Public Health Laboratories and Health System Change: Executive Summary. Competition from large commercial labs


The laboratory industry is rapidly consolidating, with the historical dominance of hospital-based labs giving way to increasing market power of large, national reference labs. These labs take advantage of scale, quick turn-around, powerful IT systems, and full service packages to garner exclusive contracts from MCOs and their associated providers. In addition, private labs are starting to tackle traditional PHL testing areas that previously lacked commercial viability (e.g., environmental testing). As these trends develop, PHLs not only lose testing opportunities, but also contacts with traditional allies in the private hospital labs. Indeed, the impact of managed care on PHLs may be more directly evident as restructuring occurs in the lab industry in response to larger health market forces.

However, there is little credible evidence to support many of these perceptions. As we explored the evidence that was available, we found that in most cases, the impact appears to be modest or even minimal. There is currently no mechanism through which most effects on PHL function can be effectively quantified. While the novelty of this topic suggests to PHL directors that we have only observed initial effects, it is possible that the concerns expressed by PHL directors are overstated – the result of understandable anxiety created by the uncertain and rapidly changing landscape of the public health infrastructure in general, and the laboratory environment in particular. For example, while there are data showing sample decreases for selected tests, this may be due in part to reductions in unnecessary testing. Furthermore, despite constraints in many PHL budgets, there are only limited empiric indications that PHLs are having difficulty achieving their core objectives. A number of lab directors also reported reduced PHL activity in disease outbreak investigation and epidemiologic follow-up; again, concrete quantification of these reductions and their impact is lacking.

A substantial minority of PHL directors saw significant opportunity for the laboratories to assume a more proactive role in helping to shape the laboratory delivery system. Because public and private laboratories have such different objectives, there are many areas in which collaboration may be beneficial to efficient operation of laboratory services and promotion of public health. Overall, we believe that there are at least four models for interaction in the laboratory environment that are worthy of consideration:

Provide services as a subcontractor to MCOs

The array of state PHLs have both core areas of expertise (e.g., rabies and blood lead testing) and close relationships with safety net providers that result in test volume (e.g., clinical testing for indigent populations served by local health departments). By obtaining subcontracts to perform testing in these areas for these populations, PHLs may be able to preserve and fortify their key strengths. However, to date there are only a few cases of state PHLs serving as subcontractors to MCOs, and these instances have shown very limited success as sources of revenues or testing volume for PHLs. Most of the PHL directors interviewed do not believe that building tangible demand from managed care over the long term will be a viable model.

Establish a testing network in collaboration with private sector vendors

Another approach that PHLs might try is to develop joint contracting arrangements with other laboratory services vendors to create full service and full population coverage that is attractive to MCO clients. By formalizing its position in a local or regional network, leveraging its core functions, and partnering with other players to create "soup-to-nuts" laboratory services, a PHL can preserve and possibly grow its value proposition in the market. Although the currently existing applications of this model to date do not appear to be living up to their initial promise, most believe that the fundamental concept is logical and could prove successful with more effective implementation.

Actively manage the activities of MCOs through contract bidding

One option for future PHL positioning is to use state procurement vehicles to delineate different roles and responsibilities for key laboratory stakeholders. Michigan is using the Medicaid contracting process to define a constructive relationship between PHLs and MCOs that contract with the state. The approach entails identifying policy priorities (e.g., disease surveillance and reporting), specifying core roles for each segment of the public health department, and stipulating areas of, and processes for, interaction between the MCOs and the various public health entities. This is an activist role for the state, but one that appears to be palatable to the private sector, provided that the state is clear and reasonable about requirements.

Shape the delivery system through dialogue and partnership

We uncovered some innovative models to stimulate dialogue and collaboration among laboratory stakeholders, often originating with and guided by forward-looking PHL directors. These models hold promise for ensuring private sector awareness and understanding of key public sector functions in laboratory testing. The most advanced example of this approach is Washington State, which has established a Clinical Lab Advisory Council (CLAC) to shape the laboratory delivery system and open communication with the state. Its representation includes both public and private laboratory stakeholders throughout the state, and it has advisory groups that develop recommendations on a full range of laboratory issues, from integration to practice guidelines to licensure. The improved dialogue and interactions may facilitate PHLs' efforts to preserve vital elements of the PHL infrastructure.