A State of the Lab Industry Discussion with Stan Schofield

Editor’s Note: The following is a Q&A with Stan Schofield that was originally published on July 26, 2024. Although some time has passed, many of his insights into the lab industry remain valid.

About Stan Schofield

As we move into the second half of 2024, there is no better time to assess the state of the lab industry with someone who has spent decades navigating its most complex challenges.

Stan Schofield is a trusted, widely respected voice. He is the Founder and Managing Principal of The Compass Group, an association of 32 regional laboratory corporations affiliated with some of the largest and most prestigious healthcare systems in the United States. He previously served as President of NorDx and Senior Vice President of Laboratory Services within MaineHealth, retiring from both roles in January 2023.

With decades of experience leading highly complex lab organizations, Schofield understands their pain points, their vulnerabilities, and what it takes to meet the challenges of today's rapidly shifting healthcare environment.

LigoLab sat down with Schofield for a wide-ranging conversation on the state of healthcare, covering the financial, regulatory, and staffing pressures facing medical laboratories, as well as the laboratory information system (LIS) software they rely on for clinical and pathology lab management.

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The State of the Lab Industry in 2024

Q: What are the hot topics in the lab world today, and what’s the state of healthcare in general? 

If you look at the lab industry from 2020 to 2022, the lab was a hero. Instead of being taken for granted, labs were the heroes when COVID-19 hit.

Some were very successful and met the testing challenge. Others who were less prepared, less flexible, and less entrepreneurial didn't do as well. It created an image within the health system C-suite of those who get it done and those who don't. That was the framework heading into 2023 and 2024.

Q: Where would you rate staffing concerns at this point? 

Today, the number one issue remains staffing, a problem first identified about five years ago and as challenging as ever. Labs are struggling to hire at the entry-level, and many med techs have already retired or will do so soon.

There's a widespread loss of intellectual capital and seasoned, experienced people who can make critical decisions in patient care. It is problematic and compounded because it's not just labs facing this issue; the entire healthcare system is.

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Regulatory and Financial Pressures Squeezing Lab Margins

Q: What role has PAMA played in terms of lab finances?

The Protecting Access to Medicare Act has resulted in 45-50% declines in outpatient reimbursement over the last six years, despite being suspended for three years due to COVID-19 and related factors. Labs that previously had lucrative external and outreach business have taken a significant hit due to PAMA.

Q: Where do things stand with the FDA and lab-developed tests?

The U.S. Food & Drug Administration's final rule on LDTs was issued in late April, and it’s now tied up in lawsuits with various laboratory associations that believe the FDA is overstepping its bounds. 

The recent Supreme Court ruling in the Chevron case (Chevron v. Natural Resources Defense Council) questioned how federal agencies interpret rules. One can see how that could also directly affect the FDA’s rulemaking authority regarding LDTs. How all this turns out will be noteworthy for many labs and health systems. 

For example, many regional and large hospital labs use LDTs for infectious disease and cancer markers because they are significantly less expensive than FDA-approved IVD assays, enabling them to compete with the big commercial labs. 

Labs can easily test for flu, COVID, and RSV (respiratory syncytial virus) these days. However, this raises an issue because the government is trying to regulate all of these tests, and no one knows how regulators will resolve it.

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The Financial Health of Hospitals and Health Systems

Q: What do health system C-suites think about the current state of healthcare and the challenges ahead?

The data tells a clear story about where executive priorities sit right now:

• 57% worry about revenue growth and new sources of revenue
• 46% consider reducing costs the number one issue
• 25% cite the patient experience as a top priority

Q: What’s happening with revenue growth in healthcare?

Hospitals and clinics generate their highest reimbursements from complex procedures, such as orthopedic, cardiac, spine, and cancer treatments, while most other services yield minimal margins and often just cover costs.

What's hurting hospitals most is the lack of primary care for chronic illnesses. People aren't going to the doctor, aren't following up, and hospitals and health systems aren't generating the patient visits needed to sustain revenue. Most practices lack adequate staffing, and only 30 percent of providers feel their patient populations are receiving adequate cancer screening and are participating meaningfully in early detection programs.

Q: What about hospitalization costs?

A problem 20 years in the making is the managed care, diagnosis-related groups (DRGs), and length-of-stay systems. If a hospital receives a flat payment allocated for three days and the patient stays longer, each additional day costs approximately $2,500. It’s a significant financial drain when patients with chronic illness have nowhere to be discharged to.

Mental health compounds the problem further. Every emergency department in the country has mental health patients and nowhere to place them. In most cases, behavioral health is a drain on the system, costing $10-$20 million per facility due to poor reimbursement.

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The Overall Financial Picture

Q: What’s the overall financial health of hospitals and health systems now that COVID is no longer the primary focus? 

When viewed collectively, about half of U.S. hospitals are currently operating at a loss. While that’s an improvement from roughly 75 percent two years ago, when COVID surges and government support heavily influenced operations, it remains a serious concern.

Rising costs continue to strain systems, particularly in labor. Contract nurses and traveling staff have increased expenses, with many earning $75 to $100 per hour (compared to $35 to $40 previously). At the same time, supply and material costs have risen five to seven percent annually over the past few years, largely due to ongoing supply chain disruptions and challenges sourcing raw materials from Asia.

Q: What about the patient experience? How has that been affected by these ongoing issues? 

Expenses are up, revenue is down, and hospitals with all their unfilled entry-level positions aren't getting patients through the door. A primary care appointment can take four to six months to schedule. Hospital staff regularly redirect sick patients to urgent care, creating a poor experience and costing hospitals revenue they cannot afford to lose.

When access is hard to obtain, patients get upset. Five and ten years ago, people rarely discussed physical violence by patients. Today, exhausted and frustrated patients increasingly resort to physical violence in facilities that lack the resources to accommodate them.

What Labs Must Do to Survive and Thrive

Q: So if you’re in the C-suite, what can be done to reverse these disturbing trends? 

Commercial labs such as Quest and LabCorp are striking deals with medium- and large-sized health systems almost every month. Once that process starts, it is hard to stop, because everybody is still losing money, and cash is king.

All labs, their administrators, and pathology staff need to prepare to address these threats, as no one is exempt.

What does a lab need to have?

It requires clear performance metrics, such as turnaround time, redraw rates, and STAT quality, alongside strong, data-backed financial and operational results. Equally important is a robust laboratory information system (LIS) that enables reliable data extraction, analysis, and reporting for informed decision-making.

We've been talking about Lean Six Sigma for 15 years now. Well, data and strong performance work in messaging the C-suite.

You need to demonstrate lab value to the decision-makers. It was great when you were doing COVID testing, and if you could get the results out not in two, three, or four days, but in hours, you did well. Today, labs must track patient service and patient satisfaction metrics. Laboratory staff should join patient care teams across the hospital to ensure visibility and proper representation for the lab.

Leaders must communicate strong performance. If you have a good lab, you have to let people know. It's not being immodest; it's reminding them that we were heroes during COVID and can still be heroes today.

The lab helps keep patient care costs down. Timely response, timely information, and data. All these things are important, and it all comes back to operations, performance, and data, and that's where advanced LIS systems come into play. If you're performing and communicating, you'll have a seat at the table and be visible.

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The Critical Role of Laboratory Revenue Cycle Management (lab RCM)

Q: What about laboratory revenue cycle management?

If you're an independent lab, the number one priority around informatics and data is having an advanced laboratory billing system. You have to get the money. Don't screw with the money.

You need good lab revenue cycle management. Get the bills out, get the bills paid. Do claims tracking, claims adjustment, adjudication, eligibility, and scrubbing. Do everything you can to ensure clean claims so you get paid promptly, because even a small disruption can disrupt your cash flow.

If the insurance companies start denying you, which they’ll do, just to see if you're paying attention, a good laboratory revenue cycle management system will alert you to this long before it’s too late.

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Final Thoughts: Visibility, Performance, and a Seat at the Table

Q: Any final thoughts or words of advice?

Labs have to do a lot of work because it's easy to forget about them unless they're out there every day making the play for the health system.

If you're delivering tests, keeping patients happy, keeping expenses under control, and showing value, you'll have a seat at the table.

If you don't have good data and can't demonstrate excellent operational management and patient care, the commercial labs and the C-suite will have further discussions. You may find yourself being shipped off and shipped out.

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How LigoLab Helps Labs Stay Competitive

LigoLab's all-in-one laboratory information system (LIS) and lab billing (lab RCM) platform directly addresses the challenges Mr. Schofield described: staffing pressure, reimbursement cuts, commercial lab competition, and the urgent need for performance data.

LigoLab gives lab leaders real-time visibility into operational and financial performance, automates lab billing to maximize clean claim rates, and provides the reporting tools needed to clearly and credibly demonstrate lab value to health system decision-makers.

To learn more about how LigoLab can help your lab stay competitive, act now and connect with a LigoLab product specialist today.

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