Do you find your hospital laboratories competing against outside reference labs for outpatient business? The issue of competing against a reference lab highlights many of the factors and constraints in developing a rational, transparent pricing set. Price also interacts with patient convenience and market positioning to determine the value proposition in selection of a lab service.
The issue of competing against a reference lab highlights many of the factors and constraints in developing a rational, transparent pricing set. Price also interacts with patient convenience and market positioning to determine the value proposition in selection of a lab service.
On the pricing side, an outside reference lab can generally charge less than the hospital for the same test because its costs are lower.
An outside reference lab (like Quest or LabCorp) runs a high-utilization overnight turnaround batch operation. Specimens are collected during the day at various locations in a geographic area, then couriered or picked up and sent to a regional lab facility for processing, generally that night or the next day. Low volume tests may be held longer and run only on selected days or shifts. This type of process is highly efficient because the central lab personnel and equipment are kept at high utilization levels throughout the shift. Results are available after 24 to 48 hours.
The location of phlebotomy sites is generally a convenience issue to patients – these drawing sites are not always close by and usually have limited hours.
This is not the way a hospital lab is run. Hospital labs generally provide same-day results and "stat" processing while a patient is still available. This certainly happens for inpatients, and often for outpatients as well.
While hospitals and reference labs are using the same equipment and technology to run tests, the hospital lab has an inherently higher cost operation because of the lower utilization and lower control of volume and staff scheduling. An inpatient hospital lab is more costly, and delivers a different level of service (response time of results), so it's not directly comparable to the reference lab. An outpatient hospital lab may or may not be providing more rapid response time on tests, but it probably is at a cost disadvantage to the reference lab in terms of utilization efficiency and scheduling, simply because it has a smaller "visit" pool to develop consistent utilization. Hence, there is definitely a valid cost-based reason for a hospital lab to charge more than a reference lab for the same test.
That's the rationale from a transparent pricing viewpoint to explain the price difference.
However, a patient doesn't see the cost difference, but does see the out-of-pocket price, the response time of test results and the relative convenience/inconvenience of the phlebotomy. An inpatient generally has no alternative. An outpatient may be time-insensitive (next MD appointment is in a week). In that case, their price sensitivity (depending on insurance plan, H.S.A., self-pay), convenience sensitivity (draw site location, hours) and physician referral/recommendation may be deciding factors. But if they are already in the clinic and the test results would be actionable on the same visit, then time sensitivity would be more important.
And there's the marketing side – which lab solution does the patient perceive to be of higher quality, or "better" generally? Or do they think it is a commodity product already?
To make matters more complicated, there are several sources of order-over-the-web, direct-to-consumer lab services, except in New Jersey, New York, and Rhode Island as restricted by law, and in California, where vendors are having regulatory pushback: www.mymedlab.com www.healthcheckusa.com www.directlabs.com
These sources are brokering the major reference labs (LabCorp mostly), pricing below even the reference lab retail price, and driving volume to the reference labs. These sources provide ordering, payment, and results delivery (to consumer or physician, consumer's choice). The reference lab provides drawing and testing.
Much of this discussion also applies to freestanding Radiology services (MRI, CT, etc.), although we haven't seen any direct-to-consumer versions as in the web sites above.
This discussion highlights the issues surrounding setting prices for discrete services where patients have a clearly identifiable non-hospital alternative and easily available price comparison.
In these situations, a competitive stance (considering all the factors – pricing, convenience, and perceived quality) is probably important in driving volume to your hospital. But you still have to keep in mind the financial constraints:
Setting prices under all these constraints is complicated, and there's usually no simple answer for each price.
Finally, it's important to remember that pricing is only a limited tool for profitability improvement. It only partially drives volume change (marketing, perceived quality, convenience, physician referral pattern are also factors). And it doesn't do anything to reduce operational costs outside of potentially creating higher utilization due to increased volume. Operational cost reduction requires process improvement.
Steve Harris, Director of Consulting, Accuro Pricing Solutions
