Time to Transition to Clinical Lab 2.0

Clinical Lab 2.0 is a movement that provokes the lab industry to view itself through a new value lens aligned with the forces driving the future of value-based health care

Photo portrait of Erica Tennenhouse, PhD
Erica Tennenhouse, PhD
Published:Feb 25, 2020
|Updated:May 19, 2020
|5+ min read

Khosrow Shotorbani is the president and executive director of the Project Santa Fe Foundation and CEO and founder of Lab 2.0 Strategic Services, LLC. Mr. Shotorbani was instrumental in the creation of Project Santa Fe—an initiative launched in 2016 with like-minded executives that helps to forge new frontiers that will define future economic valuation and placement of diagnostic services.

Formerly, as president and chief executive officer at TriCore Reference Laboratories, Mr. Shotorbani oversaw the corporate direction and strategy of TriCore, focusing on leadership and innovation, as well as operations, growth, and the financial health of the company. He led TriCore’s initiatives based on the premise to improve health outcomes and lower costs by utilization of laboratory data. Before joining TriCore in 2014, Mr. Shotorbani served as senior vice president and director of business development/business innovations at ARUP. He joined ARUP in 1984 as a medical technologist and while at ARUP advanced to positions with progressive responsibility over his 30-year tenure.

Q: Can you briefly explain what Clinical Lab 2.0 is?

A: Clinical Lab 2.0 is a movement that provokes the lab industry to view itself through a new value lens aligned with the forces driving the future of value-based health care. Naturally, the primary purpose is to improve health care, and that requires a necessary emphasis on improved clinical outcomes, population health, and reduction of the overall cost of care. We intend to elevate the quantitative value of the clinical lab and align with systems enterprise goals and objectives in health care delivery.

Clinical Lab 2.0 is not about testing, although it’s based on appropriate utilization, because if we’re not appropriately utilizing clinical tests then our analyses of those data points is flawed. Clinical Lab 2.0 is about post-diagnostic computation of aggregate, patient–centric, longitudinal data with the goal of producing actionable insight addressing health care drivers, those being clinical intervention and clinical prevention, leading to cost avoidance in the space of value-based care. The focus is really on improved outcome and adjustment of financial risk. Clinical Lab 2.0 argues that the lab is the “first responder” and can be a catalyst for managing population health and value-based care. 

Q: In what ways can clinical labs offer value?

A: Value is an interesting concept; I personally believe the current definition of value, quality over cost, is somewhat subjective. Clinical Lab 2.0 defines value differently—to us, value becomes outcome, both clinical and financial, and outcome is based on measurable, timebound actions. 

If the focus of value is to move from sick care to wellcare, and the business model of health care is going to be based on keeping individuals out of the hospital, we argue that the clinical lab is a great asset to help this happen. Given the fact that lab data is actionable and has zero latency, it is the perfect first responder in population health. It really starts with developing an access-agnostic, longitudinal patient-centric  view, tying together outpatient to inpatient to urgent care and emergency—so we can actually detect analytical trends and measure change. This gives us foundational Clinical Lab 2.0 attributes, which include the ability to:

  1. Risk stratify the population against the known prevalence of chronic conditions. Think diabetes, chronic kidney disease, Hepatitis C, and even prenatal care.
  2. Identify care gaps, which is critical for population health. 
  3. Identify high-risk patients early, before they are admitted into emergency room or hospital. 
  4. Facilitate intervention between a care provider and the person needing care early in disease stage. 

These attributes are new frontiers for clinical labs and may require a new business model and alternative payment models. 

Our value cannot be subjective; it must be absolutely quantifiably relevant and aligned with the drivers of health care. 

Q: What factors might motivate labs to pursue version 2.0?

A: We argue that the business model of Lab 1.0 is no longer sustainable and has reached a strategic inflection point. But let me be very clear that Lab 1.0 is and will remain an essential part of medicine. We still need to help physicians choose the right test at the right time for the right patient—that’s not going to go away. Lab 1.0 focuses on sick care and de-escalation, while 2.0 focuses on early detection and early escalation. It’s a symbiotic relationship. From a business model standpoint, however, 1.0 focuses on volume and cost per unit, while 2.0 focuses on value and total cost of care delivery. This is ultimately why a lab might pursue a 2.0 vision.  

I can offer three reasons why the current model is not sustainable:

  1. There have been massive changes in reimbursement, the most prominent example being PAMA, a Centers for Medicare & Medicaid Services (CMS) reimbursement policy that impacts profit and loss. Above and beyond the reimbursement changes, there’s this notion of patient-centric bundle payment, meaning that for the first time there is no independent economic value to an independent test. 
  2. The commercial market of labs is shrinking due to the physician employment model.
  3. Massive consolidation on the payer side puts the current business model at serious risk.

For the first time, increase in volume no longer masks the business problems at hand; it may actually exacerbate the problem. Those labs who elect to do nothing about it may face significant subsidization, and when an organization or department becomes subsidized, it becomes the target of outsourcing. Project Santa Fe argues that when a system outsources part of the lab or the entire lab, it seriously limits their ability to transition to value-based care. 

Q: To make the transition to Clinical Lab 2.0, what steps must labs take?

A: I will offer four steps: 

  1. We must get out of the four walls of the lab and align our value proposition at the enterprise level, with an eye on health care trends in population health, value-based care, and financial risk. 
  2. We must have a seat at the table to help design future delivery models based on the predictive value of clinical lab data.
  3. We must be able to demonstrate to our C-Suites the importance of preserving and protecting the clinical lab assets, instead of making them the targets of outsourcing for short-term capitalization.
  4. We must mobilize and create patient-centric longitudinal data that will allow us to begin to risk stratify the population, identify the care gaps, and identify the high-risk patients early. 

Our role will become what I call the Uber of medicine, connecting the care managers to the most critical patients at much earlier stages. Longitudinal lab data coupled with domain knowledge of pathology will become the holy grail of lab medicine.

Q: How do you see health care evolving in the coming decades?

A: We all know that current health care delivery is unsustainable. Given the growth in chronic diseases, it is just impossible to manage that increase with the current health care model. So, prevention, intervention, and early detection, all proactively leading to improved outcomes and cost avoidance, are going to be significant. But I don’t believe we can solve this just between health plans and health providers. I believe that patients and/or consumers have to be an active part of the health team managing their health affairs. If we’re not able to engage the patients or consumers, our ability to solve these gigantic problems in health care is going to be limited. We have to embrace the whole notion of consumerism in health care. Technology may help in this process. 

I also believe that we must advocate to change current policies and/or coverage. One of the challenges that Clinical Lab 2.0 faces is underutilization. For example, reimbursement of screening is still not part of the current CMS policies. We need to change some of those policies in order to align incentives, otherwise we’ll see limited success in that transition. I remain hopeful that this will happen.

Q: What advice can you offer to clinical lab leaders interested in undertaking Clinical Lab 2.0?

A: My advice to my peers, clinical lab leaders, is we don’t have to boil the ocean to add new value. I would say we need to think big but act small. We can start by mobilizing clinical data in an aggregation that makes clinical sense. We can add basic delta checks on some critical assays and actually start reporting that change to our clinical colleagues and seek input. But we can’t do this in a vacuum. Getting out of the lab and telling a different story is critical to our mission.

Another piece of advice I can offer to my colleagues is to avoid retrofitting the Clinical Lab 2.0 new way of valuation with old ways of doing business. This may require different strategic planning, and subsequently, different operational planning that demonstrates the tangible value of the clinical lab for customers we have not served before, customers who are on the hook for improved outcome and financial risk and associated penalties. Otherwise we’re going to be at the mercy of inadequate reimbursement models.

I will close with a quote that I like very much from the chair of our board, Dr. James Crawford: “There has never been a better time to demonstrate the value of laboratory medicine and pathology in the delivery of health care, but it must be quantitatively proven and attributable to the lab’s ability to support such value.”

Disclaimer: This interview is based on Mr. Shotorbani’s tenure as CEO of TriCore and as president and executive director of the Project Santa Fe Foundation, and on a collective body of knowledge of all the members that are involved in Project Santa Fe and the Clinical Lab 2.0 movement.

Photo portrait of Erica Tennenhouse, PhD
Erica Tennenhouse, PhD

Erica Tennenhouse, PhD, was the managing editor of Today's Clinical Lab (formerly Clinical Lab Manager) from 2018 to 2022. Erica is a freelance writer and has written for National Geographic, Scientific American, New Scientist, Science, and Discover.