Public Health Laboratories and Health System Change . Michigan State Case Study Summary



The Michigan case study consisted of four in depth interviews coordinated with the help of Robert Martin, Dr.P.H., Director of the State Department of Community Health's Bureau of Laboratories. In addition to his own two hour session with Lewin, Dr. Martin coordinated interviews with:

Francis Downs, Dr.P.H., Managed Care Coordinator, Bureau of Laboratories

Richard Murdoch, Department of Community Health's Medical Services Agency (the state's Medicaid office)

Fran Sklapsky, Administrative Director of Laboratory Services at Sparrow Regional Hospital

The interviews focused on uncovering specifics about the practices and goals of Michigan's Bureau of Laboratories, ("Bureau") with special emphasis on its efforts to work with managed care to achieve these goals. We focused particularly on the Bureau's involvement in the process of developing an RFP for managed care organizations seeking participation in the state's Medicaid managed care program, as well as the Bureau's relationship with commercial laboratories within the state.

Laboratory History and Philosophy

Michigan's Bureau of Laboratories serves as the statewide public health laboratory. Formerly a division of the state Department of Public Health's Bureau of Infectious Disease Control, the laboratory has had its own position in the state's organization chart since a re-structuring program consolidated the Department of Public Health with the Department of Mental Health and the Medical Services Agency. The new department, called the Department of Community Health, consists of six agencies and offices involved in developing or implementing state policies on drug control, behavioral health, health legislation, public health (e.g., epidemiology and health promotion), and medical services (e.g., Medicaid issues). The Bureau falls under the control of the Community Public Health Agency, alongside the Division of Immunization, the Division of HIV/AIDS/STD, and the Bureau of Epidemiology.

Historically, the Bureau of Laboratories has focused on supporting the state's public health infrastructure by conducting laboratory tests with significance to public health. Consistent with this objective, the Bureau provides a number of esoteric and reference testing functions, including molecular epidemiology, parasitology, and identification of unusual pathogens. Additionally, the Bureau conducts selected patient tests, including testing for chlamydia, gonorrhea, salmonella (testing and serotyping), shigella (testing and serotyping), TB (testing and serotyping), Lyme disease, rabies, genetic disorders (newborn screenings), and blood lead. The Bureau has intentionally avoided routine patient testing functions such as pap smears, lipid screenings, routine cultures, and blood chemistries, focusing instead on tests significant on a population level (e.g., serological typing of pathogens) or tests that are best centralized for purposes of cost and quality (e.g., newborn genetic screening, and HIV viral load testing). In addition to testing functions, the Bureau conducts applied research in areas of public health related testing, and develops some laboratory products (e.g., rabies reagents).

Since its testing is of primary significance to public health, the Bureau avoids direct competition with hospital laboratories and commercial laboratories for routine patient tests in support of direct delivery of primary health care. In this way, the Bureau seeks to establish cooperative relationships with commercial laboratories and ensure proper reporting of disease and submission of isolates in support of public health goals. By avoiding the provision of routine patient tests, the Bureau avoids the possibility of providers and managed care organizations "dumping" specimens on Bureau labs in an effort to reduce the cost of care. The Bureau said that because of the limited scope of service provided, "dumping" is not a large problem. It is, however, cognizant of the need to encourage hospitals to continue to update laboratory services and limit the incentives to abuse the Bureau's services. The Bureau plans to address this need by participating in coordination efforts between hospitals and hospital-based laboratories within the state.

The Bureau reports that it has no interest in serving as a sub-contractor to MCOs to provide services to enrollees. Instead, it seeks to encourage MCOs to cooperate with state public health initiatives. It has participated in efforts to require MCOs to mandate that their physicians and laboratory service providers report diseases and submit isolates in support of public health goals. These efforts have been exemplified in the Bureau's document entitled "Public Health Quality Assurance for Managed Care Organizations," its participation in the RFP process for managed care organizations seeking to provide benefits to the state's Medicaid population, and its creation of a special position entitled "Managed Care Coordinator" for the purpose of collaboration and quality assurance.

In pursuit of its goal of supporting public health, the Bureau dedicates important personnel to advocacy and policy issues. Each division within the Bureau is led by a division chief who deals primarily with policy issues and reports to the director. These division chiefs, along with the managed care coordinator and the director, assure substantial policy expertise within the Bureau, consistent lobbying for state funding, and input in policy decisions within the Department of Community Health.

Laboratory Situation, Funding, and Influence

The Bureau occupies a relatively favorable position, garnering influence and resources from the state while cultivating collaborative relationships with local health departments and commercial laboratory service providers in the area. This is due to such factors as the Bureau's commitment to policy and advocacy, the Bureau's reputation as a center of excellence for both research and testing, and the scarcity of managed care penetration in Michigan.

The Bureau has enjoyed a stable base of funding from the state's general funds and two states "sin taxes" (Healthy Michigan Fund and Healthy Michigan Initiative) during the past two to three years. Dr. Martin, who has served in a number of capacities within the public health system (including service as director of the former Bureau of Infectious Disease), has been successful in working with the state's funding sources to secure a consistent level of support. In addition to direct allocations and revenues from special taxes, the Bureau has benefited from the state's willingness to allow for leasing arrangements in the acquisition of laboratory equipment. The accessibility of state funds for the Bureau of Laboratories may be related in part to the laboratory's historic position as a revenue center for the state. While under the former Bureau of Infectious Diseases, the laboratory developed and sold vaccines. Currently, the division that develops vaccines is disassociating from the Department of Community Health and privatizing, but the Bureau continues to develop biological products, including reagents for specialized testing (e.g., rabies).

The Bureau's reputation as a center for excellence for research and testing for public health concerns has allowed it to obtain CDC funding for specialized functions, such as the provision of maternal HIV seroprevalence testing, Lyme disease testing, and reference testing for tuberculosis speciation.

Part of the state's success in avoiding direct competition and hostility from commercial laboratories may be related to the relatively minimal effect managed care has had on the clinical laboratory services market in Michigan. Our interview with Fran Sklapsky of Sparrow Hospital revealed that, relative to other markets, contracts between MCOs and commercial laboratories in the state tend to be favorable for the commercial laboratories. Because of their relatively strong position, hospital-based laboratories such as Sparrow's are willing to engage in collaborative efforts with the Bureau and other laboratories in the state.

Managed Care Activities

The Bureau created the position of Managed Care Coordinator in 1993 when it seemed that increased managed care penetration would impact on disease reporting practices in the state. Since that time, the Managed Care Coordinator has taken an active role in advocating the need for the Department of Community Health to hold MCOs accountable for participating in public health initiatives involving disease reporting and submission of isolates for reference testing.

One result of these efforts is a report, drafted in coordination with the other agencies within the Community Public Health Agency, entitled "Public Health Quality Assurance for Managed Care Organizations," which outlines MCO responsibility in mandating that physicians and laboratories report disease and submit isolates to the Bureau. The report encourages MCOs to mandate the following of their laboratory service providers and physicians:

submission to the Bureau of isolates for all specimens testing positive for tuberculosis or other pathogens that could potentially be involved in an outbreak

submission of specimens from all newborn enrollees for genetic error screening to the Bureau for standardized testing

compliance with state and federal (e.g., CDC and ASTPHLD) guidelines when testing for Lyme disease, tuberculosis, syphilis, chlamydia, gonorrhea, and HIV

reporting of positive tests results for tuberculosis, HIV, STDs, and other communicable diseases to the local public health agencies

Largely through its own proactive stance, the Bureau played a significant role in drafting the state's latest RFP for managed care organizations seeking to provide services to the managed care population. Richard Murdoch of the Medical Services Agency (the state Medicaid office) described a process wherein all public health agencies were invited to contribute to the development of the RFP; he stated that some agencies took a more active role than others. The Bureau continuously asserted itself in the process, ensuring that issues relevant to disease reporting and specimen/isolate submission were included in the RFP. The part of the RFP most directly contingent on the Bureau's involvement is a table describing the various duties of the health plan, the local health department, and the Michigan Department of Community Health. The table provides guidance on initial testing, reference testing, confirmatory testing, and disease reporting. The table includes the following responsibilities for MCO laboratories and physicians:

provide for specimen isolation and transportation to the Bureau in support of outbreaks of Salmonella, Shigella, E. coli, and other pathogens

submit isolates of TB to the Bureau for reference testing

submit all vaccine-preventable pathogens to the Bureau for confirmatory testing

submit blood specimens for all children to Bureau for lead testing

report all occurrences of TB and vaccine preventable illnesses to the local health department

MCOs also need to initiate and sign a memorandum of agreement with local health departments specifying that they will collaborate with key department initiatives.

While the RFP reflects the Bureau's input, Dr. Francis Downs, the Bureau's managed care coordinator, asserted there is still room for improvement in their involvement in the process of establishing reference testing and disease reporting requirements for MCOs. Dr. Downs expressed an interest in being able to talk directly to bidding MCOs, and to look at actual bids in order to evaluate the MCO's ability and willingness to comply with quality assurance and reporting standards; the Bureau performs neither of these activities in the current process. It is also unclear what role the Bureau will play in assuring compliance with disease reporting and specimen submission requirements, as well as assuring quality in laboratory services provided to the Medicaid population under managed care.

Other Relevant Findings


Consolidation of certain reference testing and surveillance services across a multi-state region was among the topics discussed. Dr. Martin identified a need for state lab directors to take a more active role in coordinating functions to maximize efficiency and quality of testing and surveillance. Dr. Martin cited molecular epidemiology, newborn genetic screenings, and parasitology as examples of specialized, esoteric testing functions best conducted across multiple states. He also identified the need for public health laboratory directors to take more responsibility in initiating regionalization, instead of relying exclusively on CDC leadership to set up and fund these activities. The Bureau currently serves as a CDC Sentinel Site for regional TB serotyping and surveillance.

User Fees

The Bureau performs most of its functions for free and is prohibited by state law from charging fees for services resulting in a net profit for the laboratory. Fees are used to subsidize patient-specific, clinically relevant tests that are standardized through the Bureau. For example, the Bureau charges $26 dollars per patient for conducting newborn screenings, which includes the cost of the card and the vial necessary for specimen collection and transportation, the cost of performing the tests, and follow-up and medical management; this is a substantial savings from the private sector, where the cost of PKU testing alone is nearly $10. Aside from improving the testing quality through standardization, centralizing newborn screenings through the Bureau also makes the provision more feasible. HIV viral load testing is another example of the Bureau's function as a centralized location for clinical testing. The Bureau performs viral load testing for around $75 per test, whereas the private sector charges between $150 and $300 for the same test.

Hospital Laboratory Consolidation

Consolidation of laboratory functions in the hospital laboratory sector is also under discussion in the Lansing market. The movement towards consolidating laboratory functions across hospitals and provider networks arose from the desire to co-contract for large employer-based health plan contracts. The Great Lakes Network is a potential arrangement where a group of hospital laboratories in the market would consolidate and coordinate testing functions among themselves, and the Bureau would serve as a regional MCO for a six county area. The Bureau would provide the esoteric, reference testing services it already performs (e.g., TB testing, TB serotyping, and HIV viral load testing) while also providing direction on how best tocoordinate testing and disease reporting within the network. Additionally, a representative of the coalition would potentially sit on the Bureau's advisory committee.

The Laboratory Services Market

Interviews revealed that the private sector laboratory market in Michigan, particularly in Lansing, is favorable to laboratory service providers relative to other regional markets. Competitive capitation rates for providing laboratory services for MCO beneficiaries hover around 80 cents per member per month, which is roughly twice the rate of other, more competitive markets. The interview with Ms. Sklapsky revealed that Sparrow Hospital Laboratory sub-contracts for reference and esoteric services with Mayo Medical Laboratories instead of less expensive laboratory providers such as Quest Diagnostics. Ms. Sklapsky cited Mayo's commitment to providing customers with consulting services, as well as philosophical reasons, for opting for the higher priced sub-contractor.


The Michigan Bureau of Laboratories is a useful model for other state labs seeking to shape managed care activities to be responsive to public health needs. By narrowly defining its testing functions to encompass only tests of public health importance or specialized tests best centralized for purposes of cost and quality, the Bureau has enhanced its ability to establish collaborative relationships with private sector laboratories as well as other state and local public health agencies. The Bureau has used this ability to influence state policy outlining the responsibilities of MCOs with regard to laboratory testing and disease reporting. Additionally, it has cultivated relationships with private sector laboratories to ensure that the Bureau can continue to serve its traditional public health functions even as hospital laboratory consolidation and other health system changes proceed. Aside from strategically avoiding competition with the private sector, the Bureau's success can be attributed to its commitment to advocacy on laboratory issues and its experienced leadership, which facilitates steady access to state funding and opportunities to participate in high level decision-making within the Department of Community Health.