The impact of DRGs after year 1: management learns to cope.

The impact of DRGs after year 1: Management learns to cope

Remember when the clinical laboratory churned out profits for the hospital? Although the prospective payment system is only a year old, that time already seems like another era. Supervisory personnel on MLO's Professional Advisory Panel confirm that the laboratory's new status as a cost center has forced a rapid switch in management philosophy and practice.

Dollars for inpatient care are at a premium, as we noted in Part I of this report. Hospitals are admitting fewer patients and discharging them sooner. The economic logic of DRGs has also led to a boom in freestanding ambulatory care clinics, outpatient surgery centers, and other health delivery options.

In the hospital laboratory, the past year has ushered in broad new strategies for providing cost-effective service--along with a heavy burden of red tape and record keeping. The manager of one laboratory in the West, for example, must contend with DRG-based payment for inpatient testing; Medicare's new outpatient fee schedule; a cost-based prospective system adopted by his state's Blue Cross and Blue Shield; and a planned revision of Medicaid rates. Perhaps that sounds like a bookkeeping nightmare. He assures us it is.

Health care experts predicted that DRGs would push much diagnostic and follow-up testing outside the hospital. A majority of our hospital-based panelists bear that out. For example, preadmission testing has increased in about 65 per cent of both small and large hospitals.

A host of other operational changes aim at keeping the hospital stay to a minimum and eliminating needless tests. Figure I summarizes how widely these tactics are used. More than half the surveyed laboratories have reduced or ended mandatory admission tests and halted routine ordering for certain other tests.

More than a quarter of the labs will not perform certain tests requested by clinicians unless the medical department has given prior approval. Almost the same percentage have altered test request forms to discourage overordering. Computers have streamlined result reporting at 24 per cent of the labs and accelerated test ordering at 17 per cent.

Many laboratory professionals believe that the need for timely diagnoses will offer their departments a more active role in test ordering decisions. So far, only 9 per cent of the surveyed labs have implemented protocols for automatic follow-up testing.

That's old hat in the lab at 400-bed Providence-St. Margaret Health Center, Kansas City, Kan. "We had been doing "spinoff' tests for many years before DRGs,' assistant chief technologist Shirley Coupal says. "On certain procedures, our director set parameters that justified further testing, and the medical committee approved them. For example, we save the physician about a day by automatically performing an LDH isoenzyme if total LDH is sufficiently high.'

Since most hospitals have been paid prospectively for less than a full year, it's still early to judge the system's impact on two major aspects of laboratory service: test charges and turnaround time. Faster test results are vital to costeffective case management, but only 16 per cent of all respondents claimed that turnaround time had dropped in the past year. Turnaround was unchanged for 61 per cent, while 23 per cent of the laboratories actually took longer to produce results--perhaps an indication of the growing necessity to work with leaner staffs.

Test charges in 1984 reflected no dramatic trend, either, remaining the same in a majority of laboratories (Figure II). Charges rose in 24 per cent of the panel's laboratories and fell at 10 per cent.

Marketing testing services to outside clients has emerged as a key strategy to optimize the laboratory's financial health. It's one many panelists are attempting with varying degrees of success, as Figure III shows. Almost 70 per cent of the labs, in small and large hospitals alike, have attempted to market outpatient testing. Among those not currently marketing their services, 40 per cent plan to next year.

Physicians' offices are the most popular marketing target, cited by 85 per cent of those seeking outpatient business. Next come nursing homes, potential markets for 56 per cent; emergicenters and primary care clinics, 31 per cent; veterinarians, 26 per cent; and assorted other clients, 23 per cent.

At Providence-St. Margaret Health Center, five years of laboratory marketing have softened the impact of a drop in census and a depressed local economy.

The program began at the request of a group of staff physicians, Shirley Coupal recalls. The laboratory now serves about 75 physicians, 25 nursing homes, a hospital-run emergicenter, and several veterinarians. One staff member works full time tracking down new accounts and nurturing current ones. The hospital, set on the outskirts of Kansas City, maintains one drawing station in a downtown medical office and another near a major shopping center.

Even before DRGs, markeing was a goal at High Point (N.C.) Memorial Hospital, lab manager Linda Roney reports. Since then, rising outpatient revenues have helped offset a drop in admissions. "Now it's no longer a desire but a necessity,' Roney says.

The lab performs testing for an array of new community health facilities, including independent surgery and birthing centers and emergicenters. In the past, Roney points out, many of these patients would have been hospitilized. By performing at least their lab work, the hospital retains some revenue that would otherwise be lost to the competition.

At 49-bed, rural Healdsburg (Cclif.) General Hospital, marketing boosted laboratory volume by some 50 per cent this year. "We used to send out all but a bare minimum of testing,' laboratory manager Bob Jochums says. "Two years ago, our parent corporation decided we should invest in some instruments and begin marketing laboratory services in the community.' That corporation, American Medical International, helped the hospital set up a cost-effective operation that could compete with area reference laboratories.

Healdsburg General now counts most of the town's physicians and one nursing home among its clients. It has also started a joint venture with a local cytology/ histology firm to bring in veterinary test work. "They pick up and process the specimens, and we provide the testing,' Jochums says. "The cytology lab markets both services as a package.'

Marketing is a complex undertaking and not a panacea, many panelists discovered. In the survey group of 122 managers and supervisors, only 22 per cent characterized their efforts to pick up outside business as very successful. On the other hand, only 13 per cent conceded a complete lack of success. Sixty-five per cent said they were moderately successful.

Sometimes, direct pathologist involvement attracts testing accounts. In other hospitals, a laboratorywide commitment to excellence wins new customers. "The staff cares more these dsys; their jobs depend on it,' Coupal says. "If anything, we have improved our service since prospective payment, and some of the large independent laboratories have lost accounts to us. We offer quality service, faster turnaround time, and good customer relations.'

"I think the continunty between office visit and hospital was a big selling point for physicians here,' Jochums adds. "They like knowing that the same technologists will be responsible for their patients after admission. The added outside volume also enables us to provide more and better service to our inpatients.'

Panelists' laboratories are exploring new ways to contain costs while expanding their services. Since implementation of DRGs, 77 per cent have sought competitive bids from reference labs, and 40 per cent have joined in group purchasing plans. Almost a quarter have shared in-house testing services with other laboratories. Figure IV documents these trends.

Mounting cost pressures have made hospitals more open-minded about uncommon arrangements. Presbyterian Hospital, a 535-bed tertiary care center in Albuquerque, N.M., has invested heavily in a nearby reference laboratory, according to lab director David Huelsmann. Hospital sendout tests are performed by the reference laboratory at discounted prices.

The hospital and reference laboratories also consolidated some testing to eliminate duplication. Presbyterian closed down a few laboratory areas, like RIA, and sent out their entire workload. No employees were laid off, Huelsmann says. Some remained in the hospital, the reference lab hired others, and a few went elsewhere. In addition, the reference lab now runs the hospital's busy outpatient collection facility.

The streamlining process worked both ways, Huelsmann adds. "We transferred their entire hematology operation inhouse. Their volume was relatively low by comparison, so it made more sense to do it here.'

Automation is a key weapon in the battle for higher productivity. Panelists split almost evenly when asked whether or not their laboratories had acquired automated instruments for this purpose since the onset of prospective payment. It's likely that many of the 58 per cent that did not were highly automated laboratories already.

Computers have gained ground as another valuable management resource--especially the affordable, versatile microcomputers, Close to 60 per cent of panelists' labs use either a microcomputer, a laboratory information system, or both. This occurs more often among labs in hospitals with over 300 beds (71 per cent) than those in smaller hospitals (48 per cent).

One of the computer's most valuable functions is its ability to monitor test ordering patterns by diagnosis, physician, or department. These audits are originating outside the laboratory for the most part. We asked if laboratories had purchased software specifically designed to track DRG-related trends or developed their own. Only 7 per cent had bought DRG software, and only two panelists in the group had written their own programs--one of whom, a pathologist, created a spreadsheet system on his home microcomputer with the help of his young son.

Whether by computer or other means, physicians at 58 per cent of the hospitals are now monitored for test ordering per case or DRG. A variety of methods help identify and control overutilization (Figure V). Hospital committee action is the most common, cited by 68 per cent of those involved in monitoring, followed by the presence of a DRG coordinator, mentioned by 64 per cent.

Administration helps regulate test ordering in 55 per cent of the hospitals; computerized audits are used in 46 per cent; and medical departments lend support to ordering controls in 36 per cent. Peer pressure and pathologist participation both ranked relatively low, cited by 22 per cent and 19 per cent respectively.

Curbing excess ordering is a notoriously difficult challenge, as Figure V also confirms. More than a third of the panel rated their efforts as unsuccessful, while only 5 per cent were very successful, leaving 60 per cent somewhere in between. Several respondents expressed concern that clinicians had overreacted in the early stages of the DRG phase-in, and cut ordering too deeply!

"Prospective payment has demanded the attention of the medical staff as no other issue has in a long time,' says Lew Diehl, laboratory director at 112-bed Wilson Memorial Hospital in Sidney, Ohio. "Our medical records department determined the average utilization of lab and other services by various physicians to treat the same DRG. And a few practitioners really stood out from the rest.'

The laboratory faces conflicting demands for speedy results and economical operations, Diehl observes. "The laboratory runs best as a kind of production line, and it's very expensive to do everything Stat. Unfortunately, that's what the medical staff has gotten used to. Physicians tell us they need fast diagnoses now more than ever, while administration keeps reminding us to save every nickel we can. We're caught in the middle.'

At 214-bed Memorial Hospital, Roxborough, in Philadelphia, the laboratory set a dollar limit on what physicians can order for each DRG, according to Walter I. Hofman, M.D., chairman of the department of laboratory medicine. In consultation with several members of the medical staff, Hofman evaluated test orders on dozens of patient charts. "For each DRG,' Hofman says, "we asked, "What does a reasonable physician order?' For example, are four cardiac isoenzymes really necessary for an uncomplicated M.I.?'

Hofman's approach is working. The laboratory cut inpatient testing by 12 per cent and send-outs by 25 per cent since the hospital went onto DRG payment last July. His method of implementation is informal. "The pathologist must sit down and reason with his or her colleagues, one or two at a time--and it takes a lot of time. I start out by stressing that I won't compromise patient care, and then I offer alternatives.

"Sometimes, before approving a more expensive test, I'll suggest that we perform a simpler one and reserve some of the serum. Then if the results are abnormal or indicate further testing, we can run the costlier test immediately-- without having to restick the patient.'

Winning physician compliance shouldn't be that difficult if the pathologist maintains a good relationship with the medical staff, Hofman says. "Traditionally, the clinician comes to the pathologist for diagnostic advice. We're just reversing that by approaching the clinician first.'

All in all, DRGs seem to have produced more constructive change than trauma in hospital laboratories. "The system has forced my supervisors into a really fast-track business outlook,' Huelsmann says. "They're much more concerned with finances, inventory control, and expenses, and they have increased their productivity tremendously by working smarter.

"Unfortunately,' Huelsmann adds, "these changes have also made employees very insecure about their jobs, even though we're trimming the budget through attrition instead of layoffs. Managing a much more compressed, efficient system while reassuring your staff is a tough challenge for any lab manager.'

Table: Figure I Changing hospital lab tactics since DRGs

Table: Figure II Turnaround time since DRGs

Table: Test charges since DRGs

Table: Figure III Has the lab tried to market outpatient tasting?

Table: To what markets?

Table: How well has marketing worked?

Table: Figure IV Reaching out for savings under DRGs

Table: Figure V Are clinicians monitored for test orders per DRG?

Table: Which of the following help regulate ordering?

Table: How effective are these efforts?