Reference testing is a nagging issue with most laboratories—it is often a necessary fact of doing business, and the expense in sending out testing seems to hover between minor and large enough to have some impact on the bottom line. Is getting it under better control worth the time and effort?
The answer is a definite yes, according to a webinar conducted by Michigan-based consulting firm Chi Solutions in late July.
To start with, reference testing is often not a negligible expense. A 2011 G2 Intelligence study indicated that labs spent an average of $1.6 million a year on reference testing, and a poll during the webinar indicated that about half of the attendees’ labs spend between $500,000 and $2 million a year on reference testing.
While Chi’s own research indicated that the average lab spends 11 percent of its spending on reference testing, Wake Forest Baptist Medical Center reported at a conference earlier this year that reference testing comprised as much as 16 percent of its annual budget.
“No one has yet to tell me that reference testing costs are going downward,” said Anne Daley, a Chi senior consultant, who advises laboratory management to look at two components in order to control reference testing: cost and utilization.
Although there are a variety of ways to control both cost and utilization, one way is to update your contracts with reference labs. “If you have not negotiated a [request for proposal] within the past two to three years, there are some cost opportunities,” she said.
Renegotiating with your reference labs gives you an opportunity to “slice and dice” key bits of information, said Daley. Vendors should be asked to submit tests and their fees in a spreadsheet format so you can determine what tests they provide, which ones they do not, and what every single test costs.
That test list should be divided into the top 100 tests that the primary lab sends out for reference. Daley noted that it in many instances, 20 of those tests account for 80 percent of the reference costs and make a good point for negotiating prices. “Some hospitals have good pricing for the top 100, but they’re getting killed with the others,” she said, such as pricey molecular tests.
Along with the test list, reference labs should also be asked to present accompanying Current Procedural Terminology codes, said Daley, who admitted this can be a struggle. “They don’t want to be locked in, but it gives a glimpse of their methodology,” she said. “And if there are multiple codes, it’s important to find out what they are.”
Reference labs should also be asked if the testing is being performed at their primary lab or another facility. In the latter instance, they may be tacking on an additional handling fee that can be reduced or avoided through negotiation.
It is also important to try to consolidate the number of reference labs that are used. Daley noted that some hospitals use as many as 40 different reference labs. Although this diversity of reference labs may be in part to please the hospital’s clinical staff (which might have their own favorites), it can make it virtually impossible to keep a handle on costs. She suggested that hospitals keep their lists down to five clinical labs and a handful of anatomic pathology labs, while continually monitoring utilization and costs. Physicians—particularly newer staff—can be trained on the utilization and cost issues to make them more pragmatic as to how they handle reference testing, Daley suggested.
There are also more radical ways to cut costs, such as the use of online reverse auctions for testing, although the logistics of using those can be more complicated than having a contract with a lab, Daley suggested.
Takeaway: Controlling reference testing costs is achievable if close attention is paid to the data and operations of the contracting labs.
