Three years after Medicare completely overhauled the way it pays clinical laboratories for testing, many labs find their profit margins thinner than ever and are actively seeking ways to increase their revenues. From outreach and home health to financial hygiene, below we highlight three ways that labs can grow their revenues.
Hospital laboratories that have excess testing capacity can significantly increase their revenues by providing outreach services in the community, says Jane Hermansen, manager of Outreach and Network Development for Mayo Clinic Laboratories in Rochester, Minnesota. When run well, laboratory outreach can be quite profitable for a hospital or health system.
"There are opportunities for smaller labs to work with home health care providers, something that the larger labs have been reluctant to do because of the labor cost."
Hospital labs with a moderately well-defined outreach infrastructure—phlebotomists in physician offices, an efficient courier mechanism, or a dedicated service representative—can have a contribution margin of between 30–40 percent, says Hermansen. “So, if a lab is collecting $10, it is making between $3 and $4 per test, which is pretty fantastic,” she says. “There is no other service line in the hospital that can contribute that kind of margin.”
Hermansen also advises hospital laboratories to ensure they are providing testing to all physician practices owned by the hospital or health system. A surprising number of hospital labs don’t actually know if they are providing testing to everyone in the “family.” “Shoring up your in-reach is absolutely critical to growing your laboratory revenue,” she says. “It may seem unimpressive because it’s CBCs or chem panels, but those are bread-and-butter tests, and the reimbursement is still moderately decent. Eliminating leakage in the system can go a long way toward increasing revenues.”
Beyond serving physician practices that are part of the health system, hospital labs have an opportunity to serve independent practices—Hermansen estimates that about a third of all physician practices in the United States are still independent.
Focus on community
Dennis Weissman, a laboratory consultant and president of Weissman and Associates (Falls Church, Virginia), believes that changing demographics and trends in the workforce present new opportunities for clinical laboratories to grow their revenues. For example, some labs have found success partnering with local businesses and schools to provide screening for COVID-19, as well as providing other types of preventive screening, he notes. “Many companies are looking to provide a whole array of services for their employees, so labs may want to think about partnering with local employers to help provide those preventive services,” he says.
The aging of Americans and an increasing reliance on home health over nursing home care also presents new opportunities for labs, says Weissman. In fact, the US home health care market is projected to grow from $103 billion in 2018 to $173 billion by 2026. “Smaller labs have to be really in tune with what is happening in their communities,” he says. “We were already moving toward more home health care before COVID hit, but now, I think some people may be having second thoughts about nursing home care. There are opportunities for smaller labs to work with home health care providers, something that the larger labs have been reluctant to do because of the labor cost.”
Improved revenue collection
"One of the most straightforward ways to increase revenues is to collect all the revenues to which you are entitled."
One of the most straightforward ways to increase revenues is to collect all the revenues to which you are entitled, which seems obvious, but is difficult to achieve for small-balance lab claims without a high degree of automation. Clinical laboratories often leave uncollected revenue on the table, notes Lâle White, CEO of XIFIN, a revenue cycle management (RCM) company in San Diego, California. Uncollected revenues can vary based on the strength of a lab’s RCM system and the expertise of its staff, but independent labs generally leave 5–15 percent of their revenues uncollected. Hospital labs are even higher, with up to 35 percent of revenues uncollected in labs that collect account receivables (AR) through their enterprise hospital RCM system. “Most lab administrators are unaware of the amount of collectible AR written off by their staff or outsourced billing company as a contractual allowance because they lack simple corrective billing automation,” says White.
The two primary components of optimizing collections are timeliness and accuracy, she explains. White suggests that labs start by optimizing electronic ordering with billing demographics generated from the ordering entities’ electronic medical record or electronic health record. Then, use a highly automated RCM system that optimizes real-time, bidirectional integration with all stakeholders in the entire RCM process. Finally, labs should optimize all electronic transactions including eligibility, submissions, attachments, acknowledgments, claims statuses, and remittances.
In many cases, it can be more cost-effective to outsource billing to a vendor who can increase collections while decreasing the cost of billing, says White. “The right vendor will provide the transparency necessary to understand the total net value of your AR, as well as meaningful metrics of performance and the accounting discipline for accurate revenue recognition and cash reconciliation,” she explains. “Most importantly, it will allow the lab to shift a fixed administrative cost to a variable cost that will adjust instantly with volume changes and without a long-term resource management component.”
No easy answers
Growing revenues is challenging for any size laboratory and requires labs to think outside the box and find opportunities they may have overlooked previously, notes Weissman. “There are no easy answers for laboratories to find new sources of revenue,” he says. “But as the country ages and technology advances, we will see new opportunities arise.”
1. Business Insider Intelligence, U.S. Home Healthcare Report, Dec. 2019.