The Development of Health-System-Owned Lab Networks

For several years, I have been predicting that emergence of national lab networks. Here's a link to a PowerPoint lecture that I delivered about three years ago to the DxMA in which I predicted the emergence of a "super national diagnostics network" (see: Interpreting the Tea Leaves: Ten Hot Trends in Healthcare, Lab Medicine,and Pathology Informatics). In the beginning of this year, I again discussed the possibility of a "national lab network" (see: Connectivity and Hospital-Based EMRs; The EMR as an Operating System?). I described it in the following way:

For the labs, a national network is useful for the exchange of lab data but also as a means to access expertise and talent which may be lacking or insufficient locally. Community hospitals labs, and even academic departments, have always turned to regional and national reference labs to provide esoteric testing services that they can't supply. Any lab or hospital national network needs to be agnostic in the sense that it's open to a variety of companies and service providers. Such an approach stimulates competition on the basis of quality and price and is the antithesis of the walled-garden, vertically-integrated approach which is all about domination of the market by a single company.

I have now come to realize that the emergence of a national lab network was wishful thinking on my part. The evidence for this is that I have been unable to suggest exactly which company or organization would seize the opportunity to build such a network. In short, there was no underlying business model that would make sense in support of the idea. In contrast, the large national reference labs such as Quest and ARUP have long operated closed (i.e., proprietary) networks to facilitate lab orders from their physician and hospital clients with result reporting back to them.

A recent discussion with colleagues revealed for me what I think may be the next step in the evolution of large lab networks in addition to those of reference laboratories. I think that we may begin to see the emergence of lab networks that are developed and managed by large hospital systems solely for their own use. Keep in mind that we are witnessing the emergence of Big Medicine, a product of rapidly growing and consolidating health systems (Big Providers), Big Payers, and Big Pharma (see: Physician Private Practice Declines; the Last Barrier to Emergence of "Big Medicine"). Such large providers can take advantage of economies of scale to lower costs and improve quality.

As these large health systems continue to grow, they may discover that a portion of their current send-out esoteric lab testing could be performed in their own hospitals, particularly the larger ones. For example,the clinical labs in one of their larger hospitals might be asked to enhance molecular diagnostics testing and another microbiology testing. In essence, the health systems will in-source more of their esoteric testing and facilitate lab order-entry, results-reporting via their own, proprietary, lab networks. Some may then seeks bids for the remainder of their system-wide esoteric testing and provide a link between their lab network and that of, for example, a national reference lab like ARUP. I am not sure if such a strategy, in the final analysis, would provide cheaper and higher quality lab testing overall for the health system. It would depend on the managerial talent running the in-house labs and the cost of shipping lab specimens across the hospitals in the network. This would work best in a small geographic area.

Comments

[paroxetine]

This is my first comment but I feel like I should have been making loads of comments now because I always like your stuff. Maybe comments are for more hit and miss blogs than your own. When you maintain a consistent level of high quality output I reckon people are less inclined to comment because they have come to expect it from you. Just a theory.

[Jack Shaw]

There are a fair number of examples of this type of network, often centered around a core lab, in large systems. And, there are also examples of regional networks (such as JVHL) that can expand the market share, data sharing and clinical expertise of system-centered lab networks.