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The factors changing the

future of hospital laboratories:

Looking for a Lab Strategy? • Reduction in Medicare payments – As of January 2018, Medicare adjusted its lab test

payments to reflect what commercial insurers pay for the test. This could have cascading
effects for laboratory revenue.

• Competition from national labs –Large commercial labs can charge less per test than hospital
labs because high volume testing continues to gain strength in the competative marketplace.

• Preferred lab arrangements with commercial payers- Insurers negotiate exclusive contracts
with a preferred lab and encourage network physicians to refer patients.

• Higher cost-sharing for patients – Due to high deductibles, insurers encourage plan members
to use preferred labs, most often larger commercial labs.

• Growth in bundled payment arrangements – More tests will likely be bundled as hospitals
move to a value-based model.

Hospitals can look at these options

to build a strategy for the hospital

• Partner with other area hospital systems to build lab business –
Increase volume to gain scale and compete with commercial labs.

• Perform tests for large labs trying to enter new markets – Partnering with
a large commercial lab for a per-test fee saves the commercial lab from
building a local lab in less populated regions.

• Affiliate with a large lab that can manage the hospitals’ lab business – Outsourcing
inpatient/outpatient and outreach under an agreed arrangement. Laboratory retains some
of the assets, and the national lab will purchase the remaining assets. The national lab will
restructure lab operations to reduce costs.

• Sell outreach lab business to a national lab – Health system agrees to sell client
outreach list for a negotiated fee to a commercial lab. Commercial labs will continually
market and expand outreach services.

• Joint venture with a national lab to grow outreach business – Some health systems
recognize the potential to continue to grow an outreach business. Hospitals with
a joint venture arrangement can pull their resources to further develop and retain
a stake in the lab services market.