The novel outsourcing agreement that the Premier hospital alliance recently inked with a clinical laboratory company could pave the way for members to scale back their in-house labs.
Once reliable moneymakers, hospital laboratories these days tend to drain budgets.
In response to member pleas for help, the San Diego-based alliance of 1,700 not-for-profit hospitals developed a lab service agreement with Quest Diagnostics, Teterboro, N.J., that could shave hospital lab expenses (May 25, p. 16).
Premier hospitals spend an estimated $5 billion on clinical lab tests each year.
"Everyone is looking for ways to cut costs," said William Nydam, executive vice president at Premier. "There's overcapacity in the commercial and hospital labs, and through this agreement we'll bring efficiencies to both sides."
Under the two-pronged deal, Quest will advise participating Premier hospitals on how, when and where to perform various clinical tests most economically. According to an analysis by Premier, about 30% of inpatient testing, 60% of outpatient testing and 95% of physician testing could be moved to lower-cost settings, such as regional or national labs. Quest will also directly outsource lab services under the deal, which is effective immediately and has a 10-year term.
Participating hospitals are expected to save 10% to 15% on current lab costs, then reap an additional savings of 10% to 35% over time through reduced utilization, Premier said.
Under the second plank of the deal, Quest will give discounted rates on reference lab work to Premier hospitals that commit to use the company as their primary lab vendor. About 3% of hospital clinical tests are esoteric enough to be sent to reference labs. Premier estimates its hospitals spend about $150 million annually on reference work. The five-year contract for reference tests, effective Aug. 1, will net savings of more than 20% for those who sign up, Nydam said.
To date, he said, about 270 Premier hospitals have expressed official interest in the outsourcing contracts.
To encourage improvement, Quest and Premier hospitals have agreed to split total savings achieved under the deals.
As an additional economic carrot to use Quest, the Premier alliance also will earn cash and Quest stock in proportion to the volume of testing generated by participating hospitals. Finally, Quest also agreed to buy reagents and supplies through Premier's group purchasing arm.