Four ways a hospital-owned laboratory propels clinical and financial success

Hospital-owned laboratories have a profound impact on patient care and hospital operations for the organizations they serve. As president and CEO of Mayo Clinic Laboratories, I see this every day. Amid rising costs and mounting financial pressures in healthcare, these laboratories bring long-term strategic value and serve as vital assets in driving clinical excellence and financial sustainability for health systems across the country.

Enhanced staff satisfaction and patient outcomes

The Centers for Disease Control and Prevention (CDC) estimates that laboratories inform approximately 70% of clinical decisions, making them essential to delivering high-quality healthcare. The proximity of a hospital-owned lab to the clinical environment fosters collaboration between laboratory professionals and clinicians. Delivering an accurate result or diagnosis from the laboratory is a dynamic process, and this integration not only enhances the judicious use of laboratory resources and timeliness of diagnostic information but also fuels innovative problem-solving and better patient outcomes. For instance, on-site labs enable rapid identification of emergent conditions such as sepsis, allowing for the early intervention necessary to reduce the risk of complications and improve patient survival rates.

Hospital-owned labs also enhance clinical workflows and physician satisfaction. By maintaining control over laboratory diagnostics, hospitals ensure that the quality, turnaround time and relevance of tests align closely with the health system’s unique clinical needs. This control is particularly important in a value-based care environment, where reimbursements are based more and more on quality measures and outcomes rather than the volume of services.

Financial benefits and revenue generation

While the immediate financial gain of selling lab operations can be alluring in the near term, this eliminates significant intermediate and long-term revenue potential important to financial sustainability. Medicare Cost Report data ranks laboratories among the top three drivers of outpatient gross charges for hospitals. Robust lab outreach programs that serve the broader community can capture additional revenue streams to enhance hospitals’ financial performance.

In working with healthcare organizations across the world, Mayo Clinic Laboratories sees laboratory outreach programs add incredible value to their organizations and communities. For example, a healthcare facility in the Pacific Northwest experienced a substantial increase in patient volumes after establishing an outreach laboratory. This program improved turnaround times and patient satisfaction while also contributing to the facility’s financial success. Another health system in the Mid-Atlantic region experienced a 16% annualized revenue growth over 10 years by keeping its lab operations in-house.

Operational efficiency and cost control

Hospital-owned labs offer operational efficiencies that external labs cannot match. They leverage existing infrastructure and staff to optimize resource use and reduce per-test costs. This efficiency is particularly evident in emergency and inpatient settings, where the lab must operate 24/7. Using existing staff and equipment promotes smart stewardship of hospital resources.

Furthermore, maintaining an internal lab protects hospitals from many unexpected price hikes, fees and other hidden costs associated with outsourcing. Keeping lab services in-house also ensures more predictable and purpose-driven test ordering, ultimately controlling costs more effectively.

Strategic partnerships and community trust

Hospital-owned labs have an opportunity to form strategic collaborations with other health systems and suppliers. These relationships can enhance supply chain resilience, create centers of excellence for specialized testing, improve operational efficiencies and foster community trust by sharing knowledge and keeping healthcare services local.

For instance, a collaborative approach where hospitals in the same region specialize in different types of testing allows each organization to benefit from an economy of scale and better resource utilization. This diagnostics ecosystem ensures that healthcare dollars remain within the community, supporting local economies and enhancing patient trust in the healthcare system.

It’s your lab. Own it.

Hospital-owned laboratories are indispensable assets. It is imperative for hospital leaders to recognize and harness the full potential of laboratories to support the clinical mission of their institution and ensure its financial sustainability in an increasingly challenging healthcare landscape.

By retaining ownership of their labs, hospitals can enhance patient care, generate significant revenue, and achieve operational efficiencies that external labs may not match. Still, owning a lab can be a significant commitment, and that is why Mayo Clinic Laboratories is here to collaborate, offering the expertise and resources needed to unlock the lab's full potential.

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William Morice II, M.D., Ph.D., is the president and chief executive officer of Mayo Clinic Laboratories. Dr. Morice served as the chair of the Department of Laboratory Medicine and Pathology at Mayo Clinic from 2015 to 2022, and he currently serves as board chair of the American Clinical Laboratory Association.

Mayo Clinic Laboratories, the global leader in turning test results into clinical answers, provides advanced testing and pathology services for 3,400 healthcare organizations in partnership with Mayo Clinic's Department of Laboratory Medicine and Pathology.