Speakers during the opening session discussed the major changes happening in healthcare today, along with insights about the new ‘Clinical Lab 2.0’ concept
DATELINE—NEW ORLEANS: This was a week of revelations and strategic insight for more than 900 clinical laboratory administrators, pathologists, and medical laboratory suppliers now attending the 22nd annual Executive War College on Lab and Pathology Management.
From the opening keynote presentations to the lab management case studies that closed out day two of this important conference, attendees had the opportunity to learn about the strategic drivers in the American healthcare system, along with case studies by innovative clinical labs that are succeeding in reducing costs, boosting quality, and contributing to improved patient outcomes.
The opening keynote presentation at this year’s Executive War College was, “Disruptive Forces Reshaping the Healthcare Industry.” It was an incisive perspective delivered by Shubham Singhal, Senior Partner and Global Leader of the McKinsey and Company Healthcare Systems and Services Practice.
Singhal discussed changes in the healthcare system using what he described as “five specific shifts in the landscape.” They are:
1. Atomization of the network: How far will it go?
2. Productivity: The search for sustainable growth
3. Digital health: How disruptive?
4. Rise of retail: At the tipping point?
5. Pharma spending growth: Making the most of our dollars
The two shifts that will have the greatest influence on the nation’s clinical laboratories and anatomic pathology groups are:
1. Atomization of Networks; and
2. Productivity as it contributes to Sustainable Growth.
Preparing for Shifts in Network Development That Will Affect Medical Laboratories
Being an in-network provider is essential if medical laboratories and pathology groups are to have access to patients. Thus, Singhal’s perspectives on how networks are changing and transforming are highly relevant when lab administrators are developing their managed care and network contracting strategies.
Shubham Singhal (above), Senior Partner and Global Leader of the McKinsey and Company Healthcare Systems and Services Practice, at the 2017 Executive War College on Lab and Pathology Management. He discussed shifts taking place in healthcare networks that impact clinical laboratories, and the importance of developing business strategies that capitalize on the changes. (Photo copyright: The Dark Report.)
In his observations about the changes happening to networks, Singhal identified three stages. “Traditionally—and this is true until recent years—broad networks were common, and there was very little innovation in how payers assembled and worked with their networks,” stated Singhal. “From this first stage, healthcare is now entering a second stage in network development.
“This second stage can be described as developing tiered, narrow, and ultra-narrow networks,” he continued. “These networks are designed in ways to encourage increased efficiency, both in managing costs and contributing to improvements in patient care.
“A third stage is likely to follow,” observed Singhal. “It is feasible that healthcare will see the emergence of ‘virtual networks.’ These will be customized and tailored with the right mix of providers to serve the unique needs of groups of beneficiaries who have similar health conditions. Ongoing innovations will be one driver in the creation of virtual networks.”
Narrow Networks Reduce Healthcare Costs
As evidence of the growth in the number of narrow networks, he showed how the number of narrow networks had increased from 48% of all networks in 2014 to 53% of all networks in 2017, just 36 months later. As a trend, narrow networks are delivering one benefit to the nation’s health insurers: narrow networks are reducing healthcare costs.
“The premium difference between health plans with narrow networks and health plans with broad networks is significant and widening,” noted Singhal. “For example, in 2014, the premiums for plans with narrow networks averaged between 11% and 17% cheaper. By 2017, premiums of the plans with narrow networks were, on average, anywhere from 18% to 36% cheaper.”
Consumer Preference Drives Network Growth
Two market factors are reinforcing the growth of narrow networks:
1. First, consumers prefer health plans with lower premiums over higher-priced health plans with access to more providers. Singhal provided study data showing consumers will more often choose health plans with narrow networks using “lower price” or “best value” (22% and 19% respectively) than they will plans that offer increased “access to preferred providers” (19%).
2. Similarly, employers are warming up to the concept of narrow networks that come with the benefit of lower health plan premiums. Singhal provided data indicating that 56% of employers are considering narrow networks as a way of reducing medical costs.
Developing Clinical Laboratory Strategies to Gain Network Access
Collectively, the information provided by Singhal demonstrates that clinical laboratory managers and pathologists should accept the fact that narrow networks are here to stay. With that assumption, it is essential that every lab organization develop a strategy for gaining network access. Currently, payers are seeking lab providers with the lowest price to participate in their narrow networks. But that will not be a financially-viable strategy over the long term. Instead of relying on lower prices to gain access to narrow networks, labs will need to develop and deliver lab testing services that directly contribute more value in the form of improved patient outcomes and reducing the cost per episode of care.
The other point Singhal discussed was the need for all sectors of the healthcare system to become more productive. To make this point, he showed the Executive War College attendees how, in the United States during the years 1999 through 2014, the compound annual growth rate (CAGR) was 3.9% and 1.1% respectively for the manufacturing and services sectors. By contrast, the US healthcare system only managed to achieve a 0.4% CAGR.
“To improve productivity in healthcare two things must happen,” noted Singhal. “First, there needs to be business model changes in health. Second, there needs to be ‘smart regulations’ that encourage innovation and faster implementation of models of care delivery.
As examples of new business models that have been successful in healthcare, Singhal discussed:
• Urgent care clinics; and
Typically, care delivered in these sittings is less expensive, offers shorter time to access a caregiver, and is more accessible to consumers.
Preparing Medical Laboratories for Significant Changes in Healthcare
What pathologists and clinical laboratory managers should take away from Singhal’s call for new business models in healthcare applies to the medical laboratory profession. The classic business model for labs—more volume means more profit when payment is by fee-for-service—becomes increasingly irrelevant as new, value-based forms of payment become more common.
In fact, following Singhal’s speech, other presentations at the Executive War College featured speakers who are actively restructuring their clinical labs, and refocusing their service mix in new ways, so that they can begin to transition away from a dependence on fee-for-service and better meet the needs of payers who want value from medical lab testing services.
As the first keynote speaker, Singhal provided a comprehensive and perceptive overview of healthcare, both in its current state and in its likely evolution going forward. He gave ample warning to the medical laboratory professionals in attendance as to how they should prepare for the significant changes that are now unfolding in healthcare.
—Michael McBride
Related Information:
Live Audio Recordings of Executive War College 2017
Slone Partners Pledges its Support as Corporate Benefactor for the 2017 Executive War College
Executive War College and DxMA Global Summit Co-Locate in 2017
