Sale of respected laboratory information system company may be an early sign that investors believe clinical laboratories and pathology groups are ready to upgrade their LISs and add needed capabilities
In the past 10 years there has been little disruption to the
laboratory
information systems (LIS) market that clinical
laboratories and anatomic
pathology groups use. Yet, over that same 10-year period, almost every
hospital and physician group practice adopted an electronic
health system (EHR), primarily because of federal financial incentives that
encouraged such adoption.
For medical
laboratories and pathology groups, this widespread—nearly
universal—adoption of EHRs by the nation’s hospitals and physicians was
disruptive. Labs were required to expend resources building digital interfaces
to the EHRs of their parent hospitals and client physicians to support
electronic test ordering and test reporting.
However, because that wave of EHR adoption is now over,
clinical labs and pathology groups have an opportunity to assess the current
state of the health
information technology (HIT) that they use daily, primarily in the form of
the classic laboratory information system that handles nearly all the primary
functions needed to support testing and other operational needs.
This opportunity to help medical laboratories enhance and/or
upgrade the capabilities of their laboratory information systems may be one
motivation behind the recent sale of a well-known LIS company.
Private Equity Firm Buys Orchard Software
On Oct. 7, 2019, Orchard Software Corporation of Carmel,
Ind., announced its acquisition by Franciscan Partners, a private equity firm
based in San Francisco.
Orchard Software, founded in 1993, has grown steadily over
the past 20 years, primarily by serving physician office laboratories,
community hospital labs, and independent clinical laboratory companies. With each
stage of growth, Orchard added functionality to its LIS and related software
offerings and moved up-market to serve larger hospitals and larger labs.
The purchase price and the terms of the sale were not
announced. Orchard’s Founder, President and CEO, Rob Bush, will retire. The new
CEO is Billie Whitehurst, who came to Orchard from Netsmart Technologies, where she was Senior
Vice President. The remainder of Orchard’s management team will be kept in
place.
“Francisco Partners will provide capital and expertise to enable Orchard to grow at a faster pace and continue to develop its newer web-based products in an industry that has lagged behind in adoption of cloud-based software,” says Rob Bush (above), Orchard Software’s Founder and exiting CEO, in a press release. (Photo copyright: Twitter.)
Is the LIS Market Heating Up?
What makes the purchase of Orchard by a multi-billion-dollar
private equity company noteworthy is the fact that it is the first significant
transaction in the LIS sector probably since the mid-2000s, which saw several
significant mergers and acquisitions.
Other acquisitions or investments involving LIS companies
need to happen before it would be appropriate to say that investor interest in
the LIS sector is heating up. However, it is accurate to say that many
professional investors will be watching to see whether Franciscan Partners
succeeds with its investment in Orchard Software. If Orchard’s revenue and
operating profits increase substantially in the next few years, that may
encourage other investors to look for LIS companies and products that they can
buy.
If this were to happen, that would be a positive development
for both clinical laboratories and anatomic pathology groups, because these
investors would have a motive to add new functions and capabilities to their
LIS products. It would also wake up a sector of lab information technology that
has been relatively quiet for several years.
New value-based healthcare payment models could have far-reaching effects on medical laboratories and the testing they provide
Hospitals, physicians, and medical laboratories recognize the transition from “volume to value” that’s underway in the American healthcare system. Fee-for-service payments for clinical services (regardless of whether they are needed or effective) will soon cease and providers will be increasingly paid on how much value they deliver to patient care. This will fundamentally alter the complete care continuum, from hospital stays to pathology consults to clinical laboratory testing services.
One such change involves value-based drug contracts with pharmaceutical manufacturers. According to an article in The BostonGlobe, in an effort to reduce the ever-increasing cost of prescription drugs while still “giving patients access to costly treatments,” Harvard Pilgrim Health Care (Harvard Pilgrim)—one of Massachusetts’ largest health insurers with more than 1.3 million members—is negotiating value-based agreements with major pharmaceutical manufacturers. How much money Harvard Pilgrim pays for certain drugs will depend on how much the healthcare organization contributes to curing/improving their patients’ conditions.
Value-Based Pharmaceutical Agreements
Harvard Pilgrim first made news for their value-based drug contracts in 2015 when they contracted with three companies:
Harvard Pilgrim currently has 12 value-based pricing contracts with pharmaceutical companies. According to a news release, the contracts enable Harvard Pilgrim to monitor “specific criteria in patients following discharge” for the effectiveness of medication. “If the medicines fail to meet the agreed upon outcomes criteria in real patients, Harvard Pilgrim will be charged a lower amount,” the news release states.
The graph above is from an analysis by Avalere Health, a strategic advisory company in Washington, DC, that develops solutions for healthcare. It shows how, according to Avalere, “a majority of health plans are interested in forming outcomes-based contracts with biopharmaceutical manufacturers that tie product reimbursement to patient outcomes.” (Image copyright: Avalere Health.)
These contracts link a drug’s cost to its overall effectiveness in ways that make companies accountable for results in terms of real-world patient outcomes, rather than controlled trial results. Michael Sherman, MD, Harvard Pilgrim’s Chief Medical Officer and SVP of Health Services, stated in the news release that they put drug companies “at risk for delivering” on their promises.
Can Medical Laboratories Participate in Value-based Models?
The rise of value-based healthcare models affects more than just pharmaceutical companies; medical laboratories nationwide are considering how value-based systems might affect their work and mission as well. In an Orchard Software whitepaper titled, “The Value of the Laboratory in the New Healthcare Model,” Daniel J. Scully, CEO of New York’s Buffalo Medical Group, stated that the “50-million dollar” question for laboratories is “does the laboratory offer enough value in service and speed of results” for the new value-based healthcare models?
Clinical laboratories play such a vital role in healthcare quality—providing accurate diagnosing and crucial monitoring, as well as data collection and risk assessment—they may find themselves affected by value-based healthcare changes. Because of the high costs of equipment and testing, laboratories may also find themselves scrambling to eliminate costs and improve on efficiency, by monitoring resources and testing outcomes in connection to patient needs.
Clinical pathologists may also find themselves more frequently called upon to assist in guiding clinicians to more “effectively utilize lab services to achieve better care,” according to the Orchard Software white paper.
Clinical Associations Say Medical Laboratories Crucial to Success of Value-based Healthcare
An ASCP white paper states that clinical pathology data has become increasingly important as “clinical laboratory data are now used to measure provider performance, both individual and organizational, as well as to inform value-based purchasing that optimizes healthcare resources and decreases costs.”
In a position statement, the AACC noted that laboratory testing was crucial to this new model, and that “laboratory professionals are uniquely positioned” to help increase value within healthcare by helping “clinicians identify the most effective testing protocol and interpret the results accurately. Clinical laboratorians can further reduce healthcare costs by developing new, more precise tests to personalize patient care and creating computerized clinical decision support interventions to aid test selection.” Some types of testing, however, particularly expensive molecular and genetic testing, may end up a target of similar value-based agreements between the labs that perform these tests and the provider organizations that use the tests.
Much of the focus on value-based healthcare is currently on value-based pharmaceutical contracts, such as those from Harvard Pilgrim. Nevertheless, clinical laboratories will likely play vital roles in providing care, guiding testing, and evaluating care outcomes under these new payment models. They also could find themselves part of a larger debate concerning overuse of testing or data collection.
Changes to healthcare from pay-for-service to pay-for-value will undoubtedly have far-reaching effects as healthcare fields attempt to cut costs while providing better services. Every clinical laboratory must be proactive in finding its place in these new models.
The Clinical Laboratory Management Association is encouraging medical laboratories to submit abstracts about their programs to deliver more value to patients and physicians through the use of clinical pathology laboratory tests
Now, more than ever, the house of laboratory medicine needs to be publishing clinic studies and evidence that the money spent on appropriate medical laboratory testing is returned tenfold from improved patient outcomes and substantial reductions in the cost per episode of care that can be associated with the use of those lab tests.
It is this credible evidence that can help shape healthcare policy in positive ways, while encouraging government and private payers to recognize the true value of clinical laboratory tests and thus establish adequate reimbursement to insure the continuation of high-quality lab testing services in the United States. (more…)
Innovative medical laboratories shared their successes in improving lab test utilization that included physician engagement and close monitoring of key metrics
DATELINE: ORLANDO, FLORIDA—One big challenge facing medical laboratories and anatomic pathology groups in the United States today is the need to transition from a transaction-based business model (increasing specimen volume leads to increasing revenue) to a value-based business model (helping providers improve their use of clinical laboratory tests in ways that measurably improve patient outcomes while controlling or reducing the cost of care.)
Two trends reinforce the need for clinical laboratories to craft strategies to develop new ways to add value to lab testing services.
One trend is the move by Medicare and private health insurers to shift reimbursement for providers away from fee-for-service and toward bundled reimbursement and budgeted reimbursement.
The second trend is the emergence of integrated clinical care organizations. The most visible of these are accountable care organizations (ACO) and patient-centered medical homes (PCMH). What these care delivery organizations have in common is that they require hospitals, physicians, clinical laboratories, imaging centers, nursing homes and other types of providers to work together more effectively so that patients receive healthcare in a seamless fashion because there is a continuum: primary care to specialty care to acute care and back again. (more…)
To help medical laboratories understand how to deliver patient-centric lab testing services, the Clinical Laboratory Management Association (CLMA) has launched its “Increasing Clinical Effectiveness” (ICE) program. CLMA President Paul Epner (pictured above) will be conducting a free webinar about the ICE program on August 12 and the details of ICE and the webinar can be found at the CLMA website. (Photo copyright CLMA.)
Increasing Clinical Effectiveness’ is the name of new initiative that CLMA is making available to all medical laboratories and anatomic pathology groups
There is now little disagreement that the U.S. healthcare system is in the midst of a transformation away from reactive and acute care and to proactive, integrated clinical care. This is why clinical laboratories and anatomic pathology groups across the nation now find themselves at a critical crossroads.
This trend presents medical laboratory managers, pathologists, and clinical chemists who lead the nation’s labs with an important question: When is it time to shift the lab’s focus away from its traditional “lab-centric” emphasis and position the lab as a “patient-centric” clinical service? (more…)
