The transformation of hospital laboratories: why regionalization, consolidation, and reengineering will lead laboratories into the 21st century.

In 1990 we predicted that the growth of prospective payment and fixed reimbursement plans would force hospitals to transform the hospital laboratory into a cost center. The need to create alternative modes of care would further lead hospitals to create regional laboratory consortia. This would include the "commercialization" of the laboratory so that it could become a regional resource and expand outreach activities. This report updates events since 1990. Indeed, the arrival of prospective payment and fixed reimbursement has caused a radical upheaval among health care providers in every part of the country. The transformation was more rapid than we expected, particularly in two areas. First, the commercial laboratory industry devoured itself. By 1995 the consolidation movement ended and three huge national laboratory chains now provide laboratory services throughout the United States. Second, not only did prospective payment arrive in the form of capitated contracts for laboratory services, but it arrived with remarkable speed. It was coupled with the absolute decline for three years in Medicare reimbursement for lab services. Such changes to reimbursement levels have seriously undercut the financial viability of the laboratory industry. Hospital-based laboratories are responding to these pressures with three strategies: reengineering, consolidation, and networking. Six identifiable trends will drive the transformation of laboratories into regional provider consortia between now and the year 2000. We predict that the speed of this transformation will be even faster than that experienced by the consolidation of commercial laboratories. This will occur because hospital labs are already a component within integrated delivery systems. As these systems transform and evolve, the laboratories must transform in concert. Our experience indicates that laboratory consolidation delivers economic benefits that are considerably greater than either networking or reengineering. Consolidation, accompanied by new testing technologies and tighter data links, will lead the transformation of today's hospital laboratory into a "virtual" laboratory. Such laboratories will be self-sufficient, capable of performing all but esoteric tests in-house. It will be a "laboratory without walls," emphasizing testing performed at the point of care, be it bedside, physician's office, clinic, nursing home, ambulance, workplace, or patients' homes. A combination of economic and organizational pressures will cause hospital-based laboratories to adopt some form of regionalization within the next two to three years.