The Tao of Labacoeconomics

The Tao of Labacoeconomics

More and more, labs swim against a rising tide of commoditization—becoming mere cost centers judged by the price of their tests. This “penny wise and pound foolish” mindset devalues the true contributions that a lab can make to an institution.

The key to building value is to redefine the lab as a business center. With a broader perspective, appropriate management structure, and measurable metrics based on solid data, a lab can become an economically dynamic driver of excellence across the entire care continuum. LabacoEconomics can help achieve just that.

Contributing Lab Leaders:

Article highlights:

  • To survive and thrive, labs must transform themselves from cost centers to business centers
  • Labs possess the expertise, technology, and data to achieve just that
  • Learn the fundamental concepts of LabacoEconomics—the new way to leverage your lab’s inherent strengths to maximize its economic impact
Philip Chen

Philip Chen, M.D., Ph.D.

Chief Healthcare Informatics Officer
Sonic Healthcare

Judy Springer

Judy Springer

Vice President of Quality/Case Management
North Kansas City Hospital

Lale White

Lâle White

Xifin Software

Keith Laughman

Keith Laughman

TRG Healthcare




Concept #1: take the broader view
Don't view your lab's purpose in terms of its traditional boundaries and siloed budget. Widen your thinking to embrace your impact on the patient across all care touchpoints.

On thinking more broadly

"It's not about saying, 'Well, this test is worth $600. It's more valuable than this one that's $500.' It really is about, 'What impact will this test have on the episode of care?'"
–Keith Laughman, D.B.A. Principal, TRG Healthcare

Realize that you are more than a lab; you are a practitioner of laboratory medicine. You play a key role in generating positive outcomes. Achieve that, and you can create a value proposition that encompasses that expanded role, which is what LabacoEconomics is all about.

Concept #2: IT connectivity makes data more effective :
Laboratories have a huge knowledge base of when and how tests should be performed, which needs to be shared with physicians. But without a way to tie the data all together, your lab will only be able to show small, anecdotal successes without addressing the larger issue.

Putting in a good, strong IT solution within your laboratory can help universalize data access across your entire care team. It allows clinical professionals to quickly view relevant information and intervene in a timelier manner. This in turn impacts overall care, a key tenet of LabacoEconomics.

On IT connectivity

"Have a set of analytics that allows you to disseminate that data and to collect data from other entities in a real-time, bi-directional manner. Connectivity will allow you to work with others to determine quickly what's useful and relevant."
–Lâle White, CEO, Xifin Software

Concept #3: financial data proves ROI
Beyond clinical data, you can leverage financial data to demonstrate ROI. Many lab managers consider this too much of a challenge since financial data often live across multiple systems. There are, however, many actionable tasks that a lab can tackle within their own four walls.

On leveraging financial data

"You can use charge-per-test as a proxy for costs and you can look at the direct and indirect costs. You can also look at the accuracy and efficacy of the test and how it relates to the actual diagnosis or progression of care. Even if you don't have it all in one system, or have an analytic platform, you can still build a business case to do more."
–Judy Springer, Vice President of Quality/Case Management, North Kansas City Hospital

Give your data a financial flavor, and your lab will be able to demonstrate a larger, further-reaching impact on care.

Concept #4: build a data warehouse
Putting data in one place may seem obvious. The trick is to construct a repository that can aggregate data streams from other sources beyond clinical results. Do that, and you’ll make your data become a more valuable resource for internal and external stakeholders. This puts your lab in position to be the "go-to" resource for additional care and economic metrics, to help drive quality on the institutional level. As a result, it enhances the perception of your lab as a true provider of value across the entire episode of care.

On data warehouses

"We developed a fairly significant data warehouse with enterprise-level analytics, because a lot of the larger laboratories had problems really synthesizing all the financial data. Now, they can integrate payroll, inventory, and cost data. Plus, the business analytics produce the type of reporting that's required not only for internal management, but for external management as well. You can look at the data in terms of normal or abnormal results, in a really targeted fashion."
–Lâle White, CEO, Xifin Software

Concept #5: rewards spur improvement
You lab deserves more than recognition for value. Sustained growth can be ensured by actively advocating for a share of the money you save for your institution. It also provides a powerful incentive for staff to continually improve and innovate.

As one opportunity, labs can generate reimbursement by creating a mechanism to measure, tap into, and share what the lab is actually delivering and saving. For example, look to hematology. Design a system based on the historical trend per diagnosis, adjusted by case. For every unit of blood reduced, your lab gets paid back a percentage of it into your budget.

This revenue can be used to help create the architecture you need to implement additional measures in support of LabacoEconomics. The more you save, the more your value increases!

On negotiating rewards"Focus on how the money flows and who benefits from it. Then, go to the beneficiary—the person who benefits from what we do—and negotiate a reimbursement." –Philip Chen, M.D., Ph.D., Chief Healthcare Informatics Officer, Sonic Healthcare

Concept #6: Get out on the floor!
Beyond connectivity and data, building value depends on old-fashioned legwork. Clinicians need to get out and partner with staff across departments, across the flow of care. Instead of looking at specimens in the lab or individual results, take a look at patients, be a partner on the floor for interdisciplinary rounds, see what’s going on! You’ll demonstrate your lab’s value to the entire care team and become more involved¬—and influential—in a bigger clinical landscape.

On getting out there

"Just like pharmacists, we need to get out there and be a part of the care team. We need to work with case management and discharge planners to help prevent readmissions. There’s so much we can do to add to the picture."
–Judy Springer, Vice President of Quality/Case Management, North Kansas City Hospital




Following the patient-centric path

This brief review was only a taste of the many ways LabacoEconomics can help you redefine what success means for your lab. 

Think of it as a first step along a path that begins with the truth that labs are no longer limited to diagnostics and results. They need to embrace entire continuum of care—and the collaborative relationships built with the entire multi-disciplinary team. This path leads to greater value for you and better overall care for the patient. We wish you an enlightening journey.

Look to for upcoming articles that will delve into the tactical details of LabacoEconomics; and how they can help your lab save money, demonstrate results, and advocate for a larger share budget dollars.


Disclaimer: Keith Laughman was not employed by or affiliated with Roche as of the original date of publication for this article.

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