safety and Human Resource
Pricing Strategies Management 85
Promotional (Marketing and Sales) Strategies 53 Occupational Safety and Health Administration • American
Market Research • Marketing Strategies • Sales Strategies • National Standards Institute • National Institute of Occupational
Advertising Strategies Safety and Health • CLSI • Centers for Disease Control
and Prevention • Food and Drug Administration • Equal
Customer-Focused Concepts and Service Employment Opportunity Commission • Department of
Strategies 59 Transportation and International Air Transport Association •
Who Is the Customer? • Understanding Customer Behavior • Key Hazard Communication Standard • Blood-Borne Pathogens •
Concepts and Recognized Customer Service Strategies • Service Ergonomics • Tuberculosis • Latex • Sharps • General Laboratory
Delivery Strategies Safety • Chemicals • Transportation of Clinical Specimens •
Summary 64 Employment Discrimination
KEY POINTS 64 Accreditation and Licensure 93
GLOSSARY 65 Brief History • Laboratory Inspection and Accreditation •
Personnel Certification and Licensure
REFERENCES 67
ADDITIONAL READING 68 Regulations Affecting Transfusion Medicine 99
APPENDIX 70 Overview of Changes in Transfusion Medicine that Have Resulted
in Increased Scrutiny • Safety • Regulatory Organizations that
Specifically Impact Transfusion Medicine • Biological Product
Deviation Reporting • The Cost of Increasing Regulatory Oversight
4 Current Challenges to Financial
Regulation of Laboratory Business Practices 109
Stability within the Diagnostic Negotiated Rule-Making Process • Corporate Compliance • Key
Laboratory 71 Elements of a Model Compliance Plan for Hospitals • The Legal
Environment
Roxanne Mercer and David S. Wilkinson
Laboratory Reimbursement and Medical
Introduction 71 Necessity 113
Medicare • Other Federally Funded Programs • National
Workforce 71 Coverage Determination and Local Medical Review Policies •
Availability of Personnel • Training Programs • On-the-Job Reimbursement Methods • Code of Medical Necessity (Reasonable
Training • Recruitment and Retention • Generational Diversity and Necessary Services) • Overview of the Reimbursement Process
Workplace 74 • Registration and Coding • Claims Processing and Submission •
Centralized versus Decentralized Operations • Local and Regional Remittance Advice • Audit and Benchmark Monitors
Integration of Laboratory Services Compliance—the Next Generation: HIPAA 124
Work Flow 76 Covered Entities • Privacy Standards: Rules Governing Protected
New Technology • Testing Site Options Health Information • Administrative Requirements • Personnel
Policies and Procedures • Patient Informed Rights • Business
Doing More with Less 78 Associates and Business Associate Agreements • Standards for
Systematic Approaches to Managing Change • Rightsizing Electronic Transactions • HIPAA Compliance and Enforcement
Shrinking Reimbursement 79 Summary 128
Gross versus Net Revenue • Medicare • Managed Care • Billing KEY POINTS 128
Regulations and Unfunded Mandates 79 GLOSSARY 128
Regulations • Unfunded Mandates REFERENCES 133
Summary 80 APPENDIXES 137
KEY POINTS 80
GLOSSARY 80
REFERENCES 81
6 The Changing Practice of
APPENDIX 83 Medicine 139
Susan D. Roseff, Denise E. Russell, and Margaret
5 The Impact of Regulatory M. Grimes
Requirements 84 Introduction 139
Susan D. Roseff, Denise E. Russell, Christina E. Overview of Major Changes 139
Anderson, and Roxanne Mercer Shift from Inpatient to Outpatient Care • Shift from Centralized
to Decentralized Testing • Shift to Primary Care: Patient-Centered
Introduction 84 Medical Home • Shortages of Qualified Staff • Quality of Care
and Error Reduction • Pay for Performance • Healthcare Reform
Brief History • Overview of the Current State of Laboratory
• Advances in Technology • Wellness and Prevention • The Aging
Regulations
Population • Recognition of Women’s Health Needs
 CONTENTS vii

The Impact of Technology 142 Reimbursement Strategies in a Managed-Care Market • Healthcare

The Electronic Medical Record • Meaningful Use/Value- Stakeholders in a Managed-Care Market
Based Purchasing • Patient Access to Information • Patient Impact of Healthcare Reform 173
Confidentiality • Advances in Diagnostic Testing Patient Protection and Affordable Care Act • Payment Reform and
The Emergence of Clinical Practice Guidelines 144 Provider Reimbursement Strategies • Current Trends and Issues
The Role of Evidence-Based Medicine and Outcomes with Healthcare Reform • Hospitals and Laboratories: Concerns in
Data • Concerns about Utilization and Quality • Clinical Practice Healthcare Reform
Guidelines and Clinical Pathways Defined • Use of Clinical Practice Changing Emphasis on Quality and Value 179
Guidelines • Pros and Cons • Developing Clinical Pathways and Health Maintenance Organization Network Management •
Guidelines Patient Management • Disease Management • Healthcare Reform:
Medicolegal Issues 148 Demonstration Projects
Malpractice Litigation • Patient Safety • Disclosure of Adverse The Educated Consumer 184
Events/CMS Never Events • CMS Serious Reportable Events • Baby Boomers and Generation Xers: The Educated and Savvy
Enterprise Risk Management • Insurance • HIPAA and Patient Consumer • Consumer-Driven Healthcare • The Increasingly
Confidentiality • Contracts • Specimens • Documentation • Litigious Environment
Research Liability
Changing Technology 186
Training Physicians for Practice in the 21st Technological Advances • Direct Consumer Access • Direct Access
Century 153 Testing • Advances in Genetic Testing and Molecular Pathology •
The Educational Goal: The Complete Physician • New Paradigms Personalized Medicine • New Regulations to Address Changing
in Medical Training • Incorporating New Knowledge and Training Technology: HIPAA • Impact of Reform on Electronic Health
Techniques into the Curriculum • Training Physicians for the Records and Meaningful Use
Managed-Care Environment
Consolidation in the Healthcare Industry 198
External Forces Impacting Undergraduate and Overview: Laboratories, Hospitals, Physician Practices,
Graduate Medical Education 156 and Managed-Care Organizations • Integrated Delivery
Finding the Right Mix: How Many Physicians Do We Need? • Systems • Laboratories: Change from Revenue Centers to Cost
Current Challenges to Academic Centers Centers • Internal Consolidation in Hospital Laboratories •
Summary 157 Regional Integrated Laboratory Networks
KEY POINTS 157 Strategies for Success in the 21st Century 200
GLOSSARY 157 Strategic Redesign • Developing System-Wide Thinking and a
REFERENCES 159 Common Culture • Differentiating a Competitive Advantage •
Training Adequate, High-Quality Laboratory Professionals for
APPENDIX 163 the Future Workforce • Moving from Top-Down Management
to Bottom-Up Customer Focus • Evidence-Based Medicine •
Meaningful and Relevant Information
7 The Changing Healthcare Summary 205
Environment 164 KEY POINTS 206
Ann Harris and David S. Wilkinson GLOSSARY 206
REFERENCES 210
Introduction 164 APPENDIXES 214
Changing Reimbursement Models 168
Change from Traditional Indemnity to Managed-Care
Insurance • Four Stages of Managed-Care Market Development •

SECTION II
Managerial Leadership 217
8 The Foundations of The First Foundational Factor Is Integrity 221
The Definition of Integrity • Honoring Your Word • The Pitfalls in
Leadership 219 Honoring Your Word • What Is Your Word? • What Is the Current
David S. Hefner and Katharine R. Becker State of Your Word? • Trust and Its Relationship to Honoring Your
Word • Preparation for Making a Commitment or Giving Your
Word
Introduction 219
Distinguishing Management from Leadership 219 The Second Foundational Factor Is Authenticity 224
The Definition of Authentic • Knowing Yourself • How Do You
What Is “Leadership” and How Do You Become a Leader? •
Respond in Various Situations? • The Importance of Context • The
Management • Leadership
Path to Authenticity
viii CONTENTS

The Third Foundational Factor Is Commitment to Formal Channels of Communication • Informal Channels of
Something Bigger than Yourself 226 Communication
Succeeding as a Leader • What Happens Next? Types (Methods) of Communication 251
Summary 227 Oral (Face-to-Face) Communication • Telephone Communication •
Written Communication • PowerPoint Presentation • Electronic
KEY POINTS 227
Communication • Visual Communication • Body Language and
ACKNOWLEDGMENTS 229 Other Nonverbal Communication
REFERENCES 229
Barriers to Communication 255
APPENDIXES 231
Physical Barriers • Nonverbal Barriers • Verbal Barriers •
Psychological Barriers
9 Employee Needs 232 The Importance of Listening 256
Effective Listening • Ineffective Listening • Stages of Listening
John C. H. Steele, Jr.
Types of Listening 257
Introduction 232 Nonlistener • Marginal Listener • Evaluative Listener • Active
Listener
The Laboratory Workforce—Is There an Approaching
Crisis? 232 Elements of Effective Communication 257
Skills for Effective Communication • Organizational Climate •
Theories of Human Needs 233 Using Body Language • Using Positive Language
Maslow’s Hierarchy of Needs • Alternative Theories
Leadership Essentials for Improving
Meeting Employee Needs 234 Communication 259
Level 1 and 2 Needs • Level 3, 4, and 5 Needs • Higher-Level Needs The Interaction Process • Adapting Communication Styles
The Role of Generational Differences 236 Summary 260
Characteristics of the Generations • Meeting the Needs and Wants
of the Four Generations KEY POINTS 260
GLOSSARY 261
Summary 240
REFERENCES 261
KEY POINTS 240
APPENDIX 263
GLOSSARY 240
REFERENCES 240
APPENDIX 242 12 Effective Meetings 264
Mark G. Hanly
10 Motivating through Intelligent Introduction 264
Leadership 243 Things To Do before the Meeting 265
Christa Pardue Determine If There Is a Need for a Meeting • Determine What
Type of Meeting Is Needed • Develop the Agenda • Use of the
What Is Motivation? 243 Consent Agenda • Determine Whom To Invite to the Meeting •
Determine the Venue of the Meeting • Determine the Technology/
Knowledge of Self 244 Equipment Required for the Success of the Meeting
Creating the Vision • Humility • Basic Needs
Things To Do during the Meeting 268
Knowing What Others See in You 245
Factors of Motivation • The Right People Need the Right Leader • Things To Do after the Meeting 269
Actually Fix the Problems Calculating the Cost of Meetings 269
Knowing the Emotions of Leading 246 Recurrent Meetings 269
Emotional Intelligence • The Need for Purpose • Human How To Be an Effective Participant in a Meeting 269
Motivation Theory
Summary 270
Summary 248 KEY POINTS 270
KEY POINTS 248 GLOSSARY 271
GLOSSARY 248 REFERENCES 271
REFERENCES 249

13 Conflict Management 272

11 Successful Communication 250 Jean Egan
Diane C. Turnbull
Introduction 272
Introduction 250
Conflict Defined 272
Channels of Communication 251
 CONTENTS ix

What Conflict Is and Is Not 273 14 Managing Change 281

Constructive Conflict 273
Kellie Gibbs
Destructive Conflict 273
Common Causes of Conflict 273 Introduction 281
Internal and External Origins of Conflict 274 Key Concepts of Change 282
Internal Sources of Conflict • External Sources of Conflict Types of Change 282
Power Is the Underlying Issue 275 Factors Affecting Change 283
Two Basic Beliefs about Handling a Conflict 275 The Change Curve 283
Five Conflict Resolution Styles 275 Laboratory Change Roles 284
Working with Each Style To Resolve Conflict 276 How To Become an Agent of Change 285
Creating an Environment Where Conflict Is Addressed Why People Resist Change 285
and Resolved 276 Fear • Lack of Trust • Comfort • Perception of Need • Lack of
The Role of the Manager • The Role of the Staff • Creating the Knowledge/Competence • Poor Communication • Exhaustion/
Right Environment To Resolve Conflict Saturation
A Communication Model To Manage and Resolve Forms of Resistance to Change 286
Conflict 277 Steps to Managing Change 286
The GGMG Model Prepare • Implement • Monitor • Sustain • Reevaluate
A Seven-Step Plan for Resolving Conflict 277 Changes that Are Common Today 286
When Conflict Resolution Fails 278 Looking Ahead 286
Key Steps in Resolving Conflict
Paradigm Shifts in Today’s Healthcare Industry 287
What the Organization Can Do 278
Trends and Changes 287
Summary 278
Competing in the Future in the Healthcare Arena 288
KEY POINTS 279
Summary 289
GLOSSARY 279
KEY POINTS 289
REFERENCES 279
GLOSSARY 289
APPENDIX 280
REFERENCES 289
APPENDIX 291

SECTION III
Personnel Management 293
15 Employee Selection 295 Retention 304
Resignation and Termination 305
Anthony S. Kurec
Progressive Discipline 305
Introduction 295 Summary 306
Diversity in the Workplace 296 KEY POINTS 306
Criterion-Based Job Description Requirements 296 GLOSSARY 306
Job Description Review • Minimal Personnel Requirements REFERENCES 306
Search Process 299 APPENDIX 308
Search Committee • Advertising
Interview Process 300
Screening Résumés • Interview Formats • Interview Questions •
16 Performance Appraisals and
Interview “Do’s and Don’ts” Competency Assessment 309
Hiring Process 302 Kari Jones, Diane C. Halstead, and Donna L.
Orientation 302 Oblack
Documentation 304
Introduction 309
x CONTENTS

Performance Appraisals 309 Introduction 373

Definition of Performance Appraisals • Purpose of Performance Definition of a Team 374
Appraisals • Benefits of Performance Appraisals • Appraisal Distinguishing Teams from Work Groups • Types and
Types: Formal and Informal Appraisals • Responsibility for Classifications of Teams • Why Define a “Team” So Precisely?
Developing a Performance Appraisal Program • Legal Aspects
of a Performance Appraisal Program • Elements of a Meaningful Group Process and Teams 376
Formal Performance Appraisal • Competency-Based Appraisals • Guidelines for Choosing Whether To Have Teams 377
Rating Methods • Other Types of Performance Appraisals • Who Common Purpose • Interdependent Tasks • Summary • A
Should Perform the Appraisal? • Preappraisal Preparation • Cautionary Note
Steps to a Successful Performance Appraisal Interview • Benefits
of Becoming a Mentor • Salary Adjustments • Strategies To Selecting Team Members 378
Reinforce Appropriate Behaviors • Guidelines for Appraising Task-Related Training • Team-Related Training
Poor Performers • Dealing with Emotional Outbursts during Leading Teams 381
Performance Appraisals • Completed Performance Appraisal
General Ideas about Leadership: A Brief Review • Leadership in a
Documents • Improvement Plan • Web-Based Software Products
Team Environment • Team Leader Selection
and Websites
Motivating Team Performance 383
Competency Assessment 318
Goal Setting and Performance • Goal Setting and Teams •
Regulatory Foundation for Competency Assessment • Timing Evaluating Teams and Team Members • Pros and Cons of
of Competency Assessment • Methods for Assessment of Rewarding Team Members
Competency • Practices • Personnel Excellence
Virtual Teams 384
Summary 323
KEY POINTS 323 Global Teams 384
GLOSSARY 323 Summary 385
REFERENCES 324 KEY POINTS 385
APPENDIXES 327 GLOSSARY 385
REFERENCES 386
APPENDIXES 388
17 Staffing and Scheduling 362
Patti Medvescek
19 Labor Relations 392
Introduction 362 Lynne S. Garcia
Laboratory Personnel: Current Dynamics Affecting
Staffing 362 Introduction 392
Labor Shortage • Business Need • Increasing Opportunities for Labor Law 393
Medical Technologists National Labor Relations Act (Wagner Act), 1935 • Fair Labor
Personnel Requirements 363 Standards Act (Black Act), 1938 • Labor-Management Relations Act
Education • Training and Competence Assessment • Functional (Taft-Hartley Act) • Labor-Management Reporting and Disclosure
Definitions • Generalist versus Specialist Act (Landrum-Griffin Act) • 1974 Amendments to the NLRA

Laboratory Staffing 365 National Labor Relations Board 395

Staffing Requirements • Basis for Determination: Workload Description • Function • Structure • Processing of Cases •
Recording Authority To Secure Injunctive Relief from a Court • Current Issues
Related to the NLRB
Staff Scheduling 367
Union Structure 396
Key Success Factors • Metrics for Success • Alternatives • Special
Considerations • Flexible Staffing Formal Structure • Union Membership • Function of the Union
Steward
Summary 370
Unionization Process 398
KEY POINTS 379 Individual, Group, and Union Image: Reasons Why Employees Join
GLOSSARY 379 a Union • Relevance for Healthcare Employees
REFERENCES 371
Organizing Campaign 399
APPENDIX 372 Authorization Cards • The Bargaining Unit • Information
Distribution and Solicitation • Election • Certification

18 Teams, Team Process, and Team Collective Bargaining 401

Issues for Bargaining • Preparation Phase • Negotiation Phase •
Building 373 Administration of the Agreement • Management Rights Clause
James W. Bishop, K. Dow Scott, Stephanie Summary 403
Maynard-Patrick, and Lei Wang KEY POINTS 403
GLOSSARY 403
 CONTENTS xi

REFERENCES 405 Preemployment Testing • For Cause/Reasonable Suspicion •

APPENDIXES 406 Random Testing • Return to Duty
Drug Testing Protocol 411
Specimen Collection • Specimen Testing • Cutoff Concentrations •
20 Workplace Drug Testing and the Drug Confirmation • Reporting Results
Clinical Laboratory 408 Managing Clinical and Forensic Drug Testing 415
Jimmy R. Lea Summary 415
KEY POINTS 415
Introduction 408 GLOSSARY 415
Regulated and Nonregulated Testing 409 REFERENCES 416
Whom To Test 409 APPENDIXES 417

SECTION IV
Requirements for Effective Laboratory Management 419
21 Quality Management 421 ISO Background 447
Benefits of the ISO Standards 448
Ron B. Schifman, George S. Cembrowski,
Donna M. Wolk, and Joanne I. Brisbois ISO 9000 Family 448
ISO 15189 449
Introduction 421 ISO Certification Process 449
Quality Management of Preanalytical Processes 422 ISO 15189 and the CAP
Test Selection and Ordering • Quality of Specimen Collection •
Patient and Client Satisfaction • Specimen Transport, Storage, Summary 450
Receipt, and Preanalytical Processing KEY POINTS 450
Quality Management of Analytical Processes 425 REFERENCES 450
Method Selection and Evaluation • Quality Control • Quality
Control Rules • Frequency of Quality Control Analysis •
Specification of MAE • Use of Patient Data for Quality Control • 23 Effective Communication in
External Quality Control (Proficiency Testing) Laboratory Management 451
Quality Management of Postanalytical Processes 436 Elissa Passiment and Andrea J. Linscott
Turnaround Time 436
Corrected and Incomplete Reports 436 Introduction 451
Document Control 437 Delivering the Message 452
Summary 437 Communicating to Diverse Audiences 453
KEY POINTS 438 Means and Mechanics of Effective
GLOSSARY 438 Communication 453
REFERENCES 439 Spoken Word • Written Word • Intradepartmental
Communication • Interdepartmental Communication • External
APPENDIXES 444 Communication
Summary 456
22 International Organization for KEY POINTS 456
GLOSSARY 456
Standardization 447 REFERENCES 456
Anne Marsden and Amy Shahtout
Introduction 447
xii CONTENTS

24 The Laboratory Information 26 Principles of Preanalytic and

System: Making the Most of It Postanalytic Test Management 488
in the Clinical Microbiology Adarsh K. Khalsa, Michael Santa Cruz, and
Laboratory 458 Michael A. Saubolle
Joseph M. Campos Introduction 488
Preanalytic Activities 489
Introduction 458
Test Selection and Implementation • Appropriate Test Utilization •
The Microbiology Laboratory in the 21st Century 459 Specimen Acquisition, Transport, and Storage • Test Ordering
A Primer on Information System Terminology and Postanalytic Activities 498
Architecture 460 The Report • Storage and Retention • Assessment of Test Results on
A Primer on the LIS Patient Outcomes
LIS Interfaces 461 Summary 502
Admission/Discharge/Transfer (ADT) Interface • Order-Entry KEY POINTS 502
Interface • Results-Entry Interface • Instrument Interface • Billing
GLOSSARY 503
Interface • Reference Laboratory Interface • Peripheral Hardware
REFERENCES 503
Laboratory Informatics 463
Laboratory Data Repository • Data-Mining Tools • Connectivity
Miscellaneous Applications 465 27 Selection and Implementation
Preparation of a Periodic Antibiogram • Electronic Surveillance
for Clusters of Hospital-Associated Infections • Unique Device
of New Equipment and
Identifiers Procedures 506
Summary 465 Paula Revell and Lakshmi Chandramohan
KEY POINTS 467
GLOSSARY 467 Introduction 506
REFERENCES 470 Defining the Laboratory’s Requirements 507
Technical/Performance Considerations 508
Physical/Technology Requirements 509
25 Management of Point-of-Care
Human Resources 510
Testing 471 Financial 510
Glen L. Hortin and Christopher D. Doern Confidentiality and Conflict of Interest

Introduction 471 Information Review 511

Organizational Challenges 472 Implementation and Product Placement 511
Political Challenges • Setting Goals for POCT Management • Verification and Validation 512
Developing Management Structures for POCT • Laboratory Verification • Validation
Licensure and Accreditation
Personnel Competency Assessment and Training 512
Operational Challenges 474 Proficiency Testing 512
Determining the Scope of POCT Services • Weighing Alternatives
to POCT • Analyzing Costs and Benefits • Assessing the Impact Summary 513
of POCT Services • Quality Assurance Challenges • Information KEY POINTS 513
Systems and Billing GLOSSARY 513
POCT in Developing Countries and Rural REFERENCES 513
Settings 480
Challenges • Organizing POCT in Resource-Limited Settings
Technological Challenges 481 28 Laboratory Safety 515
Rapid Changes of Menu, Devices, and Technology • Lack of James J. Dunn and David L. Sewell
Equivalence between POCT and Central Laboratory Tests • New
Monitoring Technologies Introduction 515
Summary 483 Safety Management Plan and Responsibilities 516
KEY POINTS 483 Laboratory Hazards 517
GLOSSARY 483 Biological Hazards • Chemical Hazards • Physical Hazards •
REFERENCES 484 Radiation Hazards
APPENDIX 487 Standard Precautions 518
 CONTENTS xiii

Hazard Prevention and Containment 518 29 Emergency Management 545

Risk Assessment • Handwashing • Barrier Protection •
Engineering Controls • Work Practices • Respiratory Protection • Andrea J. Linscott, Patti Medvescek, and David L.
Immunization • Warning Signs and Labels • Biological Safety Sewell
Cabinets and Chemical Fume Hoods
Sterilization and Decontamination 524 Introduction 545
Spill Management 526 Emergency Management Plan 546
Biological • Chemical Purpose or Policy • Hazard Analysis • Incident Management
System
Fire Safety 527
Elements of an EMP 548
Waste Management 527 Emergency Operations Center • Communications • Medical
Regulatory Oversight • Management Program Treatment Areas • Decision To Shut Down Laboratory • Damage
Packaging and Shipping Infectious Substances 528 Assessment • Evacuation • Personnel Pool • Personnel Care •
Infectious Substances Classification • Packaging, Labeling, and Locator System • Security • Training • Monitoring and Evaluation
Shipping Regulated Material Disasters 551
Personnel Training 530 Fire • Hazardous Materials • Radioactive Material • Utility Failure •
Training Program • Methods • Documentation • Monitoring and Bomb Threat • Natural Disasters • Terrorism Threats • Civil
Evaluation Disorder
Summary 533 Summary 553
KEY POINTS 533 KEY POINTS 553
GLOSSARY 533 GLOSSARY 553
REFERENCES 534 REFERENCES 554
APPENDIXES 537 APPENDIXES 555

SECTION V
Financial Management 565
30 Financial Management: Setting Structure of the Clinical Laboratory Industry 576
Size of the Testing Market • Concentration of Competitors •
the Stage 567 Barriers to Entry • Separation of Payor, Purchasing Agent, and
Beneficiary • Economies of Scale • Restrictions on Markups and
Ronald B. Lepoff Kickbacks • Powerful Sellers and Buyers • Substitute Products •
Unique Economics of Inpatient Care • Conclusions
Introduction 567
Competitor Analysis 578
The Hospital Environment 568
Competitors’ Goals • Competitors’ Assumptions • Competitors’
Operating in the Inpatient Hospital Setting • Operating in the
Capabilities • Interactions of Competitors • Conclusions
Outpatient Hospital Setting
Strategic Positions in the Laboratory Industry 580
The Non-Hospital Environment 571
What Are Strategic Positions? • Types of Strategic Positions •
Summary 572 Strategic Positions of Clinical Laboratories • Conclusions
KEY POINTS 572 Implementing the Strategy: Activity Fit 582
GLOSSARY 572 What Is Activity Fit? • Activity Fit Involves Trade-Offs
REFERENCES 572
Failure of Strategy 582
Straddling • Growth Trap • Profitability Trap • Hubris
31 Strategic Planning 573 Summary 584
Paul Valenstein KEY POINTS 584
GLOSSARY 584
Introduction: What Is Strategy? 573 REFERENCES 585
Evidence To Recommend Strategic Planning 574 APPENDIXES 586
Randomized Controlled Trials • Case Studies • Economic Theory
Developing and Maintaining a Business Strategy: The
Strategic Planning Process 575
xiv CONTENTS

32 Human Resources at the Local Cost Accounting 598

Classification of Costs • Behavior of Costs • Measuring Full Cost •
Level: An Important Component of Average versus Marginal Costs • Actual Cost versus Standard
Cost • Costing Issues • A Formula for Developing Laboratory
Financial Management 589 Costs • Laboratory Costing Examples
Washington C. Winn, Jr., Fred Westenfeld, and Break-Even Analysis 600
Michael R. Lewis Equipment Purchase • Capitation Contract

Introduction 589 Capital Acquisition Concepts 605

Time Value of Money • Depreciation
Constraints on Managerial Function 590
Budgeting 698
The Cardinal Rules for Optimizing Performance 591 Types of Budgets • The Budgeting Process • Budget Examples
Get It Right at the Outset • Expect Cooperative Behavior and Best
Possible Performance • Lead by Example • Involve All Members Variance Analysis 610
of the Team • Perceived Fairness Is More Important than Rigid Financial Statements 613
Equality • Maintain Communication in All Directions • Keep Your Financial Ratios
Eyes and Ears Open • Act Quickly and Decisively • When Problems
Surface, Involve the Laboratory Manager Immediately; Involve Summary 615
Human Resources as Appropriate KEY POINTS 616
Classic Situations that May Interfere with Optimal GLOSSARY 616
Performance 593 REFERENCES 617
The Underperforming Employee • The Overperforming
Employee • The Intrusion of Personal Issues • The Underground
Troublemaker • The Cabal • Weakness at the Top 34 Financial Decision Making:
Practical Issues in Utilization of Personnel Putting the Pieces Together 619
Resources 594
Skill Mix of Personnel • Cross-Training and Rotation • Mix of
Ronald J. Bryant and Michael R. Lewis
Employment Arrangements • Coverage of Vacations, Holidays, and
Routine Shifts • Use of Overtime
Introduction 619
Contextual Considerations 619
Summary 595
KEY POINTS 596 Analytical Underpinnings of a Decision 620
GLOSSARY 596 Executing the Plan 620
REFERENCES 596 Summary 620
KEY POINTS 621

33 Costs, Budgeting, and Financial

Decision Making 597
Geoffrey C. Tolzmann and Richard J. Vincent
Introduction 597

SECTION VI
Generation of Revenue 623
35 Correct Coding of Billable Procedure Coding: What Test Procedures Have Been
Performed? 626
Services in the Clinical The CPT System 626
Laboratory 625 Description • Types of CPT Codes • Modifiers • The Process for
Change • Procedure Coding Guidance
Vickie S. Baselski, Alice S. Weissfeld, and Fran
Sorrell Procedure Coding Alternatives 629
Capitated Services 629
Introduction 625
 CONTENTS xv

Diagnosis Coding: Why Is the Service Being Pay for Performance 643
Performed? 630 Summary 643
Inpatient Diagnosis Coding • Outpatient Diagnosis Coding • Other
KEY POINTS 643
Unique Patient Groups • ICD-CM • SNOWMED CT
GLOSSARY 643
Service Location 631 REFERENCES 644
Role of CLIA and State Licensing • Revenue Codes
APPENDIX 645
Documentation of Codes 632
Requisition • Claims • Code Mapping
Summary 632 37 Charges and Fees for Laboratory
KEY POINTS 632 Services 646
GLOSSARY 633 Vickie S. Baselski, Alice S. Weissfeld, and Fran
REFERENCES 634
Sorrell
APPENDIX 635
Introduction 646
36 Approaches to Billing Laboratory Calculating Costs and Charges 646
Setting Costs • Setting Charges
Services 637 Determining Payment Amounts 647
Vickie S. Baselski, Alice S. Weissfeld, and Fran Fee Schedules • Medicare Clinical Laboratory Fee Schedule • Fee
Sorrell Setting for New Codes on the CLFS • The Medicare Physician Fee
Schedule • Other Fee Schedules • Capitated Payments
Introduction 637 Keys to Success in Reimbursement 649
Interactions in the Billing Process 638 Retrospective Payment • Prospective Payment
Provider Mix • Payor Mix Summary 650
Terms of Coverage 640 KEY POINTS 650
Types of Services • Payment for Services GLOSSARY 651
Logistics of the Billing Process 641 REFERENCES 651
Claim versus Invoice Submission • Invoice Billing • Claim Billing APPENDIX 653
Capitated Arrangement Billing 642

SECTION VII
Profitability, Contribution, and Reimbursement 655
38 Rules and Regulations in Special Coverage Conditions 663
End-Stage Renal Disease • Skilled-Nursing Facility • Ambulatory
Reimbursement 657 Payment Classifications • Inpatients • Three-Day Window • Date of
Vickie S. Baselski, Alice S. Weissfeld, and Fran Service Rule • Other Private-Payor Rules
Sorrell Remittance Advice Review 664
Beneficiary Documents • Provider Documents • Auditing
Introduction 657 Remittance Advice
General Criteria 658 Summary 665
Basic Rules 658 KEY POINTS 665
GLOSSARY 665
Procedure Code Edits 659
Basic Edits • National Correct Coding Initiative • Mutually REFERENCES 666
Exclusive Codes • Comprehensive/Component Edits • Medically APPENDIXES 668
Unlikely Edits
Conditions of Coverage 660
Medical Necessity • National Coverage Determination • Local
Coverage Determination • Screening Tests • Experimental Testing •
Administrative Policies
xvi CONTENTS

39 Reimbursement Summary 681

KEY POINTS 681
Compliance 670 GLOSSARY 681
Vickie S. Baselski, Alice S. Weissfeld, and Fran REFERENCES 682
Sorrell APPENDIXES 684

Introduction 670
Improper Payments 671 40 Determination of
Program Integrity 672 Profitability 685
Authority for Program Integrity • Activities in Program Integrity Vickie S. Baselski, Alice S. Weissfeld, and Fran
Payor Integrity 674 Sorrell
Prepayment Review • Postpayment Review
Laboratory Provider Integrity 675 Introduction 685
The Seven Essential Elements • Specific Areas of Concern Pitfalls in Cost Accounting 686
Coding and Billing Issues 676 Laboratory Profitability 686
CPT Coding • Modifiers • ICD-CM Coding • The Requisition • Balance Sheets • Income Statements • Cash Flow Statements
Special Ordering Situations
Key Indicators 687
Medical-Necessity Issues 678 Key Income Indicators • Key Expense Indicators
Record Retention 679 Institutional Profitability 688
Marketing Practices 679 Human Profitability 688
Pricing and Inducements • Ordering Provider and Patient
Laboratory Value 689
Communication
Summary 689
Fraud Alerts and Advisory Opinions 680
KEY POINTS 689
Auditing and Monitoring 680
GLOSSARY 690
Response to Possible Fraud or Abuse 680 REFERENCES 690
Laboratory Examples of Fraud and Abuse 681

SECTION VIII
Outside Marketing and Expansion 693
KEY POINTS 707
41 Outreach Considerations and GLOSSARY 708
Overall Goals 695 REFERENCES 710
Charlene H. Harris APPENDIXES 711

Introduction 695
Considering an Outreach Program 695 42 Outreach Implementation
Administrative Interest • Exploring the Market • Strategic Plan •
Business Plan • Sales Plan
Requirements: A Case Study 740
Frederick L. Kiechle, Jack Shaw, and Joseph E.
Commitment from All Relevant Parties 705
Feasibility Report • Philosophical Understanding • Service and
Skrisson
Financial Support
Introduction 740
Implementing the Outreach Program 706
Outreach Plan Approval Process 741
People • Processes • Facilities • Equipment • Supplies
Barriers to the Plan’s Approval • Consultants to the Rescue •
Outreach Indicators 706 Bureaucratic Simplification Equals Success
Growing the Outreach Program 707 Requirements for Outreach Implementation 743
Market Assessment • Client Needs Sales and Marketing Program • Courier Services: Basics and
Summary 707 Logistics
 CONTENTS xvii

Beaumont Reference Laboratory: 1993 to 2004 747 Information Technology Changes 778
Annual Growth and Its Implications • Projecting Future Volume • Hospital Systems versus Separate Systems • Nonstaff Physicians •
Send-Out Tests • Monitoring Financial Outcome Data Interface • Patient Registration and Accounting Concerns •
Populating the Patient Record • Physician Office Connectivity
Joint Venture Hospital Laboratories 754
History of JVHL • Benefits of BRL’s Affiliation with JVHL Meeting the Needs 780
Capital • FTEs
Summary 755
KEY POINTS 756 Hospital versus Outreach Contracting 780
GLOSSARY 756 Defining Insurance Plans • Contracting • Acceptance of Payors
REFERENCES 756 Failure To Understand Financial Implications and
Requirements 781
Unrelated Business Income Tax • Other Taxes
43 Finance and Decision Making in Understanding the Hospital’s Point of View 781
Outreach 759 Lower Cost per Test • Make Money
Michael G. Bissell and Harry E. Pukay-Martin Translating Hospital and Laboratory Compliance for
an Outreach Operation 782
Introduction 759 Physician Communication • Medicare Secondary Payor
The Clinical Laboratory as a Business • The Phases of the Growth Questionnaires • Physician Acknowledgments • Advance
Curve Beneficiary Notices • Requisition Design • Pricing • Add-On Tests
• National and Local Coverage Policies • Sanctioned Physicians •
Decision Making in Laboratory Outreach Contracts • Audits and Reviews • Participation and Cooperation
Management 760
Enhancing Customer Satisfaction:
Types of Costs 760 Communication 784
Direct and Indirect Costs • Fixed, Variable, and Mixed Costs • Newsletter • Marketing and Sales Team • Laboratory Guidebook •
Unit Costs • Additional Cost Concepts for Decision Making • Website • Focus Group
Characteristics of Laboratory Costs • Microcosting
Customer Satisfaction Assessment 785
Levels of Decision Making in Outreach Surveys • Problem Reporting and Resolution
Operations 763
Menu: To Test or Not To Test • Operation: To Perform In-House or Couriers: The First Line 787
Send Out • Capital: Whether or Not To Acquire New Equipment • Client Services 787
Financing Capital: To Lease or Buy Equipment
Access to Draw Sites and Patient Service Centers 788
Summary 766 Building and Retaining Your Client Base 789
KEY POINTS 766 Leverage the Continuum of Care • Keep Asking Why • Follow Up
GLOSSARY 767 When Clients Leave
REFERENCES 769 Professional Marketing and Sales Personnel 789
APPENDIXES 770 Commission Plans • Reports • Prepackaged Information
Technical Expertise Accessibility 790
44 Outreach: Obstacles to Hospital Accounts That Require Special Care 790
Nursing Homes • Drug Accounts • Home Health Agencies •
Outreach and Enhancing Customer Veterinary Lab Services
Satisfaction 777 Define Service Area and Services 791
Beth H. Deaton Range of Services • The Importance of Standardization
Summary 793
Introduction 777 KEY POINTS 793
Making Organizational Changes 777 GLOSSARY 793
Centralize Work • Place Laboratory Management on Off Shifts REFERENCES 794
Give Outreach Its Due 778 APPENDIXES 795
Make Outreach High-Profile • Manage Outreach as a Business, Not
a Department
xviii CONTENTS

SECTION IX
Clinical Trials and Evidence-Based Laboratory Medicine 807
45 The Current State of the U.S. Food Compliance with HIPAA 822
Compliance with Conflict of Interest Policies 823
and Drug Administration Process Intellectual Property Considerations
and Regulations for Diagnostic GLP and GCP Regulations 825
Laboratory Assays 809 Sponsor Responsibilities • Study Director and Responsibilities •
Quality Assurance Office: Organization, SOPs, Inspections,
Donna M. Wolk, Natalie N. Whitfield, Elizabeth M. Reporting Data • GLP Background • Equipment and Equipment
Marlowe, and Marilyn M. Marshall Validations • Standard Operating Procedures • Reagent and
Solutions: Test and Control Article • Final Research Reports
Introduction 809 Summary 827
Background: The FDA Processes for Classification and KEY POINTS 827
Assessment of New IVDs 810 GLOSSARY 827
Premarket Approval (PMA) • Premarket Notification [510(k)] and
REFERENCES 829
510(k) Review • Alternative Application Submission Approaches •
The Pre-IDE Process • The Expedited Review APPENDIX 831
Miscellaneous FDA Requirements 813
Establishment Registration • Medical Device Listing • Good
Manufacturing Practices and Quality System Regulations • Quality
47 Clinical and Evidence-
Control Based Research in the Clinical
Automated Laboratory Assays 814 Laboratory 832
Postmarket Review 814 Donna M. Wolk
Limitations Inherent to Current FDA Processes 814
Introduction 832
Summary 815
KEY POINTS 815 Types of Studies 833
Observational Studies • Mechanistic Studies • Therapeutic Studies •
GLOSSARY 815
Large-Scale Clinical Trials • Meta-Analysis
REFERENCES 816
Translational Research 833
Sequence of Investigation • Literature Search • Hypothesis
46 The Clinical Trial Laboratory: Generation • Designing the Study To Test the Hypothesis
Biostatistics 835
Research Compliance for Clinical Descriptive Statistics • Inferential Statistics: General Issues for
Research Microbiologists 818 Medical Devices • Other Issues for Diagnostic Studies
Donna M. Wolk and Marilyn M. Marshall Other Research Considerations 837
Systematic Reviews and Laboratory Medicine Best
Introduction 818 Practices 837
Funded Clinical Research in Laboratory Medicine 819 Evidence-Based Laboratory Medicine • Laboratory Medicine Best
Sponsored Projects • Office of Research and Contract Analysis Practices Initiative
(ORCA) Summary 839
Compliance with Human Subject Regulations 820 KEY POINTS 840
Background for Human Subject Regulations • Regulatory GLOSSARY 840
Requirements for Human Subject Protection • Human Subject
REFERENCES 845
Research: Classifications Based on Risk • Human Subject Training
Requirements and Site Authorization • Informed Consent • Special APPENDIX 848
Populations • Continuing Review by the IRB • Records Retention
for HSPPs
 CONTENTS xix

SECTION X
Defining and Measuring Standards for Success 849
48 Benchmarking and Performance Evaluating Potential and Real Problems 877
Clinical Relevance • Cost-Effectiveness Analysis, Cost-Benefit
Monitoring for the Clinical Analysis, and Cost-Utility Analysis
Laboratory 851 Documenting the Extent of the Problem 878
Literature Review • Centralized Studies • Local Data
Lionelle D. Wells, Washington C. Winn, Jr., and
Michael R. Lewis Laboratory-Based Approaches to Control 880
Newsletters • Policy Changes • Personal and Ad Hoc
Introduction 851 Communication • LIS/HIS-Based Controls on Test Ordering • LIS-
Based Feedback in Reports
Why Benchmark? 852
Institution-Based Approaches to Control 882
The Payoff from Benchmarking 852 Working with the Medical Staff • Formal Protocols Validated by
The Basic Steps 852 Medical Staff • Working with the Nursing Staff • The Concept of
Prioritization • Data Collection and Analysis • Development and the Laboratory Test Formulary • Using Major Events To Effect
Implementation of Plans Change (e.g., Institutional Quality Assurance [QA] Office, Root
Cause Analysis)
Where Do We Find Information about
Benchmarks? 853 What Works and Doesn’t Work: How To Take the First
Quality Benchmarks • Financial Benchmarks Steps 884
General Approach to Financial Benchmarking and Putting It All Together 885
Performance Monitoring 854 Base Policy Approaches and LIS/HIS-Based Controls on Evidence-
The Problem of Comparability • The Problem of Cost Based Medicine • Track Results • The Plan, Do, Study, Act Model •
Accounting • Workload Recording • The Search for The Future: Better Teaching and Training
Simplicity • Selection of Indicators for Benchmarking Summary 886
or Performance Monitoring • Problems Associated with KEY POINTS 886
Benchmarking by UOS • UOS Benchmarking in a Competitive
Environment GLOSSARY 887
REFERENCES 887
Measuring Laboratory Financial Performance 857
APPENDIX 889
Performance Monitoring • External Benchmarking
Interpretation of Performance Monitoring Data 862
Summary Measure as Unifying Force • Prerequisites for Effective 50 Benchmarking and Performance
Use of a Summary Measure
Interpretation of External Benchmarking Data 862
Monitoring: What Is Appropriate for
Measuring Laboratory Performance in the Broader
Your Laboratory? 890
Clinical Setting 863 Ronald J. Bryant and Michael R. Lewis
Effect of Accountable Care Organizations • Linkage of Payment to
Measures of Quality • Laboratory-Related Standards in Broader Introduction 890
Accreditation Programs Starting at the Beginning: What To Measure? 891
Summary 865 Where Can We Get Help? 892
KEY POINTS 865 How Will I Fund This? 892
GLOSSARY 865
Evaluation of Data and Monitoring of
REFERENCES 866 Performance 892
APPENDIXES 868
Summary 892
KEY POINTS 893
49 Test Utilization and Clinical GLOSSARY 893
Relevance 876
Michael L. Wilson, Gary W. Procop, and L. Barth
Reller
Introduction 876
xx CONTENTS

SECTION XI
The Future of Clinical Laboratories 895
KEY POINTS 915
51 The Future of Pathology and GLOSSARY 916
Laboratory Medicine: Political, REFERENCES 916
Social, Economic, and Regulatory
Impacts 897 53 Electronic Health Records and
Paul Bachner Their Implications and Opportunities
Introduction 897 for Laboratories 918
The Current Environment of Healthcare 898 Walter H. Henricks
Current Regulations 898
CLIA ’88 • HIPAA • OSHA Standards for Occupational Exposure Introduction 918
to Blood-Borne Pathogens • The Stark Laws Electronic Health Records 919
Liability Considerations 899 Definition and Components • Status of EHR Use
The Future Regulatory Climate under CLIA ’88 900 Federal Regulations Related to EHRs and Their
Personnel Standards and Quality Control Standards • Complexity Implications for Laboratories 920
Categories • Waived Testing • Changes to CLIA and Alternative Meaningful Use: The EHR Incentive Program • Meaningful
Approaches Use Requirements Directly Relevant to Laboratories • EHR
Certification Program: Functional Criteria and Data Standards •
The Impact of HIPAA 901 Certification Criteria and Standards Most Relevant to Laboratories
Laboratory Requirements • The Future of HIPAA
Concerns/Implications for Laboratories Related to
Bioterrorism 901 Increased Use of EHR Systems 922
Recent History • Future Impact Results Management • Test Result Management when Multiple
Long-Term Effects: Legislation, Regulation, Laboratories Serve a Single EHR System • Computerized Provider
Accreditation 902 Order Entry • EHR-LIS Interfaces • Technical Aspects of Interfaces:
Quality, Value, and Patient Safety • The Patient Safety Movement HL7 and LOINC • Operational Challenges for Laboratories with
LIS-EHR Interfaces
Issues Affecting Research and Academic
Laboratories 903 Strategies for Laboratories To Succeed in Laboratory
Stem Cell Research • Biorepositories Information Management in the EHR Era 927
Steps To Increase Involvement and Influence in EHR Processes
Restrictive Patents and Restraints on Use of Human Related to the Laboratory • Tactics for Working with EHR
Tissues 903 Support Staff • Laboratory Involvement in EHR Selection and
Summary 904 Implementation
KEY POINTS 904 Summary 930
GLOSSARY 904 KEY POINTS 930
REFERENCES 905 GLOSSARY 931
APPENDIX 906 REFERENCES 931

52 The Future of the Clinical 54 Current Trends in

Scientist Workforce 907 Instrumentation and Technology:
Diana Mass and John R. Snyder Outlook for the Future 933
Introduction 907 Sheshadri Narayanan and Audrey N. Schuetz
Essential Role in Healthcare • Other Continuing Imperatives
• A New Workforce • Laboratory Paradigms • The Old
Introduction 933
Laboratory • The New Laboratory • The Changing Workforce • Chemistry 934
Creating Conditions of Good Work Core Laboratory • Rapid-Response Laboratory and Point-of-Care
The Changing Nature of Work 913 Testing • Noninvasive Testing
The Consultation Role and Process • Consultant Skills • The Hematology 938
Internal Consultant Automation in the Routine Laboratory
Summary 915
 CONTENTS xxi

Coagulation Laboratory 940 Laboratory Medicine: Origins and Historic

Routine Coagulation • Point-of-Care Testing • Molecular Testing Development 966
Microbiology 943 Clinical Pathology
Molecular Testing Recent Trends in Clinical Practice 967
Blood Bank 948 Increasing Utilization of Laboratory Services • Growth of Point-of-
Care Testing • Increasing Autonomy of Nonphysician Healthcare
Automation • Molecular Testing
Providers • The Electronic Revolution and Clinical Practice
Outlook for the Future 949
Reaction to Recent Trends 969
Driving Forces • Miniaturization and Microfluidics • Biochips •
DNA Sensors Clinical Laboratory Consultation • Teaching Test Strategy and
Interpretation of Results • Future Role of Pathologists and the
Summary 954 Laboratory in Emerging Economic Models • Evidence-Based
KEY POINTS 955 Medicine and Medical Informatics
GLOSSARY 955 Predictions for the 21st Century 971
ACKNOWLEDGMENTS 956 Summary 972
REFERENCES 956 KEY POINTS 972
APPENDIXES 961 GLOSSARY 972
REFERENCES 972
55 The Future Practice of Laboratory
Medicine 966
Paul Bachner and M. Desmond Burke
Introduction 966

Master Glossary 975

Index 1028
Contributors
Christina E. Anderson Lakshmi Chandramohan
Department of Pathology, Virginia Commonwealth Department of Pathology, Baylor College of Medicine,
University Health System, Richmond, VA 23298 Molecular Microbiology Laboratory, Texas Children’s
Hospital, 6621 Fannin St., MC2-2271, Houston, TX 77030
Paul Bachner
Department of Pathology and Laboratory Medicine, Beth H. Deaton
University of Kentucky Chandler Medical Center, Consolidated Lab Services, 600 Gresham Dr., Norfolk, VA
800 Rose St., Room MS 112, Lexington, KY 40536-0298 23507
Vickie S. Baselski
University of Tennessee Health Science Center at Memphis,
Christopher Doern
Children’s Medical Center of Dallas, University of Texas
Clinical Microbiology, 349 Riverbluff Place, Memphis, TN
Southwestern Medical Center, Dallas, TX
38103-4132
Katharine R. Becker James J. Dunn
PLB Ventures and Consulting, 9502 Roe Circle, Franktown, Department of Pathology, Cook Children’s Medical Center,
CO 80116 Fort Worth, TX 76104
James W. Bishop Jean Egan
Department of Management, New Mexico State University, Jean Egan Associates, LLC, 33 Woods Hollow Road, West
Las Cruces, NM 88003 Suffield, CT 06093
Michael G. Bissell Lynne S. Garcia
Ohio State University Medical Center, Room 4173 Graves LSG & Associates, 512 – 12th St., Santa Monica, CA 90402
Hall, 333 W. 10th Ave., Columbus, OH 43210-1239
Joanne I. Brisbois Kellie A. Gibbs
Geisinger Health System, 100 N. Academy Avenue, MCG Health, Inc. dba Georgia Regents Medical Center,
MC 01-31, Danville, PA 17822-0131 BI-2008B, 1120 15th Street, Augusta, GA 30912

Ronald J. Bryant Margaret M. Grimes

University of Vermont Medical Group, Fletcher Allen Health Department of Pathology, Virginia Commonwealth
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington, University Health System, Richmond, VA 23298
VT 05401
Diane C. Halstead
M. Desmond Burke North Florida Pathology, P.A., and Clinical Laboratory
Emeritus Professor of Pathology & Laboratory Medicine, Services, Baptist Medical Center, Jacksonville, FL 32207
Cornell University Medical College, New York, NY 10021
Mark G. Hanly
Joseph M. Campos
SEPALabs, Brunswick, GA 31525, and Department of Pathol-
Children’s National Medical Center and Georgetown
ogy, Southeast Georgia Health System, Brunswick, GA 31520
University Medical Center, Washington, DC
Jeffrey Casterline Ann L. Harris
Department of Pathology and Laboratory Medicine, Drexel Department of Pathology, VCU Medical Center, PO Box
University College of Medicine, 245 N 15th Street / MS 435, 980258, Richmond, VA 23298-0258
Philadelphia, PA 19102
Charlene H. Harris
George S. Cembrowski System Director, Laboratory Services, Sarasota Memorial
Medical Biochemistry, University of Alberta Hospital, Health Care System, 1700 South Tamiami Trail, Sarasota, FL
Edmonton, Alberta, Canada 34239

xxiii
xxiv CONTRIBUTORS

David S. Hefner Diana Mass

Georgia Regents Medical Center and Georgia Regents Clinical Laboratory Sciences Program, School of Life Sciences,
University, 1120 15th Street, Augusta, GA 30912 Arizona State University, Tempe, AZ 85287-4501, and
Associated Laboratory Consultants, 14142 Ridge Canyon
Walter H. Henricks Rd., Valley Center, CA 92082
Center for Pathology Informatics and Pathology and
Laboratory Medicine Institute, Cleveland Clinic, 9500 Euclid Stephanie Maynard-Patrick
Avenue, L21, Cleveland, OH 44195 Department of Management, New Mexico State University,
Las Cruces, NM 88003
Glen L. Hortin
Quest Diagnostics, Tampa, FL 33617 Patti Medvescek
Labor Analytics and Benchmarking, Financial Operations,
Kari Jones Indiana University Health, 950 N. Meridian St., Suite 800,
Anatomic Pathology, MCGHealth, Inc., 1120 15th Street, Indianapolis, IN 46204
Augusta, GA 30912
Roxanne Mercer
Adarsh K. Khalsa Department of Pathology, VCU Medical Center, PO Box
Laboratory Sciences of Arizona, Banner Good Samaritan 980662, Richmond, VA 23298-0662
Medical Center, Phoenix, AZ 85006
Sheshadri Narayanan
Frederick L. Kiechle Dept. of Pathology & Laboratory Medicine, Weill Medical
Pathology Consultants of South Broward, Memorial Health- College of Cornell University, 525 East 68th St., Room F-715,
care System, 3501 Johnson Street, Hollywood, FL 33021 New York, NY 10021
Anthony S. Kurec Donna Oblack
Clinical Associate Professor, Emeritus, SUNY Upstate Cincinnati Department of Veteran Affairs Medical Center,
Medical University, 750 East Adams St., Syracuse, NY 13202 Cincinnati, OH 45220
Jimmy R. Lea Christa Pardue
Forensic Drug Laboratory, Georgia Regents University Laboratory Services, University Health Care Systems, 1350
Medical Center, 1120 15th Street, Augusta, GA 30912 Walton Way, Augusta, GA 30901
Ronald B. Lepoff Elissa Passiment
Department of Pathology, University of Colorado School of ASCLS, 2025 M Street, NW, Suite 800, Washington, DC 20036
Medicine, 12401 East 17th Avenue, Mailstop A022, Aurora,
CO 80045 Gary W. Procop
Department of Molecular Pathology, Cleveland Clinic, 9500
Michael R. Lewis Euclid Avenue / LL2-2, Cleveland, OH 44195
University of Vermont Medical Group, Fletcher Allen Health
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington, Harry E. Pukay-Martin
VT 05401 Department of Pathology, The Ohio State University, 121
Hamilton Hall, 1645 Neil Ave., Columbus, OH 43210
Andrea J. Linscott
Dept. of Pathology, Ochsner Healthcare System, 1514 L. Barth Reller
Jefferson Highway, New Orleans, LA 70121 Departments of Pathology and Medicine, Duke University
School of Medicine, DUMC Box 3938, Research Drive,
Elizabeth M. Marlowe Durham, NC 27710
Regional Reference Laboratories, Southern California
Permanente Medical Group, 11668 Sherman Way, North Paula Revell
Hollywood, CA 91605 Pathology and Pediatrics, Baylor College of Medicine, and
Clinical and Molecular Microbiology Laboratories, Texas
Anne Marsden Children’s Hospital, 6621 Fannin St., MC1-2261, Houston,
Quality Assurance, Quest Diagnostics Nichols Institute, San TX 77030
Juan Capistrano, CA 92690
Susan D. Roseff
Marilyn M. Marshall Department of Pathology, Virginia Commonwealth
Office of Responsible Conduct for Research, University of University Health System, PO Box 980662, Richmond, VA
Arizona, Tucson, AZ 85719 23298-0662
 CONTRIBUTORS xxv

Denise E. Russell Geoffrey C. Tolzmann

Risk Management, Virginia Commonwealth University Dahl-Chase Diagnostic Services, 417 State Street, Suite 540,
Health System, Richmond, VA 23298 Bangor, ME 04401
Michael Santa Cruz Diane C. Turnbull
Laboratory Sciences of Arizona, Banner Gateway Medical Georgia Regents University, 1102 15th Street, Augusta, GA
Center / MD Anderson Cancer Center, Gilbert, AZ 85234 30912

Michael A. Saubolle Paul Valenstein

Laboratory Sciences of Arizona, Banner Good Samaritan IHA Pathology and Laboratory Management, 5301 East
Medical Center, and University of Arizona College of Huron River Dr., Ann Arbor, MI 48106-3058
Medicine, Phoenix, AZ 85006 Laurence P. Vetter
Ron B. Schifman Department of Pathology, Virginia Commonwealth
Diagnostics Service Line, Southern Arizona VA Healthcare University, P.O. Box 980662, Richmond, VA 23298-0662
System, 3601 South 6th Ave. (6-113), Tucson, AZ 85723 Richard J. Vincent
University of Vermont Medical Group, Fletcher Allen Health
Audrey N. Schuetz
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington,
Dept. of Pathology & Laboratory Medicine, Weill Cornell
VT 05401
Medical College/NewYork-Presbyterian Hospital, 525 East
68th St., Room Starr 737C, New York, NY 10065 Lei Wang
Department of Management, The University of Texas
K. Dow Scott Pan-American, Edinburg, TX 78539
Institute of Human Resources and Industrial Relations,
Loyola University Chicago, Chicago, IL 60611 Alice S. Weissfeld
Microbiology Specialists, Inc., 8911 Interchange Drive,
David L. Sewell Houston, TX 77054
Pathology and Laboratory Medicine Service, Veterans
Affairs Medical Center, Department of Pathology, Oregon Lionelle D. Wells
Health and Sciences University, Portland, OR 97239 Center for Disease Detection, San Antonio, TX 78233

Amy Shahtout Fred Westenfeld

Quest Diagnostics, 33608 Ortega Highway, San Juan Department of Pathology and Laboratory Medicine, Fletcher
Capistrano, CA 92690 Allen Health Care, 111 Colchester Avenue, Mailstop
233MP1, Burlington, VT 05401
Jack Shaw
Natalie N. Whitfield
Mednet Services, 1633 Fairlane Circle, Suite 300, Allen Park,
Department of Pathology, University of Arizona Medical
MI 48101
Center, 3601 N. Campbell Avenue, Tucson, AZ 85724-5059
Joseph E. Skrisson David S. Wilkinson
Dynacare Laboratories, 9200 W. Wisconsin Avenue, Department of Pathology, VCU Medical Center, 1101 East
Milwaukee, WI 53226-3596 Marshall Street, P.O. Box 980662, Richmond, VA 23298-0662
John R. Snyder Michael L. Wilson
Ohio State University College of Medicine, 4240 Campus Department of Pathology and Laboratory Services, Denver
Drive, Lima, OH 45804 Health Medical Center, Mail Code #0224, 777 Bannock,
Fran Sorrell Denver, CO 80204-4507
American Esoteric Laboratories, 1701 Century Center Cove, Washington C. Winn
Memphis, TN 38134 (Deceased)
John C. H. Steele, Jr. Donna M. Wolk
Department of Pathology, Georgia Regents University, Room Department of Laboratory Medicine, Geisinger Health System,
BI-2008A, 1120 15th Street, Augusta, GA 30912-3640 100 N. Academy Avenue, MC 01-31, Danville, PA 17822-0131
Preface
The current environment for laboratory medicine and pa- of the financial challenges facing clinical laboratories is
thology continues to undergo dramatic transformation, included, as are discussions on good business practices.
which is influenced by significant changes in the legislative, There is extensive information on the impact of the regu-
regulatory, reimbursement, technologic, sociologic, eco- latory environment on every aspect of clinical laboratory
nomic, communication, and business sectors. The practice practice, as well as personnel management related to all
of all aspects of medicine and allied healthcare requires relevant job classifications. Additional discussions include
new approaches and a much broader range of managerial the changing practice of medicine, managerial leadership,
expertise. Areas in which a laboratory director, manager, the expanding field of point-of-care testing, enhanced in-
or supervisor is expected to understand and perform in- formation systems and security/confidentiality require-
clude fiscal and human resources, patient care testing and ments, reimbursement compliance, outside marketing and
quality performance issues, and overall accountability to expansion, clinical trials and evidence-based medicine,
the facility administration. benchmarking, current trends in instrumentation and
It is very important that individuals working within technology, enhanced consultation though expanded test
the healthcare environment learn to hear, speak, and thor- result reports, and the future of clinical laboratories.
oughly understand the operational language of healthcare The authors are all practicing laboratorians, many of
administration. During the past few years, the fields of lab- whom have had extensive “hands-on” experience in all fac-
oratory medicine and pathology management have seen ets of clinical laboratory practice, including both techni-
many dramatic changes, including those related to qual- cal and managerial responsibilities. Each section is edited
ity assurance, communication, data storage and retrieval, by experienced professionals and includes comprehensive
point-of-care testing, test management, automation, safety coverage, both didactic and practical, of all issues related
and emergency preparedness, regulatory requirements, to clinical laboratory operations.
information confidentiality, billing and coding require- Clinical Laboratory Management, Second Edition, offers
ments, physical space changes, laboratory consolidation, extensive laboratory management information in one re-
shortage of training programs and trained personnel, com- source. Practical examples and numerous summary tables
petency testing, specimen handling and shipping require- are provided to serve as guidelines for relevant documenta-
ments, decrease in reimbursement, demand for increased tion. Various management tools are discussed, particularly
productivity, and increased need for consultation and ed- related to personnel, technical, regulatory, and financial
ucational initiatives for clients. Reactions to the changes responsibilities. This information is relevant for all job
that have occurred in the healthcare environment in recent levels within the laboratory, as well as for all healthcare
years are essentially twofold: increased efforts to contain management and technical training courses. Each chap-
costs and increased demand for appropriate and error-free ter follows the same format, designed to flow easily from
medical care. one section to another. When relevant, chapters contain
The purpose of this text is to provide comprehensive, checklists, work sheets, forms, abbreviations/acronyms,
practical information and guidelines for healthcare man- diagrams, figures, photographs, and specific practical ex-
agement in the 21st century to laboratory directors; man- amples of relevant material.
agers; chief technologists; supervisors; trainees in schools It is important for readers to understand that there are
of healthcare administration, medical laboratory technol- many different laboratory settings; not every laboratory
ogy, and other allied health disciplines; those training for will handle managerial responsibilities the same way, nor
leadership positions; and those studying for board or reg- will every option be applicable to every situation. The key
istry certification in management. This book is designed to quality and clinically relevant laboratory management
both for those who are already actively working in clini- approaches requires a thorough understanding of the pros
cal pathology and clinical laboratory management and for and cons of each approach and how various options may
those who are training to enter these fields. It contains a or may not be relevant for one’s particular laboratory size
comprehensive overview of management principles and and range of expertise, client base, number and type of pa-
how they apply to the clinical laboratory. In-depth analysis tients seen, personnel expertise and availability, equipment

xxvii
xxviii PREFACE

availability, educational initiatives, and communication substitute products or programs. Every effort has been
requirements. made to ensure accuracy; however, ASM Press and the Ed-
The use of product or program names is not intended itors encourage you to submit to us any suggestions, com-
to endorse specific products or programs or to exclude ments, and information on errors found.

Acknowledgments
As editors for the Second Edition of Clinical Laboratory We would like to thank members of the editorial staff of
Management, we would like to express our thanks to the ASM Press, especially Ellie Tupper, Christine Charlip, and
many educators, colleagues, and students who have helped our copyeditors; they are outstanding professionals and
shape our perspectives regarding the field of clinical labo- contributed extensive support throughout the publication
ratory and pathology management. As with the first edi- process. With their help, we all managed to complete the
tion, the aim was to consolidate this information for the task and maintain our sense of humor.
benefit of those working in healthcare and to share our Above all, our special thanks go to our families and col-
knowledge with individuals currently working in labora- leagues for their support, guidance, and advice during this
tory management positions. However, regardless of your extensive project. This Second Edition was very much a
position in the healthcare arena, understanding the man- collaborative effort, and we hope the material will prove
agement challenges and “rules of the game” is beneficial beneficial to the overall healthcare community.
for everyone.
Our special thanks go to the authors for their outstanding Lynne S. Garcia
contributions. All of these individuals have extensive work Paul Bachner, Vickie S. Baselski,
experience in the field and bring this expertise to each chap- Michael R. Lewis, Andrea J. Linscott,
ter. We appreciate the time and energy it took to produce the Dale A. Schwab, John C. H. Steele, Jr.,
Second Edition, knowing that all were extremely busy with Alice S. Weissfeld, David S. Wilkinson,
the day-to-day operations for their current positions. and Donna M. Wolk
Basic Concepts and the Current
I
Healthcare Environment
section editor: David S. Wilkinson
1 Principles of Management
Jeffrey Casterline and John R. Snyder
2 Management Functions
Laurence P. Vetter
3 Relevant Economic and Business Concepts
Roxanne Mercer and Ann L. Harris
4 Current Challenges to Financial Stability within the
Diagnostic Laboratory
Roxanne Mercer and David S. Wilkinson
5 The Impact of Regulatory Requirements
Susan D. Roseff, Christina E. Anderson, Roxanne Mercer, and
Denise E. Russell
6 The Changing Practice of Medicine
Susan D. Roseff, Denise E. Russell, and Margaret M. Grimes
7 The Changing Healthcare Environment
Ann L. Harris and David S. Wilkinson
Introduction
Leadership, Management, and
1 Principles of Management
Administration
Leadership • Management • Administration Jeffrey Casterline and John R. Snyder
Management Concepts
Cultural Lag • Review of Management Thought
Decision Making
What Is Decision Making? • Types of Decisions •
Individual versus Group Decision Making • The
Problem-Solving/Decision-Making Process • Risk
OBJECTIVES
Management Ethics
Definitions • Characteristics of High-Ethics
To familiarize the reader with the concepts of leadership, management, and
Organizations • Benefits of Strong Workplace Ethics • administration
Management Roles and Responsibilities To place modern management ideas in their historical context
Summary To review in general terms the variety of management concepts and philosophy
KEY POINTS in such a way that the reader will feel familiar enough to apply the concepts or
GLOSSARY know where to turn for more information
REFERENCES To learn in general terms the process of decision making and how a decision-
OTHER READING making style is a reflection of one’s leadership style
APPENDIX To consider the issue of management ethics and its positive impact on
the workplace

The new technology will not render managers superfluous or replace them by
more technicians. On the contrary, it will demand many more managers. It will
greatly extend the management area; many people now considered rank-and-file
will have to become capable of doing management work.
Peter Drucker (reference 10, p. 22)

T
he history of humanity could be characterized as the story of our at-
tempts and methods to organize ourselves. Man’s ability to create often
exceeds his ability to manage the fruits of his collective and individual
genius. It is unclear in the historical record just who was the first person to
think through the questions of how to get a job done through other people
and how to convey that message. Intuitively we can think of cave dwellers in
prehistoric times, gathering their effort together to hunt for food or to protect
themselves from other marauding bands of primitive people. Villages became
towns, which grew into large cities. Amalgamations of people and buildings
provide one of the basic challenges of management, and urban management is
one of those areas where the problems humankind can create often exceed the
abilities of those charged with keeping the order.
Modern times require modern solutions. As society has become more
complex, the solutions have become equally complex and sophisticated. The
beginning of this chapter will be devoted to the consideration of leadership
versus management. What do these terms mean? Are they truly different or is
it just semantics? Once we are clear on those points, this chapter will briefly
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia cover the history of management thought, to illustrate that as society and or-
©2014 ASM Press, Washington, DC ganizations have become more complex, the theories to explain group behav-
doi:10.1128/9781555817282.ch1 iors have become similarly complex.

3
4 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

One of the main tasks of management is to decide what done go forward without any distraction. Some leaders
to do and then provide the roadmap of how to get it done. present themselves as an unbreakable connection between
This chapter will devote several pages to the issues sur- those doing the work and the ultimate goal.
rounding decision making and decision theory. Starting at the beginning, what precisely is leadership? Or
Finally, the chapter will devote itself to ethics and ques- perhaps the question to ask is, What is a leader? More often
tions that managers now face in deciding what behavior than not, the definition of leadership is phrased in compara-
may be appropriate not just on the shop floor but also in tive terms: What is leadership versus what is management?
the boardroom. For example, managers are people appointed to positions
Peter Drucker’s quote, at the opening of the chapter, of authority who enable others to do their work effectively.
raises several interesting questions and provides a basic Leadership is one of the roles that a manager needs to exer-
theme for the chapter (reference 10, p. 22). Is our progres- cise. By executing the leadership role, managers get things
sively more technological society eliminating the need done through people. Leadership is modeling the behavior,
for managers? Is the mechanization of the workplace and attitudes, and values that inspire others to work together en-
our society rendering management unnecessary? On the thusiastically (reference 23, p. 30–31). Managers do things
contrary, many more people will absorb basic manage- right. Leaders do the right things. Managers direct, whereas
ment functions into their work lives. Perhaps this can be leaders model and coach. The list goes on.
looked upon as a form of self-empowerment. Individuals We live in a rapidly changing business world that prob-
will have some measure of control over their own work ably requires more leadership and less managing than in
life and what they do on a day-to-day basis. We are the past decades. But organizations must still strike a balance
managers of the machines we operate, and we decide what between change and stability, which means anyone in a po-
role they will play. This is not to say that higher authority sition to influence or direct others must exhibit a balance
will lose its prominence. Rather, strategic direction will be- between leading and managing. If you want to manage,
come the primary focus of upper management, as opposed you’ve got to lead. And if you want to lead, you’ve got to
to hands-on direction of precisely what we are doing and manage. It is important to make the distinction between
how we do it. Maybe another way to say this is that upper leadership and management, and for readers to under-
management must exercise leadership in the modern en- stand that at any given point they may be involved in sev-
terprise if it is to meet its goals and objectives. eral or all of those tasks simultaneously.
A leader can be defined as someone who occupies a de-
Leadership, Management, fined position in a group, influences others in accordance
with the role expectations of the position, and coordinates
and Administration
and directs the group in maintaining itself and reaching its
Leadership goal (38). Leadership, when viewed this way, is a function of
As kids we used to play the game “follow the leader.” Poli- the use of power. The leader has power over his group. Fol-
ticians often talk about the need for leadership or the lack lowers follow because of the perceived power of the leader.
thereof. On the job we hear of individuals who take a leadership Power, as exercised in a leadership model, comes in a
position on an issue or in that organization. We always talk variety of types. One’s leadership style in part is a function
about what is important to us, and considering the amount of the type of power one chooses to use. Expert and infor-
of space and print we devote to this concept, clearly it is a key mational power relates to those skills and knowledge the
concern to many people. Leadership is at once something leader may have and can use to gain influence over others.
that people do and is a key driving force for mankind. Reward and coercive power relates to the ability to reward
A leader is also a piece of fishing line. This may seem a or punish, as a means to gain compliance. Legitimate power
silly analogy, but the role of the leader with bait and tackle is that which is confirmed by the group or the organization
is very similar to the role of the leader in an organiza- itself, such as the elected leadership. And finally, referent
tion. What does a fishing leader do? In some instances, it power refers to those who are influenced by and identify
is designed to be a near-invisible connection between the with the leader. An example here might be a rock star or
heavier fishing line and the lure. Its lack of weight and heft other notable personality (reference 31, p. 465–466).
makes it easier to cast out to where the fish are, and its Most leaders use a combination of the various types
near-invisibility makes it less likely that the fish will see the of power, depending upon their leadership style or what
lure as anything other than a tasty morsel. In other cases is needed at that moment. For example, an authoritarian
the leader is designed to be an indestructible connection leader would use more reward and coercive power than
between the hook and the fishing line. Its toughness means the participative leader, who would use more legitimate
the catch will not be able to bite through it, and coral and or referent power (reference 31, p. 490–492). But no one
rocks will not destroy it. Some “human” leaders maintain leader has or uses the same style at all times. Leadership is
near-invisibility, letting those tasked with getting the job responsive to the needs of the moment. One’s leadership
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 5

style will match what is needed for the group to succeed Management in some ways provides the “what” that needs to
(reference 31, p. 489). be done. The highly informative website LeadersDirect ad-
It is said that great leaders are made, not born (4). There dresses this and many other similar questions (http://www
is considerable evidence and commentary in the literature .leadersdirect.com/whats-a-manager; last accessed April
to support either notion. If you believe leaders are born, 10, 2012). What managers do and what management is are
you accept more or less that there are certain inborn quali- often one and the same.
ties, such as initiative, courage, and intelligence, that might Is there such a thing as a management style? Referring
predestine someone to leadership. Alternatively, one could back to the discussion on leadership, largely this is a function
accept the idea that a leader is a person who was in the of the situation at hand. One of the more prevalent perspec-
right place at the right time. tives on management style comes from Blake and Mouton,
Leadership theory can support either concept. The who as a result of their studies were able to create what is
great man/great woman theory suggests that major events known as the managerial grid (7). This grid places “concern
in the world both draw out and mold the leader, or that for people” on the vertical axis and “concern for task” on the
major events are influenced by persons of power (48). The horizontal axis. Most people fall somewhere in the middle.
trait theory expands on the personal characteristics of the But Blake and Mouton derived four types of leaders who fall
leader. However, knowing that leaders come in all vari- near the extremes of the grid, as shown in Fig. 1.1.
eties and often are as dissimilar as similar, one can only The Authoritarian Manager is highly task-oriented,
think that some traits merely increase the probability of with low concern for people. There is little allowance for
an individual rising to a position of leadership and power cooperation or collaboration. Heavily task-oriented peo-
(reference 4, p. 267). Thus, a situational view is now ac- ple are strong on scheduling and expect people to do what
cepted as the predominant theory, that historical forces they are told with little discussion or debate. When some-
drive great events, and leaders either rise or do not rise thing goes wrong, they tend to focus on blame rather than
to that occasion. The characteristic of the individual and on the problem.
the situation that presents itself determine who will be the Conversely, the Country Club Manager is low task-
leader (2). oriented, with high concern for people. These managers
use reward power to maintain discipline and to encourage
Management their team to achieve its goals. This manager is incapable
What of the leader as a manager? Is management truly a of using coercive powers, because doing so would jeopar-
different task or merely something a leader must attend to dize that manager’s relationship with the group.
in order to be successful? Is management a separate and The Impoverished Manager, with low task and low con-
distinct behavior? Managers in general provide four sepa- cern for people, uses delegation as his or her primary man-
rate but equally important functions: planning, organizing, agement tool and for the most part is not committed to the
controlling, and leading (reference 13, p. 5–6). Each of these accomplishment of the task or maintenance of the group.
concepts will be covered in depth in subsequent chapters. The team does what it wants.
It should be noted that the manager is not necessarily the Finally, the Team Manager is highly task-oriented and
group’s leader. One can influence a group toward reaching maintains a high concern for people. This manager leads
its goals and not be the manager, and the manager can suc-
ceed by letting the informal leader of any group carry on
with the task of motivating the group (44). Managers can Figure 1.1 The managerial grid. Adapted from R. R. Blake and
be very task specific. For example, financial managers fo- J. S. Mouton, The Managerial Grid (Gulf Publishing Company,
cus on generating and reinvesting financial capital. Human Houston, TX, 1964), and J. R. Snyder and D. S. Wilkinson, Manage-
resource managers help recruit staff and oversee labor law ment in Laboratory Medicine, 3rd ed. (Lippincott-Raven Publish-
vis-à-vis the organization where they work. ers, Philadelphia, PA, 1998). doi:10.1128/9781555817282.ch1.f1
One of the basic definitions of management is getting
Country Club Team
things done through other people. Managers prefer to
work with others. Managers provide the resources and the Manager Manager
direction to accomplish the task. Managers decide upon
goals based on necessity and are therefore strongly tied to
the organization as it currently exists (33). Management Concern
has no meaning apart from its goals. Managers therefore
For Impoverished Authoritarian
keep organizational goals in mind at all times. Manage-
ment produces predictability and order. Managers empha- People Manager Manager
size rationality and control. Managers solve problems. In
short, management is an activity that provides structure. Concern for Task
6 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

by example and works at creating an environment where future will be or what it will bring. The concept of cultural
all team members may prosper. The manager works with lag is derived from these notions.
the team to reach its goals as effectively as possible while
also working to strengthen the bonds between the team Cultural Lag
members. By grid design this is the most effective manager What is cultural lag? Here’s a basic definition: “The failure
and leads to the most effective teams. of one element of a culture to keep pace with changes in
But as has been discussed before, management, like lead- other aspects of the culture; e.g. a situation in which rapid
ership, is situational (32). The lieutenant tasked with taking technological change is not accompanied by change in the
a hill may not have the luxury of acting like a Team Manager. non-material culture” (1). Clearly, technological advances
There is a time when discussion and debate have no place. move much faster than the majority of humankind can
Alternatively, while we might look down on the Impover- absorb them. The scale is global. Those who have a tech-
ished Manager as singularly ineffective, using this model nological edge, sometimes referred to as a computerized
may lead to more self-reliance on the part of the team. giant leap forward, will move forward, whereas those who
do not will be left behind. By inference one can see this
Administration applies to individual urban centers, or national economies,
We have talked about leadership and management. What or within global regions. The definition of haves and have-
of administration? Is it something different from the above nots will be focused not as exclusively on material goods
or merely a different word for what managers and leaders as on access to knowledge and the power that goes with it.
do? A Webster’s definition of administer lists first, “to act as This is not a new issue, however. Such has been the case
manager . . . ” and second, “to furnish help or be of service” in one form or another since medieval times and more
(47). Based on that second definition, it is possible to think pointedly with the beginning of the current industrial era.
of administration as an action apart from leadership and Much of the basis of management thought has been how to
management, in that it focuses one’s effort on assistance organize ourselves to match the advances in technology and
and service as opposed to the specific acts that a manager how best to exploit those advances to the betterment of all.
or leader might undertake. A manager and/or leader may
have as his charge the requirement to serve others. But that Review of Management Thought
becomes a task specific to that individual, rather than a Classical theory. The earliest perspectives on management
general charge to managers at large. and management theory were described by a group loosely
One of the primary definitions of administrator refers called classical theorists. Most notably, this group includes
to government and public sector jobs (47). Administration Frederick Taylor and his work on scientific management
by that definition becomes a public service job, much like theory. Additionally, this group includes Henri Fayol and
one would see in academia or healthcare. Thus, adminis- his work on what he referred to as administrative manage-
trators might in fact do different things than managers. ment, and Max Weber and his research into the nature of
This is to say, administration is a subset of management. bureaucracy. This group and others laid the foundation for
Administrators do all those things that make one a man- management theory, in part by identifying the key man-
ager. Administrators have a public service requirement agerial processes and skills a manager needs to succeed.
and commitment that would not necessarily be found in Perhaps most importantly, their work made management
the portfolio of all working managers. a valid subject for academic inquiry.
We have covered quickly some of the basics of leader- Taylor was one of the first to create a science of man-
ship and management and touched briefly on administra- agement (43). He is best known for his attempts to system-
tion. The above topics have been the focus of many books atically analyze human behavior at work. His model was a
and academic treatises. It is left to the reader to explore machine made of cheap interchangeable parts. Taylor at-
these topics further, either elsewhere in this text or in the tempted to do to complex organizations what engineers had
multitude of available reference materials. done to machines. This involved breaking down each task
into the smallest identifiable unit and then figuring out the
best way to do that part of the job. He felt that productivity
Management Concepts would improve if each aspect of work was carefully studied
Above we used the phrase “modern times require mod- and the alternatives facing each worker were restricted. He
ern solutions.” While this phrase is often heard, the real- was correct but has been criticized for dehumanizing the
ity is that for the most part we are using old solutions and workplace and reducing human beings to little more than
methods to deal with current problems. Generals are said machine cogs in the production process. But the principles
always to be fighting the last war. The technology we buy of scientific management had been well defined. Describe
today is already outdated. The feedback loop we work in is and break down each task into its smallest component and
retrospective. We cannot fully plan for or project what the study that task until the best way to do that task is fully
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 7

defined. Remove uncertainty and alternatives facing each • Specific spheres of competence
employee and reward productivity with incentives. Use ex- • Legally based organizational tenure (46)
perts, for example, industrial engineers, to define optimal
work outputs and plan for optimal results. Weber believed that emphasizing order, rationality, and
Fayol identified the four basic management functions: uniformity would lead to more equitable treatment of the
planning, organizing, leading, and controlling. His work fo- workers. He is faulted in some circles for his authoritarian
cused on management more than task and production. He views and the concept that authority is position based and
identified 14 principles of management, universal truths he not focused on the individual. Clearly, however, his work
thought could be taught (reference 13, p. 20–41). They are: moved beyond that of Taylor and Fayol and laid the ground
work for the next generation of management thought.
• Division of work
• Authority Behavioral theory. Despite the economic progress brought
• Discipline about by the implementation of scientific management, as
• Unity of command noted above, many critics were pointing to the dehuman-
ization of the workplace. Labor and management conflict
• Unity of direction
ensued, and worker apathy and boredom were believed to
• Subordination of individual interest be widespread. These concerns, along with developments
• Remuneration in the field of psychology and economics, brought to the
• Centralization forefront challenges to the assumptions of the scientific
management school.
• Chain of command
The Hawthorne studies at a Western Electric plant
• Order were a straightforward attempt to determine if there was
• Equity a relationship between the work environment and produc-
• Stability tivity (28). In one famous experiment, the illumination
in one work area was adjusted and another area acted as
• Initiative
a control. The productivity between the two groups was
• Esprit de corps compared. Curiously, the productivity of each group in-
I will not discuss each principle individually, leaving creased, challenging the assumption that mere physical
that for the reader to explore. These are still taught as the environmental changes were the key. Elton Mayo and his
basics of management, and Fayol’s work remains as perti- associates, who performed the experiments, believed the
nent today and it did early in the 20th century. increase in productivity was a result of increased attention
Max Weber embellished the scientific management paid to both sets of workers. Other studies performed by
theories with his views on bureaucracy and organizational Mayo illustrated that workers will perform at a level in-
theory (46). He focused on dividing organizations into formally set by the work group and that external manage-
hierarchies and on the establishment of lines of authority ment often will have little impact on those decisions. Thus,
and control. He suggested that organizations develop com- Mayo concluded that social processes play a major role in
prehensive and detailed standard operating procedures for determining worker attitudes and behavior, far from the
all routine tasks. Where Fayol before him had laid out his previously accepted notions that workers and tasks could
principle of management, Weber identified the core ele- be parsed out like parts of a machine (28). This led to the
ments of the new organization, the bureaucracy: development of the human relations movement, which is
based on the idea that a manager’s concern for his work-
• Formal rules and behavior defined by those rules ers will lead to increased worker satisfaction and improved
• Uniformity of operations despite changes in personnel performance.
• Division of labor based on functional specialization Shifting the focus from strictly organizational needs,
the human relations movement sought to bring the wants
• Rational allocation of tasks
and needs of the individual worker into the discussion.
• Impersonal orientation American psychologist Abraham Maslow devised his six-
• Membership that constitutes a career level hierarchy of needs that, according to his theory, de-
• Promotion based on technical competence termines human behavior (27). He ranked them as follows:
• Employment based on merit • Physiological
• Tested qualifications • Security and safety
• Legally defined, prescribed lines of authority • Love and feelings of belonging
• Limited discretion of senior management and officers • Prestige and esteem
8 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• Self-fulfillment goods and services, so did the corporation move from “cost
• Curiosity and the need to understand is no object” to a cost-containment, profit-driven mind-
set. The legions of industrial engineers, previously focused
As one level of needs is met, we are able to work toward on industrial efficiency to support the war effort, were now
meeting the next level. If management wants solid, pro- charged with improving corporate efficiency. Who said it
ductive employees, motivated to work at their best, then first is lost in history, but the adage “if it can be measured
every individual must be compensated and supported to it can be managed” took hold, and strong quantitative ap-
the point where his or her basic needs are fulfilled and no proaches were adopted.
longer seem to be a concern. Crucial, of course, is the un- Management science focused very specifically on the de-
derstanding that what would fulfill one person may not velopment of mathematical models (reference 31, p. 49–52).
address another’s perceived needs. Hence, individual at- Early computer applications in this direction centered
tention to each worker is a requirement for management on helping managers find the best way to do things and
to succeed. to save money. Linear programming models and inven-
Douglas McGregor developed his own theory of mo- tory management and control, difficult mathematical
tivation and management, which is referred to as theory concepts, often beyond the ability of a person to com-
X and theory Y (30). In short, behind every management pute within rational time limits, become trivial questions
decision and action are assumptions about human nature when the power of even the simplest of computers is em-
and human behavior. Theory X ascribes to the more nega- ployed. But this also looked very much like the pendulum
tive and perhaps Taylorist concept, that people need direc- was swinging back into Taylorism and the dehumaniza-
tion and control and are incapable of taking responsibility. tion of the organization. Much of senior management in
Individuals all need financial inducements and threats to the post-WWII period was made up of former officers
make them work. Theory Y, on the other hand, presumes and military veterans, who placed their focus on accom-
people want their work to be fulfilling, that they seek self- plishment of the task at hand, often at the expense of the
respect and self-development. Theory Y suggests that work welfare of their employees. Employee work groups could
is a natural human enterprise and that the average person not readily convert to a mathematical problem; hence a
does not dislike work. Effort on the job need not come as a new concept of management needed to be developed to
result of threats, but rather results if the individual is com- bring together the needs of the corporation and the needs
mitted to the organization and its objectives. Satisfaction of the individual.
on the job and self-actualization can be directed toward Operations management was that attempt to develop
the objectives of the organization. Additionally, theory Y a set of tools, applied mathematics and human resource
proponents accept that imagination, ingenuity, and cre- management, to develop techniques to produce products
ativity are not restricted to a narrow group within the or- and services more efficiently (reference 31, p. 49–52). Op-
ganization, but are widespread and only need to be tapped. erations management often includes substantial measure-
Both behaviorist models emerged because previous ment and analysis of internal processes. Ultimately, the
management theory was far too simplistic and did not ad- nature of how operations management is carried out in an
dress the needs of the individual. Maslow and McGregor organization depends very much on the nature of prod-
tried to address individual needs and their relation to the ucts or services in the organization, for example, retail,
needs of the organization (27, 30). From this we were able manufacturing, or wholesale. As with management sci-
to gain some insights into group process and interpersonal ence, though, the focus moved away from the individual
relationships among the workers, and it focused manage- and related more to the organization at large and how it
ment on the needs of employees as people, not just as part interacted within the larger business environment (16).
of the production process. But therein lie some of the limi- Management by objectives (MBO) tried to integrate the
tations of this view. People are complex beings, and it is concept of managing what can be measured while simulta-
never easy to predict what anyone will want at any given neously bringing the individual into focus (reference 10,
moment. Managers themselves often find it easier to focus p. 126–127; 37). At its simplest, in MBO every employee
on process than people. Organizational goals and objec- has a set of objectives to achieve, which together with all
tives are frequently stated in other than human relations other employees in the organization will pull the enter-
terms. Nonetheless, these theories remain at the core of prise toward its overall objectives. All targets are quantifi-
modern human resource management and are still robust able and easily recognizable for their value to the company.
today in their insights and perspectives. Realistically, though, performance management is difficult,
and inevitably the biases and personal agenda of the rater
Quantitative theory. As the world moved out of World may come into play. Key points here are that objectives must
War II and industrial production shifted its focus from mil- be clearly defined, plans for achieving the objective must be
itary hardware and support of national causes to consumer detailed and clear, and there must be ongoing monitoring
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 9

to see if the plans are moving forward (reference 10, p. (24). You keep the entire entity in mind but only focus on
126–127). that which seems most important. You acknowledge you
Thus, the quantitative perspective did push the devel- will be impacting the entire system, but you keep your at-
opment of mathematical techniques for decision making tention directed at that which seems most pressing at that
and the setting of objectives. This modeling methodology moment. Thus, there is no one “best way” to manage an
dramatically increased the awareness of organizational organization. The contingency perspective would say that
processes and assisted greatly in organizational planning. universal theories do not apply to every organization, be-
As with the previous theories, however, human behavior cause every organization is unique. This falls under the
is unpredictable, and following the dictate “garbage in/ subheading of an integrated theory, because it presupposes
garbage out,” mathematical models based on faulty infor- that the decision maker involved will keep in mind that
mation or assumptions will not lead to better management. even though his concern might be on a subsystem of the
larger organization, it is still nested in that larger system.
Integrated theory. With the failure of mathematical mod- As powerful as the above integrated approaches might
eling to fully address management problems, a new, more be, they soon were dwarfed by the emergence of the vari-
holistic view of the organization developed (reference 31, ous total quality management and continuous quality im-
p. 56–57). Speaking generally, the integrated, systems ap- provement models.
proach to management tried to incorporate the best of all W. Edwards Deming is often referred to as the founder
that came before it while trying to maintain a human fo- of the modern quality movement (reference 31, p. 622). An
cus (22). Systems theory represents the merger of many American whose ideas were developed based on Western
ideas from scientific management and the human relations management theory, he gained wide prominence through
movement. It is project-based and strives toward organi- the acceptance of his theories by the Japanese. The Japa-
zational synergy. There are those who would nest systems nese themselves will say that the application of his ideas
theory under the heading of quantitative management. led in great measure to their postwar economic success.
Such an approach misses the point that systems theory is His theories by themselves are very basic and deceptively
all-encompassing, whereas the basics of quantitative man- simple to implement. To start, Deming believed that total
agement are pure mathematics. quality management (TQM) begins at the corporate level
A system here is defined as an organized unit composed (34). The entire enterprise must have a deep and wide-
of two or more interdependent parts, subsystems perhaps, ranging commitment to the continuing improvement of
where the whole can be identified as something separate products and services (19). You can never stand still and
and apart from its surrounding environment (reference say, figuratively, that what you have is good enough. Don’t
31, p. 58). Consider an organization to be a system. It will bother with postproduction inspection as the place to
experience problems, and issues will need to be addressed. identify errors. Inspection and review must be ongoing.
The systems-oriented manager, rather than merely trying Build quality into the production process and the prod-
to manage the problem away, will look at the opportunities uct. Do not rely on low-cost bidding by suppliers. Instead,
a problem might bring and will try to bring all available require true quality, measure quality, and be willing to pay
resources from his organization to bear on the situation. the price for that result. And finally, initiate training pro-
Much of systems theory resembles the scientific method. grams and leadership models to help people do a better
You see a problem to be examined. You hypothesize a solu- job and to empower them to speak out and respond when
tion. You design a controlled experiment to test that hy- problems are detected (reference 39, p. 129). Deming says,
pothesis. You collect and analyze the data. The key here is do this and you’ll produce a better product.
to maintain your focus and attention on the organization More than 40 years after their adoption, these concepts
as a whole (22). You cannot change one part of the sys- seem obvious and basic to modern industrial manage-
tem without affecting all the others. Systems theory might ment. At the time, however, they were revolutionary, and
seem quite basic. Yet it is extremely difficult to examine the their adoption by the Japanese changed the meaning of the
whole of an entity. We are used to breaking down problems phrase “made in Japan” from cheap and poorly made to
into identifiable and workable parts. It should be noted solid and reliably built (reference 39, p. 98–99).
that information system tools to allow a real-time focus on Total quality management, one of the first so-named
an entire organization are only recently available. theories of the quality movement, is a structured system
Into this mix, and possibly in part as a result of the diffi- for satisfying internal and external customers by integrat-
culty of trying to manage the whole, a contingency theory ing the business environment, continuous improvement,
of management emerged. At its most basic, contingency and technological and production breakthroughs (refer-
theory asserts that when managers make decisions, they ence 6, p. 15–37). “Structured” means it is strategy driven
must take into account all aspects of the current situation by the identification of customer wants and needs that
and then act on only those aspects that are most crucial have been determined through ongoing interaction with
10 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

those customers. TQM is a description of the culture, atti- individual employee world, as well as focusing on the or-
tudes, and organization of a company that aims to provide, ganization and production processes.
and continue to provide, its customers with products and Above, it was noted that management by objectives was
services that satisfy their identified needs. It is a corporate one of the most widespread approaches to dealing with
culture that requires quality in all aspects of the company’s individual employees. Taking that notion a step farther
operation, with things done right the first time and defects is the current interest in lifelong learning, also known as
and waste removed from operations. The products are de- continuous lifelong learning (reference 23, p. 332–336).
signed to be quality output, and the manufacturing and The continuous lifelong learning process starts by identi-
product systems follow through to meet that goal. fying where a person is at that moment and where a per-
Consider the differences. Ford Motor Company strove son needs or wants to be. Assessment of the individual is
to become the number one producer of automobiles by an essential part of this self-identification, so that person
determining first what price the consumer would accept can move to the next phase of the process. Phase two has
and then working toward making a car that could be pro- individuals taking over and leading themselves to their
duced for that price. The challenge was not quality. The desired performance level and to the amount of change
challenge was production efficiency and unit cost (ref- they want to achieve. There are several key factors. First,
erence 31, p. 130–131). More or less, you could look at the employer recognizes that crucial to lifelong learning is
the production of Ford cars as a “Taylorism” experiment. the concept that no one individual will necessarily stay in
Divide the work into its smallest parts, make each part his job or with that employer forever. As people learn and
as efficiently as possible, and ramp up production to get grow, they move on to new jobs and experiences. Second,
quantity pricing. On the other hand, consider the produc- individuals can take charge of their lives to reach their full
tion of a Toyota in 1975. Via marketing research, the fo- potential. Self-empowerment is both a result and an em-
cus was on what level of quality the customer expected for ployee need. Third, each individual is accountable for and
every unit of cost (34). Design the product to meet those responsible for his or her individual progress. One might
quality demands. Focus not on through-put but on quality have a mentor. But that mentor is not responsible for the
production at each step. Acknowledge that the customer individual’s growth.
does not want the cheapest car, but rather the best value The connection to the employer and management is that
for the selling price. The attitude shift is from car pro- learning-inspired and -driven employees do better work
duction at whatever the market will bear, to getting the and absorb the total quality management message much
best-quality product onto the market as the best value to more effectively (reference 23, p. 332–336). TQM and CQI
be found. require employees to think and to consider the options
Many organizations have trouble integrating a TQM available to them to work better and more efficiently. Dia-
model into their operations. Fewer than half of those who logue between management and worker is enhanced when
have tried a TQM approach report any improvement in employees think in terms of their jobs as part of a lifelong
quality, productivity, competitiveness, or financial return journey and they are learning and working toward better
(reference 6, p. 6). But that percentage may be deceiving. lives. This is almost a utopian vision but nonetheless is the
The focus should be on successful operations, where many direction in which much of the industrial world is heading.
more than 50% rely upon TQM to maintain their success. Similarly, while on an individual basis the organization
A subset of the TQM movement is often referred to as actively develops its employees to evolve and grow, on a
continuous quality improvement (CQI). What separates product and process basis modern corporations are start-
CQI from TQM is the focus on the employee (21). A CQI ing to work toward a total product life cycle management
approach forces the organization to look at its employees concept. This theory suggests that more than merely fo-
and their work as part of a continuous process. CQI is cusing on a product as a unit at a point in time, the orga-
thought to have a more human face than TQM. This au- nization needs to consider whether that product is in the
thor finds it hard to see the distinction. ascendancy or is fading and adjust the product to the cus-
Whatever acronym you choose to use, the quality man- tomer needs accordingly (5, 18). The marketplace is always
agement approach to production changed forever the way moving forward, and the organization must move forward
manufacturers looked at their world. The focus on cost with it. Product design and production must think through
reduction and profit improvement has been replaced for- the issues of product introduction and placement in the
ever by a focus on the customer and the production of a marketplace, ultimately the disposal and replacement of
quality product that meets the customer’s needs at a rea- that product, and planning for the next generation of prod-
sonable price. uct to meet the customer’s demands and needs. Similar in
many ways to TQM, in which a product design defines its
New concepts. Management theory and thought continue quality and use, the life cycle management theory goes a
to move forward, with ongoing work in the behavioral and step farther to plan for product demise and redefinition as
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 11

customers change their focus to something new. At some can function perfectly, but if the end result is outside of
point the organization will decide to stop making or doing what the customer wants, it is a product defect.
one thing and to move on to another. Life cycle manage- Six Sigma talks of product and process improvement.
ment forces an enterprise early in a product’s life to plan It incorporates many of the features of TQM and CQI
for its replacement (5). Thus, engineering is always think- and also of process reengineering. Loosely, the theory
ing ahead, and employee education always works toward proponents refer to two acronyms: DMAIC (define,
preparing the workforce for the future. measure, analyze, improve, control) and DMADV (de-
Also similarly, process reengineering forces the organi- fine, measure, analyze, design, verify) (reference 3, p.
zation to rethink how it does its work and how it can be 329). Six Sigma process implementation staff are often
done better (reference 41, p. 103–129). Again, this is an ex- referred to as Green Belts and Black Belts, suggesting a
trapolation on TQM and CQI. The difference is that with special, trained status and the aggressive nature by which
TQM and CQI you are always trying to improve what you the measurement and improvement processes are imple-
already do. Process reengineering suggests you entirely mented (reference 3, p. 125–145).
abandon what you are doing now in favor of something Six Sigma is another in the many process and product
entirely new and different (reference 41, p. 174–192). In review methodologies, all with the aim of giving the cus-
the extreme, process reengineering assumes the current tomers what they want. Six Sigma has “raised the bar” on
process to be irrelevant. Thus, start over with a clean slate the definition of product and process quality. Like all man-
and see what you can do. Those subscribing to this theory agement techniques, commitment at all levels of the orga-
think in terms of vision and the future (8). What must we nization is required, and if nothing else, this is the primary
look like at some future point to meet the needs of our cus- message carried in all of the above-described modern and
tomers? What technological changes have taken place that new theories.
we should incorporate to make us better and more respon- To this we can add another layer, Lean Six Sigma, add-
sive? What will our customers expect of us in the future ing a measure of time efficiency to the already established
that we must plan and build toward now? efficient production process. As stated on the Six Sigma
A reengineering given is that technological change has website, “Lean production is aimed at the elimination of
negated all that we do now. Thus, it is not merely a desire waste in every area of production including customer rela-
on our part to change what we do to improve ourselves. tions, product design, supplier networks and factory man-
Changes in technology by themselves have invalidated all agement. Its goal is to incorporate less human effort, less
that we do. Hence, we must rebuild from the beginning to inventory, less time to develop products, and less space
utilize all that is new. Competition in the marketplace says to become highly responsive to customer demand while
new organizations, those that have never used outdated producing top quality products in the most efficient and
methods, are there to surpass you. Thus, finding new ways economical manner possible.” (http://www.isixsigma.com/
to do things, redesigning processes around new technol- new-lean-six-sigma/; last accessed April 10, 2012)
ogy, is central to organizational survival.
Finally, many believe that the customer base we work
with now is much more quality sensitive and driven. Decision Making
Only the best will survive. Defining what is the best is a Most everyone makes many decisions every day. Granted,
current challenge. Six Sigma is one of those approaches. many decisions are small and made almost unconsciously.
A thorough coverage of Six Sigma can be found at the Other decisions are more significant and require more con-
Six Sigma website, which covers in depth all aspects of Six scious effort, time to study, and consideration of the poten-
Sigma. That site defines Six Sigma as a highly disciplined tial consequences. Regardless of the nature of the decision,
process to focus on developing and delivering near- every decision encompasses elements of a basic decision-
perfect products and services (http://www.isixsigma.com/ making process.
new-to-six-sigma/; last accessed April 6, 2012). The word Decision making by laboratory managers is an everyday
sigma is a statistical term that measures how far a given activity. Decision making is a core administrative action
process deviates from perfection. Knowing that deviation, (42). It is a common process that pervades all healthcare
one can predict how many errors and defects there will be organizations and is essential to the managerial func-
in a process; thus you can systematically try to find and tions of planning, organizing, directing, and controlling
remove them. as shown in Fig. 1.2. The best decisions are made based
The Six Sigma website states the following: “Six-Sigma by on “cost-effectiveness (tests we perform or outsource),
definition is not more than 3.4 defects per million events.” productivity (employees we hire), service quality (how we
A Six Sigma defect is further defined as anything outside of organize services), technology (equipment and methods
customer specifications (reference 3, p. 184–202). Thus, it is we purchase), and outcomes (what we accomplish for pa-
not merely an operational or production defect. A process tients)” (20).
12 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Inputs Process Outputs important philosophical and practical differences (35).

Embodied in these differences is an understanding of the
five crucial elements of leadership:
Planning
1. Leadership, like decision making, is a process.
Products 2. The locus of leadership is a person, the “leader.”
Decision
Resources Controlling Organizing 3. The focus of leadership is other individuals or groups
And
Making (followers).
Services 4. Leadership entails influencing.
5. The objective of leadership is good accomplishment
Directing
(40).

Figure 1.2 Decision making: integral to management functions. Pickett’s differences between leaders and managers in
doi:10.1128/9781555817282.ch1.f2 Table 1.1 point to an empowerment of individuals in an or-
ganization so they are better able to participate in decision
making. He notes that empowerment requires “stretching,
Decisions are made by all levels of management with coaching, training giving authority, and implying permis-
resource responsibility. In addition, decisions are made by sion to make mistakes (obviously, this must be judiciously
staff. The latter can also affect efficiency and effectiveness applied)” (35). When people in an organization are em-
in an organization. In fact, sometimes decisions should in- powered decision makers, they think differently, act differ-
volve staff in either data gathering or actually making the ently, and are more energetic.
decision instead of the manager. A common rule of thumb During an interview, a reporter once asked a successful
is that decisions should be made at the lowest possible level executive what the secret to his success was. “Two words,”
in an organization. The closer one is to the information and the executive replied. “Right decisions.” The reporter
effects of a decision, the higher the quality of that decision. probed for more information, asking, “How are right
This section on decision making begins with a defini- decisions made?” The executive replied, “One word—
tion and review of the leadership role in decision making. experience.” “But how did you get this experience?” asked
Different types of decisions are described and contrasted, the reporter. “Two words,” replied the executive. “Wrong
followed by a discussion of group involvement in decision decisions.” Experience is a powerful teacher.
making. Steps in the decision-making/problem-solving
process are dissected to avoid pitfalls and improve skills. Types of Decisions
Finally, the element of risk in decision making is explored. Decisions can be studied and classified from a number of
perspectives (9). Some decisions are strategic or tactical—
What Is Decision Making? the former focusing on the means to reach a goal, the latter
Concisely, decision making is the act of choosing one al- focusing on steps or objectives to be accomplished. Some
ternative from among a set of alternatives. This act is com- decisions are administrative, requiring substantial resource
plex, however. Inherent in this definition is an awareness commitment; other decisions are operational, dealing with
that a decision needs to be made, that alternatives need to day-to-day activities. Some decisions are programmed be-
be developed and considered, and that one “best” alterna- cause they are routine and repetitive in nature. Other deci-
tive is chosen and implemented. Consequently, the “act” of sions are termed nonprogrammed because they are novel
decision making is more appropriately termed a “process,” and unstructured. Still other decisions are individual or
as will be described later. group, differentiated by who makes the decision.
The science of decision making, as described in the
literature, applies models based on deductive, inductive, Table 1.1 Emergence of management theories
analytical, and simulation approaches. These models note Emergence Theory
that decision making is a deliberate process, differentiat-
1940s Operations management
ing managerial decisions from habit and reflex. Decision
1950s Systems theory
making also has an artistic side, drawing on the decision
Management by objectives
maker’s creativity and judgment. In addition, managers
often base their decisions on personal or organizational Total quality management
value systems and philosophies. Continuous quality improvement
Recent reports have looked at decision making as a 1980s Six Sigma
“window” into leadership style and leadership effective- Lean
ness. Indeed, the distinction between managers’ and lead- 1990s Process reengineering
ers’ decision making, as shown in Table 1.1, points to 2000s Lean Six Sigma
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 13

Strategic decisions are concerned with an organization’s Individual versus Group Decision Making
relationships with the external environment, the choice Individual versus group decision making has received
of a competitive posture, and the formulation of major much attention in the management literature. By ap-
policies (26). The goal is to arrive at the best plan for the pointment to a position, the manager has the authority
organization, given operational, economic, logistical, and and power to make certain decisions. If managers were
political constraints. Examples include mergers, expan- all-knowing and highly creative, and if the workplace was
sions into new markets, and off-site testing facilities. not a complex environment, perhaps the involvement of
Tactical decisions are, as the name implies, tactics or subordinates in decision making would be less important.
steps for implementing the organizational strategy. These But all managers have limitations; the work environment
can be categorized further as administrative decisions or is complex; and some of the necessary information and
operational decisions. Administrative decisions deal with creativity to reach a high-quality decision resides with the
authority, responsibility, and accountability relationships. subordinates.
Operational decisions handle the routine, day-to-day prob- The involvement of groups in decision making adds
lems in accomplishing work. both benefits and liabilities. Groups tend to make more
Decisions may also be classified as programmed or accurate decisions compared to individual decisions,
nonprogrammed. Programmed decisions are fairly struc- although reaching a group decision is slower. Social
tured and recur with some frequency (9). For example, the interaction in group decision making tends to foster com-
decision to reorder supplies and reagents for the labora- petition among members for respect, provide social sup-
tory is a programmed decision. Structure exists in terms port, and self-correct errors that might occur when an
of quantity to order, purchase requisition process, etc. This individual is making the decision alone. Group decision-
decision is made on a recurring basis. Programmed deci- making dynamics sometimes are counterproductive, how-
sions are guided by rules, policies, and procedures. ever. When not constrained by a mandate to reach a group
By contrast, nonprogrammed decisions are relatively decision, individuals tend to produce more ideas, more
unstructured, in part because they occur infrequently (9). unique ideas, and better ideas. Generally, people accept
Situations that have never arisen exactly like the present better decisions reached by a group versus an individual if
or are very complex usually do not have procedures to they feel their participation in the decision was considered
guide the decision-making process. Some years ago when and valued. Obviously, acceptance of a decision is key to
the concept of core laboratories was introduced, the deci- commitment and implementation.
sions necessary to plan these high-volume, cross-specialty Vroom and Jago (45) have shared their insight into the
facilities were unstructured, hence nonprogrammed. A de- question of whether a decision should be made by the indi-
cision today to purchase experimental equipment is a non- vidual manager or with involvement of the affected group
programmed decision. Nonprogrammed decisions require of employees. Originally researched by Vroom and Yetton,
intuition, creativity, and a tolerance for ambiguity. these insights take into account three criteria: (1) quality
A manager’s natural tendency toward decision making or rationality of the decision, (2) acceptance or commitment
prompts two more decision types: intuitive decisions and of subordinates to implement the decision, and (3) time re-
judgmental decisions. Intuitive decisions are made using quired to make a decision.
hunches, subjective values, and personal or emotional fac- Vroom and Yetton’s decision-making model identified
tors. A manager who becomes impatient with the time it seven rules to protect the quality and acceptance of a de-
takes to gather information and sort through details, may cision, as shown in Table 1.2. Adherence to these rules,
make an intuitive decision. The manager’s decision can- and guidance about when to involve groups in decision
not be readily explained by looking for details but is more making, are aided by the corresponding questions shown
likely rationalized by a perception of the “big picture,” a in this table. Before considering each rule, it is important
holistic view of the situation. Individuals who tend to to answer the first question, “Does the problem possess a
make intuitive decisions believe creativity comes from in- quality requirement?” Management decisions are rarely
spiration rather than perspiration. right or wrong in a “black or white” sense; many decisions
Most laboratory managers with education and experi- are simply better than others—hence a higher-quality de-
ence in clinical laboratory science tend to make judgmen- cision. For example, a manager can make the fairly simple
tal decisions. These decisions are reached after data are decision of who will staff which holidays simply on a basis
gathered, facts analyzed, and concrete examples explored. of who is available and the number of staff needed. But is
Judgmental decisions rely on objective analysis and ratio- this the best decision, the highest-quality decision? Likely
nal procedures. For those decision makers who tend to not, since certain holidays are more important to some
make judgmental decisions predominantly, creativity is employees than to others. Decisions affecting employees
really perspiration. The potential danger of “analysis pa- directly often have a quality element that carries over to
ralysis” is a real threat. affect both acceptance and commitment.
14 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 1.2 Decision-making differences between leaders and managersa

Characteristic Leader Manager
Vision Search for long-term opportunities Maximize current opportunities
Communication Tell people why we are doing Tell people what to do; listen to have an effect;
something listen for understanding
Question(s) asked Why? How? What?
Planning An opportunity to excite, educate, A path to follow
prepare for future
Power Something to share and use for the Something to have and use
goal of the group
Problem-solving style Something to learn from, opportunity Something to solve, to fix
for growth
Perceived role Integrator; maker of decision makers Controller or decision maker
a
Adapted from reference 35.

Each of Vroom and Yetton’s seven rules to protect qual- 6. The conflict rule poses the question of whether there
ity and acceptance identifies specific concerns in decision will be disagreement among subordinates about which
making (45) (see Table 1.3): is the best solution.
7. The fairness rule considers how subordinates will per-
1. The leader information rule raises the question of
ceive their involvement and opportunity to air and re-
whether the manager has sufficient information or ex-
solve differences in reaching a decision.
pertise to solve the problem himself. Some level of
group involvement, only if it is seeking information, The decision styles illustrated in Fig. 1.3 show Vroom
may be necessary to protect the quality of the decision. and Yetton’s continuum from total management prerogative
2. The unstructured problem rule asks whether this is a when an autocratic decision is made, through group involve-
programmed or nonprogrammed decision, i.e., has it ment in a consultative process, to more employee prerogative
been solved before and are there already rules, policies, in the group having responsibility for a decision. A review
and procedures to guide decision making. of the code descriptions (AI and AII for autocratic, CI and
3. The acceptance rule asks whether subordinates’ com- CII for consultative, and GI and GII for group) reveals the
mitment to the decision is key to implementation. subtle differences in approaches. For example, the consulta-
4. The acceptance priority rule asks whether subordi- tive approach may be done by the manager sharing the prob-
nates will be committed to the decision if it is made lem with employees one at a time to seek their input or all
autocratically by the manager. employees at the same time. The latter approach will have
5. The goal congruence rule queries whether subordi- both the benefits and limitations of group social interaction.
nates share (agree with and hence will be committed Figure 1.3 also attempts to capture the essence of accep-
to) organizational goals to be reached by solving the tance or commitment and time criteria. When a decision
problem. is made predominantly through management prerogative,

Table 1.3 Concerns in decision making a

Parameter Rules Question(s)
Quality 1. Leader information rule Does the problem possess a quality requirement?
Do I have sufficient information to make a high-quality
decision?
2. Unstructured problem rule Is the problem structured?
Acceptance 3. Acceptance rule Is acceptance of the decision by subordinates important
for effective implementation?
4. Acceptance priority rule If I were to make the decision by myself, am I reasonably
certain that it would be accepted by my subordinates?
Quality and acceptance 5. Goal congruence rule Do subordinates share the organizational goals to be
attained in solving the problem?
6. Conflict rule Is conflict among subordinates likely in a preferred
solution?
7. Fairness rule
a
See reference 45.
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 15

AI AII CI CII GI GII

resistance to acceptance and commitment is highest, but
the decision is made in the least amount of time. By con-
Subordinate trast, greater employee prerogative in making a group de-
Resistance
cision requires more time to reach the decision but results
in less resistance.
To Change In healthcare, group involvement in decision making
has become popular as a form of participative manage-
ment or shared governance. Shared governance models,
Time to
ranging from interdisciplinary committees to self-directed
work teams, attempt to develop group structures where
Make members have “power, authority, accountability and final
Decision decision-making capacity” (36). Often these groups are
created around functions, such as patient care or practice
operations or education. Gill points out that it is important
Figure 1.3 Continuum of decision styles. AI, You solve the for the manager to understand how different groups in-
problem or make the decision yourself, using information avail- teract, communicate, and influence individuals within the
able to you. AII, You solve the problem or make the decision group, to effectively facilitate group decision making (14).
yourself, using information from subordinates. They may or Moreover, it is important for the manager to have a level of
may not be aware of the decision-making process and their role understanding about individual preferences and strengths
in it. CI, You share the problem with relevant subordinates indi- as a contributor to group decision making. Drucker points
vidually, getting their ideas. Then you make the decision your- out that “a great many people perform best as advisors,
self, accepting or rejecting subordinate advice. CII, You share but cannot take the burden and pressure of the decision.
the problem with relevant subordinates at a group meeting, get-
A good many people, by contrast, need an advisor to force
ting their ideas. Then you make the decision yourself, accepting
or rejecting subordinate advice. GI, You share the problem with
themselves to think, but then they can take the decision and
subordinates individually, and together analyze the problem and act on it with speed, self-confidence, and courage” (12).
arrive at a mutual solution. You both contribute. GII, You share
the problem with relevant subordinates at a group meeting and The Problem-Solving/Decision-Making Process
together analyze the problem and arrive at a group decision. You
do not try to influence the group, and you are willing to accept While it is true that decisions are choices, decision mak-
and implement what the group recommends. DI (not shown in ing and problem solving are indeed a process of steps, as
figure), You delegate the problem to a subordinate, providing shown in Fig. 1.4. Definition of these steps, a dissection of
him with relevant information and giving him sole responsibil- the anatomy of a decision if you will, points to the value
ity for the problem. doi:10.1128/9781555817282.ch1.f4 and potential pitfalls in reaching a high-quality decision

Implement solution and follow up Figure 1.4 Problem-solving/decision-making

consequences process. doi:10.1128/9781555817282.ch1.f4
5

Identify problem
Select best or determine
alternative 4 1 objectives

Develop and Gather facts and

evaluate alternate evaluate information
solutions or options 3 2

Judgments Perceptions

Thinking Feeling Sensing Intuition

16 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

whether made by an individual or group (29). True, many • Step 5: Implement solution and follow up consequences.
decisions can be made quickly with little attention to the The chosen alternative is implemented, and over
steps along the process. The more complex the problem, time the manager determines if the problem has been
and the more mission-critical the objectives, the more im- solved or the objectives met. The potential pitfall here
portant each step is to reaching a successful, high-quality is to ensure that once the chosen alternative is imple-
decision. McConnell notes that “one of the greatest trouble mented, the process is complete. Two key questions
spots in decision-making exists because of the human ten- need to be answered: (1) Did the chosen alternative
dency to move from observation to conclusion on limited work? (2) Are there unintended consequences to the
information” (29). decision that now must be addressed?
• Step 1: Identify the problem or determine the objectives. The problem-solving/decision-making process de-
Identifying the problem requires a manager to first di- scribed is illustrated as a continuous circle of events (42).
agnose the situation. Too often a symptom of the prob- First, because the steps often overlap in practice, a man-
lem is misidentified as the root cause. For example, a ager may be simultaneously gathering information while
manager who identifies poor morale in the laboratory still identifying the problem, or evaluating information
has misdiagnosed the situation. Poor morale is a symp- while developing alternatives, for example. Second, the
tom of an underlying problem. The range of root connection of all steps leading back to solving the identi-
causes could be low pay, unappreciative supervisors, or fied problem or meeting the intended objectives is impor-
lack of respect from coworkers, among other causes. tant to “closing the loop.”
Failure to define the problem in step 1 will negate all
subsequent steps to solve the problem. Similarly, clear
definition of objectives for a decision provides a con- Risk
stant point of reference when subsequently gathering All decisions involve some element of risk. Risk is based
information and developing alternatives. on uncertainty. The greater the outcome uncertainty of
the alternative chosen, the greater the risk. Managers must
• Step 2: Gather facts and evaluate information. At this
carefully weigh both the tangible and intangible elements
step, the manager will learn whether he is dealing
of risk to arrive at a comfortable level of certainty. Often,
with a programmed or nonprogrammed decision. Are
competing elements contribute to risk. A manager who
there rules, policies, and procedures that need to be
recognizes a staff salary inequity chooses between the risk
followed? Has someone already solved this problem,
of alienating upper administration by pressing for equity
and if so, how similar are the characteristics to this
or incurring cost from employee turnover.
situation? Is there a need to get group input, and if so,
A manager’s decisions can be influenced significantly by
individually or collectively, and from whom? Figure
both his own and his organization’s propensity for risk. A
1.4 shows the influence of the manager’s perceptions
manager with a high propensity for taking risks with deci-
of information gathered as data are evaluated. The
sions in an organizational culture with a low propensity for
natural tendencies to either rely on the five senses to
risk will likely experience problems. Both a personal and
identify factual details (sensing) or to use hunches
organizational comfort level must be achieved. Clearly, the
and a more holistic view (intuition) will be part of
manager must be aware of his own personal attributes re-
this step.
garding risk level: one’s propensity for risk may lead to an
• Step 3: Develop and evaluate alternative solutions and underestimate of the actual risk or an overconfidence to
options. Some possible solutions will be obvious; overcome the risk.
other solutions will be more creative. The tendency to Time available or consumed in decision making can be
quickly adopt the first viable solution may be time ef- viewed as a risk. For some, there is never enough informa-
ficient but lead to a lower-quality decision or solution. tion to reach a comfortable level of risk, leading to what
In general, the more important the decision, the more some call “analysis paralysis.” For others, making a quick de-
alternatives should be developed. At this step, as shown cision increases the risk of a less-than-high-quality decision.
in Fig. 1.4, the evaluation of options will be influenced Some elements of risk lie in the behavioral factors of
by the judgments of the decision maker. The use of risk takers. Hammond et al. identify these as psychological
both subjective values and objective analysis will lead traps (17):
to a better sorting of potential options.
• Step 4: Select the best alternative. After considering • Anchoring trap. Placing disproportionate weight on
each option in light of the situation or objectives to first or more superficial information found during in-
be achieved, the manager chooses the one most likely formation gathering
to be the highest quality with the greatest acceptance • Status-quo trap. A bias toward doing what you’ve al-
within the time available for decision making. ways done despite better alternatives
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 17

• Sunk-cost trap. Tendency to perpetuate mistakes of the management theory referred to the contingency theory in
past management, that there is no one right way to approach
• Confirming evidence trap. Bias toward information and a problem (24). One must focus on the situation at hand,
judgment that supports an existing predilection and that will lead to a resolution of that particular problem.
A relativistic approach to ethics would say the same thing.
• Framing trap. Misstating the problem, focusing on a There are no moral absolutes—only the most ethical ap-
symptom proach to a situation at that moment.
• Overconfidence trap. Overestimation of accuracy of Is the definition of “business ethics” any different? Per-
information haps not. Business ethics refers to doing what is right or
• Prudence trap. Being overcautious about the degree of wrong in the workplace and doing what is right in relation
risk to products, services, and the various stakeholders (refer-
ence 11, p. 366). Business ethics most directly connects
• Recallability trap. Placing undue weight on recent, dra- to one’s customers, rather than abstractions such as the
matic experiences community, an open question, or a political issue. It is this
Good decision making relies on knowledge of both the direct connection to the practical aspects of running an
importance and components of the process. It requires an enterprise that makes business ethics different and worthy
awareness of personal skills to determine the best way to of separate consideration.
reach the highest-quality decision with the greatest accep- Speaking generally, business ethics problems center on
tance in the amount of time available. Good decision mak- two main themes: managerial mischief and “moral mazes”
ing requires experience and learning from one’s mistakes (reference 23, p. 255). Managerial mischief refers to illegal
(reference 23, p. 66–68). Good decision making requires or questionable practices of individual managers or orga-
the ability to reflect on information, then decide (15, 25). nizations, as well as the causes of those behaviors. Note that
it is individuals, and not organizations, that are the issue.
An individual cannot hide behind the cloak of an orga-
Management Ethics nizational policy. Organizations are groups of people, and
It is far too easy in these complex times to presume that you people decide what is to be done or not done (reference 23,
or your employees will always know how to do the right p. 255). Most of the focus on ethics has centered on this
thing. The dictates that we have often heard—follow the issue and how to approach these problems. Whistleblower
golden rule, or that Druckerism, “do the right things”— policies and laws most likely spring from this area of con-
are hard to follow when the issues we face are not that easy cern. Perhaps it is comparatively easy to legislate and regu-
to understand or do not readily gel with our value systems. late business behavior to meet ethical standards. Indeed,
Most discussions of ethics and morals are couched in phil- the law and the generation of regulation are in some ways
osophical or sociological terms. Indeed, the study of ethics a societal method of imposing standards of action and be-
remains for the most part an academic discipline, and thus havior on the organization and its individuals.
the management literature on the subject is sparse. The lit- Moral mazes, on the other hand, are not so clear and
erature that can be found is often simplistic, since many not so easily handled. A moral maze refers to the numerous
business leaders until recently thought the topic irrelevant. and unclear ethical issues a manager faces in everyday work
Ethics is, however, a very relevant issue in modern man- life (reference 11, p. 347–348). Examples here might be real
agement. And every organization should espouse and live conflicts of interest, wrongful use of resources, or misman-
a clearly understood set of moral values and maintain the agement of contracts. What is right and what is wrong is
highest possible standards. The Complete Guide to Eth- not always clear in a competitive work environment. Seek-
ics, an Internet guide, provides an excellent resource for all ing competitive advantage might mean “bending the rules”
matters relating to business and managerial ethics (http:// in accounting for expenses or in researching a competitor’s
www.managementhelp.org/businessethics/ethics-guide products and services. Are accounting standards flexible or
.htm; last accessed July 8, 2013). inflexible? Is it unethical to stretch the boundaries of ac-
counting principles if it fits your economic model? Is indus-
Definitions trial espionage unethical? As you can see, moral absolutes
Ethics, speaking simply, involves learning what is right and in these situations are not easy to find. A random group
wrong. At an early age each of us learned these lessons from of managers, employees, or other stakeholders might read
parents and other caregivers (reference 31, p. 86). Much of these questions from very different perspectives and hence
the argument one hears about ethics revolves around ab- derive very different answers (reference 11, p. 348). None
solutism versus relativism. Is there always the right thing of the answers would be wrong, necessarily, but the differ-
to do based on moral principles, or does the situation ences of opinion, like political questions, would raise many
drive the ethics question? Above, part of the discussion on issues beyond the questions at hand.
18 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Conflict of interest can be seen as a version of the Benefits of Strong Workplace Ethics
moral maze. Most everyone wants to help those close to Aside from the desire to do what is right, and perhaps that
him or her. When does a form of aid prove to be a bad is a good enough reason in itself, why should an organiza-
choice? Generically, conflict of interest is a situation in tion devote so much time and energy to an ethics program?
which a person, such as a public official, an employee, or To start, business ethics has improved society for all of us
a professional, has a private or personal interest sufficient (reference 23, p. 339). Thinking back to the time period
to appear to influence the objective exercise of his or her of the business robber barons, where anything and every-
duties. Conflict of interest can involve anyone and is not thing was and could be done to promote one’s competitive
limited to officials or politicians. Obligation to your orga- edge, worker safety was often compromised, sweatshops
nization and its stakeholders must be viewed as supersed- were everywhere, price fixing among the major corporate
ing any personal gain you might derive from your work or powers was rampant, and workers had no rights. Think
gain you might pass on to another connected and inter- now of the situation as it exists today. Perhaps the work
ested party. For example, everyone would want a family environment can be better, but child labor has largely van-
member to succeed in business. As a manager, however, it ished, and there are laws to protect the consumer and the
would be unethical to show favoritism to family members worker. All of this comes at a cost, however, but as a society
by passing business in their direction in a noncompeti- we have determined that the cost of good and ethical busi-
tive manner. Similarly, accepting personal gain for your ness is one we should bear (reference 23, p. 212).
decisions, like sending business to a company you own Mission and vision statements tell the employee and
or accepting bribes to do the same, is a form of conflict those outside of an organization who you are and what
of interest. you are trying to do. For the employee, it helps foster team-
work and a sense of place in the organization (reference
Characteristics of High-Ethics Organizations 23, p. 213). Teamwork leads to productivity and organi-
In the same manner that a successful organization lays out zational success. Maintaining a strong ethical stance helps
its mission, goals, and objectives, its ethical guidelines are one’s employees work through questions of what is right
laid out and understood (reference 23, p. 255). First and and wrong and what they are to do in difficult situations.
foremost, an ethical organization has a clear vision of right For the employer, a strong ethics program can reduce some
and wrong. The discussion above raised the question of of the problems associated with risk management and con-
relativism versus absolutism. By design, an ethical orga- flict of interest. And, of course, a strong ethics program
nization clarifies to the greatest extent possible what is ac- can mesh with the entire strategic planning and quality
ceptable behavior versus what is not. Obviously, not every management process, where trust between individuals and
question can be addressed. But the organization can state strong communication skills are needed to promote orga-
clearly that ethical behavior in all areas and in all activi- nization success and attention to what should be done and
ties is what is expected, and failure to do so will have its how the organization is to accomplish these goals.
consequences. Additionally, the ethical organization displays a posi-
Organizational vision most often comes from the top tive public image (reference 23, p. 20–23). Positive im-
(reference 23, p. 255). The organization’s chief executive ages often translate into marketability and improvement
must support and underwrite an ethics program. Failure in the bottom line for the enterprise. This cannot be one
on the part of top management to actively and enthusi- of the primary reasons for adopting strong and open ethi-
astically support an ethics program will be noted by the cal practices. But there is nothing wrong in strongly stat-
rank and file. The executive officer should champion the ing one’s ethical position in a public forum so that all will
program’s development and foster a climate that encour- know where you stand and what you value. It may set you
ages ethical behavior. From the start, the senior officers apart from the mainstream, and that is not a bad thing.
must espouse honesty and integrity as primary opera- Within the healthcare environment, compliance is an
tional traits. often-heard word. Compliance refers to a variety of opera-
Everyone in an ethical organization understands its ethi- tional issues: billing, the Health Insurance Portability and
cal stance. Training in organizational ethics is a part of new Accountability Act, the Occupational Safety and Health
employee orientation and part of an organizational ongo- Administration, The Joint Commission, and the Clini-
ing training program. All employees receive this training, cal Laboratory Improvement Amendment regulations, to
and all understand the need to stay vigilant and sensitive to name a few. Compliance programs should be viewed as a
ethical issues. Ethical behavior in this context is good be- regulatory enforced form of ethical behavior. The rules and
havior, and the ethical organization designs its reward sys- regulations around all of these issues are complex, at times
tem around good behaviors. For example, employees can are difficult to implement and enforce, and often add lay-
be measured on adherence to policy and their participation ers of complication to already tough working situations. The
in ethics committees and management groups. positive attribute of all, however, is the clarity they provide to
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 19

the employee and the organization on what is acceptable be- moral behavior, managers can and must choose their own
havior and what is not. Shades of gray are disappearing, and path to success. Many studies have been completed and ar-
everyone is learning what is perceived as right and wrong. ticles written describing what managerial behavior works
best and what does not. For the most part the question is
Management Roles and Responsibilities situational and focuses on managers and what they must
Restating what was said above, the most important step do at any moment to help their organization achieve posi-
management must take in regard to an ethics program is to tive results and move forward. We study the past to learn
fully promote it and never waiver from the tenets accepted from notable successes and failures. We live in the pres-
as organizational guidelines (reference 23, p. 255). Beyond ent, moving forward ever faster it seems, where the deci-
that, however, management must recognize that ethics and sions we make must come quickly and the issues we face
the maintenance of an ethical organization require an on- are more complex and pressing. The best managers remain
going and ever renewed commitment to its success. Much thoughtful about their avocation, always seeking new an-
like strategic or financial planning, an ethics program swers to the questions they face.
must be an ongoing process. It will be difficult to measure
program success. Nonetheless, it must be a continuous
evaluation of where the organization stands and where its KEY POINTS
values have moved. ■ Leadership, management, and administration are not
Management can take a strong lead in the development one and the same. At any given moment, any one per-
of ethical policies and codes of conduct. A staff that is fully son may fill any of those roles. Learning what style fits
educated about organizational ethics is less likely to stray you is a process of self-discovery and is shaped by the
into illegal and unethical behavior. The best way to avoid needs of the moment.
managerial mischief and the moral maze is to state at the
■ The body of research and literature on management
outset what is expected in terms of moral and ethical be-
theory is large, both from a historical context as well as
havior and what activities to avoid that might lead to dif-
in terms of the number of those interested in the topic.
ficult working situations.
There is no consensus on what theories present the best
While the initiation and promotion of an ethics program
and most accurate picture of how to manage groups of
must come from the top of the organization, there must be
people. As mankind moves forward and our technology
support from and ongoing interaction with all levels of the
advances, management theory likewise expands and
enterprise (reference 23, p. 255). It is the role of manage-
adapts to the new workplace.
ment to make sure everyone is involved and that all under-
stand the reasons for and the need for prescribed ethical ■ The ability to make good decisions often separates the

behavior. Employee teams can be put into place for the pur- best leaders and managers from the rest. Knowing how
poses of policy development and review and as forums for to work through to a good decision, bearing in mind
employee guidance when ethical issues arise. Ethics issues the elements of time and risk, provides one of the solid
and decisions should be public and known, and it remains bases for managerial success.
a responsibility of management to make sure that happens. ■ A strong ethical framework must be one of the guid-
Finally, and perhaps a characteristic of the ethical or- ing tenets for the modern organization. The benefits
ganization, it is better to try and fail, often openly and of developing such a framework are many, whereas the
publicly, than not to try at all. As ethics programs are fully downside can be severe. From the top to the bottom, all
integrated into an organizational culture, the increased employees must accept and live the positive values their
communication that results between employees, and be- organization espouses, thus removing any uncertainty
tween management and staff, can lead to embarrassing of where they stand with any moral dilemma.
disclosures and discussions of inappropriate behavior. The
intent of an ethics program is not to develop an organi-
zation of finger-pointers. Rather, knowing that bad be- GLOSSARY
havior will be found and exposed, the entire organization Administration Managerial work with a service orientation.
will move in a more ethical direction, and repeat episodes
Bureaucracy Organizational hierarchies and defined lines of
hopefully will be less frequent.
control.
Business ethics Learning and doing the right thing in the work-
Summary place, directly relating to products, services, and stakeholders.
When it comes to the management of an organization, Conflict of interest A situation in which a person has a private
there is no right or wrong way to get the job done. So long or personal interest sufficient to appear to influence the objective
as they stay within the boundaries of ethics, the law, and exercise of his duties.
20 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Contingency theory A decision-making strategy, considering Systems theory The merger of the theories from scientific man-
all aspects of the current situation and acting on that agement and the human relations movement.
information.
Tactical decision Steps toward the implementation of organiza-
Continuous/lifelong learning A self-empowering theory, that tional strategy.
the employee will throughout his life learn and strive to improve
Taylorism and scientific management An approach to work
and move on to new things.
and the workplace where every job is divided into the smallest
Continuous quality improvement A more human-focused possible segments and each segment is examined and improved.
quality management theory, relying heavily on worker involve-
Theory X and theory Y Defined by McGregor, a theory high-
ment in the product improvement process.
lighting the difference between those who believe people need to
Cultural lag The gap between technological advances and the be forced to work versus those who believe people want to work.
ability of society to control and work with them.
Total quality management Designed-in product quality, with
Decision theory The study of how decisions are made and what the focus on customer wants and needs as the key drivers in
guides a manager to a good decision. product and process improvement.
Hierarchy of needs Defined by Maslow, from the most basic to
the highest level, needs to be addressed to motivate the employee. REFERENCES
Human relations movement An approach to management, fo- 1. Academic Press Dictionary of Science and Technology. 2002.
cusing on the worker and his individual needs. Harcourt Press, Orlando, FL.
Intuitive decisions Utilization of hunches, subjective values, and 2. Adair, J. 1984. The Skills of Leadership, p. 8. Gower Press, London,
personal or emotional factors in deciding what actions to take. England.
Judgmental decisions Conclusions reached after data are gath- 3. Adams, C., P. Gupta, and C. Wilson. 2002. Six Sigma Deploy-
ered, facts analyzed, and concrete examples explored. ment. Butterworth Heinemann, New York, NY.
4. Adler, R. B., and G. Rodman. 1991. Understanding Human Com-
Leadership Influencing others to attain group, organizational,
munication, p. 4. Holt, Rhinehart and Winston, Fort Worth, TX.
and societal goals.
5. Berkowitz, E. N., R. A. Kerin, S. W. Hartley, and W. Rudelius.
Lean Optimizing customer value while minimizing waste, using 2000. Marketing, 6th ed., p. 315–402. McGraw-Hill, New York, NY.
fewer resources.
6. Berry, T. 1991. Managing the Total Quality Transformation. Mc-
Lean Six Sigma Combining Lean and Six Sigma, time and pro- Graw Hill, New York, NY.
cess efficiency. 7. Blake, R. R., and J. S. Mouton. 1964. The Managerial Grid, p. 7–148.
Management Getting things done through other people. Gulf Publishing Company, Houston, TX.
8. Burlton, R. T. 2001. Business Process Management, p. 81–97. Sams
Management by objectives Setting goals for the individual to
Publishing, Indianapolis, IN.
achieve, dovetailing with larger organizational objectives.
9. Charns, M. P., and M. J. Shaefer. 1983. Healthcare Organizations:
Management science Management techniques based on math- A Model for Management, p. 223–249. Prentice-Hall, Inc., Engle-
ematical models. wood Cliffs, NJ.
Moral maze Unclear ethical issues. 10. Drucker, P. F. 1954. The Practice of Management, p. 22. Harper
Nonprogrammed decisions Unusual or atypical situational and Row, New York, NY.
solutions. 11. Drucker, P. F. 1973. Management: Tasks, Responsibilities, Prac-
tices. p. 366. Harper and Row, New York, NY.
Operations management Applied management technique, uti-
lizing mathematical modeling and industrial engineering to pro- 12. Drucker, P. F. 1999. Management Challenges for the 21st Century,
mote efficiency and effectiveness. p. 174–175. Harper Collins Publishers, Inc., New York, NY.
13. Fayol, H. 1949. General and Industrial Management. Pitman
Process reengineering Rethinking current work in favor of do- Publishing, New York, NY.
ing something new.
14. Gill, S. L. 1995. Groups and decision making. Clin. Lab. Manag.
Situational management Acting only on what needs to be ad- Rev. 9:464–476.
dressed at a particular moment and recognizing that there is no
15. Giuliani, R. W. 2002. Leadership, p. 123–154. Miramax Books,
best way to get a job done.
New York, NY.
Six Sigma A highly disciplined process focusing on developing 16. Gulick, L. 1965. Management is a science. Acad. Manag. J.
and delivering near-perfect products and services. 8(1):7–13.
Strategic decision Focus on an organization’s relationship with 17. Hammond, J. S., R. L. Keeney, and H. Raiffa. 1999. The hidden
the external environment, competitive posture, and major policies. traps in decision making. Clin. Lab. Manag. Rev. 13:39–47.
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18. Harvard Business Review Paperback Series. 1991. Managing 39. Riggs, J. L., and G. H. Felix. 1983. Productivity by Objectives.
Product Life Cycles: From Start to Finish, p. 8–91. McGraw Hill, New Prentice-Hall, Englewood Cliffs, NJ.
York, NY. 40. Shortell, S. M., and A. D. Kaluzny. 2000. Healthcare Manage-
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tices and productivity. Organ. Dyn. 2(4):10–23. Thomson Learning, Albany, NY.
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21. Juran, J. M. 1995. Managerial Breakthrough, p. 402–403. Mc- 42. Snyder, J. R., and B. R. Hendrix. 1998. Problem-solving: the de-
Graw-Hill, New York, NY. cision making process, p. 61–78. In J. R. Snyder and D. S. Wilkinson
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Services Organizations. John Wiley and Sons, Inc., New York, NY. Free Press, Simon and Schuster, New York, NY.
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30. McGregor, D. 1960. The Human Side of Enterprise, p. 33–48.
McGraw Hill, New York, NY. OTHER READING
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ment: Individual and Organizational Effectiveness, 2nd ed. Harper Boerstler, J. L. O’Brien, and E. J. O’Connor. 2010. Keys for successful
and Row Publishers, Inc., New York, NY. implementation of total quality management in hospitals. Healthcare
Manag. Rev. 35(4):283–293. doi:10.1097/HMR.0b013e3181f5fc4a.
32. Metcalf, H. C., and L. Urwick. 1941. Dynamic Administration, A reference I thought was interesting.
p. 277. Harper and Row Publishers, Inc., New York, NY.
Bard, M. A., and M. Nugent. 2011. Accountable Care Organizations:
33. Mintzberg, H. 1973. The Nature of Managerial Work, p. 31. Your Guide to Strategy, Design, and Implementation. ACHE Manage-
Harper and Row Publishers, Inc., New York, NY. ment Series. Health Administration Press, Chicago, IL.
34. Nations Business. February, 1981. p. 67–70.
Fottler, M. D., R. C. Ford, and C. P. Heaton. 2010. Achieving Service
35. Pickett, R. B. 2001. What does all this leadership stuff mean to Excellence: Strategies for Healthcare, 2nd ed. ACHE Management Se-
me? Clin. Lead. Manag. Rev. 15:395–400. ries. Health Administration Press, Chicago, IL.
36. Porter-O-Grady, T., and R. Hess. 1996. Perspectives on shared McGlown, K. J., and P. D. Robinson. 2011. Anticipate, Respond, Re-
governance. J. Shar. Gov. 2(4):11–15. cover: Healthcare Leadership and Catastrophic Events. ACHE Man-
37. Raia, A. 1974. Management by Objectives, p. 11. Scott, Foresman, agement Series. Health Administration Press, Chicago, IL.
Glenview, IL. Goleman, D. 1998. What makes a leader? Harvard Business Re-
38. Raven, B. H., and J. E. Rubin. 1976. Social Psychology: People in view, Boston, MA. http://ebookbrowse.com/harvard-what-makes
Groups, p. 37. John Wiley and Sons, New York, NY. -a-leader-daniel-goleman-020217-pdf-d202107054.
22 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 1.1 Websites

Complete Guide to Ethics Management: an Ethics Toolkit for Six Sigma

Managers http://www.isixsigma.com/new-to-six-sigma (accessed September
http://www.managementhelp.org/ethics/ethxgde.htm (accessed 9, 2012)
September 9, 2012) http://www.isixsigma.com/new-lean-six-sigma (accessed
September 9, 2012)
LeadersDirect An introduction to Six Sigma and its interconnection to product and
process improvement and “Lean” methods.
http://www.leadersdirect.com/whats-a-manager (accessed
September 9, 2012) Excellent resource for publication lists
“What’s a Manager?” by Mitch McCrimmon. http://www.pohly.com/admin.html
Introduction
Planning
2 Management Functions
Strategic Planning • Selecting a Planning Group •
Environmental Analysis • SWOT Analysis • Vision Laurence P. Vetter
and Mission Statements • Goals and Strategies •
Prioritization • Accountability • Measuring Success
(Metrics)
Organizing
Organizational Chart • Time Management •
Policies • Procedures • Workflow • Staffing
Directing OBJECTIVES
Communicating • Delegating • Motivating • To give laboratory managers and supervisors an overview of basic
Managing Change • Coaching management principles and practices in a laboratory or clinical setting
Controlling
To give the reader practical advice on the strategic planning process
Setting Performance Standards • Evaluating Employee
Performance • Problem Solving • Decision Making To point the reader toward significant writings on the topic of management
Summary through citations and a bibliography
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Even if you’re on the right track, you’ll get run over if you just sit there.
Will Rogers

T
he American commentator Will Rogers was beloved for his home-
spun aphorisms that used humor to illuminate universal truths. “Even
if you’re on the right track, you’ll get run over if you just sit there” is a
folksy nugget of wisdom that is as true today as it was when he first said it gen-
erations ago. Being well positioned in the present is desirable and necessary,
but failure to move forward all but ensures that you will be flattened by that
which is coming up the track. This reality applies to individuals and to organi-
zations as well. In clinical laboratory science, many managers succumb to the
temptation to rest on past accomplishments, content with the self-deception
that because things are going well now, there is no need to consider changing
anything. Laboratories can languish and sometimes fail because the leadership
does not recognize the necessity to adapt in anticipation of an ever-evolving
environment. Because throughput is at an acceptable level, cash flow is suffi-
cient, staffing is adequate, supplies are being ordered, and payroll is routinely
met, the laboratory manager might be tempted to switch on the autopilot and
not think too much about the future. An engaged and thoughtful laboratory
manager understands the necessity of being the catalyst who keeps the organi-
zation continuously moving forward up the track to avoid being crushed when
the environmental predictions become operational actualities.

One of the most important human activities is managing. Ever since people be-
gan forming groups to accomplish aims they could not achieve as individuals,
Clinical Laboratory Management, 2nd Edition managing has been essential to ensure the coordination of individual efforts. As
Edited by L. S. Garcia society has come to rely increasingly on group effort, and as many organized
©2014 ASM Press, Washington, DC groups have become large, the task of managers has been rising in importance.
doi:10.1128/9781555817282.ch2 (reference 8, p. 3)

23
24 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Laboratory managers have highly specialized skills, she can see, and interprets them in terms of opportuni-
and they often serve multiple overlapping roles within ties for growth and progress.
the healthcare system. First and foremost, a laboratory A problem solver – One who clearly perceives the differ-
manager is the chief laboratorian, providing special- ences between the anticipated future and the unfolding
ized technical expertise within the medical laboratory. present and who decides what must be done with those
Managers are “extenders” of the physician and clinical factors under his or her control to influence the envi-
laboratory scientist directors. As such, they must remain ronment or to adapt to it most effectively.
abreast of and implement federal and industry regula-
A teacher – One who guides others and helps them to
tions, adhere to credentialing and compliance require-
identify and solve problems, so that they can perform
ments, understand and evaluate new technologies, and
their tasks effectively and can develop themselves as
remain continuously informed about advancements in
individuals as well as workers. (12)
clinical testing capabilities.
In addition to these very important technical responsi- The study of management is typically broken out into
bilities, managers must also oversee the business aspects four primary areas: planning, organizing, directing, and
of the laboratory. Personnel supervision, staff recruitment controlling. This chapter provides an overview of those
and retention, budgeting, purchasing, and compliance management functions, presented in basic, practical
are all essential tasks of the laboratory manager. While language.
bench-level expertise is essential, knowledge is required
far beyond and above the skills needed by a technolo-
gist. The laboratory manager occupies a truly specialized Planning
niche within the organization. Understanding of basic
management functions will contribute to the success of Planning is the process of formulating objectives and de-
termining the steps which will be employed in obtaining
any complex organization, and the application of some
them. No modern healthcare organization can be effective
fundamental, time-honored practices will ensure that the without an overall plan of action. (reference 5, p. 30)
laboratory’s operations are carried out with maximum ef-
ficiency. A manager will be more effective, and ultimately Strategic Planning
more successful, with a systematic approach. As Will By taking an educated and well-advised look into the fu-
Rogers suggested, inaction and complacency—“just sit- ture, a manager can position the laboratory to grow in the
ting there”—will most certainly result in getting run over proper direction. The surest path to success in any enter-
sooner or later. prise is careful and committed strategic planning.
A manager’s primary responsibility is directing the im-
mediate operations of the laboratory. The day-to-day, and The essence of effective planning is a sense of prepared-
often minute-to-minute, activities of the laboratory will ness. Savvy teams look ahead, envision when they will do
occupy the greatest amount of a manager’s time and re- which tasks, anticipate what resources and training they
might need, and consider what to do if they run into prob-
sources. Understanding the environment in which the lab-
lems. Unfortunately, many fall prey to the “ready, FIRE,
oratory functions, and anticipating potential problems that aim” approach that encourages people to act even if it isn’t
might arise within it, allows a manager to avoid costly mis- the right thing to do or the right time to do it. Although
takes in staffing, scheduling, purchasing, and budgeting. planning adds time up front, it increases the chances of
The best managers learn how to balance their time success and decreases wasted time in the long run. (refer-
and their many overlapping responsibilities with a well- ence 18, p. 333)
organized approach. They are always looking to the fu-
ture and thinking about how major trends might affect Having a long-range plan seems like obvious advice,
the operation of the laboratory. They view changes in the and few would argue the importance of planning. How-
operational environment as opportunities to make needed ever, unless the plan is well considered within a realistic
improvements in staffing, technology, and processes. This framework, it will be of little use. In fact, poor planning—
progressive, forward-looking approach requires insight, without data, without knowledgeable input from expert
commitment, and the ability to teach the staff how to iden- resources, without accountabilities, without deadlines,
tify and solve problems. without follow-through—is just as bad as failure to plan.
A good manager is a “high-performance” manager. The Deploying the wrong resources in the wrong directions of-
high-performance manager is: ten makes matters worse.
Strategic planning is a methodical process whereby an
A strategist – One who looks to the future, makes edu- organization defines its mission, identifies directions, de-
cated guesses about the major forces and trends he or velops a unified approach, prioritizes long- and short-term
 CHAPTER 2. MANAGEMENT FUNCTIONS 25

goals, assigns accountabilities, and allocates financial re- its people, is the absolute necessity to include the input
sources. If done properly, strategic planning involves su- of the staff (23).
pervisors and staff, and it requires the use of time and The objective of planning is to set an achievable course
resources. Therefore, a manager must plan to plan. of action by establishing long- and short-term goals, mon-
Before any planning is initiated, a number of important
itoring progress, and establishing an environment where
questions must be answered, including the readiness of day-to-day activities are well controlled, measurable, and
the organization to engage in such a process, whether the thoroughly understood.
culture of the organization generally supports a planning Before moving on to a discussion of the planning pro-
process, how committed the organization is to a time- and cess, first a note of caution about the dangers of “over-
energy-consuming process, who should be involved in the planning”: There are limits to what can be known, or
planning group, how and when the process should be ini- anticipated, about the future. There are limitless scenarios,
tiated, how others in the organization who are not directly influenced by unknown events yet to occur, that will affect
involved in the planning process will be informed about future decisions.
the process, and the time frames for the process. (refer-
ence 14, p. 6) The difficulty of finding the correct scale for planning
accounts for many failures. The more uncertain we are,
A strategic plan helps the organization develop an the greater our tendency to overplan, for example. In a
action-oriented approach and identify the pieces needed situation we find threatening to begin with, we try to
to build a successful laboratory operation. Good strategic foresee all possibilities and make allowances for every
planning is a structured process. “Structured” means that conceivable mishap. This approach can have ruinous
the plans of individual laboratory sections must fit into an consequences. The more extensive our understanding
overall plan that covers the entire laboratory operation. It becomes, the more the planning process will impress on
is a “process” because good plans are not produced in iso- us the myriad possible results. Planning, like the gath-
lation according to some predefined formula. ering of information (for planning, too, is a form of in-
There are many books offering expert advice on how to formation collection), can increase our insecurity rather
develop a strategic plan. These can be useful to a manager than reduce it. (2)
in understanding the elements of a strategic plan and how It is impossible to plan for every remote possibility. Try-
a planning process might be established. However, manag- ing to do so will result in a plan that is so cumbersome and
ers should not get caught up in a by-the-book approach. unwieldy that it will be beyond useless. A plan that attempts
They should be flexible enough to develop a process that to cover the spectrum of possibilities will result in poor de-
fits their particular organization. Several points should be cisions. Planning must be within a manageable scale.
considered when planning.
• Involve staff at every level in developing a strategic Selecting a Planning Group
plan. Solicit feedback from individuals who really A small, knowledgeable, and motivated group from within
know what’s going on and who will be responsible for the laboratory should be assembled by the senior leader to
executing the plan. You will get great ideas and critical participate in strategic planning.
buy-in by getting staff at the bench level to offer input
during the process. One of the most important aspects of this stage of the
process is choosing the planning group, those who ac-
• Be flexible in developing a plan by circulating drafts
tually will be involved directly in the planning process.
and allowing people to provide feedback. Typically consisting of seven to eleven persons broadly
• Ensure that everyone knows their responsibility for representing the management level of the various organi-
deployment of the plan and that feedback mechanisms zational functions, this group will be expected to commit
are implemented. The most carefully written plan will themselves to a time-consuming and demanding process,
fail if those responsible for its execution do not know usually while fulfilling their regular responsibilities. (ref-
their roles, deadlines, and resource allocations. A de- erence 14, p. 6)
fined feedback mechanism will ensure that the plan
The group must contain key people from all areas of
does not get lost in daily crises.
the laboratory. In a large and comprehensive pathology
Strategic planning always presents a challenge, regard- laboratory, there should be executive-level representa-
less of the size and scope of an organization. The more tives from all functional areas (for example, hematol-
far-reaching the laboratory’s mission is defined, the ogy, microbiology, chemistry, and immunology), as well
greater the challenge. One constant, whenever the para- as key administrative and support leaders (for example,
mount resource of an organization is the experience of sales, marketing, accounting, and billing). Since physician
26 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

directors, laboratory managers, and supervisors are ulti- The gathering of necessary information at the begin-
mately accountable for meeting the goals and objectives ning of the strategic planning process is often called an
of the plan, they should make up the core of the planning “environmental analysis”—a systematic review of the in-
group. Other key people in the laboratory who possess a ternal and external factors that influence the laboratory. A
strong working knowledge of policies, procedures, tech- thorough environmental analysis forces an organization to
nology, and processes should also be included. The group face reality, and it sets a tone for planning.
must be large enough to be inclusive of all areas affected by In this analysis, the administrative staff seeks to answer
the plan, but not so large that it is not conducive to a free questions such as: what kinds of services should we be
exchange of ideas in a conversational setting. offering the community five years from now? How will
As planning progresses, there will be occasions when these services be different from those offered currently?
facilitation must be utilized to tactfully keep the conver- What kinds of resources (machinery, equipment, build-
sation moving forward in an orderly way. The role of the ings, patient rooms, employee personnel) will we have to
designated facilitator is to encourage constructive dialogue acquire in order to provide these future services? How
while remaining unbiased as to the outcome. It might prove will we finance the purchase of these resources? (refer-
useful to designate a facilitator from outside the planning ence 5, p. 54)
group, someone who is knowledgeable but objective and An environmental analysis should be performed at
who can comprehend the complexity of the issues without the very beginning of the planning process. Reliable data
having a stake in the outcome. should be gathered from every possible source. These data
should include financial information (trends, current fiscal
Environmental Analysis situation, and projections), capital equipment inventories,
When decisions are made within a realistic framework, personnel data, and laboratory-specific performance data.
it ensures that expectations are achievable and success is In some cases, a simple survey can be developed to gauge
possible. The climate in which a laboratory operates is in satisfaction and expectations of clients and employees. The
a constant state of flux. It is critical for a manager to be most important consideration in performing an environ-
aware of the changes that are constantly occurring in the mental analysis is to be completely forthcoming about the
operational environment. Awareness of these changes is internal and external factors that affect the laboratory. The
necessary during the planning process. planning process must begin from a point firmly grounded
This awareness stems from active involvement and in reality. If assumptions are not accurate and brutally hon-
participation. Management cannot be accomplished in est, the resulting strategic plan will be a nonstarter.
a vacuum. The manager must have professional affilia-
tions to gain the insight and perspective of peers in other SWOT Analysis
organizations. Some examples include the Clinical Labo-
The modern healthcare organization must appraise its
ratory Management Association, the American Society strengths and weaknesses so that it can determine its fu-
for Microbiology, the American Association of Blood ture opportunities and environmental threats. (reference
Banks, the American Association for Clinical Chemis- 5, p. 84)
try, the American Society of Hematology, the American
Society of Clinical Pathology, and the Clinical Labora- A necessary component of an environmental analysis
tory Standards Institute (CLSI). There are unique pro- is the careful consideration of the laboratory’s strengths,
fessional organizations for almost every subspecialty of weaknesses, opportunities, and threats, often called a
clinical laboratory science. A manager is encouraged to SWOT analysis.
be an active participant in the appropriate professional Comparing the laboratory’s existing strengths to known
organizations, sharing knowledge and gaining from the opportunities makes it possible to put concrete strategies
experience of others. in place to capitalize on those opportunities. Using the
Laboratory managers must also regularly read same approach, matching the laboratory’s known weak-
laboratory-specific literature and journals. All professional nesses to actual environmental threats is useful in avoid-
organizations have some type of regular publication, be it ing costly mistakes.
a journal, a newsletter, or a website. These organizations
offer continuing education opportunities through national Vision and Mission Statements
meetings, webinars, conference calls, and online tutori- If one does not already exist, at the beginning of the
als. Professional involvement allows the manager to keep planning process a vision statement should be written
a current skill set, and also to remain abreast of trends, to articulate what the organization seeks to become. A
knowing which questions to ask and where to find perti- vision statement is an internal document, by design. It
nent information to answer those questions. is intended to inspire those within the organization to
 CHAPTER 2. MANAGEMENT FUNCTIONS 27

maximize their potential, and by so doing, to maximize For practical purposes, a planning horizon that is too
the potential of the organization as a whole. A vision distant will be impacted by rapid and perhaps unforeseen
statement needn’t be wordy; some of the best vision state- changes in the economy, technology, industry trends,
ments are brief and succinct. A vision statement should and government regulations before the planning period
be lofty in its ideals. It should state a common purpose, is complete. In a technology-dependent industry with
and it should express the long-term goal of the organi- ever-increasing regulation, it is absolutely necessary for a
zation. An example of a vision statement, from the Vir- manager to remain knowledgeable about the current op-
ginia Commonwealth University (VCU) Department of erating environment while understanding future trends.
Pathology, states, “Our vision is to become a preeminent Therefore, for the medical laboratory, a planning hori-
Department of Pathology in the United States, which is zon of eighteen months to two years is practical. It allows
recognized for excellence in biomedical research, the edu- the planning group to make decisions that are forward-
cation of healthcare professionals, and the innovative ap- looking but does not project the planning to a point where
plication of science and technology to the diagnosis and the environment has changed beyond anyone’s ability to
management of human disease.” realistically predict.
A mission statement for the laboratory should also Planning is done to produce a list of goals and strat-
be developed at the beginning of the planning process. egies that will guide laboratory management decisions
A mission statement answers certain fundamental ques- for a predetermined period of time. Through discussion,
tions about the organization, such as What is our pur- the planning group produces a written document that
pose?, In what activities will we be engaged to accomplish lists specific goals and strategies. A goal is an end or an
that purpose?, and What are our basic values and shared outcome that one hopes to attain. Simply stated, a goal is
beliefs? Having a clearly articulated mission statement something positive that the organization hopes to accom-
benefits the planning process by defining the organiza- plish. Through discussion and negotiation, the planning
tion’s purpose, but it also benefits the organization by group should develop a list of goals for the laboratory. An
reminding everyone, staff and clients alike, about the example of a goal is “to enhance laboratory revenue by
organization’s purpose. An example of a mission state- increasing referral testing from external sources.” This is
ment, also from the VCU Department of Pathology, a clear statement of something that the laboratory will try
states, “The mission of the Department of Pathology is to achieve.
to provide high-quality, cost-effective pathology services A strategy is a means to a defined end or, more simply
in a manner that supports the patient care, education, stated, an action taken to reach a goal. Every stated goal
and research missions of the VCU Health System Aca- can have numerous strategies. For this example, a strategy
demic Medical Center and the Virginia Commonwealth relevant to the above goal might be to “hire a marketing
University School of Medicine.” Note that this statement director to develop business and increase referrals from
clearly defines what the organization is and the clientele community hospitals.”
that it serves. As planning progresses, people should look A manager can be flexible in creating a strategic plan-
to the mission statement for guiding principles in the ning document. The design of a strategic plan is open to
decision-making process. creativity. The essential ingredients are not. A strategic
The mission statement should be credible and closely plan must include goals and strategies—a clear statement
aligned with the organization’s actual purpose. of that which is intended to be accomplished and the steps
An effective organization will invariably have a well-
that will be taken to accomplish it.
grounded sense of itself, and its mission statement should
match. Although a mission statement should provide the
Prioritization
base upon which to move strongly into the best possible In planning, as in every other aspect of effective manage-
future for the organization, if it is not credible it will not ment, it is necessary to assign priority by weighing the im-
only fail to attract committed followers, but it will also portance of the tasks at hand to determine which have the
cause some to lose trust in those who drafted it . . . Cred- highest level of immediate importance. Therefore, plan-
ibility is lost when the mission goes beyond the stakehold- ning is often a struggle between “must do” and “want to
ers’ ability to believe in it. (reference 14, p. 67) do” decisions.

Goals and Strategies Accountability

The adage, “If you do not know where you are going, any The only way to ensure follow-through on action items is
road will get you there,” illustrates why leadership must to assign specific people to be responsible for delivering
be visionary and must set clear goals with strategic objec- results. An effective plan must have built-in accountabil-
tives. (13) ity for all objectives and strategies. This means attaching
28 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

specific names to specific action items. If everybody is 8. Measure progress with metrics.
accountable for a certain task, then nobody will take pro- 9. Review progress and make updates on a regular basis.
prietary ownership to make certain that the task is done
correctly and in a timely way. Accountability, by definition,
is the obligation of a person to be responsible for his or Organizing
her own actions. Therefore, individuals must be assigned Time is an irreplaceable commodity, and a manager’s time
to the implementation of specific activities to make certain is a laboratory resource that must be used thoughtfully. A
that follow-through is achieved. good manager must always be conscious of how time is
expended, personally and in laboratory processes. That is
Measuring Success (Metrics) the concept of organizing.
Once a strategic plan is drawn, a process of implementation
Organizing is the process of structuring activities, materi-
must be followed to track advancement toward completion als, and personnel for accomplishing predetermined ob-
of specific aims. The actual strategic plan is articulated in jectives. (reference 5, p. 136)
a document that lists the goals, strategies, accountabili-
ties, and deadlines. The document can be as simple as a One of the most important functions of a manager is
multiple-column Word table, an Excel spreadsheet, or an to organize the activities of the laboratory in such a way
Access database. The appearance of the planning docu- that use of time is carefully considered so that effort is
ment is not important. What is important is the organiza- minimized while output is maximized. The difference be-
tion of information in a structured format that is readable tween profit and loss is often determined by how well the
and understandable. An example of a simple laboratory resources and workflow of the laboratory are organized.
strategic plan can be seen in Appendix 2.1.
Progress in planning must be regularly monitored There can be no doubt that good people and those who
with thorough, quantifiable measurements. Metrics, or want to cooperate will work together most effectively if
standards of measurement that accurately gauge prog- they know the parts they are to play in any team opera-
ress, must be attached to each goal. That which cannot tion and the way their roles relate to one another. This is
as true in business or government as it is in football or in
be measured cannot be managed. This adage is especially
a symphony orchestra. Designing and maintaining these
true in clinical laboratory science. Therefore, great care systems is basically the managerial function of organizing
must be taken in assigning metrics that are appropriate . . . For most practicing managers, the term organization
to the goals. implies a formalized intentional structure of roles or posi-
A regular reporting mechanism must be established tions. What does ‘intentional structure of roles’ mean? In
to review progress, reevaluate priorities, and make up- the first place . . . people working together must fill certain
dates based on a constantly changing operating environ- roles. In the second place, the roles people are asked to fill
ment. The ideal venue for reviewing metrics is a regularly should be intentionally designed to ensure that required
scheduled meeting attended by everyone who has assigned activities are done and that activities fit together so that
accountabilities. At this meeting, accountable people people can work smoothly, effectively, and efficiently in
are asked to report upon the progress made on their as- groups. (reference 8, p. 133–134)
signments. A regular reporting forum helps to maintain
The key to organization is in knowing the essential
momentum by removing the human inclination to pro-
tasks that must be performed, understanding what knowl-
crastinate. Monthly, or perhaps even weekly, meetings
edge and expertise the employees must possess to perform
should be scheduled to discuss progress toward stated
those tasks, and the physical and capital requirements that
goals and objectives.
must be assembled to achieve the desired results. Organi-
A strategic planning process includes the following
zation should be approached as an ongoing process, since
steps (see Appendix 2.1):.
testing, technology, and staffing are all dynamic.
1. Select a knowledgeable planning group. Staff knowledge and technologies are constantly evolv-
2. Perform an environmental analysis. ing. The educational base of laboratory employees changes
3. Identify strengths, weaknesses, opportunities, and with the steady turnover of personnel. While every effort
threats. should be made to retain valuable and well-trained per-
4. Make a manageable and realistically achievable list of sonnel, reality dictates that bench-level employees will
goals. come and go, often without adequate advance notice.
5. Prioritize goals. Turnover is a constant concern of a manager. Technology
6. Develop strategies to accomplish goals. developments further impact staffing needs. Therefore, a
7. Assign accountabilities and timelines. manager must be prepared to lead in a constantly changing
 CHAPTER 2. MANAGEMENT FUNCTIONS 29

environment where different pieces of the equation are With so many competing demands, it is conceivable in
forever being transformed by external factors. a modern laboratory for a manager to be fully engaged 12
to 16 hours a day. This is not sustainable, even for the most
Organizational Chart dedicated executive. While it is not realistic to expect an
An essential management tool is the organizational chart. eight-hour day, hard scheduling within reasonable param-
An organizational chart shows hierarchical relationships eters (for example, between the hours of 8 a.m. and 5 p.m.)
between functional areas. It is a visual depiction of the should be the goal. Time spent on the job outside of those
organization. It helps to clarify workflow, reporting lines, parameters should only be considered in times of crisis. In
and areas of responsibility by explicitly listing delineated all other circumstances, a manager should set and adhere
work areas, be it by division, laboratory, or medical spe- to a reasonable schedule, building enough time into the day
cialty (see Appendix 2.2). for essential meetings, interaction with staff, coaching, con-
The chart specifically indicates positional authority. tinuing education, and completion of necessary paper work.
Authority implicitly accompanies a position on the orga- Therefore, it is imperative that a manager not fully book ev-
nizational chart, and its location on the chart implies a de- ery day with back-to-back meetings. Some flex time must be
gree of consent by direct reports. The organizational chart built into the daily schedule for unplanned activities that are
is a contract of sorts, as it unambiguously illustrates the a normal and expected part of each work day.
structure of the organization and the relationships among A time management system allows a manager to:
the people within it.
• Minimize time wasted on nonproductive issues
A laboratory manager possesses authority within the orga- • Be prepared for meetings
nization if he has the right to issue instructions that others
are expected to follow. The organizational chart serves as a • Be aware of existing commitments
visual aid for evaluating each of these basics. The organi- • Understand the capacity to take on new assignments
zational chart also attempts to show relationships between and when to say “no”
line and staff. In this organizational concept, a line posi-
• Plan each day’s work efficiently and effectively
tion is one in which a superior exercises direct supervision
over a subordinate. (20) • Make certain that no project (large or small) is
neglected
Time Management
Simply stated, the conscious use of a time management
The surest way to be well organized is to develop a struc- system allows a manager to be well organized and well pre-
tured approach to time management. Every hour of a man- pared. Failure to use a system ensures disorganization and
ager’s day is occupied with urgent concerns and pressing lack of preparedness.
issues. Without a disciplined time management system, a
manager can quickly become overwhelmed, consumed by
the demands of small crises. There are many different ap- Policies
proaches to time management. Your office email system An effective organization has policies that express behav-
very likely has a calendar function built in. Google, Lotus ioral expectations within the workplace. Policies are the
Notes, BlackBerry, Outlook, and Yahoo! all have calendar “laws” of the laboratory. Little different from laws in a so-
functions, and there are many other choices. This is not an ciety, policies must be fair and equally applied to everyone
endorsement of any specific product. There are hand-held in the organization. Every laboratory should have an open,
personal digital assistant products and programs for desk- accessible, and easily understood set of policies. These
top computers, smart phones, and laptops. Each has unique policies must be made known to each employee, and there
features and functionalities, and each is useful in helping a should be some expectation that employees be required
manager efficiently organize time and tasks. A traditional to read and understand those policies that are applicable
paper calendar book can still be quite useful. There is no to them. The manager and employees should review poli-
universally prescribed time management system. The type cies regularly as part of an annual review process. Policies
of system you ultimately use will be a very personal deci- should be reviewed on a standard schedule to ensure that
sion. The type of system used is optional, but the use of a they are current and realistic within the changing environ-
system is not. An experienced manager must find a system ment. Outdated policies should be updated or replaced as
that works best for his or her own unique needs and then appropriate. In large laboratories, a committee of knowl-
use it all the time. If a manager is using a time management edgeable employees may manage policy writing and review.
system but still feels overcommitted and pressured by time The committee should be populated by supervisors and key
constraints, he should experiment with different approaches employees who know how the laboratory functions and
until there is reasonable control of time issues. what should be considered as standard expectations.
30 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

All policies have seven basic characteristics: they must be An important tool for analyzing workflow is the flow-
well thought out; flexible enough to be applied to both chart. Process design flowcharting is a fact-gathering tech-
normal and unusual situations; acceptable to those who nique used to make the effort of a task visible by writing
apply them; consistent; objective; clear and communicated down what is done. A flowchart graphically illustrates the
to those individuals to whom they apply; and continuously relationships between necessary tasks. By writing down
reevaluated and changed when necessary. (15)
the steps in a task, you can often identify areas of overlap,
A representative example of a policy template is provided redundant effort, and opportunities for improvement.
as Appendix 2.3.
Once the elements of work are identified, it is necessary
to determine how they fit together to form a coherent
Procedures
whole: to determine for each element of work the other
Procedures are plans that establish a required method of elements essential to its effective performance. At one ex-
handling future activities. They are guides to action, rather treme are elements that can be performed independently
than to thinking, and they detail the exact manner in which of each other. In contrast, successful performance of
certain activities must be accomplished. (reference 8, p. 50) other types of work requires that different work elements
Procedures are formal steps to guide an employee occur in sequence or that one element affects a second el-
through a specific job task. A procedure is a written, se- ement, which, in turn, acts upon the first element. At the
most complex level, elements of work affect each other
quential course of action to be taken to achieve a desired
simultaneously. The concept of interconnectedness of
outcome. A laboratory manager must maintain current, work is critical to effective work design. When different
concise procedure manuals for all processes that are per- people perform interconnected elements of work, com-
formed in the laboratory. As with policies, the book of ponents must be coordinated to ensure effective perfor-
laboratory procedures should be continuously reviewed mance. (19)
and revised by a team of experts to ensure that they are up
to date and in compliance with the most current regula- Staffing
tions and standards of care. Accreditation of the laboratory A successful laboratory is dependent on good leader-
will be judged in part on the accuracy and thoroughness of ship, and good leadership is dependent on the quality
the procedures, so maintaining them should be among the and loyalty of employees. The selection process is critical
highest priorities of all laboratory managers. in matching people and their skills with the appropriate
The standard operating procedures (SOP) manual is jobs. (10)
a very important tool in the laboratory. An up-to-date
SOP manual ensures that procedures performed by the Clinical laboratories have unique staffing needs. Each
technical staff are consistent with the industry and of the laboratory has an ideal number of employees based upon
highest quality. Managers use the procedure manual to throughput and automation. A manager must ensure
train the laboratory technologists, and technologists use that efficient staffing is maintained at all times. The best-
the procedure manual as a reference when performing equipped laboratory will not function at top efficiency if it
laboratory methods, which constantly change as tech- is improperly staffed. Too many full-time employees can
nologies develop. result in excess capacity and unduly high wage expenses.
Too few full-time employees can result in excessive need
Workflow for overtime, which is another unnecessarily high wage ex-
A laboratory manager must be a master of all the intercon- pense. Overworked employees, regardless of how well they
nected processes within the laboratory. These processes are are paid, will eventually burn out.
logically sequential, and they are accomplished in such a Accurate staffing must be pegged to the organizational
way that one process or step must be completed before the chart, taking into consideration how each laboratory com-
next can begin. This is known as workflow, or organizing ponent serves the ultimate mission of the laboratory as a
tasks in a particular way to accomplish a specified result. whole. Staffing should be a topic of discussion in the stra-
Doing things a certain way because that’s the way they’ve tegic planning process. A well-thought-out strategic plan
always been done is a fine approach, but only if consid- considers staffing, and the resulting carefully considered
eration has been given to the process to determine if a staffing models enable a manager to make long-term pre-
change in the approach would result in an improved result. dictions about future staffing needs. Plan-based staffing
Analysis of workflow within a laboratory often identifies decisions remove much of the guesswork, thus allowing a
inefficiencies that can be corrected, resulting in a more pro- manager to stay ahead of staffing issues and providing lead-
ductive process. This analysis should include an evaluation time to hire and train efficiently.
of equipment, technology, information services, computer Only with efficient staffing and scheduling can management
systems, physical layout, and location of resources. make the best use of personnel, supplies, instrumentation,
 CHAPTER 2. MANAGEMENT FUNCTIONS 31

and facilities in a prompt and cost-effective manner. By performance of their jobs. Upward communication travels
definition, “to staff ” is to provide a group of workers for from the subordinate to the immediate supervisor, and it is
the purpose of securing united and cohesive performance. used to provide feedback on how things are going. Lateral
Specifically, staffing of a clinical laboratory is a two-step communication takes place between people on the same
process. The initial step is to set up a table of organiza- level of authority within an organization, and it is used for
tion denoting laboratory structure and chain of command. promoting coordination and teamwork. Diagonal com-
It is important to clearly define what the function of the munication occurs between people who are neither in the
laboratory is and how it fits into the overall organization. same department nor on the same level of authority within
Once the mission and purpose of the laboratory have been the organization. Diagonal communication is used for cut-
determined, decisions in efficient utilization of personnel ting across organizational boundaries in an effort to save
and equipment can be made with accuracy. After thought time. (reference 5, p. 211–214)
is given to the need for present and future numbers of
positions, a comparison can be made between predicted Without structured communication, a manager can-
demand and supply. Differences can then be assessed and not expect employees to act as a coordinated unit. Em-
finally a plan formulated to recruit, train, and meet suit- ployees require direction, and they need to know what is
able staffing needs. (11) expected of them. An organization cannot allow impor-
tant decisions and information to be communicated in a
haphazard or informal way. It is the manager’s respon-
Directing sibility to develop and adhere to a regular, formal com-
A manager is a director of people and activities. Staff munication system.
members require and expect direction in their activities.
Individuals cannot act in a coordinated, organized fash-
The action of management is in directing people in their ion in the absence of a communications network that both
activities. stimulates and controls the flow of information needed to
make and disseminate decisions. (16)
Directing is the process of influencing people to attain
predetermined objectives. (reference 5, p. 30) Communication is a job skill that can be developed
and improved. Managers can ask certain fundamental
Communicating questions, of themselves and of their team members, that
No matter how great the plan or how talented the person, will help to make communication within the organization
if managers cannot communicate effectively with other more focused and productive.
members of the team, their ideas and inputs are doomed.
Although it is not listed as a separate management process, • What information do you receive on a regular basis?
communication is an integral part of each management • What information does your team need to function
function. It is embedded in every action taken. (22)
properly and effectively?
Communication is among the most important com- • What are the ideal methods of communication (for-
ponents of management. Clear written and verbal mal meetings, email, memos, conference calls, video
communication—from manager to employee, from em- conferencing)?
ployee to manager, between managers, and between • How often should meetings be held, what subject mat-
peers—influences every action. Without it, there is no ef- ter will be discussed, and who should attend?
fective way of articulating expectations, expressing con- • With regard to communication, what do your employ-
cerns, providing feedback, and ensuring that policies are ees want you to start doing?
implemented. Communication must flow in all direc-
tions. It must be concise, clear, consistent, and continu- • What do your employees want you to stop doing?
ous. Employees rely upon regular feedback from their • What do they want you to continue doing?
supervisors. Supervisors rely upon their employees to The basic attributes of good-quality communication
inform them of their needs. People at all levels of author- are attention, acceptance, and empathy. Attention is the
ity within the laboratory rely upon communication with thoughtful consideration of others. When speaking to
their peers to remain aware of changes in policy. someone, be considerate of his or her concerns, needs, and
In every healthcare organization, there are four basic com-
experiences. Actively listen to what people are saying. Ask
munication flows through which messages can be passed: questions to clarify concerns. Affirm your understanding
downward, upward, lateral, and diagonal. Downward by paraphrasing and restating their concerns until there is
communications travel from the superior to the imme- no ambiguity and no room for misunderstanding.
diate subordinate. Downward communications are used There are some aspects of active listening that should
to transmit information and instruct employees in the always be incorporated when communicating with staff
32 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

members. Acceptance is the act of favorably receiving party must take responsibility in establishing trust and
someone’s thoughts and opinions. This does necessarily maintaining credibility.
imply agreement, but conveys that you understand the con-
cerns being expressed and that you will keep an open mind. Know What You Are Talking About – Receivers will be
more attentive when they perceive that senders have ex-
Successful listening is an active, dynamic process. Alert- pertise in the area about which they are communicating,
ness at every point of the communication encounter is a as when instructions are given by someone authorized to
prerequisite for the supervisor, as well as for the subordi- dispense that information. You will lose credibility if peo-
nate. (reference 7, p. 86) ple think that you don’t know what you’re talking about.
If you don’t know an answer, say so and then develop the
Listening is a skill that can be developed and strength- expertise to provide a correct answer later on.
ened with determination and practice. In the modern Establish Mutual Trust – Receivers prefer to have a
world, we have smart phones and instantaneous access sender’s motives clarified: Are they selfish or altruistic?
Owning up to your motives at the beginning of a conver-
to information on the Internet—useful tools, certainly, if
sation can eliminate the receivers’ anxiety about your real
used correctly. They can be distractions, however, as they intentions and do much to establish common trust. The
encroach further into our daily lives. The newest genera- following suggestions about being honest, reliable, and
tion of employees has grown up with these devices, and self-disclosing all appropriate information also contribute
a new etiquette has evolved with the technology. Do not to establishing a trust bond.
let an electronic device interfere with personal, face-to- Share All Relevant Information – Interpersonal com-
face communication. Emails and instant text messages munications are ethical when they facilitate a person’s
are important and necessary components of a modern freedom of choice by presenting all relevant information
communication strategy, but a manager must have per- accurately. They’re unethical when they prevent another
sonal, spoken interaction with employees at all levels on person from securing information relevant to a choice,
a regular, continuous basis. Staff members expect and or force other people to make a choice they would not
normally make, or decline to make choices they would nor-
appreciate human contact, and it allows for a more natu-
mally make.
ral dialogue. Be Honest – In every national poll, the most important
The skill of listening is the component of communi- thing people want in a leader, friend, partner, or coworker
cation that is often overlooked. Valid communication is honesty. Therefore, you want to avoid any form of de-
goes beyond just putting out well-chosen words. It also ception, which is the conscious alteration of information
involves actively hearing and processing that which is be- to influence another’s perceptions significantly. Decep-
ing said. tion includes lying—concealing or distorting truthful
Empathy is a very important aspect of communication. information—and other behaviors that do not reflect our
It is the ability to share in another’s emotions or feelings. true feelings or beliefs.
It is the identification of another’s thoughts and attitudes Be Reliable – A sender’s perceived dependability, pre-
as they might apply to a particular situation. When placed dictability, and consistency in providing all relevant infor-
mation (being consistent in applying performance criteria
in an identical circumstance, every person has his or her
when evaluating subordinates, and treating subordinates
own interpretation based on personal experience and fairly and equally, for example) reinforce the sender’s per-
bias. Therefore, to truly connect with an employee, one ceived trustworthiness.
must make every effort to understand his or her perspec- Be Warm and Friendly – A warm, friendly, supportive
tive in a given situation. attitude is more conducive to personal credibility than a
posture of hostility, arrogance, or abruptness. People are
A clinical supervisor can show concern for a subordinate more trusting of those who are friendly than those who
by standing in the subordinate’s position, identifying with appear to be trying to impress or control them.
the subordinate’s frame of reference, and helping to meet the Be Dynamic – If you are dynamic, confident, and posi-
subordinate’s objectives. From this standpoint, empathy is an tive in your delivery of information, you will be more
exceptionally strong component of effective communica- credible than someone who is passive, withdrawn, and un-
tion. (reference 7, p. 87) sure. Receivers tend to be more attentive to messages when
the senders are enthusiastic and confident. (6)
While it may seem obvious, it bears mentioning that a
manager must establish trust and maintain credibility with The elements of successful communication are:
the staff. Trust is earned through honest communication
• Listening
and consistent follow-through on promises made. Trust is
the foundation of good working relationships. Credibility • Empathy
cuts both ways in the manager-employee dynamic. Each • Trust
 CHAPTER 2. MANAGEMENT FUNCTIONS 33

• Continuous communication The natural temptation for a manager is to spend

• Consistency energy on trouble areas, with the assumption that the
motivated, high-performing employees do not require
• Clarity
any attention. Neglecting excellent employees, even be-
• Honesty nignly, because they’re seen as self-maintaining, can be
• Multidirectionality an unintended “punishment” of good behavior. Even the
• Verbal and nonverbal methods of communication best and most self-motivated employees must be given
regular encouragement. Positive reinforcement is always
• Active communication
a motivating influence. People who are doing a good job
need to hear it, verbally and face-to-face, on a regular
Delegating basis, and not only during annual reviews. When an em-
An effective manager understands the need and value of ployee is observed going above and beyond the defined
delegation, or, simply stated, the assignment of responsi- expectations of the job, it should be acknowledged with
bilities to others. genuine recognition. Simple words such as “well done”
Delegation is the process of selecting people from a very or “good job” are great motivators, and the employees
limited pool (current job incumbents) to perform a task. who hear those words feel valued for their knowledge
When a manager delegates work to someone, that manager and contributions.
is predicting that the employee will meet performance ex- Many organizations offer financial incentives to moti-
pectations. The more clearly we know what we are looking vate and reward excellent performance. Money is a power-
for someone to do and how we want it done, the easier it ful stimulator. It is the reason people work. There are many
will be to choose the right person for the right tasks. (1) performance-based incentive programs based on volume,
Delegation is a process, a series of linked decisions that accuracy, punctuality, innovation, etc. Regardless of the
identifies what needs to be done, understanding the de- type of incentive program used, it is absolutely critical to
sired result, and then selecting qualified people to per- ensure that it is administered fairly and consistently. If the
form important tasks by making an informed decision employees feel that their contributions are not being rec-
about who is best qualified to meet performance expecta- ognized, the program will become a disincentive, which is
tions. Through delegation, a manager is making a predic- the exact opposite of the intended purpose.
tion that the person selected will follow through to the Even in difficult financial times, when there is no extra
desired conclusion. Wisely delegated assignments can money in the budget for a financial incentive program, there
only be made if the manager has a strong and current are other creative ways to build enthusiasm and reward ex-
knowledge of the processes and procedures of the labora- cellence. A certificate of appreciation or a letter of acknowl-
tory. Without a clear understanding of the task, the de- edgment for the personnel file is an easy and inexpensive
sired outcome, and the skill set of the person to which motivator. Recognition in the form of a public “pat on the
the work is being assigned, delegation becomes a guess at back” has incalculable benefits in motivating employees.
best and a disaster at worst. Therefore, do not delegate to Discontent, boredom, and restlessness soon develop un-
an individual until it is clearly understood that the per- less the individual is doing a job that is enjoyed. A manager
son can deliver as required. Setting people up for failure must therefore understand the individual strengths and in-
always results in poor personnel performance, morale is- terests of the staff and find ways to tap into those strengths,
sues, and undesirable consequences. where possible, in the performance of daily activities.
Because the art of management is getting things done
Motivating through others, it is important, not only to know the fine
Success in any activity is inspired by some type of motiva- points of delegation, but also to be able to motivate people
tion. Motivation is both internally and externally derived. to want to achieve. A basic understanding of the psycho-
The most desirable and effective employees are the ones logical needs of the individual is a helpful way to match
who come to work already equipped with a good deal of organizational expectations with the individual’s capa-
bilities. A. H. Maslow’s work Motivation and Personality
enthusiasm and inspiration. These types of employees are
(1954) is a prime study for understanding motivation. His
self-motivated. They want to do a good job. They take hierarchy of basic needs is well known.
pride in their work and seek excellence in the performance Physiological Needs – The essentials, such as food,
of their duties. They take ownership of their positions. sleep, and air.
Motivated employees have relatively few problems with Safety Needs – Based on human preference for a safe,
absenteeism, tardiness, and poor work habits compared to orderly, predictable, organized world that can be relied
those who lack motivation in their jobs. upon to be free of danger or unexpected happenings.
34 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Belongingness and Love Needs – If both physiological ensure the success of the effort? Communicate regu-
and safety needs are fairly well gratified, the love and affec- larly about progress and results. Provide a clear picture
tion and belongingness needs will emerge. A person will of what the future will be like.
hunger for affectionate relations and will look for a secure • Things are the way they are simply because they
place in his or her group. got that way. Somebody, sometime, had to write the
Esteem Needs – The desire or need for a stable, firmly policy or create the process that you are now trying
based evaluation of himself or herself for self-respect or to change. There were probably some very good rea-
self-esteem. sons for doing things that way when the system was
Need for Self-Actualization – If all of the above needs established. Before you attempt to change something,
are satisfied, a new discontent may develop unless the indi- first take the time to understand the history behind
vidual is doing what he or she is fitted to do. In other words, the problem.
what a person can be, he or she must be—coming from a
• Unless things change, they are likely to remain the
desire for self-fulfillment. (3)
same. If you want improvement, people will need to
change the way they work. It’s important not to con-
Managing Change fuse improvement with tampering.
Change is not easy. Many people are instinctually resistant • Change would be easy if it weren’t for all the people.
to it. When change is introduced, or even suggested, peo- The message is that people are the organization and the
ple’s first reaction is often to reflexively cling to the old way organization is there for the customers. So you must
of doing things and to reject the notion of doing things pay attention to the people, as well as the systems. Lis-
tening to employees and customers before problems
differently.
arise makes any change go more smoothly. (reference
We’re all creatures of habit. Life is complex enough; we 18, p. 17–18)
don’t need to consider the full range of options for the
hundreds of decisions we have to make every day. To cope As in every aspect of management, good communica-
with this complexity, we all rely on habits or programmed tion is the key to success in managing change. Listening
responses. But when confronted with change, this ten- to people’s concerns, asking for their ideas, and genuinely
dency to respond in our accustomed ways becomes a paying attention to their input will dramatically increase
source of resistance. People with a high need for security the likelihood of success when implementing change.
are likely to resist change because it threatens their feel-
ings of safety. Another source of individual resistance is
concern that changes will lower one’s income. Changes Coaching
in job tasks or established work routines also can arouse The best managers are teachers and coaches, always engag-
economic fears if people are concerned that they won’t be ing their employees in a productive and ongoing process
able to perform the new tasks or routines to their previous of continuing education. Many employees require per-
standards, especially when pay is closely tied to productiv-
sonalized development to realize the best of their abilities.
ity. Changes substitute ambiguity and uncertainty for the
known. You trade the known for the unknown and the fear
This is accomplished through traditional teaching, such
or insecurity that goes with it. (17) as standing at the bench and actually demonstrating to
an employee how to use an instrument. Coaching goes a
A manager’s challenge in managing change is to re- step beyond teaching. It also involves encouraging an em-
duce the instinctive resistance to it by presenting it in a ployee to try new things and to strive for a higher level
way that gives staff members reason to understand that the of accomplishment. This is done in a gentle and support-
change will bring an improvement. Presumably, a change ive way that is intended to bolster self-confidence and to
in procedure is a response to an unsatisfactory situation foster a sense of being worthy. Of course, each employee
and the desire to improve an outcome. When implement- has unique sensitivities, and everyone should be treated as
ing a procedural change, a manager must be very careful an individual. Every employee has special talents and in-
to communicate with staff members to assure them that nate limitations. When acting in a coaching role, the man-
their performance is not being criticized and that their ager should always be mindful of each person’s individual
jobs are not threatened. Whenever changes are introduced needs, abilities, and desires.
in a laboratory, it is important to remember the “laws of
• Coaching is providing a person or group with the
organizational change.”
guidance, support, and confidence to enable them to
• People don’t resist change, they resist being changed enhance their performance continuously.
. . . If you want their cooperation, you’ve got to keep • Guidance enables someone to develop his or her skills
them on board for every step of the change. Ask for and knowledge appropriately. Through skilful guid-
their opinions. What do they hope will happen? What ance a coach can also help another person develop
do they fear? What suggestions can they make to useful insights into their work and character.
 CHAPTER 2. MANAGEMENT FUNCTIONS 35

• Support means being there when you’re needed. performance. During the appraisal period, a job descrip-
• Confidence means believing in someone so that they tion guides the manager in making decisions about merit-
can believe in themselves and perform effectively. based salary adjustments, promotion, areas of expected
• Continuously means all the time! Coaching is not improvement, and training needs.
something which is turned on and off like a tap. Suc-
Regardless of the purpose or format of an appraisal, there
cessful coaching depends on planning coaching as-
are a few critical elements without which an appraisal sys-
signments and developing supportive relationships
tem will not function. These include:
over time. (4)
• Standards and criteria of performance – Performance
standards must be specified for performance to be
Controlling evaluated meaningfully. One possible source of stan-
Controlling is the process of determining that everything dards is the job description. When job descriptions
is going according to plan. (reference 5, p. 30) are short and not very specific, a more exacting set
of standards may be derived from a job analysis. In
There is no substitute for engaged leadership. A man- this process, someone who is currently fulfilling the
ager simply cannot afford to be distracted or disengaged. responsibilities of a job writes down or reports all
Small, isolated problems, when left unattended, often grow the different tasks the job includes. Another possible
in size and complexity, stealing more and more resources source of standards is mutual consent to specified
as they compound and create other problems, until they goals where the subordinate and manager agree upon
certain tasks that the subordinate is to perform during
become the sole focus of a manager’s time and attention.
the evaluation period.
A manager must constantly and consistently review the
• Communication of these standards and criteria to
current situation in the laboratory to ensure that there are
the subordinate – Once performance standards and
no unattended details. The best way to avoid big problems criteria have been specified, the subordinate to be
is to address and solve small problems before they have evaluated must be aware of them. The manager or
a chance to become resource hogs that drain productivity personnel department may communicate standards
and threaten accuracy. Being mindful of the daily activi- and criteria during the initial job orientation session,
ties of the laboratory is one of a manager’s most important during the subordinate’s first meeting with the man-
responsibilities. By controlling the details, a manager en- ager, or by means of a written document, such as a
sures that the laboratory functions at the highest possible detailed job description along with the performance
level of efficiency. appraisal form.
• Sufficient frequency of appraisal – The most common
Setting Performance Standards interval for appraisal is every 12 months; this is usually
Regularly scheduled, structured evaluations are a neces- adequate for salary and promotion decisions. How-
sary expectation of employees. People deserve to know ever, formal review of progress toward goals might be
required at more frequent intervals, depending on the
how they’re doing in relation to a written set of expecta-
nature of the job.
tions about performance. A job description is a written
and signed agreement concerning the responsibilities of • Clear communication of appraisal results. A final vital
element in effective performance appraisals is com-
the position. Every new employee should have one, and
munication of the results to the subordinate. These
it should be reviewed annually to ensure that the obliga- results must be clear and indicate that the purpose of
tions are current and accurately described. This formal the performance appraisal was fulfilled. (37)
document serves as a contract of sorts that informs the
employee with specificity about the expectations of the Fairness of application is the standard in performance
job. The job description should be directly linked to an evaluations. Performance evaluations must be consistently
organizational chart, which provides a visual depiction of administered among all employees. The same set of crite-
the lines of authority. The job description should include a ria must be applied to all employees performing similar
job title, a compensation classification or range, the name responsibilities throughout the laboratory. For example,
of the supervisor who will review performance, a specific all phlebotomists working in a laboratory section must be
and detailed listing of responsibilities, and a performance held to the same expectations of performance and behav-
evaluation schedule. ior. If evaluation standards are not identical for every em-
A thoughtful and well-written job description is ployee at the same position, the appraisal system will be
good for the employee, good for the manager, and good fundamentally flawed and useless.
for the organization. It states, in specific terms, the em- A performance appraisal is a formal encounter that
ployee’s exact role. Furthermore, it forces the manager to should be conducted on a determined, regular, predict-
look critically at how the employee is meeting expecta- able schedule. A probationary evaluation is normally
tions of performance. It provides a baseline standard of given at a preordained point in employment, for example,
36 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

at 90 days after the hire date. The probationary review • Corrections of deficiencies and improved performance.
protects the organization because it provides the man- • Providing helpful data for promotion decisions, as
ager the opportunity to evaluate the employee’s progress well as being a basis for salary and wage adjustments,
and make an objective decision about whether or not the bonuses, and other financial rewards.
person should be added to the staff on a continuing basis. • Establishing a baseline against which people can mea-
The probationary period is defined and long enough in sure their own progress and encouraging them to take
duration to give the employee an opportunity to learn the affirmative action to work toward more challenging
new assignments, and also long enough for the manager goals.
to make an informed assessment. A probationary period, • Forcing communication between manager and staff.
usually 90 days in duration from the time of hire, is the • Giving managers a sense of how people are coming
time when the manager should be critically observant of along.
performance. The manager should treat the probationary • Letting people sort out their problems.
period as an orientation process and expect to provide a
• Providing an opportunity for managers to ask them-
good amount of teaching, coaching, and mentoring dur- selves what they have done to improve employees’
ing that time. This ensures that the new employee is given performance. (9)
every opportunity to succeed. If, after an adequate period
of observation, the manager feels that performance defi- A fairly administered employee evaluation must deploy
ciencies cannot be rectified, the manager can dismiss an a stated set of performance criteria upon which to base
employee without cause. If there are no performance issues judgments about performance. To ensure consistency,
during the probationary period, an employee will be asked performance criteria require clearly defined standards of
to join the staff. It is extremely important to treat the pro- excellence.
bationary period as a very serious opportunity to observe
employee work behaviors, because once the organization Problem Solving
makes a commitment to keep a new employee beyond the First and foremost, a laboratory manager is a problem
probationary period, it becomes much more difficult to solver. Every day, there will be situations that require a
dismiss an employee because of performance problems, high level of decision making in reaction to a situation
poor attendance record, and/or behavioral issues. where a problem is confronted, isolated, and avoided or
eliminated. Problem solving is a skill that can be devel-
Evaluating Employee Performance oped, and it improves with confidence and repetition. To
A performance appraisal provides an employee with valu- be an effective problem solver, a manager must approach
able written feedback about progress made toward specific problems in a structured, creative way, much as a scien-
employment objectives. It serves the employee’s need for tist deploys novel techniques to surpass existing problems.
objective evaluation about how he or she is doing. It also Problem solving is a process that contains several key ele-
serves the manager’s obligation to assess performance and ments. The manager must be able to determine the exact
provide constructive feedback. It is the manager’s oppor- source and nature of the problem, which is often difficult
tunity to put into writing an employee’s level of compe- in complex situations where many people or processes are
tence measured against the stated requirements of the involved. In the laboratory setting, root problems in tech-
position. An appraisal also provides a forum for discus- nique or procedure often compound at each ensuing step,
sion about the employee’s training needs, salary expecta- causing amplified impact further downstream. In these sit-
tions, professional development, and career progress. A uations, the true cause of the problem is not obvious, since
properly conducted performance appraisal is a two-way it becomes visible at a point that is far removed from the
conversation, with the manager actively listening to the source. Therefore, the manager must be a dedicated de-
employee’s feedback. tective, gathering evidence and pulling together as much
information as possible to identify the root cause of the
While some companies conduct formal reviews at least
once a year, there should really be an informal and con- flawed process.
tinuous process. A sound review system, fairly adminis- Once the cause of a problem is known, a manager has
tered, can be beneficial to a company and its employees. to come up with a solution. If a machine is not function-
On the other hand, one that is not properly administered ing because it is unplugged, there is only one solution—
can result in lower performance, greater mistrust, and le- plug it back in. Problems in the laboratory are rarely so
gal problems. Some of the benefits of regular reviews are: simple, however, that there is only one obvious solution.
• Keeping good people from getting buried in the sys- More often than not, there will be a range of alternatives
tem and exposing nonproductive people who disrupt that should be carefully considered. Through consultation
the system. with bench-level experts, the manager should create a list
 CHAPTER 2. MANAGEMENT FUNCTIONS 37

of possible actions directed toward a problem. This step Step Five: Selection of Solutions – Choosing the best
often requires the human touch, bringing people together possible course of action is an integrated process. Consid-
in an unbiased way to discuss the range of options that are erable fact gathering and planning have already occurred.
available. Implementing the best solution often involves Even though alternatives have been scrutinized, any single
some level of compromise, usually requiring the coop- approach is not always “best”. There is generally more than
one way to solve a problem.
eration of many affected individuals. A skillful manager
Step Six: Implementation of the solution – Of all the
makes his or her employees feel that they are part of the steps in the problem-solving process, the implementa-
solution instead of making them feel that they are respon- tion step is usually the most time consuming. At the same
sible for the problem. time, even the best decision, if not properly implemented,
The final phase of problem solving is follow-up. Once is useless. As in the decision-making process, implemen-
the solution is implemented, it is absolutely necessary to tation must involve those who are directly affected by the
measure outcomes. The manager must gauge the effective- solution.
ness of the solution in a structured way at prescribed inter- Step Seven: Measurement of the Consequences – Not all
vals to make sure that the problem was truly corrected. The decisions rendered will have the effect that was planned. An
solution might create a new set of unanticipated problems. analysis of what occurred, whether predicted or not, provides
Monitoring the situation to ensure that the desired results an ever-increasing basis of experience from which future
problems can be solved. (21)
have been achieved is an essential final step. Monitors are
as unique as the problems, but they should be consciously
considered and applied. Decision Making
Managers are frequently required to make decisions. It
An example of a scientific approach to problem solving is in many ways an extension of the problem-solving
is provided here. The following seven-step checklist of- process. A manager’s effectiveness often hinges upon
fers a systematic approach to identifying a problem and the consistency and quality of the decisions he makes.
making a clear and rational decision in order to solve it. As in problem solving, there is a scientific approach that
The simple, seven step approach described here allows the enables a manager to make the best possible decisions.
manager the flexibility to modify when necessary but still
Certain factors affect the decision-making process, and
have some basic guidelines to follow.
Step One: Definition of the Problem – One pitfall many they should be carefully considered. Before attempting to
managers encounter as they begin a problem-solving pro- make any management decisions, there are several gen-
cess is the temptation to hypothesize about what should eral areas of concern to which a laboratory manager must
have been done earlier so the problem would not have de- be sensitive:
veloped. Some problems will be inherited, some resulting • Quality of the Decision – In order to make a quality
from decisions made elsewhere in the organizational hier- decision, a manager must determine if he has all of the
archy, and still others from one’s own doing. Regardless of appropriate information available. The manager may
the origin of the problem, the solution must still be made need to seek out information regarding specific skills
within the framework of the situation. necessary to complement a given alternative.
Step Two: Fact Gathering – Once the problem has been
identified, the manager can begin to gather information • Acceptance of Commitment to the Decision – It is
needed for developing alternative solutions. important to consider not only the degree of accep-
Step Three: Development of Alternative Solutions – The tance by the subordinates affected directly by the deci-
generation of possible solutions calls for creative thinking. sion but also the degree of acceptance at other levels of
Often when faced with this step, a manager will draw on management within the organization.
his past experience; in most cases this will be adequate. • Speed of the Decision – The time element must be
Today’s manager must supplement his creativity by seek- considered. Even if it is not essential that the decision
ing information from others who have solved a similar be a quick one, the laboratory manager must consider
problem or from individuals directly involved in the situ- the length of time it will take to involve appropriate
ation. It is wise to keep an open mind and not prejudge parties.
ideas as they are generated. • The nature of the Value Judgments of the Decision – All
Step Four: Weighing of Alternative Solutions – This decisions involve a value judgment in terms of what
step requires the analysis of alternative solutions by stat- is beneficial or nonbeneficial and important or not
ing the advantages and disadvantages of each possible important in projecting the probable outcomes of the
course of action. The manager must consider the ramifi- decision. (20a)
cations of each potential solution. Consideration should
be given to the question of whether a chosen alternative A laboratory manager makes many decisions every day.
will eliminate recurrence of the problem or generate an- Those decisions obviously have a profound effect on the
other in its place. success of the lab, and the quality of the decisions is the
38 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

ultimate measure of a manager’s success or failure. Deci- ■ A manager must control the activities of the laboratory,
sion making is by definition a thoughtful, conscious pro- constantly reviewing the current situation to ensure
cess that requires a rational consideration of cause and that there are no unattended details. There is no substi-
effect. In most cases, decisions are made to create improve- tute for engaged leadership.
ment in a given situation. If the manager has a lucid under-
standing of what is intended to be accomplished through
the decision-making process, and furthermore takes into GLOSSARY
consideration a wide range of possible actions, the result- Accountability An individual’s obligation to be responsible for
ing decisions will be quality ones. his or her own actions within the work environment.
A rushed decision is rarely the optimal decision. When Coaching Providing an employee with guidance, direction, mo-
presented with a big decision, it is often helpful to write tivation, and support with the objective of improving all aspects
down the problem and make a list of possible solutions, in- of job performance.
tended outcomes, and potential unintended consequences.
Communication The exchange of information, flowing in all
Most importantly, never panic. Step away from the situ-
directions within the organization. It can be written or spoken,
ation long enough to perform a factual analysis before verbal or nonverbal, formal or informal.
making a decision. Sometimes factual analysis leads to
a single obvious decision. More often than not, however, Delegation Assigning a specific task to an accountable
there are numerous possible decisions whose outcomes subordinate.
must be weighed. A manager must rely on input from oth- Directing Planning a specific action and actively overseeing the
ers in the laboratory who can offer sound advice, not only execution of a plan.
on the factors that are causing the problem, but also on the Environmental analysis A thorough and systematic review of
possible far-ranging effects of the decision. the external and internal factors that affect the functioning and
Many internal factors have an adverse impact on the performance of the laboratory.
decision-making process, including stress, self-doubt, lack
Facilitation The process of assisting participants to move
of self-awareness, pressure to act too quickly, and pro-
through material in a logical and structured way.
crastination in an effort to avoid difficult decisions. As a
manager gains experience and confidence, many of these Goal A desired outcome that the organization hopes to attain.
internal barriers will fall away. Metrics Specific, quantifiable measurements used as an indica-
tor of progress.
Summary Mission statement A written statement that clearly defines what
the organization does and why it is important.
A laboratory manager has unique skills and a high level
of daily responsibility spanning all areas of the organiza- Motivation Inspiration to perform in a desired way or to achieve
tion. Because the technical aspects of running a labora- a desired result.
tory are tightly regulated, when technical problems arise, Organizational chart A diagram showing relationships among
there is very often a written set of guidelines that dictate functional areas within an organization.
a solution. However, when it comes to managing the hu- Organizing The process of structuring resources and activities in
man side of the laboratory, there are daily challenges for a way that promotes the accomplishment of specific activities.
which there are no rulebook and no obvious solutions.
But there is a set of time-tested management tools for Performance evaluation Formal feedback on job performance.
use by laboratory managers to address these daily chal- Policies Internally generated rules that establish behavioral ex-
lenges. A laboratory manager must become familiar with pectation within the laboratory.
these tools and use them on a daily basis to gain confi- Priority Weighing the importance of the tasks at hand to deter-
dence and experience in managing the human side of the mine which have the highest level of immediate precedence.
laboratory.
Standard operating procedures (SOPs) A written set of instruc-
tions that codify technical and administrative activity in the
KEY POINTS laboratory.
■ The manager must develop a system to organize the Strategic planning A methodical and structured process whereby
workflow, policies, and staffing of the laboratory. an organization defines its mission, identifies directions, develops
■ The manager must provide direction to the labora- a unified approach, prioritizes long- and short-term goals, assigns
tory by communicating, delegating, motivating, and accountabilities, and allocates financial resources.
coaching. Strategy An artful means to a defined objective or goal.
 CHAPTER 2. MANAGEMENT FUNCTIONS 39

SWOT analysis Analysis of the laboratory’s strengths, weak- (ed.), Administration and Supervision in Laboratory Medicine, 2nd
nesses, opportunities, and threats. Strengths and weaknesses are ed. Lippincott Williams and Wilkins, Philadelphia, PA.
often internal to the organization, while opportunities and 12. McClatchey, K. D. 1994. Clinical Laboratory Medicine, p. 5. Lip-
threats are often externally derived. pincott Williams and Wilkins, Baltimore, MD.
Vision statement A written statement that clearly and concisely 13. McPherson, R. A., and M. R. Pincus (ed.). 2011. Clinical Diag-
articulates what the organization expects to become. nosis and Management by Clinical Methods, 22nd ed., p. 3. Elsevier
Saunders, Philadelphia, PA.
Workflow Tasks organized and accomplished in a particular
way to achieve a specified result. 14. Nolan, T., L. Goodstein, and J. Goodstein. 2008. Applied Strate-
gic Planning: An Introduction. Pfeiffer, San Francisco, CA.
15. Rakich, J. S., B. B. Longest, and T. R. O’Donovan. 1977. Man-
REFERENCES aging Healthcare Organizations, p. 127–129. W.B. Saunders, Phila-
1. Camp, R., M. E. Vielhaber, and J. L. Simonetti. 2001. Strategic delphia, PA.
Interviewing: How to Hire Good People, p. 65. Jossey-Bass, San Fran- 16. Reinke, W. 1988. Health Planning for Effective Management, p. 187.
cisco, CA. Oxford University Press, New York, NY.
2. Dorner, D. 1996. The Logic of Failure, p. 163. Basic Books. New 17. Robbins, S. 2008. The Truth about Managing People, 2nd ed., p.
York, NY 187. FT Press, Upper Saddle River, NJ.
3. Hardwick, D. F., and J. I. Morrison. 1990. Directing the Clinical 18. Scholtes, P., B. Joiner, and B. Streibel. 2003. The Team Hand-
Laboratory, p. 133–134. Field and Wood Medical Publishers, New book, 3rd ed. Oriel Incorporated, Madison, WI.
York, NY.
19. Shortell, S. M., and A. D. Kaluzny. 1994. Healthcare Manage-
4. Hill, J. 1997. Managing Performance, p. 87. Gower Publishing, Al- ment: Organization, Design and Behavior, 3rd ed., p. 172. Delmar
dershot, UK. Publishers, Albany, NY.
5. Hodgettes, R. M., and D. M. Cascio. 1983. Modern Healthcare 20. Snyder, J. R. 1989. Laboratory planning, organization, and con-
Administration. Academic Press, New York, NY. trol, p. 34. In J. R. Snyder and D. A. Senhauser (ed.), Administration
6. Hunsaker, P., and T. Allesandra. 2008. The New Art of Managing and Supervision in Laboratory Medicine, 2nd ed. Lippincott Williams
People. Free Press, New York, NY. and Wilkins, Philadelphia, PA.
7. Johnson, E. A. 1989. Managerial-organizational communica- 20a. Snyder, J. R. 1989. Problem-solving—The decision making
tions. In J. R. Snyder and D. A. Senhauser (ed.), Administration and process, p. 45–46. In J. R. Snyder and D. A. Senhauser (ed.), Admin-
Supervision in Laboratory Medicine, 2nd ed. Lippincott Williams and istration and Supervision in Laboratory Medicine, 2nd ed. Lippincott
Wilkins, Philadelphia, PA. Williams and Wilkins, Philadelphia, PA.
8. Koontz, H., and H. Weihrich. 1990. Essentials of Management, 21. Snyder, J. R., and D. S. Wilkinson. 1998. Management in Labo-
5th ed. McGraw-Hill, Inc., New York, NY. ratory Medicine, 3rd ed., p. 66–68. Lippincott Williams and Wilkins,
9. Krieff, A. 1996. Manager’s Survival Guide: How to Avoid the 750 Philadelphia, PA.
Most Common Mistakes When Dealing with People, p. 110. Prentice 22. Varnadoe, L. 2008. Medical Laboratory Management and Super-
Hall, Englewood Cliffs, NJ. vision, p. 39. PriorityEd, Fort Pierce, FL.
10. Kurek, A. 1998. Staffing and scheduling for laboratory person- 23. Vetter, L. P., R. Carden, and D. S. Wilkinson. 2001. Strategic plan-
nel, p. 226. In J. R. Snyder and D. S. Wilkinson (ed.), Management ning in the clinical environment. Clin. Leadersh. Manag. Rev. 15:34–38.
in Laboratory Medicine, 3rd ed. Lippincott Williams and Wilkins, 24. Wolfgang, J. W., and L. M. Brigando. 1989. Standards and ap-
Philadelphia, PA. praisal of laboratory performance, p. 218–219. In J. R. Snyder and
11. Martin, B. G., and A. S. Kurec. 1989. Staffing and scheduling D. A. Senhauser (ed.), Administration and Supervision in Laboratory
of laboratory personnel, p. 199. In J. R. Snyder and D. A. Senhauser Medicine, 2nd ed. Lippincott Williams and Wilkins, Philadelphia, PA.
40 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 2.1 Laboratory Strategic Plan

GOAL

Metric

Strategy Action Item Accountability Target Date

Metric

Strategy Action Item

Metric
Accountability Target Date

Strategy Action Item

Metric

doi:10.1128/9781555817282.ch2.apx1

APPENDIX 2.2 Laboratory Organizational Chart

See facing page

doi:10.1128/9781555817282.ch2.apx2
 CLINICAL LABORATORIES
Medical Director: Smith
Administrative Director: Jones

Compliance Finance
Director: Kelley Director: Madison

Personnel Outreach
Director: Tucker Director: Liu

Molecular
Anatomic Pathology Clinical Pathology
Diagnostics
Director: Davis Director: Williams
Director: Brown
Manager: James Manager: Potter
Manager: Elvie

Neuropathology Autopsy Surgical Pathology Cytogenetics Blood Bank Clinical Chemistry Hematology
Director: Miller Director: Johnson Director: White Director: Evans Director: Ortiz Director: Fox Director: Chang
Manager: Casey Manager: Mays Manager: Lee Manager: Simms Manager: Allen Manager: Roberts Manager: Ford

Cytopathology Tissue Acquisition Microbiology Immunology

Director: Morgan Director: Nicholas Director: Robinson Director: Young
Manager: Todd Manager: Simon Manager: Tate Manager: Davis

41
42 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 2.3 Policy Template

Medical Center
Policy Template

Subject: Policy Number: _______

Name of Policy Approval Date: _______
Effective Date: _______
Review Date: _______

Purpose: Policy:
Reason for Policy Government Regulations
Industry Guidelines
Regulatory Requirements

Procedure: References:
Defined Steps Supporting Documentation

Approved by: Date:

_____________________ _______________
Name

Title

doi:10.1128/9781555817282.ch2.apx3
Introduction
3
Overview of Laboratory Industry Trends during the
Relevant Economic
Past Decade • Forecast for the Future
Strategic Business Planning Overview
and Business Concepts
Market Assessment • Key Strategies
Competitive Environment Roxanne Mercer and Ann L. Harris
Clinical Laboratory Competitive Market • Business
Entities, Strategic Alliances, Joint Ventures, Mergers
and Acquisitions, and Integrated Networks
The Economic Environment
Four Stages of the Business Cycle • The National
OBJECTIVES
Economy: Fiscal and Monetary Policies • To define relevant economic issues that influence the delivery of healthcare
Assess Infrastructure and Develop Production services and their significance to the practice of laboratory medicine
Strategies • Cost Accounting Principles • System-
Wide Approach to Establishing a Fee Schedule • To outline the key concepts and principles (for example, supply, demand, and
Consumer Price Index • Pricing Strategies competition) that drive the business decisions faced by laboratory directors,
Promotional (Marketing and Sales) managers, pathologists, and hospital administrators
Strategies To demonstrate the relationship between global economy concerns and changes
Market Research • Marketing Strategies • Sales in healthcare policies
Strategies • Advertising Strategies
Customer-Focused Concepts and Service
To identify marketing, sales, and customer service tools used to formulate a
Strategies business plan to respond to the service requirements and economic needs of the
Who Is the Customer? • Understanding Customer healthcare delivery system
Behavior • Key Concepts and Recognized Customer
Service Strategies • Service Delivery Strategies
Summary
In our free enterprise system, business traditionally has been held responsible
KEY POINTS
for quantities—for the supply of goods and jobs, for costs, prices, wages, hours of
GLOSSARY work, and for standards of living. Today, however, business is being asked to take
REFERENCES on responsibility for the quality of life in our society. The expectation is that busi-
ADDITIONAL READING ness, in addition to its traditional accountability for economic performance and
APPENDIX results—will concern itself with the health of society, that it will come up with the
cures for the ills that currently beset us and, indeed, will find ways of anticipating
and preventing future problems in these areas.
R. F. Barker (2)

Overview of Laboratory Industry Trends during the Past Decade

Following several decades of profitability created by low direct costs, favor-
able inpatient reimbursement, hospital-based outpatient reimbursement, and
physician utilization, the clinical laboratory industry suffered a severe setback
beginning in the 1990s and continuing into present times. Increased regula-
tory requirements and the expansion of managed care were the change drivers
for many trends in the healthcare and clinical laboratory industries, as listed
in Table 3.1 (21). The industry as a whole suffered a loss of several billion
dollars in reimbursements from the impact on test utilization patterns. Faced
with possible loss of market share, commercial laboratories engaged in fierce
competitive bidding for managed-care contracts, further decreasing labora-
tory reimbursement. Reimbursements began to improve by the end of the
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia decade as commercial laboratories sought more profitable contracts. At the
©2014 ASM Press, Washington, DC same time, hospital laboratories faced excess testing capacity created by shift-
doi:10.1128/9781555817282.ch3 ing STAT testing to near-patient testing and shortened inpatient lengths of

43
44 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 3.1 Change drivers during the 1990sa

Driver Change
Tighter quality and documentation requirements (CLIA ’88)b Reduced test volume
Increased cost of production
Increased coding and claims requirements Reduced collections
Increased denials
Reduced Medicare fee schedule Reduced reimbursements
Managed-care enrollments more than doubled Shift from fee for service to capitated reimbursement models
Fierce competitive bidding among commercial laboratories Prices and reimbursements reached plateau then decreased in 1990s
a
See reference 22.
b
Clinical Laboratory Improvement Amendments of 1988.

stay. Laboratory managers expanded their focus, evaluat- will continue with even greater controls and limitations
ing technical proficiency, as well as analyzing and control- on utilization, forcing further reductions in the unit cost
ling costs. Successful managers strengthened their skills in of medical services (reference 28, p. 170). On March 23,
human resource management, financial management, and 2010, President Obama signed the Affordable Care Act
process improvement. Operations managers used their (ACA). The law puts in place comprehensive health insur-
business savvy and experience to create business plans. ance reforms to ensure that most Americans have access to
The industry observed record numbers of laboratory con- quality, affordable healthcare. The constitutionality of the
solidations, mergers, acquisitions, and joint ventures dur- ACA was challenged, and the U.S. Supreme Court upheld
ing the decade. Laboratory restructuring often followed its constitutionality in a June 28, 2012, ruling.
hospital or healthcare system reorganization. The concept
of laboratory regionalization, first developed in the 1980s, Forecast for the Future
focused on standardizing policies and procedures and pro- To compensate for the changes of the past decade, hospital
viding improved continuity of care across multiple facili- laboratories have become competitive players in the local
ties and sites of care. Enhancing income by expanding the market by developing their outreach business to capture
geographic market and lowering costs through economies new revenue from market segments such as physician of-
of scale became the primary goals. fices and long-term-care facilities. Hospital laboratories
During the past decade, businesses and the healthcare have formed networks to enable them to compete for
industry have undergone fundamental changes. As the managed-care contracts. With the trend to consolidate hos-
world economy has become more global, it has fueled pitals and develop core laboratories to keep more tests in-
growth in competition, an increased dependence on infor- house, there is now competition to perform esoteric testing
mation technology, and an exponential growth in the use of among hospital-based laboratories. National commercial
the Internet. Using knowledge to create value has become laboratories also compete for referral testing in the esoteric
a key economic driver. During the same period, laboratory market, where the profit margin is more attractive. New
medicine has undergone similar transformations. Techno- advances in point-of-care testing (POCT) instruments are
logical developments continue to improve productivity in stimulating an increase in the number of physician office
the clinical laboratory. Laboratory services information is laboratories. Both academic medical centers and indepen-
assessable globally, and laboratories are faced with inter- dent commercial laboratories are focusing on research and
national competition and greater pressures to reduce costs, development of specialized testing to augment the routine
increasing the commoditization of the clinical laboratory testing performed in hospital core laboratories. Successful
industry. However, a gap between technical possibilities centralization may involve robotics and increased automa-
and financial resources remains prevalent (8). tion. Standardization and centralization of data manage-
Managed care, pricing pressure, and advances in medi- ment, methods, facilities, equipment, quality assurance,
cine and technology have created a constant state of change. education, and information systems are fundamental to
Table 3.2 shows the typical paradigm shifts encountered by the implementation of responsive business strategies (P. W.
the laboratory industry over the past decade. Adding to Wisler. Module 2: money and finance: strategic planning
a growing population of uninsured patients, employees in consideration in a dynamic marketplace by Coopers and
their fifties are taking early retirement as employers balk Lybrand L.L.P. Presented at The Dark Report’s Strategic
at continuing to pay escalating premiums for healthcare Business Plans for Laboratory/Pathology Consolidation
coverage. A growing number of patients will not be able and Restructuring, New Orleans, LA, 1997). Healthcare
to pay their medical bills, and bad-debt write-offs will administrators and laboratory managers must develop
continue to rise. The downward trends in reimbursement the skills needed to deal with the logistical and cultural
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 45

Table 3.2 Industry trends during the past decade

Old paradigm New paradigm
Centralized laboratory testing Point-of-care testing (POCT)
Near-patient and bedside testing
Physician office testing Home testing kits
Direct-access testing (DAT)
Lab-supervised phlebotomy Patient-care technician at nursing stations
Inpatient procedures Outpatient invasive procedures
Fee-for-service reimbursement (FFS) Global payment systems
Diagnosis-related groups (DRGs)
Ambulatory payment classification (APCs)
Skilled hospital beds Skilled-nursing facility (SNF) beds
Prospective payment system (PPS) for skilled-nursing facilities Consolidated billing: services reimbursed under
resource utilization groups (RUGs)
Standing orders Patient care plans
Preventive healthcare screening and diagnosis V-codes Medically necessary testing
Local medical review policies (LMRP)
Advanced beneficiary notices (ABNs)
Routine testing Specialized esoteric testing
Top-down hierarchy Bottom-up customer focus
Exceptional service Creating value

changes required to develop strategic business plans. They intellectually and emotionally, increasing the likelihood of
must realize that customers are every organization’s most the plan’s success. Questions to ask during the first phase
valuable resource. Ultimately, customer satisfaction will be should resemble brain-storming activities such as: Where
the critical strategic weapon for any enterprise (reference is the industry headed? What do our customers want or
24, p. ix–xii, 23). need? What are the current trends in products and ser-
The mission of clinical laboratory medicine is to im- vices? What should be changed or eliminated? What new
prove patient care through improved laboratory testing. To products and services should be considered? During the
be strategically positioned for the future, the clinical labo- exploration phase, the group should avoid discussing fea-
ratory discipline and the industry must enhance efficiency sibility and cost, and focus on criteria for inclusion or ideas
by consolidation, must consider formation of alliances or that will either distinguish or add perceived value. Discus-
partnerships, and must integrate processes (both horizon- sions of any constraints identified should be tabled until
tally and vertically). Future success hinges on efficiency, the strategic planning phase, which should target tactical
but efficiency will not guarantee success. The most relevant development. During this phase, the realities of funding
standard has become the ability to create value. Laboratory and resources are considered using decision-making tools
professionals must focus on providing additional informa- to select the best ideas and options for the developing
tion and knowledge services related to the in vitro diag- plan. The planning phase discussions should include the
nostic services offered (8). following: market assessment; strategies; competitive and
economic environment; a review of strengths, weaknesses,
Strategic Business Planning Overview opportunities, and threats (SWOT); and resources. Next,
focus on differentiating your organization from the com-
Strategic planning for organizations provides a useful tool petition by identifying your unique fit, by visualizing three
to energize and motivate the employees in the organiza- interlocking rings:
tion regarding its vision, mission, and goals. The planning
process provides a document that can be used to recruit • Who you are (your strengths and weaknesses)
others to the mission, focusing time, talent, and resources • What the customer needs (the opportunities and
toward running a successful operation. The initial strategic threats)
phase should include thinking and exploration exercises. • What you stand for (the organization and department’s
Taking the time to think before planning is logical, yet mission, vision, and core values)
most organizations fail to devote adequate time to think
and explore. As more stakeholders become involved in The intersection of the three rings could be considered
the thinking and exploration process, they become vested your organization’s differentiated fit (37).
46 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

When used in goal setting, the acronym SMART should organization’s ability to perform successfully. The strate-
be expanded beyond the traditional terms (specific, mea- gic planning process functions best when it operates in
surable, achievable, relevant, and time-based) to include an open and inclusive atmosphere. The strategic planning
other descriptive terms, according to Susan Heathfield at process should result in innovative and visionary prod-
About.com (19): ucts and service delivery goals (4). A business plan has
S: specific, systematic, synergistic, significant, shifting, four key strategies that must be carefully considered (ref-
stretching erence 6, p. 19).
M: measurable, meaningful, memorable, motivational, • Production (product planning) strategies. Production
magical strategies include decisions about research and devel-
A: achievable, action, accountability, acumen, agreeable opment, production times for new products, and
R: relevant, realistic, reasonable, resonating, results, re- branding.
warding, responsible, reliable, remarkable • Service (distribution) strategies. Service strategies de-
T: time-based, timely, tangible, thoughtful fine how the products and services will be delivered.
• Marketing and sales (promotional) strategies. Pro-
Market Assessment motional strategies include market research, sales
The development of a strategic business plan begins with management, customer service, communication, mar-
a market assessment. The primary purpose of the market keting, sales support, and the approach to advertising
assessment is to research consumer needs and determine (publications and promotions).
if there is an opportunity to provide a service. The impact • Pricing strategies. Pricing strategies are typically the
the project may have on laboratory production (efficiency) most difficult and are often dependent on the com-
and revenue should be evaluated. The market assessment plexity of regulatory oversight and public scrutiny.
should also include an evaluation of sales and service re- Prices must always be profitable and defendable.
quirements, as well as an analysis of the competition. After
the market assessment, the next step is to develop an im- The key to success is being able to combine these four
plementation plan that considers legal (regulatory), eco- strategies into a dynamic business plan (reference 5, p. 29)
nomic, and societal variables. These variables, as well as (Fig. 3.1). Often, one or more of the environmental vari-
the competition, are considered environmental variables ables are beyond management’s control, ultimately putting
that can potentially influence customer satisfaction (refer- pressure on an organization to continuously reevaluate its
ence 5, p. 29; reference 28, p. 25–43; 29). business strategy. Society (or the consumer) generally sup-
ports businesses as long as the product or service being
Key Strategies delivered is perceived as adding value. Economists refer to
Strategy can be defined as the approach or techniques satisfying this need as utility (reference 6, p. 6). In health-
developed by the management team to facilitate the care it is more commonly referred to as clinical utility.

Figure 3.1 Strategic business planning. The four

key strategies (pricing, production, marketing, and Perform
service) serve as the cornerstones in the framework
for the development of a successful business plan. MARKET ASSESSMENT
The strategies must be carefully weighed against
the influences of the four variable environmental
factors and the market research information on ENVIRONMENTAL
consumer needs for the products and services. KEY STRATEGIES VARIABLES
doi:10.1128/9781555817282.ch3.f1 • Pricing • Legal
• Production • Competitive
• Marketing • Economic
• Service • Societal

Develop

STRATEGIC
BUSINESS PLAN
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 47

Competitive Environment The following are some types of business entities:

A competitive analysis is the practice of analyzing the com- • Corporations are required by state law to file articles of
petitive environment for the geographic area where an or- incorporation as a for-profit or a not-for-profit organi-
ganization conducts or plans to conduct business. Elements zation. A corporation’s owners have limited liabilities
to include in the analysis are a comparative study of the based on their individual investments in the company.
strengths and weaknesses of the competitors and your own • Partnerships are not considered taxable entities and
operation; the demographics and desires (needs) of the do not pay taxes. The general partners are personally
customer and market segments; the marketing, sales, pric- liable for financial obligations and are taxed on their
ing, production, and service opportunities; and the strate- earnings. Partners in a limited partnership are only
gies that either improve or impede progress. Also identify liable for the amount equal to their investment.
internal and external barriers, obstacles, and threats to
• A limited liability company (LLC) is a legal entity
your organization’s success. Refer to http://www.reference
treated like a corporation, but the owner’s liability is
forbusiness.com./small/Bo-Co/Competitive-Analysis.html
limited to his or her investment, and the company is
(last accessed September 28, 2012).
treated like a partnership for federal income tax pur-
poses. An LLC may or may not have centralized man-
Clinical Laboratory Competitive Market agement. To gain classification as a partnership, the
Competition exists when businesses that offer similar LLC must have at least two members (34).
products and services want the same customer base. Over
the past four decades, competition among commercial Strategic alliances. Faced with increasingly complex tech-
laboratories has resulted in many mergers and acquisi- nologies and more intense global competition, healthcare
tions. Regional laboratories and local independent labo- organizations can use strategic alliances to combine their
ratories have consolidated in an effort to increase market resources to share risk, reduce costs, and expand customer
share and offset the declining revenue base. However, new and supplier relationships. When properly planned and
technology is now driving the growth of smaller, inde- managed, an alliance can significantly strengthen competi-
pendent specialty laboratories focusing on specific niche tive advantage through technology exchange, opening new
markets such as clinical trials, genetic and molecular markets, securing investment capital, and sharing costs of
diagnostics testing, flow cytometry, and pathology con- research and development. Equity investments, coopera-
sultation services. The smaller specialty companies have tive ventures, research and development contracts, licens-
formed strategic alliances to compete with the major ref- ing agreements, and sales and marketing agreements fall
erence laboratories and offer a wider scope of services to under the umbrella of strategic partnering. Whenever the
their customers. Physician office laboratories are taking income from the venture can be referred to as unrelated
advantage of robust, near-patient testing platforms. As business income, the entities should consider restructur-
POCT technology continues to develop, home healthcare ing the affiliation agreement. The parties should execute
agencies will likely become competition in the clinical due diligence or confidentiality agreements at the onset of
laboratory testing market. the negotiation process (13).
Strategic partnerships are typically formed by corpo-
Business Entities, Strategic Alliances, Joint Ventures, rations with strategic objectives that complement one
Mergers and Acquisitions, and Integrated Networks another. The partners agree to mutual and open commu-
Healthcare facilities typically respond to the pressures cre- nication that supports long-term, multiyear preferential
ated by the financial constraints of healthcare reform by relationships that share risk and reduce costs. These part-
solidifying their current market share, expanding their nerships allow laboratories to deal with fewer suppliers,
geographic service area, and implementing better cost streamline, standardize, automate purchasing practices,
controls. Industry restructuring is unpredictable and often reduce inventories, and measure both quality and finan-
includes relationships between unlikely business partners. cial outcome (4).
The arrangements include physician practice organiza- Less formal alliances allow for the creation of coopera-
tions, physician management groups, physician hospital tive databases that support information sharing so that
business organizations (health systems), integrated de- the partners can make business decisions with current,
livery systems, independent provider associations, and detailed information about the healthcare environment.
provider networks. The type of business entity that insti- There is a growing need for healthcare providers and in-
tutions typically form is based on tax status. Tax-exempt surers to share information across databases. The result-
status is sometimes difficult to obtain when more than ing network server is generally referred to as a community
20% of the healthcare organization’s board members are health information network. More formal equity partner-
physicians. Individuals, sole proprietors, corporations, and ships create a business arrangement with shared owner-
trusts are all taxpayers. ship and interlocking boards. Franchise alliances link the
48 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

partners through exclusive license agreements that provide • Asset acquisition. The surviving company acquires
training, products, systems, and marketing in exchange for some or all of the assets of the merging entity in re-
the financial investment. A shared clinical service alliance turn for stock in the surviving company. The merg-
allocates the costs for specialized clinical services, such as ing company continues to exist as a legally distinct
magnetic resonance imaging, among multiple sponsors. A corporation.
joint venture brings two or more entities together to share
an investment (11). Integrated delivery systems. An integrated delivery sys-
tem is formed when payors and healthcare providers (in-
Joint venture. A joint venture is formed for economic cluding acute-care providers, physicians, home healthcare
purposes to achieve mutual or common financial goals. agencies, nursing homes, primary care offices, and others)
The arrangement may include partnerships, corporations, combine forces to extend their service lines to improve the
trusts, LLCs, leases, and contracts. Joint venture is the term coordination and quality of care while controlling costs.
used to describe management agreements, partnerships, Financing an integrated delivery system requires a basic
strategic laboratory arrangements, and outsourcing. Such understanding of capital markets and the ability to adapt
ventures are not legal entities with legal protection. Facili- to the changing market demands.
ties entering into a joint venture arrangement should first Integrated delivery systems measure their success using
seek the advice of counsel to ensure that the partnership outcome data such as patient satisfaction surveys, read-
does not violate Internal Revenue Service guidelines, anti- mission rates, costs for emergency care, and patient com-
kickback statutes, fraud and abuse laws, the Stark law, or pliance to prescription refills. The creation of integrated
safe harbor regulations (34). These regulations are dis- delivery systems is a business strategy used to facilitate the
cussed in more detail in chapter 5. change from treating chronic disease and acute episodes to
the practice of preventive and predictive medicine. An ac-
Mergers and acquisitions. Performing due diligence in countable care organization, as defined by the Affordable
the merger process includes an examination of the finan- Care Act, is one form of integrated delivery system.
cial and legal records of the parties involved. The process
identifies the scope of liabilities that will be assumed and Emerging network models. There are at least seven loosely
the legal impediments and provides a comprehensive un- connected organizational models emerging with changing
derstanding of the merging parties’ business operations (1). partners linked by contracts rather than by ownership.
Typical structures used in mergers are as follows: Each one takes a slightly different approach to organizing
governance and directorship (27). Table 3.3 discusses vari-
• Statutory merger. The stock in the merging company is ous emerging network models (11).
combined with the stock in the surviving company.
• Stock acquisition. The stock in the merging company is Regional network outreach programs. Healthcare facili-
acquired by the surviving entity, and the merging com- ties developing regional laboratory networks have encoun-
pany continues to operate as a subsidiary corporation tered a number of difficulties along the way. It is never
of the surviving company. easy to overcome long-standing rivalry and antagonism

Table 3.3 Emerging network modela

Description of network Network organization and governance
Medical clinics Physician-governed and medically dominated clinics form their own managed-care organizations or start
joint ventures with managed-care plans.
Hub and spoke Academic medical center forms networks with large regional hospitals. The academic medical center serves
as the network hub, and most decisions favor it.
Multicenter network A network that is composed of strong regional hospitals and tertiary care centers without the expense of the
academic medical center.
Public system Urban hospitals form networks to capture Medicaid contract work to compete with managed-care and medi-
cal center networks.
Enterprise corporation Corporations offer stock to physician and hospital partners, but the parent maintains control.
Provider-insurer partnership Networks formed by physicians and insurers are difficult to operate due to differences in culture and leader-
ship styles.
Community partnerships Community-based healthcare systems or community care networks differ according to the locality and its
needs. These networks are focused on financial risk, continuum of care, integration, outcomes data, and
clinical protocols.
a
See reference 11.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 49

among local competitors. Obtaining capital funding for

outreach often takes a backseat to capital funding for in-
formation systems, acquisitions, and replacing aging facili-
ties. Managers face difficult inequities in salary and benefit
structures among the systems. Start-up costs, inaccurate
estimates of specimen volume, and inferior information
and billing systems often leave managers unable to dem-
onstrate increased revenue, income, or profit in the out-
reach market (22).

Managed competition. As hospital outreach programs de-

velop relationships with community healthcare providers,
commercial laboratories argue that hospital-based labo-
ratories have an unfair advantage in the physician market
segment, where physicians may feel obligated to patronize
the hospital. Hospitals have also become aggressive in buy- Figure 3.2 The four stages of the economy. The economy is
ing physician office practices in an effort to capture more cyclic and progresses through four stages. There are cycles
referrals. In many areas, hospitals are developing their own when the economic environment supports the move from re-
cession directly to recovery, bypassing an economic depression.
managed-care programs in conjunction with the physi-
doi:10.1128/9781555817282.ch3.f2
cians. This approach is known as managed competition.
The physician hospital organization negotiates contracts
with third-party payors to provide a full scope of services economists argue that society can avoid future depression
under a managed-care arrangement. by intelligent utilization of economic and fiscal policies. In
this model, the business cycle would move directly from
The Economic Environment recession to recovery (reference 5, p. 47–48).
Four Stages of the Business Cycle The National Economy: Fiscal and Monetary Policies
There are six major macroenvironmental forces that af- A variable economic factor that influences marketing
fect an organization’s ability to serve its customers or sell strategies is inflation. The federal government uses two
its goods and services (according to the Business Glos- basic approaches to counter the effects of inflation on the
sary located at http://www.allbusiness.com/glossaries/ economy. Fiscal policies target the government’s receipts
macroenvironment/4954903-1.html#axzz29NuRbPhV [last and expenditures, while monetary policies refer to the
accessed October 15, 2012]). management of the money supply and the market interest
• Cultural environment includes social factors that influ- rates. During periods of inflation, the government’s fiscal
ence basic values, behaviors, and preferences. policy changes could include reduced spending, increased
taxes, or a price freeze. A monetary action plan might be
• Demographic environment includes statistical studies of
to decrease the money supply or to raise the prime interest
the population in terms of size, density, location, age,
rate to curtail spending. Consumers generally do not take
sex, race, occupation, etc.
notice of modest price increases over time. This pricing
• Economic environment includes the economy, salary, phenomenon is known as creeping inflation. As customers
credit, and pricing trends that affect consumer spend- perceive erosion of their buying power, they modify their
ing and purchasing power. behavior regarding major purchases to either buy now, be-
• Natural environment consists of the raw materials and lieving that the price will be higher later, or reallocate their
energy sources needed. funds, postponing their purchase until later. Each of these
• Political environment includes laws, regulations, gov- results in a decline in demand for goods and services and
ernment agencies, and lobbyists that restrict or influ- creates a supply surplus and an excess capacity on the pro-
ence society. duction line (reference 5, p. 47–48).
Most laboratory expenses, including fixed and variable
• Technological environment includes forces that affect
costs, are impacted by inflation. Inflation factors are not
technology and the creation of new products, services,
typically applied to expenses associated with depreciation,
and markets.
interest, rent or leases (except by contract), or bad debt.
Businesses operate in a complex environment. The Inflation factors should be applied to an annual budget on
business cycle fluctuates through four dynamic stages that a month-to-month accrual basis, rather than at the first of
follow a cyclic pattern, as demonstrated in Fig. 3.2. Many the year, so as not to overstate the cost (18).
50 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Global economy. In the global economy, businesses are • Preanalytical. The cost of placing the order (connec-
forced to shift from being multinational (a national com- tivity), obtaining the specimen, transporting it to the
pany with foreign subsidiaries) to being transnational laboratory, and accessioning/processing the sample for
(where the world is one economic unit). Sales, service, testing.
public relations, and legal affairs are local. Parts, machines, • Analytical. The costs of reagents, labor, equipment pur-
planning, research, finance, marketing, pricing, and man- chase, depreciation, or lease.
agement are obtained from a world market (14). The neo-
• Postanalytical. The costs associated with reporting re-
classical concept of the global economy implies that the
sults and billing for the services.
free mobility of products and factors of production across
national boundaries will maximize efficiency through • Quality assurance/quality control. The associated costs
forced competition. Since the wider the market, the greater for monitoring and maintaining test quality.
the possibilities for specialization, it follows that the most Table 3.4 lists terms frequently used in cost and price
efficient market is the global market. analysis.
Some laboratories use activity-based costing, a method
Assess Infrastructure and Develop that assigns a cost to every activity throughout the orga-
Production Strategies nization. It captures associated costs for specimen collec-
Developing a business plan to pursue new business op- tion, transportation, handling, usage, and disposal and
portunities always includes an assessment of the existing assigns costs to bottlenecks, scheduling delays, and other
infrastructure, facilities, equipment, and human resources process costs traditionally not captured in healthcare ac-
and a realistic assessment of the laboratory’s excess capac- counting systems.
ity, using robust benchmarking tools. By performing a larger volume of tests in one location,
laboratories spread the fixed costs over a larger number
• Physical location. Determine whether the present loca- of tests, reducing the average fixed cost per test. If the
tion of the laboratory is adequate for convenient access output is increased without increasing the cost on the
for patients and couriers. Evaluate the space require- same scale, the laboratory has achieved economy of scale.
ments for the anticipated increase in test volumes. Laboratories generally experience a decrease in cost per
• Testing personnel. Analyze the personnel required to reportable result created by increased purchasing power
support accessioning, testing, reporting, courier, and for reagents, consumables, and kits. Laboratory manag-
billing functions for the anticipated test volumes by ers must recognize that there is a point of diminishing
shift. return. When additional volume reaches a point where
• Instrumentation/equipment. Work with laboratory instruments and people are performing at their maxi-
managers to assess the existing equipment’s age, reli- mum throughput, the operational efficiency achieved by
ability, throughput, and cost per test. If new instru- economy of scale begins to decline. An infinite number
mentation is indicated, consider both capital funding of tests cannot be performed in a finite amount of time
and reagent rental. Consider whether the proposed and space (39).
volume justifies front-end automation or robotics.
• Production strategies. Develop a detailed test schedule. Return on investment. Capital budgeting is the process of
Evaluate setup times and turnaround time (TAT) needs planning for the expenditures expected to generate income
for the customers. Move batched testing to the most to flow into the organization. The analysis for capital bud-
efficient shift for optimal TAT. geting should include the following steps (10):
1. Identify the needed initial cash outflow using bids and
Cost Accounting Principles proposals from vendors.
2. Forecast the anticipated net cash flows over the life of
Laboratory costs. Traditional cost accounting methods fo-
the project.
cus on unit cost per test. Today, laboratory managers must
3. Evaluate the financial risks associated with the project.
also take into consideration other environmental factors,
4. Measure the required rate of return for projects of sim-
such as test performance site, for example, near-patient
ilar risk levels.
testing versus STAT laboratory to shorten TAT or length of
5. Compute the return on investment and assess project
stay for inpatients. Developing financial management skills
feasibility.
is requisite to a manager’s ability to make sound business
decisions. To establish the price for a laboratory procedure, First, determine the cost of the capital project. Include
managers must first understand the factors affecting the all nonlabor costs. Second, calculate the total gross rev-
cost to perform the test. Laboratory costs are typically di- enue, or market potential, for the anticipated increase in
vided into four groups (20). volume of services over the life of the project. To estimate
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 51

Table 3.4 Commonly used terms in cost and price analysisa

Term Definition
Direct costs The costs incurred to perform analysis and produce test results for a specimen in the lab.
Technical labor
Reagents
Depreciation of equipment
Indirect costs The costs to acquire specimens and bill for tests.
Billing
Courier service
Office supplies and administrative costs (telephone)
Fixed costs Costs that do not fluctuate with volume changes.
Fixed costs/test decrease as test volume increases.
Lease/rent
Administrative overhead (client service, sales, marketing)
Depreciation on capital expenditures such as cars, instrumentation, and laboratory information system
Variable costs Costs that fluctuate proportionately with volume changes.
Collection supplies
Processing labor
Vehicle maintenance and expenses
Printer, fax, telephone lines for clients
Fully loaded costs The total cost to perform a test. All elements of expense from front-end registration and specimen collection
to back-end reporting, billing, and collection.
Direct and indirect
Fixed and variable
Allocation of indirect expenses Distribution of indirect costs across the department as a percentage of testing volumes.
Incremental cost The cost to perform an additional test once the direct cost of the assay is derived; also referred to as
marginal cost.
a
See reference 17.

the cash flows of the new venture, laboratory managers for daily living expenses. Medical care, one of eight major
must know their fixed costs and the changes in variable divisions in the CPI, consists of two classifications:
costs for the anticipated growth. Finally, calculate the re-
• Medical care commodities, which are divided into
turn on investment (15). This calculation is complex, but
three expenditure categories:
there are a multitude of online tools to facilitate the analy-
sis. An explanation of the formulas is beyond the scope of • Professional services
this text. • Hospital and related services
• Health insurance
System-Wide Approach to Establishing • Medical care services, which include:
a Fee Schedule
• Medicinal drugs
The development of a laboratory fee schedule is more
successful when a system-wide focus on all of the fac- • Medical equipment and supplies
tors related to laboratory economics is used. Com- Medical care indexes are limited to items with out-of-
munication must be open among accounting, patient pocket expenditures including health insurance premiums
reimbursements, finance, budgeting, production, and deducted by the employer. The data includes information
administration. The pricing formulas used must result in on healthcare services received, who received the services,
fees that cover production costs and are competitive in the amount of the payment, and the insurance reimburse-
the local market. The individual fees should be reviewed ment amount. Out-of-pocket expenses include fees that
to ensure that maximum reimbursement across the spec- are not recouped by health insurance and are paid to retail
trum of payors is achieved. outlets for medical goods and to doctors and healthcare
providers for medical services, as well as health insurance
Consumer Price Index premiums, including Medicare Part B, paid by consum-
The Consumer Price Index (CPI) measures inflation at ers. The net consumer out-of-pocket medical expense
the retail level and reflects the average price change over subtracts any insurance reimbursement made to the con-
time for a constant quality and quantity of market basket sumer from the total amount spent by the consumer. The
goods and services. The CPI approximates what house- medical care out-of-pocket expense excludes the cost as-
holds spend out of pocket for the goods and services used sociated with employer-provided healthcare.
52 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Hospital services include inpatient and outpatient ser- competitive market forces and contract negotiations with
vices. The unit of price is the hospital visit, defined by customers, suppliers, and insurers (reference 28, p. 133).
admission date and discharge date as documented on the Price is defined as the exchange value for a product or
hospital bill in conjunction with the diagnosis. This sam- service or the value of an item. Pricing objectives typically
pling also identifies specific eligible payors and the reim- fall into one of three groups:
bursement arrangements in the contract, including the • Profitability. The goal is to maximize profits and target
patient’s portion of the payment. The goal of the hospi- new income. Profits are a function of income and ex-
tal services index is to follow transaction prices of selected pense. Profit = income − expense.
services over time while maintaining consistent charac-
teristics that determine price. The transaction price is the • Volume. Volume strives to maximize sales or market
reimbursement received by the provider from all eligible share. Gross revenue is determined by the sales price
sources (insurers and patient). The CPI and Medical Care and the volume of the items purchased. Gross rev-
Price (MCP) index (a subset of the CPI) are often tied to enue = (unit price) (volume).
purchasing and managed-care-provider contracts. To learn • Status quo versus prestige pricing. Status quo minimizes
more about the CPI visit http://www.bls.gov/cpi/cpifact4 competitive pricing wars and allows the company to
.htm (last accessed May 26, 2013). focus its efforts on product improvement or product
promotion. Prestige pricing goals set a relatively high
Pricing Strategies price to create an image of quality or prestige in the
Hospital laboratories typically have two fee schedules, one mind of the buyer.
for inpatients and one for outpatients. Laboratories should List price is the term used when the current rate is quoted
have input in the development of the hospital’s inpatient and to the potential buyer. List price is usually determined using
outpatient fee schedules. Fees for outpatient testing should a cost-plus formula. Market price is the actual amount the
never be higher than the inpatient fees. Most hospitals use customer pays. Laboratory pricing strategies and policies
rate-modeling programs that compare their charges with depend on the types of customers served and their needs.
those of other healthcare providers in the local market. Hos-
pitals with community-based outreach programs must de- Account billing strategies. Strategies for billing accounts
termine the pricing strategies necessary to be competitive on an itemized invoice often include using a combina-
with each laboratory providing services in the designated tion of across-the-board percentage discounts and spe-
service area. Table 3.5 lists tools and techniques frequently cial prices to meet the customers’ needs. When designing
used in developing pricing strategies. Pricing strategies pricing options to accommodate customer needs, care-
must give careful consideration and weight to the impact of fully review the fees to ensure that they are never below

Table 3.5 Tools and techniques used in developing pricing strategies

Tool Technique for use
Reimbursement data Use patient demographic information gathered in the market assessment in conjunction with hospital statistics on
patient mix.
Work with the patient accounting or decision support to establish the average reimbursement/patient encounter.
Billing procedures Establish pricing policies for accounts that are consistent and are based on anticipated monthly dollar volume.
Maintain signed service agreements with customers that outline compliance issues.
Billing systems Does the hospital patient accounting office or the laboratory information system produce client invoices?
For direct account billing, does the invoice format provide corporate accounting, line item discounting, special pric-
ing, and monthly test utilization summaries?
Can the billing system generate both a CMS (formerly HCFA) 1500 and UB92 billing format? (See chapter 5.)
How are accounts receivable statements, aged trial balance reports, revenue reports for third-party payors, feedback
on remittance advice and denials, past-due balances, and collections handled?
Revenue tracking Work with decision support and financial systems to generate monthly net revenue statements.
Prepare monthly revenue reports that show net revenue after expense.
Business planning Monitor net revenue per test compared to sales projections.
Track progress and revise financial projections–based data.
Revise the financial pro forma for the three-year business plan every quarter.
Work with finance to prepare a return on investment that rolls the outreach program revenues up into the laboratory
operational budget.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 53

incremental costs. When selling to a customer, the best • Value-added pricing. Value-added pricing is a high op-
practice is to sell value rather than price. tion pricing strategy used whenever value-added prod-
uct or service differentiation from the competition is
• Discounting strategies
demonstrated (17).
• Cash discounts are reductions in the list price that
• Loss leader pricing. Loss leader is an aggressive pric-
are given in return for prompt payment of a bill.
ing strategy used by commercial laboratories to attract
Such discounts are legal provided they are offered to
or lure customers from the competition, based on the
all customers on the same terms.
premise that the profit will be recovered from the volume
• Quantity (volume) discounts are reductions in price of other purchased services at the regular (higher) price.
based on volume purchases and may be a one-time In recent years, some states have passed laws that limit or
transaction or a cumulative volume discount. Labo- forbid selling below cost. This strategy has a down side,
ratories may give accounts higher discounts on when customers respond by “cherry picking” the best
certain high-volume tests and offer a standard per- pricing offer by purchasing only the services priced near
centage discount referred to as an across-the-board or below cost from the commercial laboratory.
discount for all other test procedures ordered on a
monthly basis.
• Nondiscountable prices are usually established for Promotional (Marketing and Sales)
tests that are not performed by the laboratory di- Strategies
rectly but are sent to a reference lab. Esoteric testing
may also be nondiscountable, as start-up costs and Market Research
initial production costs are higher and the profit Companies utilize market research to identify product or
margin is lower than for the typical high-volume, service needs in new and existing markets. The inside-out
routine tests. This strategy, referred to as stratified approach develops the product first and then identifies
pricing, targets certain procedures as carve-outs or the market. The method employed most frequently is the
exclusions from the rate negotiations with insurers. outside-in (or market pull) approach, which identifies the
Pricing is stratified according to the test description needs in the marketplace first and then develops the prod-
or service line (for example, surgical and cytopa- uct or service to meet the need. Primary sources for market
thology, molecular diagnostics, and cytogenetic research include customers, manufacturers, competitors,
testing), based on cost and technical expertise. and consultants who are familiar with the market. Second-
• Rate negotiation strategies for third-party insurers. ary sources are from a literature search. Three techniques
Rate negotiation with insurers in most hospitals for typically used to obtain primary market information are
inpatient, outpatient, and managed-care patient re- mail surveys, telephone surveys (telemarketing), and
imbursements is generally conducted by the hospital personal interviews. Direct observation is the fastest and
administrative contract or managed-care department. most reliable means of doing market research. Gather-
The contract fees may be a combination of prospec- ing accurate, up-to-date information on the competition
tive payments (paid on a per-day or per-case basis), is best accomplished on a daily basis while making sales
fee-for-service payments (billed after the service), or calls. Effective sales representatives routinely take note of
capitation (a fixed fee or rate per member per month). the office procedures, hours of operation, type of practice,
Test utilization information on the patient population and medical school affiliations. They collect examples of
is critical in negotiating an equitable agreement that competitors’ literature and request slips. The sales team
includes a stop-loss threshold for overutilization. must always be aware of the competitive activities at the lo-
cal, regional, and national levels. Customers and prospects
• Market positioning strategies. Low option pricing provide most of the market intelligence needed. Competi-
maximizes the sales effort and is used when the goal tive information and literature should be reported and filed
is to gain market share from the competition or when in a central repository in the laboratory’s marketing office.
trying to penetrate a new territory. It is sometimes re- Before entering a new market, it should be standard
ferred to as marginal pricing. practice to perform a market survey asking a few spe-
• Defensive pricing to maintain market share. Defensive cific questions about the customer, the customer’s labo-
pricing is a low option pricing strategy used to main- ratory needs, and the competition. Knowledge about a
tain market share and defend against the competitor’s prospect or a market segment increases your success rate
pricing strategy. It is not always necessary to match the in developing interest in laboratory services. In the past,
competition’s lowest price when the customer is loyal the typical market survey was performed using a written
and agrees that using the hospital laboratory service questionnaire that was mailed with return postage. Today,
has a value-added benefit. electronic surveys are more the norm. Whether paper or
54 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

electronic, the response rate for this approach generally is searching for ways to reduce expenditures for healthcare.
around 5%. It is best to have the sales representative make In late 1996, commercial laboratories introduced new
an appointment to survey the office on-site. Telemarketing programs that allowed employers to provide maximum
can also be incorporated into the duties of the client service benefit coverage for contracted outpatient and nonemer-
group. This response rate is improved to an estimated 20% gency laboratory services when the company’s employees
if your team has the time to dedicate to this activity. The sought the laboratory testing directly at the contracted
newly acquired market information is used in conjunction commercial laboratory. Direct contracting offers in-
with knowledge about finance and the other environmental creased net revenue to the commercial laboratory, by-
factors to develop sound marketing strategies (9). passing the major health plans that realize margins from
squeezing down laboratory reimbursements.
Marketing Strategies • Insurer base. Traditional indemnity companies, third-
Performing a market assessment ensures that the revenue party administrators, and managed-care organizations
projections and sales forecasts are realistic. Each of the fol- offer a variety of programs to employers and private in-
lowing factors should be considered: dividuals for healthcare coverage. Obtaining a working
• Market demographics. The statistics related to the size knowledge of the terms and conditions related to insur-
of the market within the geographic boundaries served ance coverage will aid the laboratory in surveying the
are called demographics. Population statistics can be needs of the insurer for contracting with a community-
obtained by contacting the bureau of census in the state based provider. Increasingly, third-party payors, in-
or county. Frequently, the healthcare facility’s managed- cluding federally funded programs, continue to move
care department has these population and geographic toward global reimbursements, such as diagnosis-
data readily available. The healthcare system utilizes related groups for hospital inpatients, consolidated bill-
data from the decision support systems to generate ing for skilled-nursing facilities, and composite rates for
useful information related to patient and third-party end-stage renal disease patients.
payor mix and relevant reimbursement rates for both • Access to laboratory services. Develop a marketing
inpatient and outpatient procedures. Healthcare sys- strategy that includes convenient access to laboratory
tems can extract the detailed laboratory revenue re- services through strategic placement of patient service
ports necessary to make sound business decisions. centers in the service area.
• Provider base. The market assessment should also in- • Laboratory infrastructure. Assess the production and ser-
clude a thorough evaluation of the total number and vice needs in terms of equipment and human resources.
distribution of healthcare providers by specialty in the
market. Traditionally, the physician has been the gate- Out-of-pocket expenses. As employers and insurers nego-
keeper to most medical services, including laboratory tiate benefit packages, the beneficiary’s copays, noncov-
testing. Even though the trend is toward sharing the ered services, and utilization limitations are increasing.
responsibility with the payor, doctors will always play a Medical-necessity guidelines shift the responsibility for
significant role in the determination of preventive health payment of noncovered services to the beneficiary. The
appraisals and establishing medical necessity of testing. number of underinsured Americans continues to rise.
• Employer base. The market assessment should research Over time, more patients will not be able to pay their
the major Fortune 500 companies in the defined service medical bills, and write-offs will increase. The downward
area. Fortune 500 companies are considered to be the trends in insurance reimbursement will force reductions
largest, most profitable, and most powerful companies in the production costs of laboratory services in order for
in America. Commonly referred to as the “blue chips,” the laboratory to remain profitable (reference 28, p. 170).
they represent vast holdings and revenues in the billions
and include firms such as Exxon, General Electric, and Decision makers and their buying preferences. Providers
Philip Morris. Employers purchase healthcare for their have multiple options for choosing a laboratory. Physicians
employees as a form of compensation, to enhance well- are the constant targets of high-powered sales representa-
ness, and to increase productivity on the job. Surveying tives from regional and national commercial laboratories
the employer’s need for executive physicals, preemploy- offering features and benefits that enhance their basic labo-
ment health assessments, drug screening, and insurance ratory services. Customers base the decision to use a partic-
benefit packages for their employees is useful in develop- ular laboratory on a combination of the following factors:
ing strategies for the industrial market segment, as well
as for understanding how many employees in the service • Professional relationship with a local representative
area are tied to capitated managed-care contracts. Be- • Scope of services offered (courier, specimen procure-
cause of the escalating costs of healthcare, employers are ment, connectivity)
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 55

• Convenient and consistent level of service area. Calculate the anticipated outpatient gross rev-
• Reputation of the laboratory enue for a new geographic service area by multiplying
the current gross revenue per capita by the population
• Personal or professional attachment to an academic
of the prospective market.
institution laboratory
• Calculated gross revenue = (current gross revenue
• Price
per capita) (population in proposed new service area)
Customers are not motivated to switch laboratories be- • The flaw in this formula is the assumption that the
cause they want the product or service. The decision to economic, political, reimbursement, and competi-
change either eliminates a problem or is perceived to have tive conditions are similar in both markets.
a value-added benefit compared to the competitor. Identi- • Test mix model. Most clients order a standard battery
fying the prospect’s “hot-button,” or buying motivators, is of tests for their patients. Laboratories that monitor
a necessary step for closing the sale. Table 3.6 lists the more the average number of tests ordered per requisition
typical motivators encountered. report an average of 2.5 to 3.0 tests per requisition. To
calculate the average reimbursement per test, labora-
Differentiated marketing strategies. Companies that pro- tories should divide the total reimbursement for the
duce numerous separate and distinct products and services outpatient book of business by the total number of
directed at different market segments develop differenti- outpatient billed tests. The outpatient market typically
ated marketing strategies. The objective is to match a spe- operates 5 days per week, which averages 22 business
cific product or service to the customer’s needs. Costs to days per month.
serve multiple market segments are typically greater than
those for serving a single market segment due to higher • Calculated reimbursement per month = (average
production costs, increased space needs, expanded record number of requisitions per day) (average number of
keeping, and promotion. tests per requisition) (average reimbursement per
test) (20)
Concentrated marketing strategies. Concentrated market- • Practice type model. The practice type model requires
ing strategies are used when companies focus their efforts estimates of revenue from similar practices (both by
on servicing a single niche market segment. This strategy is specialty and by number of physicians). For example,
self-limiting, and companies may end up in financial dif- • Calculated reimbursement per month = (aver-
ficulty when buying preferences change to a competitive age reimbursement per physician) (number of
product (reference 7, p. 202–205). physicians)
• This formula can be used to build estimated rev-
Assess laboratory market potential and estimate market enue models for each physician specialty based on
revenue. The best market estimates are based on histori- actual reimbursement experiences.
cal and competitive price data. If the customer will share
the information, then you can accurately assess the poten- • Hospital model. Hospital revenue models can be for-
tial profitability of the new business opportunity. If this mulated using existing hospital clients with similar
information is not available, there are several established characteristics, such as number of beds, urban or rural
models for estimating the market: setting, and general, specialty, or tertiary services.
Other factors that have an impact on the accuracy of
• Population model. The population model provides an these models are the inpatient-outpatient mix and the
estimate of the gross revenue potential in a geographic actual referral test menu. The focus for hospital pros-
pects must be on those clients whose test mix meets
the laboratory’s targeted tests where excess capacity
Table 3.6 Buying motivators (hot buttons) exists.
Turnaround time • Calculated reimbursement per month = (average
Courier service (7 days per week) daily census of prospective hospital) (average labo-
Convenient access to technical support (client services, ratory reimbursement per patient day) (25)
pathology consultation)
Educational support Targeted market segments and prospecting. Resources that
Quality assurance support are useful in preparing prospect lists are local telephone
Computer and telecommunication support directories and the yellow pages, state and local medical
Full scope of services (patient service centers, clinical and society directories, the American Hospital Association list-
anatomic pathology)
ing by state, nursing home directories by state, managed-
Price
care provider lists, the Clinical Laboratory Management
56 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Association directory, and classified and other advertise- markets, and prospect lists are the metrics used to measure
ments for new office locations or physicians joining prac- the laboratory’s success.
tices in local newspapers, as shown in Table 3.7.
Sales incentives. Many studies have shown that outreach
Recruiting the laboratory sales team. One of the keys to a programs operating from regional or hospital-based facili-
successful hospital outreach program is selecting the best ties select seasoned sales representatives who have excep-
candidates for your marketing and sales representatives. tional skills in developing rapport with customers and in
Successful salespeople are self-motivated, self-confident forming a stable long-term relationship while acting as a
individuals who always seem to maintain a positive atti- laboratory consultant. Most often these sales representa-
tude. Their enthusiasm is contagious. Customers can sense tives are offered a base salary in line with other laboratory
when salespeople are sincere and genuinely believe in their management staff, with little in terms of incentives or com-
services. Salespeople must be thick-skinned and very per- missions. Incentives, commissions, and bonuses reward
sistent. The customer’s first encounter with a sales represen- people for productivity. The decision to offer bonuses and
tative is crucial. The first impression must be a good one. incentives must be weighed carefully. If everyone on staff
Sales representatives must look and act like profession- who is asked to improve productivity is not included in
als whenever in the presence of current and prospective the incentive process, it can be detrimental to employee
customers. Product knowledge is essential when trying to morale throughout the entire laboratory operation.
close a sale. Sales representatives must know the features
and benefits of each of the services being offered by the Territory management. Sales representatives are extremely
laboratory in order to handle indifference or objections competitive. Establishing territory boundaries allows the
from the customer. laboratory to manage the sales effort from a team approach.
Sales territory assignments can be defined using several
techniques:
Sales forecasting. The process of measuring sales success
actually begins with the department’s administrative stra- • Geography. A sales territory can be defined by using
tegic planning goals and objectives. Combined with the geographic boundaries specific to county or city lines
marketing team’s strategies, revenue projections, target or by using the postal service ZIP code boundaries.

Table 3.7 Target market segments for clinical laboratories

Market segment Specific type
Hospitals Academic
Affiliated
Community
Rural
Independent laboratories and physician office labs Niche business specialty laboratories (drug testing and pharmaceutical)
Group practices (family practice and internal medicine)
Physician offices Family physicians
Internal medicine specialties
Obstetrics and gynecology
Pediatrics
Surgical specialties
Dermatologists
Nursing homes Skilled-nursing facilities (SNFs)
Intermediate-care facilities (ICFs)
Assisted living facilities
Home health agencies
Public sector (federal, state, local governments) Veterans Affairs medical centers (VAMCs)
State and local mental health facilities
Prisons
Health departments
Clinical trials Phase I-IV trials, pharmaceutical companies, investigator, independent research
Industrial Preemployment, employee health services, health fairs
Other Veterinarians (DVM), chiropractors, podiatrists (DPM), dentists
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 57

• Account type. Another method of defining territories medical supply company, and a master of customer ser-
is by account type. For example, individual representa- vice strategies, reminds his world-class organization to
tives can focus on specific strategies to bring on family “DWYPYWD,” which simply translates to “Do what you
practices or internal medicine or obstetric practices. promised you would do.” (Visit http://www.owens-minor
• Market segment. Focusing on the special needs for .com/companyinfo/whoisom/culture/HughsViews/Pages/
each market segment offers another option for sales default.aspx [last accessed October 15, 2012].)
representatives to become experts in areas of hospital
reference testing, physician office testing, clinical trials, Sales techniques and strategies. Sales techniques and strat-
infectious diseases, long-term care facilities, substance egies include:
abuse testing, and public-sector contracting. 1. Precall strategy. Sales representatives, much like a
• Combination. Some laboratories ask their representa- teacher preparing a lesson plan, should prepare for
tives to create detailed prospect lists from the labora- their calls in advance (Table 3.8). The customer’s first
tory’s service area each quarter. The representatives encounter with a sales representative is crucial. First
use the prospect list to make their daily call plans. If a impressions are lasting and must be good. Sales repre-
prospect is not closed within 90 days, another repre- sentatives must look and act like professionals when-
sentative can then add the targeted account to his or ever in the presence of current and prospective
her prospect list for the next quarter. customers.
2. Cold calling. Even after an exhausting planning pro-
Sales Strategies cess, most prospecting takes place by knocking on
doors, making the often dreaded first-time, face-to-
Sales strategies are used to position the company and prod-
face, cold call (see Table 3.9).
uct before the sale begins. The key to a successful sales
3. Making the sales call. Sales representatives should al-
strategy is to identify prospective customers who are not
ways present a positive impression. They build rapport
satisfied with their present product or service. Long-term
by showing interest and enthusiasm in the client. As
sales goals are focused on account cultivation and retention
salespeople gain experience, they learn to pace the
by developing a “customer for life” relationship with the ac-
rhythm of the call.
counts. Short-term sales goals include identifying and clos-
4. Sales techniques are the tactics or actions used during
ing as many deals as possible.
the sales call to deal with customer attitudes of indiffer-
ence and skepticism and to handle objections. Features
Sales planning. Successful salespeople use a combina-
are characteristics of your product or service. Benefits
tion of preparation, planning, and just plain luck to place
are the value the features bring to the customer. One
themselves in the right place at the right time. The sales
must listen actively and courteously to identify key
plan should include some flexibility to take advantage of
points and perceived drawbacks. Use simple probing
any unanticipated opportunities that arise. Sales objec-
tives can be adjusted for a sudden change in competi-
tive activity. Identifying changes in the environment and
Table 3.8 Call preparation and rehearsal
ranking their relevance assists sales representatives in
defining the sales objective for the call. Effective repre- 1. Identify the needs of the prospect, short term and long term.
sentatives constantly evaluate the laboratory’s position to 2. How do the customer’s needs relate to the perceived needs?
reposition the product or service based on need and per- 3. List the distinctive features of the laboratory services that meet
these needs.
ception. Thorough planning enables sales representatives
4. How are these needs currently being met?
to concentrate the call activity within a small geographic
5. Identify the testing area with the greatest opportunity for new or
area, avoiding excess travel time. Making appointments is increased business.
the most efficient way to plan a day working in the field. 6. Is the prospective customer knowledgeable about the hospital
Good time and territory management is vital for the suc- laboratory service?
cess of the salesperson. As the adage goes, plan your work 7. Evaluate ahead of time the degree of indifference the customer
and work your plan. Daily activities should be prioritized, may have to the laboratory services.
making it possible for the salesperson to always act with 8. List the specific benefits that the prospect may be skeptical about.
a sense of urgency. Maintaining a daily call itinerary that 9. Gather appropriate proof sources to handle the anticipated indif-
lists each prospective call to be made, including updates ferences and skepticism.
and reminders from a tickler file, allows the representative 10. Think through the process to handle objections due to misunder-
to function more effectively and provide timely follow-up standings or perceived drawbacks to the services.
with prospective customers. Hugh Gouldthorpe, Jr., se- 11. Plan your tactics to identify the decision maker.
nior vice president of Owens and Minor, a Fortune 500 12. List the objectives for each call before you begin.
58 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 3.9 The cold call: information gathering • Unless the sales call includes spending time with the
Customer type (hospital, physician, nursing home) decision maker or someone who can influence the
Customer demographic information (number of beds, decision, a sales representative is probably wasting
number of M.D.s, number of patients) valuable time.
Gather office staff member business cards 7. Close/trial close. After the customer acknowledges
Develop key contacts product approval and is in agreement with you, ask for
Identify office billing system and procedures a commitment to use the product or service. To close a
Third-party payor mix sale, the sales representative summarizes the benefits
Commercial laboratory pricing arrangements and outlines a plan to initiate using the product or ser-
Number of patients per day with laboratory orders vice. The following actions by a prospective customer
Most frequently ordered test menu indicate a commitment:
Identify the decision maker • Agrees to have a presentation or in-service training
Gather competitive information program for the office
Understand office logistics and service needs • Accepts an invitation to take the staff on a facility
Reporting and telecommunication system tour
Ask what else they need or what they would change
• Authorizes an appointment with the office manager
Take notes
to gather or discuss billing details
Schedule a follow-up appointment to present a proposal
8. Call/close ratio. Many companies with an aggressive
sales operation expect sales representatives to make a
with prospective customers to clarify their objections. minimum of eight calls per day, or an average of one
When promoting a product or service, always restate productive call per hour. Making 35 to 40 sales calls a
the features and benefits that support the customer need week, or at least 200 calls per month, provides ade-
or that counter a misunderstanding and ultimately re- quate interaction to close three or four accounts by
solve the concerns identified. Since most customers month’s end, another three or four accounts within 2
generally think they are satisfied in their current situa- months, and three or four accounts within 3 months.
tion, they aren’t aware of a better product or service. Maintaining the momentum of the selling cycle re-
Creativity is usually necessary. Good salespeople iden- quires that the sales representative adhere to a regular
tify a need or dissatisfaction. Then, they convert the sales schedule. One of the most important character-
need into a potential problem in the customer’s mind. istics of a successful sales representative’s style is per-
Next, they create a desire to have the problem solved, sistence, as demonstrated in the statistics that follow:
which leads to introducing a feature of the laboratory • Eighty percent of all closes are made during the fifth
service that will satisfy the need and bring a benefit to call on a prospect.
the customer. Make sure the customer agrees that the • Fifty percent of sales representatives quit after one
stated benefit solves a need or problem, and then ask for call.
the business. Over time the experienced sales represen- • Twenty-five percent more quit after two calls.
tative is recognized as a laboratory consultant and a • Ten percent more quit after three calls.
partner in providing quality healthcare and gains added
respect from the client for his or her professional and • The 20% that keep selling close 80% of their pros-
capable contributions (23, 40). pects and bring in the most revenue.
5. Opening. After making the initial introduction, always
thank the customer for the opportunity to meet with Decision makers. A key element in the development of
him or her. Asking about the customer’s operation and sales strategies is the ability to identify the relevant play-
needs for a reference laboratory helps break the ice. A ers. Strategic selling concentrates on the things that remain
sales call should begin with an initial feature or benefit constant from one customer to another. A complex sale is
statement about the laboratory service that supports a one that requires more than one signature to authorize ap-
specific customer need. proval or involves more than one decision maker. In the
6. Postcall evaluation. The key to success is getting in to corporate business world, each sale is complex and has
see the decision maker. four distinct buying influencers who must be identified
• Unless the representative is sitting face-to-face early in the sales process. The “user” buying influencer is
with a prospect, the representative’s selling skills, primarily concerned about the reliability of the product or
product knowledge, and enthusiasm have very little service. The “technical” buying influencer acts as the gate-
relevance. keeper and is responsible for measuring the value of the
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 59

product or service. The “economic” buying influencer is thereof that differentiates a firm from the competition. A
the one person who gives the critical, final approval for the trademark is a brand that has received legal protection for
sale, is usually the most difficult to identify, and is typically the exclusive use of the sole owner. Brands vary widely in
very difficult to convince. The fourth buying influencer is consumer familiarity and acceptance. Brand acceptance
a champion, or “coach,” an experienced, trustworthy per- goes through three stages of development: (i) recognition,
son from either the purchaser or seller’s organization who (ii) preference, and (iii) insistence. Establishing a product
assists, guides, and directs the salesman through the dif- or service that reaches brand insistence is the goal of every
ficult sale. Maintain written records of the decision makers company—to be the healthcare provider of choice (refer-
and buying influencers for each customer, remembering ence 7, p. 221–225).
that the names and faces change periodically along with Building a reputation and image for the laboratory out-
the hats that they may wear (26). reach program depends on the laboratory operation and the
In the past decade, a new approach has emerged in the healthcare facility as an enterprise. Communicating with the
sales process and planning process used by many Fortune marketing director or public relations coordinator in hospital
500 companies and is known as “conceptual selling.” This administration is essential. There are usually policies related
transition is driven by a shift in customer consciousness to the use of a hospital logo in conjunction with other printed
that is redefining what we know about sales and the rules materials. It is important to link the program to the organiza-
that influence the sales profession. Miller, Heiman, and as- tion from a branding perspective. Successful marketing and
sociates have written a series of books (The New Conceptual sales strategies depend on having printed publications that
Selling, The New Strategic Selling, and The New Successful clearly identify the laboratory services. In developing a needs
Large Account Management) outlining a new discipline assessment for the marketing and sales program, laboratories
with a well-defined process and useful templates for sales must allocate sufficient funds for publications and advertis-
training and planning. Using the “conceptual selling” sales ing costs to ensure that the sales effort has the tools necessary
process, the sales professional begins by listening to the cus- to meet revenue projections (Table 3.10).
tomer to understand the customer’s situation or concepts
(just as Stephen Covey’s principles emphasize first seeking Customer-Focused Concepts
to understand and then to be understood). Hospital labora-
and Service Strategies
tories with outreach programs should consider investing in
the series to develop knowledge and business skills. Who Is the Customer?
Customer satisfaction is a critical strategic weapon for
Advertising Strategies every organization. The laboratory’s customer is the pa-
Products and services are identified through the use of brand tient, the physician, the nurse, or anyone who depends
names, symbols, logos, and distinctive packaging. A brand on the products produced or the services provided. The
is a name, term, sign, symbol, design, or some combination laboratory must treat each customer as a valuable and

Table 3.10 Marketing publications and advertising needs

Marketing tool Needs associated with marketing tool
Publications Directory of services – test procedure manuals (accessible online)
Fee schedules
Requisitions (available online via web-based order entry and result system)
Supply order forms
Procedure updates (available online via a public website)
Telephone result pads
Confidential result envelopes
Letterhead, envelopes, stamps
Advertising Business cards
Tabletop displays and exhibits (allocate costs to exhibit by number of conventions attended)
Yellow pages
Specimen lock boxes
Promotional – give-away items
Customer continuing education budget
Holiday greetings, lab week recognition
60 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

irreplaceable resource. World-class customer service or- Table 3.12 Customer attitudesa
ganizations are successful because they are able to consis- Customer acceptance occurs when a feature or benefit of the product
tently exceed the customer’s expectations. Their primary or service is received with general approval or agreement.
strategic and structural focus on the external customer Skeptical customers question or doubt that the product or service
includes rewards, recognition, and promotion and treats will satisfy their need. Providing a reference source or a demonstra-
the customer like a king (reference 24, p. 26). Table 3.11 tion offers proof of the benefits.
defines who is the customer. Indifferent customers display a lack of interest in the product when
they do not perceive a need or when they are satisfied with a com-
petitive product or an internal service. Seek first to understand the
Understanding Customer Behavior customer’s attitude by using probing techniques.
Customer behavior results from personal preferences Objectionable customers relay some degree of dissatisfaction or
and pressures exerted from forces in the outside environ- lack of trust or dislike the product or service based on perceptions.
ment. A customer is not motivated to act unless there is Misunderstandings occur when customers lack enough information
about the product or service to make a decision. Whenever a misun-
an unsatisfied need for a product or service. Selling is derstanding cannot be clarified it becomes a drawback to the sale. It
the process of uncovering and satisfying customer needs. is critical that the drawback be reduced to the minimum by restating
Identifying an area of dissatisfaction with a competitive other features that offer benefits to the customer.
product or service becomes an opportunity. The manner a
See reference 39.
in which products and services are presented influences
customer perception.
Once customers form an opinion, they become indif- quality, but to improve it using a systematic approach.
ferent or skeptical. If they have an objection or attitude Quality became more than a slogan; it was recognized as
about a product, effecting a change is difficult (Table 3.12). the most profitable way to run a business. The following
When this happens, the product and service strategies concepts and strategies represent various approaches to
must be modified in one of two ways: customer service used by many blue-chip market leaders.
• Change the product or service to more closely match Zero defections. Losing a customer over quality or service
customer opinion or to overcome the basic objections. issues carries a high cost. Lost business impacts a compa-
• Attempt to change customer attitudes and opinions ny’s profitability more than unit costs and market share.
about the product or service. Performing defection analysis is the process of gathering
feedback from defecting customers and acting on the infor-
Key Concepts and Recognized Customer mation to reengineer the products and services. Typically
Service Strategies companies lose 15 to 20% of their customer base annually.
There is a quality revolution emerging in the service indus- By striving for zero defections (keeping every customer the
try. Keeping customers satisfied takes a real commitment company can serve and empowering the organization to
from management. During the 1980s companies learned achieve it), companies can document double the average
that quality does not improve unless you can measure it. growth rate and increased profits from their loyal custom-
Later, various techniques emerged to not only measure ers for each year that they stay. After all, loyal customers
are the best form of advertisement and new customer re-
ferrals. However, the goal of achieving service quality does
Table 3.11 Who is the customer?a not mean retaining customers at all costs. Focus on retain-
A customer is the most important person in any business. ing the most profitable customers; then, manage for zero
A customer is not dependent on us. We are dependent on them.
defections. There are some customers you may not want
to serve. The quality of the laboratory’s customers is more
A customer is not an interruption of our work. They are the purpose
of our work. important than the quantity of customers (32). For more
A customer does us a favor when they call. We are not doing them a information about monitoring sales activity, refer to http://
favor by serving them. sbinformation.about.com/cs/bestpractices/a/aa083002a.
A customer is not a cold statistic. They are human beings with feel- htm (last accessed October 1, 2012).
ings and emotions like our own.
A customer is not someone with whom to argue or match wits. New customer development carries a price tag. Profitabil-
A customer is a person with needs. It is up to us to meet their needs. ity is directly impacted by customer retention. Bringing
A customer is deserving of the most courteous and attentive treat- on new business is more costly than maintaining a current
ment we can give them. customer. Customer loyalty is the main driver of revenue
A customer is the person that makes it possible to pay our salaries. growth. Satisfied clients are easier to up-sell on new prod-
A customer is the life blood of this and every other business. ucts and services and are more likely to generate referrals.
a
See reference 23 Companies find that the Pareto principle has applications
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 61

to customers and revenue. The top 20% of a company’s • Recognize employee performance. Pay employees like
customer base typically represents 80% of the revenue they are business partners.
generated. Cultivating relationships with these custom- • Lead by example, offering equal respect to both inter-
ers, who are often referred to as “cash cows” in the mar- nal and external customers. If the organization expects
ketplace, is invaluable. It is well recognized in the industry employees to be polite to the customers, the employees
that the customers that generate the least revenue and are must be treated courteously.
in the lowest tier of your customer base require the most
• Just like the Japanese, organizations should be students
resources to manage and service, ultimately representing a
of the best customer service companies. Copy them,
net loss to the bottom line (38).
and then improve on their systems (reference 33, p. 6,
23, 17, 34, 11, 60, 32, 55, 118, 126, 147).
Consistently exceed the customer’s expectations. System-
atic approaches to providing service are 80% of customer
service. The key is to create systems that allow the labora- Customer loyalty and customer relations. Customer loy-
tory to do it right the first time every time. Success hinges alty management is an often-overlooked important part
on having a plan for when things fail. When it comes to of operating a hospital outreach program. Account re-
service, it is always best to under-promise and then over- tention and repeat customers drive increased sales and
deliver. People inherently like doing business with people decrease the cost of sales, as demonstrated by the follow-
who keep their word. Customer satisfaction is about ex- ing statistics found at http://www.greenpeg.com/index
ceeding our customers’ needs and expectations to the .php/customer-loyalty-management (last accessed Octo-
point of “delighting” them (reference 24, p. 45–47). ber 3, 2012).
• It costs six times more to attract a new customer than
Create customers for life. According to C. Sewell and P. it does to keep an existing one.
Brown in their book Customers for Life, there are 10 basic
• Dissatisfied customers typically tell eight to ten people
commandments for successful organizations to empower
about their negative experience with the services they
employees to create a company of service superstars who
receive.
turn buyers into lifelong customers (reference 33, p.
xix–xx). • Seven in ten customers will generally do business with
you again if you can resolve their concern to their
• Ask what customers want, and give it to them. If you satisfaction.
don’t keep your customers happy, someone else will.
• When you resolve their concern on the spot, 95% of
• When the customer asks, the answer is always yes, up these customers will continue to use the services.
to a point. Quality customers are more valuable and
• When customers discontinue using your services, 68%
profitable than business based on customer quantity.
have an attitude of indifference about the services.
• Do it right the first time every time. Employees are
held accountable for their mistakes. Repeating tasks is Laboratory managers should ensure that every em-
costly and lowers productivity. Using a systematic ap- ployee has the communication and problem-solving skill
proach is 80% of good customer service. sets needed to handle customers in the proper way each
and every time they deal with both internal and external
• Keep your promise for service. Simply DWYPYWD: Do
customers.
what you promised you would do. When you under-
promise and then over-deliver, the customer is delighted.
Creating value. Quality and value are generally measured
• Train and empower every employee to be a customer
by the end user of the product or service. Identifying
service representative.
how value is created in a business environment is critical
• No news is not good news. Encourage customers to tell to competitive success. Determining the cost associated
you when something is wrong. Be proactive and probe with creating, delivering, and maintaining the customer’s
to uncover flaws in the systems. perceived value and quality becomes fundamental. More
• Measure everything that is relevant to performance. complex processes require more activities and overhead
Set a target. Post the results. People are naturally com- expenses for staffing, equipment, information, and com-
petitive and will try to exceed whatever goals are set for munication systems and ultimately increase the pos-
them. Employees must be able to relate to the indicator sibility for error. Every process in a company eventually
being monitored. Typical indicators used are quantity, affects external customers’ perception about the product
quality, cost, and timeliness. Just being good is not or service and determines whether they will make a buy-
enough. The goals established must also be congruous ing decision. Creating an environment based on pay for
with the best interests of the laboratory operation. performance has never been so important. The manner in
62 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

which products and services are presented influences cus- The service strategy must do or consider each of the fol-
tomer perception. Value is perceived to be quality divided lowing before developing the service:
by price.
• Decide whether to utilize in-house couriers or out-
There are two types of value:
source to a contract courier.
• Customer-perceived value is the major driver of rev- • Determine what type of vehicle will meet your needs.
enue. There are four drivers (function or utility, con-
• Evaluate options for capital purchase or lease agree-
venience, price, and exchange value of competitive
ments on vehicles.
products and services) that influence value perception.
• Identify daily and on-call stops based on customer
• Process value is defined by the relative cost of value-
needs, hours, and volume.
added tasks and services and is influenced by accuracy,
speed, consistency, conciseness, and relevance. • Develop a logistical plan to meet the needs of each
customer.
Cost/benefit analysis. Performing a cost/benefit analysis • Calculate the average cost per stop.
to identify the nonessential steps in a process, or process • Calculate the impact of adding new customers to a
waste, enables companies to control the cost and price of route.
a product or service. Managers must be cautious not to
• Review the number of stops, mileage, travel time, and
over-invest in technology. The focus should be on elimi-
specimen arrival to determine needs for additional ve-
nating unnecessary work, not just speeding up the process
hicles and couriers.
(31). When an entire organization focuses on delivering
what the customers really want, companies reduce costs • Include the associated costs of the impact from the
by eliminating the processes that don’t add any value to recent International Air Transportation Association’s
the product. regulatory changes for dangerous and infectious goods
on specimen transportation decisions, costs of train-
Relevant, meaningful, and quantifiable information. ing, and handling. These regulations are discussed in
Customer service is more than a theory. In Making Cus- more detail in chapter 5.
tomer Service Happen, Roderick McNealy writes, “By de-
fining it, we can measure it. After measuring it, we can Customer supply policies. The support service strategies
analyze it. If we analyze it, we can control it. If we can con- include the costs of setting up a new account with the sup-
trol it, we can improve it” (reference 24, p. 26). To ensure plies necessary for specimen collection, handling, and
optimal proactive customer satisfaction, avoid taking the transportation to the laboratory.
reactionary, quick-fix approach to customer complaints.
Search out the root cause and eliminate it and the re- • Establish a standard list of items supplied to
sulting downstream effects at the same time. Moments customers.
of truth occur when customers develop an impression • Develop policies and procedures for placing equip-
or perception about products, services, and the organi- ment such as centrifuges, printers, and computer in-
zation through encounters that happen over time. Even terfaces that meet compliance guidelines and are based
though the impressions may have been incorrect, all that on measurable parameters, such as daily specimen
matters is the customer’s perceptions. Perceptions are volume.
real (reference 24, p. 61–75). When organizations first • Develop a distribution system and supply audit pro-
uncover the customer’s negative impression or percep- cess to monitor service and avoid possible charges of
tion about their product or service, it becomes a moment inducement.
of truth.
• Use the anticipated test volume for clients to calculate
the time needed to recoup the start-up expenses.
Service Delivery Strategies
• Include the expense of providing and training for
Service delivery strategies encompass the nontechnical op-
supplies compliant with the Occupational Safety and
erational support services necessary to deliver laboratory
Health Administration’s regulations for blood-borne
services to the customer (for example, courier services,
pathogen and needle stick safety.
supplies, information services and communications, cus-
tomer service, specimen accessioning, and billing services).
Customer service call center. Implementing a customer
Logistics and distribution service considerations. Devel- service communication center requires a detailed analysis
oping a dependable courier network to support the cus- of the phone calls related to service for the entire labora-
tomers’ needs is fundamental to the laboratory’s success. tory operation.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 63

• Track the number and type of calls each hour to deter- claim scrubbers for the electronic data interface with in-
mine the need for a dedicated group to free technical surers, and decision support capabilities. Flowcharting the
staff for testing. process often uncovers problematic areas that need atten-
• Investigate systems that automate data collection and tion to streamline the processes. The need to flowchart the
measure call wait time and lost calls. billing process is dependent on the complexity and num-
ber of systems used for registration, billing, claim process-
• Evaluate the skill sets and personnel level needed to
ing, accounts receivable, and decision support. The ability
handle the inquiries.
to generate accurate and timely monthly invoices, third-
• Consider having the group support calls for nonsched- party insurance claim forms, and patient statements is a
uled pickups and quality assurance functions. key component of the laboratory service and is essential to
• Establish quality assurance monitors, and develop a maintaining satisfied customers.
scorecard to report performance.
Laboratory information system management. Laboratories
Outreach registration and specimen processing and acces- have become information brokers that provide the major-
sioning. To sell the laboratory services, it is critical that an ity of the clinical information used by healthcare providers
electronic directory of laboratory services be available to in disease management. To create value, the results must
customers. The directory should be a compendium of the be accurate and timely. During the past decade, profi-
test offerings listing specific information about specimen ciency testing, continuing-education programs, oversight
collection, storage, and transportation. The laboratory’s by accrediting and regulatory agencies, and more sophisti-
test requisition forms should be easy to read and complete. cated instrumentation were the change drivers that forced
The ability to customize the client’s electronic or paper re- laboratories to exceed earlier standards for reproducibility
quest forms to include the most frequently ordered tests is and technical accuracy (4).
important. The request should have ample room and clear
instructions for completion of billing information. Clients Result reporting. External customers expect timely results
should be able to easily refer to a current medical-necessity reported to offices via remote printer or facsimile. Include
guide and reference manual for tests ordered on patients these expenses when calculating new-account start-up
covered by federally funded programs. The laboratory costs. Evaluate equipment costs to support remote order
must also have a plan and process developed for when the entry and online test requests and inquiry. Calculate the
samples arrive. impact that the Health Insurance Portability and Account-
ability Act (HIPAA) security regulations will have on the
• Develop a plan to handle the anticipated increase in cost of reporting.
specimen volume for each shift.
• Train the processing team annually regarding labora- Knowledgeable consumers. The laboratory has migrated
tory compliance and medical-necessity guidelines. from providing information about diagnostic detection
• Make sure that the registration, information, and bill- and treatment to prognostic prediction and prevention (C.
ing systems can accommodate a short registration Diehl, 2001. The role of the laboratory in the integrated
pathway for third-party billing to facilitate timely health-care system. Presented at the CLMA Leadership
sample accessioning, testing, and reporting. in Clinical Systems Management Annual Convention
and Exhibition, St. Louis, MO). Personal computers and
• Consider moving data entry for billing to the day shift
the Internet have provided a platform for computer-savvy
to allow the staff to interact directly with the customers
healthcare providers and patients to communicate and
regarding any missing data elements required for clean
seek information via the World Wide Web. Email and In-
claim submission.
ternet server access provide means for online ordering and
• Have a procedure to track specimen handling errors result reporting with appropriate security encryptions to
and data entry errors by employee and shift as a quality ensure that HIPAA privacy regulations are maintained.
monitor. Healthcare facilities and laboratories now have a mecha-
nism to publish promotional materials and to advertise
Billing systems and revenue tracking services. Most hos- services by developing user-friendly websites (reference
pitals lack accounting systems to adequately measure and 28, p. 130–131).
track costs or net revenue at a per-test level. Success de-
pends on having a clear understanding of the hospital rev- Create a service delivery report card. Laboratory services
enue systems and processes, including patient registration, are integral to the provision of healthcare. While labora-
coding requirements and regulations, reimbursement by tory test results influence nearly 80% of all treatment deci-
test and payor, patient accounting system, preprocessor sions, they represent only 3% of the total cost of healthcare.
64 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Many stakeholders make purchasing decisions primarily as reengineering, downsizing, rightsizing, consolidation,
using four key service parameters in the following or- and regionalization. Following the emergence of man-
der: quality, cost, access, and service. Organizations that aged care, the healthcare industry was forced to seek al-
align behaviors with goals and values achieve excellence ternative treatment settings and to shift its focus to health
in customer service through being accountable to the cus- promotion and prevention of disease. Manufacturers and
tomer (16). Laboratories should develop a quality monitor suppliers responded to these environmental factors by
and scoring system to measure and report the effective- introducing new technological advances in products and
ness and utility of these elements for each service line services to support genetic testing, near-patient testing,
(patient service centers, customer service center, courier home testing, and promotion of direct access testing (12).
services, billing services, and information services). The Both laboratories and manufacturers have developed
highly competitive healthcare environment, historically new products and services to meet the changing market
focused on costs, is increasingly being driven by the need needs, targeting new markets and focusing on value-added
for meaningful information to make informed decisions. customer service strategies to outperform the competition
Service report cards have become a standard tool to assist and to meet and exceed the customer’s expectations. Dur-
in the negotiation of equitable contracts and demonstrate ing the same period, the Internet became the platform
value to customers (30). for knowledgeable consumers to access information and
demand more value from the services related to their
healthcare.
Summary Today, healthcare providers realize that the patient is the
client and consumer. They now recognize the importance
In the past the use of the term “healthcare system” to de- of including the patient in the development of the care plan
scribe the delivery of services was something of an oxy- and the decision-making process. Ultimately, the greatest
moron, since multiple organizations provided fragmented opportunity for creating added value in healthcare hinges
services while competing for the same customers. The on the interface between the patient and the caregiver. When
laboratory manager’s responsibilities include three cat- technology contributes to the quality of that relationship, it
egories of resources: physical infrastructure (space and becomes more valuable (3). The laboratory should expect
equipment), financial (operating budget), and human even more significant changes in diagnostic testing in the
resources (technical and support staff). Even though hu- future as the industry changes its focus to the following:
man resources constitute more than half of the operational
expenses, focus on the physical and financial responsi- • Utilization management through elimination of un-
bilities now demands increasing attention. In the current necessary testing
market, consumers (linked by geography, employer group, • Implementation of practice guidelines and standards of
or managed-care plan) have increased the demand for co- practice
operation among the stakeholders, setting the stage for the • Continued standardization of instrumentation and
unprecedented wave of consolidations, mergers, acquisi- methodology
tions, and partnerships witnessed in the past decade. Striv-
ing to coordinate a patient’s episode of care, healthcare is • Increased automation and robotics
vertically integrating across inpatient and outpatient ser- • Increased testing in molecular diagnostics, genetics,
vice lines and from home testing to self-testing. Simul- and proteomics
taneously, healthcare is integrating horizontally across • Using patient clinical outcome to measure laboratory
communities and regions to achieve these goals (36). quality (12)
After enjoying several decades of lucrative fee-for-
service reimbursements and high-volume testing that The increasing importance of access to the most ad-
supported duplication of services without collaboration vanced technology must be tempered by the ethical and
among providers, the nation’s healthcare system and the humane concerns for the use of laboratory information.
clinical laboratory industry were forced to reinvent the The efficacy, safety, cost-effectiveness, and clinical out-
approach to providing healthcare. In 1984, government comes of diagnostic and treatment strategies link utiliza-
regulations aimed at cutting the escalating costs for fed- tion of resources and economics (36).
erally funded programs paved the way for reimbursement
to shift from traditional fee-for-service reimbursement to
KEY POINTS
global reimbursements, such as diagnosis-related groups
and other prospective payment models. Hospital labora- ■ Customers are every organization’s most valuable re-

tories, formerly considered revenue centers, became cost source.

centers. They responded to decreasing reimbursements ■ Customer satisfaction is the most critical strategic
and shifts in volume by using strategic techniques such weapon for any organization.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 65

■ Customer service is more than a theory. measures changes in the average level of prices over a period of
■ Moments of truth occur when customers develop an time with a given starting point or base period, is the most fre-
quently used indicator of inflation, and reflects changes in the
impression or perception about products, services, and
cost of acquiring a fixed basket of goods and services by the aver-
the organization through encounters that happen over age consumer.
time.
Creeping inflation A pricing strategy that uses modest price in-
■ The top 20% of the customers represent 80% of the creases over time that are typically not noticeable to the
revenues. consumer.
■ Laboratory data account for 80% of the diagnostic in-
Demand The relationship between the price and the quantity
formation utilized by healthcare providers. The clinical needed for a particular product or service. Demand is the quan-
utility of laboratory data is migrating from diagnostic tity of goods that customers are willing to buy at a given price.
detection and treatment to prognostic prediction and
prevention. Diminishing return When additional volume reaches a point
that instruments and people are performing at their maximum
■ While laboratory test results influence nearly 80% of all throughput, the operational efficiency achieved by economy of
treatment decisions, they represent only 3% of health- scale begins to decline. An infinite number of tests cannot be
care costs. performed in a finite amount of time and space without ulti-
mately reaching the point of diminishing returns.

GLOSSARY Direct observation A marketing research technique that yields

the fastest and most reliable information about the prospective
Accountable care organization (ACO) A group of healthcare
market segments, customer base, and competition.
providers who give coordinated care and chronic disease man-
agement and thereby improve the quality of care provided to the Due diligence A confidentiality agreement exercised between
patient. Payment to the ACO is based on achievement of health- two competing businesses during discussions related to partner-
care quality goals and outcomes that result in cost savings. ship and joint ventures.
Activity-based costing A method being used by some laborato- DWYPYWD A customer service phrase: Do what you prom-
ries that assigns a cost to every activity throughout the ised you would do.
organization.
Economy of scale Whenever output is increased without in-
Affordable Care Act (ACA) The comprehensive healthcare re- creasing the cost of production, economy of scale is achieved.
form law passed in March 2010. The law was enacted in two
Feature A characteristic of a product or service that adds value
parts: the Patient Protection and Affordable Care Act was signed
or benefit to the end user.
into law on March 23, 2010, and was amended by the Healthcare
and Education Reconciliation Act on March 30, 2010. Fiscal policies Use of taxation and government spending as a
means of controlling the economy.
Benefit The value a feature of the product or service brings to
the customer. General rule of supply The production of a good or service in-
creases when the price goes up and decreases when the price
Brand A name, term, sign, symbol (logo), design, or combina-
goes down.
tion used to identify and differentiate the products of one firm
from the competition. Global economy In a global economy, businesses are forced to
shift from being multinational (a national company with foreign
Capital budgeting The process of planning for the expenditures
subsidiaries) to being transnational (where there is one eco-
expected to generate income to flow into the organization.
nomic unit, the world).
Clinical utility Economists refer to the ability to satisfy needs as
Gross revenue Gross revenue is derived by multiplying the vol-
utility. In medicine, it is more commonly referred to as clinical
ume or quantity of services used by the unit price for the service.
utility.
Gross revenue is the actual billed charges or fees for products and
Community health information network A network formed services before applying any adjustment for contractual arrange-
among community healthcare providers and insurers to main- ments for volume discounts, third-party limits of allowance, or
tain healthcare information for patient management purposes. direct and indirect expenses.
Competitive bidding The process used by buyers to request Independent provider association An independent association
price quotations from suppliers to get the best product and ser- of multiple healthcare providers organized to negotiate contracts
vice at the lowest price. with an insurer for the provision of healthcare services within a
specified service area at a negotiated cap rate or fee schedule.
Complex sale A complex sale is one that requires more than one
signature/authorization for approval or more than one decision Inflation Inflation is the result of increases in the price of goods
maker. that reduce the consumer’s purchasing power.
Consumer Price Index (CPI) The CPI measures the rate of Inside-out approach A product development strategy in which
price change for goods and services purchased by households. It the product is developed first and then the market is identified.
66 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Integrated delivery system A system that is formed when pay- Pareto principle (law) A total quality management principle
ors and healthcare providers (including acute-care providers, used by W. Edwards Deming that demonstrates that cause and
physicians, home healthcare agencies, nursing homes, primary effect are not linearly related; for example, approximately 20% of
care offices, and others) combine forces to extend their service the causes account for 80% of the effect (35).
lines to improve the coordination and quality of care while con-
trolling costs. Patient service centers Phlebotomy sites or draw stations lo-
cated off-site in service areas convenient to medical office build-
Joint venture Term used to describe management agreements, ings are referred to as patient service centers. The employees are
partnerships, strategic laboratory arrangements, or conglomer- often cross-trained to offer a variety of services, including elec-
ates formed to share risk or expertise. trocardiograms and chain-of-custody drug abuse screening col-
lections for private industry.
Law of demand As the price for a product or service increases,
the demand for the product decreases. Physician hospital organization An organization formed by
hospitals and physicians to negotiate managed-care contracts
Length of stay Statistical measure of time used to describe the
with third-party payors.
length of a hospital inpatient stay from admission to discharge.
Loss leader An aggressive pricing strategy used by commercial Physician office laboratory A clinical laboratory operation lo-
laboratories to attract or lure customers away from the competi- cated on-site in a healthcare provider’s office. The testing per-
tion, based on the premise that the profit will be recovered from formed by a physician office laboratory is regulated by the
the volume of other services purchased at the regular (usual and Clinical Laboratory Improvements Amendment and is limited to
customary) price. waived, moderate, or complex test services.

Macroeconomics Macroeconomics examines the interaction of Point-of-care testing (POCT) An industry term used to de-
income, employment, and inflation on the economy as a whole. scribe user-friendly instrumentation developed for use in near-
patient testing or bedside testing sites versus traditional
Managed-care organization An organization formed by a third- laboratory sites.
party insurer as an alternative healthcare delivery system in an
attempt to control the escalating costs of healthcare to large em- Probing A sales technique used to gather information and un-
ployer groups and the government. cover customer needs. An open probe asks a direct question,
while a closed probe limits a customer’s answers to yes or no and
Market potential The total anticipated revenue potential for helps to confirm a need.
volume of services during a defined period.
Profit Earnings above the expenditures for salaries, benefits,
Market price The actual price at which a commodity is com- and direct and indirect costs.
monly purchased.
Promotion The function of informing, persuading, or other-
Market research A marketing strategy utilized by companies to wise influencing the consumer’s buying decision.
identify the need for new products and services in new and exist-
ing markets. Return on investment The tangible and intangible returns re-
ceived from an investment, minus the fixed, variable, and capital
Market share The estimate of the expected share of the specific expenditures for the venture.
market or territory that you expect to capture.
Strategic alliance/partnership An arrangement that enables
Market surveys Techniques typically used to obtain valuable companies to combine their resources to share risks, reduce
market information, for example, direct-mail surveys, telephone costs, and solidify customer and supplier relationships.
surveys (telemarketing), and personal interviews.
Strategy The technique, approach, or mechanics developed by
Microeconomics Economic information that focuses on indi- the management team to facilitate the organization’s ability to
vidual behavior and the interaction of companies. perform successfully.
Moment of truth The moment when a business recognizes that
Supply The quantity of goods and services that a company is
the customer has developed an impression or perception about
willing to produce and sell at a specific price.
their products and services and the organization through en-
counters that happen over time. SWOT analysis An assessment of the strengths, weaknesses, op-
portunities, and threats for an organization, taking the market
Monetary policies Policies related to the management of the
and the competition into account. See chapter 2 for a detailed
money supply and the market rates of interest.
description.
Net revenue Gross revenue minus contractual allowances and
sales discounts is net revenue. Telemarketing A market research technique employed by rep-
resentatives using a predefined list of questions to gather vital
Outside-in approach A frequently utilized product develop- information on the market potential. The survey, conducted by
ment method that first identifies a need in the marketplace and telephone, is directed to a specific staff member in a prospect’s
then develops the product or service to meet the need. office.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 67

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Annual Conference and Exhibit, Toronto, Ontario, Canada. Richards, D. 2012, How to do a breakeven analysis. http://
Iancu, M., and B. C. Handy. 2009. The value of laboratory medicine. entrepreneurs.about.com/od/businessplan/a/breakeven.htm?p=1,
Adv. Admin. Lab 18(1):61. http://laboratory-manager.advanceweb accessed September 28, 2012.
.com/Article/The-Value-of-Laboratory-Medicine.aspx, accessed Jan- Seybold, P. B., R. T. Marshak, and J. M. Lewis. 2001. The Customer
uary 24, 2013. Revolution: How To Thrive When Customers Are in Control. Crown
Kibak, P. 2008. The worsening shortage of lab staff: What’s being Business, New York, NY.
done to turn it around? Clin. Lab. News 34(5). http://www.aacc.org/ Seybold, P. B., and R. T. Marshak. 1998. Consumers.com: How To
publications/cln/2008/may/pages/cover1_0508.aspx, accessed Octo- Create a Profitable Business Strategy for the Internet and Beyond.
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Klein, R, 2012. Finding the yes factor, picking up on nonverbal commu- Statland, B. 1995. The commercialization of lab services . . . or make
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picking-up-on-nonverbal-communication, accessed October 1, 2012. 27(10):33–37.
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Van Horne, J. 2002. Financial Management and Policy, 12th ed. Providers Need to Know to Survive the Changing Diagnostic Health-
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70

APPENDIX 3.1 Websites

AllBusiness Dictionary of Marketing Terms Howard Richards

http://www.allbusiness.com/glossaries/ http://www.Howardri.org (assessed 12-12-12)
macroenvironment/4954903-1.html#axzz29NuRbPhV (accessed Howard Richards is a professor of global economy at Earlham
12-12-12) College.
U.S. Bureau of Labor Statistics, Division of Consumer Price and Advance for Medical Laboratory Professionals
Price Indexes http://laboratorian.advanceweb.com/Article/Healthcare-Reform.aspx
http://www.bls.gov/cpi/cpifact4.htm (accessed 12-12-12) (accessed 12-12-12)
Greenpeg Peter F. Drucker
http://www.greenpeg.com/index.php/customer-loyalty-management http://www.mtholyoke.edu/acad/intrel/drucker.htm (accessed
(accessed 12-12-12) 12-12-12)
Lifepoint Informatics Peter Drucker is a faculty member at Mount Holyoke College.
http://g2intelligence.com/article/ART873425T?channel=20111021 Reference for Business, Encyclopedia of Business, 2nd ed.
(accessed 12-12-12) http://www.referenceforbusiness.com/small/Bo-Co/Competitive
Healthcare.gov -Analysis.html (accessed 12-12-12)
http://www.healthcare.gov (accessed 12-12-12) Competitive analysis entry
A federal government website managed by the U.S. Department of
Health and Human Services.
Introduction
Workforce
4 Current Challenges to
Availability of Personnel • Training Programs • On-
the-Job Training • Recruitment and
Financial Stability within
Retention • Generational Diversity
Workplace the Diagnostic Laboratory
Centralized versus Decentralized Operations • Local
and Regional Integration of Laboratory Services
Work Flow
Roxanne Mercer and David S. Wilkinson
New Technology • Testing Site Options
Doing More with Less
Systematic Approaches to Managing OBJECTIVES
Change • Rightsizing To discuss the staffing shortage environment for laboratory medicine
Shrinking Reimbursement
To describe methods for recruiting and retaining laboratory staff
Gross versus Net Revenue • Medicare • Managed
Care • Billing To describe advantages and disadvantages of different organizational
Regulations and Unfunded Mandates structures for laboratory operations
Regulations • Unfunded Mandates To illustrate the effect of reimbursement on laboratory operations
Summary To review the regulatory agencies that interact with different laboratory
KEY POINTS operations
GLOSSARY
REFERENCES Chance favors only the prepared mind.
APPENDIX L. Pasteur

T
he economics of healthcare today challenge clinical laboratories
nationwide to provide quality service and patient results in spite of de-
creasing resources. Decreasing reimbursement for patient testing and
dwindling staff resources require the laboratorian to “do more with less.” One
must be aware of one’s professional environment and be creative to utilize the
existing resources effectively and efficiently. In many cases, this will require a
laboratory environment of constant and major change. This chapter addresses
some of these issues and their financial implications.

Workforce
Availability of Personnel
Recruitment and retention issues continue to challenge medical laboratories
across the nation. One contributing cause is the closing of training programs
for medical laboratory scientists (MLSs) and medical laboratory technicians
(MLTs). Between 1983 and 2009, more than 64% of MLS programs closed
their doors (see Fig. 4.1) (2, 20). The number of MLS candidates passing the
American Society of Clinical Pathology (ASCP) certification exam decreased
from 6,000 in 1983 to a nadir of 1,892 in 2005 (Table 4.1) (33). Professional
groups and employers of laboratory professionals recognized this shortage.
They have organized efforts to interest middle school, high school, and college
Clinical Laboratory Management, 2nd Edition
students in pursuing careers in clinical laboratory science. It is the hope that
Edited by L. S. Garcia interactions between students and laboratory professionals will stimulate in-
©2014 ASM Press, Washington, DC terest in laboratory science as a career option (32). Some states are even plan-
doi:10.1128/9781555817282.ch4
ning to open new MLS and MLT programs.

71
72 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Figure 4.1 Number of National Accrediting Agency for Clinical Laboratory Sciences–accredited
CLS programs by year. doi:10.1128/9781555817282.ch4.f1

Another significant reason for an inadequate supply of The Bureau of Labor Statistics predicts a need for 14,000
clinical laboratory staff is more job opportunities for peo- new laboratory scientists each year, with educational pro-
ple with the skills of a laboratorian. Computer technology grams producing less than 5,000 annually (32). Unless
firms, pharmaceutical companies, and laboratory instru- this trend can be reversed, the clinical laboratory industry
ment manufacturers and distributors all offer laboratory is facing a critical shortage of personnel for the future. It
scientists challenging positions with competitive salaries is encouraging that the number of laboratory professionals
and benefits. Entry-level positions in the clinical laboratory, passing certification exams has increased over the past 12
such as specimen processing and phlebotomy, often pay less years. In 2000, 1,990 scientists passed the ASCP MLS cer-
than entry-level positions in some large home appliance tification exam, with a 66% pass rate. In 2011, this number
stores and fast-food outlets. Another factor contributing to climbed to 3,078, with a 79% pass rate (Table 4.1) (33). The
the recruitment and retention challenges is the increase in increase in successful certifications may be attributed to
the volume and complexity of clinical tests required to keep an increased number of hospitals requiring certification as
up with changes in the population size and patient acuity a condition of employment, more emphasis on College of
(4). Laboratory management must continually monitor American Pathologists (CAP) personnel standards, which
how their staff salaries compare to the competition. require inspectors to look for certification, and the discon-
tinuation of the National Certification Agency for Medical
Laboratory Personnel (NCA) certification in 2009, when
Table 4.1 Annual certification of medical technologists the NCA merged with the ASCP Board of Certification.
by the American Society for Clinical Pathology
Year No. certified Training Programs
1983 6,000 There are several types of formal training programs for the
1989 3,000 clinical laboratory field.
1999 2,100 • Phlebotomy at the high school degree level
2004 1,927
• Histotechnician at the high school or associate degree
2005 1,892
level
2006 2,050
2007 2,463
• MLT at the high school diploma or associate degree
2008 2,484
level
2009 2,712 • Histotechnology at the bachelor of science degree level
2010 3,016 • Cytotechnology at the bachelor of science degree level
2011 3,078 • MLS at the bachelor of science degree level
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 73

• MLS at the master of science degree level, categorical has not completed a formal MLS or MLT program. This
or advanced can result in the removal of some staff from the laboratory
• Ph.D.-level training in the specialty areas such as clinical bench area to do training, resulting in staffing shortages.
chemistry, microbiology, immunology, and toxicology Second, the person trained on the job is usually trained to
function in only one section of the laboratory, such as chem-
• Postdoctoral training programs in the specialty areas
istry. This limits the use of personnel resources to provide
Most programs start with didactic courses in the first half coverage for other areas such as hematology or microbiol-
of training and rotate students through the major areas of ogy. The more on-the-job-trained technical staff you have,
an operational clinical laboratory to give them clinical ex- the less flexibility you will have. On-the-job training pro-
perience in the second half. Some MLS and MLT schools grams can also help an MLS or MLT who has not worked in
have difficulty arranging the clinical training sites because a clinical laboratory for many years regain experience and
of the short staffing in clinical laboratories. If the shortage confidence. Table 4.2 compares the features of accredited
of laboratory professionals is to be resolved, the profession and on-the-job training programs.
as a whole must support the training programs.

On-the-Job Training Recruitment and Retention

Some laboratories have developed internal training pro- As recruitment becomes more difficult, there are strategies
grams (nonaccredited) that allow individuals with a to increase the number of applicants (Table 4.3).
non-MLS degree to become qualified under the Clinical • National advertising. Using a medium such as profes-
Laboratory Improvement Amendments of 1988 (CLIA ’88) sional publications or the Internet to advertise a posi-
standards to perform high-complexity testing. On-the-job tion nationally.
laboratory training programs (also nonaccredited) can also
• Interview expenses. Partial or full coverage by the po-
qualify individuals with high school diplomas to perform
tential employer to an applicant for expenses incurred
laboratory procedures at the CLIA ’88 moderate complex-
to travel for an interview.
ity level. On-the-job training programs must be approved
by the CLIA laboratory director (CLIA ’88 regulations). • Sign-on bonus. Usually a lump sum (for example,
Many laboratories have training programs that provide $3,000) paid when an applicant accepts a specific posi-
high school graduates an opportunity to learn phlebotomy tion. The new employee must stay in the position for a
(26). Once trained, these individuals may take an exam to specified period of time to retain the complete bonus.
become certified phlebotomists. • Relocation expenses. Partial or full coverage by the em-
An advantage of an on-the-job training program is that ployer for expenses related to relocation.
it can provide applicants for vacant laboratory positions. • Referral bonus. Usually a lump sum (for example,
However, some clinical laboratories will only hire MLSs, $1,000) to any employee of an organization who refers
MLTs, and phlebotomists who have graduated from na- a qualified applicant who accepts the position.
tionally accredited programs. Some states, such as Califor-
• Parking expenses. Providing free or subsidized parking
nia, Florida, and New York, require a state license for MLS
to an employee.
and MLT positions, making use of internal, nonaccredited
training more difficult. The salaries for on-the-job-trained • Flexible hours. Allowing an employee to work nonstan-
positions may be lower in some laboratories than for certi- dard hours, such as work week of four 10-hour days.
fied MLS and MLT positions. • Tuition benefits. Providing full or partial payment
There are two disadvantages of on-the-job training. First, of educational costs for the employee or employee’s
it takes considerably longer to train a new employee who dependents.

Table 4.2 Comparison between accredited training programs and on-the-job training programs
Feature Accredited program On-the-job program
Breadth of training Generalist, categorical Usually limited to one lab specialty
Length of training 1–2 years 3–6 months
Salary potential MLS level May be lower than certified MLS
Didactic content General, categorical Usually limited to one lab specialty
Flexibility Easily cross-trained in different specialties Difficult to cross-train in other specialties
(exception: categorical)
Applicant pool Certified MLS (limited) High school, AA, and BS/BA (larger)
74 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 4.3 Recruitment strategies Table 4.5 Recruitment and retention indicators
National advertising for the position Turnover rate (new hires/total FTE)
Interview expenses Vacancies (number)
Relocation expenses Overtime (overtime hours per pay period)
Sign-on bonus Agency staff (hours paid per pay period)
Referral bonus Staff feedback (comments)
Free parking
Flexible hours
Tuition benefits recruiting tools will attract each generation. Younger gen-
Competitive salary erations may be interested in salary and perhaps tuition
benefits for further educational opportunities. Older gen-
erations may be more interested in benefits such as health-
The cost of turnover includes overtime to maintain care and retirement plans. Competition for workforce
testing schedules as well as separation pay for the person resources requires laboratory facilities to provide benefit
leaving. Recruitment costs can be significant with national packages that meet the needs of a diverse applicant pool.
advertisements, sign-on bonuses, and payment of reloca-
tion expenses. The cost of turnover can quickly approach
50% of an employee’s annual salary (16). Recruitment and
Workplace
retention issues and the resulting short staffing can have Centralized versus Decentralized Operations
a negative impact on laboratory operations. Turnaround The implementation of the diagnosis-related group (DRG)
times for patient test results may increase. Mistakes may payment methodology by the Medicare program, the
increase due to overwork and stress. Outreach contracts growth of managed care, and the cutback of Medicare fee
may be at risk if the necessary quality of services cannot schedules have resulted in a downward trend of reimburse-
be provided. The morale and proficiency of staff may be ments for healthcare facilities, including clinical laborato-
negatively affected (see Table 4.4). ries (35). This has led to a constant pressure for laboratories
Quality metrics should be monitored to identify nega- to cut their operating budgets and to adopt a “do-more-
tive impact of short staffing on the laboratory. Table 4.5 with-less” philosophy since the early 1980s.
lists common indicators for this purpose. Each laboratory Figure 4.2 shows a laboratory organizational structure
should have a recruitment and retention plan as part of that was very common in medium and large hospital labora-
its ongoing strategic plan. The development of the plan tories until the 1980s. It was not uncommon to have a satel-
should include input from the laboratory staff to facilitate lite laboratory in the emergency room, intensive care units,
buy-in of the plan. The staff can give feedback on the root or large outpatient clinics throughout a medical center.
causes of retention problems and provide great ideas for Many of these satellite laboratories functioned 24 h a
improvement. day, 7 days a week. They usually performed stat hematol-
ogy, chemistry, urinalysis, and even immunochemistry
Generational Diversity procedures. Procedures they did not perform were per-
One of the challenges of laboratory medicine today is the formed in the central laboratory of the facility. Even though
mixture of age generations that make up the workforce. test menus were limited in these satellite laboratories, there
Each generation of people has different needs, wants, and was a duplication of equipment and personnel since the
interests. Management must be aware of this if a strong main laboratory also performed the same procedures.
work team is to be developed and retained. Recruitment Convenience and fast turnaround times were the driv-
efforts must take this into consideration, since different ing factors for the establishment of these satellite labora-
tories. The cost of one full-time equivalent (FTE) to staff
Table 4.4 Potential negative outcomes from staffing shortages satellite laboratories 7 days a week and 24 h a day could
easily exceed $130,000 a year. With the addition of equip-
Increased turnaround time
ment, maintenance, reagents, and supplies, each satellite
Increased errors
laboratory was very expensive.
Decreased staff morale
The pressure to cut operating costs, use of automated
Staff burnout
transport systems such as pneumatic tube systems, and
Increased staff turnover
redesign of the main laboratory have resulted in a more
Increased overtime expense
centralized approach to laboratory testing in many institu-
Increased expense for agency staff
tions. This automated centralized approach has decreased
Decreased level of service (e.g., limitations on test menu)
costs (elimination of satellite laboratories) while still pro-
Loss of outreach customers viding rapid turnaround times. A “stat” core laboratory
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 75

MAIN
Satellite Laboratory Satellite Laboratory
Emergency Department LABORATORY Operating Room

Satellite Laboratory
Clinic

Figure 4.2 Relationship of satellite laboratories to the main laboratory. Turnaround time–sensitive
tests are performed near the patient and providers. High-volume, more complex, and less time-
sensitive tests are performed in the main (central) laboratory. doi:10.1128/9781555817282.ch4.f2

within the main central laboratory of a medical facility can Local and Regional Integration
successfully and efficiently provide quality laboratory ser- of Laboratory Services
vices. Many of these core laboratories have a combination The past two decades have seen the development of mul-
of chemistry, hematology, and coagulation instrumenta- tiple hospital systems. Within a geographical area, one
tion in one area and trained staff capable of operating each hospital may purchase multiple hospitals, or several hos-
instrument (8). pitals may merge into a single hospital system. One major
The development of point-of-care testing (POCT) in- driver of hospital integration is reduction of costs by con-
strumentation has led to another decentralized-laboratory solidating services (18). Figure 4.4 shows a typical labora-
approach (Fig. 4.3). Satellite laboratories in many cases tory network that can result from the merger of multiple
have been replaced with POCT instrumentation, espe- hospitals into a single healthcare delivery system. Usually
cially for blood glucose testing. POCT instrumentation the larger hospital laboratory serves as the core laboratory
has an increasing menu of available tests (Table 4.6). and performs the bulk of testing. The remaining smaller
POCT may decrease the turnaround time for results, de- hospital laboratories become rapid-response laboratories,
crease the volume of blood collected from patients, and performing only those procedures that require a fast turn-
help improve medical management for the patient. How- around time. These rapid-response laboratories send all
ever, the cost to provide POCT may exceed the cost of other testing to the core laboratory (31).
central laboratory testing on a cost-per-test basis, and A network structured as in Fig. 4.4 can result in signifi-
management of POCT can be a compliance challenge for cant operational cost savings in labor, reagents, supplies,
the main laboratory (27). The testing needs for the par- and major equipment maintenance (estimated 10 to 20%
ticular patient population must be assessed to determine compared to the total cost of operating each laboratory
the best approach to provide quality testing services in independently). The development of rapid-response labo-
the most cost-effective manner. ratories reduces duplication of equipment since the core

Figure 4.3 Deployment of POCT. It may be possible to achieve rapid turnaround of key laboratory
test results by using POCT technology under the supervision of the main (or central) laboratory
in lieu of satellite laboratories. Consolidation of key testing into a “core” laboratory may facilitate
rapid turnaround time for most analytes, with only a few critical areas needing POCT capability.
doi:10.1128/9781555817282.ch4.f3
MAIN LABORATORY

POCT CORE LABORATORY POCT

Inpatient Unit (Ultra-Stat Laboratory) Outpatient Unit

POCT
Emergency Department
76 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 4.6 POCT procedures services for specimen transport. Usually the hospital labo-
Electrolytes ratory can provide local stat testing with fast turnaround
Blood urea nitrogen times and some esoteric testing capabilities that the com-
Glucose mercial laboratory cannot provide. All networks are driven
Blood gases by an economic need to either lower operating costs or in-
Hematocrit crease net revenue by increasing testing volume.
Hemoglobin
Creatinine Work Flow
Calcium New Technology
Lactate
Four critical tools that help the clinical laboratory industry
Magnesium
meet the current economic challenges are automation, in-
Pregnancy test
formation systems, POCT, and robotics. Rapid technologi-
Urinalysis (dipstick)
cal advances in these areas allow laboratories to improve
Strep screen
productivity and efficiency.
Occult blood
Automation has had the greatest influence on labora-
Troponin
tory productivity. Virtually every section of the laboratory
Activated clotting time
benefits from automation, including molecular diagnos-
Prothrombin time
tics, transfusion medicine, microbiology, and surgical
Activated partial thromboplastin time
pathology. Chemistry and hematology usually have the
Hemoglobin A1c greatest level of automation. Automated instruments allow
efficiencies in labor resources (12). One person may be
sufficient to perform hundreds or even thousands of tests
laboratory will perform the majority of the high-volume in one day. Implementation of automation can create ex-
routine testing (24). cess testing capacity, which allows the laboratory to bring
Hospital laboratories may work together to form a net- in new volume without adding personnel resources. The
work with larger geographical coverage. This network may additional reagent and supply costs are usually minimal
allow a group of unrelated hospital laboratories to service compared to adding labor costs (30).
statewide contracts for laboratory services. Commercial Automation enables reengineering the laboratory. A
laboratories, also referred to as reference laboratories, all core, automated laboratory where hematology, coagula-
have wide geographic, often nationwide, networks to pro- tion, chemistry, and immunochemistry instrumentation
vide laboratory testing services (29). are grouped together with a staff cross-trained on each
A third network example is a joint venture with a com- instrument may be very cost-effective. Rapid turnaround
mercial laboratory and a separate hospital or hospital times for results obtained on automated instruments allow
system laboratory (13). The commercial laboratory can laboratories to provide results quickly to clinicians. A con-
provide already existing state and nationwide courier cern with total automation is the reliability of the system

Figure 4.4 Organization of an integrated laboratory services delivery network. Several health-
care service delivery sites developed an integrated network to deliver laboratory services. The
bulk of high-volume testing is consolidated at one site, the core laboratory. Other sites may offer
rapid response testing or just phlebotomy services. doi:10.1128/9781555817282.ch4.f4

Rapid Response Laboratory

Physician Office

Rapid Response CORE LABORATORY Rapid Response

Laboratory Hospital A Laboratory
Hospital B Hospital C

Phlebotomy Site
Nursing Home
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 77

because, absent a completely redundant system, the back- facilities to achieve an acceptable turnaround time from
up will be a manual process requiring additional labor. central lab testing (9). Bringing stat laboratory testing to
National laboratory conferences, such as the Clinical the bedside through the use of POCT instrumentation has
Laboratory Management Association and the American As- become more and more popular as a means to achieve a
sociation of Clinical Chemists, exhibit the large number of clinically acceptable turnaround time. Because POCT is
automated instruments available. When choosing automa- typically more expensive than central laboratory testing,
tion, laboratories need to understand the specific needs of a cost/benefit analysis must be performed and should in-
their operation and do the necessary homework to deter- clude operational issues such as quality control, billing,
mine which instrument is best for them. Three elements that and technical oversight of the program (6, 12, 14).
should be considered are quality, service, and cost. If the first Robotics have been one of the core technologies in
two are equivalent among the instruments being considered, industrial automation for years. In the clinical labora-
then cost may be the deciding factor. Many times the right tory, robotic automation of front-end, back-end, and
automation leads to major dollar savings in operational costs. workstation-linking processes is common, especially in
Computers play a major role in laboratory medicine very large laboratories. Total robotic systems exist that al-
today. The combination of a laboratory information sys- low a bar-coded specimen to be placed on a track system
tem (LIS), hospital information system (HIS), and labo- that does the following:
ratory automation can facilitate a highly efficient and 1. Logs specimen into the LIS
cost-effective laboratory operation (10). Automated in- 2. Decaps, mixes, and centrifuges specimen (if necessary)
strumentation interfaced to an LIS eliminates the labor of 3. Aliquots specimen into daughter tubes if not using
manual data entry. This allows immediate availability of primary tube sampling
electronic (paperless) results to any provider with system 4. Loads specimen onto automated instruments (chemis-
access. It also eliminates the need for manual delivery of try, hematology, and coagulation)
reports. Computer-generated work lists and the ability to 5. Stores specimen
electronically manage quality control data reduce labora- 6. Retrieves specimen for repeat or add-on tests
tory personnel requirements.
Two additional capabilities of some computer systems Front-end or linking robotic systems are usually installed
are autoverification and logic-based rules (28). Autoveri- in larger laboratory operations and are very expensive (25).
fication allows the computer to automatically check cer- Robotics can be approached in a modular fashion where a
tain parameters, such as reference values, delta checks, and system is purchased and installed in segments. The speci-
quality control results. If all parameters are within defined men receiving and processing areas of most medium and
ranges, the computer will automatically release patient re- large operations are very labor-intensive. Front-end robotics,
sults. This eliminates the need for a technologist to review installed to receive, process, store, and retrieve specimens,
each test manually, which reduces turnaround time and can improve efficiency and decrease costs (10). The front-
reduces some labor requirements. end robotic system can be extended to link the automated
A logic-based rule is functionality that allows auto- instruments. A cost/benefit analysis that shows your return
mated decision making based on specific, preprogrammed on investment can help you decide whether or not robotics
criteria. For example, computer logic may automatically are feasible. All of the aforementioned trends must be con-
generate a request for a reflex test if certain results are sidered when designing or renovating laboratory space (15).
obtained on an assay. In addition, logic-based rules can
support pop-up notification to the person requesting a Testing Site Options
test, for example, questioning the desire to order a test if Laboratory testing may be performed in a variety of set-
it was ordered already on the same patient in less than tings. Testing site options include the central laboratory,
twenty-four hours. Logic-based rules can help the labora- POCT, a reference laboratory, and patient home testing.
tory work with medical staff to improve the utilization of When considering where testing should be performed, one
laboratory services. As with automation, one must under- needs to consider the following:
stand one’s needs before choosing from the many com- • Quality—the accuracy, sensitivity, specificity, and clin-
puter systems available. ical importance of the procedures
One of the most rapidly growing technologies in labo-
• Turnaround time requirements
ratory medicine is point of care testing (POCT). The stan-
dards of medical practice, especially in the emergency • Service—who will maintain and support instrumenta-
department and intensive care units, require rapid turn- tion, to include calibration, quality control, and profi-
around times. Even with automation, computerization, ciency testing
and pneumatic tubes, it is not always possible in some • Cost—the total cost to provide specific testing options
78 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Usually a centralized automated laboratory opera- environment requires changes in our laboratory opera-
tion provides the lowest cost per test (21). However, a tions to maintain financial stability. Those laboratories
centralized laboratory may not always deliver the fastest that have not made incremental operational changes in the
turnaround time. Sometimes it is more cost-effective to last 15 years may now face the reality of having to make
send certain procedures to an outside reference labora- revolutionary changes to survive. These necessary changes
tory rather than incur the cost to set up and perform low- may be highly disruptive. Laboratories need to take a sys-
volume procedures in-house (23). tematic approach to managing their operations (19, 36).
POCT may be the only test option that can provide the Managing the clinical laboratory should integrate all spe-
turnaround time clinically needed for certain procedures. cialty sections. Open laboratory designs facilitate the abil-
Convenience to the physician and the patient drives POCT ity to function as an integrated system (16). Instrument
demand in inpatient and outpatient settings (27, 37). Some manufacturers are designing instruments that integrate
POCT may be categorized as waived testing under CLIA. the testing of traditionally separate areas of the laborato-
The regulations governing waived tests are substantially ries (for example, chemistry, immunochemistry, toxicol-
less stringent than those for nonwaived testing. The list ogy, and immunology) into one analytical platform.
of waived tests changes rapidly, and the latest information A systematic approach allows changes that result in effi-
can be obtained from the Centers for Medicare and Medic- ciency and economic savings. Cross-training of personnel
aid Services (CMS) website at http://cms.gov/Regulations and consolidation of separate sections into one opera-
-and-Guidance/Legislation/CLIA/Downloads/waivetbl.pdf tional area help laboratories meet the demands of the pres-
(accessed 4 May 2012). ent healthcare environment. But there is a cost to change.
Table 4.7 lists a few procedures approved by the Food Many people are not comfortable with change. With a
and Drug Administration (FDA) for over-the-counter pur- good strategic plan, good communication, and involve-
chase and home use by the public without a prescription. ment of the staff, positive change can result.
These tests automatically are categorized under CLIA ’88 as
waived. This test option does not require a physician’s pre- Rightsizing
scription. This list will most likely grow over time (FDA web- Personnel can represent as much as 50 to 75% of the direct
site: http://fda.gov/medicaldevices/productsandmedical operating costs of a laboratory. When the operating budget
procedures/invitrodiagnostics/homeusetests/default.htm needs to be significantly reduced, the labor component is
[accessed May 4, 2012]). one of the first considerations. How does one determine
Research efforts to develop noninvasive laboratory pro- the correct number of staff?
cedures, such as bilirubin and glucose testing, are ongoing. Benchmarking tools such as the Laboratory Manage-
This may replace some of the POCT procedures at the pa- ment Index Program (College of American Pathologists,
tient’s bedside (22). Northfield, IL) and Healthcare Benchmarking System
International (Soclucient, Evanston, Ill.) can be helpful
in evaluating your laboratory’s productivity. When using
Doing More with Less
benchmarking tools it is very important that you compare
Systematic Approaches to Managing Change “apples to apples.” You should benchmark against peer
The healthcare environment today is one of constant laboratories. The items for count (such as “test” or “FTE”)
change. The challenge in many facilities is to keep a posi- must be precisely defined. The way procedures are counted
tive financial bottom line. With reimbursement for health- must be defined. Are profiles counted as one procedure
care services decreasing and operational costs increasing, or broken out into separate components? Labor costs per
a positive bottom line is difficult to achieve. Maintaining procedure, worked hours or paid hours per procedure,
the status quo is not an option today, since the changing procedures per FTE, laboratory costs per discharge, and
laboratory cost per patient day are a few of the productivity
Table 4.7 Tests approved by the FDA for home testing indices that can be used for comparison. For larger labora-
tories, section-specific benchmarking may be helpful once
Human immunodeficiency virus
you have documented the need to rightsize.
Pregnancy test
There are several ways to approach labor reduction if
Glucose
it becomes necessary. Every time a position comes open,
Occult blood
carefully review the need for filling the position. Can the
Drugs of abuse
position be eliminated (attrition), or can it be moved to
Hemoglobin A1c
another area of the department where there is a greater
Ketones
need? Consolidation of two or more areas of the labora-
Cholesterol
tory can improve cross-coverage ability and decrease the
Prothrombin time
overall need for personnel (for example, consolidation of
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 79

chemistry and toxicology sections or microbiology and Physician services and most nonphysician outpatient
immunology sections). Front-end robotics and new auto- services are paid by the Medicare Part B program based
mation may result in labor savings (25). Attrition is less on a fee schedule. Over the years the Medicare Part B fee
traumatic than layoffs to decrease the workforce. schedule for laboratory services has not kept pace with the
A review of current laboratory services may reveal medical price index, so the reimbursement for laboratory
some labor-saving opportunities. Can some procedures services by Medicare Part B has been decreasing in con-
be performed less often (for example, twice a week versus stant dollars (1).
daily)? Can some procedures be sent to outside reference
laboratories in place of being performed in-house? Managed Care
Working with the medical staff to change the way they Managed-care organizations are constantly negotiating
utilize laboratory services may also save money. Are more with healthcare providers regarding reimbursement. They
procedures coming into the laboratory on the night shift may pay a set fee for each day a patient is in the hospital
than necessary? Are some tests being ordered too often? (per diem). They may pay on a per-case basis, similar to
Are standing laboratory orders not being reviewed soon Medicare DRGs. They may pay a set fee per month per
enough to discontinue unnecessary testing? member for any healthcare needed (capitated payment).
The net effect of the prospective payment system is a
significant decrease in reimbursement and cash flow for
Shrinking Reimbursement
providers. It does not appear that this trend will change
Gross versus Net Revenue soon. The payment for laboratory services reflects this
The bill a medical facility sends a patient or a patient’s insur- trend, and reimbursements are usually less than half of the
ance company lists what is termed the “gross billing” charges. gross laboratory charges. There is very little “profit mar-
Rarely are these gross billing charges paid in full. There are gin” left for providers of laboratory services (34, 35).
adjustments that are made (discounts) from the original
charges based on the contractual payment agreements set up Billing
with various insurance payors. The original patient charge Another factor causing decreased reimbursement for hos-
represents the gross revenue that is billed. The adjustments pitals and clinical laboratories is the billing system itself.
lower the gross revenue and determine the amount the medi- Hospital billing systems struggle to keep up with the com-
cal facility should receive. This is the net revenue or expected plexity of the healthcare environment. The need for correct
dollars received. The difference between the gross revenue diagnosis codes (International Classification of Disease,
and the net revenue can be as much as 50 to 60%. A medical 9th revision [ICD-9]), billing codes (Current Procedural
facility could bill a total of $100,000,000 for patient services Terminology, 4th edition), demographic information, and
but actually receive only $40,000,000 to $50,000,000. current insurance information can easily result in missing
or wrong information in the billing system. This results
Medicare in lost charges or payment denials. Hospitals have identi-
The federal government initiated the Medicare program fied such lost income, and the emphasis has shifted from
in 1966. This program provides healthcare for the elderly cutting operating expenses to fixing billing systems to re-
and people with certain chronic diseases, such as end-stage cover dollars “left on the table” (17). A major challenge to
renal failure. Initially hospitals were paid based on their the laboratory, as well as all healthcare providers, will be
actual expenses for inpatient care for Medicare patients. implementation of ICD-10, now scheduled for October
In 1983 this all changed when the government instituted 1, 2014. ICD-10 increases the number of reporting codes
the prospective payment system that reimburses hospitals from approximately 13,600 to 69,000, providing increased
based on DRGs for hospital inpatient services (Medicare reporting detail and accuracy of payments.
Part A) (5). This system was based on reimbursing hospi-
tals after Medicare patients were discharged and paying a
Regulations and Unfunded Mandates
set amount based on the discharge diagnosis. A major revi-
sion of the DRG system in 2007 resulted in more than 700 Regulations
medical severity DRGs (MS-DRGs). If a hospital can treat There has been a steady increase in regulatory control of the
a patient with a specific MS-DRG for less than they were healthcare industry by both federal and state government
reimbursed, then they make money; if it cost more than (6). This increase in regulation extends to all clinical labora-
the MS-DRG reimbursement, they lose money. The gov- tories supporting both inpatients and outpatients. All clinical
ernment has instituted a similar program for outpatients laboratories must be certified as fulfilling the requirements
with ambulatory payment classification (APC) (7). Both of CLIA ’88. Those requirements include personnel qualifi-
the MS-DRG and APC systems have shifted the financial cations, quality control, quality assurance, laboratory proce-
risk from the government to the provider. dures, proficiency testing, and laboratory safety (3).
80 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

The certification of a clinical laboratory performing toward those changes that create a more efficient and cost-
moderate- or high-complexity testing as defined by CLIA effective operation.
’88 is accomplished through an on-site biannual inspec-
tion process (3). This inspection can be performed by the
federal government, state government, or a voluntary orga- KEY POINTS
nization such as The Joint Commission (TJC) or the CAP. ■ Between 1983 and 2009 more than 64% of MLS pro-
The voluntary inspecting organization must be granted grams have closed or become inactive.
“deemed status” by CMS, which ensures that the stan- ■ As many as 60% of laboratories in this country report
dards of voluntary organizations are equivalent to their understaffing.
own. Other agencies granted deemed status include the
■ The Bureau of Labor Statistics predicts a need for 14,000
Commission on Office Laboratory Accreditation (COLA),
which inspects and accredits physician office laboratories, new laboratory scientists each year, with educational
and the American Association of Blood Banks (AABB), programs producing fewer than 5,000 annually.
which inspects and accredits blood banks. ■ MLS and MLT on-the-job training programs must be

Once a laboratory successfully passes its inspection, approved by the medical director of the laboratory.
CMS issues the appropriate certificate of compliance (if ■ The cost of turnover can quickly approach 50% of an
inspected by government agency) or certificate of accredi- employee’s annual salary.
tation (if inspected by a “deemed” organization). ■ The cost of one FTE to staff satellite laboratories 7 days
a week and 24 h a day can easily exceed $130,000 a year.
Unfunded Mandates
■ Four critical tools that help the clinical laboratory in-
Many of the government regulations imposed on clinical
laboratories come with a price tag. There is a cost to labora- dustry meet the current economic challenges are auto-
tories to obtain a CLIA certificate as well as to keep it current. mation, computerization, POCT, and robotics.
There is a cost to have an inspection by TJC, CAP, AABB, or ■ Three criteria that should be considered before the ad-

COLA as well as the required proficiency testing programs. dition of new technology to any laboratory are quality,
Government compliance regulations as well as the Health In- service, and cost.
surance Portability and Accountability Act of 1996 (HIPAA) ■ Usually a centralized automated laboratory operation
rules have resulted in unplanned expenses for clinical labora- provides the lowest cost per test.
tories and hospitals to modify existing computer systems and ■ The difference between gross revenue and net revenue
even add personnel to help meet the regulations (HIPAA can be as much as 50 to 60%.
Complete, available at http://www.hhs.gov/ocr/privacy/
■ The prospective payment systems have shifted the fi-
[accessed July 25, 2012]). The FDA has recommended that
blood banks have their own quality assurance coordinator. nancial risk from the payor to the provider.
This may result in adding a new position to the payroll. All
of these expenses incurred by clinical laboratories to meet GLOSSARY
mandated regulations represent additional costs for which
Ambulatory payment classification (APC) An outpatient pro-
there is no additional revenue.
spective payment system similar to the inpatient DRG system.
American Association of Blood Banks (AABB) A professional
Summary organization that provides a voluntary inspection and accredita-
We live in very exciting and challenging times and must tion program for blood banks and transfusion services.
constantly utilize new ideas and changes to obtain the Centers for Medicare and Medicaid Services (CMS) Formerly
resources, both personnel and nonpersonnel, to move known as the Healthcare Financing Administration (HCFA),
ahead. Automation, computerization, POCT, and robot- CMS administers the Medicare program and enforces the CLIA
ics will allow a more integrated, systemwide approach to ’88 regulations by conducting laboratory inspections, determin-
providing high-quality laboratory services in support of ing test reimbursements, auditing billing for medical necessity,
patient care. Laboratory networks and multihospital sys- and contracting with carriers and fiscal intermediaries to pro-
vide reimbursement.
tems may achieve economies of scale. The status quo is
not a viable option. Clinical Laboratory Improvement Amendments of 1988 (CLIA
The economics of healthcare have changed, decreasing ’88) The primary government rules that govern clinical labora-
the flow of dollars into diagnostic laboratories. It is im- tory operations. The final rules were first published in The Fed-
perative today that every laboratorian have a basic under- eral Register on February 28, 1992.
standing of laboratory and healthcare finances (11). This College of American Pathologists (CAP) A professional orga-
financial knowledge will help the laboratory team work nization that provides a voluntary laboratory inspection and
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 81

accreditation program. It places a major focus on peer review completed associate-level laboratory-specific education and
and education. clinical training.
Commission on Office Laboratory Accreditation (COLA) An Medicare severity DRG (MS-DRG) Revised DRG system intro-
organization granted deemed status by CMS to inspect physician duced in 2007.
office laboratories for accreditation. National Accrediting Agency for Clinical Laboratory Sciences
Core laboratory This term has several meanings. It may refer to (NAACLS) An international agency responsible for accrediting
a main (central) laboratory within a multiple-laboratory system, educational programs in the clinical laboratory sciences and re-
or it may refer to a dedicated section within a single laboratory lated healthcare fields.
that does the majority of routine and stat testing. Point-of-care testing (POCT) Usually refers to tests performed
Diagnosis-related groups (DRGs) Based on the discharge diag- near the patient. Often performed by a nonlaboratorian. POCT
nosis, DRGs are a system developed by the federal government for is often managed or overseen by clinical laboratory personnel.
prospective payment of Medicare inpatient services to providers. Physician office laboratory (POL) A laboratory run by a physi-
Food and Drug Administration (FDA) One of the administra- cian who performs laboratory tests on his or her own patients.
tive components of the Department of Health and Human Ser- Robotics Computerized, mechanical equipment that automates
vices of the federal government. The FDA regulates the laboratory specimen handling and delivery to automated laboratory
instruments, reagents, and systems provided by the medical de- analyzers.
vice industry. The FDA also regulates blood and blood products
and can inspect laboratory blood banks and donor centers. Return on investment (ROI) ROI analysis shows how much
profit (or loss) will be made on an investment (usually capital
Full-time equivalent (FTE) A person working 40 hours in a dollars) for laboratory equipment, projects, or programs.
week (full-time position).
Satellite laboratory A laboratory separated from the main labo-
Healthcare Benchmarking System International (HBSI) A
ratory, usually with a limited test menu, that is dedicated to a
benchmarking tool used by many healthcare facilities to com-
specific set of patients and locations in a medical facility.
pare specific departmental operations, including the laboratory,
to other similar healthcare facilities. The Joint Commission (TJC) A professional organization that
provides a high-level peer review, on-site survey, and accredita-
Hospital information system (HIS) This term usually refers to
tion program for healthcare facilities, including laboratories.
a hospital computer system and its support personnel.
Waived testing Certain simple laboratory tests meet requirements
Laboratory information services (or system) (LIS) This term
for waived testing as outlined in CLIA ’88. Waived testing may be
usually refers to a laboratory computer system and its support
performed without concern for personnel standards or written
personnel.
procedures. Some of these tests are approved by the FDA for home
Laboratory Management Index Program (LMIP) The LMIP is use, such as blood glucose monitoring, are simple, and supposedly
a benchmarking tool managed by the CAP. It allows a clinical have little chance for error or major effect on the patients if an er-
laboratory to compare its operational effectiveness to that of ror occurs. (FDA, available at https://mymail.mcvh-vcu.edu/mail/
other similar laboratories using ratios from operational manage- dwilkinson.nsf?OpenDatabase [accessed July 16, 2013].)
ment data.
Laboratory network A system (formal or informal) of clinical
REFERENCES
laboratories spread over a geographical area to provide labora-
tory services in a coordinated, integrated manner. A laboratory 1. Barrow, B. 2000. CLMA spearheads fee schedule updates. Van-
network can include commercial laboratories. tage Point 4:8–9.
Managed-care organization (MCO) An organization that pro- 2. Cearlock, D. 2009. NAACLS programs, graduates, pass rates and
vides medical insurance to beneficiaries within a framework that placements: findings from the 2009 Annual Survey of Programs.
manages patients’ access to certain healthcare services with the NAACLA News 103:3.
goal of providing care at a lower cost. The amount of healthcare 3. Clark, G. B. 1998. Laboratory regulation certification and ac-
coverage varies from one MCO to another depending on the creditation, p. 369–393. In J. R. Snyder, and D. S. Wilkinson (ed.),
program and fee paid by the client (patient). Management in Laboratory Medicine, 3rd ed. Lippincott-Raven,
Philadelphia, PA.
Medical laboratory scientist (MLS) Term generally used to re-
fer to a person that has completed a four-year college-level pro- 4. Coryelyou-Ward, K., B. Ramirez, and T. Rotarius. 2011. The
gram that requires specific training in the clinical laboratory laboratory workforce shortage. A managerial perspective. Health-
sciences. In recent years, MLS has replaced the older terms medi- care Manag. 30:(2):148–155.
cal technologist (MT) and clinical laboratory scientist (CLS). 5. Crolla, L. J., and P. W. Stiffler. 2000. Reimbursements and fi-
The designation of MT or CLS also indicates a specific level of nance, p. 97–103. In A. S. Kurec, S. Schofield, and M. Wattens (ed.),
professional certification by the American Society for Clinical The CLMA Guide to Managing a Clinical Laboratory. Clinical Labo-
Pathology. An MLS can perform a full range of laboratory tests. ratory Management Association, Inc., Wayne, PA.
Medical laboratory technician (MLT) An MLT can perform 6. Curren, D. J. 2000. HCFA proposes rule on lab test coverage, pay-
general tests under the supervision of an MLS. An MLT has ment. Natl. Intell. Rep. 21:3.
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7. Curren, D. J. 2000. Outpatient reimbursement: final countdown 23. Labeau, K. M., M. Simon, and S. J. Steindel. 2001. Clinical lab-
to July 1 prospective payment launch. Natl. Intell. Rep. 21:3–6. oratory test menu changes in the Pacific Northwest: an evaluation of
8. Dadoun, R. 2000. Automation strategies to improve personnel the dynamics of change. Clin. Leadersh. Manag. Rev. 15:16–22.
utilization. Adv. Adm. Lab. 9:58–62. 24. Lehmann, C., and A. M. Leiken. 2000. Diagnostic technology
9. Dilts, T. J. 1998. Point of care testing: a step to the future. Lab for laboratories in an integrated delivery system. Clin. Leadersh.
Notes 8:1–7. Manag. Rev. 14:118–123.
10. Eggert, A. A., K. A. Emmerich, E. R. Quam, and K. L. Bowers. 25. McPherson, R. A. 1998. Robotics, automation, and the new role
2000. The LIS as process manager. Save money and reduce tech fa- of process control. Clin. Lab. Manag. Rev. 12:339–346.
tigue. MLO Med. Lab. Obs. 32:32–33, 36–38, 40 passim. 26. Mooney, B. 2000. Staffing problems top concerns plaguing
11. Falcone, D. M. 2000. Basic financial management for laboratori- phlebotomy supervisors. Adv. Med. Lab. Prof. 12:14–17.
ans. MLO Med. Lab. Obs. 32:30–34, 36–37. 27. O’Brien, J. A. 2000. Point-of-care testing. MLO Med Lab. Obs.
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28. Pearlman, E. S., L. Bilello, J. Stauffer, A. Kamarinos, R. Miele,
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analysis of case studies. Clin. Leadersh. Manag. Rev. 15:217–221. clinical laboratory. Clin. Leadersh. Manag. Rev. 16:237–239.
14. Foster, K., G. Dispotis, and M. G. Scott. 2001. Point-of-care- 29. Root, J. M. 1996. Competitive strategies for regional laboratory
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34. Watson, K., and J. F. Boothe. 2001. Government study calls for
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35. Weissman, D. W. 2000. Hospital profits continue to fall. Lab.
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44:207–215. cal, and administrative leadership in the human resource manage-
22. Kost, J. G., and H. Clifford. 1996. In vitro, ex vivo, and in vivo ment life cycle: a team approach to laboratory management. Clin.
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 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 83

APPENDIX 4.1 Websites

Centers for Medicare and Medicaid Services Procedures approved by the FDA for over-the-counter purchase and
http://www.cms.gov/Regulations-and-Guidance/Legislation/CLIA home use by the public without a prescription can be found at this
(accessed July 25, 2012) website. These tests automatically are categorized under CLIA ’88 as
Since the list of waived tests tends to change frequently, the latest “waived.” The list tends to change with time, so you may want to
information can be obtained from CMS. check the list content periodically.

FDA U.S. Department of Health and Human Services

http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/ http://www.hhs.gov/ocr/privacy (accessed July 25, 2012)
InvitroDiagnostics/HomeUseTests (accessed July 25, 2012) The complete HIPAA can be found at this website.
Introduction
5
Brief History • Overview of the Current State of
The Impact of
Laboratory Regulations
Regulation of Workplace Safety and
Regulatory Requirements
Human Resource Management
Occupational Safety and Health Administration •
American National Standards Institute • National Susan D. Roseff, Denise E. Russell, Christina E. Anderson,
Institute of Occupational Safety and Health • CLSI •
Centers for Disease Control and Prevention • Food and Roxanne Mercer
and Drug Administration • Equal Employment
Opportunity Commission • Department of
Transportation and International Air Transport
Association • Hazard Communication Standard • OBJECTIVES
Blood-Borne Pathogens • Ergonomics •
Tuberculosis • Latex • Sharps • General Laboratory To gain a basic understanding of the regulatory requirements facing
Safety • Chemicals • Transportation of Clinical laboratories
Specimens • Employment Discrimination
To understand the basics of laboratory inspection and accreditation
Accreditation and Licensure
Brief History • Laboratory Inspection and To present an overview of Clinical Laboratory Improvement Amendments 1988
Accreditation • Personnel Certification and Licensure
To understand the impact of increasing scrutiny on the practice of transfusion
Regulations Affecting Transfusion
Medicine
medicine
Overview of Changes in Transfusion Medicine To evaluate model compliance plans and review the intent and impact on patients,
That Have Resulted in Increased Scrutiny • Safety • physician providers, hospital and laboratory providers, employers, and payors
Regulatory Organizations that Specifically Impact
Transfusion Medicine • Biological Product Deviation To review medical necessity, local medical review policies, advanced
Reporting • The Cost of Increasing Regulatory beneficiary notification, and Medicare secondary payor requirements
Oversight
Regulation of Laboratory Business
Practices Law and regulation are man’s product. The sum of their content is of less impor-
Negotiated Rule-Making Process • Corporate
Compliance • Key Elements of a Model Compliance
tance than the manner in which they are applied.
Plan for Hospitals • The Legal Environment J. Solomon (126)
Laboratory Reimbursement and
Medical Necessity
Medicare • Other Federally Funded Programs •
National Coverage Determination and Local Medical
Review Policies • Reimbursement Methods • Code
Introduction
of Medical Necessity (Reasonable and Necessary Brief History
Services) • Overview of the Reimbursement Process •
Registration and Coding • Claims Processing Prior to the passage in 1970 of the Occupational Safety and Health Act
and Submission • Remittance Advice • Audit and (OSHA), providing a safe workplace was left to the ethics and knowledge of
Benchmark Monitors
each employer. Pre-OSHA laboratory safety took a back seat to other priorities
Compliance—the Next Generation: HIPAA
Covered Entities • Privacy Standards: Rules such as profits, productivity, automation, unions, and other concerns (69). In
Governing Protected Health Information • recent years laboratories have seen an ever-increasing plethora of rules, regu-
Administrative Requirements • Personnel Policies
and Procedures • Patient Informed Rights • Business
lations, and laws governing their operations (reference 110, p. 197–212). The
Associates and Business Associate Agreements • many laws emanating from the federal and state governments and their de-
Standards for Electronic Transactions • HIPAA tails, interrelationships, and complexities are too much for most individuals
Compliance and Enforcement
to understand. In a large institution, there should be an office with environ-
Summary
KEY POINTS
mental health and safety professionals to act as a resource. Smaller institutions
GLOSSARY should assign an individual responsible for seeking advice from professionals
REFERENCES at other institutions, the regulatory agencies themselves, or private consultants
APPENDIXES (reference 110, p. 197–212).
Overview of the Current State of Laboratory Regulations
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia Clinical laboratories operate in a constantly changing environment. Much of
©2014 ASM Press, Washington, DC that change is driven by rules, regulations, and laws, as well as voluntary stan-
doi:10.1128/9781555817282.ch5 dards affecting the operation of every clinical laboratory in the United States.

84
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 85

Today’s laboratory manager and laboratory director must and Health Act (129). In keeping with its mission to “save
spend considerable time and effort ensuring that their lab- lives, prevent injuries and protect the health of America’s
oratory maintains compliance with what sometimes seems workers,” OSHA establishes and enforces legally enforceable
like a constantly moving target. protective standards. Most of the standards applicable to the
In an effort to protect laboratory workers from work- clinical laboratory fall under Code of Federal Regulations
related diseases and injury, the federal government en- 29 CFR 1910. (More information about OSHA’s mission and
acts laws and regulations through its various agencies. a link to the Occupational Safety and Health Act of 1970
The health and safety of employees, their fair and equi- are available at OSHA’s website, http://www.osha.gov/about
table treatment, management of pathogens and chemicals, .html [accessed January 25, 2012]).
shipping of specimens, and the accreditation of clinical
laboratories are a few of the aspects of laboratory medi- American National Standards Institute
cine regulated by laws or standards. The federal agencies The American National Standards Institute (ANSI) was
and voluntary organizations that set these regulations and founded in 1918. ANSI is comprised of over 1,000 com-
standards form a veritable vegetable soup of acronyms. panies and organizations, both public and private (129).
Through the use of increasingly restrictive donor crite- A private, nonprofit organization, ANSI “administers and
ria, screening of donor blood for pathogens, and increased coordinates the U.S. voluntary standardization and con-
oversight, the federal government seeks to protect the formity assessment systems” (American National Stan-
safety of the blood supply. Donor units are screened for dards Institute, available at http://www.ansi.org [accessed
a large variety of pathogens prior to transfusion. Because January 25, 2012]). ANSI publishes safety standards
there is a short period after exposure when an infected unit developed by its accredited standards committees and
might test negative, extensive records are maintained, and publishes specifications for safety equipment including
a lookback program identifies recipients of those units. eyewash, emergency shower facilities, and protective eye
The blood supply has never been safer, but the cost of equipment (safety glasses and goggles). ANSI, through its
achieving that safety continues to rise. membership in the International Organization for Stan-
Laboratory business practices do not escape the scru- dardization (ISO), coordinates internationally adopted
tiny of federal lawmakers. As the single largest payor of safety standards (129).
healthcare services, the Centers for Medicare and Medicaid
Services (CMS) drives much of laboratory business prac- National Institute of Occupational
tice. Hospitals should have a system in place to develop Safety and Health
and administer programs to ensure regulatory compliance. In addition to creating OSHA, the Occupational Safety and
Laboratory employees should have a basic understanding Health Act of 1970 created the National Institute of Occu-
of laws prohibiting self-referral, fraud and abuse, and eth- pational Safety and Health (NIOSH). NIOSH is an agency
ics and standards of conduct. Failure to comply with fed- of the Department of Health and Human Services (HHS)
eral laws and regulations can lead to institutional, as well and functions as a research agency charged with conduct-
as individual, fines and penalties. ing research, providing technical assistance, and recom-
HIPAA is the Health Insurance Portability and Ac- mending standards adoption. (More information about
countability Act of 1996. This progressive, patient-friendly NIOSH is available at http://www.cdc.gov/niosh/about
law has two sections. Title I deals with protecting health .html [accessed July 5, 2012]). NIOSH recommends safety
insurance and coverage for people who lose or change hazard controls, is a leader in assessment and documen-
jobs. Title II includes language that mandates healthcare tation of hazard control technology, and conducts classes
providers to establish safeguards that guarantee the pri- throughout the country, but it possesses no enforcement
vacy of patient information, requiring extensive changes in authority (129). NIOSH works to reduce the enormous
the way business is conducted. Section II has the greatest toll of workplace injury and disease in the United States.
impact on clinical laboratory operations. HIPAA codifies Based on 2010 data, nearly 4 million workplace injuries
institutional security measures to protect the confidential- and illnesses were reported in private industry and gov-
ity of any information that specifically identifies patients. ernment, with over 30% requiring days away from work.
Every day about 8,300 workers incur a disabling injury and
Regulation of Workplace Safety and 12 die from a work-related injury. (Additional information
about the impact and cost of workplace injury and disease
Human Resource Management
is available at http://www.bls.gov/iif/ and www.cdc.gov/
Occupational Safety and Health Administration niosh/injury/ [accessed March 3, 2012].)
The Occupational Safety and Health Administration (OSHA) ANSI and NIOSH work closely with OSHA in setting
was created as a result of the passage of the Williams-Steiger laboratory standards. On January 19, 2001, OSHA is-
Act of 1970, commonly known as the Occupational Safety sued “Memorandum of Understanding: ANSI and OSHA
86 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

working together to enhance and strengthen the national pathogen exposure control guidelines set forth by CDC
voluntary consensus standard system of the United States.” became the OSHA Bloodborne Pathogen Standard pub-
This agreement recognizes OSHA’s authority in the lished as 29 CFR 1910.1030 (129).
development and enforcement of health and safety stan-
dards while at the same time recognizing the important Food and Drug Administration
role that national-consensus-standard-producing orga- The Food and Drug Administration (FDA), an agency
nizations play in the development of occupational health of the Department of Health and Human Services, is
and safety standards. The memorandum states that ANSI charged with regulating laboratory instruments, reagents,
will continue working to develop national consensus and blood banks. The focus of the regulations is to ensure
standards for OSHA’s use and that OSHA will cooperate that good manufacturing practices are followed and that
with ANSI and assist in its mission. The agreement calls instruments, blood, and blood products are safe and ef-
for close cooperation in the areas of technical support, fective (42). Blood and blood product regulations will be
consultation in planning of standards development ac- discussed in more detail later in the chapter. The catego-
tivities, sharing of reports, and other areas. This coopera- rization of diagnostic laboratory tests according to their
tive effort is intended to assist OSHA in carrying out its complexity also falls to the FDA. Tests are classified ac-
responsibilities through the use of ANSI’s technical sup- cording to the level of potential public health risk into one
port and resources. of three categories: waived, moderate, or high complexity
(Tables 5.1 and 5.2). Tests that have been approved by the
CLSI FDA for home use are automatically classified as waived.
The Clinical and Laboratory Standards Institute (CLSI; However, versions of those tests marketed for professional
formerly NCCLS) is a voluntary global organization that use are not automatically granted waived status. Such tests
develops consensus standards and guidelines for clinical qualify for an expedited review, as any differences in the
laboratories and other audiences. Over 2,000 member two versions are all that must be reviewed. (Information
organizations drawn from government, industry, and the on categorization criteria, CLIA waiver information and a
professions propose, review, comment on, and approve searchable database are located at www.fda.gov/cdrh/clia/
standards and guidelines (44). (Information about CLSI index.html [accessed January 30, 2012].)
can be found at www.clsi.org [accessed January 30, 2012].)
Equal Employment Opportunity Commission
Centers for Disease Control and Prevention The Equal Employment Opportunity Commission (EEOC)
The Centers for Disease Control and Prevention (CDC) was formed in 1965 as the federal agency charged with en-
is an agency of the federal government. The CDC tracks, forcing the Civil Rights Act of 1964 (135). Title VII of the
monitors, and researches disease. Of interest to labora- Civil Rights Act of 1964 put into place guarantees of equal
tories is the CDC publication Morbidity and Mortality treatment for all persons. The emphasis of Title VII was on
Weekly Report. This weekly report provides information on protecting individuals from employment discrimination
blood-borne pathogens and infectious waste disposal rec- through enforcement of individual rights (125). Since the
ommendations, among other topics. Guidelines published 1960s the emphasis has shifted to addressing and correct-
by the CDC are published in the Federal Register and may ing past deficiencies through affirmative action programs
be incorporated into OSHA standards. The blood-borne (Table 5.3).

Table 5.1 CLIA categorization of test systems, assays, and examinationsa

Knowledge (required to perform the test)
Training and experience (required of personnel in preanalytic, analytic, or postanalytic steps)
Reagent and material preparation (evaluates stability, reliability, handling and storage conditions, preparation steps)
Characteristics of operational steps (evaluates steps in the testing process: pipetting, timing, calculations, etc.)
Calibration, quality control, and proficiency testing materials (evaluates the availability and stability of calibration materials, quality control, and
proficiency testing materials)
Test system troubleshooting and equipment maintenance (evaluates degree of test operator troubleshooting and maintenance required as well as
the decision making and special skills or knowledge required to perform the test)
Interpretation and judgment (evaluates the degree of interpretation and judgment required to resolve problems in preanalytic, analytic, and post-
analytic processes)
a
CLIA categorizes laboratory tests as waived, moderate, or high complexity. Each test system (test plus instrument), assay, or examination is graded. A grading system
using seven criteria and scores of 1, 2, and 3 is employed—a score of 1 being the lowest, 3 the highest, and 2 intermediate. Scores are totaled. A test system, assay, or ex-
amination with a score equal to or less than 12 is assigned to the moderate-complexity category, and those with a score of greater than 12 to the high-complexity category.
(The Food and Drug Administration website provides additional information on grading of test complexity at www.fda.gov [accessed March 15, 2012].)
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 87

Table 5.2 Examples of waived, moderate-complexity, and high- Table 5.3 Federal laws prohibiting job discrimination (EEOC)a
a
complexity tests Civil Rights Act of 1964 (Title VII). Prohibits employment discrimi-
Waived nation based on race, color, religion, sex, or national origin.
Pregnancy test
Rapid strep test Equal Pay Act of 1963. Protects men and women doing substantially
the same job in the same establishment from wage discrimination
Fecal occult blood based on sex.
Blood glucose by glucose monitoring devices cleared by the FDA
specifically for home use Age Discrimination in Employment Act of 1967. Protects workers
Spun hematocrit over 40 years old.
Moderate complexity
American with Disabilities Act of 1990 (Titles I and V). Protects
Gram stain
qualified individuals from employment discrimination.
Urine culture and colony count kits
Manual procedures with limited steps and with limited sample or Rehabilitation Act of 1973 (Sections 501 and 505). Prohibits
reagent preparation discrimination against disabled federal government employees who
Automated procedures that do not require operator intervention qualify.
during the analytic process
High complexity Civil Rights Act of 1991. Provides monetary damages in cases of
intentional employment discrimination.
Manual cell counts
Serogrouping and typing Genetic Information Nondiscrimination Act of 2008. Prohibits
Hemoglobin electrophoresis discrimination against employees, applicants, and those individuals’
Western blot family members because of genetic information.
a
Flow cytometry The website of the Equal Employment Opportunity Commission, www.eeoc.gov
(accessed March 15, 2012), provides details regarding the various laws prohibiting
Cytopathology examinations
employment discrimination.
a
The Food and Drug Administration website provides additional information
on grading of test complexity at www.fda.gov (accessed March 15, 2012).
Hazard Communication Standard
Department of Transportation and International OSHA standard 29 CFR Part 1910.1200, also known as the
Air Transport Association Hazard Communication Standard (HAZCOM), was origi-
The Department of Transportation (DOT) is responsible nally published in 1983 (http://www.osha.gov/pls/oshaweb/
for coordinating the safety program for shipment of haz- owadisp.show_document?p_table=STANDARDS&p
ardous goods within the United States. Of particular in- _id=10099, accessed February 29, 2012). Intended to pro-
terest to laboratories, biohazardous materials, infectious tect workers from hazardous chemicals in the workplace
materials, and dry ice are classified as hazardous goods (83), this version of the standard specifically included em-
(Table 5.4). The Office of Hazardous Materials Safety, ployees and employers in specific industries. Laboratories
which is located in the Research and Special Programs Ad- in academic institutions and in other industries were not
ministration Office of the DOT, develops and administers
the Hazardous Materials Regulations (HMRs), which can Table 5.4 Hazard classes and definitionsa
be found in the Code of Federal Regulations (49 CFR parts Class Definition
100–185).
1 Explosives
Both the DOT’s HMRs and the International Air Trans-
2 Gases (flammable, nonflammable,
port Association (IATA) regulate shipment of hazardous and poison)
goods sent by air. Air carriers worldwide have a major in- 3 Flammable liquids
terest in ensuring the safe shipment of dangerous goods. 4 Flammable solids, spontaneously
The IATA functions as their international trade associa- combustible material, dangerous
tion. The DOT and IATA both base their regulations on when wet
the recommendations of the United Nations Committee 5 Oxidizers, organic peroxide
of Experts (UNCOE). Although both organizations de- 6 Poisonous materials, infectious sub-
rive their regulations from the recommendations of the stances (6.2)
UNCOE, IATA’s adds additional restrictions. The IATA 7 Radioactive materials
regulations are updated frequently and published annually 8 Corrosive materials
in the IATA Dangerous Goods Regulations (IATA DGR). 9 Miscellaneous hazardous materials
Laboratories adhering to the IATA regulations for ship- (includes dry ice)
ping infectious or biohazardous materials can be assured Other regulated materials
of also complying with DOT’s HMRs (55). a
See reference 45.
88 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

included. Following court challenges, OSHA was required guidelines are subject to fines and prosecution (86), and
to extend the standard to all employees who work with, or federal requirements as promulgated in the OSHA Blood-
are exposed to, chemicals. The final Hazard Communica- borne Pathogen Standard.
tion Standard was published in 1987 and became effective OSHA’s Bloodborne Pathogen Standard (29 CFR 1910
on May 23, 1988 (reference 75, p. 69–197). .1030; http://www.osha.gov/pls/oshaweb/owadisp.show
The laboratory community quickly realized that the _document?p_table=STANDARDS&p_id=10051, ac-
OSHA standards, designed for industrial-scale operations, cessed February 29, 2012) and its companion compli-
were not appropriate for laboratories. As a result of com- ance directive, OSHA Instruction CPL 02-02-069 (http://
ments and concerns from the laboratory community, an www.osha.gov/pls/oshaweb/owadisp.show_document?p
effort to craft a separate regulation for laboratories began. _table=DIRECTIVES&p_id=2570, accessed March 9,
The result was OSHA Standard 29 CFR Part 1910.1450, 2012), became effective on March 6, 1992 (31).
“Occupational exposure to hazardous chemicals in labo- The standard protects employees who work with blood,
ratories,” also known as the laboratory standard, which be- body fluids, or other potentially infectious materials by
came effective in 1990 (reference 110, p. 197–212) (http:// requiring that employers provide certain safeguards. Rec-
www.osha.gov/pls/oshaweb/owadisp.show_document?p ognizing that carriers of blood-borne pathogens are not al-
_table=STANDARDS&p_id=10106, accessed February ways identified and that contaminated materials are not
29, 2012). In most cases laboratories are held to the labora- consistently labeled, the standard fundamentally changed
tory standard rather than the HAZCOM standard (refer- previous practices. Standard Precautions, the practice of
ence 75, p. 342–352). assuming that all human blood and body fluid specimens
Although the laboratory standard and the HAZCOM are potentially infectious, is the basis of the standard (47).
standard are very similar, they do have some key differ- Requirements of the plan are summarized in Table 5.5.
ences. The laboratory standard adds requirements for de- On November 5, 1999, OSHA released an updated com-
velopment of a chemical hygiene plan, appointment of a pliance directive, CPL 02-02-069, “Enforcement Procedures
chemical hygiene officer, and a requirement that there be for the Occupational Exposure to Bloodborne Pathogens”
available standard operating procedures (reference 75, p. (111; http://www.osha.gov/pls/oshaweb/owadisp.show
342–352). The OSHA laboratory standard is not intended _document?p_table=DIRECTIVES&p_id=2570, accessed
to supersede all OSHA standards. OSHA rules and stan- March 9, 2012). The directive provides clarification to
dards on areas not mentioned in the laboratory standard OSHA inspectors and sets policy for use in conducting in-
are still in effect. For instance, the Occupational Safety and spections to enforce the Occupational Bloodborne Patho-
Health Act contains a “general duty” clause that requires gen Standard. Clarifications are provided in Table 5.6.
employers to provide a workplace free from recognized
hazards that may cause death or serious harm and requires Ergonomics
employees to comply with all OSHA rules and health stan- Work-related musculoskeletal disorders are most often
dards. Because the requirements of the HAZCOM and caused by repetitive tasks, poor posture, and muscle
laboratory standards are similar, many institutions have strain. The 2010 Bureau of Labor Statistics reports that
chosen to institute programs that meet the requirements 29% of all workplace injuries are due to musculoskeletal
of the Hazard Communication Standard while adding the
requirements for a chemical hygiene plan (reference 110,
p. 197–212). Table 5.5 Blood-borne pathogen exposure control plan
requirements
Blood-Borne Pathogens Determination of employee exposure to blood and other potentially
Over time, and with increasing knowledge, laboratories infectious materials
have seen changes in the precautions used in handling Implementation of methods of exposure control, including:
laboratory specimens. Laboratories have moved from Universal precautions
procedures that employed special handling of known or Engineering and work practice controls—including sharps man-
suspected infectious specimens to those requiring the agement, laboratory hygiene, and waste disposal
handling of virtually all human specimens as if they were Personal protective equipment
infectious. Over the years, handling of human specimens Housekeeping
has progressed from labeling known infectious speci- Policy for hepatitis B virus (HBV) vaccinations
mens as “blood and body fluid precautions” to following Procedure for postexposure examination and follow-up
the recommendations from the CDC and advisories from Communication of hazards to employees and training
HHS and the Department of Labor on ways to protect Record keeping
healthcare workers from occupational exposure, warnings Procedure for evaluating exposure incidents
from OSHA that healthcare institutions not following the a
See http://www.osha.gov/Publications/osha3186.pdf (accessed August 1, 2012).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 89

Table 5.6 Clarifications provided in enforcement procedures for the occupational exposure to blood-borne pathogens
All employees (part-time, temporary, and per diem) are covered. OSHA jurisdiction does not include students.

An exposure control plan, either a “cohesive entity” or a guiding document, must be provided stating what separate policies make up the plan.

The plan must be updated at least annually. Updates should include changes in technology, changed or new tasks that present exposure, and
changed or new job classifications presenting exposure. The plan must include provisions for reviewing exposures and the circumstances under
which they occurred.

Because hepatitis B virus (HBV) is easily transmitted by environmental contamination, contaminated work surfaces must be cleaned with an “ap-
propriate disinfectant.” Dilute bleach is an effective disinfectant. A 1:10 dilution of stock household bleach (0.5% sodium hypochlorite) is consid-
ered to be effective in the time it takes to dry. For commercial products, users must follow the instructions. Gross contamination must be cleaned
first with a soap and water solution to ensure a disinfectant’s effectiveness. Other U.S. Environmental Protection Agency–registered products may
be obtained from the EPA Hotline at 1-888-546-8740.

Sharps containers must not be overfilled. OSHA notes that the Exposure Prevention Information Network study “Uniform Needlestick and Sharp
Object Injury Report,” including data from 77 hospitals in 1993–1995, found 717 injuries that occurred during disposal into a sharps container.

Potable eyewash facilities are not acceptable unless they contain at least a 15-minute supply of free-flowing water and both hands are free to hold
the lids open.

OSHA notes changes in treatment of HBV. Employers are required to use the most current CDC guidelines. (Current guidelines may be located on
the Centers for Disease Control and Prevention website at http://www.cdc.gov [accessed February 15, 2012].)

Exposure documentation, to be useful in creating recommendations to prevent future accidents, must contain useful information including the
circumstances of the exposure, the route of exposure, engineering and work practices in use, what device was in use, and personal protective
equipment in use at the time.

Training must include description of blood-borne pathogens in addition to human immunodeficiency virus (HIV) and HBV. OSHA notes that
hepatitis C virus is now the “most common chronic bloodborne infection in the United States.” Training need not include a discussion of the trans-
mission and symptoms of less common diseases.

Training may not be accomplished solely using a film or video. Trainees must have the opportunity to ask questions of the trainer.

Accurate training records must be maintained for three years. Such records should include the names and job titles of the attendees.

disorders, with an estimated 11 days away from work for several industry- and task-specific ergonomic guides to
every injury (http://www.bls.gov/news.release/archives/ help employers prevent and reduce musculoskeletal disor-
osh2_11092011.pdf, accessed March 12, 2012). OSHA ders in the workplace.
has been working toward creating an ergonomics standard Although the OSHA ergonomics standard was repealed,
since it hired its first ergonomist in March 1979. In 1990 employers should continue to be concerned about er-
OSHA created the Office of Ergonomics Support. The fol- gonomic injuries. Not only is OSHA likely to implement
lowing decade saw proposed rule making and publication ergonomic reviews under their “general duty” clause, but
of a proposed ergonomics standard, culminating in No- with an estimated 4–7 million lost days from work in 2010,
vember 2000 with President Clinton signing the first er- employers cannot afford to ignore ergonomic issues (57;
gonomics rule. The OSHA ergonomics standard went into http://www.bls.gov/news.release/archives/osh2_11092011
effect in January 2001 (57). Court challenges and politics .pdf, accessed March 12, 2012).
(56) resulted in Congress repealing the standard in March Ergonomics has been defined as “the science of fit-
2001, thus marking the first time a rule has been success- ting jobs to people” (56). Some laboratory tasks posing a
fully overturned through use of the Congressional Review particular risk of ergonomic injury include conventional
Act (57). microtomy, microscope use, manual pipetting, phlebot-
OSHA’s interest in ergonomics was not diminished by omy, sitting for long periods, and long periods of com-
the congressional action. On April 5, 2002, OSHA an- puter entry (89). By studying the amount of time spent
nounced a “Comprehensive Plan to Reduce Ergonomic at a particular task, how long people are in the same
Injuries.” This comprehensive plan calls for guidelines tar- position, repetitive motion, and awkward positions,
geted at specific industries combined with enforcement, among other factors, managers can work to reduce er-
assistance with compliance, Hispanic outreach, and ergo- gonomic injuries. (Some ergonomic guidelines are listed
nomics research (132). Since 2002, OSHA has published in Table 5.7.)
90 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.7 Computer workstation and general ergonomic guidelines (not a comprehensive list)a
Hold head, neck, and body upright and facing forward.
Forearms, wrists, hands, and thighs should be parallel to the floor.
Feet should rest on the floor or on a footrest.
Top of the monitor screen should be at or below eye level and directly in front of the employee.
The mouse or trackball should be next to the keyboard and be easy to activate.
Wrists and hands should not rest on sharp or hard edges. Wrist rests, if used, should be padded, with no sharp or square edges.
Chairs should provide lumbar support and have armrests and a seat size appropriate to the employee.
Chair seats should be cushioned; the front edge of the seat should not be sharp or push against the back of the employee’s lower legs or knees.
Avoid repetitive motions.
Limit microscope use to a total of five hours a day, preferably spread over the day.
Position the microscope so the operator sits as straight as possible.
Use armrests to support the forearms while using adjustment knobs.
Use an antifatigue mat if long periods of standing are required.
Take frequent short breaks to stretch.
a
OSHA provides an “e-tool” on hospital ergonomics, with specifics for laboratories, on its website at http://www.osha.gov/SLTC/etools/hospital/index.html (accessed
March 15, 2012). The CDC provides additional information on ergonomics at http://www.cdc.gov/niosh/topics/ergonomics/ (accessed March 15, 2012).

Tuberculosis pressure rooms, and inform contractors of any poten-

Increases in nosocomial tuberculosis (TB) over the past tial occupational exposure.
few decades have prompted the CDC to issue guidelines • Respiratory protection. Employees who enter TB
and OSHA to propose a new health standard. Alarmed isolation rooms, work in or enter an area where an
over the increases in nosocomial infections seen in the individual known or suspected to have TB has been
1980s and early 1990s, the CDC issued guidelines in 1990 segregated, or may be otherwise exposed to aerosol-
that were expanded and revised in 1994 (100). In 1993 ized Mycobacterium tuberculosis (such as work on air-
OSHA was petitioned by several labor unions request- handling systems) must be provided with respirators
ing a permanent standard for occupational exposure to that meet NIOSH guidelines.
TB. In their petition the labor unions noted the recent • Medical surveillance. All employees will be required to
increase in the number of active TB cases and their con- have medical surveillance before assignment to a job
tention that the 1990 CDC guidelines were not being im- with occupational exposure and then annually, after
plemented (130). On October 16, 1997, OSHA released known exposure, when displaying signs and symptoms
its proposed TB standard. According to OSHA, more of TB, following a skin test conversion, and within 30
than 130 lives can be saved annually under the new pro- days of termination of employment.
posed standard, and implementation of the standard will
• Hazard communication and training. Employers are
prevent 70–90% percent of occupationally acquired TB.
required to post signs at the entrance to laboratories
Noting increased concern due to the emergence of mul-
where M. tuberculosis is present, label exhaust systems
tidrug resistance and new and often deadly forms of the
noting that aerosolized M. tuberculosis may be present
disease, OSHA noted an expected prevention of 21,000
and that respiratory protection is required, and require
to 25,000 new infections per year with implementation
employees to attend a training program.
of the standard.
The basics of the proposed standard are very similar to • Record keeping. Medical and training records, OSHA
the 1994 revised CDC recommendations for healthcare fa- logs, and other records have specific retention require-
cilities and include (130): ments (130).

• Exposure control. Employers will be required to iden- Latex

tify employees who have occupational exposure to Latex allergy has become a major healthcare concern.
TB and develop a written exposure control plan to While the reasons are uncertain, the number of healthcare
be reviewed at least annually and available to all workers exhibiting sensitivity to latex has increased mark-
employees. edly over the last 10 to 15 years. Some of the reasons for the
• Work practice and engineering controls. Employers will increase are most likely attributable to the increased use of
be required to identify individuals with TB (suspected latex gloves to prevent the spread of blood-borne pathogens
or confirmed) and to segregate them, use negative following implementation of OSHA’s Bloodborne Pathogen
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 91

Standard and its requirement that employees use gloves more emphasis we place up front on education and pre-
when working with blood and body fluids. Struggling to vention, the better able we are to protect workers. By
keep up with the increased demand, manufacturers made revising this standard, OSHA is giving employers a stron-
changes in their manufacturing processes and materials ger tool to help reduce serious injuries and illnesses caused
that may have contributed to the increased level of extract- by needles and sharps” (131). Highlights of the revised
able latex proteins in the gloves. Latex proteins are the cause standard are that employers must maintain a sharps in-
of sensitization and allergic reaction. When these proteins jury log that contains, at a minimum, the type and brand
become attached to the powder used in the gloves, the pro- of device involved, where the incident occurred, and a
teins are more easily spread throughout the environment description of the incident; exposure control plans must
(109). In 2008 the FDA published an industry guidance on be reviewed annually and include documentation that
medical gloves that includes glove powder limitations and consideration has been made of available safety devices
recommendations for product labeling (37). reflective of technological advances; and input must be
Workers exposed to latex may exhibit three types of solicited from front-line employees for the “identifica-
reactions: tion, evaluation and selection of effective engineering
controls, including safer medical devices.” Other revi-
• Irritant contact dermatitis, though not a true allergy, is
sions include amendment of the term “engineering con-
the most common reaction. It is caused by skin irrita-
trols” and the addition of definitions for “needleless”
tion resulting in irritated, dry, itchy areas on the skin.
systems and “sharps with engineered sharps injury pro-
• Allergic contact dermatitis or chemical sensitivity der- tection” (131).
matitis results from a reaction to the chemicals used
in the manufacturing and harvesting processes. It can General Laboratory Safety
cause a delayed skin reaction (usually 24 to 48 hours Laboratory safety is one of the most important responsibil-
after exposure). ities of a manager. A complete laboratory safety program
• True latex allergy can be a much more serious reaction includes all aspects of laboratory safety from identifica-
to latex. Reaction is usually much more immediate, of- tion of hazards and procedures for training, maintain-
ten occurring within minutes of exposure, and may vary ing records, and reporting accidents to comprehensive
in severity from mild reactions such as hives or itching biohazard, microbiological, chemical, and waste disposal
to respiratory symptoms and, rarely, shock (109). policies and procedures. Table 5.8 lists components that
should be included in a laboratory safety program.
NIOSH recommends that employers adopt policies to
protect workers from undue latex exposure in the workplace. Chemicals
Some strategies to consider include providing nonlatex
Plan ahead, minimize exposure, don’t underestimate risks,
gloves where appropriate (minimal contact with infectious
and be prepared for accidents are the four basic principles
materials), using reduced protein, powder-free gloves when
that should underlie all work with chemicals (109). Table 5.9
latex gloves are used, ensuring good housekeeping practices
lists the elements of a chemical hygiene plan.
to minimize latex-containing dust, educating workers about
Planning ahead allows the worker to prepare for pos-
latex allergy, periodically screening high-risk workers for la-
sible mishaps. Material safety data sheets should be
tex allergy, and evaluating the program whenever a worker
reviewed, especially for unfamiliar chemicals, to under-
is diagnosed with latex allergy (109).
stand the hazards associated with the chemical. General
safety procedures should be observed when working with
Sharps or around chemicals. Exposure via the skin, eyes, mucous
As a result of the efforts of healthcare worker advocates, the membranes, or lungs and ingestion should be avoided.
Federal Needlestick Safety and Prevention Act (HR5178) Eye protection should be required. Gloves should be cho-
(http://www.axelbio.com/Needle_Safety_Prevention_Act sen for their resistance to the chemical in use. Long hair,
.pdf?p_table=STANDARDS&p_id=10051, accessed Feb- jewelry, and loose clothing should be confined. Sandals
ruary 29, 2012) was signed into law on November 6, 2000. and open-toed shoes should be prohibited. Work areas
The bill mandated that OSHA revise and enforce the exist- should be uncluttered and clean, with exits and emer-
ing Bloodborne Pathogen Standard (29 CFR 1930.1030). gency equipment unobstructed. Minimum quantities of
Specifically, the law required that OSHA revise the Blood- chemicals should be purchased. Chemicals should be la-
borne Pathogen Standard by strengthening employer re- beled properly, with special hazards noted on the label,
quirements for “identification, evaluation, documentation and stored with attention to incompatibilities. A plan for
and use of safety engineered sharp devices” (99). In a news waste disposal should be in place before an activity be-
release on May 9, 2001, Secretary of Labor Elaine Chao is gins. Equipment should be maintained in good condition
quoted as saying, “Prevention is the best medicine. The through a program of regular inspection and maintenance.
92 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.8 Elements of a laboratory safety program

Maintenance and inspection of the laboratory
Appoint a laboratory safety officer and chemical hygiene officer.
Establish training protocols.
Identify and assess hazard risks.
General safety program
Develop guidelines for personnel responsibility including prohibiting smoking, eating, drinking, and applying cosmetics in areas where there are
biohazards and chemicals; appropriate dress codes; and use of personal electronic devices in laboratory areas.
Provide proper personal protective equipment and describe appropriate use.
Implement effective work practice and engineering controls.
Comply with local and federal regulations for specimen transport within and outside the facility.
Develop hazardous waste disposal procedures.
Warning signs and labels
Alert employees and visitors to particular hazards such as flammables, combustibles, biohazards, and hazardous chemicals.
Use OSHA-specified signage when applicable.
Fire prevention and emergency management
Develop procedures for fire prevention and control and use of fire prevention equipment.
Establish fire evacuation protocols.
Establish procedures for handling flammable chemicals.
Electrical safety
Include provisions for electrical safety checks of instruments and outlets and proper repair and maintenance.
Compressed gases
Include provisions for proper storage, labeling, transport, maintenance, and pressure regulators and valves of both flammable and nonflam-
mable gases.
Chemical safety
Develop procedures for proper classification of chemicals, material safety data sheets, labels, storage, transportation, personal protective
equipment, spills, clean-up procedures, and proper use of hoods.
PPE
Establish a chemical hygiene plan that includes OSHA-specified information (Table 5.5).
Carcinogens
Develop protocols that include special precautions, proper labeling and disposal, medical exams, storage, and transport.
Microbiological hazards
Establish procedures for blood-borne pathogens (HBV, HIV, and HCV), pathogens commonly encountered in the clinical laboratory, and
specimens and procedures involving highly virulent agents.
Anatomic pathology
Establish procedures for use of special equipment with knives or blades, handling of radioactive specimens for surgical pathology, and
autopsy areas.
Occupational health and safety
Establish procedures for reporting and assessing illnesses, injuries, and incidents.
Develop an ergonomics program.

All employees should be familiar with emergency proce-

dures and the location and use of emergency equipment
(Table 5.10) (reference 110, p. 81–104).
Table 5.9 Elements of a chemical hygiene plana
Basic rules and procedures Transportation of Clinical Specimens
Chemical procurement, distribution, and storage Shippers of hazardous materials are required not only to
Environmental monitoring follow the regulations, but also to have documented train-
Housekeeping, maintenance, and inspections ing every two years. The individual signing the shipping
Medical program documents as the “certified shipper” assumes responsi-
Protective apparel and equipment bility for the complete shipping process. According to law
Records he or she is the one person deemed fully responsible for
Signs and labels the condition of the packaging of the specimen. He or she
Spills and accidents is responsible for determining whether or not the speci-
Information and training program men is a regulated substance, knowing the regulations
Waste disposal program governing that substance and the appropriate packaging
a
See reference 49. to use, accurately completing all required documentation
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 93

Table 5.10 Safe handling of chemicalsa Opportunity Commission at http://www.eeoc.gov (ac-

Review the material safety data sheet. cessed February 2, 2012).
Plan ahead. Perhaps the disabled employee most likely to require ac-
Observe general safety procedures. commodation is the mobility-impaired employee who re-
Wear eye protection or face protection. quires use of a wheelchair. Wheelchair use is relatively easy
Use the proper gloves. to accommodate by providing wider aisles, space to turn the
Purchase minimum quantities of chemicals. wheelchair, and variable-height work benches with access
Properly label and store chemicals. to the equipment on the bench (reference 75, p. 69–197).
Leave exits and emergency equipment unobstructed. Reasonable accommodations are required unless they
Know emergency procedures and use of emergency equipment. create an undue hardship. An undue hardship is defined
a
See reference 109.
as one that imposes significant difficulty or expense in re-
lation to the size, resources, and nature of the business.
Employers may inquire about an applicant’s ability to
and shipping papers, correctly marking and labeling the perform the job, but not about specifics of any disability.
package, and notifying the recipient of the shipment. A job offer may be conditional based on a medical ex-
Fines for improper shipping or lack of training are sub- amination only if the same examination is required of all
stantial. The Federal Aviation Administration (FAA) em- applicants in the same job category. The ADA does not
ploys lawyers and cargo security specialists to conduct protect employees or applicants currently using illegal
preventive measures ensuring safety. One of the FAA’s re- drugs when an employer acts on the basis of the drug use.
cent initiatives is to send “strike teams” to airports, where (Additional information about reasonable accommoda-
they spend one week checking every package coming tions may be found on the website for the Equal Employ-
through (87). ment Opportunity Commission at http://www.eeoc.gov
The DOT document “How to Use the Hazardous Mate- [accessed February 3, 2012].)
rial Regulations CFR 49 Parts 100 to 185” provides useful Since its passage in 1990, many employers have been
information about reading and interpreting the regulations concerned about the implications of the law. It is the inclu-
governing shipping and transportation of hazardous materi- sion of psychiatric and mental, along with physical, disabili-
als. (The document can be located on the website of the U.S. ties that most concerns employers. Unfortunately, EEOC
DOT Pipeline and Hazardous Materials Safety Administra- guidelines do nothing to relieve their anxiety, as the guide-
tion at www.phmsa.dot.gov [accessed February 2, 2012] or lines state that “credible testimony from family members
http://www.dgtraining.com/Enforcement/Regulations/ and coworkers may be sufficient notice to the employer that
HowToUse03.pdf [accessed February 3, 2012].) a psychiatric disability exists” (95). The Job Accommoda-
tion Network notes that most ADA accommodations cost
Employment Discrimination relatively little. Data from a survey of employers using the
The Americans with Disabilities Act (ADA) of 1990 (Ti- Job Accommodation Network’s services showed that 70% of
tles I and V) prohibits employment discrimination based accommodations cost $500 or less (with 21% costing noth-
on disability in qualified individuals. Disabilities are de- ing) (118). Accommodations for people with psychiatric or
fined as mental or physical impairments limiting at least mental disabilities tend to be no more difficult or expensive
one major life activity. Major life activities are defined as than other types of accommodation. Such accommodations
walking, breathing, seeing, hearing, speaking, learning, may range from to-do lists, tape-recorded instructions, or
and working. It is important to understand that the act division of large tasks into smaller components (95).
protects “qualified individuals.” Qualified individuals are While the ADA regulations strive for voluntary compli-
those who possess the necessary skills, job requirements, ance, it is important to note that the act does include legal
education, and experience for a particular position and remedies for noncompliance. Employers should ensure
who can perform the functions of the position. While that employees involved in any part of the process of inter-
not required to lower production standards, an employer viewing, hiring, promoting, or firing are well versed in the
is required to make reasonable accommodation(s) for law. Lack of such knowledge could result in a legal chal-
such a qualified individual. Reasonable accommoda- lenge when no intention of discrimination was intended.
tions may include such things as altering job schedules,
restructuring a job, acquiring or modifying equipment,
or providing readers or interpreters. Applying for a job,
Accreditation and Licensure
performing a job, or enjoying the benefits of employ- Brief History
ment may also require reasonable accommodation. (A Laboratory standards and testing have been evolving for
more detailed explanation of required accommodations centuries. The evolution has progressed from urine test-
can be found on the website of the Equal Employment ing done before 400 B.C. to diagnosing boils by observing
94 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

whether insects were attracted to urine poured on the quality control, personnel qualifications, and quality as-
ground (18) to today’s modern laboratories. As testing surance for laboratories performing moderate- and/or
sophistication grew and hospitals began to appreciate the high-complexity tests. Waived laboratories must enroll in
skills of laboratory professionals, self-regulating groups CLIA, pay the applicable fee, and follow manufacturers’
emerged to ensure laboratory quality. The first inspection instructions. Because problems in cytology laboratories
of laboratories occurred in 1918 when the American Col- were the impetus for CLIA, there are also specific cytol-
lege of Surgeons inspected hospitals utilizing standards ogy requirements (http://www.cms.gov/clia, accessed
that required an adequately staffed and equipped labora- July 29, 2012). Before the CMS grants a certificate labo-
tory. The year 1918 also saw the first call for a national ratories must register, pay fees, and be surveyed. Mod-
method to certify technologists and a Pennsylvania state erate- and high-complexity laboratories have the option
law requiring that hospitals install and equip a laboratory of choosing to be surveyed by the CMS or by a private
staffed with a full-time technician (19). accrediting organization that has been granted “deemed
Regulation of clinical laboratories began in earnest status” (Table 5.12). (An excellent overview of the CLIA
soon after the Medicare and Medicaid laws went into effect program is located on the Centers for Medicare and Med-
in 1966. The Clinical Laboratory Improvement Amend- icaid Services website at http://www.cms.gov/clia [ac-
ments of 1967 (CLIA ’67) established minimum quality cessed January 25, 2012]).
standards for Medicare participating laboratories engaged
in interstate commerce, a relatively small portion of clini- Laboratory Inspection and Accreditation
cal laboratories. Lawmakers soon saw the need to regulate The type of CLIA certificate held by the laboratory de-
all laboratories engaged in testing human specimens. Thus termines whether or not routine inspections are required.
began the effort to amend CLIA ’67 to establish minimum Routine inspections are not required for laboratories
standards for personnel, accuracy, and quality control and registered with a certificate of waiver or a certificate for
to mandate inspections. When the CLIA ’67 final rule PPMPs. Over time the number of waived laboratories has
was enacted in 1978, it included rules for quality control, increased to 67% of the total laboratories enrolled. Com-
proficiency testing, and personnel competency. Personnel bined with the 17% of enrolled laboratories that hold a
working in laboratories receiving Medicare reimburse- PPMP certificate, 84% of all laboratories do not have
ment were required to be medical technologists with a routine inspections or oversight (http://www.cms.gov/
bachelor’s degree or equivalent or to demonstrate satisfac- clia, accessed February 1, 2012) (see Tables 5.2 and 5.11).
tory performance on a proficiency exam administered by
HEW (Health, Education and Welfare, the precursor to
Health and Human Services). Table 5.11 Types of laboratory CLIA certificatesa
In the years following the implementation of CLIA ’67 Certificate of waiver. Issued to a laboratory to perform only waived
there were repeated attempts to update the act to include tests.
all laboratories. The breakthrough came in 1988 when
Certificate for provider-performed microscopy procedures. Issued
President Reagan signed the Clinical Laboratory Improve- to a laboratory in which a physician, midlevel practitioner, or dentist
ment Amendments of 1988 (CLIA ’88) into law. Practical performs no tests other than the microscopy procedures. This certifi-
problems delayed implementation until 1992. This more cate permits the laboratory to also perform waived tests. Examples of
comprehensive law requires all laboratories doing human PPMP include fern testing, microscopic urinalysis, nasal smears for
clinical testing to have a certificate issued by HHS (20), eosinophils, and wet mounts, including preparations of vaginal, cervi-
cal, or skin specimens.
now known as the Centers for Medicare and Medicaid Ser-
vices (CMS). Certificate of registration. Issued to a laboratory and enables the
The enactment of CLIA ’88 brought virtually all labo- entity to conduct moderate- or high-complexity laboratory testing or
ratories doing clinical testing for diagnosis or disease both until the entity is determined by survey to be in compliance with
management on human specimens under the umbrella the CLIA regulations.
of federal regulation. The final CLIA regulations pub- Certificate of compliance. Issued to a laboratory after an inspection
lished on February 28, 1992, are based on the complexity that finds the laboratory to be in compliance with all applicable CLIA
of the test method; thus, the more complicated the test, requirements.
the more stringent the requirements. Three categories of
tests have been established: waived complexity, moder- Certificate of accreditation. Issued to a laboratory on the basis of the
laboratory’s accreditation by an accreditation organization approved
ate complexity, including the subcategory of provider-
by the CMS.
performed microscopy procedures (PPMPs), and high a
Information about the various types of CLIA certificates is available at the
complexity (Table 5.11). CLIA specifies quality stan- Centers for Medicare and Medicaid Services website, www.cms.gov/clia (accessed
dards for proficiency testing, patient test management, February 2, 2012).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 95

Random inspections are conducted at a small percentage Table 5.12 Accrediting organizations with deemed status under
of waived and PPMP laboratories each year. These in- the CMSa
spections focus on ensuring that the laboratories are not AABB (Formerly American Association of Blood Banks)
performing testing at a higher level than their certificate 8101 Glenbrook Road
Bethesda, MD 20814-2749
warrants and that they are following other CLIA regu- Regulatory Affairs
lations. Laboratories holding certificates of waiver may (301) 215-6539
only perform waived tests. They must enroll in the CLIA www.aabb.org or [email protected] (accessed March 12, 2012)
program, pay applicable fees, and follow manufacturers’
test instructions. Laboratories holding a certificate for American Osteopathic Association
142 East Ontario Street
PPMP must enroll in the CLIA program, pay applicable
Chicago, Illinois 60611-2864
fees, and meet specified quality and administrative re- (312) 202-8000
quirements. Pilot studies conducted during 1999–2001 (800) 621-1773
in 10 states found significant problems with quality and www.osteopathic.org (accessed March 12, 2012)
certification (laboratories testing beyond their certifi-
American Society of Histocompatibility and Immunogenetics
cate). As a result, in April 2002, the CMS began on-site
15000 Commerce Parkway, Suite C
educational and information-gathering visits to approx- Mt. Laurel, New Jersey 08054
imately 2% of waived laboratories. The CMS currently (856) 638-0428
has no plans to increase the percentage of site visits to www.ashi-hla.org (accessed March 12, 2012)
waived laboratories (http://www.cms.gov/clia, accessed
COLA (Formerly the Commission on Office Laboratory
July 29, 2012).
Accreditation)
Laboratories performing moderate- or high-complexity 9881 Broken Land Parkway, Suite 200
testing are required to have an inspection every two years. Columbia, Maryland 21046-1195
The laboratory may opt to be inspected by the CMS or (800) 981-9983
by an organization that has been approved by the CMS www.cola.org (accessed March 12, 2012)
(granted deemed status) as having program requirements
College of American Pathologists
at least as stringent as CLIA. The CMS awards a certifi- 325 Waukegan Road
cate of compliance to laboratories that are successfully in- Northfield, Illinois 60093-2750
spected by the CMS and a certificate of accreditation to Laboratory Accreditation Program
laboratories based on a successful inspection by an orga- 847-832-7000
800-323-4040
nization having deemed status with the CMS (Table 5.12).
www.cap.org (accessed March 12, 2012)
A provision of CLIA ’88 exempts from CLIA require-
ments “all State licensed or approved laboratories in a State The Joint Commission
that has a State licensure program established by law” if One Renaissance Boulevard
the state licensure requirements are at least as stringent Oakbrook Terrace, Illinois 60181
as the CLIA requirements. Two states, Washington and (630) 792-5000
www.jointcommission.org (accessed March 12, 2012)
New York, are currently exempt. (The CMS maintains a a
The Centers for Medicare and Medicaid Services maintains a current list of
list of exempt states on its website at https://www.cms.gov/ accrediting organizations with deemed status at its website (www.cms.gov/clia, ac-
CLIA/20_CLIA_Laboratory_Demographic_Information cessed February 1, 2012).
.asp#TopOf Page [accessed March 2, 2012].)
As noted above, before the CMS grants an organization’s
laboratory inspection program deemed status, the organi- information about the CLIA program can be found on the
zation must show that the inspection criteria used are at CMS website at http://www.cms.gov/clia [accessed Febru-
least as stringent as those of the CLIA program. Thus, the ary 1, 2012].)
basic focus of all accredited inspection programs is to en-
sure compliance with the CLIA standards. However, orga- The Joint Commission. Experienced in surveying laborato-
nizations that have deemed status use different approaches ries since 1979, The Joint Commission (TJC) gained deemed
to achieve that goal. status under CLIA ’88 in 1995. TJC surveys are conducted
by experienced medical technologists who provide consul-
Centers for Medicare and Medicaid Services. Labora- tation on performance improvement throughout the survey
tories inspected under the CMS program experience an process. (TJC’s survey process is further explained on the or-
outcome-oriented survey process. CMS inspections uti- ganization’s website at http://www.jointcommission.org [ac-
lize a quality assurance focus combined with an educa- cessed February 3, 2012].) The specific standards that apply
tional approach to assess and ensure compliance. (General to transfusion medicine are discussed later in this chapter.
96 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

College of American Pathologists. The College of Ameri- are in AOA-accredited hospitals. (Laboratories in hospitals
can Pathologists (CAP) laboratory inspection and ac- accredited by the AOA can find information about the lab-
creditation program encompasses all of the laboratory oratory accreditation program at the association’s website at
disciplines. It provides the most comprehensive offerings http://www.osteopathic.org [accessed February 1, 2012].)
of any of the accrediting bodies. Conducted as a peer-
review process, inspections are performed by experienced Foundation for the Accreditation of Cellular Therapy (FACT).
working professionals. The peer review process provides FACT, while not granted deemed status under CLIA ’88, does
the opportunity for laboratories to learn from both their set voluntary standards and accredit laboratories in the field
own inspection and from the experience of inspecting of cellular therapy. Previously known as the Foundation for
other laboratories. CAP has deemed status with both CLIA the Accreditation of Hematopoietic Cell Therapy, FACT is
’88 and TJC. (Detailed information about the CAP inspec- a nonprofit corporation that establishes standards covering
tion program is available on the CAP website at http:// all phases of cellular therapy. FACT accredits programs and
www.cap.org [accessed February 1, 2012].) laboratories voluntarily meeting these standards. (Informa-
tion about FACT and its parent organization, the Interna-
AABB. Formerly the American Association of Blood tional Society for Cellular Therapy can be found at http://
Banks, AABB has been developing voluntary compliance www.celltherapy.org [accessed February 1, 2012].)
standards for blood banking since 1957. AABB inspections
have deemed status under CLIA ’88. The inspections are Laboratories exempt from CLIA ’88. The CLIA ’88 law
based on compliance with federal regulations and docu- states that laboratories will be cited as out of compliance
ments as well as AABB standards (http://www.aabb.org, ac- unless they have a “current, unrevoked or unsuspended
cessed February 16, 2012). This will be discussed in more certificate of waiver, registration certificate, certificate of
detail later in this chapter. compliance, certificate for PPM procedures, or a certificate
of accreditation” or are CLIA exempt.
COLA. Formerly known as the Commission of Office Laboratories falling under the exempt category include:
Laboratory Accreditation, but now known by its acronym,
• Laboratories performing forensic testing only.
COLA is a nonprofit, physician-directed organization.
COLA was founded in 1988 to provide a private alterna- • Research laboratories testing human specimens but
tive for complying with CLIA ’88. Originally established not using patient-specific results in the diagnosis, pre-
to inspect physician office laboratories (POLs), COLA’s ac- vention, treatment, or assessment of disease or health
creditation program now covers many types of laboratories of individuals.
from POLs to community hospitals and industrial labora- • Laboratories certified by the Substance Abuse and
tories. COLA inspections are conducted in an educational Mental Health Services Administration (SAMHSA).
and friendly peer-review process. COLA has had deemed This exemption applies only to drug testing meeting
status with CLIA ’88 since 1993 and with TJC since 1997. SAMHSA guidelines and regulation (all other testing is
(Laboratories interested in COLA accreditation can find subject to CLIA regulations).
more information at the organization’s website at http:// • Federal laboratories under the jurisdiction of an agency
www.cola.org [accessed February 1, 2012].) of the federal government are subject to CLIA regula-
tions unless the application is modified by the secretary.
American Society of Histocompatibility and Immuno-
• Laboratories licensed in states that have their own in-
genetics (ASHI). ASHI conducts a voluntary inspection
spection programs that are exempt under CLIA. These
program encompassing over 200 histocompatibility labo-
states have inspection programs that CLIA has deemed
ratories. ASHI’s laboratory accreditation program has been
at least as rigorous as a CLIA inspection. Washington
evolving since 1976. Deemed status with CLIA ’88 was
and New York are the only two states currently in this
granted in 1995, and with TJC and the states of Florida, Or-
category. (Information regarding laboratories exempt
egon, and Washington in 1997. ASHI’s accreditation pro-
from CLIA regulations may be found in 42 CFR 493.3,
gram evaluates facilities to ensure compliance with ASHI
which is available at http://www.cdc.gov/clia/regs/
standards. Laboratory procedures, staff, and facilities are
subpart_a.aspx#493.3 [accessed February 1, 2012].)
surveyed with an emphasis on education and assistance
with correcting deficiencies. (The ASHI website, http://
www.ashi-hla.org [accessed February 1, 2012], provides Personnel Certification and Licensure
more information about the ASHI accreditation process.) Certification is a voluntary program, usually administered
by a professional association or governmental agency,
American Osteopathic Association (AOA). The AOA has recognizing an individual for having met predetermined
deemed status under CLIA ’88 to accredit laboratories that criteria as set by that organization (123). Certification
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 97

programs began as a voluntary method of demonstrat- determined by the level of testing complexity. There are
ing competence and enhancing competitiveness in the job no personnel requirements for waived testing. For PPMPs
market. Current CLIA ’88 regulations emphasize specific and moderate- or high-complexity testing, CLIA ’88
education and experience, rather than certification, for the personnel regulations define specific job titles and as-
various levels of testing complexity. In general, the require- sociated qualifications and responsibilities (Table 5.13).
ments of certifying organizations are more stringent than The regulations spell out several ways an individual may
those of the CLIA ’88 law (42). qualify for each of the job titles, with the qualifications
Licensure is the process of a governmental authority growing slightly more stringent as complexity increases.
granting an individual legal permission to engage in a spe- Only laboratory directors are limited in the number of lab
cific practice. Typically, licenses are granted after examina- affiliations. Each director may direct no more than five
tion or proof of specific education. The public is protected laboratories.
from incompetent practitioners by defining regulated Qualifications and responsibilities are delineated for
practices and making unlicensed practice illegal (123). the laboratory director and testing personnel at each test-
ing level. For moderate-complexity certificates the titles of
Personnel requirements under CLIA ’88. The personnel technical consultant and clinical consultant are added. In
regulations under CLIA ’88 do not rely on either certifi- addition to the laboratory director and testing personnel,
cation or licensure, although some states may require ei- high-complexity laboratories must also have a technical
ther or both. The CLIA ’88 personnel requirements are supervisor, clinical consultant, and general supervisor.

Table 5.13 Summary of personnel responsibilities and qualifications under CLIA ’88a
Laboratories Performing Provider-Performed Microscopy Procedures (PPMP)
Lab director
Qualifications. Must be qualified to direct and manage the laboratory personnel and the performance of PPMPs; must either possess a current
license in the state in which the laboratory is located, as required, be a physician or a midlevel practitioner authorized to practice indepen-
dently as authorized by the state where the laboratory is located or a dentist.
Responsibilities. Overall operation and administration of the laboratory, including the prompt, accurate, and proficient reporting of test results.
Testing personnel
Qualifications. Must possess a current license in the state in which the laboratory is located, as required; must be a physician or a midlevel
practitioner authorized to practice independently as authorized by the state where the laboratory is located or a dentist.
Responsibilities. Specimen processing, test performance, and reporting test results.

Laboratories Performing Moderate-Complexity/High-Complexity Procedures

Lab director
Qualifications. Must either be qualified to direct and manage the laboratory personnel and the performance of PPMPs. Must possess a
current license as a laboratory director in the state in which the laboratory is located, as required; be a doctor of medicine or osteopathy
licensed to practice medicine or osteopathy in the state in which the laboratory is located, or have certification in anatomic or clinical pa-
thology or both.
Responsibilities. Overall operation and administration of the laboratory, including the employment of personnel who are competent to per-
form test procedures, and record and report test results promptly, accurately and proficiently and for assuring compliance with the applicable
regulations.
Technical consultant
Qualifications. Must be qualified by education or experience to provide technical consultation for each specialty and subspecialty of service
in which the laboratory performs moderate complexity tests. Must possess a current license in the state in which the laboratory is located, as
required; be a doctor of medicine or osteopathy licensed to practice medicine or osteopathy in the state in which the laboratory is located;
and have certification in anatomic or clinical pathology or both.
Responsibilities. Technical and scientific oversight of the laboratory. The technical consultant is not required to be onsite whenever testing is
performed but must be available to the laboratory on an as-needed basis.
Clinical consultant
Qualifications. Must be qualified to consult with and render opinions to the laboratory’s clients concerning the diagnosis, treatment, and
management of patient care; be a doctor of medicine, doctor of osteopathy, or doctor of podiatry and possess a license to practice medicine,
osteopathy, or podiatry in the state in which the laboratory is located.
Responsibilities. Provides consultation regarding the appropriateness of testing ordered and interpretation of test results.
Testing personnel
Qualifications. Must possess a current license in the state in which the laboratory is located, as required; be a doctor of medicine or doctor of
osteopathy, and possess a license to practice medicine or osteopathy in the state in which the laboratory is located or have earned a doctoral,
master’s, or bachelor’s degree in a chemical, physical, biological, or clinical laboratory science from an accredited institution.
Responsibilities. Specimen processing, test performance, and reporting test results.
a
All qualifications are a partial list. More details can be found at http://www.cdc.gov/clia/regs/subpart_m.aspx.
98 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Specialty boards. The CMS is tightening the qualification by the American Society for Clinical Pathology (ASCP)
for directors of high-complexity laboratories that hold a are most popular. Also offering certification, the National
doctoral degree. Until December 31, 2002, they were re- Credentialing Agency for Laboratory Personnel (NCA)
quired to have two years of laboratory experience or train- administers exams for laboratory personnel but uses the
ing and two years’ experience directing or supervising terms clinical laboratory scientist and clinical laboratory
high-complexity testing. On December 31, 2002, the re- technician (10).
quirement for certification by a specialty board was added. The ASCP, an organization of pathologists and other
Now, in addition to a doctoral degree in a chemical, physi- clinical laboratory personnel, was the first organization
cal, biological, or clinical laboratory science and two years’ to offer a certifying examination. Responding to a need
experience, such individuals must also be board certified for programs that would allow documentation of the basic
(Table 5.14). This additional requirement does not apply competence of laboratory workers, the ASCP established
to laboratory directors who are already serving and who the Board of Registry in 1928 to certify nonphysician
prior to February 28, 1992, qualified under the state law laboratory personnel. Certification by the ASCP does not
in which the laboratory is located, were previously quali- require recertification or mandate continuing education.
fied, or could have qualified as a laboratory director under The ASCP does, however, recognize the importance of
the CLIA regulations published in March 14, 1990, or for continuing documented competence. The ASCP Board of
the subspecialty of oral pathology are certified by one of Registry offers a voluntary program to recognize compe-
several pathology boards. (More detailed information can tence based on documentation of 60 hours of continuing
be found in 42 CFR 493.1443, which is available at http:// education, obtaining a higher level of certification (spe-
www.cdc.gov/clia [accessed February 1, 2012].) cialist or diplomate), or an onsite assessment completed
by a supervisor. The ASCP Board of Registry certifica-
National certifying organizations. Certification by a pro- tion program has expanded from its initial offering of the
fessional agency is valued (and in many cases required) medical technologist exam to its current offering of 21
by employers because it is a demonstration of basic different certifications (10).
competence in the area of examination. There are sev- In 1978 the NCA offered its first credentialing examina-
eral options for certification as a laboratory professional. tions (10). A voluntary, not-for-profit organization, NCA
The majority of graduates of programs accredited by the offers the “only peer-developed and peer-administered ex-
National Accrediting Agency for Clinical Laboratory Sci- amination for medical laboratory personnel.” NCA’s web-
ences choose to take a certification examination. Success- site (www.nca-info.org, accessed February 1, 2012), is an
ful completion of a certifying examination demonstrates excellent resource for information about NCA’s certifica-
basic competency in laboratory science. Two national or- tion programs. A major difference between certification by
ganizations offer the most widely recognized certifying ASCP’s Board of Registry and NCA is NCA’s emphasis on
examinations. The exams to certify medical technolo- continuing education. NCA requires 36 hours of continu-
gists and medical laboratory technicians that are offered ing education every three years to maintain certification.
Ten different certifications are currently available from
NCA (10).
Table 5.14 CMS-approved certification boards, doctoral degree Other organizations offering certification include the
clinical consultants, and directors of high-complexity testinga American Medical Technologists (AMT) and the Ameri-
American Board of Bioanalysis (ABB) can Association of Bioanalysts (AAB). AMT offers cer-
ABB public health microbiology certification tification in eight areas of practice. Individuals with an
American Board of Clinical Chemistry (ABCC) appropriate bachelor’s degree and one year of laboratory
ABCC 24-month Commission on Accreditation in Clinical Chemis- experience are eligible to sit for the medical technologist
try (COMACC) accredited program certification exam. The AMT medical technologist certi-
American Board of Forensic Toxicology (limited to individuals with a fication may be awarded in some circumstances without
doctoral degree)b
taking the examination. The AAB Board of Registry re-
American Board of Histocompatibility and Immunogenetics
quires the applicant to pass an examination that the AAB
American Board of Medical Genetics
deems acceptable and meet one of several education and/
American Board of Medical Laboratory Immunology
or experience requirements. (Information about the AAB
American Board of Medical Microbiology
certification process can be found at www.aab.org [ac-
National Registry of Certified Chemists (limited to individuals with
cessed February 1, 2012].)
a doctoral degree)b
a
The most current list of approved certification boards may be found at the
Centers for Medicare and Medicare Services website: https://www.cms.gov/ States requiring licensure/certification. While certifica-
CLIA/16_Certification_Boards_Laboratory_Directors.asp#TopOfPage (accessed
February 1, 2012).
tion demonstrates a basic level of competence that may
b
NRCC and ABFT will certify individuals who do not hold a doctoral degree; make it easier to get a job, ten states and one territory also
all others require one. require that laboratory personnel obtain state licensure.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 99

Requirements for obtaining a state license vary by state Table 5.15 States and territories requiring licensure of laboratory
but usually include a licensing fee, documentation of cer- personnela
tification, some evidence of continuing education, and State or
demonstration of education and competency as defined territory Licensing entity
by the state. Most states accept certification from a rec- California Department of Public Health
ognized certifying organization. The exception is Cali- Laboratory Field Services
(510) 620-3800
fornia, which administers its own examinations and does
www.cdph.ca.gov/programs/LnC/pages/LnC.aspx
not recognize any certification or grant reciprocity for any
other state’s license. Requirements for state licensure may Florida Department of Health
change. The most current information is available at the Division of Medical Quality Assurance
American Society for Clinical Laboratory Science (AS- (850) 488-0595
www.doh.state.fl.us/mqa/ClinLab/index.html
CLS) website (www.ascls.org, accessed February 1, 2012)
(see Table 5.15). Hawaii Hawaii Department of Health
Some states and U.S. territories require that laboratories State Laboratory Division
operating in their borders, and in many cases performing (808) 453-6652
www.hawaii.gov/health/laboratories/laboratories
testing on samples from that state, obtain a license from
that state or territory. The Centers for Medicare and Med- Louisiana Clinical Laboratory Personnel Committee
icaid Services maintains a list of state and territory labo- Louisiana State Board of Medical Examiners
ratory licensure programs at www.cms.gov/clia (accessed (504) 5568-6820
www.legis.louisiana.gov/boards/board_members
February 25, 2012). However, because the number of states .asp?board=468
requiring laboratory licensure is fluid, an individual labo-
ratory is advised to contact the appropriate state survey Montana Montana Department of Commerce
agency for the most current information. Board of Clinical Lab Science Practitioners
(406) 841-2395 or 2369
www.cls.mt.gov
Regulations Affecting Transfusion Nevada Nevada Bureau of Licensure and Certification
Medicine (775) 786-0231
www.nvaccountancy.com/requirements.fx
Overview of Changes in Transfusion Medicine That
Have Resulted in Increased Scrutiny New York Office of the Professions
One of the defining moments in the modern history of Division of Professional Licensing Services
(518) 473-4501
transfusion medicine was the realization that HIV, the www.op.nysed.gov/opsearches.htm
virus that causes acquired immunodeficiency syndrome
(AIDS), can be transmitted by transfusion. With all eyes North Dakota North Dakota Department of Health
on transfusion safety, blood banking and transfusion Division of Microbiology
(701) 328-6272
medicine went through dramatic changes. Blood bank- www.ndhealth.gov/microlab/Default.aspx
ing evolved from a laboratory discipline into transfusion
medicine, focusing on patient care through clinical con- Puerto Rico Puerto Rico Medical Technology Board of Medi-
sultation, and then into a blood manufacturing industry cal Examiners
(809) 792-6400
(127). Blood donors, previously seen as the altruistic givers
www.ctmpr.com
of life, were increasingly seen as sources of infection and
risk (24). Rhode Island Rhode Island Department of Health
In 1991, hearings in the U.S. House of Representatives, Division of Health Services Regulation
chaired by John Dingell (D-MI), clearly expressed the lack (401) 222-2827
www.health.state.ri.us
of faith that our elected officials had in the safety of the
blood supply, echoing the sentiments of their constitu- Tennessee Tennessee State Licensure Board
encies. By referring to blood banking as an industry, an Department of Health
important paradigm had shifted (105). The generalized Tennessee Medical Laboratory Board
(615) 532-5128
concern was apparent when looking at the changes in www.tennessee.gov
blood usage that began in the 1980s: decreases in the use of
volunteer allogeneic blood, in the backdrop of an aging and West Virginia WV Office of Laboratory Science
sicker population, and more use of autologous blood and Department of HHS
(304) 558-3530
directed donor blood (11, 79, 101). www.wvdhhr.org
This climate served as a catalyst for a variety of changes, a
The American Society for Clinical Laboratory Science maintains a list of states
from purely medical to regulatory and legal. The lay pub- requiring licensure of laboratory personnel at www.ascls.org (accessed March 13,
lic, concerned about exposure to known and yet unknown 2012). Click “New Graduate Information.”
100 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

pathogens, sought ways to decrease their risk. The medi- rial contaminants, attracted attention. Platelets are stored
cal community responded by using pharmacologic al- at room temperature and provide a fertile growth me-
ternatives and blood salvage techniques (collecting and dium for bacteria. Beginning with discussions in 2001 at
reinfusing blood from the operative field) and by adopting the Blood Products Advisory Committee meeting, the
more conservative transfusion guidelines. On the produc- FDA approved blood collection sets with pouches to di-
tion side of the equation, more sensitive tests were added vert the first portion of the collection, which contains the
to screen donor blood, more restrictive donor criteria skin plug, the major source of contaminating skin flora. In
were applied, and more regulations were added to blood 2002 the FDA cleared the BacT/ALERT culture system as
banking to increase oversight and scrutiny (79). The com- a quality control method, which was used to culture leuko-
plex process of supplying blood to patients was also taking reduced apheresis platelets. In 2003, in the 22nd edition of
place in a more litigious and cost-conscious environment the Standards for Blood Banks and Transfusion Services,
(101). With infectious complications on the decline, con- the AABB implemented Standard 5.1.5.1, which required
cerns about adequacy are on the rise (6, 106). The public testing to limit and detect bacterial contamination in all
seeks zero risk, and the industry strives to move closer to platelet units. Standard 5.6.2 proscribed the use of green
that ideal. soap for cleansing of the venipuncture. In 2009, with the
26th edition of the standards, pathogen inactivation was
Safety included as a method to meet the standard. Since glucose,
HIV and hepatitis C virus. As a result of changes in blood pH, swirling, and Gram stain did not have the same sensi-
donor screening implemented in response to concerns tivity as culture, the AABB wrote association bulletins, and
about transmissible disease, the United States’ blood with Standard 5.1.5.1.1 in the 27th edition, the require-
supply has never been safer. In 1993, to prepare for fu- ment was revised to use detection methods that either are
ture threats to the blood supply, The Institute of Medi- FDA-approved or provide equivalent levels of sensitivity
cine established a committee to retrospectively study to FDA-approved methods. The risk of bacterial contami-
the spread of HIV in the American blood supply. Their nation leading to transfusion-associated sepsis has been
report, published in 1995, and two reports published by significantly reduced by these actions, but a residual risk
the United States General Accounting Office in 1997 ac- remains. Tests that can be done at the time of release of
knowledged the current high level of blood safety, while platelets from the blood bank are currently available, and
recommending continued enhancements in specific man- their use continues to be evaluated (76; personal discus-
ufacturing practices and in FDA oversight (96, 133, 134). sions with Jarostav Vostal, FDA, on July 25, 2012, and Edu-
(These reports are available at, respectively, http://books ardo Nunes, AABB, on July 30, 2012).
.nap.edu/openbook.php?isbn=0309053293, http://www Infection with babesia, a parasite carried in ticks that
.gao.gov/assets/230/223767.pdf, and http://www.gao.gov/ infects red blood cells, has also been increasing, as has
assets/160/155792.pdf [accessed February 16, 2012].) To transmission via transfusion. Efforts are under way to
gain perspective into the great strides made in reducing develop a test to screen blood donors, as the incidence of
the risk of HIV in the blood supply, it is helpful to com- babesia is increasing; it is considered to be the most impor-
pare the risk of acquiring HIV in the early 1980s to the tant blood-borne parasite to have an impact on transfusion
current risk. Using a mathematical model, Busch estimated safety (76, 79).
that the overall risk of posttransfusion HIV infection was
1.1% per transfused unit in San Francisco between 1978 Lookback. It is important to remember that both HIV
and 1984, prior to implementation of HIV testing (34). and HCV were present in the blood supply prior to the
This is in contrast to the current risk of receiving a unit availability of screening methods. In addition, early HCV
infected with HIV that is negative for all markers (includ- testing was neither sensitive nor specific (1). To address
ing nucleic acid testing), which is approximately 1 in 1.47 the risk of window period transmission to blood recipients
million (143). transfused prior to testing, a variety of processes known
Despite all the attention paid to HIV, other pathogens as lookback were initiated; this involves essentially looking
pose greater risks. While the risk of acquiring HIV through back at patients with risk of acquiring a pathogen through
transfusion had greatly diminished, the risk of hepatitis C transfusion. Targeted lookback, triggered when a blood
virus (HCV) transmission was actually two to four times donor is found positive for HIV and/or HCV, is the pro-
higher than HIV in 1996 (122). With the implementation of cess of identifying and informing transfusion recipients
nucleic acid testing, the risk of receiving a unit of blood from that they might have been exposed to an infectious agent
a donor during the infectious window period has gone from from individuals who previously donated blood during a
1 in 103,000 (122) to approximately 1 in 1.15 million (143). clinically serosilent window period; in other words, dona-
With the reduction of risk of transfusion-transmitted tions of an infected individual with disease are looked back
HIV and HCV, the risk of other pathogens, such as bacte- upon. The recipients can then be notified of their risk,
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 101

tested, counseled, and referred for proper medical care. CDC recommended a broader alert to the public and med-
This can also prevent secondary transmission of disease, ical community known as universal or general lookback.
which was especially important prior to testing (32). Through wide-ranged communication and a public health
Lookback programs have been fraught with limitations. campaign, transfusion recipients were advised to get tested
For lookback to be successful, it means that the recipient for HIV. Some hospitals in high-risk areas also sent out let-
has been found, has the disease, and was previously un- ters directly to all transfusion recipients to alert them of
aware of the infection. Targeted lookback requires that the risk (32).
high-risk individuals come back and donate again, so Due to the low yield and high cost of HIV lookback,
recipients of the products donated prior to their serocon- there was a great deal of debate regarding HCV lookback
version can be alerted. By asking high-risk individuals in the early 1990s, with the availability of the first serologic
to refrain from donating, this trigger is removed. In fact, assay. It was estimated that the yield might be even lower,
through an education program aimed at high-risk individ- recognizing that HCV had been present in the general pop-
uals, it was calculated that about 90% of infected donors ulation for decades and in a larger proportion than HIV. In
were either self-deferred or deferred during the donation addition, most people with HCV infection have less clini-
process in San Francisco, prior to implementation of HIV cally significant and serious disease at presentation than
screening. In contrast, only about 6% of transfusion re- those with HIV. The prevention of secondary infection was
cipients were identified through early donor-targeted HIV not as of great concern, either, since sexual transmission
lookback programs in the same area (32). The logistics of of HCV is not very effective (32). Implementation of HCV
being able to effectively track a unit of donated blood to lookback was ultimately deferred due to concerns that in-
the recipient is challenging in more mobile societies, mak- forming blood recipients, without complete information or
ing the process of lookback inefficient (32, 78). treatment options, might do more harm than good (13, 32).
Despite these limitations, proponents of lookback argue In January 1998, Donna E. Shalala, the Secretary of the
that it is the legal and ethical responsibility of the blood Department of Health and Human Services, endorsed the
banking community to provide transfusion recipients any August 1997 recommendations of the department’s Advi-
and all knowledge related to their health. In the backdrop sory Committee on Blood Safety and Availability regard-
of previous concerns about blood safety, the public be- ing HCV lookback, performed on the basis of screening
lieves it is their right to have all relevant information. Fur- tests performed since 1992 (EIA [enzyme immunoassay]
thermore, this might renew the public’s trust in the blood 2.0 and 3.0). With more sensitive and specific testing for
banking industry, by fully disclosing such information HCV available at that time, a greater understanding of the
(12). Table 5.16 summarizes the pros and cons of lookback. virus, and new treatment options, it was felt that the time
In contrast to HCV lookback, HIV lookback was initi- for HCV lookback was upon us (2, 71). The committee felt
ated voluntarily as a means to trace infected donors back that this intervention could improve the patient’s prognosis
to their blood recipients. In the heated climate of blood by preventing further liver damage and disease progression
safety concerns, it served as one of the few ways to do (12). HCV lookback was initiated in 1998 under guidance
something to stop the spread of disease in the early years from the FDA (71).
of the epidemic. By 1984 the general blood banking com- After 85.5% of the initial phase of lookback was com-
munity endorsed the process, which began in earnest as plete, the CDC reported that only 1.5% of recipients tar-
targeted lookback in 1986, the year following implemen- geted for notification found out about their HCV infections
tation of HIV screening. In high-risk metropolitan areas, in this manner; HCV lookback yielded poor results. It was
the process was expanded by using additional means, such concluded that targeted lookback was of limited value and
as reports from health departments, to trigger lookback. that other means were necessary to identify the majority of
In an attempt to find individuals at risk more rapidly, the people with disease, primarily acquired due to life style, not
transfusion (58). Of interest, the yield in Quebec, Canada,
was reported to be only slightly better, at about 3% (98).
Table 5.16 Pros and cons of lookback
In 1998 and 1999 the Public Health Service’s (PHS)
Advisory Committee on Blood Safety and Availability re-
Pros Cons
considered whether to expand testing to include the first
Public health initiative Unnecessary anxiety for recipients generation of HCV testing (EIA 1.0) that was performed
Inform people of their health Low yield between 1990 and 1992. Despite the low yield, following
Change people’s lifestyle High-risk people must donate again a series of public meetings, the PHS Advisory Commit-
Bring to medical attention Record keeping dependent tee endorsed the expansion of testing, and a proposed
Ethical and moral obligation Recipient died of underlying illness rule was published in 2000. The final rule was published
to inform Disease not acquired by transfusion in August 2007 in the Federal Register (67). Simultane-
Renew public’s trust
ously, guidance was published to assist the industry in
102 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

determining how to comply with the new rule. In Decem- more important than the original risk. With so many un-
ber 2007 the FDA issued updated guidance on hepatitis C, knowns, it is hard to prioritize which policies need to be put
“Lookback for hepatitis C virus (HCV): product quaran- in place and which is the most cost-effective (139).
tine, consignee notification, further testing, product dis-
position, and notification of transfusion recipients based Increases in testing and screening leading to decreases in
on donor test results indication infection with HCV.” This supply. As mentioned earlier, there is increasing empha-
was updated in December 2010 (http://www.fda.gov/ sis on regulatory compliance and safety. Due to height-
downloads/BiologicsBloodVaccines/GuidanceCompliance ened concerns, theoretical risks are being monitored and
RegulatoryInformation/Guidances/UCM238488.pdf, ac- proactively addressed, primarily using the precautionary
cessed February 29, 2012) (73). principle. The response to new vCJD is an example of how
the blood industry responded to an emerging pathogen
Precautionary principle. It is ideal to make decisions on with possible transfusion transmissibility. In November
the basis of solid, scientific evidence. This evidence-based 2002 FDA guidance required the deferral of all donors
approach has been used to make decisions on the health who had been in the United Kingdom for three months
of individuals. When there is a lack of evidence, proactive from 1980 to 1996 and Europe for five years from 1980
decisions must be made to limit risks, since the true risks to the present (72). These policies were estimated to lead
are unknown. This is the basis of the precautionary prin- to the deferral of approximately 5% of the current blood
ciple. The precautionary principle has been a part of policy donors (89). Beginning on September 17, 2001, the Ameri-
making in many arenas, such as the environment, but it can Red Cross began deferring all donors who had been
has also formed the foundation for many practices related in the United Kingdom for three months and Europe for
to blood and transfusion safety. The dictum to first, do no six months from 1980 to present, estimated to have re-
harm is a hallmark of medical practice (94, 139). sulted in the deferral of 8% of donors at that time (8). New
The response to the knowledge that HIV was a York, a state that imported 25% of its red blood cells from
transfusion-transmitted disease was primarily evidence- Europe, braced itself to face severe shortages (9, 128). Of
based. But without a real understanding of the threat and interest, an article from the Wall Street Journal in August
the perceived risk, an evidence-based model did not pro- of 1999, entitled “Mad Regulatory Disease,” focused on
tect the public health or lead to an effective public health concerns about imposing new regulations on the ever-
policy. Waiting for the definitive scientific evidence to diminishing blood supply without concrete evidence of
make a decision about risk, by using randomized con- transmissibility (137). The balance between safeguarding
trolled trials, was not an option. In addition, this type of the blood supply from pathogens versus adequacy of sup-
study might put the population at risk, since the study ply is one of the ever-present themes as blood shortages
design is not appropriate for public policy decisions; such in the United States have become more common. Donors
studies are designed to look at statistical differences be- are still deferred based on travel, family history, and the
tween different treatment arms, not the assessment of risk possibility of exposure to central nervous tissue. There
(139). In addition, randomized controlled trials may not have been four cases of transfusion-transmitted vCJD in
be ethical; the subjects of one arm of the trial might be sub- the UK (76).
jected to a harmful intervention. As a result, public policy
decisions made in arenas where there are knowledge gaps Shift to a pharmaceutical manufacturing model. There has
cannot rely upon the strict tenets of evidence-based data. been an evolution of stricter regulatory oversight of blood
Unfortunately, using the precautionary principle is not manufacturing and blood banking. As background, in the
without its problems. Putting systems in place to prevent 1960s and early 1970s, blood establishments were moni-
risk of unknown proportions creates rigidity due to the en- tored by the National Institutes of Health, as an arm of the
forcement of stringent requirements. Further, putting these Public Health Service. Their focus was on public health and
requirements into place is frequently expensive and may research through a collegial relationship, not one of legal en-
not meet the criteria of cost-effective care; since the true forcement. It wasn’t until 1973 that the FDA announced that
risk is unknown in these situations, interventions might all blood banks, including hospital transfusion services, were
require unlimited resources and will not be feasible. An un- required to register as drug manufacturers. The FDA began
foreseen consequence of the addition of more policies to writing new regulations specifically applicable to blood es-
prevent risk is a reduction in the supply of blood products. tablishments. Regulations used by the FDA are published in
This has been seen with the introduction of deferrals for the Code of Federal Regulations (CFR) (101, 127).
variant Creutzfeld-Jakob Disease (vCJD), as discussed in In the mid to late 1980s, in response to the nightmare of
the next section (59). Finally, the reduction of risk for one HIV, the public and elected officials raised concerns about
intervention might prohibit the ability to add additional the processes and scrutiny being used to ensure a safe blood
resources for a risk that is subsequently determined to be supply (127). The FDA is charged with the responsibility to
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 103

monitor blood establishments and enforces regulations re- An individual designated the responsible head is identi-
lated to the production of blood and blood products. Dur- fied. This individual is responsible for ensuring compli-
ing this time it also garnered increased scrutiny. Whereas ance with the CFR and enforcing discipline and proper
the relationship between the FDA and the blood banking performance of all individuals engaged in manufacturing.
community had been that of professional colleagues, it too The responsible head must understand the principles and
changed, since the FDA was also being criticized for its techniques of the manufacturing process and serve as the
role in the spread of HIV through the blood supply. As a establishment’s representative to the FDA (105).
result, in the late 1980s and early 1990s, the FDA focused By adopting CGMP, many pharmaceutical manufactur-
on enforcement. Inspections were conducted annually, ers have been able to perform complex operations while
and they were more thorough. The FDA began frequently providing safe, pure, potent, and efficacious products. It
citing blood manufacturers for their lack of process con- was theorized that using these same principles for blood
trol and for quality assurance deficiencies (102, 105, 127). manufacturing should produce the same results. It is es-
By 1992 the FDA’s direction was clear. Previously blood sential to have control of the manufacturing process to
products were governed by 21 CFR 600, which classifies provide the highest-quality, safest blood products (24, 102,
blood products as biologics, and 21 CFR 606, specifically 105, 121).
outlining good manufacturing practices for blood and Defining blood manufacturing as equivalent to phar-
blood components. In addition, 21 CFR 210 and 211 were maceutical manufacturing was not straightforward and
also enforced. Regulations that had previously been re- consequently met with resistance (24, 102, 105, 127). The
served for pharmaceutical manufacturers with details of most apparent incongruity was trying to apply the regu-
quality assurance requirements were then applied to blood lations that outline requirements for product release of
products. Blood was therefore classified as both a biologic manufactured goods. Usually in a pharmaceutical op-
and a drug. Since the FDA was finding problems in the ar- eration, these relate to groupings of goods coming off a
eas of process control and quality assurance, they felt that production line. In blood manufacturing, since the source
applying current good manufacturing practices (CGMP) material is an individual blood donor, the same processes
from 21 CFR 210 and 211 would be the best way for blood are hard to apply. Since each unit of blood comes from a
manufacturers to improve their operations. This was espe- different donor, they aren’t uniform and cannot be “man-
cially important since blood manufacturing had become ufactured” in a consistent process each time (127). There
increasingly complex with the addition of new tests, com- was also concern that by placing so much emphasis on
puterization, and automated operations (46, 50–52, 105). conformity and process control, other important aspects
Pharmaceutical manufacturing facilities have been of transfusion medicine would be overlooked. Instead of
adhering to CGMP in compliance with 21 CFR 210 and spending time working on new and innovative therapies,
211. The most important aspect of CGMP is process con- practitioners would be sidelined into regulatory concerns,
trol, which results from strict and consistent adherence to leading to stagnation (105).
standard operating procedures (SOPs). The elements of Despite these concerns, the paradigm shift described
CGMP ensure that products are made the same way, every above has become the culture of blood banking and trans-
time, resulting in a safe, pure, potent, efficacious product fusion medicine. Blood banks and transfusion services
(46, 52). A quality assurance (QA) function is defined as must comply with the rules of a variety of regulatory orga-
being outside of technical operations, reporting indepen- nizations and can also undergo inspections to earn volun-
dently and directly to management. This gives QA staff the tary accreditation. This not only ensures compliance with
ability and authority to report serious infractions outside legal requirements, but also demonstrates the laboratory
of the operational chain of command and to shut down and transfusion services’ dedication to the highest stan-
production and/or product release when deemed neces- dards of quality and safety.
sary (70). The QA group must make sure that personnel
follow CGMP. The QA group monitors all aspects of SOP Regulatory Organizations that Specifically Impact
development, training and education, competency and Transfusion Medicine
proficiency training, validation, audits, error and accident AABB. The AABB was established in 1947. It is an in-
reporting (as discussed in greater detail later), and product ternational, not-for-profit association that represents
release. The QA group audits manufacturing operations individuals and institutions involved in the field of trans-
and defines critical control points (3, 70, 105, 121). fusion medicine and cellular therapies. The AABB states
Manufacturers also have product specifications with that its mission is to “advance the practice and standards
manufacturing pathways that identify and clearly define of transfusion medicine and cellular therapies to optimize
the critical steps, or critical control points, of the pro- patient and donor care and safety.” The AABB’s member-
cess. Documentation is an essential part of CGMP, so ship consists of about 2,000 institutions (community and
each step of the process can be re-created, as necessary. hospital blood banks, hospital transfusion services, and
104 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

laboratories) and about 8,000 individuals comprising phy- FDA published the federal CGMP for blood and blood
sicians, scientists, administrators, medical technologists, components. Also, some parts of the CFR refer to AABB
blood donor recruiters, and public relations personnel. standards (121).
AABB members are located in more than 80 countries.
The organization supports voluntary donation of blood The Food and Drug Administration. In stark contrast to
and tissue and supports high standards of medical, techni- the role of the AABB, the FDA has enforcement power
cal, and administrative performance, scientific investiga- over blood establishments. It is an agency of the Depart-
tion, clinical application, and education. The committees ment of Health and Human Services and has been a part
and board of directors are comprised of volunteer mem- of it since 1979. The FDA is authorized by Congress to
bers, as described on the Association’s website (www.aabb enforce the Federal Food, Drug, and Cosmetic Act. Ac-
.org, accessed January 30, 2012). cording to its website, the FDA is “responsible for protect-
The AABB publishes the “Standards for Blood Banks and ing the public health by assuring the safety, efficacy and
Transfusion Services,” which is updated every 18 months. security of human and veterinary drugs, biological prod-
The standards are written by experts in blood banking and ucts, medical devices, our nation’s food supply, cosmetics,
transfusion medicine and are consistent with FDA regula- and products that emit radiation. FDA is also responsible
tions. The AABB maintains a voluntary accreditation pro- for advancing the public health by helping to speed in-
gram, based on its standards, with voluntary compliance novations that make medicines more effective, safer, and
activities that began in 1957. The first edition of “Standards more affordable and by helping the public get the accurate,
for Human Progenitor Cells” was published in 1996. The science-based information they need to use medicines and
“Standards for Cellular Therapy Product Services” is now foods to maintain and improve their health” (www.fda.gov,
in its fifth edition. accessed January 10, 2012).
The AABB accreditation program uses trained peer- The Center for Biologics Evaluation and Research (CBER)
assessors to perform the inspection to verify a facility’s is a center of the FDA that regulates biological products
compliance with their standards, the Code of Federal including blood, vaccines, therapeutics, and related drugs
Regulations (CFR), and other federal regulations. The and devices. As such, the CBER can be viewed as the “blood
AABB’s program has deemed status for Clinical Labora- arm” of the FDA, with the role to ensure compliance with
tory Improvement Amendments of 1988 (CLIA ’88) and laws and regulations through review, education, surveil-
has also been accredited by the International Society for lance, and enforcement. The CBER regulates biological
Quality in Healthcare. In addition, the AABB conducts products under the authority of the Public Health Service
proficiency testing programs in coordination with the Col- Act and specific sections of the Food, Drug, and Cos-
lege of American Pathologists (CAP), provides a variety of metic Act. The safety of the nation’s entire blood supply
educational venues, and publishes textbooks as well as the and the products derived from it fall into the realm of the
journal Transfusion. Additional information about these CBER’s responsibility (http://www.fda.gov/BiologicsBlood
programs is available at www.aabb.org (accessed January Vaccines/default.htm, accessed January 10, 2012).
30, 2012). As an example of the FDA’s regulatory posture, in the
The AABB standards require that blood banks and late 1980s, the FDA expressed concern over the Ameri-
transfusion services establish and maintain a quality sys- can Red Cross’ (ARC) lack of regulatory compliance. In
tem (35). The responsibility for the supervision of the 1988 the ARC entered into a consent agreement with
quality management system must be given to a specific the FDA, promising that they would take steps toward
individual who reports to upper-level management. The tightening their operations (101, 105). Other blood col-
program must contain necessary essential elements as lection facilities were also under increased scrutiny, but
listed in Table 5.17. Full implementation of a quality pro- the ARC, representing 45% of the nation’s blood supply,
gram was required of all AABB-accredited facilities by was by far the largest (101). The FDA issued additional
January 1, 1998. The focus of full implementation was to warnings to the ARC, and the ARC began a major reorga-
change the approach from one of detection of errors to one nization, separating blood services from the rest of their
of prevention of errors, in accordance with requirements operations. This reorganization began a transformation,
put forth by the FDA in 1995. The essentials required were focusing on enhancing their computer system, revamp-
consistent with both the AABB Quality Program and the ing their training programs, and revising standard op-
FDA’s quality assurance requirements (3, 70). Unlike the erating procedures (SOPs) to create both national and
FDA’s 1995 requirements, the AABB required transfu- local-level compliance with current good manufacturing
sion service members, not just manufacturers of blood practices (CGMP). The ARC named a responsible head
and blood components, to develop their own quality pro- and worked on a quality assurance program. The Coun-
grams. It’s also interesting to note that the AABB volun- cil of Community Blood Centers members (now called
tary standards were written in 1957, 18 years before the America’s Blood Centers), representing a large number of
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 105

Table 5.17 Essential components of a quality management systema

Organization and leadership
Provide the leadership to establish a quality plan and create the structure.
Define specific responsibilities, including who has authority.
Provide the resources to design and implement processes and procedures.
Enforce adherence.
Customer focus
Serve the needs of the customer.
Work with customers to ensure that their needs are met.
Obtain feedback from the customers and assure them that you are meeting their expectations.
Facilities, work environment, and safety
Follow procedures and controls to provide a safe facility and environment.
Comply with regulations including the provision of adequate ventilation, hand-washing facilities, sanitation, etc.
Human resources
Use processes to hire qualified personnel.
Follow policies and procedures for orientation, training, and competency assessment, in accordance with FDA regulations.
Equipment management
Have plans to install and verify the operation of new equipment that will be installed.
Institute a system to uniquely identify and track all critical equipment.
Suppliers and materials management
Qualify suppliers of critical materials.
Maintain a list of approved suppliers.
Contracts and agreements should be periodically reviewed, with changes agreed upon by both parties.
Process management
Follow policies for all critical functions.
Design a mechanism to ensure that equipment and processes are working as defined after implementation, including quality control.
Follow systematic approaches for all aspects for implementing new processes and for changing existing processes.
Use validations for test methods, equipment, and computer systems.
Documents and records
Documents provide the structure of the organization.
Records serve as evidence of processes and procedures.
Documents and records are important since they serve as evidence of processes and procedures; these are used by inspectors.
Procedures, forms, and labels are examples of types of documents and records.
Information management
Privacy and confidentiality must be ensured.
Policies should delineate who should be granted access to different types of information and how to prevent unauthorized access.
Ensure that data are available, maintained, retrievable, and usable.
Provide backup and redundancy of key data.
Management of nonconforming events
Detect events.
Investigate events, including root cause analysis when indicated.
Address events and implementation of corrective action.
Evaluate the effectiveness of corrective actions.
Require reporting to regulatory agencies.
Monitoring and assessment
Monitor and assess processes.
Make internal and external assessments.
Establish quality indicators for evaluation.
Assess the facility’s blood transfusion practices.
Process improvement
Maintain continuous improvement as a means to ensure patient safety and quality.
Identify problems and their causes using root cause analysis and other tools.
Find solutions and assess their effectiveness.
a
See reference 35.

independent blood centers, also worked on meeting full degree on the ARC. A consent decree is a formal, bind-
regulatory compliance (105). ing, enforceable court order requiring full compliance. If
Despite progress, the FDA still felt the ARC was not violated, a party can be found guilty of contempt of court.
meeting the full extent of the law. On May 12, 1993, the The consent decree cited deficiencies in quality assurance,
FDA applied increasing pressure, invoking a consent training, computer and database review, record review,
106 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

record management, error and accident investigation, administering blood or blood components and when col-
adverse transfusion reaction investigation, transfusion- lecting blood samples and specimens that will be used for
transmitted disease investigations, and lookback proce- clinical testing. The second element requires that con-
dures. It also required that the ARC implement an internal tainers used for blood be labeled in the presence of the
audit system. While the FDA has stated that the ARC is patient. Provision of Care Standard PC.02.01.07 specifi-
making progress, there have been setbacks, and it remains cally relates to blood and blood component administra-
under the consent decree. To date, the FDA has imposed tion. It requires that the organization safely administer
more than approximately $21 million in fines (7; http:// blood and blood components (91). Medical Staff Stan-
www.redcross.org/www-files/Documents/Governance/ dard MS.05.01.01 relates to the medical staff ’s leadership
QualityRegulatoryComplianceCharter.pdf, accessed July in performance improvement activities. Element of Per-
2, 2012). formance 5 addresses the need to measure, assess, and im-
prove the use of blood and blood components (90, 92). To
The Joint Commission (TJC). TJC (formerly the Joint comply with this standard, peer review of blood and blood
Commission on Accreditation of Healthcare Organiza- product usage is usually accomplished through a hospital
tions [JCAHO]) is an independent, not-for-profit organi- transfusion committee that monitors the use of blood and
zation, formed in 1951, that sets standards for healthcare blood products against institutional guidelines. Require-
facilities. TJC evaluates and accredits nearly 19,000 health- ments for informed consent are also addressed by Joint
care organizations and programs in the United States. Its Commission Standards, available at http://www.joint
mission is “to continuously improve healthcare for the commission.org and https://e-dition.jcrinc.com/Frame
public, in collaboration with other stakeholders, by evalu- .aspx (accessed January 9, 2012).
ating healthcare organizations and inspiring them to excel
in providing safe and effective care of the highest quality International oversight through the World Health Or-
and value.” An organization must be inspected every three ganization (WHO). The international community has
years to maintain accreditation; laboratories are inspected recognized the need for a standardized approach for the
at two-year intervals, to maintain compliance with CLIA regulation of blood and products. The WHO’s World
’88. TJC states that their accreditation and certification “is Health Assembly passed a resolution establishing the
recognized nationwide as a symbol of quality that reflects need for coordinated blood systems that would be sup-
an organization’s commitment to meeting certain perfor- ported and managed at a national level. In 2006 the
mance standards” (http://www.jointcommission.org, ac- WHO established the Blood Regulators Network to cre-
cessed February 29, 2012). ate a group of international peers who could exchange in-
During its inspections, TJC uses “laboratory tracers”: formation on aspects of blood-related issues, such as new
The inspector follows a laboratory test and evaluates the technologies and emerging threats, as well as to establish
performance of all of the associated processes. They are regulatory collaboration and cooperation. The group is
specifically looking at the integration and coordination examining standardized criteria for national regulatory
of distinct, yet interrelated processes. This allows assess- agencies. Since some blood products are shipped interna-
ment of how the different departments and programs work tionally, coordination and minimal standards are neces-
together, thereby identifying strengths and weaknesses in sary. Regulatory agencies must exist to ensure compliance
each process. As an example, TJC describes tracing a unit with national legislation and to ensure the availability of
of blood to a patient who then experiences a transfusion safe blood products in an organized manner. This body
reaction. By using the tracer methodology, the inspec- believes that international standards will ensure basic
tor can observe diverse aspects of the organization such and minimum levels of uniformity, standardization, and
as the laboratory’s standard operating procedures and as- quality in each country. They are interested in improv-
sessment of training records of personnel and can evaluate ing and standardizing the method of decision making for
other laboratories or services that would be involved in fur- blood safety and evaluation, using scientific data as well
ther evaluation and treatment of the transfusion reaction as feasibility, social effects, and economics as some of the
(http://www.jointcommission.org/tracer_methodology factors required in the development of sound policy. The
_101/, accessed February 29, 2012). organization has also looked at the challenges of decision
Most of the blood and blood products requirements making when there is scientific uncertainty, especially
are covered in standards that have a broader context. Each the importance of the precautionary principle, which
standard lists elements of performance. For example, is discussed above. It is noted that the establishment of
National Patient Safety Goal Standard NPSG.01.01.01 regulations must ensure safety and availability but must
requires at least two patient identifiers when providing also ensure that rules do not impose unnecessary harm:
care, treatment, or services (90). The first element of per- When new regulations are enforced, the risks of reduced
formance describes the need for patient identifiers when blood availability must be weighed (62, 63).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 107

Biological Product Deviation Reporting Vaccines/SafetyAvailability/ReportaProblem/Biological

In the manufacturing facility and transfusion service. ProductDeviations/default.htm, accessed January 10, 2012).
Through current CGMP the FDA requires all licensed The form can be found at http://www.fda.gov/downloads/
manufacturers of biological products to report errors and AboutFDA/ReportsManualsForms/Forms/UCM061463
accidents affecting the safety, purity, or potency (SPP) of a .pdf (accessed January 10, 2012). As part of the reporting
product to the FDA. On May 7, 2001, the FDA added 21 process, the initiator assigns a code to characterize the de-
CFR 606.171 to extend this requirement to unlicensed reg- viation so it can be tracked and trended.
istered establishments and transfusion services. Two other
regulations, 21 CFR 606.171 and 21 CFR 600.14, changed the Processing a biological product deviation. For deviations
terminology of errors and accidents to biological product de- that occur before the product has left control of the blood
viations (http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/ establishment, the FDA does not need to be informed,
cfcfr/CFRSearch.cfm?fr=600.14; http://www.accessdata.fda but the transfusion service must investigate the deviation.
.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=606.171, These reports are subject to review during an inspection.
accessed March 3, 2012). The FDA expects a thorough investigation of the cause. To
In 2004, through 21 CFR 1271/350(b), these require- have a standardized process, institutional SOPs need to be
ments were extended to include reporting certain devia- written for this activity. The process should include the
tions in manufacturing of human cells, tissue, and cellular mode of documentation of the occurrence, how the cause
and tissue-based products (http://www.accessdata.fda.gov/ of the occurrence is investigated, who has responsibility
scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1271.350, for each step of the process, and how the information is
accessed March 1, 2012). used to prevent future occurrences of the same problem.
When a deviation occurs, any blood establishment that The steps of the process are summarized in Table 5.18.
has control of a blood product must report the deviation An algorithm for evaluating each deviation, developed
to the FDA within 45 days if the deviation affects the SPP by the FDA, is presented in Figure 5.1 (http://www.fda
of a distributed product. Distributed products are those .gov/downloads/BiologicsBloodVaccines/Guidance
that have left the control of the blood establishment. For ComplianceRegulatoryInformation/Guidances/Blood/
example, when a courier comes to pick up a product, and UCM062918.pdf, accessed February 29, 2012). The pro-
a deviation affecting SPP is discovered before the courier cess of root cause analysis can be used to determine the
leaves the area but after the product has been released to true underlying, or root, cause of the deviation, not neces-
the courier, this becomes an FDA reportable occurrence. sarily the most obvious cause. During root cause analysis
Control is defined as having responsibility of maintaining a group of people delve into the occurrence in a prede-
a product’s continued SPP and compliance with applicable termined fashion by asking sequential questions or using
product and establishment standards and CGMP require- standard diagram techniques. The intent of tracking de-
ments. The events must also represent either a deviation viations is to improve quality, improve patient outcomes,
from CGMP, applicable regulations, applicable standards, and prevent future deviations (108). The best way to de-
or established specifications or be unforeseen or unex- tect deviations is to encourage employees to report such
pected occurrences (50, 51, 53, 54). In 2006 the FDA issued occurrences in a non-punitive environment. These prin-
final guidance, Guidance for Industry: Biological Product ciples have been successfully applied outside of medicine;
Deviation Reporting for Blood and Plasma Establishments the most well-known arena is the aviation industry. By not
(http://www.fda.gov/downloads/BiologicsBloodVaccines/ just identifying errors, but by gaining an understanding
GuidanceComplianceRegulatoryInformation/Guidances/ of their myriad causes, a true opportunity for process im-
Blood/UCM062918.pdf, accessed February 29, 2012). provement is captured (22).
The document also clarifies the earlier draft guidance.
(The FDA’s most recent guidance is available at http://
www.fda.gov/BiologicsBloodVaccines/SafetyAvailability/ Table 5.18 Steps in processing biological product deviations
ReportaProblem/BiologicalProductDeviations/default
Identify deviation; if reportable, must report within 45 days.
.htm [accessed January 1, 2012].)
Document deviation.
These documents highlight the inclusion of the trans-
Take immediate corrective action.
fusion service as a part of the manufacturing process of
Investigate deviation (may involve root cause analysis).
blood, having responsibility for compatibility testing, pro-
Track deviations.
cessing, packing, labeling, and final distribution of the
Look for trends in deviations.
product (60). When deviations meeting the requirements
Implement corrective action.
for reporting are discovered, a biological product devia-
Monitor for effectiveness of corrective action.
tion report (BPDR), form FDA-3486, must be completed
and emailed or faxed (http://www.fda.gov/BiologicsBlood Oversee quality assurance.
108 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Was the event

associated with NO No Action

“manufacturing ”?

YES

Was there a Was there an

deviation that might NO unexpected event NO Record per FDA
affect the safety, that might affect the safety, guidance
purity, or potency of purity, or potency of
a product? a product?

Investigate per
YES FDA guidance

Did it occur in Did it occur

your facility? NO at a facility NO Notify
under contract responsible
with you? party

YES

Did you have

control over the product NO Notify the manufacturer
when the deviation who had control over
occurred? the product

YES

Was the
NO Record per FDA
product guidance
distributed?

YES Investigate per FDA

guidance

Evaluate the need for Record and Submit report

product retrieval or investigate per FDA guidance to CBER per
consignee notification FDA guidance
per FDA guidance

Figure 5.1 Flow diagram for management of deviations in accordance with Food and Drug Ad-
ministration requirements. doi:10.1128/9781555817282.ch5.f1
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 109

The FDA publishes summary reports and the most Table 5.19 Typical compliance functions within
frequent BPDRs submitted for different types of estab- blood centers and transfusion medicine services
lishments and services. These reports can help organi- Competency assessment
zations see common pitfalls and can also serve as a tool Documentation of all operational activities
for benchmarking (http://www.fda.gov/BiologicsBlood Error and accident reporting
Vaccines/SafetyAvailability/ReportaProblem/Biological Implementation of new regulatory requirements
ProductDeviations/ucm240904.htm, accessed February Inspections
29, 2012). Preparation
Hosting
The Cost of Increasing Regulatory Oversight Internal audits
Lookback
Implementation of safety initiatives in conjunction with Validation
regulatory requirements is a costly endeavor. Data on Standard operating procedures
the costs incurred by meeting regulatory compliance are Standardizing
scarce. In this era of cost containment, many employees Writing
are asked to add new tasks to their current workload. The Regular review
true allocation of their time for compliance functions is Quality control and its documentation
hard to capture, since it is “fit” into the rest of their respon- Training: performance and documentation
sibilities. Adding new personnel for compliance functions Regulatory training
CGMP training
is more straightforward. Task training
One of the few studies looking at the staff costs associ- Competency assessment
ated with implementing a compliance program was per-
formed at a community blood center between 1989 and
1994 (124). To maintain compliance and keep the orga- on samples that are pools of individual donor samples.
nization on track, the blood center initially hired some- However, looking at quality-adjusted life year (QALY) in
one with the sole responsibility of compliance officer. the mid to late 1990s, expenditures for testing individual
With time, it was necessary to create a separate compli- donations (in contrast to the current pooled testing) by nu-
ance department. In addition, department heads and cleic acid amplification technology were estimated to cost
other employees within the operational structure devoted about $2 million per QALY gained, far exceeding the usu-
increasing time and energy to the effort. A list of activities ally acceptable levels of $50,000 per QALY for most other
that comprise “compliance” appears in Table 5.19. During healthcare initiatives (23, 80, 106). Aggregating the costs of
this period, the number of full-time equivalents dedicated administrative changes across the industry from 1980 to
to compliance rose from 7 to 24, with compensation costs 1997, one author estimated that an additional $226 million
rising from $367,000 to $1,298,900. These data focus on was spent per year to maintain regulatory compliance. It
personnel costs, but there were additional costs associated was also felt that the requirement to be inspected by mul-
with the raw materials necessary for the program. Meni- tiple organizations contributed to increased expenditures
tove estimated that on a yearly basis, training in itself might (25). In addition, the precautionary principle has an impact
actually occupy about 10% of an employee’s time (102). on cost as new safeguards are added to the blood industry.
Of course, there is no alternative to maintaining regula-
tory compliance. In fact, with the goal of compliance being
the maintenance of CGMP, the consequences of poor qual- Regulation of Laboratory
ity can be quite onerous and costly, from the patient care Business Practices
perspective as well as the blood center/transfusion service The federal government’s Medicare and Medicaid pro-
perspective. The cost of recalling and withdrawing blood gram is administered by the Centers for Medicare and
products can incur additional expense (21). It is unknown Medicaid Services, a division of the Department of Health
whether or not increasing regulatory compliance leads to and Human Services. Medicare is the single largest payor
an increasingly safe transfusion (120). for healthcare services. The CMS maintains the Uniform
Specific programs aimed at blood safety, as well as their Bill (UB-92), institutional and professional electronic
regulatory components, are also cited as increasing the cost medical chart format specifications, and other specifica-
of transfusion. As blood gets safer, attempts to further de- tions for various certifications and authorizations used
crease the risks of pathogen transmission come at a higher by the Medicare and Medicaid programs. The CMS also
cost per infection saved (33, 106, 120). In 1999 nucleic acid maintains the Healthcare Common Procedural Coding
amplification technology was introduced to donor blood System (HCPCS) medical code set and the Medicare Re-
screening under an experimental protocol. Testing is done mittance Advice Remark Codes administrative code set.
110 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Negotiated Rule-Making Process develop, oversee, administer, and monitor any neces-
Negotiated rule making describes the process of federal sary regulatory compliance policies and committees.
agency representatives and other special interest groups This individual generally reports directly to the chief
convening to negotiate the text of a proposed rule. A com- executive officer.
mittee, with members from each participating group, de- • Other appropriate bodies like the compliance commit-
velops the language for any proposed regulation before it tee consist of representatives from operations, finance,
appears in the Federal Register for comment. Congress has audit, human resources, utilization review, social work,
passed three generations of regulatory legislation to offer discharge planning, medicine, coding, and legal. Key
guidance to healthcare providers: managers from areas like laboratory and radiology
should serve on the compliance committee.
• The Model Compliance Plan in 1984
• The compliance office must have authority to re-
• The Model Compliance Plan for Clinical Laboratories
view documents and information that relate to com-
in July 1997 (available at http://oig.hhs.gov/authorities/
pliance issues.
docs/cpglab.pdf, accessed September 5, 2012)
• Employee ethics guidelines and standards of conduct.
• The Model Compliance Plan for Hospitals in February Human resource policies should include expected
1998 behaviors and standards of conduct related to regula-
• Model Compliance Plan to Extend Deadline for Com- tions and guidelines for federally funded programs,
pliance with Electronic Transactions Rule March 2002 fraud, and abuse. A mission statement that defines the
(http://aspe.hhs.gov/admnsimp/PRelease.htm, ac- organization’s core values and commitment is essential.
cessed April 4, 2012) Hospitals are charged with developing and distributing
Copies of the programs are available through professional written policies that identify areas of risk to the hospi-
associations and are published in the United States Code tal and include:
and the Federal Register. • Written standards of conduct for employees
• Development of policies addressing areas of risk to
Corporate Compliance regulatory exposure
Corporate compliance has evolved over the last four de- • Claim development and submission
cades. Starting as a movement to curtail price fixing and • Medical necessity demonstrated by the provider and
other antitrust violations, it has developed into a quest to certified on the claim form
solve the national healthcare debt created by fraud and
abuse. The Office of the Inspector General (OIG) developed • Avoidance of anti-kickback and self-referral viola-
the first Model Compliance Plan (MCP) after the Reform tions created when referrals are made to designated
Act of 1984 was enacted. In February 1998 the Compliance health services in which the physician or an imme-
Program for Hospitals (MCPH) was released and included diate family member may have a financial interest
essentially the same elements as the MCP for Clinical Labo- • Bad debts
ratories in 1997. The Model Compliance Plans for Clinical • Credit balances that occur when hospitals fail to
Laboratories and Hospitals are a set of guidelines used to refund overpayments by Medicare
evaluate past behavior and implement policies and proce- • Record retention for matters related to compliance
dure for future compliance. The government recognizes (governed by CLIA ’88)
that it cannot discover and eliminate every instance of fraud • Education and training programs. All personnel
and abuse in healthcare. The intent is for healthcare orga- should be required to attend ethics education and
nizations, laboratories, and providers to police themselves standards of conduct training initially. New em-
through self-regulation, self-auditing, and self-reporting ployees and existing staff must sign a certifying
and to proactively practice prevention. Compliance is an statement following compliance training that indi-
enterprise-wide attitude, culture, and commitment that sup- cates thorough understanding of the standards. The
ports honesty, integrity, and diligence in the workplace. compliance office generally maintains these records.
Thereafter, managers, supervisors, and employees
Key Elements of a Model Compliance Plan who interact regularly should receive annual retrain-
for Hospitals ing. Annual performance evaluations should include
The Compliance Program Guidance for Hospitals devel- a monitor for measuring adherence with distinct
oped by the OIG suggests that the following key elements guidelines for disciplinary actions, including termina-
be addressed in the compliance plan (64). tion when indicated.
• The chief compliance officer is typically a high-level in- • Compliance communication. The compliance officer
dividual in the organization who is authorized to should design a program that ensures each employee’s
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 111

anonymity and guarantees that the lines of commu- • Laboratories should send referring physicians annual
nication are open 24 hours per day, 7 days per week, notices that provide the following information:
without fear of reprisal for any effort to identify or • Medicare only pays for medically necessary testing.
report compliance policy violations or problems. Hos- • Lists of Medicare-approved panels and their
pitals should also post in a prominent area the HHS- components.
OIG Hotline telephone number: 1-800-HHS-TIPS
(447-8477). Institutions should maintain an anony- • HCPCS and CPT codes used to bill for the panels.
mous hotline and document all incoming calls in a • The national limitation amount (NLA) for the tests
log. Compliance programs should strictly prohibit the (also referred to as Medicare expect).
use of termination, demotion, and disciplinary action • How Medicare will be billed for the service.
against employees who report suspected violations. • Physicians who request that laboratories develop cus-
• Quality monitors and audits. An ongoing evaluation tom panels for their patients must acknowledge in
process is an essential element of a successful compli- writing on an annual basis that they understand the
ance program. Regular, periodic, and random inspec- components and billing mechanisms for the profiles.
tions by internal and external auditors should review • Laboratories should monitor the utilization pattern for
a random sampling to detect significant variation or high-volume testing and investigate shifts in frequency
deviation from a baseline in each of the areas of risk of more than 10% to determine the reason.
to exposure as cited above under “Employee Ethics • Claims for testing services submitted to Medicare must
Guidelines and Standards of Conduct.” The monitor be correctly coded to avoid charges of false claims.
should include any reserves the hospital may have
established for payments that it may owe to Medicare, • Physicians are charged to establish medical necessity
Medicaid, TRICARE, and other federally funded and provide the correct diagnosis code (ICD-9 code)
programs. for the test order to the laboratory.
• Disclosure. Development of a system to respond to al- • Laboratories must ensure that any claim submitted has
legations of improper activities. Whenever the compli- a corresponding test order and report.
ance office becomes aware of any potential employee • Do not bill for both calculations and the underlying
misconduct or an incorrect claim submission result- tests. The OIG considers this double billing.
ing in an erroneous overpayment, it is imperative
that a prompt investigation be conducted, in order to Laboratory marketing: compliance issues. Marketing ef-
make a decision to disclose the misconduct within the forts by the laboratory should be honest, clear, correct,
60 days reasonable reporting period allowed by the straightforward, informative, and nondeceptive. Labora-
government. Prompt voluntary unsolicited repayment tories are prohibited from offering inducements to phy-
within 30 days of the finding will eliminate potential sicians to gain business. Specifically, laboratories must
exposure to possible fraud and abuse allegations. ensure that physicians are never charged below fair market
Repayment is the remedy when the government over- value for referred testing to avoid the risk of allegations of
payment is the result of a one-time billing error. If an kickback. Physicians should never be offered lower prices
investigation uncovers a systematic billing problem, for non-Medicare patients in exchange for obtaining Medi-
the office should consult an attorney and consider care business that is reimbursed at a higher rate. The labo-
self-disclosure. ratory supplies provided to a physician’s office should also
• Develop policies to investigate and eliminate system- be scrutinized carefully. Equipment such as centrifuges,
atic problems, including the retention of sanctioned printers, and faxes must be used for specimen preparation
individuals. and results reporting. The laboratory and physician should
sign a document that supports the terms and conditions of
supplies and equipment provided by the laboratory. The
Model compliance plan for laboratories. Both the hos-
laboratory should have a system to monitor abuse or ex-
pital and laboratory must develop and distribute policies
cessive use of any supply provided.
that demonstrate a commitment to employee training in
areas of marketing, medical necessity, billing, and cod- The Legal Environment
ing and processing of claims. Key elements include the
The OIG’s position is one of zero tolerance. The office ex-
following:
pects a healthcare institution to promote and adhere to
• Laboratories should design the order screens and req- compliance at all levels and expects that noncompliance
uisitions to include approved panels and indicate the will not be tolerated.
need to demonstrate medical necessity when ordering The government can potentially file charges under the
additional individual automated chemistry tests. Civil False Claims Act for a period of up to 10 years. The
112 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

compliance program should synchronize the institution’s market value, academic medical centers, and nonmonetary
record retention policies to conform to government reg- compensation. In 2007 the CMS completed the third and fi-
ulations. In a 1995 status report (113) issued by the OIG nal installment of the Stark Law. The final rule, referred to
and the Department of Justice joint project, three tiers of as Phase III, responds to public comments regarding the
penalties were established for hospitals that submit false Phase II interim final rule and addresses the entire Stark
claims. The tiers are dependent on the extent of the prob- Law regulatory scheme. In Phase III the CMS continues to
lem in relationship to its size (Table 5.20). reduce the regulatory burden on the healthcare industry
Qui tam provisions of the False Claims Act, which orig- through its interpretation and modification of exceptions
inated during the Civil War, give knowledgeable private to the Stark Law’s prohibition on referrals (http://www
citizens the ability to file lawsuits on behalf of the federal .cms.gov/PhysicianSelfReferral/Downloads/66FR856.pdf,
government and to share in any recovered damages. From accessed March 1, 2012).
1987 to 1996, whistleblower cases filed by current employ- The anti-kickback statutes specifically forbid individu-
ees, employees with grievances, or competitors alleging in- als from seeking, receiving, offering, or paying any com-
dividual or corporate healthcare fraud against the federal pensation (bribe or rebate) in exchange for a referral or for
government increased nearly 1,000%. Federal prosecutors the purpose of purchasing or leasing of goods and services
use the provisions to their advantage since it requires the covered by payments from a federally funded program. In-
lower standard of preponderance of evidence but autho- ducement is inferred when a laboratory provides anything
rizes damages and penalties of $5,000–$10,000 for each of value, not paid for at fair market value, to a provider
false claim submitted. Over the years, whistleblowers have who has a referring relationship with the laboratory. The
received an average 18% of the total amount recovered by OIG could consider the following as inducements:
the government in these suits.
• The provision of phlebotomists who provide other
The physician self-referral law, commonly referred to as
clerical services
the Stark Law, originated in 1989. It prohibits doctors from
making referrals to an entity for the provision of laboratory • Picking up of biohazard materials unrelated to the
services if they or their immediate family have a financial specimen collection
relationship with that entity. Submission of Medicare claims • Providing medical supplies and equipment not related
when the ordering physician has a business arrangement to testing referred to the lab
with the laboratory is forbidden unless it fits the exceptions • Provision of computers, printers, or faxes unless exclu-
list as defined in the law. The Stark II legislation expanded sively used for the outside laboratory’s work
the law to cover 10 other categories including physical and
• Providing free POL consultation
occupational therapy, radiology, radiation therapy, durable
medical equipment services and supplies, prosthetic de- • Waiving managed-care patient charges to retain the
vices and supplies, home health services, parenteral and en- client’s referral work
teral nutrients, outpatient prescription drugs, and inpatient • Professional courtesy (free healthcare testing) to the
and outpatient hospital services (84). The Phase I Rules of provider and office staff
Stark II included modification to key terms such as “referral,”
Violators are subject to criminal penalties and/or exclu-
“indirect financial relationships,” “indirect referrals,” and
sion from participating in the federally funded healthcare
“volume or value of referrals” and the definition of “group
programs.
practice.” The most significant additions to the Stark I
legislation include new exceptions to prohibitions for fair
Safe-harbor regulations. The Medicare and Medicaid Pa-
tient and Program Protection Act directed the Office of In-
Table 5.20 Hospital financial exposurea
spector General (OIG) to assure healthcare providers that
Tier 1 they would not be prosecuted for engaging in certain prac-
A hospital’s payment or penalty was equal to the
potential overpayments plus interest.
tices where they assumed compliance while acting in good
faith. Arrangements that may qualify under the regulation
Tier 2 include certain investment interests, equipment or space
Payment and penalty were equal to 100% of potential rental agreements, management service contracts, manu-
overpayment plus interest. facturers’ warranties, and gain-sharing. Gain-sharing re-
Tier 3
sults when a hospital agrees to share with a provider a fair
Payment and penalties were equal to 300% (treble market share or percentage of any measurable reduction
damage) of potential overpayment plus interest. in costs for patient care where quality and performance
a
See http://oig.hhs.gov/oas/reports/region3/39400021.pdf criteria were met and said reductions could be directly at-
(accessed October 22, 2012). tributed to the efforts of the provider.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 113

The OIG from time to time issues special fraud alerts organizations with established compliance plans can pre-
to assist contractors and providers who participate in vent or detect violations and identify employee miscon-
federal programs. (These alerts are available on the OIG duct prior to an investigation, substantially reducing their
website at http://oig.hhs.gov/compliance/alerts/index.asp exposure to criminal penalties.
[accessed February 28, 2012].)
Federal sentencing guidelines. Believing that the federal
Legal sanctions. When a lab is cited for violations of any of court’s sentences for organizations were unfair and un-
the regulations, sanctions could include denial of payment, predictable, under legislation known as the Reform Act of
refund of monies collected when billed in violation, civil 1984, Congress authorized the creation of a Federal Sen-
monetary penalties of $15,000/claim and exclusion, civil tencing Commission to establish guidelines for judges to
penalties of $100,000 and exclusion for cross-referral bill- use in sentencing individuals (first issued in 1987) and
ing schemes, and civil penalties of $10,000/day for failure organizations (issued in November 1991). A compliance
to report. The OIG has the authority to exclude healthcare program becomes most valuable when there is a clear un-
providers from federally funded programs and maintains derstanding of how fines are determined under the sen-
a list of excluded individuals and entities called the List of tencing guidelines.
Excluded Individuals and Entities. Anyone who contracts
with an excluded individual or entity may be subject to Civil monetary penalties. The complex system of civil
civil monetary penalties (http://oig.hhs.gov/exclusions/ monetary penalties enables the government to clearly de-
background.asp, accessed February 28, 2012). The Gen- fine the guidelines for an effective compliance plan in the
eral Services Administration also maintains a monthly list clinical laboratory and the hospital setting (65). After ana-
of debarred contractors. (The list is posted on the Gen- lyzing the seriousness of the offense, a base fine is deter-
eral Services Administration website at https://www.epls mined. Then the organization is scrutinized for the degree
.gov/ [accessed February 28, 2012].) Hospitals may request of responsibility and degree of involvement of management
information from this database as a part of the employee in the commission of the acts to determine the overall cul-
recruitment, screening, and credentialing process. pability score. These two factors are used to calculate the
guideline fine range used by the courts to set the amount
Settlement agreements. Corporate integrity agreements of the overall fine. A well-established compliance program
(CIAs) are executed as a result of a civil settlement be- shields the healthcare provider from suffering longer sen-
tween the government and a healthcare provider based tences or harsher penalties. Under the Federal Sentencing
on alleged fraud and abuse under the False Claims Act, Guidelines, the culpability score for a company being pros-
including qui tam. The most compelling reason for a pro- ecuted for a violation would be reduced by as much as 95%
vider to enter into a CIA is to avoid exclusion from fed- when a corporate compliance program is in effect (61). The
eral programs. Although the government has a standard challenge is to provide and document evidence of the plan’s
CIA boilerplate agreement, it is in the facility’s best inter- effectiveness, targeting training as the key.
est to work toward developing an agreement that avoids a
broad-brush approach using language that closely follows
the hospital’s existing compliance program, concentrat- Laboratory Reimbursement
ing on the issues prompting the investigation. Over time, and Medical Necessity
CIAs have become more rigorous and now impose lon-
ger terms of duration, investigate a wider span of issues, Medicare
include elaborate and expensive provisions, and expand In 1999 the Department of Health and Human Services
internal and external monitoring of CIA compliance (77). (HHS) established the Centers for Medicare and Medic-
aid Services (CMS), formerly known as the Healthcare Fi-
Impact of compliance on healthcare providers. Facilities nancing Administration (HCFA), to provide operational
should design compliance programs that strive to create oversight and administer guidance to third-party health-
a culture that promotes prevention, detection, and resolu- care contractors.
tion of any occurrence that does not comply with federal,
state, or private payor healthcare program guidelines (J. F. Medicare contractors: third-party payors. The CMS con-
Boothe and J. A. Gayken, workshop on laboratory com- tracts with third-party contractors to administer federally
pliance, special session, Clinical Laboratory Management funded programs such as Medicare and TRICARE. The
Association Annual Conference and Exhibition, Toronto, Medicaid program is administered cooperatively between
Ontario, 1997). The benefits of having an effective pro- the HHS and state agencies. The contractors are generally
gram outweigh the managerial costs incurred to estab- companies whose business is the administration of insur-
lish and administer a compliance program. Healthcare ance plans. They must demonstrate financial solvency,
114 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

adequate infrastructure, and a satisfactory record of ser- Medicare excludes or does not cover long-term care and
vice to be awarded a government contract. custodial care in a nursing or private home.
In the past, a fiscal intermediary served as a primary Medicare payments for hospital inpatient stays are re-
third-party contractor administering Part A payments, imbursed using the diagnosis-related group (DRG), a pro-
and a different primary third-party contractor adminis- spective payment system. The Medicare Hospital Manual
tered Part B payments. Since 2008, there has been a tran- contains billing and coding guidelines for Medicare Part
sition away from separate Part A and Part B contractors. A. The Balanced Budget Act of 1997 included a provision
Instead, there is a Medical Administrative Contractor that to move skilled-nursing facilities’ Medicare payments for
handles both Part A and Part B payments; this has been Part A and B services to a prospective payment system re-
shown to improve efficiency of claims processing. ferred to as consolidated billing (28). In 2000 the Benefits
Improvement and Protection Act (BIPA) limited the scope
Provider designation, responsibilities, and agreements. To of consolidated billing to the services covered under Part
be designated as a Medicare provider, a healthcare facility A for skilled bed care, and the payment is referred to as
must first define the types of services being offered as a hos- resource utilization group.
pital, clinical laboratory, rural health clinic, skilled-nursing Three-day (72-hour window) rule. The CMS issued the
facility, or home health agency. Survey agencies in each final diagnosis-related group (DRG) 72-hour window rule
state certify that each provider meets the statutory regula- in February 1998, which states that the hospital’s inpatient
tions governing the conditions of participation defined by costs are reimbursed by Medicare Part A under the pro-
the program (Table 5.21). The Medicare enrollment ap- spective payment system (PPS) that pays an established
plication may be completed using form CMS-855 or the rate for all services during the stay including diagnostic
Internet-based Provider Enrollment, Chain and Ownership testing. An institution’s billing service must ensure that
System (PECOS). Both are available at http://www.cms.gov claims are never submitted for any outpatient testing per-
(accessed February 18, 2012). As participating suppliers, formed by the facility’s laboratory within three calendar
laboratories are required to accept the assigned Medicare days of a hospital admission if the services are furnished
fee schedule reimbursement as payment in full. The lim- directly in connection with the admitting diagnosis and
iting charge covered by Section 1848(g) of the Social Se- are covered by PPS payment (112). Separate payment is
curity Act applies to claims submitted by nonparticipating not allowed for:
physicians or suppliers who do not accept payment on an
assignment-related basis for physician services. • Any nonphysician outpatient service rendered on the
day of the admission or during the inpatient stay
Hospital inpatient services: Medicare Part A. In general • Diagnostic services rendered up to 72 hours before the
Medicare Part A covers the following services provided to day of admission
qualified Medicare beneficiaries (QMB): • Admission-related nondiagnostic services rendered up
to 72 hours before the day of admission
• Services related to a hospital inpatient stay
On June 25, 2010, President Obama signed the Pres-
• Services provided in a skilled-nursing facility
ervation of Access to Care for Medicare Beneficiaries and
• Home health or hospice services Pension Relief Act of 2010, which contains a section to
• End-stage renal disease services clarify the three-day rule. The three-day rule previously

Table 5.21 Medicare provider designation

Provider designation Certifying agency Conditions of participation
Hospital The Joint Commission Utilization review
American Osteopathic Association Staffing for psychiatric
Det Norske Veritas Healthcare, Inc. Adhere to HHS standards or higher
42 CFR. Part 482
Clinical laboratory Clinical Laboratory Improvement Act of 1988 CLIA certificate current and unrevoked
No participation agreement needed
Must accept assignment for negotiated Part B reimbursements
Rural health clinic Federally qualified healthcare center Not physician directed
42 CFR δ491 Located in rural area
Providers: participating or nonparticipating
Skilled-nursing facility 42 U.S.C. δ1395I-3 Participation agreement
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 115

stated that hospitals must bill as part of an inpatient stay employed by the hospital and sent to the hospital for test-
all diagnostic services provided within three days of ad- ing. Sometimes laboratories are governed by hospital regu-
mission, as well as all nondiagnostic services related to the lations, but there are also instances when the independent
inpatient admission. “Related” was defined by CMS as an laboratory regulations apply.
exact diagnosis code match between the inpatient admis- Tax-exempt hospitals are subject to taxation on their un-
sion and the outpatient services. Because hospitals had related business income (UBI) for outreach testing activi-
struggled to correctly apply the rule in their billing opera- ties, because outreach testing activities are not substantially
tions, the statutory change requires that hospitals bill as related to the hospital’s tax-exempt purposes. UBI is sub-
part of the inpatient stay all nondiagnostic services pro- ject to taxation at ordinary corporate rates, and the hospital
vided on the day of admission as well as those in the three should file 990-T forms with the IRS. UBI should include
days prior to admission, unless they can demonstrate outreach testing income minus deductions for expenses
that the services are unrelated to the admission (http:// directly associated with the program. When hospital em-
www.gpo.gov/fdsys/pkg/PLAW-111publ192/pdf/PLAW ployees are used for both patient and nonpatient testing,
-111publ192.pdf, accessed March 1, 2012). allocations between the two should be calculated on a rea-
sonable basis. Hospital outreach programs must maintain
Outpatient services: Medicare Part B. Medicare Part B and retain appropriate records to permit calculation of the
covers physician and other outpatient healthcare services outreach testing net contribution to income (74).
including:
• Physician services and services incident to physician Coordination of benefits and coordination of Medi-
services care benefits. The Coordination of Benefits (COB and
• Ancillary services (clinical lab testing, home health COMB) program is designed to ensure that a patient’s
services, rehab services, and ambulatory surgical alternative healthcare benefits (workman’s compensation
services) and automobile insurance) are identified before a claim
is submitted to Medicare. The goal is to eliminate im-
Hospital-based laboratories that perform outpatient and proper payments for services when Medicare should be
nonpatient testing submit Medicare UB 92 claims as Part the secondary rather than the primary payor. The CMS
A reimbursement to the fiscal intermediary but actually maintains a COB page (available at http://www.cms.hhs
receive payment based on the Medicare Part B fee schedule .gov/COBGeneralInformation, accessed March 1, 2012) to
for the services. The Medicare Carrier’s Manual contains assist providers with their benefits coordination process.
useful billing and coding guidelines for independent labs,
group practices, and physician office laboratories for fill-
Medicare secondary payor status. Patient registration
ing claims for Part B services.
staff should be familiar with Coordination of Benefits and
Medicare Part C is known as a Medicare Advantage Plan
the organization’s process to establish Medicare second-
(HMO or PPO) and provides Part A (hospital insurance)
ary payor (MSP) status. In certain circumstances another
and Part B (medical insurance) coverage. Medicare Advan-
third-party payor, not Medicare, may be the primary in-
tage Plans may offer extra coverage, such as vision, hearing,
surer for a claim. The claim should always be submitted
dental, and/or health and wellness programs. Most include
to the primary payor first and then to Medicare. The MSP
Medicare prescription drug coverage (Part D) (https://
regulation requires an MSP questionnaire (http://www
www.medicare.gov/default.aspx, accessed July 11, 2012).
.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
Medicare Part D was created when the president signed
downloads/msp105c03.pdf, accessed July 3, 2012) to be
the Medicare Prescription Drug, Improvement and Mod-
completed to direct providers to other third-party payors
ernization Act (MMA) of 2003 into law on December 8,
first whenever they are primary to Medicare (140). Medi-
2003. Title I of the MMA added sections that created the
care is considered secondary in the following instances:
Medicare Prescription Drug Benefit (66).
• The beneficiary or the beneficiary’s spouse is gainfully
Outreach (nonpatient) testing. Hospital laboratories pro- employed.
vide services to three different patient types: inpatients, • The beneficiary is disabled and under age 65.
outpatients, and nonpatients. Classification of a patient as
• Automobile, no-fault medical, personal injury protec-
a hospital inpatient is a straightforward process. The abil-
tion, or third-party liability is involved.
ity to differentiate between an outpatient and a nonpatient
is more difficult but very important, since the applicable • Pulmonary/respiratory illnesses are associated with
rules are not the same. The Medicare Intermediary Man- mining, and benefits are covered by the Black Lung
ual describes nonpatient testing as tissue or blood samples Program.
or specimens that are collected by personnel who are not • The beneficiary is entitled to veteran’s benefits.
116 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• The beneficiary’s injuries occurred on the job and are and their dependents. It is administered by the TRICARE
covered by workman’s compensation. Management System within the Department of Defense
• An individual entitled to Medicare on the basis of Military Health System. Only authorized providers may
end-stage renal disease (ESRD) is covered under an participate, and they must agree to accept the TRICARE
employer group plan. allowable fee as payment in full. Participating institutions
must file claims with the third-party administrator on be-
MSP policies apply in cases where Medicare does not as- half of the beneficiary.
sume the primary obligation to pay for services, as the bene-
ficiary may have other coverage. (MSP policies are available Railroad Retirement Act. The Railroad Retirement Act is
on the Centers for Medicare and Medicaid Services website a federal insurance program similar to Social Security de-
at www.cms.gov/manuals/downloads/msp105c03.pdf [ac- signed for workers in the railroad industry. The provisions
cessed April 4, 2012].) of the Railroad Retirement Act provide for a system of co-
A major reason for Medicare claim denials nationwide ordination and financial interchange between the Railroad
is the inability to correctly verify a subscriber’s eligibility Retirement program and the Social Security program.
for coverage. CMS Program Memorandum Transmittal
AB-00-36 assigns the responsibility for updating the com- National Coverage Determination and Local Medical
mon working files (CWF) and MSP database to a COB Review Policies
subcontractor (41). CWF editors should include prepay-
Balanced Budget Act of 1997. The Balanced Budget Act
ment edits, medical necessity edits, frequency limitations,
of 1997 mandated the use of a negotiated rule-making
and postpayment edits. The contractor will not process
committee to develop national coverage and administra-
any claims or handle any mistaken payment recoveries or
tive policies for clinical diagnostic laboratory services pay-
claim-specific inquiries (141). The CMS intends for the
able under Medicare Part B by January 1, 1999. The bill
COB contractor to serve as an information-gathering en-
included provisions for numerous healthcare issues, such
tity to detect and prevent improper payments for MSP by
as civil penalties for fraud and abuse, anti-kickback viola-
ensuring that the CWFs are accurate and current.
tions, guidelines for exclusion from the Medicare program,
diagnostic information on medical necessity, coverage for
Other Federally Funded Programs additional screening tests, and prospective payment of Part
Medicare Advantage plans (Medicare Part C). Medicare B services to patients in a skilled bed in a nursing facility.
Advantage plans are offered by private companies that The provision required that national coverage policies
contract with Medicare to provide both Part A and Part B promote program integrity and national uniformity and
benefits. The plans may take one of several different forms, simplify administrative requirements for clinical diagnos-
including health maintenance organizations, preferred tic laboratory services.
provider organizations, private fee-for-service plans, or
special needs plans. Many Medicare Advantage plans in- NCDs. The National Coverage Determinations (NCDs)
clude prescription drug coverage. The beneficiary and the are the national policies that establish whether Medicare
plan share the expenses. The plan company must deliver will cover or not cover certain healthcare services, proce-
the care at a cost below what it receives from Medicare and dures, or technologies. The CMS tracks emerging technolo-
the beneficiary in order to make money. It seeks to do this gies and patterns of care to determine the application of an
by managing the care more closely than possible through NCD and the need for policy change. When an NCD does
traditional Medicare. not specifically exclude an indication or circumstance and
does not specify an item or service in an NCD or a Medicare
Medicaid (Title XIX). Medicaid is a jointly administered Manual, Medicare contractors are then responsible for mak-
program that is funded by both federal and state government ing the coverage decision and publishing and updating the
and provides health insurance for certain low-income and local medical review policies (LMRPs) on a monthly basis.
needy people. There are approximately 62 million enroll- The final rule, published in the Federal Register on November
ees including children, the aged, blind, and/or disabled, and 23, 2001 (48), included 23 coverage determinations as listed
people who are eligible to receive federally assisted income below. (More details may be obtained from the publication
maintenance payments (http://www.census.gov/compendia/ “Medicare National Coverage Determinations: Clinical Di-
statab/2012/tables/12s0152.pdf [accessed June 18, 2013]). agnostic Laboratory Services,” available on the CMS website
located at http://www.cms.gov [accessed February 18, 2012].)
TRICARE. Formerly known as the Civilian Health and
Medical Program of the Uniformed Services, or CHAM- • Culture, bacterial (urine)
PUS, TRICARE provides medical and dental care for • Human immunodeficiency virus testing (prognosis
members and former members of the uniformed services including monitoring)
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 117

• Human immunodeficiency virus testing (diagnosis) Medicare requires that providers retain the bulletins a
• Blood counts minimum of five years. Medicaid differs from Medicare
in that the program is administered jointly by both fed-
• Partial thromboplastin time
eral and state agencies. The reader may want to refer to the
• Prothrombin time CMS Medicare Coverage Database site at http://cms.gov/
• Serum iron studies medicare-coverage-database/overview-and-quick-search
• Collagen crosslinks (any method) .aspx (accessed February 28, 2012) for review of all LMRP
policies by contractor for a specific area.
• Blood glucose testing
• Glycated hemoglobin or glycated protein Reimbursement Methods
• Thyroid testing Reimbursement is generally driven by the types of service
• Lipids rendered to a beneficiary and the location in which the
service is rendered. Additional information is available
• Digoxin therapeutic drug assay
in the Outpatient Prospective Payment System (OPPS)
• Alpha-fetoprotein patient booklet (located at http://www.medicare.gov [ac-
• Carcinoembryonic antigen cessed February 28, 2012]).
• Human chorionic gonadotropin
Prospective payment system for outpatient services. Con-
• Tumor antigen by immunoassay (CA125) gress directed HCFA to develop a prospective payment
• Tumor antigen by immunoassay (CA 15-3 and CA system (PPS) for hospital outpatient services in the Om-
27.29) nibus Reconciliation Act (OBRA) of 1986. The Balanced
• Tumor antigen by immunoassay (CA 19-9) Budget Act established an implementation date of Janu-
• Prostate specific antigen ary 2000. Under PPS, hospital services other than those
covered under a fee schedule would be included. Excluded
• Gamma glutamyl transferase services include laboratory, ambulance, occupational ther-
• Hepatitis panel (acute hepatitis panel) apy, physical therapy, and speech pathology.
• Fecal occult blood
Ambulatory payment classifications. In July 2000 Medi-
• Cytogenetic studies care introduced a new prospective payment system for
• Diagnostic pap smears outpatient services. The CMS originally proposed an am-
• Histocompatibility testing bulatory payment group (APG) after a study done in 1995.
• Blood platelet transfusions The APGs were mandated by the 1997 Balanced Budget
Act. In 2002 the terminology changed to ambulatory pay-
• Blood transfusions ment classifications (APCs) (38, 39). Under the APCs,
Each NCD follows a uniform format that includes there are 451 groups defined by clinical relevance and
policy name, policy number, reason, policy type, bill resource usage (40). In contrast to the Part A diagnosis-
type, revenue code, a narrative description of the tests, related group approach, which covers a patient’s entire in-
clinical indications for their use, coverage limitations, patient hospital stay, multiple APCs may be assigned to a
HCPCS code, a list of related ICD-9 codes covered by single encounter. The payment rate for the APC is prede-
Medicare, a list of ICD codes that will be denied by Medi- termined and is equal to a national conversion rate mul-
care, a list of codes that are not generally covered unless tiplied by an APC-specific weight and adjusted for local
certain exceptions are met, national policy, reasons for area wage differences. The APC system ensures payment
denial, sources of information, documentation require- predictability and provides an incentive for efficiency.
ments, revision history, and effective dates. The policies Clinical laboratory services are excluded from the outpa-
include frequency limitations for tests for which Medi- tient PPS and are paid from the Part B clinical laboratory
care restricts coverage to a specific number of times per fee schedule (15).
year. In some geographic regions, the NCD policies re-
End-stage renal disease (ESRD). ESRD facilities provide
place the LMRPs. In states where no policies exist, the
services to Medicare beneficiaries who have permanent
NCDs become new restrictions (81). Local carriers and
kidney dysfunction and require dialysis treatment. The fa-
fiscal intermediaries can supplement the NCDs with ad-
cilities have strict medical necessity guidelines and utiliza-
ditional requirements before communicating the LMRPs
tion criteria.
to providers in the form of bulletins, determine eligibility
for coverage and reimbursement allowances for services, • Medicare composite payment or rate. Reimbursement
pay claims, audit, and determine appeals from providers. for physician, supervisory, and direct care services that
118 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

are routinely rendered in relation to outpatient dialysis payment rates on the lowest price submitted by providers.
(including hemodialysis, continuous ambulatory peri- Although the Balanced Budget Act of 1997 removed the
toneal dialysis, continuous cycling peritoneal dialysis, prohibition, the demonstration project remains stalled due
intermittent peritoneal dialysis, or hemofiltration). to the enormous complexity of the endeavor. The Medi-
The costs of certain ESRD laboratory services are in- care fee schedule and the system’s payment problems are
cluded in the composite rate. The three major risks subject to application of different standards in each of the
associated with billing for tests included in the com- carrier jurisdictions. Competitive bidding would further
posite rate are duplicate billing, failure to document complicate the system for laboratories that refer tests be-
medical necessity for tests not included in the com- tween jurisdictions while increasing the costs of processing
posite rate, and failure to comply with the 50/50 Medi- claims. Restricting the ability of physicians to choose the
care Composite Payment rule (103). laboratory believed to best serve the needs of their Medi-
• The Medicare Composite Payment 50/50 rule limits care patients might create access problems. Allowing only
when a multichannel chemistry panel can be included a few select providers might create government-sanctioned
in the composite rate. If 50% or more of the covered monopolies that force necessary providers out of business
tests are included under the composite rate, then the (43). The Medicare Improvement for Patients and Provid-
entire panel is to be part of the composite rate paid to ers Act of 2008 repealed the Competitive Bidding Project.
the facility, and the lab cannot bill for the additional
testing separately. On the other hand, if more than 50% Code of Medical Necessity (Reasonable
of the automated tests are not in the composite rate, and Necessary Services)
then the testing laboratory may bill the entire panel Medical necessity regulation first originated in the Social
directly to Medicare. Laboratories can expect increased Security Act. A test must meet the following criteria to be
scrutiny by the OIG for ESRD claims (93). considered medically necessary.
• Medicare fee schedule. Laboratory testing not included • The ordered test must be consistent with the signs,
in the composite rate is subject to medical necessity symptoms, or diagnosis of the injury or illness being
guidelines and is reimbursed under the Medicare fee treated and be appropriately documented, both on the
schedule when appropriate (17). test requisition and in the patient’s medical record.
Hospice benefits are optional to Medicare beneficiaries Medicare does not pay for tests where documentation
whose terminal illness prognosis is less than six months. in the medical record does not support medical neces-
Payment for treatment and management services is made sity requirements.
under the benefit, and all other Part B claims except the • The test must be necessary and consistent with the
professional fees of the attending physician are waived. generally accepted professional medical standards of
practice (not investigational or experimental).
Medicare direct billing rules. Medicare pays only the • The test must not be ordered for the convenience of
healthcare entity that actually performed or supervised a the patient or the physician. Medicare generally does
clinical laboratory test. The exceptions are: not cover routine screening tests even when the health-
• Laboratory-to-laboratory referrals if the laboratory care provider ordering the tests considers it to be ap-
billing for the service performs at least 70% of the to- propriate for the beneficiary.
tal tests billed within the laboratory • The test must be provided safely and effectively at
• Laboratory-to-laboratory referrals if the laboratory the appropriate level. Medicare only reimburses for
performing the test is commonly owned by the labora- tests that meet the Medicare coverage criteria and are
tory billing for the test deemed reasonable and necessary to treat or diagnose
an individual patient.
• Tests provided under an arrangement with a hospital,
critical-care facility, or skilled-nursing facility The intent of the guidelines was to encourage partner-
ships between third-party contractors, physicians, and
Competitive Bidding Demonstration Project. In 1985 providers in providing appropriate care to patients. The
Health and Human Services issued a request for propos- Carrier Advisory Committee was formed to educate and
als to establish demonstration projects for the provision train physicians after analyzing patterns of practice rather
of clinical laboratory services for Medicare beneficiaries than denying claims.
on a competitive bidding basis. The Consolidated Om-
nibus Budget Reconciliation Act of 1985 (COBRA) pro- Advance beneficiary notice (ABN). The Medicare pro-
hibited HHS from conducting the project until after 1987. gram’s purpose for the ABN is to ensure that all Medicare
Competitive bidding is a method for setting the price of beneficiaries are informed in writing prior to receiving a
healthcare services through a bidding process to establish service or procedure that may not be a covered benefit. The
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 119

ABN serves as a waiver of liability and is intended to assist the healthcare provider to select a code that will make the
the patient in making a decision to receive a service and to claim payable, rather than assigning or selecting the code
agree to accept financial responsibility if the claim is not based on the patient’s medical condition. The code choice
covered. The use of an ABN should be limited to individual should always be made before payment issues are consid-
instances where the provider feels there is reason to believe ered and should be appropriately documented in the pa-
reimbursement will be denied. In designing a facility ABN tient’s chart (medical record) and the test requisition (142).
notice, the correct language to satisfy the CMS requirements
is “Medicare will pay only for items and services it deter- Standing orders. A standing order is valid for a limited
mines to be reasonable and necessary.” Non-covered services time as long as it meets medical necessity guidelines. Reg-
include routine physical exams, screening tests, cosmetic ulations require the following criteria for the use of stand-
surgery, and experimental or investigational services. ing orders for any patient type in any type of facility:
The Balanced Budget Act of 1997 made it a require-
ment that physicians provide specific diagnostic informa- • A healthcare provider placed the order.
tion when ordering tests for which reimbursement from • The order was specific to the patient and met medical
the Medicare program will be sought. Failure to comply necessity guidelines.
with the medical necessity regulations could result in the • An ABN should be executed for screening or a non-
government filing false claims charges for performing un- covered service.
necessary tests or services. Tests ordered and performed at • The order must have a start date and indicate the pe-
a greater frequency than those allowed must have medical riod of time for the standing order (<12 months) and
necessity documentation. must be documented in the patient’s chart.
In March 2008 the CMS implemented the use of a
revised Advance Beneficiary Notice of Non-coverage If testing continues once the order expires or is not nec-
(CMS-R-131-L). The form replaced the General Use essary, the facility could be liable for fraud and abuse.
ABN (CMS-R-131-G) and the Lab ABN (CMS-R-131-L) Laboratory policies related to these orders should include
for physician-ordered laboratory tests. The form is posted periodic reviews of all standing orders to eliminate the po-
on the Beneficiary Notice Initiative web page (www.cms tential risks associated with their performance (27).
.hhs.gov/bni, accessed February 28, 2012).
Verbal orders. Federal regulations allow laboratories to
Authorized representative. The ABN instructions define accept verbal orders or modifications to an existing order
an authorized representative as a person who does not and to perform the testing, provided the laboratory docu-
have a conflict of interest with the beneficiary when the ments the order within 30 days and maintains the records
beneficiary is temporarily or permanently unable to act for or the request for authorized signatures for two years (16).
him or herself. The representative acts on the beneficiary’s
behalf, in his or her best interest. This definition differs Research or investigational testing. Non-FDA-approved
from the rules on who may sign when the beneficiary is testing for research or investigational use could be consid-
incapable. The following individuals may qualify to serve ered either a non-covered service or not medically neces-
as an authorized representative: sary. When a third-party payor’s LMRP guidelines define a
• A person authorized under state law to make health- test as a non-covered service, an ABN is not needed. How-
care decisions or exercise power of attorney ever, if it is deemed not medically necessary, then having
beneficiaries sign an ABN waiver informs them of their
• A legal spouse, adult child, parent, adult sibling, or
financial responsibility.
close friend
• A disinterested third party or public appointed Reflex testing. The laboratory’s test ordering pathway
guardian should be based on standards of care developed with
Although the instruction does not define the method of physician oversight. When tests include automatic re-
determination of conflict of interest, it does state that an flex testing (confirmation, sensitivity, antibody elution,
employee of a healthcare provider or supplier of service or titer), the computer order screen or requisition should
may have a conflict and therefore be precluded from serv- clearly denote that it includes automatic reflex. Billing
ing in this capacity (138). for reflex testing without a specific order could result in
charges of false claims. A laboratory should document a
Medical necessity guide. Laboratories that develop a med- physician’s request to automatically reflex certain tests in
ical necessity guide for use by providers and clients who writing. The agreement should be updated annually. A
order tests governed by a national coverage determination useful tool for reflex testing is to create a chart or algo-
or a local medical review policy must avoid code steering, rithm that maps the sequence or pathway for confirma-
the appearance that the laboratory is directing or steering tory testing (88).
120 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Overview of the Reimbursement Process provide the best Current Procedural Terminology (CPT)
code for the service provided. The coding guidelines are
The Deficit Reduction Act of 1984 authorized the Medicare
disseminated by CMS, the National Center for Health Sta-
clinical laboratory fee schedule and mandated that the lab-
tistics, the American Medical Association, and the Ameri-
oratory performing the test bill Medicare for the services
can Health Information Management Association.
directly. The ordering physician could only bill if the test-
On January 16, 2009, the HHS released the final rule man-
ing was performed in his office laboratory. In the Balanced
dating that everyone covered by the Health Insurance Porta-
Budget Act of 1997, the CMS decreased by more than $100
bility and Accountability Act (HIPAA) implement IDC-10
billion reimbursement to Medicare providers, including
for medical coding. IDC-10 will replace ICD-9 coding. The
the laboratory. The Benefits Improvement and Protection
original effective date for implementation of ICD-10 was
Act (BIPA) of 2000 restored some of the reimbursement
March 17, 2009. Due to the complexity of the project, the
previously taken away from Medicare providers. BIPA is
date on which all entities are required to have implemented
part of the Consolidated Budget Appropriations Act that
ICD-10 (the compliance date) is now October 1, 2014. ICD-
allocated $35 billion over five years in federal spending,
10 increases the number of reporting codes from approxi-
primarily for hospitals. Related legislation includes:
mately 13,600 to 69,000, providing a dramatic increase in
• HR 1798/S.1066: the Medicare Patient Access to Pre- the level of reporting detail and granularity.
ventive and Diagnostic Tests Act Potential benefits of ICD-10 are:
• HR 1948: the Medical Laboratory Personnel Shortage • Support value-based purchasing and Medicare’s anti-
Act of 2001 fraud and abuse activities by accurately defining ser-
vices and providing specific diagnosis and treatment
Coverage of New Tests information
The laboratory environment has witnessed a remarkable • Support comprehensive reporting of quality data
growth in both the number and the complexity of new di- • Ensure more accurate payments for new procedures,
agnostic testing. A major problem with the Medicare fee fewer rejected claims, improved disease management,
schedule is the method for determining payment amounts and harmonization of disease monitoring and report-
for new tests (115). CMS either uses a process called cross- ing worldwide (119)
walking, to map a new test that is similar to an existing
• Allow the United States to compare its data with in-
CPT or HCPCS codes, or a process called gap-filling to
ternational data to track the incidence and spread of
establish a baseline reimbursement while assigning a tem-
disease and treatment outcomes, because the United
porary HCPCS code. CMS has not established definitive
States is currently one of the few developed countries
criteria on how to use the processes, creating many inequi-
not using ICD-10.
ties with the fee schedule.
Presently, tests that are similar enough are cross-walked (http://www.cms.hhs.gov/apps/media/press_releases.asp
to an existing code and receive the current National Limi- [accessed June 19, 2013]).
tation Amount (NLA) rate of reimbursement even if the
new test’s technology is more expensive. In the gap-filling Correct coding initiative. There are five coding systems
process, CMS and the carriers assess the charge for the new that third-party payors use (Table 5.22). Each system has
test to determine the median reimbursement and then ap- coding manuals available to assist coders with filing ac-
ply the NLA. The resulting reimbursement is 74% of the curate claims. A facility’s correct coding must include
median charged by the performing laboratories (28). the healthcare provider’s documentation of the history,
examination, and decision-making processes that led to
Registration and Coding ordering diagnostic laboratory services that are medically
Institutions have come to understand the need to employ necessary. Coding systems are updated periodically; CPT
highly trained and qualified coders to assist with the sub- code changes and updates occur annually. The following
mission of timely and accurate claims, utilization review, practices will ensure that your facility remains in compli-
and medical records risk management issues. The na- ance with correct coding initiatives (117):
tional accrediting agency that oversees this group of cod- • Revise codes and fees in the charge description master
ing and health information management professionals is (CDM).
the American Health Information Management Associa-
• Incorporate edits in the CDM into billing systems.
tion (AHIMA). Certified coding specialists (CCS) convert
the healthcare provider’s ordering narrative diagnostic • Modify manual requisitions and electronic order
description into the corresponding five digit ICD-9 Code screens if necessary.
(International Classification of Disease—9th Revision) and • Notify physicians of changes.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 121

Table 5.22 References for coding systems used for third-party claims
Acronym Coding descriptive name Commentsa
CPT-4 codes Physicians Current Procedural Terminology, 7,000 five-digit codes and modifiers used for medical, sur-
4th edition gical, and diagnostic service descriptions
HCPCS Healthcare common procedural coding system Alphanumeric codes used to report supplies, equipment,
and devices
ICD-9-CM International Classification of Diseases, 9th Developed by AHA, AHIMA, CMS, and NCHS
revision, Clinical Modification Volume 1: disease tabular list
Volume 2: alpha index
Volume 3: inpatient procedure codes
DRG Diagnosis-related groups Over 500 three-digit medical and surgical groupings
Inpatient stays split into 25 major diagnostic categories
DRG for admitting diagnosis paid at an established rate
Revenue code Code used on CMS-1450 (UB-04) to identify type of charge
a
AHA, American Hospital Association; NCHS, National Center for Health Statistics.

Charge description master. The CDM is the hospital’s healthcare professional ordering the test and that it is the
procedural description for each charge code that cross- most specific code for each test ordered for the patient. If
references revenue codes and CPT codes to the inpatient the ordering provider uses a narrative description of the
and outpatient charge for the services. Other components diagnosis, the standard practice should be to only have
that can be included in a CDM are productivity values, cost certified coders translate the narrative into an ICD-9
center, and payor billing options (136). Annual review of code. Commonly used terms for the more frequent cod-
the hospital’s inpatient and outpatient charge description ing errors that might potentially put your facility at risk
master identifies areas for potential compliance risks, such are found in Table 5.23 (26).
as unbundling procedural charges and billing for services
that are already built into payment rates. Annual changes
Claim forms. Healthcare providers use the following two
to the ICD-9, CPT, and HCPCS level II codes should be
claim forms when submitting claims:
updated appropriately (107).
• CMS-1500 is the standard form used to bill Medicare
Anatomic and surgical pathology. The Omnibus Rec- carriers or Part A and B. Claims must be submitted
onciliation Act (OBRA) of 1989 charged the CMS with within one year of the date of service, and Medicare
implementing a reimbursement system for anatomic and beneficiaries cannot be charged for completing or fil-
surgical pathology services that include both a technical ing a claim. Form CMS-1500 is maintained by the Na-
and a physician’s professional component. The Resource tional Uniform Claim Committee. The Administrative
Based Relative Value Scale was initiated in January 1992 Simplification Compliance Act prohibits payment of
and included the billing and CPT coding criteria. The suf- services or supplies not submitted to Medicare elec-
fix modifier TC was added when billing for the technical tronically, with limited exceptions. A sample of the
component, modifier 26 was added when billing for the form may be viewed at www.cms.gov (accessed Febru-
professional component, and no modifier is needed when ary 13, 2012).
one provider is billing for both components. The fee sched- • UB-04 is used by hospital facilities filing claims with
ule was calculated using relative value units to account for a fiscal intermediary. In 2005 the National Uniform
the actual work, any practice expenses, and associated Billing Committee approved form UB-04 as the re-
costs of malpractice. placement for UB-92. A UB-04 form (also known as
an HCFA 1450) requires the billing entity to specify
Claims Processing and Submission the revenue code for the accommodation or ancillary
Medicare carrier and fiscal intermediary manuals and service charge or the type of billing calculation used in
communications provide ongoing guidance for provid- field 42 of the claim. This form does not allow listing
ers related to LMRP rules that should be incorporated of ICD-9 and CPT codes but requires the use of rev-
into the education and training of personnel handling enue codes with limited use of modifiers (http://
registration, coding, and claims submissions. The bill- www.cms.gov/Outreach-and-Education/Medicare
ing entity must ensure that all claims submitted accu- -Learning-Network-MLN/MLNProducts/downloads/
rately reflect the diagnostic information provided by the ub04_fact_sheet.pdf, accessed July 3, 2012).
122 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.23 Billing and coding errors: areas of potential riska

Coding term Definition Regulation
Simple billing errors Clerical errors such as posting charges to the improper Special fraud alert, November 1994
account, wrong date of service, misunderstanding about
copayments and deductibles, balance billing, etc.
Insufficient documentation Billing for items or services that cannot be substantiated
by the documentation associated with the claim
Unqualified personnel Billing for services provided by unqualified or uncerti-
fied personnel
Lack of system integrity Must demonstrate computer system integrity, record reten-
tion storage and retrieval, and an effective back-up system
Upcoding The practice of using a billing code that yields a higher 42 U.S.C. §1320a-7a(a)(1)(A)
reimbursement than the service actually rendered
Reflex testing Billing for a reflex test performed without a provider’s
specific order could result in charges of false claims.
Carefully design requisitions that clearly indicate that
testing includes reflex to confirmation.
False claim Intentionally submitting claims for medically unneces- 42 U.S.C. §1395y(a)(1)(A)
sary services not warranted by the patient’s condition
False claims must be reported within 30 days of the dis- 31 U.S.C. §3729(a)
covery to avoid double damages.
DRG creep The practice of billing using a DRG code that receives a
higher payment than the DRG actually provided
Duplicate billing When more than one claim is submitted for the same
services or when the claim is submitted to more than
one primary payor at the same time
Unbundling Submitting claims for individual tests or proce-
dures rather than together as required to maximize
reimbursement
72-hour window Filing claims for nonphysician outpatient services that are OIG report, Expansion of DRG Payment
included in the hospital’s inpatient payment under PPS Window, July 1994, A-01-92-00521; OIG
report, Improper Medicare Payments to Hos-
pitals, May 1996
a
See reference 26.

CPT code billing modifiers. Healthcare providers fre- account, billing for the incorrect date of service, misunder-
quently request the same laboratory testing multiple times standings about deductible or copayment responsibilities,
within a 24-hour period. Payors require use of a two-digit services rendered outside of the outpatient office setting (for
numeric CPT code modifier to ensure payment for this example, laboratory), and services rendered by a provider
and other special situations (Table 5.24) (97). with whom the patient had no encounter (for example, ra-
diologists). An audit is an independent and documented
Remittance Advice assessment planned to determine if policy requirements are
Third-party payors produce a remittance advice once a met. Using periodic audits confirms that policies and pro-
claim has been received to advise the billing entity of the cedures are being followed and that the monitors selected
status of the claim. The remittance advice permits the lab- are effective to analyze coding habits. The audits identify
oratory to match the payment received to the actual test problems, areas of high risk, and the need for training, and
and CPT code description as billed. The third-party payors they document and strengthen an effective compliance
at the same time generate an explanation of benefits for program. Careful scrutiny of each step in the process from
the covered beneficiaries to advise them that a claim has the requisition to coding and claims submission often iden-
been filed and to notify them of any impending financial tifies opportunities to correct patterns of noncompliance or
responsibility to the billing entity. denied payments or lost cash flow (114). The following are
useful types of internal or self-audits:
Audit and Benchmark Monitors • Baseline audits are useful to determine areas of risk.
Simple billing errors and misunderstandings can be con- These audits are used at the beginning of a program to
strued as fraudulent by Medicare beneficiaries and are of- identify areas of risk and to establish a baseline for fu-
ten reported to Medicare contractors as fraud. The types ture audits. Keep separate records documenting each
of errors reported include posting charges to the wrong issue identified during an audit. Consult counsel prior
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 123

Table 5.24 Billing modifiersa

CPT code two-digit
modifiers Claim form Description Example
Modifier 59 UB04 To identify a separate and distinct Modifier 59 is closely scrutinized by carriers and must
procedure performed on the be justified with physician documentation showing a
same day distinct service such as a separate site or session. For
To report a different or separate instance, if a bone marrow biopsy (38221) and bone
patient encounter marrow aspiration (38220) are taken from separate sites
To report tests not usually per- or separate patient encounters, both codes can be billed
formed together on the same date with a modifier 59 appended to the second code. If both
of service. biopsy and aspiration are taken through the same inci-
sion, reporting together is restricted.

Modifier 91 UB04 Replaced QR (program memoran- Modifier 91 should only be used when repeating a test that
dum AB-97-23). is medically necessary for treatment. If a physician orders
Used when the same test is per- a blood glucose (82947) more than once for the same
formed more than once on the patient on the same day to obtain multiple results in the
same date of service course of patient treatment, modifier 59 should be used.

Modifier QW HCFA 1500 Used for waived tests A lab that operates with a waived status under the Clini-
cal Laboratory Improvement Amendment (CLIA) can
only perform tests that are granted waived status. When
a waived test is reported, modifier QW needs to be ap-
pended. The complete CLIA waived list can be found
at http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/
cfClia/analyteswaived.cfm (accessed October 19, 2012).

Modifier GY HCFA 1500 Service is not a covered benefit Not required to issue an ABN in these cases. If a patient is
“curious” about his or her cholesterol level and a physician
orders a lipid panel (80061) for an asymptomatic patient,
modifier GY should be attached to the claim because
Medicare excludes coverage for cholesterol screening.

Modifier GZ HCFA 1500 Provider expects denial If a female patient comes in for an annual exam and pap
No ABN on file smear. Medicare will only pay for a pap smear once every
24 months for low-risk patients. The physician identifies
the patient as low risk and indicates that 14 months have
passed since the last pap smear. The lab evaluates the pap
smear and reports G0123 with modifier GZ to show that
payment is not expected and an ABN is not on file.

Modifier GA HCFA 1500 Expects denial. Procedure does If a physician sends a specimen for an iron test (83540)
not meet LMRP guides to “rule out” iron-deficiency anemia but provides no
Provider has an ABN on file diagnosis to indicate medical necessity, before conduct-
ing the test the lab should obtain an ABN.

Condition code 20 UB04 Indicates a service may be denied See example for modifier GZ
for medical necessity

Condition code 21 UB04 Service is excluded or non-covered See example for modifier GY

Condition code 32 UB04 Indicates that an ABN is on file See example for modifier GA
a
See reference 94.

to initiating audits to ensure protection under attorney- record and should include date of service, reason for
client privilege. visit, physical history and exam, risk factors, review of
• A chart audit, also referred to as post-payment review, reports, patient assessment, progress notes and response
is often used by the facility’s compliance officer or legal to treatment, and a care and discharge plan as indicated.
counsel to determine if a provider’s orders were appro- • Periodic audits should become a regular routine and
priately documented and support the actual services ongoing part of any compliance program. Use a check-
billed on the claim form. Each encounter with the pa- list to audit problems identified in the baseline audit.
tient should be thoroughly documented in the medical Random checks of orders versus billing should be
124 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

included. Avoid publishing a schedule for audits that Compliance—the Next Generation: HIPAA
are impossible to meet, as it could be viewed as failure
A relationship of trust with the consumer is difficult to
to enforce your program.
build, harder to maintain, and can be lost in the blink of
• Review of laboratory reports. An audit of a laboratory an eye. Healthcare organizations risk losing trust when in-
report should include a review of the procedural code formation is not kept private, confidential, and secure. The
requested and ordered. The review should check for rapid growth of global e-commerce has heightened con-
up-coding, unbundling, and accurate coding to the sumer concerns about privacy. The existing standards for
most specific ICD-9 diagnosis code using a fourth or the way health information is transmitted electronically,
fifth digit. The second step should include a review of stored, secured, administered, and utilized, as well as the
the CMS 1500 claim and the remittance advice or the standards for patient privacy and safety by every health-
explanation of benefits. Periodic audits should review care provider and their business partners, have undergone
ICD-9 coding to ensure that medical necessity guide- a dramatic metamorphosis driven by the Health Insur-
lines are met. ance Portability and Accountability Act (HIPAA) of 1996.
• Internal audit. Many hospitals have an internal audit HIPAA mandates a set of interdependent regulations that
team reporting to risk management and the compliance require profound changes in the manner in which health
office that surveys the hospital departments’ processes information is handled and processed and ultimately in
annually. Also referred to as a process audit, the intent is the relationships between patients, healthcare providers,
to review procedures and forms for their effectiveness. and insurers.
The billing or laboratory departments can also establish On July 2, 1999, HHS published the final HIPAA na-
an internal audit process. A charge audit reviews indi- tional privacy standards to regulate how health plans,
vidual charges for accuracy and appropriateness of bill- healthcare clearinghouses, and healthcare providers and
ing. A denial audit reviews denied claims for system and their business associates should protect all confidential
payor errors. Auditors must have access to all records, health information. The final privacy standards were ef-
resources, and relevant employees and should func- fective April 14, 2003, for most covered entities.
tion independently of the management group. Prompt HIPAA allows people to qualify immediately for com-
follow-up and initiating remedial action on any recom- parable health insurance coverage when they change
mendations demonstrates commitment to compliance. their employment relationships. HIPAA (also known as
the Kennedy-Kassebaum Bill) gives HHS the authority
• External or special audits. These audits are external
to mandate the use of standards for the electronic ex-
and are used to check the status of a process change.
change of healthcare data; to specify what medical and
Investigations for Medicare contractor or third-party
administrative code sets should be used within those
payor inquiries are privileged and may need to be con-
standards; to require the use of national identification
ducted with advice of counsel. When an outside party
systems for healthcare patients, providers, payors (or
requests an audit, hiring an independent third party
plans), and employers (or sponsors); and to specify the
may be recommended by the compliance/risk manage-
types of measures required to protect the security and
ment team. Claims submission sampling is a form of
privacy of personally identifiable healthcare informa-
prepayment review used by Medicare contractors and
tion. Organizations must comply with the privacy rights
third-party payors.
or standards as set forth by the Centers for Medicare and
• Recovery Audit Contractors (RAC) audits. In an ef- Medicaid Services (CMS) in an interim final rule regard-
fort to eliminate Medicare overpayments, Congress ing patient rights and the conditions of participation de-
mandated the nationwide rollout of the RAC program signed to ensure beneficiaries’ emotional and physical
in 2006. The goal of RAC is to identify improper pay- health and safety (29, 30). The purpose of the HIPAA
ments by performing post-payment reviews on Medi- regulation is threefold:
care Part A and Part B claims. There are two types of
• To protect and enhance the rights of consumers by
RAC audits—automated and complex. An automated
providing them access to their health information and
review, also called a claims review, is a computerized
controlling the inappropriate use of that information.
analysis of a provider’s Medicare claims based on al-
gorithms that look for specific discrepancies in the • To improve the quality of healthcare in America by
claims. Under a complex audit, up to 300 medical rec- restoring trust in the healthcare system among con-
ords can be demanded from a hospital every 45 days, sumers, healthcare professionals, and the multitude of
based on Medicare claims volume. Medicare has con- organizations and individuals committed to the deliv-
tracted with four companies to perform audits across ery of care.
the nation. These companies can subcontract with oth- • To improve the efficiency and effectiveness of health-
ers to conduct audits (116). care delivery by creating a national framework for
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 125

health privacy protection that builds on efforts by the electronically transmitted or maintained in any form. A
states, health systems, and individual organizations covered entity must make reasonable efforts to ensure
and individuals (29, 30). that no more than the minimum necessary PHI is used
or disclosed. For example, the patient registration process
Covered Entities for signing in at the front desk must limit PHI to the pa-
The HIPAA Privacy Standards apply to three categories of tient’s name and appointment or arrival time. Individu-
covered entities: als have the right to request records of any disclosure
of their PHI for the previous six years (http://www.hhs
• Health plans are individual or group plans that provide .gov/ocr/privacy, accessed March 1, 2012).
or pay the cost of medical care, including health insur-
ance companies, managed-care organizations, insured Security standards. The security standard requires cov-
or self-insured employee health plans, and federally ered entities to develop a new standard that integrates
funded health plans. every component of security. Procedures must be imple-
• Healthcare clearinghouses are public or private enti- mented and certified to ensure the integrity, confidential-
ties such as billing agencies, repricing companies, and ity, and accessibility of all PHI data. Formal processes for
community health information network systems that employee training and termination to safeguard controlled
convert health information from nonstandard formats access to information and records must be followed. A
into HIPAA standard formats or vice versa. covered entity’s security management must include a con-
• Healthcare providers include institutions, professionals, tingency plan for backing up data in case of a disaster.
and medical suppliers that bill the Medicare program To comply with PHI security regulations, whenever a
or receive payment for health services rendered and healthcare organization submits electronic data for claim
transmit individually identifiable health information submission, COB, referral authorization, or eligibility
(IIHI) electronically as defined by the HIPAA standard status to any business partner, a chain of trust agreement
transaction. should be executed between all business partners.

Privacy Standards: Rules Governing Protected Transactions and code sets. HIPAA mandates that all
Health Information covered entities and their business associates utilize eight
Health information is any information, whether oral or re- standard transaction and code sets when filing claims. Ef-
corded, in any form or medium, that is created or received fective October 2003, all participating Medicare providers
and relates to the past, present, or future physical or mental are mandated to submit claims electronically. The stan-
health or condition of a patient. Protected health informa- dards apply only to electronic transactions. Another by-
tion (PHI) is individually identifiable information that is product of the HIPAA-mandated electronic data interface
transmitted by electronic media, maintained in any me- is the opportunity to redesign patient and paper flow.
dium, and transmitted or maintained in any form or me-
dium. IIHI includes 28 types of demographic information Administrative Requirements
that identifies the individual or provides a reasonable basis A covered entity must develop and implement written pri-
to believe it will identify the individual, for example, so- vacy policies and procedures that are consistent with the
cial security number, driver’s license number, date of birth, privacy rule. A covered entity must designate a privacy
telephone and fax numbers, and patient address. official responsible for developing and implementing its
HHS issued a notice of proposed rulemaking in May privacy policies and procedures and a contact person or
2011 that would modify HIPAA’s privacy rule. The purpose contact office responsible for receiving complaints and pro-
of the proposed rule is, in part, to implement the statutory viding individuals with information on the covered entity’s
requirement under the Health Information Technology privacy practices. Members of the workforce, including
for Economic and Clinical Health Act that would require employees, volunteers, trainees, and other persons whose
covered entities and business associates to account for dis- conduct is under direct control of the entity (whether or
closures of PHI if the disclosure is through an electronic not they are paid by the entity), must be trained on pri-
health record (available at https://www.federalregister vacy policies and procedures, as necessary and appropri-
.gov/articles/2011/05/31 [accessed March 1, 2012]; scroll ate for them to carry out their functions. Covered entities
down to “Health and Human Services-Proposed Rules”). must maintain reasonable and appropriate administrative,
technical, and physical safeguards to prevent intentional
Minimum necessary. Data privacy standards apply to or unintentional use or disclosure of protected health in-
all health information pertaining to an individual that is formation that is in violation of the privacy rule. Examples
electronically transmitted or maintained, while data pri- of data safeguards include shredding documents contain-
vacy provisions apply to PHI and IIHI that is or has been ing protected health information before discarding them,
126 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

securing medical records under lock and key, and limiting • The individual has the right to revoke the consent in
access to medical records (http://www.hhs.gov/ocr/privacy, writing.
accessed March 1, 2012).
Use and disclosure of PHI for purposes other than treat-
ment, payment, and healthcare operation requires an au-
Personnel Policies and Procedures
thorization specific to the purpose and must contain key
Covered entities must categorize personnel consistent core elements as cited in the final rule (29, 30). Authoriza-
with job responsibilities for the purpose of limiting ac- tions are required for preemployment physicals and deter-
cess to PHI to the minimum necessary standard. Firewalls mination, life insurance, psychotherapy notes, and clinical
must be constructed to limit access. Privacy education trials or research and are more detailed than consent forms.
and training, including password protection and use of
the Internet for all employees regardless of their job de- • The information to be disclosed must be specific.
scriptions, are mandated by the HIPAA final regulation. • The person authorized to disclose must be identified.
Human relations policies should be readily accessible and • The recipient of the information must be named.
should clearly articulate the penalties for breaches in se-
curity or patient privacy (http://www.hhs.gov/ocr/privacy, • An expiration date is required.
accessed March 1, 2012). • The patient has the right to revoke disclosure.

Patient Informed Rights Business Associates and Business

A hospital must inform patients of their rights prior to Associate Agreements
giving care, must have a grievance process, and must iden- A business associate is defined as a person or business that
tify a representative for the patient to contact. Patients acts on behalf of the covered entity or organized health-
maintain the right to participate in the development of a care arrangement. Effective September 23, 2013, busi-
care plan with the healthcare provider and must be ad- ness associates are also subcontractors that create, receive,
equately informed to make educated decisions regarding maintain, or transmit PHI on behalf of a business associ-
their care. ate, even if the subcontractor only has an indirect relation-
ship with the covered entity. This broadened definition also
Consent forms and authorization for PHI. Healthcare includes health information organizations, e-prescribing
providers may not use or disclose a patient’s health infor- gateways, or other entities that provide data transmission
mation, either verbally, written, or electronically via fax or services to a covered entity which requires routine access
e-mail, in the course of treatment or billing without prior to PHI or offers a personal health record to individuals on
signed consent. Consent allows the use and disclosure of behalf of a covered entity. Associates can also provide man-
PHI by the covered entity seeking payment, but not by agement, administrative, accreditation, or financial ser-
other persons. Consent forms are not needed when the vices to or for a covered entity where the PHI is disclosed in
covered entity has an indirect treatment relationship or is the transaction (54a).
providing care to an inmate. Consent forms should fulfill After satisfactory assurances have been obtained that
the following functions: the business associate can safeguard PHI according to
HIPAA privacy standards for disclosure, a business associ-
• Be a formal written form. ate agreement is executed between the covered entity and
• Be signed and dated by the individual (patient) at ini- the business associate. Under the rule, a business associ-
tial onset of treatment. (Consent remains in effect un- ate agreement entered into before January 25, 2013, that is
less the covered entity changes policies for privacy.) compliant with the previous rules may continue until the
• Be used to inform the patient that PHI may be used or agreement is amended or renewed, but not later than Sep-
disclosed for treatment, payment, or healthcare opera- tember 22, 2014 (54b).
tions. (The definition of payment includes coverage
determinations, billing, claims management, medical ne- Exceptions to business associate arrangements. Health-
cessity review, and utilization review. Operations include care organizations can also ensure confidentiality and
quality assessment, accreditation, medical review, com- security by using confidentiality agreements that are not
pliance, business planning, and due diligence activities.) defined within the scope of business associate agreements
for contractors who incidentally encounter IIHI while in
• Inform the individual of the entity’s privacy policies
the course of providing a contracted service, such as envi-
and allow the patient to review them before signing.
ronmental, linen, or dietary services. The decision on the
• The entity may reserve the right to amend the form type of agreement used should be made with the advice
with a procedure to notify the individual. of counsel (85). Business associate arrangements are not
• The individual may request restriction on disclosure. necessary when:
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 127

Table 5.25 HIPAA benefits Table 5.26 HIPAA criminal penalties

Stakeholder Benefit Tier 1
Up to $50,000 and 1 year in prison for knowingly obtaining
Patient or consumer Internal renewal of attention to privacy and
or disclosing PHI
security
System-wide efficiencies reducing costs Tier 2
Providers Increased opportunity for workflow redesign Up to $100,000 and 5 years in prison when the crime is com-
Improved cash flow by electronic data mitted under false pretenses
interfaces
Payor or contractor Decreased claims inventory Tier 3
Up to $250,000 and 10 years in prison if there is intent to
Improved provider and patient satisfaction
sell, transfer, or use PHI for personal gain or malicious harm
Plan administrators Utilizing electronic enrollment, eligibility,
and authorization processes to reduce time
and provide faster coordination of services
Healthcare Reduction in manual processes
for claims, eligibility, referral certification, authorization,
administration Decreased variation in processes
enrollment data, and premium payments. Using a single
Customer service Reduced processing errors
format in each of these areas is an untapped basis for fur-
Shorter claim cycle processing times
ther cost savings, estimated to be nearly $30 billion over
Online claim status reporting
the next 10 years.
Another by-product of the HIPAA-mandated electronic
data interface is the opportunity to redesign patient and
paper flow from the front door to the back and from infor-
mation systems operations to and through firewalls. Pa-
• The covered entities are disclosing PHI for clinically
tients, consumers, providers, contractors, and payors will
integrated care and treatment purposes.
each benefit from HIPAA (82) (Table 5.25).
• A health plan and another agency are collecting and
sharing individually identifiable health information for
the performance of authorized functions. HIPAA Compliance and Enforcement
Enforcement of the privacy standards rests with the HHS
• A financial institution processes consumer-conducted
Office for Civil Rights. Any person, not just the person who
financial transactions for healthcare compensation.
is the subject of the allegedly abused PHI, may file a com-
The business associate agreement may not authorize an as- plaint. There are substantial consequences for failure to
sociate to disclose PHI in a manner that would violate the comply with HIPAA. Civil monetary penalties for an organi-
privacy rules, unless proper management, administration, zation are $100 per violation, or up to $25,000 per standard
or fulfilling legal responsibilities of the business associate violated per calendar year. Criminal penalties for individual
dictate, or to provide data aggregation services to the cov- violation are listed in Table 5.26, and civil money penal-
ered entity. ties, in Table 5.27. However, citizens cannot sue providers
for disclosure under the provisions of HIPAA (36) (http://
Standards for Electronic Transactions www.ama-assn.org/ama/pub/physician-resources/solutions
Healthcare organizations have reduced costs through- -managing-your-practice/coding-billing-insurance/hipaa
out the system in the face of shrinking reimbursements. health-insurance-portability-accountability-act/hipaa
HIPAA is now mandating standardization and uniformity -violations-enforcement.page, accessed March 1, 2012).

Table 5.27 HIPAA civil money penalties

Violation Minimum penalty Maximum penalty
Individual did not know (and by exercis- $100 per violation, annual maxi- $50,000 per violation with an annual
ing reasonable diligence would not have mum of $25,000 for repeat violations maximum of $1.5 million
known) that he/she violated HIPAA
HIPAA violation due to reasonable cause $1,000 per violation, with an annual $50,000 per violation with an annual
and not willful neglect maximum of $100,000 for repeat maximum of $1.5 million
violations
HIPAA violation due to willful neglect, $10,000 per violation, with an an- $50,000 per violation with an annual
but violation is corrected within the re- nual maximum of $250,000 for maximum of $1.5 million
quired timeframe repeat violations
HIPAA violation is due to willful neglect $50,000 per violation with an annual $50,000 per violation with an annual
and is not corrected maximum of $1.5 million maximum of $1.5 million
128 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Summary ■ Transfusion medicine has been under increasing regu-

latory oversight due to concerns about the safety of the
Clinical laboratories are governed by federal and state
blood supply in response to the HIV epidemic and risks
laws. Regulations are promulgated by many agencies. Pri-
of HCV.
mary among them are the Occupational Safety and Health
Administration (OSHA), the Centers for Disease Control ■ Hospital transfusion services and blood manufacturers
and Prevention (CDC), and the Food and Drug Admin- are inspected by the FDA, with voluntary certification
istration (FDA). Other federal agencies and voluntary by the AABB and TJC for hospitals.
standard-setting organizations also regulate and shape the ■ The FDA requires both hospital transfusion services and
everyday operations of laboratories. A major responsibility blood manufacturers to comply with tracking, trending,
of laboratory managers and directors is keeping constantly and reporting of biological product deviations.
abreast of new and revised laws and regulations. ■ Primary areas of increased compliance risk to exposure
In addition to the laws and regulations governing the op- include unbundling, up-coding, duplicate billing, billing
eration of clinical laboratories, additional expectations are without appropriate documentation, failure to maintain
placed on transfusion medicine services. With increased confidentiality of records, and patient health information.
awareness of transmissible diseases, and the sophisticated
■ The HIPAA administrative simplification standards ap-
methods to detect them in the blood supply, have come
ply only to the transmission of healthcare data, whereas
mandated programs of donor screening and blood testing.
the security standards apply to all healthcare informa-
These programs have contributed to the increased cost of
tion maintained electronically or used in an electronic
blood but have also led to a safer blood supply.
transmission (14).
In the Model Compliance Plan for Hospitals (MCPH),
the OIG stated that the American healthcare industry ■ Federal regulations preempt all contrary provisions of
continues to evolve. As the number of beneficiaries and state law, unless the state law is more stringent, requires
government expenditures grow, there is no time like the the reporting of certain health conditions, or requires a
present for hospitals to embark on a strong voluntary health plan to provide information about covered lives.
compliance program. The dynamics of the process enable
healthcare providers to police themselves in order to meet GLOSSARY
the changes and challenges imposed on them by Congress Advance Beneficiary Notice (ABN) A waiver of liability used by
and private insurers. The OIG intended that voluntary providers to notify Medicare beneficiaries prior to receiving cer-
participation would allow hospitals to meet their goals; tain services that they may not be covered services and that the
improve the quality of care; substantially reduce fraud, beneficiary may incur financial responsibility for the uncovered
waste, and abuse; and ultimately reduce the cost of health- services.
care to federal, state, and private insurers. Allogeneic blood Blood donated by a person other than the
HIPAA addresses the five basic principles for the pro- recipient.
tection of privacy: consumer control, accountability, pub-
Ambulatory patient classification (APC) A method of deter-
lic responsibility, boundaries, and security. Consumers
mining payment for outpatient services based on a predeter-
have the right to see a copy of their medical record, re- mined rate for outpatient services. Certain services such as
quest corrections, and obtain documentation of disclosure radiology and blood products have their own APC; others include
of their health information. Health information should supplies bundled into the 345 APCs. Diagnostic laboratory ser-
only be used for the purposes of treatment and payment. vices are paid on a fee schedule and are not assigned to an APC.
There is a delicate balance between individual rights, pub-
Americans with Disabilities Act (ADA) A federal law prohibit-
lic health needs, research, quality of care, and compliance ing discrimination based on disability of qualified individuals.
with regulations. Appropriate security measures should
protect against deliberate or accidental misuse or disclo- Authorization Allows the use or disclosure of protected health
sure of health information. There are civil and criminal information for purposes other than patient treatment, payment,
or healthcare operations.
penalties for violations of privacy standards (14).
Autologous blood Blood donated by a person with the anticipa-
tion of being transfused back to the donor later.
KEY POINTS
Balanced Budget Act of 1997 The bill included provisions for
■ Federal laws and voluntary standards governing safety
numerous healthcare issues such as civil penalties for fraud and
and human resource management functions in hospi- abuse, anti-kickback violations, guidelines for exclusion from the
tal laboratories are numerous, changing, and must be Medicare program, diagnostic information on medical necessity,
monitored constantly. coverage for additional screening tests, and prospective payment
■ Laboratories performing clinical testing to diagnose, of Part B services to patients in a skilled-nursing facility.
screen for, manage, or treat disease are regulated by the Beneficiary A person who has health insurance through the
federal government under the provisions of CLIA ’88. Medicare or Medicaid program.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 129

Biologics Substances derived from living sources (such as hu- the codes and their descriptions. Under HIPAA, the code-set-
mans, animals, and microorganisms), in contrast to drugs that are maintaining organization creates and maintains the code sets
chemically synthesized. Most biologics are complex mixtures that adopted by the secretary for use in the transactions for which
are not easily identified or characterized, and many biologics are standards are adopted.
manufactured using biotechnology. Biological products often rep-
Consent A document signed by an individual that allows the use
resent the cutting edge of biomedical research and, in time, may
or disclosure of the individual’s protected health information for
offer the most effective means to treat a variety of medical illnesses
the purpose of treatment, payment, or healthcare operations.
and conditions that presently have no other treatments available.
(Additional information is available at the website for the Food and Coordination of benefits (COB) A program that determines
Drug Administration: www.fda.gov [accessed February 29, 2012].) which plan or insurance policy will pay first if two health plans
or insurance policies cover the same benefits. If one of the plans
Blood bank A facility that collects and dispenses blood prod-
is a Medicare health plan, federal law may decide who pays first.
ucts, also known as a transfusion medicine service.
A written statement that states which health plan or insurance
Blood center A facility that collects and manufactures blood policy pays first if two health plans or insurance policies cover
and blood products. the same benefits.
Business associate A person or organization to which a covered Corporate integrity agreement (CIA) A settlement agreement
entity discloses protected health information to perform a func- between a healthcare provider and the Office of the Inspector
tion or activity on behalf of a covered entity but that is not part of General that sets forth the terms and conditions for continued
the covered entity’s workforce. A business associate can also be a participation in the Medicare program following investigation
covered entity in its own right. and conviction of fraud and abuse.
Carrier Primary third-party contractors with the Centers for Cross-walking When a new test is determined to be similar to
Medicare and Medicaid Services who administer Part B pay- an existing test, multiple existing test codes, or a portion of an
ments according to the local medical review policies (LMRPs) to existing test code, the new test code is assigned the related exist-
physicians, ancillary services, and clinical laboratory providers. ing local fee schedule amounts and resulting national limitation
amount. In some instances, a test may only equate to a portion of
Centers for Medicare and Medicaid Services (CMS) The federal
a test, and in those instances, payment at an appropriate percent-
agency that runs the Medicare program. In addition, the CMS
age of the payment for the existing test is assigned.
works with the states to run the Medicaid program. The CMS works
to make sure that the beneficiaries in these programs are able to Current procedural terminology (CPT) code A code set of
get high-quality healthcare (www.cms.gov/, accessed July 2, 2012) medical procedures, maintained and copyrighted by the Ameri-
can Medical Association (AMA), selected for use with noninsti-
Chain of trust agreement A pattern of agreements that extends
tutional and nondental professional transactions. Some common
protection of healthcare data by requiring that each covered en-
examples are 80047 for basic metabolic panel (chemistry), 80162
tity that shares healthcare data with another entity require that
for digoxin (toxicology), 80110 for automated urinalysis with
entity to provide protections comparable to those provided by
microscopy (urinalysis), 85014 for hematocrit (hematology),
the covered entity and that that entity, in turn, requires that any
86900 for blood typing - ABO (transfusion medicine), and 87210
other entities with which it shares the data satisfy the same
for wet mount for infectious agents (microbiology) (4).
requirements.
Diagnosis code A descriptive code describing the principal diag-
Civilian Health and Medical Program of the Uniformed Ser-
nosis or the patient condition, established after study, to be chiefly
vices (CHAMPUS) See TRICARE.
responsible for causing the patient to receive medical care.
Claim A request for payment for services rendered to beneficia-
Diagnosis-related group (DRG) A classification system that
ries by providers.
groups patients according to diagnosis, type of treatment, age, and
Clinical Laboratory Improvement Act of 1967 (CLIA ’67) First other relevant criteria. A method of determining payment for hos-
published in 1967 and amended in 1988, CLIA ’67 is a statute re- pital services, calculated on a predetermined rate per discharge for
quiring all laboratories performing clinical testing on human spec- inpatient hospital services based on the discharge diagnosis. Un-
imens to comply with specific federal certification regulations. der the prospective payment system, hospitals are paid a set fee for
treating patients in a single DRG category, regardless of the actual
Code of Federal Regulations (CFR) “The Code of Federal Reg-
cost of care for the individual. Two common examples are DRG
ulations (CFR) is the codification of the general and permanent
139 for pneumonia and DRG 194 for heart failure (http://www
rules published in the Federal Register by the executive depart-
.vapricepoint.org/Basic_INP.aspx, accessed October 22, 2012).
ments and agencies of the Federal Government. It is divided into
50 titles that represent broad areas subject to Federal regulation. Directed donor blood Blood that is donated at the request of a
Each volume of the CFR is updated once each calendar year and potential recipient by a friend or family member and designated
is issued on a quarterly basis.” (http://www.gpoaccess.gov/cfr/ for transfusion to that specific recipient, if compatible. Many
index.html, accessed January 10, 2012) people think that this is safer than volunteer, allogeneic blood,
though scientific data do not support this notion.
Code set Under the Health Insurance Portability and Account-
ability Act (HIPAA), this is any set of codes used to encode data Disclosure Release, transfer, provision of access to, or divul-
elements, such as tables of terms, medical concepts, medical di- gence of information by an entity to persons or organizations
agnostic codes, or medical procedure codes. This includes both outside of that entity.
130 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

DRG creep Use of a diagnosis-related group (DRG) code that by CMS, the Blue Cross and Blue Shield Association, and
provides a higher level of reimbursement than the code that ac- the Hospital Insurance Association of America. Example:
curately reflects the patient’s condition. G0431 – Drug screen qualitative – multiple drug classes by
End-stage renal disease (ESRD) The terminology used by high complexity test method (5).
Medicare to designate beneficiaries who have permanent kidney • Level III codes are alphanumeric codes that are assigned by
dysfunction and require dialysis treatment. Medicaid state agencies and local Medicare intermediaries to
identify additional items and services not included in level
Ergonomics The science of fitting the job task to the individual I or II. These are usually called local codes, and must have
to reduce exposure to musculoskeletal disorders and repetitive “W,” “X,” “Y,” or “Z” in the first position.
motion injuries.
• HCPCS procedure modifier codes can be used with all three
Explanation of benefits A notice that is sent to beneficiaries after levels, with the WA–ZY range used for locally assigned pro-
a provider files a claim for Part A or B services under the original cedure modifiers.
Medicare plan to explain what the provider billed for, the Medicare-
approved amount, how much Medicare paid, and what the benefi- Healthcare Financing Administration (HCFA) The former
ciary must pay. This is being replaced by the Medicare summary name of the federal agency within the Department of Health and
notice (MSN), which sums up all the services (Parts A and B) that Human Services (HHS) established to administer the Medicare,
were provided over a certain period of time, generally monthly. Medicaid, and State Children’s Health Insurance Programs
(SHIP). The agency is now known as the Centers for Medicare
Fiscal intermediary A primary third-party contractor with the and Medicaid Services.
Centers for Medicare and Medicaid Services (CMS) that adminis-
Health information Any information, whether oral or recorded,
ters Part A payments according to the local medical review policies
in any form or medium, that is created or received and that re-
(LMRPs) for hospitals and rehabilitation and skilled-care facilities.
lates to the past, present, or future physical or mental health or
Food and Drug Administration (FDA) An agency of the De- condition of a patient or the past, present, or future payment for
partment of Health and Human Services charged (among other the provision of healthcare to a patient.
things) with regulating clinical laboratory instruments, reagents,
Health Information Technology for Economic and Clinical
and blood banks (www.fda.gov, accessed February 29, 2012).
Health Act Part of the American Recovery and Reinvestment
Fraud The intentional deception or misrepresentation that an Act of 2009 (ARRA). ARRA contains incentives related to health-
individual knows, or should know, to be false or does not believe care information technology in general (e.g., creation of a na-
to be true and makes, knowing the deception could result in tional healthcare infrastructure) and contains specific incentives
some unauthorized benefit to himself or some other person(s). designed to accelerate the adoption of electronic health record
Fraud and abuse Fraud is purposefully billing for services that systems among providers.
were not rendered or billing for a service that has a higher reim- Health Insurance Portability and Accountability Act (HIPAA)
bursement than the service actually performed or provided. Federal privacy standards that regulate how health plans, health-
Abuse occurs when payment is accepted for items or services care clearinghouses, and healthcare providers and their business
that are billed by mistake by providers but should not have been associates must protect confidential health information.
paid by Medicare. This is not the same as fraud. Individual The person (adult, emancipated minor, or legal repre-
Gap-filling Method used to determine payment for medical sentative) who is the subject of the protected health information.
services when no comparable, existing test code is available. Individually identifiable health information (IIHI) Certain
Carrier-specific amounts are used to establish a national limita- health information that identifies an individual or provides a
tion amount for the following year. reasonable basis to identify an individual.
HCFA-1450 The basic form prescribed by the Medicare pro- International Classification of Diseases, ninth revision (ICD-9)
gram for claims submission for all facility billing, except for the A medical code set maintained by the World Health Organization
professional component of physicians services. Also known as (WHO). ICD-9 classifies morbidity and mortality information
CMS-1450 and UB-92. for statistical purposes and for the indexing of hospital records by
HCFA-1500 The basic form prescribed by CMS for the Medi- disease and operations for data storage and retrieval.
care program for claims submissions by physicians and suppliers. International Classification of Diseases, ninth revision, Clinical
Also known as the CMS-1500 and UCF-1500. Modification (ICD-9-CM) The American Medical Association’s
Healthcare Common Procedural Coding System (HCPCS) A (AMA) ICD-9-CM is based on the official version of the World
medical code set that identifies healthcare procedures, equip- Health Organization’s ninth revision, International Classification
ment, and supplies for claim submission purposes. of Diseases (ICD-9). The term “clinical” is used to emphasize the
modification’s intent: to serve as a useful tool to classify morbidity
• Level I codes contain numeric CPT codes that are main- data for indexing medical records, medical care review, and am-
tained by the American Medical Association (AMA). Ex- bulatory and other medical care programs, as well as for basic
amples include 88305 – Level IV – Surgical pathology, gross health statistics. To describe the clinical picture of the patient, the
and microscopic exam; 80047 – Basic metabolic panel (4). codes must be more precise than those needed only for statistical
• Level II codes are alphanumeric codes used to identify vari- groupings and trend analysis. ICD-9-CM is totally compatible
ous items and services to supplement services that are not with ICD-9, thus meeting the need for comparability of morbidity
included in the CPT medical code set. These are maintained and mortality statistics at the international level.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 131

International Classification of Diseases, tenth revision, Clini- Medicare secondary payor A statutory requirement that private
cal Modification (ICD-10-CM) On January 16, 2009, the U.S. insurers, workman’s compensation, and the Department of Vet-
Department of Health and Human Services (HHS) released the erans Affairs, who provide general health insurance coverage to
final rule mandating that everyone covered by the Health In- Medicare beneficiaries, pay beneficiary’s claims as primary pay-
surance Portability and Accountability Act (HIPAA) imple- ors before the claims are submitted to Medicare.
ment IDC-10 for medical coding. IDC-10 will replace ICD-9
National coverage determination (NCD) National coverage
coding. The current required compliance date for implementa-
policies developed by the CMS that indicate whether and under
tion is October 1, 2013. ICD-10 increases the number of re-
what circumstances certain services are covered under the Medi-
porting codes from approximately 13,600 to 69,000, providing
care program. It is published in CMS regulations, published in
a dramatic increase in the level of reporting detail and granu-
the Federal Register as a final notice, contained in a CMS ruling,
larity. (68).
or issued as a program instruction.
International Organization for Standardization (ISO) The in-
Negotiated rule making The process of federal agency repre-
ternational organization that establishes common voluntary
sentatives and other special interest groups convening to negoti-
standards for manufacturing, trade, and communications. ISO
ate the text of a proposed rule.
standards previously applied to manufacturing are now being ap-
plied to blood manufacturing (104, 121). New variant Creutzfeldt-Jakob disease (vCJD) A disease of the
central nervous system, transmitted through a conformational
The Joint Commission (TJC) Formerly the Joint Commission
protein change (prion), caused by eating by-products of infected
on Accreditation of Healthcare Organizations (JCAHO). A non-
cows, during certain medical procedures, including corneal trans-
profit voluntary safety and quality evaluation and accrediting
plants, or through implantation of contaminated electrodes in
organization that accredits nearly 5,000 hospitals and other
the brain. Clusters of Creutzfeldt-Jakob cases have been docu-
healthcare facilities.
mented among patients undergoing neurosurgery at a few medi-
Local medical review policies (LMRPs) The medical necessity cal facilities. The prion is neither a virus nor any other previously
guidelines established by local Medicare contractors for partici- known infectious agent, but rather an unconventional agent. Pri-
pating providers. ons are thought to transform normal, benign protein molecules
Medically necessary Services or supplies that are proper and into deadly ones by altering their shape. Healthcare professionals
needed for the diagnosis or treatment of a medical condition; are are encouraged to take precautions when handling blood and
provided for the diagnosis, direct care, and treatment of a medi- spinal fluid samples taken from patients with vCJD.
cal condition; meet the standards of good medical practice in the Noncovered service A service that does not meet the require-
local area; and are not mainly for the convenience of the benefi- ments of a Medicare benefit category, is statutorily excluded from
ciary or the provider. coverage on other grounds, or is deemed not reasonable and
Medicaid Title XIX is a program administered by state and fed- necessary.
eral government to provide medical benefits to indigent persons Notice of proposed rule making The document that describes
of all ages who meet defined criteria. and explains the regulation that the federal government proposes
Medicare Administrative Contractor (MAC) “Beginning in to adopt at some future date and invites interested parties to sub-
2008, Medicare began replacing fiscal intermediaries, carriers mit comments related to them. These comments can then be
and Regional Home Health Intermediaries with Medicare Ad- used in developing a final regulation.
ministrative Contractors (MACs). These MACs will process Nucleic acid testing Amplifying genetic material to detect the
claims for both Medicare Part A and Part B in assigned regions.” smallest amount of a substance. It allows earlier detection of in-
(http://www.medicareinteractive.org/page2.php?topic=counselor fectious agents than serologic tests.
&page=glossary [accessed June 18, 2013].)
Office of the Inspector General (OIG) An independent agency of
Medicare Part A Part A is the hospital insurance portion of the Department of Health and Human Services established in 1976
Medicare. Medicare was established by §1811 of Title XVIII of the to perform audits and investigations of federally funded programs.
Social Security Act of 1965, as amended, and covers inpatient
Omnibus Reconciliation Act (OBRA) of 1989 Prohibits physi-
hospital care, skilled-nursing facility care, some home health
cians from referring laboratory testing for Medicare beneficiaries
agency services, and hospice care. There are no longer separate
to a laboratory in which the physician has an ownership interest.
Part A and Part B contractors, but Medicare Administrative Con-
Also known as the Stark Law.
tractors (A/B MACs) who serve 15 jurisdictions which will even-
tually be consolidated into 10 jurisdictions. (https://www.cms.gov/ Omnibus Reconciliation Act (OBRA) of 1990 Denies Medicare
Medicare/Medicare-Contracting/MedicareContractingReform/ reimbursement to a laboratory for a test performed off-site un-
PartAandPartBMACJurisdictions.html, accessed June 14, 2013.) less at least 70% of the tests for which the laboratory receives re-
quests and submits claims are performed onsite. Also known as
Medicare Part B Part B is the portion of Medicare insurance that
the “shell lab” act.
pays for physician services and covered outpatient services, also re-
ferred to as Supplemental Medical Insurance. It was established by Outpatient prospective payment system The method of pay-
§1831 of Title XVIII of the Social Security Act of 1965, as amended, ment Medicare uses to determine how much Medicare pays and
and covers services of physicians/other suppliers, outpatient care, how much the Medicare beneficiary pays for outpatient services
medical equipment and supplies, and other medical services not at hospitals or community mental health centers under Medicare
covered by the hospital insurance Part A of Medicare. Part B. Medicare does not pay for all outpatient services under
132 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

the new prospective payment system begun August 1, 2000 (for Revenue code The UB-92 or uniform bill requires submission
example, procedures Medicare considers inpatient procedures of a revenue code, which is used to identify specific accommoda-
such as fixing a fractured hip). tion charges, ancillary service charges, or a type of billing calcu-
lation. Revenue codes are maintained by the National Uniform
Payor In healthcare, a payor is any entity that assumes the risk of
Billing Committee.
paying for medical treatments for an uninsured patient, a self-
insured employer, a health plan, or an HMO. Risk The chance of suffering a loss.
Personal protective equipment Equipment or garments used to Risk management A process to identify, reduce, and eliminate
protect employees from exposure to workplace hazards. exposure to risks that result in financial loss.
Preferred provider organization (PPO) A healthcare organization Root cause analysis Team-based problem-solving tool used to
composed of physicians, hospitals, and other providers that provide determine how or why something happened. Asking, “why?” five
healthcare services at a reduced fee. In a PPO care is paid for as it is times or using cause and effect diagrams are common methods
received, rather than as a scheduled fee in advance as with an HMO. employed (108).
Prospective payment system (PPS) A method of reimbursement Sanctions Administrative remedies and actions (for example,
in which Medicare payment is made based on a predetermined, exclusion or civil monetary penalties) available to the OIG to
fixed amount. The payment amount for a particular service is de- deal with questionable, improper, or abusive behaviors of provid-
rived based on the classification of that service (for example, ers under the Medicare, Medicaid, or any state health programs.
diagnosis-related groups for inpatient hospital services).
Standard transaction The transmission of any health informa-
Protected health information (PHI) Individually identifiable tion in electronic form in connection with a transaction.
health information transmitted or maintained in any form or
Stark I Amendment A federal law prohibiting physicians from
medium that is held by a covered entity or its business associate,
referring a Medicare patient to an entity for the furnishing of
identifies the individual or offers a reasonable basis for identifi-
laboratory services if the physician, or the physician’s immediate
cation, is created or received by a covered entity or an employer,
family member, has a direct or indirect financial interest in the
and relates to a past, present, or future physical or mental condi-
entity providing the laboratory services.
tion, provision of healthcare, or payment for healthcare.
Stark II Amendment An extension of the Stark I Amendment
Provider Any entity (for example, hospital, skilled-nursing facil-
that prohibits physicians from referring Medicare and Medicaid
ity, home health agency, outpatient physical therapy, comprehen-
patients for certain types of services known as “designated
sive outpatient rehabilitation facility, end-stage renal disease
health services” to entities if the physician, or the physician’s im-
facility, hospice, physician, nonphysician provider, laboratory, or
mediate family member, has a direct or indirect financial inter-
supplier) providing medical services.
est in the entity.
Provider-performed microscopy procedures (PPMP) CLIA ’88
Third-party administrator An entity required to make or re-
term for a limited number of moderate-complexity, microscope-
sponsible for making payment on behalf of a group health plan.
based tests that may be performed by a physician, midwife, or
nurse practitioner operating under a PPMP certificate. Transfusion medicine service Department or laboratory that
provides compatibility testing, labeling, and release of blood to
Quality-adjusted life year (QALY) Used as a standardized mea-
patients. Also provides consultative services to clinicians.
sure of the quality of life. It is a year of life, adjusted for its quality.
The measure takes into account both longevity and the quality of TRICARE The healthcare program for active duty members of the
life lived (23). One year of perfect health is 1.0 QALY. military, military retirees, and their eligible dependents; formerly
called CHAMPUS (http://www.tricare.mil/, accessed July 2, 2012).
Quality assurance The sum of activities planned and performed
to provide confidence that all systems and their elements that Unbundling Submission of bills for various tests in a piecemeal
influence quality of the product are functioning as expected and or fragmented fashion. Generally this practice is illegal if done to
relied upon (70). maximize reimbursement.
Railroad Retirement Act A federal insurance program simi- Uniform Bill-92 (UB-92) A uniform institutional claim form,
lar to Social Security designed for workers in the railroad in- developed by the National Uniform Billing Committee, that has
dustry. The provisions of the Railroad Retirement Act provide been in general use since 1993. The form, also known as the
for a system of coordination and financial interchange between HCFA-1450 or CMS-1450, is used by facilities when filing Medi-
the Railroad Retirement program and the Social Security care claims with fiscal intermediaries.
program.
Up-coding Use of a billing code that provides a higher level of
Resource-based relative value scale A scale of national uniform reimbursement than the code that accurately reflects the service
relative values for all physicians’ services. The relative value of provided.
each service must be the sum of relative value units representing Validation Establishing documented evidence that provides a
physicians’ work, practice expenses net of malpractice expenses, high degree of assurance that a specific process will consistently
and the cost of professional liability insurance. produce a product meeting its predetermined specifications and
Resource utilization group The payment for services rendered quality attributes. A process is validated to evaluate the perfor-
to a Medicare beneficiary in a skilled bed of a nursing home facil- mance of a system with regard to its effectiveness based on in-
ity; also known as consolidated billing. tended use (70).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 133

Window period The period of time when blood tests are nega- 15. Ayres, K. 2000. Hospital outpatient departments soon to face
tive for a pathogen, though the individual is infected and able to challenge of APCs. Vantage Point 4(6):1, 3–4.
transmit the agent. Targeted lookback and informing transfusion 16. Beasley, D., M. Blanchard, P. Kazon, and C. A. Pontius. 1999.
services of post-donation information from a donor, following Use confirmation form to meet oral test order documentation re-
blood donation, are designed to identify recipients of blood who quirements. Lab. Compliance Insid. July:1–3.
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17. Beattie, J., H. M. Casale, and D. Hunt. 1999. Avoid liability as
World Health Organization (WHO) “WHO is the directing and HCFA targets ESRD billing. Lab. Compliance Insid. August:1–6.
coordinating authority for health within the United Nations sys-
18. Berger, D. 1999. A brief history of medical diagnosis and
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technical support to countries and monitoring and assessing health 19. Berger, D. 1999. A brief history of medical diagnosis and
trends” (http://www.who.int/en/, accessed February 1, 2012). the birth of the clinical laboratory. Part 2. MLO Med. Lab. Obs.
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Zero tolerance The OIG’s position that a healthcare institution
will promote and adhere to compliance at all levels and that non- 20. Berger, D. 1999. A brief history of medical diagnosis and
compliance will not be tolerated. the birth of the clinical laboratory. Part 3. MLO Med. Lab. Obs.
31(10):40–44.
21. Berte, L. M., and D. E. Nevalainen. 1997. Quality pays: in every
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 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 137

APPENDIX 5.1 Useful Websitesa

AABB Food and Drug Administration

www.aabb.org www.fda.gov
American Association of Bioanalysts International Society for Cellular Therapy
www.aab.org www.celltherapy.org
American National Standards Institute Information about the voluntary standards and accreditation pro-
gram offered by the Foundation for the Accreditation of Cellular
www.ansi.org
Therapy.
American Osteopathic Association
The Joint Commission
www.aoa-net.org
www.jointcommission.org
American Society for Clinical Laboratory Science
Medicare
http://www.ascls.org
www.medicare.gov
This is a professional organization for clinical laboratory science
Website for use by Medicare beneficiaries.
practitioners. The website contains information about certification,
licensure, and careers. Medicare Payment Advisory Committee (MedPac)
American Society of Histocompatibility and Immunogenetics www.medpac.gov
www.ashi-hla.org Contains copies of MedPac reports.
Information about the accreditation program. National Government Services
Centers for Biologics Evaluation and Research www.ugsmedicare.com/mspindex.asp
www.fda.gov/cber; http://www.fda.gov/BiologicsBloodVaccines/ The Medicare Secondary Payor Index is available at this website.
default.htm National Skills Standards Board
http://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/ www.nssb.org
Forms/UCM061463.pdf The National Skills Standards Board administers certification ex-
Website where a copy of a biological product deviation report, form aminations in many areas including those for the American Medical
FDA-3486, is available. Technologists.
Centers for Disease Control and Prevention Office of the Inspector General of the Department of HHS
www.cdc.gov http://oig.hhs.gov/
The homepage provides links to CDC resources and other websites Information about fraud prevention and detection and compliance
and has a search function. guidance, as well as the Model Compliance Plan for Laboratories.
www.cdc.gov/od/ohs/ergonomics/labergo.htm
OSHA
This CDC web page gives extensive information on ergonomics and
www.osha.gov
a laboratory self-assessment checklist.
News, information, and links to laws and regulations, safety and
Centers for Medicare and Medicaid Services health topics, and other related information.
www.cms.hhs.gov http://www.osha.gov/about.html
Clinical and Laboratory Standards Institute A brief explanation of the OSHA’s mission and the services offered
www.clsi.org by the agency.
The CLSI is a global, nonprofit organization that promotes the de- Research and Special Programs Administration Office of
velopment and use of voluntary consensus standards and guidelines Hazardous Materials Safety
for use in the healthcare industry. http://phmsa.dot.gov/hazmat
COLA Information about transporting hazardous materials by air, rail,
www.cola.org highway, or water.
Information about accreditation and other programs offered by United States Government Accountability Office
COLA, a national healthcare accreditation association. www.gao.gov
College of American Pathologists Contains copies of GAO reports.
www.cap.org U.S. Government Printing Office
Information about CAP, including the laboratory accreditation www.access.gpo.gov/nara/cfr/index.html
program. Features of this website allow the user to browse the Code of Federal
Equal Employment Opportunity Commission Regulations titles and to retrieve specific citations.
www.eeoc.gov
Links to laws, regulations, and policies as well as other useful
information. a
Websites all accessed July 2, 2012.
138 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 5.2 HIPAA Case Study

You work in the laboratory at General Hospital. You are on a 3. What would you say to Dr. Smith?
patient unit delivering some supplies that were needed urgently. 4. Would you notify your supervisor?
As you wait at the nurse’s station, you notice Dr. Smith logging
into a patient’s record. He has navigated to the lab results and ANSWERS
seems to be looking at the toxicology section. Since you recently
1. No. Protected health information (PHI) can only be dis-
posted those results yourself, you know that Dr. Smith is not this
closed for the purpose of payment, treatment, or healthcare
patient’s physician. Dr. Smith sees you standing there and asks if
operations.
you know if this patient has had an HIV test done. He tells you
2. No. Dr. Smith is no longer involved in the care of this patient
that this patient is a former patient of his and he is concerned
and has no legitimate reason to obtain the results of any tests
about how she is doing.
or other PHI.
3. Dr. Smith, since you are no longer providing medical care to
this patient you are not permitted by HIPAA to view any of
QUESTIONS
her results or obtain any other type of information without
1. If you provide this information to the physician, is it consid- the patient’s permission. Please close the record now.
ered to be an appropriate use of health information? 4. Yes, let your supervisor know about this incident. You may
2. Is this physician entitled, under HIPAA, to know these re- also have a compliance hotline that can be used to report
sults since the patient is a former patient of his? what you saw and heard.
Introduction
Overview of Major Changes
6 The Changing Practice
Shift from Inpatient to Outpatient Care • Shift
from Centralized to Decentralized Testing • Shift
of Medicine
to Primary Care: Patient-Centered Medical Home •
Shortages of Qualified Staff • Quality of Care and
Error Reduction • Pay for Performance • Healthcare Susan D. Roseff, Denise E. Russell, and Margaret M. Grimes
Reform • Advances in Technology • Wellness and
Prevention • The Aging Population • Recognition of
Women’s Health Needs
The Impact of Technology OBJECTIVES
The Electronic Medical Record • Meaningful
Use/Value-Based Purchasing • Patient Access to To define changes impacting the practice of medicine over the first decade of
Information • Patient Confidentiality • Advances in the 21st century
Diagnostic Testing
To outline the major cost-containment and medicolegal issues faced by the
The Emergence of Clinical Practice healthcare team, including laboratorians
Guidelines
The Role of Evidence-Based Medicine and Outcomes To describe recent advances in medicine and information technology
Data • Concerns about Utilization and Quality • To describe physician practice and utilization patterns developing in response
Clinical Practice Guidelines and Clinical Pathways
Defined • Use of Clinical Practice Guidelines •
to societal, reimbursement, and emerging technology
Pros and Cons • Developing Clinical Pathways and To identify the changes in medical school and residency curricula intended to
Guidelines prepare physicians for medical practice in the 21st century
Medicolegal Issues
Malpractice Litigation • Patient Safety • Disclosure
of Adverse Events/CMS Never Events • CMS Serious To change and to change for the better are two different things.
Reportable Events • Enterprise Risk Management •
Insurance • HIPAA and Patient Confidentiality • German proverb
Contracts • Specimens • Documentation • Research

S
Liability ocietal changes, changes in technology, and changes in expec-
Training Physicians for Practice in the tations have all come together to create a landscape vastly different for
21st Century
The Educational Goal: The Complete Physician •
both practitioners and consumers of healthcare over the last two decades.
New Paradigms in Medical Training • Incorporating The practice of medicine has changed in response to new discoveries in medi-
New Knowledge and Training Techniques into the cine and science but is being shaped by external pressures such as rising costs,
Curriculum • Training Physicians for the Managed-
Care Environment
increasing competition, and a new emphasis on customer satisfaction in the
information-savvy patient. Patients, looking for zero risk, seem more likely to
External Forces Impacting
Undergraduate and Graduate seek legal avenues when adverse outcomes occur. Due to a focus on the rate
Medical Education of errors in medicine, the medical, regulatory, and legislative communities are
Finding the Right Mix: How Many Physicians Do We interested in ways to deliver consistent, high-quality care. With concomitant
Need? • Current Challenges to Academic Centers
concerns about overutilization of certain medical services and investigations
Summary revealing fraudulent practices, there is a tremendous amount of attention and
KEY POINTS scrutiny of all aspects of healthcare. The training programs that educate fu-
GLOSSARY ture physicians have been restructured to prepare students for the practice
REFERENCES environment they will soon enter. The laboratory, always at the forefront of
APPENDIX quality issues, is the perfect paradigm of changes going on at a global level in
healthcare.

Overview of Major Changes

Clinical Laboratory Management, 2nd Edition
Americans enjoy one of the greatest healthcare systems in the world. Improve-
Edited by L. S. Garcia ments in technology coupled with increased demands for greater access are
©2014 ASM Press, Washington, DC some of the factors responsible for increases in cost. As healthcare costs have
doi:10.1128/9781555817282.ch6 risen, there has been pressure to gain control through restructuring, mostly in

139
140 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

the form of changes in Medicare and Medicaid regulations competency of the person performing the test. Healthcare
as well as the continued growth of managed care. Chang- regulators such as The Joint Commission (TJC) require
ing the rules of payment and reimbursement has had vast initial and ongoing competency in performing any lab test
effects on the clinical laboratory (see Table 6.1). at the point of care. This places a burden on laboratorians,
who remain responsible for ensuring the competency of
Shift from Inpatient to Outpatient Care the provider and the quality of the result (97).
Recognizing that the high cost of inpatient hospital care As the venue for laboratory testing has changed, pathol-
has created a shift favoring outpatient treatment, in an at- ogists and other laboratorians have assumed consultative
tempt to gain control of expenses (82), insurance compa- roles, in lieu of direct management, to help nonlaborato-
nies and hospitals alike continue to move toward the less rians run operations that maintain compliance and qual-
expensive outpatient arena for both diagnostic testing and ity. For example, at Virginia Commonwealth University
procedures. Health System (VCUHS), a laboratory located in the sur-
gical suite is managed jointly by pathology and anesthesia.
Shift from Centralized to Decentralized Testing Such liaisons will become increasingly common as labora-
The location of laboratory testing has moved, since the tory professionals, specifically trained in these areas, make
hospital’s core laboratory may no longer be the best place themselves available to enterprises outside of their exclu-
to perform testing. Centralization of staff and resources sive and direct control.
has traditionally been viewed as the most efficient way to
perform inpatient testing. However, as the patient popu- Shift to Primary Care: Patient-Centered
lation shifts to outpatient clinics and remote sites closer Medical Home
to residential areas, decentralized laboratory testing has Managed care was developed to control spiraling health-
become more common. Within the hospital, other sites, care costs. Many insured patients must go through their
such as the outpatient clinics, the operating suite, or the primary care provider before seeing a specialist. As a re-
bedside, may be ideal. Point of care testing (POCT), of- sult, primary care providers are seeing and treating pa-
ten performed by nonlaboratory personnel, has evolved as tients who may have been referred to a specialist in the
a means to provide more rapid turnaround times and to past. This has led to a concept known as the patient-
provide a more convenient location for patients (79). For centered medical home (PCMH), where patients are ex-
these same reasons, physicians may also provide limited pected to become involved in their own plan of care and in
testing in their offices. POCT, while convenient and ef- shared decision making with their primary care physician
ficient, comes with drawbacks, such as how to maintain (87). As the medical home model evolves, one can spec-
ulate that more diagnostic testing will be done by these
physicians to gain a broader picture of their patients’ ill-
Table 6.1 Themes of change
nesses as well as to promote wellness. Empirically it seems
Financial that this reallocation could affect the use of the laboratory,
Cost containment
Changes to Medicare/Medicaid
though such trends are not yet well documented in the
Managed care literature (see Table 6.2).
Pay for performance Independent commercial laboratories have also found
Technological a place in the new order (93). As the Clinical Laboratory
Electronic medical record Improvement Amendments (CLIA) have posed some im-
Patient portals pediments for physician outpatient laboratories perform-
Patient confidentiality
Meaningful use/value-based purchasing
ing increasingly complex testing, outsourcing has become
Social
more common. Each laboratory must weigh the costs and
Medical home
Wellness and prevention
Table 6.2 Perceived benefits of the medical home
Aging population
Women’s health issues Coordination of care
Shortages of qualified staff Involvement of patient and family as appropriate in care
Legal/regulatory planning and decisions
Concern regarding errors in medicine Smooth transitions of care
Concern regarding fraudulent practice Increased trust between patient and provider
Increasing malpractice litigation
Improved communication
Training
Reduced cost
Preparation for healthcare reform
Addressing technological advances in curriculum Improved patient safety
Emphasis on competency/high reliability and patient safety Improved communication among the healthcare team
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 141

benefits of adding high-cost testing versus sending the of six high-risk surgeries at nearly 2,200 hospitals across
tests outside of the facility; the test volume and turnaround the country in 2005 and 2006, there was no improvement
time are important parts of the decision. As a result, com- in outcomes in hospitals that demonstrated better com-
mercial laboratories have become the centers of esoteric pliance with specific P4P parameters. On the Centers for
testing, since many hospital laboratories cannot justify the Medicare and Medicaid Services (CMS) Hospital Compare
cost of maintaining low-volume esoteric testing. website (http://www.hospitalcompare.hhs.gov/, accessed
February 12, 2012), when the authors compared 30-day
Shortages of Qualified Staff postoperative mortality rate, venous thromboembolism,
Echoing the personnel changes in broader aspects of and surgical site infection, they found wide variation in
healthcare, the laboratory has also seen changes in the the reported process compliance. They point out that the
composition of its workers. More generalists staff labora- selected outcome might not be the best measure to follow
tories than in the past (93). In addition, with shortages of and recommend a reevaluation of the processes and mea-
medical technologists (clinical laboratory scientists), these sures being used; if patients currently use the website to se-
specialists will assume more supervisory and managerial lect a hospital with the highest rate of compliance, they will
roles, with testing being performed by less-trained per- not be assured a better outcome (71). Additional informa-
sonnel. Many medical technologists have left the lab in tion available on the Agency for Healthcare Research and
search of jobs that offer more flexibility and professional Quality (AHRQ) website notes that there have been mixed
growth. Also, many training programs have closed as hos- results in some of the P4P programs. Therefore, there
pitals look for ways to decrease costs. Some organizations needs to be ongoing evaluation of current programs to
are considering reactivating these programs to fill this void see what makes some successful and others unsuccessful.
(55), and some have already done so. This will require more active engagement with providers
to design programs that can improve patient care (http://
Quality of Care and Error Reduction www.ahrq.gov/about/annualconf11/young/young.htm,
The government and managed-care organizations con- accessed February 1, 2012). The continuation and expan-
tinue to push healthcare toward a more efficient, cost- sion of the P4P model is likely to continue as part of the
effective practice of medicine, with the provision of evolution of healthcare (Table 6.3).
high-quality care. The creation of practice guidelines and
practice parameters is now required by Medicare and Healthcare Reform
many managed-care providers as a means to practice In March 2010, President Barack Obama signed the Patient
medicine in a consistent manner and to receive the full Protection and Affordable Care Act of 2010. This bill ac-
reimbursement for services provided to the patient. Us- knowledged that healthcare should be available for every-
ing evidence-based methodologies that lead to the best one in the United States. Because of economic pressures,
care should produce the best patient outcomes, which is
a model now coined pay for performance (P4P). Publica-
tions like To Err Is Human, published by the Institute of Table 6.3 Pay for performance a,b
Medicine (IOM), have increased the focus on errors in Type of measures available
medicine and have also challenged the medical commu- at www.Medicare.gov Examples of measures
nity to improve quality (22). Over the last 20 years, con- Process measures Surgical improvement
cerns regarding fraud and overuse of testing have forced Heart attack care
laboratories to bundle and unbundle analytes for billing Pneumonia care
purposes to comply with changing regulatory require- Heart failure care
Children’s asthma care
ments. This is likely to continue but may help prevent
Outcome measures Death rates
unnecessary testing and contain costs. Readmission rates
Use of medical imaging Utilization and appropriate-
Pay for Performance ness of imaging studies
Most healthcare payment systems use a fee for services ap- Patient hospital experiences Patient’s perceptions of hos-
proach that reimburses providers based on the intensity, pital stay
volume, frequency, and type of services they provide. The Patient safety measures Hospital-acquired infections
pay for performance concept, established by the Affordable Hospital-acquired conditions
Healthcare Act of 2010, adjusts the fee for service model to Serious complications
Deaths
include higher payments for higher-quality care (107). It
a
has not been demonstrated in the literature that this model Medicare Modernization Act of 2005: Hospitals are required to report quality
measures to CMS.
improves quality. For example, in one retrospective study b
October 12, 2012: Performance by the hospital will now tie back to Medicare
of more than 325,000 Medicare patients undergoing one reimbursement.
142 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

health reform has been needed for years, but health reform The Aging Population
has gone beyond just an economic fix. Congress placed The population of the United States continues to live lon-
substantial emphasis on the power of primary care and the ger. The elderly represent a larger proportion of patients,
importance of prevention. Because the new law calls for a as well as a powerful lobbying group. This undoubtedly in-
fundamental revamp of practice, the success or failure of creases the use of healthcare and laboratory systems. The
health reform rests on the ability of healthcare delivery recognition of diseases that accompany longevity, such
professionals to change. Doctors and nurses are charged to as osteoporosis, prostate cancer, and Alzheimer’s disease,
adopt new attitudes (including population-based medicine changes the demands placed on the laboratory. Looking
and evidence-based practice) and to use new tools such as for new ways to diagnose these diseases and monitor treat-
electronic health records and quality-improvement meth- ment in a noninvasive manner is one of the charges of
odology. What is at stake is no less than a transformation laboratory medicine in the 21st century. As the medical
of practice. As this new law rolls out, we should begin to home model becomes more accepted, it is predicted that
see incremental increases in physicians who provide pri- this larger group of healthcare consumers will aggressively
mary and family care. As previously mentioned, this may manage their own health and take an unprecedented role
result in an increase in the numbers of tests ordered by in the changes to the healthcare delivery system, especially
these physicians, since they will not refer these patients to related to choice, service, and availability (http://www
specialists (43). .ncqa.org/LinkClick.aspx?fileticket=ycS4coFOGnw%3d&
tabid=631, accessed January 29, 2012).
Advances in Technology
Technological advances created revolutionary changes in
Recognition of Women’s Health Needs
the way medicine and laboratory medicine are practiced. Women make up just over half of the U.S. population. Even
The application of molecular biology, using analysis of so, research involving women’s health, with the exception
nucleic acids and proteins to diagnose disease, assess prog- of reproduction, has lagged behind research for men’s
nosis, and tailor therapy, has had a profound impact on the health needs. This lack of research focus has compromised
laboratory, as well as patient care, globally. For example, the quality of information available to women as well as the
using nucleic acid testing (NAT) for the detection of trans- quality of healthcare they receive. Government support for
missible pathogens allows earlier diagnosis and treatment. women’s health research is on the rise with more funding
The use of molecular diagnostics to not only enhance di- available. This transition is changing women’s health for
agnosis, but guide treatment, has exploded. For example, the better (41). There are a variety of organizations and
in the field of pharmacogenomics, testing can be used institutes that have a primary focus on women’s health is-
before instituting therapy to determine if a certain medi- sues, such as the VCU Institute for Women’s Health (http://
cation will be effective. Along with this cutting-edge tech- www.womenshealth.vcu.edu/index.html, accessed June 25,
nology comes the need to understand the costs and unique 2012), the Society for Women’s Health Research (http://
logistics associated with the rapidly changing landscape of www.womenshealthresearch.org/site/PageServer, accessed
laboratory testing (30, 104, 109). Cellular-based therapies, June 25, 2012), and Advancing Novel Science in Women’s
from the use of human stem cells to adipose tissue, are Health Research (ANSWHR) (http://www07.grants.gov/
making their way into the marketplace and are the basis search/search.do?&mode=VIEW&oppId=55568, accessed
of a new industry that impacts laboratory practice. Quality June 25, 2012), funded through the National Institutes of
and regulatory agencies are looking for ways to ensure a Health. These organizations fund research for areas such
safe efficacious product (92, 101). as depression and menopause, reproductive biology, and
addiction. In addition, they fund projects that look at gen-
eral medical issues as they specifically relate to women.
Wellness and Prevention
It seems plausible that preventing disease and keeping
people well will cause the overall cost of care to decline. In
The Impact of Technology
March 2010, the Patient Protection and Affordable Care
Act (PPACA) was signed as legislation that includes pro- The Electronic Medical Record
visions for focusing on wellness, prevention, and public The motivation to use computerized information systems
health (56). With the enactment of the PPACA, tests are in healthcare is driven by expectations that such systems
used as a means to maintain wellness (e.g., cholesterol) and will improve the quality of care, increase patient safety, and
to prevent disease progression through early screening. If lower medical costs (7). Yet there are many other factors
wellness and prevention programs result in improvements to consider about the use of an electronic medical record
in overall health, the rate of reimbursement for wellness (EMR). The EMR can undoubtedly improve the legibility
testing might also become more favorable. of entries and can positively influence the organization
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 143

of the information in the record, making retrieval of data means of being able to continue to provide medical benefits
more efficient (88). However, the EMR has been blamed to their employees. There has been a monumental move
for interfering with the patient-physician relationship. Pa- away from indemnity coverage to managed care, merg-
tients report feeling like doctors are so busy entering in- ers and acquisitions of healthcare insurance providers, and
formation into the computer that they hardly have time to more aggressive contracts between hospitals and insurers, all
discuss the patients’ concerns and plan of care (88). Many with the idea of keeping premiums low and getting the most
physicians do not possess the computer skills to become value for the healthcare dollar. The concept of value-based
proficient at data entry and retrieval in the EMR. This may healthcare purchasing is that buyers (employers and con-
be a cause of errors such as documenting on the incorrect sumers) should hold providers of healthcare accountable for
patient or choosing an incorrect drug from a drop-down both cost and quality of care. Value-based purchasing brings
list. EMR software developers continue to look for ways together information on the quality of healthcare, including
to reduce these common human errors through the use of patient outcomes and health status, with data on the mon-
templates and alerts to providers. Through improved func- etary outlays going toward health. It focuses on managing
tionality and interoperability, the sharing of information the use of the healthcare system to reduce inappropriate
to all providers of care for the patient will be improved, care and to identify and reward the best-performing pro-
thereby facilitating patient care and safety (88) (Table 6.4). viders. This strategy can be contrasted with more limited
efforts to negotiate price discounts, which reduce costs but
Meaningful Use/Value-Based Purchasing do little to ensure that quality of care is improved (http://
The Recovery and Reinvestment Act of 2009 tasked the www.ahrq.gov/qual/meyerrpt.htm, accessed February 11,
CMS with developing an EMR financial incentive program 2012). With value-based purchasing in mind, labs may
for the “meaningful use” of certified EMR technology to continue to see changes in utilization and reimbursement
achieve health and efficiency goals. for some time to come.
The premise was that by putting into action and mean-
ingfully using an EMR, hospitals could not only benefit from Patient Access to Information
financial rewards but could also realize a reduction in er- There is no doubt that access to information will be a
rors, availability of data and information, clinical decision benefit of the EMR, meaningful use, and value-based
support, and e-prescribing and automated prescription purchasing. Other means of providing information are
refills. The first stage of meaningful use was completed also available to the consumer of healthcare (the patient).
in 2012 with the roll-out of a baseline for electronic data Healthcare consumers throughout the country are request-
capture and information sharing. Clinical quality data will ing patient portals. A study completed in 2008 suggests
be submitted electronically from data sources found in the that more than 70% of the respondents wanted a way to
EMR. Hospitals must be capable of and actively reporting access their data, including laboratory results, X-ray find-
lab data electronically to public health agencies. Clinical ings, and other information posted by providers. Patients
lab test results must be entered into the EMR as structured can find their results but can also communicate electroni-
data available for retrieval. While hospitals are working cally with their providers to get their questions answered.
diligently to meet these requirements, the actual benefits of Appointments for follow-up care can also be made via the
improved patient safety have not been well defined in the patient portal (51).
literature (http://www.cms.gov/Regulations-and-Guidance/
Legislation/EHRIncentivePrograms/Meaningful_Use.html, Patient Confidentiality
accessed June 14, 2013). With the move toward making information available elec-
Employers have become a driving force in healthcare tronically, security of that information must be a foremost
today with their efforts to keep healthcare costs down as a consideration. Ensuring that patient information such as

Table 6.4 The electronic medical record versus the paper record
Electronic record Paper record
Improved legibility Often not readable
Patients feel the provider is ignoring them Patient and provider can relate and discuss the plan of care
Easier to locate information—not reliant on memory Difficult to locate information
May be slow—providers may have a slow learning curve Faster especially for physicians not raised in information technology era
Allows easy synthesis of information Information is often disparate and difficult to locate
Allows for easier, faster information sharing Paper must be copied and mailed or faxed
Difficult for others such as attorneys, to follow Easier for others, such as attorneys, to read and follow
144 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

laboratory or other test results remains confidential is es- Introducing new tests and more sensitive tests can be
sential. Healthcare organizations must be vigilant about cost-effective and reduce length of stay. An example is
training staff on the importance of patient confidentiality the introduction of troponin levels as an early, specific
as well as ensuring that electronic data are protected from marker of myocardial damage; this allows the use of new
intruders outside the organization (see also “HIPAA and treatments that are most effective as part of an early in-
Patient Confidentiality,” later in this chapter, and chapter tervention during myocardial infarction. Patients with el-
5 of this volume). evated values can be identified and treated immediately,
yielding better outcomes. Conversely, the treatment plan
Advances in Diagnostic Testing for patients who have normal levels can be reassessed and
New disease patterns, changing demographics, the aging their care redirected to less expensive alternatives. High-
population, emerging diseases, and the threat of terrorism sensitivity troponin tests are also being incorporated into
require innovative testing methods. Nucleic acid testing, medical practice and could also help with early diagnosis
for example, has truly revolutionized the way medicine is and risk stratification (1, 3, 5).
practiced. Instead of waiting days or weeks to detect cer-
tain viruses in culture, amplifying small amounts of ge- The Emergence of Clinical
netic material in a specimen makes it possible to detect a
Practice Guidelines
pathogen within hours. Looking at changes in the genetic
material of a tumor may improve the diagnosis of certain The Role of Evidence-Based Medicine
malignancies. There is also hope that identifying disease and Outcomes Data
that is not yet macroscopically evident at the genetic level When cost-cutting measures are implemented in response
will lead to earlier treatment (80, 109). Nucleic acid am- to decreased reimbursement by Medicare, Medicaid, and
plification testing has been introduced into blood donor managed-care companies, quality must be maintained. As
screening over the last decade. The use of NAT has in- discussed earlier, P4P programs have been implemented to
creased the sensitivity of pathogen detection and allows for give physicians financial incentives to retain payment for
the earlier detection of transfusion-transmitted pathogens services while maintaining quality and efficiency. The use
than standard serologic tests allow (111). of solid, tangible evidence leads to optimal decision mak-
Miniaturization continues to change the way tests are ing and the best level of care. Evidence-based medicine
performed. The use of smaller “micro” components fa- is one approach that has been used to address different
cilitates POCT. As these components become smaller and aspects of healthcare delivery. By using concrete, up-to-
smaller, the number of analytes in a device can increase, the-minute facts, this “evidence” can become a part of the
replacing larger analyzers. In some instances, laboratory decision-making process. Relying on evidence-based in-
results are available while the patient is still in the doctor’s formation requires paying close attention to new discov-
office, allowing results to rapidly and directly influence the eries and incorporating them into practice. Participating
course of care (77). Developing smaller and faster com- in outcome research provides a mechanism to study the
puters may lead the way to performing noninvasive tests, problem and influence future care. Using the Internet to
negating the need for blood specimens, especially using keep abreast of all current changes and to access databases
probes that can detect analytes percutaneously (29, 68). on a daily basis makes the process manageable. Overall, the
The concomitant reduction in sample size is beneficial to aim is to objectively evaluate patient management by mea-
the patient (61). suring quality and cost of outcomes. By using evidence-
Due to changes and reductions in the laboratory work based protocols, variation in practice can be reduced and
force, trying to do more with less is a dominant theme in patients are managed using objective data (37, 53). These
laboratory medicine. Automation will continue to reduce protocols also serve as great teaching tools.
personnel and laboratory costs (20). The use of robotics can The Agency for Healthcare Research and Quality
reduce the number of tasks that are currently done manu- (AHRQ) is one of 12 agencies within the Department of
ally and thereby reduce the impact of human error (61, 80, Health and Human Services. Its role is to support research
109). Track systems can help automate the process of testing that will help people make more informed decisions about
a single sample for multiple analytes, thereby improving ef- their healthcare. Through its activities the AHRQ strives
ficiency and reducing personnel needs. By using a system of to improve the quality of healthcare services by improving
barcodes that identify patients and samples throughout the the quality, safety, efficiency, and effectiveness of health-
process, the risk of misidentified patient samples has been care in the United States. The AHRQ was formerly known
reduced and may become a thing of the past. This form of as the Agency for Healthcare Policy and Research. As dis-
process control may have the ability to greatly reduce medi- cussed earlier, the agency helps assess P4P plans and lists
cal errors. Robotics is used for the delivery of supplies, sam- current programs on its website (www.ahrq.gov, accessed
ples, and blood products in some hospitals (8, 61, 70). February 1, 2012).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 145

Appropriate utilization (neither over nor under) is an- Through its Forum for Quality and Effectiveness in
other central theme in medical and laboratory services. Healthcare, one of the agency’s responsibilities was directly
While overutilization might lead to unnecessary expense, tied to formulating clinical practice guidelines. Its mission,
underutilization might delay diagnosis and treatment, in this regard, was to “sponsor and encourage the develop-
leading to low quality of care. Outcome assessment or ment, dissemination, and initial choice of guideline topics”
outcome research is an attempt to determine which in- (21). Now called the Agency for Healthcare Research and
terventions are necessary. Medical interventions and the Quality (AHRQ), the agency continues to be the clear-
use of diagnostic tests must affect the patient outcome to inghouse for nationally adopted guidelines (the National
be considered a necessary part of patient care. Outcomes Guideline Clearinghouse) in collaboration with the Ameri-
are diverse and include morbidity, mortality, length of can Medical Association and the American Association of
stay, quality of life, patient satisfaction, length of time to Health Plans. The guidelines are published on its website,
diagnosis, laboratory costs, and rates of laboratory test- available at www.guideline.gov (accessed on January 22,
ing, just to mention a few (77, 108). Clinical trials look 2012). Clinical pathways and clinical practice guidelines
at similar groups of patients, selected using strict crite- are also developed by individual institutions, as evidenced
ria, to assess the impact of changes of single variables. by reviews of peer-reviewed publications (21, 34).
In contrast, outcomes research attempts to see what hap- The development of clinical practice guidelines is pri-
pens after treatment is applied to a more diverse group of oritized based on the prevalence of the clinical problem,
patients (65). burden of illness imposed, cost, variability in practice,
For example, ordering repeated blood cultures on a potential to improve healthcare outcomes, and poten-
patient without signs and symptoms of infection would tial to reduce cost (21). There have also been suggestions
be inappropriate since their use is neither supported by that medical malpractice claims should be used as an ad-
scientific facts nor would the culture results (presumably ditional prioritization for the creation of guidelines to
negative) change the patient’s outcome. Therefore, the help protect against litigation (12, 84). More importantly,
laboratory has an essential role in fostering both evidence- guidelines may be one approach to prevent variations in
based medicine and outcomes research (77). These princi- practice, leading to improved patient safety and outcomes
ples can be applied to many other services provided by the (22). Guidelines are also used as a mode of teaching.
laboratory, such as POCT and the use of screening tests. To
adequately perform such large-scale studies, an integrated Clinical Practice Guidelines and Clinical
information system is essential (53, 108). Pathways Defined
The laboratory can play a major role in studying out- The Institute of Medicine defines clinical practice pa-
comes research by providing objective data that correlate rameters as “systematically defined statements to as-
with patient outcomes. Conversely, adverse patient out- sist practitioner and patient decisions about appropriate
comes might be used to screen for laboratory errors. Look- healthcare for specific clinical circumstances.” They may
ing at the outcomes of patients within a critical time frame provide clinical, ethical, organizational, or other forms of
following the receipt of laboratory data may yield impor- advice and can be presented in a variety of formats in-
tant information related to the performance of the test or cluding algorithms, computer-based protocols with com-
the transmission of results. One example would be assess- puterized order entry, and/or policy documents (21).
ing outcomes for patients on coumadin therapy following The terms care-maps, care algorithms, clinical pathways,
recent prothrombin time testing. This process is described critical pathways, and clinical maps have also been used.
as downstream event monitoring (110). Applying out- The term clinical pathway is usually used for prescribed
comes research to the clinical laboratory can thereby pro- procedures where the patient outcome is more predict-
vide a method to examine quality and prevent errors (65). able. Clinical practice guidelines refer to situations that
have greater variability such as rehabilitation protocols
Concerns about Utilization and Quality or complex medical illnesses. When the problem is even
In 1989, as part of the Omnibus Budget Reconciliation Act more complex or involves chronic disease processes, case
(OBRA), Congress created the Agency for Healthcare Pol- management may be employed to oversee the overall dis-
icy and Research (AHCPR) due to growing anxiety about ease management, usually by nursing personnel under the
costs and inappropriate use of medical care. At the same guidance of a physician. Practice guidelines seem to tie
time, there were data pointing toward variations in the use all the trends of healthcare together. They are formulated
of medical services, questions about the true efficacy of using evidence-based medicine in an attempt to reduce
both expensive and commonly used services, and a lack of variation in care, maintain quality, and reduce cost and
proven efficacy for many services. Since cost containment as a means to influence patient outcomes. Presumably,
measures were not effective, there was a perceived need to when faced with factual evidence, different practitioners
study the issues more thoroughly (21). will come to the same conclusion. This, in turn, will lead
146 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

to consistent ways to treat a variety of diseases. It is im- stating that the measures are “an excellent tool for health-
portant to note that the use of these different terms is not care organizations to evaluate the transfusion consent
standardized, and their use may vary in different institu- process, blood utilization, blood administration docu-
tions. As discussed earlier, the incorporation of evidence- mentation and identify processes related to elective sur-
based practice is an implicit part of the Patient Protection gery that may decrease the need for blood and improve
and Affordable Care Act of 2010. patient safety.” It is possible that these measures could be
Critical pathways were traditionally more detailed than adopted, in the future, as a pay for performance tool (http://
initial critical guidelines. Critical pathways were designed www.jointcommission.org/patient_blood_management
to focus on a multidisciplinary approach to a specific _performance_measures_project, accessed February 22,
problem, although the line between clinical pathways and 2012; http://www.jointcommission.org/assets/1/6/pbm
clinical guidelines is not distinct. It is important to note, _implementation_guide_20110624.pdf, accessed Febru-
though, that only clinical practice guidelines are defined ary 22, 2012).
by AHRQ. When working on a project that crosses depart- Patient blood management programs are seen as a way
ments, it is implicit that approval and buy-in of hospital to reduce unnecessary transfusions, reduce the risks of
administration are required (49). Looking at it a different transfusion by reducing patient exposure to blood and
way, the use and implementation of practice guidelines can blood products, and improve the availability of blood
be accomplished through clinical pathways. for patients with the greatest need. There are a variety of
publications on specific patient populations showing that
Use of Clinical Practice Guidelines adhering to more restrictive guidelines for red blood cell
A search of the medical literature, as well as a general transfusion (i.e., transfusing at hemoglobins of 8 g/dl in-
search on the Internet, will show the broad range of clin- stead of 10 g/dl) does not appear to worsen patient out-
ical questions being addressed, from psychiatric illness comes and may, in fact, improve outcomes (17, 39).
to pediatric transfusion guidelines to the evaluation of Therefore, blood management can be used as a tool to
unstable angina. Some of these studies have yielded posi- improve patient outcomes. These programs have been
tive outcomes such as decreased length of stay, decreased in development internationally for the last 10 years (99)
cost of care, increased patient satisfaction, and improved (http://www.aabb.org/resources/bct/pbm/pages/default
transfusion practice in a pediatric hospital. Others have .aspx, accessed February 22, 2012).
not been as successful (37). Discussing the specifics of the Concern about blood safety, as discussed in chapter 5,
guidelines available is not within the scope of this chap- was one impetus for the creation of guidelines, as dis-
ter, although some examples are listed in the references cussed. To gather more evidence-based data on the true
(40, 47, 48, 91). In addition, there is a national guideline scope of blood safety, many countries set up active sur-
clearinghouse that lists myriad guidelines through its veillance systems. In 2006 the United States began the
search engine (http://www.guideline.gov/, accessed June process of setting up a national biovigilance network,
25, 2012). which began as a cooperative alliance of the AABB (for-
In 2007, TJC convened a group of stakeholders in the merly the American Association of Blood Banks), the
blood banking and transfusion community to look at Centers for Disease Control and Prevention (CDC), and
the formulation of standardized performance measures the Department of Health and Human Services (HHS).
for hospital blood banks. A year later, through its Blood The network will monitor events related to blood recipi-
Management Performance Measures Technical Advisory ent safety and outcomes and blood donor safety (hemovi-
Panel, TJC released a list of 19 blood-related perfor- giliance), as well as organ and tissue transplantation and
mance measures that it planned to implement as part of cellular therapies (57, 96) (http://www.bloodtransfusion
its accreditation program. The document was posted for .it/articoli/47/en/Doi%200023.pdf, accessed February 11,
public comment and meetings were held to further vet 2012). According to the AABB’s website, the activities
the measures. Seven measures were ultimately identified: of the U.S. Biovigilance Network involve “gathering and
PBM-01 Transfusion Consent, PBM-02 RBC Transfu- analysis of data to help identify trends and recommend
sion Indication, PBM-03 Plasma Transfusion Indication, best practices and interventions intended to significantly
PBM-04 Platelet Transfusion Indication, PBM-05 Blood improve patient care and safety while reducing overall
Administration Documentation, PBM-06 Preoperative costs to the healthcare system.” With results of active sur-
Anemia Screening, and PBM-07 Preoperative Blood veillance, blood management programs will be able to
Type Testing and Antibody Screening. concentrate on the greatest risks to the blood supply and
In 2010 these measures were submitted to the National be able to identify the best outcome measures for pro-
Quality Forum (NQF) for consideration of endorsement; viding the safest blood products for patients (http://www
the measures were not endorsed. In June 2011 TJC made .aabb.org/programs/biovigilance/Pages/default.aspx, ac-
the measures and an implementation guide available, cessed January 29, 2013).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 147

Pros and Cons exact mold of the algorithm. There has been concern that
The creation of standard, reproducible algorithms that can following the algorithms might lead to poor judgment as
be applied to patient treatment has always been felt to of- physicians try to make patients fit into the wrong treat-
fer great promise (see Table 6.5). Soon after the concept of ment plan (74). In addition, different practitioners will
standardized algorithms was introduced, a variety of stud- interpret the “evidence” differently and introduce bias,
ies over the years showed increased efficiency and quality leading to inconsistency and variation in practice (19, 37,
of care with decreased cost and length of stay. Some have 74). An interesting study by Shaneyfelt et al. (90) critically
pointed out that these guidelines may have other uses and evaluated published practice guidelines and found that
serve as a means of education. As stated earlier, they may between 10 and 25% ignored some of the basic tenets of
be used as one means to assess physician competency, designing guidelines. Existing guidelines often undergo
proficiency, and peer review and might also be an integral review (21, 89).
part of utilization review in the future (21, 36, 85). Hav-
ing a written, detailed care plan to follow leads to better Developing Clinical Pathways and Guidelines
coordination between the members of the care team. This The steps required to develop a clinical pathway are sum-
in itself may lead to the decreased length of stay that was marized in Table 6.6 and begin with the identification of a
demonstrated. For example, if a physician is not available, problem, where a change in outcome is desired or where
a member of the nursing team or respiratory therapy team there may be a great deal of variation in care. Assembling
may be able to initiate the next step of the protocol in a a team to critically evaluate the areas of concern is also
timely manner (50). important, especially if the plan will involve a multidisci-
The introduction of clinical practice guidelines was met plinary approach. Enlist the support of hospital adminis-
with some resistance, as demonstrated in a survey of mem- tration. The quality improvement team of your institution
bers of the American College of Physicians in 1992 (103). may be very supportive of efforts to improve patient out-
Respondents to the questionnaires voiced a variety of con- come. A brainstorming session may be the best way to start
cerns. One of their concerns, as discussed earlier, was the and to systematically analyze the problem. A full search
fear that implementation would increase their exposure to of all available data and literature should be performed
medical malpractice claims if they didn’t strictly adhere so that the guidelines are evidence-based. Once a list of
to the guidelines. The members were also concerned that concerns is raised, it must be prioritized. Specific, desired
they could no longer tailor care to the needs of each indi- outcomes should be identified. The methods that will be
vidual patient, and their autonomy to practice medicine used to collect and analyze data should be established.
would likely be diminished. This would have a direct influ- A financial analysis should be performed. The pathway
ence on their overall satisfaction in practicing medicine. should identify patients who may have individual factors
In addition, not all studies have shown improved patient not conducive to inclusion in the pathway. For example, a
outcomes or decreases in cost. This trend continues and is patient may be excluded when a pathway requires a spe-
the impetus for the P4P programs discussed earlier. cific diagnostic test that the third-party payor will not re-
Others have voiced concern about the apparent rigid- imburse (49, 84).
ity of guidelines, since very few patients seem to fit the The pathway development team may be broken down
into subgroups, each with assignments to address specific
Table 6.5 Pros and cons of clinical practice guidelines and clinical
pathways
Table 6.6 Elements for developing clinical pathways
Pros Cons
Identify suitable problem to address
Increase in efficiency Too rigid Identify team members
Increase in quality Decrease in physician autonomy Initiate a brainstorming session
Increase in patient satisfaction Decrease in physician satisfaction Identify specific outcome objectives
Search available data and literature
Decrease in cost Increase in cost Assign specific parts of the plan to subteams
Decrease in variations in Increase in variation of practice Identify financial impact
practice Can be used for discipline Identify impediments for patient participation (e.g., third-party payor)
Decrease in length of stay Increase in legal liability Identify data gathering and analysis tools
Decrease in legal liability Outcomes not always favorably Educate members of team
Educational strategy affected Create flow diagram or matrix of process
Develop method to capture variances
Means of peer review Develop method to modify plan as it is being used
Means of proficiency/ Identify individuals to answer questions during process
competency assessment Identify individuals to monitor compliance
Training guides Analyze data
148 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

parts of the project. All team members should reconvene Damages for medical malpractice fall into three catego-
and a timeline be created to fit the different pieces of the ries: (i) economic damages that compensate a patient for
puzzle together. At this point, the group can work on the lost wages and medical care expenses, (ii) noneconomic
specifics of the pathway. It is best to develop a comprehen- damages that compensate a patient for pain and suffering,
sive educational program that includes all staff who will par- and (iii) punitive damages that punish a healthcare pro-
ticipate. This can occur at a departmental meeting, specific vider for conduct considered malicious or reckless (100).
retreat, grand rounds activity, or one-on-one for specific Patients and attorneys continue to complain that the cur-
individuals. Clearly identified individuals should be avail- rent system is difficult to access and takes an unreasonable
able throughout the implementation to answer questions as amount of time to recover compensation for negligence.
well as to monitor compliance. Variances from the use of Many also feel that litigation outcomes are often different
the pathway should be recognized, recorded, and analyzed for patients with similar injuries (45).
as the process goes forward. Modification of the original The perceived threat of litigation encourages providers
plan may occur during the process. Strict record keeping in to practice “defensive medicine,” ordering tests and ser-
all aspects of the implementation is required to provide the vices with the intent of reducing potential liability rather
necessary information for final analysis (49, 84). than because of actual medical necessity. A study done
by the Robert Wood Johnson Foundation looked at tort
reform and whether traditional types of tort reform will
Medicolegal Issues
decrease liability costs. The study found that the effect of
Malpractice Litigation applying traditional types of tort reform would result in
We live in a litigious society and the medical community only a 0.5 to 5% reduction in health expenditures (Table
has felt the impact. Providers are asked to pay ever increas- 6.7) (http://www.medpac.gov-accessed, accessed Febru-
ing professional liability premiums, which they then pass ary 2, 2013).
on to the consumers of healthcare. The insurance industry Currently there are no federal laws affecting tort re-
blames the increase on the ongoing trend toward higher form. Many states have taken the initiative to take action
jury awards, requiring them to pass this cost on as a cost on tort reform mainly through the use of caps on damages.
of doing business. The total number of malpractice cases Many feel that comprehensive tort reform at the federal
has been steady for many years, yet the median damages level should have been included in healthcare reform leg-
awarded at trial have continued to increase (31). islation (94).

Table 6.7 Traditional types of malpractice reforma

Claims Overhead Malpractice Defensive
Reformb frequency Claims costs costs premiums medicine
Attorney fee limits 0 0 0 0
← ← ←

Caps on noneconomic damages 0

←
←

Certificate of merit 0 0 0 0
Collateral-source offset 0 0 0 0 0
Joint-and-several liability 0 0 0 0 0
Periodic payment 0 0 0 0 0
←

Pretrial screening panels 0 0 0 0

←

Shorter statute of limitations 0 0 0 0

a
2 arrows = large change, 1 arrow = moderate change, 0 = none. Some classifications may be theoretical only, with no evidence or certainty
classified.
b
Attorney fee limit: Limits the amount of a malpractice award that a plaintiff ’s attorney may take in a contingent-fee arrangement.
Caps on noneconomic damages: Limits the amount of money that a plaintiff can receive as an award for noneconomic losses or “pain and
suffering” in a malpractice suit.
Certificate of merit: Requires a plaintiff to present, at the time of filing the claim or soon thereafter, an affidavit certifying that a qualified
medical expert believes there is a reasonable and meritorious cause for the suit.
Collateral-source offset: Requires that if a plaintiff has received reimbursement for injury-related expenses from other sources, such as
health insurance, that amount be deducted from the award that a defendant who is found liable for the injury must pay.
Joint-and-several liability reform: Limits the financial liability of each defendant to the percentage of fault that the jury allocates to that
defendant.
Periodic payment: Allows or requires insurers to pay out malpractice awards over a long period of time, rather than in a lump sum.
Pretrial screening panels: Review a malpractice case at an early stage and provide an opinion about whether a claim has sufficient merit to
proceed to trial. A negative opinion can be introduced by the defendant as evidence at a trial.
Statute of limitations: Limits the amount of time a patient has to file a malpractice claim.
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 149

Patient Safety new employee orientation and competency training. The

Patient safety can be defined as a discipline in the health- role of breaking bad news, while traditionally thought to
care professions that applies safety science methods toward be the role of the physician, may now be expanded to in-
the goal of achieving a trustworthy system of healthcare clude other members of the healthcare team.
delivery. It can also be defined as an attribute of health-
care systems that minimizes the incidence and impact of CMS Serious Reportable Events
adverse events and maximizes recovery from such events. CMS Serious Reportable Events is a list of 28 events that
Organizations such as The Joint Commission, the Institute Medicare feels should never occur to a patient in a health-
of Medicine, and the Agency for Healthcare Research and care organization because these events are considered pre-
Quality all provide healthcare providers with resources re- ventable. Some examples are death or serious disability
lated to improving patient safety. related to falls, wrong-site surgery, and administration of
ABO incompatible blood or blood products. When one
of these events does occur, the hospital and the provider
Disclosure of Adverse Events/CMS Never Events are not able to bill Medicare or many other managed-care
Medical errors and near misses occur in healthcare orga- companies for the costs related to the event (Table 6.8)
nizations in alarming numbers (22). In the past hospitals (http://psnet.ahrq.gov/primer.aspx?primerID=3, accessed
and healthcare providers often attempted to hide errors in February 22, 2012).
treatment of the patient or family. In today’s environment,
disclosure of unexpected outcomes and/or adverse events Enterprise Risk Management
is now the norm. TJC requires organizations to develop Traditional risk management focuses on the reduction of
a process for reporting adverse events (98). Organizations professional and general liability within an organization,
have engaged multidisciplinary groups with representation whereas enterprise risk management integrates traditional
from risk management, medical staff, nursing, chaplain risk management with the strategic planning process using
services, patient relations, and general counsel to develop a systematic approach to manage all of the risks facing the
a process for disclosure of error. Many organizations and organization. This concept is becoming more prevalent in
providers feel that frank disclosure to patients will increase healthcare organizations and if utilized will touch all sys-
litigation, while others believe that it will reduce claims tems and processes in all departments (16).
(http://www.innovations.ahrq.gov/content.aspx?id=2673, As healthcare continues to change, the focus of liabil-
accessed February 22, 2012). At this time, the literature is ity exposure has changed as well. In today’s healthcare
inconclusive on which opinion is correct. setting, it is necessary to expand the liability focus to in-
There are many situations to consider in framing a pol- clude the following risks: managed care and capitation;
icy for disclosure of outcomes, especially those that involve merger and acquisition; employment and worker’s com-
negative or adverse events. There may also be state-specific pensation; electronic data processing and media; auto-
legal, regulatory, institutional, and cultural considerations. mobile, other transportation, and garage; environmental;
Training should emphasize the importance of effective directors and officers; commercial crime and employee
communication with patients and family members and the dishonesty; fiduciary; foreign recruitment and foreign
need to discuss possible adverse outcomes in the informed travel; research; builders and construction; product li-
consent process. All healthcare professionals acknowledge ability; and excess liability. An effective laboratory risk-
that breaking bad news is a difficult, unpleasant, and ines- management program must examine the exposure for
capable part of their role. Although the need to commu- each of the identified and applicable risks and seek the
nicate bad news is common in healthcare, there are few most comprehensive, but also cost-effective, mechanism
known objective facts about how it should be done. The to manage the risk exposure.
idea of improving one’s skills at disclosing breaking bad
news is viewed as taboo in polite society. Insurance
Most clinicians have been taught very little about the Risk is the chance or possibility of loss. The most common
techniques of breaking bad news, partially due to the awk- mechanism to transfer or finance risk exposure is to pur-
wardness of teaching these skills. The goal of training, ac- chase insurance. Insurance alone cannot prevent risk, but
cording to Robert Buckman, M.D., is not necessarily to it can provide security against loss. Risk transfer and risk
increase an individual’s ability to “do it right every time,” sharing are vital elements of an insurance program. Risk
but to increase the individual’s right/wrong ratio, to in- is most commonly transferred to an insurance company.
crease the comfort level and ability to provide support, and By accepting and sharing the risk of many organizations,
to enhance the learning process (13). This learning process an insurance company is able to statistically calculate the
should begin in the early days of the healthcare profession- likelihood that losses will or will not occur. It can also pre-
al’s training and should be reenforced in an organization’s dict the likely severity of the loss and use this calculation to
150 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 6.8 CMS never events and serious reportable events

Never events
Surgery on the wrong patient
Surgery on the wrong body part
Wrong surgical procedure
Serious reportable events
Unintended retention of a foreign object in a patient after surgery or other procedure
Intra-operative or immediate postoperative death in an otherwise healthy patient
Infant discharged to the wrong person
Patient death or serious disability associated with patient disappearance
Patient suicide or attempted suicide resulting in serious disability
Artificial insemination with wrong donor sperm or egg
Death of the mother during labor and delivery in a low-risk pregnancy while being cared for in a healthcare facility
Electric shock or elective cardioversion
Burn incurred from any source within the facility
Patient death or serious disability associated with:
Contaminated drugs, devices, or biologicals
The use/function of a device used in patient care for other intended use/function
Intravascular air embolism
A medication error
Blood incompatibility
Manifestation of poor glycemic control
Failure to identify and treat neonatal hyperbilirubinemia
Pressure ulcers (decubitus ulcers)
Spinal manipulative therapy
A patient fall
Use of restraints or bedrails
Incident wherein a line designated for oxygen or other gas delivery to a patient contains the wrong gas or is contaminated by toxic substances
Patient care ordered or provided by imposters posing as licensed healthcare providers
Patient abduction
Patient sexual assault
Patient or staff member death or significant injury resulting from physical assault
Catheter-associated urinary tract infection (UTI)
Vascular catheter–associated infection
Surgical site infection including:
Mediastinitis after coronary artery bypass graft
Surgical site infection after bariatric surgery for obesity
Surgical site infection after spine, neck, shoulder, or elbow orthopedic surgery
Deep vein thrombosis/pulmonary embolism following total hip/knee replacement

create a premium that it charges back to the organization insurance provider with oversight from the organization’s
wanting to transfer the risk. Sound premium calculations insurance services or legal office staff.
allow the insurer to pay the claims that are incurred and Self-insurance often looks like a commercial insur-
still make a profit (16). A comprehensive insurance man- ance policy with a large deductible. In many cases, state
agement program that is carefully monitored can identify regulations must be met for an organization to become
exposures and effectively manage them in a timely man- a qualified self-insurer. The organization must identify
ner. Insurance requirements can change on a daily basis how claims will be administered and who will provide
depending upon the size of the organization and the ser- the excess or umbrella coverage. Self-insurance coverage
vices it provides. is further complicated by federal reimbursement require-
An organization may be willing to retain a portion of ments such as Medicare or Medicaid reimbursement in
the risk by utilizing a deductible. Virtually every type of the case of self-insured programs for medical profes-
insurance can be written with a deductible. Retaining a de- sional liability.
ductible may be costly to the organization if the deductible
is so large that all of the organization’s losses come in at a HIPAA and Patient Confidentiality
rate lower than the deductible and have to be paid as oper- The Health Insurance Portability and Accountability Act
ating expenses. In this case, the organization may have to of 1996 (HIPAA), also known as the Kassebaum-Kennedy
pay more than the deductible itself costs. Careful analysis bill, is an intricate and far-reaching legislation (Public Law
of losses can determine if the deductible is appropriate for 104-191, 104th Congress, 26 USC Subchapter A) (95). It
an organization. This service should be provided by the amends elements of the Employee Retirement Income
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 151

Security Act (ERISA), the Public Health Service Act Table 6.9 Essential elements of a legal contracta
(PHSA), and the Internal Revenue Code of 1986. The act The parties to the contract must be competent
establishes a variety of health insurance coverage protec- The contract represents a “meeting of the minds” between the parties
tions including access to insurance markets for small busi- There is consideration—a bargained-for exchange of legal value exists
nesses and the self-employed, access and transferability of between the parties
coverage for individuals who change jobs, and access by The purpose or object of the contract is legal
individuals who have preexisting medical conditions. The contract is documented in writing if required for law enforce-
For healthcare, one of the most far-reaching concerns ment in that state
resulting from HIPAA is ensuring patient privacy. Once a
See reference 16
HIPAA went into effect, healthcare providers needed to
reevaluate their practices to meet the privacy provisions
of the law and to communicate these changes to their pa- original contract that amendments should be in writing
tients. Personal health information could no longer be and signed by both parties. The original contract language
shared with anyone without the patient’s permission. It is or provisions that are deleted or changed should be noted
important to realize that verbal conversations regarding in the amendment as well (16). From a practical stand-
patients are also covered under HIPAA. Discussions that point, many contractual relationships do not proceed as
take place on elevators or in hallways must not disclose specified in the contract, yet the parties are satisfied with
confidential information if there are individuals present the arrangement. The services may change in scope or fo-
that are not privileged to hear that information (see chap- cus during the contract term without benefit of a written
ter 5 for more details on HIPAA). amendment to the original contract. If the receiving party
continues to compensate the other party according to the
Contracts terms of the contract, a strong argument can be made
Careful contract review protects the assets of the organi- that the receiving party implied consent to the changes
zation. Systematic contract review can minimize prob- in performance and cannot later plead breach of contract.
lems due to inadequate knowledge of the subject or lack Contract litigation is expensive and rarely rewarding.
of time to devote to the project. Training and experience Therefore, it is important that any changes in the contrac-
will prepare you to focus on areas of liability, insurance, tual relationship be mutually acknowledged in writing to
hold-harmless, indemnification, and other risk elements avoid subsequent problems.
common to many healthcare contracts. This systematic re- The contract review process should be integrated with
view does not eliminate the need for the general counsel’s the corporate compliance program. In general, federal
involvement in major contracts. and state laws prohibit healthcare providers from paying
To accomplish an efficient review of any healthcare for the referrals of patients or other business, thus requir-
contract, one must understand the type of contract being ing careful legal scrutiny of all contractual arrangements
reviewed, the contractual responsibilities and performance between healthcare organizations, physician providers,
of the various parties, and the negative consequences of a medical groups, and other potential referral sources. Legal
poorly drafted contract. A contract is a legal agreement be- experts are essential to the process of drafting appropriate
tween two parties that can be enforced through legal chan- contracts to ensure compliance with complex federal and
nels. It creates an obligation to perform certain actions. state laws.
Other instruments used like a contract are agreements, let- Many contractual relationships in the healthcare indus-
ters of intent, memoranda of understanding, leases, pur- try have confidentiality or privacy issues contained in the
chase agreements, orders, and oral contracts. A contract document. As contracts are reviewed, serious consider-
contains legally binding obligations between two or more ation should be given to including a confidentiality provi-
parties and provides one or more of the parties with a legal sion specific to the proprietary nature of the organization’s
remedy if another party fails to perform as specified in the business records, in addition to other protected and sensi-
document. For a contract to exist, all legal essentials must tive information such as patient information, medical staff
be included. These are listed in Table 6.9. A well-written records, committee proceedings, personnel file, payroll,
contract confirms the understanding between the parties and compensation (16). Negligent disclosure of protected
and avoids future disagreements about terms, conditions, information exposes the provider to legal liability. There-
and definitions critical to the relationship. Essential con- fore, access to the organization’s protected or sensitive in-
tract terms should always be clear and contain adequate formation should be limited to that which the contracting
detail to avoid subsequent misunderstanding. party has a valid “need to know.” Any unauthorized dis-
Contracting parties can amend contracts, but the closure by the contractor and its employees should subject
amendments should always be in writing and be signed the contractor to the resulting financial liability from the
by both parties. There should be a statement in the negligent act.
152 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Contracting relationships can include clinical affilia- it. Juries will always place more emphasis on the written
tions, sponsorship of educational presentations, tempo- word versus a person’s memory of events because memo-
rary staffing agencies, temporary independent contractors ries fade over time, and the written word remains. Most
of any kind, consulting services, building leases, construc- documentation is painstakingly maintained with the hope
tion and renovation contracts, equipment purchases, home that it will never be needed (23).
care, and managed care, to name a few. When setting up systems to maintain documentation
that is accurate, complete, comprehensive, and legible, the
Specimens biggest challenge is that healthcare providers are altruistic
The laboratory management process presents numerous individuals who are more interested in providing care and
opportunities for potential liability. Departmental policies less interested in capturing the details on paper; this is im-
should comprehensively address all activities for all hours portant to keep in mind when creating systems and forms
of operations. These policies should make special refer- (paper or electronic). Forms that will quickly and easily
ence to exceptional times such as holidays and periods of capture essential information are crucial to a successful
light staffing or limited service (9, 25). documentation process. Fortunately, laboratory person-
The two most frequent issues related to specimen col- nel, who are more removed from the direct patient care
lection are mislabeling or misidentification and loss of role, are generally more detail oriented, as required by the
specimens that are considered to be irretrievable or very nature of their work, making the details of the documenta-
difficult and impractical to replace (for example, surgi- tion process less of an obstacle.
cal specimens, interventional procedures, biopsies, cere- With the availability of automated technology such as
brospinal fluid). Because of the potential for devastating the EMR in today’s world, the challenges of record keeping
outcomes related to mislabeling of specimens (leading to and storage are somewhat eased. The issue of illegibility
misdiagnosis, mistreatment, and the inability to diagnose of documentation has definitely been reduced. However,
and treat when a specimen is lost), the Commission on automation also brings additional challenges such as pro-
Laboratory Accreditation and the College of American Pa- tection of sensitive and confidential information and re-
thologists (CAP) have developed guidelines and checklists covery of information in the event of technology failure
to assist laboratories with effective management of each due to natural or other disasters.
step within this critical process (4, 25). (Note that check- The recording and maintenance of information is by far
lists can be purchased through CAP at www.cap.org [ac- the biggest challenge and biggest headache in the health-
cessed June 25, 2012], under the tab for accreditation for care industry from a medicolegal perspective. All efforts
laboratory improvement.) spent on procuring quality technology, training and re-
training of healthcare personnel, and maintenance and
Documentation storage of information will be time, effort, and money well
The healthcare industry is often depicted as drowning in a spent, even if it is never challenged in a courtroom. It will
sea of paper. The paper trail, which may actually be elec- enhance patient safety and protect practitioners, the facil-
tronic, is required to show compliance with regulations and ity, and the community.
makes documentation a true paradox that is despised for
its necessity and cherished for its usefulness. In the medi- Research Liability
cal malpractice arena, documentation is the most reliable The relationships between healthcare organizations and
indicator of what was or was not done. “If it wasn’t docu- their patients and patients’ families are guided by certain
mented, it wasn’t done. If it wasn’t documented, it won’t basic ethical principles and the morally binding obligations
be reimbursed.” These statements are repeated daily in the that are derived from those principles. Table 6.10 presents
healthcare industry and have become hallmark statements the basic ethical principles that are most relevant to clini-
from regulatory bodies. Plaintiff attorneys also use this as cal bioethics. The concepts of doing good (beneficence),
a common litigation tactic in the courtroom to argue that avoiding harm (nonmalfeasance), privacy, confidentiality,
if it wasn’t documented it didn’t happen (35). and justice are central to the ethical principles and moral
Documentation is viewed in the broadest sense and in- obligations recognized in the Hippocratic Oath.
cludes documents other than the patient’s medical record. Each healthcare organization that receives federal fund-
Critical laboratory documents include policies, protocols, ing for human research is subject to the Food and Drug
guidelines, position statements, checklists, quality con- Administration (FDA) or Office for Protection from Re-
trol documents, position descriptions, meeting minutes, search Risks (OPRR) regulation and must have one or
personnel schedules, assignments, and any other form of more institutional review boards (IRBs). Under FDA regu-
documented information utilized in the management of lations, an IRB is an appropriately constituted group that
the laboratory. In the courtroom, documentation carries a has been formally designated to review and monitor bio-
great deal of weight, unless something is done to discredit medical research involving human subjects. In accordance
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 153

Table 6.10 Ethical principles and moral obligations governing the interest in the ethical and procedural propriety of bio-
patient and healthcare organization’s relationshipa medical research. Healthcare organizations and their IRBs
Ethical principles have the responsibility to educate investigators and moni-
Beneficence, which creates an obligation to benefit patients and other tor the conduct of research as well as the institutional
persons and to further their welfare and interests responsibility to provide adequate training to the IRB
The principle of respect for patients’ autonomy members, which should include periodic didactic or in-
Nonmalfeasance, which asserts an obligation to prevent harm or, if teractive training. The institution is expected to increase
risks of harm must be taken, to minimize those risks
the IRB infrastructure support to allow for continuous
Justice, which is relevant to fairness of access to healthcare and to monitoring of research activities. To the extent that any
issues of rationing at the bedside
laboratory function or employee is involved in research
Moral obligations activities, the above information related to training, docu-
To respect the patient’s privacy and maintain a process that protects mentation, and monitoring for investigators would apply
confidentiality as well (16).
To communicate honestly about all aspects of the patient’s diagnosis,
treatment, and prognosis
To conduct an ethically valid process of informed consent throughout
the relationship Training Physicians for Practice
a
See reference 16
in the 21st Century
The Educational Goal: The Complete Physician
The sociopolitical and economic currents, demographic
with FDA regulations, an IRB has the authority to approve, shifts, and technological advances that are reshaping the
require modifications in (to secure approval), or disap- practice of medicine in the United States are fostering cor-
prove research. This group review serves an important responding reforms in medical education at both the un-
role in the protection of the rights and welfare of human dergraduate and graduate levels. These changes in medical
research subjects. training represent only the most recent phase in the evolu-
The purpose of IRB review is to assure, both in advance tion of medical education over the last two centuries. Papa
and by periodic review, that appropriate steps are taken and Harasym (73) describe a series of major shifts in the
to protect the rights and welfare of humans participat- medical curriculum in North America since 1765, when
ing as subjects in research. To accomplish this purpose, the prevailing model was that of an apprenticeship with
IRBs use a group process to review research protocols and little formalized education. By the second half of the 19th
related materials (e.g., informed consent documents and century, the need to improve the quality of medical prac-
investigator brochures) to ensure protection of the rights tice led to a formalized four-year curriculum centered on
and welfare of human subjects of research (http://www.fda distinct basic science departments in a university setting
.gov/RegulatoryInformation/Guidances/ucm126420.htm, similar to the European model. By the turn of the century,
accessed January 31, 2012). emphasis was being placed on active rather than passive
The federal research requirements are founded also on learning and on critical thinking skills. In the early 20th
the respect for the autonomy of the research subject evi- century, Abraham Flexner’s influence further entrenched
denced by stringent informed consent requirements, the the separation of basic and clinical science training in
protection of vulnerable populations, the absence of coer- medical schools and the importance of scientific reasoning
cion, and the reasonable balance of benefits and burdens in the practice of medicine (73). By the 1950s, the trend
of the proposed research for the individual subject, not for was to develop an integrated cross-departmental approach
society at large. to teaching medicine that was based on organ systems and
From time to time organizations may feel increased taught by faculty from multiple disciplines. During clinical
pressure from principal investigators and administra- training years, students increasingly were exposed to spe-
tors to cut corners and speed up the approval process for cialists rather than to general practitioners. In recent years,
sponsored research. Such an approach places the welfare the separation of training into “preclinical” and “clinical”
of the researcher and the research institution ahead of the components is becoming less distinct as students are being
welfare of the subject and is inconsistent with the ethical introduced to fundamentals of clinical medicine in their
foundation of biomedical research. Compliance activities first year in medical school.
of the OPRR and the FDA have shown that an approach to Major influences on reform in the current environment
research that minimizes the protection of the subject can may be considered threefold. First, society is demanding
prove to be very costly, in both revenue and reputation. increased physician competency and accountability to de-
OPRR and FDA compliance activities are expected to crease medical error and to justify rising healthcare costs
continue at increased intensity, signaling a rise in public (28, 54, 78). Efforts to optimize the way in which both the
154 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

scientific and humanistic aspects of medicine are taught need to incorporate fundamentals of population health
and to develop in physicians the habit of lifelong learning into the curriculum (64).
have been ongoing since their introduction in the early Core competency domains, including biomedical eth-
20th century (69). A vigorous attempt is being made to ics, scholarly medical practice, communication in medi-
define improved assessment methods to measure training cine, medical professionalism, and the healthcare system,
outcomes and the maintenance of competency after com- were identified by the Association of American Medical
pletion of training. Second, new knowledge in such areas Colleges in 2000. These areas of competency cross all dis-
as molecular biology, gender differences in disease mani- ciplines of medicine, and their identification is intended to
festations and responses to therapy, the pathophysiology of facilitate development of core curricula to foster the learn-
aging and of chronic diseases, complementary/alternative ing required to become a competent and independent phy-
medicine, and the applications of advanced technology is sician (75).
rapidly becoming important in the practice of medicine In 1999, the Accreditation Council for Graduate Medi-
and must be addressed in the curriculum. Finally, medical cal Education (ACGME), the accrediting body for GME
trainees must be prepared for the practice of medicine in programs in all disciplines of medicine, adopted the General
the managed-care environment, in which there is both an Competencies as part of the Outcome Project, designed to
emphasis on outpatient care and an increasing recognition optimize educational outcomes in medical training (www
of the importance of population-based healthcare, disease .acgme.org, accessed June 25, 2012). This section describes
prevention, health maintenance, personalized medicine, the rationale, design, and proposed timeline for imple-
and cost containment. mentation of the General Competency requirements in
graduate medical training programs (96a). Similar to the
New Paradigms in Medical Training thrust of efforts being made at the medical school level, the
Historically, medical schools design their own curricula. goal of the general competency requirements is to foster
Since 1932 the Association of American Medical Colleges the development of training objectives in nontraditional
(AAMC) has encouraged the development of learning as well as traditional areas of graduate medical education
objectives by medical schools (64). In 1981 the AAMC to better prepare physicians for the evolving healthcare
Project Panel on the General Professional Education environment. The competency domains include patient
of the Physician and College Preparation for Medicine care, medical knowledge, interpersonal and communi-
(GPEP Panel) was formed with the purpose of improved cation skills, professionalism, practice-based learning
educational strategies. The panel’s conclusion was that all and improvement, and systems-based practice. As part
medical practitioners should have a “common founda- of accreditation requirements, residency programs must
tion of knowledge, skills, attributes and values,” defined by demonstrate training objectives in each area, linked to
medical schools and incorporated in the form of specific assessment methods that are designed to provide reli-
learning objectives (64). In 1985 the Liaison Committee able data documenting resident progress. The program
on Medical Education (LCME) added defined learning must review assessment methods periodically and use
objectives to its requirements for accreditation of medi- the results to continually improve teaching methods.
cal schools. By the early 1990s, it was evident that despite More recently, the ACGME proposed the development of
these efforts, well-defined learning objectives were the specialty-specific “milestones” in resident training, using
exception rather than the rule. In 1996 the AAMC initi- nationally accepted benchmarks. An aggregate report on
ated the Medical School Objectives Project (MSOP), one trainees’ attainment of the milestones will comprise part
goal of which was to identify the desired characteristics of of the data on which program accreditation will be based
graduating medical students. Four attributes were defined: in the future (96a).
medical graduates should be altruistic, knowledgeable, The American Board of Medical Specialties (ABMS), in
skillful, and dutiful; and for each attribute, 6 to 11 learn- a joint initiative with the ACGME, similarly addressed the
ing objectives were listed. Objectives for the last attribute, public pressure to improve the caliber of medical care by
“dutiful,” include knowledge of epidemiology, psychoso- endorsing the same general competencies and developing
cial and cultural aspects of health, biomedical information requirements for maintenance of certification by board-
retrieval, and the organization and financing of health- certified physicians. (See the American Board of Medical
care. The MSOP report also emphasized the importance Specialties web-based version of their newsletter. Available
of measuring outcomes of learning objectives and called at http://www.abms.org/Maintenance_of_Certification/
for the development of improved assessment methods to ABMS_MOC.aspx, accessed June 18, 2013.) All medical
accomplish this, especially in areas of attitudes and values specialty boards now issue time-limited certification with
(58, 63). A second phase of the MSOP report addressed mandatory periodic recertification to demonstrate reten-
the role of informatics in the practice of medicine and the tion of professional credentials and licensure, documented
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 155

hours of continuing medical education, satisfactory rat- While students and graduate medical trainees are en-
ings on peer review, and knowledge of new developments countering rapid technical developments in diagnosis and
in medicine since the time of the original certification. therapy, technology also plays an increasingly important
Responding to concerns about quality of care and patient role in the educational process itself. Paper syllabi are
safety in training environments, in 2003 the ACGME ad- enhanced or replaced by web-based versions with illus-
opted duty hour standards as an accreditation requirement trations, interactive graphics, and self-testing (38). Virtual
for all specialty residency programs (http://www.acgme microscopy is replacing glass slides in web-based self-study
.org/acgmeweb/Portals/0/PDFs/jgme-monograph%5B1 tutorials and other learning venues (6, 42, 60, 102).
%5D.pdf, accessed June 18, 2013). The standards draw from
research on the effects of sleep deprivation and include, Training Physicians for the Managed-Care
among other specifications, a weekly 80-hour duty limit Environment
averaged over 4 weeks and a 24-hour limit on continuous Not surprisingly, medical schools and postgraduate train-
duty time. Recommendations from the Institute of Medi- ing programs have been relatively slow in adapting to the
cine for revisions of the duty hours regulations (http://www need to produce physicians prepared for practice in a
.iom.edu/Reports/2008/Resident-Duty-Hours-Enhancing managed-care environment (10, 11). Medical schools tra-
-Sleep-Supervision-and-Safety.aspx, accessed January 31, ditionally have emphasized diagnosis and treatment rather
2012) led to additional standards including enhanced su- than disease prevention and community healthcare. The
pervision requirements, required rest opportunities, and academic medical center environment, typically a tertiary-
16-hour duty limits for first-year trainees. The potential care facility with state-of-the-art technology, a faculty rich
benefits of duty hour limitations (improved patient safety in subspecialty expertise, and a heavy commitment to re-
and resident education) versus detrimental impact (loss search, is inherently not conducive to instructing trainees
of longitudinal experience in patient care, cost associated in a holistic approach to patients, outpatient care, and the
with hiring physician extenders) continue to be debated practice of cost-effective medicine. Nevertheless, there are
(15, 44, 59, 72). areas of overlapping interests in academic health centers
and managed care including high-quality care, customer
Incorporating New Knowledge and Training service, outcomes research, and preventive medicine (52).
Techniques into the Curriculum While in the 1960s approximately 50% of physicians
Traditional didactic, largely passive, approaches to medical were in primary care, by the mid-1990s, the proportion was
school teaching increasingly have given way to methods 30% (27). Over the last few years many medical schools
that emphasize active learning, including small-group ses- have implemented improved instruction in primary care,
sions, problem-based learning, case-based teaching, and ambulatory care, cost-effective healthcare, and disease pre-
the use of technology to provide immediate assessment vention (14). Increasingly, medical students are exposed
and feedback to the students (2, 18, 26, 46). An emphasis to clinical clerkship experience in managed-care settings
on problem-based learning and the development of critical (105). Some schools have actively addressed the perceived
thinking skills are felt by some to be essential in training shortage of generalist physicians by committing to a goal
students to be lifelong learners (69, 86). of 50% of their graduates entering generalist practice (69).
New domains of medical knowledge have emerged over A national demonstration project, Undergraduate Med-
the last two decades and are increasingly incorporated into ical Education for the 21st Century (UME-21) (78), was
medical school curricula. For instance, there is a growing funded through the Health Resources Services Adminis-
appreciation of women’s health needs beyond reproductive tration. Over a three-year period, 18 participating medical
medicine; many women’s health centers offer comprehen- schools implemented new educational strategies, includ-
sive primary care (106). Women’s longevity compared to ing a focus on training in primary care and ambulatory
that of men means that women will comprise the majority care and the expansion of clerkships or training oppor-
of patients in the aging U.S. population and will require tunities to managed-care organizations and community
medical care that incorporates emerging knowledge of health centers. This triggered curricular changes in 12.5%
gender differences in disease manifestations and response of medical schools (78).
to therapy (106). Provisions of the Balanced Budget Act of 1997 (24), al-
As complementary and alternative medical therapies though decreasing graduate medical education funding,
such as acupuncture, herbal medicine, and homeopathy allowed for reimbursement of resident training at certain
have become increasingly popular with the public, many off-site ambulatory settings, potentially facilitating the ex-
schools are recognizing the need to educate medical stu- tension of resident education to these sites.
dents about these approaches to prepare them to be in- With the emerging emphasis on health maintenance
formed consultants to their patients (32). and disease prevention, there is growing consensus that
156 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

medical trainees need to be educated in biostatistics, epi- GME (76). In 1992 Waxman and Rockefeller introduced
demiology, managerial skills, resource allocation, risk legislation mandating an allocation system that would
management, medical informatics, social and behavioral limit the number of first-year GME positions to 110% of
sciences, health outcomes, evidence-based medicine, and a the number of U.S. medical school graduates and stipulat-
population-based approach to healthcare (11, 26, 83, 105). ing that half of all these positions be in primary care. The
At the same time, there is an appreciation of the need to bill also provided for development of an “all-payer pool” to
improve trainees’ proficiency in physical diagnosis skills fund GME, essentially placing an assessment on all private
as one way to minimize overuse or inappropriate use of payers to contribute to the cost of training physicians (27).
resources (89). The latter concept continues to lack consensus. An inde-
The Patient Protection and Affordable Care Act, signed pendent advisory group, the Medicare Payment Advisory
into law in March 2010, provides for expanded choices of Commission (MEDPAC), was established by Congress in
medical insurance coverage and accountability of insur- the late 1990s to assess the physician workforce, funding
ance companies. Title V specifies initiatives to improve for international medical graduates, and a possible all-
access to healthcare services, especially for low-income, payer system for GME (76). The Balanced Budget Amend-
underserved, minority, and rural populations. These in- ment of 1997 (BBA), in part addressing the rising costs
clude the gathering of data related to healthcare needs, associated with healthcare, particularly in teaching hos-
increasing the healthcare workforce to meet these needs, pitals, and the perception of an oversupply of physicians,
and enhancement of education and training of healthcare capped the number of residents for purposes of Medicare
workers. There are provisions for matching funds, grants, reimbursement at 1996 levels (24).
and federally supported student loan funds and loan repay- In the last decade there has been increasing concern that
ment programs for qualifying institutions and individuals. the nation will face a shortage of physicians in primary care.
Incentives are directed toward the training of primary care Provisions of the Patient Protection and Affordable Care
health workers (including those in the fields of family med- Act are intended to address the need for an increase in pri-
icine, general internal medicine, and general pediatrics) mary care providers (see above). A conference of the Josiah
and the development of innovative approaches to clinical Macy Jr. Foundation, noting the projected shortage and
teaching, including the use of community-based settings. the imbalance in the current physician workforce favoring
Teaching health centers (community-based ambulatory pa- specialists over primary care providers, called for reform
tient care centers) can apply for grants that fund the devel- of graduate medical education, making recommendations
opment or expansion of accredited primary care graduate such as expansion of training sites outside the medical cen-
medical education programs (http://www.healthcare.gov/ ter, increased emphasis on population medicine and pro-
law/full/index.html, accessed January 18, 2012). fessionalism (including diversity and cultural competence),
exposure to multiple disciplines to enhance team-based
medical care, and greater flexibility in the length of gradu-
External Forces Impacting Undergraduate ate medical education (http://macyfoundation.org/docs/
macy_pubs/JMF_GME_Conference2_Monograph(2).pdf,
and Graduate Medical Education
accessed June 18, 2013).
Finding the Right Mix: How Many Physicians The recent national economic downturn and federal
Do We Need? budget deficit crisis threaten to impact graduate medical
During the last 30 years, many questions have been raised education. Entitlement programs including Medicare,
regarding overall physician supply, the proportion of gen- from which GME funding is derived, have been seen
eralist or primary care physicians, and the geographic as potential targets for deficit reduction (https://www
distribution of physician practices. From the late 1980s .aamc.org/download/253360/data/trippumbach.pdf, ac-
through the early 1990s, the overall number of trainees in cessed February 2, 2012).
graduate medical education (GME) programs in the U.S.
increased more than 15%. This was accompanied by an Current Challenges to Academic Medical Centers
increase in the proportion of international medical gradu- At the same time that curricular changes are being imple-
ates in the system (27). In 1986 Congress authorized the mented in medical schools, academic medical centers face
Council on Graduate Medical Education (COGME) to a financial crisis (81). Costs are higher in institutions pro-
evaluate the physician workforce as well as GME training viding graduate medical education compared with non-
and financing. The lack of regulation of the numbers and teaching hospitals (27), largely due to the additional time
specialist types of physicians being trained, coupled with involved and testing performed in a teaching situation, as
rising costs and the predicted insolvency of the Medicare well as the complexity of cases. Teaching hospitals typi-
trust fund from which most of the funding of GME is de- cally serve a greater number of Medicaid and uninsured
rived, prompted calls from Congress to establish limits on patients than do nonteaching hospitals, and increasing
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 157

numbers of patients are covered by managed-care plans. ■ Changes in demographics have changed the way medi-
In addition to placing a cap on the number of residents, cine and the laboratory function.
the Balanced Budget Act of 1997 decreased both direct ■ Evidence-based medicine emphasizes cost containment
(direct graduate medical education payment [DGME]) and quality of care.
and indirect (indirect graduate medical education [IME])
■ Clinical practice guidelines are one approach to stan-
Medicare reimbursements for GME. The bill also stipu-
dardize medical care.
lated reductions in the disproportionate share (DSH) pay-
ments traditionally made to teaching hospitals because of ■ Increases in medical malpractice awards impact medi-
the relatively large number of uninsured patients treated cal care.
at these institutions (24). However, the bill allowed for ■ New regulations and laws change the way medicine is
“carving out” of DGME and IME Medicare payments to practiced.
managed-care organizations and paying them directly to ■ Changes in the practice of medicine impact medical
teaching hospitals. Prior to this, managed-care organiza- student and resident training.
tions were not required to make payments to teaching
hospitals for their enrollees (11).
In addition to the current threat of decreased federal GLOSSARY
funding in response to the deficit crisis, recent changes in Accreditation Council for Graduate Medical Education
GME are a source of increased stress on academic medical (ACGME) Professional organization responsible for accred-
centers. Concerns have been expressed about the potential iting post–medical school training, encompassing more than
costs associated with duty hour limits, including costs of 7,000 residency programs in 110 specialty and subspecialty areas
hiring physician extenders (72). (www.acgme.org, accessed June 11, 2012).
Responses by academic medical centers to the changing American Board of Medical Specialties (ABMS) Organization of
environment have included adaptation to the increased 24 medical specialty boards certifying physicians (www.abms.org,
demand for outpatient services, marketing of the sophis- accessed June 11, 2012).
ticated technology and subspecialty expertise available at
American Society of Healthcare Risk Management (ASHRM)
teaching hospitals, consolidations or mergers of hospitals
Organization for healthcare risk management professionals
for cost-cutting and greater efficiency of services, and ef- (www.ashrm.org, accessed June 11, 2012).
forts directed at improving customer service (27, 66).
Association of American Medical Colleges (AAMC) Associa-
tion of medical schools, teaching hospitals, and academic soci-
Summary eties dedicated to improvements in medical education, research,
and healthcare (www.aamc.org, accessed June 11, 2012).
The vast changes that have occurred in the practice of
medicine over the last few decades reflect the need for cost Balanced Budget Act of 1997 (BBA) Package of spending re-
control within a system that focuses on quality and a low ductions designed to balance the federal budget by 2002. Changes
rate of errors. Managed care, which evolved as a means to in Medicare financing of graduate medical education (GME) in-
cluded a cap on the number of residents counted for reimburse-
achieve these goals, has truly changed the face of medi-
ment and reduction in indirect graduate medical education
cal practice in the United States. Along with these trends, payment (IME).
American healthcare consumers, equipped with more and
more information about their own healthcare, have placed Balanced Budget Refinement Act of 1999 Legislation that off-
increasing demands on the medical community. The roles set or revised some of the GME funding provisions of the BBA.
of increasing regulatory and legal scrutiny have helped to Case management The collaborative process by various members
shape our current healthcare system. To prepare future of the healthcare team to meet a patient’s needs and garner nec-
physicians, changes in medical and postgraduate medical essary resources to produce quality and cost-effective outcomes
education are preeminent. (http://www.cmsa.org/Home/CMSA/WhatisaCaseManager/
tabid/224/Default.aspx, accessed June 25, 2012).

KEY POINTS Clinical pathway Developed to reduce variation in care with the
intention of improving patient outcomes.
■ Major changes in the way medical care is delivered and
funded have had a profound impact on the laboratory. Clinical practice guidelines “Systematically developed statements
to assist practitioner and patient decisions about appropriate
■ Technology, including the World Wide Web, improves
healthcare for specific clinical circumstances” (http://www.nhlbi
laboratory turnaround time, communication of labora- .nih.gov/guidelines/about.htm#what, accessed June 25, 2012).
tory results, disease detection and treatment, the avail- They are used to create standard practice for situations that have
ability of information, patient/doctor resources, and all variability, such as rehabilitation protocols or complex medical
phases of physician training. illnesses.
158 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Clinical trial A research study that looks at a similar group of Graduate medical education (GME) Specialty or subspecialty
patients selected using strict criteria and assesses the impact of training occurring after medical school.
changes of single variables.
Healthcare Integrity and Protection Data Bank (HIPDB) Na-
College of American Pathologists (CAP) Association of patholo- tional data collection program mandated by Health Insurance
gists dedicated to fostering excellence in pathology and laboratory Portability and Accountability Act of 1996 (HIPAA) to combat
medicine. Recognized leader in providing laboratory inspection fraud and abuse in healthcare delivery. Collects and discloses ad-
and accreditation programs (www.cap.org, accessed June 6, 2012). verse actions against practitioners, including civil judgments,
Commission on Laboratory Accreditation (COLA) Adminis- criminal convictions, injunctions, federal or state licensing and
ters the CAP Laboratory Accreditation Program, which is ap- certification actions, and other adjudicated actions. (www.ncsbn
proved to inspect laboratories in lieu of the Centers for Medicare .org, accessed June 12, 2012).
and Medicaid Services (www.cola.org, accessed June 11, 2012). Health Insurance Portability and Accountability Act of 1996
Contract A legal agreement between two parties that can be en- (HIPAA) Legislation establishing a variety of health insurance
forced through legal channels and creates an obligation. coverage protections. Also known as the Kassebaum-Kennedy bill.

Corporate compliance program The development of effective Health Resources and Services Administration (HRSA) Agency
internal controls that promote adherence to applicable federal of the U.S. Department of Health and Human Services charged
and state laws and the program requirements of federal, state, with ensuring access to quality healthcare for uninsured and
and private health plans. The program is aimed at the prevention low-income populations (www.hrsa.gov, accessed June 12, 2012).
of fraud, abuse, and waste in these healthcare plans while at the Indirect graduate medical education payment (IME) Medicare
same time furthering the fundamental mission of all hospitals, payment to teaching hospitals to compensate for higher costs re-
which is to provide quality healthcare to patients. lated to severity of patient illness.
Council on Graduate Medical Education (COGME) Congres- Institute of Medicine Private, nongovernmental organization,
sionally authorized body charged with evaluating the physician associated with the National Academy of Sciences, whose mis-
workforce and graduate medical training and financing (http:// sion is to advance science and healthcare policy (www.iom.edu,
www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/index accessed June 12, 2012).
.html, accessed June 12, 2012).
Institutional review board (IRB) Reviews research proposals
Critical (clinical) pathways Standardized, multidisciplinary ap-
and monitors human research conducted in healthcare organiza-
proach to a specific problem. Traditionally more detailed than
tions; required for healthcare organizations receiving federal
practice guidelines, though the difference is not distinct.
funding for such research.
Direct graduate medical education payment (DGME) Medi-
Length of stay The number of days a patient is hospitalized for
care payment to teaching hospitals for costs directly related to
a specific diagnosis. This metric has been used by managed-care
training programs, including residents’ stipends, faculty supervi-
organizations to compare institutions and their utilization of
sion costs, and overhead.
services.
Disproportionate share payment (DSH) Payments by Medic-
aid (both state and federal funds) and Medicare to teaching hos- Liaison Committee on Medical Education (LCME) Accrediting
pitals to offset costs of treating relatively large proportion of authority for U.S. and Canadian medical schools (www.lcme.org,
uninsured patients. accessed June 12, 2012).

Downstream event monitoring Using patient outcomes in a Locum tenens A position, usually temporary, for a healthcare
critical time period following receipt of laboratory data to eval- professional, often in an underserved area.
uate the performance of the test or to evaluate the transmission Medical School Objectives Project (MSOP) AAMC project to ex-
of results. amine learning objectives and assessment methods in medical edu-
Evidence-based medicine The use and analysis of solid, tangi- cation (www.aamc.org/initiatives/msop, accessed June 12, 2012).
ble evidence leading to optimal medical decision making. Medicare Payment Advisory Commission (MEDPAC) Inde-
Functionality and interoperability The ability of a computer pendent advisory group assessing physician workforce and grad-
system to bring unrelated data together by integrating dispa- uate medical education funding. (www.medpac.gov, accessed
rate systems. June 12, 2012).
General competencies Six domains of competency adopted by the Miniaturization The use of smaller and smaller “micro” compo-
ABMS and ACGME as requisite for physicians: patient care, medi- nents, which allows the number of analytes in a device to in-
cal knowledge, interpersonal and communication skills, profes- crease, replacing larger analyzers. This facilitates point of care
sionalism, practice-based learning, and systems-based practice. testing.
General Professional Education of the Physician and College National Patient Safety Foundation (NPSF) Nonprofit organi-
Preparation for Medicine (GPEP Panel) AAMC project panel zation whose mission is to improve patient safety in the delivery
charged with developing improved educational strategies. of healthcare (www.npsf.org, accessed June 12, 2012).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 159

National Practitioner Data Bank (NPDB) Established through The Joint Commission (TJC) Formerly the Joint Commission
Title IV of Public Law 99-660, the Healthcare Quality Improve- on Accreditation of Healthcare Organizations (JCAHO). Pre-
ment Act of 1986, to collect reports regarding medical malprac- dominant accrediting body for hospitals and other healthcare
tice payments, adverse licensure actions, clinical privileges organizations in the U.S. TJC accreditation is recognized by the
actions, and professional society membership actions against CMS to achieve and maintain deemed status for Medicare reim-
healthcare practitioners. Restricts the ability of practitioners to bursement (www.jointcommission.org, accessed June 12, 2012).
move from state to state without disclosure of adverse actions or
Tort A civil act, intentional or accidental, from which injury oc-
incompetent performance (www.npdb-hipdb.hrsa.gov, accessed
curs to another person.
June 12, 2012).
Troponin A component of cardiac muscle. Blood levels rise af-
Nucleic acid testing (NAT) Testing that relies on measuring ter myocardial damage.
specific sequences of nucleic acid. This can lead to earlier detec-
tion of pathogens and malignancy recurrence. Undergraduate Medical Education for the 21st Century
(UME-21) National demonstration project funded by the
Office for Protection from Research Risks (OPRR) Section of Health Resources and Services Administration to foster medical
the Department of Health and Human Services now known as school training in primary care and in ambulatory care settings.
the Office for Human Research Protections (www.hhs.gov/ohrp,
accessed June 12, 2012).
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 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 163

APPENDIX 6.1 Web Resources

American Board of Medical Specialties The Chronicle of Higher Education

http://www.abms.org/News_and_Events/newsletters.aspx (accessed http://chronicle.com (accessed February 27, 2012)
February 22, 2012) A web-based version of a national weekly newspaper reporting
This section contains the web-based version of the organization’s news and information on all aspects of higher education.
newsletter.
Accreditation Council for Graduate Medical Education
http://www.acgme.org (accessed December 12, 2012)
National Guideline Clearinghouse™ (NGC)
www.guideline.gov (accessed February 22, 2012)
A public resource for evidence-based clinical practice guidelines.
The NGC is sponsored by the Agency for Healthcare Research and
Quality and provides a catalog of published guidelines.
Introduction
Changing Reimbursement Models
7 The Changing
Change from Traditional Indemnity to Managed-Care
Insurance • Four Stages of Managed-Care Market
Healthcare Environment
Development • Reimbursement Strategies in a
Managed-Care Market • Healthcare Stakeholders in
a Managed-Care Market Ann Harris and David S. Wilkinson
Impact of Healthcare Reform
Patient Protection and Affordable Care Act • Payment
Reform and Provider Reimbursement Strategies •
Current Trends and Issues with Healthcare Reform • OBJECTIVES
Hospitals and Laboratories: Concerns in Healthcare
Reform To provide a historical overview of reimbursement for laboratory services from
Changing Emphasis on Quality and Value
1969 to the present
Health Maintenance Organization Network To present an overview of healthcare reform and its impact on the industry
Management • Patient Management • Disease stakeholders
Management • Healthcare Reform: Demonstration
Projects To learn about special issues related to contracting for managed care, including
The Educated Consumer
prospective payment, capitation, and providing service with payment caps;
Baby Boomers and Generation Xers: the Educated to learn the risks related to each of these challenges; to discuss the challenges
and Savvy Consumer • Consumer-Driven Healthcare • ahead as the industry responds to healthcare reform
The Increasingly Litigious Environment To understand the impact of educated and informed consumers, patients,
Changing Technology providers, insurers, and employers on the delivery of healthcare; to learn how
Technological Advances • Direct Consumer Access • consumer-driven healthcare impacts the industry
Direct Access Testing •Advances in Genetic Testing
and Molecular Pathology • Personalized Medicine • To understand the impact of technological advances, home health devices, and
New Regulations to Address Changing Technology: genetic information; to learn how technology is driving personalized medicine
HIPAA • Impact of Reform on Electronic Health
Records and Meaningful Use To understand how society is becoming increasingly litigious; to learn about
the legal issues related to healthcare reform initiatives
Consolidation in the Healthcare Industry
Overview: Laboratories, Hospitals, Physician To learn how consolidation among providers and vendors drives reengineering
Practices, and Managed-Care Organizations • and restructuring; to understand how healthcare reform is fueling
Integrated Delivery Systems • Laboratories: Change consolidation among all stakeholders
from Revenue Centers to Cost Centers • Internal
Consolidation in Hospital Laboratories • Regional
Integrated Laboratory Networks
Strategies for Success in the 21st Century Nations once measured their national wealth in terms of the gold they were able
Strategic Redesign • Developing System-Wide
Thinking and a Common Culture • Differentiating a
to hoard. Then came the transition to products, and Gross National Product
Competitive Advantage • Training Adequate, High- became the measure of wealth. Now the move is on to information. It’s not as if
Quality Laboratory Professionals for the Future there were no value attached to information in the age of gold. Every university
Workforce • Moving from Top-Down Management standing today is a testament to the long lasting value of information and knowl-
to Bottom-Up Customer Focus • Evidence-Based edge. And gold has not lost its luster in an age of information. It’s simply a shift in
Medicine • Meaningful and Relevant Information
emphasis. Gold once predominated, then tangible goods, now information. Even
Summary if the Internet bubble bursts, this current shift in emphasis is likely to leave the
KEY POINTS healthcare landscape permanently transformed. Whatever happens with the In-
GLOSSARY ternet in healthcare, one truth will remain. It is at the interface between a patient
REFERENCES and a caregiver that the greatest opportunity exists for creating value in health-
APPENDIXES
care. The more technology can contribute to the quality of that interface, the more
valuable it will be.
D. Beckham (7)

I
Clinical Laboratory Management, 2nd Edition
n the early 1900s, hospitals performed most of the limited laboratory
Edited by L. S. Garcia healthcare testing for the community. By the late 1960s, the volume of
©2014 ASM Press, Washington, DC laboratory testing increased drastically, and freestanding commercial labo-
doi:10.1128/9781555817282.ch7
ratories emerged to capture much of the physician office and nursing home

164
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 165

markets. As the commercial laboratory market matured, physician, Paul Ellwood. The origin of the first health
laboratories faced declining profits and needed to reinvest maintenance organization (HMO) traces to the Rural
in new technology and automation. Local mom and pop Farmers Cooperative Health Plan in Elk City, Oklahoma.
laboratories became a prime target for acquisition by the The Ross-Loos Medical Group was founded as a tightly
larger national commercial laboratories, whose sophisti- controlled group model on the west coast as early as 1929.
cated, well-financed marketing and service strategies also From 1942 to the present, Kaiser of California has been
put the local hospital laboratories at a competitive disad- the dominating leader. Following endorsement by the
vantage. Physician loyalty to the local hospital laboratory federal government in the HMO Act of 1973, the growth
was often undermined by the lure of profit received by of managed care has not been as rapid as originally pre-
marking up their patients’ laboratory tests and then send- dicted. The managed-care market penetration in the U.S.
ing them out to be performed at low-cost reference labora- healthcare system increased more than twofold from 28
tories. Before 1984 it was common practice for physicians million enrollees in 1987 to a high of 80 million in 1999
to sell laboratory testing that they purchased from a refer- but has slipped in the last decade to 68 million enrollees
ence laboratory at wholesale pricing to patients and third- in 2011. Additional information can be found in the fact
party payors at retail prices. sheets located at Managed Care On Line’s website (http://
The Tax, Equity, Fiscal Responsibility Act (TEFRA) www.mcol.com, last accessed October 1, 2012). The evo-
enacted in 1982 mandated prospective reimbursement lution of managed care has witnessed a change in struc-
for inpatient services rendered to Medicare beneficia- ture from being nonprofit to for-profit organizations in
ries, subsequently implemented under diagnosis-related order to expand access to capital markets. The infusion
groups (DRGs). The Deficit Reduction Act (DEFRA) of of federal and private funding and the heightened con-
1984 authorized the Medicare Clinical Laboratory Fee cern over inflation in healthcare were the early stimuli
Schedule (CLFS) and mandated that the laboratory per- for growth. Today, the HMO concept has become firmly
forming the outpatient testing, not the physician that or- established and is a significant segment of the healthcare
dered the testing, bill Medicare for the services directly. industry. Future growth of managed care and response by
Hospitals were not equipped to measure or account for the stakeholders is dependent on the competitive environ-
the decreased revenue. Cost shifting the Medicare costs to ment, increased physician supply, and the constraints of
other payors was a temporary remedy. The first Medicare the federal budget (53).
CLFS, enacted in 1984, established the national limita- The diverse and aging U.S. population places increasing
tions amounts (NLAs). demands for long-term care for chronic illnesses in cost-
The Clinical Laboratory Improvement Amendments of reduced settings. The underinsured and uninsured popu-
1988 (CLIA ’88) further impacted the environment. The lations have grown exponentially.
costs associated with implementing CLIA performance
standards and proficiency testing increased by 67% (50). • In 2002, approximately 45 million U.S. citizens were
Then, in 1989, the Omnibus Reconciliation Act (OBRA) without healthcare coverage.
was passed and included legislation that prevented physi- • By 2008 the number had grown to 46.3 million.
cians from creating “shell laboratories” that contracted out • In 2009 the number had grown to 50.7 million.
the majority of testing and marked them up for direct bill- • In 2010, the number reached 52 million.
ing. Laboratories were required to perform at least 70% of
all testing on-site to be able to bill for referred testing. The The increase in numbers can be attributed to the loss of
Stark legislation prohibited physicians with ownership in a health insurance coverage due to the recession, the failing
laboratory from referring testing under self-referral legis- economy, and the prolonged recovery, according to Bloom-
lation. OBRA ’93 enacted further reductions in the Medi- berg News (http://www.bloomberg.com/news/2011-03-16/
care fee schedule ceiling amounts (50). americans-without-health-insurance-rose-to-52-million
Today, laboratories continue to lobby for the passage -on-job-loss-expense.html, last accessed October 1, 2012).
of direct billing legislation to mandate that the laboratory The costs of the Medicare program during the past 10 years
provider universally bill third-party payors for services. have more than doubled, from spending $212 billion in
Many states have passed such legislation, and some in- 1999 to spending $499 billion in 2009.
surers have adopted the ruling using a cost-plus formula The U.S. healthcare system across all industry segments
based on the Medicare CLFS. Table 7.1 provides a quick (including providers, payors, pharmaceuticals, life sci-
reference and a historical overview of legislation impact- ence, government, employers, employees, and patients)
ing clinical laboratories from 1965 to the present. is undergoing dynamic changes in conjunction with the
The concept of prepaid medical service dates back to new healthcare reform act. Efforts to balance cost, qual-
the early 1800s. The term managed care, as we know it, ity, and access will become increasingly more difficult to
didn’t gain national attention until coined by a Minnesota manage when faced with reductions in reimbursements
166 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.1 Legislation and regulation concerning healthcare and clinical laboratories
Date Legislation title/name Main feature
1965 Social Security Act Authorized Medicare and Medicaid programs
1967 Clinical Laboratory Improvement Act (CLIA) Government assumed licensing and regulatory authority over some clinical
laboratories
1970 Occupational Safety and Health Administration Agency created to establish and enforce worker safety
(OSHA)
1972 Social Security Amendments Added disability and end-stage renal disease (ESRD) coverage to Medicare
Office of Inspector General (OIG) program
42 CFR § 1001.952 Anti-Kickback Act first enacted
Defined elements of safe harbors
1973 Health Maintenance Organization (HMO) Act Required large employers to offer one federally qualified HMO as alterna-
tive to traditional indemnity
Migration from fee-for-service reimbursement to capitated payments
1976 Office of Inspector General (OIG) Established to identify and eliminate fraud and abuse in HHS programs
1977 Healthcare Financing Administration (HCFA) Administers the Medicare program
Regulates lab testing on humans (except research testing)
1979 National Committee on Quality Assurance (NCQA) A private not-for-profit organization that assesses and reports the quality of
managed-care providers
1982 Tax Equity and Fiscal Responsibility Act (TEFRA) Mandated the prospective payment system (PPS) for pathology services
covered under Part A
1983 Clinical Laboratory Competitive Bidding Demonstration Project first
proposed
1984 Deficit Reduction Act Enacted direct billing requirement for clinical laboratory tests. Only laboratories
that performed testing for Medicare beneficiaries could bill for these services
National laboratory fee schedule implemented
1985 Balanced Budget and Emergency Deficit Control Known as Gramm Rudman Hollins; established limits on federal spending;
Act placed cap on Medicare reduction at 2% per year
1986 National limitations amounts established
1986 Omnibus Budget Reconciliation Act (OBRA)
1986 OBRA Public Law 99-509 Adjustments in PPS and disproportionate share; direct billing for outpatient
services
1987 OBRA Public Law 100-203 Physician mandate to accept assignment; $6 billion in Medicare reductions
1989 OBRA Public Law 101-239 Lab fee schedule reduced from 100 to 93% of national median payment cap;
$2.7 billion in Medicare reductions; prohibited shell laboratories
1990 OBRA Public Law 101-508 Lab fee schedule reduced from 93 to 88% of national median payment cap;
enacted the three-day window (72-hour rule) eliminating the ability to bill
for certain outpatient services within three days of a hospital admission
1993 OBRA Public Law 103-606 Lab fee schedule reduced from 88% to 76% of national median payment cap
1988 Clinical Laboratory Improvement Amendments Established laboratory regulation based on testing complexity (waived,
(CLIA ’88) moderate, or high) and extended federal regulatory authority to all labora-
tories performing clinical laboratory testing for diagnosis and management
of human disease
1989 Office of Inspector General (OIG) Issued fraud alert for shell laboratories
Stark I The original Stark law (Stark I), enacted in 1989, prohibited only self-
interested referrals for clinical laboratory services
1990 Shell Lab Rule Adopted Laboratories billing Medicare for services may not bill for referral testing
unless 70% of testing is performed in-house
1991 Occupational Safety and Health Act (OSHA) Added regulation on the manner in which laboratories handle and ship
infectious substances and biohazard wastes
1992 HCFA, now the Center for Medicare and Medicaid Physician fee schedule moved to relative value units and fully implemented
Services (CMS) resource-based relative value system (RBRVS) by 1996
CLIA ’88 final regulations became effective
Established categories for certificate of waiver laboratories and provider–
performed microscopy procedures
1993 Stark II Congress broadened the Stark law to include physician self-referrals to an
expanded set of “designated health services”
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 167

Table 7.1 (continued)

Legislation and regulation concerning healthcare and clinical laboratories
Date Legislation title/name Main feature
1996 Health Insurance Portability and Accountability Act Preexisting conditions; established medical savings accounts; protection of
(HIPAA) Public Law 104-191 personal health information; mandated administrative simplification for
healthcare transactions
1997 Office of Inspector General (OIG) Model Compliance Plan for Clinical Laboratories
1997 Balanced Budget Act Established Medicare + Choice (Medicare Part C); negotiated rule making
and national coverage decisions became effective
Public Law 105-33 Changed reimbursement for skilled-nursing beds from prospective pay-
ment to consolidated billing and resource utilization groups
42 USC § 1395 y (a) (1) (A) Mandated that physicians provide diagnostic information when ordering
lab tests to be billed by a clinical laboratory
Created provisions for Medicare reimbursements for only reasonable and
necessary services
Administrative simplification required CMS to establish five regional
carriers
1999 OIG Special Advisory Bulletin 42 USC § 1320 a-7a (b) Gain-sharing provisions prohibit hospitals from making payments to physi-
cians as an inducement for patient referrals
2000 Proposed BBA implementation 346 ambulatory payment classifications
Benefits Improvement and Protection Act of 2000 42 CFR 410, 411, 414 Pathology Technical Component; proposed coverage
for annual pap and pelvic, colonoscopy, and mammography
2001 Public Law 106-430: Needlestick Safety and Preven- OSHA revised the blood-borne pathogen standard January 2001 to include
tion Act enforcement procedures and exposure control plans for occupational
exposure
2002 Medicare Policy Hospital laboratories performing outreach must determine Medicare sec-
ondary payor status every 60 days; two standard advance beneficiary notice
(ABN) forms approved
2003 Medicare Modernization Act Congress commissioned the Institute of Medicine (IOM) to align perfor-
mance with payment in Medicare; IOM supports a U.S. healthcare payment
system that pays for performance (P4P)
2005 Deficit Reduction Act Section 5001 (b) Act required HHS to develop a plan to implement a budget-neutral value-
based purchasing program for Medicare
2006 Genomics and Personalized Medicine Act First introduced in 2006, the fourth version in 2010 failed to pass
2008 Medicare Improvements for Patients and Providers Required HHS to develop a transition plan for providers receiving Medicare
Act Section 131 (d) fee for service to P4P
2009 The American Recovery and Reconstruction Act Allocated $1.1 billion to comparative effectiveness research; comparative
effectiveness provides health plans with framework for utilization review,
provider profiling, safety and quality assessment, and medical management
2009 Health Information Technology for Economic and Provides $19 billion in incentives for the adoption and use of health in-
Clinical Health Act (HITECH) formation technology by Medicare and Medicaid providers and eligible
professionals
2010 The American Recovery and Reinvestment Act Includes the HITECH Act and its funding
(ARRA)
2010 Patient Protection and Affordable Care Act The payment reform provisions include value-based purchasing, account-
(PPACA) able care organizations, bundled payments, and the medical home and
target improvements in quality and efficiency
2012 Middle Class Tax Relief and Job Creation Act Clinical laboratories are targeted to receive a 17% reduction in payments by
2016 undergoing a rebasing reduction imposed by Congress

from Medicare mandates to implement meaningful use further expanded the authority for demonstration projects
and conversion to ICD-10 coding. Since 1967, the Medi- nationwide without approval from Congress or the Secre-
care program has had the responsibility and authority to tary of Health and Human Services (66).
conduct demonstration projects to examine how health- In 2009 the United States spent more on healthcare per
care is delivered and reimbursed. The Patient Protection capita as a percent of the gross domestic product (GDP)
and Affordable Care Act (PPACA) created the Center for than any other country, reaching a record high of $2.5
Medicare and Medicaid Innovation operating within the trillion and 17.6% of the GDP. Despite this statistic, the
Centers for Medicare and Medicaid Services (CMS) and United States has documented a consistent downward
168 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

trend in the overall rate of healthcare spending growth (in- Changing Reimbursement Models
cluding inpatient stays, pharmaceuticals, health insurance,
Change from Traditional Indemnity
and administration) over the last eight years, down from
to Managed-Care Insurance
9.5% in 2002 to 4.0% in 2009. The trend continued in 2010,
yielding a 3.9% decline, which marked the lowest level of Traditional indemnity insurance pays claims for sub-
spending growth in the past 50 years (13). This trend is at- scribers/beneficiaries to healthcare providers (hospital
tributed to a combination of factors: inpatient, outpatient, and provider services claims) on a
fee-for-service (FFS) basis. There is little or no control over
• The 2008 recession’s impact on wages, credit, net quality, appropriateness of care, or cost of the services.
worth, and economic uncertainty The goal of managed-care insurance is to keep members
• Changes in the design of employer health plan benefits healthy by integrating the selected provider arrangements
• Record high percentages of people receiving public as- with quality improvement and utilization review using fi-
sistance and people uninsured nancial incentives to control costs and utilization. Table
7.2 is a comparative summary of traditional indemnity and
• The shift from inpatient to outpatient care managed-care insurance.
Other factors that may influence healthcare spend- Managed care, by definition, seeks to enhance value to
ing and performance in the years ahead include (i) the its customers by lowering overall costs while maintaining or
new PPACA regulations and the impact that shifting improving the quality of care. Managed-care organizations
reimbursement and incentives may have; (ii) the ongo- (MCOs) are under pressure to control costs in unconven-
ing trend of increased consolidation industry-wide, in- tional ways. Tools used to achieve their financial goals are:
cluding pharmaceuticals, health plans, and hospitals;
(iii) the gradual shift away from volume-based fee-for- • Negotiate preferred prices for service (hospital per di-
service reimbursement to a model that pays for value with ems, fees, case rates).
built-in incentives for innovation, efficiency, and quality • Limit services rendered to only those that are medi-
outcomes; and (iv) the impact of consumers who make cally necessary by requiring referrals, preauthorization
healthcare buying decisions based on “value-added” ra- for inpatient admissions, precertification for costly
tionale (13). procedures, adhering to practice guidelines, and active
On June 28, 2012, the Supreme Court upheld the case management.
PPACA regulations in a 5–4 vote, stating that the PPACA’s
• Ensure that the services provided are the most
mandate that most Americans obtain insurance or pay a
cost-effective (least expensive but medically useful
penalty was duly authorized by Congress’s power to levy
alternative).
taxes and regulate interstate commerce. At the same time,
the court substantially limited the PPACA law’s expan- • Direct patients to an urgent-care setting versus emer-
sion of the Medicaid program, believing that Congress had gency room visits, outpatient surgery center versus
overstepped its constitutional authority by coercing states hospital inpatient facility, and home care and rehabili-
to participate in the expansion by threatening loss of exist- tation services versus acute care.
ing federal payments to the program. • Provide financial incentives to providers.

Table 7.2 Traditional indemnity versus managed-care insurance: a comparisona

Traditional indemnity Managed care
Patients have few restrictions on choice of providers Sets explicit standards for provider participation and restricts patient
access to providers within the network
Reimbursement is fee for service based on units of service or may be Pays on contract negotiated rates:
fee schedule at a percent of charges Per member per month (PMPM)
Per diem
Contractor’s fee schedule
Finance and service delivery function independently of one another Integrates finance and access to delivery systems
Role of insurer is limited to paying claim for clinical services Role of insurer expanded to provide healthcare management
Plan assumes all financial risk Shares financial risk with providers
Few incentives to control costs Offers incentives to control costs
Plan does not measure quality or appropriateness of services Participates actively in quality assurance measurements and utilization
control
a
C. Haller, presented at the Executive War College, New Orleans, 1997
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 169

• Perform proactive medical management for the pa- • Increased sales to small business.
tient’s care. • Managed-care market penetration between 10 and
A provision of the HMO Act of 1973 required that 20%.
federally qualified HMOs charge enrollees an across-
the-board community-based rate rather than employer- Stage 3. As the market begins to consolidate, the HMOs
specific rates that were reflective of the lower utilization gain momentum.
in HMOs by the younger healthier patients who typically
• Two or three HMOs dominate the market.
enrolled in the plans. Federal qualification is generally per-
ceived by both insurers and employers as a sign of qual- • Managed-care market penetration approaches 20–30%.
ity. HMOs (as defined under Subpart A, 110.102 of the • Health plans become more sophisticated in tracking
Federal HMO Regulations) must offer access to certain and reporting data.
basic health services, including diagnostic and therapeutic • Group purchasers and employers, concerned over es-
services, inpatient hospital services, short-term rehabilita- calating costs per covered life, offer incentives for em-
tion, emergency care, short-term outpatient mental health, ployees to enroll in managed-care plans.
drug abuse and addiction services, diagnostic laboratory,
• PHOs become more formal and sophisticated at
radiology and home health services, and preventive health,
credentialing.
such as prescription services, dental care, and vision care
(53). Community-based rating creates a global approach to • Small business becomes a target segment.
health problems and forces weaker facilities to close. Some
argue that community-based rating impeded the HMOs’ Stage 4. As the market stabilizes and matures, rivalry
ability to increase their market share. Using experience among HMOs and healthcare providers becomes hyper-
rating creates a competitive environment that makes it dif- competitive.
ficult for small businesses to compete against the stronger • Managed-care market penetration grows to over 30%.
players (6).
• Purchaser groups and employers become more inter-
ested in outcomes on their population.
Four Stages of Managed-Care Market Development
• PHOs become aggressive and accept full capitated
Managed-care markets evolve slowly over time. Purchas-
risks.
ers and providers differ in their development stages and
the degree of managed-care sophistication according to • Small business becomes a competitive target segment.
the actual managed-care market penetration. • Two or three MCOs dominate the market (17).

Stage 1. During the first stage of managed care the market Types of managed care organizations. To meet the de-
is generally an unstructured, traditional environment. mands of the stakeholders for geographic service cover-
age, the large and small employer demands for choice,
• Purchaser groups (or employers) offer mostly standard and patient demands for access, MCOs have used several
indemnity products. provider network models and healthcare plan options to
• MCOs that exist are typically preferred provider orga- attract a larger market share (Table 7.3).
nizations (PPOs).
• Maintain satisfied employees with freedom of choice. Key elements of managed-care contract negotiation. All
• Limited sales to small business. providers of services within a network must be held ac-
• Low market penetration: 0–10% of true managed care. countable for knowing the associated costs to perform the
services, to evaluate the risks of capitated payments, and
to monitor utilization to maximize efficiencies. You can’t
Stage 2. As the market begins to coalesce, health main- manage what you can’t measure. Across the continuum of
tenance organizations (HMOs) gain endorsements and care, providers must accurately forecast revenues against
some consumer acceptance. expenses.
• Physicians form loose independent physician associa- • Price. Although a major influence in the contract deci-
tion (IPA) networks. sion, price is not the only determining factor. Other
• Hospitals develop informal linkages to physicians factors that influence the contract award follow.
through physician hospital organizations (PHOs). • Scope of services. Providers must be able to provide the
• Employers offer little incentive for employees to switch scope of services and procedures that meet the needs
to managed-care plans. of the insured population. Demonstrating the capacity
170 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.3 Types of managed-care organizations and services

Acronym Type of managed-care organization Definition
ASO Administrative services only An insurance carrier or independent organization that handles the administra-
tion of claims and benefits for a fee for self-insured groups
EPO Exclusive provider organization A network contracted with directly by a payor, usually a self-insured employer or
third-party administrator
HMO Health maintenance organization A managed-care organization that contracts with employers and providers to
provide comprehensive health coverage to enrollees
Group model The HMO contracts with physician practice groups to provide services; referred
to as a “closed panel,” as enrollees are limited to group providers only
Network model The HMO contracts with one or more medical groups for services
Staff model The HMO contracts with a health system’s medical staff for services; providers
may be employees of the MCO; referred to as a “closed panel,” as enrollees are
limited to staff providers only
IPA Independent physician organization A provider organization that contracts with physicians to provide services to a
plan’s members at a negotiated cap rate or fee for service
ISN Integrated service network Specialty networks have developed to provide coverage for a geographic area for
care specific to their specialty (e.g., mental health services)
LSO Laboratory services organization A laboratory management group that administers contracts for a group of
laboratories
MSO Management services organization An organization that administers organizational and practice management for
physician providers
PHO Physician hospital organization An organization acting as a joint venture between a hospital and its medical staff
to gain bargaining power with HMOs and PPOs or directly with EPOs
PPO Preferred provider organization An MCO which provides enrollees with freedom of choice. A selective contract-
ing agreement with a specific network of hospital and physician providers at
reduced or negotiated rates. Enrollees have financial incentives to use PPO
providers in the network.
POS Point-of-service plan A managed-care plan that combines the features of prospective prepayment and
fee-for-service insurance payments; the enrollees can elect to use the network or
opt out of the network with a sizable copayment as a disincentive

to perform and having the necessary infrastructure required for the Healthplan Employer Data and In-
also influence the contract decision. formation Set (HEDIS) reporting by their accrediting
• Service. Providers must demonstrate a commitment to agency, the National Committee on Quality Assur-
flexible service strategies. ance (NCQA).
• Convenient access. Providing convenient patient access
to services for laboratory, radiology, pharmacy, provid- Reimbursement Strategies in a Managed-Care Market
ers, and procedures drives consumer satisfaction. Payment strategies and associated risk. Managed-care
• Geographic coverage. Healthcare providers should products have become a dominating force in the health-
have an established network of physicians, outpatient care market over traditional indemnity insurance. As
service centers, and couriers to meet the demands of a MCOs continue to negotiate contracts that are heavily
defined service area. risk based, the providers are put at increased risk for
• Quality. Providers must be able to demonstrate quality cost and utilization control. In a risk contract, the pay-
and consumer satisfaction using surveys, report cards, ment received is not tied to actual utilization or costs of
and utilization management based on developed clini- services. Risk sharing arrangements should be carefully
cal pathways. negotiated and should include safety net and stop loss
provisions.
• Financial stability. Providers must be able to assess
their exposure to risk and sell the managed-care orga- • Safety net provisions limit the amount of risk as-
nization on their financial and operational abilities and sumed. Provisions should include:
stability to accept and deliver in such contracts. • Aggregate payments will be no less than the equiva-
• Informatics. The enterprise must be able to generate lent discounted FFS payment.
and analyze data in a format that meets the managed- • Aggregate payments will be subject to a percentage
care organization’s needs for utilization information increase when utilization targets are exceeded.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 171

• Set established thresholds will allow for discounted • To calculate per member per month:
FFS, when thresholds are exceeded for specific ser-
Total revenue or expense or
vices such as extended inpatient stays, costly tests,
utilization units for the period
and costly implants. = PMPM
Number of member months for same period
• Stop-loss limits are provisions typically used in PHO
models where gatekeepers and institutions are at risk • To calculate member months in a given period of time:
for exposure to high-cost procedures (i.e., transplants). (Average number of members for each month in a given
The stop-loss limits are defined as dollars per covered period) × (Number of months in period) = Member
member per month or year (18). months for period

Managed-care reimbursement models with low risk. The Percentage of premium. An arrangement in which the
following reimbursement models are low risk. provider is paid a percentage of the premium billed or col-
• Fee-for-service (FFS). The reimbursement method is lected by the managed-care organization for the services
based on payment according to a fee schedule (often rendered and covered by the rate. Assessing the number of
as blended fees or the managed-care organization’s in- patients, the population type, and the actuarial data is vital.
ternal fees) for services rendered. It is critical that the Include a payment minimum in the negotiation.
fee schedule being used be identified, including geo-
graphical and annual adjustments. The Medicare fee Fixed rate. Reimbursement agreements that cover all
or the resource-based relative value system (RBRVS) services and costs associated with a specific diagnosis or
schedule is often used as a reference point in a procedure. Knowledge of the case mix, average cost per
negotiations. case, and procedures included in the rate are necessary
to negotiate the contract rate. The contract defines the
• Discounted FFS. The provider agrees to accept an FFS
payment process based on receipt of a claim (reference
payment that is a percentage of the usual, customary,
19, p. 9).
and reasonable (UCR) fee schedule.
• Cost-plus. A method of rating often used to determine Performance-based risk for service.
a reimbursement rate based on the cost experience Withhold. A payment method that withholds a per-
plus an administrative mark-up. centage of a negotiated payment in a reserve fund for spe-
• Per diem. The negotiated daily payment rate for deliv- cialty provider contracts. Periodically, if negotiated quality
ery of all inpatient hospital services provided regard- and cost criteria have been met, the portion of the fee that
less of the actual services rendered. These rates are was withheld is returned according to the risk-bearing
often specific to the type of care for general medical, terms of the contract.
surgical, and intensive care.
• Carve outs. Services and procedures that are defined by HMO reimbursement models with high risk.
contract to be separate and apart from the negotiated Contract capitation is based on experience. There are
capitation rate that are typically paid on an FFS basis. three types of payments:
• Capitation is paid based on qualifying member
Managed-care payment methods with moderate associ- types rather than on a random patient population.
ated financial risk. Capitation is an agreement in which The provider is only at risk for the costs associated
a provider is paid a predetermined amount per member with a referral and not for the number of referrals.
per month in exchange for providing services included • Global fees are paid for an entire episode of care.
in the rate. The rates are typically adjusted by age and sex
• Monthly fees are paid for a period of time and a
and are adjusted according to population groups: commer-
specific condition.
cial, industrial, prison, and Medicare. Rates should all dif-
fer based on actuarial data. Enrollment guarantees assure
Combined health system capitation (hospital & physician).
the provider that until the targeted membership rates are
reached the provider will receive FFS payments. Capitated • Global capitation (caregivers, hospital, ancillary)
payments are made prospectively to the provider at the be-
ginning of the month for the total members prior to any Case rate. Per case also bears risk, as the costs of ser-
utilization or actual services rendered. Adjustments are vices could exceed the payment per case.
made the following month based on change in member-
ship. Since the costs for the services rendered may exceed Shared risk funds. Physician groups, pharmacies, and
the capitation payment, the provider is at risk. hospitals share the financial risks and potential profits.
172 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Noncovered services. Services that are not covered need Healthcare Stakeholders in a Managed-Care Market
to be identified during contract negotiation to establish Plan members. Each patient covered by a managed-care
the method for billing and payment. In the managed-care health plan is called a member. The healthcare plan counts
environment, patients cannot be billed for services unless them as covered lives. The health plan identifies the enroll-
defined by the policy. Having the patient sign a waiver of ees to the providers as the subscriber, or the insured. When
liability prior to services ensures that the patient agrees to the subscriber’s policy covers other family members, they
accept financial responsibility for the noncovered service are identified as dependents. Both the subscriber and the
and, according to the insurer’s policies, allows the provider dependents are considered members. A statement of cov-
to then bill their UCR amounts to the patient. erage is issued to the insured under a group contract that
outlines the benefits and principal provisions and is called
a certificate of insurance or evidence of coverage statement.
Laboratory service contract strategies. There are five ba-
sic strategies adapted by HMOs. The selected strategy typi- Purchasers. Healthcare purchasers include large self-
cally generates the most cost savings for the organization. insured employers, coalitions of small employers, as-
The five strategies are: sociations of trade or professional groups, integrated
networks, physician groups, hospital systems, or
• Statewide or regional capitation contracts with a na- individuals.
tional commercial laboratory Employers. Escalating costs and changes in healthcare de-
• Inclusion of laboratory services within a global capita- livery have forced employers to examine their benefits
tion rate (which includes all medical services) paid to a package and role in providing comprehensive health-
health system composed of hospitals and physicians care benefits. Employers purchase healthcare for their
• Inclusion of laboratory services within a physician employees for three reasons: as a form of compensa-
group capitation tion, to enhance their health status, and to keep them
productive at work. Employers (who are classified as
• Capitation paid to a local clinical laboratory, a subcon-
large employers under the HMO Act) that offer health-
tractor to a national laboratory, or a network of local or
care coverage are mandated to offer their employees a
regional laboratory providers
managed-care plan as an option to traditional indem-
• FFS payments based on the HMO’s set fee schedule. nity insurance.
The advantages of negotiating a statewide contract with Providers. Hospitals and physicians have had to change
an exclusive laboratory provider are compelling. the way they traditionally delivered healthcare in re-
sponse to the market changes driven by managed-care
• The strategy shifts the risk to the national laboratory. penetration.
• The data needed for HEDIS reporting and financial Community organizations or federally qualified healthcare
analysis resides in a single vendor database. centers (FQHCs). Rural healthcare providers are chal-
• The national lab promotes consistent quality and cor- lenged by the same forces as urban healthcare provid-
relation of results across the service area. ers, and they continue to rely heavily on government
programs to provide geographic coverage with a short-
• National laboratories negotiate on volume, and larger
age of physicians.
HMOs usually negotiate a lower cap rate.
Government-sponsored plans. These include Medicare,
• Contract administration is more efficient using a
Medicaid, the Federal Employees Health Benefits Plan
single vendor, minimizing claims processing, medical
(FEHBP), the U.S. Postal Service (USPS) Employees
management, and customer service issues.
and Retirees, the Department of Defense, the Depart-
A hospital laboratory that serves as a managed-care ment of Veterans Affairs, Indian Health Service, and
contractor or subcontractor for laboratory services should the Department of Justice.
be cautious. Critical knowledge needed to negotiate the Insurers. These include commercial carriers, Medicare
contract includes laboratory costs, laboratory utilization contractors, third-party insurance carriers, and third-
patterns, and patient volumes (70). The commodity pric- party administrators who market their indemnity and
ing of healthcare services results in regional competition managed-care products to government, groups, pur-
with increased discounting practices based on HMO re- chasers, employers, and individuals.
ferral volume. The intense competition forces physician
groups, hospitals, clinical laboratories, and other health- Cost sharing. Patients are generally responsible for pay-
care providers to evaluate their ability to participate and ing some portion of their healthcare costs. Cost sharing
compete (101). is a strategy used by MCOs and large employer groups to
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 173

control utilization of services by the enrollees. Frequency individual health reimbursement account (HRA) to pay
of services accessed is generally inversely proportional to for certain allowable medical expenses. An HRA is an
the cost-sharing rate strategy. In a low cost-sharing plan account offered to employees and retirees, funded from
there is generally no deductible, and a flat copayment is a portion of the health plan’s premium, and can be used
required for physician and outpatient services. Plans with for payment of qualified medical expenses including
high cost-sharing strategies have deductibles and copay- deductible limits before the health plan starts to pay. A
ments similar to traditional indemnity insurance products. healthcare flexible spending account (FSA) is funded by
Point-of-service (POS) plans use a combination of the two employee-specified pretax contributions that are placed in
risks. Low cost sharing applies if the enrollee uses network an employer-held account to be used for qualified medical
providers, and high cost sharing applies with a percent- expenses not otherwise covered by the health plan and is
age coinsurance when the enrollee goes out of the network subject to a federal “use it or lose it” provision. Employees
(reference 19, p. 11). may opt to pay the deductible with funds from the HSA
The various types of payments for the patient’s financial or HRA or pay out-of-pocket and allow the savings to ac-
responsibility are described below (reference 93, p. 39–41): cumulate for future medical expenses. Visit http://www
.planforyourhealth.com/open-enrollment/ for more in-
• Deductible. A payment defined by the policy that is a formation (last accessed, October 1, 2012).
percentage of the allowed charges for a procedure or
service that must be paid by the member before the Insurance premium pricing cycle. Traditional indemnity
insurer will assume liability for the balance. The de- and managed-care insurance premiums drive the profits
ductible often varies by contract and group. for the companies. If the premiums are too low, even the
• Copayment. A specified dollar amount for the medi- best healthcare plans will fall short on profits. On the other
cal service that is defined by the policy coverage and is hand, a plan that has high premiums is not guaranteed
made by the member prior to receiving services. profits. The pricing cycle begins when a plan wants to ex-
• Coinsurance. In the indemnity market, when a mem- pand its market share and lowers its premiums. Competi-
ber is covered by a secondary insurance policy, the tive plans respond by matching the premium to maintain
secondary payor is a coinsurer. To avoid false claims market share and position. A premium price war similar
charges, multiple claims for the same service should to those in petroleum products and airfares ensues. Plans
not be filed with both primary and secondary insurer may move toward multiyear contracting. The terms of
(the coinsurer) until denial is received from the sub- the multiyear contract make it extremely difficult to solve
scriber’s primary coverage. In the managed-care mar- the problem even when it is apparent. Finally, when the
ket, coinsurance is a percentage of the cost of covered marketplace in general is recording significant losses, an
services paid by the patient. The coinsurance is calcu- insurer decides to change its pricing strategy, raising the
lated after any copayment or deductible is applied. The premium, and the competitive players follow the leader.
cost-sharing ratio varies by contract and group. The increases in premiums continue until all the insurers
• Laboratory copayment and coinsurance. In legislation are generating profits, and then the cycle starts over again.
enacted by Congress in 1984, which created the Clini- Additional information can be found in the fact sheets
cal Laboratory Fee Schedule, the language explicitly located at Managed Care On Line’s website (http://www
removed all “copayment and coinsurance” terms and .mcol.com, last accessed October 1, 2012).
conditions pertaining to the clinical laboratory setting.
Now, once again, the government is considering a 20% Impact of Healthcare Reform
coinsurance for all Medicare Part B services in an ef-
Patient Protection and Affordable Care Act
fort to generate savings. This will merely shift the cost
burden to the beneficiaries already burdened by higher The Patient Protection and Affordable Care Act (PPACA),
premiums and out-of-pocket expenses and threaten signed into law in March 2010, enacted comprehensive re-
the patients’ ability to access services. form to health insurance by holding insurance companies
more accountable in an effort to lower healthcare costs,
Employers are using another strategy to regain control guarantee more healthcare choice, and enhance the qual-
over their healthcare costs by offering a medical savings ity of care for all Americans by providing small businesses
account that shifts the control of healthcare dollars. This with a tax credit to provide coverage. Starting in 2014, it
forces the employees, as subscribers, to make decisions will include a tax credit to those needing help in purchasing
about how they spend their healthcare dollars. An em- insurance, representing the largest middle class tax cut in
ployee’s health savings account (HSA) consists of funds healthcare history. It is projected to reduce premium costs
that can be a combination of employer, employee, or fam- for millions of families and small businesses who haven’t
ily member contributions that are placed in an employee’s had access or means in the past, ultimately impacting more
174 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

than 30 million Americans currently without healthcare 85% of premium dollars be spent on healthcare services
coverage. For additional information about the Affordable and quality improvement.
Care Act, go to http://www.healthcare.gov/law/full/index The mandate contains numerous provisions extending
.html (last accessed October 1, 2012). and expanding coverage via enhanced access to care.
Beginning in 2011, the law contains a number of new
• States may opt to oversee the Pre-Existing Condition
consumer protections:
Insurance Plan that provides coverage to individuals
• Provides an easy-to-use website where consumers can who have been uninsured for at least six months due
compare health insurance coverage options and pick to a preexisting condition.
the policy and coverage that works best • Young adults may remain on their parents’ plan until
• Prevents insurers from denying coverage to children they turn 26 years of age.
under the age of 19 with a preexisting condition • States will receive two more years of Children’s Health
• Prohibits insurers from denying payment or rescind- Insurance Plan (CHIP) funding for coverage for chil-
ing coverage for errors or technical mistakes on dren not eligible for Medicaid.
applications • Americans between the ages 55 and 65 who retired
• Prohibits insurers from imposing lifetime dollar limits early without employer-sponsored insurance before
for coverage on essential benefits like hospitalization they were eligible for Medicare pay higher premiums
• Eliminates annual limits imposed by insurers for es- that deplete their savings. PPACA funds a $5 billion
sential benefits by 2014 program to provide employer-based plans with a way
to provide continued coverage to such employees and
• Provides consumers with an avenue to appeal coverage
their spouses and dependents.
determinations or claims, adding an external review
process • States will receive matching funds for covering addi-
tional low-income individuals and families who previ-
• Funds state grants to establish consumer assistance
ously were not eligible for coverage under Medicaid.
programs to help navigate the private insurance system
Citizens who earn less than 133% of the poverty level
• Prohibits insurers from refusing to sell or renew poli- are eligible to enroll in Medicaid.
cies or to charge higher rates by discriminating against
• The Community First Choice allows states to offer
preexisting conditions or gender
home and community-based services to disabled indi-
• Ensures continued coverage for individuals participat- viduals, rather than institutional care in long-term care
ing in clinical trials (LTC) and intermediate-care (ICF) nursing facilities.
PPACA also includes provisions for providers to im- • The mandate promotes individual responsibility, re-
prove quality and lower costs. An estimated 4 million quiring that individuals who can afford coverage buy
seniors reached the gap in Medicare prescription drug basic health insurance or pay a fee to offset the costs of
coverage known as the “donut hole” in 2010. These seniors uninsured citizens.
received a $250 rebate check as they reached the gap. Dur- • It ensures free choice to use employer funds to pur-
ing 2011, seniors that reached the coverage gap received a chase a more affordable plan offered by HIEs.
50% discount on brand-name prescription drugs covered
under Part D. Over the next 10 years, seniors will receive The law includes a plan to strengthen access to primary-
additional savings on brand-name and generic drugs until care doctors, nurses, nurse practitioners, and physician
the gap is closed in 2020. A supplemental health insurance assistants through scholarships and loan repayments and
policy sold by private insurance companies designed to forgiveness for providing healthcare services in under-
pay for healthcare costs and services that are not paid for served areas or areas with a shortage of professionals. Since
by Medicare and any private health insurance benefits is 68% of medically underserved communities are in rural
known as Medigap. America, where it is difficult to attract and retain health-
All new insurance plans must include preventive care providers, PPACA includes increased reimbursement
screening for mammograms and colonoscopies without payments to these providers and has earmarked funding to
charging a deductible, copay, or coinsurance. Beginning construct or expand community health centers to serve an
in 2011, annual wellness visits and personalized preven- additional 20 million patients in the future.
tion plans for Medicare beneficiaries will be covered.
Provisions to hold insurers accountable for unreasonable Defining accountable care organizations. Over time, health-
rate hikes include elimination as a participant in the new care providers have reported that the main barrier to im-
health insurance exchanges (HIEs) targeted to be opera- proving care coordination is the lack of information about
tional by 2014. Furthermore, the new law requires that services provided to a patient across the delivery system.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 175

An accountable care organization (ACO) is composed of episode of care, which has fragmented care by the limited
a group of providers and suppliers of services who work coordination across the system. Payment is based on how
together to coordinate the care provided for a Medicare much instead of how well the provider performs. Bundled
beneficiary. The ACO must strive to replace the current payments compensate the entire team and provide incen-
fragmented coordination of care under a fee-for-service tives for efficiency and quality of care. The Department of
system with goals to deliver “patient-centered care” that Health and Human Services (HHS) and CMS are partner-
is seamless and high quality. CMS encourages all provid- ing with providers to develop four models for bundling
ers in good standing to participate in an ACO. The final payments for services.
rule allows some critical access hospitals, federally quali-
• Model 1 includes retrospective payment for acute hos-
fied health centers (FQHCs), and rural health clinics to
pital stays only.
participate independently in the Shared Savings Program
(61, 62). An ACO must apply to CMS to participate in • Model 2 includes retrospective payment for both the
the Shared Savings Program. Acceptance is dependent on physician and hospital during an acute stay plus post-
the ability to meet eligibility criteria, serve at least 5,000 acute services.
fee-for-service Medicare patients, and sign a three-year • Model 3 includes retrospective payment for postacute
participation agreement. The ACO must have a legal en- services, excluding the acute episode.
tity for distribution of shared savings payments. They must • Model 4 includes prospective payment for physicians
have processes that demonstrate evidence-based medicine and hospitals in the acute stay (15).
and collect data to measure cost and quality of care using
the established patient-centered criteria. Medicare will For additional information please refer to Table 7.4. The
continue to pay individual providers for a specified list Dark Daily Report recently pointed out that the term
of services under a fee-for-service arrangement. CMS has “other services” included in both models 2 and 3 of the
developed benchmarks for ACOs based on performance bundled payments program actually include clinical labo-
measures that further qualify receipt of shared savings. ratory; durable medical equipment (DME); prosthetics,
orthotics, and supplies (POS); and Part B drugs.
The patient-centered medical home (PCMH). The Ameri- The bundled payment demonstration projects overall
can Academy of Pediatrics (AAP) first introduced the demonstrated savings for the Medicare program. However,
medical home concept in 1967 when referring to a central the demonstration projects that paid providers a bonus
location for archiving a child’s medical record. In a 2002 based on their quality scorecard ultimately demonstrated
policy statement, the AAP expanded the definition to in- very little savings to Medicare. Other joint initiatives in-
clude these operational descriptions: accessible, continuous, clude Partnership for Patients to improve patient safety
comprehensive, family-centered, coordinated, compassion- across the healthcare continuum and Pay for Performance
ate, and culturally effective care. The American Academy of used for dialysis centers and inpatient stays (66). Physicians
Family Physicians (AAFP) in 2004 and the American Col- are also allowed to voluntarily participate in gain-sharing
lege of Physicians (ACP) in 2006 developed models for im- programs. Organizations must disclose physician involve-
proving patient care called the “medical home.” ment, cost savings processes, and the payment methods
being used to document how care has been redesigned to
Payment Reform and Provider improve quality and reduce costs. Gain-sharing payments
Reimbursement Strategies may not exceed 50% of the equivalent fee-for-service pay-
The increasing need for payment reform is primarily driven ments that the organization would have otherwise received
by the trend toward “value-based purchasing” over the for- under bundled payments (73).
mer “services-based purchasing” environment. During the
past decade, the strategy to integrate quality performance Medicare Shared Savings Program. The Shared Savings
with reimbursement incentives has migrated from theory Program rewards voluntary participation in ACOs that lower
to common practice. PPACA specifies that organizations growth in healthcare costs while meeting performance stan-
cannot participate in multiple “shared savings” programs dards for quality care and putting the patient first. Under the
from CMS. However, CMS has issued a clarification in the program, providers and suppliers participating in an ACO
application process that states that the bundled payment will continue to be paid in a fee-for-service arrangement but
program does not constitute a shared savings program and will also be eligible to receive a shared savings payment if
that organizations that form ACOs may still participate. the ACO meets quality performance measures and demon-
strated cost reductions under the performance-based pay-
Bundled payments for care improvement initiative. In the ment methodology. In the Shared Savings Program model,
current system, Medicare makes separate payments to pro- reimbursement is paid to the ACO by the payor to reward
viders for the services delivered to a beneficiary for a single cost reductions in aggregate care expenditures. The funds
176 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.4 Key features of bundled payment modelsa

Model 2: inpatient stay
Model 1: inpatient plus postdischarge Model 3: postdischarge Model 4: inpatient
Model feature stay only services services only stay only
Eligible awardees Physician group practices Physician group practices Physician group practices Physician group
Acute care hospitals paid Acute-care hospitals paid Acute-care hospitals paid practices
under the IPPS under the IPPS under the IPPS Acute-care hospitals
Health systems Health systems Health systems paid under the IPPS
Physician-hospital Physician-hospital Long-term care hospitals Health systems
organizations organizations Inpatient rehabilitation Physician-hospital
Conveners of participating Postacute providers facilities organizations
healthcare providers Conveners of participating Skilled-nursing facilities Conveners of participat-
healthcare providers Home health agency ing healthcare providers
Physician-hospital
organizations
Conveners of participating
healthcare providers
Payment of bundle Discounted IPPS payment; Retrospective comparison Retrospective comparison Prospectively set
and target price no separate target price of target price and actual of target price and actual payment
FFS payments FFS payments
Clinical conditions All MS-DRGs Applicants to propose Applicants to propose Applicants to propose
targeted based on MS-DRG for based on MS-DRG for based on MS-DRG for
inpatient hospital stay inpatient hospital stay inpatient hospital stay
Types of services Inpatient hospital services Inpatient hospital and phy- Post-acute-care services Inpatient hospital and
included in bundle sician services Related readmissions physician services
Related post-acute-care Other services defined in Related readmissions
services the bundle
Related readmissions
Other services defined in
the bundle
Expected dis- To be proposed by appli- To be proposed by appli- To be proposed by To be proposed by
count provided to cant; CMS requires mini- cant; CMS requires mini- applicant applicant; subject to
Medicare mum discounts increasing mum discount of 3% for minimum discount
from 0% in first 6 months 30–89 days postdischarge of 3%; larger discount
to 2% in year 3 episode; 2% for 90 days or for MS-DRGs in ACE
longer episode demonstration
Payment from CMS Acute-care hospital: IPPS Traditional fee-for-service Traditional fee-for-service Prospectively established
to providers payment less predeter- payment to all providers payment to all providers bundled payment to
mined discount and suppliers, subject to and suppliers, subject to admitting hospital;
Physician: traditional fee reconciliation with prede- reconciliation with prede- hospitals distribute
schedule payment (not termined target price termined target price payments from bundled
included in episode) payment
a
See reference 2

will be redirected to the primary-care physician (PCP) or willing to accept change and adapt will survive, while others
an extension of the practice (nurse practitioners, physi- may dissolve (16).
cian assistants, etc.) for the patient’s coordination of care.
Specialty providers may be excluded from participating in Current Trends and Issues with Healthcare Reform
shared savings even though they may have a role in the out- Traditional indemnity. Since 2004, the managed-care
come. Proactive negotiation will be critical for a specialist market has seen a shift in enrollment away from the re-
to participate in shared savings. Much like payments from strictions of the traditional managed-care HMOs toward
managed-care organizations, payments to specialists may be more popular PPOs. Between 1999 and 2004, PPO en-
limited to a proportionate share from a fixed fund or risk rollment grew from 43 to 58%, while HMO subscrib-
management pool based on volume of services and number ers decreased from 30 to 27%. The cost to provide care
of specialty providers in the pool. However, as revenues per per subscriber in a PPO approaches $268 more than the
procedure increase, volume should decrease and the margin HMO subscriber costs, forcing employers to look for
should improve as costs are eliminated. The groups who are ways to curtail rising costs. Large employers are showing
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 177

an increasing interest in consumer-driven health plans plan benefits by making lifestyle changes that reduce
(CDHPs). Insurers have responded with two versions for their health risks.
employers to select. 2. Use support services and coaches for guidance to increase
the probability that enrollees will utilize education pro-
• CDHPs give consumers choice in determining their
grams on wellness and disease management for chronic
premium and their financial liability. Employers en-
conditions to maintain a better health assessment.
courage staff to participate as a partner in reducing
3. Create an organizational culture with leaders commit-
costs, and their premium costs are reduced by $1,400
ted to changing the enrollee’s idea of individual well-
per year per employee.
ness, by recognizing that habits become customs and
• High-deductible health plans, marketed as either an are embedded in the culture. Personal behavior
HMO or a PPO product line, have varying out-of- changes do not happen overnight.
pocket deductibles and limits for individual and fami-
lies (see Table 7.5). Employees’ health behaviors impact both the costs of
benefits and productivity. Organizational change requires a
Managed-care market for laboratories. Since 2006, the blend of persistence, perseverance, and leadership to achieve
managed-care laboratory market has been primarily continuous improvement. Purchasing effectiveness is often
dominated by Laboratory Corporation of America (Lab- enhanced through partnerships with other purchasers, given
Corp) and Quest Diagnostics, while regional independent an appropriate commitment to development time. Many
and hospital laboratories continue to hold and even gain employer worksite health promotion and wellness programs
market share, according to a Chi Solutions Survey (http:// (WHPs) report positive returns on the investment (ROI)
www.chisolutionsinc.com, last accessed October 1, 2011). with reductions in healthcare costs, absenteeism, and work-
LabCorp holds a major 10-year contract agreement with man’s compensation claims (91). To measure success, WHPs
United Healthcare (UHC) that should be up for renewal in have at least one year to measure reduced employee risks and
2016. However, LabCorp continues to use a high-risk pric- at least three years to measure improved health and financial
ing strategy that sacrifices short-term profits in exchange outcomes. Laboratory outreach programs have an oppor-
for increased “pull-through” testing growth opportunities tunity to develop a WHP health fair package for large and
over time. Quest has taken a more defensive position to small employers to offer onsite point-of-care wellness test-
compete in a competitive managed-care market that is ing annually. For more information, visit http://www.uswwa
consolidating by focusing on a strategy that differentiates .org/files/2010/11/USWorkplaceWellnessAllianceLetterand
their service so as not to compete on price alone. While the Attachments052009.pdf (last accessed July 15, 2013).
UHC contract with LabCorp is exclusive, UHC still opts The increasing demands for more accountability are forc-
to contract with hospitals and regional and local reference ing health plans to continuously determine and improve the
laboratories in certain localities. Consultants with Labora- value of their provider network. Competition may emerge
tory Billing Solutions encourage their clients to focus on a between managed care, delivery systems, and ACOs, as con-
value-added service strategy to offer insurers and provid- sumers have more insurance options available. Health plans
ers who depend on analytical data to track patient care and should follow the lead of purchasers that buy based on value.
depend on disease management information including Sharing risks between the health plan and the provider net-
high-risk symptoms that could lead to chronic conditions work should be coupled with sharing of data to improve
with long-term increased costs of care (58). provider performance to add value across the industry to
the purchasers, providers, payors, and patients (83).
Employers and employees. Healthcare reform has forced
employers to target the behaviors of their employees, their Hospitals and Laboratories: Concerns
employees’ dependents, and their covered retirees using a in Healthcare Reform
new technique known as “consumer engagement strate- Hospitals. Faced with Medicare reductions, cuts in Medicaid
gies” via a three-tiered approach: programs, and an exponential increase in uncompensated
1. Offer financial and nonfinancial incentives to hold en- care, hospital operating margins are different in 2012 than
rollees accountable for maximizing health and financial they were 10 years ago. The shift from fee for service and vol-
ume-based measures to accountable care organizations and
quality-based measures will force hospitals to either cut costs
Table 7.5 High-deductible health plan (HDHP) deductibles and or create new revenue streams to remain solvent. The follow-
annual limits ing strategies may offer a more profitable operating margin:
HDHP Minimum deductible Annual limits
• Focus on the entire continuum of care including ad-
Individual $1,000 $ 5,000
mission, service, discharge planning, postacute care,
Family $2,000 $10,000
and follow-up.
178 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• Align efforts of hospitals and physicians to schedule • Emerging era of personalized medicine with clini-
and have patients attend post-acute-care visits, as re- cians who need assistance in understanding and using
admissions have a negative impact on the bottom line. molecular diagnostic laboratory testing and payors at-
• Maintain a sound relationship with payors, bench- tempting to control molecular test utilization.
marking and renegotiating managed-care contracts This shift in dynamics is forcing the industry to focus on
to eliminate underpayment for services, as 35% of value that could be defined as measurable patient outcome
hospital net revenues generally come from private per unit of resources utilized. The new industry business
insurers. metric will be based on value. To create a value-based lab-
• Research opportunities for new service lines to in- oratory service strategy, directors must understand what
crease market share with an improved revenue stream. value means to healthcare industry stakeholders and ex-
At the same time, evaluate current service lines for op- amine the opportunities, features, and benefits of reinvent-
portunities to eliminate the hemorrhage from shrink- ing a value-driven laboratory service that offers clinical
ing returns. diagnostic information that improves care and adds value
• Control costs of human resources by cross-training to patient outcomes using both traditional and emerging
employees to cover in areas of short staffing as needed. IT delivery systems. Laboratory directors should examine
Use metrics (such as “dollar per patient day”) to moni- costs and develop innovative pricing models to capture
tor shifts and trends in the labor force. new sources of revenue by developing partnerships with
healthcare providers to coordinate care (36).
• Partner with vendors to negotiate price controls that
reduce supply costs and eliminate excess inventory
using just-in-time supply delivery where it makes Ensure equitable reimbursement for laboratory testing.
sense. Include physicians in the cost-conscious strate- According to Jen Bowman, Vice President for Policy and
gies for supplies. Regulatory Affairs with the American Clinical Laboratory
• Improve operations in the emergency department Association (ACLA), clinical laboratories are targeted to
(ED) and the operating room. Hospital EDs handle receive a 17% reduction in payment from Medicare by
increasing numbers of uninsured patients daily that 2016, resulting from cuts related to PPACA and a rebas-
are probably eligible for a publicly funded program. ing reduction imposed by Congress in the Middle Class
Financial screening, at the point of entry, is crucial to Tax Relief and Job Creation Act of 2012. Laboratories have
insuring reimbursement for services. received a zero or negative update in the CLFS in 14 of
• Develop and implement chronic care programs for the past 22 years. Since 1995, clinical laboratories have
asthma, cardiovascular disease, diabetes, and hyper- received a cumulative 7.7% percent increase in Medicare
tension. Collect data to mitigate costly chronic care reimbursements while during that same period:
issues before they become long-term health conditions. • The Consumer Price Index (CPI) increased 42%.
• Evaluate benefits and savings from outsourcing ser- • Inpatient hospital payments increased 51.4%.
vices such as laundry, housekeeping, food, mainte-
• Outpatient hospital payments increased 35.6%.
nance, and even nurse education.
• Physician payments increased 27.9%.
• Adopt a “go green” strategy to reduce dependence on
fossil fuels. Hospitals can expect a return on this in- Clinical laboratories must partner with and engage their
vestment in seven or more years (34). communities to influence Congress not to mandate fur-
ther reductions in reimbursements (82).
Laboratories. Rampant changes in policy and purchasing Although required to submit diagnosis codes on all
and scientific developments are driving the transformation electronic claims and most paper claims to third-party
of the healthcare industry and are creating a major shift in payors, clinical laboratories are indirect providers and are
dynamics, and the clinical laboratory industry must adapt. dependent on healthcare providers to supply the neces-
The primary drivers of the change include: sary diagnosis codes when ordering laboratory testing (2).
The primary reason for laboratory services claim denials
• Payment reform that is shifting away from FFS to and rejections can be attributed to insufficient diagnosis
value-based purchasing and risk contracting. The coding, and when coupled with the transition to the new
CLFS reimbursements are being reduced annually, and ICD-10 coding, laboratories should plan for a significant
payors are putting payment caps on new diagnostic reduction in cash flow. Adoption of the new ICD-10 code
test pricing. set will require substantial time for planning, development,
• Healthcare delivery reform based on providers’ coordi- education, testing, and implementation, as the project is
nation of care and population management. not about billing as much as it is about information. The
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 179

Table 7.6 Changes in code sets a means to assess managed-care plans. The 50 standards
Changes ICD-9-CM ICD-10-CM considered in the NCQA evaluate quality improvement,
Number 13,000 68,000 physician credentialing, member’s rights and responsibili-
of codes ties, preventive healthcare, utilization management, and
Digits 3–5 digits 3–7 digits medical records. HEDIS, first published in 1991, is a set
First digit: alpha First digit: alpha of standard performance measures used to compare the
Digits 2–5: numeric Digit 2: numeric quality of health plans and requires MCOs to measure and
Digits 3–7: alpha or numeric report performance to allow competing plans to be rated
on a standard set of criteria (see Table 7.7). The NCQA uti-
lizes the accreditation and HEDIS reporting requirement
current ICD-9 diagnosis classification system is completely to publish report cards on managed-care health plans (C.
restructured and will require complex cross-mapping as Haller, presented at the Executive War College, New Or-
shown in Table 7.6. leans, 1997).
On April 17, 2012, HHS published a proposed rule
that would delay the compliance date for the Interna- Impact of healthcare reform. In November 2011, the
tional Classification of Diseases, 10th edition, Diagnosis NCQA initiated an accreditation program for ACOs (35).
and Procedure Codes (ICD-10) from October 1, 2013, to The program introduction gives credence to ACO adoption.
October 1, 2014. The ICD-10 compliance date change is The new program is making forward strides and progress
part of a proposed rule that adopts a standard for a unique throughout the healthcare industry. The NCQA evaluates
health plan identifier (HPID), adopts a data element that participating organizations in the following categories:
would serve as an “other entity” identifier (OEID), and
• ACO organization and operation
adds a National Provider Identifier (NPI) requirement.
For more information, refer to http://www.cms.gov/ • Patient access to providers
Medicare/Coding/ICD10/index.html? redirect=/ICD10/ • Primary care centered on the individual patient
(last accessed May 31, 2012). • Case management
• Care coordination and transitional care
Changing Emphasis on Quality and Value • Patient rights and responsibilities
Value-based healthcare models share the following com- • Performance reports and quality improvement
mon elements: management of distinct patient popula-
NCQA accreditation offers patients assurance that the
tions; delivery of coordinated care through integrated
ACO is focused on their care and also assists payors and pro-
networks of providers; focus on patient outcomes using
viders in aligning their partnerships. The program also pro-
evidence-based practices; use of health information tech-
vides private and government payors with tools that allow
nology for measuring, managing, and reporting quality;
access to information about ACO performance and link it to
and focus on costs of providing healthcare instead of re-
ductions in itemized fees. Statistical data from the CDC
show that chronic diseases (such as diabetes, obesity, and Table 7.7 HEDIS performance criteria developed by the
heart disease) account for 75% of healthcare costs and can NCQA for rating MCOs
be directly linked to lifestyle and poor health habits. Of Effectiveness of care
adults aged 20 or more, 32% are overweight and 34% are Immunizations (child, adolescent, adult)
obese. More than 133 million Americans (or 45% of the Breast and cervical cancer screenings
Prenatal care (postdelivery care)
population) have at least one chronic disease. Heart attack treatment
Eye care for diabetics
Health Maintenance Organization Plan for smokers
Network Management Mental illness follow-up
National Committee on Quality Assurance (NCQA). The Laboratory data reporting: glucose and glycohemoglobin
(HgbA1C), cholesterol testing, and pap smears
government, public health agencies, employers, patients,
Access and availability of care
and purchasers of healthcare coverage and services de-
Patient satisfaction
mand efficiency and demonstrated quality. To that end,
Costs of care
managed-care organizations seek accreditation from the
Stability of the health plan
NCQA, established in 1979. The NCQA is a nationally rec-
Informed choice for patient healthcare
ognized accreditation organization that includes rigorous
evaluation of the health plan and the management of the Utilization of services
delivery network. Stakeholders use NCQA accreditation as Health plan descriptive information
180 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

payment. Providers and organizations that seek NCQA ac- These methods provide an interdisciplinary focus to
creditation include providers in group practices, networks of identify the expected outcomes, the processes for resource
individual practices, hospital and provider partnerships and management, or methods that lead to improved quality
joint ventures, publicly governed entities that work with pro- and cost effectiveness. Use of the tools should never pre-
viders to arrange care, and provider health plan partnerships. clude clinical judgment (D. L. Davis, L. Connelly, and V.
Fuldauer, presented at the Clinical Laboratory Manage-
ment Association Annual Conference, 1998). Utilization
Quality management. Quality management or quality as-
management processes monitor the frequency and utiliza-
surance policies ensure that members have access to health
tion of healthcare services to ensure that the care received
services based on established standards of care in the com-
is efficient and cost effective, administered at the correct
munity. Structured care methodologies (SCMs) are tools
level, and does not use unnecessary services. Table 7.8 out-
used to identify best practices, facilitate standardization,
lines some of the quality management processes used by
and provide a mechanism for variance tracking, outcomes
managed-care organizations.
measurement, and outcomes management. The SCM tools
include standards of practice, guidelines, protocols, algo-
Medical management and cost control. Medical manage-
rithms, and critical pathways.
ment is the use of organized medical care systems and a
• Standards of practice provide a baseline for the quality routine, preventive care approach to help subscribers avoid
of care delivered to the patient and relate care to the health problems rather than treating them after they occur.
operational process. Plan members select a participating PCP, or gatekeeper,
• Guidelines are systematic statements prepared by pro- who oversees and approves the medical services for the
fessional groups to assist practitioners and patients in patient. Whenever a patient requires more technical or
making specific clinical decisions about care. specialized treatment, the PCP issues a referral that rec-
ommends to the HMO that the patient see another par-
• Protocols are formal guidelines that detail specific
ticipating HMO provider or specialist for services. Before
clinical therapeutic intervention for health problems
certain expensive outpatient procedures are performed,
within a defined population.
the provider must seek preauthorization (a preservice re-
• Algorithms are binary decision trees that combine pa- view) from the health plan to ensure that the services meet
tient response to intervention with other information the criteria for medical necessity, thereby ensuring that
to guide stepwise treatment of a specific condition. payment will be received for the service provided. If the
• Critical pathways are written criteria to guide care member needs to be admitted, the health plan may require
based on standards of practice by delineating necessary a preadmission review or precertification to ensure that
treatment and facilitating appropriate use of resources. the service meets criteria for medical necessity and that the

Table 7.8 Quality management tools used by MCOs

Tool Management target Purpose or focus
Quality assurance Profiling encounter data and claims Data analysis
Chart audits Health plan, providers, facilities
Surveys Providers and members for incident reporting and
problem resolution
Utilization management Preauthorization Providers must seek approval prior to performing
Precertification certain procedures or admission
Concurrent review Review cases concurrent with ongoing care
Case profiling Analysis of cases as they occur
Outcomes Record end result By provider
By procedure
By clinical guidelines
Demand Member services Requests for clinical information
Access to MCO triage by nursing
Request for patient education resources
Disease (case and outcomes Specific diseases Claims analysis by procedure
management) Patient and provider education
Coordination of care across continuum (hospital,
pharmacy, lab, physician)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 181

services are performed in the most cost-effective setting Screening for possible disease is as much a part of an
(reference 93, p. 74–75). Medical directors at managed- annual check-up as taking a medical history or giving a
care organizations evaluate several parameters to help en- physical exam. Outcome research combines studying the
sure quality: cost, resource utilization, provider profiling, actual practice, with the medical exam and the medical
practice guidelines, and outcome studies. Clinical practice record to uncover the factors (such as the patient’s health,
guidelines may assist healthcare providers in preventing, demographics, time of last exam, professional experience,
diagnosing, and treating medical conditions. gender, reasons for ordering tests, and test expectations)
that influence the healthcare provider or the patient dur-
Patient Management ing an office visit. The research provides a look at test
An outcome is defined as a measured change or event that effectiveness, not just efficacy. The value of a laboratory
affects the status of a patient during a defined period of test is measured by whether it changes the likelihood of
time (for example, death, the onset or disappearance of disease in conjunction with the clinician’s estimate of the
symptoms, discharge, readmission, complications, or di- probability of disease (65).
agnosis). “Our reimbursement system focuses on the ‘right In addition to database repositories, new technology re-
price’ and on volume . . . We need a system that rewards ferred to as data mining shows promise for obtaining new
providers with good outcomes and those that implement knowledge in future research. Outcome research seeks to
safety systems,” according to Margaret Amringe from the quantify both the benefits and the costs associated with
Joint Commission on Accreditation of Healthcare Organi- introducing new technology. Economic pressures to de-
zations (now The Joint Commission [TJC]) (99). crease costs of healthcare will impede the introduction of
new technology, unless it can be justified by demonstrat-
Outcome research. Outcome research is a formal study ing improved patient outcomes or financial performance.
into relationships between treatment and effects. It mea- Laboratory managers will become stewards of the human
sures the impact of medical management in terms of pa- and capital resources moving forward (99).
tient well-being or financial performance. This research
in the clinical laboratory requires a systematic collection Outcome management. Outcome management is a proac-
of data that is best accomplished in conjunction with a tive concept closely aligned with utilization management and
broader health services research effort that includes a mul- continuous quality improvement. Outcome management
tidisciplinary team of laboratorians, clinicians, adminis- applies theory, philosophy, and continuous quality improve-
trators, and statisticians (99). ment (CQI) tools to a healthcare treatment or procedure to
In the laboratory, test efficacy is measured based on measure or determine the effectiveness of the treatment or
whether or not a patient’s management is influenced by the procedure being evaluated. Using multidisciplinary teams,
test result. Test effectiveness is a measure of whether the test outcome management studies are performed on a specific
changes the patient’s outcome. The prevalence of disease patient population. The analysis includes both concurrent
is affected by the demographics of the patient population and aggregate data about specific processes rather than the
(age, socioeconomic status, ethnic background), which in entire project. The team should have a physician member
turn influence the predictive value of a given test in a par- to champion effective clinical leadership in implementing
ticular population. the findings. Teams must collectively analyze the process,
identifying the best practice, then streamline the process by
P sensitivity
PV (+) = eliminating variations in practices from provider to provider,
[(P × sensitivity + (1 − P) × (1 − specificity)]
and finally educating the physicians, staff, and patients using
where PV (+) is the predictive value of a positive test (+), outside sources as benchmarks. The clinical maps, protocols,
P is the prevalence of disease in the studied population, guidelines, and algorithms developed by these teams are re-
sensitivity is positivity in disease, and specificity is negativ- ferred to as multidisciplinary care plans, as defined in Table
ity in health. The predictive value of the test influences the 7.9. Focusing on the high-cost, high-volume, or high-risk
outcomes analysis of the cost/benefit ratio. populations will yield a bigger impact on future outcomes.
The predictive value of a test performed in the commu- The results of the data analyzed will only be effective if the
nity PCP office varies from the predictive value of the same data collected can be substantiated and is credible for use in
test performed in an academic tertiary-care medical center comparative assessments at a later time (95).
where the patients tend to be at higher risk for disease (99).
The purpose of routine laboratory testing should not Outcome-based measures. In a constantly changing health-
simply be to detect abnormalities but also to improve care environment undergoing reform that purports to
health through diagnosis and treatment of detected con- reward value and quality, outcome-based measures and
ditions. Case finding is an important tool in preventive quality improvement are essential. The increasing demand
medicine that screens asymptomatic patients for disease. for collection of high-quality data to support measurement,
182 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.9 Clinical pathways

Pathway Definitions Objectives
Standard of care treatment A general or specific medical or mental health treatment To standardize the medical care and treat-
guideline guideline that specifies the appropriate approach to treat- ment within a practice or healthcare facility.
ment based on scientific evidence and collaboration
between medical or mental health professionals involved in
the treatment of a patient with a particular condition.
Clinical guideline Clinical guidelines are used to identify, summarize, and To standardize medical care, improve quality
evaluate the highest-quality evidence and most current of care, and reduce exposure to risks for pa-
data about prevention, diagnosis, prognosis, and therapy, tients, providers, insurers, and health plans.
including dosage of medications, risk-benefit analysis, and To achieve balance between cost of care and
cost-effectiveness. They define and integrate the identified clinical effectiveness.
decision points with the respective plan of action, best prac-
tices, and clinical judgment and experience of practitioners.
Some guidelines contain recommended decision trees or
algorithms. Many place treatment alternatives into catego-
ries to help providers decide which treatment plan to use.
Algorithm A technique for standardizing decision making and improv- To systematize or standardize clinical behav-
ing the technical quality of care that provides a series of iors and decisions for frequently occurring
questions and/or a flow chart or decision tree that leads situations.
the caregiver to the correct diagnosis and treatment for the
most commonly observed conditions.
Formulary A list of drugs including enough medications and informa- Hospitals maintain formularies that list all
tion to enable providers to prescribe medically appropriate drugs commonly stocked in their pharmacies.
treatment and covered services. Third-party organizations such as insurance
companies usually maintain formularies that
list drugs that the company will cover under
plan benefits.
Clinical pathway, critical Clinical pathways (also known as critical pathways, inte- Clinical pathways promote organized and
pathway, care map grated care pathways, or care maps) are used to standardize efficient patient care based on the evidence-
the care process and quality improvement while reducing based practice.
variations in clinical practices and improving outcomes. Clinical pathways optimize outcomes in the
A management tool based on evidence-based practice for acute-care and home-care settings.
specific groups of patients with a predictable clinical course
where different tasks (interventions) are defined, optimized,
and sequenced by hour, day, or visit.
Multidisciplinary care team A team including patients, physicians, nurses, pharmacists, Provides a forum to enhance the skills and
laboratorians, social services, mental health professionals, knowledge of team members to learn about
nutritionists, and health educators. The team members the strategies, resources, and approaches of
change depending on the diagnosis, social, or personal the various disciplines and offers a built-in
situation of the patient. The team works collaboratively to consultation component.
provide effective and efficient care to patients with chronic Provides the team members with invaluable,
health conditions by developing a plan of action by combin- ongoing support while dealing with difficult
ing forces to initiate a multidisciplinary treatment plan. The patient situations, diseases, and treatments.
patient is involved and is encouraged to include family to Promotes patient satisfaction by building
improve long-term outcomes. a community support system with patient
follow-up and more integrated and coordi-
nated medical services.
Follows patients from the hospital back to
their homes and from diagnosis through
treatment for a variety of chronic conditions
including diabetes, heart disease, cancer, and
mental health treatment.

reporting, and document improvement and accountability Disease Management

require investment in infrastructure for organizations and Disease management is an MCO tool that emerged in
health plans across the healthcare delivery system. Pressure the 1990s with the premise that it would help prevent or
on institutions to demonstrate measurable performance is better manage disease, reducing the need for expensive
driven by the shift toward value-based purchasing incen- medical treatment and hospitalization and ultimately
tives (83). decreasing costs and improving outcomes. When the
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 183

evaluation process involves the healthcare system or a self-care, testing, and treatment regimens. In some proj-
chronic disease process, the review is called disease man- ects, the nurses were not affiliated with the provider prac-
agement. Indicators used in this evaluation include length tice, and the mode of communication was by telephone.
of stay (LOS), turnaround time (TAT), and financial out- In other models, nurses were employees of the offices and
comes. Decision support software with algorithms using had direct interaction with patients. A few projects used
statistical data is used to identify patients who are at risk electronic devices to monitor and transmit physiologic in-
for developing severe illness and are more likely to require formation from the patient’s home to the care manager. Al-
hospitalization. The ability to rank patients by risk al- though the DMP projects demonstrated some reductions in
lows the managed-care organization to use case manage- hospitalization and spending, the results were invalidated
ment more efficiently and at the appropriate level of care by the low number of Medicare enrollees that participated.
required by the patient. The ability to capture laboratory Overall, the DMP projects demonstrated little or no effect
data electronically and to integrate it with the other data on admissions or reductions in spending. The outcomes,
elements enables the health plan to expand the data set reviewed by the Congressional Budget Office (CBO), con-
used for assigning patient risk and performing gap analy- clude that either Medicare spending was unchanged or fees
sis related to the patient’s care. Some of the newest decision to the program were slightly increased over prior services
support software packages with advanced logic engines provided in the absence of the program (66).
combine expert rules with artificial intelligence (AI) tools
like neural networks that integrate data variables not gen- Value-based payment (VBP) demonstration. Value-based
erally used in traditional clinical models (87). In the past, healthcare models share the following common elements:
obtaining provider buy-in has been difficult, as the physi- management of distinct patient populations; delivery of
cian is typically critical of cookbook medicine and its un- coordinated care through integrated networks of pro-
derlying motives of reduced costs at the expense of quality viders; focus on patient outcomes using evidence-based
care. Communication strategies must clearly demonstrate practices; use health information technology for measur-
to providers that individualizing and standardizing a pa- ing, managing, and reporting quality; and focus on cost
tient’s care plan, significantly improves the patient’s out- of providing healthcare instead of reductions in itemized
come. Physician profiling that compares an individual fees. After CMS introduced VBP pilots in 2003, commer-
physician to a group of physicians helps boost provider cial carriers followed the CMS lead by offering their own
acceptance, stimulates peer pressure, and is an excellent versions of VBP, focusing on better care, lower costs, and
quality driver (especially when monitored). more efficiency. The CMS programs can be categorized as
According to Hewitt Associates, a human resource follows:
consulting firm, the use of disease management pro-
• Payment for reporting (P4R). Providers receive incen-
grams (DMPs) by employers and payors doubled to
tive payments for reporting and making information
19% between 1997 and 2002. Hewitt anticipated that
available to the public.
employers using DMPs would reach 30% by 2003. Rob-
ert Michel predicted that disease management would • Payment for performance (P4P). Providers receive in-
drive the next generation of managed care, by focusing centives for achieving clinical targeted goals.
on prevention and early detection, and would represent • Payment for value. Providers can demonstrate im-
a significant opportunity for clinical laboratories. The proved quality outcomes and improved efficiency (42).
ability to provide guidance to physicians and their pa-
The value-based payment projects have shown some
tients positions the laboratory as a contributing partner
success, but the savings achieved varied significantly from
in the healthcare continuum (63). The CDC reported
7 to 20%, based on variations in discounts, market-specific
that patients with chronic disease accounted for 75%
competition, and internal business strategies of partici-
of overall health spending, while Johns Hopkins Uni-
pating providers (66). The projects focused on reducing
versity reported that Medicare spending on DMP ac-
spending and improving quality of care. The U.S. health-
counted for 99%. DMP statistics in 2009 indicated that
care delivery system is decentralized, and paying providers
$2.5 billion was spent in DMPs (http://www.managed
for services currently cannot prorate payments for coordi-
caremag.com/archives/1003/1003.dm.html, last accessed
nation of care with multiple providers. The conclusion of
October 1, 2012).
the VBP demonstration projects suggests that widespread
Healthcare Reform: Demonstration Projects payment and delivery changes will be necessary to demon-
strate significant reductions in spending to maintain and
Disease management and care coordination demonstra-
improve quality of care. The following strategies may help
tions. The DMPs participating in the demonstrations
attain goals for future demonstration projects:
offered services to hospitals, providers, insurers, and em-
ployers, such as nurse case managers who worked with • Collect timely data and demographics when assessing
patients with chronic disease to improve and monitor patients to better coordinate and manage care.
184 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• Plan and coordinate transitions from one care setting The Educated Consumer
to another to reduce readmissions.
Baby Boomers and Generation Xers:
• Provide collaboration between physicians, pharma- the Educated and Savvy Consumer
cists, laboratorians, and care coordination managers as The new focus of healthcare will be on the five generations
a team. of consumers from the last century. Each generation has
• Provide proactive medical care and interventions for distinctively different ethics, values, beliefs, and needs (see
beneficiaries with high-risk chronic disease. Table 7.10). The GI Generation refers to more than 60 mil-
• Limit program incentives so as not to exceed the actual lion people born between 1901 and 1924. Known as the can-
spending reductions (66). do generation, they literally lived the American Dream of
baseball, hotdogs, apple pie, and Chevrolets. The Silent Gen-
eration spanned the years from 1925 to 1942. This genera-
Value-based purchasing. Value-based purchasing is a new tion is full of wealthy and affluent consumers who are loyal
strategy being used by many private and public sector traditionalists that created bureaucracy to maintain control
purchasers of healthcare and health insurance services to of the world around them. This silent generation adheres to
maximize benefits while maintaining lowest costs (85). The one basic principle: if you work hard, you will get ahead. At
approach identifies specific performance requirements for the same time they are relatively inflexible and resist change.
contractors, insurers, third-party administrators, and di- Next are the Baby Boomers, who represent the 76 million
rect service providers, holding them accountable by invok- births between 1943 and 1960. Baby Boomers were flower
ing clear consequences for inferior performance. Essential children, draft dodgers, hippies, and yuppies who benefited
steps to leverage and improve the effectiveness of value- from the economic revolution. Also known for regeneration,
based purchasing initiatives include: they have redesigned, redeveloped, reinvented, and reengi-
neered their world. On the one hand, they overindulge in
• Use a structured process that details goals and objec-
self-gratification; on the other hand, they are type A idealists
tives including measurements and a feedback mecha-
who are extremely passionate about being successful. Gener-
nism to monitor and ensure communication and
ation Xers are the 44 million people born between 1961 and
promote collaboration with partners and contractors.
1981 who have witnessed everything from human immune
• Adjust goals accordingly and reset targets and mea- deficiency virus (HIV) to the fall of the Berlin Wall. Known
surement goals. as latch key kids, couch potatoes, and now as boomerang
• Review data and compare them with other perfor- kids, this generation has a strong need for information and
mance benchmarks available. feedback, is typically savvy with both electronics and com-
• Create a dashboard to monitor change using perfor- puters, but generally speaking, doesn’t like to read. The Mil-
mance measures for incentives and disincentives. lennial Generation, born between 1982 and 2003, represents
the newest healthcare consumers just entering the work-
• Use national data to benchmark a purchasing plan.
place. Generally values, ethics, and needs repeat every fourth
• Meet with partners and contractors regularly using generation, so the Millennials should be successful achievers
dashboard data to set an agenda. who conform to the rules of society and who will aspire to
• Collaborate with partners and contractors, developing live the American Dream. They are technologically savvy in-
a multipayor system and adjusting it as necessary to dividuals who dislike wasting time. Like the GIs in the early
achieve targeted goals. 1900s, they will be another get-it-done generation (46).

Table 7.10 The evolution of the educated consumera

Nickname Span of years Behaviors
GI Generation 1901–1924 The “can-do” generation who lived the American Dream
Silent Generation 1925–1942 Wealthy, affluent, and loyal traditionalists who believe that
working hard equals success
Baby Boomers 1943–1960 Flower children, draft dodgers, hippies, and yuppies who
redesigned, redeveloped, reinvented, and reengineered
the world
Generation Xers 1961–1981 Composed of latch key, couch potato, and boomerang kids
who are extremely savvy with technology but don’t read
Millennial Generation 1982–2003 A “get-it-done” generation of achievers who value time
and conform with rules
a
See reference 46
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 185

Consumer-Driven Healthcare providers and opt for nontraditional, episodic alternative

According to a survey by Mercer, between 2007 and 2011 medicine treatments when such treatments become cov-
there was a dramatic increase in consumer-driven health ered services (43).
plans (CDHPs) that were offered among large employers Much progress was made between 2006, when the
with more than 500 employees (21). Indiana’s state em- Genomics and Personalized Medicine Act was first in-
ployee CDHP has demonstrated savings for both the state troduced, and 2010, when the fourth version was reintro-
and the employees in a plan that incentivizes consumers duced but failed to pass. The healthcare industry and the
to manage their healthcare dollars carefully. Since 2006, public have embraced the principles of personalized medi-
the overall costs for health benefits have been reduced by cine, but there remains an array of technical, legal, regula-
10%. Of the employees enrolled in CDHPs, 98% are satis- tory, and payor issues to be resolved before its full potential
fied with the plan; only 2% have converted back to a tra- and benefits can be realized. Enhanced genetic education
ditional plan. The success is tied to consumer education of healthcare providers will facilitate the clinical adoption
and elimination of barriers. Anthem, the CDHP insurer in and use of the technology. However, there are many out-
Indiana, provides web access to rate information and com- standing issues surrounding its regulation:
parable data for enrollees to evaluate. Indiana contributes • Intellectual property issues
a generous benefit payment into their employees’ health
savings accounts (HSAs) for participation. An advantage • Court challenges on gene patents and eligibility issues
for laboratories (independent and outreach laboratories) • FDA regulation of direct to consumer (DTC) genetic
is that state enrollees are free to select their lab provider. tests, kits, and companion diagnostics
Therefore, competing on lowest price is not the primary • Reimbursement, cost sharing, and payor issues
driver in the consumer’s purchasing decision. In 2010, the • Privacy and regulated use of individual genetic
projected savings from CDHP enrollment approached $20 information
million due to a combination of factors:
• Development of information technology devices and
• Enrollees visited emergency departments and physi- services
cians 67% less frequently than traditional plan
subscribers. Hospitals and health system administrators should rec-
ognize and be prepared to address any of these major legal
• CDHP enrollees used generic drugs more than tradi-
issues and battles that surround healthcare reform (69).
tional plan subscribers.
• Hospital admissions for these enrollees were less than • Lawsuits are likely against the mandate to buy health
half as frequent as traditional subscribers. insurance. Providing protection for patients with pre-
existing conditions requires that everyone have health
Because the number of subscribers selecting the traditional insurance; otherwise patients would have no reason to
indemnity coverage has declined, the rates for premiums pay for coverage until they got sick.
have soared from $3,500 in 2006 to $9,000 in 2010 (21).
• HIPAA regulations and data breach violations will
increase as the interoperability of electronic health
The Increasingly Litigious Environment
records (EHRs) expands to share data between IT net-
In the new millennium the relationship between the pa- works. Laptop computers, portable devices, and smart
tient and the provider will continue to change. Data, not phones have been attributed to 16% of reported data
emotions, will drive the decision-making process. Patients breaches.
will elect to change providers more frequently during open
• The CMS has altered antitrust and safe harbor laws
enrollment. Since the role of litigation is inversely linked to
to make way for ACOs, but government agencies are
length of relationship, the industry can expect to see an in-
watching competing ACOs to ensure that clinical in-
crease in litigation claims. As the population ages, patients’
tegration and reduced costs are not creating unlawful
expectations about their rights and access to care will also
avenues to raise fair market prices.
increase. Patient demand for participation in the decision-
making process will increase the need for accuracy and • The PPACA expands the False Claims Act with in-
clarity in communications. John Wennberg and his col- creased penalties for submitting false claims and allows
leagues at Dartmouth developed a new process decades whistleblowers access to public disclosures for report-
ago known as informed choice, which encouraged patients ing and eliminates the requirement for them to be a
and their physicians to review all treatment regimens avail- primary firsthand source of the violation.
able and then link them to the patients’ objectives for treat- • Hospitals must ensure that physician relationships are
ment. More and more patients may move away from their not created to incentivize physicians for referrals to
current long-standing relationship with their healthcare avoid infringement on antikickback statutes.
186 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• The Stark Law prohibits physicians from referring ser- the evolution of technology with high throughput, the es-
vices to a hospital where there is ownership interest or calating costs of healthcare, and the increasing demands
a compensation arrangement. of the educated consumer. Information is no longer just
• Recovery audit contractors are private contractors that a tool but is now a primary asset used to improve patient
audit providers for overpayments from the CMS and management and prevent disease (29).
receive a percentage of their recovery. Appealing a
judgment, if not reversed, may cost an additional 12% The information superhighway and the virtualization
interest on the overpayment amount. of healthcare. The funding for the research and devel-
opment of an experimental, secure data network, now
• The PPACA contains specifications that change the
known as the Internet or the World Wide Web (www.),
“community benefit standard” used for more than 40
was originally budgeted by the Department of Defense.
years to receive and maintain tax-exempt status. New
The Internet quickly evolved into a powerful new social
requirements include completing a community needs
institution, reaching more than 50 million users in only
assessment every three years, a written financial assis-
five years. That is roughly one-eighth the time for the radio
tance and emergency care policy, limitation of charges
and less than one-half the time for television to reach the
for emergency or medically necessary care for patients
same numbers of consumers. In 1998, consumers spent
with financial assistance needs, and limitation of col-
$8 billion online, out of roughly $2 trillion total consumer
lection actions until reasonable efforts are made to en-
expenditures. According to John Horrigan, an associate
sure that the patient needs financial assistance.
director at the Pew Internet Project, Americans use the In-
• Comanagement arrangements must be well docu- ternet for product research because online resources make
mented based on fair market values, not on the value shopping more efficient and help users explore options
or volume of referrals. and compare features. And although many users believe
• Decreased hospital reimbursement rates in 2011 were it helps get better deals, very few complete purchases on-
approximately $440 million. Beginning in 2015, penal- line. Pew Research Center’s Internet and American Life
ties for providers will include physician penalties for Project recently reported that 80% of Internet users search
failing to demonstrate cost-effective and high-quality for health information online. However, the report noted
performance and hospital penalties for hospital- a disparity among households with Internet access—72%
acquired conditions and high readmission rates. of white households, 55% of African American house-
• Labor laws related to age discrimination, disabilities, holds, and 57% of Hispanic households—and also that
and grievance processes can impact the workforce and only 4 in 10 households with income below $25,000, and
human resource costs. only 50% of rural Americans, have access to home In-
ternet (14a). For more information, refer to http://www
• As hospital mergers increase, regulations that forbid
.marketingcharts.com/direct/internets-role-in-consumer
arrangements that restrict trade or harm competition
-purchases-important-not-vital-4652/ (last accessed June
under the Sherman Act and the Clayton Act must be
3, 2012). The healthcare industry has not totally embraced
carefully evaluated. For more information on antitrust
and adopted the Internet (Table 7.11). Proponents of the
laws, go to http://www.justice.gov/atr/public/division
Internet believe cost savings will ultimately be achieved
manual/chapter 2.pdf (last accessed October 1, 2012).
by eliminating middlemen, reducing clerical and redun-
dant processes, and decreasing medical errors in the midst
of increased consumer demand. Insurers anticipate cost
Changing Technology avoidance through effective disease management sup-
Following the onset of managed care, inpatient days de- ported by Internet-based applications (27). The website of
creased as a result of new technology and alternative treat- Health Futures, Inc. (http://www.healthfutures.net/p-w.php,
ment settings, ultimately reducing routine and inpatient last accessed October 1, 2012) has more information.
laboratory testing volume. Now, the laboratory’s role is
expanding to promote prevention. Genetic testing, point- Point-of-care testing (POCT). Microelectronics, micro-
of-care testing, home testing, and direct public access to fabrication, and microcomputerization have revolution-
preventive and screening testing are increasing (20). ized the way that laboratory tests are performed. These
technologies allow test results to be obtained in a matter
Technological Advances of minutes or even seconds. POCT, or near-patient testing,
Fast-occurring changes in microelectronics, chemistry, has long been touted as the technology that would change
genomics, imaging software, and miniaturization are patient management in the world of managed care. The
converging, integrating, and redefining the landscape of most obvious benefit of POCT is decreased turnaround
diagnostic testing. The changes include advances in the time (TAT). The premise that near-patient testing would
disciplines of molecular biology and functional genomics, radically change patient management under managed care
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 187

Table 7.11 Internet stakeholders: the barriers and benefits to healthcare

Stakeholders Barriers Benefits
Physicians Are skeptical, and reluctant to adopt with Access to consultation is easier
limitations on time Reduces time spent on phone
Resent patients with more e-knowledge Access to pharmacy and drug information
Online patient access to provider network directory
Administration Lack motivation to use and are skeptical Reduces human resource time
Reduces needs for clerical support
Improves productivity
Facilitates needs for outsourcing
Consumers More aggressive at embracing the technology Consumers seek health information
Patients can discuss conditions more knowledgeably with
physicians
Consumers seek patient advocates online
Healthcare institutions Need systems with standardized coding and Online appointment scheduling and insurance verification
formats for clinical information Complete preliminary patient history
Address extensive requirements to protect Creation of permanent electronic medical record
privacy under Health Insurance Portability Paperless transmissions, verification, adjudication, and pay-
and Accountability Act (HIPAA) ment of claims
Security and encryption Online marketing to consumers and providers
Paperless prescriptions and “mail-order” handling reduce time
Access to online outsourcing for administrative management
needs (billing, finance, data processing, telecommunications,
inventory and human resources)
Health insurers Eliminates redundant clerical functions.
Online eligibility verifications reduce time on phones
Claims processing and remittance are streamlined
Enables faster electronic funds transfer for payments to
providers
Assists in outcomes and disease management processes
Allows for real-time, direct communication with subscribers

has not been substantiated (29). Bickford’s research con- insurance companies, home health, nursing facilities, and
cluded that POCT had no significant impact on hospital in the patient’s home. Whole-blood analyzers will be built
length of stay (LOS) (104). Receiving rapid results reflects into stand-alone critical-care monitoring units. The future
patient status at a given time and improves pharmaco- POCT black boxes will permit ambulatory self-monitoring
logical management. However, for physicians to act, they at home. Patients who take personal responsibility for their
must still wait for a complete manifest of results. As new healthcare have improved outcomes (45).
technologies for POCT evolve, laboratory medicine pro-
fessionals will continue to question the accuracy and reli- Point-of-care testing and home healthcare. The U.S. pop-
ability of the instruments and the results. Table 7.12 lists ulation is living longer, and providing care for the elderly
the advantages and disadvantages of POCT. Research and has major implications for future healthcare costs. Each
development must carefully evaluate instrument limita- year, approximately 12 million individuals receive health-
tions, especially for the critical-care setting (53). care from more than 33,000 providers for various causes
Meanwhile, cost minimization strategies push the testing including acute illness, long-term health conditions, per-
back to the clinical laboratory, where cost-effective testing manent disability, or terminal illness. In 2009, annual ex-
and TAT can be maintained. The latest strategy for near- penditures for home healthcare were projected to be $72.2
patient testing is the move to specialty centers (such as chest billion. Additional statistics about home care can be found
pain centers), where the focus is on specialized manage- at the National Association for Home Care website at
ment of the patient for best overall outcome (28). Following http://www.nahc.org/facts/10HC_Stats.pdf (last accessed
the development cycle of personal computers, inexpensive May 31, 2012). As the number of patient home care visits
Internet access, and distributed computing, use of POCT increases, it will be important to assign disease manage-
will accelerate in regional care centers, rescue sites, schools, ment teams to minimize costs. In the current model, labor
workplaces, rehabilitation centers, law enforcement settings, costs are high. The home health market will increasingly
188 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.12 Advantages and disadvantages of point-of-care testing a

Advantages Disadvantages
Shortened therapeutic turnaround time Concerns for inaccuracy, lack of precision and performance
Interfering substances
Analyte ranges more narrow
Improved patient outcomes Quality management and assurance practices poorly defined
Reduced preanalytic errors Potential for increased clinical errors
Requires smaller sample volume Test quality is operator dependent
Elimination of sample degradation Lack of password security
Eliminates specimen mislabeling
Self-contained, user-friendly instruments Lack of connectivity
Shortened critical-care stay Increased costs over core lab
Handles variety of sample types: whole blood, urine, and saliva
Potential applications: home health, rescue, and military operations
Convenience for physicians
a
See reference 52

rely on POCT and vital sign technology combined with can be transferred, creating ideal conditions for remote
patient management and information systems (49). patient management via home-based telemedicine. In-
teraction between the patient and caregiver can either be
Telemedicine clinics. Healthcare facilities are taking a new synchronous (immediate response) or nonsynchronous
approach to providing direct access to outpatient services. (delayed response). There are many issues related to pa-
Telemedicine allows rural communities lacking healthcare tient privacy, quality, and cost that impact the use of tele-
professionals to send images to urban medical centers for medicine and need to be addressed. Personal computers
consultation or a second opinion. Medical instruments are often too complex for the ill patient and the elderly and
such as laryngoscopes and otoscopes, modified to work are not well suited for patients with visual or orthopedic
with a videophone system, are now being placed in sub- impairments. Improved technology is needed to support
urban malls, major regional referral centers, prisons, and the diverse needs of the home telemedicine market (25).
military field offices. The physician located in the medical Although telemedicine and enhanced direct access to care
center miles away makes an interactive diagnosis remotely, have their advantages, they still have risks and a downside.
using telemedicine technology. The medical information Consumers armed with a little bit of knowledge may iso-
associated with these encounters can be stored in a per- late themselves from comprehensive care. Worried about
manent electronic medical record. The obstacles that limit the time or out of fear of the expense, some consumers
wider use of telepathology include the general uneasiness might even attempt to treat themselves without seeking the
of pathologists in using computers and video instead of benefit of professional guidance (3).
traditional slides, lack of standards, and legal issues related
to the practice of medicine across state lines (102). Telepathology. Since the introduction of the personal
computer and the information age more than three de-
Telemedicine home care. Prior to the 20th century, al- cades ago, the practice of pathology has been changing.
most all illnesses were treated in the home setting. In the By combining digital imaging, the computer, and high-
1900s, the care shifted to institutionally based medicine. speed, broadband digital networks, pathologists can now
Now, 100 years later, healthcare is returning home. The collaborate in real time over great distances. Telepathology
change is fueled by a combination of mounting pressure to capability may be considered a value-added service when
reduce costs and emerging telecommunication technolo- marketing reference laboratory services to a pathology
gies. A third factor is the sick patient’s desire to be treated practice. The service can be used to confirm the diagnosis
at home. Home telemedicine applications fall into three made by a colleague and to aid in making a diagnosis for a
categories: access to information, transfer of data, and in- less experienced pathologist just entering practice.
teraction with caregivers. Telemedicine allows a combina- Telepathology is also used to link the pathologists with
tion of direct, indirect, and periodic data measurements of the surgical suite, where a discussion of relevance and details
blood pressure, heart rate, glucose, and pulse oximetry to related to tissue or lesion margins is conveyed. Telepathol-
be transmitted to a central point for storage and analysis ogy expands the ability of a pathology practice to provide
and to include immediate patient feedback instructions. In services to multiple community hospitals and physician of-
theory, any parameter that can be measured electronically fice laboratories. Even though there is no additional direct
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 189

reimbursement for the technology or the overhead costs for the changes needed to refocus our energy to the front end
the system, the value of the system comes from its potential to change customer perceptions. Consumers are exposed
to break through geographic boundaries (75). to self-service technologies in every other industry, so why
not healthcare?
Telecommunication consortiums. Major telecommuni-
cations and computer hardware and software manufac- Focus on the front door. Computer-savvy customers
turers are working to develop a process to improve the expect to visit a healthcare provider’s website from the
distribution and synchronization of information among privacy of their home to schedule a visit, preregister for
electronic devices (such as computers, personal digital care, receive patient information instructions, and print
assistants, cell phones, and other information devices). out travel and parking directions. Healthcare facilities
The ability to share and update information among de- and their providers whose focus is clearly on the front
vices, sources, and recipients in healthcare should prove door have a strong competitive advantage. As a result,
useful as the information age continues to evolve (100). physician loyalty is typically increased when patients are
Transmitting patient information between business asso- no longer required to spend time dealing with service is-
ciates over telephone lines and cables is subject to HIPAA sues. Healthcare stakeholders all benefit from increased
security regulations. Integrating security safeguards like productivity because the physicians have more time for
passwords and encryption may be necessary depending direct patient care. Hospitals that provide the best cus-
on system architecture (33). tomer service attract the best physicians, who in turn at-
tract patients (39).
Direct Consumer Access
The number of people that the Medicare system must Direct Access Testing
manage will soon double, as the first of the Baby Boomer Direct access testing (DAT) refers to laboratory testing per-
generation reached the magic age of 66 in 2012. Altogether formed at the request of the patient as the consumer. Over
this generation makes up about 76 million Americans, the past 20 years, laboratories have offered similar services
pushing the financial stability of the healthcare system in the form of health fairs where a designated medical di-
nearly to its breaking point. According to Emily Sander- rector reviewed the reports prior to providing the patient
son with Medical Careers Review (80), people aged 65 and with the data. Patients who utilize these services are moti-
older currently represent approximately 12% of the popu- vated for different reasons:
lation but account for the following percentages of health-
care services: • Confirm health or wellness as a result of seeing, read-
ing, or family history
• 20% of physician office visits
• Assess risk from exposure when lifestyle indicates the
• 35% of hospital stays need
• 34% of prescription use • Monitor the status of existing conditions
• 38% of emergency medical response services • Ensure confidentiality by avoiding a physician office
• 90% of nursing home stays laboratory visit
For more information, go to http://medical-careers-review Strategically selecting a highly visible location for a
.toptenreviews.com/the-rising-health-care-needs-of-aging personal diagnostic center (PDC) is critical. The interior
-baby-boomers.html (last accessed July 15, 2013). should be warm and inviting versus the sterile appearance
Unlike their parents, who were members of the GI and typically projected by a laboratory. The employees must be
Silent generations, the Baby Boomers have a much higher able to support patients in the test selection without giving
expectation for customer-specific services, from paying medical advice, using patient education brochures pub-
at the pump for gasoline to managing their portfolios on- lished by known healthcare associations. Testing can either
line. Healthcare companies that are progressive recognize be performed on-site while the patient waits, or results can
that they must meet the needs of this “pay-at-the-pump” be mailed directly from the laboratory. The test menu of-
generation to remain competitive in the consumer-savvy fered can also include other healthcare services from the
marketplace. Sometimes referred to as a consumer revo- enterprise such as bone density, blood pressure, or EKG.
lution, the desire and expectation for quick, convenient In most institutions, the PDC operations are generally set
services at the store and the bank has spilled over into the up as a cash-and-carry service model. A market survey to
healthcare setting and is more accurately described as con- gather information about the perceived need and revenue
sumer demand. Complaints about appointment schedul- projections should be studied along with the state regula-
ing and delays, filling out the same form time and time tory issues prior to entering the direct access testing arena
again, and long wait times in a provider’s office must drive (31). The number of states that allowed consumers to order
190 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

direct access testing grew from 27 to 34 after 1999 (22). By In some cases, DAT may serve as a hook to get patients
2004, the American Society of Clinical Pathology (ASCP) attached to a healthcare system or enrolled in long-term
reported that direct access testing accounted for 10 to 15% chronic disease management programs. Wellness testing,
of testing performed by hospital and commercial laborato- case finding, or disease monitoring through DAT may all
ries in the U.S. each year. Under the DAT model, patients be part of a hospital or health system’s marketing plan. An
bypass their physician and order tests directly from clinical insurance company, as one way of avoiding some office
laboratories or other qualified testing sites. The results are visits, might promote DAT.
returned directly to the patient. Generally, DAT is not cov- Internet-based services may facilitate test ordering,
ered by insurance, so the patient pays up front and there result reporting, and patient privacy. Some of the com-
is no billing. The DAT model raises important consumer, mercial and independent laboratories that offer tests and
regulatory, medical practice, medicolegal, economic, and results reporting through their websites are listed below:
ethical issues.
• HealthcheckUSA, an Internet-based company that
brokers DAT for participating laboratories (http://
Consumer perspective. DAT increases consumers’ control
healthcheckusa.com, last accessed April 9, 2012)
of their healthcare. Patients may want to save the time and
expense of seeing a physician or may want to keep con- • Results Direct, a hospital-based company that offers
fidential certain aspects of their medical history (such DAT via the Internet (http://results-direct.com, last
as illegal drug use or sexually transmitted diseases). The accessed April 9, 2012)
emerging availability of genomic and proteomic testing Reference laboratories must carefully balance the po-
(for example, BRCA1 and BRCA2 for assessing the predis- tential rewards of direct marketing of laboratory tests to
position to breast cancer) offers a nearly unlimited amount consumers against the risks of alienating physicians who
of information of potential interest to consumers. Much of are also clients of the reference laboratory and may see
this testing, at least initially, will not be covered by tradi- DAT as an encroachment on their practice.
tional insurance, and the biotech companies are likely to
market directly to consumers (28). Ethical issues. For providers of DAT, the traditional ethi-
cal principles should apply. Do no harm. What are the
Regulatory and reimbursement issues. All laboratories in potential risks? Provide a benefit. Will the DAT result in
the United States that perform clinical tests for the diag- better health outcomes? Respect individual autonomy. Is
nosis or management of human disease are subject to the there full disclosure, in understandable language, of the
regulations of the CLIA ’88. These regulations require that risks and benefits of the DAT? Is patient confidentiality
an authorized person order all clinical laboratory tests. protected? Does DAT promote social justice? Will DAT
However, there are no federal restrictions on who is autho- impact overall healthcare costs? Will DAT affect consumer
rized to order a clinical laboratory test as long as payment demand for other healthcare services?
is not sought from a government program, such as Medi-
care, for the self-ordered test. Laboratories that engage in
Guidelines for providing direct access testing. Not surpris-
DAT should first investigate state legislation that might
ingly, the College of American Pathologists (CAP) and
restrict the consumer’s access to DAT. For hospital labora-
much of organized medicine feel that patients’ best inter-
tories, medical staff policies may restrict who is authorized
ests are served when a qualified physician orders labora-
to order laboratory tests.
tory tests. However, if a laboratory decides to offer DAT,
the following issues should be considered:
Medical practice and medicolegal issues. Test results re-
turned directly to the consumer must be simplified and in- • Is a physician, or other appropriate healthcare pro-
clude some interpretive comments. There must be liability vider, available to assist the patient in the proper inter-
disclaimers that results are provided for informational pur- pretation of the test results?
poses only, and not for diagnosis or prognosis. The major • Is there a mechanism to assist the patient with appro-
concern is that the consumer may use DAT in lieu of nec- priate access to any additional testing, counseling, or
essary physician consultation, may not seek medical help therapeutic intervention that may be necessary?
appropriately as indicated by the test results, or may react
• Does the DAT program comply with state law, in-
inappropriately to test results taken out of context or with-
formed consent, confidentiality, and mandated report-
out a full understanding of the real medical consequences.
ing of certain test results (for example, HIV testing)?
Economic and business issues. Hospital and reference lab- The main financial benefit of offering direct access testing
oratories may see DAT as a promising, cash-based revenue as a service is the introduction of a new reimbursement
stream that will improve their financial bottom line (86). stream that is favorable, bringing cash directly to the bottom
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 191

line. However, there is competition from companies that al- Alternative medicine. In the past, alternative medicine was
ready are in the business of providing health screening (3). not favored by healthcare providers and insurers, but today,
as many as one-third of patients have embraced alternative
healthcare treatment. However, alternative medicine ser-
Over-the-counter self-testing and self-referral testing. There
vices are generally not covered by insurance, and patients
are now available a number of diagnostic tests that are
must assume the costs as an out-of-pocket expense. Since
FDA-approved for home use and available over the coun-
therapeutic practices are not well regulated, providers are
ter. Additional information can be found at Lab Tests On-
hesitant to recommend them. Healthcare organizations
line (www.labtestsonline.com, last accessed April 9, 2012).
are integrating new alternative medicine centers dedicated
Some of these kits produce immediate results in the home.
to providing alternative care to capture some of this non-
Others are sold as collection kits only, and the collected
traditional, fee-for-service market (105). Typical services
specimen is mailed to a laboratory for evaluation. Beyond
include physical and chiropractic; aromatherapy and mas-
what is sold over the counter for home use, the range of
sage; psychological, hypnotherapy, meditation, and bio-
DAT available to consumers varies by provider from a very
feedback; and energy, acupuncture, and reflexology. Much
limited menu of simple tests to a virtually unlimited menu
like self-directed testing, this cash-and-carry model offers
of the most sophisticated tests on the market.
convenient access and low cost to the consumer, improv-
Manufacturers of at-home diagnostics have introduced
ing the revenue stream with cash to the bottom line while
a wide variety of tests beyond the standard pregnancy and
eliminating the costs of billing and collections for the visit.
glucose testing in their quest to advance from market po-
Consumers, electing to visit alternative medicine provid-
tential to profitability. The self-test kit menu has expanded
ers for convenience, pay out of pocket nearly 75% of the
to targeting bladder cancer, HIV and hepatitis C, nutrition,
time. The National Center for Complementary and Al-
fecal occult blood, preterm delivery risks, ovulation cycles,
ternative Medicine website (http://nccam.nih.gov/health/
urinary tract infection, cholesterol, anticoagulation thera-
decisions/credentialing.htm, last accessed June 14, 2012)
pies, and drugs of abuse, with more in the pipeline. The
has more information about the credentialing and regu-
companies have learned an invaluable lesson during the
lation of alternative medicine providers.
market’s slow evolution. Producing new test kits doesn’t
come with a guarantee that consumers will purchase them.
The market growth is hampered by limitations on direct- Costs associated with consumer demand. Consumers in-
to-consumer advertising efforts and third-party reimburse- creasingly believe that the dollar is more important than the
ment problems. At-home diagnostic manufacturers may patient to the managed-care organization. To regain patient
benefit from the growth of e-commerce and the ability to trust, health maintenance organizations need to be sensi-
sell kits online, coupled with step-by-step directions (92). tive to the doctor-patient relationship and put the doctors
California passed legislation that permits state resi- at arm’s length from the direct financial aspects of the pa-
dents to seek laboratory testing for a limited menu of four tient’s care. According to James Sabin of Harvard Pilgrim
clinical lab services as an alternative to purchasing home Healthcare, the American public has shown repeatedly “that
testing kits that are not manufactured in the state. As the it views healthcare as a social good, and even a right, not a
number of home test kits approved by the FDA increases, commodity.” Healthcare organizations spent between $150
consumer access to a broader scope of self-directed testing and $250 million on consumer-related programs in 1996,
also increases. The current California legislation (available and by 2000 had pumped nearly $400 million into market-
at http://www.leginfo.ca.gov/ or http://www.fda.gov, last ing promotions and customer relations programs (30).
accessed April 9, 2012) requires that:
Advances in Genetic Testing
• The testing must be performed in a clinical laboratory and Molecular Pathology
licensed by the state of California.
The Human Genome Project. Over the past 15 years, the
• The person self-referring assumes full responsibility Human Genome Project (HGP), a joint program funded
for the associated costs of the testing to further ensure by the Department of Energy (DOE) and the National In-
that healthcare insurance costs are not increased as a stitutes of Health (NIH), has completed the sequencing
result. Third-party payors do not typically cover self- of the total human genome. This project yielded genetic
directed testing. maps and new techniques to further genetic research and
• Tests can be ordered only on oneself and not for de- clinical testing (107). The HGP’s significance is vast and
pendents or spouse. has far-reaching implications:
• All results must be reported with reference ranges. • Pharmacogenetics. Designing drugs specifically modi-
• The report should encourage the need to seek a physi- fied to a person’s genetic make-up will be important in
cian for interpretation and follow-up. the treatment of many genetic diseases.
192 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

• Agricultural genetics. Engineering genetically modified Today, there are more than 500 specialized laboratories
foods to be larger, more nutritious, and pest-free. testing for more than 900 diseases with a wide spectrum of
• Forensic genetics. DNA-based human identity testing applications. In 1991, the American College of Medical Ge-
can be used to convict or acquit an individual accused netics (ACMG) was formed to represent providers of genetic
of a crime. services and patients with genetic disorders and to speak for
the emerging specialty of medical genetics. The ACMG has
• Evolutional and anthropological genetics. Genetics is a
issued a number of consensus statements (41) including:
major source of information about the similarities and
differences between humans and other species. • Apo lipoprotein E for Alzheimer’s disease
• Microarray technology. Research during the HGP • Genetic susceptibility to breast and ovarian cancer
has produced one technology, the microarray, with • Laboratory standards for population-based cystic fi-
the greatest potential for disease detection and brosis carrier screening
characterization.
• Factor five Leiden mutation testing for inherited disor-
The relationships between the DNA sequence and the lo- ders that increase risk for thrombosis
cation in the genome are described by the four mapping • Technical and clinical assessment of fluorescence in
techniques listed in Table 7.13. situ hybridization
At the forefront of federal and state regulatory activity
• Fragile X syndrome, an inherited genetic mutation that
is ongoing debate about discrimination, quality of testing,
causes mental retardation
informed consent, and storage of DNA samples. Labora-
tories must carefully weigh the ethical, social, and legal • Samples for DNA testing
implications associated with genetic testing. Issues of pa- Historically, the lack of expertise and availability of
tient privacy; patient, professional, and public education; user-friendly test platforms have limited the development
and the application and use of genetic information must of molecular assays to academic medical centers, progres-
be considered. The practicality of using genetic testing is sive community hospitals, and commercial reference labo-
hampered by its high costs. The value it adds to medical ratories. The unexpected specificity and sensitivity of PCR
practice and patient treatment must be carefully weighed analysis has driven the rapid advancement of the molecular
against business, political, ethical, and resource versus diagnostics discipline. The field has moved away from the
consumption risks (107). To further complicate issues, initial focus on isolating DNA and RNA and cloning dis-
commercial laboratories commonly license and exclu- tinct genetic sequences to the present point, where coding of
sively offer genetic tests under a patent. entire sequences of complex genes is routinely analyzed for
disease-associated mutations. Future test offerings for multi-
Genetic testing. The NIH and DOE task force has defined genic disorders may be very expensive because of intellectual
genetic testing as “the analysis of materials derived from property rights and the associated royalties. The proprietary
the human body, including human DNA, RNA, chromo- protections given to molecular discoveries that offer new
somes, proteins, and certain metabolites to detect heritable value to patients at the same time threaten the very discipline
or acquired disease related genotypes, mutations, pheno- of molecular diagnostics. Another important issue is pend-
types, or karyotypes for clinical purposes. The purposes ing FDA legislation that will require a referring provider to
include predicting the risk of disease, identifying carriers, obtain informed consent and mandates the laboratory to
and establishing prenatal or clinical diagnoses or progno- perform reviews of genetic assays for analytic validity and
ses in individuals, families, or populations” (68). clinical utility before running or charging for the assay (40).

Table 7.13 Genetic mapping techniquesa

Type of genetic map Description Uses of map
Linkage Assigns a location to a specific landmark in Used statistically to determine if two gene se-
a chromosome quences are transferred together in meiosis
Physical (contig) Continuous gene segments are produced Gene walking down chromosome to identify
from a chromosome broken into fragments genes for specific diseases
using restriction enzymes
Chromosome Smaller fragments of the contig Disease genes are often located in regions and
not always at specific loci
Sequence Contigs are broken down into smaller There are certain regions in the genome that
clones for DNA sequencing to occur are polymorphic “hot spots”
a
See reference 107
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 193

• Monogenetic diseases. Using genetic testing to predict laser capture microdissection, DNA sequencing, PCR,
and avoid births of children with diseases such as cys- fluorescent in situ hybridization, micro- and macro-array
tic fibrosis or Duchene’s muscular dystrophy may have technology, and proteomics with mass spectrometry.
a significant impact on human suffering but may not
touch the estimated lifetime costs for these families, Genomics, proteomics microarray, microfluidics, and
unless case management and counseling are consid- nanotechnology. The proliferation of genomic and pro-
ered in the equation. teomic technology has created additional opportunities
• Pathogen virulence and drug resistance. The ability to for hospitals and clinical laboratories to consider their test
identify pathogens quickly will eliminate the spread of offerings and to develop strategies related to genetic test-
disease and offer cost savings from avoidance of costly ing. Pathologists now emphasize the role that laboratori-
isolation procedures. Selecting the most appropriate ans should play as clinical consultants and their role on
drug therapy may shorten LOS or improve mortality multidisciplinary teams for patient management and the
rates. diagnosis and treatment of disease. The field is at the tip of
the iceberg as more sophisticated assays and development
• Genetic variation in therapeutics. The costs of genetic
of companion diagnostics continue into the future. As the
variation in therapeutics should not be as great as
technology advances, many scientists believe molecular
those observed with monogenetic disease. Genetic
analysis will be incorporated into every step of treatment to
variations affecting therapeutic outcomes are 50–1,000
optimize therapy. Major obstacles to more rapid advance-
times more prevalent in the population. The antici-
ment in the field of molecular diagnostics include the lack
pated cost savings per patient should justify the use of
of training programs for pathologists, technical directors,
the testing.
and technologists; insufficient funding for the costs of de-
The issue is not whether genetic testing will be used as velopment; and the need for well-defined protocols for test
a clinical tool but when (98). As pharmacogenetic testing, utilization (57).
predictive genetic testing, and gene-specific drug therapies
become increasingly available, test reimbursement as a cov- Personalized Medicine
ered service will be based on the proven effectiveness of the After nearly 13 years and $3 billion in development, cou-
tests but will probably be subject to frequency limitations. pled with technological advances, the cost of sequencing
As new genetic test utilization increases, the American an entire human genome promises soon to be reduced to
Medical Association (AMA) typically adds genetic-specific $1,000 or less. This targeted price is relatively comparable
analyte codes to the Current Procedural Terminology Code to the costs of other medical tests and procedures and will
Book (CPT Code) to expedite the claims review and pay- be of interest to both the consumer (patient) market and
ment process (51). However, there is a lag time between test the research and product development markets. More
development and formal approval of reimbursement codes, than 72 products are on the market and in development,
and billed tests may need to be cross-walked to other CPT setting the stage for a prototype to be used for personal-
codes in the interim period. ized medicine. Tests divide the population into actionable
groups of individuals, linking them to a particular therapy
Emerging technological advances in clinical and anatomic or prognosis. These tests change the dynamics of drug
pathology. A key component in the practice of anatomic development and the practice of medicine while creat-
and clinical pathology in the future will be molecular pa- ing new business and economic models for providers and
thology. Practice protocols may rely on molecular testing manufacturers (44). The coalition for personalized medi-
for diagnosis of disease as well as the prognosis and treat- cine has targeted methods that test for variations in genes,
ment in the laboratory disciplines such as hematology, mi- gene expression, proteins, and metabolites. Results of these
crobiology, histocompatibility, cytogenetics, and surgical tests should correlate with clinical factors like diagnosis of
pathology. disease state, prediction of future disease, drug response,
prognosis, and treatment (38).
Applications of genetic and molecular pathology. Use of
molecular diagnostics and genetic testing is increasing Laboratory-developed tests. In the United States, the devel-
from 6 to 25% annually (57). These two fields generate opment and marketing of commercial tests are regulated by
unique problems for the laboratory information system the Food and Drug Administration (FDA). As such, diag-
(LIS). The IT needs include special nomenclature, the nostic testing is evaluated, regulated, and approved by the
ability to import/export images, and a database to search FDA (48). Diagnostic kits contain all the reagents and ma-
karyotypes and to perform sequencing and fragment anal- terials necessary to analyze the test and are regulated by the
ysis and place pressure on LIS systems to adapt. Common FDA as medical devices and require less extensive reagent
techniques used in molecular diagnostic testing include and sample preparation than laboratory-developed tests
194 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

(LDTs). These commercial tests are manufactured as kits address smaller patient populations, speed the pace of
and are sold in volume to labs and healthcare facilities. Visit time to market deployment, and reduce the costs and the
http://labtestsonline.org/understanding/features/practice/ risks associated with drug development by using single or
(last accessed September 28, 2012) for additional informa- multiple biomarkers to evaluate efficacy and toxicity (77,
tion in the AACC series, Putting New Tests into Practice 78). Enhanced insurance coverage for diagnostic tests
(series I, III, IV, and V). will be needed to accelerate the widespread adoption of
The FDA further classifies medical devices based on the personalized medicine and is dependent on the insurer’s
level of control needed to ensure safety and effectiveness of requirements to assess the cost effectiveness and impact
their use. on patient outcomes. Medicare reimbursement practices
for noncovered “predictive tests” (except as authorized by
• Class I tests are exempt from FDA review of submis-
statute) place limitations on the adoption and the ability
sions and have minimal potential for harm to the user
to proactively manage disease before the onset of symp-
(i.e., cholesterol, iron, and pregnancy tests).
toms. A clear regulatory path for companion diagnostics
• Class II testing often requires premarket notification is needed. The FDA recently issued a Draft Guidance for
and data submission on the analytical performance of In Vitro Companion Diagnostics Devices, currently in a
the device and its intended use (i.e., drugs of abuse, comment period. Refer to the FDA website at http://www
toxoplasmosis and ANA testing, and devices like .fda.gov/MedicalDevices/Device RegulationandGuidance/
chemistry and hematology analyzers). GuidanceDocuments/ucm262292.htm (last accessed May
• Class III is the most stringent category and often re- 31, 2012).
quires FDA review of clinical data when there is insuf-
ficient information about the safety and effectiveness Pathologists’ role and the need for change As personalized
to protect the public and human health (i.e., hepatitis medicine becomes more commonly accepted, it will revo-
and cancer diagnostic testing). lutionize and change the current pathology process from
LDTs are developed for use when commercial kits are diagnosis, classification, and subclassification to a process
not available. LDTs are used exclusively by the individual for diagnosing, characterizing, and treating disease.
lab and are never distributed, sold, or shared to other labs • Pathologists must embrace personalized medicine and
or healthcare facilities and currently do not require FDA offer interpretative genomic, gene expression, and pro-
approval. However, LDTs must undergo a stringent inter- teomic information as it relates to a tumor’s
nal validation process to establish the accuracy, precision, morphology.
sensitivity and specificity, and reliability of the assay. • Pathologists must include comments on the presence,
absence, and differential expression of biomarkers in:
Companion diagnostics. The definition of companion di- • Tumor cells versus normal cells
agnostics varies depending on the user’s perspectives, in- • In situ tumors versus invasive tumors
cluding application, regulatory status, and nationality. The • Grades and patterns of tumor cells in one specimen
term might refer to any diagnostic used to select or mod-
ify use of a therapeutic agent or any new diagnostic test • Pathologists must be able to provide comprehensive
developed in “combination” with a new therapeutic that assessments of companion diagnostics and other bio-
provides essential information needed to select patients to markers at the patient, clone, and cell level.
receive or continue to receive the drug therapy. There is The pathologists’ correlation of biomarker data and histo-
no question that diagnostic testing will continue to play an morphology promises to provide crucial insights and di-
important role in selecting patients for therapy and moni- agnostic tumor information that will lead to more effective
toring therapeutic status. therapeutic patient strategies (94).
Future models for use include predictive testing
to identify patients who would benefit from the drug Bioethical issues. The benefits of genetic testing, as well as
therapy and testing that monitors patients over time to the revolutionary changes and medical, ethical, legal, and
identify clinically significant adverse effects in a timely socioeconomic issues raised by the testing, are recognized
manner. Fundamental barriers to the adoption of com- by the government and healthcare providers. HHS estab-
panion products include the potential for limiting sales lished the Secretary’s Advisory Committee on Genetic Test-
to a target population and recognizing the complexity ing (SACGT) to evaluate and analyze programs for safety,
of determining and validating the clinical utility of the effectiveness, adequacy, and oversight measures (5). In Sep-
companion products (81). Despite this, the pharmaceu- tember 1997, the Task Force on Genetic Testing, created by
tical industry is poised to embrace the codevelopment the NIH and DOE, announced recommendations to en-
of companion diagnostics and targeted therapies that sure the quality of laboratories performing genetic testing.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 195

Discrimination, quality of testing, informed consent, and Ethical guidelines. In any discussion of ethics and medi-
storage of DNA samples are the leading concerns and ma- cal information, confidentiality should not be the only fo-
jor focus of state and federal policy issues and activities. cus. Quality, medical relevance, and usefulness are also key
The future of U.S. healthcare will continue to be more components (96).
regulated, consolidated, and accountable. Consumers will
• Physicians need access to accurate, timely, and under-
leverage buying power, buying based less on price and more
standable medical information.
on quality. Ethics will influence their decisions. Medical di-
agnosis and treatment will advance rapidly to the molecu- • All available medical information should include any
lar level as it becomes less expensive. Locating single gene relevant patient decisions.
mutations and identifying multifactoral conditions whose • Access to the patient’s medical information should be
gene changes have undesirable effects will lead to the study limited to those authorized by the patient.
of complex characteristics like obesity, intelligence, and • A one-time patient authorization is not sufficient; a
personality disorders. The primary bioethical concern will patient’s signature for each encounter is recommended.
become what to test for and what to treat (103).
• Authorized individuals should not disclose the medical
Some proponents believe that pharmacogenetics is the
information to unauthorized persons.
future of laboratory medicine. Advances in gene discovery
will lead to increased identification of protein interactions • Those entrusted to maintain the medical records must
and genetic differences in patients’ responses to drugs. The safeguard the records to ensure that they are well pro-
ability to screen thousands of patients for individual varia- tected from unauthorized access.
tions in response to drugs enhances the predictive testing • The patient’s right to confidentiality is limited by laws
and rationale for drug design. Identification of susceptible that require reporting of certain medical information.
disease will improve drug utilization, risk factor analysis, • A patient’s right to confidentiality is limited by the pro-
and therapeutic management. The opportunities for mo- vider’s responsibility to protect patients from risk and
lecular diagnostic laboratories to partner across the con- to do no harm.
tinuum in the industry are unlimited (D. Cooper, personal
• Medical information should be provided to patients in
communication).
a manner that supports the decision-making process.
Medical records and genetic privacy. The way society • Medical information should be objective and educa-
deals with fundamental issues about health and disease tional in nature.
is undergoing profound change in response to advances
in electronic information technology and biomedical re- New Regulations to Address Changing
search in molecular genetics and genomics. At the same Technology: HIPAA
time, healthcare delivery has undergone a transforma- The Health Insurance Portability and Accountability Act
tion influenced by managed care and the emergence of (HIPAA) regulations, originally proposed for administrative
evidence-based medicine. The very promise of having a simplification with an effective date of October 2002, were
greater understanding of diagnosis, treatment, and pre- implemented to bring efficiency through standard coding
vention of human disease and the concept of rationing and guidelines for the format of electronic transmissions
the delivery of medical services help balance the social for enrollment, claims, and authorizations and to eliminate
burden of human suffering against the costs of medical fraud and abuse while protecting patient privacy. Its impact
resources. As a result, there is a widespread and grow- on the costs of providing healthcare for payors and provid-
ing concern from the general public related to both the ers is far reaching and will continue to be felt as the ICD-
philosophical and ethical consideration of individual 10 coding initiative is implemented over the next five years
autonomy and privacy. At the same time, these individ- (47). HIPAA presents challenges for every healthcare orga-
uals have realistic concerns about the security and con- nization using e-commerce. Although the technology exists,
fidentiality of sensitive, personally identifiable medical the cost of compliance seems to outweigh the benefits.
information (particularly electronically accessible infor-
mation) being used inappropriately by an insurer or an Breach notification rule. Revised in July 2010, the HIPAA
employer. The major challenge is to secure all medical breach notification rule mandates that providers report
information, not just genetic, without impairing the ap- any breach that involves 500 or more individuals’ health
propriate access necessary for medical management. In a records to the individuals, the media, and the HHS secre-
California-based survey of consumer attitudes regarding tary. Industry providers have worked to implement sound
ethics and healthcare web services, 75% of the adults in- policies and procedures to deal with all aspects of breach
dicated concern about sites sharing information without of information. Greg Root, CEO and attorney for Code-
permission (97). Map, believes that it should be common policy to never
196 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

use laptops for protected health information. Laborato- electronic health record (EHR) systems. The EHR systems
ries exchanging clinical information and lab results must were funded by billions of dollars in incentive payments
ensure that all involved legal entities and companies with for hospitals and eligible professionals that provide Medi-
EHR technology are designated as agents in the informa- care and Medicaid services and who can demonstrate im-
tion transfer and are certified and pass muster (55). Ad- plementation of certified EHR technology and meaningful
ditionally, using email (a push technology) for laboratory use. Incentives to eligible professionals are only considered
results reporting presents many HIPAA issues related to when three principal meaningful use elements are demon-
verification of correct address, access, and security. Using strated (Fig. 7.1).
a pull technology to access results ensures that only physi-
cians with security clearance can view results out of your • Use certified EHR technology to track, record, and ex-
system since the results reside in your domain (4). change information in a meaningful way (i.e., comput-
erized physician [or provider] order entry [CPOE]);
Impact of Reform on Electronic Health Records use e-prescribing, demographic records, vital signs, and
and Meaningful Use current problem lists.
In July 2010, the American Recovery and Reinvestment • Submit claims using electronic data processing (EDP);
Act (ARRA), which includes the Health Information verify eligibility online; use HIT to exchange key clini-
Technology (HIT) for Economic and Clinical Health cal information; and implement privacy and security
Act (HITECH), fueled an increasing rate of adoption of technology.

Figure 7.1 Elements of mean-

ingful use. Eligible professionals
will receive incentives if they can
demonstrate and provide data for
three of these required elements.
doi:10.1128/9781555817282.ch7.f1

GOAL: advance clinical

processes to improve
patient outcomes

3. Use EHR to submit

clinical quality measures

2. Improve healthcare 1. Demonstrate

quality using electronic meaningful use,
exchange of health i.e., CPOE, ePrescribe,
information electronic claims transmittal
(EDP)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 197

• Submit clinical quality measures to CMS or the state for Eligible professionals. Eligibility rules vary between Medi-
a Medicaid program. The ultimate goal of certified EHR care, Medicare Advantage, and Medicaid for eligible profes-
technology is to capture and share data that will advance sionals and include incentive payments based on successful
clinical processes and will improve patient outcomes. demonstration of meaningful EHR use (72) (see Table 7.14).
By design, the rule includes a three-stage process for • All eligible professionals must have a National Pro-
providers to comply and employs criteria that are more vider Identifier (NPI) to register.
stringent in each stage of the process to collect the incen- • Medicare eligible professionals must also be enrolled in
tive payments (89). Stage 1 criteria focus on improving the CMS Provider Enrollment Chain and Ownership
health outcomes, increasing patient safety, and containing System (PECOS) to receive incentives.
healthcare costs:
• Each single or group eligible professional may qualify.
• Collect electronic health information using a specified • Each eligible professional may qualify for only one
coded format. payment per year regardless of the number of locations
• Communicate patient care needs with patient and for services.
providers. • Eligible professionals practicing at more than one
• Use EHRs to better manage both disease and office site must provide at least 50% of care in a site
medication. where certified EHR technology is utilized.
• Employ clinical decision support tools. • Eligible professionals that perform more than 90% of
• Report key quality and public health statistics. services in a hospital-based setting will not qualify for
an incentive payment.
Implementation of stage 2 criteria, set to begin in 2013,
emphasizes improving the care of the patient: Although the original draft of the proposed rule re-
quired that eligible professionals and hospitals meet 28
• Using the most structured format of HIT to exchange objectives in reporting meaningful use, the final rules’
information (including entering and transmitting elec- approach included provider accountability in adopting
tronic orders, using CPOE and diagnostic test results) the basic measures of EHRs and also added flexibility to
• Applying the HIT exchange more broadly in both the accommodate the varying needs of providers that were
inpatient and outpatient services provided considering a more comprehensive application of EHR
technology. The list of objectives was divided into a re-
Stage 3 criteria, slated for implementation in 2015, tar-
quired “core set” of objectives and a second “menu set” of
get the following objectives:
objectives that allow providers to defer up to five require-
• Drive improved outcomes in quality, safety, and cost ments. Eligible professionals will be required to meet 15
efficiency. core objectives and select 5 from the menu set, whereas
• Advance decision support for identified national high- hospitals are now required to meet 14 core objectives and
priority conditions. select 5 from the menu set. Ultimately the deferred menu
set objectives must be met to reach full compliance with
• Improve patient access to self-management tools.
meaningful use requirements.
• Make comprehensive patient data accessible. The final rule contains a total of 44 clinical measures
• Improve the health of the general population. that apply to eligible professionals for both Medicare and

Table 7.14 Eligible professionals (EPs)

Beneficiary line Eligible professional definition Timeline and criteria
Medicare EP Doctor of medicine or osteopathy, dental sur- May participate for five years through 2016; 2014 is the last
gery or dental medicine, podiatry, optometry, year to initiate participation in program
or chiropractor
Medicare Advantage EP Doctor of medicine or osteopathy, dental sur- Must be employed by a Medicare Advantage (MA) orga-
gery or dental medicine, podiatry, optometry, nization or by a partner of an MA organization and must
or chiropractor provide patient services at least 20 hours/week serving 80%
of the patient services to MA enrollees or the organization
Medicaid EP A physician, nurse practitioner, certified nurse EP patient volume must be 30% or more for general ser-
midwife, dentist, or physician assistant provid- vices or 20% for pediatric
ing services in an FQHC or rural health clinic EP can participate for six years through the end of the
(non-hospital-based) program in 2021, with 2016 being the last year to initiate
participation
198 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Medicaid incentive programs. Eligible professionals will Table 7.15 Providers

be required to report on three primary core clinical qual- Percent planning
ity measures plus three secondary measures from an alter- Percent enrolled to achieve
native set other than the core list. Hospitals are required Providers stage I 2011–2012 meaningful use
to report the entire 15 clinical measures identified, as they Hospitals 66% 81%
are based on automatic calculations. Data from both sets Physician offices 33% 41%
must be submitted to the CMS to show effective imple-
mentation of meaningful use. In 2011, all providers were
requested to submit self-attestation of the quality mea- and protect their market share. The effects of the consoli-
sures, but in subsequent years they must submit direct dation have been felt in every sector of the market.
reports to the CMS according to the specifications and Commercial laboratory consolidation seemed to be com-
limitations of the CMS technological capabilities. pleted in 1995. However, the dominant players have recently
Many healthcare consultants believe that the stage 1 IT reached across international boundaries to increase their
meaningful use criteria and guidelines for both account- market share. In targeted geographic regions, commercial
able care organizations and the patient-centered medical laboratories continue to acquire other independent or eso-
homes (PCMH) will become the foundation and frame- teric laboratories to solve their need for coverage or comple-
work for the U.S. healthcare delivery system of the future. ment their test portfolio. According to the CLIA Laboratory
The standards for achieving medical home recognition Statistics (Graphs and Charts) files, the total number of
include the ability to meet 15 core set requirements and CLIA laboratories in the United States increased by 30%,
5 of the 10 menu set requirements in the stage 1 criteria from 169,531 labs in 2000 to 221,793 labs in 2010. During
for meaningful use. Receiving a rating as a level 1, 2, or 3 that same period, the physician office laboratory (POL) seg-
practice will depend on the numbers and types of IT cri- ment grew 18%, from 95,069 to 113,124 labs. CLIA labo-
teria achieved. Other experts have stated that the PCMH ratories with COLA accreditation showed a small increase
and the community ACO models will become the foun- from 6,348 to 6,796 labs during the past decade. There was
dation for the future of healthcare delivery in America, a small downward trend in JCAHO accreditation, from
as the medical home places the responsibility for coor- 2,730 labs in 2000 to 2,485 labs in 2010. At the same time, a
dination, communication, and integration of preventive, small increase was reported for CAP accreditation, up from
acute, and chronic delivery of care with the primary- 5,448 to 5,580 labs in 2010. The CMS CLIA Laboratory
care physician (PCP). The medical home emphasizes Statistics can be found at http://www.cms.gov/Regulations
evidence-based care and use of clinical decision-support -and-Guidance/Legislation/CLIA/Downloads/summary
tools to improve quality and efficiency and lower costs of _chart1993_to2010.pdf (last accessed May 7, 2012).
providing care (59). However, consolidation among hospitals through merg-
A 2011 survey, conducted by the Office of the National ers and acquisition of other facilities has increased over
Coordinator for HIT, indicated that providers have turned the past 10 years (23). Pressures from changing reimburse-
the corner with indications that the adoption and use of ment and other business and competitive factors indicate a
HIT has accelerated as the providers enroll to take advan- continued trend beyond 2012. Independent hospitals need
tage of the meaningful use incentive payments (see Table to assess the market and their ability to stand alone based
7.15). The survey also indicated a 50% increase in the on these concepts:
number of primary-care physicians that have purchased
• Over the past 30 years, the number of hospital admis-
an EHR system, up from 19.8% in 2008 to 39.6% in 2010.
sions has declined 27%, down from 36 million in 1980
Financial incentives for eligible professionals vary from
to 35 million in 2009. This trend can be attributed to
$44,000 under Medicare to $63,000 for Medicaid (55).
the increased use of outpatient and office-based facil-
ity procedures. During that same period, the total
Consolidation in the Healthcare Industry number of hospital facilities declined 14%.
Overview: Laboratories, Hospitals, Physician • Since 1990, the number of independent hospitals
Practices, and Managed-Care Organizations aligning with other health systems increased from
Between 1992 and 1994, efforts to enact comprehensive, 38% to 62%. Healthcare strategist Chris Myers pre-
national healthcare reform failed miserably. Since then, dicts that number may increase to 80% over the next
driven by powerful economic forces and the fear of the five years (23).
economic consequences, the industry’s private sector has • During the past 20 years, a number of for-profit com-
undergone radical restructuring over the past decade. The panies have become interested in the hospital market
healthcare industry has turned to mergers, acquisitions, segment, resulting from opportunities created by
joint ventures, and consolidation to fortify their position healthcare reform (23).
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 199

Physician practices have merged, becoming group prac- the clinical laboratory industry confronted hard times in
tices and networks, to increase efficiency. Sharing office the 1990s created by:
space in a concept called group practice without walls al-
• Severe cuts in Medicare reimbursement levels
lows physician groups to expand their service area while
eliminating the duplication of leased space expenses. Solo • Closed loopholes in federal regulations on unbundling
practitioners are becoming virtually extinct. test panels to increase profits
Managed-care organizations have been acquired by larger • Growing influence of managed care
firms to lower expenses and increase efficiency through
Laboratories watched while as much as one-third of
economies of scale. As competition in the market decreases,
their total sales from Medicare reimbursements disap-
employers and consumers fear deterioration in the quality
peared as a result of Medicare reform. Following the shifts
of services and price increases more than the anticipated re-
from inpatient to outpatient services under managed care,
ductions from the efficiencies achieved (37). The maturing
hospital laboratories began to look to outreach to fill ex-
of the managed-care market contributed to consolidation
cess capacity. Commercial laboratories, whose competi-
among managed-care plans. Traditionally, managed-care
tive bidding, commodity, and loss-leader pricing strategies
penetration is greatest in large urban areas, and POS health
had driven their profit margins down to the bottom of the
plans are more successful in rural communities.
barrel, began looking for revenues to offset their losses
Integrated Delivery Systems through joint ventures with hospitals. Since 1992, compli-
ance with CLIA ’88 and market dynamics has accelerated
An integrated delivery system (IDS) is a legal structure
the pace of consolidations, mergers, acquisitions, down-
formed by hospitals and physicians to share financial
sizing, and rightsizing in the healthcare industry. Hospital
risk when collectively negotiating contracts for services
laboratories, independent laboratories, and commercial
with the IDS health system. Hospitals are encouraged
laboratories came together to form regional laboratory
to shift from treating populations in episodes of care to
networks. Outreach programs became prevalent in this
comprehensive health management. Healthcare provid-
period to improve the average cost per test by increasing
ers form integrated delivery systems to meet the needs of
test volume (79).
the payors, purchasers, and consumers. The ability to of-
fer one-stop shopping with convenient access in a defined
region allows providers to offer a seamless continuum of Internal Consolidation in Hospital Laboratories
care from the primary-care physician to tertiary services. Consolidation is a strategy whereby several hospital labora-
Managed-care enrollment more than doubled, from less tories downsize individual facility laboratories and funnel
than 30 million enrollees in 1987 to more than 80 million most specimens into a centralized (also called a core) labora-
enrollees in 2000. During the past decade, managed care tory. This strategy achieves lower costs per test and improves
has suffered from the inflationary costs of healthcare, and the competitive position for the consolidated laboratory op-
enrollment fell to 68 million in 2011 according to http:// eration. The primary goals of internal laboratory consolida-
www.mcol.com/factsheetindex (last accessed July 9, 2012). tion include eliminating duplication of services and excess
Solutions are focused on changes ranging from industry capacity, restructuring workflow, changing staff resources,
consolidation and accommodation of the HIPAA regula- and centralizing management. Another advantage of in-
tions to slashing benefits and raising copays. Without an ternal consolidation is increased test volumes enabling the
appropriate response, providers and employers may move laboratory to bring more testing in-house, reducing referrals,
toward direct contracting with providers in the future, lowering costs, and improving turnaround time (TAT). Lab-
eliminating the insurer as the middleman and leveraging oratory consolidation offers the following benefits:
their buying power (106).
• Integration of clinical information across the health-
Irrespective of the national trends, the choice about
care continuum
healthcare is still made at the local level among the stake-
holders. To provide a continuum of care, integrated • More economical delivery of services
delivery systems and regional networks acting as a com- • Management of the test cycle/production times
munity-based system must partner with rehabilitation • Electronic links to the providers and consumers
centers, skilled care, home health, and laboratories and
• Provision of meaningful and relevant information for
must incorporate informatics to be effective (106).
improved outcomes
Laboratories: Change from Revenue Centers Restructuring trends used in the consolidation process,
to Cost Centers such as downsizing, point-of-care testing, internal laboratory
After decades of profitability based on low incremental costs consolidation, and interdisciplinary team approaches, paved
of testing and favorable fee-for-service reimbursements, the way for regional network development and alliances
200 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

among laboratories. Reengineering efforts of the 1990s that establish accountable care organizations (ACOs). Michel
were linked to continuous improvement proved more effec- cites this as a response to recent payor actions to eliminate
tive than downsizing or restructuring (88). Reengineering providers and narrow their networks, excluding high-cost
limited to compliance, quality improvement, and cost con- providers like AMCs (64a). The mutual objectives of the
tainment produced some internal financial improvements new model include:
but had little effect on innovation or long-term growth.
• Each integrated network is anchored by an AMC and is
Regional Integrated Laboratory Networks designed to foster closer interaction between the aca-
The primary objective for regionalization is to develop a demic subspecialists and the wider clinical community.
system of laboratories capable of providing services to a • For the pathology laboratories at the AMC, the associ-
larger geographical area and positioning the laboratory ated integrated provider networks may often encourage
system to compete for managed-care contracts (64). Re- participating physicians to send their reference and eso-
gional networks were formed with core laboratories linked teric laboratory test referrals to the academic center and
to multiple rapid-response and point-of-service sites. The not to the physicians’ primary laboratory service provider.
system enabled the aligned laboratories to market the
combined strengths of the collective test menus, keeping (For more information, visit http://www.darkdaily.com/
more tests within the regional system and eliminating re- vanderbilt-university-medical-center-forms-nations
ferrals outside of the system. -largest-clinically-integrated-network-that-includes-its
-own-health-insurance-offering#axzz2Z7ptXIJS [64a], last ac-
• Operation and ownership of the laboratories in a re- cessed July 15, 2013.) A virtual laboratory is an organization
gional system remain independent, and internal re- or network of separate companies strategically aligned to
structuring is usually not linked to the needs of the develop and market products, giving the appearance of a
system, which makes the collaborative effort toward larger organization, but does not include merger of assets.
integration difficult at best. During the past decade, healthcare facilities have im-
• Administration of a regional system is shared among plemented various strategies to address the impact of the
the participants under a separate management group shrinking healthcare dollar on laboratory operations. The
umbrella. trend has shifted to more IDS systems being created. In this
model, hospitals eliminate redundancy by sharing services
There are many arrangements for this type of system, and moving the patient to a more cost-effective setting.
which may include a combination of independent hospital Successful managers working in an integrated laboratory
laboratories, consolidated laboratories, academic medical system will need additional knowledge and new skills akin
center laboratories, other independent laboratories, and to industrial and systems engineering combined with an
commercial reference laboratories. Regional laboratories ability to blend these skills with healthcare economics,
are uniquely positioned to serve their communities. The fundamental business principles, human resource manage-
ability to keep the testing in the local community ben- ment, and information technology. Successful consolidated
efits the internal customers (laboratory employees), doc- and regional networks will be the winners, leveraging their
tors (with shorter TAT), and patients (better continuity of strengths, surpassing the competition, and using excep-
care). Outreach sales and marketing for the system is not a tional customer services to create value, adding buying
part of this model. Each individual laboratory would con- power in contract negotiations (79).
tinue to market its services independently of the regional
system, established primarily for managed-care opportu-
nities (64) (see Fig. 7.2). In a network model, independent
Strategies for Success in the 21st Century
laboratories affiliate under a network organization without
any consolidation. In a consolidation model, two or more Strategic Redesign
laboratories consolidate core operations to one primary Strategic redesign was the tactical strategy of the previous
site operating rapid-access operations in remote sites. In a decade. First, an organization must decide to differentiate
regional laboratory system, a hybrid operation is formed its products or services from the competition by adding
with participants from academic medical center laborato- value. Then, it must develop a structured process to add
ries, a commercial laboratory partner, and participating value and create an environment that welcomes change by
consolidated hospital laboratory models. In July 2013, empowering its employees. To accomplish the mission, the
Robert Michel reported a new trend and business model organization needs a clear vision, a change leader to com-
developing in academic medical centers (AMCs): the municate the vision, and a management team that consis-
formation of integrated networks with various providers tently walks the talk.
within a community and the surrounding region. This Next, the organization must review and redesign each
trend piggybacks on the healthcare reform movement to of the necessary support processes to eliminate steps that
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 201

Figure 7.2 Evolution toward regional labora-

tory system. In a network model, independent
laboratories affiliate under a network organi-
zation without any consolidation. In a con-
solidation model, two or more laboratories
consolidate core operations to one primary site
operating rapid access operations in remote
sites. In a regional laboratory system, a hybrid
operation is formed with participants from
academic medical center laboratories, a com-
mercial laboratory partner, and participating
consolidated hospital laboratory models. (Re-
printed with permission from reference 64.)
doi:10.1128/9781555817282.ch7.f 2

don’t add value. According to Michael Hammer and James the customer, and patient outcomes. Leaders must cele-
Champy in Reengineering the Corporation: a Manifesto brate milestones of improvement with employees through-
for Business Revolution, process redesign involves the out the process and not just during implementation.
fundamental rethinking and radical redesign of business There are enormous gaps between what we know and
practices to achieve dramatic improvements in key perfor- what we do. Typically, the time lapse from recognizing the
mance measures such as quality, service, and timeliness. In need for process change to making the change happen is un-
strategic redesign, the quality indicators chosen for mea- acceptably long. Ohno, a Japanese engineer at Toyota, devel-
surement should never be revenue oriented but should in- oped the kanban system, which encompasses just-in-time
clude process cycle times, process costs, costs of servicing inventory and assembly line production with no waiting to
202 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

ensure continuity in the process flow. By studying Ohno’s Truthfulness, keeping promises, treating all employees
work, healthcare systems of the future should be able to ac- fairly and equally, and respecting employees as individuals
curately predict consumer demand and allocate resources build trust within the organization (67).
by anticipating the needs for care rather than reacting to
them, virtually delivering healthcare kanban style (9). Organizational climate and culture of trust. Employees’
Most recently, a new design for laboratory space is perceptions about their working environment impact their
emerging that creates environments that are responsive to ability to do a good job. Creating a desirable climate is es-
present need while also taking future demands into con- sential for employee retention. Managers should provide a
sideration. The designs include six key areas that require working environment that offers:
attention (95a): • Flexibility. With minimal red tape.
1. Create social space that fosters employee interaction • Rewards. With performance feedback.
and team-based performance. • Responsibility. Employees empowered to make inde-
2. Balance the amount of open and closed laboratory access. pendent judgments.
3. Incorporate flexibility in design to easily accommodate
change. • Clarity. Goals and expectations must be clear.
4. Provide access for technology and electronic commu- • Standards. Hold each employee accountable to the
nications throughout the building. same standards.
5. Address environmental sustainability. • Team commitment. Lead by example and create pride.
6. Develop and design locations that foster partnerships
Organizations that create a culture with an atmosphere of
with internal and external customers.
trust among employees and customers maximize their intel-
(For more information, visit http//www.wbdg.org/resources/ lectual assets and maintain a competitive advantage in the
labtrends.php [reference 95a], last accessed July 15, 2013.) marketplace. Developing professional relationships and net-
works and strong lines of communication, promoting team-
Developing System-Wide Thinking and work, and having a common mind-set are essential (32).
a Common Culture
Healthcare is suffering from internal turmoil and conflict Differentiating a Competitive Advantage
resulting from the effects of restructuring, mergers, and As laboratories enter the 21st century and market pres-
acquisitions. To succeed in the future, hospital administra- sures continue to increase, service industries, knowledge
tion, employees, and physicians must develop an apprecia- management, and virtual partnerships will lead the way to
tion for each other’s culture, values, beliefs, language, and future survival. The strategies used to differentiate a com-
goals. Once understood, a new system-wide culture can be petitive advantage will move away from a primary focus on
agreed upon. By redefining the symbolic barriers of author- cost containment to new strategies that include:
ity, tasks, and politics, the new system should incorporate • Optimization of new and innovative products
business, clinical, and ethical dimensions. If not identified
early in the process, differences in ethical values will be the • Flexibility of services
crux of ongoing conflict. To achieve the mutual goals, the • Formation of strong partnerships with stakeholders
following components are essential (90): (suppliers, customers, employees)
• Mutual understanding and agreement on system goals The short-term survival mechanisms of cost cutting, whether
• Enhanced communication between administration by restructuring, downsizing, or reengineering strategies,
and physicians have not always resulted in increased productivity. Instead,
they may actually decrease morale, increase anxiety, and ul-
• Greater physician involvement and oversight in the timately decrease productivity and innovation.
decision-making process
• Treatment based on evidence beyond controlling costs Loyalty-based management. The last and most critical step
• Emphasis on prevention, self-care, and outpatient services in achieving a competitive advantage is to create a business
environment that sustains loyal customers. Developing a
• Focus on quality of patient outcomes working with
system-wide culture for understanding the economic ef-
multidisciplinary teams
fects of customer and employee retention on revenues and
Developing a new culture is a difficult and time- costs begins with management. Reinvesting cash flow from
consuming task. A common culture must be flexible and knowledgeable decisions attracts and retains loyal employ-
based on shared values and constant learning. A rigid cul- ees and loyal customers. When employees are satisfied and
ture is more focused on form. Trust is a perception and happy with their work, they are more productive, which ulti-
an attitude that influences how people will accept change. mately leads to increased customer satisfaction. To evaluate
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 203

the costs and benefits of a business decision, customer, • Poor wage comparisons to other healthcare
product, and employee needs must all be synchronous. professionals
Loyalty-based management systems thrive on effective feed- • Meager annual increases
back measurements. Customers are an invaluable resource.
• Limited opportunities for advancement
Long-term employees are more familiar with the business
and the needs of the customer. The ability to constantly de- The proposed merger of the National Credentialing
liver value in an ever-changing healthcare environment can Agency (NCA) and the American Society of Clinical Pa-
only be accomplished through effective listening and learn- thology (ASCP) Registry coupled with the recent change
ing. In the final analysis, loyalty-based management puts in the job title designation from medical technologist
creating customer loyalty ahead of revenue. The only losers (MT) to clinical laboratory scientist (CLS) has increased
in this environment are the competitors who get the leftover recognition. The CLS nomenclature is more easily rec-
customers and leftover employees (76). ognized by new students entering the field. Some believe
that the workforce shortage could go on even longer as
Training Adequate, High-Quality Laboratory the economy begins to recover. The good news is that the
Professionals for the Future Workforce number of students taking the MT (ASCP) certification
exam has increased from 3,168 in 2003 to 3,843 in 2011.
The economic recession, shifting business models, and
Now the pressure is on the hospital and clinical laboratory
increased scrutiny from regulatory agencies are placing
industry to offer internships for the increasing number of
increased pressures and demands on the laboratory work-
graduates and to partner with the community to provide
force. In addition, the current generations of laboratorians
sites for training. Many believe that forming a larger single
bring changing expectations of a workplace already en-
credentialing agency will strengthen the image, increasing
cumbered with divergent mentalities of four generations of
the credibility and recognition of the profession in the fu-
staffing. It is critical for the future of laboratory medicine
ture (54). The BLS website provides employment statistics
and high-quality healthcare that an adequate number of
(employment estimates and mean and percentile hourly/
appropriately trained medical laboratorians are available
annual wage estimates) for Medical and Clinical Technolo-
for recruitment. Between 2006 and 2016, the aging of the
gists and Medical and Clinical Laboratory Technicians as
American population is expected to aggravate the work-
of May 2012 (http://www.bls.gov/oes/current/oes292011
place shortage as the Baby Boomers (constituting 25% or
.htm#nat).
76,000 lab professionals currently employed) retire from
the workforce (71). These retirees have been the laborato-
ries’ trainers and mentors for entry-level staff, and the cost Moving from Top-Down Management
of this turnover will further burden the system. to Bottom-Up Customer Focus
Projections from the Bureau of Labor Statistics (BLS) in- Quality is one of the most talked about and least under-
dicate that 69,000 more clinical laboratory scientists (CLSs) stood concepts in healthcare. It is a chameleon term that
and 68,000 more clinical laboratory technicians (CLTs) will means different things to different stakeholders depending
be needed in 2012 than were needed in 2002. Between the on their needs, beliefs, and motives. Informatics firms of-
retiring Boomers and the emergence of new technology, fer software tools that capture and measure quality with-
clinical laboratory science departments across the country out being able to demonstrate the impact and usefulness
anticipate as much as a 14% increase in student enrollment to their customers. Employers, insurers, and accreditation
over the next 10 years. To eliminate the shortage, the BLS organizations demand provider commitment to quality
projects that the industry will need to graduate 13,700 new improvement processes but have articulated only minimal
laboratory professionals each year beginning in 2012: standards for measuring and evaluating their effectiveness.
Collaboration is process driven and results oriented.
• 6,900 CLSs (or medical technologists) Collaboration commits each side of the business relation-
• 6,800 CLTs (or medical laboratory technicians) ship to fulfill their responsibilities and becomes the vehicle
to implement quality strategies. The business needs of each
The American Society for Clinical Laboratory Science
stakeholder must be met in order for quality management
(ASCLS) developed the Coordinating Council for the
to become a core competency rather than a tactical business
Clinical Laboratory Workforce to oversee the efforts be-
strategy. Business trust, cooperation, a realistic commit-
tween associations, agencies, and industry toward im-
ment to change, and collaboration are critical to achieving
proved recruitment into the profession. The Council’s
quality management (11). Everyone in managed health-
collaborative efforts resulted in $1.25 million donated for
care that is involved in care delivery is a customer who de-
scholarships. The Council also targeted the following ob-
pends on someone else for information or cooperation to
stacles to needed changes:
get the job done. Recognizing the interdependence with
• Lack of visibility for the profession one another and establishing performance expectations
204 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

develops trust and buy-in among the partnership (12). medicine is gaining support from many groups as the
Placing the patient in the driver’s seat ensures that we are foundation for healthcare reform and the future of medi-
listening to and addressing patient needs (Fig. 7.3). More cine. Obtaining physician support in this quality-of-care
reliable communication systems should decrease errors, movement is critical. Defining the appropriateness of care
prevent miscommunication, and avoid costly delays in the for patients, the appropriate practice for providers, and the
processes, thereby streamlining the encounter. Evidence- appropriate payment from payors for future generations
based medicine will encourage decision making based on will all depend on evidence-based medical practices (24).
reliable data. Donald Berwick believes that the practice of
medicine will migrate from being an enterprise that pro- Meaningful and Relevant Information
vides personal service to one that provides information by Managed care was not originally formed to focus on uti-
the year 2020 (9). lization control. The purpose was to keep track of the pa-
tient’s medical record and steer the direction of care from
Evidence-Based Medicine treatment to prevention. This was next to impossible,
Science and technology have advanced at a rapid pace over since the health maintenance organizations primarily han-
the last four decades, but the healthcare delivery system dled claims and billing data. Integrated delivery networks
has fallen short in providing consistent, high-quality ser- evolved on the provider side in an attempt to gather more
vices to transfer its knowledge into practice. The practice complete information about the patient. In response, hos-
of evidence-based medicine allows the judicious integra- pitals and providers formed community health informa-
tion of literature, clinical experience, and patient under- tion networks to build a centralized database that would
standing. Clinical guidelines, based on scientific evidence, contain all the medical records for every patient in the
and tools for measuring outcomes and patient compliance community network. This thinking was correct because
effectively bridge the gap between knowledge and practice. the goal was connectivity. Other attempts at data collection
In traditional medicine, the physician depends primar- include data warehousing and the implementation of an
ily on his memory, opinions formed without data, and electronic medical record (EMR). Ultimately the ability to
anecdotal experience to prescribe treatment. The patient’s assemble the complete patient care treatment experience
participation is minimal. In evidence-based medicine the in a single location will decrease medical errors, improve
physician incorporates current literature and data with patient care, and fundamentally change the way healthcare
memory and experience. The patient participates in ac- is delivered (14).
tively making joint decisions about treatment modalities. Healthcare is changing throughout the world, with
The physician is monitored for adhering to guidelines, and screening, diagnosis, and chronic disease management be-
the patient is monitored for compliance. Evidence-based ing redirected from the hospital environment to the phy-
sician providers. Demand for faster responses in patient
triage, critical-care medicine, high technology, and rapid
Figure 7.3 Bottom-up customer focus: the inverted paradigm. response diagnostics in the tertiary-care environment re-
In the new business paradigm, the customer as king maintains
inforces the premise that time is money. The potential to
the position of influence at the top of the chart. Employees are
empowered and trained to provide exceptional customer ser-
provide more value for the money lies in the evolving new
vice, exceeding the customer’s expectation. The management culture that is founded on evidence-based medicine, that
teams within the organization must lead by example, building focuses on outcomes, and that is manifested in the labo-
trust among the staff. doi:10.1128/9781555817282.ch7.f 3 ratory as new technologies, competitive advantage, ethi-
cal promotion, and distribution of information (C. Price,
personal communication).
The Customer Is King
The laboratory’s role in informatics. Laboratory test re-
Loyal Employees sults are of limited use in the absence of supporting clinical
information. Descriptive elements of clinical information
include gender, race, sex, age, occupation, health status,
signs and symptoms, patient status, family and medical
Laboratory Management history, and social behavior. Fueled by a complex health-
care environment and an ever-expanding array of diagnos-
Healthcare Providers tic procedures, there will be a growing need for increased
integration between clinical information and laboratory
data during the decade ahead. Genetic testing in particular
Hospital Administration requires that the test be performed as an adjunct to patient
management and be used in conjunction with the patient’s
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 205

clinical information. The trend toward evidence-based pa- • The care map is the critical pathway document (often
tient care while focusing on the patient will be challenging. formatted as a grid or algorithm) that maps care by
The role of the laboratory in response to these challenges a set of decision tree steps serving as a guideline in a
and opportunities will be to contribute medically relevant structured healthcare process for provision of care.
and value-added information to the future multidisci- • Assessment of outcome reviews the initial care map
plinary approach to the management of the patient (56). and may produce improvements in the clinical guide-
To determine value, laboratory information must be line by eliminating bias in the research. Efficacy is the
differentiated from laboratory data. If we only consider ability of a procedure or test to achieve the desired
data, laboratories simply perform the right test on the right clinical purpose in a controlled setting with a con-
patient at the right time and format at the right price. The trolled group of patients. Effective treatment is based
element that brings value to information is the ability to on demonstrating the desired effect in a larger popula-
provide the right result referenced to the right ranges, with tion, showing the value applied to the standard of care.
the right interpretations and consideration of the test limi-
• The application of evidence-based medicine research
tations. The information may also include the right advice
into daily clinical practice has challenges. There are
on how to use the test information with the right knowl-
major differences between the care that patients re-
edge of the clinical context of the testing. For laboratory
ceive and the practice the evidence suggests is effective.
information to be of value, it must convey results in a man-
ner that assists the provider in estimating the probability of
Impact of bioinformatics on pathology. Pathologists have
disease and affects subsequent patient management deci-
long suspected that bioinformatics would turn their world
sions toward improving patient outcome (10).
upside down. As test results and clinical patient data merge,
the previously clear distinction between the roles of ana-
Improving clinical decisions through evidence-based lab tomic and clinical pathologists blurs. The recent technol-
medicine. The move to adopt evidence-based medicine is ogy explosion requires that pathologists understand how
fueled by the requirements for data collection and patient molecular diagnostics bridges the gap between the worlds
outcome information, cost containment, and consumer of research and clinical care. Pathology will witness a grad-
demand for the best in diagnostics and treatment (60). ual shift from cell morphology to the molecular structure
The value of clinical guidelines, care maps, and outcome and function of cells as an adjunct to the diagnostic pro-
measures as useful quality improvement tools is weighed cess, including genomic and proteomic testing. As bioin-
against clinical appropriateness, efficiency, and effective- formatics becomes a significant driving force in pathology,
ness of the service. To demonstrate the impact of lab testing result reporting will steadily demand a larger share of the
on an increasing number of clinical outcomes, laboratory pathologist’s daily routine. At the same time, bioinformat-
professionals must use a number of skill sets: ics is raising difficult questions about the nature of disease.
The concept behind bioinformatics is to study significant
• Search electronic and paper sources for evidence patterns in large data sets, not in individual biological enti-
• Use analytical, statistical, and epidemiological ties. Pathologists must understand the stewardship of the
knowledge resource that will become the foundation for bioinformat-
• Demonstrate critical thinking skills ics research, the development of a comprehensive, well-
organized clinical biorepository. The clinical laboratory
• Understand the strengths and weaknesses of systematic
must have expertise in biochemistry and handling of large
review process
data sets, while the anatomic laboratory must have a keen
The process of systematically finding, appraising, and us- perspective and understanding of cellular biology (84).
ing research findings as the foundation for clinical decision
making is not always feasible. To make the best clinical
decision for patients, laboratories serve as clinical consul- Summary
tants, and much effort has been placed on determining best
During the first half of the 20th century, hospital-based
practices for communicating laboratory results for use in
laboratories almost exclusively delivered a limited menu of
diagnosis, treatment, and prognosis. Laboratorians should
anatomical and clinical test procedures. Then in the 1950s,
follow a quality-improvement approach that includes ask-
advances in technology paved the way for rapid growth
ing if the care is appropriate, efficient, and effective:
in the areas of automation, instrumentation, quality as-
• Clinical practice guidelines are statements developed surance, and quality control. Improvements in precision
to assist practitioners in general decisions about pa- and accuracy led to more efficient analytical processes.
tient care with specific clinical application from prior Computerization was introduced to the laboratory in the
experience and researched evidence. 1960s, opening the door for the laboratory to become a
206 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

repository of clinical information and knowledge about succeed. Healthcare is becoming a business of manag-
wellness and disease. Concepts of sensitivity, specific- ing relationships rather than events. A complete and
ity, efficacy, effectiveness, predictive values, and analyti- longitudinal medical record will become a metric in
cal variability emerged. The capital development of the the future.
1960s shifted testing to remote independent laboratories • Value chain optimization. Stakeholders in the industry
where large test volumes were performed in a factory- are restructuring their internal and external customer
like setting. The 1980s witnessed the evolution of more focus.
sophisticated laboratory equipment and computers that
• Digitalization. The information revolution and digi-
supported bar-coding and instant patient identification.
tization are driving the next wave of technological
As early as the 1990s, visionaries predicted that molecular
restructuring in healthcare and information-intensive
biology had the potential to change the industry. Today an
industries. Information is knowledge, and knowledge
estimated 1,500 diseases are now detectable using genetic
is power. Educated consumers are becoming more
testing; however, nearly 300 are limited to testing for in-
responsible and involved in their healthcare. Laborato-
vestigational and research purposes only. Since its incep-
ries that embrace change through information technol-
tion, the laboratory has provided physicians with valuable
ogy are positioned for success in the future.
information that supports the diagnosis and treatment of
disease. In the new millennium, the laboratory is strategi- According to Gammon, “Leroy Hood thinks that the
cally positioned for success, providing more information $2.3 trillion U.S. healthcare system is headed for life sup-
about the human condition faster and more accurately port, but he has a plan for curing its inefficiency, and in-
than ever before (8). effectiveness.” Hood, a 69-year-old biotechnologist, bases
During the golden age of healthcare, clinical labora- his approach on the four Ps: medicine that is predictive,
tories focused on increasing on-site test menus, reduc- preventive, personalized, and participatory. The goal shifts
ing turnaround time, and acquiring the latest technology. “medicine from treating illness to managing health, saving
Costs were essentially passed through, and laboratorians money and lives along the way” (26, 77).
and pathologists became specialists in a discipline. Hospi- According to Hood, the U.S. healthcare system should be:
tals ignored the service demands of the non–hospital patient Predictive
market, allowing the independent commercial laboratories The vision. Using genome sequencing and blood
to get a stronghold. The reference labs were profitable due to tests, a doctor will be able to determine a patient’s
the economies of scale from automation and the favorable probability of developing certain diseases. The
reimbursement environment. The prospective payment price of those tests is dropping and will soon be
system for inpatient reimbursement and managed-care less than $1,000—the same as a CT scan today.
capitation in the outpatient market led to a commodity
The challenge. Physicians will have to be trained
pricing strategy, with commercial laboratories using loss
to use the technology ethically. Patients will have
leaders to gain managed-care contracts. The industry re-
to make sense of new kinds of choices.
sponded with attempts at consolidation, regionalization,
acquisitions, and mergers to offset the losses. Preventive
The future of the healthcare industry is being driven by The vision. Based on an individualized risk profile,
these five market forces (1): one could start therapies in advance to cut the
• Marketization. In this market the stakeholders demand likelihood of illness. Drugs could be designated to
a higher performance expectation and accountability blunt the desire to overeat, drink, or smoke. Aver-
for demonstrated efficiency. age lifespan could be extended 20–30 years.
The challenge. What qualifies as a disease? Will
• Consumerization. During the golden age, patients
we have fewer football players if we quiet the
didn’t act like consumers. Today, patients demand
genes that drive aggression?
choice, access, quality care, service, and price. The
consumer is driving the healthcare paradigm toward Personalized
prevention and wellness. New metrics for quality and The vision. With billions of data points for every
performance in the laboratory hinge on four general patient, drug therapies can be created to suit each
approaches to outcome evaluation and include cost genome. This would eliminate the trial-and-error
minimization, cost effectiveness, cost utility, and cost- approach that doctors use today.
benefit analysis. The challenge. Having your genome on Google
• Mass customization. In an efficient healthcare market, could be a huge privacy risk. With so much in-
competitors must create value for customers by dif- formation around, data security will become an
ferentiating their products and services in order to important field in the healthcare industry.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 207

Participatory GLOSSARY
The vision. People will maintain their own health, Accountable care organization (ACO) A group of providers
not just by treating existing illnesses but by learn- and suppliers of services, such as hospitals. Physicians involved
ing about their own predispositions. in patient care that work together to coordinate and deliver
The challenge. How to explain biomarkers to seamless care for the Medicare beneficiaries they treat under a
someone with little grasp of science? Hood pro- fee-for-service arrangement.
poses games that teach health concepts, and his Actuarial data Information used by an actuary to make projec-
Institute for Systems Biology is working with tions regarding service utilization to determine the financial risk
school districts to develop top-notch science of providing the service.
curricula. Age/sex rating A method of structuring capitation payments
based on enrollee membership age and sex.
Algorithm A binary decision tree using patient response to in-
tervention and other information to guide stepwise treatment of
KEY POINTS a specific problem.
■ The current healthcare reimbursement system focuses Ambulatory payment classification (APC) A method used by
on the right price and volume. The healthcare system the Center for Medicare and Medicaid Services (CMS) to imple-
of the future should reward providers who demonstrate ment prospective payment for ambulatory procedures. APC pay-
good outcomes and implement safety systems in the ments combine many different ambulatory procedures into a
course of treatment. single group for purposes of payment.
■ The value of a laboratory test is measured by whether Bioinformatics The science of developing computer databases
it changes the likelihood of disease in conjunction with and algorithms for the purpose of speeding up and enhancing
the clinician’s estimate of the probability of disease. biological research.
■ Patients who take personal responsibility for their Bundled payment CMS links payments for multiple services
healthcare have improved outcomes. patients receive during an episode of care. For example, instead
of a surgical procedure generating multiple claims from multiple
■ Direct access testing accounts for up to 10–15% of the
providers, the entire team is compensated with a bundled pay-
testing performed in hospital and commercial laborato- ment that provides incentives to deliver healthcare services more
ries in the United States each year. efficiently while maintaining or improving quality of care. Pro-
■ Consumers electing to visit alternative medicine pro- viders will have flexibility to determine which episodes of care
viders for convenience pay out of pocket nearly 75% of and which services would be bundled together.
the time. Capitation A predetermined, fixed amount paid to providers in
■ Consumer demands are forcing change. Consumers return for rendering a specified set of health services. The pay-
want accurate, legible bills and simplified eligibility ment is usually on a per member per month (pmpm) basis re-
determination and registration. Their focus on pre- lated to the number of patients enrolled in the health plan.
vention and wellness means diagnostic testing must Carve out Services and procedures that are defined by contract
identify problems early and monitor individuals at to be separate and apart from the negotiated capitation rate and
high risk. that are typically paid on a fee-for-service basis.
■ Hospitals that provide the best customer service attract Case management A collaborative process used by healthcare
the best physicians, who in turn attract patients. providers to assess, plan, facilitate and provide advocacy for pa-
tients about medical service options to help meet their healthcare
■ Healthcare is becoming a business of managing rela-
needs using interdisciplinary communication that promotes
tionships rather than events. quality and cost-effective outcomes.
■ Disease management will drive the next generation of
Catchment/market/service area A specific service area defined
managed care, by focusing on prevention and early de- by geographic boundaries targeted by health plans, providers,
tection, and will represent a significant opportunity for and service networks to market products and services.
clinical laboratories.
Clinical pathways Practice guidelines for routine patient care that
■ DNA testing used to adjust doses and to select specific
have been adapted to local conditions to standardize treatment. In
cancer treatments will allow treatment regimens to be more involved cases with underlying disease, treatment complica-
tailored to the patient, reducing side effects, as specific tions, and secondary unexpected issues with unknown outcomes,
genes often control the metabolism of drugs (41). the practice guidelines are referred to as critical pathways.
■ Evidence-based medicine is gaining support from many Coinsurance The percentage split of the agreed upon cost shar-
groups as the foundation for healthcare reform and the ing ratio between a health plan participant and the insurer or em-
future of medicine. ployer. Usually the employer assumes 80% and the employee 20%.
208 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Community-based rating A method of calculating insurance • Forecasting. Discovering patterns in data that can lead to
premiums based on the combined experience of multiple groups reasonable predictions about the future
within a geographic region adjusted for age, sex, and high risk.
Deductible The amount of medical expense that the insured
Companion diagnostics A new diagnostic test that is developed must pay before the insurer assumes liability for all or part of the
in combination with a new therapeutic where the diagnostic test remaining cost of the covered service.
provides essential information for selecting patients that should
Deficit Reduction Act (DEFRA) of 1984 Public law that autho-
receive or continue to receive a drug. The drug and diagnostic
rized the Medicare clinical laboratory fee schedule and man-
are tested and approved together, and one would not be intro-
dated that only the laboratory actually performing the testing
duced without the other. The FDA defines the therapeutic and
can initiate the billing (known as direct billing requirement).
companion diagnostic as a “combination product” as defined in
the Federal Register, 21 CFR 3.2(e). Diagnosis-related group (DRG) Classification system devel-
oped at Yale that defines 467 major diagnostic categories and
Composite rate A uniform premium that applies to all eligible
places patients into case types based on the International Classi-
members in a subscriber group regardless of the number of de-
fication Disease (ICD-9 CM) code classifications (74).
pendents covered (commonly used with labor unions and large
employer groups). Direct access testing (DAT) Laboratory testing performed at
the request of the patient as the consumer. These consumers
Consolidation An internal laboratory system strategy to reduce
want control of their medical care and are willing to pay for the
costs by eliminating the duplication of services and excess capac-
service out of pocket.
ity, restructuring of the workflow, implementing changes in staff
resources, and centralizing operation management. Direct billing Medicare mandate that claims for laboratory ser-
vices be submitted by the laboratory rendering the service and
Consumer In healthcare the consumer is the patient. The patient
not billed by the provider that ordered the test.
is sometimes also an employee, a subscriber, or a beneficiary.
DNA sequencing A method used to determine the order of base
Consumer-driven health plan (CDHP) A type of healthcare fi-
pairs along a stretch of DNA.
nancing designed to reduce healthcare spending by providing
financial incentives for consumers to receive/purchase the best Economy of scale Whenever output is increased without in-
value. Monthly premiums for CDHPs are typically less than the creasing the cost of production, economy of scale is achieved.
traditional health plan premium, giving consumers greater con- Electronic medical record (EMR) Documentation of the pa-
trol and responsibility for their own healthcare spending. With tient care treatment experience in an electronic format.
higher deductibles and out-of-pocket costs, patients are incen-
tivized to learn about the cost and quality of care. Episode of care The set of services required to manage a specific
medical condition of a patient over a defined period of time.
Consumerism A healthcare market trend where patients decide
what type of healthcare plan they need and how much to spend Evidence-based measures Evidence-based practices integrate re-
on it. Driven by decreases in employer-provided health insur- search evidence with the patient history and clinical impressions,
ance coverage and the development of financial vehicles, such as using five steps—assess, ask, acquire, appraise, and apply—to eval-
tax-free savings accounts, employees are encouraged and incen- uate the effectiveness of treatment and measure the outcomes.
tivized to invest in their healthcare to ensure convenient access Evidence-based medicine (EBM) The application of current
and improve quality. best evidence from clinical research to the management of pa-
Contract mix The distribution of enrollees by number of de- tient care, taking into account patient preferences and the physi-
pendents (single, double, family). cian’s experienced judgment. The practice of evidence-based
medicine allows for the judicious integration of literature, clini-
Copayment (copay) A fixed dollar amount paid by the sub- cal experience, patient understanding, and needs.
scriber to the provider at the time of service.
Experience rating A method of calculating insurance premiums
Critical pathways Written criteria to guide care based on stan- based on the experience of one group in terms of claims submitted.
dards of practice, delineating necessary treatment and facilitating
appropriate use of resources (also referred to as clinical pathway). Fee for service (FFS) The method of reimbursing providers a
fee for each unit of service provided rather than by capitation,
Data mining Sorting through data to identify patterns and es- case rate, or per diem payment. Payment may be based on a per-
tablish relationships. Data mining parameters include: centage of charges or an agreed upon fee schedule.
• Association. Looking for patterns where one event is con- Fixed rate The negotiated payment rate for a service or group of
nected to another event services linked to a diagnosis code or procedure that is paid ei-
• Sequence or path analysis. Looking for patterns where one ther prospectively or retrospectively.
event leads to another later event
Gap analysis A study of the differences between systems, proce-
• Classification. Looking for new patterns (which may result dures, or applications, often for the purpose of determining how
in a change in the way the data are organized) to get from the current state to a new state. The analysis defines
• Clustering. Finding and visually documenting groups of the space between where we are and where we want to be, bridg-
facts not previously known ing the gap.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 209

Gatekeeper The primary-care provider (PCP) responsible for that lower growth in healthcare costs while meeting performance
managing the healthcare of a health maintenance organization standards for quality care and putting patients first.
(HMO) enrollee.
• Application: http://www.cms.gov/sharedsavingsprogram (last
Gene therapy The introduction of therapeutic genes into cells to accessed December 14, 2011)
treat or cure disease. • Final rule: http://www.ofr.gov/inspection.aspx (last accessed
Genotype All or part of the genetic constitution of an individual. December 14, 2011)
Group practice without walls (GPWW) When two or more Medigap A supplemental health insurance policy sold by pri-
physician groups share the costs of a lease for an office space. vate insurance companies designed to pay for healthcare costs
Each group has assigned days of the week for use of the space. and services that are not paid for by Medicare and any private
This time-sharing business arrangement enables physician health insurance benefits.
groups to expand their service area and eliminates the duplica-
tion of lease expenses for the entire month. National Correct Coding Initiative (NCCI) Developed by the
CMS, NCCI promotes correct coding methodologies and con-
Healthplan employer data and information set (HEDIS) A trols improper coding that leads to inappropriate payment in
survey methodology developed by the National Committee for Part B claims. The CMS coding policies are based on coding con-
Quality Assurance (NCQA) that standardizes the quality perfor- ventions defined in the American Medical Association’s CPT
mance data the managed-care organizations provide to NCQA. manual, national and local policies and edits, coding guidelines
HEDIS allows NCQA to compare managed-care organizations developed by national societies, analysis of standard medical and
and issue report cards on the quality of services they offer. surgical practices, and a review of current coding practices. The
Kanban A Japanese system that monitors production line, in- CMS annually updates the Coding Policy Manual, and it should
ventory, consumer demand, and feedback to deliver goods and be used by MACs as a general reference tool that explains the
services just in time (JIT), an operational strategy used to elimi- rationale for NCCI edits.
nate waste by getting the right quantity of materials, supplies, Outcome A measured change or event that reflects the status of
and products in the right place at the right time (9). a patient during a defined period of time (for example, death, the
Ligase chain reaction A DNA sequence amplification reaction onset of symptoms, the disappearance of symptoms, discharge,
using thermostable DNA ligase. readmission, complications, or diagnosis).
Mapping The method used to determine the chromosomal lo- Outcome-based medicine Medical practices aimed at assessing
cation of a gene. the quality and effectiveness of healthcare and measured against
the ability to achieve a specified end result or outcome. Measures
Medicaid integrity contractor (MIC) The Deficit Reduction
often include the following parameters: improved health, lowered
Act of 2005 (Section 1936 of the Social Security Act) provided for
morbidity or mortality, and improvement of abnormal states.
the creation of the Medicaid Integrity Program (MIP), which
dramatically increased the federal government’s role and respon- Patient-centered medical home (PCMH) An approach to pro-
sibility in combating Medicaid fraud, waste, and abuse. Section vide comprehensive primary care for children, youth, and adults
1936 of the Social Security Act requires the Centers for Medicare in a healthcare setting that facilitates partnerships between pa-
and Medicaid Services (CMS) to contract with eligible entities to tients, physicians, and family (when appropriate).
review and audit Medicaid claims, to identify overpayments, and
to provide education on program integrity issues. Patient Protection and Affordable Care Act (PL: 111-148) The
PPACA law regulates increased access to health insurance cover-
Medically unlikely edits (MUEs) Edits that limit the number of age, expands the federal private health insurance market require-
units of service codes reported with certain CPT or HCPCS ments, and requires the creation of health insurance exchanges
codes. MUEs are completely different from the National Correct (HIE) to provide individuals and small employers with access to
Coding Initiative (NCCI) edits that focus on combinations of insurance. The costs associated with expanded access to health
codes that should not be reported together. Since they are not insurance and the other provisions are proposed to be offset by
mutually exclusive, both MUEs and NCCI edits could be gener- increasing taxes and revenues and reducing Medicare and Med-
ated simultaneously depending on code combinations and total icaid spending on healthcare.
number of units of service.
Payor Any third-party insurance company that sells traditional in-
Medicare administrative contractor (MAC) In December demnity and managed-care products to group purchasers, large and
2003, Congress passed a law requiring the CMS to reform its small employers, and private individuals for healthcare coverage.
contracting methods for processing Medicare Part A and B
claims and is replacing all Medicare contractors (including 23 PCR A technique for amplifying millions of times a single target
fiscal intermediaries and 17 carriers), naming 23 MACs with DNA sequence using thermostable DNA polymerase so it can be
new vendors that will be responsible for processing all Medicare detected and studied more easily.
claims for payment. All jurisdictions were transitioned to new
Per diem The negotiated daily reimbursement rate for services
MACs in December 2011.
provided for inpatient hospital services. The rates are negotiated
Medicare Shared Savings Program The Shared Savings Program specific to the type of service rendered (for example, general
rewards voluntary participation in accountable care organizations medical, surgical, or intensive care).
210 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Personalized medicine A healthcare patient model that cus- Stop-loss A provision within a health plan that limits the members’
tomizes all healthcare decisions and clinical practices to the indi- or providers’ out-of-pocket expense to a maximum allowance.
vidual patient, incorporating the use of genetic and other
information, such as family history, social circumstance, envi- Tax, Equity, Fiscal Responsibility Act of 1982 (TEFRA) Public
ronment, and behavior. Law 97-248, which established payment for inpatient stays for
Medicare beneficiaries based on diagnosis-related groups
Point of service (POS) A managed-care plan with reduced ben- (DRGs) and introduced the clinical laboratory competitive bid-
efits that allows the enrollee to select services and benefits at the ding demonstration project.
point of service for a network prepaid plan and an out-of-
network fee-for-service plan. The out-of-network plan usually Telecommunication Voice, video, or data information is trans-
carries a copayment that is a percentage of the fee-for-service mitted from one location to another using integrated services
charges to the health plan. digital network (ISDN) phone lines, T1 lines, digital subscriber
lines, or various forms of wireless communication (102).
Progressive rates A method used by some health maintenance
organizations in which they implement new rates monthly, quar- Telemedicine The practice of medicine using telecommunica-
terly, or semiannually when contracting with large employer tions technology to transmit data, sound, and images between
subscriber groups. two or more distant sites.
Prospective payment system (PPS) A method for payment by Telepathology A pathology practice using telecommunications
Medicare for hospital inpatient services in which the payment is technology to share diagnostic and microscopic images over
according to the DRG classification of the discharge and enacted long distances for identification and consultation, linking pa-
by the Social Security Amendments of 1983 (P.L.98-21). thologists and other healthcare providers with patient care.
Purchaser Buying groups, employers, and individuals who pur-
chase healthcare policies from third-party payors (insurers). Universal access The concept that all people, regardless of
health or economic status, have access to a minimal, standard
Recovery audit contractor (RAC) A program overseen by the package of healthcare benefits that provides quality healthcare.
CMS to audit healthcare providers to ensure that they are not
overbilling Medicare and Medicaid. The CMS only pays RAC Usual, customary, and reasonable fees (UCR) Fees paid to a
contractors when they identify overpayments or potential fraud. physician:
Referral A recommendation by the primary-care physician that a • If the charge does not exceed the “usual” charge from his or
member receive services from another network provider. It is a no- her office
tification process and not a review to establish medical necessity. • If the charge does not exceed the amount “customarily”
Regionalization A system of laboratories capable of providing charged by other physicians in the area
services to a larger geographical area. Regional systems allow • If the charge is otherwise “reasonable” (reference 19, p. 76–79)
the aligned laboratories to market the combined strengths of the
collective testing menus to keep more tests within the regional Utilization management The concurrent or prospective pro-
system and eliminate referrals outside of the system, positioning cess of monitoring, assessing, and controlling the utilization of
the regional laboratory system to compete for managed-care healthcare services to promote efficiency and quality. The pro-
contracts. cess includes review of length of stay, admission rates, coordina-
tion of physician and nonphysician services, and use of services
Resource-based relative value system (RBRVS) A system of like ER, laboratory, pharmacy, and radiology.
reimbursement that reimburses providers for the true cost or
value of the services they provide. True cost and value are deter- Utilization review A retrospective healthcare assessment tool
mined using a formula that multiplies a relative value unit by a used by managed-care organizations to ensure that their mem-
monetary conversion factor. The relative value unit rates the bers have received appropriate quality services. Admissions,
value of the actual cost of the service based on a physician cost length of stay, and utilization of services are included.
component (work), a practice cost component (overhead), and
a malpractice cost component. The cost-based approach more Value-based payment A payment method that rewards quality
closely approximates a normal, competitive market than charge- of care using payment incentives. Healthcare value is considered
based systems. a function of quality, efficiency, safety, and cost, where providers
are accountable for the quality and cost of the healthcare services
Restructuring Tactical measures used in laboratory consolida- they provide. The payments are based on rewards that are depen-
tion include downsizing, point-of-care testing, consolidating dent on meeting specific performance measures and on conse-
work at benches, and interdisciplinary teams on utilization. quences that discourage patient care that is inappropriate,
Risk pool A portion of provider fees or capitation payments that unnecessary, and costly.
are withheld as financial reserves to cover unanticipated utiliza-
Withhold A payment method that withholds a percentage of a
tion of services.
negotiated payment in a reserve fund for specialty provider con-
Risk sharing The process of establishing financial arrangements, tracts. Annually, if the negotiated quality and cost criteria have
utilization controls, and other mechanisms to share the financial been met, the portion of the fee that was withheld is returned
risks of providing care among providers, payors, and users. according to the risk-bearing terms of the contract.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 211

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Adv. Admin. Lab. 6:76–80. July 15, 2013).
80. Sanderson, E. 2013. The rising health care needs of aging Baby
96. Weber, L. J. 2000. Access to medical information: 10 ethical
Boomers. http://medical-careers-review.toptenreviews.com/the
guidelines. Clin. Leadersh. Manage. Rev. 14:280–283.
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July 15, 2013). 97. Weber, L. J., and M. G. Bissell. 1998. Case studies in ethics: con-
sent and confidentiality in genetic research. Clin. Lab. Manage. Rev.
81. Schrifreen, R. S. 2010. 15th anniversary essay looking back:
12:435–436.
the challenge of companion diagnostics. IVD Technol. 16(5). http://
www.ivdtechnology.com/print/1908 (last accessed October 2, 2012). 98. Wedlund, P. 2001. The cost of genetic testing. Adv. Admin. Lab.
82. Scott, K. 2012. Labs face significant cut in payments over next 10:20.
four years. G2 Intelligence. http://www.g2intelligence.com/article/ 99. Wilkinson, D. S. 2000. Technology assessment: measuring the
art546972?channel=20120330 (last accessed October 2, 2012). outcomes of laboratory practice. Clin. Lab. Manage. Rev. 14:267–271.
83. Sennett, C. 2010. Industry trends: healthcare reform: quality 100. Wills, S. 2000. The 21st century laboratory: information tech-
outcomes measurement and reporting. Am. Health Drug Benefits nology and healthcare. Clin. Lab. Manage. Rev. 14:289–291.
Sept/Oct(3):5.
101. Wilson, M. J. 1998. Enhancing managed care opportunities of
84. Skjei, E. 2002. Getting ready for the bioinformatics shakeup. group practices. Healthcare Finance 24:65–77.
CAP Today 16(8):1–6.
102. Yablonsky, T. 2000. Bringing healthcare and education within
85. Slen, J., M. Bailit, and M. Houy. 2010. Value Based Purchasing reach: distance learning, telepathology transform laboratory medi-
and Consumer Engagement Strategies in State Employee Health Plans: cine. Lab. Med. 31:198–205.
A Purchasing Guide. Prepared by State Coverage Initiatives by Bailit
Purchasing, LLC, Academy Health. 103. Zeiger, B. 1997. Ethics: genes, clones, and other neat stuff. Van-
tage Point 1(14):1–6.
86. Soloway, H. B. 1995. Establishing a direct laboratory access pro-
gram. Clin. Chem. 41:809–812. 104. Zeiger, B. 1998. At the wheel of a point-of-care program. Probe,
Module 14: Point of Care Testing, p. 1–6.
87. Solz, H. 2001. Disease management: getting better all the time.
Health Manage. Technol. 22(9):42–44. 105. Zeiger, B. 1998. A closer look at alternative medicine: consider-
ing the alternative. Vantage Point 2(15/16):4–6.
88. South, S. 1999. Seeking the competitive advantage: it’s more than
cost reduction. Clin. Lab. Manage. Rev. 13:173–177. 106. Zeiger, B. 1998. Say hello to the future. Probe. Module 24: Labo-
89. Stienhoff, J. C., and E. Giniat. 2011. White paper: overview of ratory Trends for 1999: A Look Ahead, p. 2–10.
the final rule and clarifications to meaningful use. KPMG Govern- 107. Zneimer, S. 2002. The human genome project: exploring its
ment Institute and KPMG Healthcare and Pharmaceutical Institute. progress and successes and the ethical, legal, and social implications.
www.kpmggovernmentinstitute.com (last accessed May 30, 2012). Clin. Leadersh. Manage. Rev. 16:151–157.
214 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 7.1 Websites

American Association of Clinical Chemistry (AACC) Healthcare.gov

www.aacc.org (accessed December 23, 2011) www.healthcare.gov (accessed August 30, 2011)
American Clinical Laboratory Association (ACLA) Information about the Affordable Care Act.
www.acla.com (accessed December 28, 2011) Healthcheck USA
American Medical Association (AMA) http://healthcheckusa.com (accessed on April 9, 2012)
http://www.justice.gov/atr/public/divisionmanual/chapter2.pdf An Internet-based company that brokers DAT for participating
(accessed May 31, 2012) laboratories.

American Society of Clinical Laboratory Science (ASCLS) Health Futures, Inc.

www.ascls.org (accessed April 9, 2012) www.healthfutures.net (accessed April 9, 2012)
Health futurist Jeff Goldsmith is the company president.
American Society of Clinical Pathology (ASCP)
Health Level Seven (HL7)
www.ascp.org (accessed April 9, 2012)
www.hl7.org (accessed April 9, 2012)
Association of Laboratory Automation (ALA)
Lab Tests On Line
www.labautomation.org (accessed on April 9, 2012)
http://www.labtestsonline.org (accessed December 23, 2012)
American Telemedicine Association A public resource on clinical lab testing.
www.atmeda.org (accessed April 9, 2012)
Managed Care On Line (MCOL)
Association of Telemedicine Service Providers http://www.mcol.com/factsheetindex (accessed September 28, 2012)
www.atsp.org (accessed April 9, 2012)
Motorola Wireless
Beckers Hospital Review http://sg.motorola.com/bluetooth/ (accessed April 9, 2012)
www.beckershospitalreview.com (accessed January 20, 2012)
National Association for Home Care
CDC-Division of Laboratory Systems (DLS) http://www.nahc.org/facts/10HC_Stats.pdf (accessed May 31, 2012)
www.phppo.cdc.gov/dhs/genetics/ (accessed April 9, 2012)
Plan for Your Health
Laboratory Genomics Branch.
http://www.planforyourhealth.com/open-enrollment/ (accessed
College of American Pathology September 28, 2012)
www.cap.org (accessed April 9, 2012) Open enrollment and healthcare spending accounts.
Effective Healthcare Program of AHRQ Results Direct
http://effectivehealthcare.ahrq.gov (accessed January 16, 2012) http://results-direct.com (accessed April 9, 2012)
A hospital-based company that offers DAT via the Internet.
Food and Drug Administration
http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/ Web MD
GuidanceDocuments/ucm262292.htm (accessed May 31, 2012) www.webmd.com (accessed April 9, 2012)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 215

APPENDIX 7.2 Additional Suggested Reading and Resources

Beazley, D. 1998. Designing an outpatient laboratory requisition Kurec, A. S. 1998. Telemedicine: emerging opportunities and fu-
to reduce suspended claims. Clin. Lab. Manage. Rev. 12:438–449. ture trends. Clin. Lab. Manage. Rev. 12:364–371.
Bernstein, L. H., and F. I. Scott, Jr. 1997. Strategic consider- Lehmann, C., and A. M. Leiken. 2000. Diagnostic technology
ations in clinical laboratory management: a laboratory leader- for laboratories in an integrated delivery system. Clin. Leadersh.
ship role in clinical pathways: establishing the laboratory’s direct Manage. Rev. 14:118–123.
contribution to the institution’s performance. Clin. Lab. Manage.
Rev. 11:116–124. Lewis, M., J. Quinn, and P. Goldstein. 2002. Mapping your
HIPAA compliance itinerary. Analysis & perspective. BNA’s
Cooper, R. S., and J. P. Wood. 1997. The art of contract negotia- Healthcare Policy Rep. 2002(9):35.
tion. Adv. Admin. Lab. 6:100–106.
Lieder, K. W. 1999. Excitement builds in molecular biology. Adv.
Dress, A. 2002. Lab-on-a-chip: platform in development. Adv. Admin. Lab. 8:50–52.
Admin. Lab. 11:54–58.
Mah, J., and R. Guenther. 2011. For the future of healthcare
Eisenberg, D. 2002. The coming job boom: the help wanted ads design, look beyond the hospital. http://www.fastcodesign.com/
may look thin: but thanks to aging baby boomers, that’s about 1663450/for-the-future-of-health-care-design-look-beyond-the
to change. Insights 2002(8):41–44. (Reprinted with permission -hospital (last accessed September 28, 2012).
from Time Inc.)
Malone, B. 2010. The future of lab leadership: what will it take to
Elevitch, F. R. 1998. CE update: laboratory economics. I. Im-
navigate the changes ahead? Clin. Lab. News 6(10).
pact of managed care on laboratory economics. Lab. Med.
29(12):747–752. Malone, B. 2010. The send-out testing boom: how can labs take
Ferrara, J. 2007. Personalized medicine: challenging pharma- control? Clin. Lab. News 6(10).
ceutical and diagnostic company business models. McGill J. Med. Malone, B. 2011. Reimbursement and reform in 2011: will the
10(1):59–61. push for integration open a new role for labs? Clin. Lab. News
Glass Eye Consulting. 2012. ICD-9 to ICD-10 conversion issues: 37(1).
the rest of the story. www.glasseyeconsulting.com (last accessed Malone, B. 2011. Privacy in the ERA of EHRs: what’s the lab’s
May 31, 2012). responsibility? Clin. Lab. News 37(3).
Glass Eye Consulting. 2012. Practical considerations of out- Malone, B. 2011. 10 years after the Human Genome Project will
come based healthcare. www.glasseyeconsulting.com (last ac- the DTC genetic test debate shape the future of genomics? Clin.
cessed May 31, 2012). Lab. News 37(4).
Greenblat, J. 2010. CAP urges increased oversight of direct-to-
Malone, B. 2011. The ICD-10 transition: what should labs ex-
consumer laboratory tests citing potential risk to patients. Col-
pect? Clin. Lab. News 37(6).
lege of American Pathologists. http://www.cap.org/apps/cap
.portal?_nfpb=true&cntvwrPtlt_actionOverride=%2Fportlets McGlennen, R. 1999. Microminiaturization: technology in the
%2FcontentViewer%2Fshow&cntvwrPtlt%7BactionForm palm of your hand. Adv. Admin. Lab. 8:31–33.
.contentReference%7D=media_resources%2Fnewsrel_direct_to
_consumer.html&_pageLabel=cntvwr (last accessed October 2, Michel, R., and R. J. Carlson. 2002. Newsmaker interview: labo-
2012). ratories sit squarely between new genetics and today’s medicine.
Dark Rep. 9(18):3–21.
Hammer, M., and J. Champy. 2003. Reengineering the Corpora-
tion: a Manifesto for Business Revolution. HarperCollins Publish- Panteghini, M. 2004. The future of laboratory medicine: under-
ers, New York, NY. standing the new pressures. Clin. Biochem. Rev. 11(25):207–215.

Herman, B. 2012. 9 things healthcare organizations should do Poeggel, J. 2000. The lab on the Internet: is it safe? Vantage Point
now to prepare for ICD-10. http://www.beckershospitalreview 4(17):1–3.
.com/racs-/-icd-9-/-icd-10/9-things-healthcare-organizations Porter, M. 2013. Value based purchasing: a definition. Adapted
-should-do-now-to-prepare-for-icd-10.html (last accessed Oc- from the National Business Coalition on Health. MidAtlantic
tober 2, 2012). Business Group on Health, Greenbelt, MD. http://www.mabgh
Keiser, J. F., and B. J. Howard. 1998. Critical pathways: design, im- .org/files/VBPDefinition.pdf (last accessed July 15, 2013).
plementation, and evaluation. Clin. Lab. Manage. Rev. 12:317–331.
Robinson, J. C. 2005. Managed consumerism in healthcare.
Kisner, H. 1999. “Home brew” laboratory tests. Clin. Lab. Man- Health Affairs 24(6):1478–4189.
age. Rev. 13:104–106. (continued)
216 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 7.2 Additional Suggested Reading and Resources (continued)

Rollins, G. 2011. The three year outlook for diagnostics: contin- The Dark Intelligence Group, Inc. http://www.darkdaily.com/
ued uncertainty, renewed focus and value predicted. Clin. Lab. white-papers/transferring-laboratory-data-into-the-electronic
News 37(1). -medical-recordtechnological-options-for-data-migration-in
-the-laboratory-information-system#axzz289VAlSVK (last ac-
Rollins, G. 2011. The era of personalized medicine in cancer: cessed October 2, 2012).
will companion diagnostics be the tipping point? Clin. Lab. News
37(10). http://www.aacc.org/publications/cln/2011/october/Pages/ Venner, A. 1997. A method for capitation rate calculation using
PersonalizedMedicine.aspx (last accessed October 2, 2012). financial data readily available to the laboratory manager. Clin.
Lab. Manage. Rev. 11:382–387.
Sandrick, K. 2000. For HEDIS to succeed, MCOs must get a read
on lab’s needs. CAP Today 14(7):30–38. Walker, A., and B. Zeiger. 1997. Roundtable: ethical dilemmas
in genetic testing. Lab. Med. 28:311–315.
Sodeman, T. 1997. The integrated delivery system: opportunities
for leadership. Clin. Lab. Manage. Rev. 11:310–317. Weber, L. J., and M. G. Bissell. 1996. Case studies in ethics: the
ethics of billing. Clin. Lab. Manage. Rev. 10:409–411.
Strazzella, M. P., and A. J. Walsh. 1998. Microscope on Wash-
ington: Congress and states delve into genetic concerns. Lab. Wisecarver, J. 1997. The ABCs of DNA. Lab. Med. 28:48–51.
Med. 29:140–142. Yablonsky, T. 1997. Genetic testing helps patients and research-
ers predict the future. Lab. Med. 28:316–322.
Terry, M., and J. Pekarek. 2011. White paper: transferring labo-
ratory data into the electronic medical record: technological op- Zeiger, B. 1997. A crystal ball for healthcare. Vantage Point
tions for data migration in the laboratory information system. 1(11):4–6.
Managerial Leadership
II
(section editor: John C.H. Steele, Jr.)
8 The Foundations of Leadership
David S. Hefner and Katharine R. Becker
9 Employee Needs
John C. H. Steele, Jr.
10 Motivating through Intelligent Leadership
Christa Pardue
11 Successful Communication
Diane C. Turnbull
12 Effective Meetings
Mark G. Hanly
13 Conflict Management
Jean Egan
14 Managing Change
Kellie Gibbs
Introduction
Distinguishing Management
8 The Foundations of Leadership
from Leadership
What Is “Leadership” and How Do You Become a David S. Hefner and Katharine R. Becker
Leader? • Management • Leadership
The First Foundational Factor Is Integrity
The Definition of Integrity • Honoring Your Word •
The Pitfalls in Honoring Your Word • What Is Your
Word? • What Is the Current State of Your Word? •
Trust and Its Relationship to Honoring Your Word •
Preparation for Making a Commitment or Giving OBJECTIVES
Your Word
To help the reader understand the difference between the realms of
The Second Foundational Factor management and leadership
Is Authenticity
The Definition of Authentic • Knowing Yourself • To develop an understanding of the importance of integrity and its relationship
How Do You Respond in Various Situations? • The with performance
Importance of Context • The Path to Authenticity
To clarify the misconceptions about operating with integrity and why people
The Third Foundational Factor Is may disregard it, thereby diminishing their power as a leader
Commitment to Something Bigger
than Yourself To help aspiring leaders appreciate the inward journey of leadership and
Succeeding as a Leader • What Happens Next? discover for themselves what it means to be authentic
Summary To provide clarity about the relationship between being committed to
KEY POINTS something bigger than oneself and becoming a leader
ACKNOWLEDGMENTS To offer resources for the reader’s continued education
REFERENCES
APPENDIXES
Whatever you can do or dream you can, begin it.
Boldness has great genius, power and magic in it!
Johann Wolfgang von Goethe

B
eing a leader has everything to do with Goethe’s quote. Every leader
has faced the challenge to “just begin it!” This chapter offers access to
actionable pathways for developing the foundational elements that are
key to leading and exercising leadership effectively. You do not need to mas-
ter the elements first, but they will be important for ensuring effectiveness
in your leadership journey. Being a leader is a lifetime endeavor; once you
step out, everything is different and there is no turning back. Healthcare today
needs leaders at every level and in each discipline to succeed in solving com-
plex problems with trans-disciplinary solutions that can deliver cost-effective,
high-quality care that ensures the health of all.

Distinguishing Management from Leadership

What Is “Leadership” and How Do You Become a Leader?
How do you answer these questions about leadership? A 2012 Google search
for leadership returned more than 113 million entries, but that is not really
helpful, as you may only want the five best explanations. If you seek expert
guidance to find a useful definition as a starting point, you will discover that
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia faculty teaching leadership courses know that there are as many definitions of
©2014 ASM Press, Washington, DC leadership as books written about it. When checked in 2012, Amazon listed
doi:10.1128/9781555817282.ch8 96,883 book entries. Add to this the overwhelming amount of potentially

219
220 MANAGERIAL LEADERSHIP

contradictory information that conventional wisdom of- for the status of everyone and everything within their
fers, such as a really good manager will be a great leader, scope of accountability. Larger organizations often have
or leadership is the same as good management, or leader- up to three levels of manager phenotype—top, middle, and
ship is only available to those with a position near the top, supervisory—and at each level the scope of accountability
or people must be born with the inherent ability to lead varies, and in some cases overlaps.
because everyone can’t be a leader. High-performing staff members are often promoted to
The critical first step for answering the questions about be managers. Some succeed and others learn that being
leading and leadership posed above is to understand what a manager is not to their liking. The shift to a manager’s
management is and how it differs from leadership. Man- role challenges strong performers to delegate and to de-
agement and leadership operate in different realms (Table velop others. The role requires moving from self-control to
8.1). Managers are accountable for a known scope and mobilizing employees to tackle tough problems, as a man-
use a set of well-developed skills to manage in their area. ager’s success is frequently measured by the results of those
Conversely, leaders are responsible for and function in they manage. Managers need to be taught skills to succeed
an unknown scope, using quite different skills to exercise in their new role, which cover a range from delegating, to
leadership effectively. building credible and reliable budgets, to delivering per-
formance evaluations, to building a diverse, team-based
Management workforce. Their roles cover a large span of activities and
The Oxford English Dictionary defines the term manager meetings, from providing incentives and recognition for
as deriving from an Italian verb, maneggiare, which means work well done to implementing layoffs when the circum-
“to handle, train, be in charge of, control horses.” Today, stances require it. Managers’ authority is limited and tends
managers are assigned accountability to oversee the pro- to remain within their assigned area or scope, and their
cesses dealing with or controlling things or people. There- actions must align with senior management and the orga-
fore, it should not be surprising that managers’ roles and nization’s articulated strategies. Tasks are frequently iden-
responsibilities include coordination and interaction with tified and assigned by middle- or top-level managers who
employees; handling, sharing, and analyzing information; have the authority to make such delegations. After 30 years
problem solving and decision making; producing the best of teaching and working with managers, the authors have
results possible; operating within a budget; and accounting found that managers are often interested in being taught

Table 8.1 Management and leadership: important characteristics and functionsa

Management Leadership
Overseeing processes dealing with or controlling things or Working within the unknown (something bigger than your current
people (known scope) that include: base of knowledge)
• Coordination and interaction with employees • Making something happen in the future that would not have
• Handling, sharing, and analyzing information otherwise happened
• Problem solving and decision making • Navigating in uncertainty and ambiguity
• Operating within a budget • Self-generating comfort to experiment (trial and error)
• Having enthusiasm that inspires the engagement of others
Typical organizational management levels: Available to anyone at any position in an organization who em-
• Top braces important foundational elements:
• Middle • Operating with integrity
• Supervisory • Being authentic
• Being committed to a bold future
Shift from focus on performing well to mobilizing employees, Understanding the differences between keeping your word and
with success measured by the results of those managed honoring your word
• Results set by top-level managers and strategy • Trust is the outcome of honoring one’s word, and successful
leaders engender the trust of those being led and/or managed
• Your word is what you said you will do or will not do
• Once agreed upon, you honor your word
• Communicating clearly what was or was not done is honoring
your word
Management authority Authenticity is the degree to which one is true to one’s self
• Limited • Without authenticity, one will not succeed as a leader
• Bounded within their assigned area • A leader acknowledges his or her successes as well as failures
a
While not mutually exclusive, leadership skills can be found among managers. The focal differences seem to be the willingness to work in the “unknown”
versus the “known” arena and being committed to something bigger than yourself.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 221

how to “manage up,” or to get their manager(s) to do what shape you into a leader, the material in this chapter offers
they think should be done. However, we find that after be- access to foundational elements that provide potency and
ing given the tools, rarely do these same managers succeed bring power to leading. While they can also improve your
at it or even try. If the concept of managing up is of inter- management, mastering them is critical for anyone desir-
est, one needs to understand that it has more to do with ing to be a leader and to exercise leadership effectively. The
being a leader than managing. rest will be up to you.

Leadership Few will have the greatness to bend history itself. But each
In contrast with the work of managing a known scope, a of us can work to change a small portion of events, and in
leader’s work is to make something happen in the future the total of all these acts will be written the history of this
generation.
that was otherwise not (predictably) going to happen. Lead-
ers have the courage to take on being responsible for what Robert F. Kennedy
is unknown, the sense-making ability to navigate in un-
certainty and ambiguity, the comfort to experiment us- The First Foundational Factor Is Integrity
ing trial-and-error methods to discover their way, and the
The softest pillow is a clear conscience.
enthusiasm to inspire the engagement of others to gar-
ner progress when the pathways are uncertain or current Narayana Murthy, founder and former CEO, Infosys
knowledge argues that the vision being articulated cannot
When you ask people what integrity is, their answers are of-
or will not happen (1).
ten expressed as values and norms. For instance, someone
How does one become a leader? As your parents probably
with integrity does not lie or steal. While there are moral,
said, anyone (you) can be a leader in any arena of concern
legal, and ethical underpinnings in every situation, organi-
or from any position in an organization. However, to suc-
zation, or professional group, integrity (as described here as
ceed in being a leader and to exercise leadership effectively
a foundation for leadership) is not a normative or relative
requires the development of a foundation upon which
phenomenon (5–8, 14). Integrity is independent and yet it
your confidence to lead grows and is recognized by others.
underlies everything, and without it nothing works. With-
Can leadership be taught? Does understanding what
out being a person of integrity, you can set aside the notion
other leaders have done or knowing the styles they used
of ever being a leader, and to be a person of integrity is a
help someone to lead? The editors of a recent book, The
never-ending undertaking.
Handbook for Teaching Leadership, reported an interest-
ing conclusion after interacting with 30 leadership aca-
demics during the publication of this book about their The Definition of Integrity
varied teaching methods (18). In more than 25 years of To understand this area, we start with the Merriam-Webster
using many methods of teaching about leadership and Dictionary definition of “integrity”:
leadership styles and studying cases to learn what lead-
ers do, the authors found “scant empirical evidence that 1. firm adherence to a code of especially moral or artistic
any of these approaches work” (18, p. xiii). In addition, values: incorruptibility
there is insufficient research and an inconsistent body of 2. an unimpaired condition: soundness
3. the quality or state of being complete or undivided:
knowledge to validate whether the methods being used
completeness
succeed in developing the kind of leaders needed for the
uncertain future we face (17). While teaching skills and Rarely do people notice the second and third components
imparting knowledge are what educators best know how of the definition, though they are critical to having an ac-
to do, “the current state of leadership education lacks the tionable access to operating with integrity. If you focus on
intellectual rigor and institutional structure to advance the second and third definitions, the notion that integrity
beyond its present (and precariously) nascent stage” (18, establishes the underpinning for workability and perfor-
p. iii). In fact, only one of the 30 different teaching meth- mance becomes clear. We ask you to consider the following
ods in The Handbook for Teaching Leadership has the heuristic: as integrity (unimpaired, complete) increases,
objective of leaving students actually being leaders and the conditions that allow for maximum performance
exercising leadership effectively (7, 9). Many of the per- also increase; therefore integrity is a critical condition of
spectives in this book chapter are derived from, or are a performance.
synopsis of, the ground-breaking material developed to But what does it mean for a person or a leader to be un-
support the precept of actually being an effective leader impaired and complete? What it means for a person to op-
(5–8, 14). erate with integrity is to honor one’s word. To clarify what
So, you may rightly ask, can this chapter possibly be that means, we will examine what honoring your word is,
different? While we cannot reach through these pages and and more specifically, what is meant in detail by your word.
222 MANAGERIAL LEADERSHIP

Honoring Your Word a deadline. For years, we authors have discussed with
Honoring your word means doing what you said you people the importance of honoring their word. Many
would do, or if you cannot or will not be doing what you have admitted that they take better care of their cars than
said, letting others know as soon as you know (in advance they do their word, because they can “see” their car but
of the deadline) that you will not be doing what you said, they cannot “see” their word. Managers have much to
and dealing with the resultant consequences. Though this do; it seems almost impossible to know what outstand-
concept sounds relatively simple, many people do not un- ing commitments are yet to be completed (especially
derstand (or they disregard) how important and funda- when many commitments are delegated via e-mail, of-
mental it is to optimal performance. We are sure you can ten without discussion). Even when managers do know
think of instances in which people say they will do some- what has not been done, their energy may be focused on
thing, do not do it, and never talk about it again. Common explaining why they did not complete the commitment
misconceptions become pitfalls that often prevent people (and constructing a report justifying their nondelivery)
from honoring their word (5, 14). rather than communicating what was not done and fo-
cusing instead on the impact and possible solutions.
When managers and staff operate without full aware-
The Pitfalls in Honoring Your Word ness of their commitments, they frequently are unaware
Many people fail to let others know what they did or did of the increased potential for a decline in performance
not do, sometimes even after the fact. Have you ever awak- in their area of accountability, their organizations, and/
ened in the middle of the night in a panic after a due date or themselves. It does not take staff long to determine if
or a deadline had passed, because you didn’t know if your deadlines are reliable or not, or if their managers know
team member(s) delivered or not? the outcomes they are working on (or not), and reliable
The first pitfall in the arena of honoring your word oc- performance declines in such settings. If you see perfor-
curs when people think that integrity is only a virtue. If mance decreasing and it seems like everyone is honoring
integrity is understood to be a virtue, rather than a ne- their word, you should ask, “When was performance last
cessity, it conceals the fact that honoring your word is a progressing at necessary or acceptable levels and/or when
necessary condition for performance. As a virtue, integ- did it go off track, and at that point, what happened, what
rity can become more easily sacrificed, especially when it commitments were not being honored?”
appears to a person that he or she must do so to succeed, The third pitfall that managers confront with honoring
or that it really does not matter. For instance, reporting their word occurs when people think integrity means keep-
only the good news, or the news you think others want to ing your word or that you must always do what you said.
hear, can seem to be acceptable or smart behavior, as can Keeping one’s word and honoring one’s word are not synony-
saying you finished something that you in fact did not, mous as presented in this chapter. However, most people
simply because it sounds better and you know you can think the two are one and the same.
complete it after the fact, on an evening or weekend. What What happens when it is not possible (or when it is
is unseen or not easily recognized in these situations is the inappropriate, perhaps due to legal reasons, strategic rea-
resulting damage to the individual and/or the organiza- sons, force majeure, etc.) to fulfill what was previously
tional performance. committed? In such situations, working to keep your
When integrity is understood as honoring your word, word, when it is not possible to produce the intended
then saying both what is and is not happening—the good, outcome(s), can waste precious time. It is more appro-
the bad, and the ugly—becomes dependable behavior. In priate to immediately honor your word by letting others
environments where reliable information is readily avail- know what you will not or did not do, thus enhancing
able, managers can make more appropriate decisions about your performance (5, 14). When transparency is not em-
what is (or is not) getting done. For instance, if a manager braced, it often leads to counterproductive behaviors, like
knows what was not done, and the stakeholders who are not responding to e‐mail in a timely manner (or ever) or
expecting the deliverable have been advised of the poten- avoiding people or meetings, and therefore impairs the
tial delay, they can decide together if the deliverable can be overall coordination of performance. When a manager
delayed until a later date or if it must be completed imme- cannot keep his or her word and opts for the apparent
diately. As more people learn to speak openly about what is short‐term gain of concealing it rather than courageously
and is not done, individual and organizational confidence acknowledging it, he or she may forfeit the power and
grows and performance increases. Honoring your word respect that will accrue from honoring one’s word. And
helps to establish workable relationships and enable others without the respect of others, you can forget about being
to develop a sufficient sense of security so that they will a leader.
provide complete and accurate information. Once you are aware of what it means to honor your
A second pitfall occurs when managers are unaware word and how to honor your word, it becomes important
that they have not honored their word or have missed to understand what constitutes your word.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 223

What Is Your Word? Trust and Its Relationship to Honoring Your Word
To be a person of integrity requires that you understand The literature on trust talks about “walking the talk,” say-
fully how your word is constituted, and that you own the ing that to be trusted you must keep your word. Everyone
implications of having constituted your word from the fol- learns at an early age the consequences of not doing what
lowing five different areas (5, 14). they said they would. In some cases such people are called
First, your word is what you said you will do or will not liars, but no matter what people are called, it is a very un-
do, and in the case of saying you will do something, doing comfortable position to be in. To avoid getting caught in
all of what was specified and doing it on time. When some- this bind, people frequently report that they have learned
one asks you to do something, what they have asked you to to never make promises and to avoid commitments alto-
do becomes your word unless you respond to the person in gether. However, keeping your word is not the same as hon-
a timely fashion saying that you will not be doing it. oring your word, and as discussed, you may not always be
Second, your word includes what you know to do or not able to keep your word. In fact, unless you give your word
to do. The case of doing it includes doing it as it is meant to virtually nothing of significance, or make only certain-
to be done, on time, unless you have said something ex- to-happen commitments, you will not always be able to do
plicitly to the contrary to the relevant parties. When you what you said. When it is impossible or inappropriate to
know what there is to do (or not do), it becomes your word keep your word, either what you said or by the deadline, or
unless you respond in a timely fashion saying that you will when you choose not to or find you cannot keep your word,
not be doing what was asked. honoring your word allows you to operate with integrity.
Third, your word includes doing what is expected of you It is often surprising to people that research shows that
to do or not do (and in the case of do, to the specifications you will engender a greater degree of trust and admiration,
and on time) unless you have explicitly said to the contrary. even when you do not keep your word, if you honor your
Please take note of an apparent paradox: while your word word by saying that you did not or will not able to do what
includes all that is expected of you, what you expect from you said. In research about service encounter satisfaction,
others is not for themselves their word unless they have said 23% of the reported “most memorable satisfactory” en-
they will do it (5). counters involved situations where there had been a failure
Fourth, and also related to what is expected of you, are in a core service delivery, and it had been acknowledged
all of the moral, ethical, and legal standards for your roles openly (3). This finding is striking, as it suggests that ser-
or profession that you have not explicitly declined. These vice delivery system failures can be remembered as highly
standards, whether spoken or not, are part of your word. satisfactory encounters. One generally assumes that failures
Fifth, your word includes what you say is possible or what can be mitigated by employees who are trained to respond,
you stand for, as a declaration made to one or more people but the fact that such incidents were remembered as very
or even to yourself, and it includes taking the actions neces- satisfactory is somewhat surprising (3). Results like this can
sary to realize what you stand for or declare (5, 14). occur when an organization or person responds in a forth-
right manner, saying what did or did not happen, and offers
What Is the Current State of Your Word? to clean up the resulting mess or says what will be done to
Take a moment to reflect on the current state of your word, ensure that it does not happen again, rather than hiding,
where is it honored and where there might be work to do. denying, or covering up some of what actually happened.
After reflecting for yourself, consider your staff, your de- Successful leaders engender trust, but trust is not some-
partment, and your areas of accountability. Have there been thing one can build or work on directly. It is the result of
missed deliverables, or is there an interface your staff has your being recognized by others, through your actions, as
with another part of the organization where performance a person who honors his or her word. Trust is not the same
is lower than it could or should be that has been tolerated as likeability—you certainly have the experience of people
and unmentioned? In your areas of accountability, do you whom you like but do not trust. To be trusted by others is
have the necessary tracking, reporting, and measuring in incredibly important for leaders. The path to being someone
place to manage the myriad commitments you and your who is trusted is by operating with integrity, and the path to
teams are accountable for? Reports and metrics should help operating with integrity is by honoring your word (5).
you and your department to succeed, not be a waste of time
to prepare. What you can see, you can move and manage. Preparation for Making a Commitment
What you cannot see, you cannot manage with integrity. or Giving Your Word
Do you and your staff have sufficient tracking tools to re- With so much at stake in the area of integrity, trust, work-
cord and manage all the commitments you are responsible ability, performance, and power, it is important to consider
for in a timely manner? Investing time to restore your word fully, before you give your word, what it will take to keep it.
where commitments are incomplete or unaligned in the Multiple discussions and analyses of the benefits and costs
areas you manage, or inconsistent with your leadership ob- over a designated period of time may be needed among
jectives, will result in a noticeable increase in performance. stakeholders to fully determine whether to give your word
224 MANAGERIAL LEADERSHIP

or make a commitment. When you are ultimately asked b: conforming to an original so as to reproduce essen-
for a yes or no, if you are uncertain, do not give a flippant tial features
answer; rather, ask for some time to do the analysis with c: made or done the same way as an original
your team, and say when you will respond with a yes or 3. not false or imitation: real, actual
no. Seeking the counsel of others and getting their ideas 4. a: of a church mode: ranging upward from the keynote
b: of a cadence: progressing from the dominant chord
and input for determining possible pathways and strate-
to the tonic
gies to accomplish the outcome build the alignment that 5. true to one’s own personality, spirit, or character
is a hallmark of great leaders. The time to do this type of
analysis is before giving your word, not afterwards. After Will the real you please stand up (20)? Sounds bizarre,
your word is given, you need to honor your word, not deal right? However, many people spend their lives being the
with whether you should have given it or not. way they think others want them to be, for instance, doing
The most common source of failed leadership today what their boss says, whether it provides the optimal solu-
comes from being irresponsible or casual about one’s word tion or not, rather than what they know best to do. What
and, by extension, the word of the organization. Operat- about you? Is your freedom to express yourself diminished
ing without integrity is a major source of operational mis- in a meeting with people you do not know, or those with
takes and declines in performance and often leaves a mess higher positions in the organizational hierarchy than you?
in people’s careers or lives. In some cases, it has destroyed Authenticity is gauged by expression. It reflects both the
large, seemingly indestructible corporations. People who extent to which you know and show your true self and
lack the strength to operate with integrity are dangerous the extent to which you deploy yourself in ways that are
when faced with difficult counterforces that challenge appropriate to the situations you are facing (12).
their judgment. To be a leader, you must know yourself
Knowing Yourself
as a person of integrity, have the courage to maintain your
core values in the gray areas, consistently honor your word Let us start with who the real you is. As attributed to
to others, and be known to do the appropriate thing, time Socrates in some of the earliest accounts about authentic-
after time. There is more discussion about this in the next ity, “The unexamined life is not worth living” (2). Becom-
section on authenticity, and for more on the subject of in- ing a leader requires you to take an inward journey, or
tegrity and its importance in leadership, see references 5 quest of introspection and reflection, in order to develop
and 14 and Appendix 8.1. a profound sense of yourself, your spirit, what made you
that way, and what your values are (19). For guidance
on this journey, we recommend the exercises and ques-
The Second Foundational Factor tions designed to assist you in reflecting and discovering
Is Authenticity important personal insights that are available in Find-
ing Your True North, by Bill George, a former CEO who
The price they have to pay for leadership is unceasing self- teaches a semester-long course on authentic leadership
discipline, constant taking of risks, and the perpetual inner at the Harvard Business School (11). This journey is not
struggle. about changing who you are; rather, it is about revealing
Charles de Gaulle the limiting ways you wound up being, which include your
knee-jerk behaviors and outdated opinions of whatever
Authenticity has historical underpinnings in philosophy, may have happened in the past (15). The process fre-
art, and psychology and today has become important to quently involves reframing your life’s stories and experi-
both managing and leading. In philosophy, the conscious ences to date, and when done well, it will leave you with
self is seen as coming to terms with being in a material world sufficient grounding or stability to tackle tougher chal-
and encountering external forces, pressures, and influences lenges involving greater risk and ambiguity. Leaders rarely
that are very different from itself. Authenticity is reflected fail from lack of raw intelligence. Research has shown that
by the degree to which one is true to one’s own personality, hundreds have failed due to lack of emotional intelligence,
spirit, or character, despite these external forces. Without which is composed of self-awareness, motivation, empa-
authenticity you will not succeed as a leader. thy, social skill, and self-regulation (13). When people are
left with the sense that there is a fundamental congruency
The Definition of Authentic
between who you are and your life story, the values you
The Merriam-Webster Dictionary definition of “authentic” espouse and your actions, and that you have made a trans-
is as follows. formation from self-concern to concern for empowering
1. obsolete: authoritative and inspiring others, they are likely to see and experience
2. a: worthy of acceptance or belief as conforming to or you as authentic and someone whose leadership they
based on fact could follow.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 225

How Do You Respond in Various Situations? per cent memory and less than ten per cent sensory nerve
The next step is considering how you deploy yourself, and signals (reference 10, p. 9).
whether you act appropriately to the situations you are fac-
Once unexamined contexts are discovered, in many cases
ing. Understanding how you got to be the way you are
they can be shifted to be appropriate with the situations
supports this aspect of authenticity by enabling you to rec-
you are facing today as a fully competent adult. Having a
ognize past situations in which you have responded with
strong sense of yourself, how you got to be the way you are,
an inappropriate reaction and the fallout that resulted.
and your values provides an anchor when you find your-
Once you fully understand your responsibility for the
self in a swirl of conflicting pressures, and leaves you with
consequences, you can take steps to repair any remaining
the courage to follow through—even when you are directly
disorder, restore the relationship(s), and learn other, more
threatened or challenged—in a way that is consistent with
effective or appropriate behaviors with which you can re-
your values and those of the organization.
spond differently to similar situations in the future.
You need to answer the question “Why would anyone
Consider this bold assertion: in every leadership situa-
be led by me?” This is a strange question, and it can only
tion, your actions and behaviors will always be correlated
be answered by making reference to personal qualities that
with the way in which the situation occurs for you (6, 7).
are authentically yours, and not as attributes of the posi-
From a neuroscience perspective, “occurs” corresponds
tion you hold. Effective leaders have reached an equanim-
to that which is generated by the activated neural net-
ity and inner peace with themselves, both their strengths
works in the brain that produce experiential perceptions,
and weaknesses, so they are not compelled to hide their
via our senses, that we project onto the external world
weaknesses or be caught in the fatal error of thinking they
(15). For instance, if a situation occurs for you as excit-
must always appear to be perfect or successful.
ing, you cannot wait to begin; if the same situation seems
frightening, you dread having to participate and delay The Path to Authenticity
beginning. In either case, your behaviors and actions will
The path to developing authenticity is increasing your abil-
be synchronized with your interpretation of the situation
ity to be courageous enough to be open about your failures,
or, in this vernacular, how the situation occurs or appears
your weaknesses, and where you are being inauthentic (ev-
for you (6, 7). For being a leader and providing leadership
eryone is inauthentic from time to time or in certain situ-
effectively, when something occurs to you as hopeless,
ations) (7, 8). Being open is not meant to imply that you
your ways of being and acting will convey hopelessness
divulge everything to everyone or in every situation, but
to others, and no matter what you say, they will perceive
that you come to terms with your shortcomings by fully
the inauthenticity and will be disengaged or unsuccessful
owning who you are and how you grew to be the person
in addressing the situation.
you are today and understanding that you can move be-
yond your historical ways of being with a freedom and ease
The Importance of Context in talking about your life’s developmental path with others.
What people often fail to recognize is that the context they Personal insecurity is a petri dish for breeding inau-
bring to any situation is decisive and has a direct relation- thentic behavior. When you pretend to be what you are
ship with how the situation will occur for them (6, 8). Be- not, people recognize it immediately. Asking others for
ing a leader and taking the effective actions of leadership input and subsequently disregarding their input because
are an outcome of the way in which the situation you are you had already made a decision conveys pretentiousness.
facing occurs for you, and how it occurs for you is colored Alternatively, if you are not open to input, do not ask, and
or shaped by the context you bring (7, 9). Self-reflection thereby be authentic.
helps to reveal your unexamined contexts, many of which The more you grasp that you are not able to fully see
originated in childhood and often leave us with blind spots objective reality as it is—the role of context in coloring
and unable to see things others can see. Scientists have dis- everything—and that leading is not about you being per-
covered that we “see” with our brains (i.e., unexamined or fect or knowing everything, the more you will grow to seek
examined contexts), not with our eyes. and rely on input and support from others. Recall the data
from medical science mentioned above, and consider that
If visual sensations were primarily visually received rather
one could consciously accept that there is an objective real-
than constructed by the brain, you’d expect that most of
the fibers going to the brain’s primary visual cortex would ity that is independent of our perception, and we only have
come from the retina. Instead, scientists have found that access to the reality generated in our brains. However, most
only twenty per cent do; eighty per cent come downward people don’t operate as if this is true. Understanding that
from regions of the brain governing functions like mem- the challenges in healthcare today do not occur the same
ory. Richard Gregory, a prominent British neuropsycholo- for all the stakeholders increases the need to form teams to
gist, estimates that visual perception is more than ninety address them, expands one’s appreciation for diversity of
226 MANAGERIAL LEADERSHIP

thought, and opens one to input from multiple and even read the news and something resonated with you or made
conflicting sources as a natural way of operating while you think this should or should not be happening, or why
leading others. Knowing yourself, knowing your strengths can’t we do that, or why are we tolerating this or that? You
and weaknesses, and being open about them empowers might ask others who know you well what they see you are
the people you lead and manage to make more relevant most interested in or animated about, to help you land in
contributions, engage more authentically, and derive more an area that is important for you. Whatever you find, start
satisfaction from their job. to think: if my wildest dreams were realized, what might
What de Gaulle said is true of anyone aspiring to be be the new reality? Take time for defining or crafting a
a leader. Why would anyone subject themselves to that? bold, declarative statement of the possibility to which you
Both the answer, and what actually distinguishes leading are willing to dedicate your life’s energy and intellect to
from managing, are found in the third foundational fac- realize, something that otherwise would not predictably
tor, discussed next. Leaders are responsible for, and func- happen, something you and others around you do not
tion in, an unknown scope. Their job as a leader begins know how to do. Without such a commitment you will
the moment they commit to something that they, and per- not be a leader.
haps others, have never done before. They must have the In a certain sense all leaders are heroes, ordinary people
courage to commit to be responsible for what is unknown. whose being and acting are bigger than their historical
Where does that courage to make such commitments come selves because they derive a sense of self from what they
from? Why would someone make such a commitment? are committed to. Whatever the commitment is, it is be-
yond their personal concerns, and in most cases has little
or no direct personal payoff. As these commitments are
The Third Foundational Factor Is acted on, such big, impossible promises often create some-
Commitment to Something Bigger thing to which others can also be committed, which leaves
than Yourself them with a sense that their lives are also about something
bigger than themselves. This is the entrée into being a
Seek, above all, for a game worth playing. Such is the ad- leader and exercising leadership effectively.
vice of the oracle to modern man. Having found the game, Not everyone will choose such a path and become a
play it with intensity—play as if your life and sanity de-
leader. To do so is a personal choice, a step that must be
pended on it. (They do depend on it.) . . . Move as if your
movements had some purpose. If life does not offer a game
authentically taken. Once you step out, there is no turning
worth playing, then invent one. For it must be clear, even to back, and stepping out is not always easy, especially when
the most clouded intelligence, that any game is better than which action to take is clouded by many unknown elements,
no game at all. risks, and ambiguities. Arrows can fly. Second-guessing can
Robert S. de Ropp (4a, p. 11) abound. Hearing from those who have gone before you as a
leader may shed some light on what can result from being
committed to something bigger than oneself:
Succeeding as a Leader
Your success in being a leader has a lot to do with discover- It is not the critic who counts, nor the man who points out
how the strong man stumbled, or where the doer of deeds
ing or inventing what matters enough to you to be unreason-
could have done them better. The credit belongs to the man
able with yourself and others about making it happen. Some who is actually in the arena; whose face is marred by dust
call this “purpose” and say that without purpose, leaders are and sweat and blood; who strives valiantly; who errs and
at the mercy of their desires for power, prestige, or financial comes short again and again; who knows the great enthu-
rewards (11). Purpose, or being up to something bigger than siasms, the great devotions, and spends himself in a worthy
yourself, drives you as a leader, becomes the source of your cause. Who, at the best, knows in the end the triumph of
power, and gives you the courage and confidence to keep high achievement; and who, at the worst, at least fails while
going and the strength to take risks. It also helps when the daring greatly . . .
time comes to explain to others what it is that inspires you, President Theodore Roosevelt,
where your passion and energy come from, and it may, in speech at the Sorbonne, 1910
some cases, motivate and empower them. How can you
discover your purpose? If you are going to be authentic, What Happens Next?
you cannot adopt someone else’s purpose; you must find Once you have invented a possibility that is bigger than
your own. What is it that you want to make happen that is yourself and committed to make that possibility a reality,
unlikely to happen otherwise? you will need new skills, many of which are discussed in
Answering requires reflection and, in most cases, con- detail in the following chapters. One of the most impor-
versing with others. You can begin by considering what tant skills involves listening effectively. As Steven Covey
really matters to you, or thinking about times when you said, “Seek first to understand, then to be understood”
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 227

(reference 4, p. 235). By enhancing your listening skills, KEY POINTS

you will begin to hear not only what is being said, but ■ The following are 30 often forgotten and important tips
more importantly, what is not being clearly said or stated. for good leadership. We thank Major General Perry M.
You may notice that you are able to hear when people are Smith, USAF (Ret.), for his permission to include these
making commitments that you cannot count on. When as key points of this chapter. These are from part 1 of 60
you hear inauthentic responses or promises, stop the ac- tips that were first published in the Marine Corps Ga-
tion. Take time and discuss the deliverables and deadlines zette (16). They reinforce the material presented.
and give others a second chance to consider whether or
not they can successfully deliver. Do not let weak commit- • Know yourself. All leaders should realize they are,
ments slide by; too much is at stake. in fact, four or more people. They are who they are,
Another leadership skill is to find a way of speaking and who they think they are (and these are never
about the future that makes it seem real and palpable to the same); they are who their bosses think they are;
others so they can become as inspired about that future and who their subordinates think they are. Leaders
as you are and join you in taking the requisite actions to who work hard to get feedback from many sources
make that future happen. You will discover that you need are more likely to understand and control their vari-
to stay open to input, whether it is supportive or challeng- ous selves, and hence be better leaders.
ing, as you never know where the next piece of critical • Develop mental toughness. Leaders must be brutally
data you will need might come from. Make sure to have honest with themselves or they will slip into the ter-
intermediate and long-term measures, pay attention to rible habit of self-deception. Even the best leaders
these measures and results, listen keenly to all feedback, make mistakes. By smoking out these mistakes and
and evaluate and make any necessary midcourse correc- correcting them quickly, a good leader can become
tions to continue taking ground and making progress. a superb one.
Communicate, communicate, and then communicate • Be magnanimous. Leaders who share their power
some more. Celebrate the victories, help people make and their time can accomplish extraordinary things.
sense of the dead ends, and stay open to learning along the The best leaders understand that leadership is the
way because you are on a journey no one else has taken. liberation of talent; hence they gain power not only
In the times of inevitable despair, when your thoughts by constantly giving it away, but also by not grab-
are filled with doubt or self-concern, find someone you bing it back.
trust—maybe an advisor or a coach—with whom you can
• Squint with your ears. The most important skill for
discharge and discuss what you are thinking. Then recre-
leaders is listening. Introverts have a great edge,
ate the future possibility you committed yourself to, and
since they tend to listen quietly and usually don’t
renew your resolve to realize it.
suffer from being an “interruptaholic.” Leaders
As every superhero you ever watched knew, in their quest
should “squint with their ears.” Too many bosses are
to make their world a better place, things will not always
thinking about what they will say next, rather than
work the way you think they should. When superheroes
hearing what is being said now. They are guilty of
find themselves in disarray on the ground, they know . . .
“fake listening.”
There is only enough time to iron your cape . . . and back to • Trust your instinct and your impulse. If something
the skies for you! smells bad, sounds funny, or causes you to lose sleep
Jason Harley, DARPA Transportation at night, take another look. Your instincts combined
Team member (see Appendix 8.2) with your experience can prevent you and your or-
ganization from walking off a cliff.
Summary • Learn by failure. In my professional career, I have
To be a leader requires that you establish a strong foun- learned much more from my failures than from
dation on which you can build a context for exercising my successes. As a result, I have become tolerant of
leadership effectively in any leadership situation. In this the honest failure of others. When a major setback
chapter, we presented you with an understanding of how comes along, try to treat it as a marvelous learning
to establish this foundation for yourself. We would like to experience, for most certainly it will be just that. To
leave you speculating about what you would undertake if quote General George Patton, “Success is how high
you knew you could not fail. When you find your answers, you bounce after you have hit bottom.”
the foundational elements will be there when you step out • Protect innovators. A Medal of Honor recipient from
into the realm of leading. In the following chapters, you Vietnam, Army Col. Jack Jacobs, worked for me for
will see how the use of different leadership skills can influ- three years. He is by far the most innovative person
ence people and alter their performance. I have ever known. Well over 50% of his ideas were
228 MANAGERIAL LEADERSHIP

awful, but buried among these bad ideas was an oc- • Don’t send out “I don’t trust you” messages. People
casional pearl of great wisdom. I learned that I had who say “I never want to be surprised” or “Check
to protect Jack and my organization from his bad with me before you start anything” or “I’m off on a
ideas while encouraging him to present all his ideas, trip; I will call in every morning for an update” are
so we could use his great ones. sending out very strong “I don’t trust you” messages
• Beware of certainty. Leaders should be a bit skepti- to their subordinates. People who know they are not
cal of anyone who is totally certain about his or her trusted will never contribute at their full potential.
position. All leaders should have a decent doubt, • Serve, don’t humor the boss. Too many leaders see
especially when dealing with “true believers” who their big tasks as keeping their bosses happy, getting
are always sure they are right. to the bottom of the in-box, or staying out of trou-
• Be decisive. Top leaders usually must make prudent ble. That is not what leadership is all about. Leader-
decisions when they only have about 60% of the ship is serving the mission, serving your people, and
information they need. Leaders who demand nearly being frank in your dealings with your boss.
all the information are usually months or years late • Criticize up, praise down. Leaders must deflect at
making decisions. least some of the bad guidance they get from above.
• Don’t become indispensable. Organizations need in- Your subordinates expect you to criticize the boss
dispensable institutions, not indispensable people. on occasion. Don’t disappoint them.
Leaders should not allow themselves to become • Be physically fit. Everyone has a “health age.” If
indispensable, nor should they let any of their sub- you exercise regularly and watch your diet, you
ordinates do so. can make yourself four or five years younger than
• Avoid the cowardice of silence. During meetings, your chronological age. If you are too busy to ex-
so-called leaders often sit on their hands when it ercise, you will, over time, damage yourself and
is time to raise a hand and speak up. Leadership those you serve.
requires courage—courage to make waves, courage • Develop solid leadership skills. The best leaders
to take on our bosses when they are wrong, and the are superb at listening and time management and
courage of conviction. Every Robert E. Lee needs a are competent in speed reading, dictation, and
James Longstreet to tell him exactly the way it is. the use of manual and electronic brainstorming
• Fight against paranoia. Welcome criticism; help techniques.
people understand that it is OK to have “love quar- • Help your people understand you. When you take
rels” with the organization. Loyalty and criticism are over a new organization, get your key people to-
mutually supporting while slavish loyalty is deadly. gether and tell them what your top priorities and
Avoid the defensive crouch. Never attribute to mal- your pet peeves are. It is especially important for
ice that which is adequately explained by stupidity. them to learn very early what really bugs you. They
• Be goal oriented. Leaders, even at a lower level, must will appreciate your candor.
try to set some long-term goals for their associates • Smoke out those of low integrity. Leaders must sniff
and for their organization. People want to know the air constantly to ensure high standards of ethics
where they are going and in what order of priority. are maintained. In almost all large organizations,
• Follow the platinum rule. The golden rule is mar- someone is walking out the back door with some-
velous. But in leadership situations, the platinum thing. Expense accounts, personnel records, train-
rule may be even better: “Treat others the way they ing reports, and contracts need regular scrutiny.
would like to be treated.” • Concentrate on performance, not just results. How
• Don’t waste people’s time. The best question a leader you get results is important. Leaders who don’t
can ask a subordinate during a counseling session is concern themselves about the process and the per-
“How am I wasting your time?” Not everyone will formance that lead to the results are making a big
tell you, but cherish the ones that do, for they will mistake. Always ask yourself what it took to gain
help you grow and prosper as a leader. those great results.
• Thank the invisible people. There are lots of fine • Maintain a sense of outrage. There are many super-
people doing great work who seldom get thanks be- cool managers who worry too much about keeping
cause they are “invisible.” They work so quietly and their bosses happy and staying out of trouble. As a
so competently that they often are not noticed by result, they never allow themselves to be outraged
the leader. Handwritten thank-you notes are espe- when the system is doing serious damage to those
cially appreciated. who work for them. The best leaders get mad
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 229

occasionally, and using controlled outrage can often REFERENCES

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• Beware of intimidation. Be very careful here. Some known, p. 3–19. In S. Snook, N. Nohria, and R. Khurana (ed.), The
bosses allow themselves to be intimidated by outsid- Handbook for Teaching Leadership: Knowing, Doing, and Being. Sage
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with being productive. Without discipline, man- encounter: diagnosing favorable and unfavorable incidents. J. Mark.
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Don’t get so wrapped up in the minutiae that you mon and Schuster, New York, NY.
become paper pushers and “in-box managers” 4a. De Ropp, R. S. 2002. The Master Game: Pathways to Higher Con-
rather than visionary leaders. sciousness. Gateway Books and Tapes, Nevada City, CA.
• Build a robust brain trust. One of the great secrets 5. Erhard, W., M. C. Jensen, and S. Zaffron. 2009. Integrity: a posi-
of leadership success is to have a brain trust of ex- tive model that incorporates the normative phenomena of morality,
perts on various issues. A brain trust of around 300 ethics and legality. Harvard Business School NOM Working Paper
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numbers and their e-mail addresses handy, so you 1, 2012).
can get hold of them quickly. The brain trust is re- 6. Erhard, W., M. C. Jensen, and Barbados Group. 2010. A new
ciprocal: they help you and you help them. Within paradigm of individual, group, and organizational performance.
your large brain trust have a smaller “ethics brain Harvard Business School NOM Unit Working Paper No. 11-006;
trust.” When you face a tough ethical issue, this Barbados Group Working Paper No. 09-02. Social Science Electronic
Publishing, Rochester, NY. http://ssrn.com/abstract=1437027 (last
group can be very helpful. My ethics brain trust
accessed June 1, 2012).
really helped me as I made the decision to resign
from CNN in June 1998. 7. Erhard, W., M. C. Jensen, S. Zaffron, and K. L. Granger. 2011.
Course materials for being a leader and the effective exercise of
• Beware of the Paul principle. Too many leaders allow leadership: an ontological/phenomenological model. Harvard
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When they lose touch with the issues, the new tech- Working Paper No. 08-03; Barbados Group Working Paper No.
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leaders during their first few years have lost it by 8. Erhard, W., and M. C. Jensen. 2013. Four ways of being that cre-
year 10. ate the foundations of a great personal life, great leadership and a
• Get ready for the future. The future is coming fast. great organization. Barbados Group Working Paper No. 13-01; Har-
Leaders need to think about the future and prepare vard Business School NOM Unit Research Paper No. 13-078. So-
their people for it. To keep a close eye on the future, cial Science Electronic Publishing, Rochester, NY. http://ssrn.com/
join the World Future Society and read two maga- abstract=2207782 (last accessed June 11, 2013).
zines regularly—Business Week and The Futurist. All 9. Erhard, W. H., M. C. Jensen, and K. L. Granger. 2012. Creating
leaders must work hard to build the future, for that leaders: an ontological/phenomenological model, p. 246–261. In S.
is where they and their associates will spend the rest Snook, N. Nohria, and R. Khurana (ed.), The Handbook for Teaching
of their lives. Leadership: Knowing, Doing, and Being. Sage Publishing, Los Ange-
les, CA.
10. Gawande, A. 2008. The itch: its mysterious power may be a clue
ACKNOWLEDGMENTS to a new theory about brains and bodies. The New Yorker 2008(June
The authors thank Werner Erhard, Michael Jensen, Kari 30). www.newyorker.com/reporting/2008/06/30/080630fa_fact
Granger, Wiley “Chip” Souba, and Major General Perry _gawande (last accessed January 25, 2013).
M. Smith, USAF (Ret.), for their dedication to leadership 11. George, B. 2012. Authentic leadership development, p. 313–328.
development and their contribution to our thinking. And In S. Snook, N. Nohria, and R. Khurana (ed.), The Handbook for
we thank our spouses for their encouragement and never- Teaching Leadership: Knowing, Doing, and Being. Sage Publishing,
ending support. Los Angeles, CA.
230 MANAGERIAL LEADERSHIP

12. Goffee, R., and G. Jones. 2011. Teaching executives to be them- 16. Smith, P. 1997. Learning to lead. Marine Corps Gazette
selves—more—with skill: a sociological perspective on a personal 1997(January):36–40.
question, p. 151–161. In S. Snook, N. Nohria, and R. Khurana (ed.),
17. Snook, S., N. Nohri, and R. Khurana. 2012. Introduction:
The Handbook for Teaching Leadership: Knowing, Doing, and Being.
teaching leadership—advancing the field, p. xii–xiii. In S. Snook,
Sage Publishing, Los Angeles, CA.
N. Nohria, and R. Khurana (ed.), The Handbook for Teaching
13. Goleman, D. 2004. What makes a leader? Harvard Business Re- Leadership: Knowing, Doing, and Being. Sage Publishing, Los An-
view 82:82–91. geles, CA.
14. Jensen, M. C., K. L. Granger, and W. Erhard. 2010. A new 18. Snook, S., N. Nohria, and R. Khurana (ed.). 2012. The Hand-
model of integrity: the missing factor of production keynote. Execu- book for Teaching Leadership: Knowing, Doing, and Being. Sage Pub-
tive program seminar, Olin School of Business. Harvard Business lishing, Los Angeles, CA.
School NOM Working Paper No. 10-087; Barbados Group Working
Paper No. 10-03. Social Science Electronic Publishing, Rochester, 19. Souba, W. W. 2006. The inward journey of leadership. J. Surg.
NY. http://ssrn.com/abstract=1559827 (last accessed June 1, 2012). Res. 131:159–167.
15. Pfeffer, J., and C. T. Fong. 2002. The end of business schools? 20. Souba, W. 2011. Perspective: a new model of leadership perfor-
Less success than meets the eye. Acad. Manag. Learn. Edu. 1:78–95. mance in healthcare. Acad. Med. 86:1241–1252.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 231

APPENDIX 8.1 Resources

Erhard, W., M. C. Jensen, and S. Zaffron. 2009. Integrity: a posi- Executive program seminar, Olin School of Business. Harvard
tive model that incorporates the normative phenomena of morality, Business School NOM Working Paper No. 10-087; Barbados
ethics and legality. Harvard Business School NOM Working Pa- Group Working Paper No. 10-03. Social Science Electronic Pub-
per No. 06-11; Barbados Group Working Paper No. 06-03; Simon lishing, Rochester, NY. http://ssrn.com/abstract=1559827 (last
School Working Paper No. FR 08-05. Social Science Electronic accessed June 1, 2012).
Publishing, Rochester, NY. http://ssrn.com/abstract=920625 (last
accessed June 1, 2012).
Snook, S., N. Nohria, and R. Khurana (ed.). 2012. The Hand-
book for Teaching Leadership: Knowing, Doing, and Being. Sage
George, B., and P. Sims. 2007. True North: Discover Your Au-
Publishing, Los Angeles, CA.
thentic Leadership. Jossey-Bass, San Francisco, CA.

Jensen, M. C., K. L. Granger, and W. Erhard. 2010. A new Souba, W. 2011. Perspective: a new model of leadership perfor-
model of integrity: the missing factor of production keynote. mance in healthcare. Acad. Med. 86:1241–1252.

APPENDIX 8.2 Further Information

Dugan, R. 2012. From mach-20 glider to humming bird drone.

TED video. 25:02. Posted by TEDtalksDirector, March 27, 2012.
www.youtube.com/watch?feature=player_embedded&v=V
_LurJfOSiA#t=0s (last accessed on July 2, 2012).
Introduction
The Laboratory Workforce—Is There an
Approaching Crisis?
9 Employee Needs
Theories of Human Needs
John C. H. Steele, Jr.
Maslow’s Hierarchy of Needs • Alternative Theories
Meeting Employee Needs
Level 1 and 2 Needs • Level 3, 4, and 5 Needs •
Higher-Level Needs
The Role of Generational Differences
Characteristics of the Generations • Meeting the OBJECTIVES
Needs and Wants of the Four Generations
To understand theories of human needs
Summary
To apply these theories to the laboratory workplace
KEY POINTS
GLOSSARY
To determine if generational differences in employee needs exist
REFERENCES
APPENDIX

The good or healthy society would then be defined as one that permitted people’s
highest purposes to emerge by satisfying all their basic needs.
Abraham H. Maslow, Motivation and Personality

T
he healthy, well-functioning laboratory requires the satisfac-
tion of employees’ needs, both basic and higher-level, if they are to
reach their highest performance and the laboratory is to retain their
knowledge and skills. With a predicted crisis in the laboratory workforce (4, 6,
12) and the increasing need for good technical, problem-solving, and financial
skills, it is critical for laboratory and hospital administrators to successfully
recruit, train, and retain skilled workers. The author believes that an under-
standing of the expectations, hungers, and needs of employees can guide lead-
ers in this process.

The Laboratory Workforce—Is There

an Approaching Crisis?
The American Society for Clinical Pathology (ASCP) conducts an annual sur-
vey of wages and vacancy rates in U.S. clinical laboratories. The 2011 survey
(7) of 625 facilities and more than 17,000 positions found vacancy rates be-
tween 5.14 and 11.60% (Table 9.1). The survey showed that most nonsuper-
visory laboratory vacancies were being filled within 6 months of posting, but
17 to 27% took 6 to 12 months and 5 to 14% more than 1 year. The situation
was worse for filling supervisory and night-shift positions (unless a differ-
Clinical Laboratory Management, 2nd Edition
ential was offered) and in small and rural hospitals. Respondents attributed
Edited by L. S. Garcia difficulties to inadequate education and skills of applicants, better salaries and
©2014 ASM Press, Washington, DC benefits at competing laboratories, and lack of initiatives to attract and retain
doi:10.1128/9781555817282.ch9 suitable employees.

232
 CHAPTER 9. EMPLOYEE NEEDS 233

Table 9.1 2011 Vacancy rates by specialty for the authors place insufficient emphasis on appreciating the
clinical laboratories needs of the employees. Yet a commitment by an organiza-
Specialty Vacancy rate (%)a tion and by laboratory leadership to meeting those needs
Blood banking 10.3/18.6 to the extent possible is important in both the recruitment
Chemistry 8.22/11.6 and retention of employees. So let us now turn to a consid-
Cytology 2.67/18.55 eration of human needs.
Hematology 6.91/7.65
Histology 8.50/17.8
Immunology 5.56 Theories of Human Needs
Microbiology 5.59/11.8 Maslow’s Hierarchy of Needs
Phlebotomy 7.89/8.20
a
It is quite true that man lives by bread alone—when there
Where two percentages are shown, the first is for non-
supervisory staff and the second for supervisory staff.
is no bread. But what happens to man’s desires when there
is plenty of bread and when his belly is chronically filled?
At once other (and “higher”) needs emerge and these,
rather than physiological hungers, dominate the organism.
A major workforce concern is the so-called graying of
And when these in turn are satisfied, again new (and still
the laboratory staff coupled with the declining number “higher”) needs emerge and so on. This is what we mean
of training programs for clinical laboratory scientists and by saying that the basic human needs are organized into a
medical technologists, from 800 in 1970 to 222 in 2008 (5, hierarchy of relative prepotency.
10). Many current laboratory workers are nearing retire- Abraham H. Maslow
ment age and will take years of specialized knowledge and
experience with them when they leave. The ASCP’s presi- Abraham Maslow’s name is inextricably linked to the study
dent, Mark H. Stoler, reported in 2010 that the average age of human needs. His seminal works (15, 16) presented a
of the laboratory workforce was 50 years and increasing hierarchy of needs represented as a pyramid with four lev-
each year (www.ascp.org/Functional-Nav/BOC-Newsroom/ els of “deficiency needs” and a final top level of “growth
Archive-of-Workforce-Articles.html). It has been estimated needs” (Fig. 9.1). At the lowest level of the pyramid are
that 13% of the 2008 workforce will have retired by 2013 physiologic needs. These are those that are basic for survival
(2). An additional problem is high turnover rates, particu- such as air, water, food, shelter, and sleep. Once these are
larly among bench technical staff (2). met, the next level of the pyramid comprises safety needs:
The College of American Pathologists’ Practice Man- security of the individual and the family; a living place in a
agement Committee cited additional factors contributing safe, orderly environment; stable employment; and health
to a shortage of laboratory workers. These included lower insurance. When the individual feels secure, social needs
wages compared to other healthcare professions with simi- become more important and comprise the third level of the
lar educational requirements (3), stressful working condi- original five-level pyramid. These include love, affection,
tions, lack of career advancement opportunities, the risk of
infectious diseases, and concerns of medicolegal liability
(5). Additional factors include a sense of invisibility, per- Figure 9.1 Pyramid of Abraham Maslow’s original hierarchy of
ceived lack of respect, lack of flexible scheduling, and sig- human needs. doi:10.1128/9781555817282.ch9.f1
nificant competition for technologists from industry.
A number of suggestions have been made to address
what appears to many to be a looming crisis (4–6, 12).
These include increased visibility of a career in laboratory
medicine to middle and high school students; enhanced
recruiting efforts; better compensation and support for
training and education; more effective staffing models,
including targeting of nontraditional workers; more pro-
ductive work environments; the application of knowledge
management by the staff, including a greater role in physi-
cian consultation and process leadership; and more effec-
tive laboratory leadership.
There are hundreds of books and articles that describe
leadership and management principles and techniques,
even a Leadership for Dummies. But with a few exceptions,
234 MANAGERIAL LEADERSHIP

and a sense of belonging that can largely be met by family, esthetic, and self-actualization needs. These differing in-
friends, and involvement in church and community activi- formation needs should be factored into plans to assist em-
ties. Work teams and informal groups also contribute to ployees reach higher levels.
fulfillment of these needs. The next level of the pyramid,
esteem needs, comes into play after the needs of the first Alternative Theories
three levels are met. Here self-esteem, a sense of personal Maslow’s theory has been widely accepted, although sup-
worth and accomplishment, reputation, and recognition porting evidence is sparse. Maslow himself appreciated
by others are the primary needs. At the highest level of the that not all individuals precisely follow the proposed hi-
original hierarchy are what Maslow termed self-actualizing erarchy and that they may be in more than one level at the
needs. Maslow described self-actualization as follows: same time in different areas of their life. The few studies
that have been done in the field suggest alternative theo-
What a man can be, he must be. This need we may call self- ries (11). William James proposed three levels of human
actualization. . . . It refers to the desire for self-fulfillment, needs corresponding to Maslow levels 1 and 2, 3 and 4,
namely, to the tendency for him to become actualized in
and spiritual, while Eugene Mathes discarded safety needs
what he is potentially. This tendency might be phrased as
the desire to become more and more what one is, to be- and esteem needs from the original five levels, leaving only
come everything that one is capable of becoming. (refer- physiologic, social, and self-actualization needs.
ence 15, p. 382) A different approach, also widely accepted, was taken by
Clayton Alderfer in 1972, building on earlier work by Gor-
Those at this level want personal growth and fulfillment don Allport that incorporated system theory concepts into
of their potential; their own opinion is more important to personality. Alderfer’s ERG theory has three categories (1).
them than the opinions of others. Ethical concerns, realis- Existence encompasses physiologic and biologic needs and
tic perceptions, spontaneity, problem-solving opportuni- is centered on the self. Relatedness involves one’s relation-
ties, creativity, and similar characteristics are all included ships with others and includes acceptance and mutual shar-
in this level. Individuals who reach this level often have ing. The highest need level is growth and corresponds with
moments of awe and ecstasy—what Maslow termed “peak Maslow’s self-actualization needs. Others have melded these
experiences”—which provide inspiration, renewal, and competing theories into one that also divides each level into
even transformation to the individual. introverted and extroverted personality types (11).
In later works Maslow added a sixth motivational level A number of other theories have been proposed (11).
of self-transcendence. At this new top level, an individual One of the more interesting abandons the pyramid for a
moves to causes beyond the self. Needs at this level may nautilus (Fig. 9.2). Simon Hertnon’s theory of universal
be met through service to others, commitment to a cause human needs posits two types of need, survival and bet-
such as social justice or religion, or devotion to an abstract terment (9). Each type is divided into two individual needs
ideal such as art or music (13). Peak experiences were and two species needs, the first of which in each group
moved to this level from the fifth level of self-actualization. must be met before the second one can be satisfied. The use
Later workers have expanded the levels of Maslow into of a nautilus suggests that as an individual moves through
additional levels. The current hierarchy contains eight the levels, he or she grows as a person. A ninth need, “to
levels. In this conceptualization, the fifth level is cogni- understand the nature and purpose of human life,” sits out-
tive needs such as knowledge and self-awareness and the side the nautilus, presumably as the ultimate goal.
sixth level esthetic needs including beauty and form. Be-
yond this the individual emerges at the seventh level of
self-actualization and attains self-fulfillment through per-
Meeting Employee Needs
sonal growth. The highest level is transcendence, where Level 1 and 2 Needs
the need is to help others reach their potential and obtain How do these needs apply in the workplace? Obviously em-
self-actualization and transcendence for themselves—a ployment must provide an adequate salary that enables an
pay-it-forward arrangement of sorts. As individuals reach employee to meet basic life needs. While the entry salary
the seventh and eighth levels, Maslow posited that they may be deemed adequate to the employee, laboratory lead-
would become wise and would be able to handle a variety ers must work to ensure that it remains so. This requires
of situations. knowledge of prevailing salaries in the area and advocacy
George Norwood in 1999 suggested (11) that the in- for competitive as well as cost-of-living adjustments. With
formation needs of individuals vary depending on their increasing emphasis on hospital length of stay, the labora-
level in the hierarchy—coping information for physiologic tory is being pressured to provide specialized tests around
needs, helping information for safety needs, enlightening the clock, so shift differentials must keep pace with the in-
information for social needs, empowering information creased staffing needed on “off-shifts” to provide justified
for esteem needs, and edifying information for cognitive, after-hours testing.
 CHAPTER 9. EMPLOYEE NEEDS 235

Figure 9.2 Simon Hertnon’s nautilus of universal human needs. doi:10.1128/9781555817282.ch9.f 2

The laboratory must provide a safe workplace to meet world that is no longer the case. Hospitals and laboratories
the protection and security needs of employees. Crime merge, nonurgent testing can be outsourced to large refer-
can occur anywhere, so access to laboratories should be ence laboratories, and good employees may be terminated
restricted, a requirement for Biosafety Level 2 and above by reductions in force. This may lead employees to con-
facilities. Lounges including restrooms and lockers should clude that decisions are being made with no consideration
be within the restricted area so that employees do not need of the impact upon them. This naturally engenders anxi-
to enter public corridors during low-traffic times. Public ety and a loss of loyalty, which can then adversely affect
safety escorts should be available when this is necessary, employees’ commitment to their work. As Verlander and
such as during after-hours shift changes. The potential Evans (18) put it:
for internal threats must also be addressed through ergo- The good business reasons for laboratory mergers and
nomic surveys and constant vigilance for an employee who acquisitions create turmoil and anxiety among employ-
may be close to resorting to threatening or violent action. ees. Such emotions cause a shift in employees’ perception
In the past, stability and order, other second-level of the psychological contract they have with their em-
needs, could almost be taken for granted, but in today’s ployers, a downturn in motivation, and a corresponding
236 MANAGERIAL LEADERSHIP

psychological shift from “institutional security” to “self- vendor-sponsored presentations and workshops; webinars
security.” When this shift occurs, laboratory profession- and audio conferences from professional organizations;
als become more concerned about personal survival than and attendance at local, regional, and national professional
professional performance. meetings. Unfortunately, the funding for such activities is
Administrators in healthcare need to be aware of this often the first to face the budget ax, so it is necessary to be
shift, with the resulting possibility of diminished morale diligent in identifying low- or no-cost alternatives and to
and productivity, especially among younger employees, advocate for more costly alternatives when needed to ad-
and ensure that their mentoring (14) and retention (8) dress the identified knowledge deficits of the staff.
strategies address these concerns. Higher-Level Needs
Most of an individual’s higher-level needs are internally
Level 3, 4, and 5 Needs driven and thus can only be met by employees themselves.
Higher-level needs are less threatened by economic However, there are opportunities for the laboratory manager
changes. Teams and work groups can help meet the so- to contribute. He or she can promote an attractive workplace
cial needs of employees and should be utilized whenever through reducing clutter, encouraging cleanliness and order,
needed both to accomplish business goals and to meet involving staff in decisions about paint colors and carpeting,
these needs. See chapter 18 in this text for guidance on etc., to address their esthetic needs. Self-actualization needs
this. Workplace friendships can also allow employees to are best met by providing opportunities for professional
fulfill these needs as long as they do not violate corporate growth, be it special projects, new responsibilities such as
policies or interfere with productivity. maintaining procedure manuals, or promotion. Finally, us-
Meeting the esteem needs of employees requires man- ing senior employees to mentor others may help meet the
agers and leaders, including pathologists, to possess and transcendence needs of these future leaders.
practice emotional intelligence, a topic made popular by An excellent case study that provides a model for ac-
Daniel Goleman and covered in chapter 10. Employees at complishing many of the needs at all levels discussed
this level place importance upon a sense of professional above is provided by Garletts (8). Garletts’ group designed
accomplishment and upon recognition of their achieve- an entry-level career ladder for the specimen management
ments. The astute manager will help fulfill these needs by and referral section of their commercial reference labora-
“praising in public,” which does not always come easily. tory, piloted it, and then fully implemented it. It provided
It is not uncommon for employees to receive feedback job enrichment opportunities to employees and held them
only when something goes wrong, but to hear nothing accountable. This article and others in the November-
for the vast majority of times when things go well. The December 2002 issue of Clinical Leadership & Manage-
managerial approach that “no news is good news” does ment Review, titled “Avoiding Crisis: Meeting Laboratory
not satisfy these esteem needs. When there is a noncon- Staffing Challenges of the 21st Century,” provide many ex-
forming event, the manager must appreciate that system cellent ideas for meeting employee needs and thus provid-
issues underlie the vast majority of these and that a root ing motivation and enhancing retention.
cause analysis should be performed before attributing
the cause to an employee; that is, don’t practice “Name,
Blame, and Shame.” When criticism is necessary, it should
The Role of Generational Differences
be done constructively and privately and in a manner Characteristics of the Generations
that ensures successful bidirectional communication. The Four social generations have been described and general
manager can also recognize accomplishments by thank- characteristics attributed to each group. These have the
you notes and by the judicious assignment of additional potential of adding complexity and potential conflict in
responsibilities and emphasis on career and professional the workplace, and the astute manager must appreciate
development during evaluations and other times. Sending intergenerational differences. These are summarized here
personal cards to the employee’s home for birthdays and based upon references 14 and 17 and the resources listed
other significant life events can promote the feeling of be- in Appendix 9.1.
ing appreciated by superiors in the workplace. All of these Current workplace generations are divided into four
actions will help satisfy the status and reputation needs of groups based on birth year, with each group having had
the employee. certain formative influences that helped to determine their
The cognitive needs of employees in the workplace attributes. Traditionalists, born between 1922 and 1945,
are best met by providing opportunities to improve their are those workers from “the Greatest Generation,” who
knowledge. Continuing education is required by accred- lived through the Great Depression, the Second World
iting organizations and bodies and can include labo- War, and the Korean War. Most of these have retired from
ratory rounds; formal lectures and group discussions; the workplace, although some continue to work into their
 CHAPTER 9. EMPLOYEE NEEDS 237

70s and beyond. They are self-reliant and disciplined from this can best be done by identifying the opportunities that
having lived through the hardships of these times. The so- emerged from her SWOT (strengths, weaknesses, oppor-
called Baby Boomers were born between 1946 and about tunities, and weaknesses) analysis.
1964. (Different authorities use different years to define
this and later generations.) They typically fill leadership • The Traditionalists should be encouraged to mentor
roles in organizations. Their style was influenced by liv- younger generations but also to be mentored by them,
ing through the turbulence of the Vietnam War, the civil particularly in technology and “thinking outside the
rights struggles, the assassinations of John F. Kennedy and box.” It is important for them and the Boomers to seek
Martin Luther King Jr., Watergate, and the sexual revolu- out younger workers who have good technical skills
tion, leading them to question authority and social insti- and a desire to learn new ones and the ability to incor-
tutions. At the same time, many Boomers grew up in a porate their new knowledge into their work processes.
prosperous economy with two-parent families, only one Mentors must stay neutral while being honest in giv-
of whom worked; this led to a sense of entitlement. Those ing feedback. Guidelines for mentoring Generation X
born between 1965 and about 1981 are Generation X. include providing knowledge of the operational struc-
They grew up in world of economic uncertainty, one filled ture of the enterprise, setting clear expectations and
with rapid change and without solid traditions. Because assignments with enforced deadlines, explaining prog-
of this and other societal trends, their parents often either ress measures, providing ongoing feedback, encourag-
both worked or were divorced. This made these latchkey ing initiative and creativity, and then leaving them to
children resilient and independent but also cynical; they fulfill assignments in their own way. Mentoring the
received support from small groups of friends and men- Millennials requires a different, more formal ap-
tors. Those of Generation Y, also known as the Millenni- proach, with structured meetings and challenges. Mil-
als, grew up in a time of marked advances in technology, lennials should be guided with clear, detailed,
the Internet, and 24/7 connectivity, yet one also marked step-by-step instructions and directed to needed re-
by economic uncertainty. Most were in day care; many sources. Whenever appropriate, they should be men-
grew up in merged families; and all experienced 9/11 and tored in groups so that they can act as one another’s
were exposed to school shootings and corporate scandals peer mentors and resources.
in the news. As a result, they are also cynical but at the • The Boomers should also participate in two-way men-
same time are confident and social, and having fun is im- toring as described for the Traditionalists. Addition-
portant to them. ally, they should be utilized as consultants.
Table 9.2 provides a summary of the behaviors attrib- • The Gen Xers should be encouraged to find a mentor,
uted to each generation; it is important to recognize that someone they respect and admire. They can find satis-
there is considerable variation of these behaviors based in faction by involvement in process improvements, espe-
part on education, employment, and the like. The strengths cially those that eliminate waste, and by spearheading
each generation brings to the workplace are also listed, the introduction of new technologies.
along with the attributes that may result in difficulties • The Millennials should also be encouraged to identify
in their employment. Their work styles, communication a mentor. Their fresh ideas are ideal for involving them
preferences, comfort level with technology, and cultural in team projects.
preferences and values are summarized in Table 9.3. This
information provides managers with general principles For employees to excel in their position and thus meet
upon which to effectively create and maintain a multigen- their social, esteem, and self-actualization needs, genera-
erational workplace. tional differences must be considered when designing their
training and developing retention policies. The platinum
Meeting the Needs and Wants of rule of “Treat others as they want to be treated” applies
the Four Generations here. Sarah Vining, in her analysis “Understanding gen-
The physiologic and safety needs of the four generations erational differences: the key to attracting, motivating and
are essentially the same, with the possible exception of the retaining your workforce” (see Appendix 9.1), provides the
physical arrangement of the workplace, where the more in- example of a Millennial assigned a multiyear project. To
dependent generations tend to want their own workspace maximize the likelihood of success, the project should be
while the Millennials prefer group workspaces. For the broken into smaller segments, work assigned to a group,
higher-level needs and wants of the different generations, and frequent feedback and rewards for participation given.
the manager needs to maximize use of the strengths of each The above provides managers with an introduction to
while minimizing their weaknesses in order both to satisfy meeting the needs of a multigenerational workforce. The
them and to achieve the goals of the organization. Based interested reader should refer to the sources listed earlier
on Katheryn Inglis’s audio conference (see Appendix 9.1), in this section.
238 MANAGERIAL LEADERSHIP

Table 9.2 Behaviors, strengths, and struggles of the workplace generationsa

Generation Organizational behaviors Workplace strengths Workplace struggles
Traditionalists Embody a traditional work ethic Great knowledge Reticent when they disagree
Typically disciplined, loyal team play- Hard-working Respect for diversity
ers who work within the system Stable Reluctant to buck the system
Respectful of authority, patient, and Loyal Uncomfortable with conflict
follow the rules Thorough and ambiguity
Vast knowledge legacy to share Detail-oriented Reluctant to give feedback
Sense of obligation Focused Not as comfortable with
Observe fiscal restraint; risk-averse Emotionally mature technology
Strong commitment to teamwork Prefer formality
and collaboration Need respect
Strong communication skills
Baby Boomers Career-oriented Loyal to organization Nontraditional work styles of
Tend to be optimistic, ambitious, Have a team perspective later generations
competitive, and focused on their Consensus builders promoting Technology replacing human
personal accomplishments group decision making interaction
Believe in working long hours (“live Knowledgeable and experienced Requiring recognition
to work”) and expect younger genera- Efficient Sharing praise and reward
tions to do so as the path to success Balancing work and family
Service- and quality-oriented
Comfortable in the workplace culture Uncomfortable with conflict;
they created Confident task completers
Accepters of diversity reluctant to go against peers
Effectors of change
Mentors
Generation Xers Redefined loyalty, having seen Well educated Career development
their parents laid off or facing job Independent Independence; prefer working
insecurity Value learning and development alone
Committed to their work and the of skills Conflict resolutions and office
people they work with rather than the Practical problem solvers politics
company Multigenerational team projects
Comfortable with change and
Skeptical risk takers who want fun in competition Balancing work and family
the workplace
Creative risk takers Skeptical and distrustful of
Seek more work-life balance (“work authority
to live”) Techno-literate
Willing to challenge the status quo Not overly loyal to employer
Better team workers than Want to be challenged and pro-
Baby Boomers despite being vided feedback
individualistic Dislike meetings
Value lean and six-sigma ap-
proaches to minimize waste/non-
value-added activities
Millennials Typically team-oriented, working well Goal-oriented Independent work
in groups as opposed to individual Optimistic Respectful communication
endeavors Able to multitask Functional literacy
Expect to work hard Tenacious Need supervision and structure,
Good at multitasking Adaptable to change especially with people issues
Seek balanced life Technologically savvy Reject the concept of “paying
Highly educated Driven to learn and grow dues”; expect input immediately
Team-oriented Perceived as demanding and
challenging the status quo
Embracers of diversity
Realistic goals
Value training
Entrepreneurial
Tolerate failure well
a
Adapted with permission from Birkman International, 2009; Tolbize, 2008; and Inglis, 2012 (see Appendix 9.1).
 CHAPTER 9. EMPLOYEE NEEDS 239

Table 9.3 Generational work, communication, and technology stylesa

Communication Cultural preferences
Generation Work style preferences Technology and values
Traditionalists Want a fair and consistent Prefer more formal, profes- Many are not comfortable Tend to be conservative in
approach to workplace with sional language with technology but are dress and language and in
clear direction, expectations, Messages should relate to willing to learn their approach to work
and long-term goals company history and long- View work as a privilege
Have strong work ethic and term goals and believe in a respectful
discipline Words and tone of voice workplace
Want to be valued for age and should be clear, respectful, Patriotic; grew up as part
experience and grammatically correct of the American Dream
Can be a stabilizing influence, with no slang or profanity May struggle with respect
especially when teamed with Preferred style is memos, for diversity
Gen-Y employees letters, and personal notes
Hesitant to disagree and dis-
like conflict
Baby Boomers Tend to have strong work Conversations are better Worried that technol- Tend to view their value
ethic, good communication over breaks or meals as they ogy is replacing human as a person through their
skills, and emotional maturity tend to see relationships interaction work
Strong team players, insisting and business results as Worried they are being Take democratic ap-
on being involved in deci- intertwined left behind proach to work and value
sions and influencing the di- Ask about mutual interests consensus
rection of their organizations such as family Prefer a more personal
Uncomfortable with conflict Get one another’s input approach to the workplace
and reluctant to go against and link the message to the than Traditionalists
peers team or individual vision, May struggle with nontra-
May put process ahead of mission, and values ditional working styles of
results Preferred style is phone younger generations, but
calls and personal many are now interested
interaction in more work-life balance
Generation Xers Prefer to work independently Prefer direct and straight- Techno-literate Independent, self-reliant,
and are at their best when forward communication Worried about being and willing to challenge
given a goal but not told how Because they don’t want outpaced by younger the status quo
to accomplish it their time wasted, may coworkers May seem reluctant to
Committed to work and the seem abrupt give their loyalty
people they work with rather Intolerant of business- Adaptable and thrive in
than their company speak; rather want clear midst of chaos and change
Skeptical risk takers who statement of what is needed Enjoy achieving measur-
want work to be fun and when able results and streamlin-
Seek more work-life balance Preferred style is voice mail ing systems and processes
or e-mail
Millennials Able to multitask and expect Want positivity Technologically savvy; Very community-oriented
to be able to social network Prefer text messages or sometimes impatient with Value diversity
at work face-to-face meetings those who aren’t See the world as global,
Prefer working in teams but Want message tied to their connected, and 24/7
may need supervision and personal or team goals Achievement-oriented
structure Intolerant of condescen- and confident, which may
Reject concept of “paying sion, cynicism, and sarcasm appear to be cockiness
dues” Preferred style is instant Informal style may rankle
Expect input immediately messages, blogs, text mes- some members of older
Want flexibility to work sages, and e-mails generations
where and when they want so
they can pursue their outside
interests
a
Adapted with permission from Birkman International, 2009; Tolbize, 2008; and Inglis, 2012 (see Appendix 9.1).
240 MANAGERIAL LEADERSHIP

Summary security, sense of belonging, and esteem, often depicted as repre-

senting the bases of a pyramid with higher-level growth needs
People are complex. Everyone develops values and a view above. Conceptually, one must satisfy the bottom-level needs be-
of the world from many sources—family, culture, religion, fore progressing to the next level of needs.
education, socioeconomic level, and others. Thus, each
Millennials Also known as Generation Yers, this generation
person is unique. But they all have similar needs, although
contains individuals born between the early 1980s and the early
their relative importance may vary from one individual to 2000s.
another. Leaders need to be familiar with the needs that
have been identified and to appreciate that helping to meet SWOT analysis A study to identify the strengths, weaknesses,
those needs in the workplace can be instrumental in at- opportunities, and threats of a current or proposed future state of
tracting and retaining employees. At the same time, they affairs.
must consider the generational differences that should Traditionalists The generation, largely retired, of those born be-
guide their actions in a multigenerational workplace such tween 1922 and 1945.
as the laboratory.

REFERENCES
KEY POINTS
1. Alderfer, C. P. 1972. Existence, Relatedness, and Growth. Free
■ A workforce crisis in the laboratory has been predicted Press, New York, NY.
by several experts due to the graying of the staff and 2. Bennett, A., N. N. Thompson, B. Holladay, A. Bugbee, and C. A.
difficulties in attracting new and retaining older staff. Steward. 2009. ASCP Wage and Vacancy Survey of U.S. medical
■ These experts have suggested several ways to address laboratories. LabMedicine 40:133–141.
this problem, but implementation has been fragmented 3. Bureau of Labor Statistics, U.S. Department of Labor. 2012.
at best. Medical and clinical laboratory technologists and technicians. Oc-
■ Abraham Maslow developed a hierarchy of hu-
cupational Outlook Handbook, 2012-13 Edition. Bureau of Labor
Statistics, Washington, DC. www.bls.gov/ooh/healthcare/medical
man needs. While there is little evidence supporting
-and-clinical-laboratory-technologists-and-technicians.htm (last
Maslow’s hierarchy or competing theories, it provides a accessed May 17, 2012).
useful framework for considering what laboratory em-
4. Cortelyou-Ward, K., B. Ramirez, and T. Rotarius. 2011. The
ployees need while at work.
laboratory workforce shortage: a managerial perspective. Healthcare
■ Consolidation in healthcare, including laboratories, has Manag. (Frederick) 30:148–155.
altered employees’ psychological contract with their 5. Eckert, E. R. 2006. College of American Pathologists’ House of
employers. This can adversely affect their performance. Delegates Resolution F-2004-03. College of American Pathologists,
■ Leaders’ emotional intelligence and commitment to Northfield, IL. www.cap.org/apps/docs/house_of_delegates/reference/
continuing education, orderly workplaces, and profes- laboratory_personnel_shortage.doc (last accessed May 17, 2012).
sional development are increasingly important to retain 6. Epner, P. L. 2007. Laboratory workforce shortage: implications for
employees. the future. Clin. Leadersh. Manag. Rev. 21:E1–E7.
■ The attributes, preferences, and motivators of the dif- 7. Garcia, E., A. Bennett, M. DeFranco, M. Schulze, P. A. Tanabe,
ferent generations must be appreciated and used to ad- J. Hampshire, F. Rodriguez, J. Edwards, and H. Lee. 2011. Amer-
vantage to achieve the goals of the laboratory. ican Society for Clinical Pathology’s 2011 Vacancy Survey of U.S.
clinical laboratories. LabMedicine 42:199–206.
8. Garletts, J. A. 2002. Using career ladders to motivate and retain
GLOSSARY employees: an implementation success story. Clin. Leadersh. Manag.
Alderfer’s ERG theory A human needs theory based on exis- Rev. 16:380–385.
tence needs, relatedness needs, and growth needs. 9. Hertnon, S. Simon Hertnon’s theory of universal human needs.
Baby Boomers The generation of individuals born between www.nakedize.com/universal-human-needs.cfm (last accessed Oc-
1946 and the early 1960s. tober 8, 2012).
10. Hilborne, L. 2008. The other big workforce shortage. As labo-
Generation X The generation of individuals born between the
ratory technology wanes as a career choice, a staffing crisis grows.
mid-1960s (usually 1965) and the early 1980s.
Mod. Healthc. 38:23.
Hertnon’s theory of universal human needs A theory that pos- 11. Huitt, W. 2007. Maslow’s hierarchy of needs. Educational Psy-
its survival and betterment needs, with each divided into two chology Interactive, Valdosta State University, Valdosta, GA. www
individual needs and two species needs. Conceptually, one must .edpsycinteractive.org/topics/conation/maslow.html (last accessed
meet the individual needs before species needs can be satisfied. October 8, 2012).
Maslow’s hierarchy of needs A popular theory that ranks types 12. Kaplan, R.L., and T. E. Burgess. 2010. The impending crisis.
of human needs beginning with deficiency needs such as sleep, J. Microbiol. Biol. Educ. 11:140–143.
 CHAPTER 9. EMPLOYEE NEEDS 241

13. Koltko-Rivera, M. E. 2006. Rediscovering the later version of 16. Maslow, A. H. 1954. Motivation and Personality. Harper, New
Maslow’s hierarchy of needs: self-transcendence and opportunities York, NY.
for theory, research, and unification. Rev. Gen. Psychol. 10:302–317. 17. Smola, K. W., and C. D. Sutton. 2002. Generational differences:
14. Laudicina, R. J. 2001. Mentoring for retention and advancement revisiting generational work values for the new millennium. J. Or-
in the multigenerational clinical laboratory. Clin. Lab. Sci. 14:48–52. gan. Behav. 23:363–382.
15. Maslow, A. H. 1943. A theory of human motivation. Psychol. 18. Verlander, E. G., and M. R. Evans. 2007. Strategies for improv-
Rev. 50:370–396. ing employee retention. Clin. Leadersh. Manag. Rev. 21:E4.
242

APPENDIX 9.1 Resources on Generational Differences in the Workplace

Birkman International. 2009. How do generational differences _Development_-_Past_ThinkLabs/503_Kathy_Inglis___Julliane

impact organizations and teams? Birkman International, Hous- .pdf (last accessed September 28, 2012).
ton, TX. www.birkman.com/news/BMI_GenerationsPart1.pdf
and www.birkman.com/news/BMI_GenerationsPart2.pdf (last Tolbize, A. 2008. Generational differences in the workplace. Re-
accessed October 1, 2012). search and Training Center on Community Living, University
of Minnesota. Presented August 16, 2008. http://rtc.umn.edu/
Inglis, K. 2012. Managing generational differences in the work- docs/2_18_Gen_diff_workplace.pdf (last accessed September
place: blast your career into the future! Mayo Medical Laborato- 28, 2012).
ries Outreach Forum audio conference. Presented in February
2012. Vining, S. 2011. Understanding generational differences: the key
to attracting, motivating and retaining your workforce. National
Inglis, K., and J. Breh. 2010. Blasting lab managers into the fu- Conference Center conference. www.conferencecenter.com/
ture! CLMA ThinkLab ’10. Presented March 5, 2010. http://c media/docs/pdf/GenerationalDifferencesWP.pdf (last accessed
.ymcdn.com/sites/www.clma.org/resource/resmgr/Professional September 28, 2012).
What Is Motivation?
Knowledge of Self
10 Motivating through
Creating the Vision • Humility • Basic Needs
Knowing What Others See in You
Intelligent Leadership
Factors of Motivation • The Right People Need the
Right Leader • Actually Fix the Problems Christa Pardue
Knowing the Emotions of Leading
Emotional Intelligence • The Need for Purpose •
Human Motivation Theory
Summary OBJECTIVES
KEY POINTS To consider how the natural internal motivation in people can be sparked by
GLOSSARY effective leadership
REFERENCES To accept that knowledge of one’s self as a leader will provide an understanding
of the needs of others
To illustrate through real-life stories of the laboratory how the basic principles
of motivation can be applied
To energize leaders to lead

Leadership is much less about what you do, and much more about who you are.
Jim Collins, Foreword, Hesselbein on Leadership

What Is Motivation?
Why did I want to take on another project like writing about laboratory lead-
ership when I have more things to do in my life than I could possibly ever get
done? For the same reason that I agree to make cupcakes for my daughter’s
third-grade class when I know that I will not be flying back into town until
8:00 the evening before. For me, it’s because of my strong passion and interest,
or motivation, for these two aspects of my life. It’s that same strong motivation
that drives me toward my professional obligations. It’s the striving to be a pro-
ductive member of the profession and the need to promote the profession of
clinical laboratory medicine, but even more it’s the desire to add to society by
supporting the healthcare needed by our community. Ultimately, for health-
care leaders, the question becomes, how do we continuously ignite this type
of motivation in the people around us whom we depend on most to provide
this care? I would state that the answer lies in the leader’s intimate knowledge
of his or her self.
The goal of this chapter is to take the basic theories of motivation and ap-
ply them to real-life settings in the laboratory by relating some experiences
that I have had during my tenure in the profession. Everyone can read these
theories on their own, but often it’s the real-life application of the theories
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia that challenges us. It’s my intent to make these management theories real and
©2014 ASM Press, Washington, DC applicable to laboratorians. If my limited experiences can help, I welcome you
doi:10.1128/9781555817282.ch10 to them.

243
244 MANAGERIAL LEADERSHIP

Knowledge of Self Humility

Creating the Vision Moving to a more obvious concept of leadership and its im-
pact on motivation, it must be recognized that as a leader,
Understanding one’s self as a leader will provide clarity in
it is your own behavior that affects others. “Model the be-
communicating one’s purpose or direction and the reason
haviors you hope to see” (reference 10, p. 1). Consider those
why that direction is appropriate. Leaders must possess
days when productivity, regulations, and compliance chal-
the ability to define a vision and design a path to achieve
lenge your own motivation to keep trying. I know that I can
that vision. Knowledge of why you as the leader defined
sometimes get into a “rut” or emotional low spot when it
the vision in the first place is the same knowledge that will
seems that everything is impossible. I remember that with
motivate others to follow it. I think of the time when my
one of our first productivity challenges my reaction was
administrator sent me an e-mail asking me how much a
not positive. I remember saying things like “This is impos-
particular point-of-care test cost. I hesitated to answer, as-
sible,” “We can’t do this,” and “We already benchmark as
suming that the next question was going to be “Can you
one of the most efficient laboratories,” and it was amazing
bring it into our emergency department?” I answered
how my reactions immediately formed the opinions and
with all kinds of reasons why we didn’t want to do that,
beliefs of the managers and staff who reported to me. I can
citing coefficients of variation, training, and costs. I took
still remember the way their faces dropped when I looked
the whole day designing the perfect rebuttal e-mail. I later
up from that productivity report in my hand. They were
found out that he had actually asked the question because
completely fueled to fight this battle beside me and aware
he was demonstrating the costs our laboratory had avoided
that arguing the obvious was not the answer. My emotional
by maintaining exceptional turnaround times with the
reaction had immediately created a negative perspective to-
laboratory-based test and therefore preventing the need
ward this challenge, and now how would I take this back?
to bring in this point-of-care test. My original mistaken
How, at this point, would I motivate these folks I depended
belief in his motive prevented me from fully buying into
on most to accept this challenge and conquer it?
his question. Once I realized his purpose, I was motivated
In considering the leadership principles conveyed by
to give him more data than he needed. As it turned out, he
Jim Collins in his article titled “Level 5 Leadership: the Tri-
was trying to brag about our team; I’ll take that any time
umph of Humility and Fierce Resolve” (1), I knew at this
I get a chance. This example may seem somewhat superfi-
point the best answer would be for me to admit to them that
cial; let me move toward a deeper concept of knowing my
I had reacted emotionally rather than responded appropri-
own motives for creating a vision.
ately to the challenge. As Collins describes leadership in
Frequently one vision is a stepping-stone to another
this article, it is clear that once a leader has accomplished
goal. Some years back, like many laboratories, our labo-
all of the other basic leadership skills, a leader also needs
ratory underwent a total process flow transformation us-
to know when to be humble. It’s important to acknowledge
ing the lean concepts. The intent was to produce rapid
to those you lead that you too can make mistakes and that
turnaround times for the emergency department. With
you too need them to be understanding and accepting of
this project the laboratory did align the turnaround times
the human side of their leader. It is also through your ac-
within the expected goal, but consider the advantage to
ceptance of your imperfections that your team will learn
the now more global picture for those who have already
that it is appropriate to be humble and recognize weak-
experienced some form of adaptation to more efficient
ness in themselves, with a personal motivation to grow and
methods. As stated by the U.S. Department of Health and
improve their own faults. This will set the example to be
Human Services, “Pay for Performance (P4P) refers to fi-
motivated to improve one’s own performance.
nancial incentives that reward providers for the achieve-
ment of a range of payer objectives, including delivery
efficiencies, submission of data and measures to payer, and Basic Needs
improved quality and patient safety” (11). Any previously Looking at motivation in terms of Maslow’s hierarchy of
accomplished efficiency effort has provided a head start needs, as illustrated in the book titled Maslow on Man-
toward meeting P4P requirements. This vision ultimately agement (8), leaders must consider how they themselves
provided a stronger position for the organization when fall under the requirements for fulfilling their own basic
weathering the storm of healthcare reform. As leaders, needs. “It’s easy to get so wrapped up in building the com-
laboratory managers must ultimately know the purpose of pany that you lose sight of what’s really important in your
the vision that they design and continuously refresh the life and why you have your company in the first place” (ref-
communications about that purpose. For our laboratory, erence 2, p. 1). Leaders often put too much of themselves
team knowledge of the total impact has continued the mo- into their job and do little for themselves or their home life.
tivation to sustain the lean principles and maintain the ef- This will cause a lack of compassion for the basic needs of
ficiencies gained by the process changes. the people around you. Sustaining a reasonable life outside
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP 245

of work will help the leader to understand the needs of the or she designs. Enable people to achieve, accomplish, and
staff. I can remember just recently what it felt like to see my grow, and then recognize the achievement.
son play t-ball for the first time. It gave me chill bumps to
think that my baby was becoming a big boy and that I was The Right People Need the Right Leader
there to see it. It’s this very realization that allows me to see One of the strongest lessons I have learned as a labora-
why my staff ask for time off to coach little league, or prefer tory manager is that having the wrong people in place will
not to work overtime too often, or would like to know their greatly affect the motivation of those around them. “You
schedules in advance. It’s so that they can plan to attend the de-motivate people if you have the wrong people, because
things in their life that mean this much to them. Our labo- there’s nothing that the right people hate more than having to
ratory has taken a stance in the past few years that “if at all carry the weight of people who aren’t carrying their weight”
possible,” we will grant all time-off requests. The staff un- (reference 2, p. 2). From the standpoint of the leader, this
derstood that vacation requests were no longer a competi- is demonstrated in a leader’s ability to hold everyone to the
tion, but a collaboration. They realized that if they helped same level of expectations. Most importantly, leaders must
us to make this happen, time-off requests would always be hold themselves to the same or greater level of expectations.
granted even for themselves. It was often a struggle, but we One of my first managers told me, “Never ask anyone to do
worked together and went 6 years before we had to deny a something that you yourself wouldn’t do.” Personally, I find
request for time off due to inability to find a way to cover it is important to maintain my skills as a bench technolo-
the work area. Because of this, call-ins are very rare and gist, and I encourage all of the laboratory managers who
the fear of rejected vacation requests is no longer a worry report to me to keep abreast of the bench-level work. Not
among the team. It was a simple understanding of how the only does it allow me to make better-informed decisions,
fulfillment of my needs for both work and life motivated it also shows our team that we are all in this together. Even
me that allowed me to see what would motivate the people though they joke with me and say I “look funny in a lab
around me. coat,” when I work on the bench, it shows my commitment
to the vision and my diligence to achieve the goal. Leaders
who demonstrate a base competence or understanding for
Knowing What Others See in You the front-line work will be respected and will be effective at
Factors of Motivation motivating the people around them.
Based on the theories of motivation described by Fred- Thinking of the day that one of our flow cytometry tech-
erick Herzberg, motivation can be created by a desire for nologists called in sick, I remember when my bench experi-
achievement, recognition, or accomplishment; increased ence worked out for our laboratory. This was a day when the
responsibility; opportunity for growth and development; two other trained flow cytometry technologists were also not
or creative and challenging work. I relate these needs back available to come in for very serious reasons. Being a flow
to goal setting. If people have reasonable and obtainable cytometry technologist myself, I remember saying, “Well, it
goals and are enabled to accomplish them, they have the looks like it’s me today.” I grabbed a lab coat and worked the
potential to achieve the factors described by Herzberg. An entire day back on the bench. Now, a lot of managers have
effective leader will collaboratively set goals with those done that, but the point of this story is found in the con-
involved in the work based on the vision of the organiza- versation that occurred at the end of that day. One of our
tion and then enable those people to use their abilities to technologists came to me to say, “Thank you. Today, it wasn’t
accomplish the goal. One of the factors of motivation the- about the work that you did but about the commitment. You
ory is that motivation is driven by accomplishment and showed us all that you are in it until the end. It looked like
recognition. Last year our laboratory designed a type of everybody worked harder today.” It was significant to me that
achievement award that is sort of a Most Valuable Player they actually noticed that they were working harder.
award for the year. We hold a recognition ceremony dur-
ing National Medical Laboratory Professionals Week Actually Fix the Problems
where we recognize the winner of this award. It is based Have you ever heard, “It doesn’t matter what I say; they
on the staff member’s achievements over the past year, never fix anything”? Our hospital promotes the practice
but more importantly, it’s based on the ability of the staff of leader rounding. I have been doing this for many years,
member to design and implement a process, technique, and I remember the first few times that I spoke with some
or technology that will meet their goal. “Motivation to particular staff members. The answer was always that ev-
contribute has to be matched with ability to contribute” erything was fine. The more that I would pursue their true
(reference 12, p. 1). Again, a leader must recognize that opinion, the more I was told that it didn’t matter. It took
it is important to assist in setting the goal but also to en- some time for me to prove that what they had experienced
able the person to achieve the goal using methods that he in the past was not going to remain true. I can think of one
246 MANAGERIAL LEADERSHIP

issue in particular that we dealt with years back. We were so bogged down in setting up interviews, trying to recruit,
failing to call some critical results. The further we investi- and talking with anyone who might have a lead that I failed
gated it, the more we heard from our staff. We soon real- to “look up” and notice the folks who were getting the work
ized that the reason we were missing them was that half done with a reduced staff. They were getting it done, but as
of the critical limits were set as prompts in our Labora- the months went by, they were getting worn and tired. They
tory Information System (LIS) and the other half were not. were covering multiple shifts and extra weekends to make
We were depending on our extremely busy technologists up the difference, and while I was continuously working to
to know when a critical result came over their LIS screen try and fix their problem, I had not taken the time to reas-
or to check a manual chart for each result, and worse yet, sure them that I was working on it. They needed to know
they only had to do that half of the time. I promised them that I recognized how much they were giving in order to
that we would fix that and we did. We spent the time to get the work done. In this case, I let the stress of finding
get all critical values in our LIS. It was relatively easy fix someone block me from taking the few minutes to care for
that had a major impact on our patients and staff. We were our folks who were trying so hard.
able to guarantee our technologists that if a result fell into Freshman and Rubino also point out that many health-
the critical range, the LIS would always prompt them. We care administrators have a “misconception that the com-
quickly got to a 100% critical call rate and have sustained passion that drew them to the industry will serve them
that for years now. Once the technologists realized that well as they lead their organizations” (reference 4, p. 5).
we were serious about fixing problems and making their Compassion to care for the physical well-being of a patient
work easier, they started sharing all of the “frustraters” in does not always bring compassion or the realization for
their job. We took them all seriously and fixed everything the need for compassion for those who are not patients.
that we could, and most importantly, we explained why we When it comes to our coworkers, we would always care
couldn’t fix the remaining problems immediately but we for them when they are sick but we don’t always recognize
also pursued new opportunities to keep making our ser- that care goes beyond their sick days and into every inter-
vice better with time. Because of a few easy fixes, the team action that we have with them. Sometimes we are so busy
members seemed to be reinvigorated and willing to share caring for our patients that we forget we are all customers
their ideas on how to improve the laboratory and were no of each other. What good have we brought if while heal-
longer content to accept the environment they had. ing one person we hurt another. With that ending, we are
still a person down. We need to learn to heal everyone
we come in contact with. One of the five components of
Knowing the Emotions of Leading
emotional intelligence, demonstrated in Fig. 10.1, is self-
Emotional Intelligence regulation, or the ability to control one’s self either by self-
The ability to consider emotions and feelings to enhance reflection, by impulse control, or by changing as needed. I
thought, also known as emotional intelligence, as described recently received a phone call, as a result of which I didn’t
in the theories of Daniel Goleman in both his book titled get what I was asking for and was angry about it. I recog-
Emotional Intelligence and the article titled “Leadership nized that being angry wouldn’t change the caller’s mind,
that Gets Results” (5, 6), is widely considered in leadership but I knew that it was an emotion that I had to experience
training. In the book titled Leadership in Healthcare: Val-
ues at the Top, Carson Dye discusses how healthcare lead-
ers must recognize their own values in order to understand Figure 10.1 The onion of emotional intelligence.
their own behavior and thoughts. Healthcare is a demand- doi:10.1128/9781555817282.ch10.f 1
ing field. With pressures to meet productivity standards,
cut budgets, and improve quality, every healthcare profes- Self Management
sional is feeling the increase in stress. This is best stated by
Brenda Freshman and Louis Rubino in their article titled
“Emotional Intelligence: a Core Competency for Health- Emotional
care Administrators”: “Health Administrators must contend Understanding
with providing quality service to their customers during a
period of limited fiscal and human resources” (reference 4,
p. 2). As leaders in laboratory medicine, we must recognize
that the pressure of meeting these tighter expectations car- Personal
Leadership
ries over all levels in the department. In the past year, I have
seen more technologists reach their capacity for stress over-
load. As an example, at one point we had been looking for
an evening-shift technologist for nearly 10 months. I was
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP 247

in order to get over it. I decided that I would allow myself care needs requires redundant equipment in the hospital
to be silently angry for a couple of hours but then I had to laboratory to prevent any potential downtime in critical
get over it, as no one wins every battle. I have seen where testing. This redundant equipment often runs well below
others would react differently and proclaim a full-out war capacity. A hospital outreach program offers an opportu-
every time they lost a battle. I believe it is through self- nity for the hospital to maximize the productivity of its ex-
regulation that I chose to lose battles and stay away from isting laboratory services by utilizing the excess capacity
wars, but I also believe that this level of self-regulation of the redundant equipment and provides a volume boost
helps me to motivate those around me. The ability to in- that may permit lower pricing tiers when negotiating for
telligently control your own emotions will allow you to new equipment and lower operational reagent pricing.
react appropriately as situations come up. Others will see Ultimately hospital outreach programs help the organiza-
that you always stay calm and react well. Understand that tion to run more efficiently, but also for nonprofits, the
everyone gets disappointed or frustrated, but reactions of extra income goes back into the hospital capital budget
anger should not happen. and allows the hospital to purchase the capital equipment
While I have no intention to review all of the compo- required throughout the hospital to care for patients. In
nents of emotional intelligence, I do think that for the pur- the end it goes back to patient care, but up front it is of-
poses of motivation, it’s essential to discuss the component ten misconceived simply as a revenue source for hospitals
of self-motivation. Self-motivation is drive, positivity, and rather than a cost saver for the hospital’s already required
passion to achieve. I maintain my self-motivation by watch- laboratory needs and a means to provide capital funding
ing the company I keep. Nothing brings me down more for all areas of the hospital. The simple knowledge of the
than to be around someone who finds something wrong purpose of a laboratory outreach program has motivated
in everything. I have also noticed that these types of people many administrators to start such programs but has also
like to feed off of the motivation that you generate in your- motivated laboratory staff to provide the service needed to
self and walk away from you having taken all of the energy maintain a sizable client base.
that you had. Be prepared for these encounters, as it seems It is also important to demonstrate how each position
that they seek out self-motivated people to feed on. If these contributes to the overall purpose. Purpose-driven employ-
people work with you, and I’m sure everybody has some, ees need to know that they are contributing. We run a fairly
try to control your encounters with them for times that you strong outreach program for which a few people are re-
feel strong enough to stay positive even after the encounter. sponsible for receiving the courier deliveries. This includes
Keep your encounters on task for the purpose, and once registering the “nonpatients,” ordering the tests, and dis-
the purpose is accomplished, move on. Don’t allow them to pensing the specimens to the appropriate testing areas. Ap-
drag you into a conversation that has no value, and always proximately 4 years ago we formed a committee designed
be prepared with positivity to add in every encounter. A specifically to review and work on the laboratory write-offs.
truly self-motivated person has the strength to overcome This committee involved staff from revenue management,
negativity. Eventually the self-motivated person will either registration, and laboratory, including outreach staff. It
displace the negativity with positive motivation or, at the was clear that a large portion of write-offs were outreach
very minimum, will no longer be “fun” for the negative per- specimens. By bringing this awareness and purpose to the
son to interact with. Don’t let them feed on you. laboratory staff and involving laboratorians in this revenue
cycle, we were eventually able to cut our laboratory write-
The Need for Purpose offs by 75%. It took time and work, but most importantly, it
Purpose is a natural human need. “We want to feel that took the motivation of the outreach staff to develop meth-
our lives have a deeper meaning that goes beyond pay- ods of confirming compliance at order entry that ultimately
checks and discount shopping.  .  .  . Once our physical had the biggest impact. To this day, our continued diligence
needs are met, we long for love, belonging, esteem and maintains this rate. We still meet regularly and refine the
finally what Maslow called ‘self-actualization’—that our purpose to keep the awareness up and the write-offs down.
lives count” (reference 7, p. 1). A purpose-driven leader is
one who can clearly define and communicate the purpose Human Motivation Theory
of the direction. As Maslow describes the need for self- David McClelland proposes in his human motivation the-
actualization, it becomes clear that we all naturally need a ory that people can have one of three dominant motivators
purpose for existence. Oftentimes leaders in healthcare as- (Table 10.1). As part of this theory, McClelland describes
sume that “patient care” is our purpose, and while it surely what is referred to as an achievement motivator. He de-
is our overall global purpose, it is not specific enough to scribes people who respond to this motivator as having a
define how all work processes relate back to that purpose. strong need to set and accomplish goals, a willingness to
Consider the need for a hospital-based laboratory to oper- take risks to accomplish goals, and the need for consistent
ate an outreach program. The nature of a hospital’s acute feedback on the progress of their goals. Effective leaders
248 MANAGERIAL LEADERSHIP

Table 10.1 The three dominant motivators in McClelland’s human as long as they get the work done. Allow them to be “in
motivation theory charge,” give them strong goals, and recognize them by al-
Achievement Affiliation Power lowing them to grow their career.
Strong need to set Need to belong Need to control
and accomplish goals
Willingness to take Need for friends Need to win Summary
risks Motivation is defined by the Merriam-Webster Dictionary
Need for consistent Feedback should Feedback should be as “the act or an instance of motivating, or providing with
feedback affirm trust opportunities a reason to act in a certain way.” By definition alone, mo-
tivation is considered an induced behavior. Whether it is
your own personal inner self-motivation or the motivation
must have a mechanism to set goals, measure progress to- that you fuel in someone else, motivation requires effort to
ward those goals, and eventually accomplish the goals they sustain. It is work. There are many management theories
set. “Goal theory assumes that goals are cognitive repre- that support the methods of motivation, but overall it is the
sentations of what individuals are trying to accomplish and practical application of those theories that makes the differ-
their purposes or reasons for doing the task” (reference 9, ence. There is no better place to apply those theories than
p. 96). Goals are set by leaders and staff in collaboration, to one’s self. No one can be motivated by an unmotivated
with consideration to the mission. In laboratory medi- person. Most people who leave a job leave their managers,
cine, it is often seen that goals include things like specified not their jobs. Become motivated in yourself. Put the work
turnaround times, efficiency rates, and customer service into building the strongest motivation in yourself and
goals. Goals for laboratories could also include new instru- you will then understand what it takes to motivate oth-
ment implementation or project deadlines. Setting reason- ers, as we are all human beings with the same basic needs.
able, obtainable goals that can be measured will drive the According to W. Edwards Deming, “Long-term commit-
motivation to achieve these goals. Our experience with a ment to new learning and new philosophy is required of any
project to implement a specimen-tracking system demon- management that seeks transformation. The timid and the
strated many facets where goal setting enabled this project fainthearted, and the people that expect quick results, are
to be a success. The project involved three different areas doomed to disappointment” (3). Understand that becoming
within our organization in addition to the vendor. Each motivated, and more so staying motivated, is hard work, and
group had steps that had to be completed. These steps in- just as with any hard work, you get back what you put into it.
cluded network line installations, facility modifications, We are certainly in a perpetual state of “do more with
and vendor installations. Each step was dependent on an- less.” As a leader in a laboratory it is very easy to get over-
other. In order to initiate motivation on all sides, goals for whelmed in the fires and tasks that try to consume our day,
accomplishment were set each week at a project meeting. but we must stay focused on our basic responsibilities as
The goals were measured each week and the next steps leaders. We must not let ourselves get overwhelmed, and
were issued. Every group in this project stayed on task and we must get organized so that we can spend time enhancing
the implementation has gone well. our leadership skills. I recommend finding the time to at-
A second part of the human motivation theory discusses tend any leadership training classes, not because you don’t
the need for affiliation. Persons with this dominant motiva- know the information but because it will serve as a renewal
tor have the need to belong. They want to be liked and will or affirmation of the skills that most leaders already know
concede to the group’s opinion. People who are motivated by but tend to lose when focusing on the pressures to produce
affiliation do not take risks. These people need to know that billables. Use this time to reinvigorate or motivate your
you, as a leader, like them and trust them. It’s important to re- leadership skills. Reigniting the motivation in you to lead
member that they work in order to ensure that you continue will produce motivation in those whom you lead.
to like them. You must make certain that you recognize their
efforts by showing that you care about them. It is also sug-
gested that with affiliation-dominated people, you recognize KEY POINTS
them privately as they do not like to be singled out. ■ Motivation requires effort.
The third and final part of this theory refers to a domi- ■ Motivating those around you is your job.
nant motivator of power. These are the people who want to
■ Always work at developing your leadership skills.
control and win. They thrive on status and recognition and
love to be challenged with a goal. We have all dealt with a
person who must be in control. Under the human motiva- GLOSSARY
tion theory, a leader who recognizes this can use it to his Attribution theory The ability to look into the reason for an oc-
or her advantage. Sure, give the praise; give recognition, currence and adjust one’s behavior accordingly.
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP 249

Effort The only internal and variable cause to which one can of a range of payer objectives, including delivery efficiencies,
attribute success or failure. It is the variable that most often submission of data and measures to payer, and improved quality
makes the difference between success and failure. and patient safety.
Goals Specific, measurable, attainable, relevant, and timed
(SMART) providers of direction. REFERENCES
The Hawthorne effect The proven, positive effect that attention 1. Collins, J. 2001. Level 5 leadership: the triumph of humility and
and feelings of importance have on production. fierce resolve. Harvard Business Review 79:66–76, 175.
Hygiene factors Tangible, physiological factors whose absence 2. Collins, J. 1996. Looking out for number one. www.jimcollins
causes employee dissatisfaction but whose presence does not cre- .com/article_topics/articles/looking-out.html (last accessed May 15,
ate satisfaction (e.g., salary, working conditions, benefits). 2012).
3. Deming, W. E. 2000. Out of Crisis. MIT Press, Cambridge, MA.
Job enrichment The deliberate upgrading of responsibility, scope,
and challenge as they apply to a position, title, or employee. 4. Freshman, B., and L. Rubino. 2002. Emotional intelligence: a
core competency for healthcare administrators. Health Care Manag.
Level 1 Leadership “Makes productive contribution through (Frederick) 20:1–9.
talent” (reference 1, p. 5).
5. Goleman, D. 1995. Emotional Intelligence. Bantam Books, New
Level 2 Leadership “Contributes to the achievement of group York, NY.
objectives” (reference 1, p. 5). 6. Goleman, D. 2000. Leadership that gets results. Harvard Business
Level 3 Leadership “Organizes people and resources towards the Review 78:78–90.
effective and efficient pursuit of predetermined objectives” (refer- 7. Karlgaard, R. 2009. Purpose-driven leadership. Forbes.com.
ence 1, p. 5). July 23, 2009. www.forbes.com/2009/07/23/bmw-hy-vee-karlgaard
Level 4 Leadership “Catalyzes commitment to and vigorous -intelligent-technology-leadership.html (last accessed May 2, 2012).
pursuit of a clear and compelling vision; stimulates the group to 8. Maslow, A. H. 1998. Maslow on Management. Wiley & Sons, Inc.,
high performance standards” (reference 1, p. 5). New York, NY.
Level 5 Leadership A level of leadership that includes the four 9. Pintrich, P. R. 2000. An achievement goal theory perspective on
basic levels plus humility and will. issues in motivation terminology, theory, and research. Contemp.
Educ. Psychol. 25:92–104.
Motivation Internal and external factors that stimulate desire
10. Schwartz, T. 2010. Leadership begins at home. Harvard Busi-
and energy in people to be continually interested in and commit-
ness Review Blog Network. November 23, 2010. http://blogs.hbr
ted to a job, role, or subject and to exert persistent effort in at-
.org/schwartz/2010/11/one-of-the-greatest-gifts.html (last accessed
taining a goal.
February 27, 2013).
Motivators Internal factors that relate to the nature of work and 11. U.S. Department of Health and Human Services. 2012. Pay
the egos of employees. If properly addressed, these factors can for Performance (P4P): AHRQ resources. March 2012. Agency
create employee satisfaction (e.g., recognition, appreciation, for Healthcare Research and Quality, U.S. Department of Health
self-actualization). and Human Services, Rockville, MD. www.ahrq.gov/qual/pay4per
Pay for Performance (P4P) Strategy to improve healthcare de- .htm#intro (last accessed May 2, 2012).
livery that relies on the use of market or purchaser power. Refers 12. Werhane, W., and M. Royal. 2009. Engaging and enabling em-
to financial incentives that reward providers for the achievement ployees for company success. Workspan 52:38–43.
Introduction
Channels of Communication
11 Successful Communication
Formal Channels of Communication • Informal
Channels of Communication Diane C. Turnbull
Types (Methods) of Communication
Oral (Face-to-Face) Communication • Telephone
Communication • Written Communication •
PowerPoint Presentation • Electronic
Communication • Visual Communication • Body
Language and Other Nonverbal Communication
Barriers to Communication OBJECTIVES
Physical Barriers • Nonverbal Barriers • Verbal To describe the process of effective communication
Barriers • Psychological Barriers
To help the reader to select the communication technique appropriate for a
The Importance of Listening
situation based on the advantages and disadvantages
Effective Listening • Ineffective Listening • Stages
of Listening To explain the necessity of using positive language when communicating orally
Types of Listening and in written form
Nonlistener • Marginal Listener • Evaluative Listener • To review the necessity of fostering and nurturing a climate that supports
Active Listener effective communication
Elements of Effective Communication
To discuss how to integrate the six W/H (who, what, when, where, why, and
Skills for Effective Communication • Organizational
Climate • Using Body Language • Using Positive how) points effectively when disseminating information
Language To describe the types of listeners and explain the benefits of active listening
Leadership Essentials for Improving
Communication
The Interaction Process • Adapting Communication When people talk, listen completely. Most people never listen.
Styles
Ernest Hemingway
Summary

C
KEY POINTS ommunication is defined as an exchange or sharing of thoughts or
GLOSSARY information between one person and another. Communicating with
REFERENCES others, both professionally and personally, is an integral part of every-
APPENDIX day life. The root of many problems, conflicts, mistakes, or misunderstandings
is flawed communication. Business consultants vouch that communication is
the number one problem in most workplaces. Counselors reiterate that com-
munication is the number one problem for interpersonal relationships (18).
Misunderstood communication can be one of the largest problems facing or-
ganizations today. Businesses have a multitude of messages being sent, but not
all of the information is received or understood. Even though the communica-
tion problems experienced may never be completely eliminated, they can be
reduced or often avoided entirely.
The ability to communicate is essential to leadership and vital to any or-
ganization. It is a skill that can be acquired, cultivated, and improved upon.
Managers communicate in all aspects of the daily work environment. Strong
leadership cannot be accomplished without communication. For example,
communication skills are important when interviewing applicants for a job,
delegating responsibility and authority, directing the efforts of others, inter-
preting policy, and enforcing procedures and regulations. The communica-
Clinical Laboratory Management, 2nd Edition
tion cycle has three points: the sender conveying the message in a clear and
Edited by L. S. Garcia straightforward manner, the receivers accepting the message and confirming
©2014 ASM Press, Washington, DC that they have comprehended it, and the sender verifying that the message was
doi:10.1128/9781555817282.ch11 understood and received in the manner intended. This chapter will help the

250
 CHAPTER 11. SUCCESSFUL COMMUNICATION 251

reader understand how people prefer to communicate and objectives and fosters intralaboratory and interdisciplinary
suggests ways to adapt his or her own communication style communication.
to enhance understanding and build rapport with others.
Informal Channels of Communication
Channels of Communication The main type of informal communication is the grape-
vine, which is the route by which employees spread in-
In every organizational network, there are distinct formal formation to one another. Even if the organization has
and informal channels of communication. The purpose well-established formal channels, informal channels in-
of both channels is to disseminate information and carry evitably develop. Every department has a grapevine. The
messages from a person or group to others in the organiza- grapevine is an outgrowth of the social interaction of peo-
tion. This flow of information can be downward, upward, ple and their natural desire to communicate. It is a method
or lateral. of spreading information rapidly and allows employees to
Formal Channels of Communication keep abreast of the latest information.
The manager should accept the fact that it is impos-
Formal channels of communication are typically aligned sible to get rid of the grapevine, but with certain skills, a
according to the organizational chart or structure of the manager can influence it. Managers need to stay attuned
facility and usually follow an organizational hierarchy. to their organization’s grapevine by finding a mechanism
Typically, strict lines of authority are followed, for example, to keep them aware of what information the grapevine is
chief operating officer to vice president to administrative transmitting. It is unrealistic to believe that rumors can be
director to supervisors to staff. eliminated since the grapevine flourishes in every orga-
Downward communication is commonly referred to nization. Rather, a manager’s best approach is to provide
as flowing from the top down. It is primarily directive in the grapevine with facts. This will help to eliminate partial
nature and often used extensively by management to state truths and will use the grapevine’s energy to the best in-
objectives, disseminate policies or policy changes, provide terest of management; however, this requires effort on the
directives, and convey general information to subordinates. manager’s part.
One pitfall of downward communication is the possibility
of dilution or distortion of information that can occur be-
tween the original sender and the ultimate receiver, which Types (Methods) of Communication
may cause the message to be misinterpreted or inaccurate. Methods of communication may vary according to the style
This is especially true with oral communication when a of the sender, the situation, the audience, and the content of
large number of people are involved, because the more the message itself. These must all be evaluated before decid-
people involved in the downward chain, the greater the ing the best way to communicate the information. Types of
chance of error. communication include oral, written, and electronic com-
Upward communication flows through the ranks of munication; pictures; and body language or other nonver-
staff members to top management. Generally, upward bal signs. Research indicates that managers spend between
communication is used to report and convey information. 50 and 80% of their total time communicating (6). Typi-
Effective managers encourage a free flow of upward com- cally the majority of their time is spent speaking and listen-
munication as a feedback mechanism. This type of com- ing and to a lesser extent writing and reading.
munication can serve as a means to determine whether a
message has been transmitted and received appropriately Oral (Face-to-Face) Communication
and often conveys to management the effects of a message Speaking is generally superior to written communication in
on staff. A manager should encourage upward commu- that it usually achieves better understanding because it per-
nication by demonstrating a desire to obtain and use the mits feedback. It can also save time. This type of communi-
ideas and information received from one’s staff. A manager cation is useful in direct person-to-person communications
must also act on information provided by staff; otherwise and group communications. The most important feature
this channel of communication will eventually close. Lack of oral communication is that it provides the opportunity
of an effective upward flow will destroy the staff ’s desire for immediate feedback, in that it allows the receiver to ask
to communicate, lead to frustration, and eventually cause questions. This type of communication also has some dis-
employees to seek different outlets, such as the grapevine, advantages. Since nothing is written down, permanence is
or ultimately find other employment opportunities. lost, so the receiver cannot “revisit” the actual words used.
Lateral communication flows among persons on the Other potential pitfalls of verbal communication include
same level in an organization. It is important because mumbling, speaking too fast or too slowly, mispronounc-
it allows for the exchange of information among peo- ing words, speaking in a monotone, and using distracting
ple with similar responsibilities working on common sounds or words such as “er” and “uh.”
252 MANAGERIAL LEADERSHIP

A spoken message has three elements: verbal, vocal, and Table 11.1 Steps for effective telephone communication
visual (3). The verbal elements are the actual words used, the Identify yourself and your department or organization.
vocal elements include the tone and intensity of the speak- Converse with patience.
er’s voice, and the visual elements incorporate everything Be aware of your tone of voice.
that the listener can see. The visual is the most powerful Do not converse in a monotone. Sound alive.
element of communication because dynamic visual, non- Tune into the tone of voice of the person you are calling.
verbal communication grabs and holds the listener’s atten- Listen carefully. Listen for content and emotion to understand what
tion. Once the speaker has the listener’s attention through the speaker is trying to say.
strong visual, nonverbal elements, then powerful vocal and Close the call before you end it.
verbal elements can be used to transmit the message. The When leaving a message on voice mail, make the message worth
vocal elements are processed before the actual words are returning.
heard and translated, so if vocal sounds detract in any way
from the meaning of the words, people will react and under-
stand less of the message intended (3). Because visual and Written Communication
vocal elements are noticed before the actual words, speakers Written communication provides a permanent record to
should be sure that their appearance and vocal tones work which the receiver can refer to ensure that he has under-
in harmony with the message. For example, strong messages stood the information presented. It provides accuracy of
should not be delivered in weak or soft tones. information as well as permanence. However, feedback is
limited, and the sender cannot be sure that a written mes-
Telephone Communication sage is actually read. The important ingredients of effective
The telephone is one of the major methods that people use writing are content, style, technique, and format.
to communicate at work. Because of this, it is important Business letters are written contact with people out-
to be aware of how colleagues and customers perceive the side the organization. Letters document communication
caller. On the telephone, there is no visual contact and con- by providing a long-lasting record that can be referred to
sequently no nonverbal cues from body language to help whenever necessary. Business letters should be clear, cour-
the caller better understand and connect with those on the teous, and concise. Good business writing is a combina-
receiving end. Courtesy ranks highest on the telephone tion of clear thinking, good organization, and effective
etiquette list. The caller should state his or her name and presentation.
verify the identity of the person on the other end of the line. Written memoranda are typically used to contact staff
It is important for the caller to be personable. This develops and coworkers within the organization. They should be
rapport and trust with those on the receiving end. Be aware organized, coherent, and not open to multiple interpreta-
that demeanor often affects the tone of voice that comes tions (Table 11.2). Memoranda should be used to facilitate,
across on the telephone. Callers should try to begin every simplify, and accelerate internal communication. They can
call by sounding upbeat to help set a positive tone for the be effectively used to give instructions, ask for informa-
call and make the receiver feel more relaxed. Tone of voice tion or action, and announce or clarify a new policy or
often has more impact than actual words, communicating procedure. Memos provide a simple method to commu-
an important part of the caller’s personality to others (11). nicate an identical message to several people. They should
Analyze and constructively critique several phone calls be short, complete, and concise. This can be accomplished
by taping your side only of the conversation. Think about by the use of headlines, short paragraphs, bullets, bolding
volume, speed, rhythm, inflection, resonance, and clarity.
Determine what if any vocal qualities need improvement Table 11.2 Writing guide for memoranda
and whether or not you were accurately communicating
Take the time to craft clear memoranda that are short, complete, and
the emotions you meant to communicate to the caller. concise.
Identify areas of improvement, and think about ways to Ensure that written messages are organized, coherent, and not open
project a positive demeanor and enthusiastic tone of voice. to multiple interpretations.
Five aids to developing an assured voice are to (i) project a Anticipate questions the reader might ask.
strong but not overwhelming resonance; (ii) use the mouth
Include the six W/H (who, what, when, where, why, and how) points.
and lips to speak clearly and distinctly; (iii) show enthu- The memo should address who needs to be involved, what action is
siasm by using appropriate pitch, volume, and inflection; being conveyed or needs to be accomplished, and when and where
(iv) avoid speaking in a monotone; and (v) speak naturally the action needs to be completed. The memo should include why the
and do not attempt to adopt vocal qualities that do not fit memo is being written and suggestions on how the action is to be
completed.
your style (4). The telephone can be used as an effective
Make memoranda easy to read from a visual-layout point of view.
means of communication by following a few simple rules
Avoid sending mixed messages.
(Table 11.1).
 CHAPTER 11. SUCCESSFUL COMMUNICATION 253

of important points, and a modified outline format. Think information. Limit the number of bullet points and text
about key issues before writing the memo. While written on the slides. Refrain from using more than eight words
and electronic messages can save time and energy, they per line or eight lines per slide. Font style and size should
have a tendency to be overused. To ensure quality com- be legible. It is best to stay with basic fonts found on most
munication, an organization must define the parameters computers such as Arial, Times New Roman, Tahoma,
of these tools and the ways in which they may and may not Verdana, or Georgia. For a professional-looking presen-
be used (1). tation, limit the font selection to only two or three fonts.
Correct grammar, spelling, and punctuation are essen- Enhance the readability of slides by using normal case (not
tial elements of all types of written communication and all capital letters) and limiting the amount of punctuation.
project a professional image. Always reread all types of Use text to highlight, not narrate the presentation. Ev-
documents prior to sending to look for errors and ambigu- ery word should convey the message in the strongest pos-
ous statements. sible way. Instead of using slides that contain only text, use
visuals such as graphs, diagrams, photos, and media clips,
PowerPoint Presentation which help engage the audience (20). Consider whether
Microsoft PowerPoint is the most widely used presenta- highly detailed charts or graphics will be readable from a
tion tool in the world and is frequently used in the work- distance. Keep them simple or include them separately in
place to communicate information during meetings (12). a handout if necessary.
There are many courses on how to use PowerPoint from a Animations and slide transitions can often detract from
technical standpoint, but when it is used effectively, it can a presentation, so avoid overusing them. Too many differ-
be a visual and compelling business tool. It is important ent types of transition in one presentation can make audi-
to remember that PowerPoint does not give the presenta- ence members focus more on the movement than on what
tion, but rather it makes the slides. A few simple concepts is being said. It is best to use no more than two to three
can change an average PowerPoint presentation into an different types of transition effects and to refrain from us-
attention-grabbing, memorable, effective means of com- ing them between all slides. Use transitions to highlight or
munication (Table 11.3). add emphasis.
Content is the most important part of any presentation, One pitfall of PowerPoint is that it displays informa-
not the graphical appeal. Creating an outline first is helpful tion in a fragmented way that dilutes content, weakens
because it helps the presenter reflect on the goals of the pre- analytical reasoning, and corrupts statistical data. When
sentation and what points need to be covered. The outline more thorough explanations or complete sentences are
ensures that the content of the presentation is solid (19). necessary to comprehend relationships between complex
When designing the presentation, focus on keeping it ideas, then other tools that more effectively communicate
simple. Have a consistent visual theme throughout your the content should be used. Sometimes technical docu-
presentation, but avoid using PowerPoint templates when ments and complex graphs presented as printed handouts
possible. It is far better to design a template tailored to the can more effectively keep a group on task (22). In this type
needs of your presentation than to use a prepackaged tem- of situation, PowerPoint might be used to summarize or
plate. Use contrasting colors so the audience can see what is stimulate a discussion once the technical documents and
on the slides. In general, it is best to use a dark background graphs have been read by the audience. The most impor-
with light text for projection, but the key is contrast. Limit tant thing to remember is that PowerPoint should be used
the overall number of slides to no more than one slide to support the speaker and supplement the presentation.
per minute. Avoid slides that are unnecessarily compli-
cated or busy or that contain unnecessary or superfluous Electronic Communication
In recent years, the increased use of electronic communi-
Table 11.3 Top ten PowerPoint tips cation in the workplace has brought a whole new set of
challenges. E-mail has become exceedingly common and
Keep it simple.
borrows the latitude of speech in a format that seems like
Limit bullet points and text.
writing. This type of communication, with the casualness
Use transitions and animations judiciously.
of speech but without the inflections or context, still looks
Include high-quality graphics including photographs.
like written communication on the screen (Table 11.4).
Develop a visual theme, but avoid using PowerPoint templates.
Fragmented comments and speedy replies compound the
Incorporate appropriate charts and tables.
potential in e-mail for confusion, offense, and misunder-
Utilize contrasting colors for the text and the background.
standing. Speed and spontaneity are the strengths of e-mail
Choose a font large enough that the audience can read it.
but also its downfall.
Limit the number of slides.
The major pitfall is that e-mails are easily forwarded to
Enhance readability by using normal case (not all caps).
others; therefore, never send something electronically that
254 MANAGERIAL LEADERSHIP

Table 11.4 Effective communication in e-mail once they enter the workforce. While electronic commu-
Never use e-mail when angry. Wait or talk directly to the person. nication can at times enhance productivity, it can cause
Never send anything that cannot be said directly to the other person. a nightmare for many bosses, who understand that while
Never send anything that should not be shared in public. technology is a useful tool, it does not replace relationship
Avoid revealing protected health information. building as a primary means for doing business. Today’s
Recognize that e-mails are permanent and can be used in legal bosses often do not understand why younger professionals
matters. hardly ever come and talk to them.
Maintain professionalism and confidentiality. Young professionals’ first instinct is to instant message
Copy others only as necessary and never as an exercise of authority, or text message rather than communicate face-to-face. As
power, or manipulation. this form of communication increases in popularity, it is
Avoid using e-mail to discuss a topic that is complex, especially one being used more and more in the workplace. While this
that people feel strongly about. This is best discussed in a meeting. might be fine for quick questions, it does not work well in
E-mail works best as a means of circulating information, providing many situations that require more extensive explanations
notice about events, giving someone a message, and communicating
quickly and efficiently with a person about a circumscribed issue.
or interactions. The meaning and value of gestures and
other nonverbal skills just do not come through in a text
message (23). Text messaging is not just a new technol-
ogy, it is also a new language that can be easy to overly rely
should not appear publicly. To maximize the use of e-mail
on, misinterpret, and misuse. Even though text messaging
and minimize problems, state the reason for the e-mail in
is becoming a more common means of communication,
the subject line and borrow from standard letter conven-
many people are not familiar with text message shorthand.
tions by being sure the e-mail is clear, complete, and con-
Many of the same rules (Table 11.6) for e-mail apply, but
cise. Think before e-mailing an important document as an
since it is a little more informal, text message language can
attachment. Incompatible software can leave the document
be confusing.
unread, and people in a hurry or worried about viruses do
In recent years, the use of social networking by profes-
not open attachments. When attachments are sent, be sure
sionals is increasing dramatically and social networking
to clearly state which files are attached in the body of the
sites such as Twitter, Facebook, and LinkedIn have begun
e-mail. Everyone has hit “Send” and then regretted it. To
to establish a significant presence in the workplace. Twitter
maximize the use of e-mail, follow some basic principles
is a hybrid broadcast/conversation communication plat-
for sending and replying to e-mails (Table 11.5).
form. Facebook is more of an identity platform with com-
In business, e-mail works best as a means of circulating
munication and content distribution. It has become quickly
information, providing notice about events, giving some-
adopted by employees to connect with friends, family, and
one a brief message, contacting people with updates, and
colleagues. Work-related benefits center on creating and
communicating quickly and efficiently with a person about
strengthening ties (21). LinkedIn is a business-related
a circumscribed issue. However, if complicated issues need
social networking site used for professional networking.
to be discussed or negotiations need to occur, it is better
It focuses on professional information and is useful for
to do this face-to-face (17). E-mail should not be used to
recruiters or job seekers as well as to maintain external
discuss a topic that is complex and requires feedback.
professional networks. No one really knows how social
The recent crop of college graduates has grown up with
networking will continue to evolve in the workplace. Many
e-mail, text messaging, instant messaging, Facebook, and
companies have begun using social media for workplace
Twitter. These young professionals are not about to stop
communication because it permits rapid deployment of
information to multiple users and can also be accessed on
Table 11.5 E-mail tips
Tips for sending
Keep it short. Table 11.6 Texting in the workplace
Try to limit the number of important questions or issues presented. Texting may be used to acknowledge compliments and
Include name and contact information in business e-mail. accomplishments.
Do not type messages in upper-case letters. Always double-check the message before sending.
Use the forward function sparingly.
Never text apologies or criticisms. These are best handled
E-mail works best when one response or no response is required.
face-to-face.
Tips for replying
Never text personal messages on a company phone, as your employer
Reply promptly.
has the right to check messages.
Reply to all the questions within the message, not just to the last
question asked. Never assume others are familiar with text message shorthand.
Think twice before hitting “Send.” Avoid replying without thinking. Never text during a meeting, as this is very distracting and may be
Be especially careful with the “Reply to all recipients” option. viewed as disrespectful.
 CHAPTER 11. SUCCESSFUL COMMUNICATION 255

mobile devices (14). These sites can also be used to pro- two people in face-to-face communications can occur via
mote public awareness or announce upcoming events or nonverbal channels. Conceivably, only 10% of the mean-
activities in the community. ing derived comes through words alone (5).
Despite the benefits and growing popularity of social Nonverbal cues include posture, gestures, facial expres-
media, there are two primary concerns: privacy and pro- sions, microexpressions, eye contact, and body image or
ductivity. Significant privacy issues affect the organiza- proximity. For example, leaning toward the person speak-
tion as well as the individual. Information deployed by ing conveys attention and interest. In contrast, standing
social media can be spread quickly, and companies that up abruptly while talking to a coworker sends the message
post employee-focused information on social networking that the meeting is over. The person being addressed may
sites may find that competitors are able to gain easy ac- also feel that the speaker feels superior. Movement made
cess to the data. Some companies have expressed concerns with the eyes, mouth, or forehead conveys a great deal. A
about the potential for inadvertent disclosures of propri- scowl usually signifies displeasure. A stern look can mean
etary information (21). Discussions of social networking disapproval, while a smile means approval. Eye contact
in the workplace also revolve around the potential for loss lends credibility to the spoken message, giving the mes-
of productivity. Some employers believe that providing ac- sage much of its meaning and also affecting whether the
cess to social media sites encourages employees to engage listener believes and trusts the message.
in personal activity during work time. The reality is that Microexpressions are the involuntary, subconscious
employees can just as easily place personal phone calls or flashes of expressions on a face according to emotions
send non-work-related e-mails using company equipment. experienced. Unlike regular facial expressions, it is dif-
Companies rely on workplace communication to keep ficult to hide microexpression reactions. Microexpres-
employees informed and to solicit input from staff. Social sions express these emotions: disgust, anger, fear, sadness,
media is becoming a valuable way to accomplish these happiness, surprise, and contempt. Learning to correctly
tasks. This underscores the importance of social media interpret microexpressions can help a great deal when
workplace guidelines and effective employee training. communicating in the workplace, but it is important not
to jump too quickly to conclusions, which can create an
Visual Communication even bigger misunderstanding (13).
Photographs, paintings, diagrams, designs, cartoons, and
caricatures are examples of types of pictures that are used
as visual communication aids. They are important to com- Barriers to Communication
munication because they are often easier to understand Many times communication is not as effective as it could
than written explanations. The image being transmitted be because of communication barriers. Both the speaker
to the brain is already drawn or formed. Pictures are effec- and the listener can create communication barriers. A
tive when used with well-chosen words to help the receiver barrier in this context means any behavior that hinders
“see” the message. Effective visual aids can also be in the the flow of meaningful, nonjudgmental communication.
form of videos, charts, posters, models, and digital pictures. There are several types of barriers, but basically they fall
Visual communication is especially valuable in present- into these main categories: physical barriers, nonverbal
ing a process or explaining how to do something. This barriers, verbal barriers, and psychological barriers. Upon
can be used in training employees as well as in educating becoming aware of a barrier, a manager should focus on
patients. For example, showing a video about performing dissolving or controlling it.
venipuncture is much more effective than just providing
written instructions. Verbal instructions along with ac- Physical Barriers
companying pictures can be very helpful when asking pa- Barriers that can be detected and removed easily have been
tients to collect a clean-catch specimen for a urinalysis. identified as physical barriers. Examples of eliminating
physical barriers are reducing background noise, moving
Body Language and Other out of a busy area, removing furniture between the par-
Nonverbal Communication ticipants, adjusting the physical distance between partici-
Body language and other nonverbal cues reveal much pants, and ensuring privacy.
more about attitudes and emotions than words (5). Body
language, also known as kinesics, describes human interac- Nonverbal Barriers
tion excluding the use of written and spoken words. Stud- There are several nonverbal behaviors that should be
ies in the last two decades indicate that more than half of all avoided. These include poor eye contact; unfavorable fa-
verbal messages sent have nonverbal components (16). Re- cial expressions such as frowning, smirking, scowling, and
searchers in the area of nonverbal communications claim blank looks; poor posture such as slouching; and too much
that as much as 90% of the meaning transmitted between fidgeting and squirming. Ineffective placement not only is
256 MANAGERIAL LEADERSHIP

a physical barrier but also creates a nonverbal barrier to low employee morale and increased turnover because em-
communication. Speakers and listeners can remain distant ployees do not feel that their managers listen to their needs,
from each other by facing away or turning their backs from suggestions, or complaints. Ineffective listening frequently
each other or by being preoccupied with something else. causes misunderstandings, mistakes, jobs done incorrectly,
These are all behaviors that should be avoided for effective unhappy customers, increased costs, and reduced profits.
communication (10). Listening more effectively enhances the transfer of infor-
mation, improves teamwork, builds morale, reduces er-
Verbal Barriers rors, and leads to higher productivity (2).
Verbal modes of delivery causing barriers to communica-
tion may be less detectable or correctable. However, once a Ineffective Listening
speaker realizes that there is a problem, steps can be taken There are five basic reasons why managers do not listen
to correct it. Examples of verbal barriers to communication more effectively (2).
include speaking in an uninviting tone of voice; using con-
descending, patronizing, harsh, or reactive tones; using bit- • Listening is hard work. It requires concentrating on
ing sarcasm; and speaking in a monotone (24). the other person rather than on oneself, and as a re-
sult, many people just do not do it.
Psychological Barriers • Competition for attention comes from radio, televi-
Psychological barriers develop based on the nature of indi- sion, reading material, and more. So many stimuli
viduals and their interactions with others. They may con- cause people to screen out information that they
sist of preconceived expectations, self-centeredness, lack of deem irrelevant and at times to also screen out im-
self-esteem, and assumptions by either the sender or the re- portant things.
ceivers. Power and status perceptions or a defensive attitude • Managers interrupt and do not take the time required
may also cause psychological barriers (24). Psychological to hear people out.
barriers are more difficult to overcome, but managers need • The difference between speech speed and thought
to be aware that these types of barriers exist. speed creates a listening gap. The average person
speaks at about 135 to 175 words a minute but can
listen to 400 to 500 words a minute. That difference
The Importance of Listening between listening speed and speaking speed is time
Poor listening skills create one of the biggest barriers to ef- spent jumping to conclusions, daydreaming, planning
fective communication. Listeners inadvertently create bar- a reply, or mentally arguing with the speaker.
riers, both verbal and nonverbal. Listening is an important • There is a lack of training on how to listen. People
element in communication that is often overlooked. It can do more listening than speaking, reading, and writ-
be defined as the process of receiving a message from a ing, yet they receive no formal education in listening.
speaker, processing that message to make sense of it, and Many people assume that they are good listeners;
then responding to it in ways that show the receiver under- however, few actually are. Managers must become
stands what the speaker means (9). Listening is a powerful aware that listening effectively is a skill that can be
means of communication that can increase job effective- improved upon by understanding the stages of listen-
ness. It ensures parties are communicating completely to ing and the types of listeners and by working toward
reach a shared meaning through dialogue (1). Listening is improving listening skills.
often defined as a manager’s most important skill (2).
Stages of Listening
Effective Listening Listening occurs in three stages: receiving, processing, and
Conducting a positive exchange of information with em- responding. Receiving consists of taking in the speaker’s
ployees is sometimes considered the most difficult aspect message through the senses, usually hearing and seeing.
of communication, and it cannot occur without effective When people are speaking face-to-face, the eyes read the
listening (1). Good communication encourages creative nonverbal cues that play a part in how the speaker ex-
interaction between employees. When managers listen to presses the message. After the listener takes in the speak-
employees and show understanding, employees believe er’s message, the internal processing begins. Processing
that they are valued as partners. Listening to employees involves analyzing, evaluating, and synthesizing the mes-
leads to increased trust and credibility and an increased sage. Responding is the third stage in the listening process.
willingness to cooperate. In organizations, this generally In this stage the speaker sees and hears what the listener
means a reduction in turnover and a greater commitment does. The listener verbally and nonverbally acknowledges
to the organization’s goals. Poor listening contributes to the message has been received and understood (9).
 CHAPTER 11. SUCCESSFUL COMMUNICATION 257

Types of Listening that the listener send verbal and nonverbal feedback to the
speaker indicating that what is being said is really being
People typically listen at one of four basic levels of attentive-
absorbed. Verbal feedback to confirm understanding of a
ness: nonlistener, marginal listener, evaluative listener, and
speaker’s message, given without being judgmental, makes
active listener (2). These categories are not distinct lines of
active listening the most effective form of listening (2, 9).
differences but general groupings into which people fall.
Communication is most effective when both the speaker
Depending on situations or circumstances, listeners may
and the receiver are active listeners.
overlap or move from one category to another. The poten-
tial for understanding, trust, and effective communication
is highest when active listening is used consistently (9).
Elements of Effective Communication
Nonlistener Effective communication begins with developing an ac-
The nonlistener does not hear anything the speaker says. tive-listening attitude. To develop this type of attitude,
Typically the nonlistener is characterized by a blank stare the listener must understand that active listening is as
and nervous mannerisms and gestures. Often this type of powerful as speech and also saves time. Those who listen
listener pretends to pay attention while thinking about actively experience fewer mistakes, fewer misunderstand-
other unrelated matters. Nonlisteners want to do all or ings, fewer dissatisfied customers, and fewer false starts.
most of the talking, constantly interrupt, and always have Managers must also realize that listening is important
to have the last word. They are perceived as insensitive and and worthwhile with everyone with whom they come in
nonunderstanding (2). contact. Organizations that promote active listening have
fewer communication glitches, increased productivity, and
Marginal Listener increased morale.
The marginal listener hears the sounds and words but not
the meaning and intent. Marginal listeners are often de- Skills for Effective Communication
scribed as superficial listeners, are easily distracted, and To develop active-listening skills, it is necessary to develop
prefer to evade difficult or technical presentations or dis- six separate skills: concentrate, acknowledge, research, ex-
cussions. Marginal listening is hazardous because there is ercise emotional control, sense the nonverbal message, and
enormous room for misunderstanding since the listener structure (2).
is only superficially concentrating. In the workplace, this
Concentrate. Focus attention only on the speaker, which
type of listening is often a source of low morale, misunder-
diminishes environmental noise and aids in receiving
standings, errors, and problems (2).
the message clearly. It is also helpful to eliminate dis-
Evaluative Listener tractions and physical barriers to create the best pos-
sible conditions to allow for a comfortable
The evaluative listener is actively trying to hear what the conversation.
speaker is saying but is not making an effort to understand
the speaker’s intent. Evaluative listeners are described as Acknowledge. Acknowledge the speaker to demonstrate
logical listeners and therefore are more concerned about interest and attention that encourages and helps the
content than feelings. They remain emotionally detached speaker to send a clearer message. This can be done by
from the conversation and evaluate a message strictly on making eye contact and/or asking questions to clarify
the basis of the words delivered, totally ignoring that part points. This gives positive feedback and helps the
of the message conveyed by the speaker’s tone, body lan- speaker know that the message is being received. Wait
guage, and facial expressions (2). several seconds before replying to indicate the mes-
sage was received and evaluated before a response was
Active Listener formulated.
The active listener is the most comprehensive and power- Research. Gather information about the speaker’s interests
ful level of listener. Active listening is also referred to as and objectives to help understand the message, ask
responsive listening or reflective listening. It requires the questions, and respond to the speaker in a way that
deepest level of concentration, attention, and processing promotes communication.
effort. The active listener focuses on understanding the Exercise emotional control. Wait until the entire message is
speaker’s point of view rather than constantly judging the received before reacting to the message. It is important
speaker’s message. Attention is concentrated on the thought to deal with highly charged messages in a thoughtful
and feeling of the other person as well as what the speaker manner regardless of how provocative the message
is saying. Active listeners capture the speaker’s whole mes- may be. Concentrate on understanding the message
sage, the facts and the feelings. Active listening requires before reacting to it.
258 MANAGERIAL LEADERSHIP

Sense the nonverbal message. Pay attention to what the Table 11.7 Effective communication at meetings
speaker is trying to say, which includes body language Listen to others’ opinions and value them.
and gestures as well as the words being spoken. Compliment the work, help, or support of coworkers.
Structure. Structure and organize the information as it is Ensure that there are no surprises. Do not bring something to a meet-
received, which improves retention and understanding ing that could embarrass or anger another person. Avoid criticizing
someone at a meeting.
of the material.
Avoid confrontation and ill words at a meeting. Nobody wins.
Do not dominate a meeting.
Organizational Climate Be clear and open. Avoid cryptic statements.
In addition to becoming a more active listener, a manager Use clear, simple, and appropriate language to address the audience.
must work on controlling climate and culture. Effective or- Include the six W/H (who, what, when, where, why, and how) points.
ganizational communication requires a climate or culture Do not misrepresent or overdramatize what was said at a meeting to
that supports effective communication. A manager who someone who was not present.
does not communicate effectively often does not promote
a culture where communication within the organization
is managed properly. This type of manager not only com- or persons by asking for their views on the subject. This
municates ineffectively and discourages effective organi- can be done by asking who, what, where, when, why, and
zational communication but also is unlikely to hear about how questions. This communicates the manager’s interest
problems. Poor communication is self-sustaining. In this in and attention to both the topic of the conversation and
type of climate, there is no feedback mechanism. The staff the person or persons (8).
does not communicate their concerns about communica-
tion because management is not perceived as receptive (6). Using Body Language
An effective organizational climate involves trust, open- Body language refers to everything done with the body to
ness, reinforcement of good communication practices, and express a message. The better the manager is able to trans-
shared responsibility for making communication effective. It mit messages so that they are received by others as they
is up to the manager to be sure that he and the staff have the were intended, the more effective the manager. It is very
skills and knowledge necessary to communicate effectively. important to be acutely aware of the nonverbal messages
Effective communication requires attention. It develops as a being sent. A sensitive, perceptive communicator uses the
result of an intentional effort on the part of management and nonverbal feedback he or she is getting from the other per-
staff. Once the commitment has been made to improve com- son to structure the content and direction of the message.
munication, the manager must play a critical role in fostering The ability to project favorable body postures and to read
and nurturing a climate that is characterized by open com- the body language of others is an asset to organizations (5).
munication. The manager must bring communication to the Maintain steady eye contact. Look at the person when
forefront of the organization. This can be done by participat- talking to him or her without staring and glaring, which
ing in formal training if necessary, providing it for others in may be interpreted as aggressive. Sit up and face the receiver.
the organization, actively soliciting feedback on communi- It is sometimes helpful to lean forward occasionally as well.
cation within the organization, defining how communica- Show positive life through facial expression by having facial
tion should occur, and making clear what information will expressions match your voice inflections. Body language
be available and when and how it will be communicated. A pitfalls to avoid include slouching, invading space, hovering
communication strategy should support, encourage, and re- over the listener, looking blank or stern, displaying threat-
inforce the mission and culture of the organization (1). ening gestures (finger pointing or pounding a fist on the
When speaking to a group in a formal setting, a man- table), folding arms, and having distracting habits (picking,
ager must speak assertively and should be an expert on the scratching, swirling, pulling on jewelry, rattling change).
topic being presented. Generally, managers should know Body language is an essential part of interpersonal
10 times what they think they need to know on a particu- communication. Proficiency with reading and projecting
lar subject. The message must contain the 6 W/H’s—who, body language is an integral part of communication suc-
what, where, when, why, and how (15). This must be done cess. Once managers are aware of the importance of body
in both oral presentations and written communications by language, they can become attuned to how others perceive
taking the time to clearly anticipate questions a listener or them and to the nonverbal message from the other person.
reader might ask. On a personal level, the manager must
be available and approachable. Communication involves Using Positive Language
more than just the flow of information (Table 11.7). In How a manager uses language is an exceedingly powerful
one-on-one conversation or in small groups, the manager tool. Whether communication is in oral or written form,
can win the attention and confidence of the other person how the message is expressed affects whether the message
 CHAPTER 11. SUCCESSFUL COMMUNICATION 259

is received positively or negatively. Negative language cre- concerns. Develop the discussion by involving the person
ates a negative environment and increased confrontation. or group by seeking their ideas. Agree on a course of action
A manager who uses negative language frequently criti- by specifying what will be done, who will do it, and a date
cizes ideas without offering suggestions or alternatives. when it will be done. Agree on a tracking process. Close
Negative language usually tells a person that what he or the discussion by confirming that everyone is clear on the
she has done is wrong, without stressing the positive things subsequent steps and committed to following through
that can be done to remedy the problem. Positive language with these steps. These guidelines satisfy practical needs
stresses positive actions and positive consequences. It sug- by ultimately ensuring that the discussion achieves its pur-
gests alternatives and choices while sounding helpful and pose. Clarify, develop, and agree are guidelines that can be
encouraging rather than being bureaucratic. If a manager used multiple times in a discussion. To keep the discus-
realizes that he uses negative language rather than positive sion moving and on target, the manager must remember to
language, he can start improving his communication strat- check for understanding and make procedural suggestions
egy by incorporating positive language in written material. when appropriate. Using this process provides the frame-
Once this has been accomplished, it will be much easier to work for the discussion and ensures that the discussion
change spoken language to present a more positive tone. achieves a productive outcome. The interaction process
This is most helpful in the workplace. Negative language equips a manager with the skills needed to be successful in
conveys a poor image to coworkers and customers. Posi- any type of discussion or communication.
tive language projects a helpful, positive image that im- The interaction guidelines should be used in tandem
proves the organizational climate (7). with five key principles. These principles meet personal
needs and build trust and stronger working relationships
among staff. The principles are maintain or enhance self-
Leadership Essentials for esteem; listen and respond with empathy; share thoughts,
Improving Communication feelings, and rationales; ask for help and encourage in-
A successful communicator must be a catalyst in the volvement; and provide support without removing respon-
workplace. A catalyst in a laboratory setting is defined sibility. When the manager communicates using these key
as a substance that heightens or accelerates a reaction. In principles, it encourages trust by communicating to the
the workplace, a catalyst is someone who sparks action in staff that the manager supports them. These key principles
others. Managers must choose to consistently behave in support the interaction guidelines during discussions. By
ways that energize and mobilize others. There are several using the interaction skills and key principles, the man-
beliefs that are essential to a successful catalyst’s behavior. ager is able to achieve critical business objectives while
The first is trust, which is an essential ingredient of success. enhancing working relationships, which in turn enhances
The second is respect. People deserve respect and there is communication.
value in diversity. The third belief is support. A key role of Meaningful, supportive feedback is also essential to
the leader is to support others. By acting on these beliefs, achieving success within an organization. Effective feed-
catalyst leaders practice what they preach, make a long- back should be timely, balanced, and specific. Timely
lasting difference in the lives of the people who look to positive feedback strongly reinforces positive actions and
them for guidance and support, and influence people who results. Timely developmental feedback provides sugges-
can make a difference. Successful catalysts are successful tions soon enough for people to adjust and enhance their
communicators. An integral part of this communication performance. Effective feedback balances suggestions for
includes understanding the interaction process as well as improvement with reinforcement. Specific feedback pro-
the preferred communication styles of others. vides a distinct picture of present performance and clear
guidance on actions that will increase the likelihood of
The Interaction Process success in the future. Staff should be told what they ac-
When people interact, they generally have two kinds of complished (or did not accomplish), how they achieved
needs, the practical and the personal. Achieving a produc- results, and why their actions were effective. This type of
tive outcome can satisfy practical needs. Personal needs in- feedback is effective because it provides a complete picture
clude feeling valued, understood, involved, and supported. of expected performance and enhances communication.
The interaction process consists of five guidelines that
equip the manager with the skills needed to be successful. Adapting Communication Styles
The five interaction guidelines are open, clarify, develop, One way of improving communication is to modify the
agree, and close. When opening a discussion, state the communication style of the speaker to match the indi-
purpose, the importance of the purpose, and the benefits vidual with whom one is communicating. Individuals can
of accomplishing it. Clarify the discussion by collecting be categorized in one of four ways: active doer, methodi-
facts and figures and then using them to explore issues and cal plodder, people person, and thinker. Active doers like
260 MANAGERIAL LEADERSHIP

a minimal amount of discussion and a quick resolution. Table 11.9 Communication tips to build strong working
They prefer bulleted information with an outline of key relationships
points. Active doers want things to happen “yesterday.” Be positive and upbeat.
Methodical plodders thrive on extensive facts and data Engage and smile at others.
with multiple channels of input. They prefer to mull the Be up-front—no hidden agendas.
situation over extensively before making a decision or a Give criticism politely and always privately.
commitment. A people person prefers a personable ap- Remember things that are important to others.
proach. He does not want to be inundated with facts and Respect others and their opinions.
data and is more interested in how issues or problems re- Do not say something behind someone’s back that cannot be justified
late to people. The thinker visualizes the finished product or said to them.
but is not interested in the details. She has no idea how Listen actively.
to translate needs into a finished plan and becomes bored
quickly with facts and figures. A successful communica-
tor understands these categories, knows her audience, and acts in a supportive and positive manner. Communication
then adapts her communication method to match the in- between managers and employees supports performance
dividual (Table 11.8). and work (24). Managers must treat every communication
There are four case studies in the appendix that illus- with the care it would receive if it were going to be delivered
trate examples of good and bad communication tech- to a very important customer (Table 11.9).
niques. For each case there is a case scenario, followed by In every organization, communication from the man-
a brief discussion. ager must be considered credible. Credibility means that
the staff finds the manager believable, trustworthy, and de-
serving of respect. A manager earns credibility by taking
Summary positive actions after interactions with staff. These actions
Effective communication is critical in any organization. It must match positive words and good intentions. Cred-
is a two-way street that requires both talking and listening. ibility can be earned by following through, demonstrating
Smart managers realize that they do not have a monopoly expertise, remaining calm under pressure, taking positive
on experience and knowledge. They do much more listen- approaches to problems, showing sincerity, and listening
ing than talking because they know talented individuals before acting.
can be found in every possible job in an organization— Managers enhance communication by being a catalyst
from the very bottom rung of the corporate ladder all the to others in the organization. Communication improves
way to the top. By listening, smart managers often hear when managers use an interaction process that meets both
good ideas. They must evaluate the situation and decide the practical and personal needs of the staff. Smart man-
whether they are best served by taking control and direct- agers adapt their communication style to match the indi-
ing the conversation or by listening, asking questions, and vidual with whom they are communicating.
collecting ideas (18). Successful managers are successful communicators.
To be expert communicators, managers must acquire a Effective communication benefits the entire organiza-
variety of skills and learn when to use the appropriate ones. tion, since communication helps in accomplishing tasks
One of the most important skills is active listening. Effec- and solving problems. Communication requires several
tive managers learn and use active-listening techniques. primary ingredients: setting the climate and the tone, re-
This sets the tone and contributes to a positive communica- moving barriers, listening actively, and achieving and
tion climate (8). Effective managers realize that it is impor- maintaining credibility.
tant to avoid communication barriers. Managers can avoid
these barriers by preparing, planning, and organizing the
environment as well as the time for exchange of commu- KEY POINTS
nication. Employees are more receptive when the manager ■ Appreciate that communication is essential to all as-
pects of the daily work environment. The ability to
communicate is essential to leadership and vital to ev-
Table 11.8 Adapting communication to specific listening types
ery organization.
Type Nonproductive Productive
■ Recognize that while formal channels are the primary
Active doer Long explanations Bullet points
means of official communication, the grapevine exists
Methodical plodder Bullet points Long explanations
in every organization. Management can often use the
People person Memos, e-mails Personalized meeting
information from the grapevine as well as provide the
Thinker Details Big picture grapevine with facts.
 CHAPTER 11. SUCCESSFUL COMMUNICATION 261

■ Evaluate the situation, the audience, and the content Positive language Words or phrases used to express and com-
of the message to determine the most effective type of municate thoughts and feelings by using positive actions and
communication. consequences.
■ Identify communication barriers. Work toward elimi-
nating or controlling communication barriers. REFERENCES
■ Become an active listener. Learn active-listening tech- 1. Adams, B. 2001. Information exchange: the art of communica-
niques and use them consistently. tion, p. 16–25. In B. Adams (ed.), The Everything Leadership Book.
Adams Media Corporation, Avon, MA.
■ Foster an organizational climate that supports effective
2. Alessandra, T., and P. Hunsaker. 1993. Active listening, p. 54–68.
communication.
In T. Alessandra and P. Hunsaker (ed.), Communicating at Work. Si-
■ Recognize nonverbal messages, both those you are pro- mon & Schuster, Inc., New York, NY.
jecting and those you are receiving. 3. Alessandra, T., and P. Hunsaker. 1993. Future perfect communi-
■ Utilize positive language when possible. cation, p. 14–16. In T. Alessandra and P. Hunsaker (ed.), Communi-
cating at Work. Simon & Schuster, Inc., New York, NY.
■ Practice the interaction process and use it to meet the
practical and personal needs of the staff. 4. Alessandra, T., and P. Hunsaker. 1993. It’s how you say it, p. 139–
141. In T. Alessandra and P. Hunsaker (ed.), Communicating at
■ Give positive feedback. Work. Simon & Schuster, Inc., New York, NY.
■ Adapt your communication style to match the individ- 5. Alessandra, T., and P. Hunsaker. 1993. The power of nonverbal
ual with whom you are communicating. communication, p. 120–122. In T. Alessandra and P. Hunsaker (ed.),
■ Electronic communication has increased in the work- Communicating at Work. Simon & Schuster, Inc., New York, NY.
place. This includes e-mails, texting, and social media 6. Bacal, R. 2012. Improving communication—tips for managers.
sites. Use electronic communication judiciously and http://work911.com/conflict/carticles/impcom.htm (last accessed
April 30, 2013).
beware of pitfalls.
7. Bacal, R. 2012. Using positive language. http://work911.com/
articles/poslan.htm (last accessed April 30, 2013).
GLOSSARY 8. Blair, G. M. 2012. Conversation as communication. www.ee.ed
.ac.uk/~gerard/Management/art7.html (last accessed April 30, 2013).
Active listener One who listens to the whole message, including
facts and feelings. 9. Brounstein, M. 2001. Are you really listening? p. 27–38. In M.
Brounstein (ed.), Communicating Effectively for Dummies. Hungry
Communication The exchange of thoughts, messages, or infor- Minds, Inc., New York, NY.
mation by multiple mechanisms such as speech, signals, or 10. Brounstein, M. 2001. Fixing your radar on the speaker, p. 51–
writing. 56. In M. Brounstein (ed.), Communicating Effectively for Dummies.
Communication barriers Any behavior or physical obstruction Hungry Minds, Inc., New York, NY.
that hinders or restricts the flow of meaningful communication. 11. Brounstein, M. 2001. Ten ideas for effectively handling tele-
phone interactions, p. 323–327. In M. Brounstein (ed.), Communi-
Evaluative listener A listener who hears the words but makes no cating Effectively for Dummies. Hungry Minds, Inc., New York, NY.
attempt to understand the feelings of the speaker.
12. Carroll, S. 2007. PowerPoint abuse? Oversimplification hinders
Formal channels of communication Communication networks communication and understanding. FX One Seven Zero. March 15,
designed to follow the structure (lines of authority) of the 2007. www.fx170.com/?q;eqarticle_multimedia (last accessed April
organization. 30, 2013).
13. Ekman, P. 1997. Should we call it expression or communication?
Informal channels of communication Informal routes that
Innovation 10:333–344.
people use to spread information to one another.
14. LeBlanc, L. 2011. Pros and cons of social media in the work-
Marginal listener One who hears the words but does not com- place. Suite 101 Media. February 13, 2011. http://lillianleblanc
prehend the intent. .suite101.com/pros-and-cons-of-social-media-in-the-workplace
-a347124 (last accessed April 30, 2013).
Negative language Words or phrases used to express and com-
municate thoughts and feelings by using excessive criticism and 15. Lemery, L. D. 2002. Communications at the 95% confidence
confrontation. level: the impossible dream? Clin. Leadersh. Manag. Rev. 16:127–129.
16. Martin, B. G. 1982. Communications, p. 133–158. In K. R.
Nonlistener A person who does not hear anything that is said. Karni, K. R. Viskochil, and P. A. Amos (ed.), Clinical Laboratory
Organizational culture Social and artistic expression, charac- Management. Little, Brown and Company, Boston, MA.
teristic of a community or population, that pertains to behavior 17. McGinty, S. M. 2001. Electronic communication, p. 120–127. In
patterns, arts, beliefs, institutions, and all other products of hu- S. M. McGinty (ed.), Power Talk: Using Language to Build Authority
man work and thought. and Influence. Warner Books, Inc., New York. NY.
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18. McGinty, S. M. 2001. Putting language to work, p. 87. In S. M. 22. Tufte, E. R. 2006. The Cognitive Style of PowerPoint: Pitching Out
McGinty (ed.), Power Talk: Using Language to Build Authority and Corrupts Within, 2nd ed., p. 1–31. Graphics Press LLC, Cheshire, CT.
Influence. Warner Books, Inc., New York. NY.
19. Paradi, D. 2012. Ten secrets for using PowerPoint effectively. 23. Van Riper, T. 2006. Text-message generation entering work-
www.thinkoutsidetheslide.com/articles/ten_secrets_for_using_ place. Forbes.com. August 30, 2006. http://www.msnbc.msn.com/
powerpoint.htm (last accessed April 30, 2013). id/14576541/ns/technology_and_science-tech_and_gadgets/t/
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Presentation/slides.html (last accessed April 30, 2013).
21. Skeels, M. M., and J. Grudin. 2009. When social networks cross 24. Wallace, M. A., and D. D. Klosinski. 1998. Directing: the third
boundaries: a case study of workplace use of Facebook and LinkedIn. management function, p. 238–247. In M. A. Wallace and D. D.
http://research.microsoft.com/en-us/um/people/jgrudin/publications/ Klosinski (ed.), Clinical Laboratory Science Education and Manage-
newwave/socialnetworking2009.pdf (last accessed April 30, 2013). ment. W.B. Saunders Company, Philadelphia, PA.
 CHAPTER 11. SUCCESSFUL COMMUNICATION 263

APPENDIX 11.1 Case Studies

CASE 1 provides it with facts. She also uses formal channels to dissemi-
Alvin has been hired as the administrative director of the labora- nate information and give staff the opportunity to ask questions.
tory in the hospital at a large academic medical center. After a Communication between the laboratory director and the staff
year Alvin has made little effort to get to know his employees. has improved greatly since Alvin left.
He keeps himself “set apart.” For example, he never stops in the
hall to chat and makes no attempt to learn the names of his staff. CASE 3
Alvin never eats lunch with his supervisors even though he fre- Alice makes an appointment to see the administrative director.
quently walks by the table where they are sitting. In laboratory She is very agitated and upset about not being chosen for a pro-
meetings, he makes cryptic statements and tells bad jokes. He motion. The administrator attempts to communicate with Alice
seldom asks the supervisors for input and never uses the input by using a soothing tone of voice, maintaining eye contact, and
he receives. He tells the hospital administrator that he is resign- being an active listener. When the director tries to give feedback
ing and has taken a job elsewhere because he can’t work with the to her, Alice constantly interrupts, raises her voice, and speaks in
supervisors. a very accusatory manner.
Discussion: To be an effective manager and communicator Discussion: For communication to be effective, both parties
at his next hospital, Alvin must learn to develop his interper- must be active listeners. Because Alice is so distraught and up-
sonal skills. He must be available and approachable. He should set, she is not hearing anything that the director is attempting
begin to win the confidence of the staff by asking for their views to say. The discussion is essentially nonproductive. After several
on subjects and following through with some of their sugges- attempts at trying to get Alice to remain calm, the director asks
tions. A few simple changes such as chatting occasionally with Alice to reschedule the meeting when she is in a more positive
the staff and learning names would go a long way toward im- frame of mind and is able to listen to feedback.
proving the environment. This will help to establish a better or-
ganizational climate, which could be the first step in improving CASE 4
communication. Ginny makes an appointment to see her supervisor about some
concerns she has in the laboratory data center. When she ar-
CASE 2 rives, the radio is blaring. There are multiple projects all over
Katherine has recently been appointed interim administrative the supervisor’s desk. The supervisor has his back turned to
director in the hospital Alvin just left. Katherine immediately Ginny and is working at his computer. He frequently shuffles
meets with her supervisors. Within her first month, she holds a through the paperwork on his desk looking for the information
meeting on all three shifts. She presents information, listens to he needs for the project he is working on. Ginny attempts to ask
employee concerns, and answers questions. Katherine makes her- her questions and state her concerns but does not feel valued by
self approachable and available. She always has a friendly smile her supervisor.
on her face. When Katherine hears of misconceptions through Discussion: There are many barriers to effective communica-
the grapevine, she takes steps to correct the misconceptions. tion in this situation. This supervisor needs to turn off the radio,
Discussion: Katherine promotes a climate that supports ef- maintain eye contact, face the speaker, and stack work neatly on
fective communication. She is an active listener. The staff will the desk prior to the meeting. He should practice active-listening
communicate their concerns because she is perceived as recep- skills, listening to Ginny and then suggesting a course of action. If
tive. She frequently seeks input and acts on that input. Kather- some crisis at the last minute makes this impossible, the best thing
ine realizes the value of the grapevine in her organization and to do would be to apologize to Ginny and reschedule the meeting.
Introduction
12
Things To Do before the Meeting
Effective Meetings
Determine If There Is a Need for a Meeting •
Determine What Type of Meeting Is Needed • Mark G. Hanly
Develop the Agenda • Use of the Consent Agenda •
Determine Whom To Invite to the Meeting •
Determine the Venue of the Meeting • Determine the
Technology/Equipment Required for the Success of
the Meeting
Things To Do during the Meeting
Things To Do after the Meeting OBJECTIVES
Calculating the Cost of Meetings To help the reader determine whether or not to have a meeting
Recurrent Meetings To evaluate different methods of disseminating information
How To Be an Effective Participant To explain how to set up and run an effective meeting
in a Meeting
Summary
To provide pointers on how to be an effective meeting participant
KEY POINTS To outline how to troubleshoot meeting problems
GLOSSARY To help managers calculate the cost of a meeting
REFERENCES

People who enjoy meetings should not be in charge of anything.

Thomas Sowell

I
f you are involved in any form of management, you will undoubtedly
have had that dreadful sensation, after leaving a long, rambling, poorly
organized meeting, that you have totally wasted an entire morning while
work that really needs to be done is piling up on your desk. Meetings have be-
come the bane of modern clinical laboratory management; they are extremely
expensive in terms of personal and employee time and can cost significant
amounts of money for paper and copying charges. Poorly organized, ineffec-
tive meetings are not only an incredible waste of resources, which can damage
the bottom line of any organization, but they can also be significantly damag-
ing to staff morale. In the corporate world, meeting costs have been estimated
to result in billions of dollars of wasted productivity annually (3, 5).
Despite these observations, an effective meeting can nevertheless be an es-
sential tool in the efficient management of a laboratory. However, all meetings
have to be planned and managed, or they will fill those involved with a dread
that stifles any utility the meeting may ever have had.
Directing an effective meeting or being an effective participant in a meeting
is an important way to cultivate in your staff the goal of working smarter and
not harder.
Below is a brief synopsis of the steps required to ensure that any meeting
Clinical Laboratory Management, 2nd Edition
you convene will be as effective as possible. The steps can be placed into
Edited by L. S. Garcia three general categories, although there is some crossover: (i) things to do
©2014 ASM Press, Washington, DC before the meeting, (ii) things to do during the meeting, and (iii) things to
doi:10.1128/9781555817282.ch12
do after the meeting.

264
 CHAPTER 12. EFFECTIVE MEETINGS 265

Things To Do before the Meeting meeting is that it facilitates personal contact; large
numbers of participants can be invited, and the close
Determine If There Is a Need for a Meeting
personal contact allows for the building of networks
In essence, there are at least six reasons to hold a meeting: and the development of friendships. This environment
• To comply with regulatory requirements also permits attentive participants to read nonverbal
• To make a decision that requires the input of several cues and body language from other participants.
people Telephone conference/conference call. These types of
• To coordinate action on an issue conferences are best utilized for small numbers of
participants and urgently called meetings with limited
• To discuss a specific problem with the goal of achiev- agendas, but with planning, they may be utilized for
ing a solution most meetings. They have as a great advantage the
• To convey information to a group of people reduction in the need for travel or time away from the
• To motivate a group or team office, but the disadvantages are the generally limited
number of participants and the inability to read non-
Each of these reasons will require a meeting with a slightly verbal cues—that is, the nuances derived from facial
different structure, but the key components of holding an ef- expressions and body language may be missed. In ad-
fective meeting will remain true no matter what the setting. dition, the temptation is always there for participants
Before a meeting is called, it is necessary to evaluate if to multitask or be distracted by local issues, and par-
there is a better way of communicating with the group. If ticipants will need to be familiar with the equipment
the issue is a simple, straightforward, easily understood used. Most telephones now have buttons to permit
transfer of information, it is quite acceptable to inform the conference calls, and there are several companies that
staff of a decision with a clear, well-thought-out memoran- organize these calls through toll-free numbers (for ex-
dum. This may be issued in written form, sent via e-mail, ample, www.freeconference.com).
or in some modern laboratory information systems, pro-
grammed to appear on the sign-in screen at the time of Videoconference. Videoconferences are increasingly being
employee log-on. If it is decided that a meeting is needed, utilized, particularly in large organizations or organiza-
planning is essential for success. tions spread over several locations. Several companies
now offer online videoconferencing programs that
Determine What Type of Meeting Is Needed greatly facilitate the introduction of this type of tech-
nology (e.g., www.webex.com). Like the telephone
An important factor in the strategy for arranging a suc- conference, this type of meeting has the great advan-
cessful meeting is for the convener to have a clear idea of tage of not requiring travel, which can be very expen-
why the meeting is being called. The convener must have sive. As with telephone conferences, the number of
defined goals in mind and must ensure that sufficient active participants usually has to be limited. However,
planning has been undertaken to secure those goals. videoconferencing does allow for an improved but not
In the past, a “meeting” essentially meant a face-to-face complete access to the nonverbal cues of the meeting
encounter with all participants in a single room. While this participants. This technology allows for instant, clear
is still the most common form of meeting, the growing size distribution of presentations such as PowerPoint im-
of healthcare campuses and the complexity of practices, in- ages. Specialized equipment will usually be required,
stitutions, and organizations, as well as the development of such as video cameras, and some level of technological
new technology, mean that other forms of meeting formats understanding is usually necessary to allow partici-
need to be considered and may be more appropriate and pants to actively and usefully engage in the proceed-
cost-effective than the traditional single-venue meeting. ings. It is important to understand that the utilization
Meeting options include the following. of this technology does not negate the need for proper
Face-to-face meeting. This is the most traditional way of planning; indeed, it probably makes detailed planning
holding a meeting but requires booking of an appropri- even more essential.
ate venue, coordination with other departments such as Pros and cons for each of these technologies are pro-
information technology to ensure that equipment is vided in Table 12.1.
ready, and prolonged time away from one’s work area.
In a large hospital complex, walking from one end to
the other may easily add up to 30 minutes on either end Develop the Agenda
of the meeting. This means that even a scheduled The next step in conducting an effective meeting is devel-
60-minute face-to-face meeting will require 2 hours of oping an appropriate, well-thought-out agenda. While in
the workday. The great advantage of a face-to-face the past it was routine to develop an agenda along the lines
266 MANAGERIAL LEADERSHIP

Table 12.1 Meeting types

Meeting Type Pros Cons
Face-to-face Traditional Venue needed
Easy to manage Staff members may be away from office
Limited technology needed Increased cost due to travel time
Large numbers of participants can be accom-
modated without overwhelming confusion
Nonverbal cues available
Telephone conference No travel time Technological skill required of participants
Side discussions cannot occur Nonverbal cues cannot be read
Limited technology needed Networking hindered
Distractions may be increased by participants’
temptation to multitask
Limited number of active participants
Videoconference No travel time Technological skill required of participants
Nonverbal cue evaluation improved Technical equipment needed
Permits visual sharing of presentations Limited number of active participants

of “Roberts Rules of Order,” it is now more common to Use of the Consent Agenda
dispense with this style for a more user-friendly format. Consent agendas may be used to maximize the effective-
Consideration should be given to including an “Action ness of some types of meetings by allowing participants to
Plan” column in all agendas, a feature designed to drive focus on those agenda items that matter most (2). A consent
the meeting toward setting goals and implementing deci- agenda is a bundle of items that is voted on, as a package,
sions that have been made. Planning the agenda should without discussion. It differentiates between routine mat-
begin early; in fact, time spent at the end of a meeting ters not needing explanation and more complex issues re-
identifying items to be discussed at the next meeting is quiring more detailed examination and decision making by
often time well spent. In addition, the meeting convener the meeting participants. The use of a consent agenda will
should send out a call for agenda items as soon as plan- require the convener to decide on those items that warrant
ning for a meeting begins. full discussion. While experience will assist in determining
While agendas will vary to some extent depending on those components of the agenda that will be placed in the
the nature of the meeting and the issues to be discussed, a consent agenda, attendees will all have an opportunity prior
useful agenda should be designed to provide the following to or at the start of the meeting to request removal of items
information. Figure 12.1 provides a sample agenda. from the consent agenda so as to allow discussion.
• Nature of the meeting Items most commonly found on consent agendas in-
clude minutes from previous meetings, confirmation of
• Venue of the meeting with instructions if necessary on
decisions that have been discussed previously, and routine
how to get to the meeting
informational reports that need no discussion or action
• Scheduled time of the meeting from members of the meeting. While it is a valuable tool
• Contact person in charge of developing the meeting and is not difficult to use, a consent agenda requires disci-
• List of people who are invited to the meeting pline and requires the following steps.
• Order and type of presentations • Clear delineation of the components of the consent
• Time allotted for each presentation agenda from the items within the agenda
• Information that must be assimilated, evaluated, or • Distribution of the complete consent agenda material
brought to the meeting in advance of the meeting
• An action column for notes and decisions • Requirement that all meeting participants read the ma-
terials in advance
Do not overload the agenda. Meetings that extend
over 60 minutes rarely produce useful results. Try not to • Willingness of the convener, if requested by a meet-
waste valuable meeting time by a long recitation of rou- ing participant, to remove an item from the consent
tine reports or other standardized, uncontentious infor- agenda
mation. This can be curtailed by considering the use of a • Unambiguous introduction of the consent agenda
consent agenda. items at the start of the meeting
 CHAPTER 12. EFFECTIVE MEETINGS 267

[Organization/Department Name]
Meeting Agenda
Meeting Date Meeting Time
Meeting Venue

Type of Meeting:
Meeting Facilitator: Name E-mail: Phone Number:
:

Meeting Chair: Name

Invitees:

ITEM Presenter Time Action

Welcome/Call to Chairperson 3 Informational
Order/Overview
Approval of Chairperson 3 Vote
Minutes
Open Issues
1 Name of Presenter
2
3
Committee Reports
1 Name of Presenter
2
3
New Business
1 Name of Presenter
2
3
Summary Chairperson 3 Informational
Next Meeting Chairperson 2 Informational
Adjournment Chairperson Figure 12.1 Sample meeting
agenda.
I. doi:10.1128/9781555817282.ch12.f1

• Unanimous vote by meeting participants in favor of to call the participant and explain why his or her pres-
accepting all components of the consent agenda at the ence is important. This can be very insightful and may
meeting indeed change a decision as to who should appropri-
ately be invited to the meeting.
Determine Whom To Invite to the Meeting • Confirm with the attendees that they know the in-
This of course will depend on the type of meeting. How- formation they will be required to bring or present.
ever, the following points are useful to remember when This can be done by an e-mail or placing a note on the
developing the list of participants. agenda at the time of distribution.
• Invite only those staff members whose input is salient Determine the Venue of the Meeting
to the meeting. To require people to attend meetings The following points should be considered when deciding
unrelated to their responsibilities wastes their time on a meeting venue.
and can be demoralizing.
• If a face-to-face meeting is to be held, choose a venue
• Ensure that representatives from appropriate depart-
with sufficient room for the invited attendees.
ments are invited. Sometimes this requires extensive
premeeting planning to identify who would be most • Choose a centrally located venue if possible.
suited to deal with issues. • Choose a venue with easy access if possible.
• If someone is not usually invited to a particular meet- • Ensure that the room is suitable for any technology
ing and the convener believes that this individual’s at- you intend to use in the meeting such as a projected
tendance is necessary, it is important for the convener presentation.
268 MANAGERIAL LEADERSHIP

• Ensure that the room has been booked in accordance • If components of the meeting are confidential, take an
with facility guidelines and that the facilitator or con- early opportunity to remind participants of this fact.
vener has obtained a confirmation of the booking. • If this is the first meeting of a particular group, in-
troduce yourself and ask attendees to provide a brief
Determine the Technology/Equipment Required introduction for themselves, including who they are
for the Success of the Meeting representing.
Many face-to-face meetings include agenda items that will
• If the meeting is an established group and a new per-
require the use of technology such as video projection, or
son has been invited to the meeting, introduce the new
there may be a combination of technologies, including
attendee and again allow everyone the opportunity to
videoconferencing, utilized as a component of a face-to-
provide a brief introduction for themselves.
face meeting. Unless the convener is able to provide all of
the required technology, it is essential that the responsible • If a consent agenda is to be utilized, complete its adop-
departments within the facility such as Information Tech- tion as the first item in the proceedings.
nology or the Educational Department be contacted to en- • While ensuring that all components of the agenda
sure that the appropriate connectivity and equipment are are addressed, consider the use of a dynamic agenda,
available, in place, and working at the time of the meeting. particularly if there is a participant who is present only
If the number of participants in a meeting is large, con- for a single agenda item. Allow that person to present
sider requesting appropriately placed microphones to en- his or her information early and then leave rather than
sure that all participants can be heard. sitting through the delivery of information that has no
relevance for them.
Things To Do during the Meeting • Pay attention to what is being said, and keep the dis-
Similar to an orchestra, a meeting brings together the indi- cussion on the relevant topics. Refocus the conversa-
vidual players of a group or organization. Just as a conduc- tion when needed.
tor adapts to the type of music being played, it is essential • Be prepared to request clarification of any answer
for the meeting convener to adapt to the meeting type. given by a participant if it is unclear. At times, particu-
However, as with an orchestra, it is equally important for larly if you see that other participants are confused by
the meeting to be controlled, or even in the most expe- the answer, it may be useful to confirm that they have
rienced groups disorder will soon prevail. The convener understood the information.
should consider the following. • Interruptions can be very disruptive to meetings. Al-
• The meeting convener should arrive early and make though this is very difficult in the healthcare arena,
certain that the meeting room is appropriately set up discourage all interruptions and make it clear to your
and that all the technology required is working. personal staff that you are in a meeting and should
only be contacted in the event of an emergency.
• In small, defined groups, it is often worthwhile to Showing this form of courtesy to the people you have
develop a folder for each participant that includes the brought to the meeting indicates the degree of impor-
agenda, minutes from the last meeting, supporting tance you place on their time.
documents, etc. This provides the attendees with all
the information required to participate fully in the • Control meeting time.
events. These folders can be collected at the end of the • Questions will inevitably be part of every meeting. If
meeting and refreshed for use and distribution at the some agenda item obviously requires more detailed
next scheduled meeting. discussion, consider the formation of a subcommittee,
• Taking control of the meeting does not mean being which can report back after studying the issue. Com-
rude but it does mean being assertive. plete the tasks or delegate the issues for consideration.
• Ensure that you speak audibly and definitively. • Ensure that meetings do not arise within meetings. If
a group within the meeting begins to discuss a topic
• Ensure that the meeting starts on time.
separate from the group, indicate that you will provide
• Commence the meeting by ensuring that everyone is them a venue to discuss the topic if it is pertinent to an
brought to order. agenda item.
• Set the tone for the meeting by being enthusiastic and • Ensure that when a decision has been made it is clearly
interested. stated in the minutes.
• If necessary, tell the participants where they can find • If action is decided upon, make certain that the action
restrooms, telephones, etc. has been clearly defined and that both the person re-
• Clearly state the reason for and goals of the meeting. sponsible for this action and the time by which it must
 CHAPTER 12. EFFECTIVE MEETINGS 269

be completed are understood. In other words, define the will have to be scheduled regularly, not all “meeting series”
action in terms of “What action; by whom; by when.” should be considered a commitment for life. Meetings des-
• As you approach the end of the meeting, spend a mo- ignated for a particular activity, such as the introduction of
ment to recap the meeting’s achievements. If necessary, a new piece of equipment or a new laboratory information
a brief review of decisions and commitments made can system, should have a defined life span. Once the task al-
be very useful. lotted to the group has been completed, the meeting series
should end. Indeed, it is often worthwhile with any regular
• Ensure that the attendees leaving the meeting have un-
scheduled meeting to periodically discuss with the partici-
derstood what is required of them, and ensure that all
pants whether the meeting still needs to be held or if the
questions have been answered.
meeting frequency needs to be changed. If a meeting regu-
• Spend a few moments discussing the next meeting in larly runs over the allotted time because too many items
terms of date, venue, and agenda items. are on the agenda, it may be worthwhile to meet more fre-
• After the meeting, ensure that minutes, documents, quently with a more manageable agenda.
and any material of a confidential nature have been
collected and removed from the meeting venue.
How To Be an Effective Participant
in a Meeting
Things To Do after the Meeting
Although much of what has been addressed above refers
As soon as it is feasible after the meeting, the convener and,
particularly to a person who is planning a meeting, skills
if present, the person responsible for taking the minutes
are also required to be a useful meeting participant (4).
should meet and review all documents and notes prior to
Preparation prior to the meeting is as important for the
completing the official record of the meeting (1). Accurate,
participant as it is for the meeting convener.
timely distributed minutes are important to document the
The following points will certainly assist you in being
decisions made at the meeting, and in addition, they can be
an effective participant.
key to ensuring that participants complete the tasks allotted
to them. After the meeting, the minutes should be promptly • Ensure that you have read the minutes from the previ-
prepared and distributed to all attendees. The minutes must ous meeting.
indicate clearly the name of the meeting, the date on which • Make sure to read and understand any supporting
the meeting occurred, the individuals present at the meet- documentation provided for discussion at an upcom-
ing, and the decisions made and responsibilities assigned. ing meeting.
While there is no necessity for the minutes to report ver-
• Make sure that any presentation you are to make is
batim what was said, meeting participants who presented
succinct and clear.
should be identified in the minutes, as should those partici-
pants who offered motions, seconded motions, and voted. • If you are bringing a presentation on a disk or “stick
If a vote was required and the vote was not unanimous, it drive,” you must ensure that the presentation is cor-
is useful to identify who voted for and against a particular rectly loaded.
decision. If action is to be taken, the nature of the action, • If you are bringing documentation for distribution,
who is responsible for taking the action, and when the ac- ensure that there are enough copies for all those who
tion will be completed must be clearly stated. will be required to read and evaluate the document.
• If particular questions can be anticipated, make a
Calculating the Cost of Meetings brief note of what issues may need to be discussed or
brought up for clarification at the upcoming meeting.
As mentioned earlier in this chapter, meetings can be ex-
• Make clear to your staff that you are in a meeting and
pensive. Although it is extremely difficult to determine the
should not be disturbed except for an emergency.
true cost of a meeting, the most expensive component is
the salaried time of the participants. Calculators are avail- • Consider placing your phone and pager on silent mode.
able online that allow at least this expense to be assessed; see • Arrive on time.
www.effectivemeetings.com/diversions/meetingcost.asp. • Wait your turn to talk. In most meetings the convener
will indicate when you are to speak.
Recurrent Meetings • Speak clearly.
While some meetings, particularly those required by ac- • Listen attentively and participate actively.
creditation agencies and medical staff bylaws and ongoing • Keep the discussion and comments pertinent to the
meetings to continue the direction of a busy laboratory, agenda items.
270 MANAGERIAL LEADERSHIP

• Answer definitively. effective participant is also key to a meeting’s success and

• Monitor your nonverbal cues to ensure efficient, non- will allow you to work smarter rather than harder. Specific
confrontational completion of the meeting. recommendations to deal with meeting problems are pre-
sented in Table 12.2.
• Take notes, particularly of tasks requested of you.

KEY POINTS
Summary ■ Make meetings effective by holding them when:

Face-to-face meetings are not always required to share in- —They are necessary.
formation. Unnecessary or poorly planned meetings can —There is a specific goal.
be problematic and wasteful of resources. However, if after
■ Provide a detailed agenda.
consideration, the decision has been made to hold a meet-
ing, define the goal of the meeting, prepare for the meeting ■ Provide supporting documentation.
in detail, and control the meeting environment. Being an ■ Expect everyone invited to be prepared.

Table 12.2 Quick reference guide for troubleshooting meetings

Problem Solution
Meeting seems to have no purpose Evaluate the need for the meeting. Evaluate whether other methods of delivering information would
be better.
Venue not ready Reassess preplanning procedures.
Equipment not ready Reassess preplanning procedures.
Meeting fails to begin on time This indicates disregard for the value of participants’ time. Begin on time, regardless of whether or not
everyone is present.
Participants do not want to attend Evaluate whether the meeting is needed, evaluate whether the participants are needed at the meeting,
meeting have a clear idea why the meeting is being held, and be able to explain to the participants why their
attendance is important. If you cannot do this, then you must ask if you need the meeting.
Participants attend meeting Ensure that the agenda is distributed well before the meeting and the participants understand why they
unprepared are needed and what information they are required to pass on to the group.
Overall planning appears minimal Planning ahead of time will increase the level of productivity and decrease the overall meeting time
or missing required to meet objectives.
Meeting objectives are unclear Begin the meeting by clarifying objectives per written agenda (distributed well ahead of time).
Participants appear to be disinter- Make sure the correct participants are present (relevant to the topics under discussion). Continue to
ested and confused clarify goals throughout the discussion. Provide time for questions.
There are interruptions Make certain that it is made clear that these are unacceptable. Ensure that your staff knows where you
are and that interruptions without good cause should not occur. Limit the length of the meeting. The
shorter the meeting, the fewer the interruptions that will occur.
Undercurrent discussions or meet- Keep the meeting on track. Inquire of the participants in the undercurrent discussion if there is infor-
ings within meeting occur mation that needs to be shared with all. Make it very clear that interruptions are not acceptable; talking
during any presentation is also unacceptable. Set up the ground rules from the beginning.
One person dominates the discus- It is the leader’s responsibility to ensure that everyone has input and to prevent one person from taking
sion (could be the leader or a over the meeting; be polite but firm.
participant)
The overall discussion appears to The leader needs to keep the discussion on track and to follow the written agenda.
stray from the original agenda
The meeting runs over the allotted Prior to the meeting, set up realistic time frames; keep the meeting on track and moving forward.
time
Participants are not clear about Use action column of agenda to indicate who has to accomplish what by when.
what they have been asked to
accomplish
Meeting appears to end without Make sure a verbal summary is provided and that all participants understand the decisions that were
conclusion or decisions made.
The participants do not receive a A recorder should be identified before or at the beginning of the meeting. Record and distribute writ-
written summary in the form of ten minutes within a day of the meeting; this written documentation serves as a reminder of decisions,
minutes pending issues, “to-do” responsibilities, etc.
Failure of the leader to follow up This lack of follow-through renders the meeting ineffective. Confirm assignments and due dates, and
on meeting decisions, assignments set up a calendar for confirmation of task completion.
 CHAPTER 12. EFFECTIVE MEETINGS 271

■ Start the meeting on time. Meeting Interaction between two or more people to discuss a
■ Keep the meeting on topic. topic of mutual interest or importance.

■ Control unnecessary discussions. Minutes An official record of the meetings of an organization.

■ Summarize the meeting at the end with particular ref-
erence to the conclusions, goals met, and tasks to be REFERENCES
completed. 1. Benson, D. D. 1982. The Art of Taking Minutes. Snyder Publishing
■ Stop the meeting on time. Company, Los Angeles, CA.
■ Promptly provide written minutes. 2. Dorfman, R. F. 2000. Use a consent agenda to streamline board
meetings. Assoc. Manag. 52:91.
■ Periodically review the necessity for continued meetings.
3. Mosvick, R. K., and R. B. Nelson. 1987. We’ve Got To Start Meet-
ing Like This: a Guide to Successful Business Meeting Management.
GLOSSARY Scott, Foreman, Glenview, IL.
Agenda A list of things to be discussed and acted on at a meeting. 4. Pohl, A. N. 1991. Committees and Boards: How To Be an Effective
Consent agenda A useful tool in managing a meeting, which Participant. NTC Publishing Group, Lincolnwood, IL.
allows premeeting evaluation of routine material that can be 5. Romano, N. C., Jr., and J. F. Nunamaker, Jr. 2001. Meeting analy-
voted on without need for significant discussion or review. sis: findings from research and practice. In R. H. Sprague, Jr., and
J. F. Nunamaker, Jr. (ed.), Proceedings of the Thirty-fourth Hawaii
Convener The person who calls a meeting and plans to act as
International Conference on System Sciences, Maui, HI, USA, Janu-
the chairperson.
ary 3-6. IEEE Computer Society Press, Washington, DC. http://www
Facilitator The person who will assist the convener in planning .hicss.hawaii.edu/HICSS_34/PDFs/CLUSR19.pdf (last accessed July
a meeting. 20, 2012).
Introduction
Conflict Defined
13 Conflict Management
What Conflict Is and Is Not Jean Egan
Constructive Conflict
Destructive Conflict
Common Causes of Conflict
Internal and External Origins of Conflict
Internal Sources of Conflict • External Sources of
Conflict
OBJECTIVES
Power Is the Underlying Issue
Two Basic Beliefs about Handling
To define and describe conflict
a Conflict To differentiate between constructive and destructive conflict
Five Conflict Resolution Styles To identify five different strategies for resolving conflict and the pros and cons
Working with Each Style To Resolve of each style
Conflict
To describe the role of the manager in resolving conflicts
Creating an Environment Where Conflict
Is Addressed and Resolved To discuss the seven-step model for resolving conflict
The Role of the Manager • The Role of the Staff •
Creating the Right Environment To Resolve Conflict
A Communication Model To Manage
and Resolve Conflict You cannot shake hands with a clenched fist.
The GGMG Model
Mahatma Gandhi
A Seven-Step Plan for Resolving Conflict

A
When Conflict Resolution Fails lthough conflict is inevitable, it can be healthy for an organiza-
Key Steps in Resolving Conflict
tion if it is addressed and resolved in a rational manner. While conflict
What the Organization Can Do can be destructive or constructive, managing conflict is a key compo-
Summary nent to structuring a successful workplace. Success depends on being able to
KEY POINTS acknowledge, manage, and resolve conflict, and managers need to take the
GLOSSARY lead in helping staff recognize and manage conflict. Staff training and develop-
REFERENCES ment along with an organizational climate that values conflict resolution are
APPENDIX keys to healthy conflict resolution. Also, open dialogue and creative problem
solving are constructive methods to use when dealing with conflict.
The ability to manage and resolve conflict is a universal skill that crosses
all life domains, and recognizing and managing conflict is a skill that can be
learned. All successful managers must exercise the skills to identify, analyze,
and resolve conflict. When conflict is managed and resolved, it can be a source
of growth for individuals as well as institutions. Ultimately, the success of an
organization depends on how well staff members recognize, understand, and
resolve conflict, hopefully within a climate and culture where conflicts are an-
ticipated and not ignored.

Conflict Defined
Conflicts or potential conflicts occur in every life domain and can range from
simple disagreements to complex arguments with each person insisting on his
or her version of what is right. Conflict can be defined as the simultaneous
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia arousal of two or more incompatible motives (5). A second common view of
©2014 ASM Press, Washington, DC conflict is one person blocking another from reaching her goal (2). A conflict
doi:10.1128/9781555817282.ch13 is simply a disagreement over goals or how to accomplish them. Two strangers

272
 CHAPTER 13. CONFLICT MANAGEMENT 273

may both want to park their cars but have a conflict over Expectations
who will get the single open space they have each spotted.
Members of a couple may agree that they both want to take
a vacation but disagree about where to go or how long to
be away. Roommates may agree that sleeping is an impor-
tant life activity but disagree about the hours during which Gap
sleep should occur. Coworkers may want to take time off CONFLICT
around a major holiday, discuss it between themselves, and
work out an arrangement, but their manager might not
want anyone taking vacation at that time of year. Conflict
is inevitable; how you deal with it makes all the difference.
Conflict can be resolved at any level in an organization. Reality
It does not always involve taking it up the chain of com-
mand. In fact, the healthiest organizations are those where Figure 13.1 How conflict begins.
employees or members at every level are empowered to doi:10.1128/9781555817282.ch13.f1
resolve conflict. An organization that values conflict res-
olution will be healthy and has a much better chance of
survival in a competitive environment. Organizations that acknowledge that they have a disagreement and actively
try to ignore or cover up conflicts will be rife with high work to resolve it. Constructive conflict resolution results
rates of turnover, unhappy staff, poor communication, lost in outcomes that may involve a compromise on both sides,
time spent griping to or about coworkers, rigid adherence and the best interests of the organization are served by
to rules, lack of cooperation, and reduced creativity. People addressing the conflict (4). Real conflict resolution takes
are discouraged when they are forced to live or work in time to work out a creative solution so that both parties
situations where conflict goes unresolved. Workplace vio- are happy with the outcome. Conflict has been resolved if
lence is the worst form of frustration over unresolved con- both parties walk away satisfied and neither one harbors
flict. Successful managers in the future will need to know the desire to even the score later.
how to recognize, address, resolve, and even encourage
conflict. They must train their staff to resolve conflict and
reward people for doing so (7). Destructive Conflict
Destructive conflicts occur when people try to ignore a sit-
uation and when one person forces a resolution on another
What Conflict Is and Is Not that results in a win-lose outcome. The net result is that
Conflict tends to be viewed as a negative event. However, the organization is harmed (4). People often try to ignore
it, like stress, is neither good nor bad. In fact, conflict can a brewing conflict. They may have learned to keep their
lead to growth if it is resolved. The disagreement or dif- mouths shut and keep their heads down. They may have
ferent views that people bring to a given situation can be seen a negative outcome for a coworker who tried to bring
helpful and constructive if they lead to open dialogue and a conflict to the attention of a supervisor. They may have
creative solutions. The goal of conflict is growth and posi- tried to resolve an issue and felt discouraged and gave up.
tive change. What most people refer to when they use the Managers need to intervene to resolve destructive conflict.
word “conflict” really is what they experience when they
are caught in a conflicted situation and either they have
no power to improve it or someone else has forced an out- Common Causes of Conflict
come on them with which they do not agree. This is a clas- Conflict in the workplace differs from conflict in our pri-
sic definition of unresolved conflict. Unresolved conflict vate lives in one major way—power. Power is not gener-
is always destructive. Conflict is a simultaneous arousal of ally evenly distributed at work. The work environment is
two or more incompatible motives (5). It exists when a gap almost always set up in a stratified hierarchy. That “pecking
develops between what someone expects and the reality order” may be established in formal or informal ways (or-
that exists (7). Figure 13.1 illustrates how conflict begins. ganizational charts versus how things really get done), but
power is not evenly distributed to all the staff. Even among
members of the same profession, power is not equalized.
Constructive Conflict Among physicians, for example, seniority, specialty, tenure,
It is important to draw a clear distinction between con- political connections, grant funding, research projects, gen-
flict that is constructive and conflict that is not. Conflict der, race, and a number of other overt and hidden criteria
is constructive when the involved parties recognize and impact who has power and who is expected to yield to it.
274 MANAGERIAL LEADERSHIP

Among laboratory technical staff, power differentials • Lack of resources to successfully complete the job, in-
can occur based on differences in formal or informal cluding time, technology, and tools
training and statewide or national credentials, as well as
These types of internal conflicts develop over time. They
years and types of experience. When offices or companies
may result from a lack of attention to employee morale,
merge, political alliances, seniority, and old reporting re-
misunderstandings that are ignored, lack of emphasis on
lationships have to be renegotiated in combined offices.
teamwork, lack of staff and management training, or poor
These and myriad other potential conflicts need to be an-
management practices. Conflict in the workplace can be
ticipated, addressed, and resolved. Otherwise, the under-
managed with good employee relations and setting perfor-
lying issues build until they erupt into hostile differences.
mance objectives that are uniformly applied and measured
Common causes of conflict include the following.
for all staff, as well as by providing training in teamwork
• Incompatible goals and conflict management.
• Poor communication
External Sources of Conflict
• Style of supervision
Employees all have stressors in their private lives that can
• Different ideas about task achievement
negatively affect their performance at work. These external
• Different perceptions sources of stress can contribute to conflicts at work. Ex-
• Different values and philosophies amples include the following.
• Personality differences • Interpersonal stress at home
• Work assignments • Scheduling conflicts between work and home demands
• Approaches to change • Traffic
• Competition • Medical problems
Conflict is going to exist. These major categories of conflict • Illness of family members
must be identified and addressed before they build into • Life transitions such as marriage, divorce, becoming
major disruptions to the office or laboratory environment. a parent, death of a family member, or retirement of a
spouse

Internal and External Origins of Conflict Frequently, these types of conflict occur simultaneously.
An employee may have had a fight with his teenager before
Sources of conflict can be further differentiated by internal work, have encountered two traffic accidents en route, and
or external origins. There are stressful life events that occur be debating whether he can afford the time and money to
both at work and at home. Individuals have different toler- pursue additional college coursework. These issues weigh
ances for managing life stresses. The ability to compart- on the employee before he ever gets to the workplace. A
mentalize stress plays a major role in the ability to tolerate, small instance of friction with a coworker on top of the
address, or appropriately respond to situations of conflict. already existing external stressors can combine to create
a larger problem. That problem may manifest itself as a
Internal Sources of Conflict negative attitude when it really is a symptom of mounting
Work-related, or internal, conflict has its origins in the stress. Stress that continues to build is likely to erupt as
workplace. It can, however, be affected by nonwork (exter- workplace conflict. Managers are wise to know their em-
nal) conflicts. Typical examples of internal conflict include ployees and show sensitivity to both the work and non-
the following. work demands all staff face. Managers can take steps to
• Work that is not challenging, that has become routine, communicate that conflicts are normal, are to be expected,
or that is boring and can be a source of growth in the office when they are
addressed and resolved.
• Work that is too challenging because of staff shortages,
Home-related problems are not left at the office door
lack of training, or time pressures
when an employee reports to work. Similarly, work-related
• Poor relationships with coworkers problems are carried home. Staff members need to under-
• Poor relationship with the supervisor stand how to identify sources of conflict they bring to the
• Pay that does not seem fair for the work performed work environment, manage their own sources of stress,
and work to collaborate with coworkers to resolve conflicts
• Feeling undervalued, devalued, or unappreciated
at work. Having an employee assistance plan, providing op-
• Office politics portunities to talk formally and informally with managers
• Favoritism and coworkers, and training in stress reduction can help.
 CHAPTER 13. CONFLICT MANAGEMENT 275

Resolving conflicts improves productivity at work and life conflicts, the parties can choose between staking and win-
satisfaction at home. With proper training, managers can ning their “claim” or approaching conflict to create a work-
identify multiple sources of stress, spot conflicts that are able outcome for everyone involved. Kritek’s approach to
building, and take action to address them. Employees who conflict recognizes that people often negotiate at an uneven
learn conflict resolution skills will experience the benefits table. There are different levels of power between parties in
in both domains of life. a conflict. If one is focused on claiming victory, the outcome
is already determined. There is a win-lose certainty, creat-
ing a zero-sum game where one party wins by making the
Power Is the Underlying Issue other party lose. If both want to claim victory, the outcome
Power imbalances at work are a major factor in conflict is the same: win-lose. However, if both parties are interested
and conflict management. People receive and exercise in creating a mutually agreeable resolution, both can win. A
power and authority in different ways. Power may be re- truly collaborative outcome is possible only if neither party
lated to their position in the organization, seniority, title, needs to be right or to win by making the other person lose.
rank, education or training levels, credentials, political The desire to reach a mutually agreeable resolution is
connections, reporting relationships, history, gender, race, the core of successful conflict resolution. When all the par-
or a host of other criteria. When power is shared and dis- ties involved want to resolve the issue, are willing to com-
tributed in ways that are perceived as fair, conflict is mini- promise, and seek an outcome that leaves everyone whole,
mized. Shrinking the gap between expectations and reality conflict can be resolved. In the absence of this approach,
reduces conflict. If conflict is not resolved, it can erupt into conflict remains unresolved.
workplace tension or hostility, and usually results in de-
structive interaction patterns. Regardless of the source of
the conflict, it still needs to be resolved. Power imbalances Five Conflict Resolution Styles
make resolution challenging, but conflict can be resolved Five common approaches for conflict resolution are forc-
if all parties are willing, and skilled in conflict resolution ing, accommodation, collaboration, avoidance, and com-
techniques. The goal of conflict resolution is mutually promise (5). Most people have a primary style, but it is
agreeable solutions. When all parties approach conflict possible to draw upon more than one approach when
with an openness to change, solutions can be found (10). faced with a conflict. Two distinct strategies are at play
among the use of these five approaches. Each strategy
has advantages and disadvantages. At issue is the balance
Two Basic Beliefs about Handling a Conflict between concern for people and concern for results (3).
Our history with conflict, whether it is resolved or not, and Figure 13.2 illustrates the dynamics of these two polarities
the outcome of a conflict both influence our willingness to and how each of the five conflict resolution styles operates.
engage in trying to address and resolve conflict. Our ap- One primary difference is the degree to which communi-
proach to conflict can take one of two polar positions. Paul cation between parties is a goal. Collaboration is possible
and Paul (10) characterize this polarity as two dichoto- with a strong concern for people and results. Aggression,
mous choices in looking at a conflict. They state that when or forcing, results from a focus on results at the expense of
faced with a conflict, we can choose to react either with the relationship building. Avoidance results when a person de-
intent to protect ourselves or with the intent to learn. The termines that an issue is unimportant or the person lacks
choice we make leads to very different outcomes.
The intent to protect themselves leads individuals to
defend their position or behaviors and results in negativ- Figure 13.2 Conflict resolution styles based on task or people
ity and distance between the parties. Approaching conflict concerns (3). doi:10.1128/9781555817282.ch13.f 2
with the intent to learn about the other person’s views, share
your own views, and find a mutually agreeable resolution Accommodation Collaboration
leads to a healthy outcome and collaboration between the
parties. An awareness of whether one is choosing to pro-
tect or to learn is the first step toward change. Suspending Concern
the pattern of defending one’s position, letting go of the
Compromise
for
need to blame, and adopting a willingness to learn will re- People
sult in a positive outcome. Conflict can only be resolved
when both parties are willing to approach a disagreement Avoidance Aggression
with the intent to learn, change, and grow.
Another similar but expansive view of conflict is of-
fered by Kritek (9). She states that in attempting to address Concern for Results
276 MANAGERIAL LEADERSHIP

the skills or drive to address the issues at hand. Accom- satisfied. In a busy work environment, that is not always
modation is the end result of a strong desire to please the possible. Managers need to encourage a deadline, help
parties involved, even if task results are delayed or made the Owl focus on the priorities, brainstorm options, find
subordinate. Compromise results from a middle ground agreement that meets the majority of the priorities, and
with a balance between task results and people, coupled then move on to the next task.
with a strong desire to move ahead. Compromise often The Fox wants to compromise and do so quickly. Man-
sacrifices detail for speed to obtain a “good enough” out- agers can help the Fox put his cards on the table, set a
come for all concerned. deadline to explore options fully, find areas of overlap, get
A humorous method to understanding conflict resolu- agreement, and then move on. Taking time to fully explore
tion styles is to compare the five styles to animals (6), as the options is a key to success with a Fox.
shown below. The Shark is a difficult player to manage. The Shark
needs to be managed in ways that encourage her to see the
The Teddy Bear. People who use this approach to conflict
good of the group, not just her own goals. Winning at any
would rather accommodate your needs than debate,
cost is not effective for the organization. Requiring her to
speak up, or ruffle any feathers with their own views.
engage in a 50% win–50% concession approach can con-
Their approach is “You win—I give in.”
tain the Shark. Put any agreements into writing and have
The Turtle. People who use this approach to conflict would the Shark sign off on the document.
rather avoid conflict altogether. Like the turtle, they
pull into their shells, avoiding, ignoring, stonewalling,
or otherwise escaping the entire issue of conflict.
Creating an Environment Where Conflict
The Owl. People who use this approach to conflict would
Is Addressed and Resolved
rather collaborate and work diligently to resolve a con-
flict no matter how long it takes. The Owl shares ideas The Role of the Manager
and works to bring about a win-win outcome. Those Managers face multiple demands in today’s complex work-
with this approach will not settle for anything less than ing environments. Managing conflict is one of the key skills
total satisfaction for all sides in the conflict. all managers need to master. Unresolved conflicts result in
The Fox. People who use this approach to conflict would the staff becoming discouraged and disillusioned and giving
rather compromise. The Fox likes to engage in mean- up. Problems do not go away when we try to ignore them.
ingful discussion and move quickly to a resolution Training staff on how to recognize and resolve conflicts em-
that both parties can live with. Each party gets some of powers them to manage their own experience at work. Es-
what they need but also makes concessions by giving tablishing an atmosphere of trust and open communication
up something else. is critical to addressing conflict. Conflicts will occur. How-
ever, they can lead to growth and positive change.
The Shark. People who use this approach to conflict force
The job of every manager involves planning, organiz-
others to give in so that the Shark can win. It is a clas-
ing, directing others, and controlling. The ability to man-
sic “kill or be killed” approach, an “I win, you lose”
age conflict runs across each of those skills. Managers who
outcome. Sharks move quickly to vanquish anyone in
plan well will establish an atmosphere of trust and open
their way to get what they want—a win at any cost.
communication in the workplace. Those who train staff to
recognize and resolve conflicts, who direct staff to man-
age conflicts successfully, and who organize opportunities
Working with Each Style To for open and constructive communication will control the
Resolve Conflict successful workings of the workplace and the quality of
The Teddy Bear wants to get to agreement and often goes work life for everyone in the laboratory environment.
along with the group even when he or she does not want
to do so. If you manage a Teddy Bear, get her to state what The Role of the Staff
she really wants and what she is willing to do, and have all It is important to create an atmosphere in the laboratory
parties sign an agreement to preserve the outcome. or office environment where individuals are rewarded for
The Turtle does not like conflict. Managers need to gen- raising issues of conflict that need to be addressed and
tly coach the Turtle out of his shell, point out the benefits resolved. The biggest problems result when people try to
of addressing the conflict, reassure him of his safety, and ignore conflict. It is essential to value and reward staff for
provide lots of reinforcement for him to engage in the con- bringing issues of conflict to the forefront. The key to suc-
flict resolution process. cess is empowering staff members to identify conflicts and
The Owl wants to engage and take as much time as is re- to work as a team to resolve them. Staff members need to
quired to resolve a conflict so that all parties are completely be encouraged to take steps to identify, analyze, and solve
 CHAPTER 13. CONFLICT MANAGEMENT 277

problems at the lowest level possible. Individuals need to A Seven-Step Plan for Resolving Conflict
be given the power and authority to resolve issues on their
There is a seven-step model for resolving conflict that can
own. Managers need to support this process by regularly
be implemented in any organizational setting. It can be
reminding staff to communicate, collaborate, and resolve
used to resolve all types of conflict. The steps are as follows.
problems quickly. The first question a manager or supervi-
sor needs to ask a staff member when she brings a conflict 1. Identify the source of the conflict. What was the source
forward is whether she attempted to resolve the issue at a of the conflict? Is it one major issue? Has there been
lower level. Taking a conflict to a supervisor should occur simmering hostility or frustration over time between
only after individuals have attempted to resolve the con- the parties? Do the parties involved want it resolved?
flict themselves. Can it be resolved? What is the goal of each party?
2. Identify the players. What are the personalities? What is
Creating the Right Environment To Resolve Conflict their history? Did they ever get along? Do you want to
Every member of the staff plays a role in creating the en- keep both people employed? Why? Do they know that?
vironment at work. The culture of the organization either 3. Have participants state their goals. What are the areas
supports resolving conflict or supports ignoring it. In to- of agreement or overlap? Have each person paraphrase
day’s stressful world, conflicts must be recognized and the other’s points. It encourages them to listen to each
resolved quickly for the sake of the staff and the organiza- other and helps avoid a focus on being “right.” Focus
tion. Managers need to have simple models to use to re- on what behaviors are getting in the way of effective
solve conflict. workplace interaction.
4. Explore options. What behaviors need to change? You
A Communication Model To Manage cannot change an attitude, and it is not essential that
you try. What behaviors need to change for the indi-
and Resolve Conflict
viduals to work effectively with one another? Identify
The GGMG Model common goals. What steps need to be taken to change
Psychologist Robert Carkhuff (1) suggests a model for in- those behaviors? Ask the individuals involved to make
terpersonal communication that works well when resolv- suggestions of what they are willing to do to improve
ing conflicts. In most conflicts, each person wants to be their part of the problem.
right and communication skills are seldom practiced. The 5. Pick a solution. After exploring options, select the
give-get-merge-go (GGMG) model allows all parties to ideas that are workable and can be immediately imple-
speak, be heard, and negotiate a mutually agreeable resolu- mented. Focus on behavioral steps and the desired
tion and to implement it. outcome. Make sure the outcome is win-win or at least
a compromise. Set a reasonable time frame for the em-
Give Get Merge Go ployees to implement the solution.
6. Summarize and seek commitment. State the ideas to
During a conflict, two individuals frequently give infor- which all parties have agreed. Hold the individuals ac-
mation and expect the other person to simply implement countable. You may have all the parties sign an agree-
the directive. A common form of this interaction would ment that states what behavioral steps they have
be “I give you instructions—now go follow them.” If the committed to implement. Provide support and re-
person on the receiving end does not want to comply with sources for helping the individuals make the changes
the directive, a conflict results. A battle of wills can ensue they agree to make. Follow up within a day to make
in which each person tries to convince the other to agree sure the parties are implementing the solutions. Follow
with him. No mutual understanding is reached, no merger up on a regular basis with the individuals to ensure
of ideas is achieved, and progress is stymied. that progress continues.
When the entire GGMG model is implemented, this 7. Be open to third-party assistance. I frequently get called
tug-of-war pattern stops. With the GGMG model, all par- in to resolve conflict in the workplace when individu-
ties involved need to share information about what bothers als reach the breaking point, at which point the ongo-
them and what their goals are. This is the “give” and “get” ing conflict can no longer be ignored. While it may
portion of the model. The parties need to listen and pay result in immediate dismissal or intervention in many
attention to what each person wants. In the midst of the workplaces, I have been involved in conflict resolu-
interaction, there is an opportunity to find overlap in their tions that involved employees who threw objects or
goals. This is the “merge” step. Once overlapping goals are used extremely profane comments in open office areas
identified, the parties take steps to reach the newly agreed- directed to another employee. The conflict usually has
upon goals. The “go” piece is the final step that leads to been brewing for quite a long time before help is re-
conflict resolution. quested. If managers and employees were empowered
278 MANAGERIAL LEADERSHIP

and trained to resolve conflict, it would seldom be • Provide training to all new employees as a part of new-
necessary to seek outside help. However, do not be employee orientation programs. Technical skills are
afraid to ask for assistance from an internal human essential, but if individuals cannot resolve conflict, the
resources department if you have one, or from an ex- technical skills can be overshadowed by interpersonal
ternal consultant trained in conflict resolution. troubles.
• Have regular “letting off steam” meetings twice a
month. Structure lunch meetings where problems can
When Conflict Resolution Fails be addressed and resolved. Problems can be submitted
There may be extreme cases when parties fail to resolve anonymously and a team approach to resolving prob-
the conflict. This may be due to employee substance abuse lems can be used.
problems, such as drug or alcohol dependency, or to em- • Encourage staff at all levels to bring up conflicts with
ployees who refuse to comply with the terms of the conflict coworkers and empower them to address them to the
resolution agreement. Alternatively, an employee may not point of resolution.
have the skills and capabilities to succeed on the job. The • Have managers and supervisors at every level serve as
conflict between the job performance levels needed and role models in addressing and resolving conflict.
those demonstrated must be resolved by formal personnel
• Provide ongoing support through the human resources
actions. Internal progressive disciplinary processes need to
department if the organization has one, or outsource
be applied. Progressive disciplinary steps generally include
the role to a consultant to provide training and guid-
an oral warning, a written warning, a final written warn-
ance for resolving conflict.
ing, suspension, and finally termination.
• Provide an employee assistance program for employ-
Key Steps in Resolving Conflict ees experiencing job or life stress to resolve issues that
• Listen actively. contribute to high levels of conflict.
• Level with each other about the real issues. • Provide posters, newsletters, and other visible re-
minders that resolving conflict is important to the
• Address the issues directly; deal with the identified
organization.
problem.
• Focus on identifying, analyzing, and resolving conflicts
• Do not attack.
so that the quality of life at work is the highest it can
• Speak for yourself. be. This enhanced quality of life at work can also serve
• Take responsibility for your role in the problem. to attract and retain the best employees.
• Focus on ways to resolve the problem.
• Stick to the issue. Summary
• Ask for the change that you want; be willing to
Rosabeth Moss Kanter said, “Our future will be shaped
compromise.
by the assumptions we make about who we are and what
• Remember that it is not a zero-sum game. we can be” (reference 8, p. 27). Conflict is inevitable and
should be expected as a normal part of working with oth-
ers. It is problematic only when it goes unresolved. Em-
What the Organization Can Do ployees at all organizational levels are affected by events
Whether you are in a management capacity at a hospital, inside and outside of work that cause stresses. Staff mem-
laboratory, or medical office, managing conflict is a criti- bers may attempt to avoid conflict or may rely on dysfunc-
cal skill for career success. There are several measures that tional patterns for dealing with their differences.
can be taken by the organization to support an environ- Managing conflict is a key component to structuring a
ment where conflict is managed instead of ignored. They successful workplace. Success depends on being able to ac-
include the following. knowledge, manage, and resolve conflict. Managers need
to take the lead in helping staff manage conflict. Staff train-
• Create an organizational culture that supports and en- ing and development along with an organizational climate
courages staff to address conflict and bring it to the that values conflict resolution are keys to healthy conflict
attention of management. Conflict is inevitable. Re- resolution. Open dialogue and creative problem solving are
solving it must be, too, in order for productive and constructive methods to use when dealing with conflict.
meaningful work to occur. The ability to manage and resolve conflict is a universal
• Provide in-service workshops for staff at all levels to skill that crosses all life domains. Recognizing and man-
teach conflict resolution skills. aging conflict is a skill that can be learned. All successful
 CHAPTER 13. CONFLICT MANAGEMENT 279

managers must exercise the skills to identify, analyze, and External sources of conflict Issues and concerns in the envi-
resolve conflict. When conflict is managed and resolved, ronment.
it can be a source of growth for individuals and institu- Give-get-merge-go (GGMG) model A communication model
tions. Ultimately, the success of an organization depends used to resolve conflict.
on how well staff members recognize, understand, and re-
Internal sources of conflict Issues and concerns within the
solve conflict.
individual.
Win-win outcome A resolution that works well for all parties.
KEY POINTS
Zero-sum game When one person wins by making the other
■ Conflict is inevitable but can be healthy for an organiza- person lose.
tion if it is addressed and resolved.
■ Conflict can be constructive or destructive to organiza-
REFERENCES
tions.
1. Carkhuff, R. R. 1983. The Art of Helping, p. 14–27. Human Re-
■ Individuals have conflict resolution styles, and there are source Development Press, Amherst, MA.
pros and cons to each style.
2. Catt, S. E., and D. S. Miller. 1991. Supervision: Working with Peo-
■ Managers and staff members play key roles in identify- ple, p. 398–414. Irwin, Boston, MA.
ing and resolving conflict. 3. Cloke, K., and J. Goldsmith. 2000. Resolving Conflicts at Work,
■ Communication is a key to successful conflict resolution. p. 39–40. Jossey-Bass, San Francisco, CA.
■ There is a seven-step model to use for conflict resolution. 4. DuBrin, A. J. 2000. Fundamentals of Organizational Behavior,
p. 133–159. South-Western, Cincinnati, OH.
■ The organization needs to create a climate and culture
where conflicts are expected and resolved. 5. DuBrin, A. J. 2000. Essentials of Management, p. 390–401.
South-Western, Cincinnati, OH.
6. Egan, J. 2003. Conflict Resolution Workbook. Jean Egan Associ-
GLOSSARY ates, LLC, Suffield, CT.
Conflict A disagreement over the goals or methods to achieve 7. Egan, J. 2007. Managing conflict resolution. LabMedicine
them. 38:145–148.
Conflict resolution The process of identifying, analyzing, and 8. Kanter, R. M. 2007. America the Principled. Crown Publishing
eliminating conflict. Group, New York, NY.
Conflict resolution styles Five approaches to resolving conflict. 9. Kritek, P. B. 1996. Negotiating at an Uneven Table: Developing
Moral Courage in Resolving Our Conflicts, p. 17–19, 71–72, 241–244.
Constructive conflicts Disagreements that are acknowledged Jossey-Bass, San Francisco, CA.
and lead to resolution.
10. Paul, J., and M. Paul. 2002. Do I Have To Give Up Me To Be
Destructive conflicts Disagreements that are not addressed or Loved by You? p. 47–52. Hazeldon Information Education, Center
resolved. City, MN.
280 MANAGERIAL LEADERSHIP

APPENDIX 13.1 Case Studies

Conflict management requires three major steps: Identify, ana- ability to get along with coworkers. The hospital has just installed
lyze, and resolve the conflict. While viable solutions always in- new software for processing orders and returning laboratory re-
clude the option to do nothing or fire the person you perceive is sults. You have tried several times to schedule Jennifer for the
causing the problem, there are better approaches. It is helpful to training to update her skills, but she seems to be making one
consider the following questions to resolve conflict. Apply them excuse after another. You overheard Jennifer telling a coworker
to the case studies. that she was not interested in learning any new software because
it took a long time to learn the system currently in use. You need
1. What is the background to this conflict?
everyone in the department to be up-to-date on the new software
2. What are the major issues that are contributing to the
and procedures for using it. You need to take action as the man-
conflict?
ager of the entire laboratory.
3. How would you identify the conflict in this case?
4. What are possible strategies for managing this conflict?
Pros and cons to consider
5. What could go wrong with your resolution strategy and how
Jennifer is doing her job well with the skills she has. Can you af-
will you handle that problem if it occurs?
ford for her to avoid using the new software? Can you assign the
6. How will your conflict management solution solve the
administrative part of her job to someone else? What message
problem?
will you be sending to Jennifer and others if you do? What do
7. What is your implementation strategy and timetable?
you need Jennifer to understand? What approach do you need
8. How will you know if your solution worked?
to take with Jennifer to get to the goal? What is in it for Jennifer
if she learns the new software? What is the downside of insisting
CASE 1
that she does?
Donna has been working as a laboratory technician for 6 years.
She joined the hospital laboratory 3 months ago. She has good
technical skills and impressive credentials. She seemed a little CASE 3
formal during the interview, but you suspected that it was due to You have just merged your practice with another group and have
nerves. Now that she has been hired, she talks to the older staff in moved your staff into their office. The office staff from the origi-
a way that others have described as “superior” because of her na- nal group seemed friendly enough during the initial stages of the
tional credentials. Most of your staff have some college training, merger, but you note some friction developing. There seem to
but there is a mix of credentials and on-the-job training among be cliques forming between the staff of the two former offices.
laboratory staff. Donna works well alone and often ignores the You had hoped that everyone would just merge their desks and
requests of coworkers to help with the backlog of work in the operating procedures and get along well. Your office manager,
laboratory. She gets her own work assignments done on time and Daniel, is having difficulty adjusting to being under the direction
well, but when she needs to interact with other staff members, of the group office manager. He had systems and processes set
she is abrupt, impatient, and often rude. Several of the other staff up and ran the office efficiently. You do not know if his trouble
members have complained to you to do something about Donna. is the result of the recent changes or caused by now reporting to
You see the value of her technical skills in the laboratory environ- a younger female supervisor, Amanda. Daniel seems to be lining
ment but need to step in to manage the situation. up the old staff to challenge Amanda at every turn. You are busy
with your own issues as a result of the merger and really had
Pros and cons to consider hoped that the staffs would be operating as one big happy family
You want to avoid creating or perpetuating an “Us versus Donna” by this point. You have been ignoring the small disagreements
approach. Both the existing, older staff and Donna have some- that you have witnessed between the two groups of staff mem-
thing to learn about and from each other. Do you want to speak bers but are not sure if more action is needed.
only with Donna or bring everyone together for a meeting, or
both? Do you want to keep Donna on staff? She is within the 90- Pros and cons to consider
day probationary period. If you elect not to keep her, what are the There are micro and macro issues to consider in this case. What
pros and cons of that decision? are the issues as a result of the merger? Who owns the conflict(s)
presented in this case and how do you get them to take owner-
CASE 2 ship? What steps need to be taken to handle the immediate issues
Jennifer is a happy, productive, effective team player. She shows of conflict? What steps need to be taken to address the issues cre-
up for work on time, works overtime if needed, and even asks ated by two different staffs that did not magically merge into one
coworkers if they need assistance. On her last performance ap- unit? How do you handle the issues of power, shared power, and
praisal, she earned high marks for her rate of production and her collaboration instead of competition?
Introduction
Key Concepts of Change
14 Managing Change†
Types of Change Kellie Gibbs
Factors Affecting Change
The Change Curve
Laboratory Change Roles
How To Become an Agent of Change
Why People Resist Change
Fear • Lack of Trust • Comfort • Perception of OBJECTIVES
Need • Lack of Knowledge/Competence • Poor
Communication • Exhaustion/Saturation To define change and understand the concepts and types of change
Forms of Resistance to Change To explain the change curve and help managers deal with the human side of
Steps to Managing Change change
Prepare • Implement • Monitor • Sustain • Reevaluate To instruct the reader on how to become a change agent
Changes that Are Common Today To explore why people resist change
Looking Ahead
To identify the steps needed to manage change effectively
Paradigm Shifts in Today’s Healthcare
Industry To help the reader understand the changes and trends occurring in the
Trends and Changes healthcare arena
Competing in the Future in the To clarify the paradigm shifts occurring in the healthcare arena
Healthcare Arena To discuss survival and winning strategies for workplace changes
Summary To identify the skills needed for the future to succeed in the healthcare arena
KEY POINTS
GLOSSARY
The key to change . . . is to let go of fear.
REFERENCES
Rosanne Cash
APPENDIX

C
hange is inevitable, and as a manager or leader in today’s laboratory,
you are expected to drive and implement change. This involves taking
numerous and various challenges head-on. Change is both a challenge
and an opportunity for growth (4). Laboratory and information technology
is changing rapidly, expectations are higher than ever before, and laboratory
professionals are expected to be electricians and computer experts as well
as specialize in test methodologies. In addition, constant healthcare reform
changes, such as the invention of accountable care organizations, Medicare
payment bundling, and payment incentive programs for improved patient and
quality outcomes, are forcing laboratories to make changes to survive. Labo-
ratories need to focus on cutting costs, providing competitive services, and
decreasing excess and unnecessary laboratory testing. This requires changing
age-old protocols that are ingrained in physician and laboratory practices. As
a laboratory manager, it is imperative to encourage innovative changes and
promote modifications to meet these needs.
Change is the process of becoming something different. It is the transforma-
tion of a process, culture, or people into an alternate form. With the proper guid-
ance and implementation measures, the change or proposed changes will come
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC †
Some sections are revised and updated from chapter 14 by Christopher Frings in the pre-
doi:10.1128/9781555817282.ch14 vious edition of this Manual (reference 2a).

281
282 MANAGERIAL LEADERSHIP

with improvements that make your laboratory a better place functions from one area to another, remodeling or reno-
to work, enhance quality, and improve patient outcomes. vating, installing automation, and acquiring new equip-
Although people have a desire to change and know that ment. Planned changes often require staff training in new
change is needed, they still fear change. Therefore, you will tests and methodologies. Unplanned changes are changes
undoubtedly encounter resistance. Resistance to change that are not anticipated.
will come in various degrees and forms; to deal with this There are three timing levels of change. Each one rep-
resistance, you will need to change your management ap- resents the intensity and the circumstances in which a
proach based on the situation and individuals involved. change is needed. An emergent change is made when a
You must develop the skills needed to encourage and guide pressing or important issue dictates the need. Emergent
staff toward making the changes and even eventually wel- changes are frequently unplanned, and patient safety
coming them. You should learn to utilize the power of per- or quality issues are often dictators of urgent changes.
suasion and fine-tune these skills to be able to cater to an These changes are deemed absolutely necessary to resolve
individual as well as a group. Lastly, learn from your expe- an issue. Opportunity changes often result when, just as
riences and the experiences of others and study the subject stated, an opportunity arises. Opportunity changes can
in order to gear your methods accordingly. be planned or unplanned. Sometimes these changes arise
This chapter covers important questions related to from changes other areas have made, improvements in
change, such as: What is change, and why is it important to equipment, or newly acquired skill sets of individuals. Evo-
manage it? What are the key concepts of change, and how lutionary change is change that just happens over time. It is
does each fit into your workplace or laboratory? What are the gradual adaptation or responsiveness to change; it can
the factors affecting change, and how are people affected be planned but is often unplanned. Competitors are usu-
by the process of change? Why do people resist change? ally doing the same, and it is understood and accepted as
What are the steps to managing change, and how can you common practice. Figure 14.1 demonstrates the relation-
as a manager be an agent of change and help promote con- ships among these key concepts of change.
structive changes in your laboratory?
Types of Change
Key Concepts of Change Change is inevitable in any organization, and in the health-
There is a tremendous amount of discussion pertaining to care arena the speed with which change is occurring is tre-
various theories of change. Some are old and tried, while mendous. Recent healthcare reform policies require that we
some are new and alternative. I have studied the various do more with fewer resources. In order to help you with the
concepts and change models and noted that there are com- implementation of change, you must understand the types
mon themes that run through them. For the purpose of of change and organize your leadership approach to fit the
this text, I have merged and morphed a combination of goal of each type of change. The three types of change are
the various change concepts and models into a condensed transactional, transitional, and transformational (11). Each
version. First, change may be either planned or unplanned. of these types of changes is respectively more complex.
Planned changes are also referred to as anticipated changes Transactional change is also referred to as developmental
and are intended and thought out. They are carefully im- change. Transactional change occurs when an organization
plemented and have usually been studied and examined to makes improvements to stay competitive. It is a continual
ensure a successful outcome. Examples of planned changes process, and it should require little effort to implement this
in the laboratory are transferring laboratory locations or type of change. Transactional change is the most common

Figure 14.1 Key concepts of change.

doi:10.1128/9781555817282.ch14.f1
 CHAPTER 14. MANAGING CHANGE 283

type of change and is usually based on the improvement of Factors Affecting Change
an existing skill, method, performance standard, or condi-
There are three factors that affect a person’s reaction and
tion (1). Transactional changes usually encounter little re-
ability to make a change. The skill, knowledge, and mo-
sistance because most often they are logical adjustments to
tivation of the person involved determine the success or
current operations and strengthen what you already have.
failure of the change. The skill of the individual expected to
One example of transactional change is implementing ad-
implement the change refers to the person’s job specifica-
ditional training to improve a process already in place, e.g.,
tions, selection criteria, performance review, and training
training certified phlebotomists to perform point-of-care
needs. Knowledge refers to the individual’s understanding
testing so as to allow medical technologists and medical
of the mission or strategy of the change. Are they knowl-
laboratory technicians additional time to work on more
edgeable about the processes or procedures, and what is
technical or complex testing.
their personal development? Lastly, motivation plays a
Transitional change is a more complex type of change
significant role. When a person is motivated, he or she
in that it replaces processes or procedures with new con-
tends to make sure that the task is accomplished on time.
cepts and procedures. It is designed to increase efficiency
What motivates each person? Are your people strategically
by replacing an old process with an entirely new one. This
aligned, socially aligned, capability aligned, or empowered
type of change is often referred to as a project implementa-
to make the changes? Refer to Fig. 14.3 to see how these
tion. You may incorporate new products or services and
factors come together to determine the success or failure
establish appropriate start and end dates for the project’s
of a change.
timeline (1). An example of a transitional change is the
implementation of new automation when the previous
process was manual, e.g., implementation of automated
cross-match when all cross-matches were previously per- The Change Curve
formed by hand in the blood bank. The following change curve is a modified version of the
The most complicated and most difficult type of change Kubler-Ross grief curve and consists of four phases (2a, 4).
to achieve is transformational change. It is a shift in the en- This theory describes the process in which people grieve
tire business culture of the organization. This is the most or react to change. While people may move more slowly
complex type of change because it involves the human side or more quickly through change, complete mastery of the
of change and encounters the most resistance. Transforma- change involves transition through each of the four phases,
tional change is exactly what the title states, a total transfor- especially if the individual did not initiate the change. This
mation of the work culture, a different way of thinking, and does not mean that every individual will move through each
a change in culture. It results from a change in strategy and phase in order. Sometimes people move back to a previous
results over a period of time. An example of a transforma- phase or get stuck in one phase. Despite these different pat-
tional change is the merger of two different hospitals or in- terns, however, one must eventually reach the commitment
corporation of a college or medical school into your facility stage in order to perform effectively within the changed or-
to establish an academic medical center. Figure 14.2 shows ganization (4). The more you understand people’s needs,
the process of how the types of change build on each other. the better you will be able to manage change (2).

Figure 14.2 Types of change.

doi:10.1128/9781555817282.ch14.f2
284 MANAGERIAL LEADERSHIP

that you allow for mourning and recovery. Figure 14.4

demonstrates how productivity and morale increase and
decrease as individuals move through the different phases
of the personal change curve over time.

Laboratory Change Roles

When change transpires, it is important to recognize the
different roles encountered within the laboratory setting.
A laboratory administrator’s role is to become the change
agent and lead the change. Managing change isn’t enough;
you have to lead it (5). Laboratory managers and adminis-
trators should cultivate the vision. They must inspire others
to believe that they can change and motivate them to take
action. The laboratory manager or administrator should
Figure 14.3 Factors affecting change. provide mentorship and guide staff to make the change.
doi:10.1128/9781555817282.ch14.f3 Most importantly, a laboratory manager or administrator
should make expectations clear and communicate effec-
tively. A technical supervisor or bench working supervi-
Denial. Employees ignore or do not respond to the infor- sor has the role of being the implementer. As the tactical
mation or awareness of change. It doesn’t sink in right agent, he or she must execute and accomplish the mission.
away that the change is occurring and that it will affect The technical supervisor must enforce the process and ful-
them. A typical response might be, “They can’t be fill the expectations of laboratory or hospital managers or
merging our laboratory with that reference clinical lab- administrators. The technical supervisor should manage
oratory across town.” When in the denial stage, they mistakes as they occur and realign steps to ensure success.
are in withdrawal, tend to focus on the past, and avoid The general laboratory staff have the toughest job of all as
the topic as much as possible. they must change the process while maintaining the qual-
Resistance. Here strong feelings about the change emerge, ity of the present method. They are responsible for uphold-
such as anger, blame, depression, anxiety, uncertainty, ing customer expectations and guaranteeing test results. In
frustration, and self-doubt. Change is frequently addition, the general laboratory staff endure the brunt of
resisted, just because it is change. Often change is re- anxiety and stress, the burden of altering the process, and
sisted because people are fearful of the unknown. the confusion of the execution.
Exploration. During the exploration phase people ac-
knowledge the change and accept that the change is
Figure 14.4 Personal change curve.
necessary (4). They draw upon internal resources and
doi:10.1128/9781555817282.ch14.f4
creativity to figure out new responsibilities and to vi-
sualize our future. This can be an exciting time if they
take on change as a new adventure and a new oppor-
tunity. In this stage they have concern about details,
confusion, new ideas, and lack of focus.
Commitment. At this point people acknowledge that
the change is the norm, are motivated, and are ca-
pable of achieving success. They are able to set new
goals and make plans to reach new goals. Here they
are cooperative, are focused, and feel confident and
in control.
The longer employees stay in the denial and resistance
stages, the harder and more painful the change will be.
Try to get them through the denial and resistance stages
quickly and go on to a commitment to change. Exchang-
ing the familiar for the new, even if it is better, means the
“death” of something familiar. You need to make certain
 CHAPTER 14. MANAGING CHANGE 285

How To Become an Agent of Change

Table 14.1 lists actions you can take to become receptive to
change (2a). When you do these things, you are no longer
part of the problem but are part of the solution.

Why People Resist Change

Why do some people have a tough time adapting to
change? Unfortunately, people dislike things they find dif-
ficult. Becoming knowledgeable about resistance, expect-
ing it, and planning for it from the start will allow you to
effectively manage objections. Managers and employees
who persistently resist change over time create measurable
impacts on a company, including decreased productivity,
negative customer satisfaction, and loss of valued employ-
ees. In some cases, excessive resistance can cause change to
fail (9). It’s not possible to be aware of all sources of resis-
tance to change, but expecting that there will be resistance Figure 14.5 Reasons for resistance.
to change and being prepared to manage it is a proactive doi:10.1128/9781555817282.ch14.f5
step. Recognizing behaviors that indicate possible resis-
tance will raise awareness of the need to address the con-
cerns (Fig. 14.5). new conditions competently, and they will not do well fol-
At the end of the day, all sources of resistance to change lowing the modified process (11, 12).
need to be acknowledged and people’s emotions validated.
It’s far better to anticipate objections than to spend your Lack of Trust
time putting out fires, and knowing how to overcome re- When employees doubt their leaders and question their
sistance to change is a vital part of any change manage- motives, they tend to resist change (3, 10).
ment plan (10).
Comfort
Fear People are creatures of habit and do not like a change in
People often fear the unknown. Employees may simply routine. Many employees feel connected to the old way
resist change because it is unfamiliar. They fear that the or have a personal preference and a certain way of doing
new way will not work, they may not be able to handle the things (3, 10).

Perception of Need
Table 14.1 Actions to become an agent of change a Some employees feel that the old/current way is good or
Get buy-in to create ownership.
is working fine. They may not understand the need for
Involve every level of staff.
change or see any benefits of the change (3, 10).
Speak from your own experiences.
Set a good example.
Lack of Knowledge/Competence
Control the rumor mill. Employees may be concerned that they do not have the
Network with other change agents. skills or knowledge to implement the changes. They may
Don’t be afraid to learn. doubt their ability to handle the change and may feel they
Be mindful of people’s weaknesses. may lose something they once had. They may have to start
Keep up the momentum. over, do not like the idea of being retrained, and feel less
Don’t fight losing battles. competent than they did with the previous way (3).
Learn to refocus rapidly.
Practice good stress management.
Poor Communication
Invent the future instead of trying to redesign the past. Employees may feel that they were not informed or con-
Finish what you start. sulted about the change. They may feel as though their
a
The key to implementing change is to give clear and direct com-
opinion doesn’t matter or that their opinions are insignifi-
munication (8). cant (10).
286 MANAGERIAL LEADERSHIP

Exhaustion/Saturation of each assignment. Are there delays? Can the delays be

Employees may resist change because they are over- overcome to meet the expected completion dates?
whelmed by continuous change (10).
Sustain
Reinforce the change. Ensure that systems do not revert back
Forms of Resistance to Change to the way they were prior to the change. Recognize people
The following are different ways people resist change: (i) the for making the change happen and express your apprecia-
negative view (“It won’t work! We already tried that”), tion by word or deed. Talk about progress every chance you
(ii) apathy and indifference (“I just work here”), (iii) pet get. Tell success stories about the change process, and repeat
project attitude (“Are you criticizing my plan?”), (iv) un- other stories that you hear. Include the change ideals and
conscious dissension (“Whatever the boss says . . . but it values when hiring and training new staff. Publicly recog-
won’t work”), (v) free translation (“We’ll implement my nize key members of your original change coalition, and
variation . . . it’s better anyway”), and (vi) authoritarian ap- make sure the rest of the staff—new and old—appreciate
proach (“You are not to reason why . . .”) (2a). the contributions made by the originators. Create plans to
replace key leaders of change as they move on. This will help
ensure that their legacy is not lost or forgotten (5).
Steps to Managing Change
In today’s constantly changing environment, it is gener- Reevaluate
ally recognized that change is persistent. Effective strategic Perform an assessment of the process, and review and ana-
leaders understand that change in the strategic environ- lyze to see if further changes are necessary. Can the new
ment is a continuous process (7). Applying this theory, one process be improved? Brainstorm for new ideas and ask
must assume that the situation can almost always be im- questions.
proved. To ensure that change is successful and continual, Figure 14.6 demonstrates the cycle of steps needed to
the following steps should be followed in any change man- manage change effectively.
agement scenario.

Prepare Changes that Are Common Today

Prepare for the change by communicating effectively. The following are changes that are common today (2a):
Establish and maintain open lines of communication by change in the name of your professional organization, change
holding regular meetings and becoming as transparent as in the name of your company or business, technology
possible. Make staff aware of the current state, and justify changes, reengineering, merger, acquisition, divestiture,
the importance of the proposed change. Persuade them to layoffs, downsizing, startup of a new company, division
be on board with the changes. Staff is more likely to be or department changes, changes in top management, cul-
receptive when they are informed of the purpose of the ture change (new policies, values, and/or expectations),
change. Knowing the expected positives and negatives deregulation, reorganization, serious new competitors,
associated with the change can help them cope and over- changes in your company benefits, reporting to a different
come their resistance. Motivate the staff to become excited manager or a different reporting structure, and promotion
about the change, and convince them to buy into the proj- to a “higher” position in the organization. Which of these
ect. Design and develop a plan of action and create a sense changes have you already experienced? Are you ready for
of urgency. Utilize global thinking and envision strategic the other changes listed?
partnering, prepare for the unexpected, make a list of
tasks, and set realistic and acceptable milestones.
Looking Ahead
Implement The following are some of the changes you might expect
Execute and coordinate the change by delegating tasks to see in many organizations in the future (2a): more em-
and assigning completion dates. Hold individuals ac- ployee involvement in all levels of decision making; in-
countable for accomplishing the assigned tasks within the creased emphasis on meaningful work; more responsibility
agreed-upon time frames. Ensure that each phase of the for individual employees; fewer managers; a focus on hu-
implementation occurs in the appropriate order to ensure man intellectual capital as demonstrated by an investment
success of the next phase. Make the vision a reality. in training, retraining, and new skill development; an atmo-
sphere that encourages more mutual respect and trust; an
Monitor increase in the protection of employee rights; a continuing
Develop a feedback process, establish key metrics, and re- need for workers with good communication skills; programs
view the process. Circle back and follow up on the status (for example, flextime) that support both work and family;
 CHAPTER 14. MANAGING CHANGE 287

Figure 14.6 Steps for managing

change.
doi:10.1128/9781555817282.ch14.f6

better recognition of and reward for superior performance; already happening. Which changes are you ready for? What
greater diversity in the workplace, with more women and skills do you need to develop to get ready for the others?
minorities; further graying of the workforce; a continu- Trends are rapidly changing, and so are attitudes, expec-
ing need for workers with specialized skills; emergence of tations, and roles. More changes are occurring, and this will
multi-skilled, cross-trained professionals (generalists) with continue for years to come. Due to new healthcare reform
specialized skills; smaller workspace area per employee policies, healthcare professionals are forming more alli-
(smaller cubicles); increased utilization of the Internet and ances with those previously looked upon as competitors.
social media; practice of evidence-based medicine; direct Healthcare professionals are reforming themselves and at-
result reporting to patients; and use of surveillance tools to tempting to collaborate and share resources before manda-
maximize productivity and security and to minimize loss. tory change is imposed. This results in the rate of change
How many have you already noticed in your organization? increasing, while expectations at all levels are rising, there
are fewer managers, and costs (a very important issue) are
being reduced. Most workers are expected to increase their
Paradigm Shifts in Today’s personal productivity and their team’s productivity.
Healthcare Industry Medical care is being managed, which results in re-
Paradigm shifts that are occurring in the healthcare arena duced test volume, cost containment, rightsizing, capitated
are listed in Table 14.2. Many of these are occurring in other reimbursement, reduced reimbursement, and emphasis on
industries. Each industry has its unique set of paradigm appropriateness of laboratory test selection (economic cre-
shifts; however, many share some of the same changes (2a). dentialing). Healthcare professionals must become better
managers of budget, personnel, self, and business. Oppor-
tunities are different, and thus different skills are required.
Trends and Changes Changes are technology driven in addition to cost driven
Expect the expected and the unexpected (2a). Changes you and driven by legislative issues. Our environment is not
can expect in the future in the healthcare industry and many going to change to please us. Some of us are only rearrang-
other industries are discussed in this section. Many are ing the chairs on the deck of the Titanic!
288 MANAGERIAL LEADERSHIP

Table 14.2 Paradigm shift in today’s healthcare industry remedies, fueled mostly by aging baby boomers’ openness
From To to new concepts. This will not be a threat to conventional
Activity orientation Outcome orientation medicine but will be a complement to traditional medicine.
Task focus Customer focus Moore’s (Gordon Moore) law says that the number of
Illness care Health maintenance and outcomes components that can be packed on a computer chip dou-
management bles every 2 years while the price remains the same. This
Fragmented services Integrated care law has amazingly held true for more than half a century.
Competition based on price Competition based on quality This means that computer power per dollar doubles every
Competition Partnerships 24 months. Moore’s law will probably not hold true forever.
Revenue Cost The lesson to be learned from this is that personal comput-
Economics of scale Economics of coordination ers become obsolete about every 3 years due to improved
Fee for service Managed care computer technology.
Revenue from services Revenue from covered lives
Downsizing Rightsizing
Competing in the Future in the
Department focus Interdisciplinary focus
Healthcare Arena
Turf protective values Group protective values
Individuals and groups Teams committed to common Table 14.3 lists things you can do to become a master of
missions change and improve your destiny in the healthcare arena
Individual Teamwork and in other arenas (2a). Build the skills you’ll need for
Low trust and guardedness High trust and openness the future, listed in Table 14.4, to stay competitive and
Manager Leader strengthen your abilities.
Boss Mentor, facilitator, or coach Suggestion: When you are resisting change, use a rub-
Controlling others Empowering others ber band to snap out of it! Some people wear a rubber
Fixing the blame Fixing the problem band around their wrists as a self-motivator. When they
Quality control Continuous quality improvement are resisting change, they snap out of it by snapping the
Quality assurance Service excellence rubber band. The snap of the rubber band serves as a self-
New technology Appropriate technology motivator to remind them to take action toward getting
Resisting change Viewing change as an opportunity
Reacting to change Initiating change Table 14.3 Actions for becoming a master of change
Get involved.
Become different.
There will be an unprecedented demand for “alterna- Be part of the solution, not part of the problem.
tive” therapies; this reflects a trend from institutional- Demonstrate your worth.
ized managed care to self-managed care. More and more Develop positive relationships.
consumers will turn to alternative therapies, such as bio- Expect and get ready for the expected.
feedback, herbs, prayer, and chiropractic, whose holistic Expect and get ready for the unexpected.
approaches often seem more natural and less intimidat- Lead the technology revolution.
ing. In 2007, adults in the United States spent $33.9 billion Keep a positive mental attitude.
out of pocket on visits to complementary and alternative Make managing change part of your job description.
medicine (CAM) practitioners and purchases of CAM Be tolerant of management mistakes.
products, classes, and materials. Nearly two-thirds of the Keep (or develop) a sense of humor. Humor is healing.
total of these out-of-pocket costs were for self-care pur- Don’t let your strengths turn into weaknesses. Refocus rapidly.
chases of CAM products, classes, and materials ($22.0 bil- Practice effective stress management. Worry is a misuse of
lion), compared with about one-third spent on practitioner imagination.
visits ($11.9 billion). Despite this emphasis on self-care Support upper management.
therapies, 38.1 million adults made an estimated 354.2 mil- Initiate or join cross-functional teams.
lion visits to practitioners of CAM. About three-quarters Invent the future rather than trying to reinvent the past.
of visits to CAM practitioners and of total out-of-pocket Look 3 to 5 years into the future.
expenditures on CAM practitioners were associated with Shape the future of your industry.
manipulative and body-based therapies. A total of 44% of Don’t constantly react to each new competitive threat as it comes. Be
all out-of-pocket expenditures for CAM, or about $14.8 proactive, not just reactive.
billion, was for the purchase of nonvitamin, nonmineral, Anticipate the evolution of the healthcare industry and build capabili-
ties now to win in the future.
natural products (6). Demand will accelerate for alternative
 CHAPTER 14. MANAGING CHANGE 289

Table 14.4 Skills needed for the future variation . . . it’s better anyway”), and (vi) authoritarian
Financial management approach (“You are not to reason why . . .”).
Cost analysis ■ We all go through the following four stages in respond-
Budgeting
Return on investment ing to change, whether it is a major or a minor change:
Break-even analysis (i) denial, (ii) resistance, (iii) exploration, and (iv) com-
Outcome assessment and analysis mitment to change.
Continuous quality improvement ■ The steps to managing change are (i) prepare, (ii) im-
Resource management and utilization allocation plement, (iii) monitor, (iv) sustain, and (v) reevaluate.
Personnel
Materials
■ Track trends by identifying major new trends that affect
Self-management and personal development
your workplace and its environment.
Setting and reaching goals
Time management
GLOSSARY
Change management
Stress management Change The process of becoming something different.
Team building Paradigm shift A change from one way of doing things to an-
Negotiation skills
other; often encompasses a change in an entire concept, model,
Presentation skills
or standard.
Informatics
Systems Resistance to change A force active in groups and individuals
Reporting that limits the amount of change that occurs.
Telecommunications
Risk assessment and management
Knowledge of regulatory and legal issues REFERENCES
1. Anderson, D., and L. A. Ackerman. 2001. Beyond Change Man-
agement. Jossey-Bass/Pfeiffer, San Francisco, CA. www.scribd.com/
doc/49570467/4 (last accessed March 28, 2012).
out of the denial and resistance stages so they can make the 2. Chapman, A. 2012. Change management: organizational and
change happen in a positive way. personal change management, process, plans, change management
and business development tips. www.businessballs.com/change
management.htm (last accessed April 18, 2012).
Summary 2a. Frings, C. 2004. Managing change, p. 267–273. In L. S. Garcia
It is important to familiarize yourself with the process of (ed.), Clinical Laboratory Management. ASM Press, Washington, DC.
change. Knowing the reasons for resistance and how to 3. Hajek, J. 2010. 8 reasons people resist change. Velaction Continu-
deal with the different forms of resistance will make you a ous Improvement. February 10, 2010. www.velaction.com/8-reasons
better manager and a master of change. -people-resist-change/ (last accessed April 18, 2012).
4. Jaffe, D. T., and C. D. Scott. 2012. Mastering the Change Curve,
KEY POINTS 2nd ed. http://store.teambuildinginc.com/images/Theoretical%20
Backgrounds/Mastering-Change-Curve-Theory.pdf (last accessed
■ Change can be intentional or not, i.e., (i) planned or
April 18, 2012).
(ii) unplanned.
5. Mind Tools. 2012. Kotter’s 8-Step change model: implementing
■ The three timing levels of change are (i) emergent, (ii) change powerfully and successfully. www.mindtools.com/pages/
opportunity, and (iii) evolutionary. article/newPPM_82.htm (last accessed April 18, 2012).
■ The three types of change are (i) transactional, (ii) tran- 6. Nahin, R. L., P. M. Barnes, B. J. Stussman, and B. Bloom. 2009.
sitional, and (iii) transformational. Costs of complementary and alternative medicine (CAM) and fre-
quency of visits to CAM practitioners: United States, 2007. National
■ The reasons we resist change are (i) fear, (ii) lack of trust,
health statistics reports, no. 18. National Center for Health Statistics,
(iii) comfort, (iv) perception of need, (v) lack of knowl- Hyattsville, MD. www.cdc.gov/nchs/data/nhsr/nhsr018.pdf (last ac-
edge/competence, (vi) poor communication, and (vii) cessed June 6, 2012).
exhaustion/saturation.
7. National Defense University. Vision and the management of
■ The different ways people resist change include (i) the change. In National Defense University, Strategic Leadership and De-
negative view (“It won’t work! We already tried that”), cision Making. Industrial College of the Armed Forces. www.au.af
(ii) apathy and indifference (“I just work here”), (iii) pet .mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch19.html (last accessed
project attitude (“Are you criticizing my plan?”), (iv) un- April 18, 2012).
conscious dissension (“Whatever the boss says . . . but it 8. Nigon, D. L.  2000. Clinical Laboratory Management, p. 293–307.
won’t work”), (v) free translation (“We’ll implement my McGraw-Hill, New York, NY.
290 MANAGERIAL LEADERSHIP

9. Prosci. 2004. Understanding resistance—Prosci’s Flight and Risk 11. Tucker, J. 2007. Types of change. Suite 101 Media. August 12,
Model. www.change-management.com/tutorial-flight-risk.htm (last 2007. http://jantucker.suite101.com/types-of-change-a28594 (last
accessed April 11, 2012). accessed March 27, 2012).
10. Rick, T. 2011. 12 reasons why people resist change. May 23,
2011. www.torbenrick.eu/blog/change-management/12-reasons- 12. Wilkinson, I.  1998. Managing ME Incorporated, p. 23–28. Clini-
why-people-resist-change/ (last accessed April 18, 2012). cal Laboratory Management Association, Wayne, PA.
 CHAPTER 14. MANAGING CHANGE 291

APPENDIX 14.1 Case Studies of How To Overcome Resistance to Change

One example is given below for each change situation. These ex- Example: The hospital chief executive officer, chief operating of-
amples are not meant as the best or only way to deal with the situa- ficer, and laboratory director have decided to offer point-of-care
tion. The examples are included to give you one way to handle each (POC) testing in the hospital effective in 2 weeks. One labora-
change situation. (From reference 2a.) torian will have to act as a troubleshooter, problem solver, and
quality control and quality assurance coordinator for the nurses
CHANGE SITUATION A who are performing the POC testing under the central labora-
Situation: Employees do not understand or have little or inac- tory’s Clinical Laboratory Improvement Amendments license.
curate information about the problem. This position will be rotated weekly among four laboratorians.
Response: Provide in advance as much information as possible Several of the laboratorians are upset about the change because
about the change and why you are making the change. they will not be able to have the same days off as before. After
Example: A new branch reference laboratory located 61 miles hearing complaints, the laboratory director called the four labo-
from the central laboratory was opened. Initially the laboratory ratorians together and stated that the decision has already been
was open from 8:00 a.m. until 5:30 p.m. Some of the labora- made and that it will take place in 2 weeks.
torians worked from 8:00 a.m. to 5:00 p.m., and some worked
from 8:30 a.m. to 5:30 p.m. The laboratory has been open for 6 CHANGE SITUATION D
months; the flow of work has changed due to new clients, and Situation: Someone will clearly lose out in the change, and they
there is a need for the laboratory to be open until 6:30 p.m. There have lots of resisting power.
is a need for only one laboratorian to arrive at 8:00 a.m. The work Response: Negotiate for a win-win situation.
schedule must be changed to meet the needs of the physicians Example: Organizational changes are necessary due to the
and their patients. The laboratory manager meets with all of the merger of two large reference laboratories to form one central
employees as soon as possible after the decision is made. He in- laboratory. There were two laboratory managers (Jim Bob and
forms everyone that the working hours must be changed to meet Georgia Lou), and now only one laboratory manager is needed.
the needs of the clients and gives specific information. He gives Both laboratory managers have been productive, key employees
everyone a 30-day notice of the change in hours to allow affected with positive attitudes and great team-building skills. The chief
employees time to make appropriate transportation and child operating officer talks to Jim Bob and Georgia Lou together and
care arrangements. separately. He lets both laboratory managers know how impor-
tant they are to the newly combined reference laboratory. Geor-
CHANGE SITUATION B gia Lou is given the new laboratory manager position. Jim Bob is
Situation: You do not have all of the information needed to im- given the job of coordinating laboratory operations between all
plement the change, and others have considerable power to resist. six satellite laboratories and the central laboratory. Each is given
Response: Allow the people who will be affected by the change to a 6% raise effective immediately to let them know that the reor-
participate in the decision as to what needs to be done and how ganization is not a demotion for either person. This results in a
to implement the change. This could be a great team-building win-win situation for everyone.
opportunity.
Example: An HMO recently purchased two hospitals in the CHANGE SITUATION E
medical center of a large metropolitan area. The chief executive Situation: People resist change because they are unconvinced by
officer and chief operating officer of the HMO don’t want to du- the change.
plicate nonessential laboratory services. There is a lot of talk and Response: Help them adjust by making the change as easy and as
rumors as to when and how the duplicate services will be elimi- comfortable as possible.
nated. You appoint a team with a team leader that consists of two Example: Refer to the example in change situation C above. One
individuals from each lab, an assistant administrator from each of the laboratorians is extremely upset by the change because it will
hospital, and the medical director of both hospitals to work out cause hardships for her and her son. By changing her day off she will
the details during the next 14 days. They are to present a written have a problem getting her son with cystic fibrosis to the clinic each
and oral proposal of how to implement the change. Wednesday for therapy. The lab manager explains the situation and
repeats that POC testing is needed and the nurses will do some of
CHANGE SITUATION C the test volume previously performed in the laboratory. The labora-
Situation: Speed is essential, and you have considerable power to torian states that her parents will be moving to this city in 2 months
enforce your ideas. and will be able to take her son to the clinic on Wednesdays. The lab
Response: Announce the change and enforce the change with manager makes an exception and will give this employee 2 months
authority, certainty, and firmness. to make the adjustment due to the special situation.
Personnel Management
III
(section editor: John C. H. Steele, Jr.)
15 Employee Selection
Anthony S. Kurec
16 Performance Appraisals and Competency Assessment
Kari Jones
17 Staffing and Scheduling
Patti Medvescek
18 Teams, Team Process, and Team Building
James W. Bishop, K. Dow Scott, Stephanie Maynard-Patrick, and
Lei Wang
19 Labor Relations
Lynne S. Garcia
20 Workplace Drug Testing and the Clinical Laboratory
Jimmy R. Lea
 15
Introduction Employee Selection
Diversity in the Workplace
Criterion-Based Job Description Anthony S. Kurec
Requirements
Job Description Review • Minimal Personnel
Requirements
Search Process
Search Committee • Advertising
Interview Process
Screening Résumés • Interview Formats • Interview OBJECTIVES
Questions • Interview “Do’s and Don’ts”
To describe the differences in attitudes attributable to generational groups
Hiring Process
Orientation
To discuss the desirable elements of a criterion-based job description
Documentation To describe how to establish a search committee
Retention To list, then critique, various approaches to the interview process
Resignation and Termination To give examples of appropriate and inappropriate interview questions
Progressive Discipline To describe the ideal orientation process
Summary To address potentially useful retention techniques available to managers
KEY POINTS To describe the steps of progressive discipline
GLOSSARY
REFERENCES
APPENDIX Good training will not fix a bad selection.
D. Mass (21)

L
aboratory personnel have experienced significant changes over
the past few decades in how they are managed. Management styles have
evolved over the years based on existing environmental, governmental,
and cultural trends. The function of the clinical laboratory is to ensure good
patient care by providing quality laboratory services in an efficient and cost-
effective way. Through these conscientious efforts, it is now well established
that an estimated 70% of all medical decision making by primary-care provid-
ers is based on laboratory results (27). The need for an adequate number of
trained laboratory personnel has been, and continues to be, a concern. Over
the past several decades, many training programs have closed, with a con-
comitant reduction in the number of graduates. Through a concerted effort by
numerous professional organizations and participating laboratories, this issue
has been actively addressed and partially resolved. Vacancy rates that were as
high as 20% a few years ago have decreased to 12% or less in most areas of the
laboratory (9, 30). Due to a large number of baby boomers entering retirement
in conjunction with the modest number of graduating students, predictions
by the Bureau of Labor Statistics (4) show a 14% increase in the number of
laboratory personnel needed over the next few years.
Related to issues dealing with retirement-age individuals, the U.S. Census Bu-
reau predicts that the number of individuals over the age of 65 will double over
the next few decades (11). As the largest segment of the population, they will
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia place a greater demand on the healthcare system, ultimately requiring a greater
©2014 ASM Press, Washington, DC number of healthcare employees. For many of the upcoming new graduates,
doi:10.1128/9781555817282.ch15 data gathering, analysis, test result monitoring, and information dispersal will

295
296 PERSONNEL MANAGEMENT

be the their main focus. Further, as molecular-based testing Table 15.1 Age-related differencesa
increases, it is clear that managers will need the best and Age group Characteristics
brightest to meet the challenges of these advanced tech- Traditionalists Work first, loyal to employer, work hard, save
nologies. To attract and keep these key people, a collective money, like chain-of-command, exercise if
effort between employer and employee will be required, so forced to, community service (e.g., Masonic
both reap the benefits of this relationship. Lodge, Knights of Columbus, Kiwanis Clubs,
VFWs), quality first, must vote, motivated by
money and responsibility
Diversity in the Workplace Boomers Work first, care about what others think, work
If human nature were predictable, there would be no need hard, play hard, spend hard, family and friends
for human resource management. However, with today’s first, some exercise is good, community service
globalized world and the confluence of diversity within the and vote if convenient, want even more money
and recognition, loyal to self
workforce, leaders, through learned or innate skills, must
take charge in identifying and selecting those individuals Generation X Driven somewhat by money but also by prin-
who can best accomplish these complex tasks. For today’s ciple, work hard, play hard, worry about money,
manager, understanding diversity based on race, gender, exercise is a duty, the “Gap” generation, look for
ethnicity, language, culture, age, and social, psychological, bonuses and stock options
or personal attributes is critical when hiring and managing Generation Y Principled/satisfaction, don’t care what oth-
new employees (5). Stereotyping, based on the “not like me ers think, prefer to work alone, individual
syndrome,” can lead to a stifled and cloned workforce (21). first, exercise for mental health, will vote but
Judging a potential new employee without considering privately, friends are like family, wants time off,
other personal characteristics (in addition to technical- concerned about own goals
and/or knowledge-based skills) can result in not selecting Millennials Lifestyle first, like small groups, state-of-the-art,
the right person for the job (6, 19). individual first, live with parents, community
For most of the 20th century, and now in the 21st cen- service is punishment, Abercrombie’s genera-
tury, various cultural attitudes have influenced the manage- tion, want time off, portable skills, company
ment of the workforce and have in part been identified by loyalty is minimal, self-employment is best
a
generational differences. There are five commonly recog- From reference 12.
nized age-based groups of workers that have been identified
loosely based on their birth year, each with characteristics
to learn about and understand some of the fundamental
that appear to be common to that group (10, 12). They are
differences encountered when interviewing candidates
the Traditionalists (1934 to 1945), the Baby Boomers (1946
that present as “different.” This does not mean that manag-
to 1960), Generation X (1961 to 1980), Generation Y (1981
ers should “profile” individuals based on specific charac-
to 2000), and the Millennials (born after 2000) (1, 19). While
teristics, but they should raise their level of sensitivity in
the Millennials’ work ethic and characteristics are still in
recognizing the uniqueness of those individuals. Hiring de-
development, specific identities for each stage are reflected
cisions must be based on education, skills, experience, and
through each group’s lifestyle, social activities, and motiva-
personal traits that would seem most compatible with the
tional characteristics. Managers must be aware of these dif-
existing laboratory environment—a person that would be
ferences to ensure that they are not unduly influenced in the
a “good fit.” Table 15.2 identifies four cultural dimensions
selection process. Listed in Table 15.1 are some character-
that may be helpful in appreciating some of these differ-
istics that have been identified for each generational work
ences. Be aware that these differences may be the basis of
group. While many are unique to an age group, some over-
how an individual responds to interview questions or situa-
lap and are not an absolute in describing each group (20).
tions; thus, it is important to recognize what is actually said.
There is a considerable range of other cultural and eth-
nic differences that managers must also consider when
hiring new employees (13, 15). Modern technologies have Criterion-Based Job Description
enhanced opportunities to identify a wider pool of poten- Requirements
tial applicants, thus requiring a process that allows for the A criterion-based job description offers a clear and com-
selection of the best-qualified individual in a fair and con- plete format that addresses the expectations for both
sistent manner. Lost opportunities for both employer and the employer and the employee. A typical format for a
employee may occur if cultural, ethnic, and gender-related criterion-based job description might include the infor-
traits are not appreciated or are misunderstood. A manager mation presented in Table 15.3 (16). It should be based on
may inadvertently miss an opportunity that would other- legal regulations, certification needs, educational essen-
wise capture an excellent employee by not taking the time tials, critical tasks related to the job, and work environment
 CHAPTER 15. EMPLOYEE SELECTION 297

Table 15.2 Cultural differences: four dimensions of cultural values and some examplesa
Dimension Definition High Low
Power distance Power distance addresses the distribution of power. A culture that Mexico, Arab countries, Austria, Sweden,
reflects a low power distance views power as being distributed Indonesia, India England, United States,
rather equally. Cultures with a high power distance define the Australia
workplace as “the haves” and the “have-nots,” where there is a clear
distinction between employer and staff.

Individualism- Individualism is found in those social structures that promote the United States, Australia, Columbia, Indonesia,
collectivism individual and encourage people to take care of themselves and England, Canada, The Pakistan, Taiwan, Korea
their immediate families. Collectivism focuses on the extended Netherlands
family and loyalty to that clan. The clan will take care of the
individual.

Masculinity- Cultures that rank high are aggressive, competitive, and focused on Japan, Mexico, Jamaica, Sweden, The Nether-
femininity material things. “Machismo” is a common characteristic. A culture England lands, Thailand, Korea,
that ranks low tends to be more nurturing and focuses on the qual- Taiwan
ity of life. One works in order to live.

Uncertainty This is a more intuitive dimension of social behavior. It reflects Greece, Japan, Argentina, Singapore, Jamaica,
avoidance how a culture generally reacts in unstructured, ambiguous situ- Korea, Mexico Hong Kong, Sweden,
ations. Those ranked low are more tolerant of differing opinions. England
Those ranked high tend to be more structured so as to avoid the
uncertainty.
a
From references 14 and 15.

needs (24). Within the job description, each job duty may Table 15.3 Criterion-based job description
be classified as a basic core task, an advanced technical Element of
skill, or a supervisory responsibility. Certain criteria useful description Information to include
in establishing these tasks are found in Table 15.4. Departmental job title Official payroll title of job offered
There are five key sections common to most job Minimum Education, license or certification, skills/
descriptions: requirements training, minimum number of years of
experience
• Job title General duties May include safety, confidentiality, cus-
• Minimum qualifications and desired worker skills tomer service, and/or time and attendance
responsibilities
• Job duties Technical duties Technical duties specific to the job title
• Responsibilities and accountability Administrative duties Accountability: Does this position require
• Job relationships direct supervision, work under general su-
pervision, or provide direct supervision?
Job titles should be consistent throughout the labora- Fiduciary: Does this position require an
individual to interpret existing policies,
tory with consideration of local and national nomencla-
implement policies, or develop policies?
ture that may be used in describing laboratory job titles.
Teaching duties Does this position require teaching of
Inconsistency in title usage can result in confusion for staff, students, or the public?
both laboratory and hospital staff. Only minimum quali- Research duties Does this job require research activities
fications (education, experience, etc.) should be listed in such as research and development of new
the job description to avoid inadvertent elimination of an techniques, instrumentation, etc.? Will
otherwise good candidate. A second section can be added the incumbent have to provide on-the-job
that reflects other desired worker or personal traits, such training of staff?
as “graduate degree preferred,” “supervisory experience Professional What are the regulatory requirements for
development professional development and continuing
strongly considered,” “must have a proven track record of education?
good attendance,” and “demonstrates honesty and reliabil- Organizational How does this position fit into the
ity.” Because a new employee is an unknown, documenta- departmental or institutional table of
tion by way of the job description and by including these organization?
latter characteristics may play an important role in any po- Direct reports: To whom or to which
tential disciplinary issues that may arise. Hiring a qualified position(s) does the incumbent report?
candidate starts with establishing the right criteria needed Which positions report to the incumbent?
298 PERSONNEL MANAGEMENT

Table 15.4 Job description criteria Job Description Review

Criteria Attributes As part of the needs assessment, a criterion-based job de-
Regulatory State or federal laws mandate qualifications scription should be reviewed for accuracy to ensure that
and may require licensure of some labora- job duties listed are based on established policies and
tory personnel. Often denotes specific scope procedures (criteria) and are still relevant to laboratory
of practice
operations. This is a critical step because this document
Certification Voluntary action that declares that the
serves as an informal “contract” between the employee
individual has passed an accredited exami-
nation indicating that they possess at least and management by setting the job expectations for both
entry-level knowledge of the job employee and employer. Criterion-based job descriptions
Education Educational requirements related to aca- need to include balanced detail. Those that are too brief
demic degrees and/or specific course work in definition may invite applicants who are not qualified,
Training On-the-job training that is directly related thus unnecessarily adding to recruitment efforts. Con-
to the position versely, requirements that are too detailed or restrictive
Experience The number of years of experience that is may discourage good candidates from submitting their
preferred and/or required applications. Whether creating a new or revamping an
Physical demands Any specific physical requirements (such as existing criterion-based job description, consider recent
color recognition, standing, walking, etc.)
related to the job changes to the laboratory environment. Financial con-
Skills, abilities, Special individual skills such as speaking a
straints have forced some laboratories to downsize, com-
knowledge base second language, writing skills, communi- bine sections into core facilities, merge multiple hospital
cation or presentation skills laboratories into one, and outsource a greater number of
Work environment Where the major amount of work is to be laboratory tests. These changes have resulted in adding
performed (clinical lab, nursing home, sat- or eliminating certain duties, creating the need to adjust
ellite labs, home draws, etc.) staffing accordingly.

Minimal Personnel Requirements

to meet the goals of the organization. Finding the “right For the laboratory, minimum personnel requirements
fit” based on education, specific technical skills, and experi- are addressed in the Clinical Laboratory Improvement
ence is critical. Of equal importance is identifying appro- Amendments of 1988 (CLIA ’88) (8). These requirements
priate personality traits that are conducive to being a team have reduced numerous laboratory titles to the following,
player. These traits, such as honesty, initiative, ethics, loyalty, which are described in detail elsewhere: director, technical
and attitude, are subjective and are not easily quantifiable consultant, clinical consultant, technical or general super-
or tangible. While there is no one scheme available to select visor, testing personnel, and cytotechnologist (24). In ad-
the perfect employee, there are some guidelines that might dition, a number of states mandate licensure of laboratory
assist in maximizing the chance of making the right choice. personnel, adding another level of personnel requirements.
A needs assessment should be completed when a vacancy In states without licensure, many laboratories require cer-
is first encountered. A position questionnaire might be con- tification through a professional agency such as the Board
sidered to provide an objective review to determine if the of Certification, American Society for Clinical Pathology
position is still necessary. This form can be customized ac- (ASCP). By definition, individuals that are certified have
cording to laboratory/hospital needs but in general should demonstrated that they have met the educational require-
consist of certain key questions that help identify the exact ments and possess the minimum level of knowledge in
duties, the complexity, and the minimum qualifications their specified area of laboratory science.
that are required. It should show where this position falls Specific job duties must be identified to ensure that the
within the organizational table; what supervision level is re- incumbent understands what he or she is to do. Overly de-
quired; the level of responsibility for hiring, firing, assign- tailed descriptions can lock a manager into an unwanted po-
ing work, and setting budgets; and whether this position sition when staffing needs have to be flexible. An employee
includes establishing departmental policy. Benchmarking is claiming, “That’s not in my job description” is something a
a standard practice in most laboratories (28, 29), and thus manager does not want to hear. However, incorporating a
the use of workload statistics, estimated revenue, a cost- general statement covering “other duties as assigned” is of-
benefit analysis, and any other relevant projections should ten discouraged by human resources professionals. For ex-
be included. Ask questions such as “Do I still need this po- ample, assigning nontechnical duties to a clinical laboratory
sition?” “Can existing staff absorb these duties?” “Could a scientist as punishment for poor job performance (such as
part-time person handle these duties?” “Should these tests washing glassware, mopping floors, or trash removal) may
be outsourced?” An honest needs assessment is important be considered working out of title and possibly discrimi-
to determine if the vacancy needs to be refilled. This due natory. Similarly, informing secretaries that their job now
diligence also speaks to your responsibility as a manager. includes performing phlebotomies can also lead to formal
 CHAPTER 15. EMPLOYEE SELECTION 299

complaints. If the disgruntled employee tenders his or her Table 15.5 Equal opportunity employment regulations
resignation as a result of this type of practice, legal action Legal standard Purpose
could be taken. Therefore, a balance in detail and flex- Civil Rights Act of 1964 Prohibits discrimination based on
ibility must be considered when revamping or creating a (amended 1972 and 1991) color, race, religion, gender, or na-
new criterion-based job description. Other attributes to tional origin; established EEOC
be noted include levels of responsibility and accountabil-
ity, thus letting incumbents know where they stand in the Age Discrimination in Em- Prohibits employment discrimina-
ployment Act of 1967 tion based on age
decision-making process. It is useful to list job relationships
so the incumbents clearly know the laboratory’s hierarchy Equal Pay Act of 1963 Prohibits discrimination in com-
and what other internal/external relationships must be es- pensation based on gender
tablished. With each new hire, the experience gained by a
manager in an employee selection process is cumulative Vocational Rehabilitation Prohibits discrimination in employ-
Act of 1973 ment based on physical or mental
and can be applied to future hiring practices. disability

Guidelines on Sexual Ha- Defines sexual harassment and

Search Process rassment (1980) establishes standards
Search Committee
Americans with Disabilities Prevents discrimination on the
The search process can be simple or complex depending Act of 1990 basis of a disability
on the level of the position. For entry-level positions, the
interview process need only involve the supervisor and
manager. When hiring at the supervisory level or above, or certification requirements, and a brief summary of
it is advisable to assemble a formal search committee con- the main job responsibilities. The advertisement should
sisting of an appropriate mix of individuals. While the contain only the minimum qualifications. Avoid using
committee should remain small (five to seven people), “preferred” qualifications as requirements, as that may
the mix should reflect the desired diversity of the de- eliminate some good candidates. The salary range should
partment. Consider including a pathologist, a supervisor not be stated, as it might deter good candidates from ap-
from another section, and/or a staff person. By adding a plying or encourage less qualified candidates. It may also
front line staff member to the group, subtle nuances of create internal conflicts with existing employees, especially
the job may be made evident. This also creates a sense of if the salary advertised is higher than for current equiva-
contributing to the workforce and offers training oppor- lent employees or is perceived as inappropriate for that po-
tunities for individuals who want to learn interviewing sition level. (Salary ranges may be discussed as part of the
skills. Also consider an appropriate gender, ethnic, race, interview process, but they are often best addressed as part
and age mix of the committee to eliminate any perceived of the final negotiations.)
bias in selecting the candidate (32). This is consistent Consider also where to advertise. Seeking both in-
with affirmative action and equal opportunity guidelines ternal and external candidates provides the largest pool
and protects the employer from situations where the se- from which to select and should be used whenever pos-
lection process might be questioned. If a committee is sible. However, there may be times when union contracts,
not formed, ensure that at least two individuals review financial limitations, or institutional practices prevent
résumés, interview candidates, and provide some level of such a wide search. Internal postings only can offer some
input to the final decision. advantages, such as portraying the opportunity for inter-
It is important to have a written policy that prevents nal advancement, greatly reducing the learning curve for
discrimination in the workplace and provides guidance in the new employee and the recruitment time, and mini-
appropriate hiring practices. Table 15.5 lists a few regula- mizing recruitment costs (no travel/hotel expenses, min-
tions that were designed to prevent discriminatory hiring imal advertising expenses, and possibly a salary less than
practices based on gender, age, race, religion, sexual ori- that commanded by an external candidate). Conversely,
entation, or other non-work-related characteristics. They the disadvantages of hiring from within are the lost op-
were created to provide oversight, with severe penalties for portunity to bring in “new blood,” loss of potential in-
those who violate them (33). novation and leadership skills, internal competition for
the position resulting in poor morale, a time-consuming
Advertising process (may take weeks or months to fill position), in-
An employer must make a reasonable effort to ensure that creased recruitment costs, and creation of a “vacancy
there are equal opportunities for all qualified candidates chain reaction” by sequentially moving people from one
to become aware of the open position. The advertise- position to the next.
ment should be concise, stating the job title, the mini- If you have access to potentially good internal can-
mum educational requirements, any applicable licensure didates, a limited search could be completed, thereby
300 PERSONNEL MANAGEMENT

reducing the time to hire for that position and related educated, or otherwise less than acceptable candidate.
costs often incurred with an outside search. The place- Consider the following:
ment of an advertisement in the classified section of the
• Informal writing, inappropriate use of abbreviations,
local newspaper is relatively inexpensive compared to
colloquialisms. These suggest a less than professional
posting one in national magazines and often leads to a
applicant.
quicker response. Almost all hospitals support their own
website that includes a job opportunity section. Many, if • Handwritten or photocopied résumé. Shows that the
not most, will now only accept electronic submission of candidate really doesn’t care about this job.
resumes and applications, thus further reducing adver- • Appearance. The résumé should be professional look-
tising costs and recruitment time. Job seekers frequently ing, on quality stock white paper, and not too lengthy
use the Internet by visiting professional associations’ (two pages or less). Use of different fonts, inconsistent
websites, such as the American Society for Clinical Pa- font size, or inappropriate bolding, underlining, capi-
thology (www.ascp.org) or the Clinical Laboratory Man- tals, or italics are distracting and slow down review of
agement Association (www.clma.org), in addition to the résumé.
general employment websites (www.monster.com). Also • Colored paper, embossed emblems or watermarks, per-
consider advertising with organizations affiliated with fumed paper. These do not speak to the candidate’s
underrepresented populations, such as the NAACP, the qualifications and add little to the selection process.
Urban League, or other similar associations.
• Minimum qualifications. Accepting a candidate who does
Some laboratories may need to conduct a national search
not meet the advertised minimum qualifications but has
for senior-level positions or when the local pool of appli-
other acceptable qualifications could be subject to legal
cants is sparse. The cost can be thousands of dollars and the
concerns regarding inappropriate hiring practices.
process can take considerable time to complete. Advertising
in professional journals is expensive, and they are published • Too much information. Mention of personal facts, such as
infrequently, adding months to the search time. While web- marital status, children, political activities, risky hobbies,
site advertising is much less costly, it requires active search- etc., may inadvertently prejudice the reviewer. Informa-
ing on the part of a potential incumbent, whereas journal tion related to the candidate’s last job (why they were let
placements may be more readily encountered. Bringing go, had a “bad boss,” supervisor was prejudiced, “other
interviewees to your institution may include the cost of workers did not like me,” etc.) is another warning sign.
airfare, hotels, and meals. While such searches generate a • Discriminatory practice. Be cautious in prejudging can-
greater number of diverse résumés, it also requires signifi- didates based on their names—unique spelling, foreign
cant committed professional time from each of the search or ethnic derivation, or gender-based.
committee members to review and interview each candi- • Inconsistencies in work history, education, or other time-
date. An alternative is to use a job search service that han- relevant events. While inconsistencies may become the
dles the overall process, thus significantly minimizing the deciding factor in accepting the candidate for hire or
time commitment of the search committee. A fixed fee or a not, they should not be the sole reason for initial dis-
certain percentage of the incumbent’s annual salary (about qualification. Acceptable reasons might include mili-
15 to 20%) is usually charged for this service. tary service, illness, or spouse’s job transfer. Allow the
candidate to explain during the interview.
Interview Process A poorly organized résumé that requires a reviewer to
Screening Résumés search for key points should signal a concern that speaks
Depending on the number of résumés received, screen- to that individual’s lack of real interest in the position. This
ing for the appropriate qualifications can be very time- becomes particularly important when many résumés are
consuming and should not be taken lightly. While there is received. Professional recruiters have to make quick deci-
no one great technique for screening résumés, a common sions and will spend little time with a difficult résumé.
one is to divide them into three groups. Group 1 consists
of those individuals who have outstanding qualifications Interview Formats
and are strong candidates for the job. Group 2 includes Once several viable candidates are identified, decide which
those who meet just the minimum qualifications. If none interview formats will be used. A structured, one-on-one in-
of the group 1 candidates are viable, those in group 2 move terview involves preparing questions and follows a consistent
up the list. Group 3 includes those individuals who do not format process. This preferred style keeps the interviews fo-
meet one or more of the qualifications. Key points to con- cused and serves as a guide in asking appropriate questions.
sider when reviewing résumés are spelling, grammar, and Unstructured interviews (no prepared questions) may be
syntax. Not taking the time to carefully review and submit more free-flowing but also can lead to a confused and ram-
a well-written résumé suggests a lazy, irresponsible, poorly bling interview. Prewritten questions serve as a guide during
 CHAPTER 15. EMPLOYEE SELECTION 301

the interview process, offering consistency in questioning provide a more complex answer. A significant amount
and avoiding inappropriate queries. Questions should be of information can be obtained from these types of
constructed to provide flexibility in asking questions that re- questions. Answers to these questions allow the inter-
quire follow-up questions. The questions also serve as docu- viewer to observe the candidate’s manner, style, affect,
mentation of the kind of queries made of the interviewees. and level of articulation. The candidate must think
In some instances a group interview may be appropri- about the response and provide an acceptable answer.
ate. Two to four individuals interview a candidate together, Asking candidates how they would describe their rela-
working off the same set of questions. The advantages are tionship with their current or previous coworkers gives
that a greater number of individuals can be involved in them the opportunity to express themselves in greater
the process at one time, questions and answers are heard detail. Probing questions allow for follow-up questions.
by all, time commitments and scheduling difficulties are Once a candidate answers a question, a specific point
minimized, and the candidate can observe interactions can be probed with another question that reveals even
among potential new coworkers. The main disadvantage of more information. An example is a follow-up question
a group interview is that it can be overwhelming to the can- to a query about the level of training or education a
didate. The candidate should be notified of the agenda and candidate professes to have, such as “How does your
interview process prior to the meeting. In addition, a group training apply to the job offered?”
interview lessens the chance to make a personal connection • Hypothetical questions can be useful and are often
with the candidate and requires a coordinated effort on the asked toward the end of the interview as an opportunity
part of the interviewers, usually by preassigning questions. to determine how candidates think on their feet. These
Another less used interview process is the phone inter- are problem-solving questions that require the candi-
view. This is sometimes used as a screening tool to clarify dates to utilize their training and/or experience to prop-
issues not fully explained in a résumé. It is also done when erly answer the question. A question such as “If you had
a potentially good candidate cannot travel to your institu- to reduce your budget by 20%, how would you go about
tion due to an unexpected (death in the family, bad weather, it?” gives an interviewee the opportunity to demonstrate
etc.) or other reasonable cause. It is an inexpensive and con- knowledge of budgeting, staffing, finances, and other
venient way to conduct an interview but lacks the personal related operational skills. Questions unrelated to job du-
connectivity one gets in a face-to-face interview and makes ties that may be construed as “psychological” or “stress-
it impossible to read body language. Use of cell phones may situation” questions are not appropriate. For example,
lead to a less than optimal connection with dropped calls, “What is the worst lab error you have ever made?”
background noise, call waiting, text messaging notifications,
and other annoying interferences, resulting in an incom-
plete interview. More recently, web-based technology has Interview “Do’s and Don’ts”
made possible remote interviewing through Internet image Before the interview, review the criterion-based job descrip-
technology (such as Skype), thus creating a virtual interview tion, the résumé, and the list of prepared questions (see Ap-
process. This offers a more direct encounter that can be con- pendix 15.1). Table 15.6 offers some interviewing tips. Bring
veniently scheduled and is less costly than an on-site inter- the candidate to a quiet and private area. Put the candidate
view. This is a particularly useful screening tool when there
is a large pool of good candidates that are not local.
Table 15.6 Ten interview tipsa
Interview Questions • Prepare before the interview; do not use the interview time to look
Different interview question formats can be used during at the candidate’s résumé for the first time.
the interview process; in general, these fall into five cat- • Allow an adequate amount of time for the interview.
egories (16, 33): • Avoid interruptions. Schedule the interview in a quiet area.
• Welcome each candidate warmly and make the candidate feel at
• Leading questions are easy and result in obvious an- ease.
swers. These are not very informative and should not be • Explain the interview process and what follow-up the candidate
used. An example might be “Are you a hard worker?” might expect.
• Direct questions require short or simple answers, such • Avoid asking stress questions.
as yes or no or another one-word answer. A limited • Avoid controversial issues. Do not ask illegal questions (see text).
amount of information is obtained, but these questions • Do not make promises to the candidate that you cannot keep.
can be helpful in gaining specific information. An ex- • If you do not know the answer to a question, don’t guess.
ample is “Have you had hands-on training in perform- • Don’t do all the talking.
ing phlebotomies?” a
From reference 18. (This information was originally printed in the September/
October 1999 issue of Clinical Leadership & Management Review, published by
• Open-ended questions are more difficult for the in- the Clinical Laboratory Management Association. For more information, visit
terviewer to construct and require the interviewee to www. clma.org.)
302 PERSONNEL MANAGEMENT

at ease by asking a question not related to the job—about candidates. Before any job offer is made, it is essential that
the weather, the commute to the interview, or some other each of the candidate’s references is checked. References
light topic. This will help to establish rapport and put the that do not include an immediate supervisor or some other
candidate at ease. Avoid any personal comments about the higher-level individual should be scrutinized carefully un-
candidate’s dress, haircut, body art, the “two-carat diamond less the candidate has specifically addressed this issue dur-
earrings,” or any other personal features that are not relevant ing the interview. Given America’s litigious society, most
to performing the job. Questions about marital status, age, employers are very discreet in what information they re-
nationality, family, sexual orientation, religion, or politi- lease (generally, confirmation of employment, dates em-
cal or social affiliations are not acceptable (19). Table 15.7 ployed, and job title) unless the candidate has given them
provides some examples of questions that should always be specific permission to be a reference. While you may learn
avoided. It is appropriate to ask about gaps in work experi- much from what the reference says about the candidate, lis-
ence, about a lack of job progression or responsibilities as ten carefully to what is not said. A reference will offer high
noted in the résumé, or about the candidate’s time and atten- accolades for an exceptional employee, with little or no
dance history (33). Questions regarding arrest records are prompting, while only basic information of employment
not legal since anyone can be arrested but not guilty until will be offered for a marginal or poor employee. A hesitat-
proven otherwise. However, one may ask candidates if they ing response from a reference when asked about the candi-
have ever been convicted of a felony. This information be- date’s capabilities or personal attributes can speak volumes.
comes evident if a background check is performed. Doing background checks and obtaining financial credit
Managers must also be familiar with the Americans reports has become a common practice and is often one of
with Disabilities Act and avoid any questions that may ap- the final steps of the hiring process. This has become nec-
pear to be discriminatory to those with physical or men- essary to ensure the safety of patients and staff as well as
tal disabilities. You may ask the candidate if there are any to provide protection for the employer. Greater security in
tasks listed in the job description that he or she could not screening employees, especially since September 11, 2001,
do, but you cannot discriminate based on the perception for past indiscretions can be a critical deciding factor in
of a candidate’s inability to accomplish job-related require- placing the individual in a position that involves manage-
ments. Those individuals who appear to have a disability ment of people, finances, chemical/biological materials, or
may be able to accomplish assigned tasks with the use of patient information (25). Such investigations may include
technological aids or workspace modifications. review of driving record, past bankruptcies, felonies, drug
problems, and sex offender status. Employers may perform
official background checks on the final candidate in spite of
Hiring Process the expense and length of time it takes to complete. Failure
Candidates interviewed should be evaluated based on to do so may cause legal repercussions for the employer if a
their qualifications: education, abilities, experience, and new hire repeats a crime while under their employ.
responses to the interview questions. A fixed ranking sys- An employer can request a preemployment check after
tem can be developed to assist each member of the search receiving permission from the candidate. Note that indi-
committee in presenting an objective evaluation of the viduals denied a position after what was perceived as an
illegal background check have brought lawsuits against po-
Table 15.7 Interview questions that should be avoided
tential employers. Some employers have embraced Internet
social media sites such as Facebook, Myspace, or YouTube
Interviewer: “I see you have quite a lot of experience.”
How old are you?
as additional resources in scrutinizing candidates. Since all
When did you graduate from high school/college? job applicants tend to put their best foot forward during
How many children do you have? an interview, visiting these sites may reveal a perspective of
Do you plan on having children? the candidate that otherwise would have been missed. The
use of the Internet for this purpose has become controver-
Interviewer: “That’s an interesting name.”
What nationality is that?
sial and has recently raised privacy issues with the National
Can you speak (select a language)? Labor Relations Board (NLRB). Because this is an evolving
What is your religion? legal concern, use of social media when making hiring and
So you must belong to the Society of (select a society)? firing decisions should be reviewed with a human resource
professional who has the latest guidelines from the NLRB.
Interviewer: “Yes, these are troubling times.”
What do you think of the president’s policy on (select a topic)?
Who did you vote for in the last presidential election?
Orientation
Interviewer: “I see you were in a fraternity.” Proper and prompt orientation is critical to initial success
What kind of wild parties did you have? once a candidate is hired (7). Implementing an organized
Have you ever been arrested?
orientation program provides needed guidance that will
 CHAPTER 15. EMPLOYEE SELECTION 303

minimize confusion and frustration for the new employee The more a new employee knows about operations, ex-
yet maximize the feeling of being part of the team. This pectations, and the general atmosphere of the workplace,
protects the employer from any future problems that may the better the assimilation into the team. A prepared ori-
arise with a new employee. Table 15.8 lists some key points entation checklist that is signed by the new employee and
that should be covered during orientation. the trainer documents what has been covered and will

Table 15.8 Employee orientation program checklist

Item Done
Table of organization
Historical overview of the organization
Laboratory tour and meet the staff
Mission and vision statements (departmental, hospital, or other)
Operations
Share/review job description
Laboratory safety, fire safety, universal precautions
Hospital security, ID cards
Health Insurance Portability and Accountability Act
Laboratory compliance plan
Quality assurance, quality control, total quality management, and continuous quality improvement programs
Laboratory information system training
Purchasing requests: supplies, equipment, etc.
Performance evaluation, competence training, continuing education
Promotion/raises
Laboratory policies
Right to know
Material Safety Data Sheets (MSDS)
Sexual harassment policy
Patient Bill of Rights
Miscellaneous issues
Educational opportunities (personal development, continuing education
Customer service, telephone etiquette
Use of fax machine
Personal phone calls, cell phones, iPods, etc.
Internet use
Dress code/appearance
Time and attendance expectations
Vacation, sick leave, overtime accruals, and requests for time off
Continuing education policies
Lunch/break area
Lavatory location
Pay day
Parking
Smoking policy
Required vaccinations

Employee signature:
Supervisor signature:
304 PERSONNEL MANAGEMENT

prevent any misunderstandings about responsibilities. process, overtime, training, personnel processing, and/
Orientation must be completed on the first day of employ- or other recruitment or start-up expenses (18). This may
ment to ensure employee and patient safety. Reviewing also include the additional expense of any kind of pay-
the criterion-based job description and initiating a per- out to the departing employee (such as unused vacation
formance program during this orientation process will time, pro-rated bonuses, etc.) and hiring at a higher salary
establish a foundation by setting reasonable expectations for a replacement. Losing an experienced employee can
for the employee. Conversely, this process also identifies be particularly costly in terms of lost institutional knowl-
what will be expected from the employer. The orientation edge and experience. Thus, when an employee asks for a
is best presented by the immediate supervisor, but other pay raise, the manager must consider replacement costs
designated staff can be useful in providing a more detailed versus the raise in addition to any equity issues that must
review of the day-to-day operations. This review will also be addressed. No manager wants to be held hostage to an
give the supervisor a basis for future employee evaluations. employee’s salary demands, but a fair and equitable review
With a clear path forward, both employer and employee should follow. The employee should be advised that sala-
will start off knowing there is an established line of com- ries are set based on the education and experience require-
munication and accountability. However, any problems ments of the position. Further, any adjustments would be
that arise before the formal evaluation should be dealt with limited to available funding and institutional guidelines.
immediately and appropriately documented. When additional funding is just not available, an hon-
est and straightforward discussion with the employee is
warranted, perhaps with the promise of reconsidering the
Documentation situation at a later date.
It is important to document the search, hiring, and orien- A good manager will also attempt to be proactive by
tation processes. This ensures consistency, addresses any recognizing excellent employees by rewarding them in a
legal requirements, and demonstrates fairness in hiring timely fashion before such a situation occurs. Good man-
practices. Examples of the kind of documentation to be agers must also work within their budgets. If negotiations
retained include a copy of the criterion-based job descrip- have broken down, consider alternatives to monetary com-
tion, résumés of those seriously considered for the position pensation. Promotion, end-of-year bonuses (if possible),
(retaining résumés on file for any future vacancies may an improved benefits’ package, additional time off, or any
also come in handy), a copy of the advertisement(s) and other form of recognition may meet the employee’s needs,
where posted, a sample of interview questions, the ethnic- but again, may be limited to funding availability and insti-
ity of candidates to ensure a diverse pool of applicants was tutional guidelines. An employee who is unwilling to work
considered, and responses from references. These records with the manager, especially during a period of finan-
must be retained for a minimum of one year, but in prac- cial concerns, might be a better fit elsewhere. Frequently,
tice, most employers keep these documents for consider- money issues can turn an otherwise excellent employee
ably longer (3). This documentation provides protection into a disgruntled one, creating an unproductive, disloyal,
for the employer if ever questioned about hiring practices. and angry employee who is no longer a team player.
However, be aware that retention of records longer than People leave their jobs for many reasons. Some are
required can be discoverable during a legal inquiry and personal (marriage, spousal job change, pregnancy, ill-
can become a liability issue. Consult with your human ness), others are work related (burnout, dislike of boss,
resources professional for guidance in determining how desire for more money, poor work conditions, poor work
long records should be retained. In today’s litigious society, hours, no recognition), and still others involve a search
every manager must be cautious by ensuring that docu- for professional development opportunities (returning
mentation is complete and follows established institutional to school, joining the military, promotional opportunity)
human resources guidelines to best protect the manager (18, 23). Whatever the reason, a good leader will listen
and institution from accusations of unfair hiring practices. to his or her employees and establish avenues of bidirec-
tional communication. Employers need to be sensitive to
employee needs, stress levels, multicultural differences,
Retention and the general morale of the work environment. Some
The cost of losing an employee, hiring, and then train- options, such as implementing pay raises, enhancing
ing a new one can be very expensive. According to the benefits, offering continuing education opportunities, or
Society of Human Resource Management, the average providing opportunities for promotion, may be beyond
cost of replacing an entry-level individual is $3,500 (2). the control of the immediate supervisor. However, ac-
This can be an even greater expense when filling higher- knowledgment of a job well done by a supervisor shows a
level positions. These costs include the loss of produc- level of sensitivity that is appreciated by staff. Recogniz-
tivity, potential loss of customers, advertising, interview ing what can and cannot be done and sharing that with
 CHAPTER 15. EMPLOYEE SELECTION 305

Table 15.9 Suggested retention options first is generally a function of fiduciary responsibilities
Practice Option of the employer that may be necessary to keep laboratory
Good hiring practices Hire the right people expenses within budget. Often, a decision to terminate an
Have realistic goals and expectations employee based on financial need is not necessarily a re-
Perform a thorough job search flection of the employee’s performance or job ability, but a
Check references bottom-line decision. There are other times when an em-
Communication Bidirectional communication ployee has proven to not be a good fit for either the em-
Have frequent meetings ployer or employee. While it is incumbent on the employer
Manage by walking around to make every reasonable attempt to correct a problem
Training Develop an orientation process situation and help the employee to understand where the
Adequately train staff and supervisors in lack of communication exists, there are times when it is
job duties, interpersonal skills, communi- best for both to seek other options.
cation, etc. Involuntary termination must be free from any dis-
Encourage teamwork criminatory actions based on race, age, sex, or disability
Encourage continuing education (26). Over the years, a number of laws and court cases
Recognition Find people doing something right have addressed wrongful termination issues; thus, an em-
Praise people often ployer must use care in proceeding to terminate an em-
Foster a positive work environment ployee. Consider employee situations that may fall under
Encourage ideas, positive attitudes, and the Americans with Disabilities Act. In addition to com-
innovative thinking monly recognized physical limitations, other conditions,
Allow more employee participation in such as alcoholism, substance abuse, job stress, mental ill-
decision making ness, or cumulative trauma disorders (such as carpal tun-
Celebrate successes nel syndrome) are covered by this law (22). Employees
Work environment Maintain a safe work environment that fall within one of these categories are best referred to
Provide adequate tools to do the job employee assistance programs for appropriate counseling.
Establish a workable infrastructure The immediate termination of an employee without care-
Survey/feedback Measure outcomes as part of quality ful review of the situation can lead to lengthy and costly
assurance
legal outcomes. However, an employee who has threatened
Monitor attitude
or abused patients or staff, intentionally falsified or com-
Be aware of workplace stress inducers
promised patient data, purposefully damaged equipment,
Know employee problems and how they
relate to the workplace
or committed a felony can generally be terminated imme-
Communicate
diately even if they fall within one of these categories.

Progressive Discipline
employees often demonstrates to them that you, as the Even when a manager has completed due diligence in
representative of the employer, are not indifferent to their hiring an employee, there may be situations when that
concerns and serve as an advocate for them. Table 15.9 employee will require corrective action. The process of
summarizes some practical retention options. progressive discipline gives the employee ample oppor-
tunity to address the employer’s concerns and take nec-
essary corrective actions. Conversely, it also provides
Resignation and Termination the employer with an opportunity to review and adjust
One goal of all good managers is to ensure that they make any unreasonable expectations that set the employee up
the best attempt in hiring what they hope will be a long- for failure. How far the counseling is taken depends on
term and productive employee. Loss of an employee may the severity of the problem and the employee’s history
be due to voluntary or involuntary discharge. The former and status. If discussions between the supervisor and the
may be due to a number of issues, as suggested above. In employee do not result in the desired outcome, a more
some cases, voluntary resignation may be averted through aggressive approach is required that progresses in an es-
better channels of communication or through other ad- tablished manner. This progressive process will end either
justments as already noted. with a mutually acceptable resolution or with employee
Yet there are circumstances that may lead to the in- termination. This process is rigidly adhered to for many
voluntary termination of the employee due to budgetary institutions, especially those facilities that have union
constraints forcing work staff reductions, failure in com- representation. While there is some flexibility in the pri-
municating expectations, or poor job performance. The vate sector, the rules, if ignored or unfairly deployed, can
306 PERSONNEL MANAGEMENT

lead to legal action by a terminated employee The main Summary

steps in progressive counseling are:
As in any business, supply and demand dominates com-
• Verbal counseling. This initial communication between petition for qualified candidates. As more hands-on
the employer and employee specifically addresses the procedures become automated, it is anticipated that labo-
concerns. This is the first recognition of the problem ratorians will spend more time gathering data, analyzing,
and is documented. Depending on the degree of severity monitoring, and dispersing information to healthcare pro-
and the length of time between the undesired actions, viders. Laboratory test results that took days if not weeks to
several episodes of verbal counseling may be appropri- report can now be done in hours, and sometimes minutes.
ate. Counseling should take place as soon as possible Managers will need the best and brightest to meet the chal-
after the incident to avoid any additional complications lenges of these new technologies and to ensure accurate
of the issue. For most employees, no further action is and timely dispersion of information. Attracting and keep-
needed once the concerns are pointed out to them. ing these key people will take a collective effort between
• Written counseling. If there is no performance im- employer and employee so both reap the benefits of this
provement after verbal counseling, additional coun- relationship and are able to provide quality patient care.
seling occurs with preparation of a formal, written
memorandum. The memorandum must be specific, KEY POINTS
noting the circumstances, times, dates, individuals ■ Every vacancy should prompt a reconsideration of the ne-
involved, and proposed corrective actions. This often cessity, qualifications, and requirements for the position.
involves an official investigation with extensive docu-
■ The criterion-based job description, advertising method,
mentation that becomes part of the employee’s person-
interview process, and selection criteria should be care-
nel record.
fully analyzed before attempting to fill a job vacancy.
• Penalty stage. If unacceptable employee actions con-
■ Those responsible for these processes must be aware of
tinue after the written counseling, penalties may be
local policies and legal requirements governing the se-
imposed, such as a fine, leave without pay, a decrease
lection and hiring process, as well as employee termina-
in pay, or demotion. Documentation of the additional
tion procedures.
improprieties is put in a written memorandum to
the employee. When discipline reaches this level, the ■ Documentation of hiring, employee supervision, and

relationship between employee and employer is very separation from service is a critical management skill.
strained, creating additional problems and spiraling ■ Managers must constantly work to retain valued em-
into a very unpleasant work environment. Poor atti- ployees by using a variety of techniques.
tudes, a loss of productivity, and inefficiencies may be
evident. Coworkers may also be directly or indirectly
GLOSSARY
affected when working in a tense environment. Termi-
nation may be the only option at this point. Americans with Disabilities Act Federal act that precludes dis-
crimination in hiring and retention based on non-job-related
• Discharge. When no other options or corrective ac- characteristics.
tions are apparent, termination of employment is the
Criterion-based job description Written delineation of the title,
final stage.
duties, responsibilities, and reporting relationships of a position
Regardless of the stage of discipline, guidance from the and the requisite qualifications needed to meet these.
human resource department is recommended to ensure Equal Employment Opportunity Commission (EEOC) Estab-
that all legal procedures are followed, thus minimizing any lished to prevent discrimination in hiring and retention of em-
basis for legal recourse by the dismissed employee. A good ployees based on non-work-related characteristics.
manager creates the kind of work environment that offers Executive Order 11246 of 1965 Created affirmative action pro-
opportunities for employees to be their most productive grams requiring employers to establish plans to address racial
and efficient in their jobs. The goal is to maximize use of disparities in hiring and promotion, in conjunction with the
available resources, whether human, financial, physical, Civil Rights Act (1964).
or other, to ensure that the workforce is fruitful, content,
Progressive discipline Stepwise process to address deficiencies
loyal, and proud of what they do. Employees who know in job-related activities or attitudes.
what is expected from them and what support they can
expect from their employer, work in a clean and safe envi-
ronment, and have the right materials and tools to do the REFERENCES
job are satisfied employees who will be loyal and provide 1. Blackmon, R. K. 2001. Bridging the laboratory generation gap.
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2. Blake, R. 2006. Employee retention: What employee turnover 19. Kurec, A. S., and M. S. Lifshitz. 2011. General administrative
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tion-what-employee-turnover-really-costs-your-company-2006-07 (ed.), Henry’s Clinical Diagnosis & Management by Laboratory Meth-
(last accessed May 14, 2012). ods, 22nd ed. Elsevier-Saunders, Philadelphia, PA.
3. Bonapart, W., and C. Gamlem. 2002. Federal record retention 20. Lancaster, L. C., and D. Stillman. 2002. When Generations Col-
requirements for employers. www.chrm.org/fcra/federal%20record lide, p. 10–35. Harper Business, New York, NY.
%20retention.doc (last accessed May 14, 2012). 21. Mass, D. 1999. Staff retention: a major key to management’s suc-
4. Bureau of Labor Statistics. Occupational outlooks handbook, cess. Clin. Lab. Manage. Rev. 13(5):266–275.
2010-11 edition. www.bls.gov/ooh (last accessed May 14, 2012). 22. Mello, J. A. 2002. Strategic Human Resource Management.
5. Cameron, M., and J. R. Snyder. 1999. Strategic human resource Southwestern, Mason, OH.
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Lab. Manage. Rev. 13(5):242–250. (ed.), Clinical Laboratory Management: Leadership Principles for the
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308 PERSONNEL MANAGEMENT

APPENDIX 15.1 Example of a Search Committee Interview Process and Evaluationa

Position
The search committee consists of (names of individuals). The committee met on the following dates: (insert dates). The purpose of the committee
is to interview and set the agenda for the interviewee. It was explained that committee members may take notes for better accuracy in remembering
some details. Specific duties of the criterion-based job description will be shared at the end of the interview process. A consensus of the committee
will be obtained and the incumbent selected based on educational background, technical experience, and personal attributes. The following ques-
tions were used as general guidelines in the evaluation process.
Please rate the applicant on a scale of 1 (low) to 5 (high) for each item (circle rating).

Personal What are your career goals? 1 2 3 4 5

What continuing education have you been involved with in the last two years? 1 2 3 4 5
Briefly explain your current position to us. 1 2 3 4 5
What are your two most important achievements in your current job? 1 2 3 4 5
What is your level of computer expertise: laboratory information system, spreadsheets, and word processing? 1 2 3 4 5
How do you best communicate with staff? Employer? Non-lab personnel? 1 2 3 4 5
Describe a stressful situation you encountered and how you resolved it. 1 2 3 4 5

Supervisory Describe your supervisory experience. How long? Number supervised? 1 2 3 4 5

Describe your experience in preparing employee evaluations, counseling sessions, recruiting, and interviewing. 1 2 3 4 5
Describe your involvement in quality assurance practices. 1 2 3 4 5
How would you handle an increased workload that exceeds the normal capabilities of your staff? 1 2 3 4 5
Describe your knowledge of medico-legal issues and procedures. 1 2 3 4 5
Have you had marketing experience in developing proposals and client interaction. 1 2 3 4 5
What is your experience in providing customer service? 1 2 3 4 5

Clinical Where did you do your training? Under whose supervision? 1 2 3 4 5

Professional Describe your technical experience in (specific task or function) 1 2 3 4 5

Experience What other specific skills do you bring that would be an asset to this job? 1 2 3 4 5
What professional activities are you involved with outside the lab? 1 2 3 4 5

Teaching/training What level of teaching have you done: Undergraduate? Graduate? Medical students? Residents? 1 2 3 4 5

Experience What is your area of interest in teaching? 1 2 3 4 5

Give an example of your teaching/training experience. 1 2 3 4 5
Describe your experience in training new employees. 1 2 3 4 5
Describe your experience in continuing education exercises. 1 2 3 4 5

Research Describe your research experience. 1 2 3 4 5

Any specific areas you would like to pursue? 1 2 3 4 5
Do you have any publications? Presentations? 1 2 3 4 5

Total Points:

Final Comments:

Recommendation: Hire: Yes Hold: Yes Not Acceptable: Yes

Evaluator:

Position/Title: Date:
a
From reference 18. (This information was originally printed in the September/October 1999 issue of Clinical Leadership & Management Review, published by the
Clinical Laboratory Management Association. For more information, visit www.clma.org.)
Introduction
Performance Appraisals
16 Performance Appraisals and
Definition of Performance Appraisals • Purpose of
Performance Appraisals • Benefits of Performance
Competency Assessment
Appraisals • Appraisal Types: Formal and Informal
Appraisals • Responsibility for Developing a
Performance Appraisal Program • Legal Aspects of a Kari Jones, Diane C. Halstead, and Donna L. Oblack
Performance Appraisal Program • Elements of
a Meaningful Formal Performance Appraisal •
Competency-Based Appraisals • Rating Methods •
Other Types of Performance Appraisals • Who Should
Perform the Appraisal? • Preappraisal Preparation • OBJECTIVES
Steps to a Successful Performance Appraisal To understand the purpose of performance appraisals
Interview • Benefits of Becoming a Mentor •
Salary Adjustments • Strategies To Reinforce To define the key elements in developing a meaningful performance appraisal
Appropriate Behaviors • Guidelines for Appraising To identify methods to measure employee performance
Poor Performers • Dealing with Emotional Outbursts
during Performance Appraisals • Completed To describe the steps that may be taken in conducting a successful appraisal
Performance Appraisal Documents • Improvement interview
Plan • Web-Based Software Products and Websites
To list three accreditation agencies that issue competency standards
Competency Assessment
Regulatory Foundation for Competency Assessment • To specify three intervals or events that require competency assessment
Timing of Competency Assessment • Methods for To describe four competency assessment methods
Assessment of Competency • Practices • Personnel
Excellence
Summary
KEY POINTS
The quality of a person’s life is in direct proportion to their commitment to excel-
lence, regardless of their chosen field of endeavor.
GLOSSARY
Vincent T. Lombardi
REFERENCES
APPENDIXES

T
he goal of this chapter is to provide you with tools that will allow
you to develop and execute a successful formal performance appraisal
process and competency assessment program. Specific examples of
documentation are provided in the appendixes to this chapter.

Performance Appraisals
Definition of Performance Appraisals
The word “appraisal” is derived from the Latin word appratiare, to set a price
or value (32). In this context, employees work for compensation. Does this
mean that the appraisal process was developed solely for the purpose of finan-
cial rewards? Certainly not, but the concept of performance appraisals was in-
troduced in the mid-twentieth century as a result of the recession years when
companies found it necessary to decrease costs and increase efficiencies. It
was not until the 1980s that performance appraisals gained a foothold due to a
need for an equitable means of determining pay for performance.
A formal performance appraisal, also known as a merit review, perfor-
mance evaluation, interview, or rating (26), is a planned, periodic manage-
ment activity to evaluate an employee’s on-the-job behavior, competency,
Clinical Laboratory Management, 2nd Edition
work skill improvement, need for training, progress toward completing
Edited by L. S. Garcia goals, and salary and promotion (26, 44, 51). It is a key human resource
©2014 ASM Press, Washington, DC function that is closely integrated not only with compensation and training
doi:10.1128/9781555817282.ch16
but also career planning.

309
310 PERSONNEL MANAGEMENT

Purpose of Performance Appraisals and their staff. It provides an opportunity to clarify job
Some leading management authorities, such as W. Edwards requirements and performance expectations. When used
Deming, renowned for his transformation of Japanese as an evaluation tool, the appraisal becomes a critical com-
business philosophy, believe that performance appraisals ponent of reinforcing appropriate behaviors and providing
are unnecessary and, in fact, may destroy initiative and a fair and consistent foundation for promotions, transfers,
encourage competitiveness rather than teamwork, process demotions, terminations, and salary adjustments. An ef-
performance, and a concern for organizational success (26, fective appraisal process can be used as a recruitment tool
34). Others contend that formal performance appraisal to attract candidates for employment into a program that
programs cost billions of dollars annually (32) for ques- recognizes employee accomplishments. Employers may
tionable benefits (6, 27, 32, 34). Stress associated with the highlight how their organization provides opportunities
appraisal process is another reason cited for not conduct- for skill development and promotion. Retention in today’s
ing performance appraisals (32). In contrast, many human market is important, given the dwindling work force that
resource experts believe that by implementing a well- the laboratory is now facing. When employees feel val-
designed performance appraisal program, the competitive ued, they tend to remain on the job as loyal employees.
aspect can be minimized and the motivational aspect can In summary, performance appraisals can be used as a tool
be emphasized (42). to recognize outstanding employee achievements and to
Disadvantages of performance appraisals: provide desirable work-related experiences and career
opportunities.
• Destroy initiative Advantages of performance appraisals:
• Encourage competitiveness
• Foster good communication
• Produce stress
• Provide constructive feedback
• Require large financial investment
• Clarify job requirements
• Consume significant time for managers with many
• Provide an opportunity to refine job skills
employees
• Define performance expectations
Some managers and employees dislike and even dread per-
• Promote behavioral modification
formance appraisals (37). They go through the motions,
albeit halfheartedly, because senior management requires • Identify educational needs
them to participate in a formal appraisal process. Unfor- • Provide documentation for promotion, compensation,
tunately, they do not realize the potential benefits that can and termination decisions
be derived from performance appraisals, nor have they de- • Promote recruitment and retention
veloped the skills necessary to conduct or participate in a
• Protect the organization from discrimination lawsuits
productive performance appraisal process. An objective of
this chapter is to provide you with an appreciation for the • Provide an opportunity to share departmental and or-
performance appraisal as a powerful motivating tool. ganizational visions
• Encourage teams to improve the way their organiza-
tion operates
Benefits of Performance Appraisals
Appraisals can be challenging as well as productive, re-
warding, and energizing (33). Positive feedback provides Appraisal Types: Formal and Informal Appraisals
employees with the opportunity to learn their strengths An effective appraisal system should include formal as
and weaknesses (2). Employees can be empowered to con- well as informal ongoing performance feedback. A formal
trol their growth and development, as well as the outcomes performance appraisal generally occurs at least annually
of the performance appraisal (19). If carefully performed, on a specific date and time, such as the anniversary of the
the appraisal process can enhance relationships with em- employee’s hire date (26, 51). Performance appraisals can
ployees and open doors to communication. Managers and also be given at a set time of the year identified by the hu-
their employees can set realistic goals that reflect and sup- man resources department for larger groups of employ-
port the mission and goals of the organization as well as ees within an organization. Appraising everyone during
the employees. Finally, the performance appraisal system the same time period is generally viewed as most fair be-
and the performance standards specifically are objective cause the same guidelines can be applied to all employees
tools to use as a basis for merit pay increases, promotions, evaluated (26, 32). A performance appraisal form is gen-
and termination. erally completed during the interview, and this written
A successful performance appraisal promotes good com- documentation is placed in the employee’s file as part of
munication and constructive feedback between managers the permanent record. In contrast, informal performance
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 311

feedback appraisals are useful for monitoring behavior apply the performance appraisal process fairly and equita-
modification, recognizing accomplishments, identifying bly (30, 43). Discriminatory policies can and will get you
stumbling blocks in achieving set goals, giving support in trouble. Clearly defined standards, feedback, and docu-
where applicable, and fostering ongoing communication mentation are key factors in defending your program and
between formal appraisals. Informal appraisals also ensure appraisals (30, 51).
that the formal appraisal does not come as a surprise to Evaluating employees and awarding pay increases
employees. They know what is expected and can work at based on the evaluation scores is paramount to keeping
fulfilling those expectations. your program defensible. Performance appraisals are con-
Benefits of informal performance appraisals: fidential and should be shared with individuals only on an
as-needed basis, except by subpoena (26). The following
• Provide an opportunity to monitor behavioral
factors help to ensure that you are using a legally defensible
modifications
performance appraisal system:
• Allow for timely recognition of accomplishments
• Appraisers should receive written instructions and
• Identify stumbling blocks to achieving goals
specific training on how to utilize the appraisals
• Provide ongoing support correctly.
• Foster good communication • Job descriptions should be used to determine what is
evaluated.
Responsibility for Developing a Performance
• Performance expectations should be reviewed in ad-
Appraisal Program
vance with the employee.
The organizational philosophy and purpose for having
performance appraisals should be clear to those who are • Appraisals should be designed to evaluate behavioral
designing a performance appraisal system. The perfor- criteria that can be measured, not personality traits.
mance appraisal program is frequently developed by one • The content of a completed appraisal form should be
or more members of upper management and supervisory- discussed with the employee, and the employee in turn
level employees, including the chief executive officer, man- should have a chance to add his or her own comments.
agers, human resource professionals, and staff employees, • Everyone should be evaluated fairly and consistently.
particularly those who are strong performers or who wel-
come new opportunities. There are several reasons for in- Legal considerations:
cluding staff employees in the planning process. First, they • Train appraisers
are intimately acquainted with all of the tasks that make up • Review job descriptions and performance expectations
their jobs and with the factors that affect their ability to get prior to interview
the job done. If they know their input is valued, they will
feel that their opinions matter and that they are an impor- • Evaluate behavior, not personality
tant part of the decision-making body of the organization. • Provide employees with an opportunity to respond to
In turn, their involvement is likely to engender support for appraisal
the program and loyalty to the organization. Finally, they • Evaluate fairly and consistently
will feel that they are being given a new opportunity to • Document appraisal
learn and advance in their careers (26).
Who is responsible for developing a performance ap- Elements of a Meaningful Formal
praisal program? Performance Appraisal
• Upper management An effective appraisal program is based on an honest and
• Supervisors/managers sincere discussion of expectations, job performance, and
plans for improvement and follow-up between apprais-
• Human resources staff ers and their employees. Performance appraisals must be
• Staff employees clearly developed to meet the requirements of specific po-
sitions. It takes a concerted effort and up-front expense to
Legal Aspects of a Performance Appraisal Program develop and maintain an effective performance appraisal
The form that is used to document the performance ap- system. Time must be devoted to analyzing and prepar-
praisal may be a standardized form or it may be created ing job descriptions for each job title within an organiza-
by human resources and/or organizational managers and tion; designing performance appraisal forms; executing
staff (32). Performance appraisals are discoverable in a a successful performance interview, including preinter-
court of law. In other words, the information may be con- view planning; follow-up (22, 30); ongoing monitoring;
sidered evidence in a legal case, so it is important to always documenting; training; and compensation. An effective
312 PERSONNEL MANAGEMENT

program requires total management commitment of time contain specific, measurable, and realistic standards of
and money (32). performance (37, 51). In other words, the job description
Elements of a formal appraisal: defines the job responsibilities, and the standards quan-
tify your expectations, e.g., how many cultures are read
• Clear expectations: mission statement, job description,
per day and percent of errors tolerated. Standards can be
performance standards
used to compare the quality of work among staff members.
• Valid and fair performance assessment Different types of jobs may call for demonstrable skills or
• Plan for improvement behaviors rather than numerically quantifiable units of
• Follow-up production. For example, a standard of performance in the
laboratory may be to demonstrate familiarity with safety
Mission statement. A meaningful performance appraisal regulations to provide a safe work environment. Another
should begin with a current organizational mission state- method of measure is to include percent timeliness, e.g.,
ment. The organizational philosophy should be incor- technologists will finalize 75% of the 48-hour cultures on
porated into the mission statement of each performance time. Established and specific performance standards al-
appraisal. Understanding organizational goals and values low employees to know how they are doing compared to
is paramount to setting goals for the employees and ulti- expectations (18, 19). It makes them accountable (32).
mately to ensuring organizational productivity and suc-
cess. As a manager, it is important that you convey the Criteria. A criterion is a standard for judging task perfor-
goals and values of the organization and department to mance. Three to four specific, detailed, and realistic writ-
your employees. ten criteria should be developed, understood, and agreed
upon by employee and supervisor for each key task (19,
Job description. A job description is a written document 51). These need to be objective, observable, and measur-
that generally includes the title of the position; depart- able (37).
ment; job code or number, if applicable; Federal Labor
Standards Act status as to whether the position is exempt Norms. Norms (33) are informal behaviors that are gener-
(salaried) or nonexempt (hourly), full-time, part-time, or ally accepted in the workplace. For example, treating co-
temporary; job summary; four to six essential functions workers with respect is an organizational norm. Norms are
or tasks; level of authority; reporting relationship; essen- more difficult to identify and more subjective than stan-
tial skills or traits required to perform the tasks; qualifica- dards. The problem with using norms to measure employee
tions; physical requirements; and effective date of the job performance is that they are subjective. A behavior may be
description (26) (Appendix 16.1). All employees in an or- considered acceptable to one manager and unacceptable to
ganization should have an up-to-date job description so another. Alternatively, a manager may consider a behavior
they know what is expected of them (32). to be acceptable when exhibited by one individual and un-
A job description is a valuable tool when terminating an acceptable when exhibited by another individual. Norms
employee for failing to do the job. It provides documenta- are not less important than standards because violations of
tion that the employee knew what was expected of him or an organization’s norms can have as much impact as viola-
her. “Essential functions” are those duties and responsibili- tions of its standards. For example, one of your employees
ties that are an inherent part of a particular job. The term may exceed all standards but frequently offend or insult
is included to protect the rights of disabled workers under other coworkers. As a manager, you may find yourself
the 1990 Americans with Disabilities Act (ADA) and is ap- repeatedly calming the other coworkers from the ongo-
plicable to organizations with at least 15 employees. The ing violation of the laboratory’s norms. In this case, when
ADA is enforced by the Equal Employment Opportunity the violation of a norm interferes with the performance of
Commission (26). To meet legal requirements, a skill must other employees, the individual violating the norm needs
be shown to be a valid, true, and necessary requirement of to be counseled.
the job. The two controlling principles in developing writ- Characteristics of performance standards:
ten job descriptions and standards are job-relatedness and • Specific
fairness (26).
• Measurable
Performance standards. Evaluations based on perfor- • Realistic
mance standards were introduced in the 1990s and are
commonly used in the laboratory setting. Standards are Competency-Based Appraisals
formal requirements that outline expectations of job per- Appraisals are often position-specific and competency-
formance, i.e., how well a job should be performed (Ap- based using observable and measurable standards. The
pendixes 16.2 and 16.3). Performance appraisals must Joint Commission (TJC) initially required employers to use
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 313

criteria-based performance appraisals and later replaced as attaining specific goals in management development,
the requirements with competency-based appraisals. In reaching personal goals, and collaborative efforts. Key re-
other words, performance appraisals must ensure that all sults areas and expectations are agreed upon at the begin-
healthcare workers are competent in all areas necessary to ning of a period and measured regularly by staff submittal
perform their jobs. Competency is the state of having the of monthly progress reports. This type of evaluation al-
correct or needed skills for the position. In a competency- lows a manager and employee to set and prioritize reason-
based performance appraisal, each required competency able goals.
should be evaluated in some quantitative format. Appraisal A rating system may be used to compare the perfor-
forms that use a rating system with a structured scale gen- mance of employees through a set of criteria that produces
erally are easy to complete. The disadvantage of a rating a numerical value. There are four factors to consider when
system is that it tends to set up a competitive feeling among designing a written performance appraisal and selecting a
employees. The most recognizable company to have used rating system: the purpose of the appraisal, your work en-
a rating system is General Electric. Managers would evalu- vironment (e.g., self-directed teams), verbal and analytical
ate employees by dividing talent into three groups—a top skills of the employees being evaluated, and the manager’s
20%, a middle 70%, and a bottom 10%. The bottom 10% management style (51). Rating requires clear definitions
were considered low achievers and were usually the ones of the terms “exceeds standards,” “meets standards,” and
let go. This created an environment of competition rather “does not meet standards.” Absolute methods include a
than one of collaboration. It is important that the appraiser graphic rating scale, critical incident evaluation, a behav-
qualify a rating with behavioral examples. For example, if iorally anchored rating scale, and use of a checklist.
you score an employee above or below what is considered Factors to consider when selecting a rating system:
the minimally acceptable score, you should provide writ-
ten details. • Purpose of appraisal
• Work environment
Rating Methods • Skills of employees
The validity of a rating system depends on such things as • Manager’s management style
rater training and observable and quantifiable behaviors.
Employees should have a current, detailed job description A graphic rating scale provides a ranking scale (usu-
and know performance standards and criteria used for ally 1 to 5) for unsatisfactory to outstanding performance
assessing performance. Appraising an employee’s perfor- (51). An overall rating can be calculated by averaging the
mance means that you are rating actual performance, not individual rankings. This is one of the most popular meth-
ability. A person may have the ability but may not be per- ods. It is easy to use and understand. The forms are easy
forming up to the standards set for that job. Characteristics to revise and the method is not usually time-consuming
commonly assessed are competency, accuracy, communi- (Appendix 16.4).
cation, creativity, productivity, problem solving, decision Free-form or narrative rating (51) is generally an ad-
making, delegating, and administrative effectiveness. You junct to other methods (2, 26, 30, 32). A variation of this
must be able to consistently observe the employee per- rating is the critical incident evaluation—documenting
forming the assigned tasks, and your rating criteria must written notations of exceptional performance, good or
be the same for all employees doing the same job. Perfor- bad, that are then summarized in the written performance
mance must be described accurately and must be based on evaluation (30). A disadvantage is the lack of reference to
documentation. Be careful when rating subjective qualities the day-to-day, noncritical performance that makes up
such as attitude, cooperation, enthusiasm, and initiative. A the greatest portion of an employee’s on-the-job behavior
qualitative characteristic such as interpersonal skills may be (Table 16.1).
appraised: e.g., unsatisfactory, fails to meet acceptable stan- A behaviorally anchored rating scale (BARS) entails
dards in relationships with others; average, gets along well writing a competency statement for each aspect of the job.
with others; and outstanding, excels in developing relation- The BARS (10) focuses on employee behaviors and avoids
ships of trust and respect with supervisors and peers (32). any evaluation of attitudes. A numerical rating scale is
Quantifiable performance measures, such as the number of used with a description of behaviors that correspond to
times stat turnaround times were within acceptable limits, each of the ratings (30). It is based on critical incidents or
specimens were processed, critical values were called, er- actual examples of how employees behaved in a given situ-
rors were made, and percent of time within budget, are pro- ation. This type of rating is generally more expensive and
ductive measurements that are easier to defend. time-consuming to implement. It is also more difficult to
Results-based evaluations (RBEs) are performed by develop because it must identify all work behaviors of a job
managers who focus on attainment of specific measur- with a specific description of each behavior, ranging from
able results. RBEs may be used in intangible areas such unsatisfactory to outstanding.
314 PERSONNEL MANAGEMENT

Table 16.1 Rating systems pros and cons

Appraisal methods Pros Cons
Rating scale Many managers and employees are familiar with them The assumption that they are directly tied to an
Simple way to communicate areas of strengths and employee’s raise or bonus
weaknesses Managers can also have negative bias toward
Ease of use and understanding employees
Narrative technique Can focus on praising positive behavior and addressing Employee might interpret the evaluation too posi-
areas for correction tively or too negatively relative to a scoring system
Thoroughness of detail in analyzing employee behaviors
Comparison method Can motivate performance in competitive workplaces The potential of infighting and the lack of har-
and among competitive employees mony in the employee ranks
Allows you to communicate to an employee about areas
in which he or she over- or underperforms relative to
others in similar positions
360° feedback Allows a better chance to compare different perspectives Biased evaluators
in the evaluation process Negative employee feelings
Offers the employee a glimpse of how others view his or Poor alignment with goals
her performance in various relationships critical to the job

Checklist adjectives evaluation is based on the use of of their performance with that of peers who are currently
descriptive phrases to describe a laboratory worker’s most performing similar tasks (51).
outstanding personal characteristics (51). Checklists in- Absolute methods of ratings and ranking:
clude statements describing positive and negative behav-
• Graphic rating scale
iors that may be exhibited on the job. If the employee
exhibits one of the described behaviors, the item is checked • Free-form
off; otherwise the item is left blank. With a weighted • Critical incident evaluation
checklist, each behavior is weighted differently rather than • Behaviorally anchored rating scale
considering them of equal importance. Points are assigned
• Forced choice
based on the organizational value placed on that behavior.
Forced choice rating is not commonly used. A rater • Forced distribution
chooses the most applicable of several unrelated descrip- • Paired comparison
tions of performance. The choices are purposefully dif- • Person-to-person comparison
ficult, with the intent of improving the reliability of the
rating (33).
Comparative methods used in the 1980s included Other Types of Performance Appraisals
forced distribution, ranking employees, and paired com- Self-appraisal. Self-appraisal forms are generally distrib-
parison. Forced distribution (19, 33, 51) requires the rater uted approximately two weeks prior to a formal appraisal
to distribute a certain percentage of employees in each and are not meant to take the place of a manager’s appraisal.
ranking category, e.g., 5% outstanding, 10% above average, They give a different perspective of an employee’s perfor-
etc. (19). This helps an organization control and forecast mance and possibly a better understanding of the poten-
salary budgets. tial obstacles that may impede performance. Employees
In a ranking, employees are compared and ranked nu- may be provided with a copy of the same form used by the
merically from best to worst among their peers. Because it manager so that they can use the same criteria for evalu-
is not possible for all employees to be ranked as excellent ation of their performance. Ratings and scores can then
even if they are, a ranking system (33, 51) does not provide be easily compared. Interestingly, most employees tend to
feedback about the employees’ performance and generally appraise themselves at the same level or lower than their
is neither reliable nor valid. manager does (26). As an alternative, some laboratories
Paired comparison means that employees are compared design a form with a different format that elicits additional
two at a time (51). Ranking occurs on the basis of the num- information by asking open-ended questions (26). The
ber of times a given employee is deemed to be the better self-appraisal generates active participation by employees.
performer of a pair. It provides an opportunity for employees to reflect on their
Person-to-person comparison is similar to paired com- own performance and achievements (19, 35). They may
parison. Employees are ranked below average, average, identify additional accomplishments that the manager
above average, or outstanding on the basis of comparison may not have identified or has forgotten. The self-appraisal
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 315

also promotes a two-way conversation regarding the need 48, 51). Make the appraisal a priority and start on time. It
for additional training and development (30, 32). is advisable to sit next to the employee, rather than across a
desk, to encourage open conversation. Refrain from taking
Peer-to-peer appraisal. Peer-to-peer appraisals require phone calls during the interview. Allow enough time (at
trust among employees working together. Coworkers are least 1 hour) to complete a formal appraisal (26, 33).
asked to evaluate each other. This approach may engender Preparation by appraiser:
fears among staff members, some without foundation, that
• Schedule meeting
need to be addressed. A comprehensive training program
on how to give feedback is required to successfully imple- • Select neutral location
ment this type of appraisal (26). The technique may be • Prepare/review documentation
risky when conflict exists among employees, thus prevent- • Start on time
ing an objective evaluation. Conversely, if you are working
• Hold phone calls
with an experienced and mature group of employees, the
process may be very educational. If the appraisals are per- • Allow enough time
formed honestly and sincerely, employees may gain great
insight into their work relationships and performance. If Employees. Employees should be on time for the meeting.
you are using a team approach to accomplish institutional Self-appraisals should be submitted to the manager well in
goals, you may want to consider a variation of this concept. advance so that the manager has a chance to review the
One team of employees may be asked to evaluate another information before the formal appraisal meeting. Employ-
team, rather than appraising individual coworkers. ees should review their job description, the standards for
the position, the organizational mission statement, and
360-degree evaluation. 360-degree evaluations are de- their goals and accomplishments (37, 48). They should
signed to obtain well-rounded appraisals that tend to be connect their goals with the organizational goals (26). Em-
reserved for individuals in management-level positions ployees should prepare a list of goals for the coming year
(33). As with peer-to-peer evaluations, both trust and and should discuss any obstacles that might impede the
a comprehensive training program are required to suc- accomplishment of those goals. They should be prepared
cessfully implement this technique (26). The evaluation to suggest a solution to a problem. Goals should be estab-
is often performed anonymously and invites open, con- lished that stretch the employees’ capabilities. Employees
structive in-depth feedback (9) from all levels, i.e., peers, should be forthright, positive, and honest and provide
subordinates, supervisors, customers, and self (32, 37). feedback to their managers. Employees should listen and
Raters are frequently asked to complete a series of open- be open to suggestions. They should ask for specifics and
ended questions. Solicited evaluations with rater identity clarification if they believe the appraisal is not reflective of
removed may be given to the employee being appraised, or their performance. When given the opportunity to provide
they may be summarized to obtain an overall feedback ap- written comments, they should document any specific dis-
praisal. This type of evaluation is used for developmental agreements on their performance appraisal form (32, 48).
purposes, not for salary adjustments (Table 16.1). Preparation by employee:
• Complete self-appraisal
Who Should Perform the Appraisal?
• Review job description, performance standards, mis-
The appraiser should be a direct observer of work perfor-
sion statement, goals, and accomplishments
mance in order to give a credible appraisal (26). He or she
should have a firm foundation in what needs to be accom- • Relate personal goals with organizational goals
plished to get the job done successfully. Some managers • Prepare list of future goals
will ask for input from other individuals who interact with • Identify obstacles
the employee being evaluated to ensure an unbiased ap-
• Provide feedback
praisal. Just remember that sincerity and honesty are the
keys to a successful performance appraisal. • Listen and be open to suggestions
• Ask for specifics and clarification
Preappraisal Preparation
Appraiser. Approximately two weeks before the perfor- Steps to a Successful Performance
mance appraisal, appraisers should schedule the appraisal Appraisal Interview
in a comfortable, nonthreatening, neutral location where Preliminary meeting with employee. The purpose of the
there will be no interruptions (40). Prepare for the meet- meeting is to explore ways to achieve personal and orga-
ing by reviewing your documentation and the employee’s nizational goals and make improvements. Begin the in-
self-appraisal and/or list of accomplishments (30, 32, 40, terview by initiating a friendly conversation to put the
316 PERSONNEL MANAGEMENT

employee (and yourself) at ease. Explain the purpose of statements to the document, sign it, and receive a copy be-
the performance appraisal and review the organizational fore you place it in the personnel file (26). If the employee
and departmental mission statements, the job description, refuses to sign the performance appraisal, document this
the performance standards, the goals of the organization and sign the form along with a witness. Also include the
and those previously set with the employee, and the self- date of the meeting and a summary of the agreements you
appraisal before beginning the formal interview. Remem- have made. Set follow-up dates and make sure you keep
ber that performance appraisals should hold no surprises the appointments (22, 30). Disciplinary sessions should
and should not be punitive. Reinforce that the overall intent be scheduled separately from the performance appraisal.
is for feedback to be motivational (26). Instead of covering The “do’s” and “don’ts” of a performance appraisal (26) are
every point on the form, be more conversational because summarized in Table 16.2.
the employee will receive a copy of the form to read later. Steps for appraiser to take during a formal appraisal:
• Observe directly
Formal meeting. Approach the performance appraisal in a
positive and respectful manner. The performance appraisal • Rate behavior
process should motivate employees and should encourage • Measure productivity
their feedback, so don’t do all of the talking and don’t an- • Determine if specific goals have been accomplished
swer your own questions. Ask open-ended questions to
• Establish organizational initiatives
stimulate discussion and obtain employee responses (26).
For example, you may ask questions (48) such as, “What • Identify incidents
is your understanding of the performance expectations?” • State impact or consequences of behavior
“Do you need more training?” “What kind of support can I • List additional training received
provide for you to help you accomplish your goals?” Listen
• Identify future goals
actively and intently, do not interrupt, and give feedback.
Summarize comments made by the employee during the If managers lack the skills necessary to execute an ap-
discussion to ensure that you understand what the em- praisal, they should receive training in how to effectively
ployee is conveying to you. Be forthright and constructive give feedback to staff members (26). Training should in-
in your evaluation, but not critical. Now is not the time to clude a review of the organizational philosophy, the pur-
be timid. Most employees have some room for improve- pose of the program, and how to complete the forms and
ment. Using the halo effect (26, 32, 33, 37, 40), whereby score the evaluation (51), give feedback in a positive man-
you give positive performance appraisals even when unde- ner, focus on performance and not personality, coach for
served, does nothing to stimulate behavioral modification improvement (6, 27, 32, 44), make wage and promotion
(32). Likewise, avoid the pitchfork effect (33, 37), by which decisions using performance data, and discover weak spots
a single instance of poor performance adversely affects and correct them. Establish a list of words or phrases to be
your overall assessment. used for coaching and appraisal discussions (31, 32). Some
If you point out deficiencies without a plan for improve- organizations provide this training at orientation for new
ment, the employee may leave the meeting not knowing managers and annually thereafter.
how to change the situation (37). The end result is that Appraiser training:
you will not see behavioral modification. Even if behavior
• Review organizational philosophy
modification is needed, focus on how you and your em-
ployee can work together to create a positive outcome. Set • Understand purpose of performance appraisals
goals (generally at least four) for the coming year and help • Know how to complete the form and score the
the employee specify the behaviors that must be changed evaluation
to meet these goals. Make sure the goals are realistic, but • Provide feedback in a positive manner
at least one of them should be a stretch (26, 37, 40, 42). It
• Focus on performance, not personality
is important that you communicate with your staff on a
daily basis and keep them informed. Listen to them, don’t • Coach for improvement
micromanage, and share your vision and the organization’s • Understand how to make wage and promotional deci-
vision. Celebrate small and large victories and be generous sions based on performance appraisals
with your praise. Finally, treat others with respect.
At the beginning of the meeting, inform the employee Benefits of Becoming a Mentor
that you may refer to your notes and that during the dis- The appraisal process can be a forum for career develop-
cussion you may take notes that will become part of the ment by focusing on employee development, coaching,
personnel file. Let the employee know that he or she will and training needs. You may, in fact, take on the role of
have an opportunity to review your written summary, add a mentor or trusted advisor to your employees. A mentor
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 317

Table 16.2 Do’s and don’ts when conducting a performance performance appraisal and salary increase so that you do
appraisala not run the risk of feeling pressured to start the conversa-
Do’s Don’ts tion by announcing a salary adjustment and then justify-
Prepare ahead. Use the appraisal to discipline ing your decision (33, 40).
Explain the purpose of the for past negative performance.
appraisal. Focus on personality issues. Strategies To Reinforce Appropriate Behaviors
Review the mission statement, Make gender-based statements. According to the law of effect, behaviors that are followed
job description, standards, and Generalize. by positive consequences are more likely to be repeated.
goals. Use subjective language. Providing positive consequences or rewards increases the
Focus on performance. probability that an appropriate behavior will be repeated
Provide specific performance (32). To be effective, however, positive reinforcement
examples and offer actions.
should be applied as soon as possible following the behav-
State impact or consequences of
behavior. ior and must be contingent on the desired behavior. This is
Communicate sincerely. one reason why informal appraisals are crucial to the suc-
Ask open-ended questions. cess of the appraisal process; the employee does not have
Listen to the employee. to wait a year to learn which behaviors are appropriate and
Summarize to ensure which are inappropriate.
understanding.
Encourage feedback. Guidelines for Appraising Poor Performers
Be objective and use objective Don’t wait until appraisal time to address a poor performer.
language. You should have documentation of coaching to address
Be as clear and concise as problems throughout the year. Ensure that the employee
possible. has a current copy of his or her job description and per-
Use examples of behaviors you formance standards. During the interview, give examples
observed. of poor performance to support your assessment and the
Set new goals and standards. consequences of the behavior (2). This can best be done
Develop an action plan. by providing documentation of how the employee’s work
Document the appraisal. does not meet standards and by reviewing previous discus-
Follow up. sions you may have had with the employee regarding the
a
From reference 27. problem. Prepare a list of specific changes you would like
him or her to make and the time frame in which to cor-
typically shares information, experiences, and lessons in rect the behavior. Present the information in a manner that
leadership. You must believe in your employees, encour- shows confidence in the employee’s ability to improve. Set
age, support, and coach them to aspire to higher goals. measurable standards for improvement and plan together
Proudly represent your employees to others, lead by ex- how this can be accomplished. It is important that you plan
ample, and exhibit a positive attitude. Mentors tend to take on meeting in the interim to review the improvement and
a big-picture approach, getting involved only when help assess and encourage the employee.
is requested. Mentors thus become a positive force in em-
ployee career development (26). Dealing with Emotional Outbursts during
Mentor responsibilities: Performance Appraisals
If the employee engages in an emotional outburst or dem-
• Share information and experiences onstrates signs of aggression, the manager should deal
• Believe in your employees cautiously with the individual and should have another
• Encourage, support, and coach your employees manager come to the room. You may want to encourage
the employee to seek assistance from the employee assis-
• Proudly represent your employees to others
tance program (26), if your organization has one. If you
• Lead by example anticipate an interview with a negative employee, spend
• Exhibit a positive attitude extra time preparing for the meeting. This may require
consultation with human resources on how to deal with
Salary Adjustments out-of-control employees. It is important that you do not
Merit increases usually are the end product of formal per- respond emotionally to an employee who is out of control
formance appraisals that connect levels of performance (30). Results of performance appraisals can incite emo-
with varying levels of salary increase or performance tions that sometimes are difficult to deal with. For exam-
incentive. It is better to have separate meetings for the ple, crying or shouting may call for a postponement so that
318 PERSONNEL MANAGEMENT

the employee can regain his or her composure and the ap- system to document employee competency did not exist
praisal can be productive. Employees can disengage either prior to 1988. Although external proficiency testing is a
due to the appraisal or for personal reasons. You will need measurement of the ability to achieve a desired outcome
to conduct an intervention as soon as possible, particularly for a particular analyte, it is not synonymous with compe-
if you are interested in retaining the employee. tency. What is competency? TJC defines competency as a
determination of an individual’s capability to perform up
Completed Performance Appraisal Documents to defined expectations (46). Another helpful definition of
A fully executed written appraisal is a complete and confi- competency is the ability to do a job correctly and safely
dential original document, with any changes, added com- and to recognize and solve minor problems without need-
ments, and signatures in place (26) (Appendix 16.4). The ing assistance (38).
original document should be placed in the employee’s per-
sonnel file and kept in a secure place for the number of Regulatory Foundation for Competency Assessment
years that is specified by organizational policy. Employees Assessment of personnel competency is mandated by fed-
should be given a completed copy for their records. Finally, eral statute and is a component of the accreditation pro-
the manager should keep a copy in his or her files. grams of the College of American Pathologists (CAP), The
Requirements for performance appraisal documents: Joint Commission (TJC), and the Commission on Office
Laboratory Accreditation (COLA). This section reviews
• Maintain confidentiality
the specific regulations.
• Complete original, sign, and date A federal statute resulted from passage by Congress
• Place original with human resources of the Clinical Laboratory Improvement Amendments
• Keep documents according to policy (CLIA) of 1988 and subsequent signature by the president
of Public Law 100-578 (3). CLIA ’88 (5) classifies commer-
• Provide a copy to employee
cially marketed in vitro diagnostic tests into three levels
• Place copy in manager’s file for internal use and for of complexity (waived, moderate, and high) and defines
accrediting agency review qualifications for personnel performing testing across
the spectrum of sites in which testing is performed (i.e.,
Improvement Plan qualifications are site-neutral). The CLIA ’88 personnel
One of the most important points of the appraisal form standards provide a number of routes for individuals with
is to document feedback and improvements (30, 32). An diverse educational and training backgrounds to meet the
improvement plan may be added to the performance ap- federal regulations. To provide quality assurance of per-
praisal form to identify ways to help an employee improve sonnel within this framework, the laboratory must have
or attain a higher level of performance. Courts tend to an ongoing mechanism to evaluate the effectiveness of its
rule more favorably when an organization assists poor policies and procedures for ensuring employee compe-
performers in improving their performance. Examples of tence (42 CFR Sec. 493.1713).
ways to improve performance may include working side- CLIA ’88 charges both the laboratory director and the
by-side with a more experienced technologist, attending technical consultant or technical supervisor with specific
continuing education programs, and working in another responsibilities for the competency assessment program of
section of the laboratory to understand how each section the laboratory. Policies and procedures should address the
is related to other sections (Appendix 16.11). entire testing process, including preanalytical, analytical,
and postanalytical phases (Table 16.3).
Web-Based Software Products and Websites Through the Laboratory Accreditation Program (LAP),
Software can be purchased to automate the performance CAP provides inspection checklist guidelines (7) that ad-
appraisal process (Appendix 16.5). A software program dress employee training and experience, performance re-
may provide action plans for an employee who is rated be- views, and competency assessment (Table 16.4). In 1996,
low average for a task. Although software programs may TJC initiated a standard to be used by hospitals to assess,
make it easier to execute appraisals, the downside is that document, and improve the competency of all employees.
they tend to decrease interpersonal communication, one The standards focus on job-specific, measurable, dem-
of the key factors in a successful appraisal program. onstrated, age-specific competency statements (12). In
addition, TJC standards specify the responsibilities of labo-
ratory management pertaining to the assessment and main-
Competency Assessment tenance of employee competency and ongoing learning and
Even though laboratories regularly evaluate the perfor- development (46). For office-based laboratories, COLA re-
mance of their employees for salary increase and job pro- quires that the laboratory director or technical consultant
motion, a regulatory requirement to have an objective periodically evaluate personnel performance (8).
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 319

Table 16.3 Responsibilities for competency assessment mandated by CLIAa

Moderate-complexity testing High-complexity testing
42 CFR Sec. 493.1407 42 CFR Sec. 493.1445
“The laboratory director must ensure that policies and procedures “The laboratory director must ensure that policies and procedures
are established for monitoring individuals who conduct preanalytical, are established for monitoring individuals who conduct preanalyti-
analytical and postanalytical phases of testing to assure that they are cal, analytical and postanalytical phases of testing to assure that they
competent and maintain their competency to process specimens, per- are competent and maintain their competency to process specimens,
form test procedures and report test results promptly and proficiently, perform test procedures and report test results promptly and profi-
and whenever necessary, identify needs for remedial training or con- ciently, and whenever necessary, identify needs for remedial training
tinuing education to improve skills. . . .” or continuing education to improve skills. . . .”

42 CFR Sec. 493.1413 42 CFR Sec 493.1451

“The technical consultant is responsible for evaluating the compe- “The technical supervisor is responsible for evaluating the compe-
tency of all testing personnel and assuring that the staff maintain tency of all testing personnel and assuring that the staff maintain
their competency to perform test procedures and report test results their competency to perform test procedures and report test results
promptly, accurately, and proficiently.” promptly, accurately, and proficiently.”
a
Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 21, 2012).

Timing of Competency Assessment be performed annually unless test methodology or instru-

CLIA ’88 mandates that the technical consultant of a mentation changes have occurred, in which case, prior to
laboratory performing moderate-complexity testing (42 reporting patient test results, the individual’s performance
CFR Sec. 493.1413) or the technical supervisor of a labo- using the new test methodology or instrumentation must
ratory performing high-complexity testing (42 CFR Sec. be evaluated.
493.1451) be responsible for evaluating and documenting Upon employment, all new hires should participate in a
employee performance at least semiannually during the laboratory orientation program to ensure that patient test
first year of employment. Subsequent evaluations are to results will not be reported until the desired skill level has

Table 16.4 CAP checklist questions pertaining to competencya

GEN.54400 Personnel Records (Phase II) GEN.55450 Initial Training (Phase I)
Personnel files are maintained on all current technical personnel and There is documentation that all staff have satisfactorily completed
personnel records include all of the following items. initial training on all instrument/methods applicable to their desig-
1. Summary of training and experience nated job.
2. Copy of academic degree or transcript GEN.55500 Competency Assessment (Phase II)
3. License if required by state The competency of each person to perform his/her assigned duties
4. Certification, if required by state or employer is assessed.
5. Description of current duties and responsibilities as specified by Elements of competency assessment include but are not limited to:
the laboratory director. 1. Direct observations of routine patient test performance, includ-
a) Procedures the individual is authorized to perform, ing, as applicable, patient identification and preparation; and
specimen collection, handling, processing and testing
b) Whether supervision is required for specimen processing, test
performance or result reporting, 2. Monitoring the recording and reporting of test results, includ-
ing, as applicable, reporting critical results
c) Whether supervisory or director review is required to report
patient test results. 3. Review of intermediate test results or worksheets, quality con-
trol records, proficiency testing results, and preventive mainte-
6. Records of continuing education nance records
7. Records of radiation exposure where applicable (such as with in 4. Direct observation of performance of instrument maintenance
vivo radiation testing), but not required for low exposure levels and function checks
such as certain in-vitro testing
5. Assessment of test performance through testing previously
8. Work-related incident and/or accident records analyzed specimens, internal blind testing samples or external
9. Dates of employment proficiency testing samples; and
GEN.54750 Testing Personnel Qualifications (Phase II) 6. Evaluation of problem-solving skills
For laboratories subject to US federal regulations, all testing personnel GEN.57000 Competency Corrective Action (Phase I)
meet CLIA requirements. If an employee fails to demonstrate satisfactory performance on the
GEN.55400 Visual Color Discrimination (Phase I) competency assessment, the laboratory has a plan of corrective ac-
Technical personnel are tested for visual color discrimination. tion to retrain and reassess the employee’s competency.
a
From reference 7.
320 PERSONNEL MANAGEMENT

been demonstrated. An orientation checklist (Appendixes on an ongoing basis. In addition to changes brought about
16.6, 16.7, and 16.8) may facilitate this process and may by technological advances that may affect specific labo-
help to ensure standardization when multiple trainers are ratory procedures or instrumentation, changes may also
involved. Orientation may encompass a variety of activities occur in the mission of an organization as delivery of
such as reviewing laboratory procedure and policy manu- healthcare evolves. To meet these challenges, ongoing edu-
als, observing the procedure being performed, performing cation may be offered through a variety of formats, such
the procedure under supervision, and completing a post- as in-service educational programs, on-the-job training,
test examination. A guideline from the Clinical and Labo- audioconferences or teleconferences, self-instructional ma-
ratory Standards Institute (CLSI) provides a framework by terials, local or national workshops, and local or national
which the laboratory may develop a program for training professional meetings. Documentation of the educational
verification (4). The length of time required for orientation event, including the topic, date of presentation or partici-
will vary depending upon the employee’s formal training pation, name of the presenter or trainer, and the individual
and work experience and the number of test procedures participating, should be maintained in the employee’s file
to be mastered. CLIA ’88 (42 CFR Sec. 493.1425 and 42 as supporting evidence of ongoing competency.
CFR Sec. 493.1489) specifies that training (Table 16.5) of Timing of competency assessment:
testing personnel must ensure (i) the skills required for
• Semiannually during first year for new employees
proper specimen collection, including patient preparation,
if applicable, labeling, handling, preservation or fixation, • Annually for all employees
processing or preparation, transportation, and storage of • Preceding implementation of new methods or
specimens; (ii) the skills required for implementing all instrumentation
standard laboratory procedures; (iii) the skills required for
performing each test method and for proper instrument Methods for Assessment of Competency
use; (iv) the skills required for performing preventive CLIA ’88 standards for assessment of personnel compe-
maintenance, troubleshooting, and calibration procedures tency are the same for laboratories performing moder-
related to each test performed; (v) a working knowledge ate- or high-complexity testing (42 CFR Sec. 493.1413 and
of reagent stability and storage; (vi) the skills required to 42 CFR Sec. 493.1451). The procedures (Tables 16.6 and
implement the quality control policies and procedures of 16.7) for evaluation of competency must include, but are
the laboratory; (vii) an awareness of the factors that influ- not limited to, (i) direct observations of routine patient test
ence test results; and (viii) the skills required to assess and performance, including patient preparation, if applicable,
verify the validity of patient test results through the evalu- specimen handling, processing, and testing; (ii) monitor-
ation of quality control sample values prior to reporting ing the recording and reporting of test results; (iii) review
patient test results. of intermediate test results or worksheets, quality control
Both the employee and the trainer must sign the docu- records, proficiency test results, and preventive mainte-
mentation showing the specific training performed and nance records; (iv) direct observation of performance of
the skill level attained. This documentation is maintained instrument maintenance and function checks; (vi) as-
in the employee’s file. sessment of test performance through testing previously
Accrediting agencies such as The College of American analyzed specimens, internal blind testing samples, or ex-
Pathologists (CAP) and The Joint Commission (TJC) re- ternal proficiency testing samples; and (vi) assessment of
quire that competency of testing personnel be maintained problem-solving skills.

Table 16.5 Employee skills required for competency

Table 16.6 Methods to assess competencya
Collect, label, process, transport, and store specimens.
Directly observe specimen collection, handling, processing, and
Implement all standard laboratory procedures. testing.
Perform each test method. Monitor recording and reporting of test results.
Perform preventive maintenance, troubleshooting, and calibration Review preliminary/interim test results or worksheets, quality control
procedures. records, proficiency test results, and preventive maintenance checks.
Understand reagent stability and storage. Directly observe performance of instrument maintenance and func-
Implement the quality control policies and procedures of the tion checks.
laboratory. Assess test performance through testing previously analyzed speci-
Understand factors that influence test results. mens, internal blind testing samples, or external proficiency testing
Assess quality control sample values prior to reporting patient test samples.
results. Assess problem-solving skills.
a
Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 21, 2012). Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 12, 2012).
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 321

Table 16.7 Competency assessment methods: CAP’s Competency Assessment Program and LAP checklist question GEN.55500a,b
Does the CAP’s Competency Assessment Does the CAP’s Competency
Program Satisfy GEN.55500 Requirement Assessment Program Satisfy GEN.55500
with No Manipulation of the Program by Requirement with Manipulation of the
Requirements of GEN.55500 the Laboratory? Program by the Laboratory?
Direct observations of routine patient Maybe. This can be achieved through the use of Yes. If an instrument-specific observation
test performances, including patient the instrument-specific observation checklists. checklist does not exist for the instrument used
preparation, if applicable, specimen However, the Competency Assessment Program by a laboratory, then the laboratory would use
handling, processing, and testing does not have observation checklists for every CourseBuilder or ChecklistBuilder tools.
available instrument. Also, there are no checklists
available for laboratory tests/procedures that are
performed manually.
Checklists should be reviewed and modified as
necessary to meet the laboratory’s standard oper-
ating procedures (SOPs).
Monitoring the recording and report- No. Yes. This can be achieved through the use of
ing of test results CourseBuilder or ChecklistBuilder tools. A
checklist could be created to use for observa-
tion and tracking.
Review of intermediate test results or No. Yes. This can be achieved through the use of
worksheets, quality control records, CourseBuilder or ChecklistBuilder tools. A
proficiency testing results, and preven- checklist could be created to use for observa-
tative maintenance records tion and tracking.
Direct observation of performance of Maybe. This can be achieved through the use of Yes. If an instrument-specific observation
instrument maintenance and function the instrument-specific observation checklists. checklist does not exist for the instrument used
checks However, the Competency Assessment Program by a laboratory, one can be created using the
does not have observation checklists for every CourseBuilder or ChecklistBuilder tools.
available instrument.
Checklists should be reviewed and modified as
necessary to meet the laboratory’s standard oper-
ating procedures (SOPs).
Assessment of test performance No. Yes. This can be achieved through the use of
through testing previously analyzed the CourseBuilder or Checklist Builder tools.
specimens, internal blind testing A checklist could be created to use for observa-
samples, or external proficiency testing tion and tracking.
samples
Evaluation of problem-solving skills Yes. Competency assessments (which include Yes. If a laboratory requires additional mate-
customized training courses) and reassessments rial to assess an employee’s competence, the
can satisfy this requirement. CourseBuilder tool will allow the laboratory to
modify a CAP course or create a new course.
a
Available at http://www.cap.org/apps/docs/education/competency_assessment/competency_requirements_GEN55500.pdf (accessed August 14, 2012).
b
This chart is an assessment of how the CAP’s Competency Assessment Program can be used to satisfy the elements of competency included in Laboratory General
Checklist question GEN.55500 and the CLIA regulations. For each requirement, we have attempted to explain how the program can satisfy the element using two sce-
narios: with no manipulation by the laboratory (i.e., without using the CourseBuilder or ChecklistBuilder tools to customize a course/checklist) and with manipulation
by the laboratory.

Accrediting agencies such as the CAP and TJC will ver- method(s) will best suit their needs (14, 28). Assessment
ify that all six required elements were used for the compe- may be targeted at functions identified as problem-prone
tency assessment for each test system. or at critical functions in which errors are likely to go
Other than this requirement, CLIA ’88 does not specify unnoticed (17). It is the intent of CLIA ’88 and TJC that
in detail how competency assessment should be accom- competency assessment programs be grounded in staff
plished to preserve flexibility for laboratory managers to development (46) and efforts geared toward quality im-
design programs that will meet their own unique needs. provement (13). The assessment plan should be designed
Examining, documenting, and continually expanding the to give objective measurements (27). The assessment plan
competency of staff is essential for maintaining test quality, should also delineate who will conduct the assessments.
particularly in an environment in which allied health train- Senior technologists proficient in a subspecialty area may
ing programs are closing and the workforce is downsiz- be recruited to perform subspecialty evaluations (29), or
ing. When designing a competency assessment program, experienced staff members may be trained in performing
laboratory managers must determine which assessment and documenting competency assessments (49).
322 PERSONNEL MANAGEMENT

Direct observation of technical skills is especially useful receipt of unlabeled or mislabeled specimens is another
for those procedures that are manually performed, such as example of problem-solving skills. Alternatively, an em-
primary plating of cultures and venipuncture procedures. ployee may complete a written exercise indicating how he
A checklist of predetermined skills (Appendixes 16.9 and or she would resolve an issue (15). This documentation
16.10) will enable systematic documentation of the critical should be maintained in the employee’s file to support on-
procedural steps under review (1, 39). Direct observation going competency.
is also indicated for monitoring performance of instru- The laboratory’s competency assessment plan should
ment maintenance and function checks. include procedures to address employees who fail the as-
Review of preliminary and final result work sheets, re- sessment. These procedures should include the time for
ported patient results (either via online or hard-copy for- retraining, reassessment, and expected outcomes (16, 20,
mat), quality control records, proficiency test results, and 41, 46).
instrument preventive maintenance records should occur
as part of the quality assurance program of the laboratory. Practices
Documentation of the review is the essential component Practices of employee competency assessment are re-
that will satisfy the competency regulations. For example, flected in data from an interlaboratory survey in 2000 (23).
in the competency program of one laboratory, three pa- In this study, employee competency was evaluated through
tient reports for three to six analytes were monitored and the use of test and quality control results (77.4%), direct
documented (36). observations (87.5%), instrument preventive maintenance
Assessment of test performance may be accomplished (60.0%), and written testing (52.2%). In 77 to 95% of labo-
using previously analyzed specimens, internal blind test- ratories surveyed, the supervisors/managers performed
ing samples, or external proficiency testing samples. An the competency evaluation of employees, whereas in 19
example is the College of American Pathologists’ Histo- to 31% of laboratories, the evaluations were performed by
QIP tool in which histotechnologists submit slides for peers. Delegation of competency assessment may be neces-
various tests such as an H&E stain of a breast core biopsy. sary to execute the plan. If the employee failed the compe-
The slides are evaluated by an expert panel for histologic tency evaluation, in 52% of laboratories, the employee was
technique, and the participants receive constructive feed- retested within four weeks, while in 8.6% of laboratories,
back, peer comparisons, and benchmarking data. Given the policy was to disallow the employee from continuing
the limited amount or number of samples provided in usual work. Adherence to the plan was inversely related to
external proficiency testing programs, a laboratory with the number of full-time equivalents, the total number of
many employees may need to utilize a combination of employees, and the number of supervisors in the labora-
several methods to assess test performance. In one he- tory. There was less compliance with the plan in teaching
matology laboratory, an exam based on microscope slides hospitals compared to nonteaching hospitals. These data
proved to be better than one based on color transparen- indicate that difficulties may occur in completing the as-
cies for improving daily practice skills (21). Another labo- sessment of each employee each year as the size and com-
ratory used a computer-assisted chi-square calculation plexity of the laboratory increase.
on a 100-cell differential as an effective competency as- TJC requires that hospitals provide annual competency
sessment tool (50). In the microbiology laboratory, reten- evaluation of employees in fire safety, infection control,
tion of challenging Gram-stained smears (e.g., unusual and blood-borne pathogens. Beyond traditional lectures
organisms, Gram-negative diplococci in blood cultures, or written self-study modules, computer-based programs
cerebrospinal fluid, or other body fluid with occasional can be a cost-effective and efficient method of providing
organisms present) can be used for a microscope slide- and documenting this assessment (52). This modality of-
based competency evaluation. fers uniform presentation and 24-hour availability, features
A TJC standard requires assessment of age-related com- that are particularly helpful in healthcare organizations
petencies of those staff providing direct patient care (45, that must assess staff on three different work shifts.
46). This standard is therefore applicable to laboratory
phlebotomists whose practices vary with the patient age Personnel Excellence
group. A continuing education exercise pertaining to age- In addition to specific competencies reflected in job skills
specific phlebotomy techniques has been published (24). and knowledge, managers and executives should encour-
Demonstration of problem-solving skills may be assessed age professionalism, accountability, and self-esteem as
through self-reports of problem resolutions submitted by competencies required to ensure customer service (11).
the employee. For example, if the quality control of an as- These three competencies form the foundation of a hier-
say is outside expected limits, an employee can report the archy of all other generic competencies (11). In the 21st
corrective action taken to achieve quality control results century, the quality and success of a laboratory depend on
within range. Documentation of the steps taken to resolve selecting, developing, and retaining competent staff.
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 323

Summary ■ If behavior modification is needed, focus on how you

and your employee can work together to create a posi-
In summary, always remember that a successful appraisal
tive outcome.
recognizes people as the most valuable resource of an or-
ganization. The most important reason for doing apprais- ■ The employee should set at least four realistic goals for
als is to motivate your employees positively, not to punish. the coming year.
Recognizing accomplishments is a powerful way to moti- ■ Individuals performing appraisals should be given
vate. Providing performance appraisals will show employ- training and review the do’s and don’ts of conducting
ees that you and the organization are interested in their appraisals to sharpen their skills in executing a success-
work and in their development. An integral part of assess- ful interview.
ing employee performance is a well-designed competency ■ The appraisal process can and should be a form of ca-
program. Documentation of each individual’s job-related reer development.
competency is one way that a laboratory can not only en-
■ A manager can become a mentor and a positive force in
sure quality results, but also fulfill federal and accrediting
an employee’s career development.
agency requirements.
■ Appropriate behaviors may be reinforced with positive
consequences.
KEY POINTS
■ Recognizing accomplishments is a powerful way to
■ Performance appraisals are powerful motivating tools
motivate.
that are closely integrated with compensation, training,
and career planning. ■ A manager should provide examples of poor perfor-
mance, if applicable, and the consequences of an unsat-
■ An effective appraisal system includes formal and infor-
isfactory behavior.
mal ongoing performance feedback.
■ A manager should not overreact if an employee has an
■ A well-designed appraisal program requires clearly de-
emotional outburst during an interview.
fined standards, feedback, and documentation that are
applied consistently among all employees. ■ Encourage the employee to seek assistance from the
employee assistance program, if available.
■ Job expectations must be clearly stated.
■ Documentation and confidentiality are essential com-
■ Elements of a formal appraisal should be based on an
ponents of any performance appraisal program.
organization’s mission statement, the job description,
and the performance standards. ■ A manager should identify ways to help an employee
attain a higher level of performance.
■ Performance standards should be specific, measurable,
and realistic. ■ A successful appraisal program recognizes employees as
the most valuable resource of an organization.
■ An employee’s performance, not his or her ability,
should be rated. ■ Employee competency should be assessed semiannually
the first year of employment and annually thereafter.
■ Selection of a rating method depends on the purpose
of the appraisal, the work environment, the skills of the ■ Employee competency should be assessed whenever a
employee, and the management style of the manager(s). change in test method or instrumentation occurs.
■ Self-appraisals give a different perspective of the em- ■ Ongoing training and education are necessary to main-
ployee’s performance and a better understanding of ob- tain and enhance employee competency.
stacles that may impede performance. ■ Thorough documentation of employee competency must
■ Peer-to-peer and 360-degree evaluations, if performed be maintained for inspection by accreditation agencies.
honestly, sincerely, and anonymously, may provide the ■ Competent employees are the foundation for the qual-
employee with insight into his or her work relationships ity and success of any laboratory.
and performance.
■ Preappraisal preparation by employees and manag-
GLOSSARY
ers is essential for a successful performance appraisal
360-degree evaluation Multilevel assessment adopted by AT&T,
interview.
IBM, and other Fortune 500 corporations. May be used to iden-
■ Performance appraisals should recognize any problems tify how a manager is viewed by his or her supervisor, peers, sub-
throughout the year, should hold no surprises for the ordinates, and customers. Full-circle feedback.
employee, and should not be punitive. Americans with Disabilities Act (ADA) Prohibits discrimina-
■ The performance appraisal process should be motivat- tion against qualified disabled individuals. Applies to institutions
ing and should encourage feedback. with 15 or more employees.
324 PERSONNEL MANAGEMENT

Appraisal type Formal and informal appraisals, self-appraisals, Key results area An aspect of a job on which employees must
peer-to-peer appraisals, 360-degree appraisals. concentrate time and attention to ensure that they achieve the
goal for that job. Forces the manager to focus only on those ac-
Behaviorally anchored rating scale (BARS) Assessment of per-
tivities that add value. Although it’s motivational, staff may be
formance requiring input from other observers based on how
slow to accept it.
employees behaved in a given situation.
Narrative rating Includes concise, specific illustrations. Easy to
Checklist adjectives evaluation At least three adjectives (e.g.,
construct but subjective, and it’s difficult to compare employees’
aggressive, articulate, meticulous) from a checklist are selected to
ratings.
describe desirable as well as undesirable characteristics of an
employee. The National Committee for Clinical Laboratory Standards
Clinical and Laboratory Standards Institute (CLSI) Formerly (NCCLS) Currently referred to as the Clinical and Laboratory
the National Committee for Clinical Laboratory Standards (NC- Standards Institute (CLSI). A voluntary national organization
CLS). A voluntary national organization that issues guidelines that issues guidelines for laboratory practices.
for laboratory practices. Norms Informal behaviors that are generally acceptable in a
Clinical Laboratory Improvement Amendments (CLIA) ’88 workplace.
An act passed by Congress in 1988 that requires an objective sys- Performance appraisal A planned, formal, and periodic man-
tem to document competency of employees performing testing agement activity in which an employee’s on-the-job behavior is
on patient specimens. evaluated to enable salary and promotion decisions, change an
COLA Formerly the Commission on Office Laboratory Ac- employee’s behavior, determine competence, improve work
creditation. A national nonprofit physician-directed organiza- skills, identify training needs, and determine progress toward
tion that provides continuing medical education programs, goals and career development.
accreditation standards, and accreditation of physician office Performance standards Defined performance expectations that
laboratories. are specific and measurable.
College of American Pathologists (CAP) A medical society of Pitchfork effect Poor performance in an isolated instance that
board-certified pathologists that provides proficiency testing sam- adversely affects an employee’s assessment.
ples, continuing medical education programs, accreditation stan-
dards, and accreditation of pathology and laboratory services. Ranking system Evaluates employees based on comparison
with their peers (e.g., paired comparison, person-to-person
Competency Ability to do a job correctly and safely and to rec- comparison). This system does not allow all employees to be
ognize and solve minor problems without needing assistance. ranked as excellent, even if all employees have an excellent work
Criterion: Standard of judging task performance. performance.
Critical incident evaluation Written notations of exceptional Rating system Compares employee performance to some set of
performance are summarized in the performance appraisal. criteria and produces either a number or a letter grade that rep-
resents the employee’s level of performance (e.g., graphic scale,
Employee Assistance Program Psychological assessment and free form, critical incident, behaviorally anchored scale, checklist
brief treatment; considered an employee benefit. of adjectives, forced choice, or distribution). Allows everyone to
Equal Employment Opportunity Commission of 1972 En- be rated highly, if they deserve it.
forces the ADA. Results-based evaluations (RBE) Evaluations performed by
Forced distribution Rater distributes a certain percent of em- managers who focus on attainment of specific, measurable
ployees in each category (e.g., outstanding, above average, aver- results.
age, below average, unsatisfactory).
Standard Operating Procedure (SOP) Organizational ap-
Graphic rating scales A quality or characteristic rated by choos- proved protocol that defines step-by-step instructions for all staff
ing a point along a horizontal axis. The scale may be discrete to follow when performing a particular test or activity to ensure
(1–5: excellent, good, fair, poor, unacceptable) or continuous. a consistent and accurate result or outcome.
Halo effect Appraiser gives all employees an acceptable rating,
regardless of their performance. When an employee is outstand-
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ican Society for Clinical Pathology, Chicago, IL. age. 22(5):20–28.
19. Garcia, L. S. 1995. Tech Sample Management and Education No. 39. Schiffgens, J. 2001. A four-part approach to competency assess-
MGM-6: Employee Performance Evaluations: Past Approaches and ment. Lab. Med. 32(8):431–435.
New Options. American Society for Clinical Pathology, Chicago, IL.
40. Scotto, D. 1999. Performance appraisals: more than just going
20. Gerbasi, S. 2000. Competency assessment in a team-based labo- through the motions. MLO Med. Lab. Obs. 31(3):38–43, 57.
ratory. MLO Med. Lab. Obs. 32(9):46–54. 41. Sharp, S. 2001. Initial training verification and competency as-
21. Haun, D. E., A. P. Leach, D. F. Fink, and G. Lipscomb. 2000. sessment in the clinical microbiology laboratory. Clin. Microbiol.
A better way to assess WBC differential counting skills. Lab. Med. Newsl. 23(10):79–81.
31(6):329–333. 42. Snyder, J. R. 1987. Tech Sample Management and Education No.
22. Heller, R., and T. Hindle. 1998. Essential Manager’s Manual. MGM-4: Refocusing the Employee Performance Appraisal Process.
D. K. Publishing, Inc., New York, NY. American Society for Clinical Pathology, Chicago, IL.
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43. Snyder, J. R. 1991. Assessing the legality of performance apprais- 49. Vengelen-Tyler, V. 2001. Tech Sample Management and Educa-
als. Clin. Lab. Manage. Rev. 5(6):483–489. tion No. MGM-6: How to Improve Documentation of Staff Compe-
44. Swan, W. S. 1991. How to Do a Superior Performance Appraisal. tency. American Society for Clinical Pathology, Chicago, IL.
John Wiley and Sons, New York, NY. 50. Warner, S. 2001. Using chi-square and a PC to assess compe-
45. The Joint Commission. 1998. Age-Specific Competence. Joint tency. MLO Med. Lab. Obs. 33(7):48–51.
Commission on Accreditation of Healthcare Organizations, Oak- 51. Wolfgang, J. W., and K. E. Wolfgang. 1998. Standards and ap-
brook Terrace, IL. praisals of laboratory performance. In J. R. Snyder and D. W. Wilkin-
46. The Joint Commission. 1999. 2000–2001 Comprehensive Ac- son (ed.), Management in Laboratory Medicine, 3rd ed., p. 245–254.
creditation Manual for Pathology and Clinical Laboratory Services. Lippincott, Philadelphia, PA.
Joint Commission on Accreditation of Healthcare Organizations, 52. Wolford, R. A., and L. K. Hughes. 2001. Using the hospital in-
Oakbrook Terrace, IL. tranet to meet competency standards for nurses. J. Nurs. Staff Dev.
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48. Umiker, W. O. 1984. The performance review and planning
session. In W. O. Umiker (ed.), The Effective Laboratory Supervisor,
p. 208–215. Medical Economic Books, Oradell, NJ.
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 327

APPENDIX 16.1 Senior Medical Technologist Job Description

Cost Center Name: Cost Center Number: Position Number: FTE:

Proposed Position Title: Please check the appropriate response.

Senior Medical Technologist New Position Change in Existing Position X

Basic Function: The Senior Medical Technologist serves to maintain the integrity of day-to-day laboratory operations through
focused oversight of laboratory procedures with a high accountability for problem solving and meeting regulatory requirements
in the assigned area of responsibility. This position may also collect specimens, perform complex analysis (manual and automated
tests) of clinical and/or forensic specimens to detect and measure components that reflect health or disease in patients, and pre-
pare reports for use of physicians in caring for patients. Utilizes sophisticated instrumentation to obtain accurate laboratory test
results for use in the diagnosis and treatment of disease. Assists in writing procedures for proper specimen handling, processing
and testing. Reports and maintains patient test result data in an accurate and timely manner. Tasks include: assessing Quality
Control, Quality Assurance and Quality Improvement procedures, and a wide variety of laboratory tests. This position also assists
in teaching laboratory policies and procedures to nurses, clinicians, students and residents. A senior medical technologist must be
able to multitask and perform all duties independently with no supervision, manage time and resources judiciously, exercise good
judgment and initiative, have both verbal and written communication skills and perform complex technical instrument mainte-
nance and problem solving.

Reports to (Please attach a department organizational chart.):

Laboratory Clinical Operations Manager

(continued)
328 PERSONNEL MANAGEMENT

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Competencies (Additional Space Provided on Page 2): Essential (E) or

% of Time Non-Essential (N)

Compliance with Patient/Family-Centered Care standards through the following:

• Demonstrate dignity and respect for patient and family knowledge, values, beliefs, and 3 Essential
cultural background in the planning and delivery of care.

• Provide information sharing, ensuring patients and families receive timely, complete, and 5 Essential
accurate information in order to effectively participate in care and decision-making.

• Encourage patient and family participation in care and decision-making at the level they 30 Essential
choose.

• Promote collaboration with patients and families in policy and program development, 10 Essential
implementation, and evaluation in healthcare facility design, professional education, and
delivery of care.

Compliance with Customer Service standards:

• Oversee the daily responsibilities of an assigned technical area. Initiate training of new
staff within the technical group. Train staff technologists and laboratory technicians in
proper laboratory techniques for existing and new methods. Evaluate daily performance
of staff for adherence to standard operating procedures (SOPs) and efficient workflow.

• Act as primary resource for Technologists and Laboratory Technicians in the technical
area to resolve testing issues and analyzer maintenance. Notify management of any delays
in testing and any related factors.

Approved by: Date:

Department Head:

FOR COMPENSATION USE ONLY

APPROVED TITLE AND BAND
Title Job Code Pay Band Minimum Midpoint Maximum

Approved by: Date:

Director of Compensation and Performance Management

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 329

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Competencies: % of Time Essential (E) or

Non-Essential (N)

• Maintain quality control of laboratory testing to ensure accurate and timely lab report- 10 Essential
ing. Assist in maintaining procedure manuals and protocols to ensure compliance with
CAP, State, TJC and CLIA regulations; including documentation for all QA/QI proce-
dures and proficiency testing. Document corrective and preventative actions taken using
good documentation practices.

• Perform moderate/highly complex analysis of patient specimens. Evaluate validity of 10 Essential

specimen results as per SOP guidelines. Document all corrective actions taken.

• Assist management in establishing new methodologies. Assist in completion of valida- 2 Essential

tion packages. Participate in selection process for new instrumentation. Assist manage-
ment with implementing SOPs for laboratory testing and safety procedures. Implement
changes in laboratory and notify all employees of necessary changes.

• Verify analytic accuracy, precision, sensitivity and references ranges for test methods. 5 Essential
Work with Pathologist and Managers to analyze results and conduct more difficult, non-
routine tests.

• Follow safety procedures and Standard Precautions using personal protective equipment 3 Essential
as required as per laboratory SOPs.

• Participate in continuing education through self-study, attending off-site lectures and 3 Essential
preparing programs to share with coworkers.

• Establish and follow protocols for shipping and receiving outside laboratory tests. 2 Essential

• Responsible for maintaining adequate supplies for laboratory. 5 Essential

• Teach pertinent aspects of laboratory skills and processes to medical technology students 5 Essential
and pathology residents and orient and mentor new staff members.

• Demonstrate competency with LIS policies and procedures to enter an order, enter the 5 Essential
testing results, release a report, correct a report, update a report, finalize a report, and
retrieve a report.

• Share with other lab staff all general responsibilities as they arise as well as any tasks re- 2 Essential
quested by attending pathologists or supervisor.

(continued)
330 PERSONNEL MANAGEMENT

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Minimum Requirements (Education, Experience, Licensure, Skills):

(Please specify any preferred requirements as such for recruiting purposes)

• Bachelor degree in Medical Technology or a lab-related field with the appropriate education requirements as defined by GA
Rule 290-9-8 for clinical laboratory technologist.

• Must have state approved certification per GA Rule 290-9-8 such as MT(ASCP), MLS (ASCP), CLS (NCA), MT (AAB) certi-
fication or equivalent required.

• Individual must have at least 3 years experience and extensive organizational skills.

• Basic computer knowledge with experience in using Microsoft software, Groupwise, Healthquest, and IDX preferred.

In addition to the above requirements, one or more of the following must be met:

• Specialty Certification in any Laboratory Discipline

• Masters Degree

• 25 Hours of continuing education annually

Supervision Exercised: Interpersonal Relationship: Has contact with a variety of

personnel including pathology faculty and residents, students,
Supervises in absence of a Supervisor or Manager and other pathology personnel, faculty (clinicians) outside the
department, nurses and secretarial staff, patients, referral labo-
ratories, and insurance providers.

Accountability: Responsible for entering patient case infor- Decision Making: Actively troubleshoots problems and re-
mation correctly, performing multiple tests accurately; meeting solves issues while ensuring that the quality of work is main-
required TAT (turn-around time) in lab procedures involv- tained and progresses in a timely fashion.
ing patient care specimens and responsible for patient care
confidentiality.

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 331

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Working Conditions Environmental Conditions

Note: the percentages indicated in this section reflect the percentage of the total job in which the incumbent is exposed to
the conditions listed and not necessarily the percentage of exposure on a daily basis.
Exposure Critical
Critical to Performance to Performance
Physical Factors (Yes/No) % of Time Factors (Yes/No) % of Time
Lifting/ Carrying Yes 20% Atmospheric N/A
25–50 lbs. Conditions
Standing Yes 40% Weather Conditions N/A
Walking Yes 15% Noise Yes 75%
Sitting Yes 40% Blood-borne Yes 30%
Pathogens
Pulling/Pushing Yes 10% Needle Sticks Yes 5%
Climbing No Electric Shock Yes 50%
Reaching Yes 10% Radiation N/A
Kneeling Yes 10% Chemicals Yes 30%
Stooping Yes 5% Bio-hazardous Waste Yes 30%
Other—Computer Yes 15% Patient-induced N/A
Operation Injuries
Other Hazards N/A
Functional or Sensory Requirements: List any functional or sensory requirements that are critical to job performance and
describe how they relate to the job competencies, such as verbal skills, color discrimination, sense of taste/smell, hearing,
touch, manual dexterity, memory for detail.

Requires manual dexterity, memory for detail, literacy skills and decision-making abilities to receive and process specimens.
Requires verbal skills and hearing ability in order to communicate with physicians, nursing staff, secretarial staff, etc., over the
phone or in person. Must be able to discriminate between colors in order to evaluate staining results. Must pass color blindness
test. Must be able to manage multiple tasks at one time and demonstrate ability to remember details to perform complicated tasks
in a fast-paced environment.
332 PERSONNEL MANAGEMENT

APPENDIX 16.2 Medical Technologist Performance Standards

Name:

Rating Period:

Service excellence standards

Consistently Occasionally Occasionally
exceeds exceeds Meets meets Rarely meets
standards standards standards standards standards NA
Care—friendliness, respect, diversity, and commitment
1. Greets patients with a smile and 4
says “Hello.”
2. Makes eye contact, listens, and 4
provides assistance.
3. States name and uses patient’s 4
name whenever possible.
4. Knocks on the door before en- X
tering patient’s room.
5. Closes curtains and door during X
exams and procedures.
6. Does not discuss patient infor- 3
mation in public areas.
7. Keeps patient information 3
confidential.
8. Works to provide a clean and 3
safe environment.
Professional Appearance
9. Maintains a professional 4
appearance.
10. Clothing is neat and clean. 4
11. Wears employee identification 4
badge consistently, in a manner
that is easily seen.
12. Hair is clean and well-groomed. 4
Communication—information, education, call lights, telephone, listening and empathy
13. Uses easily understood language 4
when interacting with patients or
customers.
14. Introduces him- or herself to X
patients and explains his or her
role in the patient’s care.

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 333

APPENDIX 16.2 Medical Technologist Performance Standards (continued)

Consistently Occasionally Occasionally

exceeds exceeds Meets meets Rarely meets
standards standards standards standards standards NA
15. Answers call lights, addressing X
patient by name.
16. Answers telephone in a pleasant 4
tone, identifying department and
giving name.
17. Explains delays and thanks pa- 3
tients for waiting.
18. Concludes interactions by ask- 3
ing, “Is there anything else I can
do for you?”
Service—service recovery and teamwork
19. Recovers service disappointments.
20. If approached for directions, of- 3
fers to escort patients/customers
to their destination.
21. Interacts with coworkers respect- 3
fully and professionally.
22. Does not discuss staffing levels or 3
system deficits with customers.
23. Demonstrates teamwork. 4
Department-specific standards (optional)
24.
25.
Sum 40 27
Sum of scores for standards: 67
Number of standards scored: 19
Score per standard: 3.5263
Total number of standards: 25
Total score 88.16
Service excellence score 88.16

(continued)
334 PERSONNEL MANAGEMENT

APPENDIX 16.2 Medical Technologist Performance Standards (continued)

Employee Mandatory Requirements

Note: By responding yes to the mandatory items, you are indicating that documentation Yes No N/A*
can be provided upon request.
Licensure is current and appropriate for present job.
Received annual employee health screening in a timely manner.
Meets mandatory educational requirements of regulatory/accrediting agencies by attending
training or viewing videos.
Meets mandatory training requirements for the present job. Includes such items as fire safety, etc.
Annually reviews and signs the nondisclosure and appropriate use agreement (Health Insur-
ance Portability and Accountability Act).
Annually attends training or views videos regarding the organizational compliance program.
Attends department-specific compliance testing.
Attends all meetings identified as mandatory
Meets timekeeping and attendance expectations.
Mandatory score Met
* N/A, Not applicable.
Scoring: 4: consistently exceeds standards, 3: occasionally exceeds standards, 2: meets standards, 1: occasionally meets standards,
0: rarely meets standards.
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies

COMPETENCY ASSESSMENT
JOB-SPECIFIC COMPETENCIES
Histocompatibility/Immunology Laboratory

Employee Name: _________________________________________________________ Department: __________________________________________________________

Job Title : ______________________________________ Date of Review: _______________________________ Reviewer: _____________________________________

Annual Evaluation
Level of Performance Frequency of Measure How Standard Was Met
M = Meets Expectations Q = Quarterly A = Review Policy E = Observation
P = Partially Meets Expectations A = Annual B = Video/CBT F = Return Demonstration
N = Does Not Meet Expectations O = Once C = Lecture/Inservice G = Self Study
N/A = Not Applicable Other = Indicate Time D = Test (written) H = Other
CATEGORY: Group like competencies. Ensure that each desired outcome or standard is age specific.
Indicate which patient categories the standard applies to i.e., neonate, pediatric, adolescent, adult, or geriatric. 3.9
(Max. 5.0)

Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Desired Outcome/ Frequency of Behaviors Level of How Standard 4 Highly Effective
Standard Measurement Required Performance Was Met 5 Outstanding Comments/Score:
SPECIMEN Q/A Follows SOP M X E/H Effective: Follows SOP in 5
HANDLING in determining P determining specimen ac- Technologist resolves issues
Age-Specific Criteria: acceptability of ceptability. Rejects unaccept- with problematic samples
N
Pediatric patients specimens. Re- able specimens. and takes appropriate ac-
usually have a higher solves problems N/A Highly Effective: Resolves tion as needed. Technolo-
number of lympho- without delay in problems without a delay in gist collaborates well with
cytes per cubic mil- testing (Circle one) testing. Provides information clinicians as needed when
limeter. Less blood to clients. re-collections are warranted.
may be required. Outstanding: Educates cli- He additionally works well
ents to ensure compliance with the BMT coordinators
with laboratory require- to assure timely send out of
ments. Assists clients to High Resolution testing to
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT

assure timely and proper Histogenetics

specimen handling.
335

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)
336
Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Desired Outcome/ Frequency of Behaviors Level of How Standard 4 Highly Effective
Standard Measurement Required Performance Was Met 5 Outstanding Comments/Score:
BENCHWORK Q/A Performs test- M X E/H Effective: Performs testing to 3
Accuracy ing according to P SOP with minimal errors. Technologist’s bench is
Age Specific Criteria: standard proto- Highly Effective: Pro-active thorough with minimal
N
PERSONNEL MANAGEMENT

Pediatric patients cols and reports in correcting and avoiding errors. He can be counted
usually have a higher complete and N/A errors. upon to perform second
number of lympho- correct results. Outstanding: Appropriately review on SSP typings and
cytes per cubic mil- (Circle one) resolves discordant and/or UNET Unacceptables.
limeter. Less blood unexpected results at all levels.
may be required.
BENCHWORK Q/A Performs as- M X E/H Effective: Performs assigned 4
Timeliness signed tasks P testing within set turnaround Technologist efficiently
within set turn- times. handles routine workflow
N
around times ac- Highly Effective: Organizes and meets required TAT’s
cording to SOP, N/A and schedules work hab- for results. Technologist
avoids unneces- its efficiently to maximize assists with training new
sary overtime. (Circle one) workload. staff, and helps to assure
Outstanding: Completes Renal Activation turn
assignments efficiently. As- around meets high perfor-
sumes additional responsi- mance level.
bilities. Assists others
QUALITY Q/A Consistently M X E/H Effective: Consistently pro- 4
CONTROL produces accu- P duces accurate QC results Tech consistently performs
Accuracy rate QC results. within SOP. external proficiencies/
N
Follows labora- Highly Effective: Identifies surveys without significant
tory QA/QC and N/A and deals with discrepant error. He can be counted
QI policies. QC results. Notifies super- upon to perform reagent
(Circle one) visor and/or director of and equipment QC within
problems. defined thresholds and
Outstanding: Actively seeks notify the supervisor and/
to improve the QA/QI sys- or director when there are
tem. Acts as a QA officer. problems.

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

QUALITY Q/A Performs and M X E/H Effective: Performs/docu- 4

CONTROL appropriately P ments QC procedures in a Tech monitors and performs
Timeliness documents timely manner. equipment QC for the
N
quality control Highly Effective: Moni- thermal cyclers, syringes,
(reagent/equip- N/A tors reagent/equipment Lambda Jet, and Centri-
ment) without check points. Identifies and fuges. He performs the
supervision or (Circle one) addresses QC problems duties without significant
reminders as independently. reminders.
scheduled with Outstanding: Identifies
no omissions per ways to streamline QC sys-
year. tems/checks. Identifies and
resolves trends in a timely
manner.
SAFETY Q/A Maintains work- M X B/C/D/E Effective: Adheres to all 4
Performance ing knowledge P safety policies and regula- Tech is a good role model
of all safety tions without reminder. for laboratory safety. He
N
procedures and Highly Effective: Acts helps to quickly store new
chemical/reagent N/A as a role model for safety supplies of reagents and lab-
storage require- procedures. Seeks to avoid ware out of high traffic areas
ments. Follows (Circle one) and correct potential safety in the lab. Tech has been
all OSHA and problems. identified as an alternate to
safety guidelines Outstanding: Educates oth- attend Clinical Pathology
ers. Acts as laboratory OSHA Safety meetings.
safety officer

(continued)
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
337
 338
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Desired Outcome/ Frequency of Behaviors Level of How Standard 4 Highly Effective
Standard Measurement Required Performance Was Met 5 Outstanding Comments/Score:
PROFESSIONAL Q/A Attends appro- M X A/B/C/D/G/H Effective: Attends minimal 3
PERSONNEL MANAGEMENT

GROWTH priate number of P number of contact hours Technologist’s continuing

Quantity continuing edu- (12) or maintains ABHI Cer- education hours meet the
N
cation contact tification. CHT (60 contact required ABHI contact
hours, specified N/A hrs/3yr.) CHS (80 contact hours for the year.
by level of certi- hrs/3yr.)
fication. (ABHI (Circle one) Highly Effective: Exceeds
approved) the minimum number of
contact hours and main-
tains continuous ABHI
certification.
Outstanding: Provides and
promotes continuing educa-
tion through identification of
opportunities and presenta-
tion of information.
PROFESSIONAL Q/A Seeks education M X A/B/C/D/G/H Effective: Seeks education 3
GROWTH that is timely P that is pertinent and timely Tech attends appropriate
Quality and appropriate Highly Effective: Attends and relevant Con Ed when
N
to the scope of appropriate CE; Teaches stu- it is available. He can be
testing. (ABHI N/A dents/fellows. Pursues inde- counted upon to teach visit-
approved). pendent learning. ing students and doctors.
(Circle one) Outstanding: Participates
in journal clubs/ lectures/
presentations and/or poster
sessions.

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

INFORMATION Q/A Properly enters M X E Effective: Follows SOP in 4

SYSTEMS laboratory data/ P determining specimen ac- Tech performs duties well
Result Reporting results into the ceptability. Accepts no unac- in Cerner, PathNet and in
N
hospital infor- ceptable specimens. OTTR. Tech performs tasks
mation network N/A Highly Effective: Resolves in “UNOS/UNET” with-
and into the problems without delay in out problem and can be a
UNOS network. (Circle one) testing. Provides information “backup” for UNOS activa-
to clients. tion renew.
Outstanding: Educates cli-
ents to ensure compliance
with requirements. Assists
clients to assure timely and
proper specimen handling.
LABORATORY Q/A Performs equip- M X Effective: Appropriately 5
EQUIPMENT ment main- P performs all routine main- Tech is counted upon to
Maintenance tenance and tenance and QC without efficiently troubleshoot,
N
Quality Control quality control reminder. maintain, and perform QC
Troubleshooting according to N/A Highly Effective: Takes on several laboratory instru-
SOP. initiative and troubleshoots ments including Thermal
(Circle one) equipment problems. Appro- cyclers, Lambda Jet, centri-
priately notifies lab director/ fuges, and syringes without
supervisor of instrument and reminder. Tech can also be
reagent problems. counted upon to proactively
Outstanding: Troubleshoots. perform maintenance on the
Identifies problems and freezers, water baths, and
solutions. Actively resolves other equipment in the labo-
problems. ratory on an as needed basis.
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
339
340 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology

Performance Appraisal

Employee: Employee Number:

Job Title: MLT Department Name:

Appraiser: Cost Center:

Hire Date: Date of Review:

Appraisal Period:

Type of Evaluation: _______ Probationary Final Numerical Rating: ______________________

_______ Regular PI Percentage: _________________________________

Section I—Job Prerequisites (If the prerequisites are not complete, the performance evaluation process cannot proceed.)

At the start of the review cycle, check each item the employee is required to complete. At the end of the review cycle, check
whether each applicable item has been completed. Those items pre-checked are required of all hospital employees. Documenta-
tion of job prerequisites must be maintained in the employee’s personnel file. All education records must be documented in the
employee’s file or on the employee’s education record that is updated through the training tracking management system. All edu-
cation not provided through Hospital Inc. must be documented in the employee’s departmental file.

PLEASE ENTER EXACT DATES (mm/dd/yy) Required Date

Department Orientation/Checklist (new employee requirement):
Annual Safety & Compliance Training:
Annual Physical/TB Screening/TB Respirator Fit Testing:
CPR Training:
Credentials/Certification:
OTHER:

Job-Specific Competencies:
(Unit competencies are completed and documented in the unit competency manual) YES NO
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 341

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Age-Specific Competency Write N/A here if age-specific competency is not applicable: N/A

Success Criteria:
Demonstrates knowledge and skills required to provide care and/or service appropriate to the age level of development of pa-
tients, with consideration of the needs of patients’ families. For a detailed list, refer to the competency assessment form found in
the unit competency manual within the department.

For DIRECT OR INDIRECT PATIENT CARE: (Check only groups served.) Determined by:
Neonate

N/A Infant N/A Adolescent X Competency Assessment

N/A Pediatric N/A Adult Other

N/A Geriatric

Section II—Core Performance Standards (Core Standards account for 40% of the performance evaluation.)

All employees are responsible for demonstrating MCG Health, Inc.’ s core values. Below are listed seven categories of performance
that are key to providing quality service to patients and customers in a manner that reflects these values. At the start of the review
cycle, review the expected performance with the employee in each of these categories.

Performance Level
(Place X in box or circle score.)
Improvement Needed

Highly Effective

Core Standards of Excellence

Unacceptable

Outstanding
Effective

RESPECT
Success Criteria: Demonstrates respect and responds to all individuals with honesty and integrity. 1 2 3 4 5
Demonstrates commitment to promoting an atmosphere of respect, caring and sensitivity for di-
verse population of patients, visitors, students, employees and others.

Comments:

(continued)
342 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Core Standards of Excellence

Unacceptable

Outstanding
Effective
SERVICE
Success Criteria: Provides and/or promotes quality service in a patient/family-centered environ- 1 2 3 4 5
ment throughout the continuum of care. Demonstrates commitment to the highest standards of
clinical outcomes, operational support systems, customer service and ethical behavior.
Comments:

DIVERSITY
Success Criteria: Values the uniqueness of all individuals, recognizing their beliefs, culture, needs 1 2 3 4 5
and strengths. Demonstrates a commitment to and supports a culture that is sensitive to the di-
verse population of patients, visitors, students, employees and others.
Comments:

COMMUNICATION
Success Criteria: Demonstrates open, honest and timely communications to strengthen relation- 1 2 3 4 5
ships and enhance a cooperative spirit.
Comments:

QUALITY
Success Criteria: Provides excellent service to meet the needs of individuals and communities in 1 2 3 4 5
a patient/family-centered environment throughout the continuum of care with emphasis on opti-
mal quality.
Comments:

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 343

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Core Standards of Excellence

Unacceptable

Outstanding
Effective
COLLABORATION
Success Criteria: Seeks opportunities to collaborate as teams within the organization and the com- 1 2 3 4 5
munity to provide excellence in healthcare. Demonstrates a commitment to teamwork and adapts
to continuous change by being collaborative, creative and flexible.
Comments:

COST EFFICIENCY
Success Criteria: Efficiently uses resources to provide quality services. Accepts personal respon- 1 2 3 4 5
sibility for the use of resources to ensure the highest quality of services are provided in a cost-
efficient manner.
Comments:

Core Standard Score =

(continued)
344 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section III—Job-Specific Performance Standards—Measurable Outcomes

(Job-specific standards account for 60% of the performance evaluation.)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
1. Compliance with Rules of Conduct. 1 2 3 4 5
5.0%

Comments: Weighted score =

(Performance Level × Weight)

2. Compliance with Environment of Care Standards. 1 2 3 4 5

5.0%

Comments: Weighted score =

3. In patient care environment, compliance with Patient/Family-Centered Care. 1 2 3 4 5

0.0%

Comments: Not applicable to Laboratory Services. Weighted score =

4. Compliance with Customer Service Standards. 1 2 3 4 5

10.0%

Comments: Weighted score =

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 345

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
5. Retrieves specimens from frozen rooms, Labor & Delivery, and occasionally from 1 2 3 4 5
clinics. Verifies that patient and specimen identification is correct. Assures that all
25.0%
requisitions are received and contain the minimum required information.

Comments: Weighted score =

6. Demonstrates a general understanding of computer operations and accurately en- 1 2 3 4 5

ters data into the computer. Properly accessions specimens into the LIS and prepares
10.0%
cassettes for each case prior to cutting.

Comments: Weighted score =

7. Assists pathologists and residents in frozen section room, gross room and 1 2 3 4 5
autopsy room.
10.0%

Comments: Weighted score =

8. Prioritizes daily activities to assure that the department meets turnaround times. 1 2 3 4 5
Demonstrates team spirit by volunteering assistance to other team members. Dem-
10.0%
onstrates good organizational skills through multitasking.

Comments: Weighted score =

(continued)
346 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
9. Keeps gross room, frozen rooms, and autopsy rooms clean and well stocked. 1 2 3 4 5
Maintains adequate reagents and supplies.
15.0%

Comments: Weighted score =

10. Verifies outstanding tasks, labels frozen section slides and ensures that frozen 1 2 3 4 5
sections are ordered correctly.
10.0%

Comments: Weighted score =

(the total sum of weights must equal 1.00 or 100%)

Job-Specific Standard Score =

To identify each standard weighted score, multiply the weight by the performance level

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 347

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section IV—Future Goals and Action Plans In the first column, identify AREAS FOR DEVELOPMENT and GOALS for the
next review period. In the second column, outline an ACTION PLAN to address each AREA FOR DEVELOPMENT and the GOAL.

Areas for Development and Goals Action Plans

(For the next review period) (To address area for development; Include target dates)

Developmental Resources
(Indicate specific learning resources the employee agrees to utilize)
Category Examples Note Specific Areas

PC Software
Information Systems
Computer Applications

Customer Service

Communications
Learning Resources Center
Supervisory Skills

Management Skills
Advanced Job Skills

Cross-training
On-the-Job Training
Age-Specific
Competencies

Conferences

Other Seminars

Continuing Education

(continued)
348 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section V—Summary and Review Acknowledgment

Overall Performance Rating

Rating × Weight = Rating

Section II—Core Performance Standards Score 0.00 × 0.4 0.00

Section III—Job-Specific Performance Standards Score 0.00 × 0.6 0.00

Final Numerical Rate (Sum of Excellence Ratings) 0.00

PI Percentage

Employee Name: Outstanding (4.50–5.00)

Date of Employment: Highly Effective (3.76–4.49)
Employee Number: Effective (3.00–3.75)
Date of Appraisal: Improvement Needed (1.50–2.99)
Unacceptable (.00–1.49)
Immediate Supervisor’s Comments:

Employee’s Comments:

Employee Signature:
My signature acknowledges receipt of the evaluation* Date:

Appraiser Signature: Date:

Department Head/Senior Administrator Signature: Date:

*If employee does not agree with content and/or ratings, he or she may note in Employee’s Comments section above.
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 349

APPENDIX 16.5 Web-Based Software Products and Websites

Performance Appraisal Software Competency Assessment Websites

Halogen Software (web-based software) http://www.asm.org/Division/c/competency.htm

www.halogensoftware.com, [email protected]
Telephone: +1 613-270-1011 http://www.medtraining.org/viewlabcomp (accessed 5/21/12)
North America Toll-Free: 1-866-566-7778
www.medialabinc.net/checklists.aspx (accessed 5/21/12)
Performance Impact Enterprise™ (web-based software)
Performance Impact Workplace™ (Windows-based software) http://www.a2la.org/training/aolc.cfm?private=no
Knowledge Point, 1129 Industrial Avenue (accessed 5/21/12)
Petaluma, CA 94952
707-762-0333/0375 http://www.cap.org (accessed 5/21/12)
Fax: 707-762-0802

Performance Appraisal Websites

http://www.worldatwork.org (accessed 5/21/12)

http://www.work911.com (accessed 5/21/12)

350 PERSONNEL MANAGEMENT

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech initial Trainer initial Comp meet Semi-annual

Communication

1. Calls critical values in accordance with departmental

critical value list
2. Calls for additional information as needed
3. Relays results and reports using appropriate laboratory
information system (LIS) function to nurse or physicians
LIS

1. Understands LIS accessioning function for sequencing

cultures
2. Uses appropriate computer function to result blood
cultures
3. Uses templates to work up cultures and understands
how charges are generated in LIS
4. Understands required reports for cultures and knows
how to send corrected reports
5. Knows how to order and cancel susceptibilities
General lab duties

1. Has knowledge of lab safety, including use of the BSC

and personal protection equipment
2. Keeps work area clean, stocked, and organized
3. Assists with inventory and QC
4. Completes instrument maintenance as assigned
Interpretation of cultures

1. Understands purpose of various media for the selec-

tion and differentiation of organisms
2. Reports colony count for urine and IC cultures
3. Knows criteria for reporting and working up mixed
urine and wound cultures
4. Understands what is normal flora in respiratory,
wound, stool, and reproductive specimens
5. Has good colony isolation technique
6. Understands the principles of isolation and work up of
anaerobic organisms
7. Knows which body sources are normally sterile

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 351

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Blood cultures (BC)

1. Knows how to load and unload bottles, generate re-

ports, and send preliminary and final reports
2. Prepares, stains, and interprets positive BC
3. Knows which organisms are considered to be contami-
nants when isolated in one set of BC
4. Stocks all isolates
5. Sends notification form to floor when cultures are con-
taminated for phlebotomist follow-up
6. Clears out positive box as cultures are completed
Biochemical and spot tests

1. Demonstrates competence in the performance and

interpretation of the following tests:
Catalase
Oxidase
Spot indole
Tube indole
Staph latex agglutination
BBL™ coagulase (tube)
L-Pyrroglutamyl-peptide hydrolase (PYR)
BBL™ Cefinase™
Catarrhalis Test Disk™
Microdase™ disk
Desoxycholate test
BBL™ Taxo™ P disk
Phadebact® pneumococcal reagent
Strep PathoDx® test
BE/NACL
Hippurate Disk™
Novobiocin test
2. Understands the frequency and documentation of re-
agent QC
Stains

1. Prepares, stains, and interprets Gram stains on direct

specimens and culture isolates
2. Understands when to perform wet preps
3. Sets up and reads germ tubes
4. Prepares and reads India ink smears
5. Prepares and reads KOH smears
(continued)
352 PERSONNEL MANAGEMENT

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Biochemical identification (ID) systems

1. Sets up the following ID cards:

GPI™
GNI™
NHI™
ANI™
YBC™
2. Sets up and reads the following ID systems:
api® 20E
api® 20 NE
RapID™ NH
RapID™ ANA II
RapID™ STR (Strep)
Referrals

1. Refers IDs to SBH when needed

2. Sends the following isolates to the SBH for serotyping:
H. influenzae from blood or CSF
N. meningitidis
Salmonella (upon request or from blood)
3. Refers CF isolates as needed for ID and synergy
Susceptibility testing

1. Understands colorimeter standardization and

maintenance
2. Demonstrates knowledge of the basic operation and
troubleshooting of the Vitek® instrument
3. Knows how to handle and store Vitek® cards
4. Knows how to set up GNS™ and GPS™ cards
5. Understands the Vitek® Expert system
6. Understands how Etest®s are set up and how they are
interpreted, including various types of growth that
are seen
7. Knows how to read Bauer-Kirby disk diffusion
8. Knows how to read Microscan® or other micro-broth
dilution panels
9. Knows when to set up an anaerobe MIC panel and
how to read the results
10. Understands frequency and documentation of sus-
ceptibility QC
11. Knows how to set up and report experimental antibi-
otics and how to document QC
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 353

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Susceptibility reporting

1. Knows the usual susceptibility pattern for:

Klebsiella
Citrobacter
Enterobacter
Proteus
Serratia
Pseudomonas
Acinetobacter
2. Understands the oxacillin screen for S. aureus
3. Knows how to confirm a VRE
4. Knows when and how to confirm an ESBL
5. Knows age-dependent rules for the following
antibiotics:
Ampicillin/sulbactam
Levofloxacin and ciprofloxacin
Tetracycline
6. Understands how the following classes of antibiotics
cascade:
Ampicillin/penicillin
Aminoglycosides
Quinolones
Cephalosporins
Imipenem
7. Recognizes unusual susceptibility results:
Vancomycin resistance in Staphylococcus
Imipenem resistance in enteric GNB
Piperacillin resistance with pip/tazo susceptible
Levofloxacin resistance in S. pneumoniae
8. Knows which antibiotics are reported in urine, blood,
and CSF
9. Knows where to find antimicrobial susceptibility stan-
dards (CLSI standards) document
354 PERSONNEL MANAGEMENT

APPENDIX 16.7 Training Checklist for Third-Shift Microbiology

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech date Trainer Comp meet Semi-annual check

Rapid Procedures

1. Interpretation of direct Gram stains

2. Set up and interpretation of:
India ink
Wet prep
3. Performs strep A Ag procedure
4. Sets up stool for pus (WBC)
LIS

1. Understands laboratory information system (LIS)

functions for logging in cultures
2. Enters Gram stain results in LIS
3. Results strep Ag and orders beta-strep culture if
strep Ag is negative
4. Communicates with day shift through communi-
cation log
Culture set-up

1. Knows how to set up CSF for culture and how to

use cytocentrifuge for smear prep
2. Knows how to set up sputum cultures
3. Knows how to set up urine cultures
4. Subcultures GN broths to XLD at 4–6 hours
5. Knows how to store specimens that are not being
set up
6. Knows how to use CO2 bags
Blood cultures

1. Knows how to enter information in the BC in-

strument computer
2. Knows how to load bottles into the instrument
3. Knows how to unload positive bottles
4. Knows how to enter the positive BC Gram stain
and how to send a preliminary report
5. Orders template to record information
6. Notifies patient’s nurse
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 355

APPENDIX 16.8 Training Checklist for Microbiology Medical Laboratory Technician

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech date Trainer Comp meet Semi-annual check

Communication

1. Answers phone courteously and effectively (giv-

ing name and department)
2. Assists floors with ordering tests
3. Calls for additional information as needed
4. Relays results and reports using appropriate
laboratory information system (LIS) function to
nurses or physicians
LIS

1. Orders tests through appropriate LIS function

2. Knows proper test for specimen types
3. Aware of all tests that are ordered (specimens
may have multiple orders)
4. Knows how to cancel and credit tests
5. Knows how to receive specimens through ap-
propriate LIS function
6. Knows how to receive using appropriate LIS
function, BCs with the proper drawn ID
7. Logs cultures into Micro through appropriate
LIS function
8. Knows how to change default media
9. Knows how to change the work center
10. Knows how specimens are routed and how to
change the routing of specimens
General lab duties

1. Knows about lab safety, including use of the BSC

and personal protective equipment
2. Keeps work area clean, stocked, and organized
3. Assists with inventory control, including putting
away supplies and media
4. Knows how to operate the autoclave
5. Works with specimen management to see that
specimens are received ASAP

(continued)
356 PERSONNEL MANAGEMENT

APPENDIX 16.8 Training Checklist for Microbiology Medical Laboratory Technician (continued)

Function Tech date Trainer Comp meet Semi-annual check

Specimen setup

1. Knows how to assess the quality and transport

time of specimens (specimen rejection policy)
2. Knows appropriate tests for each specimen type,
including immunocompromised panel
3. Knows appropriate plates for each culture
4. Knows when to add media to a culture
5. Knows how to prioritize culture set up (i.e., set
up anaerobe, surgical, and CSF before other
cultures)
6. Sets up cath and cc urine with .001 loop and
cysto and suprapubic urine with .01 loop
7. Batches stool cultures
8. Knows how to grind tissue (except for fungus)
9. Knows which cultures have a Gram stain
10. Knows how to set up fungus culture on tissue
11. Knows how to handle AFB cultures
12. Knows how to set up ANA and Campy jars
13. Knows what media to set up on fungus cultures
14. Understands where to incubate plates:
Peds and all cultures CF, THR, BETA,
EAR, CSF
Pediatric urine
Adult urine
Infection control
Adult cultures
Fungus cultures
15. Knows how to handle viral, O&P, and serology
specimens
Blood cultures

1. Knows how to load and unload bottles

2. Knows how to process positive BC
3. Transfers positive cultures to appropriate work card
Rapid procedures

1. Prepares smears and performs Gram stains

2. Knows how to set up
India ink
Calcofluor white
KOH
Wet prep
3. Performs strep A Ag procedure
4. Knows how to set up stool for pus (WBC)
5. Knows how to set up stool occult blood
6. Interprets Helicobacter screening test
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 357

APPENDIX 16.9 Competency Assessment Form: Microbiology Specimen Processing

Employee name: ______________________________________________________

Evaluation interval: ___________________________________________________

Task-direct observation Met Not met Evaluator Date

Match order slip with specimen
Match identification on specimen and order
Perform laboratory information system (LIS) specimen receipt function
Utilize specimen rejection criteria
Select appropriate media for culture
Place computer labels on media
Label glass slide for smears
Operate biological safety cabinet (BSC)
Wear gloves and protective coat when handling and plating specimens
Perform plating of specimens inside BSC
Use aseptic technique handling specimens
Inoculate and streak plates using method appropriate to body site of specimen
Use tissue grinder for tissue specimens
Use centrifugation for fluid specimens
Place inoculated media in appropriate gaseous/temperature environment
Achieve well-isolated colonies on cultures
Smear dried and fixed
Perform Gram stain on smears
Interpret Gram-stained smears
Record Gram stain results on work card
Call critical Gram stain results
Enter Gram stain results in LIS
Complete requisition for reference lab
Use appropriate packaging materials for referred specimens
Complete external courier shipping forms
Store specimens until referred
QC/instrument function-review records

(continued)
358 PERSONNEL MANAGEMENT

APPENDIX 16.9 Competency Assessment Form: Microbiology Specimen Processing (continued)

Task-direct observation Met Not met Evaluator Date

Gram stain QC
Function checks of BSC
Problem solving—review records
Mislabeled specimens
Unlabeled specimens
Remedial action:

Reassess: [ ] Met [ ] Not met Date ______________________________

Evaluator _________________________________________________

Employee name ___________________________________________ Date ______________________________

Supervisor ________________________________________________ Date ______________________________

Director __________________________________________________ Date ______________________________

 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 359

APPENDIX 16.10 Competency Assessment Form: Blood Culture Procedures—Bactec® 9240

Employee name: ______________________________________________________

Evaluation interval: ___________________________________________________

Task-direct observation Met Not met Evaluator Date

Use personal protective equipment
Inspect bottles for fill volume
Note underfilled bottle on work card
Note on work card if only one bottle received
Review order for unusual organisms
Extend protocol length function
Use FOS™ for fluid specimens
Check receipt/collection date/time: if .48 h, perform blind subculture
Load bottles into instrument
Resolve anonymous bottles
Resolve orphan bottles
Safely dispose of bottles
Subculture positive bottles in biological safety cabinet
Call Gram stain results
Results/records review
Record results on work cards
Enter results into on-line patient record
Instrument function—review records
Perform function checks of Bactec® 9240
Problem solving—review records
Resolve failure of tape backup
Remedial action:

Reassess: [ ] Met [ ] Not met Date ______________________________

Evaluator _________________________________________________

Employee name ___________________________________________ Date ______________________________

Supervisor ________________________________________________ Date ______________________________

Director __________________________________________________ Date ______________________________

360 PERSONNEL MANAGEMENT

APPENDIX 16.11 Performance Improvement Plan

PERFORMANCE IMPROVEMENT PLAN (PIP)

Print Employee Name ________________________________________ Emp # _____________________________________________

Job Title _____________________________________________________ Dept Name ________________________________________

Print Manager Name _________________________________________

Date of Infraction ______ /______ /______

Reason for PIP: (ENTER CODE HERE) ______________ Is this a Final Warning? YES NO

ATT Attendance GMC Gross Misconduct HIP HIPAA Violation

PER Performance SAF Safety Violation VIO Rules Violation

The following written counseling is in reference to recent issues.

• Specific description of infraction(s) or area(s) for improvement (if reason is attendance, list date and reason given by em-
ployee for unscheduled absence, start of scheduled shift and arrival time for tardy or partial absence, or time left for partial
absence, and/or time called in for late call):

• You must understand it is crucial all employees perform their job responsibilities correctly and consistently. The following
outlines specific performance expectations plan for improvement (when appropriate, list specific dates for completion of
plan):

We expect these changes to be made immediately (when appropriate) or by the dates listed in the expectations plan above. The
requirement for successfully achieving the goals of the PIP is improved and sustained performance, in addition to meeting spe-
cific goals and requirements.

We have every confidence the problem will be corrected. However, your work performance must improve and will be closely
monitored. If any other issues or situations occur where abuse of Hospital, Inc. policy, or other performance related concerns ex-
ist, you will be disciplined, up to, and including, termination of employment.

This document will be placed in the employee’s official employment record, which is in Human Resources. If the employee received a
“Needs Improvement” on his/her performance appraisal, please submit this form along with it.

I have read and understand the above written counseling. I understand this counseling does not constitute any type of contract. I
understand my continued employment with Hospital, Inc. depends upon my successful completion of this PIP.

Signature/Acknowledgement: Employee Date

Signature: Manager Date

Signature: Witness (if applicable) Date

Cc: Employee, Manager’s File for follow-up, Employee Relations, Human Resources
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 361

APPENDIX 16.11 Performance Improvement Plan (continued)

PEFORMANCE IMPROVEMENT PLAN—MANAGER REFERENCE TOOL

FOR MANAGER USE ONLY—NOT FOR DISTRIBUTION TO EMPLOYEE

CODE REASON EXAMPLES OF BEHAVIORS

ATT ATTENDANCE • UNSCHEDULED ABSENCES-FULL OR PARTIAL
• TARDINESS
• LATE CALL
• FAILURE TO CLOCK IN/OUT
• NO CALL, NO SHOW

GMC GROSS MISCONDUCT • ENGAGING IN RUDE OR DISCOURTEOUS CONDUCT TOWARD PATIENTS/

EMPLOYEES/VISITORS
• THEFT, UNAUTHORIZED USE OR WILLFUL DESTRUCTION OF PROPERTY
• COMMISSION OF A CRIMINAL ACT
• FALSIFICATION OF DOCUMENTS/RECORDS
• HARASSMENT
• DISCRIMINATION
• WORKPLACE VIOLENCE
• INSUBORDINATION/WILLFUL DISOBEDIENCE
• SUBSTANCE ABUSE VIOLATIONS OR DRUG OFFENSES
• CARRYING A WEAPON WHETHER LICENSED OR UNLICENSED ON MCG
HEALTH, INC. PROPERTY
• SLEEPING ON JOB
• FAILURE TO REPORT ARREST, CHARGE, CONVICTION, PLEA, OR DRUG
OFFENSE
• INAPPROPRIATE SHARING CONFIDENTIAL INFO (NOT HIPAA
VIOLATION)
• EXPLOITATION OF PATIENTS OR FAMILIES FOR PERSONAL GAIN OR
BENEFIT
HIP HIPAA VIOLATION • HIPAA VIOLATIONS—HR & LEGAL CONSULT REQUIRED

SAF SAFETY VIOLATION • PATIENT ID ERRORS

• MEDICATION ERRORS
• MISLABELED SPECIMENS
• HAZARDOUS ACTIVITIES
• ANY OTHER VIOLATION THAT WOULD CAUSE A PATIENT SAFETY
CONCERN
PER PERFORMANCE • EMP DOES NOT MEET REQUIREMENTS TO PERFORM JOB
• ERRORS
• INACCURACIES
• CAN NOT MEET PRODUCTIVITY STANDARDS (NOT BEHAVIORAL ISSUES)

VIO RULES VIOLATION • EMP VIOLATES A SPECIFIC RULE OR POLICY OR DEPT PRACTICE
• ENGAGING IN NON BUSINESS ACTIVITIES WHILE AT WORK

This list contains examples of actions that would fall under each code; however, it is not all-inclusive. Should you have any questions
or concerns in completing this form, please contact Employee Relations, Human Resources.
Introduction
17
Laboratory Personnel: Current Dynamics
Staffing and Scheduling
Affecting Staffing
Labor Shortage • Business Need • Increasing Patti Medvescek
Opportunities for Medical Technologists
Personnel Requirements
Education • Training and Competence Assessment •
Functional Definitions • Generalist versus Specialist
Laboratory Staffing
Staffing Requirements • Basis for Determination:
Workload Recording
OBJECTIVES
Staff Scheduling To explain the dynamics of staffing and scheduling laboratory personnel with
Key Success Factors • Metrics for Success • respect to current labor trends and business requirements
Alternatives • Special Considerations • Flexible To describe the personnel classifications as determined by governing bodies,
Staffing
accreditation agencies, and specific laboratory needs
Summary
To compare and contrast traditional versus alternative staffing plans, using
KEY POINTS
personnel classification and qualification and service requirements
GLOSSARY
To describe key success factors for laboratory scheduling and metrics for
REFERENCES effectiveness and efficiency
APPENDIX

Creativity seems to emerge from multiple experiences, coupled with a well-

supported development of personal resources, including a sense of freedom to
venture beyond the known.
Loris Malaguzzi

P
atty Enrado wrote in Healthcare Finance News in 2009, “Labor costs
continue to be hospitals’ biggest expense” (4). This statement includes
the clinical laboratory, where human resources account for 42% of the
laboratory budget (Truven Health Analytics, http://truvenhealth.com/products/
action_oi.aspx [accessed June 27, 2013]). Table 17.1 shows that maximizing
utilization of staff is a key to controlling expenses in the laboratory. The edu-
cation and experience required of the staff as well as staff scheduling models
can optimize laboratory operations. Failure to recognize the impact of staffing
and scheduling might diminish services provided and negatively affect the op-
erating budget. Laboratory managers must understand the current and future
dynamics that influence staff availability and must be aware of scheduling op-
portunities to provide efficient and effective laboratory operations.

Laboratory Personnel: Current Dynamics

Affecting Staffing
Labor Shortage
Many organizations, including the American Association of Clinical Chemis-
try and the Bureau of Labor Statistics, have reported on the shortage of clinical
Clinical Laboratory Management, 2nd Edition
laboratory scientists. The root cause is varied, including fewer people entering
Edited by L. S. Garcia the field, resulting in fewer schools for medical technology, combined with
©2014 ASM Press, Washington, DC decreases in available funds for education and an increase in opportunities
doi:10.1128/9781555817282.ch17 outside of the laboratory sector.

362
 CHAPTER 17. STAFFING AND SCHEDULING 363

Table 17.1 Average labor expense as percentage of total expensesa Business Need
Type of facility % of total expenses The Occupational Outlook Handbook reports, “Technolog-
All respondents 39.66 ical advances will continue to have two opposing effects
Total operating beds 1–100 45.50 on employment [of clinical laboratory technologists and
Total operating beds 101–200 40.97 technicians] through 2010. New, increasingly powerful di-
Total operating beds 201–300 41.50 agnostic tests will encourage additional testing and spur
Total operating beds 301–400 39.57 employment. On the other hand, research and develop-
Total operating beds 401–600 37.69 ment efforts targeted at simplifying routine testing proce-
Total operating beds 601 or more 40.19 dures may enhance the ability of non-laboratory personnel,
Major teaching hospitals 38.52 physicians and patients, in particular, to perform tests now
Minor teaching hospitals 39.51 done in laboratories” (1). As hospitals (and laboratories)
Nonteaching hospitals 41.56 continue their evolution from healthcare providers to busi-
a
Average wage adjusted, excluding physician compensation, including sal-
nesses providing healthcare services, laboratory managers
ary, wages, and benefits. Source: ActionOI® data, 2010 (Truven Health Analytics, are faced with the challenges of achieving a balance be-
http://truvenhealth.com/products/action_oi.aspx). tween skill levels of staff and scheduling staff to maintain
services while reducing costs. How the laboratory interacts
with other ancillary and hospital departments becomes
In May 2011 the American Association of Clinical important as cost sharing, cost savings, and point-of-care
Chemistry’s Clinical Laboratory News published the article testing are integrated into the hospital.
“Trends in Recruitment and Retention,” which addresses
the potential labor shortage with ideas to improve staff re- Increasing Opportunities for Medical Technologists
tention, highlighting techniques that have been successful The Bureau of Labor Statistics, in the Occupational Out-
in retaining trained laboratory staff to mitigate the impact look Handbook, lists related fields in chemistry, materials
of the decreasing labor pool (7). Three years earlier, this science, veterinary technologists, technicians, and assis-
organization addressed the issue of staff shortages: “The tants. Also available to laboratory personnel are positions
number of people needed annually to fill clinical labora- in manufacturing and industry, including sales, technical
tory positions exceeds 10,000. But graduates of baccalaure- support, and research and development positions. Clearly,
ate and associate degree programs in laboratory medicine the labor shortage, the increased need for trained person-
number only about 4,500, so current educational programs nel, the availability of jobs in nonhealthcare settings, and
meet only about half of the actual need” (5). Today, the the barriers for entry into the field (perceived low salary
laboratory manager must be aware of the potential labor and schedule demands) mandate the need for effective
pool available in the community as well as the tenure of staffing and scheduling in the clinical laboratory to make
laboratory staff to predict potential shortages. the best use of and retain available talent.
A 2010 Bureau of Labor Statistics report stated that
the need for clinical laboratory professionals will in-
crease 10 to 20% over the next decade, while medical
Personnel Requirements
technology schools are closing because of the high cost of
maintaining quality programs. “Employment of medical Education
laboratory technologists is expected to grow by 11 per- Medical and clinical laboratory technologists generally
cent between 2010 and 2020, about as fast as the average have a bachelor’s degree in medical technology or one of
for all occupations. Employment of medical laboratory the life sciences or a combination of formal training and
technicians is expected to grow by 15 percent between work experience. Technicians generally have either an
2010 and 2020, about as fast as the average for all occupa- associate’s degree or certification from a hospital voca-
tions” (1). tional or technical school. Several programs provide cer-
The availability of trained individuals to perform labo- tifications for technologists and technicians or training
ratory testing is and should be a concern for laboratory program guidelines, including the American Society for
managers. The creative staffing and scheduling needed to Clinical Pathology (ASCP), the American Society of Clini-
reduce staffing requirements are as important in 2012 as cal Laboratory Scientists (ASCLS), the National Creden-
they were in the late 1990s to lessen the impact of this tialing Agency, and the Clinical and Laboratory Standards
shortage. In addition, the absolute need to maintain ef- Institute (CLSI), formerly the National Committee for
ficiency in labor utilization to control costs is increasingly Clinical Laboratory Standards (NCCLS).
apparent based on the potential and future changes in The basic requirements for personnel to perform testing
reimbursement based on patient satisfaction and patient in a clinical laboratory are proscribed in the Clinical Labora-
outcomes. tory Improvement Amendments of 1988 (CLIA ’88). Tests
364 PERSONNEL MANAGEMENT

are grouped by complexity (as defined within the CFR Functional Definitions
Sec. 493), with specific licensure, education, or experience For purposes of this text, several terms are discussed within
requirements for each complexity model. The degree re- the context of staffing and scheduling in the laboratory:
quired for testing personnel varies and includes doctors of
medicine or osteopathy; doctoral, master’s, or bachelor’s • Laboratory size is identified due to the differing needs
degrees; associate degrees; or high school diplomas. The for the laboratory based on physical limitations (mul-
common denominator is documented training for each in- tiple locations, floors, laboratories requiring additional
dividual performing laboratory testing, based on the com- personnel to efficiently perform testing). Small labora-
plexity of the tests performed. The credentialing options tories occupying less square footage may require fewer
(for example, bachelor of science degree in medical tech- personnel if a generalist can cover all the areas.
nology or chemistry, or high school diploma plus military • Laboratory location, also a variable, should be con-
training) provide the laboratory manager with flexibility in sidered. For example, for a hospital laboratory,
hiring decisions and scheduling. This flexibility can be de- proximity to high-use areas, such as the emergency
fined in terms of ratios of technologists, technicians, and room (ER) or intensive care unit, will lessen the time
employees with a high school education plus training. The required for transportation of personnel services be-
College of American Pathologists (CAP) and other organi- tween these areas and the laboratory. Decentralized
zations with deemed status under CLIA ’88 to provide ac- services will affect staffing requirements. Staffing
creditation programs for clinical laboratories require that STAT laboratories, outpatient facilities, and nursing
“all testing personnel meet CLIA ’88 requirements” (2). unit stations requires additional personnel. The ben-
If the overall laboratory staff increases, the ratio of efit of decentralized services is improved turnaround
technicians to technologists may change in favor of techni- time for direct services; the cost is trained personnel
cians and those trained on the job. As staffing decreases, to staff the areas.
more technologists (qualifying as technical supervisor) are • Laboratory test menus are a factor in determining
needed to ensure that qualified personnel perform all ser- staffing patterns, based on the complexity of testing
vices over all shifts. performed. A generalist model may be appropriate for
a hospital or physician office laboratory (POL) that
Training and Competence Assessment refers microbiology identification and susceptibility
Accreditation processes address the need for continuous testing or blood bank antibody identification; the spe-
training for laboratory staff. In the 2012 General Check- cialist model may be required for laboratories, regard-
list, the CAP states that there should be “a functional con- less of size, that provide a tertiary level of service.
tinuing clinical laboratory education program adequate to
• Laboratory service levels include activities defined by
meet the needs of all personnel” and that “the competency
process or contract. These may include specimen col-
of each person to perform his/her assigned duties is as-
lection on- and off-site, POL support, reporting proce-
sessed” (2).
dures, and other support provided by the laboratory to
Each technologist or technician must be competent to
one or more facilities.
perform laboratory tests based on the specific policies and
procedures of the laboratory. Training and competence • Flexible staffing involves staffing to workload demand
must be documented within personnel records. In addi- by assessing workload on a shift-by-shift basis, rou-
tion, on-the-job training may be integrated into the labo- tinely canceling or floating staff based on workload.
ratory for those with the minimum education required. • Fixed staffing involves a fixed, budgeted number of
Consideration should be given to on-the-job training, full-time equivalents (FTEs) projected to complete the
especially for laboratory assistants or phlebotomy staff, anticipated workload.
for job improvement and promotion. As the labor pool of
skilled employees decreases, developing a pool from within Generalist versus Specialist
provides the laboratory manager with additional resources The staffing model widely used 30 years ago was based
to staff the laboratory. Employees who are trained and on specialists for every discipline in the laboratory. Labor-
ready to perform a variety of tests limit the negative im- saving instruments and computerization have changed
pact of staff absence, leaves of absence, or open positions the testing process in the laboratory, allowing ease of
in the laboratory. test performance. This opens the opportunity to employ
The ASCP, the American Society for Microbiology, the a generalist model in the laboratory. Generalists can be
National Credentialing Agency, and the Clinical Labora- cross-trained for all laboratory sections. Cross-training
tory Management Association, among others, provide can be defined for staffing purposes as training an indi-
continuing education opportunities through journal re- vidual to perform testing in more than one functional
views, educational programs, and meeting seminars. area of the laboratory. Traditionally, medical technologists
 CHAPTER 17. STAFFING AND SCHEDULING 365

were assigned to a specific section, e.g., hematology or Table 17.3 Staffing ratio: costs and benefits
chemistry, and their competency was assessed only for Staff Cost Benefit
those tests performed in that area. By training personnel Technologists Expense and Expertise in testing
to perform testing in multiple areas of the laboratory, the availability methods
laboratory manager has the skill mix available to assign Ability to analyze
individuals where the need is greatest at the time. Cross- and solve problems
training in multiple areas of the laboratory requires more Technicians Expertise may be Less expensive
resource allocation for competency assessment. The cost insufficient to review
of increasing breadth of training must be balanced by or troubleshoot test
results
efficiencies gained from cross-training. Cross-training
On-job trained Training program Resource supply,
generalists, however, may not be advantageous for very preparation and lower labor cost
complex facilities for all areas of testing. Esoteric or highly implementation
specialized disciplines need the depth of knowledge that a
specialist provides. The laboratory manager can employ a
hybrid model by identifying those tasks common to all ar-
eas of the laboratory and training all qualified staff mem-
Laboratory Staffing
bers. The pros and cons of generalist versus specialist are
shown in Table 17.2. Staffing Requirements
In addition to the generalist versus specialist model, The laboratory manager must assess the needs of the labo-
the laboratory manager should review career levels within ratory to determine the number of employees needed as
each job function. Career advancement in medical tech- well as the mix of expertise, training, or credentials of
nology can follow the administrative track (to laboratory technical staff. The following are elements within the labo-
supervision) or the technical specialist’s track, e.g., senior ratory that should be addressed.
technologists. Having two career tracks does provide op-
tions for laboratory employees to stay in the laboratory Test mix. A large test menu, including moderately and
through job enrichment and job enhancement. When highly complex tests, requires a different group of tech-
staffing is adequate to accommodate multiple levels of job nical staff than a laboratory performing mostly routine
categories, the potential exists to reduce turnover and pro- testing on automated analyzers. Specialty areas in microbi-
vide additional resources for problem resolution, technical ology, surgical pathology or cytology, and blood bank also
consultation, and staff education. require special consideration.
If cost savings are needed in the laboratory and labor
accounts for a large percentage of the laboratory budget, Hours of operation. A full-service laboratory supporting
then changing the skill mix of the staff is one way to achieve an ER and/or intensive care units requires a different pat-
cost savings. However, the optimal mix of assistants, tech- tern than an outpatient laboratory or POL providing ser-
nicians, and technologists (specialists and generalists) vices Monday to Friday for one shift. Staff must be available
should be specific for each facility based on the functional to support the emergency room and critical care units, at
definitions of the laboratory. Once the CLIA ’88 require- least for those tests that must be available as STAT tests at
ments are satisfied for testing personnel, it is up to the labo- all times. The STAT test menu is an important tool for the
ratory manager and director to determine the proper mix. laboratory manager to ensure adequate staffing at all times
Cost/benefit analysis can assist in determining this mix, as to meet the expectations for services provided.
shown in Table 17.3.
Supervision. The requirements for on-site technical su-
pervision in CLIA ’88 mandate the need for technologists
Table 17.2 Generalist versus specialist staffing models in addition to technicians on off shifts, weekends, and
Model Pros Cons holidays.
Generalist Staffing flexibility Increased resource alloca-
Entry level tion to maintain and docu- Service levels. Turnaround time, phlebotomy, results re-
opportunities ment staff competency porting, and sequential testing are all variables to consider
Breadth of knowledge Entry level, as staff gain when staffing the laboratory. An outpatient laboratory
experience in tenure may provide all test results by the next day, allowing for
Lack of depth a smaller staff to perform specimen collection during the
Specialist Depth of knowledge Narrow base of experience day, with batch testing performed in the early evening. A
Career ladder Limited flexibility in full-service laboratory performing tests for the ER will re-
opportunity scheduling quire testing personnel 24 hours/day to perform a STAT
366 PERSONNEL MANAGEMENT

test menu with turnaround times within minutes. Com- Basis for Determination: Workload Recording
puterized result reporting eliminates the need for labo- Some method should be used to objectively document the
ratory assistants to hand-deliver test results. Automatic amount of “work” performed by the laboratory. The units of
sequential or cascade testing relieves clerical or technical work are factored by the hours required to perform the work
staff of contacting physicians with results and/or wait- to determine productivity. The Laboratory Management In-
ing for additional test requests. The laboratory manager dex Program (LMIP) is one program that provides bench-
should understand the costs/benefits of utilizing a refer- marks for productivity, utilization, and cost effectiveness.
ence laboratory for routine testing, if the desired service The standard billable test (SBT) is the primary unit of mea-
level can be maintained, based on the expectations set by sure for LMIP (3). The SBT is a method of standardizing test
the medical staff and hospital administration. counts and eliminates billing, accounting, and interpretation
variations to ensure that valid comparisons are created.
Services supported. Laboratories that support level 1 There are other productivity measurement tools as well,
trauma centers, transplant programs, cardiovascular sur- such as the Thomson-Reuters Action O-I® operational im-
gical programs, and clinics, to name a few, could have provement tool (http://truvenhealth.com/products/action
different minimum staffing requirements than a general _oi.aspx) that measures labor productivity (primarily) for
acute-care suburban facility. acute-care hospitals, including all departments within the
hospital. Laboratories are reported in this database based
on hours worked or paid per billable test, adjusted days,
Productivity levels. The author has based productivity or adjusted discharges. The key to workload recording is
goals on a “traditional” 80% productivity measure. The to determine the basis for calculation, while reducing the
key, however, is to know how to define the term “produc- variables that can affect the comparisons and limiting the
tivity,” including the metrics to measure productivity. For exceptions that will skew performance. The key to produc-
example, if the amount of time available to work is used tivity comparison is understanding the variables among
as maximum opportunity, then the 8-hour day is actually laboratories, including outpatient volumes, services sup-
7 hours (assuming 1 hour for lunch and breaks). 100% ported, overall size and scope of the laboratory, and avail-
productivity of available work time is 87% of total worked ability of alternative testing sites. If the laboratory manager
time. Productivity is also a useful indicator to determine chooses to engage in an external comparison for produc-
optimum staffing in conjunction with minimum staffing. tivity measurement, several key factors must be consid-
Few laboratories can afford to hire enough personnel to ered. The measurement tool must be updated as new tests
staff the laboratory for maximum workload levels. Simi- are added. The sample size of participants must be statis-
larly, few laboratories can afford the quality issues inher- tically valid and should allow for comparison with other
ent in minimum staffing levels, so productivity approaches laboratories of similar volumes and/or test mixes.
100% when workload increases. The creative manager will Workload recording is a valuable tool used to assess
staff for the typical workload day, with additional person- (and justify) staffing levels; however, the laboratory man-
nel available to call in when workload exceeds projections. ager must understand the information that is provided and
This flexibility is the primary advantage to part-time, flex- must ensure that the comparisons used are valid. When
time, and cross-trained individuals. using a productivity tool, the definition of the workload
Productivity levels are also based on the unit of mea- recording unit must be established. The worked hours
sure used, typically the number of billable tests. However, that are included must be comparable. For example, if
the mix of billable tests (inpatient versus outpatient, STAT some participants in the comparison group record only
versus routine, increased nonbillable components) can direct worked hours (excluding business leave, orienta-
impact productivity comparisons. Assessing staffing needs tion, or meeting time) while others include all productive
daily, or even on a shift-by-shift basis, ensures tighter con- hours, then the results will be skewed in favor of the labs
trol of labor expense, as long as trained staff are available reporting only direct hours. Counting all analytes tested
to “flex-up” or staff is willing to “flex down” as volume versus counting panels reported can result in one lab ap-
changes. Both are key components of the flex (variable) pearing very productive in comparison to labs that only
staffing model. In addition, predicting when volumes report panels. Understanding the database definitions of
will increase or decrease allows the laboratory manager the productivity reporting tool is key to obtaining relevant
to effectively predict shifts of higher or lower volume and information. Interpreting the comparison results requires
schedule accordingly to mitigate the impact of a variable an understanding of the seasonality of test volumes when
staffing model. For example, correlating high test volume reviewing an annual report. Productivity reports are more
with surgery schedules or low test volume with commu- directional (you use more staff per test) than absolute (you
nity events can provide the basis for staff schedules that use 5.4 more FTEs per test) and typically require addi-
meet but don’t exceed the workload. tional research to obtain specific staffing requirements.
 CHAPTER 17. STAFFING AND SCHEDULING 367

The laboratory manager and director should be in- laboratory manager should utilize employee-driven meth-
formed about projected patient volumes. If inpatient vol- ods for scheduling shifts, including the opportunity for
umes are declining, staff may be downsized, despite an same-skill employees to trade shifts with approval.
increasing outpatient volume. It is critical to understand Some laboratories utilize a flexible or variable staffing
the resource requirements for each patient “sector” and model to flex up or down based on volume. The Thomson-
to justify staffing requirements via documentation of Reuters Action O-I® comparative database includes a labo-
workload and efficiency. Retrospective data review of test ratory characteristic question: Is staff routinely canceled,
volumes, correlating to surgery schedules, for example, rescheduled, or floated out? This question allows partici-
provides the laboratory manager with a template for days pants to compare their productivity with other facilities
off and vacation time requests. that employ the same practice. Currently a number of fa-
cilities do indicate that they routinely cancel or resched-
ule staff (Table 17.4). The percentage of laboratories using
Staff Scheduling flexible staffing increases with bed size up to 600 beds. As
Once the staffing mix has been developed and implemented, expected, smaller labs have less opportunity to flex their
employees must be assigned to their work schedules. To staff if they are already at minimum staffing levels. This re-
schedule staff effectively, the laboratory manager must un- port also finds that flex staffing increases for minor teach-
derstand the needs of the laboratory, hours of operation, ing or nonteaching hospitals, based on reporting from
and the staff required versus the needs of the employees, those facilities in 2010.
for whom a work-life balance is becoming more impor- The issue of work-life balance continues to be the subject
tant. The key, in the author’s experience, involves open and of numerous articles (6). Hospital administration, human
frequent communication about operational needs along resources, and laboratory management should have a strat-
with an understanding of employee preferences. When the egy to address the issues of work-life balance. By acknowl-
laboratory manager can include employees in the schedul- edging and addressing work-life balance, the laboratory
ing process, individual needs can be considered, as long as manager can improve or increase staff retention while con-
business needs are met. Some facilities have implemented tinuing to provide the services required of the laboratory.
self-scheduling. Following scheduling guidelines for skill
level and number of shifts, among other factors, employ- Key Success Factors
ees select their own schedules, based on their preferences. The laboratory manager should not only understand the
Self-scheduling is available on a first-come, first-serve factors that are critical to the success of the laboratory but
basis. If self-scheduling is not available, at minimum the also be able to demonstrate or document these key areas.

Table 17.4 Flexible staffing a

Laboratories that routinely % of labs that routinely
No. of hospital cancel, reschedule, or float cancel, reschedule, or
Hospital type laboratories staff to other departments float staff
Bed sizeb
Total 503 239 47.51%
<101 97 35 36.08%
101–200 110 48 43.64%
201–300 100 56 56.00%
301–400 66 38 57.58%
401–500 47 19 40.43%
501–600 34 17 50.00%
>600 49 19 38.78%

Teaching statusc
Total 462 232 50.22%
Major teaching 94 28 29.79%
Minor teaching 111 64 57.66%
Nonteaching 257 126 49.03%
a
Source: ActionOI® data, 2010.
b
Smaller (<100 beds) or larger (>600 beds) hospitals are less likely to routinely cancel, reschedule, or float staff than mid-sized facilities.
c
Major teaching facilities are less apt to routinely cancel, reschedule, or float staff than minor teaching or nonteaching facilities.
368 PERSONNEL MANAGEMENT

For a department or cost center, two key success factors tests performed is used for negotiation and contractual
are financial performance and quality assurance. When obligation. If the laboratory staff is unable to complete the
reviewing staffing and scheduling, labor costs can be used billable tests within an acceptable percentage of all tests,
to target areas of opportunity for improvement. The cost inventory levels, pricing, and efficiency are all affected. It
of overtime and turnover will affect overall person-hour is important to note the impact of the nonbillable tests.
and expense budgets. The achievement of targeted per- Examples include repeat testing based on laboratory pro-
formance metrics influences the satisfaction of customers tocol or repeats based on physician request. The volume of
(e.g., physicians, patients). quality control testing (QC) should also be considered, for
labor as well as supply utilization. If, for example, the labo-
Metrics for Success ratory runs tests as they are received, and the QC protocol
Reporting efficiency. Laboratories have measured their requires QC testing for each run, this lab will require more
reporting efficiency in terms of percent of tests reported resources than the laboratory that batches tests. The best
within required or requested time frames. This metric is solution is to batch when appropriate as long as expected
particularly important to those who take action on the result turnaround times are met.
test results, as treatment options and procedures depend
on laboratory results. Reporting efficiency also can affect Impact on staff. The implementation of productivity
the financial performance of the hospital. When labora- measurements can affect the laboratory staff. Productivity
tory results are available and patient care is delivered ef- measures are an objective, quantitative means of review-
ficiently, the patient length of stay may be decreased. For ing performance but may be perceived as changing the
the reference laboratory, reporting efficiency to their cus- workplace from a laboratory to an assembly line, where
tomers is not only an indicator of performance; it may also productivity is the only indicator of laboratory success. By
be included in the contractual agreement, with financial including quality indicators such as proficiency surveys of
considerations if metrics are not achieved. performance in laboratory metrics, the laboratory man-
ager can emphasize the importance of quality as well as
Turnaround time. Turnaround time for results reporting productivity.
includes all components of testing—specimen collection,
processing, analysis and review, and reporting—and is an Scheduling processes. At a minimum, the manual sched-
important indicator of effectiveness as well as efficiency. ule is prepared for the staff in advance. Scheduling software
One component, specimen collection, can and should be programs are available that include parameters for skills
monitored separately, whether the laboratory has respon- and training. The need for computerized scheduling is dic-
sibility for collecting patient samples or nursing units pro- tated in part by the size of the laboratory staff and the time
vide for specimen collection. The metric is the percent of available to devote to maintaining a manual versus a com-
tests collected within a time frame around the test request. puterized system. Laboratory managers should examine
For example, a hospital laboratory may report the percent- the time required to prepare, distribute, post, and amend
age of 6 a.m. labs collected between 5:30 a.m. and 6:30 a.m. manual schedules and compare the labor intensity with the
When the laboratory objective is to complete all timed cost and implementation of a computerized process.
blood draws within 30 minutes of the requested time, A basic template (Table 17.5) uses annual budgeted
the laboratory manager has to staff sufficient numbers of volumes and targeted productivity hours per test to proj-
employees to meet this objective. And collecting samples ect staffing needs by shift. Including the volume changes
at the time requested can improve the results of the tests driven by seasonality or by day of week variances provides
requested. The importance of the timed lab collection is a more definitive schedule for the laboratory. Skill mix and
based on one or more of several factors. Some laboratory staff experience should also be considered. As volumes
tests must be drawn at a certain time after (or before) ad- fluctuate from budget, adjustments can be made in the
ministration of medication. schedule to accommodate changes. Ultimately, the labora-
tory must be staffed with sufficient personnel trained for
Productivity measurements. The productivity of the labo- the areas in which testing is provided.
ratory is a function of the number of tests performed by
the number of personnel working, or workload units per Alternatives
full-time equivalent. Not all tests performed are billed, Outsourcing. Reference laboratories have in the past
and there must be a distinction between billed, billable provided esoteric testing not usually done in clinical lab-
(but not billed for whatever reason), and nonbillable tests oratories. With overnight testing and air couriers, refer-
when comparing productivity to financial performance. ence laboratories have expanded their menus to include
This distinction is also important when contracting for routine testing. Routine testing that can be performed by
reagent purchases so the correct quantity of reagents for a reference laboratory that provides 24-hour turnaround
 CHAPTER 17. STAFFING AND SCHEDULING 369

Table 17.5 Shift scheduling template

Data required Example
Annual volume of tests 300,000
Productivity target (hours per test) 0.12
Shift length 8 hours
Days of operation 7 days
Seasonal variability none
Day of week variability none
When volume is constant by month and day of week Mon Tue Wed Thur Fri Sat Sun
Input average volume per day (annual volume divided by 365) 822 822 822 822 822 822 822
Input total worked hours required 99 99 99 99 99 99 99
Divide total hours required by average shift length to calculate 12 12 12 12 12 12 12
number of shifts required
Day shift @ 60% 7.4 7.4 7.4 7.4 7.4 7.4 7.4
Evening shift @ 30% 3.7 3.7 3.7 3.7 3.7 3.7 3.7
Night shift @ 10% 1.2 1.2 1.2 1.2 1.2 1.2 1.2

time could include any test that is not part of the STAT for the laboratory in less travel time to the patient and also
grouping (tests that must be reported within specific time provides nursing units with ancillary personnel trained to
frames to maintain patient safety). For example, choles- provide defined levels of patient care. In some facilities,
terol levels are an important test that could be performed nursing services has the responsibility for specimen col-
at the bedside, in the laboratory, or by a reference labo- lection, utilizing their RN staff or training patient care as-
ratory. The laboratory manager should understand the sistants for phlebotomy,
costs for each scenario, including labor, as well as the
benefits of in-house versus referral testing to determine Creative scheduling. Creative scheduling includes oppor-
the best course of action. The laboratory manager is chal- tunities for job sharing, flextime, part-time, telecommut-
lenged with deciding which tests to send out versus per- ing, and self-directed teams (Table 17.6). Similarly skilled
form in-house, based on cost per test as well as service and trained employees can elect to share a position. This
levels provided. For some laboratories with minimal test often decreases fringe benefit costs while providing equal
volumes, the ability to bill for tests performed must be hours worked. Flexible scheduling, based on employee
also considered. The incremental opportunity for addi- need or request, can result in increased employee satisfac-
tional tests may justify the additional costs for technolo- tion, reducing turnover and poor performance. Telecom-
gists or equipment. muting for specific positions such as medical transcription
reduces space requirements for the laboratory, may en-
Opportunity cost and benefit. The laboratory manager hance work performance, and provides an additional re-
should consider the impact of staffing decisions on the source of experienced employees. Using self-directed
facility or physician using the laboratory. The manager teams reduces the time demands on the laboratory man-
should also consider the opportunity to combine job func- ager while providing job enrichment and satisfaction.
tions across departmental lines when feasible to take full Scheduling employees in nontraditional shifts (e.g., 10 a.m.
advantage of the benefits provided. For example, locating to 6:30 p.m.) or four 10-h days may provide work hours
the phlebotomy staff on nursing units provides efficiency needed by the laboratory while meeting personal needs of

Table 17.6 Scheduling alternatives

Alternative Pros Cons
Job sharing Decreases benefit costs Potential lack of continuity
Flexible schedules Employee satisfaction Must be administered consistently and in
accordance with human resource policy
Part-time schedules Increases pool of employees Lack of continuity
Telecommuting Reduces overhead requirements, employee Limited to specific jobs, cost to establish and
satisfaction maintain links to the laboratory
Self-directed teams Employee satisfaction, reduces management Consistent application of policy
hands-on time
370 PERSONNEL MANAGEMENT

the staff. Part-time employees can also provide additional revenue center), and in the regulatory environment all
resources for staff coverage in emergencies. The author rec- create challenges today for laboratory managers hoping
ommended 20-h coverage in one laboratory, from 4 a.m. to optimize human resource utilization. These challenges
to midnight, staffed by two 10-h shifts. Testing was limited can be limited or eliminated by understanding workload
between midnight and 4 a.m. to the critical test menu, with patterns, using creative scheduling, and utilizing available
limited swing shift staffing available to perform routine in- personnel for optimum productivity.
strument maintenance and STAT testing as needed. These
techniques can be as effective for variable (flex) staffing as
KEY POINTS
for the fixed staffing model.
■ Personnel classification and qualifications for labora-
Special Considerations tory operations are detailed.
Inpatient testing requires a 24/7 response for patient test- ■ Traditional scheduling methods are under review as the
ing with more specific criteria for emergency, intensive laboratory as a service provider evolves (or has evolved)
care, or surgical patients. These requirements may add into the laboratory as an integral part of the business of
staff to the laboratory roster. Outpatient testing may still healthcare.
include weekend hours but is more limited in hours of ■ A key to understanding the depth of opportunity within
operation. The facility or laboratory may have specific a laboratory is to recognize the base requirements and
customer satisfaction metrics for outpatient visits, includ- the incremental impact of creative scheduling, labor
ing waiting time. Shared services (inpatient facilities and pool, and services provided.
outpatient testing stations within one department) provide
■ Staffing and scheduling are very dependent on the lo-
more flexibility for shared staffing and an increase in the
cale, the availability of technical staff, the practice pat-
pool of trained personnel available for coverage.
terns by physicians, the service lines offered by the
Flexible Staffing healthcare facility, and patient expectations.
More hospitals today are using a variable staffing method for ■ Scheduling processes are reviewed to provide options
hospital departments that can “flex to volume,” including the and opportunities that meet the key success factors for
laboratory. The premise is that FTEs are budgeted based on the laboratory.
the volume projected and the variable workload target that ■ Variable staffing is defined as staffing to workload vol-
has been established (via external benchmarks, history, min- ume using targeted (or budgeted) hours per unit of vol-
imum staffing or service line support, or some combination ume, with productivity reports comparing actual labor
of these). When actual volume exceeds budgeted volume, to flex budget labor.
budgeted hours increase to match. Conversely, when actual
volumes are less than budget, hours are decreased. The chal- GLOSSARY
lenge for laboratory managers is multidimensional: When
Clinical and Laboratory Standards Institute (CLSI) Voluntary
volume is down, staff can be sent home or rescheduled. But
consensus standards–developing organization disseminating
when volume increases, is there a pool of laboratory staff to standards and guidelines to the healthcare community.
call on to support the increase? If fluctuations are “managed”
on a daily basis, are employees dissatisfied by the reduction of Contingency workforce Employees not defined as permanent
hours? Because of the opportunities available to clinical labo- or regular employees, usually assigned jobs based on short-term
needs.
ratory staff in other industries, employee dissatisfaction could
lead to employee turnover, without the needed influx of new Full-time equivalent Forty hours worked per week.
technicians and technologists. The laboratory manager must Generalist One trained in multiple areas of the laboratory.
carefully assess the impact of routinely canceling or resched-
Laboratory supervisor Individual responsible for staffing and
uling staff and balance labor utilization with labor resources.
scheduling the laboratory.
Working with hospital administration is a key for effectively
managing both components. Medical Technician Also known as clinical laboratory techni-
cian. A person with an associate’s degree in medical laboratory
technology (or equivalent).
Summary Medical Technologist Also known as clinical laboratory scien-
Effective laboratory staffing and scheduling will have a tist. A person with a bachelor’s degree in medical technology or in
positive impact on the laboratory as a service provider. a selected health science who has completed a 1-year practicum.
Changes in the availability of skilled employees, in the way Outsourcing Contracting with consultants, reference laborato-
laboratories are operated as businesses (cost center versus ries, or other clinical laboratories to provide services.
 CHAPTER 17. STAFFING AND SCHEDULING 371

Productivity measures Raw numbers or calculations that de- 3. College of American Pathologists. Laboratory management
scribe work performed relative to hours worked, tests billed, rev- index program (LMIP). http://www.cap.org/apps/cap.portal?_nfpb
enue generated, reagents used, etc. =true&_pageLabel=accreditation (accessed May 6, 2012).
Specialist A person trained and experienced in one specific labo- 4. Enrado, P. 2009. Hospitals face new challenge in controlling labor
ratory discipline; formally, one who has a minimum of 5 years’ costs. Healthcare Finance News. http://www.healthcarefinancenews
experience in that discipline and has passed a qualifying examina- .com/news/hospitals-face-new-challenge-controlling-labor-costs
tion for that discipline by an accepted accrediting organization. (accessed May 6, 2012).
5. Kibak, P. 2008. The worsening shortage of lab staff: what’s being done
to turn it around? Clin. Lab. News 34(5). http://aacc.org/publications/
REFERENCES cln/2008/may/Pages/cover1_0508.aspx# (accessed May 6, 2012).
1. Bureau of Labor Statistics, U.S. Department of Labor. 2012. Oc- 6. LeClaire, J. Stress-management tips for healthcare workers. Mon
cupational Outlook Handbook, 2012–13 Edition, Medical and Clini- ster.com. http://career-advice.monster.com/in-the-office/Work-Life
cal Laboratory Technologists and Technicians, http://www.bls.gov/ -Balance/Stress-Management-Tips-in-Healthcare/article.aspx (ac-
ooh/healthcare/medical-and-clinical-laboratory-technologists-and cessed May 6, 2012).
-technicians.htm (accessed May 6, 2012). 7. Malone, B. 2011. Trends in recruitment and retention: how can
2. College of American Pathologists. 2012. Laboratory general labs thrive despite the staffing shortage? Clin. Lab. News 37(5).
checklist. #GEN.54200, #GEN55500. College of American Patholo- http://www.aacc.org/publications/cln/2011/May/Pages/Trendsin
gists Laboratory Accreditation Program. Northfield, IL. Recruitment.aspx# (accessed May 6, 2012).
372 PERSONNEL MANAGEMENT

Appendix 17.1 Further Information

WEBSITES Clinical Laboratory Management Association (CLMA)

American Medical Technologists http://www.clma.org (accessed May 6, 2012)
http://www.amt1.com 401 N. Michigan Avenue, Suite 2200
10700 West Higgins, Suite 150 Chicago, IL 60611
Rosemont, IL 60018 Tel: 312-321-5111
Tel: 847-823-5169 or 1-800-275-1268 College of American Pathologists (CAP)
American Society for Clinical Laboratory Sciences (ASCLS) http://www.cap.org (accessed May 6, 2012)
http:www.ascls.org (accessed May 6, 2012) 325 Waukegan Road
1861 International Drive, Suite 200 Northfield, IL 60093-2750
Tysons Corner, VA 22102 Tel: 1-800-323-4040
Tel: 571-748-3770 Thomson-Reuters Operational Improvement (Action O-I®)
American Society for Clinical Pathology (ASCP) http://thomsonreuters.com (accessed May 6, 2012)
http://www.ascp.org (accessed May 6, 2012) 3 Times Square
33 West Monroe Street, Suite 1600 New York, NY 10036
Chicago, IL 60603 Tel: 646-223-4000
Tel: 312-541-4999
American Society for Microbiology (ASM)
REGULATIONS
http://www.asm.org (accessed May 6, 2012)
1752 N Street, NW Bureau of Labor Statistics, U.S. Department of Labor, Occupational
Outlook Handbook, 2012–13 Edition, Medical and Clinical
Washington, DC 20036 Laboratory Technologists and Technicians
Tel: 207-737-3600 http://www.bls.gov/ooh/healthcare/medical-and-clinical
Clinical and Laboratory Standards Institute -laboratory-technologists-and-technicians.htm (accessed May 6,
http://www.clsi.org 2012)
950 West Valley Road, Suite 2500 Clinical Laboratory Improvement Amendments
Wayne, PA 19087 Public Law 100-578, Section 353
Tel: 610-688-0100 Public Health Service Act (42 U.S.C. 263a), October 31, 1988
Introduction
Definition of a Team
18 Teams, Team Process,
Distinguishing Teams from Work Groups • Types and
Classifications of Teams • Why Define a “Team” So
and Team Building
Precisely?
Group Process and Teams James W. Bishop, K. Dow Scott,
Guidelines for Choosing Whether To
Have Teams Stephanie Maynard-Patrick, and Lei Wang
Common Purpose • Interdependent Tasks •
Summary • A Cautionary Note
Selecting Team Members OBJECTIVES
Task-Related Training • Team-Related Training
To define a work team and distinguish it from a work group
Leading Teams
General Ideas about Leadership: A Brief Review • To indicate why a precise definition of “team” is important
Leadership in a Team Environment • Team Leader To explain the concept of group process within teams
Selection
To describe the situations in which teams can be productive and those in which
Motivating Team Performance
they cannot
Goal Setting and Performance • Goal Setting and
Teams • Evaluating Teams and Team Members • Pros To define “task interdependence,” the types of task interdependence, and their
and Cons of Rewarding Team Members importance; to explain how task interdependence influences choices related
Virtual Teams to teams
Global Teams To explain the basic concepts behind selecting team members
Summary To explain the importance of training with respect to teams, distinguish the
KEY POINTS differences between task-related training and team-related training, and
GLOSSARY understand the concept of team building
REFERENCES To list the types of leadership associated with teams and the advantages and
APPENDIXES disadvantages of each
To explain the importance of goals, both individual and team; to explain how
team goals can be set and achieved
To explain how to evaluate team and team member performance and
emphasize individual performance in terms of contribution to the team

What sets apart high-performance teams . . . is the degree of commitment, par-
ticularly how deeply committed the members are to one another.
Jon R. Katzenbach and Douglas K. Smith

T
eams can be found everywhere in organizations. Employees are
placed in work teams, task forces, committees, quality improvement
teams, safety teams, and teams by a variety of different names. Employ-
ees working together is nothing new. In fact, it is the very nature of organiza-
tions to put employees into groupings. However, managers, consultants, and
academicians make distinctions between employees organized into groups as
compared with those who operate as teams. In fact, they point out numerous
advantages that are derived from teams. These include increased individual
performance, better quality, less absenteeism, improved employee engagement,
Clinical Laboratory Management, 2nd Edition
reduced employee turnover, leaner plant structures, and substantial improve-
Edited by L. S. Garcia ments in production cycle time (4, 14, 21). In general, teams are considered an
©2014 ASM Press, Washington, DC important ingredient of organizational success in the modern economy due to
doi:10.1128/9781555817282.ch18 needs for rapid information exchange and response to customer demands (16).

373
374 PERSONNEL MANAGEMENT

On the other hand, virtually everyone has had negative Although teams meet all of the defining characteristics
experiences working in teams or in work groups. Dysfunc- of groups (configurations of more than two interdepen-
tional work groups and teams can have a negative impact dent individuals who interact over time), teams incorpo-
on employee performance, retention, and morale. These rate skill differentiation in a context where performance
dysfunctions include conflict among team members, so- outcomes including rewards or punishments are shared by
cial loafing, misdirected goals to satisfy members of the all team members (30, 34). Common to each of the above
team and not the organization, and poor communication definitions is the idea of blending different skills to accom-
(8, 26, 70). plish objectives that individuals, working independently,
This chapter will examine what is involved in creating could not accomplish. Furthermore, implicit in each defi-
effective teams first by differentiating between work units nition is the idea of both individual and collective account-
and teams, examining team processes, understanding how ability. That is, each individual can be rewarded or taken to
and when teams can contribute to a more effective organi- task for the results of both the team’s results and his or her
zation, and discussing how to select and develop the best own contribution to the results.
team members, develop effective team leadership, and mo-
tivate team performance. Then we will examine some of Distinguishing Teams from Work Groups
the latest developments and challenges in teams, including The difference between “team” and “group” can be ex-
virtual and global teams. amined from the perspective of synergy. A work group
is defined as “a group that interacts primarily to share
information and to make decisions to help each mem-
Definition of a Team ber perform within his or her area of responsibility” (59).
There are many definitions of the term “team.” These in- Thus, a group does not require joint effort. The group’s
clude, but are not limited to: outcomes are the sum of individual members’ contri-
butions. A team, on the other hand, generates positive
• A small number of people with complementary skills
synergy through the coordinated efforts of its members.
who are committed to a common purpose and perfor-
Team members produce a level of performance that is
mance goals for which they hold themselves mutually
greater than the sum of individual inputs. Within a work
accountable (34)
group, members share information, have neutral or even
• A group whose individual efforts result in a perfor- negative synergy, and accountability is at the individual
mance that is greater than the sum of those individual level. Members’ skills may or may not complement each
parts (59) other. By contrast, a team is designed for collective per-
• Two or more people with different tasks who work formance, synergy among its members should be posi-
together adaptively to achieve specified and shared tive, and accountability is both individual and mutual.
goals (9) Members’ skills are complementary to each other, and
• A collective of individuals who are interdependent in members of the team help each other to accomplish team
their tasks, who share responsibility for outcomes, who goals (59) (see Table 18.1).
see themselves and who are seen by others as an intact
social entity embedded in one or more larger social Types and Classifications of Teams
systems (for example, business unit or corporation), There are various ways to categorize teams. Based on how
and who manage their relationships across organiza- members allocate their time, teams can be full-time or
tional boundaries (16) part-time. Teams can be permanent or temporary. From

Table 18.1 Differences between work groups and teams

Work group Team
Information sharing Information is typically shared between those who Information is shared freely with all members even if
have it and those that need it most; information is the information does not seem relevant to everyone’s
not freely shared with everyone in the work group task
Accountability for outcomes Accountability at the individual level Accountability for the overall outcome is shared by
all team members with often specific members held
accountable for individual components
Rewards Rewards (punishment) limited to one individual Outcomes shared by all members
Effort required Individual effort Joint effort
Performance achieved Output is equal to the sum of the individual inputs Output is greater than the sum of individual inputs
Relationship between tasks Related tasks Interdependent tasks
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 375

a functional perspective, teams can be classified into Teams can also be classified based on their degree of
three types (16): autonomy (from low to high) in the following five team
types (3).
• Teams that recommend things include task forces,
project teams, and audit, quality, or safety teams asked • Traditional work teams: Workers perform core produc-
to study and solve particular problems. tion activities but have no management responsibility
• Teams that make or do things include people at or near or control.
the front lines who are responsible for doing the basic • Quality circles: Members join voluntarily with no fi-
manufacturing, development, operations, marketing, nancial rewards. The team has the responsibility for
sales service, and other value-adding activities of a making suggestions but does not have the authority to
business. make and implement decisions. The problem-solving
• Teams that run things include managers from the top domain is limited to quality- and productivity-related
of the enterprise down through the divisional or func- issues and cost reduction.
tional level. • Semiautonomous work teams: Workers manage and
execute major production activities.
Other typologies of teams have been identified, some
• Self-managing teams (or autonomous work teams):
of which overlap in their dimensions. One classification of
Members have control over the management and ex-
teams includes work teams, parallel teams, project teams,
ecution of an entire set of tasks—from the acquisition
and management teams (16).
of raw materials through the transformation process
• Work teams: Continuing work units responsible for pro- to shipping, including all support activities, such as
ducing goods or providing services; memberships are quality control and maintenance, required to produce
typically stable, well defined, and usually full-time (15) a definable product. The product could be a definable
• Parallel teams: Teams that pull together people from part of a production process as well as a completed
different work units or jobs to perform functions that process.
the regular organization is not well equipped to per- • Self-designing teams: These have all the characteristics
form, such as safety teams or quality improvement of self-managing teams. In addition, they have control
teams (41) over the design of their teams and decide such issues as
• Project teams: Teams that produce one-time outputs, what tasks should be done and who should belong to
such as a new product or service to be marketed by the the teams.
company, a new information system, or a new plant (46)
• Management teams: Teams that coordinate and provide Why Define a “Team” So Precisely?
direction to the subunits under their jurisdiction, lat- By defining the term “team” precisely and paying atten-
erally integrating interdependent subunits across key tion to our own business needs as they relate to team at-
business processes (51) tributes, we can make informed decisions about whether
we can or should implement teams. Furthermore, a clearly
Another classification scheme includes problem-solving defined notion of what is in fact a team provides a set of
teams, self-managed teams, and cross-functional teams (59). expectations for both management and team members.
For example, collaboration is an important characteristic
• Problem-solving teams: Members share ideas or offer
of teams and is a major contributor to their performance.
suggestions on how work processes and methods can
If the work unit does not have a high degree of collab-
be improved. However, these teams are rarely given
oration, then it is not really operating as a team. Thus,
the authority to unilaterally implement any of their
management must understand that they must facilitate
suggested actions.
and provide the resources for a team to collaborate, and
• Self-managed work teams: Groups of employees who take the team members must understand that this is how their
on the responsibilities of collectively planning and sched- team should operate.
uling work, controlling the pace of work, making op- The definition should guide the structure, purpose,
erating decisions, and taking action on problems. Fully and composition of the teams, as well as the decision of
self-managed work teams even select their own members whether to employ them in a particular situation. “But
and have members evaluate each other’s performance. wait,” you might be thinking. “Isn’t the team the ‘thing’ in
• Cross-functional teams: Teams made up of employees business organizations these days?” Well, it’s certainly true
from about the same hierarchical level but from dif- that teams are quite popular and that their implementation
ferent work areas, who come together to accomplish a has produced good results for many businesses (7). How-
specific task. ever, that does not mean that every organization or every
376 PERSONNEL MANAGEMENT

department in an organization should implement teams spent planning work and figuring out ways to be more pro-
or, if they do, that they should expect the same results. ductive must result in the teams being more productive by
We should recognize that teams are not for every orga- working 39 hours and meeting one hour than by working
nization. Nor is it always wise to use them. For one thing, 40 hours with no meeting. Stated another way, the process
teams are expensive to implement and maintain. Hours of loss resulting from having the meetings is more than offset
training are usually required before employees are com- by the process gain resulting from the implementation of
fortable with each other and able to function effectively the decisions made at the team meetings, thus demonstrat-
and efficiently as a team. This is not to say that teams aren’t ing how teams can enhance productivity.
worth it. Rather, it should remind us to be sure that the use Awareness of the time spent on team meetings provokes
of teams is necessary and that the outcomes are desirable the following questions: “Are all of these meetings neces-
before committing resources for their implementation. sary, and are they productive?” and “What would happen
if a weekly meeting was skipped?” The answer to the last
question is that if a meeting were skipped one week, pro-
Group Process and Teams duction would probably increase by about 2.5% (the per-
centage increase from 39 to 40 hours) during that week. By
Now that we know what teams are (and are not), we can
the same token, if meetings were continually missed and
take a look at how they go about performing their tasks.
if the meetings were productive to begin with, then their
Basically, the group process model says that the sum of
omission would lead to problems not getting resolved,
the individuals’ potential plus process gain minus pro-
fewer suggestions being made, and no suggestions receiv-
cess loss equals group effectiveness (62) (Fig. 18.1). Group
ing the benefit of refinement by the group. Furthermore,
processes include communication patterns used by team
conflicts would smolder and metastasize. Hence, these
members when they exchange information and ideas, the
meetings are looked upon not only as a corrective mecha-
techniques and processes they use to develop norms and
nism for past issues but also as an investment of time for
arrive at decisions, the interaction with and the behavior
future efficiency and increased effectiveness. That is, while
of the leader, the power dynamics within the team, and the
the time used for meetings represents one component of
way the team resolves conflicts (59). Recognize that the
process loss, the results of the meetings will be process gain.
use of teams generates process loss as well as process gain.
It should also be noted and understood that team meet-
Process loss includes such things as the time used for team
ings do not automatically ensure net process gains. There
meetings, the extra time it takes for a group to come to a
are numerous guides and techniques for conducting ef-
decision, administrative functions that must be performed
fective meetings, and the details will not be repeated here.
when people work in teams, and production loss associ-
However, some general guidelines are in order:
ated with social loafing. (Social loafing is a phenomenon
that occurs when some slack off and let others “carry” • Have a clear purpose or objective for the meeting. Can
them by performing the tasks they themselves should be the objective be accomplished more efficiently in an-
doing.) Process gains are referred to as synergy. For ex- other format, perhaps by posting information on web
ample, when performing a task that requires diverse skills, page or newsletter?
such as those found in a laboratory, the quality of the deci- • Have an agenda and distribute it in advance of the
sions and therefore of the output tends to be better than if meeting. Be sure that each item on the agenda ad-
the individuals worked alone or independently (59). dresses goals of the meeting.
The group process model is based on the concept that
• Make sure the right people are at the meeting.
for teams to be worthwhile, process gain must exceed pro-
cess loss over the long term. The phrase “over the long • Be sure that all team members understand the format
term” can be illustrated by the following. A number of of the meetings. Ample opportunity for input from
team-based organizations with which the authors are fa- each member should be provided. Input from those
miliar have weekly team meetings that last approximately who are more reserved, thoughtful, or introverted
one hour. These weekly meetings take time away from the should be solicited.
teams’ performing their production responsibilities and • When action is required, tasks should be assigned, re-
thus represent process loss. Therefore, the meeting time sources allocated, and action items followed up. If this

Figure 18.1 Group process model. doi:10.1128/9781555817282.ch18.f1

Potential team Plus Minus Equals Actual team

Process gains Process losses
effectiveness effectiveness
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 377

is not done, the message imparted is that the team is another important question: Do the individuals who would
not a serious entity and the products and outcomes of make up the team really need to collaborate to accomplish
the meetings are not important. team goals? In particular, we are interested in the degree of
interdependence among their tasks. Tasks are interdepen-
For teams to be effective, team members must at times
dent if their progression or completion is influenced by,
put the team’s objectives ahead of their own. For many
determined by, or subject to the progression or completion
employees, especially ones new to the organization, this
of one another. Stated another way, task interdependence
is not a natural behavior and indeed is contrary to what
can be thought of as the degree to which the completion
most people are taught. Hence, in some ways, when we ask
of a given task requires that other tasks are completed, the
people to work in a team, we are asking them to do some-
degree to which the given task must be completed for an-
thing that is not natural for them. Therefore, anything that
other task to be completed, or the degree to which the indi-
would belittle the importance or value of the team in the
vidual performing the given task must interact with others
eyes of the team members should be avoided if at all pos-
to complete the task.
sible, even if it seems trivial.
Task interdependence can be thought of as having three
types or forms: (i) pooled interdependence, (ii) sequen-
tial interdependence, and (iii) reciprocal interdependence
Guidelines for Choosing Whether (Fig. 18.2). Pooled interdependence occurs when two in-
To Have Teams dividuals function with relative independence but their
Now that we have discussed why an organization would combined output contributes to the group’s or organiza-
want to have teams, we are in a position to discuss how tion’s overall goals. An example of pooled interdependence
to determine whether the use of teams is appropriate for would be an assembly shop that has a number of employ-
given situations and circumstances. ees, each working alone to assemble radios. At the end of
the day, the completed radios are shipped out together.
Common Purpose In this case the workers’ efforts are independent, but the
One precondition that supports the use of teams is for the
teams to have a common purpose. “A common, meaning-
ful purpose sets the tone and aspiration . . . inspires both Figure 18.2 Types of task interdependence.
pride and responsibility . . . conveys a rich and varied set of doi:10.1128/9781555817282.ch18.f2
meanings to guide what the team needs to do, particularly
in meeting its goals . . . gives teams an identity that reaches
Individual A
beyond the sum of the individuals involved .  .  . keeps
conflict constructive by providing a meaningful standard Pooled
against which to resolve clashes between the interests of Outputs
the individual and interests of the team” (33). A common Individual B
purpose is not a nebulous, tautological admonition exhort-
ing people to “work together,” nor is it a far removed objec-
Pooled Interdependence
tive such as “corporate profitability.” Common purpose, in
the context used here, consists of objectives and goals that
can only be reached if all members of the team contribute,
and the success of a given member’s contribution depends
upon the success of other members’ contributions. Stated
another way, a common purpose is one that is unlikely to Individual A Individual B
be achieved without a meaningful and competent contri-
bution from each team member. Teams must not only have
a common purpose; all members must understand, accept, Sequential Interdependence
and be committed to accomplishing the objectives and
goals associated with it (38).

Interdependent Tasks
By examining the nature of the tasks that must be per-
formed and the relationships among those tasks, we can Individual A Individual B
sometimes reach an understanding of how each member
will contribute to the successful accomplishment of the
team’s purpose. This understanding should help answer Reciprocal Interdependence
378 PERSONNEL MANAGEMENT

results of their efforts are pooled, and it could be said that toward their organizations and teams (6, 48, 52). The les-
the shop produced x number of radios. An example of son is that it is important for employees to understand how
pooled interdependence in a laboratory setting would be their tasks contribute to (read: “are interdependent with”)
two technologists independently reading culture plates, the success of others’ tasks and what the successful perfor-
one for the aerobic bacterial culture and the other for the mance of these tasks means to the organization.
anaerobic culture.
Sequential interdependence occurs when workers de- Summary
pend upon others for their inputs. The dependency is in The use of teams should be considered if (i) a common
only one direction, and if those who provide the inputs don’t purpose for the collective can be identified, (ii) the indi-
perform their jobs properly, those who are dependent on viduals who would make up the team thoroughly under-
them will be significantly affected. An example of sequen- stand this purpose and accept it, and (iii) one or more of
tial interdependence is an assembly line. In the above radio the goals that must be met to achieve the common purpose
shop example, sequential interdependence would exist in a can be accomplished only through a collective effort.
case where each worker installed a component in a partially
completed radio and passed the partially assembled unit on A Cautionary Note
to the next worker in the line. That worker would then in- Always keep in mind that teams are not panaceas. Even if
stall a component, and so on. The steps have a specific order, it is the right thing to do, even if the teams perform well as
and individuals cannot perform their tasks until the tasks independent entities, and even if it appears that the teams’
that precede theirs are completed. In a laboratory setting an goals are congruent with those of the organization, it does
example of sequential interdependence might be specimen not automatically follow that teams are doing the best for
accessioning by one individual, specimen processing by a the organization. Typically, effective teams require substan-
second, and specimen analysis by a third. tial initial investment to design and develop. The example
Reciprocal interdependence occurs when individuals found in case study 1 in Appendix 18.1 illustrates this.
exchange inputs and outputs. If the performance of any
task is compromised, the effect will eventually be visited
upon the other tasks. For example, sales people in contact Selecting Team Members
with customers acquire information about the customers’ Skill requirements for team members can be categorized
future needs. The sales department relays this information into three types: (i) technical or functional expertise, (ii)
back to the product development department so they can problem-solving and decision-making skills, and (iii) in-
create new products or alter existing ones to meet the de- terpersonal skills. While members can possess these skills
scribed needs. At the same time, the product development when the team is formed or develop them after it is in
department may try to anticipate customers’ future needs. place, team performance will erode without them. Thus, it
By keeping the sales force informed of their innovations, is important that team members are selected based on ei-
they influence the interactions that sales representatives ther possessing these skills or having a strong aptitude for
have with customers. A medical example would be a sur- their development. These three basic skill categories are
gical team wherein the actions of each member influence used to set the criteria for team member selection. In prac-
and are influenced by the actions of the others (33). tice, these categories take various forms and degrees, de-
It is possible to make rather objective assessments of the pending on the type of team. For example, one can expect
type and degree of task interdependence that exists among task-related skills for a management team to be drastically
specific tasks. However, whether the workers who are different from those for a work team. Similarly, decision-
performing the tasks would agree with the assessment is making skills and interpersonal skills in those two contexts
another matter. Current research indicates that various in- are also likely to differ to a large extent (33).
dividuals can perceive the degree of task interdependence While the technical expertise and decision-making skills
of the same set of tasks differently (6). This research also may differ across teams depending upon their goals, objec-
indicates that the level of task interdependence perceived tives, and methods, the required team-related skills tend to
by employees is related to their commitment to their or- be common among all types of teams. Team-related skills
ganizations and their work teams. The idea behind this is can be further categorized as shown in Table 18.2. New
that as employees perceive their efforts as interdependent team members can be internally or externally recruited,
with the efforts of others, they become more aware of the and the tools that the organization uses to select new team
contributions they are making to the successful attainment members may differ depending on whether the candidates
of the organization’s goals and to the success of those with already work for the organization or come from outside.
whom they are working. According to theory, this height- Internal candidates are those that already work for the
ened awareness should enhance employees’ ego involve- organization, and managers have knowledge about their
ment with their jobs and cause more positive attitudes knowledge, skills, and abilities (KSAs), as well as their
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 379

Table 18.2 Knowledge, skill, and ability (KSA) requirements for teamworka
Interpersonal KSAs
Conflict resolution KSAs:
Recognize and encourage desirable, but discourage undesirable, team conflict.
Recognize the type and source of conflict confronting the team and implement an appropriate conflict resolution strategy.
Employ an integrative (win-win) negotiation strategy rather than the traditional distributive (win-lose) strategy.
Collaborative problem-solving KSAs:
Identify situations requiring participative group problem solving and utilize the proper degree and type of participation.
Recognize the obstacles to collaborative group problem solving and implement appropriate corrective actions.
Communication KSAs:
Understand communication networks and utilize decentralized networks to enhance communication where possible.
Communicate openly and supportively, that is, send messages that are (i) behavior- or event-oriented, (ii) congruent, (iii) validating,
(iv) conjunctive, and (v) owned.
Listen without judging and appropriately use active listening techniques.
Maximize consonance between nonverbal and verbal messages and recognize and interpret the nonverbal messages of others.
Engage in ritual greetings and small talk, recognizing their importance.

Self-management KSAs
Goal-setting and performance management KSAs:
Help establish specific, challenging, and accepted team goals.
Monitor, evaluate, and provide feedback on both overall team performance and individual team member performance.
Planning and task coordination KSAs:
Coordinate and synchronize activities, information, and task interdependencies among team members.
Help establish task and role expectations of individual team members and ensure proper balancing of workload in the team.
a
Adapted from reference 63, p. 505.

personality and past performance. Thus, the need for inter- performance. In addition, teams were found to have more
nal candidates to complete a variety of selection tests to gain difficulty in controlling quality when members were talk-
information may be low compared to external candidates. ative or valued extraneous communications among team
Sample questions from a selection instrument designed to members at the expense of attention to the team’s tasks.
measure these attributes are shown in Table 18.3. Teams with more members willing to use cross-training
In addition to written tests, other selection tools can be skills tended to have higher productivity, quality, cohesion,
developed to measure KSAs. For example, structured in- and commitment (60).
terviews can be designed to measure whether candidates In teams, as elsewhere, success breeds success. There
have adequate levels of these KSAs. Assessment center is evidence that team members’ preferences for teamwork
techniques can be used to measure candidates’ leadership are related to the effectiveness of the team (12). Hence, it is
and other social skills through group exercises. Biographi- important for teams to experience success early; this starts
cal data measurement may provide information about can- with member selection. For two examples of team self-
didates’ KSAs in dealing with social problems, especially selection issues, see case study 2 in Appendix 18.1.
those focusing on experiences candidates had in previous
jobs, school, and recreational activities involving teams. Task-Related Training
One can also integrate team-related KSAs into the recruit- Task-related training focuses on the actual tasks for which
ing process by communicating the importance of these the team is responsible. Because of rapidly changing tech-
KSAs through such methods as realistic job previews (63). nology, the associated technical skills and knowledge re-
The following is an example of how individual traits quire continuous upgrading. Hence, task-related training
may affect various attributes of teams, including produc- is an ongoing process. Training programs should be de-
tivity. In a study of work teams conducted at an apparel signed to satisfy the team’s need for particular technical
factory, certain dispositions of team members were found skills. Consequently the design should consider each in-
to be negatively related to team performance or quality. dividual member’s current abilities, interests, and profes-
For example, team members who possessed a higher de- sional direction. Task-related training can be conducted
gree of aggression and autonomy were less likely to report through formal classroom instruction, on-the-job train-
high levels of team commitment and team cohesion, two ing, and member-to-member mentoring (56). A variety
factors often regarded as important antecedents of team of e-learning methods are also available, which include
380 PERSONNEL MANAGEMENT

Table 18.3 Example items from the teamwork-KSA testa

1. Suppose that you find yourself in an argument with several coworkers about who should do a very disagreeable but routine
task. Which of the following would likely be the most effective way to resolve this situation?
a. Have your supervisor decide because this would avoid any personal bias.
b. Arrange for a rotating schedule so everyone shares the chore.*
c. Let the workers who show up earliest choose on a first-come, first-served basis.
d. Randomly assign a person to do the task and don’t change it.

2. Your team wants to improve the quality and flow of the conversations among its members. Your team should:
a. Use comments that build upon and connect to what others have said.*
b. Set up a specific order for everyone to speak and then follow it.
c. Let team members with more to say determine the direction and topic of conversation.
d. Do all of the above.

3. Suppose you are presented with the following types of goals. You are asked to pick one for your team to work on. Which
would you choose?
a. An easy goal. This will ensure that the team reaches it, thus creating a feeling of success.
b. A goal of average difficulty. The team will be somewhat challenged, but they will be successful without too much effort.
c. A difficult and challenging goal that will stretch the team to perform at a high level. The goal is attainable so that
effort will not be seen as futile.*
d. A very difficult or even impossible goal. Even if the team falls short, it will at least have a very high target to aim for.
a
Adapted from reference 63, p. 519. Asterisks indicate correct answers.

webinars, online content, and simulations that allow par- formed and should be made available on an ongoing basis
ticipants to practice necessary skills. as teams develop and mature.
Numerous authors and consultants have also endorsed
Team-Related Training team awareness training. The purpose of team awareness
Research indicates that when team members possess the training is to give employees an overview of what teams are
appropriate team-related KSAs (Table 18.2), there will be all about, why the organization is adopting them, and how
positive effects on team performance (10, 18, 54, 56, 63, 64, employees can benefit personally from their team member-
69). One of the most important of these skills is the abil- ship (56). Self-managing work teams, and to a lesser degree
ity to communicate well. Teamwork relies on collective ac- other types of teams, may take over leadership roles and re-
tions and decisions. Furthermore, team members achieve sponsibilities such as scheduling work, safety training, select-
these actions and decisions through exchange of opinions, ing new team members, assigning team members to tasks,
negotiation, persuasion, compromise, and collaboration. and obtaining necessary resources to perform their work.
Thus, communication skills and group decision-making J. R. Hackman has proposed a four-stage process for
skills are essential for collective creation. Training to en- creating and developing work teams (Table 18.4). A set of
hance these skills can start before the work teams are questions associated with each stage can be used to guide

Table 18.4 Guidelines for team buildinga

Stage 1: Prework
Q1: What is the task?
Q2: What are the critical task demands?
Q3: Will the group be manager-led, self-managing, or self-designing?
Q4: Overall, how advantageous is it to assign the work to a team? How feasible is it?

Stage 2: Creating performance conditions

Q5: How should the group be composed and the task be structured?
Q6: What contextual supports and resources must be provided?

Stage 3: Forming and building the team

Q7: How can a team be helped to get off to a good start?

Stage 4: Providing ongoing assistance

Q8: How can opportunities be provided for the group to renegotiate its design and context?
Q9: What process assistance can be provided to promote positive group synergy?
Q10: How can the group be helped to learn from its experiences?
a
From reference 24, p. 335–337.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 381

actions. Once these questions are addressed and all four as good and “initiating structure” as bad. Nothing could be
stages are achieved, team members should get substantial further from the truth, and why students tend to think this
return from their effort in terms of work effectiveness and remains a mystery to the authors. We suspect they equate
the quality of their interactions with teammates (24). For consideration with “being nice” and initiating structure
an example of team-related training, see case study 3 in with “bossing people around” in an abrasive manner. Such
Appendix 18.1. conclusions are erroneous. Each type of behavior has its
place, and employees under the right circumstances ap-
preciate each.
Leading Teams
For example, when the employee is new, inexperienced,
General Ideas about Leadership: A Brief Review or lacks knowledge or direction, guidance and direction
Leadership is a process in which one individual exerts in- are needed and usually appreciated. This calls for the leader
fluence to structure the behavior of other people within a to initiate structure by providing the needed guidance and
group (71). Various leadership theories have hypothesized direction. Employing consideration at such a time would
about leadership roles and behaviors, their relationship likely be seen as ineffective and evidence that the manager
with group performance, and external conditions that does not understand what is going on. Similarly, initiat-
moderate such relationships. Two of the earliest behav- ing structure may be called for if the task is very complex,
ioral leadership theories came from studies performed at the situation is ambiguous, or the environment uncertain.
The Ohio State University and the University of Michi- Some employees lack confidence, are timid, or have an ex-
gan. The Ohio State study categorized various leadership ternal locus of control. Individuals with these characteris-
behaviors into two basic types, labeled “consideration” tics may respond well to initiating structure. On the other
and “initiating structure.” The Michigan study also identi- hand, if the employee is experienced, highly skilled, and
fied two basic categories of leadership behaviors, labeled particularly competent, then initiating structure may not
“relationship-oriented behaviors” and “task-oriented behav- be needed and may even be resented. Such an employee
iors.” The consideration and relationship-oriented be- would respond more positively to the behaviors we have
haviors focus on relationship building and maintenance labeled “consideration.” Likewise, if the task is simple and
between leaders and followers. These behaviors have also generates its own feedback—that is, the employee can eas-
been referred to as “supportive behaviors” and include ily and quickly see how he or she did and corrective action
acting friendly toward followers, respecting followers’ is easily determined—then consideration is likely to be
ideas and feelings, appreciating their contributions, rec- more appropriate. In such cases, initiating structure would
ognizing their accomplishments, and showing concern be redundant and ineffective.
for their welfare and needs. Even though these examples may be clear, in the work-
Both initiating structure and task-oriented behaviors place we are often confronted with ambiguous and con-
focus on task completion. These include planning, orga- flicting situations. For example, what about the situation
nizing, and scheduling work, planning activities, assigning in which the task is simple (suggesting that initiating
tasks, coordinating activities, and providing the necessary structure is not needed) but the employee is inexperienced
direction, materials, and support. Initiating structure and (suggesting that initiating structure is needed)? In such
task-oriented behaviors have also been termed “directive a case, managerial judgment is required. One alternative
behaviors” (31). There are numerous other typologies of might be to ask the employee what he or she needs. Those
leadership behaviors, but most tend to be subcategories of with an internal locus of control may ask for time to figure
the two main categories described above. While there are it out while those with a more external locus of control
subtle differences in the definitions of the terms “consider- may ask for instructions. Take the first individual. Suppose
ation,” “relationship-oriented,” and “supportive behavior,” time is of the essence and you don’t have time for them to
as well as the terms “initiating structure,” “task-oriented,” “figure it out.” Take the second individual. Suppose figur-
and “directive behavior,” we will not go into that here. For ing things out is a skill they must develop. There are two
our purposes, we will consider the terms within each cat- points here. One is that while managerial education may
egory to be synonymous. The Ohio State studies have re- be a fine thing and while management scholars believe that
ceived the most attention by academics and tend to appear managerial theory and research are important and helpful,
in textbooks more often than the others, though in recent they are not immutable dogma. We must realize that the-
years the terms “directive” and “supportive” have appeared ory, research, and education provide important guidelines
more and more. In any event, we will use the Ohio State to help managers make the tough decisions for which,
designations for the rest of this discussion. many times, there are no single “right” answers. The sec-
One of the most common errors made by students ond point is that initiating structure and consideration are
when first confronted with the two categories of leader- not mutually exclusive. Managers can engage in both types
ship behavior is that they tend to think of “consideration” of behavior as they are required. It is up to managers to
382 PERSONNEL MANAGEMENT

apply judgment along with the theories and concepts to 4. Encourage a positive work environment.
the situations they face. 5. Reward self-leadership and promote constructive criti-
cal feedback.
Leadership in a Team Environment 6. Promote self-leading teamwork.
7. Facilitate a self-leadership culture (47).
Performing successfully as a team leader requires a num-
ber of skills (34). Successful team leaders know that team Team Leader Selection
performance comes from collective effort and action. An
There are a number of ways to select a team leader. The
important focus is to motivate team members to support
leader can be assigned externally, be elected internally,
collective performance. To do this, team leaders need to
emerge naturally, or be rotated among team members. Dif-
accomplish several objectives. First, “clarify purpose and
ferent methods of leader selection have different effects on
goals, build commitment and self-confidence, strengthen
the leader’s legitimacy—how followers perceive the lead-
the team’s collective skills and approach, remove exter-
er’s source of authority and respond to the leader. Electing
nally imposed obstacles, and create opportunities for
the team leader makes it more likely that the followers will
others” (34). Second, keeping in mind that team success
identify with the leader, have more sense of responsibility
depends on the combined contributions of all members
to the leader, and perceive a greater investment in him or
of the team, team leaders should, as much as possible, in-
her (28). However, elected leaders will be more likely to
volve team members in decisions that affect the team and
face criticism from followers for performance failure (29).
its performance. This approach helps keep members “in
Research has shown that teams whose leaders were elected
the game” and gives them an additional stake in team out-
by team members performed better than teams with no
comes. To this end, team leaders should consciously avoid
leader or teams whose leaders were appointed (22) and
any action that might threaten the desire of team members
that, when compared to appointed leaders, elected lead-
to make contributions. For example, team leaders should
ers received higher ratings from the members on respon-
avoid ridiculing or harshly criticizing members’ ideas and
siveness to members’ needs, interest in the group task, and
opinions. Third, it is the team leader’s role to develop and
competence (5).
facilitate team members, not just control them. Consonant
A naturally emergent leader can be expected to receive
with this objective, leaders must decide upon the amount
similar responses from team members as an elected leader.
of autonomy given to members, when to make decisions
In both selection processes, team members evaluate the po-
alone or with the team, and how much responsibility to
tential leader to determine if the individual possesses the
give inexperienced members: too much and they may fail
appropriate qualities of a team leader. The difference in
and hurt the team’s performance and their own develop-
the processes is the timing of the evaluation, because with
ment; too little and they may never develop, develop too
elected leaders potential leader candidates are evaluated be-
slowly, or become discouraged.
fore work begins on the group assignments rather than over
Team leaders can take on other roles. For example, they
the course of the project as happens with naturally emergent
can be (i) liaisons between the team and other parts of the
leaders. However, when leaders emerge on their own, they
organization or even other organizations; (ii) resource pro-
may shift the team’s direction depending on the immediate
viders, assisting the team in defining their resource needs
task and goal. This may not be amenable to the smooth and
and helping to secure those resources; (iii) counselors,
timely achievement of the organization’s and team’s goals.
helping team members develop problem-solving skills;
There are other dangers in waiting for a team leader to
(iv) mentors, guiding team members to develop organiza-
emerge. First, unless the team’s production norms are clear
tional savvy; (v) teachers, passing on technical information
and high, an emergent leader may lead the team away from
to team members; or (vi) devil’s advocates, challenging the
the purpose for which the team was formed. Second, two or
team process of decision making, interpersonal relation-
more rival leaders may begin to emerge and coalitions may
ships, and progress toward the team’s goal (2). Team lead-
form around them and split the team. Finally, a leader may
ers may also be working members of the team, performing
not emerge or may take too long to do so.
team-related tasks within the purview of the team.
Rotating leaders is another way to generate and maintain
Team leaders and members should be aware that the
team-leading function. In certain self-directed teams, team
leader’s role may change with the growth of the team (13).
members rotate the position of team leader. Here, the focus
Team leaders should also guide members to lead them-
is on the function of the leader position rather than who the
selves. To do this, some management scholars suggest the
team leader is. Rotating leaders tends to work when the task
following seven steps:
is clearly defined and the direction, vision, and purpose of
1. Become an effective self-leader. (For further discus- the team are well understood and do not depend upon who
sion of self-leadership, see reference 47.) the leader is. This is also an excellent way to give leadership
2. Model self-leadership for team members. experience to the team members and encourage each mem-
3. Encourage team members to set their own goals. ber to buy in to the team’s purpose.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 383

Another approach for team leader selection is through have the opportunity to participate in setting their own
a process in which both upper management and the team goals. The other school holds that it doesn’t matter. The
members participate. Participative selection, if properly results of research on this question are mixed (40), with
structured and guided, can have at least four positive results: participative goal setting being superior in some cases and
assigned goals being superior in others. Current thinking
• Selecting high-quality leaders
is that what matters is that the goal be accepted regard-
• Engendering high levels of participant satisfaction less of how it was set. Therefore, a major advantage of em-
• Fostering better understanding of the leader’s job ployee participation is the acceptance of the goal.
• Creating positive expectations that enhance the The final dimension in goal-setting theory is feedback.
chances of the leader’s success through the process of When people have accepted a goal and are striving to achieve
self-fulfilling prophecy (53) it, they need to know how they are doing. This knowledge
helps them identify discrepancies between where they are
and where they want to be and what they are doing versus
what they should be doing. In effect, feedback acts as a guide
Motivating Team Performance
for behavior. Research indicates that self-generated feedback
Goal Setting and Performance is a more powerful motivator than externally generated feed-
One of the most viable and successful motivational tech- back. In other words, if employees can monitor their own
niques to appear in the management literature is goal set- progress, results tend to be better than if they cannot (32).
ting. Goal-setting theories suggest that goals can improve
performance because they generate, direct, and sustain ef- Goal Setting and Teams
fort (43). For goals to have the most positive effect, they The performance-enhancing effect of goal setting has been
should be specific, rather than general or vague; difficult found not only at the individual level but also at the group
but attainable, rather than easy; and accepted by the team. level (11, 36, 43, 55, 57, 58, 67, 68). The results of research
Attempts to reach them should be accompanied by feed- with groups parallel those obtained with individuals in
back (19, 43, 44, 66). terms of goal specificity (55), difficulty (67), attainability
General or vague goals, such as “do your best,” do not (38), acceptance, and feedback (63). Conversely, team ef-
result in the levels of performance that occur when goals fectiveness can be lowered because of a lack of unity or
are specific, e.g., “increase production by 10%.” The speci- clarity about goals (63). Furthermore, improper assess-
ficity of the goal acts as a guide and stimulus, allowing em- ment of goal difficulty leads to team failure (37, 72).
ployees to make reasonable inferences about the effort and As with individuals, team goals can be assigned or
resources that will be required to obtain the goal. Difficult participatively set. Which technique to use depends on
goals, when met, obviously result in greater performance the type of team and the tasks the team is assigned. Stud-
than corresponding easy goals. However, simply setting dif- ies show that participatively setting goals is likely to en-
ficult goals is not automatically effective. Workers must see hance the acceptance of goals by team members (49, 57),
the goal as attainable. If the goal is unreasonably high and increase congruence between individual and team goals
perceived as unattainable, it may discourage effort rather (20, 45), lead to better-quality goals and satisfaction with
than motivate it. At the same time, a goal must be accepted the process (42), and increase the likelihood of producing
by those who will strive to attain it. If a goal is not accepted, positive outcomes (55). Another possible benefit of team
individuals are unlikely to strive very hard to reach it. members participating in goal setting is the cohesive-
From this discussion, we might infer that less difficult ness that can be generated by such interaction. Further,
goals are more likely to be accepted than more difficult as teams discuss various goal levels, individual members
ones. However, more difficult goals can be associated become aware of their teammates’ strengths, weaknesses,
with greater rewards, extrinsically as well as intrinsically. and overall capabilities. This awareness should assist
Managers who set goals for their employees walk a fine members in making sound and realistic judgments con-
line between setting goals so high as to discourage effort cerning the team’s capabilities as a unit. Frank discussions
and setting them so low that good performance is not at- of member roles in achieving team goals should increase
tained. Therefore, managers would do well to ensure that the knowledge of how and to what degree the various tasks
goals are accepted and, to the degree possible, implement a are interdependent. As was mentioned before, heightened
reward structure to support their attainment. This means perceptions of task interdependence are associated with
that leaders must be knowledgeable both in terms of the increased organizational and team commitment (6).
difficulty of the work and the capability of the team.
Researchers disagree over the usefulness of having em- Evaluating Teams and Team Members
ployees set their own goals or participate in setting them Performance evaluation gives feedback to the team and
versus having goals be assigned by management. One should be used to guide the team in making any adjust-
school of thought is that employees will try harder if they ment that may be needed (23). Teams need to be evaluated
384 PERSONNEL MANAGEMENT

as units. A team’s achievement can be evaluated based on However, the use of virtual teams can create challenges
(i) the degree to which the results that a team delivers are for organizations and the individuals serving on those
acceptable to those who receive them, (ii) the team being teams. Virtual teams can make employees feel increasingly
able to work effectively together in the future, and (iii) in- isolated, increase chances of misunderstanding among team
dividual members being more satisfied than frustrated in members, and create conflicts. Members of virtual teams
achieving their personal goals (25). are also likely to have individual responsibilities in addi-
When the collective outcome (team performance) is tion to their team assignments or be members of more than
assessed, individual team members’ contributions must one team. Furthermore, virtual exchanges may be less pro-
be evaluated as well (65). Different individuals may make ductive because members may attempt to multitask during
disproportionate contributions. In general, this should be meetings when they cannot be observed. To minimize the
avoided. At the same time, the nature of a given team may potential problems of virtual teams and take advantage of
be that one individual (or a subset of individuals) is simply their positive attributes, we suggest that managers:
more capable than the others. In such cases, others may
• Conduct an initial face-to-face meeting so that team
respond by relieving that individual of some of the admin-
members can get to know the people with whom they
istrative or “housekeeping” duties and supporting him or
will work and can subsequently visualize that person
her in other ways. Even so, it is important to monitor in-
when they are working remotely. When possible, have
dividual performance so as to prevent social loafing (1, 27,
team members meet in person on occasion through-
35, 39, 49). Most of the time, a team’s visible outcome is
out the life of the team.
the result of a collective effort. Consequently, evaluation
of individual team members can be problematic. Some • Use multiple forms of electronic communications to
experts suggest creating a behavioral instrument based on liven up exchanges and encourage individuals to com-
the sample KSAs for teamwork as displayed in Table 18.3. municate information in different ways depending on
Honest and constructive peer evaluation is also important. what information needs to be shared, work done, or
decisions made.
Pros and Cons of Rewarding Team Members • Make sure that team members have access to all forms
Some managers with whom the authors are familiar have of electronic devices that will be used and are comfort-
suggested giving rewards to individuals who exhibit out- able using them.
standing performance on a team. In general, we discour- • Keep in mind that members of the team may be in dif-
age such action. In fact, there are times when it can be ferent time zones or working under different schedules
counterproductive. For example, when teams are new and when virtual meetings are scheduled.
have been recently introduced in an organization, there
may be a tendency by individuals to resist sacrificing their In today’s world, most teams have a virtual element to
own autonomy for the sake of the team. To offer individual them. Other than teams that show up each day to work on
rewards during this time would, in our view, undermine a physical product, most teams interact to some extent us-
the team concept and the idea of subordinating individual ing some form of electronic medium. Probably we should
goals for team goals. For teams to prosper, especially dur- think about the degree to which teams operate virtually
ing the initial stages of their formation, we suggest that and focus on creating the right balance between virtual
all rewards be at the team level and all recognitions be for and face-to-face interaction.
team results. Later, individual rewards may be appropriate,
but this action should be carefully considered and done
with extreme caution. Global Teams
Globalization has transformed how business is conducted.
A survey of global managers indicated that most of their
Virtual Teams time was spent working with global teams, and two-thirds
Virtual teams are characterized by members who are typi- of the sample said that they were on multiple global teams
cally geographically dispersed and communicate primar- (50). Companies “go global” for a number of reasons, in-
ily through electronic media including email, telephone, cluding to (i) reach new markets, (ii) realize labor savings,
texting, video-conferencing, webinars, etc. (17). Virtual (iii) access cheaper raw materials, and (iv) realize supply
teams are quickly moving to the forefront as an organizing chain advantages. Hence, global companies should not
strategy as business becomes more global, employees work be thought of as a set of stand-alone organizations across
from remote locations, and travel costs increase. Their use the globe, but as integrated operations designed to obtain
has been facilitated by the expansion of electronic media the value of being an effective and efficient global entity.
such as phones, webinars, emails, video conferencing, Global teams deal with issues that transcend countries
Skype, texting, and social media. and the cultures in which any single operation is imbedded.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 385

Members of global teams may have to communicate using • The ability of its members to work together in the
languages in which they are not fluent and interact with future
people from different cultures who have different mental • The value of the team experience to each member
models of how to approach problems, make decisions, in-
■ Conditions that facilitate effective teamwork are:
teract with others, and handle conflict (61).
Given the nature and challenges faced by global teams, • A group structure that promotes competent work on
more time and resources must be invested for them to be the task
effective. First, consideration must be given to the charac- • Support and reinforcement of excellence by the or-
teristics of the individuals who are placed on global teams. ganization
Successful global team members must have language, tech- • The availability of expert coaching and process as-
nical, and social skills as well as an understanding of how to sistance
work with those who operate in different cultures. Second,
■ The essence of a team is a common commitment lead-
getting a global team together face to face is important, es-
ing to specific performance goals.
pecially when the team is being formed. This is expensive
both in time and money. The team’s goals and objectives,
as well as how the team will work together, should be dis- GLOSSARY
cussed at the face-to-face meeting. Time should also be al- Common purpose A state that is achieved when team members
located for the team members to get to know one another fully understand the team’s purpose or reason for existing and
as individuals. Third, local issues and obligations often there is significant goal congruence.
trump global responsibilities. Clear goals, work structure, Gainsharing A financial plan in which improved group produc-
and performance criteria must be established. Again, note tivity determines the amount of money that is shared among the
that responsibility for meeting performance goals may be company, investors, and members of the group.
defined differently by people from other cultures. For ex- Goal congruence The degree to which team (or group) mem-
ample, in some cultures a deadline is absolute, and in other bers’ individual goals coincide with the team’s (or group’s) goals.
cultures it is fluid. These differences must be discussed up
Goal setting The process by which team and/or individual goals
front since these kinds of differences tend to upset people
are determined, communicated, and agreed upon.
and damage relationships between teammates when en-
countered while working on a task. Finally, one must allow Group effectiveness The sum of the group members’ individual
for misunderstandings and complications. capabilities, plus process gain, minus process loss.
Common elements of effective teams are trust and com- Group process The way groups get things done, including com-
mitment among members. One must recognize that dis- munication patterns, decision-making methods and techniques,
tance and culture can be significant barriers for building leader behavior and interaction, power dynamics, conflict reso-
trust and commitment, and thus members of international lution methods and techniques, and the way members interact
teams need to put forth extra effort to ensure a successful with each other.
and effective team. Furthermore, one can even argue that Leadership legitimacy The degree to which a team or group
teams within a diverse country like the United States offer leader is accepted by both the team or group members and the
similar challenges as when people from different cultures employing organization.
work together. Participative selection A process in which team members
choose new members of their team based on team-related crite-
ria that were determined and agreed upon prior to candidate
Summary
identification.
The use of teams is not easy, and it is certainly not free.
Process loss (gain) The degree to which group processes inhibit
In fact, using teams can have important and salient draw-
(enhance) the successful completion of group objectives.
backs. Such drawbacks must be looked upon as invest-
ments in the business before teams are implemented. Task interdependence The degree to which a task’s progression
Organizations should be as sure as they can be that their or completion is influenced by, determined by, or subject to the
investment in teams will bring forth worthwhile returns. progression or completion of one or more other tasks.
That is, the use of teams should be evaluated just like any Work group Two or more individuals who interact primarily to
other investment. share information and to make decisions that help each other
perform within their areas of responsibility.

KEY POINTS Work team Two or more individuals whose individual efforts
result in a performance that is greater than the sum of those in-
■ The effectiveness of a team can be determined by:
dividual parts and who have different tasks but work together
• The acceptability of its results adaptively to achieve specified and shared goals.
386 PERSONNEL MANAGEMENT

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388 PERSONNEL MANAGEMENT

APPENDIX 18.1 Case Studies

CASE 1: WHEN A GOOD TEAM GOES BAD hoarded in the greatest quantity. The result was that although the
All-Stars had 100% up-time for their helicopters, the company as
Team Commitment a whole had a number of helicopters down for want of parts that
(This is a stylized account of an actual situation that occurred the All-Star team members possessed in abundance.
in a branch of the armed services in a country that will remain
nameless.) The Lesson and What To Do
A major lesson here is that even though the achievement of team
Generally, we think of commitment to one’s team and its goals as goals may appear to coincide with and further organizational
a precursor to team performance. Certainly team performance is goals, the methods of achieving team goals may inhibit or even
a good thing, isn’t it? After all, isn’t that what we wish for? How- prevent the achievement of organizational goals.
ever, as the old saying goes, “Be careful what you wish for. You What should a manager do in such a circumstance? Usually
might get it.” Consider the following anecdote. with exercises of this type, students want more information be-
In a branch of the armed services, there was a company of he- fore making a decision. Granted, in such cases it is difficult to
licopter “flights.” Each flight consisted of several helicopters, and know exactly what we would do. Furthermore, we need to keep
the company consisted of several flights. Each flight had a main- in mind that this is a military unit and therefore may be subject
tenance team, or ground crew, that was responsible for keeping to military rules and regulations that differ significantly from
the helicopters in their flight up and running. those in the civilian world.
In one particular company there was an “all-star” ground crew However, with the information provided, we can articulate
who, it seemed, never had an inoperable helicopter. Their “birds” some reasonable alternative actions that would be appropriate
were always airworthy. Their success was the stuff of legends and in the civilian sector. First, it is highly unlikely that the All-Star
was in sharp contrast to the “up-time” achieved by other flight team could be salvaged as an intact unit. The team norms are too
crews. Though competent and hardworking, the other crews strong and run too much counter to the objectives of the orga-
seemed to have one or more of their birds down at any given nization. Second, hoarding parts may be grounds for dismissal.
time. Knowing just this, one would be tempted to say, “The All- At the very least the team should be broken up and the members
Stars are really a great team. Clearly their goals and objectives dispersed throughout the company, or preferably, across several
are congruent with the company’s goals and objectives. Further- companies (or units in a civilian organization). Similar action
more, they should serve as a role model for other teams, who would be required with respect to those in the parts supply chain
should copy their methods.” who enabled the All-Stars’ shenanigans.
But do they have goal congruence with the company? Should It is easy, though often counterproductive, to point out to
they serve as a role model for other teams? Let’s take a closer look people what should have been done. Even so, in this case, what
and see. should have been done and what must be done now are much
the same. In addition to the actions related to the ground crew
The Situation team and the parts personnel, the organization must reevaluate
As those familiar with helicopters can attest, because of the na- its team training program and the components that comprise it.
ture of the movable wing aircraft design, helicopters are notori- Those responsible for training, as well as company management,
ous for wearing out parts. Therefore, a good supply of spare parts must ensure that team objectives include knowledge of organi-
is absolutely essential to keep a company of helicopters flying. zational objectives and techniques for advancing team goals in
In addition to their skill and motivation, one of the reasons for such a way as to fulfill and not impede these objectives. Care
the success of the All-Stars was that they never experienced a should be taken to ensure that as team norms develop, team
shortage of spare parts. On the other hand, the other crews were members are aware of, concerned with, and take action for the
constantly short of parts and even resorted to cannibalizing parts furtherance of organizational goals.
from inoperable helicopters, something the All-Stars never had Though our primary purpose in analyzing this case is to
to do. Why was this? Wasn’t there a common store of parts from consider the issues related to the implementation and use of
which the flights drew replacements? Yes. Well then, didn’t ev- teams, other aspects of the situation must not be neglected. It
eryone have the same access to parts? Yes—at least officially. But is important to do this to avoid a myopic view that would cause
in reality the truth was quite different. us to become one-dimensional in our problem-solving thought
It turned out that the All-Stars had their own parts procure- processes.
ment process to “supplement” company procedures. They went With this in mind we would recommend that a control sys-
around the chain of command; they established informal rela- tem for the distribution and use of parts be put in place and its
tionships with the appropriate quartermaster personnel, and use mandated and supported by management. Particular care
they devised an extra-official parts procurement process and must be taken in the design and implementation of such a sys-
procedure of their own. As if that wasn’t enough, they hoarded tem. For example, a charge-back scheme has some characteris-
parts. Because some helicopter parts wear out in a predictable tics that would help prevent situations like the one exemplified
manner, it was known beforehand which parts would likely be by the All-Stars. Charge-backs would require ground crews to
needed in greater quantities. It was these parts that the All-Stars have a financial component for which they must be responsible.
(continued)
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 389

APPENDIX 18.1 Case Studies (continued)

On the other hand, if the charge-back scheme includes an overly are first implemented in an organization. In this instance, the or-
restrictive budget or if rewards for a parts budget surplus are em- ganization was the owner of more than a dozen sewing plants,
phasized, then teams may be motivated to skimp on the use of both in the United States and overseas. Management made the
parts and try to stretch the usable life of the parts too far—with decision to go from individual sewing to team sewing. The indi-
disastrous consequences. vidual sewing method involved tasks that were characterized by
sequential interdependence. Individual sewers performed their
Summary tasks on partially completed garments before they were passed
Team goals did coincide with organization goals, but the meth- on to other stations where other tasks were performed. Each in-
ods of achieving the team goals inhibited the achievement of or- dividual was responsible for his or her own task and no other.
ganizational goals. Compensation was based on piecework.
In the team method the tasks had characteristics of both
CASE 2: TWO EXAMPLES OF HOW AND HOW NOT sequential and reciprocal interdependence. Compensation was
TO SELECT TEAM MEMBERS still based on piecework but at the team level, that is, every-
one on the team was compensated at the same rate for what
Example 1: Selecting New Members for Established Teams
the team produced. The objectives for implementing teams
(an Automotive Outsourcing Plant)
included cutting costs by reducing work-in-process inventory;
Invariably, the composition of teams will change over time.
reducing turnaround time between customers’ orders and the
Members quit or get fired, promoted, or transferred. When a po-
organization’s delivery; improving quality by reducing dirt, oil,
sition on a team opens, filling that position presents unique chal-
and grease; and achieving a more flexible workforce by cross-
lenges. In addition to the traditional selection criteria involving
training employees and having them be collectively responsible
task-related KSAs, team-related criteria must be considered for
for results. Employees received task-related and team-related
a successful match to be made. Some of the additional questions
training. The latter included communication skills develop-
that arise are, “Can the applicant work well in a team environ-
ment, conflict resolution and problem-solving techniques, and
ment? Can the applicant work well with the particular team that
other group process training.
has the vacancy? Can the team work well with the applicant?”
Because there were no teams already in place, team member
One organization with which the authors are familiar ap-
selection meant choosing all members of all teams, not filling
proached this problem in the following way. First, the human
an opening on an existing team. This called for the organization
resources department screened the applicants for the traditional
to employ a different selection strategy as contrasted with the
KSAs that are required for successful performance on the job
one described in the previous example. For one thing, the em-
in question, checked references, confirmed job histories, and
ployees were already working for the company. Therefore, initial
performed the appropriate background checks. Following this
screening was not required. For another, teams were new in the
screening process, three to five candidates whom the company
work environment and required that the employees work in a
would hire were presented to the team. The team members re-
significantly different way. Consequently, management rightly
viewed the documentation gathered by the human resources de-
anticipated some resistance to the change. To reduce resis-
partment and, considering this information in light of the team’s
tance, increase employees’ acceptance of the team concept, and
requirements, interviewed the candidates for the purpose of
promote psychological ownership of employees’ teams, man-
making the final selection. The candidates interviewed with the
agement concluded that the employees should form their own
team members individually and as a group. Team members were
teams, in their own way, with their own selection criteria. Note
trained in structured and unstructured interviews. They were
that the formation was done after initial training was given in
fully aware that their purpose was twofold. One, they were trying
team-related skills.
to sell their team to the candidate and, two, they were trying to
Management predicted that employees would choose their
determine if the applicant would make a good teammate.
teams based on friendships and kinship. Management also be-
This system seemed to produce sufficient initial commitment
lieved that this initial attempt would most likely fail. Even so,
between the chosen new member and the established team; after
management was willing to accept this initial setback to allow
all, they chose each other. These initial positive feelings can be
employees the decision-making authority it believed would, in
enhanced or squandered depending upon subsequent actions by
the long run, enhance employee buy-in to the team concept and
the parties involved. But at least it’s a positive start, and the sys-
obviate some of the initial resistance. Management also felt it was
tem worked well for this organization and its employees.
better not to be in the position of forcing people to work together.
Management was right on both of their predictions. First,
Example 2: Selecting Members for Newly Formed Teams teams initially consisted of friends and relatives; the employees’
(a Sewing Plant) selection criteria focused on these attributes and tended to ignore
The previous example illustrated a reasonable and effective other, more task-related, ones. Second, the teams soon failed. The
method of selecting replacement members for existing teams— team strategy was not halted because management’s assessment
teams that are up and running. We now turn our attention to an was that the use of teams was not an option but a necessity based
example of a method for selecting team members when teams on the competitive environment. Hence, the teams were reformed.
(continued)
390 PERSONNEL MANAGEMENT

APPENDIX 18.1 Case Studies (continued)

When the teams were formed the second time, selection was loss (negative number). Usually, but not always, the team’s score
again left to the employees’ discretion. Only this time, on their is superior to the average of the individuals’ scores, indicating a
own, the employees used different selection criteria. This time, process gain in accuracy by the group over the individuals. In-
the ability to sew at a similar speed as others who would make variably, the groups take longer than the individuals to complete
up the team and the desire to make the same amount of money this task. This added time represents one component of process
were the top criteria. This meant that team members shared the loss. Changes in members’ knowledge about each other and their
same goal and possessed the same means to achieve it. It should preference for working together can represent either process
be noted that just because the initial teams were composed gain or process loss, depending upon whether team members
of friends and family, this was not the problem. In fact, when perceive the knowledge they gain about each other to be posi-
friends and family members possessed similar skill levels and tive or negative and if their preference for working together in
shared the same monetary goals, their teams worked quite well. the future is increased (process gain) or decreased (process loss).
This example illustrates the importance of shared goals and Such exercises must have several characteristics to work. First,
the collective means of achieving them. In no way does this il- the solution to the problem must require knowledge that is not
lustration negate the importance of personal compatibility within generally known to the trainees. If the solution to the problem
teams. Rather, it illustrates that while personal compatibility may is well known, then no problem solving will be required by the
be important for team success, it does not constitute a sufficient group. Hence, group discussion, compromise, give and take,
condition. Further, personal compatibility can be enhanced when trade-offs, and conflict resolution will not be required. Second,
members possess common goals and the means to achieve them. the objects that are on the list should be items with which most
people have some familiarity. Third, while the environment de-
scribed in the exercise can be a place or situation with which the
CASE 3: TEAM-BUILDING EXERCISES: AN EXAMPLE trainees are not intimately familiar, it must at least be recognizable
A number of exercises are frequently used for team building and in terms of some of its more unique and salient features. These
to train individuals in group process skills. One of the more pop- last two points are important because they move the problem-
ular exercises involves having the trainees rank a list of objects solving techniques employed by the teams toward the application
in a survival situation. There are numerous survival scenarios, of logical deductions and away from simple guesswork.
including being stranded in the Artic, in the desert, on the moon, Such exercises are designed to show the trainees that teams
in a lifeboat, and in the wilderness where it’s hot, cold, wet, or ex- can make superior decisions when a variety of experiences, view-
cessively dry. Trainees are asked to come up with their rankings points, and perspectives are brought to bear on a problem. They
of the items based on the situation. First they do so individu- should also illustrate that team decisions require more time than
ally and then as a group. The group must reach a consensus and individual decisions. The trainees should also realize that there are
produce a single ranking. Both the individual and group rank- a variety of communication styles and techniques, and the level
ings are scored against experts’ rankings. Difference scores for of communication skills varies from person to person. Trainees
the individuals and the group are computed. The individuals’ should gain insight into their own communication styles as they
difference scores are averaged; this represents the team potential interact with others to perform a task. These insights should
without considering process gain and process loss. This average form a base for trainees to evaluate their own and others’ styles of
is subtracted from the group’s score; the difference represents working in a team environment and ready them for further train-
one component of the process gain (positive number) or process ing to become productive team members.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 391

APPENDIX 18.2 Representative Websitesa

National Association for Healthcare Quality Clinical Laboratory Management Association

http://www.nahq.org www.CLMA.org
Publications related to quality healthcare, including team building Links to relevant government agencies, other organizations, and
other resources; excellent resource
Training Services On Demand
http://www.tsod.com/team_building/teambuilding_books.htm
Work teams, team building, and total quality
BusinessTrainingMedia.com Inc.
http://www.business-marketing.com/ or email sales@business
-marketing.com
Videos and training packages, including teams and team building a
Verified July 14, 2012.
Introduction
Labor Law
19 Labor Relations
National Labor Relations Act (Wagner Act), 1935 •
Fair Labor Standards Act (Black Act), 1938 • Labor- Lynne S. Garcia
Management Relations Act (Taft-Hartley Act) •
Labor-Management Reporting and Disclosure Act
(Landrum-Griffin Act) • 1974 Amendments to the
NLRA
National Labor Relations Board
Description • Function • Structure • Processing of
Cases • Authority To Secure Injunctive Relief from a OBJECTIVES
Court • Current Issues Related to the NLRB
To describe the legal framework for labor relations activities
Union Structure
Formal Structure • Union Membership • Function of To understand and describe the reasons why employees seek union
the Union Steward representation
Unionization Process To discuss the union organizing campaign and the “dos and don’ts” for the
Individual, Group, and Union Image: Reasons Why union and management
Employees Join a Union • Relevance for Healthcare
Employees To describe the election process
Organizing Campaign To discuss the collective bargaining process
Authorization Cards • The Bargaining Unit • To understand the concept of unfair labor practices
Information Distribution and Solicitation •
Election • Certification
Collective Bargaining Why is it that those who are the quickest to judge are often those in possession of
Issues for Bargaining • Preparation Phase • the fewest facts?
Negotiation Phase • Administration of the
Agreement • Management Rights Clause John Wooden
Summary

T
KEY POINTS
he term “labor relations” has been defined as the interactions be-
tween an employer represented by management and supervisors and
GLOSSARY
groups of employees who are in bargaining units represented by a
REFERENCES
union. These interactions involve the rights of employees, unions, and em-
APPENDIXES ployers under law and the interpretation and application of collective and
bargaining agreements addressing issues such as wages, hours, and working
conditions. Procedures for resolving disputes that may arise over the applica-
tion and interpretation of the contract are also included (6).
Regardless of whether you support or dislike the concept of unionization,
it is mandatory that all parties obtain a basic understanding of labor relations,
including the law, organizing campaigns, collective bargaining, and contract
administration. The topic of labor relations is often discussed within a very
emotional atmosphere, and factual information is minimal or absent. It is
particularly important that management and supervisory staff understand
the ramifications of their actions regarding personnel management within the
context of unionization.
A number of laws govern healthcare labor relations in the United States.
These laws are generally divided into three categories: those covering federal
government employees, state and local government employees, and for-profit
Clinical Laboratory Management, 2nd Edition
and nonprofit employees in the private sector (Table 19.1). The laws relevant
Edited by L. S. Garcia to these three categories undergo constant review and modification, based on
©2014 ASM Press, Washington, DC changes in the actual laws and regulations and agency or court decisions re-
doi:10.1128/9781555817282.ch19
lated to administration of the laws.

392
 CHAPTER 19. LABOR RELATIONS 393

Table 19.1 Labor law coverage for healthcare institutions and Fair Labor Standards Act (Black Act), 1938
employees in the United States
More than 130 million workers in more than 7 million
Healthcare employees Coverage workplaces are protected by the Fair Labor Standards Act
Federal government 1978: Civil Service Reform Act (FLSA), which is enforced by the Wage and Hour Divi-
State and local government State labor laws sion of the U.S. Department of Labor. Almost every em-
For-profit and nonprofit 1935: National Labor Relations ployee in the United States is covered by the FLSA. Hours
institutions Act, as amended worked issues include waiting time, on-call time, meal
and rest periods, training time, travel time, and sleep
time. Covered, nonexempt employees must receive one
In 2011, there were 7,204,000 union members in health- and one-half times the regular rate of pay for all hours
care (healthcare practitioners and technical occupations; worked over 40 in a workweek. Exempt medical profes-
13% of those employed), with 3,178,000 in healthcare sup- sions include doctors, registered nurses, and registered or
port occupations (8.4% of those employed). In 2012, there certified medical technologists (three years of preprofes-
were 7,309,000 union members in healthcare (healthcare sional study in an accredited college or university, plus
practitioners and technical occupations; 12.5% of those one year of professional study in an accredited school of
employed), with 3,340,000 in healthcare support occupa- medical technology).
tions (8.3% of those employed) (http://bis.gov/news.release/ Some of the common errors to avoid include (i) assum-
union2.t03.htm, accessed April 23, 2013). ing that all employees paid a salary are not due overtime,
(ii) improperly applying an exemption, (iii) failure to pay
for all hours an employee is permitted to work, (iv) limit-
Labor Law ing the number of hours employees are allowed to record,
Current labor law supports two major objectives. First, it (v) failure to include all pay required to be included in cal-
supports stability through collective bargaining and de- culating the regular rate for overtime, and (vi) failure to
fined dispute resolution. Second, it tends to equalize the add all hours worked in separate sites for the same em-
balance of bargaining power between employees and man- ployer when calculating overtime due (www.dol.gov/whd/
agement. Until the Norris-LaGuardia Act of 1932, unions flsa/, accessed April 25, 2013).
had very few rights; this act declared a federal policy that
employees were free to form unions (4).
Table 19.2 Employer unfair labor practices that interfere with
National Labor Relations Act (Wagner Act), 1935 employee rights (NLRA)a
Until the National Labor Relations Act (NLRA) of 1935, 1. Interference with rights to unionize and to bargain collectively
employers were not required to collectively bargain with • Threatening employees with loss of jobs or benefits
unions. This legislation included some very important pro- • Withholding customary periodic wage increases
visions: (i) Employees have the right to form, join, or assist • Offering increased wages or benefits to occur if and when the
unions; the freedom to bargain collectively with the em- union loses the election
• Threatening to relocate or close the business
ployer; and the right to engage in group activity. (ii) Employ- • Questioning employees about their union activities or member-
ers must bargain collectively with the employees’ certified ship under circumstances that would tend to restrain or coerce
bargaining representative and must refrain from employer employees in their right to organize
unfair labor practices. (iii) The National Labor Relations • Spying on union gatherings or pretending to do so
Board (NLRB) is the regulatory body responsible for ad- • Granting wage increases timed to discourage employees from
forming or joining a union
ministration of the NLRA.
2. Domination of or contributing to a union
Section 8 of the NLRA prohibits certain actions by the • Employer must remain neutral during the organizing process
employer, identified as unfair labor practices. These prac- • Employer cannot solicit employees to join a particular union or
tices are very detailed and can be seen in Table 19.2. Specific to oppose a competing union
examples of employer discrimination include (i) discharg- • Employer cannot contribute financial or other support to the
ing employees for urging other employees to join a union, union
(ii) refusing to reinstate an employee to an open job because 3. Discrimination against employees because of their union activities
or because they filed charges or testified under the NLRA
the employee participated in a union strike related to an
4. Refusal to bargain in good faith with the employees’ elected
unfair labor practice or economics, (iii) refusing to hire a
representatives
qualified applicant for a job because the applicant belongs a
Based on an NLRB report, there were 22,177 unfair labor practices filed in
to a union, and (iv) demoting employees for exercising their 2011 and 21,629 filed in 2012 (http://www.nlrb.gov/news-outreach/graphs-data/
right to organize (7). charges-and-complaints/charges-and-complaints, accessed April 23, 2013).
394 PERSONNEL MANAGEMENT

Labor-Management Relations Act (Taft-Hartley Act) Table 19.4 Titles within the Taft-Hartley Act (1947)
An NLRA amendment, the Labor-Management Relations Title Content
Act of 1947, addresses four problems that arose after pas- I Amended NLRA (1935)
sage of the NLRA in 1935, one of which was unfair labor Increased size of NLRB from three to five members (ad-
practices by unions. Union unfair labor practices were judicate cases)
clearly defined and are listed in Table 19.3. The Taft-Hartley Established the Office of the General Counsel of the
Act guaranteed a broader interpretation of “free speech” for NLRB (supervises regional and field offices, investigates
and prosecutes unfair labor practice charges)
both the union and the employer; this provision allows both
Granted employees right to form, join, or assist formation
to express their views, arguments, and opinions. As long as
of union
these views are expressed without any threats of reprisal or
Granted employees right to bargain through representa-
promise of benefits, no unfair labor practice has been com- tive of own choosing
mitted. Table 19.4 describes the five titles within this act. Granted employees right to engage in other protected
The requirement for “good faith” bargaining by both the activities for purpose of collective bargaining
union and the employer is also a part of the Taft-Hartley Outlined series of employer unfair labor practices, which
Act; this includes meeting at reasonable times and places violate employee rights.
and conferring honestly regarding wages, hours, and other II Concerned with prevention of work stoppages (estab-
working conditions. However, there is nothing in the act lished FMCS)
that requires either the union or management to agree to Outlined procedures by which president of the United
States can obtain federal court injunction when strike or
concessions or proposals.
threatened strike endangers national welfare
There are also notification guidelines if either the union
III Provided that suit to enforce labor-management contracts
or management wants to terminate or modify a contract be brought in a federal district court
upon expiration. Specific requirements include (i) a 60- IV Established a labor-management commission to study
day written notice prior to the expiration of the contract, labor-management relations in the United States
(ii) an offer to meet and confer with the other party, (iii) V Gave employees the right to refuse to work under abnor-
notification to the Federal Mediation and Conciliation mally dangerous conditions of employment without such
Service (FMCS) and any relevant state agency within 30 a work stoppage being considered a strike
days of serving notice, and (iv) maintaining all terms and
conditions of the contract for a period of 60 days after
notice has been served or until the expiration date of the act prevents unions from restricting members regarding
contract, whichever is later (1). These notification require- the right of free speech, assembly, and participation in
ments are summarized in Table 19.5 and are based on the union elections and meetings. Union officers are required
1974 Healthcare Amendments (see below). to be bonded and accountable for union property and
funds. The act also prevents dues from being increased
Labor-Management Reporting and Disclosure Act without all members first voting by secret ballot.
(Landrum-Griffin Act) Federal regulation for union internal operations is also
The Labor-Management Reporting and Disclosure Act of addressed, including the NLRB supervision of union of-
1959 was passed to address some problems with the Taft- ficer elections; minimum standards are in place for those
Hartley Act and to prevent abuses by union officials. The wishing to be candidates for office, as well as for voting
procedures. These include the following provisions: (i) All
union members in good standing must be allowed to vote;
Table 19.3 Union unfair labor practices that interfere with
employer rights (NLRA) (ii) elections for local officers must be held at least every
three years; (iii) secret balloting procedures must be fol-
• Refusing to bargain in good faith with the employer
lowed in local elections, but delegates to a national or in-
• Paying employees for work not actually performed
(feather-bedding)
ternational union convention may cast open votes; (iv) a
• Charging discriminatory initiation fees or dues
reasonable opportunity to nominate candidates must be
• Interfering with employees’ choice of a labor union
given to all eligible voting members; and (v) qualifications
•
for candidate eligibility must be reasonable (5).
Discriminating against certain employees and/or seeking the
employer’s discrimination against certain employees or potential
employees (e.g., to discourage or encourage membership in a 1974 Amendments to the NLRA
particular union) Prior to these amendments in 1974, nonprofit healthcare
• Picketing, striking, and carrying out boycotts against businesses institutions were excluded from coverage by the NLRA; af-
other than the employer involved in the primary labor dispute ter passage of the amendments, nonprofit healthcare insti-
• Strikes or boycotts designed to make an employer assign work to a tutions were no longer grouped with employers excluded
particular group to recognize a union without NLRB certification
from the coverage of the act. A number of other features
 CHAPTER 19. LABOR RELATIONS 395

Table 19.5 NLRA notice requirements in the healthcare industry (1974 Healthcare Amendments)
Notice to:
Notice type Other party FMCS Appropriate state agency
Modify or terminate contract
Initial bargaining 30 days 30 days 30 days
Existing contract 90 days 60 days 60 days
Notice of strike or picketing
activity
Initial bargaining 40 days: 10 days after the 40 days: 10 days after the 40 days: 10 days after the initial
initial 30 days seen above initial 30 days seen above 30 days seen above
Existing contract 10 days 10 days 10 days

of the 1974 amendments involve the written notification companies and religious schools. Although healthcare
rules described in Table 19.5. In passing these amend- workers were previously exempted, they are now covered.
ments, Congress was very concerned about maintaining
the continuity of patient care. Thus, the “ally doctrine” Structure
does not apply in certain healthcare settings. If employees The agency has two major, separate sections (Figure 19.1).
in a hospital setting are on strike and patients are trans- The board itself has five members and acts as a quasi-
ferred to another hospital, the ally doctrine does not apply; judicial body in deciding cases on the basis of formal rec-
therefore, the striking employees from the first hospital ords in administrative proceedings. NLRB members are
cannot legally picket the second hospital. appointed by the president to five-year terms, with Senate
consent, the term of one member expiring each year. The
General Counsel, appointed by the president to a four-year
National Labor Relations Board (NLRB)
term with Senate consent, is independent from the board
Description members and handles the investigation and prosecution of
The NLRB is an independent federal agency created by Con- unfair labor practice cases and the supervision of field of-
gress in 1935 to administer the National Labor Relations Act, fices in processing cases.
the primary law governing relations between unions and em-
ployers in the private sector. The statute guarantees the right Processing of Cases
of employees to organize and to bargain collectively with When an unfair labor practice charge is filed, the field of-
their employers or to refrain from all such activity. Based on fice investigates the charge to determine if there is reason-
well-defined definitions, employers, employees, and labor able cause to believe the NLRA has been violated. If the
unions understand the roles and expectations of each group. charge is determined to lack merit, it will be dismissed
unless the charging party withdraws the charge. The dis-
Function missal of a charge can be appealed to the General Counsel’s
Based on its statutory duties, the NLRB has two main office in Washington, DC.
functions: (i) to determine through secret-ballot elec- If the regional director finds reasonable cause that the
tions the free choice by employees whether they wish to NLRA has been violated, the region seeks a voluntary
be represented by a union in dealing with their employers settlement to remedy the alleged violations. However, if
and if so, by which union; and (ii) to prevent and remedy settlement efforts fail, a formal complaint is issued and
unlawful acts, called unfair labor practices, by either em- the case goes to a hearing before an NLRB administrative
ployers or unions. The agency does not act on its own in law judge. The judge issues a written decision that may be
either function but processes only those charges of unfair appealed to the five-member board in Washington for a
labor practices and petitions for employee elections that final agency ruling. This ruling is subject to review in a
are filed with the NLRB in one of its regional, subregional, U.S. Court of Appeals. Of the approximately 25,000 unfair
or resident offices. The NLRB also resolves disputes about labor practice charges filed each year, about one-third are
what constitutes an appropriate employee bargaining unit, found to have merit, of which over 90% are settled (8).
one in which the employees have a community of inter-
ests, including workplace conditions and concerns. Super- Authority To Secure Injunctive Relief from a Court
visors and managerial employees, as well as government The NLRB is able to petition a federal district court for an
workers and independent contractors, are not covered by injunction to temporarily prevent unfair labor practices by
the NLRA. Other groups not covered include municipal employers or unions and to restore the status quo, pending
396 PERSONNEL MANAGEMENT

The General
The Board
Inspector General Counsel

Office of Equal
Board Member Office of
Employment
Staffs Employee
Opportunity Development
Office of Executive
Secretary

Office of
Representation
Appeals
Division of Division of Enforcement Division of Operations- Division of
Advice Litigation Management Administration
Office of
the Solicitor

Regional Supreme Appellate

Court Personnel Security Finance Budget
Advice Court
Division of Branch Branch Branch Branch
Branch Branch Branch
Judges

Legal
Contempt
Division of Research Special
Litigation & Information Library & Procurement
Information & Policy Litigation
Compliance Technology Administrative & Facilities
Planning Branch Branch Branch Branch
Branch
Branch

Division of Regional
Injunction
Advice Offices
Litigation
Branch

Figure 19.1 Structure of the National Labor Relations Board. doi:10.1128/9781555817282.ch19.f1

the full review of the case by the board. In determining recess appointments of three members to the board were
whether this action is appropriate in a particular case, invalid. Decisions issued by the NLRB and its regional of-
the main question is whether injunctive relief is required fices are now being challenged by a number of companies.
to preserve the board’s ability to remedy the unfair labor The NLRB will ask the Supreme Court to resolve the legiti-
practice charge and whether the alleged violator would macy of these recess appointments; if the Court of Appeals
otherwise benefit from the violation. The act requires the ruling stands, as many as 600 prior NLRB decisions could
board to seek a temporary federal court injunction against be negated (www.nlrb.gov/news-outreach/news-release/
certain forms of union misconduct, mainly involving “sec- nlrb-seek-supreme-court-review-noel-canning-v-nlrb,
ondary boycotts” and “recognitional picketing.” accessed April 24, 2013).

Current Issues Related to the NLRB

When President Barrack Obama took office, the NLRB
had only two members instead of the normal five. Fail-
Union Structure
ing to gain approval for the three additional appointments Formal Structure
to the board in 2009, President Obama reappointed three The majority of national unions in the United States be-
individuals to the NLRB in 2010, two of whom were con- long to the voluntary federation, the American Federation
firmed by the Senate. When one member’s term expired of Labor–Congress of Industrial Organizations (AFL-
in early January 2012, the NLRB no longer had a quorum CIO). The AFL-CIO provides research, education, lobby-
to make decisions. Three additional members were ap- ing, and public relations activities for its unions; it does not
pointed during the Senate recess, thus restoring the board get involved with the internal affairs of its member unions.
to the standard five members. However, a Court of Ap- The individual unions are autonomous regarding strikes,
peals for the DC circuit held that the January 4, 2012, contract demands, and internal affairs.
 CHAPTER 19. LABOR RELATIONS 397

Usually, local unions are subunits of the national unions. working conditions and salaries are poor, unions will at-
However, in the absence of a national union, a local union tempt to organize.
may form to bargain with one or more employers. Gener-
ally, local unions vary considerably in size and may range Function of the Union Steward
from fewer than 10 members to more than 40,000. One of the most important positions in any union is the
Each union has a constitution that is on file with the steward; this position is comparable to one of the levels
Secretary of Labor; the content specifies the titles and in management (5). The steward listens to grievances by
duties of the officers, normally including elected officers employees in the bargaining unit, counsels them on a
such as president, vice-president, business manager, trea- course of action, and depending on the circumstances,
surer, financial secretary, recording secretary, and griev- intercedes with management on their behalf. Reasons for
ance committee chair. Some of these positions may be grievances might include discipline, failure to get a merit
full-time paid officers, while others are volunteers and are increase or promotion, and disagreement with the em-
reimbursed for out-of-pocket expenses and work time lost ployer evaluation process. A part of the steward’s respon-
while conducting union business. sibility is to review all the evidence related to grievances
and to obtain a factual account from both the employee
Union Membership and management regarding the issues involved. Generally,
In 2012, 11.3% (down from 13.2% in 2002 and 13.4% in a union steward will not defend inappropriate employee
2001) of wage and salary workers were union members. behavior, particularly if this approach would result in a
This represents a decline of 280,000 between 2001 and loss of credibility with the employer, a situation that would
2002 to 16.1 million in 2002 and 14.3 million in 2012. complicate future contract negotiations. In many collective
Union membership has steadily declined from 20.1% in bargaining agreements, the initial grievance must be pre-
1983. Table 19.6 shows some 2012 data (3). Table 19.7 sented to the employee’s immediate supervisor as the first
shows data from healthcare practitioners and technical oc-
cupations (major group); this table contains labor statis-
tics and does not reflect union representation (2). Unions Table 19.7 2012 healthcare practitioners and technical occupa-
tions (major group)a
that have become more active within the healthcare envi-
ronment include Service Employees International Union • This major group comprises the following occupations: chiroprac-
tors; dentists; dietitians and nutritionists; optometrists; pharmacists;
(SEIU); National Union of Hospital and Health Care
anesthesiologists; family and general practitioners; internists, gen-
Workers; American Federation of State, County, and Mu- eral; obstetricians and gynecologists; pediatricians, general; psychia-
nicipal Employees (AFSCME); International Brotherhood trists; surgeons; physician assistants; podiatrists; registered nurses;
of Teamsters; Retail Clerks International Association; the audiologists; occupational therapists; respiratory therapists; speech-
American Federation of Government Employees; and language pathologists; veterinarians; medical and clinical laboratory
technologists; medical and clinical laboratory technicians; dental
the American Nurses Association. Generally, wherever
hygienists; cardiovascular technologists and technicians; diagnostic
medical sonographers; nuclear medicine technologists; radiologic
technologists and technicians; emergency medical technicians and
Table 19.6 2012 union membership dataa paramedics; dietetic technicians; pharmacy technicians; psychiatric
• Men (12.0%) (14.7% in 2002) were more likely to be union mem- technicians; respiratory therapy technicians; surgical technologists;
bers than women (10.5%) (11.6% in 2002). veterinary technologists and technicians; licensed practical and
• Union membership for blacks (13.4%) (16.9% in 2002) remained licensed vocational nurses; medical records and health informa-
higher than the rates for whites (11.1%) (12.8% in 2002), Hispan- tion technicians; opticians, dispensing; orthotists and prosthetists;
ics (9.8%) (10.5% in 2002), and Asians (9.6%) (no data for 2002). occupational health and safety specialists and technicians; athletic
• trainers; and residual “all other” occupations in this major group.
Public-sector workers had a union membership rate of 35.9%,
while 6.6% were union workers in private-sector industries. • Employment: 7,649,930 (5.9% of the total, 130,287,700) (up from
• 4.8% in 2002)
Nearly 40% of workers in protective service occupations, includ-
ing fire-fighters and police officers, were union members; this • Mean hourly wage: $35.35 (up from $24.01 in 2002)
group has had the highest union membership rate of any broad • Mean annual wage: $73,540 (up from $49,930 in 2002)
occupation every year since 1983. • Specific groups are indicated below:
• About 1.6 million wage and salary workers were represented by a 1. Medical and clinical laboratory technologists
union, while not being union members themselves (down from • Employment: 160,700 (0.12% of the total, 130,287,700)
1.7 million in 2002). • Mean hourly wage: $28.19
• Three states had union membership >20% (New York, Hawaii, • Mean annual wage: $58,640
and Alaska) (New York, Hawaii, Alaska, and Michigan in 2002). 2. Medical and clinical laboratory technicians
• The largest numbers of union members live in California (2.5 mil- • Employment: 157,920 (0.12% of the total, 130,287,700)
lion) (2.7 million in 2002), New York (1.8 million) (2 million in • Mean hourly wage: $18.91
2002), and Illinois (800,000) (1.1 million in 2002). • Mean annual wage: $39,340
a a
From reference 3. From reference 2.
398 PERSONNEL MANAGEMENT

step; employees may ask for assistance from the steward However, over the years some of these perceptions have
at this beginning step in the process. The Supreme Court changed, and many healthcare employees are now rep-
has ruled that a member of the bargaining unit has a right resented by unions. Often, just the potential of a union
to union representation during a management interview entering a healthcare institution may stimulate manage-
if the employee feels that disciplinary action might result ment to improve salaries and benefits. Generally, if both
from the interview (9). management and unions are well informed, approach the
organizing campaign within specific guidelines, maintain
professional attitudes, and express appropriate behavior,
Unionization Process the outcome of an election may be acceptable to both
Individual, Group, and Union Image: Reasons Why parties, even if the union receives the required number
Employees Join a Union of “yes” votes. Unfortunately, when either management
Although there may be a number of reasons why employ- or the union fails to “play by the rules,” the outcome can
ees decide to join unions, generally these reasons can be lead to chaos, inappropriate behavior, anger, and feelings
categorized as (i) personal, (ii) related to the social envi- of betrayal and mistrust. How the organizing campaign is
ronment, and (iii) the image of the union. Table 19.8 shows handled will impact relations with employees for years to
a combination of these factors. One of the main consider- come, regardless of the outcome.
ations against unionization has been the perception that Professional workers are confronting increasing chal-
professionals don’t equate being concerned about socio- lenges to their careers, brought about by rapidly changing
economic issues with unionization. However, some groups technology, the turbulent world economy, and new work
of professionals have moved beyond this perceived barrier methods. Like so many other workers, professionals are
to unionization and are willing to consider collective bar- forming unions to enhance their professional autonomy, to
gaining as just another component of their “professional be involved in making the decisions that affect their careers,
activities.” In some cases, unions have or have considered and for greater professional and personal security. Current
establishing a separate professional division within their information on unions and professionals includes the fol-
union in an attempt to make unionization a more attrac- lowing (www.bls.gov/ooh/about/projections-overview.htm,
tive alternative. Another approach is to limit the bargain- accessed April 25, 2013; www.bls.gov/news.release/union2
ing unit to professional employees, thus fostering the idea .t03.htm, accessed April 25, 2013):
that the union and professionals are not incompatible.
• In 2011, 13.0% of healthcare practitioners belonged to
Relevance for Healthcare Workers unions, while in 2012, the number declined to 12.5%.
For many years, healthcare professionals as a group have Of those represented by unions, the percentages were
been somewhat skeptical and apprehensive about union- 14.7% in 2011 and 14% in 2012.
ization; many always assumed that they would never need • Employment in the professional and technical oc-
to join a union. As professionals, they felt that their con- cupations is growing faster and adding more workers
cerns could be taken directly to management and that than any other major occupational group. While total
they would always have a fair hearing and reasonable out- U.S. employment is projected to increase by 20.5 mil-
comes. Employees may question the need for a union if lion jobs from 2010 to 2020, industries and occupa-
the institution uses a fair system for work assignments, tions related to healthcare, personal care and social
raises, promotions, and corrective action policies and has assistance, and construction are projected to have the
an appropriate policy for handling employee grievances. fastest job growth.

Table 19.8 Reasons why employees decide to seek union representation

Personal reasons Social environment Image of the union
Individual Family tradition and history Success in bargaining
Economic benefits (salary, fringe benefits) Work-category tradition and history Ability to represent workers
Job security Unionization within the organization Goals consistent with individual
Fairness in job conflict resolution and/or community goals
Group Unionization within the profession, Ability to support and advance the
Unity and togetherness pros/cons profession
Advancement of profession Based on work group union member- Professional in their approach to
ship, pressure to conform to the group labor relations
Reasonable dues
No evidence of violence
 CHAPTER 19. LABOR RELATIONS 399

• The healthcare and social assistance industry is pro- The Bargaining Unit
jected to create about 28% of all new jobs created in Final responsibility for determining the job categories
the U.S. economy from 2010 to 2020. This industry— within a bargaining unit resides with the NLRB; often the
which includes public and private hospitals, nursing employer may challenge the union’s proposed bargain-
and residential care facilities, and individual and fam- ing unit. Generally, the employer will want to include
ily services—is expected to grow by 33%, or 5.7 million occupational groups perceived to be unfavorable toward
new jobs. Employment growth will be driven by an unionization or may want the bargaining unit decreased to
aging population and longer life expectancies, as well eliminate groups perceived to be in favor of unionization.
as new treatments and technologies. Key factors considered by the NLRB include (i) the history
• Employment in computer systems design and related of bargaining within the industry and occupational groups
services is expected to increase by 47%, driven by under consideration, (ii) the community of interest among
growing demand for sophisticated computer network employees and common supervision, and (iii) the wishes
and mobile technologies. of the employees. Certainly, they will also consider the
• Computer and information technology occupations pros and cons of inclusion and exclusion of various groups
are projected to grow by 22%, adding 758,800 new jobs as requested by the union and the employer. In general,
from 2010 to 2020. Demand for workers in these occu- the NLRB will allow up to six different bargaining units
pations will be driven by the continuing need for busi- in a healthcare institution: physicians, registered nurses,
nesses, government agencies, and other organizations other professional employees, technical employees, service
to adopt and utilize the latest technologies. Workers in and maintenance employees, and business office clerical
these occupations will be needed to develop software, employees. However, recognition of these bargaining units
increase cybersecurity, and update existing network does not mean the NLRB is forced to maintain these cat-
infrastructure. egories; several groups can also be combined into a single
bargaining unit.

Information Distribution and Solicitation

Organizing Campaign
Information distribution generally refers to distribution
The first step in the process of gaining union represen- of printed materials to employees, in which the content is
tation is the organizing campaign. Situations may exist informational only. Solicitation is directed to a specific in-
where the employees contact a union representative to dividual, with the intent to elicit a specific response from
initiate a discussion regarding union representation. How- that individual; an excellent example is the request for an
ever, union representatives may initiate the contact to de- employee to sign and return an authorization card. There
termine whether employees want to pursue discussions are very specific rules that govern these activities, both for
about possible unionization. Employees’ right to seek or the union and for the employer. Table 19.9 shows several
aid unionization or to refrain from such activities is guar-
anteed by the National Labor Relations Act. There may be
more than one union involved in an organizing campaign, Table 19.9 Rulings regarding information distribution and solici-
competing for the employees’ interest and eventual votes tation in the hospital setting
for union representation. Union Distribution and solicitation by an employee (pro-
union) are allowed during nonworking time in non-
Authorization Cards working areas of other nonworking employees on the
premises other than patient care areas (patient rooms,
It is highly unlikely that management will voluntarily rec- operating rooms, treatment rooms).
ognize employees’ wishes to be represented by a union for Union Solicitation is banned in sitting rooms and corridors ad-
the purposes of collective bargaining. The union must fol- joining or accessible to patient rooms; crowding issues.
low set procedures to demonstrate employee interest, lead- Employer Cannot ban solicitation in the cafeteria, gift shop, and
ing to an election for union representation. The union will lobbies on the first floor of the institution; however,
ask employees to sign authorization cards; such cards state employer need only show that solicitation is likely
to disrupt patient care or disturb patients in order to
that the employee wishes to be represented for purposes
enforce a ban on solicitation in non–patient care areas.
of collective bargaining by the union named on the cards.
Employer May allow solicitation in “normal gathering places” for
The union must have 30% of the employees sign authori- employees, but ban it in certain areas such as lobbies
zation cards before the NLRB will honor a petition for a and gift shops.
union-representation election. The union must specify in Employer If management insists on a very broad “no solicitation
its petition exactly which occupational groups it seeks to rule,” it is important that supervisors and managers
represent; this specification begins the process of defining realize this approach may be found to be invalid if
the bargaining unit. challenged by the union.
400 PERSONNEL MANAGEMENT

specific examples. It is important that a proper balance be the bargaining unit. Although the regional director makes
achieved between the rights of the employees and the rights the decision, either ordering the election to occur or dis-
of management to guarantee safe and efficient patient care. missing the petition, a party may appeal the decision to
the NLRB.
Election If all parties agree to the consent election based on
Once at least 30% of the employees in a proposed bargain- the filing of the petition, the date is set, and the election
ing unit have signed and turned in authorization cards, normally occurs 60 days after the union files the petition.
the union may petition the NLRB for a representation However, if the parties do not agree and the hearing pro-
election. Certainly the union would prefer a showing of cess is instituted, the election normally occurs between 25
much more than 30%, particularly since there is a time and 30 days following the final decision.
lag between the submission of the petition for election Employees who have been confirmed as being in the
and the election itself. During this interim, management bargaining unit at the end of the payroll period immedi-
will campaign vigorously to counteract the union’s posi- ately preceding the date of the election are eligible to vote.
tion and will try to change employees’ minds regarding The employer must provide the NLRB and the union a list
the necessity for unionization. Therefore, some employees of names and home addresses of eligible employees within
may change their minds during this time lag between pe- seven days after the final decision on the consent election.
tition submission and the actual election. The NLRB, or The election is held at a place and time that is designed
in the case of federal workers the Federal Labor Relations to provide maximum participation for all bargaining unit
Authority, reviews the petition and makes a number of de- employees to vote for or against union representation; mail
terminations directly related to approval or rejection of the ballots may also be used in the election process. The elec-
election proposal (Table 19.10). tion is by secret ballot, and the union must have a simple
If there are no reasons to preclude the election, and the majority of the votes cast to win and to be certified by the
bargaining unit is appropriate, agreement is sought regard- NLRB as the bargaining representative.
ing a “consent” election; there are two types of agreements All relevant parties may have observers at the polls; an
to consent elections. The first consent-election agreement NLRB agent supervises the observers to ensure appropri-
provides for an election over which final authority regarding ate behavior during the election process. Ballots may be
disputes with the NLRB itself resides with the regional di- challenged, and these ballots are impounded. If the num-
rector. The second type of agreement, termed stipulation for ber of impounded ballots would make a difference in the
certification, provides for an election over which the final election outcome, the regional office investigates these bal-
authority regarding disputes resides with the NLRB itself. lots and makes a decision regarding whether or not they
If either the employer or the union(s), or both, fail to will be counted. If the number of impounded ballots will
agree to a consent election, a formal hearing occurs be- not impact the election outcome, they are not counted. De-
fore a hearing officer appointed by the regional director. pending on the ballot count, there may need to be a runoff
Employees, the employer, the union, or any of their repre- election; this occurs if more than one union is involved in
sentatives may appear at the hearing and may testify and the election process and there is no majority vote for one
introduce additional evidence. These issues must be rel- union or for no representation.
evant to representation and may include jurisdiction of the
NLRA over the employer and the occupational makeup of Certification
If union representation is rejected, another election within
that bargaining unit cannot be held for 12 months. If a
Table 19.10 NLRB determinations regarding acceptance or rejec- union wins the election, the NLRB issues a certification
tion of union election petition of representative confirming the union’s status as the ex-
1. Confirm whether there are any statutory or policy reasons that clusive bargaining representative for a period of one year
would preclude an election. after the date of certification. During this one-year pe-
a. Participation in interstate commerce riod, the employer is required to bargain with the certi-
b. Large enough in size to quality; use of dollar volume amount fied union. It is important to remember that although the
2. Determine whether the bargaining unit is an appropriate unit. bargaining unit may be composed of union members and
3. If there are no reasons to preclude the election and the bargain- those who choose not to join the union, a negotiated col-
ing unit is appropriate, agreement is sought regarding “consent”
lective bargaining agreement applies to all those within
election.
a. Consent-election agreement provides for an election; final the bargaining unit. All members of the bargaining unit
authority over disputes with the NLRB itself resides with the are subject to the contract terms and provisions. Because
regional director. compulsory union membership is prohibited but all mem-
b. Stipulation for certification provides for an election: final author- bers of the bargaining unit benefit from union representa-
ity over disputes resides with the NLRB itself.
tion, some states allow the union to collect some portion
 CHAPTER 19. LABOR RELATIONS 401

Informal Organization Based on perceived inequities by employees.

Signed by a “representative group” (minimum of 30% of persons

Authorization Cards
from a bargaining unit).

• Determines whether a minimum of 30% of persons have

National Labor signed authorization cards.
Relations Board • Determines whether the institution fits within NLRB jurisdiction.
• Holds hearing to determine those eligible to vote in the election.
• Sets date of election.

Solicitation and Distribution of Information

from both Union(s) and Management

Election:
Union must receive a majority (50% + 1) of the votes cast.
Decided by majority of the votes cast

Union A, 50 votes Union A, 43 votes Union A, 82 votes Union A, 50 votes

No union, 49 votes Union B, 52 votes Union B, 63 votes No union, 50 votes
No union, 72 votes No union, 52 votes

( Union wins and represents all ( A runoff election would be conducted ( A runoff election would be conducted ( Tie: No Union )
persons within the bargaining unit, between Union B and No Union since between Union A and Union B since none
whether those persons voted or not ) none of the three ballot choices received of the three ballot choices received a
a majority of the votes cast ) majority of the votes cast )

Figure 19.2 Union organizing campaign from first inquiries to election results.
doi:10.1128/9781555817282.ch19.f 2

of the monthly union dues from nonunion members of the and conditions of employment. Permissive subjects are
bargaining unit. A review of the organizing, election, and bargained only if both parties voluntarily agree to do so.
certification phases of the process can be seen in Fig. 19.2. However, neither party may refuse to bargain on manda-
tory subjects to force bargaining on permissive subjects. Il-
legal or prohibited subjects include those that would cause
Collective Bargaining one or both parties to violate federal or state law, such as
After a bargaining unit selects a particular union as its rep- (i) bargaining for a closed shop, (ii) bargaining for a contract
resentative, both the employer and the union must bargain clause under which union members could refuse to work
in good faith. This negotiating process addresses many is- with nonunion goods and materials, and (iii) bargaining
sues, such as (i) establishing work rules, (ii) selecting the for contract language that would permit discrimination as
form and mix of employee compensation, (iii) providing defined by the Civil Rights Act. Attempts to negotiate these
uniformity among competitors, and (iv) setting priorities illegal subjects would constitute an unfair labor practice
for both labor and management. (ULP). Other ULPs associated with the bargaining process
include (i) refusing to bargain collectively, (ii) failing to of-
Issues for Bargaining fer meaningful counterproposals, (iii) refusing to discuss
There are three basic categories of bargaining subjects: economic terms until noneconomic issues are resolved,
mandatory, permissive, and illegal and prohibited (3). and (iv) attempting to delay meetings or move meet-
Mandatory subjects include wages, hours, and other terms ing sites. Although the NLRB cannot force an agreement
402 PERSONNEL MANAGEMENT

between the parties, as a remedy for an unfair labor prac- Table 19.11 Representative topics for contract negotiations
tice, the Board can order them to bargain or may order a Recognition and representation
cease and desist order to refrain from bad faith bargaining. Membership requirements
With the current changes in healthcare reform (Patient Wage rates (including cost-of-living clause)
Protection and Affordable Care Act, passed in 2010) be- Hours and overtime
coming more of an issue, the union can demand to bargain Flextime options, including four days on, four days off, etc.
over the implementation of reforms, which definitely in- Shift differentials
clude health benefits. They can bargain for improvement Seniority
of the minimum requirements of the new law; however, Vacations
the employer does not have to agree. Although the par- Personal leave and provisions for time off
ties may not reach agreement on proposed changes, the Holiday, overtime, on-call, “incentive,” and merit pay
employer must implement the terms of the new law. The Lunch and rest periods
union can also bargain over the pros and cons of imple- Employee benefits (e.g., insurance, pensions)
mentation, rather than allowing the employer to unilater- Safety and health
ally implement the new law (www.cwa-union.org/issues/ Grievance procedure
entry/c/health-care, accessed April 25, 2013). Corrective action and discharge procedure
Strikes and lockouts
Preparation Phase
Effect of agreement and amendments
The union and the employer begin the process by selecting Use of bulletin boards
negotiating teams. The union team is often led by a full- Management rights
time paid official, while the management team is led by Union security clause
industrial relations managers and key department manag-
Dues “checkoff ” clause
ers. Both parties may also include attorneys experienced in
Terms of the contract
labor law and contract negotiations. Depending on the size
and complexity of the bargaining units and relevant issues,
preparations by both negotiating teams may begin several
months prior to actual negotiations or may begin as long violated, the process for handling such disagreements is
as a year prior to initiation of the bargaining process. contract administration, which uses the agreement’s griev-
ance procedure, which likely contains arbitration as the
Negotiation Phase final step. The purpose of such a process is to provide a
Table 19.11 shows a representative list of bargaining sub- mechanism for handling day-to-day differences among
jects. It is important to remember that almost any topic fall- the union, management, and employees.
ing within the context of wages, hours of work, and other The grievance procedure includes a series of steps
terms and conditions of employment is a mandatory bar- through which the complaint may move toward resolu-
gaining subject. Some issues may be bargained to the point tion. The initial step usually includes a verbal discussion
of impasse but not lead to a work stoppage if the union feels with the opposite party. Each step contains time limits
they are not issues about which members feel strongly. In for the appeal and response after the preliminary discus-
these situations, the final contract between the union and sions. Each step in the process also includes the addition
the employer would just eliminate wording about these of higher levels of decision makers. If resolution is not
particular issues. Some contracts allow either party to re- obtained, most collective bargaining agreements provide
open negotiations on any section of the contract by giving that either the union or the employer, but not an aggrieved
the other party a notice of such interest. A change may also employee, may appeal to arbitration; usually 60 to 120 days
be accomplished by amending the contract through a letter elapse before a grievance reaches arbitration. During arbi-
of agreement covering a specific issue. tration, a neutral third party, or arbitrator, hears the facts
and each party’s position. The arbitrator then renders a
Administration of the Agreement final and binding decision. These arbitrators are selected
Unfortunately, there is no such thing as a “perfect” con- and agreed upon by both parties prior to the beginning of
tract. The negotiating teams cannot envision all the poten- the arbitration process. The arbitration hearing is similar
tial problems that could arise during the time span of the to a court hearing; witnesses are called and subjected to
contract. Different people will interpret the contract differ- cross-examination, exhibits are introduced, and the op-
ently, especially depending on healthcare environmental posing parties present opening and closing arguments.
changes, economic conditions, and a number of other po- However, there is no jury. Although a single individual
tential changes. If the union, the employer, or an employee conducts most arbitration hearings, an arbitration panel
believes that the collective bargaining agreement has been may be used.
 CHAPTER 19. LABOR RELATIONS 403

Management Rights Clause ■ The unionization process is very clearly defined, with
Although the length of this clause in the contract may vary specific actions that can and cannot be taken by all par-
from several paragraphs to several pages, the management ties involved.
rights clause generally states that management has the sole ■ The organizing campaign, election, and certification
right and prerogative to unilaterally make decisions con- form a step-by-step process through which a union may
cerning the operation of the institution except as it may or may not be voted in as the exclusive representative of
be limited by the contract (10). These rights include the a particular bargaining unit.
right to hire, fire, suspend, and discharge for just cause; ■ Collective bargaining is comprised of mandatory, per-
to temporarily assign, promote, or discharge employees missive, and illegal topics for negotiation.
according to the needs of the business; to determine the
■ Although some contracts are very detailed and inclu-
methods of work; and other items. The inclusion of the
sive, there is no such thing as the “perfect” contract.
management rights clause can often eliminate prolonged
Therefore, the ability to administer the contract specifi-
disagreement over many issues, one of which is the right
cations can require a day-to-day working knowledge of
to suspend and discharge employees for just cause. These
the contract and its use.
policies must be clearly defined and consistently used. Of-
ten the union may challenge a suspension or discharge for
lack of just cause. The arbitrator may reinstate an employee GLOSSARY
who has been improperly terminated. The arbitrator may
Administrative law judge The National Labor Relations Board
also decide on remedial action, such as full pay for all time (NLRB) has a corps of judges who conduct hearings at which the
lost and restoration of all benefits that resulted from im- parties present evidence. These judges work for the NLRB. Deci-
proper discharge. Due to the potential for lengthy reme- sions of administrative law judges can be appealed to the five-
diation of such issues, many contracts include provisions member Board in Washington, DC.
for an expedited grievance procedure, thus limiting the
AFL-CIO American Federation of Labor–Congress of Indus-
potential for substantial remedial legal liability. trial Organizations; voluntary federation of unions that provides
education, lobbying, public relations, and consultation services
for unions; currently has 65 member unions covering more than
Summary 13 million employees.
Contemporary labor law attempts to balance two goals: the Agency shop Requires nonunion members of the bargaining
encouragement of stability through collective bargaining unit to pay a “collective bargaining service fee” to the union;
and reasonable dispute settlement and the balance of bar- however, the person is not required to join the union; other
gaining power between employees and management. In terms are collective bargaining service fees and fair-share
the past few years, the field of labor relations has become arrangements.
more relevant to the healthcare industry. Therefore, it is Ally doctrine Acceptance of work normally performed by strik-
critical that all levels of management personnel recognize ing employees of a struck employer by a neutral employer; thus
the importance of understanding labor relations, both as a the neutral employer becomes an “ally” of the struck employer;
general concept and as a complex process with many parts. the neutral or ally employer may be legally picketed by the strik-
Also, all of the systems inherent in labor relations must ing employees of another employer; the ally doctrine does not
be seen as dynamic, changing entities, primarily based on apply in healthcare settings (example: hospital).
changes in the laws themselves, changes in the regulations, Arbitration A process during which a neutral third party de-
decisions of agencies participating in the administration of cides the outcome of a dispute between labor and manage-
the laws, and the decisions of the federal and state courts. ment, typically regarding a collective bargaining agreement.
Through the years a number of changes have been The arbiter then issues a decision, which is binding on the
proposed regarding the NLRB’s regulations. However, parties.
each proposed change has been carefully reviewed for its Authorization card A card that authorizes the union to repre-
impact on the balance of power between employees and sent the employee during the collective bargaining process once
employers. the card is signed by the employee.
Authorization card, required percentage The union must ob-
tain authorization cards from at least 30% of the employees in a
KEY POINTS bargaining unit as proof of “employee interest” before the NLRB
■ Labor laws are relevant for different groups of employ- will allow an election for union representation.
ees and employers. Bargaining topics Include wages, hours, and conditions of em-
■ Specific legal entities support, guide, and confirm appro- ployment; neither labor nor management can refuse to bargain
priate behavior by unions, employers, and employees. on these issues.
404 PERSONNEL MANAGEMENT

Bargaining unit A group of employees (approved by the NLRB) Good faith bargaining To bargain collectively is the perfor-
that share a community of interest and can vote in a union repre- mance of the mutual obligation of the employer and the repre-
sentation election; they will be the group represented by the sentative of the employees to meet at reasonable times and confer
union and are covered by the terms of the collective bargaining in good faith with respect to wages, hours, and other terms and
agreement if the union wins the election and negotiates a con- conditions of employment, or the negotiation of an agreement or
tract with the employer. any question arising thereunder, and the execution of a written
contract incorporating any agreement reached if requested by
Bargaining unit, employees Usually composed of a family of
either party, but such obligation does not compel either party to
closely associated jobs.
agree to a proposal or require the making of a concession.
Certification election Conducted by the NLRB to determine Grievance Allegation, typically by a union or bargaining unit
whether employees do or do not want to be represented by the employee, that the employer has acted improperly, usually by
union that wants to represent them. violating provision(s) of the collective bargaining agreement.
Certified union Has the exclusive right to bargain on behalf of Impasse A deadlock in negotiating between management and
the employees it represents; individual employees within the rep- union over terms and conditions of employment. According to
resented group are not allowed to enter into separate agreements the NLRB, whether an impasse in bargaining exists “is a matter
with the employer. of judgment” and depends on such factors as “bargaining history,
Charge An allegation made by an individual, employer, or labor the good faith of the parties in negotiations, the length of the
organization of an unfair labor practice (ULP) under the Na- negotiations, the importance of the issue or issues as to which
tional Labor Relations Act (NLRA); charges are filed at the NL- there is disagreement, the contemporaneous understanding of
RB’s regional offices. the parties as to the state of negotiations.”

Closed shop Illegal; an employment site where all employees Labor laws, agency:
must join the union prior to employment. • 1936: National Labor Relations Act (Wagner Act) Federal
law passed in 1935; gives employees the right to organize,
Collective bargaining Contract negotiations between union select their representative(s), and bargain with the employer
and employer; mandatory topics include wages, hours, and con- regarding wages, hours, and working conditions; established
ditions of employment. Collective bargaining is governed by fed- the authority of the NLRB.
eral and state statutory laws, administrative agency regulations,
• 1938 Fair Labor Standards Act (Black Act) Federal law
and judicial decisions; in areas where federal and state law over-
passed in 1938 that establishes minimum wage, overtime pay,
lap, state laws are preempted.
record keeping, and youth employment standards affecting
Complaint After investigating a ULP charge, if the regional of- employees in the private sector and in federal, state, and local
fice finds merit and no settlement is reached, the regional direc- governments.
tor of the NLRB issues a complaint in the name of the Board • 1947: Labor-Management Relations Act (Taft-Hartley Act)
stating the unfair labor practices and containing a notice of hear- Federal law passed in 1947; amended the National Labor
ing before an administrative law judge. The complaint does not Relations Act and established the authority of the Federal
constitute a finding of wrongdoing but raises issues to be decided Mediation and Conciliation Service.
by the judge.
• 1954: Labor-Management Reporting and Disclosure Act
Decertification An election in which bargaining-unit employees (Landrum-Griffin Act) Designed to close loopholes in the
vote to rescind the union’s certification as their representative. Taft-Hartley Act pertaining to internal union affairs; pro-
vides amendments to the National Labor Relations Act.
Decertification requirement Petition for decertification elec-
tion requires a minimum of 30% of the employees within the • 1974: Amendments to the NLRA Provides NLRA notice
bargaining unit. requirements in the healthcare industry.
• 1978: Civil Service Reform Act Established the Federal La-
Dues Paid by the union members, usually on a monthly basis; bor Relations Authority (FLRA) for administration of federal
with employee-signed authorization, can be paid through auto- sector labor relations.
matic payroll deduction.
• Federal Mediation and Conciliation Service (FMCS) Federal
Election (NLRB) Election process for union representation agency that provides mediation services to labor and man-
with a secret-ballot election at the work site, including voting agement to resolve bargaining impasse situations or to assist
booths and ballot boxes; overseen by an NLRB agent in a space in securing arbitrators.
where the employee and union are not present during the ballot-
ing process. Lockout When the employer closes the business or dismisses
employees in order to deny current employees access to the
Feather-bedding Union having employees paid for work not ac- workplace.
tually performed.
Management rights clause Contract clause in a bargaining
Full-time workers Workers who usually work 35 hours or more agreement that states that anything not covered in the contract
per week at their sole or main job. remains within the purview of management.
 CHAPTER 19. LABOR RELATIONS 405

Managerial “employee” Persons who provide managerial func- Unfair labor practice (labor organizations) Restraining or co-
tions are not employees and are excluded from protection under ercing employees as they exercise their legal rights; “even con-
the National Labor Relations Act (NLRA). duct that does not actually restrain or coerce employees but is
reasonably calculated to do so is prohibited” (www.lae.cornell
Medicaid A federal health program for low-income adults, their
.edu/wex/unfair_labor_practices_ulps, accessed April 23, 2013).
children, and people with certain disabilities. It is jointly funded
by the state and federal governments but is managed by the states. Union shop A site where all employees must join the union after
a short introductory period.
Medicare A federal health program for people aged 65 or older
and younger people with certain disabilities. Those enrolled in
the program must pay deductibles and copayments. Medicare is REFERENCES
divided into four parts: Part A covers hospital bills, Part B covers 1. Bakke, E. W. 1960. To join or not to join. In E.W. Bakke, C. Kerr,
doctor bills, Part C provides the option to choose from a group of and C.W. Anrod (eds.), Unions, Management and the Public. Har-
healthcare plans, and Part D provides prescription drug coverage. court Brace Jovanovich, New York, NY.
No-solicitation rule Rule instituted by management to prevent 2. Bureau of Labor Statistics. 2012. National occupational employ-
solicitation of employees for union membership at the work- ment and wage estimates. www.bis.gov/oes/current/oes_nat.htm,
place. Rules that are too broad are often found to be invalid by accessed April 25, 2013.
the NLRB and the courts. 3. Bureau of Labor Statistics. 2013. Union members summary.
No-strike, no-lockout clause During the life of the contract, a www.bls.gov/news.release/union2.nr0.htm, accessed April 25, 2013.
clause in which the union agrees not to strike and management 4. Emerson, R. W., and J. W. Haardwicke. 1987. Business Law, 3rd
agrees not to lock employees out or keep them from reporting to ed. Barron’s Educational Series, Inc., Hauppauge, NY.
work. 5. Fitzgibbon, R. J. (ed.). 1981. Legal Guidelines for the Clinical Lab-
Part-time workers Workers who usually work less than 35 hours oratory, p. 280–283. Medical Economics Co., Oradell, NJ.
per week at their sole or main job. 6. Karni, K. R., K. R. Viskochil, and P. A. Amos (ed.). 1982. Clini-
cal Laboratory Management, p. 519–553. Little, Brown and Co., Bos-
Professional employees Employees meeting the NLRA (amended)
ton, MA.
criteria; generally professionals and nonprofessionals are not in-
cluded in the same bargaining unit. 7. NLRB. 1979. NLRB no-solicitation rule guidelines. Labor Rela-
tions Reporter: News and Background Analysis. Bureau of National
Represented by unions Employees who may or may not be Affairs, Washington, DC. 102:164.
union members but whose jobs are part of a bargaining unit rep-
8. NLRB. 2013. Fact sheet on the National Labor Relations Board.
resented by a union.
www.nlrb.gov/news-outreach/fact-sheets, accessed April 25, 2013.
Steward Individual within a union who serves as the union’s 9. NLRB v J. Weingarten Inc. 1975. 420 US. 251, 35 LRRM 2689.
counterpart of the employer’s manager or supervisor.
10. Snyder, J. R., and A. L. Larsen. 1983. Administration and Super-
Unfair labor practice (employers) Interference with employee vision in Laboratory Medicine, p. 262–280. Harper & Row, Philadel-
rights to organize, join, or assist a labor organization. phia, PA.
406 PERSONNEL MANAGEMENT

APPENDIX 19.1 Helpful Websites Related to Unions and Collective Bargaininga

Workforce National Labor Relations Board

www.workforce.com www.nlrb.gov/rr/rr5.pdf
Stories on arbitration, employer-employee relations, the National Authority and assigned responsibilities.
Labor Relations Act, unions, and non-union shops.
United States Department of Labor
Federal Mediation and Conciliation Service www.dol.gov/compliance/guide/
www.fmcs.gov/ Elaws—employment law guide.
Independent agency to promote sound and stable labor-manage- American Constitution Society for Law and Policy
ment relations in such areas as dispute mediation, preventive media- www.acslaw.org/acsblog/the-future-of-the-national-labor-relations-act
tion, and alternative dispute resolution. FMCS mediators work from
more than 60 field offices around the United States, administer Communications Workers of America
through 10 geographic regions. www.cwa-union.org/issues/entry/c/health-care
Department of Health and Human Services
Legal Information Institute, Cornell University Law School
www.healthcare.gov
www.law.cornell.edu/topics/collective_bargaining.html
Primer on the laws of collective bargaining. a
All websites accessed April 25, 2013.
 CHAPTER 19. LABOR RELATIONS 407

APPENDIX 19.2 Do’s and Don’ts for Management Regarding Union Activity

Things Management Can Do Regarding Union Activity (5) Things Management Cannot Do Regarding Union Activity
• Tell employees that if a majority of the employees in the bar- • Promise employees a pay increase, promotion, benefit, or spe-
gaining unit select the union, the employer will have to deal cial favor if they vote against the union.
with the union on all their daily problems involving wages, • Threaten loss of job, reduction of income, or elimination of
hours, and other conditions of employment. Advise the em- privileges or benefits.
ployees that the employer would prefer to continue working • Discharge, discipline, or lay off an employee because of union
with them directly on such issues.
activities (or threaten to do so).
• Emphasize that members of management are always willing
• Spy on union meetings.
to discuss any subject. Remind the employees how earlier
problems have been resolved through such discussions. • Discriminate against workers actively supporting the union.
• Remind employees of the benefits they currently enjoy, all • Transfer employees because of union affiliation.
of which have been obtained without union representation; • Show partiality to employees not involved in union activities
avoid threats or promises, either direct or indirect. over those active in union activities.
• Point out how wages, benefits, and working conditions com- • Discipline or penalize employees supporting a union for an
pare favorably with other institutions in the area, whether action permitted to employees not supporting a union.
unionized or not; all information must be factual. • Separate pro-union employees from other employees through
• Advise employees of the disadvantages of belonging to a assignments or transfers.
union, such as initiation fees, dues, fines, strike assessments, • Ask employees how they intend to vote in a union election.
and membership rules. Quote from the union’s constitution • Question workers about whether they belong to a union or
and bylaws granting it authority to impose punishment and have signed an authorization card.
discipline against its members and giving the international
• Inquire about internal affairs of the union.
organization power over the local.
• Ask employees about the union sentiments of their coworkers.
• Tell employees there is a possibility that a union will call a
strike or work stoppage even though many workers may not • Say that the employer will not deal with the union.
want one and the employer is willing to negotiate or has al- • Urge employees to persuade others to oppose the union.
ready been bargaining. • Give financial support or assistance to a union, its represen-
• Point out that any strike can cost employees in lost wages. tatives, or employees; this restriction prevents an employer
• Explain that in negotiating with the union, the employer does from favoring one union over another.
not have to agree to all of its terms, and certainly not to those • Make speeches to assemblies of employees on institution time
terms that are not in the economic interest of the institution. within the 24-hour period prior to a representative election.
• Relate any experience with unions, especially the ones involv- • Call employees to your office or visit their homes to discuss
ing the organizing campaign; be factual. the union.
• Provide employees with information about the union or its • Remember these TIPS; do not do the following:
officers; identify the source of the information. • Threaten
• Point out any untrue or misleading statements made by an • Intimidate
organizer, in a pamphlet, or through any other medium; man- • Promise
agement may always give employees the facts. • Spy
• Advise employees that signing an authorization card does not
mean they have to vote for the union.
• Inform employees of the NLRB election procedures and the
importance of voting, and emphasize that the vote is by secret
ballot.
• Make and enforce rules limiting solicitation of membership
or discussion of union affairs to outside working time. How-
ever, remember that employees can solicit members and dis-
cuss the union on their own time, even on the premises, when
it does not interrupt work.
• Prohibit the distribution of union literature in patient care
areas.
• Restrict the wearing of union buttons to areas where there is
no patient contact.
• Enforce all other institution rules impartially in accordance
with established procedures.
Introduction
20
Regulated and Nonregulated Testing
Workplace Drug Testing
Whom To Test
Preemployment Testing • For Cause/Reasonable
and the Clinical Laboratory
Suspicion • Random Testing • Return to Duty
Drug Testing Protocol Jimmy R. Lea
Specimen Collection • Specimen Testing • Cutoff
Concentrations • Drug Confirmation • Reporting
Results
Managing Clinical and Forensic Drug OBJECTIVES
Testing
Summary
To learn the rationale for and differences between regulated and nonregulated
testing
KEY POINTS
To provide guidelines for collection, testing, and reporting of results in
GLOSSARY
workplace drug testing
REFERENCES
To give the reader insight to the commonalities and differences between clinical
APPENDIXES
and forensic drug testing

Doveryai, no proveryai (Trust but verify).

Russian proverb

O
n December 8, 1987, President Ronald Reagan quoted this Russian
proverb as the opening statement to the signing of the Medium Range
Missile Treaty with the Soviet Union. The English translation, “Trust
but verify,” could just as well have been stated the previous year, when on Sep-
tember 15, 1986, President Reagan signed executive order 12564, Drug-Free
Federal Workplace, launching the first widespread initiative to deter drug use
in the workplace. One can reasonably argue that this maxim of trust and ver-
ify is a core principle for this new federal workplace drug testing program.
Twenty-five years later, regulated (federal) and nonregulated (private sector)
drug testing is commonplace in our culture. Clinical laboratory scientists
(CLSs), whether they manage a federal laboratory or a private sector labora-
tory, may utilize their expertise and understanding of quality management to
enhance the hiring process for their own employees as well as the institution
they represent. While the human resources (HR) department sets the guide-
lines for the hiring process, the CLS manager can represent a vital quality and
technical resource for the employer’s drug policy. After all, drug testing results
are laboratory results, and who recognizes the need for quality laboratory re-
sults better than the CLS manager?
Technical competence and quality assurance are the foundation of any
laboratory. This is also true for any workplace drug testing program. Review-
ing processes for workplace drug testing provides CLS managers an opportu-
nity to understand how basic laboratory management skills can benefit their
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia employers’ drug testing policies. The hiring of qualified laboratory staff and
©2014 ASM Press, Washington, DC maintenance of a safe working environment for the laboratory are direct ben-
doi:10.1128/9781555817282.ch20 efits of a well-designed workplace drug testing policy.

408
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 409

Regulated and Nonregulated Testing (How many HR people do not realize pH directly affects
the immunoassay of some drugs?) Furthermore, the CLS
The Mandatory Guidelines for Workplace Drug Testing
manager understands the need for confirmation of any
Programs (53 C.F.R. 11979) clearly define federal work-
presumptive (preliminary) positive screening result.
place drug testing as to the drugs/drug class and speci-
Trust but verify.
men validity parameters to be tested (3), as shown in
Table 20.1. The majority of laboratories are in the state
or private employment sector and must be considered Whom To Test
for nonregulated testing. While some states may have
Workplace drug testing is designed to provide a safe work
specific requirements for workplace drug testing of lab-
environment, discourage drug use, and provide assistance
oratory employees, private sector laboratories are free
in the treatment, recovery, and return to work of individu-
to design their own programs. Certainly, the 53 C.F.R.
als with substance abuse problems. As stated by The Coun-
11979 documents have been used as a reference point
cil on Alcohol and Drugs (http://www.livedrugfree.org/
for nonregulated testing. Many private sector employers
Drug-Free-Workplace-FAQ.72.0.html, accessed March 1,
choose to broaden the scope and depth of the require-
2012), “The one place where there can be mandated adult
ments. This may include changing the cutoff concentra-
education is the workplace.” Testing acts not only as a de-
tion for each analyte screened (higher or lower) as well as
terrent, but as an opportunity to educate about the prob-
increasing the number of drugs and drug classes tested
lems of substance abuse.
from five to ten or more (see Table 20.2). A key difference
The most common utilization of workplace drug testing
is the creatinine requirement, with many nonregulated
includes:
protocols raising the cutoff of acceptability to 20 mg/dl
(4). This is an effective change to detect and deter the do- • Preemployment testing as a condition of hiring. Testing
nor from “flushing” a drug with mass quantities of water of applicants may be restricted to a particular job de-
prior to submitting a sample. CLS personnel can provide scription or category such as safety-sensitive positions
employer clarity in the technical explanation of the ben- or may be applied as a nondiscriminatory practice (4, 6)
efits of this and other requirements for specimen validity. to all applicants for all positions.

Table 20.1 Analytes and cutoff concentrations for federally regulated testinga
Initial test cutoff Confirmatory test Confirmatory test cutoff
Initial test analyte concentration (ng/ml) analyte concentration (ng/ml)
Marijuana metabolites 50 THCAb 15
Cocaine metabolites 150 Benzoylecgonine 100
Opiate metabolites 2,000 Codeine 2,000
or or
Codeine/morphinec 2,000 Morphine 2,000
6-Acetylmorphine 10 6-Acetylmorphine 10
Phencyclidine 25 Phencyclidine 25
Amphetaminesd,e 500 Amphetamine 250
and
Methamphetaminef 250
MDMAg 500 MDMA 250
and
MDAh 250
and
MDEAi 250
a
Effective date: October 1, 2010. See reference 3.
b
Delta-9-tetrahydrocannabinol-9-carboxylic acid (THCA).
c
Morphine is the target analyte for codeine/morphine testing.
d
Either a single initial test kit or multiple initial test kits may be used, provided the single test kit detects each target analyte indepen-
dently at the specified cutoff.
e
Methamphetamine is the target analyte for amphetamine/methamphetamine testing.
f
To be reported as positive for methamphetamine, a specimen must also contain amphetamine at a concentration greater than or equal
to 250 ng/ml.
g
Methylenedioxymethamphetamine (MDMA).
h
Methylenedioxyamphetamine (MDA).
i
Methylenedioxyethylamphetamine (MDEA).
410 PERSONNEL MANAGEMENT

Table 20.2 Drug categories and cutoff concentrations for nonregulated testinga
Screening cutoff Confirmation cutoff
Drug (ng/ml) (ng/ml) Comments
Amphetamine 1,000 500 If amphetamine is ≥500 ng/ml, assay is confirmed. If meth-
amphetamine is ≥250 ng/ml, then amphetamine must be
>250 ng/ml for confirmation.
Barbituratesb 200 or 300 200 or 300 Confirmed analyte is the parent drug.
Benzodiazepinesb 200 or 300 200 or 300 Confirmed analyte is the parent drug.
Cannabinoids 50 15 Confirmed analyte is the metabolite THCA.
Cocaine 300 300 Confirmed analyte is the metabolite benzoylecgonine.
Methadone 300 300 Confirmed analyte is the metabolite 2-ethylidine-1,5-
dimethyl-3,3-diphenylpyrrolidine (EDDP).
Methaqualone 300 300 Confirmed analyte is the parent drug.
MDMA (ecstasy) 500 500 If MDMA is ≥500 ng/ml then MDA must be >250 ng/ml.
Opiates 2,000 2,000 If morphine is >5,000 ng/ml then 6-mono-acetyl-morphine
must also be present at >10 ng/ml.
Opiates 300 300 Confirmed analyte(s) are codeine, morphine, hydrocodone,
and/or hydromorphone.
Oxycodone 300 300 Confirmed analyte(s) are oxycodone and/or oxymorphone.
Phencyclidine (PCP) 25 25 Confirmed analyte is the parent drug.
Propoxyphene 300 300 Confirmation is of metabolite norpropoxyphene.
a
Modified from: Cut-off and Toxicity Levels For Drugs-of-Abuse Testing, http://www.clr-online.com (4 April 2012). See Table 20.1 for abbreviations.
b
Some laboratories use 200 ng/ml as the screening cutoff concentration for these drugs while others use 300. The confirmation cutoff must be the same concentration
as used for screening.

• “For cause” or reasonable suspicion. Performed when co- hired. CLS managers should embrace and encourage this
workers or supervisors observe inappropriate behavior, practice to ensure that the candidate chosen during the
work performance, or behavior indicative of drug im- hiring process will not be a safety issue to coworkers or to
pairment/intoxication (4, 6). Specific and detailed poli- the patients served through the quality of results generated
cies for identifying worker impairment and subsequent by the laboratory.
testing should be followed with this testing to avoid
claims of discrimination, personal vendetta, or the like. For Cause/Reasonable Suspicion
• Postaccident testing. As outlined by the employer’s HR For-cause drug testing should follow a written policy
policy, testing may be a routine requirement to protect and procedure (1) that documents the preliminary steps
the employer and the employee in worker’s compensa- taken prior to collection and analysis. This policy should
tion claims stemming from on-the-job injury (4, 6). be approved by the employer’s risk management or legal
department. The request should document a specific ad-
• Random testing. Sometimes referred to as “neutral
ministrative approval chain of command. Rationale for
selection” testing (3), personnel in safety- and security-
conducting a for-cause test must be based on specific, ob-
associated jobs may be the only workers required to
jective, and articulated facts. Any drug history related to
be tested (4, 6).
the source of impairment is beneficial to establishing the
• Return to duty. Also designated as “fitness testing” (3), breadth of the testing to be performed. Much has been re-
return-to-duty testing may be a requirement for an ported about identifying and treating addicted healthcare
employee assistance program (EAP) (6). workers (5). Specific statistics on clinical laboratory em-
ployees have not been reported.
Preemployment Testing
The basic component of any workplace drug policy is the Random Testing
preemployment drug test (3). At some point in the hir- Preemployment testing notification before and during the
ing process, the job candidate will be required to submit hiring process forewarns an applicant with recreational or
a specimen for testing. This should come as no surprise chronic substance abuse issues to take steps to avoid de-
to the candidate, as it is routine on many applications to tection. Random testing is the most effective and continu-
make the candidate aware that this employer requires ous monitoring tool available for maintaining a drug-free
completion and passing of a urine drug test in order to be workplace (6). The element of surprise in random testing
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 411

allows no time to attempt to take adulterants or delay test- 53 C.F.R. 11979 collection protocol is an excellent standard
ing. Notification of intent to test and a defined time to to follow when training collectors and implementing an
complete collection are critical to the success of random effective urine collection process. Accurately document-
testing. There should be strict guidelines in a written pol- ing the process is critical to protecting the integrity of the
icy prior to implementing testing (6). Checking state and donor, the collector, and the results. Experience in under-
federal guidelines for allowance of random testing is ad- standing the necessity to link the requisition, specimen,
visable. All employees must have an equal chance of being and result is second nature in CLS management and is a
tested to eliminate any hint of bias or discrimination (4). valuable insight to the forensic collection process and re-
quirements. It is the chain of custody that distinguishes the
Return to Duty clinical from the medicolegal. Although clinical laborato-
A worker seeking help with a substance abuse problem ries may experience mislabeled, misplaced, or lost speci-
is required to submit to monitoring (testing) during and mens (albeit a relatively small percentage for the volume of
upon completion of the recovery program (4, 6). The ben- specimens received and processed), forensic documenta-
efits to the employer and manager are as significant as tion is specifically designed to negate any such occurrence.
those to the employee. The time, effort, and expense to The chain-of-custody/control form, initiated at collection,
recruit, hire, and train new personnel are greater than represents a diary of that specimen through the preanalyti-
the cost of the EAP and the cost of drug testing during the cal, analytical, and postanalytical processes. Furthermore,
monitoring for return to duty. each aliquot’s disposition associated with the process can
be traced from the original sample bottle (2, 3, 6).

Drug Testing Protocol Specimen Testing

Having completed the collection, the initial step in testing
Specimen Collection
is receipt of the sample, while verifying and maintaining
The most vulnerable point of the drug testing process is at the chain of custody. The difference in managing the clini-
specimen collection (3, 4, 6). In nonregulated testing, direct cal receiving process from a forensic receiving require-
observation is generally not an option. A review of the col- ment is not the verification of sample demographics but
lection procedure by the critical eye of an experienced CLS the documentation of that verification (2). Specimen integ-
is beneficial to ensure that the process is sound. The funda- rity is also part of this process. Any evidence of tampering,
mentals should include a clear and concise chain of custody, errors, or irregularities are strictly noted and are potential
a control form, a controlled physical environment at the fatal errors to continuing the process toward analysis. All
collection site, and a well-trained collector. (See http://www scenarios should be detailed in the policy and procedures.
.reginfo.gov/public/do/PRAViewIC?ref_nbr=201007 Once verified, accepted, and logged into the laboratory,
-0930-002&icID=193835 [accessed July 13, 2012] for a aliquots can be prepared from the original sample(s) to
regulated chain-of-custody form.) perform analytical testing. Immunoassay is the most com-
Figure 20.1 shows the first page of a sample six-part drug mon analytical method (2) to perform the initial screen-
testing request and custody form for nonregulated testing. ing for drugs of abuse. A CLS manager may be acquainted
• Copy 1 is retained by the testing laboratory. with one or more immunoassay techniques. Based upon his
or her experience or existing technology within the clinical
• Copy 2 is identical to copy 1 and is sent to the medical
laboratory, a CLS manager may select between a radioim-
review officer (MRO) once testing is completed and
munoassay, enzyme immunoassay, fluorescence polarization
the results are entered into section 9.
immunoassay, and particle assay analyzer. The advantages
• Copy 3 unblocks section 7 (Fig. 20.2) and blocks sec- and disadvantages of each method may have already been
tions 9 and 10; this copy is also given to the MRO. determined by the manager’s evaluation for clinical test-
• Copy 4 is identical to copy 3 but is given to the donor. ing. Batch analysis provides economy of scale and cost ef-
• Copy 5 is retained by the collector. It is identical to ficiency. An important distinction for the CLS manager to
copy 3 except that the phone numbers and information note is that quality control samples are included with each
below the signature line are blocked out. batch of samples, at a greater frequency than necessary in
clinical testing. A typical forensic sample batch consists of
• Copy 6 is identical to copy 5 and is given to the employer.
positive, negative, and blank (2, 3) samples. The positive
• The back of copy 6 contains the specimen collection control will contain the specific analytes to be tested, typi-
instructions (Fig. 20.3). cally at a concentration 20–25% above the cutoff calibration
A criterion for specimen collection is outlined in Sub- concentration. The negative control will contain the specific
part H of the Department of Health and Human Services analytes to be tested at a concentration 20–25% below (2, 3)
SAMHSA Collection Site Manual (see Appendix 20.2). The the cutoff calibration concentration. The blank control is
412 PERSONNEL MANAGEMENT

Figure 20.1 Nonregulated custody and control form containing multiple forms to serve as docu-
mentation for donor, collector, laboratory, and medical review officer. The choice of drugs to be
tested is dependent upon the client’s requirement. doi:10.1128/9781555817282.ch20.f1
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 413

a true drug-free (2, 3) sample. Use of the terms “negative”

and “blank” may be misleading to the CLS manager, as
negative in the clinical setting is commensurate to a blank
specimen. The utility of the negative control in the forensic
batch, followed by the blank control, is an effective safe-
guard for the presence of carryover by the instrument. Ad-
ditional positive and negative controls are placed within
the batch, with a recommended frequency of one set per
10 samples. The blank is only analyzed once.

Cutoff Concentrations
In nonregulated testing, an employer may have specific

the formats differ slightly, documentation for donor, collector, laboratory, and medical review
Figure 20.2 Federal custody and control with mandated drugs/drug classes to be tested. Although
concerns or rationale for requesting cutoff concentrations
that differ from the standards specified in the 53 C.F.R.
11979 document for regulated testing. Knowledge of the
specificity and sensitivity for a particular immunoassay
is beneficial to the CLS manager when discussing an em-
ployer’s request to utilize a higher or lower cutoff for test-
ing. Direction and guidance may be required to assist the
employer (or your own HR department) in selecting the
correct calibration or specific immunoassay to best meet
the expressed desire. Most importantly, the CLS manager
will be able to explain that the chosen method and cutoff
for screening provides only a “presumption” of the pres-
ence of drug or drug metabolite and therefore must be
confirmed by an alternate methodology.

officer is included. doi:10.1128/9781555817282.ch20.f2

Drug Confirmation
Once a specimen within the screening batch has been
identified as “presumptive positive” for a particular drug
or metabolite, confirmation must be performed on a new
aliquot from the original sample (2–4). To the CLS man-
ager, this may be akin to the verification of a panic value
for a clinical specimen by repeating the analysis on the
sample to ensure that the result is true. It is essential that
all presumptive positive results be confirmed by an alter-
native method, using a calibration cutoff at least as sen-
sitive as the screening cutoff (2). The accepted standard
for confirmation is mass spectroscopy (MS), with either
gas chromatography (GC) or liquid chromatography (LC)
as the separation technique (2, 3). Recent technology ad-
vances have allowed for more sophisticated choices to in-
clude a tandem mass spectrometer (MS-MS) coupled to
either a GC or LC instrument. With MS technology, the
cutoff concentration for confirmation can be tied to spe-
cific drugs and metabolites at greater sensitivity and lower
concentration than with immunoassay. Both MS technol-
ogies may be a novelty to a CLS manager; however, the
blossoming use of tandem mass spectrometry in clinical
testing, particularly immunosuppressant drugs and vita-
min D analysis, is worth noting. Acquiring this technology
is of mutual benefit to clinical and workplace drug testing,
thereby enabling a CLS manager to multitask the instru-
mentation. Use of GC-MS and/or LC-MS-MS technology
for drug confirmation or clinical testing has the added
414 PERSONNEL MANAGEMENT

Forensic Drug Lab Requisition and Specimen Collection Instructions

Sample Collection Materials

Complete urine collection kit includes the following:
• Drug Testing Request and Custody (DTRC) Form
• 60 mL Tamperproof Urine Specimen Bottle with Temperature Indicator, Chain-of-Custody Label and optional ID Label
• Female Collection Adaptor
• Dox™ Easy Press Closer
• Chain-of-Custody Bag with Absorbent Pad

Completing the Requisition

Complete the DTRC Form by providing the following information. Press firmly, as you are making six copies.

Collector: The use of gloves and universal precautions are recommended during sample preparation.
• Verify identification of the donor with a picture ID.
• Open the sample collection kit in the donor’s presence.
• Complete the Drug Testing Request and Custody Form as described below.

Before Specimen Collection

• Collector completes lines 1 through 4 of Copy 1 of the DTRC Form.
• Collector deactivates the water supply and places dye in the toilet and removes any soap or other foreign material.

Specimen Collection
• Collector gives clean specimen bottle to the Donor.
• Collector instructs the Donor to void at least 30 mL of urine into the specimen bottle. The Donor must not flush the
toilet or attempt to use the lavatory until returning the specimen bottle to collector!

After Specimen Collection

• Collector activates the water system and allows the Donor to return to the collection unit.
• Collector enters the Specimen ID number (from the top right of the DTRC Form) on the Chain of Custody Label, places
the specimen bottle in the ring of the Easy Press Closer and places a closure top on the specimen bottle with the spout
through the hole in the handle. The Collector holds the base firmly with one hand and presses the handle down with the
other until the closure “snaps” and locks into place.
• Collector has the Donor complete the “From” line on the Chain-of-Custody Label, then the Collector completes the “To”
line, dates and times the collection on the Label, and places the Label on the specimen bottle.
• Collector reads and records temperature on line 5 of Copy 1 of the DTRC Form.
• Donor completes section 7 (all parts) of Copy 3 of the DTRC Form.
• Collector completes lines 6 and 8 of Copy 1 of the DTRC Form and gives Copy 4 to the Donor.
• Collector places sealed bottle and completed DTRC Form in the Chain-of-Custody Bag, seals the bag, and has the donor
initial and date Chain-of-Custody Bag, then the Collector initials the Bag.

THE SPECIMEN IS NOW READY FOR TRANSPORT.

Figure 20.3 Specific and detailed instructions for the chain-of-custody collection are essential. Speci-
men collection remains the most vulnerable component of forensic drug testing. Inaccurate or incom-
plete information may invalidate the collection as a “fatal error.” doi:10.1128/9781555817282.ch20.f3

management challenges of hiring, training, and retaining specific review also. Designated, experienced, and quali-
personnel with the skills and proficiency necessary to pro- fied personnel certify (verify) both negative and presump-
vide accurate, reliable, and defendable results. tive positive screened results (3, 6). Presumptive positive
screens subjected to confirmation testing are certified as
Reporting Results confirmed positive or negative. Certified positive results
Just as a CLS manager implements protocols for result in regulated testing are required to undergo final review
review or autoverification prior to release of results to a by a certified medical review officer (MRO) (3, 6). Indeed,
clinician or client, workplace drug testing results require the use of an MRO review for nonregulated testing is a
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 415

valuable and beneficial quality assurance procedure. The Summary

MRO is responsible for making the final determination
Workplace drug testing is a reality of employment in the
about the validity of the confirmed positive result. The
majority of small and large businesses. Clinical labora-
donor may have legitimate reasons for testing positive
tories may choose to expand revenue and service oppor-
for a particular drug or metabolite in the urine sample
tunities within this growing market. As such, the CLS
provided for testing. Through personal contact and in-
manager should be aware of the benefits of testing to their
terview, the MRO may determine if the positive result is
own workplace safety and to the requirements to establish
caused by a valid medication or from medical treatment
and maintain a quality workplace drug testing laboratory.
or ingestion of particular food (poppy seeds) (6). There-
Expertise in the preanalytical, analytical, and postanalyti-
fore, a confirmed positive by the laboratory may have a
cal procedures for workplace drug testing is an achievable
final negative result reported by the MRO, with the em-
goal for any CLS manager.
ployer or client unaware of the presumptive positive or
confirmed positive result. The MRO’s training and certi-
fication provide the combined medical and analytical ex- KEY POINTS
pertise (6) to make the correct final analysis of the result. ■ The instrumentation and methodology for clinical and
A working knowledge of MRO certification by the CLS workplace drug testing are similar.
manager offers benefits and opportunities if the decision
■ CLS manager experience with accreditation standards,
is made to include workplace drug testing in the clinical
laboratory. Utilizing existing pathologist staff as a certified requirements, and implementation are skills that enable
MRO is a viable and cost-effective option. clinical and workplace drug testing to enhance the labo-
ratory management of either.
■ Management policies for drug testing benefit from tech-
Managing Clinical and Forensic nical knowledge provided by the laboratory. Whether
Drug Testing contributing as the site of testing or not, the CLS man-
CLS managers are experienced in the accreditation process agement should be actively engaged in providing tech-
and requirements for clinical laboratory testing, having nical and practical expertise to ensure a safe workplace
met CLIA, CAP, and/or state standards for their laboratory. for their laboratory.
Clearly, this is an advantage to negotiating the challenges ■ Drug and drug classes to be tested differ for regulated
associated with regulated and nonregulated workplace (federal) and nonregulated workplace drug testing. Ac-
drug testing. While standards and requirements for clini- creditation is required for regulated testing (SAMHSA).
cal and workplace drug testing share commonalities (2, 6), Nonregulated testing may be subject to state law and re-
the intertwining of clinical and forensic specimens is to quire either SAMHSA or CAP-FDT accreditation.
be avoided. Instrumentation utilized for analysis of both ■ A medical review officer (MRO) is required for regu-
specimen types may be the same, but it is important to lated testing and may be a state requirement for non-
have separate policies and procedures for each. Batching regulated testing. Review by a certified MRO is strongly
of specimens is cost-effective for any analysis, but clinical recommended for nonregulated workplace drug testing
specimens must be sequestered from forensic specimens. programs.
Following sound chain-of-custody practices will prevent
mixing clinical and forensic specimens when the same
analyzer must be used for both. GLOSSARY
The training, skill, and documentation of competency American Association of Medical Review Officers (AAMRO)
in workplace drug testing may involve greater detail for Voluntary medical organization dedicated to establishing na-
the personnel engaged in this activity within the clinical tional standards for the certification of medical practitioners
laboratory. As stated previously, the instrumentation and who perform drug and alcohol testing.
methods of analysis for clinical and workplace drug testing College of American Pathologists Forensic Drug Testing (CAP-
may be identical for a particular laboratory, but detailed FDT) Accreditation for forensic drug testing by College of
documentation for forensic specimens may seem onerous American Pathologists provides standards and proficiency in fo-
to the clinical laboratorian. Identifying laboratory person- rensic drug testing. Drugs and drug classes included in the profi-
nel to perform specific functions and maintain specific ciency go beyond the limited scope designated in mandatory
responsibilities (2) for workplace drug testing is key to federal drug testing programs.
management. This element must be well thought out by a Cutoff concentration The concentration of drug designated to
CLS manager before considering adding workplace drug determine a positive screening or confirmatory test from a nega-
testing to the clinical laboratory’s responsibilities. tive result.
416 PERSONNEL MANAGEMENT

Enzyme immunoassay A competitive binding assay that em- medical history and relevant biomedical information to render a
ploys an enzyme-bound antibody to detect a specific antigen final decision on positive drug results.
(drug). The enzyme catalyzes a reaction when exposed to a sub-
Radioimmunoassay Competitive binding assay that uses a
strate, and the reaction rate is measured spectrophotometrically
radio-labeled antibody to detect the concentration of unlabeled
to quantitate the concentration of antigen.
antigen (drug).
Fluorescence polarization immunoassay Fluoroimmunoassay
Substance Abuse and Mental Health Services Administration
where detection of the hapten-antibody reaction is based on
(SAMHSA) Branch of U.S. Health and Human Services charged
measurement of the increased polarization of a fluorescence-
with improving the quality and availability of prevention, treat-
labeled hapten when it is combined with antibody. The assay is
ment, and rehabilitative services to reduce illness, death, disabil-
very useful for the measurement of small haptenic antigens such
ity, and cost to society resulting from substance abuse and mental
as drugs at low concentrations.
health. The administrator of SAMHSA reports directly to the
Gas chromatography mass spectrometry (GC-MS) Analytical secretary of the U.S. Department of Health and Human Services.
instrument that consists of methodologies. The gas chromatog- The agency is responsible for accreditation of all laboratories en-
raphy portion separates the sample into a pure compound, and gaging in federal workplace drug testing.
the mass spectrometer identifies and quantifies the compound
based on structure.
Kinetic microparticle immunoassay Immunoassay in which a REFERENCES
conjugate reagent consists of drug bound to microparticles. The
microparticle conjugates in solution minimally block light trans- 1. Chamberlain, R. T. 1988. Legal issues related to drug testing in
mission. When antibody to the drug is added to the conjugate the clinical laboratory. Clin. Chem. 34(3):633–636.
solution, lattice formation takes place as the antibodies cross- 2. Clinical and Laboratory Standards Institute. 2007. Toxicology
link the microparticles by binding to the drug moieties. The re- and Drug Testing in the Clinical Laboratory; Approved Guideline,
sulting lattice structure effectively blocks light transmission and 2nd ed. CLSI document C52-A2. Clinical and Laboratory Standards
increases absorbance. Unconjugated drug in the sample com- Institute, Wayne, PA.
petes with the drug conjugates for antibody-binding sites, and 3. Federal Register. 2008. Substance Abuse and Mental Health Ser-
the degree of lattice formation is inhibited proportional to the vices Administration: mandatory guidelines for federal workplace
concentration of the drug in the urine. drug testing programs. Fed. Regist. 73(228):71858.
Liquid chromatography–mass spectrometry (LC-MS-MS) 4. Kapur, B. M. 2012. Drug testing methods and clinical inter-
Analytical technique that combines the physical separation capa- pretation of test results. eNotes. http://www.enotes.com/drug
bilities of liquid chromatography with the mass analysis capabili- -testing-methods-clinical-interpretations-test-reference/drug-testing
ties of dual mass spectrometers. -methods-clinical-interpretations-test (accessed May 21, 2012).
Medical review officer (MRO) The role of the medical review of- 5. Kenna, G. A., and D. C. Lewis. 2008. Risk factors for alcohol and
ficer is to review and interpret lab results obtained through a foren- other drug use by healthcare professionals. Substance Abuse Treat-
sic drug testing program. The MRO must be a licensed physician ment Policy 3:3.
trained and certified in the knowledge of substance abuse, interpre- 6. Shults, T. F. 2009. Medical Review Officer Handbook, 9th ed.
tation of analytical results for drugs of abuse, and evaluation of Quadrangle Research, LLC, Research Triangle Park, NC.
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 417

APPENDIX 20.1 Case Vignettes

CASE 1: SPECIMEN COLLECTION marijuana and that the first specimen was from a surrogate who
A 24-year-old male reported to the forensic collection site for a he was unaware had used cocaine. Doveryai, no proveryai.
preemployment drug screen (nonregulated test). Upon comple-
tion of the chain-of-custody and control (C-o-C) form, he re- CASE 2: SPECIMEN VALIDITY
ceived the specimen cup and entered the collection stall. Within A preemployment specimen received by the forensic drug labo-
a few minutes, he placed the filled collection cup in the desig- ratory was analyzed for drugs of abuse (nonregulated), adher-
nated area for processing by the collector. The collector noted that ing to a urine creatinine cutoff of 20 mg/dl as requested by the
the specimen container had no reading on the temperature strip employer client. The specimen was negative by immunoassay for
(90–100°F). Per protocol for the forensic laboratory, the collector all drugs of abuse tested but flagged for a urine creatinine value
labeled and sealed the specimen and completed the C-o-C form. of 15 mg/dl. The laboratory reported the result to the MRO, who
The donor was requested to complete another C-o-C form and requested a recollection to obtain a valid specimen (creatinine
submit for a second collection. The donor complied and submit- ≥20 mg/dl). The donor was recollected within 24 hours and the
ted a second specimen, which met the temperature requirement. specimen submitted to the forensic lab for drugs of abuse analy-
The collector completed the second C-o-C form and submitted sis. The immunoassay was presumptive positive for THC, with a
both the donor specimens to the laboratory for analysis. Analy- urine creatinine of 120 mg/dl. The THC was confirmed positive
sis of the specimens yielded GC-MS–confirmed results for both by GC-MS and reported to the MRO. The MRO noted that had
specimens; however, specimen 1 was confirmed for cocaine this specimen been submitted as a regulated testing sample, the
metabolite and specimen 2 was confirmed for THC metabolite. original result would have been accepted since the creatinine was
During the MRO review, the donor admitted to recent use of >5 mg/dl.

APPENDIX 20.2 Websites

American Civil Liberties Union Substance Abuse and Mental Health Services Administration
http://www.aclu.org/files/FilesPDFs/testing-chart.pdf (accessed http://www.samhsa.gov/data/NSDUH/2k10/Results/web/HTML/
May 5, 2012) 2K10Results.htm (accessed April 1, 2012)
This section lists state-by-state statutes and orders applying to work- This is the site for Drug Use and Health: Summary of National Find-
place drug testing. ings (accessed April 1, 2012).
American Presidency Project U.S. Archives
http://www. presidency.ucsb.edu/ws/index.php?pid=36416#px22/ http://www.archives.gov/federal-register/codification/executive
mw4/cufk (accessed February 20, 2012) -order/12564.html (accessed March 1, 2012)
This section contains Ronald Reagan Executive Order 12564— This is the citation for Executive Order 12564—Drug-Free Federal
Drug-Free Federal Workplace. Workplace.
Council on Alcohol and Drugs U.S. Department of Justice
http://www.livedrugfree.org/Drug-Free-Workplace-FAQ.72.0.html http://www.deadiversion.usdoj.gov/pubs/brochures/drug_hc.htm
(accessed March 1, 2012) (accessed April 4, 2012)
This section contains Drug-Free Workplace FAQ. This section describes drug addiction in healthcare professionals.
Federal Register
https://www.federal.register.gov/ (accessed March 20, 2012)
This government agency archives all government directives and
documents. Information on current and past revisions to federal
regulations may be accessed by the public.
Requirements for Effective
IV
Laboratory Management
(section editor: Andrea J. Linscott)
21 Quality Management
Ron B. Schifman, George S. Cembrowski, Donna M. Wolk, and
Joanne I. Brisbois
22 International Organization for Standardization
Anne Marsden and Amy Shahtout
23 Effective Communication in Laboratory Management
Elissa Passiment and Andrea J. Linscott
24 The Laboratory Information System: Making the Most of It in the
Clinical Microbiology Laboratory
Joseph M. Campos
25 Management of Point-of-Care Testing
Glen L. Hortin and Christopher D. Doern
26 Principles of Preanalytic and Postanalytic Test Management
Adarsh K. Khalsa, Michael Santacruz, and Michael A. Saubolle
27 Selection and Implementation of New Equipment and Procedures
Paula Revell and Lakshmi Chandramohan
28 Laboratory Safety
James J. Dunn and David L. Sewell
29 Emergency Management
Andrea J. Linscott, Patti Medvescek, and David L. Sewell
Introduction
21
Quality Management of Preanalytical
Quality Management
Processes
Test Selection and Ordering • Quality of Specimen Ron B. Schifman, George S. Cembrowski, Donna M. Wolk,
Collection • Patient and Client Satisfaction •
Specimen Transport, Storage, Receipt, and and Joanne I. Brisbois
Preanalytical Processing
Quality Management of Analytical
Processes
Method Selection and Evaluation • Quality Control •
Quality Control Rules • Frequency of Quality Control OBJECTIVES
Analysis • Specification of MAE • Use of Patient
Data for Quality Control • External Quality Control To understand the three phases of the total testing process
(Proficiency Testing) To understand factors affecting quality of test ordering, specimen collection,
Quality Management of Postanalytical and patient satisfaction
Processes To understand basic statistical processes involved in monitoring analytical
Turnaround Time performance
Corrected and Incomplete Reports To understand factors affecting test turnaround time
Document Control
To understand the role of corrected and incomplete reports in quality
Summary management
KEY POINTS
To understand systems for document control
GLOSSARY
REFERENCES
APPENDIXES Quality has to be caused, not controlled.
Philip Crosby, Reflections on Quality

Q uality management is a system for continuously analyzing, improv-

ing, and reexamining resources, processes, and services within an or-
ganization (7, 25, 34, 36, 43, 92, 94, 98, 127). This is accomplished by
defining quality indicators that are measured and analyzed either over time or
compared to similar or identical indicators from other departments or organi-
zations (benchmarking) (100). The primary objective of quality management
is to achieve the best possible outcome. Quality indicators provide informa-
tion on which to base strategies for improvement, and quality is achieved by
reducing variability by standardizing these processes across the organization.
Managing the development and implementation of a quality program requires
a global understanding of the various resources, processes, and outcomes as-
sociated with laboratory medicine as well as healthcare systems and their reg-
ulatory environment in general (32).
The design of a quality management system depends in large part on ex-
pected outcomes. For example, processes involving identification of patient
specimens for blood transfusion purposes are much more rigorous than pro-
cesses for identifying patient specimens for general chemistry testing because
the possible risk of a poor outcome from a misidentified specimen is substan-
tially higher for the former (72). Fortunately, poor outcomes from laboratory
errors are uncommon. The frequency of laboratory mistakes is estimated to be
about 1 per 1,000 patient visits in which laboratory testing is performed. Of
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia these errors, only about a quarter of mistakes are judged to have any impact on
©2014 ASM Press, Washington, DC patient management, and very few are associated with any significant adverse
doi:10.1128/9781555817282.ch21 patient outcome (24, 87). In 2005 a 5-week prospective study of patient and

421
422 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

specimen identification errors at 120 (primarily hospital) evaluations, while the Q-Tracks program provides con-
laboratories documented 345 adverse events arising from tinuous quality monitors for tracking changes over time.
6,100 identification errors (126). More than 70% of the ad- These programs have substantial value for benchmarking
verse events resulted in significant patient inconveniences performance and tracking improvement. Table 21.1 shows
with no known change in treatment or outcome. the 2011 Q-Probes and Q-Tracks monitors. A broad range
Developing an effective quality management program of Q-Probes studies from the last 15 years is available from
is challenging because the goal of the program (good the CAP for use by laboratories. These predesigned quality
outcomes) is often difficult to quantify and may involve assurance studies are linked with historical data for bench-
processes that are not directly under the laboratory man- marking performance and can be a useful supplement to a
ager’s control (73). In this context, quality assessment of laboratory’s quality program.
laboratory medicine should be viewed as part of the orga- Organizational structure, personnel information, and
nization’s total quality plan. The “total testing process” is utilization management as well as laboratory safety are im-
a concept that provides a comprehensive working model portant components of the total quality management plan
for evaluating the components of the laboratory’s quality and are discussed in other chapters. In addition, many
management plan as an interdependent component of the of the laboratory’s quality management procedures con-
organization’s total quality improvement program (54, 84, ducted in clinical laboratories today have been mandated
103, 104, 135). by regulatory and accreditation requirements. Participat-
The total testing process consists of three phases. The ing in on-site laboratory inspections and appropriate ex-
first phase, the preanalytical phase, involves all the various ternal proficiency programs is required to comply with
processes and resources that precede the measuring step. government regulations (see chapter 5, this volume).
This phase includes proper ordering and test selection by
the clinician, patient preparation, specimen collection,
identification, transport and/or storage, and premeasure- Quality Management
ment laboratory processing. of Preanalytical Processes
The second phase, the analytical phase, involves man- Even the most accurate measurement using the most up-
aging the reliability of instruments and reagents used for to-date technology by a highly trained technologist may
measuring patient specimens and obtaining test results. cause an untoward clinical outcome if the wrong test is or-
This phase relies heavily on statistical quality control pro- dered or the specimen is compromised prior to analysis
cesses to reduce errors and variation in test measurements. (28, 67, 68, 95, 116). The preanalytical phase of the testing
Quality management of the analytical phase is the most cycle is complex and is prone to the most variation and
standardized and regulated and has therefore received the the highest proportion of errors (24, 64, 110). For example,
most attention. The fewest errors occur during this part of one study uncovered only 0.47% erroneous results arising
the testing cycle. For example, various studies have shown from 40,490 stat tests performed for critical-care patients.
that only 13 to 32% of laboratory errors are due to analyti- Of these erroneous results, 68% occurred during the pre-
cal problems (9). Howanitz et al. (51) have suggested that analytical phase of testing, compared to 13% of errors
the heavy focus on laboratory quality control processes has during the analytical phase and 18% in the postanalytical
diverted attention and resources away from other equally phase. About one-quarter of all erroneous results led to
important quality objectives associated with the pre- and unnecessary additional testing or therapy (91).
postanalytical phases of testing.
The last phase, postanalytical, involves reporting, inter- Test Selection and Ordering
pretation, and clinical use of test results. Application of dif- The first step in the testing process occurs at the moment
ferent quality management processes may involve one or a of test selection. While the majority of laboratory testing is
combination of all three phases. For example, turnaround ordered by physicians and nurse clinicians, other groups,
time and examination of reasons for corrected reports are including pharmacists in some jurisdictions, can order
important quality indicators that may cross over any or all tests. Information on laboratory testing is expansive and
phases of the testing process. involves knowledge of the indications for testing, includ-
The College of American Pathologists (CAP) (http:// ing test sensitivity and specificity for the patient’s condi-
www.cap.org) provides numerous management tools to tion or diagnosis. Many tests are performed for monitoring
assist laboratories with quality improvement. Two in par- or screening, so frequency of test ordering may need to
ticular, the Q-Probes and Q-Tracks programs, focus on be considered. Multiple clinical guidelines provide ex-
pre- and postanalytical phases of the testing process (100, pert opinions about clinical indications for testing based
138). Several standardized monitors are provided each on specific signs, symptoms, or suspected disorders (27,
year to participants. The Q-Probes program provides a se- 78). However, implementation of these guidelines has
ries of cross-sectional quality assurance studies with peer proven difficult (11). Some approaches for managing the
 CHAPTER 21. QUALITY MANAGEMENT 423

Table 21.1 CAP Q-Tracks and Q-Probes quality assurance pro- quality of test selection include monitoring the frequency
gram, 2011a of testing use by algorithms and instituting test restriction
Q-Tracks policies (59). Limits can be established for test ordering
Patient Identification Accuracy (QT1) frequency. Thus, for a slowly changing analyte like hemo-
Assess the incidence of wristband errors within individual institu- globin A1c (used to monitor glucose control in diabetics),
tions, compare performance between participating institutions, and
some healthcare systems cancel any new test order if the
identify improvement opportunities.
hemoglobin A1c is ordered within 28 days of the last test
Blood Culture Contamination (QT2)
Determine the rate of blood culture contamination using standard- (75). Some laboratory information systems can notify the
ized criteria for classifying contaminants. clinician about potential excess ordering patterns when the
Laboratory Specimen Acceptability (QT3) number of tests (e.g., two serum cholesterol orders within
Identify and characterize unacceptable blood specimens that are a week) exceeds a predetermined number (4, 117). Use of
submitted to the chemistry and hematology sections of the clinical algorithms in which indications for ordering a test depend
laboratory for testing.
on the results of another test or other patient parameters
In-Date Blood Product Wastage (QT4) can be effective. Examples include deferring serological
Compare the rates of blood product wastage (i.e., units discarded
in-date) in participating hospitals and track rates of improvement testing for acute hepatitis A when alanine aminotransami-
over time. nase is normal or deferring ova and parasite examinations
Satisfaction with Outpatient Specimen Collection (QT7) in patients who have been hospitalized for more than three
Assess patient satisfaction with outpatient phlebotomy services by days (82). To promote optimal test usage, a multifaceted
measuring patients’ assessment of waiting time, level of discomfort, approach is recommended, including clinician education
courteous treatment, and overall satisfaction. about laboratory testing, controls on ordering, and feed-
Stat Test Turnaround Time Outliers (QT8) back about the individual clinician’s test utilization (108).
Monitor the frequency with which stat test turnaround time inter-
vals exceed institutional stat test turnaround time expectations. New Zealand offers such a program for its general practi-
Critical Values Reporting (QT10)
tioners that combines physician education and utilization
Evaluate the documentation of successful critical values reporting feedback; initial results have been dramatic (120).
in the general laboratory for both inpatients and outpatients ac- Preanalytical errors associated with ordering tests in-
cording to the laboratory’s policy. clude inaccuracies or omissions when transcribing from
Turnaround Time (TAT) for Troponin (QT15) paper requisitions into a laboratory computer system,
Determine the median order-to-report turnaround time of tropo- tests performed but not actually ordered, associating the
nin (I or T) ordered on patients presenting to emergency depart-
ments (EDs) with signs and symptoms of acute myocardial injury.
order with the wrong physician, and mistakes with as-
Corrected Results (QT16)
signing priority status to the order (e.g., stat, routine). Of
Monitor the number of corrected test results within individual all tests ordered, about 2% are not completed because of
institutions and compare performance with that of all institutions these problems (124). In one study involving 660 labora-
and those institutions similar to yours. tories, 4.8% of about 115,000 outpatient orders resulted in
Outpatient Order Entry Errors (QT17) mistakes (125). The most common was assignment of the
Measure the incidence of incorrectly interpreted and entered out- wrong physician with an order, and the least common was
patient physician test orders, compare performance across institu-
tions, and track performance over time.
test priority assignment. High test volume, verbal orders,
Specimen Acceptability in Blood Bank (QT18)
and lack of laboratory policies and procedures to ensure
Identify and characterize incorrectly collected and labeled blood a high-quality order entry process were associated with
specimens submitted to the blood bank for testing. higher error rates.
While ordering errors and inappropriate test requests
Q-Probes should be tracked and trends should be investigated, ma-
Laboratory Services for Emergency Department (QP111) jor advances in improving the quality of test selection will
Measure order-to-report turnaround times for laboratory tests
depend on advances in healthcare information systems
requested from the ED and measure ED physician satisfaction with
the provided TAT. strengthening their ability to assist clinicians based on other
Appropriateness of Plasma Transfusions (QP112) information in the patient’s electronic record (4, 44, 93).
Assess the conformance of plasma transfusion practice to institu- Schiff reported that 2% of patients with a laboratory diag-
tional guidelines and assess the posttransfusion coagulation testing nosis of hypothyroidism were not informed of this finding
documentation and extent of coagulation correction achieved. by their clinician. Another 5% with hypothyroidism were
Clinical Consequences of Specimen Rejection (QP114) lost to follow-up, and patients with thyroid replacement
Quantify the effect of laboratory specimen rejection on the delay in
therapy were not considered (97). Computer linkage of lab-
test result availability. Determine the effect on test result availability
by (i) the reason for specimen rejection, (ii) the detection method oratory data to a pharmacy database would decrease such
for mislabeled specimens, and (iii) the laboratory’s policy regarding issues and improve patient safety. Use of computerized test
resolution of improperly labeled specimens. ordering directly by the physician reduces clerical and tran-
a
CAP (http://www.cap.org). scription errors associated with paper requisitions, reduces
424 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

costs, and improves utilization (106, 118). Electronic access This nocturnal dosing coupled with the usual morning
to patients’ imaging and laboratory results is not a panacea; therapeutic monitoring has resulted in very few incorrectly
physicians who were able to access their patients’ radiology timed digoxins (D. LeGatt, personal communication).
and laboratory results online tended to order more tests, Phlebotomists should always ask if a patient is fasting prior
especially radiologic tests (77). to collecting a specimen for triglyceride, as false elevation
of serum triglyceride occurs in specimens collected from
Quality of Specimen Collection nonfasting patients, making this determination meaning-
Laboratory test results may be affected by the patient’s less. Measuring total creatinine on 24-h urine specimens
condition at the time of specimen collection, as well as by helps determine whether a complete 24-h collection was
the materials and procedures used for specimen collec- obtained, and this can be monitored as a quality indicator.
tion (80). These types of errors may be easily overlooked Special attention must be given to the collection of
and lead to inaccurate test interpretations or incomplete specimens for microbiological examinations. Poor-quality
testing due to specimen rejection (e.g., hemolysis), insuf- specimens that are collected improperly or inappropriately
ficient volume, or incorrect collection containers. In one will produce useless or even misleading results that may
study that examined more than 800,000 outpatient visits at be misinterpreted as having significance to patient care
210 facilities, about 0.4% of phlebotomy procedures were (134). In some cases, specimen quality can be evaluated
unsuccessful (31). The most common causes in order of by smear examinations before cultures are performed,
frequency were nonfasting patient, missing orders, unsuc- and specimens may be deferred from testing if judged to
cessful phlebotomy procedure, patient left collection area, be of poor quality (83). For example, excessive epithelial
and patient not prepared for test (other than nonfasting cells seen on a Gram stain from a sputum specimen sug-
status). Of the successful blood collections, 0.26% of speci- gest that the specimen contents are from the mouth rather
mens were unsuitable for testing. In order of decreasing than the lower respiratory tract; this may warrant rejection
frequency, this was caused by hemolyzed specimen, insuf- of the specimen for culture. Another example, the failure
ficient specimen volume, clotting of anticoagulated speci- to collect a sufficient number of sputum specimens, is the
men, lost specimen, mislabeling, and rejection based on most common cause of delayed diagnosis of tuberculosis
delta check failure. Other studies have shown that about in HIV-infected patients (37, 76).
0.35% of specimens submitted for chemistry examinations While contaminated cultures from sterile sources can-
are rejected, with hemolysis being the most common rea- not be completely eliminated, they can be reduced with
son, and about 0.45% of specimens received for hematol- good aseptic collection techniques. Proper sterile prepa-
ogy testing are rejected, with specimen clotting being the ration of the venipuncture site with the correct materials
most common reason (56, 57). The quality of coagulation and careful collection procedures by a properly trained
testing depends greatly on good collection technique and phlebotomist significantly reduce the cost of blood culture
full sampling (1, 64). A review of videotaped phlebotomies contamination, which varies up to fivefold between labo-
showed that 4 of 10 phlebotomists did not mix their filled ratories (42, 69, 102, 107, 130). Blood collection processes
blood tubes and 2 of 10 delayed mixing (45). Delayed mix- have important implications for costs and outcomes. A
ing of filled plasma separator tubes can cause artifactual preliminary false-positive blood culture results in addi-
increases in troponin and hCG (115). tional costs of $4,000 per episode because of prolongation
Well-documented and validated specimen collection of hospitalization and concomitant laboratory testing and
procedures used by trained phlebotomy and nursing staff therapies (3). Finally, the specimen may be collected prop-
are key factors to prevent preanalytical errors from affect- erly, but there may be insufficient blood volume or inad-
ing the overall quality of the testing process (6, 8). It is im- equate specimen numbers to provide the highest-quality
portant to provide patients with detailed instructions about result. For example, collection of solitary rather than mul-
preparation prior to collecting the specimen and then to tiple blood cultures makes it difficult to differentiate con-
make sure the instructions were followed. For example, two tamination from true bacteremia when coagulase-negative
consecutive studies have found that between 25 and 34% of Staphylococcus sp. is isolated (99).
toxic serum digoxin levels were likely falsely elevated due to It is critically important that specimens be labeled cor-
specimen collection too soon after patients ingested their rectly and properly. The frequency and reasons for incor-
medication (49). These falsely high results can be avoided rect patient identification should be part of the laboratory’s
by instructing phlebotomists to ask patients when they last quality assessment program. Delta checking (see Use of
took a digoxin pill to determine if a specimen collection Patient Data for Quality Control) is a method in which the
should be deferred to a later time. To mitigate the prob- laboratory manager establishes parameters in the labora-
lem of falsely elevated digoxin results in northern Alberta, tory information system that flag current patient results
an interdisciplinary team of a clinical biochemist, phar- that differ substantially from previous results (53, 62,
macists, and clinicians mandated evening digoxin dosing. 63). Generally, delta checks are not very helpful in highly
 CHAPTER 21. QUALITY MANAGEMENT 425

automated laboratories because of the relative absence of manual entry of specimen information. Bar-coded speci-
sample mix-up and analytic error. Delta checks also lack mens prevent errors due to misplacement of specimens
utility for most analytes because of large expected changes into instruments or when aliquoting specimens into sec-
in these analytes (e.g., glucose). Other analytes are more ondary containers. Bar code systems work best when in-
sensitive (e.g., red blood cell mean corpuscular volume). tegrated into the blood collection process with wristband
Depending on how the parameters are set, only a small (inpatient) or identification card (outpatient) positive pa-
proportion of delta check investigations will uncover spec- tient identification schemes. Finally, significant error re-
imen mix-up errors in today’s healthcare organizations, duction can be accomplished with the implementation of
where the median identification error rate is 4 per 10,000 robotic technology for the automated handling of all as-
(88, 105, 114, 126). pects of preanalytical within-laboratory specimen process-
ing (10, 46).
Patient and Client Satisfaction
Typically, the only direct experience patients have with
the laboratory is during phlebotomy. Patient satisfaction Quality Management
with this experience is an important preanalytical quality of Analytical Processes
measurement. This is determined by patient surveys as Quality management of the analytical phase involves re-
well as objective parameters such as patient waiting times ducing inaccuracy and imprecision (variability) of test
or number of self-reported hematomas (47), number of methods as much as possible (109). Attention to stan-
needlesticks, and even the cleanliness of the phlebotomy dardizing test procedures and monitoring method perfor-
area (22). mance with a well-designed quality control system are the
Laboratories should also conduct nurse and physician key elements for meeting this management goal. Appro-
satisfaction surveys. Excessively long turnaround time is priate method selection and proper training are additional
usually the most significant concern expressed by both phy- factors that are important for success.
sicians and nurses (54, 57, 111). Esoteric test turnaround
time has been associated with low levels of physician sat- Method Selection and Evaluation
isfaction (55). Nurse customers were the least satisfied Method selection is laboratory dependent and based on
with test turnaround time in the intensive care units and characteristics that best fit internal goals for cost, timeli-
emergency departments (58). Setting up a hotline through ness, and reliability (see chapter 27, this volume). These
which clients can report potential problems or errors and characteristics include type of specimen required, sample
make inquiries may help large laboratories improve cus- volume, run size, population to be tested, instrument ca-
tomer support services. It is useful to track this information pacity, analysis time, personnel requirements, existing
to look for trends or ideas for quality improvement. equipment, safety, utilities (e.g., electrical, water), and
space requirements. The complexity of analysis, includ-
Specimen Transport, Storage, Receipt, ing calibration, stability of reagents and controls, sensitiv-
and Preanalytical Processing ity and specificity of the method, linear range of analysis,
Specimens can deteriorate through prolonged delays or and interferences, as well as types of internal and external
failure to maintain proper conditions during transport. proficiency systems, are factors that may affect method
Some tests (e.g., urine culture, coagulation tests) are more selection decisions. In the United States, most laboratory
susceptible than others to processing delays. The World methods require review of rigorous premarket evaluations
Health Organization has published a very useful compre- and approval by the U.S. Food and Drug Administration
hensive monograph that documents the stability of anti- (FDA). As a result, implementation of FDA-approved
coagulated blood and serum and plasma specimens (137). tests is usually relatively straightforward. Validation and
It is difficult to monitor transport times or even collec- implementation of non-FDA-approved methods can be
tion time when the collection is not under the control of much more complex and labor-intensive and require sub-
the laboratory. Specimens that are lost or mishandled in stantially more development and evaluation, as well as re-
other ways (e.g., broken tube) during transport or preana- sources. Sometimes, the best decision is to outsource a test
lytical laboratory processing should be tracked as a quality when rapid turnaround time is not necessary, test volume
indicator (see Corrected and Incomplete Reports). Specifi- is low, or it is difficult to maintain an acceptable quality of
cations for specimen transport and storage based on stabil- proficiency.
ity of analytes should be validated and documented. Method evaluation and implementation involves as-
Accurate identification of the specimen throughout the sessing the analytical process statistically by the use of
testing process is facilitated by the use of bar codes that control materials, establishing or validating the reference
can be scanned by laboratory instruments prior to testing (normal) range of the population being tested, document-
(119). Bar codes are significantly more reliable than the ing the procedure in writing (both for laboratory use and
426 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

another document for client use), and training personnel these measurements. If the quality control result deviates
(Table 21.2). When a new method is introduced, it must significantly as defined by quality control rules (see below),
be compared to the old method before bringing it into routine analysis is suspended, the analytical run is investi-
use. All procedure changes, training, and analytical per- gated, and corrective action is taken.
formance data from the previous method should be docu- Usually two or three different control levels are used.
mented, and clients should be notified of changes affecting In hematology and hormone (ligand) measurements, it is
interpretation of results. standard to use three levels; in general chemistry, two levels
are standard. As a rule, it is better to have more measure-
Quality Control ments on fewer control products. Laboratories may also
The term “quality control” describes the approach used to compare their own quality control results to those gener-
monitor the analytical process to ensure that the test results ated in other laboratories using the same lot of control ma-
meet their quality requirements. Quality control includes terials and instrument/reagent systems. This information
establishing specifications for the analytical process, moni- is provided by most commercial manufacturers of quality
toring the analytical process to determine conformance to control materials and provides a way to assess bias and
these specifications, and taking any necessary corrective ac- imprecision of the laboratory’s methods relative to others’
tions to bring the analytical process into conformance (16). tests performed under similar quality control conditions
The primary quality characteristic that is monitored (Fig. 21.1). Quality control systems for microbiological
during the analytical process is the deviation of an analyti- and serological testing are primarily qualitative in nature.
cal measurement from expected. If the size of this devia- Control testing is performed to check the performance of
tion (also known as error) is large, the analytical process media, biochemical reactions (positive or negative), im-
may be defective and thus must be investigated. Errors munological reactions, or expected growth in the presence
can be classified as systematic (resulting in a shift) or ran- of antibiotics (susceptibility testing). In molecular micro-
dom (resulting in increased imprecision). They may also biology, more than three standards are typically used to
be classified as persistent or intermittent. Other typically generate standard curves for quantitative measurements
monitored quality characteristics of the analytical process and are combined with two or three density levels (e.g.,
include specific instrument checks that are usually unique low, mid, and high density), external positive controls, or
to a particular instrument. standards.
The deviation of the analytical measurement from the
expected value is usually monitored by repetitively assaying Quality Control Rules
one or more levels of quality control specimen. The results Quality control rules developed for the clinical laboratory
of testing these commercially prepared, stabilized control originated in the early 1950s with Levey-Jennings charts.
specimens are compared to a range of expected values cal- These charts were implemented with three standard de-
culated as the mean and variance (standard deviation) of viation (SD) limits for the mean and range of two controls
analyzed just twice per week. By the 1960s, the limits had
been reduced to two SD for single controls (Fig. 21.2). In
the next decade, statistical quality control rules were im-
Table 21.2 Method evaluation and implementation
plemented to help reduce the number of false rejections.
Stage I Table 21.3 shows some of the common quality control
Prepare and document procedure
rules used to evaluate control measurements today. West-
Validate linearity and calibration
gard et al. have developed a nomenclature for these control
Determine within-run imprecision
rules and devised graphical summaries (power function
Evaluate for interferences
curves) of their sensitivity and specificity (131, 132). For
Stage II most applications of clinical laboratory quality control, a
Determine between-day imprecision combination of the 1-3SD and the 2-2SD control rules is
Compare to old method adequate. The 1-3SD rule can detect increases in random
Evaluate acceptability of imprecision and bias error and large systematic errors, while the 2-2SD control
Perform or validate reference range(s) rule detects moderate-sized systematic errors. This qual-
ity control combination is relatively simple to implement
Stage III and has a relatively low false rejection probability. Figure
Establish final quality control ranges, critical values, and delta checks
21.3 shows how the 1-3SD and the 2-2SD control rules
Train personnel are applied at one laboratory. On highly precise analyz-
Complete and sign procedure documents ers, the analytical variation of some analytes may be so
Notify clients of any significant changes in method small that violations of the 1-3SD or 2-2SD rules can be
 CHAPTER 21. QUALITY MANAGEMENT 427

Laboratory Performance Overview

Lab 123456 Cardiac Markers Lot 30710 TM

QC Coordinator Data For: 07-2003

Associated Regional Laboratory Lot Exp: 06-2004
Printed: 08-15-2003
123 Main St.
Page 1
Anytown, NY 12345-6789

Troponin-I 2.0
Chemiluminescence
L Bayer ADVIA Centaur
e Dedicated Reagent 1.0
v mg/dL S
e D 0 CVR
Peer Method I
l
SDI: -0.39 0.32 -1.0
1 CVR: 0.5 0.1
# Labs: 37 224
# Points: 1500 7964 -2.0

2. 0

L
e 1. 0
v S
e D 0 CVR
l Peer Method I
SDI: -0.44 0.01 -1. 0
2 CVR: 0.5 0.0
# Labs: 30 150
# Points: 1269 5181 -2. 0

2.0

L
e 1.0
v S
e D 0 CVR
Peer Method I
l
SDI: -0.07 -0.08 -1.0
CVR: 0.7 0.1
3 # Labs: 40 210
# Points: 1706 7608 -2.0

© 2003 BIO-RAD LABORATORIES • ALL RIGHTS RESERVED

Figure 21.1 Examples of interlaboratory quality control reports. (A) The SDI (a peer-based mea-
sure of bias) and CVR (a peer-based estimator of precision) are combined as an x, y coordinate
within three performance zones: acceptable, acceptable to marginal, and marginal.
(continued)
428 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Laboratory Comparison Report

Lab 123456 Cardiac Markers Lot 30710 TM

QC Coordinator Data For: 01-2003

Associated Regional Laboratory Lot Exp: 06-2004
123 Main St. Printed: 08-15-2003
Anytown, NY 12345-6789 Page 1

The following statistics are derived from user-supplied data and are provided by Bio-Rad Laboratories as a service to customers. Such action does not imply
support of reported analytes and test methods. Refer to the package insert for specific analyte claims and stability information.
Peer group statistics contained in this report may not be used without the express written consent of Bio-Rad Laboratories.

Analyte
Method Units Temp Level 1 Level 2 Level 3
Instrument/Kit
Reagent Mon Cum Mon Cum Mon Cum

Troponin-I
Chemiluminescence ng/mL
Bayer ADVIA Centaur
Dedicated Reagent

Your Lab Mean 1.49 1.60 10.78 11.08 38.94 38.17

SD 0.053 0.074 0.332 0.405 1.60 1.49
CV 3.6 4.6 3.1 3.7 4.1 3.9
(Peer) CVR 0.5 0.6 0.5 0.6 0.7 0.7
(Method) CVR 0.1 0.1 0.0 0.1 0.1 0.1
(Peer) SDI -0.39 0.27 -0.44 0.03 -0.07 -0.28
(Method) SDI 0.32 0.37 0.01 -0.03 -0.08 -0.17
# Points 4 151 4 151 4 151

Peer Group Mean 1.53 1.57 11.08 11.06 39.10 38.78

SD 0.102 0.111 0.677 0.635 2.14 2.20
CV 6.7 7.1 6.1 5.7 5.5 5.7
# Points 1500 5889 1269 4917 1706 6900
# Labs 37 39 30 32 40 41

Group Values by Method Mean 1.21 1.23 10.70 11.34 40.46 41.98
SD .0866 .100 .786 1.023 1.901 2.294
CV 7.15 8.13 7.35 9.02 4.70 5.46
# Points 7964 37806 5181 25366 7608 35479
# Labs 224 254 150 179 210 238

© 2003 BIO-RAD LABORATORIES • ALL RIGHTS RESERVED

Figure 21.1 (continued) (B) Reports provide monthly and cumulative statistics for the laboratory
and between-laboratory comparisons with a peer group. Report includes mean, standard deviation,
coefficient of variation, CVR, SDI, number of data points, and number of laboratories. CVR, coef-
ficient of variation ratio, a ratio of laboratory imprecision to peer group imprecision. A value less
than 1 indicates better than average imprecision; a value greater than 1 indicates more than average
imprecision compared to the peer group. doi:10.1128/9781555817282.ch21.f1
 CHAPTER 21. QUALITY MANAGEMENT 429

Figure 21.2 Quality control charts. doi:10.1128/9781555817282.ch21.f2

caused by very small errors that would not affect the clini- the government-mandated period tends to become a de
cal interpretation of the test result. For these tests, it might facto standard for control analysis. The average time to de-
be reasonable to expand the control limits and diminish tect a persistent error has been shown to be one-half of the
the frequency of attempts at correction and prevention period between control analyses (90). Thus, if the period be-
of these small errors. Variations of these rules have been tween control analyses is 24 h, an error may impair labora-
adapted for testing platforms in quantitative molecular mi- tory testing for an average of 12 h before being detected. It
crobiology (66). is possible to shorten the interval between control analyses
without increasing the number of controls analyzed. Rather
Frequency of Quality Control Analysis than analyzing several controls one after another, each con-
The more frequently control products are analyzed, the more trol can be tested at different times of the day. As a result,
quickly analytical errors can be detected, investigated, and the period between control testing is shortened. For example,
corrected. For some tests, government regulations specify rather than analyze three blood gas controls every 24 h, one
the longest period over which controls need not be analyzed. can be tested every 8 h. Using this control analysis schedule,
While many laboratories analyze controls more frequently, the average time to detect a persistent error will be 4 h.
430 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 21.3 Common quality control rules

1-2SD Use as a rejection or warning when one control observation exceeds the Overused. Should only be used with manual
x − (±2SD) control limits; usually used as a warning. assays with low number of analytes/control
materials.
1-3SD Reject a run when one control observation exceeds the x − (±3SD) con- Detects random error and large systematic
trol limits. error.
1-3.5SD Reject a run when one control observation exceeds the x − ±(3.5SD) Detects large random and systematic error.
control limits. Use only with highly precise assays.
1-4SD Reject a run when one control observation exceeds the x − ±(4SD) con- Detects large random and systematic error.
trol limits. Use only with highly precise assays.
2-2SD Reject a run when two consecutive control observations are on the same Detects systematic error.
side of the mean and exceed the x − (+2SD) or x − (−2SD) control
limits.
4-1SD Reject a run when four consecutive control observations are on the same Detects small systematic error; very few
side of the mean and exceed either the x − (+1SD) or x − (−1SD) control applications.
limits.
10x Reject a run when 10 consecutive control observations are on the same Detects very small errors; do not use.
side of the mean.
R-4SD Reject a run if the range or difference between the maximum and mini- Detects random errors; use within run.
mum control observation out of the last 4 to 6 control observations
exceeds 4SD.
x-0.01 Reject a run if the mean of the last N control observations exceeds the Underutilized
control limits that give a 1% frequency of false rejection (pfr = 0.01).
R-0.01 Reject a run if the range of the last N control observations exceeds the Underutilized
control limits that give a 1% frequency of false rejection (pfr = 0.01).

Some laboratories do not analyze quality control speci- evaluated by comparing its total analytic error to the MAE;
mens on a periodic basis; rather, the number of controls this is a method for setting goals for the analytical perfor-
analyzed depends on the number of patient specimens run. mance of a laboratory test.
Because reference laboratories can analyze large numbers Several different approaches have been used for deter-
of specimens over the course of a day, regular but infre- mining the MAE of laboratory tests. One of the first was
quent control analysis may result in large numbers of sam- offered in 1963 (121) by Tonks, who insightfully suggested
ples being analyzed with minimal information provided that the MAE be based on interindividual variation. For
about the run quality. As such, many reference laborato- most analytes, he suggested that the MAE should be no
ries test their patient samples in batches, with a specific greater than one-quarter of the analyte’s reference inter-
number of controls analyzed in each batch. Only when the val (normal range) (121). Cotlove et al. proposed that the
quality control specimens are within quality control limits MAE should be less than one-half of the intraindividual
is the batch of patient results reported. Some authors have range (29). Ricos et al. tabulated MAEs for over 300 differ-
suggested that for high-volume multichannel chemistry ent analytes based on biological variation and associated
analyzers, control specimens be tested between every 30 method biases and imprecisions (96).
and 100 patient specimens (85). Some referral laboratories Table 21.4 compares the MAE for select analytes to typi-
do not use specimen number to establish quality control cal amounts of imprecision of current laboratory analyzers.
frequency; they test quality control specimens more fre- There is tremendous variation in the MAEs, ranging from
quently, e.g., each hour. around 1% for serum sodium to 30% for various urine as-
says. The MAE/imprecision ratio is a measure of the analyti-
Specification of MAE cal quality of the test method. The ratio can be thought of
The primary function of quality control is to maintain a as the magnitude of shift, expressed in standard deviations,
stable analytic process. Once the process is stable, then which will render a test measurement unfit for medical us-
any required improvements can be implemented. Speci- age. Thus, for sodium, whose ratio is approximately 1, just a
fications for maximum allowable error (MAE) provide 1% shift in measured sodium might make the measurement
information about the adequacy of an analytic system for too inaccurate for serial monitoring. Sodium is an extreme
patient care. MAE represents the magnitude of total error example because its plasma concentration is tightly con-
that can be tolerated without invalidating the medical use- trolled by multiple feedback mechanisms. Where a test’s
fulness of the result. The analytical quality of a test can be MAE/imprecision ratio is less than 2.5, it is highly desirable
 CHAPTER 21. QUALITY MANAGEMENT 431

Figure 21.3 Flow chart showing implementation of the 2-2SD/1-3SD control procedure. Courtesy
of Tammy Hofer. doi:10.1128/9781555817282.ch21.f3

that the manufacturer reduce the method’s imprecision. and 2-2SD rules, possibly combined with the R-4SD rule.
This is a better approach than adding extra quality control Table 21.5 shows recommended quality control rules for
samples to attempt to detect small analytical errors on a various MAE/imprecision ratios. Whenever possible, the
system that has insufficient reproducibility. Such effort is laboratory manager should deploy instruments that pro-
highly frustrating and, in the authors’ opinion, generally vide tests with MAE/imprecision ratios that exceed 3.5.
nonproductive. For analytes with MAE/imprecision ratios For analytical systems with high MAE/imprecision ratios,
of 2.5 or less, we recommend the combination of the 1-3SD it is possible to employ control rules with very low false
432 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 21.4 Comparison of MAEs derived from physiological variation to typical instrument imprecisions
Analyte MAE (%), 95% limits Typical imprecision (%) MAE (%)/imprecision
Serum albumin 3.9 1.5 2.6
Urinary albumin 46.1 8 5.8
Urinary creatinine, 24 h 6.9 2.5 2.8
Activated partial 4.5 3 1.5
thromboplastin time
Hemoglobin 4.1 0.8 5.1
Serum sodium 0.9 0.8 1.1
Urinary sodium, 24 h 28.8 4 7.2

rejection probabilities, such as 1-3SD or 1-3.5SD or even of analyzers become more precise, and as laboratories de-
1-4SD (21). termine that the repeat values are substantially the same,
Unfortunately, selection of analyte-specific control more laboratories are ending the practice of confirming
rules can require variations in the timing of quality control the critical value. Such decisions should be data driven;
testing. Alterations in control frequency are difficult be- if an evaluation of the last 50 to 100 critical-value repeats
cause many quality control analytes are measured together does not yield clinically significant differences, the labo-
on a single instrument. It is almost impossible in a busy ratory director can confidently suspend this increasingly
hospital laboratory to schedule more frequent analyte- non-value-added practice.
specific quality control testing and interpretation. At this For analytes exhibiting large random errors (usually in
time, very few instruments can automatically sample and the low-volume, manual laboratory), specimens should be
analyze on-board quality control material on a per analyte analyzed in duplicate with the average reported as long as
basis. As a result, most laboratories use the same schedule the difference between duplicates does not exceed certain
of control analysis for all of the analytes measured. Some limits—originally around ±15%, but presently around
laboratories apply analyte-specific quality control rules ±5%. Some laboratories use duplicate analyses of another
through the use of a sophisticated laboratory information type: patient-sample comparisons. These comparisons re-
system or instrument-based quality control systems. quire the regular analysis of split samples on identical or
dissimilar instruments that measure the same analyte. Dif-
Use of Patient Data for Quality Control ferences between instruments that exceed predetermined
Virtually all laboratories that perform patient specimen limits are investigated and corrected (19, 79). Too often,
testing for ongoing care must alert the caregiver of any these comparisons are performed retrospectively and con-
results that are critical (sufficiently outside of their usual tribute little to quality improvement. We recommend that
physiological limits such that they are incompatible with the analyst enter the patient comparison data into an active
life). Each laboratory must have a critical value list that database; outlying data should be signaled immediately to
specifies the limits for alerting the caregiver (60, 61, 89, the analyst and laboratory supervisor. Such prospective
128). In the past, many areas of the clinical laboratory analysis can easily be followed by reanalysis of another
have repeated testing in the most timely manner if the sample, adjustment of calibration, perhaps widening of the
initial results were “critical.” This kind of a check (some- acceptable differences, and rarely, instrument replacement.
times called a limit check) delays the reporting of the The average of patient (AOP) data is another control
critical value to the caregiver. As successive generations procedure that uses patient data. In AOP, an error condi-
tion is signaled when the average of consecutive centrally
distributed patient data is beyond the control limits estab-
Table 21.5 Control rules that can be used for various lished for the average of the patient data. The assumption
MAE/imprecision ratiosa underlying AOP is that the patient population is stable.
MAE/imprecision Control rule Any shift would thus be secondary to an analytical shift.
2 to 4 Multirule consisting of combination of
The error-detection capabilities of AOP depend on several
1-3SD, 2-2SD, and R-4SD (2 or 3 control factors (17). The most important are the number of pa-
levels at start-up) tient results averaged and the variances of the patient pop-
3.5 to 5 1-2.5SD (2 or 3 control levels at start-up) ulation and analytical method. Using averages of patient
4.5 to 7 1-3SD or 1-3.5SD (2 or 3 control levels at endocrine data has demonstrated high error-detection
start-up) capabilities for thyroid testing (33). However, AOP is not
a
Adapted with permission from reference 14. commonly used for clinical chemistry. In contrast, AOP
 CHAPTER 21. QUALITY MANAGEMENT 433

has been used extensively in hematology to monitor pa- (numerical difference times 100 divided by the current
tient red blood cell indices and, indirectly, their constitu- value). There is a tremendous range in the true positive
ent measurements, hemoglobin and red blood cell count, rate of delta check methods depending on the analyte and
as well as hematocrit (23, 65, 74). The primary limitation its delta limit (133). While delta checks are almost univer-
of AOP in the hospital laboratory is the lack of randomiza- sally applied, there is a high cost in investigating the many
tion in the order of receipt and analysis of patient samples. false positives, especially in tertiary-care hospital popula-
In hematology, for example, the averaging of a large num- tions in which there are large excursions in laboratory val-
ber of specimens from a neonatal unit or a hematology ues secondary to disease or therapy.
unit can cause the red blood cell indices to inappropriately
indicate an out-of-control situation. In clinical chemistry, External Quality Control (Proficiency Testing)
analysis of specimens primarily from renal units will cause Proficiency-testing programs provide samples of un-
large shifts in the AOP of creatinine, glucose, and urea ni- known concentrations of analytes to participating labora-
trogen. In referral laboratory testing, there is “natural ran- tories. Their purpose is to evaluate the ability of laboratory
domization” of patient specimens, and AOP is a powerful personnel to achieve the correct analysis. Participation in
tool in guaranteeing acceptable analytical performance these programs is usually government-mandated, with
(20). Hospital laboratory AOP is significantly influenced the premise that acceptable performance indicates pro-
by longer-term, within-day and within-week trends. Over- ficiency in patient specimen analysis. This assumes that
night and over weekends, less testing is ordered; this week- proficiency specimens are comparable to and treated the
end and nightly testing is performed on more acutely ill same as patient specimens. Acceptable performance is de-
patients. As a result, these evening and weekend AOPs will termined by some form of consensus by peer comparisons
demonstrate elevated glucose, lower sodium, lower pro- using “fixed limits,” which are expressed either in measure-
tein, and lower calcium averages (13). ment units of the analyte (e.g., ±0.5 mmol/liter from the
One other quality control approach uses patient data: mean for potassium) or as percentages (e.g., ±10% for to-
the delta check, in which the most recent result for a pa- tal cholesterol) (122). Statistically defined limits of accept-
tient is compared to the previous value. The difference ability are used for a far smaller number of methods (e.g.,
between consecutive laboratory values (deltas) is calcu- thyroid-stimulating hormone) (Table 21.6). The standard
lated and compared to previously established limits (62). deviation index (SDI) is used for this purpose and is cal-
A difference that exceeds these limits is investigated; this culated as the numerical difference between an individual
difference is either the result of specimen mix-up or real laboratory’s results and the mean of all laboratory results,
changes in the patient’s test results. The difference is usu- divided by the standard deviation of all laboratory means.
ally calculated in two ways: as a numerical difference (cur- For these analytes, the participant result is acceptable if it
rent value minus last value) and as a percentage difference falls within ±3 SDI of the group mean.

Table 21.6 CLIA testing criteria for acceptable external proficiency testing performance
Test or analyte Acceptable performance (+ target value)
Chemistry, toxicology
Alanine aminotransferase 20%
Albumin 10%
Alcohol, blood 25%
Alkaline phosphatase 30%
Alpha-1 antitrypsin 3 SD
Alpha-fetoprotein 3 SD
Amylase 30%
Anti-HIV Reactive or nonreactive
Antinuclear antibody 2 dilution or positive/negative
Antistreptolysin O 2 dilution or positive/negative
Aspartate aminotransferase 20%
Bilirubin, total 0.4 mg/dl or 20%
Blood lead 10% or 4 mg/dl
Blood gas pO2 3 SD
Blood gas pCO2 5 mmHg or 8%
(continued)
434 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 21.6 CLIA testing criteria for acceptable external proficiency testing performance (continued)
Test or analyte Acceptable performance (+ target value)
Blood gas pH 0.04
Calcium, total 1.0 mg/dl
Carbamazepine 25%
Chloride 5%
Cholesterol, total 10%
CK isoenzymes MB present or absent, or 3 SD
Complement C4 3 SD
Complement C3 3 SD
Cortisol 25%
Creatine kinase 30%
Creatinine 0.3 mg/dl or 15%
Digoxin 20% or 0.2 ng/ml
Ethosuximide 20%
Free thyroxine 3 SD
Gentamicin 25%
Glucose 6 mg/dl or 10%
HDL cholesterol 30%
Hepatitis (HBsAg, anti-HBc, HBeAg) Reactive, positive or nonreactive, negative
Human chorionic gonadotropin (HCG) 3 SD or positive/negative
Immunoglobulin A (IgA) 3 SD
IgE 3 SD
IgG 25%
IgM 3 SD
Infectious mononucleosis 2 dilution or positive/negative
Iron 20%
Lactate dehydrogenase 20%
Lithium 0.3 mEq/liter or 20% (greater)
Magnesium 25%
Phenobarbital 20%
Phenytoin 25%
Potassium 0.5 mEq/liter
Primidone 25%
Procainamide (and metabolite) 25%
Quinidine 25%
Rheumatoid factor 2 dilution or positive/negative
Rubella 2 dilution or positive/negative
Sodium 4 mEq/liter
T3 uptake 3 SD
Theophylline 25%
Thyroid stimulating hormone 3 SD
Thyroxine 20% or 1.0 mg/dl
Tobramycin 25%
Total protein 10%
Triglycerides 25%
Triiodothyronine (T3) 3 SD
Urea nitrogen 2 mg/dl or 9%
Uric acid 17%
Valproic acid 25%
(continued)
 CHAPTER 21. QUALITY MANAGEMENT 435

Table 21.6 (continued)

CLIA testing criteria for acceptable external proficiency testing performance
Test or analyte Acceptable performance (+ target value)
Hematology
Cell identification 80% or greater consensus on identification
White cell differential 3 SD based on leukocyte percentage
Erythrocyte count 6%
Hematocrit 6%
Hemoglobin 7%
Leukocyte count 15%
Platelet count 25%
Fibrinogen 20%
Partial thromboplastin time 15%
Prothrombin time 15%

An alternative multirule system has been developed observation exceeding 75% of the total allowable error), the
to evaluate proficiency test results (12, 15, 18). The alter- laboratory records, including the internal quality control re-
native method is simple and can be used by pathologists, sults, should be reviewed. Mix-ups of proficiency specimens
doctorate-level scientists, and medical technologists. The or of proficiency and clinical specimens should be ruled out.
most current approach is illustrated in Fig. 21.4. When sig- Whenever possible, aliquots of the survey specimens
nificant deviations are detected in a set of five survey results should be frozen and saved. If the survey results differ sig-
(the mean of the five results exceeding +1.5 SDI, or the nificantly from those obtained on peer instruments, these
range of the observations exceeding 4 SDI, or at least one aliquots should be reassayed. Results that still deviate

Figure 21.4 Flow chart illustrating proficiency

Examine Proficiency
Testing Data
test review, from reference 14 with permission.
doi:10.1128/9781555817282.ch21.f4

Yes
X1.5 SDI Probable
Failure? Systematic Error

No

R4 SDI Yes
Probable Random
Failure? Error

No

Yes
1 75% EA
“Near Miss” Detected
Failure?

No

Acceptable
436 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

significantly after retesting can indicate a long-term bias. of a clinical encounter. Pressure to provide test results more
If the deviations are variable in magnitude and direction, rapidly has led, in part, to the growth of point-of-care test-
there may be a problem with imprecision (random error). ing by nonlaboratory personnel outside of the main clini-
In the event that repeat analysis yields satisfactory results, cal laboratory. As a general rule, faster service is associated
the error probably represented a random error or transient with higher costs and sometimes lower quality of test re-
bias encountered during the testing period. sults. Therefore, it is the laboratory manager’s responsibility
to determine the most effective testing process and testing
schedules that will provide the most cost-effective and reli-
Quality Management of able results within a clinically appropriate time frame.
Postanalytical Processes Evaluation of test turnaround time is an important
The two most important factors affecting the postanalyti- component of the laboratory’s quality assurance program
cal phase of the testing process are test reporting and result (50, 123). Turnaround time involves all stages of the testing
interpretation (113, 129). One source of inaccurate report- process and is a good way to globally assess performance.
ing is clerical errors due to data entry mistakes. Laboratory Table 21.7 shows the major intervals in the testing process
instrument interfaces with computer reporting capabilities that are potential bottlenecks for delayed testing. Measure-
prevent most of these types of errors. Phone reports have a ment of turnaround time can involve any of these intervals,
relatively high rate of errors and should be avoided if pos- although the typical measurement is usually specimen col-
sible. To mitigate such errors, both The Joint Commission lection to result reporting or specimen delivery to result
and CAP require the healthcare provider to read back the reporting. Typically, the distribution of turnaround times
information conveyed during the telephone reporting of is shifted to the right with a few cases of prolonged times
patient critical values. If computer reporting is unavailable, due to various factors such as verification protocols, dilu-
printed results should be promptly delivered to the patient’s tions, or instrument malfunction. Therefore, simply tak-
chart or physician’s office. Whenever possible, calculations ing an average of all turnaround time measurements is
should be done by preprogrammed computer systems. misleading. A more appropriate measure is to examine the
Procedures for defining and reporting critical labora- percentage of outlier turnaround times (86, 112). These
tory test results must be developed and periodically re- are also the events that will most likely be noticed and be of
viewed by the laboratory director in conjunction with the concern to clinicians. The key to this approach is to estab-
medical staff to ensure that clinicians are immediately no- lish an appropriate target for turnaround time based on the
tified about abnormal results when necessary (35, 70, 71). goals of the clinical staff and the capabilities of the labora-
Common examples of critical values that require imme- tory and facilities infrastructure (48). For example, in one
diate notification include severe hypo- or hyperglycemia, study involving 496 hospitals, about 90% of stat tests from
thrombocytopenia, and positive blood cultures. Failure to the emergency department were completed in less than 70
notify a clinician of a critical test result is a serious quality min. Test ordering and specimen collection accounted for
failure and requires investigation. nearly 60% of all reasons for delays (112).
Quality management of results utilization and proper
test interpretation is underdeveloped at this time. For ex-
ample, the appropriateness and timeliness of treatment of Corrected and Incomplete Reports
patients with serious infections improve when the labora- Corrected reports are an important indicator of a failure
tory actively broadcasts the findings of clinically significant in one or more laboratory processes. They are analo-
bacterial culture results (30, 101). Recent publications, such gous to shipping a defective part in the manufacturing
as those using PCR or peptide nucleic acid fluorescence in
situ hybridization (PNA-FISH), document the laboratory’s Table 21.7 Stages in the testing cycle where
ability to provide postanalytical impact (5, 38–40, 136). turnaround time may be measured
Order received and recorded
Turnaround Time Patient registration
Specimen collection
Excessively prolonged laboratory test turnaround time is
Specimen delivery
one of the most common complaints voiced to the labo-
Specimen processing
ratory manager (55, 58). The slow delivery of laboratory
Test
results is associated with increased diagnostic uncertainty
Result verification
and delays in patient management. From an outcome per-
Result reporting
spective, slow test turnaround times lead to longer waiting
Interpretation by clinician
times for the patient or incomplete information at the time
 CHAPTER 21. QUALITY MANAGEMENT 437

industry. Fortunately, only about 4% of these errors have Table 21.8 CLSI quality system essentialsa
a significant impact on patient care (52). The largest pro- Organization
portion tend to be associated with hematology testing, Leadership’s commitment to laboratory quality and quality plan
while the fewest are documented in transfusion medicine. Organizational charts, definitions, responsibilities, and
Prior to a result being reported, any number of quality relationships
processes may come into play to prevent incorrect results Customer focus
Identifies laboratory customers and expectations and a means to
from being reported. However, after the result is verified
monitor
and reported, the defective result has the potential to af-
Facilities and safety
fect patient outcome. Incorrect results may be detected Overall safety plan with regard to facility and staff safety and emer-
in a variety of ways, including input from the physician gency response planning
about a clinical inconsistency, a delta check that uncovers Personnel
a mislabeled sample that was previously tested, delayed Hiring, training, competency, qualifications, job/position
recognition of a significant quality control failure, or a descriptions
clerical error found during routine supervisory review. Purchasing and inventory
All corrected reports should be treated as opportunities to Supplier agreements to provide needed inventory and verification
of incoming supplies.
reexamine and improve processes to prevent recurrences
Equipment
of the same problem. Selection and installation, equipment list, validation records, op-
Incomplete reporting of results arises from about 2% eration/maintenance checks
of orders received by laboratories (124). This may oc- Process management
cur for a variety of reasons that involve the total testing The path of workflow to make the most efficient use of laboratory
process, including improper specimen collection, an un- resources.
available patient, broken tube, lost specimen, misinter- Documents and records
pretation of the order, an interfering substance in the Policies, processes, and standard operating procedures that control
the creation, revision, approving, distribution, storing, retrieving,
specimen, or failure to provide the result in the patient and destruction of laboratory documents
record. Whenever possible, incomplete testing should Information management
be reported to the clinician as soon as possible so that Confidentiality and security of patient information
testing can be repeated, if necessary. As with corrected Nonconforming event management
reports, incomplete tests should be monitored and ex- Reporting and analyzing of events that do not adhere to laboratory
amined with the goal of modifying processes to prevent policies, processes, or standards
future occurrences. Assessments
Internal and external monitoring to ensure laboratory meets
requirements
Document Control External proficiency testing, accreditation, and quality indicators
Continual improvement
Clinical laboratories process and handle an enormous Identifying opportunities to continually look for ways to improve
amount of information each day. These processes require a
See reference 26.
an organized approach for controlling, organizing, and re-
taining this information and making it readily accessible
to busy laboratory staff and laboratory inspectors. Docu- the information required to provide quality laboratory
ment control can be a challenge to manage; electronic soft- services (26).
ware packages are available to help the laboratory manage
its documents. Nationally, the top three laboratory defi-
ciencies identified during CAP on-site inspections in the Summary
years 1998 to 2001 were related to document control items Clinical laboratories are required to have in place a com-
(41). The Joint Commission inspection of laboratories prehensive quality program. This requires managing the
yields similar results, especially when off-site or multi- quality of a wide spectrum of resources, procedures, and
site laboratories are involved. A document control policy services by continuously evaluating quality indicators and
should state the intent and direction the laboratory takes making adjustments to improve laboratory performance
to document and record the structure it uses for creating, and patient outcomes. The program involves ongoing in-
revising, approving, distributing, storing, retrieving, and spection of the total testing process, from the time a test is
destroying documents. Using the Clinical and Laboratory ordered until the results are utilized. The quality program
Standards Institute Quality Systems approach, documents is supported by a robust document control system and is
are broken down into 12 quality system essentials (Table conducted by measurement and analysis of indicators to
21.8) to provide laboratories with a mechanism to manage provide information to guide improvement.
438 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

KEY POINTS Confidence interval Expected range of values within a group

with a specified probability.
■ Quality management is a system for continuously ana-
lyzing, improving, and reexamining resources, pro- Constant systematic error An error that is always in the same
cesses, and services within an organization. direction and of the same magnitude, even as the concentration
of analyte changes.
■ The total testing process provides a comprehensive
working model for evaluating the components of the Control limit A range of expected values that, if exceeded, warns
laboratory’s quality management plan as an interdepen- of random and/or systematic error in an analytical process.
dent component of the organization’s total quality im- Control material Specimen that is repeatedly analyzed, with test
provement program. results statistically analyzed to monitor method performance.
■ Well-documented procedures and trained phlebotomy
Delta check Rule-based method to compare a patient’s current
and nursing staff are key factors for ensuring quality of test result to a previous measurement to check for unexpected
specimen collection. differences that might be due to analytical or nonanalytical er-
■ Patient satisfaction is an important quality indicator. rors in the testing process.
■ Quality control is a method for establishing specifica- Error Deviation of measured concentration from expected or
tions for an analytical process, assessing the procedures, true value.
monitoring conformance by statistical analysis, and
Gaussian distribution A random distribution of values de-
taking corrective actions to bring the procedures into scribed by their average and variance (standard deviation); used
conformance. to describe analytical imprecision.
■ The two most important factors affecting the postana-
Imprecision Analytical variance, usually expressed as the stan-
lytical phase of the testing process are test reporting and dard deviation or coefficient of variation ([standard deviation/
result interpretation. mean] ×100).
■ Turnaround time, corrected reports, and incomplete
Interference One or more specimen constituents that cause bias
testing are important indicators for monitoring the to- by affecting the analytical method.
tal testing process.
Matrix Total constituents of the specimen that may affect the
■ A document control policy should state the intent and
analytical process.
direction the laboratory takes to document and record
the structure it uses for creating, revising, distributing, Maximum allowable error (MAE) Amount of error associated
storing, retrieving, and destroying documents. with an analytical method that can be tolerated without invali-
dating the medical usefulness of the result.
Mean Arithmetic average of a set of values.
GLOSSARY Medical usefulness limits Quality control limits derived from
Accuracy Agreement between the best estimate of a quantity clinical application of results rather than statistical imprecision
and its true value. of the method.
Analyte Sample to be measured. Normal range See reference range.
Analytical error The difference between the result of an analyti- Proportional systematic error An error that is always in one di-
cal method and the true value. rection and whose magnitude is a percentage of the concentra-
tion of analyte being measured.
Analytical method Set of written instructions that describe the
procedure, materials, and equipment necessary for the analyst to Quality assurance A systematic approach to continuously ana-
obtain a result. lyzing, improving, and reexamining the total testing process.
Analytical range The range of concentration or other quantity Quality control A process for monitoring assay performance to
in the specimen over which the method is applicable without detect deviations from expected outcomes.
modification.
Random error A variance from expected that is not reproduc-
Bias Systematic error that describes the difference between ible or predictable.
measured and true or assigned value.
Recovery Amount (usually expressed as percentage) of known
Calibration Process of using standards of known concentration quantity of an analyte that is measured when added to a specimen.
to establish a relationship between the measured signal from the
Reference range Test results that are within expected parame-
instrument and analyte concentration.
ters for about 95% of all individuals in a defined healthy popula-
Coefficient of variation A measure of variance expressed as a tion. Values outside of the range are classified as abnormal and
percentage of the mean ([standard deviation/mean] ×100). may be associated with a pathological condition.
 CHAPTER 21. QUALITY MANAGEMENT 439

Sample Part of specimen that is measured. C. A. Lehmann, L. E. Schoeff, and R. H. Williams (ed.), Clinical Di-
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Sensitivity, analytical The lowest detection limit of an assay;
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98. Schifman, R. B. 1990. Quality assurance goals in clinical pathol-
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99. Schifman, R. B., P. Bachner, and P. J. Howanitz. 1996. Blood
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culture quality improvement: a College of American Pathologists
2011. Use of the BD vacutainer rapid serum tube reduces false-
Q-Probes study involving 909 institutions and 289,572 blood culture
positive results for selected Beckman Coulter UnicelDxI immuno-
sets. Arch. Pathol. Lab. Med. 120:999–1002.
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100. Schifman, R. B., P. J. Howanitz, and R. J. Zarbo. 1996. Q-Probes: 116. Streichert, T., B. Otto, C. Schnabel, G. Nordholt, M. Haddad,
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Pathol. 9:83–120. matic tube systems. Clin. Chem. 57:1390–1397.
101. Schifman, R. B., A. Pindur, and J. A. Bryan. 1997. Laboratory 117. Studnicki, J., D. D. Bradham, J. Marshburn, P. R. Foulis, and
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comes and economics. Clin. Chem. 44:370–374. 120. Tomlin, A., S. Dovey, R. Gauld, and M. Tilyard. 2011. Bet-
104. Shahangian, S., R. Cohn, E. E. Gaunt, and J. M. Krolak. 1999. ter use of primary care laboratory services following interventions
System to monitor a portion of the total testing process in medical to “market” clinical guidelines in New Zealand: a controlled before-
clinics and laboratories: evaluation of a split-specimen design. Clin. and-after study. BMJ Qual. Saf. 20(3):282–290.
Chem. 45:269–280. 121. Tonks, D. B. 1963. A study of the accuracy and precision of
105. Simpson, J. B. 2001. A unique approach for reducing specimen clinical chemistry determinations in 170 Canadian laboratories.
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improvement. Clin. Leadersh. Manage. Rev. 15:401–405. 122. U.S. Department of Health and Human Services. 1992. Medi-
106. Smith, B. J., and M. D. McNeely. 1999. The influence of an care, Medicaid, and CLIA programs. Regulations implementing the
expert system for test ordering and interpretation on laboratory in- Clinical Laboratory Improvement Amendments of 1988 (CLIA) fi-
vestigations. Clin. Chem. 45:1168–1175. nal rule. Fed. Regist. 57:7002.
107. Snyder, S. R., A. M. Favoretto, R. A. Baetz, J. H. Derzon, 123. Valenstein, P. 1996. Laboratory turnaround time. Am. J. Clin.
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tenson, and E. B. Liebow. 2012. Effectiveness of practices to reduce 124. Valenstein, P., and P. J. Howanitz. 1995. Ordering accuracy:
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126. Valenstein, P. N., S. S. Raab, and M. K. Walsh. 2006. Identifi- quality control: probabilities for false rejection and error detection.
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oratory medicine. Clin. Chem. 55:1067–1075. 135. Witte, D. L., S. A. VanNess, D. S. Angstadt, and B. J. Pennell.
128. Wagar, E. A., R. C. Friedberg, R. Souers, and A. K. Stankovic. 1997. Errors, mistakes, blunders, outliers, or unacceptable results:
2007. Critical values comparison: a College of American Patholo- how many? Clin. Chem. 43:1352–1356.
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130. Weinbaum, F. I., S. Lavie, M. Danek, D. Sixsmith, G. F. Hein- 137. World Health Organization. 2002. Use of anticoagulants in di-
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35:563–565. .int/hq/2002/WHO_DIL_LAB_99.1_Rev.2.pdf.
138. Zarbo, R. J., B. A. Jones, R. C. Friedberg, P. N. Valenstein,
131. Westgard, J. O., and T. Groth. 1979. Power functions for statis-
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444 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 21.1 Regulations, Guidelines, and Information with Application to a Clinical Laboratory

A listing of relevant regulations grouped according to the regula- Department of Health and Human Services: Center for Medicare
tory agency from which they are issued. and Medicaid Services (CMS)
42 CFR 493, Laboratory Requirements (CLIA 88)
FDA
493.1107 Test—Records
http://www.fda.gov/scienceresearch/specialtopics/runningclinical
trials/ucm155713.htm (accessed May 7, 2013) 493.1201(b) Written quality control procedures
493.1202(c)(2) Procedure manual, moderate-complexity testing
21 CFR 11, Electronic Records; Electronic Signatures, Subpart B—
493.1211 Procedure manual, high-complexity testing
Electronic Records
493.1221 Quality Control—Records
21 CFR 58, Good Laboratory Practice for Nonclinical Laboratory 493.1721 Quality Assurance—Records
Studies
58.185 Reporting of nonclinical laboratory study results Department of Health and Human Services, Public Health
58.190 Storage and retrieval of records and data
42 CFR 72, Interstate Shipment of Etiologic Agents
58.195 Retention of records
21 CFR 211, Current Good Manufacturing Practice for Finished Department of Transportation
Pharmaceuticals 49 CFR 171–7 Shipment of Hazardous Materials
Subpart J—Records and Reports (211.180–211.198)
21 CFR 600, Biological Products, General Department of Labor
600.12 Records 29 CFR 71—Protection of individual privacy and access to records
under the Privacy Act of 1974
21 CFR 606, Current Good Manufacturing Practice for Blood and
Blood Components Miscellaneous sources (specifics not listed)
606.100 Standard operating procedures
American Association of Blood Banks: http://www.aabb.org (ac-
Subpart I—Records and Reports (606.160–606.171)
cessed 5/7/13)
21 CFR 640, Additional Standards for Human Blood and Blood
CDC Guidelines: http://www.cdc.gov (accessed 5/7/13)
Products
640.72 Records Clinical Laboratory Standards Institute (CLSI): http://www.clsi.org
(accessed 5/7/13)
21 CFR 803, Medical Device Reporting of Adverse Events and Cer-
tain Malfunctions College of American Pathologists (CAP): http://www.cap.org (ac-
803.17–803.18 Written MDR procedures, Files cessed 5/7/13)

21 CFR 820, Good Manufacturing Practice, Quality System Regulation FDA Guidelines, Guidances, and Memoranda: http://www.fda.gov/
(accessed 5/7/13)
Subpart M—Records (820.180–820.198)
Federal Register, multiple sources: https://www.federalregister.gov/
Department of Labor: Occupational Safety and Health (accessed 5/7/13)
Administration (OSHA) International Organization for Standardization (ISO): http://www
29 CFR 1904, Recording and Reporting Occupational Injuries and .iso.org/iso/home/standards/management-standards/iso_9000.htm
Illnesses (accessed 5/7/13)
1904.6 Retention of records The Joint Commission: http://www.jointcommission.org (accessed
1904.9 Falsification or failure to keep records or reports 5/7/13)
29 CFR 1910 Occupational Safety and Health Standards
Appendix C to 1910.120
4. Training (records)
8. Medical surveillance programs (records)
 CHAPTER 21. QUALITY MANAGEMENT 445

APPENDIX 21.2 CAP Laboratory Inspection Checklist Associated with Quality Management

The checklist is comprised of declarative statements for which 6. Proper specimen labeling
the laboratory must show evidence of compliance. The check- 7. Need for appropriate clinical data, when indicated
list provides “notes” that provide further detail on the declarative
GEN.40125 For specimens sent to reference laboratories, the re-
statements.
ferring laboratory properly follows all requisition, collection and
handling specifications of the reference laboratory.
Quality Improvement
GEN.40470 There is documentation that all personnel perform-
GEN.13806 The laboratory has a documented quality manage-
ing patient blood collection have been trained in collection
ment (QM) program.
techniques and in the proper selection and use of equipment/
GEN.16902 For laboratories that have been CAP accredited for supplies.
more than 12 months, the QM plan is implemented as designed
GEN.40490 The individual collecting the specimen positively
and is reviewed annually for effectiveness.
identifies the patient before collecting a specimen.
GEN.20100 The QM program covers all areas of the laboratory
GEN.40935 The laboratory has a policy that personnel receiving
and all beneficiaries of service.
verbal or phone orders read back the entire order to verify ac-
GEN.20208 The QM system includes a program to identify and curacy of transcription.
evaluate errors, incidents and other problems that may interfere
GEN.40938 The laboratory has a policy on confirmation of test
with patient care services.
orders that may be unclear (e.g., orders using non-standard or
GEN.20316 The QM program includes monitoring key indica- non-specific terms).
tors of quality in the pre-analytic, analytic, and post-analytic
phases. Quality of Specimen Collection
GEN.20325 The laboratory has a procedure for employees and GEN.40505 There is a mechanism to provide feedback to the col-
patients to communicate concerns about quality and safety to lector of the specimen on issues related to specimen quality.
management.
GEN.40825 There is a system to positively identify all patient
GEN.23584 The laboratory conducts an interim self-inspection specimens, specimen types, and aliquots at all times.
and documents efforts to correct deficiencies identified during
GEN.43750 The system provides for comments on specimen
the process.
quality that might compromise the accuracy of analytic results
(e.g., hemolyzed, lipemic).
Quality Management of Preanalytic Processes:
Test Selection and Ordering GEN.40535 There is an adequate process for monitoring the
quality of submitted specimens, correcting problems identified
GEN.40000 There is a procedure manual or other source for the
in specimen transportation, and improving performance of cli-
complete collection and handling instructions of all laboratory
ents or offices that frequently submit specimens improperly.
specimens.
GEN.40016 There is documentation of at least biennial review of Patient and Client Satisfaction
the specimen collection/handling procedure manual by the cur-
GEN.20335 Referring physicians’/clients’ or patients’ satisfaction
rent laboratory director or designee.
with laboratory service was measured within the past two years.
GEN.40050 The specimen collection manual is distributed to all
specimen-collecting areas within the hospital (nursing stations, Quality Management of Analytic Processes
operating room, emergency room, out-patient areas) AND to
GEN.30000 There is a written quality control program that
areas outside the main laboratory (such as physicians’ offices or
clearly defines policies and procedures for monitoring analytic
other laboratories).
performance.
GEN.40100 The specimen collection manual includes instruc-
GEN.30070 If the laboratory performs test procedures for which
tions for all of the following elements, as applicable
neither calibration nor control materials are available, proce-
1. Preparation of the patient
dures are established to verify the reliability of patient test results.
2. Type of collection container and amount of specimen to
be collected
Proficiency Testing (PT)
3. Need for special timing for collection (e.g., creatinine
clearance) COM.010000 The laboratory has written procedures for profi-
4. Types and amounts of preservatives or anticoagulants ciency testing sufficient for the extent and complexity of testing
5. Need for special handling between time of collection and done in the laboratory.
time received by the laboratory (e.g., refrigeration, imme-
diate delivery) (continued)
446 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 21.2 CAP Laboratory Inspection Checklist Associated with Quality Management (continued)

COM.01100 The laboratory has a procedure for assessing its per- for the patient’s care) when results of designated tests exceed es-
formance on PT challenges that were intended to be graded but tablished “alert” or “critical” values that are important for prompt
were not. patient management decisions.
COM.01500 For tests for which CAP does not require PT, the COM.30100 When critical results are communicated verbally or
laboratory at least semi-annually 1) participates in external PT, by phone, there is a policy that laboratory personnel ask for a
or 2) exercises an alternative performance assessment system for verification “read-back” of the results.
determining the reliability for analytic testing.
COM.01600 The laboratory integrates all proficiency testing Turnaround Time
samples within the routine laboratory workload, and those sam-
GEN.41345 Has the laboratory defined turnaround times (i.e.,
ples are analyzed by personnel who routinely test patient/client
the interval between specimen receipt by laboratory personnel
samples, using the same primary method systems as for patient/
and results reporting) for each of its tests, and does it have a pol-
client/donor samples.
icy for notifying the requester when testing is delayed?
COM.01700 There is ongoing evaluation of PT and alternative
assessment results, with prompt corrective action taken for unac- Corrected and Incomplete Reports
ceptable results.
GEN.41307 When errors are detected in patient test reports, the
COM.01800 There is a policy that prohibits interlaboratory com- laboratory promptly notifies responsible clinical personnel or
munication about proficiency testing samples until after the dead- reference laboratory as applicable and issues a corrected report.
line for submission of data to the proficiency testing provider.
GEN.41310 All revised reports of previously reported, incorrect
COM.01900 There is a policy that prohibits referral of profi-
patient results are identified as revised, and both the revised and
ciency testing specimens to another laboratory.
original data are clearly identified as such.
Quality Management of Postanalytic Processes: Reporting
Document Control
GEN.43825 Manual and automated result entries are verified be-
fore final acceptance and reporting by the computer. GEN.20375 The laboratory has a document control system.
COM.30000 The laboratory has procedures for immediate no- GEN.20377 Laboratory records and materials are retained for an
tification of a physician (or other clinical personnel responsible appropriate time.
Introduction
ISO Background
22 International Organization
Benefits of the ISO Standards for Standardization
ISO 9000 Family
ISO 15189
Anne Marsden and Amy Shahtout
ISO Certification Process
ISO 15189 and the CAP
Summary
KEY POINTS OBJECTIVES
REFERENCES To provide an overview of the International Organization for Standardization
To describe the ISO standards most relevant in a clinical laboratory service setting
To describe the process for obtaining and maintaining ISO certification

Without continual growth and progress, such words as improvement, achieve-

ment, and success have no meaning.
Benjamin Franklin

A
quality-management system (QMS) is the combination of organiza-
tional structure, resources, people, documents, and activities designed
to ensure quality in an organization’s products and services. It de-
scribes the coordinated activities needed to direct and control an organization
with regard to its quality. Worldwide, the most widely adopted QMS regime is
the ISO 9000 family. A related QMS stems from ISO 15189, which is tailored
to clinical laboratories.

ISO Background
Operating since 1947, the International Organization for Standardization
(ISO) is a nongovernmental association consisting of representatives from
over 150 countries, one member per country. There are approximately 3,000
ISO technical committees and working groups, with participation from about
50,000 experts, contributing to the development of ISO standards that provide
the framework for compatible technology internationally. Efforts to achieve
technical consensus for each standard are coordinated by a central secretariat
in Geneva, Switzerland. As the world’s largest developer of standards, the orga-
nization’s goal is to define quality standards for organizations to facilitate and
promote the trade of products and services internationally. (Isos, Greek for
“equal,” is the basis for the organization’s short name, ISO.) The standards are
Clinical Laboratory Management, 2nd Edition
also used by governments to establish health, safety, and environmental laws.
Edited by L. S. Garcia While ISO certification is voluntary in the United States, it serves as an
©2014 ASM Press, Washington, DC attractive credential—especially for companies that intend to reach an inter-
doi:10.1128/9781555817282.ch22 national market—and demonstrates the intent to manage quality through

447
448 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

practices deemed acceptable by the ISO. Conformance to and ensure the promotion of the awareness of customer
standards inherently contributes to higher quality, safety, requirements to the organization as a whole.
reliability, and interchangeability of products and services. ISO 9001 is a short document that outlines a series of
This potentially increases a company’s marketability, cus- “must haves” for a quality system but does not go into de-
tomer retention, and acquisition of new customers. tail about how the requirements are to be approached, car-
ried out, or met. As a result, ISO 9001 is a one-size-fits-all
standard that can be implemented in many different in-
Benefits of the ISO Standards dustries and services.
An ISO certificate does not ensure a company’s product or ISO 9001 first requires that an organization determine
service quality; it attests that a company adheres to docu- its quality policy and related quality objectives. Quality ob-
mented processes and quality controls. Product quality is jectives must be measurable and include those needed to
achieved through adherence to defined processes that are meet the requirements of the product, for example, on-time
designed to deliver products and services that meet the results or employment of assays with sufficient specificity
company’s predefined requirements. to meet medical needs. The organization must also develop
The increased credibility associated with ISO certifica- a quality manual (QM), which will include a description
tion leads to the following advantages: of how the processes in the QMS interact, either as a flow
map, cross-references to the standard, or a written descrip-
• Decreased operating expenses stemming from scrap
tion. The QM is to be updated whenever there is a change
and rework
to the QMS or to the ISO standard. It defines the QMS and
• Enhanced management control through management describes the scope of the services provided and any exclu-
review participation sions from the ISO. The QM also contains information on
• Reduced product liability risk due to a robust quality- the six written procedures that ISO 9001 requires:
management system
• Control of documents
• Increased customer satisfaction as a result of customer-
• Control of records
focused quality systems (2)
• Internal audits
• Increased marketability from the commitment to
meeting internationally accepted quality standards • Control of nonconforming product
• Corrective action
ISO 9000 Family • Preventive action
The quality standards in the ISO 9000 family focus on The standard requires regular management review of
quality management and include QMS requirements the objectives and documented output from the reviews
that are general for the manufacturing and service in- in terms of resource provision, improvement to the ef-
dustries. In 2000, the ISO 9000 series was revised with an fectiveness of the QMS, and improvement to the product.
increased focus on customer satisfaction. Based on basic It also mandates activities in competence, training, and
quality-management principles, ISO 9001 (4) provides awareness—the first two being familiar to all laboratorians
the criteria for a quality-management system. The eight and the third being a requirement that the staff members
quality-management principles are (5): are aware of the role they play in the achievement of qual-
ity objectives. There are further requirements for planning
• Leadership product realization, research and development, purchas-
• Customer focus ing, identification and traceability, control of measuring
• Process approach equipment (e.g., calibration activities), internal audits,
measurement of customer satisfaction, control of noncon-
• System approach to management
forming product, continual improvement, and corrective
• Involvement of people and preventive action.
• Factual approach to decision making The advantage of adopting ISO 9001 in the laboratory is
• Continual improvement the standard’s skeletal outline that can be easily developed
into a strong framework that fits the exact circumstances
• Mutually beneficial supplier relationship
under which it is to be deployed. However, the language
The standard requires that the organization appoints a used in ISO 9001 may be daunting to laboratorians. It is
member of management as a management representative, so generalized that it may have to be translated into more
who shall have the responsibility of ensuring that the QMS familiar terms in the QM; for example, one kind of non-
is established, implemented, and maintained and who shall conforming product is the failure of an assay to meet QC
report on the performance of the QMS to top management acceptability. The “control of nonconforming product” can
 CHAPTER 22. INTERNATIONAL ORGANIZATION FOR STANDARDIZATION 449

therefore be translated into the commonly understood ISO Certification Process

process of ensuring that no results are released from an
Although the ISO develops standards, it is not a certi-
assay that fails QC.
fying body (or registrar); rather, assessment and certi-
As medical laboratory leaders and professionals real-
fication to an ISO standard are performed by external
ized the advantage of applying systemic quality models to
certification bodies. An independent, U.S.-based cer-
the clinical laboratory environment, it became clear that
tifying body for clinical laboratories can be identified
the ISO 9001 standard required a great deal of reinter-
through the International Laboratory Accreditation Co-
pretation to be relevant. The ISO then set out to lever-
operation (ILAC) website (www.ilac.org, accessed April
age the ISO 9000 principles to develop ISO 15189, which
13, 2013). The ISO’s Committee on Conformity Assess-
outlines quality standards specific to medical laboratory
ment (CASCO) has developed and published standards
operations.
related to the certification process; the standards contain
assessment techniques, deemed good practices based on
an international consensus.
ISO 15189
Maintaining an ISO certificate is an iterative process,
First published in 2003, ISO 15189 (3) is based on ISO as demonstrated by requirements for annual surveillance
9001 and a standard known as ISO/IEC 17025. It is an and certification renewal every three years (Fig. 22.1).
international standard specifically developed for medical
laboratories, although it may be of relevance to such dis-
ciplines as clinical physiology and medical imaging. It is a
much longer document than ISO 9001, and the require- Figure 22.1 Skeletal representation of the ISO certification pro-
cess. doi:10.1128/9781555817282.ch22.f1
ments are very detailed; to the QMS requirements of ISO
9001 it adds the technical and competency factors that are
ISO Certification Process
relevant to laboratories. It is the standard for reimburse-
ment in some countries and in some ways is regarded as a
regulation, but in the United States it is a guidance docu-
ment and certification is voluntary. Application submission
Unlike the 9001 family, the standard begins with the re-
quirement that the laboratory shall be a part of an entity
legally responsible for its activities. There is a similar re-
quirement to ISO 9001’s management representative; the
laboratory shall appoint a quality manager, with similar
duties to a representative. However, the ultimate authority,
as under the Clinical Laboratory Improvement Amend- Assessments
(certifying body reviews submission
ments of 1988 (CLIA ’88), is the laboratory director. and performs initial assessment
The requirements for the QMS are similar to those of of Laboratory QMS)
ISO 9001—quality manual, quality policy, document con-
trol, management review, internal audit, and so forth. The
technical requirements are detailed and closely aligned
with U.S. regulatory language. For example, there are re-
quirements for the selection and evaluation of referral Certification Assessment
laboratories, periodic reviews of the laboratory’s examina- (certifying body assesses
tions to ensure that they are clinically appropriate, compe- Laboratory QMS)
tence assessment with wording following that of CLIA ’88,
request forms, proficiency testing, result report format,
and revised reports.
One area where ISO 15189 is considerably less de- Laboratory
tailed than ISO 9001 is in the verification and validation demonstrates
of examination procedures. ISO 9001 specifies exactly compliance?
how product development should occur and be docu-
mented. ISO 15189 requires only that it takes place and is
documented. The language is less detailed than CLIA ’88,
and if a laboratory is intending to bring up laboratory- Certifying body issues
developed tests, ISO 15189 alone would not supply an Certificate of Compliance
adequate framework.
450 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

ISO 15189 and the CAP requires extensive interpretation, while ISO 15189 is
As with ISO 9001, many companies can certify an organi- written specifically for a medical laboratory setting. The
zation as compliant with the ISO standard. Additionally, CAP continues to play a role in the development of the
in 2008, the College of American Pathologists (CAP) an- ISO 15189 standard and, since 2008, has been a certify-
nounced its own accreditation process based on ISO 15189 ing body for this standard. The certification process is
(15189:2007) and has since updated the program to ISO followed by ongoing maintenance of the QMS by the lab-
15189:2012. The CAP had input into the development of oratory, as well as surveillance audits performed by the
the ISO 15189 standard and continues to participate in the certifying body.
ISO TC 212 Committee. Under the Centers for Medicare
and Medicaid Services, the CAP is a body with deemed
status for medical testing and regards the standard as an KEY POINTS
adjunct to its mission of supporting excellence in pathol- ■ The ISO 9000 series is based on eight quality-management
ogy and laboratory medicine. The CAP Laboratory Ac- principles.
creditation Program (LAP) inspection process focuses
■ ISO 15189 provides a quality-management system frame-
on technical procedures, and the ISO 15189 certification
work specific for medical laboratories.
focuses on the quality management system. The ISO ac-
creditation is voluntary and does not replace the LAP, as
ISO does not fulfill U.S. federal regulatory requirements.
Once a laboratory has applied, the CAP assigns a lead REFERENCES
assessor to guide the laboratory through accreditation. A 1. College of American Pathologists. CAP 15189SM Quality Man-
gap analysis is performed, and once the laboratory is ready, agement Program. www.cap.org, accessed April 12, 2013.
the CAP performs an accreditation assessment. As with 2. Hoyle, D. 2006. ISO 9000 Quality Systems Handbook, p. 39–54,
ISO 9001, a successful accreditation is followed up with 6th ed. Routledge, New York, NY.
on-site surveillance audits (1). 3. ISO 15189. 2012. Medical laboratories: requirements for quality
and competence. http://www.iso15189.com/ http://www.iso.org/iso/
catalogue_detail.htm?csnumber=56115.
Summary 4. ISO 9001. 2008. Quality management systems: requirements.
ISO certification can be an attractive credential for a clini- http://www.iso.org/iso/qmp_2012.pdf.
cal laboratory. Although the ISO standards discussed here 5. Levett, J., and R. G. Burney. 2011. Using ISO 9001 in Healthcare,
each provide QMS framework, the ISO 9001 standard p. 75–84. ASQ Quality Press, Milwaukee, WI.
Introduction
Delivering the Message
23 Effective Communication
Communicating to Diverse Audiences in Laboratory Management
Means and Mechanics of Effective
Communication
Spoken Word • Written Word • Intradepartmental Elissa Passiment and Andrea J. Linscott
Communication • Interdepartmental
Communication • External Communication
Summary
KEY POINTS OBJECTIVES
GLOSSARY To describe the importance of effective communication to laboratory
REFERENCES management
To identify the recipients of laboratory communication
To discuss the means and methods of communication

The newest computer can merely compound, at speed, the oldest problem in the
relations between human beings, and in the end the communicator will be con-
fronted with the old problem, of what to say and how to say it.
Edward R. Murrow

I
n this era of information overload, effective communication is one
of the most important skills needed in pathology and clinical laboratories.
Laboratory services cannot be delivered effectively without a coordinated,
intricate system of communication. In many institutions, the laboratory is
viewed as a mystery or a black hole, as stated by one hospital administrator,
into which money, body fluids, and body parts go, but little comes out. A major
contribution to that perception of the laboratory is the necessary practice of
sending the laboratory’s output—patient test results—directly to the patient’s
chart or caregiver. However, the mystery of the laboratory is perpetuated by
the lack of an organized, systematic, flexible, and bidirectional exchange of
information, ideas, standards, and beliefs between the laboratory and its cus-
tomers, i.e., effective communication.
Communication can be defined a number of ways:
• The exchange of thoughts, messages, or information using speech, signals,
writing, or behavior (1)
• The art and technique of using words effectively to impart information or
ideas (1)
• A system, such as mail, telephone, television, or computer, for sending and
Clinical Laboratory Management, 2nd Edition receiving messages (1)
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC • The exchange or transmission of ideas, attitudes, or beliefs between indi-
doi:10.1128/9781555817282.ch23 viduals or groups (9)

451
452 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

The importance of communication has been discussed problem solving.” The same can be said for the training
and documented since formal management theories were of all health professionals. It is rare to find an interdisci-
first promulgated. Chester I. Barnard wrote in 1938 in plinary course on communication and problem solving in
Functions of the Executive that the first executive function any allied health school. The health professions that com-
is to develop and maintain a system of communication (2). monly interact with the patient and other members of the
Management textbooks throughout the decades have de- healthcare team often develop their communication skills
voted chapters to the need for effective communication. In on the job. But that opportunity does not always present
The Management of Organizations, Hicks (6) stated, “Or- itself to laboratorians.
ganizational interaction depends on communication.  .  .  . Communication and information flow or transfer
Communication is of prime concern to managers because throughout the healthcare setting are very complicated.
it makes cooperative action possible.” It was his belief that Information must be exchanged between internal depart-
as one moved up any management structure, more time ments, external departments, external vendors and regula-
had to be devoted to communication to succeed. Because tors, and the laboratory’s clients (customers). Any time the
he taught that “communication is a primary requirement of flow of information is improved, the efficiency of the labo-
decision making,” it was the only way to achieve any change ratory will be improved. For instance, if all of the ordering
in direction or activity of the company or institution. providers in your client base (hospital, system, network,
As management theory evolved, the importance of etc.) know what tests your laboratory offers, when they are
communication grew. Peters and Waterman, in In Search performed, and the expected turnaround time (TAT), the
of Excellence (10), state, “The nature and uses of commu- service center will field fewer phone calls about these as-
nication in excellent companies are remarkably different pects of the operation. The service center will be able to
from those of their nonexcellent peers. The excellent com- spend more time on the patients, specimens, and reports
panies are a vast network of informal, open communica- that are part of their function. If these providers also know
tions.” The results of constant communication include when and what tests to order, the laboratory’s resources,
getting the right people together and maintaining the con- staff, and materials will be more efficiently utilized. In the
tinuous transmission of ideas and information. Peters and past few years, laboratories have begun to emphasize and
Waterman (10) say, “The intensity of communications is provide specific and detailed guidelines on the use of labo-
unmistakable in the excellent companies.” If laboratories ratory services for their healthcare clients, many of which
are to provide excellent service, i.e., function as excellent can be found on the Internet.
companies for their clients, communication should still be It is the responsibility of laboratory management to en-
the first priority of everyone in laboratory management. sure that the information flow is bidirectional. The labo-
Communication within healthcare, or the lack thereof, ratory should not simply send out information, memos,
was a major focus of the Institute of Medicine’s (IOM) two policies, and procedures but should have a mechanism for
reports, To Err Is Human: Building a Safer Healthcare Sys- receiving information from its clients. Clients (healthcare
tem (7) and Crossing the Quality Chasm: A New Health Sys- providers) should be able to retrieve information from the
tem for the 21st Century (8). The reports discuss the lack laboratory easily. If the retrieval system is inadequate, these
of efficient flow of information within healthcare and the clients will not be happy and their patient care needs will
misconception in our health system that the need for pri- not be met. For inpatients, the needs include feedback on
vacy has been translated into secrecy and has severely com- the effects and efficacy of any medication and/or proce-
promised the necessary sharing of information. In this era dures. For the consumer, that translates to an affable, help-
of patient safety concerns, laboratory management must ful voice on the phone or a short TAT to an Internet inquiry.
strive to create an “excellent company” to provide the level
of care and information every individual hopes to receive.
Many of the concerns that surround laboratory ser- Delivering the Message
vices are directly attributable to a lack of communication.
Management should have a communication strategy—a
Communication does not come easily for laboratorians.
plan that is used whenever the laboratory has information
The traditional scientific personality types attracted to the
that it wants to disseminate (Table 23.1). This plan should
profession may be focused and introverted. Communi-
first identify the specific purposes for communication. The
cation skills are not routinely taught in the curricula for
purposes should include the education of all clients on:
physician and nonphysician laboratorians. In fact, com-
munication among members of the healthcare “team” is • The appropriate utilization of laboratory services (test
generally not taught at all. The IOM study (7) states, “Be- orders, frequency of test orders, specimen collection
cause medical training is typically isolated from the train- and transport, testing turnaround times, report for-
ing of other health professionals, people have not learned mats, additional report comments, reference ranges,
to work together to share authority and collaborate in consultation options, and test limitations)
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT 453

Table 23.1 Elements of a communication plan manager may not tell the hospital administrator about
Define objectives and purpose of the plan. federal rules and regulations in the same fashion used to
Use a concise message. inform the staff of each department. Indeed, the actual in-
Gear communication to education level of recipient. formation that the hospital administrator needs to know
Identify the structure and format of written communiqués. will be different from that required by the staff. It is incum-
Design a format and use it as a template for all written
bent on the laboratory manager to tailor the message to
communications.
each audience so that the message is understood.
List recipients of laboratory communication.
Identify all stakeholders who should receive communication Boyett and Boyett (3) implore managers to communi-
(medical staff, laboratory staff, administration, clients, computer cate, communicate, communicate, and communicate some
services, patients, etc.). more. There is really no such thing as too much commu-
Identify the method(s) of communication. nication. Clients will only perceive that there is too much
Written (memo, newsletter, email, specimen collection manual, communication if the information is superficial or not
etc.), verbal (phone call, intercom, etc.) or visual (banner, poster,
pertinent to their needs.
video, etc.)
Visitor encounters in many laboratories are treated
as trespassing or interruptions. They should be treated as
opportunities to exchange information with other health-
• The extent of services offered (test menu, test available care providers. The successful laboratories are often those
for STAT testing, and comprehensive test parameters) in which clinicians can be found looking through micro-
scopes in hematology, microbiology, and pathology and
• Regulations concerning the operation of the laboratory
consulting with the staff. These laboratories are highly val-
as well as any mandated communication (hours of op-
ued and perceived as very credible sources of important,
eration, performance of tests per shift, STAT reporting,
accurate information. Heller (5) wrote, “For successful op-
critical value reporting, and laboratory organization
erations, information must be totally visible.” Laboratories
chart)
that open their doors to their customers and become vis-
The plan should also contain the formal structure or ible will be successful and valued. However, these options
format of all written communiqués such as memos, news- will also depend on the physical location of the laboratory
letters, and flyers. Once a uniform look and feel of the writ- and its proximity to the medical staff.
ten word has been adopted, all communications from the Laboratories communicate to convey information
laboratory will convey an image and eventually establish about policies and procedures (including rules and regu-
an identity for the department. The plan should also in- lations that determine policies), results of tests ordered,
clude the elements of the strategy, i.e., recipients of the in- status of testing, and new technology and services that are
formation, the communication options that the laboratory being added or tests that are being discontinued. The job
will use, and the purpose of the communication. Commu- of all managers is to coordinate the human and physical
nication should be considered a way of marketing the lab- elements of an organization into an efficient and effec-
oratory and its services, and a well-constructed plan will tive working unit. Communication is of prime concern to
aid in that marketing by focusing the message. Whether managers because it makes cooperative action possible (6).
the information concerns a protocol; a new test; a change The higher one is in the organizational hierarchy, the more
in procedure; discontinuation of a test that is now obsolete, likely it is that communication becomes a key priority (6).
no longer has reagents being made, or for which there is
a better test; or a new service, the information should be
presented so that the laboratory’s expertise and its concern Means and Mechanics of
for its customers are obvious. Performed properly, effec- Effective Communication
tive communication can be a competitive advantage. Heller (5) wrote, “For effective communication, you must
be aware of the means and the channels .  .  . with which
to transmit and exchange information” (Table 23.2). The
Communicating to Diverse Audiences means of communication are fairly simple: the spoken
Laboratories should communicate with all of their cus- word, the written word, and visual images. The mechan-
tomers: physicians, nursing and allied health professionals, ics include written memoranda, emails, reports, notices,
patients, third-party payors, and paying customers. Each newsletters, flyers, telephone service, manuals, and for-
of these customers has very different needs and processes mal presentations, among others. These messages can be
information differently. As Hicks (6) states, “A person may delivered by direct mail, the Internet, fax, or video using
not communicate with his supervisor in the same manner the hardware of communication such as telephone sys-
that he does with a person of equal standing.” Adapting tems, computer information systems (and their interface
that statement to laboratories means that the laboratory with the institution’s information system), terminals, fax
454 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 23.2 Methods of communication engage caregivers in a discussion of the tests, the appropri-
Action Examples ateness of the tests, and the meaning of the results based
Verbal Telephone, intercom, face-to-face on their level of knowledge. Each level of staff should be
Written Memoranda, email, newsletter, flyer, manual trained in consultation techniques and when to refer the
Visual Videos, posters, presentation, personal provider to the next level of expertise. The traditional
digital assistants policy that no one other than the physician communicates
information to other physicians is no longer workable
given the increasing amount of information that needs to
machines, intercoms, headsets, and beepers. The trick is to be communicated. However, it is necessary that laboratory
match the mechanics to the message so that the message personnel continually receive updated information that is
is well received. For instance, many laboratories produce relevant and appropriate for their job level, thus expanding
a handbook that describes all of the tests they offer (test the laboratory’s consultative services.
menus), with information about the specimen require- It is the responsibility of the laboratory management
ments, expected TATs, indications for ordering, and ref- to provide continuing education opportunities, both in-
erence ranges. While this is an excellent communication house and through external meetings, to improve the ver-
device for anyone needing laboratory services, it isn’t al- bal skills and knowledge level of its personnel. It is not
ways used effectively. In many instances, the reason that appropriate to rely on self-study modules to improve ver-
this effort does not achieve the intended results is that the bal skills. While self-study continuing education can be
book is huge and imposing. The individuals needing the very efficient for the transfer of new scientific knowledge,
information in this book are the very people who do not it does nothing to enhance verbal skills because there is
have the time to read it. Many laboratories have minia- no verbalization going on. In this day of personnel short-
turized the book; the most successful have made it truly ages, it is difficult to free employees to attend meetings,
pocket-sized. The real key to communicating all of this in-house or externally. However, if one considers the pay-
information is determining what the ordering providers back when employees become adept at the spoken word
and nurses use as help aids (e.g., wall charts, the institu- and the laboratory’s image and usefulness are improved,
tion’s computers, personal digital assistants, the Inter- the sacrifices needed to send them to meetings will be
net, etc.) and employing that mechanism to transfer this worth it.
information.
Any type of communication can be misinterpreted or Written Word
contain errors. That is a risk that must be understood, but As Heller (4) states, “The written word is the basis of orga-
it should not impede the flow of information. The IOM’s nizational communication and . . . is relatively permanent
reports remind us that the majority of medical errors oc- and accessible.” Laboratory management should learn how
cur because of a lack of an open flow of information (7, 8). to design written communications to optimize readability.
The physical design of the piece should be easy to read,
Spoken Word with standard fonts and font sizes. The page should not
While we may not realize it, communication via the spoken be crowded—the reader will be overwhelmed with the
word occurs daily in our laboratories—every time some- amount of information and either will not read it or will
one answers the phone. This is the most direct means of only skim it, potentially missing important information.
communication, but it can be the most damaging if words While clip art has expanded our ability to become artistic,
are not chosen carefully and if tone is not modulated. In resist the urge to use it when communicating with most cli-
our society of instant information, it is necessary to edu- ents unless the visual image will really convey the message.
cate laboratorians in the use of the spoken word. Much can
be accomplished with a telephone exchange or the clini- Intradepartmental Communication
cian-laboratorian encounter in the laboratory if the words Laboratory managers must encourage a routine exchange
are carefully chosen, if body language and facial expres- of thoughts and messages between the laboratory depart-
sions are positive, and if we state our knowledge clearly ments, management and staff, and different shifts. The
without a great deal of laboratory shorthand that may be laboratory’s organizational structure is based on the disci-
misunderstood by other members of the healthcare team. plines of pathology and laboratory science, which may not
Scripting can be used to deliver a concise message when always be conducive to an open flow of information. Many
information or questions are routinely asked, for example, laboratories use established intranets—communication
questions asked to verify a patient’s name and medical rec- superhighways for internal information exchange.
ord number or when relaying information about testing Without good internal communication, the potential
delays. Staff and management should be encouraged to for error increases. It is common for one department or
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT 455

shift to be unaware of new announcements concerning Table 23.3 Elements of a formal proposal to change laboratory
testing or schedules that were disseminated to the labora- services
tory’s customers. Laboratory managers may mistakenly as- Identify the benefits to the organization.
sume that because the testing will not occur on that shift Better patient care (e.g., quicker TAT, better test sensitivity, lower
limits of detection)
or in that department, for instance, that all personnel don’t
Better patient safety (e.g., less toxic ingredients in specimen collec-
need to know about the changes. Because your customers tion devices, needles with shield guards to prevent needle sticks)
(e.g., nurses, physicians, outpatients) read memos at any Lean (e.g., less technologist time, better throughput)
time of the day and night, you cannot predict when or to
Identify project-required resources, costs, and revenues.
whom a query will be addressed. Written intradepartmen- Cost saving may also include less technologist hands-on time.
tal communication is very effective because there is docu- Specify the responsible individual.
mentation that it occurred and it can reach every shift and Identify owner of the project who is responsible for making sure
all staff, whether they were present on the day it was issued that all stakeholders (medical staff, laboratory staff, administration,
or not. However, communication should not be exclusively clients, information service, and/or patients) are notified.
in the written form. Meetings, informal chats, and im- Communicate project completion timelines for implementation of
the service.
promptu announcements allow the staff to ask questions
Communicate any delays in the timeline to the appropriate
and exchange ideas immediately. This active communica- stakeholder.
tion can improve staff morale, as personnel know that they Describe the final outcome.
are being heard. Put procedures in place for periodic review and revision, if necessary.

Interdepartmental Communication
The flow of communication beyond the laboratory in-
cludes that between the laboratory and the institution’s
administration (whether it is the vice president of clini- External Communication
cal services or the office manager in a physician’s office) Entities external to the organization include insurance
and its clients (e.g., patients, physicians, and nonphysician companies, the federal government, accrediting agencies,
caregivers). Written interdepartmental communication competitors, and others. There are myriad regulations that
tends to be more formal than intradepartmental and needs affect a laboratory’s operation, such as a license to operate
to be carefully structured. and personnel policies. The federal government requires
Memos, letters, and notices are adequate forms of that every laboratory performing tests for diagnostic pur-
communication for most announcements and responses poses be certified by the Centers for Medicare and Medic-
to inquiries from other departments of the institution. aid Services under the Clinical Laboratory Improvement
However, when laboratory management wants to start a Amendments of 1988. Laboratory managers must con-
new service, change protocols, discontinue a test, acquire tinuously remain current with these federal rules and
instrumentation, or reorganize any part of the business, regulations and must communicate any changes to their
they should communicate through formal proposals superiors. The changing rules for Medicare reimburse-
(Table 23.3). Structuring a request this way ensures that ment also require monitoring and reporting up the chain
you will address all of the questions that the reader may of management. In addition, clinical laboratories are re-
have. Before you write the proposal, you need to fully un- quired by the Centers for Medicare and Medicaid Services
derstand the missions and strategies of your institution. to have a compliance plan (Health Insurance Portability
Your proposal should always point out how it will fulfill or and Accountability Act) that helps employees avoid actions
complement the missions and strategies of the organiza- that might be construed as fraud and abuse. The Office of
tion, particularly related to patient care. The components the Inspector General has outlined what that compliance
of a proposal, or a business plan, should (i) explain why plan should look like. The human resources department in
the change or plan is needed and how it will contribute most institutions dictates personnel policies that must be
to the strategies of the overall institution/business (e.g., followed in the laboratory.
economic benefits, objectives); (ii) estimate the resources The manner in which individuals communicate de-
required, the cost of the program, revenues from the plan, pends upon the formal organizational structure. In an
and the timeline for completion, and identify the individ- organization that is rigidly structured, individuals will act
ual responsible for completion of the proposal; (iii) pro- and interact differently than in an organization that is very
duce an outline of a plan of action; and (iv) describe what informal. The organizational chart will define how and
success will look like. If you cannot verbalize or quantify with whom a manager will communicate; however, actual
outcomes, the project will not be noticed and probably communication channels do not always strictly adhere to
will not be approved. the organizational chart.
456 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

The most important activity that laboratory managers KEY POINTS

should undertake is to get out of the office and out of the ■ Effective communication, whether internal or external
laboratory. Managers should volunteer to serve on hospi- to the organization, is critical to the management of the
tal committees and should encourage their staff to do so laboratory.
as appropriate. “Management by walking about” (MBWA)
■ Communication must be tailored to the understanding
contributes to informal communication. As a manager
and needs of its audience.
from Hewlett Packard (identified as an excellent com-
pany) stated, “We just plain talk to each other a lot with- ■ Communication occurs by the written word, the spo-

out a lot of paper or formal rigmarole” (10). The lesson ken word, and visual images.
from all successful companies is that management must be
visible. Sitting in the laboratory, monitoring TATs, qual-
GLOSSARY
ity assurance, compliance, and billing, while essential to
keeping the laboratory functioning, will not achieve the Communication Exchange of thoughts, messages, or informa-
tion (through speech, signals, writing, or behavior); art and tech-
goals of a good communication system. Laboratory man-
nique of using words effectively to impart information or ideas;
agers should practice MBWA, not just in the laboratory system, such as mail, telephone, or television, for sending and
but also in the institution of which the laboratory is a part. receiving messages; exchange or transmission of ideas, attitudes,
The informal communication that occurs will be of im- or beliefs between individuals or groups.
measurable benefit to the laboratory as a whole. As nurses,
External communication Occurs with entities outside of the or-
physicians, patients, patients’ families, and the institution’s
ganization (e.g., insurance companies, regulatory agencies, ac-
management begin to recognize the laboratory manage- creditation organizations).
ment, additional impromptu communication will occur.
Managers should visit the nursing units (or any depart- Hierarchy A group of individuals organized or classified ac-
ments in which patients/customers are using the labora- cording to rank or authority.
tory’s services) on a routine, predictable basis. The agenda Interdepartmental communication Occurs between the labo-
of these visits should include but not be limited to check- ratory and other organizational departments, clients, and health-
ing on the phlebotomy service, satisfaction with TATs, and care providers. Tends to be structured and formal.
the interpretation of laboratory reports. Intradepartmental communication Occurs within the labora-
As care providers come to know that the laboratory is tory between management, sections or divisions, and work shifts.
interested in its performance, the department will be in- Tends to be informal.
creasingly perceived as a member of the team. Some hos-
Management by walking about (MBWA) A process that pro-
pital laboratories have assigned personnel to a nursing unit motes informal communication between managers and
or department so that there is a recognizable liaison with employees.
whom caregivers can readily communicate.
The laboratory should survey its clients periodically to Quality assurance A systematic approach to continuously ana-
determine how they get the majority of their information lyzing, improving, and reexamining the total testing process.
and what information they routinely need. The survey re- Turnaround time (TAT) The interval between the beginning of
sults will also tell management whether the services the one event and the end of another event in the total testing process.
laboratory is providing are pertinent and can be used to
identify future services. All avenues for communication
with people who interact with the laboratory should be ex- REFERENCES
plored and used to improve laboratory services. 1. American Heritage Dictionary of the English Language, 4th ed.
2000. Houghton Mifflin Company, Boston, MA.
2. Barnard, C. I. 1938. Functions of the Executive. Harvard Univer-
Summary sity Press, Cambridge, MA.
Communication is the exchange of ideas, attitudes, and in- 3. Boyett, J., and J. Boyett. 1998. The Guru Guide: The Best Ideas
formation through the spoken word, written word, and of the Top Management Thinkers. John Wiley & Sons, Inc., New
visual images. Communication should be targeted to a spe- York, NY.
cific audience and understood by that audience and can be 4. Heller, R.  1998. Communicate Clearly, 1st ed. DK Publishing,
delivered by myriad methods (e.g., telephone, fax, news- Inc., New York, NY.
letters, manuals, Internet, videos, etc.). Effective commu- 5. Heller, R. 2002. Manager’s Handbook: Everything You Need to
nication is a critical skill that laboratorians need to ensure Know about How Business and Management Work. DK Publishing,
effective delivery of laboratory services. It must be bidi- Inc., New York, NY.
rectional between the laboratory and its customers, clients, 6. Hicks, H. 1967. The Management of Organizations. McGraw-Hill
and members of the organization’s hierarchy. Book Company, New York, NY.
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT 457

7. Institute of Medicine. 2000. To Err Is Human: Building a Safer 9. On-line Medical Dictionary. 1997. Academic Medical Publish-
Healthcare System. National Academy Press, Washington, DC. ing & CancerWEB, Lexico Publishing Group, Los Angeles, CA.
http://www.iom.edu/, accessed September 28, 2012. 10. Peters, T. J., and R. H. Waterman, Jr. 1982. In Search of Excel-
8. Institute of Medicine. 2001. Crossing the Quality Chasm: A New lence: Lessons from America’s Best-Run Companies. Harper & Row
Health System for the 21st Century. National Academy Press, Wash- Publishers, New York, NY.
ington, DC. http://www.nap.edu/books/0309072808/html/, accessed
September 28, 2012.
Introduction
24
The Microbiology Laboratory in the 21st
The Laboratory Information
Century
A Primer on Information System
System: Making the Most
Terminology and Architecture
A Primer on the LIS of It in the Clinical
LIS Interfaces
Admission/Discharge/Transfer (ADT) Interface •
Order-Entry Interface • Results-Entry Interface •
Microbiology Laboratory
Instrument Interface • Billing Interface • Reference
Laboratory Interface • Peripheral Hardware Joseph M. Campos
Laboratory Informatics
Laboratory Data Repository • Data-Mining Tools •
Connectivity
OBJECTIVES
Miscellaneous Applications
Preparation of a Periodic Antibiogram • Electronic To review the principles of laboratory informatics
Surveillance for Clusters of Hospital-Associated To review the architecture of information systems
Infections • Unique Device Identifiers
To identify methods to enhance the cost-effectiveness and accuracy of
Summary
microbiological data through informatics
KEY POINTS
GLOSSARY
REFERENCES What I am going to tell you about is what we teach our physics students in the
third or fourth year of graduate school. . . . It is my task to convince you not to
turn away because you don’t understand it. You see my physics students don’t
understand it. . . . That is because I don’t understand it. Nobody does.
Richard P. Feynman, The Strange Theory of Light and Matter

Y
ears from now, the 1980s, the 1990s, and the first decades of the 21st
century will be recalled as the dawn of a new era for diagnosis and man-
agement of infectious diseases. That is because the clinical microbiol-
ogy laboratory is in the midst of a period of historic change as its utilization of
diagnostic tools changes in a remarkable fashion. This laboratory discipline is
evolving before our very eyes in a manner that is affecting the management of
testing and the flow of information into and away from the laboratory.
The first decades of the 21st century will also be remembered for major
changes to the healthcare landscape that impacted hospitals in an enormous
way. A highly significant event was the passage of the Patient Protection
and Affordable Care Act, which was signed into law by President Obama on
March 23, 2010. Among its many provisions is language defining the steps
that physician groups, hospitals, and other providers must take to form ac-
countable care organizations (ACOs). ACOs are the centerpiece of a health-
care delivery model in which the levels of reimbursement to providers are
dependent upon them meeting quality standards while reducing the cost of
healthcare (22). Among other requirements, physicians within an ACO must
have an electronic health record (EHR) system available that can maintain dis-
ease registries and population-based care records and can provide advanced
Clinical Laboratory Management, 2nd Edition
reporting capabilities to confirm that the expectations of an ACO are being
Edited by L. S. Garcia met. Populating the ACO EHR with the laboratory data that are required is a
©2014 ASM Press, Washington, DC connectivity challenge that must be met by the laboratory and collaborating
doi:10.1128/9781555817282.ch24 information technology personnel.

458
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 459

Another piece of recent legislation affecting healthcare connectivity with a robust laboratory information system
information technology is the Health Information Tech- (LIS) that is able to assist microbiology technologists serv-
nology for Economic and Clinical Health (HITECH) Act, ing at the helm of the laboratory operation.
which was enacted under Title XIII of the American Re- Another transformation affecting the workflow and
covery and Reinvestment Act of 2009. The HITECH Act information management in microbiology laboratories
grants authority to the Department of Health and Human is the shift from diagnostic testing based on culture,
Services to implement programs that improve healthcare antigen detection, antibody detection, and microscopy
quality, safety, and efficiency via improvements in health to a greater dependence upon molecular technologies.
information technology, including the use of EHRs. Un- Reporting the results of single-target molecular assays,
der the HITECH Act, healthcare organizations can qualify whether qualitative or quantitative, does not pose much
for Medicare and Medicaid incentive payments when they of a challenge to a modern LIS. However, multiplex assays
adopt certified EHR technology and use it to achieve a in which 10, 20, 30, or more targets are sought simultane-
group of “meaningful use” goals (12). The EHR stimulus ously introduce complexities that today’s systems are not
money becomes available to organizations that can docu- prepared to handle. Even more daunting are microarray
ment that their EHRs are being used in a meaningful fash- assays where thousands, tens of thousands, or even hun-
ion, e.g., e-prescribing medications, ordering laboratory dreds of thousands of targets may be in play. Assays in-
tests electronically, exchanging health information with volving the sequencing of genes, multiple genes, or entire
other information systems to improve the overall qual- genomes are equally difficult for current systems to man-
ity of health care, and demonstrating the benefits that the age. LIS vendors are finding themselves playing catch-up
EHR is contributing to patients under their care. to keep pace with the influx of molecular technology into
the clinical laboratory as a whole and the microbiology
laboratory in particular.
The Microbiology Laboratory The responsibilities of the microbiology laboratory
in the 21st Century leadership team are becoming more informatics-centric
Returning to the microbiology laboratory itself, there are as well. Along with ensuring that the laboratory is em-
other momentous changes underway. A growing number ploying the most appropriate test methodologies, is pro-
of laboratories are being affected by a trend that started ducing clinically relevant test results, is passing biannual
near the end of the 20th century—forwarding microbiology accreditation surveys, and is scoring well on proficiency
work from individual hospitals to full-service central labo- tests, they must be assured that the LIS is receiving test or-
ratories. From a financial perspective it makes perfect sense ders and disseminating test results reliably. As in the rest
to capitalize on the economies of scale such an arrangement of the laboratory, it is clear that the preanalytical and post-
offers (5). However, taking this step introduces complica- analytical phases of microbiology testing are much more
tions that must be resolved from the standpoint of infor- prone to clinically significant errors than is the analytical
mation access. When this model is employed, maintaining phase (23). Yet the preanalytical and postanalytical phases
steadfast communication between the peripheral hospitals of testing receive much less attention than the analytical
and the central laboratory presents difficulties that require phase during test development and validation.
informatics expertise and close attention to detail. In the preanalytical phase, correct ordering of appropri-
Whether microbiology testing is being referred to a ate tests is greatly dependent upon information supplied
central laboratory or is being performed in the hospital it- by the laboratory (20). Clearly differentiating tests that
self, the complete automation of workflow from receipt of detect antigens versus antibodies, recognize IgG versus
specimens to the issuance of final test results is no longer IgM antibodies, and provide qualitative versus quantita-
just a fanciful notion (8). Platforms that enable hands-free tive molecular results is the duty of the laboratory. That
inoculation of cultures and preparations of smears already kind of information is provided most effectively in an on-
exist. “Smart incubators” that depend on digital photog- line format that can be viewed anytime of the day or night
raphy and computerized image analysis to monitor the (14). In addition, there should always be a knowledgeable
growth of cultures have left the drawing board and actu- individual on call who can answer questions not addressed
ally exist today in prototype format. It is now conceivable by the online information.
that a microbiology technologist will be able to examine Postanalytically, physician understanding of the clini-
cultures and designate colonies for further work-up from cal significance of test results can be aided by the labora-
a remote location—even while telecommuting from home! tory supplying interpretive comments. They can be in the
The availability of automated specimen-handling tracks, form of composed text comments that the LIS automati-
comparable to what is already available in core chemistry cally appends to test results, or they can be ad hoc free text
and hematology laboratories, is also just around the cor- statements created on-the-spot for a particular patient. In
ner. All of this automation will be greatly dependent upon addition to explaining the implication of test results, they
460 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

can suggest follow-up tests that may be ordered to better patient care records (the EHR), scheduling patient visits,
understand a patient’s medical situation. billing for services rendered (financial information sys-
Most microbiology laboratories today depend on the tem), enabling decision support analyses, coordinating
LIS for much more than ordering and resulting laboratory physician practice management, administering materials
tests (2, 4). The LIS can be used to manage the quality con- management, operating pharmacy services (pharmacy
trol and quality assurance activities of the laboratory and information system), and overseeing diagnostic imaging
monitor the inventory of laboratory supplies, among other services (radiology information system).
things (11). The remainder of this chapter will review in- Most hospitals and healthcare information technology
formation system architecture and the principles of labora- vendors have adopted the Health Level 7 (HL-7) data ex-
tory informatics. The manner in which the LIS can serve change standard to support communication of informa-
to enhance the cost-effectiveness and accuracy of microbi- tion between information systems. The HL-7 standard is
ology testing will also be discussed. composed of a set of rules that dictates how healthcare
clinical and administrative data can be shared in a uniform,
consistent manner. Its specifications identify the appropri-
A Primer on Information System ate location and sequence of data elements (“segments”) in
Terminology and Architecture messages between healthcare information systems.
Lack of understanding of terminology is a major source It is common for hospitals to install an interface en-
of intimidation for any field of technology. Computer ter- gine at the hub of the information system architecture to
minology may be incomprehensible to microbiologists, manage the flow of data between disparate information
just as microbiology terminology may be unintelligible to systems. The interface engine is analogous to a traffic cop
information system personnel. Simple definitions of com- who oversees the orderly passage of vehicles through a
puter components and terminology can be found in the busy intersection. A properly functioning interface en-
glossary at the end of the chapter. It is advisable that all gine grants hospitals the freedom and flexibility to select
personnel working in the microbiology laboratory have a HL-7-compatible information systems of their choice
fundamental understanding of information system termi- from a variety of vendors and link them together to pro-
nology and architecture. vide system-wide communication.
A healthcare enterprise information system provides Each information system in the hospital environment
a computerized platform that facilitates the management is installed on at least one server that houses the operating
of a hospital’s clinical, financial, and quality improvement system and application software. An ideally designed ar-
activities. The information system may consist of a patch- chitecture includes redundant servers housed in physically
work of “best of breed” products that are interfaced to each separate locations to provide effective disaster recovery
other to meet the needs of the facility. Then again, the hos- and efficient use of server resources. Locating redundant
pital may employ a software suite from a single vendor in servers several miles apart minimizes the likelihood that
which component applications work together in an inte- all will be affected during the same disastrous event. The
grated fashion. detrimental impact of heavy concurrent user activity on
The cornerstone of either design is the patient-centered system resources can be lessened by distributing users
hospital information system (HIS) (13). The HIS is the across redundant servers (load balancing). Redundant
home of the master patient index (MPI), which is a listing servers are also an important safeguard during system
of current and past patients receiving medical care from downtime. When a primary server is not available during
the hospital. It is also the storage site for all of the patient- scheduled or unscheduled downtime, user sessions logged
related information gathered before, during, or after each onto that server can be moved quickly to a different server
episode of care, including the patient demographic data. and remain productive.
It is the location of the official record that feeds patient One other point regarding information system archi-
information to all of the other information systems in tecture deserves emphasis. There must be a mechanism
the enterprise. available for scheduling regular system backup. Informa-
Because of its critical role, the MPI should be strongly tion contained on each server should be copied to quickly
protected. Additions, deletions, modifications, and merges accessible storage media on at least a daily basis. One copy
of patient records in the MPI should be tightly controlled of the backed-up system and database files should be
and under continuous surveillance. The integrity of the MPI stored in a location that is remote from the server location.
should be verified on a regular basis. User access to MPI ed- Should a disaster occur at the location where an informa-
iting functions should be restricted to authorized individu- tion system server is located, the stored information and
als who are thoroughly trained and assessed as competent. application software within that server can be activated or
Other information systems are also present in the hos- loaded onto a replacement server using the system backup
pital setting. Examples include systems for warehousing media as the source.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 461

A Primer on the LIS depending upon the workload and the urgency with which
Because the data management needs of microbiology labo- test results are needed. The “laboratory cloud,” in this ex-
ratories are advancing right along with the newer technol- ample, is able to adjust available resources rapidly to meet
ogies being used, the features of the ideal LIS vary widely fluctuating and unpredictable demand. Similarly, cloud
from laboratory to laboratory. Thus, it is not possible to computing permits a group of linked servers to assign the
come up with a standard list of LIS specifications that will requisite processing power to a task for the time period
meet the demands of all microbiology laboratories. required to complete the task.
The rationale for building the first LIS was to man-
age the billing for testing performed by laboratories (27).
Once that was accomplished, they have become ever more LIS Interfaces
sophisticated and feature-rich in response to competitive Transactions that are communicated between information
forces in the marketplace. systems are conveyed by one of several interfaces. Each of
An LIS consists of one or more servers that provide the the interfaces includes generation of an error log that must
array of services described in the sections that follow. Not be monitored continuously by information technology
surprisingly, the information entered into, stored within, personnel. Many of the messages recorded in the error log
and reported from the LIS is directly or indirectly related are informational and of little consequence. However, the
to laboratory testing. The LIS counterpart to the HIS MPI most critical of errors are found also in the same log, and
is a dynamic database usually referred to as the patient lab- it is those errors that must be recognized and that warrant
oratory file (PLF). Within the PLF resides all of the patient immediate resolution.
demographic information sent to the LIS via the admis- Typically encountered interfaces between the LIS and
sions/discharges/transfers (ADT) interface from the MPI, other information systems include the ones described below.
as well as complete information about laboratory tests that
have been ordered and the results of those tests. Admission/Discharge/Transfer (ADT) Interface
Users generally have access to the LIS via “thick client” The LIS depends on the MPI for the most current informa-
or “thin client” workstations. Thick client workstations are tion regarding individual patient admissions, discharges,
usually personal computers capable of running a wide va- and transfers. Usually, the creation of new MPI records or
riety of software applications in addition to the LIS (e.g., changes to existing records are sent to the LIS instanta-
email, word-processing, spreadsheet, and presentation neously via an ADT interface. Such an interface obviates
software). Application software resides on both the user the need for manual entry of patient demographics in the
workstations and the LIS servers. While such worksta- LIS and guarantees that the information within the LIS is
tions have extreme functionality, they have consequential up-to-the-minute.
disadvantages. They are more expensive. The presence of
unrelated software that is incompatible with LIS function- Order-Entry Interface
ality can prevent the workstation from behaving properly. Direct entry of laboratory orders into EHRs by caregivers
Information technology support of a group of dissimilar and other patient care personnel is the norm in hospitals
workstations is a major headache when problems need to today. Although it can be argued that the placement of
be solved or LIS upgrades are ready for installation. Ac- orders by patient care personnel requires time that might
cordingly, many laboratories have migrated away from the be better spent seeing additional patients, this practice is
thick client environment. a central component of the universal strategy to eliminate
Thin client workstations are personal computers that medical errors.
are minimally equipped and often limited to running ap- The ordering of laboratory tests that takes place in the
plications that are loaded on network servers. They are EHR should be simplified by logically organized, online
usually web-enabled and thus can access applications test menus that offer easy access to information concern-
via secure connections over the Internet. They are inex- ing testing (e.g., specimen requirements, turnaround time
pensive, as workstations go. LIS upgrades do not require for test results, and the costs of testing). Verifying that the
support personnel to have hands-on contact with all work- content and organization of the microbiology ordering
stations, as changes to the LIS need be made only on the screens in the EHR are easily navigated and understand-
network servers. able is a task best handled by a laboratorian.
The relatively recent popularity of “cloud computing” Once laboratory test orders are entered in the EHR,
can be adapted to a thin client environment. Cloud com- they are sent electronically to the LIS via an order-entry
puting is analogous to having a laboratory staff of 100 full- interface. Specimen container labels, usually bar-coded,
time equivalents (FTEs) who have been cross-trained to are generated either by the EHR or by the LIS and applied
perform all laboratory testing. The number of those FTEs to the containers in the presence of the patient. Specimens
allocated to a particular activity can be flexed up or down are transported to the laboratory, where they are received
462 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

into the LIS, and then testing is initiated. If a specimen is in the EHR immediately after they are filed in the LIS. Test
not received into the LIS within a user-defined timeframe result reports may be printed on paper or delivered elec-
(e.g., 72 hours) and an acknowledgment of receipt is not tronically to patient care personnel by fax, email, alphanu-
sent back to the EHR, at most hospitals the EHR will can- meric pager, or video monitor display on remote personal
cel the test automatically. computers, tablets, or smart phones. Interpretive com-
Medicare, Medicaid, and third-party payors now re- ments can be attached to reports by the laboratory to assist
quire that the current procedural terminology (CPT) 4 clinicians in understanding their significance and learning
code(s) for laboratory tests being ordered on outpatients which additional tests should be considered for ordering.
be accompanied by an International Classification of Dis- Efforts are under way to develop a standard “plug and
ease (ICD) 9 (soon to be ICD10) ordering diagnosis code play” interface that would enable connectivity between
that justifies the medical necessity of the test. This require- LIS/HIS and EHR software (25). That is because the fi-
ment is intended to discourage indiscriminate ordering of nancial incentive for practicing physicians to implement
laboratory tests as part of a “shotgun” approach to working EHR software has increased profoundly under the tenets
up a particular patient. Many outpatient order-entry infor- of the HITECH Act. Such software includes laboratory test
mation systems today offer an optional medical necessity order-entry capability complete with medical necessity
checking module that automatically alerts the ordering checking and test results viewing capability in the context
clinician when there is not an appropriate match between of a patient’s electronic health record. More than 300 dif-
the CPT4 and ICD9 codes. Inclusion of this module in ferent EHR systems are on the market now in the United
the outpatient order-entry information system is strongly States alone, all competing for this lucrative business.
recommended. Developers of these systems are not always familiar
EHR ordering systems often include rules engines or with the requirements mandated by the Clinical Labora-
“expert systems” that can assist clinicians in selecting the tory Improvement Act of 1988 (CLIA ’88) for the display
correct test, can identify tests that require consultation of laboratory test results. Therefore, it is obligatory that the
with “gate keepers” before ordering is permitted, and can responsibility for ensuring the display of laboratory data
check automatically for redundant test orders. The recog- by EHR software meets CLIA ’88 standards is assigned to
nition of medically unnecessary or redundant tests can individuals who are competent to make that judgment. For
be displayed in real time on the ordering clinician’s work- infectious disease testing, generally an individual with mi-
station. If that capability does not exist in the ordering crobiology expertise should be given this responsibility.
system, such tests can also be identified by the LIS after
orders have come across the order-entry interface. These Instrument Interface
essential features are most effective when the information Connectivity between high-volume test instruments and
is presented to an ordering clinician rather than after the the LIS is critically important for eliminating tedious,
fact to a laboratory employee. resource-intensive, manual entry of information into the
instrument data management system and into the LIS.
Results-Entry Interface Manual transcription of this information is also a major
The same EHR application used for placing laboratory test source of preanalytical and postanalytical errors, leading
orders is often tapped by patient care personnel for viewing to avoidable harm in patients.
test results. Thus, installation of an order-entry interface The current standards for communication between
generally is accompanied by installation of a results-entry laboratory instruments and the LIS were promulgated by
interface. The microbiology laboratory should play a cen- the American Society for Testing and Materials (ASTM)
tral role in testing and validating the functionality of the in the 1980s. The primary goal at that time was to define
results-entry interface to ensure that its test results display standards usable for the current day yet permit them to
in an accurate, unambiguous, and clinically advantageous be adaptable to new technology as it was developed in the
way. This is especially true for the presentation of antimi- future. Such flexibility actually contributed to the ASTM
crobial susceptibility results, which should be laid out in standards becoming so broadly defined that customized
an arrangement that clearly distinguishes susceptible from software code known as “drivers” has had to be created for
resistant results. Consideration should be given to display- each laboratory instrument to make it possible for the in-
ing cascaded results, meaning that the agents showing sus- struments and the LIS to understand each other.
ceptible results are limited to those that are safer and less If standardized connectivity protocols were accepted by
costly for the patient. instrument manufacturers and LIS vendors, plug and play
Along with test results, the LIS can supply information instrument interfaces could become a reality. The current
to the EHR that improves the utilization of laboratory ser- lack of standardization, however, leads to expenditure of
vices and assists in the “back-office” management of test- much time and money by laboratory users and vendors alike,
ing. Preliminary and final test results should be viewable trying to establish reliable channels of data communication.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 463

To put this problem into a present-day context, the pur- and the information systems at each reference laboratory
chaser of a music player, a portable tablet, or a notebook are attractive to both the originating and reference labora-
expects to be able to plug the device into a personal com- tories because they automate what is ordinarily a resource-
puter or connect to a wireless network to access content intensive process and they minimize the occurrence of
immediately that can be downloaded to the device. Imag- errors during test ordering and results entry into the LIS.
ine how sales would plummet if it became necessary to de-
velop, validate, and implement costly interfaces between Peripheral Hardware
these devices, computers, and wireless networks before be- Peripheral hardware connected to the LIS server(s) either
ing able to enjoy use of the devices. directly or through a personal computer (PC) workstation
There is promising news on the horizon. A group known may include:
as the IVD Industry Connectivity Consortium is hard at
• Data entry devices (e.g., keyboards, light pens, touch
work defining a new uniform connectivity standard that
screens, barcode wands, scanners, terminal-emulation
should enable laboratories to benefit from the same plug
devices, and digital cameras).
and play ease of use with which home consumers are ac-
customed with their electronic devices. The timing of this • Printers for preparation of specimen identification la-
effort is favorable for microbiology laboratories as they bels, worksheets, and reports.
add newer molecular diagnostics platforms to their testing • Laboratory instruments to permit batch or real-time
armamentarium. transfer of patient demographic data and test results.
Instrument connections are mediated by interface
Billing Interface software. These interfaces permit the LIS server and
From a dollars-and-cents perspective, the billing interface the attached instruments to communicate in much the
between the LIS and the hospital financial system is crucial same way that an interpreter enables people who speak
(29). Laboratory test charges are sent either individually as different languages to understand one another. Instru-
they are incurred or, more typically, in a daily batch across ment interfaces may be unidirectional (instrument to
this interface. The hospital’s financial leadership must de- server or server to instrument) or bidirectional (server
cide whether charges should be levied upon test ordering to instrument to server).
or upon specimen receipt by the laboratory. Selecting the • Middleware, in the laboratory context, is software that
former choice inevitably means crediting a large number of is usually loaded on a high-storage-capacity server that
charges for tests that are ordered without specimens being enables multiple instruments and other peripheral de-
received by the laboratory. The latter option risks delays in vices to feed information to a data repository so that it
billing that encourage some payors to deny reimbursement can be aggregated and displayed in a manner defined
if too much time has elapsed since the date/time of service. by and made valuable to the user (9). An especially
Automatic billing for laboratory services often is trig- helpful use of middleware makes possible the display
gered by the transmission of billing transactions across of real-time data-derived dashboards that furnish
the interface between the LIS and the financial informa- practical workload and quality indicator information
tion system. Complex financial algorithms dictated by at a glance.
contracts with third-party payors, accountable-care orga-
nizations, and managed-care providers can be processed
by LIS tools included in some systems but probably are Laboratory Informatics
better left for handling by financial information system The specialty of laboratory informatics was originated to
software. An important requirement that must be met better manage the expanding quantity of laboratory data
with respect to laboratory billing is that the test charges and the growing complexity of the LIS (3, 26). Laboratory
are precise, complete, and convertible into a format dic- informatics is defined simply as the application of infor-
tated by the payors—or denial of reimbursement becomes mation technology to optimize laboratory operations.
a likely outcome. Just about every hospital microbiologist interacts with
one external information system, and many deal with
Reference Laboratory Interface several such systems on a daily basis. Despite this circum-
Virtually all hospital laboratories send specimens to refer- stance, most microbiologists understand the complexities
ence laboratories for esoteric testing that is not performed of antimicrobial susceptibility testing or molecular diag-
on-site. The results of send-out tests often are complicated nostics better than they do information technology. That
and accompanied by large blocks of interpretive text. Man- is because most microbiologists lack training in labora-
ual transcription of results into the LIS by clerical employ- tory informatics and consider the LIS to be a “black box”
ees who are frequently unfamiliar with testing terminology that keeps them happy when it does what is expected and
can be fraught with mistakes. Interfaces between the LIS makes them miserable when it doesn’t. They are driven to
464 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

understand the intricacies of microbiology and decide to laboratory informatics specialist is first and foremost a
leave the mysteries of information technology to others. It laboratory professional who understands the principles,
needn’t be that way. requirements, and flow of laboratory testing. He or she
Much of the data residing in the LIS is of little inter- also possesses the knowledge, know-how, and inner drive
est to clinical microbiologists. Buried within the patient to leverage his or her skills effectively to unearth data that
laboratory file (PLF), however, are all of the records of lead to beneficial changes both internally and externally to
microbiology test orders and results. Data elements of in- the laboratory. Informatics specialists should have at their
terest that are stored within these records can be extracted disposal a standard set of hardware and software tools, in-
and exported to personal computer spreadsheets and re- cluding the following.
lational tables during queries of the LIS. Results of these
queries can be displayed on computer workstations or in Laboratory Data Repository
printed reports. A storehouse of laboratory data (preferably online) should
Long-term storage and retrieval of laboratory data can be readily accessible and span a period of at least three
be easily accommodated by a suitably configured LIS. The years. Queries encompassing three or more years of data
current emphasis by payors and healthcare accrediting make longitudinal trending of laboratory activities pos-
agencies on utilization review of laboratory services and sible. Given the relatively low cost of information system
quality assurance analysis of laboratory testing requires that memory these days, the price tag should not be a signifi-
laboratory activity be evaluated on a regular basis. Genera- cant impediment.
tion of hard-coded “canned” or ad hoc user-defined reports Not to be overlooked is the need to maintain enough
from the LIS, middleware, or institutional decision-support processing power in the LIS server upon which data que-
systems can be instrumental to this effort. ries will be run so that searches can be conducted within a
Data from canned reports that would ordinarily be reasonable time frame and without degrading system per-
printed to paper can be stored electronically as formatted formance for other users. If server upgrades are required
text files, PDF files, or XML files. Such files can be opened to meet this requirement, they can entail a significant fi-
using off-the-shelf data extraction software (e.g., Monarch nancial outlay.
from Datawatch) that enables the assembly and conversion
of data elements of interest into spreadsheet format. Once Data-Mining Tools
the data are in spreadsheet format, business analytics tools The software tools essential for performing ad hoc queries
(e.g., Excel and Access from Microsoft) can be employed of the LIS data repository must be on hand. Such tools are
to query and organize the data in tabular or graphical for- normally an extra-cost option purchased from LIS ven-
mat to simplify the assessment of laboratory activities. dors. They may be referred to as ad hoc or user-defined
To make the most of the wealth of information stored report writers or as report engines. They may include com-
within the LIS, individuals must be on-board who under- mercial, off-the-shelf software (e.g., Crystal Reports from
stand the qualitative aspects of the laboratory data avail- SAP) that is installed on a user’s workstation to make pos-
able and who have the skills needed to query the data in sible relational database queries. The server hosting the
a manner that yields answers to the questions at hand (7, report engine needs access to a complete copy of the PLF.
24). This includes clinical microbiologists who ought to The PLF copy may be located on a separate server that is
be able to take advantage of the many capabilities that are kept up-to-date through a dynamic link with the primary
placed at their disposal by healthcare information systems. LIS server.
They can position themselves ideally to make this happen
by becoming facile in the use of information system tools. Connectivity
This expansion of personal proficiencies places individuals An electronic channel through which data can be transferred
in a position to help achieve institutional priorities such quickly from the LIS to a personal computer is needed. This
as conducting patient outcome studies, eliminating un- may be accomplished in a variety of ways:
necessary laboratory testing, maximizing reimbursement
• Reports can be “printed” in flat field text format to a
for necessary laboratory testing, developing clinical prac-
file on a PC linked to the LIS via a wired serial
tice guidelines, and actively participating in hospital-wide
connection.
performance improvement activities. By doing so, clinical
microbiologists increase their visibility within their orga- • Report files can be sent directly to a PC from the LIS
nizations and simultaneously diversify their skill sets to using file transfer protocol (FTP) over a network con-
make themselves more attractive to future employers. nection or a wireless network connection.
The subspecialty known today as laboratory or pathol- • The LIS PLF can be queried directly with PC-based
ogy informatics emerged several years ago to help meet software (e.g., Crystal Reports from SAP or Access
the laboratory’s data-mining needs (18, 19). The ideal from Microsoft), assuming that the PLF data are stored
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 465

in an open database connectivity (ODBC)–compliant These applications usually run on a separate server
table format. The driver needed to link the querying and receive an HL7-standardized feed of patient registra-
software to the LIS also must be available. tion and microbiology test result data. After “scrubbing”
• The screen capture functionality that is a component the data to remove duplicate tests, outlandish test results,
of the terminal emulation software (e.g., SmarTerm and anomalous information, the data that remain are ana-
from Esker) used to display character-based LIS lyzed in an algorithmic fashion to recognize trends and
screens on a PC workstation can be used to capture LIS associations that would otherwise escape detection. Real-
reports as formatted text files. time alerts can be issued as notification that a set of recent
events warrants closer scrutiny.
Once the data are delivered to a PC, spreadsheet, data-
base, and/or data extraction software can be used to per- Unique Device Identifiers
form sophisticated analyses. The types of analyses that can Recently, the U.S. Food and Drug Administration (FDA) is-
be conducted are virtually limitless, and the results can be sued a proposed rule that each medical device in the United
displayed in a multitude of formats (e.g., Word or Power- States, including those in the microbiology laboratory, be
Point from Microsoft or PDF from Adobe). assigned a unique device identifier (UDI) (http://www
.fda.gov/MedicalDevices/DeviceRegulationandGuidance/
UniqueDeviceIdentification/default.htm, last accessed Au-
Miscellaneous Applications
gust 27, 2013). The idea is to bolster the quality of infor-
Preparation of a Periodic Antibiogram mation included in adverse event reports, which will assist
Organism-specific antibiotic susceptibility data collected in the identification of device-related problems that could
over a discrete period of time should be analyzed and dis- negatively impact patient safety.
tributed to clinicians on a regular basis. The purpose is to The UDI is an alphanumeric identifier that encodes the
present local cumulative data to assist them in selecting device model and lot number, the device serial number,
empiric antimicrobial therapy prior to the availability of and the device expiration date if appropriate. A database
actual antibiotic susceptibility results. The data are re- that is available for public scrutiny will be created that
trieved from the LIS, from a middleware repository be- specifies a basic set of identifying elements for each UDI.
tween the LIS and the testing instrument, or from the data Once it is in place, the UDI system should offer several
management system linked to the testing instrument. advantages:
The data should be analyzed according to the guide-
• It will provide manufacturers, distributors, and health-
lines published by the Clinical and Laboratory Standards
care facilities the information they need to efficiently
Institute (CLSI) (6). The guidelines recommend that the
manage device recalls.
antibiogram be issued at least annually, that only organ-
isms for which there were at least 30 isolates during the • It will decrease the frequency of medical errors by
analysis period be included, that surveillance culture iso- identifying problem devices early on that should be
lates be excluded, that only the first isolate per species per replaced.
patient, regardless of the specimen type or antibiogram, be • It will provide a way to document in the LIS the use of
included, and that the data for each organism be reported specific devices, contributing to the establishment of
as the percent susceptible for each routinely tested antibi- an effective postmarket surveillance program within
otic, not including intermediately susceptible results. the laboratory.

Electronic Surveillance for Clusters of Hospital-

Associated Infections Summary
Data mining has been described as the process of exam- When new technology transforms into a “must-have” staple
ining large bodies of data to recognize tessellations and of the laboratory, the question becomes not should we adopt
associations that unearth trends, forecast future events, the technology, but which iteration of the technology should
and judge the virtues of assorted courses of action. It is we implement? The LIS certainly falls into this category.
possible to employ an automated data-mining software There are a wide variety of options available in today’s mar-
solution (e.g., MedMined from CareFusion) for detect- ketplace. Whether it is a first-time decision for the labora-
ing clinically relevant patterns of microbiology culture tory or it is a decision for a laboratory seeking an upgrade
isolates (10, 28). These patterns would include clusters over existing technology, the selection of an LIS is an action
of hospital-associated infections, increased frequency of that should be made only after thorough consideration of the
multiply resistant microorganisms, or other user-defined pros and cons of the contenders for the laboratory’s business.
observations that contribute measurably to improving pa- No single LIS is ideal for every laboratory setting. That
tient safety. is a good thing because it encourages vendors to strive
466 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

continuously to make their LISs more appealing to all sec- Laboratories can also eliminate laboratory errors and
tors of the laboratory community. Competition between improve their quality of testing by employing investiga-
vendors breeds technological progress fueled by innova- tive informatics to pinpoint technologists whose testing
tion. The big winners are the customers and their patients, results exhibit questionable elements (16). This approach
who benefit from the game of technological “leapfrog” can be particularly useful in the microbiology laboratory
that the LIS vendors are playing with each other. The other for evaluating qualitative test results that are interpreted
winners are the vendors who are creative enough to de- by subjective criteria. The use of lateral flow technology for
velop what the industry calls “killer apps”—LIS features rapid detection of microbial antigens or antibodies is an
that a laboratory cannot live without. excellent example. Test data from the microbiology labo-
It is the responsibility of laboratory leadership to con- ratory over the course of time can be extracted from the
vince hospital administrators of the wisdom of investing in LIS and imported into a PC-based spreadsheet or database
state-of-the-art or at least near state-of-the-art LIS hardware application. Then, using tools from either software appli-
and software. Older servers that lack the processing power cation, test data can be stratified by technologist to deter-
required to efficiently run current versions of LIS software mine whether any test performers differ significantly from
will create user frustration and encourage reliance upon the laboratory mean in the percentage of positive results
“Band-Aid” work-around solutions that are not always in reported. After taking potential confounding factors into
the best interests of patients. Similarly, software that lacks account, such as work shift or ordering location of tested
newer feature sets that have quickly become the community patients, individuals that remain as notable outliers can
standard because of their criticality to optimum laboratory have their testing competency reassessed and be provided
service will place the organization in risk-management with retraining if that is deemed necessary.
jeopardy. The analytics tools that can be so valuable to labo- More than ever before, the clinical microbiology labo-
ratory and hospital leadership in engaging in performance ratory is a purveyor of information—much of it valuable
improvement activities cannot be employed to their fullest but some of it valueless (21). Clinical microbiologists have
extent if the LIS infrastructure is subpar. become information brokers, in effect, and it is their job to
There has been much interest in recent years in trans- determine whether the data they have generated are clini-
forming healthcare practices with an eye toward greater ef- cally important enough to be passed on or whether the
ficiency, lower costs, and elimination of medical errors—in data are unimportant or potentially misleading. The LIS is
other words, the pursuit of excellence (15). The packaging a valuable ally in this regard. Comparing a patient’s current
of lean approaches to optimize workflow with Six Sigma result with past results (i.e., “delta checking”), identifying
principles to reduce error rates has been discussed in virtu- incongruities between smear and culture results, and rec-
ally every healthcare organization board room during the ognizing antimicrobial susceptibility results that vary sig-
past decade. What has been learned is that it is a concept nificantly from those expected for a particular organism
that is very easy to talk about but oh so difficult to imple- are all tasks that can be greatly simplified by the LIS.
ment. The clinical laboratory, including the microbiology The responsibility of selecting, maintaining, and op-
laboratory, is an ideal candidate for lean/Six Sigma reor- erating an LIS is much more complex than it used to be.
ganization. Leveraging the capabilities of the LIS to track Discharging these responsibilities is more than a full-time
bar-coded specimens, to connect with testing instruments job in all but the smallest laboratories. The subspecialty
to improve error-free data flow, and to display laboratory of laboratory informatics has emerged for this reason, but
productivity snapshots on workstation dashboards are all there unfortunately is a shortage of knowledgeable person-
important components of a program to pursue excellence nel. The work is challenging and constantly changing and
in laboratory testing. carries tremendous potential for job security and career
A near-universal problem in healthcare is overuti- advancement. The blending of clinical microbiology, mo-
lization of laboratory services. It may be due to fear of lecular diagnostics, and laboratory informatics expertise is
litigation on the part of clinicians, or it may result from an excellent combination for today and for the future. It is
ignorance that tests being ordered have already been or- a career path that can be highly recommended.
dered by someone else. Tools are available in the modern The informatics skills described in this chapter are eas-
LIS to help recognize and eliminate such unnecessary test- ily acquired and can be extremely practical for the rea-
ing (29). For example, a query of the LIS PLF can quickly sons outlined earlier. Because of the strong dependence
generate a list of tests that appear to be requested more of healthcare organizations on information technology,
often than they should. An individual with informatics individuals who possess informatics skills and knowledge
skills can easily “drill down” in that list to identify order- are considered valuable members of the hospital work-
ing physicians, patient locations, patient diagnoses, and force by laboratory and hospital administrators (1, 17).
work shifts associated with the apparent abuse of labora- Today’s healthcare environment is change-oriented, with
tory testing. a definite emphasis on becoming more cost-efficient.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 467

Clinical microbiologists who have earned the respect of Browser A browser (e.g., Internet Explorer) is the application
their leadership because of the diverse skills they bring to people use to access content on the Internet. It is able to interpret
the workplace can expect to be rewarded with continu- HTML and XML code to display web pages in readable format.
ing employment and opportunities for promotion—both Central processing unit (CPU) The main information proces-
within their organization and in the world beyond. sor (the brain) in a computer that interprets and implements in-
structions. The CPU performs calculations, makes logical
decisions, and stores information transiently.
KEY POINTS
Client In network parlance, the client is a computer/worksta-
■ Failure to keep data stored in the information systems
tion that communicates commands to a server in a client/server
up to date can lead to medical errors. relationship.
■ The HIS contains the master patient index and is the
Cloud computing The use of hardware and software services
source of demographic data provided to other inter-
that are delivered to a client workstation over a network (e.g., the
faced information systems. Internet). Users access cloud-based hardware and software via a
■ Transactions between the LIS and other information browser or a network connection to enable sharing of resources
systems occur by five typical interfaces: with other users during periods of fluctuating demand.
• ADT Driver A computer file that enables a computer to recognize
• Order entry and control a hardware device.
• Results entry Ethernet An Ethernet connection is the most common type of
wired link between a computer workstation and a LAN (local
• Billing area network) server. An Ethernet port resembles a telephone
• Reference laboratory jack but is a little bit wider. The two main types of Ethernet are
■ The LIS can be used to identify and eliminate unneces- 10BaseT and 100BaseT, the latter enabling data transfer rates at
sary testing. tenfold higher rates.
Firewall A computer firewall limits the information that can
flow from outside a network to servers and workstations within
GLOSSARY the network. Its purpose is to prevent access to the network by
This glossary contains informatics terms and mnemonics unauthorized individuals and to protect the network from dam-
with which laboratorians should be familiar. Definitions of age from external malware. Firewalls are either hardware- or
some of these terms and mnemonics were adapted from The software-based.
PC Glossary—Definitions of Computer and Internet Terms FTP (file transfer protocol) A commonly used routine for mov-
(http://pc.net/glossary/, accessed September 23, 2012). ing data files from one workstation to another on a network or
through the Internet.
AIX (advanced interactive executive) An operating system
Graphical user interface (GUI) A format for displaying content
(OS) that is installed on many large enterprise-level servers be-
on a computer OS (e.g., Windows from Microsoft) in which us-
cause of its robust security capabilities. It was developed by
ers interact with objects on a monitor via a pointing device (e.g.,
IBM and is UNIX-based. It also is able to run most LINUX
a mouse) rather than issuing text commands via manually placed
applications.
key strokes. With a mouse users are able to click on and drag
API (application program interface) The set of tools that pro- objects on the monitor instead of entering instructions on a com-
grammers use when building software to run on a particular OS. mand line.
It permits them to use standardized approaches for interacting
Hard disk Data and installed programs on a computer are typi-
with an OS instead of having to redefine them from scratch
cally written to one or more hard disks. A hard disk is a group of
each time.
magnetic disks, called platters, upon which information is re-
Application A software program that is able to run on a worksta- corded. Because information is stored on magnetic medium, it
tion or server. In the Windows (Microsoft) environment, applica- remains in place when the computer is turned off. This is an im-
tion software uses the “.exe” extension, whereas in the Macintosh portant distinction between a hard disk and RAM, which is
(Apple) environment, application software uses the “.app” erased when the server’s power is turned off. The hard disk is
extension. located within the hard drive, which reads and writes data to the
disk. The hard drive also moves data between the CPU and the
BIOS (basic input/output system) The program stored on a
hard disk.
ROM (read-only memory) chip that a Windows-based computer
uses to begin its operations when it is turned on (booted up). The Health level 7 (HL7) A nonprofit organization concerned with
program checks all of the computer’s hardware connections and the promulgation of international interoperability standards for
locates all of the attached devices. If all is fine, the BIOS then healthcare informatics. It also has become a generic term for spe-
loads the OS (e.g., Windows) into the computer’s RAM (random cific standards created by the organization. The “HL7 standard”
access memory) and finishes the boot-up process. defines a set of guidelines and methodologies through which
468 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

healthcare information systems converse with one another. The The MPI is referred to during patient registration to guarantee
guidelines and methodologies establish the rulebook for sharing that each patient has a single identifier and that multiple patients
information in a consistent manner. They define how a data do not share the same identifier.
stream is packaged into segments that are then passed on to and
Modem (modulator/demodulator) A device that allows one
interpreted by another information system.
computer to connect to another computer over a telephone line
Hospital information system (HIS) An integrated set of infor- to transfer data. Dial-up modems are almost obsolete because of
mation systems that oversee the medical, administrative, finan- the slow data transmission speed. They have been replaced by
cial, and legal activities of a hospital. Linked to the HIS may be a cable modems and DSL (digital subscriber line) modems, which
variety of other medically oriented information systems such as transfer data at a much faster rate.
the laboratory information system (LIS).
ODBC (open database connectivity) The ODBC standard was
HTML (hypertext markup language) HTML is the language formulated in 1992 to enable any application that supports the
used for creating Internet web pages. HTML syntax is composed standard to access data from any ODBC-compliant database
of a group of instructions (tags) that define a web page’s format (e.g., Access from Microsoft) regardless of what database man-
for a browser and how the page’s content should be displayed. agement system the database uses. To be ODBC-compliant, a
database must include an ODBC driver to allow other applica-
Hub A central connection point for a group of workstations and
tions to access its data with a standard set of commands.
other devices on a network. Information from one workstation
or device connected to the hub can be directed to any other Operating system (OS) The OS (e.g., Windows from Microsoft)
workstation or device connected to the hub. is the computer software that allocates memory, processes tasks,
accesses disks and peripherals, and serves as the user interface.
Instrument interface A hardware and software connection be-
The OS prompts users (or peripheral devices) for input and/or
tween a server and a laboratory instrument that enables elec-
commands, takes actions, and then reports back the results of
tronic communication of patient demographic and laboratory
these actions. Without an OS, software programs cannot run.
test data. In today’s architecture there is frequently instrument
interface manager middleware between the instruments and the Patient laboratory file (PLF) The LIS version of the MPI. It con-
LIS to streamline communication. tains the information about patients that is relevant to LIS users,
including demographics and information about laboratory tests
Interface A port on a hardware device that allows it to be con-
previously ordered and resulted.
nected to another device. Examples of interfaces include RS232,
serial, parallel, modem, USB, Firewire, and Ethernet ports. Plug and play (PnP) PnP devices are able to communicate with
computer workstations as soon as they are connected. New driv-
IP (Internet Protocol) address An IP address is a numerical
ers do not need to be loaded, nor does the workstation need to be
code consisting of a number or a group of numbers separated by
notified that a new device has been attached.
three dots (e.g., 123.45.67.89) that specify a particular worksta-
tion or server on a network or on the Internet. The address can Processor The processor (or microprocessor) is a chip (e.g.,
be static (never changing) or dynamic (assigned on-the-fly when Pentium from Intel) located in the heart of a workstation or
the computer logs in). server that handles all of the arithmetic computations that are
necessary to run the computer. The speed of a processor is mea-
Laboratory information system (LIS) Software running on
sured in cycles per second (also known as megahertz).
server hardware that provides the tools needed to support a labo-
ratory’s operations. The tools have advanced over the years from Random access memory (RAM) RAM is made up of individual
sample tracking and billing to a suite of tools that manages virtu- memory chips that collectively form a memory module. The
ally all of the activities within the clinical laboratory. RAM is where copies of the OS, the application software, and the
data in current use are stored temporarily so that they can be
LINUX An open-source OS that is derived from UNIX and is
quickly accessed by the CPU. Accessing or storing data in RAM
available at no cost to users. It is widely used by web-hosting
is much faster than accessing or storing it on a hard drive or a
companies.
CD-ROM drive, but the data are present in RAM for only as long
Local area network (LAN) A network of neighboring, linked as the computer is turned on.
computers and other devices within a work group (e.g., a hospi-
RFID (radio frequency identification) RFID-tagged objects
tal, an office building, a university, or even a home). The primary
can be detected, recognized, and tracked by the emission of an
advantage of a LAN is that it makes it easy for computers and
identifying signal when the object is within an electromagnetic
other devices on the network to share information. Devices on a
field produced by an interrogator device. The interrogator re-
LAN may be linked through a router by network cable. Wireless
ceives the signal and transmits information to a workstation
connections of devices to a network router have become ex-
running RFID software or middleware. Miniaturization of
tremely popular lately.
RFID chips is an active area of research, with current chips be-
Master patient index (MPI) A database that contains a unique ing as small as 50 microns by 50 microns. The cost of these
identifier for every patient registered within a healthcare organi- chips is as little as $0.05 each. They can be embedded in speci-
zation along with the patient’s demographic information and a men labels and patient wristbands to enable effective tracking
history of previous encounters with the healthcare organization. of both.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM 469

Router Hardware that distributes data from a LAN to devices on digital-to-analog conversion of a video signal so that data can be
the network or to another authorized network (e.g., via a cable displayed on a monitor.
modem portal to the Internet). The router also screens and al-
Virtualization Virtualization permits a single workstation or
lows only authorized devices to connect to the LAN.
server to run multiple OSs simultaneously. The OSs running on
SAN (storage area network) A networked repository of storage top of the standard OS are referred to as “virtual machines.”
devices that can be accessed by networked workstations. Because
the individual hard drives in a SAN can be reached by a group of VPN (virtual private network) A VPN is the result of “tunnel-
workstations, the SAN facilitates the sharing of large amounts of ing” through a wide area network (WAN) like the Internet. Using
information by these workstations. high-level encryption protocols and other security measures, the
VPN is able to scramble the data sent from the WAN so that con-
Server A server is at the service of the workstations that con- nection from the Internet through a network firewall is virtually
nect to it. A server is a storage location for application software private. Thus, hospital employees with VPN access can connect
and data files that can be accessed by client workstations. Ex- to the hospital LAN via the Internet and move about the LAN as
amples of servers include Internet servers, email servers, and if they were physically present in the hospital.
LAN servers.
Wide area network (WAN) Similar to a LAN but spans a much
SQL (structured query language) A querying language that al- larger territory. A WAN may comprise several LANs that are in-
lows workstations with SQL-compatible software to access or terconnected. A WAN is a large group of personal computers or
modify information in databases. SQL is frequently used for de- workstations that are linked via a geographically dispersed tele-
velopment and management of Internet-based databases. communications network, for example, the Internet.
TCP/IP (transmission control protocol/Internet protocol) WEP (wired equivalent privacy) A security protocol used for
TCP/IP protocols were developed in the early days of the Inter- encrypting data sent over Wi-Fi networks. Wireless networks
net by the U.S. military. It has since become the heart of the In- transmit data via radio waves; thus, it is not difficult to eavesdrop
ternet and specifies how data should be formatted, addressed, on wireless transmissions. The purpose of the WEP protocol is to
transmitted, routed, and received during its travel through the make wireless networks as secure as wired Ethernet networks.
Internet. Access to a WEP-protected network is authorized by entry of a
Thick client A thick client workstation is a full-fledged com- password.
puter that is functional whether it is connected to a network or Wi-Fi A wireless networking standard developed by the Wi-Fi
not. When it is connected to a network, it functions as a client of Alliance. Wi-Fi allows computers and other devices to connect to
the network server using programs and files that are not present wireless routers that then provide a gateway to the Internet. They
on the client’s hard drive. may also connect to other devices on the network for data-
Thin client A personal computer that lacks a hard drive and sharing purposes.
most of the ports that are part of a standard computer. Its activity Wiki (From the Hawaiian wiki wiki, meaning “super-fast.”) An
is limited to running programs and accessing data stored on a Internet site that allows individuals to add and update content via
network server. Thin clients are cost-effective in that they are less their own Web browser. An example of a wiki is Wikipedia (www
expensive than full-fledged computers and require minimal .wikipedia.com), a free encyclopedia that anyone can edit. An-
maintenance since software troubleshooting and upgrades need other example is MicrobeWiki (www.microbewiki.kenyon.edu), a
only be performed on the network server. student-initiated resource on microbes and microbiology.
UNIX (Letters do not stand for anything.) An OS that was first WPA (Wi-Fi protected access) A security protocol designed to
created by Bell Laboratories in the 1960s. It is the most common protect transactions taking place over a wireless (Wi-Fi) net-
OS for Internet servers. Derivative OSs of UNIX, such as UL- work. It is similar to WEP but offers advancements in the way
TRIX, XENIX, LINUX, and GNU are also in use today. security keys are handled and the way individuals are authorized
URL (uniform resource locator) The Internet address for a par- for access.
ticular web page (e.g., http://www.google.com/search). The ad-
Workstation A computer that is assigned to a particular task,
dress cannot have spaces in it and thus uses periods and forward
e.g., accessing the LIS. Since processing speed is usually more
slashes to designate different components of the address.
important than in an all-purpose personal computer, worksta-
USB (universal serial bus) USB ports have become the most tions tend to have a fast microprocessor, a large amount of RAM,
widely used ports in today’s computers. Up to 127 devices can be and a high-speed video adapter.
connected to a single USB port through a series of hubs. They
XML (extensible markup language) Despite the origin of its
transfer data at significantly faster rates than the serial and paral-
name, XML is not a markup language. Instead, it can be de-
lel ports they are replacing.
scribed as a markup “metalanguage” that defines a set of rules for
Video card Most of the processing done by a computer worksta- encoding documents in a format that is both human- and
tion is performed by the CPU. To relieve the CPU of some of the machine-readable. Hundreds of XML-based languages have
workload, video cards can be installed to handle the graphics been developed. They are often used in Internet applications, but
portion of the processing load. The video adapter enables the many other applications can read XML documents as well.
470 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

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Introduction
25
Organizational Challenges
Management of
Political Challenges • Setting Goals for POCT
Management • Developing Management Structures
Point-of-Care Testing
for POCT • Laboratory Licensure and Accreditation
Operational Challenges Glen L. Hortin and Christopher D. Doern
Determining the Scope of POCT Services • Weighing
Alternatives to POCT • Analyzing Costs and
Benefits • Assessing the Impact of POCT Services •
Quality Assurance Challenges • Information Systems
and Billing OBJECTIVES
POCT in Developing Countries and Rural To identify how management of point-of-care testing (POCT) differs from
Settings other types of laboratory testing
Challenges • Organizing POCT in Resource-Limited
Settings To describe cost factors in POCT and approaches for analysis of the costs of
Technological Challenges testing
Rapid Changes of Menu, Devices, and Technology • To provide information about how to operate a POCT program and to ensure
Lack of Equivalence between POCT and Central the quality of testing
Laboratory Tests • New Monitoring Technologies
Summary
To identify the challenges of implementing POCT in developing countries
KEY POINTS To understand the clinical benefit of POCT
GLOSSARY To provide an understanding of how technological advances are driving change
REFERENCES
in the scope of POCT
APPENDIX

Ther nys no workman, whatsoever he be,

That may bothe werke wel and hastily
Chaucer

P
oint-of-care testing (POCT) presents some of the most controver-
sial and difficult laboratory management challenges (Table 25.1). There
is a commonly held view among laboratory workers that POCT repre-
sents a compromise in test quality in the interest of speed to obtain results.
Many of the challenges presented by POCT are substantially different from
those of any aspect of centralized laboratory testing. Common challenges in-
clude crossing traditional physical and organizational boundaries, performing
tests at a large number of locations, training a large number of personnel with
limited laboratory experience, using technologies or devices that differ from
those in central laboratories, capturing test results and control values into in-
formation systems, and difficulty in tracking costs and program activity. In
many respects POCT requires management “outside of the box,” not only the
physical box of laboratory space but also the usual boxes of organizational
structures, groups of coworkers, testing devices and technologies, laboratory
practice, and management information systems. In this chapter, the manage-
ment challenges of POCT are categorized into organizational, operational, and
technological issues as listed in Table 25.1, although in reality some of the is-
Clinical Laboratory Management, 2nd Edition
sues listed overlap into more than one category.
Edited by L. S. Garcia There is not complete agreement about the definition of POCT, and a va-
©2014 ASM Press, Washington, DC riety of other terms such as “near patient,” “bedside,” or “alternative site” test-
doi:10.1128/9781555817282.ch25 ing have been used as approximate synonyms. For this chapter, POCT will be

471
472 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 25.1 Management challenges of POCT aspects of the management of POCT that differ from other
Organizational Historical resistance of laboratories to POCT areas of the laboratory and that are controversial.
challenges Competition between POCT and central
laboratories
Setting goals
Organizational Challenges
Cooperation across multiple departments Political Challenges
Deciding who controls/directs testing Up until the mid-1990s, laboratory workers often were
Developing a management structure highly antagonistic to the perceived competition and lower
Assignment of costs and revenue analytical quality provided by POCT. Laboratory direc-
Management across usual lines of authority tors and managers secured the four walls of the labora-
Deciding about licensure and accreditation of tory by building a fortress of organizational boundaries,
POCT regulations, and arguments to serve as moats and barri-
ers to prevent outsiders from intruding into the domain of
Operational Determining the scope of POCT services
challenges laboratory testing. This management strategy sought the
Weighing alternatives to POCT
disappearance of POCT. However, the historical resistance
Analysis of costs
of laboratory workers to POCT did not make it disappear.
Performance of POCT at a large number of sites
Instead, POCT often developed under separate manage-
Training a large number of staff to perform
POCT ment from the central laboratory, and testing volume grew
Lack of experience and training of staff in per- rapidly as testing technologies advanced. It was only with
forming laboratory tests recent attention to the licensing of all laboratory testing
Lack of centralized records of test results and efforts to control costs that POCT began to be merged
Quality assurance with laboratory management. Nevertheless, the previous
Inventory management independent operation of POCT and the resistance of lab-
Management of information oratory workers to POCT serve in many organizations as
Billing political and historical contexts that must be overcome in
the management of POCT.
Technological Growing menu of tests that can be performed Recently, acceptance of POCT among laboratory work-
challenges as POCT
ers has grown, and laboratories have participated more
Rapid change in POCT devices
actively in managing POCT. Input from laboratory pro-
Rapid changes in testing technology
fessionals in POCT appears to be an important element in
Linking POCT data systems
promoting the quality of testing based on long-standing
Lack of equivalence of POCT versus central
problems recognized for POCT (33) and on studies of test-
laboratories
ing in physician office laboratories (27, 67). Some of the
New monitoring technologies
reported problems with testing included inaccuracy of test
results, failure to perform quality control (QC) testing and
correct test procedures, and inadequate staff training. De-
defined as testing that is performed outside defined labo- spite increased recognition of the importance of teamwork,
ratory facilities, including not only central laboratories but healthcare organizations are complex political environ-
also small satellite or special-function laboratories in phy- ments. Each department or nursing unit where POCT is
sician offices, intensive care units, and emergency rooms. performed will have its own experience, expectations, and
The College of American Pathologists (CAP) uses this sense of ownership of POCT performed within its domain.
definition to define POCT for laboratory inspections (3). Acceptance of centralized management of POCT requires
POCT represents one of the most rapidly growing and commitment from central administration and leaders of
changing segments of laboratory testing. A recent survey departments and the perception from individuals that their
shows that nearly every hospital has some form of POCT. needs will be addressed and that there is overall benefit
Glucose testing is the most widespread component of from such a structure.
POCT, but there were substantial increases in the menu On a federal level, POCT has proven to be equally polar-
of testing in many hospitals between 1999 and 2001 (26). izing. Rapid HIV tests of waived Clinical Laboratory Im-
POCT devices are evolving very rapidly, and recent tech- provement Amendments complexity have been available
nological advances have made it possible to perform vir- since 2002, but it was not until July of 2012 that they were
tually any laboratory test as POCT. The growing scope of approved as over-the-counter home-use tests (see Appen-
POCT has led to the publication of entire books related to dix 25.1 for a link to the FDA press release). This issue had
this topic that serve as general resources of information been hotly contested among laboratorians for some time.
about POCT (21, 42, 54, 59). This chapter concentrates on Principal arguments against allowing HIV POCT to be
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 473

sold over-the-counter were that patients would not have as what department and who will direct testing, institu-
immediate access to proper medical counseling upon re- tional priorities for POCT, and how costs and revenues
ceiving the results. There were also concerns that allowing will be assigned. An oversight committee can serve as a
untrained users to perform these tests would result in a useful mechanism to assess evolving needs for POCT. It
high percentage of false results. In the end it was decided also provides bidirectional communication with partici-
that the benefit of increasing access to HIV testing out- pants in POCT. Considering the diverse range of stake-
weighed the risks. holders in POCT, it may be useful to have representation
of nurses, physicians, laboratory and hospital administra-
Setting Goals for POCT Management tors, information technology specialists, and laboratory
One of the key initial steps in the management of POCT is directors and technologists. Such a committee can advise
the development of institutional goals. Common motiva- about needs for general changes in policy and review re-
tions for hospital administration and nursing units to seek quests for changes in the menu of tests or sites of POCT.
additional management support for POCT are deficien- Day-to-day operations usually are overseen by testing
cies in accreditation surveys, difficulty in meeting accredi- coordinators and a laboratory director. However, there is
tation standards, problems with the quality of test results much greater variation in organizational structure than
of POCT, resulting in complaints or lawsuits, and requests there is in other areas of the laboratory. Some POCT pro-
from nurses who feel the need for assistance to address lab- grams are organized as extensions of the clinical labora-
oratory regulations. In response to these acute problems, tory, with all testing performed by laboratory staff such as
plans to revamp POCT management structure often are phlebotomists or medical technologists. In these circum-
made in a crisis mode. Success is viewed narrowly as pass- stances, management of POCT differs little from other
ing the next inspection or solving the acute problem. How- sections of the laboratory: All of the staffing, training,
ever, deciding that the primary goal in managing POCT is employee evaluations, instrument and reagent inventory,
to address regulatory requirements is a very limited vision analytical and quality assurance processes, reporting of re-
that may lead to overlooking opportunities for improv- sults, data systems, and budgeting are handled within the
ing the quality and efficiency of patient care or potential laboratory. From a management standpoint, this results
clinical benefits of POCT. It would be tantamount to say- in the simplest structure. The main practical problems
ing that the primary goal in the management of a clini- with this model are the need to hire extra staff to perform
cal laboratory is to maintain accreditation. Developing a POCT and to have staff available at the appropriate sites
broader vision of the goals of POCT and a commitment when testing is needed.
from institutional leadership is important for moving be- A more common organizational structure is that test-
yond a minimal standard of performance and generating a ing is performed by nurses or other nonlaboratory staff,
positive sense of mission and purpose. More far-reaching but these are organized under a single POCT manage-
goals in management of POCT are to provide testing that ment. Problems inherent in the centralized management
will improve patient care and to improve organizational ef- of a far-flung POCT program are difficulty in training a
ficiency (Table 25.2). Meeting regulatory standards is also large number of nonlaboratory staff, maintaining effective
a necessary goal, but regulations may be of greater value as communication to and from all units and staff, maintain-
a means than as an end. Regulations and inspectors pro- ing accountability, avoiding interdepartmental competi-
vide guidance, incentives, and useful tools for maintaining tion and turf battles, and managing a large number of staff
the quality of testing and meeting more ambitious goals. across usual lines of management authority. It is important
to identify POCT skills as core competencies and elements
Developing Management Structures for POCT of job performance for the staff who perform testing and
In developing the management structure for POCT, there to have active participation of nursing managers in cor-
are political issues that central administration and depart- rective action. Problems with POCT compete with many
mental leaders need to sort out. These include issues such other urgent patient care issues on individual units. POCT
program managers, then, sometimes need to resort to
Table 25.2 Goals of management of POCT
drastic actions such as withdrawal of testing devices or au-
thorization for testing to create the necessary urgency for
Improve the quality of patient care
correcting problems.
Enhance the efficiency of patient care
A third organizational model, more common in the
Increase physician and nursing satisfaction
past, is for POCT in each clinical department or nursing
Improve patient education and satisfaction
unit to operate as a separate laboratory. This does simplify
Address accreditation standards
the management of each unit. However, it has become less
Fulfill federal and state laboratory regulations
common due to the inefficiencies of applying for separate
Decrease liability risk
licenses for multiple sites, the lack of standardization of
474 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

procedures and equipment, and the coordination of test- a laboratory test. Commonly overlooked POCT activities
ing activities within an institution. This organizational might include occult blood testing, urine dipstick testing,
model may apply where POCT or a specific type of POCT physician-performed microscopy, and whole blood coagu-
is limited to a single unit or at a remote location. lation testing. Many POCT devices are small, portable, and
distributed among many sites, so it can be difficult to find
Laboratory Licensure and Accreditation or count the devices. Surveys of patient care units often pro-
Decisions about how POCT will be licensed and accredited vide incomplete responses. It may be necessary to resort to
influence how POCT will be managed and the types of tests information from vendors, purchasing departments, or ma-
that can be performed. Federal licensure is required for all terial management departments to determine the number
clinical laboratory testing in the United States (12, 13). Spe- of analyzers and the volume of testing.
cific standards are described for three levels of complexity The major source of demand for POCT has been from
of testing—high, moderate, and waived. If all testing is in clinicians who desire rapid laboratory results for clinical
the waived category, laboratory testing can be performed decision making. A large gap exists between the expecta-
under a certificate of waiver, which has less stringent re- tions of clinicians and laboratory targets for turnaround
quirements than other levels of testing. Several agencies times (32, 68). Surveys of clinicians indicate that they be-
including CAP, The Joint Commission (TJC, formerly the lieve that stat test results for analytes such as electrolytes
Joint Commission on Accreditation of Healthcare Organi- and glucose should be available within about 15 minutes,
zations [JCAHO]), the American Osteopathic Association, while laboratory professionals often have set a goal of stat
and the Commission on Office Laboratory Accreditation turnaround times of less than 60 minutes (32). This gap
(COLA) have the authority to accredit laboratories. Some between clinical expectations and laboratory service deliv-
states have specific regulations that must be met. ery has led to the high demand for POCT.
The initial question to address is how many and what Turnaround time usually is perceived as the key advan-
types of licenses to apply for. It is possible to perform tage of POCT, but there are a number of other factors that
POCT under the same license as the central laboratory. may come into play for specific tests or clinical situations
However, many laboratory directors have been reluctant (Table 25.3). Use of a smaller specimen volume for POCT
to cover POCT under their licenses due to concerns about may be an important consideration for care of infants and
compliance of POCT with laboratory standards and lack young children. Lower capital costs of POCT for equip-
of direct control over how testing is performed. Also, in- ment or facilities may be important advantages for infre-
cluding POCT under the main laboratory license means quently performed tests. For some tests, such as whole
that the same accreditation standards must be applied for blood coagulation tests, the specimen must be tested im-
POCT and central laboratory testing. CAP, which does not mediately, so POCT becomes necessary. For the care of
recognize any relaxation of standards for waived testing, diabetics, POCT of blood glucose can be viewed to have
accredits many hospital laboratories (7, 13). Some POCT educational value and to address patient expectations.
programs, particularly those including only waived test- Some common disadvantages of POCT that must be
ing, decide to apply for a separate license or certificate of weighed are lower accuracy and precision of tests, less lab-
waiver for POCT to simplify requirements. Although CAP oratory experience of staff performing tests, lack of com-
may inspect the central laboratory, if POCT is under a dif- parability with central laboratory results, and the greater
ferent license, it may be inspected by a different accrediting difficulty of managing POCT, ensuring quality, and cap-
agency, such as TJC. POCT can be performed at multiple turing test results into central information systems.
locations within a facility under the same license. For the One point that may be overlooked in considering where
sake of efficiency in the application process and avoidance to perform a test is whether to offer the test at all. Con-
of additional fees, all POCT within a facility often is oper- sider, for example, the bleeding time test. A large body of
ated under a single license or certificate of waiver. evidence suggests that this test is of questionable clinical
value and it should not be performed (47). There must be
a clear clinical justification for any test that is performed
Operational Challenges
as well as an assessment of whether increasing the speed of
Determining the Scope of POCT Services testing will result in significant improvement in the qual-
One of the most critical operational challenges is deciding ity or efficiency of patient care. A full discussion of POCT
what sites will perform POCT and what menu of tests should clinical utility is addressed in a subsequent section.
be offered. A starting point for this analysis is to inventory
the types and testing volumes of ongoing POCT. Obtaining Weighing Alternatives to POCT
an accurate inventory of POCT can be difficult due to the Usually, POCT is not the only option for performing a test.
dispersed nature of testing, the lack of information systems, Common choices for delivering a test include perform-
and in some cases, the lack of recognition of what represents ing it in a central laboratory, in a satellite laboratory, or
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 475

Table 25.3 Common advantages and disadvantages of POCT versus central

laboratory testing
Advantages Disadvantages
Faster turnaround time Lower accuracy and precision
Smaller specimen volume Less skilled testing personnel
Lower capital cost Higher supply costs
Testing of labile samples Lack of comparability with laboratory results
Immediate access to results Lack of data systems
Patient education/satisfaction Difficulty in assuring quality
Physician satisfaction Difficulty in managing testing

as POCT. A fourth option that has become available re- equipment, and laboratory staff. Usually, this commitment
cently is a robotic or remotely controlled analyzer. The first of resources is justified only when there is an acute clinical
option, and in many cases the most efficient, may be to need for rapid turnaround time, a high volume of testing,
improve central laboratory processes to meet turnaround and use of relatively complex testing procedures. Remotely
time goals. This might involve changes in infrastructure controlled analyzers may represent a new alternative to sat-
such as installation of a pneumatic tube system for rapid ellite laboratories. Considerable engineering expertise was
specimen delivery, changes in laboratory instrumenta- required for early application of the approach (15). How-
tion to perform analyses on whole blood rather than se- ever, this has become a practical option now that functions
rum or plasma, and improving mechanisms for delivery such as calibration and QC testing have been automated
of test results (21). For tests designed for POCT use, such on some analyzers and operation of the analyzers can be
as fecal occult blood tests, qualitative drugs of abuse tests, monitored remotely by laboratory workers (see surveys
urine pregnancy tests, or whole blood cardiac marker tests, of blood gas analyzers in CAP Today, accessible at http://
sometimes an assumption is made that the tests should be www. cap.org, for current information).
performed as POCT based on history within an organi-
zation or the design of a device for POCT use. However, Analyzing Costs and Benefits
the advantages and disadvantages of performing the test as Although it would seem that the cost of a test would be
POCT should be weighed considering the factors listed in an objective quantity that could be calculated precisely, the
Table 25.3. As long as the specimens are stable, it may be absolute and relative costs of POCT and central labora-
desirable to perform these tests in the central laboratory tory testing are some of the most controversial issues relat-
even though the test device is acceptable for POCT use. For ing to POCT. The majority of older published references
some tests such as those for drugs of abuse, there may be conclude that POCT is more expensive than the same test
special considerations such as complicated legal issues and performed in a central laboratory (8, 37, 46). One report
a need to confirm positive results, and this issue must be went so far as to conclude, “The costs of central laboratory
considered in evaluating whether it is desirable to perform testing are always very much less than that of distributed
the tests as POCT (18). Conversely, a barrier to perform- testing” (79). However, in examining these reports, it is no-
ing Group A Streptococcus (Streptococcus pyogenes) POCT table that the major cost identified for POCT is for labor.
outside the laboratory is the need to reflexively confirm It turns out to be difficult to account for labor for POCT,
negative results with bacterial culture. which involves small bits of time by a large number of staff.
An instructive example of the decision to perform a There is a paradox in that if you add up all of the time
test as POCT or in a laboratory is provided by intraop- spent collectively performing POCT, it represents a sub-
erative parathyroid hormone (PTH) testing. This test is stantial number of hours that may equal the time of sev-
performed during parathyroid surgery, and test results are eral full-time staff members (full-time equivalents [FTE]).
needed rapidly (29). The first commercially available ana- However, POCT usually has no impact on FTEs within the
lyzer to perform this test was designed to be on a mobile units that perform the testing; usually, the only recognized
cart that could be moved to the operating room. However, impact on FTEs is one or more positions as central coor-
many hospitals that offer this test now perform it in a labo- dinators of POCT.
ratory setting and set up processes for rapid transport of
the specimen to use staff and equipment most efficiently POCT and impact on FTEs. There are several possible
(23, 31). reasons why performing POCT on a clinical unit has no
Setting up or maintaining a satellite laboratory rep- direct impact on FTEs. A time-and-motion study of nurses
resents a major commitment and expense for facilities, comparing time spent to perform a POCT glucose test
476 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

versus time spent to draw a specimen for central labora- or microcost, analysis that adds up individual cost ele-
tory testing noted that less time was required by nurses to ments and a top-down, or macrocost, analysis that divides
perform a glucose test than to collect a specimen and send budgeted costs. Second is the problem of allocation of
it to the laboratory (21, 52). The entire POCT process from overhead or small bits of labor that do not result in changes
specimen collection and testing to result retrieval was of FTEs, such as nursing time spent on POCT. Third, most
completed in one brief episode about the length of time analyses of labor costs do not account for any changes in
required to draw blood. Sending a sample to the labora- productivity; e.g., if nursing staff perform an additional
tory required multiple steps at different locations spread task without any increase in worked hours, that represents
over about 1 hour—generating a test requisition and la- a change in productivity, not a labor cost. Finally, the most
bel, performing phlebotomy, transporting the specimen to important complicating factor is weighing the indirect ef-
the nursing station, and retrieval of results from the com- fects of POCT on the overall cost of patient care (4). Labo-
puter. The timing study points out that there may be an ratory tests account for a small proportion, perhaps 5%, of
underaccounting of the labor required to send specimens healthcare costs (5). If changes in laboratory testing have
to the laboratory and retrieve results and that there is the any impact on factors such as length of stay or changes in
potential for POCT to save labor even without account- clinical outcome, the cost impact potentially could be far
ing for the labor to perform the test within the laboratory. greater than the total amount spent on laboratory testing.
In addition to the greater amount of time directly spent Two recent studies provide evidence that POCT affects
by nurses to send the sample to the laboratory, the delay treatment decisions in a substantial proportion of testing
between testing and receipt of results may lead to indirect episodes, although the net effect on costs was not clear (5,
inefficiencies and less effective patient care because adjust- 20). Other interesting examples have been described in
ments of diet and medication wait on receipt of test results. which POCT may result in substantial savings by having
Based on its higher efficiency and low volume within an impacts on processes such as frequency of transfusion (9)
individual clinical unit, POCT will rarely result in the need or in which rapid intraoperative PTH testing contributes to
for additional staff or worked hours within the clinical an overall cost reduction. Although providing intraopera-
unit. However, the aggregate volume of testing for a large tive PTH testing results in an increase in laboratory costs,
POCT program sometimes reaches hundreds of thousands total costs for patient care appear to be decreased substan-
of tests. This volume of testing can significantly affect lab- tially (31, 66, 76). Improvements in the quality and the ef-
oratory staffing, particularly if there is a demand for stat ficiency of patient care delivery or reduction in transfusion
results at the time of peak demand in the early morning. frequency have been considered to result from POCT in a
One published estimate is that each reduction of 100,000 number of other cases, with the potential for overall cost
specimens sent to the laboratory would result in the reduc- reduction (3, 19, 53, 58, 59a). Difficulty in arriving at an
tion of work by four FTEs (21). This value obviously will exact dollar benefit for a change in clinical process makes
vary depending on the levels of automation and efficiency these analyses challenging.
of the laboratory. Coordination of POCT for this volume In deciding how to analyze the costs of POCT, it is
of testing requires about one FTE, depending on the com- necessary to decide what question is being asked. A com-
plexity of testing and the number of testing sites. Analy- mon question is, How much is POCT going to cost the
sis of the impact of POCT on FTEs suggests that at a low organization? That is, what is the overall budgetary im-
testing volume, POCT usually would require an additional pact? Usually, addition of POCT will have little effect on
FTE in the form of a test coordinator but would have no facilities or overhead costs within the organization, so
impact on staffing within the central laboratory. However, there is negligible effect on these cost factors. In analyz-
at higher test volumes, there is the potential for greater ing the budgetary impact of POCT, the labor cost would
FTE reduction in the laboratory than the additional FTE be represented primarily by any change in FTEs or paid
required for coordinating POCT. One other situation in working hours. Management of a POCT program is time-
which POCT may result in an overall reduction of FTEs consuming, so it is appropriate to allocate some labor ex-
is in the replacement of a satellite laboratory with POCT. pense for management and medical direction. Depending
If work is not evenly distributed for a satellite laboratory, on the nature of POCT within a facility and the alterna-
often there is a high labor cost for idle time between testing tives of POCT versus no POCT, labor costs may be either
activities. An analysis of the costs of various testing op- positive or negative. To these labor costs will be added
tions indicates that POCT may result in direct cost reduc- costs for equipment, supplies, and information systems.
tions versus satellite laboratories (39). Adding all of these expenses together yields an estimate
of the annual organizational cost or impact on expense
Cost analysis complications. There are a number of other budgets. Dividing these costs by the total number of tests
complicating factors that affect cost analysis. First, two fun- performed will provide an estimate of the average cost to
damentally different approaches are applied—a bottom-up, perform a test by POCT.
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 477

A second common question is, What charge would be of testing, and duplication of POCT and central laboratory
necessary to recover the costs of POCT? In this analysis, testing. These problems may lead to higher than expected
there usually would be an allocation of nursing time for costs for POCT. Checking a small proportion of POCT re-
performing the analysis and an allocation of a portion of sults with the same test performed in a central laboratory
facilities and administrative overhead costs that must be may serve as a useful quality assurance process (38). How-
recovered in some manner. These costs would be added ever, if most POCT is repeated with a duplicate test in the
to costs for equipment, supplies, etc. In addressing this laboratory, this will have a major impact on the analysis of
question, usually there is no accounting for potential sav- costs, and it may represent a substantial problem either in
ings of expenses for central laboratory testing, changes in test-ordering patterns or in clinical confidence in the reli-
worker productivity, or efficiency of clinical care. This type ability of the POCT. Keys to managing these sources of in-
of analysis usually provides a much higher estimate of per creased costs are good systems for inventory management,
test cost than an analysis of the budgetary impact of POCT. data systems that allow review of test utilization patterns,
It is notable that if calculations are performed to address agreement with and among clinicians regarding appropri-
these two questions, very different values usually result for ate test ordering practices, and effective training of staff.
the average cost of a test. This comparison underlines the
importance of understanding exactly how a cost analysis Assessing the Impact of POCT Services
is being performed and what question is being addressed. Clinical impact. An important part of deciding whether a
One of the major problems in many of the published anal- point-of-care test should be adopted is assessing its poten-
yses of the costs of POCT (8, 37, 46, 79) is that they use tial clinical impact. The general assumption is that faster
cost allocation approaches that do not directly assess the results make for better patient care and better outcomes.
budgetary impact of a test. Differences in approaches of However, as has been discussed elsewhere in this chapter,
cost analysis and lack of recognition that there is more POCT does not always offer optimal results if proper pro-
than one way to calculate the costs of a test lead to much of tocols are not followed and QC is not performed. Even if
the controversy about the economics of POCT. For most the testing is conducted properly, performance may be in-
purposes, costs of POCT are better represented by an anal- ferior to that of more robust laboratory-based methods. A
ysis of budgetary impact performed by a macrocost analy- performance trade-off in favor of a more rapid turnaround
sis of labor (measured as FTEs) rather than by a microcost time may be acceptable, but it is important that the risk
analysis of labor (measured as minutes performing tests) of lower performance be weighed carefully against the
because measurement of labor as change in FTEs accounts benefit of a faster result. Quantifying the benefit of POCT
for changes in productivity and efficiency. can be difficult because many important outcomes such
as patient satisfaction and employee efficiency do not lend
Other differences in the economics of POCT. Besides the themselves to objective measure. The following are just a
labor component, there are a number of other ways in few examples of how POCT has been shown to improve a
which the economics of POCT generally differ from cen- variety of outcomes.
tral laboratory testing. Usually, the supply costs are higher
for POCT and a higher proportion of tests are used for Resource utilization. Resource utilization is a key consid-
quality assurance purposes because a much larger number eration when implementing point-of-care testing. In some
of analyzers need to be checked. The high proportion of cases POCT can be used to more efficiently allocate valu-
tests used for QC and the relatively fixed time required for able supplies such as blood products. In one prospective,
staff training and management of testing lead to substan- randomized trial POCT was used in coagulopathic cardiac
tial economies of scale for performing a higher volume of surgery patients to manage hemostatic therapy. In this
testing (46). The significance of this economy of scale for study patients were randomly assigned to either conven-
the management of POCT is that efficiency is best served tional testing or a POCT group. The study found that on
by restricting POCT to sites that perform a high volume average the POCT group required fewer blood products
of testing. Performing POCT at sites with low volumes of (five units conventional versus three units) (72). These
testing leads to higher supply, equipment, and labor costs findings have been replicated in other settings and suggest
per test. Due to wide variation in the cost elements of dif- that POCT can have a meaningful impact on the use of
ferent POCT procedures, there is no fixed threshold value blood products (63, 73).
for the volume of testing that reaches a significant econ-
omy of scale; each situation must be analyzed with respect Length of stay. Length of stay is a common measure used
to both the direct cost factors and clinical necessity for to assess the impact of laboratory testing and can be con-
rapid turnaround time. sidered a marker of both resource utilization and quality
Three final potential problem areas in the economics of of care. It seems logical that faster test results would lead
POCT are in management of reagent wastage, utilization to shorter lengths of stay, but if testing provides erroneous
478 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

results and inappropriate care, lengths of stay may actu- Clinical outcomes. The most important measure of a
ally be longer. A number of studies have shown that a va- test’s value is, of course, clinical outcome. The wide vari-
riety of POCT can reduce lengths of stay for patients seen ety of point-of-care tests available makes a comprehensive
in the emergency department. Comprehensive metabolic review of their clinical impact outside the scope of this
panels; multimarker cardiac panels including myoglo- chapter. The following are a few representative examples
bin, creatinine kinase-MB fraction, and cardiac troponin; to illustrate the clinical impact one can hope to achieve
whole blood D-dimer; and urine tests for drugs of abuse with POCT. (i) POCT along with an extensive resident
all reduced lengths of stay in the emergency department education program and team-based approach resulted in
by between 20 minutes and 1 hour 15 minutes (24, 49, 51, a statistically significant improvement in the number of
65). It is important to note that these results may not be diabetic patients who achieved their goals of A1C, LDL,
generalizable to all settings, as some studies have demon- and BP levels (62). (ii) In a South African study research-
strated no impact on ED length of stay (55). In addition, ers found that offering CD4 POCT significantly improved
POC pregnancy testing was shown to have no effect on the chances of initiating patients on antiretroviral therapy
length of stay in the emergency department (57). There for the treatment of HIV infection (14). Others have found
is a paucity of literature addressing the impact of POCT the same thing in other settings (30). (iii) Mortality was
on inpatient length of stay. Although evidence suggesting significantly lower when i-STAT POCT was used to man-
that POCT has any impact on inpatient length of stay is age pediatric patients following congenital heart disease
scarce, it has been shown to reduce the need to admit surgery (61). When compared to conventional testing, the
patients in the first place, which is an equally valuable POCT group had statistically lower mortality in neonates
outcome (17). (2.4% vs. 6.2%, P < 0.007) and those patients undergoing
the highest-risk surgeries (9% vs. 30%, P < 0.03).
Improved access to healthcare. Another potential benefit It is clear that POCT can have a positive impact on many
of offering POCT is the ability to provide better access to different aspects of patient care. It may not be surprising,
healthcare for patients. This can manifest in several im- however, that the vast majority of studies assessing the im-
portant ways. POCT can be used in developing countries pact of POCT focus on cost, resource utilization, and ED
and rural settings where complex laboratory services are length of stay. More studies are needed to assess the true
not readily available. The management of POCT in these impact of these tests on clinical outcome.
settings is discussed elsewhere in this chapter. POCT can
also be used to provide rapid and discreet results to pa- Quality Assurance Challenges
tients who might not otherwise submit to testing. HIV POCT has many of the same overall quality assurance
POCT can be used to reach patient populations who are requirements as testing in the central laboratory, such
unlikely to seek healthcare. The goal of offering HIV test- as training of staff, confirming competency, equipment
ing in these settings is not only to make the diagnosis but maintenance, recording of patient results, inventory con-
to link newly diagnosed patients to care. This may seem trol, QC of testing, proficiency testing, documentation
obvious, but understanding this goal can help guide the of processes to meet regulatory requirements, review of
management of how HIV POCT is offered and who con- utilization and budgets, and billing for testing activities.
ducts the testing. Several studies have looked at how effec- Recent reports about patient harm from errors in medical
tive different caregiver groups are at consenting patients care underscore the importance of developing improved
for testing and subsequently linking those HIV-positive strategies for avoiding error in POCT (41). Although the
patients to care. Hsieh et al. showed that when compared goals of quality assurance activities are similar to those in
to medical staff indigenous to the ED, exogenous staff who the central laboratory, there may be substantial differences
were placed in the ED for the sole purpose of conduct- in implementation due to the highly distributed nature of
ing POC HIV testing identified more positive patients, testing and the large number of staff involved.
conducted more tests, and were more effective at linking
those positive patients to care (25). Similarly Walensky Staff training and competency. One of the greatest chal-
et al. found that counselors dedicated exclusively to HIV lenges and a key to making POCT work is training and
POCT consented more patients for testing than the ED assurance of the competency of staff. Even if test devices
provider arm of the study (71). Modeling studies have are operating perfectly, accurate test results will not be
extrapolated these findings to conclude that increased produced if staff personnel are not educated about appro-
HIV test volume is a critical component to reducing HIV priate specimen collection and operation of test devices.
transmission. In their model, which considered the per- Fecal occult blood testing could be considered one of the
formance limitations of POCT HIV testing inside the least complicated tests to perform. However, without ap-
window period, testing did not reduce transmission un- propriate training a number of breakdowns in test proce-
less frequency of testing increased (77). dure have been noted in the past, such as use of the wrong
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 479

developer solution, refilling bottles of developer solution sought when selecting equipment because they check the
with water, incorrect timing of test procedures, and lack instrument, specimen, and in some cases, the reagents
of understanding of color changes (22). Completion of with each use.
training by staff must be an essential component of job- The primary quality assurance focus of laboratory
specific competencies. Considering that training is one workers and regulations usually is on external QC testing
of the most important functions of the coordinators of and proficiency testing. These external controls do serve
POCT, teaching skill should be one of the prime factors as additional checks for equipment and reagent failure.
in the selection of testing coordinators. It can be difficult However, standard QC processes are designed primarily
to schedule enough training sessions to accommodate a to detect systematic shifts in performance over time, and
large number of staff, so it may be helpful to have self- these are less of a problem with POCT, where reagents and
instruction videos or web-based instruction as additional equipment often are stable for months. A standard from
options. Vendors of a number of POCT products have NCCLS (now the Clinical Laboratory Standards Institute
recognized the critical role of training and provide assis- [CLSI]) on unit-use devices has suggested that the fre-
tance with initial training of staff. quency of QC testing should be one-tenth of the shelf life
of reagents rather than more customary testing per shift or
Quality assurance. Quality assurance of POCT can be a per day (75). Discussion of this standard provides an excel-
very demanding activity due to the large number of ana- lent overview of potential sources of error in POCT (75).
lyzers that need to be tracked. Most POCT devices require Standard QC processes are not well designed to detect spo-
limited maintenance such as cleaning and battery replace- radic failures of unit-use devices and do not detect speci-
ment, but if this is neglected, devices may fail. Portable men problems. Two areas in which QC testing may make
devices may be dropped or exposed to vibration, water, a positive contribution in the POCT environment are to
extremes of heat or cold, or other environmental chal- evaluate and provide ongoing competency assessment of
lenges that may lead to equipment failure. In part, this is testing staff and to provide ongoing training of staff who
a training issue, but even with appropriate maintenance infrequently perform a test. To achieve these benefits, it is
and use, periodic device failures are likely. The greater important for QC testing to be rotated among all staff.
potential for equipment damage in an uncontrolled en-
vironment emphasizes the need for control processes to Electronic simulators vs. control materials. One contro-
detect malfunctions of devices. Usually, failure of POCT versial issue with respect to QC testing is the suitability
devices is handled by replacement of the failed unit rather of using electronic simulators rather than control materi-
than attempts at recalibration, service, or repair. This is als (12). Advantages of using electronic controls are sub-
handled by having one or more devices available as back- stantial reduction in the costs for test supplies and control
ups or by having a contingency plan for how service will materials. Often, control testing represents as much as
be delivered. Lack of experience of the testing staff with one-quarter to one-half of the total volume of testing at a
troubleshooting equipment or reagent problems requires low-volume testing site. Therefore, use of electronic con-
on-call support by POCT coordinators or other experts. trols could reduce supply costs by as much as 50%. This
The central laboratory may assist with troubleshooting, reduction in costs may be critical to the economic viability
particularly with interferences or with systematic changes of some testing activities in which unit costs of supplies
of analyzers or reagents that may be identified by compari- are high. The major argument against the use of electronic
son of test results from POCT and the central laboratory. simulators is that although they check performance of the
Changes in U.S. federal regulations in 2003 have af- electronic components of an analyzer, they do not check
fected quality assurance of testing (11). Control processes the performance of the reagents. If electronic simulators
of POCT ideally should assess equipment, specimens, are used, there should be some mechanism to periodi-
reagents, and testing personnel. Some POCT equipment cally check the appropriate function of the reagents. Other
executes internal checks of electronic components, batter- drawbacks of the simulators are that they may provide less
ies, photometers, and other components with each use of assistance with ongoing training and competency evalua-
the device. Mechanisms may exist for detecting specimen tion of testing staff.
problems, such as inadequate specimen volume, clots, or
bubbles. Many devices that are interpreted by direct visual Information Systems and Billing
inspection, such as tests for fecal occult blood, pregnancy, Extensive record keeping is essential for meeting the regu-
and other rapid antigen and antibody tests, have internal latory and quality assurance requirements for POCT (33,
procedural controls that indicate whether the individual 39, 41, 54). The only way to prove that appropriate proce-
device is operational and whether there are inadequate dures have been followed is to provide documentation of
specimens or interferences with the test. These control all activities. Historically, this was one of the most onerous
processes are highly desirable for POCT and should be aspects of the management of POCT. Most information
480 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

was recorded manually, and it was a constant struggle to are small in number. These patients travel long distances
encourage complete recording of necessary data and to to seek healthcare and are unlikely to make the trip back
collect all of the data sheets. In organizations in which the to follow up on laboratory results that are not immediately
scope and volume of POCT grew, it became increasingly available. An example from sub-Saharan Africa suggests
critical to develop data systems to collect this informa- that an average of 40% of HIV-positive patients either do
tion. Many POCT analyzers now have data systems that not provide a blood sample for testing or do not return
collect information about control testing, patient results, for their CD4 count results (48, 60). This is one of the pri-
and which operators performed testing. Also, analyzers mary reasons that POCT has proven so beneficial in these
may have security functions to limit access to authorized environments.
users and lockout functions that require control testing at The simplicity of POCT also offers some obvious ad-
defined intervals before patient testing can be performed. vantages. These environments may have inconsistent
Information from individual analyzers is gathered by pe- power, lighting, and refrigeration, which make offering
riodic uploading of information into a central data station conventional laboratory testing difficult if not impos-
via modem or electronic network or by taking a laptop sible. High staff turnover is a constant problem in any lab
computer to testing sites. but can be particularly problematic in these settings. The
There is increasing recognition of the value of con- simpler the test, the easier it is to maintain competency
solidating all patient test results into central information and train new technologists. In India, Kabra and Kanugo
systems. Entry of POCT results into central laboratory speculated that this was the single greatest challenge to
information systems provides many advantages: increased maintaining a quality POCT program (35). One problem
access to the results of POCT for patient care, improved with POCT training is the common misconception that
ability to track and manage testing activities, ongoing because it is so simple, it does not require training. In a
quality assurance by providing comparison of POCT ver- setting where personnel are unfamiliar with laboratory
sus central laboratory results (38), and improved records procedures and practices, quality control and proficiency
for liability purposes. A major consideration in the selec- testing (PT) programs can be difficult to implement. Not
tion of equipment for POCT should be the data-handling only can it be difficult to institute quality control and PT
capabilities and how it will be interfaced with central in- programs because they are time-consuming, but they are
formation systems. expensive. In these resource-limited settings it can be dif-
The decision to bill for POCT and the selection of bill- ficult to convey the importance of performing testing that
ing methods are complex issues that have been handled in is not going to contribute directly to patient care and may
completely different ways by different organizations (56). add significantly to total cost. A review article by Shott
Some organizations have decided not to bill for POCT, oth- and colleagues illustrates how critical it can be to elimi-
ers have rolled these costs into nursing or room charges, nate laboratory error in these settings. Using HIV test-
and others have billed for individual tests. To perform bill- ing in sub-Saharan Africa as an example, they postulate
ing, it is necessary to have effective information systems that with the high volume of HIV testing in this setting,
that can document ordering of the test, performance of the just a 0.5% error rate could lead to the misdiagnosis or
test, and patient diagnoses suitable for reimbursement. If mismanagement of approximately 50,000 patients (64).
there is some duplication of POCT and central laboratory Although ideally testing would be conducted by trained
testing, this could be identified as double billing. It may be laboratory technicians, this is not a realistic possibility in
necessary to review the frequency of testing on bills to see these settings. Examples from Botswana and Zimbabwe
that this is within allowable limits. Creating the necessary demonstrate that when proper training programs are in
documentation and reconciling bills with rules for reim- place, nonlaboratory personnel can provide reliable test-
bursement are formidable challenges. ing results.
Another issue in managing POCT in resource-limited
POCT in Developing Countries settings is developing physician confidence in test results.
For the reasons just discussed, complex laboratory testing
and Rural Settings
is very difficult to perform reliably, and as a result physi-
Challenges cians grow to distrust laboratory results and often rely on
The challenges of conducting quality POCT in developed clinical diagnosis and empiric treatments. POCT may offer
countries with established hospital infrastructures are a simpler form of testing with a better chance of success.
magnified when performed in the context of a developing Despite their simplicity, though, point-of-care tests are
country or rural setting. Yet these are precisely the envi- not without their problems, as numerous examples from
ronments in which POCT can have the greatest impact. Uganda, Ethiopia, the Democratic Republic of Congo, and
One of the primary problems encountered in these settings Cameroon demonstrate poor sensitivity and specificity of
is that populations are often dispersed over large areas and POCT (1, 10, 36, 40).
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 481

Organizing POCT in Resource-Limited Settings meetings are held to ensure that the many moving parts in
In response to the need for high-quality healthcare in these such a system are all involved in the development, imple-
settings, there have been significant movements from do- mentation, and maintenance of the program.
nors such as Global Fund for AIDS, Tuberculosis and
Malaria, the World Bank, The U.S. President’s Emergency
Technological Challenges
Plan for AIDS Relief (PEPFAR), the Global Health Initia-
tive, and private foundations (2). These programs provide Rapid Changes of Menu, Devices, and Technology
valuable materials and access to healthcare, but it is im- Historically, POCT was severely limited by the small menu
portant that proper laboratory infrastructure be in place of tests that could be performed and by the relatively poor
to take advantage of these resources. Due the nature of the analytical quality of tests. However, advances in technol-
rural setting, it is important that some form of decentral- ogy and successful miniaturization of devices have made it
ized laboratory system be in place to provide testing. The technically feasible to perform virtually any test as POCT
centralized lab model does not work in situations where (41, 54). Ongoing advances in the microfabrication of
the population is spread out over a large area and people devices and in nanotechnology provide the promise of
are unlikely to make long trips to seek care at a central substantial future technological change and further reduc-
location, much less follow up on test results. These rural tion in the size of POCT devices. Miniaturization of test-
“laboratories” can be present in traditional hospital or ing devices alone is not sufficient to make a test suitable
clinic settings if they exist, or they can be mobile, in which for POCT. It is also important to reduce analysis times,
case the testing can be brought directly to those in more to simplify the operation of test devices, and to minimize
rural settings. requirements for specimen preparation. To be suitable for
To manage quality of testing and maintain proper POCT, a test usually must accept an unprocessed sample
training as well as distribution of supplies Alemnji and such as whole blood, and the analysis times must be less
colleagues (2) recommend what they call a “tiered stan- than about 15 minutes. If these conditions are not met, it is
dardized integrated structure.” An important key to this difficult to perform the procedure as POCT or the advan-
kind of system is having a robust referral center and cen- tage in turnaround time of POCT versus central labora-
tralized national public health laboratory that can help tory testing is not sufficient to provide a strong advantage
to manage the testing program on a national level. These for POCT.
centers should be able to perform more complex confir- The previously cited example of intraoperative PTH
matory testing if needed as well as provide counseling and testing provides an interesting example of the interplay
treatment for patients with new diagnoses. Importantly, between testing technology and the decision to perform
these centers should also help to maintain the quality con- a test as POCT. When technological advances reduced the
trol and quality assurance programs and be responsible for time it takes to perform PTH tests from hours to less than
maintaining training and proficiency testing. 15 minutes, it became practical to perform testing during
Quality assurance (QA) programs are critical to the surgical procedures (29). Some organizations decided to
success of POCT in these settings. QA programs should perform intraoperative PTH testing as POCT, while other
include external proficiency testing (PT) specimens, fol- organizations decided to transport specimens rapidly and
low-up on discrepant results, and routine site visits. An to perform intraoperative PTH testing in a central labora-
obvious barrier to a successful QA program is the cost and tory (23). The decision of how to provide this testing ap-
challenge of distributing PT specimens. The Centers for pears to be influenced strongly by the characteristics of the
Disease Control and Prevention (CDC) has developed a testing devices—size, complexity of operation, cost, and
dried tube specimen that simplifies the shipping of HIV testing menu. This test serves as just one example of how
serology and viral-load proficiency specimens. The same technological advances are greatly complicating the man-
distribution concerns that exist for PT specimens also exist agement of POCT by expanding the menu of tests that can
for the tests themselves. There are many potential pitfalls be performed. In the past, it was easy to make the choice
for implementation of effective in-country distribution of POCT versus central laboratory when a test such as
systems; lack of reliable human resources, inventory track- PTH could not be performed rapidly or no analyzer was
ing, and delayed processes for requesting laboratory tests available that was suitable for POCT. Now it is necessary
are a few of the most significant. to evaluate critically a much wider range of potential tests
In the end, implementing a successful POCT program and devices for POCT.
in a rural setting or developing country is dependent on The rate of innovation and change of POCT devices has
having a strong system approach. There must be coordi- been faster than for high-throughput analyzers in the cen-
nation among the many interested parties, from local, re- tral laboratory. This is possibly due to the lower complexity
gional, and national governments to other interest groups and much smaller capital investment for manufacturers to
outside the country. It is recommended that stakeholder design a POCT device than a large laboratory analyzer. For
482 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

example, there have been about five generational changes systems (10a). How to link devices to information systems
in the fundamental technology applied to POCT glucose has become an increasingly important consideration in the
measurement over the past 25 years from (i) visually in- evaluation of devices.
terpreted test strips to (ii) test strips read by optical meters
after wiping away blood to (iii) no-wipe test strips read by Lack of Equivalence between POCT and Central
optical meters to (iv) test strips read electrochemically to Laboratory Tests
(v) microsample testing with electrochemical detection (6, In many cases, the specimen type or fundamental mea-
16, 74). Other changes in approach, allowing testing with suring principles of POCT devices differ from those used
minimally invasive or noninvasive technologies, are de- in the central laboratory, and these can be confusing to
scribed in the next section; they may be viewed as further clinicians who are trying to interpret test results. Thus,
generational changes in technology. At the same time as it is important to perform careful comparisons of POCT
all these changes in POCT devices and testing technology and central laboratory results. Differences in whole blood
have occurred, there has been little change in the technol- specimens used for POCT versus serum or plasma samples
ogy applied to glucose testing in central laboratories other used for central laboratory testing can lead to systematic
than increased automation of analyzers and availability differences in results for tests such as glucose (6, 28, 44).
of whole blood glucose testing through expansion of the Efforts have been made to reach agreement on a common
menu of blood gas analyzers. reference standard such as plasma for glucose measure-
The high rate of change and innovation in POCT de- ment to reduce the problem with comparison of POCT
vices presents a management challenge to stay abreast of and laboratory results (28). However, the volume dis-
information about these products. When advertisements placement and viscosity effects of hematocrit still can af-
and salespeople tout the latest and greatest new POCT de- fect the reliability of results for specimens with extremely
vices and tests, how can your organization evaluate these high or low hematocrits (6). Fundamental problems of
claims? There are continuous upgrades for existing POCT comparability of methods often have been experienced
devices, so a vendor of devices currently in use in your for POCT hematocrit measurements by conductivity ver-
organization is likely to propose or require an upgrade as sus laboratory measurements (69) and for POCT whole
a change in the product is made and the old product is blood coagulation tests versus laboratory measurements
discontinued. It is difficult for laboratory workers to be on plasma specimens (45). Sometimes variation in the
knowledgeable about the characteristics of a wide range of site of specimen collection can affect results. The glucose
new POCT devices, many of which are not used in central concentration of capillary blood from fingers can differ
laboratory settings. Technologies and performance char- substantially from the concentration in venous blood (44).
acteristics may differ from central laboratory analyzers, Collection of capillary blood from a forearm can yield dif-
and extensive track records of clinical use and published ferent results than sampling from a finger (16, 34, 50). Dif-
evaluations may be lacking. It is difficult to even keep up ferences in testing technology can lead to differences in
with the range of test devices that are available, and most the interferences with POCT devices (6, 43), so it is im-
published reports become outdated quickly. As a result, portant to become informed about the potential limita-
the most useful resources for surveying what devices are tions of each test device.
available are periodically updated surveys such as those Practical consequences when there is nonequivalence
in CAP Today (accessible at http://www.cap.org). A web- between POCT and laboratory methods include a need
site of the U.S. Food and Drug Administration includes a (i) for careful comparison studies by the laboratory to
list of approved devices and devices that are classified as guide device selection and to provide data about expected
waived (http://www.fda.gov/cdrh/oivd). For the most cur- differences for clinicians, (ii) for education of clinicians
rent information about individual products, it is necessary about differences, and (iii) to report values by nonequiv-
to consult with vendors. alent methods in separate columns in laboratory reports
At the same time as there has been rapid evolution of the with appropriate reference values. It is desirable to have
analytical capabilities of POCT devices, there have been POCT and laboratory values side by side in reports to pro-
major changes in the quality assurance processes, internal vide ongoing comparison.
data systems, and the ability to transmit data to central in-
formation systems. A major problem with POCT devices New Monitoring Technologies
has been the lack of common standards for internal data One growing source of uncertainty in defining the limits
systems and for communication between other devices or of POCT is the blurring of the boundaries between physio-
central information systems. Recent development of stan- logical monitoring—traditionally, measurements such as
dards by the Industry Connectivity Consortium should blood pressure, pulse rate, and temperature—and labora-
lead to improved ability to link devices to information tory testing. It is now possible to perform measurements
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 483

of analytes such as electrolytes, blood gases, and glucose Summary

with new types of devices attached to a patient (70, 78).
POCT presents some of the greatest and most controver-
Electrodes can be inserted into blood vessels or subcuta-
sial political, organizational, operational, and technologi-
neously to provide continuous measurements. Specimens
cal challenges for laboratory workers. POCT often crosses
can be collected through the skin barrier by micropunc-
traditional organizational boundaries, encompasses test-
ture or iontophoresis and analyzed by devices placed
ing activities performed at a large number of different
on the skin surface. Measurements can be made photo-
sites, and requires training and coordination of a large
metrically through tissue or by reflectance to measure
number of staff with limited experience performing labo-
bilirubin, glucose, hematocrit, or other compounds. The
ratory tests. One of the most controversial issues is whether
greatest commercial and clinical interest is in noninva-
POCT costs more or leads to lower costs relative to central
sive measurement of glucose for diabetes care. This is
laboratory testing. Part of this controversy relates to a lack
a very large and dynamic field for which current infor-
of standard approaches for analyzing costs. There is evi-
mation is best obtained through websites such as http://
dence that POCT can reduce total organizational costs in
www.diabetesmonitor.com/meters.htm and http://www
certain circumstances. POCT is also one of the most dy-
.childrenwithdiabetes.com.
namic and rapidly changing fields of diagnostic testing,
Federal regulations in the United States (Clinical Labo-
driven by rapid technological change as well as evolving
ratory Improvement Amendments of 1988) define labora-
clinical demands. There are no simple solutions to the
tory tests as procedures in which specimens are removed
complex issues of POCT that are universally applicable to
from the body for analysis (13). Procedures that are per-
varying organizational structures, political and historical
formed by devices attached to patients, such as those
contexts, laboratory operations, and clinical demands for
described above, or that involve the analysis of breath spec-
testing. With all of the organizational and operational hur-
imens are considered to represent physiological monitor-
dles to overcome, perhaps the greatest challenge in POCT
ing rather than laboratory testing. This raises a question:
is to try to maintain a focus on the goals of using POCT to
Is a glucose measurement performed by a device attached
achieve the greatest organizational efficiency and the best
to a patient not a laboratory test, while a glucose measure-
possible patient care.
ment performed on a specimen physically removed from
a patient is a laboratory test? At this point, it is not clear
how tests performed by monitoring devices will be classi- KEY POINTS
fied in the future or whether the same standards will apply ■ POCT presents different management challenges than
to measurements made by monitoring devices. other types of laboratory testing.
In addition to posing fundamental questions about ■ Cost analysis of POCT requires a clear understanding
the limits and regulation of laboratory testing, monitor- of the question that is being addressed. Analysis of la-
ing technologies pose new challenges in the interpretation bor costs usually is best addressed by evaluation of the
of test results. Some of these devices measure concentra- impact on FTEs.
tions in tissue or interstitial fluids rather than in plasma
■ There is evidence that POCT can lower organizational
or blood, and there may be physiological differences in
the specimens sampled (34, 50, 70). Accuracy and perfor- costs in selected circumstances.
mance characteristics of these devices may differ substan- ■ Advances in testing and information technology are
tially from those delivered by usual laboratory tests, and driving rapid change in the form and scope of POCT.
the number of test results may be much greater. These is-
sues will complicate the interpretation of results and the GLOSSARY
management of a large number of test results. For clini-
American Osteopathic Association A professional association
cians to interpret results from these devices, it will be im- of doctors of osteopathy that also provides laboratory accredita-
portant for any organization using monitoring devices to tion services, primarily for physician office laboratories.
perform comparisons versus traditional laboratory mea-
surements to generate information about how results from Clinical and Laboratory Standards Institute (CLSI) A global,
nonprofit, standards-developing organization.
the monitoring device and the laboratory compare. Also,
whether these devices are officially classified as laboratory COLA (formerly the Commission on Office Laboratory Ac-
tests or not, there will be a need for mechanisms to ensure creditation) An organization that provides laboratory accredita-
the quality of the test results. Processes and management tion services primarily for physician office laboratories.
structures developed for POCT may be effective mecha- College of American Pathologists (CAP) A professional asso-
nisms for supporting monitoring devices even if these are ciation of pathologists that provides laboratory proficiency test-
not covered by the same regulations as laboratory testing. ing and accreditation services.
484 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Full-time equivalent (FTE) A labor component equivalent to 8. De Cresce, R. P., D. L. Phillips, and P. J. Howanitz. 1995. Fi-
the time worked by one full-time employee on a standard nancial justification of alternate site testing. Arch. Pathol. Lab. Med.
schedule. 119:898–901.
Industry Connectivity Consortium A group that has developed 9. Despotis, G. J., J. E. Grishaber, and L. T. Goodnough. 1994. The
engineering standards for electronic communication between effect of an intraoperative treatment algorithm on physicians’ trans-
POCT devices. fusion practice in cardiac surgery. Transfusion 34:290–296.

The Joint Commission An organization that accredits health- 10. Dessie, A., B. Abera, F. Walle, D. Wolday, and W. Tamene.
care facilities and components of their services such as labora- 2008. Evaluation of Determine HIV-1/2 rapid diagnostic test by 4th
tory testing. generation ELISA using blood donors’ serum at Felege Hiwot Refer-
ral Hospital, northwest Ethiopia. Ethiop. Med. J. 46:1–5.
Macrocost analysis Analysis of costs by breaking down overall
10a. Dunka, L. J. 2006. Point-of-Care Connectivity. Approved Stan-
budgetary costs.
dard, CLSI publication POCT1A2. Clinical Laboratory Standards
Microcost analysis Analysis of costs by adding up costs for per- Institute, Wayne, PA.
forming an individual test. 11. Ehrmeyer, S. 2003. Using a creatinine ratio in urinalysis to im-
Monitoring devices Devices that are attached directly to a pa- prove the reliability of protein and albumin results. MLO Med. Lab.
tient and provide periodic or continuous measurements. Obs. 35:26–30.

NCCLS (formerly National Committee for Clinical Laboratory 12. Ehrmeyer, S. S., and R. H. Laessig. 2001. Electronic “qual-
Standards)  An organization that develops standards for labora- ity control” (EQC): is it just for unit use devices? Clin. Chim. Acta
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Physician-performed microscopy Microscopic examinations
ments (CLIA ’88, JCAHO, CAP) for decentralized testing. Am. J.
such as potassium hydroxide preps and wet preps performed by
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Point-of-care testing (POCT) Testing performed outside of a Osih. 2011. Providing immediate CD4 count results at HIV testing
laboratory facility. improves ART initiation. J. Acquir. Immune Defic. Syndr. 58:e54–e59.
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 CHAPTER25. MANAGEMENT OF POINT-OF-CARE TESTING 487

APPENDIX 25.1 Websites with Information Relating to POCT

Children with Diabetes DiabetesMonitor.com

http://www.childrenwithdiabetes.com, accessed September 26, 2012 http://www.diabetesmonitor.com/meters.htm, accessed September
Information about new developments in the field of diabetes includ- 26, 2012
ing POCT devices. Information about POCT devices and technologies useful for testing
diabetics.
Clinical and Laboratory Standards Institute Point of Care
http://www.clsi.org, accessed September 26, 2012 http://journals.lww.com/poctjournal/pages/default.aspx, accessed
Website with many links to laboratory standards information. September 26, 2012
Website for the journal Point of Care; access to articles requires
College of American Pathologists (CAP) subscription.
http://www.cap.org, accessed September 26, 2012
U.S. Food and Drug Administration
Checklists and information about laboratory inspections, articles
and instrument surveys in CAP Today, and information from the http://www.fda.gov/cdrh/oivd, accessed September 26, 2012
POCT Committee. Provides a list of approved diagnostic devices and devices classified
as waived.
Critical and Point-of-Care Testing Division of the AACC U.S. FDA Press Release: FDA approves first over-the-counter
http://www.aacc.org/members/divisions/cpoct/pages/default.aspx, home-use rapid HIV test
accessed September 26, 2012 http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/
Information about educational programs and other resources. ucm310542.htm, accessed September 26, 2012
Introduction
Preanalytic Activities
26 Principles of Preanalytic and
Test Selection and Implementation • Appropriate Test
Utilization • Specimen Acquisition, Transport, and
Postanalytic Test Management
Storage • Test Ordering
Postanalytic Activities Adarsh K. Khalsa, Michael Santa Cruz, and
The Report • Storage and Retention • Assessment of
Test Results on Patient Outcomes Michael A. Saubolle
Summary
KEY POINTS
GLOSSARY OBJECTIVES
REFERENCES To familiarize readers with the principles of selection, assessment, and
incorporation of diagnostic tests
To review principles of test evaluation and utilization and their effect on
patient outcomes
To describe major elements of requisition and test menu formats
To review principles of formatting of reports of test results
To review the necessity for report interpretation and consultation comments
To review the needs for record storage

When you are called to a sick man, be sure you know what the matter is—if you
do not know, nature can do a great deal better than you can guess.
Nicholas de Belleville

T
he primary function of a clinical laboratory is to provide ac-
curate, clinically relevant data for the diagnosis of medical conditions
in patients. Once available, the data can be used to provide the indi-
vidual patient a management plan to increase the probability of achieving a
desirable outcome (32). The production of laboratory data is a culmination
of sequential processes constituted of preanalytic, analytic, and postanalytic
laboratory activities that begin with a clinician’s request for specific studies on
an individual patient (11). Such sequential processes are also known as “path
of workflow” and have been described and defined by the Clinical and Labora-
tory Standards Institute (CLSI; previously called National Committee on Clin-
ical Laboratory Standards or NCCLS) and Clinical Laboratory Improvements
Amendment (CLIA) regulations (Table 26.1).
The level of quality of service provided by a laboratory can affect patient
care outcomes considerably, either positively or negatively (32). To achieve
optimal patient outcomes, it is imperative to evaluate the effect of preanalytic
and postanalytic activities on the clinical significance and medical impact of
laboratory tests (36).
Processes and procedures implemented within the laboratory should be
understood as to their impact on workflow. Their design should have the
level of quality needed to minimize errors and resource waste while maxi-
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia mizing efficacy. Quality standard guidelines and regulatory accreditation re-
©2014 ASM Press, Washington, DC quirements have been published and need to be met (Table 26.2) (10, 21, 26,
doi:10.1128/9781555817282.ch26 27, 55, 56).

488
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 489

Table 26.1 Processes in the clinical laboratory: path of workflowa,b to achieve the most positive effect on patient outcomes
Process type Description or definition and cost effectiveness. Because, subsequent to laboratory
Preanalytic Steps taken before test is performed (preex- testing, various actions or interventions may occur that
amination phase). Processes beginning with are not under laboratory control, to ensure quality care
test request and its format, patient preparation, and follow-up for the patient, it is important for labora-
specimen collection, specimen transportation, tory management to interact with teams of nonlaboratory
specimen receipt in the laboratory and prepara-
specialists, including infectious disease clinicians, hos-
tion for testing (specimen processing).
pitalists, infection control epidemiologists, radiologists,
Analytic Activities related to the performance of labora- pharmacists, clinical case managers, and the nursing staff.
tory testing or examination of specimens (ex- The reporting format of test results and the accompanying
amination phase). interpretation also play crucial roles in assisting clinicians
to best serve their patients.
Postanalytic Steps that occur after a laboratory test has been
performed (postexamination phase). Processes
include data review, report formatting, result
interpretation and presentation, permission for Preanalytic Activities
release, result transmission, and sample storage. The preanalytic phase refers to all steps taken before ac-
a
Path of workflow: sequential sum of all preanalytical, analytical, and postana- tual testing is performed on a patient’s specimen. It in-
lytical processes, beginning with test order and culminating with laboratory data
output.
cludes test selection, test ordering, patient/specimen
b
Compiled from references 11 and 21. identification, specimen collection and transportation,
specimen processing and preparation, as well as appro-
priate specimen storage prior to testing. Referral of speci-
It is not adequate to evaluate tests solely from the mens to reference laboratories for additional or otherwise
laboratory-centered perspectives of accuracy, rapid turn- esoteric testing is included in this phase. Processes must
around time, low cost, and high sensitivity/specificity. be maintained for the assessment of all preanalytic activi-
Rather, to achieve the highest quality in all processes, ties. Business management strategies such as application
laboratory management must be dedicated to the contin- of Six Sigma practices and the College of American Pa-
uous assessment of both pre-and posttesting of all labora- thologists (CAP) Q-Probes Program (www.cap.org/appa/
tory studies. cap.portal, accessed October 17, 2012) may further assist
The laboratory medical director should be responsible in the analysis of laboratory processes for appropriateness
for the assessment of test results on patient outcomes and efficacy (40).
and therapeutic protocols (34). After careful test selec-
tion and implementation, the laboratory should evaluate Test Selection and Implementation
both test utilization and appropriateness of test ordering Test complexity. The Clinical Laboratory Improvements
Amendments were passed by Congress in 1988 (CLIA ’88)
to establish quality standards for laboratory testing and to
Table 26.2 Partial list of guidelines and regulatory
ensure the accuracy, reliability, and timeliness of patient
accreditation requirementsa
test results. Initially, laboratory tests were categorized by
Test method validation
CLIA ’88 as either waived, moderate complexity, or high
Accuracy
Precision complexity. However, a “final rule” published in the Fed-
Analytic sensitivity (lower level of detection) eral Register in 2003 recognized only two classifications
Analytic specificity of laboratory tests: waived and nonwaived (14). Thus, the
Reportable range original classifications of moderate complexity and high
Reference range
complexity were combined together under the classifica-
Verification of FDA-approved tests
tion of “nonwaived testing.” Waived tests are defined as
Retention of validation/verification data simple laboratory examinations and procedures that are
Proficiency testing cleared for home use by the U.S. Food and Drug Admin-
Personnel requirements istration (FDA), have simple methodologies, or pose no
Competency of personnel reasonable risk of harm to the patient if performed incor-
Reporting of critical results (critical list) rectly (21). Nonwaived tests (both moderate and high com-
Computer system accuracy checks plexity) have more difficult methodologies and, with one
Format of reporting corrected reports exception, more rigorous regulatory requirements. The ex-
a
For additional description and listing see CAP Checklist Up- ception is the differing levels of training required for per-
dates, 2009 LAP Audioconference Series, sponsored by the Com-
mission of Laboratory Accreditation of the College of American sonnel performing either moderate- or high-complexity
Pathologists (CAP) at www.cap.org (accessed November 12, 2012). testing. When determining whether to add a specific test
490 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

to the menu, laboratories must decide into which of these overuse may burden the laboratory unnecessarily, may
categories the test fits and whether or not the laboratory cause the patient avoidable harm, and does not contribute
meets the requirements to perform this level of testing. to improved quality of medical care, shorter hospital stays,
Further information regarding categorization of tests can or reduced mortality (37). An unexpected result may lead
be found at the FDA website at http://www.fda.gov (last to unnecessary additional testing or inappropriate care for
accessed October 12, 2012). Laboratories performing non- a particular patient (23). It has been shown that, even for a
waived testing must be certified or licensed under CLIA healthy person, the greater the number of tests ordered,
regulations. They must operate with guidelines in place for the greater the probability that some of the test results will
proper patient test management and must set specifica- fall outside of the “normal” range. Table 26.4 lists the prop-
tions for all areas that can impact specimen integrity and erties of useful diagnostic tests (31, 39).
positive identification throughout preanalytic, analytic, Clinically relevant screening tests (such as lipid pan-
and postanalytic processes. The laboratory must maintain els for evaluation of risk for coronary artery disease, PSA
an adequate number of qualified employees to perform for prostate cancer, and carriage of group B Streptococcus
these tests (21). during the 35–37th week of pregnancy as a risk factor for
neonatal infection during delivery after premature rup-
Types of tests. At the most basic level, laboratory tests ture of membranes) are those that may show previously
are tools to gain information about a patient (16). Tests undetected disease in asymptomatic people or identify
are commonly ordered for a variety of reasons, includ- risk factors for a disease (23, 39). Table 26.5 lists various
ing diagnosis, screening for disease, and patient manage- parameters for the ideal setting for diagnostic screening
ment (Table 26.3) (23). Clinicians’ self-described reasons tests. When these criteria are applied to measure the ef-
for ordering tests are usually somewhat diverse, in that ficacy of screening tests, it becomes evident that only a few
tests are often ordered for establishing a baseline, assess- such tests are appropriate and only for a handful of dis-
ing prognosis, reassuring patients, and helping with treat- eases. People shown to have an increased risk of disease by
ment decisions. Appropriateness of ordering and effects a screening test are usually advised to consult a physician
of testing often go beyond diagnosis or immediate treat- for follow-up when appropriate (7).
ment decisions in this setting (16). Thus, understanding Input from clinicians and other healthcare providers is
testing needs from the clinician’s point of view can help vital for the best possible selection of tests. Diagnostic and
in developing strategies to optimize patient care while at monitoring criteria can be established through collabora-
the same time enhancing cost-effectiveness. Testing that tion with specialists in each area of clinical practice. From
may appear unnecessary to the laboratory may be based on these criteria, essential tests for a particular clinical setting
physical findings known only to the clinician (3). can be chosen. It is also crucial to work with managed-
The diagnostic process in patient care is critical in that care leaders, case managers, contract providers, insurance
it leads to prognosis and treatment (23). A clinician may payors, and government representatives, as certain types of
inappropriately order diagnostic tests because the tests testing may not be covered by insurance or other financial
appear to pose minimal risk while providing possible fur- reimbursement. Needs assessment should also consider
ther useful information. Unfortunately, in general, there the testing environments, of which there are many more
are no perfect diagnostic laboratory tests. This type of options than in the past. Testing may be done “in the field,”
commonly known as point-of-care, or may be done in a
clinician’s office, a clinic, hospital, or freestanding diagnos-
Table 26.3 Applications of laboratory testsa tic facility (16). Collection of specimens or administration
Basic screening of some tests may require hospital admission, albeit nor-
Establishing (initial) diagnosis mally as outpatient status.
Differential diagnosis There is increasing interest in patient-directed orders
Estimating prognosis for testing, both by consumers and laboratories. Direct
Evaluation of current medical case management and outcomes
Evaluating disease severity
Detecting disease recurrence Table 26.4 Properties of useful diagnostic testsa
Monitoring course of illness and response to treatment Methodology is well described and easily reproducible.
Selecting drugs and adjusting therapy Accuracy and precision have been ascertained.
Group and panel testing (often with authorized “reflex” testing) Established reference range.
Regularly scheduled follow-up tests as part of ongoing care Sensitivity and specificity established based on an appropriately wide
Testing responding to specific events or certain signs and symptoms spectrum of clinical presentations and patient types (including age
(such as sexual assault, drug screening, postmortem) where necessary).
a a
Adapted from references 16 and 39. Adapted from references 16 and 39.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 491

Table 26.5 Parameters for ideal settings for screening tests to ascertain local regulatory constraints, if any, on releas-
Characteristics of population ing results to unauthorized people, including the patients
Sufficiently high prevalence of disease themselves. Many of the tests performed at DAT centers
Likely to be compliant with subsequent tests and treatments are classified as waived. However, there are tests offered at
these facilities that are categorized as nonwaived, requiring
Characteristics of disease
stringent regulatory compliance. Laboratories considering
Significant morbidity and mortality
offering DAT may damage their relationships with their
Effective and acceptable treatment available
physician clients. Although it appears that corporations
Presymptomatic period detectable
are welcoming this type of testing as a business opportu-
Improved outcome from early treatment
nity, physicians may be more concerned about its ramifi-
Characteristics of test cations and effects. Laboratories will have to find ways to
Good sensitivity and specificity bridge the gap between these differing opinions.
Low cost and risk
Confirmatory test available if necessary and practical Test sensitivity, specificity, and predictive values. The pa-
a
Adapted from reference 39. rameters of the sensitivity, specificity, and predictive value
of a test, in essence, describe the clinical value of a test.
Numerous detailed descriptions and analyses are available
access testing (DAT) is initiated by an individual patient, (16, 17, 23, 28). The sensitivity of a test is the percentage of
without evaluation or order by a clinician (1, 50). Results individuals who have the particular disease for which the
are returned directly to the patient ordering the test rather test is used and for whom positive test results are found.
than to a clinician. Reimbursements for DAT come directly Expressed as a formula, percent sensitivity is the percent-
from the patient and not from third-party payors (e.g., age of people with the disease/analyte who test positive
Medicare, managed-care plans). This type of testing is be- using the test in question divided by the total number of
coming increasingly popular due to a move toward a more people tested with the disease multiplied by 100. Specificity
health-conscious society that wishes to be more proactive shows the percentage of individuals who do not have the
in its health management. Avoiding the cost of the copay particular disease being tested and for whom negative test
or the cost of the entire physician visit is another reason results are found (16, 17). Expressed as a formula, percent
that DAT is becoming popular in the outpatient setting. specificity is the percentage of people without disease who
Self-initiated testing is a natural progression to testing of- test negative with the test in question divided by the total
fered at health fairs and home test kits (19, 24). number of people without the disease multiplied by 100.
Laboratories must develop an awareness of some of the While sensitivity and specificity do not change with
issues related to offering DAT (Table 26.6). Many states al- various populations of unwell or healthy people, predic-
low test ordering and result release only to appropriately tive values can vary considerably depending on the age,
licensed practitioners. State regulations must be reviewed gender, or geographic location of those tested. The positive

Table 26.6 Pros and cons of direct access testing (DAT)a

Pros Cons
Allows patients to keep sensitive test results out of medical records or Potential to have negative impact on health status for certain patients
away from insurers if desired Potential to leave patient’s physician unaware of conditions or problems
Empowers consumers to take charge of their own health that need care or attention
Opportunity to reduce costs by eliminating the middleman False positives or false negatives may have adverse impact on patient
Gives educated patients opportunity to be involved in managing and health
monitoring their own health Physicians may have less control over patient management
Makes it easier for patients with chronic conditions to be involved in Potential to play into patient hypochondria
monitoring; could reduce unnecessary physician visits Potential for charlatans to take advantage of uninformed consumers
Testing not limited by geography of provider Testing costs may be higher because they are not negotiated by an insur-
ance company
Other considerations
Testing laboratories need to establish clear lines of communication when providing results to patients.
Individual state regulations may differ and need to be closely examined.
DAT testing is often not covered by insurance providers; patients must be made aware.
Concerns may be addressed through education, regulation, oversight, and enforcement.
a
See references. 1, 23, and 50.
492 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

predictive value provides the probability that a positive medical services to patients. Improvement in diagnostic
result indicates the presence of disease. Conversely, the capability and decreasing turnaround times (TATs) have
negative predictive value provides the probability that a brought clinical medicine to the verge of “real-time” diag-
negative result indicates the absence of disease. nosis, in which early intervention has a real chance to im-
prove outcomes significantly. Molecular-based technology
Test reimbursement. To remain viable, laboratories need and computerized automation will continue to improve
to be reimbursed appropriately for the testing they per- diagnostic capability. Often, clinicians request diagnos-
form. In most instances, for a test to be reimbursable by tic tests whose overall effect and efficacy on patient care
Medicare and other third-party payors it must have been have not been well evaluated and whose reimbursement by
reviewed and approved by the FDA. The test must also third-party payors is in doubt. It is imperative that the lab-
have received recognition by the American Medical As- oratory evaluate such innovations and categorize them as
sociation (AMA) by being assigned to the code book of to clinical and diagnostic efficacy and financial feasibility.
current procedural terminology (CPT) by the AMA’s CPT Fiscal as well as clinical responsibility is paramount when
committee; it often takes a year or longer for an approved making decisions on implementing tests (Table 26.7).
test to receive a designated CPT code for billing pur-
poses. When a laboratory performs a test that is deemed Cost studies. Cost-benefit analysis is a very important step
experimental by the AMA or is not approved by the FDA, in the assessment for test implementation. Several meth-
the Centers for Medicare and Medicaid Services (CMS), ods are available to assist with the cost accounting process.
previously known as Health Care Financing Administra- The instrument cost accounting technique was published
tion (HCFA), will not allow reimbursement for that test, by Travers in 1989 and is presented elsewhere in detail (56).
and Medicare will not reimburse the laboratory for that This method takes into account instrument-related costs,
test. Managed-care providers generally follow this pattern direct materials costs, and labor costs. The process is suf-
as well. Thus, laboratory managers must review the AMA’s ficiently generic to apply to any department in the labora-
official CPT code book, which is published and updated tory. As the cost for each test is determined, total costs for
yearly, to keep current with the available chargeable tests. patterns of disease-related groupings can be calculated.
Failure to do so may compromise the financial viability Procedural analysis can also be implemented using
of the laboratory due to the performance of tests whose published CLSI guidelines (38). These guidelines include
expense is incurred solely by the laboratory. Beyond the methods for analysis that can justify the addition of new
initial evaluation, it is imperative to consistently monitor procedures, assist in determining the frequency of test
the reimbursement of frequently ordered tests. Laborato- runs, and supply information regarding the performance
ries need to reevaluate the reimbursement of individual of laboratory personnel or instrumentation. The guide-
tests and to use this during negotiation for managed-care lines provide in-depth definitions of terms, numerous
contracts in order to be appropriately compensated and to sample forms, examples of different scenarios, relevant
be able to continue offering the tests. variables, and frequently asked questions. The importance
of first having a functional model of the laboratory in place
Available technology. Advancements in science and tech- is emphasized. The model should include component
nology have allowed and will continue to allow laborato- working instruments and laboratory cost centers, as well
ries the opportunity to increase and enhance test menus to as availability of ancillary data from finance, payroll, and
aid clinicians in their endeavors to monitor and provide purchasing departments.

Table 26.7 Factors affecting the decision to implement or discontinue a test

Category Reasons to implement Reasons to discontinue
CLIA Have staff with adequate education Staff fails to meet CLIA guidelines
and experience
Have system to ensure accurate results
Managed care/Medicare reimbursement Assay reimbursed by Medicare and Inability to obtain adequate reimbursement
managed care from managed care or Medicare
Testing technology Ease of use with test kits Testing becomes obsolete
More readily obtained Manufacturers discontinue test kits/reagents
Technology advanced
Cost effective High-volume ordering Test volumes too low
Increase in reimbursements from
managed care
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 493

A formula has been described for determining the Test implementation: verification and validation. CLIA
cost-effectiveness of screening tests (51). Each of the fac- ’88 specifies that for a newly introduced or modified test
tors (prevalence of the disease, cost of the test, and the methodology a laboratory process must be in place to
benefit of detecting the disease) is assigned a numerical initially verify the test and periodically validate its per-
value, yielding a benefit-to-cost ratio. For a test to be cost- formance (10, 21). The topic, including discussion of
effective, the ratio should be greater than 1.00. methods for verification and validation, is well reviewed
The consideration of whether to perform a test in- elsewhere (10). Verification includes evaluation of the per-
house or to send it to a referral laboratory is influenced by formance of a new or modified test being introduced into
several factors (33). One factor is the comparison of the the laboratory. It focuses on the determination of new per-
estimated total cost of performing the test in-house versus formance characteristics or confirmation of commercially
the estimated total revenue for that test. The costs must determined and published performance characteristics for
include capital expenditure for equipment, instrument a test. Specifically, in verification, test sensitivity, speci-
maintenance, reagents, consumables, controls, repeat test- ficity, and perhaps predictive values must be determined
ing, and personnel expenses. Expected test volume must or confirmed. Verification results must be available for
be considered in the equation. Other issues concern the physician review during the tenure of the test method in
technical expertise of existing personnel, space availabil- the laboratory (10, 45). Validation, on the other hand, as
ity in the laboratory, frequency of test performance, the a component of an ongoing laboratory quality assurance
time and complexity of processing the specimen for refer- program, periodically evaluates and documents the per-
ral, and the test’s clinical acceptance (i.e., likely to become formance of a test over time to ensure its continued pro-
commonplace or remain esoteric). vision of expected results established during verification.
Additional factors playing important roles in the Guidelines from manufacturers and accreditation agencies
decision-making process on in-house performance of may be used to determine the validation frequency for a
testing include consideration of required turnaround test; CLIA ’88 suggests six-month intervals.
time, accreditation and quality of the available reference
laboratories, specimen transport issues, reporting format, Appropriate Test Utilization
and method of report delivery (computer, fax, mail, or In the patient-oriented, cost-effective laboratory, periodic
courier). Because of variances in individual laboratories evaluation of test utilization and appropriateness of test
and the population or community that they serve, there ordering is mandatory. Inappropriate or excessive test-
will also be variances in needs for and utilization of tests ing takes scarce laboratory resources that could be used
among laboratories. elsewhere (55). The Joint Commission (TJC), formerly
As noted above, reimbursement from Medicare, managed- called the Joint Commission on Accreditation of Health-
care plans, and any third-party payors must also be consid- care Organizations (JCAHO), describes the foundation for
ered when determining if a test is considered cost-effective laboratory responsibility for clinician education in test ap-
or not. As utilization increases for a particular test, a propriateness. In its standards (Accreditation Manual for
conclusion can be drawn as to the cost-effectiveness of Hospitals, standard PA 1.2.7) TJC stresses that the medi-
that assay. Even though reimbursement is an important cal director of clinical and pathologic laboratory services
component, there are other ways to measure a test’s cost- should ensure that an active policy for the monitoring and
effectiveness. A test’s contribution to patient care and ap- evaluation of the quality and appropriateness of the ser-
propriate patient outcomes also plays a crucial role in the vices provided be in place (26, 27). Because laboratory tests
decision of whether to perform a test. Although a test may are a form of clinical intervention, the laboratory medical
be a financial loss, it may contribute significant savings to and administrative management teams have a professional
institutions from either a patient safety standpoint or in and moral responsibility to clinicians to advocate for the
financial savings by other means. For example, a nonre- patient (34, 35). Legal and ethical implications also dictate
imbursable, rapid molecular-based test of sputum that is providing the patient with information to aid in under-
smear positive for acid-fast bacilli can show the absence of standing the risks and benefits of testing (16, 29).
Mycobacterium tuberculosis, thus forestalling the need to
isolate the patient and providing a significant cost-savings Test evaluation. It may appear difficult to determine
to the institution. Another example is the rapid, same-day which tests should be evaluated. There are many exam-
diagnosis of enterovirus meningitis precluding the need to ples of tests for which monitoring of testing practices is
hospitalize the patient or beginning other antiviral or an- mandatory to determine appropriateness. These examples
tibacterial therapies, thereby saving the organization the may include, but are not limited to, repetitive testing on
associated costs. To recognize such financial savings to the same specimen sites within short time periods (e.g., 24
all areas within the institution, the laboratory must work hours), excessive numbers of cultures (e.g., more than two
closely with other clinical departments. to four blood cultures per episode, daily sputum cultures),
494 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

cultures of superficial sites (e.g., pressure ulcers), and cul- severe injury unlikely group received only two laboratory
tures of inappropriate specimens (nasal swabs for etiologies tests, while those in the severe injury group received five.
of pneumonia). If available, technical specialists or other Evaluation after the three-month study period showed no
senior personnel in each area may encounter situations patient care problems, no change in quality of patient care,
through studies, day-to-day tracking duties, quality assur- and a cost savings for the organization.
ance, recently published articles, interdepartmental inter- Toubert et al. assessed possible overutilization or inap-
actions, meetings, or other problem-solving circumstances propriate use of various thyroid tests within their hospital
that indicate which tests are good candidates for further network (54). Thyroid test needs vary, whether for disease
appraisal. Input from bench technologists concerning screening, diagnosis, or monitoring. In a trial period subse-
clinician-laboratory interactions, usually from telephone quent to an information campaign, physicians were asked
calls, may also be a source of potential problems suggest- to provide justification and clinical information if tests
ing additional test evaluation. other than thyroid-stimulating hormone were ordered.
Some suggest that the Pareto principle, also known The endocrinology staff collected and analyzed order
as the 80/20 rule, can be applied (38). This rule is com- forms for appropriateness. With education and a require-
monly employed in many types of industry and states that ment for justification, appropriateness of ordering was
80% of an entity’s total revenues are produced by 20% of increased by approximately 30% for most tests. At times,
its products. For the laboratory, this means first listing all studies involving multiple institutions may be suitable. In
tests performed by the lab and ranking them according to the mid-1990s, Valenstein et al., working with the College
total annual revenues produced by each test. Basic Cost Ac- of American Pathologists and 601 institutions, assessed the
counting for Clinical Services: Approved Guideline gives fur- use of routine stool microbiology tests in the hospital set-
ther details of using the principle, along with definitions ting (57). Nearly 60,000 specimens were evaluated, leading
and examples (38). to the establishment of guidelines to limit routine bacterial
Laboratory tests may be overutilized, underutilized, or stool cultures to the first three days of hospitalization. In
utilized incorrectly (29, 42). Overutilization occurs when a final example, panels of preoperative laboratory tests ap-
tests are ordered in the wrong clinical setting or too fre- peared to have high usage with low yield and little change
quently; underutilization implies that relevant tests are in patient management (48). Studies at a variety of facili-
not ordered in the right clinical circumstances. Incorrect ties led to new guidelines based on patient age and history,
utilization occurs when results are ignored or interpreted thus reducing automatic use of large preoperative panels
improperly. Various studies have shown that increased while not adversely affecting patient outcome.
laboratory testing does not enhance quality of patient care It has been described in the past to be very difficult, if
and that there are no serious negative consequences with not impossible, to change physicians’ test-ordering prac-
the reduction in testing (52). A potential problem with su- tices (28, 41, 45, 55). Physicians often have prior experience
perfluous testing is that with a larger volume of informa- with hospital “quality” programs under various guises and
tion to read and comprehend, a clinician may overlook the may feel that, in the end, beyond “harassment” and poorly
more important and relevant test values. disguised cost-cutting, little has occurred to improve pa-
tient outcome (9). For these reasons, it becomes impera-
Utilization and appropriateness. Utilization and appropri- tive to include clinical specialists and service leaders when
ateness issues are related. While utilization may have more attempting to alter laboratory utilization patterns.
to do with frequency of testing, appropriateness is con- In spite of the reported past failures to modify physi-
cerned with the use of tests for the right patient in the cor- cian test ordering, a plethora of articles has been published
rect setting for the proper monitoring and for diagnostic or containing salient points and methods to consider when
therapeutic reasons. Improving utilization has the ability to working with clinicians concerning utilization and appro-
reduce laboratory costs while precluding several unpleasant priateness of testing. One hurdle to overcome is the use of
alternatives such as rationing laboratory tests or eliminat- diagnostic testing to ostensibly reduce the risk of malprac-
ing some altogether (59). Several published studies illus- tice liability (13). Analysis has shown that “defensive test-
trate types of possible changes by reviewing utilization and ing,” as it is known, appears rational but is actually costly
appropriateness. In 2000, Jacobs et al. questioned whether and harmful to patients. The incremental knowledge
all trauma victims being admitted to the hospital required, gained does not affect the course of treatment but more
per hospital protocol, a complete battery of 11 laboratory often leads to misdiagnosis and inappropriate treatment.
tests (25). To examine alternatives, trauma patients were Physician education and/or guidance offer the simplest so-
divided into two categories with established criteria: those lution to this situation.
with defined severe injuries and those in whom severe in-
juries were unlikely. A team leader or attending physician Importance of communication. Consensus between med-
placed each patient in one of the two groups. Patients in the ical staff and laboratorians can help effect positive change.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 495

Of primary importance are communicating and establish- of orders. As with the previously described solutions, the
ing professional relationships. First, it is necessary to ex- software must be designed with cooperation leading to
amine patterns of clinical thinking, clinical pathways, local mutual confidence. It must employ legitimate expert in-
and national peer guidelines, preferred practice patterns, formation, be monitored by specialists, and provide infor-
and if available, clinician algorithms for decision making mation in real time while test ordering is occurring. In one
(9, 37, 45, 55). This examination can lead to the establish- organization, the computerized order entry system utilizes
ment of customized groupings of laboratory tests for vari- initial screen views designed to look like the paper order
ous specialties, which can provide quality results for the forms they replaced (20). Indicator lists then guide the
lowest cost (e.g., hepatitis serology panel for acute hepatitis clinician to lists of the most appropriate choices for test
and Epstein-Barr virus serology panel for acute mononu- ordering for the specific situation at hand. The system is
cleosis). Outdated tests may be eliminated, and sequential continually evolving as new procedures become available,
protocol testing may be developed in line with diagnos- as professional guidelines are updated, and as the users
tic algorithms (41). To facilitate actual change, validated provide feedback.
best-practice information has to be accepted by physicians The presence of house staff provides a unique envi-
(20). Other helpful steps include having recurring meet- ronment for influencing and training in optimal test or-
ings with medical staff committees to explain policies, new dering. Clinical service leaders, in cooperation with the
tests, or changes in protocol; publishing schedules or time laboratory, can track frequency and volume of testing by
tables of particular assays; publication of practice guide- residents and use this as an instructive tool (55). One in-
lines; integration of the laboratory information system vestigation found that education, peer review, and feed-
(LIS) into clinician workflow; issuing handbooks (hard- back were most helpful in combination to alter staff test
copy or Web-based); and education by clinical leaders or utilization (43). Part of the education concerned informa-
respected peers (2, 6, 9, 42, 47). The laboratory physician tion about the cost of tests, while the feedback showed
may also use consultation, interpretive reporting, cumula- residents their own results of tracking the numbers of tests
tive laboratory reports, and narrative or interpretive state- per patient. Studnicki et al. also showed a reduction in the
ments about particular tests (55). Free-texting comments number of tests exceeding frequency guidelines by using a
may be necessary for some specific situations in which the feedback system comparing resident test ordering patterns
laboratorian needs to interpret or explain a unique report to predetermined guidelines (52). Such feedback may also
in the LIS; however, for consistency, error-free reports, be used for nonresident physicians. Feedback seems to be
and later data retrieval, standardized (canned) comments most constructive when it contains cost-audit information
should be created for more common reporting situations. and shows clinicians how their test usage compares to that
One laboratory created a Clinical Laboratory Informa- of their peers (15).
tion Consulting Center, staffed by a medical technologist Pharmacists and infection preventionists play a role in
and a clinical pathologist, which offers telephone consul- selecting or recommending laboratory tests as well and,
tation during weekdays and e-mail or fax on weekends when appropriate, should be consulted by the laboratory
(46). By providing information, interpreting testing, and if for input (8). Not only may they order or recommend lab-
needed, offering clinical advice, the center assists in com- oratory tests pursuant to consult with a clinician, but they
bating unnecessary testing while establishing relationships also need to interpret and apply test results when making
with the medical staff. Another option would be to provide recommendations concerning therapy or isolation precau-
individual feedback to family doctors as a routine health- tions. Their role as intermediaries between the laboratory
care activity (58). The purpose is to improve the quality of and clinicians should be used for any applicable evalua-
test-ordering behavior. What is unique in this setting is the tions or studies.
use of thorough and comprehensive personal feedback over The informational technology department can also be
the course of many years, not just in a temporary study set- a great asset in influencing ordering practices. Algorithms
ting. Feedback is provided in a report by respected clinical can be applied to influence ordering of tests or in tracking
specialists and concerns both overuse and rationality (in utilization. Schubart et al. studied the use of algorithm-
accordance with guidelines or standards). This system re- based decision rules to employ appropriate intervals for re-
quires enlisting experts to give feedback and a requisition peat testing for some commonly ordered laboratory tests.
form that allows for basic input of patient clinical data. For example, for serum potassium testing in their hospital,
Some institutions make use of the availability of more application of the established algorithm allowed for a 34%
sophisticated software programs to assist with ordering reduction in testing for the first five days of hospitalization
compliance and appropriate test utilization (20). Essen- without a reduction in quality of care (44).
tially these systems use information technology to en- Even a model laboratory compliance plan can assist in
hance clinical decision making, allowing compliance to controlling redundant testing (29). With the passage of
increase reimbursement rates and timeliness in processing the Health Insurance Portability and Accountability Act
496 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

of 1996 (HIPAA), and later the Medicare Integrity Pro- • Specimen processing
gram, laboratory managers may now have legal liability • Specimen acceptability and rejection
for inappropriate test utilization. The development of an
• Specimen referral
institution’s individual compliance plan is an occasion to
incorporate processes for tracking utilization and mak- • Specimen reporting timelines
ing appropriate changes. The most successful plans should For each test offered, the laboratory must be able to
define the roles of various departments in compliance provide the appropriate collection materials and instruc-
monitoring and tie the hospital laboratory to the compli- tions together with adequate transport systems and suit-
ance office, usually with the use of the LIS. Commonly, LIS able equipment to process and/or store the specimen (Fig.
records have the ability to show test usage rates and pat- 26.1) (23). Additionally, the laboratory must document the
terns. Follow-up to potential compliance problems is best date and time of receipt of the patient’s specimen.
affected by meetings with the nursing, physician, or other
staff involved. Through this venue, any noted opportuni- Specimen transfer to reference laboratory. When a speci-
ties for improvement in utilization can be discussed. men requires transfer to a reference laboratory, it is the
Recently, the federal government mandated that elec- submitting laboratory’s responsibility to ensure that the
tronic medical records (EMRs) be implemented by 2014 reference laboratory receiving the specimen is either
and offered incentives, in the form of both rewards and CLIA-certified or meets equivalent requirements as deter-
penalties, to help drive their adoption by physicians and mined by CMS (33). When tests are to be referred to an-
health organizations. The American Recovery and Rein- other laboratory, all pertinent information should still be
vestment Act was legislated to provide a network of incen- provided to the clinician, including the destination of the
tives that could be directly resourced toward healthcare referred specimen. Written instructions should be avail-
professionals or physicians for adoption of EMRs by 2014. able for the client to be able to get additional assistance
Support for EMRs is based on the advantages that they for unusual circumstances or special specimen handling
provide: benefits of securing patient information and low-
ering healthcare costs. Such records can be used rapidly to
monitor utilization and to correlate it to increased or de- Figure 26.1 An example of information and instructions
creased good patient outcomes, thereby affecting patient in a laboratory users’ manual for collection and submis-
sion of specimens for evaluation of whooping cough.
management strategies.
doi:10.1128/9781555817282.ch26.f1

Specimen Acquisition, Transport, and Storage BORDETELLA CULTURE

Requisition information. There has been a tendency in to- (WHOOPING COUGH) [Includes B. pertussis and
day’s medical climate to place more emphasis on primary B. parapertussis]
care clinicians seeing more patients and fewer referrals Specimen: Submit 2 nasopharyngeal swabs in Regan-
to the specialists or subspecialists. Often, this empha- Lowe transport medium. Specimens should be stored
sis encourages the use of more diagnostic tests to ensure refrigerated until and during transport to the labora-
high-quality patient care but decreases the time allocated tory. Other transport media are not suitable for main-
to evaluate the patient or to research diagnostic test rami- taining the viability of pertussis organisms.
fications. One of the laboratory’s primary responsibilities Method: Conventional Culture
is to ensure that adequate information is provided to the Setup: Monday through Sunday
clinician-client to make appropriate choices in specimen Available: Negatives 7 Days
collection and test ordering. CLIA regulations state that CPT: 87081
the laboratory must establish and follow written policies Reference Ranges: None Isolated
and procedures characterizing and describing each of the Note: Cultures are not useful in adults. Serologies or
following, when applicable: PCR studies should be considered. All positives are
called upon isolation.
• Patient preparation
Collection: Use a mini-tipped culturette to collect
• Specimen collection (routine vs. STAT) 2 nasopharyngeal swabs. The swab is gently inserted
• Specimen labeling, including patient name or unique through the nose to the posterior nasopharynx where
patient identifier and, when appropriate, specimen it is gently rotated. It should remain in this position
source (some cases require more information; can be for several seconds. The withdrawal should be slow to
modified as required) minimize irritation. Place in Regan-Lowe transport
• Specimen storage and preservation medium. Specimens should be stored refrigerated
(2–8°C) until and during transport to the laboratory.
• Conditions for specimen transportation
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 497

situations. Instructions and testing schedules can be ob- first and leave out the less desirable ones. The conventional
tained from manuals published by the individual reference manually printed multicopy paper request form may still
laboratories. be common in some facilities, such as clinics or clinician
offices, or when sending tests from one facility to another;
Mechanisms for problem identification and resolution. however, with today’s connectivity, electronic requests are
For quality assessment and performance improvement, gaining popularity. Often, a physician will handwrite the
the laboratory must establish and follow written policies desired tests on a prescription pad (script) rather than use
for an ongoing mechanism to monitor, assess, and when a requisition. Such a practice should be discouraged, as
indicated, correct problems identified in the preanalytical multipart requisitions or electronic orders are preferred to
testing phase. The preanalytical systems assessment must scripts for a multitude of reasons. In any laboratory setting,
include a review of the effectiveness of corrective actions it is imperative to possess a down-time procedure for oc-
taken to resolve problems, revision of policies and proce- casions when the standard operating procedure cannot be
dures necessary to prevent recurrence of problems, and followed, such as with electrical or computer outages.
discussion of preanalytic systems assessment reviews with
appropriate staff. Furthermore, the laboratory must also Test requisition. Typically, a written or electronic requisi-
document all preanalytic systems assessment activities as tion consists of a demographics section and a test selection
well as its attempts to modify clinicians’ ordering patterns section. The general information needed for the demo-
or behavior when consistent problems in specimen sub- graphic section of a test requisition is depicted in Table 26.8.
mission occur. If the laboratory transcribes or enters test requisition or au-
thorization information into a record system or a laboratory
Test Ordering information system, the laboratory must ensure that the in-
Test requests may be received in a variety of ways but must formation is transcribed or entered accurately. Requisitions
be in either written or electronic form and must originate must include two unique identifiers such as the patient’s
from an authorized person. Such authorization is pre- name and medical record number, as well as the name and
scribed by state law and may vary from state to state. The address of the person authorized to request the test (21). It
laboratory should encourage the clinicians to specifically is also recommended that a contact person and phone num-
write in the orders for any add-ons they decide on at the ber be listed in case additional information is required or
last minute. Oral requests for laboratory tests are accept- when critical values require immediate notification.
able if followed within 30 days by written orders (21). The All applicable diagnosis codes for the date of service
laboratory must document its attempts to obtain written should be specified on the requisition. Diagnosis codes
authorization in cases where oral requests are not followed are typically referred to as International Classification of
by written ones in a timely fashion. Disease (ICD) codes, which are published by the World
A detailed test requisition enables the laboratorian to Health Organization. These codes not only help interpret
provide a higher caliber of service to the physician and results, but may also be required for reimbursement by
patient. Timely, accurate, and relevant results are attained third-party payors.
with a comprehensive requisition form. Additionally, The evaluation of specimen stability depends on the
proper reimbursement is more likely to occur with this date and time of specimen collection. Some demographics,
type of form. The form must be easy for the client to com-
plete and must contain all pertinent information necessary
for proper result interpretation. Phone calls to verify any Table 26.8 Demographic information needed on test requisitiona
missing or vague data severely consume resources from Authorized person ordering test
both the laboratory and physician’s viewpoint. Therefore, a Individual using test results (when appropriate)
considerable amount of time should be spent on develop-
Laboratory submitting specimen (with contact person for STAT tests)
ing a requisition format and educating clients in its usage.
Patient name or unique identifier
Patient sex and age (or date of birth)
Electronic test requests. Electronic requests are frequently
Source of specimen (if appropriate)
utilized in hospital settings where the laboratory informa-
Time and date of collection of the specimen (as needed)
tion system (LIS) is connected with either handheld de-
Patient’s last menstrual period and indication of whether patient had
vices or stationary terminals that the medical staff may use a previous abnormal report, treatment, or biopsy (for PAP smears
to order tests. Electronic test ordering systems are becom- only)
ing more common, even in off-site locations and clinics, Additional information that may be needed for specific tests to
and in many instances can be designed to help guide phy- ensure timely, accurate testing and reporting (with appropriate
sician test order choices. Such formats can include “care- interpretation)
sets” for specific diagnoses, which list the appropriate tests a
See reference 21.
498 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

such as the patient’s sex, date of birth, and fasting state, when the diagnosis codes provided support the necessity
may affect patient reference ranges in certain procedures. requirements.
This information also ensures accurate patient identifica-
tion for appropriate billing and charting of laboratory tests.
The billing information required depends on how the Postanalytic Activities
client has the account set up with the laboratory. The labo- The postanalytic phase refers to all steps taken after actual
ratory can bill the patient, a third-party payor, or the client testing is performed on a patient’s specimen. It includes
(the client can then bill the patient or his or her insurance the reporting of test results, report review, result archiving,
provider), or a combination of payors. Thus, the Social Se- and specimen storage, as well as assessment of all postana-
curity number, patient home address, and patient phone lytic activities (Table 26.9).
number may not be required if billing the client. Similarly,
insurance information may not be necessary. Laboratories The Report
often print the most common tests and their test codes in Although the laboratory should release results only to au-
the test-request section of the requisition for user conve- thorized people or the individual responsible for utilizing
nience. Not only specific tests, but test panels can be pre- the test results, some state regulations allow reporting di-
printed on the requisition. However, due to compliance rectly to patients (e.g., Arizona). The reports can be sent
issues, it is the responsibility of the laboratory to educate through a variety of means, including verbal, written, or
the client that, although there is a panel or test preprinted electronic. Clear processes must be in place to allow timely
on the form, the option to order any panel or component reporting of preliminary, interim, or final reports. Writ-
separately is still available. ten procedures for reporting of results exceeding normal
The test selection section should include an area to in- values (STAT or critical) must be published and clearly un-
dicate the specimen site or source. This is especially true derstood and followed by laboratory personnel. Any such
when handling anatomic pathology or microbiology spec- reporting must have documentation of when, where, to
imens. In such situations it is also imperative to know the whom, and what was reported.
type of procedure that was performed and the nature of the
disease. For PAP smear testing, CLIA ’88 requires inclu- Report turnaround time. The caregiver should have avail-
sion of the date of patient’s last menstrual period, age or able the expected turnaround time (TAT) for a report to be
date of birth, and indication of whether the patient had a generated from the time the specimen is collected. It is the
previous abnormal report, treatment, or biopsy. laboratory’s responsibility not only to make available the
Other information that should be included on a test TAT information for all tests, but to periodically monitor
requisition includes notation of any medications the pa- TAT to determine that reports are being sent without ex-
tient may be on, symptoms or suspected diagnosis or or- cessive delay and that there are no problems in the process.
ganism, antibiotic allergies (where pertinent), priority of When excessive TAT is confirmed, corrective action (CA)
testing (e.g., STAT), and copy-to instructions for addi- must be initiated, and all steps in the CA process must be
tional reports where needed. documented. If any delay occurs beyond the expected TAT
for any test, the laboratory must have a process in place to
Advanced beneficiary notice. The CMS developed a new notify the clinician of the status of the specimen.
advanced beneficiary notice (ABN) form in 2002. The
new ABN is intended to provide a standardized form that
results in more effective communication to beneficiaries. Table 26.9 Areas that should be reviewed or evaluated in quality
For limited-coverage laboratory tests that Medicare is ex- assessment of postanalytic systemsa
pected to deny, an ABN form must accompany the test Effectiveness of corrective actions
request. Patients have the option to ask for an estimated Procedures and policies to prevent recurrences
cost and may decline testing if they choose (which is doc- Accuracy and completeness of test results and reports
umented on the ABN). An ABN does not take the place of Disposition of unacceptable specimens
a test requisition. Turnaround times
Local Medicare carriers disseminate specific instruc- Referral specimens and their reports
tions on when and how to order screening tests. If these Corrected reports
specific tests are ordered more often than is medically Procedures for notification of test results, including for STAT situations
necessary as indicated by CMS guidelines, the benefi- For analyte-specific reagents, test reports should include information
ciary may be held responsible for payment. However, necessary for proper interpretation of results, including disclaimers
the same test that is used for screening purposes may as needed
also be used as a diagnostic tool if specific symptoms Ensure confidentiality of patient information
or diseases are present. Medicare will cover this testing a
See references 14 and 21.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 499

Types of reports. The main means used for reporting flexibility in comment writing, it also provides a greater
laboratory results are EMR, Web-based reports, and stan- potential for errors and a lack of standardization of re-
dard paper reports. Although somewhat infrequently used sponses to specific, commonly encountered situations.
now, paper reports will likely survive for a period of time as Thus, predetermined (canned) and standardized com-
backup systems in the event of electric or computer down- ments are preferred in such cases.
time. With the EMR, laboratory data are transmitted to a The reports should be easy to read, unambiguous, read-
hospital information system (HIS) and are integrated with ily interpretable, and use standard terminologies. Studies
patient demographic information, providing integrated on a variety of surgical pathology reports found that subtle
reports for in-house patients. When available, Web-based nuances in wording of the diagnosis and comment lines
reports have the advantage of multiple access points, and could be significant if misinterpreted (22). They stressed
clinicians can access them from any Internet connection. using redundancy (restating what might seem obvious)
Web-based and EMR reports must be validated initially and avoiding certain ambiguous words.
and periodically to verify that the information transmit-
ted is being translated accurately and in the approved Quality assessment and corrected reports. The laboratory
format. Ultimately, regardless of how many or what types must have a process in place to monitor and evaluate its test
of computer systems or networks results travel through, results and reports for inconsistencies and inaccuracies.
the laboratory must ensure that results get to the autho- Such evaluation must include a review of patient test re-
rized person who will act on the results in an accurate and ports for completeness of patient information, accuracy of
timely manner. test results, normal ranges, correlation between test results,
validation of LIS reports to verify accurate transmission
Results format. The standard test report must include the and/or transcription, and review of corrected reports (21).
name and address of the laboratory at which the test was There must be a mechanism for correcting an erroneous re-
performed, the test that was performed, the test results port and identifying the new report as one that is corrected
(including the unit of measurement, if applicable), any while maintaining both reports in the patient’s record.
information regarding the condition and disposition of
specimens that do not meet the laboratory’s criteria for ac- Storage and Retention
ceptability, as well as the laboratory’s reference or normal Regulatory constraints require that the laboratory have
ranges for specific tests, if applicable. If the latter is not in- processes and procedures for the retention and storage
cluded on the report, it must be available to the authorized of specimens and records. Storage regulations may differ
person who ordered the test or to the person responsible between various agencies (Table 26.10). Individual state
for utilizing the test results. laws are typically more stringent than those of the federal
It is also the responsibility of the laboratory to make government or other agencies. In any case, the labora-
available to clients a list of test methodologies, including tory should follow the more stringent regulations, which
any information regarding interpretation of test results. should be reviewed periodically to ensure they are current.
Any changes to this testing information that would affect
results or interpretation of results must be communicated Specimens. A sample list of specimens that have to be
to physicians. For tests using analyte-specific reagents or stored is given in Table 26.10 (11). A procedure should
test systems not FDA approved for use on patients, dis- be in place for their retention based on the most stringent
claimers reflecting such status must be added to reports. regulatory requirements for the individual laboratory.
The disclaimer statement may read, “This test was per-
formed using a kit that has not been cleared or approved Records. Typically test requisitions and reports must be
by the FDA. Performance characteristics of this test have stored in a retrievable fashion for a minimum of two years.
been determined by (laboratory name). This test should Some records, especially in areas of immunohematology
not be used for diagnosis without confirmation by other (5 years), histocompatibility (5 years), histology (10 years),
medically established means.” The FDA has further clari- cytology (10 years), bone marrow (10 years), and cytoge-
fied that testing systems labeled by manufacturers as being netics (25 years), may require longer retention periods (11).
for “research use only” should not be used for decisions In this litigious era, many laboratories are opting to hold
in actual patient care, and reports based on such testing records and documents for longer periods of time. Record
should have the appropriate disclaimer attached; testing retention is made easier if electronic copies are used.
performed for “research” purposes is not reimbursable by
Medicare. Additional “value-added” textual comments can Assessment of Test Results on Patient Outcomes
be added to reports to help the clinician interpret results Outcome analysis. The science of outcome analysis has
or to better understand how to use the results appropri- been in common use by physician, nursing, and phar-
ately (Fig. 26.2) (36). Although free-texting allows greater macy staffs for many years. However, only recently has it
500 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

MICROBIOLOGY/INFECTIOUS DISEASES
• Coagulase positive staphylococci are rare causes of primary UTI. In the absence of catheterization, such infec-
tions may originate via hematogenous dissemination from another source.
• Methicillin (penicillinase-R-penicillin) resistance in Staphylococcus species infers resistance to all other penicillins,
beta-lactamase inhibitor combinations, cephalosporins and carbapenems.
• A characteristic of the Streptococcus anginosus group is its frequent association with abscesses. When these or-
ganisms are isolated from the blood, the possible presence of an abscess should be considered.
• Presence of this organism at this site is not indicative of its role as a cause or contribution in an infectious pro-
cess, and may not require specific therapy.
• Plasmodium spp. seen: Unable to rule out Plasmodium falciparum or P. knowlesi.
• Entamoeba histolytica/E. dispar: Differentiation between the pathogen E. histolytica and the nonpathogen E. dispar
not possible based on organism morphology.
SEROLOGY/IMMUNOLOGY
• Antibodies to cardiolipin have been found in a subgroup of patients with autoimmune disorders as well as in
some patients with myocardial infarction and acute and other infections, including syphilis and AIDS.
• IgG and IgA cardiolipin antibodies have been associated with thrombocytopenia, arterial and venous throm-
bosis and recurrent fetal loss with the predictive value and specificity increasing with the level of cardiolipin
antibodies.
• IgM cardiolipin antibody is predominately found in association with infections unless a lupus anticoagulant is
also present.
CHEMISTRY
• In addition to congenital Protein C deficiency, decreased Protein C activity can be seen in association with Vi-
tamin K deficiency, severe liver disease, nephrotic syndrome, disseminated intravascular coagulation and other
disease states where consumption is increased. Decreased Protein C activity is also seen in patients on Warfarin
therapy or oral contraceptives.
• A low ratio is indicative of activated protein C resistance due to a factor V gene mutation. This could be con-
firmed by ordering a Factor V Leiden (PCR) assay. Note that the presence of inhibitor activity (e.g. phospho-
lipid antibodies or a specific factor inhibitor) may cause an abnormal APCR result.
• Specimen is grossly hemolyzed. The following results may be affected: increase in glucose, potassium, ALT,
AST and total bilirubin; decrease in alkaline phospatase. Suggest recollection if clinically warranted.
URINALYSIS
• Color interference noted- may affect the result of the dip stick tests.
• Unable to read due to color of urine.
HEMATOLOGY
• Analyzer counts may be inaccurate due to platelet clumping; suggest redrawing in citrate tube.
• Platelets clumped on smear, invalidating results.
COAGULATION
• Proteins C and S results may be falsely decreased due to coumadin therapy.
• Specimen is hemolyzed and may cause shortened PT and APTT results. Evaluate results with extreme caution.
• Findings suggest the presence of a platelet autoantibody. Recommend obtaining a direct platelet antibody test
for confirmation.

Figure 26.2 Sample list of textual “value-added” comments attached to specific laboratory reports.
doi:10.1128/9781555817282.ch26.f2
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 501

Table 26.10 Example of specimen retention requirements by regulatory agency

Retention period required by:
Specimen CAP CLIA TJC
Body fluids, CSF, serum 24 hours
Bone marrow smears 10 years 20 years
Fine-needle aspirates 10 years
Histology slides 10 years
Negative or unsatisfactory cytology slides 5 years 5 years 5 years
Normal blood films, body fluid slides 7 days
Paraffin blocks 10 years 2 years 2 years
Positive/questionable cytology slides 5 years 10 years 5 years
Wet and formalin-fixed tissue 2 weeks 7 days

gained importance in the laboratory as regulatory agen- Outcome studies. Outcome studies may take a narrower
cies focus on laboratory-associated patient safety and perspective in the laboratory. In simpler terms, the ques-
outcome issues (53). In its 1996 Comprehensive Accredita- tion may be posed, “When the laboratory reports a specific
tion Manual for Pathology and Laboratory Services, TJC result for a specific patient for a particular test reported
defines quality to include outcomes: “the degree to which in a specific way, what is the clinician response and sub-
patient care services increase the probability of desired sequent change (if any) in patient management?” Actions
patient outcomes and reduce the probability of undesired taken from the more limited focus will, of course, have an
outcomes, given the current state of knowledge” (27). effect on the larger measures described above. It may be
More recently, the Affordable Care Act has elevated the said that the only true assessment of the quality of labora-
importance of outcomes by focusing on their application tory testing is reflected by the quality of patient outcomes
to payment by CMS, with organizations being either re- (41). The laboratory must come to be seen as playing an
warded or penalized depending on the outcomes in their integral role in patient management rather than be viewed
patient populations. The concept of accountable care or- as an “ancillary” department. The clinical laboratory’s con-
ganizations (ACO), with single payments for the overall tributory role is already crucial in antimicrobial steward-
medical care of individual patients over time, has further ship programs and in prevention of hospital- or healthcare
increased the importance of measuring outcomes so as to facility–acquired infections. Ultimately, various studies
implement strategies to improve care. may lead to new roles for the clinical laboratory (5, 7).
Such roles should include expansion of direct participation
Measurable outcomes. Generally, measurable outcomes in patient care and in contribution to clinical care consen-
are defined in two areas: clinical and financial. Clinical sus groups.
patient outcomes, as a result of medical care, relate to the As with test evaluation, ideas for outcome studies may
patient’s functional status, health status, and quality of life arise from technical coordinators, technical specialists,
(7). Measures that are often used for outcomes are familiar clinical laboratory scientists (bench technologists), tech-
to those in the hospital setting: length of stay, mortality, nical directors, or laboratory/department directors. They
morbidity, infection rate, complication rate, readmission may be pursuant to articles read in the literature or discov-
rate, and others. Case management and quality manage- eries made during an annual budget review or subsequent
ment departments are good sources of quality indicators to discussion with a clinician or other staff member. Many
and measures of performance typically used across in- good studies focus on a targeted clinical service, such as
stitutions and within their statistical analyses. Financial pharmacy (4, 5, 53). A multidiscipline team is usually
outcomes may concern costs to the patient, a particular needed to gather all necessary information and complete
department within the healthcare institution, the institu- the analysis. The team may include, as needed, but is not
tion itself, the insurer, or even society at large. One author limited to, nursing, pharmacy, case management, labora-
suggested that all tests offered by the laboratory need clini- tory, epidemiology or infection control, clinical special-
cal trials with outcome result studies to show whether they ists, statisticians, information technology, medical records,
are valid or not (35). Such studies become even more rel- and finance and legal departments. Data may be derived
evant with the focus on population health management, from medical records, LIS, pharmacy IS, billing/charge
on chronic disease, and on preventive care and wellness databases, patient account databases, quality improve-
with the potential growth of ACOs. ment studies, and satisfaction survey systems. Generally,
502 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

information systems are used as well in radiology, respira- for coronary artery disease. Additional tools such as these
tory care, dietary, operating room, and other departments templates will be emerging as laboratories become more
and can provide valuable information for studies. routinely involved in patient outcomes.
For example, in a published study, Barenfanger et al.
sought to examine the impact of a program used to im-
prove interventions involving antibiotic therapy (4, 5). Summary
The manual, paper-based method of pharmacy review was The clinical laboratory has an expanding role in today’s
compared with a system using a computer software pro- healthcare setting. It must, first and foremost, provide ac-
gram that linked immediately to the pharmacy in cases of curate and timely, quality-minded, appropriate analytical
alerts for possible intervention. Alerts could show patients testing to help clinicians diagnose and manage medical
with a bacterial isolate and no order for antimicrobial conditions in patients. It must also recognize its respon-
therapy, patients with a bacterial isolate resistant to their sibility to provide the overall guidance for appropriate test
current therapy, patients receiving a therapy not tested, or utilization and result interpretation and to assess the im-
patients with no cultures collected but who were receiving pact of its results on patient outcomes. As such, the labora-
antimicrobial therapy. For the group of patients with alerts tory is becoming more of a team player and participant in
generated by the computer software program, the physi- overall patient management. To fulfill its role adequately,
cian received more rapid notification of the information the laboratory must outline, measure, and document the
in the intervention. Analysis showed that this group had processes needed for all phases of work performed; it must
significant differences in lengths of stay, total costs, vari- be especially cognizant of the crucial role of preanalytic
able costs, and radiology costs. and postanalytic activities in the provision and applica-
Other institutions have had success with comparable tion of its accurate, quality-assured, and cost-effective end
programs (18, 49). Some laboratories may have sophis- products. Laboratory professionals must provide services
ticated algorithms available to search for, among other that help physicians focus their test selection. They must
situations, suboptimal therapy or use of intravenous an- also convey and connect the importance of patient prepa-
timicrobials when an oral agent might be substituted. ration and identification with patient safety and improved
This system and others can provide savings by keeping outcomes to all levels of care givers. Clinical laboratory
antimicrobial costs down but, more importantly, have professionals will need to explain, interpret, and relate re-
been shown to reduce length of stay, days of intubation, sults to patient care and outcomes. As laboratory profes-
number of subsequent laboratory and radiology tests, and sionals extend their expertise and attention to the pre-and
days in intensive care for many patients (3). In almost all postanalytical phases of their services, one may see im-
instances, multidisciplinary teams oversee interference or proved quality of laboratory testing.
outcome evaluation programs.
In a second example, Kollef et al. worked with the mi-
KEY POINTS
crobiology department in a study involving ICU patients
who were mechanically ventilated (30). Ventilator-asso- ■ Preanalytic activities include, but are not limited to, test
ciated pneumonia (VAP) can be a significant factor in the selection, implementation, appropriate utilization, and
mortality of critically ill patients. By collecting mini-BAL ordering, as well as specimen collection, transport, and
cultures, the researchers hoped to determine the best storage.
strategies for administration of antibiotics to improve ■ Postanalytic activities include, but are not limited to,
outcomes of the patients with VAP. From their data, they reporting of results, storage and retention of specimens
were able to confirm the findings of earlier investigators and information, and assessment of the effect of test re-
and develop recommendations for the empiric treatment sults on patient outcomes.
of VAP. ■ Preanalytic and postanalytic activities are crucial to ac-
The College of American Pathologists has developed a curate laboratory results and to their appropriate inter-
series of patient outcome templates—education-based in- pretation for patient care.
formation tool sets to assist member pathologists in setting
■ Effective laboratory test menu formats and comprehen-
up outcome measurement studies at their institutions (12).
sive listing enhance appropriate test ordering.
Each template set contains several modules: a set of text
pages reviewing a particular disease, references, a table of ■ Adequate explanation and interpretation of result re-

applicable indicators for outcome measures, and a Power- ports is important and can greatly influence patient
Point presentation with tables, charts, and cost-saving care and outcomes.
models. For example, one template works with the under- ■ The role of the clinical laboratory includes assessment
utilization of lipid analysis in identifying patients at risk of the effect of its results on patient care and outcomes.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT 503

GLOSSARY International Classification of Diseases (ICD) A healthcare

Accountable care organization (ACO) A healthcare organiza- classification system that provides codes to classify diseases and
tion characterized by a payment and care delivery model that a wide variety of signs, symptoms, abnormal findings, com-
seeks to tie provider reimbursements to quality metrics and re- plaints, social circumstances, and external causes of injury or
ductions in the total cost of care for an assigned population of disease.
patients. Negative predictive value Probability that a negative result indi-
Affordable Care Act (ACA, 2010) A series of reforms to health cates absence of disease or analyte.
insurance designed to increase the availability of health insur- Pareto principle (80/20 rule) Used in many industries, it states
ance policies to individuals. that 80% of an entity’s total revenues are produced by 20% of its
Analytic activity Pertaining to actual performance of a test pro- products.
cedure on a specimen. Path of workflow Combined sequential activities in the labo-
Analyte-specific reagents Defined by the FDA as “antibodies, ratory, beginning with a clinician’s ability to order a test and
both polyclonal and monoclonal, specific receptor proteins, li- culminating in data being generated and reported for use in
gands, nucleic acid sequences, and similar reagents which, patient care.
through specific binding or chemical reaction with substances in Positive predictive value Probability that a positive result indi-
a specimen, are intended to use in a diagnostic application for cates presence of disease or analyte.
identification and quantification of an individual chemical sub-
stance or ligand in biological specimens.” (21 CFR 864.4020) Postanalytic activity Pertains to the period after the actual test-
ing of a specimen and includes phases such as reporting of re-
Centers for Medicare and Medicaid Services (CMS) Primary sults, storage and retention of specimens and data, and assessment
federal body responsible for the oversight of clinical laboratory of effect of results on patient outcomes.
activity and licensure. In the United States, the CMS regulates all
nonresearch laboratory testing performed on humans through Preanalytic activity Pertains to the period prior to actual testing
the Clinical Laboratory Improvement Amendments (CLIA). of a specimen and includes phases such as test selection and im-
plementation, appropriate test utilization, specimen collection,
Clinical Laboratory Improvements Amendments of 1988 transport and storage, as well as test ordering.
(CLIA ’88) Passed by Congress in 1988 to establish quality
standards for laboratory testing and to ensure the accuracy, reli- Procedure/protocol A prescribed way to carry out a diagnostic
ability, and timeliness of patient test results. Laboratory tests are test or other activity.
categorized as being waived, moderate complexity, or high com- Process Systematic course of definitive actions or activities cul-
plexity. Laboratories performing tests in the latter two catego- minating in a desired end product.
ries have to register and comply with a set of regulatory rules to
become certified (licensed). In 2003, a final rule was issued in Research use only A product that is not FDA approved for gen-
the Federal Register that defined some new regulations and eral diagnostic purposes and is labeled by the manufacturer for
changed the categorization of tests into two categories (waived testing in the initial research phase of product development.
and nonwaived tests). Sensitivity The ability of a test to detect a condition (# with con-
Clinical laboratory scientist The title designation for individu- dition testing positive ∕ # having the condition × 100 = percent
als that perform laboratory testing on patient specimens. sensitivity).

Current procedural terminology code (CPT®) Test codes rec- Specificity Ability of a test to define a true condition (number
ognized by the American Medical Association and required for without condition testing negative ∕ total number without condi-
filing claims and billing to Medicare. tion × 100 = percent specificity).

Direct access testing (DAT) Generally defined as consumer- (as

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Introduction
27
Defining the Laboratory’s Requirements
Selection and Implementation of
Technical/Performance Considerations New Equipment and Procedures
Physical/Technology Requirements
Human Resources
Paula Revell and Lakshmi Chandramohan
Financial
Confidentiality and Conflict of Interest
Information Review
Implementation and Product Placement OBJECTIVES
Verification and Validation
To establish the requirements that mandate acquisition and implementation of
Verification • Validation
new equipment or procedures
Personnel Competency Assessment
and Training To list the practical considerations involved in the selection and
Proficiency Testing
implementation of new equipment or procedure(s)
Summary To describe the preevaluation and information gathering stages of planning,
KEY POINTS
selection, and decision making
GLOSSARY To review the process of implementation of new equipment or procedures
REFERENCES

He that will not apply new remedies must expect new evils; for time is the greatest
innovator.
Francis Bacon, Essays, II, On Innovation

T
o offer the best possible care for the patients they serve, clini-
cal laboratories are in constant need of newer and more efficient di-
agnostic testing methods. The acquisition of new equipment and/or
diagnostic procedures is an important factor in this constant quest for quality
improvement. The primary driver for the acquisition of new equipment and/
or implementation of new procedures is this ever-present need to offer the
best possible quality of patient care. The constant demand to improve quality
patient care is, however, often combined with limited available resources and
pressure to reduce testing costs. A critical mistake during the selection pro-
cess not only impacts the organization’s financial resources but also affects the
workflow, staffing, and turnaround times and can result in less than optimal
patient care.
The selection of new laboratory equipment or procedures is complex and
time-consuming. Faced with changing clinical needs and limited financial re-
sources, laboratorians must make difficult choices about which new equip-
ment, technology, procedures and assays, or combinations of these to acquire
and implement and how to incorporate them into their diagnostic laborato-
ries. The choice of which to buy may be further confused by conflicting advice
and persuasive salesmanship, as well as the rapidly changing policy environ-
ment. The selection process calls for a clear understanding of the principal
need for the acquisition of the new equipment, and the selection process must
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia be carried out in an objective manner, taking into account the practicality, reli-
©2014 ASM Press, Washington, DC ability, and fitness for purpose with input from potential end users, clinicians,
doi:10.1128/9781555817282.ch27 and management teams.

506
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES 507

Some common scenarios that lead laboratorians to • Changing clinical needs of the community served by
initiate the selection process include replacement of old the laboratory, for instance, change in the prevalence
equipment because it is no longer able to meet the labora- of local diseases or new patient populations with
tory’s clinical needs, has become excessively expensive to unique testing needs. For example, the opening of a
maintain, and/or is no longer supported by the manufac- maternity center that adds a new patient population
turer and the need to acquire new technology that provides focused on labor and delivery will require that the lab-
the laboratory with opportunities to improve the quality of oratories serving this center implement a process
patient care by expanding or updating the test menu (10). change to accommodate the center’s clinical needs.
Every laboratory has its unique requirements. Since there • New guidelines or recommendations for diagnostic
is no “one size fits all” approach, there are no official guide- testing by agencies such as the Centers for Disease
lines or regulations to guide laboratorians in this decision- Control and Prevention (CDC) (http://www.cdc.gov/
making process. This chapter will serve as an overview of labstandards/, accessed September 25, 2012) and the
the important considerations involved in the selection and World Health Organization (http://www.who.int/en/,
acquisition of new equipment and the implementation of accessed September 25, 2012), e.g., the CDC’s recom-
new procedures in a diagnostic laboratory. mendations for an alternative HIV diagnostic testing
For any purchase or implementation, it is imperative to algorithm in 2010.
look at the big picture. Caveats to be considered include (i)
• Emergence of new and promising technologies (in-
Does the introduced change provide information of signifi-
strumentation or procedures) with better testing ac-
cant clinical utility to the clinicians and patients? (ii) Does
curacy, improved clinical performance, reduced cost
it facilitate the recapture of resources and generate long-
per test, and multianalyte testing, e.g., converting end
term and short-term cost benefits? (iii) Will this acquisi-
point PCR-based testing to multiplex real-time PCR-
tion interact with other technology or personnel within the
based assays.
laboratory? And (iv) how will future upgrades, expansions,
or consolidations be impacted by it? Other factors that will • A need for improved turnaround times for critical tests
play a vital part in the selection process are current and pro- that in turn produces quicker diagnosis and timely ini-
jected test volumes, instrument flexibility and throughput, tiation of therapy, e.g., testing for neonatal central ner-
laboratory information system (LIS) and infrastructure re- vous system infections caused by herpes simplex virus.
quirements, impact on staffing, and maintenance (8). • Clinician’s interest in providing tests that have im-
The introduction of new equipment or procedures into proved diagnostic confidence as a result of improved
the routine clinical laboratory is a three-stage process that feasibility and interpretability, e.g., introducing tests
involves (i) planning and selection, (ii) method verification that the clinician can easily interpret with reduced fre-
and validation, and (iii) implementation and continuous quency of indeterminate results.
monitoring of the performance (9). The majority of this
chapter will focus on the selection and decision-making Once you establish the drivers or needs that mandate
process involved in introducing new equipment and/or acquisition and implementation of a new instrument or
procedures and will briefly review the other two processes. procedure, you must gather both objective and subjective
information to facilitate the decision-making process. The
following section will attempt to provide a comprehensive
Defining the Laboratory’s Requirements list of practical considerations that may be important fac-
Prior to the acquisition or implementation of any new di- tors in choosing the best instrument or assay for a specific
agnostic equipment or assay it is critical that the laboratory laboratory or a group of associated laboratories.
define exactly what is driving the potential process change. Every laboratory is unique, with various different aspects
New processes or procedures can offer tremendous bene- driving the acquisition of new platforms or the implemen-
fits ranging from improved workflow to increased volume tation of new assays or procedures. Discussed below and
and throughput to increased efficiencies that lead to cost listed in Table 27.1 are potential factors to consider; how-
savings; however, the lab may fail to achieve these benefits ever, due to the varying needs of each individual lab, this
if the specific problems are not well defined. With the in- list is not intended to be a universal fit for all data collection
creasing arsenal of diagnostic options today, it becomes prior to choosing or implementing a platform, but rather
imperative to ask the right questions during the planning is a starting point from which managers and directors can
and selection process. The definition of the laboratory’s re- begin gathering relevant information to aid in making the
quirements depends on what the clinical needs are now as most informed and educated decision possible. The follow-
well as what is planned for the future. Some examples of ing sections describe in detail several of the objective and
factors that may drive process change include but are not subjective considerations for which information should be
limited to the following: collected to aid in the decision-making process.
508 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 27.1 Factors to consider prior to the acquisition of new equipment or implementation of new procedures
Technical/Performance Consideration Physical/Technology Requirements
Specimen types Labor space requirement
Specimen volumes Power
Test menu Can current power supply support the platform?
Current menu Requirements for additional or backup power
Expansion capability and history of vendor offering new assays Data
as planned On-board data management
Turnaround time/batch size Linking with lab automation systems
Time from sample loading to result reporting Plumbing/water system
STAT result capability for some/all tests offered External plumbing
Batch processing capability for specimen testing and/or Waste disposal system
reporting Temperature/humidity requirements
Random access Requirements for additional ventilation and air conditioning
Operational throughput
Maximum capability of testing offered per shift or per day Human Resources Requirements
On-board time Staffing
Open vs. closed platform Workflow
LIS interfacing capability (bidirectional, ease of maintenance) Running the assay all shifts
Assay performance Hands-on time
Sensitivity and specificity Ease of use
Assay precision, accuracy, and linearity Complexity of operation
Regulatory clearance/approval Ease of troubleshooting
FDA cleared/approved assays Error alerts (audio/visual)
Complexity of offered testing Training requirements
Control availability Off-site/on-site training
Available from the manufacturer Number of staff that can be initially trained
Control usage and type if supplied Future training of staff available with/without charge by vendor
QC tracking programs
Proficiency testing Financial Considerations
Instrument cost
Cost of operation
Cost per result
Warranty
Maintenance contract
Other costs (consumable and disposable costs, software require-
ments, reimbursement)

Technical/Performance Considerations • Test menu. What assays/tests are offered on a platform?

• Specimen type. For example, whole blood, CSF, serum, Does the platform offer multiple test options and thus
plasma, etc. This factor is critical in terms of the flex- increase the flexibility and growth potential? This is an
ibility of various platforms or assays; a platform with important consideration given the decreasing budgets
limited specimen flexibility will have limited flexibility of many modern laboratories; by offering multiple as-
in routine laboratory operations. Additionally, it is says on one platform the laboratory can often increase
critical to consider what specimen types are currently efficiency and decrease reagent cost due to volume-
being used for a given assay if the laboratory is transi- based purchasing of reagents.
tioning to a new platform or assay rather than bringing • Turnaround time/batch size. What is the total elapsed
in something new. Education regarding new specimen time from sample loading to reporting results? Are STAT
type requirements will be an essential aspect of imple- results needed for some or all of the tests offered on the
mentation if there are new specimen requirements. platform? Are specimens tested in a batch capacity, and if
• Specimen volume. What are the minimum and maxi- so, what are the batch sizes? Does the platform offer truly
mum volumes required to run the assay? This volume random-access testing or partially random access test-
should include the dead volume and can be an issue ing? Some platforms claim a “random access” feature, but
particularly for pediatric specimens and short collec- there may be limitations such as the inability to interrupt
tions. The sample volume requirement can also be an a batch run to perform a different test type or run a dif-
issue for shared specimens or limited-volume speci- ferent sample type. Are the results continuously reported,
mens such as CSF and pleural fluid. or are results reported in a “batch” format?
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES 509

• Operational throughput. What is the maximum ca- manufacturer when the assay is performed exactly
pacity of testing offered per shift or per day? The as described in the package insert. FDA approval
throughput incorporates multiple variables including indicates that not only analytical performance char-
the number of samples that can be loaded onto the acteristics have been established, but also clinical
platform at one time and the total “onboard time” for performance characteristics. FDA-approved assays
any given sample. For example, a completely random are much less commonly available; examples include
access platform with a single reaction chamber and RNA viral load assays for HIV and hepatitis C virus,
an onboard time of 2 hours would have a throughput as well as others. FDA-cleared assays are also given
of 12 tests/24 hours. Other variables that can influ- an additional designation regarding the complexity
ence throughput include the “hands-on time” for of testing. “Waived” tests are considered the simplest
sample preparation and the time required to load and can be run as point-of-care assays; additional
the samples onto the platform. The throughput may designations include moderate-complexity and high-
change for various combinations of specimen types complexity tests. The designated level of complexity
or assays, and all potential profiles should be consid- significantly impacts who in the laboratory can per-
ered. It is important to consider not only whether the form the various assays.
throughput will meet existing needs, particularly at • Control availability. Many vendors sell controls, and
peak demand, but also whether it will allow for po- thus availability is not an issue; however, this is an im-
tential future growth. portant factor to consider because for certain assays
• Open vs. closed platform. Does your laboratory have controls are not available commercially, and thus issues
any plans for internal assay development? Some plat- such as consistency and reliability can become limita-
forms allow for laboratory test development, while tions to assay performance.
others only allow vendor-specific assays and reagents.
Physical/Technology Requirements
• Available interface. Does the system interface effec-
tively with any laboratory information system (LIS), • Space requirement. What are the physical specifica-
and if so, is the system compatible with your laborato- tions of the equipment, including size and weight,
ry’s LIS? The ability to directly transfer results from the and how will the instrument fit in the laboratory
testing platform to the LIS and to avoid manual data and within any existing workstations if applicable?
entry is a critical factor in terms of improving patient Additionally, it is important to consider not just the
safety through accurate result reporting. physical footprint of the instrument but also the space
needed for proper ventilation and access required for
• Assay performance. These factors represent objective routine maintenance and servicing of the instrument.
measures of an instrument or assay, such as preci- In certain parts of the country, natural disaster is-
sion, accuracy, linearity, sensitivity, and specificity. It sues must also be considered (earthquake protection
is important to know how the numbers reported by and equipment lock-down; potential flooding/floor
the vendor were determined. During the evaluation models).
period the laboratory must verify the performance
• Power. Will the existing power supply in the laboratory
of these objective measures through the validation
be sufficient to support the operation of the equipment?
process. Laboratories need to be aware of both the
Will additional dedicated or backup power be required?
analytical performance (usually reported by the
Alterations to existing electrical supply can significantly
manufacturer) as well as the clinical performance,
increase the overall cost of implementation.
which is much more difficult to determine. The
specific needs of your patient population should be • Data. If the instrument will require a connection to the
considered. Internet for cloud-based services or be interfaced with
other equipment or the laboratory information system,
• Regulatory clearance/approval. The Food and Drug
the data line requirements must be carefully evaluated.
Administration (FDA) regulates all medical devices,
and platforms and assays fall under this umbrella. It • Plumbing/water. Some instruments require high-
is critical to understand the specific classification of quality water supplies or direct access to plumbing to
the instrument or assay you are considering for your remove waste.
laboratory. Most platforms must be FDA cleared to • Temperature/humidity. Most equipment requires spe-
be marketed in the United States; however, there is cific environmental controls to operate optimally. Con-
much more variability regarding commercially avail- sider not just the existing environmental conditions
able assays. Assays can be considered for research but also the impact the addition of the new equipment
use only, analyte-specific reagents, FDA cleared, or will have through heat production, etc. Ventilation and
FDA approved. FDA clearance indicates the establish- air conditioning are critical factors for optimal instru-
ment of analytical performance for the assay by the ment performance.
510 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Human Resources kits and the shelf life of reagents is short, a laboratory
• Staffing. What is the number of staff required to oper- may end up paying for wasted reagents, increasing the
ate the equipment, and what level of skill and expertise cost unnecessarily.
is required of the staff? How will the implementation • Disposable cost. What are the costs for tips, reagent
of the platform impact current staffing levels? Depend- bins, etc.?
ing on the assay or instrument in question, staffing • Software requirements. Are there up-front costs associ-
requirements could go up or down. With automation ated with software purchases, and will there be costs
or platforms that require less hands-on time, the new associated with software upgrades? Is there a cost as-
instrumentation could free up existing staff to perform sociated with the implementation of an LIS interface?
different laboratory tasks. Who will actually be handling the upgrades, interface,
• Workflow. Can the equipment or assay be run during etc. (company or laboratory personnel)?
all shifts? What is the required hands-on time? How • Evaluation and validation. What are the costs associated
will the addition of the new assay or platform impact with equipment evaluation prior to the purchase, and
existing work practices? All aspects of testing need to if purchased, what will be the cost to properly validate
be included in the evaluation, not only direct testing and verify performance characteristics. Keep in mind
but sample preparation time, quality control practices, that if the laboratory is transitioning to a new or differ-
and maintenance. ent technology, platform, or assay, physician end users
• Ease of use. Do the technologists who will use the in- may need to see extensive parallel testing to know how
strument find it “user friendly”? to appropriately apply new diagnostic values.
• Training requirements. What types of training are • Personnel Costs. What are the costs associated with
required prior to implementation, and are training travel, hotel, meals, etc., for laboratory personnel un-
programs offered by the vendor? Is there an additional dergoing training off-site?
cost associated with the required training?

Financial Prioritization of Requirements

• Instrument cost. In addition to the actual cost of the Once the decision has been made as to what the laboratory
equipment, what are the available options for purchas- needs and wants from a given assay or platform, and the
ing or financing? Are there options for lease or reagent data regarding the subjective and objective specifications
rental agreements? of available platforms or assays have been collected, the
• Cost of operation. What are the direct and indirect list of possible choices will be narrowed due to elimination
costs over the lifetime of the instrument? of those products that do not meet the minimal criteria.
• Cost per result. This number involves a variety of Prioritizing the desired features that are not minimum re-
factors including the cost of reagents, disposables, quirements can further refine the list of possible choices
calibrators, controls, labor, maintenance, repeats, etc. that meet the laboratory’s basic needs.
Additionally, it is important to have a good idea of the In today’s environment of limited budgets and higher
volume of samples you will be running, as the cost of demands on productivity, whether the final decision about
reagents is typically impacted by the volume of reagent which assay or instrument to implement is left to the indi-
purchased from the vendor. vidual supervisor or director, or more commonly to a team
of decision makers including administrators, clinicians, and
• Warranty. Many instruments have a limited warranty.
even hospital board members, communication regarding
• Maintenance contract. The details of the annual main- the final choice is critical. A clear and concise presentation
tenance contract should be discussed up front, as they of the logic and motivation behind the decision to purchase
can vary widely and significantly impact the cost to any given platform can be the difference between a suc-
operate the equipment. Details should include what cessful purchase and a failed attempt. In situations where
is covered by the annual contract as well as the cost of a team of decision makers is involved, be cognizant of the
additional requirements such as after-hours or holiday fact that many of the team members may not be experts in
repair calls and parts that need to be replaced on main- the area for which the equipment will be purchased.
tenance schedules (e.g., bulbs, probes, etc.).
• Consumable costs. What are the estimated reagent,
calibrator, and control costs given the laboratory’s Confidentiality and Conflict of Interest
estimated test volume? Important factors to consider Throughout the entire process of selection and decision
in this analysis include the size of the reagent kits and making, it is critical that all those involved in the process
their shelf life once opened. If a vendor sells only large remain independent, free of obligation or suspicion, and
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES 511

completely fair and impartial. Maintaining the integrity, best performed by tabulating the data to compare and con-
credibility, and confidentiality of selection and acquisi- trast variables that are high on the list of laboratory needs
tion of equipment requires a clear set of guidelines, rules, or wants. Select or short-list those that will best serve the
and responsibilities to govern the behavior of the decision laboratory’s needs. Once the necessary information is tab-
makers. For example, an employee or team member may ulated, decision makers should meet to discuss the short-
not solicit or accept anything of value from an actual or listed choices and the reasoning behind each selection
potential manufacturer or vendor, be employed by or agree criterion. The process can then be refined or modified as
to work for a vendor or potential vendor, or knowingly needed, with the modified criteria retabulated to address
disclose confidential information for personal gain. Those all issues of concern. Figure 27.1 provides an overview of
involved in the selection process are not permitted to com- the planning and selection of equipment or procedures
municate about or discuss the procurement or evaluation leading to clinical implementation in the laboratory for
process with any other employee who is not involved in routine patient care.
this process. Furthermore, the employees and team mem-
bers shall not disclose the scoring outcomes or content of
the proposals. Depending on the institution, all those who Implementation and Product Placement
have been delegated the authority to purchase may also be
required to sign a conflict of interest statement each year. The implementation of a new procedure or instrument
In case of an actual or potential violation, the employee or requires coordination between the placement site and the
team member involved may be reprimanded, suspended, vendor. Typically the vendor requires the placement site to
or dismissed. The manufacturer or vendor may be barred fill out questionnaires regarding the physical characteris-
from receiving future contracts and/or have an existing tics of the space, and then the vendor will inspect the site
contract canceled. to clarify what, if any, physical changes might be required
prior to placement. The timing of the purchase can be sig-
nificantly impacted by any required changes to the space
Information Review such as electric, plumbing, data, etc. If the purchase of an
Once the laboratory’s requirements for introducing new instrument is delayed, this can impact the original quoted
equipment and/or a new procedure have been clearly defined, price, so laboratories need to be diligent about planning
the next critical step in the selection process is preevaluation and coordinating the entire process.
and information review. It is important to review the latest
information on as many commercially available platforms
Figure 27.1 Overview of the selection of equipment and imple-
and procedures as you can via thorough Internet searches
mentation of procedures. doi:10.1128/9781555817282.ch27.f1
(PubMed, manufacturer’s websites, and commercial adver-
tisements), review of trade journals and existing literature, Defining the laboratory’s requirements:
review of manufacturers’ package inserts, and conversations new patient populations, disease prevalence, new
with vendors’ representatives and other users. Accurate technology, test volumes, cost, staffing limitations
data collection is vital in choosing the appropriate system.
Recommendations of relevant professional bodies such as
the CDC, the Infectious Disease Society of America (http://
www.idsociety.org/, accessed September 25, 2012), and the Gathering objective and subjective information:
American Association for Clinical Chemistry (http://www quality of assays, test menu, turnaround time,
.aacc.org/Pages/default.aspx, accessed September 25, 2012) operational requirements, instrument features,
and regulatory agencies such as the College of American equipment maintenance, LIS, manufacturer’s support,
Pathologists (CAP; http://www.cap.org/apps/cap.portal, ac- cost and contract issues, backup options . . .
cessed September 25, 2012) and the Clinical and Labora-
tory Standards Institute (CLSI; http://www.clsi.org/, accessed
September 25, 2012), as well as clinical outcome trials and
presentation at professional conferences and review of ex- Implementation and product placement:
ternal quality assurance schemes (7) can be vital sources of Contract review, placement of equipment, on-site
information. Professional publications and specialty jour- or off-site training, verification and validation studies
nals also have articles on clinical evaluations of equipment
and procedures. Contact other laboratories or scientists
who already have implemented a new system that might
be of interest and ask them about cost, performance, reli- Communication with clinicians/providers
ability, and service. Assessment of available information is and clinical testing
512 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Once the instrument is placed, many vendors offer on- important to keep in mind that the processes of validation
site training of key laboratory personnel. After key person- and verification add to the cost of implementation of a new
nel have been trained on the operation of the instrument laboratory testing system.
or performance of the assay, the laboratory is responsible
for verification and validation of the new purchase.
Personnel Competency Assessment
and Training
Verification and Validation Establishing the competency of each laboratory employee
On acquisition of equipment and/or implementation of is an extremely important component of laboratory qual-
new procedures, laboratories are required to establish poli- ity control. It ensures that personnel are trained appro-
cies and procedures to maintain or improve the reliability, priately to perform prompt and accurate clinical testing.
efficiency, and clinical utility of the testing systems. Two All newly implemented tests or testing procedures must
critical analyses performed in the laboratory are method have proper, documented personnel training before pa-
verification and validation. These processes provide criti- tient results can be reported. The competency of all per-
cal objective evidence that the chosen system is fit for sonnel must be assessed semiannually during the first
purpose, meaning that the particular requirements for a year of their employment and then annually thereafter (3,
specific intended use are fulfilled. 6). According to the CLIA, the necessary components of
a competency assessment program are (i) direct observa-
Verification tion of performance during routine testing; (ii) monitoring
According to the Cumulative Techniques and Procedures of recording and reporting of patient results; (iii) review
in Clinical Microbiology (Cumitech) (2), verification is the of worksheets, quality control records, proficiency testing
one-time process performed to determine or to confirm a results, and preventive maintenance records; (iv) direct
test’s expected performance prior to implementation in the observation of performance of instrument maintenance
clinical laboratory. Verification requires determination of and function; (v) assessment of test performance through
performance characteristics that include sensitivity, speci- testing of previously analyzed specimens, internal blind
ficity, predictive values, precision, and accuracy of the test. testing, or external proficiency testing samples; and (vi)
In contrast, validation is an ongoing process of monitoring problem-solving skills assessment. Training is required
a test, procedure, or method to ensure that it continuously before a new or current employee can perform a new test
performs as expected. or when a new assay is introduced. Training updates are
required whenever changes are implemented to a proce-
Validation dure or when new learning objectives are added to the
According to the Clinical Laboratory Improvement Amend- training document.
ments (CLIA) (http://wwwn.cdc.gov/clia/regs/toc.aspx, ac-
cessed September 25, 2012), validation is an integral part of
a laboratory’s quality assurance programs, and it requires Proficiency Testing
personnel competency assessment, quality control, internal Proficiency testing (PT) is a critical tool used by clinical
and external proficiency testing, and correlation with clini- laboratories to verify the accuracy and reliability of their
cal findings. It is important to note that the definitions for testing (4). Laboratories that are CLIA-certified are re-
validation and verification as written above are accepted quired to enroll in a Centers for Medicare and Medicaid
by the CLSI, the CLIA, and the International Organization Services–approved (1) proficiency program for each spe-
for Standardization. However, the definitions accepted by cialty and subspecialty for which certification is sought.
the CAP are the inverse. The CLIA requires that for FDA- Routine reviews of proficiency testing reports by the labo-
cleared and approved tests, a laboratory must document its ratory director and staff will help determine areas of test-
verification of the following four performance character- ing that are not performing as expected and also indicate
istics: accuracy, precision, reference range, and reportable subtle shifts and trends that, over time, would affect pa-
range. These performance characteristics are published in tient results. Proficiency samples are tested in the same
the manufacturer’s package insert. Furthermore, labora- manner as any other patient sample. A score of at least 80%
tories performing laboratory-developed tests (LDTs) and is required for satisfactory performance. The laboratory
modified FDA-cleared and approved tests are required to must establish an internal proficiency program for those
“establish” the same four performance characteristics that tests that have no external proficiency testing programs
are required for FDA-cleared and approved tests, as well available (5). Monitoring and disseminating information
as to determine the analytic sensitivity, analytic specificity, about trends in PT performance during the ongoing im-
and any additional performance characteristics. It is also plementation of the CLIA regulations can assist individual
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES 513

laboratories in assessing their performance relative to GLOSSARY

other laboratories. American Association of Clinical Chemistry A professional
organization of clinical laboratory professionals, physicians, re-
search scientists, and other individuals involved with clinical
Summary chemistry and related healthcare disciplines.
The overall value of diagnostic testing is measured not only Centers for Medicare and Medicaid Services (CMS) Previously
by its analytical performance or financial value but also by known as the Health Care Financing Administration (HCFA). A
how well it meets the clinical needs of the clinicians and federal agency that administers the Medicare program and en-
patients. Thus, establishing benefit to patient health is the forces the CLIA ’88 regulations by conducting laboratory inspec-
primary driving force when introducing changes in rou- tions, determining quality standards through its survey and
tine diagnostic testing. The critical nature of communica- certification process, and auditing billing for medical necessities
tion with the clinicians or community health workers who and reimbursements.
will be using the laboratory tests cannot be overempha- Clinical and Laboratory Standards Institute (CLSI) An inter-
sized. It is important to remember that a new diagnostic national organization responsible for developing and promoting
system must be examined as a part of a broader manage- best practices in clinical and laboratory testing throughout the
ment strategy. world through accreditation and educational programs.
Although this chapter has emphasized the objective
consequences of a process change due to either acquisition Clinical Laboratory Improvement Amendments (CLIA) The
primary government rules that set standards designed to improve
of equipment or implementation of procedures, other vari-
quality in all laboratory testing. They include specifications for
ables such as clinicians’ views and diagnostic confidence quality control, quality assurance, patient test management, per-
can positively or negatively impact the outcome of any sonnel, and proficiency testing.
process change. Clinicians’ perspectives of testing, their
experience of the testing process, and their understand- College of American Pathologists (CAP) A professional orga-
ing of the test can all affect downstream patient care. The nization of board-certified pathologists, involved in fostering
clinicians who utilize the new procedure must agree that and advocating excellence in the practice of pathology and labo-
its performance characteristics are satisfactory and meet ratory medicine. It also provides voluntary laboratory inspection
and accreditation programs.
the clinical need. To purchase equipment simply because it
is economically feasible may not be in the best interest of Infectious Disease Society of America (IDSA) A professional
the laboratory. Therefore, whenever possible, the selection organization that develops guidelines to improve the health of
process should be performed keeping in mind the range of individuals and communities and promotes excellence in patient
conditions in which the intended equipment or procedure care, education, research, public health, and prevention relating
is likely to be used in routine clinical practice. to infectious diseases.

U.S. Centers for Disease Control and Prevention (CDC) A fed-

eral agency that focuses on developing and implementing disease
KEY POINTS
control and prevention and environmental and occupational
■ Defining the requirements that mandate the labora- health and protects public health through educational programs
tory’s purchase and implementation of new equipment and partnerships with state health departments and other
and/or procedures is the first and most critical compo- organizations.
nent of the planning and selection process.
■ Practical considerations when choosing the best instru-
ment or assay for a specific lab include testing volumes,
specimen types, test menu, turnaround time, opera- REFERENCES
tional throughput, physical requirements, assay per- 1. Centers for Medicare and Medicaid Services. 2003. Medicare,
formance, cost, manufacturer’s contract and warranty, Medicaid and CLIA programs; laboratory requirements relating to
computer interfacing, and staffing considerations. quality systems and certain personnel qualifications, final rules. Fed.
■ Method verification, validations, competency, proficiency Regist. 68:3640–3714.
testing, and training are required before new equipment 2. Clark, R. B. 2009. Cumitech 31A: Verification and validation of
or procedures can be implemented in a clinical laboratory. procedures in the clinical microbiology laboratory. Coordinating
■ Throughout the process, timely and accurate com- ed., S.E. Sharp. ASM Press, Washington, DC.
munication with end users is critical to the successful 3. Clinical and Laboratory Standards Institute (CLSI). 2009.
purchase and implementation of any new laboratory Training and competence assessment; approved guideline, 3rd ed.
equipment or procedure. CLSI document GP21-A3. CLSI, Wayne, PA.
514 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

4. Clinical and Laboratory Standards Institute (CLSI). 2007. Us- 7. Olson, J. D. 2007. External quality assurance in thrombosis and
ing proficiency testing to improve the clinical laboratory; approved hemostasis: an international perspective. Semin. Thromb. Hemost.
guideline, 2nd ed. CLSI document GP27-A2. CLSI, Wayne, PA. 33(3):220–225.
5. Clinical and Laboratory Standards Institute (CLSI). 2009. As- 8. Mina, A. 2008. A practical approach to instrument selection, eval-
sessment of laboratory tests when proficiency testing is not avail- uation, basic financial management and implementation in pathol-
able; approved guideline, 2nd ed. CLSI document GP29-A2. CLSI, ogy and research. Clin. Chem. Lab. Med. 46(9):1223–1229.
Wayne, PA. 9. Murphy, P. G. 2008. Selection of a suitable assay. Clin. Biochem.
6. Elder, B. L. 2003. Cumitech 39: Competency assessment in the Rev. 29(Suppl. I):S17–S22.
clinical microbiology laboratory. Coordinating ed., S.E. Sharp. ASM 10. Myers, J. 2007. Primer for selecting lab equipment. MLO Med.
Press, Washington, DC. Lab. Obs. 39(1):26–27.
Introduction
28
Safety Management Plan and
Laboratory Safety
Responsibilities
Laboratory Hazards
James J. Dunn and David L. Sewell
Biological Hazards • Chemical Hazards • Physical
Hazards • Radiation Hazards
Standard Precautions
Hazard Prevention and Containment
Risk Assessment • Handwashing • Barrier
Protection • Engineering Controls • Work Practices • OBJECTIVES
Respiratory Protection • Immunization • Warning
Signs and Labels • Biological Safety Cabinets and To define the essential components of a laboratory safety program
Chemical Fume Hoods
To administer the program to meet safety requirements
Sterilization and Decontamination
To evaluate the program for regulatory compliance
Spill Management
Biological • Chemical To identify hazardous materials and procedures in the laboratory
Fire Safety
Waste Management
Regulatory Oversight • Management Program
Packaging and Shipping Infectious
Substances
Infectious Substances Classification • Packaging,
Labeling, and Shipping Regulated Material Before anything else, preparation is the key to success.
Personnel Training Alexander Graham Bell
Training Program • Methods • Documentation •

T
Monitoring and Evaluation he laboratory environment can be a hazardous place to work.
Summary Laboratory workers are exposed to numerous potential hazards including
KEY POINTS chemical, biological, physical, and radioactive hazards, as well as muscu-
GLOSSARY loskeletal stresses. Laboratories, by the nature of the work performed, contain
REFERENCES inherent risk to workers that is often difficult to measure and manage because
APPENDIXES safety is not an intrinsic, absolute, and measurable property (23). Therefore, we
must continually assess and manage risk in the laboratory based upon current
knowledge and propose and enforce commonsense safety practices to minimize
harm or injury to the worker and to prevent laboratory contamination (53). Ac-
cidents in the laboratory are often attributable to a person’s inability to recognize
a hazardous situation, an individual’s diminished concern for risk over long pe-
riods of time, or excessive risk taking. Thus, an individual’s behavior influences
the degree of occupational risk present in the workplace (48). Risk takers and
individuals who ignore safety precautions not only suffer the consequences from
their acts but also pose a risk to their colleagues, families, and friends.
Biological hazards (e.g., exposure to blood, body fluids, and other poten-
tially infectious materials [OPIM]) are a major concern for laboratory work-
ers today and have heightened the need for implementation of sound safety
practices. Exposure to these pathogens through specimens, aerosols, or drop-
lets may cause an occupationally acquired infection that can be transmitted to
other employees, employees’ families, or the public. Today, the potential use
Clinical Laboratory Management, 2nd Edition
of biological, chemical, and radioactive materials as terrorism agents imposes
Edited by L. S. Garcia additional safety and security concerns in the laboratory (6, 27, 31, 32).
©2014 ASM Press, Washington, DC Exposure to hazardous chemicals may result in acute and/or chronic dis-
doi:10.1128/9781555817282.ch28 ease that may be exacerbated in employees with preexisting medical conditions.

515
516 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Although there is a continuing effort to reduce the number Table 28.1 Elements of a safety management plan
and quantity of laboratory chemicals that are toxic, carcino- Administrative support
genic, caustic, flammable, or radioactive, these compounds Develop and maintain written safety information identifying work-
cannot be eliminated completely from laboratories. place hazards.
In addition to biological, radiological, and chemical haz- Appoint a safety officer and members of the safety committee.
ards, fires and electrical accidents may occur, and laboratory Appoint a chemical hygiene officer.
instruments and equipment may cause injury to the user. Appoint a radiation safety officer (if radioactive materials are used
However, the laboratory can be a safe workplace when the in testing).
risks are recognized and reduced through appropriate train- Provide for occupational health services.
ing of personnel and implementation of safe work practices, Provide funds and time for surveys, meetings, education, and de-
velopment of a safety management plan. The plan should address
appropriate containment equipment, well-designed facili- safety and security, exposure control, emergency preparedness,
ties, and administrative controls (13, 15, 16, 33, 40, 42). waste, utilities, and equipment management.
Many laboratories use a combination of control meth-
ods to protect workers. This hierarchy of controls priori- Risk assessment
tizes intervention strategies based on the premise that the Perform safety audits and risk assessments.
best way to control a hazard is to systematically remove it Obtain MSDS and other necessary safety information.
from the workplace, rather than relying on workers to re- Develop chemical inventory lists.
duce their exposure. These types of measures, prioritized Identify safety needs and controls.
from the most effective to least effective, include engineer-
Training
ing controls, administrative controls, work practices, and
Provide safety training for new employees, annual training for all
personal protective equipment (PPE).
employees, and training as needed for workers assigned to a new
workstation.
Safety Management Plan Plan review and record keeping
and Responsibilities Review all audits, surveys, and accident reports to measure the ef-
The key to a safe laboratory environment is the devel- fectiveness of the plan and make changes to reduce the probability
opment, implementation, and enforcement of a high- of additional occupational exposures.
quality safety management program that considers Evaluate and update the plan when new information is available or
new hazards are introduced.
worker safety as a responsibility of the facility (Table
Maintain records of all surveys, accidents, and inspections and the
28.1). The Occupational Safety and Health Administra- resulting corrective actions.
tion (OSHA) requires a risk assessment (exposure deter-
mination) of each task performed in the laboratory. The
safety program begins with a well-written safety manual
that defines the program and identifies the individuals Occupational Exposure to Hazardous Chemicals in the
responsible for specific tasks (15, 18, 28). Management Laboratory 29 CFR 1910.1450 (44).
must commit to the program and provide the necessary To ensure that the laboratory safety policies and pro-
resources (e.g., equipment and time) to produce and cedures are active and enforced, a safety officer and safety
implement the plan, assign oversight and responsibil- committee should be established. All sections of the lab-
ity for the plan, and communicate the plan and expec- oratory should be represented on this committee. These
tations to the employees. The risk associated with each individuals ensure that the safety program’s policies, pro-
task performed in the laboratory is assessed, and prac- cedures, and training programs are uniform throughout
tices are implemented to minimize these risks. These the laboratory and that the laboratory is in compliance
practices include the use of standard precautions, PPE, with all state and federal safety regulatory requirements.
engineering and work practice controls, workplace de- In larger organizations the laboratory safety officer also
sign, vaccination, safe handling and disposal of hazard- participates on the other institutional safety-related com-
ous waste, and use of safety devices (16). In addition, mittees. A laboratory chemical hygiene officer should also
the safety plan should include sections on blood-borne be designated to coordinate and be responsible for the lab-
pathogens, a medical surveillance program, a chemical oratory’s chemical waste disposal. The coordinator should
hygiene plan, infection control procedures, hazard com- evaluate hazardous chemicals based on their properties,
munications, record keeping, waste disposal, fire safety, according to national and/or regional regulations. It is es-
and spill cleanup. The federal regulations that directly sential that all employees review the safety manual, receive
address general laboratory safety include Hazard Com- annual training based on the hazards and risks present in
munication Standard 29 CFR 1910.1200 (43), Blood- the laboratory, and understand the specific safety precau-
borne Pathogens Standard 29 CFR 1910.1030 (45), and tions required for each procedure or workstation.
 CHAPTER 28. LABORATORY SAFETY 517

Laboratory Hazards opening lyophilized ampoules, and expelling bubbles from

a syringe (15, 49, 50). Because symptoms of infection are
The laboratory contains numerous hazards that fall into
often delayed following an exposure, the person generally
four general classes: biological, chemical, physical, and ra-
cannot recall the specific event that caused the infection
diological. A hazard is any material, condition, or action
but only that he or she was working with the agent or was
that may result in physical harm or impairment to em-
in the laboratory (30). Traditional safety guidelines have
ployees. The management of these hazards poses a signifi-
emphasized the use of safe work practices, well-designed
cant challenge due to the complexity of the work and the
laboratories, containment equipment, and management
diversity of the hazards that are present in the laboratory
controls (3, 13). Today, laboratories also need to prevent
environment. The risk from these hazards is related to ex-
unauthorized entry to the laboratory areas and removal of
posure levels, duration of exposure, toxicity or pathogenic-
potential bioterrorism agents (6).
ity of the hazardous material, safety controls present, and
other factors such as the general health or age of the labo- Chemical Hazards
ratory worker. In general, the risk of suffering an adverse
Chemical hazards include all chemicals that may be toxic
event from a laboratory hazard is decreased by minimizing
or irritating and include solids, liquids, and gases such as
the exposure to the hazard, storing only small quantities of
mercury, acetone, xylene, stains, and formaldehyde. The
the hazard in the laboratory, and storing hazardous mate-
diversity of chemical hazards found in the clinical labo-
rials in appropriate containers. Whenever possible, a less
ratory is as great as the biological hazards. The risk and
hazardous material should be substituted for highly toxic
severity of an exposure to a chemical is influenced by the
or dangerous chemicals.
amount of chemical to which one is exposed (dose), the
route of exposure (i.e., inhalation, ingestion, absorption
Biological Hazards through or contact with mucous membranes and intact/
Biological hazards include infectious agents such as bac- nonintact skin), the chemical properties of the compound,
teria, parasites, fungi, and viruses that may be transmit- the susceptibility of the individual, and the duration of ex-
ted through contaminated body secretions, tissue, or other posure (54).
materials. All clinical specimens are potentially infectious, Because containment procedures are based on the
and the isolation and culture of pathogenic microorgan- chemical hazard class, laboratory chemicals are labeled and
isms from these specimens increases the risk to the clinical described by their hazard classification, such as irritant,
microbiologist. Bacteria cause the majority of laboratory- corrosive, flammable (gas, liquid, solid), poison (toxic),
acquired infections (LAI), followed by viruses, rickettsia, or carcinogen. Reactive chemicals must be segregated for
fungi, and parasites. Today, 96% of all LAIs are caused by storage. Acids are not stored with bases, oxidizers are not
bacteria, viruses, and rickettsia (30). The major routes for stored with reducing agents or organics, and flammables
acquiring an infection in the laboratory are from expo- are stored in flammable-safe cabinets. Poisons or toxic
sure to a specimen containing a potential pathogen and compounds can cause acute or chronic symptoms when
the procedures used to culture and identify the agent. ingested, inhaled, or absorbed through the skin and can
Agents that are transmitted by aerosols cause most of the affect the nervous, respiratory, or reproductive systems.
serious LAIs and include Mycobacterium tuberculosis, Bor- Carcinogens may cause malignant neoplasms in humans
detella pertussis, Corynebacterium diphtheriae, Neisseria or animals long after exposure to the compound. Use of
meningitidis, Bacillus anthracis, Brucella spp., Francisella highly toxic chemicals or carcinogens should be restricted,
tularensis, Burkholderia pseudomallei, and Yersinia pestis and they should be handled only in a designated area by
(7, 9, 15). The factors that influence the risk of acquiring well-trained personnel.
an infection from blood, body fluids, or other potentially When possible, disposable PPE should be used when
infectious material (OPIM) are related to the quantity of handling toxic chemicals. A chemical hygiene plan (re-
specimen involved in the exposure; the concentration, quired for all laboratories) details the specific safety mea-
prevalence, and type of pathogen in the specimen; the sures (i.e., engineering and work practice controls, PPE,
number and types of contact experienced by the worker; exposure monitoring, waste management) required for
the susceptibility and behavior of the host; and the routes each class of chemicals used in the laboratory.
of exposure (e.g., percutaneous exposure, splashes to mu- When exposure monitoring is required, a trained indus-
cous membranes, splashes to intact or nonintact skin, oral trial hygienist can measure the chemical level as the work
ingestion, or aerosol inhalation) (2, 30, 51). Aerosols are is performed and determine whether the level exceeds the
especially problematic because they are generated by nu- permissible exposure limit (PEL) (4, 33, 41). PELs repre-
merous procedures performed in the laboratory such as sent the maximum concentration of a chemical to which
sonication, homogenization, centrifugation, mixing, pi- an employee may be exposed over an 8-h workday or
petting, heating inoculation loops, streaking agar plates, 40-h workweek (time-weighted average). PELs may also
518 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

be expressed as a short-term exposure (15-min period) or Standard Precautions

a ceiling limit not to be exceeded. These limits are set so
All laboratories should adhere to the concept of standard
that employees are not exposed to chemical levels that may
precautions, which states that all patients and all labora-
cause acute or chronic symptoms.
tory specimens are potentially infectious and should be
Physical Hazards handled accordingly (15, 34). This concept arose from the
observation that infections are often unrecognized in pa-
Physical hazards abound in the laboratory and include
tients. “Standard precautions” replaces earlier terms, such
such things as ergonomic issues, fire, electrical hazards,
as “blood and body fluid precautions,” “universal precau-
noise levels, equipment, accidents (e.g., slipping, falling,
tions,” and “body substance precautions,” found in OSHA
and lifting), UV light exposure, and compressed gases
documents (45, 46). The OSHA documents place the em-
(25). Accidents often occur from overcrowding in the
phasis on blood-borne pathogens such as HIV, hepatitis B
work area, poor lighting, poor maintenance, and lack of
virus (HBV), and hepatitis C virus, whereas the concept of
attention to detail by the employee. All accidents should
standard precautions recognizes that all infectious agents
be investigated with the intent of identifying the cause of
and all OPIM, except perspiration, pose risk to the health-
the accident and correcting the problem. For example,
care worker (51).
back injuries are reduced by training employees on the
OSHA identifies a number of practices that should
correct method for lifting heavy objects. Falling is often
be implemented to protect the worker from exposure to
caused by slippery floors, obstructed vision, or obstacles.
blood-borne pathogens, including an exposure control
Electrical safety relies on the proper grounding of equip-
and risk assessment plan (15). Methods that can be imple-
ment, the availability of adequate electrical outlets, and
mented to minimize exposure to infectious agents shield
the prohibition of the use of extension cords. UV lights
the laboratory worker from infectious material through a
should be installed according to the manufacturer’s instruc-
set of engineering and work practice controls and the use
tion to avoid skin or eye injuries. Also, the laboratory
of PPE. In addition, the OSHA regulations require that
should be evaluated for ergonomic problems, excessive
employers provide HBV vaccination, postexposure evalu-
noise, and excessive stress on employees. Workers under
ation, and follow-up; communicate the hazards to employ-
excessive stress tend to make more mistakes and have
ees; and maintain appropriate records (2, 5, 15). Employees
more frequent accidents.
who decline immunization against HBV are required to
Radiation Hazards sign an HBV vaccine declination form (Appendix 28.1).
Any laboratory that performs tests using radioactive ma-
terials needs to meet the requirements of the U.S. Nuclear
Hazard Prevention and Containment
Regulatory Commission (NRC), including a radiation con-
trol plan. The implementation of a radiation safety pro- Risk Assessment
gram and control plan monitored by a radiation safety The risk associated with handling hazardous material
officer can minimize the occupational exposure to ion- should be assessed, and an exposure control plan should
izing radiation from radioactive material or ionizing radi- be implemented. Rather than retrospectively analyzing
ation-producing equipment (39). The degree of risk from problems, laboratory managers need to proactively assess
ionizing radiation is related to the type of radiation (i.e., risk and institute the necessary procedures to reduce the
alpha, beta, or gamma) emitted, the quantity of radioac- potential risk. For chemical, physical, and radiological
tive material present, and the source of exposure (i.e., hazards, the classification of the hazard is straightforward,
internal or external). Engineering and work practice con- and usually the risk can be determined. For biohazardous
trols are essential to minimizing the risk of working with material, the assessment of risk is more difficult, is often
radioactive material. Three factors must be considered: qualitative, and is based on the pathogenicity and concen-
time, distance, and shielding. The goal is to minimize tration of the agent, the infectious dose, the route of trans-
the length of exposure, maintain the greatest distance be- mission, the viability of the agent in the environment, and
tween the radioactive material and the worker, and use an the availability of treatment or prophylaxis (13, 23, 38).
effective shield (i.e., lead, Plexiglas). Work practice con- Two lists of risk groups have been published to facilitate
trols for radiation, including a dedicated area for working the assessment of risk from different microorganisms and
with radioisotopes, are similar to other laboratory haz- to recommend the appropriate safety practices for handling
ards and include appropriate PPE (e.g., lead aprons) and infectious agents (13, 60). The World Health Organization
monitoring badges (39). Today, most tests that were once (WHO) lists four groups of biohazardous agents based on
performed by radioimmunoassay are now performed by the level of risk to the individual and community and the
enzyme immunoassay, so many clinical laboratories no availability of effective treatment and prevention (Table
longer handle any radiolabeled compounds. 28.2). The Centers for Disease Control and Prevention/
 CHAPTER 28. LABORATORY SAFETY 519

Table 28.2 WHO classification of microorganisms by risk groupa Table 28.3 CDC/NIH-recommended biosafety levels for infec-
tious agentsa
Risk group Characterization
1 Low or no individual and community risk. Un- BSL Characterization
likely to cause human disease. 1 Well-characterized agents not known to consistently
2 Moderate individual and low community cause disease in healthy adult humans. Minimal poten-
risk. Unlikely to cause serious disease or be tial hazard to laboratory personnel and the environment.
transmitted. Effective treatment and prevention 2 Agents associated with human disease of moderate po-
available. tential hazard to personnel and the environment.
3 High individual and low community risk. 3 Indigenous or exotic agents that cause serious or poten-
Causes serious infections but not readily tially lethal disease as a result of exposure by the inhala-
transmitted. Effective treatment and prevention tion route.
usually available. 4 Dangerous and exotic agents that pose a high individual
4 High individual and high community risk. risk of aerosol-transmitted laboratory infections and
Causes serious human disease and readily life-threatening disease.
transmitted. No effective treatment or preven- a
From reference 13.
tion available.
a
From reference 60.

National Institutes of Health (CDC/NIH) guidelines pro- mycobacterial or fungal agents (13). Additional informa-
pose four biosafety levels (BSLs) and recommendations tion can be found on websites listed in Appendix 28.2.
for appropriate containment practices for a list of agents A risk assessment and exposure plan for the clinical
known to cause LAIs. Each BSL is based on the increased laboratory should identify the appropriate safety practices
risk associated with the factors listed earlier (Table 28.3). for handling infectious material that may contain any of
Each BSL consists of combinations of PPE, engineering a variety of pathogenic microorganisms (Table 28.5). Risk
and work practice controls, and laboratory design that assessment must take into account the agent, the host, and
are appropriate for work with a particular infectious agent the work activity in the development of a comprehensive
(Table 28.4). The BSL numbers (1 to 4) imply increased safety plan (23). Management must monitor the plan, doc-
occupational risk from exposure to an agent and the need ument accidents in writing, and make adjustments based
for additional containment for work with that agent. A on accidental exposures to infectious agents and new in-
conservative approach should be used when safety infor- formation. Laboratory accidents should be discussed at the
mation is not available for a microorganism or new labo- quality assurance or safety committee meeting (preferably
ratory procedure. Generally, routine clinical laboratories quarterly but no less than yearly) and immediately with
operate with BSL-2 practices or BSL-3 practices for some the staff in the section where the accident occurred. The

Table 28.4 Laboratory biosafety level criteriaa

BSL Practices Safety equipment and facilities
1 Standard microbiological practices PPE (coats, gloves) as needed
Controlled access
Sharps precautions
Display biohazard signs
2 BSL-1 practices Class I or II BSC used for specimen processing and work producing
Restricted access aerosols or splashes: PPE (coats, gloves, eyewear/face shields) as
Staff trained with pathogens needed; self-closing laboratory doors; eyewash station available
Safety manual available
3 BSL-2 practices BSL-2 equipment/facilities and BSC (class II or III) used for work
Consider baseline serum for all at-risk personnel with all specimens and cultures; PPE (gowns, masks) as needed;
negative pressure airflow; exhausted air not recirculated; decon-
tamination (e.g., autoclave) in laboratory
4 BSL-3 practices Class III BSC or class II BSC in combination with full-body, air-
Clothing change before entering supplied, positive pressure personnel suit; anteroom for clothing
Shower on exit change/shower; specialized ventilation and decontamination system
Decontaminate all waste on exit
a
From reference 13.
520 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.5 Risk assessment and exposure control plan for clinical microbiology laboratorya
Exposure risk from: PPEb Engineering controlsc
Cultured Sharps
Blood and biologic Lab coats/ Face/splash containers
Laboratory section and task body fluids agents Gloves gowns shields BSC availabled
General
Supplies inventory Low Coat
Clerical: computer entry, tele- Low P Coat
phones, records, etc.
Instrument maintenance:
Parts contaminated High Variable R Gown
Parts not contaminated Low Variable D Coat
Surface decontamination Low Variable R Coat
Waste disposal High Variable R Gown A(D) Sharps
Bacteriologye
Specimen processing High BSL-2 R Coat R Sharps
Subculture blood culture bottles High BSL-2 R Coat Af Af Needles
Subculture colonies or broth Low BSL-2e Coat Sharps
cultures
Prepare, fix, stain, and read Low BSL-2 Coat Slides
slides
Identification tests and antimi- Low BSL-2 Coat Sharps
crobial susceptibility testing
Mycology and Mycobacteriology e
Specimen processing High BSL-2/3 R Gown Re Sharps
Prepare smears, wet mounts; fix High BSL-2/3 R Gown R Slides
slides
Read wet mounts from High BSL-2/3 R Coat Slides
specimens
Read wet mounts from cultures Low BSL-2/3 R Coat Slides
Examine sealed cultures Low BSL-2/3g Coat
Stain fixed smears, read Low Coat Slides
Handle yeast cultures, smears, Low BSL-2 Coat D Slides
and fixed slides
Handle molds and mycobacteri- Low BSL-2/3h R Gown Re Sharps
ology cultures
Virology i
Specimen processing High BSL-2 R Coat R Sharps
Feed and manipulate uninocu- Low Coat Pipettes
lated cells
Read cells for cytopathic effect Low BSL-2 Coat
Feed and manipulate inoculated High BSL-2 R Coat R Pipettes
cells
Perform identification tests High BSL-2 R Coat D Sharps
Stain fixed slides, read Low Coat Slides
Parasitology
Concentrate fecal specimens, Low BSL-2 R Coat Pipettes, sticks
smears, wet mounts
Read fecal wet mounts Low BSL-2 R Coat Slides
Prepare blood smears; fix slides High BSL-2 R Coat A Slides
Stain and read slides Low Coat Slides
Molecular testing
Specimen processing High BSL-2/3 R Coat Aj Aj Pipettes
Cultured microorganism Low BSL-2 D Coat R Sharps
BSL-3 R Gown Rk Sharps
 CHAPTER 28. LABORATORY SAFETY 521

Table 28.5 Risk assessment and exposure control plan for clinical microbiology laboratorya
(continued)
Exposure risk from: PPEb Engineering controlsc
Cultured Sharps
Blood and biologic Lab coats/ Face/splash containers
Laboratory section and task body fluids agents Gloves gowns shields BSC availabled
Serology
Manipulate serum High BSL-2 R Gown A Pipettes
Arrange tubes; prepare and dis- Low Coat
pense reagents
Mix serum and reagents; read High BSL-2 R Gown Aj Aj Pipettes
and discard tests
a
Adapted from reference 26. Abbreviations: R, required; D, discretionary; P, prohibited; A, one of the required alternatives.
b
Remove PPE when leaving the laboratory. Gowns must have a solid front and be impervious to liquid.
c
Recapping of needles is prohibited. Carry tubes in racks or use plastic tubes. Plan each task to minimize known hazards. Wash hands before leaving the laboratory.
d
Sharps include needles, scalpels, pipettes, sticks, syringes, slides, plastic loops, and coverslips.
e
Requires surveillance and action plan for occasional isolation of BSL-3 organism (e.g., Brucella spp., Francisella spp., Mycobacterium spp., and systemic fungi), espe-
cially when plates are held more than three days. M. tuberculosis requires the use of a safety centrifuge, a BSC, and a HEPA-filtered mask or respirator.
f
Use a BSC or acrylic splash shield.
g
Requires a contingency plan for breakage of culture containers.
h
Mycobacteria other than tuberculosis can be handled at BSL-2; however, use BSL-3 practices because most manipulations precede organism identification.
i
Special precautions for BSL-4 agents (e.g., hemorrhagic fever virus, smallpox) should be arranged through CDC’s emergency number (770-488-7100).
j
Vortexing or other splatter-generating steps require use of a BSC or safety shield.
k
Requires BSL-3 practices if there is potential for aerosols.

accident report and corrective action are documented in for removing unauthorized persons. Visitors and service
the minutes of the committee meeting. Common safety workers should sign an entry log, be issued an identifica-
mistakes or compliance issues are listed in Appendix 28.3. tion badge with an expiration date, wear a laboratory coat,
Laboratories that use or store Select Agents (Table 28.6) and be accompanied by a laboratory employee. Labora-
under BSL-2, -3, or -4 practices must address the following tory supervisors should ensure that all visitors and service
security and safety concerns: workers understand the laboratory’s security and safety
requirements, safety signage, and areas that are posted off-
• Risk and threat assessment limits to visitors.
• Facility security plans Most clinical laboratories serve as sentinel laboratories
• Physical security in the national Laboratory Response Network (LRN). The
primary responsibility of a sentinel laboratory is to rule
• Security of data and electronic technology systems out and refer suspected Select Agents to the nearest LRN
• Security policies for personnel reference laboratory (usually a state health laboratory) or a
• Access controls to the laboratory federal level laboratory, depending on the suspected agent.
• Procedures for agent inventory and accountability Laboratory personnel should be familiar with the mor-
phological, cultural, and identification characteristics of
• Shipping, transfer, and receiving of Select Agents certain Select Agents that might be encountered in clinical
• Emergency response plans specimens. The laboratory should notify the institutional
• Reporting of incidents, unintentional injuries, and se- infection control or epidemiology personnel who are re-
curity breaches sponsible for assessing the situation and notifying local or
state public health officials.
The select agents plan must be part of the daily opera- Maintenance workers and cleaning staff must also un-
tion of the laboratory, and all employees must be knowl- derstand the laboratory’s security and safety procedures,
edgeable about the plan (6). For security of Select Agent sign the entry log, and ideally, perform their tasks when
areas and public safety, access to the laboratory should be laboratory employees are present. The laboratory supervi-
limited and restricted to individuals who have a legitimate sor should instruct the maintenance and cleaning staff on
purpose for entering the work area. Laboratory entrances the restricted areas of the laboratory (e.g., mycobacteriol-
should be locked by keypads, keys, or identification card ogy laboratory) and precisely define their duties (e.g., do
keys. Laboratory employees should continuously moni- not handle biohazardous material). When work is required
tor entrances that remain open. The laboratory should in the restricted areas, a laboratory worker should escort
have a policy that defines who may visit and a procedure or monitor the person.
522 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.6 Select agents and toxinsa and contact with work surfaces, telephones, and equip-
Bacteria ment. Laboratory personnel should wash their hands:
Bacillus anthracis
• Immediately after removing gloves
Brucella species
Burkholderia mallei and B. pseudomallei • After obvious contamination
Clostridium botulinum • After completion of work
Francisella tularensis • Before leaving the laboratory
Yersinia pestis
• Before hand contact with nonintact skin, eyes, or mu-
Rickettsiae cous membranes
Coxiella burnetii Handwashing sinks should be located at each entry
Rickettsia prowazekii and R. rickettsii and exit door, and ideally the faucet should be operated
by a knee or foot control. If these controls are not avail-
Fungi
able, the faucet should be turned on and off using a pa-
Coccidioides immitis and C. posadasii
per towel. Handwashing should be performed using a
Viruses soap or antiseptic compound, starting at the wrist area
Crimean-Congo hemorrhagic fever virus and extending down between the fingers and around and
Eastern equine encephalitis virus under the fingernails. Hands should be rinsed from the
Ebola virus wrists downward (21). Recently, the CDC recommended
Equine morbillivirus (Hendra, Nipah) that in addition to traditional soap and water handwash-
Herpesvirus 1 (herpes B virus) ing, healthcare personnel can also use alcohol-based gels
Lassa fever virus (Table 28.7) (8).
Marburg virus
Monkeypox virus Barrier Protection
Rift Valley fever virus PPE shields the individual from contact with a particular
South American hemorrhagic fever viruses hazard. OSHA standards require that PPE shall be pro-
Tick-borne encephalitis complex viruses vided, used, and maintained for all hazards found in the
Variola major and minor virus (smallpox virus) workplace, including biological, environmental, chemical,
Venezuelan equine encephalitis virus and radioactive compounds and mechanical irritants ca-
Viruses causing hantavirus pulmonary syndrome pable of causing injury or illness through absorption, in-
Yellow fever virus halation, or physical contact. Employees must be trained
in the appropriate use of PPE for a specific task, the limita-
Toxins tions of PPE, and procedures for maintaining, storing, and
Abrin disposing of PPE.
Botulinum toxins
Clostridium perfringens epsilon toxin Gloves. Gloves protect the wearer from exposure to po-
Conotoxins tentially infectious material and other hazardous material
Diacetoxyscirpenol and are available in materials designed for specific tasks.
Ricin Gloves must be provided by the employer and should be
Saxitoxin of the proper size and appropriate material for the task.
Shigatoxin Gloves are available in wrist, elbow, and shoulder length.
Staphylococcal enterotoxins Thin latex, vinyl, or nitrile gloves offer protection from
Tetrodotoxin exposure to potentially infectious material and should
T-2 toxin be changed frequently. Because of latex hypersensitivity
a
From reference 58. in some workers, only powder-free latex gloves should
be used, or better yet, gloves should be made of nitrile,
polyethylene, or another material. The prevalence of latex
Handwashing allergy in healthcare workers ranges from 6 to 16% and
Handwashing is the most important procedure to reduce usually presents as a type of allergic reaction (e.g., skin
the duration of exposure to an infectious agent or chemi- rashes; hives; flushing; itching; nasal, eye, or sinus symp-
cal, prevent dissemination of an infectious agent, and re- toms; asthma; and rarely, anaphylaxis). While removal of
duce overall infection rates in a healthcare facility. Hand latex products from the workplace is the final solution,
contamination occurs during manipulation of specimens other exposure control measures include education of new
 CHAPTER 28. LABORATORY SAFETY 523

Table 28.7 Characteristics of hand-hygiene antiseptic agentsa

Bacteria
Speed of
Group GP GN Mycobacteria Fungi Viruses action Comments
Alcohols +++ +++ +++ +++ +++ F Optimum concentration
60–95%; no persistent activity
Chlorhexidine (2% and 4% +++ ++ + + +++ I Persistent activity; rare allergic
aqueous) reactions
Iodine compounds +++ +++ +++ ++ +++ I Causes skin burn; usually too
irritating for hands
Iodophores +++ +++ + ++ ++ I Less irritating than iodine
Phenol derivatives +++ + + + + I Neutralized by nonionic
detergents
Triclosanb +++ ++ + − +++ I Acceptability on hands varies
Quaternary ammonium + ++ − − + S Used only in combination
compounds with alcohols; ecologic
concerns
a
From reference 8. +++, Excellent; ++, good, but does not include entire bacterial spectrum; +, fair; −, no activity or not sufficient; F, fast; I, intermediate; S, slow;
GP, Gram positive; GN, Gram negative.
b
A polychlorophenoxyphenol.

employees on latex allergies, screening high-risk employ- Face and eye protection. Face and eye protection should
ees for latex allergy symptoms, and frequent cleaning and be used when splashes or sprays of infectious material
changing of ventilation filters in latex use areas. When an or chemicals may occur. Face and eye protection equip-
employee suffers from the more serious type I hypersensi- ment includes goggles, face shields, and splash guards.
tivity to latex, latex cannot be used in the employee’s work Face shields provide the best protection for the entire face
area, which should be posted as “latex free.” and neck. Splash guards provide an alternative method for
When working with chemicals, the gloves should be of face and eye protection. If only goggles are worn, the user
a material known to resist the particular chemicals. Gener- should also wear an appropriate mask to prevent contami-
ally the material will be neoprene, nitrile, or a butyl rubber. nation of mucous membranes. Hazardous materials such
General-purpose utility gloves should be used for house- as corrosives should always be manipulated behind splash
keeping chores. Insulated gloves are available for handling guards or while wearing appropriate PPE.
hot or cold items. Puncture-resistant gloves should be used
in the autopsy suite or when handling scalpels or other Engineering Controls
sharp objects. Engineering controls are those that involve making
changes to the work environment to reduce work-related
Protective clothing. Laboratory workers should wear hazards. These types of controls are preferred over all oth-
fully closed long-sleeved coats or gowns that extend be- ers because they make permanent changes that reduce
low the level of the workbench. When there is a potential exposure to hazards and do not rely on worker behavior.
for splashing or spraying, the material must be fluid re- By reducing a hazard in the workplace, engineering con-
sistant. Fluid-proof clothing (plastic or plastic lined) must trols can be the most effective solutions for laboratories to
be worn when there is the potential for soaking by infec- implement. These controls include mechanical pipettes,
tious material. When handling chemicals, clothing must bench tops impervious to liquids and chemicals, biohaz-
be composed of a material that is resistant to the particu- ard bags, centrifuge safety cups, eye wash stations, ventila-
lar chemical. Laboratory workers should not wear labora- tion systems, biological safety cabinets (BSCs) and fume
tory clothing out of the laboratory. All protective clothing hoods, plasticware, and plastic collection devices (e.g.,
should be changed immediately when contaminated to vacutainers, hematocrit tubes) (19). An OSHA standard
prevent the potentially infectious material or chemical requires that safety needle devices or needleless systems be
from contacting the skin. Coats and gowns should not be used whenever possible (14, 47). All hazardous chemicals
taken home for cleaning but should be laundered by the should be stored below eye level and transported in safety
institution. When handling highly toxic compounds, com- carriers. Incompatible chemicals should be stored apart,
plete body suits should be worn. and flammables should be stored in a safety canister and
524 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

a flame-resistant cabinet. The maximum quantity of flam- first category are hepatitis B; seasonal influenza; measles,
mable material that can be stored in a cabinet is defined mumps, and rubella; pertussis; and varicella vaccines.
by the manufacturer (33). Flammables requiring refrigera- Vaccines in the second category are meningococcal, ty-
tion can only be stored in an explosion-proof refrigerator. phoid, and polio vaccines.
Compressed gas cylinders must be moved with the valve
safety cover in place and secured to a handcart. When sta- Warning Signs and Labels
tionary, the cylinder must be secured upright with bottom Warning signs and labels are designed to provide a uni-
and top restraints. versal policy to alert visitors and employees to potential
laboratory hazards and hazardous areas in the laboratory.
Work Practices A comprehensive warning labeling system should be im-
Work practices are procedures for safe and proper work plemented to identify contaminated objects or hazardous
that are used to reduce the duration, frequency, or inten- materials. OSHA-specified signage should be used when-
sity of exposure to a hazard. These controls need to be un- ever applicable (18, 43, 44). The color of the sign identifies
derstood and followed by all who work in the laboratory. the level of risk: (i) danger (red, white, and black), (ii) cau-
These practices include not allowing mouth pipetting and tion (yellow and black), or (iii) safety instruction (green
selecting less hazardous chemicals for a specific procedure. and white) (18). Containers of hazardous reagents, radio-
Wearing open-toed shoes or sandals should not be allowed nuclides, chemicals, and waste must be labeled with the
in the laboratory to prevent accidental spillage on bare chemical name and appropriate hazard label (e.g., flam-
skin. Movements that bring the hand to the mouth, eyes, mable, corrosive, carcinogen, irritant).
or mucous membranes should be discouraged. Therefore,
employees should not eat, drink, apply cosmetics or con- Biological Safety Cabinets and Chemical
tact lenses, etc., in the laboratory. Visitors should be dis- Fume Hoods
couraged or accompanied by an employee. Chemical fume hoods should be used when there is risk of
exposure to hazardous fumes or splashes while preparing
Respiratory Protection or dispensing chemical solutions. Airflow is generally con-
Respiratory devices are available to prevent inhalation of trolled by a movable sash and should be in the range of 80
chemical dust or fumes and infectious aerosols. The type to 120 feet per minute (33, 44). Objects in the hood should
of mask used depends on the specific hazard. For exam- not obstruct the airflow or the workspace. Chemical fume
ple, a properly fitted N95 mask is employed for protection hoods are certified annually.
against aerosolized M. tuberculosis (15). A chemical fume Biological hazards are best contained within a class IIA
mask employs cartridges that are designed to reduce expo- or class IIB BSC. BSCs are the most important contain-
sure to a particular chemical, but the cartridge must be re- ment equipment in the microbiology laboratory. Class III
placed periodically. A self-contained breathing apparatus cabinets are used with infectious agents requiring BSL-3
offers the greatest degree of protection and is used when or -4 containment. BSCs operate at a negative air pressure,
toxic levels are high or the danger is unknown (33). with air passing through a HEPA filter. The vertical airflow
serves as a barrier between the cabinet and user. BSCs are
Immunization certified annually. More detailed information on the selec-
The current CDC/APIC (Association for Professionals tion and use of BSCs can be found in Appendix 28.2 and
in Infection Control and Epidemiology) guidelines on references 12, 13, and 15.
immunization of healthcare workers, including labora-
tory personnel, provide recommendations for agents on
the basis of documented nosocomial transmission, for Sterilization and Decontamination
which there is substantial risk of acquisition or trans- When discussing germicides, sterilants, disinfectants, and
mission. These include hepatitis B, influenza, measles, decontamination, it is important to understand the dif-
mumps, rubella, pertussis, and varicella (10, 11) (Table ferences between the terms (15, 19, 21). A germicide is a
28.8). The recommendations for vaccination of health- substance that kills pathogenic organisms on inanimate
care personnel are represented by two categories: (i) dis- surfaces. Disinfectants destroy all microorganisms, but
eases for which routine vaccination or documentation of not necessarily their spores, on inanimate surfaces. Steri-
immunity is recommended because of risks to personnel lants are agents that kill all microbial life, including spores,
in their work settings and, should a healthcare worker be- on inanimate surfaces. Prions (abnormal host proteins) are
come infected, to the patients they serve and (ii) diseases not covered by these definitions.
for which vaccination of personnel might be indicated Decontamination is a procedure that eliminates or re-
in certain circumstances. Vaccines recommended in the duces microbial or toxic agents to a safe level with respect
 CHAPTER 28. LABORATORY SAFETY 525

Table 28.8 Immunizing agents and schedules for healthcare personnela

Name Primary schedule/booster(s) Indications
Immunizing agents recommended for all healthcare personnel
Hepatitis B recombinant vaccine Two doses 4 weeks apart; third dose 5 months Personnel at risk for exposure to blood or
after second; booster doses not necessary body fluids
Influenza vaccine (TIV and LAIV) Annual vaccination with current seasonal All healthcare personnel
vaccine
Measles live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity b; should
be considered for those born before 1957
Mumps live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity c; should
be considered for those born before 1957
Rubella live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity d
Tetanus and diphtheria (toxoids) and acel- One dose regardless of last Td; after Tdap, re- All healthcare personnel
lular pertussis (Tdap) ceive Td for routine booster every 10 years
Varicella-zoster virus live-virus vaccine Two doses 4 to 8 weeks apart if aged greater All healthcare personnel who do not have
than 12 years evidence of immunity e

Other immunologics that might be indicated in certain circumstances for healthcare personnel
Quadrivalent meningococcal conjugate One dose; booster dose in 5 years if person Microbiologists who might be routinely ex-
vaccine (ages 19–54 years); quadrivalent remains at increased risk posed to isolates of Neisseria meningitidis
meningococcal polysaccharide vaccine
(age ≥ 55 years)
Typhoid vaccine IM: one dose, booster every 2 years; Oral: four Microbiologists who frequently work with
doses on alternate days, revaccination with Salmonella typhi
entire four-dose series every 5 years
Inactivated poliovirus vaccine (IPV) If unvaccinated, two doses 4 to 8 weeks apart; Healthcare personnel with exposure to pa-
third dose 6 to 12 months after second dose tients who might be excreting polioviruses
a
From reference 11.
b
Written documentation of vaccination with two doses of live measles or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles
immunity or laboratory confirmation of measles disease or birth before 1957.
c
Written documentation of vaccination with two doses of live mumps or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles im-
munity or laboratory confirmation of measles disease or birth before 1957.
d
Written documentation of vaccination with one dose of live rubella or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles
immunity or laboratory confirmation of measles disease or birth before 1957.
e
Evidence of immunity is defined as written documentation of vaccination with two doses of varicella vaccine or laboratory evidence of immunity or laboratory confir-
mation of disease or diagnosis/verification of varicella disease by a healthcare provider.

to the transmission of infection or other adverse effects. Prions, the causative agents of Creutzfeldt-Jacob disease
Routine decontamination of the work environment is usu- and transmissible spongiform encephalopathies, are resis-
ally performed with disinfectants (Table 28.9). It is impor- tant to standard disinfection and sterilization procedures
tant that the manufacturer’s instructions for preparation (1, 15, 19, 22). The disinfection procedures for high-risk
and use be followed carefully. The selection of a disinfec- specimens (central nervous system tissue), medium-risk
tant depends on the degree of microbial killing required, the specimens (cerebrospinal fluid, lymph node, spleen, pi-
effectiveness against an extended spectrum of pathogens, tuitary gland, and tonsil) and low-risk specimens (bone
compatibility with the surface or device being decontami- marrow, liver, lung, thymus, and kidney) or equipment
nated, toxicity, residue activity, and odor. Disinfectants can contaminated with these specimens differ according to
be hazardous compounds when not used properly (Table the level of risk (15, 22). Devices or material contaminated
28.9). No single product is adequate for all decontamination with high-risk tissue should be discarded or decontami-
purposes. Appropriate PPE (i.e., gloves, impervious gowns, nated by steam sterilization at 121°C for 1 h or soaked in
eye protection, masks) should be worn when cleaning and 1N NaOH for 1 h or in 0.5% sodium hypochlorite (2%
decontaminating equipment. Alcohol should not be used in free chlorine) for 2 h before cleaning and sterilization by
a poorly ventilated area or near flames, and corrosive so- conventional means (15). Conventional heat, chemical,
dium hypochlorite solutions should not be used on metals. or gas sterilization or high-level disinfection can sterilize
526 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.9 Activity levels and hazards of selected germicidesa

Procedure/product Aqueous concentration Activity level Hazards
Sterilization
Glutaraldehyde Variable NA Dermatitis, toxic
Hydrogen peroxide 6–30% NA Irritant
Formaldehyde 6–8% NA Irritant, toxic, sensitization
Chlorine dioxide Variable NA Irritant, gas toxic
Peracetic acid Variable NA Irritant

Disinfection
Glutaraldehyde Variable High to intermediate Dermatitis, toxic
Hydrogen peroxide 3–6% High to intermediate Irritant
Formaldehyde 1–8% High to low Irritant, toxic, sensitization
Chlorine dioxide Variable High Irritant, gas toxic
Peracetic acid Variable High Irritant
Chlorine compounds 500–5,000 mg/liter free avail- Intermediate Gas toxic, irritant
able chlorine
Alcohols Ethyl, isopropyl: 70% Intermediate Toxic (isopropyl)
Phenolic compounds 0.5–3% Intermediate to low Leukoderma, depigmentation
Iodophor compounds 40–50 mg/liter free iodine; up to Intermediate to low Skin irritation
10,000 mg/liter available iodine
Quaternary ammonium compounds 0.1–0.2% Low Dermatitis, sensitization
a
From references 8, 15, and 21. NA, not available.

devices contaminated by medium- or low-risk specimens. Generally, the spill cleanup should be performed by the
Formaldehyde (3.7 to 4.0%)–fixed brain tissue (0.5 mm individual who accidentally spilled the infectious mate-
thick) is soaked in 95 to 100% formic acid for 1 h followed rial or by people specifically trained in the cleanup of bio-
by immersion in fresh 4% formaldehyde for 48 h before hazardous materials. Appropriate protective equipment
preparing histological slides for examination. must be used in decontaminating spills involving BSL-2 or
BSL-3 agents. The PPE includes disposable gloves (heavy-
weight and puncture resistant), fluid-impermeable shoe
Spill Management
covers, coats or gowns with long sleeves, and facial protec-
Biological tion. When the spill involves a BSL-3 agent, a respirator
The management of biohazardous spills in the clinical labo- or HEPA-filtered mask should be used. In this situation it
ratory must account for the specific infectious agent, the is usually best to call the spill emergency response team,
volume of infectious material spilled, and the presence of which is trained to handle this type of spill.
aerosols. Spills involving BSL-3 agents are serious because Any broken glass in the spill area should be removed
aerosols can transmit these agents. Occupants should hold and discarded without contact with the hands. This is ac-
their breath, evacuate the area immediately, close the doors, complished with rigid cardboard, tongs, forceps, hemo-
and not reenter the area for 30 to 60 min (15, 24). When stats, or a plastic scoop (dustpan). Glass is discarded into
breakage occurs in a centrifuge, the equipment must re- a puncture-resistant container, and other contaminated
main closed for at least 30 min before decontamination is material is discarded into a biohazardous waste container.
undertaken. A tuberculocidal disinfectant should be used After the absorbent material is discarded, the spill site
for decontamination (19). A low-level disinfectant such as a can be cleaned with an aqueous detergent solution to di-
quaternary ammonium compound should not be used. Ad- lute any remaining infectious material and to remove ex-
ditional factors that influence decontamination of the spill cess protein. You should use a tuberculocidal disinfectant
site include the type of infectious material (blood, culture that remains on the site for 20 min. Then absorb any re-
medium), the concentration and virulence of the infectious maining disinfectant with absorbent material, rinse the
agent, the protein content of the material, and the spill sur- area with water, and dry.
face (porous or fluid resistant). Initially, spills should be When spills occur in a BSC, do not turn off the cabinet
absorbed with paper towels, gauze pads, or commercial ab- fan. Minor spills can be absorbed with absorbent paper,
sorbents such as granular or silica gel absorbents. and the area can be decontaminated with a disinfectant.
 CHAPTER 28. LABORATORY SAFETY 527

When the infectious material has flowed into the grille, all and contact the emergency response team. An example
items in the cabinet should be wiped with a disinfectant of a chemical spill cleanup procedure for minor spills is
and removed. The drain valve should be closed, and dis- shown in Appendix 28.6. A trained person should clean
infectant should be poured onto the surface and through up the spill using appropriate PPE (gloves, gowns, and
the grille into the drain pan. You should allow 20 min of shoe covers resistant to the chemical, plus a face shield).
contact time with the disinfectant and then absorb the Contain the spill with spill pads, pillows, or socks. Clean
disinfectant with paper towels. Attach a hose to the drain the spill using approved absorbents and neutralizing
valve and drain into a container with disinfectant. Remove agents. Package the waste appropriately for pickup, label-
the grille and rinse the drain pan with water. For major ing the container with the substance, date, and amount of
spills involving BSL-3 agents, a service consultant should material. As with biological spills, the response is depen-
be contacted for decontamination. dent on the chemical hazard and volume of the spill. Pre-
All materials necessary for the cleanup of a biohazard- pare a spill report and submit it to the safety committee.
ous spill should be assembled and stored as a biohazard The material safety data sheets (MSDSs) contain informa-
spill kit (Appendix 28.4). The kit should contain an appro- tion on the hazard classification, appropriate PPE, symp-
priate disinfectant (e.g., 10% household bleach), absorbent toms arising from exposure, and instructions for the safe
material (e.g., paper towels, gauze pads, and granular ma- handling, disposal, and cleanup of laboratory chemicals.
terial such as BioZorb for large spills), PPE (e.g., puncture- OSHA requires that MSDSs for all laboratory chemicals
resistant utility gloves, water-impermeable shoe coverings, be readily available to all employees. Emergency aids such
gown, mask, face shield, or eyewear), and autoclavable as eyewash stations and an emergency shower should
dustpan, tongs or forceps, plastic scoop and pusher, and be available in locations in which caustic and corrosive
bags. For BSL-3 agents a full-face respirator or HEPA- chemicals are used and in which the possibility of a large
filtered mask should be available. The biohazard spill kit spill exists.
can be stored in a puncture-resistant biohazardous waste
container. Examples of spill cleanup procedures may be
found in various guidelines (13, 15, 19, 24) and Appendix Fire Safety
28.5. Following the spill cleanup, a report should be com- While proper procedures and training can minimize the
pleted and submitted to the safety committee. chances of an accidental fire, laboratory workers should
still be prepared to deal with a fire emergency should
one occur. Laboratories should have a written emergency
Chemical plan and ensure that workers are trained. A training pro-
The laboratory should have adequate spill response equip- gram should be provided for new employees and updates
ment readily available as a chemical spill kit (18). In the provided to current employees as needed. The program
event of a chemical spill or leak, an initial determination on should include recognition and evaluation of fire hazards,
the need for an evacuation is made based on the immedi- planning to reduce the risk of fire, and all actions to take
ate danger to life or health or when employees experience when a fire occurs (18).
severe discomfort. Any or all of the following conditions
usually warrant an evacuation:
Waste Management
• Injured or ailing personnel
The laboratory is a major generator of chemical and bio-
• Symptoms of irritation reported by employees
hazardous waste in the healthcare facility. Procedures for
• Large-volume spill the handling of chemical waste are well defined because
• Flammable or explosive material spilled the hazardous substance is usually identifiable. However,
• Carcinogen spilled medical or infectious wastes are not well defined and in-
clude categories such as contaminated sharps, cultures
• Presence of strong odors
and stocks of infectious agents, blood and body fluids,
When an evacuation is required, close off the area, notify and pathological waste (17, 37). For effective and efficient
employees in the immediate vicinity of the spill, and report management of infectious wastes, a comprehensive man-
the situation to the emergency response team. Provide the agement plan is essential to ensure the safety of the em-
location, nature of the spill, personnel injured or trapped, ployees handling the waste, compliance with the various
and hazard involved. Do not attempt to rescue patients or regulatory requirements, meeting the standards of The
employees if your life or health may be endangered. Joint Commission and the guidelines of other professional
For minor spills (not involving flammables, explosives, groups such as CLSI, and implementation of cost-effective
or carcinogens), contain the spill, close off the spill area, strategies for waste disposal.
528 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Regulatory Oversight must comply with the OSHA requirements for the category
There are numerous federal, state, and local regulations and volume of waste and treatment, transportation, labeling,
governing the management of biohazardous waste: and disposal method. For example, sharps must be placed
in impervious, rigid, leak-proof, color-coded, puncture-
• Federal regulations resistant containers with secure lids. Other medical waste
• OSHA’s Bloodborne Pathogen Standard (45): Ap- may be placed in containers that are leak-proof and labeled
plies to the handling and packaging of regulated or color-coded as to hazard and have secure closures.
waste and the implementation of procedures to pro-
tect employees against potential exposure to infec- Storage. All waste should be treated as soon as possible.
tious medical waste. The waste storage area should be posted as to the hazard,
• Department of Transportation (DOT) (55, 56): Sets be sited near the treatment area or loading dock for off-
requirements for transport of hazardous materials site treatment, and maintain a temperature and duration
and regulated medical waste. of storage that prevents spoilage. Access should be limited
• Guidelines and standards to authorized personnel.
• CDC/NIH (13): Management of infectious waste. Transport. Waste is transported in labeled and leak-proof
• CLSI (17): Management of waste generated by a containers or carts appropriate for the hazard. When
clinical laboratory. shipped to an off-site treatment facility, the contain-
• The Joint Commission (36): Requires a waste man- ers must meet the specifications established by the DOT.
agement plan for the institution that is in compli- Transportation containers or carts should be routinely
ance with all federal, state, and local regulations. disinfected.
• State and local regulations: Many state and local
jurisdictions have passed regulations governing the Treatment and disposal. The treatment and disposal of
handling, treatment, and disposal of biohazardous waste must comply with all federal, state, and local regula-
waste. tions. Most institutions contract with companies licensed
to treat and dispose of hazardous waste. A number of waste
Management Program treatment techniques and disposal methods are available
The laboratory’s waste management plan should be part of for organizations that produce a small amount of waste
the overall facility plan and must comply with the numer- (17, 20), but they must meet all regulatory requirements.
ous federal, state, and local regulations. Most plans address
the following elements. Contingency planning. The waste management plan should
include a written plan for alternative treatment and dis-
Identification of hazardous waste. Although no generally posal in the event of the failure of the normal waste man-
acceptable definition of medical waste is available, there agement process. This plan must provide for increased
are categories of waste that are considered potentially in- storage or include an agreement with another generator to
fectious, namely human blood, body substances, and blood handle the waste in an emergency.
products; contaminated sharps; cultures and stocks of mi-
crobial agents; contaminated laboratory waste; PPE grossly Training. Employee training must comply with OSHA’s
contaminated with blood, body fluids, or microbiological requirements and should include exposure risk infor-
cultures; and pathological waste (13, 15, 17, 20, 45). mation, safety policies, procedures for handling waste,
required PPE, and the duties and responsibilities of the
Segregation. Knowledgeable personnel segregate waste position. Training occurs annually for all employees, im-
into designated categories (i.e., chemical, routine trash, mediately for new employees, and before workers assume
radiological, and infectious) at the point of generation to new duties or tasks.
reduce the cost of disposal and to protect employees and
others from exposure to hazardous material.
Packaging and Shipping
Packaging and labeling. Appropriate containment of haz- Infectious Substances
ardous material is the key to minimizing personnel and pub- A complex and confusing set of national and international
lic exposure. Chemical and radioactive waste is separated guidelines and regulations governs the packing and ship-
and handled differently from other regulated medical waste. ment of clinical specimens and cultures of microorganisms
Containers for liquids are leak-proof. All containers must (35, 55, 57, 60). The most widely recognized, copied, and ac-
have secure closures and maintain their integrity through- cepted requirements come from the International Air Trans-
out the handling and transportation process. Containers port Association (IATA). Most national and international
 CHAPTER 28. LABORATORY SAFETY 529

regulations are based on or are at least in substantial agree- or life-threatening or fatal disease to otherwise healthy hu-
ment (harmonization) with IATA requirements. In the mans or animals.” Category A pathogens were previously
United States, the Department of Transportation (DOT) classified as WHO risk group 4 substances and ostensi-
regulates the commercial transport of dangerous goods by bly encompass cultured select agent organisms. If there is
both air and ground carriers. The DOT revised its regula- doubt as to whether or not a substance meets the criteria of
tions for the transportation of infectious substances to be in category A, it must be included in category A. Category A
substantial harmonization with IATA requirements. These pathogens must be assigned the UN number UN2814 (in-
regulations dictate the packaging and labeling of infectious fectious substance, affecting humans) or UN2900 (infec-
material that is shipped via commercial carriers with the tious substance, affecting animals). A category B substance
stated goal of protecting employees in the transportation is defined by IATA as “an infectious substance which does
industry and the general public. This protection is based not meet the criteria for inclusion in Category A.” Category
on packages that are unlikely to leak or be damaged during substances are not in a form generally capable of causing
shipment, labels affixed to the package that identify the par- disability, life-threatening illness, or fatal disease. Exam-
ticular hazard, and trained personnel who are responsible ples include typical clinical, diagnostic, or patient speci-
for the shipment of infectious material. These regulations mens and typical clinical laboratory cultures of routinely
and guidelines are constantly evolving as the various groups encountered non–category A microorganisms. Category
and organizations attempt to agree on one set of standards. B substances must be assigned UN number UN3373 (bio-
logical substance, category B). Exempt specimens are those
Infectious Substances Classification for which there is “minimal likelihood there are pathogens
Classes of dangerous goods that are regulated include ex- present.” A patient specimen is material collected directly
plosives, gases, flammables (liquids and solids), oxidizing from humans for diagnostic, treatment, prevention, inves-
substances, toxic and infectious substances, radioactive tigational, or research purposes. Patient specimens that
material, corrosives, and miscellaneous (includes dry ice). have category A or B criteria should be classified, packed
The two classes encountered in the clinical laboratory are and shipped as category A or B. Patient specimens that have
class 6 (toxic [6.1] and infectious substances [6.2]) and neither category A nor B criteria should be packed and
class 9 miscellaneous dangerous goods (including dry ice). shipped as exempt human specimens (Table 28.10). For
Infectious substances are materials known or suspected category A shipments, an itemized list of contents must be
to contain a pathogen with the potential to cause disease placed between the secondary and outer packaging.
upon exposure. A pathogen is a virus or microorganism The shipper is legally responsible for correctly classify-
(including its plasmids or other genetic elements) or pro- ing the material being shipped and for packing substances
teinaceous particle (prion) that has the potential to cause correctly to ensure the safety of all personnel who handle
disease in humans or animals. In most clinical laborato- the package before, during, and even after shipment to the
ries, division 6.2 infectious substances must be classified point of acceptance of the package by the consignee. When
into one of the following four types: there is uncertainty about the infectious nature of the mate-
rial, it is prudent to declare and ship the material as an in-
• Category A infectious substance fectious substance. The following questions may be helpful
• Category B infectious substance for classifying diagnostic specimens and biological prod-
• A patient specimen ucts (52) and in determining substances that are regulated.
• Exempt human specimen • Is the substance known or suspected to contain a
A category A substance (pathogen or agent) is “an infec- pathogen?
tious substance which is transported in a form that, when • Is the sample being shipped for diagnostic or investiga-
exposure occurs, is capable of causing permanent disability tional purposes?

Table 28.10 Shipping classification examples

Substance Classification UN number/label
Blood sample suspected to contain Category A; infectious substance, UN2814
Ebola virus affecting humans
Culture of foot and mouth disease virus Category A; infectious substance, UN2900
affecting animals
Blood sample suspected to contain Category B, biological substance UN3373
hepatitis B virus
Blood sample for cholesterol testing Exempt Exempt human specimen
530 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

• Is there a low probability for the occurrence of risk number listed on the paperwork. The shipper or receiver
group 4 pathogens in the sample? may be quizzed on the hazards and characteristics of the
• Is the sample known not to contain a pathogen? dangerous goods, the proper decontamination and dis-
posal of the hazardous material (information found on
• Is the substance a licensed biological product?
the MSDS), and accident mitigation. It is critical that the
• Is the substance being shipped for any other reason? training program for the shipment of dangerous goods
emphasizes this safety information. Anyone involved in
Packaging, Labeling, and Shipping the shipping or transportation of dangerous goods must
Regulated Material be trained and certified. Recertification is required every
All packages containing infectious substances must meet two years.
the shipping regulations of various organizations or agen-
cies (35, 59, 60). However, the International Air Transport Personnel Training
Association (IATA) requirements are usually acceptable
under all regulations. They require triple packaging con- Safety training and the education of workers about poten-
sisting of a primary receptacle that is leak-proof, second- tial hazards and safe work practices are essential to creating
ary packaging that is also leak-proof, and an outer package a safe work environment (15, 33). All personnel employed
that is durable (Appendix 28.7). These containers are com- in the clinical laboratory must receive adequate safety
mercially available. For liquid infectious substances, an training applicable to their positions in order to perform
absorbent material should be placed between the primary their assigned tasks in a safe manner. Safety policies should
receptacle and secondary packaging and be sufficient to be applied to work practices. This training is mandated by
absorb the entire contents. various governmental regulations and accreditation orga-
There are specific instructions for labeling packages nizations and is required for new employees and students,
containing infectious substances, diagnostic specimens, individuals assigned new tasks, before the introduction of
and biological products (29). Under IATA requirements, new hazards or procedures to the work environment, and
labeling and marking of the outer package must include the on an annual basis for all personnel.
following as appropriate for the substance (Appendix 28.8):
Training Program
• An address label with the shipper’s and receiver’s The size and complexity of a safety training program will
names and addresses vary with the needs of the institution but must cover all
• A hazard label for category A shipments; “Infectious applicable safety topics and policies. Some topics include:
Substance” label UN2814 or UN2900
• Chemical information regarding job-specific hazards
• A hazard label for dry ice; class 9 “Miscellaneous Dan- (e.g., exposure to formaldehyde or carcinogens)
gerous Goods” label
• Management of hazardous material and waste
• Marking required for category B shipments; UN3373
• Blood-borne pathogen information (epidemiology,
• Label for “Exempt Human Specimens” if neither cat- symptoms, transmission)
egory A nor B
• Standard precautions
A shipper’s declaration is required for dry ice (a danger- • Selection, use, and limitations of PPE, safety equip-
ous good) if dry ice is used as a refrigerant for a category ment, and other control procedures
A substance, but not for a category B substance or exempt
• Postexposure management, accident reporting, and
human specimens. A shipper’s declaration form may be
investigation of incidents
available electronically from the carrier. The shipper
should prepare at least three copies: one for their records • Emergency preparedness, including bioterrorism issues
and two for the carrier. The carrier must deliver a copy • Availability of all safety regulations
to the consignee. The shipping documents must be affixed • Medical surveillance program
to the outer package and include the shipper’s declaration
• The employee’s responsibility to follow all safety poli-
(Appendix 28.9) and an airway bill if shipping by air. Ori-
cies and inform supervisors of potential safety hazards
entation labels (arrows) must be placed on all packages
containing greater than 50 ml of material. The laboratory safety training program should be de-
The Federal Aviation Agency and/or Department of veloped with input from the infection control practitioner,
Transportation may inspect any shipper or receiver of industrial hygienist, and other knowledgeable individuals;
dangerous goods unannounced at any time. The inspector highlight the potential risk from infectious agents and haz-
may review training records, oversee the actual packaging ardous chemicals; and emphasize the reduced risk when
and labeling of a shipment, and/or call the 24-h emergency work is performed according to the safety guidelines. The
 CHAPTER 28. LABORATORY SAFETY 531

contents of the training program should be updated fre- Monitoring and Evaluation
quently as new safety information becomes available or The effectiveness of the training program can be evaluated
regulations change. with a test but realistically must be assessed by observing
the daily practices of the employees for compliance with
Methods safety policies. When safety practices are not followed, the
The training format can be lectures, hands-on demon- individual should be counseled and reeducated on the ap-
strations, safety workshops, videos, computer programs, propriate practice. Repeated disregard for safety guidelines
or distance learning. However, no matter which method should trigger strict disciplinary action. It is the employer’s
is used, the trainer must be available to immediately re- responsibility to enforce adherence to safe work practices.
spond to the trainee’s questions during the session. The The overall effectiveness of the laboratory safety pro-
trainer must be competent in the area of laboratory safety gram is assessed through safety audits (Table 28.11), in-
and knowledgeable about current safety regulations, work spections by outside agencies and organizations, review
practices, safety equipment, and hazards found in the clin- of incident and accident reports (Appendix 28.10), and
ical laboratory. observations and suggestions from employees. Audits and
inspections should highlight concerns and provide recom-
Documentation mendations to improve the safety program. Management
The date of training, a summary of the presentation (or provides the resources to address and correct any deficien-
contents of the session), and attendance should be docu- cies, beginning with the most frequent and severe prob-
mented and placed in the employee’s record. Training rec- lem. However, in the end, a safe workplace develops from
ords should be maintained for 3 years. the efforts of all individuals in the organization.

Table 28.11 Sample laboratory safety audit

Date: Location:
Instructions:
• Answer yes, no, or N/A (not applicable)
• Explain N/A responses on separate sheet
• If insufficient space, include information on separate page

General Describe deficiency

_______ Has a Safety Officer been appointed?

_______ Employee safety training at hire and then annually?
_______ Current posted listing of emergency contacts?
_______ Are BSCs certified annually?
_______ Blood-borne pathogen and chemical spill kits available?
_______ Are chemical fume hoods certified annually?

Housekeeping/signage

_______ Are aisles/hallways unobstructed?

_______ Are work surfaces routinely disinfected?
_______ Are doors and storage areas labeled appropriately?
_______ Are proper warning labels on containers?
_______ Are handwashing sinks available?
_______ Are heavy objects stored on lower shelving?
_______ Are biohazard receptacles separate from regular trash?
_______ Is trash removed at least once daily or when full?
_______ Is storage in hoods limited to not obstruct ventilation?
_______ Are tops of centrifuges locked down when in use?
_______ Are refrigerators clean and defrosted?

(continued)
532 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.11 Sample laboratory safety audit (continued)

Personal Protective Equipment Describe deficiency

_______ Has PPE assessment been completed and documented?

_______ Are proper lab coats worn while in work area?
_______ Are lab coats and gloves removed before leaving the lab?
_______ Are appropriate gloves worn while testing?
_______ Are gloves available in appropriate sizes?
_______ Are glove liners available for those with latex allergy?

Documentation

_______ Are current CLSI documents M29 and GP17 available?

_______ Are safety training records kept for three years?

Blood-borne pathogens

_______ Is blood-borne pathogen written program available?

_______ Do employees understand standard precautions?
_______ Are hands washed before leaving the work area?
_______ Are sharps containers disposed of when ¾ full?
_______ Is mouth pipetting prohibited?
_______ Do employees refrain from eating, drinking in lab?
_______ Are those shipping infectious substances certified?

Chemical Hygiene

_______ Is chemical hygiene plan available and current?

_______ Do employees know where MSDSs are located?
_______ Has the chemical inventory been performed and updated?
_______ Is there a list of carcinogens, mutagens, teratogens?
_______ Has chemical risk assessment been updated?
_______ Are chemicals stored appropriately?
_______ Have employees been trained in spill clean-up?

Fire

_______ Is there a fire alarm pull station nearby?

_______ Can fire alarm be heard in the lab?
_______ Are emergency exits accessible?
_______ Are fire extinguishers accessible?
_______ Have fire extinguishers been serviced?
_______ Have quarterly fire drills been completed/documented?

Waste Management

_______ Is there a waste management plan?

_______ Is there a recycling program?
_______ Is waste disposed of according to regulations?
_______ Has the use of mercury been eliminated in the lab?
 CHAPTER 28. LABORATORY SAFETY 533

Summary Protection Agency defines corrosivity as a substance that is

highly acidic (pH < 2.1) or highly alkaline (pH > 12.4).
The laboratory contains many biological, chemical, ra-
diological, and physical hazards, including new infec- Decontamination A procedure that eliminates or reduces mi-
tious agents and the possibility of the use of biological crobial or toxic agents to a safe level with respect to the transmis-
sion of infection or other adverse effects.
and chemical agents for acts of terrorism. However, many
tools and practices are available to reduce the occupational Disinfectant An agent intended to destroy or irreversibly inacti-
risk from exposure to these hazards, including safety de- vate all microorganisms, but not necessarily their spores, on in-
vices, standard precautions, PPE, BSCs and chemical fume animate surfaces, e.g., work surfaces or medical devices.
hoods, warning signs and labels, safe work practices, and Disinfection A procedure that kills pathogenic microorganisms
proper disposal of biological and chemical waste. A well- but not necessarily their spores.
written safety management plan is a blueprint for imple-
Engineering controls Controls (e.g., sharps disposal containers,
mentation of safe practices and includes the necessary self-sheathing needles, safer medical devices) that isolate or re-
training to produce a safe work environment. move the hazard from the workplace.
Germicide A general term for an agent that kills pathogenic mi-
KEY POINTS croorganisms on inanimate surfaces.
■ Laboratory workers are exposed to biological, chemical,
Infectious waste Waste containing or assumed to contain patho-
physical, and radiological hazards. gens of sufficient virulence and quantity that exposure to the waste
■ A well-written and enforced safety management plan by a susceptible host may result in a communicable disease.
can minimize occupational risk. International Air Transport Association (IATA) A trade orga-
■ All laboratory personnel should adhere to the con- nization of the commercial airline industry that governs interna-
cept of standard precautions and use available barrier tional aviation and publishes Dangerous Goods Regulations for
precautions. use by anyone who packs, ships, or handles dangerous goods.
Latex allergy Allergic reaction associated with latex glove use.
GLOSSARY The two types of allergic reactions are contact dermatitis (type
IV delayed hypersensitivity), due to chemicals used in process-
Aerosol A system of respirable particles dispersed in a gas,
ing latex, and the more serious immunoglobulin E/histamine-
smoke, or fog that can be retained in the lungs.
mediated allergy (immediate or type I hypersensitivity), due to
Airborne transmission The spread of infection by inhalation of latex proteins.
droplet nuclei containing an infectious agent.
Material safety data sheet (MSDS) Provides detailed informa-
Blood-borne pathogens Pathogenic microorganisms that are tion about hazards and protective measures relative to hazardous
present in human blood and can cause disease in humans. chemical substances.
Carcinogen Substance capable of causing a malignant tumor in Occupational exposure Reasonably anticipated skin, eye, mu-
humans or animals. cous membrane, or parenteral contact with a hazard that may
result from the performance of an employee’s duties.
Category A substance An infectious substance or microorgan-
ism that is transported in a form that, when exposure to it oc- Other potentially infectious material (OPIM) Human body flu-
curs, is capable of causing permanent disability or life-threatening ids including semen, vaginal secretions, urine, cerebrospinal
or fatal disease in an otherwise healthy human or animal. fluid, synovial fluid, pleural fluid, pericardial fluid, peritoneal
fluid, amniotic fluid, saliva, body fluids that may be contaminated
Category B substance An infectious substance that does not
with blood, unfixed tissue, HIV- or hepatitis virus–containing cell
meet category A criteria. Category B substances generally are
or organ cultures, blood or tissue from an infected animal, re-
considered to be one of the following: (i) patient or clinical speci-
agents, infectious waste, and cultures.
men reasonably expected to contain, or being cultured or other-
wise tested for, a pathogen and (ii) microorganisms not specifically Parenteral Piercing mucous membranes or the skin through
listed in category A. events such as needlesticks, human bites, and abrasions.
Ceiling limit The airborne concentration of a substance that Permissible exposure limit (PEL) Maximum allowed exposure
cannot be exceeded at any time during the workday. during a time-weighted average period (e.g., 8-h workday or
40-h workweek).
Contaminated Describes the presence or reasonably anticipated
presence of blood or other potentially infectious materials on an Personal protective equipment (PPE) Specialized clothing or
item or surface. equipment worn by an employee for protection against a hazard.
Corrosive Any substance that causes visible destruction of hu- Primary container A vessel, including its closure, that contains
man tissue at the site of contact. The U.S. Environmental a specimen.
534 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Prions Infectious, abnormal host proteins that cause transmis- 7. Centers for Disease Control and Prevention. 2002. Laboratory-
sible spongiform encephalopathies and are resistant to a number acquired meningococcal disease: United States, 2000. Morb. Mortal.
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31(3):203–232. Richardson, D. Vesley, J. R. Songer, R. D. Housewright, and W. E.
33. Hoeltge, G. A. 2002. Laboratory safety, p. 78–96. In K. D. Mc- Barkley (ed.), Laboratory Safety: Principles and Practice. American
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34. Hunt, D. L. 2006. Standard (universal) precautions for human safety. Clin. Microbiol. Rev. 8:389–405.
specimens, p. 355–367. In D. O. Fleming and D. L. Hunt (ed.), Bio- 50. Sewell, D. L. 2006. Laboratory-acquired infections: are microbi-
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ton, DC. 51. Siegel, J. D., E. Rhinehart, M. Jackson, L. Chiarello, and the
35. International Air Transport Association (IATA). 2012. Dan- Healthcare Infection Control Practices Advisory Committee.
gerous Goods Regulations, 53rd ed. International Air Transport As- 2007. Guideline for isolation precautions: preventing transmission
sociation, Montreal, Quebec, Canada. of infectious agents in healthcare settings, 2007. Am. J. Infect. Control
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manual for laboratory and point-of-care testing, Joint Commission 52. Snyder, J. W. 2002. Packaging and shipping of infectious sub-
Resources, Oakbrook Terrace, IL. stances. Clin. Microbiol. Newsl. 24:89–93.
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53. Songer, J. R. 1995. Laboratory safety management and the as- 57. U.S. Department of Transportation. 1996. 49 CFR 173.134(a)
sessment of risk, p. 257–277. In D. O. Fleming, J. H. Richardson, J. J. (4). Regulated medical waste. U.S. Government Printing Office,
Tulis, and D. Vesley (ed.), Laboratory Safety: Principles and Practices, Washington, DC.
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58. U.S. Department of Health and Human Services. 2002. Notifi-
54. Tweedy, J. T. 1997. Healthcare Hazard Control and Safety Man- cation of possession of Select Agents or high consequence livestock
agement. Lewis Publishers, Boca Raton, FL. pathogens and toxins. Fed. Regist. 67:51058–51064.
55. U.S. Department of Transportation. 1991. Performance-orientated
packaging standards: revisions and response petitions for reconsid- 59. U.S. Department of Transportation, Pipeline and Hazardous
eration. Fed. Regist. 56:66124–66287. Materials Safety Administration. 2006. Hazardous materials: in-
fectious substances; harmonization with the United Nations recom-
56. U.S. Department of Transportation. 1996. 49 CFR Parts 171– mendations; final rule. Fed. Regist. 71:32244–32263.
180. Hazardous Materials Regulations: Public Health Service 42 CFR
Part 72. Interstate Transportation of Etiologic Agents. U.S. Govern- 60. World Health Organization. 2004. Laboratory Biosafety Man-
ment Printing Office, Washington, DC. ual, 3rd ed. World Health Organization, Geneva, Switzerland.
 CHAPTER 28. LABORATORY SAFETY 537

APPENDIX 28.1 Sample Form for Declination of Hepatitis B Vaccinationa

HEPATITIS B VACCINE DECLINATION

I understand that due to my occupational exposure to blood, or other potentially infectious materials, I may be at risk of acquir-
ing hepatitis B virus (HBV) infection. I have been given the opportunity to be vaccinated with HBV vaccine, at no charge to
myself. However, I decline HBV vaccination at this time. I understand that by declining this vaccine, I continue to be at risk of
acquiring hepatitis B, a serious disease. If, in the future, I continue to have occupational exposure to blood or other potentially
infectious materials and I want to be vaccinated with HBV vaccine, I can receive the vaccination series at no charge to me.

Print full name Date of birth

Signature of employee Date

a
See reference 45.

APPENDIX 28.2 Information Resources on the Interneta

U.S. GOVERNMENT AGENCIES Office of Health and Safety

Centers for Disease Control and Prevention (CDC) http://www.cdc.gov/biosafety
http://www.cdc.gov Training materials and information on safety, biosafety, and safety
survival skills.
Resources related to public health issues in the United States.
U.S Government Printing Office
U.S. Department of Health and Human Services (HHS)
http://www.gpo.gov/fdsys
http://www.hhs.gov
A source for federal regulations.
Information on policies and regulations, disasters and emergencies,
safety, diseases and conditions, aging, resource locators, drugs and
food, and other topics. BIOSAFETY RESOURCES
U.S. Department of Transportation (DOT) CDC/NIH: Biosafety in Microbiological and Biomedical
Laboratories, 5th ed.
http://www.dot.gov
http://www.cdc.gov/biosafety/publications/bmbl5
Resources related to the transportation of infectious and diagnostic
specimens. CDC/NIH: Primary Containment for Biohazards: Selection,
Installation and Use of Biological Safety Cabinets
U.S. Environmental Protection Agency (EPA)
http://www.cdc.gov/biosafety/publications/bmbl5/BMBL5_
http://www.epa.gov appendixA.pdf
Information on general-purpose disinfectants.
Medical Surveillance and Biosafety Program References
U.S. Food and Drug Administration (FDA) http://www.cdc.gov/biosafety
http://www.fda.gov References on occupational health and laboratory safety with mate-
Information on chemical germicides formulated as antiseptics, pre- rials on medical screening and surveillance.
servatives, sterilants, high-level disinfectants, and agents used on
the body. International Healthcare Worker Safety Center at University
of Virginia
National Institute for Occupational Safety and Health (NIOSH) http://www.healthsystem.virginia.edu/pub/epinet
http://www.cdc.gov/niosh Information on the prevention of occupational transmission of
Training materials and information on chemical agents and emer- blood-borne pathogens and resources for complying with the fed-
gency preparedness. eral Needlestick Safety and Prevention Act.
Occupational Safety and Health Administration (OSHA)
http://www.osha.gov
Training materials, standards, and regulations related to safety in
the workplace. (continued)
538 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.2 Information Resources on the Interneta (continued)

BIOTERRORISM SHIPPING AND PACKAGING OF INFECTIOUS

American Society for Microbiology (ASM)
SUBSTANCES
http://www.asm.org International Air Transport Association (IATA)
Information related to bioterrorism and protocols for the isolation http://www.iata.org
and identification of select agents. Information on shipping dangerous goods.
Bioterrorism Preparedness and Response
GUIDELINES, STANDARDS, AND ACCREDITATION
http://www.bt.cdc.gov
Information on bioterrorism preparedness, training materials, and Clinical Laboratory Standards Institute (CLSI)
protocols for handling, identifying, and shipping select agents. http://www.clsi.org
Health Alert Network Information on laboratory standards and guidelines.
http://www.bt.cdc.gov/HAN College of American Pathologists (CAP)
Communications to local and state health departments, distance http://www.cap.org
learning offerings from the CDC, and health alerts. Standards for laboratory accreditation.
Infectious Diseases Society of America (IDSA) The Joint Commission
http://www.idsociety.org http://www.jointcommission.org
Clinical information related to bioterrorism and select agents. Information on standards for accreditation.
a
Last accessed September 23, 2012.

APPENDIX 28.3 Common Safety Compliance Failures

STANDARD PRECAUTIONS, PPE, FIRE

AND CONTAINMENT EQUIPMENT Storage of combustibles within 18 inches of sprinkler heads
Laboratory coats worn open Hallways used for storage
Staff not wearing gloves at the workbenches Fire doors blocked open
Handling contaminated objects with gloves (e.g., telephones)
Wearing laboratory coats outside the work area CHEMICAL HYGIENE PLAN
Not using splash guards or appropriate eyewear when required Chemical inventories not current
Improper storage of chemicals in fume hoods and BSCs Employees’ exposure to OSHA-regulated substances (e.g., form-
aldehyde) not monitored
Improper storage of flammables, corrosives, and acids
Overfilled sharps containers TRAINING/MONITORING
Sharps containers not properly secured Staff lacks knowledge of MSDS location
Gas tanks not properly secured Staff lacks knowledge of fire alarm and extinguisher location
Eye wash stations not checked on a periodic basis Accident/incident reports are not submitted or reviewed
Disposal of biohazardous waste in routine trash receptacles
Food stored in refrigerators containing laboratory supplies

LABELING AND SIGNAGE

Improper labeling of chemical waste containers
Primary and secondary containers not labeled as to hazard
Lack of signage for biohazardous areas
 CHAPTER 28. LABORATORY SAFETY 539

APPENDIX 28.4 Biohazard Spill Kit Sample

Disinfectant (e.g., 10% household bleach or a tuberculocidal Eyewear (face shield or goggles)
agent) Mask
Full-face respirator or HEPA-filtered mask for BSL-3 agents
Absorbent material
Small spills: paper towels, gauze pads, etc. Collection material (autoclavable)
Large spills: granular material (e.g., BioZorb) Dustpan
Tongs or forceps
PPE
Plastic scoop and “pusher”
Puncture-resistant utility gloves
Biohazard bag
Water-impermeable shoe coverings
Gown Puncture-resistant biohazardous waste container

APPENDIX 28.5 Biological Spill Cleanup Procedure (possible aerosol)

Alert personnel in area and evacuate. Decontaminate the area with an appropriate disinfectant:
Close doors and do not reenter area for 30 to 60 min. • Pour disinfectant on the spill site or wipe down the site
Don PPE appropriate for type of spill. with disinfectant-soaked paper towels or gauze pads.
Wear gown, gloves, and facial protection (full-face respirator or • Absorb the disinfectant or permit it to air dry.
HEPA-filtered mask for BSL-3 agents). Rinse the spill site with water and allow the site to dry.
Remove and discard broken glass or other objects. Place all disposable, contaminated material in the biohazard bag
Absorb the spill with absorbent material. or container. Treat as infectious waste.
Discard contaminated material in the biohazardous waste Wash hands.
container. Prepare a spill/incident report, identify the cause of the spill, and
Clean the spill site with aqueous detergent. determine remedial action.

APPENDIX 28.6 Minor Chemical Spill Cleanup Procedurea

Evacuate personnel in the immediate spill area. Dike area of spill to prevent further spread of chemical.
Attend to any contaminated individuals. Clean the spill area with appropriate neutralizing agent and
Extinguish all sources of ignition. absorbent.
Contain the spill. Place contaminated material in disposal container.
Ventilate the area of the spill. Scrub area with soap and water.
Close off the spill area (call emergency response team when no Package all waste appropriately for pickup. Label containers with
trained individuals are available). substance, amount, and date.
Notify safety officials. Prepare a spill/incident report, identify cause of spill, and deter-
Review MSDS for appropriate PPE and specific instructions for mine remedial action.
cleanup and disposal.
Don appropriate PPE (chemical-resistant gloves, gown, and shoe
covers; face shield or goggles; mask).

a
Spill does not involve flammables, explosives, carcinogens, or life-threatening chemicals.
540 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.7 Shipping Containers a

Figure A7.1 Example of packing and marking for category A infectious substances. The smallest external dimension of the outer
packaging must not be less than 100 mm; the primary receptacle or secondary receptacle must be capable of withstanding, without
leakage, an internal pressure of not less than 95 kPa. doi:10.1128/9781555817282.ch28.fA7.1

Figure A7.2 Example of packing and marking for category B infectious substances. At least one surface of the outer packaging must
have a minimum dimension of 100 mm × 100 mm; the primary receptacle or secondary receptacle must be capable of withstanding,
without leakage, an internal pressure of not less than 95 kPa. doi:10.1128/9781555817282.ch28.fA7.2

(continued)
 CHAPTER 28. LABORATORY SAFETY 541

APPENDIX 28.7 Shipping Containers a (continued)

Figure A7.3 Example of packing and marking for exempt specimens. At least one surface of the outer packaging must have a mini-
mum dimension of 100 mm × 100 mm; the outer packaging must be of adequate strength for its capacity, mass, and intended use.
doi:10.1128/9781555817282.ch28.fA7.3

a
Images courtesy of Saf-T-Pak, Inc.
542 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.8 Shipping Label Examples a

Figure A8.2 Label: biological substance, cate-

gory B. doi:10.1128/9781555817282.ch28.fA8.2

Figure A8.1 Label: infectious substance, category

A (class 6). doi:10.1128/9781555817282.ch28.fA8.1

Figure A8.4 Label: package orientation.

doi:10.1128/9781555817282.ch28.fA8.4

Figure A8.3 Labels: miscellaneous dangerous goods (class 9).

doi:10.1128/9781555817282.ch28.fA8.3

Figure A8.5 Label: exempt human specimen.

a
Images courtesy of Saf-T-Pak, Inc. doi:10.1128/9781555817282.ch28.fA8.5
 CHAPTER 28. LABORATORY SAFETY 543

APPENDIX 28.9 Shipper’s Declaration for Category A, Infectious Substances

Note: The original shipper’s declaration given to the carrier must have vertical red stripes along the left and right edges of the document,
and shippers must retain copies for two years.
544 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.10 Employee Accident and Exposure Report

Employee information (to be completed by the employee)

Name: Employee I.D. number:

Date of birth: Sex: M F Home phone: Work phone:

Address (include city, state, and ZIP code)

Job title: Department:

Signature: Date signed:

Accident/incident information (to be completed by the employee)

Date incident occurred: Time: Location:

Date incident reported: Reported to:

List names of witnesses:

Witness statement:

Description and cause of incident (identify injury and part of body):

Blood/body fluid exposure (identify source patient):

Supervisor’s report

Name: Work phone:

Was employee injured during performance of duty? Yes No (explain)

Date medical care received:

Do medical reports indicate employee is disabled for work? Yes No

Identify corrective actions or safety violations:

Additional comments:

Signature: Date:
Introduction
29
Emergency Management Plan
Emergency Management
Purpose or Policy • Hazard Analysis • Incident
Management System Andrea J. Linscott, Patti Medvescek, and David L. Sewell
Elements of an EMP
Emergency Operations Center • Communications •
Medical Treatment Areas • Decision To Shut Down
Laboratory • Damage Assessment • Evacuation •
Personnel Pool • Personnel Care • Locator System •
Security • Training • Monitoring and Evaluation
Disasters OBJECTIVES
Fire • Hazardous Materials • Radioactive Material • To list emergencies and disasters that could affect the clinical laboratory
Utility Failure • Bomb Threat • Natural Disasters •
Terrorism Threats • Civil Disorder To identify the elements of an emergency management plan
Summary To implement the emergency management plan
KEY POINTS To evaluate the plan for regulatory compliance
GLOSSARY
REFERENCES
APPENDIXES

It’s no use saying, “We’re doing our best.” You have got to succeed in doing what is
necessary.
Sir Winston Churchill

 D
“ isaster” is defined in the dictionary as a calamitous event,
especially one occurring suddenly and causing great loss of life, dam-
age, or hardship, such as a flood, airplane crash, or business failure,
whereas “emergency” is defined as an unexpected situation or sudden occur-
rence of a serious and urgent nature that demands immediate action (16). In
the healthcare arena, external emergencies and disasters generally include me-
teorological disasters (e.g., tornadoes, hurricanes, hailstorms, snowstorms),
landslides, floods, earthquakes, tsunamis, warfare, civil disorder, terrorism,
and transportation accidents. Internal emergencies usually include utility fail-
ures, hazard spills, fires, bomb threats, and personnel or reagent shortages. A
disaster caused by any of these events could ultimately prevent the laboratory
from providing test results or services.
Programs or plans that respond to these situations are known as emergency
preparedness, emergency management, or disaster plans. In this chapter we
will use the term “emergency management plan” (EMP). Often the EMP de-
veloped by the laboratory is part of a larger plan for the entire healthcare orga-
nization and may be part of a regional or national EMP.
Emergency planning and preparedness are the keys to preventing interrup-
tion or cessation of laboratory services when an emergency or disaster oc-
curs. Understanding the type of external and internal disasters or emergencies
Clinical Laboratory Management, 2nd Edition
fosters appropriate preparation and planning that diminishes or eliminates
Edited by L. S. Garcia the disruption of services provided by the laboratory and healthcare facility.
©2014 ASM Press, Washington, DC The EMP collects in one document the information required by employees
doi:10.1128/9781555817282.ch29 to respond appropriately to any emergency. Because disasters or emergencies

545
546 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

are unpredictable, an EMP can serve only as a guide. The transportation accident, electrical failure, etc.), (ii) con-
plan assumes that individuals will use good judgment and tainment (limit the impact of the disaster), (iii) response
adapt the response plan to the unique needs of the situa- (assist victims and confine the physical damage of the
tion. A well-written EMP can reduce confusion and panic event), and (iv) recovery (restore the organization’s normal
during an emergency, allow responsible individuals to as- operation). The plan must reflect and include the facility,
sess the situation and make information-based decisions, local, regional, state, and federal requirements for disas-
and provide a predictable response for the employees (12). ter planning. The laboratory EMP should be complete but
concise. To be effective, a plan must be well written and
easy to execute. Laboratory staff should be familiar with
Emergency Management Plan the plan, the location of the plan, and each individual’s role
An organized emergency management program begins in the execution of the plan. Possible disaster scenarios
with a written comprehensive document that defines the should be covered in the plan based on the probability or
scope and goals of the program and lists the responsible frequency of occurrence of an event for a specific labora-
individuals. The College of American Pathologists and The tory or geographical location or based on the hazardous
Joint Commission require that laboratories and healthcare material and equipment present in the facility. All plans
facilities have an emergency plan in place and be prepared must consider first the safety of employees, patients, visi-
to accommodate and respond to a disaster so that patient tors, and individuals with special needs and then address
care can be provided in an emergency (2, 4). Accreditation alternative sources of utilities and communications, areas
guidelines require that the EMP (i) address both internal for radioactive or chemical isolation and decontamination,
and external disasters in a general manner such that the fa- and alternative roles and responsibilities of personnel dur-
cility can respond to multiple scenarios and (ii) document ing the emergency.
incidents and training of staff. For example, the plan must address the following ques-
The basic EMP should include the following sections. tions in emergency planning and recovery.
• Is there sufficient instrumentation to perform testing?
Purpose or Policy
• All instruments (or critical instruments) should be
The purpose or policy states the need for a response plan
on emergency power.
that deals with the natural or human-caused events that
may disrupt normal operations, as well as the responsibility • Is an alternative test method or instrumentation avail-
to provide services to patients through effective utilization able in-house?
of limited resources and to assist any injured individuals. • Identify manual test methods not requiring instru-
mentation or use point-of-care test analyzers when
Hazard Analysis laboratory instruments are not available. A standard
Hazard analysis requires that laboratory personnel prepare operation procedure variance may be needed.
a risk assessment for the occurrence of both internal and • Are there sufficient supplies and reagents to perform
external disasters, utility failures, hazard spills, epidemics, testing?
reagent shortages, civil disorder, and terrorism. This as-
• As supply chains are often affected, inventory
sessment should attempt to define the direct and indirect
levels may need to be adjusted if there is ample
impact on the facility and reduce the risk or diminish the
warning. If there is no warning, inventory levels
damage from an emergency or disaster.
will need to be assessed to determine how long
Incident Management System reagents will last if supplies cannot be delivered.
A list of alternative resources (vendors or a neigh-
The incident management system is used to manage emer-
boring laboratory) of supplies and reagents should
gency and disaster events through a flexible response
be available. Phone numbers, both cell and office
regardless of when or where the event occurs. The first
numbers, fax numbers, and email addresses should
employee to discover the problem is in charge of the emer-
be available for any vendor or laboratory that may
gency response until someone higher in the supervision
be called upon.
chain arrives. Each employee is expected to provide the
leadership necessary to protect life and property and to • Are there sufficient personnel to perform testing?
carry out the responsibilities of the laboratory. He or she • To ensure that sufficient personnel are available, an
will ensure patient, visitor, and employee safety, will report emergency call-back list should be available at all
the incident to the proper authorities, and will use proper times. A plan should address possible delays or ab-
procedures as outlined in the plan. sence of personnel during a disaster. A plan should
Emergency management generally falls into four address personnel transportation or lodging for a
phases: (i) identification of the emergency (e.g., tornado, weather-related event.
 CHAPTER 29. EMERGENCY MANAGEMENT 547

• Is the test menu sufficient to provide requested Table 29.1 Elements of emergency planning
services? Element Action
• A test menu may need to be scaled back or speci- Identify potential disasters Prepare list of authorities to notify
mens sent to a reference laboratory during an emer- and laboratory’s response Identify critical positions and assign
gency. A plan should include the use of a reference individuals
laboratory or discontinuation of certain tests during Identify critical space and supplies
an emergency. Prepare security measures
• How will specimens be transported to the laboratory if Develop criteria for evacuation
an electrical or mechanical failure prevents the use of Define level of service and Full service (normal operations)
the pneumatic tube system? impact on patient care Limited service (prioritize testing)
• A backup plan detailing who will be responsible for Emergency service (prepare minimal
getting specimens to the laboratory in the event of test menu)
pneumatic tube failure should be available.
Develop communication Identify critical healthcare staff
• Who will be responsible for the packaging and plan Identify critical laboratory staff
shipping of specimens or organisms to a reference (call-back)
laboratory? Identify critical suppliers
• All federal and state regulations must be followed
Alternative operations Identify alternative site of operations
when specimens are packaged and shipped to an-
Identify alternative laboratory for
other laboratory. A plan outlining who can package
service work
and ship specimens or organisms should be available.
Prepare alternative scheduling or
staffing
The impact of the emergency or disaster on the staff itself
must be considered. Ignoring the emotional response to di- Drills Assess performance of emergency
sasters can create a disaster itself, resulting in staff members plan
who are unable to perform the actions required. At a mini- Modify plan to correct deficiencies
mum, employee assistance personnel should be contacted
to assist when national or local emergencies or disasters di-
rectly affect laboratory staff. Immediate and complete veri- laboratory may be required to play a more comprehensive
fication of personnel location is important when the staff role in disaster recovery than a satellite facility or rural labo-
are involved in the emergency. Open, complete communi- ratory. It is important to recognize, however, that national
cation with status updates is critical to maintaining labora- disasters can significantly affect laboratory operations, re-
tory operations throughout the disaster. To handle a disaster gardless of the geographic proximity or services offered.
successfully, the laboratory must anticipate and plan for the Governmental and private agencies that are available to
problems that will arise (Table 29.1). The keys to success assist in a large community or regional disaster should be
include (i) development of flow charts detailing potential listed in the EMP with contact information (Appendix 29.1).
events and actions to be taken; (ii) identification of the level A business failure, such as manufacturer’s recall of
of laboratory service required based on the anticipated du- products, could also prevent the laboratory from provid-
ration and severity of the emergency or disaster; (iii) pro- ing services. Just-in-time inventory levels absolutely re-
jection of the impact of limited service on other hospital quire a dependable delivery system. The receipt of back-up
services, e.g., emergency room, intensive care units; (iv) es- reagents from other sources depends on the availability of
tablishment of effective lines of communication with labo- transportation and possible reciprocal relationships with
ratory staff and other healthcare providers; (v) identification local or regional clinical or reference laboratories. Other
of alternative sites to provide the necessary laboratory ser- possible scenarios that may affect the laboratory, and the
vices; (vi) plans for recovery activities, e.g., scheduling and questions they raise, include:
staff changes, alternative test procedures; and (vii) drills to
test the effectiveness of the plan. Successful planning must • A mail or airline strike prevents delivery of reagents or
involve all of the affected personnel so that they are aware supplies. What is the back-up plan for routine and
of their individual responsibilities during an emergency as emergency testing? How quickly can medical staff be
well as activities necessary to maintain essential services to notified of a reduction in services based on supply
support patient care activities. delivery?
The level of service provided by the laboratory dictates • An influx of victims of bioterrorism requires more so-
the depth and breadth of involvement by the laboratory phisticated testing than the laboratory has available.
staff in disaster recovery. A full-service, hospital-affiliated Where should the tests be sent? Who should be notified?
548 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

• Staffing levels are routinely at or below minimum Elements of an EMP

levels and an earthquake occurs. How and when does
Emergency Operations Center
the laboratory manager contact additional staff? What
testing should be performed until additional staff The emergency operations center (EOC) represents the
arrive? situational leadership that is necessary to manage the
emergency, protect life and property, carry out the func-
Emergency planning and preparedness allow for more tion of the laboratory, and assist in other areas of the fa-
efficient and effective deployment of activities to mitigate cility. Generally, individual employees are empowered to
the impact of the disaster on laboratory services and staff. manage the event until relieved by someone higher in au-
The laboratory manager may assign members of the labo- thority as defined by the order of succession of manage-
ratory staff to assist the facility in maintaining patient ser- ment. This concept means that individuals must step up
vices. Emergency management requires that all possible and accept responsibility to perform tasks and supervise
events are considered to ensure that appropriate actions are areas outside of their normal duties. The EMP (Table 29.3)
taken to provide laboratory services where needed and to defines who will automatically return to the facility (e.g.,
prevent a negative impact on laboratory operations. To do department chairperson, laboratory manager), describes
so, emergencies and disasters are categorized as external or the emergency call list, and defines the level of service that
internal to the laboratory and by the severity of the event will be provided and how personnel will be deployed. Ap-
(Table 29.2). External events occur outside of the physical pendixes 29.2 and 29.3 show examples of an EOC checklist
laboratory and can affect the laboratory’s delivery of ser- and a status report.
vices or require additional services from the laboratory. In-
ternal emergencies occur within the facility or laboratory Communications
and significantly influence delivery of services. Communication is the most critical and difficult aspect of
Each laboratory, regardless of size or affiliation with managing an emergency. The EMP must define the com-
hospitals or clinics, may be required to participate in munication lines and how employees will be notified of
emergency or disaster recovery in response to national or the emergency. Communication by telephone, cell phones,
regional events that include terrorist acts, acts of war, or runners, two-way radios, and other means provides links
accidents threatening public safety. to internal and external events, responses to the event, and

Table 29.2 External and internal disasters and impact on the laboratory
Disaster Impact
External
Severe weather and natural disasters Staff availability; relocation of patients and services; utilities and
supplies/reagents disrupted
Hazardous material spill or contamination Staff availability; laboratory services required to treat patients;
implement decontamination protocols
Community illness Staff availability; increase in patient and test volume
Transportation accident Staff availability; increase in patient volume and specialty require-
ments (i.e., transfusion services)
National disaster Supply/reagent availability
National recall of product Supply/reagent availability
Terrorism Staff availability; necessary laboratory services for patient care;
implement decontamination protocols; increased safety precau-
tions; notification of authorities

Internal
Utility failure Services interrupted; relocation or assistance from another
laboratory
Hazardous material spill, fire, bomb threat Personnel affected; testing delayed; special testing may be required;
relocation or assistance from another facility
Shortage of personnel Testing delayed or cancelled; assistance from another laboratory
Shortage of reagents or supplies Testing delayed or cancelled; assistance from another laboratory
Civil disorder Staff availability; supplies/reagents and utilities may be disrupted
Computer issues (security breach, downtime, data loss) Delay or manual test reporting; incomplete database
 CHAPTER 29. EMERGENCY MANAGEMENT 549

Table 29.3 Elements of a laboratory EMP during the emergency (Appendix 29.1). The plan should
Element Function identify key personnel, their alternates, and their respon-
Emergency operation Describes leadership hierarchy sibilities. A part of communications involves assessing
center Constructs emergency call-back list the nature of the emergency and the potential impact on
Defines level of service required patients, employees, and the public and developing a plan
Deploys laboratory personnel to include employee meetings, internal dissemination of
Maintains supply level information, and public information releases. Cell phone
Establishes communication services texting, cell phone calls, pagers, or internal and external
Communication Defines communication lines emails can be used to disseminate information depending
Identifies individuals for notification on the disaster and resources available. Inquiries from out-
Maintains list of emergency numbers side sources (e.g., press, employee family members) should
Disseminates information to employees be forwarded to the individual responsible for addressing
and authorities these concerns. A hot-line phone system with updated
Medical treatment Locates medical treatment areas recorded messages can be used to disseminate informa-
areas Provides service to the medical treatment tion to those not on site. Accurate information must be
areas provided to prevent rumors and to inform individuals in-
Damage assessment Conducts a damage assessment of volved in the event.
laboratory
Reports assessment to facility’s command Medical Treatment Areas
center The laboratory staff must be aware of the areas in the facil-
Determines need to evacuate ity that are designated as medical treatment areas in the
Evacuation Posts evacuation routes event that they require treatment or specimens need to be
Identifies evacuation leaders transported to the laboratory.
Notifies facility’s command center
Personnel pool Assesses availability of personnel Decision To Shut Down Laboratory
Assigns personnel to laboratory or where A decision may be made to shut a laboratory down when
needed
there is ample warning, as in the case of a hurricane, or a
Locator system Develops system for tracking location of
employees, patients, and visitors
laboratory may be shut down as a result of an emergency.
Communicates locations to facility’s
A procedure should be available for how to power down or
command center off all instruments, equipment, and computers according
Security Assigns individual to provide labora- to manufacturer’s specifications, when possible. In addi-
tory security until relieved by security tion, a procedure for steps that need to be taken to bring
personnel a laboratory back up should also be included in the EMP.
Restricts access to laboratory For example, before an instrument or piece of equipment
Training Addresses personnel responsibility, role can be placed back into use, a safety assessment must be
in an emergency, communication system, performed. Validation of instruments may be warranted,
and supply system
depending on the extent of the damage and time frame
Conducts drills
in which the instrument was down. Storage temperatures
Monitoring and Documents deficiencies during drills
should be monitored to ensure that any reagents, collec-
evaluation Corrects deficiencies
tion devices, or equipment are stored within their specified
temperature ranges. If temperature ranges are not met and
additional product is not readily available, quality control
the recovery operation. Generally, a bell code system or or verification studies may be needed to show that the
the public address system is used to identify the location product is working as expected.
of a fire.
The EMP should identify who is notified of internal and Damage Assessment
external disasters (e.g., on-duty staff, off-duty staff, organi- A damage assessment should be performed as soon as pos-
zational staff, etc.) and should include a list of emergency sible following a disaster. The assessment can be rapid (5 to
phone numbers for external agencies and organizations 10 min) or more detailed (1 to 2 h) and should determine
(e.g., local law enforcement agencies, local and regional whether an area can be used safely or must be evacuated.
emergency management organizations, the Federal Bu- The plan must identify who will assess structural damage,
reau of Investigation [FBI], the state health laboratory, equipment failures, hazard contamination, etc. The assess-
the Centers for Disease Control and Prevention [CDC]) ment should provide uniformity in assessing damage due
that can assist the facility or that may need to be contacted to structural problems and fire and should address safety
550 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

and the status of the environment (e.g., gas, water, electri- Table 29.4 Stockpile items
cal power, lighting, etc.). Damage assessment should also Item Comment(s)
include reviewing temperature charts to determine if re- Ready to eat food items Can opener, scissors, plastic silverware,
agents were affected by electrical outages. Results are re- etc.
ported to the organization’s command center. Appendixes Water Drinking water, potable water, etc.
29.4 through 29.7 contain examples of assessment check- Flashlight Extra batteries
lists for a healthcare organization, but the forms can be Tools Pliers, hammer, wrenches
modified for the laboratory. Protective wear Hardhat
Paper products Toilet paper, paper towels, paper plates
Evacuation
Evacuation may be necessary if a fire, hazardous spill, or
structural damage occurs. The immediate area should be
evacuated, the affected area should be isolated, and the Security
command center should be notified. Evacuation routes An individual should be assigned responsibility for pro-
must be posted and can be in a vertical or horizontal fash- viding direction to the staff regarding security and crowd
ion. Individuals should be identified who are responsible control until the security personnel arrive in the affected
for the safe evacuation of other employees, visitors, patients, area. Access to the laboratory is restricted to allow employ-
and anyone who requires assistance. Employees should not ees and emergency staff to respond to the emergency. The
return until authorized by a designated individual. individual with temporary security duty provides informa-
tion to security personnel and may determine whether to
Personnel Pool evacuate the laboratory.
The incident manager (e.g., laboratory manager) will de-
cide which personnel can be released from their normal re- Training
sponsibilities to assist elsewhere in the laboratory or facility. The EMP outlines an orientation and education program
for facility personnel, including interaction with other
Personnel Care emergency organizations in the region. The training ad-
Plans for the care of personnel should address the begin- dresses (i) specific roles and responsibilities during an
ning, during, and aftermath of an emergency (1). Plans emergency, (ii) the information and skills required to per-
should include the availability of staffing and the use of form duties, (iii) the back-up communication system used
supplemental staff, if needed. It is important to remem- during disasters, and (iv) the system to ensure that sup-
ber that state and federal laws be followed when using plies and equipment are delivered where needed. The most
supplemental staffing. In areas where known disasters oc- important element of training is drills that are conducted
cur, stockpiles of essential items should be available and to test whether the EMP works as anticipated. A challeng-
checked regularly for expiration dates (Table 29.4). For ing aspect of emergency planning and training is the as-
natural disasters that provide some warning (hurricanes, signment of responsibilities to the various participating
ice storms, etc.), personnel should bring enough personal
supplies to last three to five days (Table 29.5). Depending
on the emergency, makeshift housing may need to be ar- Table 29.5 Personal supplies
ranged; often the offices of pathologists or other clinic staff Item Comment(s)
are available for use. Arrangements for family members
Food Ready to eat foods, canned juice, high energy
and pets may also need to be addressed. More frequent bars, condiments, comfort food
breaks may be needed during these times. Downtime ac- Water 1 gallon of water per person/day (3 day supply)
tivities (card games, watching DVDs, etc.) may be needed Sleeping gear Air mattress, sleeping bag, sheets, blanket, pillow,
to release stress. Plans should be put into place to protect etc.
the personnel from any hazards and to protect personnel Medications 7-day supply of prescription and over-the-
when leaving the premises. counter medication
Toiletries Toilet paper, towelettes, deodorant, toothbrush,
Locator System toothpaste, soap, shampoo, gel hand sanitizer,
The EMP must address the problem of communicating plastic bucket with tight lid, etc.
the location and status of employees, patients, and visitors Cell phone Charger and batteries
to a central location so that the public can locate family Money Bills and change
and friends quickly (Appendix 29.8). Often victims of a Extra clothes
disaster may be spread over an entire metropolitan area Special items Clock, portable radio, games, DVDs, books, con-
tact lens supplies, glasses, infant or pet supplies
or region.
 CHAPTER 29. EMERGENCY MANAGEMENT 551

community agencies and organizations, especially when Evacuate/extinguish. Attempt to extinguish only small
there are competing agendas among the groups. fires. Do not attempt to fight large fires. Your best defense
is to close the door and evacuate the immediate areas.
Monitoring and Evaluation When using a portable fire extinguisher, PASS guidelines
should be followed (12):
The EMP must address ongoing monitoring of perfor-
mance regarding staff knowledge and skills, level of staff • Pull the pin on the extinguisher.
participation, inspection activities, incident reporting, and • Aim the nozzle at the base of the fire.
interagency cooperation. The Joint Commission requires
• Squeeze the handle firmly.
that an EMP be activated yearly. Activation of the EMP
may be as a result of an actual disaster or as a planned ex- • Spray in a sweeping motion.
ercise. The goal of the activation is to identify weaknesses
in the program. An evaluation of the drill or emergency Hazardous Materials
should be documented, and corrective actions must be Hazardous materials are any substances cited as a health
implemented to correct any deficiencies. and physical hazard by OSHA. Laboratory hazards are usu-
ally identifiable and quantifiable, and personnel should be
knowledgeable about hazardous materials, be familiar with
Disasters procedures to follow in an emergency, and be aware of mea-
sures to ensure the safety of personnel. Laboratories are re-
Fire
quired to maintain a chemical inventory list that identifies
All staff must be familiar with the potential fire hazards the type of hazard, the location, and the quantity present.
within the laboratory and be aware of the procedures neces- This list should be posted in the laboratory and submitted
sary to ensure the safety of personnel in the area. These pro- to the facility’s industrial hygienist and the local fire depart-
cedures include minimizing working supplies of flammable ment. The plan should identify and assign responsibility to
material, storing flammables in a flammable-safe cabinet, responders (i.e., safety officer, industrial hygienist) who can
and identifying and controlling ignition sources. Training shut off utilities to prevent the spread of the hazard through
should emphasize response according to the RACE (res- the ventilation system and to minimize the potential for fire
cue, alarm, confine, evacuate/extinguish) approach, sound- or explosions. Individuals must be trained to clean up spills
ing the alarm, knowing the preferred and alternative exit and to decontaminate individuals exposed to chemical, ra-
route from the work area, which may be dark and smoke- diation, or infectious agents. The telephone number for the
filled, using a fire extinguisher, knowing the fire codes, and regional hazmat team should be posted.
closing all fire/smoke barrier doors. Fire extinguishers are Generally, the industrial hygienist or safety officer can
classified by the type of fire that they will extinguish. Clas- make a prompt evaluation of the hazard severity and based
sifications are denoted by an initial. Most laboratories use a on available information determine what action is nec-
class C fire extinguisher, which is designed to combat fires essary. The severity of the hazard is based on room size,
involving live electrical equipment. When a fire is discov- type of chemical, and volume of material released. The de-
ered, the RACE approach is as follows. cision to evacuate and notify the region’s hazmat team is
based on assessment of imminent danger to life or health
Rescue. Immediately notify others on the floor or in the as marked by injured or ailing personnel, symptoms of se-
area. Rescue any patients or victims in the fire area and vere irritation, evidence of a large-volume spill, gas leaks,
close the door to the room or area involved. Do not reopen fire hazard, presence of carcinogens, or presence of very
door. strong odors beyond the immediate area. When it can be
done safely, individuals should be posted at entrances to
Alarm. Activate the alarm by pulling the nearest fire prevent other people from entering the hazard area. When
alarm. Next, report the fire to the emergency center and possible, response personnel will disconnect any heat- or
give the location (room number, building, etc.) and the flame-generating equipment. The RACE approach to haz-
type of fire (type of material burning, how extensive, etc.). ardous materials incidents should be followed.
Generally, this information is relayed to the responding
fire department so they can be prepared when they arrive. • Rescue. Rescue only when applicable and safe to do so.
Provide first aid (eye wash or showers) to victims and
Confine. Close all windows and doors on the floor as ap- control access to the spill area.
propriate. Advise patients and visitors to keep the doors • Alarm. Activate the emergency response system. Re-
closed until notified otherwise. Keep calm and try to re- port the spill to the responsible person and provide
assure patients. Check to make sure all fire/smoke barrier relevant information such as who, what, when, where,
doors have been closed and are not blocked. Clear corridors. and how much.
552 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

• Confine. Contain the spill, if possible, but only if Sewer. The EMP should address a failure in the sewer sys-
trained to do so. tem due to lack of water or inability to discharge effluent.
• Evacuate. Evacuate when there is immediate danger to Priority is given to infection control measures (e.g., hand-
life or health. washing), direct patient testing, and meal preparation.

Bomb Threat
Radioactive Material
All threatening telephone calls should be taken seriously.
Sources of toxic, ionizing radiation in the laboratory in- The employee must remain calm, attempt to keep the
clude devices and reagents containing radioactive material. caller on the line without increasing his or her antagonism,
Policies should restrict access of untrained individuals to record details of the call, and notify police immediately
areas containing radioactive substances. The EMP should (Appendix 29.10). Often, a colleague can notify the secu-
describe appropriate responses in the event of a spill, such rity personnel while the first employee talks to the caller.
as preventing spread by covering the spill with absorbent Security personnel will decide whether the facility should
paper, limiting movement of contaminated individuals, be evacuated.
shielding the radioactive source if possible, closing and
locking the room, or otherwise securing the area. The Natural Disasters
individual is decontaminated by removing contaminated Earthquakes, tornadoes, floods, hurricanes, and similar
clothing and flushing contaminated skin with lukewarm weather-related disasters usually arrive with little warn-
water and then washing with mild soap. The affected area ing and can have a major impact on the hospital or clinic
should be evacuated when the spill is large. Only trained and the surrounding community. The EMP should con-
persons should decontaminate an area, and they must tain definitions of storm warnings used in the local area,
wear protective clothing, gloves, and eye protection. After provide instructions for employees (e.g., take cover under
decontamination, the area must be checked for residual ra- sturdy furniture or in a doorway during initial earthquake
diation. Each spill incident and decontamination must be shaking), and establish an early release from work for non-
documented (Appendix 29.9). essential employees. When structural damage is suspected,
clinical operations should not resume until a qualified in-
Utility Failure spection of the premises has occurred. The effects of a nat-
Utility failures may be long or short in duration, may re- ural disaster include damage to the facility, interruption of
quire an alternative means of providing service, or may communications, inability of employees to leave or return
require evacuation of the laboratory or facility. to the facility, and injured individuals requiring treatment.
Initially, a survey of the area should be performed to iden-
Water. The EMP must address the need for emergency tify trapped people, structural damage, inoperative equip-
water for both equipment and potable water. The De- ment or systems, unsafe or unhealthful conditions, and
partment of Homeland Security (www.ready.gov) recom- hazardous locations. Damaged containers of chemicals
mends 1 gal of water per person per day and at least a must be removed and infectious material must be bagged
3-day supply. The potable water should be replaced every and safely discarded. Visitors, patients, and employees
6 months (www.redcross.org). Areas requiring water must within a dangerous area should be evacuated.
be prioritized, and nonessential water consumption must
be curtailed. Terrorism Threats
Terrorism threats pose a very complex problem for labo-
Electrical. Because loss of electrical power can paralyze ratories, facilities, communities, and the nation. Sources
a modern clinical laboratory, essential equipment must of expert information on chemical and biological agents
be attached to lines powered by emergency generators. should be readily available (Appendix 29.11). The labora-
Battery-powered lighting must be available in case the tory EMP must outline procedures for handling terrorism
emergency generators fail so that employees can safely material (e.g., chemical, radiological, or biological) in the
exit the premises. Plans must anticipate the loss of venti- laboratory and for managing a large number of walk-in
lation and airflow to chemical and biological safety cab- patients and subsequent clinical specimens (Appendix
inets (BSCs). Loss of ventilation in the laboratory may 29.11) (5, 6, 13, 14, 15). Key elements of an effective ter-
cause instruments to overheat and accumulate noxious or rorism EMP include issues such as prompt recognition
toxic fumes. Inoperative chemical hoods and BSCs pre- of an event; identification of individuals who are first
vent the performance of procedures requiring their use. responders (e.g., staff who have received smallpox vac-
BSCs should have a safety mechanism that automatically cination), staff, and facility security; obtaining assistance
prevents backflow of air through the filter when the fan from community and federal agencies (e.g., hazmat teams,
shuts off. FBI, local police, CDC, state laboratory); coordination of
 CHAPTER 29. EMERGENCY MANAGEMENT 553

activities with other external emergency response agencies FBI and reference laboratory for instructions. Often the
or organizations; release of public information; and decon- latter samples involve a chain-of-custody procedure.
tamination plans for patients and staff. The administration
should address physical security, airflow and ventilation, Civil Disorder
and maintenance of the facility’s structure (8). Security of- In most situations, the local law enforcement agency is
ficers must plan for crowd control, directing the flow of aware of planned demonstrations and arranges for control
casualties and vehicles, and preventing unauthorized entry measures. Unplanned acts of civil disturbance are handled
to decontamination and treatment areas. Plans need to be by the facility security personnel in cooperation with the
in place to rotate staff into work areas and to provide food, local law enforcement agency. An effective communica-
psychological support, and rest for employees. tion system must be in place to keep the employees and
The CDC’s Bioterrorism Preparedness and Response public informed.
Program addresses a unified public health response to
bioterrorism events that includes measures for disease Summary
surveillance, laboratory diagnosis of biological agents,
communication between various public health authorities, Emergency preparedness planning and management must
epidemiological investigations, and readiness assessments involve the entire healthcare organization, the commu-
(www.bt.cdc.gov). The Laboratory Response Network links nity, and with the present threat of terrorism, the nation.
local, state, federal, military, veterinary, and environmen- Effective disaster planning requires anticipation of any
tal laboratories and classifies laboratories based on their type of disaster that prevents the laboratory from provid-
anticipated role in the event of a biocrime or bioterrorism ing services. The laboratory manager may be involved in
event and on their capacity to safely handle and identify overall disaster recovery, providing laboratory resources as
agents of bioterrorism (3, 7, 10). The original Laboratory needed for patient care and facility support. Disasters can
Response Network model involved four levels of labora- be external (e.g., weather, failures in transportation ser-
tories (levels A, B, C, and D) but currently contains three vices) or internal (e.g., facilities breakdowns, equipment
classification levels (sentinel, reference, and national labo- malfunctions, lack of personnel). Consideration should be
ratories). Sentinel laboratories (formerly level A) include given to the impact on laboratory personnel, depending
most clinical and commercial laboratories, whose function on the nature of the disaster. Planning, preparation, and
is to recognize, rule out, and refer potential agents to the communication will improve the laboratory’s response to
reference laboratories (formerly levels B and C). Reference a disaster if and when it occurs.
laboratories are generally local or state public health labo-
ratories, whose function is confirmatory testing and pro- KEY POINTS
cessing of environmental samples. There are presently only ■ Disasters may stem from a variety of root causes but re-
two national laboratories (the CDC and the U.S. Army sult in consistent impact on operations—failure to pro-
Medical Research Institute of Infectious Diseases) that can vide services.
operate at a biosafety level 4 capability.
■ EMPs should be comprehensive and included in labora-
Clinical microbiology laboratories must develop proto-
cols for the recognition and identification of the potential tory policy and procedures.
agents of bioterrorism and procedures for management of ■ Guidelines are available from many resources, based on
these events. These protocols should be part of the routine local, regional, and national regulations.
bench procedures so that potential agents are not misiden-
tified or improperly handled and can be rapidly referred GLOSSARY
to a reference laboratory for confirmation (9). Protocols
Biohazard An agent of biological origin that has the capacity to
developed by authorities are available on various websites produce deleterious effects on humans, e.g., microorganisms,
(www.bt.cdc.gov, www.asmusa.org) and in publications toxins.
(11). Sentinel laboratories should not process specimens
for smallpox or viral hemorrhagic fever from high-risk pa- Disaster Any incident that interferes with a facility’s ability to
tients. These samples should be sent to the CDC after con- operate in a normal manner.
sultation with the state public health division. Instructions Emergency A natural or human-caused event that suddenly or
for the collection and shipment of specimens for smallpox significantly disrupts the environment of care, disrupts care and
can be found at http://emergency.cdc.gov/agent/smallpox/ treatment, or changes or increases demands for the organiza-
vaccination/vaccinia-specimen-collection.asp. In addition, tion’s services.
sentinel laboratories should not process environmental External disaster An event external to the physical laboratory
samples (e.g., suspicious powder for Bacillus anthracis location that may affect operations by limiting available staff or
spores) or animal specimens but rather should contact the supplies or changing laboratory workload (e.g., influx of patients,
554 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

uncommon tests required). Examples include major storms, 5. Londorf, D. 1995. Hospital application of the incident manage-
earthquakes, transportation accidents, or acts of terrorism. ment system. Prehosp. Disaster Med. 10:184–188.
Facility A healthcare organization (hospital, clinic, physician’s 6. Macintyre, A. G., G. W. Christopher, E. Eitzen, Jr., R. Gum,
office) that includes an on-site laboratory. S. Weir, C. DeAtley, K. Tonat, and J. A. Barbera. 2000. Weapons
Hazardous material A substance or material that has been de- of mass destruction events with contaminated casualties: effective
termined by the U.S. Department of Transportation to pose an planning for healthcare facilities. JAMA 283:242–249.
unreasonable risk to health, safety, and property when trans- 7. Miller, J. M. 2001. Agents of bioterrorism: preparing for bioter-
ported in commerce. rorism at the community health care level. Infect. Dis. Clin. North
Hazmat team Group of individuals who are trained to respond Am. 15:1127–1156.
to and clean up hazardous material spills. 8. National Institute for Occupational Safety and Health. 2002.
Internal disaster An internal event within the laboratory or facil- Guidance for Protecting Building Environments from Airborne
ity that affects patient care and facility operation, including power Chemical, Biologic, or Radiological Attacks. DHHS publication no.
failure, hazardous chemical spill, fire, or lack of personnel. NIOSH2002-139. U.S. Government Printing Office, Washington, DC.

Laboratory A facility that provides services including specimen 9. Shapiro, D. S., and D. R. Schwartz. 2002. Exposure of laboratory
collection, testing, and results reporting. workers to Francisella tularensis despite a bioterrorism procedure.
J. Clin. Microbiol. 40:2278–2281.
RACE Acronym describing the appropriate approach by first
responders to a fire or disastrous situation: rescue, alarm, con- 10. Snyder, J. W. 2003. Role of the hospital-based microbiology
fine, evacuate/extinguish. laboratory in preparation for and response to a bioterrorism event.
J. Clin. Microbiol. 41:1–4.
Reference laboratory An on- or off-site laboratory performing
tests on behalf of a clinical laboratory or facility, typically includ- 11. Sharp, S. E., and M. Loeffelholz. 2011. Biothreat agents, p. 174–
ing rare or esoteric test menus. 187. In J. Versalovic (ed.), Manual of Clinical Microbiology, 10th ed.
ASM Press, Washington, DC.
Service levels Test menu, results reporting, and ancillary assis-
tance provided by the laboratory to hospitals, clinics, physicians, 12. Tweedy, J. T. 2005. Healthcare Hazard Control and Safety Man-
and patients. agement, 2nd ed., p. 121–155. CRC Press, Boca Raton, FL.
13. U.S. Department of Health and Human Services. 1996. Health
REFERENCES and Medical Services Support Plan for the Federal Response to Acts
of Chemical/Biological (C/B) Terrorism. U.S. Government Printing
1. CLSI. 2003. Planning for Challenges to Clinical Laboratory Op-
Office, Washington, DC.
erations During a Disaster; A Report. CLSI document X4-R. CLSI,
Wayne, PA. 14. U.S. Army Medical Research Institute of Chemical Defense.
2. College of American Pathologists. 2012. Laboratory Accredita- 2000. Medical Management of Chemical Casualties Handbook, 2nd
tion Program, Laboratory General Checklist. College of American ed. U.S. Army Medical Research Institute of Infectious Diseases, Fort
Pathologists, Northfield, IL. Detrick, MD.

3. Gilchrist, M. J. R., W. P. Mckinney, J. M. Miller, and A. S. Weiss- 15. U.S. Army Medical Research Institute of Infectious Diseases.
feld. 2000. Cumitech 33: Laboratory Safety, Management, and Diag- 2011. Medical Management of Biological Casualties Handbook, 7th
nosis of Biological Agents Associated with Bioterrorism. Coordinating ed. U.S. Army Medical Research Institute of Infectious Diseases, Fort
ed., J. W. Snyder. ASM Press, Washington, DC. Detrick, MD.
4. Joint Commission. 2012. Laboratory Accreditation Standards. 16. Webster’s American College Dictionary. 1998. Random House,
The Joint Commission, Oakbrook Terrace, IL. New York, NY.
 CHAPTER 29. EMERGENCY MANAGEMENT 555

APPENDIX 29.1 List of Selected Emergency Preparedness Agencies and Organizations

Governmental Agencies U.S. Army Corps of Engineers

Centers for Disease Control and Prevention U.S. Geological Survey National Earthquake Information
Domestic Preparedness Information Line Center
Federal Bureau of Investigation U.S. Public Health Service
Federal Emergency Management Agency
Homeland Security Operations Center Nongovernmental Organizations
National Centers for Environmental Predictions American Red Cross
National Hurricane Center Church charities
National Oceanic and Atmospheric Administration Corporation for National Service (disaster services)
National Response Center National Emergency Management Association
National Weather Service Salvation Army

APPENDIX 29.2 Emergency Operations Center (EOC) Checklist

Determine status of the emergency and implement emergency management plan as

appropriate.

Set up EOC in the designated area. Determine the presence of all key personnel in the
EOC and triage areas.

Establish command activity and direct all emergency relief activities.

Identify the departments needed to support the relief activity and ensure that each
department knows what is expected of it.

Ensure that the triage area is functioning.

Ensure that appropriate call-back is progressing and all necessary supplies are deliv-
ered to the triage area. Utilize personnel pool to ensure that appropriate assistance is
maintained.

Request necessary assistance from state or local agencies (i.e., fire, police, ambulance,
bomb squad, hazmat team, etc.).

Notify other divisions of the emergency and request aid or place staff on standby.

Brief all individuals reporting to the EOC. Dismiss individuals that are not required for
the relief effort.

Ensure that all departments (e.g., security, safety) that automatically respond to exter-
nal and internal emergencies are notified and responding.

Ensure that internal communication is established.

Ensure that recorders are assigned to key response functions to document activities for
the incident manager.
556 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.3 Operating Status Report Form

Name of hospital: Date/time report given:

Contact person: Title/location:

Contact method: Contact number:

Questions Comments

1. Y N Can you continue to treat incoming patients? If no, why not?

2. Y N Any patients evacuated to outside the hospital? If yes, why?
Total # evacuated
# unstable or critical patients
3. Y N Any patients or staff injured? # of injured people. Deaths?
4. Y N Any structural damage? Partial or total collapse?
5. Y N Any major non-structural problems? List
6. Y N Power from any source?
7. Y N Can generator power essential areas?
8. Y N Can you communicate with the outside world?
9. Y N Access to all essential areas? Anyone trapped?
10. Y N Sufficient number of elevators working?
11. Y N Water lines intact to essential areas?
12. Y N Natural gas lines intact to essential areas?
13. Y N Sewage system intact in essential areas?
14. Y N Adequate staff at the hospital? What do you need?
15. Y N Adequate supplies and equipment? What do you need?
16. Y N Any outside assistance needed? What?
17. Y N Need structural engineer?

APPENDIX 29.4 Damage Assessment Chart a

Damage assessment Report Post:

Rapid evaluation by department Safe Inspected
Questionable Limited entry
Unsafe Unsafe

Detailed evaluation by engineering Safe Inspected

Questionable Limited entry
Unsafe Unsafe

Engineering evaluation by consultants Safe Inspected

Unsafe Unsafe
a
Adapted from reference 12.
 CHAPTER 29. EMERGENCY MANAGEMENT 557

APPENDIX 29.5 Rapid Evaluation Safety Assessment Forma

Building/area description: Overall rating:

Area name: Inspected

Limited entry

Room numbers: Unsafe

Primary occupancy: Inspector:

Patient care Office Name:

Laboratory Mechanical Date:

Research Engineering Time:

Other:

Instructions: Review area for the conditions listed below. A “yes” answer is grounds for posting an area UNSAFE. If more review is
needed, post LIMITED ENTRY.

Condition

1. Collapse, partial collapse, or building off foundation Yes No Review Needed

2. Building or floor leaning Yes No Review Needed

3. Severe cracking of walls, severe damage and distress Yes No Review Needed

4. Ceilings, light fixtures or other non-structural hazards Yes No Review Needed

5. Hazmat spill Yes No Review Needed

6. Other hazard present Yes No Review Needed

Recommendations

No further action required

Detailed evaluation required (circle one): Structural Hazmat Other

Barricades needed in the following areas:

Other:

Comments:

a
Adapted from reference 12.
558 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.6 Safety Considerations for Fixed Equipmenta

Item Principal concern

Boilers Sliding, broken gas/fuel lines; broken exhaust, steam, and/or relief lines
Refrigerator/freezer Sliding; loss of function; leaking refrigerant
Emergency generators Failed isolation mounts; sliding; broken fuel, signal, and/or power lines; broken exhaust lines
Fuel tanks Sliding or overturning; leaks; broken fuel lines
Fire pumps Anchorage failure; misalignment between pump and motor; broken piping
On-site water storage Tank or vessel rupture; pipe break
Communication equipment Sliding, overturning, or toppling leading to loss of function
Transformers Sliding; leaking; loss of function
Electrical panels Sliding or overturning; broken or damaged conduit or electrical bus
Elevators Counterweights out of guide rails; cables out of sheaves; dislodged equipment
Radiation equipment Breach of containment
Toxic chemicals Spills; fumes in ventilation system
Liquid oxygen tanks Sliding or overturning; leaks; broken lines
Infectious hazards Overturned incubators; broken culture bottles
Equipment Sliding or overturning leading to loss of function or damage to adjacent equipment
a
Adapted from reference 12.
 CHAPTER 29. EMERGENCY MANAGEMENT 559

APPENDIX 29.7 Equipment Checklist a

General items Equipment Damaged Comments

No Yes

Boilers _________ _________

Refrigerator/freezer _________ _________
Emergency generators _________ _________
Fuel tanks _________ _________
Fire pumps _________ _________
On-site water storage _________ _________
Communications equipment _________ _________
Transformers _________ _________
Electrical panels _________ _________
Elevators _________ _________
Radiation equipment _________ _________
Chemical storage:
_________ _________

_________ _________

Gas tanks:
_________ _________

_________ _________

Other equipment:
_________ _________

_________ _________

Comments:

a
Adapted from reference 12.
560 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.8 Patient Locator Information Form

Provide the following information by telephone to the Patient Locator System on each new or readmitted disaster victim during
the emergency status.

1. Patient name:

2. SSN:

3. Date of birth:

4. Age:

5. Patient’s sex: Male Female

6. Patient’s condition: Critical Serious Fair Good Excellent Deceased Not sure

7. Treated by:

8. Released from care: Yes No Date of release:

9. Patient’s Address:

City: State: ________ Zip: ______________

10. Person to notify:

Relationship: Husband ________ Wife ________ Father ________ Mother ________

Brother ________ Sister ________ Other ______________________________

Address:

City: State: ________ Zip: ______________

Phone: Home/Cell: Work:

Name of person filling out form:

Information called in: Date: Time:

Patient condition update called in:

Date: Time: Condition:

Date: Time: Condition:

 CHAPTER 29. EMERGENCY MANAGEMENT 561

APPENDIX 29.9 Radioactive Spill Report

The spill occurred at __________ : (am/pm) on ______/ ______/ ______ Bldg __________________________ Room ______________

Instrument used to check for personnel contamination:

Meter manufacturer Meter model

Meter S/N Probe model Probe S/N

Personnel present Personnel contamination results*

* On the back of this sheet, indicate any personnel decontamination or care instituted. Please be detailed.

Survey the spill area to identify hot spots and then begin decontamination.
When finished, conduct a post-cleaning contamination wipe test.

Radioisotopes present or suspected in the spill:

_________ mCi of as

_________ mCi of as

_________ mCi of as

Provide a brief description of the accident:

Provide a brief description of action taken to prevent a recurrence:

Name:

Date:
562 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.10 Bomb Threat Checklist

Date and time of call:

Words of caller:

Questions to ask:

1. When is the bomb going to explode?

2. Where is the bomb?

3. What does it look like?

4. What kind of bomb is it?

5. What will cause it to explode?

6. Did you place the bomb?

7. Why?

8. Where are you calling from?

9. What is your address?

10. What is your name?

Caller’s voice (circle)

Calm Disguised Nasal Angry Stutter Sincere Lisp Rapid

Deep Crying Squeaky Excited Stressed Accent Scared Normal

If the voice was familiar, whom did it sound like?

Were there any background noises?

Remarks

Person receiving call

 CHAPTER 29. EMERGENCY MANAGEMENT 563

APPENDIX 29.11 Selected Information Resources on the Internet

EMERGENCY PREPAREDNESS WEBSITES BIOTERRORISM WEBSITES

Federal Emergency Management Agency American Society for Microbiology
http://www.ready.gov/are-you-ready-guide http://www.asmusa.org
Source of materials for emergency preparedness Training materials, laboratory protocols, and regulations related to
bioterrorism preparedness
The Joint Commission
http://www.jointcommission.org College of American Pathologists
Guidelines on emergency management standards http://www.cap.org
Links to other websites on bioterrorism preparedness
National Institute for Occupational Safety and Health
http://www.cdc.gov/niosh Centers for Disease Control and Prevention
Resources on chemical agents and emergency preparedness http://www.bt.cdc.gov
Training materials, laboratory protocols, regulations, guidelines for
Occupational Safety and Health Administration
laboratory and healthcare facilities preparedness
http://www.osha.gov
Training materials, standards, and regulations related to safety in Department of Homeland Security
the laboratory http://www.ready.gov
Information on preparedness for all terrorism events
Office of Health and Safety
http://www.cdc.gov/od/ohs Infectious Diseases Society of America
Resources on safety, biosafety, and safety survival http://www.idsociety.org
Resources related to bioterrorism preparedness
U.S. Government Printing Office
http://www.access.gov/nara/cfr U.S. Army Medical Research Institute of Infectious Diseases
Source for federal regulations http://www.usamriid.army.mil
Reference material on biological and chemical warfare agents
Financial Management
V
(section editor: Michael R. Lewis)
30 Financial Management: Setting the Stage
Ronald B. Lepoff
31 Strategic Planning
Paul Valenstein
32 Human Resources at the Local Level: an Important Component
of Financial Management
Washington C. Winn, Fred Westenfeld, and Michael R. Lewis
33 Costs, Budgeting, and Financial Decision Making
Geoffrey C. Tolzmann and Richard J. Vincent
34 Financial Decision Making: Putting the Pieces Together
Ronald J. Bryant and Michael R. Lewis
Introduction
The Hospital Environment
30 Financial Management:
Operating in the Inpatient Hospital Setting •
Operating in the Outpatient Hospital Setting
Setting the Stage
The Non-Hospital Environment
Summary Ronald B. Lepoff
KEY POINTS
GLOSSARY
REFERENCES
OBJECTIVES
To establish the importance of the environment in which the laboratory
operates
To review the constraints placed upon management in the hospital and
independent laboratory settings
To introduce the fiscal considerations that may be important for laboratory
management in these settings

All the world’s a stage,

And all the men and women, merely Players;
They have their Exits and their Entrances,
And one man in his time plays many parts . . .
William Shakespeare
As You Like It, Act II, Scene VII

T
here are approximately 233,000 clinical laboratories in the
United States (4). Roughly 117,000 of these laboratories are located in
physician offices; of these, 60,000 perform only Clinical Laboratory Im-
provement Amendments (CLIA)–waived testing (see Glossary), and 37,300
do only provider-performed microscopy. In contrast, there are approximately
8,800 hospital laboratories. Of the remainder, about 5,600 are independent.
The total U.S. clinical laboratory market is about $57 billion in revenue. Table
30.1 summarizes the demographics of the laboratory industry.
In this chapter, we will concentrate on hospital and independent labora-
tories, which usually perform moderate- and high-complexity testing. As
laboratory instrument and supply manufacturers innovate and improve their
products, the number of high-complexity tests done in clinical laboratories
has declined somewhat; it is obvious that the market incentives for manufac-
turers lie in simplicity and reliability of operations. The supply of individuals
qualified to perform high-complexity testing has declined along with this lack
of demand (although not solely for this reason; the number of schools training
Clinical Laboratory Management, 2nd Edition
medical technologists/clinical laboratory scientists has also dramatically de-
Edited by L. S. Garcia clined). In contrast, testing in most physician office laboratories is limited, of
©2014 ASM Press, Washington, DC waived or moderate complexity, and performed by individuals whose primary
doi:10.1128/9781555817282.ch30
training and responsibilities are not in laboratory medicine.

567
568 FINANCIAL MANAGEMENT

Table 30.1 The demographics of the laboratory industry a because the work of the clinical laboratory is relatively in-
Laboratory type No. visible compared to direct patient care, it can be at a rela-
Total clinical laboratories 233,000 tive disadvantage in these negotiations. Consequently, it
Physician office laboratories 117,000 becomes even more important for laboratory management
Performing CLIA-waived testing only 60,000 to be perceived as a team player in the hospital—to be seen
Performing provider-performed 37,300 as clinically responsive and fiscally responsible. These at-
microscopy only tributes become increasingly important when large capital
Other physician office laboratories 19,700 expenditures or program expansions are sought.
Hospital-associated laboratories 8,800 In these situations the role of the laboratory medical di-
Independent laboratories 5,600 rector becomes critically important. To be most effective
Others (includes public health, insurance, etc.) 101,600 the director must speak for the medical needs of patients,
a
See reference 4. All numbers approximate.
particularly as they relate to laboratory services, but must
also present a credible front to the hospital administration
when addressing the business aspects of the laboratory,
The most important contributors to financial perfor- such as budgeting, billing, and planning.
mance in the laboratory industry are: In certain sections of the laboratory, such as anatomic
pathology and the blood bank, the director must be a phy-
• Leadership
sician. The directors of all sections—and especially the
• Operations management overall laboratory director—will be able to function most
• Information management effectively, whatever their academic degree, if they have a
• Marketing medical or clinical background that gives them credibility
• Laboratory specialty niches with the medical staff. Similarly, the relationship with the
hospital administration may be enhanced if the laboratory
• Service area
director has a business background or at least demonstra-
• Competition ble competence in business matters.
• Customer service The ideal director, who fully satisfies both sets of com-
• Couriers petencies, may be difficult to find. In fact, it is not essen-
• Phlebotomy tial that all that talent be manifest in one individual if the
director can utilize other resources within the laboratory.
• Client services
It is essential, however, that the person at the top have a
• Billing and pricing balanced view of the laboratory world.
• Availability of consultation/expertise
• Payor mix and policies Operating in the Inpatient Hospital Setting
• Network contracts (local and national) The major differences in the cost and operational structures
of independent and hospital laboratories lie in the patient
• Out-of-network policies
populations and the nature of the services provided. The
This section of the book deals with the operational man-
agement of the laboratory, including strategic planning,
human resource management in the operational units, cost Figure 30.1 The organizational chart of a hospital that is orga-
analysis, and financial decision making. Before discussing nized in a traditional manner. Note that the chief operating officer,
the details, it is worthwhile to consider the broad outlines who is parallel in reporting responsibility to the VP of nursing,
of the challenges that face laboratory managers and work- is responsible for all ancillary services through a director who is
ers in the industry as a whole and in the major segments. responsible for operations. doi:10.1128/9781555817282.ch30.f1
Chief Executive Officer

The Hospital Environment

In the hospital institutional environment, the laboratory Chief VP Chief Chief
usually operates as a division under a vice president or Operating Nursing Financial Information
Officer Officer Officer
director of operations. Along with other operational divi-
sions such as pharmacy and dietary, the laboratory must
Director
compete for resources with direct patient care divisions
such as nursing (Fig. 30.1). Because the laboratory may
not be directly represented at the table where administra- Laboratory Pharmacy Dietary Other operational
tive and fiscal decisions are made for the institution, and departments
 CHAPTER 30. FINANCIAL MANAGEMENT: SETTING THE STAGE 569

two are dramatically different in their institutional mis- requirements for testing among sites with critical needs,
sions, patient populations, hours of operation, percentage such as intensive care units and emergency departments,
of tests requiring rapid turnaround (STAT testing), com- often becomes very difficult to manage. Table 30.3 sum-
munication and reporting requirements, and the need for marizes the factors that detract from the efficiency of
highly specialized testing. In this section we will explore hospital-based laboratories.
the environment of the hospital laboratory and how these Depending on their size, hospital laboratories find it fi-
factors may affect financial performance (Table 30.2). nancially feasible to add batch processing for tests that do
Hospital laboratories have primary responsibility for an not require rapid turnaround times. Cutting-edge technol-
inpatient population of seriously ill people. Care has shifted ogy, such as molecular diagnosis and molecular genetics,
to the outpatient environment, and length of hospital stays does not at present require immediate response—although
has dramatically decreased in the United States since the as technology improves, this is likely to change. Thus, these
introduction of diagnosis-related reimbursement. As a laboratories tend to have a portion of their staff devoted to
consequence, the acuity of illness of hospitalized patients relatively low-complexity, rapid-turnaround testing oper-
has increased. More than ever, hospital laboratories must ating around the clock and a second component of staff
dedicate significant resources to 24-hour-per-day, 7-day- devoted to batch production of relatively high-complexity
per-week support for critically needed testing, often with testing that requires special expertise, high-cost reagents
a rapid turnaround time, to care for these patients. The si- or instrumentation, and longer turnaround times (refer-
multaneous requirement to support the care of an increas- ence 6, p. 435–480). It should be noted that even in the
ing population of patients who are seeking emergent care rapidly expanding arena of molecular testing, pressure is
further adds to the burden. growing to produce speedy results using real-time amplifi-
In this environment, the primary mission of the insti- cation technologies.
tution requires staffing, procedures, and instrumentation The two components of staff needed for these two cat-
that support rapid production of testing results around the egories of testing are not interchangeable. Cross-coverage
clock. The financial consequence of this mission is rela- for vacations, illness, or other mandated benefits, such as
tively low productivity for both instruments and person- training and continuing education, is impractical because
nel; as a consequence, costs are relatively high. Fortunately, the skill sets (and mind-sets) for the two forms of testing
the per-unit cost of equipment and reagents for most of are so different. In some hospitals, laboratories support
the required tests is low. Additionally, economies can be decentralized testing in or near operating rooms, inten-
achieved if additional nonemergent testing can be used to sive care units, and emergency departments, again in-
fill excess capacity. creasing cost and lowering staff productivity. Table 30.4,
The high-acuity setting also leads to its own set of which is derived from the College of American Patholo-
requirements for communication and information tech- gists Laboratory Management Index Program (LMIP),
nology. The frequent need to transmit highly abnormal shows a clear inverse relationship between the per-test
results to clinicians who care for critically ill patients cost of labor and laboratory size; larger laboratories are
often requires staff to leave the workspace, both to call more productive.
in results on the telephone and to answer requests for Reagent and supply costs are the second-largest com-
results. As the laboratory obtains more critically abnor- ponent of laboratory costs, after personnel. There is a clear
mal results, more tests must be repeated or additional relationship between laboratory size, as measured by test
procedures must be performed. For example, the per- volume, and supply costs. Larger laboratories have lower
centage of routine blood counts that require a manual per-test supply costs than do smaller laboratories. Table
differential count in the usual outpatient setting is less 30.4 presents the cost-effectiveness ratios for the four
than 10%, while in a hospital, especially one seeing a sub- quartiles of participating laboratories in the LMIP. The rel-
stantial number of patients with cancer, that proportion ative decrease in the cost of consumables with increases in
may reach 30 to 35% or more. Balancing the demanding laboratory size presumably occurs because larger purchas-
ers get better pricing from suppliers; the development of
group purchasing alliances such as Novation and Premier
Table 30.2 Components of diagnostic laboratory testing may well have blunted some of this effect.
Category of testing Examples
STAT; immediate response Blood gases; frozen sections
required Table 30.3 Factors that produce inefficiency in hospital-based
laboratories that serve inpatients
Intermediate response; same Routine chemistry and
day or shift hematology Requirement for rapid laboratory response
ASAP response; depending Microbiology, surgical pathology, Necessity for frequent repetition of tests
on technology molecular testing Need to telephone emergent or critical results to providers
570 FINANCIAL MANAGEMENT

Table 30.4 Laboratory productivity and volumea

Quartile b ($)
Expense per All
billed test 1 2 3 4 laboratories
Consumables 2.96 2.65 2.31 2.14 2.74
Labor 6.03 5.51 4.99 4.65 5.02
Direct test 10.22 8.78 8.05 7.34 8.43
a
Data from Laboratory Management Index Program of the College of American Pathologists (1994).
b
Quartile values are the means of independent distributions. The sum of mean consumable and labor
expense is not necessarily the same as direct expense.

Reimbursement of hospitals for inpatient stays is based ill patients quickly. It is estimated that upwards of 70% of
on one of the following schemes, depending on the payor the patient data in hospitals comes from the clinical lab-
(Table 30.5): oratory. The bulk of laboratory testing during a hospital
admission occurs in the first few days, when the patient is
• Percent of charges
most acutely ill and when diagnoses are being tested and
• Per diem rejected or established by clinicians. The financial gain for
• Reimbursement for diagnosis-related groups (DRGs) the laboratory produced by earlier discharge after these
initial intensive days may, therefore, be minimal. Pressures
The second and third of these schemes are the most com-
to reduce length of stay will tend to compress the same
mon in the United States, where reimbursement based on
amount of testing into a shorter period, leading to little if
charges has almost disappeared for inpatients. As discussed
any reduction in laboratory costs (7).
earlier, payment schemes affect the financial performance
Laboratory administrators are often surprised by the
of hospital laboratories in complex ways. For example, the
amount of indirect costs borne by the laboratory in the
intent of diagnosis-based reimbursement for hospital care
hospital setting. The laboratory is one of the few hospital
is to create incentives for hospitals to minimize unneeded
departments that bills for services directly; other charges
expenditures for all aspects of hospital care (commonly
include those for pharmaceuticals, medical supplies, and
measured as length of stay), including laboratory test-
“hotel” functions (bed charges). The simplest way to ap-
ing (2). The efficacy of this incentive is illustrated by two
proach these costs is to examine the hospital’s annual
changes in health care. Length of hospital stay has dropped
Medicare cost report, which allocates all indirect costs in
substantially, from around 7.5 days in 1980 (before DRGs)
a uniform way to departments. Often, direct laboratory
to approximately 4.8 days in 2008–2009, a decrease of 36%
costs for labor and supplies may be only half of total costs,
(5). Additionally, de novo systems of less expensive home
with the remainder resulting from these charges for insti-
care, including the ongoing administration of intravenous
tutional indirect costs (reference 6, p. 154–155).
medications, for example, have proven very popular (1).
Generally, reimbursement for care of hospitalized patients Operating in the Outpatient Hospital Setting
that is not driven by DRGs is done on a per diem basis.
Many hospital laboratories, especially those in academic
For the laboratory, the consequence of both payment
medical centers, serve significant numbers of outpatients.
schemes is that inpatient revenue is unrelated to the quan-
These encounters with the outpatient facility may be asso-
tity of testing. The institution gains if the length (cost) of
ciated with prior or future inpatient stays, for example, be-
stay declines and if the number of laboratory tests done on
fore or after surgical procedures. Here one might suppose
each inpatient is reduced. Under this scenario, however,
the demand for rapid turnaround times must be less than
physicians are faced with the need to care for increasingly
in the inpatient setting. In fact, the need for high-volume
outpatient clinical operations is as varied and complex as
the inpatient operations. In some cases the need for rapid
Table 30.5 Reimbursement mechanisms in the inpatient, outpa- turnaround of test results may be surprising—and it re-
tient, and independent laboratory settings
sults from the increasing shift of sophisticated patient care
Outpatient and independent from the hospital ward or operating room to the outpatient
Inpatient laboratories laboratories
medical clinic, dialysis unit, or surgery. Oncology clinics,
DRGs Percent of charges for example, often need the results of laboratory testing to
Per diem Fee schedule decide if and at what dose a patient may receive chemo-
Percent of charges Capitation therapy that day. The complexity and sophistication of test-
Ambulatory payment classification ing in this environment actually tends to be higher than in
groups (APCs) the inpatient setting; complex endocrinologic diagnoses,
 CHAPTER 30. FINANCIAL MANAGEMENT: SETTING THE STAGE 571

for example, are usually sought in the outpatient setting. hours and scope of operation, turnaround time require-
In this instance the tests do not usually require rapid turn- ments, and need for ancillary functions, such as busi-
around and are best batched. ness operations. Some of these facilities do a substantial
Hospital reimbursement in the outpatient setting is amount of reference (esoteric) testing for hospitals and
based on (Table 30.5): other laboratories.
Most of the testing done by the independent laborato-
• Percent of charges. Contractually negotiated by the
ries is for outpatients of physicians and clinics. Some may
hospital with payors
provide phlebotomy services at or near the offices and
• Fee schedule. Contractually negotiated with payors or clinics they serve. Essentially all provide couriers for the
as prescribed by the government for Medicare transportation of specimens back to the home laboratory.
• Capitation. A contractual scheme in which the health- Except for work that requires rapid turnaround, which is
care system (in many cases including both hospitals unusual in this setting, most specimens are transported
and physicians) undertakes to provide needed care to during daylight hours and arrive at the laboratory in the
a defined population at a certain fixed rate per month, late evening or night. Thus, the major testing effort takes
regardless of the volume of care place during the night in one large batch, and most results
• Ambulatory payment classification groups (APCs) (3) of routine tests are transmitted before the physicians’ of-
fices open the next morning.
The first two methods are straightforward and tradi- This type of workload and scheduling influences the
tional. Capitation first appeared to any significant degree laboratory’s staffing pattern and even its instrumentation
after the failed Clinton-era attempt at reconstruction of choices. For example, the setting requires batch instru-
healthcare. Health maintenance organizations and other mentation that can process large numbers of samples rela-
payors found that their market power enabled them to de- tively expeditiously but with no need for rapid turnaround
mand favorable, often capitated contracts from providers of any individual sample. An instrument that operates in a
in many areas of the country. At one point, capitation of batch mode, then, may be better suited to this setting than
laboratory testing was paid at $0.60 per member per month one that may be somewhat slower but allows the interposi-
in some areas. Over the past 15 years, as excess capacity has tion of STAT samples at any time. To the extent that these
been wrung out of the healthcare system, providers have laboratories do esoteric work, for which a longer turn-
regained some of their market power, and the pendulum around time of up to four or five days is often acceptable,
has swung back toward the first two approaches. Medicare that work is usually done separately during a smaller day
now reimburses hospital outpatient services on a modified shift. If the marketplace justifies provision of the service,
diagnosis-related scheme (APCs). some independent laboratories perform forensic, veteri-
In this outpatient arena, hospital laboratories compete nary, or environmental testing. A number of highly spe-
with the commercial laboratory sector for business. In re- cialized niche laboratories operate in still other areas such
cent years, the market share of hospital laboratories has as cytogenetics, molecular genetics, forensic toxicology,
increased at the expense of the commercial sector. While and other areas that the large national laboratories have
serving hospital outpatients has its own set of service de- been reluctant to enter because of cost or need for special-
mands, as indicated earlier, hospital laboratory outreach ized expertise.
programs require, in addition, marketing, courier and For the most part, independent laboratories serve an
phlebotomy services, business services such as billing and outpatient population. To be sure, in some (mostly rural)
accounting, and customer support. Hospital laboratories areas, an independent laboratory may contract with a lo-
often have excess technical capacity for testing, resulting cal hospital to supply laboratory services. The reimburse-
from their need for rapid turnaround and their diurnal ment schemes for this sector of the industry are the same
variation in demand (highest during the day and lowest as those listed above for hospital outpatient work (Table
at night). The unused capacity in the evening may allow 30.5). Major requirements for these laboratories include,
the addition of outreach testing at minimal marginal cost. in addition to the aforementioned courier and phlebotomy
While most hospitals in the United States are still not for services, medical consultation, billing, accounting, client
profit, laboratory operations in the for-profit sector are ba- relations, marketing, sales, and information services func-
sically similar to those in the not-for-profit sector. tions. In the hospital setting, these functions are usually
performed mostly outside the laboratory.
The small independent laboratory has the advantage
The Non-Hospital Environment of flexibility and the ability to move quickly to adapt to
The breadth of testing provided by independent laborato- the market; it is not burdened with hospital administrative
ries generally mirrors that of hospital-associated labora- overhead and cumbersome decision-making processes. Of
tories. The major differences lie in the population served, course, management decisions are reflected rapidly in the
572 FINANCIAL MANAGEMENT

bottom line, for better or worse. Because diagnosis-related GLOSSARY

reimbursement is usually not an issue in this market seg- CLIA ’88 The Clinical Laboratory Improvement Amendments
ment, and because the prevalence of capitation has been of 1988 and their implementing regulations, as published since
declining, it is in the interest of the independent laboratory 1992.
to maximize laboratory utilization and thus revenue. CLIA-waived testing A category of laboratory test complexity
As the independent laboratory industry has rapidly under CLIA (q.v.) which applies to tests that (i) are cleared by the
consolidated, the number of independent laboratories has U.S. Food and Drug Administration for home use, (ii) employ
plummeted; two large public corporations now dominate methods that are so simple and accurate as to render the likeli-
the industry, and consolidation continues apace (8). Oper- hood of erroneous results negligible, or (iii) pose no reasonable
ating in the corporate setting involves less local autonomy risk of harm to the patient if the test is performed incorrectly.
and more centralized decision making. Local choices of Provider-performed microscopy A category of moderate-
tests offered, instrumentation, reagents, and so forth are complexity tests under CLIA (q.v.) involving a patient care pro-
likely to be very limited. On the other hand, the corpo- vider using a microscope for testing, such as urine microscopic
ration will supply a centralized purchasing capability and examinations.
likely similar data processing functions, releasing the local
branch from these duties. On the revenue side, while the
REFERENCES
small independent laboratory must negotiate with provid-
ers or with payors who still permit local contracting, the 1. Centers for Disease Control and Prevention. 2001. National
Hospital Discharge Survey. Centers for Disease Control and Preven-
large national corporations negotiate national contracts
tion, Atlanta, GA.
with payors when possible.
2. Centers for Medicare and Medicaid Services. 2012. Acute Inpa-
tient Prospective Payment System. http://www.cms.gov/Medicare/
Summary Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html
(last accessed August 30, 2012).
The objectives of laboratory management must reflect the
3. Centers for Medicare and Medicaid Services. 2012. Hospital Out-
demands of the laboratory’s clients and the clinical and fi-
patient Prospective Payment System. http://www.cms.gov/Medicare/
nancial environment in which it operates. There are funda- Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/index
mental and striking differences in clinical need and demand, .html (last accessed August 30, 2012).
financial constraints and considerations, and laboratory
4. Centers for Medicare and Medicaid Services. 2012. CLIA Statisti-
mission and cost structures, which depend on the labora- cal Tables/Graphs. http://www.cms.gov/Regulations-and-Guidance/
tory’s situation. Whether inpatient or outpatient hospital Legislation/CLIA/CLIA_Statistical_Tables_Graphs.html (last ac-
or independent laboratory, each has its own set of func- cessed September 4, 2012).
tional drivers of which laboratory management must be 5. National Center for Health Statistics. 2012. Health, United States,
acutely conscious. 2011: With Special Feature on Socioeconomic Status and Health.
Table 103. http://www.cdc.gov/nchs/hus/contents2011.htm#103 (last
KEY POINTS accessed September 14, 2012).
■ The demands for capable, effective management differ
6. Travers, E. M. 1997. Clinical Laboratory Management. Williams &
Wilkins, Baltimore, MD.
in the hospital inpatient, hospital outpatient, and inde-
pendent laboratory settings. 7. Valenstein, P., A. Praestgaard, and R. Lepoff. 2001. Six year
trends in productivity and utilization of 73 clinical laboratories: a
■ Laboratory management must be able to demonstrate
College of American Pathologists Laboratory Management Index
intimate knowledge not only of the clinical needs for Program Study. Arch. Pathol. Lab. Med. 125:1153–1161.
laboratory testing in various situations, but also the 8. Washington G-2 Reports. 2003. Laboratory Industry Report,
fiscal constraints of the institution in which it oper- vol. 12, no. 42003.
ates and be able to communicate this understanding to
higher administration.
■ Reimbursement mechanisms vary according to setting,
and laboratory management must have a clear under-
standing of all of the relevant mechanisms, payor re-
quirements, and limitations.
Introduction: What Is Strategy?
Evidence To Recommend Strategic
31 Strategic Planning
Planning
Randomized Controlled Trials • Case Studies • Paul Valenstein
Economic Theory
Developing and Maintaining a Business
Strategy: the Strategic Planning Process
Structure of the Clinical Laboratory
Industry
Size of the Testing Market • Concentration of
Competitors • Barriers to Entry • Separation of Payor, OBJECTIVES
Purchasing Agent, and Beneficiary • Economies of To define strategy and contrast strategic planning with the management of
Scale • Restrictions on Markups and Kickbacks • operations
Powerful Sellers and Buyers • Substitute Products •
Unique Economics of Inpatient Care • Conclusions To describe the competitive structure of the laboratory industry
Competitor Analysis To articulate the elements of competitor analysis
Competitors’ Goals • Competitors’ Assumptions •
Competitors’ Capabilities • Interactions of
To characterize strategic positions commonly used by clinical laboratories
Competitors • Conclusions To explain how strategies are sustained and why they commonly fail
Strategic Positions in the Laboratory
Industry
What Are Strategic Positions? • Types of Strategic
Positions • Strategic Positions of Clinical
Laboratories • Conclusions The essence of strategy is choosing what not to do.
Implementing the Strategy: Activity Fit Michael E. Porter
What Is Activity Fit? • Activity Fit Involves Trade-Offs
Failure of Strategy
Straddling • Growth Trap • Profitability Trap • Hubris
Introduction: What Is Strategy?
Summary
KEY POINTS Strategy is an elusive concept for the typical manager of a clinical laboratory,
GLOSSARY
who is often more comfortable working with operational issues. The word
“strategy” evokes images of generals planning vast military campaigns—a pro-
REFERENCES
cess that would appear to have little relevance in the quiet and measured atmo-
APPENDIXES
sphere of the diagnostic laboratory.
Business strategy complements the management of operations, which com-
prises the main focus of this book. Operational management consists of opti-
mizing individual business processes. It may involve the efficient use of human
resources, supply chain management, financial planning, or quality control.
Managing laboratory operations includes the oversight of marketing, client
services, specimen processing, billing, safety, and information technology, as
well as the testing operations that constitute the heart of the diagnostic clini-
cal laboratory.
In contrast to operational management, business strategy is about equip-
ping an organization to withstand competitive market forces. Whereas the
operational manager seeks to maximize the effectiveness of each part of a
business, the business strategist seeks to arrange the parts into a whole that
will succeed in a competitive environment and to toss out any parts that do
not fit with a firm’s strategy, no matter how well the part seems to function.
Business strategists concern themselves with understanding the structure of
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia the industry and their firms’ competitors, defining unique market positions
©2014 ASM Press, Washington, DC for the laboratory, and creating interlocking processes that provide the labora-
doi:10.1128/9781555817282.ch31 tory with a sustainable competitive advantage in its target market. Business

573
574 FINANCIAL MANAGEMENT

strategists value focus over growth; they are creative but in which their firms are randomized to either using or not
also disciplined and not easily distracted. using a particular business strategy.
Operational effectiveness and sound business strategy Moreover, strategic planning is not a standardized, well-
both produce competitive advantage. However, neither defined intervention that can be dispensed to corporate
stands on its own. If all laboratory competitors enjoy excel- leaders in the same manner as a pharmaceutical product.
lent operational effectiveness and produce test results that A strategic plan must take account of the unique strengths
are equally accurate, inexpensive, and timely, none of the and vulnerabilities of competitive adversaries and will
competitors will enjoy a healthy financial return. Competi- therefore be different for every business.
tion within the market will drive out profitability and lead Because of these limitations, the strongest type of re-
to commoditization of laboratory services. Conversely, a search evidence—the randomized controlled trial—has
laboratory may have a well-developed strategy to serve a not been applied to strategic planning. If strategic planning
defined group of customers that is not being well served were a medical device, it would not be approved for sale. If
by others, but at the same time may lack the operational it were a drug, it would not be licensed or prescribed.
wherewithal to execute the strategy and keep its target cus-
tomers satisfied. It, too, will flounder. Case Studies
A sound business strategy requires several elements A number of studies carried out by the faculty of business
(Table 31.1). These are (i) understanding the underlying schools have evaluated the role of strategy in business.
structure of the industry in which an organization com- For example, Porter evaluated the 35-year diversification
petes; (ii) assessing a firm’s strengths, weaknesses, assump- histories of 33 large U.S. companies, using annual reports,
tions, and goals, as well as those of its nearest competitors; 10K forms, Moody’s ratings, and several other sources (9).
(iii) identifying a distinctive market position that the firm Porter concluded that a large number of acquisitions were
can occupy more successfully than its rivals; (iv) developing later divested as a result of their poor strategic fit with the
interlocking and reinforcing business activities that drive acquiring firm. Studies such as Porter’s rely on qualitative
the organization toward its desired position in the market; examination of an individual company or, as in this ex-
and (v) avoiding common traps that upend the best-laid ample, a series of companies. Many of the case studies have
strategy. These five elements form the basis of this chapter. been conducted in considerable depth; it is not unusual for
Readers may believe that special characteristics of the an industry case study to be drawn from hundreds of pages
clinical laboratory industry make it unsuitable for strategic of interview transcripts and financial data. Still, case stud-
planning. Many individuals hold this view because most ies are subject to several types of bias. There is likely to be
laboratory activity is concentrated within not-for-profit selection bias in the firms authors choose (or are permit-
hospitals; laboratories are subject to a regulatory environ- ted) to study. Authors may also demonstrate interpretive
ment that imposes a high degree of uniformity on testing bias when deciding which attributes of a company led to
practices, and the strong market power of payors such as its market success or failure.
Medicare seems to limit managers’ options to find unique In addition to the case studies published by academi-
market positions. Nevertheless, this chapter will show that cians, consultancies involved in strategic planning have
clinical laboratories have developed a variety of distinctive published articles attesting to the importance of strategic
strategic positions to differentiate themselves from rivals. planning for organizational success. These publications
are subject to the same selection and interpretive biases
that beset academic case reports and may additionally be
Evidence To Recommend troubled by conflicts of interest when the consultancies
Strategic Planning derive revenue from helping firms develop strategic plans.
Randomized Controlled Trials In published case studies and reviews, academicians
The process of strategic planning has not been tested in have identified strategy as a critical component in the
randomized controlled trials. Business leaders are not will- success of particular firms (10). For example, Southwest
ing to subject the fates of their companies to experiments Airlines’ strategy of flying only short-haul, point-to-point
routes between midsized cities and secondary airports of
larger cities has been linked to its ability to attract price-
Table 31.1 Elements of strategy
sensitive travelers while maintaining profitability. Jiffy
Lube International’s strategy of limiting its product line
Understanding industry structure
to lubrication services has allowed it to offer faster service
Assessing a firm’s and competitors’ strengths and weaknesses
and thereby attract time-sensitive customers.
Identifying a distinctive market position
When a particular firm is identified in a case study as
Adopting business activities that reinforce a market position
having a successful business strategy and the firm later
Avoiding common strategy traps
stumbles in the marketplace, readers may conclude that
 CHAPTER 31. STRATEGIC PLANNING 575

the study author misinterpreted the facts of the case. How- it be contained in a written document. He requires only
ever, authors argue that the identification of a company that a business strategy take into account existing differ-
with a successful business strategy does not represent an ences between a firm and its competitors and purposefully
endorsement of the company in all respects or indicate build upon these differences. To Henderson, development
that the company’s strategy will be successful for all time. of strategy is a creative act.
Case studies of strategy represent an analysis at a particular Other business authors also downplay the importance
point in time and under specific business circumstances. of developing a written strategic plan, and some maintain
In this sense, a business author’s work is analogous to that that a formal strategic planning process can lead orga-
of a historian who asserts that a specific historical figure nizations astray. Campbell and Alexander argue that the
was able to effect political reform at a particular time in planning frameworks managers use to develop strategy
history, without also arguing that the subject was a model often yield disappointing results because business strat-
citizen in all respects or would have been successful in pro- egy is about insights and not about plans, which tend to
moting reform under different historical circumstances. be operational in nature (1). Kim and Maugorgne believe
that when an inclusive planning process is used to formu-
Economic Theory late strategy, the competing agendas of an organization’s
Classical economic theory provides indirect support for various stakeholders limit development of a clear sense of
the value of strategy in business. Economic theory sug- purpose (4).
gests that when one firm earns profits that are larger than Other authors recommend a more formal procedure
average, other organizations will emulate the firm’s prac- in which input is solicited from a firm’s owners, board of
tices until the increased competitive pressure brings the directors, managers, employees, and customers and is in-
firm’s profits down to an average level. The more bench- corporated into a written document called a strategic plan.
marking rivals in an industry perform and the more ri- Not-for-profit companies tend to be particularly attracted
vals outsource similar activities to third parties, the more to a formal, inclusive planning procedure. This may be the
alike their operations become (10). Even if operational ef- result of discomfort that many not-for-profit organiza-
ficiency improves for the first firm, theory holds that the tions experience in framing their business in competitive
first firm will not be able to maintain a relative productiv- terms. Mission-based organizations also lack some of the
ity advantage over its rivals. Therefore, classical econom- direct feedback that for-profit companies obtain from the
ics predicts that the profitability of firms in an industry market, and a formal strategic planning process sometimes
should tend to equalize over time, as firms’ products be- substitutes for the validation that for-profit companies re-
come commoditized. ceive in the marketplace.
The fact that some firms are able to outperform their It should come as little surprise that consultancies en-
adversaries over extended intervals suggests that factors gaged in selling strategic planning services recommend a
other than increased operational effectiveness are at work more structured approach to strategic planning. The for-
in the marketplace. Business authors suggest that strategy— mal strategic planning process consists of several steps
the ability of firms to stake out and defend unique market (Table 31.2). The process generally begins with a com-
positions—explains the capacity of some firms to earn re- mitment by leadership to identify a strategic direction
turns that consistently exceed those of their competitors. for the organization. Typically, a planning committee of
A successful business strategy tends to weaken competi- a half dozen individuals is created to specify important
tive pressure and allows organizations to achieve above- stakeholders and the information that will be collected
average returns for extended periods of time. in the planning process. The second step of the planning
process involves development or refinement of a mission
statement—what the organization values and seeks to ac-
Developing and Maintaining a Business complish. The third step involves a situation analysis, in
Strategy: the Strategic Planning Process which the strengths and weaknesses of the organization
There is little consensus in the business literature about are articulated, along with external threats and opportuni-
how strategies are best developed. Bruce Henderson, ties. This generally takes the form of a competitor analysis,
founder of the Boston Consulting Group, describes the de- a process described later in this chapter. The fourth step of
velopment of strategy as “an iterative process that begins the strategic planning process involves the development of
with a recognition of where you are and what you have specific objectives and tactics that will further the organi-
now. Your most dangerous competitors are those that are zation’s mission, given the realities that surface during the
most like you. The differences between you and your com- situation analysis. Finally, a subset of the planning com-
petitors are the basis of your advantage” (3). Henderson mittee summarizes the conclusions in a document called a
does not require that all of the stakeholders in an organiza- strategic plan, which is given to the board of directors and
tion participate in developing a business strategy or that senior staff to put into practice.
576 FINANCIAL MANAGEMENT

Table 31.2 The formal strategic planning process Size of the Testing Market
Formation of the strategic planning committee Excluding over-the-counter testing products, the clini-
Development of a mission statement cal laboratory market comprises approximately 3% of the
Situation analysis healthcare industry, which in turn represents 18% of the U.S.
Development of tactics to further the organization’s mission gross domestic product. The U.S. diagnostic testing indus-
Writing of formal strategic plan try had annual revenues in 2010 of approximately $55 bil-
lion. More than two-thirds of all testing is performed on
outpatients, a fraction that has been growing by 1 to 2%
per year over the past decade. Overall, clinical test activity
Whether or not a formal process is used to develop a has been growing by slightly less than 4% per year due to
business strategy, all strategies are shaped by the under- changes in clinical practice, the introduction of new tests,
lying structure of the industry in which a firm competes. and the growth and aging of the U.S. population. Demand
We therefore turn our attention to the organization of the for testing increases with age; testing activity per Medicare
laboratory industry. beneficiary is four to five times higher than testing per
commercial insurance beneficiary. Cumulative revenue
for the laboratory industry has been growing at a rate of
Structure of the Clinical slightly more than 4% per year (14). Growth in revenue
Laboratory Industry is the result of a shift in test mix toward more esoteric
Competition in any industry is rooted in economics tests, including gene-based testing, and increases in test
unique to the industry. Competitive pressure is applied not volume, offset by reductions in payor fee screens. Trends
only from existing rivals, but also from potential entrants, in laboratory costs are more difficult to measure than rev-
substitute products, customers, and suppliers (8). The clin- enue trends. In one report that focused on hospital-based
ical laboratory industry has its own underlying structure, laboratories, the variable cost of testing remained constant
which is described in the paragraphs that follow and sum- over a 6-year period in nominal dollars and declined in
marized in Table 31.3. real (inflation-adjusted) dollars; increases in the cost of
wages and reagents were offset by commensurate increases
in productivity (15).

Table 31.3 Structural elements of the clinical laboratory industry

Market size Concentration of Competitors
Inpatient vs. outpatient The U.S. outpatient clinical laboratory industry is highly
Routine versus esoteric fragmented geographically; there are many providers but
Concentration of competitors few that operate over large geographic areas. Within any
Mergers and acquisitions of hospitals local market there are relatively few competitors. As of this
Consolidation of commercial laboratories
writing most outpatient markets are served by only one
Barriers to entry
Regulations, e.g., CLIA
or two national commercial laboratories, which in 2009
Customer (physician) loyalty shared only 13% of the outpatient testing market. The ref-
Staff-model hospital systems erence testing is more concentrated. The five largest ref-
Cost to customers of switching erence laboratories accounted for 88% of 2009 reference
Barriers to exit laboratory activity (14). Mergers have reduced competition
Local resistance to hospital closing in the outpatient and reference laboratory testing market;
Separation of payor, purchaser, and beneficiary the number of laboratory consolidations in 2010 and 2011
Economies of scale were at decade-long highs, and acquisition prices in 2010
Supplies, reagents, and testing instruments
Other laboratory functions
approached three times revenues. Mergers or strategic alli-
Regulatory restrictions
ances have also reduced competition among hospital labo-
Markups ratories. Although hospital markets are somewhat difficult
Kickbacks to define, most communities are served by no more than
Powerful buyers and sellers three local hospitals. The physician office laboratory mar-
Buyers, e.g., Medicare, Blue Cross ket is less concentrated than the commercial and hospital-
Sellers, e.g., American Red Cross based laboratory markets. Physician office laboratories,
Substitute products however, typically perform testing only on behalf of their
Potentially, home diagnostics
owner’s patients and as a result do not compete directly
Economics of inpatient care
with one another.
 CHAPTER 31. STRATEGIC PLANNING 577

Barriers to Entry may not be permitted to close, perpetuating an oversup-

State and federal regulations constitute a significant barrier ply of hospital-based laboratories. Specialized staff in un-
to the entry of new competitors to the clinical laboratory profitable clinical laboratories who are reluctant to leave
field. Certificate of need laws in many states prevent the their employers or retrain may also produce a surplus of
construction of new hospitals without regulatory approval. competitors.
In addition, laws in several states limit the acquisition of
not-for-profit hospitals by for-profit companies. Clinical Separation of Payor, Purchasing Agent,
laboratories must also meet regulatory and performance and Beneficiary
hurdles specified in the Clinical Laboratory Improvement The healthcare industry is characterized by an unusual
Amendments (CLIA) of 1988 and elsewhere. Most labora- separation of roles that are typically combined in other
tories meet this requirement by participating in the College businesses. The beneficiaries of services (patients) do not
of American Pathologists (CAP) Laboratory Accreditation generally pay for services directly; less than 20% of care
Program or The Joint Commission Laboratory Accredita- delivered in the United States is paid for directly by pa-
tion Program, both of which enjoy deemed status from the tients. Most payments for health services are made by
Centers for Medicare and Medicaid Services of the U.S. fed- government insurance programs (principally Medicare
eral government. CLIA regulations specify that laboratory and Medicaid) or private insurance companies that are
directors and workers must meet certain education and supported by employer contributions. To add to the com-
experience standards and impose other requirements that plexity, neither the payors nor the beneficiaries act as pur-
limit entry to the laboratory industry. chasing agents of clinical laboratory services. Physicians
Little capital is required to enter the laboratory industry, order almost all laboratory tests. In fact, in many states it
so capital is not a significant barrier to entry. Depreciation is illegal for patients or insurers to order laboratory tests.
accounts for less than 7% of the operating costs of most The separation of beneficiaries, payors, and purchasing
clinical laboratories, even after analytical instruments agents creates a number of market distortions that have
obtained on a reagent rental basis are capitalized and the been widely studied. Teisberg et al. review the implications
costs of information systems are amortized. of this separation of roles on competition and incentives in
Because physicians order the vast majority of laboratory healthcare (13).
tests, doctors represent an important distribution channel
that must be accessed by any new entrant in the laboratory Economies of Scale
business. Most physicians in private practice who partici- There is strong evidence that analytical operations in
pate in managed-care arrangements are accustomed to us- chemistry, hematology, gynecological cytology, and blood
ing several different laboratories for patients enrolled in banking are subject to substantial economies of scale. In
different health plans. These physicians are fairly easily in- the CAP Laboratory Management Index Program, test vol-
troduced to new laboratory services. However, physicians ume (standardized billable tests/year) was the factor most
employed in staff-model practices or who are affiliated closely correlated with labor productivity (tests/full-time
with tightly integrated independent practice associations equivalent) and with overall efficiency (cost/test). Most
may not be available to new laboratory entrants and there- laboratories that participate in the CAP program operate
fore represent a barrier to entry into the testing market. with test volumes that are well below the level at which
The consolidation of physician practices that is taking efficiency tends to flatten out. There are insufficient data
place as of this writing can be expected to increase barriers to determine whether significant economies of scale oper-
to entry for clinical laboratories. ate in other aspects of clinical laboratory operations, such
Switching costs—the cost incurred by a customer as marketing, courier and transportation services, profes-
switching from one producer to another—may constitute sional oversight, surgical pathology, and informatics. Stud-
a barrier to entry. In the specialty laboratory market, the ies on economies of scale for microbiology operations have
effort required to configure and test new laboratory-to- produced conflicting results.
laboratory computer interfaces tends to lock in customers
and reduce competitive pressure. Many community-based Restrictions on Markups and Kickbacks
physicians do not currently experience difficulty switching Federal law prohibits physicians and their employers from
laboratories, but difficulties are increasing as laboratories marking up Medicare and Medicaid charges billed to their
develop sophisticated interfaces with practice manage- practices. Further, antikickback laws prohibit laboratories
ment systems and the electronic medical records increas- from providing referring physicians with goods or ser-
ingly common in office practices. vices of value in exchange for referral of laboratory tests.
Barriers to exit also influence industry economics. These restrictions have been enacted to reinforce the fidu-
Unprofitable hospitals supported by local communities ciary duties of physicians to their patients by eliminating
578 FINANCIAL MANAGEMENT

financial incentives to order unnecessary tests or to select Substitute Products

laboratories based on the physician’s potential to profit The clinical laboratory industry is not currently subject
from the transaction. However, these laws dampen mar- to significant pressure from substitute products. However,
ket forces that would otherwise pressure laboratories to over-the-counter testing products, point-of-care instru-
lower their prices. Some states, such as New York, New mentation used by nonlaboratory providers, and disease
Jersey, Michigan, and Rhode Island, prohibit physicians management programs run by pharmaceutical companies
from marking up laboratory charges when billing nonfed- that incorporate laboratory testing have the potential to
eral insurance programs. In states that do not have these alter the configuration of the laboratory industry. Cur-
restrictions, laboratory charges to physicians for patients rently, most clinical laboratory testing is categorized as
enrolled in non-Medicare programs tend to be lower and high or moderate complexity and thereby subject to exten-
are then typically marked up by the physician before bill- sive regulation under CLIA, which makes it unsuitable for
ing an insurer. displacement by over-the-counter or small-office testing.
This situation may change rapidly as manufacturers ex-
Powerful Sellers and Buyers ploit new technologies to create reliable, low-cost analytic
Powerful sellers of analytical equipment do not generally test platforms that the FDA classifies as waived.
trouble the laboratory industry. Large purchasing coopera-
tives have enabled clinical laboratories to impose competi- Unique Economics of Inpatient Care
tive pressures on the manufacturers of testing equipment For most inpatient care, laboratory testing is not a sepa-
and reagents. There are a number of providers of laboratory rate reimbursable service. More than 80% of inpatient
information systems that compete on the basis of price, care is reimbursed on a per diem basis or on the basis of
support, stability, and functionality. In a few instances, diagnosis-related groups. As a result, inpatient laboratories
however, specialized vendors of specific tests have strate- are inextricably tethered to the providers of inpatient care,
gically positioned their products with consumers (Cytyc’s most of which have elected to own and manage their inpa-
positioning of liquid-based cytopathology tests) or with tient testing operations. If a hospital-based laboratory does
clinicians (Athena Diagnostics’ positioning of neurologi- not have an outreach testing program, it will invariably fol-
cal tests) to blunt competitive pressure and increase costs low the strategic direction set by its parent institution.
to purchasers. Myriad Genetics holds a patent that gives it
a dominant position in testing for genetic predisposition Conclusions
to breast cancer. Another powerful seller to the laboratory The structural elements of the laboratory industry are gird-
industry is the American Red Cross, which dominates the ers that impose a rough shape on any laboratory business
blood supply in most American communities. As a result of strategy. To develop a unique strategy for a particular labo-
American Red Cross market power, coupled with increased ratory, the strategist must work within these constraints.
requirements for testing, blood and blood products have This is most often accomplished by studying the strengths
been the fastest growing expense for hospital-based labo- and weaknesses of the firm’s closest competitors.
ratories (15). Prices for blood products in markets where
American Red Cross facilities compete with community
blood centers are significantly lower than in markets in Competitor Analysis
which the American Red Cross is the sole supplier. The objective of a competitor analysis is to predict com-
The laboratory industry experiences significant pres- petitors’ behavior, both when the competitors are left to
sure from powerful buyers, which the industry refers to as their own devices and in response to the moves of rivals.
“payors.” Medicare, the federal government’s largest health The strategy, position, and capabilities of competitors may
insurance program, makes up approximately 20% of the limit a firm’s opportunities for growth in some areas while
clinical laboratory market by volume. In most communi- simultaneously suggesting other areas in which a firm
ties, Blue Cross/Blue Shield and two or three other insur- might expand with little challenge.
ers dominate the remainder of the market. These buyers Popular back-of-the-envelope competitor analysis relies
profoundly shape the clinical laboratory industry through on a procedure referred to as a “SWOT” analysis, an acro-
imposition of (i) fee screens that place upper bounds on nym that describes an assessment of an organization’s own
effective industry pricing, (ii) claims edits that place limits strengths and weaknesses and external opportunities and
on the frequency or clinical setting in which services can threats. This procedure begins with an inward examina-
be ordered and the manner in which tests can be billed, tion of an organization’s capabilities and ends with an out-
(iii) requirements that laboratories offer broad geographic ward examination of rivals (Fig. 31.1). Through a SWOT
service before they become eligible for exclusive testing analysis a manager may discover opportunities for market
arrangements, and (iv) turnaround time or result report- expansion or repositioning or identify areas in which a
ing requirements. firm is vulnerable. Appendix 31.2 provides a hypothetical
 CHAPTER 31. STRATEGIC PLANNING 579

Favorable Unfavorable Competitors’ Assumptions

Organizations operate with assumptions about their in-
Strengths Weaknesses dustry and their place within the industry. One labora-
Internal

tory’s managers might believe (correctly or incorrectly)

that the laboratory enjoys greater physician loyalty than
its rivals. Another laboratory manager might believe (cor-
rectly or incorrectly) that the testing industry will rapidly
integrate genomic testing to the exclusion of more tradi-
tional microbiological assays. These assumptions will gov-
Opportunities Threats ern competitors’ behavior. When rivals’ assumptions are
External

incorrect, they create business opportunities. A laboratory

that overestimates its customer loyalty will be vulnerable
to discounts or incentives. A laboratory that overestimates
the importance of offering broad geographic access to
managed-care plans may lose business in a regional mar-
ket in which a smaller rival has partnered with a physician
Figure 31.1 SWOT analysis. doi:10.1128/9781555817282.ch31.f1
group or a group of hospitals.

example of the sort of competitive information that the Competitors’ Capabilities

manager of a laboratory might receive about rivals during The strengths and weaknesses of a firm determine its abil-
the normal course of business. Interested readers are en- ity to meet its goals. A weak rival is unlikely to represent
couraged to reorganize this information in the form of a a competitive threat even if its goals overlap with goals of
SWOT analysis. one’s own enterprise. An assessment of a rival laboratory’s
In the academic business literature, competitor analysis is strengths and weaknesses includes a study of its testing
a sophisticated process in which the future goals, assump- menu and other services it provides clients, the number
tions, and capabilities of competitors are analyzed with the and loyalty of physician and institutional customers, mar-
aim of predicting a competitor’s response profile (11). A fully keting capabilities, operational skills (diagnostic speed and
developed competitor analysis is beyond the means of most accuracy, specimen logistics, and informatics), patents and
clinical laboratories, which are generally too small to con- proprietary research to which the rival has access, cost struc-
duct extensive systematic research about rivals. The follow- ture, financial strength (cash flow and access to capital),
ing assessments are included in a formal competitor analysis. and organizational strength (reputation, clarity of purpose,
management talent, and special structural characteristics
Competitors’ Goals that might make it subject to different regulatory pressures).
What are the business objectives of major competitors and
potential competitors? Is the company most interested in Interactions of Competitors
generating returns on investment or sales growth? Is short- In a market operating with what economists term perfect
run or long-run performance most important? What in- competition, the actions of one producer do not influence
centive systems are used for management and sales? Does the actions of other producers. If one farmer stops growing
the competitor have noneconomic values that form part corn, the price of corn does not rise. However, in the clini-
of its culture and that help determine how it will behave? cal laboratory industry, which has significant barriers to
If the competitor is a business unit of a larger company, entry and relatively few direct competitors in a given com-
how important is the unit to the overall company strategy? munity, the actions of one party are likely to precipitate
Most hospital-based laboratories are part of not-for-profit reactions from rivals. Competitive situations in which ac-
hospital companies that have a distinctive culture. Em- tions precipitate reactions are described by game theory, a
phasis is often placed on fulfilling a noneconomic social branch of mathematics pioneered by John von Neumann,
mission for which laboratory success is tangential. Volume Oskar Morgenstern, and John Nash. The theoretical and
of medical center activity is often expressed in “adjusted economic underpinnings of game theory are complex and
discharges”—a unit of activity that reflects the historical beyond the scope of this chapter. However, the wise busi-
importance of inpatient care and the secondary consider- ness strategist will consider likely reactions of rivals before
ation of outpatient and outreach efforts. From these two making a change in the marketplace. Every move in busi-
observations, it can be predicted that most hospital com- ness has the potential to shift the competitive equilibrium.
panies will not vigorously defend outpatient laboratory Armed with an understanding of a rival’s goals, attitudes
operations that are under attack by competitors. toward risk, and historic behavior, a strategist may be able
580 FINANCIAL MANAGEMENT

to predict his or her rivals’ responses to moves the firm style but lack resources. Ikea offers services that appeal to
might make. For example, if a competitor has recently re- its target demographic, such as in-store childcare and ex-
moved a phlebotomist from one of its client’s offices, what tended hours. Costs are kept low by requiring customers to
will be the competitor’s reaction to your placing a phlebot- deliver and assemble their own furniture, a trade-off that
omist in the office to woo the client? Will the competitor the target customer is willing to make.
retaliate by scrapping a joint venture with your laboratory,
or will the competitor’s loss of volume from the client be Access-based positioning. Access-based positions arise
the straw that breaks its back in a local market and cause when different groups of customers must be accessed in
it to exit? different ways. These differences may be due to geogra-
phy or differences in the size of the customer pool. Car-
Conclusions mike Cinemas targets customers in rural communities and
An understanding of a laboratory’s and its competitors’ as- small towns and has organized its operations around the
pirations and capabilities prepares the strategist to identify constraints and demands of this market.
the distinctive needs or customer groups that the organiza-
tion can satisfy better than its competitors. Defining these Cost-based positioning. Competitors with lower produc-
groups and needs is the subject of the next section. tion costs may be able to profit at market prices that leave
other providers without earnings. As of this writing, Acer,
Strategic Positions in the a manufacturer of computers and other electronic devices,
Laboratory Industry has lower production costs than its competitors and has
lowered industry pricing to a level that allows it to profit
What Are Strategic Positions? while other firms are forced to exit the industry.
The term “strategic position” refers to an organization’s
commitment to serve many needs of a specific group of Product differentiation–based positioning. Some produc-
customers or the specific needs of many customers. This ers, through marketing or other distinctive attributes, are
section will describe generic types of strategic positions able to convince purchasers that their product is superior
common in many industries and will then enumerate to their competitors’ and thereby command a price pre-
particular positions held within the clinical laboratory in- mium. It can be argued that the Mayo Clinic enjoys this
dustry. The list of strategic positions that appears in this position in the market for certain elective clinical proce-
section is not exhaustive and should not discourage the dures. As with most firms that differentiate their product
development of creative new positions. In a competitive to obtain a price premium, the Mayo Clinic does not com-
environment, the best strategic positions are often those mand a large share of the market for its hospital services.
that are off rivals’ radar screens.

Types of Strategic Positions Strategic Positions of Clinical Laboratories

There is no single taxonomy of strategic positions. Porter Diagnostic laboratories have sought a number of distin-
has identified several types of strategic positions that suc- guishable market positions to differentiate themselves
cessful organizations may develop (10, 11). Implicit in his from rivals and defend their operations from competition
discussion is the tenet that a single company cannot be all (Table 31.4).
things to all people. Strategy involves choices and trade-offs.
Outpatient-centered testing. Several laboratories with
Variety-based positioning. Companies that offer only a national scope have organized themselves primarily to
single or narrow scope of service and perform the service serve the testing needs of physicians operating in offices.
exceptionally well or inexpensively demonstrate variety- These companies compete vigorously for exclusive man-
based positioning. For example, Jiffy Lube International aged-care contracts that allow them to become a “one-
has chosen to offer only automotive lubrication services stop shop” for the office practitioner who treats patients
and does not perform automobile repair or general main- enrolled in a variety of insurance products. The large size
tenance. The company has been organized to offer faster of these companies allows testing costs to remain low and
service at lower costs than rivals that offer a broader spec- permits profitability despite the low payment levels offered
trum of services. by managed-care organizations. An extensive courier sys-
tem and a sophisticated billing system that can handle the
Group-based positioning. When groups of customers insurance requirements of different payors reinforce these
have different needs, a firm can elect to serve many needs companies’ strategic positions. These companies are also
of a defined demographic group. Ikea has been organized well positioned to offer electronic medical records (EMRs)
to meet the furniture needs of young families who seek and EMR interfaces to practitioners.
 CHAPTER 31. STRATEGIC PLANNING 581

Table 31.4 Sample strategic positions in the laboratory industry specialized diagnostic skills required by a subset of labora-
Outpatient-centered testing tory purchasers. These organizations typify variety-based
Exclusive contracts with multiple insurers positioning; they may offer unique reporting formats ap-
Large volume to contain costs propriate to their customers, such as provision of reports
Blood collection and specimen pickup
to urologists that include serial prostate-specific antigen
Reference-centered testing
graphs alongside prostate biopsy reports.
Specialized and esoteric tests
Specimen logistics
Professional support for referring laboratories Community-centered testing. A number of in-hospital
Hospital-centered testing testing operations have expanded into the community
Support for inpatients and intensive care outpatient market, serving a defined medical staff that
Participation in hospital planning committees sees patients in both the hospital and outpatient settings.
Discipline-centered testing These laboratories maintain tight connections with local
Niche markets serving a particular subspecialty
physicians and often allow seamless access to old test re-
Customized reports for specialists
sults as patients move through the healthcare continuum.
Community-centered testing
Outreach by hospital laboratories to physicians on medical staff In one variant of this model, a for-profit company provid-
Multihospital core laboratory ing management expertise and capital enters into a joint
Centralization of routine testing by laboratories of a multihospital venture with a not-for-profit hospital or local pathologists
system to provide community testing services.
Co-tenancy
Shared ownership of esoteric laboratory by a group of hospitals Multihospital core laboratory. Innovative hospital systems
Purchasing and contracting consortia have created core laboratories where routine testing from
several hospitals is performed. Outpatient testing from
each of the participating hospitals or from a separate com-
Reference-centered testing. A handful of laboratories bined outreach operation is also processed within the core
provide reference testing that smaller hospital-based or laboratory. This strategic position drives large volumes of
regional laboratories cannot economically perform on testing into the core laboratory, lowering costs beyond lev-
their own. Successful competitors in this market manage els that can be achieved in many other configurations. The
complex shipping logistics, typically by air, and provide large test volume permits the economical introduction of
electronic interfaces to referring laboratories’ information robotic equipment to handle repetitive testing and trans-
systems. Professional support is provided to the staff of re- port tasks. Rapid response laboratories remain in hospitals
ferring laboratories who are unsure which test to order or to serve the urgent testing needs of hospital patients.
how to interpret results. Specialized software allows refer-
ring institutions to track the status of orders. Cotenancy. The author is involved in an operation in
which a group of not-for-profit hospitals collectively own
Hospital-centered testing. Many laboratories have staked esoteric testing services as tenants-in-common. This oper-
out strategic positions serving a hospital’s core patient ation amounts to a shared cost center and provides hospi-
population—inpatients, ambulatory surgery patients, and tal laboratories with governance control, pricing flexibility,
emergency department patients. These operations are de- and a cost structure that cannot be acquired from many
signed to provide rapid turnaround time appropriate to reference-centered laboratories (12).
high-intensity patients. Laboratory representatives serve
on hospital patient care committees and are attuned to the Purchasing and contracting consortia. Purchasing and
special coordination and communication needs of this de- contracting cooperatives have evolved to provide clinical
manding patient population. The emergence of in-office laboratories with more favorable relations with suppliers
laboratories, particularly in anatomic pathology, repre- and payors. Although not performing testing themselves,
sents a variation on the hospital-centered model, with such purchasing consortia allow testing laboratories to obtain
laboratories confining their reach to patients seen in the favorable pricing on analytical instruments and supplies.
office of a group practice. Contracting consortia allow testing laboratories to com-
pete collectively for managed care contracts that require a
Discipline-centered testing. Specialized clinical laborato- geographic scope of service that individual members can-
ries have evolved to meet the particular needs of physi- not offer on their own. In the author’s state of Michigan,
cians within one medical specialty or the needs of one type Joint Venture Hospital Laboratories has allowed hospital-
of commercial concern. Dermatopathology laboratories, owned laboratories to acquire exclusive laboratory con-
forensic testing laboratories, pharmaceutical trial testing tracts for major health maintenance organization (HMO)
facilities, and urological pathology laboratories provide insurers in the state (12).
582 FINANCIAL MANAGEMENT

Conclusions upon, we might also consider the many markets that South-
The design of a business strategy is fundamentally the pro- west has skipped over to maintain its strategic position. A
cess of identifying a strategic position for an organization, traveler who wishes to fly first class will not choose South-
informed by the underlying structure of the industry and west. There are many cities that Southwest does not serve,
knowledge of an organization’s and its competitor’s capa- and travelers who fly to these cities will select other airlines.
bilities and proclivities. From the brief preceding discus- Travelers who prefer to use travel agents will use other car-
sion, the reader will appreciate that clinical laboratories riers. Southwest’s success in one arena excludes the airline
have developed a wide variety of strategic positions to dif- from many other markets. Yet Southwest earns a return its
ferentiate themselves in the market. larger rivals envy.
We now turn our attention to implementing a business Most hospital-based laboratories focus their activities
strategy. Sadly, managers too often content themselves around a small group of local physicians with whom they
with design and never move on to implementation. It is maintain close relationships. These laboratories strive to
during implementation that strategy collides with opera- meet the broad testing needs of a narrow group of clients.
tions and difficult trade-offs must be made. Activities that fit with this strategy may be found in other
departments of a hospital, which may be marketing radi-
ology, cardiology, and other services to the same group of
community physicians. The hospital-based laboratory that
Implementing the Strategy: Activity Fit wishes to maintain its competitive advantage will look to
What Is Activity Fit? other hospital departments for activities that reinforce its
Academicians who study businesses with robust strategies strategic position. For example, community physicians
emphasize the importance of interlocking and reinforcing might be offered convenient electronic access to the hospi-
business processes that sustain the strategy. The activities tal’s entire clinical data repository, which will contain radi-
of a company with a successful strategy must fit with one ology and consultation reports as well as laboratory results.
another and reinforce the strategy. Alternatively, a local laboratory and physician group can
For example, Southwest Airlines limits itself to short-haul, bid together for a managed-care contract that includes both
point-to-point flights between midsized cities and secondary physician and laboratory services. These activities would fit
airports. This activity frees the company from having to co- well with other activities that strengthen a hospital-based
ordinate connections between flights or to transfer baggage laboratory’s ties with community physicians.
between planes, which in turn reinforces another Southwest However, the fit of activities that optimizes a labora-
activity—15-minute gate turnaround of aircraft. The short tory’s value to community physicians may not be suited to
gate turnaround time achieved by Southwest reinforces yet other strategic positions. Electronic access to a local hos-
another activity—more frequent and more reliable depar- pital’s clinical data repository would not serve a laboratory
tures. All of these activities—point-to-point flights, rapid seeking to service a statewide commercial contract, the
gate turnaround, and more frequent departures—allow the reference testing market, a geographically dispersed group
airline to maintain a lower cost structure and reinforce its of dermatologists, or businesses in need of forensic drug
market position as the low-cost airline. Low ticket prices lead testing. From a strategic perspective, the hospital-based
to higher demand, which increases the airline’s load factor laboratory that markets a broad bundle of services to lo-
(percentage of occupied seats) and supports its ability to offer cal physicians should pass up the opportunity to market
more frequent departures. a more narrow set of services over a broad geographic ex-
The operational activities of Southwest Airlines rein- panse because a different set of interlocking activities will
force one another and make its business model more re- be required.
sistant to competitive pressure. A competitor that copies
only one of Southwest’s business activities will not be able
to emulate the whole. In Porter’s view, “fit locks out com- Failure of Strategy
petitors by creating a chain that is as strong as its strongest The best-laid strategy may fall short through bad luck or
link” (10). Milgrom and Roberts have studied successful external developments that no strategist could reasonably
manufacturers and found that they too use complemen- foresee. Business authors, however, have identified four
tary manufacturing and inventory processes to defend types of preventable errors (described in the following sec-
their market positions (6, 7). tions) that account for the majority of strategic failures.

Activity Fit Involves Trade-Offs Straddling

A commitment to reinforcing business activities that sustain The term “straddling” describes an attempt to hold several
competitive advantage requires trade-offs. While the suc- strategic positions at once. This failure to focus has also
cesses of Southwest Airlines have been widely commented been called “mission creep” and “stuck in the middle.”
 CHAPTER 31. STRATEGIC PLANNING 583

The business consequences of straddling may be severe. in the managed-care market on their own. A few hospital-
Continental Airlines attempted to emulate some of South- centered laboratories have added expensive forensic or
west’s business practices by offering point-to-point service molecular testing operations without acquiring the distri-
with frequent departures, low pricing, and short gate turn- bution channels and client services, billing, and logistics
around. It maintained its position as a full-service airline, infrastructure that are necessary to support these services.
however, using travel agents to book flights and assign These operations will also fail.
seats, operating with a mixed fleet of aircraft, and allowing Authors who study strategy advocate that firms seek
interflight baggage checking. The results were severe: late deep penetration of markets in which they already have a
flights and lost baggage generated several thousand com- distinctive presence, rather than “slugging it out in poten-
plaints per day. Payment of commissions to travel agents tially higher growth areas where a company lacks unique-
prevented the airline from competing on price. Ultimately, ness” (10). Henderson points out that “chasing market share
the new service was withdrawn. is almost as productive as chasing the pot of gold at the end
Other examples of straddling may be found closer to of the rainbow. You can never get there. . . . If you are in
the laboratory industry. Premier, a large purchasing co- business, you already have 100% of your own market” (3).
operative for hospitals, developed a number of strategic
partnerships with suppliers of goods and services. The Profitability Trap
perception of conflict of interest has resulted in nega- Clayton Christensen has documented the difficulties ex-
tive publicity for Premier and pushback from its hospital perienced by some competitors that focused on their most
owners, significantly reducing Premier’s size and market profitable (and typically most demanding) customer seg-
power (16). Quest Diagnostics has attempted on a number ments (2). Successful firms have a tendency to embrace
of occasions to manage hospital-based laboratories, but in the value system of profitable customers and seek to add
this author’s opinion the difficulty of straddling between features to products and services that will appeal to this
operations suited for the commercial market and those segment. Christensen has documented that these firms
required for hospital-based operations has resulted in the sometimes ignore what appear to be inferior technolo-
abandonment of several joint ventures between Quest and gies that are only attractive to less profitable customer
hospitals. The adoption of Internet laboratory portals by segments. As the inferior technology improves, however,
many community-based laboratories may represent an- it moves “upstream” in the value chain and becomes at-
other case of straddling. Laboratory portals that do not tractive to more customers, eventually disrupting entire
include radiology and other ancillary results represent a industries such as the makers of 8-inch high-capacity disk
better strategic fit for a company that offers only labora- drivers or owners of large steel mills.
tory services. It is not difficult to imagine the disruptive potential of
Although many examples of straddling are readily iden- miniaturized, portable microbiology testing instruments
tified in retrospect after a venture has failed, it should be that exploit nanotechnology, microfluidics, and molecu-
noted that straddling may not be easy to recognize in its lar diagnostic techniques. High testing costs and a lim-
early stages. The concept of leveraging existing competen- ited spectrum of target organisms might initially confine
cies and current market position to enlarge a business is an such instruments to low-profitability, low-volume settings
accepted competitive practice. Where leveraging ends and where turnaround time and portability are particularly
straddling begins can be difficult to determine. This di- valuable (such as in detecting group B streptococci imme-
lemma is familiar to anyone who has attempted to rapidly diately before delivery). As the technology improves, the
cross a river by stepping on rocks spaced some distance convenience and speed become combined with a lower
apart. How far is too far may be clear only in hindsight. price point and larger repertoire of detectable organisms,
eventually displacing much of the work currently per-
Growth Trap formed by traditional microbiology laboratories.
An overemphasis on growth can cause an organization to It is extremely difficult for a company to embrace a dis-
lose its competitive advantage. The unfocused pursuit of ruptive technology before the technology appeals to the
growth causes managers to add features and services with- company’s most profitable customer segments. The strate-
out first considering whether they fit with a firm’s exist- gic implications of this vulnerability are obvious.
ing strategy and set of competencies. Often, new types of
customers are pursued when an organization has little dis- Hubris
tinctive ability to serve the new customers. In the testing Because strategic initiatives are a deliberate perturbation
industry, the occasional community-centered laboratory of the competitive equilibrium and because strategic dis-
has attempted to acquire managed-care contracts on its cipline requires explicit trade-offs that must permeate an
own without partnering with other laboratories or other organization, strategy is best championed by confident
providers. These facilities have little chance of succeeding high-visibility leaders with the ability to persevere amid
584 FINANCIAL MANAGEMENT

distractions. Excessive confidence, however, may also pursuit of growth. Failure may be due to excessive focus on
undermine disciplined analysis and result in a loss of fo- the needs of the most demanding customer segments or to
cus. There is evidence that corporate acquisitions that are leadership hubris.
preceded by favorable business press about the acquiring In the clinical laboratory industry, a number of distinc-
company’s chief executive officer are less likely to be suc- tive strategic positions are identifiable. These positions
cessful than acquisitions made in a publicity vacuum (5). allow focused laboratories to maintain a competitive ad-
Accordingly, hubris must be added to our short list of rea- vantage over rivals in a segment of the testing industry the
sons that strategies frequently fail. laboratory claims as its own, while ceding the rest of the
market to other competitors.
Summary
KEY POINTS
Business strategy is about equipping an organization to
■ Business strategy is about equipping an organization to
thrive in a competitive market. In competitive markets,
producers tend to emulate one another until their products thrive in a competitive market. Strategy is distinct from
and services become indistinguishable. This process of the pursuit of organizational efficiency. Both produce
commoditization benefits consumers through lower costs competitive advantage, but neither stands on its own.
and higher quality but minimizes profits for producers. ■ Strategy requires that an organization pursue a defined
Strategy represents a deliberate effort to resist com- strategic position, focusing on meeting many needs of a
moditization and maintain an organization’s competi- particular set of customers or particular needs of many
tive advantage by defending a distinctive position in the customers. In the clinical laboratory industry, labora-
market. A successful strategy is a creative approach that tory competitors have staked out several distinguish-
is shaped by the particular industry in which an organiza- able strategic positions.
tion operates and the particular competitors it faces in the ■ The differences between an organization and its rivals
marketplace. are the source of an organization’s competitive advan-
Business strategy complements but is different from op- tage and the basis of its strategy. Emulating rivals usu-
erational efficiency. Both produce competitive advantage. ally weakens an organization’s competitiveness.
Many authors believe, however, that strategy is more likely ■ Strategy requires trade-offs. Organizations are not well
to produce sustained competitive advantage than opera- served by pursuing several strategic positions concur-
tional effectiveness, because rivals can more easily emulate rently or by adopting capabilities that are not central to
operational improvements than good business strategy. maintaining the organization’s strategic position.
Business strategy is informed by an understanding of
■ An effective strategy is maintained by interlocking busi-
the structure of the industry in which an organization
competes. It is further advanced by a competitor analy- ness capabilities that reinforce an organization’s market
sis in which the capabilities and proclivities of individual position and that are collectively difficult to emulate. If
competitors are analyzed. An essential element of business rivals copy only one or two of these capabilities, they
strategy is the selection of a strategic position that defines will still remain at a competitive disadvantage.
the particular customers or needs that an organization
seeks to serve. Finally, a strategy is maintained by the im-
plementation of interlocking activities that drive the com- GLOSSARY
pany toward its strategic position and that are collectively Activity fit Interlocking and reinforcing business practices that
difficult to emulate. define and defend a strategic position.
There is no consensus about how good strategies origi- Commoditization The process by which a product provided
nate. Some argue for a defined strategic planning process by one firm becomes indistinguishable from products provided by
in which a formal, written strategic plan is developed fol- other firms.
lowing input from a variety of stakeholders. Others believe Competitive advantage Qualities that allow a firm to outper-
that the creative insight of a small group of individuals is form its rivals consistently.
more likely to produce a successful strategy. Thus, ideas
Competitor analysis Assessment of the capabilities, goals, as-
about how to best undertake strategic planning are var-
sumptions, and strategies of competitors, with the aim of pre-
ied and debated, even though the importance of a well- dicting competitor behavior.
articulated strategy is widely recognized.
Strategies commonly fail because organizations lose Economy of scale The reduction in the cost to produce a unit of
their focus and attempt to emulate competitors. This may product when the level of production increases.
be due to straddling—an attempt to assume several stra- Straddling The attempt to execute several distinct business
tegic positions concurrently—or due to the unbridled strategies or to hold several strategic positions at once.
 CHAPTER 31. STRATEGIC PLANNING 585

Strategic planning An organized process for developing a busi- 6. Milgrom, P., and J. Roberts. 1991. The economics of modern
ness strategy. manufacturing: technology, strategy, and organization. Am. Econ.
Rev. 80:511–528.
Strategic position Serving a particular set of customers or meet-
ing a defined set of needs, usually in a manner that is unique. 7. Milgrom, P., and J. Roberts. 1995. Complementarities and fit:
strategies, structure, and organizational changes in manufacturing.
Strategy Quest for sustainable competitive advantage by means J. Accounting Econ. 19:178–208.
of analysis of industry structure and competitors, identification
8. Porter, M. E. 1979. How competitive forces shape strategy. Harv.
of a strategic position, and adoption of business practices that
Bus. Rev. March–April:2–10.
defend that position.
9. Porter, M. E. 1987. From competitive advantage to corporate
SWOT An abbreviated strategic analysis that is based on assess- strategy. Harv. Bus. Rev. March–April:117–150.
ment of an organization’s own strengths and weaknesses and ex-
10. Porter, M. E. 1996. What is strategy? Harv. Bus. Rev. Nov.–Dec.:
ternal opportunities and threats.
61–78.
11. Porter, M. E. 1998. Competitive Strategy: Techniques for Analyz-
REFERENCES ing Industry and Competitors. The Free Press, New York, NY.
1. Campbell, A., and M. Alexander. 1987. What’s wrong with strat- 12. Smart, J. 2002. Hospitals in Michigan build unique shared labo-
egy? Harv. Bus. Rev. Nov.–Dec.:42–51. ratory. Dark Rep. Oct. 28:1–6.
2. Christensen, C. 1997. The Innovator’s Dilemma: The Revolution- 13. Teisberg, E. O., M. E. Porter, and G. B. Brown. 1994. Making
ary Book that Will Change the Way You Do Business. Harvard Busi- competition in health care work. Harv. Bus. Rev. 72(42):131–141.
ness Press, Cambridge, MA. 14. Terry M. (ed). 2010. Lab Industry Analysis 2010: Test Volumes,
3. Henderson, B. 1989. The origin of strategy. Harv. Bus. Rev. Revenues, and Category Leaders. Washington G-2 Reports, Peterbor-
Nov.–Dec.:139–143. ough, NH.
4. Kim, W. C., and R. A. Maugorgne. 2002. Charting your com- 15. Valenstein, P., A. Praestgaard, and R. Lepoff. 2001. Six year
pany’s future. Harv. Bus. Rev. June:76–83. trends in expense, productivity, and utilization of seventy-three
5. Malmendier, U., and G. A. Tate. 2008. Superstar CEOS. NBER clinical laboratories. Arch. Pathol. Lab. Med. 125:1153–1161.
working paper no. w14140. http://ssrn.com/abstract;eq1152681 (last 16. Walsh, M. W. 2002. More hospitals change the way they buy
accessed September 14, 2012). drugs and supplies. The New York Times. December 28.
586 FINANCIAL MANAGEMENT

APPENDIX 31.1 Websitesa

Alliance for Nonprofit Management College of American Pathologists

http://www.allianceonline.org/ http://www.cap.org/
The alliance is the professional association of organizations devoted The College of American Pathologists Laboratory Accreditation
to improving the management of nonprofit organizations. Their Program represents the largest laboratory accreditation program
website provides links to strategic planning resources. approved under the Clinical Laboratory Improvement Amend-
ments. The CAP program and its standards for accreditation are
Centers for Medicaid and Medicare Services
contained in the CAP website. A complete list of accrediting orga-
http://www.cms.gov nizations approved under CLIA can be found at http://www.cms
This division of the U.S. Department of Health and Human Services .gov/Regulations-and-Guidance/Legislation/CLIA/index.html.
maintains an extensive website that provides information about reg-
ulations pertinent to the laboratory industry. These regulations Securities and Exchange Commission
shape the competitive landscape and limit the strategic options of http://www.sec.gov/
competitors. This website provides access to the EDGAR database of company fil-
ings. Quarterly and annual statements of publicly traded laboratory
a
Last accessed September 14, 2012. companies discuss company strategy and financial performance.
 CHAPTER 31. STRATEGIC PLANNING 587

APPENDIX 31.2 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)

To illustrate SWOT analysis in practice, the current position of hospital-operated billing system. This system does not handle
a hypothetical but fairly characteristic clinical laboratory will be front-end advanced beneficiary notice and medical necessity
discussed (Lab A), along with its major competitors. This illus- checking and does not offer flexible pricing schedules that would
tration contains the typical snippets and fragments of informa- allow the laboratory to match competitors’ pricing. The hos-
tion that all managers receive about their competitors and their pital does not participate in TrueCare, the second largest pre-
own operations during the normal course of conducting busi- ferred provider organization in the state; when physicians send
ness. As an exercise, the reader is encouraged to extract essential their TrueCare patients to the laboratory, the patients are billed
competitive information from the narrative that follows and to directly, which disturbs many referring physicians. Although
list strengths, weaknesses, opportunities, and threats in a 2 × 2 the hospital participates in the state’s largest HMO, BlueChoice,
SWOT table of the form illustrated in Fig. 31.1. the HMO has carved out laboratory services to a commercial
laboratory that offers statewide coverage. The local chapter of
INTERNAL ASSESSMENT the American Red Cross increased the cost of blood products
Lab A processes 700,000 billable tests per year and is located in a by 18% two months ago, after the laboratory’s expense budget
not-for-profit hospital in a metropolitan area of 300,000 people. was approved. As a result the laboratory will exceed its budget,
The organization has an active outreach program that accounts which means that laboratory management will not be able to fill
for 50% of its total test volume. the open phlebotomy position in the physician office building
or purchase a blood irradiator. Because of declining professional
Strengths reimbursement, the pathology group affiliated with Lab A has
Lab A employs managers who enjoy personal relations with decided to operate its own anatomic pathology laboratory for
managers in other hospital departments. The pathologists affili- nonhospital patients. Lab A’s marketing director was told by four
ated with Lab A are members of the local hospital medical staff busy pulmonologists in the neighboring community that they
and market to their colleagues, many (but not all) of whom are will not use Lab A because the hospital that owns Lab A cancelled
the laboratory’s outreach customers. A recent hospital-sponsored their contract to provide intensivist services to the intensive care
satisfaction survey demonstrated a moderately high level of sat- unit. The hospital’s chief operating officer has indicated that the
isfaction with laboratory services—86% of physicians and nurses hospital’s big push for the new fiscal year will be strengthening
considered Lab A performance to be “highly satisfactory” or the hospital’s cardiovascular surgery program; he wants the labo-
“excellent.” Lab A staff are well represented on hospital commit- ratory to open a phlebotomy site in the new ambulatory heart
tees and are aware of other departments’ needs for special testing center, even though projected demand for laboratory tests at this
services (rapid myocardial infarction testing in the emergency site will be low.
department and intensive care units, for example). Lab A trans-
mits test results to a hospital clinical information system that is EXTERNAL ASSESSMENT
used to treat inpatients. Many of the laboratory’s customers are An external assessment begins with the identification of specific
located in a physician office building constructed by the hospital, rivals that compete with the organization for business. In this ex-
in which the laboratory has placed a convenient blood drawing ample, we will limit our external assessment to two hypothetical
station. The hospital is contemplating the construction of a sec- rivals—a large commercial laboratory that operates in the same
ond office building that may bring in more business. The labora- community as our hospital laboratory (OmniLab) and a second
tory contracts with reliable outside couriers to serve members of hospital laboratory that is part of a seven-hospital system in the
the medical staff with nearby offices. The analytical equipment process of building a core laboratory (Lab B).
in chemistry and hematology is used for both inpatient test-
ing (which is run mostly during the day shift) and outpatient Opportunities
testing (which is run mostly during the afternoon shift), which Word-of-mouth indicates that Lab B is likely to be spending sig-
lowers fixed costs. Patients who lack insurance and financial nificant effort during the next two years planning its core labora-
resources are eligible for the hospital’s charitable care program, tory and installing a robotic system to reduce costs. Lab B has left
which absorbs the expenses of laboratory testing. its outpatient marketing director position open while it recruits a
new manager for its laboratory information and robotics system.
Weaknesses Lab B has also pulled a phlebotomist from a physician client’s
Because Lab A does not operate its own courier service, it has office. The physician is now offering to change to any laboratory
difficulty adding courier routes on short notice. Compared to that provides him with a phlebotomist. Lab B is part of a con-
commercial laboratories, the relatively small size of Lab A leads sortium that is bidding for the BlueChoice laboratory contract
to higher testing costs. During the evenings, when outreach lab- in the next calendar year. There may be an opportunity for Lab
oratory work arrives, stat testing from the intensive care units A to join this consortium. OmniLab recently closed a phlebot-
sometimes interferes with workflow. Although the laboratory omy station in the community, presumably due to slack demand.
has its own information system, all billing is done through a Wages paid by OmniLab are below those paid by Lab A, and two
(continued)
588 FINANCIAL MANAGEMENT

APPENDIX 31.2 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) (continued)

technologists were recently lured away from the competition’s test- in TrueCare and therefore has access to patients who cannot be
ing center 30 miles away. There are rumors that OmniLab’s testing served by Lab A. OmniLab recently interfaced its computer sys-
center may be closed, which will mean that OmniLab will have tem with the practice management system used by a group of five
to transport specimens to its next nearest testing site, across the family practitioners; office staff no longer have to copy insur-
state border. ance information onto test requisitions and can have advanced
beneficiary notices printed automatically at the time of ordering.
Threats The practice’s office manager is telling other family practitioners
Lab B has hired two dermatopathologists and appears to have a in the community about the labor she hopes to save. In addition,
stranglehold on dermatology biopsies in the community. Hospi- OmniLab has started making test results available to physicians
tal administrators overseeing Lab B wish to partner with a labo- and patients over the Internet. A group of gastroenterologists
ratory management company that has significant interest and who are important clients of Lab A want to know why Lab A
experience in the outreach business, a prospect that would in- cannot offer the proprietary ultrasensitive quantitative hepatitis
crease competitive pressure in the local market. Lab B participates C test that OmniLab offers.
Introduction
32
Constraints on Managerial Function
Human Resources at the
The Cardinal Rules for Optimizing
Performance
Local Level: An Important
Get It Right at the Outset • Expect Cooperative
Behavior and Best Possible Performance • Lead by
Example • Involve All Members of the Team •
Component of Financial
Perceived Fairness Is More Important than Rigid
Equality • Maintain Communication in All Management†
Directions • Keep Your Eyes and Ears Open • Act
Quickly and Decisively • When Problems Surface,
Involve the Laboratory Manager Immediately;  Washington C. Winn, Jr., Fred Westenfeld, and
Involve Human Resources as Appropriate
Classic Situations that May Interfere
Michael R. Lewis
with Optimal Performance
The Underperforming Employee • The
Overperforming Employee • The Intrusion of OBJECTIVES
Personal Issues • The Underground Troublemaker •
The Cabal • Weakness at the Top To establish the importance of managing personnel resources effectively at the
Practical Issues in Utilization of individual unit level as well as at the institutional level
Personnel Resources To review the constraints on the ability of a manager to lead his or her crew
Skill Mix of Personnel • Cross-Training and optimally
Rotation • Mix of Employment Arrangements •
Coverage of Vacations, Holidays, and Routine To review some important tools for getting the most out of employees
Shifts • Use of Overtime To consider some of the classic problems that may face a unit manager
Summary
To provide some specific examples of ways that a manager may get the biggest
KEY POINTS return from the investment in personnel resources that the institution has made
GLOSSARY
REFERENCES
If my boss calls, be sure to get his name.
Anonymous ABC executive, quoted by William S. Rukeyser, 1986

T
he two most important manageable components of any business
enterprise are the costs of personnel and materials. The relative impor-
tance of these two factors depends on the business of the organization.
A highly automated producer of expensive physical products will have very
high materials costs and lower personnel costs. In contrast, for a service indus-
try that produces no physical products, the cost of materials will be minimal,
but the highly trained, competent workers who are required to run a successful
enterprise will probably come at a high cost.
In the laboratory industry, managers are faced with a difficult situation—an
information product for which a highly trained workforce must operate ex-
pensive equipment and reagents. On the other hand, the fact that both sides
of the equation are important means that there are opportunities for savings
in two very different managerial areas. In this chapter, we will concentrate on

†
A significant portion of this chapter was originally written by Dr. Washington Winn, our
beloved colleague, who passed away on July 3, 2011. His contributions to this book and
the medical microbiology world have touched so many. Dr. Winn’s incredible knowledge,
Clinical Laboratory Management, 2nd Edition dedication to the field, sense of humor, and friendship are sorely missed by us and by his
Edited by L. S. Garcia many friends and colleagues (16). We dedicate this chapter to Dr. Washington Winn. We
©2014 ASM Press, Washington, DC miss you, Wash, and we will do our best to uphold the high standards that were so clearly a
doi:10.1128/9781555817282.ch32 part of everything you did.

589
590 FINANCIAL MANAGEMENT

personnel costs because they are the ones over which a of the rules is part of the job. Understanding the culture of
manager can exert the greatest influence. Although careful the organization, however, will help you avoid going out
negotiation of contracts and searches for alternative sup- on a poorly supported limb only to find out there is no-
pliers can reduce the expense of materials, these costs are body behind to extend a helping hand.
even more heavily driven by volume than are the salaries At the start of a new job, it is useful to look around and
of workers. identify those managers who appear to have mastered the
Table 32.1 summarizes selected examples of manage- system. They can serve as invaluable aids until you gain
able and unmanageable costs. It must be recognized that enough experience to become a resource for subsequent
there are cost components that are beyond a manager’s neophytes.
control. Examples of such unmanageable components are Even an experienced manager must maintain regular
sickness, pregnancy, and military conscription of employ- contact with superiors. There should be a sixth sense about
ees. Although these factors cannot be avoided and often the possibility of trouble, depending on the nature of the
cannot be predicted, their consequences can usually be problem and the nature of the employees involved. Areas
managed within the budget that has been approved. For that are controversial, such as repetitive stress injuries, and
an organization to be successful in today’s rapidly evolving employees who are considered difficult or potentially liti-
healthcare environment, provisions for such exigencies in gious should elicit early rather than late discussions with
the budget process must be made if at all possible. superiors. When an issue begins to manifest itself, it is ab-
Strong leadership at all levels of the organization is es- solutely essential that both superiors and institutional con-
sential if costs are to be kept in line with institutional plans tacts in human resources be involved. The most valuable
and goals (8). The many theories and practical approaches manager is the one who takes the initiative in dealing with
that are useful for good management have been covered problems without burdening superiors unnecessarily yet
in other sections of this book and in a variety of excellent keeps upper-level managers in touch with what is going on.
books on management (1, 10, 12, 13). In this chapter, we
will attempt to address some practical issues that face the
manager on the front lines. There is no “correct” way to Constraints on Managerial Function
deal with the problems that come up in daily life, so this The first potential constraint on a manager is implied in
discussion will reflect our prejudices and experiences. the introduction to this chapter. If upper-level leaders lack
A frontline manager must function within the rules vision, steadfastness, and consistency, it may become ex-
established by the organization, as well as in accordance tremely difficult or even impossible for subordinates to
with pertinent state and federal laws. The first and most do their jobs (4, 7). The higher up in the organization the
important task, therefore, is to become familiar with the problem extends, the greater the odds against correcting the
personnel policies and procedures of your organization. problem quickly. The manager in this situation has only two
Familiarity with basic tenets of employment law (e.g., options: to do his or her best with the tools available and/or
the Fair Labor Standards Act) is advisable, as is know- to look for a position in another organization. This may also
ing whom to contact in human resources when specific be the case when confronted with inadequate administra-
questions arise. In addition, it is critical to understand the tive support in the finance or human resources domains, an
written and unwritten culture both of the organization as inability to employ an appropriately qualified staff, and/or
a whole and of the smaller unit to which you belong, pre- unworkable limits on allocated hours (“head count”).
sumably the laboratory or one of its subunits. Most organi- The presence or absence of a unionized workforce
zational rules and regulations are open to interpretation. A will dramatically affect the way a manager interacts with
manager must understand that flexibility in interpretation workers. Depending on the quality of labor-management
relationships, a unionized workforce is not necessarily a
constraint on managerial function, though unionization
Table 32.1 Manageable and unmanageable cost components adds a layer of complexity that may prove unnecessary in
Manageable Unmanageable an organization that has policies and provisions that sup-
Number of employees Employee fringe benefits port staff members and foster a positive working relation-
Skill mix of employees Legal or institutional limitations ship. The challenges are often substantial with or without a
on permitted duties of employees union representative, but the rules may be very different in
Scheduling and cross-training Injury, illness, pregnancy, and the two situations, and the manager must constantly keep
of employees military duty the specifics of the union contract in mind. We have never
Competitive bidding and selec- Volume requirements for worked with a unionized workforce, so we have no personal
tion of cost-effective materials materials experience from which to draw. We do suspect, however,
Direct costs of operation Indirect costs assessed by institu- that the talented manager will be successful in either situ-
tional management
ation and that the marginal manager will struggle in each.
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL 591

Finally, there may be significant constraints placed who denigrates fellow workers. Often that slugger is, in re-
on a manager by the history and culture of the unit, and ality, not so competent as the hyped self-image would make
perhaps by the capabilities of the employees. In this case, one think. One of the most difficult managerial decisions
however, the appropriate way to view the situation is as is to defer hiring the ready applicant if the right candidate
a challenge rather than a constraint. Given support from is not immediately available. In the long run, however, it
above, a capable manager should be able to work through pays to wait. The challenge is to convince coworkers of the
any difficulties that may detract from optimal function of need to continue the search. If a mistake is made in the ini-
the unit (Table 32.2). tial hiring decision, it is critical to recognize the problem
during the evaluation or trial phase that is used by many
organizations. A divorce is always easiest when the partners
The Cardinal Rules for
have not been married very long.
Optimizing Performance
In very simple and straightforward terms, following the Expect Cooperative Behavior and Best
biblical Golden Rule by all concerned is the surest way to Possible Performance
motivate employees. A manager must ask whether subor- If the expectations are clear, it will be impossible for any-
dinates are being treated the same way he or she wants to one to plead ignorance (9). Most people respond to high
be treated by superiors. Among the employees, it is obvi- expectations. If nothing else, expecting less is likely to
ously in everyone’s best interest if cooperative activity is produce less. Expecting the best may not be easy for the
the order of the day. manager. It is entirely too easy to make value judgments
Staff members who feel that they are making strong about individuals and to expect only those things that are
contributions to the goals of the department will gener- implicit in the assumption. Moving beyond initial preju-
ally be more motivated. It is important that the manager dices, however, is an early step toward success. Some of
reminds himself or herself daily to act in a manner pro- the best leaders, colleagues, teachers, and mentors we’ve
moting a positive work place, to the extent that specific known were the most demanding of excellence.
circumstances allow. If the manager can promote devel-
opment of staff self-confidence and self-respect, this will Lead by Example
go a long way toward creating an environment of constant Employees will adopt the outlook and habits of their man-
learning and improvement (2). ager, just as children emulate their parents. If workers are
expected to pitch in and work collaboratively to get the
Get It Right at the Outset work done, they must see their supervisor doing the same
A manager will be presented with a group of employees thing. Supervisors must “roll up their sleeves” and work
who were selected by previous incumbents. Unless the in the trenches as needed. It is important to remember,
workforce is totally ossified, however, there will be turn- however, that good habits do not come equally easily to
over. When that happens, the new manager has an oppor- everyone. Some will take more encouragement and coach-
tunity to influence the tone of the laboratory unit. Technical ing than others (5).
competence is obviously an important consideration in
a production worker, and a certain base level of ability is Involve All Members of the Team
essential. From years of experience, however, we are con- Most work groups consist of individuals with differing
vinced that an indefinable characteristic called “attitude” backgrounds and talents. It will not be possible for every-
is even more important. Quoting a well-known leadership one to pitch in on every project or in every way. There
expert, Michael Henry Cohen, “Hire for attitude, train for should be an opportunity, however, for all to contribute
skill” (3). The team player who hits singles consistently and their abilities to make the unit function optimally. Even
furthers the position of the organization will, in the long those individuals who find it most difficult to excel should
run, be far more valuable than the flashy home run hitter be challenged. If any employee is not given the opportu-
nity to do his or her best, there is a risk that the individual
Table 32.2 Constraints on unit managers
will feel undervalued or inferior and that colleagues will
feel that they have a shirker in their midst. The reluctant
Quality of upper-level management
or recalcitrant employee will require special attention
Adequacy of financial and accounting support
and a firm, but gentle, insistence on participation. On the
Adequacy of human resources support
other side, any employee who feels taken advantage of
Quality of work force available
will require gentle counseling to see that, in fact, everyone
Quantity of allocated hours
is pulling an appropriate load (5). Good managers learn
Unionized workforce
over time to sort out the strengths of their staff and use
Past practices (culture) of the unit
them accordingly.
592 FINANCIAL MANAGEMENT

Perceived Fairness Is More Important than daily business. Body language is as important as speech in
Rigid Equality giving the alert manager clues to incipient problems. Physi-
It is impossible to interact with each individual in the same cal proximity to the activity hub is key for the manager, as is
way all the time, although every effort should be made to regularly leaving the office area to mingle with staff.
be as fair and consistent as possible. Circumstances change,
and individuals vary in their needs. Judgment is essential Act Quickly and Decisively
when applying rules and regulations to a specific situation. The best way to turn a brewing crisis into one that has
The essence of leadership is making everyone feel valued boiled over the top of the pot is to ignore it. Action need
and a part of the process (15). not be manifested by confrontation. On occasion, judi-
cious temporizing may reduce the heat sufficiently to abort
Maintain Communication in All Directions the overflow, but unless the basic problem is addressed, a
It is extremely important that subordinates feel comfort- recurrence is guaranteed.
able talking to each other and to their supervisor without
fear of retribution. The best way to prevent rumor and in- When Problems Surface, Involve the Laboratory
nuendo is to avoid secrets by facilitating open discussion. Manager Immediately; Involve Human Resources
Most importantly, free interchange of ideas and concerns is as Appropriate
the best way to quash the development of cliques, the most As discussed above, the art of management includes know-
destructive phenomenon in any group. If a topic cannot ing when to involve superiors in a problem. Alerting up-
be discussed because of institutional strategy or employee per-level management to a potential difficulty does not
confidentiality, it may be possible to indicate that there are necessitate their involvement. In fact, the better the inter-
constraints but that full information will be made available action, the more likely a manager will be left alone to solve
at the first opportunity. Managers and supervisors should the problem.
be seen regularly out in the open, mingling with staff, not Human resources personnel can be excellent advisors
tucked away in their offices. regarding the handling of problematic situations. Once a
Communication should naturally proceed in multiple potentially serious problem has been identified, it is impor-
directions. It is just as essential that the lines of communi- tant to seek the advice and input of your human resource
cation upward be free and clear as that lateral and descend- colleagues. Other experienced managers and supervisors
ing channels be protected. can also serve as excellent mentors. Where personnel ac-
tions are possible, countermeasures, including legal chal-
Keep Your Eyes and Ears Open lenges, are also possible. Involving experienced colleagues
The recommendation to keep your eyes and ears open is a may help mitigate any repercussions.
companion to the one above. The best way to detect discon- Table 32.3 provides a summary of cardinal rules of per-
nects in the communication network is to observe and listen sonnel management and potential consequences of break-
closely in the course of going about the normal routine of ing them.

Table 32.3 The cardinal rules for optimizing performance and possible consequences of breaking them
Cardinal rule Potential consequences
Get it right at the hiring stage An underperforming employee or troublemaker who will consume
managerial resources
Expect cooperative behavior Employees who are not so inclined will not feel constrained to
modify behavior
Lead by example “If gold ruste, what shal iren do?”—Geoffrey Chaucer describing the
Parson in The Canterbury Tales
Team involvement A solution that is perceived as imposed may be less readily accepted
Perception of fairness A decision with unpleasant consequences will be better received if
perceived as fair
Open communication Without communication, problems will arise and proliferate
Eyes and ears open Brewing problems may boil over if not recognized early
Act quickly and decisively Matters are likely to deteriorate if not addressed forthrightly
Involve superiors Support in a difficult situation will be more difficult if your superior
is not prepared
Involve institutional human resources A problem that escalates will be more difficult to manage if your
support system is not activated early
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL 593

Classic Situations that May Interfere with is enriched cerebrally by the expanded experience but not
Optimal Performance monetarily due to the salary restrictions of the job descrip-
tion. It is an exceptional individual who does not eventu-
Some classic personnel situations are described in Table
ally resent colleagues who do the same tasks, perhaps less
32.4 and discussed in the following sections.
well, for significantly higher pay. The decision as to which
The Underperforming Employee road to take must be guided by the rigidity of institutional
or union rules, regulatory limitations, and by frank and
The first challenge in dealing with an underperformer is
open discussion with the employee. Those discussions
to understand why the employee is not reaching his or
should not be one time only but should continue to ensure
her potential. If there is a lack of confidence, counsel-
that resentment does not arise.
ing should be directed at boosting self-esteem. Technical
confidence can be advanced by successfully achieving
specialty certification and should be considered for
The Intrusion of Personal Issues
those who are interested. Encouraging involvement in a One of the potential causes of friction in the workplace is
special project may be a useful tack. If the problem is carryover from previous experience, either on the job or
boredom, once again an additional challenge may be outside. If a manager senses that personal antipathy may
useful. Teaching and/or presenting interesting cases, new be at the root of a problem, or if that information is vol-
information, reviews of proficiency testing specimens, unteered, the response should be the same. The only ac-
technical advances, and meeting summaries are a good ceptable behavior in the workplace is collegial or at least
way for staff to gain knowledge and confidence in their tolerant. Past personal experiences must be parked at the
abilities. If, on the other hand, the employee has tired of door each day. Rarely, the problem is more remote, the
the job or was never truly committed, the direction of result of a perceived similarity of a coworker to some-
counseling may be toward an honest and critical evalua- one with whom the employee has had a previous negative
tion of career opportunities and challenges. In any event, interaction. If it is possible to separate the parties physi-
thorough documentation must be kept throughout the cally, lack of interaction may solve the problem. Should
period of evaluation. separation not be possible, coaching and documentation
should occur, after which transfer or resignation may be
The Overperforming Employee the only alternative for an employee who cannot exert
It may seem strange to consider an overperforming em- self-control.
ployee a problem. In most situations, of course, the re-
sponse should be to encourage the star to attempt ever The Underground Troublemaker
greater feats. However, when the employee is capable of A very difficult problem is the employee who stirs up
work beyond that defined in the job description, or is lim- trouble surreptitiously—outside of work, on breaks, or
ited by official rules based on paper qualifications (degrees in the hallway. Usually the promotion of cliques is the
and/or licensure), a difficult conundrum arises. Should tactic chosen. It is a recalcitrant problem because it is
the employee be limited strictly to the tasks defined in the underground, and the fomenter will usually deny such
job description? That course may well result in a bored activities. The only recourse of the manager is to coun-
and frustrated employee who will seek a job that is more sel the disruptive employee and deal with the problems
challenging. The other option is to allow the employee to that arise. Clear expectations must be delineated, and the
advance to the limits of intellectual ability rather than bu- importance of teamwork emphasized. If the employee
reaucratic guidelines. The result may be an employee who cannot be induced to join the team, an isolation strategy

Table 32.4 Classic personnel situations

Situation Necessary action
The underperforming employee Identify the reason for the failure to reach potential and tailor coun-
seling accordingly.
The overperforming employee Channel energy in productive ways. Watch for the potential conse-
quences of performance at a level above pay grade.
The underground troublemaker Attempt to convert the employee to productive behavior. If unsuc-
cessful, attempt to isolate the troublemaker.
The cabal The single troublemaker magnified. Break up the clique if possible by
reassignment or introduction of others into the group.
Weakness at the top Same approaches as for lower-level personnel but with more urgency.
594 FINANCIAL MANAGEMENT

may be adapted. With patience and care, eventually other Practical Issues in Utilization
employees will see what is going on. It is particularly im- of Personnel Resources
portant not to make the troublemaker a martyr, so to the
There are relatively few means available to a manager for op-
extent possible, the counseling must be done so as not to
timizing the workforce of a unit. The success of these means
appear punitive (14).
will depend to a significant extent on the efficacy of the
management approaches described above (Table 32.5) (6).
The Cabal
A particularly virulent version of the underground trou- Skill Mix of Personnel
blemaker is the cloned version. A small group of work- It is important to examine on a regular basis the skills re-
ers, acting in concert, can make life miserable for fellow quired for accomplishment of the goals set for the unit.
workers, for superiors, and for those in lower personnel At the very least, the question should be raised each time
classifications. In addition to the actions recommended there is a new vacancy. Soliciting input from your best staff
for the individual troublemaker, there are a couple of members often yields insight into how to do things bet-
other possibilities for the cabal. If it is possible to sepa- ter and more efficiently. Hiring incompletely trained or
rate the group, either spatially or temporally, the problem educated workers for complex tests is false economy (al-
may be alleviated. An attempt should be made to isolate though the intrinsic intelligence of the individual may be
any obvious leaders. Alternatively, it may be possible as important, or more important, than the credentials).
to introduce a new actor into the play, someone who is Conversely, it is not good stewardship to use overqualified
equal in stature to the members of the cabal but has an individuals. Some simple testing may be assigned to tech-
appropriate outlook. nicians, who, along with laboratory assistants, can perform
other support functions, such as maintenance and acces-
Weakness at the Top sioning of specimens (11). When using less qualified staff
Personnel problems can occur at any level in the organiza- in roles that are appropriate and accepted by regulatory
tion. The higher up the problem is, the more difficult it is agencies, our experience has demonstrated time and again,
to pinpoint the issue. It may take considerable effort and that good supervision is key to being successful.
persistence to determine that the problem is with a super-
visor or assistant supervisor, rather than with the lower- Cross-Training and Rotation
level employees. The symptoms may well be manifest at a Some degree of cross-training (or competence in multiple
level below that of the person who is truly responsible. It areas) and rotation through multiple areas is necessary in
is often difficult to deal with problems in managers. For most laboratories to ensure constant coverage with com-
a start, it is important to keep an open mind as to where petent workers. The breadth of coverage of an individual
the difficulty lies, as the cure is dependent on correct diag- worker depends on the depth of experience and knowledge
nosis of the dysfunction. It is common to promote people required for the tests. Workers in a small laboratory in a rural
who possess great technical ability but may be lacking in hospital may need to perform many simple tests in a variety
management skills and experience; possession of these, or of scientific disciplines, whereas a technologist working in
at least potential to acquire them, ought to be considered a large university hospital will probably be responsible for
in the hiring process. Regardless, providing training and a restricted number of very sophisticated procedures. Even
tools to recently appointed leaders is critical to building in a large unit, cross-training within the unit is important.
leadership skills and enriching the organization. The important goal is to strike a balance between what is

Table 32.5 Practical approaches to optimization

Parameter Approach
Skill mix To the greatest extent possible consistent with good practice, utilize less
trained individuals for more routine or menial duties.
Cross-training and rotation Give employees the stimulation of multiple tasks or areas, being careful
not to stretch them too thin.
Mix of employment arrangements Consider part-time and/or per diem arrangements if costs of maintaining
competency and consistency do not exceed benefits of increased schedul-
ing flexibility.
Scheduling Make clear what is needed to do the job. To the extent possible, allow
employees to work out the details among themselves.
Use of overtime Within the constraints of the budget, allow overtime if required to get the
job done, but always look for other options.
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL 595

needed to get the work done, the needs of employees, and port of the group as a whole. The manager should have
the ability for each worker to perform a sufficient number good working knowledge of the schedule and be avail-
of procedures to maintain proficiency. able as needed to resolve discrepancies.
4. Solicit requests for vacation time well in advance (as
Mix of Employment Arrangements much as six months). Make it clear that it may not be
While having a solid core of full-time employees is es- possible to grant everyone his or her first choice. Try
sential to the continuity of a unit’s day-to-day work and to even out assignment of priority vacation times over
for progress toward long-term goals, having a comple- a period of years. It may be necessary for the group to
mentary cohort of part-time workers and individuals who make a decision as to whether they will pitch in and
can work on a per diem or ad hoc basis can significantly work harder during the vacation months to allow ev-
enhance the supervisor’s ability to provide appropriate eryone to have desired time off. Getting the work
coverage. Including part-time technologists as part of the done, without sacrificing quality, must be the first pri-
team can enhance the skill mix and broaden the spectrum ority for all concerned.
of knowledge and experience available to a unit when the 5. Publish the work schedule far enough ahead for peo-
number of allocated full-time equivalents is fixed. In a ple to make plans (minimum of one month, prefer-
large hospital, some part-time technologists may be cross- ably more).
trained individuals who split their time between two di- 6. When holes appear in the schedule, ask for volunteers
visions of the laboratory; care must be taken, though, to to fill in. Encourage switching of shifts or use of part-
ensure that competency in each area is maintained. Provi- time workers, with overtime as a last resort. It should
sions must be made to ensure that even those technolo- be clear that the possibility of assigning the slot to a
gists who log relatively few hours not only keep up with nonvolunteer lurks in the background, but avoid re-
changes in routine laboratory operations (as when new sorting to that tactic if at all possible.
procedures are introduced) but also fulfill their regula-
tory requirements (continuing education, participation Use of Overtime
in proficiency testing). Managers may reach differing The objective of every manager should be to get the work
conclusions regarding the desirability of diversifying em- done in the most efficient manner with the least expendi-
ployment arrangements after considering the potential ture of financial resources necessary. On occasion it may
benefits and associated costs. be necessary to use overtime to complete necessary work.
When possible, however, an attempt should be made,
Coverage of Vacations, Holidays, and Routine Shifts within the rules of the institution and in compliance with
applicable laws, to use other methods, such as providing
In some instances institutional policies or contractual
compensatory time or increasing the hours of part-time
obligations will determine the rules of coverage for va-
employees. Staff whose work may be completed before the
cations, holidays, and routine shifts. Often, however, the
end of the shift should be trained to pitch in and help
procedure is undefined and will vary with each unit. Con-
their colleagues without hesitation. In a well-run opera-
sistent with the cardinal rules, a manager might adopt the
tion, this occurs automatically, promoting teamwork and
following policy:
reducing overtime.
1. Define the minimum personnel requirements for each Conversely, there may be occasions when work has
type of work situation, e.g., weekday, weekend, holiday. been completed expeditiously, leaving free time at the end
2. Define positions so as to provide the most flexible of the shift. It is useful to have a plan for such occasions.
coverage. When a new position opens, give the exist- There are usually odds and ends of maintenance, writing
ing workers a chance to review their schedules. If a of procedures, etc. that could be completed at these times.
worker wants to increase or decrease hours or to Another option is to offer the possibility of early depar-
change the distribution of work among the daily time ture, leaving the residual time for use on another occasion
periods that must be covered, attempt to balance the as regular time.
request with the needs of the department, but make it
clear that all requests may not be possible. Getting the
work accomplished well and expeditiously is always Summary
the first priority. Unit managers can make important contributions to the
3. Entrust development of the schedule to the involved success of an organization by exerting careful control
workers, preferably with a single individual as coordi- over manageable components. Although economies can
nator. That individual may be an assistant manager or be realized in both materials and personnel, the optimi-
senior technologist but should not be the unit man- zation of personnel resources will present the greatest
ager. It is important that the coordinator have the sup- challenge and the greatest opportunity for a manager. To
596 FINANCIAL MANAGEMENT

accomplish this goal there is a series of mainly common- Skill mix The variable backgrounds of personnel, all of whom
sense rules. The savvy manager must recognize some will contribute to the operation. The nature of the work will de-
classic personnel challenges, including overperforming fine the required proportion of workers of each background.
and underperforming employees and individuals who
work at cross purposes to the goals of the team. Specific REFERENCES
areas where financial economies may be accomplished 1. Baron, R. A. 1986. Behavior in Organizations. Understanding and
include careful scheduling, cross-training and/or rota- Managing the Human Side of Work, 2nd ed. Allyn and Bacon, Inc.,
tion, and judicious utilization of employees with varying Boston, MA.
backgrounds and skills. 2. Branden, N. 2001. The Psychology of Self Esteem: A Revolutionary
Approach to Self-Understanding that Launched A New Era in Modern
Psychology. Jossey-Bass, San Francisco, CA.
KEY POINTS
3. Cohen, M. H. 2011. Time to Lead. Creative Health Care Manage-
■ Provide compassionate, interactive leadership so that ment, Minneapolis MN.
employees will understand the goals of the unit as well
4. Kanter, R. M. 1992. Power failure in management circuits, p.
as the challenges and barriers to achieving those goals. 449–461. In J. M. Shafritz and J. S. Ott (ed.), Classics of Organization
■ Involve all employees in the process so that they feel that Theory. Brooks/Cole Publishing Company, Pacific Grove, CA.
they are a part of the solutions that you discover jointly. 5. Kotter, J. P. 1990. What leaders really do. Harv. Bus. Rev.
■ Acknowledge the constraints under which the unit op- May-June:103–111.
erates and accommodate plans accordingly. 6. Martin, B. G. 1985. Cost containment: strategies and responsi-
■ Recognize at an early stage problems in performance bilities of the laboratory manager. Clin. Lab. Med. 5:697–707.
that will interfere with achievement of goals, and take 7. Mechanic, D. 1992. Sources of power of lower participants in
appropriate action. complex organizations, p. 424–431. In J. M. Shafritz, J. S. Ott, (ed.),
Classics of Organization Theory. Brooks/Cole Publishing Company,
■ Identify the practical issues that will allow employees to Pacific Grove, CA.
use their time most efficiently and get the job done with
8. Rodgers, T. J. 1990. No excuses management. Harv. Bus. Rev.
a minimum of disruption.
July-August:84–98.
9. Schaffer, R. H. 1991. Demand better results—and get them. Harv.
GLOSSARY Bus. Rev. March-April:142–149.
Cabal A group of people working secretly and underhandedly 10. Schuler, R. S., and S. E. Jackson. 1996. Human Resource Man-
to overthrow a regime. An acronym for a group of ministers cho- agement. Positioning for the 21st Century, 6th ed. West Publishing
sen by Charles II of England in 1667: Clifford, Arlington, Buck- Company, Minneapolis/St. Paul, MN.
ingham (of Three Musketeers fame), Ashley Cooper (later Earl of 11. Snyder, J. R. 1992. Technician or technologist? Sorting out over-
Shaftesbury), and Lauderdale. lapping roles in the lab. Med. Lab. Observ. June:36–41.
Constraints Factors that limit the flexibility of action. 12. Snyder, J. R., and D. A. Senhauser. 1989. Administration and
Supervision in Laboratory Medicine, 2nd ed. J.B. Lippincott Com-
Cross-training Training individuals to perform more than pany, Philadelphia, PA.
one task.
13. Szilagyi, A. D., Jr., and M. J. Wallace, Jr. 1990. Organizational
Golden Rule “Do unto others as you would have them do Behavior and Performance, 5th ed. Scott, Foresman/Little Brown
unto you.” Higher Education, Glenview, IL.
Manageable components A parameter over which a manager 14. Umiker, W. O. 1991. Turning around the behavior of uncoop-
has control. Scheduling and use of overtime are manageable. Va- erative employees. Med. Lab. Observ. October:59–66.
cation time and work breaks are defined by government or the 15. Umiker, W. O. 1992. How to qualify as a praise master. Med. Lab.
institution and are thus not manageable (although the number of Observ. July:41–46.
employees eligible for these benefits may be).
16. Walker, D. H., R. LaSala, B. Pritt, E. Koneman, and J. M.
Rotation Movement of personnel through the tasks for which Miller. 2011. In memoriam: Washington C. Winn, Jr. (1941–2011).
they have been trained, often on a regular, sequential basis. Emerg. Infect. Dis. 17:2400–2401.
Introduction
Cost Accounting
33 Costs, Budgeting, and Financial
Classification of Costs • Behavior of Costs •
Measuring Full Cost • Average versus Marginal
Decision Making
Costs • Actual Cost versus Standard Cost • Costing
Issues • A Formula for Developing Laboratory Costs •
Laboratory Costing Examples Geoffrey C. Tolzmann and Richard J. Vincent
Break-Even Analysis
Equipment Purchase • Capitation Contract
Capital Acquisition Concepts
Time Value of Money • Depreciation OBJECTIVES
Budgeting To learn the types and behaviors of costs, how to measure them, what data are
Types of Budgets • The Budgeting Process • Budget needed to generate a cost analysis, and how to cost a basic laboratory test
Examples To understand the relationships among cost, volume, and profits and calculate
Variance Analysis contribution margin and break-even point
Financial Statements To apply time value of money concepts to capital acquisition plans using net
Financial Ratios
present value
Summary
To understand the three common types of budgets, the budgeting process, and
KEY POINTS how budgets are used to measure financial performance and to control costs
GLOSSARY
To be able to analyze the causes of differences in actual financial performance
REFERENCES from budgeted amounts and understand how this information is used for
management control
To learn about the three primary financial statements: the balance sheet, the
income statement, and the cash flow statement
To learn how to calculate key financial ratios that reveal information about an
organization’s financial health

Accounting is the most useful “information system” for managers, because it or-
ganizes and accumulates related information over time and aligns it with initial
objectives and requirements, called “budgets.” Principles of accounting must be
applied to other types of information managers use in order to make “informa-
tion technology” useful.
Peter F. Drucker, at the Forbes CEO Forum
“Management in the 21st Century,” June 1997

T
oo often the financial aspects of the laboratory business can
intimidate managers who have a scientific background. However, man-
agers must understand and participate in cost accounting and budget-
ing. In addition, they must understand the principles of financial accounting
and financial analysis in order to gauge performance, because “what gets mea-
sured gets managed.” This chapter will provide an overview of these extensive
and complex activities (1–4).
A note on accounting conventions:
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia • Variances that are “favorable” are depicted unmodified. A favorable vari-
©2014 ASM Press, Washington, DC ance is an expense that is less than budgeted or revenue that is greater
doi:10.1128/9781555817282.ch33
than budgeted.

597
598 FINANCIAL MANAGEMENT

• Variances that are “unfavorable” are depicted in pa- with the item being costed. The most common types of in-
rentheses. An unfavorable variance is an expense that direct costs are general laboratory supplies; labor costs as-
is greater than budgeted or revenue that is less than sociated with supervision, administration, and training; and
budgeted. hospital overhead. The full, or total, cost of an item includes
• Profit is depicted unmodified and in black ink; loss is its direct costs and an allocated portion of indirect expenses.
depicted in parentheses and in red if a color document
is employed. Behavior of Costs
Costs behave in four basic ways depending on their re-
• “Productive” labor is labor that actually produces a
lationship to the relevant range of activity. Variable costs
product directly (be it a physical product or an intel-
vary in direct proportion to the volume or level of activity,
lectual one).
such as reagent cost. Therefore, variable costs are constant
• “Nonproductive” labor may be necessary for proper per unit of service (UOS), which is whatever the logical
functioning of the organization but is not directly measure of work for a given area is. Fixed costs, such as
involved in production of the product. Vacation, con- rent, are constant regardless of changes in levels of activity.
ferences, sick time, all management functions, and sup- Therefore, fixed costs per UOS change with volume. Semi-
port activities such as financial analysis and marketing variable costs have a fixed and a variable cost component.
are examples of nonproductive labor. Note that “non- An example is telephone service, for which customers are
productive” is not a pejorative term in accounting lingo. usually charged a fixed amount per month that may include
a specified amount of service above which a per-unit charge
is incurred. Step-fixed costs are fixed over a relatively small
Cost Accounting range of activity and then change to a new fixed level over
Cost accounting is a system of measuring and reporting another relatively small range of activity. Labor costs often
information about costs. Its purpose is to generate infor- exhibit step-fixed behavior, as a certain staffing level sup-
mation sufficient for managers to make intelligent deci- ports a range of activity beyond which additional staffing
sions. A common challenge of cost accounting systems is must be added. The behaviors of most costs are fairly intui-
balancing the degree of specificity needed with the amount tive. Figure 33.1 illustrates these behaviors.
of work required to reach that specificity in light of the
decisions to be made. A good system does not require un- Measuring Full Cost
necessarily detailed information. There are four steps to the process of measuring full costs:
Cost accounting is useful for several purposes:
1. Identify the responsibility centers into which costs
• Profitability analysis. Cost accounting enables managers may be appropriately grouped. For a hospital, these
to determine whether a laboratory division or a market areas might be laboratory, radiology, laundry, etc.
segment is generating revenues in excess of expenses. Within the laboratory, these centers might be chemis-
• Cost control. Cost accounting helps define the relation- try, hematology, microbiology, central receiving, etc.
ship between cost and activity and can help align re- Within chemistry, the centers might be individual ana-
sponsibilities with incurred costs. lyzers or testing modalities.
2. Trace all revenues and expenses to the responsibility
• Planning. Cost accounting helps us understand what
center incurring them.
happens to costs as activity changes.
• Decision making. Cost accounting aids in setting
prices, negotiating reimbursement or capitation rates,
and making staffing decisions and make-versus-buy Figure 33.1 Cost behavior. doi:10.1128/9781555817282.ch33.f1
decisions (for example, whether to perform a labora-
tory test in-house or send it to a reference laboratory).

Classification of Costs
Costs can be categorized in many different ways, but the
Costt

most critical distinction is direct cost versus indirect cost.

Direct costs are those costs clearly associated with the item
being costed (be it a patient, a service, a department, or an in-
dividual assay). In the laboratory, direct costs include testing
supplies and reagents, instrument depreciation, maintenance
and repairs, and the labor involved in performing testing. Volume
Indirect costs are those costs that are not directly associated Fixed Cost Variable Cost Step Fixed
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 599

3. Allocate the costs of supporting responsibility centers to A Formula for Developing Laboratory Costs
the revenue-producing centers. There are several tech- Direct costs of test (instrument depreciation, main-
niques by which this allocation may be accomplished: tenance and repair, reagents, calibration, quality con-
• Direct allocation trols, direct labor)
• Step-down allocation (which usually entails starting
+
with allocating the costs of centers that provide the
most services to all other centers, then allocating Indirect costs (general laboratory supplies), indirect
the costs of those that provide the next level of ser- labor (such as supervision, training), other indirects
vice, including those costs that were just allocated in (such as research and development expenses)
the first round, to all others, etc.)
=
• Algebraic allocation (used by sophisticated cost ac-
counting systems) Laboratory section cost
Allocation also requires some sort of basis, such +
as cause and effect, or facilities provided or ability to
bear the allocated costs. Examples of bases include General laboratory overhead (specimen collection,
square footage, utilization, visits, number of person- report distribution, information systems, manage-
nel, revenues, and payroll expense. ment, education, quality assurance, sales, marketing)
4. Determine the average cost of each procedure or ser- =
vice by dividing the responsibility center’s costs by the
measure of activity (in the laboratory, the measure is Laboratory test total cost
usually the number of procedures or billed tests). The
average cost per procedure for the laboratory center Laboratory Costing Examples
might be $10, while the average cost per procedure for Tables 33.1 through 33.6 are examples of the types of infor-
the chemistry center might be $5, and the average cost mation that need to be collected and some of the calcula-
per procedure for a specific analyzer center within tions involved in generating unit costs. Table 33.1 shows
chemistry might be $2. the key variables that are needed to generate unit cost, in-
cluding staff costs that are both variable (tester) and fixed
Average versus Marginal Costs (nontester), plus indirect fixed divisional, overall labora-
As noted above, the average cost equals the full costs di- tory, and overall hospital costs.
vided by the UOS. Marginal cost equals the change in total Table 33.2 is an example of the calculation involved in
cost relative to the change in volume. It is the variable cost generating a per-unit cost for a test that is run in a batch
plus any additional fixed costs incurred because the vol- with other tests. It is an example of a step-fixed cost.
ume change exceeds the relevant range. In most instances, Should the threshold of 250 tests per run be exceeded, an-
there are no additional fixed costs. Marginal costs are also other run would need to be instituted, along with its con-
called incremental costs. Over the long run, average rev- comitant expenses. The “step” is the period jump in costs
enues must be greater than or equal to average costs for with each new test run, whereas the cost per test progres-
an organization to survive, but in the short run, decisions sively decreases within each test run as more samples are
should be made based on marginal costs. For example, the added. The most efficient position would be the inclusion
incremental cost of adding another sample to a chemistry of 250 tests in every run, the situation in which no further
analyzer that is running below capacity is very low. If add- savings could be achieved without increasing the capacity
ing another sample requires the purchase of another ana- of the run. In Table 33.2, the average number of tests per
lyzer, however, its incremental cost is very high. run is 228, a point that approaches the most economic ef-
ficiency possible.
Actual Cost versus Standard Cost Table 33.3 combines all the costing information thus far
Standard costs represent what a given item should cost to calculate a unit cost for a given volume. After gener-
under normal circumstances. Standard costs are useful for ating this cost information it is important to validate the
comparison to actual cost experience when analyzing cost model by running a check on the total cost captured by the
variances and for budgeting. model. This total is measured by multiplying the unit costs
by the volume over a given period of time and comparing
Costing Issues that to actual costs for the same time period, which were
When performing cost accounting, it is always worthwhile generated in Table 33.1.
to examine the results and ask, Is it fair? Is it equitable? Is it Tables 33.4 through 33.6 are the same as the previous
understandable? Do the benefits justify the effort required examples, except they show the effects of adding an ad-
to ascertain cost? ditional 7,500 partial thromboplastin time tests to the mix.
600 FINANCIAL MANAGEMENT

Table 33.1 Key variables for a hematology laboratory with static volume

Clearly, the additional tests make all the indirect fixed went over that level, the costs shifted upward, an example
costs less expensive because the same fixed costs are now of a step-fixed cost.
being divided over a larger number of tests. This relation-
ship is important when generating pricing proposals for
new business. Break-Even Analysis
Comparing Table 33.5 with Table 33.2 shows the ef- Contribution margin is the revenue per UOS less the mar-
fects of adding additional tests to the cost of a test run. In ginal cost per UOS and is often written as contribution
Table 33.2 we were able to run the batch of tests five times margin = price − variable costs. As long as the contri-
a week and still be under the test run maximum of 250. bution margin is positive, the organization benefits. The
With the addition of 7,500 tests, one can see in Table 33.5 margin can go to supporting fixed costs (or to supporting
that the batch now needs to be run six times a week, which items or activities whose contribution margin is negative),
adds more cost and increases the per-unit cost of the tests. and if fixed costs have been covered, it represents profit.
Thus, the cost for these tests was fixed within a certain The break-even point is the volume of activity required
volume level (250 tests per batch), but when the volume for all fixed costs to be covered. Therefore, the break-even
Table 33.2 Test run calculation for a hematology laboratory with static volume

Table 33.3 Cost calculation for a hematology laboratory with static volume
602 FINANCIAL MANAGEMENT

Table 33.4 Key variables for a hematology laboratory with additional volume

point equals the total fixed cost divided by the contribu- Adding the revenue line, which increases at a rate equal to
tion margin. the revenue per unit, yields Fig. 33.3.
If the revenue per unit is greater than the variable cost
total fixed costs
Volume break-even point = per unit, the revenue line and the total cost line must cross
contribution margin per unit
at some point, where revenues equal costs—the break-
total fixed costs even point. Note that the graph illustrates not only the
=
price − variable costs break-even volume, but also the unit revenue required to
reach break-even. Figure 33.4 shows this calculation for a
This equation underscores the relationships among
hypothetical hematology division.
costs, volume, and profits. In the previous section, we
discussed cost behavior and displayed the relationships
of fixed and variable costs to volume. A given responsi- Equipment Purchase
bility center incurs both fixed and variable costs, and its When considering expensive equipment purchases, it is
total costs are the sum of the two, as illustrated in Fig. 33.2. critical to know the point at which the volume of procedures
Table 33.5 Test run calculation for a hematology laboratory with additional volume

Table 33.6 Cost calculation for a hematology laboratory with additional volume
604 FINANCIAL MANAGEMENT

$60,000 $80,000

$70,000
$50,000
$60,000
Revenue

Cost / Revenue
$40,000
$50,000
Cost / R

$30,000 $40,000

$30,000
$20,000
$20,000
$10,000
$10,000

$- $-
0 100 200 300 400 500 0 100 200 300 400 500

Volume Volume

Fixed Cost Variable Cost Total Cost Fixed Cost Variable Cost Total Cost Revenue

Figure 33.2 Fixed, variable, and total cost. Figure 33.3 Fixed, variable, and total expense and revenue.
doi:10.1128/9781555817282.ch33.f 2 doi:10.1128/9781555817282.ch33.f3

performed on the equipment covers its annual depreciation therefore, with member enrollment, not with the vol-
and maintenance costs, compared to the projected demand ume of procedures performed. To understand what the
for the procedures, as illustrated in Fig. 33.5. break-even point is in terms of the number of members,
a provider must first understand the expected utilization
Capitation Contract by those members (see Fig. 33.6). The provider, not the
Under “capitation,” healthcare providers are paid a fixed health plan, is usually at risk for variations in utilization.
amount per member per month (PMPM). Revenue varies, This risk can be ameliorated by negotiating utilization

Figure 33.4 Graphical representation of the $1,600,000

Fixed Cost $ 397,700
break-even point for a hematology division. Variable Cost $ 1.42
doi:10.1128/9781555817282.ch33.f4 Price $ 10.00
$1,400,000
BE Point = 397,700
= 46,381
(10.00 - 1.42)
$1,200,000

$1,000,000
Cost & Revenue

$800,000

$600,000
Break-Even Point
46,381
$400,000

$200,000

$-
- 15,000 30,000 45,000 60,000 75,000 90,000 105,000 120,000 135,000

Volume
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 605

$250,000
Cost of Equipment $ 300,000
Annual Depreciaon $ 42,857
Maintenance Contract $ 4,286
Variable Cost $ 4.00
Price $ 8.00
$200,000

BE Point = 47,143
= 11,786
(8.00 - 4.00)

$150,000
Cost & Revenue

Break-Even Point
11,786
$100,000

$50,000

$-
- 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000

Figure 33.5 Break-even point for equipment

Volume purchase. doi:10.1128/9781555817282.ch33.f5

corridors into the contract, whereby the PMPM revenue is discounting the value of money, not to be confused with
adjusted up or down if utilization is over or under budget discounting, or reducing the price of, a test charge). This
by a certain amount. If not, the provider can incur signifi- approach allows us to value different investments in today’s
cant losses if utilization is over budget. dollars in relation to their future values. Which would you
rather receive: $115.76 in 3 years or $120.34 in 4 years? At
a 5% discount rate, we already know that the present value
Capital Acquisition Concepts of $115.76 after 3 years is $100.00. For $120.34 after 4 years,
Time Value of Money
$120.34
Before evaluating potential capital acquisitions, it is impor- PV = = $99.00
(1 + 0.05)4
tant to understand the concept of the time value of money.
Most people prefer current consumption to future con- Therefore, the first choice (3 years) has a higher value.
sumption. Similarly, investors expect to be rewarded for Investments are evaluated based on their cash flows
their patience by receiving a rate of return on an investment, (CF), where CF = cash revenues − cash expenses. The net
which could be interest, dividends, or capital gains. Intrinsic present value (NPV) of a project equals the sum of the PV
in this is the notion that money received in the future is not of the CF of the project.
as valuable as money received today. We can quantify this. n
CF
t
The future value (FV) of an investment = its present value NPV = ∑
t
–––––
(1+k)t
=0
(PV) multiplied by (1 + interest rate, k) raised to the num-
ber of investment periods, n (usually expressed as years), or Here, the rate k is referred to as the required rate of return,
FV = PV × (1 + k) n the cost of capital, or the hurdle rate. If the NPV is > 0, the
investment is warranted. If NPV < 0, it should not be pur-
The future value in 3 years of $100 invested at 5% interest sued. If you are comparing two alternatives, pick the one
equals $100 × (1 + 0.05)3 = $115.76. This formula be- with the higher NPV. A special case is when the NPV = 0.
comes useful in considering capital acquisitions when we The rate k that induces this is called the internal rate of
rearrange the terms: return (IRR). Instead of calculating the NPV for two com-
FV peting investments, you can calculate their internal rates
PV = of return. Pick the investment with the higher IRR, as long
(1 + k)n
as the IRR is greater than your cost of capital (if it is not,
Here, the rate k is called the discount rate (not the inter- then your capital would be better invested elsewhere). For
est rate), and the practice is called discounting (we are example, a new analyzer costs $100,000 and will allow the
606 FINANCIAL MANAGEMENT

Number of Members 10,000

PMPM Rate $ 8.00
Yearly Revenue $ 960,000
Variable Cost per Procedure $ 5.00

BE Point$1,600,000
= 960,000 192,000 Total 1.6 Tests
=
5.00 Tests PMPM

$1,400,000

2.0 Tests PMPM

$1,200,000

Break-Even Point 1.6

Tests PMPM

Cost & Revenue

$1,000,000

$800,000

$600,000
1.0 Tests PMPM

$400,000

$200,000

$-
- 30,000 60,000 90,000 120,000 150,000 180,000 210,000 240,000 270,000
Figure 33.6 Break-even point for a capitated
contract. doi:10.1128/9781555817282.ch33.f6 Volume

laboratory to perform testing it does not perform today, IRR = 14.96%. This IRR would then be compared with
so it will generate $35,000 in net cash flow per year for the the other possible returns the company might get with the
next 4 years. If our required rate of return is 10%, is this a money if it were invested in other projects.
worthwhile investment? Many laboratory investments do not create new reve-
Time Cash flow nues, but these same techniques can be applied to calculat-
0 −$100,000 ing net present cost and then choosing the option with the
1 $35,000 lowest cost.
Table 33.7 evaluates a direct purchase versus an install-
2 $35,000
ment purchase, where payments are made over time, as
3 $35,000 an example of a net present cost application. Assume the
4 $35,000 following: direct purchase price equals $200,000; install-
ment purchase equals $40,000 per year with a useful life of
−$100,000 $35,000 $35,000
NPV = + + + 7 years; discount rate equals 10%. In this example it would
(1 + 0.10)0 (1 + 0.10)1 (1 + 0.10)2
be less expensive to purchase the equipment directly than
$35,000 $35,000 make an installment purchase, $200,000 versus $213,397.
+
(1 + 0.10)3 (1 + 0.10)4 Nonetheless, other factors may favor installments, such as
available cash.
NPV = $10,945
Table 33.8, the evaluation of two different pieces of
Solving for the internal rate of return (spreadsheet soft- laboratory equipment that serve the same function, is
ware and most financial calculators automate this): an example of calculating the NPVs. Equipment 1 costs
$200,000 and generates $60,000 of net cash flow per year
−$100,000 $35,000 $35,000
0= + + + for the 7-year useful life of the equipment. Equipment 2
(1 + IRR)0 (1 + IRR)1 (1 + IRR)2
costs $300,000 and generates $90,000 per year for the
$35,000 $35,000 7-year useful life of the equipment. The cost of the equip-
+
(1 + IRR)3 (1 + IRR)4 ment and depreciation is spread evenly over the 7 years
 Table 33.7 NPV of direct purchase versus installment purchase

Table 33.8 NPV of two different pieces of equipment

CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
607
608 FINANCIAL MANAGEMENT

of useful life. Based on these figures, equipment 2 would usually either the number of billed tests or the number of
be chosen over equipment 1 because of its higher NPV— procedures performed. For the operating room, it may be
$125,598 versus $83,732. the number of surgeries; for a physician office, it may be the
number of patient visits. UOSs are useful for measuring and
Depreciation comparing resource consumption, such as total expenses
Depreciation is associated with capital investments, so it per billed test or billed tests per FTE, as we saw in the cost
is worth commenting on. Depreciation is the allocation of accounting section.
the cost to acquire an asset that has a useful life of greater
than 1 year into each year of the asset’s life. It is common Types of Budgets
to use a “straight line” method in healthcare, whereby the Three separate budgets are developed during the budget-
depreciation is evenly allocated across the item’s useful life. ing process.
For example, if a piece of equipment costs $100,000 and The first, and the one with which you are probably
has a useful life of 10 years, after which it is worth nothing, most familiar, is the operating budget. This is prepared at
an annual depreciation expense of $10,000 per year would the level of the cost center, usually by those managers who
be recorded for each of the 10 years. There are other meth- have direct responsibility for managing the cost center and
ods of depreciation that are driven by tax laws and usually who can affect its operations. The operating budget can be
allow for a more accelerated treatment of this expense. broken down into three components:
Investment decisions are based on cash flows, and de-
preciation is not a cash flow. The relevant cash flow is the • Statistical budget, or volume budget, which is the fore-
purchase event. From an accounting standpoint, the orga- cast of activity for the unit
nization is simply exchanging one asset, cash, for another, • Revenue budget, which determines the gross charges
the asset. Depreciation serves to reduce the value of the as- that will be generated by the forecasted volume
set over time on the organization’s financial statements, but • Expense budget, which projects the amounts of re-
it should be ignored when evaluating capital acquisitions. sources that will be required to produce the forecasted
volumes
Budgeting The capital budget is the second type of budget. Its
It is through budgeting that an organization turns its strate- development can occur simultaneously with the operat-
gic plans into daily operations. A budget expresses planned ing budget. It is usually prepared at the organization level
revenues and expenses, as well as the volumes of services and includes new or replacement property, physical plant,
and amounts of resources required to realize them. Through and equipment needs of the organization for the coming
the budget process the organization establishes priorities for year. Most organizations have a system in place to col-
its plans, allocates its resources, and controls its costs. It au- lect information on these needs from departments across
thorizes new programs and services and sets performance the organization and then arrange the priorities centrally
standards for existing ones. A budget thus serves as a tool with respect to acuity of need, organizational goals, and
and a benchmark for monitoring the performance of the available funding. Capital budgeting is separated from the
organization throughout its fiscal year. In addition, it is a operating budget because the impact of capital purchases
mechanism for imposing discipline on the organization. is predominantly on cash, with only the depreciation ex-
Two key concepts are integral to healthcare budgeting: pense affecting the operating budget (see the previous sec-
full-time equivalents (FTEs) and UOSs. An FTE is one or tion’s discussion of depreciation).
more employees paid for a total of 2,080 h per year (based With the operating and capital budgets prepared, an or-
on 8 h per day × 5 days per week × 52 weeks per year); this ganization can develop the third type, the cash budget. This
is the standard labor measure. An employee who is paid for is usually prepared by the organization’s finance depart-
two 8-h days per week represents 0.4 FTE, while an em- ment and predicts the cash flows in and out of the organi-
ployee who is paid for two 12-h days per week represents zation and the resultant cash availability. While obscure to
0.6 FTE. Together, they represent 1.0 FTE to the organiza- most, it is the most critical of the three budgets. To remain
tion. Labor is divided into productive time, the time spent solvent and thus stay in business, the organization must
working on job-related activities, and nonproductive time, carefully plan its cash reserves, timing of cash disburse-
which includes vacation, holidays, and sick time. Depend- ments, and any borrowing and investing activities.
ing on an organization’s fringe benefit policies, it will need
1.1 or more FTEs to realize 1.0 FTE of productive time. The Budgeting Process
Each area of the organization needs a way of quantify- Creating a budget entails a fairly linear set of sequential
ing its productivity. As stated earlier, a UOS is the logical steps, some of which occur at the organizational level and
measure of work for a given area. In the laboratory, it is some that are done at the departmental or cost center levels.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 609

Step 1. Establish organizational goals and objectives. Step 10. Submit the budget to the organization’s board
Although the senior management usually sets these, it is of directors for approval. Usually, current year and prior
not uncommon for departments to develop their own ob- year results form the basis on which the new budget is
jectives in support of the broader organizational goals. For developed. This process is called incremental budgeting.
instance, a hospital may set a goal to expand market share An alternative used in some organizations is zero-based
in ABC County by 3%. This, in turn, might lead to a goal budgeting. Under this approach, every expenditure must
of establishing a satellite facility in that county. The labo- be justified as if the service were starting from scratch, and
ratory might then establish objectives for equipping and it must be established that other ways to provide a ser-
running a laboratory or phlebotomy station at that satellite. vice are not more cost-effective. While this can be time-
Step 2. Review key environmental factors, such as de- consuming, it forces a regular reexamination of why things
mographics, political and regulatory issues, competition, are done the way they are and whether they still fit with the
technology, and the economy. This function is usually per- organization’s mission.
formed at the organizational level, although the laboratory Another refinement to the budget process is the use of
may have unique information about its particular niche, flexible budgets. The process that has been described so far
such as the marketing activities of a regional reference lab- results in a fixed budget, one in which an annual budget
oratory with which it is competing for outpatient testing. is developed and approved, after which this agreed-upon
Step 3. Determine starting assumptions about inflation, budget acts as the yardstick against which monthly perfor-
payment levels, admissions, and other key volumes. This mance is monitored. Recall, however, the earlier discussion
function is usually performed at the organizational level. about cost behavior (fixed, variable, etc.). It is relatively
Step 4. Develop the statistical budget for each UOS in the straightforward to divide an organization’s expenses into
organization. This budget is completed at the department those that vary with changes in UOS and those that do
level using the information garnered in steps 1 to 3. The not. Subsequently, the variable portion of the budget may
laboratory manager will need to consider projections of the change with volume for purposes of monitoring perfor-
number of admissions and the length of stay to forecast vol- mance. This approach is known as flexible budgeting.
umes of inpatient laboratory tests and will have to estimate
the activity for various outpatient departments to forecast Budget Examples
volumes of outpatient laboratory tests. If the laboratory is Table 33.9 is an example of a staffing worksheet that is
freestanding or has nonaffiliated clients, managers must de- prepared to calculate how many FTEs a laboratory di-
velop forecasting methods for these markets as well. vision would need for the upcoming fiscal year and the
Step 5. Develop the revenue budget, based on the statis- costs associated with those FTEs. In practice, more de-
tical volumes forecasted in step 3 multiplied by the applica- tailed information is required than just FTEs and hourly
ble charges per UOS, resulting in the gross revenue budget. rates to generate an accurate staffing budget. A manager
In most organizations, consideration of contractual allow- also has to break down each employee’s hours into the
ances, write-offs, and bad debt occurs at the organizational different shifts that he or she works, so that any differen-
level, for purposes of estimating the net revenue budget. tial rates can be applied. Examples of typical differential
Step 6. Prepare the expense budget on the basis of the rates would be for weekends, evenings, nights, holidays,
data gathered in steps 1 to 4. Because labor often consti- overtime, etc. In this example, the manager is requesting
tutes roughly 70% of a healthcare organization’s budget, 19.36 FTEs, which equates to $998,247 in salary expense
the expense budget is frequently broken down separately and $299,474 in fringe benefit expense (such as payroll
into a staffing budget and a nonpersonnel expense budget. taxes, health insurance premiums, etc.). Notice that the
The staffing budget takes into account the numbers and salary expense is broken down into productive and non-
types of employees, pay rates, and FTEs required in each productive components. This allocation is commonly
cost center. Nonpersonnel expenses include the various done to track nonworked but paid hours versus the actual
supplies consumed and services utilized to produce the worked hours.
UOS forecasted. Table 33.10 is an example of a worksheet that is used
Step 7. Assuming the capital budget was produced in to analyze a budget being requested by a manager. In this
parallel with the previous steps, there is usually a process example, the starting point is a pro forma budget that was
of negotiation and revision between department heads and calculated by (i) projecting any changes in volume and
senior managers once all of the departments’ budgets are (ii) using the revenue and expense per UOS from the pre-
rolled into one organizational budget and the operating in- vious year to adjust both revenues and costs.
come is calculated. This calculation allows for a comparison between what
Step 8. Develop the cash budget. one would expect for revenue and expense, given a certain
Step 9. Continue negotiations and revisions across the volume level, and what the manager is actually requesting.
organization. The manager will need to present a valid case for deviating
610 FINANCIAL MANAGEMENT

Table 33.9 Staffing worksheet

from the pro forma budget. Once the differences between president for ancillary services looks at summary reports
the pro forma budget and the requested budget, i.e., the vari- for the laboratory, radiology, pharmacy, etc.
ance, have been resolved with senior management, the last Variance analysis is critical to the control function of
step in the process is to apply inflation factors to the ap- management. Having established a budget, the extent to
proved budget (if all the variances have been accepted) and which actual experience differs from the budget represents
generate the final budget for the upcoming fiscal year. a variance. Controllable variances can be resolved by man-
agement action. Vendors may be substituted, contracts
may be renegotiated, or alternative methodologies may be
Variance Analysis pursued. Other variances are not controllable, such as a flu
Management reporting is a process of communicating epidemic that drives up demand for services above what
actual versus budget performance throughout the orga- was budgeted, but as a result may require management to
nization to identify necessary corrective actions and help make changes to more discretionary expenditures to off-
make decisions. Distribution of reports usually follows the set the uncontrollable epidemic factor. Variance analysis
organizational structure. Detailed line item reports are commonly focuses on the company’s actual results versus
analyzed at the cost center level. These reports roll up into budgeted expectations on a line-by-line basis for each cost
more and more summaries as one moves up the chain of center. It is important that the line manager who has the
command. For example, a chemistry supervisor reviews understanding of the cost center and the ability to make
more detail than does the laboratory manager, who looks any necessary changes actually perform this analysis. It is
at summary reports across the laboratory, while the vice the job of the manager to explain the variances to superiors.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 611

Table 33.10 Worksheet for constructing a budget

Table 33.11 is an example of a typical variance report for a than was budgeted, an unfavorable quantity variance that
laboratory division. helps explain the unfavorable salary dollar variance.
Cost variances can have several causes. Volume vari- Any variance can be broken down into one of three
ances result from a change in the volume of services per- main causes: volume, price, or quantity. If the cause of the
formed, either up or down. A flexible budget, described in variance is understood, a manager can tailor the response
the previous section, takes account of these variances. At rationally and appropriately. Analysis and reporting of
the top of Table 33.11, you can see that volume is under variances are ongoing processes and should be conducted
budget by $1,797, or a little less than 1%. Price variances monthly in order to respond quickly. As with cost account-
are due to a change in the price of a supply or service ver- ing, however, the effort should be justified by the informa-
sus what was anticipated in the budget. In Table 33.11, lab- tion gained in the process. Normal random fluctuations
oratory supplies are budgeted at $1.13/UOS, but the actual will cause small variances, so it is useful to establish trig-
cost is $0.89, a $0.24 favorable price variance. Quantity, or gers to indicate when further investigation is warranted.
efficiency, variances represent differences in the amount Control charts, as illustrated in Fig. 33.7, are useful tools
of inputs (labor and/or supplies) used to produce each for this purpose. In this chart the budget monthly test vol-
UOS. The budget in Table 33.11 considers 16,818 tests per ume serves as the median line. The upper and lower limits
FTE (290,784 tests divided by 17.29 FTEs), and the actual represent arbitrary figures that are 5% above and below the
is only 15,792/FTE, so more employee hours are required budgeted volume.
612 FINANCIAL MANAGEMENT

Table 33.11 Variance report

Variations in labor, which can be further analyzed, decision be made as to whether they are justified by suf-
are important because labor costs constitute such a large ficient benefit to the organization. At the bottom of Ta-
portion of expenses. Both labor costs and hours can be ble 33.11, one can see that in this example FTEs are over
divided into worked and paid categories. The duties of budget by 1.01, or 5.86%.
workers who are vacationing, attending conferences, Laboratory productivity, defined as the UOSs produced
sick, or injured must be assumed by others; the propor- divided by the laboratory inputs required to produce
tion of costs due to a reduction in worked versus paid them (in either hours or cost), should be benchmarked
time may be important for the organization. Worked against regional and national peers to gauge the labora-
time can be further subdivided into productive and tory efficiency of the organization. At the bottom of Table
nonproductive. The variance due to assuming the du- 33.11, you can see that for this example hours per UOS
ties of staff who are attending a conference is considered are over budget by 0.01, or 6.51%. This variance is caused
nonproductive worked time. Only if such expenses are by a combination of volume being slightly under budget
adequately identified and characterized can a rational and FTEs being over budget.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 613

12,500
Financial Statements
In the previous section, we discussed internal reporting
12,000
and variance analysis, which management uses to control
Upper Limit expenses and help make decisions. In this section, we turn
11,500 to external reporting of an organization’s finances. The var-
Volume
e

ious groups of people interested in the financial health of an

Budget
11,000
organization include stockholders who have invested in the
company (or potential stockholders), creditors who might
loan the company money, and government agencies that
10,500
Lower Limit
regulate the company. Management itself also uses finan-
cial statements to help monitor the activities of the firm.
10,000
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
The three primary financial statements are the balance
sheet, the income statement, and the cash flow statement.
Month The balance sheet (Table 33.12) is a snapshot of a firm’s
Figure 33.7 Volume control chart. financial position at a particular point. It has two sec-
doi:10.1128/9781555817282.ch33.f 7 tions: assets and equities. Assets are economic resources
that are expected to benefit the company’s activities. Eq-
uities are claims against or interests in the assets. Equities
are divided into liabilities and owners’ equity. Liabilities
are economic obligations of the organization. Owners’ eq-
uity (usually called stockholders’ equity) is the ownership

Table 33.12 Balance sheet for an organization as of September 2012

614 FINANCIAL MANAGEMENT

claim against the total assets. Balance sheet account bal- present the results of financial management, as opposed to
ances carry over from year to year, whereas income state- the operating management reflected in the income statement.
ment account balances start from zero at the beginning of
each new fiscal year. Financial Ratios
The income statement in Table 33.13 reports the results
Several key indicators, expressed as ratios, can help us under-
of a firm’s operations over a period of time by matching its
stand the financial health of an organization as represented
revenues to its expenses, while the cash flow (CF) statement
in its statements. There are four categories of financial ratios:
in Table 33.14, also called the statement of changes in finan-
cial position, reports the impact of operating, investing, and • Liquidity ratios measure the ability of a firm to meet
financing activities over a period of time. Its purpose is to its immediate obligations, i.e., the relationship

Table 33.13 Income and expense statement for an organization, year-to-date September 2012
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 615

Table 33.14 Cash flow statement for an organization, September 2012

between a firm’s cash and other current assets to its combination thereof. We reviewed how to measure full cost
current liabilities. and how it differs from marginal cost, which is the change
• Asset management, or activity, ratios measure how ef- in total cost relative to a change in volume. An extensive
fective a firm is at managing its assets. costing example showed what data are needed to generate a
cost analysis and how to cost a basic laboratory test.
• Debt management, or leverage, ratios measure both
Understanding the relationships among cost, volume,
the extent to which the firm is financed with bor-
and profits allowed us to calculate contribution margin—
rowing and its likelihood of defaulting on its debt
the revenue per UOS less its marginal cost—and break-even
obligations.
point, which is total fixed cost divided by the contribution
• Profitability ratios measure the combined effects of margin per UOS. These concepts were applied to an equip-
liquidity, asset management, and debt management ment purchase and to evaluating a capitation contract. The
policies on operating results. equipment purchase decision was then augmented by ap-
Although the financial ratio values themselves, or plying time value of money concepts to capital acquisition
their trends over time, provide useful information, their plans using the NPV and IRR calculations. These tech-
greater value comes from comparing them to industry av- niques allow for acquisitions with different future cash
erages. As an example, the automotive industry, with its flow patterns to be compared in today’s dollars. We looked
well-established firms, will have a very different financial at purchasing versus leasing and compared two pieces of
structure than firms in the Internet industry. A negative equipment using these techniques.
profitability ratio in the automotive industry would be We then turned to the budget process and reviewed
viewed as a sign of poor financial health, but in the In- the three common types of budgets: the operating budget
ternet industry it may not be viewed this way (or, at least, (which consists of a statistical, or volume, budget; a rev-
so it was once thought). Table 33.15 shows the financial enue budget; and an expense budget), the capital budget,
ratios for the financial statements shown in Tables 33.12 and the cash budget. We learned the concepts of FTE and
through 33.14. UOS, two key building blocks in budget development. We
walked through the 10 steps of the budgeting process and
illustrations of staffing and budget worksheets. With the
Summary budget as the baseline, we looked at management report-
In this chapter, we began with cost accounting and dis- ing and how to analyze the causes of differences in actual
cussed the types and behaviors of costs. Direct costs are financial performance from budgeted amounts. We broke
clearly associated with the item being costed, while all variances down into one of three causes: volume, price, or
other costs are indirect. The behavior of costs relative to quantity variances. Finally, we discussed the importance
changes in volume can be variable (in direct proportion to of understanding which factor is responsible in order to
volume) or fixed (constant regardless of volume) or some direct the manager’s response.
 616

Table 33.15 Ratio analysis for an organization, September 2012

FINANCIAL MANAGEMENT
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 617

We learned about the three primary financial state- Capital lease A lease in which the firm retains ownership of the
ments: The balance sheet is a snapshot of the company’s asset at the end of the lease period.
financial condition at a given point in time and is a cu- Capitation A reimbursement mechanism in which the service
mulative statement; the income statement reports the re- provider receives a fixed payment based on the number of covered
sults of the company’s operations over a period of time; lives. The payment does not fluctuate with the level of activity.
the cash flow statement presents the results of financial, Cash accounting Records revenue and expenses when the cash
as opposed to operating, management of the company. We has either been paid out or collected.
used four types of financial ratios to reveal information
Cash budget The cash management plan for how the opera-
about an organization’s financial health from its financial tional and capital budgets will be supported.
statements: liquidity ratios, asset management ratios,
debt management ratios, and profitability ratios. Ratios Cash flow (CF) Cash revenues less cash expenses; excludes non-
are best used in comparison to other companies in the cash expenses such as depreciation.
same industry. Cash flow statement Reports the impact on cash flow of a firm’s
operating, investing, and financing activities over a period of time.
KEY POINTS Contractual allowances Discounts on gross charges given to
third-party payors who have a negotiated contract with the bill-
■ Cost accounting is an important tool for controlling ex-
ing provider.
penses and making good resource allocation decisions.
Contribution margin The excess of revenue over variable costs.
■ Marginal costs and the break-even point are relevant
when considering taking on additional work. Cost accounting A system of measuring and reporting informa-
tion about cost.
■ Capital investments, such as equipment purchases, re-
quire an NPV approach to decision making. Debt management ratios Measure of both the extent to which
the firm is financed with borrowing and its likelihood of default-
■ Budget creation and monitoring should be vested in the ing on its debt obligations.
managers responsible for implementing the changes
Depreciation An annual charge of an asset’s cost into each year
that affect the budget.
of the asset’s useful life, for assets that have a useful life of greater
■ Regular variance analysis, especially in regard to labor, than 1 year.
is critical to managing within a budget.
Direct allocation Allocates costs of each service department di-
■ Financial statements and their corollary financial ratios rectly and only to revenue-producing responsibility centers.
are useful for benchmarking against other organiza- Direct cost A cost that can be traced to, or caused by, a particu-
tions in the same industry. lar service, product, segment, or activity of the department.
Discount rate The rate used to calculate the present value of fu-
GLOSSARY ture cash flows.
Accounts receivable Money that is owed to the firm by outsiders. Equity Claims against, or interests in, the assets of a company;
Accrual accounting System that records revenue and expenses divided into liabilities and owners’ equity.
as they occur. Expense budget The amount of resources that will be required
Asset (and asset accounts) The resources owned or used by to produce the forecasted activity.
the firm. Fiscal year The year on which the general ledger is based. It can
Asset management ratios Measure of how effective the firm is be different from the calendar year. The fiscal year used by a firm
at managing its assets. is usually based on the norm of the industry to which it belongs.
Average cost Full cost divided by the unit of service. Fixed budget A budget in which the budgeted amounts do not
Bad debt Recorded as an expense for gross charges that are fluctuate with the volume.
deemed uncollectable from self-payors. Fixed costs Costs whose total remains constant regardless of
Balance sheet Shows assets on the left side and liabilities or changes in level of activity.
claims against assets on the right side. The balance sheet shows a Flexible budget A budget in which the variable portion of the
firm’s financial position at a particular point in time. budget fluctuates with the level of volume.
Break-even point The level of activity at which revenue and to- Full-time equivalent (FTE) The proportion of an employee’s
tal costs are exactly equal. paid hours per year to the standard labor measure, which is typi-
Capital The cash required to purchase the firm’s property, plant, cally 2,080 h (5 days × 8 h × 52 weeks per year).
and equipment. Fund accounting A form of accounting in which revenues and
Capital budget The financial plan for the acquisition of capi- expenses must always be equal and expenses are stopped when
tal assets. revenue is exhausted.
618 FINANCIAL MANAGEMENT

Future value (FV) The amount to which a given amount of cash Required rate of return Known as the hurdle rate or cost of
will grow at the end of a given period of time when compounded capital, it represents the minimum return on investment a firm
at a given rate of interest. requires on capital expenditures.
General ledger The system that records all accounting activity. Revenue budget The revenue that will be generated by the fore-
Income statement Reports the financial results of a firm’s opera- casted activity for a responsibility center.
tions over a period of time. Semi-variable costs Costs that include both variable and fixed-
Incremental budgeting Uses prior year results as a basis for cost elements.
building the current year budget. Standard cost A measure of how much an item should cost,
Indirect cost A cost that cannot be traced to a particular service, rather than a record of how much it actually did.
product, segment, or activity. Statistical budget The forecast of activity for a responsibility
Interest rate The amount charged by lending institutions for the center.
use of the money borrowed by a firm. Step-down allocation Distributes the costs of the service de-
Internal rate of return (IRR) The rate that equates the present partments providing the most services to all departments. All
value of a project’s expected cash inflows to the present value of remaining service departments’ costs are then allocated in de-
the project’s costs. scending order determined by the amount of service they
render.
Liabilities (and liability accounts) The debts or obligations
owed to outsiders. Step-fixed costs Costs that are fixed over a range of activity and
Liquidity ratios Measure of the firm’s ability to meet its imme- are then increased when activity levels go up.
diate obligations; thus, the relationship between a firm’s current Stockholder equity accounts The difference between a firm’s as-
assets and its current liabilities. sets and liabilities (claims against assets). The accounts are re-
Long-term debt The firm’s obligations that are due after more ported on the balance sheet and have natural credit balances.
than a year. Time value of money A concept that recognizes that a dollar of
Management reporting A process of communicating actual cash today is worth more than a dollar of cash to be received at
versus budgeted performance throughout the organization to some time in the future.
identify necessary corrective actions and help make decisions. Unit of service (UOS) The logical measure of work for a given
Marginal cost The change in total cost relative to the change in area. In the laboratory, it is usually the number of billed tests or
volume, i.e., the cost of producing one more unit of service; in- procedures performed.
cremental cost. Variable costs Items of cost that vary, in total, directly, and pro-
Net present value (NPV) The present value of future net cash portionately with volume or level of activity changes.
flows, discounted at the cost of capital.
Variance analysis The process of analyzing differences in actual
Nonproductive time Paid time for non-job-related activities versus budgeted performance to identify necessary corrective ac-
such as vacation, holidays, and sick time. tions and help make decisions.
Operating budget The financial plan for managers with direct Volume variance The difference between the volume of services
responsibility for managing the operations of a responsibility performed versus the volume that was budgeted.
center(s). The operating budget is made up of a statistical budget,
a revenue budget, and an expense budget. Write-offs Recorded reductions in revenue for gross charges
that are deemed uncollectable from third-party payors.
Overhead costs Costs that are from non-revenue-generating
departments. Zero-based budgeting A budgeting methodology in which ev-
ery expenditure must be justified regardless of the prior year’s
Owners’ equity The ownership claim against the total assets of a results.
company (also called stockholders’ equity).
Present value (PV) The value today of a future cash flow.
Price variance The difference between the price of a supply or REFERENCES
service versus the price that was budgeted.
1. Finkler, S. A. 1994. Cost Accounting for Health Care Organiza-
Productive time Paid time for job-related activities. tions. Aspen Publishers, Inc., Gaithersburg, MD.
Profitability ratios Measure of the combined effects of liquid- 2. Horngren, C. T. 1984. Introduction to Management Accounting,
ity, asset management, and debt management policies on oper- 6th ed. Prentice-Hall, Inc., Englewood Cliffs, NJ.
ating results. 3. Joy, O. M. 1983. Introduction to Financial Management, 3rd ed.
Quantity variance The difference between the amount of inputs Richard D. Irwin, Inc., Homewood, IL.
(labor and/or supplies) used to produce each unit of service ver- 4. Pavlock, E. J. 1994. Financial Management for Medical Groups.
sus the quantity that was budgeted. Medical Group Management Association, Englewood, CO.
Introduction
34
Contextual Considerations
Financial Decision Making:
Analytical Underpinnings of a Decision Putting the Pieces Together
Executing the Plan
Summary
Ronald J. Bryant and Michael R. Lewis
KEY POINTS

OBJECTIVES
To place the financial decision-making process in the context of the laboratory,
the institution, and the broader healthcare environment
To review important considerations in the financial decision-making process

If you know how to spend less than you get, you have the philosopher’s stone.
Benjamin Franklin

O
ptimal allocation of a laboratory’s finite financial resources,
while ultimately a numbers-driven task, depends not only on the
quality of available financial analyses but also on factors that are not
readily quantified: the manager’s understanding of the organization’s strat-
egy, his or her recognition of the institutional and extra-institutional envi-
ronments in which the laboratory is operating, and his or her aptitude for
employing nonfinancial (e.g., human) resources effectively. Each of these
facets of financial management has been addressed in a preceding chapter in
this section; we seek here to integrate these perspectives into an approach to
making financial decisions.

Contextual Considerations
The sweeping influence of reimbursement reform will have an impact not
only on hospitals and individual physicians but on laboratories of all sizes and
structures, regardless of the laboratory’s position as an independent entity or
a subunit of a large organization. Fundamentally, the laboratory will be trans-
formed from a profit center to a cost center, and the effects of this shift will
be predictably dramatic. The shift from a model in which higher volumes are
rewarded financially to one in which containment of volumes and elimination
of unnecessary testing directly affect the bottom line will necessarily influence
decisions about which activities make sense to start, continue, or stop.
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia Compounding the difficulty of analyses in this new environment is the ex-
©2014 ASM Press, Washington, DC pected integration of many laboratories into accountable care organizations
doi:10.1128/9781555817282.ch34 (ACOs) that will more directly link the financial fortunes of the laboratory

619
620 FINANCIAL MANAGEMENT

with those of a variety of physician practices and hospitals. outside of the laboratory to ensure that managers are up
Much of a laboratory’s revenue will likely be fixed based to speed on institutional initiatives and conversant in the
on the size of the population receiving care from an ACO, operational and financial language of the institution is im-
making cost containment an even greater imperative. In perative if laboratory decisions are to make sense in the
such circumstances, a valid cost analysis will look not broader context. Returning to our example, how can the
merely at costs borne directly by the laboratory but also laboratory manager make an evidence-based decision re-
at those incurred by the larger organization. While taking garding molecular virology without an understanding of
a broad view such as this has been intellectually appealing the extra-laboratory effects of such testing? Would inpa-
even in the fee-for-service era, such forward-thinking ap- tient length of stay (LOS) be shortened if such tests were
proaches have not always been well rewarded under the available? Would empirical use of antimicrobials be re-
existing management structures of large institutions. duced? Would admissions be reduced? How much would
Consider, for example, a decision regarding the intro- these changes save the system? While assigning precise
duction of molecular techniques (e.g., real-time PCR) in dollar figures to incremental changes in LOS is problem-
the virology section of a microbiology laboratory. Capi- atic and beyond the purview of the laboratory manager,
tal expenditures would be substantial, and there would communication between the manager and colleagues ad-
be associated needs for space, training time for technical dressing such issues is necessary to ensure that financial
staff (“nonproductive” time in the accounting sense), and decisions in the laboratory are based on consideration of
infrastructural support (including building tests in the the wide range of pertinent data.
laboratory information system and billing system, client
education, etc.), all of which would increase laboratory
costs in the short term. Assuming that reimbursement Executing the Plan
for these new tests is unlikely to offset the associated As the influences on and ramifications of financial deci-
start-up costs, a management culture reliant on “silo”- sions made in the laboratory broaden with the evolution
based budgets and variance reports could cause a labo- of the environment in which laboratories operate, it is clear
ratory manager to hesitate when contemplating such a that effective collaboration among colleagues with varied
move. Even if the manager believes that the overall im- backgrounds is essential for effectively making and imple-
pact on the organization’s finances would be favorable, menting decisions. The need for teamwork in develop-
deciding whether to proceed may not be straightforward. ing a suitable evidence base for decision making has been
Can the overall financial impact be known? Would this addressed above; no less important is effective human re-
move be aligned with the laboratory’s strategy and with source management to ensuring optimal performance in
that of the broader organization? the implementation phase. Returning to the example of mo-
lecular testing in virology, among the many tasks associated
with implementation would be communication with staff
Analytical Underpinnings of a Decision concerning the change, planning for resources (physical,
An accurate assessment of the costs associated with differ- human, financial) to implement the new technology, and
ent options is clearly essential, as is a reasonable forecast collaboration with billing, compliance, and information sys-
of the associated revenues. Techniques such as those de- tems personnel and with clinical colleagues, nursing staff,
scribed in chapter 33, by Tolzmann and Vincent, are em- and institutional authorities. All of these components are
ployed by many laboratories to develop cost data—costs necessary to ensure that the expected benefits are realized.
under the status quo as well as costs of contemplated ini- Not to be overlooked is the role of ongoing review of
tiatives. Communication with laboratory marketing and the laboratory’s decision-making process. Given the rapid
billing staff is necessary to develop plausible revenue sce- pace at which challenges arise, it is easy to postpone sys-
narios for options under consideration. Generating data tematic consideration of decision-making effectiveness.
that managers trust and that are timely is no small feat; Reflection on what has worked well and on ways to im-
nonetheless, while laboratory-specific figures are neces- prove the process, while unlikely to be considered urgent,
sary for the decision-making process, they are, as suggested is often undervalued and underutilized.
above, less and less likely to prove sufficient to the task as
the laboratory’s financial fate becomes even more tightly
intertwined with those of other institutions and providers. Summary
Understanding the impact of laboratory decisions on Effective financial decision making draws on varied aspects
the operations of the hospital or system, and being able of management. Beyond having the appropriate analytical
to quantify that impact, will become increasingly impor- tools, the manager must bring to bear an understanding
tant. Consequently, close collaboration with colleagues of the organization’s strategy, of the environment in which
 CHAPTER 34. FINANCIAL DECISION MAKING 621

the laboratory is operating, and of how to collaborate to ■ Strategic planning and clear delineation of goals are
make and implement decisions optimally. necessary prerequisites for effective financial decision
making.
KEY POINTS
■ Financial decision making takes place not only in a lab- ■ Successful decision making draws heavily on effective
oratory context but also under the influence of broader collaboration among motivated colleagues within and
healthcare forces. outside the laboratory.
Generation of Revenue
VI
(section editors: Vickie S. Baselski and Alice Weissfeld)
35 Correct Coding of Billable Services in the Clinical Laboratory
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
36 Approaches to Billing Laboratory Services
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
37 Charges and Fees for Laboratory Services
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Introduction
35
Procedure Coding: What Test Procedures
Correct Coding of Billable
Have Been Performed?
The CPT System
Services in the Clinical
Description • Types of CPT Codes • Modifiers • The
Process for Change • Procedure Coding Guidance Laboratory
Procedure Coding Alternatives
Capitated Services Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Diagnosis Coding: Why Is the Service
Being Performed?
Inpatient Diagnosis Coding • Outpatient Diagnosis
Coding • Other Unique Patient Groups • ICD-CM • OBJECTIVES
SNOWMED CT To explain the importance of using the standardized coding systems recognized
Service Location by payors
Role of CLIA and State Licensing • Revenue Codes
To discuss laboratory responsibilities to ensure that correct and complete
Documentation of Codes coding has been done
Requisition • Claims • Code Mapping
To describe the importance of the ICD-CM coding system and its relationship
Summary
to proper billing
KEY POINTS
To discuss the fundamental principles of correct and complete coding
GLOSSARY
REFERENCES
APPENDIX
Let the good service of well-deservers be never rewarded with loss. Let their
thanks be such as may encourage more strivers for the like.
Elizabeth I (1533–1603),
Queen of England (1558–1603)

T
he primary goal of laboratory medicine is to provide a variety of
laboratory services that facilitate the role of physicians and other di-
rect healthcare providers in the prevention, diagnosis, and treatment
of diseases by generating data upon which clinical decisions are made. It has
been estimated that although laboratory medicine accounts for only 5 to 7%
or less of total healthcare costs, the information generated drives 60 to 70% of
subsequent resource utilization and is estimated to direct at least 80% of all
clinical decision making (8). In turn, laboratory payments constitute a very
low percentage of actual payments to healthcare providers. For example, lab-
oratory services represent just under 2% of program spending for Medicare
Part B outpatient healthcare services and just over 2% of national healthcare
expenditures (13). By any standard, these figures demonstrate that laboratory
medicine services are a bargain as well as a critical component in the provision
of healthcare services. As a critical component of healthcare, it is essential that
a uniform approach to documenting laboratory services be used to track uti-
lization (16). The critical parameters that one must specify in accounting for
laboratory services include (i) the actual laboratory service (i.e., what test pro-
cedures the laboratory performed), (ii) the clinical reason for performing the
laboratory service (i.e., why the test procedures were performed), and (iii) the
specific laboratory type (i.e., the setting in which the work was performed).
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia For each of these parameters, the laboratory must use standard language to
©2014 ASM Press, Washington, DC communicate with payors and for use in benchmarking comparisons of prac-
doi:10.1128/9781555817282.ch35 tices to assess efficiency and effectiveness of services provided.

625
626 GENERATION OF REVENUE

Procedure Coding: What Test Procedures Table 35.1 The CPT system
Have Been Performed? Definition The CPT system is a proprietary product of the
AMA and is a listing of five-digit numeric and
A number of procedure coding systems have been de- alphanumeric identifiers with narrative descrip-
veloped to standardize the documentation of services tors, which are used for documentation of services
rendered for financial purposes, although one particular rendered.
system is primarily used in the United States and is also in A “billable service” may be defined as one that is
use in many other countries. The predominant procedure CPT codeable.
coding system is the Current Procedural Terminology Purpose To provide a uniform language that accurately de-
(CPT) system (2). This system is recognized by the U.S. scribes medical, surgical, and diagnostic services
federal healthcare payment programs (i.e., Medicare and for financial and administrative purposes.
Medicaid) as the official coding system and has been ad- CPT serves as a standard means of identifying and
opted in its entirety as the federal procedure coding system documenting services performed.
known as the Healthcare Common Procedure Coding Sys-
Code uses The basis for service order documentation and
tem (HCPCS). For procedures or practices not yet defined procedure results
by a CPT code, HCPCS codes may be established that are Claim and invoice generation and billing
used until an appropriate CPT code is available. The CPT Fee-for-service payment schedules
system is recognized by all other major third-party payors; Development of edits that assess the appropriate-
thus, it is an oft-stated adage that “as goes Medicare, so go ness of payment for the service
others.” The CPT system has also been designated as the Assessment of the productivity of laboratories in
Standard Electronic Healthcare Transaction Code Set for providing services
procedures under the Health Insurance Portability and Ac- Utilization review and outcomes in specific clini-
countability Act of 1996. However, it should be recognized cal situations
that alternatives do exist, and it was a recommendation of
the 2000 Institute of Medicine report Medicare Labora-
tory Payment Policy, Now and in the Future that “HCFA payment schedules, development of edits that assess the
(Health Care Financing Administration, now known as appropriateness of payment for the service, assessment of
the Centers for Medicare and Medicaid Services [CMS]) the productivity of laboratories in providing services, and
should review alternatives to the current system for coding utilization review and outcomes assessment in specific
outpatient clinical laboratory services for claims process- clinical situations (4, 11). All aspects of effective financial
ing. More accurate, open, and timely coding processes for management of the clinical laboratory begin with correct
new technologies, as well as tests and services should be and complete coding for all services rendered (14). In es-
sought” (10). Thus, general familiarity with alternatives sence, a “billable service” may be defined as one that is
(e.g., International Classification of Diseases, Version 10, CPT codeable.
Procedure Coding System [ICD-10-PCS], based on an
approach similar to the Logical Observation Identifier Types of CPT Codes
Names and Codes [LOINC]) is recommended (3, 17). All generally accepted laboratory service codes, termed
category I codes, are found in a specific pathology and
laboratory section that includes both clinical laboratory and
The CPT System anatomic services (Table 35.2). Clinical laboratory services
Description are further divided into discipline-specific subsections (e.g.,
The CPT system, a proprietary product of the Ameri- chemistry, hematology, immunology, transfusion medicine,
can Medical Association (AMA), is a listing of five-digit microbiology, molecular pathology). In addition, both
descriptors and numeric and alphanumeric identifiers technical testing services and professional, physician-pro-
that are used for documentation of services rendered vided services may be coded. In general, category I codes
(Table 35.1). The system was first developed in 1966 and represent services that are performed by many healthcare
is currently in its fourth edition. The purpose of CPT is professionals in multiple locations throughout the United
to provide a uniform language that accurately describes States, that have received Food and Drug Administra-
medical, surgical, and diagnostic services for financial and tion clearance or approval, if required, and that have been
administrative purposes and to serve as a standard means shown to have clinical efficacy. Technical category I codes
of identifying and documenting services performed (2). are of several types. Primary codes are those that denote a
These codes are multifunctional and serve as the basis specific procedure. Add-on codes are those that are per-
for service order documentation and procedure results, formed in addition to a primary code and are indicated
claim and invoice generation and billing, fee-for-service by a “+” symbol or by the descriptor language “use in
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES 627

Table 35.2 Types of CPT-4 codes track best practices associated with specific clinical con-
Category I All generally accepted laboratory service codes; ditions and are thus similar conceptually to Healthplan
found in the specific pathology and laboratory Employer Data and Information Set (HEDIS) monitors,
section (includes both clinical laboratory and which are widely used by managed-care plans. However,
anatomic services)
at this point there are no category II codes that specifically
Divided into specific subsections (e.g., molecular
pathology, chemistry, hematology, immunology,
address laboratory practices, although laboratory test use
transfusion medicine, microbiology) may be a component of the best practice algorithm asso-
Represents services that are performed by many ciated with a specific category II code. At this time, the
healthcare professionals in multiple locations use of category II codes is optional and nonessential for
throughout the United States, that have received correct coding.
Food and Drug Administration clearance or Category III codes were implemented in 2001 and are
approval, if required, and that have been shown
to have clinical efficacy
designed to be a temporary code set for procedures that
represent emerging technologies not yet meeting the re-
Category II Developed for performance measurement tools quirements for assignment of a category I code. They are
Initially released in 2003, with annual updates intended to be used to track utilization of these types of
Currently, there are no Category II codes that procedures and are updated biannually. It is possible that a
specifically address laboratory practices. category III code may eventually satisfy criteria for assign-
Use is optional and nonessential for correct ment of a category I code. However, from a correct-coding
coding. perspective, if a category III code is available, it must be
used. In addition, if not assigned to a category I code in a
Category III Implemented in 2001
five-year period, these codes may be retired. There have
Designed to be a temporary code set for proce-
dures that represent emerging technologies not been several category III codes that describe laboratory
yet meeting the requirements for assignment of a procedures.
category I code
Retired after five years if not moved to Category I Modifiers
There have been several category III codes that Modifiers are another important component of the CPT
describe laboratory procedures. system. Modifiers are composed of two-digit numbers that
are attached to a specific code prior to the billing process
(Table 35.3) (1, 2). They are “used to indicate that a ser-
addition to.” Organ- or disease-oriented panels represent vice or procedure has been altered by some specific cir-
AMA-approved and CMS-accepted test groupings that cumstance but not changed in its definition or code” (1).
are coded as a single billable test procedure and are gen- In laboratory medicine, there are several critical modifi-
erally performed conveniently as such on automated in- ers. The modifier -26 is used when a certain procedure is
struments. Technical services are often subject to payment a combination of a physician component and a technical
under a defined fee schedule that is updated on a regular, component. This modifier for “professional component” is
generally annual basis. only applicable in selected circumstances, usually involv-
Professional services are identified by specific CPT ing inpatients, when the professional “interpretative” com-
codes found in the anatomic pathology and cytology sub- ponent is reported separately.
sections and by two defined codes in a clinical pathology Duplicate services of the same type on the same type
consultation section. In addition, for a few designated of specimen from the same date of service are generally
clinical laboratory codes requiring clinical interpreta- not reimbursed but may be appropriate if modified with
tion, one may attach a two-digit modifier indicating that -91 (repeat clinical diagnostic test performed on the same
the code has both a technical and a professional compo- day to obtain subsequent reportable and clinically useful
nent that may each be billed by different entities. Cod- test values). However, this modifier may not be used when
ing and billing for professional services are also generally tests are rerun to confirm initial results (due to testing
subject to payment under a defined fee schedule that is problems with specimens or equipment) or for any other
developed through a resource-based relative value sys- reason when a normal, one-time, reportable result is all
tem (6, 12, 15). that is required.
Category II codes and category III codes represent Modifier -59 (distinct procedural service) identifies
newer components of the CPT system that were developed distinct and separate multiple services of the same type on
as a component of the CPT-5 (5th edition) project (Table the same date of service that “are not normally reported to-
35.2). Category II codes were developed as performance gether but are appropriate under the circumstances.” This
measurement tools and were initially released in 2003, modifier generally refers to different encounters with the
with updates generated annually. They are designed to same patient or different anatomic sites. Modifier -59 is
628 GENERATION OF REVENUE

Table 35.3 CPT modifiers used in laboratory medicine third-party payors use notices modeled after the ABN to
Modifier Description inform patients of their financial obligations for payment
-26 Certain procedures are a combination of a physi- for coded services.
cian component and a technical component; Use of modifier -GA is mandatory and indicates that
this modifier for “professional component” is Medicare is not likely to pay for a service and the patient
applicable only in selected circumstances, usually has signed an ABN. Modifier -GZ is optional and indicates
involving inpatients, when the professional “inter-
that Medicare is not likely to pay for a service but the pa-
pretative” component is reported separately.
tient has not signed an ABN. Modifier -GY indicates that
-91 Repeat clinical diagnostic test performed on the a service is statutorily excluded from payment and the pa-
same patient, on the same type of specimen from tient has acknowledged financial responsibility by signing
the same date of service, to obtain subsequent an ABN. Finally, -GX may be used when an ABN has been
reportable and clinically useful test values; this voluntarily issued for a noncovered service.
modifier may not be used when tests are rerun to
confirm initial results (due to testing problems
with specimens or equipment) or for any other The Process for Change
reason when a normal, one-time reportable result Since laboratory procedures are constantly evolving, par-
is all that is required. ticularly with the emergence of new technology, it is neces-
sary for the CPT system to undergo regular updates (Table
-59 This modifier (distinct procedural service) identi-
fies distinct and separate multiple services of the 35.4). Updates, which add, delete, and modify existing
same type on the same date of service that “are not codes, are issued annually after an extensive and system-
normally reported together but are appropriate atic review process that begins with the submission of an
under the circumstances.” This modifier generally AMA coding change request form by any individual, pro-
refers to different encounters with the same patient fessional group, or corporation. Each request undergoes a
or different anatomic sites.
complete review by AMA-appointed specialty committees,
-90 Used to indicate that a laboratory has referred a general CPT committees (the CPT Advisory Committee
procedure it is billing to a reference laboratory. and the Health Care Professionals Advisory Committee),
To use this code, laboratories must follow a 70-30 and ultimately the CPT Editorial Panel. The time frame
rule, which states that no more than 30% of total to effect a change is usually 15 months or more, with new
testing is referred out.
codes being released in midsummer since 2001 and the
completely updated CPT manual released in hard copy by
October prior to the January implementation date. Federal
also used to report services that may be considered a com- payors require use of new codes beginning in January (2).
ponent of another service but have been carried out in a
distinctly unrelated fashion. The modifier is not appropri-
ate if a procedure is repeated due to analytical error or to Table 35.4 Process and schedules for CPT code revisions
confirm or verify a result. Timing Action
Modifier -90 is used to indicate that a laboratory has 18 mo prior Code changes are proposed.
referred a procedure it is billing to a reference laboratory.
18 to 9 mo prior Proposals are reviewed by multiple AMA
To use this code, laboratories must follow a “70-30” rule, committees including:
which states that no more than 30% of total testing is re- Healthcare Professionals Advisory
ferred out. Committee
Laboratorians must also be familiar with a two-digit al- AMA CPT Advisory Committee and
pha character HCPCS modifier set to denote situations for subcommittees
which a CPT modifier does not exist. Modifier -QW is used AMA CPT Editorial Panel
to indicate that a procedure being performed in a Clinical February prior Final changes for the next calendar year
are approved by CPT Editorial Panel.
Laboratory Improvement Amendments (CLIA) waived-
Summer prior Early release of new codes for determina-
status laboratory has received a waiver to be performed as
tion of reimbursement
such from the CLIA program. A series of very important
October prior Publication of the new edition for the
HCPCS modifiers indicate the status of the acquisition of upcoming year
a “waiver of financial liability” (termed an advance ben- January 1 Mandatory Medicare implementation of
eficiary notice [ABN]) from the patient. The Medicare new codes
ABN must adhere to a specific format that should not be a October–January 1 Time for action. Systematic efforts to
component of a requisition. An ABN should be obtained verify codes, perform new cost analyses,
whenever it is likely that a service does not meet Medicare update charge masters, change informa-
payment rules and is therefore likely to be denied. Other tion systems, etc.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES 629

Other third-party payors generally follow the same time- units, ultimately creating a highly standardized, typically
line, but there may on occasion be disconnects. seven-digit, number, with each possible result from a proce-
HCPCS codes are also published annually but may be dure being mapped to a specific code. The breakdowns take
developed and issued any time it is deemed necessary to into consideration where the procedure was performed, the
supplement the CPT system. specific analyte type, the method, and the type of result. Un-
like CPT, LOINC is publicly available and can be used with
Procedure Coding Guidance no license fee. It is widely used by commercial laboratories
The selection and verification of CPT codes should be to track specific procedures from order to result.
performed annually, coincident with the release of an- The LOINC system formed the basis for the develop-
nual changes by the AMA. Correct coding is clearly the ment of the CMS ICD-10-PCS laboratory coding system
responsibility of the laboratory, in which the technical intended for use as an alternative to CPT (3). This system
knowledge of the current procedures resides. Laborato- was developed by 3M under contract to the Health Care
rians must pay close attention to the narrative descriptors Financing Administration (now CMS), with substantial
for the test procedures when selecting codes for use in input from specialty professional groups. It was finalized
documentation. Descriptors relate only to the procedure and released in 1999 but has remained inactive, as CPT has
and do not reflect the reason for performing the test. Doc- continued to be used as the “official” procedure code set.
umenting why a test is performed generally requires an
ICD-CM code. Note that there are some exceptions to this
duality of purpose. For example, the newly established Capitated Services
Medicare HIV screening benefit requires the use of newly Beginning in the 1980s, a trend toward paying capitated, or
established HCPCS codes that indicate both method and predetermined, amounts for management of a specific dis-
purpose (i.e., screening). ease or in a specific clinical circumstance rapidly emerged
There is an established hierarchy for choice of CPT (19). This trend began with the development of diagnosis-
codes that places analyte first, followed by method, and related groups (DRGs) under Medicare to classify reasons
then finally the use of a generic “not otherwise speci- for hospitalization, where payment amounts were defined
fied” code. If no match for the analyte and method can be based not on the actual procedures performed but on
found, then an “unlisted code” (usually ending with “-99”) the final diagnosis, while in other capitated payor plans,
is available. However, as specificity of coding decreases, hospitalizations were paid for on a per-diem basis. Subse-
the probability that a code will not be reimbursed without quently, this concept was extended to cover all outpatient
submission of additional documentation increases. One healthcare costs, and managed-care plans emerged that
should also review current HCPCS codes to determine if paid for all required services under terms like “per mem-
the procedure in question is described there. It is very im- ber per month” or “per covered life.” Finally, Medicare rec-
portant to ensure that one does not “unbundle codes,” that ognized special categories of patients for whom payments
is, select multiple individual codes rather than a compre- were similarly categorized by the condition or situation of
hensive single code (e.g., when coding for panels). Further, the patient and not by a compilation of individual proce-
the National Correct Coding Initiative directs that for fed- dures. Examples may be found in payment for services to
eral payor programs, “multiple tests to identify the same patients in skilled-nursing facilities (SNFs) or patients be-
analyte, marker, or infectious agent should not be reported ing treated in dialysis centers for end-stage renal disease
separately.” Keep in mind that the same guiding principles (ESRD). More recently, Medicare has similarly initiated an
generally apply to other third-party payors. outpatient prospective payment system based on defined
ambulatory payment classifications (APCs). Needless to
say, other third-party payors find inpatient payment by
Procedure Coding Alternatives this method to be financially gratifying, and Medicare is
The CPT system is obviously firmly entrenched in labora- seeking to move outpatients into managed-care situations.
tory management as the primary tool for procedure cod- In other words, the trend is definitely to try to find ways to
ing and subsequent billing of laboratory services. However, minimize payment for services.
there are alternatives that may gain wider use at a future Under such capitated or prospective payment systems,
date. Foremost among these is a system known as LOINC laboratories may find themselves in the situation of repre-
(17). With input from a consortium of laboratories, infor- senting financial liabilities rather than revenue generators.
mation system vendors, hospitals, and academic institu- To balance this perception, it is extremely important for
tions, the grant-supported Regenstrief Institute developed laboratories to develop mechanisms to document all work
and maintains LOINC. LOINC is considered a universal performed in a given clinical setting. Therefore, correct
laboratory language that is based on the systematic break- coding is also a key to success in capitated payment situa-
down of the components of a service into more specific tions. Knowledge of the exact amount of work performed
630 GENERATION OF REVENUE

per DRG or APC allows one to justify the allocation of a the hospital. The system was expanded in 2007 as a Medi-
specific proportion of the total payment to the laboratory. care Severity DRG system (MS-DRG). Currently more
This also allows one to “carve out,” or specifically exclude, than 750 MS-DRGs have been defined that take into ac-
unique high-cost niche test procedures from the contract. count clinical condition or reason for admission, medical
Thus, even in capitated payment situations, laboratorians responses, and presence or absence of complications. Each
should seek to code correctly for every laboratory proce- MS-DRG is weighted according to relative costs, inclusive
dure performed. of laboratory costs (although as already noted, the actual
Very recently, in keeping with healthcare reform changes laboratory component is generally quite low), and payment
promoted through the Patient Protection and Affordable schedules are published annually for a January implemen-
Care Act of 2010, the key concepts of coordinated, cen- tation date. DRGs are now used by many third-party pay-
tralized, and cost-effective care coupled with prospective ors to determine payment rates and are the primary basis
payment have been extended through accountable care for developing algorithms for cost-effective management
organizations (ACOs). While it is not clear how pathology of the condition specified by the DRG. These algorithms
and laboratory medicine services will be most efficiently are known as “critical pathways,” “clinical pathways,” or
structured under ACOs, it is clear that the intent will be to “care paths” and often include delineation of laboratory
provide services in the most cost-effective manner. While tests that should be performed as well as when testing is
some models suggest that laboratory algorithms may be appropriate (18). Correct coding of these tests provides the
used to reduce unnecessary testing, other models suggest laboratory a valuable means to track utilization as well as
that laboratory testing may increase in some settings due costs (16).
to expansion of the use of laboratory tests used to screen Such tracking has become very important recently,
for disease or disease precursors (7). In either model, cor- as the CMS has begun investigating why certain specific
rect coding and accurate documentation of services will be DRGs are consistently increasing both in relative propor-
essential for effective laboratory management. tion of total admissions and in percentage of total costs in
a project dubbed “Project DRG Creep.” In addition, begin-
ning in 2008 the CMS began to identify specific hospital-
Diagnosis Coding: Why Is the Service acquired conditions (HACs) that were not present on
Being Performed? admission (POA) and are deemed preventable. In the case
As previously stated, the purpose of laboratory testing is of the occurrence of a specified HAC, no additional reim-
to facilitate the management of a patient by a physician or bursement for the complication is made. Documentation
other authorized healthcare provider. Thus, to accurately of both the HAC as well as the tests performed as a com-
and completely document laboratory testing for both finan- ponent of documenting the HAC will assume increasing
cial and clinical purposes, it is important to also document importance as the list of HACs increases.
the reason(s) for performing the test. This too requires the One other critical parameter in coding for inpatient
use of a standardized and systematic approach if maximum procedures pertains to the DRG payment window. At pres-
information is to be readily obtained for administrative and ent, any procedure performed by an affiliated laboratory
financial purposes. The systems currently in use take into three days or less prior to an admission is deemed to be
account the patient environment (e.g., inpatient versus out- a component of the payment for the admission DRG that
patient) as well as the actual diagnosis, signs and symptoms, should not be billed separately. After discharge as well, any
or other reason for the encounter. It is now both a statutory tests ordered on specimens collected during the hospital
requirement for Medicare as well as an almost uniformly stay are considered as a component of the DRG assigned.
accepted requirement for other third-party payors to pro- However, it is still in the laboratory’s best interest to con-
vide diagnostic information for claim review prior to pay- tinue to code for these procedures to document the actual
ment for services. The information is used to verify that a work performed. Physician professional services are not
procedure is clinically necessary for payment purposes and included in the DRG but are billed separately.
to determine if it is clinically appropriate and useful for pa-
tient management in utilization review. It should also be Outpatient Diagnosis Coding
acknowledged that provision of specific diagnostic infor- Medicare has initiated a prospective payment program
mation with each orderable and billable test is useful in the for outpatient visits similar to the DRG system. As previ-
laboratory to ensure appropriate laboratory handling. ously discussed, this prospective payment system is based
on APCs. However, at this point, laboratory payments are
Inpatient Diagnosis Coding excluded from the APC payments, and tests continue to
For inpatient purposes, the DRG prospective payment sys- be billed on a fee-for-service basis. It is likely that at some
tem has already been mentioned. Effective in 1983, this point in the future, to control costs, the prospective pay-
system assigns a final diagnosis to each patient admitted to ment will be modified to include laboratory services.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES 631

Other Unique Patient Groups “systematized nomenclature of medicine clinical termi-

Medicare also recognizes some unique patient groups for nology.” This system was developed in conjunction with
management and administrative purposes. For these groups, the United Kingdom’s National Health Service and is
laboratory tests are frequently combined with other services now maintained by the International Health Terminol-
for reimbursement. Examples include patients in end-stage ogy Standards Development Organisation (IHTSDO).
renal disease (ESRD) clinics and patients in skilled-nursing The system is designed to easily map to other diagnostic
facilities (SNFs). If providing services to these groups, labo- terminology systems, but it is unique in its ability to show
ratories must be aware of the specific billing rules. expected and logical relationships between clinical con-
ditions (5). For example, with the ICD-9-CM a foot ulcer
ICD-CM may have diabetes as a contributing diagnosis, but with
For all of the above diagnosis groups, the actual payment SNOMED, it is a diabetic foot ulcer. It should be noted
is based on a complex formula that takes into account both that the ICD-10-CM revisions similarly improve upon
the specific clinical conditions as well as the diagnostic condition linkages. Like other major proprietary coding
procedures used. The primary coding system for docu- products, SNOMED is subject to regular updates and re-
mentation of the clinical conditions leading to a patient quires an appropriate license for use.
encounter is the International Classification of Diseases,
Clinical Modification (ICD-CM). The ICD-CM used in
the United States is currently the 9th edition (ICD-9-CM) Service Location
but will be replaced in 2014 with a significantly modified The last major issue in correct coding is the assignment
and expanded 10th edition (ICD-10-CM) (9). Basically, the of credit for the work performed as well as credit for the
ICD-CM system provides a mechanism to classify morbid- revenue generated to the entity performing or billing the
ity data for medical records, for medical care review, and for services. In most large laboratories, there are multiple de-
basic health and utilization statistics. It is the official CMS partments performing testing, and it is necessary to assign
system for assigning codes for clinical conditions associ- each entity designated as an independent financial center a
ated with consequent medical procedures, including labo- unique identifier for financial analysis purposes.
ratory testing. The system is maintained by a consortium of
professional clinical medicine groups, professional medical Role of CLIA and State Licensing
record groups, the National Center for Health Statistics, Under CLIA, each laboratory has a unique certificate
the CMS, and the World Health Organization. Updates are number that validates its status as a billing entity for fed-
made on a quarterly basis and published for public use. eral healthcare programs. Most other paying entities also
The ICD-CM is composed of a tabular numerical list use CLIA certification as an indicator of the operational
of diagnoses, signs and symptoms, and clinical conditions validity of the laboratory. Laboratories may only bill for
or reasons for a physician encounter. The system includes work performed that is compatible with the CLIA service
both disease conditions or signs and symptoms, and pre- level that they are assigned unless the laboratory is billing
ventative medical reasons for encounters. When a test is reference work properly modified as previously discussed
performed on a patient with signs, symptoms, or a specific with modifier -90 and not exceeding 30% of the test vol-
diagnosis, the purpose is typically diagnostic or for moni- ume. Many states also have stringent facility licensing re-
toring progression. Such tests are often deemed “medically quirements, and in those states, a billing entity must also
necessary” and are typically reimbursed. When a test is have a valid state licensure status. CLIA and some states
performed in the absence of signs, symptoms, or a specific require the facility certificate or license numbers to appear
diagnosis to identify patients with clinically silent disease, a on claims.
disease precursor, or risk factors for a disease, it is referred
to as a “screening test.” Such tests may or may not be eligible Revenue Codes
for reimbursement (an issue further discussed in chapters Revenue codes comprise a system for categorizing and
36 and 38). The system also allows coding for exposures billing services that is recognized by CMS and most third-
and sources of external injury, as well as a classification party payors. This system is maintained by the National
system for surgical, diagnostic, and therapeutic procedures Uniform Billing Committee of the American Hospital As-
for inpatients. While ICD-9-CM lists approximately 13,000 sociation and is designed to standardize major revenue-
codes, ICD-10-CM lists approximately 68,000 codes. producing centers in an institutional setting, particularly
hospitals. For each test performed and charge code billed,
SNOMED CT the institution should determine which revenue code
An alternative clinical coding system developed by the is most appropriate to assign credit. Both charge codes,
College of American Pathologists is called SNOMED CT, which map to CPTs, and revenue codes, which map to ac-
which is an acronym for a comprehensive and precise tual testing location, must appear on claims.
632 GENERATION OF REVENUE

Documentation of Codes on either the requisition or the claim form may result in
failure to be reimbursed for otherwise payable services.
Two types of documents important in the billing and reim-
bursement process require the documentation of the codes Code Mapping
assigned for procedures, diagnoses, and revenue centers
For optimal use of coding data obtained from requisitions
appropriate to the testing. First is the requisition, which
and claims as a component of operational efficiency analy-
documents both the order and the diagnosis, and then the
sis, it is essential that there be a direct link between com-
claim form or invoice, which allows transmission of the
mon elements in use. The common test names that appear
bill for services to a payor. Healthcare providers frequently
on the requisition or in the electronic order entry system
use coding data from both requisitions and claims in over-
used by ordering providers should link to a specific CPT
all financial assessments of the laboratory operational ef-
code or code set. Similarly, the common name and the re-
ficiency. Therefore, it is important that the laboratory have
lated CPT code(s) should link to line items on the charge
a clear understanding of how each test name or procedure
master for billing purposes. In addition, the laboratory
relates to a specific code.
service manual should have information on codes used,
Requisition particularly for external clients who may independently
bill for services. Since CPT codes are updated annually, a
Requisitions may be manual (hard copy) or, preferably, careful and well-documented annual review of all related
electronic but should be designed to facilitate the capture documents is strongly encouraged.
of all of the required data for accurate processing of an
order as well as effective processing of a claim or invoice.
Standard elements include demographics of the patient, Summary
billing information, ordering provider contact and au-
It is of paramount importance for the documentation of
thenticity information (the unique provider identification
services rendered that laboratories employ the standard-
number), date of service, and a menu of tests that may be
ized coding systems recognized by payors. While use of
ordered. The test menu should map to CPT coding infor-
each code set is subject to general guidelines provided by
mation and to diagnostic information justifying payment
the maintaining entity, it is ultimately the responsibility of
by a third-party agency, and it should identify those tests
the laboratory to ensure that correct and complete coding
requiring an ABN. Any test groupings not strictly defined
has been done. This pertains particularly to assignment
as a panel by the AMA and any standard reflex protocols
of correct CPT codes for delineation of services and veri-
should also be clearly delineated. Of course, each orderable
fication that the codes map to the assigned charge code
test should also have an easily accessible reference defining
on a charge master, as well as the determination of cir-
specimen requirements and clinical utility as well.
cumstances in which appropriate modifiers may be used.
Documentation of the ICD-9-CM code provided by the
Claims
ordering provider is absolutely required for claim process-
Claims submitted to third-party payors are now generally ing, although it is generally the responsibility of the labora-
required to be electronic, but they may occasionally be tory to ensure that claims are appropriately and correctly
prepared as a manual process. It is also common to engage completed. However, diagnosis classification groups such
an independent contractor to perform procedure billings as DRGs and APCs are assigned by medical record profes-
due to the complexity of the process, with many rules for sionals within institutions, and revenue codes are assigned
ordering, billing, and reimbursement often being payor by appropriate finance personnel within an institution. Re-
specific. However, claim forms have remarkable similar- gardless of where the operational responsibility lies, there
ity in that they all depend on the use of standard coding still remains a clear responsibility for the laboratory to un-
nomenclature for patient identification, provider identi- derstand the importance of these coding systems to their
fication, laboratory identification, procedures including operations and to verify assignments of codes when ap-
modifiers, diagnoses, and revenue centers. The forms used propriate. Without a doubt, all other aspects of billing and
by the Medicare program serve as a model for the format reimbursement processes begin with a solid understand-
of claims. Form UB-04 is the form currently required by ing of and application of fundamental principles of correct
Medicare for laboratory services submitted from healthcare and complete coding (11).
institutions (e.g., hospitals), having replaced form UB-92,
which was used until 2007. However, it should be noted
that some nongovernment payors may still use form UB-92. KEY POINTS
Form CMS-1500 is required by Medicare Part B for claims ■ It is mandatory that laboratories use standardized cod-
submitted by physicians and independent laboratories to ing systems, which are recognized by payors for docu-
the contractor. Failure to complete all required information mentation of services rendered.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES 633

■ Although each code set is subject to general guidelines, classifications. Substantially updated in 2007 as MS-DRG (Medi-
it is the responsibility of the laboratory to verify that care severity adjusted).
correct and complete coding has been done. Downcode The use of a lower-reimbursed test, generally cou-
■ Documentation of the ICD-CM code provided by the pled with rebundling, to induce unnecessary utilization.
ordering provider is required for claim processing and Eligibility/Medicare Part A Federally managed health insur-
may be the responsibility of the laboratory. ance plan covering Americans over age 65, and Americans under
■ It is recommended that the laboratory perform an- age 65 who have certain disabilities, and most patients with end-
nual updates of procedure coding, including impact of stage renal disease (ESRD); established by a 1965 amendment to
changes on service manuals, requisitions and order en- the Social Security Act. Part A covers part of hospitalization and
try systems, and charge masters. skilled-nursing facility costs.
■ It is the laboratory’s responsibility to understand all as- Eligibility/Medicare Part B Federally managed health insur-
pects of correct and complete coding principles. ance plan covering Americans over age 65, Americans under age
65 who have certain disabilities, and most patients with ESRD;
established by a 1965 amendment to the Social Security Act.
Part B provides supplementary coverage for medical services and
GLOSSARY supplies, including physician services, outpatient services, and
Advance beneficiary notice A waiver of liability used by the certain home healthcare services, as well as diagnostic laboratory
provider to notify Medicare beneficiaries prior to receiving a ser- tests and services, X rays, and the purchase and rental of durable
vice that it may not be a covered service and that they may have medical equipment.
to assume financial responsibility.
End-stage renal disease (ESRD) The term used for Medicare
Bundling Placing codes together in a panel. beneficiaries who have permanent kidney dysfunction requiring
Capitation A predetermined, fixed amount paid to providers in dialysis treatment.
return for rendering a specified set of health services. The rate is Health Insurance Portability and Accountability Act of 1996
established per person (per capita) enrolled in the health plan. Title I resulted in regulations to protect health insurance coverage
Carve out To exclude from a capitated contract and bill as fee for workers and their families when they change or lose their jobs.
for service. Title II requires the Department of Health and Human Services to
establish national standards for electronic healthcare transactions
Claim The manual or electronic document or invoice, which al- and national identifiers for providers, health plans, and employ-
lows transmission of the bill for services to a payor. ers. It also addresses the security and privacy of health data.
CMS-1500 The claim form authorized by the Centers for Medi- Adopting these standards will improve the efficiency and effec-
care and Medicaid Services for filing Medicare Part B claims with tiveness of the nation’s healthcare system by encouraging the
contractors. Previously designated the HCFA-1500 (Health Care widespread use of electronic data interchange in healthcare.
Financing Administration). International Classification of Diseases, Version 10, Procedure
Contractors Centers for Medicare and Medicaid Services Coding System (ICD-10-PCS) Laboratory coding system in-
(CMS) primary third-party claims management entities who ad- tended for use as an alternative to CPT; not currently in use.
minister Part A and/or Part B payments to facilities, physicians, Logical Observation Identifier Names and Codes (LOINC)
and commercial laboratory providers according to national and Considered a universal laboratory language that is based on the
local coverage determination policies. systematic breakdown of the components of a service into more
Covered lives Population insured by a managed-care contract specific units, ultimately creating a highly standardized, typically
for prospective payment. seven-digit, number, with each possible result from a procedure
being mapped to a specific code. Unlike CPT, LOINC is publicly
Current Procedural Terminology (CPT) Proprietary service available and can be used with no license fee. It is widely used by
codes developed and maintained by the American Medical As- commercial laboratories to track specific procedures from order
sociation and required for filing claims and billing Medicare and to result.
other payors.
Medicaid Program established under Title XIX of the Social Se-
Diagnosis code Medical diagnoses are assigned a numerical curity Act, which provides health insurance to the impoverished;
code from a document entitled International Classification of the state and federal governments fund the program jointly.
Diseases, Revision (Clinical Modifications). The 9th edition
(ICD-9-CM) will be replaced by a substantially updated 10th Medical necessity The determination of ICD-CM codes for which
edition (ICD-10-CM) in 2014. The ICD-CM code refers to the a CPT code will be reimbursed as reasonable and necessary.
clinical reason for a patient’s encounter.
Medicare A/B contractor Designation for primary third-party
Diagnosis-related groups (DRGs) Classification system devel- contractors who administer Part A and Part B payments for
oped at Yale that defines more than 700 major diagnostic catego- covered services. Previously known as fiscal intermediaries for
ries and places patients into case types based on the ICD-CM Part A and carriers for Part B claims management.
634 GENERATION OF REVENUE

Modifier Two-digit numbers (CPT) or letters (HCPCS) that are 4. Baselski, V., L. Garcia, and A. Weissfeld. 2001. The ABCs of CPT
appended to a specific CPT code prior to the billing process (see coding in microbiology. Clin. Microbiol. Newsl. 23:37–42.
Table 35.3). Modifiers are “used to indicate that a service or pro- 5. Brouch, K. 2003. AHIMA project offers insights into SNOWMED,
cedure has been altered by some specific circumstance but not ICD-9-CM mapping process. J. AHIMA 74:52–55.
changed in its definition or code” (1).
6. Burke, M. D. 2003. Clinical laboratory consultation: appropriate-
National Correct Coding Initiative (NCCI) Listings of CPT ness to laboratory medicine. Clin. Chim. Acta 333:125–129.
codes that should not be used simultaneously due to a determi-
nation that their use is not in accordance with the intended use; 7. Evans, M. 2011. Test-driving an ACO. Mod. Healthc. 41:38–41.
updated quarterly by a Medicare contractor. 8. Forsman, R. W. 1996. Why is the laboratory an afterthought for
Neg reg Negotiated Rulemaking Committee for diagnostic clin- managed care organizations? Clin. Chem. 42:813–816.
ical laboratory tests. The committee was charged with the devel- 9. Grider, D. 2012. Principles of ICD-10-CM Coding. AMA Press,
opment of national coverage determinations of medical necessity Chicago, IL.
for select laboratory tests as a component of the Balanced Budget
10. IOM. 2000. Medicare Laboratory Payment Policy Now and in the
Act of 1997.
Future. National Academy Press, Washington, DC.
Not medically necessary The determination that an ICD-9-CM
11. Kovar, M., and E. Shannon. 2011. Laboratory pricing: charge
code does not justify payment for a service denoted by a spe-
master risks and rewards. New Perspect. 30:15–17.
cific CPT.
12. Kratz, A., and M. Laposata. 2002. Enhanced clinical consulting—
Prospective payment system (capitated payment) Payment moving toward the core competencies of laboratory professionals.
amounts are predetermined prior to the delivery of services. Clin. Chim. Acta 319:117–125.
Profit results from care delivered at a total cost below the con-
tract payment; loss results from care delivered at a total cost 13. The Lewin Group. 2008. Laboratory medicine. A national status
above the contract payment. report. https://www.futurelabmedicine.org/pdfs/2007%20status%20
report%20laboratory_medicine_-_a_national_status_report_from_
Retrospective payment system Payment is rendered for specifi- the_lewin_group.pdf, accessed October 15, 2012.
cally coded services after the service is rendered; also known as
fee-for-service. 14. Lorence, D. P., and I. A. Ibrahim. 2003. Benchmarking varia-
tion in coding accuracy across the United States. J. Health Care Fi-
Skilled-nursing facility (SNF) A Medicare Part A benefit in de- nance 29:29–42.
fined circumstances for rehabilitative and extended care after a
hospital discharge. 15. MacMillan, D. H., B. L. Soderberg, and M. Laposata. 2001.
Regulations regarding reflexive testing and narrative interpretations
Unbundling Coding individual tests rather than using an ap- in laboratory medicine. Am. J. Clin. Pathol. 116(Suppl.):S129–S132.
propriate AMA panel approved for payment by the CMS.
16. Malone, B. 2012. The future of lab utilization management. Are
Upcoding Using a higher-paying code than justified to maxi- lab formularies the answer? Clin. Lab. News 38:1, 6–7.
mize reimbursement.
17. McDonald, C. J., S. M. Huff, J. G. Suico, G. Hill, D. Leavelle,
R. Aller, A. Forrey, K. Mercer, G. DeMoor, J. Hook, W. Williams,
REFERENCES J. Case, and P. Maloney. 2003. LOINC, a universal standard for
1. American Medical Association. 2012. Principles of CPT Coding. identifying laboratory observations: a year update. Clin. Chem. 49:
AMA Press, Chicago, IL. 624–633.
2. American Medical Association. 2013. Current Procedural Termi- 18. Schubart, J. R., C. E. Fowler, G. R. Donowitz, and A. F. Con-
nology, Professional Edition. AMA Press, Chicago, IL. nors, Jr. 2001. Algorithm-based decision rules to safely reduce labo-
ratory test ordering. IFIP World Conf. Ser. Med. Inf. 10:523–527.
3. Averill, R. F., R. L. Mullin, B. A. Steinbeck, N. I. Goldfield, and
T. M. Grant. 2001. Development of the ICD-10 procedure coding 19. Travers, E. M. 1997. Clinical Laboratory Management, p. 759–
system (ICD-10-PCS). Top. Health Inf. Manag. 21:54–88. 760. Williams and Wilkins, Baltimore, MD.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES 635

APPENDIX 35.1 Publications, Phone Numbers, Websites, and Guidance Documents

PUBLICATIONS Centers for Medicare and Medicaid Services

ICD-9-CM manual (issued every October) http://www.cms.gov (last accessed November 9, 2012)
ICD-10-CM manual (effective October 2014) CMS searchable website.
CPT manual (issued every October) http://www.cms.gov/Medicare/Medicare.html (last accessed
HCPCS Level II manual (issued every January) November 9, 2012)
Medicare Clinical Laboratory Fee Schedule (issued every November) Medicare searchable website.
Medicare Physician Fee Schedule (issued every November) http://www.cms.gov/Regulations-and-Guidance/Guidance/
National Correct Coding Policy Manual, Chapter X—Pathology Manuals/Internet-Only-Manuals-IOMs-Items/CMS018912.html
(last accessed November 9, 2012)
and Laboratory Services, 2012, version 18 (issued quarterly,
National Technical Information Services) Medicare Claims processing manual, Internet version.
CPT 2013, Professional Edition (updated each year; available Oc- http://www.cms.gov/Outreach-and-Education/Medicare-Learning
tober prior to January implementation) -Network-MLN/MLNProducts/Downloads/MLNCatalog.pdf (last
accessed November 9, 2012)
CPT Changes 2013. An Insider’s View (2013, AMA Press, Chi-
Instructional resources for Medicare billing:
cago, IL)
• Remittance guide: http://www.cms.gov/Outreach-and
CPT Assistant (monthly newsletter, CAP) -Education/Medicare-Learning-Network-MLN/MLN
CPT Network (online subscription service from AMA for CPT Products/downloads/RA_Guide_Full_03-22-06.pdf (last
inquiries) accessed November 9, 2012)
Codemap (subscription service available at http://www.codemap • Remittance and remark codes: http://www.cms.gov/Outreach
.com) -and-Education/Medicare-Learning-Network-MLN/
MLNMattersArticles/downloads/MM6229.pdf (last accessed
Clinical Laboratory News (newsletter of the American Associa- November 9, 2012)
tion of Clinical Chemists) • UB-04 guide: http://www.cms.gov/Outreach-and-Education/
National Intelligence Report (newsletter published by Washing- Medicare-Learning-Network-MLN/MLNProducts/downloads/
ton G-2 Reports, Washington, DC) ub04_fact_sheet.pdf (last accessed November 9, 2012)
Laboratory Industry Report (newsletter published by Washington • POA guide: http://www.cms.gov/Outreach-and-Education/
G-2 Reports, Washington, DC) Medicare-Learning-Network-MLN/MLNProducts/down-
loads/wPOAFactSheet.pdf (last accessed November 9, 2012)
Laboratory Compliance Insider (Brownstone Publishers)
• HAC fact sheet: http://www.cms.gov/Medicare/Medicare
The Clinical Laboratory Compliance Alert (Eli Research) -Fee-for-Service-Payment/HospitalAcqCond/downloads/
Compliance Hotline (American Health Consultants) hacfactsheet.pdf (last accessed November 9, 2012)
• CLFS fact sheet: http://www.cms.gov/Outreach-and-Education/
PHONE NUMBERS Medicare-Learning-Network-MLN/MLNProducts/downloads/
AMA: 1-800-621-8335 clinical_lab_fee_schedule_fact_sheet.pdf (last accessed No-
vember 9, 2012)
CMS (formerly Health Care Financing Administration): 1-800-
447-8477 or 1-800-633-4227 • PFS fact sheet: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
Note: Coding resources are available from many vendors includ- MedcrephysFeeSchedfctsht.pdf (last accessed November 9,
ing the AMA 2012)
• ABN booklet: http://www.cms.gov/Outreach-and-Education/
WEBSITES Medicare-Learning-Network-MLN/MLNProducts/downloads/
ABN_Booklet_ICN006266.pdf (last accessed November 9,
American Medical Association (AMA) 2012)
http://www.ama-assn.org (last accessed November 9, 2012) • CLIA brochure: http://www.cms.gov/Outreach-and-Education/
AMA searchable website. Medicare-Learning-Network-MLN/MLNProducts/downloads/
http://www.ama-assn.org/ama/pub/physician-resources/solutions CLIABrochure.pdf (last accessed November 9, 2012)
-managing-your-practice/coding-billing-insurance/cpt.page (last • Form 1500: http://www.cms.gov/Outreach-and-Education/
accessed November 9, 2012) Medicare-Learning-Network-MLN/MLNProducts/downloads/
AMA CPT information. form_cms-1500_fact_sheet.pdf (last accessed November 9,
2012)
Centers for Disease Control and Prevention • HIV screening coding guidance: http://www.cms.gov/Outreach
http://www.cdc.gov/nchs/icd/icd10cm.htm (last accessed -and-Education/Medicare-Learning-Network-MLN/MLN
November 9, 2012) MattersArticles/downloads/MM6786.pdf (last accessed No-
ICD-10 resources, CDC. vember 9, 2012)
(continued)
636 GENERATION OF REVENUE

APPENDIX 35.1 Publications, Phone Numbers, Websites, and Guidance Documents (continued)

http://www.cms.gov/Medicare/Coding/NationalCorrectCodInitEd/ International Health Terminology Standards Development

index.html (last accessed November 9, 2012) Organisation (IHTSDO)
National Correct Coding Initiative (NCCI) edits. http://www.ihtsdo.org/snomed-ct/ (last accessed August 23, 2013)
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ National Technical Information Service
ClinicalLabFeeSched/index.html (last accessed November 9, 2012) http://www.ntis.gov (last accessed November 9, 2012)
Clinical laboratory fee schedule. Source for hard copy NCCI updates.
http://www.cms.gov/apps/physician-fee-schedule/ (last accessed Office of Inspector General (OIG)
November 9, 2012) https://oig.hhs.gov/ (last accessed November 9, 2012)
Physician fee schedule. OIG searchable website.
http://www.cms.gov/Medicare/Coding/ICD10/downloads/pcs https://oig.hhs.gov/authorities/docs/cpglab.pdf (last accessed
_final_report2012.pdf (last accessed November 9, 2012) November 9, 2012)
ICD-10 final report. Laboratory compliance program guidance.
http://www.cms.gov/medicare-coverage-database/ (last accessed U.S. National Library of Medicine
November 9, 2012) http://www.nlm.nih.gov/services/medcodes.html (last accessed
Searchable database for NCDs and LCDs. November 9, 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning Links to standard code set websites.
-Network-MLN/MLNProducts/downloads/AcutePaymtSysfctsht
.pdf (last accessed August 23, 2013)
Inpatient Prospective Payment System
FEDERAL REGISTER AND RELEVANT
http://www.cms.gov/Outreach-and-Education/Medicare-Learning GUIDANCE DOCUMENTS
-Network-MLN/MLNProducts/downloads/hospitaloutpaysysfct Federal Register. 2001. Medicare program; negotiated rulemaking:
sht.pdf (last accessed August 23, 2013)
coverage and administrative policies for clinical diagnostic
Outpatient Prospective Payment System laboratory services. Fed. Regist. 66(226):58788–58890.
College of American Pathologists (CAP) Federal Register. 2008. HACs Medicare program; changes to the
http://www.cap.org (last accessed November 9, 2012) hospital inpatient prospective payment systems and fiscal year
Searchable CAP website. 2009 rates; payments for graduate medical education in cer-
Healthcare Compliance Association tain emergency situations; changes to disclosure of physician
ownership in hospitals and physician self-referral rules; updates
http://www.hcca-info.org (last accessed November 9, 2012)
to the long-term care prospective payment system; updates to
Institute of Medicine certain IPPS-excluded hospitals; and collection of information
http://www.iom.edu/ (last accessed November 9, 2012) regarding financial relationships between hospitals. Fed. Reg-
Institute of Medicine reports. ist. 73(161):48434–49083.
Introduction
36
Interactions in the Billing Process
Approaches to Billing
Provider Mix • Payor Mix
Terms of Coverage
Laboratory Services
Types of Services • Payment for Services
Logistics of the Billing Process Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Claim versus Invoice Submission • Invoice Billing •
Claim Billing
Capitated Arrangement Billing
Pay for Performance OBJECTIVES
Summary To illustrate the importance of hiring individuals well versed in all aspects of
KEY POINTS correct coding, including the rules and regulations
GLOSSARY To discuss the importance of having a comprehensive information technology
REFERENCES platform and software resources that ensure accuracy and completeness
APPENDIX To explain the need for laboratory personnel to be involved in the billing
process and to maintain a close working relationship with members of the
billing department
To explain the relationship between complete and accurate billing and the
generation of sufficient income to continue to perform expected functions

Alas! How deeply painful is all payment!

George Gordon Noel, Lord Byron (1788–1824)

I
t is an extreme understatement that the billing of clinical laboratory
services is a tedious and complex process. The billing process can be said
to be frequently overwhelming, rarely straightforward, always changing,
and never easy. There are a number of variations among providing entities and
among paying entities as well as in the actual process of how reimbursement
for services is made. The complexity is further increased by the sequential
financial relationships between the patient requiring testing, the ordering pro-
vider making decisions about which tests to order, the laboratory interpreting
the provider’s order and verifying the appropriate mechanism to bill for ser-
vices, and the payor, who reimburses an amount generally predetermined per
contractual agreement and who may also deny payment based on criteria that
are not always readily available or logical. The laboratory occupies a painful
middle position in the entire process, where there is little or no input into the
patient-physician process to effect appropriate test ordering and the acquisi-
tion of a properly executed requisition and advanced beneficiary notice (ABN)
if necessary. However, as the billing entity, the laboratory has total fiscal re-
sponsibility and complete financial liability for the procedures the physician
may have ordered rightly or wrongly (10).
An understanding of the specific requirements for billing laboratory ser-
vices and a systematic approach for ensuring that the processes are carried out
Clinical Laboratory Management, 2nd Edition
as specified are key to the financial success of a laboratory (5, 11, 12, 14, 15).
Edited by L. S. Garcia Underpayments due to denials by payors to providers under their payor agree-
©2014 ASM Press, Washington, DC ments are a cause of significant lost revenue. Providers should devise a plan
doi:10.1128/9781555817282.ch36 to make sure that payments made to them are accurate and timely and adhere

637
638 GENERATION OF REVENUE

to other contractual obligations. Specific areas where un- procedures when performed by a physician or other autho-
derpayments are common include underfunding due to rized individual). When billing for laboratory services, the
late payments, fee schedule changes that are contractually laboratory must have the appropriate CLIA status for the
disallowed, miscalculation of performance-based bonuses service being billed or the service will be subject to denial.
and errors in risk payment reconciliations, inappropriate Laboratory services are provided in several types of facil-
denials or inappropriate downcoding of claims, and non- ities. Hospital-based laboratory units generally perform and
payments (15). Claim denial management can enhance bill more tests than the other categories, with the exception
revenue, particularly in times of declining payment and in- of independent laboratories. They provide services for in-
creasing cost containment pressures (2). Proactive preven- patients and often for outpatients in institutionally affiliated
tion strategies can minimize denials through accurately clinics and occasionally for nonaffiliated clinics termed “out-
defining the scope of service, tracking causes for denials reach business.” Independent laboratories perform testing
and nonpayments, and improving related processes. for a variety of clients, including hospitals, physicians, other
healthcare providers, patients in areas where direct-access
testing is allowed by law, and by contract for non-healthcare
Interactions in the Billing Process purposes (e.g., employee drug screens). With such a diverse
While the entire laboratory test process from test order to clientele, independent laboratories are frequently quite high
test result reporting to payment for services involves sev- volume. Some develop and perform highly complex pro-
eral categories of individuals, the actual billing process can cedures not performed in a routine setting and are termed
be considered in terms of two main categories (Fig. 36.1). reference or esoteric laboratories. Physician office laborato-
The “provider mix” describes those entities that actually ries are generally established to provide convenient, rapid-
perform and/or bill the services, and the “payor mix” de- response-type procedures that may impact immediate
scribes those entities that have fiscal responsibility for pay- clinical decision making. The test mix is generally less com-
ment for services. plex in a physician office laboratory setting than in the other
two settings. The final type of laboratory is the “niche” labo-
Provider Mix ratory, which exists to provide services to specific groups of
Since 1992, all laboratory providers must be registered un- patients. For example, laboratories may focus on service to
der the Clinical Laboratory Improvement Amendments end-stage renal disease (ESRD) or skilled-nursing facility
(CLIA) to provide the type of services they are billing for. (SNF) patients. Each type of laboratory must be prepared to
CLIA classifies laboratories into four main categories: high- follow the billing processes specified by all of the payors for
complexity laboratories (capable of providing all services), which it is an approved provider. If the laboratory is not an
moderate-complexity laboratories (capable of perform- approved provider, the laboratory services provided will be
ing procedures with slightly lower skill requirements and subject to denial.
slightly lower patient risk), certificate-of-waiver labora-
tories (may perform only tests meeting “waived” criteria Payor Mix
under CLIA and requiring minimal skill and carrying min- The entities disbursing payment also fall into several
imal risk to a patient), and provider-performed micros- categories. Federal payors include those in the Medicare
copy services (applying to only a selected few microscopic program for senior and disabled citizens, a program that

Figure 36.1 Payor-provider interactions Traditional Third party

in reimbursement. POL, physician office Medicare fee for Capitated Clients Patients
laboratory. & Medicaid service contracts
doi:10.1128/9781555817282.ch36.f1

Hospital Independent Niche

POL
Lab Lab Labs

Ordering
Provider
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES 639

was initiated in 1965 as a result of the Social Security Act. multiple types of plans, including traditional indemnity,
Medicare pays for services that are “reasonable and nec- preferred provider organizations, point-of-service plans,
essary for the diagnosis or treatment of illness or injury, and health maintenance organizations. Within the Medi-
or to improve the malfunctioning of a malformed body care and Medicaid programs there also exist variations
member.” Payments are made for either inpatient services, comparable to those seen in the private sector. Adding to
including services provided in an SNF (termed Part A), the complexity is the frequent presence of a “secondary
or outpatient services (termed Part B), with both parts payor,” that is, another healthcare plan that provides cov-
administered through a CMS (Centers for Medicare and erage on the balance after payment by the primary payor.
Medicaid Services)–selected Medicare A/B contractor. In A generic third-party process is diagrammed in Fig. 36.2.
1972 the Social Security Amendments added coverage to Laboratories may also receive payments through con-
two additional high-risk groups—those disabled and re- tracts with specific physicians and other healthcare pro-
ceiving cash benefits from Social Security and individuals viders, who in turn bill third-party payors. These are
suffering ESRD. The Medicaid programs provide federal probably the easiest billing arrangements to execute. A
assistance to states for payment for healthcare for indigent generic client-bill process is diagrammed in Fig. 36.3. It
citizens, and the Balanced Budget Act of 1997 created the is important to note that this practice may be subject to
State Children’s Health Insurance Program to assist with “anti-mark-up” provisions for specific categories of tests
the healthcare of children. pursuant to federal and state regulations. Laboratories are
Both Medicare and Medicaid are third-party payors; also required to bill patients who have no insurance cover-
payment for services provided by a healthcare provider to age or have received a noncovered service, as well as in any
a patient is made by a contracted entity. Many other third- circumstance in which the patient is expected to copay a
party payors render payment to laboratories as a compo- percentage of the total bill.
nent of a healthcare benefit plan, also referred to as simply In some cases, laboratories do not directly bill or receive
a “health plan.” These insurance plans require payment payment for individually defined services. Rather, a par-
of regular premiums so that in the event of a high-cost or ent organization negotiates payment prospectively. These
catastrophic illness, the third party will cover an agreed- arrangements are termed capitated, and the payment is
upon percentage or fee for the services provided. There are made at a set amount on a basis other than individual

Figure 36.2 Generic billing flowchart: third-party. LIS, laboratory information system.
doi:10.1128/9781555817282.ch36.f2

Determine need for ABN

Initiate Order
Patient accepts or declines ABN

Log-in to LIS Demographics

Payer info
Test requests
Diagnoses Convert narratives
ABN status

Request missing or incomplete information

Claims processing software Rework incomplete claims

Denied
File clean claim

Paid

Post Co-pay (secondary) Re-work and re-file Bill client or patient

Paid Denied

Appeal See Fig. 36.3

Denied

Bad debt
640 GENERATION OF REVENUE

Initiate Order

Log-in to LIS
Demographics
Payer info
Test requests

Request missing or incomplete information

Submit invoice
Not Paid
Paid
Paid
Post Re-bill

Paid Collection
agency

Bad debt

Figure 36.3 Generic billing flowchart: client or patient. LIS, laboratory information system.
doi:10.1128/9781555817282.ch36.f3

test. For example, payments may be per diem or per in- used to categorize whether a specific type of service will be
dividual according to contractual terms. Medicare DRG covered. Diagnostic tests assist in the determination of an
(diagnosis-related group) payments are an example of capi- etiology for a specific disease or clinical condition. They
tated payment for hospitalizations, APC (ambulatory pay- are almost always covered by third-party payors, although
ment classification) payments are for hospital outpatient there may be restrictions on which specific tests may be
services, and more recently, ACO (accountable care orga- used. In addition, there may be restrictions on when a test
nization) arrangements may be globally constructed to en- may be used based on diagnosis or clinical condition. This
compass all aspects of laboratory medicine. In these kinds type of restriction is generally known as “medical neces-
of arrangements it is critical that the laboratory have a sys- sity.” Monitoring tests are used to follow disease progres-
tem in place to completely document services performed sion or response to therapy or to detect side effects of a
so that accurate capitated payment terms can be negotiated therapy. Monitoring tests are generally covered when the
that include consideration of expected laboratory services.

Table 36.1 Types of laboratory services

Terms of Coverage Diagnostic tests Used to identify physiological abnor-
Each individual payor sets criteria for payment for ser- malities associated with disease.
vices (both which types and under what conditions).
Monitoring tests Used to follow disease progression or
Further, each payor is intimately involved in the determi- response to therapy or to detect side
nation of the actual payment amount. Each payor may in- effects of therapy.
teract with each provider through one of two main types
of payment: retrospective (or fee for service) and prospec- Screening tests Performed in the absence of signs,
tive (or capitated). symptoms, complaints, injury, or per-
sonal history of a disease to discover
potentially treatable or preventable
Types of Services diseases.
Three general categories of laboratory services are per-
formed based on clinical utility, and payors vary in Tests requiring prior In some cases, there may be a require-
whether these services will be covered (Table 36.1). The authorization ment for prior authorization from the
third-party payor for the test provided.
terms “covered services” and “noncovered services” are
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES 641

therapy is also covered and may also be subject to restric- other patient-related parameter (6). The payment is based
tions. Screening tests are performed in the absence of on average anticipated utilization of healthcare services
signs, symptoms, complaints, injury, or personal history of by patients in the denominator group and should include
a disease to discover potentially treatable or preventable specific consideration of laboratory medicine services. For
diseases. They may or may not be covered by a third-party select high-cost, esoteric laboratory tests, the parent organi-
payor, depending on the particular health plan coverage zation may choose to “carve out,” or exclude, the test from
conditions. A classic example of noncoverage of screening the capitated payment and bill separately. A recent Medi-
is in the Medicare program, which by historical interpreta- care demonstration project for certain genetic tests has been
tion of statute allows payment only for “treatment of illness recently undertaken. Payment for outpatient services on a
or injury” and not for “screening.” For all test types, there capitated basis is not currently common in laboratory medi-
may be frequency restrictions that limit the number of cine. However, in the inpatient population, in SNFs, and in
times a test may be performed in a given period. In addi- other specialty niches (e.g., ESRD facilities), both Medicare
tion, in some cases, there may be a requirement for “prior and other payors have moved toward a prospective payment
authorization” for the test service provided. This is, in es- system (16). In addition, a recent move toward the estab-
sence, the obtaining of approval of payment for the ser- lishment of ACOs that will negotiate payment for complete
vice by the third-party payor. If a particular test is deemed healthcare services for a covered population suggests a move
noncovered, then the patient generally assumes financial toward greater use of capitated systems (7). Thus, the labo-
liability for the service if there has been prior notification ratory needs to be familiar with both approaches.
and acceptance of such.

Payment for Services Logistics of the Billing Process

There are two general approaches to payment for health- The actual billing process is obviously quite complex
care services, including laboratory services (Table 36.2). considering all of the variations in possible interactions
The traditional approach and the one most commonly em- between providers and payors. There are numerous fee
ployed is based on a fee-for-service strategy. This approach schedules, various billing arrangements, multiple payors,
is retrospective in that the total amount to be billed is not diverse manual and electronic forms, variable coverage
known until services have been rendered and a cumula- conditions, and payor-specific rules. Nonetheless, one can
tive bill is generated. However, the fee schedule used for outline and compare the general processes involved in bill-
billing has been prospectively determined and accepted by ing for laboratory services.
both the provider and the payor. Traditional federal pay-
ment programs are based on a fee schedule set annually Claim versus Invoice Submission
by a specific formula. Other payors generally develop fee Claims for payment are generated for submission to third-
schedules after negotiation with providers. Fee schedules party payors, while invoices are generated for contractual
may vary considerably based on considerations related to payment by clients or by patients (Table 36.3). Claims
the “cost of doing business” with a particular payor. are typically submitted electronically, although the same
The alternative approach is one based on capitation. information may be submitted on a manual claim form.
This approach is prospective in that a payment amount Claims are very complex and require that a great deal of
has been established based on a designated denomina- information be accurately and completely provided. This
tor such as per member per month, per diagnosis-related includes date of service, correct codes for services and di-
group or ambulatory payment classification, or per some agnosis codes, complete patient demographic information,
complete payor information, and an ABN specific to each
service likely to be denied. It is also possible to outsource
Table 36.2 Payment for services
billing activities to an independent entity that is familiar
Fee for service This approach is retrospective; total amount to
with the various rules and regulations pertaining to ma-
be billed is not known until services have been
rendered; results in cumulative bill; fee sched- jor payors. Invoices may also be generated manually or
ule prospectively determined and accepted by electronically; however, invoices are much less complex,
provider and payor generally including only the date of service, patient demo-
graphics, and types of services. Thus, billing costs are gen-
Capitation This approach is prospective; payment amount erally much lower for non-third-party billings.
established on some denominator (per mem-
ber per month, per DRGa, or per APCb); pay-
ment based on average anticipated utilization Invoice Billing
in the denominator group Invoice billing is a relatively simple process (Fig. 36.3).
a
DRG, diagnosis-related group. After an order is placed and logged in to a laboratory
b
APC, ambulatory payment classification. information system, the tests ordered are performed and
642 GENERATION OF REVENUE

Table 36.3 Billing process: invoice versus claims and test specific. It is also necessary to attach appropriate
Invoice billing Relatively simple process; can be based on modifiers to any test code requiring one for payment.
fee-for-service or capitated payment schedule; After preparation, each claim is generally subjected to a
amounts generally posted upon completion review using “claims processing software” (13). This kind
of testing; generated at some regular interval
(e.g., weekly, monthly)
of review evaluates each claim to determine if all of the in-
formation required is complete and accurate. Importantly,
Claim billing Very complex; requires extensive and complete this review also assesses whether a claim is likely to be
information; careful review prior to payment; covered by the particular payor (1, 3, 9). If not, then once
payment often denied; need for rechecking again, calls are made to the ordering provider to attempt to
all claim information and resubmission for
obtain appropriate documentation. Once “clean,” the claim
payment
is actually filed with the payor.
After filing, there are several possible outcomes. In the
result reports are generated in the appropriate labora- best case, the claim is paid and the funds are posted to an
tory department, and a cumulative invoice is generated appropriate account. If the claim is denied, the denial doc-
at some regular interval (e.g., weekly, monthly). The in- umentation may be reevaluated to ensure that everything
voice may be based on either a fee-for-service or capi- was in order, and if not, the claim must be corrected and
tated payment schedule. It may on occasion be necessary refiled (8). Denial documentation is generally sent to both
to verify information pertaining to an order from the the laboratory and the patient as an explanation of benefit
requisition, but the overall process is relatively straight- (EOB) or explanation of medical benefit form. Denials are
forward. The billed entity either pays or does not pay in coded with a generic description outlining the reason(s)
the expected time frame. Nonpayment generally results for the denial. Careful review of the EOBs can greatly as-
in one or more repeat billings and, eventually, action by a sist in correction of documentation to subsequently obtain
collection agency. The amounts due are generally posted payment. If upon review it is determined that payment was
upon completion of testing but on occasion may be gen- appropriate, it is also possible to initiate an appeal for re-
erated at the time of order. This, however, carries the risk view and reconsideration by the payor.
of billing for tests that may not have been completed and Alternatively, a new claim or a claim for remaining
requires that a system be in place to issue credits when- amounts may be filed with a secondary payor by follow-
ever necessary. ing the same general pattern. If no payment is forthcoming
from any payor, and an ABN or other acceptance of liabil-
Claim Billing ity is on file, the patient may be billed. It is also necessary
The entire claim process is quite complex, requiring mul- to bill the patient in any case in which a copay is part of
tiple steps conducted over a lengthy period. It also begins the process. In cases in which a provider has consistently
with the generation of an order. However, at the time of failed to provide essential information, a laboratory may
test order, it is necessary to compare the tests ordered to choose to bill the errant provider. Once a patient or client
the diagnoses given to determine if a waiver of financial is billed, the process follows the pathway described for the
responsibility (ABN) is required. If it is required, an at- invoice process. Certainly the billing format and accuracy
tempt may be made to contact the ordering provider for can play a large role in both client and patient satisfaction
additional relevant diagnostic information, but documen- and understanding (4).
tation of the attempt must be signed by the patient and
maintained on file. Test orders are then logged in the lab-
oratory information system, and samples are routed to the Capitated Arrangement Billing
appropriate laboratory for testing and result reporting. In a capitated arrangement with a laboratory, billing
During log-in, if any information critical to processing and payment are operationally similar to invoice billing.
the order for testing or billing is missing, it is again neces- Terms and conditions, frequency, and amounts are, of
sary for the laboratory to contact the ordering provider to course, defined contractually. If a parent healthcare or-
seek additional documentation. As in invoice situations, ganization is the billing provider, the laboratory is not
a bill for service may be posted at the time of log-in or directly involved in billing or receipt of payment. Under
at the time of result reporting, but if the former is done, these conditions, the laboratory is frequently seen as a
there must be a system in place to accurately issue credits cost center rather than a revenue center. Thus, it is very
when necessary. important for laboratory managers to maintain accurate
Claims are generally processed according to date of and complete documentation of the laboratory service
service, so multiple services may be submitted on a single activity, both for utilization review and for future con-
claim. However, the ABN, if required, must be both date tract negotiations.
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES 643

Pay for Performance GLOSSARY

While not strictly an operational issue, laboratorians Accountable care organization (ACO) A coordinated care sys-
should take note of an increasing trend toward use of pay- tem in which providers are incentivized on the basis of outcomes
rather than the number of services.
for-performance monitors in adjustment of reimbursement
amounts. Laboratories already generate utilization and di- Advance beneficiary notice (ABN) A waiver of financial liabil-
agnostic data of value for assessing patient outcomes in ity form used by the provider to notify Medicare beneficiaries
specified disease conditions, and these data influence capi- prior to receiving a service that it may not be a covered service
tated payments. For example, nonpayment of DRG amounts and that they may have to assume financial responsibility.
for complications resulting from hospital-acquired condi- Ambulatory payment classification (APC) A prospective pay-
tions defined in part through laboratory results are already ment amount assigned to an outpatient visit for a specified clini-
a reality. It is highly likely that specific laboratory payments cal condition.
may similarly be linked to performance data.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The rate is
generally established per person (per capita) enrolled in the
Summary health plan.
With the complexity of the billing process, it is no wonder
Claims denial management A set of processes to enhance rev-
that in many laboratories, the billing department has un- enue by assessing reasons for denials; denials often arise from
dergone rapid expansion in the number of employees. The process problems leading to inadequate documentation.
billing department must employ individuals who are well
versed in all aspects of correct coding and who are knowl- Copay A fixed dollar amount or a percentage of a charge paid by
edgeable about the myriad rules and regulations pertain- the subscriber to the provider at the time of services.
ing to each payor. The billing processes are so complex that Diagnosis-related groups (DRGs) Classification system devel-
it is virtually impossible to develop and submit claims and oped at Yale that defines more than 700 major diagnostic catego-
receive payment without a sound information technology ries and places patients into case types based on the ICD-CM
platform and software resources that ensure accuracy and classifications. Substantially updated in 2007 as MS-DRG (Medi-
completeness of the process. care severity adjusted).
However, it is also critical that laboratorians remain in- End-stage renal disease (ESRD) The terminology used for
volved in the billing process and maintain a close working Medicare beneficiaries who have permanent kidney dysfunction
relationship with members of the billing department. Ex- requiring dialysis treatment.
tensive technical expertise is required to ensure that test
procedures are coded correctly, as well as to determine that Explanation of (medical) benefit form (EOB/EOMB) Provides
reasons for denial of payment.
best practices for laboratory medicine are being followed.
For clinical laboratories, the key to survival is in complete Fee-for-service A payment system in which individual service
and accurate billing for all services performed so that timely codes are reimbursed after service is rendered.
and comprehensive payment can be made for those services. Health maintenance organization A prepaid system of health-
Regardless of the corporate structure of the laboratory one care with emphasis on the prevention and early detection of dis-
practices in, the generation of sufficient income to continue ease and on continuity of care. HMOs generally offer a package
to perform expected functions is absolutely essential. of services; however, the choice of physician is frequently limited
to those working within the HMO.

KEY POINTS Health plan or health benefits plan Any plan or organized for-
mat for delivering healthcare services.
■ It is mandatory that laboratories hire personnel who are
well versed in all aspects of correct coding, including Payor mix Describes those entities that have fiscal responsibility
the rules and regulations. for payment of services.
■ It is almost impossible to develop and submit claims POL Physician office laboratory.
and receive payment without adequate information
POS Point-of-service insurance plan; a type of plan combining
technology systems (platforms and software). elements of both an HMO and a PPO. Referrals out of network
■ Selected laboratory personnel must be involved in the are allowed but at some additional cost to the subscriber.
billing process and work closely with members of the
Preferred provider organization (PPO) A healthcare organiza-
billing department. tion that negotiates set rates of reimbursement with participating
■ Complete and accurate billing is required to generate healthcare providers for services to insured clients; a type of pro-
sufficient income for laboratory operations to continue. spective payment system.
644 GENERATION OF REVENUE

Provider mix Describes those entities that actually perform 6. Fee, D. N. 2002. Success with APCs. Healthc. Financ. Manag.
and/or bill the services. 56:68–72.
Regulation Legally binding rules developed to implement a 7. Gross, D. J. 2012. Contributions of pathologists in accountable
statute. care organizations. CAP white paper. http://www.cap.org/apps/
docs/advocacy/aco_white_paper.pdf, accessed November 20, 2012.
Secondary payor An additional healthcare plan that provides
8. Hodges, J. 2002. Effective claims denial management enhances
coverage on the balance after payment by the primary payor.
revenue. Healthc. Financ. Manag. 56:40–50.
SNF Skilled-nursing facility providing rehabilitative services af- 9. LaForge, R. W., and J. S. Tureaud. 2003. Revenue-cycle redesign:
ter a hospitalization. honing the details. Healthc. Financ. Manag. 57:64–71.
Statute A law passed by the U.S. Congress or a state legislature. 10. The Lewin Group. 2008. Laboratory Medicine. A National
Status Report. https://www.futurelabmedicine.org/pdfs/2007%20
status%20report%20laboratory_medicine_-_a_national_status_report
REFERENCES _from_the_lewin_group.pdf, accessed October 15, 2012.
1. Adams, D. L., H. Norman, and V. J. Burroughs. 2002. Address- 11. McNeely, M. D. 2002. The use of expert systems for improving
ing medical coding and billing. Part II. A strategy for achieving test use and enhancing the accuracy of diagnosis. Clin. Lab. Med.
compliance. A risk management approach for reducing coding and 22:515–528.
billing errors. J. Natl. Med. Assoc. 94:430–447. 12. Moss, M. M., and S. M. Schexnayder. 2001. Coding and billing
2. Alwell, M. 2003. Stem revenue losses with effective CDM man- in the pediatric intensive care unit. Pediatr. Clin. N. Am. 48:783–793.
agement. Healthc. Financ. Manag. 57:84–88. 13. Segal, M. J., S. Morris, and J. M. Rubin. 2002. Automated claim
3. Barber, R. L. 2002. Prompt payment depends on revenue-cycle and payment verification. J. Med. Pract. Manag. 17:297–301.
diligence. Healthc. Financ. Manag. 56:52–59. 14. Smith-Shoemake, M. A. 2002. Solving the claims conundrum.
4. Cohen, D., and P. Hoffman. 2003. When putting patients first fits Manag. Care Q. 10:13–14.
the bill. Healthc. Financ. Manag. 57:90–96. 15. Welter, T., and P. Stevenson. 2001. Calculating five types of typi-
5. Eckhart, J., and N. Mathahs. 2001. Physicians and compli- cal underpayments. Healthc. Financ. Manag. 55:46–50.
ance: developing a system that works. Clin. Leadersh. Manag. Rev. 16. Wolf, P. 2001. Charge-process strategies for outpatient prospec-
15:222–229. tive payment. Healthc. Financ. Manag. 55:58–61.
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES 645

APPENDIX 36.1 Websites

Centers for Medicare and Medicaid Services Office of Inspector General

http://www.cms.gov (last accessed November 19, 2012) https://oig.hhs.gov/compliance/compliance-guidance/index.asp
CMS home page with search feature. (last accessed November 19, 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning OIG compliance guidance documents.
-Network-MLN/MLNGenInfo/index.html (last accessed November
19, 2012)
Medicare Learning Network resources.
Introduction
37
Calculating Costs and Charges
Charges and Fees
Setting Costs • Setting Charges
Determining Payment Amounts
for Laboratory Services
Fee Schedules • Medicare Clinical Laboratory Fee
Schedule • Fee Setting for New Codes on the CLFS • Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
The Medicare Physician Fee Schedule • Other Fee
Schedules • Capitated Payments
Keys to Success in Reimbursement
Retrospective Payment • Prospective Payment
OBJECTIVES
Summary
To discuss the four key concepts related to payment for laboratory services
KEY POINTS
To explain the relationship between charges and fee schedules and a reasonable
GLOSSARY
profit margin
REFERENCES
To describe the uses for profits and how they relate to generating returns on
APPENDIX
investments
To describe the following terms: market competitive and value-added services
To discuss appropriate ways to avoid the appearance of kickbacks and how this
relates to compliance

Put money in thy purse.

William Shakespeare (1564–1616)

T
he ultimate goal in the provision of laboratory services is
to make certain that information is delivered to ordering healthcare
providers in a timely manner that ensures that quality is maintained,
costs are minimized, and clinical relevance is established. At the same time,
it is paramount to make sure that the laboratory does not lose money in do-
ing so. This concept applies regardless of the corporate structure. It has been
said, “For-profit entities exist to make money, and not-for-profit entities make
money to exist, but both need to make money to survive.” To make money
in the laboratory business, it is critical that one establish charges that at least
cover total costs and control expenditures such that low-paying fee schedules
do not put the laboratory at risk for significant loss.

Calculating Costs and Charges

Setting Costs
The responsibility for cost analysis of individual laboratory procedures rests
primarily with the laboratorian. Chapters in section V present an in-depth
look at the process of cost accounting in the clinical laboratory. However, for
purposes of determining a charge structure, it is critical to have a clear under-
standing of the total costs of a procedure (7, 8, 11). A commonly used measure
for this purpose is the “cost per reportable test.” In general an “orderable and
reportable test” will map to a specific Current Procedural Terminology (CPT)
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia code or codes, as well as to the institutional charge code for accounting pur-
©2014 ASM Press, Washington, DC poses. The cost per reportable test is a composite of all related costs. These in-
doi:10.1128/9781555817282.ch37 clude the obvious costs such as average direct costs (e.g., reagents, equipment),

646
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES 647

including labor, and indirect costs, including overhead and greater than a usual charge for the same item or service
support services (e.g., housekeeping, couriers, billing, cus- for any payor. “Usual charge” is generally defined as ei-
tomer service, marketing), but they also include hidden ther the average or median of charges to all parties for
costs such as quality control, calibration, repeats, dilutions, the most recent one-year period. In addition, a previous
and wastage. The cost per reportable test is considered to OIG advisory opinion noted that discount arrangements
be a parameter that allows “apples to apples” comparisons may be reviewed to determine “whether the discount on
between methods (interassay) and between laboratories the PPS-covered services makes business sense standing
(intra-assay). alone without reference to any other business the pro-
In addition, the cost per reportable test is a useful tool vider may receive.” Legislation known as the Stark and
for setting charges such that the laboratory maintains an Anti-Kickback Laws is designed to ensure that laborato-
appropriate profit margin. The break-even point is the ries provide services to ordering providers without any
point at which net income equals total costs. Net income evidence of inducement or kickback. Thus, determina-
takes into account actual payment for services and deducts tion of charges currently has both financial and compli-
actual costs as well as “bad debt,” that is, the amount that is ance implications.
not reimbursed by any potential payor. Obviously, the goal
is to do better than break even since profits are essential to
support business development. To be profitable, one must Determining Payment Amounts
have a clear understanding of both total costs per report- The amount of payment made for laboratory services may
able test as well as expected net income. be based on one of two general categories. A fee schedule
represents one category, although payment amounts typi-
Setting Charges cally vary based on payor. Actual provider charges may ap-
A number of general principles guide the process of setting ply to some payors, while payor-defined fee schedules may
a charge (6). One must consider the actual total costs and be the basis for others. In capitated payment agreements,
the expected reimbursement, so that one can exceed the the payment takes the form of a negotiated agreement for
break-even point. In general, it is never good business to a specified level or category of service, often based on di-
price any service below cost, and in fact, this practice could agnosis or clinical condition.
be viewed as an inducement for ordering providers to sub-
mit federally reimbursed testing to a particular laboratory. Fee Schedules
On the other hand, one cannot charge federal payors “sub- Counter to attempts to develop rational charges based on
stantially in excess of usual charges,” potentially leading real costs and net income is the concept of payor-established
to a conclusion that these payors are being overcharged. fee schedules. Many payors will arbitrarily establish a fee
At the same time, one must review the market situation schedule for defined services, and it is the laboratory’s re-
and ensure that charges are comparable to those of com- sponsibility to determine whether to do business with that
petitors unless the service offered has a quantifiable value- particular payor. Fee schedules are generally loosely based
added component. In some market settings, laboratories on charges although usually set at a percentage substan-
may identify tests that are high volume and offer them at tially lower than actual charges. In addition, fee schedules
a charge below cost (termed a “loss leader”). At the same may vary considerably by payor. The quintessential exam-
time, more esoteric, high-cost procedures with lower uti- ple of payment according to fee schedule is the Medicare
lization may be offered with a substantial profit margin to Part B clinical laboratory payment system.
make up the difference (termed “pull-through”). In addi-
tion, the billing simplicity of a contractual arrangement in Medicare Clinical Laboratory Fee Schedule
which clients or patients are billed directly is considered a Medicare currently pays for technical clinical labora-
justification for offering deep discounts since billing costs tory tests according to a set clinical laboratory fee sched-
are substantially lower and the percentage of services paid ule (CLFS) initially established in 1984 and based on
for is significantly higher. 1983 charge data. Fees are assigned based on the CPT or
However, the entire area of discounts and multiple fee Healthcare Common Procedure Coding System (HCPCS)
schedules has come under intense scrutiny in recent years, code established for each procedure (1, 9, 12). The actual
and this practice needs to be carefully evaluated for provid- Medicare payment is the lowest of (i) the actual charge,
ers, particularly those doing business with federal payors. (ii) the fee schedule amount set by the Medicare contrac-
Although it is a longstanding interpretation of Medicare tor, or (iii) the national fee cap, termed the national limi-
law that one cannot charge federal payors “substantially in tation amount (NLA). For tests established before January
excess of usual charges,” exactly what “substantially in ex- 1, 2001, the NLA is currently 74% of the median of lo-
cess” means is not well established, although the Office cal fees, a percentage that has been rapidly reduced from
of Inspector General (OIG) has proposed a level of 120% 115% in 1986 to the current level. Local fees are set at 60%
648 GENERATION OF REVENUE

of prevailing charges (except for sole community hospitals, of the existing code(s) to which the new code is mapped.
which are set at 62%). Thus, Medicare payments can be seen Gap filling is used when a new code describes a test using
to be substantially lower than actual charges. In addition, a novel technology for which no comparable code exists.
there may be significant geographic variation in the actual The fee is then set after collection of data by local contrac-
payment amount based on the Medicare contractor (10). tors, who then apply the formulas previously described.
Medicare clinical laboratory payments are also not subject Since 2001, the process of assigning fees to new codes has
to copayments, a situation endorsed by the laboratory com- involved open meetings in which laboratorians and profes-
munity, as billing costs often exceed the copay amount. sional laboratory groups may present public recommenda-
Adjustments are made to the NLA on a regular ba- tions on the best method to use. Subsequently, proposed
sis. After 2001, as a result of the Balanced Budget Act of fees and the rationale for setting each are published by
1997, the NLA was set at 100% of the median to allow for the CMS for comment prior to the final publication of the
improved reimbursement for new CPT codes, ostensibly CLFS for the next year.
representing emerging technology. For other test codes, It is something of a paradox in the Medicare fee
the Centers for Medicare and Medicaid Services (CMS) schedule process that a laboratory may have to accept a
should adjust the fee schedule annually to reflect changes fee lower than its costs but has no recourse for recoup-
in the consumer price index (CPI). However, in response ing costs other than to develop strategies aimed at other
to a number of federal budgetary “fixes” mandated by var- payors. This paradox led the Institute of Medicine (4) to
ious statutes enacted since 1990, the actual adjustments issue 6 of 12 recommendations in its report on Medicare
have been zero or a negative percentage for 14 of the 23 en- laboratory payment policy pertaining to the fee schedule
suing years, primarily due to fee schedule CPI “freezes.” In (Table 37.1). These recommendations are (i) that “Medi-
addition, the Medicare program has the authority to man- care payments for outpatient clinical laboratory services
date modifications in fees (increases or decreases) that are should be based on a single, rational, national fee schedule”;
viewed as inappropriate or unreasonable. One strategy is (ii) that “on an interim basis, relative payments for Medicare
termed “inherent reasonableness.” Under this strategy, outpatient clinical laboratory services should be based on
the CMS may employ “reasonable-charge methodology” the current NLA”; (iii) that “a data driven consensus pro-
to arbitrarily reduce or increase an NLA deemed “grossly cess” be used to refine the Medicare fee schedule; (iv) that
excessive or grossly deficient” against market values. In fees be “adjusted for geographic location” and evaluated
point of fact, reasonable-charge methodology has resulted for other circumstances “likely to affect beneficiary ac-
primarily in reduced payments. On occasion payments cess”; (v) that there be processes to “periodically update”
are adjusted upward, as in 1999 when it was determined the fee schedule; and (vi) that there be an “open, timely,
that cervical cytology (Pap smear) payment amounts were
unreasonably low. In addition, reasonable charge method-
Table 37.1 Recommendations related to fee schedulesa
ology is used for laboratory services at critical access hos-
Recommendation 1 Medicare payments for outpatient
pitals to help ensure beneficiary access. Another strategy
clinical laboratory services should be
is termed the “least costly alternative” approach, which based on a single, rational, national fee
makes a determination that a new more costly procedure schedule.
has the same clinical utility as a less costly alternative, and
payment is adjusted to that of the older methodology, Recommendation 2 On an interim basis, relative payments
for Medicare outpatient clinical labora-
thus impeding the implementation of new technologies.
tory services should be based on the
In addition, laboratories have successfully withstood sev- current NLA.
eral attempts to lower payment amounts due to a com-
petitive bidding model. Despite representing less than 2% Recommendation 3 A data-driven consensus process should
of total Medicare expenditures, the laboratory has been a be used to refine the Medicare fee
repeated target of a disproportionate share of attempted schedule.
Medicare savings. Payment amounts are published annu- Recommendation 4 Fees should be adjusted for geographic
ally on the CMS website in the fall and are effective the location and evaluated for other circum-
following January 1. stances likely to affect beneficiary access.

Fee Setting for New Codes on the CLFS Recommendation 5 There should be processes to periodically
update the fee schedule.
For new CPT test codes, Medicare fees are assigned based
on one of two methods: cross-walking or gap filling. Cross- Recommendation 6 There should be an open, timely, and ac-
walking is used when new tests employ a method that is cessible process to incorporate new tests
deemed comparable to an existing method or combina- into the fee schedule.
tion of methods, and the fee is simply set according to that a
See reference 4.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES 649

and accessible process” to incorporate new tests into the means to control costs (1). In other managed-care environ-
fee schedule that does not “impede clinical decision mak- ments, such as health maintenance organizations (HMOs),
ing that is essential to providing appropriate care.” These laboratories may also be asked to develop a capitated pay-
goals have not yet been reached in the Medicare clinical ment scheme. In laboratories, a common payment mecha-
laboratory payment system. nism is a per-member-per-month basis for provision of
the most common laboratory services, with a separate fee
The Medicare Physician Fee Schedule schedule often appended for high-cost, esoteric services
Laboratory tests that have both a technical component carved out of the capitated contract.
and a physician interpretation component are priced on Inpatient service reimbursement may also be consid-
the Medicare Physician Fee Schedule (PFS). These include ered a type of capitated payment. Medicare and most other
primarily anatomic pathology and cytology services and payors generally reimburse for inpatient stays as a speci-
are subject to a copay by beneficiaries. Payments on the fied amount based on either a diagnosis-related group or
PFS are updated according to a complex formula for both a per diem amount. To document both labor and financial
technical and professional components and include con- input and to justify resources needed to provide services,
sideration of relative value units for physician, practice, laboratories should keep complete documentation of all
and malpractice expense adjusted by a conversion factor activities. This information can also be used in future ne-
based on the geographic practice cost indices. A statu- gotiations with specific payors.
tory change was introduced in 1998 using the sustainable Certain healthcare environments represent a hybrid
growth rate to ensure that Medicare expenditures did not between retrospective and prospective payment systems.
exceed targets. This approach has proved to be very prob- End-stage renal disease dialysis facilities are reimbursed a
lematic, with double-digit reductions projected over the composite amount, which includes some laboratory ser-
last few years. To prevent loss of patient access to services, vices, while other additional services may be billed sepa-
Congress has stepped in each year to date to prevent such rately. Testing done for patients in skilled-nursing facilities
dramatic decreases. However, the future of payment ad- is usually done by contract with an independent labora-
justments for the PFS is uncertain, and a permanent solu- tory, while the actual stay is reimbursed as a Medicare Part
tion is needed. PFS payments are updated annually each A capitated amount, and other third-party payors gener-
fall and are effective January 1. ally follow the Medicare model.

Other Fee Schedules

The importance of the Medicare fee schedules, both the Keys to Success in Reimbursement
CLFS and the PFS, is quite simply, the impact on the fee Regardless of the type of payment situation, there are a few
schedules developed by other third-party payors. Medicare key actions that can help guarantee that a laboratory will
fees are generally a starting point for negotiations between be able to attain a reasonable profit or, at the least, avoid
laboratories and other payors, which may lead to the deep any significant losses in fulfilling its mission to provide
discounts and special pricing situations already discussed. high-quality, clinically relevant information at a reason-
Alternatively, forced acceptance of lower fees may result able cost. Integral to this process is a firm understanding
in setting higher charges for noncontracted entities (e.g., of costs for procedures as well as correct coding for pro-
patients) to attempt to achieve a break-even status. The ad- cedures performed and complete knowledge of all billing
age “as goes Medicare, so go other payors” is of particular rules promulgated by a given payor (Table 37.2).
relevance in the realm of payment for services.

Capitated Payments
Table 37.2 Key concepts related to successful reimbursement
Capitated contracts for laboratory services are somewhat
Costs Know your real/total costs for any given
uncommon in outpatient arenas, but they may play a orderable and billable procedure.
major role in the provision of laboratory services in ex-
tremely cost-constrained markets. In federal programs, Charges and fee Set charges and accept fee schedules or
there are a number of examples of capitation for lab services schedules other payments to guarantee a reason-
in managed-care Medicaid programs, and capitation will able profit margin.
likely emerge in the managed-care Medicare Part C pro-
Market competition Set charges to be market competitive and
grams. The Medicare ambulatory payment classification provide services that are equivalent to
and payment system for clinical services may also in the fu- or better than those of your competitors
ture encompass laboratory testing services (2, 3). Account- (value-added services).
able care organizations being developed under healthcare
Compliance Avoid any appearance of kickbacks.
reform are almost certainly going to use capitation as a
650 GENERATION OF REVENUE

Retrospective Payment research and development, for facility improvements, for

The primary key to success in a retrospective (fee-for- professional development of employees, and in the case of
service) payment situation is to obtain payment for all ser- a for-profit entity, for generating returns on investments.
vices that a physician orders and that you perform and for Third, set charges to be market competitive and provide
which you report the result. Therefore, you should code services that are equivalent to or better than those of your
correctly and completely for all that you do and bill for competitors. “Better than” is synonymous with “value-
all that you code for. In any situation in which more than added” and includes developing a strong and knowledge-
one code applies, or if a procedure is added on by request able customer support team. Finally, avoid any appearance
or as a reflex, the associated codes should be added to the of kickbacks. Under the Office of Inspector General com-
bill. You should obtain the diagnosis, preferably as an In- pliance program guidance for clinical laboratories, it is es-
ternational Classification of Diseases, Clinical Modifica- sential to avoid any appearance of inducement of ordering
tion code (ICD-9-CM or in the future, ICD-10-CM), but providers to submit testing from patients under federal
translation of a narrative diagnosis into an ICD-CM code payment programs. All of these concepts make for good
is generally acceptable. The diagnosis will help to satisfy clinical laboratory practice and also ensure that one is
any documentation requirements that a payor may have to equipped to make good business decisions.
determine whether a service is covered. One should obtain The establishment of reimbursement for laboratory
a waiver of financial liability (e.g., an advance beneficiary services is a complex process with a variety of possible
notice for Medicare Part B) from the patient in any situa- payor-provider relationships. Many relationships fail to
tion in which there is a question as to whether the payor make financial sense, and laboratories must carefully as-
will cover the services. Finally, make every effort to price at sess each potential client for impact. Increasing the use of
a level at least equal to the cost per reportable test and pref- prospective payment systems will only make it more diffi-
erably at a level that maintains a reasonable profit while cult for a laboratory to determine if an arrangement makes
remaining competitive in the marketplace. financial sense. A recent IOM report on providing “Best
Care at Lower Cost” (5) provides a very accurate analogy
Prospective Payment for laboratory pricing: “If shopping were like healthcare,
The primary key to success with prospective (capitated) product prices would not be posted, and the price charged
payment is also correct and complete coding. To deter- would vary widely within the same store, depending on the
mine if a proposed payment amount is acceptable, you source of payment.” Clearly, improvements to the process
must know (or project) the utilization rates for services, are desirable.
including rates of use of add-on and reflex tests. You
should understand the patient mix according to diagno- KEY POINTS
ses and/or medical subspecialty to help project utilization
■ The responsibility for cost analysis of individual labora-
of specific, especially esoteric or niche, tests. You must
tory procedures rests primarily with the laboratorian.
certainly know your costs by CPT code and must proj-
ect total expenditures based on the terms of the contract. ■ To have a clear understanding of the total costs of a pro-

If certain esoteric tests are extremely high cost, you may cedure, the best parameter to use is the cost per report-
wish to carve out those services and amend the agreement able test.
with a separate fee schedule for specific services. As for ■ The determination of charges has both financial and
retrospective payment situations, if the proposed terms of compliance implications; one generally does not charge
the agreement are not financially favorable, you can de- below cost (which may be construed as an inducement
cline to provide service. for ordering providers) or substantially in excess of
usual charges.
Summary ■ The Medicare fee schedule is quite complex and is ad-
justed regularly, and payments can be substantially
In considering payment for laboratory services, there are
lower than actual charges. A laboratory may have to ac-
four key concepts to remember. First, know your real costs
cept a fee lower than its costs and assess other mecha-
for any given orderable and billable procedure, and make
nisms to remain financially sound.
sure the terms of the payment agreement allow the recov-
ery of costs. Second, set charges and accept fee schedules ■ The importance of the Medicare fee schedule is its

or other payments to guarantee that a reasonable profit impact on the fee schedules developed by other third-
margin has been attained. To continue to develop any party payors.
laboratory business unit, it is essential to generate revenue ■ The laboratory must maintain a thorough understand-
that can be used to enhance the services offered. Beyond ing of coding for procedures performed, as well as com-
simply paying the bills, profits are essential for additional plete knowledge of all billing rules for each payor.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES 651

■ Payment for laboratory services is based on four key will be replaced by a substantially updated 10th edition (ICD-
concepts: (i) know your real test costs, (ii) set charges 10-CM) in 2014. The ICD-CM code refers to the clinical reason
and accept fee schedules that guarantee a reasonable for a patient’s encounter.
profit margin, (iii) set charges to be market competi- End-stage renal disease (ESRD) The term used for Medicare
tive and provide services that are better than those of beneficiaries who have permanent kidney dysfunction requiring
your competitors, and (iv) avoid any appearance of dialysis treatment.
kickbacks.
Gap filling A new code is deemed novel and not adequately
described by an existing code. Payments are set by individual
GLOSSARY contractors based on existing charges, and these payments are
then used to subsequently set a national limitation amount
Actual charge The amount of money a provider charges for a (NLA).
certain medical service or supply. This amount is often more
than the amount Medicare or another third-party payor HCPCS (Healthcare Common Procedure Coding System) The
reimburses. code set recognized by federal and other third-party payors to
describe medical, surgical, and diagnostic services. The CPT sys-
Assignment The fee Medicare sets as approved for a covered
tem is accepted as the HCPCS level 1 code set for laboratory and
medical service (also known as an approved charge). This is the
physician services.
amount Medicare pays a provider for a service or supply. It may
be less than the actual amount charged by a provider. Other Health maintenance organization (HMO) A prepaid system of
third-party payors also set approved payment amounts. healthcare with an emphasis on the prevention and early detec-
Balanced Budget Act of 1997 (BBA ’97) An omnibus legislative tion of disease and on continuity of care. HMOs generally offer a
package with many far-reaching effects on Medicare. The pack- package of services; however, the choice of physician is frequently
age included reductions in payments to providers and mandated limited to those working within the HMO.
a negotiated rule-making process to develop coverage determi- Inherent reasonableness The CMS may employ “reasonable-
nations for laboratory services. charge methodology” to arbitrarily reduce or increase a national
Balanced Budget Refinement Act of 1999 (BBRA ’99) Legisla- limitation amount (NLA) deemed grossly excessive or grossly
tion that addressed flawed policy and excessive payment reduc- deficient.
tions for federal healthcare programs resulting from BBA ’97. International Classification of Diseases, Version 10, Procedure
Break-even point Point at which net income equals total costs. Coding System (ICD-N-PCS) Laboratory coding system in-
tended for use as an alternative to CPT.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The rate is IOM (Institute of Medicine) The IOM is an independent, non-
generally established per person (per capita) enrolled in the profit organization that works outside of government to provide
health plan. unbiased and authoritative advice to decision makers and the
public concerning health and science policy.
Carve out To exclude from a capitated contract and bill as fee
for service. Loss leader High-volume test that is charged below cost to ob-
tain additional, more profitable business.
Claim The claim form or invoice, which allows transmission of
the bill to a payor. National limitation amount (NLA) The national fee cap for a
Contractors Centers for Medicare and Medicaid Services particular test.
(CMS) primary third-party claims management entities who ad- Pull-through A marketing approach in which some mecha-
minister Part A and/or Part B payments to facilities, physicians, nism, usually a financial benefit, is used to entice utilization of a
and commercial laboratory providers according to national and product or service.
local coverage determination policies.
Reflex test Second related test performed automatically when
Covered lives Population insured by a managed-care contract. the initial test results are positive (e.g., identification and suscep-
Cross-walking The fee is set at the same rate as that for another tibility tests on pathogens).
CPT code (or codes) deemed “equivalent” and to which it is Stark and Anti-Kickback Laws Legislation passed governing
“mapped.” physician referrals and payments that ensures that laboratories
Current Procedural Terminology (CPT) Proprietary service provide services to ordering providers without any evidence of
codes developed and maintained by the American Medical As- inducement or kickback.
sociation and required for filing claims and billing of Medicare
Substantially in excess of usual charges Under certain provi-
and other payors.
sions of Section 1128 of the Social Security Act, the submission
Diagnosis code Medical diagnoses are assigned a numerical code of claims for services substantially in excess of an entity’s usual
from a document entitled International Classification of Diseases, charges may result in the exclusion of that entity from partici-
Revision (Clinical Modifications). The 9th edition (ICD-9-CM) pation in Medicare and Medicaid programs.
652 GENERATION OF REVENUE

REFERENCES report%20laboratory_medicine_-_a_national_status_report_from
1. Evans, M. 2011. Test-driving an ACO. Mod. Healthc. 41:38–41. _the_lewin_group.pdf, last accessed November 20, 2012.

2. Fee, D. N. 2002. Success with APCs. Healthc. Financ. Manag. 8. Nigon, D. L. 2000. Clinical Laboratory Management, p. 177–188.
56:68–72. McGraw-Hill, New York, NY.
3. Gold, M., and S. Snodgrass. 2001. Calculating pass-through and 9. Reiser, W. S., and B. O. Brunicardi. 2002. Assessing the impact
outlier payments under APCs. Healthc. Financ. Manag. 55:54–57. of Medicare payment changes. Healthc. Financ. Manag. 56: 68–71.
4. IOM. 2000. Medicare Laboratory Payment Policy Now and in the 10. Roselle, G., M. L. Render, L. B. Nugent, and G. N. Nugent.
Future. National Academy Press, Washington, DC. 2003. Estimating private sector professional fees for VA providers.
5. IOM. 2012. Best Care at Lowest Cost. The Path to Continuously Med. Care 41(6 Suppl.):II23–II32.
Learning Health Care in America. National Academy Press, Wash- 11. Travers, E. M. 1997. Clinical Laboratory Management. Williams
ington, DC. and Wilkins, Baltimore, MD.
6. Kovar, M., and E. Shannon. 2011. Laboratory pricing: charge 12. Weiss, R. L., D. Sundwall, and J. M. Matsen. 2002. Estimating
master risks and rewards. New Perspect. 30:15–17. the budgetary impact of setting the Medicare clinical laboratory
7. The Lewin Group. 2008. Laboratory Medicine. A National Status Re- fee schedule at the national limitation amount. Am. J. Clin. Pathol.
port. https://www.futurelabmedicine.org/pdfs/2007%20status%20 117:691–695.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES 653

APPENDIX 37.1 Publications, Phone Numbers, Websites, and Guidance Documents

PUBLICATIONS http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
Clinical Laboratory Strategies (newsletter of the American Asso- PhysicianFeeSched/index.html (last accessed November 20, 2012)
ciation of Clinical Chemists Delta Project (https://www.aacc Medicare Physician Fee Schedule (issued every November).
.org/publications/strategies/Pages/default.aspx#, [last accessed Government Accountability Office
November 20, 2012]) http://www.gao.gov/highrisk/agency/hhs/reforming-medicare
National Intelligence Report, Laboratory Industry Report, G2 -payments.php (last accessed November 20, 2012)
Compliance Report, and Diagnostic Testing & Technology Re- GAO studies on reforming and refining Medicare payments.
port (newsletters published by Washington G-2 Reports,
Institute of Medicine
Washington, DC [http://www.g2reports.com [last accessed No-
vember 20, 2012]) http://www.iom.edu (last accessed November 20, 2012)
Laboratory Compliance Insider, Medicare Weekly Update, Coding Office of Inspector General
Compliance Strategies (newsletters available from HCPro at https://oig.hhs.gov/compliance/ (last accessed November 20, 2012)
http://www.hcpro.com/ [last accessed November 20, 2012]) Compliance program guidance, fraud alerts, advisory opinions, and
The Dark Report (newsletter available at http://www.darkreport work plan.
.com/ [last accessed November 20, 2012]) http://oig.hhs.gov/fraud/docs/safeharborregulations/lab.htm (last
CodeMap (e-newsletter available at http://www.codemap.com accessed August 23, 2013)
[last accessed November 20, 2012]) Discount arrangements between clinical laboratories and SNFs

PHONE NUMBERS FEDERAL REGISTER AND RELEVANT

AMA: 1-800-621-8335
GUIDANCE DOCUMENTS
CMS (formerly Health Care Financing Administration): 1-800-
447-8477 or 1-800-633-4227 Negotiated Rulemaking
Note: Coding resources are available from many vendors includ- Federal Register. 2001. Medicare program; negotiated rulemak-
ing the AMA ing: coverage and administrative policies for clinical diagnostic
laboratory services. Fed. Regist. 66(226):58788–58890
WEBSITES
Inherent Reasonableness
CMS Federal Register. 1998. Medicare program; application of inher-
http://www.cms.gov (last accessed November 20, 2012) ent reasonableness to all Medicare part B services (other than
Searchable CMS website. physician services)—HCFA. Interim final rule with comment
http://www.cms.gov/Outreach-and-Education/Medicare-Learning period. Fed. Regist. 63:687–690.
-Network-MLN/MLNGenInfo/index.html (last accessed November
20, 2012) Substantially in Excess
Medicare Learning Network resources. Federal Register. 2007. Medicare and state health care programs:
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ fraud and abuse; clarification of terms and application of pro-
ClinicalLabFeeSched/index.html) (last accessed November 20, 2012) gram exclusion authority for submitting claims containing exces-
Medicare Clinical Laboratory Fee Schedule (issued every November). sive charges. Fed. Regist. 72:33430–33432.
Profitability, Contribution,
VII
and Reimbursement
(section editors: Vickie S. Baselski and Alice Weissfeld)
38 Rules and Regulations in Reimbursement
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
39 Reimbursement Compliance
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
40 Determination of Profitability
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Introduction
General Criteria
38 Rules and Regulations
Basic Rules in Reimbursement
Procedure Code Edits
Basic Edits • National Correct Coding Initiative •
Mutually Exclusive Codes • Comprehensive/ Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Component Edits • Medically Unlikely Edits
Conditions of Coverage
Medical Necessity • National Coverage
Determination • Local Coverage Determination • OBJECTIVES
Screening Tests • Experimental Testing •
Administrative Policies To discuss the rules set forth by third-party payors that determine claim
Special Coverage Conditions payment
End-Stage Renal Disease • Skilled-Nursing Facility • To describe the term “medical necessity” and its relationship to reimbursement
Ambulatory Payment Classifications • Inpatients •
Three-Day Window • Date of Service Rule • Other To discuss the importance of claim compliance to reimbursement
Private-Payor Rules To describe certain special coverage conditions for which unique billing rules
Remittance Advice Review may apply
Beneficiary Documents • Provider Documents •
Auditing Remittance Advice
To discuss national coverage determinations and the relationship between
these determinations and local coverage determinations
Summary
To describe the most common reasons for reimbursement denial and what can
KEY POINTS
be done to correct the problems
GLOSSARY
REFERENCES
APPENDIXES Call them rules or call them limits, good ones, I believe, have this in common:
They serve reasonable purposes; they are practical and within a child’s capability;
they are consistent; and they are an expression of loving concern.
“Mister” Fred Rogers (1928–2003)

B
eyond the basic logistical issues surrounding the battle for labo-
ratory reimbursement are a number of issues that pertain to the rules
of engagement. The logistical aspects include the documentation of
what is done through Current Procedural Terminology (CPT) and Health
Care Common Procedure Coding System (HCPCS) coding, why it is done
through International Classification of Diseases, Clinical Modification
(ICD-9-CM and ICD-10-CM) or alternative diagnosis coding, where it is
done through use of revenue and place-of-service codes, and what the actual
billing processes and amount of payment are (see section VI). The rules of
engagement pertain to the establishment of criteria for the actual execution
of payment, also known as conditions of coverage. Providers must meet all
conditions imposed by regulations as well as terms of business set upon them
by payors. In addition, to evaluate services for appropriateness for coverage
and subsequent payment, payors generally employ standard sets of prepay
edits, which specify clinical conditions for payment or nonpayment. Fur-
ther, payors often conduct postpay audits to evaluate the accuracy of claim
payments based on the defined coverage conditions, including prepay edits.
Clinical Laboratory Management, 2nd Edition
While it might be a stretch to compare these rules to the limits imposed
Edited by L. S. Garcia upon a child by a parent, they do share some common features. They are ba-
©2014 ASM Press, Washington, DC sically simple and clearly defined; they are relatively easily applied through
doi:10.1128/9781555817282.ch38 an electronic claim review process; and they represent a form of “tough-love”

657
658 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

in that they attempt to place some controls on the exces- Basic Rules
sive spending associated with healthcare out of concern
The claims for laboratory services must meet certain ba-
for the effective management of healthcare resources.
sic requirements for processing. The coding requirements
Unfortunately, one can easily find examples of errors in
for claim transactions have been standardized under the
the reimbursement system, thus strengthening the need
Health Insurance Portability and Accountability Act
for well-defined limits. While the focus of this chapter is
(HIPAA), and the CMS requires submission of all stan-
the conditions payors place upon providers, one should
dard code and transaction sets. CMS claims are filed using
recognize that payors are also subject to rules governing
one of two basic formats for laboratory services that are
good business practice.
used in their entirety or as models for claims submitted to
other payors. Form CMS-1450 (formally UB-92) is used
for institutional (e.g., hospitals, nursing homes) claims for
General Criteria Medicare Part A services. It is designed and maintained by
Criteria for conditions of coverage for laboratory services the National Uniform Billing Committee and used by many
historically have as their bases a number of elements. First institutional providers. Form CMS-1500 is used by nonin-
is the evidence-based-medicine element, which specifies stitutional providers (e.g., independent laboratories) to
that laboratory services should be covered if shown in bill Medicare Part B services and some Medicaid services,
the medical literature to be necessary, safe, and effective and it has become a universal claim form for many other
in the management of a particular condition. Second is third-party payors. While these are manual forms, the re-
the medical-ethics element, which suggests that patients quired data elements are the same as those in electronic
should not be denied a procedure proven to be neces- forms. As a result of the Administrative Simplification and
sary, safe, and effective. Third is the medical-judgment Compliance Act of 2001, providers are required to submit
element, which places the burden of decision making on electronic claims after October 2003, with only a few ex-
the ordering provider, whose training and experience in ceptions. Under HIPAA, the Department of Health and
patient management should justify performance of a pro- Human Services has adopted ASC X12 (Accredited Stan-
cedure. These criteria have been traditionally adequate dards Committee) Version 5010 as the HIPAA standard
to determine coverage. However, as healthcare costs have for electronic transactions after January 2009, with man-
risen, and rationing of available resources has become a datory implementation as of January 2012. Importantly,
necessity, more uniform and systematically applied crite- form 5010 will be able to accommodate ICD-10-CM codes
ria to verify that a service should be covered have emerged when required in 2014.
in the form of payor rules, which in federal payment pro- The major required elements for claim submission and
grams are based on interpretation of regulations arising subsequent reimbursement for covered services are as fol-
from statutes. These rules are applied through stringent lows (Table 38.1). The patient must be identified using a
claim review processes in which both procedures and di- unique identifier, and all demographic information neces-
agnoses are considered in making a payment determina- sary for subsequent communications, particularly bills for
tion (1, 3, 5, 7). services if indicated, must also be provided. The date of
The primary statute upon which federal programs are service, which is defined as the date of collection of clinical
based is the Social Security Act of 1967. This provided specimens, must be provided. The ordering provider must
for healthcare benefits for “the diagnosis or treatment be identified using a national provider identifier, or NPI
of illness or injury or to improve the functioning of a (previously called the unique provider identifier number,
malformed body part” in the elderly and, subsequently, or UPIN), and adequate demographic information must
in disabled individuals. Many regulations have evolved be provided for subsequent communications, including
from this phraseology, which limits services to those acquisition of additional documentation, test results, and
that have been interpreted by the Centers for Medicare bills for services if indicated (8). The authentication of the
and Medicaid Services (CMS) and its contractors as laboratory service provider requires a Clinical Laboratory
meeting the intent of the law. Furthermore, many other Improvement Amendments (CLIA) number and designa-
third-party payors have adopted similar types of pay- tion (high complexity, moderate complexity, certificate of
ment rules. These rules can be divided into three gen- waiver, provider-performed microscopy) appropriate to
eral categories: those that are basic and review a claim the service being billed. The place of service must be des-
for standard identifying information, those that evaluate ignated, either as a revenue code in the case of an inpatient
the appropriateness of the procedures that are ordered in or using a place-of-service code for outpatient testing. The
a given time frame, and those that assess the “medical actual services provided on the specified date must be indi-
necessity” of performing a test in view of the established cated using the appropriate CPT or HCPCS codes, includ-
coverage criteria. ing units of service and modifiers where appropriate as
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 659

Table 38.1 Major required elements for claims submission and Table 38.2 Procedure code edits
subsequent reimbursement Basic edits Determination of whether a service may
Unique patient identifier represent a duplicate service (review of
Date of service actual procedures identified by HCPCS or
CPT codes)
Bills for services
Frequency limits (how often a particular
Ordering provider number (national provider identifier)
laboratory procedure may be reimbursed);
Provider CLIAa number and designation (high complexity, moderate it may be necessary to obtain an ABN for
complexity, certificate of waiver, provider-performed microscopy) frequency-limited test procedures.
Place of service (either revenue code for inpatient testing or place-of-
service code for outpatient testing) NCCI Review to determine if two or more dif-
Actual services provided (CPT or HCPCS codes, including units of ferent codes are appropriately ordered on
service and modifiers where appropriate, and actual charges for each the same date of service. NCCI provides
service) an extensive system for this type of claim
Reason for performing the test (ICD-9-CM or ICD-10-CM diagnosis review process, administered through
code for outpatients and DRG or narrative diagnosis for inpatients) Correct Coding Solutions, LLC (Medicare
a
contractor).
CLIA, Clinical Laboratory Improvement Amendments.
Documents published on quarterly basis;
available on the CMS website or as a printed
version from the NTIS
well as the actual charges for each service. Reimbursement
is rarely made at the charge level, but Medicare and other Comprehensive/ These edits identify cases in which a spe-
component edits cific code has been identified as represent-
third-party payors use this information for determination
ing a component of a more comprehensive
of fee schedule payment amounts. Finally, the reason for code documented on the same date of
performing the test must be indicated using an appropriate service (AMAa-approved panel—one would
ICD-CM diagnosis code (ICD-9-CM or ICD-10-CM) for not also code and bill for individual analytes
outpatients and a diagnosis-related group (DRG) or am- included in the panel).
bulatory payment classification (APC) for hospital inpa-
Mutually exclusive Codes for services that are not reasonably
tients and outpatients, respectively. Failure to complete all codes performed during the same patient encoun-
required data fields is likely to result in a denial of payment ter; these codes are considered to provide
from any third-party payor (2, 8, 10). duplicate information.
Multiple tests to identify the same analyte,
marker, or infectious agent should not be
Procedure Code Edits reported together.
a
Basic Edits AMA, American Medical Association.

The next category of prepay edits used for claim review

evaluates the actual procedures performed as identified by
HCPCS or CPT codes (Table 38.2). The most basic edit is Coding Initiative (NCCI) provides the most extensive sys-
a determination of whether a service may be a duplicate tem for this type of claim review process. This program
service (i.e., same procedure on the same date of service). was initiated by the CMS in 1996 through a contract with
If a laboratory procedure is performed more than once on a Medicare contractor and is currently maintained by Cor-
a given date of service for a valid medical purpose, an ap- rect Coding Solutions, LLC. The program is designed to
propriate modifier (-59 or -91) must be appended to the promote correct coding of healthcare services, including
procedure code. Similarly, frequency limits are used to de- laboratory services, and to control improper payment for
termine how often a particular laboratory procedure may incorrect coding. Edits have been developed based on na-
be reimbursed. These types of edits may be problematic for tional and local coverage policies, coding guidelines and
clinical laboratories if a patient has presented to more than practice guidelines published by professional societies, and
one ordering provider or laboratory provider during the review of provider current coding and billing practice.
time frame for reimbursement. For this reason, it is rea- The NCCI documents are published quarterly. Hard
sonable to obtain an advance beneficiary notice (ABN) for copies are available from the National Technical Informa-
frequency-limited test procedures. tion Service (NTIS), and electronic versions are publicly
available on the CMS website. The complete document
National Correct Coding Initiative includes a table of contents and 13 narrative chapters,
Procedure codes are also reviewed to determine if two with chapter X specific to pathology and laboratory ser-
or more different codes are appropriately ordered on vices. However, on occasion, there is crossover between
the same date of service. The Medicare National Correct chapters in edit pairs, and laboratorians should be aware
660 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

of all edits pertaining to the laboratory. NCCI is provided and bill for the individual analytes included in the panel
to contractors as a set of automated edits that examine all unless a subsequent measurement of a specific analyte
CPT and HCPCS codes submitted on the same date of ser- was necessary for patient care. In other cases, the descrip-
vice. As expected, NCCI also serves as a model for claim tor for a procedure may include several related codes. All
review by other third-party payors. The edits fall into of the molecular infectious disease codes are considered
several types but are now combined into a single listing inclusive of all individual procedural step codes previ-
of edit pairs in two columns. For codes that appear in ously found in the chemistry section of the CPT code-
these columns, payment is made only for the code in col- book as molecular diagnostic procedural steps. It should
umn 1 and payment is denied for any associated codes be noted that these procedural step codes (termed “stack-
in column 2. The edits also indicate the code pairs in the ing codes”) were eliminated in 2013 and all noninfectious
columns for which a modifier (generally -59) may be ap- analytes were reassigned to a new, analyte-specific mo-
propriate to indicate that the tests were in fact unique and lecular pathology section. Finally, if after a test is ordered
appropriate under the circumstances. Because denials are and performed, an additional related procedure is neces-
due to incorrect coding, an ABN is not appropriate for use sary to confirm the result, this would be considered a part
to render patients financially liable for payment. of the original ordered test unless a specific confirmatory
The NCCI contractor bases the edits on a number of code is available (e.g., in the case of several serologic tests
features of CPT codes. Particular attention is given to the for infectious agents, including human immunodefi-
narrative descriptors for the codes to determine if the code ciency virus and Treponema pallidum, and for hepatitis B
is appropriate for use more than once per date of service. surface antigen). When incompatible comprehensive edit
In addition, narratives are evaluated to determine if two or code pairs are billed, the most comprehensive code, but
more codes provide the same information, in which case not the component codes, is generally reimbursed. As for
codes are deemed mutually exclusive. Narratives are also mutually exclusive codes, these edit pairs may also allow
evaluated to determine if elements of one code are embed- use of modifier -59 in some cases if the component test is
ded in another code, in which case the edit is considered a determined to be appropriate for the circumstances. It can
comprehensive/component edit. be extremely challenging for laboratorians to assess how
the NCCI process applies to their standard operating pro-
Mutually Exclusive Codes cedures and subsequent billing for procedures performed.
Mutually exclusive codes are those that are not reasonably
performed during the same encounter. In essence, these Medically Unlikely Edits
are considered to provide duplicate information. There In 2007, the NCCI established an additional set of edits
is a long-standing CMS interpretation of the Medicare known as medically unlikely edits (MUEs). An MUE is a
statute that has influenced the development of mutually frequency edit and represents the maximum number of
exclusive edits—that multiple tests to identify the same units of service allowable under most circumstances for a
analyte, marker, or infectious agent should not be reported single CPT or HCPCS code billed by a provider on a single
together. For example, it would not be appropriate to per- date of service for a single beneficiary. MUEs are devel-
form an enzyme immunoassay and a nucleic acid detec- oped based on a number of considerations including CPT/
tion procedure to detect the same infectious agent from HCPCS code descriptors, CPT coding instructions, ana-
the same specimen on the same date of service, nor would tomic considerations, established CMS policies, nature of
it be appropriate to perform and bill a nonamplified and service/procedure, nature of analyte, nature of equipment,
an amplified nucleic acid test for the same analyte from the and clinical judgment. Not all HCPCS/CPT codes have an
same specimen on the same date of service. Again, if ad- MUE, and not all MUEs are published. For example, if the
ditional clinically useful information may be obtained by MUE is set at greater than 3, it is not published due to con-
performing both procedures in a mutually exclusive code cerns about risk for overutilization. In addition, the MUE
set, modifier -59 may be attached. When mutually exclu- should not be considered as a guide for utilization, and any
sive codes are billed together inappropriately, in general, repeat testing should be clinically indicated. Since some
the lower-paying code is the code that is reimbursed. MUEs are not published, careful claim denial review is often
indicated to recognize that a frequency edit is operational.
Comprehensive/Component Edits
Comprehensive/component edits identify cases in which
a specific code has been identified as representing a com- Conditions of Coverage
ponent of a more comprehensive code documented on The term “conditions of coverage” has two distinct mean-
the same date of service. The most obvious example is ings for reimbursement. First, the term may apply to the
the performance of an American Medical Association– conditions that a healthcare provider must meet to be
approved panel. In this situation, one would not also code able to bill a payor and be reimbursed by that payor for a
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 661

service. Also known as “conditions of participation,” this National Coverage Determination

may entail having the correct CLIA certificate and state Section 4554(b)(1) of the Balanced Budget Act of 1997
facility and professional licenses, meeting patient noti- mandated the use of a negotiated rule-making process to
fication requirements under HIPAA as well as providing develop national coverage and administrative policies for
patients notice of their rights, accepting assignment of Part B clinical diagnostic laboratory services (Table 38.3).
specified payment amounts for services, and meeting all Beginning in 1998 and continuing through 1999, 18 pro-
other applicable regulatory requirements. The second fessional groups representing laboratory, physician, and
meaning applies to the conditions that a patient must meet beneficiary interests and the Department of Health and
for a service to be paid for. In this situation, conditions of Human Services Medicare Program participated in this
coverage refers to a determination by a payor of the clinical process, culminating in the publication of 23 national cov-
circumstances under which a particular procedure will be erage policies developed through consensus. A notice of
paid for. Note that for both meanings, the payor sets the proposed rulemaking was published in March 2000, and
conditions of coverage and subsequent payment. a final rule was published in November 2001, with an im-
plementation date one year hence. These 23 policies are
Medical Necessity believed to represent 60% of the Part B laboratory outlays
“Medical necessity” refers to a specific mechanism for de- and provide consistency in coverage for beneficiaries. Fur-
fining conditions of coverage for a patient. Under Medi- ther, a system has been developed to allow for the continu-
care, this terminology derives from Section 1862(a)(1) ation of the development of new NCDs through a formal,
(A) of the Social Security Act of 1965, which stipulates defined process.
that Medicare payment will be made only for expenses in- The format for an NCD is also defined. A narrative de-
curred for items or services that are reasonable and neces- scription of the covered services is given and the associated
sary for the diagnosis or treatment of illness or injury or
to improve the functioning of a malformed body member.
Medicare has consistently interpreted this provision to
exclude services that have not been determined to be safe Table 38.3 National Coverage Determinations
and effective, are experimental, and are not performed in Definition Balanced Budget Act of 1997 mandated
accordance with accepted standards of medical practice as the use of a negotiated rule-making
process to develop national coverage and
demonstrated through peer-reviewed literature and pub- administrative policies for Part B clinical
lished professional society guidelines or practice standards diagnostic laboratory services.
(2). In addition, Section 1862(a)(8) excludes coverage for
expenses for routine physical checkups and for testing per- Participation From 1998 to 2000, 18 professional groups
formed to screen for an illness or an illness precursor in representing laboratory, physician, and
beneficiary interests and the Department
the absence of signs, symptoms, complaints, or personal of Human Services Medicare Program
history of disease or injury except where explicitly allowed participated in this committee.
by statute (e.g., cervical cytology in women and prostate-
specific antigen testing in men). Publications National coverage policies developed
Medical-necessity edits have been developed that spec- through consensus; 23 policies are
believed to represent 60% of the Part B
ify both the procedures performed and the reason for per- laboratory outlays and provide consistency
forming the procedures on a given date of service. These in coverage for beneficiaries.
edits may be developed and applied nationally and are
known as national coverage determinations (NCDs). Al- NCD format Narrative description of the covered ser-
ternatively, where there is not an NCD or where an NCD vices and associated CPT codes
is silent, local policies may be developed by individual Specific ICD-9-CM codes that may be
covered, those that are generally not cov-
contractors. These are known as local coverage determina- ered, and those that are never covered due
tions (LCDs). However, a local contractor may not develop to statutory interpretation (e.g., screening
an LCD in conflict with an NCD. Both types of policies ex- tests for diseases or disease precursors)
plicitly delineate the ICD-CM diagnosis codes, which are
recognized as providing evidence of medical necessity for Content of narrative Defines indications, coding guidelines,
section and limitations
coverage of a particular laboratory procedure identified by
CPT code. As would be expected, private third-party pay- Updates NCDs have been updated with technical
ors have embraced this concept, and while not as extensive corrections on a regular basis and commu-
as the system used for Medicare reimbursement, medical nicated to payors and providers through
necessity nevertheless forms the basis for denials of pay- program memoranda and transmittals
issued by the CMS.
ment in the private sector as well.
662 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

CPT codes are identified, as well as the ICD-CM codes that technology like molecular pathology tests, may be very
may be covered, those that are not generally covered, and restrictive and controversial.
those that are never covered due to statutory interpretation The Medicare Coverage Database contains all NCDs
(e.g., screening tests for diseases or disease precursors). In and LCDs, local articles, and proposed NCDs. The da-
addition, each NCD has a narrative section that defines in- tabase also includes several other types of national
dications, coding guidelines, and limitations upon which coverage policy–related documents including national
the coding portions are based. These NCDs are updated coverage analyses (NCAs), coding analyses for labs
with technical corrections based on annual coding changes (CALs), Medicare Evidence Development and Cover-
or new CMS interpretations and communicated to pro- age Advisory Committee (MEDCAC) proceedings, and
viders on a regular basis through transmittals issued by Medicare coverage guidance documents. It should be
the CMS. During the claim review process, the procedure noted that other third-party payors similarly use medi-
codes (CPT or HCPCS) that have been submitted are com- cal review or technology assessment groups to develop
pared to diagnosis codes (ICD-CM) to determine if pay- coverage policies. These payors generally maintain cov-
ment is appropriate. erage policies on websites. Laboratories should remain
aware of all relevant coverage documents from both fed-
Local Coverage Determination eral and other payors, particularly if medical-necessity
Where a national policy does not exist, or for any aspect denial trends are noted.
of a national policy for which coverage conditions are not
specified (e.g., frequency limits), a regional contractor Screening Tests
may issue an LCD. The contents of LCDs are very simi- Historically, preventive tests that screened for disease, dis-
lar to those of NCDs, and each contractor must develop ease precursors, or increased risk for disease in asymptom-
software for claim review, again comparing procedure atic patients were not considered to meet medical-necessity
codes (CPT or HCPCS) to diagnosis codes (ICD-CM) to indications under Medicare. Only a very few screening
make a payment decision. A contractor advisory commit- tests were reimbursed as a result of congressional action.
tee (CAC) generally develops LCDs through a systematic However, under the Medicare Improvements for Patients
process. LCDs are published in local contractor bulletins and Providers Act of 2008 (MIPPA), CMS now has the au-
for a review-and-comment period (generally 90 days), af- thority and the flexibility to add to the Medicare-covered
ter which a final policy is developed and implemented. preventive services, including laboratory tests, if there is
The inequities in coverage promulgated by LCDs led to a sufficient evidence published such that the United States
Government Accountability Office recommendation that Preventive Service Task Force (USPSTF) issues a recom-
future LCD development be eliminated and existing poli- mendation. The current laboratory screening benefits are
cies be evaluated to determine if they should be incorpo- listed in Table 38.4. The CMS uses the NCD proposal pro-
rated into national policies or rescinded. However, at this cess to make such new screening coverage decisions. As
time LCDs are still being routinely developed and used by expected, other third-party payors similarly set coverage
local contractors. Some, particularly those for emerging conditions for specific screening tests.

Table 38.4 Medicare laboratory screening benefits

Condition Test(s) Frequency
Cardiovascular disease risk Cholesterol, lipid, and triglycerides Every 5 years
Colorectal cancer Fecal occult blood Every 12 months
Diabetes if at risk, e.g., high blood pressure, Fasting blood glucose Up to twice per year
dyslipidemia, obesity, elevated glucose, age >65,
family history, gestational diabetes
Human immunodeficiency virus if pregnant, at HIV antibody ± antigen screening testa Every 12 months or up to 3 times in
risk, or on request pregnancy
Cervical cancer Papanicolaou test (Pap smear) Every 24 months or 12 months if
high risk
Prostate cancer Prostate-specific antigen (PSA) Every 12 months
Sexually transmitted infections if pregnant or Chlamydia, gonorrhea, syphilis, and hepatitis Bb
at risk
a
See coding guidance at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM6786.pdf (last
accessed November 20, 2012).
b
See coding guidance at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM7610.pdf (last
accessed November 20, 2012).
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 663

Experimental Testing apply (Table 38.5). In the Medicare program, special rules
Medicare has historically interpreted the “reasonable and apply, particularly in the setting of end-stage renal disease
necessary” clause to mean that services that are experimen- (ESRD) and its management in dialysis centers and in
tal (i.e., for research or investigational use) are not reason- payment for laboratory services in Part A skilled-nursing
able or necessary and therefore are not reimbursed. Further, facilities (SNF). Patients admitted to hospitals with pread-
clearance or approval by the Food and Drug Administra- mission testing are also subject to a rule called the “DRG
tion is taken as evidence that a procedure is not experimen- payment window” prior to admission and to a “date of
tal. Currently, however, there is much controversy in this service rule” after discharge. Finally, each individual payor
area, particularly in the realm of newly emerging molecular may impose other arbitrary rules that may be discerned
technologies. Procedures with a category B investigational only through careful evaluation of denials.
device exemption may be reimbursed at a contractor’s dis-
cretion, as may routine tests used in support of a new in- End-Stage Renal Disease
vestigational device or procedure in a clinical-trial setting. ESRD payment rules are rather complex and represent a
However, it is still generally accepted that failure to have combination of a capitated system and a fee-for-service
Food and Drug Administration clearance or approval if re- system (6). Most clinical laboratory tests are included in a
quired is justification for denial. In the case of laboratory- composite rate payment through the Medicare contractor.
developed tests using analyte-specific reagents (ASRs), the To bill separately according to the clinical laboratory fee
tests may be approved for reimbursement by a contractor schedule for additional tests, 50% or more of the covered
if the assay has been properly verified in accordance with tests must be noncomposite rate tests for a given date of
CLIA regulations in a high-complexity laboratory, the ASR service. In addition, several unique HCPCS modifiers are
is being used in accordance with the ASR rule, and all other used to identify a separately billable test.
conditions for medical necessity are met. In the case of
other third-party payors, there tends to be more leniency in Skilled-Nursing Facility
coverage, as payor-specific independent technology assess- The Balanced Budget Act of 1997 altered the manner in
ment groups make individual coverage decisions. which the majority of services are provided to Medicare
beneficiaries in a Part A–covered SNF stay. All reimburse-
Administrative Policies ment was bundled into a single composite prospective
A number of Medicare administrative policies were also payment. While there are a few exceptions that represent
developed during the negotiated rule-making process. separately payable services, laboratory services are gener-
These policies were related to the actual processing of ally included in the composite per diem. In a Part B stay in
claims and required contractors to accept and evaluate
all diagnostic codes submitted before making a medical- Table 38.5 Special coverage conditions
necessity determination, allowed a narrative diagnosis to ESRD Complex payment rules that represent a
be translated into an ICD-9-CM code if a match could be combination of a capitated system and a
found, and forbade the use of unpublished frequency edits fee-for-service system
as a basis for denial of payment. In addition, although the
laboratory remains the entity that receives payment and SNF All reimbursement is bundled into a single
composite prospective payment; there are a
therefore is the entity at risk for nonpayment when a claim few exceptions, but laboratory services are
is denied, the policy did clarify that the ordering providers included in the composite per diem.
have a responsibility to submit required medical-necessity
documentation. Further, if documentation is not provided, Three-day window Used to prevent transfer of charges from the
CMS contractors should notify the ordering provider that capitated DRG system to a fee-for-service
Part B system. Specifies that laboratory ser-
additional documentation is required to complete the vices performed by a hospital are included
claim for payment. The policies also clarified that absent in the DRG payment for a related admission
evidence or clear proof of medical necessity, laboratories within the preceeding three-day period.
are encouraged to seek beneficiary signing of an ABN as-
suming financial liability in the case of denial. Such docu- Date of service rule Tests ordered after discharge on exist-
ing samples within a 14-day window are
ments are also common in third-party-payor situations. covered under the DRG payment and not
billed separately. May place costs for eso-
teric procedures on the hospital.
Special Coverage Conditions
The rules discussed thus far apply primarily to laboratory Other private-payor Third-party payors model coverage rules
services for outpatient populations. In a number of other rules on Medicare; however, each has its own
guidelines for reimbursement.
specific clinical circumstances, unique billing rules may
664 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

which Part A benefits have been exhausted, certain medi- Other Private-Payor Rules
cal services, including laboratory tests, may be payable ac- While many third-party payors model their coverage rules
cording to the previously described rules. on Medicare, each has its own guidelines for reimburse-
ment. A large laboratory may interact with several hun-
Ambulatory Payment Classifications dred unique payor plans, and the ability to triage claims for
Ambulatory payment classifications (APCs) are used compliance with all payment rules absolutely depends on
for prospective payment for outpatient services. At this regularly updated claims-processing software. Fortunately,
time, laboratory services are not included in the prospec- these payors tend to be more liberal in reimbursement for
tive payment but are billed and paid separately as previ- services, yet as healthcare costs rise, rules restricting pay-
ously described for outpatients. In order to better control ment for services will almost certainly become an attrac-
laboratory spending as healthcare reform progresses and tive means to control costs.
accountable care organizations (ACOs) become predomi-
nant brokers for services, it is likely that APC payments Remittance Advice Review
will be modified to include laboratory services.
Beneficiary Documents
Inpatients The importance of review by the laboratory of the bases
for denial or adjustment of claims by all payors cannot be
Laboratory services for hospitalized inpatients are often
overemphasized (9). For beneficiaries, a specific explana-
established to comply with additional sets of rules. Al-
tory statement termed an explanation of benefits or expla-
though edits such as the NCCI edits may form a basis
nation of medical benefits accompanies each denial by any
for correct code utilization, it is equally important to ap-
payor. In the Medicare program, a beneficiary receives a
ply other diagnosis- and institution-specific checklists to
Medicare summary notice (previously termed an expla-
ensure that testing is performed according to established
nation of Medicare benefits). These documents provide
protocols. Since payment is made prospectively (e.g., by
specific and standardized explanatory information that
DRG), it is very important to establish laboratory proto-
identifies the reason for the denial. This information can
cols that contribute to safe and clinically effective patient
be used to attempt to obtain additional documentation
management while expending resources in a rational and
from the ordering provider to resubmit the claim, initiate
cost-effective manner.
an appeal process, or bill an alternative responsible party
(i.e., client or patient) if appropriate.
Three-Day Window
Patients admitted to the hospital and eligible for Part A Provider Documents
services frequently require preadmission testing. To pre- Laboratories also receive remittance advice reports from
vent the transfer of charges from the capitated DRG system Medicare contractors and other payors that provide an ex-
to a fee-for-service Part B system, Medicare implemented planation of the disposition of a claim for specific patients
the three-day payment window, which specifies that labo- in a given period. These reports list the deficient items that
ratory services performed three days prior to admission by are responsible for preventing expected payment. Under
a hospital or by an entity wholly owned or operated by a the Health Insurance Portability and Accountability Act
hospital are included in the DRG payment for the subse- of 1996, two sets of standardized codes are now required
quent hospitalization. In short-term hospital settings, the to convey this information to providers. The claim adjust-
window is reduced to one calendar day. ment “reason codes” communicate why a claim for service
was “adjusted” (i.e., paid differently from expected) and are
Date of Service Rule maintained by the American National Standards Institute
After discharge, there are also Medicare rules restricting (ANSI). The “remark codes” add greater specificity and ad-
payment for tests ordered on samples collected during the ditional explanatory narrative to the reason codes. The CMS
hospital stay. Tests ordered on existing samples within a is the national maintainer for the standard remark codes.
14-day window are covered under the DRG payment and Current reason and remark codes are maintained and ac-
not billed separately. This policy may cause delays in test cessible at a centralized website (http://www.wpc-edi.com/
ordering and may also place a hospital in an unfavorable Reference/, last accessed November 20, 2012).
reimbursement situation for more esoteric tests referred
out for testing. Under a provision of the Patient Protec- Auditing Remittance Advice
tion and Affordable Care Act, a demonstration project is Careful review of these remittance documents provides a
planned to review payment mechanisms for certain com- mechanism to identify billing problems that are costly in
plex laboratory tests, particular molecular pathology tests, terms of both uncompensated labor and lost revenue (4).
in this setting. Recent data indicate that the most common reasons for
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 665

denial include lack of medical-necessity documentation, ■ Both procedures and diagnoses are considered in mak-
the fact that the service performed is noncovered (gener- ing a medical necessity payment determination.
ally if used for screening purposes), inadequacy or lack ■ The concept of medical necessity forms the basis for
of basic identifying documentation (particularly date of claim denials in both the public (Medicare) and private
service, ordering provider identifier number, and patient sectors.
identification number), and incorrect coding (both pro-
■ It is important to understand how NCDs, LCDs, and
cedure and diagnosis). Studying these reports to identify
other conditions of coverage are set and how to contact
trends can identify systematic problems often resulting
the payors for claim denial clarifications.
from a simple failure to follow the payor rules and can lead
to successful interventions to correct the problems and ■ It is important to recognize that postpay audits may be
enhance appropriate reimbursement. A number of case conducted by payors to ensure compliance with billing
studies have demonstrated significant improvement in re- rules.
imbursement after implementation of processes to ensure ■ Postpay audits may result in the laboratory being re-
adequate documentation and compliance with rules prior quired to return payments if billing compliance prob-
to claim submission. lems are noted.
■ The importance of reviewing all claim denials to iden-
tify trends for process improvement cannot be overem-
Summary phasized.
Knowledge of and understanding of the rules set forth by
third-party payors that determine whether a claim submit- GLOSSARY
ted for laboratory services will be paid are key to success Advance beneficiary notice (ABN) A waiver of liability used by
in the laboratory. Many of the rules emanate from Medi- the provider to notify Medicare beneficiaries prior to receiving a
care statutes, with resulting regulations that are designed service that it may not be a covered service and that they may
to ensure that only services that are deemed medically have to assume financial responsibility. Similar notices are used
necessary for management of a disease condition are paid by other payors.
for. However, in a few defined circumstances, payment has Ambulatory payment classification (APC) A prospective pay-
been deemed appropriate for certain specific preventative ment amount assigned to an outpatient visit for a specified clini-
medicine test procedures. Design of a system that attempts cal condition.
to ensure compliance with all of the known rules and reg-
American National Standards Institute A private organization
ulations from federal and other payors can significantly that oversees development of and accredits nationally used stan-
reduce costly and time-consuming claim resubmissions. dards. In the Medicare program, the claim adjustment reason
Likewise, the system will ensure timely reimbursement for codes are maintained by ANSI.
services that are considered to be covered and allow for al-
ternative billing of the appropriate responsible party in the Analyte-specific reagent (ASR) An essential component of a
laboratory-developed test that is integral to the detection of an
event of a denial. Indeed, such rules lay a consistent and
analyte. If the ASR is used in accordance with the ASR regula-
logical, if not always mutually agreed upon, ground for re- tions and all other reasons for medical necessity are met,
imbursement. In addition, since the majority of these rules laboratory-developed tests may be reimbursed at the discretion
are published and readily accessible from payors, a system- of a contractor.
atic approach not only ensures payment for services, but
Claim The claim form or invoice, which allows transmission of
lays a firm foundation for regulatory compliance.
the bill to a payor.
CMS-1450 (formerly UB-92) Manual claim form used for insti-
KEY POINTS tutional (e.g., hospitals, nursing homes) claims for Medicare Part
■ Medicare payor rules are based on regulations arising A services.
from statutes and often form the basis for claims review CMS-1500 Manual claim form authorized by the CMS for filing
by other payors. Medicare Part B claims.
■ Rules for reimbursment are applied through stringent CMS-5010 Standard form used for electronic claims submission.
claim review processes. The CMS requires electronic submission with few exceptions.
■ Failure to complete all required data fields in a claim for Conditions of coverage A determination by a payor of the cir-
laboratory services will result in a denial from a third- cumstances under which a particular procedure will be paid for.
party payor.
Conditions of participation The requirements that a healthcare
■ It is important to understand the types of prepay edits provider must meet to be able to bill a payor and be reimbursed
that can result in claim denials. by that payor for services rendered.
666 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

Contractor Third-party payor who administers Medicare Part Modifier Modifiers are composed of two-digit numbers (CPT)
A and Part B payments according to providers (e.g., hospitals, or letters (HCPCS) that are appended to a specific CPT code
physicians, ancillary and commercial laboratories) in accordance prior to the billing process. Modifiers are “used to indicate that a
with payment policies (e.g., NCDs and LCDs). service or procedure has been altered by some specific circum-
stance but not changed in its definition or code” (1a).
Contractor advisory committee (CAC) A committee estab-
lished by a Medicare contractor to assist in development of local National Correct Coding Initiative (NCCI) A Medicare pro-
coverage determinations (LCDs). gram initiated in 1996 and managed by a specific contractor that
evaluates and publishes procedure code sets to determine if two
Current Procedural Terminology (CPT) Proprietary service
or more unique codes are appropriately ordered on the same date
codes developed and maintained by the American Medical As-
of service. Edits fall into two major categories: comprehensive/
sociation and required for filing claims and billing of Medicare
component and mutually exclusive. Edits also indicate the code
and other payors.
pairs in these edit categories for which a modifier (generally -59)
Diagnosis code Medical diagnoses are assigned a numerical may be appropriate.
code from a document entitled International Classification of
National Technical Information Service (NTIS) Publishes the
Diseases, Revision (Clinical Modifications). The 9th edition
NCCI procedure code edit documents on a quarterly basis.
(ICD-9-CM) will be replaced by a substantially updated 10th
edition (ICD-10-CM) in 2014. The ICD-CM code refers to the Neg Reg Negotiated Rulemaking Committee for diagnostic
clinical reason for a patient’s encounter. clinical laboratory tests. The committee was charged with the de-
velopment of national coverage determinations of medical ne-
Diagnosis-related groups (DRGs) Classification system devel-
cessity for select laboratory tests as a component of the Balanced
oped at Yale that defines more than 700 major diagnostic catego-
Budget Act of 1997.
ries and places patients into case types based on the ICD-CM
classifications. Substantially updated in 2007 as MS-DRG (Medi- Not medically necessary The determination that an ICD-9-CM
care severity adjusted). code does not justify payment.
End-stage renal disease (ESRD) The term used for Medicare Postpay audits A targeted evaluation of claims for accuracy
beneficiaries who have permanent kidney dysfunction requiring and compliance with billing rules after payment has been made.
dialysis treatment. Detected errors render payments already made subject to
reimbursement.
Food and Drug Administration clearance Failure to have re-
quired Food and Drug Administration clearance or approval for Prepay edits Edits used for the systematic evaluation of claims
a particular test is generally justification for claim denial. for accuracy and compliance with billing rules prior to payment.
Detected errors render the claim subject to denial.
Health Insurance Portability and Accountability Act of 1996
Title I resulted in regulations to protect health insurance cover- Reason codes The Claim Adjustment Reason Codes (CARC)
age for workers and their families when they change or lose are part of a national code set that identifies the reasons for any
their jobs. Title II requires the Department of Health and Hu- difference between the provider charge for a service and the pay-
man Services to establish national standards for electronic or’s payment for a service. This code set is maintained by a na-
healthcare transactions and national identifiers for providers, tional code maintenance committee.
health plans, and employers. It also addresses the security and
Reasonable-charge methodology Based on inherent reason-
privacy of health data. Adopting these standards will improve
ableness, authority to arbitrarily increase or decrease payment.
the efficiency and effectiveness of the nation’s healthcare sys-
tem by encouraging the widespread use of electronic data inter- Regulations Legally binding rules developed to implement a
change in healthcare. statute.
International Classification of Diseases, Version 10, Procedure Remark codes The Remittance Advice Remark Codes (RARC)
Coding System (ICD-10-PCS) Laboratory coding system in- are used to convey information about remittance processing or
tended for use as an alternative to CPT; not yet in use. to provide a supplemental explanation for an adjustment already
described by a Claim Adjustment Reason Code (CARC). RARC
Medicaid program Established under Title XIX of the Social
codes are maintained by the CMS.
Security Act, which provides health insurance to indigent pa-
tients; the state and federal governments fund the program Social Security Act of 1967 Provided for healthcare benefits for
jointly. “the diagnosis or treatment of illness or injury or to improve the
functioning of a malformed body part” in the elderly and, subse-
Medical necessity The determination of ICD-9-CM codes for
quently, in disabled individuals.
which a CPT code will be reimbursed as reasonable and
necessary. Statute A law passed by the U.S. Congress or a state legislature.
Medicare Federally managed health insurance plan covering Transmittal The mechanism by which the CMS conveys infor-
Americans over age 65 and Americans under age 65 who have mation regarding the Medicare program to providers and payors
certain disabilities and for most patients with ESRD; established (e.g., national coverage determinations that have been updated
by a 1965 amendment to the Social Security Act. with technical corrections).
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 667

REFERENCES 6. Parker, S., N. Davidson, and R. Gagliano. 2002. Preventing and

1. Alwell, M. 2003. Stem revenue losses with effective CDM man- dealing with ESRD claim denials. Nephrol. News Issues 16:18–21,
agement. Healthc. Financ. Manag. 57:84–88. 25–26.

1a. American Medical Association. 2012. Principles of CPT Coding. 7. Reed, R. L., II, K. A. David, G. M. Silver, T. J. Esposito, V. Tsit-
AMA Press, Chicago, IL. lik, T. O’Hern, and R. L. Gamelli. 2003. Reducing trauma pay-
ment denials with computerized collaborative billing. J. Trauma
2. Carter, D. 2002. Optimizing revenue by reducing medical neces-
55:762–770.
sity claims denials. Healthc. Financ. Manag. 56:88–94.
3. Cathey, R. 2003. 5 ways to reduce claims denials. Healthc. Financ. 8. Reiser, W. S., and B. O. Brunicardi. 2002. Assessing the impact of
Manag. 57:44–48. Medicare payment changes. Healthc. Financ. Manag. 56:68–71.
4. Mesaros, F. 2000. The remittance advice, auditing for compliance. 9. Scott, M., and D. Nguyen. 2009. Clinical laboratory compliance:
Clin. Leadersh. Manag. Rev. 14(2):69–71. something old, something new. Lab Med. 40:428–435.
5. Murray, M. E., and J. B. Henriques. 2003. Denials of reimburse- 10. Wallack, S. S., and C. P. Tompkins. 2003. Realigning incentives
ment for hospital care. Manag. Care Interface 16:22–27. in fee-for-service Medicare. Health Aff. (Millwood) 22:59–70.
668 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

APPENDIX 38.1 Federal Register Guidance Documents

NEGOTIATED RULEMAKING ANALYTE-SPECIFIC REAGENTS

Federal Register. 2001. Rules and regulations, Medicare pro- Federal Register. 1997. Medical devices; classification/reclassifi-
gram; negotiated rulemaking: coverage and administrative cation; restricted devices; analyte specific reagents—FDA. Final
policies for clinical diagnostic laboratory services. Fed. Regist. rule. Fed. Regist. 62:62243–62260.
66:58788–58890.

CATEGORY B IDEs
Federal Register. 1995. Medicare program; criteria and pro-
cedures for extending coverage to certain devices and related
services—HCFA. Final rule with comment period. Fed. Regist.
60:48417–48425.

APPENDIX 38.2 Websites Related to Reimbursement Processes

CMS http://www.cms.gov/Outreach-and-Education/Medicare-Learning
http://www.cms.gov (last accessed November 20, 2012) -Network-MLN/MLNProducts/downloads/MedicareClaim
Searchable CMS homepage. SubmissionGuidelines-ICN906764.pdf (last accessed November 20,
2012)
http://www.cms.gov/Medicare/Coding/ICD10/downloads/
Versions5010TestingReadinessFactSheet.pdf (last accessed Claims submission guide.
November 20, 2012) http://www.cms.gov/Outreach-and-Education/Medicare-Learning
Electronic form 5010. -Network-MLN/MLNProducts/downloads/MCRP_Booklet.pdf
(last accessed November 20, 2012)
http://www.cms.gov/medicare-coverage-database (last accessed
November 20, 2012) Claims review process.
Medicare NCD and LCD database. http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/How-To-Use-NCCI
http://www.cms.gov/Medicare/Coding/NationalCorrectCodInitEd/ -Tools.pdf (last accessed November 20, 2012)
index.html (last accessed November 20, 2012)
National Correct Coding Initiative.
NCCI index.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
http://medicare.gov (last accessed November 20, 2012) -Network-MLN/MLNProducts/downloads/AcutePaymtSysfctsht
Searchable Medicare beneficiary information website. .pdf
http://www.medicare.gov/Pubs/pdf/11100.pdf and http://www Acute care hospital inpatient prospective payment system.
.medicare.gov/Pubs/pdf/10110.pdf (last accessed November 20, 2012) http://www.cms.gov/Outreach-and-Education/Medicare-Learning
Preventive services. -Network-MLN/MLNProducts/downloads/hospitaloutpaysysfctsht
http://www.cms.gov/MLNGenInfo (last accessed November 20, 2012) .pdf
Medicare Learning Network index. Outpatient prospective payment system.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
Office of Inspector General
-Network-MLN/MLNProducts/downloads/ABN_Booklet
_ICN006266.pdf (last accessed November 20, 2012) https://oig.hhs.gov/ (last accessed November 20, 2012)
Advance beneficiary notices. Compliance program guidance, fraud alerts, advisory opinions, red
book, and work plan.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/form_cms-1500_fact Washington Publishing Company
_sheet.pdf (last accessed November 20, 2012)
http://www.wpc-edi.com/reference/ (last accessed November 20,
Form 1500. 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning ASCX12 code maintenance site.
-Network-MLN/MLNProducts/downloads/ub04_fact_sheet.pdf
http://www.wpc-edi.com/reference/codelists/healthcare/claim
(last accessed November 20, 2012)
-adjustment-reason-codes/ (last accessed November 20, 2012)
Form UB-04.
Claim adjustment reason codes.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
http://www.wpc-edi.com/reference/codelists/healthcare/
-Network-MLN/MLNProducts/downloads/RA_Guide_Full_03-22
remittance-advice-remark-codes/ (last accessed November 20,
-06.pdf (last accessed November 20, 2012)
2012)
Remittance advice guide.
Remittance advice remark codes.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNMattersArticles/downloads/MM7683.pdf U.S. Preventive Services Task Force
(last accessed November 20, 2012) http://www.uspreventiveservicestaskforce.org/ (last accessed
Remittance advice remark codes. November 20, 2012)
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT 669

APPENDIX 38.3 Medicare’s NCCI Editsa,b

PART 1: HELPFUL QUESTIONS AND ANSWERS What are some of the possible denial messages that may be dis-
How do I obtain a copy of the CCI Policy and Edits Manual? played on the beneficiary’s explanation of medical benefits?
Two ways: (i) through the CMS website at http://www.cms.gov/ “Medicare does not pay for this service because it is part of an-
Medicare/Coding/NationalCorrectCodInitEd/index.html (last ac- other service that was performed at the same time.”
cessed November 20, 2012) and (ii) by purchasing the manual, or “Payment is included in another service received on the same
sections of the manual, from the National Technical Information day.”
Service (NTIS) website at http://www.ntis.gov/products/cci.aspx
(last accessed November 20, 2012) (NTIS: 1-800-363-2068). Does anyone have input about these edits before they are
implemented?
Are the edits in the CCI Edits Manual valid for a whole year? Edit modifications resulting from comments are often referred
No, the edits are updated quarterly. However, the NCCI Policy to medical societies prior to final disposition of the edit. In ad-
Manual is updated annually in October. dition, the American Medical Association receives a listing of all
changes at least one month prior to the quarterly implementa-
What does the effective date mean for CCI edits? tion of a new version of the CCI.
This date applies to the dates of service on or after a given date.
PART 2: TERMS AND DEFINITIONS THAT APPLY
Do I need to obtain each version update of the CCI to manage TO CCI
our coding practices effectively and efficiently? What are CCI edits?
Yes, there are various numbers of changes in every update. CCI edits are pairs of CPT or HCPCS level II codes that are not
separately payable except under certain circumstances; the edits
Do the edits change that much between quarterly updates? are applied to services billed by the same provider for the same
The number of changes depends on the volume of comments beneficiary on the same date of service.
received, modifications processed, and edits reviewed.
What does it mean when codes are considered mutually exclu-
There are some software coding programs that already con- sive of each other?
tain the CCI edits. Do I still need to purchase the manual from Mutually exclusive codes represent procedures or services that
NTIS? could not reasonably be performed at the same session by the
At this time, the official method for providers to receive the CCI same provider for the same beneficiary.
edits is through the CMS website or through NTIS. It is up to the
hospital and the physician to be aware of the quarterly updates to What exactly does “column 1” mean in the coding edits table
the CCI Edits Manual. and in the mutually exclusive edits table?
The column 1 code generally represents the major procedure
Is there a list of deletions to each version update available, or or service when reported with the column code. When reported
do I have to do a comparison between the previous and the cur- with the column 2 code, “column 1” generally represents the
rent version updates to determine what was actually deleted? code with the greater work relative-value units of the two codes.
The electronic file that is available on the CMS website has sev- However, within the mutually exclusive edit category, “column 1”
eral columns that include the effective dates and deletion dates of generally represents the procedure or service with the lower work
the CCI edits. However, the CCI Manual (specifically the printed relative-value units and is the payable procedure or service when
version) available from NTIS does not list the effective and dele- reported with the column 2 code.
tion dates of the CCI edits.
What are mutually exclusive edits?
How are the CCI edits arranged in the manual? This edit table contains edits consisting of two codes for services
The edits are arranged in a single table as column 1/column 2 cor- that cannot reasonably be performed together based on the code
rect coding edits. This table now includes codes previously des- definitions of anatomic considerations. If the two codes of an
ignated mutually exclusive codes and comprehensive/component edit are billed by the same provider for the same beneficiary for
edits, and other edits based on correct coding conventions. In the the same date of service without an appropriate modifier, the col-
table, the column 2 codes are not payable with the column 1 codes umn 1 code is paid.
unless the edit permits the use of a modifier associated with CCI.

If I want to determine what codes/procedures are paired with

a certain code, how can I find this out? a
The information in this appendix is from http://www.cms.gov/Medicare/Coding/
NTIS provides the printed versions of column 1/column 2 cor- NationalCorrectCodInitEd/index.html (last accessed November 20, 2012).
rect coding. The NTIS electronic version allows you to search for b
The website for the current NCCI contractor is http://correctcodingsolutions.com
a code in the database in either position. (last accessed November 20, 2012).
Introduction
Improper Payments
39 Reimbursement Compliance
Program Integrity Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Authority for Program Integrity • Activities in
Program Integrity
Payor Integrity
Prepayment Review • Postpayment Review
Laboratory Provider Integrity
The Seven Essential Elements • Specific Areas of
Concern OBJECTIVES
Coding and Billing Issues To describe what constitutes fraud and/or abuse
CPT Coding • Modifiers • ICD-CM Coding • The
Requisition • Special Ordering Situations To discuss specific examples of the most common forms of fraud and abuse
Medical-Necessity Issues found in the public and private sectors
Record Retention To discuss a prepayment review and its relationship to reimbursement
Marketing Practices To describe some of the legal ramifications that might be associated with a
Pricing and Inducements • Ordering Provider and postpayment audit
Patient Communication
To define the seven key elements within a sound compliance program
Fraud Alerts and Advisory Opinions
To list some of the acceptable marketing practices, as well as some that may not
Auditing and Monitoring
be in compliance
Response to Possible Fraud or Abuse
To provide several specific examples of potential laboratory fraud and abuse
Laboratory Examples of Fraud and
Abuse
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Money made through dishonest practices will not last long.
Chinese proverb

W
ith the extensive array of statutory, regulatory, and other payor-
defined rules that exist with regard to billing for healthcare services,
including laboratory medicine, it is no surprise that improper pay-
ments are not uncommon. Improper payments may be either over or under
the appropriate amount, and they may result from actions on the part of the
provider or a provider’s contracted billing entity or the payor. To minimize and
control improper payments, including those that are intentional and therefore
potentially fraudulent, all entities involved in reimbursement should have for-
mal review processes in place. Collectively these processes are referred to as
a “compliance program.” The most extensive review program encountered in
the laboratory is that developed by the federal government under the head-
ing of “program integrity.” A strong compliance program uses a systematic
approach for prevention, detection, and correction of improper payments for
healthcare services to preserve the integrity of the provision of healthcare ser-
vices. In laboratory medicine, program integrity includes elements that ensure
both accurate billing by the laboratory and accurate payment by the payor.
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia Compliance expectations modeled after the federal program exist for essen-
©2014 ASM Press, Washington, DC tially all third-party payors to ensure that appropriate payment is made for
doi:10.1128/9781555817282.ch39 covered services but not made in noncovered situations.

670
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 671

Improper Payments medicine industry has been the subject of intense scru-
tiny for evidence of systematic attempts to receive im-
Improper laboratory payments are payments made to a
proper payment (15). A systematic process of receiving
laboratory provider for testing that was not indicated based
inappropriate payment is often referred to collectively as
on the documentation provided, including the codes sub-
“fraud and abuse.” Identification of fraud and abuse may
mitted or the clinical condition of the patient. Improper
result in criminal and civil liabilities as well as payback of
payments can be categorized as errors, waste, abuse, or
amounts determined to be paid in error by both federal
fraud (Fig. 39.1). Errors generally result from simple mis-
payors and private third-party insurers. However, it is im-
takes in completing documentation on the requisition or
portant to recognize that innocent errors and mistakes do
claim form or from unintentionally assigning an incorrect
occur. Only in the case of actual knowledge of the falsity of
code for the procedure or the diagnosis. Waste generally
a claim, reckless disregard of the truth of the claim, or de-
results from inefficient practices leading to overutilization
liberate ignorance of the correct process will civil or crimi-
or in some cases from performing medically unnecessary
nal legal action be taken. Truly innocent false or incorrect
testing. Abuse can be considered as “bending the rules”
claims generating overpayment are generally simply sub-
and generally results from improper billing practices.
jected to repayment.
This can include a wide range of behaviors including but
Both private insurers and federal payors have identified
not limited to billing for a noncovered service, misusing
situations that are associated with fraud and abuse. These
codes on a claim out of compliance with coding conven-
activities include the following:
tions (e.g., upcoding or unbundling), and inappropriately
allocating costs on a cost report (e.g., for diagnosis-related
• Providing an incorrect diagnosis or misrepresenting the
group submission). While these types of activities are not
diagnosis to justify payment. This is known as code
acceptable, and any payment deemed inappropriate should
jamming (i.e., inserting a code that was not provided
be returned, they are not considered fraudulent. Fraud is
by the ordering provider but that will justify payment).
distinguished on the basis of intent. Thus, laboratory fraud
Another practice is code steering (i.e., providing lists
may be defined as the intentional deception or misrepre-
of diagnosis codes that are known to justify payment).
sentation of documentation on a claim to purposely receive
reimbursement for services not performed, not necessary, • Billing for services not performed as ordered. Perform-
or performed at a higher level or frequency or including ing and billing for tests not ordered is a straightfor-
more units of service than appropriate. Fraud may also re- ward incorrect practice, but performing a related test
sult from certain business arrangements that may lead to for which the Current Procedural Terminology (CPT)
inappropriate utilization of and overpayment for services. code pays at a higher level is also incorrect (termed
Fraudulent activities are frequently systematic and may re- “upcoding”).
sult in significant amounts of improper payment. • Unbundling or “exploding” charges by billing for indi-
Claim review processes will identify many unintentional vidual codes rather than using a Center for Medicare
errors, particularly those pertaining to inadequate docu- and Medicaid Services (CMS)–approved comprehensive
mentation. However, for two decades now, the laboratory or panel code or routinely billing mutually exclusive

Figure 39.1 Program integrity activities focus on

prevention and detection of improper payments re-
Spectrum of improper payments
sulting from a spectrum of related coding and bill-
in the laboratory ing activities (adapted from http://www.cms.gov/
Medicare-Medicaid-Coordination/Fraud-Prevention/
Errors Waste Abuse Fraud $ MedicaidIntegrityProgram/downloads/cpiinitiatives
$ .pdf). doi:10.1128/9781555817282.ch39.f1
Lost
Bending Intentional $
Mistakes Inefficiencies
the Rules Deception
$
Medically Improper Billing for
Incorrect
Unnecessary Billing Test Not
Coding
Test Practice Performed
672 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

codes. The National Correct Coding Initiative (NCCI) has value and should therefore be billed to the client at
has been previously discussed (chapter 38) as a system its fair market value. There are some well-defined ex-
by which all federal claims are subjected to a prepay ceptions to the Stark laws, termed “safe harbors.” These
review process to identify incorrect use of codes as exceptions are particularly important in the provision
described above. The correct use of “comprehensive” of electronic health record (EHR) systems for test or-
codes rather than “unbundled” individual codes, the dering and result transmission.
routine “bundling” of codes and attaching them to a
Many specific examples of situations involving these or
specific orderable code absent evidence of the medical
other practices have been identified through review pro-
appropriateness of doing so and with the knowledge
cesses under program integrity. Descriptions are available
and approval of the ordering providers that it is being
in documents from both CMS and OIG.
done, and the routine use of mutually exclusive codes
with modifiers to bypass edits absent the same criteria
for medical appropriateness and with provider knowl- Program Integrity
edge and approval are all considered suspect.
Simply stated, the goal of program integrity is to “pay it
• Referral of testing to a laboratory facility in which the
right.” That is, the goal is topay the right amount to the
ordering provider has a financial interest. Legislation
right provider for the right service to the right beneficiary.
known as the Stark Laws generally disallows billing for
Provisions to address the issue of program integrity in fed-
services performed in a laboratory in which a provider
eral programs can be found in a number of statutes and
or an immediate family member has a financial inter-
resulting regulations.
est. There are some clearly defined exceptions that
allow billing, but self-referral arrangements are highly Authority for Program Integrity
suspect and intensely scrutinized.
A primary basis for Medicare program integrity lies in pro-
• Routine waiver of deductibles and copayments on non- visions of the Social Security Act and CMS interpretation
Medicare patients or offering charges lower than ac- of resulting regulations. Services that are authorized by
cepted market value. Any attempt to offer incentives to law are those described in Section 1828(a)(1)(A), which
nonfederal payors to encourage them to also submit states that Medicare will pay for services “that are reason-
federal program testing is termed “inducement” and is able and necessary for the diagnosis or treatment of illness
a violation of elements of both the Stark legislation and or injury or to improve the functioning of a malformed
the federal Anti-Kickback Statute. The routine offering body member.” This provision has been interpreted to in-
of waivers for amounts due or the routine billing for a dicate that preventative services are in general not covered
service that pays at a lower level to encourage utiliza- except as defined by statute or CMS rulings. This phrase
tion (termed “downcoding”) is similarly inappropriate. is also the basis for the development of medical-necessity
Recent Office of Inspector General (OIG) proposals in- rules for reimbursement. Medicaid and Children’s Health
dicate the intent to look closely at the common practice Insurance Program (CHIP) coverage is generally based on
of laboratory discounts to determine if the Medicare criteria established by states administering the program,
program payment amounts are excessive relative to the and other third-party payors establish their own coverage
charges to a laboratory’s other clients. criteria, but in all cases the Medicare system frequently
• Soliciting, offering, or receiving a kickback in exchange serves as a model. Failure to comply with and abide by the
for receiving business. The provision of any item of rules established by any payor may put a laboratory at risk
value in exchange for referral of federal business to a for legal action.
laboratory is also prohibited as a violation of elements To enforce compliance with government rules and reg-
of both the Stark legislation and the federal Anti- ulations for federal reimbursement for healthcare services,
Kickback Statute. The provision of free testing services in 1981 Congress enacted the Civil False Claims Act and
to clients (termed “professional courtesy”), free sup- the Civil Monetary Penalties Law. These laws authorized
plies other than those used strictly in the provision of the Secretary of Health and Human Services (HHS) to
laboratory services, and free data summary reports impose civil monetary penalties (CMPs) for knowingly
used for purposes other than evaluation of laboratory violating Medicare rules and regulations to receive im-
utilization (e.g., antibiograms, drug-of-abuse profiles) proper payment from the federal government for services.
are unacceptable practices. Also suspect are clinical In addition, the Secretary could specifically exclude an in-
trial work done for no charge and routine leasing of dividual or entity determined to be in violation from par-
laboratory space, primarily for specimen collection by ticipation in providing services to and receiving payment
a laboratory-affiliated phlebotomist, at rates higher for federal program beneficiaries for designated periods.
than usual. One can say that any value-added service In 1994, the responsibility for enforcing Medicare statutes
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 673

was realigned between both the CMS (the Health Care Fi- to move efforts to reduce improper payments away from
nancing Administration, HCFA, at that time) and the OIG. dependence on recovery to an early detection and proac-
The HCFA was given responsibility for program compli- tive prevention approach.
ance, and the OIG was given responsibility for CMPs In sum, there are numerous lines of authority that govern
involving fraud and abuse. Finally, in 1996, the Health and enforce compliance with billing and reimbursement
Insurance Portability and Accountability Act (HIPAA) in- statutes and regulations. The lines are well established, and
creased maximum CMPs to $10,000 per item or service specific entities, primarily the CMS and the OIG together
in noncompliance (increased from $2,000) and increased with the Department of Justice (DOJ), carry the authority
assessments to three times the amount claimed (increased to require payback and to impose both civil and criminal
from two times the amount). HIPAA also established a penalties as appropriate to the situation. The Govern-
formal Health Care Fraud and Abuse Control Program to ment Accountability Office (GAO) considers healthcare
combat such activities in claims filed by both public and programs to be high risk for improper payment, includ-
private payors. It is noteworthy that HIPAA also paved the ing fraud, since payments are generally made to “any will-
way for better enforcement of billing compliance for non- ing provider” and are made in a relatively timely manner.
Medicare payors. Both of these features lead to a “pay and chase” approach to
Two additional pieces of legislation that are important dealing with improper payments. However, new program
for program integrity are the Anti-Kickback Statute from integrity enforcement and monitoring enhancements are
1987 and the physician self-referral laws known as the being added on a regular basis, and such programs apply
Stark Laws initially passed in 1989. The Anti-Kickback not only to federal payor programs but also to private pay-
Statute makes it a criminal offense to knowingly offer, ors. In any case, if judged by indictments and payments,
pay, solicit, or receive any type of payment as an induce- program integrity efforts may be deemed highly success-
ment or reward for referrals of items or services payable ful. A recent Health Affairs Policy briefing (7) notes that
by a federal health care program. The Stark Laws prohibit for 2011 there were 1,430 healthcare fraud charges, with
physician referral for designated healthcare services per- 743 criminal convictions, 977 new civil investigations, and
formed by an entity in which the physician or an immedi- recovery of $4.1 billion. In addition, almost 5,000 provid-
ate family member has a financial interest. The intent of ers had billing privileges revoked. However, since almost
both is to ensure that business practices do not allow for 25% of the $428 billion in federal healthcare payments are
improper payments. thought to be improper, much work remains to be done.
It should also be noted that the CMS has the author-
ity and responsibility under the Clinical Laboratory Im-
provement Amendments (CLIA) to ensure compliance by Activities in Program Integrity
registered laboratories with all applicable federal rules and Given the importance of program integrity, it is not sur-
regulations. On a yearly basis, the CMS makes publicly prising that the federal and state governments as well as
available a listing of laboratory providers who have failed other third-party payors have a number of programs in
to comply with regulations pertaining to billing and reim- place to prevent, detect, and correct improper payments.
bursement. The listing includes those laboratory providers Several entities are involved in ensuring program integrity
to which the following apply: for the CMS healthcare programs and are outlined in Table
39.1. In 2010, the CMS created the Center for Program In-
• They have been convicted of fraud and abuse under tegrity to serve as a focal point for all activities pertain-
federal or state laws. ing to Medicare, Medicaid, and CHIP programs. However,
• They have appeals and hearings pending for the same. well before that date a number of ongoing activities were
• They have been excluded from participation in federal in place. Contractors who administer benefits have exten-
programs. sive medical review programs in place that evaluate both
prepay and postpay situations. In addition, several other
• CMPs have been imposed on them.
contractor-directed programs are in place to address pro-
Also under HIPAA’s Privacy Rule is the authority to gram integrity issues. For example, prepay issues have
perform automated tracking. Complaints, incidents, al- been regularly addressed by the NCCI contractor through
legations, investigations, and dispositions logged by any quarterly update of edits since 1996.
beneficiary or participant in a federal program can be Postpay concerns have been addressed through several
tracked by CLIA number to generate provider-specific programs. The Comprehensive Error Rate Testing (CERT)
data. Automated tracking is recognized as an extremely program was established in 2000. In this program, a desig-
important strategy for the future, and such efforts have nated contractor has responsibility for the random review
been greatly enhanced under the Affordable Care Act. Sys- of selected claims processed by federal payors to verify that
tematic, electronic analysis and tracking has the potential contractor decisions are accurate and based on sound policy
674 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

Table 39.1 Government payor program integrity activities

Prepay or
Abbreviation Entity or program Postpay Activities
CERT Comprehensive Error Rate Postpay CMS program to collect and review data on statistically valid ran-
Testing dom samples of fee-for-service claims to produce annual improper
payment rates
CPI Center for Program Both CMS coordinating center for all activities pertaining to prevention,
Integrity detection, and recovery of improper payments
GAO Government Accountability Both The investigative arm of Congress charged with examining matters
Office pertaining to receipt and payment of public funds; has published a
number of reports on government healthcare spending
HEAT Health Care Fraud Preven- Both HHS and DOJ collaborative program to prevent waste, abuse, and
tion and Enforcement fraud in Medicare and Medicaid programs; uses a multiagency Medi-
Action Team care Fraud Strike Force team in selected cities
MIC Medicaid Integrity Both Contractors assigned to identify cases of suspected improper pay-
Contractors ments and take appropriate action in the Medicaid program
MR Medical review Both Targeted review by a contractor to assess claim and payment accu-
racy that may result in corrective action or lead to a formal payment
policy
NCCI National Correct Coding Prepay CMS program designed to identify procedure code pairs that are not
Initiative generally used together and to establish frequency limits on codes
OIG Office of Inspector General Both Responsible for protecting the integrity of HHS programs by devel-
oping policy guidance documents and through a system of audits,
investigations, inspections, and reports of findings; also maintains
a list of individuals and entities excluded from CMS payment pro-
grams due to misconduct
PERM Payment Error Rate Postpay CMS program to collect and review data on statistically valid random
Measurement samples of state Medicaid and CHIP claims to produce annual im-
proper payment rates
PSC Program Safeguard Postpay Contractors assigned to identify cases of suspected improper pay-
Contractors ments and take appropriate action; similar to the ZPIC program
RAC Recovery Audit Contractors Both (initially Contractors assigned to systematically identify and correct improper
postpay) payments
ZPIC Zone Program Integrity Postpay Contractors assigned to identify cases of suspected fraud and take
Contractors appropriate action; similar to the PSC program

compliant with statutes and regulations. The goal is to gen- subsequently extended nationally in 2010. These con-
erate national paid claim error rates, claim processing er- tractors identify both overpayment and underpayment
ror rates, provider compliance rates, and benefit-specific and refer providers to the appropriate administrative
error rates. The purpose is to provide benchmark data that contractor for action.
can be utilized to identify emerging trends and implement Finally, it should be noted that there are other sig-
effective corrective action. A similar program, the Pay- nificant contributors to program integrity. In 2009, the
ment Error Rate Measurement (PERM), was implemented Health Care Fraud Prevention and Enforcement Action
for Medicaid and CHIP data analysis in 2006. Team (HEAT) was developed as a joint effort by the De-
For focused review of provider payments, Program partments of Justice and HHS to evaluate potential im-
Safeguard Contractors were engaged in 2003 to assume proper payments in selected cities. The GAO plays a role
formal responsibility for the Medicare Integrity Pro- in developing reports on healthcare spending to identify
gram. These contractors were charged with identifying potential problem areas, and of course, the OIG facilitates
and reviewing any suspected case of improper payments. all program integrity efforts. Medicare even solicits as-
A related entity, Zone Program Integrity Contractors sistance from beneficiaries to identify questionable reim-
(ZPIC), focuses specifically on suspected fraud cases, bursement situations through a number of mechanisms.
and Medicaid Integrity Contractors (MIC) focus on is- Recently, the National Fraud Prevention Partnership was
sues regarding payment in that program. A final group, announced to engage a variety of public and private enti-
Recovery Audit Contractors (or Recovery Auditors), ties in sharing information to stop losses to payors, in-
was initially established in 2003 as a pilot program and cluding patients, before they occur (7).
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 675

Payor Integrity a postpayment review identifies a significant problem as-

sociated with large expenditures.
While much of the focus has been on laboratory provider
error in the claim submission process, contractors or third-
party insurers paying claims also have an absolute obliga- Laboratory Provider Integrity
tion to develop effective medical review processes. In fact,
While payors have an obligation to “pay it right,” labora-
contractors have on occasion been found to be responsible
tory providers obviously have an obligation to “do it right”
and liable for payment errors. There are two main cat-
in the first place. The continuing recognition of costly
egories of review processes that must be developed and
systematic billing errors, including some categorized as
implemented by the administrative contractors: those per-
fraudulent, led the OIG to issue the Compliance Program
formed prepayment and those performed postpayment.
Guidance for Clinical Laboratories in August 1998 (2–4, 6,
9, 11, 13, 14). This document, which updated the previous
Prepayment Review Model Clinical Laboratory Compliance Plan published
Prepayment review is the preferred approach for a very ob- by the OIG in 1997, is designed primarily to ensure that
vious reason. It eliminates the need to “pay and chase,” i.e., appropriate reimbursement is made through federal pro-
attempt to recoup payments made in error. Prepayment re- grams, that is, to ensure that payors “pay it right.” However,
view is ordinarily accomplished through a computer-based it also provides commonsense principles for conducting
system of defined edits similar to those used by laboratory laboratory business in general by promoting the concept
providers to submit “clean claims.” Prior to payment, claims of “doing it right.” The document provides guidance for
are assessed for complete documentation, correct coding, “doing the right thing” (through compliance with all reg-
and evidence of medical necessity (i.e., meets criteria as a ulatory and statutory rules and regulations), for “getting
covered service). As already discussed (chapter 38), a va- paid for doing the right thing” (through correct coding
riety of edits are currently in place and include those pub- and billing practices), and for “making sure the right thing
lished as frequency limits, NCCI edits, national coverage is done” (through a systematic approach to ensuring that
determinations (NCDs), and local coverage determina- rules and regulations are followed).
tions (LCDs). In a small percentage of cases, claims may be While the 1998 guidance is voluntary, the strategies rec-
manually reviewed to ensure that the edit process is correct, ommended represent sound business practices and serve to
and medical record documentation may be requested from make certain that laboratories function as business entities
both the ordering provider and the laboratory provider. In providing laboratory services in an ethical and legal man-
addition, any laboratory provider that has been identified ner. The importance of a compliance program has recently
as having problems with correct claim submission may be been affirmed in the 2010 Patient Protection and Affordable
placed on routine prepayment review status. Care Act (PPACA or simply, ACA) provisions that require
the Secretary of HHS to promulgate “core elements” and set
Postpayment Review an effective date for mandatory compliance programs. The
Postpayment review is also an important component of the core elements were not specified but will likely be similar
claim review process. This process focuses on statistical to those in the 1998 guidance. They will presumably be de-
evaluation of subsets of claims (i) to check claims on a ran- fined through a rulemaking process, but the legislation did
dom basis to function as a deterrent for fraud and abuse, not set a deadline for these actions. ACA provisions also in-
(ii) to identify aberrant patterns of utilization and billing creased monies for activities related to program integrity, for
that may indicate a general emerging or provider-specific example ramped-up computer capabilities to support pro-
problem, and (iii) to determine the extent of a particular active data analysis and systematic audits. Under the ACA-
kind of problem that has been previously identified. When required revalidation process, laboratories are classified
a review is performed to detect aberrancies or specific as moderate risk, so unannounced on-site visits to ensure
problems for a particular laboratory or other healthcare compliance programs are operational may occur.
provider, it is termed a focused medical review. In turn, a A strong foundation for an effective compliance pro-
focused medical review may identify a problem that results gram requires that a laboratory provider have understand-
in development of a prepayment LCD. able and updated compliance program policies. These
Postpayment review may be performed on individual policies should follow the recommendations and address
claims or on samples of claims. From review of a statis- the situations discussed in the 1998 OIG guidance and
tically valid sample, the payor can estimate the extent of any ACA-driven core elements and should apply equally
incorrect payment made without necessarily undertaking to all payor types. The compliance program should be
a complete medical record review. However, the possibility comprehensive and address all relevant aspects of preana-
exists that complete evaluation of all individual documen- lytical, analytical, and postanalytical processes. The labo-
tation associated with testing may be performed whenever ratory must also be in compliance with all other applicable
676 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

federal, state, and local statutes and regulations (e.g., CLIA, management, marketing, client services, coding, billing,
the Occupational Safety and Health Act, HIPAA). Labo- accounts receivable, and medical records are equally im-
ratories are in a truly unique position to provide essential portant contributors to an effective compliance program.
information on appropriate testing to ordering providers,
and rather than being a burden, a sound compliance pro- Specific Areas of Concern
gram can be thought of as an opportunity to provide such To guarantee that the overall goals of the above elements
information. are met, there are a number of specific areas that the OIG
guidance identifies as critical to address. Each area should
The Seven Essential Elements ideally be discussed in a specific compliance policy, with
The OIG compliance guidance specifies that, at a mini- protocols or procedures for implementing the policies de-
mum, a sound compliance program should include seven veloped for each. In addition, each policy area should be
key elements. These are as follows: specifically monitored using defined audit criteria. Table
• There should be written standards of conduct. These 39.2 provides a listing of areas commonly requiring com-
standards should promote the laboratory’s commit- pliance policy development. However, these may be di-
ment to the accurate, ethical, and legal practice of lab- vided into five main general areas of concern:
oratory medicine. • Coding and billing issues
• There should be a chief compliance officer (CCO) • Medical-necessity issues
charged with procedure and protocol development, • Record retention
education and training, and auditing and monitoring.
The CCO should interact with a formal corporate (or • Marketing practices
institutional) compliance committee (CC) composed of • Compliance with OIG and CMS compliance issuances
key individuals who are charged with approval of com-
pliance policies and with oversight of all other elements Coding and Billing Issues
of the compliance program. Both the CCO and the CC
should report directly to the chief executive officer. Key to any successful compliance program is a clear un-
derstanding of the principles of procedure coding as well
• There should be an effort to provide standardized edu-
as the accurate and complete application of those princi-
cation about compliance. Compliance training should
ples (chapter 35). The laboratory should be familiar with
be a mandatory component of an employee’s initial ori-
the HIPAA standard data sets, particularly those used for
entation as well as the annual competency assessment
billing. These include CPT codes, International Classifi-
process.
cation of Diseases, Clinical Modification, Revisions 9 and
• There must be a defined process for receipt and docu- 10 (ICD-9-CM and ICD-10-CM) codes, diagnosis-related
mentation of complaints, including an opportunity for groups, ambulatory payment classifications, revenue cen-
anonymity, if desired, via a hotline. ter and provider type codes, and remittance advice codes.
• There must be a system to respond to allegations of
possible fraud or abuse, as well as disciplinary policies CPT Coding
that clearly delineate consequences for violations of The laboratory must have access to a current copy of the
compliance policies. It is expected that a zero-tolerance American Medical Association (AMA) CPT codebook as
approach to violations will be taken. well as to current supplementary Healthcare Common Pro-
• The compliance program must include the use of cedure Coding System (HCPCS) codes. A comprehensive
ongoing monitoring and auditing tools to detect pos- annual review of procedure coding must be conducted to
sible compliance problems as soon as possible and to ensure that additions, deletions, and modifications made
measure the effectiveness of interventions designed to by the CPT editorial panel and published by the AMA
minimize the occurrence of such problems. each fall are incorporated by the laboratory into the cur-
rent recommended coding by January 1. This also provides
• The program must specify the processes for remedia-
an opportunity to ensure that previous code selections
tion of identified systemic problems and address indi-
are compatible with coding convention and reimburse-
viduals or other business associates who are sanctioned
ment rules. All associated documents such as requisitions
from participation in federal programs due to a known
(manual forms and online order entry), service manuals,
previous violation.
charge masters, and fee schedules must also be updated to
The laboratory must have representatives drawn from reflect any changes. It is also recommended that at the time
the technical side of operations to address scientific and of the annual CPT review, laboratories review and update
medical concerns in policy development and assessment. their cost analyses for use in setting laboratory charges for
On the business side, individuals who are involved in procedures. In November, the CMS generally publishes a
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 677

Table 39.2 Summary of areas requiring compliance policiesa

ABN Home health service client arrangements
Ambiguous test orders ICD-9 codes, obtaining and using
Anonymity and nonretribution Indigent care
Billing for calculations Medical-necessity guidelines
Claim submission, postsubmission review of EOMBs Monitoring utilization of laboratory services by clients
Claim submission, presubmission review Nonemployment of sanctioned individuals
CLIA regulations Notices to physicians
Client contracts Nursing home client arrangements
Client supplies, provision of and monitoring OSHA regulations
Confidentiality of medical information Placement of equipment or products in client offices
Contracts with third-party billing companies Professional courtesy
Cost reporting, laboratory component Record retention
Courier service Reflex testing
CPT coding Release of test results by phone, fax, and/or other nonroutine methods
Custom panels and physician acknowledgment Removal of hazardous waste for clients as inducement
Data summaries as a free service Rental or lease of space from healthcare providers
Diagnosis information, translation to ICD-9 codes Reporting compliance issues and open-door policy
Discounts and special prices Requisition design
Education and training for customers as inducement Sales and marketing
Employees, phlebotomists in client offices Sales proposals
ESRD arrangement Standing orders
Excused charges and adjustments Test not ordered and/or not performed
Fraud alerts, review and compliance Test ordering by authorized individual
Gifts, contributions, and entertainment Test orders, requisitions, and electronic order review
Health fairs as inducement Verbal and add-on test orders
a
EOMBs, explanations of medical benefits; OSHA, Occupational Safety and Health Administration.

transmittal that sets the national limitation amounts (NLA) test order, it is still necessary that the laboratory maintain
for Medicare reimbursement of each CPT code, thus allow- updated data files for claim review. In addition, labora-
ing revenue projections to be made for budget purposes. In tories do have the authority to translate a narrative code
addition, it is necessary to submit actual current charges on provided on a requisition into an ICD-CM code if an ex-
Medicare claims so the lowest amount of the actual charge, act match is available. Under government and most other
the NLA, or the contractor fee schedule amount may be payor programs, a narrative or ICD-CM diagnosis is ab-
paid. Of course, it is absolutely essential that all payors be solutely required on all claims submitted, and laboratories
informed of any coding or charging changes. must make a serious attempt to obtain this information
if it is not provided. The transition from Version 9 (ICD-
Modifiers 9-CM) to Version 10 (ICD-10-CM) in 2014 will require
The laboratory has the responsibility for the appropriate an extraordinary effort by laboratories to ensure that elec-
use of modifiers, both AMA-approved and HCPCS-based. tronic edit systems are updated.
In general, these are added at the time of billing. However,
it is up to the laboratory to review coverage rules and edits The Requisition
to determine when use of a modifier is indicated. The most The requisition, whether online or manual, represents the
common modifiers used are those that designate advance major tool used by ordering providers to select tests for use
beneficiary notice (ABN) status (GA, GY, and GZ), those in patient management. Thus, it should be designed to be
that designate replicate use of a code (-59 and -91), one that user friendly and include all data elements required for bill-
indicates CLIA waived status (QW), and the referred test ing. All orderable tests must be clearly defined and represent
modifier (-90). only AMA-developed and CMS-approved codes represent-
ing procedures, individual tests, or panels. If a special situa-
ICD-CM Coding tion exists (as described below), this too should be indicated
ICD-CM codes are updated twice per year and published on the requisition. It is not required that the actual CPT code
annually. While the ordering provider rather than the be on the requisition, although many billing experts rec-
laboratory provider selects diagnostic codes used for a ommend that it should be. If not on the requisition, CPT
678 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

codes must be readily accessible elsewhere (e.g., in the ser- approval by the medical staff may be preferred. Finally,
vice manual). In the event of receipt of an ambiguous or- each ordering provider must have the clear choice to not
der, the laboratory is required to take action to clarify the have the testing performed in that manner, but rather to
order. An ambiguous order is one that does not match the order only specific codes if desired.
test description or conditions in the laboratory. In these The third multiple-code situation is the custom panel.
cases, a laboratory should not attempt to guess the order- This is a grouping of several independent codes made
ing provider’s intent. Rather, it is necessary to contact the available as a single orderable procedure, usually as an or-
physician to determine the exact procedure desired. dering convenience, and generally specifically requested
by a physician to meet his or her own style of practice.
Special Ordering Situations These kinds of test order groupings must meet the same
There are several situations in which an orderable proce- medical-necessity determination requirements as the in-
dure may be represented by more than one code, and these dividual components and require that a physician formally
must be clearly indicated on a requisition (Table 39.3). First acknowledge in writing his or her understanding of such
is a reflex procedure. A reflex test is defined as a second on an annual basis.
related, codeable test that is performed automatically when Lastly, one should address the issue of “standing orders.”
initial tests are positive or abnormal. Replicate testing per- This practice is most common for chronically ill individu-
formed per protocol and repeat testing performed to con- als with extended courses of treatment, as in a skilled-
firm or verify a result are not considered a reflex (10). nursing facility or ESRD setting. Although not prohibited,
Second is a composite procedure. This term is most com- the practice is discouraged. The reason is that the tests
monly used to describe the battery of tests that are included included in the order must meet medical-necessity re-
under end-stage renal disease (ESRD) payment, but the term quirements for the date of service, and that information
can also be used to describe the routine simultaneous use of may not be known in advance. At a minimum, laborato-
two or more unique codes to meet accreditory guidelines or ries should ensure that standing orders have a fixed term
in accordance with an accepted standard of practice (e.g., mi- and be defined in writing and that such arrangements are
crobiology: test 1, microbial stain; test 2, microbial culture). renewed at expiration. The term of expiration should be
Another term, “code-stacking,” has been used in particular no more than one year and preferably a shorter interval.
reference to procedural step code groups previously used in
molecular pathology (note that this approach was replaced
with an analyte-specific coding approach in 2013). Medical-Necessity Issues
Under compliance guidance, the codes used for both re- “Medical necessity” has a specific meaning for the CMS
flex and composite coding situations should meet medical- but is a concept used by other payors as well. It is a deter-
necessity requirements. In addition, what is actually done mination by the payor of whether the ordering provider’s
and its associated codes must be clearly communicated to reason for ordering a test represents a condition that meets
the ordering provider, generally through the requisition criteria for coverage and reimbursement at a designated
and service manual. There should also be documentation level. The term does not address whether a particular test is
of such communication, and notifications should be per- believed to be necessary for management of an individual
formed annually. For outpatient providers a written an- patient by a physician. From the CPT and ICD-CM codes,
nual notice should be sent, but for inpatient care annual the laboratory should be able to make a determination of

Table 39.3 Examples of reflex test proceduresa

Laboratory category Primary test Reflex test
Immunology RPR or VDRL, positive Specific treponemal serology and RPR titer
Microbiology Primary culture, positive Identification and susceptibility
Molecular diagnostics Pap smear with ASCUS HPV DNA
Toxicology Qualitative drug screen, positive Drug confirmation, each procedure
Urinalysis Nonculture bacteriuria screen or bio- Urine culture positive
chemical urinalysis
Chemistry (7) Quantitative RT-PCR for HCV If quantitative test result is below limit of detection,
qualitative RT-PCR for HCV is performed.
Hematology (14) Reticulocyte count, erythrocyte mor- If acute intravascular hemolysis is suspected, plasma
phology, bilirubin, haptoglobin (help and urinary hemoglobins and a DAT may be ordered.
diagnose hemolytic anemias)
a
HPV, human papillomavirus; RT-PCR, reverse transcriptase PCR; HCV, hepatitis C virus; DAT, direct antihuman globulin test.
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 679

whether a claim will be paid for by a third-party payor While most laboratorians are aware of the CLIA re-
based on its knowledge of the particular billing rules of quirements, the need to maintain records that document
the payor. The complexity of the rules, and the numbers test orders and test performance for a longer period in
of payors that any given laboratory may do business with, case civil or criminal legal action is taken is not as well
is such that electronic rule-based claim review is essential appreciated.
to accomplish this task. If it is determined that payment is
unlikely, then the laboratory should obtain a waiver of fi-
nancial liability from the patient (e.g., the Medicare ABN) Marketing Practices
(5). In the common setting of specimen collection by the All marketing efforts in a laboratory setting should adhere
ordering provider, the ordering provider should make this to strict principles of offering clear, correct, nondeceptive,
determination and obtain the waiver. It is acceptable for and fully informative guidance and pricing regarding test-
laboratories to make copies of LCDs and NCDs, as well ing services. It is simply good laboratory medicine practice
as National Correct Coding Initiative edits, including in to ensure that all parties understand both the testing and
the form of a software application, available to ordering billing processes.
providers to facilitate this process. It is also recommended
that laboratories clearly indicate on requisitions tests that Pricing and Inducements
are likely to be noncovered or have limited coverage (i.e., No free supplies, equipment, or services of any kind should
LCDs and NCDs). For Medicare, an annual notice should be offered that are not an essential component of perform-
be sent to physicians describing laboratory practices with ing and reporting laboratory tests. No other services or
respect to coding and billing and reaffirming the concept items should be provided that may be construed as an
of medical necessity in making a payment determination. inducement for the submission of federally reimbursed
Indeed, it is the responsibility of the laboratory to ensure work. Rather, any special services should be billed to a cli-
that physicians are aware of all Medicare and other payor ent at a fair market value rate. Similarly, prices charged to
rules for coverage. physicians and other payors should represent fair market
value and be based on careful and consistent cost account-
ing practices for each test procedure. For Medicare in par-
Record Retention ticular, you cannot establish a charge to be substantially in
Adequate record retention is an extremely important excess of any charge offered to another payor. “Substan-
component of a compliance program. All records should tially in excess” has been redefined in a recent proposal
be maintained as required by applicable federal statutes as 120% of the average charge to all payors for each test.
and regulations for use if needed in the investigation of Although you will likely not be reimbursed at your charge
potential fraud or abuse. There might also be additional rate, the data are used in the determination of the NLA.
requirements based on voluntary accreditation standards Medicare laboratory reimbursement is made at the lower
and state laws and regulations. Federal statutory retention amount of the charge, the NLA, or the local fee schedule.
times include the following: Discounts that place charges below costs, particularly if of-
fered to match competitor pricing, may be viewed as an in-
• 42 CFR 482.24(b)(1). Condition of participation for
ducement. In addition, failure to attempt to bill patients for
hospitals in federal programs specifies five years.
services that were denied on the basis of medical necessity
• 42 CFR 488.5(a). Discussion of accreditation standards may also be viewed as an inducement. Any form of induce-
deemed to meet Medicare conditions of participation ment is a violation of both Stark Laws and Anti-Kickback
indicates variable times of at least five years. Statutes and may therefore be a federal offense.
• 42 CFR 493.1105. CLIA of 1988 (CLIA ’88) specifies
two years for test requisitions. Ordering Provider and Patient Communication
• 42 CFR493.1107. CLIA ’88 specifies two years for test- To ensure that all parties understand the testing and billing
ing records. processes, it is critical that a laboratory establish clear and
consistent lines of communication. For ordering providers,
• 42 CFR 493.1107 and 1109. CLIA ’88 specifies that
coding information should be readily accessible through a
transfusion medicine records should be held for a
service manual or other test-listing document. The labora-
minimum of five years.
tory must send an annual notice to each client detailing the
• 42 CFR 493.1257(g). CLIA ’88 specifies that cytology ordering and billing processes and must clearly document
slides should be held for five years. any special ordering or billing situations. In particular,
• 42 CFR 1003.132. The False Claims Act specifies that the notice should address current NCDs and LCDs, use
claims related to civil actions may be initiated up to six of AMA-developed and custom panels, special situations
years after the date of claim presentation. involving reflex and composite testing or standing orders,
680 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

appropriate use of an ABN, and current fee schedule in- Audits are a more comprehensive and systematic re-
formation. Finally, the name of the individual who serves view of a specific compliance policy to determine that
as the CLIA clinical consultant for a specific laboratory the policy is in fact being followed. For each compliance
should be readily available. In a health care institution or policy in place (Table 39.1), there should be some mea-
system setting, it may be most convenient to provide an- surable parameter that assesses its effectiveness. The most
nual notice at a medical staff meeting. common audit is one that simply reviews a statistically
Open lines of communication between providers and significant sampling of claims to determine the tests that
payors regarding billing must be maintained during reg- were ordered, confirm that they were actually performed
ular business hours. For patients, open lines of commu- and the results were reported, and confirm that the tests
nication regarding billing must similarly be available. It were billed correctly. This audit technique encompasses
may be helpful to have written patient information readily the entire process. Other audits may be applicable to a spe-
available that describes unfamiliar terms such as medical cific policy. For example, one might review the accuracy of
necessity and ABN. As in all endeavors, a thorough, con- translation of narrative diagnoses to ICD-CM codes, the
sistent, and honest approach is the best one to take. frequency and appropriateness of obtaining ABNs, and
whether a high percentage of supplies for sample collec-
tion are being returned with samples and requested ser-
Fraud Alerts and Advisory Opinions vices. The overall effectiveness of the training program
A number of guidance documents are issued on a regular might be assessed by examination of employees after train-
basis by both the CMS and the OIG. Each laboratory CCO ing, and the effectiveness of the overall program might be
and CC should be aware of the issuance of any such docu- determined by an employee survey. Careful and complete
ments. Obviously, laboratories should remain abreast of audits are a time-consuming task and are often outsourced
any new coverage decisions and edits that are issued by any to external parties. This is an acceptable practice, although
payor. Other documents that should be reviewed include review of findings and plans for improvement remain the
relevant program transmittals from the CMS, specific responsibility of the CCO and the CC.
fraud alerts from the OIG, and advisory opinions issued by
the OIG that are specific to a given provider situation but
may set important precedents. Also important is the an- Response to Possible Fraud or Abuse
nual OIG work plan that describes proposals designed to Every laboratory must have plans in place to evaluate
reduce reimbursement for services that have been assessed complaints that indicate the possibility of fraud or abuse.
to be at risk for overpayment. Every work plan since the is- If a complaint is determined to actually indicate receipt of
suance of the Compliance Program Guidance in 1998 has improper payment, the OIG Compliance Program clearly
included clinical laboratory targets. Careful review of these specifies the actions that must be taken. If the overpayment
documents will prepare a laboratory to effectively manage represents a true mistake, caused by misunderstanding or
situations with emerging compliance ramifications. misapplication of rules, the laboratory should take prompt
action to correct the problem and to make voluntary re-
payment as outlined in the OIG Compliance Program. Evi-
Auditing and Monitoring dence of systematic “rule-bending” (abuse) can be handled
To demonstrate that a compliance program is effective, it in a similar manner. If a specific employee is found to be re-
is essential to have in place a series of monitors and au- sponsible, standard disciplinary actions should be taken. If,
dits (7, 11). Monitors simply measure a parameter that however, there is evidence of intent to defraud a payor, the
can be used to assess some aspect of compliance. The potential violation should be reported to the Department
most common monitor is test utilization. The OIG rec- of Justice. All subsequent actions will then be directed as
ommends an annual review of the top 30 test codes or- part of a legal investigation process, with outcomes includ-
dered to determine if any significant pattern changes (i.e., ing both settlements and indictments. For individuals, lab-
greater than 10%) are noted. Further investigation should oratories should maintain a zero-tolerance policy toward
be performed to ascertain the reasons for the change. deliberate disregard for compliance policies. In the event of
In most cases, the change can easily be explained by an indictment, both facilities and individuals will be listed
test volume growth, new-procedure implementation, or on the OIG sanction list and prohibited from doing further
correct-coding adjustments. However, if not explainable, business with or for the federal government. Other non-
additional review of the reasons for testing may be indi- federal payors may similarly file suits, and they may also
cated. Another essential monitor is the tracking of denied exclude an entity from participation when evidence of a
claims (12). Patterns that are identified are important in- systematic error representing fraud or abuse is found.
dicators of possible billing problems that may be rectified Laboratories must also be prepared to deal with a legal
by some specific process adjustment. process emanating from an external complaint reported
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 681

by a whistle-blower directly to the Department of Justice. Summary

There should be a well-defined plan of action in which em-
Compliance has assumed a new meaning in the last two
ployees are advised as to the correct course, particularly
decades as laboratories have been accused of and found
with regard to notification of superiors. Certainly, coop-
guilty of fraud and abuse. The actual concept of adherence
eration is expected, and any type of obstruction is to be
to rules and regulations is not new, however. Laboratories
avoided. However, laboratories should take steps to legally
must comply with the rules and regulations promulgated
protect their interests. For example, categories of docu-
by many government entities. What is new is the concept
ments protected by client-attorney privileges should be
that laboratorians must also comply with rules and regu-
clearly marked as such and maintained separately, and le-
lations pertaining to reimbursement. A sound knowledge
gal counsel should be sought as soon as possible after rec-
of coding and billing practices is an absolute key to suc-
ognition or allegation of fraud or abuse.
cess. The OIG Compliance Program Guidance for Clini-
cal Laboratories published in 1998 provides the basis for
development of policies and procedures that ensure that
Laboratory Examples of Fraud and Abuse laboratories are paid appropriately for what they do. In es-
Sadly, there are many examples of deliberate attempts by a sence, the document provides the basis for application of
small number of healthcare providers to obtain improper commonsense principles for receiving requests for labora-
and illegal reimbursement for services. While some have tory services, performing those services, and getting paid
resulted in indictments, many more are settled out of court for those services. While the OIG Compliance Guidance
when it is recognized that there may be actions that could is considered voluntary, provisions in the PPACA specify
be construed as evidence of impropriety. Some of the more that compliance programs will soon become a mandatory
dramatic and visible laboratory compliance cases have in- process. Indeed, the importance of an effective compliance
volved the following practices: program should be considered as vital to the success of a
clinical laboratory as compliance with CLIA is.
• Billing for tests not performed, e.g., billing for identifica-
tions and susceptibilities on “no growth” urine samples
• Failure to clearly define the test being performed, e.g., KEY POINTS
performing a CBC with differential but describing the ■ Compliance has taken on a new meaning during the
test as CBC only last few years as laboratories have been accused of and
• Routinely performing additional tests that were not found guilty of fraud and abuse.
part of the original order, e.g., adding a chemistry test ■ Laboratories and laboratorians must be knowledgeable
to an approved panel about and comply with rules and regulations related to
• Improper billing for panels, e.g., when not all compo- reimbursement.
nents of a chemistry panel were performed ■ It is mandatory that laboratory personnel maintain a

• Routinely performing reflex testing that was not thorough understanding of coding and billing practices.
subject to a defined review process, e.g., performing ■ All laboratories should have in place a comprehensive
microscopic analysis on a urine sample with abnormal compliance program, with its key provisions and re-
urinalysis quirements in effect at all times with a zero-tolerance
• Routinely reporting results for and billing tests when approach.
quality control was out of range and therefore in viola- ■ It is critical and appropriate that laboratories be paid for
tion of CLIA the services they provide within the framework of the
• Routinely performing procedures, including laboratory compliance regulations.
testing, in specific DRGs to artificially inflate the pay-
ment, e.g., in the case of pneumonia GLOSSARY
Unfortunately, these isolated episodes of improper bill- Advance beneficiary notice (ABN) A waiver of liability used by
ing influence the overall view that many who hold politi- the provider to notify Medicare beneficiaries prior to receiving a
service that it may not be a covered service and that they may
cal office share: (i) that laboratories cannot be trusted and
have to assume financial responsibility. Similar notices are used
must be subjected to close scrutiny and (ii) that overpay- by other payors.
ment is rampant, and therefore payment reductions are
justified. To combat these negative opinions, it is para- Any willing provider An approach by federal payors that allows
mount that laboratorians adopt the attitude that a success- any healthcare provider willing to meet all specified conditions
to provide services for beneficiaries.
ful compliance program that guarantees that laboratories
“get paid right” is essential to survival. Bundling Placing codes together in a panel.
682 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

Civil False Claims Act and the Civil Monetary Penalties Law Inducement Offering incentives to nonfederal payors to en-
Authorizes the Secretary of Health and Human Services to im- courage them to also submit federal program testing; violation of
pose civil monetary penalties (CMPs) for violations of Medicare the Stark legislation.
rules and regulations, as well as additional assessments for statu-
Kickback The provision of any item of value in exchange for re-
tory violations of Medicare law.
ferral of federal business to a laboratory; the Anti-Kickback Stat-
Code jamming Inserting a code that was not provided by the ute explicitly prohibits this practice.
ordering provider but that will justify payment.
Medical necessity The determination of ICD-9-CM codes for
Code steering Providing lists of diagnostic codes that are known which a CPT code will be reimbursed as reasonable and necessary.
to justify payment. Modifier Modifiers are composed of two-digit numbers (CPT)
Compliance program Processes, policies, and procedures de- or letters (HCPCS) that are appended to a specific CPT code
signed to ensure that all applicable regulatory and other condi- prior to the billing process. Modifiers are “used to indicate that a
tions for operations are met; specifically applicable to the area of service or procedure has been altered by some specific circum-
reimbursement. stance but not changed in its definition or code” (1).

Compliance Program Guidance for Clinical Laboratories (1998) National Correct Coding Initiative (NCCI) A Medicare pro-
Updated Model Clinical Laboratory Compliance Plan (1997); gram initiated in 1996 and managed by a specific contractor that
designed to ensure that appropriate reimbursement is made evaluates and publishes procedure code sets to determine if two
through federal programs, to ensure that payors “pay it right”; or more unique codes are appropriately ordered on the same date
provides guidance for doing the right thing (through compliance of service. Edits fall into two major categories: (i) comprehensive/
with all regulatory and statutory rules). component and (ii) mutually exclusive. Edits also indicate the
code pairs in these edit categories for which a modifier (generally
Current Procedural Terminology (CPT) Proprietary service -59) may be appropriate.
codes developed and maintained by the American Medical As-
sociation and required for filing claims and billing of Medicare Pay and chase A strategy whereby reimbursement for services is
and other payors. made as quickly as possible and reviewed after the fact for ap-
propriateness. If inappropriate, payback is required and legal ac-
Custom panel Grouping of several independent codes made tion is possible.
available as a single, orderable procedure, usually as an ordering
convenience. Pay it right Pay the right amount to the right provider for the
right service to the right beneficiary.
Diagnosis-related groups (DRGs) Classification system devel-
oped at Yale that defines more than 700 major diagnostic catego- Program integrity A systematic approach to prevention, detec-
ries and places patients into case types based on the ICD-CM tion, and correction of improper payments for healthcare services.
classifications. Substantially updated in 2007 as MS-DRG (Medi- Reflex test Second related, codable test, which is performed au-
care severity adjusted). tomatically when initial tests are positive or abnormal.
Downcode The use of a lower-reimbursed test, generally cou- Standards of conduct Standards should promote commitment to
pled with rebundling, to induce unnecessary utilization. the accurate, ethical, and legal practice of laboratory medicine.
End-stage renal disease (ESRD) The term used for Medicare Stark legislation Legislation prohibiting referral of designated
beneficiaries who have permanent kidney dysfunction requiring health services including laboratory services to an entity with
dialysis treatment. which an ordering provider has a financial relationship. Specific
regulatory exceptions do exist.
Fraud and abuse The receipt of payment for services that are
not appropriate to the patient situation; generally results from Substantially in excess Defined as 120% of the average charge to
the systematic application of incorrect coding approaches. Fraud all payors for each test.
is distinguished as being intentionally deceptive. Unbundling Coding individual tests rather than using a CMS-
Health Insurance Portability and Accountability Act of 1996 recognized and AMA-approved CPT panel.
(HIPAA) Title I protects health insurance coverage for workers Upcoding Performing a related test for which the CPT code
and their families when they change or lose their jobs. Title II pays at a higher level; using a higher-paying code to maximize
requires the Department of Health and Human Services to estab- reimbursement.
lish national standards for electronic healthcare transactions and
national identifiers for providers, health plans, and employers. It
also addresses the security and privacy of health data. Adopting REFERENCES
these standards will improve the efficiency and effectiveness of 1. American Medical Association. 2012. Principles of CPT Coding.
the nation’s healthcare system by encouraging the widespread AMA Press, Chicago, IL.
use of electronic data interchange in healthcare.
2. Beatty, M. F. 1999. A survey measuring the degree of model com-
Improper payment Payment made for a healthcare service that pliance plan for clinical laboratories implementation in small/rural
is not indicated based on documentation or clinical condition. hospital laboratories. Clin. Lab. Manag. Rev. 13:81–86.
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 683

3. Belton, P. R., and S. E. Roughton. 1999. The ideal compliance 9. Lovitky, J. A., and J. Ahern. 2002. Using the OIG model compli-
world: integrating physicians into the compliance program. QRC ance programs to fight fraud. Healthc. Financ. Manag. 56:64–68.
Advis. 16:4–10. 10. MacMillan, D. H., B. L. Soderberg, and M. Laposata. 2001.
4. Campen, R. B., and D. DiLoreto. 2000. Here to stay: health care Regulations regarding reflexive testing and narrative interpretations
compliance. An overview. Med. Group. Manag. J. 47:30–33. in laboratory medicine. Am. J. Clin. Pathol. 116(Suppl.):S129–S132.
5. Carter, D. 2003. Obtaining advance beneficiary notices for Medi- 11. Matusicky, C. F. 1998. Fraud and abuse. Building an effective
care physician providers. J. Med. Pract. Manag. 19:10–18. corporate compliance program. Healthc. Financ. Manag. 52:77–80.
6. Eckhart, J., and N. Mathahs. 2001. Physicians and compli- 12. Mesaros, F., Jr. 2000. The remittance advice, auditing for com-
ance: developing a system that works. Clin. Leadersh. Manag. Rev. pliance. Clin. Leadersh. Manag. Rev. 14:69–71.
15:222–229. 13. Saner, R. J. 1999. Third-party biller compliance guidance em-
7. Goldman, T. R. 2012. Health policy brief: eliminating fraud and phasizes risk awareness. Healthc. Financ. Manag. 53:43–45.
abuse. http://healthaffairs.org/healthpolicybriefs/brief_pdfs/health 14. Saum, T. B., and J. Byassee. 2000. Effective health care corpo-
policybrief_72.pdf (last accessed November 20, 2012). rate compliance. Physician Exec. 26:56–59.
8. Keoppel, P. 2001. Performing laboratory compliance audits. Clin. 15. Scott, M., and D. Nguyen. 2009. Clinical laboratory compliance:
Leadersh. Manag. Rev. 15:368–375. something old, something new. Lab Med. 40:428–435.
684 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

APPENDIX 39.1 Federal Register Documents

Federal Register. 1998. Publication of OIG Compliance Program Federal Register. 2011. Medicare, Medicaid and Children’s Health
Guidance for Clinical Laboratories. Fed. Regist. 63:45076–45087. Insurance Programs; additional screening requirements, appli-
Federal Register. 2001. Rules and regulations, Medicare program; cation fees, temporary enrollment moratoria, payment suspen-
negotiated rulemaking: coverage and administrative policies sions, and compliance plans for providers and suppliers; final
for clinical diagnostic laboratory services. Fed. Regist. 66: rule (CMS-6028-FC). Fed. Regist. 76:5862–5970.
58788–58890.

APPENDIX 39.2 Websites for Laboratory Compliance Information

CMS Office of Inspector General

http://www.cms.gov (last accessed November 20, 2012) https://oig.hhs.gov/ (last accessed November 20, 2012)
CMS searchable website. OIG searchable website: compliance, fraud alerts, advisory opinions,
http://www.cms.gov/Medicare/Medicare-Contracting/ work plan.
MedicareContractingReform/Downloads/compliance.pdf (last https://oig.hhs.gov/compliance/compliance-guidance/index.asp
accessed November 20, 2012) (last accessed November 20, 2012)
Medicare compliance program guidance. OIG compliance information.
http://www.cms.gov/MLNGenInfo (last accessed November 20, 2012) https://oig.hhs.gov/authorities/docs/cpglab.pdf (last accessed
Medicare Learning Network index of information documents. November 20, 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning OIG Program Guidance for Clinical Laboratories.
-Network-MLN/MLNProducts/downloads/MCRP_Booklet.pdf U.S. Department of Health and Human Services
(last accessed November 20, 2012)
http://www.stopmedicarefraud.gov (last accessed November 20, 2012)
Medicare claims review process.
Beneficiary fraud prevention website.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/Fraud_and_Abuse.pdf
(last accessed November 20, 2012)
Fraud and abuse fact sheet.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/MedQtrlyCompNL
_Archive.pdf (last accessed November 20, 2012)
Medicare Quarterly Provider Compliance Newsletter archives.
Introduction
40
Pitfalls in Cost Accounting
Determination of Profitability
Laboratory Profitability Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Balance Sheets • Income Statements • Cash Flow
Statements
Key Indicators
Key Income Indicators • Key Expense Indicators
Institutional Profitability
Human Profitability
Laboratory Value OBJECTIVES
Summary To describe those items that are included in the true costs of a laboratory
KEY POINTS
procedure
GLOSSARY To discuss possible reasons why cost analyses rarely account for all
expenditures
REFERENCES
To list the three primary tools used in the laboratory to assess profitability
To describe several of the key indicators used to evaluate an institution’s
performance (benchmarking)
To discuss the term “outcome assessment” and its relationship to institutional
profitability
To discuss the concept of human profitability and its relationship to quality
patient care
To describe the trend toward value-based laboratory medicine

If you don’t do it excellently, don’t do it at all. Because if it’s not excellent, it won’t
be profitable or fun, and if you’re not in business for fun or profit, what the hell
are you doing there?
Robert Townsend (from Further Up the Organization), 1988

I
n any business, including laboratory medicine, the ultimate goal is
to be profitable. From financial profits come funds for enhancements in
facilities, equipment, and personnel. From profits also come the means to
continue to exist as either a for-profit or nonprofit entity. A laboratory must
certainly be profitable as a business unit, and there are well-defined financial
monitoring tools to demonstrate this. However, profits in laboratory medicine
are measured by more than simply dollars made or lost and dollars spent or
saved. A profitable laboratory is also one that contributes positively to patient
care. In the current healthcare climate, the term “outcome assessment” has
been used to describe the success or failure of a disease management strat-
egy with regard to both financial and medical measures (13). The profitabil-
ity of an institution arises at least in part from effective and efficient patient
care, including the effective and efficient use of laboratory medicine. In fact,
provision of healthcare services is undergoing a major shift under healthcare
reform. The emphasis is moving from one focused on procedures to one fo-
Clinical Laboratory Management, 2nd Edition
cused on patients. In today’s world the laboratory is being viewed as neither
Edited by L. S. Garcia a “cash cow” nor a “cost center,” but as a unit vital to an institution’s ability to
©2014 ASM Press, Washington, DC provide healthcare services. Therefore, in laboratory management today, one
doi:10.1128/9781555817282.ch40
must be able to discuss both the individual profitability of a laboratory unit and

685
686 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

the contribution of the laboratory to the profitability of pa- inaccuracies in projecting total technical expenses. In ad-
tient care. It must also be appreciated that at least in part, dition, allocated costs are similarly subject to changes as-
one can also measure the satisfaction of making a posi- sociated with unanticipated events.
tive contribution to patient care as a measure of human In a like manner, attempts to account for anticipated
profitability. In addition, one must understand that labora- revenue are also subject to inherent inaccuracies. The in-
tory medicine is a service that provides value, not a simple ability to obtain critical documentation, misunderstand-
commodity to be delivered at the lowest cost possible. ing or misapplication of payor rules or issuances of new
rules, failure to obtain patient waivers of financial liability,
Pitfalls in Cost Accounting and failure to collect billed amounts due all contribute to a
reduction in anticipated revenues.
Integral to any determination of profitability is a clear un- To determine true costs and revenues, and to subse-
derstanding of the true costs of a procedure. Chapter 37 quently assess profitability as well as efficiency, it is nec-
deals with cost accounting in detail, but a few key con- essary to measure resources actually expended, including
cepts justify consideration here as well. First is that a com- through amortization, and compare that measurement to
plete cost analysis should consider all identifiable costs for amounts actually collected. In a strict accounting sense,
a service. One must consider many factors, including all revenues less expenses equals profit, and revenues divided
of the following: by expenses equals profitability.
• Direct material costs, including all consumables, qual-
ity control, repeats, and wastage Laboratory Profitability
• Direct labor costs, including benefit costs
Analyses to assess laboratory profitability are usually per-
• Equipment and other capital costs, either leasing or formed on a regular basis, not less than quarterly and typi-
depreciation based on purchase as well as maintenance cally monthly. To accomplish this there are three primary
and repair costs tools used in the laboratory setting: the balance sheet, the
• Laboratory-specific indirect costs, generally based income statement, and the cash flow statement (11, 12, 15).
on an allocation method and including licensure and
accreditation maintenance (e.g., inspections, docu- Balance Sheets
ments, proficiency testing) and training or continuing- The balance sheet provides an indicator of an organiza-
education costs tion’s overall financial well-being. It compares an organi-
• Indirect facility costs, also generally based on alloca- zation’s total assets to its total liabilities. In the laboratory,
tion of a percentage of costs due to utilities, rent or assets include not only cash holdings and accounts receiv-
purchase notes, housekeeping and medical waste dis- able but also facilities and all possessions used to create
posal, and information technology and communica- services (e.g., equipment and supplies). Liabilities include
tion systems all money owed and, in the case of a for-profit institution,
shareholder equity amounts. Simply stated, a balance sheet
• Indirect administrative costs, again allocated and
should at least balance. However, to be considered profit-
including courier services, marketing, customer ser-
able, total assets should exceed total liabilities. From a lab-
vice, and financial processes (e.g., billing, collections,
oratory management perspective, while a positive balance
payments)
sheet is critical to success and may certainly be reassuring
Careful systematic consideration of all of these fac- to employees and shareholders, it provides little informa-
tors will allow a laboratory to make reasonable decisions tion that may be used to improve operational efficiency in
regarding price structure for fee-for-service testing ser- an individual laboratory setting.
vices. The information is particularly useful when assess-
ing whether a discounted fee schedule approximates the Income Statements
laboratory expenses. However, cost analyses in any busi- An income statement is used to demonstrate profitability
ness, including in a laboratory, are rarely able to account over a given period. These statements are also known as
for anywhere near 100% of expenditures. There are fre- “profit and loss” statements because they compare the net
quently many unpredictable variables, particularly in areas profit for a specified period to the total expenses of doing
in which the laboratory has little or no control. For ex- business during the same period. Calculating total gross in-
ample, supplies provided for collection and submission of come and subtracting total expenses determines net profits
samples are rarely accounted for 100% on return, and rates or losses. The net profit may also be expressed as a percent-
of recollections due to preanalytical issues, repeats due to age of gross income and may be referred to as the profit
analytical issues, and wastage due to insufficient product margin. The net profit should not be considered an absolute
in a kit lot to complete an additional run all contribute to value, however. This figure is generally determined prior to
 CHAPTER 40. DETERMINATION OF PROFITABILITY 687

consideration of taxes and interest amounts due and is re- perspective. In a business sense, monitors generally com-
ferred to as earnings before taxes and interest. Clearly, an pare assets to liabilities or revenue to expenses. Clearly the
accurate determination of profit requires considerations of expectation is that in each case the ratio should exceed 1.
these expenses as well. In addition, it is customary to track volume indicators that
Income statements also frequently include figures re- translate into income. Most laboratories track daily num-
flecting budgeted and expected revenue and expense bers of billable tests and look for significant deviations that
amounts. Thus, they allow a laboratory to assess whether may have a financial impact. For independent laboratories,
there are significant variances from the amounts expected new sales or lost business can also be used to monitor po-
in both categories. In general, variances of more than 3 to tential for future financial success or failure.
5% require evaluation to determine if other downstream From an investment perspective, for-profit laborato-
adjustments may be necessary. For example, loss or gain of ries must also demonstrate earning potential for investors.
a major client or medical specialty service may necessitate This is usually done by comparing price per share to earn-
renegotiation of standing reagent orders for delivery of a ings per share. Here as well, data on volumes may be used
more appropriate quantity of supplies. to demonstrate earning potential.
As with the balance sheet, the income statement often It should be appreciated that tracking volumes has
reflects the overall financial situation of a laboratory and potential utility beyond simply predicting income in fee-
therefore is most useful to upper management for deter- for-service-payment systems. In a prospective payment
mining profitability for the entire laboratory. However, system, tracking utilization is an important activity (7, 8).
this statement may be configured to reflect the income and One may detect overutilization of testing outside of what
expenses of a specific department as well. In this configu- is expected for a given patient population. However, one
ration, individual department heads may find the docu- can also detect underutilization of services deemed to be
ment useful to assess whether expenses and income are as necessary for patient management. Either situation can
expected and to assess whether an individual department contribute to less than optimal patient care. Recall as well
is profitable. that utilization tracking is also an important component of
compliance activities (chapter 39).
Cash Flow Statements
Cash flow statements demonstrate exactly what the name Key Expense Indicators
implies. They provide a summary of the amounts paid out While income monitors should show favorable perfor-
and to whom (accounts payable) and the amounts received mance for a laboratory to be considered profitable, mon-
in payment for services or other items and activities (ac- itors that assess efficiency or effectiveness over time are
counts receivable). Again, simply stated, accounts receiv- more useful to individual laboratory managers seeking
able should exceed accounts payable. Similar to balance to ensure that their departments contribute to overall
sheets, these documents are not very useful in assessing profitability. While it is useful to monitor indirect and
operational efficiency for a given laboratory. fixed expenses for deviation and for comparability to
those of similar institutions, of most importance to labo-
ratorians are those monitors that assess an aspect that
Key Indicators can be adjusted or controlled. Both labor and material
In addition to these institutional summary reports, most expenses are considered useful for the development of
laboratories employ the use of key indicators to assess not such monitors.
only profitability but also overall operational efficiency. Monitors for labor efficiency generally focus on pro-
Such indicators are often financial or other ratios (i.e., a ductivity. It has become customary to use billable tests
numerator/a denominator) that may be used to evaluate (i.e., Current Procedural Terminology [CPT] or codable
an institution’s performance over time or in comparison to tests) produced per full-time equivalent for this purpose,
that of like institutions. This practice is known as bench- although the monitor may also be inverted and expressed
marking and can provide very useful information for oper- as time paid or time worked per billable test. There is wide
ational improvement leading to financial benefit (14). Key variation in expectations for productivity based on the
indicators can assess both sides of doing business: income department being evaluated. Obviously, an automated-
and expenses. In addition, they are useful in both prospec- testing department will show higher output than a labora-
tive and retrospective payment systems. tory employing more manual processes. For this reason,
productivity assessments are most useful when used for
Key Income Indicators benchmarking either temporally to assess performance of
Key income indicators are used to determine whether a lab- a single institution over time or when comparing labora-
oratory is financially successful. They measure both success tories that have been determined to be comparable in both
in an institutional sense and success from an investment scope and processes for services provided.
688 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

Another commonly used labor effectiveness monitor is emanating from the performance of a particular labora-
percentage of overtime used. In a properly staffed labora- tory procedure (9). Rapid diagnostic procedures may
tory, overtime usage should be minimal (<3%). Excessive allow for more timely institution of therapeutic and infec-
overtime payments, generally paid at an elevated hourly tion prevention protocols that may contribute to overall
rate, reduce profitability. lower healthcare costs. For example, implementation of
Expense monitors generally focus on actual costs per rapid antimicrobial susceptibility testing via an automated
billable test. These monitors may be constructed to be system has been shown to decrease length of stay, use of
comprehensive and include all direct costs (materials and additional services and drugs, and overall hospital charges
labor) as well as an allocated indirect cost. For bench- compared to an overnight system (3). In a nursing home
marking purposes and for assessing new methods for the setting, implementation of rapid influenza virus antigen
laboratory, a comprehensive cost-per-reportable monitor testing has been shown to decrease the numbers of second-
is generally preferred. However, material costs as a stand- ary cases through prompt implementation of appropriate
alone item should also be evaluated. A monitor of material prophylaxis, thereby reducing the total costs of caring for
cost per billable test is, as for labor cost per billable test, ill residents (2, 4).
most useful for temporal evaluations or in comparison to Screening tests used to detect asymptomatic patients or
that of a similar laboratory. These kinds of analyses are to identify patients at risk for a disease or disease compli-
distinct from an actual cost analysis for a specific billable cations may also have an overall positive impact, both on
test in that they measure the actual and not simply the ex- individual patients and on costs of care for populations. In
pected cost. A wide variation between calculated cost and an outpatient setting, testing for Chlamydia trachomatis us-
actual cost per billable test is cause for concern regarding ing a rapid method, while less sensitive than an overnight
possible inefficiencies. method, was shown to reduce the occurrence of costly sec-
One additional monitor for material use efficiency is ac- ondary salpingitis cases and allowed immediate treatment
tual versus potential utilization rates for specific high-cost in a patient population at risk for such due to failure to
items. With all commercial kit products, it is common for present for follow-up care (6). In fact, acceptance of rou-
wastage to occur when small amounts of product remain tine testing for asymptomatic infections with Chlamydia in
that are insufficient for a complete run including controls at-risk patient populations to prevent costly sequelae has
and patient samples. Utilization rates of substantially less achieved status as a Healthcare Employer Data Information
than 100% may indicate a need to redesign workflow pro- Set (HEDIS) monitor for effectiveness of healthcare under
cesses to improve efficiency. various payor plans. Similarly, screening for other clinically
silent risk factors (e.g., heart disease risk markers), precur-
sor conditions (e.g., HPV testing to predict risk for cervical
Institutional Profitability cancer or a variety of newer molecular pathology tests to
It is clear that each individual laboratory must be able to identify genetic risk factors for disease), or early evidence
operate efficiently within a defined budget and that each of chronic disease conditions (e.g., use of hemoglobin A1c
laboratory manager must continue to seek ways to oper- to identify early diabetes) has been shown to reduce over-
ate more effectively to decrease overall costs in an era of all healthcare costs (9).
ever-continuing decreases in available revenues. However, In the future, decisions regarding whether to imple-
laboratory medicine is unique in that the product, which ment costly new technologies in a laboratory will have to
has defined costs and specific individual value, may also take into consideration the financial impact on healthcare
have a positive financial impact in a manner not directly in a more comprehensive sense as well as the immediate
financially benefiting the laboratory. In other words, the financial impact on a given laboratory (10).
results of a specific test may be used to improve the clinical
outcome for a patient such that the total costs of providing
care for that patient are decreased. Thus, the beneficiary of Human Profitability
the savings is the payor and not the laboratory providing Through all discussions of profitability, one must not lose
essential information. Therefore, laboratory managers and sight of the reason for the existence of laboratory medicine
payors must not be shortsighted in making a decision to as an accepted discipline. The role of the laboratory is to
perform and pay for a particular test based simply on the provide data used for effective management of patients. In
laboratory economics of the situation. The term “outcome doing so, laboratory professionals feel a sense of pride and
assessment” has been used to describe the process of deter- accomplishment in assisting in patient care that cannot
mining whether a particular measure will have a positive easily be measured in financial terms. However, a life saved
clinical and presumably financial impact on patient care. or salvaged from a serious illness does have a lifetime earn-
In laboratory medicine, there are several well-designed ing value, which can be calculated, and additional value in
studies that demonstrate healthcare system savings terms of human existence that cannot be calculated. Our
 CHAPTER 40. DETERMINATION OF PROFITABILITY 689

hope is that the human profit margin will be given consid- to be careful stewards of the laboratory component of
eration equal to the financial profit margins in the provi- healthcare expenditures. The value of laboratory medicine
sion of quality laboratory medicine services. Further, it is and the positive contribution of the data to patient care
fervently hoped that some degree of rationale and logic will must be recognized and promoted.
be applied in the realm of reimbursement for laboratory
services, including in setting appropriate compensation
for laboratory scientists performing the work, such that Summary
the ultimate financial and human benefit may be reaped. Absolute profitability or lack thereof in laboratory medi-
cine may be easily measured within an individual labora-
Laboratory Value tory or laboratory department. To do so, one may use a
number of standard accounting tools to compare real ex-
While financial profit is essential to the survival of any penses to real revenues. However, profitability in labora-
business, assuming that financial profit alone will ensure tory medicine may also extend beyond the boundaries of
that a laboratory is successful is unrealistic in today’s eco- the laboratory by allowing clinical decisions to be made
nomic climate (5, 10). Table 40.1 outlines some of the that have an overall positive impact on a patient’s clinical
essential differences between traditional fee-for-service outcome, which may also be measured in financial terms.
laboratory medicine and a coordinated care system in In addition, a positive clinical outcome may result in many
which the laboratory is viewed as a component of the care unquantifiable benefits to patients, their families, and their
process. In the traditional model, procedures ordered by healthcare providers. Therefore, while laboratory profes-
physicians are the focus, and profitability is determined sionals must necessarily make sound financial decisions,
by evaluating primarily financial data. Increased utiliza- which allow their facilities to operate with a reasonable
tion is encouraged and the goal is to make money. budget, administrators and other purchasers of laboratory
With the current focus on healthcare reform, there is services must remain cognizant of the overall importance
a shift in focus from procedures to patients (1). Testing is of laboratory medicine to profitability in the provision of
used as an integral part of a management strategy, and test healthcare services.
groupings are designed to facilitate best practices for the
most efficient and effective patient care in a given diag-
nostic setting. Benefits are measured in terms of improved KEY POINTS
outcome with regard to quality of care, patient safety, and ■ A complete cost analysis must include all identifiable
service. Such benefits may be patient-specific, but cumula- costs for a service.
tive benefits in a population are also important. Since pay-
■ Although cost analyses rarely account for all expendi-
ment is prospective, the goal is to use resources wisely. In
tures, it is important to understand what some of these
essence, profitability results from saving money.
unpredictable variables may be.
Healthcare spending cannot continue to grow un-
checked, and resources to provide healthcare are not un- ■ Analyses to assess laboratory profitability usually in-

limited. Carefully designed studies to assess best practices clude balance sheets, income statements, and cash flow
for overall patient management are essential. Compara- statements.
tive effectiveness studies are needed to determine whether ■ Key income and expense indicators are required to as-
newer, more costly technologies offer any true benefits in sess not only profitability but also overall operational
terms of patient outcome. Laboratory professionals need efficiency.

Table 40.1 Comparison of features of traditional laboratory medicine and coordinated laboratory medicine
Traditional laboratory medicine Coordinated laboratory medicine
Reimbursement Fee for individual service Payment for continuum of care
Focus Procedures Patients
Approach Offer individual tests, approved panels, Design test groupings (e.g., checklists or caremaps/
and other well-defined and compliant carepaths) to facilitate or require best practices for
test groups for physician order specific diagnostic settings
Performance measures Focused targets, e.g., financial and pro- Improved patient or population outcome, e.g.,
ductivity ratios quality, safety, service
Financial goal Make money Save money
Measure for profitability Reimbursement should exceed total Expenses should improve measurable outcome
expenses
690 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

■ Future decisions regarding implementation of expen- Outcome assessment The process of determining whether a
sive technologies will have to take into consideration particular measure will have a positive clinical, and presumably
the financial impact on healthcare in a more compre- financial, impact on patient care.
hensive sense. Overtime Time worked before or after regularly scheduled
working hours or pay for such time worked.
GLOSSARY Postanalytical time Time for labor required to report results, as
Analytical time Time for the labor required to analyze the spec- well as the sorting, filing, and telephoning related to final
imen or specimens and to perform all routine procedures up to reports.
reporting of results. This time includes any required calculations Preanalytical time Time for specimen collection, work list and
and checking but does not include test repeats. label preparation, start-up, sample-cup, and daily quality con-
Balance sheet Shows assets on the left side and liabilities and trols and standards.
claims against assets on the right side. The balance sheet shows a Profitability ratios Ratios that measure the combined effects of
firm’s financial position at a particular point in time. liquidity, asset management, and debt management policies on
Billable test (Current Procedural Terminology [CPT] codable operating results.
tests) A test performed and charged to a patient, physician, or Revenue budget The revenue that will be generated by the fore-
third-party payor account that generates revenues. The billable casted activity for a responsibility center.
test is the focal point in laboratory cost accounting for laborato-
ries that generate revenue. Unit of service The logical measure of work for a given area. In
the laboratory, it is usually the number of billed tests or proce-
Cash flow Case revenues less cash expenses; it therefore ex- dures performed.
cludes noncash expenses such as depreciation.
Value A measurable quality improvement as a result of expendi-
Cash flow statement Reports the impact on cash flow of a firm’s tures (i.e., quality/cost)
operating, investing, and financing activities over a period of
time. Variable costs Cost items that vary, in total, directly and propor-
tionately with volume or level of activity changes.
Comparative effectiveness In laboratory medicine, the system-
atic comparison of two or more approaches to determine which
approach provides the best patient outcome.
REFERENCES
Cost accounting A system of measuring and reporting informa-
1. Beastall, G. H. 2012. Adding value to laboratory medicine: a pro-
tion about costs.
fessional responsibility. Clin. Chem. Lab. Med. doi: 10.1515/cclm-
Direct cost A cost that can be traced to, or caused by, a particu- 2012-0630. E-pub ahead of print.
lar service, product, segment, or activity of the department. Ex- 2. Church, D. L., H. D. Davies, C. Mitton, H. Semeniuk, M. Logue,
amples are labor and consumables. C. Maxwell, and C. Donaldson. 2002. Clinical and economic evalu-
Fixed costs Costs that remain constant in total regardless of ation of rapid influenza A virus testing in nursing homes in Calgary,
changes in the level of activity. Fixed costs are only fixed in rela- Canada. Clin. Infect. Dis. 34:790–795.
tion to the given time period and are only fixed within a relevant 3. Doern, G. V., R. Vautour, M. Gaudet, and B. Levy. 1994. Clinical
range of activity. impact of rapid in vitro susceptibility testing and bacterial identifica-
Full-time equivalent The proportion of an employee’s paid tion. J. Clin. Microbiol. 32:1757–1762.
hours per year to the standard laboratory measure, which is typi- 4. Drinka, P. J., P. Krause, L. Nest, S. Gravenstein, B. Goodman,
cally 2,080 h (5 days × 8 h × 52 weeks per year). and P. Shult. 2002. Delays in the application of outbreak control
prophylaxis for influenza A in a nursing home. Infect. Control Hosp.
Healthcare Employer Data Information Set Monitors for effec- Epidemiol. 23:600–603.
tiveness of healthcare under various payor plans.
5. Forsman, R. W. 2002. The value of the laboratory professional in
Income statement Reports the financial results of a firm’s opera- the continuum of care. Clin. Leadersh. Manag. Rev. 16(6):370–373.
tions over a period of time. 6. Gift, T. L., M. S. Pate, E. W. Hook III, and W. J. Kassler. 1999.
Indirect cost All expenses that cannot be directly assigned to a The rapid test paradox: when fewer cases detected lead to more cases
billable test but contribute to the production of a test and the treated: a decision analysis of tests for Chlamydia trachomatis. Sex.
provision of an adequate work environment. Examples are lease Transm. Dis. 26:232–240.
or rental contracts, maintenance contracts, maintenance for 7. Hanson, C., and E. Plumhoff. 2012. Test utilization and the clini-
physical plant, utilities, etc. cal laboratory. Mayo Med. Lab. Commun. 37:1–4.
Not-for-profits Companies whose primary purpose is some- 8. Kim, J. Y., W. H. Dzik, A. S. Dighe, and K. B. Lewandrowski.
thing other than generating a profit. Typical not-for-profits are 2011. Utilization management in a large urban academic medical
hospitals and charitable organizations. center. A 10-year experience. Am. J. Clin. Pathol. 135:108–118.
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9. The Lewin Group. 2009. The value of laboratory screening and di- 12. Travers, E. M. 1997. Clinical Laboratory Management, p. 259–
agnostic tests for prevention and health care. http://www.lewin.com/~/ 283. Williams and Wilkins, Baltimore, MD.
media/Lewin/Site_Sections/Publications/Lewin%20Value%20Lab
13. Wilkinson, D. S. 2000. Technology assessment: measuring the
Testing%20Sept%202009.pdf (last accessed November 20, 2012).
outcomes of laboratory practice. Clin. Leadersh. Manag. Rev. 14:
10. Miles, J., and R. L. Weiss. 2011. The role of laboratory medicine 267–271.
in accountable care organizations ARUP laboratories. http://www
.aruplab.com/suite/documents/ACO%20Lab%20Strategy_white 14. Wilkinson, D. S., and D. D. Reynolds. 2003. Using benchmark-
paper.pdf (last accessed November 20, 2012). ing to manage your laboratory. Clin. Leadersh. Manag. Rev. 17:5–8.
11. NCCLS. 1998. Basic Cost Accounting for Clinical Services. Ap- 15. Wilkinson I. 1999. Money! Money! Money! A Hitchhiker’s Guide
proved guideline GP11-A. NCCLS, Wayne, PA. to Laboratory Finance. AACC Press, Washington, DC.
Outside Marketing and Expansion
VIII
section editor: Dale A. Schwab
41 Outreach Considerations and Overall Goals
Charlene H. Harris
42 Outreach Implementation Requirements: a Case Study
Frederick L. Kiechle, Jack Shaw, and Joseph E. Skrisson
43 Finance and Decision Making in Outreach
Michael G. Bissell and Harry E. Pukay-Martin
44 Outreach: Obstacles to Hospital Outreach and Enhancing
Customer Satisfaction
Beth H. Deaton
Introduction
41
Considering an Outreach Program
Outreach Considerations
Administrative Interest • Exploring the Market •
Strategic Plan • Business Plan • Sales Plan
and Overall Goals
Commitment from All Relevant Parties
Feasibility Report • Philosophical Understanding • Charlene H. Harris
Service and Financial Support
Implementing the Outreach Program
People • Processes • Facilities • Equipment • Supplies
Outreach Indicators OBJECTIVES
Growing the Outreach Program To determine initial interest and make a position assessment
Market Assessment • Client Needs
To perform in-depth market and operational assessment
Summary
KEY POINTS
To develop a business plan
GLOSSARY To implement the outreach plans
REFERENCES To assess program progress
APPENDIXES To evaluate program growth
To provide examples of letters, forms, graphs, questionnaires, etc., that support
guidance

Our mission: to boldly go where no man has gone before.

James T. Kirk, Captain, Starship Enterprise

A
laboratory outreach program can broaden the scope of services for
any hospital laboratory and meet the outpatient needs of the community
if it is well researched prior to implementation. Hospital-based laboratory
outreach can describe everything from patients coming to the hospital outpatient
services to have laboratory work done to a stand-alone reference laboratory with
draw sites and courier services. Referrals can come from people ranging from the
hospital medical staff to providers with patients who will never use the sponsor-
ing hospital’s services. The structure of each outreach program is as unique as the
set of customer needs that it satisfies. The key to success is in-depth planning and
administrative support. In this chapter, we’ll provide you with practical, step-by-
step guidance on setting up your outreach program, including
• Initial interest and position assessment
• In-depth market and operational assessment
• Business plan construction
• Implementation plan
• Program assessment
• Program growth

Considering an Outreach Program

Clinical Laboratory Management, 2nd Edition The implementation of outreach programs can present many opportunities:
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC • Restructuring and strengthening the role of the hospital laboratory in the
doi:10.1128/9781555817282.ch41 community

695
696 OUTSIDE MARKETING AND EXPANSION

• Redefining the relationship with various reference oversees employee recruitment and relations. The landmark
laboratories Stark legislation, prohibiting certain types of physician self-
• Increasing market share referrals, and Medicare Fraud and Abuse Alerts, released by
the Office of Inspector General (OIG) and defining illegal
• Marketing the laboratory’s specialty or niche testing
inducements to clients by medical laboratories, have fur-
• Promoting vertical integration with other departments ther structured how laboratories do business. Recent Medi-
within an organization or system care requirements related to Advanced Beneficiary Notices
• Establishing potential mergers and affiliations with (ABNs), determined by Local Medical Review Policies
other outreach programs (LMRPs) and National Coverage Decisions (NCDs), and
• Providing true STAT testing for outpatients Medicare Secondary Payor (MSP) questionnaires have had
an effect on consumers as well as medical laboratories.
• Instituting systems to evaluate new revenue
Nongovernmental regulations are also present within the
opportunities
laboratory industry. Outreach programs are subject to in-
• Managing quality across a continuum of care spection by The Joint Commission (TJC) as part of an overall
hospital accreditation program. Many laboratories undergo
Administrative Interest voluntary inspections by the College of American Patholo-
No outreach program can be successful without the com- gists (CAP) to meet accreditation requirements through
plete support of your facility’s administration, including the “deemed status.” This means that one accrediting agency
associated pathologist. This support must include not only recognizes another accrediting agency’s certification in lieu
operational funding but also strategy, understanding, and of its own certification, i.e., CAP has deemed status for TJC.
backing. Prior to approaching Administration with the idea The advent of managed healthcare plans has added
of an outreach program, you need to perform an industry another barrier that many outreach programs must over-
analysis, a situational analysis, and a SWOT (strengths, come. Many plans that are national or regional in scope
weaknesses, opportunities, and threats) analysis. have contracted with a single laboratory testing entity to
perform all the testing for their insured individuals. The
Industry analysis. An industry analysis recognizes unique large, national laboratories are in a good position to pro-
factors within the industry, outside the direct control of the vide services over a large geographic area. In effect, this
healthcare institution, that affect the survival of the program. capability prevents many local or regional outreach pro-
grams from even bidding on a contract due to their geo-
Barriers to entry. Each industry has its own set of en- graphic limitations. The direct impact of these laboratory
try requirements that must be met by any organization or changes is summarized in Table 41.1.
program desiring to function within that industry. This The managed care picture, however, is not totally dark.
is also true for an established organization, such as your Successful outreach programs have discovered several seg-
healthcare institution, which introduces new services into ments of opportunity:
the industry in your market area.
• Test utilization
The medical laboratory industry is highly regulated by the
U.S. government. These regulations address such operational • Linkages with other hospitals
areas as personnel requirements, quality control and im- • Superior service
provement activities, proficiency testing, methodology vali- • Wellness programs in collaboration with managed care
dation, etc. The Centers for Medicare and Medicaid Services programs
(CMS), the federal agency that administers the Medicare
program as well as the Clinical Laboratory Improvement
Amendments (CLIA), and the Food and Drug Adminis- Table 41.1 Direct impact of laboratory changes in the current
tration (FDA), which has oversight of medical devices and healthcare environment
licensure of blood banks and blood donor services, are the From To
two main federal regulatory agencies. Many states also have
Revenue center Cost center
statutes covering laboratory operations and personnel.
Test-based payment Capitated payment
In addition to regulations dealing with certification or ac-
Limited utilization controls Strong utilization controls
creditation, several other federal initiatives further affect the
High quality Commodity pricing
laboratory industry and must be considered. Job safety reg-
Centralized testing Point-of-care and satellite testing
ulations are applied by the Occupational Safety and Health
Internal laboratory Core laboratory
Administration (OSHA), including recent directives deal-
ing with needle safety and transport of hazardous materials. Semiautomated processing Fully automated processing
The Equal Employment Opportunity Commission (EEOC) Reputation facilitates referrals Value-added facilitates referrals
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 697

• Relationships with community providers: physicians, products because very few, if any, substitutes exist. There-
home health, hospice, nursing home fore, switching costs are high. To counteract this high
• Laboratory services that meet changing patient needs substitution cost, many laboratories are negotiating “pack-
aged deals up front” with the vendors for stable or no-cost
Opportunities for cost management or reductions are maintenance contracts and/or training and continuing
readily available through alterations to the staff mix, levels education on the equipment at no cost.
in the organizational structure, and relationships within
the organization. Cost analysis becomes a necessity. Supply Determinants of substitution threat. Medical laborato-
and equipment costs may be examined. Make-versus-buy ries have seen their activity base within the industry erode.
decisions are made. Process improvement and work rede- In the past, medical laboratories were the only places
sign are examined. All strategies must be framed within where consumers/patients could have laboratory testing
the CMS’s new payment-for-value program. done. These laboratories were in the physician office, in
The capital requirements in the medical laboratory the core hospital laboratory, or associated with a reference
industry are high. To offer a new service or open a new laboratory. Micro technology (which utilizes very small
site, the most recent technology must be available to gain sample sizes and more-compact testing equipment) and
a competitive edge. This technology refers not only to patient education have allowed laboratory testing to move
laboratory testing equipment but also to the implementa- to alternate substitution sites. The introduction of home
tion of highly sophisticated information systems includ- testing for pregnancy often allows a woman to know she is
ing local area network (LAN) and Internet-based systems. pregnant before her physician knows. Most diabetics now
Laboratory-related requirements in the federal meaningful do their own glucose testing in the privacy of their own
use program for healthcare information technology have home. Laboratory testing at the patient’s bedside rather
recently stimulated even more interest in the laboratory’s than in a designated place called “the laboratory” is avail-
use of information systems. able, and utilization is growing at a geometric rate. Many
Another factor deals with the availability of qualified physician office laboratories, emergency rooms, or out-
personnel. For years, there has been a shortage of quali- reach satellite laboratories are now performing analyses
fied laboratory personnel, and that shortage has now that formerly were done only by hospital laboratories.
grown to include a shortage of training programs. As with These alternate sites often provide care at a lower price,
other professions, such as teaching, the number of new thereby competing with most medical laboratory charges
technicians and technologists entering the personnel pool for the same services. They also provide a convenience fac-
is less than the number of individuals approaching retire- tor for the client that is not always present with a station-
ment. Not only is it difficult to recruit personnel, but once ary core hospital laboratory. In many cases, the insurance
they are hired, their learning curve for each laboratory industry’s emphasis on cost reduction through a reduction
takes weeks, sometimes months. There is very little trans- in both patient hospitalization days and outpatient care
fer of process knowledge from facility to facility. also encourages use of these substitutes.

Determinants of supplier power. Medical suppliers are Determinants of buyer power. The medical laboratory
very powerful within the medical laboratory industry. A industry shares a unique characteristic with the rest of the
few vendors dominate the supplier distribution, including healthcare industry: the ultimate consumer, the patient, is
the emerging molecular and genetic testing market. This cli- usually not the final purchaser or payor. Payor or buyer
mate may result in the inability to solve ongoing problems may refer to one of many groups, including patients, in-
with reliable shipments and repair services from vendors. dividual physicians or physician group practices, employ-
The advent of regional and national group purchasing ers, federal and state governments through Medicare and
organizations, such as the Voluntary Hospitals of America, Medicaid, insurance companies, and business coalitions.
plus the added emphasis on cost-effectiveness, has con- Thus, discussion of buyer power is complex, especially
tributed to the increased number of laboratories that have when one considers the use of forward integration within
aggressively negotiated more-favorable purchasing agree- the industry by some buyers such as physician-owned joint
ments, including a change to using price per reportable ventures with insurance companies and independent prac-
test. These same factors are active in the increased use of tice associations with their own laboratories.
multiple vendors by individual laboratories. The luxury of The components of buyer power are varied. Buyers are
dealing with one vendor is outweighed by the need for the powerful if they purchase large volumes of products or ser-
best pricing available, although convenience is regained vices relative to the total provider’s volume. The majority of
with the awarding of aggregate bids to a single distributor. laboratory testing is ordered by physicians and/or physician
Usually the suppliers of the most recent technolo- extenders, who act as the gatekeepers to the laboratory in-
gies are not obliged to contend with substitutes for their dustry, although there is a growing national trend toward
698 OUTSIDE MARKETING AND EXPANSION

self-ordering of tests by patients. The major buyers/payors • Rapid test turnaround time
have begun directing the flow through the gatekeepers • The availability of electronic data entry and reporting,
with direct provider contracting—the use of preferred- including interfacing with office electronic medical
provider organizations, managed care programs that can records
include capitation or “at-risk” arrangements or possibly
• Accurate billing practices
competitive bidding as considered by Medicare. Because
most outreach programs are not well differentiated from • The range of testing provided
other outreach programs, it is relatively easy for any payor Just as hospitals are beginning to negotiate regional and
to switch to another provider. sometimes national relationships, outreach programs are
forming loose organizational networks aimed at securing
Price sensitivity. The medical laboratory industry, in regional managed care contracts for physician office labo-
relation to the entire healthcare industry, has a history of ratory work. The sharpest competitive edge that hospital-
moderate to high price sensitivity. However, in relation to based laboratory networks enjoy is the potential to offer
other U.S. service industries, it has had a sluggish response physicians a comprehensive, integrated clinical database or
to price sensitivity. This situation is changing. electronic health record containing inpatient, outpatient,
Until recently, price has not been a major concern for and physician office laboratory data. However, competing
patients, either because they had insurance coverage or hospitals seeking to form laboratory networks also face
because the costs of laboratory testing had been small in the task of overcoming long-standing rivalries and antago-
proportion to the entire picture. As individual healthcare nisms to unify behind a composite strategy. Despite these
consumers have become responsible for larger portions of challenges, many networks are slowly but surely making
the bill payment, their concern about price has increased. inroads into the regional outreach market. For an indi-
Corporate and government consumers are increasingly vidual laboratory to survive the current industry changes,
concerned about the rising costs of laboratory testing in re- it must be responsive both to the fluctuation of its local
lation to their total budgets. Consumer demand for lower environment and to industry-wide restructuring.
prices is increasing. Managed care contracts demand lower
prices. Insurance companies have progressed from en- Situational analysis. Answering the question “Does an
couraging their enrollees to use outpatient healthcare outreach program fit with who we are?” is the purpose of
services, rather than inpatient, to price shopping among a situational analysis. It describes the major features of the
the laboratory providers. Because of the cutbacks in physi- local environment influencing the program’s operation.
cian reimbursement, physician practices are searching for It also describes where the organization is and where it
lower laboratory prices. Although some individuals have might go. The outreach program must “fit” with the orga-
raised quality of care as a concern, the overwhelming tide nizational goals.
of concern is associated with price. The recent advent of
accountable care organizations that include the medical Background. This summarizes the organizational fac-
home concept is stimulating even closer examination of tors affecting the potential success of the proposed pro-
competitive pricing within a geographic market. gram. It includes a brief history of the organization or
institution with an emphasis on founding purpose, mis-
Rivalry determinants. When the growth of new provid- sion, values, and community need. A description of the
ers within an industry is rapid, the level of competition is events leading to the laboratory’s decision to look into es-
also high. Many hospital laboratories have entered into the tablishing an outreach program is desirable.
outreach industry segment. The character of the industry
itself is changing in response to the aging of the popula- Current activity and normal forecast. The background
tion, the diagnosis of newly discovered maladies, and the information is followed by a summary of key performance
development of the field of molecular pathology along indicators for the past few years and a forecast of future
with genetics and companion diagnostics. volume under normal conditions. This assumes no ma-
Although brand identity or product differentiation is just jor changes in the marketing environment or strategies.
now emerging on the national level, low switching costs, lit- The forecast may be done first without considering the
tle competitor diversity, and local concentration of outreach proposed outreach volume and then with that projected
providers have increased the rivalry between laboratories. volume. The comparison of the two forecasts provides im-
Buyers tend to select outreach programs according to portant information needed to decide if the costs outweigh
the benefits of establishing an outreach program. It gives
• Low pricing your Administration a picture of what to expect. The basis
• Good customer service, which includes timely consul- of the forecast could be statistical curve fitting, conduct-
tation services by respected pathologists ing focus groups of potential clients, or other accepted
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 699

marketing procedures. The forecast needs to be revised if product. An example would be the establishment of a re-
there are changes in environmental conditions or strate- gional reference laboratory within your market area by a
gies. At times, depending on the location of the market competitor.
you’re in and its volatility, trying to do a “normal” forecast Internal factors are addressed through examination
is like trying to build a castle with dry oatmeal. of strengths and weaknesses inside the organization.
Strengths need to be supported and maximized, while
Market description. Another picture is painted for weaknesses need to be corrected. A weakness could be
Administration with the market description. A primary the inability to determine test costs, thereby inhibiting
purpose is to clarify the market in which the outreach pro- the establishment of a pricing methodology. A strength
gram will be operating. Some of the elements that may be is exemplified by the presence of state-of-the-art tech-
included are nology within the testing laboratory. Special consider-
ation needs to be given to factors dealing with specimen
• A map of the proposed service area
transport and processing, information systems including
• A list of the targeted clients or customers reporting functionalities and remote order entry/report-
• A demographic profile of the service area ing, marketing and sales availability, and customer ser-
• A discussion of other competitors within the market vice capabilities.
including current activity, services, and location Although opportunities, threats, strengths, and weak-
nesses describe different factors, the presentation of
• Results from a satisfaction survey of the area’s provid-
these factors may have common elements. All are written
ers and patients
to suggest some actions that might be needed. The per-
son preparing the analysis may be asked to rate each for
Product review. We have worked our way down from
its potential impact and to determine which deserve the
a broad view of the local environment (background),
most planning attention. All have implications for strategy
through a prediction of what future performance could be,
formulation.
to a picture of what the potential market looks like. Now
we need to examine the product itself: the laboratory. Dis-
cussion may include Exploring the Market
Having a picture of your market that is accurate and as
• The current services of the department, both inpatient complete as possible prior to making the decision to start
and outpatient an outreach program is a must. This will serve as a founda-
• How those services fit into the portfolio of the tion for all subsequent actions.
institution Determination of the service or market area is needed.
• The value that both providers and patients place on the This may be accomplished by looking at the area from a
service functional and geographic viewpoint. Within the hospital
organization itself, especially if a healthcare system is in-
• The life-cycle position, both within the community
volved, a determination of what services the core labora-
and within the organization
tory will provide (and where) as compared to what services
• A breakdown of potential product lines such as physi- Outreach will provide (and where) must be determined.
cian office services, nursing home collection, or service Some questions to be answered are
center establishment
• Who will do the reporting and how?
SWOT analysis. Both external (outside the organiza- • Where and by whom will testing services be provided?
tion) and internal (inside the organization) factors that • Who will provide customer services support, including
will influence the successful implementation of an out- information technology troubleshooting?
reach program need to be considered. This is the SWOT
• How, where, and by whom will the specimens be
analysis, and it answers the question “Can we do this?”
processed?
External factors can be categorized as opportunities
or threats. An opportunity is a positive element of the Geographically, the outreach program’s service area
market in which an organization is likely to enjoy supe- may be different from that of the hospital or healthcare
rior competitive advantage. A proposed outreach service system. A primary service area (specimen transport within
center location convenient to a large number of prospec- 2 hours of collection) may be structured around local pro-
tive patients would be an opportunity. A threat is a chal- viders such as physicians and home healthcare agencies.
lenge posed by an unfavorable trend or competitor that A secondary service area (specimen transport within 2 to
would lead, in the absence of purposeful marketing ac- 24 hours) is best developed after the initial market share
tion, to the stagnation, decline, or end of a program or involving the primary service area is gained.
700 OUTSIDE MARKETING AND EXPANSION

Market segments need to be identified. There are a for the development of any new program. Services can be
number of resources that can provide demographic infor- designed to be more responsive to the consumer when
mation concerning market segments such as thought has been given to the structure of the image de-
sired for the new program. Consequently, the level of cus-
• Physician practices
tomer satisfaction can be expected to be higher because
• Home healthcare agencies that can also assist in deter- of the great congruence between expectations and actual
mining a possible need for a home draw program service features.
• Hospice programs Many methods have been proposed for measuring im-
• Long-term-care facilities ages. The last section of the sample questionnaire in Ap-
pendix 41.4 is designed to provide information to measure
• Dialysis centers
image. Each characteristic listed is an image element.
• Mental health facilities The last step prior to presenting your findings to Ad-
• Occupational health programs ministration is to develop a plan for planning. It estab-
• Other hospitals lishes a planning framework by determining the specific
planning steps to be followed, identifying the internal and
• Veterinary practices
external constituencies that need to be involved, and speci-
Your hospital marketing department may already have this fying the roles of the individuals on the planning team. It
information. If not, a list of demographic resources ap- also establishes the planning time schedule. The plan for
pears in Appendix 41.1. planning is summarized below:
Assessing the market segments may be done by several
methods. Since medical staff physician referrals are the • Planning objectives. These are statements that describe
most easily accessible segment and offer the most potential the goals or objectives of the planning exercise or why
return on investment for the beginning outreach program, a plan is being made. Examples include “develop func-
we will use this segment as an example; however, similar tional and useful strategic, business, and implementa-
strategies may be utilized with each market segment. Ini- tion planning documents” or “gather support for the
tial focus needs to be on the specialties that usually provide development of a laboratory outreach program.”
most of the test referrals: Family Practice, Internal Medi- • Planning environment. These factors, both positive and
cine, and Obstetrics/Gynecology. In some markets, Pediat- negative, will influence the planning process. Examples
rics and Urology may be added to this list. include “the amount of time available for the planning
Information concerning the community need for out- process” or “the management style prevalent within the
reach laboratory services may be gathered by interviews organization.”
with 10 to 15 carefully selected physicians and a mail-in
• Planning approach. This describes how the planning
survey to all medical staff. Generally, the return on mail-in
will take place, who will participate, and which stake-
surveys is about 10 to 15%, but the responses can be im-
holders are involved. The planning might be done
proved by active promotion by pathologists and hospital/
through a collaborative approach by a planning task
medical staff committees through individual discussions,
force or team involving such stakeholders as Registra-
a newsletter to local offices explaining the purpose of the
tion, Billing Services, Information Systems, and Labo-
survey, and announcements in hospital or medical society
ratory as the process progresses.
newsletters. Focus groups made up of physician office staff
members who regularly interface with a laboratory are also • Course of action. A brief description of the events lead-
useful. In addition, it is also valuable to identify physicians ing up to the determination that there was a need to
who, based on their specialties and/or their ability to influ- investigate the development of an outreach program is
ence other physicians within the medical community, may valuable in providing background in the plan for plan-
serve as champions for the outreach program. ning document. Individuals involved in developing the
The survey questionnaires or interview and focus group planning documents need to be identified, along with
guides need to solicit responses about issues related to lab- their areas of responsibility. Future activities including
oratory testing that are important to the physicians and of- the structure of the planning documents need to be
fice staff. Sample forms are provided in Appendixes 41.2 outlined.
to 41.4. • Planning schedule. A plan of action needs to be
Another useful tool in exploring the market is an im- roughed out. It should include the broad planning
age analysis. An organization’s image is a function of its steps and a Gantt chart outlining expected timelines
deeds (services) and its communication (public relations). and responsibilities for the planning process only. Re-
It is the organization’s image, not necessarily its reality, member, this is a plan to plan—not a strategic plan or
to which people respond. This has strategic implications an implementation plan.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 701

It is now time to return to your Administration with outreach advisory group discussed later in the “Business
the information you have gathered to solicit support for Plan” section of this chapter.
further planning, including a strategic plan, business plan, The process of strategic planning is best accomplished
sales plan, and implementation plan. Without administra- over a relatively short period to ensure continuity of pur-
tive support, both financially and strategically, any out- pose and participants as well as maintain the momentum
reach program is doomed to fail. that the process generates in its early phases. Consen-
sus is essential to the implementation of a strategic plan.
It cannot be achieved if one or two people dominate the
Strategic Plan planning process. The plan that evolves from the process
Strategic planning entails making intelligent choices in should provide a framework for orderly decision making.
determining future programs and goals. Although it is a It should make it possible for problems and services to be
continuous process of taking a long view of the planning examined with a sense of perspective.
horizon, it can also involve an immediate response to a An effective strategic plan needs to include the follow-
sudden shift in circumstances. It can be considered a blue- ing sections.
print for dealing with changing circumstances. Planning is
important if for no other reason than it forces us to think 1. Mission statement. A program’s mission statement is its
about how we are going to remain or become a viable entity fundamental purpose or reason for existence. The mis-
under different sets of assumptions and circumstances— sion statement should not be so vague as to provide no
whether they are related to the government, community, direction, nor so restrictive as to inhibit the strategic-
or market. planning process, nor so broad as to substitute for the
Strategic planning poses such questions as final planning document. The future should be dis-
• What is the purpose of this program? cussed as well as the present. The outreach program
mission statement must be compatible with the insti-
• What is its mission?
tution’s mission statement. The process should be part
• What major category of clients or patients will it serve fact-finding, part brainstorming, and part evaluation
next year? In 15 years? of the present situation.
• What will be the program’s major geographic area next 2. Goal development. Based on the information from the
year? In the future? industry, situational, and SWOT analyses, strategic
• What are the upcoming trends in delivery of outreach goals need to be developed. Goals reflect the results
and hospital services? that the outreach program seeks to achieve and are the
means for achieving the mission. Goals translate the
• What major services should we pursue?
mission into concrete terms. To be effective, the goals
• At what point would changes in funding or demogra- established need to be prioritized and stated in quanti-
phy affect these plans? tative terms so progress may be measured.
• What alternative services would have to be introduced 3. Strategy formulation. A strategy is a broad course of
to deal with the new situation? action designed to achieve a program’s goals and objec-
• What effect would these alternatives have on the origi- tives. Strategy formulation is a decision-making activity
nal purposes of the program? for choosing between alternative courses of action.
Strategies may include focusing on target markets, such
• Will a new mission statement have to be defined?
as physician offices or long-term care, or deciding what
Once a commitment to strategic planning has been the outreach program’s portfolio will include regarding
made, a strategic-planning team needs to be formed. The product, price, place, and promotion. A truly effective
team needs to be large enough to represent all outreach strategic plan should facilitate the day-to-day decision-
stakeholders but small enough for an exchange of ideas. making process so that decisions are not agonized over
Seven to 10 members is ideal. A common denominator but seem inevitable. In addition to defined strategies, a
should be their problem-solving ability and their knowl- broad timeline needs to be developed to provide a
edge of the market from their own unique perspectives. Sug- background for expectations.
gested stakeholders include representatives from Hospital 4. Control procedures. Missions, goals, and strategies are
Administration and Finance, Patient Access or Registration, not written in stone—or they shouldn’t be. Even the
Billing and Collection Services, Physician Services, Infor- most carefully designed plans require periodic review
mation Systems, Marketing and Public Relations, affiliated and revision if results deviate from objectives. The es-
hospital services such as Home Health and Hospice, and of tablishment of control procedures ensures that strate-
course, the laboratory, including Pathology. After complet- gic planning is a continuous process. The plan should
ing the strategic plan, this group could easily become the include a mechanism for evaluating new and ongoing
702 OUTSIDE MARKETING AND EXPANSION

services so that criteria for success are defined before 3. Depending on the size and scope of the planned out-
the services are initiated. The plan should include a reach program, additional administrative or manage-
process for scanning the environment to make sure rial personnel may be needed. Usually a client services
that the program’s strategies and even its mission are or operations coordinator is needed to supervise the
still desirable and feasible given changing day-to-day activities of the patient service center(s)
circumstances. and personnel, including functions such as order entry
and registration, telephone or call center operations, and
Business Plan interaction with the testing laboratory, usually the hos-
pital laboratory. A logistics coordinator may be needed
Although we have come a long way from just thinking
if the number of couriers warrants a supervisor unique
about starting an outreach program, we still have unan-
to the specimen pickup function. If the service area is
swered questions that must be addressed before we are
large enough to require more than one person to pro-
ready to implement the program. Based on the informa-
vide adequate client sales and account management, a
tion previously gathered, a plan is developed defining
sales representative may be needed to assist the direc-
organizational structure and relationships, compliance is-
tor. It is often advisable to consider hiring a financial
sues, fee schedule policies, and a cost-benefit analysis.
assistant to oversee billing and collections, both client
How will the outreach program be structured and orga-
and patient, if that function is done by the outreach
nized? The types of organizational structures are as numer-
program rather than the hospital billing office. Sam-
ous as the number of outreach programs. Each is unique to
ple job descriptions may be found in Appendixes 41.6
the needs of the particular program and market, but it is
to 41.9.
vital that all responsibilities be clearly described and as-
4. The front-line staff will have the most contact with
signed, keeping in mind that the program must be able to
patients and clients. It is through them that the con-
respond rapidly to changes in the marketplace, whether
stituents of the market see the outreach program, and
they are opportunities or threats. Many hospitals choose
they are the major determinants of what image is
to establish the outreach program as a separate business
formed. Again, depending on the services offered by
entity with its own provider ID and tax ID to facilitate this
the outreach program, phlebotomists, couriers, and
responsiveness to the market.
customer service associates may be needed. Hospital
The administrative structure of the outreach plan is,
registration, if necessary, may be performed by either
like the organizational relationship, structured to meet the
the registration department or Outreach, and the func-
unique needs of the market.
tion may be combined with the phlebotomy process.
1. An advisory group, composed of the same stakehold- Sample job descriptions are found in Appendixes 41.10
ers involved in the strategic plan plus the outreach di- and 41.11.
rector, is often beneficial. In addition to providing
An operational assessment of the facility’s and labora-
feedback about the performance of the outreach pro-
tory’s abilities to provide the types and level of services
gram and related activities within the service area
defined by the prior market and client needs analyses is
from their unique perspectives, these individuals may
absolutely necessary to determine the cost and operational
assist with coordinating services with other hospital
impact that the outreach program will have. Service re-
departments, monitoring quality assurance and
quirements may include
customer/client satisfaction, and providing ideas for
future program development based on client needs. • Efficient and extremely reliable courier service for
Having support and buy-in from these key stakehold- both routine and STAT testing—either facility owned
ers and utilizing them as champions for Outreach is or contracted
valuable to ensuring broad support for the program • Effective methods and appropriate equipment to reg-
from the entire facility. ister patients, order tests, obtain samples, and process
2. The outreach program is driven primarily by the ex- specimens
ternal customer base, not the internal operations of the
• Reporting capabilities and turnaround times that meet
hospital or laboratory. It is vital that the outreach direc-
most customer needs
tor not only be capable of operationally managing the
program but also be able to communicate clearly the • Knowledgeable, personable, and customer-focused
needs of the clients to Administration. In addition, client service representatives for problem-solving
the director must have prior experience in marketing activities
and sales to be able to successfully balance the needs of • An adequate telephone system to handle the volume of
the clients with the needs of the outreach operations. different types of calls, from courier dispatch to infor-
A sample job description is included in Appendix 41.5. mation about location or hours of operation
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 703

• Information systems that support efficient patient reg- outpatient (emergency room, ambulatory surgery, observa-
istration and test ordering; remote order entry; inter- tion/day treatment) hospital laboratory. Usually, this means
face with client electronic medical records; flexibility that only the supply and reagent costs of performing the test
of reporting types and format (fax, electronic and hard are used as the foundation of the fee schedule. The testing
copy); call center management including telephone call personnel costs do not need to be included for most out-
workflow and customer service software; and timely reach programs, especially in their initial development, be-
program evaluation based on volume, process, and fi- cause they would be part of the hospital laboratory budget
nancial indicators including utilization data whether or not the outreach program was in existence. The
• Requisition forms, preferably customized by client or direct costs, such as salaries, gasoline, postage, and space
specialty, that address not only testing designation but rental, and indirect costs, such as education, marketing, and
also test status (STAT or routine), compliance needs, bill- equipment service agreements, of operating the outreach
ing assignment/information, and special requirements program need to be added to the test cost. Other indirect
facility costs, such as the cost of billing a test, may also be
• Regular and consistent client contact done in person
added. Markups to the base cost for both patient and cli-
• Sales literature explaining the outreach program’s ser- ent charges need to developed, but be cautious of using any-
vices, technical updates, and periodic newsletters thing lower than a 10% markup. Client pricing is based on
• A complete and up-to-date directory of services that various volume categories, which can be as sophisticated as
includes not only phlebotomy instructions but also a per-test determination (i.e., volume discounts calculated
specimen-handling requirements by number of individual tests) to a total client volume (i.e.,
• Customer- and client-focused educational programs volume discounts calculated by total number of tests). It is
imperative that these client volume categories be strictly
• Market-driven, competitive fee schedules that may
adhered to so that no hint of inducement is present. Based
include multilevel client fees based on discounting
on the volume figures from the normal forecast done previ-
levels due to client volume (please note that a method-
ously, a projection of both the costs and billed revenue needs
ology of establishing charges based on test cost must
to be done to assure the profitability of the program.
be in place to meet the most basic of OIG compliance
Processes related to compliance issues must be ad-
requirements)
dressed. CLIA and CMS certification is required. Certifi-
• Flexible billing options including the typical third- cation by CAP, TJC, or your state may also be necessary. A
party requirements, monthly client billing, managed documented, usable compliance plan must be constructed.
care billing for capitated contracts, and individual pa- Service agreements that outline what outreach services are
tient billing provided to which clients along with billing requirements
and that have been approved by your facility’s legal depart-
Each outreach program is uniquely structured to meet ment need to be drafted for later signature as clients are
the needs of its targeted market. Not only does this apply to developed. A mechanism to obtain descriptive diagno-
administrative and organizational structure, it also applies sis or ICD-9/10 (International Classification of Diseases,
to physical arrangement and processes. If there is a need Ninth/Tenth Revisions) codes prior to registration and
for patients to have their blood drawn at a site convenient billing needs to be formulated. Medicare patients must
to them rather than solely at the hospital, service centers have ABNs and MSPs documented prior to testing. The
need to be developed. If there is a need for patients to have advent of NCDs in addition to LMRPs makes Medicare pa-
their blood drawn within a physician’s practice, a phle- tient registration and billing even more complex.
botomist needs to be placed at that service site, given the Customer service processes need to be developed. Usu-
presence of adequate volume to justify the associated costs. ally, customer service issues relate to client education, cli-
The physical layout for specimen processing and testing ent problem solving, quality assurance monitors, quality
also needs to be examined from the outreach viewpoint improvements, and problem reporting.
rather than solely from a hospital inpatient perspective. Marketing and sales functions also need to be examined
A clear, explainable process for the establishment and and assigned. Broadly, marketing functions include
periodic review of the outreach fee schedule and associated
Current Procedural Terminology (CPT) codes must be de- • Developing, conducting, and evaluating market research
veloped. Without the presence of a competitive fee schedule
• Identifying market changes and developing strategies
and correct CPT and diagnosis (International Classification
to address them
of Diseases [ICD]) coding, your outreach program has little
chance for success. The charges developed should be based • Developing and implementing professional-standard
on marginal, per-test costs, leveraging off the already pres- sales literature
ent capacity and overhead of the inpatient and traditional • Promoting the outreach program within the service area
704 OUTSIDE MARKETING AND EXPANSION

Many hospital laboratories will find marketing and sales ship to meet the client’s expectations after the sale. Sup-
to be a new function that may necessitate additional staff, porting the client is built upon four principles: support
especially for sales, which requires one-on-one contact with the buying decision, manage the implementation, deal
the clients, sometimes at very short notice—a requirement with dissatisfaction, and enhance the relationship.
not easily addressed by most laboratory managers due to
The role of service or value-added elements has never
their already full schedules. Sales personnel are usually com-
been more important than now. Outreach programs can
pensated with a competitive base rate of pay plus clearly de-
no longer rely solely on price or test menu to differentiate
fined incentives for accomplishing defined sales objectives.
themselves from their competitors. Most competing pro-
In addition, the question of mileage reimbursement versus a
grams offer comparable test menus at similar prices and
car provided by the institution needs to be decided.
can quickly copy any innovations. Today, the emphasis is
on service, and service is the key business strategy for gain-
Sales Plan ing and keeping the competitive advantage. In addition,
Development of a sales plan is also valuable. The sales more and more clients are not only demanding higher lev-
plan not only needs to outline sales expectations such as els of service but are also placing more and more emphasis
targeted markets and/or clients, test volume, number of on value added as the basis for deciding where to look for
patient contacts/registrations, and billed revenue for the services and what to retain. In short, this growing empha-
coming year, but it also needs to discuss the sales approach sis on service means that organizations will rely even more
adopted by the outreach program. The concept that sales- heavily on the quality of their service, the success of their
people have about their role influences their attitude about service providers, and the effectiveness of their sales force.
themselves and the client, the behavior demonstrated in Prior to making a sales call, a list of prospects and in-
the approach to the client, and whether or not the client formation about the prospects must be developed. Several
believes that the salespeople and/or the program they rep- questions can be used to facilitate this part of the process:
resent are there to serve that client. If salespeople believe
• Who are your prospects?
that their role is simply to make the sale, they will focus
on their own needs rather than the client’s needs. On the • Where do you get names of prospects?
other hand, if the sales force personnel see themselves as • How do you qualify prospects?
resources and problem solvers, they will focus on the client • How do we know their potential?
and will seek ways to meet the client’s needs.
• How does the salesperson get the information to qual-
There are four basic steps in the sales approach to de-
ify the prospects?
veloping a client.
• What is the ideal prospect?
1. Relating. The first step is to build a solid relationship.
• How long does it take to turn a prospect into a client?
The salesperson must address the client’s initial lack of
trust and act to reduce the feeling of anxiety or dis- • Who are the top five prospects?
comfort that we all have about other people when we • What will it take to sell them?
first meet them. One way to accomplish this is to com-
Once the prospects are identified, the “Probability
municate why we are meeting, how the meeting will
Pipeline” scale for rating prospects is used in true territory
proceed, and how we both will benefit from this
management. The theory behind the Probability Pipeline
meeting.
is that the salesperson needs to have enough prospects
2. Discovery. During the discovery phase, the salesperson
evenly distributed through the Pipeline to flow through to
needs to uncover all the factors that would affect the
consistently completed sales. Prospects may be graded as
client’s decision to utilize the outreach services. The
seen in Table 41.2.
outcome should summarize the gap between what the
Each prospective client is unique in not only the ser-
client has and what the client wants. The process is
vices they desire but also the rate at which the account may
similar to peeling an onion. It is accomplished one
layer at a time until the core is uncovered.
3. Advocating. The purpose of the advocating phase is to Table 41.2 “Probability Pipeline” scale for rating prospects
assist a client in understanding how the outreach ser-
Prospect status Score
vices will aid them in meeting their business needs.
The sales force will also develop a stronger, more last- All prospects—any possible client 0.00
ing relationship with the client because they are able to Initial contact—left literature, gathered information, set 0.25
appointment
demonstrate appreciation and understanding of the
Secondary contact—met with prospect, prospect interested 0.50
client’s problems and needs.
Client setup—ready to send business 0.75
4. Supporting. From the first three steps, the salesperson
Specimen received from client 1.00
gains the information and develops the client relation-
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 705

be developed. Some prospects will become clients during Most hospitals already have a budget template that may be
the first meeting, while other prospects will require nu- used. Usually, additional expense categories that may not
merous meetings before they reach client status; however, be routinely addressed by the facility need to be developed,
some overall guidelines may be used in developing the including
“typical” visit scenarios (see Appendix 41.12).
• Marketing/sales/public relations
Promotional literature is a necessity. It can range from
basic (business cards and handbook) to sophisticated. A • Rent
list of promotional literature that may be considered for • Gasoline
the salesperson is in Appendix 41.13. • Utilities (electricity, natural gas, water)
Client profiles need to be built on each prospect by the
• Postage
salesperson and updated upon each contact. The profile
will be the complete story about each prospect/client, from • Printing
initial contact to current or most recent sales interaction. • Billing service
The minimum information that should be contained in • Courier service
the client profile can be seen in Table 41.3.
One of the tenets of being a successful salesperson is In concert with the budget, a cost-benefit analysis must
the development of strong relationships with existing cli- be done to look at the expected profitability of the pro-
ents. Communication and personal service are the keys. To gram, including the test volume and revenue (sales), both
facilitate the use of these keys, a schedule for client visits billed and collected, that are needed for the program to
by the salesperson can be developed based on the volume break even.
generated by each client and the preference of the client as
to visit frequency. The visits may be as often as once a week
or as infrequently as once a quarter. Commitment from All Relevant Parties
Communication about sales activity is vital to the co- Feasibility Report
ordination of an integrated outreach program. It is the
Final commitment for the outreach program from the
responsibility of the salesperson to keep Outreach man-
facility’s administration must be solicited before imple-
agement and personnel informed of prospect develop-
mentation can occur. A feasibility report or business plan,
ment and client relations. In addition, it is the salesperson
based on the data previously acquired, provides valuable
who will play a major role in coordinating the outreach
information for the administration to use in making the
program’s sales efforts with other areas of the hospital or
“go or no-go” decision. The report is a summary of
health system that are also involved in sales. A monthly
report of sales activity may facilitate the communication. • The market assessment
The report should also include prospects rated according • The service assessment
to the Probability Pipeline, visit summaries for current cli-
• The cost-benefit analysis
ents, and any issues of importance.
Now it is time to put together a budget based on the • Operational options
people, processes, equipment, facilities, and fee schedule. • Recommendations

Philosophical Understanding
Table 41.3 Minimum information that should
be contained in the client profile Commitment from Administration must not only pro-
vide financial and human resource support; it must also
Provider/physician name
provide a philosophical understanding of the plans and
Mailing address
goals of the outreach program and how it fits into the
Voice phone number
overall organizational plan—both short term and long
Specialty
term. Administration must also have a clear understand-
Hospital affiliations
ing of the nature of the volatile outpatient outreach in-
Original service agreement date
dustry and how it differs from the traditional inpatient
Method of reporting results
hospital industry.
Organization name
Pickup/delivery address Service and Financial Support
Fax number, e-mail address
The commitment should include service support for is-
Contact person and position
sues related to information services, marketing, sales, and
Beginning service date
billing and collections. Once this commitment is firmly in
Last service agreement renewal date
place, you are ready to plan the implementation of the out-
Check-off of equipment issued
reach program.
706 OUTSIDE MARKETING AND EXPANSION

Implementing the Outreach Program organizations have personnel within their engineering or
facilities management departments who may be helpful.
After all the time and effort spent on researching the pos-
Example questions to be considered include
sibility, probability, and need for your outreach program,
planning the implementation of the program seems fast and • Will service centers or draw sites be necessary? If so,
effortless in comparison. It’s the juggling of the different areas where will they be located? What size and space ar-
of implementation and bringing them to fruition in a coor- rangement is necessary?
dinated manner by the required deadline that is challenging: • Will any construction or renovation be necessary if
people, processes, facilities, equipment, and supplies. No one existing structures are to be used?
part of the implementation plan is more important than any
• What requirements are there related to utilities, patient
other. Each is integral to a successful startup. Use of some
access, patient parking, and courier parking?
sort of project management software is strongly suggested
due to the complexity of the coordination needed. • What look and feel does the program want to project
to its clients and their patients? To the community as a
People whole?
In his book Good to Great, Jim Collins asserts that it’s not • What resources are available to announce new service
just the people, but the right people, who are important to center openings?
the success of a company (1). He compares the company
to a bus. If the right people are on the bus and in the right Equipment
seats, then no matter where the bus goes, that group of peo- The equipment required, like the facilities required, will be
ple can adapt to the challenges facing the bus. Job descrip- unique to each outreach program. You must decide what is
tions are the seat designs. The more defined and complete best for your program when evaluating equipment for infor-
they are, the more likely you are to find the right person to mation services, technical areas (such as phlebotomy chairs
fill the seat. Recruitment must follow job description devel- or telephone systems), testing (waived or more-complex
opment, not precede it. The training program needs to ad- testing), and specimen transport (contracted courier ser-
equately prepare the people for the seats they will be taking, vices or your own). The materials management department
and it is an investment in the future operational efficiency may be able to assist in those selections, and many organiza-
of the outreach program. Too many programs find out the tions have already-existing contracts with multiple vendors.
hard way that although skimping on training puts person- Remember that installation and training, as well as repair,
nel in their seats faster, it also leads to increased error rates, need to be considered in your equipment selections.
patient and client dissatisfaction, and employee dissatisfac-
tion. Competency testing, mandated by several accrediting Supplies
organizations, is the documented story of training success. Now that you’ve hired the people, outlined the processes,
designed the facilities, and selected the equipment, it’s time
Processes to address the subject of supplies. Most outreach programs
The processes that the outreach program will use need to not only stock supplies for their own use, but they also pro-
be consciously thought out, documented, and commu- vide supplies at no charge for clients to use in collecting
nicated, not only to the outreach people hired but also to specimens that will later be sent to the outreach program.
interfacing departments such as the laboratory staff, Infor- The OIG of CMS has issued a fraud abuse alert specifically
mation Systems, and Billing—possibly through a series of on this subject. Supplies may be provided free of charge to
presentations outlining the program development. Work- clients only if those supplies are used exclusively for the col-
flow, including physical layout and process steps, needs to lection of specimens sent to the outreach program provid-
be developed and documented. The use of flow charts can ing those supplies. Supplies such as tourniquets or syringes
point out redundant steps and bottleneck points. Policies that may be used for procedures other than venipuncture
and procedures must be written and shared with all involved may not be provided free because they are not exclusive to
staff. Planning and implementation of a process improve- venipunctures. By what method will the clients order their
ment program, including quality control, quality indicators, supplies? How and when will the supplies be delivered? How
quality improvement, and compliance audits, is necessary in will you monitor client supply usage versus tests ordered?
addition to processes related to patient and client services.

Facilities Outreach Indicators

Depending on the goals and size of the outreach program, Once the outreach program is up and running, it is time to
some attention will need to be paid to the facilities in monitor its performance by developing outreach indica-
which the people and processes will be functioning. Many tors. To date, there is very little in the literature concerning
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 707

Table 41.4 Outreach indicators viewpoint. Once this is accomplished, the successful labo-
Service ratory outreach program is an asset not only for the parent
Customer satisfaction surveys facility but also for the community it serves.
Clinical errors
Missed specimen pickup • Each laboratory outreach program is unique, depend-
Days in Accounts Receivable ing on the particular needs of its customers, the mar-
Telephone call center summary ket environment, and the resources available. The
Finance structure and processes of the outreach program must
Cost/revenue per patient contact
be designed to meet those needs for sustained success.
Test volume
Test cost-to-charge ratio • Meeting customer needs is not rocket science. It is
Net collections primarily listening to customers, whether patients or
Tests per requisition providers, and addressing their concerns—sometimes
Efficiency successfully, sometimes not—but always demonstrat-
Patient wait times
Test-to-report turnaround time
ing your desire to provide them with solutions.
Staff hours per patient contact • The successful outreach program contains a strong yet
Ratio of patients to specimens flexible infrastructure constructed to meet the ever-
Sales changing market needs through efficient processes,
Pipeline report
placement of the right people in the right jobs, and
Current client visit summary
Client billing report strong commitment to the program from hospital
administration.
• Outreach is a business and, as such, needs to be oper-
ated as a business, with strong fiscal policies, effective
outreach benchmarking, so it is difficult for one program operational procedures, accurate market research, and
to assess how it compares to other programs. However, enlightened strategic management.
month-to-month progress can be tracked in terms of ser-
vice, finance, efficiency, and sales (Table 41.4).
Summary
Growing the Outreach Program We have seen how a laboratory outreach program can
Congratulations! Your data gathering and planning have broaden and enhance the scope of services for a hospital
paid off. The outreach program is set up and is a success! laboratory and meet the outpatient needs of the com-
Now what happens? The market, competition, and opera- munity. However, development of such a program must
tional processes must continually be monitored to uncover be thoroughly researched prior to implementation. Im-
changes and make improvements. portant aspects of planning include an initial interest and
position assessment, an in-depth market and operational
Market Assessment assessment, construction of a detailed business plan,
Ideally, market assessments (Appendix 41.4) should be done timely implementation, an ongoing program assessment,
on a yearly basis, although in some markets, biannually is and an ongoing commitment to the program’s growth and
sufficient. Anyone who has contact with the customers— improvement.
sales personnel, couriers, service representatives—needs Commitment from all relevant parties must be ongoing,
to provide continuous feedback about the concerns of including both service and financial support. Implementa-
patients and providers (Appendix 41.14). The key to the tion requires comprehensive understanding and coopera-
prolonged success and growth of an outreach program is tion on the part of all involved, with a solid commitment to
responding quickly to market changes and the needs of growth potential; component parts will include people, pro-
the customers. cesses, facilities, equipment, supplies, and financial support.

Client Needs
If the expectation is to have a successful outreach pro- KEY POINTS
gram, then development and implementation cannot be ■ Several issues must be considered prior to obtaining
haphazard or casual. It is not something that a laboratory administrative commitment for the implementation of
does in its “spare time.” It is a business and must be oper- an outreach program. These include determination of
ated as such. It must be customer focused. Services and administrative interest, a thorough exploration of the
processes must be structured from the customer’s point of market potential, and development of potential strate-
view rather than from a traditional, inpatient laboratory gic, business, and sales plans.
708 OUTSIDE MARKETING AND EXPANSION

■ Once a detailed feasibility report has been reviewed and • The Age Discrimination in Employment Act (ADEA) of
discussed by all relevant parties, then there should be 1967, as amended, prohibiting employment discrimination
some confirmation of philosophical understanding and against individuals 40 years of age and older
service and financial support required from all parties, • The Equal Pay Act (EPA) of 1963, prohibiting discrimina-
particularly the administration. tion on the basis of gender in compensation for substantially
similar work under similar conditions
■ Detailed plans related to people, processes, facilities,
equipment, and supplies must be developed and re- • Title I and Title V of the Americans with Disabilities Act
viewed by all relevant personnel and then implemented (ADA) of 1990, prohibiting employment discrimination on
the basis of disability in the private sector and state and local
using a detailed timeline.
governments
■ Indicators for ongoing assessment of the program’s • Section 501 and 505 of the Rehabilitation Act of 1973, as
progress must be reviewed on a continuous basis, with amended, prohibiting employment discrimination against
anticipated growth being a critical component of the federal employees with disabilities
overall plan. • The Civil Rights Act of 1991, providing monetary damages
in cases of intentional discrimination and clarifying provi-
sions regarding disparate impact actions
GLOSSARY
Food and Drug Administration (FDA) The FDA Moderniza-
Advanced Beneficiary Notice (ABN) Advises Medicare benefi- tion Act of 1997 (PL 105-115) affirmed the FDA’s public health
ciaries, before items or services are actually furnished, when protection role and defined the agency’s mission:
Medicare is likely to deny payment for them.
• To promote the public health by promptly and efficiently
Business plan A financial and operational analysis of the feasi- reviewing clinical research and taking appropriate action on
bility of the implementation of a program. the marketing of regulated products in a timely manner
Centers for Medicare and Medicaid Services (CMS) A federal • With respect to such products, to protect the public health
agency within the U.S. Department of Health and Human Ser- by ensuring that foods are safe, wholesome, sanitary, and
vices that runs the Medicare program, Medicaid program, and properly labeled; human and veterinary drugs are safe and
State Children’s Health Insurance Program (SCHIP). effective; there is reasonable assurance of the safety and ef-
fectiveness of devices intended for human use; cosmetics are
Clinical Laboratory Improvement Amendments (CLIA) CMS
safe and properly labeled; and public health and safety are
regulates all laboratory testing (except research) performed on
protected from electronic product radiation
humans in the United States through the Clinical Laboratory Im-
provement Amendments (CLIA). In total, CLIA covers approxi- • To participate through appropriate processes with represen-
mately 175,000 laboratory entities. The Division of Laboratory tatives of other countries to reduce the burden of regulation,
Services, within the Survey and Certification Group, under the harmonize regulatory requirements, and achieve appropriate
Center for Medicaid and State Operations has the responsibility reciprocal arrangements
for implementing the CLIA program. The objective of the CLIA • As determined to be appropriate by the Secretary, to carry
program is to ensure quality laboratory testing. Although all out paragraphs above in consultation with experts in science,
clinical laboratories must be properly certified to receive Medi- medicine, and public health and in cooperation with con-
care or Medicaid payments, CLIA has no direct Medicare or sumers, users, manufacturers, importers, packers, distribu-
Medicaid program responsibilities. tors, and retailers of regulated products
College of American Pathologists (CAP) The principal orga- International Classification of Diseases, Ninth Revision (Clini-
nization of board-certified pathologists, CAP serves and rep- cal Modifications) (ICD-9-CM) Based on the official version of
resents the interests of patients, pathologists, and the public by the World Health Organization’s ICD-9, which classifies morbid-
fostering excellence in the practice of pathology and labora- ity and mortality information for statistical purposes, for the in-
tory medicine. dexing of hospital records by disease and operations, and for data
storage and retrieval.
Cost-benefit analysis A projection of the resources needed to
implement a program and the benefits derived from such a Image analysis An evaluation of the customer’s beliefs, ideas,
program. and impressions of an organization.
Equal Employment Opportunity Commission (EEOC) The Industry analysis An evaluation of an industry that recognizes
EEOC was established by Title VII of the Civil Rights Act of 1964 unique factors within the industry that have an impact on the sur-
and began operating on July 2, 1965. The EEOC enforces the fol- vival of an organization. It includes barriers to entry, determinants
lowing federal statutes: of supplier power, determinants of substitution threat, determi-
nants of buyer power, price sensitivity, and rivalry determinants.
• Title VII of the Civil Rights Act of 1964, as amended, pro-
hibiting employment discrimination on the basis of race, The Joint Commission (TJC) Evaluates and accredits nearly
color, religion, sex, or national origin 17,000 healthcare organizations and programs in the United
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 709

States. An independent, not-for-profit organization, TJC is the or technologies on a national basis. Medicare contractors are re-
nation’s predominant standards-setting and accrediting body in quired to follow NCDs. If an NCD does not specifically exclude
healthcare. TJC’s evaluation and accreditation services are pro- an indication or circumstance, or if the item or service is not
vided for the following types of organizations: mentioned at all in an NCD or in a Medicare manual, it is up to
the Medicare contractor to make the coverage decision (see Lo-
• General, psychiatric, children’s, and rehabilitation hospitals cal Medical Review Policies).
• Critical-access hospitals
Occupational Safety and Health Administration (OSHA) The
• Healthcare networks, including managed care plans, mission of OSHA is to save lives, prevent injuries, and protect
preferred-provider organizations, integrated delivery net- the health of America’s workers. OSHA and its state partners
works, and managed behavioral healthcare organizations have approximately 2,100 inspectors, plus complaint discrimina-
• Home care organizations, including those that provide home tion investigators, engineers, physicians, educators, standards
health services, personal care and support services, home in- writers, and other technical and support personnel spread over
fusion and other pharmacy services, durable medical equip- more than 200 offices throughout the country. This staff estab-
ment services, and hospice services lishes protective standards, enforces those standards, and reaches
• Nursing homes and other long-term-care facilities, including out to employers and employees through technical assistance
subacute-care programs, dementia special-care programs, and consultation programs.
and long-term-care pharmacies Office of Inspector General (OIG) The mission of the OIG, as
• Assisted-living facilities that provide or coordinate personal mandated by Public Law 95-452 (as amended), is to protect the
services, 24-hour supervision and assistance (scheduled and integrity of Department of Health and Human Services pro-
unscheduled), activities, and health-related services grams, as well as the health and welfare of the beneficiaries of
• Behavioral healthcare organizations, including those that those programs. The OIG has a responsibility to report to both
provide mental health and addiction services, and services the Secretary and the Congress program and management prob-
to persons with developmental disabilities of various ages, in lems and recommendations to correct them. The OIG’s duties
various organized service settings are carried out through a nationwide network of audits, investi-
gations, inspections, and other mission-related functions per-
• Ambulatory-care providers, for example, outpatient surgery
formed by OIG components.
facilities, rehabilitation centers, infusion centers, and group
practices, as well as office-based surgery Operational assessment An evaluation of the organization’s
• Clinical laboratories, including independent or freestanding ability to provide the types and levels of services defined by prior
laboratories, blood transfusion and donor centers, and public market needs.
health laboratories Situational analysis Description of the major features in a local
environment that affect an organization; includes a background,
Local Medical Review Policies (LMRPs) Local policies outline
current activity, normal forecast, market description, and prod-
how contractors will review claims to ensure that they meet
uct review.
Medicare coverage requirements. The CMS requires that LMRPs
be consistent with national guidance (although they can be more Stark legislation The Stark legislation prohibits a physician
detailed or specific), developed with scientific evidence and clin- from referring his or her patients to entities with which the phy-
ical practice, and developed through certain specified federal sician or his or her family members have a financial relationship,
guidelines. Contractor medical directors develop these policies. such as an ownership interest or compensation arrangement.
The initial Stark legislation, known as Stark I, was enacted in
Marketing Determining the customer’s needs and wants. 1989 and applies only to clinical laboratory services. In 1993,
Market segment A portion of the market where consumers Congress enacted the Stark II legislation, which extends the pro-
share a group of common characteristics. hibition to referrals made by a physician to an entity for the fur-
nishing of “certain designated health care services” if the
Medicare Secondary Payor (MSP) A Medicare provider, physician or his or her family member has a financial relation-
whether a physician, nonphysician practitioner, laboratory, or ship with that entity.
other supplier (durable medical equipment supplier, etc.), is re-
quired to indicate if there is other insurance that may be primary Strategic plan Documentation of a process that develops the or-
to Medicare when submitting a Medicare claim for payment. ganization’s future goals and programs within the context of a
The purpose of this questionnaire is to determine whether changing industrial and market environment. The plan includes
Medicare or the other insurance has primary responsibility for a mission statement, goal development, strategy formulation,
meeting the beneficiary’s healthcare costs. The goal of these and control procedures.
MSP information-gathering activities is to identify MSP situa- SWOT analysis An evaluation of internal (strengths, weaknesses)
tions rapidly, thus ensuring correct primary and secondary pay- and external (opportunities, threats) factors that may influence
ments by the responsible parties. the successful implementation of a program.
National Coverage Decision (NCD) An NCD sets forth whether Target market The market segment(s) chosen by the organiza-
Medicare will cover, or not cover, specific services, procedures, tion to focus on.
710 OUTSIDE MARKETING AND EXPANSION

REFERENCES 5. Magrath, A. J. 1992. The 6 Imperatives of Marketing. American

1. Collins, J. 2011. Good to Great: Why Some Companies Make the Management Association, New York, NY.
Leap and Others Don’t. HarperCollins Publishers Inc., New York, NY. 6. Nigon, D. L. 1997. Within Your Reach: a Manual for Developing
2. The Disney Institute. 2003. Be Our Guest. Disney Editions, New a Laboratory Outreach Program. Clinical Laboratory Management
York, NY. Association, Inc., Wayne, PA.
3. Harris, C. 1988. An image analysis of hospitals in the Austin, 7. Romig, D. A. 2002. Side by Side Leadership. John Wiley & Sons,
Texas, area market. Master’s thesis. Southwest Texas State University, Somerset, NJ.
San Marcos, TX. 8. Rubin, B. (ed.). 1991. The Department of Pathology Outreach
4. Kotler, P. (ed.). 2008. Strategic Marketing for Nonprofit Organi- Program Proposal. The University of Iowa Department of Pathology,
zations, 7th ed. Prentice-Hall, Inc., Englewood Cliffs, NJ. Iowa City, IA.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 711

APPENDIX 41.1 Resource List for Obtaining Provider Demographics

Directory of Board Certified Medical Specialists Doctor Finder

American Board of Medical Specialties Available from the American Medical Association (312-464-5000
Available at most public libraries or http://www.abms.org/ (last or https://extapps.ama-assn.org/doctorfinder/recaptcha.jsp [last
accessed September 25, 2012) accessed September 25, 2012])
Guide to Hospitals State and County QuickFacts
American Hospital Association Available from the U.S. Census Bureau (301-763-4636 or http://
Available from the American Hospital Association (312-422-3000 quickfacts.census.gov/qfd/index.html [last accessed September 25,
or http://aharc.library.net/ [last accessed September 25, 2012]) 2012])

APPENDIX 41.2 Model Letter for Interview

Dear Dr. :

Medical Center is assessing how well we meet the needs

of the medical staff for medical laboratory services. As part of this research, we would like
to get the opinion of physicians and their staff concerning the provision of inpatient, outpa-
tient, and office-based testing services and how we can improve those services.
We value your opinion as a user about how these services can be provided. Would it be
possible to set up a brief interview of no more than 30 minutes with you to discuss laboratory
issues? This interview, of course, can be conducted at any time and place that is convenient
for you.
I will be contacting you by phone within the next few days to set up an appointment. We
appreciate your setting aside time for this brief interview. I look forward to talking with you.

Sincerely,

APPENDIX 41.3 Model Cover Letter for Market Survey

Dear :

We are very interested in what you think about outreach laboratory services for healthcare
providers in the ___________________ (geographic location) medical community. Every
two years we survey current and potential clients, so we can tailor our services to meet
your specific needs. Your assistance in completing the enclosed brief questionnaire will be
a great help.
In appreciation for returning the completed survey, we will send you a coupon for
_________________________ (pizza, cookies, donuts, etc.) per physician. For those respondents
outside the _________________________ (city) metropolitan area, we will be glad to bring the
_________________________ (pizza, cookies, donuts, etc.) to you. Please return your completed
questionnaire by _________________________ (due date about two weeks from mailing). You
may fax it to _________________________ (fax number) or mail the survey by using the fold-
over option.

Thank you for your assistance!

(Note: Careful consideration must be given to the annual Stark legislated monetary limit
allowed per client.)
712 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.4 Model Questionnaire for Interview, Focus Group, or Market Survey

Practice Name Specialty

Number of Physicians Location

How many laboratory tests are ordered in your practice during a typical month?

Estimated percentage of total testing performed as in-house laboratory testing?

Primary reference laboratory:

Name

Location

Principal reason used

If (your outreach program) is not your main reference lab, have you used it for any testing?

Yes _______ No _______

Would you be willing to consider a proposal to use (your laboratory) as your primary reference lab?

Yes _______ No _______

What would it need to do to be considered?

Please rate, on a scale of 1 to 5, the importance of the lab services listed below.
5 = critically important, 4 = very important, 3 = moderately important, 2 = somewhat important, 1 = not important

Also, please rate the quality of your current laboratory and of (if you have used our service).
5 = outstanding, 4 = good, 3 = satisfactory, 2 = poor, 1 = extremely poor

Services Importance Quality of current reference laboratory Quality of __________________________

Overall satisfaction 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Price 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Courier 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Specimen-collection site 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Telephone communication 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Quality of testing 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Availability of Path/tech consult 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Request forms 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Test ordering manual 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Reports 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Billing accuracy 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Participates in Ins/Mng care 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Computer interface 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 713

APPENDIX 41.5 Sample Job Description—Administrative Director

• Reports to: Vice President, Clinical Services

• Jobs reporting to this position: Direct reports include Operations Coordinator, Logis-
tics Coordinator, Financial Coordinator, and Sales Associate. Indirect reports include the
Pathologist and Hospital Lab Director. Works very closely with Main Lab, Business Office,
Registration, and Medical Records. Responsible for approximately _____________ full-time
employees and an annual budget of approximately _________________ dollars in revenues.

JOB SUMMARY
Responsible for the overall operations, marketing, and sales activities of lab outreach services.
Ensures that personnel adhere to all regulatory standards and guidelines. Works to ensure that
the identified needs of the medical staff, patients, families, coworkers, and other customers are
addressed in a timely and efficient manner within the medical center. Acts as a liaison between
clients and the hospital lab. Accountable for forecasting, developing, and meeting strategic mar-
keting plans and sales goals.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or a related field. Additional degree/educa-
tion or prior experience in marketing, sales, or a related field is desirable.
• Licensure: Required as Medical Technologist.
• Experience: Five years’ experience in all phases of the clinical laboratory. Two years’ expe-
rience in management. Successful track record in marketing and sales.
• Skills: Works well with people, organizes and plans well, good management skills. Strong
interpersonal communication skills, written and oral. Problem-solving skills and good
judgment skills. Demonstrates ability to organize, orient, train, and develop staff. Dem-
onstrates the ability to plan and improve the processes and functions of Lab Outreach.
Able to interact effectively with physicians, patients, families, vendors, hospital staff, and
other customers. Must be able to deal fairly and consistently with personnel under his or
her supervision. Communicates effectively with administration, medical staff, department
directors, subordinates, hospital staff, and other providers. Deals with patients in a caring,
professional manner and ensures the same approach by his or her staff. Additional skills in
salesmanship and customer service.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Frequently exposed to moving objects and loud noise. Occasionally exposed to dust and
radiation. Rarely exposed to blood, body tissue/fluids, hazardous materials, chemicals, high
elevations, slippery surfaces, special clothing and safety equipment, vibration, wetness, po-
tential electrical hazards, and potential burns.
• Able to see objects closely, as in reading, frequently. Able to see objects far away occasion-
ally. Able to discriminate color occasionally. Able to perceive depth frequently. Able to hear
normal sounds with some background noise, as in answering a telephone, frequently. Able to
distinguish sounds, as in voice patterns, continuously. Able to give and receive verbal com-
munications continuously. Able to read and write written communications continuously.
• Able to lift objects weighing 10 pounds or less occasionally, 35 pounds or less rarely. The
highest point of any lift, the shoulder; the lowest point of any lift, the floor. Able to carry
objects weighing less than 10 pounds occasionally.
• Able to sit 45 minutes consecutively, 5 hours per shift. Able to stand in place 10 minutes con-
secutively, per hour per shift. Able to remain on feet 10 minutes consecutively, 2 hours per shift.
• Able to perform motor skills frequently such as grasping, finger manipulation, feeling per-
ception. Occasionally climbing stairs, reaching out, fast response. Rarely bending, twisting,
turning, kneeling, squatting, reaching in, wrist turning/torquing, pinching. Able to perform
tasks that require hand-eye coordination continuously, arm-hand coordination and upper
body coordination frequently, lower body coordination occasionally.
(continued)
714 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at

a time or less occasionally, 60 minutes at a time or more rarely. Able to concentrate on fine
detail with constant interruptions occasionally. Able to concentrate on moderate detail with
constant interruptions frequently. Able to understand and relate to the theories behind sev-
eral related concepts continuously. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor
duties or other responsibilities that may be assigned from time to time. Requirements are repre-
sentative of minimum levels of knowledge, skills, and/or abilities. To perform this job success-
fully, the incumbent will possess the abilities or aptitudes to perform each duty proficiently. All
requirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Maintain a staffing level that is consistent with quality patient care.

Standards
• Provide for the recruitment of prospective employees following the guidelines of the De-
partment of Human Resources.
• Ensure that quality staff is hired according to licensure regulations and the Human Re-
sources policies.
• Ensure that coaching, counseling, and disciplinary action are performed according to the
Human Resources policies.
• Monitor staff scheduling to ensure proper coverage of the work area.
• Provide pertinent and complete orientation for new employees.
• Coordinate the preparation and/or update of criteria-based performance evaluations annually.
• Ensure the annual performance evaluation of personnel according to the established time
frame.
• Delegate authority and work assignments, taking into consideration priority of work and
skills of the employees.
• Monitor the system maintenance of timekeeping mechanism to ensure correct payroll.

Responsibility
Direct, supervise, and administer the outreach program to maintain high-quality technical
work and good working conditions.

Standards
• Maintain compatible working relationships with personnel of other departments, as dem-
onstrated by the cooperation between departments in providing patient services.
• Participate in department and medical center committees and task forces relative to areas of
practice or interest.
• Develop and meet goals and objectives that support department and medical center goals.
• Demonstrate ability to use all channels of communication to address inter- and intradepart-
mental concerns, solve problems, and address conflicts.
• Inform the Vice President of any unusual concerns, situations, or conditions relative to staff,
patients, families, or physicians.
• Assess new products and equipment to promote and ensure quality patient care and meet
medical center cost-effectiveness goals.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 715

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Demonstrate effective time management by completing commitments within negotiated

time frames.
• Coordinate and collaborate with the Safety Committee and Infection Control Committee to
ensure a safe workplace.
• Participate in 80% of the department head meetings.
• Conduct a departmental meeting monthly as indicated by meeting minutes.
• Communicate changes in philosophy, goals, procedures, plans, and activities of the depart-
ment and of the medical center to the staff in a timely manner, as demonstrated by the de-
partment implementing changes.

Responsibility
Plan and implement marketing and sales activities for Outreach.

Standards
• Conduct market research and analyze data gathered to serve as basis for annual strategic
marketing and sales plans.
• Develop annual marketing and sales plans in accordance with medical center strategic
initiatives.
• Act as a resource on legislative, regulatory, reimbursement, and competitive issues for all
medical center laboratory services and outreach client providers.
• Develop promotional activities and printed materials including brochures, fee schedules,
and directory of services.
• Develop pricing strategy based on cost per test in accordance with medical center guide-
lines to maximize collections and ensure competitive position in the market.
• Act as a sales representative for outreach activities to client providers, visiting providers on
a regular basis as dictated by testing volume.

Responsibility
Responsible for the annual management plan and budget, which includes a 5-year capital equip-
ment and system management plan.

Standards
• Actively participate in the medical center retreat and preparatory meetings for the annual
plan.
• Establish goals and objectives for the department that are compatible with and enhance
those of the medical center.
• Demonstrate effective time management by completing the annual plan within the allotted
time frame.
• Review and take action when necessary on the monthly budget reports.
• Inform the Vice President of staffing needs or changes.
• Review workload recording to monitor staffing needs or trends.

Responsibility
Responsible for quality assurance activities for the department.

Standards
• Prepare an annual report of the quality assurance activities for the Quality Assurance
Committee.
• Ensure that variance reports and client problem reports involving the department are re-
searched, including documentation of root cause and improvement actions.
(continued)
716 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Formulate plans for improvement of outreach services that will enhance quality patient care.
• Keep abreast with CAP and state inspection requirements.
• Ensure the maintenance of files of CAP and state inspection materials, communicating with
these agencies as necessary.

Responsibility
Responsible for inventory control of supplies for the department and clients.

Standards
• Ensure that an adequate amount of acceptable supplies are on hand for collection of
specimens.
• Oversee the monitoring of inventory so that no excessive outdating or overstocking occurs.
• Minimize the need for emergency supply orders.
• Direct cost-comparison analysis to ensure cost-effective purchasing.
• Request bids for supplies on like products to ensure cost-effective purchasing.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend at least 60% of the monthly laboratory in-service education classes.
• Review current literature in field, as demonstrated by contributing this knowledge in the
workplace.
• Attend at least two area workshops annually in field of need or interest.
• Attend 75% of the management development seminars offered by the medical center.
• Establish and meet annual individual goals that are developed to assist the department and
medical center in achieving their established goals or projects.
• Collaborate with supervisor to suggest and/or contribute to the monthly laboratory in-
service programs.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 717

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Patient Service Specialists, Technical Support Specialists

JOB SUMMARY
Provides supervision for all applicable outreach staff, which involves assigning workload, sched-
uling, staffing, training, resolution of problems, etc. Liaison to providers, Hospital Laboratory,
and patients. Oversees overall daily functions of patient service centers and sites.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or an equivalent combination of an associ-
ate’s degree and experience.
• Licensure: Required as Medical Technologist.
• Experience: Five years of clinical laboratory experience to include rotation through the
technical areas. Supervisory experience and a demonstrated performance in sales and out-
reach program support a plus.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
718 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.

Responsibility
Supervise the staff to ensure the quality of work and workflow is maintained.

Standards
• Assign staff workload, taking into consideration the priority of work, training, and skill of
the employee.
• Assess the number and level of personnel necessary to provide quality services; adjust staff-
ing and assignments as workload and workflow dictate.
• Constantly monitor the job performance of each employee and evaluate annually.
• Complete all employee annual performance appraisals in the required time frame.
• Initiate counseling and/or disciplinary action according to medical center policy.
• Recruit, interview, and hire employees according to the guidelines and policies of the medi-
cal center and department.
• Keep staff informed of events and changes that affect their jobs. Conduct regular staff
meetings.
• Effectively serve as a consultant and role model for outreach personnel.
• Inspire confidence from others by performing and communicating in a highly professional
manner at all times.
• Ensure that all staff members have a clear definition of their work responsibilities and man-
agement’s expectations for performance.
• Always provide recognition for good work performance; give positive feedback both
verbally and in writing to staff members when their performance and/or special efforts are
deserving.
• Regularly encourage staff participation and communication in decision making. Dem-
onstrate the ability to be creative and maintain an environment conducive to optimal ef-
ficiency where employees are encouraged, reinforced, and supported for their desire to
contribute fully.

Responsibility
Manage the workflow of the department to ensure the completion of work assignments.

Standards
• Ensure that policies and procedures manuals are current and are reviewed regularly by all
staff members; review and revise policies and procedures manuals on an annual basis or as
necessary.
• Assess new products and equipment that may benefit the quality of care of the patient.
• Demonstrate professional communication skills and grammar. Maintain calm and profes-
sional manner.
• Demonstrate ability to adapt to increasing or changing department workload and duties.
• Effectively coordinate and oversee the ordering of supplies. Regularly monitor the use
of supplies and identify potential savings through the appropriate use or substitution of
products.
• Demonstrate knowledge and ability as “resource” contact for Outreach. Provide accurate
and complete testing and lab information. Find answers for customers in a reasonable
amount of time.
• Promptly investigate complaints concerning outreach services and take appropriate actions.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 719

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

• Maintain awareness of “potential” accounts; promptly communicate with Sales Associates,

Director, and hospital laboratory staff.

Responsibility
Perform specific responsibilities assigned to the Coordinator.

Standards
• Demonstrate effectiveness in maintaining a well-organized operation to ensure efficiency
and accuracy of the work and information flow; monitor procedures and implement correc-
tive actions as required.
• Ensure that equipment is maintained and that staff is familiar with the operation and main-
tenance of the equipment.
• As part of the management team, participate in maintaining a current, complete directory
of services on an annual basis or as needed.
• Provide a general orientation of new employees. Oversee rotation and review performance
in each section. New employees are assigned a mentor and provided with a verbal and writ-
ten overview of Outreach and Hospital Laboratory operations.
• Be responsible for the coordination of orientation and training of all students.
• Assist the department Director in administering a program of continuous quality
improvement—accept assignments to monitor, measure, and report on outreach processes
for continuous quality improvement.
• Assist the Director in coordinating laboratory efforts in preparation for announced inspec-
tions from regulatory agencies. When assigned, provide a plan for ensuring compliance;
inform Director and Pathologists of problem areas or concerns.
• Evaluate contract cleaning services routinely and provide comments on performance.
• Maintain an adequate inventory of supplies.
• Ensure balance of petty cash box.
• Administer and monitor continuing education program for employees.
• Maintain payroll and time and attendance.
• Assist the Director in the preparation and monitoring of the budget.
• Proactively monitor the computer system for problems that may culminate in downtime.
• Provide input that develops procedures and policies for downtime procedures and make
recommendations during downtime for course of action.
• Perform Laboratory Information Systems troubleshooting consistent with the extent of
training or recognize need for and request assistance when necessary.
• Provide support for personal computers.

Responsibility
Manage and regulate all departmental safety activities.

Standards
• Serve as departmental Safety and Chemical Hygiene Officer.
• Lead the departmental Safety Committee.
• Coach employees to ensure and maintain compliance of the department with all regulatory
requirements for safety; note problems and concerns with compliance regarding safety is-
sues. Inform the Director, make recommendations, and offer solutions.
• Administer departmental safety orientation to new employees and/or students. Employees
and students are tested on knowledge. Inform Director of any problems or concerns.
(continued)
720 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

Responsibility
When designated, perform the duties of the Director in his or her absence.

Standards
• Accept the additional responsibility of acting department Director; demonstrate good judg-
ment and decision-making skills when confronted with problems, inquiries, or concerns—
act as department Director when designated. Address problems and concerns and answer
inquiries. Report to the department Director upon return.
• Attend meetings when requested by the department Director. Effectively listen and take
detailed notes. Inform the department Director of the content and outcome.
• Accept special assignments as requested by the department Director. Keep the Director in-
formed of progress and concerns. Usually complete assignments by the deadline. Provide a
report on the project.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year and keep records.
• Equitably schedule supervised employees for continuing education.
• Review code and safety manuals annually.
• Attend the departmental management team meetings.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department through litera-
ture, workshops, seminars, courses, and conferences with other laboratory professionals.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 721

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Couriers (directly), Patient Service Specialists (indirectly)

JOB SUMMARY
Supervises and directs logistics and reverse-logistics activities and personnel related to the pro-
curement, receipt, shipment, and disposition of materials in a variety of areas such as inventory
management, warehousing, supply and delivery-chain management, material control, transpor-
tation activities, and technical documentation in a highly demanding and time-sensitive work
environment. Coordinates safe, reliable transport of specimens and scheduling and provision of
venipuncture services to nursing homes and homebound patients throughout the service area.
Establishes and maintains customer relations as it concerns service levels to ensure the ability
to resolve day-to-day operating issues with customers. Work is performed independently under
the general guidance and direction of the department Director.

JOB QUALIFICATIONS
• Education: Bachelor’s degree in Logistics, Transportation or Supply-Chain Management,
or related field or an equivalent combination of an associate’s degree and experience.
• Licensure: Valid state driver’s license.
• Experience: Two years of experience in performing related work.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information within a multitasking environment. Must work well with people and
possess excellent communication and customer service skills, demonstrating an ability to
deal with internal and external customers in a courteous, professional manner at all times.
Knows and applies a broad knowledge of principles, practices, and procedures of inventory
control and material management in providing logistics support services. Must have clear
understanding of or demonstrated success in route planning and be able to use analysis
skills to develop and manage transportation projects in anticipation of the organization’s
needs. Experience may be necessary for those aspects of transportation efforts that relate to
the handling of hazardous materials for domestic shipments. Must have computer experi-
ence with Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Occasionally exposed to loud noise. Rarely exposed to radiation, potential electrical haz-
ards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
(continued)
722 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator (continued)

detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.

Responsibility
Direct personnel to achieve prescribed business objectives while contributing to the promotion
of personal employee career goals.

Standards
• Coordinate and schedule Couriers for specimen pickup and supply and report delivery, and
coordinate and schedule Patient Service Specialists for nursing home and/or home draw pro-
grams to include contingency plans supporting the consistent and timely provision of services.
• Meet with Couriers and Patient Service Specialists to discuss base transportation issues,
monitor performance, and review current practice versus potential improvements.
• Monitor and follow up on logs of Couriers and Patient Service Specialists daily to ensure
compliance with operational standard.
• Monitor compliance with pickup, delivery, and sample-collection requirements to provide
event history to client if needed.
• Ensure that personnel comply with both internal and external issues relating to company
policy and procedures.
• Develop, coordinate, and provide training for Couriers and Patient Service Specialists for
Courier duties, resulting in capable, well-rounded employees.
• Develop and maintain a productive staff of Couriers by hiring, training, and professional
development; matching the skill and background of Couriers to the work required; apply-
ing sound communication and motivational techniques to supervise and counsel staff and
implementing in timely fashion the performance evaluation system for recommending pro-
motions, wage increases, and terminations.

Responsibility
Provide flawless execution of transportation services to clients.

Standards
• Hold monthly review meetings or contacts with customers and provide summary to Direc-
tor by the fifth working day of the month.
• Interface daily with Operations to resolve any problems associated with scheduling and
dispatching.
• Notify customers of status and delivery changes.
• Improve outbound and inbound customer service while minimizing transportation expense.
• Effectively communicate with associates, customers, and personnel in person or via com-
puter or phone to accomplish necessary objectives.

Responsibility
Provide input to Director related to areas of responsibility on day-to-day operations, process
improvement, and budget.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 723

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator (continued)

Standards
• General responsibilities include total cost reduction, total supply-chain process improve-
ment, OSHA and Department of Transportation hazardous materials compliance, and ISO
and FDA compliance.
• Develop and operate an effective transportation information reporting system; ensure the
accurate and timely preparation, processing, distribution, and retention of all necessary
reports and records regarding transportation operations; and develop additional and/or
enhanced reports to support customers’ changing needs.
• Direct development of transportation studies for analyzing trends and make recommenda-
tions to improve the flow of information, costs, and delivery-cycle times.
• Evaluate customer service efficiency and design new processes to reduce nonconformances
such as supply returns, missed specimen pickups, and customer complaints.
• Responsible for forecasting workload volume, determining client distribution alignments,
determining the number of Couriers and routes needed, identifying the timing and location
of new routes, and analyzing the impacts of changing distribution strategies.
• Recommend programs to the Director that improve the transportation function, including
reduction of cost and delivery/pickup time.

Responsibility
Responsible for inventory control system and supply ordering and delivery system.

Standards
• Provide leadership for the effective use of the inventory control system for all inventory
movement, supply, and distribution.
• Develop system to monitor and reconcile, by client, test volume and supply usage to meet
requirements issued by the CMS OIG.
• Direct all warehousing activities, including receiving, stocking, order picking, replenish-
ment, intradepartmental shipping, cycle count, manpower planning, budget development,
capital equipment management, and customer service level goals.
• Direct and supervise the scheduling of supply shipments to ensure the most economical
utilization of Couriers based on service parameters.
• Develop service contingencies to support the entire supply chain.
• Monitor and develop financial controls related to scheduling personnel, pickup of speci-
mens, and filling and delivering supply orders.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year (one regional), and
record attendance—no more than two instances of failing to record continuing education or
missing no more than two of the required continuing education meetings.
• Review code and safety manuals annually.
• Attend the departmental management team meetings—no more than two instances of
missing the meetings or failure to communicate with the Director or failure to follow up
and obtain distributed information.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department and core labs
as needed to provide a basis for sales promotions through literature, workshops, seminars,
courses, and conferences with other laboratory professionals.
724 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: With expansion-information system and/or financial techs

JOB SUMMARY
Responsible for compliance and reimbursement auditing, information gathering and analysis,
and revenue structure for third-party and client reimbursement. Duties include development
and implementation of coding, billing, and reimbursement audits based on federal, state, and
regulatory guidelines; review, analysis, and updating of fee schedules to ensure reimbursement
commensurate with cost and revenue goals of Outreach; and analysis of accuracy and integrity
of information between Laboratory and Hospital Information Systems, to include coordination
of development of Hospital and Laboratory Information Systems to meet Outreach’s operational
and information needs. Job requires considerable knowledge of general accounting practices,
healthcare coding, regulatory guidelines, and information systems. Work is performed indepen-
dently under the general guidance and direction of the department Director.

JOB QUALIFICATIONS
• Education: Bachelor’s degree in Business Administration, Accounting, or related field.
• Licensure: Registered Health Information Administrator, Certified Coding Specialist, or
Certified Professional Coder preferred; Certified Patient Accounts Representative required
within two years.
• Experience: Three to five years of experience in performing related work, to include rev-
enue management, information systems, and regulatory compliance guidance. Job requires
considerable knowledge of general accounting practices, healthcare coding, regulatory
guidelines, and information systems.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience with Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Occasionally exposed to loud noise. Rarely exposed to radiation, potential electrical haz-
ards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 725

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator (continued)

detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor
duties or responsibilities that may be assigned from time to time. Requirements are representa-
tive of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully,
the incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Coordinate financial and reimbursement monitoring, auditing, and reporting.

Standards
• Review and process requests for clinical and financial records and information accurately
and promptly.
• Working with Outreach management and facility directors, analyze record requests and
complete corrective-action plans based on internal and external audit results. Monitor ac-
tion plans and provide summaries as needed.
• Perform random audits on a statistically significant number of accounts for compliance,
from physician order through third-party reimbursement documents. Prepare and present
audit analyses to department and facility directors as requested.
• Working with Outreach management and ancillary department management, prepare and
revise corrective-action plans. Review all plans annually and report as requested.
• Prepare, analyze, and provide information to internal auditors as requested.
• Coordinate specialized financial audits as needed within specified time frames.

Responsibility
Coordinate financial compliance auditing to ensure Outreach’s adherence to federal, state, and
regulatory guidelines.

Standards
• Working with Outreach management, train personnel on compliance needs for outreach
functions.
• Audit and analyze daily, monthly, and annual reporting, including billing to third-party
payors, to determine and document compliance with federal, state, and regulatory
guidelines.
• Develop policies and procedures as well as corrective-action plans as necessary.
• Perform and report on topic audits as required by Director and Corporate Compliance. Act
as Outreach’s representative in absence of Director for financial or compliance issues.
• Educate outreach clients regarding regulatory issues and monitor adherence to said regula-
tions. Prepare and present corrective-action plans as necessary.

Responsibility
Responsible for information management, including all Outreach databases, Hospital Informa-
tion Systems patient clinical and financial data, and Laboratory Information Systems system
coordination, including patient and customer satisfaction, medical necessity, clinical documen-
tation and compliance, service, and other performance.
(continued)
726 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator (continued)

Standards
• Oversee existing database maintenance to ensure data integrity and compliance with perti-
nent regulatory guidelines.
• Develop new databases as needed.
• Develop database training policies and procedures for new users.
• Prepare and provide data analysis and reports for Outreach databases as requested. Coor-
dinate, review, and develop reports from Hospital and Laboratory Information Systems to
meet informational needs of Outreach and facility directors.

Responsibility
Maintain revenue structures for third-party payment, including government programs, com-
mercial insurers, and client payors.

Standards
• In collaboration with the Director, determine and document pricing schema for all payors
and services.
• Maintain and update fee schedule and related databases and spreadsheets.
• Prepare and provide notification to customers and clients of changes in pricing at least 30
days prior to effective date.

Responsibility
Coordinate the billing and reimbursement cycle for all payors.

Standards
• Prepare and distribute client statements by the 15th of each month.
• Research and analyze client accounts as requested by clients within 48 hours. Correct rev-
enue assessed as necessary.
• Submit client billing summary to Director by 10th working day of each month.
• Review and reconcile client problem accounts daily. Respond to clients and patients con-
cerning billing and reimbursement concerns within 24 hours.
• Review and correct account referrals and reporting exceptions on a daily basis.
• Work with Outreach management to educate clients concerning appropriate billing prac-
tices and industry guidelines.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Establish and meet annual individual goals.
• Review code and safety manuals annually. Attend mandatory medical center in-services.
• Maintain confidentiality of information and ensure disposal of confidential records and
documents according to established practices.
• Demonstrate effective time management by completing commitments within negotiated
time frames.
• Attend the departmental management team meetings.
• Attend the required number of continuing education meetings to maintain professional
licensure requirements.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 727

APPENDIX 41.9 Sample Job Description—Sales Associate

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Future Sales Representatives

JOB SUMMARY
Assists in the marketing and sales activities of Regional Lab Outreach. This person is the pri-
mary liaison between Outreach and customers and is responsible for maintaining superior cli-
ent relationships.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or an equivalent combination of an associ-
ate’s degree and experience.
• Licensure: Required as Medical Technologist.
• Experience: Two years of clinical laboratory experience to include rotation through the
technical areas. Supervisory experience and a demonstrated performance in sales and out-
reach program support a plus.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
728 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the
incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Assist Director in managing all marketing functions to achieve the objectives for sales, growth,
profits, and visibility while ensuring a consistent marketing message and positioning on a re-
gional basis consistent with the corporate direction.

Standards
• Develop and implement appropriate strategies by
• Selecting, segmenting, and targeting markets.
• Promoting services to those markets.
• Providing enhancements for program development.
• Determine a pricing approach and set prices for services.
• Maintain and update fee schedule database.
• Develop and update pricing policy.
• Provide adequate notification to customers of changes in pricing.
• Set goals in terms of market share and growth.
• Develop plans in relation to advertising, sales promotion, public relations, and sales man-
agement by working with Corporate Development to
• Ensure the proper amount and type of coverage to raise awareness, win reviews, and
ensure consistent corporate and product branding and image.
• Create the media schedule, negotiate the rates, and prepare and execute the deliverables.
• Follow up and measure the advertising campaign using print and electronic methods.
• Ensure a consistent look and feel among collateral materials such as sell sheets, product
slicks, folders, trade show graphics, and all other program imaging.
• Undertake marketing audits to monitor outreach performance and to ensure that services
are demand driven.
• Create research methodologies.
• Design data collection tools.
• Analyze data collected, prepare reports, and present findings.
• Prepare annual marketing plan.
• Identify and analyze the organization’s strengths and weaknesses and the marketing
environment’s opportunities and threats.
• Develop and review (annually) client contracts.
• Prepare sales collateral, brochures, data sheets, and new-client packets.

Responsibility
Assist Director in coordinating sales activity of Regional Lab Outreach.

Standards
• Develop specific sales plans and strategies to meet laboratory goals.
• Find new ways to bring in business and prospects.
• Develop lead-generation strategies including cold calling, direct-mail campaigns, trade
shows, and list acquisition.
• Identify top 20 prospective clients.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 729

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

• Arrange a program of visits to all major potential clients by contacting people and making
appointments.
• Maintain established clients.
• Provide best follow-up possible consistent with need and arranged schedule.
• Qualify leads and contacts.
• Determine the best methods of promoting services.
• Develop and update knowledge of competitors’ services.
• Maintain competitor profiles.
• Speak with other medical center sales and marketing personnel.
• Assess customers’ needs and explain services to them, which may involve providing techni-
cal descriptions as well as describing the purposes for which they may be used.
• Quote and negotiate prices within established guidelines, prepare contracts for signature by
clients, and maintain client database.
• Updates must be completed within two working days of client acquisition.
• Database data must be clean and accessible for direct mailings and client-list
preparation.
• Ensure consistent, accurate data coding.
• Report to Director on sales and acquisition of new clients by the 10th working day of each
month.
• Generate a report of tests ordered by account in table and graphic format within 10
working days of the beginning of the month.
• Generate a report of sales activity and new-account acquisition within two working days
of the beginning of the month.
• Generate a report summarizing client visits, concerns, and problem resolution within 10
working days of the beginning of the month.
• Coordinate development and production of promotional and informational material.
• Prepare and carry out formal presentations and/or proposals of services customized to
fit individual client needs by using overheads, slides, videos, and other training aids.
• Represent program at promotional markets such as trade association meetings.
• Organize services displays.

Responsibility
Perform specific responsibilities assigned.

Standards
• Promptly investigate complaints concerning outreach services and take appropriate actions.
• Ensure that customers are familiar with the operation and maintenance of the equipment
received from Outreach.
• As part of the administrative team, participate in maintaining a current, complete directory
of services on an annual basis or as needed.
• Be responsible for the coordination of orientation and training of all customers who
are provided with a verbal and written overview of laboratory operations, policies, and
procedures.
• Monitor customer orders to see that they are filled promptly and accurately. Maintain
timely communication with Logistics Coordinator to ensure no more than one documented
instance of supplies not being delivered or failure to communicate problems to the Director
or Logistics Coordinator.
• Assist the Director in the preparation and monitoring of the budget.
(continued)
730 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

• Monitor budget to determine if the department is operating within allocated funds.

• Provide input that develops procedures and policies for downtime procedures as they relate
to customer sites; make recommendations during downtime for course of action. Allow no
instances of downtime procedures not being current or failure to communicate an appro-
priate course of action or failure to update customers on status of repair/rebuild.
• Provide support for customers’ personal computers—allow no more than one instance of
not responding to a request for assistance on a computer or not notifying Information Sys-
tems of the need for assistance.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year, and record
attendance—no more than two instances of failing to record continuing education or
missing no more than two of the required continuing education meetings.
• Review code and safety manuals annually.
• Attend the departmental management team meetings.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department and hospital
laboratory as needed to provide a basis for sales promotions through literature, workshops,
seminars, courses, and conferences with other laboratory professionals.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 731

APPENDIX 41.10 Sample Job Description—Courier

• Reports to: Logistics Coordinator

• Jobs reporting to this position: None

JOB SUMMARY
Picks up and/or delivers specimens and supplies for the laboratory and represents medical cen-
ter laboratory in a positive, professional manner as contact to the customers. Uses courier logs
and appropriate compliance with safety standards. Helps with specimen processing by labeling
and packing specimens/requisitions for transport to the core lab. Uses Laboratory Information
Systems (LIS) in processing and tracking down specimens.

JOB QUALIFICATIONS
• Education: High school diploma or equivalent.
• Licensure: Valid state driver’s license.
• Experience: Good driving record, dealing with public.
• Skills: Good people skills, customer service skills, and organizational skills. Neat, orderly,
and conservative appearance.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading, frequently. Able to discriminate color and perceive
depth continuously. Able to hear normal sounds with some background noise, as in an-
swering a telephone, continuously. Able to hear job-specific sounds and to give and receive
verbal communications continuously. Able to read and write written communications
continuously.
• Able to lift objects weighing 10 pounds or less continuously, 20 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less continuously, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 45 minutes consecutively. Able to stand in place 5 minutes consecutively.
• Able to remain on feet 1 hour consecutively. Able to sustain awkward position 5 minutes
consecutively. Able to perform motor skills continuously such as bending, twisting, turning,
reaching out, reaching up, wrist turning/torquing, grasping, pinching, finger manipula-
tion, feeling perception. Frequently fast response. Occasionally kneeling, squatting. Able to
perform tasks that require arm-hand, hand-eye, and upper and lower body coordination
continuously.
• Needs to attend to task/function 10 minutes at a time or less continuously, 20 minutes at a
time or less occasionally, 45 minutes at a time or less occasionally, 60 minutes at a time or
less rarely. Able to concentrate on fine detail with some interruptions continuously. Able to
understand and relate to the concepts behind specific ideas continuously. Able to understand
and relate to the theories behind several related concepts frequently. Able to remember mul-
tiple tasks/assignments given to self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to re-
flect the major responsibilities and duties of the job, but is not intended to describe minor duties
or other responsibilities that may be assigned from time to time. Requirements are representative
of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.
(continued)
732 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.10 Sample Job Description—Courier (continued)

Responsibility
Complete courier pickup and delivery.

Standards
• Complete pickup and delivery of specimens, reports, and/or supplies according to accepted
procedure, including timeliness and problem resolution resulting from specimen mislabel-
ing or transport delay. Maintain patient confidentiality when delivering reports to clients.
Deliver reports according to defined time schedule.
• Notify supervisor of any concerns or conflicts in completing courier duties according to
schedule as documented by supervisor.
• Immediately respond to and complete STAT services in a timely manner.
• Modify and adjust courier runs in accordance with priority and direction received from the
supervisor as evidenced by correct follow-through.
• Identify and communicate to the supervisor any questions pertaining to run instructions
prior to start of run.
• Represent Outreach in a positive, courteous, professional manner regarding “appearance,”
“attitude,” and “communication skills.”

Responsibility
Assist with processing, inventory, maintenance, and courier logs.

Standards
• Assist in inventorying and restocking of supplies. Date all supplies when stocking shelves.
Rotate stock, keeping most recently received supplies behind older supplies. Notify Logis-
tics Coordinator when supplies reach critically low limits.
• Deliver requests for supplies within 24 hours. Notify clients when supplies are
back-ordered.
• Accurately maintain and record all patient names, specimens, times, and special instruc-
tions in courier log.
• Receive specimens into LIS, matching patient name with form, complete information, and
computer labels.
• Correctly generate order labels from LIS, matching patient name on the forms, complete
information, and patient name on the tube(s).
• Correctly label specimens according to the Outreach secondary labeling of specimen policy,
matching patient name and information on the patient order label(s) and the patient speci-
men tube(s).
• Perform duties of appropriate specimen preparation for transport.
• Deliver specimen and labels to appropriate laboratory department, communicating, as nec-
essary, any appropriate information.
• Consistently and in a timely manner, perform maintenance procedures on the client cen-
trifuges, including timer check, tachometer check, and evaluation of centrifuge physical
condition.
• Communicate routinely with Biomedical Engineering regarding centrifuge maintenance
and record keeping.

Responsibility
Obey Outreach and other laws and regulations when operating the courier vehicle.

Standards
• Obey all traffic laws and regulations, as evidenced by lack of citations.
• Allow no one other than an appropriately assigned Outreach employee to operate vehicle.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 733

APPENDIX 41.10 Sample Job Description—Courier (continued)

• Check tires, water, oil levels, and gas prior to each shift and before operating vehicle, as ob-
served by supervisor.
• Fill with gas if tank is less than half full.
• Fill with oil if more than 1 quart low.
• Keep tires properly inflated.
• Keep vehicle clean and wash vehicle when needed to maintain professional appearance.
• To ensure security and confidentiality, keep vehicle doors locked when not in vehicle.

Responsibility
Actively contribute to the efficient operation of Laboratory Outreach.

Standards
• Page Couriers in an accurate and timely manner according to accepted procedures. Consis-
tently and accurately document required information on the courier call log.
• Promote the image of Laboratory Outreach by adhering to the medical center policy and
departmental guidelines and dress code.
• Participate in computer downtime recovery team, being available when assigned and assist-
ing with specimen labeling and dissemination of work.
• Accept, in a positive manner, delegation of new responsibilities and changes in
responsibilities.
• Clarify directions or communications that are unclear.
• Maintain patient privacy at all times according to established procedures.
• Maintain confidentiality of departmental information according to established procedures.

Responsibility
Demonstrate commitment to departmental growth and competence.

Standards
• Willingly perform other duties as assigned according to procedure.
• Attend laboratory in-service education classes when scheduled.
• Attend departmental meetings and/or read and sign corresponding minutes.
• Remain current in field, as demonstrated by proactively contributing this knowledge in the
workplace, generally sharing ideas, information, and knowledge of the field.
• Contribute to improving the department’s operations.
• Establish and meet annual individual goals that are developed to assist the department in
achieving its established goals or projects.
• Review code and safety and infection control manuals annually, as evidenced by knowledge
and signature in each manual’s log sheet.
• Participate in the TJC-required safety procedure review/update annually, as indicated by
in-service record.
• Participate in continuous improvement in the department.
734 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative

• Reports to: Operations Coordinator

• Jobs reporting to this position: None

JOB SUMMARY
As needed, performs a range of duties that include, but are not limited to, testing patient samples,
training new employees or current staff on new procedures, registering patients and specimens,
and collecting specimens. Represents Outreach in a positive, professional manner as contact to
the customers. Will also assist with insurance verification and management and with the coor-
dination of department operations. Provides patient care for patients of all ages. Uses Hospital
and Laboratory Information Systems as needed.

JOB QUALIFICATIONS
• Education: Associate’s degree in related medical field or high school diploma or equivalent
with related applicable experience.
• Licensure: Valid state driver’s license. Certified Phlebotomist or Certified Patient Accounts
Representative preferred.
• Experience: Good driving record. Successful completion of medical terminology course or
experience in clinical setting preferred.
• Skills: Excellent communication skills, both verbal and written; general office skills with
computer experience in Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONAL AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 735

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the
incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Provide technical support and front-desk services courteously and in an efficient manner.

Standards
• Answer phone using appropriate phone etiquette with no more than three rings.
• Monitor incoming and outgoing faxes, including confirmation of the receipt of test orders
by Outreach within one hour of receiving orders.
• Able to operate copier according to procedure.
• Acknowledge on-site patients in a timely manner according to customer service standards.
• Notify patients of expected wait times upon check-in and every 10 minutes during peak
times when longer than 15-minute wait times occur or if a special situation occurs, e.g.,
patient fainting.
• Communicate with waiting patients on reason for taking STAT patient out of order.
• Dispatch Courier within five minutes of notification and follow up according to procedure.
• Process patient payments according to procedure.
• Ensure that correct forms are completed by patient prior to registration, including the
proper signatures on consent form and copy of insurance card and proper identification.
• Notify all back-office areas of arriving patients to ensure that wait times are kept at a mini-
mum, including possible temporary reassignment of job duties.
• Verify status of patient or specimen requirements including STAT, fasting status, legal
name, etc.
• Perform accurate clinical quality assurance as required according to procedure and with
minimal backlog.
• Call patients and providers concerning re-collects according to procedure.
• Release results to appropriate personnel according to procedure.
• Problem-solve with clients, including issues involving supplies, reports, courier service, and
billing.
• Advocate for patients and clients in billing issues with Patient Billing Services, insurance
company, etc., including problem solving, issue resolution, and request to resubmit bill if
necessary.

Responsibility
Exhibit customer-focused behavior and provide excellent customer service.

Standards
• Follow the safety plan, recognizing that safety always comes first, and proactively take steps
to maintain a safe environment.
• Follow guidelines for customer service.
• Meet quality service standards.
• Continuously set the proper environment for customers so that their outreach experience is
as positive as possible.
• Follow dress code.
• Meet attendance (tardiness and absences) expectations.
(continued)
736 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

Responsibility
Provide clinical testing (testing waived).

Standards
• Perform accurate testing, including quality control and troubleshooting (if necessary), ac-
cording to established procedure and in a timely manner.
• Report test results according to established procedure and turnaround-time guidelines.
• Alert provider(s) of panic and/or critical values according to established procedure.
• Demonstrate knowledge of principles or concepts related to testing performed.

Responsibility
Collect specimens appropriately and as needed.

Standards
• Label specimens legibly, correctly, and immediately after collection.
• Identify patients correctly according to standards.
• Collect blood specimens using proper technique and in a timely manner by finger stick,
heel stick, or venipuncture according to standards, including special collection and/or han-
dling requirements and test priority.
• Label specimens legibly, correctly, and in a timely manner.
• Collect specimens correctly (clinical accuracy).
• Collect other specimens according to procedure, including monitoring and starting glucose
tolerances, random urinalysis, 24-hour urine assays, throat swabs, nasal saline washes, se-
men specimens, stool specimens, sputum specimens, and nasal swabs.
• Instruct patients effectively and correctly in the collection of 24-hour urine, stool, semen,
sputum, and clean-catch urine specimens.
• Meet standard for minimum number of re-collects within a 12-month period.
• Maintain patient confidentiality at all times.
• Reassure patients by explaining procedures.

Responsibility
Process specimens appropriately and as needed.

Standards
• Reconcile requisition and testing requirements with specimen received both at front desk
and in processing area.
• Order test correctly.
• Be able to cancel test or generate add-ons according to policy and procedure.
• Register patients and specimens correctly (registration accuracy).
• Process specimens in a timely manner, including readiness for transport.
• Process patients in a timely manner, including registration and collection.
• Demonstrate knowledge of billing process steps.
• Make corrections and insurance changes as needed.

Responsibility
Demonstrate knowledge of and participation in outreach process improvement.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 737

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

Standards
• Actively participate in at least one process improvement group, either at the departmental
or institutional level.
• Willingly adjust to change as needed.
• Demonstrate ability to be part of the solution rather than part of the problem.
• Demonstrate problem-solving abilities.
• Demonstrate knowledge of and adherence to quality control procedures related to testing.
• Utilize client problem reports, variance reports, and other quality improvement documents
as needed and according to established procedure.
• Review distributed professional journal articles to improve job knowledge.

Responsibility
Participate in training of other staff.

Standards
• Model appropriate behavior for new employees, providing advice and counseling.
• Participate in training new employees or existing staff in new procedures, using accepted
methodologies and techniques.
• Review and sign off on all manuals on a yearly basis.
• Evaluate trainees at end of module and recommend further training if needed to training
coordinator.
• Evaluate other staff during annual competency assessments and recommend further train-
ing if needed to Operations Coordinator.
• Attend at least __________ hours of continuing education outside of Outreach.
• Attend seminars as requested, to include a written summary of information and presenta-
tion to staff.
• Attend departmental meetings as assigned.

Responsibility
Perform routine maintenance and assist with supplies as required.

Standards
• Perform and document required preventative maintenance on equipment and facilities as
assigned.
• Order supplies as needed by clients and when inventory reaches reorder level.
• Receive supplies as needed according to procedure.
• Stock supplies in storage areas as needed according to procedure.
• Stock supplies in work area as needed according to procedure.
738 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.12 Guidelines for Client Visits

1. First contact. Set up appointment by phone or in person. 6. Sixth contact. By phone within five working days, discover
2. Second contact. In person, determine client needs and leave client issues—if any. Ask for the business and set up meet-
initial literature. Follow up within two working days with ing to discuss implementation plans.
thank-you note. 7. Seventh contact. In person within five working days, de-
3. Third contact. By phone or preferably in writing, confirm velop implementation plan with client.
information found during the discovery phase. Set up an 8. Eighth contact. Provide on-site assistance with implementa-
appointment to outline how the outreach program can help tion in person.
the client with their issues. 9. Ninth contact. Within five working days and in person, fol-
4. Fourth contact. In person, present customized services and low up on implementation and solicit client satisfaction.
fee schedule. 10. Tenth and subsequent contacts. Schedule periodic visits
5. Fifth contact. Within five working days and in writing, based upon size of account, client preference, and problem-
send thank-you for opportunity to make presentation. Also solving needs to develop strong relationship with client.
notify client of intent to contact client representative about
their decision.

APPENDIX 41.13 List of Promotional Literature

Three-fold brochure for patients Fact sheet for clients

Brief history of outreach program List of current clients
List of participating insurance plans Sample client service agreement
Sample fee schedule Sample client bill
Services handbook Rolodex punchout page
Business cards Sample requisition
Electronic presentation template Proposal cover
Literature folder Giveaways like pens, notepads, etc.*

*Careful consideration must be given to the annual Stark legislated monetary limit allowed per client.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 739

APPENDIX 41.14 Model Patient Satisfaction Survey

Please take a moment to tell us about your visit to our Patient Service Center. Your comments are important to us and will help us
look at ways to make your future visits more comfortable.

We thank you.

Name:
(optional)

How did you hear about Outreach?

______ Relative ______ Friend ______ Physician

______ Newspaper/magazine ______ Other

Was our staff caring, courteous, and responsive to your needs?

______Yes ______ No

Would you use Outreach in the future?

______ Yes ______ No

Did you consider your wait time reasonable?

______ Yes ______ No

Can we do anything to improve our services?

______ Yes ______ No

Comments and/or suggestions:

Introduction
42
Outreach Plan Approval Process
Outreach Implementation
Barriers to the Plan’s Approval • Consultants to the
Rescue • Bureaucratic Simplification Equals Success
Requirements: A Case Study
Requirements for Outreach
Implementation Frederick L. Kiechle, Jack Shaw, and Joseph E. Skrisson
Sales and Marketing Program • Courier Services:
Basics and Logistics
Beaumont Reference Laboratory:
1993 to 2004
Annual Growth and Its Implications • Projecting
OBJECTIVES
Future Volume • Send-Out Tests • Monitoring To describe the planning process to implement an outreach program
Financial Outcome
To identify potential barriers to acceptance of the implementation plan for an
Joint Venture Hospital Laboratories outreach program
History of JVHL • Benefits of BRL’s Affiliation
with JVHL To discuss the impact of a successful outreach program on various laboratory
Summary sections
KEY POINTS To discuss the advantages of computer-assisted routing for couriers
GLOSSARY To describe methods for monitoring the financial success of an outreach
REFERENCES program
To discuss the advantages of initiating a joint venture with affiliating
hospital-based outreach laboratories to obtain contracts with managed-care
organizations

The headlines never say good morning any more.

Every day the forecast reads: A chance of showers.
The Tigers keep losing the ballgames.
And Dick Tracy is reported missing.
His smashed wrist-radio recovered
From a burned-out crater of the moon.
The market has plunged again;
Clad dimes and quarters have replaced the real ones.
But you ring the doorbell with a Sunday sunrise
Rolled up casually in one pocket
And a handful of silver coins
With rare mint-marks in the other.
Naomi Long Madgett, “Good News” (33)

L
aboratory medicine has been increasingly commercialized since
1950 in three phases (52). Since 1985, the primary focus has been on
the business aspects of laboratory medicine. The method of healthcare
reimbursement has resulted in decreased revenue for the healthcare provider.
Laboratories have responded to this gradual conversion of fee-for-service to
managed-care contracts with a fixed fee per member per month by restructur-
ing laboratory operations with a focus on both cost containment and revenue
enhancement (26, 30). A variety of methods to improve hospital laboratory
efficiency have been developed during the continuous evolution to the next
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia iteration of healthcare delivery and reimbursement. Methods have been de-
©2014 ASM Press, Washington, DC signed to reduce cost per procedure, which include increased test volume
doi:10.1128/9781555817282.ch42 through hospital laboratory mergers, consolidation, and integration (17, 23,

740
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 741

30, 51, 53, 60) and/or development of an outreach pro- is full victory” (15). Carl von Clausewitz, the 19th century
gram that markets laboratory services to physician offices, Prussian general, wrote, “In the dynamics of execution,
nursing homes, and other hospitals (1, 4, 12, 13, 39, 40, 44, under the ever-changing conditions of the surroundings
50). Other methods have been designed to reduce the op- (whether terrain and weather in war, or the economy and
erating costs and increase the efficiency of the laboratory, consumer attitudes in business), the contestants must in-
including the introduction of robotics and/or automation creasingly evaluate the potential advantages to be gained
(20, 25, 30, 47, 49), point-of-care testing (27–30, 34, 46), from shifting their perceptions between any number of
and a different mix of skill levels in the workforce (14, 19, polar opposites” (59). Remember to retain the flexibility,
28, 30, 32). fluidity, and dynamic resilience required to “weigh the
Increasing laboratory test volume through the intro- situation, then move” (56).
duction of an outreach program has been described in a Active inertia and myths are two indolent, disruptive
variety of settings: a national reference laboratory (40), barriers to outreach program implementation. Myths rep-
smaller hospitals (4, 39), larger hospitals (12, 30, 40, 44, resent inaccurate information perceived as truth by major
50), and hospitals in Malaysia (44). The success of each administrative decision makers. “Fiction, like all operas: a
of these outreach programs depends on many factors, one lie, but a lie is sort of a myth, and a myth is sort of a truth”
of which is the ability of the outreach laboratory to obtain (18). Myths are plentiful and reflect the need for admin-
provider status with local and regional insurance carriers istrators to codify apparent truths, thus eliminating the
and managed-care organizations (1, 12, 50). The follow- need for their further evaluation or validation. There are
ing case study describes the implementation of a hospital- myths related to customers (57), laboratory management
based clinical laboratory outreach program, Beaumont (37), and tribal knowledge (26, 30). Does it mean, “There
Reference Laboratory (BRL), in Royal Oak, Michigan, and is no such thing as ‘truth?’ There’s only language. There’s
its affiliation with a regional hospital laboratory network no such thing as a ‘fact.’ There is no truth or falsehood,
to secure provider status with major local and regional in- just dominant processes by which reality is socially con-
surance carriers (6, 10). structed” (54). However, language is the primary method
of communication, and work-arounds may be required.
For example, myths within an organization are difficult
Outreach Plan Approval Process
for local storytellers to dispel. Three efforts to initiate an
Barriers to the Plan’s Approval outreach program at our institution failed because the data
An “intrapreneur,” or “a person within a corporation who were generated and presented by the Department of Clini-
takes direct responsibility for turning an idea into a prof- cal Pathology. Myths surrounded the legality of the proj-
itable finished product through assertive risk-taking and ect, the ability to bill, and the financial analysis. To reverse
innovation” (45), is required to initiate the change pro- this indocility, we spent money and hired a consultant who
cess needed to facilitate the implementation of an out- had a global view of many other hospitals, each of which
reach plan. The intrapreneur must convert the illusion of had successfully initiated an outreach program. Field trips
revenue consisting of clad coinage created by delusional, for numerous decision makers were organized to sites with
magical thinking to a coherent outreach program generat- successful outreach programs as a preemptive strike to dis-
ing genuine profits. Numerous potential barriers may be lodge the myths. After this drill, the consultant’s presenta-
encountered during this change process, including myths, tion confirmed the findings of the field trips, thus building
active inertia, lack of incentive, insufficient support from administrative enthusiasm for the project. In this situation,
financial analysis and other groups, a slow approval pro- the myths were removed from their pedestal by convincing
cess, conflicting visions, and others (26, 30). At times, the data contradicting their authenticity.
task of strategic alliance building (36) required to achieve A manifestation of active inertia, which is the insensate
the goal will seem overwhelming. Capitalize on serendipi- repetition of the same behavior pattern without regard to
tous circumstances and use variable-term opportunism the magnitude of the paradigm shift (55), can effectively
(36). For example, the mental visualization of the plan has destroy all of the efforts outlined above. In this environ-
no effect until the vision is verbalized. An intrapreneur ment, “Do anything, but do something” is the mantra, and
will use every opportunity to introduce the new plan dur- values become dogma. The combination of active inertia
ing any conversation or meeting where the problem the (55) and myths can send the most reasonable plan to a
new plan will resolve is discussed. Continuous, relentless committee for eternity. The decision makers on that com-
use of this strategy subtly convinces many individuals that mittee have descended to “the lowest level of awareness”
the new plan has been approved, and they will then ex- in a stepwise manner, as defined by Albert Einstein: “ ‘I
press dismay that there are apparent delays in their area of know.’ Then, ‘I don’t know,’ ‘I know I don’t know,’ ‘I don’t
responsibility in its implementation. Gandhi said, “Satis- know that I don’t know’ ” (11). Having achieved the low-
faction lies in the effort, not in the attainment. Full effort est level of awareness through the promulgation of myths
742 OUTSIDE MARKETING AND EXPANSION

and active inertia, the committee members will leave these frequently ordered in each sector. This plan was approved
meetings feeling as if “we, none of us, ever mean anything” by hospital administration with support from the chair-
(9). Remember that tough financial times make tough de- men of the Department of Clinical Pathology and the
cisions easier. A failure to achieve the margin (profit) goal Department of Anatomic Pathology. The two pathology
will initiate the change process faster in a hospital admin- departments operate independently of each other at Wil-
istration than any other consequence (30). liam Beaumont Hospital. BRL was defined as a for-profit
unrelated business enterprise within a nonprofit hospital.
Consultants to the Rescue Registered hospital outpatients were excluded from BRL
This is a case study, and certainly there are successful out- pricing. BRL clients were limited to those who drew their
reach efforts that have been initiated without the aid of patients’ blood or who had adequate volume to justify hav-
consultants. However, with the past history of three failed ing BRL provide a phlebotomist in their office.
attempts over five years to obtain administrative approval,
it was suggested that we needed to try a different approach. Bureaucratic Simplification Equals Success
In April 1991, we retained the services of a consulting firm In general, administration in a hospital is focused on inpa-
to investigate the feasibility of starting an outreach program tient and registered outpatient issues (1). A large number
either as a joint venture with a commercial laboratory or as of middle or upper managers are assigned the task of pro-
a stand-alone hospital laboratory outreach program (12). viding signature approval for procedures, pricing, capital
The market was evaluated by first reviewing the subspe- equipment, personnel, and other details. These individuals
cialty mix for the more than 1,000 physicians on the hospi- are usually so far removed from issues related to the request
tal staff. Physicians in subspecialties with high laboratory that a lack of urgency will guarantee delays. For example,
utilization, like internal medicine, obstetrics/gynecology, the delay in approval of open employee positions caused by
family practice, and others (Table 42.1), were sent a sur- requests for additional documentation may represent a co-
vey asking if they would be interested in doing business vert effort by a manager to cook the books and save on total
with BRL if outreach services were developed. More than overall personnel dollars for the quarter. Once this objec-
90% of the physicians responded in the affirmative. Cur- tive is attained, approval for filling the open position is very
rent managed-care contracts were reviewed. The potential rapid. A successful outreach program must be run more like
for attracting work from local nursing homes and other a business. Approvals must be streamlined from the usual
hospitals was explored. Discussions with several commer- ten managers to three or fewer managers who are very fa-
cial laboratories about potential joint venture relationships miliar with the operation. The competition for outreach
were uniformly unsuccessful. Their primary message was, clients is more volatile than the competition for inpatients.
“We want to run your laboratory.” Of course, we began to The volatile environment requires a method for rapid as-
wonder what our role would be in this takeover strategy. sessment of options and rapid initiation of a solution.
Frankly, we preferred to run our own laboratory. An outreach program will require continuous, intense
The positive results of the feasibility study led to a support from financial analysis, information services
second engagement that produced a market survey and (42), marketing (1), and managed-care services (1). Ad-
a three-year pro forma financial projection. The pro equate staffing will be required to address the complaints
forma reflected conservative volume increases over the of outreach clients and meet the needs of the program’s
three-year period in each of the market sectors, including growth. Hospital administration provides staff for the
physician offices, nursing homes, and other hospitals. Re- cyclic changes anticipated for inpatients and registered
imbursement was based on payor mix averages for tests outpatients. For example, during the financial cycle, the
preparation of the annual budget and end-of-the-year fi-
nancial reports may completely preoccupy all of the staff-
Table 42.1 2002 BRL outreach laboratory utilization analyzed by ing resources for at least three months. During this period,
specialty the financial analysis department is paralyzed and unable
Specialty No. of physicians Total procedures
to perform routine evaluations for capital equipment or
new personnel. The consequence of this paralysis is that
Family practice 464 631,086
outreach business development grinds to a halt while re-
Pediatrics 219 123,244
quests for approval sit on someone’s desk. A potential solu-
Internal medicine 831 1,347,426
tion is to establish a financial staff that responds only to
Cardiology 126 82,068
the needs of the outreach program. These staff members
Endocrinology 96 68,880
must be sequestered and protected from being removed
Gastroenterology 60 60,860
from their tasks during the crisis of hospital financial
Nursing homes 575 395,742
analysis. A similar strategy may be required to ensure that
OB/GYN 309 250,520
there are adequate personnel available to handle outreach-
Urology 126 16,668 related computer issues, such as electronic medical record
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 743

interfaces (42), autofax, outreach billing using a stand- top sales representatives would derive 66% of their yearly
alone system, nursing home setup, new client setup, requi- earnings from commissions and the remaining 33% from
sition scanning, client services, critical values, and others. their base salary. Remember, the hardest sell is going to be
In short, for the implementation and future success of an the hospital administrators when you tell them that a top
outreach program, the departments that support the new laboratory sales representative could make six figures or
program and the laboratory, such as personnel, informa- more a year. If the majority of these earnings come from
tion services, financial analysis, and marketing, must be commissions, then it will be easier to get administrative
attentive, efficient, streamlined, and responsive. approval for a competitive sales compensation program.
The complexity of establishing an outreach program pre- New-sales and overall business growth targets are
dicts that a small-scale demonstration project will fail. Aban- set annually at budget time. BRL sales representatives
don any idea of experimenting with outreach. All elements are given their team’s annual new-sales target along with
of the outreach initiative, including sales force, couriers, cli- their individual minimal sales quota. BRL’s commission
ent services, registration, accessioning, result delivery, and program rewards sales representatives for new-business
patient or client billing, must be in place before the first day sales, existing-business growth (upgrades), and overall
of operation is announced (1). A failed pilot project or small- maintenance and growth of their territory (bonus). For
scale experiment will tarnish the program’s reputation, a per- new-business growth, BRL has an aggressive commission
ception that may take years of hard work to reverse. The goal program based on a rolling three-month average of new-
is to dazzle each customer from the beginning and nurture business sales. This program is structured to encourage
loyalty through a continuous high level of performance. sales representatives to bring in new business quickly and
steadily, since the higher their three-month rolling aver-
age, the greater the commission that is paid. The new-sales
Requirements for Outreach Implementation commission program also penalizes the sales representative
Figure 42.1 shows the current organizational chart for for lost business. Monthly lost-business numbers are sub-
BRL. This section will review the development of the sales tracted from monthly new-sales numbers before establish-
and marketing department, as well as courier services (1). ing the three-month rolling average. BRL has experienced
great success with this program, and it has been a great mo-
Sales and Marketing Program tivator for the sales staff.
Step 1. Design a competitive salary and commission pack- Sales representatives also get paid an upgrade commis-
age for sales staff. Base salary should be aligned with the sion on existing-business growth. These business upgrades
degree of experience the individual brings to the job. For are treated separately and paid based on a less aggres-
example, the ideal candidate would have had previous ex- sive commission structure than new-business sales. Sales
perience in a clinical laboratory and in laboratory sales representatives are also rewarded quarterly with a bonus
and training (preferably from a national laboratory). The based on their overall territory growth and meeting their
commission program should be competitive when com- business sales quota. This sales compensation program has
pared to the marketplace in order to attract the top can- worked well for BRL, as it has kept our sales staff highly
didates. In addition, the commission structure should be motivated in bringing in new business and maintaining
aggressive to promote new-sales efforts and also provide (retaining) and growing existing business, as highlighted
a reward for maintaining existing business. Ideally, the in our past years’ business growth numbers (Table 42.2).

Table 42.2 Beaumont Reference Laboratory’s annual client numbers and clinical pathology procedures
BRL total clinical BRL procedures as a percentage of hospital’s
Year Client number pathology procedures total clinical pathology proceduresa
1994 170 307,403 14.5%
1995 300 570,014 22.8%
1996 543 598,689 21.6%
1997 677 805,463 28.1%
1998 761 1,484,874 38.0%
1999 841 1,897,526 41.0%
2000 998 2,081,245 44.8%
2001 1,085 2,258,252 41.1%
2002 1,175 2,292,672 46.2%
2003 1,383 2,921,135 50.0%
2004 1,423 3,058,599 47.0%
a
Total clinical pathology procedures include inpatients, hospital-registered outpatients, and BRL clients.
 744

ADMINISTRATIVE
Medical Director
DIRECTOR

OFFICE ORIENTATION
COORDINATOR TRAINING SPECIALIST

DIGITAL IMAGING INVENTORY

CLERK COORDINATOR

INFORMATICS PATIENT ACCOUNTING CUSTOMER SERVICE SALES & MARKETING LABORATORY PATIENT SERVICES
MANAGER MANAGER MANAGER SUPERVISOR DEPARTMENT
OUTSIDE MARKETING AND EXPANSION

PHYSICIAN OFFICE CORPORATE NURSING

SYSTEM BILLING CSR SPECIALISTS COURIER REF LABORATORY PATIENT SERVICES
LABORATORY LABORATORY
ANALYST COORDINATOR COORDINATOR COORDINATOR COORDINATOR
SERVICES SERVICES
REPRESENTATIVE REPRESENTATIVE

LOGISTICS A/R SPECIALISTS CSR II COURIER PHYSICIAN OFFICE NURSING HOME REFERENCE DRAWSITES NURSING HOMES
TECHNOLOGY SPECIALIST TECHNICAL SERVICES TECHNICAL SERVICES TECH II

COORDINATOR REPRESENTATIVE REPRESENTATIVE

A/R SENIOR CSR I COURIER II REFERENCE SENIOR SENIOR

CLERKS TECH I
PHLEBOTOMIST PHLEBOTOMIST

A/R CLERKS COURIER I REFERENCE PATIENT CARE PATIENT CARE

LAB
ASSISTANT ASSISTANT ASSISTANT

Figure 42.1 BRL organization chart. doi:10.1128/9781555817282.ch42.f1

 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 745

Step 2. Nurture the experience level of staff. Our experi- provide a business opportunity with minimal competition.
ence at BRL has demonstrated that there is no substitute Outreach programs interested in servicing LTC facilities
for sales training and field experience. National labora- may want to consider partnering with a firm that brokers
tories excel in this area, and most hospital-affiliated out- nursing-home services (i.e., radiology, podiatry, dentistry,
reach programs fall short. Significant time, dollars, and psychiatry, occupational therapy, physical therapy, etc.)
resources are required to train the sales staff in basic sales and contract to have one of these firms market their lab
techniques, compliance training, and end-sell strategies. services to the LTC market.

Step 3. Develop a new sales and maintenance program.

Know your market and make sure your market knows you. Courier Services: Basics and Logistics
To maximize market penetration, first identify prospective An outreach program’s courier service is the front line in
clients in the target market, prioritize the most profitable terms of customer service and relations (see Fig. 42.2).
prospects, and then assign those prospects to sales staff Couriers act as your ambassadors of good will and your
members for office calls and/or sales presentations. Pros- intelligence service in regard to customer satisfaction (1).
pects lists (physicians, nursing homes, hospitals, and other At BRL, we train the courier staff to put the customer first,
healthcare facilities) can normally be acquired or pur- and this emphasis gets results, as demonstrated by their
chased from your state medical societies, insurance pro- high score on BRL’s customer satisfaction surveys. The fol-
viders (network listings), and third-party research firms. lowing are the key characteristics of a high-performance
We have found that buying a prospect list from a market- courier network that consistently meets the expectations
ing research firm is worth the investment since the list can and requirements of its customers (external and internal):
be customized to your specifications. For example, request • Courier routing/scheduling is performed dynamically
a list of only practicing physicians in a certain county and to optimize the use of resources (staffing, vehicles, etc.).
only their office addresses. Often a state medical society
• Couriers maintain the integrity of specimens, mate-
lists all members, both practicing and retired, and their
rials, and supplies transported and handled (keep-
home and office addresses.
ing frozen specimens frozen and room-temperature
Once the target list of prospects/customers is estab-
specimens at room temperature, performing special
lished, your sales staff can focus on contacting these
handling as required and ensuring that supplies are
prospects. Sales presentations must be customized for
transported and stored according to manufacturer
the respective business lines: physician offices and long-
specifications).
term-care/nursing homes. Sales presentations for physi-
cian offices should always stress that you are providing • Couriers maintain confidentiality of patient reports.
information services, highlighting such value-added ser- • Couriers are responsible and reliable transport agents
vices as office web-based order entry and result-reporting (vehicles are routinely serviced and checked; couriers
software. Sales staff should customize their presentations complete a driver safety course).
based on the physician specialty and be prepared to dis- • Couriers are trained to handle, transport, and clean up
cuss the physician’s patient mix (disease states), most com- hazardous materials.
monly ordered tests, and emerging new tests that can be
• The courier department assists in monitoring/auditing
of benefit to patient diagnosis and treatment. Up-selling
supplies delivered and utilized by clients.
existing and emerging tests helps improve diagnostic ef-
ficiency as well as operating margins. Up-selling refers to The courier department serves as the program’s rep-
the practice of informing clients of new or improved labo- resentatives to customers, in both the delivery of services
ratory tests that may have superior sensitivity and specific- and the monitoring of your customers’ overall satisfaction.
ity compared to the routine screening assays. These new What is required when putting together an efficient
or improved assays may be applicable to patients with a courier network? The first task is to create a routing net-
well-defined subset of a certain disease or for patients who work that meets customer needs while maximizing the ef-
have failed the usual therapeutic strategies. ficient use of resources (drivers, automobiles, etc.). Routing
Long-term-care/nursing homes and assisted-living optimization, however, usually occurs in an environment
(LTC) facilities create another business opportunity for of multiple conflicting priorities. For example, service re-
outreach programs. Most laboratories have shied away quirements, especially turnaround times, vary with client
from LTC facilities because they are unable to meet the type. Delivery of client specimens to the laboratory should
special needs of skilled nursing homes. For those outreach be coordinated with the laboratory production schedule to
programs that can customize their services to provide rou- maximize the efficient use of laboratory staff and equip-
tine and STAT phlebotomy, same-day test results, standby ment. Courier routing is a dynamic process with many vari-
orders, and Medicare Part A billing, then LTC facilities ables, including day and time of service, courier availability,
746 OUTSIDE MARKETING AND EXPANSION

Figure 42.2 Courier management, client services, and client interaction with software for courier
routing, specimen counts, STAT pickups, client supplies inventory, specimen tracking, and client ser-
vice problem logs. Note: Client numbers and procedures continue to increase by 10 ± 5% annually.
doi:10.1128/9781555817282.ch42.f2

weather conditions, and cyclic traffic congestion. A system routing, or routing “on the fly.” In other words, the cou-
needs to be designed to monitor specimen location and to rier department can reroute in minutes to adjust to staffing
verify specimen pickup. Designing courier travel manually shortages, weather, traffic, special events, and/or vehicle
results in routes located in geographically defined sectors breakdowns. RIMMS has made it more convenient to
without regard to optimization. Courier route optimization handle client will-calls and STATs and assign them to the
can be achieved using commercial software. appropriate route and driver.
In February 1995, BRL introduced routing-optimization This software permits rerouting for extreme cold-
(logistics) software. BRL selected a routing package called weather conditions (temperature range, 0 to 15°F). Cou-
RouteSmart (Boune Distinct Ltd., Columbia, Md.) to assist rier management was concerned about specimen integrity
the courier department with route creation. Operational when specimens would be left in drop boxes located out-
issues or constraints that management had to consider in side for extended times in this extremely cold weather. To
route formulation included service-time window, stag- address this issue, courier routes were redefined or reopti-
gered start times, average service duration per client of mized to pick up all clients’ work within two hours of clos-
2 minutes, drop-box service duration of 1.5 minutes, ing (or placement in drop boxes). The RIMMS software
special deliveries, draw-station sweeps, last pickups (30 accomplished this task in real time within minutes and
minutes after close), maximum route duration (7 hours without an increase in resources (Table 42.4). Surprisingly,
with breaks), all routes being in by 6:00 p.m., and other the cold-weather afternoon-evening (p.m.) route optimi-
special client requirements. By July 1995, BRL was testing zation actually saved labor hours.
the RouteSmart routes, and the program was fully imple- Other applications for route-optimization software in-
mented by August 1, 1995. Results achieved included a 25% clude home-care service, hospital materials management
reduction in labor, excess capital resources of 23% (fleet
car returned), and more productive use of staff drivers. In
Table 42.3 Courier routing optimization results: the BRL
short, BRL realized a savings of $82,094 (see Table 42.3), experience
with a return on its investment in 7.5 months (30, 31).
Attribute of Before After
In 1997, BRL moved to a new generation of routing
courier program May 1995 May 1996 Change
software called RIMMS (Resources in Motion Manage-
ment System), offered by the Lightstone Group (Mine- No. of routes 9 6 233.3%
ola, N.Y.). RIMMS is a customizable, Windows-based No. of accounts 408 471 115.4%
open-architecture system that supports real-time dynamic Full-time employees 16 14 212.4%
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 747

Table 42.4 Route-optimization results: rerouting for cold weather

Optimization
condition Miles Labor (min) Drive time (min) Vehicles Routes Requisitions
Baseline 1,176 65:49 37:26 17 17 1,308
Cold 1,206 55:58 38:10 17 17 1,308
Gain −30 9:51 −0:44 0 0 0

department, and nursing-home phlebotomy service (sched- products will have a positive impact in the areas of cus-
uling and routing). William Beaumont Hospital has had tomer satisfaction, process improvement, compliance,
success utilizing RIMMS for home-care services and mate- and accountability. The new handhelds required an addi-
rials management transportation. BRL’s future plans call for tional 22 seconds per requisition to enter data and inter-
utilization of logistics software in optimizing the schedul- act with the device. To minimize the impact of this time
ing, routing, and dispatching of phlebotomists in the long- loss, BRL management reoptimized all the p.m. routes
term-care division (a network of more than 70 nursing and with RIMMS (Table 42.5). It was determined that the new
assisted-living homes). routes were more efficient in spite of the additional time
In December 2001, BRL implemented handheld per- couriers required to interact with the handhelds. These
sonal computers for its courier staff. These handheld findings indicate that BRL’s courier operations need to
PCs utilize courier-management software for specimen reoptimize their routes more frequently.
logging (tracking), routing, and supply ordering (inven-
tory) (Fig. 42.2). The software is called Frontline and Beaumont Reference Laboratory:
is offered by Gajema (Charlotte, N.C.). The Frontline
1993 to 2004
product includes integrated call-management, client-
services, and courier modules. BRL evaluated and im- Annual Growth and Its Implications
plemented the Frontline call-management module in the In the summer of 1993, BRL opened for business in a con-
fall of 2002. With the Frontline modules, BRL was able struction trailer behind the hospital. BRL provides both
to automate and go paperless for incoming and outgoing clinical pathology and anatomic pathology (cytology and
calls handled by its client services department, includ- biopsy microscopic evaluation) services. For the first three
ing client supply orders, courier will-calls, STATs, add- to four years, the majority of clients were physicians on
on tests, and client problem logging. With an interface the staff at William Beaumont Hospital. These physicians
to Frontline, RIMMS can pass the courier routes to the had computers in their offices connected to the hospital
handhelds and place dynamic or “on the fly” routing information system. As a result of becoming a BRL client,
right at the courier’s fingertips. With the handhelds, the each physician, through the hospital information system,
couriers are now able to log or document electronically had electronic access to results for inpatients, registered
their entire stop, indicating whether it’s a pickup or de- outpatients, and patients seen in his or her office, all in
livery of specimens, reports, and/or supplies; scan their one location. This convenience factor was a major selling
arrival time and patients; and enter or log the number of point for many of the early clients. There was no need for
specimens and tube types. All this information is down- an additional computer for laboratory results for their of-
loaded to the courier-management module server when fice visit data.
the couriers dock their handhelds back at the lab. In Table 42.2 illustrates BRL’s growth in clinical pathol-
addition, with products such as RIMMS and Frontline, ogy from 1994 to 2004. For 2004, BRL volume represents
BRL was able to achieve true cross-department integra- 47.0% of the total clinical pathology test volume. Physician
tion and communication (Fig. 42.2). The wealth of in- offices represent 81% of total clients and 89.5% of all test
formation captured and retrievable from these software requests, while nursing homes represent 19% of all clients

Table 42.5 Route optimization results: reoptimization of Monday p.m. routes

Optimization Labor Drive time Route Vehicles/ Requisitions
condition Miles (min) (min) segments drivers expected
Baseline 1,233 69:23 40:22 17 17 1,323
Reoptimized 1,014 50:24 33:19 17 13 1,323
Gain 219 18:59 7:03 0 4 0
% Gain 18% 27% 17% 2% 24% 2%
748 OUTSIDE MARKETING AND EXPANSION

Table 42.6 Annual volume of tests of cervical cytology at BRLa Table 42.7 Tests performed in 2002 in the molecular pathology
laboratory at William Beaumont Hospital
Conventional Liquid-based Annual
Year Papanicolaou test cytologyb total Testa,b No. of tests
2000 54,524 14,359 68,883 PCR, RT-PCR
2001 39,375 33,795 73,170 Chlamydia trachomatis 10,374
Neisseria gonorrhoeae 10,101
2002 17,009 63,973 80,982
HCV qualitative 523
2003 7,836 81,860 89,696 HCV quantitative 1,190
2004 4,098 86,319 90,417 HIV quantitative (standard, ultrasensitive) 968
a
Data collected by Jennifer Shimoura. HBV quantitative 171
b
Liquid-based cytology specimens continued to be greater than 95% of GYN CMV 165
specimens annually from 2005 to 2011. ACE polymorphism 212
Angiotensinogen mutation 34
Angiotensin receptor type 1 mutation 36
CYP2C9 genotyping (for Coumadin 30
and 10.5% of all tests requested. BRL clients generated 82% hyperresponsiveness)
of the volume in the cytology laboratory. Hereditary hemochromatosis mutations 414
Table 42.6 demonstrates that there has been a dramatic Glycoprotein Pl A1/A2 mutation 35
shift from cervical cytology in anatomic pathology evalu- TMA
Mycobacterium tuberculosis 181
ated by the conventional Papanicolaou method to the
Invader technology
liquid-based method, which provides a specimen compat- Factor V Leiden mutation 1,218
ible for oncogenic human papillomavirus (HPV) detec- Prothrombin mutation 713
tion (58, 59, 62). Approximately 15 of the more than 100 MTHFR mutations 448
types of HPV are associated with cervical cancer, espe- Apo E genotype 122
cially types 16, 18, 31, and 45 (http://www.jvhl.org; 21, 61). Hybrid capture
The detection of HPV DNA is reliable and highly sensi- HPV low-risk group 1,237
HPV high-risk group 1,240
tive for precancerous lesions of the cervix compared to the
Hybridization/PCR
insensitivity and subjectivity of the conventional cytology
HCV genotyping 376
method (47, 50). This relatively rapid shift in physician or-
DNA sequencing
dering practice illustrates the need for flexibility in plan- HIV genotyping for drug resistance 306 in 2003
ning for future outreach growth. a
RT-PCR, reverse transcriptase PCR; HCV, hepatitis C virus; HIV, human
BRL’s growth has had an impact on the test menu in each immunodeficiency virus; HBV, hepatitis B virus; CMV, cytomegalovirus; ACE,
laboratory section. For example, the total number of bill- angiotensin-converting enzyme; TMA, transcription-mediated amplification;
MTHFR, methylene tetrahydrofolate reductase; HPV, human papillomavirus.
able procedures increased each year from 1993 to 2002 in b
The test menu had increased to more than 45 billable procedures in 2011.
the molecular pathology laboratory (Fig. 42.3). Table 42.7
outlines the specific assays and test volumes for 2002. In
late 1992, a royalty agreement was signed with Roche for In late 2001, HPV DNA detection by hybrid capture was
the clinical use of PCR. In 2002, the assay for Chlamydia introduced, and 2,477 identifications of HPV types with
trachomatis and Neisseria gonorrhoeae in urine was moved a low and high risk for cervical cancer were completed
from ligase chain reaction to PCR (8, 41). More than 95% in 2002. There has been a steady increase in molecular-
of the requests for these two assays are by BRL clients. based tests, from 0.04% (84 assays) of total laboratory test

Figure 42.3 Annual volume of tests, includ-

ing total tests and five different methods, per-
formed from 1992 to 2002 in the molecular
pathology laboratory at William Beaumont
Hospital. Note: The test menu increased
from 33 tests in 2006 to over 45 tests in 2011.
doi:10.1128/9781555817282.ch42.f3
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 749

volume in January 1994 to 0.57% (28,531 assays) in 2002 per year per physician fluctuated from 94 for urology to
to 0.70% (43,824 assays) in 2004. This laboratory section 282 for OB/GYN, while the number of procedures per
has been profitable since 1997. To fulfill the prediction that requisition varied from 1.4 for urology to 10.3 for inter-
molecular testing would encompass 5% of total laboratory nal medicine. This information is useful when the sales
test volume in the early 21st century (24), a total of 22,200 team is targeting specific physician categories for growth.
molecular pathology procedures per month would need to The laboratory sections will require further analysis of
be performed. the data before they can project their capital equipment
and personnel needs to support the projected additional
Projecting Future Volume test volume. Table 42.9 illustrates the distribution within
The numbers of BRL clients and the test volume have in- eight laboratory sections of the tests requested by the nine
creased each year since 1994 (Table 42.2). Each year a tar- practice categories. Given the new client’s subspecialty
get figure for annual growth is established that is between and the number of physicians in the group, these data can
8% and 15% of the volume from the previous year. We have be used to estimate the number of procedures each of the
utilized several methods to monitor this growth and pro- eight laboratory sections should analyze over a period of
ject its impact on the individual laboratory sections. The time. The clinical chemistry section receives the greatest
number of requisitions received from each of the two ma- volume of test requests from six of the practice categories
jor client types (physician offices and nursing homes) is but fewer than 40% of the total procedures from OB/GYN
tracked each day. Figure 42.4 shows a summary of Janu- and Urology. Microbiology procedures are ordered most
ary 2002. During the Monday-to-Friday cycle, the great- frequently by Urology. Table 42.10 enumerates the aver-
est total volume of requisitions is received on Monday, age monthly number of specific tests ordered per physi-
usually with a nadir in requisitions from physician offices cian in each of the nine practice categories in the five most
on Wednesday, when many offices are closed in the after- frequently used laboratory sections. Managers of the five
noon. These data provide a global baseline for monitoring laboratory sections, armed with the expanded data com-
fluctuations in volume. piled in this manner, can easily begin to project capital
We also monitor the volume generated by nine different equipment and personnel needs based on projected new
practice categories and calculate annually the number of client volume. In OB/GYN, HPV DNA analysis is re-
requisitions per physician, the number of procedures or- quested four times less frequently than analysis for the
dered per physician, and the number of procedures per req- presence of Chlamydia or Neisseria DNA in Molecular
uisition (Table 42.8). In 2002, the number of requisitions Pathology (Table 42.10).

Figure 42.4 The daily requisitions for tests at BRL received by physician offices (▲) and nursing
homes (♦), and totals (■), in January 2002. doi:10.1128/9781555817282.ch42.f4
750 OUTSIDE MARKETING AND EXPANSION

Table 42.8 Summary of tests performed by BRL in 2002 according to specialty

No. of Total Total Requisition/ Procedures/ Procedures/
Specialty physicians requisitions procedures physician requisition physician
Family practice 464 66,970 631,086 144 9.4 1,360
Pediatrics 219 21,172 123,244 97 5.8 563
Internal medicine 831 130,460 1,347,426 157 10.3 1,621
Cardiology 126 19,766 82,068 157 4.2 651
Endocrinology 96 11,540 68,880 120 6 717
Gastroenterology 60 6,566 60,860 109 9.3 1,014
Nursing homes 575 108,536 395,742 189 3.6 688
OB/GYN 309 87,004 250,520 282 2.9 810
Urology 126 11,886 16,668 94 1.4 132

Send-Out Tests described by Carter and Bennett (7). A resident in Clinical

Send-out tests represent procedures that are not performed Pathology contacts the admitting physician for inpatients or
in any of the laboratory sections and must be sent to an the ordering physician for registered outpatients or outreach
accredited laboratory. We review the volume of these pro- customers and explains the cost, clinical value, and alterna-
cedures every six months. Cost analysis and the feasibility tive tests. Most tests are canceled because the admitting or
of bringing assays with increasing volumes into the main ordering physician was not aware that a resident or consul-
laboratory are also evaluated. One of the benefits of an out- tant had ordered it. Table 42.12 demonstrates that although
reach program is the expansion and enhancement of the test the total number of tests called on per year was a fraction
menu (30). In our state, send-out laboratory charges cannot of the total number requested (listed in Table 42.11), almost
be marked up, and frequently patients’ third-party reim- half of the requesters called in 2002 canceled the request,
bursement fails to cover the charge or the cost. In general, saving approximately $70,000. This program will expand in
the reduction of send-out test volume is an excellent project the future, and BRL will also develop methods for outpa-
for laboratory cost containment (7). Table 42.11 illustrates tients to pay for these tests with a credit card, check, or cash
the volume of send-out tests for BRL and non-BRL patients before they are sent out.
from 1998 to 2005. Although BRL’s contribution to the total
number of send-out tests has fluctuated from 32% in 2000 to Monitoring Financial Outcome
a high of 56% in 2005, the total number has usually increased It is imperative that the financial well-being of an outreach
each year. In 2001, BRL send-out test charges were $996,000. program be monitored frequently. Table 42.13 outlines a
In 2000, we initiated a review of low-reimbursement, high- few examples of items to monitor, including test volume,
cost send-out requests from both BRL and non-BRL, as supply costs, personnel costs, and revenue cycle (3, 30). We

Table 42.9 Breakdown of tests performed by BRL in 2002 according to specialty

% Total Billable Procedure/
Specialty (no. of physicians) Lab areaa procedures procedures requisition
Family practice (464) CHE 86.20 544,822 8.10
HEM 5.20 35,562 0.53
IMM 3.50 22,058 0.33
MIC 2.70 17,096 0.25
MOL 0.40 2,418 0.04
FLO 0.10 754 0.01
BLB 0.10 802 0.01
CYT 1.20 7,574 0.11
Gastroenterology (60) CHE 82.00 50,482 7.70
HEM 8.30 5,092 0.78
IMM 6.40 3,934 0.60
MIC 0.50 306 0.05
MOL 1.70 1,046 0.16
FLO – 0 –
BLB – 0 –
CYT – 0 –
(continued)
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 751

Table 42.9 (continued)

Breakdown of tests performed by BRL in 2002 according to specialty
% Total Billable Procedure/
Specialty (no. of physicians) Lab areaa procedures procedures requisition
Pediatrics (219) CHE 72.10 88,800 4.20
HEM 5.60 6,916 0.33
IMM 2.60 3,148 0.15
MIC 18.60 22,902 1.08
MOL 0.20 232 0.01
FLO – 4 –
BLB 0.03 34 –
CYT 0.50 644 0.03
Nursing homes (575) CHE 84.80 335,650 3.10
HEM 9.20 36,346 0.33
IMM 0.40 1,756 0.02
MIC 5.50 21,902 0.20
MOL 0.01 24 –
FLO 0.01 56 –
BLB – 8 –
CYT – 0 –
Internal medicine (831) CHE 90.20 1,222,434 9.40
HEM 4.40 58,878 0.45
IMM 2.50 34,478 0.26
MIC 1.40 19,200 0.15
MOL 0.30 3,916 0.03
FLO 0.20 1,992 0.02
BLB 0.03 418 –
CYT 0.60 8,110 0.06
OB/GYN (309) CHE 34.50 90,534 1.00
HEM 6.60 17,286 0.20
IMM 11.20 29,244 0.34
MIC 10.40 27,180 0.31
MOL 4.60 12,162 0.14
FLO 0.01 20 –
BLB 6.80 17,776 0.20
CYT 21.50 56,318 0.65
Cardiology (126) CHE 94.80 77,926 3.90
HEM 2.60 2,154 0.11
IMM 2.20 1,816 0.09
MIC 0.20 124 0.01
MOL 0.04 34 –
FLO – 0 –
BLB 0.01 12 –
CYT – 2 –
Urology (126) CHE 38.20 7,320 0.62
HEM 1.60 306 0.03
IMM 0.70 128 0.01
MIC 33.40 6,414 0.54
MOL 0.60 116 0.01
FLO – 0 –
BLB – 0 –
CYT 12.40 2,384 0.20
Endocrinology (96) CHE 88.60 61,606 5.30
HEM 1.70 1,202 0.10
IMM 5.10 3,550 0.31
MIC 1.00 724 0.06
MOL 0.10 68 0.01
FLO – 0 –
BLB 1.00 682 0.06
CYT 1.50 1,048 0.09
a
CHE, chemistry; HEM, hematology/coagulation; IMM, immunology; MIC, microbiology; MOL, molecular pathology;
FLO, flow cytometry; BLB, blood bank; CYT, cytology.
Table 42.10 Frequently ordered tests performed by BRL in 2002 listed in rank order according to specialty

752
Avg no. of specific
tests/physician/montha Chemistry Hematology/coagulation Immunology Microbiology Molecular pathology
Family practice (113) AST 34.00 CBC 39.00 ANA 2.30 Urine cul 6.50 C. trachomatis 0.89
K 32.00 ESR 2.70 RA 1.60 Prel aerobic cul ID 3.70 N. gonorrhoeae 0.85
ALT 32.00 Retic 0.41 HBsAg 1.20 Antibiotic sens 1.20 HPV 0.29
BUN 32.00 PTT 0.19 Anti-HCV 1.10 Smear 1.10 HIV RNA Quant 0.15
Na 32.00 PT 0.19 Anti-HBcIGM 0.92 Def aerobic cul ID 1.00
Pediatrics (47) T Bili 12.00 CBC 13.00 ANA 0.55 b-Hemolytic strep 8.40 C. trachomatis 0.24
AST 12.00 ESR 1.50 EBV VCA IgG 0.46 Prel aerobic cul ID 7.50 N. gonorrhoeae 0.23
ALT 12.00 Smear (Eos/PMN) 0.84 EBV VCA IgM 0.45 Urine cul 6.00
Glu 11.00 Send-out 0.18 Helicobacter pylori 0.43 Infl A DFA 4.80
CR 10.00 Retic 0.11 Anti-HCV 0.43 Infl B DFA 4.70
Internal medicine (135) T Bili 40.00 CBC 30.00 ANA 2.20 Urine cul 4.70 C. trachomatis 0.38
AST 39.00 ESR 5.90 Homocyst 1.30 Prel aerobic cul ID 2.30 N. gonorrhoeae 0.37
K 39.00 Retic 0.58 HBsAg 1.30 Antibiotic sens 0.94
Na 38.00 P Bld Smear 0.10 Anti-HCV 1.20 Def aerobic cul ID 0.65
CR 38.00 Send out 0.06 RA 1.10 Smear 0.60
Cardiology (54) AST 25.00 CBC 8.00 Homocyst 5.40 Urine cul 0.19 Factor V 0.02
CHOL 24.00 ESR 0.36 HS CRP 0.76 Blood cul 0.17 ACE 0.02
ALT 24.00 ANA 0.11
TRIG 24.00
OUTSIDE MARKETING AND EXPANSION

HDL 24.00
CPK 20.00
Endocrinology (60) GLU 18.00 CBC 5.70 VDRL 2.50 Urine cul 3.10 HPV 0.15
E2 17.00 ESR 0.25 HBs Ab 2.40 Antibiotic sens 0.26 C. trachomatis 0.09
T Bili 16.00 PTT 0.13 HIV Ab 2.30 N. gonorrhoeae 0.09
ALT 15.00 PT 0.13 Anti-HIV 2.20
AST 15.00 Rubella IgG 2.00
Gastroenterology (84) T Bili 48.00 CBC 36.00 Reticulin Ab 3.40 Urine cul 0.77 HCV viral load 0.62
ALT 32.00 ESR 5.00 Endomysial Ab 3.40 Clostridium difficile toxin 0.30 HH 0.32
Alb 31.00 Retic 0.67 Gliadin Ab 3.40 Ova/parasites 0.28 Hep C 0.27
AST 31.00 Send-out 0.13 Antiparietal Ab 3.00 Stool pathogens 0.27
Alk Phos 31.00 HBsAg 2.20 Stool culture 0.27
Nursing homes (57) K 34.00 CBC 28.00 HS CRP 0.16 Urine cul 6.10
Na 33.00 Hct 8.30 VDRL 0.13 Antibiotic sens 3.60
CO2 33.00 Hgb 1.10 Prot elect 0.11 Def aerobic cul ID 1.70
CR 33.00 ESR 1.10 HBs Ag 0.11 Clostridium difficile toxin 1.50
BUN 30.00 Retic 0.62 Anti-HIV 0.10 Urine ID 1.50
OB/GYN (68) Glu 10.00 CBC 16.00 VDRL 5.10 Urine cul 9.60 C. trachomatis 4.90
TSH 9.50 Sickle cell 0.11 Rubella IgG 5.00 Prel aerobic cul ID 4.90 N. gonorrhoeae 4.90
U/A 6.70 ESR 0.10 HBs Ab 4.70 Smear 3.20 HPV 1.20
b-HCG 6.30 PTT 0.06 HIV Ab 3.10 Strep B cul 3.00 Factor V 0.03
CHOL 4.00 PT 0.06 E3 1.70 Def aerobic cul ID 1.40
Urology (11) PSA 15.00 Semen 0.73 Alpha FP 0.07 Urine cul 18.00 C. trachomatis 0.24
U/A 1.30 CBC 0.33 HSV-2 IgG 0.06 Antibiotic sens 3.70 N. gonorrhoeae 0.22
Testosterone 1.20 Hgb 0.07 HSV-1 IgG 0.06 Def aerobic cul ID 1.50
CR 0.94 Hct 0.07 HIV Ab 0.06 Urine ID 1.40
BUN 0.88 ANA 0.03 Prel aerobic cul ID 0.15
a
E2, estradiol; U/A, urinalysis; ESR, erythrocyte sedimentation analysis; Ab, antibody; Ag, antigen; E3, estriol; Prel, preliminary; Def, definitive; HS, high sensitivity; HH, hemochromatosis gene mutation; ID, identifica-
tion; cul, culture.
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 753

Table 42.11 Send-out test volumes at William Beaumont Hospitala class to a lower job class (30). The basic principle is that
Year BRL (% of total) Non-BRL b
Annual total personnel should be assigned a job level, perform only du-
1998 16,316 (40%) 24,641 40,957 ties defined for that job level, and rarely be required to per-
1999 16,924 (34%) 32,777 49,701 form tasks assigned to individuals at lower job levels. This
2000 16,211 (32%) 34,660 50,871 mandate ensures that the greatest efficiency for perform-
2001 21,585 (38%) 34,781 56,366
ing high-complexity tasks is achieved.
2002 30,719 (46%) 35,837 66,556
The revenue cycle is the sequence of events that the
2003 40,893 (53%) 35,647 76,540
provider must monitor to maximize the amount and time-
2004 28,101 (45%) 32,241 62,342
liness of payment from payors. A few examples of areas
2005 40,919 (56%) 32,454 73,373
to monitor are given in Table 42.13 (3, 30). If payment is
a
denied for Part A or Part B reimbursement, a rejection re-
The distribution in percentage for BRL vs. non-BRL send-out specimens re-
mains approximately the same. The total volume exceeded 100,000 in 2011. port from the billing/receivable system will provide data
b
Non-BRL represents inpatient, emergency center, and registered outpatient on the reason for denial of payment. Recurrent rejection
send-out procedures. episodes for the same reason may require direct inquiry of
the third-party carrier to resolve the problem.
have excluded capital equipment and reagents related to Table 42.14 reports the gross and net revenue BRL
laboratory testing since our clinical laboratory represents achieved from 1994 to 2002. Improvements in the effi-
a hybrid operation consisting of 50% outreach and 50% ciency of the current revenue cycle process will improve
nonoutreach testing. These supply and capital equipment the level of reimbursement noted in the past. Reimburse-
costs are charged back to BRL based on annual volumes. ment will fluctuate based on contractual arrangements
Requisition counts from global sites (physician offices, with capitated and noncapitated payors. Table 42.15 lists
nursing homes, other hospitals) (Fig. 42.4) or more spe- the payor mix for BRL in 1996, 2000, 2002, and 2004. In
cific designations can be used to monitor unexpected fluc- general, there has been a decrease in Blue Cross and Select-
tuations. Potential new clients targeted by Goldmine (48) care and an increase in Medicare and a variety of other
or other methods, as well as careful review of causes for providers. The payor mix may be determined for each of
lost business, should be tracked. Client issues directly re- the nine physician categories listed in Tables 42.8 through
lated to lost business, if monitored, may lead to quality- 42.10. Using this information, the average reimbursement
improvement projects to prevent repetition. Supplies for the most commonly ordered tests can be calculated for
required for specimen collection are provided to clients each of the nine physician groups.
and should be returned to BRL. Monitoring the supplies Most financial reports calculate labor per procedure
provided to and returned from a client will determine if and supply costs per procedure, which have decreased for
any of these resources are being diverted for the client’s BRL from $0.86 and $1.72, respectively, in 1997 to $0.58
office laboratory use or being sent to another testing site. and $1.59 in 2000 (30). Table 42.16 reviews six years of fi-
Personnel costs can be evaluated by reviewing overtime nancial data for both clinical and anatomic pathology ser-
expenses in each of the major job categories, like bill- vices provided by BRL. In general, over that time period,
ing, courier services, client services, phlebotomy, and the number of requisitions and procedures and the net
processing. In general, the greater the number of open revenue per procedure increased each year. Therefore, the
positions in these categories, the greater the savings in goals of lowering unit costs and increasing revenue have
salary dollars and the more inefficient the operation be- been achieved (30).
comes. Personnel should be hired with adequate training
Table 42.13 Potential areas to monitor to track financial outcome
to perform the assigned tasks. Diversification of person- in an outreach program
nel based on the complexity level of tasks they perform
Topic area Specific monitor
would facilitate the introduction of tiers (layers) within
Test volume Requisition count
a single job class or reassigning duties from a higher job Lost-business report
New-business prospects
Supply costs Client supply utilization
Table 42.12 Review of send-out tests by telephone at William Personnel costs Overtime report
Beaumont Hospital Open positions
Canceled Diversification
Year (% of total) Approved Annual total Revenue cycle Financial reports
Rejection reports
2000 77 (27%) 208 285
Accounts receivable report
2001 62 (46%) 73 135 Capitation contracts report
2002 70 (49%) 74 144 Ratio of uncollected charges to payment received
754 OUTSIDE MARKETING AND EXPANSION

Table 42.14 Annual revenue at BRLa

Year Proceduresb Gross revenue Net revenue
1994 307,043 $7,499,834 $4,539,275
1995 571,014 $15,085,483 $6,174,779
1996 598,689 $20,112,825 $8,115,697
1997 805,463 $26,509,990 $10,934,010
1998 1,484,874 $35,018,448 $13,990,098
1999 1,977,514 $45,387,965 $18,455,008
2000 2,401,202 $66,985,910 $31,401,994
2001 2,731,837 $77,224,829 $32,705,163
2002 2,796,113 $93,499,882 $38,999,895
a
From 2003 to 2011 the gross and net revenues generally increased in proportion with the
total procedure count. At the specific procedure level there are exceptions based on Centers for
Medicare and Medicaid Services changes in billing policies.
b
Total procedures performed by BRL in anatomic and clinical pathology.

Joint Venture Hospital Laboratories negotiations for managed-care contracts or distribution of

laboratory procedures to be shared. In summary, regional
History of JVHL
laboratory networks provide specific geographic cover-
To achieve success, BRL must market and sell its labora- age without consolidation, downsizing, or restructuring
tory services. This objective can only be met if BRL ob- among the member laboratories.
tains provider status with the major insurance carriers JVHL was founded in 1992 by four southeast Michi-
and managed-care organizations. Since many of these gan hospital-affiliated laboratories (St. John Hospital,
contracts require one major regional laboratory provider, Providence Hospital, William Beaumont Hospital, and
BRL, as a solo outreach program with a limited coverage Oakwood Hospital) in response to increasing competi-
area, would be ruled out. To resolve this dilemma, BRL tion from the national commercial laboratories (MetPath,
joined a regional laboratory network of other hospital- SKBL, and National Health Labs, at that time) for outpa-
based laboratory outreach programs, Joint Venture Hos- tient and physician office (outreach) client testing services.
pital Laboratories (JVHL), to meet the wide geographic The organization acquired its first contract, 80,000 capitated
coverage required by third-party payors (6, 10, 30, 50). lives, in 1994, permitting member laboratories to develop
Regional laboratory networks are a recent phenomenon their competency in this market environment. In 1996,
and have experienced a dynamic evolution in both devel- the managed-care organization renewed its contract and
opment and longevity (1, 5, 6, 10, 16, 35, 38, 53). The pur- increased the total covered lives to 340,000. In December
pose of such a laboratory network may be to share testing 2002, JVHL consisted of 127 hospital-affiliated laboratories
or to obtain managed-care contracts, but rarely both (30). throughout Michigan, with 12,000 physician clients served
The participating laboratories are independently owned by 440 patient service centers and a combined fleet of more
and operated. A central network administrator coordinates than 150 courier vehicles (6, 10; http://www.jvhl.org). By
December 2011, JVHL had 23 managed-care contracts
representing 3.2 million covered lives (6, 10).
Table 42.15 Payor mix for four years at BRLa
In an interview, Jack Shaw, the executive director of JVHL
Percent of revenue since 1992, described three benefits the hospital network
Payor 1996 2000 2002 2004 delivered to its members and respective parent organiza-
Blue Cross/Blue Shield 30.4 19 28 28 tions (6). First, “it delivered additional revenue by creating
Medicare 17.3 33 28 25 an organization that competed successfully with commer-
Medicaid 1.5 1 1 1 cial lab companies.” Second, JVHL provided a method for
Selectcare 27.8 8 – – increasing laboratory test volumes that in turn reduced the
Health Alliance Plan – – 7 10.6 fixed costs associated with these laboratory services. The
Patient pay 4.0 5 4 4.7 third benefit is the wealth of information JVHL member
Blue Care Network – 4 10 7.3 hospitals have provided in aggregate throughout the years.
Otherb 19.0 30 22 24 A fourth benefit is the billing and collection service for
a
The payor mix has fluctuated with the local economy and changes in unem-
managed-care contracts that JVHL provided for its hospi-
ployment in the state of Michigan. tal members. For example, in 2000, BRL received $574,000
b
Comprises capitated and fee-for-service contracts. from JVHL for testing, representing 3.4% of JVHL’s total
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 755

Table 42.16 Annual statistics relating to procedures performed by BRL

Year Proceduresa Requisitions Procedures/requisition Net revenue/procedure
1997 1,226,906 279,466 4.39 $8.44
1998 1,600,643 339,028 4.72 $8.36
1999 2,020,721 410,748 4.92 $9.63
2000 2,401,202 535,330 4.49 $13.03
2001 2,731,837 608,066 4.49 $12.10
2002 2,796,113 637,066 4.39 $13.95
a
Total procedures performed by BRL in anatomic and clinical pathology.

revenue of $16,711,000. In 2011, BRL received $10,027,000 pull-through test volume to BRL’s overall business growth.
from JVHL, representing almost 1% of JVHL’s total revenue It is important to note that in 2000, BRL’s procedures num-
of $103,430,000. Currently, JVHL is initiating an improved bered 268,000, which represented approximately 10.6% of
and efficient program for connecting hospitals to multiple- the total JVHL procedures for that year (Table 42.17). For
physician electronic medical records as described by Pan- BRL, JVHL has been a major positive factor in its success-
tanowitz et al. (42). In the future, these organizations will ful business growth. Other member laboratories will have
implement telepathology techniques for anatomic pathol- to evaluate their own situations to determine what finan-
ogy services using static, dynamic, and/or whole slide im- cial benefit JVHL membership has achieved.
aging to enhance diagnostic assistance for frozen sections In conclusion, laboratory networks appear to provide
and remote second opinion consultations (2, 30, 43). The an advantage in increasing pull-through in laboratory
implementation of this technology will require overcom- volume due to the network’s extensive coverage of basic
ing challenges in workflow integration, infrastructure for managed-care organizations, thereby providing one-stop
the technology, global standardization for clinical practices, shopping for laboratory services.
and reimbursement issues before there will be wider accep-
tance in hospital outreach programs (2, 43).
Summary
Benefits of BRL’s Affiliation with JVHL This case study has shown how one hospital laboratory
What impact has JVHL membership had on the growth of outreach program (BRL) has built success through affili-
BRL? To answer this question, we need to first compare the ation with a laboratory network, in this case JVHL. The
overall business growth of BRL, including both procedures key factor to success in this network affiliation is the abil-
and revenue from all payors, to that of BRL’s JVHL work ity of the laboratory network to win provider status for its
and related business (so-called pull-through volume). members with the major managed-care organizations. The
Table 42.17 indicates that for 1997 through 2000, JVHL implementation of the outreach program has led to many
and related work ranged from 63% to over 90% of BRL’s benefits, including using spare capacity and thus achiev-
total business. The total revenue for all BRL business com- ing economies of scale, generating a new revenue stream,
pared with the total revenue gained through JVHL (JVHL lowering unit costs, enhancing the test menu, and creat-
only) highlights the contribution of JVHL and JVHL ing a new avenue for customer (physician) bonding. The

Table 42.17 Comparison of procedures and revenue for BRL and JVHL business
Procedures Gross revenue
Year BRL JVHL Total BRLa JVHL and relatedb JVHL onlyc
1994 NAd NA
1995 NA 405,000
1996 88,000 412,000
1997 78,000 414,000 $26,265,000 $16,553,000 $1,754,000
1998 113,000 602,000 $35,098,000 $28,945,000 $2,157,000
1999 171,000 987,000 $45,119,000 $38,313,000 $1,873,000
2000 268,000 2,527,000 $66,986,000 $60,636,000 $9,174,000
a
Refers to all BRL business and all payors (Medicare, Blue Cross, JVHL, etc.).
b
Refers to the total revenue for clients with JVHL activity and includes JVHL-only gross revenue column.
c
Refers to JVHL capitated contracts (payments) only and excludes pull-through business.
d
NA, not applicable.
756 OUTSIDE MARKETING AND EXPANSION

implementation of the outreach program required care- Intrapreneur A person within a corporation who takes direct
ful planning. Its success is dependent on efficient support responsibility for turning an idea into a profitable finished prod-
from financial analysis, information services, hospital uct through assertive risk taking and innovation.
administration, and the departments of clinical and ana- Managed-care organizations A means of providing healthcare
tomic pathology. Improvements in operating efficiency services within a network of healthcare providers.
have been implemented: computer-assisted courier rout-
Medicaid Federal and state matching entitlement program es-
ing, online test directory, client interaction tracking and tablished under Title XVIII of the Social Security Act intended to
report system, and software to identify prospective new provide medical assistance to eligible needy individuals.
clients (26, 27). Remember, the goal is to dazzle all the cli-
ents most of the time with excellent service. Medicare Federal health insurance for the aged established un-
der Title XIX of the Social Security Act.
Myth Inaccurate information perceived as truth by major ad-
KEY POINTS
ministrative decision makers.
■ An outreach program will expand the laboratory’s core
Organization chart Defines the formal lines of reporting and
business—providing laboratory services.
communication.
■ A champion or intrapreneur is required to facilitate
implementation of a new outreach program. Outreach program Marketing laboratory services to physician
offices, nursing homes, and other hospitals.
■ Hospital administration is aligned with inpatient issues.
Payor mix The preparation of revenue realized from different
■ The aid of a consultant may be of value in developing
types of payors.
the outreach program.
Revenue Actual or expected cash inflow due to the outreach
■ Simplify the bureaucracy surrounding the approval
program’s major business.
process for new equipment and personnel for outreach
program needs. Revenue cycle Sequence of events that the provider must moni-
tor to maximize the amount and timeliness of payment from
■ Sales and marketing staff require training to design
payors.
sales strategies specific for client categories.
Send-out test Procedure not performed in any of the hospital’s
■ Computer-assisted courier routing is more efficient
clinical laboratories that, therefore, must be sent to another labo-
than manual routing. ratory to be assayed.
■ Outreach volume growth will increase the test menu in
Up-selling The practice of informing clients of a new or im-
each laboratory section. proved laboratory test that may have improved sensitivity and
■ Develop a system to project future volume from pro- specificity over the routine screening assay. These new or im-
spective new clients to aid in planning for personnel proved assays may be applicable to patients with a well-defined
and laboratory equipment. subset of a certain disease or for patients who have failed the
usual therapeutic strategies.
■ Reduce the number of low-reimbursement, high-cost
send-out test requests.
■ Monitor the outreach program’s financial outcome at REFERENCES
least monthly, including test volume, supply costs, per- 1. Anderson, V. 2007. Hospital laboratory outreach: benefits and
sonnel costs, and revenue-cycle issues. planning. Clin. Lab. Med. 27:791–805.
■ Affiliation with a joint venture with other hospital- 2. Ayad, E. 2011. Virtual telepathology in Egypt: applications of
based outreach laboratories will increase success in ob- WSI in Cairo University. Diagn. Pathol. 6(Suppl. 1):51. http://www
.diagnosticpathology.org/content/6/51/51 (last accessed on April 3,
taining contracts with managed-care organizations.
2012).
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Introduction
43
The Clinical Laboratory as a Business • The Phases of
Finance and Decision Making
the Growth Curve
Decision Making in Laboratory Outreach
in Outreach
Management
Types of Costs Michael G. Bissell and Harry E. Pukay-Martin
Direct and Indirect Costs • Fixed, Variable, and
Mixed Costs • Unit Costs • Additional Cost Concepts
for Decision Making • Characteristics of Laboratory
Costs • Microcosting
Levels of Decision Making in Outreach OBJECTIVES
Operations To provide background on some basic financial concepts related to operational
Menu: To Test or Not To Test • Operation: To Perform and strategic decision making in laboratory outreach and the logic behind them
In-House or Send Out • Capital: Whether or Not
To Acquire New Equipment • Financing Capital: To To provide formulas and worked examples of calculations in the appendixes
Lease or Buy Equipment
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
I can make more generals, but horses cost money.
Abraham Lincoln

Introduction
The Clinical Laboratory as a Business
As a business, the clinical laboratory is unique and complex, sharing the eco-
nomic characteristics of both a service business and a manufacturing industry
(1–6). It is a service industry that is nonetheless responsible for a product: clinical
information. The production of laboratory data requires a heavy investment in
assets such as scientific instruments, advanced facilities, and trained personnel.
This heavy endowment of assets is more typical of manufacturing firms. The lab-
oratory’s service is characterized by an extremely short service turnaround time
compared to many other service industries. Clinical laboratory operations (par-
ticularly those that are “24/7”) require a more constant and demanding manage-
ment of human and financial resources than does the average service business.
It is often overlooked that laboratory work can have a seasonal component,
as, for example, when setting up assays for influenza. When found to be pres-
ent, seasonality should be an important planning factor, especially in efforts to
deploy the usually limited human and financial resources.
Constant technological innovation characterizes the clinical laboratory to
a greater extent than in many other service industries. The frequent changes
and improvements in techniques and methods of producing laboratory results
create much uncertainty in the acquisition of equipment and material, which
Clinical Laboratory Management, 2nd Edition
may have a relatively fast rate of obsolescence.
Edited by L. S. Garcia Some have compared the clinical laboratory business to a bakery or a
©2014 ASM Press, Washington, DC photo-finishing firm, in that both product and rapid turnaround time are ba-
doi:10.1128/9781555817282.ch43 sic components of the service.

759
760 OUTSIDE MARKETING AND EXPANSION

The Phases of the Growth Curve that price competition, external service demands, and the
A product, technology, firm, or industry is said to evolve quest for market share vie with and may supplant certain of
through phases of development during which aspects of the internal preoccupations of traditional hospital-focused
its economics may change. The initial or startup phase is a laboratory management. More of the decision making has
time when the new venture is usually not profitable, and its a distinctly financial character, and a deeper understand-
rate of growth is sluggish at first. This is the phase in which ing of a variety of cost concepts and cost behaviors is the
many laboratory or product failures occur. Financial plan- ultimate basis for it.
ning for this phase is inherently difficult and challenging
because of the number of uncertainties involved. Types of Costs
The growth phase is the phase of fastest expansion and
the greatest operational challenge, when a laboratory ven- Direct and Indirect Costs
ture breaks even or a product begins to pay off. The chance Direct costs are all costs that can be specifically linked to
of its long-term survival is considered much improved if it a test. Examples of direct costs include technical, supervi-
has successfully weathered this phase. Financial planning sory, and clerical wages; overtime; on-call payments; and
during this phase is exciting because of the unusual growth chemicals and supplies related to the test. Service costs are
rate, though some residual uncertainty remains. direct costs that are incurred as tests are performed. They
During the mature phase, typically operational pains represent variable costs plus those fixed costs that are most
are no longer as great and the rate of growth has slowed. directly traceable to the testing. The service cost concept is
When a laboratory or product reaches this stage, its pros- useful in budgeting and analyzing cash flow.
pects for survival in the market are favorable. Financial Indirect costs (or overhead) are all costs not directly
planning becomes routine and continuous. traceable to the test but included in the total laboratory
The declining phase is the phase of negative growth, expenses. Examples of indirect costs include depreciation,
which presents a special challenge. At the least, it should be building and equipment maintenance, insurance, utilities,
anticipated so that it will trigger a search for a new product housekeeping and purchasing and billing services, as well
or technology. The clinical laboratory industry as a whole as sales, marketing, and development costs. Many indi-
has often been portrayed as being in the mature phase rect costs are period costs, i.e., costs that represent fixed
currently, though foreseeable changes in technology may outlays for the whole laboratory or the whole hospital per
modify this assessment one way or the other. unit time for outreach operations that are integral with
Given all of the clinical laboratory’s special character- hospital laboratories. The details of the allocation for-
istics as a business, and given the fundamental dynamics mulas by which hospital administration assigns indirect
of change in the contemporary U.S. healthcare industry, costs from the general hospital operation to the outreach
the ongoing challenge is to provide lower prices and easy laboratory operation can be the deciding factor in under-
access to services while reducing per capita costs and standing the true profitability of lab outreach. These allo-
maintaining high standards of quality. As more decisions cation rules must be explicit, well-justified, and mutually
about the cost and volume of health services to be deliv- agreed upon at the outset for laboratory outreach to have
ered move from the physician and hospital to the pur- any hope of success.
chasers of care, both hospital and physician office clients
have focused energy on accounting for and managing Fixed, Variable, and Mixed Costs
costs. The economic mission of the hospital laboratory Fixed costs remain unchanged for a given period of time,
has shifted from revenue generation per se to managing despite fluctuations in test volume. Examples of fixed costs
the cost side of the equation. Hospital laboratories have include supervisory and custodial wages and benefits, re-
increasingly replaced labor with technology; creatively quired regardless of volume, as well as depreciation of the
dealt with productivity issues; and merged, consolidated, building, space, and equipment. Variable costs change in
regionalized, and formed joint ventures to achieve econ- more or less direct proportion to test volume. Examples of
omies of scale. variable costs include technologist wages and benefits, re-
agents, glassware, disposable supplies, and forms. It is ap-
propriate to regard some costs as mixed costs, since costs
are often difficult to classify definitively as either fixed or
Decision Making in Laboratory variable. Clerical staff can be reduced upon a decrease in
Outreach Management clinical activity, but a certain number of such positions are
Outreach potentially represents an alternative approach to required regardless of volume. Fixed costs hold constant
ensure the survival of the hospital clinical laboratory in the only over a relevant range of activity. If volume increases or
midst of unparalleled industry change. The transition to decreases dramatically, as under catastrophic conditions,
outreach, however, represents a true change of culture, in all fixed costs become variable to some extent.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 761

Unit Costs called sunk costs, since they are not changeable by any
Unit costs are the costs per unit of production or unit of management decision and have importance mainly in
service provided, accountable as fixed and variable costs forecasting trends. Future costs, both fixed and variable,
per unit. Variable cost per unit generally remains the same direct and indirect, on the other hand, have the potential
regardless of volume. As volume increases, the total vari- to be changed by current decisions and thus represent the
able cost increases by the same percentage, yet on a per- most appropriate focus for planning efforts, like budget
unit basis the variable cost remains unchanged. Fixed and capital-acquisition decisions.
cost per unit is generally reduced as the total fixed cost is Differential or incremental costs represent the change
spread over more tests. Total fixed costs remain the same in future fixed and/or variable costs resulting from specific
regardless of volume increases, whereas on a per-unit basis courses of action. A special case is the unit incremental or
they decline. Economy of scale means that the higher the marginal cost, which is the cost of adding one additional
volume of tests, the lower the overall unit cost. unit of production. Total costs represent the sum of these
It is important to be able to differentiate the varieties of incremental costs plus those costs that do not change due
unit costs that occur in clinical laboratory operations. Cost to the course of action being considered.
per test (or cost per result) is typically the total of the di- Opportunity costs represent benefit that may be missed
rect (both fixed and variable) costs, as well as allocations of as a result of rejecting a more profitable alternative use
certain of the “more direct” indirect costs associated with of resources (materials, labor, facilities, or capital) when
the production of a single individual analyte test result: making a decision. They represent lost revenue, not expen-
reagents, disposable supplies, equipment, and labor. Cost diture, and they are variable costs whose amounts depend
per reportable result includes the same costs not only for on the alternatives under consideration. Imputed costs are
the individual analyte test result itself but also for all the all costs (including opportunity costs) that do not involve
quality control, calibrator, waste, and repeat results neces- outlay of cash. An example might be depreciation of capi-
sary to be able to report that result. Cost per billable result tal equipment. For capital-expenditure decisions and in
accounts for the costs of all the reportable results that are other situations in which investment alternatives are being
included in a unit of service, such as a test panel or battery, considered, opportunity or imputed costs become useful
that is made up of multiple individual analyte results but concepts. They are not explicitly listed in accounting rec-
billed as a group, i.e., counts a 12-test panel as 1 result unit, ords but must be derived.
not 12. Cost per relative value unit (RVU) applies to certain Controllable costs are fixed or variable costs that can
results, like surgical pathology reports, that have a labor be influenced by a specific individual’s decision making.
component involving significant professional time spent Noncontrollable costs are outside the scope of a specific
on cognitive interpretative tasks. For such results, various individual’s control. The concepts of controllable and
systems of RVUs have been devised and implemented by noncontrollable costs are useful in evaluating individu-
professional organizations to account for these activities in als’ performance in terms of fiscal accountability. Thus,
order to bill for them. The laboratory costs associated with the statement that an executive has “P and L” (profit and
these billables can be accounted as cost per RVU. loss) responsibility for any portion of the operation im-
plies that all of its costs are controllable, either directly or
indirectly, by that individual. Table 43.1 compares vari-
Additional Cost Concepts for Decision Making ous types of costs.
Costs can be accounted in a variety of ways, and the par-
ticular cost concepts used in a given situation may dif- Characteristics of Laboratory Costs
fer depending on the nature of the decision to be made, Fixed costs constitute a large proportion of overall cost in
i.e., planning and budgeting, reporting, or monitoring a typical clinical laboratory. This fact has implications for
and feedback. Each cost concept thus has a task-specific certain key decisions, such as those involving analyses of
usefulness. cost, volume, and margin interrelationships. It also means
Out-of-pocket costs represent cash outlays made at or that in a typical hospital laboratory, the range of alterna-
close to the time of a given activity. Timing of cash flows tives may be limited by the fact that a change in volume
in capital transactions may have out-of-pocket costs as im- does not necessarily result in a directly corresponding
portant considerations in decision making. In contrast to change in costs. The existence of this phenomenon may, on
out-of-pocket costs, book costs reflect allocations of past the other hand, create opportunity for outreach in terms of
outlays to the current period and have more limited use- the potential for utilizing the de facto marginal excess pro-
fulness in budgeting and capital decision making. duction capacity these necessary fixed costs may represent
Historical costs are actual cash payments accounted for when viewed from the outreach perspective. An example
and recorded at the time of outlay. They are used exten- might be expanding volume on off shifts in a three-shift
sively in external reporting and represent what are also operation to “fill the factory” 24 hours per day.
762 OUTSIDE MARKETING AND EXPANSION

Table 43.1 Comparisons of different types of costs

Dimension Cost Characteristics Examples Related concepts
Operational traceability Direct Traceable to production of indi- Reagents, supplies, technical
vidual tests wages
Indirect Not directly traceable to produc- Utilities, capital, maintenance, Overhead
tion of individual tests marketing and sales expenses

Volume behavior (may Fixed Total remains unchanged regard- Supervisory wages, rent
be direct, indirect, or a less of test volume
combination) Variable Total changes with test volume Reagents, disposable supplies
Mixed Hard to classify with regard to Clerical wages, IT costs
volume behavior

Denominator (may be Incremental Accounted per unit of Cost per test Marginal cost, unit cost
direct, indirect, or a production per: result, billable, RVU
combination) Period Accounted per unit of time Annual cost

Cash flow impact (may Out-of pocket Involves outlays of cash during Supplies, reagents, salaries,
be direct, indirect, or a production utilities
combination) Imputed Incurred in ways other than Capital payback, depreciation, Historical costs, sunk
direct cash outlays inflation costs, book costs

Accountability (may Controllable Influenced by individual lab Reagents, supplies, overtime Opportunity costs
be direct, indirect, or a manager’s decisions Benefits, utilities
combination) Noncontrollable Not usually influenced by indi-
vidual manager’s decisions

Microcosting to available hours by taking into account the hours con-

It is essential that an outreach laboratory account explicitly sumed in holidays, vacations, and sick leave. Depending
for all of its direct and indirect costs of production. Ideally, on the laboratory, this can drive down the available hours
each test on its menu should be microcosted to account for by 10 to 23%. The consequence is to drive up the hourly
each and every category of expense involved in the pro- rate proportionately. Finally, the hourly rate must be ad-
duction of each unit of service at the test volume at which justed by the production hours (time spent on producing
the laboratory is operating. Microcosting can be either tests or other outputs) versus available hours. Available
bottom-up (built up from known unit-cost inputs; also hours can be reduced by the two 15-minute breaks pro-
known as job order costing) or top-down (unit costs esti- vided each day, meeting times to discuss objectives, and
mated from aggregate expenses divided by units of service; other important matters such as continuing education
also known as process costing). Either way, the availability provided on work time. The model in Appendix 43.1
or nonavailability of cost data by areas or tests may restrict provides a range of production hours from 60% to 100%
the analysis of cost behavior. Microcosting using the bot- depending on the judgment of the supervisor after taking
tom up or job order costing methodology involves four into account the variables above. The production rate is
important aspects: labor costing, material costing, other the real labor cost per hour.
costing (overhead and equipment costs), and the detailed In terms of material costing, it is important to review
analysis of those costs over the relevant range of volume the production process in great detail to ensure that all
produced in various production runs. the supplies are taken into account. Their unit costs can
For labor costing, it is important to determine the real be determined by reviewing the suppliers’ invoices. It is
labor cost per hour. Not only should the nominal hourly important to remember to translate the units purchased
rate paid be taken into account, but so should the fringe (package, box, etc.) into the units consumed in produc-
benefit cost rate per hour. Usually this is stated as a per- tion and adjust the unit cost appropriately. In addition, it is
centage of the hourly labor cost; e.g., 28.8% of labor costs important to divide those costs into the fixed portions over
added to the nominal hourly rate. This hourly rate must the batch and the variable portions over that same batch.
be further adjusted by actual available hours versus po- For other costing, overhead and equipment costs (main-
tential hours per year (potential hours per year is usu- tenance and depreciation) must be taken into account
ally stated as 2,080 hours = 52 weeks times 40 hours per to move to full costing. This may be accomplished using
week). In other words, potential hours must be adjusted many different methods. In the methodology illustrated in
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 763

Appendix 43.1, this is done by adding a percentage of the include an under- or unreimbursed test in the menu, will
direct costs for both overhead and equipment costs. definitely differ. The subject of clinical laboratory reim-
In terms of the detailed analysis of costs over a relevant bursement is an extremely complex one, requiring knowl-
range of production volume, it is important to distinguish edge of the detailed history of federal and state healthcare
cost components as variable or fixed. The model presented reimbursement programs, third-party payors, and man-
here starts with a batch size of one and ranges up to a typi- aged care.
cal average batch size and beyond. This method allows In dealing with this issue, first of all, it is essential to
the lab to determine cost points and pricing points given know the difference between reimbursements and charges.
a particular customer’s needs and demands. If an average In the context of outpatient fee-for-service within the
price at the expected volume is used and an order for a hospital, the charge for a given test is the amount associ-
small set of samples is received, a net loss may result. How- ated with it in the institution’s charge description master
ever, given cost and pricing points, negotiations with the (CDM). It represents the amount the hospital theoretically
customer may result in an agreement to send in a larger bills all fee-for-service payors for the test. It is important
volume at a time in exchange for substantially reduced to realize that this is a purely nominal figure, however, and
pricing. This pricing methodology is especially important the “revenue stream” that results from such fee-for-service
in price negotiations on testing for research clients. billings, called gross revenue or gross billed revenue, does
not actually exist as such in today’s world, except in certain
increasingly unusual circumstances. Note, however, that
Levels of Decision Making in gross revenue is typically the only laboratory revenue data
available to laboratory management on in-hospital work.
Outreach Operations
What the hospital actually gets paid is either directly
Menu: To Test or Not To Test determined by federal or state government policy (in the
Ideally, of course, a hospital clinical laboratory’s decision case of Medicare/Medicaid) or strongly influenced by it
about whether or not to offer a given test on its test menu (in the case of other third-party payors). The test’s rate
should be driven by objective evidence of clinical need, by of reimbursement by these payors is driven by its billing
perceived patient benefit, and ultimately, by measures of code, e.g., the Current Procedural Terminology (CPT)
patient outcome associated with the test’s use. In this con- code assigned by the American Medical Association and
text, it is largely a medical-technical decision that depends updated annually. To know whether or not a given test is
upon a consideration of the test’s potential “contribution reimbursed, therefore, the first question to be answered
to mission” for the institution and is the responsibility of is, Does it have a CPT code assigned at this time? (There
the laboratory director. Within the hospital, typically the is usually a very long time lag between application for
laboratory director is also responsible for participating in and assignment of new CPT codes.) If the answer is no,
the management of laboratory test utilization, especially financing the test through the usual channels will be dif-
important under managed-care arrangements and in- ficult. New tests and laboratory-developed (or “home-
creasingly necessary for federal compliance. If offering a brew”) tests that are truly novel analytes (as opposed to
given test will result in increased levels of inappropriate merely novel methods for accepted analytes) are often
utilization (e.g., if its published diagnostic performance assigned to a category of “research use only” or “not for
is such that a great many false positives or false negatives in vitro diagnostic use” until they have been approved for
leading to unnecessary workups are associated with its diagnostic use by the U.S. Food and Drug Administration
use), then the laboratory director may face the challenge under its 510(k) or premarket approval processes. Medi-
of educating the medical staff about this by opposing the care/Medicaid does not reimburse this test category until
test’s inclusion in the laboratory’s menu. specific CPT codes are assigned. Attempting to bill under
In outreach, while most of these underlying ethical and a general “miscellaneous”-type billing code is virtually
regulatory considerations are the same, the economic as- guaranteed to be unsuccessful.
pects of this decision making can be somewhat different. In contrast to this, in fee-for-service situations the
It will be useful to compare and contrast the situations in outreach laboratory will bill not based on a CDM but
each setting with respect to the important questions asso- rather from a fee schedule. The price at which the test
ciated with test-menu decisions. is sold to a client will usually represent a value that is
First, is the test reimbursed? The decision about in- negotiated to include a discount off of the fee schedule
cluding a test in the laboratory’s menu will have this as a list price. These negotiations may often include loss lead-
fundamental consideration, whether the test is offered for ers, i.e., tests sold to the client at or below cost to meet
hospital inpatients, outpatients, or outreach clients (non- an overall service need or provide “one-stop shopping.”
patients). But whether and how any given test is paid for, Note, however, that predatory pricing, involving discount
and the circumstances under which it may make sense to of the full fee schedule below the lab’s cost, usually done
764 OUTSIDE MARKETING AND EXPANSION

for the purpose of excluding competition, is unethical Table 43.2 Levels of financial decision making in lab outreach
and may be illegal as well. Clearly, such pricing cannot Question Answer Resulting action
be sustained over the long run, and it is only the larger Offer test? Yes Proceed to next question
laboratories, i.e., the “deeper pockets,” that can hold out No Monitor potential need
long enough to drive smaller competitors out of specific Perform test in Yes Proceed to next question
markets. In general, the outreach laboratory will be bill- house? No Make send-out arrangements
ing other providers (hospitals or physician offices) on an Test requires new Yes Proceed to next question
account-bill or client-bill arrangement or billing patients equipment? No Validate, set up assay
directly on a patient-bill arrangement, but not billing Purchase new Yes/No Analyze alternatives
state or federal agencies directly. Under these circum- equipment? financially
stances, questions of CPT coding and/or Food and Drug
Administration approval need not drive decision mak-
ing to the same degree, as long as Clinical Laboratory
Improvement Amendments (CLIA) and any other ap- Operation: To Perform In-House or Send Out
plicable regulatory quality requirements are met. In fact, Given a decision to offer a test as part of the laboratory’s
clinical considerations may drive utilization of tests that menu, the next decision is whether to set up the new test
are under- or unreimbursed within the hospital so that it in-house or to send it out to a reference lab. In addition to
may have to buy them from a reference lab or outreach the logistical considerations of test turnaround time and
program under an account-bill arrangement. availability, an essential financial consideration in this de-
The amount that either the hospital or the outreach cision is the concept of the laboratory’s net contribution
program actually gets paid for a given test (called the net margin (for in-hospital work) or net profit (for true out-
revenue or net collected revenue) is equal to the billed reach) for a given test. This is defined as the total net rev-
amount minus allowances and bad debt. Allowances in- enue generated by the test minus the total unit cost (both
clude cost-based reimbursements, reductions in payments direct and laboratory-related indirect) for which the labo-
based on discounted charges, and charity care. Bad debt is ratory is responsible.
other unpaid and uncollected billings. The reimbursement A sample problem adapted from one presented in ref-
rate depends upon the type of financing in place for the erence 5 should make this clear, while also showing how
patient on whom the test was ordered (known in the ag- some of the different cost-related concepts above are used
gregate as the provider’s payor mix). in a typical make-or-buy decision: Suppose a laboratory
If the service is being provided under a managed-care offers a test on its menu and charges $10.00 per billable
arrangement governed by capitation, then there is no bill- result for it. Suppose further that a calculated, fully loaded
ing at all for the test; its cost is simply reimbursed as part total cost per billable for this test is $13.00, which includes
of the managed-care organization’s per capita payments to all test-specific direct costs at $5.00, all laboratory-specific
the hospital or laboratory for its members’ care (e.g., a pre- indirect costs at $4.25, and all hospital-wide allocated indi-
negotiated per member per month, or PMPM, rate). Any rect costs at $3.75. Calculating the test’s profit or contribu-
positive margin earned by the hospital or laboratory un- tion then gives $10.00 − $13.00 = −$3.00, a loss on each
der these circumstances is strictly a function of the degree test performed. If the laboratory performs 1,000 of these
to which it can minimize both unit cost and utilization of tests annually, the extended loss becomes $3,000 per year.
testing. Negotiating managed-care contracts under capita- If the test, offered at $10.00 per billable, were purchased by
tion is a very specialized subject and is beyond the scope the laboratory as a send-out from a commercial laboratory
of this chapter. at $8.00 per billable instead of being produced in-house,
As previously mentioned, pricing of outreach testing the loss would apparently turn to a profit (handling fee) of
must ultimately be based on the unit cost plus a markup $2.00 per billable. Is this what should be done?
representing profit margin. It must also, of course, re- The reasoning here needs to be scrutinized by concen-
flect what the market will bear, i.e., it must be competi- trating on exactly which costs of performing this test are
tive with the pricing of the other lab providers, including relevant in this decision-making process. The test-specific
national reference laboratories, operating in the area. direct costs of $5.00 per billable include $3.52 for direct
Therefore, it can be crucial that the costing of the test labor, $0.48 for direct reagents and disposables, and $1.00
reflect a true sense of the marginal or incremental net of other direct costs. These are out-of-pocket cost savings
cost of its production, given the hospital’s sunk costs and that will be realized by no longer performing the test on
excess capacity. Table 43.2 presents the levels of financial site. The labor cost may be considered fixed in this case,
decision making involved when deciding whether to of- because the technologists are likely to remain on staff. For
fer a test. These concepts are illustrated in some of the purposes of this example, assume labor to be a truly vari-
material below. able cost savings. The appropriate analysis, then, would be
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 765

as shown in Table 43.3. The $8.00 purchase price, if the test Note that federal tax and regulatory considerations, the
is sent out, results in a net increase in out-of-pocket cost of so-called shell laboratory provisions, dictate an effective
$3.00 per billable above the savings in direct costs of $5.00. upper limit for the portion of a laboratory’s volume that can
Since the indirect costs incurred by the laboratory remain be sent out to another laboratory. Basically, a laboratory that
in effect, regardless of this decision, arguably they should is sending out more than 30% of its work to be performed
not be considered relevant. Therefore, if the test is contin- elsewhere is regarded as not actually being in the laboratory
ued in-house, its net profit is greater. If the labor component business under federal fraud and abuse regulations.
is treated as a fixed cost (the technologist would remain on
staff), then labor, like the indirect costs, would no longer Capital: Whether or Not To Acquire New Equipment
be relevant, and the argument for continuing to do this test Given a decision to “make,” i.e., produce test results in-
in-house would become even stronger. The methodology house, the next decisions involve the use or acquisition of
underlying this discussion is called break-even analysis. If any capital equipment that may be involved. This aspect
the revenue and cost associated with a procedure like this of planning, capital budgeting, may be interdependent in
one (or an instrument or a methodology) are both plotted the outreach laboratory with both operational budgeting
on a graph of test volume (x) versus dollars (y), they will and strategic planning. It may include allocations for ma-
cross at a point representing a net contribution of zero, i.e., jor investments in buildings as well as equipment. In ac-
the point at which revenue equals cost, called the crossover counting terms, a capital item is commonly defined as a
or break-even point. fixed asset that is expected to provide service (i.e., have
Assume for the moment that a hypothetical labora- a useful life) of more than one year. Within this broad
tory is currently operating at the break-even point deter- definition, some important distinctions among concepts
mined by the calculations above. What about next year? should be kept in mind.
What happens if volume, cost, and/or revenue increases Repair and maintenance of capital items, for exam-
or decreases? The method most often used for explora- ple, should be differentiated from capital improvements.
tion of such what-if scenarios is sensitivity analysis. This Maintenance and repair provide ongoing upkeep of the in-
technique uses data provided from the break-even analysis vestment and are most appropriately treated as operating
and provides potential insight into the effects of changes expenses. Since capital improvements are just that, that is,
in costs, revenues, volumes, and/or net income. Basically, they make the items better than when purchased, they are
the calculations are repeated with substitution of the hy- most appropriately treated as capital expenses. Replacing
pothetical change in one variable at a time. For example, an entire fixed asset should be regarded as a capital expen-
consider whether the above decision would be different diture, whereas replacing a component part is best treated
with any of the following changes in the conditions. Sup- as an operating expense.
pose there were a 20% increase in test volume, or a price Leasing arrangements differ in whether they define a
increase that produces a 20% increase in revenue, assum- given expense as a capital or an operating line item. Rela-
ing no bad debts or allowances, or a 20% reduction in vari- tively inexpensive new items with useful lives of greater
able labor expense for the same test volume. Virtually any than one year are often initially classified as capital, but
future situation may be simulated with the use of current their replacements are treated as operating expenses from
data. Although sensitivity analysis has the virtue of rela- then on (e.g., certain furniture items and items costing
tive simplicity, it should be applied with some caution. It $500 or less).
assumes that all costs are either variable or fixed (i.e., no The budgeting period is very important for capital bud-
mixed costs), that variable costs are a linear function of geting. In outreach work, review of capital needs should
(directly proportional to) volume, and that a relevant range occur at least annually. Long-term planning, while always
exists for all levels of activity. Though these simplifications desirable, may often not be possible in today’s dynamic
make the analysis possible, they may influence interpreta- marketplace. The longer the time horizon used, the more
tion of analytical results, such that an appropriate “taking likely are the predictions involved to be inaccurate, so this
it with a grain of salt” is always in order. process must always be approached flexibly.
Capital budgets typically contain separate categories for
Table 43.3 Factors in the decision to make or buy a test minor and major items. Minor capital consists of relatively
low-cost items, perhaps under $2,500, requiring less in the
Make (continue Buy (from
Factor in-house testing) reference lab)
way of analysis. This may just be an outline of the costs,
along with an indication of whether the item is a replace-
Charge $10.00 $10.00
ment, new item, renovation, improvement, or regulatory
Direct costs $5.00 $8.00
requirement, along with a brief budgetary justification.
Indirect costs Not relevant Not relevant
These items may just be prioritized numerically or may
Contribution $5.00 $2.00
be classified into the following categories: (i) needed to
766 OUTSIDE MARKETING AND EXPANSION

continue present service, (ii) needed to support recent vol- Appendix 43.3. Following generally accepted accounting
ume growth, (iii) providing opportunity for cost savings or principles (GAAPs), there are two types of leases, known as
profit at the existing volume, (iv) providing opportunity for cancelable and noncancelable leases. In cancelable leases,
improvement in quality or service levels, and (v) providing if the laboratory can cancel the lease and cease making
opportunity to implement new programs or initiatives. payments whenever it chooses without penalty, the lease
Major capital items, e.g., items over $2,500 (or a similar is called an operating lease and is treated as an operating
figure), may be split up into annual purchase requests over expense. If, for the term of the lease, it cannot be canceled
a longer (three- to five-year) period and generally require and there is an option to purchase the equipment, then the
more in the way of analysis. Supporting documentation lease is called a capital lease, is viewed as a form of capital
needs to be more detailed and specific, often involving borrowing for a purchase, and is accounted for as a capital
statements or descriptions of (i) general purpose, (ii) im- acquisition within the capital budget.
portance, (iii) projected client demand and utilization, Financing alternatives typically are (i) to purchase the
(iv) availability of alternatives, (v) estimated useful life, item from the laboratory’s internal funds, (ii) to borrow
(vi) estimated total acquisition cost, (vii) estimated as- external funds for its purchase, or (iii) to lease the equip-
sociated yearly cash outflows, and (viii) estimated yearly ment. The costs associated with each of these approaches
cash inflows or savings. can be analyzed side by side using the present-value meth-
It may be difficult to make these last two projections, odology as described in Appendix 43.3.
but such data on expected cash flows are crucial to the ana-
lytic techniques used in evaluating capital alternatives. In
performing these projections, consider only incremental Summary
amounts. Be concerned only with marginal or additional Outreach can represent an alternative path in the develop-
cash outflows and inflows that will occur as the direct ment of a hospital laboratory, but it is one in which price
result of the new project above and beyond the current competition becomes a basic reality and market share be-
baseline. Count only cash inflows and outflows, bearing in comes a critical measure of success. The outreach labora-
mind that accounting statements of revenue and expense tory, to provide its customers with the benefits of one-stop
that are maintained on other than a cash basis are likely to shopping, must compete on quality and service, and these
yield inaccurate estimates of the actual cash either gener- are critical success factors that require investment. It may
ated or spent. also, if it is large enough, have the opportunity to compete
In the clinical laboratory business, capital items are vi- on technological innovation, but in reality this applies to
tal to financial capability and future viability. An attempt relatively few hospital-based startup ventures. Mainly, it
must therefore be made to ensure a reasonable return on will have to compete on price, which means that, of neces-
the investment represented by each capital item. Return- sity, it must produce as much or more with the same or
on-investment (ROI) calculations (discussed in some de- fewer material and human resource inputs per unit of ser-
tail in Appendix 43.2) need to start with an estimation of vice than does the competition. It also means that the cost
this return percentage, referred to as the required rate of of new sales, in terms of the cost of marketing, sales activ-
return (or discount rate). In the example adapted from ref- ity, distribution, client service, and quality enhancements
erence 4 and given in the appendix, a 10% rate is used. The and/or technology improvements, must be managed as
actual required rate of return on a given project may be actively as are the costs of daily production. In all of this,
based on any of a number of factors that may include (i) familiarity with the basic types and interrelationships of
the cost of borrowing new funds (i.e., the interest rate at costs is crucial.
which the laboratory can borrow money); (ii) the return
realized on investments of laboratory profits in short-term
liquid investment instruments such as money markets, KEY POINTS
government securities, or certificates of deposit; (iii) in a
■ An understanding of the nature and analysis of cost be-
for-profit environment, the return on investment expected
havior has fundamental significance for decision mak-
by stockholders; and/or (iv) a “fudge factor” accounting
ing in outreach laboratory management.
for possible misestimates in the calculation or the relative
■ A large proportion of the typical hospital laboratory’s
riskiness of the project.
costs are fixed, and this can create opportunity for out-
Financing Capital: To Lease or Buy Equipment reach when properly viewed as such.
Given a decision to acquire a new piece of equipment, ■ Key decisions that are financially driven include pric-
the next decisions revolve around determining the least ing and test menu decisions, make-or-buy decisions,
costly financing alternative. The lease-or-buy decision is and decisions about the financing and acquisition of
an application of present-value analysis, as described in equipment.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 767

GLOSSARY the amount the hospital theoretically bills all fee-for-service pay-
Accounts payable A buyer’s obligations or liabilities that usually ors for the test.
arise from normal operations of a business. They are neither Controllable costs Fixed or variable costs that can be influenced
backed up by a negotiable instrument nor considered overdue. by a specific individual’s decision making.
Contract obligations owed by individuals or the business on an
open account. Cost per billable result Unit cost of production of all the report-
able results that are included in a unit of service, such as a test
Accounts receivable Balances due from debtors on current panel or battery that is made up of multiple individual analyte
accounts. results but billed as a group.
Allowances Amounts to be subtracted from gross billings (along Cost per reportable result Unit cost of production for all the
with bad debt) in the calculation of net revenue, including con- items necessary to report a test result, including the individual
tractual and cost-based reimbursements, reductions in payments analyte test result itself and all the quality control, calibrator,
based on discounted charges, and charity care. waste, and repeat results that are necessary to be able to report it.
Assets All money, property, or valuables that are owned by an Cost per test (or cost per result) Unit cost of production of a
individual or organization. Assets may be used in whole or in single individual analyte test result, representing both fixed and
part to pay off liabilities (debts). variable direct costs as well as allocations of certain indirect costs
most closely associated with production: reagents, disposable
Average rate of return (ARR) The average dollar return on a
supplies, equipment, and labor.
project divided by the average dollar investment it represents,
usually calculated on an annual basis. Depreciation Estimated allowance made in accounting for the
decrease in value of a fixed asset through wear, deterioration, or
Bad debt Billings that are unpaid and uncollected and/or obsolescence during its useful life; may be calculated by different
uncollectible. standard methods.
Billing Presenting a statement of charges to another healthcare Differential or incremental costs The change in future fixed
provider, such as a hospital or physician office (account bill or and/or variable costs projected to result from changes in produc-
client bill), or to a patient (patient bill). tion methods, costs of inputs, or other events or specific courses
Billing code Standardized designation for medical procedures of action.
(such as laboratory tests) that are billable under federal govern- Direct costs All costs that are incurred directly as a result of
ment reimbursement rules, e.g., the Current Procedural Termi- producing test results, e.g., technical, supervisory, and clerical
nology (CPT) code assigned by the American Medical wages; overtime; on-call payments; and chemicals and supplies
Association and updated annually. specifically expended to perform the test.
Book costs Outstanding liabilities counted against the assets of Economy of scale Positive relationship between increased vol-
a business as shown on its account books and reflecting alloca- ume and decreased unit cost of production.
tions of past outlays to the current period.
Fee schedule Listing of the prices charged for tests by an out-
Bottom-up microcosting Estimating the unit cost of a labora- reach laboratory in fee-for-service situations, i.e., in billing indi-
tory test by summing the estimated unit costs of each of the input viduals who are nonpatients of the laboratory or its parent
components (materials, labor, etc.) for a single performance of institution or in billing clients representing nonpatients.
that test (also called job order costing).
Fixed assets The items of physical property (equipment, build-
Break-even or crossover point The point in the lifespan of a ings, and/or land) owned by a business or other entity; also
business or project at which the revenue it generates equals its known as tangible or nonliquid assets.
cost and thus represents a net contribution margin or profit of
zero. Fixed costs Laboratory costs that remain unchanged for a given
period of time, despite fluctuations in test volume, e.g., supervi-
Capital item A fixed asset that is expected to provide service sory and custodial wages and benefits required regardless of vol-
(i.e., have a useful life) of more than one year. ume, building maintenance and utilities, and depreciation.
Capital lease A lease that cannot be canceled during its term and “Fraud and abuse” provisions Portions of the Medicare and
that typically includes an option to purchase. It is accounted as Medicaid regulations pertaining to definitions of prohibited lab-
a form of capital borrowing for a purchase and is accounted for as oratory business practices, such as physician self-referral and
a capital acquisition within the capital budget. other forms of inducement and conflict of interest.
Cash flow The patterns of receipts and expenditures of a com- Future costs Anticipatable costs that potentially can be affected
pany (or other entity) resulting in the availability or nonavail- by current budget and capital-acquisition decisions and thus rep-
ability of cash. resent the most appropriate focus of planning.
Charge In the context of outpatient fee-for-service within the Generally accepted accounting principles (GAAPs) A widely
hospital, the charge for a given test is the amount associated with it recognized set of standard accounting procedures and
in the institution’s charge description master (CDM), representing definitions.
768 OUTSIDE MARKETING AND EXPANSION

Gross revenue or gross billed revenue The amount of gross in- Net profit For all true outreach nonpatient testing, the total net
come that would theoretically result if a hospital or laboratory revenue generated by the laboratory, minus the total cost of test
could bill and collect all its charges from all its payors. production (direct and indirect) for which the laboratory is re-
sponsible, constitutes the laboratory’s profit.
Historical costs Costs incurred by a business in the form of pay-
ments that are accounted for and recorded at the time of actual Net revenue or net collected revenue The amount either the
cash outlay (also known as sunk costs). hospital or the outreach program actually gets paid for a given
test is equal to the billed amount minus allowances and bad debt.
Imputed costs Costs incurred by a business in any form that do
not involve actual outlay of cash, such as opportunity costs, de- Noncontrollable costs Costs outside the scope of a specific indi-
preciation, etc., which are not explicitly listed in accounting rec- vidual’s control.
ords but must be derived by calculation.
Operating lease A lease that can be canceled during its term and
Indirect costs (overhead) All general laboratory costs not easily that typically does not include an option to purchase. It is ac-
or directly traceable to the production of individual test results counted as a form of operating expense.
but included in total laboratory operating expenses, e.g., depre-
Opportunity costs Imputed costs representing missed opportu-
ciation; building and equipment maintenance; insurance; utili-
nity, i.e., the potential financial gain that is missed when a more
ties; housekeeping; and costs associated with purchasing and
profitable use of resources (materials, labor, facilities, or capital)
billing services, sales, marketing, and development.
is rejected or abandoned in favor of a less profitable one. Oppor-
Inflation Effective relative increase in the amount of money in tunity costs are lost revenue, not expenditures, and they repre-
circulation, resulting in a fall in its value and a rise in prices sent variable costs whose amounts depend on the alternatives
over time. under consideration. (They are related to the concepts of the
time value of money or net present value, i.e., best use of funds
Job order costing See Bottom-up microcosting.
among competing investments.)
Lease A written agreement or contract by which one party (the
Out-of-pocket costs Costs involving immediate expenditures,
lessor) gives to another (the lessee) the use and possession of
i.e., incurred as cash outlays occurring at or near the time of pur-
property for a specified time (the term) and for fixed payments.
chase; potentially important in capital budgeting.
List price The price of a test listed in a laboratory’s fee schedule
Overhead See indirect costs.
and representing the nominal price charged to its fee-for-service
clients (nonpatients and clients representing nonpatients). The “P and L” (profit and loss) responsibility Individual financial
actual price is typically negotiated to include a discount off of the accountability for a business or portion of a business implies that
fee schedule list price. all of its costs are controllable, either directly or indirectly, by that
individual.
Loss leader A test sold to a client at a price discounted below
cost in order to meet an overall service need or provide “one-stop Patients Individuals receiving care (and laboratory testing) after
shopping.” Note that it is not legal to loss lead entire accounts, being registered and seen in a clinic (hospital outpatients), after be-
but only individual tests within an account. See also Predatory ing registered and admitted to the hospital (hospital inpatients), or
pricing, and “Fraud and abuse” provisions. as clients of the laboratory’s outreach business with no other con-
nection to the hospital per se (hospital nonpatients).
Marginal cost The incremental cost of adding one additional
unit of test production. Payback period The period of time that a capital investment
takes to be completely recovered from its resulting cash flows.
Microcosting Calculating the unit costs of test production to
account for each and every category of expense involved at the Payor mix The distribution of the different forms of healthcare
laboratory’s current test volume: performed in either a bottom- financing in place among the population served by a healthcare
up or top-down fashion. provider, e.g., Medicare, Medicaid, private pay, managed care,
uninsured, etc.
Mixed costs Costs that are somewhat, though not totally, de-
pendent on volume, i.e., are difficult to classify definitively as ei- Period costs Costs that represent fixed outlays for the whole lab
ther fixed or variable, e.g., clerical staff. or the whole hospital per unit time.
Net contribution margin For all hospital inpatient and outpa- Per member per month (PMPM) rate For services provided un-
tient testing, the total net test revenue generated by the labora- der a managed-care arrangement, the managed-care organization’s
tory, minus the total cost of test production (both direct and per capita payments to the hospital for its members’ care. Under
laboratory-related indirect) for which the laboratory is respon- such arrangements, laboratory tests are most typically bundled,
sible, constitutes its contribution to the hospital’s bottom line. i.e., there is no separate billing for tests, which are regarded as be-
ing reimbursed as part of the overall capitated payment.
Net present value (NPV) The present value of all the cash flows
created by a project minus the dollar amount of the initial invest- Predatory pricing Discount of the full fee schedule to a client
ment in it (also known as the time value of money associated below the laboratory’s cost, if done for the purpose of excluding
with the investment). competition, is unethical and illegal.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 769

Present value (PV) or time value of money The dollar amount Sum of the years’ digits (SYD) method Standard accounting
that, if it were invested now at a given rate of return, would accu- method of calculating depreciation of fixed assets that involves
mulate to a given specified value at a specified time in the future. unequal weighting of time periods.
Process costing A method of microcosting in which unit costs Sunk costs See Historical costs.
are estimated from aggregate expenses divided by units of ser-
Top-down microcosting See Process costing.
vice. See also Top-down microcosting.
Unit costs Costs per unit of production or unit of service pro-
Relative value unit (RVU) Workload units accounted under any
vided (test, reportable result, billable result, or RVU), account-
of several weighting systems devised and implemented by pro-
able as total of fixed plus variable costs per unit.
fessional organizations to account for a labor component involv-
ing significant professional time spent on cognitive interpretative Variable costs Direct or indirect costs that vary in direct pro-
tasks in the production of certain test results, like surgical pa- portion to test volume, e.g., technologist wages and benefits, re-
thology reports, in order to equitably bill for them. The labora- agents, glassware, disposable supplies, and forms.
tory costs associated with these billables can be accounted as cost
per RVU.
REFERENCES
Return on investment (ROI) Calculation (involving a variety of
different methods) of a specified payback amount (also known as 1. Abraham, M., Beebe, J. A. Dalton, et al. 2010. Physicians Current
the required rate of return or discount rate) on a given Procedural Terminology, CPT 2010. American Medical Association
investment. Press, Chicago, IL.
2. Bennington, J. L., G. E. Westlake, and G. E. Louvau. 1974. Fi-
Sensitivity analysis A method for testing premises used in deci- nancial Management of the Clinical Laboratory. University Park
sion making, i.e., determining the sensitivity of conclusions de- Press, Baltimore, MD.
rived from calculation to the ranges of numerical values chosen
as inputs with substitution of the change in one variable at a time 3. Shuffstall, R. M., and B. Hemmaplardh. 1979. The Hospital Lab-
to determine their effects (also known as what-if calculations or oratory: Modern Concepts of Management, Operations, and Finance.
best- and worst-case scenarios). C.V. Mosby Co., St. Louis, MO.
4. Snyder, J. R., and D. A. Senhauser. 1989. Administration and Su-
Service costs Costs that are incurred as tests are performed, rep-
pervision in Laboratory Medicine, 2nd ed. J.B. Lippincott, Philadel-
resenting variable costs plus those fixed costs that are most directly
phia, PA.
traceable to the testing, and related to the concept of cash flow.
5. Travers, E. M., D. C. Delahunty, L. L. Hunter, K. D. McClatchey,
“Shell lab” provisions Portion of federal fraud and abuse regula- J. M. Rudar. 1998. Basic Cost Accounting for Clinical Services. Ap-
tions dictating an effective upper limit for the portion of a labora- proved Guideline GP11-A. National Committee for Clinical Labora-
tory’s volume (30%) that can be sent out to another laboratory. tory Standards, Wayne, PA.
Straight-line depreciation Standard accounting method of cal- 6. Ullmann, J. E. 1976. Theory and Problems of Quantitative Meth-
culating depreciation of fixed assets that involves equal weight- ods in Management. Schaum’s Outline Series. McGraw-Hill, New
ing of time periods. York, NY.
770 OUTSIDE MARKETING AND EXPANSION

APPENDIX 43.1 Microcosting

LABOR
Below is an example of the calculations to determine real labor costs.

Salary spreadsheet Potential hours

Sara Smith
Base salary ($) 48,006.40
Salary per hour 23.08
Fringe benefits (%) 32.2%
Salary per hour with benefits 30.51

Days Hours
Starting amount 2,080
Vacation 20 160
Holidays 10 80
Sick leave 6 48
Available hours 1,792

Rate 0.86
Available hours rate 35.42

Production percentage 90%

Production rate or real cost of labor 39.35

Production Table
Production percentage Nominal rate
100% 35.42
90% 39.35
80% 44.27
70% 50.59
60% 59.03

TEST
See the next page for an example of microcosting a single test.
 Test: XYZ Test IHC
ENTER# in one Case ALL COSTS ARE COST PER SLIDE
Patient slides 1
Neg control slides 1.00
Separate pos control slides 0
Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Fixed costs Normal
run
Supplies Dako High pH Antigen Re- $8.84 $9.42 $6.28 $4.71 $1.57 $1.26 50 ml from a 10× concentrate (or 5 ml of actual products),
trieval Solution, code S2367 used for 1–24 slides, 110 ml per order @ $414.48 per order or
APPENDIX 43.1 Microcosting (continued)

$18.84 per run

Fisher 30% H2O2, catalog $1.64 $0.82 $0.55 $0.41 $0.14 $0.11 1 run requires 20 ml (1–24 samples), 500 ml per order
H325-500 @ $41.01, or $1.64 per run for 1–24, $3.28 for 25–48
Xylene $5.39 $2.70 $1.80 $1.35 $0.45 $0.36 1 run requires 100 ml, 1 liter per order @ $53.92 or $5.40 per
run
100% alcohol $1.63 $0.82 $0.54 $0.41 $0.14 $0.11 1 run requires 100 ml, 1 liter per order @ $16.33 or $1.63 per
run
95% alcohol $1.59 $0.80 $0.53 $0.40 $0.13 $0.11 1 run requires 100 ml, 1 liter per order @ $15.9 or $1.59 per
run
Richard Allan Hematoxylin, $6.43 $3.21 $2.14 $1.61 $0.54 $0.43 1 run requires 50 ml, 1 liter per order @ $128.51 or $6.43 per
catalog 7211 run

Total cost per slide $35.52 $17.76 $11.84 $8.88 $2.96 $2.37

Labor Technician time $117.18 $58.59 $39.06 $29.30 $9.77 $7.81 2 hrs total (5 hrs w/machine time) 60% productivity
@ $60.63/hr

Total $117.18 $58.59 $39.06 $29.30 $9.77 $7.81

Total fixed costs $152.70 $76.35 $50.90 $38.18 $12.73 $10.18
Total cost per case $305.41 $152.70 $101.80 $76.35 $25.45 $20.36 Total fixed costs multiplied by the number of slides in the
case

(continued)
CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
771
 772

Test: XYZ Test IHC

APPENDIX 43.1 Microcosting (continued)

ENTER# in one Case ALL COSTS ARE COST PER SLIDE

Patient slides 1
Neg control slides 1.00
OUTSIDE MARKETING AND EXPANSION

Separate pos control slides 0

Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Variable costs
Patient slide/pos control Antibody Diluent, DAKO $0.15 $0.15 $0.15 $0.15 0.15 $0.15 Approx 299 μl, 110 ml per bottle @ $62.48 per order or $0.15
per slide
AMCAR antibody $1.14 $1.14 $1.14 $1.14 1.14 $1.14 266 slides per order @ $303.60 per order or $1.31 per slide
Envision Dual Link Detec- $3.14 $3.14 $3.14 $3.14 3.14 $3.14 300 μl per slide, 110 ml per order, @ $1,150 per order or
tion System, Dako code $3.14 per slide
K4061
Dako Wash Buffer, code $0.75 $0.75 $0.75 $0.75 0.75 $0.75 10 liters @ $74.80 per order, runs 100 slides or $0.75 per slide
S3006
Serum Free Block, Dako code $0.30 $0.30 $0.30 $0.30 0.30 $0.30 300 μl per slide, 110 ml per order, @ $108.24 per order or
X0909 $0.30 per slide
DAB chromogen, Dako code $0.37 $0.37 $0.37 $0.37 0.37 $0.37 300 μl per slide, 110 ml per order, $134 per order, or $0.37
K3468 per slide
NovaRed chromogen, Vector $1.05 $1.05 $1.05 $1.05 1.05 $1.05 100 slides per kit, @ $105 per kit or $1.05 per slide
catalog SK-4800
Pipette tips $0.39 $0.39 $0.39 $0.39 0.39 $0.39 7 tips per slide, 1,000 tips per order @ $55 per order, or $0.39
per slide
Coverglass $0.26 $0.26 $0.26 $0.26 0.26 $0.26 1 coverglass per slide, 100 glasses per order @ $25.90, or
$0.26 per slide
Total cost per slide $7.53 $7.53 $7.53 $7.53 7.53 $7.53
Total cost for case $7.53 $7.53 $7.53 $7.53 $7.53 $7.53 Total variable cost multiplied by number of patient slides

Test: XYZ Test IHC

ENTER# in one Case ALL COSTS ARE COST PER SLIDE
Patient slides 1
Neg control slides 1.00
Separate pos control slides 0
Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Negative control(s) Antibody Diluent, DAKO $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 300 μl per slide, 125,000 μl per order @ $62.48 per order or
$0.15 per slide
Envision Dual Link Detec- $3.14 $3.14 $3.14 $3.14 $3.14 $3.14 300 μl per slide, 110 ml per order @ $1,150 per order or $3.14
tion System, Dako code per slide
K4061
Dako Wash Buffer, code $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 10 L @ $74.80 per order, runs 100 slides or $0.75 per slide
S3006
Serum Free Block, Dako code $0.30 $0.30 $0.30 $0.30 $0.30 $0.30 300 μl per slide, 110 ml per order, @ $108.24 per order, or
X0909 $0.30 per slide
DAB chromogen, Dako code $0.37 $0.37 $0.37 $0.37 $0.37 $0.37 300 μl per slide, 110 ml per order, @ $134 per order, or $0.37
K3468 per slide
NovaRed chromogen, Vector $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 100 slides per kit, @ $105 per kit or $1.05 per slide
catalog SK-4800
Pipette tips $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 7 tips per slide, 1,000 tips per order @ $55 per order, or $0.39
per slide
Coverglass $0.26 $0.26 $0.26 $0.26 $0.26 $0.26 1 coverglass per slide, 100 glasses per order @ $25.90, or
$0.26 per slide
APPENDIX 43.1 Microcosting (continued)

Total cost per control slide $6.39 $6.39 $6.39 $6.39 $6.39 $6.39
Total cost for case $6.39 $6.39 $6.39 $6.39 $6.39 $6.39 Total variable cost multiplied by number of control slides

Total variable costs $13.92 $13.92 $13.92 $13.92 $13.92 $13.92

Total direct costs $319.33 $166.62 $115.72 $90.27 $39.37 $34.28

Overhead Rate
Overhead 0.38 $121.34 $63.32 $43.97 $34.30 $14.96 $13.03
Equipment costs 0.1 $31.93 $16.66 $11.57 $9.03 $3.94 $3.43
Total $153.28 $79.98 $55.55 $43.33 $18.90 $16.45

Cost per case $472.60 $246.60 $171.27 $133.60 $58.27 $50.73

CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
773
774 OUTSIDE MARKETING AND EXPANSION

APPENDIX 43.2 ROI Calculation Methods

The calculation of the monetary benefit realized as a result of This method is most useful when comparing projects with
a given capital expenditure is called a return-on-investment or similar useful lives and provides a crude measure of risk in the
ROI calculation. When this amount is prespecified, it is known opportunity-cost estimation. It fails, however, to take into ac-
as the required rate of return or discount rate for the investment. count the effects of depreciation or inflation and, more generally,
Major methods for ROI calculations and typical laboratory ex- the time value of money, i.e., the best use of funds, and it does
amples follow. not take into account the impact of any cash flows beyond the
payback period.
PAYBACK METHOD
DEPRECIATION
The number of years that a capital investment takes to be fully
The rate of depreciation is an additional datum often used in the
recovered from cash flow is called the payback period. The sim-
analysis of capital alternatives. Depreciation recognizes the fact that
plest method for calculating the return on an investment is the
fixed assets have a finite useful life and accounts for this by charging
payback method. When payback periods (number of years nec-
a fraction of the cost of the capital item as an expense in each ac-
essary for incremental cash inflows to equal the capital acquisi-
counting period of its use. Useful lives of capital items are difficult
tion cost) for different candidate items are ranked from shortest
to establish precisely, so the rate of depreciation (fraction expensed
to longest, the shortest is the best, and the differences between
each year) is usually estimated. Different standard methods for per-
the shortest payback period and the others represent (at least a
forming this estimation (e.g., for tax purposes) are in use.
portion of) the opportunity cost of each investment.
Straight-line depreciation is a simple, and therefore very com-
As an example, consider an immunoanalyzer with a purchase
monly used, method for calculating the expensing of capital
price of $100,000 and an estimated useful life of 5 years. Suppose
items. In the straight-line method, the total cost of the item is
the estimated yearly incremental cash inflow generated by the
simply divided by its estimated useful life in years to give the
machine is:
amount to be expensed as depreciation in each period. For ex-
Year 1 = $55,000 ample, in our sample problem, (item’s price)∕(item’s useful life) =
Year 2 = $55,000 $100,000/5 years = $20,000 per year listed as depreciation.
Year 3 = $58,000 The sum of the years’ digits (SYD) method of depreciation is
a weighted calculation that assigns a large amount of deprecia-
Year 4 = $60,000
tion in the first year, which then declines uniformly to a small
Year 5 = $45,000 amount for the last year. Under this formula, annual rates are
Total = $273,000 derived as follows.
Estimated yearly cash outflows related to the machine are esti- 1. Add the ordinal numbers of the years, i.e.,
mated to be:
5 + 1 + 2 + 3 + . . . + [n′ (n′ − 1)]∕2 = Sn
Year 1 = $15,000
2. Write the numbers of the years in reverse order, i.e.,
Year 2 = $15,000
Year 3 = $20,000 n′, n′ − 1, n′ − 2, . . . , 3, 2, 1
Year 4 = $30,000 3. The annual fractional rates of depreciation (d) are
Year 5 = $35,000 n′∕Sn, (n′ − 1)∕Sn, (n′ − 2)∕Sn, . . . , 3∕Sn, 2∕Sn, 1∕Sn
Total = $115,000
In our example, Sn would be 1 + 2 + 3 + 4 + 5 = 15, and the
Calculated net cash flow for each year is then: yearly fractional depreciation rates would be 5∕15 (= 1∕3), 4∕15,
Year 1 = $40,000 ($55,000 − 15,000) 3∕15 (= 1∕5), 2∕15, 1∕15. The actual dollar amounts of annual de-
preciation would then be:
Year 2 = $40,000 ($55,000 − 15,000)
Year 3 = $38,000 ($58,000 − 20,000) Year 1: $100,000(1∕3) = $33,333
Year 4 = $30,000 ($60,000 − 30,000) Year 2: $100,000(4∕15) = $26,667
Year 5 = $10,000 ($45,000 − 35,000) Year 3: $100,000(1∕5) = $20,000
Total = $158,000 Year 4: $100,000(2∕15) = $13,333
Year 5: $100,000(1∕15) = $6,667
Payback of the original $100,000 occurs between years 2 and 3:
$100,000 = $40,000 + $40,000 + [$20,000]. AVERAGE RATE OF RETURN
The calculation of the average yearly return on a project divided by
The payback time is:
the average yearly investment it represents is called the average rate
Year 1 + Year 2 + Year 3 ($20,000∕$38,000) = 2.53 years of return (ARR) for that investment. When these ARRs are ranked
(continued)
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH 775

APPENDIX 43.2 ROI Calculation Methods (continued)

from highest to lowest positive values, the highest ARR is the best. PV = [(CF1)∕(1 + r)1] + [(CF2)∕(1 + r)2] + [(CF3)∕(1 + r)3] +
In our example, the average annual investment return = (sum of . . . + [(CFn)∕(1 + r)n]
net cash flows)∕(useful life) = $158,000∕5 years = $31,600∕year.
The average annual investment is calculated as follows: When NPVs of different projects are ranked from highest to low-
The initial value of the investment = $100,000, and its useful est positive values, the highest NPV is the best. In our example, if
life is 5 years, so the annual straight-line depreciation = $20,000∕ the required rate of return r = 10% and the term n = 5 years, the
year. The yearly value of the investment then is: PV would equal the sum of the annual net cash flows according
to the above formula:
Year 1 = $100,000
Year 2 = $80,000 PV = [$40,000∕(1.10)] + [$40,000∕(1.10)2] + [$38,000∕(1.10)3]
+ [$30,000∕(1.10)4] + [$10,000∕(1.10)5] =
Year 3 = $60,000
Year 4 = $40,000 $44,000 + $48,400 + $50,578 + $43,923 + $16,105 = $203,006
Year 5 = $20,000
NPV = PV − initial investment = $203,006 −
Year 6 = $0
$100,000 = $103,006
The sum of these values for years 1 through 6 total $300,000,
and the average annual investment = $300,000/6 years = This method accounts explicitly for the time value of money
$50,000/year. The ARR then equals (average annual investment and evaluates projects at a common required rate of return, but
return)/(average annual investment) = $31,600/$50,000 = 63%. it does not take into account differences in the size of different
This method accounts for all the cash flows, but it does not rec- investments or allow easy comparison of projects with differ-
ognize the time value of money. ent useful lives. These considerations must be kept in mind in
the final analysis.
Inflation, of course, corrects for changes in the value of money
TIME VALUE OF MONEY (PRESENT VALUE) itself over time. The effect of inflation can be calculated as fol-
The present value of all the cash flows created by a project mi- lows: If prices increase at a rate of i per year, and if an item costs
nus the amount of the initial investment is called the net present P0 now, then n years from now it will cost An = P0ein, using a
value (NPV) of that investment, or the time value of money in- general exponential formula for continuous compounding of in-
volved with it. Present value (PV) represents the dollar amount terest. In our example, if the rate of inflation is 2% per year, the
that, if it were invested now at a given rate of return (r), would cost of our $100,000 immunoanalyzer in 5 years will be:
accumulate to a given specified value a specified number of years
(n) in the future. The formula for present value assumes that A5 = ($100,000)e[(.02)(5)] = ($100,000)e(.10) = ($100,000)
there are unequal annual rates of cash flow (CF) in years 1 to n: (1.1052) = $110,520
776 OUTSIDE MARKETING AND EXPANSION

APPENDIX 43.3 Financing Alternatives

Methodology based on calculation of the present value is rel- at the end of the lease term, no further analysis is required. If, on
evant for making choices among alternative sources of funding the other hand, the equipment can be sold at the end of the lease
for capital acquisition. (i.e., it has what is known as a salvage market), further analysis
is relevant. If the PV for the lease is subtracted from the PV for
PURCHASE the purchase, the result will be positive and represent the PV of
In the case of purchase from hospital funds, the present value the amount required to be obtained from the future resale.
equals the initial investment. Returning to the example of the This should then be compared with the best estimate of the
immunoanalyzer in Appendix 43.1, purchase with hospital funds future market for this resale. If it looks as if the equipment can be
involves a cash outflow of $100,000. sold for more than the required future resale price, then purchase
For purchase with borrowed funds, the present value equals is favored; if not, then leasing is. The lease-or-loan decision can
the annual loan payments plus interest, discounted at the re- be approached in the same way.
quired rate of return for the term of the loan. In the example, for In the example:
a loan with a term n = 5 years, a required rate of return r = 10%, PV of resale = PV of purchase − PV of lease =$100,000 −
and an annual loan payment CF at 12% interest = $27,168, the 90,797 = $9,203
PV of loan payments, discounted at 10%, is calculated by using
the formula for PV with even cash flows: The required future value of resale to provide for PV of resale is:

PV = CF {[1 − (1 + 1 r)−n]∕r} = $27,168 {[1 − (1.10)−5]∕0.10} PV(1 + r)n = $9,203(1.10)5 = $9,203(1.61051) = $14,821
= $27,168(3.7908) = $102,988 which is what the future resale will have to fetch at the end of 5
years. For the choice between lease or loan,
LEASE
PV of resale = PV of loan − PV of lease = $102,988 −
A 5-year lease with a required rate of return r = 10% and an an-
90,797 = $12,191
nual lease payment CF of $24,000 has a PV of lease payments,
discounted at 10%, calculated as follows using the formula for The required proceeds of the resale will then be
PV with even cash flows:
PV(1 + r)n = $12,191(1.10)5 = $12,191(1.61051) = $19,633
−n −5
PV = CF {[1 − (1 + 1 r) ]∕r} = $24,000 {[1 − (1.10) ]∕0.10}
Thus, if the resale nets $9,202 or less, leasing is favored; at $9,203,
= $24,000(3.7908) = $90,797
there’s no difference between leasing and borrowing; in the range
Here the alternative with the lowest present value is the best $9,204 to $19,622, borrowing is favored; at $19,633, there’s no
method, in this case the lease. If this is to be a noncancelable difference between leasing and purchasing; and at $19,634 or
lease and there is no potential opportunity to sell the equipment greater, purchasing is favored.
Introduction
44
Making Organizational Changes
Outreach: Obstacles to Hospital
Centralize Work • Place Laboratory Management on
Off Shifts
Give Outreach Its Due
Outreach and Enhancing
Make Outreach High-Profile • Manage Outreach as a
Business, Not a Department
Information Technology Changes
Customer Satisfaction
Hospital Systems versus Separate Systems • Nonstaff
Physicians • Data Interface • Patient Registration and
Accounting Concerns • Populating the Patient Record •
Beth H. Deaton
Physician Office Connectivity
Meeting the Needs
Capital • FTEs OBJECTIVES
Hospital versus Outreach Contracting
Defining Insurance Plans • Contracting • Acceptance To understand the items that must be in place to compete in the outreach
of Payors market and why some will conflict with hospital practices and policies
Failure To Understand Financial Implications
and Requirements
To understand how to capitalize on the strengths of the hospital or health system
Unrelated Business Income Tax • Other Taxes To understand the obstacles that must be overcome as part of a hospital or
Understanding the Hospital’s Point of View health system
Lower Cost per Test • Make Money
Translating Hospital and Laboratory To understand all of the pieces that make up customer service
Compliance for an Outreach Operation To know when to say yes and when to say no to customers
Physician Communication • Medicare Secondary Payor
Questionnaires • Physician Acknowledgments • Advance To be able to plan the customer service aspects of the outreach program
Beneficiary Notices • Requisition Design • Pricing •
Add-On Tests • National and Local Coverage Policies •
Sanctioned Physicians • Contracts • Audits and Reviews •
Participation and Cooperation
Enhancing Customer Satisfaction:
You need to show some insensitivity to the organization’s history in order to show
Communication the proper respect for its future. Be willing to break with the past.
Newsletter • Marketing and Sales Team • Laboratory Price Pritchett
Guidebook • Website • Focus Group
Customer Satisfaction Assessment

N
Surveys • Problem Reporting and Resolution avigating a complex hospital system to set up a service that in
Couriers: the First Line many respects is counter to conventional hospital thinking can be a
Client Services daunting and complex task. Hospitals have many policies that suc-
Access to Draw Sites and Patient Service
Centers cessfully guide their actions, but hospital laboratory outreach programs com-
Building and Retaining Your Client Base pete with large national reference laboratories for their place in the market
Leverage the Continuum of Care • Keep Asking Why • and need to be able to act and respond in a similar way. This means changing
Follow Up When Clients Leave
Professional Marketing and Sales Personnel
hospital policies or having exceptions made for parts of the outreach business.
Commission Plans • Reports • Prepackaged Information The level of customer service the laboratory decides to provide will, in many
Technical Expertise Accessibility cases, decide the level of success the outreach program will achieve. This is a
Accounts That Require Special Care decision that is made by the policies put in place and management’s actions.
Nursing Homes • Drug Accounts • Home Health
Agencies • Veterinary Lab Services The ability of the organization and the staff members to communicate quickly
Define Service Area and Services and accurately with its customers and the ability to respond to issues can be
Range of Services • The Importance of Standardization
deciding factors in the success of the program.
Summary
KEY POINTS
GLOSSARY Making Organizational Changes
REFERENCES
APPENDIXES A hospital outreach program needs to operate differently from a hospital lab-
oratory department. The laboratory needs to evaluate the test menu, where
Clinical Laboratory Management, 2nd Edition
testing is performed, and the turnaround time that is available, as well as its
Edited by L. S. Garcia management, equipment, and staffing. In an outreach program, where cost
©2014 ASM Press, Washington, DC is of primary concern, volume drives cost. Because approximately a third of
doi:10.1128/9781555817282.ch44 the cost of producing a laboratory test is fixed, the volume of testing that is

777
778 OUTSIDE MARKETING AND EXPANSION

produced will be paramount to reducing cost on a per-test (chemistry, hematology, microbiology, etc.). The shift man-
level. Fixed costs are costs that do not vary with volume. ager can report to a supervisor who has human relations re-
Examples are depreciation, administration and manage- sponsibilities, while assigning the clinical responsibility to
ment, some full-time equivalents (FTEs) (those necessary a shift leader or different manager. Another option would
for coverage), professional fees (Part A coverage), license be to have all of the staff report to managers who rotate
fees, controls, and standards. To begin to build volume management responsibilities to all shifts.
and expand the test menu, look at other entities within the
organization. Other hospitals and nursing homes can pro-
vide much-needed volume. However, other facilities will Give Outreach Its Due
not be eager to give up this volume. They will only be will- Make Outreach High-Profile
ing to participate if they achieve a financial advantage.
Make sure the outreach laboratory’s place in hospital man-
Centralize Work agement is high-profile. Outreach programs complicate
laboratory operations and increase the level of complex-
Review the volume of send-out testing by test. By consoli-
ity of every area within the laboratory. For this reason the
dating to one location, the laboratory may have enough
laboratory needs to ensure that it has an appropriate place
volume to bring additional testing in-house. Then review
in the organizational structure of the system or the hospi-
the more esoteric testing being performed at other facili-
tal. The person in charge of the laboratory needs to have
ties in your organization. If there is more than one hospital,
the ability to access every major department and have re-
clinic, physician office laboratory, or home health agency
sources allocated to the laboratory that are important to
in the health system, review the testing that is performed
ensure that the business can grow and operate efficiently.
in those settings. Centralize as much of the testing as pos-
The person in charge of the laboratory should be at least a
sible to the central laboratory. Special chemistry is usually
director and should attend the workgroup meetings with
a good place to start. This may need to be done in steps,
hospital leadership. If successful (usually based on reve-
depending on the politics of the organization and its phi-
nue), there will be a point where the laboratory should be
losophy about change. Review the testing offered at each
able to break away from hospital management and operate
site and agree on a standard list of tests that will be per-
as an entity on its own. Laboratory management must be
formed at each site. In return, the central laboratory will
at an appropriate level in the organization to communicate
have to agree to and meet stringent service standards. By
what outreach testing encompasses and must be able to en-
consolidating the test volume, the laboratory will be able to
list the help of senior management when needed.
lower test expenses for all facilities by reducing fixed costs
on a per-test basis, reducing FTEs, and standardizing. Manage Outreach as a Business, Not a Department
Place Laboratory Management on Off Shifts The laboratory outreach program must be viewed and oper-
ated as a business, not as a department (cost center) of the
Another area that will need to be reviewed is management.
hospital. Laboratories in hospitals are typically treated as
Place appropriate laboratory management personnel on
cost centers. Depending on how an organization displays
off shifts, because that is where the workload will be the
department financial statements, revenue is sometimes not
heaviest. Management structure needs to be addressed very
even on the financial statements available to the department;
early in the analysis of outreach. While the laboratory is re-
only expenses are. This gives rise to the attitude, and subse-
viewing the testing from other system facilities, it may be a
quent management, of the laboratory as a cost center. When
good time to consider complete laboratory integration. If
the outreach business begins to operate, the financial state-
the laboratory is not ready to go that far, it will need to as-
ments need to reflect the revenue procured by the program,
sess its internal management. More laboratory testing will
the reimbursement, and the expenses. If this cannot be done
be performed on the second and third shifts than ever be-
on the current hospital monthly financial statements pro-
fore, so management resources need to be in place on those
duced by Finance, it is imperative that these data be made
shifts. Technologists, who are in charge but still working
available for review in order to manage the laboratory.
the bench, will not suffice. Someone who has leadership
qualities and is authorized to make decisions through-
out the entire laboratory should be on each shift, at least
Information Technology Changes
Monday through Friday. The reporting relationships can
be structured in a number of ways. For example, each shift Hospital Systems versus Separate Systems
manager can be responsible for the human relations duties Should hospital systems be used to operate the outreach
(hiring, firing, and employment reviews) for the shift he or program or would it be better to use different systems? A
she is on, as well as be responsible for a specific clinical area system that allows separation of the billing and financial
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 779

operation of the outreach program from the rest of the physicians will continually enter, leave, and move within
hospital is optimal. It is best if the laboratory can manage the geographic area.
both patient and client billing and receivables separately
from hospital-based patients. Hospital systems require a Data Interface
great deal of patient demographic information that is not
As the program grows, others are going to want the data
necessary or cost-efficient to collect for reference labora-
that can be mined from the system for a variety of pur-
tory patients. Because other reference laboratories do not
poses. Health plans will want the data for utilization and
require the expanded information, if the laboratory is re-
for the employer reporting that it is required to deliver.
quired to collect such information, it will be at a disadvan-
Physician offices will want to interface with the system or
tage in the marketplace.
an intermediate product so that they do not need to rekey
The average revenue per bill is significantly lower for
results. The pharmacy will want to review the microbiol-
the laboratory than for other hospital services. Hospital
ogy susceptibility profile of organisms to review how in-
patient accounting departments focus on the high-dollar
fections are reacting to drugs. Others will want the data,
accounts. Often, reference laboratory accounts are below
blind and in other formats, to use for research. The system
the level for even a cursory review, leaving the laboratory
used will determine, to a large extent, the laboratory’s abil-
struggling to obtain reimbursement from payors and pa-
ity to provide data to other systems. After HIPAA (Health
tients. If these issues can be addressed with the current
Insurance Portability and Accountability Act) consider-
hospital system, then you would be wise to use it. Other-
ations are reviewed, the next question is what value the
wise, look to the laboratory system or an outsource vendor.
laboratory and outreach programs gain from an interface.
There are several companies that provide an outsource
It will be the responsibility of the laboratory staff to en-
option for laboratory billing. Be sure the company you
sure that the data are crossing the interfaces and display-
select has specific experience with laboratory outreach
ing properly. Each time a change is made to either system,
programs and not just physician office lab billing. Addi-
the laboratory will need to keep the interfaces in mind and
tionally, be sure to look at the reporting that will be avail-
ensure that data continue to flow properly.
able, how the company will interface with the general
accounting system, and how they will receive and provide
information for patient accounting. Be sure to delineate all Patient Registration and Accounting Concerns
expectations in the contract and consider putting the bill- The demographic data required for most insurance com-
ing company financially at risk for some indicators. panies for an outpatient bill include patient name, date of
Client billing is an area where the hospital patient ac- birth, address, ordering physician, diagnosis, insurance
counting department will have little or no experience. company, insurance address, group number, and member
The laboratory’s ability to accurately code, bill, adjust, and or subscriber identifier. This list is significantly shorter
manage these accounts will be a direct reflection of its abil- than the list of requirements for an inpatient admission
ity to compete in the outreach world. Even if the laboratory or hospital-based service. This seemingly simple issue can
is unable to convince Finance to relinquish management make or break specimen processing. The laboratory must
of the patient accounts, Finance may be happy to have the be able to collect only what is absolutely required for out-
laboratory manage the client accounts. This is an area that reach billing. The list of information for client billing is
needs monthly management, and the ability to access the even more abbreviated, and a separate process will need to
laboratory system to review charges and testing performed be developed to bill these accounts.
is advantageous. Carefully review the Model Laboratory Compliance
Program and determine if your organization is comfortable
Nonstaff Physicians with offering multiple fee schedules. If your organization
Nonstaff physicians may present a problem when work- determines that it is valid to have multiple fee schedules,
ing with the hospital system. The physician database in the laboratory will need to be able to manage the fee sched-
the hospital information system is built with very few, if ules. The system chosen for billing must have the capabil-
any, nonstaff physicians. Most hospitals require all phy- ity to have multiple fee schedules, to set up contracts for
sicians to be approved by the medical staff office to be individual clients, and to apply percentage discounts. It is
entered into the system. Outreach will require that the important to develop and enforce a set of fee policies from
laboratory be able to accept, process, and bill for speci- the beginning. As part of the compliance program, all fees
mens received from nonstaff physicians. The physicians should be reviewed each year against the policies that have
must be put into the database so they can appear on been set and in relation to the cost of testing.
the bill and patient results can be correctly routed. The The form used for billing will determine, for some in-
laboratory must be diligent in updating the database, as surance companies, how the laboratory is reimbursed.
780 OUTSIDE MARKETING AND EXPANSION

Hospitals bill using a UB04 form, because this is the form or add to patient records is not normal for most hospitals.
required for hospitals. Freestanding laboratories and other To compete with the reference laboratories for these prac-
Part B providers bill on a CMS-1500. Some insurance tices, the laboratory will need to support this technology.
plans will require that the laboratory bill on a CMS form It will also help the outreach program obtain better reg-
and therefore be treated as an outpatient or reference istration information, reduce medical necessity denials,
laboratory and not as part of the hospital. These differ- properly identify the testing desired, and deliver results.
ences are important because they may affect the amount Overall, there should probably be an upside in terms of
patients are required to pay. Patients’ insurance benefits FTE reductions.
are often different if they visit a hospital versus a refer-
ence laboratory. Even if the laboratory testing was picked
up from the physician office, the insurance company may Meeting the Needs
not make the distinction between the outreach labora- Capital
tory and the hospital outpatient. The patient will there-
In most hospital systems capital funding is difficult to ob-
fore be charged the hospital copay or coinsurance, which
tain, and there is competition for the limited funds. This
is usually higher than if the testing was sent to a reference
is why the outreach program must be a priority for the
laboratory.
hospital. Defining a process with Finance and Adminis-
Populating the Patient Record tration to purchase items that are critical to the outreach
program will make it easier to obtain items that are vital
The hospital’s requirements to populate the patient record
to outreach programs. Finance and Hospital Administra-
with results may prove burdensome. In most hospital sys-
tion need to be continuously educated about the outreach
tems, client billing is out of the norm. Depending on how
business and why items are necessary for program suc-
your hospital accepts patients billed to a client account
cess. Leasing some items is an option, depending on how
(physician office, clinic, or other bulk bill), they may not
the organization views these types of agreements. The
be accessible as individual patients. Therefore, it is difficult
advantage to leasing is that the leasing company will usu-
to update the patient record/history that already exists on
ally service the equipment for a flat fee. The service is
the system. The laboratory could decide not to populate
usually worth the price.
the patient history with reference laboratory information.
This is not the best solution, because one of the advantages FTEs
for customers is the continuum of care. Outreach results
Anytime the hospital is experiencing a financial slow-
in the patient’s hospital history offer an advantage that sets
down, one of the first things to occur is a freeze on FTEs.
an outreach program apart from the stand-alone labora-
Even when no freeze is in effect, approval of FTEs can be
tories. There are numerous information technology solu-
an arduous process. This is difficult for a growing busi-
tions that can be applied, but they take planning, capital,
ness. The laboratory must have contingency plans for
and forward thinking.
replacement of key FTEs, such as couriers, in case open
Physician Office Connectivity positions occur. Maintaining a few part-time employees
is a great option if you can keep these positions filled. A
Physician office connectivity (POC) is a system that al-
temporary employment service can help with staffing, but
lows physicians to register, order tests, and receive results.
keep in mind the lead time required for training. Temp
Most physicians now have practice management systems
services can help in other areas. If you plan correctly and
or electronic medical records that will require inbound
have portions of jobs that can be easily delegated and re-
and outbound interfaces for their system. Some offices will
quire little training, these responsibilities can be given to
require the placement of computers for physicians to use
a temp. The best, but most expensive, option for courier
the software. Working with the Information Technology
coverage is to have contracts with one or more local cou-
(IT) Department, you will need to develop a method to
rier services. Form relationships with these vendors and
limit the use of the computer to only the POC function.
share route information in advance of requiring their help.
Additionally testing, installation, and training will need to
be supplied either directly by the lab staff or through IT.
The information the office inputs will interface with
Hospital versus Outreach Contracting
the laboratory system. Depending on the vendor used, cli-
ents can register patients, review results online, screen for Defining Insurance Plans
medical necessity, graph results over time, and have on- Research and define the important insurance plans in
line lookup to the laboratory test guide, as well as many your area. If the hospital or system owns physician prac-
other functions. The patient registration portion may be tices, use their information to determine the major insur-
difficult for the hospital. Allowing nonemployees to create ance companies in the area. If not, the hospital should
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 781

be able to supply its payor mix. Medicare, Medicaid, and some of the clients because they are corporately “related”
most point-of-service plans accept any provider. If the in- to the outreach program. Work closely with the finance tax
surance company allows it, and after checking reimburse- department to clearly understand the income that can be
ment and how the billing system can support it, apply for excluded from the calculation. Keep the work papers and
a provider number separate from the hospital. If the in- reports used to produce this information.
surance company views the laboratory as a laboratory and
not just as part of the hospital, patients may be eligible Other Taxes
for lower copayments, but the reimbursement may also Other taxes that the laboratory may be subject to include
be reduced. Review the other insurance companies and sales tax, business license tax, and personal property tax.
identify the most important payors. Depending on the tax status of the parent company and
the laws in your locality or state, some or all of these
Contracting taxes may apply to the outreach business. The hospital
Obtain permission to contract on your own within certain may not have detailed information about some of these
parameters. The hospital contracting department can be a taxes, because it may not be required to pay them. But the
tremendous help, but to the extent possible, have someone outreach business may be required to pay some or all of
who knows the outreach business do the contracting. At a these taxes. Investigate which taxes will need to be paid
minimum, attend the meetings during contract negotia- and, if necessary, build these taxes into the expenses for
tions. This has several benefits. The laboratory may decide the outreach program.
that the administrative burdens of the contract are too
costly for the reimbursement offered. Also, if the labora-
tory is in control of the negotiations, you should be able to Understanding the Hospital’s
control the timeline to coincide with the volume you want Point of View
or need for the laboratory. There are generally some underlying reasons for, or a char-
ter for, an outreach business. The hospital has expectations
Acceptance of Payors that must continue to be met, even as the laboratory pro-
The laboratory does not have to accept all payors but will gresses from a cost center to a product line.
need to participate with most providers to secure the busi-
ness of clients. Plan to be shocked as you review the vari- Lower Cost per Test
ous terms and pricing structures set out by some of the Securing the laboratory testing of a hospital or hospital
insurance companies. This is another area that the hospital system is usually one of the main objectives of an outreach
will have difficulty understanding. The idea that the labo- program. A hospital’s cost per test is generally high because
ratory can accept reimbursement that is significantly be- of fixed costs and underutilized resources. By adding vol-
low the hospital fee schedule will be difficult. Know and ume to a facility, you decrease the cost per test, assuming
understand the laboratory costs and the reimbursement minimal incremental resources are added. Employees and
that can be accepted. Do not accept low capitation rates equipment are not fully utilized on off shifts. The balanc-
or fee schedules that do not cover at least the variable cost ing act for outreach is to add testing to fill this void. This
with the expectation that the laboratory will make up the will work for a while, during the time the outreach pro-
difference on the “pull-through” business. First, this can gram begins to build its business. As outreach grows and
be a compliance problem, because government payers may outgrows the unused capacity, be careful to add testing and
see this as an inducement. Second, there is no way to be resources that make sense. Cost per test should at worst
assured that the pull-through business will materialize. Al- remain static after an initial drop, but even as resources
ways request utilization data. For large populations, data must be added, cost per test should continue to decrease.
should be required. This will be imperative for long-term success.

Make Money
Failure To Understand Financial
The hospital will, at worst, expect the laboratory outreach
Implications and Requirements
business to break even on direct expenses and make a con-
Unrelated Business Income Tax tribution to hospital and system expenses. It is important
Unrelated business income tax (UBIT) is an income tax to be able to produce financial documents, get them in the
that must be filed annually. Make sure that the corporate hands of the right people, and have a break-even financial
finance office understands the outreach business and will position. UBIT will be a factor, but there may be other un-
file this return for the outreach program. Depending on related business lines that are losing money. The hospital
the practices using outreach services, not all of the income may be able to apply the outreach income against those
will be taxable. The laboratory may be able to exclude losses to avoid paying UBIT.
782 OUTSIDE MARKETING AND EXPANSION

Translating Hospital and Laboratory in the customized profile are medically necessary for an
Compliance for an Outreach Operation individual patient, and (iv) that as the ordering physician,
he or she understands that the Office of the Inspector Gen-
All hospital laboratories should have a written compli-
eral (OIG) takes the position that a physician who orders
ance plan that follows the Model Laboratory Compliance
medically unnecessary tests may be subject to civil penal-
Program. A current active compliance plan will help keep
ties. These notices must be completed annually (5).
the laboratory on track during outreach implementation;
however, the plan will need to be modified, and some poli- Advance Beneficiary Notices
cies not previously applicable will need to be added.
Train, train, train, and train some more. Training and us-
ing electronic checking from the POC system are the only
Physician Communication
ways that the laboratory will receive advance beneficiary
The depth and breadth of physician communication will notices (ABNs) as necessary. It is the laboratory’s re-
probably need to be improved. This communication must sponsibility to properly train the physician offices, when
include information related to compliance policies. Medical appropriate, to collect and properly complete an ABN. Re-
necessity and advanced beneficiary notices will need to be member, if the physician does not provide the laboratory
explained. Billing practices will need to be covered in detail. with a correct diagnosis code or an ABN, and the labora-
Specifically, physicians need to know what is included in tory does not get paid, the physician is unaffected. How-
various panels and when more than one Current Procedural ever, there is a provision in the instructions that will allow
Terminology (CPT) code is billed for a group test. A clinical the laboratory to collect an ABN after the specimen has
pathologist contact must be listed, with information on how been received but before the test is performed. The patient
that person can be reached. Take this opportunity to explain can be called for authorization to perform the test, and
other compliance policies, such as supply orders, standing then a follow-up ABN can be sent by mail or email (1).
orders, reflex testing, and requisitions (Appendix 44.1). This presents obvious processing problems but does leave
an avenue to pursue to solve this particular problem.
Medicare Secondary Payor Questionnaires Beware of locations that collect too many ABNs. The
Medicare secondary payor (MSP) questionnaires are com- ABN should only be collected when appropriate (i.e., when
pleted in the current hospital setting when patients first there is a valid reason to believe Medicare will not pay for
present to the hospital. Hospital outreach programs are not the test). Also, remember that the instructions require that
required to complete the MSP questionnaire if there is no a copy of the form be given to the patient along with an es-
face-to-face contact with the patient. There is still the bur- timate of the charges. It is the laboratory’s reimbursement at
den of determining if Medicare is the primary payor, but stake and therefore the laboratory’s responsibility to train the
the questionnaire is not mandatory. Additionally in cases physician office to collect this information when necessary.
where a patient visits a draw site or is drawn by a reference
lab employee in a practice, the form will be required. Requisition Design
The requisition design should be carefully planned and
Physician Acknowledgments evaluated. If a requisition is already in place, a comprehen-
Physician acknowledgments must be completed if the sive review should be completed before using it for outreach
laboratory is going to allow physicians to order non-CPT- purposes. Ensure that billing for panels is properly repre-
approved panels. For instance, if the laboratory allows a sented and that all components of a panel, as well as the
physician group to create a panel that includes all of the panel, can be ordered. Make sure the form flows easily for
components of the basic metabolic panel plus serum glu- data-processing purposes. Carefully select the tests that will
tamic oxalacetic transaminase (SGOT), the group must appear on the requisition. Too many or too few tests can be
sign a physician acknowledgment. The acknowledgment a problem. Leave space for write-ins but place instructions
must include the CPT codes that will be billed, the charges, on the requisition that detail the required information for
and the expected Medicare reimbursement. There is also write-in tests. There is required language from the Model
specific language required. It states (i) that the physician Laboratory Compliance Program about ordering tests that
understands that the only laboratory tests that should be must be on the requisition (5). Supply proper space for all
ordered are those that he or she believes are medically nec- of the billing information. Use this opportunity to denote
essary for the care of the patient, (ii) that he or she is aware when an ABN might be necessary and when there will be
that using a customized profile may result in the order- a separate bill from the professional group. Ensure that the
ing of tests for which Medicare or other federally funded laboratory’s phone number is on the form. Provision for
healthcare programs may deny payment, (iii) that as the storage of requisitions must also be considered; these req-
ordering physician, he or she will order individual tests or uisitions/orders will need to be retained for a minimum of
a less inclusive profile when not all of the tests included five years. Check the latest requirements and the policies of
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 783

your company to determine your policy. The requisitions restricted from submitting claims and ordering services for
must be accessible for audits but not necessarily stored on- Medicare patients. Most laboratory and hospital compliance
site, and electronic storage is acceptable. programs bar the hospital and laboratory from doing busi-
ness with sanctioned physicians for any testing. Hospital
Pricing Admissions uses the medical staff office to research doctors
Special pricing should be carefully considered on a case- and determine their status before granting privileges, if ap-
by-case basis. There should be an overriding policy that propriate. In the outreach business, specimens will be pre-
dictates pricing and discount guidelines (5). Pricing for any sented to the laboratory from physicians who are not on the
client-bill portion of an account must be determined sepa- medical staff. The laboratory will need to be able to identify
rately from pricing of other testing that will be received. physicians who have been sanctioned to know whether or
A client bill is for the testing that is billed directly to the not to process the test. If the test is not going to be processed,
physician/client rather than to an insurance company. Do you will need to determine how to notify the physician
not cost-shift between payors (client, Medicare, and other and handle the disposition of the specimen. Stat and non-
insurance) to win an account. Cost shifting is when the recollectable specimens will require special consideration.
laboratory uses profits from one portion of the account,
insurance for instance, to offset shortfalls in profitability Contracts
from another portion, for instance the client-bill portion. A standard client contract will need to be developed and
Each part of the testing received must be profitable. approved by the Legal Department. The contract should
be signed by all clients, but it will be a requirement for cli-
Add-On Tests ents who have a client bill. Try to keep the contract short
There must be a policy that covers how add-on tests will (three pages or less) and include only key points. In the
be processed. An add-on test is a test that is requested on agreement, set the terms of the agreement, including pay-
a specimen after the initial requisition is received. When ment terms, compliance guidelines, services offered, fees,
an add-on is called in, it must be followed by a written or- requirements concerning retention of records, where to
der and, if needed, the laboratory must be able to produce send contract changes, and governing law. The Legal De-
that order, just as if it were a requisition. An internal pro- partment will also have a number of items to include.
cess to determine specimen availability and quantity also
needs to be considered. This is probably an instance when Audits and Reviews
the technical section should be involved. Even if speci- Each of the areas discussed here will need to be reviewed
men processing is responsible for locating the specimen, annually, and some areas will require an audit. Add-ons,
the technical section should assess specimen viability and sanctioned physicians, physician acknowledgments, and
adequacy before responding to the client. Requiring the requisitions should be reviewed or audited annually. Billing
order to be faxed before processing the additional test re- (including ABNs and medical necessity forms) should be
quest alleviates the issue of matching the phone order with audited at least quarterly. For the items that require an audit,
the written order before billing. Otherwise, a review of the a specified format should be followed and the documenta-
phone orders every 30 days is advised. tion should be maintained for a minimum of two years.

National and Local Coverage Policies Participation and Cooperation

Negotiated rule-making is a process that includes mem- An outreach program is a large undertaking and will re-
bers of the laboratory industry, physicians, and officials quire changes in every area of the laboratory. Some depart-
from the Centers for Medicare and Medicaid Services ments that will require detailed review include Specimen
(CMS) to develop coverage policies for tests. The cover- Processing, Transfusion Services, Anatomic Pathology,
age policies include the diagnosis codes that will be paid Professional Services, Immunology, and Cytology. Each
for by the CMS. Local carriers and financial intermediaries area will need to review its operations, make decisions, and
are allowed to add to the policies or add new policies but perhaps create new policies to prepare for the new business.
may not delete parts of the existing policy. These policies If successful, the second and third laboratory shifts will
are updated as often as quarterly. There are services avail- change from a slower pace to the busiest time of the day.
able to ensure that the latest information is available in the Successful outreach business is based on the ability of the
system(s) being used for medical necessity checking. second- and third-shift employees to complete the bulk
of the outreach testing. Equipment, staffing, and facility
Sanctioned Physicians design will need to be examined to ensure that a larger
A policy for identification and resolution of specimens re- volume of testing can be produced in the time frame re-
ceived from sanctioned physicians will need to be put in quired. A review of on-site testing will also be necessary.
place. Sanctioned physicians are doctors who have been With the additional testing that will be procured, tests that
784 OUTSIDE MARKETING AND EXPANSION

were previously sent out will be able to be, and should be, program. Determine if this is a service that can be offered
performed in-house. The decreased turnaround time for and what hours it will operate. Usually, Immunology’s re-
these tests will benefit not only the outreach program but quirements for specimen transportation are very strict, so
the hospital patients as well. transportation may need to be arranged outside of that for
the clinical laboratory. Immunology may be interested in
Transfusion Services. Although Outreach will not get using the processes the outreach program sets up for deliv-
involved in the transfusion of patients, blood typing and ery of results and client billing.
screening and ABO and Rh tests will be ordered. Transfu-
sion Services needs to decide how these specimens will be Cytology (gynecologic and nongynecologic). Pap smears
handled in relation to patient history. Transfusion depart- will be an important part of the outreach business. Deter-
ments may not accept outreach specimens for transfusion mine the acceptable turnaround time for the market. If you
because they do not have control over how patient identifi- are beginning the outreach program as a new program,
cation is monitored in the physician office setting. If that is this is an area where resources may need to be invested.
the policy, then outreach specimens for transfusion testing Hospitals do not traditionally perform many Pap smears,
must be ordered and processed differently than for hospi- so Cytology may lack the ability to easily add volume. The
tal patients. The policies for this area need to be developed laboratory will need to address the issue of liquid-based
and communicated before Transfusion Services receives and image-guided Pap smears. If the hospital offers non-
outreach specimens. gynecologic cytology, this service could be marketed as
a niche. Not all laboratories have this capability and the
Anatomic Pathology. Many of the items discussed for the professional expertise that is needed, so this is an excellent
clinical laboratory also apply to Anatomic Pathology. The service to develop as a niche. This testing is expensive, so
same shift of workload, in terms of time of day, will occur do not under-price it, but offer short turnaround time and
in Anatomic Pathology. Additionally, Anatomic Pathology superior professional expertise for the outreach program.
may want to evaluate whether it wants a different number-
ing sequence for the cases received from Outreach. This is
an area where the continuum of care is very valuable for Enhancing Customer Satisfaction:
clinicians and should be marketed. Communication
It has been said that you need to communicate seven times
Professional services. Reimbursement for professional pa- in seven ways . . . and it still will not be enough. Keep this
thology services needs to be discussed and decided upon in mind when implementing a new program or making
prior to beginning sales for Outreach. This is especially changes to existing programs and policies for staff and cli-
true for any client-bill testing. Normally, the professional ents. It will help remind those communicating that once,
component for testing is included with the clinical portion twice, or even three times is probably not enough. There
for client billing. This means that the laboratory must have are some things that can be done to help with this endeavor.
a method to capture and pay the professional group for Create a consistent format and brand for all communi-
those services. The fee schedule for the professional group cation. This includes the name of the outreach program,
must also be completed beforehand so that the fees for the the letterhead, the logo, and the format of the newsletter,
clients can be set to include this cost. If the professional guidebook, and any other printed material used for the lab
group has a company that does its billing, it may be able program. Use either the hospital logo or one that is cre-
to bill the outreach program for the testing. The labora- ated for the laboratory program. If the hospital has good
tory may also want to agree with the pathologists about name recognition and a good reputation in the commu-
how much the patients will be charged and how the demo- nity, the laboratory program should use that advantage. It
graphic and insurance information for patient billing will is important that the same name for the program be used
be transferred to the pathologist. consistently. This consistency will help to begin to create
an image and recognition for the outreach program.
Multiple pathology groups. If there is more than one pathol-
ogy group within the hospital system, there will need to be Newsletter
a predetermined method for the distribution of work. Care- A newsletter can be a great communication and marketing
fully consider how this is done and the rules for competition. tool if done correctly. If the laboratory is going to publish
Inform the Marketing Department of the method and pro- a newsletter, it should be published on a regular schedule
vide them with guidelines and talking points for the clients. in a consistent format and should deal with issues that are
important to the laboratory and the clients. Do not let the
Immunology. The Immunology Department may or may client newsletter double as the employee newsletter. It is ac-
not be willing to accept specimens from the outreach ceptable to profile the laboratory director, the pathologists,
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 785

and the other managers, but do not list birthdays, wed- friendly. Use the names of tests that are typically used
dings, births, etc. The newsletter should be professional across the laboratory industry. List the sample size and
in its writing and presentation. Place the logo and name tube requirement, the CPT code(s), how often the test is
prominently on the newsletter. Include information about performed, the expected turnaround time, the reference
new procedures performed in the laboratory, and include range, and any special instructions for collection and
technical information in the newsletter. Include policy preservation. Unfortunately, the minute the directory is
changes that will affect the clients. Use the newsletter as a published, it will already be out of date. If the guidebook
marketing tool by telling everyone about proficiency test- can be posted on a website, updates can be made often.
ing excellence, courier on-time information, phone answer For the printed guidebook, it is very important to send
times, and turnaround time statistics. However, remember out updates as changes occur and to revise the guidebook
that although the newsletter is delivered faithfully, it will every 18 months to two years. If this resource becomes
only be read by about 30% of the clients. very outdated, the program will begin to lose credibility
as a reference laboratory in the community.
Marketing and Sales Team
The marketing and sales team should be used to commu- Website
nicate more in-depth issues and to reinforce information The website can be a very useful tool. In its most advanced
contained in the newsletter. These employees should be form it can be used to replace the guidebook for many of-
excellent communicators. They need to be comfortable fices and can include interactive communication with the
speaking with people of all ages, education levels, and na- laboratory that the client might require. Functions to con-
tionalities. There should be a standard communication sider for the website include placing supply orders, look-
checklist completed with each client setup. The market- ing up information on tests, registering patients, ordering
ing staff is limited, so they will not be able to visit all of tests, looking up results, printing results, requesting a cou-
the clients each time a communication is necessary. Also, rier pickup, and changing the time of a pickup. Web design
since this may be the same staff that is responsible for sales, should be carefully thought out and again identified with
do not consume all of their time communicating to cur- the prominent name and logo.
rent clients about operations. Use this staff for operational
communication only when it is very important. Focus Group
Focus groups can be organized to help the laboratory with
Laboratory Guidebook marketing and change. A focus group should consist of 10
The laboratory guidebook should be complete and concise. to 15 clients. The clients selected should be important to
Ensure that the guidebook is available in an online format. the outreach program but not necessarily the largest cli-
It is much easier to keep the online information up to date. ents. A particular client may be chosen because they rep-
Use the guidebook to provide comprehensive information resent a specialty that is important or uses a portion of the
about the laboratory and its operations, policies (including laboratory that is marketed as a niche market. Include peo-
forms), testing, specimen preparation, result reporting, bill- ple who are not afraid to be critical. Recognize that they
ing, staff, and licensure. The guidebook should serve as the are giving their time for the laboratory program and do
client’s primary source of information about the laboratory. not waste it. The meetings should be about an hour long,
If successful in its layout and content, the guidebook should and the agenda should be comprehensive but clear. This
reduce calls to the laboratory. Use the logo and name brand- should not be an information session but a fact-gathering
ing discussed earlier on the cover and throughout the guide. session. The clients should do most of the talking, so make
Take this opportunity to list all of the management staff, sure someone who is comfortable with that format is avail-
the pathologists, and any other specially trained personnel able to lead the meeting. Use this group to review new
on staff. Give their names, degrees, certification, and phone print pieces that are in development, the guidebook for-
numbers. Provide information on important policies. In- mat, and new programs and to let them learn about new
formation about the policy on laboratory compliance, testing prior to official publications. Solicit their ideas for
medical necessity, inclement weather, how to complete a improved ways to deliver appropriate information and im-
requisition, patient confidentiality, specimen retention, and provements that can be made to the program.
ordering supplies should all be available in the guidebook.
Give step-by-step instructions for collection and prepara-
Customer Satisfaction Assessment
tion of all specimens, not just urine and blood. Publish the
list of tests that must be transported frozen and the tests Surveys
that can be ordered STAT. Conduct a survey of the clients annually. Carefully select
The most important portion of the guidebook is the the questions for the first survey. Changing the survey
test listing/menu. Make sure that this section is user questions makes year-to-year comparisons difficult and
786 OUTSIDE MARKETING AND EXPANSION

not necessarily valid. The survey should not be longer than Faxing results. A policy for the method and validation
40 questions and should include room for client comments. of faxing results will be needed. Because so many homes
Be prepared for a low response rate. A 30% response rate and computers have fax numbers, it is necessary to ensure
is considered very successful. Designing ways to improve that all fax numbers are validated before faxing. This pro-
the response rate is tricky because most respondents also cess should include sending a test fax and then using that
want to remain anonymous. Be prepared to make changes tested fax number to send the patient information. When
in response to the survey data. Completing a survey is only sending the patient information, it is best if the laboratory
worthwhile if the laboratory uses the results to improve the does not have to hand dial the number. Work with IT and
outreach program. telecommunications to develop a process to store the fax
numbers during the test phase so numbers do not have to
Problem Reporting and Resolution be rekeyed.
Have a defined process for problem reporting and resolu-
tion. There are a number of policies that should be written Wrong test ordered. Write a policy to describe the pro-
and tested before the first phone call is answered. All calls cess to follow if the wrong test is ordered. When the client
should be logged. If a system is not available for this pur- calls, determine the patient and test in question. Check to
pose, use paper logs. But this should be a last resort. Prob- see what test was performed or if a test was missed. The
lem reporting and resolution should be a defined cycle. original requisition will need to be obtained. If speci-
Responses to the typical questions should be quick, efficient, men processing ordered the incorrect test, the correct test
and automatic. Some necessary policies and items to include should be ordered. If the physician ordered the incorrect
are listed below. In addition, scripting is a great resource for test, a new order will be needed from the physician. For
the Client Services Department and is a method to ensure missed tests, the new test should be ordered immediately
that the same service is delivered to each caller each time. and performed STAT if possible. In any of these situations,
determine specimen adequacy and viability before indicat-
Written policies. ing that the new test will be performed, and include a step
Printer problem. The use of remote printers and faxes to credit incorrectly ordered tests. Employee education
is an effective, efficient means to communicate results. A may also be required.
policy needs to be in place to troubleshoot this equipment
over the phone. The policy should detail what to do if the Information. There should be a policy for informational
initial troubleshooting does not work and should deter- requests. These include questions about turnaround time,
mine if the marketing representative, the phone company, specimen collection and preservation, location of the lab-
or the equipment vendor should be called. oratory and collection sites, and services available. When
the client service representative provides this information,
Calls for result inquiry. This will be the most frequent the call should be logged and information provided to the
type of client calls received. Clients inquire about when client regarding where the requested information can be
a result will be available, why they have not received a found. The policy should outline when, if the client service
result, whether a duplicate can be faxed, or what the re- representative is unable to answer the call, it is appropriate
sult means. Because patient confidentiality is an issue, the to send the call to the technical section or other resource
policy should first detail how to identify the person call- and how the call will be handled from that point. The best
ing and should ensure that the individual is “eligible” to practice is for the client service representative to use three-
receive patient results. This can be determined by having way calling or conference call capability to have the client
the caller identify his or her client number, doctor num- and technical section on the line together so he or she can
ber, or even complete street address. The policy should hear the answer and also take care of any follow-up that
also state what to do if the caller cannot provide this in- may be necessary. This provides the advantage of includ-
formation. After identity is established, the policy should ing technical expertise without just passing the call to the
contain information about how to correctly identify the technical section, in case further follow-up is needed. If
patient in the laboratory system and the acceptable meth- the client needs a guidebook or some other information
ods for communicating the results. Providing long lists of that is available, the marketing representative should fol-
test results and reference ranges verbally is not the best low up with the client.
approach; this is also a problem for microbiology suscep-
tibility results. After the caller is identified, the patient is Missed pickup. A missed pickup is a difficult service
identified, and the results are appropriately communi- recovery call for the client services staff. This is a good op-
cated (including a read-back), the laboratory should at- portunity to develop and practice scripting with the client
tempt to determine why the results were not available to services representatives so that a consistent and thoughtful
the clinician in the office when needed. message is delivered. The policy for this call will be largely
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 787

determined by the process in place for making pickup as- section per day, the number of requisitions processed, and
signments and the client’s status for pickups (daily pickup the number of daily courier pickups will help identify staff-
vs. call-in). The specimen(s) should be picked up as ing requirements and find weaknesses. Outreach volume is
quickly as possible, even if specimen viability is not an is- not the same every day, not even Monday through Friday.
sue, because the client will view further delay as further Know the peak-volume times and days and plan resources
lack of customer service. These calls should be logged and accordingly.
tracked for trends that may reveal problems with the pre-
determined routes or other courier issues.
Couriers: the First Line
Lost specimens. It is difficult to write a policy for lost Couriers are the face of the outreach business to the clients.
specimens, especially ones that cannot be replaced, because Clients see their couriers daily, and couriers are the only
service recovery is extremely difficult. This is another good people from the lab they see except when they have a seri-
opportunity to develop scripting. If the specimen can be re- ous problem or during marketing visits. Couriers should
collected, the laboratory may offer to call the patient and be neatly groomed, be in uniform, have two-way radios or
perform the phlebotomy at the patient’s home or office if cell phones, and be in vehicles identified with the organi-
necessary, at no charge. The tests should be performed zation’s logo (even if they only pick up from lockboxes).
STAT and results communicated by phone and fax. The Give the couriers the respect and resources they need,
good news, if there is any, about specimens that cannot be because the clients will look to them for help when prob-
replaced is that they generally stay viable for an extended lems occur. Make them accountable for their route by de-
period. Search all of the courier cars, all of the coolers, the signing route sheets that have all the information on it that
client’s lockbox (and their next-door neighbors’), the re- they need. Provide the couriers with the ability to access
frigerators in the laboratory and at the client’s office, all of the laboratory if they have a question or problem. Remem-
the technical sections, and anywhere else imaginable. If the ber, the entire cycle starts with the courier. The on-time
specimens cannot be replaced, report to the quality assur- delivery of results for the specimens they are collecting
ance department and do whatever service recovery is appro- begins with the courier pickup. If the courier is late or a
priate for the client and the patient. Obviously, this kind of pickup is missed, it sets in motion a chain of events that
situation needs to be logged and studied carefully, perhaps may culminate with late results or no results until the sec-
using a root cause analysis (RCA), to determine where the ond day. Clients expect to have the majority of reports by
process failed and how this can be prevented in the future. the next morning when they open. The ability to deliver
this level of service depends on all steps in the process be-
Other. For problems not covered by a specific policy, ing performed quickly and accurately. A delay in any step
there should be a policy that covers how to document an may not be correctable later in the process.
issue and generally what department will handle certain If possible, give couriers the ability to please their cus-
issues. The policy should explain in general the problem- tomers. For instance, they can carry blank requisitions,
resolution flow and philosophy for handling calls. For supply request forms, and SST and lavender tubes. This is
atypical or serious problems, there should also be a a level of service that most laboratories do not provide.
problem-resolution cycle that includes notifying manage- A specimen tracking system will need to be developed
ment as early in the process as possible. that allows the courier to input the specimens picked up
All calls should be logged, and the data should be re- and verify that information with the specimens delivered
viewed and trended for system or procedural problems to the lab. Discrepancies must be researched before the
that may need to be addressed. Client services should be end of business for that day.
able to handle more than 95% of the calls that are placed to
the laboratory. If not, the employees and policies in place
should be revisited, and these calls should be monitored Client Services
routinely. There should be a clear escalation policy in place Client Services should be open when the physician office
for the remaining calls. staff begins to arrive in the morning at a minimum. 24/7
coverage is best but may not be feasible or cost effective
Quality assurance. Quality assurance monitors should depending on the client base. If the laboratory has nursing
be developed for the outreach program. Know what is ex- home clients, Client Services should be available when the
pected of the program and measure against that baseline. physicians make rounds in those facilities. This is usually
Establish thresholds for turnaround time, call abandon before office hours, around 7:00 a.m. The Client Services
rate, on-time courier pickup, call wait time, registration area can be staffed with some “on-the-job-trained” staff
accuracy, missed pickups, and lost specimens. Track num- but should also be staffed with medical laboratory techni-
bers on a daily basis. The numbers of tests performed by cians (MLTs) or medical technologists (MTs). At least one
788 OUTSIDE MARKETING AND EXPANSION

MT or MLT should be in Client Services during peak call When opening draw sites and patient service centers,
hours. The more technical the staff in Client Services, the remember that location is critical. Select a location that is
better the overall service will be. The technical staff has highly visible, has easy access, and is in an area where the
the advantage of understanding all aspects of the testing, medical community practices. Staff it with friendly, cus-
including specimen collection and acceptability and test- tomer service–oriented staff, and ensure adequate staff
ing protocols. support as the volume grows. Keep it clean and well or-
Offer clients flexibility in reporting. They should be ganized. Signage should be large, and hours of operation
able to choose how they want the reports delivered. De- should be listed on the door. Here are a few hints from
livery can be by printer, by fax, by mail, in an electronic lessons we have learned.
format, or by courier. The laboratory should also have the
• Select a location only after reviewing demographic
ability to send results at multiple times each day. Decide
information for patients, physician offices, and spe-
how to comply with requests for multiple copies of reports.
cialties. Also keep in mind competing draw sites.
Will you fax it, print it, or call it in to one, two, or three dif-
ferent locations? What are the processing ramifications of • Begin communication about the draw site after a firm
providing this kind of service? Does the laboratory system opening date has been established.
support this kind of request? Results that are to be deliv- • Execute a formal marketing campaign to announce the
ered by the courier need to be ready before the couriers new site and entice practices to use the location. The
leave each day. The schedule needs to be determined so campaign should be four to eight weeks long. Include
that adequate staff is on hand to ensure that the reports are flyers, client visits, invitations to an open house, and
printed and prepared for delivery before the couriers leave. perhaps a cholesterol screening. The communication
A critical result notification policy will need to be es- about the new draw site needs to be reinforced contin-
tablished for the outreach program and will often differ uously, but you must provide various communications
from the inpatient policy. The outreach critical result noti- for the marketing representative to take to the clients.
fication policy may include a variance for notification after Sending the same flyer or using the same verbal mes-
hours, reducing the number of tests that will need to be sage will not keep the clients interested.
called through the night. Also consider how to involve pa- • Use the new site to draw new business. It is the only
thologists or other physicians when the ordering physician way the site will pay for itself. Diverting existing busi-
cannot be reached to communicate a critical result. ness to the site will not result in overall growth or pro-
vide any financial advantage.
Access to Draw Sites and Patient • Continue to visit practices and encourage them to use
Service Centers the site. Expect that the volume will be very slow at
first, but with continued communication, it should
Draw sites and patient service centers will be vital to labo-
grow. Establish targets and timelines for expected vol-
ratory outreach success. Decide on the overall strategy for
ume and be prepared to reevaluate a site if the targets
access to the laboratory by examining options for each of
are not met.
these areas.
Hospital-owned facilities are a great start for patients • Since laboratory staff are available to collect demo-
to access outreach services. Facility locations are generally graphic and insurance information, it is not necessary
known, well marked, and easy to find. However, sometimes that the client complete all of this information on the
that is where the advantage ends. A hospital is not always form. However, it is recommended that the client use
easily accessible in terms of parking and navigating the in- something other than a prescription pad. A test req-
side of the building. Do not eliminate the use of the hospital uisition gives the client the ability to check the tests
as a draw site, but depending on its layout and accessibility, needed and the opportunity to include a map to the
you may not count on it as a primary source for collections. draw site on the back for the patient.
Large competitor laboratories often have many patient • Employers may let the laboratory put information
service centers set up and may allow you to contract with about the draw site in their employee newsletter.
them to perform collections for your patients. This gives • Put an announcement in the section of the newspaper
you geographically broad, ready-made, pay-as-you-go ac- that announces new physicians.
cess for patients. However, remember that this is the com-
• Update insurance provider directories with the new site
petition and clients may ask, “If I am sending my patient to
and put an announcement in the member newsletter.
laboratory X to be drawn, why shouldn’t I let them do the
testing?” Keeping this potential problem in mind, try to When a competitor asks to contract for the use of the
open sites specific for your laboratory outreach operation draw sites, evaluate the value to the draw site and your
and phase out this type of competitor agreement. business versus the advantage to the competitor. It is
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 789

usually less expensive to pay only for the expenses on a per creative is not encouraged. Not all laboratory professionals
draw basis then to invest in a draw site. If you agree, make fit this cookie-cutter image, but many do, and these are not
sure you charge according to the expenses for that site. the same set of skills and traits needed for a sales employee.
Hiring sales professionals with proven sales records brings
this ready-made expertise to the outreach program. While
Building and Retaining Your Client Base the laboratory is not an easy area to learn about, laboratory
Leverage the Continuum of Care professionals with many years of training should be able
If the physician community has loyalty to the hospital or to help train the sales staff. Do not underestimate the time
hospital system, start the campaign for the outreach business required to train a new sales representative. Each person
with the medical staff. Find the practices that primarily ad- should spend at least a month in the laboratory, followed
mit to the facility. Leverage the continuum of care for their by quarterly training sessions. The time spent in the labo-
patients. The same laboratory can produce results for their ratory will help sales personnel understand laboratory
patients regardless of the patients’ status: inpatients, same- operations so they can communicate effectively when
day surgery, or referred specimens from the physician’s labo- speaking with clients. It also helps them build personal
ratory. This way there will never be a problem with reference relationships with the technical staff producing the prod-
ranges or varying technology when comparing patients’ re- uct they sell.
sults from one setting to another. Training should also take place on how to conduct ne-
gotiations and set boundaries for what is acceptable. Some
Keep Asking Why of the training is dictated by the laboratory’s compliance
program, but there should be additional guidelines set by
Continually review and understand why decisions are
the sales manager. The sales representative needs to un-
made. The answers that have been standard over the years
derstand that it is acceptable to walk away from a contract,
may no longer apply. Constantly ask customers about their
even a large one, if it does not serve the business objec-
needs for service, supplies, couriers, client services, and
tives of the laboratory. These guidelines need to include
turnaround time. This does not have to be done with a
profitability and service requirements. Negotiations with
formal survey; client service representatives, couriers, and
any given client “should not hinge solely on the nego-
marketing representatives are great sources of informa-
tiator’s individual skill level” (2). Sales managers should
tion. Make sure the laboratory is meeting the client’s needs
follow up with the client on any negotiations that do not
and make the client feel involved in the process.
result in a sale.
Follow Up When Clients Leave Commission Plans
When customers notify the laboratory that they are leav- Each commission plan must start with a baseline against
ing or when you determine that an account has been lost, which results can be measured. It is a good idea to break
follow up as soon as possible to find out why. Even if the the commission into several parts. For example, pay a dif-
account is not salvageable immediately, taking the time to ferent percentage rate on new sales than on growth of ex-
follow up may help you win accounts back in the future. isting territory. Decide how to treat the commission for
Follow up again about three months after the client leaves related entities if, for example, the hospital also owns or
and then at least annually. Many “new accounts” will be old has ownership relationships with physician practices or
accounts that have returned. Also remember to review and nursing homes. If the laboratory has managed-care con-
discuss the information clients shared about why they left tracts, decide if testing received as part of these contracts
and determine if any other accounts are in jeopardy for the will be allowed as part of the commission payment. It may
same reason. be appropriate to pay a “new account” commission for up-
grade of an account. An upgrade occurs when the market-
ing representative is able to obtain a new line of business
Professional Marketing and from an existing account. This could be an account that is
Sales Personnel currently only sending testing related to a managed-care
Some laboratories use their current technical staff for sales contract and later adds more payors. Reports needed to
and marketing. If you are able to find laboratory profes- calculate commissions must be ready early in the month.
sionals who possess the skills for selling, they could be The revenue used to pay commissions should be after
transitioned into the sales and marketing role. However, contractuals, so be prepared to calculate that informa-
this may not be the best strategy. They will require sales tion. Also, be able to calculate contractuals when the fee
training that may not be readily available. Laboratory schedules change, and change historical data so that the
professionals are trained to be very detail-oriented and marketing and sales representatives are unaffected either
very analytical. They like following procedures, and being positively or negatively.
790 OUTSIDE MARKETING AND EXPANSION

Reports conferenced in with the client. That way the section can
Sales representatives should be encouraged to stay on the answer the client’s question, and the Client Services repre-
road. Assignment of a personal desk in the laboratory may sentative can record the answer and complete any neces-
not be a good idea. Office time should be kept to a mini- sary follow-up. Marketing personnel should build rapport
mum. This presents certain challenges for staff manage- with the technical staff during their training and in subse-
ment. Over time you will be able to tell if the representative quent training so they will be able to contact them directly
is producing sales. However, you need to keep communi- for quick answers to questions.
cation open so you can monitor progress, give feedback, If it is necessary to take someone from the technical
track problems or problem patterns, and ensure that the staff to meet with a client, the visit should be well planned.
facilities that management defines as important are vis- The exact source of questions and problems should be re-
ited. Weekly and monthly (see Appendix 44.2) reports are searched before a meeting is scheduled. The marketing
useful to convey information in a consistent format and to representative should complete the follow-up whenever
track progress. These reports should be in a standard for- possible so the technical staff member can return to the
mat and should be completed and turned in at appointed bench. Use this option only for large clients and when the
times. The weekly report should include information material warrants this level of attention. For instance, a
about each visit made with client decision makers the pre- large drug-screen account that has specific requirements
vious week. Dropping off information to a client office or might be a good opportunity to bring a technical staff
seeing the receptionist does not count. There should be a member from Toxicology. He or she will be able to discuss
minimum number of visits required each week and an ac- changes that have occurred with the testing, the technol-
counting of time that is not spent in the field. The monthly ogy, and any plans for future changes.
report recaps the month’s sales efforts. All active prospects Use the in-area (hometown) availability to your advan-
should be listed and their status provided. This also serves tage, but do not overburden staff. Being able to provide
as the document used to identify accounts that are eligible this level of service to clients is going to be difficult for the
for commission. Each account should have data available competition to match. The large commercial laboratories
in an online system. The manager should review the in- that have STAT labs in the area do not readily have this
formation a few times a year. The information will vary expertise to offer. The technical staff is a powerful weapon
but should include basic demographic information, con- when used correctly. Be careful not to let them become
tact information, the names of all of the physicians in the overwhelmed with phone calls and client commitments
group, the hours, and all of the visits made to the account. that could have an adverse effect on test turnaround time.
For the most part, the technical staff will welcome the op-
Prepackaged Information portunity to answer questions and visit with clients occa-
Print pieces are a great source of prepackaged information sionally, which will help to win and keep business.
for the sales and marketing team, and a number of pieces
should be developed detailing information about the labo-
Accounts That Require Special Care
ratory. Pieces might cover new product offerings, special
programs, a niche service, and the professional group, if Each of these account types can be lucrative but also has
they provide a competitive advantage. Each piece should specific demands that must be met. Before deciding to en-
stand alone, but identify each with the corporate name and ter any of these market segments, review the demands and
logo, as discussed previously. ensure that the laboratory can meet them and still generate
a profit.
Technical Expertise Accessibility Nursing Homes
Identify how and when to access technical staff. The tech- Nursing homes are attractive because of the opportunity
nical staff is a tremendous resource for client services, to collect many specimens in one location and to control
marketing, and clients. Use them wisely, as this is the same the entire account. Marketing representatives like nursing
staff the outreach program relies on to produce the high- homes and rehabilitation facilities because they produce
quality, quick results the clients count on. Identify situa- large commissions. To compete in the nursing home busi-
tions when it makes the most sense to involve the technical ness, the laboratory will likely need to commit a phleboto-
staff and contact the right person in the technical section mist to the facility each morning, Monday through Friday,
for assistance. For Client Services, contacting the technical and be available on weekends and after hours to collect
section should be done according to a policy. There should specimens for emergent situations. Results must be turned
be other steps to follow before calling the technical section around the same day they are collected. The laboratory
for help. Once it is decided that the technical section needs must have a commitment from the nursing home to pro-
to be involved, it should be called by Client Services and vide medical necessity information or pay for the charges
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 791

that do not meet medical necessity, because collecting an should be pursued only after a careful marketing and fi-
ABN is usually not an option. If the nursing home has Part nancial analysis. Decisions should be made about the
A patients, a process must be in place to establish the pa- services offered and the territory to be covered based on
tient’s status at the time the specimen is collected and also financial information and resource availability. Stepping
to check it before a bill is sent. Part A patients are patients outside of the original plan may mean that other ser-
for whom Medicare reimburses the nursing home on a case vices will be compromised or that more resources will be
rate that includes all of their ancillary services (laboratory, needed. Do not presume that extension of services can be
radiology, rehabilitation). The laboratory will need to bill accomplished without sacrifice. If the laboratory has an
the facility for the testing performed for these patients. opportunity and the flexibility to change plans, then the
Keep in mind that a patient’s status can change retroac- change should be planned and pursued. Flexibility and
tively. A commitment must exist from the nursing home adaptability are qualities that young businesses tend to be
to collect MSP information and either make and commu- better able to attain than established businesses. Take ad-
nicate primary payor information or forward the MSP in- vantage of that strength, but understand the consequences
formation to the laboratory. This is a demanding business before a change is made.
that has some compliance risks, but we have found that it is
profitable for mid-sized to large nursing homes. Range of Services
What other services will you offer? System courier, home
Drug Accounts draws, arterial blood gases, and pulse oximetry are some
Drug accounts for pre-employment screening also have of the services we have provided over the years. We deter-
unique demands. Drug-screen accounts usually require mined that most of these were not our core business, as
chain-of-custody forms to be completed and can be de- they were expensive or administratively burdensome, and
manding concerning locations for specimen collection. since we did not feel we serviced them well, we discontin-
The more sophisticated employee health programs will ued these services. Other laboratories have been willing to
want specific testing in place for drugs. Ensure that Market- invest the resources to make this a niche for themselves in
ing and the client understand the difference in testing and their system.
pricing between a drug screen and a quantitative drug test.
Courier for the system. The service for the laboratory
Home Health Agencies can be expanded to serve the health system, and there are
Home health agencies want easy access to a large number advantages and disadvantages that should be considered.
of facilities, quick turnaround time, and delivery of reports If the laboratory decides to take on the responsibility of
to numerous places. Requests to call and send reports to the transporting items other than laboratory supplies and
agency, as well as to a number of doctors, are not unusual. specimens, ensure that there is a tracking system in place.
The advantage to this segment of business is that it usually Some items cannot be replaced. Transporting other items
comes to the laboratory. Most home health agencies will de- while transporting specimens can provide a good busi-
liver the testing to the laboratory. This may be enough of a ness case for a specimen-tracking system, which will be
benefit to offset the requirements of the additional reporting. an added benefit to your clients. If the laboratory can ad-
equately provide this service or join a system-wide courier
Veterinary Lab Services network without sacrificing the timeliness of pickup and
Providing laboratory services for the veterinary commu- delivery of specimens, it could be a win for everyone. Re-
nity is very demanding. The service requirements are ex- member, though, that if couriers do not have the ability to
tensive and payment is generally low. IT systems will need do their laboratory job well, the laboratory will be behind
to be prepared to accept the different breeds and normal schedule from the time the specimen arrives, and making
ranges required for animals. Also, veterinary pathologists up that time is not easy.
are difficult to recruit and retain, although this segment of
the business could be sent to a third party. The business Pulse oximetry. The laboratory sometimes will take on
can be a niche service line if you have buy-in from the lo- the responsibility of pulse oximetry, since the same people
cal veterinary community, you are able to use your current performing this function also collect arterial blood gases.
equipment, and you are able to provide STAT service. Pulse oximetry testing is needed to certify patients for
oxygen. However, there is limited reimbursement from
Medicare in terms of both the value of the reimbursement
Define Service Area and Services and medical necessity requirements. Additionally, the task
Determine how to define services offered and the service is administratively burdensome. The patients often need
area. Marketing will press for additional services and a the equipment delivered and picked up from their homes.
larger service area. Any changes to service or service area Then there is the issue of ensuring that the results are
792 OUTSIDE MARKETING AND EXPANSION

reported as needed. This service can be an added benefit psychiatry, dermatology, and orthopedic medicine groups
for existing clients, but the number of people who will use generally do not generate enough volume to make place-
the service does not usually provide sufficient benefits to ment of a phlebotomist profitable. Gastroenterology,
distinguish the program in the market. urology/nephrology, and other specialties may work out,
depending on the size of the practice and the types of ser-
Arterial blood gases. Some hospital laboratories include vices they offer. When profitability is calculated, remem-
this function because it is related to phlebotomy, but usu- ber to consider not only the time for the phlebotomist who
ally it is provided by the Respiratory Department. Someone is assigned to the office but also the cost of coverage when
will need to be available in the hospital at all times for this that person is sick or on vacation. Also consider what hap-
service. The skills that are required are different from those pens to that employee if the office is closed on a day the
of phlebotomy. More in-depth training is required to collect employee would normally work.
arterial blood gases, so the function is generally limited to
a subset of the phlebotomy staff. Nursing homes will want The Importance of Standardization
this service and will view it as an added benefit of dealing Some companies build their reputation on their ability to
with the outreach program. Most reference laboratories do personalize service and are sometimes able to charge a pre-
not provide this service. This draw is usually not scheduled, mium rate for the additional service. To some extent, the
unlike the daily draws performed for nursing homes, and as laboratory needs to be prepared to personalize service and
discussed, the entire phlebotomy staff will probably not be should determine in advance what personalization could
trained to do this testing, thus making the service difficult be offered. But because reimbursement is largely fixed
to deliver. The respiratory vendor that the nursing home based on a fee schedule or a capitated rate for an insurance
contracts with will also offer this service, and it may be ad- company, recouping additional expenses will be difficult.
visable to direct inquiries for this service to them.
Product offering. Decisions need to be made about the
Home draws. Doctors and home health agencies will be testing that will be performed and the schedule that will be
very pleased with the laboratory for providing this service. offered. What testing will be offered STAT? STAT fees can
If the laboratory can rigidly control the service area and be charged but will not be reimbursed by many insurance
hours of operation, meet medical necessity standards, and companies. In Virginia, the STAT fee cannot even appear
only provide the service for offices that have signed con- on the bill for Medicaid patients. Decide on fees for services
tracts for their complete business, it may be worthwhile. and discount schedules. Decide what the discounts will be
Profitability is difficult with this business because of the based on, keeping in mind the compliance restrictions.
time and distance involved in collecting the specimens and
the limited number of tests that will be drawn at each stop. Process. Testing referred to the laboratory should be han-
Enlist the aid of the Compliance Department to determine dled in a consistent format for ease and accuracy of pro-
the rules for homebound patients, certification for home- cessing. However, the laboratory will have many requests
bound status, and the billing of travel fees. There is also to alter the process to accommodate clients. Use of a stan-
a safety factor to consider for the phlebotomist. Consider dard requisition is ideal, and there may be compliance
the neighborhoods they will be asked to visit and the fact concerns if clients do not use it, because the laboratory will
that they are in the homes of strangers. Do not ask that be required to determine from the client’s form the test-
they collect funds, even if the patient is self-pay. ing that needs to be completed. Clients may send separate
printouts with demographic and billing information. This
In-office phlebotomy. This is a service that will help win usually allows for better, more legible information, but
accounts and may be required for larger practices. Be care- the client’s printout may not have all of the information
ful not to run afoul of the compliance issues and ensure required. Identify how to meet clients’ needs if they want
that the physician office is large enough to support the cost to change the report format or add specific identifying in-
of a phlebotomist. This service should normally be offered formation on the report. A physician office connectivity
to accounts with three or more providers in the office each system will help meet some of these needs. For clients with
day, keeping in mind the practice specialty. Family prac- faxes or printers, there should be multiple print options
tice, internal medicine, oncology/hematology, infectious available. Also be prepared to let clients control when their
disease, rheumatology, and large OB/GYN groups are all reports print (if they have a printer or autofax) or choose
excellent opportunities for placement of a phlebotomist. to receive only final reports. Have a process to allow de-
Surgical groups are usually not a good option because al- livery of reports to more than one doctor. A billing and
though they generate a large volume of testing, the blood- reporting process will need to be established.
bank criteria may be difficult to meet even if the patient is A process will need to be developed to collect infor-
being admitted to your facility. Even very large pediatrics, mation not received on the original request. This policy
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 793

must address two kinds of issues. First, a policy will be re- and service customers while still being able to expand the
quired for situations when information needed to run the business are important and will affect the program’s overall
test (test name, patient name, and patient identifier) is not success. Choose the service offerings and service standards
received or additional patient history is required. Second, carefully and always deliver what is promised.
a policy will need to be developed for when proper bill-
ing information, including ABNs, is not received. If the
test information is not received, the laboratory will have KEY POINTS
to determine if any testing will be done. For instance, if a ■ Deciding how to implement an outreach program
lavender tube is received, should a complete blood count within the current hospital environment requires deci-
be performed? If this is done, billing must be held until an sions at many levels of the organization. Contracting,
order is received. If an ABN is needed but not received, information technology, finance, and compliance are
and the test is performed, the laboratory will risk not be- key areas that require attention. Understanding each of
ing paid. Some laboratories will send a comment about the these areas is critical to success.
problem on the report and call the physician office for the ■ Being part of a hospital system offers advantages to the
missing information. physician base and to the patients. Leverage those ad-
For every step of the process, the laboratory will receive vantages to make a winning and profitable business.
requests to alter the process. To the extent that the labo-
■ Consider all of the points and options for customer
ratory can customize its service without compromising
overall service or quality, the program will be better able to service. Customer service is not only a department or
compete. Ensure that the laboratory can consistently de- something people do in their spare time. It must be a
liver the service promised and administer the agreed-upon united, consistent strategy employed to win and keep
exceptions. customers.

Courier routes. Practices across the service area will close GLOSSARY
at approximately the same time and want their specimens
Add-on Test that a physician adds on after the initial lab order is
picked up as they leave the office. Knowing that is not
received.
possible, the laboratory needs to design the routes so that
the majority of the specimens are picked up as quickly as Advance beneficiary notice (ABN) Notice that must be pro-
possible and returned to the laboratory for processing to vided to patients for testing that is not medically necessary so
begin. Couriers will need to be equipped to handle a num- that the lab may bill the patient should Medicare deny payment.
ber of requests and issues. If a client is not ready when Client bill Bill sent to the client for payment of lab services as
the courier arrives, the courier must decide whether to opposed to billing the patient or the patient’s insurance.
wait for the specimens, try to come back, or call another Commission plan A written plan for calculation and distribu-
courier to pick up the specimens. If a client who rou- tion of commission payment to marketing staff and other
tinely leaves specimens in a lockbox daily does not leave individuals.
the lockbox out, an attempt should be made to contact
Continuum of care A patient’s continuum of care includes the
the practice by phone. If that is unsuccessful, the courier
hospital, physician office, skilled nursing facility, outpatient sur-
should have preprinted notes to leave on the door. The gery, primary care, specialty care, and any other health service a
laboratory will also need to decide how to handle calls patient may need.
for STAT transports or requests for multiple pickups in
the same day. Depending on the size of the account, mul- Fixed costs Costs that remain constant in spite of changes in
tiple pickups may be a good idea for both the client and output (3).
the laboratory, so processing of the specimens can begin Full-time equivalent (FTE) A standard 2,080-hour work year.
sooner. Requests for STAT pickups should be monitored This may be one employee that works a standard 40 hours per
and addressed if problematic. week each year or a combination of employees that equal 2,080
hours per year.
Guidebook A book that provides comprehensive information
Summary about the laboratory and its operations, policies (including
Successful establishment of an outreach program can have forms), testing, specimen preparation, result reporting, billing,
numerous benefits for the hospital laboratory, the hospital staff, and licensure.
system, the physicians, and the community. Leverage the Health Insurance Portability and Accountability Act of 1996
intellectual and capital assets of the hospital while working (HIPAA) A law to improve the flow of information between in-
internally to offset any challenges that being part of a hospi- surance companies and providers and protect the privacy of pa-
tal presents. The decisions made regarding how to maintain tient information (4).
794 OUTSIDE MARKETING AND EXPANSION

Medical necessity Services that are “covered, reasonable and nec- for compliance/billing issues. Other providers and people can
essary for the beneficiary, given his or her clinical condition” (5). also be barred from the government programs.
Medicare secondary payor (MSP) Information that is collected Unrelated business income tax (UBIT) An income tax that
from the patient to determine when Medicare is not the primary must be filed and paid annually for net income that is not related
payor. to the hospital. Laboratory testing and revenue generated from
Model Laboratory Compliance Program A statement of expec- physician offices, clinics, and employers that do not have a cor-
tations published by the CMS (Centers for Medicare and Medic- porate relationship with the laboratory or parent company would
aid Services) for laboratories to use as a model for behavior. be considered unrelated.

Nonstaff physicians Physicians who are not part of the hospital

medical staff. REFERENCES
Physician office connectivity (POC) System that allows clients 1. Department of Health and Human Services. 2011. Advanced
access to the laboratory information, usually via the Web. The beneficiary notice of noncoverage (ABN) Part A and Part B, second
system should also provide the client the ability to register pa- edition.
tients, order tests, and print results.
2. Ertel, D. 1999. Turning negotiation into a corporate capability.
Pull-through The testing that is sent to a laboratory because the Reprint number 99304. Harvard Bus. Rev. May–June.
client already has to use the laboratory for other testing. Usually
3. Kieso, D. E, and J. J. Weygandt. 1983. Intermediate Accounting,
associated with a laboratory that has a health maintenance orga-
4th ed., p. 347. John Wiley & Sons, Inc., New York, NY.
nization (HMO) contract. Clients that have a large volume of
testing for that HMO may send the laboratory testing for other 4. Payne, S. 2003. A privacy law. WaveNet. https://wavenet.sentara
patients whose insurance does not require a specific laboratory. .com/ HIPAA/Forms/SEEP.ppt.
Sanctioned physicians Physicians who have been barred from 5. Taulbee, P. 1998. The HHS office of Inspector General’s Compli-
billing Medicare, Medicaid, or other government payors, usually ance Program Guidance for Clinical Laboratories.
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 795

APPENDIX 44.1 Sample Physician Letter

Note: This client letter is for demonstration purposes only. Actual names, phone numbers, and CPT codes may have changed.

(continued)
796 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 797

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
798 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 799

APPENDIX 44.1 Sample Physician Letter (continued)

(continued next page)

(continued)
800 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 801

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
802 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 803

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
804 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 805

APPENDIX 44.2 Monthly Sales Report

Monthly Prospect Report

Market Rep Page of
Month Ending

• The following are fully qualified prospects.

• The decision-makers, decision-influencers, and decision-making processes are clearly identified.
• A “yes” answer has been obtained for each of the qualifying criteria.

Last Month’s Prospects (all must be listed): Close in 30-45 days

Name Clt# EMV Current Lab Close Date Next step or reason for deletion

New Qualified Prospects, this Month: Must close in 60-75 days

Name Clt# EMV Current Lab Close Date Next step

Suspects this Month: Qualification

Name Clt# Dec Time Needs Price Sentara Next step

Comments:
Clinical Trials and Evidence-Based
IX
Laboratory Medicine
section editor: Donna Wolk
45 The Current State of the U.S. Food and Drug Administration Process
and Regulations for Diagnostic Laboratory Assays
Donna M. Wolk, Natalie N. Whitfield, Elizabeth M. Marlowe, and
Marilyn M. Marshall
46 The Clinical Trial Laboratory: Research Compliance for Clinical
Research Microbiologists
Donna M. Wolk and Marilyn M. Marshall
47 Clinical and Evidence-Based Research in the Clinical Laboratory
Donna M. Wolk
Introduction
45
Background: The FDA Processes for
The Current State of the U.S.
Classification and Assessment of
New IVDs
Food and Drug Administration
Premarket Approval (PMA) • Premarket Notification
[510(k)] and 510(k) Review • Alternative Application
Submission Approaches • The Pre-IDE Process • The
Process and Regulations for
Expedited Review
Miscellaneous FDA Requirements
Diagnostic Laboratory Assays
Establishment Registration • Medical Device
Listing • Good Manufacturing Practices and Quality
System Regulations • Quality Control Donna M. Wolk, Natalie N. Whitfield,
Automated Laboratory Assays Elizabeth M. Marlowe, and Marilyn M. Marshall
Postmarket Review
Limitations Inherent to Current FDA
Processes OBJECTIVES
Summary
To understand the role of the U.S. Food and Drug Administration (FDA) in the
KEY POINTS regulation of in vitro diagnostic devices (IVDs)
GLOSSARY
To understand the process by which the FDA approves a laboratory assay
REFERENCES
To describe the different processes used during FDA review
To describe the risk categories the FDA uses to determine the type of process for
review
To understand the premarket approval (PMA) forms, requirements, and
process
To recognize the importance of good clinical practices (GCPs), good
manufacturing practices (GMPs), and Quality Systems Regulations (QSR) in
the FDA approval process
To understand requirements related to 510(k) notification to the FDA
To understand the pre-investigational device exemption process
To understand the part that the Office of In Vitro and Radiological Health
plays during the approval process
To review various FDA requirements

Chance favors only the prepared mind.

Louis Pasteur

M
uch attention and effort is focused on the interface be-
tween scientific methods and their transition to clinical diagnostics
supporting diagnosis, prognosis, population screening, therapeu-
tic decision making, and therapeutic monitoring practices. The U.S. Food
and Drug Administration (FDA) regulates the sale and distribution of in vi-
tro diagnostic devices (IVDs), commonly referred to as laboratory assays or
laboratory tests. To achieve the optimal utility of new diagnostic laboratory
tests for the purposes listed above, clinical laboratory scientists (CLSs) and
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia laboratory management/administration must fully understand the process
©2014 ASM Press, Washington, DC and regulatory framework defined for diagnostic assays by the FDA in or-
doi:10.1128/9781555817282.ch45 der to best participate in clinical trials and to aspire to achieve a greater voice

809
810 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

in the process as participants and end users. This chap- For example, class I devices are those that present mini-
ter provides an overview of (i) the FDA process for risk- mal potential for harm to the user, are generally simple in
based classification and regulation of IVDs, (ii) the FDA design, and are substantially equivalent to other products
methods used to assess performance of IVDs prior to their already on the market. Most class I products are exempt
clearance or approval for release in marketing and distri- from FDA review but are subject to the use of general con-
bution to diagnostic laboratories, (iii) the laws that impact trols. When a company produces a class I medical device,
clinical laboratories that are participating in FDA clinical it must register the product with the FDA, but most of the
trials, and (iv) the process by which the FDA conducts time further scientific review is not necessary. Some class
postmarket regulation of IVDs and associated postmarket I products may also be exempt from some of the Qual-
performance. ity System Regulations (QSRs). Examples of class I exempt
For an updated review of FDA-approved and cleared IVD products include unassayed, qualitative, third-party
molecular assays for infectious disease testing, a recent re- controls (as long as they are not used for blood screening),
view details the state of the art in FDA-approved laboratory general purpose laboratory reagents, and most analyte-
methods (4). To maintain accuracy, abiding by the laws specific reagents (ASRs). Although third-party controls
and regulations surrounding the submission and approval and ASRs are exempt from scientific review, they must be
of new laboratory diagnostics, parts of this chapter were ex- manufactured in a QSR-compliant manner.
cerpted and paraphrased from: http://www.fda.gov/Medical Class II medical devices are products that are substan-
Devices/DeviceRegulationandGuidance/IVDRegulatory tially equivalent to previously approved products but, from
Assistance/ucm123682.htm (accessed March 18, 2013). the FDA’s perspective, they require additional review, study,
and control, which may include the need for a clinical trial.
Class II products are subject to scientific review via mar-
Background: The FDA Processes for keting applications called 510(k)s or premarket approvals
Classification and Assessment of New IVDs (PMAs) and must be manufactured in a QSR-compliant
Under the Federal Food, Drug, and Cosmetic Act, the FDA environment. An example of a class II IVD product is an
maintains regulatory authority for IVDs and IVD com- infectious disease genotyping assay.
ponents that are distributed via interstate commerce (14). The FDA created a special category for products that
IVDs are medical devices as defined in section 210(h) of the they consider to be in a class II risk category but there is
Federal Food, Drug, and Cosmetic Act (14). In addition, no previously cleared product (i.e., no predicate devices).
IVDs may also be biological products subject to section This category is reviewed via a de novo 510(k) route. The
351 of the Public Health Service Act (10). Like other medi- de novo 510(k) was the pathway used to obtain the first
cal devices, IVDs are subject to premarket and postmarket microarray-microarray instrumentation FDA clearances.
controls, and laboratories performing diagnostic testing are Class III medical devices are products for which no sub-
subject to the regulations set forth in the Clinical Laboratory stantially equivalent product exists for comparison or are
Improvement Amendments of 1988 (CLIA ’88) (3), under types of products that the FDA considers too high risk to
the oversight and authority of the Centers for Medicare categorize as class I or II, for example, a molecular assay
and Medicaid Services (CMS). for detection of Mycobacterium tuberculosis.
The Office of In Vitro Diagnostic Device Evaluation The classification of an IVD determines the appropri-
and Safety, recently renamed the Office of In Vitro Diag- ate premarket process and the depth and detail required
nostics and Radiological Health (OIR), performs review by that process, with greater scrutiny given to high-risk
of new IVDs (aka premarket review) within one of three IVDs. The Code of Federal Regulations lists the classifica-
divisions: microbiology devices, chemistry and toxicology tion of existing IVDs in three sections, 21 CFR 862 (19),
devices, and immunology and hematology devices. For 21 CFR 864 (20), and 21 CFR 866 (23), as well as other
IVDs that relate to the human blood supply and to retro- supporting documentation (30); therefore, manufactur-
viral testing, premarket review is commonly performed by ers can generally assess the classification with accuracy.
the Center for Biological Evaluation and Research (33). In some cases, classification status is unclear and the
The FDA classifies IVD products into class I, II, or III manufacturer can request the FDA’s potential classifica-
according to the level of risk and, therefore, the level of tion in the form of a nonbinding process called 513(g)
regulatory control that is necessary to ensure safety and ef- determination.
fectiveness for their intended use or application (i.e., what is To date, randomized controlled trials, such as those
being tested), and their indicated use (why a patient is tested). used for pharmaceuticals, have not been performed prior
Most oversight of IVDs is logically focused on the IVDs clas- to FDA clearance of a diagnostic assay. Rather, method
sified as having the most risk to humans being tested or us- comparison study designs (diagnostic accuracy experi-
ing the device. Class I represents those IVDs with low risk, ments) are typically used yet may not be appropriate for
class II with moderate risk, and class III with the highest risk. all purposes (34, 35). Although the FDA process and
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS 811

diagnostic clinical trial designs may change in the future, also requires review of the manufacturing processes (good
this chapter describes the current FDA process. manufacturing practices [GMP]), an inspection of the
manufacturing facility, a bioresearch monitoring audit of
Premarket Approval (PMA) clinical data sites, as well as comprehensive review of the
A PMA is an application submitted to the FDA to request premarket data. Compliance with QSRs can be assessed,
approval to market, or to continue marketing, a class III typically via an inspection process. A manufacturer con-
medical device (those with substantial importance to pre- sidering a PMA should consult 21 CFR 814 (18).
vention or impairment of health or that have the poten- Proof of substantial equivalence is required for some
tial for unreasonable risk of illness or injury and for which studies. The types of studies required to demonstrate sub-
general and special controls are considered inadequate). A stantial equivalence commonly include analytical studies
PMA is also required for devices that test for a new ana- using clinical samples (sometimes supplemented by care-
lyte or substance or that claim a new intended use for an fully selected artificial samples). In some cases, the link
existing analyte that has not gone through a previous FDA between analytical performance and clinical performance
approval process. is not well defined, and in these circumstances, clinical
PMAs receive the highest level of regulatory review. information may be required. The FDA rarely requires
For most PMAs, sponsors identify surrogate endpoints prospective clinical studies for IVDs but regularly requests
and establish the device performance (clinical sensitivity clinical samples with sufficient laboratory and/or clini-
and specificity, or agreement) with relation to the identi- cal characterization to allow an assessment of the clinical
fied endpoints in corollary studies. Studies are required validity of a new device. In this case, the results are usu-
to demonstrate safety and effectiveness. If the FDA finds ally expressed in terms of clinical sensitivity and clinical
that a product is safe and effective, it receives an official specificity or agreement. Figure 45.1 shows a flow diagram
approval order for marketing in the United States. If the outlining the PMA process.
FDA finds that a product is not safe and effective, it may
not be approved. Premarket Notification [510(k)] and 510(k) Review
PMA applications must include information and data Anyone who plans to sell a medical device, including
describing preclinical evaluation of the IVD (testing per- IVDs, in the United States must submit a 510(k) to the
formed by the manufacturer prior to the clinical trial), as FDA. Likewise, a 510(k) is required when a manufacturer
well as evaluation of clinical performance in representative or distributor proposes a different intended use, change,
U.S. laboratories performing clinical trials using samples or modification for a device or device process that could
from patients with predefined trial enrollment criteria. significantly impact safety or effectiveness of a previously
PMA is based on the composite scientific evidence, pro- approved IVD. A 510(k) is a premarketing FDA submis-
viding a reasonable assurance that the device is safe and sion to demonstrate that the device to be marketed is as
effective for its intended use(s). In certain cases, stored safe and effective, i.e., substantially equivalent to a legally
biorepository samples or a body of literature may be in- marketed device that is not subject to PMA. There is no
cluded in the assessment. formalized 510(k) form, but the format for the submis-
For IVD products, the safety of the device relates to sion is described in 21 CFR 807 (17). Each person or en-
the impact of the device’s performance, i.e., that the assay tity who wants to market class I or II and some class III
can accurately and reproducibly measure the target ana- devices intended for human use in the U.S. must submit a
lyte under defined and controlled conditions stated in the 510(k) to the FDA unless the device is exempt from 510(k)
package insert for the product. In particular, the impact of requirements. The 510(k) is filed at least 90 days before
false-negative and false-positive results on patient health marketing. Some class I and class II devices require 510(k)
is critically reviewed. The FDA reviews PMA submissions submission; however, certain class I and II devices can be
in a 180-day timeline. If there are unaddressed scientific marketed and sold for the first time without a 510(k) being
issues, the review scientists can ask for additional infor- filed with the FDA. Many ASRs fall into the latter category;
mation and place the submission temporarily on hold. If however, ASR-specific regulations apply.
a product is the first of its kind, or if it presents unusual Review of a 510(k) is based on the evaluation of the
issues of safety and effectiveness, it is generally reviewed analytical performance characteristics of the new device
before it is approved by an advisory panel of outside ex- compared to the predicate device (older reference stan-
perts. Review panels often include CLSs, biostatisticians, dard assay). Performance characteristics include the bias
medical officers, and biomedical engineers. or inaccuracy of the new device, the imprecision of the
To be approved for use, the device should have clear new device, and the analytical specificity and sensitivity.
and documented clinical validity and utility (effective- The FDA reviews 510(k) submissions in a 90-day time-
ness). Clinical trials are often performed under the regu- line. The FDA scientists can ask for additional informa-
lations provided by good clinical practices (GCP). PMA tion focusing on unaddressed scientific issues and put the
812 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Figure 45.1 PMA review milestones in total FDA calendar days—domestic inspections. From http://
www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/
ucm077795.pdf (accessed March 18, 2013). doi:10.1128/9781555817282.ch45.f1

submission temporarily on hold. If the FDA finds that the two new optional approaches for device manufacturers to
information provided by the sponsor meets the standard obtain marketing clearance for devices subject to 510(k)
of equivalency, the product is cleared for marketing in the requirements: special and abbreviated 510(k)s (28, 29). A
United States. If the FDA finds that there is no predicate manufacturer considering either a special or abbreviated
for the device or that the new device does not perform 510(k) should first consult 21 CFR 807.81(a) (17), as all
equivalently to the identified predicate, then the device is IVDs on the market as of May 28, 1976, were classified
found to be not substantially equivalent. according to their risk, and any device that was not clas-
sified was automatically assigned to class III, requiring a
Alternative Application Submission Approaches PMA application. A device can be moved out of class III,
Because the FDA understands that new devices with the but only after a cumbersome reclassification process. The
potential for significant and positive public health impact Food and Drug Administration Modernization Act of
should be made available as quickly as possible, there are 1997 (FDAMA) amended Section 513(f) to provide a new
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS 813

mechanism for classifying new class III devices, for which The Expedited Review
there are no predicate devices. It allows the recipient of The FDA review of a PMA or 510(k) application may be
an NSE (not substantially equivalent) letter to request a expedited for a new device upon sponsor request or based
risk-based classification determination to be made for the on the FDA preliminary review. If granted, an expedited
device. In some cases, this allows a manufacturer to use review means that the submission moves to the head of
the de novo process to submit a 510(k) for a new IVD the review queue and additional resources may be ap-
that would otherwise have to get to market via the PMA plied to accelerate the review process. To merit expedited
process (5, 6). review, the condition to be diagnosed by the product
must be irreversibly debilitating or life-threatening, and
The Pre-IDE Process the device must address an unmet medical need, as dem-
The “pre-IDE” (investigational device exemption) process onstrated by any one of the following: (i) breakthrough
is one of two processes to facilitate market entry for prod- technology, (ii) no approved alternative, (iii) significant
ucts with positive public health impacts. The pre-IDE is an clinically meaningful advantage, or (iv) the best interest
informal presubmission process for IVDs, during which of patients.
time the FDA can assign a process an official tracking Although expedited review ensures that the device of
number, similar to the numbers assigned to 510(k)s and interest receives a high priority, it does not guarantee a
PMAs. A sponsor (manufacturer) submits a pre-IDE to particular review outcome or a particular time line. The
solicit the FDA’s thoughts about the study or proposal. A single most important determinant of review time re-
sponsor should submit a pre-IDE only if they would like mains the quality of the sponsor’s submission. Sponsors
the FDA’s thoughts on the study or proposal prior to start- with devices that could be eligible for expedited review
ing the study. The pre-IDE process can involve meeting are encouraged to work with the FDA in the pre-IDE
with the FDA to discuss protocols and/or possible regula- process to ensure that review questions have been ad-
tory pathways or sending analytical or clinical protocols dressed and criteria have been met. It is strongly rec-
to the FDA for review and comment before proceeding ommended that companies use all requisite scientific,
with studies. Manufacturers who engage in this process statistical, and regulatory resources that are appropriate
with the FDA are not required to subsequently submit an to ensure that submissions are clear and complete and
IDE application. In fact, most IVDs are exempt from the can be reviewed quickly.
medical device IDE regulations. Pre-IDE submissions and
meetings are voluntary, and any comments or recommen-
dations made in the review of protocols or during these
meetings are not binding on either side—the manufac- Miscellaneous FDA Requirements
turer or the agency. A submission made under the pre-IDE Establishment Registration
process is not an official IDE application as described in 21 Establishments involved in the production and distribu-
CFR Part 812 (8, 26). tion of medical devices intended for commercial distribu-
Protocol review or a pre-IDE meeting is requested un- tion in the United States are required to register with the
der the following circumstances: FDA. Registration provides the FDA with the location of
medical device manufacturing facilities and importers.
• The new product involves new technology, and it will Registration of an establishment is not an approval of the
be helpful to familiarize the FDA with the technology establishment or its devices by the FDA, nor does it pro-
in advance of the submission. vide FDA clearance to market. Unless exempt, premarket-
• Assistance is needed in defining possible regulatory ing clearance is required before a device can be placed into
pathways. commercial distribution in the United States (27).
• The study designs are complex, and advice is required
to identify ways to simplify them and keep costs Medical Device Listing
reasonable. Most medical device establishments required to register
with the FDA must list the devices they have in commer-
• The studies involve complex data and/or complex sta-
cial distribution, including devices produced exclusively
tistical approaches.
for export. Listing keeps the FDA advised of the generic
• To reduce the cost of research studies by focusing on category(s) of devices an establishment is marketing. List-
the important information needed for FDA approval ing a device does not provide FDA clearance to market.
(or clearance). Unless exempt, premarketing clearance is required before
• To speed the review process for the future marketing a device can be placed into commercial distribution in the
application. United States (27).
814 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Good Manufacturing Practices and Quality Postmarket Review

System Regulations The revised regulations for GMPs are an important regula-
The GMP requirements are part of the QSRs. They require tory tool. The QSR 21 CFR 820 established a system for
that domestic or foreign manufacturers have a quality system ensuring quality production of medical devices. Devel-
for the design, manufacture, packaging, labeling, storage, in- oped in alignment with international standards for quality
stallation, and servicing of finished medical devices intended systems, the QSR emphasizes the need to build quality into
for commercial distribution in the United States. The QSR is the design of products by introducing a variety of process
contained in 21 CFR 820 (15) and related documents (16). and production/manufacturing controls. It also includes
corrective action requirements for deviations. For selected
Quality Control class I and all class II and class III devices, the QSR calls
Quality control (QC) is a material or mechanism that, for the implementation of design controls that dictate that
when used with or as part of a test system, monitors the the manufacturer of a product will identify both device in-
analytical performance of that test system. It may monitor puts and outputs, ensure verification of performance, and
the entire test system or only one aspect of it. The ways in establish validation of performance to predict and ensure
which a QC component is used within a laboratory are not proper use in the hands of the end user.
within the FDA’s jurisdiction. Other agencies, such as the Postmarket control of medical devices is further moni-
CMS, the College of American Pathologists (CAP), or The tored by existing requirements for reporting problems to
Joint Commission (TJC), have jurisdiction over the proce- the FDA and for companies to take corrective action when
dures and practices within laboratories. problems are identified. The FDA reporting system, Med-
Watch (http://www.fda.gov/medwatch/), documents prob-
Automated Laboratory Assays lems and can be accessed by phone, fax, or Internet. For
IVDs, monitoring of MedWatch reports is now performed
The FDA also regulates OIR-classified devices in clinical by more than a half dozen technical analysts who also par-
laboratory automation. The OIR uses a risk-based regula- ticipate in premarket review and compliance actions. It is
tory approach to these products to ease the burden on in- hoped that these and other efforts will lead to improved
dustry while ensuring public safety. Standalone automated postmarket regulatory oversight, more sophisticated out-
clinical analyzers are exempt class I devices and do not re- reach and educational initiatives, and ultimately more in-
quire premarket notification (510[k]). formed premarket decision making.
When an automated clinical analyzer measures a spe-
cific analyte, the analyzer plus the associated reagents be-
come a test system, which is considered a combination Limitations Inherent to Current
device (13). As such, automated clinical analyzers are not FDA Processes
exempt from premarket notification when they include
any class I reserved device or a class II device. Automated There are several unavoidable limitations to the FDA’s re-
clinical analyzers that include class III devices are subject view of 510(k) applications. Since the FDA does not have the
to premarket approval. Laboratory information systems facilities to perform laboratory product evaluation, it bases
(LISs) and laboratory automation systems (LASs) meet the its review on the materials submitted by the industry spon-
definition of combination devices when a manufacturer sor. There are few performance standards to ensure that
makes an integration claim to a specified analyzer, with regulatory decisions are based on clearly defined scientific
the following exceptions: (i) If the device only receives in- parameters (9, 12). Moreover, there are also several limita-
formation for the patient record and neither transmits any tions to the FDA’s review of PMA applications, including
instructions to any interfaced device (other than test or- (i) lack of a “gold standard” against which to judge perfor-
ders) nor controls any device functions or alarms, no pre- mance, (ii) bias, which may occur in the collection of data to
market notification is required; (ii) if the device performs establish safety and effectiveness, (iii) problems in the study
only simple physiological and clinical calculations, as long design or conduct, and (iv) the challenge of determining the
as the algorithms are established and well accepted by the minimum performance required for approval (36).
clinical community, no premarket notification is required.
For example, if the LAS takes over the pipetting that the
analyzer normally does for analysis, or the LAS hands off Summary
the sample ID directly to the analyzer without the analyzer While often statistically and operationally simpler than the
performing the sample identification, then a premarket pharmaceutical clinical trial and FDA submission process
notification is required. Regardless of classification, de- (2), the FDA process to classify, assess, clear, or approve
vices automated with computer software are subject to de- IVDs presents a challenge to manufacturers and end us-
sign controls under the QSR 21 CFR Part 820 (15). ers. By virtue of the sheer number of clinical trials and
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS 815

the various nuances in their performance, it is difficult to specific binding or chemical reactions, are intended for use in a
keep up with so many new trials and new products (1, 33). diagnostic application for identification and quantification of an
Limitations of the process and the clinical trials lead to individual chemical substance or ligand in biological specimens.”
challenges that CLS staff and managers will face once the Classification information is found in 21 CFR 864. 4020(a) (22).
product is released. Therefore, it is prudent for all labora- Automated instrument A laboratory instrument that performs
torians to understand the FDA process that manufacturers measurements on a patient’s sample and may or may not be con-
follow to bring a new diagnostic test to market and for lab- nected to a laboratory information system (LIS), hospital infor-
oratorians to think about ways they can add value to that mation system (HIS), and/or laboratory automation system
process, such that the final product will improve patient (LAS). Note: These instruments may have specific hardware and/
care and laboratory operations. The overview presented or software modifications that allow interface to a laboratory au-
here is in no way intended to supplant the regulations tomation system.
that apply to these processes; rather, it is meant to provide General controls The basic provisions (authorities) of the 1976
an overview and general understanding of the processes. Medical Device Amendments to the Food, Drug, and Cosmetic
Consultation with a regulatory specialist or agency will al- Act, which provide the FDA with the means to regulate devices
ways be required to confirm processes and details of the to ensure their safety and effectiveness. The general controls in
myriad regulations. the amendments apply to all medical devices, including IVDs.
The FDA works hard to develop a standardized review They include provisions that relate to adulteration; misbranding;
process that is based on state-of-the-art evaluation tech- device registration and listing; premarket notification; banned
devices; notification, including repair, replacement, or refund;
niques and is grounded in the FDAMA mandate. The
records and reports; restricted devices; and good manufacturing
FDA aspires to provide the least burdensome premarket practices (GMPs) (7).
reviews and brings to bear considerable resources to help
the bioindustry and manufacturers of IVDs to establish General purpose reagent A general purpose reagent (GPR) is “a
performance. There are over 70 recognized standards, and chemical reagent that has a general laboratory application and is
multiple review guidelines, which provide assistance. A not intended or labeled or otherwise for a specific diagnostic test
search engine available at http://www.accessdata.fda.gov/ application. It is used to collect, prepare, and examine specimens
from the human body for diagnostic purposes.” Classification
scripts/cdrh/devicesatfda/index.cfm (accessed March 18,
information is found in 21 CFR 864.4010(a) (21).
2013) and links to summaries of cleared or approved prod-
ucts provide the medical community with insight into the Investigational device exemption (IDE) An IDE allows an in-
classification, review, and approval process for a wide vari- vestigational device to be used in a clinical study to collect safety
ety of laboratory products. and effectiveness data to support premarket approval (PMA) or
The FDA process is intended to prevent bad outcomes 510(k) submission. An IDE permits a device to be shipped law-
that may occur if diagnostic assays are not properly vet- fully for the purpose of conducting investigations without com-
plying with requirements of the Federal Food, Drug, and
ted and assessed for accuracy and utility. Although error
Cosmetic Act that apply to devices in commercial distribution.
in laboratory testing is not completely avoidable, “Chance Many IVDs are exempt from IDE requirements (11, 25).
does favor the prepared mind” (paraphrased from a quote
by Louis Pasteur). In the case of IVDs, chance favors the Investigational use only (IUO) While clinical studies are be-
well-prepared FDA submission. ing performed, most in vitro diagnostics are exempt from IDE
submission but are considered investigational use only (IUO)
devices. IUOs are intended to be used to gather data to support
KEY POINTS an intended use for a device that will be the subject of FDA
■ The process the FDA uses to bring a new diagnostic as-
premarket review and are not intended to be used for obtaining
test results from human specimens for the diagnosis, treatment,
say to market is explicit.
or management of patients without confirmation by other
■ Guidelines are accessible and assistance is available medically established procedures. Nearly all submissions to the
through the entire process. OIR are studied as investigational use devices with or without
■ Using GCP and GMP guidelines ensures accuracy and the use of the IDE process, and local institutional review board
quality. review (21 CFR Part 56) and informed consent (21 CFR Part
50) apply. IUOs must be labeled “For Investigational Use Only.
■ Utilizing the preapproval submission and suggested pre- The performance characteristics of this product have not been
IED process ensures a more accurate final submission. established.” The minimal requirements for IUO devices are
that testing (i) is noninvasive, (ii) does not require invasive
sampling presenting significant risk (routine phlebotomy is ac-
GLOSSARY ceptable), (iii) does not introduce energy into a subject, and
Analyte-specific reagents Analyte-specific reagents (ASRs) are (iv) is not used as a diagnostic procedure without confirmation
“polyclonal and monoclonal antibodies, specific receptor proteins, of the diagnosis by another, medically established diagnostic
ligands, nucleic acid sequences, and similar reagents that, through device or procedure.
816 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

In vitro diagnostic (IVD) In vitro diagnostic devices (products) to provide a reasonable assurance of safety and effectiveness. All
are reagents, instruments, and laboratory systems that are de- class II devices require special controls, i.e., existing methods
signed for use in the diagnosis of disease or other conditions, to that are implemented by the sponsor and the FDA to provide as-
cure, mitigate, treat, or prevent diseases or disease sequelae. Such surance of safety and effectiveness. Special controls can include
products are intended for use in the collection, preparation, and (i) guidance documents, with performance specifications and
examination of specimens collected from the human body (24). labeling recommendations, (ii) mandatory performance stan-
Laboratory assays that are sold by a commercial entity or devel- dards, and (iii) postmarket surveillance. The use of general and
oped by a laboratory are considered IVDs and are subject to special controls is not considered sufficient to ensure the safety
oversight by the FDA (33). and effectiveness of high-risk class III devices, which require the
FDA PMA process to provide a more complete and thorough
Laboratory automation system (LAS) A system of information
demonstration of safety and efficacy.
and hardware technology that allows the operation of the clinical
laboratory process without significant operator intervention.
Note: Typical functionality includes information system control
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Introduction
46
Funded Clinical Research in Laboratory
The Clinical Trial Laboratory:
Medicine
Sponsored Projects • Office of Research and Contract
Research Compliance for Clinical
Analysis (ORCA)
Compliance with Human Subject Research Microbiologists
Regulations
Background for Human Subject Regulations •
Regulatory Requirements for Human Subject Donna M. Wolk and Marilyn M. Marshall
Protection • Human Subject Research: Classifications
Based on Risk • Human Subject Training
Requirements and Site Authorization • Informed
Consent • Special Populations • Continuing Review OBJECTIVES
by the IRB • Records Retention for HSPPs To describe the research compliance responsibilities for human subjects
Compliance with HIPAA protection laws
Compliance with Conflict of Interest To understand the key restrictions of the Health Insurance Portability and
Policies Accountability Act (HIPAA)
Intellectual Property Considerations
GLP and GCP Regulations
To understand the definition of conflict of interest
Sponsor Responsibilities • Study Director and To list the key aspects of good laboratory practice (GLP)
Responsibilities • Quality Assurance Office:
Organization, SOPs, Inspections, Reporting Data •
GLP Background • Equipment and Equipment
Validations • Standard Operating Procedures •
Reagent and Solutions: Test and Control Article •
Final Research Reports It is easier to do a job right than to explain why you didn’t.
Summary Martin Van Buren
KEY POINTS

T
GLOSSARY here are many aspects of research compliance that impact clini-
REFERENCES cal researchers whose practice is based in academia, private reference
APPENDIX
laboratories, or hospital-based diagnostic laboratories (2–4, 13, 14,
21, 22). Since clinical laboratory researchers may also have operational re-
sponsibilities in clinical laboratories and may be responsible for aspects of
clinical practice, it is important that the guidelines and regulations for clini-
cal research align with objectives of clinical practice; however, boundaries
between the two functions are critical. Clinical laboratory directors, consul-
tants, and managers who perform research are responsible for compliance
and are often defined as a project’s principal investigator, co–principal inves-
tigator, co-investigator, consultant, collaborator, or simply as research staff.
No matter what the role, research compliance is an important responsibility.
Critical components of clinical research include compliance with human
subjects protection laws, the Health Insurance Portability and Accountability
Act (HIPAA), conflict of interest policies, good clinical practices (GCPs), and
research integrity (i.e., responsible conduct of research). In addition, compli-
ance with biosafety, biosecurity, import and export controls, chemical safety,
and other safety regulations is quite important and is reviewed elsewhere.
Disclaimer: This chapter is intended as an overview of important aspects
of clinical research processes, but it is not to be considered all-inclusive. Those
performing clinical research must follow the rules and regulations defined by
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia their organization, their professional societies, and the federal government.
©2014 ASM Press, Washington, DC Rules can change rapidly; therefore, each investigator must keep current and
doi:10.1128/9781555817282.ch46 informed of relevant compliance issues.

818
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 819

Funded Clinical Research in • The sponsor is involved in making decisions regarding

Laboratory Medicine project performance or stands to derive benefit from
the work performed.
Sponsored Projects
There are many different types of funded research: federal Sponsored awards are made to an organization on
and nonfederal funding (grants and contracts) as well as behalf of the principal investigator (PI), who is primar-
industry-sponsored clinical trials or research contracts. ily responsible for carrying out the requirements of the
A “sponsored project” is defined as any externally award. The PI may also be referred to as the project di-
funded research or scholarly activity that has a defined rector. The few exceptions to this principle are certain
scope of work or set of objectives and that provides a awards that may be made to individuals, such as some
basis for sponsor expectations (2, 25). More specifically, faculty fellowships. In developing a proposal and admin-
this activity involves research, demonstration, profes- istering an award, the PI represents the organization and
sional development, instruction, training, curriculum is responsible for upholding high standards for project
development, community and public service, or other performance. The PI also serves as the fiscal officer of the
scholarly activity involving funds, materials, other forms project, with all the attendant responsibilities of project
of compensation, or exchanges of in-kind efforts under fiscal management.
awards or agreements. The presence of any one of the Sponsored projects are subject to facilities and adminis-
following conditions normally identifies the activity as a trative (F&A) costs at the organization’s rate applicable to the
sponsored project: type of project being conducted. If the sponsor has a published
federally negotiated policy, uniformly applied, prohibiting or
• The proposal is submitted in response to a request for
restricting the payment of F&A costs, the organization will
proposals or similar solicitation.
accept the reduced F&A rate in accordance with the sponsor’s
• The proposal commits the organization to a specific policy. This policy does not apply to “for-profit” sponsors
line of scholarly or scientific inquiry, typically docu- that are expected to provide full F&A recovery (http://www
mented in a statement of work to be performed. .research.drexel.edu/administration/Overview/Sponsored
• The proposal includes a set of objectives that provides _Projects.aspx, accessed October 30, 2012).
a basis for sponsor expectations.
• The proposal commits organization resources, such as Office of Research and Contract Analysis (ORCA)
the level of personnel effort or use of equipment, facili- Typically, organizations will have an Office of Research
ties, or other resources. and Contract Analysis (ORCA), sometimes called the Of-
• The proposal includes a detailed budget. fice of Research Compliance Administration. Whatever
• The proposed project involves the use of human sub- their organizational name, these offices provide admin-
jects, laboratory animals, radioactive or hazardous istrative resources to ensure that members of the organi-
materials, recombinant DNA, carcinogens, pathogens, zation conduct their educational, research, and business
or proprietary materials. processes in a manner that is consistent with regulatory,
statutory, and organization requirements. This collabora-
• There is a specified period of performance, typically tive effort is designed to achieve compliance and establish
defined by “start” and “end” dates. standards guiding research activities to protect the rights
• The sponsor requires deliverables stated in an agree- of the researchers, the environment, and the community.
ment, such as reports, financial accounting, or intellec- An ORCA office typically provides support for the fol-
tual property ownership. lowing areas:
• The award restricts or monitors publications or the
use of results or requires protection of confidential • Human subjects (IRB Committee)
information. • Animal care and use (IACUC Committee)
• The award provides for the disposition of tangible or • Conflict of interest (COI) committee
intangible property that may result from the project, • Responsible conduct of research training
such as equipment, records, formal activity reports, • Research misconduct investigations
theses and dissertations, rights in data, software, copy-
rights, inventions, or research-related materials. • Consultation on other research compliance areas
• The award specifies fiduciary responsibilities such as Types of agreements that are typically processed and
adherence to a line item budget, project audit, pay- reviewed by ORCA include research agreements and con-
ment contingencies, and the return of any unexpended fidentiality agreements (aka nondisclosure agreements),
funds at the end of the project. proprietary information agreements, secrecy agreements,
820 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

material transfer agreements, clinical trial agreements, and HSPPs define research involving human subjects as a
government and nonprofit research subcontracts. systematic investigation (i.e., having or involving a system,
method, or plan), including research development, testing,
and evaluation, which are designed to develop, elaborate,
Compliance with Human Subject expand, or contribute to knowledge that is generalizable to
Regulations a larger population. A clinical researcher must describe the
planned research and submit a written or electronic plan
Background for Human Subject Regulations to the HSPP prior to full review by the appropriate IRB
On July 12, 1974, the National Research Act (PL 93-348) committee. Each academic or nonacademic entity engaged
was signed into law, creating the National Commission for in clinical research will have a local HSPP to coordinate
the Protection of Human Subjects of Biomedical and Be- the application process. The HSPP categorizes the research
havioral Research. One of the responsibilities assigned to based on perceived risks to the human subjects (8, 15).
the commission was to identify the basic ethical principles
that should underlie the conduct of biomedical and behav-
Human Subject Research: Classifications Based
ioral research involving human subjects and to develop
on Risk
guidelines that should be followed to ensure that such re-
search is conducted in accordance with those principles. There are three classifications of research applications
The Belmont Report (1979) is a historic document that (8): (i) exempt (low or no risk), which receive only an ad-
represents attempts to summarize the basic ethical prin- ministrative review, (ii) expedited (minimal risk), which
ciples identified by the commission (7, 15). Compliance are subject to federal regulations and reviewed by the IRB
with the three founding principles of the Belmont Report committee chair/co-chair or designee, and (iii) full com-
is key to protecting human subjects participating in either mittee (greater than minimal risk), which are subject to
funded or unfunded research: (i) respect (i.e., informed, federal regulations and require a review by an IRB com-
voluntary consent of subjects), (ii) beneficence (i.e., assess- mittee at a convened meeting. IRB approval of the research
ment of the risk/benefit to the subjects), and (iii) justice plan must come before any subject recruitment, consent,
(i.e., fairness in human subject selection) (7, 15). or enrollment is implemented. There is no retroactive ap-
proval, and data may be lost if permission is not obtained
prior to collection. Any changes to the research protocol
Regulatory Requirements for Human must also be submitted for review.
Subject Protection Several types of research studies are not inherently consid-
Regulatory requirements defining human subject law can be ered to be human subjects research and are often classified as
found in several regulations: (i) Department of Health and exempt from IRB review, for example, quality improvement
Human Services (DHHS)—45 CFR 46; (ii) Food and Drug activities, diagnostic test development and verification when
Administration (FDA)—45 CFR 50, 56, 312, 812; (iii) Health no publication is planned, case studies, program evaluations,
Insurance Portability and Accountability Act (HIPAA)—45 secondary analysis of existing data not collected specifically
CFR 160,164; and (iv) Family Educational Rights and Pri- for the proposed project, and not identifiable.
vacy Act—34 CFR 99. Adherence to these regulations is in- Even if investigators suspect that the project is not likely
tegral to the researcher’s ability to perform clinical research. to be classified as human subjects research, they must still
In these regulations, a “human subject” is defined as a obtain a review and all required signatures and submit to
living individual for whom an investigator conducting re- the HSPP for review, as these types of studies can be classi-
search collects or otherwise obtains data, through interven- fied as human research after HSPP review. Typical exempt
tion or interaction with the individual or his or her private applications include research studies for the following
identifiable information. The rights of human subjects are activities: normal educational practices; tests, surveys,
protected by a local Human Subjects Protection Program interviews, and some observations; collection or study of
(HSPP) in collaboration with local and/or national institu- existing data that cannot be linked to a subject; and pub-
tional review boards (IRBs) (15, 20). The HSPP’s role is to lic benefit or service programs (e.g., Medicare). In some
provide administrative support to the IRB and regulatory special circumstances, identifiable subjects are accepted;
expertise to the IRB and to investigators. The HSPP also however, these exceptions are rare.
serves as an independent unit where complaints or con- An “expedited minimal risk” definition is described
cerns about clinical research may be reported (5, 9, 10). Of- in 45 CFR 46.102.i as research in which “the probability
ten, more than one IRB is affiliated with a given HSPP. IRBs and magnitude of harm or discomfort anticipated in the
may have more than one committee, each typically special- research are not greater, in and of themselves, than those
izing in either social or biomedical research. Committees ordinarily encountered in daily life or during the perfor-
review all clinical research applications to evaluate the risks mance of routine physical or psychological examinations
to human subjects who participate in the research (15, 20). or tests.” Studies performed in diagnostic laboratories that
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 821

use “remnant” or “discard” specimens are often placed into minor assent, subject disclosure) are defined and are
this category. meant to fully inform the subjects of everything that they
In contrast, “full committee” projects include all other are going to be experiencing because of the study and ev-
projects. After review by the HSPP and IRB, these projects erything they will be receiving from the research study. A
may be approved by the IRB under the following regulatory consent form is required and should include a thorough,
criteria (45 CFR 26.111). Researchers must ensure that: clear description of the research goal, sufficient detail
about the study procedures, and answers to all questions
• Risks to subjects are minimized.
on the HSPP project approval form (PAF), which may vary
• Risks are reasonable in relation to anticipated benefits. slightly by organization. If PAF questions are not applica-
• Selection of subjects is equitable. ble to the study, then the investigator must document why
• Informed consent will be sought. they are not applicable. Any changes in the consent form
must be resubmitted for approval by the IRB prior to use,
• Informed consent will be appropriately documented.
documenting changes with a version date and line num-
• There are adequate provisions for monitoring of data. bers on the document to help track changes.
• There are adequate provisions to protect the privacy of For written consent forms, the preferred writing stan-
subjects and to maintain confidentiality of data. dard is to use a sixth- to eighth-grade language level so that
the subject can easily understand the consent forms. Spe-
Human Subject Training Requirements and Site cial considerations, such as a witness, a third party, or a test
Authorization of knowledge, are expected for certain populations (e.g.,
To become eligible to submit an application to the HSPP, children, the cognitively impaired, those under extreme
or to participate in human research projects, collaborative duress, other vulnerable or special populations, etc.). In
IRB initiative (CITI) training is required for investigators some cases, a waiver of consent or a waiver of documen-
and staff involved in the research. After successful comple- tation of informed consent (signature requirement) is
tion of CITI training, a verification of training form must available—for example, research performed in emergency
be completed and reported to the HSPP. Training is valid departments in life-saving circumstances when there is no
for four years, after which time retraining must occur. time to obtain informed consent and the patient is unlikely
When research will be performed outside of the prin- to survive without intervention.
cipal investigator’s (PI’s) home department—for example,
when an academic researcher requires subjects or clini- Special Populations
cal samples from a hospital—a written document, called Special populations are those identified in regulations as
a “site authorization,” is required. The site authorization vulnerable and may require additional protections:
document or letter ensures that the site is aware of and ac- • Children
cepts collaboration for the research project. The site autho-
• Pregnant women
rization letter must contain signatures that document site
review and must be submitted to the HSPP. • Prisoners
When recruitment will be performed outside the PI’s de- • Cognitively impaired individuals
partment, a written site authorization is also required and is
In addition, each state may have its own policies and
maintained in the PI’s files. Posting a flyer or brochure or us-
laws related to tribal nations. Tribal authorization is gener-
ing a facility to identify potential subjects is considered off-
ally required prior to conducting research. Native Ameri-
site recruitment and is part of site authorization. Copies of
can nations have the legal right to:
any recruitment materials must be IRB approved prior to use
(e.g., flyers, handouts, emails, scripts). The type and method • Approve or deny requests for research
of recruitment must also be approved. Materials must be • Halt research activities without disclosing their reasons
clear, concise, and not include language that may place coer-
• Decide whether the outcomes of research activities
cion or undue influence on a subject to participate. Specific
conducted within their jurisdiction will be disclosed/
dollar amounts or awards for participation in the research
disseminated (or not) in oral or written form
are not allowed to be listed in recruitment materials; it is ac-
ceptable to state that “compensation will be provided.” • Negotiate exclusive or shared ownership of research data
• Require consultation by American Indian Studies (so-
Informed Consent cial and behavioral) and Office for Multicultural Af-
For projects that are categorized as requiring full review, fairs (biomedical)
the human subject consenting process is defined in detail • Include the use of secondary data that were not col-
and compliance with HSPP protocol is critical. Several lected by the PI of the proposed project, even if the
types of consent (subject consent, parental permission, data are de-identified
822 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Continuing Review by the IRB transmitted or maintained in any form, such as prescrip-
Projects that are nonexempt must be reapproved by the tion records, patient profiles, and oral communications on
IRB each year before their expiration date. If the project the phone or during patient counseling. Compliance with
is not re-approved by the expiration date, the project is the rule involves implementation of policies and proce-
administratively closed and a new application will be re- dures to ensure the confidential use and disclosure of PHI
quired. Investigators are restricted from submitting new by all staff. Confidentiality practices for PHI limit who
human research until the completed continuing review can access the data, define how the data will be stored,
form has been received and approved. If data for a project and ensure individuals’ access to their own PHI.
are no longer required, the project can be concluded and Common personal identifiers that cannot be shared
closed. However, if a PI is leaving an institution, the PI is without prior permission include:
responsible for transferring oversight or concluding the
project before leaving the institution. • Names
• Geographic subdivisions smaller than a state, includ-
Records Retention for HSPPs ing street address, city, county, precinct, ZIP code and
While requirements in each state vary in accordance with equivalent geocodes, except for the initial five digits of
the local records retention and disposition schedule, the PI a ZIP code to 000
maintains human research records, including signed and • All elements of dates (except year) for dates directly re-
dated consent documents, for whichever of the following lated to an individual, including birth date, admission
time periods is the longest. Consider this example from date, discharge date, date of death, and all ages over 89
the state of Arizona (http://web.arizona.edu/~records/ • Telephone numbers
common_retention_schedules.pdf, accessed October 30,
2012): • Fax numbers
• Email addresses
• Six (6) years after the completion of the research; or
• Social security numbers
• Six (6) years after the age of majority, if the research
involves children; or • Medical record numbers
• The length of time required by law; or • Health plan beneficiary numbers
• As long as the sponsor requires (for sponsored • Account numbers
research) • Certificate/license numbers
• Vehicle identifiers and serial numbers including li-
cense plate numbers
Compliance with HIPAA • Device identifiers and serial numbers
Also referred to as the Kennedy-Kassebaum Act, the Health • Web Universal Resource Locators (URLs)
Insurance Portability and Accountability Act of 1996 (PL • Biometric identifiers, including finger or voice prints
104-191; HIPAA) was enacted by the federal government
on August 21, 1996, with the intent to ensure health in- • Full face photographic images and any comparable
surance portability, reduce healthcare fraud and abuse, images
guarantee security and privacy of health information, and • Internet protocol address numbers
enforce standards for health information (11). HIPAA was • Any other unique identifying number characteristic
created to establish minimum federal standards for safe- or code
guarding the privacy of individually identifiable health
information. The regulation has three areas of focus: (i) According to 45 CFR 164.530(c), standard information
portability of and access to health benefits, (ii) prevention security safeguards must encompass appropriate adminis-
of fraud and abuse, and (iii) administrative simplification. trative, technical, and physical safeguards to protect the pri-
HIPAA expands the False Claims Act to define healthcare vacy of PHI. Entities must “reasonably” safeguard PHI from
claims with intentional fraud as a criminal act. intentional or unintentional uses or disclosures in violation
The term “HIPAA privacy” refers to rules that control of the standards and must “reasonably” safeguard PHI from
the accessing and sharing of a patient’s data and protected incidental uses or disclosures that result from a permitted
health information (PHI), i.e., the information that iden- or required use or disclosure. Organizations must protect
tifies an individual and relates to the person’s physical the confidentiality and security of health information as it
or mental health or condition, the provision of healthcare is used, disclosed, and electronically transmitted and create
to that person, or payment for the provision of health- a framework using standardized formats for transmitting
care to that person. In essence, PHI is any information electronic health information more efficiently.
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 823

Multiple users may access health information when re- A COI can be described as a set of conditions where
lated to patient care. For healthcare workers, access is lim- professional judgment has the potential to be biased by
ited to those persons or classes of persons in the workforce either financial or nonfinancial secondary interests of a
who require access to PHI to carry out their healthcare du- clinical practitioner or research investigator (24). A COI
ties. Disclosure of PHI is limited to the minimum amount is not an outcome, but rather it is a situation, a confluence
necessary to accomplish the intended purpose of the au- of potentially competing factors. It is not in and of itself a
thorized use, disclosure, or request. Organizations must measure of character or integrity, but it has potential ef-
make reasonable efforts to limit access. It is the right of an fects that may operate consciously and/or unconsciously
individual to request restrictions on uses and disclosures and that must be addressed to maintain both integrity and
of PHI and permit an individual to request confidential credibility in clinical practice and research.
communication of PHI at alternative locations or by alter- In organizations, it is the potential for COI that needs
native means. to be managed to maintain integrity and credibility. Iden-
Researchers may access PHI with approval from the tified COIs are most often financial, because they are
HSPP. One approach is the de-identification of the subject’s more readily measurable than other conflicting incen-
samples. De-identified PHI, for which one removes identifi- tives; however, nonfinancial COIs are equally important.
ers of the individual or of relatives, employers, or household For example, careers, lives, personal relationships, and in-
members of the individual, is commonly thought to limit stitutions with multiple facets will have these perceived
the disclosure to the minimum amount necessary to accom- conflicts whenever there are intersections of potentially
plish the intended purpose of the authorized disclosure. competing interests. Scientific evidence supports con-
An aspect of HIPAA, the Administrative Simplifica- cerns about subconscious COI influences (https://www
tion Rule, includes electronic data interchange (EDI)/ .aamc.org/initiatives/coi/75306/coi_science.html, accessed
transmission, privacy, security, and unique identifiers. October 30, 2012).
Electronic transmission of healthcare data is most com- Disclosure of COIs is important, both to individuals
monly used for claims processing and payment, reduction and to their organizations. In reviews of the literature,
in paper transactions, reduction of risk of lost paper docu- nondisclosure was noted to occur in clinical practice
ments, and referrals and enrollment. The privacy aspect guidelines across a wide variety of clinical disciplines;
of EDI requires covered entities (e.g., healthcare providers, however, there is little evidence to characterize the ef-
healthcare plans, and healthcare clearinghouses) to safe- fects on clinical recommendations (18). Attention to COI
guard patient healthcare information. Security is compre- issues is longstanding, sometimes driven by corporate
hensive and coordinated and applies to all aspects of data sponsorship of clinical trials in the pharmaceutical indus-
security. An intricate interaction of all aspects of our in- try (23). A growing number of publications are publishing
formation systems is required to ensure the protection of COI policies, including some in pathology and laboratory
data such that the information system will be scalable for medicine (12), while some include details in the instruc-
all sizes of covered entities. The information system should tions to authors (e.g., http://jcm.asm.org/site/misc/ifora
be technology-neutral and flexible and use technology to .xhtml, accessed July 26, 2013).
ensure compliance by the workforce. Some potential poor outcomes in COI situations in-
The Centers for Medicare and Medicaid Services (CMS) clude the following:
is required to conduct audits of organizations that work
• Avoidable injury to human research subjects
with protected health information, and CMS penalties for
HIPAA violations include fines or imprisonment. Civil • Compromised institutional resource allocations
monetary penalties are tiered based on knowledge from the • Damage to research integrity
audits, and penalties can reach $1.5 million maximum an- • Damage to research credibility
nually for the HIPAA violations. The knowing misuse of
• Damage to institutional credibility with external
individually identifiable health information may result in
stakeholders
imprisonment for up to 10 years.
Most organizations have a policy and review proce-
dure for COI related to research and practice, as it is a
Compliance with Conflict of requirement for organizations that receive federal re-
Interest Policies search funding, for research involving FDA approval,
A conflict of interest (COI) is a situation in which there are and for accreditation by the Association for Accredita-
conflicting incentives with identified potential for inject- tion of Human Research Protection Program. Many or-
ing inappropriate considerations into a given decision or ganizations have similar policies for clinical practice and
evaluation—a potential to compromise or jeopardize the for purchasing. An organization’s COI policy is designed
integrity or the credibility of a study’s results (1, 12, 17–19). to protect the integrity and credibility of research and
824 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

related teaching, public service, and business operations. only our organization’s interest in guiding our decisions as
It includes an institutional policy for disclosure of COI, employees, there is a COI or conflict of commitment.
as well as review and oversight of personal financial in- There are two common avenues for identifying poten-
terests related to the research. tial COIs related to sponsored research and technology
The COI policies apply to all faculty, staff, and stu- transfer:
dents (including full-time and part-time faculty and
staff, visiting faculty, postdoctoral scholars, undergradu- • During the processing of a sponsored project agree-
ates, graduate students, postdoctoral fellows, and all re- ment, the PI will determine whether he or she and/or
search team members) who are in a position to influence a key investigator or any family member of these indi-
or commit organizational resources, that is, anyone who viduals has a financial or management interest in the
can impact decision making or offer advice on purchas- project sponsor or some other entity related to the
ing, hiring, or anything involving organizational funds or project.
facilities. Research team members include the PI and any • During the disclosure of an invention and the develop-
other person who is responsible for the design, conduct, ment of subsequent technology transfer agreements,
or reporting of research. it is determined that the inventor(s) or their family
The critical components of a COI policy and process in- members have a financial or management interest in
clude identifying the potential conflicts, the intersections a company the organization may wish to work with
of a personal financial interest with a transaction for which on the invention’s development, manufacturing, or
the individual has evaluation/decisional authority. In addi- marketing.
tion, review, assessment, and decision processes regarding
If a conflict is deemed to exist, the committee designs
those identified conflicts of interest should detail the com-
a plan to manage the specific conflict situation. An ap-
position of a review panel and criteria for COI review. The
propriate management plan must be in place before orga-
review panel assesses the relationship between the transac-
nizations will accept any sponsored award or technology
tion and the decision or evaluation activity and potential
transfer agreement in which a financial or management
for change in value of the financial interest.
conflict is judged to exist. The relevant COI review com-
COI management strategies include disclosure in all
mittee will monitor any management plans and will re-
presentations of the research, performance of interaction
quire updates of disclosures from individuals involved in
with human subjects by a different and not subordinate
those management plans at least annually.
qualified researcher, independent data monitoring, inde-
A COI policy also provides guidelines for employees in-
pendent supervision of potentially vulnerable subordinate
teracting with companies through consulting agreements,
researchers (trainees, students, or junior faculty), change
the formation of spin-off companies, and research agree-
in PI, and divestiture.
ments with companies in which faculty members have sig-
An actual COI arises in a situation where financial or
nificant equity positions or financial interests. Department
other personal or professional considerations compromise
heads typically have the front-line responsibility for ensur-
an individual’s objectivity, professional judgment, profes-
ing compliance with the COI policy. Any potential COI
sional integrity, and/or ability to perform his or her respon-
must be reviewed by the institutional review committee
sibilities. Perceived or potential COIs exist in situations
(IRC), and any commitment involving intellectual prop-
where an individual member of the organization, a mem-
erty receives special attention.
ber of the individual’s family, or a close personal relation
has financial interests, personal relationships, or profes-
sional associations with an outside individual or organiza- Intellectual Property Considerations
tion, such that his or her activities within the organization Policies relating to intellectual property (IP) encourage
could appear to be biased against the organization by that employees to engage in creative endeavors and recognize
interest or relationship. A COI disclosure form should be intellectual property as one tool that organizations may
completed as soon as the situation comes up and before use to disseminate new knowledge (4). The policy gener-
beginning the activity in question. A COI disclosure sur- ally specifies the categories of IP, describes factors that
vey is typically completed annually. determine IP ownership, lists the administrative respon-
The concepts of COI and conflict of commitment arise sibilities of the organization and its employees, describes
out of the fiduciary duty that an employee owes to his or the interaction between publication rights and the pro-
her employer. This means that when we make decisions tection of IP, specifies that revenue from the commer-
as employees, we must make those decisions with the or- cialization be shared with those who created the IP, and
ganizational interest of our employer as our guide. When provides guidelines for faculty-owned companies regard-
an outside interest or commitment prevents us from fully ing COI. An organization’s IP policy also describes crite-
doing the job we have accepted or prevents us from using ria for the ownership and use of organization-owned IP
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 825

and defines procedures to be used in the management of Study Director and Responsibilities
IP at the organization (4). The study director is called the principal investigator (PI)
on submitted sponsored projects research and on research
contracts (26). A study director may appoint a GCP man-
GCP and GLP Regulations ager for operational issues; however, the study director is still
Good clinical practice (GCP) encompasses all aspects of responsible for the conduct, interpretation, analysis, docu-
clinical trials involving human subjects (26). GCP pres- mentation, and reporting of results of the GCP study. The
ents regulations for the sponsor of the research as well study director typically may write or provide advice for pro-
as the study directors. Principles of GCP involve ethi- tocols and submits the protocol for IRB review. The study
cal aspects of research including risks and benefits to director obtains a quality assurance office (QAO) signature
the human subjects, protection of human subjects, in- for the proposal’s routing sheet (a form most organizations
formed consent, confidentiality, and the quality of sci- use to document that all relevant parties and departments
ence employed. GLC also considers the investigational are aware of and agree to participation in the project and
product to be studied; the science of the protocols used; the project budget). The study director also ensures that all
quality assurance practices such as compliance with pro- personnel have a copy of the protocol and standard operat-
tocols; and data handling including data acquisition, ing procedures (SOPs). Examples of additional duties of the
documentation of data, record keeping, correspondence, study director include:
data analysis and monitoring, and data and document • Ensure that the signature/initial log is completed for
storage. Clinical and laboratory data used in national the study
regulatory decisions are legally mandated to meet the
• Provide a study calendar of study phases/study activi-
written specifications detailed under the GCP regula-
ties to the QAO
tions. Adverse event reporting is also an aspect of GCP.
Specific aspects of GCP are detailed in the following • Review raw data/records
link (http://www.fda.gov/ScienceResearch/SpecialTopics/ • Ensure that unforeseen circumstances are documented
RunningClinicalTrials/GuidancesInformationSheetsand and reviewed by the QAO
Notices/ucm219433.htm, accessed July 26, 2013) and partly • Respond in writing to written QAO inspection/audit
summarized below. reports
Sponsor Responsibilities • Prepare/sign the final report after review by the QAO
The sponsor is an individual, company, institution, or or- • Ensure that study materials are placed in departmental
ganization that takes responsibility for the initiation, man- archives or the organization’s Records Management
agement, and/or financing of a clinical trial (26). A sponsor and Archives Department
is usually a pharmaceutical or biotechnology company. A • Report safety information to the institutional IRB and
sponsor’s duties include the following: to the sponsor
• Maintaining records
• Developing the study protocol Quality Assurance Office (QAO): Organization,
SOPs, Inspections, Reporting Data
• Developing case report forms, which are printed or
The Quality Assurance officer(s) in an organization works
electronic documents designed to record all of the
with students, staff, and faculty to ensure that all research
related information to be reported to the sponsor on
conducted is compliant with federal regulations guid-
each trial subject or sample
ing GCPs for studies supporting applications related to
• Selecting qualified investigators/study directors the FDA for medical devices for human use. The QAO is
• Providing investigational articles, reagents, and instru- typically completely independent of any federal or sponsor
ments to investigators funding and is located within the organization department
• Being responsible for training sessions for study that is responsible for all safety and regulatory compliance.
personnel Examples of QAO oversight include:
• Ensuring adherence to research protocols by perform- • Review of the study and SOPs before the study is
ing regular monitoring and data and compliance audits initiated.
• Informing the FDA and investigators of safety infor- • Coordination of protocol discussions with study
mation and adverse events personnel.
• Submitting preliminary and final reports to the FDA • Inspection of equipment maintenance and calibration
and other regulatory agencies records before the study is initiated.
826 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

• Monitoring at random intervals throughout study. GLP defines responsibilities for investigators and appro-
• Coordination of regulatory inspections and recording priate practices and safeguards for research activity. GLP
of all inspection report data and any corrective action. regulations cover many areas, several of which are key to
good scientific practices and provide the underpinnings
• Ensuring that QAO checklists for all inspections dur-
of successful clinical trial laboratories as described below
ing the study are filed under the study number in the
(16, 26).
QAO office.
• Ensuring that the study name, inspection dates, and Equipment and equipment validations. SOPs are required
phase of the study inspected by the QAO are available for equipment specified in the protocol (6). The equipment
for inspection by regulatory inspectors. name and identification are entered on the GLP study
• Ensuring that all records and checklists are archived checklist for each phase of the study, and SOPs are defined
at the end of the study. State and federal law mandates for inspection, cleaning, calibration, and maintaining of
what the organization does with its records and how equipment specific to the study. These SOPs are discussed
long they are retained. with the staff for specific use during the study. The QAO
reviews SOPs and equipment calibration records before
GLP Background the study is initiated.
Good laboratory practice (GLP) is a system of manage-
ment controls for nonclinical research laboratories and Standard operating procedures. SOPs are the foundation
organizations to try to ensure the uniformity, consistency, of any GLP study (6).
reliability, reproducibility, quality, and integrity of research
• SOPs are in place for test and controls and any process
(6, 16). GLP applies to nonclinical studies conducted for
policy or procedure.
the assessment of the safety or efficacy of chemicals (in-
cluding pharmaceuticals) to humans, animals, and the en- • Study SOPs are reviewed by the QAO and are included
vironment and is not required for clinical trials involving in the protocol.
human subjects; however, GLP regulations define stan- • Study SOPs are distributed to all personnel on the GLP
dardized practices that are aimed to ensure reproducibil- study.
ity of results and are valuable to any professional scientist • The study SOPs are filed in a binder in the study man-
by providing practices for the processes, organization, ager’s office. A checklist is completed for each phase of
and conditions under which laboratory studies are con- the study, and copies are made for each phase and filed
ducted (26). An internationally recognized definition of in a study binder in the study manager’s office.
GLP can be found on the Medicines and Healthcare Prod-
ucts Regulatory Agency website (http://www.mhra.gov Reagents and solutions: test and control article. Reagents
.uk/#page=DynamicListMedicines, accessed March 20, and solutions are under the purview of GLP regulations (6).
2013). GLP practices are not required but often useful for
laboratories during clinical trials for in vitro diagnostics • Pharmaceutical-grade compounds, reagents, and
devices and laboratory methods whose analytical results drugs are within the expiration date and recorded on
will be submitted to the FDA for review. In many cases the GLP study animal checklist.
GLP quality assurance practices provide a practical way • Solutions for cell culture are prepared and used ac-
to deal with the large quantities of data, documents, and cording to SOPs and recorded on the checklist.
operating procedures required for participation in clinical • All of a solution’s formulation is recorded and dated on
trials for in vitro diagnostics. The applicability of GLP to the GLP checklist.
analytical methods and instrument assessment supports
their usefulness for all scientific disciplines regulated by Final research reports. The final research report is scru-
the FDA (26). tinized and reviewed, with attention given to the raw data
The original GLP regulatory mandate was promulgated from which conclusions were drawn (6).
in 1978 by the FDA, published in the Federal Register (43
FR 59985-60020) (6). It was followed a few years later by • The QAO reviews the final report for all phases of the
the U.S. Environmental Protection Agency, as outlined in study. The raw data are reviewed to verify that the
the Organization for Economic Cooperation and Devel- study director’s data charts and tables are derived from
opment principles of GLP in 1992. GLP is, in essence, a the raw data.
data quality system and should not be confused with stan- • The QAO inspections and review dates are written in
dards for laboratory safety or practice or with the Clinical the quality assurance statement, which is given to the
Laboratory Improvement Act guidelines for laboratories. study director for inclusion in the final report.
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 827

Summary Benefit A valued or desired outcome; an advantage.

The goal of the clinical research compliance program is to Biologic Any therapeutic serum, toxin, antitoxin, or analogous
promote operational excellence, best practices, and regula- microbial product applicable to the prevention, treatment, or cure
of diseases or injuries.
tory compliance in clinical research conducted within an
organization. The compliance program promotes research Children Persons who have not attained the legal age for con-
activities by supporting the clinical trial’s administrative sent to treatment or procedures involved in the research, as de-
process. It creates a culture of ethics, integrity, and compli- termined under the applicable law of the jurisdiction in which
ance with applicable laws, regulations, and organizational the research will be conducted [45 CFR 46.401(a)].
policies. It also provides educational opportunities to re- Class I, II, III Devices Classification by the Food and Drug Ad-
search staff and enhances the exposure and opportunities ministration of medical devices according to potential risks or
for the organization’s clinical trial capabilities. hazards.
Clinical Laboratory Improvement Act (CLIA) Law governing
KEY POINTS practices and training levels in clinical laboratories (http://
wwwn.cdc.gov/clia/default.aspx, accessed March 20, 2013).
■ Human subject protection laws are designed to protect
research subjects from harm. Clinical trial A controlled study involving human subjects, de-
signed to evaluate prospectively the safety and effectiveness of
■ The Health Insurance Portability and Accountability new drugs or devices or of behavioral interventions.
Act (HIPAA) protects the privacy of healthcare records
Cognitively impaired Having either a psychiatric disorder (e.g.,
and personal information. psychosis, neurosis, personality or behavior disorders, or de-
■ Conflict of interest (COI) policies are designed to mitigate mentia) or a developmental disorder (e.g., mental retardation)
biases that could occur when researchers have a financial that affects cognitive or emotional functions to the extent that
investment in companies that sponsor clinical research. capacity for judgment and reasoning is significantly diminished.
Others, including persons under the influence of or dependent
■ Good Clinical Practices (GCPs) encompass many areas
on drugs or alcohol, those suffering from degenerative diseases
of research compliance and are key to successful com- affecting the brain, terminally ill patients, and persons with se-
pletion of clinical research. verely disabling physical handicaps, may also be compromised in
their ability to make decisions in their best interests.
GLOSSARY Compensation Payment or medical care provided to subjects
In part, definitions were directly accessed from http://www.hhs injured in research; does not refer to payment (remuneration)
.gov/ohrp/archive/irb/irb_glossary.htm (accessed March 20, 2013). for participation in research. Compare Remuneration.
Adverse effect An undesirable and unintended, although not Competence Technically, a legal term, used to denote capacity
necessarily unexpected, result of therapy or other intervention to act on one’s own behalf; the ability to understand information
(e.g., headache following spinal tap or intestinal bleeding associ- presented, to appreciate the consequences of acting (or not act-
ated with aspirin therapy). ing) on that information, and to make a choice. See also Incom-
petence, Incapacity.
Assent Agreement by an individual who is not competent to
give legally valid informed consent (e.g., a child or cognitively Confidentiality Pertains to the treatment of information that an
impaired person) to participate in research. individual has disclosed in a relationship of trust and with the
expectation that it will not be divulged to others without permis-
Assurance A formal written, binding commitment that is sub- sion in ways that are inconsistent with the understanding of the
mitted to a federal agency, in which an institution promises to original disclosure.
comply with applicable regulations governing research with hu-
man subjects and stipulates the procedures through which com- Consent See Informed consent.
pliance will be achieved. Data and safety monitoring board A committee of scientists, phy-
Autonomy Personal capacity to consider alternatives, make sicians, statisticians, and others that collects and analyzes data dur-
choices, and act without undue influence or interference of others. ing the course of a clinical trial to monitor for adverse effects and
other trends (such as an indication that one treatment is signifi-
Belmont Report A statement of basic ethical principles govern- cantly better than another, particularly when one arm of the trial
ing research involving human subjects issued by the National involves a placebo control) that would warrant modification or ter-
Commission for the Protection of Human Subjects in 1978. mination of the trial or notification of subjects about new informa-
Beneficence An ethical principle discussed in the Belmont Re- tion that might affect their willingness to continue in the trial.
port that entails an obligation to protect persons from harm. The Declaration of Helsinki A code of ethics for clinical research
principle of beneficence can be expressed in two general rules: (i) approved by the World Medical Association in 1964 and widely
do not harm; and (ii) protect from harm by maximizing possible adopted by medical associations in various countries. It was re-
benefits and minimizing possible risks of harm. vised in 1975 and 1989.
828 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

DHHS A federal agency: U.S. Department of Health and Hu- release or appear to release the investigator, the sponsor, the in-
man Services; formerly the Department of Health, Education stitution or agents thereof from liability for negligence.
and Welfare (DHEW). Institution Any public or private entity or agency (including
Diagnostic (procedure) Tests used to identify a disorder or dis- federal, state, and local agencies).
ease in a living person. Institutional review board A specially constituted review body
Equitable Fair or just; used in the context of selection of subjects established or designated by an entity to protect the welfare of
to indicate that the benefits and burdens of research are fairly human subjects recruited to participate in biomedical or behav-
distributed. ioral research.
Ethics advisory board An interdisciplinary group that advises Institutionalized Confined, either voluntarily or involuntarily
the Secretary of DHHS on general policy matters and on research (e.g., a hospital, prison, or nursing home).
proposals (or classes of proposals) that pose ethical problems. Investigator In clinical trials, an individual who actually con-
Expedited review Review of proposed research by the IRB chair ducts an investigation [21 CFR 312.3]. Any interventions (e.g.,
or a designated voting member or group of voting members drugs) involved in the study are administered to subjects under
rather than by the entire IRB. Federal rules permit expedited re- the immediate direction of the investigator (aka principal
view for certain kinds of research involving no more than mini- investigator).
mal risk and for minor changes in approved research. Justice An ethical principle discussed in the Belmont Report,
requiring fairness in distribution of burdens and benefits; often
Experimental Term often used to denote a therapy (drug, de-
expressed in terms of treating persons of similar circumstances
vice, procedure) that is unproven or not yet scientifically vali-
or characteristics similarly.
dated with respect to safety and efficacy. A procedure may be
considered “experimental” without necessarily being part of a MHRA A non-U.S. government agency that is responsible for
formal study (research) to evaluate its usefulness. See also ensuring that medicines and medical devices work and are ac-
Research. ceptably safe. It is a center of the Medicines and Healthcare Prod-
ucts Regulatory Agency, which also includes the National Institute
FDA U.S. Food and Drug Administration, an agency of the fed-
for Biological Standards and Control (NIBSC) and the Clinical
eral government established by Congress in 1912 and presently
Practice Research Datalink (CPRD). The MHRA is an executive
part of the Department of Health and Human Services.
agency of the Department of Health (http://www.mhra.gov.uk/
Federal Policy (the) The federal policy that provides regulations index.htm#page=DynamicListMedicines).
for the involvement of human subjects in research. The Policy Minimal risk A risk is minimal where the probability and mag-
applies to all research involving human subjects conducted, sup- nitude of harm or discomfort anticipated in the proposed re-
ported, or otherwise subject to regulation by any federal depart- search are not greater, in and of themselves, than those ordinarily
ment or agency that takes appropriate administrative action to encountered in daily life or during the performance of routine
make the Policy applicable to such research. Currently, 16 federal physical or psychological examinations or tests. For example, the
agencies have adopted the Federal Policy. (Also known as the risk of drawing a small amount of blood from a healthy individ-
“Common Rule.”) ual for research purposes is no greater than the risk of doing so
Full board review Review of proposed research at a convened as part of routine physical examination. The definition of mini-
meeting at which a majority of the membership of the IRB are mal risk for research involving prisoners differs somewhat from
present, including at least one member whose primary concerns that given for noninstitutionalized adults. [See 45 CFR 46.303(d)
are in nonscientific areas. For the research to be approved, it and Guidebook Chapter 6, Section E, “Prisoners.”]
must receive the approval of a majority of those members present Monitoring The collection and analysis of data as the project
at the meeting. progresses to ensure the appropriateness of the research, its de-
Human subjects Individuals whose physiologic or behavioral sign, and subject protections.
characteristics and responses are the object of study in a research National Commission National Commission for the Protection
project. Under the federal regulations, human subjects are de- of Human Subjects of Biomedical and Behavioral Research. An
fined as living individual(s) about whom an investigator conduct- interdisciplinary advisory body, established by congressional
ing research obtains (i) data through intervention or interaction legislation in 1974, which was in existence until 1978 and which
with the individual or (ii) identifiable private information. issued a series of reports and recommendations on ethical issues
Incompetence Technically, a legal term meaning inability to in research and medicine, many of which are now embodied in
manage one’s own affairs. Often used as a synonym for federal regulations.
incapacity. New drug application Request for FDA approval to market a
Informed consent A person’s voluntary agreement, based upon new drug.
adequate knowledge and understanding of relevant information, Nonaffiliated member Member of an Institutional Review
to participate in research or to undergo a diagnostic, therapeutic, Board who has no ties to the parent institution, its staff, or fac-
or preventive procedure. In giving informed consent, subjects ulty. This individual is usually from the local community (e.g.,
may not waive or appear to waive any of their legal rights, or minister, business person, attorney, teacher, homemaker).
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 829

Nontherapeutic research Research that has no likelihood or in- Review (of research) The concurrent oversight of research on a
tent of producing a diagnostic, preventive, or therapeutic benefit periodic basis by an IRB. In addition to the at least annual re-
to the current subjects, although it may benefit subjects with a views mandated by the federal regulations, reviews may, if
similar condition in the future. deemed appropriate, also be conducted on a continuous or peri-
odic basis.
Nuremberg Code A code of research ethics developed during
the trials of Nazi war criminals following World War II and Risk The probability of harm or injury (physical, psychological,
widely adopted as a standard during the 1950s and 1960s for pro- social, or economic) occurring as a result of participation in a
tecting human subjects. research study. Both the probability and magnitude of possible
harm may vary from minimal to significant. Federal regulations
Office for Human Research Protections (OHRP) The OHRP
define only “minimal risk.” (See also Minimal risk.)
provides leadership in the protection of the rights, welfare, and
well-being of subjects involved in research conducted or sup- Scientific review group A group of highly regarded experts in a
ported by the U.S. Department of Health and Human Services. given field, convened by the National Institutes of Health (NIH)
The OHRP helps ensure this by providing clarification and guid- to advise NIH on the scientific merit of applications for research
ance, developing educational programs and materials, maintain- grants and contracts. Scientific review groups are also required
ing regulatory oversight, and providing advice on ethical and to review the ethical aspects of proposed involvement of human
regulatory issues in biomedical and social-behavioral research. subjects. Various kinds of scientific review groups exist and are
known by different names in different institutes of the NIH (e.g.,
Office for Protection from Research Risks (OPRR) The office
Study Sections, Initial Review Groups, Contract Review Com-
within the National Institutes of Health, an agency of the Public
mittees, or Technical Evaluation Committees).
Health Service, Department of Health and Human Services, re-
sponsible for implementing DHHS regulations (45 CFR Part 46) The Society of Quality Assurance (SQA) A professional mem-
governing research involving human subjects. bership organization dedicated to providing a forum for infor-
mation exchange and utilization of knowledge in research and
Permission The agreement of parent(s) or guardian to the par-
regulatory quality assurance, promoting the profession through
ticipation of their child or ward in research [45 CFR 46.402(c)].
leadership and effective professional relationships, enhancing
President’s Commission President’s Commission for the Study knowledge of regulatory and quality assurance concerns that im-
of Ethical Problems in Medicine and Biomedical and Behavioral pact research, and fostering the highest professional standards
Research. An interdisciplinary advisory group, established by leading to growth, development, and recognition of the quality
congressional legislation in 1978, which was in existence until assurance profession worldwide (http://www.sqa.org/, accessed
1983 and which issued reports on ethical problems in healthcare March 20, 2013).
and in research involving human subjects.
Voluntary Free of coercion, duress, or undue inducement. Used
Prisoner An individual involuntarily confined in a penal insti- in the research context to refer to a subject’s decision to partici-
tution, including persons: (i) sentenced under a criminal or civil pate (or to continue to participate) in a research activity.
statue; (ii) detained pending arraignment, trial, or sentencing;
and (iii) detained in other facilities (e.g., for drug detoxification
or treatment of alcoholism) under statutes or commitment pro- REFERENCES
cedures providing such alternatives to criminal prosecution or 1. Ackerman, A. B. 2005. Reviewer conflicts of interest should be
incarceration in a penal institution [45 CFR 46.303(c)]. disclosed. J. Am. Acad. Dermatol. 52(3 Pt 1):538–539.

Privacy Control over the extent, timing, and circumstances of 2. Biaggioni, I. 2009. Industry-sponsored clinical research in aca-
sharing oneself (physically, behaviorally, or intellectually) with demia, p. 183–188. In R. David and H. W. Gordon (ed.), Clinical and
others. Translational Science. Academic Press, San Diego, CA.
3. Califf, R. M. 2009. Clinical trials, p. 13–37. In R. David and H. W.
Regulatory Affairs Professionals Society (RAPS) Dedicated to Gordon (ed.), Clinical and Translational Science. Academic Press,
providing regulatory affairs professionals with all the informa- San Diego, CA.
tion necessary to advance in their careers. Presents job postings,
articles, and information on career development (http://www.raps 4. Colecchi, C. H., R. Kitterman, B. N. Hicks, F. Toneguzzo, T. Q.
.org, accessed March 20, 2013). Do, C. Berke, R. Creeden, N. Lugn, C. Gildesgame, N. Zapol, and
C. Clark. 2009. Translating science to the bedside: the innovation
Remuneration Payment for participation in research. (NOTE: It is pipeline, p. 383–399. In R. David and H. W. Gordon (ed.), Clinical
wise to confine use of the term “compensation” to payment or provi- and Translational Science. Academic Press, San Diego, CA.
sion of care for research-related injuries.) Compare Compensation.
5. Emanuel, E. J., D. Wendler, and C. Grady. 2000. What makes
Research A systematic investigation (i.e., the gathering and clinical research ethical? JAMA 283(20):2701–2711.
analysis of information) designed to develop or contribute to 6. Federal Register. 1978. Nonclinical laboratory studies: good lab-
generalizable knowledge. oratory practice regulations. Fed. Regist. 43:59985–60025.
Respect for persons An ethical principle discussed in the Bel- 7. Federal Register. 1979. Protection of human subjects; Bel-
mont Report requiring that individual autonomy be respected mont Report: notice of report for public comment. Fed. Regist. 44:
and that persons with diminished autonomy be protected. 23191–23197.
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8. Federal Register. 1998. Protection of human subjects: categories M. A. Spillman. 2002. Managing conflicts of interest in the conduct
of research that may be reviewed by the Institutional Review Board of clinical trials. JAMA 287(1):78–84.
(IRB) through an expedited review procedure—FDA. Notice. Fed. 18. Norris, S. L., H. K. Holmer, L. A. Ogden, and B. U. Burda.
Regist. 63(Pt 1):60353–60356. 2011. Conflict of interest in clinical practice guideline development:
9. Federal Register. 2001. Protection of human research subjects. a systematic review. PLoS One 6(10):e25153.
Final rule. Fed. Regist. 66:56775–56780.
19. Rabinovitch, A. 2004. Financial conflict of interest? Arch.
10. Greco, D., and N. M. Diniz. 2008. Conflicts of interest in re- Pathol. Lab. Med. 128(12):1328.
search involving human beings. J. Int. Bioethique 19(1–2):143.
20. Rice, T. W. 2008. The historical, ethical, and legal background of
11. Gunter, K. P. 2002. The HIPAA privacy rule: practical advice human-subjects research. Respir. Care 53(10):1325–1329.
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12. Hall, P. A., R. Poulsom, and J. Wixon. How does The Journal of
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ing basic, clinical and translational investigators, p. 191–199. In R.
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David and H. W. Gordon (ed.), Clinical and Translational Science.
Academic Press, San Diego, CA.
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14. Joffe, H. V., and M. H. Parks. 2009. Regulatory environment, p.
401–414. In R. David and H. W. Gordon (ed.), Clinical and Transla- 23. Schwarz, R. P, Jr. 1991. Maintaining integrity and credibility
tional Science. Academic Press, San Diego, CA. in industry-sponsored clinical research. Control. Clin. Trials 12(6):
753–760.
15. Koski, G. 2009. Ethical issues in translational research and clini-
cal investigation, p. 415–428. In R. David and H. W. Gordon (ed.), 24. Thompson, D. F. 1993. Understanding financial conflicts of in-
Clinical and Translational Science. Academic Press, San Diego, CA. terest. N. Engl. J. Med. 329(8):573–576.
16. Macleod, M. R., M. Fisher, V. O’Collins, E. S. Sena, U. Dirnagl, 25. Vermund, S. H., and Q. A. Karim. 2009. Governmental support
P. M. Bath, A. Buchan, H. B. van der Worp, R. J. Traystman, K. of research, p. 219–236. In R. David and H. W. Gordon (ed.), Clinical
Minematsu, G. A. Donnan, and D. W. Howells. 2009. Reprint: and Translational Science. Academic Press, San Diego, CA.
good laboratory practice: preventing introduction of bias at the 26. Zgheib, N., R. Branch, and S. Buch. 2009. Good clinical prac-
bench. J. Cereb. Blood Flow Metab. 29(2):221–223. tice and good laboratory practice, p. 3–12. In R. David and H. W.
17. Morin, K., H. Rakatansky, F. A. Riddick, Jr., L. Morse, J. M. Gordon (ed.), Clinical and Translational Science. Academic Press,
O’Bannon, 3rd, M. S. Goldrich, P. Ray, M. Weiss, R. M. Sade, and San Diego, CA.
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 831

APPENDIX 46.1 Useful Websites

Federal Drug Administration (FDA) Organization for Economic Cooperation and Development
www.fda.gov (accessed March 20, 2013) www.oecd.org (accessed March 20, 2013)
Environmental Protection Agency Office for Human Research Protections (OHRP)
www.epa.gov (accessed March 20, 2013) http://www.hhs.gov/ohrp/ (accessed March 20, 2013)
International Organization for Standardization United States Department of Health and Human Services
www.iso.org (accessed March 20, 2013) http://www.hhs.gov/ohrp/ (accessed March 20, 2013)
Introduction
Types of Studies
47 Clinical and Evidence-Based
Observational Studies • Mechanistic Studies •
Therapeutic Studies • Large-Scale Clinical Trials •
Research in the Clinical
Meta-Analysis
Translational Research Laboratory
Sequence of Investigation • Literature Search •
Hypothesis Generation • Designing the Study To Test
the Hypothesis Donna M. Wolk
Biostatistics
Descriptive Statistics • Inferential Statistics: General
Issues for Medical Devices • Other Issues for OBJECTIVES
Diagnostic Studies
Other Research Considerations
To acquaint the clinical laboratory with the basic types of experimental
approaches used by clinical (patient-oriented) researchers
Systematic Reviews and Laboratory
Medicine Best Practices To define the basic terms typically used in clinical research
Evidence-Based Laboratory Medicine • Laboratory To describe the concept of systematic review of literature
Medicine Best Practices Initiative
To describe initiatives occurring for evidence-based laboratory medicine
Summary
KEY POINTS
GLOSSARY
REFERENCES We are what we continually do; excellence then is not an act but a habit.
APPENDIX Aristotle

L
aboratory interventions are becoming more data driven, out-
come oriented, and evidence based. As such, laboratory professionals need
more background in experimental study design and biostatistical meth-
ods, so that laboratory data can be used to generate outcomes data from quality
improvement (QI) activities and comparative analytics of new testing methods.
In vitro diagnostic clinical research studies that utilize human tissues or flu-
ids, which cannot be linked long-term to a living individual, are common in
many clinical laboratories that perform research. This type of clinical research
differs from what is defined as patient-oriented research (POR), which is com-
monly interventional, may occur in collaboration with clinical laboratories,
and is defined as “research conducted with human subjects” (or on material of
human origin such as tissues, specimens, and cognitive phenomena) for which
an investigator (or colleague) directly interacts with human subjects, consented
for the purpose of the study. In vitro research shares many of the basic prin-
ciples of the methodology used in basic science, animal research, and POR (29).
Several types of POR are found in academic and non-university-based
healthcare systems and, though diverse in scope, include (i) mechanistic (phys-
iological) studies of human disease involving detailed investigation of a biologi-
cal process; (ii) therapeutic studies that focus on treatment designed to improve
a disease or condition; and (iii) clinical trials, which are most often large, defin-
itive studies of new drugs or new technologies and devices, from which data are
submitted to the U.S. Food and Drug Administration (FDA) for review (29).
Clinical Laboratory Management, 2nd Edition
In any clinical study, formulation of a sound and reasonable hypothesis is
Edited by L. S. Garcia always the starting point, followed by appropriate and ethical study design,
©2014 ASM Press, Washington, DC choice of relevant endpoints, feasibility, statistical analysis, and hypothesis
doi:10.1128/9781555817282.ch47 testing (29).

832
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 833

Types of Studies and the patients in the study. They are usually less likely to
assess hard endpoints and tend to be less definitive than
Observational Studies
large-scale clinical trials. Nevertheless, they are a critical
Observational studies are those involving humans (cohort to determine the risk-benefit ratio of a drug, which is then
or epidemiological studies) but not specifically categorized further explored in large-scale trials (29).
as POR; rather, they involve recruitment of patients (human
subjects) and are often critical to hypothesis generation and Large-Scale Clinical Trials
for subsequent interventional studies. Observations gener- Randomized clinical trials may take a long time to com-
ally relate to a public health concern or biological principle. plete and are costly but are necessary to definitively prove
Observational studies are primarily descriptive in nature new treatment strategies, to define new interventional ap-
and often lead to the determination of data associations. proaches, and to confirm the proof for existing approaches
The goals of these studies are to obtain data or determine in clinical medicine. Most large-scale clinical trials are ran-
an association, and they typically do not have well-defined domized and placebo controlled to minimize confound-
mechanistic hypotheses. Observational studies are typically ing. Because such studies are often multicenter, endpoints
large population-based studies, which collect detailed data must be the same for all sites. Stratification and analyses
on clinically relevant endpoints (29). Such studies are not of pooled data and data from each site help to ensure that
considered definitive or causative, since confounding phe- potential confounding variables are spread equally across
nomena can occur (2). These studies are considered to be the data groups (29).
hypothesis generating, rather than hypothesis testing. Anal- Clinical trials are always hypothesis driven and need to
yses may be performed to control for confounders, e.g., in be adequately powered, i.e., large enough to ensure that a
multivariate regression, but causality can only be inferred, negative result is not the result of insufficient samples or
not proven (2). For example, human genome studies are be- patients, but rather is the result of a true biological result
coming an important type of observational study and may or diagnostic condition. Even these large studies can only
show an association between a particular genotype and dis- be generalized to the specific population and intervention
ease, or may be useful to determine potential efficacy of a studied, and they may be misinterpreted or overgeneral-
particular therapy in a pharmacogenomic analysis. ized. Large clinical trials are often more important in de-
termining the clinical efficacy of a drug than elucidating
Mechanistic Studies mechanisms. It is a requirement to register all clinical tri-
In contrast to observational studies, mechanistic stud- als, and they can be searched in an existing database, like
ies are useful to determine causality. Such studies are hy- www.clintrials.gov (accessed May 15, 2013).
pothesis driven, and formulation of the hypothesis is the
critical element for the success of the study. These stud- Meta-Analysis
ies are commonly smaller than observational studies and A meta-analysis is the process by which the results of mul-
are designed to determine disease physiology or mecha- tiple individual studies are statistically combined (1, 9, 18).
nism. They define detailed endpoints which are assessed For more information, see the section “Systematic Reviews
in response to a relevant intervention or a disruption of and Laboratory Medicine Best Practices,” later in this chap-
biological function. Because they use novel endpoints to ter. A meta-analysis is the formal evaluation of the evidence
assess detailed physiology, small mechanistic studies may from two or more trials focused on answering the same
not be generalizable to large populations and may have less question. Meta-analysis commonly involves the statistical
clinical relevance than large-scale trials; nevertheless, they combination of summary statistics from the various stud-
are important in stimulating larger therapeutic studies and ies, but the term is sometimes also used to refer to the com-
definitive large-scale clinical trials (29). bination of their raw data.
Therapeutic Studies
Therapeutic studies determine the efficacy of a medicine Translational Research
or a treatment which is designed to improve a condition Translational research can be described as the transition-
or disease. These studies are often smaller, more prelimi- ing of basic research practices and findings to day-to-day
nary, and less generalizable than clinical trials, but involve use in a clinical setting, such as the clinical laboratory. The
some of the same design issues. For example, when test- National Institutes of Health (NIH) developed Clinical and
ing a new drug in humans, Phase I studies are designed to Translational Science Awards (CTSAs) to focus research
assess safety, Phase II studies are the first therapeutic tri- efforts and provide resources for translational research.
als, and Phase III studies are commonly larger therapeutic Although the phrase “bench to bedside” is a colloquial
studies, which are often called clinical trials. Therapeutic description of this process, translational research is not
studies are generalizable only to the conditions of the study unidirectional. Once a biological premise or tool is adapted
834 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

to a medical setting, clinical data derived from patients may Literature Search
inform both patient-oriented and basic investigation. An ex- Literature searches are essential to every step of an inves-
ample of this process would be the discovery of procalcitonin tigation, from beginning to end. They are critical to help
and its relationship to sepsis, which led to the use of this bio- establish a hypothesis, to determine whether there are
marker as an indicator of sepsis and for monitoring success- sufficient preliminary data to justify a study, to define the
ful antimicrobial therapy (12, 13, 17, 20, 28, 36, 39–41, 43). study parameters, to establish safety and inclusion crite-
A second, important translational step is the translation ria, and to determine study endpoints. Collection of litera-
of research findings from POR and clinical trials into daily ture can be performed for free with Web-based database
clinical practice. Thus, POR plays an important role in the searches such as PubMed or via a library with databases
translation of basic research findings and clinical trial data such as OVID. Furthermore, software solutions such as
to improve medical practice and patient care (29). As an EndNote and Reference Manager will help speed a lit-
example of how diagnostic clinical trial data may enhance erature search and facilitate categorization and storage of
our understanding of infections, studies with multiplex publications found in the database query. Direct commu-
molecular panel testing identified an increased frequency nication with other research and medical experts in the
of respiratory coinfections, which spawned investigations field is also useful for hypothesis generation.
to detail the clinical impact of coinfections and their effect
on disease severity. Hypothesis Generation
Formulation of a hypothesis is the most important process
Sequence of Investigation in POR and is the core of the clinical research proposal
The sequence of POR involves observation, generation of a (16). Hypotheses are generated from (i) data associations
testable hypothesis, the design of a study that will test this from epidemiological or observational studies, (ii) animal
hypothesis, the performance of the study (hypothesis test- or in vitro data, (iii) direct observations in a patient or pa-
ing), the collection of data from the study, data analysis, tient group, or (iv) already established but unproven inter-
interpretation of the data, and formulation of conclusions. ventions or strategies.
1. Study design Four essential questions must be asked in the formula-
a. Identify and document a problem, uncover an idea, tion of a hypothesis (29):
and perform literature search 1. Is the question important and relevant?
b. Develop a definition of the problem 2. Has the question already has been answered elsewhere;
c. Identify possible solutions; formulate a hypothesis if so, was the study of sufficient power and breadth or
d. Define study population and sample size have conclusions been confirmed?
e. Create database to store data 3. Will the answer to the question be relevant to patient
f. Create subject recruitment plan or sample acquisition care, elucidate a biological mechanism, or establish
g. Develop or select a statistical analysis plan drug or device efficacy or safety?
h. Select measurements, data collection tools, analyti- 4. Can the hypothesis be proven, given the constraints
cal tools, and biostatistics involved in POR?
i. Develop data collection forms a. Is it safe to perform the study?
j. Define and assess confounders and bias b. Are endpoints well established to determine efficacy?
k. Assess overall feasibility and budget c. Can an adequate number of patients be enrolled to
l. Consider human subjects, regulatory approval com- determine a definitive result?
pliance requirements, and safety
m. Seek expert review and opinion Designing the Study To Test the Hypothesis
2. Hypothesis testing Sampling the population. Choosing the appropriate study
a. Collect experimental data and demographic data population and the sample size is an integral step in study
b. Collect study outcome data design. One approach is to start by recruiting subjects or
c. Assess and analyze data and perform biostatistical gathering specimens from subjects with a well-established
analysis medical condition. Choosing a representative population,
d. Interpret data/results with adequate representation of age groups, ethnicities,
3. Conclusion formulation and description and gender, will facilitate generalization of the data to ap-
a. Formulate conclusions propriate groups.
b. Establish whether hypothesis was proven
c. Assess unexpected results Deciding on measurements and endpoints. The inves-
d. Consider limitations of the study tigator’s choice of study endpoints includes (i) clinical
e. Consider needs for future studies and develop ac- characteristics or endpoints (aka variables), and (ii) sur-
tion plan rogate endpoints. A clinical endpoint is a characteristic
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 835

that characterizes patient function or survival and may are established to prevent subjects with a higher risk from
include physiologic markers and events (5). A surrogate participating in the research study. All studies are reviewed
endpoint measures an effect of a certain treatment or diag- by an institutional review board (IRB). Refer to chapter 45
nostic test that may correlate with a real clinical endpoint of this volume for further discussion.
but doesn’t necessarily have a guaranteed role in the dis-
ease process. A surrogate endpoint can be used to predict Collecting and storing data. It is critical to store data in a
clinical benefit (or lack of benefit) based on epidemiologic, properly designed data log and database. Ideally a spread-
therapeutic, pathophysiologic, or other scientific evidence sheet or database is designed prior to the start of the study,
(24). An example of a surrogate endpoint might be a spe- and data storage can range from a simple Excel file to an
cific biomarker that is objectively measured and evaluated Access database or any number of larger databases used
as an indicator of normal biological processes, pathogenic for research purposes. Common information captured in
processes, or pharmacologic responses to a therapeutic in- databases includes demographic data, such as age, gender,
tervention (24). Variables are typically characterized as in- ZIP code, and ethnicity, and outcome data such as length
dependent variables or dependent variables. For complete of stay, mortality, laboratory test data, etc.
definitions of various types of study variables, refer to the The best study designs are those that allow data to be
glossary at the end of this chapter. electronically transferred from one database to another
and to common statistical software without manual re-
Feasibility. The success of the study is dependent on sev- entry. Manual data entry is prone to error but may be a
eral feasibility factors which must be considered in the de- necessity at some point in the study. Some ways to decrease
sign phase. These include availability of research subjects, risk of error include creation of drop-down boxes, yes/no
ability to recruit research subjects into the study, availability buttons, or “pick lists” to limit the typing required. Other
of the techniques and personnel required for the measure- useful processes include barcoding processes, double
ment of study endpoints, expertise in the use of these tech- checks of data entry, relevant training of personnel who
niques, and adequacy of funds to cover research costs (5). perform data entry, regular review of the entered data for
accuracy and consistency, and use of an appropriate soft-
Assessment of confounding variables. For any research ware program to identify outliers which may be due to
study, it is important to determine whether the study that manual data entry errors.
is designed will actually answer the question raised in the Because laboratory data typically include private or sen-
hypothesis. Assessing confounding variables helps to en- sitive information, it is critical that the database is set up in
sure that results are interpreted correctly. In statistics, a a secure system that complies with IRB and Health Insur-
confounding variable (aka a confounding factor or con- ance Portability and Accountability Act (HIPAA) regula-
founder) is an extraneous variable in a statistical model tions. Most hospitals support compliant systems, so it is
that correlates (positively or negatively) with both the important to keep data on those secure servers unless ap-
dependent variable(s) and the independent variable(s). A propriate accommodations are made to secure data.
perceived relationship between an independent variable
and a dependent variable can be incorrectly estimated due Data analysis. The data analysis plan is a key element in
to the failure to account for effect of a confounding factor. the design of a clinical research study. It helps to determine
It is important to control for confounding effects to isolate the number of subjects or samples needed to sufficiently
the impact of the variables of interest. power the study. It may be necessary to consult with a
In laboratory-based research, the control of confounders biostatistician to properly assess power, study design, end-
may be more easily achieved as the investigator can match points, and method of data analysis.
samples for many baseline characteristics and have control After analysis, researchers must ask if the data are defini-
over the environment during the course of the study. Con- tive, i.e., strong enough to stand alone for recommending a
sideration of subject age, gender, race and comorbidities change in practice, or whether further studies are required.
can help the investigator match subjects placed in a control Forming accurate conclusions that do not go beyond the data
and an intervention group. In clinical research, the ability is a critical aspect of research. Determining the limitations of
to control for confounders is often more challenging. your research is also a critical component of data analysis.
When effects of confounders are not controlled for, they
are often dealt with through statistical adjustment, i.e., the Biostatistics
use of regression analyses (21, 23, 26). However, assessing
the impact of confounders by these techniques on study Descriptive Statistics
outcomes may be inadequate (21, 23, 26). Critical biostatistical analysis and assessment are critical
for interpretation of literature, for mindful participation
Human subject protection. Clinical investigators must en- in clinical trials, translational research, or basic research,
sure the safety of each research subject. Exclusion criteria for publication of your data, for intelligent conversation
836 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

with your statistician, and for documentation of evidence- These circumstances pose a challenge to those who use
based improvements due to laboratory interventions (38). statistical inference methods. Without subject or sample
The following test attributes are often described using randomization, one needs to place substantial emphasis on
descriptive statistics with confidence intervals; however, the description of bias in the experimental design. Causal
comparative statistics can also be used and are often war- inferential methods, particularly propensity scores, have
ranted (38). proven to be useful to assess whether the historical control
can begin to provide a valid comparator. The propensity
• Accuracy
score methodology has been applied in a number of medi-
• Precision cal device studies to provide insight into how comparable
• Analytical sensitivity the historical control data are compared to those for the
• Analytical specificity current new device (42). In some cases the performance
of the control group is so well characterized that, rather
• Analytical measurement range (limit of quantitation,
than point to a particular source of data for the histori-
linearity)
cal control, an Objective Performance Criterion (OPC) or
• Reportable range a performance goal is established by experts. Using this
• Normal values approach, if the new device performs according to the
specifications established in the OPC, then its safety and/
Inferential Statistics: General Issues for or effectiveness can be demonstrated. Some of the statisti-
Medical Devices cal issues in such cases include the sample size necessary
Statistical issues in medical device studies include almost for such an assessment and how to incorporate variability
all those confronted by clinical trials for pharmaceuticals. assessments into the OPC.
Examples of statistical challenges posed by medical de-
vices (7) include considerations of sample size and power, Other Issues for Diagnostic Studies
handling of missing data, survival analysis, analysis of It is estimated that about 30 to 35% of medical devices
quality-of-life variables, interim analysis, adjustments for are diagnostic in nature, some with the aim of being in-
multiplicity of primary and/or secondary endpoints or of troduced into the clinical laboratory and some for phar-
hypotheses, sample size re-estimation, and meta-analysis. maceutical studies that rely on diagnostic or monitoring
For in vitro devices, noninferiority statistics are com- devices for defining the inclusion/exclusion criteria or to
mon for premarket announcements and also in premarket describe disease progression or recurrence. The simulta-
notifications, aka 510(k)s, where the focus is on “sub- neous development of both a novel pharmaceutical agent
stantial equivalence” in diagnostic accuracy. For nonin- as well as a new diagnostic test to indicate who should or
feriority studies, the determination of the noninferiority who should not take this pharmaceutical agent (aka com-
margin (i.e., the percentage of difference allowed between panion diagnostics) could present a substantial challenge
the methods) is a critical component. In contrast, when to performance of clinical trials.
comparing a new device to a reference standard there is a There are imposing statistical issues about how to design
possibility that the novel device is superior, in which case companion diagnostic studies. The FDA released a draft
traditional comparative statistics may be used (42). white paper entitled “Drug-Diagnostic Co-Development
In contrast, there are a number of statistical issues that Concept Paper” on how to prospectively develop both a
are unique to laboratory device studies, specifically, blind- biopharmaceutical product and a diagnostic device in a
ing of the bench technologists and investigators, as well as scientifically robust and efficient manner (14). A funda-
biases introduced by the type of testing personnel used in mental issue concerns the claim for the diagnostic prod-
the study and the type of specimens used. In many cases, uct in a drug-diagnostic codevelopment. Key questions
the studies performed on in vitro devices are not random- include, Is it a prognostic claim for the diagnostic product,
ized clinical trials, either because there is a single concur- reporting the natural history of the disease (or condition),
rent comparison group with a historical control or there or is it a predictive claim in that the result of the diagnos-
are two concurrent experimental arms but no randomiza- tic test predicts the likelihood of a patient’s response to the
tion. In contrast to pharmaceuticals, where randomized novel drug therapy (19)?
control trials are the norm, few in vitro laboratory devices The field of diagnostic evaluation is in its infancy com-
seeking regulatory approval in the U.S. were submitted pared to the statistics used in the pharmaceutical field, which
to the FDA as well-controlled, randomized clinical trials, are almost exclusively therapeutic and use well-defined sta-
nor are they required to be. Even when a device is Class tistical methods. The statistical problems in diagnostics are
III and involves a premarket announcement submission, in some ways more challenging. The statistical tools for the
historical controls are often used rather than a random- design and analysis of diagnostic test evaluations are very
ized clinical trial. different from those used in therapeutics experiments. In
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 837

many situations, randomization is abandoned in favor of reported, this practice introduces bias toward confirma-
a much more efficient design that compares two diagnos- tion of the new test, and is discouraged.
tic tests by applying both tests to the same individuals or A variety of biostatistical methods can be applied to
samples. If the order of testing is important, then the design evaluation of clinical laboratory methods. For example,
could prescribe a randomization for the order of test perfor- with continuous or ordinal data, the usefulness of receiver
mance, but the randomized parallel design is somewhat rare operating characteristic (ROC) methodology is relevant
except for evaluation of screening tests. The paired design for evaluating diagnostic tests when there is an extremely
is generally preferred for considerations of power (and the reliable reference standard (6, 11, 30, 35, 37, 44, 45). In
sample size), which can make the cost and the trial prohibi- contrast, in the comparison of two continuous diagnostic
tive for diagnostic methods. For diagnostic test evaluation, tests in the absence of truth, method comparison tech-
the different sorts of bias become enormously important niques are used. This includes techniques, such as Dem-
and a concern to statisticians (4). ing or orthogonal regression, that allow for errors in both
For diagnostic studies, it is important to distinguish test measurements (3, 27). Special challenges exist for the
whether the true disease state can be determined or not— assessment of microarray data, and statistical and regula-
is there a true gold standard? In cases where the truth is tory issues associated with microarrays and other genetic
known and the test is dichotomous (e.g., positive or nega- tests have been well discussed (7, 32). Finally, for inferen-
tive), the analysis involves truth tables (two-by-two tables) tial questions to assess comparability or equivalence of two
and the inference concerns confidence intervals and/or such diagnostic tests, one must be able to assess not only
hypothesis tests for sensitivity, specificity, and positive and comparability (i.e., whether the slope is 1 and the intercept
negative predictive values. 0), but whether the total error is well controlled. Note that
For diagnostics, one often needs to establish the limit the use of statistical methods to establish the (two-sided)
of detection (LOD), for which a nonparametric statistical equivalence of two methods is very similar to the question
approach can be used (19). For more detail on reporting of bioequivalence in the study of generic drugs (10).
the results of such diagnostic tests, refer to the current
document called “Statistical Guidance on Reporting Re-
sults from Studies Evaluating Diagnostic Tests; Guidance Other Research Considerations
for Industry and FDA Reviewers” (34). Continuing medical education and habits of lifelong learn-
Of concern is the fact that, in many diagnostic prod- ing are key to the future of clinical laboratory science. For
uct evaluations, either there is no gold standard or its use laboratory scientists who are working in quality control,
is completely impractical. In these instances, the ideal quality assurance, or evidence-based medicine (EBM)—
situation would be to calibrate the new test to the known or who are considering a research career or graduate
performance of the reference standard. This calibration school—coursework with focus on biostatistics, regulatory
may be impossible; however, without such calibration, issues, grant writing, experimental design, and clinical
the indiscriminate use of terms such as “sensitivity” and trial development can be extremely useful.
“specificity” is fraught with danger due to the bias that In addition, as clinical research expands, clinical labo-
an imperfect standard might introduce. In cases such as ratories are often asked to provide core services for de-
these, “positive agreement” and “negative agreement” are identified specimens, and personnel should be trained to
the preferred terms. comply with guidances for Good Banking Practices if they
When the true disease state is unknown, an approach enter into this role.
called latent variable analysis may be used to estimate the More advanced coursework may also be available
performance of the new tests being studied as well as the through certificate programs or in master’s level programs
unknown prevalence of disease. In agreement studies, in clinical sciences, public health, biostatistics, epidemiol-
the focus is on the evaluation of a diagnostic test by assess- ogy, applied biosciences, and other programs. Such train-
ing its agreement in performance with some other well- ing supports career advancement in research track positions
understood but imperfect test. such as study coordinators, quality assurance, laboratory
In diagnostic test evaluation, there are also situations management, and directorship.
in which the clinical truth may be known, but only for a
subset of subjects or samples. In such cases, adjustment for
verification bias is imperative because the establishment of Systematic Reviews and Laboratory
the truth of the condition of the patient depends inher- Medicine Best Practices
ently on the test or tests applied to the patient. An example Historically, laboratories store and analyze large amounts of
of this would be the use of “discrepant testing,” a resolution data; however, there are many instances in which the utility
of discrepancy in which discordant results between the of the data is not well explored. Compilation and analysis of
two methods receive further testing. Although commonly laboratory data linked to clinical data is critical to clinical
838 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

research and to the emerging field I term “interventional systematic reviews can be found at www.futurelabmedicine
diagnostics.” Interventional diagnostics embraces the exam- .org/our_findings (accessed April 30, 2013) and are de-
ination and analysis of the impact of diagnostic test inter- scribed in general terms in a recent publication (31).
vention on patient care. Data to describe postanalytic effects Within LMBP, systematic reviews can provide infor-
of actionable interventions, based on relevant laboratory mation to support decision making for health outcomes
tests, are the key to the future impact of laboratory science achieved from use of a diagnostic test and for additional
and the growing awareness of the importance of laboratory outcomes that influence cost and quality of patient care (e.g.,
medicine to nearly all aspects of healthcare practice. decreased mortality, inpatient length of stay, earlier treat-
ment). Considering that evidence generated in the labora-
Evidence-Based Laboratory Medicine tory is typically derived from observational studies rather
Clinical laboratory scientists have been leaders in quality than randomized controlled trials, the LMBP A-6 Methods
assurance practice for decades, but have not always placed are applied to conduct reviews that assess the effectiveness
their results in the peer-reviewed literature. The laboratory of practices in improving the quality of laboratory medicine
intervention approach to research aligns with evidence- service delivery. Via the LMBP systematic review process,
based medicine (EBM), a practice that refers to the applica- unpublished QI data, that typically are not disseminated
tion of existing data to answer questions and solve problems through the peer-reviewed literature process, are incorpo-
through systematic synthesis and appraisal of data. rated with data from the peer-reviewed literature. Although
In the EBM process, standardized data acquisition and such data may be hampered by a lack of the following ele-
analysis are used so that the data derived from the process ments of sound research design: explicit focused purpose of
will add to the evidence-based body of knowledge. The the study, defined sample size, defined practice of interest,
underlying premise of an evidence-based approach is that collection of baseline data or data on the usual (or current)
healthcare decisions are guided by the synthesis and ap- practice (comparator), and defined outcome measures (8,
praisal of evidence from well-designed studies, balanced 31), some of the data may contain the proper elements.
with clinical expertise and individual patient preferences. Key evidence-based practice principles to improve QI
The Agency for Healthcare Research and Quality (AHRQ) projects include:
is one leader in this initiative, dubbed “Patient-Centered
1. Frame quality problems as clinical questions using
Outcomes Research” (http://www.ahrq.gov/index.html
what is called the PICO format (Population, Interven-
[accessed April 30, 2013]).
tion, Comparison, Outcome; see below)
Challenges to practicing EBM in clinical laboratories
2. Conduct literature searches
include the lack of research time allocated to the clini-
3. Apply elements of research study design to QI project
cal laboratory; lack of experimental design and advanced
design
biostatistical training in medical laboratory science pro-
4. Capture and disseminate project results
grams and fellowships; lack of institutional support for
mentoring and implementing an evidence-based approach; A systematic review is designed to answer a clearly
and the lack of evidence from well-designed diagnostic stated question. The important steps in a systematic review
studies (8, 31). process include:
The premise of evidence-based practice recommenda-
1. Pose an explicit statement of one or more clinical
tions relies on two processes, “systematic reviews” and “meta-
questions
analysis” (see Appendix 47.1) (31). A systematic review
2. Develop a search strategy for published primary studies
collates and analyzes the findings from well-designed studies
3. Review titles and abstracts generated by the search
and pools the results from individual studies to reduce bias
4. Select and review full papers and extract relevant data
and maximize the interpretation of the conclusions. Various
5. Analyze data, including use of meta-analytic tools
terms are used for systematic reviews, including “compara-
6. Summarize findings
tive effectiveness” and “patient-centered outcomes research,”
7. Identify further research needed
but the common objective is to use available data to make
optimal decisions for diagnostic laboratory practice and pa- Types of PICO questions and measures include (15,
tient care. Systematic review methods consist of key steps to 25, 33):
address a problem about the quality of a practice (8, 31).
• Intervention: What practice, policy, or therapy leads to
Laboratory Medicine Best Practices Initiative the best outcome
The Laboratory Medicine Best Practices (LMBP) initiative • Diagnostic: Which test is more accurate and precise in
at the Centers for Disease Control and Prevention (CDC) diagnosing a condition
(https://www.futurelabmedicine.org/ [accessed April 30, • Prognosis: The likelihood of a particular outcome for
2013]) adapts EBM concepts to clinical laboratory prac- a population with specific changes observed in the re-
tice and quality improvement (QI) studies. Current LMBP sults of laboratory questions
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 839

An example of a PICO for rapid technology PCR (rPCR) LMBP Study Quality Appraisal Checklist (8, 31).
is described here (31): Study setting.
1. Population (sample): All adult inpatients with a posi- • Is information about the study setting provided?
tive blood culture result for Staphylococcus aureus bacte- (e.g., intensive care unit, emergency department)
remia admitted during study time period: pre rPCR = • Is the duration of the QI project or study (start and
74 patients; post rPCR = 82 patients. end dates) noted?
2. Intervention (practice evaluated): rPCR with com-
munication; rPCR result paged to infectious disease Practice.
pharmacists Monday–Friday 8 a.m.–5 p.m. or logged • Is there a practice description that includes require-
by laboratory and reviewed by infectious disease phar- ments and components for operations?
macists next business day. • Is the duration (start and end dates) for the practice
3. Comparison practice: Gram stain, final identification, reported?
and antibiotic susceptibility completed in 24–72 hours
and reported in electronic medical record without no- Sample size.
tification to physician. • Is the sample population identified (e.g., samples,
4. Outcome: In this scenario a probable outcome could be tests)?
reduction in time to targeted therapy, but it would be • Is the total number of observations for the sample
important to list the definition of this outcome and how size provided (e.g., total number of phlebotomy ser-
it was recorded. Staff at a hospital laboratory conducts a vice blood collections)?
QI project to assess whether employing rPCR with direct
communication of results improves the time to report • Are the selection criteria for participants or speci-
identification of microbes causing suspected blood- mens provided (what was included and excluded)?
stream infections. The project involves just one hospital,
and compares reporting times before and after the de- Comparator practice (original or usual practice).
ployment of the rPCR with direct communication. Out- • Is there a comparator practice or standard (status
come Measurement Source/recording could include: quo)?
• Reduction in time to targeted therapy • Are key characteristics of the original practice
• Time from identification of positive blood culture described?
to receipt of antimicrobial therapy for patient for
specific type of bloodstream infection from chart Outcome measures.
review • Are the measurements to assess practice impact
identified and defined (e.g., length of stay)?
For the analysis in the LMBP initiative sponsored by
• Are the measures relevant to the QI question?
the American Society for Microbiology and CDC, a re-
view team is compiled that is composed of experts in • Is the method of data collection described?
fields such as clinical microbiology, biostatistics, epide-
miology, laboratory sciences, infectious diseases, health- Results.
care management, and other related specialties. This • Are the study results described and supporting data
team works to perform and document literature searches, provided?
using PubMed (www.pubmed.gov [accessed April 30, • Are reported results clearly related to the practice of
2013]) and other free reference databases (e.g., Cochrane interest?
Library, www.cochrane.org [accessed April 30, 2013])
available to search the current peer-reviewed literature, The LMBP process is poised to yield important infor-
a process undertaken to identify publications which are mation derived from laboratory data and should play an
then called primary studies. important tole in identifying best practices in laboratory
The team reviews primary studies, unpublished QI proj- medicine.
ects, and other literature according to a critical appraisal
checklist for evaluating the study quality. This LMBP Study
Quality Appraisal Checklist can also guide further planning Summary
and documentation of QI projects, standards, or guidelines Clinical laboratory scientists are leaders in quality assur-
for optimal laboratory practice (8, 22; Standards for Quality ance practices and are poised to engage in research op-
Improvement Reporting Excellence [SQUIRE] Guidelines, portunities that can further improve patient outcomes. In
http://squire-statement.org/ [accessed April 30, 2013]) and some cases, new skills will be required of both students
provide templates for preparing a publication about the and professionals to leverage data to benefit the health-
findings of a project. care system. Guidance can be found in the long-standing
840 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

experimental design, data analysis, and biostatistics prac- Adverse event An unexpected medical problem that happens to
tices used in clinical and patient-oriented research. Using a patient during treatment with a drug or other therapy while
these principles, government and professional societies are enrolled in a clinical investigation. Adverse events do not have to
leading evidence-based initiatives for the diagnostics com- be caused by the drug or therapy, and they may be mild, moder-
munity. Active participation in such activity can broaden ate, or severe.
the impact of clinical laboratories and make valuable con- IRB approval In relation to institutional review boards (IRBs),
tributions to the health improvements. the affirmative decision of the IRB that the clinical trial was re-
viewed and may be conducted at the institution site within the
constraints set forth by the IRB, the institution, Good Clinical
KEY POINTS Practice (GCP), and the applicable regulatory requirements.
■ Clinical research is a valuable component of healthcare Arm Any of the treatment groups in a randomized trial. Most
improvement that benefits from participation by clini- randomized trials have two arms, but some have more.
cal laboratories.
Baseline An initial measurement that is taken at an early time
■ Various study design and data analysis methods can be point to represent a beginning condition and is used for com-
adapted for use in the clinical laboratory. parison over time to look for changes.
■ Translational research can be described as the tran- Best practice In medicine, treatment that experts agree is ap-
sitioning of basic research practices and findings to propriate, accepted, and widely used. Healthcare providers are
day-to-day use in a clinical setting, such as the clinical obligated to provide patients with the best practice. Also called
laboratory. standard therapy or standard of care.
■ Systematic reviews and meta-analysis are fast becoming Bias In a scientific research study or clinical trial, a flaw in the
a valuable tool to improve or guide clinical laboratory study design or the method of collecting or interpreting informa-
practices. tion. These statistical biases can lead to incorrect conclusions
about what the study or clinical trial showed. The systematic ten-
■ Evidence-based laboratory medicine can be used to
dency of any factors associated with the design, conduct, analy-
identify reasons for improvements and to help identify sis, and evaluation of the results of a clinical trial to make the
best practices for laboratory medicine. estimate of a treatment effect deviate from its true value. Bias
introduced through deviations in conduct is referred to as opera-
GLOSSARY tional bias.
Definitions related to clinical research. Note: Definitions are Bioinformatics The science of using computers, databases, and
adapted from the following sources: math to organize and analyze large amounts of biological, medi-
cal, and health information. Information may come from many
• http://en.wikipedia.org/w/index.php?title=Glossary_of_ sources, including patient statistics, tissue specimens, genetics
clinical_research&oldid=536225556 (accessed April 30, 2013) research, and clinical trials.
• Public domain material from websites or documents of the
Biostatistics The science of collecting and analyzing biologic or
U.S. Department of Health and Human Services, as follows:
health data using statistical methods. Biostatistics may be used to
• 21CFR50.3: Code of Federal Regulations, Title 21—Food help uncover the possible causes of a disease in a certain group of
and Drugs, Chapter I—Food and Drug Administration, people. Biostatistics is called biometry and biometrics.
Department of Health and Human Services, Part 50—
Protection of Human Subjects, Subpart A—General Provi- Blind A randomized trial is “blind” or “masked” if the partici-
sions, Sec. 50.3 Definitions pants are not told which arm of the trial they are in. A clinical trial
is blind if participants are unaware of whether they are in the ex-
• 21CFR312.3: Code of Federal Regulations, Title 21—Food
perimental or control arm of the study. Single blinding usually re-
and Drugs, Chapter I—Food and Drug Administration,
fers to the subject(s) being unaware, and double blinding usually
Department of Health and Human Services, Part 312—
refers to the subject(s), investigator(s), monitor, and, in some
Investigational New Drug Application, Subpart A—General
cases, data analyst(s) being unaware of the treatment assignment(s).
Provisions, Sec. 312.3 Definitions and Interpretations
• ICH E6: Guidance for Industry—E6 Good Clinical Prac- Blind review The checking and assessment of data during the
tice: Consolidated Guidance, U.S. Department of Health period of time between trial completion (the last observation on
and Human Services, Food and Drug Administration, the last subject) and the breaking of the blind, for the purpose of
April 1996 finalizing the planned analysis.
• ICH E9: Guidance for Industry—E9 Statistical Principles Blinded study A type of study in which the patients (single-
for Clinical Trials, U.S. Department of Health and Human blinded) or the patients and their doctors (double-blinded) do
Services, Food and Drug Administration, September 1998 not know which drug or treatment is being given. The opposite
• National Cancer Institute, Dictionary of Cancer Terms of a blinded study is an open label study.
• U.S. National Library of Medicine, National Institutes of Case report A detailed report of the diagnosis, treatment, and
Health, Glossary of Clinical Trials Terms follow-up of an individual patient. Case reports also contain
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 841

some demographic information about the patient (for example, Comparator An investigational or marketed product (i.e., active
age, gender, ethnic origin). control), or placebo, used as a reference in a clinical trial.
Case report form A printed, optical, or electronic document de- Consecutive case series A clinical study that includes all eligible
signed to record all of the protocol-required information to be patients identified by the researchers during the study registra-
reported to the sponsor on each clinical trial subject. tion period. The patients are treated in the order in which they
are identified. This type of study usually does not have a control
Case series A group or series of case reports involving patients
group.
who were given similar treatment. Reports of case series usually
contain detailed information about the individual patients. This Content validity The extent to which a variable (e.g., a rating
includes demographic information (for example, age, gender, scale) measures what it is supposed to measure.
ethnic origin) and information on diagnosis, treatment, response
Contract A written, dated, and signed agreement between two
to treatment, and follow-up after treatment.
or more involved parties that sets out any arrangements on del-
Case-control (or retrospective) study A study that compares egation and distribution of tasks and obligations and, if appro-
two groups of people: those with the disease or condition under priate, on financial matters. The research protocol may serve as
study (cases) and a very similar group of people who do not have the basis of a contract.
the disease or condition (controls). Researchers study the medi-
Contract research organization A person or an organization
cal and lifestyle histories of the people in each group to learn
(commercial, academic, or other) contracted by the sponsor to per-
what factors may be associated with the disease or condition.
form one or more of a sponsor’s trial-related duties and functions.
Clinical Pertaining to or founded on observation and treatment
Control group In a clinical trial, the group that does not receive
of participants, as distinguished from theoretical or basic science.
the new treatment or diagnostic being studied. Results from this
Clinical investigation Any experiment that involves a test arti- group are compared to those from the group that receives the
cle and one or more human subjects. new intervention.
Clinical investigator A medical researcher in charge of carrying Controlled clinical trial An experiment or a clinical study that
out a clinical research protocol. includes a comparison (control) group. The comparison group
receives a placebo, another treatment, or no treatment at all.
Clinical practice guidelines Guidelines developed to help health-
care professionals and patients make decisions about screening, Coordinating investigator An investigator assigned the respon-
prevention, or treatment of a specific health condition. sibility for the coordination of investigators at different centers
participating in a multicenter trial.
Clinical researcher A health professional who works directly
with patients, or uses data from patients, to do research on health Data and Safety Monitoring Board (DSMB) or Independent
and disease and to develop new treatments, tests, or interven- Data Monitoring Committee An impartial group that oversees a
tions. Clinical researchers may also research how healthcare clinical trial and reviews the results to review their acceptability.
practices affect health and disease. (Source: National Cancer In- This group determines if the trial should be changed or closed.
stitute, Dictionary of Cancer Terms)
Diagnostic trials Refers to trials that are conducted to identify
Clinical study, clinical trial A type of research study that tests better tests or procedures for diagnosing a particular disease or
how well new medical approaches work in people. These studies condition. Diagnostic trials usually include people who have
test new methods of screening, prevention, diagnosis, or treat- signs or symptoms of the disease or condition being studied.
ment of a disease. A clinical trial is a research study to answer
Direct access Permission to examine, analyze, verify, and repro-
specific questions about vaccines, therapies, or in vitro devices,
duce any records and reports that are important to evaluation of
or new ways of using known treatments. For investigational de-
a clinical trial. Any party with direct access should take all rea-
vices such as laboratory tests, “alpha,” “beta,” and “clinical” are
sonable precautions within the constraints of the applicable reg-
used to describe phases in the FDA submission process, as are
ulatory requirement(s) to maintain the confidentiality of
“preclinical,” “clinical,” and “postmarket,” the latter being studies
subjects’ identities and sponsor’s proprietary information.
funded after FDA approval.
Documentation All records, in any form (including, but not
Clinical trial/study report A written description of a trial/study
limited to, written, electronic, magnetic, and optical records, and
of any therapeutic, prophylactic, or diagnostic agent conducted
scans, X-rays, and electrocardiograms) that describe or record
in human subjects, in which the clinical and statistical descrip-
the methods, conduct, and/or results of a trial, the factors affect-
tion, presentations, and analyses are fully integrated into a single
ing a trial, and the actions taken.
report.
Double-blind study A clinical trial design in which neither the
Cohort In medicine, a cohort is a group that is part of a clinical trial
participating individuals nor the study staff knows which partici-
or study and is observed over a period of time. In epidemiology, it is
pants are receiving the experimental drug and which are receiv-
a group of individuals with some characteristics in common.
ing a placebo (or another therapy). Double-blind trials are
Cohort study A research study that compares a particular out- thought to produce objective results, since the expectations of
come in groups of individuals who are alike in many ways but the doctor and the participant about the experimental drug or
differ by a certain characteristic. device do not affect the outcome.
842 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Efficacy The maximum ability of a drug or treatment to pro- Good Clinical Practice (GCP) A standard for the design,
duce a result regardless of dosage. conduct, performance, monitoring, auditing, recording, analy-
ses, and reporting of clinical trials that provides assurance that
Effectiveness In medicine, the ability of an intervention (for ex-
the data and reported results are credible and accurate and that
ample, a drug, laboratory test, or surgery) to produce the desired
the rights, integrity, and confidentiality of trial subjects are
beneficial effect.
protected.
Eligibility criteria In clinical trials, requirements that must be
Healthy control In a clinical study, a person who does not have
met for an individual to be included in a study. These require-
the disorder or disease being studied. Results from healthy con-
ments help ensure that patients in a trial are similar to each other
trols are compared to results from the group being studied.
in terms of specific factors such as age, general health, and previ-
ous treatment. When all participants meet the same eligibility Historic cohort study A research study in which the medical
criteria, it gives researchers greater confidence that results of the records of groups of individuals who are alike in many ways but
study are caused by the intervention being tested and not by differ by a certain characteristic are compared for a particular
other factors. outcome. This is also called a retrospective cohort study.
Empirical Based on experimental data, not on a theory. Historical control subject An individual treated in the past and
Endpoint In clinical trials, an event or outcome that can be mea- used in a comparison group when researchers analyze the results
sured objectively to determine whether the intervention being of a clinical study that had no control group.
studied is beneficial. The endpoints of a clinical trial are usually Human subject An individual who is or becomes a participant
included in the study objectives. Some examples of endpoints are in research, either as a recipient of the test article or as a control.
survival, improvements in quality of life, relief of symptoms, etc.
Hypothesis A supposition or assumption advanced as a basis
Enrolling The act of consenting participants into a study. Gen- for reasoning or argument, or as a guide to experimental inves-
erally this process involves evaluating a participant with respect tigation.
to the eligibility criteria of the study and going through the in-
formed consent process. In vitro In the laboratory (outside the body). The opposite of in
vivo (in the body).
Epidemiology The branch of medical science that deals with the
study of incidence, distribution, and control of a disease in a Incidence The number of new cases of a disease diagnosed each
population. year.
Equivalence trial A trial with the primary objective of showing Inclusion/exclusion criteria The medical, social, or safety stan-
that the response to two or more treatments or tests differs by an dards determining whether a person may or may not be enrolled
amount which is not clinically important. into a clinical trial. These criteria are based on such factors as
age, gender, the type and stage of a disease, previous treatment
Essential documents Documents that individually and collec- history, and other medical conditions.
tively permit evaluation of the conduct of a study and the quality
of the data produced. Indication In medicine, a sign, symptom, or medical condi-
tion that leads to the recommendation of a treatment, test, or
Evaluable disease Disease that cannot be measured directly by, procedure.
for example, the size of the tumor, but rather can be evaluated by
other methods specific to a particular clinical trial. Informed consent A process by which a subject voluntarily con-
firms his or her willingness to participate in a particular trial,
Evaluable patients Patients whose response to a treatment can after having been informed of all aspects of the trial that are rel-
be measured because enough information has been collected to evant to the subject’s decision to participate. Informed consent is
meet the study requirements. documented by means of a written, signed, and dated informed
Experimental (or Investigational) In reference to pharmaceuti- consent form. (Source: ICH E6)
cal clinical trials, this refers to a drug (including a new drug,
Informed consent document A document that describes the
dose, combination, or route of administration) or procedure that
rights of the study participants and includes details about the
has received approval from the U.S. FDA to be tested in human
study, such as its purpose, duration, required procedures, and key
subjects. In clinical trials for diagnostics, it refers to the new re-
contacts. Risks and potential benefits are explained in the in-
agent and/or instrument.
formed consent document. The participant decides whether or
Follow-up Monitoring a person’s health over time after treat- not to sign the document. Informed consent is not a contract, and
ment or intervention. This includes keeping track of the health of the participant may withdraw from the trial at any time.
people who participate in a clinical study or clinical trial for a
Inspection The act by which a regulatory authority conducts
period of time, both during the study and after the study ends.
an official review of documents, facilities, records, and any
Generalizability, generalization The extent to which the find- other resources that are deemed to be related to the clinical trial
ings of a clinical trial can be reliably extrapolated from the sub- and that may be located at the site of the trial, at the sponsor’s
jects who participated in the trial to a broader patient population and/or contract research organization’s facilities, or at other
and a broader range of clinical settings. establishments.
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 843

Institution Any public or private entity or agency or medical or Monitoring report A written report from the monitor to the
dental facility where clinical trials are conducted. sponsor, created after each site visit and/or other trial-related
communication according to the sponsor’s procedures.
Intent to treat Analysis of clinical trial results that includes all
data from participants in the groups to which they were random- Multicenter study A clinical trial that is carried out at more
ized, even if they never received the treatment. Subjects allocated than one medical institution. A clinical trial conducted accord-
to a treatment group are followed, assessed, and analyzed as ing to a single protocol but at more than one site, and, therefore,
members of that group irrespective of their compliance to the carried out by more than one investigator.
planned course of treatment.
National Institutes of Health (NIH) A United States federal
Interaction (qualitative and quantitative) The situation in agency that conducts biomedical research in its own laborato-
which a treatment contrast (e.g., difference between investiga- ries; supports the research of non-federal scientists in universi-
tional product and control) is dependent on another factor. ties, medical schools, hospitals, and research institutions
throughout the country and abroad; helps in the training of re-
Inter-rater reliability The property of yielding equivalent re- search investigators; and fosters communication of medical in-
sults when used by different raters on different occasions. formation. Access the National Institutes of Health website at
Interim analysis Any analysis intended to compare treatment or http://www.nih.gov.
intervention arms with respect to efficacy, safety, or effectiveness Natural history study A study that follows a group of people
at any time prior to the formal completion of a trial. over time who have, or are at risk of developing, a specific medi-
Intervention In medicine, a treatment or action taken to pre- cal condition or disease. A natural history study collects health
vent or treat disease or to improve health in other ways. Primary information in order to understand how the medical condition
types of interventions include drug, gene transfer, vaccine, be- or disease develops and how to treat it. Study of the natural de-
havior, device, or procedure. velopment of something (such as a condition or a disease) over a
period of time.
Intervention group The group receiving the study agent that is
being tested in a clinical trial or clinical study. New Drug Application (NDA) An application submitted by the
manufacturer of a drug to the FDA—after clinical trials have
Intra-rater reliability The property of yielding equivalent re- been completed—for a license to market the drug for a specified
sults when used by the same rater on different occasions. indication. An NDA be relevant for companion diagnostics.
Investigational product or experimental option In clinical tri- Nonblinded Describes a clinical trial or other experiment in
als, refers to a drug (including a new drug, dose, combination, or which the researchers know what treatments are being given to
route of administration) or procedure that has undergone basic each study subject or experimental group. If human subjects are
laboratory testing and received approval from the U.S. FDA to be involved, they know what treatments they are receiving.
tested in human subjects. A drug or procedure may be approved
by the FDA for use in one disease or condition, but be considered Nonclinical study Biomedical studies not performed on human
investigational in other diseases or conditions. The term is also subjects.
used for in vitro devices/diagnostics. Nonconsecutive case series A clinical study that includes some,
Investigator A researcher in a clinical trial or clinical study. A but not all, of the eligible patients identified by the researchers
person responsible for the conduct of the clinical trial at a trial during the study registration period. This type of study does not
site. If a trial is conducted by a team of individuals at a trial site, usually have a control group.
the investigator is the responsible leader of the team and may be Non-inferiority trial A trial with the primary objective of show-
called the principal investigator. ing that the response to the investigational product is not clini-
Levels of evidence A ranking system used to describe the cally inferior to a comparative agent (active or placebo control).
strength of the results measured in a clinical trial or research Nonrandomized clinical trial A clinical trial in which the par-
study. The design of the study (such as a case report for an indi- ticipants are not assigned by chance to different treatment groups.
vidual patient or a randomized double-blinded controlled clini- Participants may choose which group they want to be in, or they
cal trial) and the endpoints measured (such as survival or quality may be assigned to the groups by the researchers.
of life) affect the strength of the evidence.
Objective improvement An improvement that can be measured
Meta-analysis The formal evaluation of the quantitative evidence by the healthcare provider.
from two or more trials focused on answering the same research
question. This most commonly involves the statistical combina- Objective response A measurable response.
tion of summary statistics from the various studies, but the term is Observation Closely monitoring a patient’s condition but with-
sometimes also used to refer to the combination of the raw data. holding treatment until symptoms appear or change. Also called
watchful waiting, active surveillance, and expectant management.
Monitoring The act of overseeing the progress of a clinical trial,
and of ensuring that it is conducted, recorded, and reported in Observational study A type of study in which individuals are
accordance with the protocol, standard operating procedures, observed or certain outcomes are measured. No attempt is made
GCP, and the applicable regulatory requirement(s). to affect the outcome (for example, no treatment is given).
844 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Off-label Describes the legal use of a prescription drug or de- Protocol amendment A written description of a change to or
vice to treat a disease or condition for which the drug has not formal clarification of a protocol.
been approved by the U.S. FDA. This term is also used to de-
Quality assurance All those planned and systematic actions that
scribe use of in vitro devices/diagnostics prior to FDA approval
are established to ensure that the trial is performed and the data
or outside the conditions of use described by the FDA.
are generated, documented (recorded), and reported in compli-
Outcome A specific result or effect that can be measured. Ex- ance with GCP and the applicable regulatory requirement(s).
amples of outcomes include decreased pain, survival, improve-
Quality control The operational techniques and activities un-
ment of disease, etc.
dertaken within the quality assurance system to verify that the
Outpatient A patient who visits a healthcare facility for diagno- requirements for quality of the trial-related activities have been
sis or treatment without spending the night. fulfilled.
Peer review Review of a clinical trial by experts chosen by the Quality of life trials (or, supportive care trials) Refers to trials
study sponsor. These experts review the trial for scientific merit, that explore ways to improve comfort and quality of life for indi-
participant safety, and ethical considerations. viduals with a chronic illness.
Per protocol set (valid cases, efficacy sample, evaluable subjects Randomization When referring to an experiment or clinical
sample) The set of data generated by the subset of subjects who trial, the process by which animal or human subjects are assigned
complied with the protocol sufficiently to ensure that these data by chance to separate groups that compare different treatments
would be likely to exhibit the effects of the treatment or interven- or other interventions. Randomization gives each participant an
tion, according to the underlying scientific model. Compliance equal chance of being assigned to any of the groups. The process
covers such considerations as exposure to treatment, availability of assigning trial subjects to treatment or control groups using an
of measurements, and absence of major protocol violations. element of chance to determine the assignments in order to re-
duce bias.
Pilot study The initial study examining a new method or
treatment. Randomized clinical trial A study in which participants are
randomly (i.e., by chance) assigned to one of two or more treat-
Population study A study of a group of individuals selected
ment arms of a clinical trial. Occasionally placebos are utilized.
from the general population who share a common characteristic
such as age, sex, or health condition. This group may be studied Recruiting The period during which a trial is attempting to
for different reasons, such as their response to a drug or risk of identify and enroll participants. Recruitment activities can in-
getting a disease. clude advertising and other ways of soliciting interest from pos-
sible participants.
Preclinical Refers to the testing of devices that occurs before tri-
als in humans are carried out. Recruitment status Indicates the current stage of a trial, whether
it is planned, ongoing, or completed.
Predictive factor A situation or condition that may increase a
person’s risk of developing a certain disease or disorder. Regimen A treatment plan that specifies the dosage, the sched-
ule, and the duration of treatment.
Prevention trials Refers to trials to find better ways to prevent
disease in people who have never had the disease or to prevent a Retrospective Looking back at events that have already taken
disease from returning. These approaches may include medi- place.
cines, vaccines, vitamins, minerals, or laboratory interventions.
Retrospective cohort study A research study in which the med-
Primary endpoint The main result that is measured at the end ical records of groups of individuals who are alike in many ways
of a study to see if a given treatment worked (e.g., the number of but differ by a certain characteristic are compared for a particu-
deaths or the difference in survival between the treatment group lar outcome. Also called a historic cohort study.
and the control group). The primary endpoint is defined before
Retrospective study (also called case control study) A study
the study begins.
that compares two groups of people: those with the disease or
Prospective A study or clinical trial in which participants are condition under study (cases) and a very similar group of people
identified and then followed forward in time. who do not have the disease or condition (controls). Researchers
study the medical and lifestyle histories of the people in each
Prospective cohort study A research study that follows groups of
group to learn what factors may be associated with the disease or
individuals over time who are alike in many ways but differ by a
condition. For example, one group may have been exposed to a
certain characteristic and compares them for a particular outcome.
particular substance that the other was not. Also called a case-
Protocol, clinical trial protocol An action plan for a clinical control study.
trial. The plan states what the study will do, how, and why. It ex-
Risk-benefit ratio The risk to individual participants versus the
plains how many people will be in it, who is eligible to partici-
potential benefits. The risk/benefit ratio may differ depending
pate, what study agents or other interventions they will be given,
on the condition being treated.
what tests they will receive and how often, and what information
will be gathered. (Source: National Cancer Institute, Dictionary Safety and tolerability The safety of a medical product or device
of Cancer Terms) concerns the medical risk to the subject, usually assessed in a
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH 845

clinical trial by laboratory tests, vital signs, clinical adverse events Statistical significance The probability that an event or differ-
(diseases, signs and symptoms), and other special safety tests ence occurred by chance alone. In clinical trials, the level of sta-
(e.g., electrocardiograms, ophthalmology). The tolerability of the tistical significance depends on the number of participants
medical product represents the degree to which overt adverse ef- studied and the observations made, as well as the magnitude of
fects can be tolerated by the subject. differences observed.
Screening trials Refers to trials which test the best way to detect Study endpoint A primary or secondary outcome used to judge
certain diseases or health conditions. the effectiveness of a treatment.
Selection bias An error in choosing the individuals or groups to Study type The primary investigative techniques used in an ob-
take part in a study. Ideally, the subjects in a study should be very servational protocol; types include Purpose, Duration, Selection,
similar to one another and to the larger population from which and Timing.
they are drawn (for example, all individuals with the same dis- Subinvestigator Any individual member of the clinical trial
ease or condition). If there are important differences, the results team designated and supervised by the investigator at a trial site
of the study may not be valid. to perform critical trial-related procedures and/or to make im-
Serious adverse event Any untoward medical occurrence that portant trial-related decisions (e.g., associates, residents, re-
results in death, is life-threatening, requires inpatient hospital- search fellows).
ization or prolongation of existing hospitalization, results in per- Subject Identification Code A unique identifier assigned by the
sistent or significant disability/incapacity, or is a congenital investigator to each trial subject to protect the subject’s identity
anomaly/birth defect. and used in lieu of the subject’s name when the investigator re-
Side effect A problem that occurs when treatment affects ports adverse events and/or other trial-related data.
healthy tissues or organs. Any undesired actions or effects of a Subject or trial subject An individual who participates in a clin-
drug or treatment. Negative or adverse effects may include head- ical trial, either as a recipient of the investigational product(s) or
ache, nausea, hair loss, skin irritation, or other physical prob- as a control.
lems. Experimental drugs must be evaluated for both immediate
Superiority trial A trial with the primary objective of showing
and long-term side effects.
that the response to the investigational product is superior to a
Significant, or statistically significant In statistics, describes a comparative agent (active or placebo control).
mathematical measure of a difference between groups. The dif-
Surrogate variable A variable that provides an indirect mea-
ference is said to be significant if it is greater than what might be
surement of effect in situations where direct measurement of
expected to happen by chance alone.
clinical effect is not feasible or practical.
Single-blind study A study in which one party, either the inves- Test article Any drug (including a biological product for human
tigator or participant, is unaware of what medication the partici- use), medical device for human use, laboratory test, or any other
pant is taking; also called a single-masked study. article subject to regulation under the FDA.
Source data All information in original records and certified Treatment effect An effect attributed to a treatment or interven-
copies of original records of clinical findings, observations, or tion in a clinical trial. In most clinical trials the treatment effect of
other activities in a clinical trial necessary for the reconstruction interest is a comparison (or contrast) of two or more treatments.
and evaluation of the trial. Source data are contained in source
documents (original records or certified copies). Trial site The location(s) where trial-related activities are actu-
ally conducted.
Source documents Original documents, data, and records (e.g.,
hospital records, clinical and office charts, laboratory notes, etc.) Trial statistician A statistician who has a combination of educa-
that are involved in the clinical trial. tion/training and experience sufficient to implement the princi-
ples in this guidance and who is responsible for the statistical
Sponsor An individual, company, institution, or organization aspects of the trial.
that takes responsibility for the initiation, management, and/or
Uncontrolled study A clinical study that lacks a comparison
financing of a clinical trial.
(i.e., a control) group.
Standard treatment A treatment currently in wide use and ap-
proved by the FDA, considered to be effective in the treatment of
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Nolte, R. T. Hayden, and A. Van Belkum (ed.), Molecular Microbiol- analysis of randomized controlled trials.] Zhonghua Jie He He Hu Xi
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848 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

APPENDIX 47.1 Professional Guidelines and Systematic Review Resources

Agency for Healthcare Research and Quality (AHRQ), National Clinical and Laboratory Standards Institute
Guideline Clearinghouse A resource for laboratory practice procedures and guidelines.
A public resource for evidence-based clinical practice guidelines. www.clsi.org/
www.guideline.gov/index.aspx
National Academy of Clinical Biochemistry (NACB)
AHRQ’s National Quality Measures Clearinghouse (NQMC) Consensus-based guidelines for the laboratory evaluation and moni-
A public resource for evidence-based quality measures and mea- toring of patients with specified disorders.
sure sets. www.aacc.org/MEMBERS/NACB/LMPG/Pages/default.aspx#
http://qualitymeasures.ahrq.gov, http://qualitymeasures.ahrq.gov/
Laboratory Medicine Best Practices (LMBP)
browse/by-topic.aspx
Conduct of systematic reviews (initiated in 2011) to identify effec-
AHRQ Innovations Exchange tive laboratory medicine practices.
A database of evidence-based innovations and tools for a range of www.futurelabmedicine.org/our_findings/
healthcare settings and populations.
www.innovations.ahrq.gov
Defining and Measuring Standards
X
for Success
section editor: Michael R. Lewis
48 Benchmarking and Performance Monitoring for the Clinical
Laboratory
Lionelle D. Wells, Washington C. Winn, Jr., and Michael R. Lewis
49 Test Utilization and Clinical Relevance
Michael L. Wilson, Gary W. Procop, and L. Barth Reller
50 Benchmarking and Performance Monitoring: What Is Appropriate
for Your Laboratory?
Ronald J. Bryant and Michael R. Lewis
Introduction
Why Benchmark?
48 Benchmarking and Performance
The Payoff from Benchmarking Monitoring for the
The Basic Steps
Prioritization • Data Collection and Analysis •
Development and Implementation of Plans
Clinical Laboratory†
Where Do We Find Information about
Benchmarks? Lionelle D. Wells, Washington C. Winn, Jr.,
Quality Benchmarks • Financial Benchmarks
General Approach to Financial and Michael R. Lewis
Benchmarking and Performance
Monitoring
The Problem of Comparability • The Problem of Cost
Accounting • Workload Recording • The Search for
OBJECTIVES
Simplicity • Selection of Indicators for Benchmarking To discuss the reasons for undertaking benchmarking
or Performance Monitoring • Problems Associated
with Benchmarking by UOS • UOS Benchmarking in
To review the types of benchmarking activities and where to find benchmarks
a Competitive Environment To discuss the general approach to the most common types of benchmarking
Measuring Laboratory Financial and performance monitoring—for productivity and cost
Performance To discuss specific approaches to performance monitoring and external
Performance Monitoring • External Benchmarking
benchmarking
Interpretation of Performance
Monitoring Data To discuss the interpretation of performance monitoring and external
Summary Measure as Unifying Force • Prerequisites benchmarking data
for Effective Use of a Summary Measure
Interpretation of External
What is a cynic? A man who knows the price of everything and the value of nothing.
Benchmarking Data
Measuring Laboratory Performance in
Oscar Wilde, Lady Windermere’s Fan, 1892
the Broader Clinical Setting

W
Effect of Accountable Care Organizations • Linkage of hat is benchmarking? What benchmarks do you use to evaluate
Payment to Measures of Quality • Laboratory-Related your financial performance, human resources activities, customer
Standards in Broader Accreditation Programs
satisfaction, marketing success, or overall performance? Do you
Summary hope to wait for benchmarking to pass like just another management fad?
KEY POINTS Or have you embraced it as you may have previously embraced Total Quality
GLOSSARY Management (TQM) or Six Sigma? (15).
REFERENCES Galloway and Nadin define benchmarking as “the process of measuring
APPENDIXES products, services, and practices against leaders in a field, allowing the iden-
tification of best practices that will lead to sustained and improved perfor-
mance” (9). Put another way, benchmarking involves learning from others
through the use of external standards (4). Some large organizations engage
in “internal benchmarking” to facilitate dissemination of best practices across
business units; a standard from another department or division is external
to the unit using it as a benchmark but internal to the larger institution (4).
Benchmarking is something that should be done regularly on both a personal
and professional basis. Benchmarking (with a capital B) is merely a more sys-
tematic and planned approach to our personal “benchmarking.” Just as Six
Sigma provides a common language and systematic approach to go beyond

Clinical Laboratory Management, 2nd Edition

Edited by L. S. Garcia †
This chapter is an updated version of chapter 43, Laboratory Benchmarking, by Lionelle
©2014 ASM Press, Washington, DC D. Wells and Washington C. Winn, Jr., in the first edition of this manual. Much of the text
doi:10.1128/9781555817282.ch48 from the original is preserved.

851
852 DEFINING AND MEASURING STANDARDS FOR SUCCESS

a 95% or 99% success rate, Benchmarking allows you to are typically effective in ensuring high-quality care and
compete more effectively, obtain and retain resources for perceptions of quality. They are not, however, typically fo-
your department, enhance the reputation of your depart- cused on effective and efficient use of resources.
ment, and improve the satisfaction of your employees. Performing well at a price is much more difficult than
Benchmarking is necessary if your laboratory is li- performing well when price is no object. It requires con-
censed or accredited by the Centers for Medicare and tinuous evaluation and reevaluation of performance. En-
Medicaid Services (CMS), the College of American Pa- suring the best possible achievement requires a standard
thologists (CAP), The Joint Commission (TJC), or any of against which performance can be evaluated; that standard
a number of other organizations concerned with ensuring is a benchmark. Benchmarking is a fundamental process
the quality of clinical laboratory services. For licensure necessary for any laboratory, and indeed for any healthcare
or accreditation, a laboratory must meet or exceed a se- organization, with limited resources to survive and thrive.
ries of externally imposed performance standards. CMS For best efficiency, each process in the laboratory must
is charged by Congress, through the Clinical Laboratory perform close to the best balance between what is envi-
Improvement Act of 1967 and its amendments in 1988, sioned and what is possible. What is envisioned are the
with regulating laboratory testing of specimens from hu- mission, vision, and goals of the laboratory personnel—
man patients. All other organizations that accredit labora- why they are there, whom they want to serve, what they
tories must be “deemed” by CMS to substantially meet or hope to accomplish, and how they plan to reach their
exceed the standards adopted by CMS. This deemed status goals. What is possible reflects the constraints imposed
is time-limited, and the continuing performance of the ac- by the customers, equipment, facility, physical space, staff,
crediting agencies is monitored and evaluated by CMS. A funding, and organizational culture that the laboratory
laboratory that is accredited by an organization other than has acquired over time. Many of these constraints could
CMS is responsible for ensuring that the deemed status of be changed, but analyzing the effect of changing the con-
the accrediting agency is current. straints is much more than benchmarking. Benchmarking
The standards range from attracting and retaining typically involves measuring a process and improving that
qualified personnel to recording and documenting the lab- process. Benchmarking is primarily focused on doing the
oratory’s performance in all phases of testing (quality as- best you can with whatever you have today.
surance), to compliance with all relevant federal, state, and
local rules and regulations. Most rules or regulations that
pertain to laboratory licensure and accreditation are based The Payoff from Benchmarking
on generally accepted principles of good laboratory prac- Picking benchmarks and attempting to understand what
tice. While regulations may incorporate only the basic or they mean in terms of your own performance may lead to
minimal standards for good practice, most voluntary ac- an analysis of “what if ” scenarios (or what could be called
crediting agencies include far more stringent performance strategic benchmarking). During the planning for a bench-
standards, reflecting principles that move an accredited marking activity, you may realize that changes in the mix
laboratory’s performance closer to that of the highest- of customers, laboratory staff, or location of the labora-
performing laboratories (quality improvement [QI]). tory would allow performance to reach even higher levels.
Thus, benchmarking may eventually include an analysis of
strategic changes as well as an analysis of process changes
Why Benchmark? that may, in turn, alter the mission, vision, and goals of a
In the United States, the cost of providing healthcare has laboratory. Ultimately, this process represents good busi-
increased at a rate consistently and considerably greater ness. Benchmarking is but one of many tools that a labora-
than the general inflation rate over the years (5), and there tory or healthcare entity employs to improve performance,
is broad consensus regarding the need to rein in medical focus on customers, survive, and thrive in an environment
costs. As a result, laboratories, much like other healthcare with limited resources.
organizations, have limited resources and must maximize
their returns on the investment of scarce resources. The
The Basic Steps
returns sought include at a minimum a combination of im-
proved health for the population served, perceptions that Prioritization
the laboratory provides high-quality care, and effective and While details of the benchmarking process vary across or-
efficient use of allocated resources. If the laboratory is in a ganizations, some common themes emerge as one examines
market-based system, as in the United States, then finan- different approaches (Table 48.1) (3, 4). Begin your bench-
cial returns are of paramount importance to the survival marking process by prioritizing areas in which your orga-
of the laboratory. Laboratory licensure and accreditation nization should seek to improve, bearing in mind that the
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 853

Table 48.1 Basic steps in the benchmarking processa any organizational change: pick your team members well,
Prioritize areas in need of improvement ensure buy-in of relevant groups, and keep up the team
Determine scope of the benchmarking project and develop a plan spirit throughout the project.
Enlist support of leadership and process owner(s) to ensure adequacy Sometimes during a benchmarking activity, additional
of resources items will come up for review that impinge on a process
Identify organizations against which to benchmark and that may be more relevant to the final solution than
Collect data from comparison organizations was originally expected. Organizational knowledge about
Compare your organization’s data against those obtained from the processes is usually accurate but may be incomplete. Su-
other organizations pervisors and managers can explain in detail the reasons
Develop plans for improving processes to close gaps between current why a process cannot be changed or improved. Often,
and desired states however, that knowledge does not fully take into consid-
Communicate with stakeholders and implement plans eration some of the less frequent variations that can oc-
Monitor performance over time and recalibrate or replace bench- cur in a process. Changing the way you manage these less
marks as needed
frequent, but often very disruptive, variations in a process
a
Adapted from reference 3.
may result in a substantial but unexpected improvement
in the process, even though supervisors and managers
“knew” that this process could not be improved. Docu-
feasibility of benchmarking some processes may be limited. mentation of the project from start to finish is an impor-
Dedicate time to determining the scope of the benchmark- tant tool for finding and using this additional knowledge
ing project and to developing a realistic plan; make sure that to improve what cannot be improved and change what
the purpose of the project is clear to everyone on the bench- cannot be changed.
marking team. Enlisting the support of laboratory (and pos-
sibly institutional) leadership and the process owner(s) is a
key step to ensure adequacy of time and resources to im- Where Do We Find Information
prove the process and correct any disconnects discovered. about Benchmarks?
Business organizations outside of healthcare typically use
Data Collection and Analysis benchmarking to evaluate performance in areas such as
Once you have identified organizations against which you employee development, customer satisfaction, human re-
would like to benchmark your organization’s performance, sources, marketing, and process improvement. While a
collect the pertinent data and compare your laboratory’s laboratory manager’s first instinct may be to locate bench-
numbers to those of the external organization. Ensure marks within the clinical laboratory industry, the search
that data collection and other standards are maintained need not be firmly constrained within healthcare, as some
throughout the measurement period and that there are business processes are common across many other indus-
sufficient resources so that parts of the planned analysis tries. Thinking broadly about where you have received
and measurement do not get delayed due to unavailability outstanding customer service or heard about excellent
of key personnel. Be prepared to expand your analysis and process improvement techniques reduces the likelihood
plans for change beyond the scope of the original activity of settling for suboptimal targets; it makes little sense to
as new or additional relevant findings or needs are uncov- aim only for “best in class” status if the class as a whole
ered. You must be prepared to communicate findings on an is in need of improvement (20). Searching for informa-
ongoing basis, so as not to surprise the process owner(s). tion from other industries, whether related or not, may
yield new insights into processes and introduce further
Development and Implementation of Plans improvements in performance.
Finally, document your findings and carefully develop
plans for process improvement that will close the gaps be- Quality Benchmarks
tween your organization’s present state and the desired state Most laboratories prefer benchmarks that are specifically tai-
as determined by your study. Take care to communicate ef- lored to the services that a laboratory provides. In the area
fectively with team members and other stakeholders, and of quality performance, the CAP’s Q-Probes and Q-Tracks
ensure adequate piloting of planned changes. Make sure programs are excellent benchmarking projects (13, 23). They
that there is adequate training of process owner(s) and allow laboratories to share competitive and best practices
staff in the new planned process. Implement your plan, data in a blinded study focusing on areas that typically could
monitor performance over time, document your findings, be improved in most laboratories. Q-Probes and Q-Tracks
and plan for additional change(s). Throughout the process, studies are intended to help laboratories meet the QI stan-
apply good management techniques just as you would for dards in accreditation surveys. The Q-Probes are short-term
854 DEFINING AND MEASURING STANDARDS FOR SUCCESS

studies that generate a single report without trended data. organizations that analyze costs in a more traditional
They tend to be detailed, contain extensive analysis, and manner very difficult, because the charge per square foot
require relatively long turnaround times because of the cannot be broken out into the components for utilities,
complexity. The Q-Tracks are long-term, focused moni- overhead, etc.
tors with tabular and graphic reports; data are submit- In another organization, costs for overhead are taken
ted quarterly. Analysis is less extensive than in Q-Probes, out and paid before a budget is allocated for the laboratory
turnaround time is shorter, and trended data are supplied. service. As a result, the laboratory managers in this orga-
Both programs extend beyond the laboratory environ- nization do not have access to the fully loaded cost of their
ment to focus on key processes and areas of concern, laboratory services; this type of budgeting process seems to
including such issues as reducing telephone calls to a sur- be more prevalent in governmental than in for-profit enti-
gical pathology department through the incorporation of ties. Laboratories may also vary with respect to allocation
standardized reporting formats, measures of satisfaction of types of testing across sections or divisions; some un-
with laboratory services, and effectiveness of services. common arrangements may persist for years after evolv-
Many of these studies are published in the Archives of Pa- ing in response to particular laboratorians’ interests and/or
thology and Laboratory Medicine and are also available on expertise. Thus, when seeking comparisons, it is essential
the CAP website (www.cap.org, last accessed September to identify organizations that function and are organized
29, 2012); recent examples include a Q-Probes study as- in a similar manner so that the likelihood of making valid
sessing the accuracy of labeling of blood specimens (10) comparisons and consequently drawing valid conclusions
and a Q-Tracks study examining critical value reporting is maximized. Approaches to this apples-to-oranges prob-
over a period of up to four years (21). If the concerns of lem will be discussed in the section on interpretation of
highest priority for the laboratory are in these areas, these benchmarking data.
programs are a good place to start the search for infor-
mation about benchmarks. They will serve the laboratory The Problem of Cost Accounting
well when benchmarking preanalytic and postanalytic Most laboratory professionals will agree that determining
activities. These approaches to benchmarking issues of the cost of an individual laboratory test is very difficult.
quality have been applied in Great Britain as well as in the For tests performed in one of the relatively automated sec-
United States (9). tions of the laboratory, such as chemistry or hematology,
the true cost of a test will vary substantially with the shift,
Financial Benchmarks the day of the week, and the instrument on which it is
One of the most difficult areas to benchmark is financial performed. Most laboratories have multiple instruments
performance. However, difficult does not mean impossi- or systems that may be used for performing some tests;
ble; with some thought and creativity, you can find a num- for example, a test for blood glucose may be performed
ber of measures that can be used effectively to assess the using point-of-care instrumentation or on a chemistry
financial performance of a laboratory. The two general cat- analyzer in the core laboratory. If the laboratory is re-
egories that are of interest to the directors of laboratories sponsible for the cost of both systems, what is the true
and hospitals are cost data and productivity data. That is, cost of a glucose test? If an attempt is made to analyze
how much does it cost to operate the laboratory, and how performance at the level of methodology as well as ana-
efficient is the operation? lyte, the system becomes very complex. As discussed by
Tolzmann and Vincent in chapter 33, for batched tests,
the cost of a test will vary with the size of the batch be-
General Approach to Financial cause the expense exhibits a stepwise, not linear, progres-
Benchmarking and Performance sion with increasing volume.
Even for relatively manual sections of the laboratory,
Monitoring
such as microbiology and the blood bank, the problem
The Problem of Comparability remains difficult. Not all microbiology specimens are cre-
One important issue that comes up when looking for fi- ated equal; a specimen that yields no bacterial growth will
nancial benchmarks is the lack of comparability of a given generate costs in labor and materials that are very different
organization’s accounting system with that of another or- from a specimen with several potential pathogens. Simi-
ganization. For example, one organization may not allo- larly, blood samples received for a pretransfusion antibody
cate a line item for overhead (e.g., for the executive office screen vary widely in the quantity of resources they require
staff); instead, it loads all of these costs, including utilities, for complete testing. Once again, cost accounting becomes
into a charge per square foot for laboratory space. This ap- very complex if an attempt is made to account for each of
proach makes line-by-line budget comparisons with other the variables.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 855

Workload Recording The Search for Simplicity

The classic attempt to measure laboratory costs and pro- According to the law of parsimony (Occam’s razor), the
ductivity was the workload recording method developed simplest solution is preferred and should be sought first.
by the CAP (19). It followed traditional industrial meth- Everyone is painfully aware of the complexity of the prob-
ods for assessing productivity, concentrating on produc- lems faced in the laboratory; a complex solution, therefore,
tivity of labor. Each laboratory operation was assessed by is intuitively appealing. Settling for a parsimonious solu-
detailed time-motion studies. The labor required for an tion makes us feel unfulfilled and unappreciated. But in
individual test was the sum of the labor required for each truth, these good intentions lead to you-know-where. You
component of the test. The sum of labor inputs for all tests must look for proxies that can be used on either a global
of that type could then be calculated, after which the labor or indirect basis to monitor the financial performance of a
input for the division could be derived, etc. Eventually, a laboratory. Programs can determine these costs in various
value for the laboratory as a whole could be determined. ways; some include benchmark data. Current laboratory
The results of the time-motion studies were published and information systems often include activity-based costing
were widely used in the laboratory industry. Theoretically, or attempts at workload recording. Various consulting
comparable data would be generated if every laboratory firms, including many large accounting firms, also claim to
used the same standard. A committee that was broadly have benchmark data and expertise in this type of analysis
representative of the industry was charged with maintain- of the financial performance of the laboratory, as described
ing the program. above. The consultants, although often very expensive, are
After many years of swimming against the stream, the readily available if needed by any laboratory. But a sophis-
workload recording system was eventually abandoned in ticated laboratory should beware the facile solution to an
favor of a unit-of-service (UOS) approach, as described incredibly difficult problem. For instance, laboratory in-
below. The workload recording approach foundered on formation systems still do not take account of such issues
the multiple shoals of complexity, variability, and most as batch size, work shift, or technical level of the operator.
importantly, an inability to keep pace with the constant Nor can they keep up with changes in the negotiated price
changes in methodology. The method made people feel of labor and materials without a large amount of time and
good about measuring all of the variables, but it was ulti- effort to keep the data current (assuming the presence of
mately nonviable. As it has receded into the mists of dis- an adequate computer system in the first place). It is fea-
tant memory, there has been a tendency to yearn for the sible, though time-consuming and expensive, to develop a
“good old days” when we measured everything. Hidden in snapshot of laboratory cost and efficiency at the test level
the mists are all of the problems that led to the demise of at a single time point. It is entirely another matter to track
the workload approach. performance over time, a process that provides most of the
The resilience of workload recorders was well dem- managerial value.
onstrated when a national consultant promised to save What, then, are some of the alternatives to detailed
an institution millions of dollars by improving efficiency. and specific financial benchmarks? One alternative is to
The method that the consultants employed was workload move to a higher level, so that many of the distortions
recording under another name, but unfortunately, the re- that occur in pricing individual tests average out across a
branding did not make the approach work any better. The section, division, or laboratory. One technique that many
first attempt at measuring the “efficiency” of the histology managers have used successfully in the past involves the
laboratory, for example, resulted in a productivity figure following steps:
exceeding 1,000%. There was, of course, a simple expla-
1. Determine in some reproducible fashion the total
nation for this aberration. The consultants did not realize
number of laboratory tests done (with or without tests
that the time allotted for staining a single slide with he-
referred to a reference laboratory).
matoxylin and eosin did not translate into a valid number
2. Determine the total budget of the relevant laboratory
when a whole rack of slides was stained at once! Eventu-
unit.
ally, a number for productivity was negotiated between the
3. Finally, use these numbers to calculate an average cost
consultant and the manager of the histology laboratory,
per test.
but the number was based on guesswork rather than sci-
ence. Not surprisingly, a new hospital administration fi- This approach might be termed “benchmarking by unit
nally admitted that the consultants had not only failed to of service.” It is an example of the ratio method described
realize the savings that they had promised, but also failed in the next section. Not surprisingly, the greater the num-
even to generate enough savings to pay the enormous fee ber of tests counted, the greater the statistical robustness
that they had taken home. The more things change, the of the analysis. Thus, cost and productivity measurements
more they stay the same. at the level of the laboratory will be more accurate and
856 DEFINING AND MEASURING STANDARDS FOR SUCCESS

reproducible than divisional data, which will, in turn, be Although quality control procedures, repeat tests, and
more robust than test-specific data. research procedures do not have CPT codes and can-
not be billed to payors, a laboratory could, at its discre-
Selection of Indicators for Benchmarking or tion, include these procedures in the denominator of its
Performance Monitoring benchmarking tool if systems are available to integrate the
As in epidemiology and financial analysis, ratios are much numbers with the officially billed tests. Alternatively, the
more useful than raw numbers. Knowing the denomina- assumption may be made that the numbers of such tests
tor does not ensure that the numbers will be meaningful, will be consistent over time and may be excluded from
but the numerator alone will be useful only rarely. The two analysis. Commercially available systems for external
general types of instructive ratios may be characterized as benchmarking will define the criteria for tests that should
cost ratios and productivity ratios. In both cases, the most be counted in the system.
valid denominator is a UOS. A readily employed unit is Examples of variables that are frequently analyzed are
the billed test, because most financial systems capture the summarized in Table 48.2. Commonly used ratios are de-
data and because Current Procedural Terminology (CPT; tailed in Table 48.3.
published by the American Medical Association and up- The use of the ratio method to evaluate cost per test, as
dated yearly) codes allow for a relatively standardized summarized above, can be applied to the components of
characterization of laboratory tests among all laboratories, the cost. The two major components are labor cost and ma-
whether for-profit or not-for-profit and whether commer- terials cost. Depending on the scientific discipline and the
cial, hospital-based, or physician-office-based (2). Labora- nature of the clientele served by the laboratory, the division
tories may differ in the services for which they actually bill of costs between these two categories can vary greatly. Sim-
clients; some systems, therefore, use the term “billable test” ilarly, the productivity of laboratory labor can be evaluated
to describe any procedure for which there is a CPT code based on worked hours (a component of productive labor
and for which a client could have been billed, and this is in costs) and paid hours (a component of nonproductive la-
many instances the preferred UOS. bor costs and a direct measure of the total labor costs in the

Table 48.2 Variables that are frequently assessed in benchmarking programs

Variables Comments
Billable tests: total, on-site, off- The most frequently used denominator for cost and productivity. May also be used as
site, referred the numerator when analyzing work by patient population. Separation by testing site
allows analysis of costs associated with work done locally or referred.
Billable tests: total, inpatient, Commonly the denominator but may be the numerator (see above). Allows analysis of
outpatient, nonpatient various patient populations. “Nonpatients” represent work from outside hospitals or
other clients. To be truly useful, it must be feasible to dissect the costs actually incurred
for each category (often difficult or impossible).
Inpatient days, inpatient Denominator for evaluation of workload by patient type. A hospital with a large popu-
discharges lation of chronically ill patients may have an aberrantly small value when days are the
denominator, but discharges will provide a better comparison.
Outpatient visits vs. nonpatient The most problematic distinction because of the variation in how institutions catego-
encounters rize their outpatients vs. physician office patients
Total FTEs and total hours Often used as the denominator in productivity ratios. Measures productive and non-
productive labor.
Testing FTEs and testing hours Measures productive labor only. In comparison programs, each laboratory must count
productive labor identically for this variable to be useful.
Worked versus paid hours Comparing ratios may shed light on the fringe benefits (vacation, sick time, conference
time, etc.) granted by a laboratory to employees.
Total and testing labor expense Defines the cost of productive and total labor. When analyzed with FTE/hour, the ef-
fects of differing skill mixes, wage rates, and fringe benefits may be evident.
Consumable expense Cost of supplies and reagents.
Maintenance expense Reflects the cost of maintenance contracts.
Depreciation expense The cost of equipment depreciation; may or may not be broken out by the institution to
the level of department or division.
Manageable expense Refers to those expenses that should be under the control of laboratory managers; usu-
ally the sum of labor, consumable, depreciation, and maintenance expenses.
Blood expense The cost of purchased blood products; increasingly separated from other consumables
because of the increasingly high cost. This expense may not be easily managed.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 857

Table 48.3 Commonly used ratios in benchmarking

Financial ratios Productivity ratios Miscellaneous ratios
Testing (total)a expense/FTE (h) Billable tests/total FTE (h) Testing FTE/total FTE
Consumable expense/total (on-site) billable Billable tests/testing FTE (h) Worked hours/paid hours
tests
Total expense/inpatient day (inpatient dis- Billable tests/inpatient day (inpatient On-site billable tests/total billable tests
charge, outpatient visit) discharge, outpatient visit)
Referred billable test expense/referred bill- Inpatient (outpatient, nonpatient) bill-
able test able tests/total billable tests
Blood expense/total (on-site) expense
Maintenance expense/total (on-site) expense
Depreciation expense/total (on-site) expense
a
Items in parentheses are other, similar parameters; h = hours.

laboratory). “Productive” and “nonproductive” are terms find a new benchmark or perhaps spend time and resources
used to differentiate those activities that produce test re- addressing the issues that are causing you to fall short of your
sults directly from other activities (which may also be very goals. For example, if your laboratory is losing market share,
important or even essential). you may need to improve the marketing of your laboratory
services to meet your goal for overall cost per test.
Problems Associated with Benchmarking by UOS
There are many obvious flaws in a measure such as overall
cost per test. One problem is that it is much easier to ac- Measuring Laboratory Financial
complish a reduction in cost per test in an environment Performance
where there is a substantial increase in the number of tests There are several possible approaches to assessing your
ordered each year than it is to achieve the goal in an envi- laboratory’s financial performance. Most of those in com-
ronment where volume of testing is stable or decreasing. mon use may be classified as either performance monitor-
The relationship of volume and cost has been well demon- ing or external benchmarking; internal benchmarking of
strated and is discussed by Lepoff in chapter 30. laboratory performance against standards from other de-
A second drawback is that by giving up nuclear detail to partments or units in the hospital appears to be less com-
get a valid picture of the whole organism, managers at the monly employed. The various approaches described below
front line may feel shortchanged as they try to address de- are not mutually exclusive, and each has its pros and cons,
tailed challenges of everyday life. Scientists and physicians which are summarized in Table 48.4.
should be used to these kinds of tradeoffs. In the microbiol-
ogy laboratory, for example, we recognize that in standard- Performance Monitoring
izing the conditions of antimicrobial susceptibility tests to The simplest and most straightforward approach to evalu-
get reproducibility from day to day and laboratory to labora- ating financial performance is to use your own laboratory
tory, we are giving up the ability to reproduce the nonstan- as the standard and monitor performance over time. What
dardized conditions that occur in each individual patient. you gain by this maneuver is reproducibility, because man-
We have adjusted to that necessary scientific compromise; agement has control over the assumptions and can ensure
we must learn to adjust to the similar financial compromise. consistency over time. In addition, departments, divisions,
and laboratories within the organization that are difficult
UOS Benchmarking in a Competitive Environment or impossible to compare against each other can legiti-
If you use a measure such as overall cost per test in a com- mately be compared against themselves. It is not valid to
petitive environment, other laboratories would likely expe- expect the same productivity or expense in a cytogenet-
rience similar increases or decreases in their work, unless ics laboratory as is required in an automated chemistry
there is a difference in the marketing, service, or customer laboratory, but it is valid to ask each of those laboratories
base of your laboratory leading to significant differences in to make ongoing improvements in both productivity and
growth of testing. Again, since overall cost per test is a rela- cost on a continuing basis.
tively easily derived number, you should be able to determine An example of continuous monitoring of performance
if anomalies such as this are influencing your performance is displayed in Appendix 48.1. A great deal of useful infor-
against the benchmark. If there are significantly different in- mation can be derived from close examination of sequen-
terinstitution changes in the underlying costs and number of tial numerical data. Added value can be obtained if the
tests used to calculate overall cost per test, you may have to data are displayed visually as control charts (Fig. 48.1, 48.2,
858 DEFINING AND MEASURING STANDARDS FOR SUCCESS

Table 48.4 Approaches to assessment of laboratory financial performance

Type Method Pros Cons
Performance monitoring Workload recording Measures actual work performed. In practice, difficult or impossible
to validate and maintain.
Performance monitoring UOS monitoring Variables are known and can be Continuous improvement in
controlled; temporal comparisons financial and productivity indica-
legitimate; should be done even if tors can be documented, but per-
external benchmarking performed. formance relative to peers cannot
be assessed.
External benchmarking Commercial program Standardized reporting form; flex- Required data may be difficult
(laboratory-based) ibility in assessing performance rela- and/or time-consuming to obtain.
tive to peers; program constructed Peer groups may not be valid and/
and data analyzed by peers in the or peers may not submit their
laboratory industry. data according to instructions,
potentially producing misleading
interpretations. Results may be
viewed skeptically by institutional
administration.
External benchmarking Commercial program See above; however, constructed by Results may be more useful to
(hospital-based) individuals who may not under- institutional managers, who can
stand laboratory structure and per- see them in the context of total
formance; design may be relatively institution benchmarking. Results
unsophisticated from a laboratory may be more easily accepted by
perspective. institutional managers.
External benchmarkinga Comparison of UOS with selected Control over construction of peer Number of peers may not produce
peers in voluntary group group; contacts for discussing statistically valid comparisons.
anomalies easily available.
External benchmarkinga Comparison against “arbitrary” If the standard comes from the Standard may be flawed; it should
standard institutional leadership, it will be be validated (carefully and with
the operative goal from a practical political sensitivity).
point of view.
External benchmarkinga Comparison with published indus- Provides useful comparison data Ensure that the laboratories are
try norms with published recommendations truly comparable or that recom-
on publicly traded companies. mendations come from evaluating
comparable laboratories.
a
These activities involve external comparisons, but they are performed at the local level. They are discussed in the text under performance monitoring.

Figure 48.1 Control chart for performance monitoring.

The parameter depicted is billable tests, followed over
time. Upper and lower control limits are statistical param-
eters that can be set at any desired value (e.g., ± 1, 2, or 3
standard deviations around the mean). The data are plot-
ted by quarter over a period of three years. Note that the
laboratory has achieved a steady increase in billable tests
beginning in the first quarter of 1995. The trend is going in
the desired direction, but it is important to understand the
reason(s) for the change. Compare with Fig. 48.2 and Fig.
48.3. Data adapted from a report provided to a participant
in the CAP’s LMIP.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 859

Figure 48.2 Control chart for performance monitoring.

The parameter depicted in this chart is paid hours, followed
over time. Note that a dramatic increase in paid hours was
recorded in the first quarter of 1995, after which the number
of employees stabilized. Such a large increase in personnel
might appear undesirable, but it must be understood in the
context of other changes in the operations of the laboratory.
Compare with Fig. 48.1 and Fig. 48.3. Data adapted from a
report provided to a participant in the CAP’s LMIP.

and 48.3). The control chart is familiar to most members cost data (11). Although this approach does not have
of the laboratory team as a means of tracking the quality the statistical rigor of comparison with a large number
control of laboratory tests. of institutions, you do have complete control over the
By limiting the analysis to a single unit (the laboratory) comparison group. Appendix 48.2 provides an example
within a single institution, however, management loses the of a hypothetical agreement among hospitals.
value of comparing performance with peers in the indus- • Most healthcare institutions and all publicly traded
try, some of whom might even be competitors. Although companies are required by law to file financial reports
it is not possible to evade this deficiency completely, it is with government regulators. The degree of detail and
possible to provide surrogates that approach the kind of the depth of analysis available in the public records
comparisons found in external benchmarking. of most hospitals are probably insufficient to yield
• In truth, the most important external effect of bench- productivity data that are adequate for purposes of
marking is to convince the institutional leadership that comparison. The filings of publicly traded laboratories,
the laboratory is functioning efficiently. If the labora- however, contain much more relevant detail. Table 48.5
tory and institutional managers can establish a mutu- provides an example of an analysis using such data.
ally agreed-on definition of good performance, formal Several notes on these approaches to comparisons are
external comparisons become less important. in order.
• Sometimes it is possible to develop voluntary agree- 1. If a laboratory director takes (or is forced to take)
ments with other institutions to share productivity and the road of agreed standards with institutional managers,

Figure 48.3 Control chart for performance monitoring. The

parameter depicted in this chart, billable tests per FTE, in-
corporates the changes depicted in Fig. 48.1 and Fig. 48.2.
Despite the dramatic increase in FTEs in the first quarter of
1995, the productivity of the laboratory steadily increased.
Plotting the ratio yields a more complete picture than viewing
only the components would allow. Compare with Fig. 48.1 and
Fig. 48.2. Data adapted from a report provided to a participant
in the CAP’s LMIP.
860 DEFINING AND MEASURING STANDARDS FOR SUCCESS

Table 48.5 Internal benchmarking with “homemade” standard by reference to published information on publicly traded
commercial laboratoriesa
Combined total for
Commercial Commercial 20 independent University hospital
Parameter laboratory A laboratory B laboratories laboratory
Annual billable tests 306,020,000 205,660,000 26,344,792 2,271,772
FTEs 33,200 24,000 3,037 255
Annual billable tests per FTE 9,217 8,569 8,675 8,897
Daily billable tests per FTE 35.5 33.0 33.4 34.2
Hours per billable test 0.226 0.243 0.240 0.234
a
Data courtesy of Thomas Wadsworth.

the same issues of comparability that plague external CEO: Well, now, actually Superstar Medical Cen-
benchmarking may apply. An example can be found in the ter was only one of the institutions I had in mind.
following brief play, titled “The Tragical Comedy of the There are a number of others that are even more
Laboratory Director and the Chief Executive Officer.” productive.

Act I [Office of the Chief Executive Officer (CEO)] Act III, Scene One, two years later [Office of the Lab-
CEO (a former consultant with a prominent na- oratory Director]
tional consultancy): In my extensive experience, a Laboratory Director: Isn’t it a shame that the Board
valid laboratory benchmark for productivity is 0.2 h fired the CEO?
per billed test. Laboratory Financial Manager: I’m crying buckets.
Laboratory Director: That may be difficult to
achieve. We are an academic institution with respon- Act III, Scene Two, one year later [Office of the CEO]
sibilities for training residents and medical tech- CEO: I have been reviewing the records of the
nologists. In addition, we have active programs that previous administration, and I have now visited with
serve transplant and cancer patients, all of whom are each of the major divisions. What is your assessment?
immunosuppressed and very ill, requiring extensive Chief Operating Officer (a holdover from the
laboratory support. previous administration): Well, it seems clear that
CEO: That is all very well and good, but my the laboratory is still a problem. I am not at all sure
benchmark comes from one of the most prestigious that I trust their assessment of productivity and
academic institutions in the country, one that far competitiveness.
exceeds ours in the amount and sophistication of re- CEO: That may be true, but we have the regulators
search and transplant service. breathing down our necks. The nurses want to union-
Laboratory Director: May I ask which institution ize. The Board has been chastened and is getting too
that is, please? darned active for their own [read “our own”] good.
CEO: That is Superstar Medical Center, which is It does appear that the laboratory is making money
always ranked in the top 10 in the national polls. from their active outreach program, so I think we are
better off letting sleeping dogs lie.
Act II, one month later [Office of the CEO]
Laboratory Director: Thank you for agreeing to CURTAIN
see us. After our last meeting, the laboratory financial
manager and I talked in detail with our counterparts 2. Comparisons with peers: All external benchmark-
at Superstar Medical Center. They confirmed that ing programs seek to form comparison groups of peers
their productivity goal, which they regularly meet, is who are as alike as possible in critical characteristics. It
0.2 h per test. It turns out, however, that they are a very seems intuitively obvious that a voluntary group should be
dispersed academic medical center. Many of the units constructed similarly. If you set a goal to reduce cost per
that are part of our laboratory are separate adminis- test year after year, you could, for example, compare local
trative units at Superstar. Examples include anatomic performance with that of other laboratories by following
pathology, cytogenetics, and electron microscopy, the change in cost per test from period to period. The ve-
which are among the most manual, labor-intensive locity, rate, or percentage change in local costs compared
divisions. If one drops those units from our mix, we to similar laboratories, rather than the absolute cost per
are meeting the 0.2 h per test standard already. I hope test, would be the standard against which performance is
that this makes you feel better about our performance. then measured. If you succeed in reducing cost per test at
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 861

a faster rate than peers, you will eventually achieve a lower the data (7). It has been documented by the organizers
cost per test, no matter what the starting points were. of some programs that participants who withdraw or do
3. The counterintuitive approach of comparing oneself not continue participation have performed less well than
with a competitor who should be much more productive those who remain in the program (21). Such a phenom-
and efficient than oneself also has some advantages and at- enon is not surprising, because no one wants to look bad
tractions. Managers in their right minds would not perform (especially if the results may be seen by superiors), and it
such a comparison publicly or make the results known un- is easy to argue that the program was simply inadequate
less they were favorable. If the expected unfavorable results and the results, therefore, invalid (an argument that could
were to materialize, they could be used inappropriately be either true or a rationalization). Whatever the reason
against the laboratory by institutional managers who do for withdrawal, the result is to tighten the comparison
not understand the nature of the exercise. Table 48.5 sum- group and to skew the results by trimming off only one
marizes such a comparison between an academic medical end (the lower one) of the curve.
center (local data) and publicly traded laboratory compa- Those who participate in an external benchmarking
nies (data from company reports, available on the Internet). program should assure themselves that:

External Benchmarking • The comparison group is comparable to the local in-

stitution, and there are enough members of the group
All things being equal, the added value of external bench-
to make statistical comparisons reasonable.
marking should make it the evaluation method of choice
(Table 48.4). You could take a dual approach, tracking • There is adequate and sophisticated statistical analysis
performance internally to observe temporal changes, but of data. The purveyors should be able to document the
also measuring local performance against the best in the validity of their criteria for comparison and the ad-
field. To use a sports analogy, performance monitoring, as equacy of their comparison groups. A recent published
described in the preceding section, is similar to a sprinter report detailing a CAP Q-Probes study of laboratory
measuring performance only by comparison to previous staffing provides a nice example of external bench-
efforts without ever testing that performance against the marking that satisfies these specifications (12).
best in the field; competing in a race would correspond to • Data are analyzed and results are returned in a timely
external benchmarking. It is possible to continuously im- fashion. It should be noted that the goal of external
prove without ever actually being very good. In the best benchmarking is not fine-tuning of operating issues,
of all worlds, of course, you would do both internal and so it is better to accept a somewhat extended time for
external comparisons, but financial and workforce con- analysis in return for sophisticated, useful informa-
straints may make this difficult. tion. There is no need for external benchmarking more
There are two types of formal external benchmarking frequently than quarterly. Semiannual or even annual
approaches (exclusive of the kinds of informal compari- evaluation is adequate and probably preferable, as the
sons described previously under performance monitoring). volume of data underlying the analysis will be larger,
In each, an external organization, which may be a for-profit and the extra work required to gather data for external
entity or a not-for-profit group, provides a service. In one providers will be limited to once or twice a year.
case, the benchmarking program for the laboratory is part • The data required by the external agency are reason-
of a comprehensive system that covers the whole institution, able, and the laboratory is comfortable with the accu-
usually a hospital or a medical center. In the other case, the racy of the data. You should direct particular skepticism
program is focused on laboratories and does not address at data that are generated by hospital financial analysts
issues outside of the laboratory. Two such programs have without review and acceptance by knowledgeable de-
been described in published reports (11, 17). partmental managers, including those in the laboratory.
Table 48.4 summarizes the advantages and disadvan-
• There is an understanding by administrators and man-
tages of these two external benchmarking alternatives.
agers both in the laboratory and at the institutional
Both alternatives suffer from a common defect, selection
level that the results will be evaluated honestly and
bias, which will vary in severity from program to pro-
without prejudice. The goal should be to understand
gram; the comparison group will be constructed of par-
the data, accept or reject the apparent “messages,” and
ticipants who have not gone out of business, who have
improve performance. A program that is used only to
volunteered to be a part of the process, and who possess
punish or denigrate people or departments will not
the organizational skills and resources required for partic-
yield the desired improvement in performance.
ipation. Admittedly, for the hospital-wide programs, the
“voluntary” aspect may be on the part of institutional, not If a hospital-wide benchmarking program is mandated
laboratory, administration. Nonetheless, the composition by the leadership of the institution, the managers of the
of comparison groups is not random; this difficulty can be laboratory should also consider participating in a program
addressed, but not eliminated, by statisticians analyzing that is focused specifically on the laboratory. Wilkinson
862 DEFINING AND MEASURING STANDARDS FOR SUCCESS

and Reynolds provided a dramatic illustration of the use rather than recrimination is essential. If sacrifices must
of data from a laboratory-focused program (the CAP’s be made in a certain division or if a division must do
Laboratory Management Index Program [LMIP]) to iden- without until its time comes, that sacrifice must be
tify problems that were produced by a less finely tuned appreciated, and a good faith effort must be made to
hospital-wide program (22). ensure that the time does indeed come for that division
(and in a realistic time frame).
Interpretation of Performance • All members of the laboratory must truly believe that
they are part of a team, that their efforts are recognized
Monitoring Data
and appreciated, and that they will not be penalized for
Summary Measure as Unifying Force making sacrifices for the greater good.
Using a simple number such as average cost per test as a
Whether the team is the laboratory as a whole or a
summary measure of financial performance can provide
subunit, when the performance monitoring approach is
insights into your own operations as well as those of other
used, analysis consists of directing constant attention to
laboratories. Most laboratories can derive a number such
improving all relevant ratios and following the improve-
as overall cost per test with relatively little effort.
ment (or lack thereof) in each ratio. Attention can then be
Using a measure such as overall cost per test means that
directed to any indicators (ratios) that are not improving
the accumulation of each small decision made in every sec-
over time.
tion of the laboratory must, on average, move the labora-
If there is an informal and/or arbitrary standard against
tory toward the goal of reducing cost per test. A focus on a
which the laboratory is to be measured, such as the direc-
global goal, rather than on multiple smaller departmental
tive of the CEO in the drama above, analysis must focus on
goals, allows you the opportunity to make an up-front in-
attempting to understand deviations from the goal.
vestment in one area with the aim of achieving eventually
much lower overall costs. This approach may be viewed
as a team investment in the future, whereas a division-by- Interpretation of External
division approach inhibits development of a team spirit Benchmarking Data
and discourages such forward-thinking investments. Use
of a summary measure such as cost per test may also en- When the external benchmarking approach has been cho-
hance your ability to invest in changes that may not yield sen, the analysis can be more sophisticated and potentially
results within one or two years. If a particular investment more instructive, but the process is also more complicated.
for the future raises short-term costs in a particular area, If external benchmarking is performed using a contracted
such a consequence may not prove problematic as long service, the analysis is both assisted by and limited by the
as overall performance measured for the total laboratory way the data are massaged and presented by the bench-
demonstrates a continuing reduction in costs that meet or marking service. It is obvious that limitations include the
exceed targets. choice of items that are presented by the program and the
statistical rigor of the presentation. The simplest presen-
Prerequisites for Effective Use of a Summary Measure tation is a depiction of institutional data on a continuous
To realize the potential benefits of employing a summary scale with other participants, usually divided into quartiles
measure to assess laboratory performance, the leadership or deciles (Fig. 48.4 and 48.5). Viewing each item in isola-
of the laboratory and/or the institution must exhibit a tion is a downside to this approach. A drawback of percen-
number of qualities. Honesty requires us to admit that the tile analysis is that 25% of the participants will necessarily
scenario we envision may be utopian. Some of these char- fall in the bottom quartile, even if everyone is performing
acteristics and approaches are as follows: adequately on an absolute scale. Conversely, 25% of par-
ticipants will be able to celebrate a ranking in the top quar-
• Management must not depend on numbers alone but tile, even if the performance of the group as a whole may
must use all senses to sort out where the problems are be lackluster in absolute terms.
and where attention must be directed. We suspect that More sophisticated analytical schemes may present
in many laboratories everyone knows where the prob- multiple relevant indicators in a single graphical sum-
lems, challenges, and opportunities are, although they mary; for example, one might include a productivity ratio
may not be identified openly and honestly. on one axis and a cost ratio on the other axis. The best per-
• Management must treat all members of the laboratory formers will have high productivity and low cost; the worst
as if they are truly members of a team. Such an ap- performers will conversely have high cost and low produc-
proach requires an honest understanding of barriers tivity. Figure 48.6 shows an example from the CAP’s LMIP.
and challenges, combined with a willingness to face When data are available for each indicator, it is possible
them together. If resolution of issues is difficult or im- to dissect the information and construct possible explana-
possible for a supervisor who is trying hard, support tions for the observations. It may be impossible to discover
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 863

Figure 48.4 Percentile graph of billable tests for an institution Figure 48.5 Percentile graph of blood expense for an institu-
for a single time period. The results of the participant laboratory tion for a single time period. Comparisons are as described in
can be compared with (i) all laboratories in the database, (ii) all Fig. 48.4. The expenses for the participant institution are con-
participating laboratories in the same region, (iii) a group of lab- siderably higher than those for the program as a whole and for
oratories selected (from a list of participating laboratories) by the laboratories in the region, but they are in line with the laborato-
participant, (iv) a “fingerprint cluster” of laboratories that were ries in the comparison groups that are better matched. The im-
closest to the participant by statistical analysis (performed by portance of multiple comparisons and valid comparison groups
the program), and (v) the two closest matches to the participant. are demonstrated once again. Data adapted from a report pro-
Note that the participant laboratory is an outlier when compared vided to a participant in the CAP’s LMIP.
to other laboratories in the program as a whole and in the region,
but it falls in a similar range with more closely matched labora-
tories, whether they were self-selected or chosen by the program. commonly employed laboratory benchmarking and per-
There are obvious advantages to having multiple comparison formance monitoring techniques and indicators relate
groups from which to draw conclusions. Data adapted from a more directly to internal laboratory processes than to pa-
report provided to a participant in the CAP’s LMIP. tient or population outcomes, however (18). Changes in
payment models and policies, as well as in accreditation
standards, will require laboratory directors and managers
the explanation, but at least the laboratory manager has to think more broadly about appropriate measures of labo-
the data to supplement direct observation of laboratory ratory performance.
performance. It must be mentioned once again that no
analytical program can substitute for astute management, Effect of Accountable Care Organizations
careful study of daily events in the laboratory, and most The move toward formation of accountable care organiza-
importantly, listening to peers and subordinates. tions (ACOs) is well under way in the American health-
Given the complexity of laboratory function and the care industry. As noted by Bryant and Lewis in chapter 34,
variability of available benchmarking programs, it is not this will even more closely tie the financial performance
possible to provide an exhaustive catalogue of all possible of the laboratory to that of the physicians and hospitals
analytical permutations. In Appendix 48.2, benchmark- with which it works to manage the care of a population.
ing data from four laboratories during one time period are The expansion of the ACO model, together with the on-
compared and analyzed. Two of the laboratories (A and going trends toward decreased overall reimbursement for
B) are similar, and these comparisons are closest to the specialty care (including laboratory services) and toward
paragon of “apples to apples.” The other two laboratories performance-based payment, will likely spur greater col-
differ in enough ways from each other and from the first laboration among laboratories, clinicians, and hospitals
two laboratories to make comparisons more problematic. to enhance the value (outcomes relative to costs [16]) of
In each instance, the benchmarking data should be viewed the care they provide. Incentives to document labora-
only as a starting point from which to work. The most use- tory contributions to value will be considerable; devising
ful purpose served by the comparisons is that they may manageable ways to quantify such contributions will be
point the way to valuable lessons about your own business no small feat, however. How much of an observed change
and the road to improvement. in inpatient length of stay, for example, is attributable to
a change in laboratory practice (e.g., results reporting in
a more timely fashion) versus any of the myriad changes
Measuring Laboratory Performance elsewhere in the system in a given period is very difficult
in the Broader Clinical Setting to determine with certainty.
Ultimately, the goal of measuring and improving clini- Some consolation may be taken in the fact that devising
cal laboratory performance is to improve the quality and appropriate measures is problematic not only for labora-
value of medical care provided to patients and to improve tory managers, but also for institutional leaders. Lee has re-
the health of the population the laboratory serves. Most cently described an initiative to define outcome measures
864 DEFINING AND MEASURING STANDARDS FOR SUCCESS

Figure 48.6 Graphical depiction of laboratory performance.

Cost is plotted on the y-axis (manageable expense per bill-
able test); productivity is plotted on the x-axis (billable test
per FTE). The position of the “best performing” laboratory
in the group is in the lower-right quadrant (greatest produc-
tivity and lowest cost). The upper-left quadrant (lowest pro-
ductivity and highest cost) is the least desirable position. The
center of the graph is “middle of the road.” The participant
laboratory is represented by a black diamond, which is po-
sitioned in the lower-right quadrant but relatively close to
the center point. Thus, the performance is respectable, but
there is room for improvement. Such a graphical depiction
transforms a morass of potentially confusing data and makes
it much easier to see the big picture. Data adapted from a
report provided to a participant in the CAP’s LMIP.

from the patient’s perspective, as these will enable the or- While certain quality measures can directly influence pa-
ganization to enhance the value provided to patients (14). thologists’ reimbursement, laboratory-related measures
Even once such measures are identified, though, novel of quality influencing other physicians’ payments include
means for data collection will have to be devised, as some the percentage of patients with chronic hepatitis C who
possible measures, such as “days spent at home during the have quantitative HCV RNA testing 12 weeks after ini-
first 90 days after a stroke” are not as readily assessed as tiation of antiviral therapy, as well as the percentage of
more traditional figures, such as “30-day readmission rate.” patients with chronic lymphocytic leukemia who have
As organizations strive to improve the value of the health- baseline flow cytometry testing. Laboratorians can col-
care they provide, more patient-oriented measures are laborate with clinical colleagues to develop systems that
likely to be embraced, and laboratory managers will need maximize the likelihood of patients receiving the neces-
to determine how their laboratories can best support in- sary laboratory testing. While a small financial incentive
stitutional efforts to meet performance goals with respect has been offered to encourage participation in the early
to outcomes important to patients. Given an appropriate years of this program, beginning in 2015, physicians who
culture of collaboration, broader institutional measures fail to meet the standards will face deductions from their
such as these—summary measures, if you will—may have payments. One measure of a laboratory’s contributions
a unifying effect on organizational units, including the to an ACO’s success may well be the degree to which the
laboratory, akin to that noted above under interpretation laboratory supports the provision of high-quality care
of performance-monitoring data. (and reimbursement maximization) by ensuring that
laboratory-related quality standards are consistently met
Linkage of Payment to Measures of Quality or exceeded.
Payors are increasingly attempting to link payment to
the meeting of quality standards, and this has resulted Laboratory-Related Standards in Broader
in the possibility of reimbursement for nonlaboratory Accreditation Programs
providers being directly influenced by appropriate use of Accreditation programs for particular clinical programs
laboratory resources. The CMS administers the Physician within hospitals or healthcare delivery systems increas-
Quality Reporting System, a program in which payments ingly incorporate standards pertaining to laboratory per-
to physicians for care provided to Medicare beneficiaries formance, particularly with respect to the reporting of
are adjusted to promote reporting of quality data (6). results. For example, many hospitals with cancer programs
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 865

seek accreditation by the American College of Surgeons ■ If the resources are available, it is optimal to participate
Commission on Cancer. To ensure that the information in both performance monitoring and external bench-
needed for developing an individualized cancer treatment marking activities.
plan is available to the patient’s physician(s), Standard 2.1 ■ Review of performance against benchmarks frequently
of the Cancer Program Standards requires that “College of identifies areas in which additional interventions could
American Pathologists (CAP) protocols are followed to yield improvements in performance.
report the required data elements in 90% of the eligible
■ Networking and membership in leading laboratory or-
cancer pathology reports each year” (1). The accompany-
ganizations are excellent ways to find relevant bench-
ing explanatory materials go on to state that the hospital’s
marks.
cancer committee “should encourage its pathology depart-
ments to adopt the synoptic format defined by the CAP
cancer committee for use in cancer-related pathology re- GLOSSARY
ports.” Standards pertaining to other units of the labora- Accreditation Approval, generally for a limited time, of an insti-
tory are similarly promulgated by accreditation bodies that tution or program based on a review of the institution or pro-
are not primarily laboratory-focused; examples include gram by one or more independent examiners who determine
cellular therapy accreditation standards for hematopoi- that specific requirements or standards have been met.
etic progenitor cell transplant programs (8). The need for Accrediting agencies Organizations that validate the ability of a
awareness of new or evolving laboratory-related standards laboratory to perform laboratory testing. In the United States, the
in such programs is yet one more good reason for labora- federal government is charged by statute (CLIA ’67 and CLIA ’88)
tory managers to be in regular communication with col- with the task of regulating diagnostic laboratory testing on hu-
leagues elsewhere in the institution. man patients. CMS is charged by Congress with the task of devel-
oping and implementing regulations. CMS can “deem” other
organizations to issue accreditation if their standards substan-
Summary tially meet or exceed those of CMS. Testing of animals and re-
Determining which improvements in technology, which search subjects is not covered by these regulations.
computer systems, and what test mix will improve patient Benchmark A standard against which performance is measured.
outcomes, provide the best quality, and meet financial The standard typically represents performance that is considered
objectives is an overwhelming task. With benchmarking, the best in the field or the gold standard of possible performance.
we have a method to measure performance and improve Various internal, external, industry-wide, and nonindustry per-
our ability to meet our goals, which typically include im- formance measures may all be used as benchmarks.
proved health, high quality, and an overall increase in ef- Benchmarking Comparing your own performance against a
ficiency. Accreditation and licensure focus primarily on standard—usually representing the gold standard or best prac-
improving health and increasing quality; we can apply tice for similar activities—and engaging in processes to improve
benchmarking and performance monitoring to improve performance against the chosen standard.
efficiency. Most hospital laboratories operate on a 24 h Billable test Usually defined in benchmarking parlance as a test
per day, 7 days per week schedule, resulting in a high fixed for which there is a CPT code and that could, therefore, be billed
cost structure in an environment of declining reimburse- to Medicare or other payors.
ments and continuing shortages of personnel. Continu-
Billed test A test that is actually billed to an insurer or client.
ous and significant gains in productivity and efficiency Billable test, not billed test, is the parameter usually preferred by
are required to do more with less each year. Changes in benchmarking programs because institutions vary in what they
the financial and regulatory environment will necessitate actually bill.
a broader conception of what it means to measure labora-
Clinical Laboratory Improvement Act of 1967 (CLIA ’67) Es-
tory performance.
tablished the initial authority to regulate laboratories in the
United States. It was superseded by CLIA ’88.
KEY POINTS
Clinical Laboratory Improvement Amendments of 1988 (CLIA
■ A creative approach to benchmarking allows you to ’88) Currently the governing authority for regulations regarding
find measures of industry-leading performance in al- function of all laboratories that perform clinical testing of hu-
most any area. man specimens in the United States.
■ The most effective benchmarks either address a specific Clinical Laboratory Management Association (CLMA) Pro-
concern (such as the Q-Probes and Q-Tracks) or overall fessional organization concerned with all aspects of laboratory
concerns reflecting performance in summary measures. management. Many local chapters have been organized.
■ Validation of high-level benchmarks often yields more Competitive benchmarking Comparing your own performance
information about overall performance. against that of competitors in the same industry or market, rather
866 DEFINING AND MEASURING STANDARDS FOR SUCCESS

than focusing primarily on gold standards or best practices as Skill mix The mixture of personnel with varying degrees of
standards for performance. training, education, and certification.
Deemed authority The approval by CMS, as agent for the fed- Summary measure A variable that integrates multiple underly-
eral government, of another organization to represent the gov- ing parameters: here, a simple number (e.g., cost per billable test)
ernment in accrediting clinical laboratories that evaluate human used to broadly assess laboratory financial performance.
specimens. Deemed status is time-limited, so each deemed orga-
Testing FTE See Productive FTE.
nization must document that it holds a valid certificate. The
standards of each deemed organization must be reviewed and Total FTE The total number of FTEs employed in the labora-
accepted by CMS. tory, regardless of their duties.
External benchmarking Benchmarking activities that include Total quality management An approach to integrating multiple
comparison of the performance of one laboratory with that of its activities revolving around QI.
peers. The comparisons may be made through an external orga-
Unit of service (UOS) The denominator in ratios used to ana-
nization or by informal arrangement among laboratories.
lyze cost or productivity. The most commonly used UOS is the
Full-time employee (FTE) A measure of the workforce. Part- billable test.
time employees are counted as fractions of an FTE. Generally, Worked hours The number of hours actually worked by em-
FTEs are calculated by dividing total paid hours by 2,080 (52 ployees (cf. paid hours).
weeks × 40 h per week).
Workload recording A means of measuring laboratory output
Internal benchmarking Benchmarking activities comparing and, consequently, productivity by tallying individual compo-
performance of subdivisions of a single organization, intended to nents of laboratory test performance quantitatively. The most
facilitate dissemination of best practices across business units. prominent national program that provided norms for quantify-
Nonproductive FTE Commonly used to describe those person- ing effort was eventually abandoned because of the difficulty in
nel who are not involved directly in the generation of test results. maintaining a viable system.
This category includes supervisory personnel, support personnel
(marketing, customer service, washroom, etc.), and the portion
REFERENCES
of line personnel devoted to activities such as quality control and
maintenance. 1. American College of Surgeons Commission on Cancer. 2012.
Cancer Program Standards 2012: Ensuring Patient-Centered Care.
Paid hours The number of employee hours actually paid by the American College of Surgeons, Chicago, IL. http://www.facs.org/
laboratory. It includes those hours that were worked and those cancer/coc/programstandards2012.pdf (last accessed September 28,
that are due to employees as part of a benefit package (sick leave, 2012).
vacation, etc.).
2. American Medical Association. 2012. Current Procedural Termi-
Performance monitoring The tracking of performance over nology (CPT), Standard Edition. AMA Press, Chicago, IL.
time. 3. AT&T Quality Steering Committee. 1992. Benchmarking: Focus
Productive FTE Usually employed to define those laboratory on World-Class Practices. AT&T Customer Information Center, In-
workers who directly produce test results. In practice, defining dianapolis, IN.
who these individuals (or parts of individuals) are becomes very 4. Boxwell, R. J. 1994. Benchmarking for Comparative Advantage.
difficult and even more difficult to calculate. For instance, do McGraw-Hill, Inc., Cambridge, MA.
you count those people who enter the specimen into the system 5. Bureau of Labor Statistics, U.S. Department of Labor. 2009. Health
or enter results into the information system? care: BLS spotlight on statistics. http://www.bls.gov/spotlight/2009/
Quality assurance A systematic process of assessing and im- health_care/ (last accessed September 28, 2012).
proving processes to ensure that laboratory services are of high 6. Centers for Medicare and Medicaid Services. 2012. Physician
quality. Quality Reporting System. http://www.cms.gov/Medicare/Quality
-Initiatives-Patient-Assessment-Instruments/PQRS/index.html
Quality improvement (QI) Involves outcomes, results, ends,
(last accessed September 28, 2012).
and information rather than just concerns with specific pro-
cesses. Whereas quality assurance is focused on providing a 7. Denrell, J. 2005. Selection bias and the perils of benchmarking.
quality test result, QI is concerned with improving the entire Harv. Bus. Rev. 83:114–119, 134.
process so that the results are more accurate, more timely, and 8. Foundation for the Accreditation of Cellular Therapy (FACT).
presented in a more useful and informative manner to the clini- 2012. Cellular Therapy Accreditation Manual, 5th ed. FACT:
cian. Thus, QI is concerned with all aspects of testing, including Omaha, NE.
the preanalytic, analytic, and postanalytic phases. 9. Galloway, M., and L. Nadin. 2001. Benchmarking and the labo-
Six Sigma An approach to improving quality that involves mea- ratory. J. Clin. Pathol. 54:590–597.
suring defects or adverse events per opportunity. This approach 10. Grimm, E., R. C. Friedberg, D. S. Wilkinson, J. P. AuBuchon,
could be viewed as a variation on benchmarking. R. J. Souers, and C. M. Lehman. 2010. Blood bank safety practices:
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mislabeled samples and wrong blood in tube—a Q-Probes analysis 18. Price, C. P. 2005. Benchmarking in laboratory medicine: are we
of 122 clinical laboratories. Arch. Pathol. Lab. Med. 134:1108–1115. measuring the right outcomes? Benchmarking Int. J. 12:449–466.
11. Heatherley, S. S. 1997. Key performance indicators to assess 19. Steiner, J. W., K. A. Murphy, E. C. Buck, and D. E. Rajkovich.
laboratory operations. Benchmarking for survival. Clin. Lab. Man- 2006. How to utilize benchmarking in the clinical laboratory. Clin.
age. Rev. 11:164–170. Leadersh. Manage. Rev. 20:E4.
12. Jones, B. A., T. Darcy, R. J. Souers, and F. A. Meier. 2012. Staff-
ing benchmarks for clinical laboratories: a College of American Pa- 20. Taylor, B. 2007. Beyond benchmarking: why copy the competi-
thologists Q-Probes study of laboratory staffing at 98 institutions. tion? Harvard Business Review Blog Network. http://blogs.hbr.org/
Arch. Pathol. Lab. Med. 136:140–147. taylor/2007/10/beyond_benchmarking_why_copy_t.html (last ac-
cessed September 28, 2012).
13. Lawson, N. S., and P. J. Howanitz. 1997. The College of Ameri-
can Pathologists, 1946-1996. Quality Assurance Service. Arch. 21. Wagar, E. A., A. K. Stankovic, D. S. Wilkinson, M. Walsh, and
Pathol. Lab. Med. 121:1000–1008. R. J. Souers. 2007. Assessment monitoring of laboratory critical val-
14. Lee, T. H. 2012. Care redesign: a path forward for providers. N. ues: a College of American Pathologists Q-Tracks study of 180 insti-
Engl. J. Med. 367:466–472. tutions. Arch. Pathol. Lab. Med. 131:44–49.
15. Nevalainen D., L. Berte, C. Kraft, E. Leigh, L. Picaso, and T. 22. Wilkinson, D. S., and D. D. Reynolds. 2003. Using benchmark-
Morgan. 2000. Evaluating laboratory performance on quality indi- ing to manage your laboratory. Clin. Leadersh. Manage. Rev. 17:5–8.
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23. Zarbo, R. J., B. A. Jones, R. C. Friedberg, P. N. Valenstein, S. W.
16. Porter, M. 2010. What is value in health care? N. Engl. J. Med. Renner, R. B. Schifman, M. K. Walsh, and P. J. Howanitz. 2002.
363:2477–2481. Q-tracks: a College of American Pathologists program of continuous
17. Portugal, B. 1993. Benchmarking hospital laboratory financial laboratory monitoring and longitudinal tracking. Arch. Pathol. Lab.
and operational performance. Hosp. Technol. Ser. 12:1–21. Med. 126:1036–1044.
 FY 2003 868
FY 2003 Operating Year to
Total Budget Year to Year to Date
Operating Year to Date Date Variance

Using Ratios a

October
November
December
January
February
March
April
May
June
2 Budget Date Actual Variance (%)
3
4 VOLUMES
5 Unit of Service
6 Inpatient Volume 47,283 35,462 4,117 4,002 4,154 4,204 3,820 3,783 4,258 3,854 3,376 35,568 106 0.30
7 Outpatient Volume 100,476 75,357 9,291 8,346 8,202 8,999 9,280 9,060 9,604 9,766 8,801 81,349 5,992 7.95
8 Total Volume 147,759 110,819 13,408 12,348 12,356 13,203 13,100 12,843 13,862 13,620 12,177 116,917 6,098 5.50
9
10
11 EXPENSES
12
13 LABOR EXPENSE
14 NON PRODUCTIVE REG SAL 104,768 78,576 5,014 6,352 13,724 8,014 10,000 8,577 12,443 9,482 12,386 85,992 (7,416) (9.44)
15 PRODUCTIVE REG SAL 847,665 635,749 70,081 69,251 65,022 69,482 61,895 72,066 64,387 69,622 62,193 603,999 31,750 4.99
16 PRODUCTIVE OT SAL 4,685 3,514 625 3 84 557 602 (103) 107 1,226 117 3,218 296 8.42
17 Staff Salaries 957,118 717,839 75,720 75,606 78,830 78,053 72,497 80,540 76,937 80,330 74,696 693,209 24,630 3.43
18
19 EMPLOYEE APPRECIATION 2,070 1,552 0 0 0 0 15 685 150 100 125 1,075 477 30.73
20 Other Personnel Expense 2,070 1,552 0 0 0 0 15 685 150 100 125 1,075 477 30.73
21 Total Salaries 959,188 719,391 75,720 75,606 78,830 78,053 72,512 81,225 77,087 80,430 74,821 694,284 25,107 3.49
DEFINING AND MEASURING STANDARDS FOR SUCCESS

22
23 Allocated Fringe Benefits 259,857 194,893 20,558 20,527 21,402 21,192 19,683 21,866 20,888 21,809 20,280 188,205 6,688 3.43
24
25 Total Salaries & Fringe 1,219,045 914,284 96,278 96,133 100,232 99,245 92,195 103,091 97,975 102,239 95,101 882,489 31,795 3.48
Benefits
26
27
28 CONSUMABLE EXPENSES
29 MEDICAL SURGICAL 5,130 3,848 126 94 277 39 129 295 86 201 119 1,366 2,482 64.50
30 LAB SUPPLIES 589,658 442,243 29,178 44,099 57,780 103,427 61,828 93,519 64,662 38,125 54,661 547,279 (105,036) (23.75)
31 OXYGEN 5,130 3,848 233 359 233 233 277 204 175 550 303 2,567 1,281 33.29
32 INSTRUMENTS AND 667 500 36 36 61 36 73 36 36 0 61 375 125 25.00
NEEDLES
33 Med/Surg Supplies 600,585 450,439 29,573 44,588 58,351 103,735 62,307 94,054 64,959 38,876 55,144 551,587 (101,148) (22.46)
34
35 PHARMACEUTICALS 156 117 16 0 5 0 1 5 8 20 0 55 62 52.99
36 IV-IRRIGATING SOLUTIONS 52 39 0 11 0 0 11 0 11 0 0 33 6 15.38
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,

37 Pharmaceuticals 208 156 16 11 5 0 12 5 19 20 0 88 68 43.59

38
39
40 OFFICE SUPPLIES 0 0 1 7 0 0 0 0 0 0 333 341 (341) —
41 SUPPLIES OFFICE-PRINTED 0 0 0 50 3 2 0 863 0 0 288 1,206 (1,206) —
42 SUPPLIES OFFICE-GENERAL 0 0 0 0 0 0 0 4 0 2 4 10 (10) —
43 CHINA GLASS AND 100 75 0 0 0 0 0 0 0 0 0 0 75 100.00
FLATWARE
44 Supplies Other 100 75 1 57 3 2 0 867 0 2 625 1,557 (1,482) (1,976.00)
45
46 MAIL & PRODUCTION 0 0 70 (65) 0 1 0 0 0 0 0 6 (6) —
47 Utilities 0 0 70 (65) 0 1 0 0 0 0 0 6 (6) —
Using Ratios a (continued)

48
49 BOOKS/SUBS/DUES NONMD 150 113 81 0 60 0 0 320 129 0 0 590 (478) (424.44)
50 TRAVEL/MEET/ 1,599 1,199 0 0 0 0 0 0 0 0 0 0 1,199 100.00
DUES-GENERAL
51 UNIV MAINT/REPAIR 0 0 0 0 500 395 0 0 0 0 0 895 (895) —
OFFICE
52 MAINTENANCE- 1,261 946 0 0 15 3,535 0 50 0 0 0 3,600 (2,654) (280.65)
NONCONTRACT
53 CAFETERIA 250 188 0 0 44 0 0 0 0 0 0 44 144 76.53
54 CELEBRATION FUNDS 418 314 0 0 0 69 0 0 0 0 0 69 245 77.99
55 PROFESSIONAL DEVELOP 303 227 0 0 0 0 0 0 0 0 0 0 227 100.00
NON
56 SMALL EQUIPMENT 550 413 0 0 0 0 0 0 0 0 0 0 413 100.00
57 Other Expenses 4,531 3,398 81 0 619 3,999 0 370 129 0 0 5,198 (1,800) (52.96)
58
59 Total Consumable Expenses 605,424 454,068 29,741 44,591 58,978 107,737 62,319 95,296 65,107 38,898 55,769 558,436 (104,368) (22.99)
60
61 TOTAL EXPENSE 1,824,469 1,368,352 126,019 140,724 159,210 206,982 154,514 198,387 163,082 141,137 150,870 1,440,925 (72,573) (5.30)
62
63
64 LABOR
65 Staffing FTEs
66 Productive-Regular FTEs 18.36 18.36 17.32 18.85 15.72 17.12 17.83 18.13 16.83 17.92 15.96 17.30 1.06 5.79
67 Productive-Overtime FTEs 0.07 0.07 0.10 0.00 0.02 0.10 0.08 0.00 0.03 0.22 0.04 0.07 0.00 6.35
68 Subtotal Productive FTEs 18.43 18.43 17.42 18.85 15.74 17.22 17.91 18.13 16.86 18.14 16.00 17.36 1.07 5.79
69 Non-Productive FTEs 2.27 2.27 1.62 0.93 4.21 2.51 2.77 2.35 3.52 2.29 3.80 2.67 (0.40) (17.47)
70 Total FTEs 20.70 20.70 19.04 19.78 19.95 19.73 20.68 20.48 20.38 20.43 19.80 20.03 0.67 3.24
71
72 Productivity Labor Hours
73 Productive-Regular Hours 38,181 28,635.75 3,059.93 3,221.98 2,776.22 3,024.66 2,845.17 3,203.11 2,877.70 3,165.51 2,728.42 26,903 1,733 6.05
74 Productive-Overtime Hours 153 114.75 18.50 0.14 3.36 16.82 13.39 0.79 4.75 38.78 6.08 103 12 10.58
75 Subtotal Productive Hours 38,334 28,750.50 3,078.43 3,222.12 2,779.58 3,041.48 2,858.56 3,203.90 2,882.45 3,204.29 2,734.50 27,005 1,745 6.07
CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING

76 Non-Productive Hours 4,719 3,539.25 286.81 159.76 743.31 444.11 441.35 415.81 601.79 404.67 650.30 4,148 (609) (17.20)
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,

77 Total Hours 43,053 32,289.75 3,365.24 3,381.88 3,522.89 3,485.59 3,299.91 3,619.71 3,484.24 3,608.96 3,384.80 31,153 1,137 3.52
869

(continued)
 870

Using Ratios a (continued)

FY 2003
FY 2003 Operating Year to
Total Budget Year to Year to Date
Operating Year to Date Date Variance

October
November
December
January
February
March
April
May
June
Budget Date Actual Variance (%)
78
79
80 Per Unit of Service (UOS)
Statistics
81 Total Salaries & Fringe 8.25 8.25 7.18 7.79 8.11 7.52 7.04 8.03 7.07 7.51 7.81 7.61 0.64 7.76
Benefits/UOS
82 Med/Surg Supplies/UOS 4.06 4.06 2.21 3.61 4.72 7.86 4.76 7.32 4.69 2.85 4.53 4.68 (0.62) (15.27)
83 Consumable Expense/UOS 4.10 4.10 2.22 3.61 4.77 8.16 4.76 7.42 4.70 2.86 4.58 4.73 (0.63) (15.37)
84 Total Expense/UOS 12.35 12.35 9.40 11.40 12.88 15.68 11.80 15.45 11.77 10.37 12.39 12.34 0.01 0.08
DEFINING AND MEASURING STANDARDS FOR SUCCESS

85
86 Productive Hours/UOS 0.26 0.26 0.23 0.26 0.22 0.23 0.22 0.25 0.21 0.24 0.22 0.24 0.02 7.69
87 Total Hours/UOS 0.29 0.29 0.25 0.27 0.29 0.26 0.25 0.28 0.25 0.26 0.28 0.27 0.02 6.90
88
89 Productive to Total Hours 89.04 89.04 91.48 95.28 78.90 87.26 86.63 88.51 82.73 88.79 80.79 86.69 2.35 2.64
Ratio
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 871

APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,
Using Ratios a (continued)

NOTES 2. Despite the variance in test volume, there is a positive vari-

ance in labor expense, both as an absolute number (rows
1. Test volume (measured as billable tests), labor expense, con-
17 and 21) and per UOS (row 81). Total FTEs are close to
sumable expense, other expense, and staffing are displayed
budget (row 70), so the explanation is probably that some
as absolute numbers. The budgeted amount is adjusted for a
budgeted employees are not being paid. Possible reasons in-
nine-month period. Deviations of actual data from budgeted
clude employees who have exhausted allotted time for illness
projections are depicted as a variance and percent variance.
or family leave or have taken a temporary leave of absence
2. FTEs are calculated as paid hours divided by the appropriate
for other personal reasons. Such shortfalls can be tolerated
number of hours. On a yearly basis, that calculation is paid
for brief periods but may produce difficulties for remaining
hours divided by 2,080. The denominator varies from month
workers if sustained. If the combination of increased volume
to month because of the varying lengths of the months, so a
and decreased staffing continues, a manager could question
simple conversion is not easy.
whether the staffing levels are too high. The unit manager
3. Ratios are displayed with financial (or labor) data as the nu-
must make every effort to limit the duration of the staff
merator and test volume (billable tests) as the denominator.
shortage if it is causing problems but must be forthright if
The actual data for year-to-date are compared to the bud-
the staffing level is, in fact, greater than necessary.
geted numbers to obtain the variances.
3. It is very difficult to hit budget targets on the head. Poli-
4. Fringe benefits are driven by a formula that will vary by in-
cies on variances may vary among institutions. A common
stitution, depending on organizational policies.
recommendation is to investigate variances that exceed 5%
5. When finances are tracked monthly, there will be large
or $1,000. The variances in test volume and labor expense
swings from month to month, especially in categories with
have been noted. In addition, there is a considerable variance
small budgets. The manager must recognize the variation
in consumable expense (row 59). That variance is almost
and not overreact to an outlier. For example, in January,
completely determined by an overage in lab supplies (row
there was a large expense for noncontract maintenance
30) and consequent negative variance in med/surg supplies
(row 52) that stands out among the other months and ac-
(row 33). After careful analysis of consumable expenses, the
tually puts the category over budget. It is likely that in the
manager determined that the negative variance was entirely
long term (multiple years), maintenance expenses are well
related to a change in methodology for a small number of
controlled.
tests from a nucleic acid probe (lower cost for reagents) to
6. For those who believe in operations budgets, it is important
amplified molecular testing (more expensive reagents). The
to recognize that they represent projections and even “best
switch had been justified by improved quality of results and
guesses.” When there is a deviation from the budget (vari-
service for clients. The administrative managers of the labo-
ance), it is most important that the manager(s) understand
ratory and of the institution approved the switch, but the
the reason(s) for the discrepancies.
change occurred in the middle of the year after budgets had
been established and resulted in an ongoing variance.
OBSERVATIONS 4. The negative variance in consumable expense is sufficiently
large that the positive variance in salary expense cannot
1. Test volume has a positive variance, most of which is caused compensate. As a result, there is a small negative variance
by an increase in outpatient tests (row 7). Budgeted volume in total expense (row 61). Because of the increased volume
data are projections that are based on past experience and in outpatient testing, however, there is actually a very small
estimates of the local market. The figure should have input positive variance when expenses are calculated as a ratio
from both financial and technical personnel. If the budget is against UOS (row 84). The power of increasing test volume
adjusted for volume, a shortfall in tests can obviously cause in a volume-adjusted budget is very apparent.
headaches for the manager. Conversely, greater than pre-
dicted volumes can improve the perception of performance a
The spreadsheet illustrates the data from a microbiology laboratory for a portion of
but can cause significant problems for staff if sustained. a fiscal year (October 2002 through June 2003).
872 DEFINING AND MEASURING STANDARDS FOR SUCCESS

APPENDIX 48.2 Performance Characteristics of Four Laboratories

3 PARAMETER Laboratory A Laboratory B Laboratory C Laboratory D

4 Total Billable Tests (BT) 788,674 1,014,980 878,932 956,873
5 On-Site Billable Tests 777,448 1,009,087 786,453 954,417
6 Referred Tests 11,226 5,893 92,479 2,456
7 Inpatient Billable Tests 257,896 573,217 784,921 0
8 Outpatient Billable Tests 466,916 389,529 94,011 750,275
9 Nonpatient Billable Tests 63,862 52,234 0 204,142
10 Hospital Inpatient Days 28,656 47,504 62,879 N/A
11 Hospital Inpatient Discharges 5,037 8,023 7,543 N/A
12 Outpatient Visits 57,233 74,167 18,802 N/A
13 Productive Paid Hours 61,269 75,421 60,720 63,191
14 Total Laboratory Worked Hours 90,357 116,902 82,406 77,409
15 Total Laboratory Paid Hours 100,662 125,701 86,473 78,989
16 Calculated Productive FTEs 117.83 145.04 116.77 121.52
17 Calculated Total FTEs 193.58 241.73 166.29 151.90
18 Productive Labor Expense ($) 1,569,131 1,552,929 971,522 884,677
19 Total Labor Expense ($) 2,348,641 2,352,923 1,387,888 1,105,846
20 Consumable Expense ($) 1,074,239 1,418,697 983,066 1,049,859
21 Equipment Maintenance and Repair ($) 68,429 67,707 54,987 32,343
22 Equipment Depreciation ($) 96,952 121,494 76,354 54,985
23 Referred Test Expense ($) 154,406 136,750 801,793 12,771
24 Blood Expense ($) 604,654 926,001 345,890 0
25
26 RATIOS
27 On-Site BT as % of Total BT 98.58 99.42 89.48 99.74
28 Referred Tests as % of Total BT 1.42 0.58 10.52 0.26
29 Inpatient BT as % of Total BT 32.70 56.48 89.30 0.00
30 Outpatient BT as % of Total BT 59.20 38.38 10.70 78.41
31 Nonpatient BT as % of Total BT 8.10 5.15 0.00 21.33
32 On-Site BT/Productive FTE 6,598 6,957 6,735 7,854
33 On-Site BT/Total FTE 4,016 4,174 4,729 6,283
34 Productive FTE/Total FTE 0.61 0.60 0.70 0.80
35 On-Site BT/Total Worked Hours 8.60 8.63 9.54 12.33
36 On-Site BT/Total Paid Hours 7.72 8.03 9.09 12.08
37 Total Worked Hours/Total Paid Hours 0.90 0.93 0.95 0.98
38 On-Site BT/Total BT 0.99 0.99 0.89 >0.99
39 Inpatient BT/Day 9.00 12.07 12.48 N/A
40 Inpatient BT/Discharge 51.20 71.45 104.06 N/A
41 Outpatient BT/Outpatient Visit 8.16 5.25 5.00 N/A
42 Productive Labor Expense/On-Site BT ($) 2.02 1.54 1.24 0.93
43 Total Labor Expense/On-Site BT ($) 3.02 2.33 1.76 1.16
44 Consumable Expense/On-Site BT ($) 1.38 1.41 1.25 1.10
45 Referred Test Expense/Referred BT ($) 13.75 23.21 8.67 5.20
46 Testing Paid Hours/On-Site BT 0.08 0.07 0.08 0.07
47 Worked Hours/On-Site BT 0.12 0.12 0.10 0.08
48 Paid Hours/On-Site BT 0.13 0.12 0.11 0.08
(continued)
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 873

APPENDIX 48.2 Performance Characteristics of Four Laboratories (continued)

PARAMETER Laboratory A Laboratory B Laboratory C Laboratory D

49
50 LABORATORY CHARACTERISTICS
51 University Affiliated Laboratory Yes Yes Yes No
52 Primary University Laboratory Yes Yes No No
53 Pathology Residency Program Yes Yes Yes No
54 Number of Pathology Residents 14 25 4 0
55 Surgical Pathology Yes Yes Yes No
56 Cytopathology Yes Yes Yes No
57 Cytogenetics Yes Yes No No
58 Autopsy Yes Yes Yes No
59 Electron Microscopy Yes Yes No No
60 Molecular Diagnostics Laboratory No Yes No No
61 Courier Service Yes Yes No Yes
62 Marketing Personnel Yes Yes No Yes
63 Customer Service Personnel Yes Yes Yes Yes
64 Dedicated Compliance Personnel Yes Yes Yes Yes

NOTES
Start by examining the characteristics of the four laboratories b. Both laboratories do most of their testing on-site (row 27)
(rows 51–64). Note that the “numbers” in rows 4–48 serve only and send only a small fraction of tests to a referral labora-
as clues to which issues require deeper analysis. Laboratories A tory (row 28).
and B are those for which comparisons are most legitimate. It is c. The two laboratories differ in the origin of their testing
more difficult to compare either of these laboratories to labora- (rows 29–31); the majority of business for laboratory A
tory C, and laboratory D is in quite a different category from the is from its outpatient business, whereas inpatient work
other three. comprises a majority of laboratory B’s business. Non-
patient tests account for a minority of business for both
1. The test volume of all four laboratories is similar (B > D > laboratories A and B, though they comprise a slightly
C > A). higher percentage for laboratory A.
2. Laboratories A and B are the most complex of the group. d. Productivity for the two laboratories is similar, whether
Both are primary university-affiliated laboratories with large measured by productive paid hours, total paid hours, or
pathology residency programs, a full range of services, and FTEs (rows 32–36, 46–48).
a relatively small number of referred tests. Blood expense is e. Consumable expenses are similar in the two laboratories
correspondingly high. Laboratory B appears to be the most (row 44).
complex of the group. f. Referred test expense per billed test is greater for labora-
3. Laboratory C is also a hospital laboratory but with a more tory B than for laboratory A (row 45), suggesting that the
restricted range of services. It is located in a teaching hos- tests sent out by laboratory B are more time-consuming,
pital but is an affiliate with a small number of pathology use more expensive reagents, or are less susceptible to
residents. competition in the marketplace. Alternatively, laboratory
4. Laboratory D is an independent laboratory with a clientele A may use a less expensive reference laboratory or have
that consists entirely of outpatients and nonpatients. The negotiated a better contract than laboratory B.
menu of offered services appears to consist of simple tests, as g. Although productivity, as measured by hours, is similar
a very small percentage of tests are referred, and the labora- between the two laboratories, labor expenses are very
tory does not contain scientifically complex divisions. The different (rows 42–43). There are several possible expla-
nonpatient tests could represent work done for physicians nations for the difference; the explanation may be due to
who bill as a group or could represent work from other a single factor or a combination of the following:
institutions, such as nursing homes and other chronic care i. The ratio of worked hours to paid hours is higher for
facilities. laboratory B (row 37), suggesting that the benefits
5. Compare laboratories A and B, the two primary university are more generous in laboratory A than in laboratory
laboratories. B. Alternatively, personnel in laboratory A may have
a. They are similar in most parameters (rows 51–64), but achieved better benefits because of a longer average
laboratory B performs a larger volume of tests (row 4). length of service.
(continued)
874 DEFINING AND MEASURING STANDARDS FOR SUCCESS

APPENDIX 48.2 Performance Characteristics of Four Laboratories (continued)

ii. The salaries in laboratory A may be higher than in laboratory are actually involved in turning out results;
laboratory B because of regional differences, competi- fewer are in managerial or support services) (row 34).
tive factors in the local marketplace, or better negoti- e. All costs are lower for laboratory C than for laboratories
ated contracts if the workforce is unionized. Once A and B (rows 42–44). The fact that testing (productive)
again, if the workers in laboratory A have greater costs are also lower suggests that salaries and/or benefits
length of service, their salaries may be higher on aver- may be lower in this laboratory (row 42). This interpreta-
age than those in laboratory B. tion is compatible with the observation that the ratio of
iii. The skill mix utilized in the two laboratories may be productive to total personnel is higher in laboratory C
different. If laboratory B uses more technical assistants than in either laboratory A or B (row 34).
and medical technicians, whereas laboratory A uses f. Although the number of tests sent to a reference labora-
more medical technologists, labor costs would be tory from laboratory C is higher than for either labora-
higher in laboratory A. Ultimately, all of the possible tory A or B (rows 6 and 28), the cost of referral testing
differences in labor costs might be acceptable to the is less on a unit basis (row 45). The explanation for this
management of each laboratory because of other per- phenomenon may be that laboratory C is performing less
ceived advantages. complicated or sophisticated testing in general and is also
h. The utilization of tests for inpatients is more efficient in sending less complicated tests to the reference laboratory
laboratory A than in laboratory B (rows 39–40). Once than are laboratories A and B. In fact, laboratory A or B
again, there are several possible explanations: could be the reference laboratory for laboratory C.
i. Laboratory A may have better control over the utiliza- g. Utilization of laboratory resources for inpatients is actu-
tion of laboratory services than does laboratory B. ally higher in laboratory C’s institution than in the two
ii. There may be more chronic care patients, who require primary university-affiliated laboratories (rows 39–40).
less intensive laboratory support, in the institution The difference is greater when tests per discharge are
served by laboratory A (less likely as an explanation, compared than when the comparison is by tests per inpa-
however, as the phenomenon is observed whether the tient day. This situation suggests a greater proportion of
denominator is inpatient days or discharges). chronic care patients at the institution served by labora-
iii. The acuity of illness of patients served by tory C and provides a potential target for improvement
laboratory B may be greater than that of patients of laboratory utilization and costs. Outpatient utilization
served by laboratory A (more trauma, more trans- appears similar in the three institutions (row 41).
plants, etc.). To some extent, this variable could be 7. Comparison of laboratory D with laboratories A, B, and C:
analyzed by including objective characterizations of a. Laboratory D is very different from any of the other three
the patient population, such as the Medicare case mix laboratories (rows 51–64). It serves outpatients and non-
index. patients exclusively (rows 7–9, 29–31). The nonpatients
i. The reverse situation occurs with outpatient tests, where may represent patients of physicians with whom the labo-
laboratory B appears to function better (row 41). This ratory has a contract or patients in chronic care facilities
parameter is more difficult to assess, however, because of such as nursing homes. Data for outpatient visits are not
the difficulties involved in determining outpatient visits given (row 12), suggesting that the laboratory does not
objectively and comparatively. have access to the records of those patients who are clas-
6. Compare laboratory C with laboratories A and B. sified as outpatients. Not surprisingly, there is no blood
a. Laboratory C is a university-affiliated laboratory with a expense (row 24). If the data were broken out in more
pathology residency program but only a small number of detail, you might expect to find a high percentage of
residents (rows 53–54). simple automated chemistry and hematology tests in the
b. Laboratory C serves inpatients primarily (rows 7–9, workload of Laboratory D.
29–31); notably, there are no nonpatient tests. b. Despite the large volume of tests, very few of laboratory
c. Laboratory C sends a relatively large percentage of its D’s tests are sent to a reference laboratory (rows 6 and
tests to a reference laboratory (rows 5–6, 27–28), compat- 28). The cost of these referred tests is low (row 45), sug-
ible with a general hospital laboratory. gesting that they are relatively uncomplicated.
d. Productivity for laboratory C is, not surprisingly for a c. All major costs are less for laboratory D than the other
less complicated laboratory, better than for laboratories three (rows 18–22, 42–44), again reflecting the outpatient
A and B (rows 32–33, 35–36). Interestingly, productivity nature of the laboratory.
looks less different when only productive labor is com- d. Some clues as to the reasons for lower labor costs can be
pared (row 32), because laboratory C has relatively few found in the high ratios of worked to paid hours and of
nonproductive personnel (more of the employees in that productive to total FTEs (rows 34 and 37).
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 875

APPENDIX 48.3 Organizations and Websitesa

AABB Centers for Disease Control and Prevention (CDC)

www.aabb.org www.cdc.gov
Formerly the American Association of Blood Banks, AABB is an in- CDC is a U.S. government agency protecting the health and safety of
ternational association of blood banks and related services dedicated people through applying disease prevention and control, environ-
to promoting the highest standard of care for patients and donors in mental health, and health promotion and education.
all aspects of blood banking, transfusion medicine, cellular and gene
Centers for Medicare and Medicaid Services (CMS)
therapies, and tissue transplantation. AABB accredits transfusion
services, blood banks, parentage testing laboratories, hematopoietic www.cms.gov
progenitor cell services, and cord blood services. CMS is a U.S. government agency with responsibility for administer-
ing the Medicare and Medicaid programs and is therefore responsi-
American Association for Clinical Chemistry (AACC) ble for monitoring laboratories that bill Medicare and Medicaid for
www.aacc.org services rendered.
AACC is an international scientific/medical society of clinical labo-
COLA
ratory professionals, physicians, scientists, and others advancing the
practice and profession of clinical laboratory science and its applica- www.cola.org
tion to healthcare. Formerly the Commission on Office Laboratory Accreditation,
COLA is a nonprofit organization providing programs of voluntary
American College of Medical Genetics and Genomics (ACMG) education, consultation, and accreditation, including laboratory
www.acmg.net accreditation.
ACMG provides resources and a voice to the medical genetics pro-
College of American Pathologists (CAP)
fession and promotes the development and implementation of
methods to diagnose, treat, and prevent genetic disease. The ACMG www.cap.org
provides a publication, Standards and Guidelines for Clinical Genetics CAP is a medical society in the United States serving over 15,000
Laboratories, used to improve genetic testing. pathologist members and is considered a leader in providing labora-
tory QI programs and accreditation programs.
American Society for Microbiology (ASM)
www.asm.org The Joint Commission (TJC)
ASM is a worldwide professional organization that is open to all prac- www.jointcommission.org
ticing microbiologists, including those who are active in the clinical Formerly the Joint Commission on Accreditation of Healthcare Or-
laboratory. ASM Press publishes books and materials in all fields of ganizations, TJC sets standards by which healthcare is measured and
microbiology; this book is just one indication of the interest of this accredits institutions and laboratories worldwide.
organization in laboratory improvement. U.S. Food and Drug Administration (FDA)
American Society for Reproductive Medicine (ASRM) www.fda.gov
www.asrm.org FDA defines QA as planned and systematic activities to ensure that
ASRM is devoted to advancing knowledge and expertise in infertil- a laboratory will meet certain requirements for quality.
ity and maintains a joint program for accreditation of fertility labo-
ratories with the College of American Pathologists. a
Websites last accessed on September 28, 2012.
Introduction
49
Evaluating Potential and Real Problems
Test Utilization and
Clinical Relevance • Cost-Effectiveness Analysis,
Cost-Benefit Analysis, and Cost-Utility Analysis
Clinical Relevance
Documenting the Extent of the Problem
Literature Review • Centralized Studies • Local Data Michael L. Wilson, Gary W. Procop, and L. Barth Reller
Laboratory-Based Approaches
to Control
Newsletters • Policy Changes • Personal and Ad Hoc
Communication • LIS/HIS-Based Controls on Test
Ordering • LIS-Based Feedback in Reports
OBJECTIVES
Institution-Based Approaches to Control To become familiar with the concepts of clinical relevance and cost effectiveness
Working with the Medical Staff • Formal Protocols and how they are related
Validated by Medical Staff • Working with the To learn how to document the extent of the problem of laboratory test
Nursing Staff • The Concept of the Laboratory Test
Formulary • Using Major Events To Effect Change
utilization, including relevant sources of information
(e.g., Institutional Quality Assurance [QA] Office, To learn laboratory-based approaches to the control of laboratory test
Root Cause Analysis) utilization
What Works and Doesn’t Work: How To To learn institution-based approaches to the control of laboratory test
Take the First Steps
utilization
Putting It All Together
Base Policy Approaches and LIS/HIS-Based Controls To learn one approach for the implementation of change in a patient care
on Evidence-Based Medicine • Track Results • The setting (McLaughlin’s approach)
Plan, Do, Study, Act Model • The Future: Better
Teaching and Training
To learn one approach for integrating evidence-based medicine with computer-
based systems for controlling laboratory test utilization
Summary
KEY POINTS
GLOSSARY
The truth is always the strongest argument.
REFERENCES
Sophocles
APPENDIX

C
linical laboratories provide much of the information that is
necessary for contemporary medical practice; by some estimates up to
70% of clinical data are derived from laboratories. Obviously the era
in which high-quality healthcare can occur in the absence of high-quality and
timely laboratory testing is long past. The fundamental reason for this is that our
understanding of pathophysiology and treatment of diseases and chronic medi-
cal conditions is more advanced, and the diagnosis of many conditions is entirely
laboratory-based. As our understanding of the causes of diseases becomes more
sophisticated, it is clear that a number of “diseases” are, in fact, simply the final
common pathway of a number of predisposing genetic mutations, exposures to
drugs or toxins, or other pathophysiologic mechanisms. Moreover, there is in-
creasing evidence that many diseases have genetic bases that not only predispose
the patient to developing the condition, but also influence the efficacy of therapy
and clinical outcomes. Yet our understanding of the role of laboratory testing in
guiding diagnosis and treatment is far from complete. Just as our understanding
of pathophysiologic mechanisms is evolving, the availability of the right tests
lags somewhat in the discovery process. In addition, there are many tests that
Clinical Laboratory Management, 2nd Edition
were developed to diagnose specific disease states or conditions but that we now
Edited by L. S. Garcia know measure or detect only a part of the disease or condition or detect it only
©2014 ASM Press, Washington, DC at a specific time in the disease process. Clearly we have much to learn in order
doi:10.1128/9781555817282.ch49
to provide cost-effective, timely, and clinically relevant laboratory testing.

876
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 877

Clinical microbiology laboratories have unique chal- utilization of microbiology services can be more controver-
lenges. They perform tests to aid in the diagnosis of in- sial than in other areas of the laboratory. This is because
fectious diseases, guide therapy for those diseases, help clinical microbiology tests (i) are more interpretive in na-
control and prevent infection in healthcare settings, and ture compared with most other clinical laboratory tests, (ii)
educate and train professionals. Most importantly, “clini- are less standardized than many other clinical laboratory
cal microbiology” is not a discipline per se, but rather a tests, (iii) deal with living microorganisms that have vari-
melding of many different disciplines that have little in able phenotypic characteristics, and (iv) are often made
common other than the fact that they study infection. For more complicated by the presence of contaminating flora.
example, it is obvious that parasitology has little in com-
mon with virology or antimicrobial susceptibility testing
of bacteria, yet clinical microbiology laboratories must Evaluating Potential and Real Problems
perform all of these tests and do so in a high-quality man- Attempts to improve laboratory utilization must begin with
ner. This is a broad and challenging mission with some an assessment of current and potential issues with labora-
unique challenges, but it also provides a paradigm for lab- tory utilization. The question “Where to start?” is easier to
oratory testing in general. Even though the issues facing answer than is the question “When to start?” One can ap-
clinical microbiology laboratories may be more challeng- proach laboratory utilization from a number of perspectives,
ing than those facing some other routine laboratory test- including financial models, staffing ratios, productivity or
ing, the overall mission is the same for all sections within other benchmarks, treatment and evaluation guidelines,
clinical laboratories. and so on. To some extent, the approach that is selected
This mission—providing high-quality, cost-effective labo- should be the one that prompted the assessment. For ex-
ratory testing—has become even more challenging in recent ample, if a laboratory is being reorganized to meet financial
years because of the emphasis on cost control in healthcare, constraints, then financial models and productivity bench-
the introduction of new (and often more expensive) diag- marks should be guides for the assessment. If the assessment
nostic technologies, and increasing regulations. Thus, labo- is being done because of the introduction of new diagnostic
ratories must maintain quality while expanding services technology or the expansion of services to meet new clinical
with ever-diminishing resources. One of many approaches needs, then the assessment should be based on treatment
to solving this dilemma is for laboratories to limit testing to and evaluation guidelines, clinical protocols, or other clini-
tests that are both clinically relevant and cost-effective. In cally driven considerations. Regardless of the approach that
the past, laboratories could control costs by using traditional is taken, the one principle that must play a role in any assess-
management techniques, yet most laboratories exploited ment of laboratory utilization is that of clinical relevance; no
this technique to its fullest many years ago (48). For most test can be cost-effective, no laboratory can be efficient and
of the recent past, there were more—and stronger—reasons productive, and no organization can provide good patient
to perform tests than there were reasons to limit test utiliza- care unless laboratory testing is clinically relevant.
tion. Only in the past few years have economic incentives
for limiting utilization coincided with medical incentives Clinical Relevance
for improving clinical relevance. The alignment of these in- Most laboratorians and providers have an idea of what
centives affords the clinical laboratories an opportunity to is meant by the term “clinical relevance” (or the roughly
eliminate useless tests, offer only tests known to be clinically synonymous terms “clinical significance” and “clinical im-
relevant, and begin using information technology to facili- portance”). The term is not used consistently, however,
tate implementation of these changes. because there is no standard definition, nor is there yet a
The purpose of this chapter is to provide the reader with quantifiable way to measure clinical relevance. This lack
a strategy for making changes in laboratory utilization that of objectivity should not impede assessments of clinical
are based on the clinical relevance of the tests. The informa- relevance or lead to inaction. There are many instances
tion contained herein is not meant to be a theoretical ap- wherein standing orders no longer are clinically relevant
proach to making change. Rather, it specifically addresses when they are filled. These orders may have been medi-
strategies for dealing with political realities and other im- cally appropriate when the standing order was written,
pediments to making change. Although this book covers but as the condition of the patient changed, these orders
clinical laboratory management in general, the informa- became unnecessary. A timely and thoughtful review of
tion that has been selected for this chapter deals primarily standing orders is a simple way to reduce unnecessary
with clinical microbiology. This information was selected testing for inpatients. One simple approach is to time limit
because some of the information and tactics were devel- standing orders (e.g., daily × 3 days), rather than leaving
oped first and specifically for clinical microbiology labo- orders open ad infinitum (e.g., daily). As shown in Table
ratories. Another reason for using clinical microbiology as 49.1, clinically relevant tests share certain characteristics
a paradigm for change was that attempts at changing the that can be used in an audit.
878 DEFINING AND MEASURING STANDARDS FOR SUCCESS

Table 49.1 Characteristics of clinically relevant laboratory tests As another example, a new test to confirm infection in
Test results can be used to initiate, modify, or terminate therapy. critically ill patients may provide accurate and timely test
Test results are available in an acceptable time frame. results, but the variables of getting the provider to order
Test sensitivity and specificity are acceptable to users. (appropriate) therapy, the time needed to dispense and ad-
Test positive and negative predictive values are acceptable to users. minister that therapy, pharmacokinetic variation between
Test results are easily reported to and interpreted by users. patients, the presence or absence of comorbid conditions,
the severity of the infection, and the general health of the
patient may all influence the outcome of the intervention;
sorting out the contribution of the new test to the eventual
Cost-Effectiveness Analysis, Cost-Benefit Analysis, outcome simply may not be possible.
and Cost-Utility Analysis Not surprisingly, despite wide use of the term in the
Cost-effectiveness analysis (CEA) has been defined as “the context of laboratory testing, relatively few laboratory
primary tool for comparing the cost of a health interven- tests have been subjected to true CEA. Because laboratory
tion with the expected health gains” (13) and as “a method tests are so widely used, and in some situations are the ba-
for evaluating the health outcomes and resource costs of sis for initiation, change, or withholding of therapy, better
health interventions” (10). The method has been in use for analytical tools to assess the “effectiveness” of laboratory
many years and has been the subject of much discussion tests are badly needed.
as a potential means of helping guide healthcare policy
and allocation of resources (34). Not surprisingly, there is
understandable confusion between the terms CEA, cost- Documenting the Extent of the Problem
benefit analysis (CBA), and cost-utility analysis (CUA). Effective laboratory management requires continuous
These terms do have specific meanings and usages: evaluation of the tests performed in the laboratory in
terms of their clinical relevance, cost effectiveness, and
• CEA expresses outcomes in natural units (e.g., cases
whether new diagnostic methods should be used, either to
prevented or number of lives saved).
replace methods currently in use or as new tests. This type
• CBA assigns dollar values to the outcomes attributable of evaluation requires an unbiased assessment of the test
to the program. in light of published information, including a review of the
• CUA is a specialized form of CEA that includes a literature, use of centralized studies that yield benchmark
quality-of-life component associated with morbidity information, and if necessary, use of local data.
using common health indices such as quality-adjusted
life years and disability-adjusted life years. Literature Review
The published data regarding appropriate laboratory test
Compared with CBA and CUA, CEA is:
utilization have, until recently, focused on the issues of the
• Less time- and resource-intensive relative accuracy of diagnostic methods, the clinical rele-
• Easier to understand vance of tests, or the cost-effectiveness of different diagnos-
tic methods. These issues first received emphasis in the early
• More readily suited to decision making (Centers for
1970s, when controlled clinical comparisons of diagnostic
Disease Control and Prevention, Cost Effectiveness
laboratory methods became more common, investigators
Analysis; http://www.cdc.gov/owcd/eet/CostEffect2/
began looking at the clinical relevance of diagnostic tests,
fixed/1.html, accessed August 25, 2012)
and the issue of cost control became increasingly important.
Despite being a better type of analytical tool compared As noted by van Walraven and Naylor (45) and commented
with the other two methods, CEA may not be useful as a on by Lundberg (21), much of the published literature about
tool to evaluate laboratory tests. Trying to determine the the clinical relevance and cost-effectiveness of laboratory
contribution of a laboratory test result to a natural outcome tests lacks the scientific rigor that characterizes evaluations
such as “cases prevented” is not easy; there are so many of other diagnostic modalities and therapies.
other variables that determining the relative role and con- These criticisms almost certainly are valid, but holding
tribution of the laboratory test result may not be possible. laboratory tests to the same standards as other diagnostic
For example, the impact of using a rapid malaria diagnos- procedures or methods may be unrealistic. There are two
tic test as part of a malaria control program depends not reasons for this. First, laboratory methods usually are used
only on the accuracy of the test, but also on whether the to confirm clinical impressions or to supplement clinical, ra-
providers based their treatment on the test result, whether diographic, or other laboratory data. This is different from,
the treatment was appropriate, patient compliance, the for example, a biopsy that by itself may provide definitive di-
presence or absence of comorbid conditions, the severity agnostic information. In other words, many laboratory tests
of the infection, and the general health of the patient (49). do not stand alone for the purposes of making diagnoses.
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 879

Second, the clinical impressions of providers play an impor- regarding laboratory practices. As an example, the CAP
tant role in the interpretation of test results. This is because Microbiology Resource Committee has evaluated data re-
the pretest probability of a disease affects interpretation of garding the utility of user-based quality control (QC) for
test results. (For an example and further statistical explana- commercial microbiological media (19). The data show
tion, the reader is referred to Aronson and Bor’s [3] clas- that, for a number of types of commercial media, user QC
sic discussion of blood cultures, specifically the section on adds little to manufacturer QC and therefore can be elimi-
the influence of pretest probability on posttest probability). nated without adversely affecting quality (19). Eliminat-
Thus, while it often is possible to design controlled clinical ing superfluous QC not only saves money, but also allows
trials of novel diagnostic methods or therapies, evaluating technologists to focus their time and efforts on tasks that
laboratory methods is not as straightforward. are more beneficial to patient care.
Despite these limitations, some issues regarding labora-
tory tests can be studied adequately via controlled clinical Local Data
trials, including product comparisons, comparison of new Making a change often requires convincing users that
diagnostic tests with older methods, evaluations of the the change is necessary and that the decision to make the
cost effectiveness of different tests, and some evaluations change was based on data. For the most part, data should
of clinical relevance. Some aspects of the clinical effects of be from published clinical trials, particularly those that
laboratory testing also can be studied adequately, such as meet the requirements of evidence-based medicine. In
the impact of the timeliness of result reporting (7, 14). specific circumstances, as noted by McLaughlin, it helps to
supplement published data with data collected locally (24).
Centralized Studies The reason for this is that many providers believe that their
A second type of study exists that can be useful in compar- patients are in some way different from those elsewhere.
ing laboratory practices among peer groups, also known as While this may be true if one is dealing with patient popu-
benchmarking studies. These studies differ from scientific lations that are specific in terms of age, gender, or ethnic-
studies in that the purpose is not to test a hypothesis, but ity, it is not true when applied to the general population.
rather to compare laboratory practices in such a way as to Nonetheless, many providers do believe that their patients
develop statistically valid standards against which individ- are different, and collecting local data can help to convince
ual laboratories can compare their relative performance. them that observations made elsewhere do apply to their
By their design they do not test clinical outcomes, so they patients. The implementation of changes is often subject
cannot be used to determine clinical efficacy. Nonethe- to local politics, even in the presence of evidence. It is im-
less, because these studies tend to involve many hospitals portant, therefore, to gain a thorough understanding of
and laboratories, they can be used to collect large data sets the medical and administrative hierarchy within the local
about laboratory practices. system. It is also useful to explore how others have success-
Examples of centralized studies include the College of fully implemented changes. Although one would hope that
American Pathologists (CAP) Q-Probes and Q-Tracks pro- in an era of “evidence-based” medicine one would not have
grams (43). In these studies, laboratories provide data about to consider such variables, this is in fact the real world.
specific laboratory practices, which are then collated and One author (GWP) has found that a multidisciplinary test
analyzed. The Q-Probe is based on a single observation, such utilization committee is a useful venue in which to brain-
as turnaround times for certain tests sent from emergency storm ideas as well as to formulate recommendations. The
departments, used to establish benchmarks for specific tests. recommendations can then be presented to the medical
In contrast, the Q-Track is based on a series of observations executive committee or its equivalent for further consider-
taken during specific times to determine trends for specific ation and (hopefully) implementation.
tests. These studies typically involve collecting data from While collecting local data may be necessary for specific
hundreds of hospitals for hundreds of thousands of tests. As purposes, studies performed locally are unlikely to meet
a result, they are of a scale that is unique in the United States, the requirements of evidence-based medicine. They are
matched only by reporting to the Centers for Disease Con- expensive, and performing them delays implementation of
trol and Prevention (e.g., the National Nosocomial Infections necessary changes. Moreover, even though there has not
Study) and other data collected by the federal government. been a systematic study of this issue, it is unlikely that the
When the data are sorted and analyzed by hospital type, size, results of local studies (if performed correctly) will differ
geographic region, and other parameters, they provide labo- from those performed on broader populations. Most clini-
ratory directors with a powerful benchmark tool. cal studies published in peer-reviewed publications are of
Large data sets also are collected as part of the CAP a magnitude and cost that cannot be duplicated locally.
Proficiency Testing program. These data are not collected Additionally, if a local study yields findings that are differ-
for the purpose of evaluating specific laboratory tests, but ent from those of larger studies, the investigator will be in
some of the results can be pooled to yield information the position of needing to explain why the results differed
880 DEFINING AND MEASURING STANDARDS FOR SUCCESS

and were not just wrong. If the results are valid, the in- Table 49.2 Laboratory-based approaches to control
vestigator should publish the findings in a peer-reviewed Newsletters
journal so that others can benefit from the observations. Policy changes
As an example, in 1990, Siegel, Edelstein, and Nachamkin Personal and ad hoc communication
published a study showing that there was no yield in per- LIS/HIS-based controls on test ordering
forming stool cultures or tests for ova and parasites after LIS/HIS-based feedback in reports
patients had been hospitalized for three or more days (35).
This study was repeated in a number of hospitals during the
next few years, culminating with a CAP Q-Probe study that
was published in 1996 (15, 28, 43). Each of these studies Newsletters
yielded almost identical results as the Siegel study. In one Newsletters, like all written materials, often are ineffective
author’s experience (MLW), the local data were found to be as a means of communication for the obvious reason that
more persuasive than were the original data in convincing busy providers are unlikely to read them. This is particu-
physicians to accept the recommended changes, which ini- larly true if they are not written well, are not timely, or con-
tially were met with some skepticism by providers. Subse- tain a lot of trivial information. On the other hand, they
quent studies have indicated some exceptions to the initial have the advantage of being a dispassionate means of dis-
findings, but for the most part the “three-day rule” is now seminating information. This can be a strategic advantage
standard practice in clinical microbiology laboratories. when introducing contentious changes. They also have the
Other examples of local data that were published and advantage of being impersonal, which again can be ad-
that have resulted in widespread changes in laboratory vantageous when introducing contentious or unpopular
practice include screening cerebrospinal fluid specimens changes. Although one should never dodge the respon-
before performing cerebrospinal fluid Venereal Disease sibility of explaining and defending proposed changes to
Research Laboratory tests or mycobacterial smears and those who will be affected the most, there is only a finite
cultures (1, 2), performing nucleic acid amplification tests amount of time for doing so, and it is unrealistic to meet
for the etiologic agents of viral meningoencephalitis (36, with every provider or stakeholder, particularly in large
39), eliminating bacterial antigen tests for the diagnosis organizations. Moreover, some individuals will not agree
of bacterial meningitis (16, 25, 30), and eliminating broth to proposed changes, no matter how rational the change
“backup” cultures for most tissue and fluid specimens (27). is, so there is little point in trying to persuade them. When
Morris et al. reviewed the cost and time savings that re- this occurs, it is better simply to announce the change as a
sulted when several of these changes were made in one fait accompli, usually as a policy change, and move on to
laboratory; the time savings in particular were substantial other issues.
(26). Test utilization changes that both improve patient
outcomes or the patient experience while decreasing costs Policy Changes
are often the changes most readily accepted by both medi- As with newsletters, policy changes have the advantage of
cal and administrative professionals. being impersonal and dispassionate. They have the addi-
tional advantage of having an air of authority about them,
an attribute that can be advantageous when it can be an-
Laboratory-Based Approaches to Control ticipated that the policy will face some opposition.
As medical care facilities implement computerized physi-
cian order entry (CPOE) systems, there are opportunities Personal and Ad Hoc Communication
to intervene and stop unnecessary test orders before speci- The preceding paragraphs emphasize the use of dispas-
mens are even collected. This approach saves time and sionate and impersonal written communication as a
money associated with unnecessary collection and speci- mechanism of reducing any potential opposition to mak-
men transportation. In addition, decreased phlebotomy ing changes in laboratory practices. This is not intended
decreases iatrogenic anemia in hospitalized patients and to be a substitute for direct personal communication with
improves the patient experience. If these types of interven- providers as a means of explaining why changes are neces-
tions are not possible, the laboratory remains an excellent sary, for receiving input from those who will be affected
place to control (limit) test utilization. Not only is the labo- by the changes, and for monitoring the effect(s) of the
ratory the site where specimens are processed and testing changes. One of the first steps is to ensure support from
is performed, but in many hospitals the laboratory is re- the institutional leadership. Next, one should discuss the
sponsible for the phlebotomy service. In addition, labora- proposed changes at length with those who will be af-
tories are ultimately responsible for specimen collection. A fected. These discussions may not reverse the decision to
number of laboratory-based approaches to control labora- make the change, but merely having the discussions often
tory test utilization have been described (Table 49.2). ameliorates the emotional impact of the changes. In some
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 881

instances, unanticipated consequences may be discovered CPOE system would have all of these features and would
during these conversations, and improvements to the pro- have the potential to reduce errors and to change orders so
posed changes can be made. Approaching changes from that practice standards, clinical pathways, and other efforts
the perspective of the provider can affect the way that the to improve care would be realized (31, 32, 37).
change is implemented. The advantage of a hospital information system (HIS)
intervention that works in conjunction with CPOE is
LIS/HIS-Based Controls on Test Ordering that the intervention occurs prior to specimen collection.
Modifying the test ordering process has been shown to be One author has helped to implement an intervention in
an effective approach to changing test utilization behavior. his institution that blocks unnecessary (i.e., redundant)
Tierney et al. showed that the computerized display of test same-day repeat test orders. The tests on this list were vet-
charges for outpatients resulted in a significant decrease ted with the medical leadership prior to intervention, and
in test utilization (40). Although Bates et al. showed that means are available to complete these orders if the pro-
a similar effect did not occur with inpatients, there were vider believes they are medically necessary. In 2011, 7,243
trends in that direction (5). The same authors, in a similar unnecessary same-day duplicate orders were blocked by
study, showed that computerized display of redundant tests this electronic intervention. The cost avoidance from this
was an effective intervention but that the effect was limited intervention, calculated based on materials and technolo-
(6). In another similar study, Solomon et al. showed that gist time, was $115,590. Although the cost avoidance as-
a computer-based intervention was effective in reducing sociated with specimen collection and transportation was
unnecessary serologic testing in an inpatient setting (38). not calculated, it too was likely significant. As IT systems
Despite the limited effect associated with some of these in- become more sophisticated, with better connectivity be-
terventions, there appears to be increasing evidence that tween individual modules such as the HIS and the LIS,
computer-based interventions can be effective for chang- developing “rules” to eliminate redundant testing should
ing test utilization behavior. become easier. More highly developed IT systems will have
Most commercial laboratory information systems the ability to block tests that do not meet other criteria. As
(LISs) have the capability to identify duplicate orders, to an example, the LIS will have the ability to check with the
flag orders that meet specific criteria (e.g., the number of pharmacy system to see if a patient has received a dose of
blood cultures ordered within a defined period), to docu- drug at the correct time before allowing for measurement
ment test changes or cancellations, and to notify provid- of a peak or trough drug level. Other potential rules are
ers of changes to an order. These rudimentary capabilities obvious, but at this time many IT systems do not have the
allow laboratories to improve test utilization substantially, functionality for such programming.
as duplicate or redundant tests are by any definition clini-
cally irrelevant and wasteful. This is particularly impor- LIS-Based Feedback in Reports
tant in settings where more than one provider may be Even without a rules-based CPOE system, many LISs can
ordering tests for patients, a circumstance that results in be programmed to provide information about the cost of
increased duplicate testing (9, 42). The ability to deter- laboratory tests, information regarding the clinical util-
mine test utilization by provider also is within the capabil- ity of tests, and warnings about the use of certain drugs
ity of most commercial LISs; this information can be used in patients with specific laboratory findings (such as renal
to track test ordering patterns and to provide feedback to failure). Many LISs have the ability to show specific com-
the provider. ments either automatically (based on rules within the sys-
As useful as these capabilities may be, by no means are tem) or by manual ad hoc request. These systems can be an
they a feature of all commercial LISs. Moreover, many LISs inexpensive and effective way to disseminate information
cannot be used to modify test ordering at the time orders to providers.
are placed. This capability is a feature of LISs that can be There are a number of types of feedback that can be
used for computerized physician order entry (CPOE). given to providers. In clinical microbiology, one of the most
These LISs are integrated with the hospital or organization commonly used types of feedback is the selective reporting
information system; the more sophisticated CPOE systems of antimicrobial susceptibility test results, with or without
are integrated with software that allows for the analysis of comments, to help guide interpretation of the results. Even
information regarding other laboratory tests, drug aller- without comments, the provider receives test results only
gies and other adverse drug reactions, nutrition, radio- for those antimicrobial agents that are likely to be clinically
graphic findings, and clinical findings. The LISs that have relevant, information that should improve patient care.
some CPOE capability vary considerably in their ability to Another common type of feedback is the average daily cost
integrate this information so that orders can be modified of drugs that are reported for antimicrobial susceptibility
either by alerting the provider at the time of entry or by test results. Other common types of feedback for micro-
the CPOE system directly. A fully functional and robust biology tests include comments regarding the presence of
882 DEFINING AND MEASURING STANDARDS FOR SUCCESS

contaminating flora, the lack of clinical relevance for some before meeting with the general membership. This is be-
types of testing (e.g., microorganisms recovered only from cause (i) medical staff leaders typically have a better un-
broth cultures), specimen adequacy (e.g., the evaluation derstanding of issues that necessitate changes, (ii) leaders
of sputum specimens for neutrophils and epithelial cells), are selected because of their experience and the respect
the types and numbers of microorganisms recovered from that physicians have for them, (iii) most leaders have been
midstream urine specimens and their likely clinical rel- through a number of changes and thus are less resistant to
evance, and the number and adequacy of specimens re- change, and (iv) obtaining leader support facilitates chang-
ceived for blood culture. Given adequate laboratory and ing the way medicine is practiced. Medical staff leaders can
computer resources, comments can be developed to help also serve as a liaison with the general membership. It is
guide the interpretation of most laboratory tests. difficult to overstate the importance of having their support
when contentious or unpopular changes must be made.
In teaching hospitals and clinics, one of the leading roles
Institution-Based Approaches to Control of the medical staff is to provide adequate supervisions of
As with laboratory-based approaches to control, a num- students and residents. Laboratory test overutilization is
ber of institution-based approaches to control laboratory well known to be higher in teaching settings, is partially
test utilization have been described (Table 49.3). The two attributable to trainees (12), and does require adequate
types of approaches are not exclusive: Each complements oversight. One of the more important roles of attending
the other, and used together, they might be more effective physicians is to teach and train when to order tests; which
than either type of approach used alone. tests to order; how to interpret test results in the context
of the patient’s other clinical, laboratory, and radiographic
Working with the Medical Staff findings; and what interventions (if any) should be based
In most organizations, the medical staff is in a leadership on the test results.
position regarding patient care. There are several reasons
for this. First, most hospital-based medical care continues Formal Protocols Validated by Medical Staff
to be provided by physicians, and hospital care is much A particularly effective means of implementing changes is
more expensive than is outpatient primary care. Second, the use of clinical protocols or guidelines that have been
physicians provide most outpatient specialty care, and reviewed and validated by the medical staff. These have
specialty care often is the most expensive and cutting edge a number of synonyms, including care protocols, clinical
and therefore requires the most immediate oversight of pathways, key clinical pathways, clinical care standards,
cost control. Third, The Joint Commission requires that and patient care guidelines. When developed correctly,
the medical staff fulfill specific roles within organizations, these protocols incorporate findings and guidelines from
including overseeing the quality of medical care in the or- evidence-based medicine, as well as specific guidelines
ganization, participating in committees that affect patient from organizations such as the Centers for Disease Con-
care (e.g., the pharmacy and therapeutics committee), and trol and Prevention, into the practices and workflow of an
overseeing graduate medical education (resident and fel- organization. The end result should be the application of
low training). Fourth, although nonphysician providers state-of-the-art medical knowledge to a specific patient
such as nurse practitioners and physician assistants pro- population in a specific setting. Such protocols not only
vide a great deal of primary (and some specialty) care, in provide the best patient care but also improve medical train-
many states these providers work under the supervision ing and education and should help providers use the most
of a physician. Last, physicians generally are the most out- cost-effective approach to healthcare. For obvious reasons,
spoken group when changes in patient care are proposed, these protocols should specify the use of the most appropri-
and some changes are unlikely to occur without their ate laboratory testing and radiologic tests and procedures.
concurrence.
One can approach the medical staff in a number of ways Working with the Nursing Staff
when a change is needed. One effective strategy is to first In the hospital and the outpatient clinic settings, there is
meet with the medical staff leadership and senior physicians no group other than the nursing staff that can be of more
support in making changes. Nurses provide almost all of
Table 49.3 Institution-based approaches to control
the immediate patient care in hospitals. They provide a
large amount of primary care, they are responsible for most
Working with the medical staff
specimen collection in both inpatient and outpatient set-
Formal protocols validated by medical staff
tings, and they play an important role in medical training
Working with the nursing staff
and education. Moreover, nurses bring different training
Institutional protocols
and insights to patient care that are just as important as
Using major problems to effect change
those of physicians. Thus, it is of particular importance to
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 883

discuss proposed changes with nurses, as they know best far more laboratory tests than there are drugs. That said,
the practical side of implementing changes and how each there are enough similarities between the two that it is
setting functions throughout the day and the week. worth testing the hypothesis that a laboratory test formu-
One current challenge in working with the nursing lary is an effective method for controlling utilization. One
staff is the shortage of trained nurses in the United States. author, in conjunction with medical leadership at his in-
To maintain appropriate nurse-to-patient ratios, hospi- stitution, has instituted a restricted use initiative, wherein
tals have opted to use nurses from companies that pro- only providers with subspecialty training in medical ge-
vide nurses for varying periods, from one shift to several netics or other advanced training can order expensive mo-
months. Another change, particularly in hospitals, is to as- lecular genetic testing. The cost avoidance associated with
sign nurses to different units depending upon the number this intervention, which was only active for part of 2011,
of patients on those units at a given time. Although these was $248,923. There are already opportunities to make
staffing approaches are necessary for purposes of patient similar interventions in the use of some of the expensive
care, one consequence is that it is more difficult to train molecular diagnostic assays that are used for the detection
nurses adequately and to work with them to implement and characterization of infectious agents. A second author
changes smoothly. It is unlikely that this will change in the helped develop a similar system whereby a list of tests sent
immediate future. Consequently, the best approach at this to reference laboratories was hidden in the CPOE system
time is to work with the nursing leadership in the organi- used for inpatients at his institution. The reasons for devel-
zation and to take the extra steps necessary to work with oping this system were straightforward. First, the results of
the nurses who are temporarily assigned to a given setting. many (if not most) tests sent to reference laboratories are
not available prior to discharge and therefore cannot af-
The Concept of the Laboratory Test Formulary fect the care of the patient during the hospitalization. Sec-
Pharmacies improve the use of drugs, reduce costs, and ond, because of the way reimbursement occurs with the
work to minimize or slow the emergence of antimicrobial diagnosis-related group system, hospitals do not receive
drug resistance by several mechanisms, one of which is the reimbursement for many of these tests when they are or-
development and use of drug formularies. At its most ba- dered on an inpatient basis. In contrast, if one waits for 72
sic level, a formulary is little more than a list of drugs that hours following discharge before ordering these tests, the
have been approved for use in a given healthcare setting or healthcare system can charge for these tests and receive re-
program. It obviously is more complicated than that, but imbursement at the rate covered by the patient’s insurance
the principle behind a formulary is simple: For condition or healthcare plan. Lastly, in teaching hospitals in particu-
X, only drugs Y and Z are available. Other drugs in that lar, it is often better to defer esoteric testing to an outpa-
class, and even drugs in different classes that could be used tient specialty clinic where more experienced providers are
to treat condition X, are unavailable. The concept of devel- responsible for selecting tests. Even though these tests are
oping a similar mechanism to direct and limit laboratory hidden in the CPOE system, a process was developed to al-
test utilization is not new; all laboratories select specific low providers to order a test when necessary for inpatients.
assays and specific platforms on which to run those assays The most recent estimate for the cost savings during hos-
rather than offering multiple tests for the same condition. pitalizations is $330,000 annually.
This is part of good laboratory practice. What is a newer
concept involves a more directed and systemic approach Using Major Events To Effect Change
involving a committee of both laboratorians and providers (e.g., Institutional Quality Assurance
who develop a tiered formulary and then act to enforce it. [QA] Office, Root Cause Analysis)
A number of models exist, but all have in common a list of Major events in healthcare provide opportunities to make
tests available to any provider at any time, a second tier of changes that otherwise may not be possible. This is nei-
tests restricted to a specific group or groups of providers ther a cynical observation nor opportunistic management.
(usually specialists who can order certain tests relevant to Rather, it is recognition of the fact that some issues can-
their specialty), a third tier of tests available only under not be dealt with under normal circumstances because
specific circumstances and with prior authorization, and of political, financial, or other constraints. During major
a fourth tier of tests that are not available (23). Despite the events, however, these constraints may diminish or disap-
variations that have been described, most of these systems pear, providing an opportunity to bypass them. Change
are similar in their structure and function. Whether they occurs more easily during major events because there typi-
are an effective and sustainable means of controlling and cally is an acknowledgment that the status quo no longer
improving laboratory utilization requires further research. can be preserved, individuals may need to take a different
Laboratory tests are not used the same way as drugs, do view of circumstances, and many departments may be in-
not have the same direct impact on patients, and often are volved. A particularly opportune time to eliminate proce-
used for many different conditions; furthermore, there are dures or tests that are of marginal utility, or that providers
884 DEFINING AND MEASURING STANDARDS FOR SUCCESS

are unwilling to give up at other times, may be during a or have had only a temporary effect (4, 41). As reviewed by
reduction in operating budgets. Other events that provide Valenstein, physician education has been shown to be an
unique opportunities for change include changes in orga- ineffective approach to changing test utilization (despite
nizational management, changes in ownership, relocation being the most commonly used intervention), and both
of laboratory facilities within the building or complex, clinical and financial feedback has been shown to have
construction of new facilities, implementation of CPOE variable effectiveness (41). In the same review, Valenstein
systems (particularly when rules-based orders will be noted that administrative interventions have been shown
implemented), and changes in academic or other types of to be effective in changing test utilization (41). These in-
affiliations. Although these changes may not afford equal clude requiring justification for certain tests, changing
opportunity for change, or for the same types of change, the test request process, and changing “informal testing
laboratory directors should look for opportunities that ac- rituals” (29, 41). The first of these, requiring justification
company what otherwise are challenging circumstances. for certain tests, may be an effective intervention, but it
Important allies for implementing changes include the is impractical to implement in many settings and almost
quality assurance (QA) office and the compliance office. certainly will be unpopular with physicians. The second,
The QA office plays a number of important roles within changing the test request process, may ultimately be the
organizations, including ensuring compliance with accred- most practical and effective intervention, particularly
itation standards, investigating adverse events, performing when it involves the use of CPOE systems. Hindmarsh
root cause analyses, and developing organizational poli- and Lyon report a similar observation (17). The third in-
cies and procedures. The compliance office deals primarily tervention, changing testing “rituals,” usually falls under
with ethics, business practices, and compliance issues re- the penumbra of clinical pathways, and in settings where
lated to financial matters. The QA office, given its broader physicians adhere to the pathways it can be an effective in-
role within the organization, can assist with change by tervention (8).
helping develop clinical protocols, particularly those that In their review, Axt-Adam et al. noted that one explana-
involve changing organizational policies and procedures. tion for the lack of effectiveness of many interventions is
It can also assist with change when an adverse event or the that physician behavior depends upon the physician’s per-
findings from a root cause analysis indicate that a change sonality, education, training, specialty, location of practice,
is necessary. Obviously, either office can assist with change years of clinical experience, estimated test charges, and
when the change is necessary for compliance reasons. In expectations (4). Malcolm et al. also reported that “per-
some cases, this type of assistance can be invaluable for sonal factors” affect the way physicians use laboratory tests
making changes that are contentious but necessary. (22). The effect of clinical experience on test utilization has
been reported in a number of studies, one recent example
being the increased use of ancillary tests by inexperienced
What Works and Doesn’t Work: physicians in the evaluation of acute febrile illness (33). In
How To Take the First Steps his review, Valenstein reported that risk-taking attitudes
There is a substantial body of literature regarding the ef- might affect test-ordering behavior, although some inves-
fectiveness of different methods for changing laboratory tigators have not found a relationship between personality
test utilization. Most of this literature reflects the notion and test utilization (41). Given the number of factors that
that “changing” test utilization usually means limiting test may affect test-ordering behavior, it comes as no surprise
utilization. This undoubtedly is an oversimplification of that many specific interventions have been found to be in-
the issue, as there are good examples of how laboratory effective in changing behavior. It may be that at any time
tests can be underutilized as well as overutilized. Nonethe- and in any place only a subset of physicians is amenable to
less, the problem of overutilization receives more emphasis a particular intervention and that over time no static inter-
because it probably is more pervasive in modern medicine vention will result in sustained changes in test utilization
than is underutilization, and decreasing overutilization behavior. As Valenstein noted in his review, “to the extent
can yield substantial cost savings. It is true that increasing that differences in the test-ordering behavior of physicians
the use of tests that are underutilized can decrease costs reflect ingrained and immutable psychological traits, one
in the healthcare system as a whole, but until recently, few would expect little success in modulating test utilization
systems have taken the broader approach to cost control, by trying to influence individual providers” (41). This may
instead focusing cost control efforts on specific issues. be the most realistic assessment of the effect of personality
Changing/controlling laboratory test utilization means on test utilization behavior and the lack of effectiveness of
changing/controlling provider (usually physician) behav- educational interventions in changing that behavior.
ior. This has proven to be a complex and difficult issue for Despite the reported variable success in changing
healthcare systems to address, as most interventions in- test utilization behavior and the difficulty in sustaining
tended to change physician behavior have been ineffective changes, there is cause for optimism. First, there has been
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 885

for many years little or no doubt among laboratorians— avoid presenting support as an edict, as this approach may
and many clinicians—that more laboratory tests are per- yield not the desired response but instead its opposite.
formed than are needed for patient care and that many Perhaps the single most effective argument that can
laboratory tests are used incorrectly (18, 20). Second, be presented to providers is to emphasize that the change
there is a growing awareness among providers that health- will result in the best care for the patient. That may mean
care resources are limited and should be allocated so as to that the change is supported by evidence-based medicine,
maximize their benefit to patients. Third, improvements a topic that has received much emphasis recently. This
in information systems have resulted in CPOE systems concept is a process by which evaluation and treatment
that have the capability to affect test utilization via im- guidelines are based on published evidence regarding their
mediate feedback to providers as well as by use of artifi- effectiveness.
cial intelligence. Last, the growing body of literature on
evidence-based medicine makes it much easier for health-
Putting It All Together
care systems to develop rational clinical pathways and for
laboratorians to use those pathways as part of their strat- Base Policy Approaches and LIS/HIS-Based Controls
egy to change test utilization. on Evidence-Based Medicine
From a purely pragmatic standpoint of making changes The published data about changing physician behavior in-
in diagnostic microbiology testing, McLaughlin has pub- dicate that most approaches achieve only a temporary ef-
lished a step-by-step approach that is rational, practical, fect or are ineffective altogether. Of the described methods
and (by anecdotal experience) effective (24). Table 49.4 that have been shown to be effective, use of LIS-based con-
shows a modified version of this approach. As emphasized trols may be one of the more effective methods. Data re-
in McLaughlin’s approach, building support for change is garding the effectiveness of evidence-based medicine as a
crucial (24). Many changes that are needed to make a lab- tool for limiting test utilization are available for only a lim-
oratory more cost-effective or clinically relevant are con- ited number of tests, but the data that are available (as well
tentious, even when they are not costly. There are several as anecdotal experience) suggest that physicians may be
reasons for this. The first is that making changes can mean more accepting of changes that are derived from evidence-
taking something away from providers, and it is axiomatic based medicine (46). There are at least two reasons why
that it is more difficult to take something away than it is this observation may be true. First, by the nature of their
to not give it in the first place. The second reason is that education and training, physicians are more receptive to
making changes shifts control from the provider to the lab- information based on sound scientific or medical research.
oratory, and providers may perceive that this affects their Second, information that is scientifically persuasive is likely
clinical autonomy and/or their ability to act on behalf of to be adopted as the standard of care, and physicians by and
their patients. The backlash against managed care by pro- large adhere to what is perceived to be the standard of care
viders illustrates this principle. Last, making changes is dif- within their community. Thus, one approach to increase
ficult under most circumstances, even when it is perceived the likelihood that physicians will accept change is to use
to be in one’s best interests. To facilitate changes, having LIS-based controls on physician ordering and to base the
the support of departmental and organizational leadership changes on evidence-based medicine. As stated previously,
is crucial. By support, one hopes for an understanding and one of the advantages to the use of LIS-based controls is
analysis of the recommended changes, including an un- that test-ordering patterns can be tracked automatically,
derstanding of the impact on services as well as of benefits, thereby generating physician-specific utilization data.
costs, and alternatives. In all circumstances, one should
Track Results
As with any type of decision to make changes within an
Table 49.4 Implementation of diagnostic microbiology policiesa
organization, the effectiveness of changes in laboratory
Base proposed changes on published data. test utilization is determined by (i) the quality of the de-
Supplement these data with in-house data. cision to make the change, (ii) the success of the imple-
Gain the support of the infectious diseases service. mentation, (iii) the likelihood that the intervention can
Discuss proposed changes in advance with influential providers. be sustained, (iv) the willingness to modify the change
Educate providers who will be affected by the changes. as needed, and (v) whether the change improves patient
Announce changes by effective means of communication. care and/or outcomes. Documenting the effectiveness of
Educate laboratory staff who will implement the changes. the change requires the collection of data prior to imple-
Revise laboratory manuals accordingly. mentation of the change followed by tracking the results
Initially give providers an “override” mechanism. of the change. For some changes, this is simple. Changes
Provide necessary explanations and follow-up to users. made to decrease or increase utilization of a specific test
a
Modified from reference 24. can be tracked simply by auditing test utilization over
886 DEFINING AND MEASURING STANDARDS FOR SUCCESS

specific intervals. On the other hand, changes intended to there is the possibility of change. The best patient care and
improve patient care or outcomes require the collection of societal outcomes will derive from stewardship, which is
large amounts of data, often over long periods of time, and what Weinberger’s proposed seventh competency really is
interpretation of the data in light of other clinical, radio- about, particularly if implementation of this competency
graphic, and laboratory findings. In some instances, they changed care based on evidence. It is unlikely that many
require formal study of the issue via randomized clini- GME programs will implement (or even explicitly ac-
cal trials. Finally, feedback to the governing bodies (e.g., knowledge) this competency in the evaluation of trainees
medical executive committee, board of governors) of the unless required to do so by the ACGME.
positive outcomes (e.g., improved response, decreased
length of stay, or cost savings) is important, as it builds
relationships and trust, which will be important for your
Summary
next proposal. The principle that guides changes in laboratory test utiliza-
tion must be that of clinical relevance. Clinically relevant
The Plan, Do, Study, Act Model tests may or may not be cost-effective, but tests that are
Once the effects of a change have been tracked for some not clinically relevant cannot be cost-effective, regardless
time, a decision can be made to either continue the change of how inexpensive they may be. Although the tools for
without modification, to modify it, or to discontinue the assessing clinical relevance are imperfect, efforts are being
change. This approach parallels what The Joint Com- made to improve the way that clinical evaluations of labo-
mission for many years promoted as the plan, do, study, ratory tests are performed so that assessments of clinical
act approach for making change. The approach is self- relevance, the impact on patient outcomes, and cost effec-
explanatory, is simple, and can be used to address many tiveness can be standardized and quantified. Until those
types of issues. For this approach to be used effectively, the assessment tools are available, however, laboratorians
study and act stages of the process require the use of quan- should make use of the characteristics of clinically relevant
tifiable data that can be tracked through time. Nardella et tests presented in Table 49.1.
al. described a model system that incorporates many of the There is now good evidence that any effective and sus-
issues discussed in this chapter (29). The model is a good tainable approach must include a combination of inter-
example, without use of the specific terms of the plan, do, ventions (44). Based on the available evidence, and on the
study, act model for creating an effective intervention. experience of the authors and others, changing laboratory
test utilization requires (i) careful planning and prepara-
The Future: Better Teaching and Training tion; (ii) establishment of guidelines (clinical pathways
Because physicians, and those working under their su- or other types) derived from evidence-based medicine;
pervision, drive the demand for most laboratory testing, (iii) a detailed plan for introducing and implementing the
it would seem intuitive that medical education and train- changes; (iv) use of informatics to disseminate guidelines,
ing should place a priority on test ordering as part of automatically perform some tasks (e.g., elimination of du-
learning to care for patients. Unfortunately, this is not the plicate tests), and track data regarding utilization; (v) con-
current state in the United States, either in undergradu- tinuous monitoring of the effectiveness (and the effects of)
ate or graduate medical education (GME). In fact, past the change; and (vi) continuous modifications as necessary.
GME tradition has caused some of our current problems;
omissions were chastised more often than commissions: KEY POINTS
“Did you order/get X?” and not “Why did you order/get
■ A number of laboratory-based approaches to control-
X?” was the paradigm for generations of trainees. Cooke
ling laboratory test utilization are described, including
(11) clearly delineates the responsibility of GME to in-
newsletters, policy changes, personal and ad hoc com-
culcate cost-consciousness, and Weinberger (47) presents
munication, LIS-based controls, and LIS-based feed-
a realistic mechanism for changing this paradigm, as he
back in reports.
advocates for the addition of a seventh competency, cost-
conscious care and stewardship of resources, to the six ■ A number of institution-based approaches to control-

general competencies promulgated by the Accreditation ling laboratory test utilization are described, including
Council for Graduate Medical Education (ACGME). The approaches to working with the medical and nursing
ACGME has the influence to mandate change in training staff and using formal protocols that have been vali-
programs, as teaching institutions certainly seek to com- dated by the medical staff, institutional protocols such
ply with regulations rather than risk being placed on pro- as clinical pathways, and major events to effect change.
bation or even shut down. Education has grave limits for ■ Effective control of laboratory test utilization requires
changing behavior: Regulation works better. As the “com- the use of more than one approach or intervention.
petencies” permeate undergraduate education and GME, Of the different types of interventions that have been
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 887

evaluated, education appears to be the least effective. 2. Albright, R. E., C. B. Graham, R. H. Christenson, W. A. Schell,
Feedback to providers appears to be the most effective M. C. Bledsoe, J. L. Emlet, T. P. Mears, L. B. Reller, and K. A.
intervention, particularly when it is computer-based Schneider. 1991. Issues in cerebrospinal fluid management. Acid-
and when it is linked to evidence-based medicine. fast bacillus smear and culture. Am. J. Clin. Pathol. 95:418–423.
3. Aronson, M. D., and D. H. Bor. 1987. Blood cultures. Ann. In-
■ Effective interventions require the tracking of results,
tern. Med. 106:246–253.
modification as indicated by data, and sustained effort.
4. Axt-Adam, P., J. C. van der Wouden, and E. van der Does. 1993.
Influencing behavior of physicians ordering laboratory tests: a litera-
GLOSSARY ture study. Med. Care 31:784–794.
Cerebrospinal fluid Venereal Disease Research Laboratory 5. Bates, D. W., G. J. Kuperman, A. Jha, J. M. Teich, E. J. Orav, N.
(CSF-VDRL) test A serologic test for neurosyphilis that is per- Ma’luf, A. Onderdonk, R. Pugatch, D. Wybenga, J. Winkelman,
formed on a cerebrospinal fluid specimen rather than on a pe- T. A. Brennan, A. L. Komaroff, and M. J. Tanasijevic. 1997. Does
ripheral blood specimen. the computerized display of charges affect inpatient ancillary test
utilization? Arch. Intern. Med. 157:2501–2508.
College of American Pathologists (CAP) One of the profes-
sional societies for pathologists. One of the organizations that 6. Bates, D. W., G. J. Kuperman, E. Rittenberg, J. M. Teich, J.
accredit laboratories and provide a service for proficiency test- Fiskio, N. Ma’luf, A. Onderdonk, D. Wybenga, J. Winkelman,
ing. CAP also provides services such as Q-Probes and Q-Tracks T. A. Brennan, A. L. Komaroff, and M. J. Tanasijevic. 1999. A ran-
(see below). domized trial of a computer-based intervention to reduce utilization
of redundant laboratory tests. Am. J. Med. 106:144–150.
Computerized physician order entry (CPOE) A computer-
7. Beekmann, S. E., D. J. Diekema, K. C. Chapin, and G. V.
based system for placing clinical orders. Some systems have the
Doern. 2003. Effects of rapid detection of bloodstream infections
ability to integrate orders with pharmacy and laboratory data, to
on length of hospitalization and hospital charges. J. Clin. Microbiol.
make recommendations for drug dosage and timing, and to alert
41:3119–3125.
the ordering physician of issues such as drug allergy.
8. Board, N., N. Brennan, and G. Caplan. 2000. Use of pathol-
Evidence-based medicine The application of medical data (evi- ogy services in re-engineered clinical pathways. J. Qual. Clin. Pract.
dence) that have been analyzed using rigorous criteria to clinical 20:24–29.
decision making.
9. Branger, P. J., R. J. M. Van Oers, J. C. Van Der Wouden, and J. van
The Joint Commission (TJC) An organization that accredits der Lei. 1995. Laboratory services utilization: a survey of repeat in-
most hospitals and healthcare organizations in the United vestigations in ambulatory care. Neth. J. Med. 47:208–213.
States. TJC can also accredit clinical laboratories as deemed
10. Centers for Disease Control and Prevention. 2005. Cost effec-
organizations.
tiveness analysis. www.cdc.gov/owcd/eet/CostEffect2/fixed/1.html
Laboratory information system (LIS) A computer system used (last accessed July 14, 2012).
to report laboratory test results. A large number of commercial 11. Cooke, M. 2010. Cost consciousness in patient care: what is
systems are available. Most can be interfaced directly with instru- medical education’s responsibility? N. Engl. J. Med. 362:1253–1255.
ments to facilitate test result reporting and to minimize the need
12. Dine, C. J., L. M. Bellini, and T. J. Iwashyna. 2009. Team effect
for manual data entry. Some systems have added functionality
on variation in laboratory utilization on subspecialty services. Acad.
such as order entry.
Med. 84(10 Suppl.):S63–S66.
Q-Probes A program provided by the CAP that allows laborato- 13. Disease Control Priorities Project. 2008. Using cost-effec-
ries to collect data regarding laboratory processes and to com- tiveness analysis for setting health priorities. http://www.dcp2.org/
pare their data with data collected from peer organizations. The file/150/DCPP-CostEffectiveness.pdf (last accessed July 14, 2012).
data are collected for one time only.
14. Doern, G. V., R. Vautour, M. Gaudet, and B. Levy. 1994. Clini-
Q-Tracks A program provided by the CAP that allows laborato- cal impact of rapid in vitro susceptibility testing and bacterial iden-
ries to collect data through time regarding laboratory processes tification. J. Clin. Microbiol. 32:1757–1762.
and to compare their data with data collected from peer organi-
15. Fan, K., A. J. Morris, and L. B. Reller. 1993. Application of rejec-
zations on a quarterly basis.
tion criteria for stool cultures for bacterial enteric pathogens. J. Clin.
Quality assurance (QA) Systematic approaches to assessing and Microbiol. 31:2233–2235.
improving the quality of care within a specific healthcare setting 16. Hayden, R. T., and L. D. Frenkel. 2000. More laboratory test-
(e.g., a hospital or clinic) or healthcare program. ing: greater cost but not necessarily better. Pediatr. Infect. Dis. J. 19:
290–292.
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1. Albright, R. E., R. H. Christenson, J. L. Emlet, C. B. Graham, mote rational clinical chemistry test utilization. Clin. Biochem. 29:
E. G. Estevez, M. L. Wilson, L. B. Reller, and K. A. Schneider. 291–299.
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ease Research Laboratory testing. Am. J. Clin. Pathol. 95:397–401. nostic certainty. JAMA 265:2229–2231.
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19. Jones, R. N., K. Krisher, and D. S. Bird, for the College of 35. Siegel, D. L., P. H. Edelstein, and I. Nachamkin. 1990. In-
American Pathologists Microbiology Resource Committee. appropriate testing for diarrheal diseases in the hospital. JAMA
2003. Results of the Survey of the Quality Assurance for Commer- 263:979–982.
cially Prepared Microbiology Media. Update from the College of 36. Simko, J. P., A. M. Caliendo, K. Hogle, and J. Versalovic. 2002.
American Pathologists Microbiology Surveys Program (2001). Arch. Differences in laboratory findings for cerebrospinal fluid specimens
Pathol. Lab. Med. 127:661–665. obtained from patients with meningitis or encephalitis due to herpes
20. Kassirer, J. P. 1989. Our stubborn quest for diagnostic certainty. simplex virus (HSV) documented by detection of HSV DNA. Clin.
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21. Lundberg, G. D. 1998. The need for an outcomes research 37. Smith, B. J., and M. D. D. McNeely. 1999. The influence of an
agenda for clinical laboratory testing. JAMA 280:565–566. expert system for test ordering and interpretation on laboratory in-
22. Malcolm, L., L. Wright, M. Seers, L. Davies, and J. Guthrie. vestigations. Clin. Chem. 45:1168–1175.
2000. Laboratory expenditure in Pegasus Medical Group: a compari- 38. Solomon, D. H., R. H. Shmerling, P. H. Schur, R. Lew, J. Fiskio,
son of high and low users of laboratory tests with academics. N. Z. and D. W. Bates. 1999. A computer based intervention to reduce un-
Med. J. 113:79–81. necessary serologic testing. J. Rheumatol. 26:2578–2584.
23. Malone, B. 2012. The future of lab utilization management: are 39. Tang, Y. W., J. R. Hibbs, K. R. Tau, Q. Qian, H. A. Skarhus, T. F.
lab formularies the answer? Clin. Lab. News. 38(1):1, 6–7. Smith, and D. H. Persing. 1999. Effective use of polymerase chain
24. McLaughlin, J. 1995. The implementation of cost-effective, clin- reaction for diagnosis of central nervous system infections. Clin. In-
ically relevant diagnostic microbiology policies: the approach. Clin. fect. Dis. 29:803–806.
Microbiol. Newsl. 17:70–71.
40. Tierney, W. M., M. E. Miller, and C. J. McDonald. 1990. The
25. Mein, J., and G. Lum. 1999. CSF bacterial antigen detection tests effect on test ordering of informing physicians of the charges for out-
offer no advantage over Gram’s stain in the diagnosis of bacterial patient diagnostic tests. N. Engl. J. Med. 322:1499–1504.
meningitis. Pathology 31:67–69.
41. Valenstein, P. 1996. Managing physician use of laboratory tests.
26. Morris, A. J., L. K. Smith, S. Mirrett, and L. B. Reller. 1996. Clin. Lab. Med. 16:749–771.
Cost and time savings following introduction of rejection criteria for
clinical specimens. J. Clin. Microbiol. 34:355–357. 42. Valenstein, P., A. Leiken, and C. Lehmann. 1988. Test-ordering
by multiple physicians increases unnecessary laboratory examina-
27. Morris, A. J., S. J. Wilson, C. E. Marx, M. L. Wilson, S. Mir- tions. Arch. Pathol. Lab. Med. 112:238–241.
rett, and L. B. Reller. 1995. Clinical impact of bacteria and fungi
recovered only from broth cultures. J. Clin. Microbiol. 33:161–165. 43. Valenstein, P., M. Pfaller, and M. Yungbluth. 1996. The use and
abuse of routine stool microbiology. A College of American Pathol-
28. Morris, A. J., M. L. Wilson, and L. B. Reller. 1992. Application
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of rejection criteria for stool ovum and parasite examinations. J. Clin.
120:206–211.
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44. van Walraven, C., V. Goel, and B. Chan. 1998. Effect of
29. Nardella, A., M. Farrell, L. Pechet, and L. M. Snyder. 1994.
population-based interventions on laboratory utilization. A time-
Continuous improvement, quality control, and cost containment in
series analysis. JAMA 280:2028–2033.
clinical laboratory testing. Enhancement of physicians’ laboratory-
ordering practices. Arch. Pathol. Lab. Med. 118:965–968. 45. van Walraven, C., and C. D. Naylor. 1998. Do we know what
30. Perkins, M. D., S. Mirrett, and L. B. Reller. 1995. Rapid bac- inappropriate laboratory utilization is? A systematic review of labo-
terial antigen detection is not clinically useful. J. Clin. Microbiol. ratory clinical audits. JAMA 280:550–558.
33:1486–1491. 46. van Wijk, M. A. M., J. van der Lei, M. Mosseveld, A. M.
31. Peters, M. 1995. Managing test demand by clinicians: computer Bohnen, and J. H. van Bemmel. 2001. Assessment of decision sup-
assisted guidelines. J. Clin. Pathol. 48:98–100. port for blood test ordering in primary care. A randomized trial.
Ann. Intern. Med. 134:274–281.
32. Peters, M., and P. M. G. Broughton. 1993. The role of expert
systems in improving the test requesting patterns of clinicians. Ann. 47. Weinberger, S. E. 2011. Providing high-value, cost-conscious
Clin. Biochem. 30:52–59. care: a critical seventh general competency for physicians. Ann. In-
tern. Med. 155:386–388.
33. Procop, G. W., J. S. Hartman, and F. Sedor. 1997. Laboratory
tests in evaluation of acute febrile illness in pediatric emergency 48. Wilson, M. L. 1997. Clinically relevant, cost-effective clinical
room patients. Am. J. Clin. Pathol. 107:114–121. microbiology. Strategies to decrease unnecessary testing. Am. J. Clin.
34. Russell, L. B., M. R. Gold, J. E. Siegel, N. Daniels, and M. C. Pathol. 107:154–167.
Weinstein. 1996. The role of cost-effectiveness analysis in health 49. Wilson, M. L. 2012. Malaria rapid diagnostic tests. Clin. Infect.
and medicine. JAMA 276:1172–1177. Dis. 54:1637–1641. Epub May 1, 2012.
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 889

APPENDIX 49.1 Websites for Performing Searches for Published Information Regarding Cost Control, Clinical
Relevance, and Cost Containmenta

The Cochrane Collaboration U.S. Food and Drug Administration Center for Devices and
http://www.cochrane.org/ Radiological Health
A nonprofit organization that studies the effects of healthcare inter- http://www.fda.gov/MedicalDevices/default.htm
ventions. One of the leading organizations for evidence-based Provides access to a wide variety of information regarding labora-
medicine. tory devices that are regulated by the FDA.
EBM Online
a
http://ebm.bmj.com/ All sites last accessed on August 28, 2012.
The website for the electronic version of the journal Evidence-Based
Medicine.
PubMed
http://www.ncbi.nlm.nih.gov/PubMed/
One of the easiest ways to search the medical literature. This website
is supported by the National Library of Medicine. It provides access
to the published results of recent controlled clinical trials.
Introduction
50
Starting at the Beginning: What To
Benchmarking and Performance
Measure?
Where Can We Get Help?
Monitoring: What Is Appropriate
How Will I Fund This?
Evaluation of Data and Monitoring of
for Your Laboratory?
Performance
Summary Ronald J. Bryant and Michael R. Lewis
KEY POINTS
GLOSSARY

OBJECTIVES
To discuss the importance of selecting measures appropriate to the laboratory’s
strategy and environment
To discuss considerations relevant to the evaluation of benchmarking data

It’s a funny thing about life: if you refuse to accept anything but the best, you very
often get it.
W. Somerset Maugham

A
laboratory director encounters a colleague at a conference; it’s
been a while since they’ve talked, and the colleague asks, “How are
things going in your lab?” How does the laboratory director answer
this question? Quickly, now—how would you answer this question about your
laboratory? Would you hesitate? On what basis would you form your answers?
Do you have data to support your response?
Why do these questions matter?
Most laboratory managers and directors would agree that doing a good
job is important for several reasons. We’re professionals; we strive to do our
work well for the sake of our patients, and we derive personal satisfaction from
knowing that we have served them well. We have colleagues in a variety of spe-
cialties who depend on our diagnostic work to inform their decisions regard-
ing therapeutic interventions. We have inspections to survive, administrators
to please, and a variety of other possible reasons to want to know that things
are going well in our laboratories.
As noted in the chapter that introduces this section, there are many data
relating to laboratory performance that are collected regularly—some selected
by laboratory management, some required by external agencies, some deliv-
ered by the Web or the mail (proficiency testing results). These data frequently
relate to precision and accuracy in the analytical phase of testing; many finan-
cial figures are analyzed, and some of the data extend into the preanalytic and
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia postanalytic realms. Because possible measures of performance are numerous
©2014 ASM Press, Washington, DC and varied, one of the laboratory director’s most important tasks is to deter-
doi:10.1128/9781555817282.ch50 mine which of these are most applicable to his or her particular laboratory

890
 CHAPTER 50. BENCHMARKING AND PERFORMANCE MONITORING 891

and how best to use the data. Effective selection of perfor- is unlikely to change immediately, and a precise definition
mance measures not only facilitates assessment of progress is essential for stability and suitability for monitoring over
toward organizational goals and minimizes waste associ- the long term. Stepping back from the data and avoiding
ated with unnecessary measurement and analysis, but overreaction to short-term variations that may represent
it also enables leaders to make a data-driven case for the noise, not signal, is important. Additionally, avoiding dis-
quality of the laboratory’s work. The last of these points is couragement that may result from the inertia of some mea-
increasingly salient, given the evolution of healthcare de- sures is important; the initial “stickiness” of a measure at
livery and reimbursement models. While system changes an unacceptable level may indicate a need to apply greater
are being driven at the federal and state levels, their effects force to the intervention or to employ an alternative (and
have implications for those responsible for making the fol- more effective) intervention.
lowing determinations at the local level: Interfaces between people and between divisions or
departments pose special challenges to laboratories,
• Which measures should we use to gauge our
both operationally and with respect to measurement. It
performance?
is easier to look at ourselves and our unit’s performance
• Against what standards should we measure (bench- in isolation than to assess how well our patients are be-
mark) our performance? ing served by the complex systems in which we operate.
• How do we effectively incorporate performance moni- Nonetheless, a superb laboratory within a dysfunctional
toring into ongoing management of our laboratory institution has limited value. While it may be difficult to
operations? measure performance across interfaces, given the dispa-
rate data sources and frames of reference involved, effort
invested here may be well rewarded by increases not only
Starting at the Beginning: in performance level but also in the satisfaction of all in-
What To Measure? volved. Employing several measures that address specific
It is essential that the laboratory director understands what components of a process that involves interfaces may
he or she is attempting to measure and why; the analogy to identify particular processes requiring attention. Once
clinical laboratory practice is straightforward, as there is each component of the larger system is functioning at a
no sense in performing a test if the result will not influence reasonable level, however, a summary measure may not
subsequent actions. It is easy to become bogged down with only prove more efficient for measurement and review
the broad array of possible techniques and measures for but may also align the interests of those contributing to
benchmarking, but a clear sense of which tasks and issues the process.
are most important is essential to avoid drowning in a sea As an example, a laboratory director may seek to
of data of dubious value. The earlier chapter on strategic have laboratory results available for clinicians early in
planning highlights the importance of knowing where the the morning for rounds, so that decisions can be made
operation is headed. with respect to possible discharges during the day. In-
Selection of variables for consideration and measure- stinctively, the director might believe that turnaround
ment requires a clear vision of the laboratory’s strategy time is a sensible measure to examine. A few questions
and precision with respect to defining measures that can quickly arise: What interval of time should be measured,
guide subsequent decisions. Definitions must be clear, and what interval can be measured using the currently
stable, and sensitive for detection of noteworthy changes. available systems? Should the clock start when an order
That is, the measures must be sensitive to the tasks that is placed, when an order is received in the laboratory, or
one seeks to measure and be specific to those tasks as when the sample is received? Does the clock stop when
well. Identifying such measures is not straightforward. the result is reported or when the ordering provider re-
Information from colleagues at other institutions, as well ceives the information? Measuring turnaround time well
as experience that has been published in the literature, may be difficult, particularly if you have only laboratory
can be of assistance in defining the types of measures that data that reflect the time of sample receipt and the time
are sensitive and specific, though it is important always at which the test was resulted. One could readily generate
to remember that institutions differ in ways both obvious data, track them over time, and act to modify processes
and subtle. Consequently, the degree to which experience on the basis of this measure, but important factors relat-
at other institutions is analogous to that at your institu- ing to the timely availability of phlebotomy services or
tion is always limited, just as performance of an assay to effective reporting of results would not be reflected
even using the same reagents may yield different results in such a measure. Alternatively, the order times may be
in different settings. irrelevant if the main topic is early morning laboratory
Putting appropriate effort into defining measures well at work. If, in fact, the only measure that matters is result
the outset is essential, because anything worth measuring time, then using this as the monitor may not only save
892 DEFINING AND MEASURING STANDARDS FOR SUCCESS

the considerable effort required to refine turnaround How Will I Fund This?
time but also appropriately focus attention on address-
Much attention has been paid over the years to financial
ing broader system issues (e.g., specimen collection and
benchmarking, yielding reams of data. Precision may ap-
transport) rather than on fine-tuning what is likely a
pear great—down to the nearest cent. Unfortunately, the
well-functioning laboratory process.
accuracy of allocation of cost to various clinical functions is
Suppose that the laboratory director takes the next step
problematic at best and sometimes misleading; benchmarks
of comparing local data to those of other institutions. How
addressing personnel costs in the lab must be carefully un-
do they define turnaround time? From when to when?
derstood. How comparable are the laboratories being com-
What tests should be included in a study of turnaround
pared in terms of services, size, and structure? What are
time? Are there separate turnaround times for chemistry
the units of the benchmark? Lab payroll? Lab tests? Do the
and hematology? Which tests are performed on the major
benchmarks make sense given the local laboratory’s struc-
chemistry analyzer? Are they the same as those performed
ture and services? Of particular note are costs allocated
on the high-volume instruments at other institutions?
to the hospital laboratory that facilitate better quality and
Which tests do the physicians need to complete their
lower costs for the broader institution; expensive but timely
rounds? How do the rounding patterns of local doctors
virology services are but one example in which excessive
compare to those of their colleagues at other institutions?
focus on the direct testing expense without concomitant
Even if one obtains data for comparisons at other institu-
attention to decreased length of stay or decreased risk of
tions, these will have to be interpreted in light of the local
nosocomial infection may lead to decisions contrary to the
clinical needs and of variation in the specifications under-
hospital’s broader goals. More and more hospital adminis-
lying the measures.
trations are spending resources to generate broad bench-
There is no doubt that every laboratory is capable of
marks applicable to the laboratory and all of their functions
generating spreadsheets filled with vast quantities of mea-
throughout their institutions, but it is essential to set aside
surement data; the question becomes what to do with
resources internally to develop and monitor appropriate
these and how to use them to improve your practice. It is
performance measures in the laboratory.
easy to float adrift in kilobytes and megabytes of data and
lose sight of the desired destination; let us hope that our
goal does not become the mere manipulation of the data Evaluation of Data and Monitoring
that are available to us. of Performance
As with test results, benchmarking data must be evalu-
ated in light of the broader context: Do these results make
Where Can We Get Help?
sense? Do they square with the reality of our laboratory’s
External resources for benchmarking data are available operation? If there is an apparent mismatch, then while it
from a number of sources, as noted in the benchmarking is true that the data may be inaccurate, it is also possible
chapter that introduces this section. Of particular note are that a heretofore unrecognized problem is presenting an
the Q-Probes from the College of American Pathologists, opportunity for laboratory improvement. Such a situation
which feature precise, well-validated measures. may be especially likely to be encountered in the context of
The importance of interacting with clinical services external benchmarks that take a broader view of laboratory
served by the local laboratory cannot be overemphasized, performance in the context of the institution, and it is criti-
as the laboratory will not be able to address their needs if cal that the laboratory director’s ingenuity and creativity
there is a deficit of interaction and if the needs to be met be aimed at identifying and solving underlying problems,
are not recognized. not at discrediting data and circumventing administrative
Another internal data source is data mining. This term necessities. As is frequently encountered with test results,
refers to searching blocks of data for meaningful infor- often there are multiple data to be reconciled; similarly, in-
mation reflective of underlying relationships; this search ternal and external benchmarking data must be evaluated
is driven by computer algorithms and is analogous to the together, performing an internal check on each other.
genome-wide association studies (GWAS) that are prolif-
erating in the scientific literature. As in GWAS, much of
what is found is of little significance. Additionally, data Summary
mining reveals associations, not causes; establishing a We do not propose a universal standard for what types of
causal relationship requires application of the laboratory benchmarks or performance monitoring are applicable to
director’s insight, and there is no guarantee that the as- all laboratories. Fundamentally, the laboratory director
sociations uncovered by data mining will yield the best cannot determine whether he or she is doing a good job
measures of processes in terms of sensitivity, specificity, without first defining what that job is, so effective measure-
and stability. ment of performance starts with effective defining of the
 CHAPTER 50. BENCHMARKING AND PERFORMANCE MONITORING 893

laboratory’s goals. There are many variables that influence ■ Follow up on performance measures consistently, so
the applicability and accuracy of performance measures, that appropriate actions can be taken in response to
and it is essential that the laboratory directors, managers, changes. Change measures with care, keeping the un-
and others interpret the data accurately and confront the derlying goal in mind.
available choices with an open mind. Consideration of the
context in which the data were obtained is fundamental to
effective use of these measures.
GLOSSARY
Benchmarking Comparison of one’s performance with that of
KEY POINTS peers.
■ Arrive at consensus on critical processes that must be Data mining Searching of data (usually large quantities) for un-
improved or maintained above certain thresholds for derlying patterns or other information.
benchmarking and for performance monitoring.
Summary measure A variable that integrates multiple underly-
■ Clearly define measures that are appropriate to the task ing parameters; for our purposes, the underlying parameters
and that are realistic in terms of data availability and could be performance measures pertaining to each of several in-
resource availability. terrelated tasks.
The Future of Clinical Laboratories
XI
section editor: Paul Bachner
51 The Future of Pathology and Laboratory Medicine: Political, Social,
Economic, and Regulatory Impacts
Paul Bachner
52 The Future of the Clinical Scientist Workforce
Diana Mass and John R. Snyder
53 Electronic Health Records and Their Implications and Opportunities
for Laboratories
Walter H. Henricks
54 Current Trends in Instrumentation and Technology: Outlook for the
Future
Sheshadri Narayanan and Audrey N. Schuetz
55 The Future Practice of Laboratory Medicine
Paul Bachner and M. Desmond Burke
Introduction
51
The Current Environment of Healthcare
The Future of Pathology
Current Regulations
CLIA ’88 • HIPAA • OSHA Standards for
and Laboratory Medicine:
Occupational Exposure to Blood-Borne Pathogens •
The Stark Laws Political, Social, Economic,
Liability Considerations
The Future Regulatory Climate under
CLIA ’88
and Regulatory Impacts
Personnel Standards and Quality Control Standards •
Complexity Categories • Waived Testing • Changes to Paul Bachner
CLIA and Alternative Approaches
The Impact of HIPAA
Laboratory Requirements • The Future of HIPAA
OBJECTIVES
Bioterrorism
Recent History • Future Impact
To discuss major features of the current healthcare environment
Long-Term Effects: Legislation, To describe current regulations affecting laboratory practice
Regulation, Accreditation To identify likely future regulations and political and economic events
Quality, Value, and Patient Safety • The Patient Safety impacting pathology and laboratory practice
Movement
Issues Affecting Research and Academic
Laboratories
Stem Cell Research • Biorepositories
All predictions are wrong, that’s one of the few certainties granted to mankind.
Restrictive Patents and Restraints on But, though predictions may be wrong, they are right about the people who voice
Use of Human Tissues them, not about their future but about their experience of the present moment.
Summary
M. Kundera (14)
KEY POINTS

I
GLOSSARY t is alleged that Henry Ford observed, “History is bunk.” If he was
REFERENCES correct, predictions about future events are even more suspect. Given the
APPENDIX volatility of current political, economic, and social events and the enor-
mous changes that we have witnessed in the science, technology, and practices
of healthcare during the last half of the 20th century and the first decade of the
21st, any attempt at predicting the future is undertaken with considerable te-
merity and only because it is extremely unlikely that readers of the future will
remember the accuracy of prior predictions. It is my intention to examine the
current environment of healthcare with particular attention to political, social,
economic, and regulatory factors and to attempt to identify trends within and
external to that environment that are likely to influence future developments. I
will restrict myself to trends that I believe will emerge during the next decade;
any attempt to try to “see” farther into the future would be foolhardy since I
firmly believe the axiom that prediction is very difficult, especially about the
future. Rather than making explicit predictions, I will emphasize emerging
and at times conflicting trends and suggest what I believe to be likely options
and directions that may arise in response to those trends. My summary of
regulatory requirements is meant to be illustrative only. Readers are referred
Clinical Laboratory Management, 2nd Edition
to the references and to websites within the text that provide greater detail and
Edited by L. S. Garcia additional information. Readers are also strongly urged to seek legal and other
©2014 ASM Press, Washington, DC professional advice for specific issues related to their own laboratory practice
doi:10.1128/9781555817282.ch51
and environment.

897
898 THE FUTURE OF CLINICAL LABORATORIES

The Current Environment of Healthcare impact healthcare providers and lead to increasing
conflict over the allocation of resources.
A high level of volatility and uncertainty, reflecting the po-
litical, economic, and social instability of our current envi-
ronment, characterizes healthcare in the United States in the Current Regulations
second decade of the 21st century. Our country—as well as
Historically, regulations concerning public health and
the global economy—which had enjoyed a prolonged period
healthcare in general, as well as those affecting laboratory
of political stability, economic growth, and prosperity, is now
medicine specifically, have tended to reflect social and po-
enmeshed in global economic uncertainty and concerns
litical concerns. They have also reflected the periodicity of
about national security. Funding and support for healthcare
alternating cycles of regulatory enthusiasm for consumer
are diminishing, and the economic future of healthcare is
protection versus the traditional American reluctance to
hostage to the following identifiable trends and concerns:
restrict and regulate commerce. The locus of regulations
concerning public health and the laboratory community
• A growing federal deficit and concerns about the fu-
has traditionally been at the state level, reflecting a con-
ture sustainability of Medicare and Medicaid.
stitutional and judicial preference to default health and
• An increasing inability of state budgets to fund rising welfare issues to the states. The initiatives to establish and
Medicaid expenditures. regulate public health and safety testing that took place in
• The expanding potential of molecular technologies to the middle years of the 20th century were largely at the
identify a potential for disease at the genotypic level level of municipal and state health departments and were
prior to the onset of detectable phenotypic changes. concerned primarily with environmental issues such as
• A healthcare insurance and delivery system plagued by safe water, food, sanitation, and infectious disease preven-
problems of access, quality, and safety. tion. In the closing years of the 20th century, Congress
turned its attention to legislation and regulation in health-
• An insurance, payment, and delivery system for
care, perhaps the two most striking examples of which
healthcare, sometimes loosely described as “managed
are the Clinical Laboratory Improvement Amendments
care,” that is increasingly viewed as dysfunctional by
of 1988 (CLIA ’88) and the Health Insurance Portability
consumers (formerly known as “patients”), providers,
and Accountability Act (HIPAA). The “four horsemen” of
and employers, the latter constituting the primary but
federal laws and regulations that are particularly pertinent
decreasing source of funding for health insurance for
to pathology and laboratory medicine services are CLIA
the employed sector of the population.
’88, HIPAA, the Occupational Safety and Health Admin-
• Continuing major increases in healthcare costs driven by istration (OSHA) standards for occupational exposure to
the aging of the population and the growth of technology. blood-borne pathogens, and the so-called Stark regula-
• A highly politicized climate of blame and intense con- tions that prohibit self-referral by healthcare providers.
troversy in which the various players in the healthcare
arena—insurers, drug companies, patients, providers, CLIA ’88
lawyers, politicians, and economists—reproach each CLIA ’88 represents the foundation of regulation and ac-
other and advance conflicting solutions. Although sig- creditation of laboratory testing in the United States (1, 2).
nificant modification of the managed-care system has Subsequent to a series of Pulitzer Prize–winning newspaper
occurred, there is a notable absence of any consensus articles that appeared in the Wall Street Journal in 1988 that
about the contours of politically or economically vi- described major flaws in cytopathology testing in so-called
able alternatives. The Affordable Care Act, which was “pap mills” and laboratory testing practices in physicians’
passed during the first term of the Obama administra- offices, a series of congressional hearings resulted in the
tion, contains provisions that radically alter all aspects very rapid passage by Congress and the signing into law
of healthcare delivery and financing. Although the of the CLIA ’88 amendments by the president. Although
constitutionality of major provisions and the core of the law was enacted in 1988, the regulations were not
the entire law were affirmed by the Supreme Court in implemented until 1992, in part because of a prolonged
June of 2012, the ultimate fate of the Affordable Care and contentious rule-making process involving two fed-
Act—the specifics of its implementation as well as the eral agencies, the Health Care Financing Administration,
trajectory of decreasing financial resources available now called the Centers for Medicare and Medicaid Ser-
for healthcare—remains unclear. It may be that specific vices (CMS), and the Centers for Disease Control and Pre-
events such as the February 17, 2012, congressional vention (CDC). An extended public commentary period
cut in Medicare lab fees ($2.7 billion over 10 years) to ensued, characterized by lobbying efforts by organized
pay for the Medicare physician fee “fix” is but an early medicine and by the laboratory equipment manufactur-
example of how reduced funding will differentially ing industry as well as by groups representing hospitals
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE 899

to make the regulations less stringent. At the same time, and hospital workers—about the inadequacy of protective
organizations representing laboratory professionals ar- practices, equipment, and other safeguards for employees
gued to maintain existing personnel and quality control with regular and predictable exposure to body fluids and
standards. Although changes to the regulations continue substances with the potential to transmit human immuno-
to be made, the amendments in their current form have deficiency virus and hepatitis B virus. More complete in-
been well established for many years and are applicable to formation can be found at http://www.osha.gov/SLTC/
all testing performed on humans, with few exceptions and bloodbornepathogens/index.html (accessed June 30, 2012).
without regard to venue of testing (site neutrality). The
regulations encompass personnel standards, patient test The Stark Laws
management, quality assurance, proficiency testing, provi- The Stark regulations constitute a series of congressional
sions for inspection and certification, and both civil and actions enacted sequentially over a period of several years
criminal penalties for noncompliance. Inspection and ac- that severely limit referral of a wide variety of services—
creditation options are multiple and include government including laboratory testing—to entities in which the re-
and private-sector organizations such as the College of ferring provider has a financial stake. The regulations are
American Pathologists and The Joint Commission. named for Rep. Fortney “Pete” Stark (D–CA), who was the
legislative sponsor of the initial regulations enacted in 1992
HIPAA (Stark I) that prohibited a physician from making Medicare
Congress enacted HIPAA partially in response to public referrals for clinical laboratory services if the physician or
concerns about portability of employer-provided health an immediate family member had any financial relationship
insurance for workers changing jobs as well as related con- with the laboratory. The Stark II legislation, enacted in 1993,
cerns about denial of insurance coverage for preexisting extended the regulations to Medicaid and broadened cover-
medical conditions. The administrative simplification com- age to 10 additional health services, including, among others,
ponents of the law—which were enacted very much below occupational and physical therapy, durable medical equip-
the radar of major insurance industry, hospital, and health- ment, radiology, and radiation therapy. The regulations are
care professional organizations—contain far-reaching stan- very complex and difficult to interpret and have spawned a
dards concerning simplification of electronic transactions new industry of lawyers and consultants specializing in the
and the privacy and security of protected health informa- intricacies of the regulations. The Stark regulations have
tion (PHI). The privacy standards do the following: been regarded by some as inhibiting innovative and poten-
tially beneficial restructuring of the relationships between
• Limit the use and disclosure of PHI healthcare providers and other entities. Enforcement by the
• Provide patients the right to access their medical rec- government, particularly the Justice Department, is closely
ords, to know who has accessed their records, and to linked to other “fraud and abuse” enforcements under a
request amendments to their records and restrict ac- variety of federal antikickback and “false claims” statutes
cess to their records (4). An area of concern to pathologists as well as hospital
• Restrict disclosure to “minimum necessary” purposes and independent laboratories has been the in-office ancil-
• Establish criminal and civil penalties for improper use lary services exemption under the Stark laws, which allows
and disclosure and restrict access to records for re- specialty physician groups (urologists, dermatologists, gas-
search purposes troenterologists) to “in-source” pathology professional and
technical services into their office practices. The services are
The regulations permit the use and disclosure of PHI for provided by affiliated or contracted pathologists and labo-
treatment, payment, or healthcare operations (e.g., quality ratory entities; revenue is diverted to the clinical practice.
assurance, accreditation, certification, credentialing, and The exemption is supported by physician groups who argue,
medical review) without consent or authorization and also somewhat questionably, that provision of service in the office
allow for disclosure of PHI for treatment by another health- facilitates continuity and immediacy of patient care. A recent
care provider. More complete information can be found at study from Georgetown University (17) demonstrated that
http://www.hhs.gov/ocr/privacy/hipaa/understanding/ self-referring urologists billed Medicare for approximately
summary/index.html (accessed June 30, 2012). 72% more biopsies than urologists who derived no financial
benefit from the pathology studies.
OSHA Standards for Occupational Exposure to
Blood-Borne Pathogens
The standards for exposure to blood-borne pathogens Liability Considerations
were promulgated in 1991 by OSHA, part of the Depart- Although the scope of this chapter precludes a discussion
ment of Labor, in response to widespread concerns by or- in detail, a presentation of legislative and regulatory influ-
ganized labor—particularly unions representing healthcare ences on the practice of medicine and laboratory medicine
900 THE FUTURE OF CLINICAL LABORATORIES

is incomplete without mention of the enormous impact of Complexity Categories

the judicial system and medical liability concerns on pa- Complexity categories are based upon analyst training
thology and laboratory practice. Decisions by juries and and experience in the testing performed as well as the op-
judges at primary and appellate levels as well as increas- erational characteristics of testing that is performed. The
ingly high monetary awards for noneconomic damages complexity categories may remain as (i) high complexity,
(“pain and suffering”) are increasingly having an impact on e.g., histopathology, cytopathology, cytogenetics, blood
decisions that hospitals and physicians make concerning banking, histocompatibility, and complex chemistry, he-
services to be offered and the circumstances under which matology, and microbiology procedures; (ii) moderate
services should be made available. This impact may also complexity, for the bulk of routine hematology and chem-
play a role in decisions concerning how laboratory medicine istry procedures; (iii) provider-performed microscopy,
and pathology are practiced. Specific examples include con- encompassing a limited number of procedures (e.g., mi-
cerns about the reporting of results from methods not ap- croscopic urinalysis) commonly performed in physician
proved by the Food and Drug Administration or decisions offices in conjunction with patient visits; and (iv) waived
by blood transfusion services not to implement available testing, performed in any location with essentially no qual-
screening tests for infectious markers absent clear mandates ity control or personnel requirements and without any
or regulatory requirements. Although neither of these prac- inspection requirement. Recent revisions have simplified
tices constitutes violations of existing laws or regulations, complexity categories into waived and nonwaived catego-
concerns about possible future civil law claims of failure to ries only, although personnel requirements remain differ-
follow “standards” may determine operational decisions by ent for moderate- and high-complexity tests.
laboratory services. It is widely acknowledged that a major
motivation for overutilization of laboratory and imaging Waived Testing
studies is attributable to desires to avoid liability exposure. In the decade since the regulations were implemented, the
category of waived testing has undergone the most change,
with a striking expansion of the original list of eight
The Future Regulatory Climate
waived tests to the current number in excess of 1,000 pro-
Under CLIA ’88 cedures. Although many of these tests represent alternative
Congress conceived CLIA ’88 to protect consumers against analytic versions of common tests such as hemoglobin, oc-
shoddy and poor-quality laboratory testing, particularly in cult blood, and cholesterol, more esoteric procedures have
physician office laboratories and “pap mills” in which cy- been approved in recent years (e.g., influenza virus test-
totechnologists were paid “by the slide.” Although widely ing, coagulation tests). There will be continuing efforts at
viewed by the organized physician community as an intru- the regulatory level to increase the scope and breadth of
sion into the practice of medicine as well as a regulatory waived testing and continuing debate about the relative
overreach by the federal government and conversely by allocation of the responsibility for guaranteeing quality
some segments of the professional laboratory community testing standards between the laboratories and the manu-
as a dangerous lessening of federal standards for testing facturers of diagnostic systems.
personnel, CLIA has by now been generally accepted—
albeit with some reluctance—by most interested parties as Changes to CLIA and Alternative Approaches
the law of the land, and it is unlikely that in the foreseeable Other changes to CLIA have been recently announced and
future there will be serious legislative initiatives to repeal include changed requirements for frequency of quality
or significantly modify CLIA. The broad outlines of labo- control, an increased regulatory focus on personnel quali-
ratory practice under CLIA will continue in the foresee- fications and competency, and increasing emphasis on the
able future to include the following three features. role of the laboratory director for laboratory operations
and ensuring the quality of testing (21). The CMS has re-
Personnel Standards and Quality Control Standards vised the guidelines to include risk management principles
Personnel standards, quality control standards, and in- similar to those used in manufacturing industries.
spection requirements will vary with the complexity of A general consensus exists that the major components
testing categories. Some modification in quality control re- of CLIA pertaining to the complexity model, personnel
quirements will reflect changes in technology, particularly standards, patient test management, quality control, and
the advent of unitized, self-contained testing platforms. proficiency testing will not change substantially. Change
Recent changes have included the promulgation of a single could occur through legislative action, but incremental
set of quality control standards for all nonwaived testing change through regulatory action is more likely and would
(moderate and high complexity) as well as a reduction in be far less likely to result in disruptive impacts on labo-
frequency requirements for most specialties and subspe- ratory practice. Because of the rapid momentum of ad-
cialties of testing (7). vances in genomic medicine and the promised transition
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE 901

to next-generation sequencing and other technologies, the The Future of HIPAA

clinical, societal, and privacy implications of these modali- In view of these mandates, it is now obvious that HIPAA
ties will invite regulatory attention (8, 11). has had enormous operational and economic impacts
It is probable that increased oversight of lab-developed upon the entire healthcare industry. The scope and extent
tests (LDTs) will occur. The Food and Drug Administration of these impacts and efforts to respond to the regulations
(FDA) has draft guidelines under review addressing FDA have required the expenditure of significant economic and
concerns about the ability of test manufacturers to bypass human resources and will continue to do so in the future.
FDA approval through the CLIA process, which does not Although the societal benefits of HIPAA in safeguarding
address clinical validity. The FDA is expected to seek the patient privacy are obvious, the law and the implementing
ability to review LDTs based on a risk model. An alterna- regulations clearly constitute another unfunded mandate
tive approach is contained in a bill that has been introduced for an already heavily burdened healthcare system.
into Congress (H.R. 3207) that would move regulatory
oversight from the FDA to CLIA and thus allow the CMS,
through CLIA, to review tests for clinical validity. As of this
Bioterrorism
writing, the FDA has not yet released its proposals for com-
ment, and the future of the House bill is uncertain. Recent History
In the wake of the events of September 11, 2001, credible
threats of terrorism that include the potential for use of
The Impact of HIPAA nuclear, chemical, and biological agents have had signifi-
cant impacts on the funding and costs of providing labo-
In the opinion of many knowledgeable observers, HIPAA
ratory services. The identification of clinical cases and
may have been the most important legislative and regu-
environmental contamination attributable to deliberate
latory event impacting healthcare in the first decade of
dissemination of Bacillus anthracis through the mail sys-
the 21st century. The final privacy rule regulations speci-
tem during the early part of 2002 brought this lesson home
fied that by April 14, 2003, laboratories that transmit data
to a number of microbiology laboratories. These events
electronically must implement policies and procedures
and the fear of additional terroristic uses of other infec-
safeguarding against unauthorized use of or disclosure of
tious agents—not to mention the concurrent emergence of
identifiable patient information.
other “natural” biological threats to public health such as
Laboratory Requirements acute respiratory syndrome, West Nile, Middle East Res-
piratory Syndrome, bird flu, and other variant influenza
To comply with the regulations, a laboratory is required to
viruses—have not only alarmed the public, the govern-
do the following.
ment, and the medical and microbiological community,
• Designate a “privacy official” to assume responsibility but also focused attention on technical capabilities, bio-
for developing and implementing privacy rules and pro- logic safety infrastructure, and staff preparation.
cedures. This individual may have other responsibilities.
• Develop specific policies and procedures stating how Future Impact
PHI may be used and disclosed by its employees and The potential for utilization of these agents for terroristic
agents and state how the laboratory intends to comply purposes remains a concern. Public anxiety and govern-
with the HIPAA rules. mental action in response to these threats may have sig-
nificant budgetary impacts on a wide variety of healthcare
• Train all personnel on understanding and enforcing
facilities, including laboratories. These budget impacts will
privacy policies and procedures. Documentation of
reflect training costs, acquisition and deployment of equip-
training must be available.
ment, facility modification, and other unfunded mandates,
• Prepare a notice of privacy practices explaining how such as the CDC-issued rules (August 2002) requiring all
the laboratory will protect, use, and disclose PHI. laboratories to report to the government whether they are
While direct treatment providers must make a good- in possession of “select agents” that could be used in a bio-
faith effort to obtain written acknowledgment from the terrorist attack. The rule is available on the CDC website
patient of provision of the notice of privacy, patholo- at http://www.cdc.gov/od/ohs/1rsat/possess.htm (accessed
gists and laboratories, as indirect providers, are exempt June 30, 2012).
from this requirement. Increased federal concerns about laboratory prepared-
• Establish administrative, technical, and physical safe- ness may generate some increased funding for specific
guards for PHI. These may include periodic audits, areas of the laboratory; it is more likely that in the event
password protection schemes, and physical safeguards of actual or suspected biological attacks, the impact on
such as secured backup copies of patient data. all areas of the laboratory will be to significantly increase
902 THE FUTURE OF CLINICAL LABORATORIES

utilization of laboratory services not only for unusual di- payors with data concerning performance. However, the
agnostic challenges but also because of potentially massive use of such data to provide both rewards and punishments
increases in demand for routine laboratory services re- through payment and public disclosure has started (19).
quired for the care of large numbers of acutely ill patients.
The Patient Safety Movement
The societal, market-driven, and political pressures for
Long-Term Effects: Legislation, increased standardization in healthcare have led to a va-
Regulation, Accreditation riety of initiatives to monitor and improve patient safety
It is important to remember that legislative and regula- by many powerful private-sector and government entities.
tory mandates—both of which are closely intertwined Many of these entities serve as a source of comparative
with the requirements of accreditation and certification data, performance-based ratings, and benchmarks. It is
organizations—play a significant role in the delivery of likely that as the impact of these initiatives becomes ap-
healthcare services and the conditions of access to those ser- parent, demands for external standards will become more
vices. In general, in addition to other economic imperatives, prevalent in all areas of medical and laboratory practice—
increases in the often fixed “overhead” costs of regulations scientific, operational, fiscal, and legal. The interactions
tend to be more easily absorbed by larger entities, particu- between the above-described initiatives for standardiza-
larly in an industry in which prices and payments are of- tion, patient safety, and error prevention with the move-
ten fixed by regulatory authority or subject to market force ment for evidence-based medicine will be considerable
constraints. Thus, any increase in regulatory burdens can and important. It is already evident that the prevention of
be expected to accelerate the trend toward aggregation of adverse events (i.e., error) has been confounded with other
laboratory services into larger and larger entities. The trend aspects of provision of optimal care (16). It may be reason-
toward aggregation in the laboratory industry will be sec- able to predict that standardization of laboratory practice
ondary to the larger trend of consolidation of hospitals and arising from multiple sources, such as consolidation of
hospital systems in response to economic considerations laboratories and laboratory testing platforms, automation,
and changes in the healthcare system driven by the Afford- bar-coding, and other “fail-safe” patient and specimen
able Care Act or successor regulations and legislation. identification systems, including standardized nomencla-
tures and languages (18), will have a positive impact on
Quality, Value, and Patient Safety patient safety outcomes. The availability of standardized
The landmark report of the Institute of Medicine (IOM) nomenclatures and languages that will allow for coded
published in 1999, To Err Is Human: Building a Safer capture, aggregation, and retrieval of granular (detailed)
Health Care System (13), has had a transformative impact data expressed in a variety of terminologies and across a
on the agenda of medicine and healthcare and, therefore, on variety of information systems will become increasingly
the practice of pathology and laboratory medicine. The as- important in patient safety and quality improvement ef-
sertion that as many as 98,000 patients die annually be- forts as well as for more mundane operational applica-
cause of medical error has driven initiatives to improve the tions. The efforts of public and private sector organizations
quality of care and to minimize risk to patients. A 1999 to promote increased standardization and improvement in
study (3) claiming that medical errors were responsible educational practices will also play a positive role (20).
for an estimated annual cost of $17 to $29 billion further Several recent trends including growth in point-of-care
highlighted the criticality of this problem. Many educa- testing, increasing autonomy of nurse and mid-level practi-
tional, administrative, and regulatory changes at both the tioners, and a well-informed consumer-oriented public will
national level and at the level of individual hospitals and generate initiatives to increase patient involvement with and
caregivers have been deployed. Some have argued that the control of their medical care. This will facilitate patients’ di-
numbers cited in the IOM report may be excessive (5), and rect access to clinical laboratory tests, already provided by
others have argued that they underestimate the gravity of some laboratories subject to state regulations. The Depart-
the problem. Most agree, however, that efforts have met ment of Health and Human Services, the Centers for Medi-
with variable degrees of success, although the consensus is care and Medicaid Services, the Centers for Disease Control
that the ambitious goals of the IOM report have not been and Prevention, and the Office for Civil Rights proposed a
met (3, 5, 15). The impetus to imbed value, quality, and rule in September 2011 that will allow patients to have direct
patient safety into everyday healthcare will continue and paper or electronic access to their laboratory results from
will become linked to the efforts to make healthcare more the performing laboratory. Many arguments have been
efficient and less costly. Hospital and physician “report made in favor of and opposing this rule (10). If the rule is
cards” are available from both private and governmental implemented, changes in both the CLIA and HIPAA regula-
sources (9) and were initially introduced as voluntary ef- tions will need to be made, and the impact on laboratory
forts to spur improvement and to provide consumers and operations and costs is likely to be significant.
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE 903

The continuing push to improve quality and patient impede research into stem cell technology and may drive
safety coupled with cost control mechanisms will increas- investigators to other countries that are more supportive
ingly limit payment to laboratories and pathologists, al- of stem cell research. The highly specialized technology
though the impact on the latter is more likely to mirror suggests that clinical applications of stem cell research will
reductions in payment to all physicians. Medicare’s Physi- take place in dedicated laboratories. However, over time,
cian Quality Reporting System (PQRS) has been in place some of these functions may migrate into larger general
for several years as a form of pay-for-performance. The laboratory settings to take advantage of the economic and
latter is a generic approach to payment for hospital and operational advantages of centralization.
professional services that provides additional payments
for demonstrated performance of certain indicators. It is Biorepositories
inevitable that the carrot of additional payment will even- Concurrent with the explosive growth of molecular genetic
tually morph into the stick of reduced payment if indica- testing and the development of “personalized” medicine,
tors are not met successfully. This methodology is an early the need for biospecimens that can be used for research
manifestation of a general move for bundled payment for linking particular therapies to specific disease entities such
services to replace fee-for-service. While this methodol- as neoplasms has become imperative. The increasing re-
ogy of “payment for performance” has not yet materialized search and clinical demands for validated biospecimens
in the clinical laboratory arena, there are now five PQRS can be expected to lead to significant growth in the num-
measures for pathology (use of reporting templates for ber and size of biorepositories. Although many of these
breast, colon, and prostate cancer; documentation of Bar- will be located in academic and research settings, it is pos-
rett’s esophagus; documentation of HER2 testing for breast sible that other clinical and commercial entities may estab-
cancer), and additional measures can be expected. lish such facilities as well.
Although many biorepositories (biobanks) have es-
tablished policies and procedures that ensure appropriate
Issues Affecting Research and specimen sourcing, identification, accessioning, storage,
Academic Laboratories processing, and distribution, there is little data concerning
The future of academic laboratories—the traditional the overall compliance of biorepositories with good practice.
source for much of the innovation and new knowledge The College of American Pathologists has recently inaugu-
that has infused American medicine—remains cloudy and rated an accreditation program that attempts to provide doc-
is linked to the future of academic health centers (12, 6). umentation and confirmation of good practices (see http://
This uncertainty reflects many realities, including the fis- www.cap.org/apps/docs/laboratory_accreditation/lap_info/
cal perils facing academic health centers as they attempt to bio_brochure_042011.pdf, accessed June 30, 2012).
fulfill their traditional missions of patient care, education,
and research in the face of decreasing clinical revenues, flat
or diminishing support for teaching activities, and height- Restrictive Patents and Restraints
ened competition for research funding as NIH research on Use of Human Tissues
support declines. Two other areas of concern to research and clinical labora-
tory practice are restrictive patents and excessive restraints
Stem Cell Research on the use of human tissue and data for research and clini-
An area of research and laboratory practice that will be cal purposes. In general, the laboratory community has
critically impacted by political developments, and there- opposed attempts to patent life forms and has argued that
fore by complex and interrelated legislative, regulatory, and attempts to do so will impede scientific progress, lead to
administrative events, is stem cell research and, eventually, high laboratory testing costs, and impede access of patients
the application of so-called cloning technology to medical to necessary testing. This view is strongly supported by
practice in two broad areas: tissue and organ transplanta- professional and public organizations in the United States,
tion and reproductive technology. The cloning research is- Canada, and Europe, but industry and portions of the aca-
sue is closely tied to the highly emotional controversy over demic research community argue that to eliminate genetic
abortion and genetic manipulation and has elicited strong patenting will impede research. Recent decisions by the Su-
and conflicting opinions from various constituencies, in- preme Court that the human genome cannot be patented
cluding the research and medical community, religious will undoubtedly have a major impact on the ability of labo-
groups, and organizations committed to the research and ratories to develop modifications of genetic tests previously
treatment of specific diseases. Absent some compromise restricted by patents as well as spur competition by alterna-
solution to this controversy, the continuing uncertainty of tive suppliers. However, there remains considerable uncer-
funding and the threat of federal and state restrictions on tainty about the ultimate impact of the decision on the ability
research in both reproductive and stem cell cloning will to patent diagnostic tests based upon genetic principles.
904 THE FUTURE OF CLINICAL LABORATORIES

Summary An interesting and important side effect of this emphasis

for the laboratory and pathology community will be the
Political, social, and economic trends and events are inex-
blurring of the traditional distinction between anatomic
tricably intertwined and often interact with the legislative
and clinical pathology. The time frame in which these pre-
and regulatory arena in unpredictable ways. The economic
dictions will take place will be influenced by the rate of
future of healthcare funding in the United States remains
development of technology, by the extent to which health-
uncertain and subject to continuing competition for re-
care will remain as a social contract or will be replaced by a
sources within and external to the healthcare industry. As
purely marketplace ethic, and to an unpredictable extent by
U.S. healthcare costs continue to rise and significantly ex-
external events totally unrelated to healthcare.
ceed costs in other developed economies, it is predictable
that legislative and regulatory mandates as well as market
forces will constrain that rate of growth and impose sig- KEY POINTS
nificant reductions on available resources for all areas of ■ Laboratory practice is currently constrained and will be
healthcare including the laboratory and pathology. It is increasingly so in the coming years by political, social,
also predictable that the allocation of resources will in- economic, and regulatory considerations.
creasingly take into consideration the value and effective-
■ The most important of the regulatory constraints will
ness of services that are delivered.
be CLIA ’88, HIPAA, OSHA, and enforcement under
As hospitals respond to increasing economic pressures
the Stark regulations as well as related fraud and abuse
by seeking reductions in costs, laboratory services will be
statutes.
required to implement immediate and long-term reduc-
tions in costs. These may include, in addition to reduction ■ Funding and payment restrictions, concerns about legal

in services and attempts to control utilization, enhanced liability, patient safety, and a changing medical model
deployment of front-end and tube-specific automation, emphasizing effectiveness and evidence-based care will
robotic technologies, and consolidation of technologies on also significantly impact how laboratory services will be
unitary testing platforms, middleware, and miniaturiza- delivered.
tion. These initiatives will be inevitably accompanied by
increasing concentration within the healthcare delivery GLOSSARY
and laboratory industry. Parallel phenomena will include
Centers for Disease Control and Prevention (CDC) The fed-
increasing “commoditization” of the laboratory product, eral agency within the Department of Health and Human Ser-
the growth of point-of-care testing, “consumerism,” and vices with broad responsibility for disease monitoring and
self-directed healthcare, including direct-access testing. prevention, epidemiology and statistics, and laboratory practice.
All of these phenomena will occur in the context of the
Centers for Medicare and Medicaid Services Formerly the
globalization of communication and other components of
Health Care Financing Administration. The federal agency
healthcare and laboratory practice. within the Department of Health and Human Services with pri-
In tandem with those mandates, the medical model mary responsibility for payment and payment standards for the
will shift to one dominated by a medical effectiveness Medicare and Medicaid programs.
and “a need to know” strategy that will compel a linkage
between the gathering of patient data (testing), available Clinical Laboratory Improvement Amendments of 1988 (CLIA
’88) A federal law and regulations constituting the foundation of
therapeutic and management options, and positive out-
regulation and accreditation of all laboratory testing in the
comes (clinical relevance). Although the progression may United States. The amendments are applicable to all testing per-
be less rapid than predicted by some, I believe that the da- formed on humans in all locations. Complexity categories are
tabase of pathology and laboratory medicine—currently based upon analyst training and experience as well as operational
characterized by static and discontinuous phenotypic, characteristics of testing that is performed. They include (i) high
quantitative, and morphological observations—will be su- complexity (e.g., histopathology, cytopathology, cytogenetics,
perseded by an augmented and integrated continuum of blood banking, histocompatibility, and complicated chemistry,
morphologic, immunophenotypic, genetic-proteomic, and hematology, and microbiology procedures); (ii) moderate com-
clinical information. All of these will be linked by increas- plexity, for the bulk of routine hematology and chemistry proce-
ingly sophisticated information systems that will integrate dures; (iii) provider-performed microscopy, encompassing a
limited number of procedures (e.g., microscopic urinalysis)
alphanumeric, graphic, and digital data in real time. Thus,
commonly performed in physician offices in conjunction with
the paradigm will shift from morphological and other clas- patient visits; and (iv) waived testing, performed in any location
sification schemata based on laboratory data to classifica- with minimal quality control and personnel requirements and
tion hierarchies that recognize biological heterogeneity and without any inspection requirement. In 2003, a final rule was is-
clinical relevance with an increased emphasis on specific sued in the Federal Register that defined some new regulations
disease entities susceptible to targeted therapies (“personal- and changed the categorization of tests to two categories (waived
ized or precision medicine” and “companion diagnostics”). and nonwaived tests).
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE 905

Evidence-based medicine An approach to the teaching and 5. Brennan, T. A., A. Gawande, E. Thomas, and D. S. Studdert.
practice of medicine that utilizes literature review and outcome- 2005. Accidental deaths, saved lives, and improved quality. N. Engl.
based studies of effectiveness and possible harm to patients, J. Med. 353:1405–1409.
rather than tradition or anecdotal experience, to guide diagnos- 6. Campbell, E. G. 2009. The future of research funding in academic
tic and treatment interventions. medicine. N. Engl. J. Med. 360:1482–1483.
Health Insurance Portability and Accountability Act of 1996 7. Duncan, H. 2008. An update on the Clinical Laboratory Improve-
(HIPAA) Federal regulations establishing conditions for eligi- ment Amendments of 1988. Lab. Med. 39:69–72.
bility and transferability of health insurance and provisions for 8. Evans, J. P., and J. S. Berg. 2011. Next-generation DNA sequenc-
“administrative simplification” that promulgate far-reaching ing, regulation, and the limits of paternalism. JAMA 306:2376–2377.
standards concerning electronic transactions of health data and 9. Fung, C. H., L. Lim, C. Mattke, and P. G. Shekelle. 2008. System-
the privacy and security of protected health information. atic review: the evidence that publishing patient care performance
Indirect provider Under the HIPAA regulations an indirect data improves quality of care. Ann. Intern. Med. 148:111–123.
provider is an entity or individual (e.g., laboratory or patholo- 10. Giardina, T. D., and H. Singh. 2011. Should patients get direct
gist) without a direct treatment relationship to a patient. The in- access to their laboratory test results? JAMA 306:2502–2503.
direct provider delivers healthcare based on the orders of another 11. Hudson, K. L. 2011. Genomics, health care, and society. N. Engl.
provider and typically provides services or reports the diagnosis J. Med. 365:1033–1041.
or results to another provider.
12. Iglehart, J. 2011. The uncertain future of Medicare and graduate
OSHA A federal standard for occupational exposure to blood- medical education. N. Engl. J. Med. 365:1340–1345.
borne pathogens requiring the use of protective equipment 13. Institute of Medicine. 1999. To Err Is Human: Building a Safer
and other safeguards for employees at risk of occupational Health Care System. National Academy Press, Washington, DC.
exposure.
14. Kundera, M. 2002. The great return. The New Yorker. May 20.
Stark regulations Federal regulations prohibiting referral of 15. Leape, L. L., and D. M. Berwick. 2005. Five years after To Err is
laboratory and other health services to entities in which the re- Human. JAMA 293:2384–2390.
ferring provider has a financial interest. 16. Leape, L. L., D. M. Berwick, and D. W. Bates. 2002. What prac-
tices will most improve safety? Evidence-based medicine meets pa-
tient safety. JAMA 288:501–507.
17. Mitchell, J. M. 2012. Urologists’ self-referral for pathology of bi-
REFERENCES
opsy specimens linked to increased use and lower prostate cancer
1. Bachner, P., and W. B. Hamlin. 1993. Federal regulation of clini- detection. Health Affairs 31:741–749.
cal laboratories and the Clinical Laboratory Improvement Amend-
18. Spackman, K. 2002. SNOMED CT unlocks the power of clinical
ments of 1988. Part I. Clin. Lab. Med. 13:739–752.
data for pathologists. Lab. Med. 33(3):1–4.
2. Bachner, P., and W. B. Hamlin. 1993. Federal regulation of clini- 19. Wachter, R. M., N. E. Foster, and R. A. Dudley. 2008. Medi-
cal laboratories and the Clinical Laboratory Improvement Amend- care’s decision to withhold payment for hospital errors. Jt. Comm. J.
ments of 1988. Part II. Clin. Lab. Med. 13:987–994. Qual. Patient Saf. 34:116–123.
3. Berwick, D. M., and L. L. Leape. 1999. Reducing errors in medi- 20. Wilson, M. L. 2002. Education and training: practice makes per-
cine. BMJ 319:136–137. fect. Am. J. Clin. Pathol. 118:167–169.
4. Bierig, J. R. 2002. Liability and payment issues in the selection of 21. Yost, J. 2012. CLIA update: what’s on the agenda for 2012? Natl.
pathology assays. Arch. Pathol. Lab. Med. 126:652–657. Intelligence Rep. 12(6):4–7.
906 THE FUTURE OF CLINICAL LABORATORIES

APPENDIX 51.1 Websites

Centers for Disease Control and Prevention U.S. Department of Health and Human Services
CDC regulations concerning guidelines for reporting select agents Federal rules concerning patient privacy regulations contained in
potentially utilized for bioterrorism. HIPAA law.
http://www.cdc.gov/od/ohs/1rsat/possess.htm (accessed http://www.hhs.gov/ocr/privacy/hipaa/understanding/summary/
June 30, 2012) index.html (accessed June 30, 2012)
College of American Pathologists U.S. Department of Labor
Description of new CAP accreditation program for Federal rules concerning prevention of infection with bloodborne
biorepositories. pathogens.
http://www.cap.org/apps/docs/laboratory_accreditation/lap_info/ http://www.osha.gov/SLTC/bloodbornepathogens/index.html.
bio_brochure_042011.pdf) (accessed June 30, 2012) (accessed June 30, 2012)
Introduction
52
Essential Role in Healthcare • Other Continuing
The Future of the Clinical
Imperatives • A New Workforce • Laboratory
Paradigms • The Old Laboratory • The New Scientist Workforce
Laboratory • The Changing Workforce • Creating
Conditions of Good Work
The Changing Nature of Work Diana Mass and John R. Snyder
The Consultation Role and Process • Consultant
Skills • The Internal Consultant
Summary
KEY POINTS OBJECTIVES
GLOSSARY To describe laboratory practices that provide value-added services
REFERENCES To discuss the information society as it relates to clinical laboratory services
and patient safety needs
To define the “knowledge worker” and advocate the benefits of clinical
scientists who perform this role
To compare and contrast the old laboratory and new laboratory paradigms
and determine the value of the new laboratory as it improves patient safety
To describe conditions of good work, which can have a positive impact on
current clinical laboratory vacancy rates
To explain the consultation process and determine the benefits in clinical
laboratory practice as it relates to patient safety
To apply systematic reviews (ask, acquire, appraise, analyze, apply, and assess)
in determining evidence-based decisions
To characterize four interactive skills that contribute to the effectiveness of
consulting practice
To describe the various competencies of successful consultants
To assess the benefits to the healthcare delivery system when clinical scientists
act as consultants

The task is not so much to see what no one yet has seen, but to think what nobody
yet has thought about that which everybody sees.
Arthur Schopenhauer, 1788–1860

Introduction
Today’s laboratory manager faces a unique set of challenges in a healthcare
environment shaped by financial constraints and increasing federal regula-
tion. An imperative exists to ensure quality while exercising prudent fiscal
responsibility, and this within the context of a dramatically changing work-
force (12, 38) that must better serve patients in an era of expanding knowl-
edge and rapid change. Further, “value-added” laboratory services continue to
be today’s watchword because customer (patients, physicians, administrators,
etc.) satisfaction is necessary to achieve the goal of long-term sustainability
and economic success for the laboratory (22, 38). The focus of this chapter
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia is this value-added service, that is, service that addresses effectiveness (Does
©2014 ASM Press, Washington, DC it work?) as well as cost and efficiency. This can only be accomplished if the
doi:10.1128/9781555817282.ch52 right test is ordered and interpreted properly. Regardless of how accurate and

907
908 THE FUTURE OF CLINICAL LABORATORIES

precise the result is, it is of no value unless it contributes to recommend medical laboratory strategies to change proto-
appropriate and timely diagnosis and treatment (4). Thus, cols, procedures, or practices (50).
the future workforce not only must provide accurate and Engagement in the preanalytical and postanalytical
reliable laboratory results but also must be prepared to in- phases of laboratory service signals a fundamental shift in
teract with healthcare providers in a consultative manner the nature of laboratory work. The shift is away from a sole
regarding appropriate test utilization (20, 22, 31, 38). focus on technology and the performance of procedures
and toward an enhanced focus on the generation of labora-
Essential Role in Healthcare tory information, an “information revolution” in laboratory
Traditionally the information provided by the clinical sci- medicine. Inherent in this information revolution are new
entist (clinical laboratory scientist/medical technologist) tasks related to gathering, distributing, and adding value to
workforce has been essential in supporting the diagnosis the information provided by clinical laboratories (25, 46).
and treatment of patients. There is no doubt that their ex- More than 20 years ago, Peter Drucker foresaw the
pertise has provided information that physicians require to transformation from an industrial society to an informa-
make critical decisions regarding their patient care respon- tion society (15, 16). He noted a new era in information
sibilities (4). In 1985, Strandjord estimated that 45% of technology, one in which information concepts would take
medical decision making relied on information generated the place of a focus on data collection, storage, transmis-
by laboratory tests (52). Today this number is estimated to sion, and presentation. Drucker proposed that the ques-
be 70% (21). The Mayo Health System demonstrated that tion, “What is the meaning of information and its purpose?”
the laboratory contributes as much as 94% of the objective would help define a hierarchy of information. Indeed, data
data in a clinical record. Furthermore, this information is as simply raw descriptors may help diagnostic and patient
accessed as often as 200,000 times per day as evidenced management efficacy. Data in context becomes informa-
by retrievals from an electronic medical record (22). Thus, tion improving the care of patients. Information in light of
there can be no doubt that laboratory services are essential experiences and judgment becomes knowledge, improv-
to the delivery of healthcare. Additionally, a knowledge- ing therapeutic efficacy and effectiveness. Outcome-based
able and committed workforce that provides clinical labo- testing protocols support enhanced service and aggregate
ratory consultative services by communicating directly to cost savings but do require workers with expanded roles.
healthcare providers regarding appropriate testing options Drucker coined the term “knowledge worker” for those
is now increasingly essential. A recurring theme is the need fulfilling these expanded roles by gathering, distributing,
to improve laboratory services particularly in the preana- and adding value to information. Throughout this chapter,
lytical and postanalytical phases of the laboratory service the imperative for an information revolution in laboratory
continuum (3). Studies have shown that the greatest num- medicine practice will be described with corresponding
ber of errors occurs in the preanalytical and postanalytical implications for a future workforce composed of clinical
phases (6, 7), and thus the practices in these services pro- scientists as knowledge workers.
vide the greatest opportunity for improvement.
The Laboratory Medicine Best Practices (LMBP) Ini- Other Continuing Imperatives
tiative, sponsored by the Centers for Disease Control and The Pew Health Professions Commission Report (1995) de-
Prevention since 2006 (8), seeks to change the status quo. scribed an emerging transformation of traditional health-
The overall purpose of this effort is to improve the qual- care practice into “systems of integrated care that combine
ity of laboratory medicine by promoting the use of effec- primary, specialty, and hospital services” that require ex-
tive, evidence-based practices. Using methods adapted traordinary collaboration skills across all levels and types
from other tested systematic review methods, the LMBP of healthcare professions (31). Almost two decades later
method referred to as the A-6 cycle (10) has conducted this concept has materialized in the accountable care or-
systematic evidence reviews to evaluate and identify prac- ganization (ACO), a major component of current health-
tices that improve healthcare quality outcomes consistent care reform proposals (http://www.healthcare.gov/news/
with the Institute of Medicine’s quality aims (safe, timely, factsheets/2011/03/accountablecare03312011ahtml, last ac-
effective, efficient, equitable, and patient-centered) (27). cessed October 19, 2012). Nowhere is the change more ur-
An evidence-based approach is applied through the sys- gent than in the clinical laboratory, where institutional goals
tematic synthesis and appraisal of existing evidence to can be achieved only by effectively collaborating with other
answer questions and solve problems. The A-6 cycle has healthcare practitioners to enhance the quality of diagnostic
six steps: ask, acquire, appraise, analyze, apply, and as- and therapeutic decisions.
sess. This evidence is used to evaluate practice effective- Subsequent to the Pew Report, the 1999 Institute of
ness and thus help clinical scientists and other healthcare Medicine report To Err Is Human: Building a Safer Health
stakeholders determine what is effective, for whom, and in System (27) was published, stating that as many as 98,000
what settings. With this type of evidence, consultants can people die annually in U.S. hospitals as a result of medical
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE 909

errors. This stunning statistic does not even represent the staff is used at the highest level of capability and poten-
the additional deaths associated with missing a diagno- tial, not their lowest (31).
sis from failing to order a laboratory test or incorrectly
interpreting test results (29). Two years later, in 2001, the A New Workforce
Institute of Medicine report Crossing the Quality Chasm: The emergence of clinical scientists as consultants rep-
A New Health System for the 21st Century reinforced the resents a natural evolutionary growth in the role of the
critical necessity to decrease medical errors (26). The re- clinical laboratory profession as it adapts to a changing en-
quirement for educating physicians to utilize the appro- vironment. This emerging role is being fostered not only
priate tests and understand their clinical significance may by the need to improve laboratory test utilization (34), as
never have been greater than it is now. This is not a new is- already discussed, but also by the extraordinary growth
sue. The call for the laboratory to accept the responsibility of decentralized testing (47). In addition, the vast growth
to directly communicate to physicians regarding proper of molecular testing, not only for familiar analytes or or-
test utilization has been discussed for over 30 years (13). ganisms, but for specific new and esoteric disease markers,
Unfortunately, the will and courage in laboratory manage- has created a need to improve communications between
ment to do so have been lacking. The parochial view of clinical scientists and healthcare providers.
providing only test results and algorithms will not lead to The increasing complexity of the clinical laboratory sci-
optimal patient care or financial success. Appropriate uti- ences is causing many physicians to seek information and
lization of the clinical scientist workforce will contribute to use interpretive guidelines, such as disease-specific care
to enhanced patient safety and help to ensure that fiscal maps, necessary to make optimal and cost-effective use of
objectives are met (12). the laboratory. These guidelines were first evidenced fol-
Now the clarion call is to be patient-centered. Pro- lowing the diagnosis-related group initiatives as a means
gressive management is looking for ways to implement to reduce costs and provide more consistent patient care
practices that improve patient outcomes and are patient- (53). Rapid advances in clinical laboratory technology and
centered. Clinical laboratory scientists/medical technolo- diagnostics have made it nearly impossible for physicians
gists have for decades been taught clinical correlation with and other healthcare providers to stay abreast of available
disease status but have only recently been expected to tests and their implications for diagnosis and treatment
apply this knowledge in practice. In part this may reflect (54). As primary care increasingly devolves to nonphysi-
resistance from the physician community but may also re- cian providers, the need for guidance from the laboratory
flect insufficient leadership on the part of the laboratory will certainly increase.
community to further this agenda. Consequently, an un- Fueling this process are the medical-necessity guidelines
derutilized laboratory workforce may be one of the factors released by the Centers for Medicare and Medicaid Ser-
contributing directly to some of the safety, efficiency, and vices, formerly known as the Health Care Financing Ad-
effectiveness problems plaguing healthcare. ministration, which prohibit Medicare and Medicaid from
Engaging laboratory scientists in the pre- and postan- reimbursing for Part B services that are not medically nec-
alytical phases of testing requires a fundamental shift in essary and reasonable for the diagnosis and/or treatment
operations. Few scientists are engaged in the input subsys- of the disease suspected (2). These guidelines have directly
tem (physician order and requisition) despite their unique affected laboratory test utilization; however, there still are
understanding of the subtle differences in testing proce- cases of misutilization and, more importantly, underuti-
dures. Similarly, few scientists are consulted on the output lization. The clinical scientist is a natural link between the
subsystem (physician review, interpretation, and appropri- clinical laboratory and other providers or patients on mat-
ate action) despite their knowledge of predictive value and ters of test selection, specimen collection, interpretation
potential limitations of laboratory results (28). of test results in light of specimen quality and sources of
To prepare and deploy a knowledge-based laboratory interference, and patient education. Laboratory profession-
workforce, and indeed legitimize the clinical scientist als should be able to provide information, solve problems,
worker title, laboratorians must be engaged in the testing analyze situations, and implement decisions related to lab-
process as a scientific process, from posing hypothetical oratory testing (29). A good example is sepsis, a primary
answers, through generation and analysis of information cause of death in hospitals and a condition in which early
to illuminate those answers, to considering the patient care organism identification and antimicrobial susceptibilities
outcome of those answers. are vital to survival. Clinical scientists have a critical op-
If the clinical scientist staff is more appropriately deployed portunity to consult with healthcare providers regarding
in an interactive, consultative role in improving test utiliza- various diagnostic tests that can identify the cause of sepsis
tion, it is expected that unnecessary testing will diminish, in the early stages, thus improving patient outcomes (17).
which will have a very positive impact on the laboratory’s The second development, decentralized and point-
budget. Additionally, a laboratory is most cost-effective if of-care testing, reflects a variety of incentives and
910 THE FUTURE OF CLINICAL LABORATORIES

technological innovations that have caused a shift of diag- • They are effective in teams.
nostic testing outside of hospital and private laboratories. • They seek meaning in their work and advancement
Decentralized testing continues to grow with respect to opportunities.
types and numbers of tests because of the increased avail-
• They require flexible, fully networked and connected
ability of less labor-intensive, more compact, and inexpen-
environments.
sive equipment as well as reliable diagnostic kits that offer
a wide range of testing. At these sites, physicians and other • They reach decisions by consensus, not command.
healthcare providers require advice and instruction on clin- Obviously, development and retention of knowledge work-
ical laboratory practice and management (35). An example ers in laboratory medicine poses a challenge.
of this is the emergency department’s use of different car-
diac markers and other analytes to diagnose specific condi- Laboratory Paradigms
tions in patients presenting with shortness of breath (48). Before describing specific consultative roles, it is useful to
This new consultative role will enrich the work of discuss the new interactive laboratory and compare it to the
clinical scientists who desire new responsibilities that are old, or traditional, laboratory. The concept of the new in-
beyond the process of producing a test result. Now an teractive laboratory was formulated (4) prior to the Clini-
additional set of skills is also valued: skills to determine cal Laboratory Improvement Amendments of 1988 (CLIA
whether a test should be done at all and that assist physi- ’88) (19); however, regulations promulgated under this law
cians and other healthcare professionals to use the labora- defined a total testing process as a continuum in laboratory
tory appropriately. Clinical scientists are well practiced in practice that has been universally accepted by the laboratory
problem solving. Now we need to take these skills outside community. The CLIA ’88 concepts of preanalytical, ana-
of the laboratory to the source of potential problems and lytical, and postanalytical activities serve as benchmarks for
begin to prevent problems by interacting with physicians laboratory practice. These three phases as they occur in the
and other healthcare providers to ensure better patient new laboratory are described by Barr’s (4) model of labora-
care and patient safety (31, 36). tory utilization (Fig. 52.1) as input, process, and output.
It is important to recognize that clinical scientist knowl-
edge workers do both knowledge work and “manual work” The Old Laboratory
(16). Performance of a laboratory procedure constitutes Today, many clinical laboratories still operate according
manual work. Knowledge work related to the laboratory to the traditional laboratory model (Fig. 52.2), which is a
procedure begins with data analysis and the use of per- linear, unidirectional flow process of one activity preced-
sonal intellectual capital (experience). Knowledge work ing the next activity. The major concern in this model is
also includes consultation with other clinical service pro- the quality of the test performance and the production
viders (pooled intellectual capital) and electronically avail- features and internal organization of the laboratory (ana-
able intellectual capital. lytical phase). In the traditional model, the focus is on the
This new workforce of clinical scientist knowledge science and technology and quality of test performance,
workers has some unique characteristics, which managers and communication is almost nonexistent prior to the test
will need to recognize and support (15, 49): request or after the result is released. In this model, the
• Knowledge workers are specialized. clinical laboratory is not concerned with clinical appropri-
ateness or interpretation of test results (4).
• They are able to acquire and supply theoretical and
analytical knowledge. The New Laboratory
• They are learning-based, prepared through formal The new laboratory model (Fig. 52.3) is an interactive
education. process, and the scope of laboratory services is broader.
• They exhibit the habit of lifelong learning. In this model, the focus is not only on the quality of test

Figure 52.1 The new interactive labo- Input Process Output

ratory model. Adapted from reference 3. (Preanalytical) (Analytical) (Postanalytical)
doi:10.1128/9781555817282.ch52.f1

Test Test Test

Ordered Performed Interpreted
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE 911

Input Process Output

(Preanalytical) (Analytical) (Postanalytical)

Test Test Test

Ordered Performed Interpreted Figure 52.2 Traditional laboratory
model. Adapted from reference 3.
doi:10.1128/9781555817282.ch52.f 2

data generated (process/analytical) but also on the clini- specimen collection is correct. During the process phase,
cal appropriateness of test requests (input/preanalytical) one must determine if, within clinically relevant guide-
and the correct interpretation of and response to labo- lines, the test result is accurate and precise and timely
ratory information (output/postanalytical). The involve- with respect to the turnaround time needs of physicians.
ment of the laboratory in the entire total testing process Finally, in the output phase, one must evaluate if the re-
will have a positive impact on patient outcomes, improve sults are properly interpreted and integrated into patient
the clinical relevance and value of the laboratory’s ser- care or if data overload is confusing or misleading physi-
vice, and greatly enhance the cost-effectiveness of the cians. An expanded role in this case is to determine the
laboratory operation (4). effectiveness of the laboratory services and the impact on
To demonstrate how appropriate test utilization will patient outcomes.
promote a better integration of laboratory services into the Barr’s model identifies the factors that affect the clini-
patient care process, Barr’s model is briefly described. In cian’s decisions or actions at each step of the laboratory use
the input phase, one must question if the test is appropri- process. It also demonstrates appropriate roles for the clin-
ate for the stage of the clinical condition and if the time of ical scientist at each step of this process. Starting with the

Figure 52.3 Model of laboratory utilization. MT/CLS, medical technologist/clinical laboratory

scientists. Adapted from reference 14. doi:10.1128/9781555817282.ch52.f3
912 THE FUTURE OF CLINICAL LABORATORIES

clinician’s assessment of the patient’s condition, the labo- executive officers believe that technology, automation,
ratory utilization process proceeds in seven steps, which and robotics will substitute for large numbers of personnel
result in the application and integration of the test results (39–45). Indeed, this has been industry’s mantra for over
into patient care. 30 years (34). Many laboratories have moved to increas-
If a test is not clinically indicated or the laboratory’s ingly automated operations including front-end automa-
precision is insufficient for that needed for clinical judg- tion. This direction, however, has proved inadequate, as
ments, or if the result is misinterpreted, then an accurate the demographic reduction in the workforce has deprived
and precise laboratory result is of no value. It must be ac- laboratories of individuals with the cognitive abilities nec-
knowledged that such tests are of no value because they essary to provide accurate laboratory information for di-
unnecessarily consume resources and may lead to diag- rect patient care. It is increasingly evident that technology
nostic and therapeutic delay and patient harm (4, 31). and automation cannot substitute for qualified personnel
Medical laboratory sciences and medical technology to the extent originally suggested (37).
educational programs have historically included patho- Various factors, including the absence of state person-
physiology, clinical correlation, algorithms, and more nel licensure for clinical laboratories, have altered the mix
recently clinical pathways in the curriculum (34). This of people with various levels of training and credentialing
clinical knowledge was always a part of the graduates’ and have created serious problems for laboratory manage-
knowledge and skill mix, but they have not been called ment. In a profession dictated by stringent rules regarding
upon to use it due to many historical factors including the test performance, it is ironic and troublesome that rules
laboratory management’s lack of vision regarding the role regarding personnel are so ambiguous and inconsistent.
of this knowledge in the total testing process. The implementation of CLIA ’88 in 1992 forever
changed laboratory management’s perception of the lab-
The Changing Workforce oratory workforce. In essence, CLIA ’88 regulations gave
The clinical laboratory profession continues to experience many laboratory managers permission to use less quali-
unprecedented vacancy rates that will not be resolved in fied personnel to perform moderate-complexity tests. This
the near future (56). Statistical projections show that an option allowed these managers to hire individuals with
overall expanding population that includes a large elderly less training and experience. In some laboratories, such
group with chronic health problems will require a greater as large reference laboratories, this option may work well
supply of healthcare professionals that currently are in if there is sufficient oversight. In other laboratories, par-
short supply (11). Meeting staffing needs has become the ticularly community hospital laboratories, this experiment
laboratory manager’s most pressing problem on a daily may have proven to be problematic.
basis. As the shortage of certified medical technologists/ Forecasting or speculation regarding workforce needs
medical laboratory scientists continues to grow due to has almost become sport in various circles. Laboratory
fewer graduates entering the workforce and baby boom- financial officers claim that they can effectively operate
ers beginning to retire, laboratory managers are evaluating a laboratory with individuals who can simply function
staffing patterns needed for various testing methodologies. routinely. It is a fact that workforce needs can vary ac-
While laboratory managers prefer to hire the most highly cording to laboratory function and tasks. For example, a
educated personnel, the fact that these personnel are dwin- high-volume chemistry department in an urban reference
dling is causing managers to assess the requisite skills nec- laboratory with highly automated, sophisticated instru-
essary to perform more routine procedures and hire less mentation may use support-level personnel to operate the
educated personnel to fill this need (5). equipment. However, if the instrumentation is highly so-
The appropriate role of the various levels of clinical lab- phisticated and complicated, supervisory oversight is even
oratory personnel is the focus of much discussion and con- more necessary. Every laboratory operation will need to
tention today. While the staffing shortage is creating much determine the appropriate staffing pattern for its unique
debate about the appropriate personnel levels required to analytical processes (5). Assuming that test information is
perform various types of testing, the concerns about pa- reliable and accurate, the more important question with
tient safety are linked to the need to improve utilization in regard to service to the physician, and thus the patient, will
order to improve patient outcomes. These two concurrent be, What does this result mean with respect to patient care
challenges must be faced with creativity, innovation, and and safety (8)?
courage by laboratory management to provide laboratory
services that not only are reliable but will also add value to Creating Conditions of Good Work
patient care. Contributing to the unprecedented vacancy rates in the
Pontius interviewed the chief executive officers of clinical laboratory is not only the lack of graduates and
the major laboratory industry manufacturers in a series predictable retirements but also the purposeful defection
of published articles. It is not surprising that most chief of qualified people for other opportunities that grant them
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE 913

respect, value their intellectual worth, and financially re- to motivate workers with responsibilities that are broad and
ward their contributions (38). In the search for profit or relatively autonomous from supervisors. Proponents of the
cost containment, clinical laboratories have neglected to technical approach advocate that simplifying work enables
provide meaningful and challenging opportunities for the worker to develop proficiency through repetition of
their workforce, who may feel justifiably underutilized. tasks, producing a highly skilled, productive worker. Ad-
In the global economy, and now within the broader vocates of the psychological approach argue that repetitive
scope of laboratory practice as described above, knowledge tasks are not rewarding to individuals and that work should
workers are identified as the route to success (49). Using represent whole tasks with which the worker can identify,
the clinical scientist workforce as one group of knowledge e.g., the preanalytical through postanalytical process in lab-
workers in ensuring patient safety will lead to clinical sci- oratory testing.
entist careers that are viewed as meaningful, challenging, Additional insight about creating conditions for good
and rewarding (22). In addition, the fulfillment of good work is found in the motivating potential of a job. Hack-
work leads to personnel recruitment and retention, which man et al. (24) expressed a job’s motivating potential score
contribute to a much-needed stable workforce that will (MPS) as follows:
improve the budget’s bottom line (38).
MPS = (skill variety + task identity + task significance)
By the same token, support personnel with appropri-
× autonomy × feedback
ate oversight can perform the more routine analytical
processes in the laboratory. However, it should be kept The higher the MPS, the higher the motivation for the
in mind that there are analytical processes that require a employee.
more educated scientist because of the requirements for Knowledge workers with a strong need for achievement
problem solving and diagnostic interpretation. Best con- and personal development will be most motivated if they
ducted a task analysis to determine the appropriate staffing are given a full opportunity to use their education and po-
levels for various types of tests and found that in the labo- tential through consultative activities and have a sense of
ratory environment there is a need for clinical scientists to accomplishment in how patient care was affected by labo-
perform various functions that are scientific and techni- ratory information rather than simple accomplishment of
cal in nature as well as myriad roles in a supervisory and a procedure.
administrative capacity (5). Many talented scientists pre-
fer work that typically exists in the traditional laboratory
The Changing Nature of Work
(internal operations and sophisticated technical analytical
processes), while others prefer to be involved with patient The Consultation Role and Process
care in a consultative capacity. All functions are necessary, Consultants are individuals with recognized expertise who
however, and the latter needs to be cultivated and encour- are asked by a client, in this case a healthcare provider, to
aged (22). apply their knowledge and skills to a given situation. A
Limiting laboratory work to the application of tech- consultant is a facilitator and a specialist in determining
nology to produce patient care results, devoid of the con- needs and identifying resources. The primary value of a
nection to why the information is requested or how the consultant lies in the expertise to accurately identify, ana-
information is used, has led to more than just underuti- lyze, and resolve the problems and needs of the client.
lization of people; it has led to a sense of “invisibility,” to a Consultants can be categorized as either internal or ex-
lack of recognition, and ultimately to declining self-worth ternal. Internal consultants are employees of the organiza-
and the search for more challenging work. For work to be tion for which they consult, and many clinical scientists
intrinsically rewarding to individuals, there must be a link have been serving in this capacity without being formally
between behavior and reward with the following psycho- identified as such in a job description. External consultants
logical conditions (24): are proprietors of private consulting businesses. These in-
dividuals have total responsibility, authority, and account-
• Experienced meaningfulness ability for their professional practices (33). The acceptance
• Experienced responsibility and legitimization of clinical scientists as consultants have
• Knowledge of results been demonstrated by the federal regulatory authority of
CLIA ’88, which specifies the position of a “technical con-
Unfortunately, job design for laboratory personnel has sultant” who is responsible for the technical and scientific
traditionally been accomplished using a technical approach oversight of laboratory testing in moderate-complexity
based in scientific management rather than a psychological laboratories (19). In the last few years, clinical scientists
approach. The technical approach extracts “maximum ef- have performed the functions as outlined in the regula-
ficiency from workers by designing narrow, repetitive jobs” tions and have proven their abilities to occupy this role.
(9). By contrast, a psychological approach to job design seeks Now, this role must be internalized in the clinical setting,
914 THE FUTURE OF CLINICAL LABORATORIES

where test utilization questions require the clinical scien- Table 52.1 Consultant competencies
tist’s input to ensure good patient care and safety. Knowledge areas
The consultation process can involve the following gen- Foundation in administrative philosophies, policies, and
eral functions: evaluation of a problem, research, advis- practices
ing, planning, implementation, supervising, training, and Knowledge of educational and training methods
evaluation of problem resolution. Consulting is aimed at An understanding of the stages in the growth of individuals,
groups, and organizations
helping a person or a group deal with problems and efforts
Knowledge of how to design and help a change process
to change. “Change” is the operative word, because effec-
Knowledge and understanding of human personality, at-
tive consultants deal primarily with the effect of change on titude formation, and change
an organization and on its staff. Knowledge of oneself: motivations, strengths, weaknesses,
Consulting involves people dealing with people, as op- and biases
posed to people dealing with machines or mathematical so-
lutions. Successful consultants understand organizational Skill areas
dynamics and the unique functions and boundaries of the Communication skills: listening, observing, identifying, and
reporting
consultant role. They are aware of the effects and conflicts
Teaching and persuasion skills: ability to impart new ideas
of using new technologies. They understand change pro-
and insights effectively
cesses and the powerful influence of individual and organi-
Counseling skills to help others reach meaningful decisions
zational resistance. They are clear about the boundaries of
Skill in designing surveys, interviewing, and other data-
their role, and they do not become involved in unproduc- collecting methods
tive conflicts over authority and responsibility. They avoid Skill in using problem-solving techniques and in assisting
using a narrow set of techniques without evaluating their others in problem solving
relevance to a particular situation. The inability to under- Ability to work with groups and teams in planning and
stand these concepts and to apply these skills can produce implementing change
barriers to positive outcomes, resulting in consultant ser- Ability to be flexible in dealing with all types of situations
vices that are ineffectual (18, 23, 30, 33, 55). Ability to form relationships based on trust

Consultant Skills Attitude areas

Attitude of a professional: competence, integrity, feeling of
The consultant’s potential to affect the quality of labora- responsibility
tory testing depends on the effectiveness of the consulting Maturity: self-confidence; willingness to take necessary
practice. A combination of four interactive skills makes a risks; ability to cope with rejection, hostility, and suspicion
successful consultant. A consultant must excel in the area Open-mindedness, honesty, intelligence
of technical knowledge and skill. The successful consul- Possession of a humanistic value system
tant translates expert knowledge into useful application.
The consultant’s knowledge must encompass the leading
edge of the client’s technology; he or she should be aware we will find a great disparity. Since the traditional role and
of emerging technologies and should evaluate their appli- environment of clinical laboratory personnel are remark-
cation. If consultants have the best information and ap- ably different from those of a consultant, this should be
proach, or the most effective solution to a problem, but expected. Consulting is based on the behavioral sciences,
they do not have the ability to work with the client, then an area that has not been stressed in the highly technical
the result is negative and failure is inevitable. Therefore, education of clinical laboratory personnel.
a consultant must excel in interpersonal skills, the second
area, which includes skills in leadership, communication, The Internal Consultant
understanding value structures, conflict resolution, and Internal consultants include clinical scientists who attend
teamwork. Good conceptual skills are another important patient rounds in teaching hospitals and advise physicians
requirement. A consultant must be able to see beyond the on the selection of laboratory tests and those who work
immediate problem, relate all of the pieces, and integrate for reference laboratories as sales or client representatives
them into a conceptual working whole (33). And finally, and advise physicians on proper screening methods with
empowerment skills enable the consultant to demonstrate appropriate reflex (follow-up) testing. The internal consul-
the confidence necessary to influence others (38). tant role is one that usually does not require the establish-
Consultative competencies have been identified and ment of a formal consultant-client relationship each time
grouped according to the knowledge, skills, and attitudes service is provided. When clinical scientists who are inter-
necessary for success. These competencies are identified in nal consultants earn the respect of their colleagues in the
Table 52.1 (30, 36). If we examine these competencies and organization, they often become essential participants on
relate them to a similar set for clinical laboratory sciences, the healthcare team.
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE 915

In an effort to retain qualified laboratory scientists, the obtained? Under what conditions should the specimen be
University of North Carolina Hospital Core Laboratory collected? When and how often? Involvement in discus-
developed the Laboratory Ambassador Program in 2004. sions with physicians about the patient’s situation could
This program provides a more challenging work experi- avoid delays and inadequate or inappropriate samples,
ence and at the same time improves communications be- reduce the patient’s trauma due to unnecessary venipunc-
tween the laboratory and nursing services. The goals of tures, and improve the cost-effectiveness of patient care.
the program are to enhance employee satisfaction, mod- Today there is a flurry of discussion that revolves around
ernize laboratory services, and improve patient outcomes. proper test utilization, and opportunities abound for clini-
Clinical scientists are selected who demonstrate many of cal scientists to provide valuable information (1).
the characteristics listed above under Consultant Skills. The laboratory’s responsibility does not end when an
Following a training program, the ambassadors visit the accurate test value is obtained. The clinical scientist must
units and solve problems that potentially impede patient ensure that the physician, nurse, therapist, pharmacist, or
care (51). other healthcare provider understands the meaning of the
The consultant within the hospital environment can results. The care these people give depends on such un-
function in a variety of ways to improve patient care and derstanding. Whenever the test results are inconclusive
enhance the efficiency of the facility. Too often the role of or appear to be inappropriate, subsequent steps are indi-
the laboratory has been perceived to begin with receipt of cated; the clinical scientist should discuss these steps with
a specimen and end with reporting a result. On the con- the physician or follow up with institutionally sanctioned
trary, there are numerous opportunities in the preanalyti- protocols (4, 31, 32).
cal and postanalytical phases of the testing process that
require consultation in addition to clarification regarding
the various aspects of the analytical phase. One important Summary
utilization activity that should be increased is the clini- It is clear that today both the nature of work in laboratory
cal scientist’s involvement in interpreting and integrating medicine and the workforce that performs testing and
laboratory information in the management of the pa- provides relevant information are in transition. Spurred
tient’s condition. Recent studies conducted at the Center by continued demands for efficiency and effectiveness
for Quality Improvement and Patient Safety confirm this and new demands for safety and better utilization, manag-
need (57). A successful program to improve laboratory ers are challenged to rethink the development and role of
utilization described by Luckey and Davis uses clinical clinical scientists.
scientists as “laboratory resource consultants.” Initially The broadened role of clinical scientists will include
the program focused on the more frequently ordered tests engagement with other healthcare providers in an inter-
and diagnosis-related groups. With time, the program ex- active process about the relevance of clinical tests (input/
panded and provided other needed services. Refer to Table preanalytical), the generation of value-added test data and
52.2 for an example of internal consultant functions con- information (process/analytical), and the correct interpre-
ducted by the laboratory resource consultant (31). tation of and response to laboratory information (output/
Clinical scientists should be involved in providing postanalytical).
guidelines for the selection of tests. What test will provide The laboratory manager of the 21st century has the ob-
the most information? What type of specimen should be ligation not only to introduce a new laboratory paradigm
but also to create, foster, and nourish a new workforce to
Table 52.2 Laboratory resource consultant tasksa bring about substantive change.
Monitor utilization reports of high-volume test usage patients
Communicate opportunities for improved utilization to case manag-
ers, physicians, and service line administrators
KEY POINTS
Assess need for involvement of pathologists/administrators in utiliza- ■ Work and the workforce in laboratory medicine are in
tion issues transition.
Review care paths to affirm appropriate laboratory utilization ■ The broadened role of clinical scientists will require
Consult with physicians, nurses, and laboratory professionals on cur- those who can gather and distribute information with a
rent guidelines and protocols for proper test ordering
value-added component.
Educate physicians and nursing groups on current and new policies
and procedures regarding laboratory utilization, medical-necessity, ■ The total testing process will become very interactive;
and compliance issues the focus will encompass the preanalytical (appropri-
Consult with laboratory administrators and practitioners about cur- ateness of test requests), analytical (generation of test
rent laboratory utilization practices data), and postanalytical (correct interpretation of and
a
Adapted from reference 31. response to laboratory information) aspects of testing.
916 THE FUTURE OF CLINICAL LABORATORIES

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Introduction
Electronic Health Records
53 Electronic Health Records and
Definition and Components • Status of EHR Use
Federal Regulations Related to EHRs and
Their Implications and
Their Implications for Laboratories
Meaningful Use: the EHR Incentive Program •
Opportunities for Laboratories
Meaningful Use Requirements Directly Relevant
to Laboratories • EHR Certification Program:
Functional Criteria and Data Standards • Walter H. Henricks
Certification Criteria and Standards Most Relevant
to Laboratories
Concerns/Implications for Laboratories OBJECTIVES
Related to Increased Use of EHR Systems
Results Management • Test Result Management when To describe the basic components of electronic health record (EHR) systems
Multiple Laboratories Serve a Single EHR System • To describe recent federal regulations aimed at increasing the use of EHRs,
Computerized Provider Order Entry • EHR-LIS
Interfaces • Technical Aspects of Interfaces: HL7 and including the criteria for meaningful use of EHR technology and federally
LOINC • Operational Challenges for Laboratories directed certification of EHR systems
with LIS-EHR Interfaces To recognize potential concerns and regulatory impact of increased use of
Strategies for Laboratories To Succeed EHRs in physician practices for pathologists and laboratories
in Laboratory Information Management
in the EHR Era To anticipate the pertinence to laboratories of requirements that are expected
Steps To Increase Involvement and Influence in in future stages of regulations and the expansion of EHR uptake
EHR Processes Related to the Laboratory • Tactics To describe strategies for laboratories to succeed in laboratory information
for Working with EHR Support Staff • Laboratory
Involvement in EHR Selection and Implementation
management in the EHR era
Summary
KEY POINTS
In the middle of difficulty lies opportunity.
GLOSSARY
Albert Einstein
REFERENCES

E
lectronic health records (EHRs) are transforming the delivery of
healthcare and the practice of medicine. Governmental actions, tech-
nological advancements, and economic and other factors are driving
greater use of EHRs on the part of hospitals and physician practices. The
proliferation of EHR use presents laboratories with new challenges and op-
portunities in meeting their core mission: to deliver to healthcare providers
information that is pivotal to clinical decisions and patient care.
EHRs are the new “portal” through which clinicians interact with labora-
tory information, and in a sense, with the laboratory. For decades, laboratories
have relied on their internal laboratory information systems (LISs) to support
and to manage operations inside the laboratory. In addition, laboratories have
in the past had greater control over upstream and downstream information
flows. For instance, laboratories could design their own requisitions to capture
test order information, and laboratories designed the format of laboratory re-
sult reports based on definitions they set up in the LIS. The EHR represents a
new intermediary, of sorts, between the laboratory and the clinician.
In a sense, laboratories will depend on EHRs for preanalytic and postan-
alytic data management and processes just as they depend on LISs for data
Clinical Laboratory Management, 2nd Edition
management and operations inside the laboratory. Test order information
Edited by L. S. Garcia coming to the laboratory will increasingly originate in the EHR, and labora-
©2014 ASM Press, Washington, DC tory test results will be presented to clinicians in the context of the EHR. Con-
doi:10.1128/9781555817282.ch53
sequently, it is crucial to their success that laboratories, at minimum, have an

918
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 919

awareness of how the EHR affects laboratory information and available to clinicians. Order entry functions are the
management and processes. Moreover, active engagement means by which clinicians order laboratory tests. Decision
by laboratories can influence EHR issues in their environ- support tools provide the laboratory with an opportunity
ments that affect laboratory operations or the delivery of to participate in development of rules or alerts that affect
laboratory results. test selection and utilization.
This chapter provides an overview of EHRs and their Recent federal legislation also sets forth an EHR defini-
relevance to laboratories. tion that mirrors some of the functionalities and themes
from the IOM report. Section 3000 of the Public Health
Service Act (30) defines an EHR as an electronic record
Electronic Health Records of health-related information about an individual that
Definition and Components includes:
An EHR is at its core a longitudinal record of a patient’s • Patient demographic and clinical health information,
medical history. An EHR, however, is much more than such as medical history and problem lists
just an electronic or computerized representation of the
paper patient chart. In a 2003 landmark report (19), the • Clinical decision support
Institute of Medicine (IOM) described a vision for EHR • CPOE
systems in which, in addition to information about an in- • Capture and query of information relevant to health-
dividual’s healthcare, EHRs also include population-level care quality
information, decision support tools that enhance the qual- • Capability to exchange and integrate electronic health
ity and efficiency of patient care, and support of efficient information with other sources
processes in healthcare delivery. Specifically, the IOM re-
port defined eight core functionalities for an EHR system,
which are summarized in Table 53.1. Status of EHR Use
While all of the core EHR functionalities described by Although EHRs have existed in various forms for years, use
the IOM in one way or another could relate to the labo- of EHRs has remained relatively low until recently. Recent
ratory, the components of the EHR that are most directly data indicate that implementation of EHRs is increasing in
relevant to the laboratory are health information, results healthcare organizations and medical practices, presum-
management, computerized provider order entry (CPOE), ably in large part owing to recent federal programs aimed
and decision support. Health information provides labo- at stimulating EHR use (see later section). In the most re-
ratories with access to clinical information that can be cent data available from the Centers for Disease Control
important to interpreting tests correctly and to the labo- and Prevention (CDC)/National Center for Health Sta-
ratory’s role in patient management. Results management tistics (16), an estimated 55% of office-based physicians
functions determine how laboratory results are displayed were using a “basic” EHR system in 2011, up from 10% in
2006. In the most recent survey of healthcare information
technology leadership performed by the Healthcare Infor-
mation Management Systems Society, in 2011 (12), 27%
Table 53.1 Core functionalities for an electronic health record of healthcare organizations reported that they had a fully
systema operational EHR system in place across their organization
Health information and data: information about the individual pa- (up from 17% in 2009), and 26% stated that they had an
tient and records of his or her healthcare EHR system fully operational in one facility. In the same
Results management: automated display of current and previous test survey, only 2% of organizations had not yet begun to plan
results of all types EHR implementation.
Order entry/order management: capture of healthcare providers’ A note on terminology is in order. The term “electronic
orders directly into the EHR through CPOE
medical record” (EMR) is widely used interchangeably
Decision support: rule-based alerts, recommendations, and remind-
with “electronic health record.” Some strict definitions
ers presented to the user in context; access to knowledge bases
of EMR confine the term to mean those elements of the
Electronic communication and connectivity: sharing data within and
across organizations medical record that document patient diagnosis and treat-
Patient support: computer-based patient education, communications, ment in one practice or institution. EHR, on the other
reminders; facilitation of telemedicine hand, may be said to be a more comprehensive term that
Administrative processes: scheduling of appointments and proce- encompasses a broader data set from all providers involved
dures, insurance authorization in a person’s healthcare as well as the ability to share infor-
Reporting and population health management: public health and mation across sources. As stated, there remains consider-
private sector reporting for safety and quality indicators able overlap in the practical usage of these terms. EHR is
a
From reference 19. used in this chapter and is the term that the Office of the
920 THE FUTURE OF CLINICAL LABORATORIES

National Coordinator for Health Information Technology EHR Incentive

(ONC) uses almost exclusively. CMS Rule Program
(“Meaningful Use”)
HITECH
Federal Regulations Related to EHRs and Act
Their Implications for Laboratories (part of ARRA)

Recent landmark federal legislation and regulations have EHR Standards

ONC Rule and Certification
dramatically altered the healthcare information technol-
Criteria
ogy (IT) landscape, with the aim of spurring utilization of
EHRs. EHRs are the key component of the federal govern- Figure 53.1 Relationships between the HITECH Act and the
ment’s goals for improving healthcare (28): CMS and ONC EHR-related programs. ARRA, American Re-
• Improve the quality, safety, and efficiency of healthcare investment and Recovery Act; HITECH, Health Information
Technology for Economic and Clinical Health; CMS, Cen-
and reduce health disparities
ters for Medicare and Medicaid Services; ONC, Office of the
• Engage patients and families in their healthcare National Coordinator for Health Information Technology.
• Improve coordination of healthcare doi:10.1128/9781555817282.ch53.f1
• Improve population and public health
• Maintain the privacy and security of health necessary to achieve meaningful use of EHRs. The CMS
information published this final rule in conjunction with a final rule
• Reduce costs from ONC that established criteria for EHR certifica-
tion (see following section). Providers and hospitals can
The Health Information Technology Economic and Clin-
achieve meaningful use only through the use of certified
ical Health Act, or HITECH Act, was signed into law as part
EHR technology.
of the American Recovery and Reinvestment Act (ARRA)
The CMS will implement meaningful use objectives in
of 2009. The HITECH Act promotes the use of health infor-
three stages:
mation technology (HIT), specifically EHRs and electronic
exchange of health information. Based on the HITECH Act • Stage 1: Data capture and sharing
provisions, two agencies within the Department of Health • Stage 2: Advanced clinical processes
and Human Services (HHS)—the Centers for Medicare and
• Stage 3: Improved outcomes
Medicaid Services (CMS) and the Office of the National
Coordinator for Health Information Technology (ONC)— Each stage of the meaningful use roll-out will introduce
subsequently developed related programs and regulations additional user requirements and functional and techni-
intended to increase the use of EHRs. cal capabilities for CEHRT. The 2010 rule describes stage 1
The CMS and ONC worked together to develop and to requirements applicable to 2011 and 2012. CMS published
coordinate two programs—the Electronic Health Record stage 2 requirements in September 2012 (29a), with the
Incentive Program, commonly known as “meaningful requirement deadline pushed back to 2014. The expected
use,” and the Certification Criteria for Electronic Health release date for stage 3 is uncertain.
Record Technology. The relationship among HITECH, Eligible providers and hospitals meet the definition of
meaningful use, and certification criteria is depicted in meaningful use of EHRs by demonstrating that they use
Fig. 53.1. EHR certification criteria ensure that certified EHR technology to meet certain specific EHR use objectives
EHR technology has the functional capabilities that en- defined in the regulation. Objectives are a combination of
able a user to meet requirements for meaningful use of required core objectives and, in stage 1, an optional menu
the EHR. In short, meaningful use objectives define how set of objectives from which providers and hospitals must
an eligible provider or hospital must use an EHR system, choose. Examples of objectives include using e-prescribing
and EHR certification criteria define what an EHR sys- for medications, recording vital signs, maintaining a prob-
tem must be able to do. lem list, and providing patients with summaries of their
visit or discharge. In future stages, objectives will become
Meaningful Use: the EHR Incentive Program increasingly rigorous, and optional menu objectives will
In 2010, the CMS issued a final rule entitled Medicare and shift to core requirements.
Medicaid Programs; Electronic Health Record Incentive The CMS EHR meaningful use program provides for in-
Program (29). This program has become known as “mean- centives and penalties for hospitals and eligible providers.
ingful use” because it establishes the criteria, reporting re- As incentives, eligible providers who meet requirements
quirements, incentive payments, and penalties for eligible can receive up to $44,000 in incentives over five years in the
providers (i.e., individual practitioners) and for hospitals Medicare program and $63,750 in the Medicaid program (if
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 921

participating by 2012). Hospital-based providers are not eli- • Data exchange standards, including HL7 version 2.5.1
gible to receive incentive payments. In both programs, eligi- • Vocabulary standards for representing electronic
ble hospital incentive payments begin with a $2 million base health information, such as ICD-9-CM, SNOMED CT,
payment and may go up from there, depending on variables and LOINC (Logical Observation Identifier Names
such as number of acute care inpatient discharges and num- and Codes)
ber of inpatient bed-days. In 2015, penalties start for provid-
• Data security and encryption standards
ers who have not demonstrated meaningful use of EHRs,
with a 1% reduction in the Medicare physician fee schedule In support of meaningful use stage 2 requirements, in
amount for professional services. Penalties increase to 2% in September 2012 ONC published an updated set of EHR
2016 and to 3% for 2017 and each subsequent year. Standards and Certification Criteria, known as the 2014
Edition (31a). Furthermore, ONC specified that LIS-EHR
Meaningful Use Requirements Directly interfaces be implemented in accordance with ONC’s re-
Relevant to Laboratories cently developed Laboratory Results Interface (LRI) Im-
The stage 2 meaningful use objective that is most directly plementation Guide (12a), which involves use of LOINC,
relevant to laboratories is that more than 55% of all clini- HL7 v2.5.1, and SNOMED-CT. An analogous Implemen-
cal laboratory tests whose results are in either a positive/ tation Guide of specifications for laboratory orders (LOI)
negative or numerical format are incorporated in certified is in development (Standards and Interoperability [S&I]
EHR technology as structured data. The regulation de- Framework Laboratory Orders Interface Initiative, http://
scribes “structured” in this context only as a requirement wiki.siframework.org/Laboratory+Orders+Interface+
for the system to be able to identify the data as provid- Initiative 2013 [last accessed July 18, 2013]).
ing specific information, such as by creating fixed fields EHR systems may be certified as “complete” EHR sys-
within a record on file, but not solely accomplished in this tems or as a combination of separate EHR “modules” that
manner. For example, each result in a chemistry panel in aggregate meet the criteria. Some laboratory informa-
should be stored in the EHR system as a discrete value tion systems have achieved certification as EHR modules.
with a discrete reference range, etc., as opposed to being ONC also established a certification program (32) through
entered into the EHR by digitally scanning in an image of which it authorizes third-party organizations to certify
a printed laboratory report that would have no data struc- that EHR systems meet the criteria as specified in the fi-
ture in the EHR. nal rule. ONC maintains a publicly available Certified HIT
Another stage 2 objective that directly affects labora- Product List (33), which as of this writing lists 3,478 certi-
tories in the inpatient setting is to submit electronic data fied ambulatory EHR products and 1,161 certified inpa-
on reportable laboratory results to public health agencies, tient EHR products.
where applicable. While this requirement refers to submis-
sion from the certified EHR that is in use, it is possible Certification Criteria and Standards Most Relevant to
that, if the hospital LIS in use is certified as an EHR mod- Laboratories
ule (see later section), hospitals could choose to use sub-
The EHR certification criteria that most directly relate to
mission directly from the LIS to the public health agencies
laboratory testing require that the EHR must be able to:
to satisfy this requirement.
The use of CPOE for at least 30% of laboratory test or- • Receive clinical laboratory test results electronically in
ders is a new requirement in stage 2. This new objective a structured format and display such results in a
applies both to eligible providers and to hospitals. The rule human-readable format (in support of the correspond-
does not explicitly require electronic submission of labora- ing meaningful use objective)
tory test orders from the EHR to the laboratory, although • Display all the information for a test report specified
it highly encourages electronic exchange. in the Clinical Laboratory Improvement Amendments
(CLIA) rule (Table 53.2) (26)
EHR Certification Program: Functional Criteria and
Data Standards • Attribute, associate, or link a laboratory test result to a
laboratory order or patient record
In 2010, ONC published the Final Rule: Health Informa-
tion Technology: Initial Set of Standards, Implementation Some amplifying points relevant to these criteria are im-
Specifications, and Certification Criteria for Electronic portant for laboratories. First and foremost, the requirement
Health Record Technology (45 CFR Part 170) (31). This for result reports is only that all CLIA-mandated elements
regulation (i) defines functional and technical capabilities of the test report are displayed; there are no further require-
that an EHR system must possess to ensure that users can ments as to formatting or other factors that may affect us-
use it to achieve stage 1 meaningful use criteria and (ii) sets ability for test results. Second, the rule does not impose
forth the health IT data standards that HHS deems to have specific requirements for what constitutes a “structured”
been adopted. The data standards include: format for laboratory data in this context.
922 THE FUTURE OF CLINICAL LABORATORIES

Table 53.2 CLIA-required information for test reports information. Laboratory information is among the most
Patient’s name and identification number or unique identifier and important EHR data elements used in clinical decision
identification number making. An earlier study by Forsman found that 94% of
Name and address of the laboratory location where the test was information in the Mayo Clinic EHR was laboratory data
performed (6). A commonly used (although debatable) estimate
Test report date is that 70% of data in the EHR is laboratory-related and
Test performed that laboratory data influence 70% of treatment decisions
Specimen source, when appropriate (5). A study in a major healthcare institution found that a
Test result and, if applicable, the units of measurement or interpreta- primary care physician on average reviews 930 pieces of
tion or both chemistry/hematology data and 60 pathology/radiology
Any information regarding the condition and disposition of speci- reports per week (24).
mens that do not meet the laboratory’s criteria for acceptability
Although laboratory data are among the most impor-
tant elements in an EHR, significant limitations may exist
in how EHRs are able to present laboratory results and test
Other EHR certification criteria correlate with mean-
request information. Such issues are magnified in an inte-
ingful use requirements involving laboratory tests. EHRs
grated delivery network setting in which multiple laborato-
must have the capability to transmit reportable laboratory
ries and facilities feed an EHR. Administratively, EHRs are
results to public health agencies (inpatient setting). The ca-
outside of the control of the laboratory, and pathologists
pability to support CPOE for laboratory testing is a certifi-
and laboratories stand to lose influence over the manner
cation requirement, to support the analogous requirement
in which laboratory information is conveyed to clinicians.
in stage 2 of meaningful use. Some other certification cri-
Yet problems with presentation of laboratory information
teria speak to secondary uses of laboratory results within
in the EHR may negatively affect clinician perceptions of
the EHR, such as decision-support rules based on labora-
laboratory service quality and potentially compromise pa-
tory results and providing patients with online access to
tient care.
clinical information that includes laboratory results.
Compared to traditional laboratory reports emanating
The data standards in the regulation that are most im-
from an LIS, the concept of a “report” is different in the
portant for the laboratory are HL7 v2.5.1 and LOINC. The
era of electronic data elements that may be presented in
use of HL7 v2.5.1 is required for transmitting reportable
different ways or through various channels. Integration of
laboratory results to public health agencies. Hospitals may
information from multiple data feeds, and possibly mul-
choose to meet this requirement through the use of an LIS
tiple laboratories, will occur at the level of the EHR. Not
that has been certified as an EHR module.
only hospitals but also individual offices will expect that
LOINC is specified as a vocabulary standard for repre-
pathology and laboratory information be integrated seam-
senting laboratory test results. The current requirements
lessly into their EHRs.
are that certified EHR technology must be able to reuse a
LOINC code when it has been received from the labora- Results Management
tory and that such a code is accessible in the EHR.
EHRs vary in the modes and effectiveness of their dis-
An important point for laboratories is that ONC has in-
play of laboratory results. The constraints of EHR design,
dicated that broader requirements for the use of HL7 v.2.5.1
including formatting, font, and arrangement of data ele-
and LOINC will be incorporated into future editions of the
ments, often dictate the presentation of laboratory results
certification criteria and data standards. Given the impor-
in the EHR. Laboratory results are not homogeneous data
tance of electronic transmission of laboratory results be-
types, and some level of laboratory domain expertise is
tween laboratories and EHRs, laboratories can expect that
necessary in the configuration of laboratory results in EHR
such requirements will increasingly apply to LIS-EHR in-
systems to foster appropriate presentation and reduce risk
terfaces. Laboratories are advised to monitor developments
for misinterpretation. Failure to account for laboratory
in these requirements closely to ensure that their LISs and
discipline-specific considerations or requirements in the
interfaces comply with the required data standards.
display of the data could increase the potential for missed
data or misinterpreted results.
EHRs typically have multiple types of formats for re-
Concerns/Implications for Laboratories sult display. For instance, a list of clickable links to the
Related to Increased Use of EHR Systems results for each test ordered on a selected patient may be
EHR systems and CPOE have profound implications for presented, with each test on a different line. The result
the management of laboratory information across the and all other information related to the selected test ap-
healthcare enterprise. The EHR is the portal through which pear on a new screen after the clinician clicks on the link.
clinicians receive, provide, and interact with laboratory This method for reviewing information has the advantage
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 923

that the person doing the viewing can see all information, The laboratory has a crucial role to play in the validation
such as reference ranges, comments or footnotes, and of laboratory reports as they are presented in the EHR. The
performing laboratory name and location, on one screen. display of laboratory results in the EHR must accurately
Disadvantages are that lists of results may not be further reflect what is reported from the laboratory. Such valida-
categorized and that individual test results must be re- tion is important not only for best patient care but also to
viewed one at a time. comply with regulatory requirements (see section below).
A common format for displaying laboratory test results Questions to address during validation include:
in an EHR is a cumulative results view. In this grid type of
• Does the EHR present laboratory results accurately?
display, laboratory test names are listed in rows along the
left side of the screen, and corresponding results for each • Are all required data elements present?
test are displayed in columns for successive dates, typi- • Are results displayed in a manner that may be mislead-
cally in reverse chronological order, left-to-right across the ing to the clinician?
screen. The organization of the test names and groupings
While the display of a column of numbers such as
will greatly affect the usability of such displays and may
chemistry panel results is relatively straightforward in a
affect the clinicians’ ability to find laboratory tests. For ex-
cumulative display format as described above, laboratory
ample, it would not make sense clinically to list the rows
results are more heterogeneous than simply columns of
of tests alphabetically by name; rather, grouping of tests
numbers. Table 53.3 lists laboratory result types that may
by laboratory discipline (e.g., chemistry, hematology, etc.)
be subject to suboptimal display in EHRs and merit inclu-
and by hierarchy (e.g., WBC as a component of CBC) is
sion in laboratory validation procedures. Many types of
more intuitive for the clinician to find results of interest.
tests in Table 53.3 require presentation of numerical values
In cumulative result displays, determining appropriate
and interpretive text in the same report. Other types of re-
test groupings, and more importantly, deciding into which
ports are entirely text-based. An example of a problem is
categories individual tests are placed, can be challenging.
incorrect or inappropriate splitting (“carriage returns” or
A good example is serologic testing for infectious diseases
line breaks) of text lines that can lead to misleading or con-
(e.g., viral hepatitis serologies). A decision will be neces-
fusing sentences or display. In addition to the test result
sary as to whether infectious serology results should be
itself, other data elements in laboratory reports are impor-
placed with other noninfectious serologic tests, with non-
tant to test interpretation. Verification of the manner in
serologic infectious disease tests, or generically with all
which the EHR handles such data is also an important part
microbiology results. Determination of such test group-
of validation. Table 53.4 lists such data elements.
ings is at minimum an issue about which the laboratory
With EHRs come new mechanisms for clinicians to
needs to be aware and is preferably seen as an opportunity
review and to filter new laboratory results. In the past,
for the laboratory’s active participation in laboratory result
the arrival of a printed laboratory report served as both a
management in the EHR.
prompt and a filter for newly available results. In the EHR
Cumulative results displays have the advantage of pro-
system, clinicians cannot be expected to look up every pa-
viding results from many tests on a single screen but have
tient every day (or multiple times a day) to check for new
a number of issues important for the laboratory to under-
results. Laboratory results in the EHR can be missed (25,
stand. A disadvantage of the cumulative results display is
34). EHR systems typically have some type of filtering or
that to maximize the number of results, the space available
alerting function that presents to clinicians only those re-
for each result is limited, typically to only the numerical
sults that are new since the previous inquiry. Such a func-
value and symbols that might represent abnormal flags or
tion requires correct configuration in the EHR system,
the presence of an explanatory comment. Such displays,
and the institution (or practice) may have the option of
therefore, are best suited for the display of results that have
tailoring the rules for different settings. For instance, an
a numerical or positive/negative format. To see more infor-
mation, such as reference ranges and comments, requires
additional action on the part of the user, such as clicking on
Table 53.3 Types of laboratory reports with
the result. The steps required of the user to display reference unique display considerations in EHRs
ranges may not be immediately evident. Visual cues must be
Microbiology
available on the cumulative display for a given result to alert
Transfusion medicine/blood bank
the user to the existence of comments or other additional
Molecular and genetic testing
information, when present, lest they be overlooked and im-
Coagulation panels
portant interpretive or clarifying information be missed,
Electrophoresis
leading to possible misinterpretation. A common example
Drug peak and trough identification
is a footnote in which note is made of hemolysis in a blood
Anatomic pathology
sample in which the serum potassium level is elevated.
924 THE FUTURE OF CLINICAL LABORATORIES

Table 53.4 Laboratory report elements subject to et al. (35) described benefits that accrue from standard-
variation in EHRs izing the LIS in an IDN and contrasted other IDN con-
Cumulative result display and format solidation projects that did not realize full savings due to
Reference ranges failure of integrated LIS implementation. While standard-
Abnormal result flags izing on a single LIS platform reduces variations stemming
Result comments and footnotes from different LIS databases and interfaces, a common LIS
Name and address of performing laboratory alone does not address test result integration issues arising
Preliminary reports from differing test methodologies.
Corrected reports A major challenge in integrating laboratory results
when an EHR receives results from multiple laboratories
occurs when multiple methodologies for the same analyte
are in use. Reference ranges and possibly units of measure
institution may determine that it is not desirable to send may differ among methods in use in different laboratories.
notifications for inpatient chemistry tests while ensuring Each result typically carries its reference range and units of
that notifications are sent for all anatomic pathology re- measure with it dynamically in the interface to the EHR.
sults, inpatient and ambulatory. Tests may be missed if the The display and definitions in the EHR must account for
clinician does not receive notification of results or if infor- these differences and present the results unambiguously
mation is routed to the wrong clinician. Such errors hap- with the reference range and units of measure appropriate
pen if settings in the EHR are not configured appropriately for each individual result. Static definitions for reference
(36) or if rigorous procedures are not in place to maintain ranges and units of measure in the EHR will not accom-
currency of information about responsible physicians and modate the need to display the reference range and units of
patient status. measure appropriate to each individual result.
To ensure optimal communication of laboratory re- The laboratory will likely need to raise awareness
sults, and to reduce the chance that laboratory results are among clinicians about the implications of differing meth-
missed in the busy clinical work flow, laboratories need to odologies and reference ranges in the EHR for the same
understand how such an alerting/filtering function works analyte. Results from different laboratories with different
in their institution’s EHR system. Key questions in the methodologies may appear side by side in a cumulative
laboratory’s assessment of a test notification function in results display. These results may (appropriately) have dif-
an EHR include: ferent reference ranges listed for them. Furthermore, it is
• Are there any types of results that do not fall under possible that on the same screen could appear a numerical
the function? result for a given test that has an abnormal (out of range)
flag in one instance but no flag for the same numerical
• Does the function work differently in the inpatient vs.
result performed in a different laboratory with a different
ambulatory environment?
reference range. Such apparent discrepancies may prompt
• Do notifications go to all physicians listed on a test or- questions from clinicians and require clarification from
der (as “copy to”) or just to the ordering physician? the laboratory, particularly if the name of the performing
• Do corrected reports and addenda trigger notifications laboratory is not obvious in the results display. Potentially
as new results? of greater importance, comparing all results in an EHR
over time for a given analyte may not yield appropriate
Test Result Management when Multiple Laboratories comparisons or could lead to misinterpretation of trends
Serve a Single EHR System (or lack thereof) when the tests are generated from differ-
In an integrated delivery network (IDN) that has imple- ent methods. These issues may be particularly problematic
mented a standardized EHR across the enterprise, issues with decentralized or point-of-care testing.
in laboratory result management may arise in the EHR
system if multiple laboratories in the network are deliver- Computerized Provider Order Entry
ing results to the unified EHR. A uniform EHR across an The use of CPOE has significant implications for how lab-
IDN implies an integrated, longitudinal view of laboratory oratories receive and process laboratory test orders. With
results regardless of data sources. Multiple laboratories CPOE, clinicians enter test requests directly into the EHR.
serving an IDN, however, may have disparate legacy LISs Test orders may then reach the laboratory via an electronic
and nonstandardized test methods, both of which impact interface with the LIS or on paper forms printed from the
integration of laboratory information in the EHR. EHR. The configuration of CPOE screens and sequences in
Standardization of IDN laboratories on a single LIS uti- the EHR determine the process for generating laboratory
lizing multifacility capability can be a step toward integra- orders and the content of such orders. Effective laboratory
tion of laboratory information in the EHR (13). Workman operations require laboratories to be involved in how the
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 925

EHR handles laboratory test order/requisition informa- LIS. Such congruence is necessary to ensure that the test
tion. Improperly designed or configured CPOE processes that the clinician thinks he or she is ordering is actually
can result in negative consequences for the laboratory, in- the one that gets performed in the laboratory, particularly
cluding incorrect, incomplete, and/or inappropriate test where orders are interfaced between the EHR and LIS.
orders as well as inefficiencies owing to CPOE problem CPOE enables types of laboratory test orders that af-
resolution (9, 23). fect preanalytic laboratory processes—future orders and
Elements of CPOE that are unique to laboratory testing standing orders. Future orders are test orders for which
and merit the laboratory’s attention include CLIA-mandated the patient is to return at a later time, either at a follow-up
test request information, the need for test-specific infor- interval or prior to a scheduled return office visit. Standing
mation in some requests, and test menu management. The orders are related to future orders in which the ordering
CLIA rule mandates that the laboratory ensure that test clinician enters an order for recurring testing to be per-
requests solicit specific information items that are listed in formed at specified intervals (e.g., prothrombin time every
Table 53.5. The laboratory must ensure that the CPOE sys- two weeks for a patient on an anticoagulant). In the pre-
tem meets these requirements. The requirement to provide CPOE era, these types of orders were of less consequence
test-specific additional information relevant to timeliness, to the laboratory because the patient would appear with
accuracy, or interpretation of results can be challenging to a paper requisition at each encounter, and the labora-
address in CPOE systems. One way such information is tory would enter an order manually into the LIS. In the
solicited is through “ask at order entry” questions that the environment where CPOE orders are interfaced into the
user must answer as part of the CPOE process. Examples LIS, the laboratory must understand the logic and timing
include provision of an actual time period for timed (e.g., of how future and standing orders are transmitted to the
24-hour) urine collections and demographic information laboratory. The key need is for a mechanism to be in place
for interpretation of cystic fibrosis genetic testing. For mi- that ensures that a test order that was placed via CPOE at
crobiology tests in particular, clinical information on test some date in the past is available to the phlebotomy site
requests is important for appropriate testing and inter- when the patient appears for blood draw.
pretation (10). CPOE sequences must enable the user to Anatomic pathology (surgical pathology, cytopathol-
provide the laboratory with information such as specimen ogy) orders differ in complexity and content compared to
type and source. Data fields for such information in the routine clinical laboratory orders. Although ordering pro-
CPOE system may be configured to allow the user to enter cesses for surgical pathology specimens may not be rou-
free text or may constrain the user to choices in a drop- tinely present in EHR/CPOE currently (4), such processes
down menu. The laboratory’s expertise is important to de- can be reasonably expected to be part of comprehensive
termining (i) the type of data format that is appropriate for CPOE functions in the future. Proper configuration of
a given test (or question) and (ii) accurate, complete, and CPOE in the EHR for anatomic pathology orders will
appropriate choices for responses to a drop-down pick-list. require expertise from the laboratory. Pap testing (cervi-
One of the most important aspects of CPOE is manag- covaginal screening) is more amenable to CPOE owing
ing the menu of test order choices available to the clinician to the uniformity of process and specimens. In anatomic
in the EHR. The choices available in the menu reflect the pathology, a single pathology report is issued for cases that
test definition entries in the data definition tables of the may consist of multiple discrete specimens. An anatomic
EHR. Laboratory involvement will contribute to ensuring pathology order must be able to accommodate and convey
that the test choices and their nomenclature in the EHR accurate part-specific information about multiple speci-
match correctly with corresponding tests as defined in the mens from one or multiple organs. In addition, there is the
need to provide clinical information applicable to the en-
tire case (e.g., “history of cancer”).
Table 53.5 CLIA-required information for test requests In addition to the value generated by laboratory in-
Identifying information of person or laboratory requesting the test volvement in the CPOE workflow issues described above,
Patient’s name or unique patient identifier CPOE offers opportunities for the laboratory to create
Sex and age or date of birth of the patient value in managing the test ordering process. Decision sup-
Test(s) to be performed port tools in the form of rules and alerts make it possible to
Source of the specimen, when appropriate intervene at the point of test order entry to facilitate appro-
Date and, if appropriate, time of specimen collection priate test selection and utilization. Table 53.6 summarizes
For Pap tests, the patient’s last menstrual period and indication of CPOE methods to improve test utilization as reviewed by
previous abnormal report, treatment, or biopsy Baron and Dighe (4). An evolving trend in laboratories
Any additional information relevant and necessary for a specific test leading test utilization efforts is the development of labo-
to ensure accurate and timely testing and reporting of results, includ- ratory test formularies (22, 34a). A laboratory test formu-
ing interpretation, if applicable
lary, analogous to a medication formulary, defines what
926 THE FUTURE OF CLINICAL LABORATORIES

Table 53.6 CPOE-based methods to improve test utilizationa Table 53.7 Concerns for laboratories regarding EHR interfaces
CPOE ordering templates and order sets Limitations of EHRs in laboratory test order and result handling
Alerts for redundant orders Lack of control or involvement in the EHR management at physi-
Constraints on recurring orders cians’ sites
Display of previous laboratory results during ordering process Expenses of interface implementation and maintenance
Integration of practice guidelines, care maps/care pathways Laboratory responsibility for transmission and validation of labora-
tory results to EHR; compliance with federal and state laws
Corollary test recommendations
Poor process design resulting in laboratory testing problems being
Display of test costs
blamed inappropriately on the laboratory
Unbundling of test panels into individual components
a
Modified from reference 4.

laboratory tests can be ordered and/or by whom certain and incoming messages for the specific interfaces. These
tests can be ordered, such as by specialists, or restricts or- software modules have acquisition costs and will add to in-
dering by some user category such as resident physicians or cremental ongoing software maintenance fees. Definition
physician assistants without attending physician approval. work is required to match test codes between systems (see
Laboratory test formularies may be used to curb the use of below). Extensive testing and validation are necessary to
high-cost send-out tests. Rules and choices reflecting the ensure accuracy and reliability of data exchange.
laboratory test formulary are encoded into the CPOE test Interface engines are widely used in laboratories and
menu and possibly its decision support configuration. healthcare organizations and can facilitate interface de-
ployment (8). An interface engine is a hub of sorts that
EHR-LIS Interfaces routes and translates messages among disparate computer
Laboratories exchange test orders and results with EHRs systems. Interface engines eliminate the need for numer-
through electronic interfaces. An interface consists of soft- ous point-to-point interfaces among multiple systems.
ware and connections that translate electronic messages so Rather, an interface for each system is developed once for
that otherwise incompatible systems can exchange infor- the interface engine. Messages are routed through the in-
mation (20). In the EHR environment, correct functioning terface engine to and from all other systems. When any
and management of LIS-EHR interfaces becomes a cru- one system is changed or upgraded, only the interface to
cial success factor for laboratories. LIS-EHR order entry the interface engine or hub needs to be redone instead of
interfaces transmit test order information from the EHR/ multiple point-to-point interfaces to numerous other sys-
CPOE system to the LIS. LIS-EHR result interfaces trans- tems. Whether laboratories interface directly from their
mit test result information from the LIS to the EHR. These LIS to EHRs or interface through some type of integra-
interfaces also typically transmit status information such tion services provider or interface engine, laboratories will
as “specimen received” back to the EHR. need the capability to establish interfaces with a wide va-
Potentially the single greatest impact to laboratories of riety of EHRs and vendors. As of this writing, the ONC
the federal meaningful use regulations and the greater use website lists 3,478 certified ambulatory EHR products and
of EHRs is that laboratories can anticipate a dramatic in- 1,161 certified inpatient EHR products.
crease in requests for LIS-EHR interfaces from physician
practices and other settings (14). Having gone to the ex- Technical Aspects of Interfaces: HL7 and LOINC
pense and effort of installing an EHR, clinician groups will LIS-EHR interfaces generally use the HL7 interface stan-
expect direct electronic exchange with laboratories and dard. A standard (in the context of information systems) is
integration of results into their EHR system. This greater a set of agreed-upon rules, specifications, and/or conven-
need for interfaces has important business, technical, and tions that govern the design and function of information
operational implications and challenges for laboratories. systems, with the intent that systems that adhere to a given
Table 53.7 summarizes the concerns for laboratories re- standard will be compatible with other systems that adhere
garding LIS-EHR interfaces. to the same standard (1). HL7 (Health Level 7) is a standard
Establishing LIS-EHR interfaces is a complex undertak- for electronic data exchange among healthcare systems and
ing that has technical, operational, and financial elements, is ubiquitous in healthcare system interfaces (15). The HL7
all of which contribute to the time and costs required for standard defines syntax and rules for healthcare data mes-
interface implementation (21). Laboratories will need to sages, including laboratory test orders and results. HL7
establish some type of network connectivity with sites to facilitates interface development by providing common
be interfaced. Interface software in both the LIS and EHR ground for disparate information systems to exchange data.
systems to be interfaced must be purchased and installed. The use of HL7, however, does not eliminate technical
Such software manages the interface messages for outgoing challenges encountered in developing interfaces. LIS and
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 927

EHR vendors develop HL7 interface software for their own Table 53.8 Operational considerations in LIS-EHR interfaces
systems, and HL7 interface specifications from one vendor Maintenance of EHR settings related to laboratory tests
typically do not exactly match those of another vendor. So Change control and communication (e.g., test definition updates)
when developing an interface, the two vendors must still Troubleshooting and client support
cooperate to resolve differences. Additionally, healthcare Training of EHR users in test result viewing and (eventually) test
organizations can add local modifications to the HL7 pro- ordering
tocol to meet site-specific needs. Handling of corrected results
HL7 does not define the content of individual data Monitoring or quality of service
fields, such as laboratory test codes. Test codes are defined Client site contact and engagement
in data definition tables in the LIS and EHR, and often,
the different information systems use different names and
codes to define the same test. For instance, serum sodium
may be defined as “SNa” in one system and as “NaS” in the the system is required to detect, correct, and communicate
other. The translation table in the interface is necessary to problems with the interface. Attention to change control is
cross-reference the different test codes. important to prevent service interruptions. Sufficient lead
LOINC (Logical Observation Identifier Names and time is required for clients to make changes (definitions,
Codes) is a data standard that defines a set of universal reference ranges, and new tests) in their EHR systems.
codes for identifying laboratory tests (and other clinical ob- Methods are needed for (i) how laboratory changes that
servations) in computer systems (18). LOINC is aimed at affect the interface are communicated to clients, (ii) how
enabling exchange and comparison of laboratory data across clients communicate problems to the laboratory, and (iii)
different information systems. More than 30,000 LOINC how the laboratory will address reported problems.
codes have been defined. LOINC is one of the healthcare CLIA regulations place a responsibility on the labora-
IT data standards that ONC has formally adopted. LOINC tory to ensure accurate transmission of laboratory results
codes can standardize laboratory test codes in HL7 mes- in interfaces:
sages, provided the interface systems share LOINC codes, 42 CFR 493.1291(a) The laboratory must have adequate
and can theoretically eliminate the need for laborious devel- manual or electronic system(s) in place to ensure test re-
opment of translation tables in LIS-EHR interfaces. sults and other patient-specific data are accurately and
Barriers exist, however, to the widespread use of LOINC reliably sent from the point of data entry (whether inter-
to achieve interoperability of laboratory data. Laboratories faced or entered manually) to final report destination, in a
must assign LOINC codes to all tests, a process that can timely manner. This includes the following: . . . (2) Results
be laborious. The LIS must have a data field available for and patient-specific data electronically reported to network
assigning LOINC codes, and LOINC codes must be ac- or interfaced systems [italics added]
commodated in the interface software. LOINC by itself To assist laboratories and other stakeholders exchang-
does not ensure compatibility because even when LOINC ing laboratory data, the CMS recently published “Issuance
is used, inconsistencies in data elements and LOINC code of Revised Survey Procedures and Interpretive Guidelines
assignments can limit interoperability (17). for Laboratories and Laboratory Services in Appendix C of
the State Operations Manual” (27). In this document, the
Operational Challenges for Laboratories with
CMS provides guidance for interpretation of and compli-
LIS-EHR Interfaces
ance with CLIA requirements for laboratory result report-
Laboratories must pay attention to operational aspects of ing and laboratory information exchange. The guidance
LIS-EHR interfaces. Table 53.8 summarizes operational includes information on data retention and management
considerations in LIS-EHR interfaces. Personnel with ded- of corrected reports and an extensive frequently asked
icated time and with LIS system experience or expertise are questions (FAQ) section.
required to carry out interface implementation, definition,
testing, and validation steps. In addition, such people must
interact closely with counterparts at the referring (EHR)
Strategies for Laboratories To Succeed
site and also with vendor technical support personnel,
often including EHR vendor support. A significant chal-
in Laboratory Information Management
lenge with LIS-EHR interfaces may be a lack of contact or in the EHR Era
expertise at referring (EHR) sites, particularly in smaller In the past, the laboratory had greater control over the
physician offices with newly implemented EHR systems. information inputs, i.e., test orders (through design or
Once an interface is established, it is not “set and forget.” generation of test requisitions) and outputs (printed test
Monitoring by someone in the laboratory and/or clear com- reports). Going forward, EHRs impact the laboratory’s
munication if nonlaboratory IT personnel are monitoring ability to achieve its mission by affecting upstream data
928 THE FUTURE OF CLINICAL LABORATORIES

sources (orders) and the output stream (result display). people have LIS support as part of their responsibilities in
EHRs dictate many aspects of how test orders are created addition to other management or bench work. Some labo-
and delivered to the laboratory and how the laboratory’s ratories have a group solely dedicated to all aspects of LIS
product—test results and interpretations—is delivered and support, a concept first set forth by Friedman in the earliest
used. Laboratories will be well served to develop organiza- definition of the field of pathology informatics (7). More re-
tional and administrative strategies to succeed in the EHR cently, the American Society for Clinical Pathology (ASCP)
environment. has developed a certification program for qualification in
The laboratory will likely be viewed as responsible for laboratory informatics, in recognition of the importance of
aspects of laboratory testing, from order entry through this expertise (3). In addition, the American Association
result distribution, whether or not the laboratory par- for Clinical Chemistry (AACC) offers an on-line certifica-
ticipated in development of the systems and procedures tion program in basic principles and architecture of labora-
involved or whether it has control over such. Busy phy- tory information systems (2).
sicians cannot be reasonably expected to dissect whether It is from the expertise pool of laboratory staff mem-
a problem they encounter with a laboratory testing pro- bers who provide LIS support that laboratories can draw
cess is truly a laboratory problem or the result of an issue the experience and skill sets necessary to work on labora-
in the EHR or in the interplay between the EHR and the tory information management issues in the EHR system.
LIS. The manner of presentation of laboratory information Such individuals combine knowledge of laboratory opera-
in the EHR may affect clinician perceptions of laboratory tions, work flow, and requirements with an understanding
service quality. Operationally, problems with CPOE lead of laboratory information systems and their databases and
to delays and errors in patient testing, leading to patient interfaces. As such, they are the natural people to become
care problems and physician dissatisfaction. involved in EHR issues and can be invaluable in interact-
A central challenge to laboratory involvement in labora- ing with the EHR support team(s). A key strategy for labo-
tory information management in the EHR is that the EHR ratories in the EHR setting will be to cultivate and support
lies outside of the administrative control of the laboratory. such expertise if it is lacking in their environment.
In hospitals and integrated delivery networks, the EHR is Activities that translate well from the LIS to the EHR
typically under the control of a centralized IT organiza- laboratory information support domains include:
tion or is possibly even outsourced to a third-party orga-
• Test definition in the LIS database
nization. As EHR use in physician practices proliferates,
laboratories will face an ever greater diversity of groups • Interface implementation and maintenance
and expertise levels and commitment of people/staff that • System testing and validation appropriate for labora-
are responsible for the management of the EHR in these tory information
outpatient settings. Lack of laboratory-specific expertise • Change control practices
among nonlaboratory staff that implement and support
EHRs may compound the challenges. Steps To Increase Involvement and Influence in EHR
Despite the probable lack of direct control over EHR Processes Related to the Laboratory
management and processes, the laboratory has an important
To influence EHR-related issues, laboratories must become
role to play in laboratory information management issues
active beyond the laboratory and establish credibility with
regarding the EHR. The laboratory possesses the domain
groups at the institutional level. Among the most impor-
expertise necessary to convey the intricacies and nuances
tant of the latter are those groups that are responsible for
of laboratory processes and information requirements (e.g.,
oversight and support of the EHR system. The ways that
requisition requirements, reference ranges, test groupings,
laboratories can establish credibility over time include:
addendum reports). Such involvement is important not
only for the laboratory but also to promote optimal labora- • Anticipating challenges in EHR-laboratory informa-
tory information management in pursuit of the best care of tion management
patients. Barriers include lack of time, skill sets, inclination, • Providing laboratory resources to troubleshoot and
and compensation to participate in such activities. resolve EHR-laboratory issues as they arise
How the laboratory meets the organizational needs of
• Raising awareness of EHR-laboratory issues with clini-
laboratory information management of the EHR depends
cians and IT support staff
in part on the approach that the laboratory uses to manage
its LIS. Because laboratories have depended on LISs for de- Laboratories can insinuate themselves into EHR pro-
cades as a crucial tool for successful laboratory operations, cesses through formal and informal methods. The labo-
laboratories typically have people who are expert in the LIS ratory can ensure that it is represented on EHR-related
application, even if the hardware and infrastructure for the formal committees or other groups. Cultivating key rela-
LIS are managed by a centralized IT group. The LIS support tionships at various levels of the organization is one of the
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 929

most important ways for the laboratory to influence EHR- In a busy laboratory with many competing demands for
related issues. The laboratory director or designee can people’s time, the laboratory’s contributions in such situa-
establish relationships with the institution’s chief infor- tions can go underestimated or forgotten as people move
mation officer. Pathologists and laboratory scientists can on to the next issue. A tactic to prevent this and to build
build or leverage existing peer relationships with clinicians the case for laboratory involvement in the EHR is to keep
who are interested or influential in EHR issues. Examples track of the lab’s efforts in such instances and in situa-
of such people include the chief of staff, the safety officer, tions otherwise related to EHRs. For instance, the labora-
the quality officer, and other clinicians who carry weight tory might keep a log of brief descriptions of EHR-related
in the institution. Increasingly, organizations are hiring problems and the laboratory’s role in troubleshooting and
chief medical information officers (CMIOs) to oversee resolution. Doing so and communicating such examples
EHR matters, and a CMIO would be a natural person with in the appropriate venues can help the laboratory build
whom the laboratory could develop a peer relationship a case over time for greater influence and involvement.
(11). The LIS personnel can reach out and establish rela- When this is done, however, it is important to avoid finger-
tionships at peer levels with EHR system support analysts. pointing (if possible) but rather to emphasize the need and
Another place to which the laboratory can reach out for benefit of collaboration in pursuit of optimal patient care.
assistance in EHR issues is the compliance office. As noted Periodic, scheduled meetings between appropriate labora-
above, there are regulatory requirements related to labora- tory and IT staff may be beneficial.
tory information that impact configurations in the EHR,
including data required for test orders, billing compliance Laboratory Involvement in EHR Selection
(e.g., ICD codes), and report requirements (data elements and Implementation
in the report, performing laboratory). The compliance EHR purchases and implementations are high-stakes and
office can aid in endorsing and reinforcing laboratory re- high-cost initiatives for healthcare institutions, and partici-
quests for configurations or changes in the EHR when nec- pation in them is an opportunity to be an integral part of
essary to meet regulatory requirements. the success of a strategic project. Furthermore, participation
will demonstrate the laboratory’s commitment and expertise
Tactics for Working with EHR Support Staff as well as potentially set the groundwork for roles in future
A good working relationship at the “grassroots” level be- EHR efforts such as advanced decision support and guide-
tween the laboratory and the systems analyst team(s) line development. Strategically, political power accrues to
responsible for EHR application support can be key to ad- those subunits of an organization that are best able to solve
dressing EHR-laboratory information management issues. its strategic problems (7). Conversely, lack of laboratory in-
The EHR analysts (or application/technical support staff), put may lead to overlooking issues that result in adverse op-
on a day-to-day basis, create the EHR definitions and con- erational consequences for the laboratory and the institution.
figurations that directly affect user experience. Such indi- Selection and implementation of a new EHR provide
viduals are also responsible for EHR testing and change golden opportunities for the laboratory to increase its
control processes. Initiative on the part of the laboratory involvement and influence with respect to the EHR. The
will likely be necessary to reach out and build such ties, laboratory should participate actively in the EHR selection
although it is possible that the EHR support group will process. Institutions typically will convene some type(s)
reach out to the laboratory, particularly if there have been of selection committee and/or one or more work groups
problems that required laboratory expertise. The labora- for an EHR evaluation and selection project. These are
tory can seize such opportunities to build relationships venues in which the laboratory can have peer represen-
and influence. tation that may include the laboratory director at higher
The laboratory should use every opportunity that pre- levels and laboratory operational or IT representatives on
sents itself to demonstrate to EHR support staff (and to the work groups.
others in the institution) the benefit of having laboratory Opportunities during the EHR selection process in-
subject matter experts involved with the EHR. Opportuni- clude contributing laboratory-oriented considerations and
ties often present when problems arise and the laboratory functional requirements to the development of the institu-
is involved in resolution. Other opportunities arise in the tion’s request for proposal for the new EHR system. Insti-
course of laboratory representation on EHR-related com- tutions may develop “use cases” or clinical scenarios (e.g.,
mittees (as mentioned above). Not working with EHR sup- patient admitted to emergency department with chest
port staff potentially leaves laboratory-related decisions in pain) against which to judge candidate vendors’ offerings.
the hands of people who may not understand laboratory Since such use cases would include laboratory testing, lab-
needs or the implications of EHR design or configuration oratory participation can be integral to their development.
decisions, with negative consequences for the laboratory At minimum, the laboratory should attend EHR vendor
testing cycle. demonstrations and provide evaluations.
930 THE FUTURE OF CLINICAL LABORATORIES

Once a new EHR has been selected, the laboratory will To influence EHR issues, laboratories must become ac-
have important roles in its implementation. As in the selec- tive outside of the laboratory. The importance of hav-
tion process, the institution will likely convene committees ing laboratory personnel with informatics expertise
and work groups on which the laboratory should expect to dedicated to LIS-EHR issues cannot be overemphasized.
have formal representation. Such teams will typically work Such activities, however, require commitment of time
through the configurations and definitions in the EHR sys- and resources. The laboratory can establish credibility
tem that will underpin clinical work flow and documenta- at the institution level by contributing its unique sub-
tion. Key areas for the laboratory include configuration of ject matter expertise to EHR matters related to labora-
order entry (CPOE) processes and results management. tory information management. By reaching out to other
The laboratory has a vital role to play in testing EHR pro- key stakeholders, including EHR oversight groups, clini-
cesses and interfaces. Considerations for these issues were cians, and others, the laboratory can raise awareness of
outlined earlier in this chapter. A particular area, for in- EHR-laboratory issues.
stance, in which the laboratory can provide valuable in-
put is the design of the structure and display of screens for
cumulative display (by date) of laboratory results, in par- KEY POINTS
ticular how tests are grouped logically by discipline (e.g., ■ Electronic health records (EHRs) are transforming
chemistry, hematology, etc.). The implementation phase is information management in healthcare and have sub-
when the laboratory can work with the EHR implemen- stantial implications for the mission of the laboratory to
tation team to establish processes for change control and deliver information for patient care.
communication for laboratory test definition changes or ■ Recent federal regulations and programs aim to drive
new tests. Doing so is necessary to ensure correct mapping more widespread use of EHRs and define criteria for
and data exchange between the LIS and EHRs. “meaningful use” of “certified” EHRs that eligible
healthcare providers and hospitals must meet in order
Summary to qualify for payment incentives and to avoid future
penalties.
The use of EHRs has profound implications for laborato-
■ The EHR is the mechanism, or “portal,” through which
ries. The core mission of the laboratory is to provide in-
clinicians will interact with the laboratory and labora-
formation for patient care decisions; the EHR dramatically
tory information.
affects preanalytic and postanalytic laboratory informa-
tion management. ■ The components of EHRs with most relevance for the

EHRs are more than just computerized versions of the laboratory are laboratory results management, com-
paper chart. EHRs employ functions that directly affect puterized physician order entry (CPOE), and inter-
not only laboratory information management but also faces between laboratory information systems (LISs)
laboratory processes. EHR design dictates the display and and EHRs.
handling of laboratory results. Order entry in the EHR is ■ Constraints or limitations in how EHRs manage labora-
a dynamic function that affects the receipt and process- tory results and test order information may negatively
ing of laboratory orders and has implications for labora- impact the use of laboratory information in patient
tory operations. Proper functioning and management of care, the processing of laboratory test orders, and clini-
the interface(s) between the LIS and EHRs is necessary to cians’ perception of the laboratory.
ensure appropriate data flow between the laboratory and ■ As EHR use by hospitals and provider practices ex-
the clinician. Regulatory requirements include laboratory pands, laboratories can expect to see a great increase in
responsibility for ensuring accurate delivery of test results. expectations for electronic exchange of laboratory data
EHR uptake by physicians and hospitals has been rela- and LIS-EHR interfaces.
tively slow in the past but is gaining momentum. Two ma-
■ Deployment and ongoing support of LIS-EHR inter-
jor recently enacted federal programs—the CMS’s EHR
faces require attention to technical, operational, and
Incentive Program (commonly known as “meaningful
financial considerations.
use”) and the ONC’s related EHR certification criteria
and data standards—aim to spur greater use of EHRs by ■ Although the laboratory may lack direct control over

hospitals and individual providers. These programs have the EHR system, the laboratory possesses the domain
specific elements that are directly relevant to laboratories. expertise to contribute to the optimal handling of labo-
More broadly, laboratories can anticipate increasing ex- ratory information in the EHR.
pectations for electronic interfaces to EHRs. ■ Laboratories can develop organizational approaches
Going forward, involvement in EHR-related issues and allocate resources toward influencing EHR-related
will likely be an important success factor for laboratories. issues in their institutions.
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 931

GLOSSARY EHR technology to meet specific objectives defined in the

Certified EHR An EHR (single or combination of EHR mod- regulation.
ules) that has been tested and certified in accordance with the ONC (Office of the National Coordinator for Health Informa-
certification program established by ONC as having met all ap- tion Technology) U.S. federal agency, in the Department of
plicable ONC certification criteria. Health and Human Services, in charge of national efforts to ad-
CMS (Centers for Medicare and Medicaid Services) U.S. fed- vance the use of health information technology.
eral agency that administers the Medicare and Medicaid national Standard In the context of information systems, a set of agreed-
health insurance programs. upon rules, specifications, and/or conventions that govern the
CPOE (computerized provider order entry) Electronic func- design and function of information systems, with the idea that
tions that enable healthcare providers to enter orders, such as systems that adhere to a given standard will be compatible with
laboratory test orders or medication orders, directly into an in- other systems that adhere to the same standard.
formation system.
EHR (electronic health record) Longitudinal, computerized
collection of health information related to an individual’s health REFERENCES
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Introduction
Chemistry
54 Current Trends in
Core Laboratory • Rapid-Response Laboratory and
Point-of-Care Testing • Noninvasive Testing
Instrumentation and Technology:
Hematology
Automation in the Routine Laboratory Outlook for the Future
Coagulation Laboratory
Routine Coagulation • Point-of-Care Testing •
Molecular Testing
Sheshadri Narayanan and Audrey N. Schuetz
Microbiology
Molecular Testing
OBJECTIVES
Blood Bank
Automation • Molecular Testing To provide the reader with an overview of current trends in instrumentation
Outlook for the Future and technology in the clinical laboratory (chemistry, hematology, coagulation,
Driving Forces • Miniaturization and Microfluidics • microbiology, blood bank, and molecular, point-of-care, and noninvasive
Biochips • DNA Sensors testing)
Summary To acquaint the reader with current trends in miniaturization and micro- and
KEY POINTS nanofluidic technology and their impact on microarray and chip technology in
GLOSSARY a lab-on-a-chip format
REFERENCES To provide a perspective on how these developments and other new
APPENDIXES
ultrasensitive technologies are and will be shaping the laboratory of the future

As in life, so in science; our incredibly wild prophecies of today become the rou-
tine realities of tomorrow.
Anonymous

T
his chapter examines current trends in instrumentation and
technology in key disciplines in the clinical laboratory. It also pro-
vides an outlook for the future based on the driving forces toward
technology for miniaturization and microfluidics, with applications ranging
from bedside analysis geared toward instituting prompt and optimal therapy
to molecular analysis of pathogens and the study of mechanisms of malig-
nancy. Before beginning a discussion of current trends in instrumentation
and technology in each key laboratory discipline, it is appropriate to briefly
touch upon the physical organization of the clinical laboratory. The Japa-
nese model of clustering automated chemistry and hematology instruments
around a belt line is the model that has been generally emulated by some of
the highly mechanized large-volume core and reference laboratories with-
out walls. Depending on the turnaround time and the throughput needed,
automation extends also to the preanalytical process. However, unlike in Ja-
pan, where a shortage of medical technologists made it necessary to innovate
in the direction of total automation including the preanalytical process, in
the United States, total laboratory automation (TLA) has been limited to a
few of the large medical centers and corporate reference laboratories. A 2002
College of American Pathologists survey listed fewer than 200 sites in which
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia TLA including automated centrifugation was in place (5). Daunted by the
©2014 ASM Press, Washington, DC huge costs of TLA and the long time frame needed to achieve returns on
doi:10.1128/9781555817282.ch54 investments, there has been a focus on the front end of automation primarily

933
934 THE FUTURE OF CLINICAL LABORATORIES

confined to specimen sorting, decapping, aliquoting, and able to measure a wide selection of analytes ranging from
even centrifugation steps. As needed, instruments can be therapeutic drugs and hormones to tumor, cardiac, hema-
added to the automated line in a modular approach. tological, and infectious disease markers and to detect au-
There are, however, some who question the economics toimmune disease (3). Just as homogeneous enzyme and
of this piecemeal approach and favor TLA. Without go- fluorometric immunoassays and fluorescence polarization
ing into the merits of the modular approach versus TLA, immunoassays revolutionized the measurement of thera-
suffice it to say that while the extent of automation varies peutic drugs and drugs of abuse over the last two decades,
depending on the needs and cost constraints of specific chemiluminescence and other ultrasensitive immunoas-
laboratory operations, the trend is toward integration of says have expanded the scope of detection to a wide range
compact instruments with laboratory information sys- of diagnostically relevant analytes. Indeed, hormones
tem (LIS) functions under one roof. Thus, typically even such as thyrotrophin can be measured at levels as low as
a rapid-response laboratory would be expected to be con- 0.001 mIU/ml with chemiluminescent labels. Likewise,
figured in one room with blood gas instruments, chem- the newer high-sensitivity troponin I (hs-cTnI) assays can
istry, hematology, coagulation, and urinalysis instruments achieve a sensitivity of 0.0028 µg/liter at the 99th percen-
nestled side by side. tile level (37).
The synergy between the LIS and the intelligent com-
puterized instruments contributes to the efficiency of to- Evolution of ultrasensitive immunoassay technologies. As
tal automation from the time of accessioning and receipt ultrasensitive technologies have been introduced, their
of specimen to analysis and reporting of the results to the limitations have also been uncovered, thus leading to a re-
physician’s workstation. Indeed, the computerized instru- finement of the original assays. Using chemiluminescence
ments are able to perform many tasks, such as the appli-