In recent discussions with colleagues, I have come to the conclusion that the adoption of the value-based care model will provide incentives for many hospital executives to outsource part, or even all, of their pathology and radiology diagnostic services. For the purposes of this discussion, I will refer to this process as outsourced diagnostic services (ODS). The value-based care model is based on faster, cheaper, and better care and ODS may be one important way to achieve this goal. I think that the decision to outsource diagnostics services on the part of hospital executives will be based on one or more of the following considerations:
- Hospital executives will have a near-total focus on the delivery of clinical services as opposed to ancillary services. Although critical in diagnosing and monitoring disease, diagnostic services remain tangential to this view of the role of the hospital. In the movement from fee-for-service to value-based care, there will no longer financial incentives to encourage the use of radiology and lab services which in the past have made major contributions to the hospital bottom line.
- Companies such as Aurora Diagnostics and Inspirata are arising to bid on diagnostic outsourcing contracts from hospitals. The standard way that hospital executives have reduced the cost of diagnostics services was simply to reduce the budget of pathology and radiology, a very blunt instrument. I believe that many of these executives will now conclude that a better approach will be to negotiate contracts with diagnostic services companies at a reduced cost for them while including some some quality metrics. This put the monkey on the back of the ODS vendors. Risk avoidance will be attractive for hospital execs in a rapidly changing reimbursement environment.
- In their pursuit of enterprise-wide IT solutions such as that offered by Epic, hospital executives will inevitably downgrade the functionality of the LIS and RIS software supporting pathology and radiology. This will be a "hidden" effect because neither the hospitals nor the EHR vendors will admit that this is happening. This will not be the case for ODS vendors who will be seeking software with the highest functionality and will turn to best-of-breed software companies in this quest.
- There has been gradual acceptance of virtual diagnostic services in hospitals, particularly in radiology and with companies like VRad. Virtual pathology services have moved at a very slow pace but the notion of sending specimens and tissue to outside reference labs has always been well accepted in hospitals. ODS vendors will offer to hospitals a mix of on-site services mixed with tele-diagnostics when relevant. In the case of lab operations, specimens will also be shipped to central labs for processing.
- One of the major barriers to ODS in hospitals in the past has been the fear of an outcry from physicians who had established professional relationships with in-house pathologists and radiologists. Increasingly, hospital physicians are employees of large hospital systems rather than community-based and probably not inclined to make much of a ruckus about ODS if the services provided are high quality and don't impede their care delivery mission.
Radiology groups, by using "nighthawk" teleradiology services in the past to support their night and weekend responsibilities, encouraged the growth of competitors. Hospital executives run the same risks by writing contracts with OCS vendors as they emerge. As noted above, such vendors will inevitably develop a sophisticated understanding of LIS, RIS, and PACS software. They will also learn how to deliver high quality diagnostic services at the lowest possible cost. To restate the obvious, by the adoption of ODS, hospitals will loose their expertise in diagnostic medicine, ceding it to the ODS vendors. The next biggest growth area in diagnostic medicine will be consumer-driven. ODS companies, simultaneous to selling their services to hospitals, will undoubtedly also develop consumer-facing diagnostic services and erect barriers from hospitals from moving in this same direction.