Physician Office Labs Create Added Revenue Stream

February 8, 2011
Ed Rabinowitz

Practice-based medical labs -- where blood is drawn and analyzed in-house, as opposed to being sent out for analysis -- can not only improve patient care, they have the potential to increase practice revenue when set up correctly. But before diving in, you need to know your patients.

Tim Dumas, president of Raleigh, N.C.-based TLD Consulting, has spent many years as a medical-lab consultant specializing in setting up physician office laboratories (POLs) as profit centers. These are practice-based labs where blood is drawn and analyzed in-house, as opposed to simply drawing blood but sending it out for analysis. Dumas says that for physician practices, a POL can not only improve patient care, it has the potential to increase practice revenue when set up correctly.

“Most times I am called in after the critical decisions have been made and the laboratory is either facing a Clinical Laboratory Improvement Act deficiency, or is not proving profitable,” Dumas says. And the key to avoiding either scenario is taking the time to plan.

Meeting CLIA Standards

Dumas says all POLs fall under the jurisdiction of the Clinical Laboratory Improvement Act (CLIA)--a government program that sets the rules and regulates all laboratories. POLs are categorized as either waived, or non-waived. For example, if a physician wants to be able to conduct rapid strep or urine tests, the kits are so easy to use that the government has deemed these types of labs waived, and they are not frequently inspected.

However, Dumas notes that, “CLIA recently inspected 10 percent of those technically waived laboratories and found 90 percent of them to be in error, so inspections are increasing this year. Nothing is foolproof. There’s always somebody who can mess up anything.”

For physicians, the benefits of running a waived POL are two-fold. If they want to run a rapid strep test, they’ll have the results faster, be able to make a diagnosis quicker, and provider faster treatment for the patient, which means swifter recovery. There’s also the profit aspect. Physicians can buy these kits and run a rapid strep in the office for $3 or $4, says Dumas, and current Medicare minimum reimbursement is about $16. Insurance companies typically reimburse about 80 percent of Medicare minimum, so physicians are going to get about $12 for the test.

“But the physicians I talk to say, ‘I’m more concerned about running [the test] in-house,’” Dumas says. “If they can run it in-house and have faster results and break even, that’s all they care about. They’re not going to get rich from lab tests. For them it’s just the better medicine aspect. And manufacturers are now working on every kind of waived test they can get, or they’re trying to get their test to waive status, because that will put more of them in the office, and many doctors want to do these.”

Non-Waived Status

The other POL category is moderately complex, or non-waived. In this category, physician practices can run a complete blood count. “If you come in with a fever, now I can run a blood test and that’s going to tell me whether you have a bacterial infection or a flu,” Dumas says. “It’s also going to tell me if your white count is so high you need to be in the hospital with antibiotics. It tells the doctor if you’re anemic, or have low platelets—just myriad stuff from this one little test that if you put it in your lab with an analyzer will cost you about a dollar. Reimbursed is 10 dollars or so. What stops most doctors from doing this is the fear of government regulations.”

If that sounds, Dumas says, it’s because a lot of people make it sound daunting. In actuality, the government rules are just good medicine. By law, physician practices have to make sure the testing equipment is working every day by running control. “They’re procedures, and you have to have them written down,” Dumas says. “Let’s say you have someone who runs your laboratory, even if it’s your nurse. And she’s not there that day or off for a week, and you bring someone in to run your lab. There should be a book in the lab that tells them how everything is done—a policy and procedure manual. And that’s all it is. And once [the lab is set up], it’s a no-brainer. It’s a great revenue stream.”

Planning Is Key

Dumas says he wishes more physicians would contact him before they set up their lab. The problem, he explains, is that too many physicians purchase a $40,000 analyzer that will only generate $40,000. And on top of that, there’s a service contract costing $10,000 annually to keep the analyzer running, he says.

“If you had higher volume where you’re generating $80,000 in revenue, now we’re talking. But they never should have bought that machine; they should have bought a machine half the size for $20,000,” he says. “So you should know your patients, and what kind of tests you might run.”