Making Your Lab A Profit Center

Donna Showers, Intalere

By Donna Showers, Senior Director, Lab/DI Specialists, Intalere

The Protecting Access to Medicare Act (PAMA-216) will reduce Medicare laboratory reimbursements by an estimated $670 million this year (2018) and $4 billion over the next 10 years. The American Clinical Laboratory Association (ACLA) sued CMS last December over the methodology that was used in determining the cuts to the Clinical Lab Fee Schedule. On September 21, 2018, U.S. District Judge Amy Berman Jackson dismissed ACLA’s complaint, saying that laboratories cannot challenge the lost reimbursement funding in court.

As stated by Julie Khani, ACLA president, “This is an extremely disappointing outcome for ACLA’s members and the millions of seniors they serve—including the most vulnerable Medicare beneficiaries—who rely on clinical laboratory tests for their most basic health needs.

These devastating PAMA reimbursement cuts, coupled with the errant belief that labs are cost centers with commodity services, are making organizations consider outsourcing their lab services to commercial reference laboratories.

This short-sighted strategy flies in the face of patient-centered, value-based care. What must be understood is that laboratory outreach services are essential to healthcare delivery models. Laboratory services may make up 5% of a hospital’s budget but leverage 60-70% of all critical decision-making such as admittance, discharge and medication. Laboratory can also be a powerful revenue generator, with well-managed laboratory outreach programs generating contribution margins of 35% or greater.

What is your organization doing to overcome these reimbursement cuts and ensuring that your laboratory remains viable and profitable? If you have cut staff and cut costs to the point that there isn’t much left to cut, then it’s time for a different strategy.

Effective Revenue Cycle Management is a crucial element to financial success in the clinical laboratory. Lab insurance claims are nuanced, meaning they are high volume/low dollar pursuits. As such, they are often overlooked by healthcare organization back offices in lieu of focusing efforts on higher dollar claims like patient admissions. However, the sum of all those low dollar claims is a substantial amount of revenues uncollected for lab. It’s time for laboratories to take control of their finances and run their laboratories like businesses. What are some steps your organization can take in this regard?

  1. Perform a financial assessment of your laboratory to determine the contribution margin of each test you report.
  2. Evaluate your send-out tests to determine if performing them in-house would be a financial, operational and clinical benefit. The more testing you do in-house, the lower your overall costs will be for operating your laboratory.
  3. Find a partner that can help you improve your revenue cycle management, either through consultative operational process improvement or outsourcing the service altogether. A good partner will reduce your cost to collect and free up your resources to focus on laboratory medicine and patient care.

Changing the general cost vs. profit discussion on your lab, and realizing its underlying value, can have you prepared and proactive in maximizing laboratory operations in your organization. Don’t wait until it’s too late to begin the conversation.

Intalere partners with healthcare providers to help elevate their laboratory efficiency, operations and profitability. We take a structured and comprehensive approach to assessing laboratory operations and developing a clear strategy with smart solutions that deliver optimal cost, quality and clinical outcomes. Contact me to learn more at

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