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How one hospital lab met the DRG challenge.

How one hospital lab met the DRG challenge

I was promoted to laboratory manager in 1984, just as our 125-bed hospital began dealing with Diagnosis Related Groups. If my management style soon took an aggressive turn, blame DRGs. The lab could not afford business as usual under such unusual and challenging circumstances.

Controlling operating costs and increasing outpatient revenue became toppriorities. On the cost side, we negotiated the best possible contracts for supplies and instruments. We also instituted several staffing and purchasing policies designed to reduce expenses: elimination of overtime; vacation/sick time coverage by the relief person on our three shifts instead of having part-timers put in extra hours; more use of laboratory assistants rather than technologists, where feasible; and a reduction in inventory (supplies would be ordered only when necessary).

I also thought hard about what else could be done. Eventually, two ideas crystallized. First, the lab would implement low-census staffing guidelines to trim payroll hours during slack workload periods. Then, to attract more test orders from health care providers in the community, we would offer price discounts on frequently ordered outpatient tests.

The low-census guidelines were not a step taken lightly. Our local economy had declined, and getting a full paycheck meant a lot to he staff. We wanted to be fair, but we also had to decrease labor expenses--without compromising quality or productivity--when test demand fell during low-census periods.

Figure I summarizes our permanent cost-reduction policy as well as the low-census guidelines. Under the latter, the work staff is cut when two parameters drop: total inpatient/outpatient test volume and patient census.

Both these conditions must occur simultaneously. If hospital census is below the budgeted level but the laboratory maintains or exceeds its average monthly workload, we don't reduce staffing. This happens most commonly when outpatient volume offsets the decline in inpatient testing.

Nor do we make staffing reductions when the hospital census is up but test volume slides. As long as the hospital meets its budget, it isn't necessary to implement the guidelines.

The low-census guidelines are somewhat flexible. The hospital budget is based on a 68 per cent occupancy rate, and the laboratory's average monthly volume is 9,800 tests. We don't become concerned until occupancy decreases by 5 percentage points and lab volume drops 500 tests below the monthly average.

Although the occupancy rate fell to 6i per cent last August, our volume rose by 700 tests, so we did not have to reduce staff hors. On the other hand, we did go to the low-census guidelines another month when occupancy decreased to 57 per cent and volume dropped to 9,300 tests.

The guidelines reduce everyone from an eight-hour shift to seven and one-half hours. This doesn't impair the laboratory's ability to provide 24-hour coverage, since the unpaid time for the meal break adds a half-hour to the shift. Normally, we have a hlf-hour overlap between shifts--technologists who work 7 a.m. to 3 p.m., for example, stay until 3:30. Of the lab's 14 FTEs, eight are on the day shift, three on the evening shift, and one on the night shift. (Three of the lab's 14 FTEs are part-timers and fill in wherever needed.)

The two-and-a-half-hour reduction in their work week is not a tremendous hardship for employees, but the aggregate payrool savings are significant. Work quality doesn't suffer since we're merely eliminating the crossover time between shifts. In addition, I fill in at the bench when the low-census guidelines are invoked.

The plan is flexible. If a technologist is busy at quitting time, he or she can stay on for the full eight hours to complete the work. This is left to the technologist's discretion, but I do check time cards to make certain there are no abuses.

Allowing technologists to continue past the shortened shift when necessary helps maintain professionalism. The laboratory staff also understands that all hospital employees make sacrifices if the census is off. These may not be the same sacrifices that the lab staff makes; I emphasize that each department is unique and must devise its own adjustments. Nursing, for example, has adopted

an acuity program. Staffing is determined by how acutely ill patients are and how many hours of nursing care they require.

Laboratory staff members may not be overjoyed about the low-census guidelines, but they do accept the periodic need to cut back and have been very cooperative. I think they realize that losing a couple of hours of pay each week is much better than the alternative (the hospital has drafted a formal layoff policy, just in case).

We resorted to the low-census plan eight times during the first year it was in effect, from August 1984 to July 1985. The second year, we only had to use the guidelines once.

It is no coincidence that the turning point in this regard occurred in June 1985. That's when we launched a program to attract more outpatient testing, which would keep our staff busy and often forestall reductions in work time, as well as encourage and support the priority of preadmission testing.

Thestrategy was simple. I studied ordering patterns from physicians' offices and other customers, compiled a list of the 25 most frequently requested procedures, and then surveyed area hospital laboratories for a cost comparison. The results showed that we could offer a 25 per cent discount on these tests and still meet our operating costs. Our new prices would undercut other hospital labs by $5 to $10 on each test.

We would be giving up a good profit margin on frequently ordered tests in hopes of attracting additional accounts and orders for many other kinds of tests. I had to sell the concept of using a laboratory "loss leader" to the hospital's vice president for finance and vice president for professional and support services. they wanted projections of how much money the lab would lose on the discounted tests and how much additional volume we could expect.

Of course, it was difficult to predict demand until the program was in place, but I was able to assure the administrators that we wouldn't be giving away the store. It took several meetings, but they finally agreed to proceed.

The discount menu was carefully crafted. Urinalysis and complete blood counts--our two most economical tests to perform--headed the list. Most presurgical patients, we reasoned, generally have a CBC, prothrombin time, and partial thromboplastin time. The lab would discount the CBC and pick up additional PTs and PTTs at the full price. We discounted the T.sub.3 uptake and T.sub.4 but charged the regular fee for the thyroid-stimulating hormone test. The variety of tests was designed to appeal to different specialists--such as cardiologists, urologists, and internists--and entice them to send other tests our way.

I took the concept and menu to the hospital's public relations manager. We discussed different ways to market our 25 per cent discoutn on the 25 most popular tests to the medical community. One thing we decided on was a name for the campaign: The 25/25 Program.

With all the planning completed, it was back to the administrators for a final go-ahead. They gave it, and marketing began in earnest. Thanks to the public relations manager's efforts, the local newspaper told the story one the front page of its regional section. He also prepared a brochure (Figure II), which included a postpaid response card. We sent out 125 copies of this promotional piece, targeting physicians' offices, smaller hospital, nursing homes, independent labs, and businesses throughout the county.

The newspaper coverage increased public awareness of our lab, and the mailing brought in several new clients. We now make sure that brochures are displayed throughout the hospital and at community events. Even if some physicians use another reference lab, many of their patients now bring their test orders to us.

The lab's wage expenses increased by 4 per cent in 1985, and supply outlays rose only 1 per cent, so costs were under control. Meanwhile, the lab's inpatient revenue rose 8 per cent, and outpatient revenue rose 27 per cent.

As Table I shows, outpatient volume increased by 2,357 tests in the program's first seven months. The 25/25 Program's appeal continues to grow. Monthly outpatient volume, which had climbed to an average of nearly 1,300 tests in 1985, went up further to about 1,500 tests each month in 1986.

We have passed some of the benefits along to our customers. Most notably, we haven't posted a single price increase since the program began. Surprisingly, our competitors have not lowered their test fees.

So far, we seem to be doing a pretty fair job of controlling our own destiny.
COPYRIGHT 1987 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1987 Gale, Cengage Learning. All rights reserved.

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Title Annotation:trimmed labor costs and offered price discounts
Author:Hatfield, James D.
Publication:Medical Laboratory Observer
Date:Feb 1, 1987
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