A group of eight large not-for-profit Florida hospitals is creating a for-profit reference laboratory network to contract with managed-care payers and nursing home providers.
The effort, led by a group of hospitals that belong to SunHealth Alliance, VHA and Daughters of Charity National Health System, will compete with for-profit clinical reference labs such as SmithKline Beecham and Laboratory Corporation of America (a new name for the merged National Health Laboratories and Roche Biomedical Laboratories).
The hospitals also want to counter an effort by Columbia/HCA Healthcare Corp. to link its 58 hospitals in Florida in a similar reference laboratory venture. Columbia officials in Florida were unavailable for comment.
The eight hospital laboratories account for about 10% of the $413 million in annual commercial laboratory business in the state, said Terry McGovern, SunHealth's director of laboratory services.
"Our existing outreach business shrinks as patients go into managed-care plans," McGovern said. "We estimate about 5% to 8% of our business will go away every year if we don't do something."
If the network-tentatively called the Florida Reference Laboratory Network-overcomes regulatory hurdles, McGovern said it could be ready to contract early next year. The network will be set up as a for-profit company, but its precise format hasn't been determined.
In recent years, hospitals have been gearing up to compete with for-profit laboratories for profitable outpatient lab business (July 12, 1993). It's a further extension of a trend begun by hospitals in the late 1980s to set up for-profit subsidiaries to operate their outreach businesses, experts said.
The eight hospitals are St. Joseph's Hospital, Tampa; Shands Hospital at the University of Florida, Gainesville; Florida Hospital, Orlando; a joint venture with Mercy and Baptist hospitals, Miami; Wuesthoff Hospital, Rockledge; Sacred Heart Hospital, Pensacola; Baptist/St. Vincent Health System, Jacksonville; and Naples (Fla.) Community Hospital. Another 60 hospitals are expected to join the statewide network, McGovern said.
A recent feasibility study by Chi Laboratory Systems, Ann Arbor, Mich., found payers would be interested in the hospital lab network if it offered statewide rates for each procedure, centralized billing and integrated information systems.
The Chi study projected that lab volume could increase between 5% and 10% each year for network hospitals, McGovern said. "Under a best-case scenario, we would break even for the first year or year and a half," he said.
Joel Ellis, chairman of the new network and vice president of clinical services at St. Joseph's, said hospital labs have to look at ways to reduce costs with managed care cutting lab fees.
"We aren't losing business now, but we will," Ellis said. St. Joseph's outreach business accounts for 35% of its total volume and 15% of its lab revenues, he said.