Clinical

Laboratory
Management
SECOND EDITION
Clinical
Laboratory
Management
SECOND EDITION

Lynne S. Garcia, EDITOR IN CHIEF

LSG & Associates, Santa Monica, California

EDITORS:

Paul Bachner John C. H. Steele, Jr.

Department of Pathology & Laboratory Medicine, University
of Kentucky Chandler Medical Center, Lexington, Kentucky
Vickie S. Baselski
Clinical Microbiology, University of Tennessee Health
Science Center at Memphis, Memphis, Tennessee
Clinical Pathology Laboratories, Department of Pathology,
Medical College of Georgia, Georgia Regents University,
Augusta, Georgia
Alice S. Weissfeld
Microbiology Specialists Inc., Houston, Texas

Michael R. Lewis David S. Wilkinson

Department of Pathology, Fletcher Allen Health Care, Department of Pathology, VCU School of Medicine,
Burlington, Vermont Richmond, Virginia

Andrea J. Linscott Donna M. Wolk

Department of Pathology, Ochsner Medical Center, Clinical Microbiology, Department of Laboratory Medicine,
New Orleans, Louisiana Geisinger Health System, Danville, Pennsylvania, and Wilkes
University, Wilkes-Barre, Pennsylvania
Dale A. Schwab
Nichols Institute, Quest Diagnostics, Inc., San Juan
Capistrano, California

WASHINGTON, DC
 Copyright © 2014 American Society for Microbiology. ASM Press is a registered trademark
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Library of Congress Cataloging-in-Publication Data

Clinical laboratory management / Lynne S. Garcia, editor in chief, LSG & Associates, Santa Monica,
CA ; editors, Paul Bachner, Department of Pathology & Laboratory Medicine, University of
Kentucky Chandler Medical Center, Lexington, KY [and eight others]. — 2nd edition.
pages cm
Includes bibliographical references and index.
ISBN 978-1-55581-727-5 — ISBN 978-1-55581-728-2 (e-ISBN) 1. Medical laboratories—
Administration. 2. Pathological laboratories—Administration. I. Garcia, Lynne Shore, editor of
compilation. II. Bachner, Paul, editor of compilation.
[DNLM: 1. Laboratories—organization & administration. 2. Clinical Laboratory Techniques.]
R860.C56 2014
610.72’4—dc23
2013036960
doi:10.1128/9781555817282

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

Address editorial correspondence to: ASM Press, 1752 N St., N.W., Washington, DC
20036-2904, USA.

Send orders to: ASM Press, P.O. Box 605, Herndon, VA 20172, USA.

Phone: 800-546-2416; 703-661-1593. Fax: 703-661-1501.

E-mail: books@asmusa.org
Online: http://www.asmscience.org
Contents

Contributors xxiii
Preface xxvii
Acknowledgments xxviii

SECTION I
Basic Concepts and the Current Healthcare Environment 1
1 Principles of Management 3 Organizing 28
Organizational Chart • Time Management • Policies • Procedures •
Jeffrey Casterline and John R. Snyder Workflow • Staffing

Introduction 3 Directing 31
Communicating • Delegating • Motivating • Managing Change •
Leadership, Management, and Administration 4 Coaching
Leadership • Management • Administration
Controlling 35
Management Concepts 6 Setting Performance Standards • Evaluating Employee
Cultural Lag • Review of Management Thought Performance • Problem Solving • Decision Making
Decision Making 11 Summary 38
What Is Decision Making? • Types of Decisions • Individual versus KEY POINTS 38
Group Decision Making • The Problem-Solving/Decision-Making
GLOSSARY 38
Process • Risk
Management Ethics 17 REFERENCES 39
Definitions • Characteristics of High-Ethics Organizations • APPENDIXES 40
Benefits of Strong Workplace Ethics • Management Roles and
Responsibilities
Summary 19
3 Relevant Economic and Business
KEY POINTS 19 Concepts 43
GLOSSARY 19 Roxanne Mercer and Ann L. Harris
REFERENCES 20
OTHER READING 21 Introduction 43
APPENDIX 22 Overview of Laboratory Industry Trends during the Past Decade •
Forecast for the Future
Strategic Business Planning Overview 45
2 Management Functions 23 Market Assessment • Key Strategies
Laurence P. Vetter Competitive Environment 47
Clinical Laboratory Competitive Market • Business Entities,
Introduction 23 Strategic Alliances, Joint Ventures, Mergers and Acquisitions, and
Integrated Networks
Planning 24
Strategic Planning • Selecting a Planning Group • Environmental The Economic Environment 49
Analysis • SWOT Analysis • Vision and Mission Statements • Goals Four Stages of the Business Cycle • The National Economy:
and Strategies • Prioritization • Accountability • Measuring Success Fiscal and Monetary Policies • Assess Infrastructure and Develop
(Metrics) Production Strategies • Cost Accounting Principles • System-Wide

v
vi CONTENTS

Approach to Establishing a Fee Schedule • Consumer Price Index • Regulation of Workplace Safety and Human Resource
Pricing Strategies Management 85
Promotional (Marketing and Sales) Strategies 53 Occupational Safety and Health Administration • American
Market Research • Marketing Strategies • Sales Strategies • National Standards Institute • National Institute of Occupational
Advertising Strategies Safety and Health • CLSI • Centers for Disease Control
and Prevention • Food and Drug Administration • Equal
Customer-Focused Concepts and Service Employment Opportunity Commission • Department of
Strategies 59 Transportation and International Air Transport Association •
Who Is the Customer? • Understanding Customer Behavior • Key Hazard Communication Standard • Blood-Borne Pathogens •
Concepts and Recognized Customer Service Strategies • Service Ergonomics • Tuberculosis • Latex • Sharps • General Laboratory
Delivery Strategies Safety • Chemicals • Transportation of Clinical Specimens •
Summary 64 Employment Discrimination
KEY POINTS 64 Accreditation and Licensure 93
GLOSSARY 65 Brief History • Laboratory Inspection and Accreditation •
Personnel Certification and Licensure
REFERENCES 67
ADDITIONAL READING 68 Regulations Affecting Transfusion Medicine 99
APPENDIX 70 Overview of Changes in Transfusion Medicine that Have Resulted
in Increased Scrutiny • Safety • Regulatory Organizations that
Specifically Impact Transfusion Medicine • Biological Product
Deviation Reporting • The Cost of Increasing Regulatory Oversight
4 Current Challenges to Financial
Regulation of Laboratory Business Practices 109
Stability within the Diagnostic Negotiated Rule-Making Process • Corporate Compliance • Key
Laboratory 71 Elements of a Model Compliance Plan for Hospitals • The Legal
Environment
Roxanne Mercer and David S. Wilkinson
Laboratory Reimbursement and Medical
Introduction 71 Necessity 113
Medicare • Other Federally Funded Programs • National
Workforce 71 Coverage Determination and Local Medical Review Policies •
Availability of Personnel • Training Programs • On-the-Job Reimbursement Methods • Code of Medical Necessity (Reasonable
Training • Recruitment and Retention • Generational Diversity and Necessary Services) • Overview of the Reimbursement Process
Workplace 74 • Registration and Coding • Claims Processing and Submission •
Centralized versus Decentralized Operations • Local and Regional Remittance Advice • Audit and Benchmark Monitors
Integration of Laboratory Services Compliance—the Next Generation: HIPAA 124
Work Flow 76 Covered Entities • Privacy Standards: Rules Governing Protected
New Technology • Testing Site Options Health Information • Administrative Requirements • Personnel
Policies and Procedures • Patient Informed Rights • Business
Doing More with Less 78 Associates and Business Associate Agreements • Standards for
Systematic Approaches to Managing Change • Rightsizing Electronic Transactions • HIPAA Compliance and Enforcement
Shrinking Reimbursement 79 Summary 128
Gross versus Net Revenue • Medicare • Managed Care • Billing KEY POINTS 128
Regulations and Unfunded Mandates 79 GLOSSARY 128
Regulations • Unfunded Mandates REFERENCES 133
Summary 80 APPENDIXES 137
KEY POINTS 80
GLOSSARY 80
REFERENCES 81
6 The Changing Practice of
APPENDIX 83 Medicine 139
Susan D. Roseff, Denise E. Russell, and Margaret
5 The Impact of Regulatory M. Grimes
Requirements 84 Introduction 139
Susan D. Roseff, Denise E. Russell, Christina E. Overview of Major Changes 139
Anderson, and Roxanne Mercer Shift from Inpatient to Outpatient Care • Shift from Centralized
to Decentralized Testing • Shift to Primary Care: Patient-Centered
Introduction 84 Medical Home • Shortages of Qualified Staff • Quality of Care
and Error Reduction • Pay for Performance • Healthcare Reform
Brief History • Overview of the Current State of Laboratory
• Advances in Technology • Wellness and Prevention • The Aging
Regulations
Population • Recognition of Women’s Health Needs
 CONTENTS vii

The Impact of Technology 142 Reimbursement Strategies in a Managed-Care Market • Healthcare

The Electronic Medical Record • Meaningful Use/Value-
Based Purchasing • Patient Access to Information • Patient
Confidentiality • Advances in Diagnostic Testing
The Emergence of Clinical Practice Guidelines 144
The Role of Evidence-Based Medicine and Outcomes
Data • Concerns about Utilization and Quality • Clinical Practice
Guidelines and Clinical Pathways Defined • Use of Clinical Practice
Guidelines • Pros and Cons • Developing Clinical Pathways and
Guidelines
Medicolegal Issues 148
Malpractice Litigation • Patient Safety • Disclosure of Adverse
Events/CMS Never Events • CMS Serious Reportable Events •
Enterprise Risk Management • Insurance • HIPAA and Patient
Confidentiality • Contracts • Specimens • Documentation •
Research Liability
Training Physicians for Practice in the 21st
Century 153
The Educational Goal: The Complete Physician • New Paradigms
in Medical Training • Incorporating New Knowledge and Training
Techniques into the Curriculum • Training Physicians for the
Managed-Care Environment
External Forces Impacting Undergraduate and
Graduate Medical Education 156
Finding the Right Mix: How Many Physicians Do We Need? •
Current Challenges to Academic Centers
Summary 157
KEY POINTS 157
GLOSSARY 157
REFERENCES 159
APPENDIX 163
7 The Changing Healthcare
Environment 164
Ann Harris and David S. Wilkinson
Introduction 164
Changing Reimbursement Models 168
Change from Traditional Indemnity to Managed-Care
Insurance • Four Stages of Managed-Care Market Development •
Stakeholders in a Managed-Care Market
Impact of Healthcare Reform 173
Patient Protection and Affordable Care Act • Payment Reform and
Provider Reimbursement Strategies • Current Trends and Issues
with Healthcare Reform • Hospitals and Laboratories: Concerns in
Healthcare Reform
Changing Emphasis on Quality and Value 179
Health Maintenance Organization Network Management •
Patient Management • Disease Management • Healthcare Reform:
Demonstration Projects
The Educated Consumer 184
Baby Boomers and Generation Xers: The Educated and Savvy
Consumer • Consumer-Driven Healthcare • The Increasingly
Litigious Environment
Changing Technology 186
Technological Advances • Direct Consumer Access • Direct Access
Testing • Advances in Genetic Testing and Molecular Pathology •
Personalized Medicine • New Regulations to Address Changing
Technology: HIPAA • Impact of Reform on Electronic Health
Records and Meaningful Use
Consolidation in the Healthcare Industry 198
Overview: Laboratories, Hospitals, Physician Practices,
and Managed-Care Organizations • Integrated Delivery
Systems • Laboratories: Change from Revenue Centers to Cost
Centers • Internal Consolidation in Hospital Laboratories •
Regional Integrated Laboratory Networks
Strategies for Success in the 21st Century 200
Strategic Redesign • Developing System-Wide Thinking and a
Common Culture • Differentiating a Competitive Advantage •
Training Adequate, High-Quality Laboratory Professionals for
the Future Workforce • Moving from Top-Down Management
to Bottom-Up Customer Focus • Evidence-Based Medicine •
Meaningful and Relevant Information
Summary 205
KEY POINTS 206
GLOSSARY 206
REFERENCES 210
APPENDIXES 214

SECTION II
Managerial Leadership 217
8 The Foundations of The First Foundational Factor Is Integrity 221
The Definition of Integrity • Honoring Your Word • The Pitfalls in
Leadership 219 Honoring Your Word • What Is Your Word? • What Is the Current
David S. Hefner and Katharine R. Becker State of Your Word? • Trust and Its Relationship to Honoring Your
Word • Preparation for Making a Commitment or Giving Your
Word
Introduction 219
Distinguishing Management from Leadership 219 The Second Foundational Factor Is Authenticity 224
The Definition of Authentic • Knowing Yourself • How Do You
What Is “Leadership” and How Do You Become a Leader? •
Respond in Various Situations? • The Importance of Context • The
Management • Leadership
Path to Authenticity
viii CONTENTS

The Third Foundational Factor Is Commitment to Formal Channels of Communication • Informal Channels of
Something Bigger than Yourself 226 Communication
Succeeding as a Leader • What Happens Next? Types (Methods) of Communication 251
Summary 227 Oral (Face-to-Face) Communication • Telephone Communication •
Written Communication • PowerPoint Presentation • Electronic
KEY POINTS 227
Communication • Visual Communication • Body Language and
ACKNOWLEDGMENTS 229 Other Nonverbal Communication
REFERENCES 229
Barriers to Communication 255
APPENDIXES 231
Physical Barriers • Nonverbal Barriers • Verbal Barriers •
Psychological Barriers
9 Employee Needs 232 The Importance of Listening 256
Effective Listening • Ineffective Listening • Stages of Listening
John C. H. Steele, Jr.
Types of Listening 257
Introduction 232 Nonlistener • Marginal Listener • Evaluative Listener • Active
Listener
The Laboratory Workforce—Is There an Approaching
Crisis? 232 Elements of Effective Communication 257
Skills for Effective Communication • Organizational Climate •
Theories of Human Needs 233 Using Body Language • Using Positive Language
Maslow’s Hierarchy of Needs • Alternative Theories
Leadership Essentials for Improving
Meeting Employee Needs 234 Communication 259
Level 1 and 2 Needs • Level 3, 4, and 5 Needs • Higher-Level Needs The Interaction Process • Adapting Communication Styles
The Role of Generational Differences 236 Summary 260
Characteristics of the Generations • Meeting the Needs and Wants
of the Four Generations KEY POINTS 260
GLOSSARY 261
Summary 240
REFERENCES 261
KEY POINTS 240
APPENDIX 263
GLOSSARY 240
REFERENCES 240
APPENDIX 242 12 Effective Meetings 264
Mark G. Hanly
10 Motivating through Intelligent Introduction 264
Leadership 243 Things To Do before the Meeting 265
Christa Pardue Determine If There Is a Need for a Meeting • Determine What
Type of Meeting Is Needed • Develop the Agenda • Use of the
What Is Motivation? 243 Consent Agenda • Determine Whom To Invite to the Meeting •
Determine the Venue of the Meeting • Determine the Technology/
Knowledge of Self 244 Equipment Required for the Success of the Meeting
Creating the Vision • Humility • Basic Needs
Things To Do during the Meeting 268
Knowing What Others See in You 245
Factors of Motivation • The Right People Need the Right Leader • Things To Do after the Meeting 269
Actually Fix the Problems Calculating the Cost of Meetings 269
Knowing the Emotions of Leading 246 Recurrent Meetings 269
Emotional Intelligence • The Need for Purpose • Human How To Be an Effective Participant in a Meeting 269
Motivation Theory
Summary 270
Summary 248 KEY POINTS 270
KEY POINTS 248 GLOSSARY 271
GLOSSARY 248 REFERENCES 271
REFERENCES 249

13 Conflict Management 272

11 Successful Communication 250 Jean Egan
Diane C. Turnbull
Introduction 272
Introduction 250
Conflict Defined 272
Channels of Communication 251
 CONTENTS ix

What Conflict Is and Is Not 273 14 Managing Change 281

Constructive Conflict 273
Kellie Gibbs
Destructive Conflict 273
Common Causes of Conflict 273 Introduction 281
Internal and External Origins of Conflict 274 Key Concepts of Change 282
Internal Sources of Conflict • External Sources of Conflict Types of Change 282
Power Is the Underlying Issue 275 Factors Affecting Change 283
Two Basic Beliefs about Handling a Conflict 275 The Change Curve 283
Five Conflict Resolution Styles 275 Laboratory Change Roles 284
Working with Each Style To Resolve Conflict 276 How To Become an Agent of Change 285
Creating an Environment Where Conflict Is Addressed Why People Resist Change 285
and Resolved 276 Fear • Lack of Trust • Comfort • Perception of Need • Lack of
The Role of the Manager • The Role of the Staff • Creating the Knowledge/Competence • Poor Communication • Exhaustion/
Right Environment To Resolve Conflict Saturation
A Communication Model To Manage and Resolve Forms of Resistance to Change 286
Conflict 277 Steps to Managing Change 286
The GGMG Model Prepare • Implement • Monitor • Sustain • Reevaluate
A Seven-Step Plan for Resolving Conflict 277 Changes that Are Common Today 286
When Conflict Resolution Fails 278 Looking Ahead 286
Key Steps in Resolving Conflict
Paradigm Shifts in Today’s Healthcare Industry 287
What the Organization Can Do 278
Trends and Changes 287
Summary 278
Competing in the Future in the Healthcare Arena 288
KEY POINTS 279
Summary 289
GLOSSARY 279
KEY POINTS 289
REFERENCES 279
GLOSSARY 289
APPENDIX 280
REFERENCES 289
APPENDIX 291

SECTION III
Personnel Management 293
15 Employee Selection 295 Retention 304
Resignation and Termination 305
Anthony S. Kurec
Progressive Discipline 305
Introduction 295 Summary 306
Diversity in the Workplace 296 KEY POINTS 306
Criterion-Based Job Description Requirements 296 GLOSSARY 306
Job Description Review • Minimal Personnel Requirements REFERENCES 306
Search Process 299 APPENDIX 308
Search Committee • Advertising
Interview Process 300
Screening Résumés • Interview Formats • Interview Questions •
16 Performance Appraisals and
Interview “Do’s and Don’ts” Competency Assessment 309
Hiring Process 302 Kari Jones, Diane C. Halstead, and Donna L.
Orientation 302 Oblack
Documentation 304
Introduction 309
x CONTENTS

Performance Appraisals 309 Introduction 373

Definition of Performance Appraisals • Purpose of Performance Definition of a Team 374
Appraisals • Benefits of Performance Appraisals • Appraisal Distinguishing Teams from Work Groups • Types and
Types: Formal and Informal Appraisals • Responsibility for Classifications of Teams • Why Define a “Team” So Precisely?
Developing a Performance Appraisal Program • Legal Aspects
of a Performance Appraisal Program • Elements of a Meaningful Group Process and Teams 376
Formal Performance Appraisal • Competency-Based Appraisals • Guidelines for Choosing Whether To Have Teams 377
Rating Methods • Other Types of Performance Appraisals • Who Common Purpose • Interdependent Tasks • Summary • A
Should Perform the Appraisal? • Preappraisal Preparation • Cautionary Note
Steps to a Successful Performance Appraisal Interview • Benefits
of Becoming a Mentor • Salary Adjustments • Strategies To Selecting Team Members 378
Reinforce Appropriate Behaviors • Guidelines for Appraising Task-Related Training • Team-Related Training
Poor Performers • Dealing with Emotional Outbursts during Leading Teams 381
Performance Appraisals • Completed Performance Appraisal
General Ideas about Leadership: A Brief Review • Leadership in a
Documents • Improvement Plan • Web-Based Software Products
Team Environment • Team Leader Selection
and Websites
Motivating Team Performance 383
Competency Assessment 318
Goal Setting and Performance • Goal Setting and Teams •
Regulatory Foundation for Competency Assessment • Timing Evaluating Teams and Team Members • Pros and Cons of
of Competency Assessment • Methods for Assessment of Rewarding Team Members
Competency • Practices • Personnel Excellence
Virtual Teams 384
Summary 323
KEY POINTS 323 Global Teams 384
GLOSSARY 323 Summary 385
REFERENCES 324 KEY POINTS 385
APPENDIXES 327 GLOSSARY 385
REFERENCES 386
APPENDIXES 388
17 Staffing and Scheduling 362
Patti Medvescek
19 Labor Relations 392
Introduction 362 Lynne S. Garcia
Laboratory Personnel: Current Dynamics Affecting
Staffing 362 Introduction 392
Labor Shortage • Business Need • Increasing Opportunities for Labor Law 393
Medical Technologists National Labor Relations Act (Wagner Act), 1935 • Fair Labor
Personnel Requirements 363 Standards Act (Black Act), 1938 • Labor-Management Relations Act
Education • Training and Competence Assessment • Functional (Taft-Hartley Act) • Labor-Management Reporting and Disclosure
Definitions • Generalist versus Specialist Act (Landrum-Griffin Act) • 1974 Amendments to the NLRA

Laboratory Staffing 365 National Labor Relations Board 395

Staffing Requirements • Basis for Determination: Workload Description • Function • Structure • Processing of Cases •
Recording Authority To Secure Injunctive Relief from a Court • Current Issues
Related to the NLRB
Staff Scheduling 367
Union Structure 396
Key Success Factors • Metrics for Success • Alternatives • Special
Considerations • Flexible Staffing Formal Structure • Union Membership • Function of the Union
Steward
Summary 370
Unionization Process 398
KEY POINTS 379 Individual, Group, and Union Image: Reasons Why Employees Join
GLOSSARY 379 a Union • Relevance for Healthcare Employees
REFERENCES 371
Organizing Campaign 399
APPENDIX 372 Authorization Cards • The Bargaining Unit • Information
Distribution and Solicitation • Election • Certification

18 Teams, Team Process, and Team Collective Bargaining 401

Issues for Bargaining • Preparation Phase • Negotiation Phase •
Building 373 Administration of the Agreement • Management Rights Clause
James W. Bishop, K. Dow Scott, Stephanie Summary 403
Maynard-Patrick, and Lei Wang KEY POINTS 403
GLOSSARY 403
 CONTENTS xi

REFERENCES 405 Preemployment Testing • For Cause/Reasonable Suspicion •

APPENDIXES 406 Random Testing • Return to Duty
Drug Testing Protocol 411
Specimen Collection • Specimen Testing • Cutoff Concentrations •
20 Workplace Drug Testing and the Drug Confirmation • Reporting Results
Clinical Laboratory 408 Managing Clinical and Forensic Drug Testing 415
Jimmy R. Lea Summary 415
KEY POINTS 415
Introduction 408 GLOSSARY 415
Regulated and Nonregulated Testing 409 REFERENCES 416
Whom To Test 409 APPENDIXES 417

SECTION IV
Requirements for Effective Laboratory Management 419
21 Quality Management 421 ISO Background 447
Benefits of the ISO Standards 448
Ron B. Schifman, George S. Cembrowski,
Donna M. Wolk, and Joanne I. Brisbois ISO 9000 Family 448
ISO 15189 449
Introduction 421 ISO Certification Process 449
Quality Management of Preanalytical Processes 422 ISO 15189 and the CAP
Test Selection and Ordering • Quality of Specimen Collection •
Patient and Client Satisfaction • Specimen Transport, Storage, Summary 450
Receipt, and Preanalytical Processing KEY POINTS 450
Quality Management of Analytical Processes 425 REFERENCES 450
Method Selection and Evaluation • Quality Control • Quality
Control Rules • Frequency of Quality Control Analysis •
Specification of MAE • Use of Patient Data for Quality Control • 23 Effective Communication in
External Quality Control (Proficiency Testing) Laboratory Management 451
Quality Management of Postanalytical Processes 436 Elissa Passiment and Andrea J. Linscott
Turnaround Time 436
Corrected and Incomplete Reports 436 Introduction 451
Document Control 437 Delivering the Message 452
Summary 437 Communicating to Diverse Audiences 453
KEY POINTS 438 Means and Mechanics of Effective
GLOSSARY 438 Communication 453
REFERENCES 439 Spoken Word • Written Word • Intradepartmental
Communication • Interdepartmental Communication • External
APPENDIXES 444 Communication
Summary 456
22 International Organization for KEY POINTS 456
GLOSSARY 456
Standardization 447 REFERENCES 456
Anne Marsden and Amy Shahtout
Introduction 447
xii CONTENTS

24 The Laboratory Information 26 Principles of Preanalytic and

System: Making the Most of It Postanalytic Test Management 488
in the Clinical Microbiology Adarsh K. Khalsa, Michael Santa Cruz, and
Laboratory 458 Michael A. Saubolle
Joseph M. Campos Introduction 488
Preanalytic Activities 489
Introduction 458
Test Selection and Implementation • Appropriate Test Utilization •
The Microbiology Laboratory in the 21st Century 459 Specimen Acquisition, Transport, and Storage • Test Ordering
A Primer on Information System Terminology and Postanalytic Activities 498
Architecture 460 The Report • Storage and Retention • Assessment of Test Results on
A Primer on the LIS Patient Outcomes
LIS Interfaces 461 Summary 502
Admission/Discharge/Transfer (ADT) Interface • Order-Entry KEY POINTS 502
Interface • Results-Entry Interface • Instrument Interface • Billing
GLOSSARY 503
Interface • Reference Laboratory Interface • Peripheral Hardware
REFERENCES 503
Laboratory Informatics 463
Laboratory Data Repository • Data-Mining Tools • Connectivity
Miscellaneous Applications 465 27 Selection and Implementation
Preparation of a Periodic Antibiogram • Electronic Surveillance
for Clusters of Hospital-Associated Infections • Unique Device
of New Equipment and
Identifiers Procedures 506
Summary 465 Paula Revell and Lakshmi Chandramohan
KEY POINTS 467
GLOSSARY 467 Introduction 506
REFERENCES 470 Defining the Laboratory’s Requirements 507
Technical/Performance Considerations 508
Physical/Technology Requirements 509
25 Management of Point-of-Care
Human Resources 510
Testing 471 Financial 510
Glen L. Hortin and Christopher D. Doern Confidentiality and Conflict of Interest

Introduction 471 Information Review 511

Organizational Challenges 472 Implementation and Product Placement 511
Political Challenges • Setting Goals for POCT Management • Verification and Validation 512
Developing Management Structures for POCT • Laboratory Verification • Validation
Licensure and Accreditation
Personnel Competency Assessment and Training 512
Operational Challenges 474 Proficiency Testing 512
Determining the Scope of POCT Services • Weighing Alternatives
to POCT • Analyzing Costs and Benefits • Assessing the Impact Summary 513
of POCT Services • Quality Assurance Challenges • Information KEY POINTS 513
Systems and Billing GLOSSARY 513
POCT in Developing Countries and Rural REFERENCES 513
Settings 480
Challenges • Organizing POCT in Resource-Limited Settings
Technological Challenges 481 28 Laboratory Safety 515
Rapid Changes of Menu, Devices, and Technology • Lack of James J. Dunn and David L. Sewell
Equivalence between POCT and Central Laboratory Tests • New
Monitoring Technologies Introduction 515
Summary 483 Safety Management Plan and Responsibilities 516
KEY POINTS 483 Laboratory Hazards 517
GLOSSARY 483 Biological Hazards • Chemical Hazards • Physical Hazards •
REFERENCES 484 Radiation Hazards
APPENDIX 487 Standard Precautions 518
 CONTENTS xiii

Hazard Prevention and Containment 518 29 Emergency Management 545

Risk Assessment • Handwashing • Barrier Protection •
Engineering Controls • Work Practices • Respiratory Protection • Andrea J. Linscott, Patti Medvescek, and David L.
Immunization • Warning Signs and Labels • Biological Safety Sewell
Cabinets and Chemical Fume Hoods
Sterilization and Decontamination 524 Introduction 545
Spill Management 526 Emergency Management Plan 546
Biological • Chemical Purpose or Policy • Hazard Analysis • Incident Management
System
Fire Safety 527
Elements of an EMP 548
Waste Management 527 Emergency Operations Center • Communications • Medical
Regulatory Oversight • Management Program Treatment Areas • Decision To Shut Down Laboratory • Damage
Packaging and Shipping Infectious Substances 528 Assessment • Evacuation • Personnel Pool • Personnel Care •
Infectious Substances Classification • Packaging, Labeling, and Locator System • Security • Training • Monitoring and Evaluation
Shipping Regulated Material Disasters 551
Personnel Training 530 Fire • Hazardous Materials • Radioactive Material • Utility Failure •
Training Program • Methods • Documentation • Monitoring and Bomb Threat • Natural Disasters • Terrorism Threats • Civil
Evaluation Disorder
Summary 533 Summary 553
KEY POINTS 533 KEY POINTS 553
GLOSSARY 533 GLOSSARY 553
REFERENCES 534 REFERENCES 554
APPENDIXES 537 APPENDIXES 555

SECTION V
Financial Management 565
30 Financial Management: Setting Structure of the Clinical Laboratory Industry 576
Size of the Testing Market • Concentration of Competitors •
the Stage 567 Barriers to Entry • Separation of Payor, Purchasing Agent, and
Beneficiary • Economies of Scale • Restrictions on Markups and
Ronald B. Lepoff Kickbacks • Powerful Sellers and Buyers • Substitute Products •
Unique Economics of Inpatient Care • Conclusions
Introduction 567
Competitor Analysis 578
The Hospital Environment 568
Competitors’ Goals • Competitors’ Assumptions • Competitors’
Operating in the Inpatient Hospital Setting • Operating in the
Capabilities • Interactions of Competitors • Conclusions
Outpatient Hospital Setting
Strategic Positions in the Laboratory Industry 580
The Non-Hospital Environment 571
What Are Strategic Positions? • Types of Strategic Positions •
Summary 572 Strategic Positions of Clinical Laboratories • Conclusions
KEY POINTS 572 Implementing the Strategy: Activity Fit 582
GLOSSARY 572 What Is Activity Fit? • Activity Fit Involves Trade-Offs
REFERENCES 572
Failure of Strategy 582
Straddling • Growth Trap • Profitability Trap • Hubris
31 Strategic Planning 573 Summary 584
Paul Valenstein KEY POINTS 584
GLOSSARY 584
Introduction: What Is Strategy? 573 REFERENCES 585
Evidence To Recommend Strategic Planning 574 APPENDIXES 586
Randomized Controlled Trials • Case Studies • Economic Theory
Developing and Maintaining a Business Strategy: The
Strategic Planning Process 575
xiv CONTENTS

32 Human Resources at the Local Cost Accounting 598

Classification of Costs • Behavior of Costs • Measuring Full Cost •
Level: An Important Component of Average versus Marginal Costs • Actual Cost versus Standard
Cost • Costing Issues • A Formula for Developing Laboratory
Financial Management 589 Costs • Laboratory Costing Examples
Washington C. Winn, Jr., Fred Westenfeld, and Break-Even Analysis 600
Michael R. Lewis Equipment Purchase • Capitation Contract

Introduction 589 Capital Acquisition Concepts 605

Time Value of Money • Depreciation
Constraints on Managerial Function 590
Budgeting 698
The Cardinal Rules for Optimizing Performance 591 Types of Budgets • The Budgeting Process • Budget Examples
Get It Right at the Outset • Expect Cooperative Behavior and Best
Possible Performance • Lead by Example • Involve All Members Variance Analysis 610
of the Team • Perceived Fairness Is More Important than Rigid Financial Statements 613
Equality • Maintain Communication in All Directions • Keep Your Financial Ratios
Eyes and Ears Open • Act Quickly and Decisively • When Problems
Surface, Involve the Laboratory Manager Immediately; Involve Summary 615
Human Resources as Appropriate KEY POINTS 616
Classic Situations that May Interfere with Optimal GLOSSARY 616
Performance 593 REFERENCES 617
The Underperforming Employee • The Overperforming
Employee • The Intrusion of Personal Issues • The Underground
Troublemaker • The Cabal • Weakness at the Top 34 Financial Decision Making:
Practical Issues in Utilization of Personnel Putting the Pieces Together 619
Resources 594
Skill Mix of Personnel • Cross-Training and Rotation • Mix of
Ronald J. Bryant and Michael R. Lewis
Employment Arrangements • Coverage of Vacations, Holidays, and
Routine Shifts • Use of Overtime
Introduction 619
Contextual Considerations 619
Summary 595
KEY POINTS 596 Analytical Underpinnings of a Decision 620
GLOSSARY 596 Executing the Plan 620
REFERENCES 596 Summary 620
KEY POINTS 621

33 Costs, Budgeting, and Financial

Decision Making 597
Geoffrey C. Tolzmann and Richard J. Vincent
Introduction 597

SECTION VI
Generation of Revenue 623
35 Correct Coding of Billable Procedure Coding: What Test Procedures Have Been
Performed? 626
Services in the Clinical The CPT System 626
Laboratory 625 Description • Types of CPT Codes • Modifiers • The Process for
Change • Procedure Coding Guidance
Vickie S. Baselski, Alice S. Weissfeld, and Fran
Sorrell Procedure Coding Alternatives 629
Capitated Services 629
Introduction 625
 CONTENTS xv

Diagnosis Coding: Why Is the Service Being Pay for Performance 643
Performed? 630 Summary 643
Inpatient Diagnosis Coding • Outpatient Diagnosis Coding • Other
KEY POINTS 643
Unique Patient Groups • ICD-CM • SNOWMED CT
GLOSSARY 643
Service Location 631 REFERENCES 644
Role of CLIA and State Licensing • Revenue Codes
APPENDIX 645
Documentation of Codes 632
Requisition • Claims • Code Mapping
Summary 632 37 Charges and Fees for Laboratory
KEY POINTS 632 Services 646
GLOSSARY 633 Vickie S. Baselski, Alice S. Weissfeld, and Fran
REFERENCES 634
Sorrell
APPENDIX 635
Introduction 646
36 Approaches to Billing Laboratory Calculating Costs and Charges 646
Setting Costs • Setting Charges
Services 637 Determining Payment Amounts 647
Vickie S. Baselski, Alice S. Weissfeld, and Fran Fee Schedules • Medicare Clinical Laboratory Fee Schedule • Fee
Sorrell Setting for New Codes on the CLFS • The Medicare Physician Fee
Schedule • Other Fee Schedules • Capitated Payments
Introduction 637 Keys to Success in Reimbursement 649
Interactions in the Billing Process 638 Retrospective Payment • Prospective Payment
Provider Mix • Payor Mix Summary 650
Terms of Coverage 640 KEY POINTS 650
Types of Services • Payment for Services GLOSSARY 651
Logistics of the Billing Process 641 REFERENCES 651
Claim versus Invoice Submission • Invoice Billing • Claim Billing APPENDIX 653
Capitated Arrangement Billing 642

SECTION VII
Profitability, Contribution, and Reimbursement 655
38 Rules and Regulations in Special Coverage Conditions 663
End-Stage Renal Disease • Skilled-Nursing Facility • Ambulatory
Reimbursement 657 Payment Classifications • Inpatients • Three-Day Window • Date of
Vickie S. Baselski, Alice S. Weissfeld, and Fran Service Rule • Other Private-Payor Rules
Sorrell Remittance Advice Review 664
Beneficiary Documents • Provider Documents • Auditing
Introduction 657 Remittance Advice
General Criteria 658 Summary 665
Basic Rules 658 KEY POINTS 665
GLOSSARY 665
Procedure Code Edits 659
Basic Edits • National Correct Coding Initiative • Mutually REFERENCES 666
Exclusive Codes • Comprehensive/Component Edits • Medically APPENDIXES 668
Unlikely Edits
Conditions of Coverage 660
Medical Necessity • National Coverage Determination • Local
Coverage Determination • Screening Tests • Experimental Testing •
Administrative Policies
xvi CONTENTS

39 Reimbursement Summary 681

KEY POINTS 681
Compliance 670 GLOSSARY 681
Vickie S. Baselski, Alice S. Weissfeld, and Fran REFERENCES 682
Sorrell APPENDIXES 684

Introduction 670
Improper Payments 671 40 Determination of
Program Integrity 672 Profitability 685
Authority for Program Integrity • Activities in Program Integrity Vickie S. Baselski, Alice S. Weissfeld, and Fran
Payor Integrity 674 Sorrell
Prepayment Review • Postpayment Review
Laboratory Provider Integrity 675 Introduction 685
The Seven Essential Elements • Specific Areas of Concern Pitfalls in Cost Accounting 686
Coding and Billing Issues 676 Laboratory Profitability 686
CPT Coding • Modifiers • ICD-CM Coding • The Requisition • Balance Sheets • Income Statements • Cash Flow Statements
Special Ordering Situations
Key Indicators 687
Medical-Necessity Issues 678 Key Income Indicators • Key Expense Indicators
Record Retention 679 Institutional Profitability 688
Marketing Practices 679 Human Profitability 688
Pricing and Inducements • Ordering Provider and Patient
Laboratory Value 689
Communication
Summary 689
Fraud Alerts and Advisory Opinions 680
KEY POINTS 689
Auditing and Monitoring 680
GLOSSARY 690
Response to Possible Fraud or Abuse 680 REFERENCES 690
Laboratory Examples of Fraud and Abuse 681

SECTION VIII
Outside Marketing and Expansion 693
KEY POINTS 707
41 Outreach Considerations and GLOSSARY 708
Overall Goals 695 REFERENCES 710
Charlene H. Harris APPENDIXES 711

Introduction 695
Considering an Outreach Program 695 42 Outreach Implementation
Administrative Interest • Exploring the Market • Strategic Plan •
Business Plan • Sales Plan
Requirements: A Case Study 740
Frederick L. Kiechle, Jack Shaw, and Joseph E.
Commitment from All Relevant Parties 705
Feasibility Report • Philosophical Understanding • Service and
Skrisson
Financial Support
Introduction 740
Implementing the Outreach Program 706
Outreach Plan Approval Process 741
People • Processes • Facilities • Equipment • Supplies
Barriers to the Plan’s Approval • Consultants to the Rescue •
Outreach Indicators 706 Bureaucratic Simplification Equals Success
Growing the Outreach Program 707 Requirements for Outreach Implementation 743
Market Assessment • Client Needs Sales and Marketing Program • Courier Services: Basics and
Summary 707 Logistics
 CONTENTS xvii

Beaumont Reference Laboratory: 1993 to 2004 747 Information Technology Changes 778
Annual Growth and Its Implications • Projecting Future Volume • Hospital Systems versus Separate Systems • Nonstaff Physicians •
Send-Out Tests • Monitoring Financial Outcome Data Interface • Patient Registration and Accounting Concerns •
Populating the Patient Record • Physician Office Connectivity
Joint Venture Hospital Laboratories 754
History of JVHL • Benefits of BRL’s Affiliation with JVHL Meeting the Needs 780
Capital • FTEs
Summary 755
KEY POINTS 756 Hospital versus Outreach Contracting 780
GLOSSARY 756 Defining Insurance Plans • Contracting • Acceptance of Payors
REFERENCES 756 Failure To Understand Financial Implications and
Requirements 781
Unrelated Business Income Tax • Other Taxes
43 Finance and Decision Making in Understanding the Hospital’s Point of View 781
Outreach 759 Lower Cost per Test • Make Money
Michael G. Bissell and Harry E. Pukay-Martin Translating Hospital and Laboratory Compliance for
an Outreach Operation 782
Introduction 759 Physician Communication • Medicare Secondary Payor
The Clinical Laboratory as a Business • The Phases of the Growth Questionnaires • Physician Acknowledgments • Advance
Curve Beneficiary Notices • Requisition Design • Pricing • Add-On Tests
• National and Local Coverage Policies • Sanctioned Physicians •
Decision Making in Laboratory Outreach Contracts • Audits and Reviews • Participation and Cooperation
Management 760
Enhancing Customer Satisfaction:
Types of Costs 760 Communication 784
Direct and Indirect Costs • Fixed, Variable, and Mixed Costs • Newsletter • Marketing and Sales Team • Laboratory Guidebook •
Unit Costs • Additional Cost Concepts for Decision Making • Website • Focus Group
Characteristics of Laboratory Costs • Microcosting
Customer Satisfaction Assessment 785
Levels of Decision Making in Outreach Surveys • Problem Reporting and Resolution
Operations 763
Menu: To Test or Not To Test • Operation: To Perform In-House or Couriers: The First Line 787
Send Out • Capital: Whether or Not To Acquire New Equipment • Client Services 787
Financing Capital: To Lease or Buy Equipment
Access to Draw Sites and Patient Service Centers 788
Summary 766 Building and Retaining Your Client Base 789
KEY POINTS 766 Leverage the Continuum of Care • Keep Asking Why • Follow Up
GLOSSARY 767 When Clients Leave
REFERENCES 769 Professional Marketing and Sales Personnel 789
APPENDIXES 770 Commission Plans • Reports • Prepackaged Information
Technical Expertise Accessibility 790
44 Outreach: Obstacles to Hospital Accounts That Require Special Care 790
Nursing Homes • Drug Accounts • Home Health Agencies •
Outreach and Enhancing Customer Veterinary Lab Services
Satisfaction 777 Define Service Area and Services 791
Beth H. Deaton Range of Services • The Importance of Standardization
Summary 793
Introduction 777 KEY POINTS 793
Making Organizational Changes 777 GLOSSARY 793
Centralize Work • Place Laboratory Management on Off Shifts REFERENCES 794
Give Outreach Its Due 778 APPENDIXES 795
Make Outreach High-Profile • Manage Outreach as a Business, Not
a Department
xviii CONTENTS

SECTION IX
Clinical Trials and Evidence-Based Laboratory Medicine 807
45 The Current State of the U.S. Food Compliance with HIPAA 822
Compliance with Conflict of Interest Policies 823
and Drug Administration Process Intellectual Property Considerations
and Regulations for Diagnostic GLP and GCP Regulations 825
Laboratory Assays 809 Sponsor Responsibilities • Study Director and Responsibilities •
Quality Assurance Office: Organization, SOPs, Inspections,
Donna M. Wolk, Natalie N. Whitfield, Elizabeth M. Reporting Data • GLP Background • Equipment and Equipment
Marlowe, and Marilyn M. Marshall Validations • Standard Operating Procedures • Reagent and
Solutions: Test and Control Article • Final Research Reports
Introduction 809 Summary 827
Background: The FDA Processes for Classification and KEY POINTS 827
Assessment of New IVDs 810 GLOSSARY 827
Premarket Approval (PMA) • Premarket Notification [510(k)] and
REFERENCES 829
510(k) Review • Alternative Application Submission Approaches •
The Pre-IDE Process • The Expedited Review APPENDIX 831
Miscellaneous FDA Requirements 813
Establishment Registration • Medical Device Listing • Good
Manufacturing Practices and Quality System Regulations • Quality
47 Clinical and Evidence-
Control Based Research in the Clinical
Automated Laboratory Assays 814 Laboratory 832
Postmarket Review 814 Donna M. Wolk
Limitations Inherent to Current FDA Processes 814
Introduction 832
Summary 815
KEY POINTS 815 Types of Studies 833
Observational Studies • Mechanistic Studies • Therapeutic Studies •
GLOSSARY 815
Large-Scale Clinical Trials • Meta-Analysis
REFERENCES 816
Translational Research 833
Sequence of Investigation • Literature Search • Hypothesis
46 The Clinical Trial Laboratory: Generation • Designing the Study To Test the Hypothesis
Biostatistics 835
Research Compliance for Clinical Descriptive Statistics • Inferential Statistics: General Issues for
Research Microbiologists 818 Medical Devices • Other Issues for Diagnostic Studies
Donna M. Wolk and Marilyn M. Marshall Other Research Considerations 837
Systematic Reviews and Laboratory Medicine Best
Introduction 818 Practices 837
Funded Clinical Research in Laboratory Medicine 819 Evidence-Based Laboratory Medicine • Laboratory Medicine Best
Sponsored Projects • Office of Research and Contract Analysis Practices Initiative
(ORCA) Summary 839
Compliance with Human Subject Regulations 820 KEY POINTS 840
Background for Human Subject Regulations • Regulatory GLOSSARY 840
Requirements for Human Subject Protection • Human Subject
REFERENCES 845
Research: Classifications Based on Risk • Human Subject Training
Requirements and Site Authorization • Informed Consent • Special APPENDIX 848
Populations • Continuing Review by the IRB • Records Retention
for HSPPs
 CONTENTS xix

SECTION X
Defining and Measuring Standards for Success 849
48 Benchmarking and Performance Evaluating Potential and Real Problems 877
Clinical Relevance • Cost-Effectiveness Analysis, Cost-Benefit
Monitoring for the Clinical Analysis, and Cost-Utility Analysis
Laboratory 851 Documenting the Extent of the Problem 878
Literature Review • Centralized Studies • Local Data
Lionelle D. Wells, Washington C. Winn, Jr., and
Michael R. Lewis Laboratory-Based Approaches to Control 880
Newsletters • Policy Changes • Personal and Ad Hoc
Introduction 851 Communication • LIS/HIS-Based Controls on Test Ordering • LIS-
Based Feedback in Reports
Why Benchmark? 852
Institution-Based Approaches to Control 882
The Payoff from Benchmarking 852 Working with the Medical Staff • Formal Protocols Validated by
The Basic Steps 852 Medical Staff • Working with the Nursing Staff • The Concept of
Prioritization • Data Collection and Analysis • Development and the Laboratory Test Formulary • Using Major Events To Effect
Implementation of Plans Change (e.g., Institutional Quality Assurance [QA] Office, Root
Cause Analysis)
Where Do We Find Information about
Benchmarks? 853 What Works and Doesn’t Work: How To Take the First
Quality Benchmarks • Financial Benchmarks Steps 884
General Approach to Financial Benchmarking and Putting It All Together 885
Performance Monitoring 854 Base Policy Approaches and LIS/HIS-Based Controls on Evidence-
The Problem of Comparability • The Problem of Cost Based Medicine • Track Results • The Plan, Do, Study, Act Model •
Accounting • Workload Recording • The Search for The Future: Better Teaching and Training
Simplicity • Selection of Indicators for Benchmarking Summary 886
or Performance Monitoring • Problems Associated with KEY POINTS 886
Benchmarking by UOS • UOS Benchmarking in a Competitive
Environment GLOSSARY 887
REFERENCES 887
Measuring Laboratory Financial Performance 857
APPENDIX 889
Performance Monitoring • External Benchmarking
Interpretation of Performance Monitoring Data 862
Summary Measure as Unifying Force • Prerequisites for Effective 50 Benchmarking and Performance
Use of a Summary Measure
Interpretation of External Benchmarking Data 862
Monitoring: What Is Appropriate for
Measuring Laboratory Performance in the Broader
Your Laboratory? 890
Clinical Setting 863 Ronald J. Bryant and Michael R. Lewis
Effect of Accountable Care Organizations • Linkage of Payment to
Measures of Quality • Laboratory-Related Standards in Broader Introduction 890
Accreditation Programs Starting at the Beginning: What To Measure? 891
Summary 865 Where Can We Get Help? 892
KEY POINTS 865 How Will I Fund This? 892
GLOSSARY 865
Evaluation of Data and Monitoring of
REFERENCES 866 Performance 892
APPENDIXES 868
Summary 892
KEY POINTS 893
49 Test Utilization and Clinical GLOSSARY 893
Relevance 876
Michael L. Wilson, Gary W. Procop, and L. Barth
Reller
Introduction 876
xx CONTENTS

SECTION XI
The Future of Clinical Laboratories 895
KEY POINTS 915
51 The Future of Pathology and GLOSSARY 916
Laboratory Medicine: Political, REFERENCES 916
Social, Economic, and Regulatory
Impacts 897 53 Electronic Health Records and
Paul Bachner Their Implications and Opportunities
Introduction 897 for Laboratories 918
The Current Environment of Healthcare 898 Walter H. Henricks
Current Regulations 898
CLIA ’88 • HIPAA • OSHA Standards for Occupational Exposure Introduction 918
to Blood-Borne Pathogens • The Stark Laws Electronic Health Records 919
Liability Considerations 899 Definition and Components • Status of EHR Use
The Future Regulatory Climate under CLIA ’88 900 Federal Regulations Related to EHRs and Their
Personnel Standards and Quality Control Standards • Complexity Implications for Laboratories 920
Categories • Waived Testing • Changes to CLIA and Alternative Meaningful Use: The EHR Incentive Program • Meaningful
Approaches Use Requirements Directly Relevant to Laboratories • EHR
Certification Program: Functional Criteria and Data Standards •
The Impact of HIPAA 901 Certification Criteria and Standards Most Relevant to Laboratories
Laboratory Requirements • The Future of HIPAA
Concerns/Implications for Laboratories Related to
Bioterrorism 901 Increased Use of EHR Systems 922
Recent History • Future Impact Results Management • Test Result Management when Multiple
Long-Term Effects: Legislation, Regulation, Laboratories Serve a Single EHR System • Computerized Provider
Accreditation 902 Order Entry • EHR-LIS Interfaces • Technical Aspects of Interfaces:
Quality, Value, and Patient Safety • The Patient Safety Movement HL7 and LOINC • Operational Challenges for Laboratories with
LIS-EHR Interfaces
Issues Affecting Research and Academic
Laboratories 903 Strategies for Laboratories To Succeed in Laboratory
Stem Cell Research • Biorepositories Information Management in the EHR Era 927
Steps To Increase Involvement and Influence in EHR Processes
Restrictive Patents and Restraints on Use of Human Related to the Laboratory • Tactics for Working with EHR
Tissues 903 Support Staff • Laboratory Involvement in EHR Selection and
Summary 904 Implementation
KEY POINTS 904 Summary 930
GLOSSARY 904 KEY POINTS 930
REFERENCES 905 GLOSSARY 931
APPENDIX 906 REFERENCES 931

52 The Future of the Clinical 54 Current Trends in

Scientist Workforce 907 Instrumentation and Technology:
Diana Mass and John R. Snyder Outlook for the Future 933
Introduction 907 Sheshadri Narayanan and Audrey N. Schuetz
Essential Role in Healthcare • Other Continuing Imperatives
• A New Workforce • Laboratory Paradigms • The Old
Introduction 933
Laboratory • The New Laboratory • The Changing Workforce • Chemistry 934
Creating Conditions of Good Work Core Laboratory • Rapid-Response Laboratory and Point-of-Care
The Changing Nature of Work 913 Testing • Noninvasive Testing
The Consultation Role and Process • Consultant Skills • The Hematology 938
Internal Consultant Automation in the Routine Laboratory
Summary 915
 CONTENTS xxi

Coagulation Laboratory 940 Laboratory Medicine: Origins and Historic

Routine Coagulation • Point-of-Care Testing • Molecular Testing Development 966
Microbiology 943 Clinical Pathology
Molecular Testing Recent Trends in Clinical Practice 967
Blood Bank 948 Increasing Utilization of Laboratory Services • Growth of Point-of-
Care Testing • Increasing Autonomy of Nonphysician Healthcare
Automation • Molecular Testing
Providers • The Electronic Revolution and Clinical Practice
Outlook for the Future 949
Reaction to Recent Trends 969
Driving Forces • Miniaturization and Microfluidics • Biochips •
DNA Sensors Clinical Laboratory Consultation • Teaching Test Strategy and
Interpretation of Results • Future Role of Pathologists and the
Summary 954 Laboratory in Emerging Economic Models • Evidence-Based
KEY POINTS 955 Medicine and Medical Informatics
GLOSSARY 955 Predictions for the 21st Century 971
ACKNOWLEDGMENTS 956 Summary 972
REFERENCES 956 KEY POINTS 972
APPENDIXES 961 GLOSSARY 972
REFERENCES 972
55 The Future Practice of Laboratory
Medicine 966
Paul Bachner and M. Desmond Burke
Introduction 966

Master Glossary 975

Index 1028
Contributors
Christina E. Anderson
Department of Pathology, Virginia Commonwealth
University Health System, Richmond, VA 23298
Paul Bachner
Department of Pathology and Laboratory Medicine,
University of Kentucky Chandler Medical Center,
800 Rose St., Room MS 112, Lexington, KY 40536-0298
Vickie S. Baselski
University of Tennessee Health Science Center at Memphis,
Clinical Microbiology, 349 Riverbluff Place, Memphis, TN
38103-4132
Katharine R. Becker
PLB Ventures and Consulting, 9502 Roe Circle, Franktown,
CO 80116
James W. Bishop
Department of Management, New Mexico State University,
Las Cruces, NM 88003
Michael G. Bissell
Ohio State University Medical Center, Room 4173 Graves
Hall, 333 W. 10th Ave., Columbus, OH 43210-1239
Joanne I. Brisbois
Geisinger Health System, 100 N. Academy Avenue,
MC 01-31, Danville, PA 17822-0131
Ronald J. Bryant
University of Vermont Medical Group, Fletcher Allen Health
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington,
VT 05401
M. Desmond Burke
Emeritus Professor of Pathology & Laboratory Medicine,
Cornell University Medical College, New York, NY 10021
Joseph M. Campos
Children’s National Medical Center and Georgetown
University Medical Center, Washington, DC
Jeffrey Casterline
Department of Pathology and Laboratory Medicine, Drexel
University College of Medicine, 245 N 15th Street / MS 435,
Philadelphia, PA 19102
George S. Cembrowski
Medical Biochemistry, University of Alberta Hospital,
Edmonton, Alberta, Canada
Lakshmi Chandramohan
Department of Pathology, Baylor College of Medicine,
Molecular Microbiology Laboratory, Texas Children’s
Hospital, 6621 Fannin St., MC2-2271, Houston, TX 77030
Beth H. Deaton
Consolidated Lab Services, 600 Gresham Dr., Norfolk, VA
23507
Christopher Doern
Children’s Medical Center of Dallas, University of Texas
Southwestern Medical Center, Dallas, TX
James J. Dunn
Department of Pathology, Cook Children’s Medical Center,
Fort Worth, TX 76104
Jean Egan
Jean Egan Associates, LLC, 33 Woods Hollow Road, West
Suffield, CT 06093
Lynne S. Garcia
LSG & Associates, 512 – 12th St., Santa Monica, CA 90402
Kellie A. Gibbs
MCG Health, Inc. dba Georgia Regents Medical Center,
BI-2008B, 1120 15th Street, Augusta, GA 30912
Margaret M. Grimes
Department of Pathology, Virginia Commonwealth
University Health System, Richmond, VA 23298
Diane C. Halstead
North Florida Pathology, P.A., and Clinical Laboratory
Services, Baptist Medical Center, Jacksonville, FL 32207
Mark G. Hanly
SEPALabs, Brunswick, GA 31525, and Department of Pathol-
ogy, Southeast Georgia Health System, Brunswick, GA 31520
Ann L. Harris
Department of Pathology, VCU Medical Center, PO Box
980258, Richmond, VA 23298-0258
Charlene H. Harris
System Director, Laboratory Services, Sarasota Memorial
Health Care System, 1700 South Tamiami Trail, Sarasota, FL
34239
xxiii
xxiv CONTRIBUTORS
David S. Hefner
Georgia Regents Medical Center and Georgia Regents
University, 1120 15th Street, Augusta, GA 30912
Walter H. Henricks
Center for Pathology Informatics and Pathology and
Laboratory Medicine Institute, Cleveland Clinic, 9500 Euclid
Avenue, L21, Cleveland, OH 44195
Glen L. Hortin
Quest Diagnostics, Tampa, FL 33617
Kari Jones
Anatomic Pathology, MCGHealth, Inc., 1120 15th Street,
Augusta, GA 30912
Adarsh K. Khalsa
Laboratory Sciences of Arizona, Banner Good Samaritan
Medical Center, Phoenix, AZ 85006
Frederick L. Kiechle
Pathology Consultants of South Broward, Memorial Health-
care System, 3501 Johnson Street, Hollywood, FL 33021
Anthony S. Kurec
Clinical Associate Professor, Emeritus, SUNY Upstate
Medical University, 750 East Adams St., Syracuse, NY 13202
Jimmy R. Lea
Forensic Drug Laboratory, Georgia Regents University
Medical Center, 1120 15th Street, Augusta, GA 30912
Ronald B. Lepoff
Department of Pathology, University of Colorado School of
Medicine, 12401 East 17th Avenue, Mailstop A022, Aurora,
CO 80045
Michael R. Lewis
University of Vermont Medical Group, Fletcher Allen Health
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington,
VT 05401
Andrea J. Linscott
Dept. of Pathology, Ochsner Healthcare System, 1514
Jefferson Highway, New Orleans, LA 70121
Elizabeth M. Marlowe
Regional Reference Laboratories, Southern California
Permanente Medical Group, 11668 Sherman Way, North
Hollywood, CA 91605
Anne Marsden
Quality Assurance, Quest Diagnostics Nichols Institute, San
Juan Capistrano, CA 92690
Marilyn M. Marshall
Office of Responsible Conduct for Research, University of
Arizona, Tucson, AZ 85719
Diana Mass
Clinical Laboratory Sciences Program, School of Life Sciences,
Arizona State University, Tempe, AZ 85287-4501, and
Associated Laboratory Consultants, 14142 Ridge Canyon
Rd., Valley Center, CA 92082
Stephanie Maynard-Patrick
Department of Management, New Mexico State University,
Las Cruces, NM 88003
Patti Medvescek
Labor Analytics and Benchmarking, Financial Operations,
Indiana University Health, 950 N. Meridian St., Suite 800,
Indianapolis, IN 46204
Roxanne Mercer
Department of Pathology, VCU Medical Center, PO Box
980662, Richmond, VA 23298-0662
Sheshadri Narayanan
Dept. of Pathology & Laboratory Medicine, Weill Medical
College of Cornell University, 525 East 68th St., Room F-715,
New York, NY 10021
Donna Oblack
Cincinnati Department of Veteran Affairs Medical Center,
Cincinnati, OH 45220
Christa Pardue
Laboratory Services, University Health Care Systems, 1350
Walton Way, Augusta, GA 30901
Elissa Passiment
ASCLS, 2025 M Street, NW, Suite 800, Washington, DC 20036
Gary W. Procop
Department of Molecular Pathology, Cleveland Clinic, 9500
Euclid Avenue / LL2-2, Cleveland, OH 44195
Harry E. Pukay-Martin
Department of Pathology, The Ohio State University, 121
Hamilton Hall, 1645 Neil Ave., Columbus, OH 43210
L. Barth Reller
Departments of Pathology and Medicine, Duke University
School of Medicine, DUMC Box 3938, Research Drive,
Durham, NC 27710
Paula Revell
Pathology and Pediatrics, Baylor College of Medicine, and
Clinical and Molecular Microbiology Laboratories, Texas
Children’s Hospital, 6621 Fannin St., MC1-2261, Houston,
TX 77030
Susan D. Roseff
Department of Pathology, Virginia Commonwealth
University Health System, PO Box 980662, Richmond, VA
23298-0662
 CONTRIBUTORS xxv

Denise E. Russell Geoffrey C. Tolzmann

Risk Management, Virginia Commonwealth University Dahl-Chase Diagnostic Services, 417 State Street, Suite 540,
Health System, Richmond, VA 23298 Bangor, ME 04401
Michael Santa Cruz Diane C. Turnbull
Laboratory Sciences of Arizona, Banner Gateway Medical Georgia Regents University, 1102 15th Street, Augusta, GA
Center / MD Anderson Cancer Center, Gilbert, AZ 85234 30912

Michael A. Saubolle Paul Valenstein

Laboratory Sciences of Arizona, Banner Good Samaritan
Medical Center, and University of Arizona College of
Medicine, Phoenix, AZ 85006
Ron B. Schifman
Diagnostics Service Line, Southern Arizona VA Healthcare
System, 3601 South 6th Ave. (6-113), Tucson, AZ 85723
Audrey N. Schuetz
Dept. of Pathology & Laboratory Medicine, Weill Cornell
Medical College/NewYork-Presbyterian Hospital, 525 East
68th St., Room Starr 737C, New York, NY 10065
K. Dow Scott
Institute of Human Resources and Industrial Relations,
Loyola University Chicago, Chicago, IL 60611
David L. Sewell
Pathology and Laboratory Medicine Service, Veterans
Affairs Medical Center, Department of Pathology, Oregon
Health and Sciences University, Portland, OR 97239
IHA Pathology and Laboratory Management, 5301 East
Huron River Dr., Ann Arbor, MI 48106-3058
Laurence P. Vetter
Department of Pathology, Virginia Commonwealth
University, P.O. Box 980662, Richmond, VA 23298-0662
Richard J. Vincent
University of Vermont Medical Group, Fletcher Allen Health
Care, 111 Colchester Avenue, Mailstop 233MP1, Burlington,
VT 05401
Lei Wang
Department of Management, The University of Texas
Pan-American, Edinburg, TX 78539
Alice S. Weissfeld
Microbiology Specialists, Inc., 8911 Interchange Drive,
Houston, TX 77054
Lionelle D. Wells
Center for Disease Detection, San Antonio, TX 78233

Amy Shahtout Fred Westenfeld

Quest Diagnostics, 33608 Ortega Highway, San Juan Department of Pathology and Laboratory Medicine, Fletcher
Capistrano, CA 92690 Allen Health Care, 111 Colchester Avenue, Mailstop
233MP1, Burlington, VT 05401
Jack Shaw
Natalie N. Whitfield
Mednet Services, 1633 Fairlane Circle, Suite 300, Allen Park,
Department of Pathology, University of Arizona Medical
MI 48101
Center, 3601 N. Campbell Avenue, Tucson, AZ 85724-5059
Joseph E. Skrisson David S. Wilkinson
Dynacare Laboratories, 9200 W. Wisconsin Avenue, Department of Pathology, VCU Medical Center, 1101 East
Milwaukee, WI 53226-3596 Marshall Street, P.O. Box 980662, Richmond, VA 23298-0662
John R. Snyder Michael L. Wilson
Ohio State University College of Medicine, 4240 Campus Department of Pathology and Laboratory Services, Denver
Drive, Lima, OH 45804 Health Medical Center, Mail Code #0224, 777 Bannock,
Fran Sorrell Denver, CO 80204-4507
American Esoteric Laboratories, 1701 Century Center Cove, Washington C. Winn
Memphis, TN 38134 (Deceased)
John C. H. Steele, Jr. Donna M. Wolk
Department of Pathology, Georgia Regents University, Room Department of Laboratory Medicine, Geisinger Health System,
BI-2008A, 1120 15th Street, Augusta, GA 30912-3640 100 N. Academy Avenue, MC 01-31, Danville, PA 17822-0131
Preface
The current environment for laboratory medicine and pa-
thology continues to undergo dramatic transformation,
which is influenced by significant changes in the legislative,
regulatory, reimbursement, technologic, sociologic, eco-
nomic, communication, and business sectors. The practice
of all aspects of medicine and allied healthcare requires
new approaches and a much broader range of managerial
expertise. Areas in which a laboratory director, manager,
or supervisor is expected to understand and perform in-
clude fiscal and human resources, patient care testing and
quality performance issues, and overall accountability to
the facility administration.
It is very important that individuals working within
the healthcare environment learn to hear, speak, and thor-
oughly understand the operational language of healthcare
administration. During the past few years, the fields of lab-
oratory medicine and pathology management have seen
many dramatic changes, including those related to qual-
ity assurance, communication, data storage and retrieval,
point-of-care testing, test management, automation, safety
and emergency preparedness, regulatory requirements,
information confidentiality, billing and coding require-
ments, physical space changes, laboratory consolidation,
shortage of training programs and trained personnel, com-
petency testing, specimen handling and shipping require-
ments, decrease in reimbursement, demand for increased
productivity, and increased need for consultation and ed-
ucational initiatives for clients. Reactions to the changes
that have occurred in the healthcare environment in recent
years are essentially twofold: increased efforts to contain
costs and increased demand for appropriate and error-free
medical care.
The purpose of this text is to provide comprehensive,
practical information and guidelines for healthcare man-
agement in the 21st century to laboratory directors; man-
agers; chief technologists; supervisors; trainees in schools
of healthcare administration, medical laboratory technol-
ogy, and other allied health disciplines; those training for
leadership positions; and those studying for board or reg-
istry certification in management. This book is designed
both for those who are already actively working in clini-
cal pathology and clinical laboratory management and for
those who are training to enter these fields. It contains a
comprehensive overview of management principles and
how they apply to the clinical laboratory. In-depth analysis
of the financial challenges facing clinical laboratories is
included, as are discussions on good business practices.
There is extensive information on the impact of the regu-
latory environment on every aspect of clinical laboratory
practice, as well as personnel management related to all
relevant job classifications. Additional discussions include
the changing practice of medicine, managerial leadership,
the expanding field of point-of-care testing, enhanced in-
formation systems and security/confidentiality require-
ments, reimbursement compliance, outside marketing and
expansion, clinical trials and evidence-based medicine,
benchmarking, current trends in instrumentation and
technology, enhanced consultation though expanded test
result reports, and the future of clinical laboratories.
The authors are all practicing laboratorians, many of
whom have had extensive “hands-on” experience in all fac-
ets of clinical laboratory practice, including both techni-
cal and managerial responsibilities. Each section is edited
by experienced professionals and includes comprehensive
coverage, both didactic and practical, of all issues related
to clinical laboratory operations.
Clinical Laboratory Management, Second Edition, offers
extensive laboratory management information in one re-
source. Practical examples and numerous summary tables
are provided to serve as guidelines for relevant documenta-
tion. Various management tools are discussed, particularly
related to personnel, technical, regulatory, and financial
responsibilities. This information is relevant for all job
levels within the laboratory, as well as for all healthcare
management and technical training courses. Each chap-
ter follows the same format, designed to flow easily from
one section to another. When relevant, chapters contain
checklists, work sheets, forms, abbreviations/acronyms,
diagrams, figures, photographs, and specific practical ex-
amples of relevant material.
It is important for readers to understand that there are
many different laboratory settings; not every laboratory
will handle managerial responsibilities the same way, nor
will every option be applicable to every situation. The key
to quality and clinically relevant laboratory management
approaches requires a thorough understanding of the pros
and cons of each approach and how various options may
or may not be relevant for one’s particular laboratory size
and range of expertise, client base, number and type of pa-
tients seen, personnel expertise and availability, equipment
xxvii
xxviii PREFACE
availability, educational initiatives, and communication
requirements.
The use of product or program names is not intended
to endorse specific products or programs or to exclude
Acknowledgments
As editors for the Second Edition of Clinical Laboratory
Management, we would like to express our thanks to the
many educators, colleagues, and students who have helped
shape our perspectives regarding the field of clinical labo-
ratory and pathology management. As with the first edi-
tion, the aim was to consolidate this information for the
benefit of those working in healthcare and to share our
knowledge with individuals currently working in labora-
tory management positions. However, regardless of your
position in the healthcare arena, understanding the man-
agement challenges and “rules of the game” is beneficial
for everyone.
Our special thanks go to the authors for their outstanding
contributions. All of these individuals have extensive work
experience in the field and bring this expertise to each chap-
ter. We appreciate the time and energy it took to produce the
Second Edition, knowing that all were extremely busy with
the day-to-day operations for their current positions.
substitute products or programs. Every effort has been
made to ensure accuracy; however, ASM Press and the Ed-
itors encourage you to submit to us any suggestions, com-
ments, and information on errors found.
We would like to thank members of the editorial staff of
ASM Press, especially Ellie Tupper, Christine Charlip, and
our copyeditors; they are outstanding professionals and
contributed extensive support throughout the publication
process. With their help, we all managed to complete the
task and maintain our sense of humor.
Above all, our special thanks go to our families and col-
leagues for their support, guidance, and advice during this
extensive project. This Second Edition was very much a
collaborative effort, and we hope the material will prove
beneficial to the overall healthcare community.
Lynne S. Garcia
Paul Bachner, Vickie S. Baselski,
Michael R. Lewis, Andrea J. Linscott,
Dale A. Schwab, John C. H. Steele, Jr.,
Alice S. Weissfeld, David S. Wilkinson,
and Donna M. Wolk
Basic Concepts and the Current
I
Healthcare Environment
section editor: David S. Wilkinson
1 Principles of Management
Jeffrey Casterline and John R. Snyder
2 Management Functions
Laurence P. Vetter
3 Relevant Economic and Business Concepts
Roxanne Mercer and Ann L. Harris
4 Current Challenges to Financial Stability within the
Diagnostic Laboratory
Roxanne Mercer and David S. Wilkinson
5 The Impact of Regulatory Requirements
Susan D. Roseff, Christina E. Anderson, Roxanne Mercer, and
Denise E. Russell
6 The Changing Practice of Medicine
Susan D. Roseff, Denise E. Russell, and Margaret M. Grimes
7 The Changing Healthcare Environment
Ann L. Harris and David S. Wilkinson
Introduction
Leadership, Management, and
1 Principles of Management
Administration
Leadership • Management • Administration Jeffrey Casterline and John R. Snyder
Management Concepts
Cultural Lag • Review of Management Thought
Decision Making
What Is Decision Making? • Types of Decisions •
Individual versus Group Decision Making • The
Problem-Solving/Decision-Making Process • Risk
OBJECTIVES
Management Ethics
Definitions • Characteristics of High-Ethics
To familiarize the reader with the concepts of leadership, management, and
Organizations • Benefits of Strong Workplace Ethics • administration
Management Roles and Responsibilities To place modern management ideas in their historical context
Summary To review in general terms the variety of management concepts and philosophy
KEY POINTS in such a way that the reader will feel familiar enough to apply the concepts or
GLOSSARY know where to turn for more information
REFERENCES To learn in general terms the process of decision making and how a decision-
OTHER READING making style is a reflection of one’s leadership style
APPENDIX To consider the issue of management ethics and its positive impact on
the workplace

The new technology will not render managers superfluous or replace them by
more technicians. On the contrary, it will demand many more managers. It will
greatly extend the management area; many people now considered rank-and-file
will have to become capable of doing management work.
Peter Drucker (reference 10, p. 22)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch1
T
he history of humanity could be characterized as the story of our at-
tempts and methods to organize ourselves. Man’s ability to create often
exceeds his ability to manage the fruits of his collective and individual
genius. It is unclear in the historical record just who was the first person to
think through the questions of how to get a job done through other people
and how to convey that message. Intuitively we can think of cave dwellers in
prehistoric times, gathering their effort together to hunt for food or to protect
themselves from other marauding bands of primitive people. Villages became
towns, which grew into large cities. Amalgamations of people and buildings
provide one of the basic challenges of management, and urban management is
one of those areas where the problems humankind can create often exceed the
abilities of those charged with keeping the order.
Modern times require modern solutions. As society has become more
complex, the solutions have become equally complex and sophisticated. The
beginning of this chapter will be devoted to the consideration of leadership
versus management. What do these terms mean? Are they truly different or is
it just semantics? Once we are clear on those points, this chapter will briefly
cover the history of management thought, to illustrate that as society and or-
ganizations have become more complex, the theories to explain group behav-
iors have become similarly complex.

3
4 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
One of the main tasks of management is to decide what
to do and then provide the roadmap of how to get it done.
This chapter will devote several pages to the issues sur-
rounding decision making and decision theory.
Finally, the chapter will devote itself to ethics and ques-
tions that managers now face in deciding what behavior
may be appropriate not just on the shop floor but also in
the boardroom.
Peter Drucker’s quote, at the opening of the chapter,
raises several interesting questions and provides a basic
theme for the chapter (reference 10, p. 22). Is our progres-
sively more technological society eliminating the need
for managers? Is the mechanization of the workplace and
our society rendering management unnecessary? On the
contrary, many more people will absorb basic manage-
ment functions into their work lives. Perhaps this can be
looked upon as a form of self-empowerment. Individuals
will have some measure of control over their own work
life and what they do on a day-to-day basis. We are the
managers of the machines we operate, and we decide what
role they will play. This is not to say that higher authority
will lose its prominence. Rather, strategic direction will be-
come the primary focus of upper management, as opposed
to hands-on direction of precisely what we are doing and
how we do it. Maybe another way to say this is that upper
management must exercise leadership in the modern en-
terprise if it is to meet its goals and objectives.
Leadership, Management,
and Administration
Leadership
As kids we used to play the game “follow the leader.” Poli-
ticians often talk about the need for leadership or the lack
thereof. On the job we hear of individuals who take a leadership
position on an issue or in that organization. We always talk
about what is important to us, and considering the amount
of space and print we devote to this concept, clearly it is a key
concern to many people. Leadership is at once something
that people do and is a key driving force for mankind.
A leader is also a piece of fishing line. This may seem a
silly analogy, but the role of the leader with bait and tackle
is very similar to the role of the leader in an organiza-
tion. What does a fishing leader do? In some instances, it
is designed to be a near-invisible connection between the
heavier fishing line and the lure. Its lack of weight and heft
makes it easier to cast out to where the fish are, and its
near-invisibility makes it less likely that the fish will see the
lure as anything other than a tasty morsel. In other cases
the leader is designed to be an indestructible connection
between the hook and the fishing line. Its toughness means
the catch will not be able to bite through it, and coral and
rocks will not destroy it. Some “human” leaders maintain
near-invisibility, letting those tasked with getting the job
done go forward without any distraction. Some leaders
present themselves as an unbreakable connection between
those doing the work and the ultimate goal.
Starting at the beginning, what precisely is leadership? Or
perhaps the question to ask is, What is a leader? More often
than not, the definition of leadership is phrased in compara-
tive terms: What is leadership versus what is management?
For example, managers are people appointed to positions
of authority who enable others to do their work effectively.
Leadership is one of the roles that a manager needs to exer-
cise. By executing the leadership role, managers get things
done through people. Leadership is modeling the behavior,
attitudes, and values that inspire others to work together en-
thusiastically (reference 23, p. 30–31). Managers do things
right. Leaders do the right things. Managers direct, whereas
leaders model and coach. The list goes on.
We live in a rapidly changing business world that prob-
ably requires more leadership and less managing than in
past decades. But organizations must still strike a balance
between change and stability, which means anyone in a po-
sition to influence or direct others must exhibit a balance
between leading and managing. If you want to manage,
you’ve got to lead. And if you want to lead, you’ve got to
manage. It is important to make the distinction between
leadership and management, and for readers to under-
stand that at any given point they may be involved in sev-
eral or all of those tasks simultaneously.
A leader can be defined as someone who occupies a de-
fined position in a group, influences others in accordance
with the role expectations of the position, and coordinates
and directs the group in maintaining itself and reaching its
goal (38). Leadership, when viewed this way, is a function of
the use of power. The leader has power over his group. Fol-
lowers follow because of the perceived power of the leader.
Power, as exercised in a leadership model, comes in a
variety of types. One’s leadership style in part is a function
of the type of power one chooses to use. Expert and infor-
mational power relates to those skills and knowledge the
leader may have and can use to gain influence over others.
Reward and coercive power relates to the ability to reward
or punish, as a means to gain compliance. Legitimate power
is that which is confirmed by the group or the organization
itself, such as the elected leadership. And finally, referent
power refers to those who are influenced by and identify
with the leader. An example here might be a rock star or
other notable personality (reference 31, p. 465–466).
Most leaders use a combination of the various types
of power, depending upon their leadership style or what
is needed at that moment. For example, an authoritarian
leader would use more reward and coercive power than
the participative leader, who would use more legitimate
or referent power (reference 31, p. 490–492). But no one
leader has or uses the same style at all times. Leadership is
responsive to the needs of the moment. One’s leadership

style will match what is needed for the group to succeed
(reference 31, p. 489).
It is said that great leaders are made, not born (4). There
is considerable evidence and commentary in the literature
to support either notion. If you believe leaders are born,
you accept more or less that there are certain inborn quali-
ties, such as initiative, courage, and intelligence, that might
predestine someone to leadership. Alternatively, one could
accept the idea that a leader is a person who was in the
right place at the right time.
Leadership theory can support either concept. The
great man/great woman theory suggests that major events
in the world both draw out and mold the leader, or that
major events are influenced by persons of power (48). The
trait theory expands on the personal characteristics of the
leader. However, knowing that leaders come in all vari-
eties and often are as dissimilar as similar, one can only
think that some traits merely increase the probability of
an individual rising to a position of leadership and power
(reference 4, p. 267). Thus, a situational view is now ac-
cepted as the predominant theory, that historical forces
drive great events, and leaders either rise or do not rise
to that occasion. The characteristic of the individual and
the situation that presents itself determine who will be the
leader (2).
Management
What of the leader as a manager? Is management truly a
different task or merely something a leader must attend to
in order to be successful? Is management a separate and
distinct behavior? Managers in general provide four sepa-
rate but equally important functions: planning, organizing,
controlling, and leading (reference 13, p. 5–6). Each of these
concepts will be covered in depth in subsequent chapters.
It should be noted that the manager is not necessarily the
group’s leader. One can influence a group toward reaching
its goals and not be the manager, and the manager can suc-
ceed by letting the informal leader of any group carry on
with the task of motivating the group (44). Managers can
be very task specific. For example, financial managers fo-
cus on generating and reinvesting financial capital. Human
resource managers help recruit staff and oversee labor law
vis-à-vis the organization where they work.
One of the basic definitions of management is getting
things done through other people. Managers prefer to
work with others. Managers provide the resources and the
direction to accomplish the task. Managers decide upon
goals based on necessity and are therefore strongly tied to
the organization as it currently exists (33). Management
has no meaning apart from its goals. Managers therefore
keep organizational goals in mind at all times. Manage-
ment produces predictability and order. Managers empha-
size rationality and control. Managers solve problems. In
short, management is an activity that provides structure.
CHAPTER 1. PRINCIPLES OF MANAGEMENT 5
Management in some ways provides the “what” that needs to
be done. The highly informative website LeadersDirect ad-
dresses this and many other similar questions (http://www
.leadersdirect.com/whats-a-manager; last accessed April
10, 2012). What managers do and what management is are
often one and the same.
Is there such a thing as a management style? Referring
back to the discussion on leadership, largely this is a function
of the situation at hand. One of the more prevalent perspec-
tives on management style comes from Blake and Mouton,
who as a result of their studies were able to create what is
known as the managerial grid (7). This grid places “concern
for people” on the vertical axis and “concern for task” on the
horizontal axis. Most people fall somewhere in the middle.
But Blake and Mouton derived four types of leaders who fall
near the extremes of the grid, as shown in Fig. 1.1.
The Authoritarian Manager is highly task-oriented,
with low concern for people. There is little allowance for
cooperation or collaboration. Heavily task-oriented peo-
ple are strong on scheduling and expect people to do what
they are told with little discussion or debate. When some-
thing goes wrong, they tend to focus on blame rather than
on the problem.
Conversely, the Country Club Manager is low task-
oriented, with high concern for people. These managers
use reward power to maintain discipline and to encourage
their team to achieve its goals. This manager is incapable
of using coercive powers, because doing so would jeopar-
dize that manager’s relationship with the group.
The Impoverished Manager, with low task and low con-
cern for people, uses delegation as his or her primary man-
agement tool and for the most part is not committed to the
accomplishment of the task or maintenance of the group.
The team does what it wants.
Finally, the Team Manager is highly task-oriented and
maintains a high concern for people. This manager leads
Figure 1.1 The managerial grid. Adapted from R. R. Blake and
J. S. Mouton, The Managerial Grid (Gulf Publishing Company,
Houston, TX, 1964), and J. R. Snyder and D. S. Wilkinson, Manage-
ment in Laboratory Medicine, 3rd ed. (Lippincott-Raven Publish-
ers, Philadelphia, PA, 1998). doi:10.1128/9781555817282.ch1.f1
Country Club Team
Manager Manager
Concern
For Impoverished Authoritarian
People Manager Manager
Concern for Task
6 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
by example and works at creating an environment where
all team members may prosper. The manager works with
the team to reach its goals as effectively as possible while
also working to strengthen the bonds between the team
members. By grid design this is the most effective manager
and leads to the most effective teams.
But as has been discussed before, management, like lead-
ership, is situational (32). The lieutenant tasked with taking
a hill may not have the luxury of acting like a Team Manager.
There is a time when discussion and debate have no place.
Alternatively, while we might look down on the Impover-
ished Manager as singularly ineffective, using this model
may lead to more self-reliance on the part of the team.
Administration
We have talked about leadership and management. What
of administration? Is it something different from the above
or merely a different word for what managers and leaders
do? A Webster’s definition of administer lists first, “to act as
manager . . . ” and second, “to furnish help or be of service”
(47). Based on that second definition, it is possible to think
of administration as an action apart from leadership and
management, in that it focuses one’s effort on assistance
and service as opposed to the specific acts that a manager
or leader might undertake. A manager and/or leader may
have as his charge the requirement to serve others. But that
becomes a task specific to that individual, rather than a
general charge to managers at large.
One of the primary definitions of administrator refers
to government and public sector jobs (47). Administration
by that definition becomes a public service job, much like
one would see in academia or healthcare. Thus, adminis-
trators might in fact do different things than managers.
This is to say, administration is a subset of management.
Administrators do all those things that make one a man-
ager. Administrators have a public service requirement
and commitment that would not necessarily be found in
the portfolio of all working managers.
We have covered quickly some of the basics of leader-
ship and management and touched briefly on administra-
tion. The above topics have been the focus of many books
and academic treatises. It is left to the reader to explore
these topics further, either elsewhere in this text or in the
multitude of available reference materials.
Management Concepts
Above we used the phrase “modern times require mod-
ern solutions.” While this phrase is often heard, the real-
ity is that for the most part we are using old solutions and
methods to deal with current problems. Generals are said
always to be fighting the last war. The technology we buy
today is already outdated. The feedback loop we work in is
retrospective. We cannot fully plan for or project what the
future will be or what it will bring. The concept of cultural
lag is derived from these notions.
Cultural Lag
What is cultural lag? Here’s a basic definition: “The failure
of one element of a culture to keep pace with changes in
other aspects of the culture; e.g. a situation in which rapid
technological change is not accompanied by change in the
non-material culture” (1). Clearly, technological advances
move much faster than the majority of humankind can
absorb them. The scale is global. Those who have a tech-
nological edge, sometimes referred to as a computerized
giant leap forward, will move forward, whereas those who
do not will be left behind. By inference one can see this
applies to individual urban centers, or national economies,
or within global regions. The definition of haves and have-
nots will be focused not as exclusively on material goods
as on access to knowledge and the power that goes with it.
This is not a new issue, however. Such has been the case
in one form or another since medieval times and more
pointedly with the beginning of the current industrial era.
Much of the basis of management thought has been how to
organize ourselves to match the advances in technology and
how best to exploit those advances to the betterment of all.
Review of Management Thought
Classical theory. The earliest perspectives on management
and management theory were described by a group loosely
called classical theorists. Most notably, this group includes
Frederick Taylor and his work on scientific management
theory. Additionally, this group includes Henri Fayol and
his work on what he referred to as administrative manage-
ment, and Max Weber and his research into the nature of
bureaucracy. This group and others laid the foundation for
management theory, in part by identifying the key man-
agerial processes and skills a manager needs to succeed.
Perhaps most importantly, their work made management
a valid subject for academic inquiry.
Taylor was one of the first to create a science of man-
agement (43). He is best known for his attempts to system-
atically analyze human behavior at work. His model was a
machine made of cheap interchangeable parts. Taylor at-
tempted to do to complex organizations what engineers had
done to machines. This involved breaking down each task
into the smallest identifiable unit and then figuring out the
best way to do that part of the job. He felt that productivity
would improve if each aspect of work was carefully studied
and the alternatives facing each worker were restricted. He
was correct but has been criticized for dehumanizing the
workplace and reducing human beings to little more than
machine cogs in the production process. But the principles
of scientific management had been well defined. Describe
and break down each task into its smallest component and
study that task until the best way to do that task is fully

defined. Remove uncertainty and alternatives facing each
employee and reward productivity with incentives. Use ex-
perts, for example, industrial engineers, to define optimal
work outputs and plan for optimal results.
Fayol identified the four basic management functions:
planning, organizing, leading, and controlling. His work fo-
cused on management more than task and production. He
identified 14 principles of management, universal truths he
thought could be taught (reference 13, p. 20–41). They are:
• Division of work
• Authority
• Discipline
• Unity of command
• Unity of direction
• Subordination of individual interest
• Remuneration
• Centralization
• Chain of command
• Order
• Equity
• Stability
• Initiative
• Esprit de corps
I will not discuss each principle individually, leaving
that for the reader to explore. These are still taught as the
basics of management, and Fayol’s work remains as perti-
nent today and it did early in the 20th century.
Max Weber embellished the scientific management
theories with his views on bureaucracy and organizational
theory (46). He focused on dividing organizations into
hierarchies and on the establishment of lines of authority
and control. He suggested that organizations develop com-
prehensive and detailed standard operating procedures for
all routine tasks. Where Fayol before him had laid out his
principle of management, Weber identified the core ele-
ments of the new organization, the bureaucracy:
• Formal rules and behavior defined by those rules
• Uniformity of operations despite changes in personnel
• Division of labor based on functional specialization
• Rational allocation of tasks
• Impersonal orientation
• Membership that constitutes a career
• Promotion based on technical competence
• Employment based on merit
• Tested qualifications
• Legally defined, prescribed lines of authority
• Limited discretion of senior management and officers
CHAPTER 1. PRINCIPLES OF MANAGEMENT 7
• Specific spheres of competence
• Legally based organizational tenure (46)
Weber believed that emphasizing order, rationality, and
uniformity would lead to more equitable treatment of the
workers. He is faulted in some circles for his authoritarian
views and the concept that authority is position based and
not focused on the individual. Clearly, however, his work
moved beyond that of Taylor and Fayol and laid the ground
work for the next generation of management thought.
Behavioral theory. Despite the economic progress brought
about by the implementation of scientific management, as
noted above, many critics were pointing to the dehuman-
ization of the workplace. Labor and management conflict
ensued, and worker apathy and boredom were believed to
be widespread. These concerns, along with developments
in the field of psychology and economics, brought to the
forefront challenges to the assumptions of the scientific
management school.
The Hawthorne studies at a Western Electric plant
were a straightforward attempt to determine if there was
a relationship between the work environment and produc-
tivity (28). In one famous experiment, the illumination
in one work area was adjusted and another area acted as
a control. The productivity between the two groups was
compared. Curiously, the productivity of each group in-
creased, challenging the assumption that mere physical
environmental changes were the key. Elton Mayo and his
associates, who performed the experiments, believed the
increase in productivity was a result of increased attention
paid to both sets of workers. Other studies performed by
Mayo illustrated that workers will perform at a level in-
formally set by the work group and that external manage-
ment often will have little impact on those decisions. Thus,
Mayo concluded that social processes play a major role in
determining worker attitudes and behavior, far from the
previously accepted notions that workers and tasks could
be parsed out like parts of a machine (28). This led to the
development of the human relations movement, which is
based on the idea that a manager’s concern for his work-
ers will lead to increased worker satisfaction and improved
performance.
Shifting the focus from strictly organizational needs,
the human relations movement sought to bring the wants
and needs of the individual worker into the discussion.
American psychologist Abraham Maslow devised his six-
level hierarchy of needs that, according to his theory, de-
termines human behavior (27). He ranked them as follows:
• Physiological
• Security and safety
• Love and feelings of belonging
• Prestige and esteem
8 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• Self-fulfillment
• Curiosity and the need to understand
As one level of needs is met, we are able to work toward
meeting the next level. If management wants solid, pro-
ductive employees, motivated to work at their best, then
every individual must be compensated and supported to
the point where his or her basic needs are fulfilled and no
longer seem to be a concern. Crucial, of course, is the un-
derstanding that what would fulfill one person may not
address another’s perceived needs. Hence, individual at-
tention to each worker is a requirement for management
to succeed.
Douglas McGregor developed his own theory of mo-
tivation and management, which is referred to as theory
X and theory Y (30). In short, behind every management
decision and action are assumptions about human nature
and human behavior. Theory X ascribes to the more nega-
tive and perhaps Taylorist concept, that people need direc-
tion and control and are incapable of taking responsibility.
Individuals all need financial inducements and threats to
make them work. Theory Y, on the other hand, presumes
people want their work to be fulfilling, that they seek self-
respect and self-development. Theory Y suggests that work
is a natural human enterprise and that the average person
does not dislike work. Effort on the job need not come as a
result of threats, but rather results if the individual is com-
mitted to the organization and its objectives. Satisfaction
on the job and self-actualization can be directed toward
the objectives of the organization. Additionally, theory Y
proponents accept that imagination, ingenuity, and cre-
ativity are not restricted to a narrow group within the or-
ganization, but are widespread and only need to be tapped.
Both behaviorist models emerged because previous
management theory was far too simplistic and did not ad-
dress the needs of the individual. Maslow and McGregor
tried to address individual needs and their relation to the
needs of the organization (27, 30). From this we were able
to gain some insights into group process and interpersonal
relationships among the workers, and it focused manage-
ment on the needs of employees as people, not just as part
of the production process. But therein lie some of the limi-
tations of this view. People are complex beings, and it is
never easy to predict what anyone will want at any given
moment. Managers themselves often find it easier to focus
on process than people. Organizational goals and objec-
tives are frequently stated in other than human relations
terms. Nonetheless, these theories remain at the core of
modern human resource management and are still robust
today in their insights and perspectives.
Quantitative theory. As the world moved out of World
War II and industrial production shifted its focus from mil-
itary hardware and support of national causes to consumer
goods and services, so did the corporation move from “cost
is no object” to a cost-containment, profit-driven mind-
set. The legions of industrial engineers, previously focused
on industrial efficiency to support the war effort, were now
charged with improving corporate efficiency. Who said it
first is lost in history, but the adage “if it can be measured
it can be managed” took hold, and strong quantitative ap-
proaches were adopted.
Management science focused very specifically on the de-
velopment of mathematical models (reference 31, p. 49–52).
Early computer applications in this direction centered
on helping managers find the best way to do things and
to save money. Linear programming models and inven-
tory management and control, difficult mathematical
concepts, often beyond the ability of a person to com-
pute within rational time limits, become trivial questions
when the power of even the simplest of computers is em-
ployed. But this also looked very much like the pendulum
was swinging back into Taylorism and the dehumaniza-
tion of the organization. Much of senior management in
the post-WWII period was made up of former officers
and military veterans, who placed their focus on accom-
plishment of the task at hand, often at the expense of the
welfare of their employees. Employee work groups could
not readily convert to a mathematical problem; hence a
new concept of management needed to be developed to
bring together the needs of the corporation and the needs
of the individual.
Operations management was that attempt to develop
a set of tools, applied mathematics and human resource
management, to develop techniques to produce products
and services more efficiently (reference 31, p. 49–52). Op-
erations management often includes substantial measure-
ment and analysis of internal processes. Ultimately, the
nature of how operations management is carried out in an
organization depends very much on the nature of prod-
ucts or services in the organization, for example, retail,
manufacturing, or wholesale. As with management sci-
ence, though, the focus moved away from the individual
and related more to the organization at large and how it
interacted within the larger business environment (16).
Management by objectives (MBO) tried to integrate the
concept of managing what can be measured while simulta-
neously bringing the individual into focus (reference 10,
p. 126–127; 37). At its simplest, in MBO every employee
has a set of objectives to achieve, which together with all
other employees in the organization will pull the enter-
prise toward its overall objectives. All targets are quantifi-
able and easily recognizable for their value to the company.
Realistically, though, performance management is difficult,
and inevitably the biases and personal agenda of the rater
may come into play. Key points here are that objectives must
be clearly defined, plans for achieving the objective must be
detailed and clear, and there must be ongoing monitoring

to see if the plans are moving forward (reference 10, p.
126–127).
Thus, the quantitative perspective did push the devel-
opment of mathematical techniques for decision making
and the setting of objectives. This modeling methodology
dramatically increased the awareness of organizational
processes and assisted greatly in organizational planning.
As with the previous theories, however, human behavior
is unpredictable, and following the dictate “garbage in/
garbage out,” mathematical models based on faulty infor-
mation or assumptions will not lead to better management.
Integrated theory. With the failure of mathematical mod-
eling to fully address management problems, a new, more
holistic view of the organization developed (reference 31,
p. 56–57). Speaking generally, the integrated, systems ap-
proach to management tried to incorporate the best of all
that came before it while trying to maintain a human fo-
cus (22). Systems theory represents the merger of many
ideas from scientific management and the human relations
movement. It is project-based and strives toward organi-
zational synergy. There are those who would nest systems
theory under the heading of quantitative management.
Such an approach misses the point that systems theory is
all-encompassing, whereas the basics of quantitative man-
agement are pure mathematics.
A system here is defined as an organized unit composed
of two or more interdependent parts, subsystems perhaps,
where the whole can be identified as something separate
and apart from its surrounding environment (reference
31, p. 58). Consider an organization to be a system. It will
experience problems, and issues will need to be addressed.
The systems-oriented manager, rather than merely trying
to manage the problem away, will look at the opportunities
a problem might bring and will try to bring all available
resources from his organization to bear on the situation.
Much of systems theory resembles the scientific method.
You see a problem to be examined. You hypothesize a solu-
tion. You design a controlled experiment to test that hy-
pothesis. You collect and analyze the data. The key here is
to maintain your focus and attention on the organization
as a whole (22). You cannot change one part of the sys-
tem without affecting all the others. Systems theory might
seem quite basic. Yet it is extremely difficult to examine the
whole of an entity. We are used to breaking down problems
into identifiable and workable parts. It should be noted
that information system tools to allow a real-time focus on
an entire organization are only recently available.
Into this mix, and possibly in part as a result of the diffi-
culty of trying to manage the whole, a contingency theory
of management emerged. At its most basic, contingency
theory asserts that when managers make decisions, they
must take into account all aspects of the current situation
and then act on only those aspects that are most crucial
CHAPTER 1. PRINCIPLES OF MANAGEMENT 9
(24). You keep the entire entity in mind but only focus on
that which seems most important. You acknowledge you
will be impacting the entire system, but you keep your at-
tention directed at that which seems most pressing at that
moment. Thus, there is no one “best way” to manage an
organization. The contingency perspective would say that
universal theories do not apply to every organization, be-
cause every organization is unique. This falls under the
subheading of an integrated theory, because it presupposes
that the decision maker involved will keep in mind that
even though his concern might be on a subsystem of the
larger organization, it is still nested in that larger system.
As powerful as the above integrated approaches might
be, they soon were dwarfed by the emergence of the vari-
ous total quality management and continuous quality im-
provement models.
W. Edwards Deming is often referred to as the founder
of the modern quality movement (reference 31, p. 622). An
American whose ideas were developed based on Western
management theory, he gained wide prominence through
the acceptance of his theories by the Japanese. The Japa-
nese themselves will say that the application of his ideas
led in great measure to their postwar economic success.
His theories by themselves are very basic and deceptively
simple to implement. To start, Deming believed that total
quality management (TQM) begins at the corporate level
(34). The entire enterprise must have a deep and wide-
ranging commitment to the continuing improvement of
products and services (19). You can never stand still and
say, figuratively, that what you have is good enough. Don’t
bother with postproduction inspection as the place to
identify errors. Inspection and review must be ongoing.
Build quality into the production process and the prod-
uct. Do not rely on low-cost bidding by suppliers. Instead,
require true quality, measure quality, and be willing to pay
the price for that result. And finally, initiate training pro-
grams and leadership models to help people do a better
job and to empower them to speak out and respond when
problems are detected (reference 39, p. 129). Deming says,
do this and you’ll produce a better product.
More than 40 years after their adoption, these concepts
seem obvious and basic to modern industrial manage-
ment. At the time, however, they were revolutionary, and
their adoption by the Japanese changed the meaning of the
phrase “made in Japan” from cheap and poorly made to
solid and reliably built (reference 39, p. 98–99).
Total quality management, one of the first so-named
theories of the quality movement, is a structured system
for satisfying internal and external customers by integrat-
ing the business environment, continuous improvement,
and technological and production breakthroughs (refer-
ence 6, p. 15–37). “Structured” means it is strategy driven
by the identification of customer wants and needs that
have been determined through ongoing interaction with
10 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
those customers. TQM is a description of the culture, atti-
tudes, and organization of a company that aims to provide,
and continue to provide, its customers with products and
services that satisfy their identified needs. It is a corporate
culture that requires quality in all aspects of the company’s
operation, with things done right the first time and defects
and waste removed from operations. The products are de-
signed to be quality output, and the manufacturing and
product systems follow through to meet that goal.
Consider the differences. Ford Motor Company strove
to become the number one producer of automobiles by
determining first what price the consumer would accept
and then working toward making a car that could be pro-
duced for that price. The challenge was not quality. The
challenge was production efficiency and unit cost (ref-
erence 31, p. 130–131). More or less, you could look at
the production of Ford cars as a “Taylorism” experiment.
Divide the work into its smallest parts, make each part
as efficiently as possible, and ramp up production to get
quantity pricing. On the other hand, consider the produc-
tion of a Toyota in 1975. Via marketing research, the fo-
cus was on what level of quality the customer expected for
every unit of cost (34). Design the product to meet those
quality demands. Focus not on through-put but on quality
production at each step. Acknowledge that the customer
does not want the cheapest car, but rather the best value
for the selling price. The attitude shift is from car pro-
duction at whatever the market will bear, to getting the
best-quality product onto the market as the best value to
be found.
Many organizations have trouble integrating a TQM
model into their operations. Fewer than half of those who
have tried a TQM approach report any improvement in
quality, productivity, competitiveness, or financial return
(reference 6, p. 6). But that percentage may be deceiving.
The focus should be on successful operations, where many
more than 50% rely upon TQM to maintain their success.
A subset of the TQM movement is often referred to as
continuous quality improvement (CQI). What separates
CQI from TQM is the focus on the employee (21). A CQI
approach forces the organization to look at its employees
and their work as part of a continuous process. CQI is
thought to have a more human face than TQM. This au-
thor finds it hard to see the distinction.
Whatever acronym you choose to use, the quality man-
agement approach to production changed forever the way
manufacturers looked at their world. The focus on cost
reduction and profit improvement has been replaced for-
ever by a focus on the customer and the production of a
quality product that meets the customer’s needs at a rea-
sonable price.
New concepts. Management theory and thought continue
to move forward, with ongoing work in the behavioral and
individual employee world, as well as focusing on the or-
ganization and production processes.
Above, it was noted that management by objectives was
one of the most widespread approaches to dealing with
individual employees. Taking that notion a step farther
is the current interest in lifelong learning, also known as
continuous lifelong learning (reference 23, p. 332–336).
The continuous lifelong learning process starts by identi-
fying where a person is at that moment and where a per-
son needs or wants to be. Assessment of the individual is
an essential part of this self-identification, so that person
can move to the next phase of the process. Phase two has
individuals taking over and leading themselves to their
desired performance level and to the amount of change
they want to achieve. There are several key factors. First,
the employer recognizes that crucial to lifelong learning is
the concept that no one individual will necessarily stay in
his job or with that employer forever. As people learn and
grow, they move on to new jobs and experiences. Second,
individuals can take charge of their lives to reach their full
potential. Self-empowerment is both a result and an em-
ployee need. Third, each individual is accountable for and
responsible for his or her individual progress. One might
have a mentor. But that mentor is not responsible for the
individual’s growth.
The connection to the employer and management is that
learning-inspired and -driven employees do better work
and absorb the total quality management message much
more effectively (reference 23, p. 332–336). TQM and CQI
require employees to think and to consider the options
available to them to work better and more efficiently. Dia-
logue between management and worker is enhanced when
employees think in terms of their jobs as part of a lifelong
journey and they are learning and working toward better
lives. This is almost a utopian vision but nonetheless is the
direction in which much of the industrial world is heading.
Similarly, while on an individual basis the organization
actively develops its employees to evolve and grow, on a
product and process basis modern corporations are start-
ing to work toward a total product life cycle management
concept. This theory suggests that more than merely fo-
cusing on a product as a unit at a point in time, the orga-
nization needs to consider whether that product is in the
ascendancy or is fading and adjust the product to the cus-
tomer needs accordingly (5, 18). The marketplace is always
moving forward, and the organization must move forward
with it. Product design and production must think through
the issues of product introduction and placement in the
marketplace, ultimately the disposal and replacement of
that product, and planning for the next generation of prod-
uct to meet the customer’s demands and needs. Similar in
many ways to TQM, in which a product design defines its
quality and use, the life cycle management theory goes a
step farther to plan for product demise and redefinition as

customers change their focus to something new. At some
point the organization will decide to stop making or doing
one thing and to move on to another. Life cycle manage-
ment forces an enterprise early in a product’s life to plan
for its replacement (5). Thus, engineering is always think-
ing ahead, and employee education always works toward
preparing the workforce for the future.
Also similarly, process reengineering forces the organi-
zation to rethink how it does its work and how it can be
done better (reference 41, p. 103–129). Again, this is an ex-
trapolation on TQM and CQI. The difference is that with
TQM and CQI you are always trying to improve what you
already do. Process reengineering suggests you entirely
abandon what you are doing now in favor of something
entirely new and different (reference 41, p. 174–192). In
the extreme, process reengineering assumes the current
process to be irrelevant. Thus, start over with a clean slate
and see what you can do. Those subscribing to this theory
think in terms of vision and the future (8). What must we
look like at some future point to meet the needs of our cus-
tomers? What technological changes have taken place that
we should incorporate to make us better and more respon-
sive? What will our customers expect of us in the future
that we must plan and build toward now?
A reengineering given is that technological change has
negated all that we do now. Thus, it is not merely a desire
on our part to change what we do to improve ourselves.
Changes in technology by themselves have invalidated all
that we do. Hence, we must rebuild from the beginning to
utilize all that is new. Competition in the marketplace says
new organizations, those that have never used outdated
methods, are there to surpass you. Thus, finding new ways
to do things, redesigning processes around new technol-
ogy, is central to organizational survival.
Finally, many believe that the customer base we work
with now is much more quality sensitive and driven.
Only the best will survive. Defining what is the best is a
current challenge. Six Sigma is one of those approaches.
A thorough coverage of Six Sigma can be found at the
Six Sigma website, which covers in depth all aspects of Six
Sigma. That site defines Six Sigma as a highly disciplined
process to focus on developing and delivering near-
perfect products and services (http://www.isixsigma.com/
new-to-six-sigma/; last accessed April 6, 2012). The word
sigma is a statistical term that measures how far a given
process deviates from perfection. Knowing that deviation,
one can predict how many errors and defects there will be
in a process; thus you can systematically try to find and
remove them.
The Six Sigma website states the following: “Six-Sigma by
definition is not more than 3.4 defects per million events.”
A Six Sigma defect is further defined as anything outside of
customer specifications (reference 3, p. 184–202). Thus, it is
not merely an operational or production defect. A process
CHAPTER 1. PRINCIPLES OF MANAGEMENT 11
can function perfectly, but if the end result is outside of
what the customer wants, it is a product defect.
Six Sigma talks of product and process improvement.
It incorporates many of the features of TQM and CQI
and also of process reengineering. Loosely, the theory
proponents refer to two acronyms: DMAIC (define,
measure, analyze, improve, control) and DMADV (de-
fine, measure, analyze, design, verify) (reference 3, p.
329). Six Sigma process implementation staff are often
referred to as Green Belts and Black Belts, suggesting a
special, trained status and the aggressive nature by which
the measurement and improvement processes are imple-
mented (reference 3, p. 125–145).
Six Sigma is another in the many process and product
review methodologies, all with the aim of giving the cus-
tomers what they want. Six Sigma has “raised the bar” on
the definition of product and process quality. Like all man-
agement techniques, commitment at all levels of the orga-
nization is required, and if nothing else, this is the primary
message carried in all of the above-described modern and
new theories.
To this we can add another layer, Lean Six Sigma, add-
ing a measure of time efficiency to the already established
efficient production process. As stated on the Six Sigma
website, “Lean production is aimed at the elimination of
waste in every area of production including customer rela-
tions, product design, supplier networks and factory man-
agement. Its goal is to incorporate less human effort, less
inventory, less time to develop products, and less space
to become highly responsive to customer demand while
producing top quality products in the most efficient and
economical manner possible.” (http://www.isixsigma.com/
new-lean-six-sigma/; last accessed April 10, 2012)
Decision Making
Most everyone makes many decisions every day. Granted,
many decisions are small and made almost unconsciously.
Other decisions are more significant and require more con-
scious effort, time to study, and consideration of the poten-
tial consequences. Regardless of the nature of the decision,
every decision encompasses elements of a basic decision-
making process.
Decision making by laboratory managers is an everyday
activity. Decision making is a core administrative action
(42). It is a common process that pervades all healthcare
organizations and is essential to the managerial func-
tions of planning, organizing, directing, and controlling
as shown in Fig. 1.2. The best decisions are made based
on “cost-effectiveness (tests we perform or outsource),
productivity (employees we hire), service quality (how we
organize services), technology (equipment and methods
we purchase), and outcomes (what we accomplish for pa-
tients)” (20).
12 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Inputs Process Outputs
Planning
Products
Decision
Resources Controlling Organizing
And
Making
Services
Directing
Figure 1.2 Decision making: integral to management functions.
doi:10.1128/9781555817282.ch1.f2
Decisions are made by all levels of management with
resource responsibility. In addition, decisions are made by
staff. The latter can also affect efficiency and effectiveness
in an organization. In fact, sometimes decisions should in-
volve staff in either data gathering or actually making the
decision instead of the manager. A common rule of thumb
is that decisions should be made at the lowest possible level
in an organization. The closer one is to the information and
effects of a decision, the higher the quality of that decision.
This section on decision making begins with a defini-
tion and review of the leadership role in decision making.
Different types of decisions are described and contrasted,
followed by a discussion of group involvement in decision
making. Steps in the decision-making/problem-solving
process are dissected to avoid pitfalls and improve skills.
Finally, the element of risk in decision making is explored.
What Is Decision Making?
Concisely, decision making is the act of choosing one al-
ternative from among a set of alternatives. This act is com-
plex, however. Inherent in this definition is an awareness
that a decision needs to be made, that alternatives need to
be developed and considered, and that one “best” alterna-
tive is chosen and implemented. Consequently, the “act” of
decision making is more appropriately termed a “process,”
as will be described later.
The science of decision making, as described in the
literature, applies models based on deductive, inductive,
analytical, and simulation approaches. These models note
that decision making is a deliberate process, differentiat-
ing managerial decisions from habit and reflex. Decision
making also has an artistic side, drawing on the decision
maker’s creativity and judgment. In addition, managers
often base their decisions on personal or organizational
value systems and philosophies.
Recent reports have looked at decision making as a
“window” into leadership style and leadership effective-
ness. Indeed, the distinction between managers’ and lead-
ers’ decision making, as shown in Table 1.1, points to
important philosophical and practical differences (35).
Embodied in these differences is an understanding of the
five crucial elements of leadership:
1. Leadership, like decision making, is a process.
2. The locus of leadership is a person, the “leader.”
3. The focus of leadership is other individuals or groups
(followers).
4. Leadership entails influencing.
5. The objective of leadership is good accomplishment
(40).
Pickett’s differences between leaders and managers in
Table 1.1 point to an empowerment of individuals in an or-
ganization so they are better able to participate in decision
making. He notes that empowerment requires “stretching,
coaching, training giving authority, and implying permis-
sion to make mistakes (obviously, this must be judiciously
applied)” (35). When people in an organization are em-
powered decision makers, they think differently, act differ-
ently, and are more energetic.
During an interview, a reporter once asked a successful
executive what the secret to his success was. “Two words,”
the executive replied. “Right decisions.” The reporter
probed for more information, asking, “How are right
decisions made?” The executive replied, “One word—
experience.” “But how did you get this experience?” asked
the reporter. “Two words,” replied the executive. “Wrong
decisions.” Experience is a powerful teacher.
Types of Decisions
Decisions can be studied and classified from a number of
perspectives (9). Some decisions are strategic or tactical—
the former focusing on the means to reach a goal, the latter
focusing on steps or objectives to be accomplished. Some
decisions are administrative, requiring substantial resource
commitment; other decisions are operational, dealing with
day-to-day activities. Some decisions are programmed be-
cause they are routine and repetitive in nature. Other deci-
sions are termed nonprogrammed because they are novel
and unstructured. Still other decisions are individual or
group, differentiated by who makes the decision.
Table 1.1 Emergence of management theories
Emergence Theory
1940s Operations management
1950s Systems theory
Management by objectives
Total quality management
Continuous quality improvement
1980s Six Sigma
Lean
1990s Process reengineering
2000s Lean Six Sigma

Strategic decisions are concerned with an organization’s
relationships with the external environment, the choice
of a competitive posture, and the formulation of major
policies (26). The goal is to arrive at the best plan for the
organization, given operational, economic, logistical, and
political constraints. Examples include mergers, expan-
sions into new markets, and off-site testing facilities.
Tactical decisions are, as the name implies, tactics or
steps for implementing the organizational strategy. These
can be categorized further as administrative decisions or
operational decisions. Administrative decisions deal with
authority, responsibility, and accountability relationships.
Operational decisions handle the routine, day-to-day prob-
lems in accomplishing work.
Decisions may also be classified as programmed or
nonprogrammed. Programmed decisions are fairly struc-
tured and recur with some frequency (9). For example, the
decision to reorder supplies and reagents for the labora-
tory is a programmed decision. Structure exists in terms
of quantity to order, purchase requisition process, etc. This
decision is made on a recurring basis. Programmed deci-
sions are guided by rules, policies, and procedures.
By contrast, nonprogrammed decisions are relatively
unstructured, in part because they occur infrequently (9).
Situations that have never arisen exactly like the present
or are very complex usually do not have procedures to
guide the decision-making process. Some years ago when
the concept of core laboratories was introduced, the deci-
sions necessary to plan these high-volume, cross-specialty
facilities were unstructured, hence nonprogrammed. A de-
cision today to purchase experimental equipment is a non-
programmed decision. Nonprogrammed decisions require
intuition, creativity, and a tolerance for ambiguity.
A manager’s natural tendency toward decision making
prompts two more decision types: intuitive decisions and
judgmental decisions. Intuitive decisions are made using
hunches, subjective values, and personal or emotional fac-
tors. A manager who becomes impatient with the time it
takes to gather information and sort through details, may
make an intuitive decision. The manager’s decision can-
not be readily explained by looking for details but is more
likely rationalized by a perception of the “big picture,” a
holistic view of the situation. Individuals who tend to
make intuitive decisions believe creativity comes from in-
spiration rather than perspiration.
Most laboratory managers with education and experi-
ence in clinical laboratory science tend to make judgmen-
tal decisions. These decisions are reached after data are
gathered, facts analyzed, and concrete examples explored.
Judgmental decisions rely on objective analysis and ratio-
nal procedures. For those decision makers who tend to
make judgmental decisions predominantly, creativity is
really perspiration. The potential danger of “analysis pa-
ralysis” is a real threat.
CHAPTER 1. PRINCIPLES OF MANAGEMENT 13
Individual versus Group Decision Making
Individual versus group decision making has received
much attention in the management literature. By ap-
pointment to a position, the manager has the authority
and power to make certain decisions. If managers were
all-knowing and highly creative, and if the workplace was
not a complex environment, perhaps the involvement of
subordinates in decision making would be less important.
But all managers have limitations; the work environment
is complex; and some of the necessary information and
creativity to reach a high-quality decision resides with the
subordinates.
The involvement of groups in decision making adds
both benefits and liabilities. Groups tend to make more
accurate decisions compared to individual decisions,
although reaching a group decision is slower. Social
interaction in group decision making tends to foster com-
petition among members for respect, provide social sup-
port, and self-correct errors that might occur when an
individual is making the decision alone. Group decision-
making dynamics sometimes are counterproductive, how-
ever. When not constrained by a mandate to reach a group
decision, individuals tend to produce more ideas, more
unique ideas, and better ideas. Generally, people accept
better decisions reached by a group versus an individual if
they feel their participation in the decision was considered
and valued. Obviously, acceptance of a decision is key to
commitment and implementation.
Vroom and Jago (45) have shared their insight into the
question of whether a decision should be made by the indi-
vidual manager or with involvement of the affected group
of employees. Originally researched by Vroom and Yetton,
these insights take into account three criteria: (1) quality
or rationality of the decision, (2) acceptance or commitment
of subordinates to implement the decision, and (3) time re-
quired to make a decision.
Vroom and Yetton’s decision-making model identified
seven rules to protect the quality and acceptance of a de-
cision, as shown in Table 1.2. Adherence to these rules,
and guidance about when to involve groups in decision
making, are aided by the corresponding questions shown
in this table. Before considering each rule, it is important
to answer the first question, “Does the problem possess a
quality requirement?” Management decisions are rarely
right or wrong in a “black or white” sense; many decisions
are simply better than others—hence a higher-quality de-
cision. For example, a manager can make the fairly simple
decision of who will staff which holidays simply on a basis
of who is available and the number of staff needed. But is
this the best decision, the highest-quality decision? Likely
not, since certain holidays are more important to some
employees than to others. Decisions affecting employees
directly often have a quality element that carries over to
affect both acceptance and commitment.
14 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 1.2 Decision-making differences between leaders and managersa

Characteristic Leader Manager
Vision Search for long-term opportunities Maximize current opportunities
Communication Tell people why we are doing Tell people what to do; listen to have an effect;
something listen for understanding
Question(s) asked Why? How? What?
Planning An opportunity to excite, educate, A path to follow
prepare for future
Power Something to share and use for the Something to have and use
goal of the group
Problem-solving style Something to learn from, opportunity Something to solve, to fix
for growth
Perceived role Integrator; maker of decision makers Controller or decision maker
a
Adapted from reference 35.

Each of Vroom and Yetton’s seven rules to protect qual-
ity and acceptance identifies specific concerns in decision
making (45) (see Table 1.3):
1. The leader information rule raises the question of
whether the manager has sufficient information or ex-
pertise to solve the problem himself. Some level of
group involvement, only if it is seeking information,
may be necessary to protect the quality of the decision.
2. The unstructured problem rule asks whether this is a
programmed or nonprogrammed decision, i.e., has it
been solved before and are there already rules, policies,
and procedures to guide decision making.
3. The acceptance rule asks whether subordinates’ com-
mitment to the decision is key to implementation.
4. The acceptance priority rule asks whether subordi-
nates will be committed to the decision if it is made
autocratically by the manager.
5. The goal congruence rule queries whether subordi-
nates share (agree with and hence will be committed
to) organizational goals to be reached by solving the
problem.
6. The conflict rule poses the question of whether there
will be disagreement among subordinates about which
is the best solution.
7. The fairness rule considers how subordinates will per-
ceive their involvement and opportunity to air and re-
solve differences in reaching a decision.
The decision styles illustrated in Fig. 1.3 show Vroom
and Yetton’s continuum from total management prerogative
when an autocratic decision is made, through group involve-
ment in a consultative process, to more employee prerogative
in the group having responsibility for a decision. A review
of the code descriptions (AI and AII for autocratic, CI and
CII for consultative, and GI and GII for group) reveals the
subtle differences in approaches. For example, the consulta-
tive approach may be done by the manager sharing the prob-
lem with employees one at a time to seek their input or all
employees at the same time. The latter approach will have
both the benefits and limitations of group social interaction.
Figure 1.3 also attempts to capture the essence of accep-
tance or commitment and time criteria. When a decision
is made predominantly through management prerogative,

Table 1.3 Concerns in decision making a

Parameter Rules Question(s)
Quality 1. Leader information rule Does the problem possess a quality requirement?
Do I have sufficient information to make a high-quality
decision?
2. Unstructured problem rule Is the problem structured?
Acceptance 3. Acceptance rule Is acceptance of the decision by subordinates important
for effective implementation?
4. Acceptance priority rule If I were to make the decision by myself, am I reasonably
certain that it would be accepted by my subordinates?
Quality and acceptance 5. Goal congruence rule Do subordinates share the organizational goals to be
attained in solving the problem?
6. Conflict rule Is conflict among subordinates likely in a preferred
solution?
7. Fairness rule
a
See reference 45.
 CHAPTER 1. PRINCIPLES OF MANAGEMENT 15

AI AII CI CII GI GII

Subordinate
Resistance
To Change
Time to
Make
Decision
Figure 1.3 Continuum of decision styles. AI, You solve the
problem or make the decision yourself, using information avail-
able to you. AII, You solve the problem or make the decision
yourself, using information from subordinates. They may or
may not be aware of the decision-making process and their role
in it. CI, You share the problem with relevant subordinates indi-
vidually, getting their ideas. Then you make the decision your-
self, accepting or rejecting subordinate advice. CII, You share
the problem with relevant subordinates at a group meeting, get-
ting their ideas. Then you make the decision yourself, accepting
or rejecting subordinate advice. GI, You share the problem with
subordinates individually, and together analyze the problem and
arrive at a mutual solution. You both contribute. GII, You share
the problem with relevant subordinates at a group meeting and
together analyze the problem and arrive at a group decision. You
do not try to influence the group, and you are willing to accept
and implement what the group recommends. DI (not shown in
figure), You delegate the problem to a subordinate, providing
him with relevant information and giving him sole responsibil-
ity for the problem. doi:10.1128/9781555817282.ch1.f4
resistance to acceptance and commitment is highest, but
the decision is made in the least amount of time. By con-
trast, greater employee prerogative in making a group de-
cision requires more time to reach the decision but results
in less resistance.
In healthcare, group involvement in decision making
has become popular as a form of participative manage-
ment or shared governance. Shared governance models,
ranging from interdisciplinary committees to self-directed
work teams, attempt to develop group structures where
members have “power, authority, accountability and final
decision-making capacity” (36). Often these groups are
created around functions, such as patient care or practice
operations or education. Gill points out that it is important
for the manager to understand how different groups in-
teract, communicate, and influence individuals within the
group, to effectively facilitate group decision making (14).
Moreover, it is important for the manager to have a level of
understanding about individual preferences and strengths
as a contributor to group decision making. Drucker points
out that “a great many people perform best as advisors,
but cannot take the burden and pressure of the decision.
A good many people, by contrast, need an advisor to force
themselves to think, but then they can take the decision and
act on it with speed, self-confidence, and courage” (12).
The Problem-Solving/Decision-Making Process
While it is true that decisions are choices, decision mak-
ing and problem solving are indeed a process of steps, as
shown in Fig. 1.4. Definition of these steps, a dissection of
the anatomy of a decision if you will, points to the value
and potential pitfalls in reaching a high-quality decision

Implement solution and follow up Figure 1.4 Problem-solving/decision-making

consequences process. doi:10.1128/9781555817282.ch1.f4
5

Identify problem
Select best or determine
alternative 4 1 objectives

Develop and Gather facts and

evaluate alternate evaluate information
solutions or options 3 2

Judgments Perceptions

Thinking Feeling Sensing Intuition

16 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
whether made by an individual or group (29). True, many
decisions can be made quickly with little attention to the
steps along the process. The more complex the problem,
and the more mission-critical the objectives, the more im-
portant each step is to reaching a successful, high-quality
decision. McConnell notes that “one of the greatest trouble
spots in decision-making exists because of the human ten-
dency to move from observation to conclusion on limited
information” (29).
• Step 1: Identify the problem or determine the objectives.
Identifying the problem requires a manager to first di-
agnose the situation. Too often a symptom of the prob-
lem is misidentified as the root cause. For example, a
manager who identifies poor morale in the laboratory
has misdiagnosed the situation. Poor morale is a symp-
tom of an underlying problem. The range of root
causes could be low pay, unappreciative supervisors, or
lack of respect from coworkers, among other causes.
Failure to define the problem in step 1 will negate all
subsequent steps to solve the problem. Similarly, clear
definition of objectives for a decision provides a con-
stant point of reference when subsequently gathering
information and developing alternatives.
• Step 2: Gather facts and evaluate information. At this
step, the manager will learn whether he is dealing
with a programmed or nonprogrammed decision. Are
there rules, policies, and procedures that need to be
followed? Has someone already solved this problem,
and if so, how similar are the characteristics to this
situation? Is there a need to get group input, and if so,
individually or collectively, and from whom? Figure
1.4 shows the influence of the manager’s perceptions
of information gathered as data are evaluated. The
natural tendencies to either rely on the five senses to
identify factual details (sensing) or to use hunches
and a more holistic view (intuition) will be part of
this step.
• Step 3: Develop and evaluate alternative solutions and
options. Some possible solutions will be obvious;
other solutions will be more creative. The tendency to
quickly adopt the first viable solution may be time ef-
ficient but lead to a lower-quality decision or solution.
In general, the more important the decision, the more
alternatives should be developed. At this step, as shown
in Fig. 1.4, the evaluation of options will be influenced
by the judgments of the decision maker. The use of
both subjective values and objective analysis will lead
to a better sorting of potential options.
• Step 4: Select the best alternative. After considering
each option in light of the situation or objectives to
be achieved, the manager chooses the one most likely
to be the highest quality with the greatest acceptance
within the time available for decision making.
• Step 5: Implement solution and follow up consequences.
The chosen alternative is implemented, and over
time the manager determines if the problem has been
solved or the objectives met. The potential pitfall here
is to ensure that once the chosen alternative is imple-
mented, the process is complete. Two key questions
need to be answered: (1) Did the chosen alternative
work? (2) Are there unintended consequences to the
decision that now must be addressed?
The problem-solving/decision-making process de-
scribed is illustrated as a continuous circle of events (42).
First, because the steps often overlap in practice, a man-
ager may be simultaneously gathering information while
still identifying the problem, or evaluating information
while developing alternatives, for example. Second, the
connection of all steps leading back to solving the identi-
fied problem or meeting the intended objectives is impor-
tant to “closing the loop.”
Risk
All decisions involve some element of risk. Risk is based
on uncertainty. The greater the outcome uncertainty of
the alternative chosen, the greater the risk. Managers must
carefully weigh both the tangible and intangible elements
of risk to arrive at a comfortable level of certainty. Often,
competing elements contribute to risk. A manager who
recognizes a staff salary inequity chooses between the risk
of alienating upper administration by pressing for equity
or incurring cost from employee turnover.
A manager’s decisions can be influenced significantly by
both his own and his organization’s propensity for risk. A
manager with a high propensity for taking risks with deci-
sions in an organizational culture with a low propensity for
risk will likely experience problems. Both a personal and
organizational comfort level must be achieved. Clearly, the
manager must be aware of his own personal attributes re-
garding risk level: one’s propensity for risk may lead to an
underestimate of the actual risk or an overconfidence to
overcome the risk.
Time available or consumed in decision making can be
viewed as a risk. For some, there is never enough informa-
tion to reach a comfortable level of risk, leading to what
some call “analysis paralysis.” For others, making a quick de-
cision increases the risk of a less-than-high-quality decision.
Some elements of risk lie in the behavioral factors of
risk takers. Hammond et al. identify these as psychological
traps (17):
• Anchoring trap. Placing disproportionate weight on
first or more superficial information found during in-
formation gathering
• Status-quo trap. A bias toward doing what you’ve al-
ways done despite better alternatives

• Sunk-cost trap. Tendency to perpetuate mistakes of the
past
• Confirming evidence trap. Bias toward information and
judgment that supports an existing predilection
• Framing trap. Misstating the problem, focusing on a
symptom
• Overconfidence trap. Overestimation of accuracy of
information
• Prudence trap. Being overcautious about the degree of
risk
• Recallability trap. Placing undue weight on recent, dra-
matic experiences
Good decision making relies on knowledge of both the
importance and components of the process. It requires an
awareness of personal skills to determine the best way to
reach the highest-quality decision with the greatest accep-
tance in the amount of time available. Good decision mak-
ing requires experience and learning from one’s mistakes
(reference 23, p. 66–68). Good decision making requires
the ability to reflect on information, then decide (15, 25).
Management Ethics
It is far too easy in these complex times to presume that you
or your employees will always know how to do the right
thing. The dictates that we have often heard—follow the
golden rule, or that Druckerism, “do the right things”—
are hard to follow when the issues we face are not that easy
to understand or do not readily gel with our value systems.
Most discussions of ethics and morals are couched in phil-
osophical or sociological terms. Indeed, the study of ethics
remains for the most part an academic discipline, and thus
the management literature on the subject is sparse. The lit-
erature that can be found is often simplistic, since many
business leaders until recently thought the topic irrelevant.
Ethics is, however, a very relevant issue in modern man-
agement. And every organization should espouse and live
a clearly understood set of moral values and maintain the
highest possible standards. The Complete Guide to Eth-
ics, an Internet guide, provides an excellent resource for all
matters relating to business and managerial ethics (http://
www.managementhelp.org/businessethics/ethics-guide
.htm; last accessed July 8, 2013).
Definitions
Ethics, speaking simply, involves learning what is right and
wrong. At an early age each of us learned these lessons from
parents and other caregivers (reference 31, p. 86). Much of
the argument one hears about ethics revolves around ab-
solutism versus relativism. Is there always the right thing
to do based on moral principles, or does the situation
drive the ethics question? Above, part of the discussion on
CHAPTER 1. PRINCIPLES OF MANAGEMENT 17
management theory referred to the contingency theory in
management, that there is no one right way to approach
a problem (24). One must focus on the situation at hand,
and that will lead to a resolution of that particular problem.
A relativistic approach to ethics would say the same thing.
There are no moral absolutes—only the most ethical ap-
proach to a situation at that moment.
Is the definition of “business ethics” any different? Per-
haps not. Business ethics refers to doing what is right or
wrong in the workplace and doing what is right in relation
to products, services, and the various stakeholders (refer-
ence 11, p. 366). Business ethics most directly connects
to one’s customers, rather than abstractions such as the
community, an open question, or a political issue. It is this
direct connection to the practical aspects of running an
enterprise that makes business ethics different and worthy
of separate consideration.
Speaking generally, business ethics problems center on
two main themes: managerial mischief and “moral mazes”
(reference 23, p. 255). Managerial mischief refers to illegal
or questionable practices of individual managers or orga-
nizations, as well as the causes of those behaviors. Note that
it is individuals, and not organizations, that are the issue.
An individual cannot hide behind the cloak of an orga-
nizational policy. Organizations are groups of people, and
people decide what is to be done or not done (reference 23,
p. 255). Most of the focus on ethics has centered on this
issue and how to approach these problems. Whistleblower
policies and laws most likely spring from this area of con-
cern. Perhaps it is comparatively easy to legislate and regu-
late business behavior to meet ethical standards. Indeed,
the law and the generation of regulation are in some ways
a societal method of imposing standards of action and be-
havior on the organization and its individuals.
Moral mazes, on the other hand, are not so clear and
not so easily handled. A moral maze refers to the numerous
and unclear ethical issues a manager faces in everyday work
life (reference 11, p. 347–348). Examples here might be real
conflicts of interest, wrongful use of resources, or misman-
agement of contracts. What is right and what is wrong is
not always clear in a competitive work environment. Seek-
ing competitive advantage might mean “bending the rules”
in accounting for expenses or in researching a competitor’s
products and services. Are accounting standards flexible or
inflexible? Is it unethical to stretch the boundaries of ac-
counting principles if it fits your economic model? Is indus-
trial espionage unethical? As you can see, moral absolutes
in these situations are not easy to find. A random group
of managers, employees, or other stakeholders might read
these questions from very different perspectives and hence
derive very different answers (reference 11, p. 348). None
of the answers would be wrong, necessarily, but the differ-
ences of opinion, like political questions, would raise many
issues beyond the questions at hand.
18 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Conflict of interest can be seen as a version of the
moral maze. Most everyone wants to help those close to
him or her. When does a form of aid prove to be a bad
choice? Generically, conflict of interest is a situation in
which a person, such as a public official, an employee, or
a professional, has a private or personal interest sufficient
to appear to influence the objective exercise of his or her
duties. Conflict of interest can involve anyone and is not
limited to officials or politicians. Obligation to your orga-
nization and its stakeholders must be viewed as supersed-
ing any personal gain you might derive from your work or
gain you might pass on to another connected and inter-
ested party. For example, everyone would want a family
member to succeed in business. As a manager, however, it
would be unethical to show favoritism to family members
by passing business in their direction in a noncompeti-
tive manner. Similarly, accepting personal gain for your
decisions, like sending business to a company you own
or accepting bribes to do the same, is a form of conflict
of interest.
Characteristics of High-Ethics Organizations
In the same manner that a successful organization lays out
its mission, goals, and objectives, its ethical guidelines are
laid out and understood (reference 23, p. 255). First and
foremost, an ethical organization has a clear vision of right
and wrong. The discussion above raised the question of
relativism versus absolutism. By design, an ethical orga-
nization clarifies to the greatest extent possible what is ac-
ceptable behavior versus what is not. Obviously, not every
question can be addressed. But the organization can state
clearly that ethical behavior in all areas and in all activi-
ties is what is expected, and failure to do so will have its
consequences.
Organizational vision most often comes from the top
(reference 23, p. 255). The organization’s chief executive
must support and underwrite an ethics program. Failure
on the part of top management to actively and enthusi-
astically support an ethics program will be noted by the
rank and file. The executive officer should champion the
program’s development and foster a climate that encour-
ages ethical behavior. From the start, the senior officers
must espouse honesty and integrity as primary opera-
tional traits.
Everyone in an ethical organization understands its ethi-
cal stance. Training in organizational ethics is a part of new
employee orientation and part of an organizational ongo-
ing training program. All employees receive this training,
and all understand the need to stay vigilant and sensitive to
ethical issues. Ethical behavior in this context is good be-
havior, and the ethical organization designs its reward sys-
tem around good behaviors. For example, employees can
be measured on adherence to policy and their participation
in ethics committees and management groups.
Benefits of Strong Workplace Ethics
Aside from the desire to do what is right, and perhaps that
is a good enough reason in itself, why should an organiza-
tion devote so much time and energy to an ethics program?
To start, business ethics has improved society for all of us
(reference 23, p. 339). Thinking back to the time period
of the business robber barons, where anything and every-
thing was and could be done to promote one’s competitive
edge, worker safety was often compromised, sweatshops
were everywhere, price fixing among the major corporate
powers was rampant, and workers had no rights. Think
now of the situation as it exists today. Perhaps the work
environment can be better, but child labor has largely van-
ished, and there are laws to protect the consumer and the
worker. All of this comes at a cost, however, but as a society
we have determined that the cost of good and ethical busi-
ness is one we should bear (reference 23, p. 212).
Mission and vision statements tell the employee and
those outside of an organization who you are and what
you are trying to do. For the employee, it helps foster team-
work and a sense of place in the organization (reference
23, p. 213). Teamwork leads to productivity and organi-
zational success. Maintaining a strong ethical stance helps
one’s employees work through questions of what is right
and wrong and what they are to do in difficult situations.
For the employer, a strong ethics program can reduce some
of the problems associated with risk management and con-
flict of interest. And, of course, a strong ethics program
can mesh with the entire strategic planning and quality
management process, where trust between individuals and
strong communication skills are needed to promote orga-
nization success and attention to what should be done and
how the organization is to accomplish these goals.
Additionally, the ethical organization displays a posi-
tive public image (reference 23, p. 20–23). Positive im-
ages often translate into marketability and improvement
in the bottom line for the enterprise. This cannot be one
of the primary reasons for adopting strong and open ethi-
cal practices. But there is nothing wrong in strongly stat-
ing one’s ethical position in a public forum so that all will
know where you stand and what you value. It may set you
apart from the mainstream, and that is not a bad thing.
Within the healthcare environment, compliance is an
often-heard word. Compliance refers to a variety of opera-
tional issues: billing, the Health Insurance Portability and
Accountability Act, the Occupational Safety and Health
Administration, The Joint Commission, and the Clini-
cal Laboratory Improvement Amendment regulations, to
name a few. Compliance programs should be viewed as a
regulatory enforced form of ethical behavior. The rules and
regulations around all of these issues are complex, at times
are difficult to implement and enforce, and often add lay-
ers of complication to already tough working situations. The
positive attribute of all, however, is the clarity they provide to

the employee and the organization on what is acceptable be-
havior and what is not. Shades of gray are disappearing, and
everyone is learning what is perceived as right and wrong.
Management Roles and Responsibilities
Restating what was said above, the most important step
management must take in regard to an ethics program is to
fully promote it and never waiver from the tenets accepted
as organizational guidelines (reference 23, p. 255). Beyond
that, however, management must recognize that ethics and
the maintenance of an ethical organization require an on-
going and ever renewed commitment to its success. Much
like strategic or financial planning, an ethics program
must be an ongoing process. It will be difficult to measure
program success. Nonetheless, it must be a continuous
evaluation of where the organization stands and where its
values have moved.
Management can take a strong lead in the development
of ethical policies and codes of conduct. A staff that is fully
educated about organizational ethics is less likely to stray
into illegal and unethical behavior. The best way to avoid
managerial mischief and the moral maze is to state at the
outset what is expected in terms of moral and ethical be-
havior and what activities to avoid that might lead to dif-
ficult working situations.
While the initiation and promotion of an ethics program
must come from the top of the organization, there must be
support from and ongoing interaction with all levels of the
enterprise (reference 23, p. 255). It is the role of manage-
ment to make sure everyone is involved and that all under-
stand the reasons for and the need for prescribed ethical
behavior. Employee teams can be put into place for the pur-
poses of policy development and review and as forums for
employee guidance when ethical issues arise. Ethics issues
and decisions should be public and known, and it remains
a responsibility of management to make sure that happens.
Finally, and perhaps a characteristic of the ethical or-
ganization, it is better to try and fail, often openly and
publicly, than not to try at all. As ethics programs are fully
integrated into an organizational culture, the increased
communication that results between employees, and be-
tween management and staff, can lead to embarrassing
disclosures and discussions of inappropriate behavior. The
intent of an ethics program is not to develop an organi-
zation of finger-pointers. Rather, knowing that bad be-
havior will be found and exposed, the entire organization
will move in a more ethical direction, and repeat episodes
hopefully will be less frequent.
Summary
When it comes to the management of an organization,
there is no right or wrong way to get the job done. So long
as they stay within the boundaries of ethics, the law, and
CHAPTER 1. PRINCIPLES OF MANAGEMENT 19
moral behavior, managers can and must choose their own
path to success. Many studies have been completed and ar-
ticles written describing what managerial behavior works
best and what does not. For the most part the question is
situational and focuses on managers and what they must
do at any moment to help their organization achieve posi-
tive results and move forward. We study the past to learn
from notable successes and failures. We live in the pres-
ent, moving forward ever faster it seems, where the deci-
sions we make must come quickly and the issues we face
are more complex and pressing. The best managers remain
thoughtful about their avocation, always seeking new an-
swers to the questions they face.
KEY POINTS
■ Leadership, management, and administration are not
one and the same. At any given moment, any one per-
son may fill any of those roles. Learning what style fits
you is a process of self-discovery and is shaped by the
needs of the moment.
■ The body of research and literature on management
theory is large, both from a historical context as well as
in terms of the number of those interested in the topic.
There is no consensus on what theories present the best
and most accurate picture of how to manage groups of
people. As mankind moves forward and our technology
advances, management theory likewise expands and
adapts to the new workplace.
■ The ability to make good decisions often separates the
best leaders and managers from the rest. Knowing how
to work through to a good decision, bearing in mind
the elements of time and risk, provides one of the solid
bases for managerial success.
■ A strong ethical framework must be one of the guid-
ing tenets for the modern organization. The benefits
of developing such a framework are many, whereas the
downside can be severe. From the top to the bottom, all
employees must accept and live the positive values their
organization espouses, thus removing any uncertainty
of where they stand with any moral dilemma.
GLOSSARY
Administration Managerial work with a service orientation.
Bureaucracy Organizational hierarchies and defined lines of
control.
Business ethics Learning and doing the right thing in the work-
place, directly relating to products, services, and stakeholders.
Conflict of interest A situation in which a person has a private
or personal interest sufficient to appear to influence the objective
exercise of his duties.
20 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Contingency theory A decision-making strategy, considering
all aspects of the current situation and acting on that
information.
Continuous/lifelong learning A self-empowering theory, that
the employee will throughout his life learn and strive to improve
and move on to new things.
Continuous quality improvement A more human-focused
quality management theory, relying heavily on worker involve-
ment in the product improvement process.
Cultural lag The gap between technological advances and the
ability of society to control and work with them.
Decision theory The study of how decisions are made and what
guides a manager to a good decision.
Hierarchy of needs Defined by Maslow, from the most basic to
the highest level, needs to be addressed to motivate the employee.
Human relations movement An approach to management, fo-
cusing on the worker and his individual needs.
Intuitive decisions Utilization of hunches, subjective values, and
personal or emotional factors in deciding what actions to take.
Judgmental decisions Conclusions reached after data are gath-
ered, facts analyzed, and concrete examples explored.
Leadership Influencing others to attain group, organizational,
and societal goals.
Lean Optimizing customer value while minimizing waste, using
fewer resources.
Lean Six Sigma Combining Lean and Six Sigma, time and pro-
cess efficiency.
Management Getting things done through other people.
Management by objectives Setting goals for the individual to
achieve, dovetailing with larger organizational objectives.
Management science Management techniques based on math-
ematical models.
Moral maze Unclear ethical issues.
Nonprogrammed decisions Unusual or atypical situational
solutions.
Operations management Applied management technique, uti-
lizing mathematical modeling and industrial engineering to pro-
mote efficiency and effectiveness.
Process reengineering Rethinking current work in favor of do-
ing something new.
Situational management Acting only on what needs to be ad-
dressed at a particular moment and recognizing that there is no
best way to get a job done.
Six Sigma A highly disciplined process focusing on developing
and delivering near-perfect products and services.
Strategic decision Focus on an organization’s relationship with
the external environment, competitive posture, and major policies.
Systems theory The merger of the theories from scientific man-
agement and the human relations movement.
Tactical decision Steps toward the implementation of organiza-
tional strategy.
Taylorism and scientific management An approach to work
and the workplace where every job is divided into the smallest
possible segments and each segment is examined and improved.
Theory X and theory Y Defined by McGregor, a theory high-
lighting the difference between those who believe people need to
be forced to work versus those who believe people want to work.
Total quality management Designed-in product quality, with
the focus on customer wants and needs as the key drivers in
product and process improvement.
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management, p. 151–152. In M. D. Fottler, S. A. Hernandez, and
C. L. Joiner (ed.), Strategic Management of Human Resources in Health
Services Organizations. John Wiley and Sons, Inc., New York, NY.
27. Maslow, A. 1943. A theory of human motivation. Psychol. Rev.
50:376–396.
28. Mayo, E. 1933. The Human Problems of an Industrial Civiliza-
tion, p. 48–97. McMillan Publishing, New York, NY.
29. McConnell, C. R. 2000. The anatomy of a decision. Healthcare
Manag. 18(4):63–74.
30. McGregor, D. 1960. The Human Side of Enterprise, p. 33–48.
McGraw Hill, New York, NY.
31. Mescon, M. H., M. Albert, and F. Khedouri. 1985. Manage-
ment: Individual and Organizational Effectiveness, 2nd ed. Harper
and Row Publishers, Inc., New York, NY.
32. Metcalf, H. C., and L. Urwick. 1941. Dynamic Administration,
p. 277. Harper and Row Publishers, Inc., New York, NY.
33. Mintzberg, H. 1973. The Nature of Managerial Work, p. 31.
Harper and Row Publishers, Inc., New York, NY.
34. Nations Business. February, 1981. p. 67–70.
35. Pickett, R. B. 2001. What does all this leadership stuff mean to
me? Clin. Lead. Manag. Rev. 15:395–400.
36. Porter-O-Grady, T., and R. Hess. 1996. Perspectives on shared
governance. J. Shar. Gov. 2(4):11–15.
37. Raia, A. 1974. Management by Objectives, p. 11. Scott, Foresman,
Glenview, IL.
38. Raven, B. H., and J. E. Rubin. 1976. Social Psychology: People in
Groups, p. 37. John Wiley and Sons, New York, NY.
CHAPTER 1. PRINCIPLES OF MANAGEMENT 21
39. Riggs, J. L., and G. H. Felix. 1983. Productivity by Objectives.
Prentice-Hall, Englewood Cliffs, NJ.
40. Shortell, S. M., and A. D. Kaluzny. 2000. Healthcare Manage-
ment: Organization Design and Behavior, 4th ed., p. 109. Delmar
Thomson Learning, Albany, NY.
41. Smith, H., and P. Fingar. 2002. Business Process Management:
The Third Wave. Meghan-Kiffer Press, Tampa, FL.
42. Snyder, J. R., and B. R. Hendrix. 1998. Problem-solving: the de-
cision making process, p. 61–78. In J. R. Snyder and D. S. Wilkinson
(ed.), Management in Laboratory Medicine, 3rd ed. Lippincott-Raven
Publishers, Philadelphia, PA.
43. Taylor, F. W. 1912. Principles of Scientific Management, p. 23–75.
D. Van Nostrand, New York, NY.
44. Vecchio, R. P., G. Hearn, and G. Southey. 1988. Organisational
Behavior: Life at Work in Australia, p. 334. Harcourt Brace Jovano-
vitch, Sydney, Australia.
45. Vroom, V. H., and A. G. Jago. 1978. On the validity of the
Vroom-Yetton model. J. Appl. Psychol. 69:151–162.
46. Weber, M. 1921. Theory of Social and Economic Organization
(translated by A. M. Henderson and T. Parsons), p. 328–333. The
Free Press, Simon and Schuster, New York, NY.
47. Webster’s New World Dictionary. 1982. Simon and Schuster,
New York, NY.
48. Wrightsman, L. S. 1977. Social Psychology, 2nd ed., p. 638.
Brooks and Cole, Monterey, CA.
OTHER READING
Carman, J. M., S. M. Shortell, R. W. Foster, E. F. X. Hughes, H.
Boerstler, J. L. O’Brien, and E. J. O’Connor. 2010. Keys for successful
implementation of total quality management in hospitals. Healthcare
Manag. Rev. 35(4):283–293. doi:10.1097/HMR.0b013e3181f5fc4a.
A reference I thought was interesting.
Bard, M. A., and M. Nugent. 2011. Accountable Care Organizations:
Your Guide to Strategy, Design, and Implementation. ACHE Manage-
ment Series. Health Administration Press, Chicago, IL.
Fottler, M. D., R. C. Ford, and C. P. Heaton. 2010. Achieving Service
Excellence: Strategies for Healthcare, 2nd ed. ACHE Management Se-
ries. Health Administration Press, Chicago, IL.
McGlown, K. J., and P. D. Robinson. 2011. Anticipate, Respond, Re-
cover: Healthcare Leadership and Catastrophic Events. ACHE Man-
agement Series. Health Administration Press, Chicago, IL.
Goleman, D. 1998. What makes a leader? Harvard Business Re-
view, Boston, MA. http://ebookbrowse.com/harvard-what-makes
-a-leader-daniel-goleman-020217-pdf-d202107054.
22 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 1.1 Websites

Complete Guide to Ethics Management: an Ethics Toolkit for Six Sigma

Managers http://www.isixsigma.com/new-to-six-sigma (accessed September
http://www.managementhelp.org/ethics/ethxgde.htm (accessed 9, 2012)
September 9, 2012) http://www.isixsigma.com/new-lean-six-sigma (accessed
September 9, 2012)
LeadersDirect An introduction to Six Sigma and its interconnection to product and
process improvement and “Lean” methods.
http://www.leadersdirect.com/whats-a-manager (accessed
September 9, 2012) Excellent resource for publication lists
“What’s a Manager?” by Mitch McCrimmon. http://www.pohly.com/admin.html
Introduction
Planning
2 Management Functions
Strategic Planning • Selecting a Planning Group •
Environmental Analysis • SWOT Analysis • Vision Laurence P. Vetter
and Mission Statements • Goals and Strategies •
Prioritization • Accountability • Measuring Success
(Metrics)
Organizing
Organizational Chart • Time Management •
Policies • Procedures • Workflow • Staffing
Directing OBJECTIVES
Communicating • Delegating • Motivating • To give laboratory managers and supervisors an overview of basic
Managing Change • Coaching management principles and practices in a laboratory or clinical setting
Controlling
To give the reader practical advice on the strategic planning process
Setting Performance Standards • Evaluating Employee
Performance • Problem Solving • Decision Making To point the reader toward significant writings on the topic of management
Summary through citations and a bibliography
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Even if you’re on the right track, you’ll get run over if you just sit there.
Will Rogers

T
he American commentator Will Rogers was beloved for his home-
spun aphorisms that used humor to illuminate universal truths. “Even
if you’re on the right track, you’ll get run over if you just sit there” is a
folksy nugget of wisdom that is as true today as it was when he first said it gen-
erations ago. Being well positioned in the present is desirable and necessary,
but failure to move forward all but ensures that you will be flattened by that
which is coming up the track. This reality applies to individuals and to organi-
zations as well. In clinical laboratory science, many managers succumb to the
temptation to rest on past accomplishments, content with the self-deception
that because things are going well now, there is no need to consider changing
anything. Laboratories can languish and sometimes fail because the leadership
does not recognize the necessity to adapt in anticipation of an ever-evolving
environment. Because throughput is at an acceptable level, cash flow is suffi-
cient, staffing is adequate, supplies are being ordered, and payroll is routinely
met, the laboratory manager might be tempted to switch on the autopilot and
not think too much about the future. An engaged and thoughtful laboratory
manager understands the necessity of being the catalyst who keeps the organi-
zation continuously moving forward up the track to avoid being crushed when
the environmental predictions become operational actualities.

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch2
One of the most important human activities is managing. Ever since people be-
gan forming groups to accomplish aims they could not achieve as individuals,
managing has been essential to ensure the coordination of individual efforts. As
society has come to rely increasingly on group effort, and as many organized
groups have become large, the task of managers has been rising in importance.
(reference 8, p. 3)

23
24 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Laboratory managers have highly specialized skills,
and they often serve multiple overlapping roles within
the healthcare system. First and foremost, a laboratory
manager is the chief laboratorian, providing special-
ized technical expertise within the medical laboratory.
Managers are “extenders” of the physician and clinical
laboratory scientist directors. As such, they must remain
abreast of and implement federal and industry regula-
tions, adhere to credentialing and compliance require-
ments, understand and evaluate new technologies, and
remain continuously informed about advancements in
clinical testing capabilities.
In addition to these very important technical responsi-
bilities, managers must also oversee the business aspects
of the laboratory. Personnel supervision, staff recruitment
and retention, budgeting, purchasing, and compliance
are all essential tasks of the laboratory manager. While
bench-level expertise is essential, knowledge is required
far beyond and above the skills needed by a technolo-
gist. The laboratory manager occupies a truly specialized
niche within the organization. Understanding of basic
management functions will contribute to the success of
any complex organization, and the application of some
fundamental, time-honored practices will ensure that the
laboratory’s operations are carried out with maximum ef-
ficiency. A manager will be more effective, and ultimately
more successful, with a systematic approach. As Will
Rogers suggested, inaction and complacency—“just sit-
ting there”—will most certainly result in getting run over
sooner or later.
A manager’s primary responsibility is directing the im-
mediate operations of the laboratory. The day-to-day, and
often minute-to-minute, activities of the laboratory will
occupy the greatest amount of a manager’s time and re-
sources. Understanding the environment in which the lab-
oratory functions, and anticipating potential problems that
might arise within it, allows a manager to avoid costly mis-
takes in staffing, scheduling, purchasing, and budgeting.
The best managers learn how to balance their time
and their many overlapping responsibilities with a well-
organized approach. They are always looking to the fu-
ture and thinking about how major trends might affect
the operation of the laboratory. They view changes in the
operational environment as opportunities to make needed
improvements in staffing, technology, and processes. This
progressive, forward-looking approach requires insight,
commitment, and the ability to teach the staff how to iden-
tify and solve problems.
A good manager is a “high-performance” manager. The
high-performance manager is:
A strategist – One who looks to the future, makes edu-
cated guesses about the major forces and trends he or
she can see, and interprets them in terms of opportuni-
ties for growth and progress.
A problem solver – One who clearly perceives the differ-
ences between the anticipated future and the unfolding
present and who decides what must be done with those
factors under his or her control to influence the envi-
ronment or to adapt to it most effectively.
A teacher – One who guides others and helps them to
identify and solve problems, so that they can perform
their tasks effectively and can develop themselves as
individuals as well as workers. (12)
The study of management is typically broken out into
four primary areas: planning, organizing, directing, and
controlling. This chapter provides an overview of those
management functions, presented in basic, practical
language.
Planning
Planning is the process of formulating objectives and de-
termining the steps which will be employed in obtaining
them. No modern healthcare organization can be effective
without an overall plan of action. (reference 5, p. 30)
Strategic Planning
By taking an educated and well-advised look into the fu-
ture, a manager can position the laboratory to grow in the
proper direction. The surest path to success in any enter-
prise is careful and committed strategic planning.
The essence of effective planning is a sense of prepared-
ness. Savvy teams look ahead, envision when they will do
which tasks, anticipate what resources and training they
might need, and consider what to do if they run into prob-
lems. Unfortunately, many fall prey to the “ready, FIRE,
aim” approach that encourages people to act even if it isn’t
the right thing to do or the right time to do it. Although
planning adds time up front, it increases the chances of
success and decreases wasted time in the long run. (refer-
ence 18, p. 333)
Having a long-range plan seems like obvious advice,
and few would argue the importance of planning. How-
ever, unless the plan is well considered within a realistic
framework, it will be of little use. In fact, poor planning—
without data, without knowledgeable input from expert
resources, without accountabilities, without deadlines,
without follow-through—is just as bad as failure to plan.
Deploying the wrong resources in the wrong directions of-
ten makes matters worse.
Strategic planning is a methodical process whereby an
organization defines its mission, identifies directions, de-
velops a unified approach, prioritizes long- and short-term

goals, assigns accountabilities, and allocates financial re-
sources. If done properly, strategic planning involves su-
pervisors and staff, and it requires the use of time and
resources. Therefore, a manager must plan to plan.
Before any planning is initiated, a number of important
questions must be answered, including the readiness of
the organization to engage in such a process, whether the
culture of the organization generally supports a planning
process, how committed the organization is to a time- and
energy-consuming process, who should be involved in the
planning group, how and when the process should be ini-
tiated, how others in the organization who are not directly
involved in the planning process will be informed about
the process, and the time frames for the process. (refer-
ence 14, p. 6)
A strategic plan helps the organization develop an
action-oriented approach and identify the pieces needed
to build a successful laboratory operation. Good strategic
planning is a structured process. “Structured” means that
the plans of individual laboratory sections must fit into an
overall plan that covers the entire laboratory operation. It
is a “process” because good plans are not produced in iso-
lation according to some predefined formula.
There are many books offering expert advice on how to
develop a strategic plan. These can be useful to a manager
in understanding the elements of a strategic plan and how
a planning process might be established. However, manag-
ers should not get caught up in a by-the-book approach.
They should be flexible enough to develop a process that
fits their particular organization. Several points should be
considered when planning.
• Involve staff at every level in developing a strategic
plan. Solicit feedback from individuals who really
know what’s going on and who will be responsible for
executing the plan. You will get great ideas and critical
buy-in by getting staff at the bench level to offer input
during the process.
• Be flexible in developing a plan by circulating drafts
and allowing people to provide feedback.
• Ensure that everyone knows their responsibility for
deployment of the plan and that feedback mechanisms
are implemented. The most carefully written plan will
fail if those responsible for its execution do not know
their roles, deadlines, and resource allocations. A de-
fined feedback mechanism will ensure that the plan
does not get lost in daily crises.
Strategic planning always presents a challenge, regard-
less of the size and scope of an organization. The more
far-reaching the laboratory’s mission is defined, the
greater the challenge. One constant, whenever the para-
mount resource of an organization is the experience of
CHAPTER 2. MANAGEMENT FUNCTIONS 25
its people, is the absolute necessity to include the input
of the staff (23).
The objective of planning is to set an achievable course
of action by establishing long- and short-term goals, mon-
itoring progress, and establishing an environment where
day-to-day activities are well controlled, measurable, and
thoroughly understood.
Before moving on to a discussion of the planning pro-
cess, first a note of caution about the dangers of “over-
planning”: There are limits to what can be known, or
anticipated, about the future. There are limitless scenarios,
influenced by unknown events yet to occur, that will affect
future decisions.
The difficulty of finding the correct scale for planning
accounts for many failures. The more uncertain we are,
the greater our tendency to overplan, for example. In a
situation we find threatening to begin with, we try to
foresee all possibilities and make allowances for every
conceivable mishap. This approach can have ruinous
consequences. The more extensive our understanding
becomes, the more the planning process will impress on
us the myriad possible results. Planning, like the gath-
ering of information (for planning, too, is a form of in-
formation collection), can increase our insecurity rather
than reduce it. (2)
It is impossible to plan for every remote possibility. Try-
ing to do so will result in a plan that is so cumbersome and
unwieldy that it will be beyond useless. A plan that attempts
to cover the spectrum of possibilities will result in poor de-
cisions. Planning must be within a manageable scale.
Selecting a Planning Group
A small, knowledgeable, and motivated group from within
the laboratory should be assembled by the senior leader to
participate in strategic planning.
One of the most important aspects of this stage of the
process is choosing the planning group, those who ac-
tually will be involved directly in the planning process.
Typically consisting of seven to eleven persons broadly
representing the management level of the various organi-
zational functions, this group will be expected to commit
themselves to a time-consuming and demanding process,
usually while fulfilling their regular responsibilities. (ref-
erence 14, p. 6)
The group must contain key people from all areas of
the laboratory. In a large and comprehensive pathology
laboratory, there should be executive-level representa-
tives from all functional areas (for example, hematol-
ogy, microbiology, chemistry, and immunology), as well
as key administrative and support leaders (for example,
sales, marketing, accounting, and billing). Since physician
26 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
directors, laboratory managers, and supervisors are ulti-
mately accountable for meeting the goals and objectives
of the plan, they should make up the core of the planning
group. Other key people in the laboratory who possess a
strong working knowledge of policies, procedures, tech-
nology, and processes should also be included. The group
must be large enough to be inclusive of all areas affected by
the plan, but not so large that it is not conducive to a free
exchange of ideas in a conversational setting.
As planning progresses, there will be occasions when
facilitation must be utilized to tactfully keep the conver-
sation moving forward in an orderly way. The role of the
designated facilitator is to encourage constructive dialogue
while remaining unbiased as to the outcome. It might prove
useful to designate a facilitator from outside the planning
group, someone who is knowledgeable but objective and
who can comprehend the complexity of the issues without
having a stake in the outcome.
Environmental Analysis
When decisions are made within a realistic framework,
it ensures that expectations are achievable and success is
possible. The climate in which a laboratory operates is in
a constant state of flux. It is critical for a manager to be
aware of the changes that are constantly occurring in the
operational environment. Awareness of these changes is
necessary during the planning process.
This awareness stems from active involvement and
participation. Management cannot be accomplished in
a vacuum. The manager must have professional affilia-
tions to gain the insight and perspective of peers in other
organizations. Some examples include the Clinical Labo-
ratory Management Association, the American Society
for Microbiology, the American Association of Blood
Banks, the American Association for Clinical Chemis-
try, the American Society of Hematology, the American
Society of Clinical Pathology, and the Clinical Labora-
tory Standards Institute (CLSI). There are unique pro-
fessional organizations for almost every subspecialty of
clinical laboratory science. A manager is encouraged to
be an active participant in the appropriate professional
organizations, sharing knowledge and gaining from the
experience of others.
Laboratory managers must also regularly read
laboratory-specific literature and journals. All professional
organizations have some type of regular publication, be it
a journal, a newsletter, or a website. These organizations
offer continuing education opportunities through national
meetings, webinars, conference calls, and online tutori-
als. Professional involvement allows the manager to keep
a current skill set, and also to remain abreast of trends,
knowing which questions to ask and where to find perti-
nent information to answer those questions.
The gathering of necessary information at the begin-
ning of the strategic planning process is often called an
“environmental analysis”—a systematic review of the in-
ternal and external factors that influence the laboratory. A
thorough environmental analysis forces an organization to
face reality, and it sets a tone for planning.
In this analysis, the administrative staff seeks to answer
questions such as: what kinds of services should we be
offering the community five years from now? How will
these services be different from those offered currently?
What kinds of resources (machinery, equipment, build-
ings, patient rooms, employee personnel) will we have to
acquire in order to provide these future services? How
will we finance the purchase of these resources? (refer-
ence 5, p. 54)
An environmental analysis should be performed at
the very beginning of the planning process. Reliable data
should be gathered from every possible source. These data
should include financial information (trends, current fiscal
situation, and projections), capital equipment inventories,
personnel data, and laboratory-specific performance data.
In some cases, a simple survey can be developed to gauge
satisfaction and expectations of clients and employees. The
most important consideration in performing an environ-
mental analysis is to be completely forthcoming about the
internal and external factors that affect the laboratory. The
planning process must begin from a point firmly grounded
in reality. If assumptions are not accurate and brutally hon-
est, the resulting strategic plan will be a nonstarter.
SWOT Analysis
The modern healthcare organization must appraise its
strengths and weaknesses so that it can determine its fu-
ture opportunities and environmental threats. (reference
5, p. 84)
A necessary component of an environmental analysis
is the careful consideration of the laboratory’s strengths,
weaknesses, opportunities, and threats, often called a
SWOT analysis.
Comparing the laboratory’s existing strengths to known
opportunities makes it possible to put concrete strategies
in place to capitalize on those opportunities. Using the
same approach, matching the laboratory’s known weak-
nesses to actual environmental threats is useful in avoid-
ing costly mistakes.
Vision and Mission Statements
If one does not already exist, at the beginning of the
planning process a vision statement should be written
to articulate what the organization seeks to become. A
vision statement is an internal document, by design. It
is intended to inspire those within the organization to

maximize their potential, and by so doing, to maximize
the potential of the organization as a whole. A vision
statement needn’t be wordy; some of the best vision state-
ments are brief and succinct. A vision statement should
be lofty in its ideals. It should state a common purpose,
and it should express the long-term goal of the organi-
zation. An example of a vision statement, from the Vir-
ginia Commonwealth University (VCU) Department of
Pathology, states, “Our vision is to become a preeminent
Department of Pathology in the United States, which is
recognized for excellence in biomedical research, the edu-
cation of healthcare professionals, and the innovative ap-
plication of science and technology to the diagnosis and
management of human disease.”
A mission statement for the laboratory should also
be developed at the beginning of the planning process.
A mission statement answers certain fundamental ques-
tions about the organization, such as What is our pur-
pose?, In what activities will we be engaged to accomplish
that purpose?, and What are our basic values and shared
beliefs? Having a clearly articulated mission statement
benefits the planning process by defining the organiza-
tion’s purpose, but it also benefits the organization by
reminding everyone, staff and clients alike, about the
organization’s purpose. An example of a mission state-
ment, also from the VCU Department of Pathology,
states, “The mission of the Department of Pathology is
to provide high-quality, cost-effective pathology services
in a manner that supports the patient care, education,
and research missions of the VCU Health System Aca-
demic Medical Center and the Virginia Commonwealth
University School of Medicine.” Note that this statement
clearly defines what the organization is and the clientele
that it serves. As planning progresses, people should look
to the mission statement for guiding principles in the
decision-making process.
The mission statement should be credible and closely
aligned with the organization’s actual purpose.
An effective organization will invariably have a well-
grounded sense of itself, and its mission statement should
match. Although a mission statement should provide the
base upon which to move strongly into the best possible
future for the organization, if it is not credible it will not
only fail to attract committed followers, but it will also
cause some to lose trust in those who drafted it . . . Cred-
ibility is lost when the mission goes beyond the stakehold-
ers’ ability to believe in it. (reference 14, p. 67)
Goals and Strategies
The adage, “If you do not know where you are going, any
road will get you there,” illustrates why leadership must
be visionary and must set clear goals with strategic objec-
tives. (13)
CHAPTER 2. MANAGEMENT FUNCTIONS 27
For practical purposes, a planning horizon that is too
distant will be impacted by rapid and perhaps unforeseen
changes in the economy, technology, industry trends,
and government regulations before the planning period
is complete. In a technology-dependent industry with
ever-increasing regulation, it is absolutely necessary for a
manager to remain knowledgeable about the current op-
erating environment while understanding future trends.
Therefore, for the medical laboratory, a planning hori-
zon of eighteen months to two years is practical. It allows
the planning group to make decisions that are forward-
looking but does not project the planning to a point where
the environment has changed beyond anyone’s ability to
realistically predict.
Planning is done to produce a list of goals and strat-
egies that will guide laboratory management decisions
for a predetermined period of time. Through discussion,
the planning group produces a written document that
lists specific goals and strategies. A goal is an end or an
outcome that one hopes to attain. Simply stated, a goal is
something positive that the organization hopes to accom-
plish. Through discussion and negotiation, the planning
group should develop a list of goals for the laboratory. An
example of a goal is “to enhance laboratory revenue by
increasing referral testing from external sources.” This is
a clear statement of something that the laboratory will try
to achieve.
A strategy is a means to a defined end or, more simply
stated, an action taken to reach a goal. Every stated goal
can have numerous strategies. For this example, a strategy
relevant to the above goal might be to “hire a marketing
director to develop business and increase referrals from
community hospitals.”
A manager can be flexible in creating a strategic plan-
ning document. The design of a strategic plan is open to
creativity. The essential ingredients are not. A strategic
plan must include goals and strategies—a clear statement
of that which is intended to be accomplished and the steps
that will be taken to accomplish it.
Prioritization
In planning, as in every other aspect of effective manage-
ment, it is necessary to assign priority by weighing the im-
portance of the tasks at hand to determine which have the
highest level of immediate importance. Therefore, plan-
ning is often a struggle between “must do” and “want to
do” decisions.
Accountability
The only way to ensure follow-through on action items is
to assign specific people to be responsible for delivering
results. An effective plan must have built-in accountabil-
ity for all objectives and strategies. This means attaching
28 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
specific names to specific action items. If everybody is
accountable for a certain task, then nobody will take pro-
prietary ownership to make certain that the task is done
correctly and in a timely way. Accountability, by definition,
is the obligation of a person to be responsible for his or
her own actions. Therefore, individuals must be assigned
to the implementation of specific activities to make certain
that follow-through is achieved.
Measuring Success (Metrics)
Once a strategic plan is drawn, a process of implementation
must be followed to track advancement toward completion
of specific aims. The actual strategic plan is articulated in
a document that lists the goals, strategies, accountabili-
ties, and deadlines. The document can be as simple as a
multiple-column Word table, an Excel spreadsheet, or an
Access database. The appearance of the planning docu-
ment is not important. What is important is the organiza-
tion of information in a structured format that is readable
and understandable. An example of a simple laboratory
strategic plan can be seen in Appendix 2.1.
Progress in planning must be regularly monitored
with thorough, quantifiable measurements. Metrics, or
standards of measurement that accurately gauge prog-
ress, must be attached to each goal. That which cannot
be measured cannot be managed. This adage is especially
true in clinical laboratory science. Therefore, great care
must be taken in assigning metrics that are appropriate
to the goals.
A regular reporting mechanism must be established
to review progress, reevaluate priorities, and make up-
dates based on a constantly changing operating environ-
ment. The ideal venue for reviewing metrics is a regularly
scheduled meeting attended by everyone who has assigned
accountabilities. At this meeting, accountable people
are asked to report upon the progress made on their as-
signments. A regular reporting forum helps to maintain
momentum by removing the human inclination to pro-
crastinate. Monthly, or perhaps even weekly, meetings
should be scheduled to discuss progress toward stated
goals and objectives.
A strategic planning process includes the following
steps (see Appendix 2.1):.
1. Select a knowledgeable planning group.
2. Perform an environmental analysis.
3. Identify strengths, weaknesses, opportunities, and
threats.
4. Make a manageable and realistically achievable list of
goals.
5. Prioritize goals.
6. Develop strategies to accomplish goals.
7. Assign accountabilities and timelines.
8. Measure progress with metrics.
9. Review progress and make updates on a regular basis.
Organizing
Time is an irreplaceable commodity, and a manager’s time
is a laboratory resource that must be used thoughtfully. A
good manager must always be conscious of how time is
expended, personally and in laboratory processes. That is
the concept of organizing.
Organizing is the process of structuring activities, materi-
als, and personnel for accomplishing predetermined ob-
jectives. (reference 5, p. 136)
One of the most important functions of a manager is
to organize the activities of the laboratory in such a way
that use of time is carefully considered so that effort is
minimized while output is maximized. The difference be-
tween profit and loss is often determined by how well the
resources and workflow of the laboratory are organized.
There can be no doubt that good people and those who
want to cooperate will work together most effectively if
they know the parts they are to play in any team opera-
tion and the way their roles relate to one another. This is
as true in business or government as it is in football or in
a symphony orchestra. Designing and maintaining these
systems is basically the managerial function of organizing
. . . For most practicing managers, the term organization
implies a formalized intentional structure of roles or posi-
tions. What does ‘intentional structure of roles’ mean? In
the first place . . . people working together must fill certain
roles. In the second place, the roles people are asked to fill
should be intentionally designed to ensure that required
activities are done and that activities fit together so that
people can work smoothly, effectively, and efficiently in
groups. (reference 8, p. 133–134)
The key to organization is in knowing the essential
tasks that must be performed, understanding what knowl-
edge and expertise the employees must possess to perform
those tasks, and the physical and capital requirements that
must be assembled to achieve the desired results. Organi-
zation should be approached as an ongoing process, since
testing, technology, and staffing are all dynamic.
Staff knowledge and technologies are constantly evolv-
ing. The educational base of laboratory employees changes
with the steady turnover of personnel. While every effort
should be made to retain valuable and well-trained per-
sonnel, reality dictates that bench-level employees will
come and go, often without adequate advance notice.
Turnover is a constant concern of a manager. Technology
developments further impact staffing needs. Therefore, a
manager must be prepared to lead in a constantly changing

environment where different pieces of the equation are
forever being transformed by external factors.
Organizational Chart
An essential management tool is the organizational chart.
An organizational chart shows hierarchical relationships
between functional areas. It is a visual depiction of the
organization. It helps to clarify workflow, reporting lines,
and areas of responsibility by explicitly listing delineated
work areas, be it by division, laboratory, or medical spe-
cialty (see Appendix 2.2).
The chart specifically indicates positional authority.
Authority implicitly accompanies a position on the orga-
nizational chart, and its location on the chart implies a de-
gree of consent by direct reports. The organizational chart
is a contract of sorts, as it unambiguously illustrates the
structure of the organization and the relationships among
the people within it.
A laboratory manager possesses authority within the orga-
nization if he has the right to issue instructions that others
are expected to follow. The organizational chart serves as a
visual aid for evaluating each of these basics. The organi-
zational chart also attempts to show relationships between
line and staff. In this organizational concept, a line posi-
tion is one in which a superior exercises direct supervision
over a subordinate. (20)
Time Management
The surest way to be well organized is to develop a struc-
tured approach to time management. Every hour of a man-
ager’s day is occupied with urgent concerns and pressing
issues. Without a disciplined time management system, a
manager can quickly become overwhelmed, consumed by
the demands of small crises. There are many different ap-
proaches to time management. Your office email system
very likely has a calendar function built in. Google, Lotus
Notes, BlackBerry, Outlook, and Yahoo! all have calendar
functions, and there are many other choices. This is not an
endorsement of any specific product. There are hand-held
personal digital assistant products and programs for desk-
top computers, smart phones, and laptops. Each has unique
features and functionalities, and each is useful in helping a
manager efficiently organize time and tasks. A traditional
paper calendar book can still be quite useful. There is no
universally prescribed time management system. The type
of system you ultimately use will be a very personal deci-
sion. The type of system used is optional, but the use of a
system is not. An experienced manager must find a system
that works best for his or her own unique needs and then
use it all the time. If a manager is using a time management
system but still feels overcommitted and pressured by time
constraints, he should experiment with different approaches
until there is reasonable control of time issues.
CHAPTER 2. MANAGEMENT FUNCTIONS 29
With so many competing demands, it is conceivable in
a modern laboratory for a manager to be fully engaged 12
to 16 hours a day. This is not sustainable, even for the most
dedicated executive. While it is not realistic to expect an
eight-hour day, hard scheduling within reasonable param-
eters (for example, between the hours of 8 a.m. and 5 p.m.)
should be the goal. Time spent on the job outside of those
parameters should only be considered in times of crisis. In
all other circumstances, a manager should set and adhere
to a reasonable schedule, building enough time into the day
for essential meetings, interaction with staff, coaching, con-
tinuing education, and completion of necessary paper work.
Therefore, it is imperative that a manager not fully book ev-
ery day with back-to-back meetings. Some flex time must be
built into the daily schedule for unplanned activities that are
a normal and expected part of each work day.
A time management system allows a manager to:
• Minimize time wasted on nonproductive issues
• Be prepared for meetings
• Be aware of existing commitments
• Understand the capacity to take on new assignments
and when to say “no”
• Plan each day’s work efficiently and effectively
• Make certain that no project (large or small) is
neglected
Simply stated, the conscious use of a time management
system allows a manager to be well organized and well pre-
pared. Failure to use a system ensures disorganization and
lack of preparedness.
Policies
An effective organization has policies that express behav-
ioral expectations within the workplace. Policies are the
“laws” of the laboratory. Little different from laws in a so-
ciety, policies must be fair and equally applied to everyone
in the organization. Every laboratory should have an open,
accessible, and easily understood set of policies. These
policies must be made known to each employee, and there
should be some expectation that employees be required
to read and understand those policies that are applicable
to them. The manager and employees should review poli-
cies regularly as part of an annual review process. Policies
should be reviewed on a standard schedule to ensure that
they are current and realistic within the changing environ-
ment. Outdated policies should be updated or replaced as
appropriate. In large laboratories, a committee of knowl-
edgeable employees may manage policy writing and review.
The committee should be populated by supervisors and key
employees who know how the laboratory functions and
what should be considered as standard expectations.
30 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
All policies have seven basic characteristics: they must be
well thought out; flexible enough to be applied to both
normal and unusual situations; acceptable to those who
apply them; consistent; objective; clear and communicated
to those individuals to whom they apply; and continuously
reevaluated and changed when necessary. (15)
A representative example of a policy template is provided
as Appendix 2.3.
Procedures
Procedures are plans that establish a required method of
handling future activities. They are guides to action, rather
than to thinking, and they detail the exact manner in which
certain activities must be accomplished. (reference 8, p. 50)
Procedures are formal steps to guide an employee
through a specific job task. A procedure is a written, se-
quential course of action to be taken to achieve a desired
outcome. A laboratory manager must maintain current,
concise procedure manuals for all processes that are per-
formed in the laboratory. As with policies, the book of
laboratory procedures should be continuously reviewed
and revised by a team of experts to ensure that they are up
to date and in compliance with the most current regula-
tions and standards of care. Accreditation of the laboratory
will be judged in part on the accuracy and thoroughness of
the procedures, so maintaining them should be among the
highest priorities of all laboratory managers.
The standard operating procedures (SOP) manual is
a very important tool in the laboratory. An up-to-date
SOP manual ensures that procedures performed by the
technical staff are consistent with the industry and of the
highest quality. Managers use the procedure manual to
train the laboratory technologists, and technologists use
the procedure manual as a reference when performing
laboratory methods, which constantly change as tech-
nologies develop.
Workflow
A laboratory manager must be a master of all the intercon-
nected processes within the laboratory. These processes are
logically sequential, and they are accomplished in such a
way that one process or step must be completed before the
next can begin. This is known as workflow, or organizing
tasks in a particular way to accomplish a specified result.
Doing things a certain way because that’s the way they’ve
always been done is a fine approach, but only if consid-
eration has been given to the process to determine if a
change in the approach would result in an improved result.
Analysis of workflow within a laboratory often identifies
inefficiencies that can be corrected, resulting in a more pro-
ductive process. This analysis should include an evaluation
of equipment, technology, information services, computer
systems, physical layout, and location of resources.
An important tool for analyzing workflow is the flow-
chart. Process design flowcharting is a fact-gathering tech-
nique used to make the effort of a task visible by writing
down what is done. A flowchart graphically illustrates the
relationships between necessary tasks. By writing down
the steps in a task, you can often identify areas of overlap,
redundant effort, and opportunities for improvement.
Once the elements of work are identified, it is necessary
to determine how they fit together to form a coherent
whole: to determine for each element of work the other
elements essential to its effective performance. At one ex-
treme are elements that can be performed independently
of each other. In contrast, successful performance of
other types of work requires that different work elements
occur in sequence or that one element affects a second el-
ement, which, in turn, acts upon the first element. At the
most complex level, elements of work affect each other
simultaneously. The concept of interconnectedness of
work is critical to effective work design. When different
people perform interconnected elements of work, com-
ponents must be coordinated to ensure effective perfor-
mance. (19)
Staffing
A successful laboratory is dependent on good leader-
ship, and good leadership is dependent on the quality
and loyalty of employees. The selection process is critical
in matching people and their skills with the appropriate
jobs. (10)
Clinical laboratories have unique staffing needs. Each
laboratory has an ideal number of employees based upon
throughput and automation. A manager must ensure
that efficient staffing is maintained at all times. The best-
equipped laboratory will not function at top efficiency if it
is improperly staffed. Too many full-time employees can
result in excess capacity and unduly high wage expenses.
Too few full-time employees can result in excessive need
for overtime, which is another unnecessarily high wage ex-
pense. Overworked employees, regardless of how well they
are paid, will eventually burn out.
Accurate staffing must be pegged to the organizational
chart, taking into consideration how each laboratory com-
ponent serves the ultimate mission of the laboratory as a
whole. Staffing should be a topic of discussion in the stra-
tegic planning process. A well-thought-out strategic plan
considers staffing, and the resulting carefully considered
staffing models enable a manager to make long-term pre-
dictions about future staffing needs. Plan-based staffing
decisions remove much of the guesswork, thus allowing a
manager to stay ahead of staffing issues and providing lead-
time to hire and train efficiently.
Only with efficient staffing and scheduling can management
make the best use of personnel, supplies, instrumentation,

and facilities in a prompt and cost-effective manner. By
definition, “to staff ” is to provide a group of workers for
the purpose of securing united and cohesive performance.
Specifically, staffing of a clinical laboratory is a two-step
process. The initial step is to set up a table of organiza-
tion denoting laboratory structure and chain of command.
It is important to clearly define what the function of the
laboratory is and how it fits into the overall organization.
Once the mission and purpose of the laboratory have been
determined, decisions in efficient utilization of personnel
and equipment can be made with accuracy. After thought
is given to the need for present and future numbers of
positions, a comparison can be made between predicted
demand and supply. Differences can then be assessed and
finally a plan formulated to recruit, train, and meet suit-
able staffing needs. (11)
Directing
A manager is a director of people and activities. Staff
members require and expect direction in their activities.
The action of management is in directing people in their
activities.
Directing is the process of influencing people to attain
predetermined objectives. (reference 5, p. 30)
Communicating
No matter how great the plan or how talented the person,
if managers cannot communicate effectively with other
members of the team, their ideas and inputs are doomed.
Although it is not listed as a separate management process,
communication is an integral part of each management
function. It is embedded in every action taken. (22)
Communication is among the most important com-
ponents of management. Clear written and verbal
communication—from manager to employee, from em-
ployee to manager, between managers, and between
peers—influences every action. Without it, there is no ef-
fective way of articulating expectations, expressing con-
cerns, providing feedback, and ensuring that policies are
implemented. Communication must flow in all direc-
tions. It must be concise, clear, consistent, and continu-
ous. Employees rely upon regular feedback from their
supervisors. Supervisors rely upon their employees to
inform them of their needs. People at all levels of author-
ity within the laboratory rely upon communication with
their peers to remain aware of changes in policy.
In every healthcare organization, there are four basic com-
munication flows through which messages can be passed:
downward, upward, lateral, and diagonal. Downward
communications travel from the superior to the imme-
diate subordinate. Downward communications are used
to transmit information and instruct employees in the
CHAPTER 2. MANAGEMENT FUNCTIONS 31
performance of their jobs. Upward communication travels
from the subordinate to the immediate supervisor, and it is
used to provide feedback on how things are going. Lateral
communication takes place between people on the same
level of authority within an organization, and it is used for
promoting coordination and teamwork. Diagonal com-
munication occurs between people who are neither in the
same department nor on the same level of authority within
the organization. Diagonal communication is used for cut-
ting across organizational boundaries in an effort to save
time. (reference 5, p. 211–214)
Without structured communication, a manager can-
not expect employees to act as a coordinated unit. Em-
ployees require direction, and they need to know what is
expected of them. An organization cannot allow impor-
tant decisions and information to be communicated in a
haphazard or informal way. It is the manager’s respon-
sibility to develop and adhere to a regular, formal com-
munication system.
Individuals cannot act in a coordinated, organized fash-
ion in the absence of a communications network that both
stimulates and controls the flow of information needed to
make and disseminate decisions. (16)
Communication is a job skill that can be developed
and improved. Managers can ask certain fundamental
questions, of themselves and of their team members, that
will help to make communication within the organization
more focused and productive.
• What information do you receive on a regular basis?
• What information does your team need to function
properly and effectively?
• What are the ideal methods of communication (for-
mal meetings, email, memos, conference calls, video
conferencing)?
• How often should meetings be held, what subject mat-
ter will be discussed, and who should attend?
• With regard to communication, what do your employ-
ees want you to start doing?
• What do your employees want you to stop doing?
• What do they want you to continue doing?
The basic attributes of good-quality communication
are attention, acceptance, and empathy. Attention is the
thoughtful consideration of others. When speaking to
someone, be considerate of his or her concerns, needs, and
experiences. Actively listen to what people are saying. Ask
questions to clarify concerns. Affirm your understanding
by paraphrasing and restating their concerns until there is
no ambiguity and no room for misunderstanding.
There are some aspects of active listening that should
always be incorporated when communicating with staff
32 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
members. Acceptance is the act of favorably receiving
someone’s thoughts and opinions. This does necessarily
imply agreement, but conveys that you understand the con-
cerns being expressed and that you will keep an open mind.
Successful listening is an active, dynamic process. Alert-
ness at every point of the communication encounter is a
prerequisite for the supervisor, as well as for the subordi-
nate. (reference 7, p. 86)
Listening is a skill that can be developed and strength-
ened with determination and practice. In the modern
world, we have smart phones and instantaneous access
to information on the Internet—useful tools, certainly, if
used correctly. They can be distractions, however, as they
encroach further into our daily lives. The newest genera-
tion of employees has grown up with these devices, and
a new etiquette has evolved with the technology. Do not
let an electronic device interfere with personal, face-to-
face communication. Emails and instant text messages
are important and necessary components of a modern
communication strategy, but a manager must have per-
sonal, spoken interaction with employees at all levels on
a regular, continuous basis. Staff members expect and
appreciate human contact, and it allows for a more natu-
ral dialogue.
The skill of listening is the component of communi-
cation that is often overlooked. Valid communication
goes beyond just putting out well-chosen words. It also
involves actively hearing and processing that which is be-
ing said.
Empathy is a very important aspect of communication.
It is the ability to share in another’s emotions or feelings.
It is the identification of another’s thoughts and attitudes
as they might apply to a particular situation. When placed
in an identical circumstance, every person has his or her
own interpretation based on personal experience and
bias. Therefore, to truly connect with an employee, one
must make every effort to understand his or her perspec-
tive in a given situation.
A clinical supervisor can show concern for a subordinate
by standing in the subordinate’s position, identifying with
the subordinate’s frame of reference, and helping to meet the
subordinate’s objectives. From this standpoint, empathy is an
exceptionally strong component of effective communica-
tion. (reference 7, p. 87)
While it may seem obvious, it bears mentioning that a
manager must establish trust and maintain credibility with
the staff. Trust is earned through honest communication
and consistent follow-through on promises made. Trust is
the foundation of good working relationships. Credibility
cuts both ways in the manager-employee dynamic. Each
party must take responsibility in establishing trust and
maintaining credibility.
Know What You Are Talking About – Receivers will be
more attentive when they perceive that senders have ex-
pertise in the area about which they are communicating,
as when instructions are given by someone authorized to
dispense that information. You will lose credibility if peo-
ple think that you don’t know what you’re talking about.
If you don’t know an answer, say so and then develop the
expertise to provide a correct answer later on.
Establish Mutual Trust – Receivers prefer to have a
sender’s motives clarified: Are they selfish or altruistic?
Owning up to your motives at the beginning of a conver-
sation can eliminate the receivers’ anxiety about your real
intentions and do much to establish common trust. The
following suggestions about being honest, reliable, and
self-disclosing all appropriate information also contribute
to establishing a trust bond.
Share All Relevant Information – Interpersonal com-
munications are ethical when they facilitate a person’s
freedom of choice by presenting all relevant information
accurately. They’re unethical when they prevent another
person from securing information relevant to a choice,
or force other people to make a choice they would not
normally make, or decline to make choices they would nor-
mally make.
Be Honest – In every national poll, the most important
thing people want in a leader, friend, partner, or coworker
is honesty. Therefore, you want to avoid any form of de-
ception, which is the conscious alteration of information
to influence another’s perceptions significantly. Decep-
tion includes lying—concealing or distorting truthful
information—and other behaviors that do not reflect our
true feelings or beliefs.
Be Reliable – A sender’s perceived dependability, pre-
dictability, and consistency in providing all relevant infor-
mation (being consistent in applying performance criteria
when evaluating subordinates, and treating subordinates
fairly and equally, for example) reinforce the sender’s per-
ceived trustworthiness.
Be Warm and Friendly – A warm, friendly, supportive
attitude is more conducive to personal credibility than a
posture of hostility, arrogance, or abruptness. People are
more trusting of those who are friendly than those who
appear to be trying to impress or control them.
Be Dynamic – If you are dynamic, confident, and posi-
tive in your delivery of information, you will be more
credible than someone who is passive, withdrawn, and un-
sure. Receivers tend to be more attentive to messages when
the senders are enthusiastic and confident. (6)
The elements of successful communication are:
• Listening
• Empathy
• Trust

• Continuous communication
• Consistency
• Clarity
• Honesty
• Multidirectionality
• Verbal and nonverbal methods of communication
• Active communication
Delegating
An effective manager understands the need and value of
delegation, or, simply stated, the assignment of responsi-
bilities to others.
Delegation is the process of selecting people from a very
limited pool (current job incumbents) to perform a task.
When a manager delegates work to someone, that manager
is predicting that the employee will meet performance ex-
pectations. The more clearly we know what we are looking
for someone to do and how we want it done, the easier it
will be to choose the right person for the right tasks. (1)
Delegation is a process, a series of linked decisions that
identifies what needs to be done, understanding the de-
sired result, and then selecting qualified people to per-
form important tasks by making an informed decision
about who is best qualified to meet performance expecta-
tions. Through delegation, a manager is making a predic-
tion that the person selected will follow through to the
desired conclusion. Wisely delegated assignments can
only be made if the manager has a strong and current
knowledge of the processes and procedures of the labora-
tory. Without a clear understanding of the task, the de-
sired outcome, and the skill set of the person to which
the work is being assigned, delegation becomes a guess at
best and a disaster at worst. Therefore, do not delegate to
an individual until it is clearly understood that the per-
son can deliver as required. Setting people up for failure
always results in poor personnel performance, morale is-
sues, and undesirable consequences.
Motivating
Success in any activity is inspired by some type of motiva-
tion. Motivation is both internally and externally derived.
The most desirable and effective employees are the ones
who come to work already equipped with a good deal of
enthusiasm and inspiration. These types of employees are
self-motivated. They want to do a good job. They take
pride in their work and seek excellence in the performance
of their duties. They take ownership of their positions.
Motivated employees have relatively few problems with
absenteeism, tardiness, and poor work habits compared to
those who lack motivation in their jobs.
CHAPTER 2. MANAGEMENT FUNCTIONS 33
The natural temptation for a manager is to spend
energy on trouble areas, with the assumption that the
motivated, high-performing employees do not require
any attention. Neglecting excellent employees, even be-
nignly, because they’re seen as self-maintaining, can be
an unintended “punishment” of good behavior. Even the
best and most self-motivated employees must be given
regular encouragement. Positive reinforcement is always
a motivating influence. People who are doing a good job
need to hear it, verbally and face-to-face, on a regular
basis, and not only during annual reviews. When an em-
ployee is observed going above and beyond the defined
expectations of the job, it should be acknowledged with
genuine recognition. Simple words such as “well done”
or “good job” are great motivators, and the employees
who hear those words feel valued for their knowledge
and contributions.
Many organizations offer financial incentives to moti-
vate and reward excellent performance. Money is a power-
ful stimulator. It is the reason people work. There are many
performance-based incentive programs based on volume,
accuracy, punctuality, innovation, etc. Regardless of the
type of incentive program used, it is absolutely critical to
ensure that it is administered fairly and consistently. If the
employees feel that their contributions are not being rec-
ognized, the program will become a disincentive, which is
the exact opposite of the intended purpose.
Even in difficult financial times, when there is no extra
money in the budget for a financial incentive program, there
are other creative ways to build enthusiasm and reward ex-
cellence. A certificate of appreciation or a letter of acknowl-
edgment for the personnel file is an easy and inexpensive
motivator. Recognition in the form of a public “pat on the
back” has incalculable benefits in motivating employees.
Discontent, boredom, and restlessness soon develop un-
less the individual is doing a job that is enjoyed. A manager
must therefore understand the individual strengths and in-
terests of the staff and find ways to tap into those strengths,
where possible, in the performance of daily activities.
Because the art of management is getting things done
through others, it is important, not only to know the fine
points of delegation, but also to be able to motivate people
to want to achieve. A basic understanding of the psycho-
logical needs of the individual is a helpful way to match
organizational expectations with the individual’s capa-
bilities. A. H. Maslow’s work Motivation and Personality
(1954) is a prime study for understanding motivation. His
hierarchy of basic needs is well known.
Physiological Needs – The essentials, such as food,
sleep, and air.
Safety Needs – Based on human preference for a safe,
orderly, predictable, organized world that can be relied
upon to be free of danger or unexpected happenings.
34 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Belongingness and Love Needs – If both physiological
and safety needs are fairly well gratified, the love and affec-
tion and belongingness needs will emerge. A person will
hunger for affectionate relations and will look for a secure
place in his or her group.
Esteem Needs – The desire or need for a stable, firmly
based evaluation of himself or herself for self-respect or
self-esteem.
Need for Self-Actualization – If all of the above needs
are satisfied, a new discontent may develop unless the indi-
vidual is doing what he or she is fitted to do. In other words,
what a person can be, he or she must be—coming from a
desire for self-fulfillment. (3)
Managing Change
Change is not easy. Many people are instinctually resistant
to it. When change is introduced, or even suggested, peo-
ple’s first reaction is often to reflexively cling to the old way
of doing things and to reject the notion of doing things
differently.
We’re all creatures of habit. Life is complex enough; we
don’t need to consider the full range of options for the
hundreds of decisions we have to make every day. To cope
with this complexity, we all rely on habits or programmed
responses. But when confronted with change, this ten-
dency to respond in our accustomed ways becomes a
source of resistance. People with a high need for security
are likely to resist change because it threatens their feel-
ings of safety. Another source of individual resistance is
concern that changes will lower one’s income. Changes
in job tasks or established work routines also can arouse
economic fears if people are concerned that they won’t be
able to perform the new tasks or routines to their previous
standards, especially when pay is closely tied to productiv-
ity. Changes substitute ambiguity and uncertainty for the
known. You trade the known for the unknown and the fear
or insecurity that goes with it. (17)
A manager’s challenge in managing change is to re-
duce the instinctive resistance to it by presenting it in a
way that gives staff members reason to understand that the
change will bring an improvement. Presumably, a change
in procedure is a response to an unsatisfactory situation
and the desire to improve an outcome. When implement-
ing a procedural change, a manager must be very careful
to communicate with staff members to assure them that
their performance is not being criticized and that their
jobs are not threatened. Whenever changes are introduced
in a laboratory, it is important to remember the “laws of
organizational change.”
• People don’t resist change, they resist being changed
. . . If you want their cooperation, you’ve got to keep
them on board for every step of the change. Ask for
their opinions. What do they hope will happen? What
do they fear? What suggestions can they make to
ensure the success of the effort? Communicate regu-
larly about progress and results. Provide a clear picture
of what the future will be like.
• Things are the way they are simply because they
got that way. Somebody, sometime, had to write the
policy or create the process that you are now trying
to change. There were probably some very good rea-
sons for doing things that way when the system was
established. Before you attempt to change something,
first take the time to understand the history behind
the problem.
• Unless things change, they are likely to remain the
same. If you want improvement, people will need to
change the way they work. It’s important not to con-
fuse improvement with tampering.
• Change would be easy if it weren’t for all the people.
The message is that people are the organization and the
organization is there for the customers. So you must
pay attention to the people, as well as the systems. Lis-
tening to employees and customers before problems
arise makes any change go more smoothly. (reference
18, p. 17–18)
As in every aspect of management, good communica-
tion is the key to success in managing change. Listening
to people’s concerns, asking for their ideas, and genuinely
paying attention to their input will dramatically increase
the likelihood of success when implementing change.
Coaching
The best managers are teachers and coaches, always engag-
ing their employees in a productive and ongoing process
of continuing education. Many employees require per-
sonalized development to realize the best of their abilities.
This is accomplished through traditional teaching, such
as standing at the bench and actually demonstrating to
an employee how to use an instrument. Coaching goes a
step beyond teaching. It also involves encouraging an em-
ployee to try new things and to strive for a higher level
of accomplishment. This is done in a gentle and support-
ive way that is intended to bolster self-confidence and to
foster a sense of being worthy. Of course, each employee
has unique sensitivities, and everyone should be treated as
an individual. Every employee has special talents and in-
nate limitations. When acting in a coaching role, the man-
ager should always be mindful of each person’s individual
needs, abilities, and desires.
• Coaching is providing a person or group with the
guidance, support, and confidence to enable them to
enhance their performance continuously.
• Guidance enables someone to develop his or her skills
and knowledge appropriately. Through skilful guid-
ance a coach can also help another person develop
useful insights into their work and character.

• Support means being there when you’re needed.
• Confidence means believing in someone so that they
can believe in themselves and perform effectively.
• Continuously means all the time! Coaching is not
something which is turned on and off like a tap. Suc-
cessful coaching depends on planning coaching as-
signments and developing supportive relationships
over time. (4)
Controlling
Controlling is the process of determining that everything
is going according to plan. (reference 5, p. 30)
There is no substitute for engaged leadership. A man-
ager simply cannot afford to be distracted or disengaged.
Small, isolated problems, when left unattended, often grow
in size and complexity, stealing more and more resources
as they compound and create other problems, until they
become the sole focus of a manager’s time and attention.
A manager must constantly and consistently review the
current situation in the laboratory to ensure that there are
no unattended details. The best way to avoid big problems
is to address and solve small problems before they have
a chance to become resource hogs that drain productivity
and threaten accuracy. Being mindful of the daily activi-
ties of the laboratory is one of a manager’s most important
responsibilities. By controlling the details, a manager en-
sures that the laboratory functions at the highest possible
level of efficiency.
Setting Performance Standards
Regularly scheduled, structured evaluations are a neces-
sary expectation of employees. People deserve to know
how they’re doing in relation to a written set of expecta-
tions about performance. A job description is a written
and signed agreement concerning the responsibilities of
the position. Every new employee should have one, and
it should be reviewed annually to ensure that the obliga-
tions are current and accurately described. This formal
document serves as a contract of sorts that informs the
employee with specificity about the expectations of the
job. The job description should be directly linked to an
organizational chart, which provides a visual depiction of
the lines of authority. The job description should include a
job title, a compensation classification or range, the name
of the supervisor who will review performance, a specific
and detailed listing of responsibilities, and a performance
evaluation schedule.
A thoughtful and well-written job description is
good for the employee, good for the manager, and good
for the organization. It states, in specific terms, the em-
ployee’s exact role. Furthermore, it forces the manager to
look critically at how the employee is meeting expecta-
tions of performance. It provides a baseline standard of
CHAPTER 2. MANAGEMENT FUNCTIONS 35
performance. During the appraisal period, a job descrip-
tion guides the manager in making decisions about merit-
based salary adjustments, promotion, areas of expected
improvement, and training needs.
Regardless of the purpose or format of an appraisal, there
are a few critical elements without which an appraisal sys-
tem will not function. These include:
• Standards and criteria of performance – Performance
standards must be specified for performance to be
evaluated meaningfully. One possible source of stan-
dards is the job description. When job descriptions
are short and not very specific, a more exacting set
of standards may be derived from a job analysis. In
this process, someone who is currently fulfilling the
responsibilities of a job writes down or reports all
the different tasks the job includes. Another possible
source of standards is mutual consent to specified
goals where the subordinate and manager agree upon
certain tasks that the subordinate is to perform during
the evaluation period.
• Communication of these standards and criteria to
the subordinate – Once performance standards and
criteria have been specified, the subordinate to be
evaluated must be aware of them. The manager or
personnel department may communicate standards
and criteria during the initial job orientation session,
during the subordinate’s first meeting with the man-
ager, or by means of a written document, such as a
detailed job description along with the performance
appraisal form.
• Sufficient frequency of appraisal – The most common
interval for appraisal is every 12 months; this is usually
adequate for salary and promotion decisions. How-
ever, formal review of progress toward goals might be
required at more frequent intervals, depending on the
nature of the job.
• Clear communication of appraisal results. A final vital
element in effective performance appraisals is com-
munication of the results to the subordinate. These
results must be clear and indicate that the purpose of
the performance appraisal was fulfilled. (37)
Fairness of application is the standard in performance
evaluations. Performance evaluations must be consistently
administered among all employees. The same set of crite-
ria must be applied to all employees performing similar
responsibilities throughout the laboratory. For example,
all phlebotomists working in a laboratory section must be
held to the same expectations of performance and behav-
ior. If evaluation standards are not identical for every em-
ployee at the same position, the appraisal system will be
fundamentally flawed and useless.
A performance appraisal is a formal encounter that
should be conducted on a determined, regular, predict-
able schedule. A probationary evaluation is normally
given at a preordained point in employment, for example,
36 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
at 90 days after the hire date. The probationary review
protects the organization because it provides the man-
ager the opportunity to evaluate the employee’s progress
and make an objective decision about whether or not the
person should be added to the staff on a continuing basis.
The probationary period is defined and long enough in
duration to give the employee an opportunity to learn the
new assignments, and also long enough for the manager
to make an informed assessment. A probationary period,
usually 90 days in duration from the time of hire, is the
time when the manager should be critically observant of
performance. The manager should treat the probationary
period as an orientation process and expect to provide a
good amount of teaching, coaching, and mentoring dur-
ing that time. This ensures that the new employee is given
every opportunity to succeed. If, after an adequate period
of observation, the manager feels that performance defi-
ciencies cannot be rectified, the manager can dismiss an
employee without cause. If there are no performance issues
during the probationary period, an employee will be asked
to join the staff. It is extremely important to treat the pro-
bationary period as a very serious opportunity to observe
employee work behaviors, because once the organization
makes a commitment to keep a new employee beyond the
probationary period, it becomes much more difficult to
dismiss an employee because of performance problems,
poor attendance record, and/or behavioral issues.
Evaluating Employee Performance
A performance appraisal provides an employee with valu-
able written feedback about progress made toward specific
employment objectives. It serves the employee’s need for
objective evaluation about how he or she is doing. It also
serves the manager’s obligation to assess performance and
provide constructive feedback. It is the manager’s oppor-
tunity to put into writing an employee’s level of compe-
tence measured against the stated requirements of the
position. An appraisal also provides a forum for discus-
sion about the employee’s training needs, salary expecta-
tions, professional development, and career progress. A
properly conducted performance appraisal is a two-way
conversation, with the manager actively listening to the
employee’s feedback.
While some companies conduct formal reviews at least
once a year, there should really be an informal and con-
tinuous process. A sound review system, fairly adminis-
tered, can be beneficial to a company and its employees.
On the other hand, one that is not properly administered
can result in lower performance, greater mistrust, and le-
gal problems. Some of the benefits of regular reviews are:
• Keeping good people from getting buried in the sys-
tem and exposing nonproductive people who disrupt
the system.
• Corrections of deficiencies and improved performance.
• Providing helpful data for promotion decisions, as
well as being a basis for salary and wage adjustments,
bonuses, and other financial rewards.
• Establishing a baseline against which people can mea-
sure their own progress and encouraging them to take
affirmative action to work toward more challenging
goals.
• Forcing communication between manager and staff.
• Giving managers a sense of how people are coming
along.
• Letting people sort out their problems.
• Providing an opportunity for managers to ask them-
selves what they have done to improve employees’
performance. (9)
A fairly administered employee evaluation must deploy
a stated set of performance criteria upon which to base
judgments about performance. To ensure consistency,
performance criteria require clearly defined standards of
excellence.
Problem Solving
First and foremost, a laboratory manager is a problem
solver. Every day, there will be situations that require a
high level of decision making in reaction to a situation
where a problem is confronted, isolated, and avoided or
eliminated. Problem solving is a skill that can be devel-
oped, and it improves with confidence and repetition. To
be an effective problem solver, a manager must approach
problems in a structured, creative way, much as a scien-
tist deploys novel techniques to surpass existing problems.
Problem solving is a process that contains several key ele-
ments. The manager must be able to determine the exact
source and nature of the problem, which is often difficult
in complex situations where many people or processes are
involved. In the laboratory setting, root problems in tech-
nique or procedure often compound at each ensuing step,
causing amplified impact further downstream. In these sit-
uations, the true cause of the problem is not obvious, since
it becomes visible at a point that is far removed from the
source. Therefore, the manager must be a dedicated de-
tective, gathering evidence and pulling together as much
information as possible to identify the root cause of the
flawed process.
Once the cause of a problem is known, a manager has
to come up with a solution. If a machine is not function-
ing because it is unplugged, there is only one solution—
plug it back in. Problems in the laboratory are rarely so
simple, however, that there is only one obvious solution.
More often than not, there will be a range of alternatives
that should be carefully considered. Through consultation
with bench-level experts, the manager should create a list

of possible actions directed toward a problem. This step
often requires the human touch, bringing people together
in an unbiased way to discuss the range of options that are
available. Implementing the best solution often involves
some level of compromise, usually requiring the coop-
eration of many affected individuals. A skillful manager
makes his or her employees feel that they are part of the
solution instead of making them feel that they are respon-
sible for the problem.
The final phase of problem solving is follow-up. Once
the solution is implemented, it is absolutely necessary to
measure outcomes. The manager must gauge the effective-
ness of the solution in a structured way at prescribed inter-
vals to make sure that the problem was truly corrected. The
solution might create a new set of unanticipated problems.
Monitoring the situation to ensure that the desired results
have been achieved is an essential final step. Monitors are
as unique as the problems, but they should be consciously
considered and applied.
An example of a scientific approach to problem solving
is provided here. The following seven-step checklist of-
fers a systematic approach to identifying a problem and
making a clear and rational decision in order to solve it.
The simple, seven step approach described here allows the
manager the flexibility to modify when necessary but still
have some basic guidelines to follow.
Step One: Definition of the Problem – One pitfall many
managers encounter as they begin a problem-solving pro-
cess is the temptation to hypothesize about what should
have been done earlier so the problem would not have de-
veloped. Some problems will be inherited, some resulting
from decisions made elsewhere in the organizational hier-
archy, and still others from one’s own doing. Regardless of
the origin of the problem, the solution must still be made
within the framework of the situation.
Step Two: Fact Gathering – Once the problem has been
identified, the manager can begin to gather information
needed for developing alternative solutions.
Step Three: Development of Alternative Solutions – The
generation of possible solutions calls for creative thinking.
Often when faced with this step, a manager will draw on
his past experience; in most cases this will be adequate.
Today’s manager must supplement his creativity by seek-
ing information from others who have solved a similar
problem or from individuals directly involved in the situ-
ation. It is wise to keep an open mind and not prejudge
ideas as they are generated.
Step Four: Weighing of Alternative Solutions – This
step requires the analysis of alternative solutions by stat-
ing the advantages and disadvantages of each possible
course of action. The manager must consider the ramifi-
cations of each potential solution. Consideration should
be given to the question of whether a chosen alternative
will eliminate recurrence of the problem or generate an-
other in its place.
CHAPTER 2. MANAGEMENT FUNCTIONS 37
Step Five: Selection of Solutions – Choosing the best
possible course of action is an integrated process. Consid-
erable fact gathering and planning have already occurred.
Even though alternatives have been scrutinized, any single
approach is not always “best”. There is generally more than
one way to solve a problem.
Step Six: Implementation of the solution – Of all the
steps in the problem-solving process, the implementa-
tion step is usually the most time consuming. At the same
time, even the best decision, if not properly implemented,
is useless. As in the decision-making process, implemen-
tation must involve those who are directly affected by the
solution.
Step Seven: Measurement of the Consequences – Not all
decisions rendered will have the effect that was planned. An
analysis of what occurred, whether predicted or not, provides
an ever-increasing basis of experience from which future
problems can be solved. (21)
Decision Making
Managers are frequently required to make decisions. It
is in many ways an extension of the problem-solving
process. A manager’s effectiveness often hinges upon
the consistency and quality of the decisions he makes.
As in problem solving, there is a scientific approach that
enables a manager to make the best possible decisions.
Certain factors affect the decision-making process, and
they should be carefully considered. Before attempting to
make any management decisions, there are several gen-
eral areas of concern to which a laboratory manager must
be sensitive:
• Quality of the Decision – In order to make a quality
decision, a manager must determine if he has all of the
appropriate information available. The manager may
need to seek out information regarding specific skills
necessary to complement a given alternative.
• Acceptance of Commitment to the Decision – It is
important to consider not only the degree of accep-
tance by the subordinates affected directly by the deci-
sion but also the degree of acceptance at other levels of
management within the organization.
• Speed of the Decision – The time element must be
considered. Even if it is not essential that the decision
be a quick one, the laboratory manager must consider
the length of time it will take to involve appropriate
parties.
• The nature of the Value Judgments of the Decision – All
decisions involve a value judgment in terms of what
is beneficial or nonbeneficial and important or not
important in projecting the probable outcomes of the
decision. (20a)
A laboratory manager makes many decisions every day.
Those decisions obviously have a profound effect on the
success of the lab, and the quality of the decisions is the
38 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
ultimate measure of a manager’s success or failure. Deci-
sion making is by definition a thoughtful, conscious pro-
cess that requires a rational consideration of cause and
effect. In most cases, decisions are made to create improve-
ment in a given situation. If the manager has a lucid under-
standing of what is intended to be accomplished through
the decision-making process, and furthermore takes into
consideration a wide range of possible actions, the result-
ing decisions will be quality ones.
A rushed decision is rarely the optimal decision. When
presented with a big decision, it is often helpful to write
down the problem and make a list of possible solutions, in-
tended outcomes, and potential unintended consequences.
Most importantly, never panic. Step away from the situ-
ation long enough to perform a factual analysis before
making a decision. Sometimes factual analysis leads to
a single obvious decision. More often than not, however,
there are numerous possible decisions whose outcomes
must be weighed. A manager must rely on input from oth-
ers in the laboratory who can offer sound advice, not only
on the factors that are causing the problem, but also on the
possible far-ranging effects of the decision.
Many internal factors have an adverse impact on the
decision-making process, including stress, self-doubt, lack
of self-awareness, pressure to act too quickly, and pro-
crastination in an effort to avoid difficult decisions. As a
manager gains experience and confidence, many of these
internal barriers will fall away.
Summary
A laboratory manager has unique skills and a high level
of daily responsibility spanning all areas of the organiza-
tion. Because the technical aspects of running a labora-
tory are tightly regulated, when technical problems arise,
there is very often a written set of guidelines that dictate
a solution. However, when it comes to managing the hu-
man side of the laboratory, there are daily challenges for
which there are no rulebook and no obvious solutions.
But there is a set of time-tested management tools for
use by laboratory managers to address these daily chal-
lenges. A laboratory manager must become familiar with
these tools and use them on a daily basis to gain confi-
dence and experience in managing the human side of the
laboratory.
KEY POINTS
■ The manager must develop a system to organize the
workflow, policies, and staffing of the laboratory.
■ The manager must provide direction to the labora-
tory by communicating, delegating, motivating, and
coaching.
■ A manager must control the activities of the laboratory,
constantly reviewing the current situation to ensure
that there are no unattended details. There is no substi-
tute for engaged leadership.
GLOSSARY
Accountability An individual’s obligation to be responsible for
his or her own actions within the work environment.
Coaching Providing an employee with guidance, direction, mo-
tivation, and support with the objective of improving all aspects
of job performance.
Communication The exchange of information, flowing in all
directions within the organization. It can be written or spoken,
verbal or nonverbal, formal or informal.
Delegation Assigning a specific task to an accountable
subordinate.
Directing Planning a specific action and actively overseeing the
execution of a plan.
Environmental analysis A thorough and systematic review of
the external and internal factors that affect the functioning and
performance of the laboratory.
Facilitation The process of assisting participants to move
through material in a logical and structured way.
Goal A desired outcome that the organization hopes to attain.
Metrics Specific, quantifiable measurements used as an indica-
tor of progress.
Mission statement A written statement that clearly defines what
the organization does and why it is important.
Motivation Inspiration to perform in a desired way or to achieve
a desired result.
Organizational chart A diagram showing relationships among
functional areas within an organization.
Organizing The process of structuring resources and activities in
a way that promotes the accomplishment of specific activities.
Performance evaluation Formal feedback on job performance.
Policies Internally generated rules that establish behavioral ex-
pectation within the laboratory.
Priority Weighing the importance of the tasks at hand to deter-
mine which have the highest level of immediate precedence.
Standard operating procedures (SOPs) A written set of instruc-
tions that codify technical and administrative activity in the
laboratory.
Strategic planning A methodical and structured process whereby
an organization defines its mission, identifies directions, develops
a unified approach, prioritizes long- and short-term goals, assigns
accountabilities, and allocates financial resources.
Strategy An artful means to a defined objective or goal.

SWOT analysis Analysis of the laboratory’s strengths, weak-
nesses, opportunities, and threats. Strengths and weaknesses are
often internal to the organization, while opportunities and
threats are often externally derived.
Vision statement A written statement that clearly and concisely
articulates what the organization expects to become.
Workflow Tasks organized and accomplished in a particular
way to achieve a specified result.
REFERENCES
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Interviewing: How to Hire Good People, p. 65. Jossey-Bass, San Fran-
cisco, CA.
2. Dorner, D. 1996. The Logic of Failure, p. 163. Basic Books. New
York, NY
3. Hardwick, D. F., and J. I. Morrison. 1990. Directing the Clinical
Laboratory, p. 133–134. Field and Wood Medical Publishers, New
York, NY.
4. Hill, J. 1997. Managing Performance, p. 87. Gower Publishing, Al-
dershot, UK.
5. Hodgettes, R. M., and D. M. Cascio. 1983. Modern Healthcare
Administration. Academic Press, New York, NY.
6. Hunsaker, P., and T. Allesandra. 2008. The New Art of Managing
People. Free Press, New York, NY.
7. Johnson, E. A. 1989. Managerial-organizational communica-
tions. In J. R. Snyder and D. A. Senhauser (ed.), Administration and
Supervision in Laboratory Medicine, 2nd ed. Lippincott Williams and
Wilkins, Philadelphia, PA.
8. Koontz, H., and H. Weihrich. 1990. Essentials of Management,
5th ed. McGraw-Hill, Inc., New York, NY.
9. Krieff, A. 1996. Manager’s Survival Guide: How to Avoid the 750
Most Common Mistakes When Dealing with People, p. 110. Prentice
Hall, Englewood Cliffs, NJ.
10. Kurek, A. 1998. Staffing and scheduling for laboratory person-
nel, p. 226. In J. R. Snyder and D. S. Wilkinson (ed.), Management
in Laboratory Medicine, 3rd ed. Lippincott Williams and Wilkins,
Philadelphia, PA.
11. Martin, B. G., and A. S. Kurec. 1989. Staffing and scheduling
of laboratory personnel, p. 199. In J. R. Snyder and D. A. Senhauser
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(ed.), Administration and Supervision in Laboratory Medicine, 2nd
ed. Lippincott Williams and Wilkins, Philadelphia, PA.
12. McClatchey, K. D. 1994. Clinical Laboratory Medicine, p. 5. Lip-
pincott Williams and Wilkins, Baltimore, MD.
13. McPherson, R. A., and M. R. Pincus (ed.). 2011. Clinical Diag-
nosis and Management by Clinical Methods, 22nd ed., p. 3. Elsevier
Saunders, Philadelphia, PA.
14. Nolan, T., L. Goodstein, and J. Goodstein. 2008. Applied Strate-
gic Planning: An Introduction. Pfeiffer, San Francisco, CA.
15. Rakich, J. S., B. B. Longest, and T. R. O’Donovan. 1977. Man-
aging Healthcare Organizations, p. 127–129. W.B. Saunders, Phila-
delphia, PA.
16. Reinke, W. 1988. Health Planning for Effective Management, p. 187.
Oxford University Press, New York, NY.
17. Robbins, S. 2008. The Truth about Managing People, 2nd ed., p.
187. FT Press, Upper Saddle River, NJ.
18. Scholtes, P., B. Joiner, and B. Streibel. 2003. The Team Hand-
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19. Shortell, S. M., and A. D. Kaluzny. 1994. Healthcare Manage-
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40 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 2.1 Laboratory Strategic Plan

GOAL

Metric

Strategy Action Item Accountability Target Date

Metric

Strategy Action Item

Metric
Accountability Target Date

Strategy Action Item

Metric

doi:10.1128/9781555817282.ch2.apx1

APPENDIX 2.2 Laboratory Organizational Chart

See facing page

doi:10.1128/9781555817282.ch2.apx2
 CLINICAL LABORATORIES
Medical Director: Smith
Administrative Director: Jones

Compliance Finance
Director: Kelley Director: Madison

Personnel Outreach
Director: Tucker Director: Liu

Molecular
Anatomic Pathology Clinical Pathology
Diagnostics
Director: Davis Director: Williams
Director: Brown
Manager: James Manager: Potter
Manager: Elvie

Neuropathology Autopsy Surgical Pathology Cytogenetics Blood Bank Clinical Chemistry Hematology
Director: Miller Director: Johnson Director: White Director: Evans Director: Ortiz Director: Fox Director: Chang
Manager: Casey Manager: Mays Manager: Lee Manager: Simms Manager: Allen Manager: Roberts Manager: Ford

Cytopathology Tissue Acquisition Microbiology Immunology

Director: Morgan Director: Nicholas Director: Robinson Director: Young
Manager: Todd Manager: Simon Manager: Tate Manager: Davis

41
42 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

APPENDIX 2.3 Policy Template

Medical Center
Policy Template

Subject: Policy Number: _______

Name of Policy Approval Date: _______
Effective Date: _______
Review Date: _______

Purpose: Policy:
Reason for Policy Government Regulations
Industry Guidelines
Regulatory Requirements

Procedure: References:
Defined Steps Supporting Documentation

Approved by: Date:

_____________________ _______________
Name

Title

doi:10.1128/9781555817282.ch2.apx3
Introduction
3
Overview of Laboratory Industry Trends during the
Past Decade • Forecast for the Future
Strategic Business Planning Overview
Market Assessment • Key Strategies
Competitive Environment
Clinical Laboratory Competitive Market • Business
Entities, Strategic Alliances, Joint Ventures, Mergers
and Acquisitions, and Integrated Networks
The Economic Environment
Four Stages of the Business Cycle • The National
Economy: Fiscal and Monetary Policies •
Assess Infrastructure and Develop Production
Strategies • Cost Accounting Principles • System-
Wide Approach to Establishing a Fee Schedule •
Consumer Price Index • Pricing Strategies
Promotional (Marketing and Sales)
Strategies
Market Research • Marketing Strategies • Sales
Strategies • Advertising Strategies
Customer-Focused Concepts and Service
Strategies
Who Is the Customer? • Understanding Customer
Behavior • Key Concepts and Recognized Customer
Service Strategies • Service Delivery Strategies
Summary
KEY POINTS
GLOSSARY
REFERENCES
ADDITIONAL READING
APPENDIX
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch3
Relevant Economic
and Business Concepts
Roxanne Mercer and Ann L. Harris
OBJECTIVES
To define relevant economic issues that influence the delivery of healthcare
services and their significance to the practice of laboratory medicine
To outline the key concepts and principles (for example, supply, demand, and
competition) that drive the business decisions faced by laboratory directors,
managers, pathologists, and hospital administrators
To demonstrate the relationship between global economy concerns and changes
in healthcare policies
To identify marketing, sales, and customer service tools used to formulate a
business plan to respond to the service requirements and economic needs of the
healthcare delivery system
In our free enterprise system, business traditionally has been held responsible
for quantities—for the supply of goods and jobs, for costs, prices, wages, hours of
work, and for standards of living. Today, however, business is being asked to take
on responsibility for the quality of life in our society. The expectation is that busi-
ness, in addition to its traditional accountability for economic performance and
results—will concern itself with the health of society, that it will come up with the
cures for the ills that currently beset us and, indeed, will find ways of anticipating
and preventing future problems in these areas.
R. F. Barker (2)
Overview of Laboratory Industry Trends during the Past Decade
Following several decades of profitability created by low direct costs, favor-
able inpatient reimbursement, hospital-based outpatient reimbursement, and
physician utilization, the clinical laboratory industry suffered a severe setback
beginning in the 1990s and continuing into present times. Increased regula-
tory requirements and the expansion of managed care were the change drivers
for many trends in the healthcare and clinical laboratory industries, as listed
in Table 3.1 (21). The industry as a whole suffered a loss of several billion
dollars in reimbursements from the impact on test utilization patterns. Faced
with possible loss of market share, commercial laboratories engaged in fierce
competitive bidding for managed-care contracts, further decreasing labora-
tory reimbursement. Reimbursements began to improve by the end of the
decade as commercial laboratories sought more profitable contracts. At the
same time, hospital laboratories faced excess testing capacity created by shift-
ing STAT testing to near-patient testing and shortened inpatient lengths of
43
44 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Table 3.1 Change drivers during the 1990sa
Driver
Tighter quality and documentation requirements (CLIA ’88)b
Increased coding and claims requirements
Reduced Medicare fee schedule
Managed-care enrollments more than doubled
Fierce competitive bidding among commercial laboratories
a
See reference 22.
b
Clinical Laboratory Improvement Amendments of 1988.
stay. Laboratory managers expanded their focus, evaluat-
ing technical proficiency, as well as analyzing and control-
ling costs. Successful managers strengthened their skills in
human resource management, financial management, and
process improvement. Operations managers used their
business savvy and experience to create business plans.
The industry observed record numbers of laboratory con-
solidations, mergers, acquisitions, and joint ventures dur-
ing the decade. Laboratory restructuring often followed
hospital or healthcare system reorganization. The concept
of laboratory regionalization, first developed in the 1980s,
focused on standardizing policies and procedures and pro-
viding improved continuity of care across multiple facili-
ties and sites of care. Enhancing income by expanding the
geographic market and lowering costs through economies
of scale became the primary goals.
During the past decade, businesses and the healthcare
industry have undergone fundamental changes. As the
world economy has become more global, it has fueled
growth in competition, an increased dependence on infor-
mation technology, and an exponential growth in the use of
the Internet. Using knowledge to create value has become
a key economic driver. During the same period, laboratory
medicine has undergone similar transformations. Techno-
logical developments continue to improve productivity in
the clinical laboratory. Laboratory services information is
assessable globally, and laboratories are faced with inter-
national competition and greater pressures to reduce costs,
increasing the commoditization of the clinical laboratory
industry. However, a gap between technical possibilities
and financial resources remains prevalent (8).
Managed care, pricing pressure, and advances in medi-
cine and technology have created a constant state of change.
Table 3.2 shows the typical paradigm shifts encountered by
the laboratory industry over the past decade. Adding to
a growing population of uninsured patients, employees in
their fifties are taking early retirement as employers balk
at continuing to pay escalating premiums for healthcare
coverage. A growing number of patients will not be able
to pay their medical bills, and bad-debt write-offs will
continue to rise. The downward trends in reimbursement
Change
Reduced test volume
Increased cost of production
Reduced collections
Increased denials
Reduced reimbursements
Shift from fee for service to capitated reimbursement models
Prices and reimbursements reached plateau then decreased in 1990s
will continue with even greater controls and limitations
on utilization, forcing further reductions in the unit cost
of medical services (reference 28, p. 170). On March 23,
2010, President Obama signed the Affordable Care Act
(ACA). The law puts in place comprehensive health insur-
ance reforms to ensure that most Americans have access to
quality, affordable healthcare. The constitutionality of the
ACA was challenged, and the U.S. Supreme Court upheld
its constitutionality in a June 28, 2012, ruling.
Forecast for the Future
To compensate for the changes of the past decade, hospital
laboratories have become competitive players in the local
market by developing their outreach business to capture
new revenue from market segments such as physician of-
fices and long-term-care facilities. Hospital laboratories
have formed networks to enable them to compete for
managed-care contracts. With the trend to consolidate hos-
pitals and develop core laboratories to keep more tests in-
house, there is now competition to perform esoteric testing
among hospital-based laboratories. National commercial
laboratories also compete for referral testing in the esoteric
market, where the profit margin is more attractive. New
advances in point-of-care testing (POCT) instruments are
stimulating an increase in the number of physician office
laboratories. Both academic medical centers and indepen-
dent commercial laboratories are focusing on research and
development of specialized testing to augment the routine
testing performed in hospital core laboratories. Successful
centralization may involve robotics and increased automa-
tion. Standardization and centralization of data manage-
ment, methods, facilities, equipment, quality assurance,
education, and information systems are fundamental to
the implementation of responsive business strategies (P. W.
Wisler. Module 2: money and finance: strategic planning
consideration in a dynamic marketplace by Coopers and
Lybrand L.L.P. Presented at The Dark Report’s Strategic
Business Plans for Laboratory/Pathology Consolidation
and Restructuring, New Orleans, LA, 1997). Healthcare
administrators and laboratory managers must develop
the skills needed to deal with the logistical and cultural
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
Table 3.2 Industry trends during the past decade
Old paradigm
Centralized laboratory testing
Physician office testing
Lab-supervised phlebotomy
Inpatient procedures
Fee-for-service reimbursement (FFS)
Skilled hospital beds
Prospective payment system (PPS) for skilled-nursing facilities
Standing orders
Preventive healthcare screening and diagnosis V-codes
Routine testing
Top-down hierarchy
Exceptional service
changes required to develop strategic business plans. They
must realize that customers are every organization’s most
valuable resource. Ultimately, customer satisfaction will be
the critical strategic weapon for any enterprise (reference
24, p. ix–xii, 23).
The mission of clinical laboratory medicine is to im-
prove patient care through improved laboratory testing. To
be strategically positioned for the future, the clinical labo-
ratory discipline and the industry must enhance efficiency
by consolidation, must consider formation of alliances or
partnerships, and must integrate processes (both horizon-
tally and vertically). Future success hinges on efficiency,
but efficiency will not guarantee success. The most relevant
standard has become the ability to create value. Laboratory
professionals must focus on providing additional informa-
tion and knowledge services related to the in vitro diag-
nostic services offered (8).
Strategic Business Planning Overview
Strategic planning for organizations provides a useful tool
to energize and motivate the employees in the organiza-
tion regarding its vision, mission, and goals. The planning
process provides a document that can be used to recruit
others to the mission, focusing time, talent, and resources
toward running a successful operation. The initial strategic
phase should include thinking and exploration exercises.
Taking the time to think before planning is logical, yet
most organizations fail to devote adequate time to think
and explore. As more stakeholders become involved in
the thinking and exploration process, they become vested
45
New paradigm
Point-of-care testing (POCT)
Near-patient and bedside testing
Home testing kits
Direct-access testing (DAT)
Patient-care technician at nursing stations
Outpatient invasive procedures
Global payment systems
Diagnosis-related groups (DRGs)
Ambulatory payment classification (APCs)
Skilled-nursing facility (SNF) beds
Consolidated billing: services reimbursed under
resource utilization groups (RUGs)
Patient care plans
Medically necessary testing
Local medical review policies (LMRP)
Advanced beneficiary notices (ABNs)
Specialized esoteric testing
Bottom-up customer focus
Creating value
intellectually and emotionally, increasing the likelihood of
the plan’s success. Questions to ask during the first phase
should resemble brain-storming activities such as: Where
is the industry headed? What do our customers want or
need? What are the current trends in products and ser-
vices? What should be changed or eliminated? What new
products and services should be considered? During the
exploration phase, the group should avoid discussing fea-
sibility and cost, and focus on criteria for inclusion or ideas
that will either distinguish or add perceived value. Discus-
sions of any constraints identified should be tabled until
the strategic planning phase, which should target tactical
development. During this phase, the realities of funding
and resources are considered using decision-making tools
to select the best ideas and options for the developing
plan. The planning phase discussions should include the
following: market assessment; strategies; competitive and
economic environment; a review of strengths, weaknesses,
opportunities, and threats (SWOT); and resources. Next,
focus on differentiating your organization from the com-
petition by identifying your unique fit, by visualizing three
interlocking rings:
• Who you are (your strengths and weaknesses)
• What the customer needs (the opportunities and
threats)
• What you stand for (the organization and department’s
mission, vision, and core values)
The intersection of the three rings could be considered
your organization’s differentiated fit (37).
46 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

When used in goal setting, the acronym SMART should
be expanded beyond the traditional terms (specific, mea-
surable, achievable, relevant, and time-based) to include
other descriptive terms, according to Susan Heathfield at
About.com (19):
S: specific, systematic, synergistic, significant, shifting,
stretching
M: measurable, meaningful, memorable, motivational,
magical
A: achievable, action, accountability, acumen, agreeable
R: relevant, realistic, reasonable, resonating, results, re-
warding, responsible, reliable, remarkable
T: time-based, timely, tangible, thoughtful
Market Assessment
The development of a strategic business plan begins with
a market assessment. The primary purpose of the market
assessment is to research consumer needs and determine
if there is an opportunity to provide a service. The impact
the project may have on laboratory production (efficiency)
and revenue should be evaluated. The market assessment
should also include an evaluation of sales and service re-
quirements, as well as an analysis of the competition. After
the market assessment, the next step is to develop an im-
plementation plan that considers legal (regulatory), eco-
nomic, and societal variables. These variables, as well as
the competition, are considered environmental variables
that can potentially influence customer satisfaction (refer-
ence 5, p. 29; reference 28, p. 25–43; 29).
Key Strategies
Strategy can be defined as the approach or techniques
developed by the management team to facilitate the
organization’s ability to perform successfully. The strate-
gic planning process functions best when it operates in
an open and inclusive atmosphere. The strategic planning
process should result in innovative and visionary prod-
ucts and service delivery goals (4). A business plan has
four key strategies that must be carefully considered (ref-
erence 6, p. 19).
• Production (product planning) strategies. Production
strategies include decisions about research and devel-
opment, production times for new products, and
branding.
• Service (distribution) strategies. Service strategies de-
fine how the products and services will be delivered.
• Marketing and sales (promotional) strategies. Pro-
motional strategies include market research, sales
management, customer service, communication, mar-
keting, sales support, and the approach to advertising
(publications and promotions).
• Pricing strategies. Pricing strategies are typically the
most difficult and are often dependent on the com-
plexity of regulatory oversight and public scrutiny.
Prices must always be profitable and defendable.
The key to success is being able to combine these four
strategies into a dynamic business plan (reference 5, p. 29)
(Fig. 3.1). Often, one or more of the environmental vari-
ables are beyond management’s control, ultimately putting
pressure on an organization to continuously reevaluate its
business strategy. Society (or the consumer) generally sup-
ports businesses as long as the product or service being
delivered is perceived as adding value. Economists refer to
satisfying this need as utility (reference 6, p. 6). In health-
care it is more commonly referred to as clinical utility.

Figure 3.1 Strategic business planning. The four

key strategies (pricing, production, marketing, and Perform
service) serve as the cornerstones in the framework
for the development of a successful business plan. MARKET ASSESSMENT
The strategies must be carefully weighed against
the influences of the four variable environmental
factors and the market research information on ENVIRONMENTAL
consumer needs for the products and services. KEY STRATEGIES VARIABLES
doi:10.1128/9781555817282.ch3.f1 • Pricing • Legal
• Production • Competitive
• Marketing • Economic
• Service • Societal

Develop

STRATEGIC
BUSINESS PLAN
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
Competitive Environment
A competitive analysis is the practice of analyzing the com-
petitive environment for the geographic area where an or-
ganization conducts or plans to conduct business. Elements
to include in the analysis are a comparative study of the
strengths and weaknesses of the competitors and your own
operation; the demographics and desires (needs) of the
customer and market segments; the marketing, sales, pric-
ing, production, and service opportunities; and the strate-
gies that either improve or impede progress. Also identify
internal and external barriers, obstacles, and threats to
your organization’s success. Refer to http://www.reference
forbusiness.com./small/Bo-Co/Competitive-Analysis.html
(last accessed September 28, 2012).
Clinical Laboratory Competitive Market
Competition exists when businesses that offer similar
products and services want the same customer base. Over
the past four decades, competition among commercial
laboratories has resulted in many mergers and acquisi-
tions. Regional laboratories and local independent labo-
ratories have consolidated in an effort to increase market
share and offset the declining revenue base. However, new
technology is now driving the growth of smaller, inde-
pendent specialty laboratories focusing on specific niche
markets such as clinical trials, genetic and molecular
diagnostics testing, flow cytometry, and pathology con-
sultation services. The smaller specialty companies have
formed strategic alliances to compete with the major ref-
erence laboratories and offer a wider scope of services to
their customers. Physician office laboratories are taking
advantage of robust, near-patient testing platforms. As
POCT technology continues to develop, home healthcare
agencies will likely become competition in the clinical
laboratory testing market.
Business Entities, Strategic Alliances, Joint Ventures,
Mergers and Acquisitions, and Integrated Networks
Healthcare facilities typically respond to the pressures cre-
ated by the financial constraints of healthcare reform by
solidifying their current market share, expanding their
geographic service area, and implementing better cost
controls. Industry restructuring is unpredictable and often
includes relationships between unlikely business partners.
The arrangements include physician practice organiza-
tions, physician management groups, physician hospital
business organizations (health systems), integrated de-
livery systems, independent provider associations, and
provider networks. The type of business entity that insti-
tutions typically form is based on tax status. Tax-exempt
status is sometimes difficult to obtain when more than
20% of the healthcare organization’s board members are
physicians. Individuals, sole proprietors, corporations, and
trusts are all taxpayers.
47
The following are some types of business entities:
• Corporations are required by state law to file articles of
incorporation as a for-profit or a not-for-profit organi-
zation. A corporation’s owners have limited liabilities
based on their individual investments in the company.
• Partnerships are not considered taxable entities and
do not pay taxes. The general partners are personally
liable for financial obligations and are taxed on their
earnings. Partners in a limited partnership are only
liable for the amount equal to their investment.
• A limited liability company (LLC) is a legal entity
treated like a corporation, but the owner’s liability is
limited to his or her investment, and the company is
treated like a partnership for federal income tax pur-
poses. An LLC may or may not have centralized man-
agement. To gain classification as a partnership, the
LLC must have at least two members (34).
Strategic alliances. Faced with increasingly complex tech-
nologies and more intense global competition, healthcare
organizations can use strategic alliances to combine their
resources to share risk, reduce costs, and expand customer
and supplier relationships. When properly planned and
managed, an alliance can significantly strengthen competi-
tive advantage through technology exchange, opening new
markets, securing investment capital, and sharing costs of
research and development. Equity investments, coopera-
tive ventures, research and development contracts, licens-
ing agreements, and sales and marketing agreements fall
under the umbrella of strategic partnering. Whenever the
income from the venture can be referred to as unrelated
business income, the entities should consider restructur-
ing the affiliation agreement. The parties should execute
due diligence or confidentiality agreements at the onset of
the negotiation process (13).
Strategic partnerships are typically formed by corpo-
rations with strategic objectives that complement one
another. The partners agree to mutual and open commu-
nication that supports long-term, multiyear preferential
relationships that share risk and reduce costs. These part-
nerships allow laboratories to deal with fewer suppliers,
streamline, standardize, automate purchasing practices,
reduce inventories, and measure both quality and finan-
cial outcome (4).
Less formal alliances allow for the creation of coopera-
tive databases that support information sharing so that
the partners can make business decisions with current,
detailed information about the healthcare environment.
There is a growing need for healthcare providers and in-
surers to share information across databases. The result-
ing network server is generally referred to as a community
health information network. More formal equity partner-
ships create a business arrangement with shared owner-
ship and interlocking boards. Franchise alliances link the
48 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

partners through exclusive license agreements that provide
training, products, systems, and marketing in exchange for
the financial investment. A shared clinical service alliance
allocates the costs for specialized clinical services, such as
magnetic resonance imaging, among multiple sponsors. A
joint venture brings two or more entities together to share
an investment (11).
Joint venture. A joint venture is formed for economic
purposes to achieve mutual or common financial goals.
The arrangement may include partnerships, corporations,
trusts, LLCs, leases, and contracts. Joint venture is the term
used to describe management agreements, partnerships,
strategic laboratory arrangements, and outsourcing. Such
ventures are not legal entities with legal protection. Facili-
ties entering into a joint venture arrangement should first
seek the advice of counsel to ensure that the partnership
does not violate Internal Revenue Service guidelines, anti-
kickback statutes, fraud and abuse laws, the Stark law, or
safe harbor regulations (34). These regulations are dis-
cussed in more detail in chapter 5.
Mergers and acquisitions. Performing due diligence in
the merger process includes an examination of the finan-
cial and legal records of the parties involved. The process
identifies the scope of liabilities that will be assumed and
the legal impediments and provides a comprehensive un-
derstanding of the merging parties’ business operations (1).
Typical structures used in mergers are as follows:
• Statutory merger. The stock in the merging company is
combined with the stock in the surviving company.
• Stock acquisition. The stock in the merging company is
acquired by the surviving entity, and the merging com-
pany continues to operate as a subsidiary corporation
of the surviving company.
• Asset acquisition. The surviving company acquires
some or all of the assets of the merging entity in re-
turn for stock in the surviving company. The merg-
ing company continues to exist as a legally distinct
corporation.
Integrated delivery systems. An integrated delivery sys-
tem is formed when payors and healthcare providers (in-
cluding acute-care providers, physicians, home healthcare
agencies, nursing homes, primary care offices, and others)
combine forces to extend their service lines to improve the
coordination and quality of care while controlling costs.
Financing an integrated delivery system requires a basic
understanding of capital markets and the ability to adapt
to the changing market demands.
Integrated delivery systems measure their success using
outcome data such as patient satisfaction surveys, read-
mission rates, costs for emergency care, and patient com-
pliance to prescription refills. The creation of integrated
delivery systems is a business strategy used to facilitate the
change from treating chronic disease and acute episodes to
the practice of preventive and predictive medicine. An ac-
countable care organization, as defined by the Affordable
Care Act, is one form of integrated delivery system.
Emerging network models. There are at least seven loosely
connected organizational models emerging with changing
partners linked by contracts rather than by ownership.
Each one takes a slightly different approach to organizing
governance and directorship (27). Table 3.3 discusses vari-
ous emerging network models (11).
Regional network outreach programs. Healthcare facili-
ties developing regional laboratory networks have encoun-
tered a number of difficulties along the way. It is never
easy to overcome long-standing rivalry and antagonism

Table 3.3 Emerging network modela

Description of network
Medical clinics
Hub and spoke
Multicenter network
Public system
Enterprise corporation
Provider-insurer partnership
Community partnerships
a
See reference 11.
Network organization and governance
Physician-governed and medically dominated clinics form their own managed-care organizations or start
joint ventures with managed-care plans.
Academic medical center forms networks with large regional hospitals. The academic medical center serves
as the network hub, and most decisions favor it.
A network that is composed of strong regional hospitals and tertiary care centers without the expense of the
academic medical center.
Urban hospitals form networks to capture Medicaid contract work to compete with managed-care and medi-
cal center networks.
Corporations offer stock to physician and hospital partners, but the parent maintains control.
Networks formed by physicians and insurers are difficult to operate due to differences in culture and leader-
ship styles.
Community-based healthcare systems or community care networks differ according to the locality and its
needs. These networks are focused on financial risk, continuum of care, integration, outcomes data, and
clinical protocols.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
among local competitors. Obtaining capital funding for
outreach often takes a backseat to capital funding for in-
formation systems, acquisitions, and replacing aging facili-
ties. Managers face difficult inequities in salary and benefit
structures among the systems. Start-up costs, inaccurate
estimates of specimen volume, and inferior information
and billing systems often leave managers unable to dem-
onstrate increased revenue, income, or profit in the out-
reach market (22).
Managed competition. As hospital outreach programs de-
velop relationships with community healthcare providers,
commercial laboratories argue that hospital-based labo-
ratories have an unfair advantage in the physician market
segment, where physicians may feel obligated to patronize
the hospital. Hospitals have also become aggressive in buy-
ing physician office practices in an effort to capture more
referrals. In many areas, hospitals are developing their own
managed-care programs in conjunction with the physi-
cians. This approach is known as managed competition.
The physician hospital organization negotiates contracts
with third-party payors to provide a full scope of services
under a managed-care arrangement.
The Economic Environment
Four Stages of the Business Cycle
There are six major macroenvironmental forces that af-
fect an organization’s ability to serve its customers or sell
its goods and services (according to the Business Glos-
sary located at http://www.allbusiness.com/glossaries/
macroenvironment/4954903-1.html#axzz29NuRbPhV [last
accessed October 15, 2012]).
• Cultural environment includes social factors that influ-
ence basic values, behaviors, and preferences.
• Demographic environment includes statistical studies of
the population in terms of size, density, location, age,
sex, race, occupation, etc.
• Economic environment includes the economy, salary,
credit, and pricing trends that affect consumer spend-
ing and purchasing power.
• Natural environment consists of the raw materials and
energy sources needed.
• Political environment includes laws, regulations, gov-
ernment agencies, and lobbyists that restrict or influ-
ence society.
• Technological environment includes forces that affect
technology and the creation of new products, services,
and markets.
Businesses operate in a complex environment. The
business cycle fluctuates through four dynamic stages that
follow a cyclic pattern, as demonstrated in Fig. 3.2. Many
49
Figure 3.2 The four stages of the economy. The economy is
cyclic and progresses through four stages. There are cycles
when the economic environment supports the move from re-
cession directly to recovery, bypassing an economic depression.
doi:10.1128/9781555817282.ch3.f2
economists argue that society can avoid future depression
by intelligent utilization of economic and fiscal policies. In
this model, the business cycle would move directly from
recession to recovery (reference 5, p. 47–48).
The National Economy: Fiscal and Monetary Policies
A variable economic factor that influences marketing
strategies is inflation. The federal government uses two
basic approaches to counter the effects of inflation on the
economy. Fiscal policies target the government’s receipts
and expenditures, while monetary policies refer to the
management of the money supply and the market interest
rates. During periods of inflation, the government’s fiscal
policy changes could include reduced spending, increased
taxes, or a price freeze. A monetary action plan might be
to decrease the money supply or to raise the prime interest
rate to curtail spending. Consumers generally do not take
notice of modest price increases over time. This pricing
phenomenon is known as creeping inflation. As customers
perceive erosion of their buying power, they modify their
behavior regarding major purchases to either buy now, be-
lieving that the price will be higher later, or reallocate their
funds, postponing their purchase until later. Each of these
results in a decline in demand for goods and services and
creates a supply surplus and an excess capacity on the pro-
duction line (reference 5, p. 47–48).
Most laboratory expenses, including fixed and variable
costs, are impacted by inflation. Inflation factors are not
typically applied to expenses associated with depreciation,
interest, rent or leases (except by contract), or bad debt.
Inflation factors should be applied to an annual budget on
a month-to-month accrual basis, rather than at the first of
the year, so as not to overstate the cost (18).
50 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Global economy. In the global economy, businesses are
forced to shift from being multinational (a national com-
pany with foreign subsidiaries) to being transnational
(where the world is one economic unit). Sales, service,
public relations, and legal affairs are local. Parts, machines,
planning, research, finance, marketing, pricing, and man-
agement are obtained from a world market (14). The neo-
classical concept of the global economy implies that the
free mobility of products and factors of production across
national boundaries will maximize efficiency through
forced competition. Since the wider the market, the greater
the possibilities for specialization, it follows that the most
efficient market is the global market.
Assess Infrastructure and Develop
Production Strategies
Developing a business plan to pursue new business op-
portunities always includes an assessment of the existing
infrastructure, facilities, equipment, and human resources
and a realistic assessment of the laboratory’s excess capac-
ity, using robust benchmarking tools.
• Physical location. Determine whether the present loca-
tion of the laboratory is adequate for convenient access
for patients and couriers. Evaluate the space require-
ments for the anticipated increase in test volumes.
• Testing personnel. Analyze the personnel required to
support accessioning, testing, reporting, courier, and
billing functions for the anticipated test volumes by
shift.
• Instrumentation/equipment. Work with laboratory
managers to assess the existing equipment’s age, reli-
ability, throughput, and cost per test. If new instru-
mentation is indicated, consider both capital funding
and reagent rental. Consider whether the proposed
volume justifies front-end automation or robotics.
• Production strategies. Develop a detailed test schedule.
Evaluate setup times and turnaround time (TAT) needs
for the customers. Move batched testing to the most
efficient shift for optimal TAT.
Cost Accounting Principles
Laboratory costs. Traditional cost accounting methods fo-
cus on unit cost per test. Today, laboratory managers must
also take into consideration other environmental factors,
such as test performance site, for example, near-patient
testing versus STAT laboratory to shorten TAT or length of
stay for inpatients. Developing financial management skills
is requisite to a manager’s ability to make sound business
decisions. To establish the price for a laboratory procedure,
managers must first understand the factors affecting the
cost to perform the test. Laboratory costs are typically di-
vided into four groups (20).
• Preanalytical. The cost of placing the order (connec-
tivity), obtaining the specimen, transporting it to the
laboratory, and accessioning/processing the sample for
testing.
• Analytical. The costs of reagents, labor, equipment pur-
chase, depreciation, or lease.
• Postanalytical. The costs associated with reporting re-
sults and billing for the services.
• Quality assurance/quality control. The associated costs
for monitoring and maintaining test quality.
Table 3.4 lists terms frequently used in cost and price
analysis.
Some laboratories use activity-based costing, a method
that assigns a cost to every activity throughout the orga-
nization. It captures associated costs for specimen collec-
tion, transportation, handling, usage, and disposal and
assigns costs to bottlenecks, scheduling delays, and other
process costs traditionally not captured in healthcare ac-
counting systems.
By performing a larger volume of tests in one location,
laboratories spread the fixed costs over a larger number
of tests, reducing the average fixed cost per test. If the
output is increased without increasing the cost on the
same scale, the laboratory has achieved economy of scale.
Laboratories generally experience a decrease in cost per
reportable result created by increased purchasing power
for reagents, consumables, and kits. Laboratory manag-
ers must recognize that there is a point of diminishing
return. When additional volume reaches a point where
instruments and people are performing at their maxi-
mum throughput, the operational efficiency achieved by
economy of scale begins to decline. An infinite number
of tests cannot be performed in a finite amount of time
and space (39).
Return on investment. Capital budgeting is the process of
planning for the expenditures expected to generate income
to flow into the organization. The analysis for capital bud-
geting should include the following steps (10):
1. Identify the needed initial cash outflow using bids and
proposals from vendors.
2. Forecast the anticipated net cash flows over the life of
the project.
3. Evaluate the financial risks associated with the project.
4. Measure the required rate of return for projects of sim-
ilar risk levels.
5. Compute the return on investment and assess project
feasibility.
First, determine the cost of the capital project. Include
all nonlabor costs. Second, calculate the total gross rev-
enue, or market potential, for the anticipated increase in
volume of services over the life of the project. To estimate
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 51

Table 3.4 Commonly used terms in cost and price analysisa

Term Definition
Direct costs The costs incurred to perform analysis and produce test results for a specimen in the lab.
Technical labor
Reagents
Depreciation of equipment
Indirect costs The costs to acquire specimens and bill for tests.
Billing
Courier service
Office supplies and administrative costs (telephone)
Fixed costs Costs that do not fluctuate with volume changes.
Fixed costs/test decrease as test volume increases.
Lease/rent
Administrative overhead (client service, sales, marketing)
Depreciation on capital expenditures such as cars, instrumentation, and laboratory information system
Variable costs Costs that fluctuate proportionately with volume changes.
Collection supplies
Processing labor
Vehicle maintenance and expenses
Printer, fax, telephone lines for clients
Fully loaded costs The total cost to perform a test. All elements of expense from front-end registration and specimen collection
to back-end reporting, billing, and collection.
Direct and indirect
Fixed and variable
Allocation of indirect expenses Distribution of indirect costs across the department as a percentage of testing volumes.
Incremental cost The cost to perform an additional test once the direct cost of the assay is derived; also referred to as
marginal cost.
a
See reference 17.

the cash flows of the new venture, laboratory managers
must know their fixed costs and the changes in variable
costs for the anticipated growth. Finally, calculate the re-
turn on investment (15). This calculation is complex, but
there are a multitude of online tools to facilitate the analy-
sis. An explanation of the formulas is beyond the scope of
this text.
System-Wide Approach to Establishing
a Fee Schedule
The development of a laboratory fee schedule is more
successful when a system-wide focus on all of the fac-
tors related to laboratory economics is used. Com-
munication must be open among accounting, patient
reimbursements, finance, budgeting, production, and
administration. The pricing formulas used must result in
fees that cover production costs and are competitive in
the local market. The individual fees should be reviewed
to ensure that maximum reimbursement across the spec-
trum of payors is achieved.
Consumer Price Index
The Consumer Price Index (CPI) measures inflation at
the retail level and reflects the average price change over
time for a constant quality and quantity of market basket
goods and services. The CPI approximates what house-
holds spend out of pocket for the goods and services used
for daily living expenses. Medical care, one of eight major
divisions in the CPI, consists of two classifications:
• Medical care commodities, which are divided into
three expenditure categories:
• Professional services
• Hospital and related services
• Health insurance
• Medical care services, which include:
• Medicinal drugs
• Medical equipment and supplies
Medical care indexes are limited to items with out-of-
pocket expenditures including health insurance premiums
deducted by the employer. The data includes information
on healthcare services received, who received the services,
the amount of the payment, and the insurance reimburse-
ment amount. Out-of-pocket expenses include fees that
are not recouped by health insurance and are paid to retail
outlets for medical goods and to doctors and healthcare
providers for medical services, as well as health insurance
premiums, including Medicare Part B, paid by consum-
ers. The net consumer out-of-pocket medical expense
subtracts any insurance reimbursement made to the con-
sumer from the total amount spent by the consumer. The
medical care out-of-pocket expense excludes the cost as-
sociated with employer-provided healthcare.
52 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Hospital services include inpatient and outpatient ser-
vices. The unit of price is the hospital visit, defined by
admission date and discharge date as documented on the
hospital bill in conjunction with the diagnosis. This sam-
pling also identifies specific eligible payors and the reim-
bursement arrangements in the contract, including the
patient’s portion of the payment. The goal of the hospi-
tal services index is to follow transaction prices of selected
services over time while maintaining consistent charac-
teristics that determine price. The transaction price is the
reimbursement received by the provider from all eligible
sources (insurers and patient). The CPI and Medical Care
Price (MCP) index (a subset of the CPI) are often tied to
purchasing and managed-care-provider contracts. To learn
more about the CPI visit http://www.bls.gov/cpi/cpifact4
.htm (last accessed May 26, 2013).
Pricing Strategies
Hospital laboratories typically have two fee schedules, one
for inpatients and one for outpatients. Laboratories should
have input in the development of the hospital’s inpatient and
outpatient fee schedules. Fees for outpatient testing should
never be higher than the inpatient fees. Most hospitals use
rate-modeling programs that compare their charges with
those of other healthcare providers in the local market. Hos-
pitals with community-based outreach programs must de-
termine the pricing strategies necessary to be competitive
with each laboratory providing services in the designated
service area. Table 3.5 lists tools and techniques frequently
used in developing pricing strategies. Pricing strategies
must give careful consideration and weight to the impact of
competitive market forces and contract negotiations with
customers, suppliers, and insurers (reference 28, p. 133).
Price is defined as the exchange value for a product or
service or the value of an item. Pricing objectives typically
fall into one of three groups:
• Profitability. The goal is to maximize profits and target
new income. Profits are a function of income and ex-
pense. Profit = income − expense.
• Volume. Volume strives to maximize sales or market
share. Gross revenue is determined by the sales price
and the volume of the items purchased. Gross rev-
enue = (unit price) (volume).
• Status quo versus prestige pricing. Status quo minimizes
competitive pricing wars and allows the company to
focus its efforts on product improvement or product
promotion. Prestige pricing goals set a relatively high
price to create an image of quality or prestige in the
mind of the buyer.
List price is the term used when the current rate is quoted
to the potential buyer. List price is usually determined using
a cost-plus formula. Market price is the actual amount the
customer pays. Laboratory pricing strategies and policies
depend on the types of customers served and their needs.
Account billing strategies. Strategies for billing accounts
on an itemized invoice often include using a combina-
tion of across-the-board percentage discounts and spe-
cial prices to meet the customers’ needs. When designing
pricing options to accommodate customer needs, care-
fully review the fees to ensure that they are never below

Table 3.5 Tools and techniques used in developing pricing strategies

Tool Technique for use
Reimbursement data Use patient demographic information gathered in the market assessment in conjunction with hospital statistics on
patient mix.
Work with the patient accounting or decision support to establish the average reimbursement/patient encounter.
Billing procedures Establish pricing policies for accounts that are consistent and are based on anticipated monthly dollar volume.
Maintain signed service agreements with customers that outline compliance issues.
Billing systems Does the hospital patient accounting office or the laboratory information system produce client invoices?
For direct account billing, does the invoice format provide corporate accounting, line item discounting, special pric-
ing, and monthly test utilization summaries?
Can the billing system generate both a CMS (formerly HCFA) 1500 and UB92 billing format? (See chapter 5.)
How are accounts receivable statements, aged trial balance reports, revenue reports for third-party payors, feedback
on remittance advice and denials, past-due balances, and collections handled?
Revenue tracking Work with decision support and financial systems to generate monthly net revenue statements.
Prepare monthly revenue reports that show net revenue after expense.
Business planning Monitor net revenue per test compared to sales projections.
Track progress and revise financial projections–based data.
Revise the financial pro forma for the three-year business plan every quarter.
Work with finance to prepare a return on investment that rolls the outreach program revenues up into the laboratory
operational budget.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
incremental costs. When selling to a customer, the best
practice is to sell value rather than price.
• Discounting strategies
• Cash discounts are reductions in the list price that
are given in return for prompt payment of a bill.
Such discounts are legal provided they are offered to
all customers on the same terms.
• Quantity (volume) discounts are reductions in price
based on volume purchases and may be a one-time
transaction or a cumulative volume discount. Labo-
ratories may give accounts higher discounts on
certain high-volume tests and offer a standard per-
centage discount referred to as an across-the-board
discount for all other test procedures ordered on a
monthly basis.
• Nondiscountable prices are usually established for
tests that are not performed by the laboratory di-
rectly but are sent to a reference lab. Esoteric testing
may also be nondiscountable, as start-up costs and
initial production costs are higher and the profit
margin is lower than for the typical high-volume,
routine tests. This strategy, referred to as stratified
pricing, targets certain procedures as carve-outs or
exclusions from the rate negotiations with insurers.
Pricing is stratified according to the test description
or service line (for example, surgical and cytopa-
thology, molecular diagnostics, and cytogenetic
testing), based on cost and technical expertise.
• Rate negotiation strategies for third-party insurers.
Rate negotiation with insurers in most hospitals for
inpatient, outpatient, and managed-care patient re-
imbursements is generally conducted by the hospital
administrative contract or managed-care department.
The contract fees may be a combination of prospec-
tive payments (paid on a per-day or per-case basis),
fee-for-service payments (billed after the service), or
capitation (a fixed fee or rate per member per month).
Test utilization information on the patient population
is critical in negotiating an equitable agreement that
includes a stop-loss threshold for overutilization.
• Market positioning strategies. Low option pricing
maximizes the sales effort and is used when the goal
is to gain market share from the competition or when
trying to penetrate a new territory. It is sometimes re-
ferred to as marginal pricing.
• Defensive pricing to maintain market share. Defensive
pricing is a low option pricing strategy used to main-
tain market share and defend against the competitor’s
pricing strategy. It is not always necessary to match the
competition’s lowest price when the customer is loyal
and agrees that using the hospital laboratory service
has a value-added benefit.
53
• Value-added pricing. Value-added pricing is a high op-
tion pricing strategy used whenever value-added prod-
uct or service differentiation from the competition is
demonstrated (17).
• Loss leader pricing. Loss leader is an aggressive pric-
ing strategy used by commercial laboratories to attract
or lure customers from the competition, based on the
premise that the profit will be recovered from the volume
of other purchased services at the regular (higher) price.
In recent years, some states have passed laws that limit or
forbid selling below cost. This strategy has a down side,
when customers respond by “cherry picking” the best
pricing offer by purchasing only the services priced near
or below cost from the commercial laboratory.
Promotional (Marketing and Sales)
Strategies
Market Research
Companies utilize market research to identify product or
service needs in new and existing markets. The inside-out
approach develops the product first and then identifies
the market. The method employed most frequently is the
outside-in (or market pull) approach, which identifies the
needs in the marketplace first and then develops the prod-
uct or service to meet the need. Primary sources for market
research include customers, manufacturers, competitors,
and consultants who are familiar with the market. Second-
ary sources are from a literature search. Three techniques
typically used to obtain primary market information are
mail surveys, telephone surveys (telemarketing), and
personal interviews. Direct observation is the fastest and
most reliable means of doing market research. Gather-
ing accurate, up-to-date information on the competition
is best accomplished on a daily basis while making sales
calls. Effective sales representatives routinely take note of
the office procedures, hours of operation, type of practice,
and medical school affiliations. They collect examples of
competitors’ literature and request slips. The sales team
must always be aware of the competitive activities at the lo-
cal, regional, and national levels. Customers and prospects
provide most of the market intelligence needed. Competi-
tive information and literature should be reported and filed
in a central repository in the laboratory’s marketing office.
Before entering a new market, it should be standard
practice to perform a market survey asking a few spe-
cific questions about the customer, the customer’s labo-
ratory needs, and the competition. Knowledge about a
prospect or a market segment increases your success rate
in developing interest in laboratory services. In the past,
the typical market survey was performed using a written
questionnaire that was mailed with return postage. Today,
electronic surveys are more the norm. Whether paper or
54 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
electronic, the response rate for this approach generally is
around 5%. It is best to have the sales representative make
an appointment to survey the office on-site. Telemarketing
can also be incorporated into the duties of the client service
group. This response rate is improved to an estimated 20%
if your team has the time to dedicate to this activity. The
newly acquired market information is used in conjunction
with knowledge about finance and the other environmental
factors to develop sound marketing strategies (9).
Marketing Strategies
Performing a market assessment ensures that the revenue
projections and sales forecasts are realistic. Each of the fol-
lowing factors should be considered:
• Market demographics. The statistics related to the size
of the market within the geographic boundaries served
are called demographics. Population statistics can be
obtained by contacting the bureau of census in the state
or county. Frequently, the healthcare facility’s managed-
care department has these population and geographic
data readily available. The healthcare system utilizes
data from the decision support systems to generate
useful information related to patient and third-party
payor mix and relevant reimbursement rates for both
inpatient and outpatient procedures. Healthcare sys-
tems can extract the detailed laboratory revenue re-
ports necessary to make sound business decisions.
• Provider base. The market assessment should also in-
clude a thorough evaluation of the total number and
distribution of healthcare providers by specialty in the
market. Traditionally, the physician has been the gate-
keeper to most medical services, including laboratory
testing. Even though the trend is toward sharing the
responsibility with the payor, doctors will always play a
significant role in the determination of preventive health
appraisals and establishing medical necessity of testing.
• Employer base. The market assessment should research
the major Fortune 500 companies in the defined service
area. Fortune 500 companies are considered to be the
largest, most profitable, and most powerful companies
in America. Commonly referred to as the “blue chips,”
they represent vast holdings and revenues in the billions
and include firms such as Exxon, General Electric, and
Philip Morris. Employers purchase healthcare for their
employees as a form of compensation, to enhance well-
ness, and to increase productivity on the job. Surveying
the employer’s need for executive physicals, preemploy-
ment health assessments, drug screening, and insurance
benefit packages for their employees is useful in develop-
ing strategies for the industrial market segment, as well
as for understanding how many employees in the service
area are tied to capitated managed-care contracts. Be-
cause of the escalating costs of healthcare, employers are
searching for ways to reduce expenditures for healthcare.
In late 1996, commercial laboratories introduced new
programs that allowed employers to provide maximum
benefit coverage for contracted outpatient and nonemer-
gency laboratory services when the company’s employees
sought the laboratory testing directly at the contracted
commercial laboratory. Direct contracting offers in-
creased net revenue to the commercial laboratory, by-
passing the major health plans that realize margins from
squeezing down laboratory reimbursements.
• Insurer base. Traditional indemnity companies, third-
party administrators, and managed-care organizations
offer a variety of programs to employers and private in-
dividuals for healthcare coverage. Obtaining a working
knowledge of the terms and conditions related to insur-
ance coverage will aid the laboratory in surveying the
needs of the insurer for contracting with a community-
based provider. Increasingly, third-party payors, in-
cluding federally funded programs, continue to move
toward global reimbursements, such as diagnosis-
related groups for hospital inpatients, consolidated bill-
ing for skilled-nursing facilities, and composite rates for
end-stage renal disease patients.
• Access to laboratory services. Develop a marketing
strategy that includes convenient access to laboratory
services through strategic placement of patient service
centers in the service area.
• Laboratory infrastructure. Assess the production and ser-
vice needs in terms of equipment and human resources.
Out-of-pocket expenses. As employers and insurers nego-
tiate benefit packages, the beneficiary’s copays, noncov-
ered services, and utilization limitations are increasing.
Medical-necessity guidelines shift the responsibility for
payment of noncovered services to the beneficiary. The
number of underinsured Americans continues to rise.
Over time, more patients will not be able to pay their
medical bills, and write-offs will increase. The downward
trends in insurance reimbursement will force reductions
in the production costs of laboratory services in order for
the laboratory to remain profitable (reference 28, p. 170).
Decision makers and their buying preferences. Providers
have multiple options for choosing a laboratory. Physicians
are the constant targets of high-powered sales representa-
tives from regional and national commercial laboratories
offering features and benefits that enhance their basic labo-
ratory services. Customers base the decision to use a partic-
ular laboratory on a combination of the following factors:
• Professional relationship with a local representative
• Scope of services offered (courier, specimen procure-
ment, connectivity)
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
• Convenient and consistent level of service
• Reputation of the laboratory
• Personal or professional attachment to an academic
institution laboratory
• Price
Customers are not motivated to switch laboratories be-
cause they want the product or service. The decision to
change either eliminates a problem or is perceived to have
a value-added benefit compared to the competitor. Identi-
fying the prospect’s “hot-button,” or buying motivators, is
a necessary step for closing the sale. Table 3.6 lists the more
typical motivators encountered.
Differentiated marketing strategies. Companies that pro-
duce numerous separate and distinct products and services
directed at different market segments develop differenti-
ated marketing strategies. The objective is to match a spe-
cific product or service to the customer’s needs. Costs to
serve multiple market segments are typically greater than
those for serving a single market segment due to higher
production costs, increased space needs, expanded record
keeping, and promotion.
Concentrated marketing strategies. Concentrated market-
ing strategies are used when companies focus their efforts
on servicing a single niche market segment. This strategy is
self-limiting, and companies may end up in financial dif-
ficulty when buying preferences change to a competitive
product (reference 7, p. 202–205).
Assess laboratory market potential and estimate market
revenue. The best market estimates are based on histori-
cal and competitive price data. If the customer will share
the information, then you can accurately assess the poten-
tial profitability of the new business opportunity. If this
information is not available, there are several established
models for estimating the market:
• Population model. The population model provides an
estimate of the gross revenue potential in a geographic
Table 3.6 Buying motivators (hot buttons)
Turnaround time
Courier service (7 days per week)
Convenient access to technical support (client services,
pathology consultation)
Educational support
Quality assurance support
Computer and telecommunication support
Full scope of services (patient service centers, clinical and
anatomic pathology)
Price
55
area. Calculate the anticipated outpatient gross rev-
enue for a new geographic service area by multiplying
the current gross revenue per capita by the population
of the prospective market.
• Calculated gross revenue = (current gross revenue
per capita) (population in proposed new service area)
• The flaw in this formula is the assumption that the
economic, political, reimbursement, and competi-
tive conditions are similar in both markets.
• Test mix model. Most clients order a standard battery
of tests for their patients. Laboratories that monitor
the average number of tests ordered per requisition
report an average of 2.5 to 3.0 tests per requisition. To
calculate the average reimbursement per test, labora-
tories should divide the total reimbursement for the
outpatient book of business by the total number of
outpatient billed tests. The outpatient market typically
operates 5 days per week, which averages 22 business
days per month.
• Calculated reimbursement per month = (average
number of requisitions per day) (average number of
tests per requisition) (average reimbursement per
test) (20)
• Practice type model. The practice type model requires
estimates of revenue from similar practices (both by
specialty and by number of physicians). For example,
• Calculated reimbursement per month = (aver-
age reimbursement per physician) (number of
physicians)
• This formula can be used to build estimated rev-
enue models for each physician specialty based on
actual reimbursement experiences.
• Hospital model. Hospital revenue models can be for-
mulated using existing hospital clients with similar
characteristics, such as number of beds, urban or rural
setting, and general, specialty, or tertiary services.
Other factors that have an impact on the accuracy of
these models are the inpatient-outpatient mix and the
actual referral test menu. The focus for hospital pros-
pects must be on those clients whose test mix meets
the laboratory’s targeted tests where excess capacity
exists.
• Calculated reimbursement per month = (average
daily census of prospective hospital) (average labo-
ratory reimbursement per patient day) (25)
Targeted market segments and prospecting. Resources that
are useful in preparing prospect lists are local telephone
directories and the yellow pages, state and local medical
society directories, the American Hospital Association list-
ing by state, nursing home directories by state, managed-
care provider lists, the Clinical Laboratory Management
56 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Association directory, and classified and other advertise-
ments for new office locations or physicians joining prac-
tices in local newspapers, as shown in Table 3.7.
Recruiting the laboratory sales team. One of the keys to a
successful hospital outreach program is selecting the best
candidates for your marketing and sales representatives.
Successful salespeople are self-motivated, self-confident
individuals who always seem to maintain a positive atti-
tude. Their enthusiasm is contagious. Customers can sense
when salespeople are sincere and genuinely believe in their
services. Salespeople must be thick-skinned and very per-
sistent. The customer’s first encounter with a sales represen-
tative is crucial. The first impression must be a good one.
Sales representatives must look and act like profession-
als whenever in the presence of current and prospective
customers. Product knowledge is essential when trying to
close a sale. Sales representatives must know the features
and benefits of each of the services being offered by the
laboratory in order to handle indifference or objections
from the customer.
Sales forecasting. The process of measuring sales success
actually begins with the department’s administrative stra-
tegic planning goals and objectives. Combined with the
marketing team’s strategies, revenue projections, target
markets, and prospect lists are the metrics used to measure
the laboratory’s success.
Sales incentives. Many studies have shown that outreach
programs operating from regional or hospital-based facili-
ties select seasoned sales representatives who have excep-
tional skills in developing rapport with customers and in
forming a stable long-term relationship while acting as a
laboratory consultant. Most often these sales representa-
tives are offered a base salary in line with other laboratory
management staff, with little in terms of incentives or com-
missions. Incentives, commissions, and bonuses reward
people for productivity. The decision to offer bonuses and
incentives must be weighed carefully. If everyone on staff
who is asked to improve productivity is not included in
the incentive process, it can be detrimental to employee
morale throughout the entire laboratory operation.
Territory management. Sales representatives are extremely
competitive. Establishing territory boundaries allows the
laboratory to manage the sales effort from a team approach.
Sales territory assignments can be defined using several
techniques:
• Geography. A sales territory can be defined by using
geographic boundaries specific to county or city lines
or by using the postal service ZIP code boundaries.

Table 3.7 Target market segments for clinical laboratories

Market segment Specific type
Hospitals Academic
Affiliated
Community
Rural
Independent laboratories and physician office labs Niche business specialty laboratories (drug testing and pharmaceutical)
Group practices (family practice and internal medicine)
Physician offices Family physicians
Internal medicine specialties
Obstetrics and gynecology
Pediatrics
Surgical specialties
Dermatologists
Nursing homes Skilled-nursing facilities (SNFs)
Intermediate-care facilities (ICFs)
Assisted living facilities
Home health agencies
Public sector (federal, state, local governments) Veterans Affairs medical centers (VAMCs)
State and local mental health facilities
Prisons
Health departments
Clinical trials Phase I-IV trials, pharmaceutical companies, investigator, independent research
Industrial Preemployment, employee health services, health fairs
Other Veterinarians (DVM), chiropractors, podiatrists (DPM), dentists
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
• Account type. Another method of defining territories
is by account type. For example, individual representa-
tives can focus on specific strategies to bring on family
practices or internal medicine or obstetric practices.
• Market segment. Focusing on the special needs for
each market segment offers another option for sales
representatives to become experts in areas of hospital
reference testing, physician office testing, clinical trials,
infectious diseases, long-term care facilities, substance
abuse testing, and public-sector contracting.
• Combination. Some laboratories ask their representa-
tives to create detailed prospect lists from the labora-
tory’s service area each quarter. The representatives
use the prospect list to make their daily call plans. If a
prospect is not closed within 90 days, another repre-
sentative can then add the targeted account to his or
her prospect list for the next quarter.
Sales Strategies
Sales strategies are used to position the company and prod-
uct before the sale begins. The key to a successful sales
strategy is to identify prospective customers who are not
satisfied with their present product or service. Long-term
sales goals are focused on account cultivation and retention
by developing a “customer for life” relationship with the ac-
counts. Short-term sales goals include identifying and clos-
ing as many deals as possible.
Sales planning. Successful salespeople use a combina-
tion of preparation, planning, and just plain luck to place
themselves in the right place at the right time. The sales
plan should include some flexibility to take advantage of
any unanticipated opportunities that arise. Sales objec-
tives can be adjusted for a sudden change in competi-
tive activity. Identifying changes in the environment and
ranking their relevance assists sales representatives in
defining the sales objective for the call. Effective repre-
sentatives constantly evaluate the laboratory’s position to
reposition the product or service based on need and per-
ception. Thorough planning enables sales representatives
to concentrate the call activity within a small geographic
area, avoiding excess travel time. Making appointments is
the most efficient way to plan a day working in the field.
Good time and territory management is vital for the suc-
cess of the salesperson. As the adage goes, plan your work
and work your plan. Daily activities should be prioritized,
making it possible for the salesperson to always act with
a sense of urgency. Maintaining a daily call itinerary that
lists each prospective call to be made, including updates
and reminders from a tickler file, allows the representative
to function more effectively and provide timely follow-up
with prospective customers. Hugh Gouldthorpe, Jr., se-
nior vice president of Owens and Minor, a Fortune 500
57
medical supply company, and a master of customer ser-
vice strategies, reminds his world-class organization to
“DWYPYWD,” which simply translates to “Do what you
promised you would do.” (Visit http://www.owens-minor
.com/companyinfo/whoisom/culture/HughsViews/Pages/
default.aspx [last accessed October 15, 2012].)
Sales techniques and strategies. Sales techniques and strat-
egies include:
1. Precall strategy. Sales representatives, much like a
teacher preparing a lesson plan, should prepare for
their calls in advance (Table 3.8). The customer’s first
encounter with a sales representative is crucial. First
impressions are lasting and must be good. Sales repre-
sentatives must look and act like professionals when-
ever in the presence of current and prospective
customers.
2. Cold calling. Even after an exhausting planning pro-
cess, most prospecting takes place by knocking on
doors, making the often dreaded first-time, face-to-
face, cold call (see Table 3.9).
3. Making the sales call. Sales representatives should al-
ways present a positive impression. They build rapport
by showing interest and enthusiasm in the client. As
salespeople gain experience, they learn to pace the
rhythm of the call.
4. Sales techniques are the tactics or actions used during
the sales call to deal with customer attitudes of indiffer-
ence and skepticism and to handle objections. Features
are characteristics of your product or service. Benefits
are the value the features bring to the customer. One
must listen actively and courteously to identify key
points and perceived drawbacks. Use simple probing
Table 3.8 Call preparation and rehearsal
1. Identify the needs of the prospect, short term and long term.
2. How do the customer’s needs relate to the perceived needs?
3. List the distinctive features of the laboratory services that meet
these needs.
4. How are these needs currently being met?
5. Identify the testing area with the greatest opportunity for new or
increased business.
6. Is the prospective customer knowledgeable about the hospital
laboratory service?
7. Evaluate ahead of time the degree of indifference the customer
may have to the laboratory services.
8. List the specific benefits that the prospect may be skeptical about.
9. Gather appropriate proof sources to handle the anticipated indif-
ferences and skepticism.
10. Think through the process to handle objections due to misunder-
standings or perceived drawbacks to the services.
11. Plan your tactics to identify the decision maker.
12. List the objectives for each call before you begin.
58 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Table 3.9 The cold call: information gathering
Customer type (hospital, physician, nursing home)
Customer demographic information (number of beds,
number of M.D.s, number of patients)
Gather office staff member business cards
Develop key contacts
Identify office billing system and procedures
Third-party payor mix
Commercial laboratory pricing arrangements
Number of patients per day with laboratory orders
Most frequently ordered test menu
Identify the decision maker
Gather competitive information
Understand office logistics and service needs
Reporting and telecommunication system
Ask what else they need or what they would change
Take notes
Schedule a follow-up appointment to present a proposal
with prospective customers to clarify their objections.
When promoting a product or service, always restate
the features and benefits that support the customer need
or that counter a misunderstanding and ultimately re-
solve the concerns identified. Since most customers
generally think they are satisfied in their current situa-
tion, they aren’t aware of a better product or service.
Creativity is usually necessary. Good salespeople iden-
tify a need or dissatisfaction. Then, they convert the
need into a potential problem in the customer’s mind.
Next, they create a desire to have the problem solved,
which leads to introducing a feature of the laboratory
service that will satisfy the need and bring a benefit to
the customer. Make sure the customer agrees that the
stated benefit solves a need or problem, and then ask for
the business. Over time the experienced sales represen-
tative is recognized as a laboratory consultant and a
partner in providing quality healthcare and gains added
respect from the client for his or her professional and
capable contributions (23, 40).
5. Opening. After making the initial introduction, always
thank the customer for the opportunity to meet with
him or her. Asking about the customer’s operation and
needs for a reference laboratory helps break the ice. A
sales call should begin with an initial feature or benefit
statement about the laboratory service that supports a
specific customer need.
6. Postcall evaluation. The key to success is getting in to
see the decision maker.
• Unless the representative is sitting face-to-face
with a prospect, the representative’s selling skills,
product knowledge, and enthusiasm have very little
relevance.
• Unless the sales call includes spending time with the
decision maker or someone who can influence the
decision, a sales representative is probably wasting
valuable time.
7. Close/trial close. After the customer acknowledges
product approval and is in agreement with you, ask for
a commitment to use the product or service. To close a
sale, the sales representative summarizes the benefits
and outlines a plan to initiate using the product or ser-
vice. The following actions by a prospective customer
indicate a commitment:
• Agrees to have a presentation or in-service training
program for the office
• Accepts an invitation to take the staff on a facility
tour
• Authorizes an appointment with the office manager
to gather or discuss billing details
8. Call/close ratio. Many companies with an aggressive
sales operation expect sales representatives to make a
minimum of eight calls per day, or an average of one
productive call per hour. Making 35 to 40 sales calls a
week, or at least 200 calls per month, provides ade-
quate interaction to close three or four accounts by
month’s end, another three or four accounts within 2
months, and three or four accounts within 3 months.
Maintaining the momentum of the selling cycle re-
quires that the sales representative adhere to a regular
sales schedule. One of the most important character-
istics of a successful sales representative’s style is per-
sistence, as demonstrated in the statistics that follow:
• Eighty percent of all closes are made during the fifth
call on a prospect.
• Fifty percent of sales representatives quit after one
call.
• Twenty-five percent more quit after two calls.
• Ten percent more quit after three calls.
• The 20% that keep selling close 80% of their pros-
pects and bring in the most revenue.
Decision makers. A key element in the development of
sales strategies is the ability to identify the relevant play-
ers. Strategic selling concentrates on the things that remain
constant from one customer to another. A complex sale is
one that requires more than one signature to authorize ap-
proval or involves more than one decision maker. In the
corporate business world, each sale is complex and has
four distinct buying influencers who must be identified
early in the sales process. The “user” buying influencer is
primarily concerned about the reliability of the product or
service. The “technical” buying influencer acts as the gate-
keeper and is responsible for measuring the value of the
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS 59

product or service. The “economic” buying influencer is
the one person who gives the critical, final approval for the
sale, is usually the most difficult to identify, and is typically
very difficult to convince. The fourth buying influencer is
a champion, or “coach,” an experienced, trustworthy per-
son from either the purchaser or seller’s organization who
assists, guides, and directs the salesman through the dif-
ficult sale. Maintain written records of the decision makers
and buying influencers for each customer, remembering
that the names and faces change periodically along with
the hats that they may wear (26).
In the past decade, a new approach has emerged in the
sales process and planning process used by many Fortune
500 companies and is known as “conceptual selling.” This
transition is driven by a shift in customer consciousness
that is redefining what we know about sales and the rules
that influence the sales profession. Miller, Heiman, and as-
sociates have written a series of books (The New Conceptual
Selling, The New Strategic Selling, and The New Successful
Large Account Management) outlining a new discipline
with a well-defined process and useful templates for sales
training and planning. Using the “conceptual selling” sales
process, the sales professional begins by listening to the cus-
tomer to understand the customer’s situation or concepts
(just as Stephen Covey’s principles emphasize first seeking
to understand and then to be understood). Hospital labora-
tories with outreach programs should consider investing in
the series to develop knowledge and business skills.
Advertising Strategies
Products and services are identified through the use of brand
names, symbols, logos, and distinctive packaging. A brand
is a name, term, sign, symbol, design, or some combination
thereof that differentiates a firm from the competition. A
trademark is a brand that has received legal protection for
the exclusive use of the sole owner. Brands vary widely in
consumer familiarity and acceptance. Brand acceptance
goes through three stages of development: (i) recognition,
(ii) preference, and (iii) insistence. Establishing a product
or service that reaches brand insistence is the goal of every
company—to be the healthcare provider of choice (refer-
ence 7, p. 221–225).
Building a reputation and image for the laboratory out-
reach program depends on the laboratory operation and the
healthcare facility as an enterprise. Communicating with the
marketing director or public relations coordinator in hospital
administration is essential. There are usually policies related
to the use of a hospital logo in conjunction with other printed
materials. It is important to link the program to the organiza-
tion from a branding perspective. Successful marketing and
sales strategies depend on having printed publications that
clearly identify the laboratory services. In developing a needs
assessment for the marketing and sales program, laboratories
must allocate sufficient funds for publications and advertis-
ing costs to ensure that the sales effort has the tools necessary
to meet revenue projections (Table 3.10).
Customer-Focused Concepts
and Service Strategies
Who Is the Customer?
Customer satisfaction is a critical strategic weapon for
every organization. The laboratory’s customer is the pa-
tient, the physician, the nurse, or anyone who depends
on the products produced or the services provided. The
laboratory must treat each customer as a valuable and

Table 3.10 Marketing publications and advertising needs

Marketing tool Needs associated with marketing tool
Publications Directory of services – test procedure manuals (accessible online)
Fee schedules
Requisitions (available online via web-based order entry and result system)
Supply order forms
Procedure updates (available online via a public website)
Telephone result pads
Confidential result envelopes
Letterhead, envelopes, stamps
Advertising Business cards
Tabletop displays and exhibits (allocate costs to exhibit by number of conventions attended)
Yellow pages
Specimen lock boxes
Promotional – give-away items
Customer continuing education budget
Holiday greetings, lab week recognition
60 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
irreplaceable resource. World-class customer service or-
ganizations are successful because they are able to consis-
tently exceed the customer’s expectations. Their primary
strategic and structural focus on the external customer
includes rewards, recognition, and promotion and treats
the customer like a king (reference 24, p. 26). Table 3.11
defines who is the customer.
Understanding Customer Behavior
Customer behavior results from personal preferences
and pressures exerted from forces in the outside environ-
ment. A customer is not motivated to act unless there is
an unsatisfied need for a product or service. Selling is
the process of uncovering and satisfying customer needs.
Identifying an area of dissatisfaction with a competitive
product or service becomes an opportunity. The manner
in which products and services are presented influences
customer perception.
Once customers form an opinion, they become indif-
ferent or skeptical. If they have an objection or attitude
about a product, effecting a change is difficult (Table 3.12).
When this happens, the product and service strategies
must be modified in one of two ways:
• Change the product or service to more closely match
customer opinion or to overcome the basic objections.
• Attempt to change customer attitudes and opinions
about the product or service.
Key Concepts and Recognized Customer
Service Strategies
There is a quality revolution emerging in the service indus-
try. Keeping customers satisfied takes a real commitment
from management. During the 1980s companies learned
that quality does not improve unless you can measure it.
Later, various techniques emerged to not only measure
Table 3.11 Who is the customer?a
A customer is the most important person in any business.
A customer is not dependent on us. We are dependent on them.
A customer is not an interruption of our work. They are the purpose
of our work.
A customer does us a favor when they call. We are not doing them a
favor by serving them.
A customer is not a cold statistic. They are human beings with feel-
ings and emotions like our own.
A customer is not someone with whom to argue or match wits.
A customer is a person with needs. It is up to us to meet their needs.
A customer is deserving of the most courteous and attentive treat-
ment we can give them.
A customer is the person that makes it possible to pay our salaries.
A customer is the life blood of this and every other business.
a
See reference 23
Table 3.12 Customer attitudesa
Customer acceptance occurs when a feature or benefit of the product
or service is received with general approval or agreement.
Skeptical customers question or doubt that the product or service
will satisfy their need. Providing a reference source or a demonstra-
tion offers proof of the benefits.
Indifferent customers display a lack of interest in the product when
they do not perceive a need or when they are satisfied with a com-
petitive product or an internal service. Seek first to understand the
customer’s attitude by using probing techniques.
Objectionable customers relay some degree of dissatisfaction or
lack of trust or dislike the product or service based on perceptions.
Misunderstandings occur when customers lack enough information
about the product or service to make a decision. Whenever a misun-
derstanding cannot be clarified it becomes a drawback to the sale. It
is critical that the drawback be reduced to the minimum by restating
other features that offer benefits to the customer.
a
See reference 39.
quality, but to improve it using a systematic approach.
Quality became more than a slogan; it was recognized as
the most profitable way to run a business. The following
concepts and strategies represent various approaches to
customer service used by many blue-chip market leaders.
Zero defections. Losing a customer over quality or service
issues carries a high cost. Lost business impacts a compa-
ny’s profitability more than unit costs and market share.
Performing defection analysis is the process of gathering
feedback from defecting customers and acting on the infor-
mation to reengineer the products and services. Typically
companies lose 15 to 20% of their customer base annually.
By striving for zero defections (keeping every customer the
company can serve and empowering the organization to
achieve it), companies can document double the average
growth rate and increased profits from their loyal custom-
ers for each year that they stay. After all, loyal customers
are the best form of advertisement and new customer re-
ferrals. However, the goal of achieving service quality does
not mean retaining customers at all costs. Focus on retain-
ing the most profitable customers; then, manage for zero
defections. There are some customers you may not want
to serve. The quality of the laboratory’s customers is more
important than the quantity of customers (32). For more
information about monitoring sales activity, refer to http://
sbinformation.about.com/cs/bestpractices/a/aa083002a.
htm (last accessed October 1, 2012).
New customer development carries a price tag. Profitabil-
ity is directly impacted by customer retention. Bringing
on new business is more costly than maintaining a current
customer. Customer loyalty is the main driver of revenue
growth. Satisfied clients are easier to up-sell on new prod-
ucts and services and are more likely to generate referrals.
Companies find that the Pareto principle has applications
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
to customers and revenue. The top 20% of a company’s
customer base typically represents 80% of the revenue
generated. Cultivating relationships with these custom-
ers, who are often referred to as “cash cows” in the mar-
ketplace, is invaluable. It is well recognized in the industry
that the customers that generate the least revenue and are
in the lowest tier of your customer base require the most
resources to manage and service, ultimately representing a
net loss to the bottom line (38).
Consistently exceed the customer’s expectations. System-
atic approaches to providing service are 80% of customer
service. The key is to create systems that allow the labora-
tory to do it right the first time every time. Success hinges
on having a plan for when things fail. When it comes to
service, it is always best to under-promise and then over-
deliver. People inherently like doing business with people
who keep their word. Customer satisfaction is about ex-
ceeding our customers’ needs and expectations to the
point of “delighting” them (reference 24, p. 45–47).
Create customers for life. According to C. Sewell and P.
Brown in their book Customers for Life, there are 10 basic
commandments for successful organizations to empower
employees to create a company of service superstars who
turn buyers into lifelong customers (reference 33, p.
xix–xx).
• Ask what customers want, and give it to them. If you
don’t keep your customers happy, someone else will.
• When the customer asks, the answer is always yes, up
to a point. Quality customers are more valuable and
profitable than business based on customer quantity.
• Do it right the first time every time. Employees are
held accountable for their mistakes. Repeating tasks is
costly and lowers productivity. Using a systematic ap-
proach is 80% of good customer service.
• Keep your promise for service. Simply DWYPYWD: Do
what you promised you would do. When you under-
promise and then over-deliver, the customer is delighted.
• Train and empower every employee to be a customer
service representative.
• No news is not good news. Encourage customers to tell
you when something is wrong. Be proactive and probe
to uncover flaws in the systems.
• Measure everything that is relevant to performance.
Set a target. Post the results. People are naturally com-
petitive and will try to exceed whatever goals are set for
them. Employees must be able to relate to the indicator
being monitored. Typical indicators used are quantity,
quality, cost, and timeliness. Just being good is not
enough. The goals established must also be congruous
with the best interests of the laboratory operation.
61
• Recognize employee performance. Pay employees like
they are business partners.
• Lead by example, offering equal respect to both inter-
nal and external customers. If the organization expects
employees to be polite to the customers, the employees
must be treated courteously.
• Just like the Japanese, organizations should be students
of the best customer service companies. Copy them,
and then improve on their systems (reference 33, p. 6,
23, 17, 34, 11, 60, 32, 55, 118, 126, 147).
Customer loyalty and customer relations. Customer loy-
alty management is an often-overlooked important part
of operating a hospital outreach program. Account re-
tention and repeat customers drive increased sales and
decrease the cost of sales, as demonstrated by the follow-
ing statistics found at http://www.greenpeg.com/index
.php/customer-loyalty-management (last accessed Octo-
ber 3, 2012).
• It costs six times more to attract a new customer than
it does to keep an existing one.
• Dissatisfied customers typically tell eight to ten people
about their negative experience with the services they
receive.
• Seven in ten customers will generally do business with
you again if you can resolve their concern to their
satisfaction.
• When you resolve their concern on the spot, 95% of
these customers will continue to use the services.
• When customers discontinue using your services, 68%
have an attitude of indifference about the services.
Laboratory managers should ensure that every em-
ployee has the communication and problem-solving skill
sets needed to handle customers in the proper way each
and every time they deal with both internal and external
customers.
Creating value. Quality and value are generally measured
by the end user of the product or service. Identifying
how value is created in a business environment is critical
to competitive success. Determining the cost associated
with creating, delivering, and maintaining the customer’s
perceived value and quality becomes fundamental. More
complex processes require more activities and overhead
expenses for staffing, equipment, information, and com-
munication systems and ultimately increase the pos-
sibility for error. Every process in a company eventually
affects external customers’ perception about the product
or service and determines whether they will make a buy-
ing decision. Creating an environment based on pay for
performance has never been so important. The manner in
62 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
which products and services are presented influences cus-
tomer perception. Value is perceived to be quality divided
by price.
There are two types of value:
• Customer-perceived value is the major driver of rev-
enue. There are four drivers (function or utility, con-
venience, price, and exchange value of competitive
products and services) that influence value perception.
• Process value is defined by the relative cost of value-
added tasks and services and is influenced by accuracy,
speed, consistency, conciseness, and relevance.
Cost/benefit analysis. Performing a cost/benefit analysis
to identify the nonessential steps in a process, or process
waste, enables companies to control the cost and price of
a product or service. Managers must be cautious not to
over-invest in technology. The focus should be on elimi-
nating unnecessary work, not just speeding up the process
(31). When an entire organization focuses on delivering
what the customers really want, companies reduce costs
by eliminating the processes that don’t add any value to
the product.
Relevant, meaningful, and quantifiable information.
Customer service is more than a theory. In Making Cus-
tomer Service Happen, Roderick McNealy writes, “By de-
fining it, we can measure it. After measuring it, we can
analyze it. If we analyze it, we can control it. If we can con-
trol it, we can improve it” (reference 24, p. 26). To ensure
optimal proactive customer satisfaction, avoid taking the
reactionary, quick-fix approach to customer complaints.
Search out the root cause and eliminate it and the re-
sulting downstream effects at the same time. Moments
of truth occur when customers develop an impression
or perception about products, services, and the organi-
zation through encounters that happen over time. Even
though the impressions may have been incorrect, all that
matters is the customer’s perceptions. Perceptions are
real (reference 24, p. 61–75). When organizations first
uncover the customer’s negative impression or percep-
tion about their product or service, it becomes a moment
of truth.
Service Delivery Strategies
Service delivery strategies encompass the nontechnical op-
erational support services necessary to deliver laboratory
services to the customer (for example, courier services,
supplies, information services and communications, cus-
tomer service, specimen accessioning, and billing services).
Logistics and distribution service considerations. Devel-
oping a dependable courier network to support the cus-
tomers’ needs is fundamental to the laboratory’s success.
The service strategy must do or consider each of the fol-
lowing before developing the service:
• Decide whether to utilize in-house couriers or out-
source to a contract courier.
• Determine what type of vehicle will meet your needs.
• Evaluate options for capital purchase or lease agree-
ments on vehicles.
• Identify daily and on-call stops based on customer
needs, hours, and volume.
• Develop a logistical plan to meet the needs of each
customer.
• Calculate the average cost per stop.
• Calculate the impact of adding new customers to a
route.
• Review the number of stops, mileage, travel time, and
specimen arrival to determine needs for additional ve-
hicles and couriers.
• Include the associated costs of the impact from the
recent International Air Transportation Association’s
regulatory changes for dangerous and infectious goods
on specimen transportation decisions, costs of train-
ing, and handling. These regulations are discussed in
more detail in chapter 5.
Customer supply policies. The support service strategies
include the costs of setting up a new account with the sup-
plies necessary for specimen collection, handling, and
transportation to the laboratory.
• Establish a standard list of items supplied to
customers.
• Develop policies and procedures for placing equip-
ment such as centrifuges, printers, and computer in-
terfaces that meet compliance guidelines and are based
on measurable parameters, such as daily specimen
volume.
• Develop a distribution system and supply audit pro-
cess to monitor service and avoid possible charges of
inducement.
• Use the anticipated test volume for clients to calculate
the time needed to recoup the start-up expenses.
• Include the expense of providing and training for
supplies compliant with the Occupational Safety and
Health Administration’s regulations for blood-borne
pathogen and needle stick safety.
Customer service call center. Implementing a customer
service communication center requires a detailed analysis
of the phone calls related to service for the entire labora-
tory operation.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
• Track the number and type of calls each hour to deter-
mine the need for a dedicated group to free technical
staff for testing.
• Investigate systems that automate data collection and
measure call wait time and lost calls.
• Evaluate the skill sets and personnel level needed to
handle the inquiries.
• Consider having the group support calls for nonsched-
uled pickups and quality assurance functions.
• Establish quality assurance monitors, and develop a
scorecard to report performance.
Outreach registration and specimen processing and acces-
sioning. To sell the laboratory services, it is critical that an
electronic directory of laboratory services be available to
customers. The directory should be a compendium of the
test offerings listing specific information about specimen
collection, storage, and transportation. The laboratory’s
test requisition forms should be easy to read and complete.
The ability to customize the client’s electronic or paper re-
quest forms to include the most frequently ordered tests is
important. The request should have ample room and clear
instructions for completion of billing information. Clients
should be able to easily refer to a current medical-necessity
guide and reference manual for tests ordered on patients
covered by federally funded programs. The laboratory
must also have a plan and process developed for when the
samples arrive.
• Develop a plan to handle the anticipated increase in
specimen volume for each shift.
• Train the processing team annually regarding labora-
tory compliance and medical-necessity guidelines.
• Make sure that the registration, information, and bill-
ing systems can accommodate a short registration
pathway for third-party billing to facilitate timely
sample accessioning, testing, and reporting.
• Consider moving data entry for billing to the day shift
to allow the staff to interact directly with the customers
regarding any missing data elements required for clean
claim submission.
• Have a procedure to track specimen handling errors
and data entry errors by employee and shift as a quality
monitor.
Billing systems and revenue tracking services. Most hos-
pitals lack accounting systems to adequately measure and
track costs or net revenue at a per-test level. Success de-
pends on having a clear understanding of the hospital rev-
enue systems and processes, including patient registration,
coding requirements and regulations, reimbursement by
test and payor, patient accounting system, preprocessor
63
claim scrubbers for the electronic data interface with in-
surers, and decision support capabilities. Flowcharting the
process often uncovers problematic areas that need atten-
tion to streamline the processes. The need to flowchart the
billing process is dependent on the complexity and num-
ber of systems used for registration, billing, claim process-
ing, accounts receivable, and decision support. The ability
to generate accurate and timely monthly invoices, third-
party insurance claim forms, and patient statements is a
key component of the laboratory service and is essential to
maintaining satisfied customers.
Laboratory information system management. Laboratories
have become information brokers that provide the major-
ity of the clinical information used by healthcare providers
in disease management. To create value, the results must
be accurate and timely. During the past decade, profi-
ciency testing, continuing-education programs, oversight
by accrediting and regulatory agencies, and more sophisti-
cated instrumentation were the change drivers that forced
laboratories to exceed earlier standards for reproducibility
and technical accuracy (4).
Result reporting. External customers expect timely results
reported to offices via remote printer or facsimile. Include
these expenses when calculating new-account start-up
costs. Evaluate equipment costs to support remote order
entry and online test requests and inquiry. Calculate the
impact that the Health Insurance Portability and Account-
ability Act (HIPAA) security regulations will have on the
cost of reporting.
Knowledgeable consumers. The laboratory has migrated
from providing information about diagnostic detection
and treatment to prognostic prediction and prevention (C.
Diehl, 2001. The role of the laboratory in the integrated
health-care system. Presented at the CLMA Leadership
in Clinical Systems Management Annual Convention
and Exhibition, St. Louis, MO). Personal computers and
the Internet have provided a platform for computer-savvy
healthcare providers and patients to communicate and
seek information via the World Wide Web. Email and In-
ternet server access provide means for online ordering and
result reporting with appropriate security encryptions to
ensure that HIPAA privacy regulations are maintained.
Healthcare facilities and laboratories now have a mecha-
nism to publish promotional materials and to advertise
services by developing user-friendly websites (reference
28, p. 130–131).
Create a service delivery report card. Laboratory services
are integral to the provision of healthcare. While labora-
tory test results influence nearly 80% of all treatment deci-
sions, they represent only 3% of the total cost of healthcare.
64 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Many stakeholders make purchasing decisions primarily
using four key service parameters in the following or-
der: quality, cost, access, and service. Organizations that
align behaviors with goals and values achieve excellence
in customer service through being accountable to the cus-
tomer (16). Laboratories should develop a quality monitor
and scoring system to measure and report the effective-
ness and utility of these elements for each service line
(patient service centers, customer service center, courier
services, billing services, and information services). The
highly competitive healthcare environment, historically
focused on costs, is increasingly being driven by the need
for meaningful information to make informed decisions.
Service report cards have become a standard tool to assist
in the negotiation of equitable contracts and demonstrate
value to customers (30).
Summary
In the past the use of the term “healthcare system” to de-
scribe the delivery of services was something of an oxy-
moron, since multiple organizations provided fragmented
services while competing for the same customers. The
laboratory manager’s responsibilities include three cat-
egories of resources: physical infrastructure (space and
equipment), financial (operating budget), and human
resources (technical and support staff). Even though hu-
man resources constitute more than half of the operational
expenses, focus on the physical and financial responsi-
bilities now demands increasing attention. In the current
market, consumers (linked by geography, employer group,
or managed-care plan) have increased the demand for co-
operation among the stakeholders, setting the stage for the
unprecedented wave of consolidations, mergers, acquisi-
tions, and partnerships witnessed in the past decade. Striv-
ing to coordinate a patient’s episode of care, healthcare is
vertically integrating across inpatient and outpatient ser-
vice lines and from home testing to self-testing. Simul-
taneously, healthcare is integrating horizontally across
communities and regions to achieve these goals (36).
After enjoying several decades of lucrative fee-for-
service reimbursements and high-volume testing that
supported duplication of services without collaboration
among providers, the nation’s healthcare system and the
clinical laboratory industry were forced to reinvent the
approach to providing healthcare. In 1984, government
regulations aimed at cutting the escalating costs for fed-
erally funded programs paved the way for reimbursement
to shift from traditional fee-for-service reimbursement to
global reimbursements, such as diagnosis-related groups
and other prospective payment models. Hospital labora-
tories, formerly considered revenue centers, became cost
centers. They responded to decreasing reimbursements
and shifts in volume by using strategic techniques such
as reengineering, downsizing, rightsizing, consolidation,
and regionalization. Following the emergence of man-
aged care, the healthcare industry was forced to seek al-
ternative treatment settings and to shift its focus to health
promotion and prevention of disease. Manufacturers and
suppliers responded to these environmental factors by
introducing new technological advances in products and
services to support genetic testing, near-patient testing,
home testing, and promotion of direct access testing (12).
Both laboratories and manufacturers have developed
new products and services to meet the changing market
needs, targeting new markets and focusing on value-added
customer service strategies to outperform the competition
and to meet and exceed the customer’s expectations. Dur-
ing the same period, the Internet became the platform
for knowledgeable consumers to access information and
demand more value from the services related to their
healthcare.
Today, healthcare providers realize that the patient is the
client and consumer. They now recognize the importance
of including the patient in the development of the care plan
and the decision-making process. Ultimately, the greatest
opportunity for creating added value in healthcare hinges
on the interface between the patient and the caregiver. When
technology contributes to the quality of that relationship, it
becomes more valuable (3). The laboratory should expect
even more significant changes in diagnostic testing in the
future as the industry changes its focus to the following:
• Utilization management through elimination of un-
necessary testing
• Implementation of practice guidelines and standards of
practice
• Continued standardization of instrumentation and
methodology
• Increased automation and robotics
• Increased testing in molecular diagnostics, genetics,
and proteomics
• Using patient clinical outcome to measure laboratory
quality (12)
The increasing importance of access to the most ad-
vanced technology must be tempered by the ethical and
humane concerns for the use of laboratory information.
The efficacy, safety, cost-effectiveness, and clinical out-
comes of diagnostic and treatment strategies link utiliza-
tion of resources and economics (36).
KEY POINTS
■ Customers are every organization’s most valuable re-
source.
■ Customer satisfaction is the most critical strategic
weapon for any organization.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
■ Customer service is more than a theory.
■ Moments of truth occur when customers develop an
impression or perception about products, services, and
the organization through encounters that happen over
time.
■ The top 20% of the customers represent 80% of the
revenues.
■ Laboratory data account for 80% of the diagnostic in-
formation utilized by healthcare providers. The clinical
utility of laboratory data is migrating from diagnostic
detection and treatment to prognostic prediction and
prevention.
■ While laboratory test results influence nearly 80% of all
treatment decisions, they represent only 3% of health-
care costs.
GLOSSARY
Accountable care organization (ACO) A group of healthcare
providers who give coordinated care and chronic disease man-
agement and thereby improve the quality of care provided to the
patient. Payment to the ACO is based on achievement of health-
care quality goals and outcomes that result in cost savings.
Activity-based costing A method being used by some laborato-
ries that assigns a cost to every activity throughout the
organization.
Affordable Care Act (ACA) The comprehensive healthcare re-
form law passed in March 2010. The law was enacted in two
parts: the Patient Protection and Affordable Care Act was signed
into law on March 23, 2010, and was amended by the Healthcare
and Education Reconciliation Act on March 30, 2010.
Benefit The value a feature of the product or service brings to
the customer.
Brand A name, term, sign, symbol (logo), design, or combina-
tion used to identify and differentiate the products of one firm
from the competition.
Capital budgeting The process of planning for the expenditures
expected to generate income to flow into the organization.
Clinical utility Economists refer to the ability to satisfy needs as
utility. In medicine, it is more commonly referred to as clinical
utility.
Community health information network A network formed
among community healthcare providers and insurers to main-
tain healthcare information for patient management purposes.
Competitive bidding The process used by buyers to request
price quotations from suppliers to get the best product and ser-
vice at the lowest price.
Complex sale A complex sale is one that requires more than one
signature/authorization for approval or more than one decision
maker.
Consumer Price Index (CPI) The CPI measures the rate of
price change for goods and services purchased by households. It
65
measures changes in the average level of prices over a period of
time with a given starting point or base period, is the most fre-
quently used indicator of inflation, and reflects changes in the
cost of acquiring a fixed basket of goods and services by the aver-
age consumer.
Creeping inflation A pricing strategy that uses modest price in-
creases over time that are typically not noticeable to the
consumer.
Demand The relationship between the price and the quantity
needed for a particular product or service. Demand is the quan-
tity of goods that customers are willing to buy at a given price.
Diminishing return When additional volume reaches a point
that instruments and people are performing at their maximum
throughput, the operational efficiency achieved by economy of
scale begins to decline. An infinite number of tests cannot be
performed in a finite amount of time and space without ulti-
mately reaching the point of diminishing returns.
Direct observation A marketing research technique that yields
the fastest and most reliable information about the prospective
market segments, customer base, and competition.
Due diligence A confidentiality agreement exercised between
two competing businesses during discussions related to partner-
ship and joint ventures.
DWYPYWD A customer service phrase: Do what you prom-
ised you would do.
Economy of scale Whenever output is increased without in-
creasing the cost of production, economy of scale is achieved.
Feature A characteristic of a product or service that adds value
or benefit to the end user.
Fiscal policies Use of taxation and government spending as a
means of controlling the economy.
General rule of supply The production of a good or service in-
creases when the price goes up and decreases when the price
goes down.
Global economy In a global economy, businesses are forced to
shift from being multinational (a national company with foreign
subsidiaries) to being transnational (where there is one eco-
nomic unit, the world).
Gross revenue Gross revenue is derived by multiplying the vol-
ume or quantity of services used by the unit price for the service.
Gross revenue is the actual billed charges or fees for products and
services before applying any adjustment for contractual arrange-
ments for volume discounts, third-party limits of allowance, or
direct and indirect expenses.
Independent provider association An independent association
of multiple healthcare providers organized to negotiate contracts
with an insurer for the provision of healthcare services within a
specified service area at a negotiated cap rate or fee schedule.
Inflation Inflation is the result of increases in the price of goods
that reduce the consumer’s purchasing power.
Inside-out approach A product development strategy in which
the product is developed first and then the market is identified.
66 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Integrated delivery system A system that is formed when pay-
ors and healthcare providers (including acute-care providers,
physicians, home healthcare agencies, nursing homes, primary
care offices, and others) combine forces to extend their service
lines to improve the coordination and quality of care while con-
trolling costs.
Joint venture Term used to describe management agreements,
partnerships, strategic laboratory arrangements, or conglomer-
ates formed to share risk or expertise.
Law of demand As the price for a product or service increases,
the demand for the product decreases.
Length of stay Statistical measure of time used to describe the
length of a hospital inpatient stay from admission to discharge.
Loss leader An aggressive pricing strategy used by commercial
laboratories to attract or lure customers away from the competi-
tion, based on the premise that the profit will be recovered from
the volume of other services purchased at the regular (usual and
customary) price.
Macroeconomics Macroeconomics examines the interaction of
income, employment, and inflation on the economy as a whole.
Managed-care organization An organization formed by a third-
party insurer as an alternative healthcare delivery system in an
attempt to control the escalating costs of healthcare to large em-
ployer groups and the government.
Market potential The total anticipated revenue potential for
volume of services during a defined period.
Market price The actual price at which a commodity is com-
monly purchased.
Market research A marketing strategy utilized by companies to
identify the need for new products and services in new and exist-
ing markets.
Market share The estimate of the expected share of the specific
market or territory that you expect to capture.
Market surveys Techniques typically used to obtain valuable
market information, for example, direct-mail surveys, telephone
surveys (telemarketing), and personal interviews.
Microeconomics Economic information that focuses on indi-
vidual behavior and the interaction of companies.
Moment of truth The moment when a business recognizes that
the customer has developed an impression or perception about
their products and services and the organization through en-
counters that happen over time.
Monetary policies Policies related to the management of the
money supply and the market rates of interest.
Net revenue Gross revenue minus contractual allowances and
sales discounts is net revenue.
Outside-in approach A frequently utilized product develop-
ment method that first identifies a need in the marketplace and
then develops the product or service to meet the need.
Pareto principle (law) A total quality management principle
used by W. Edwards Deming that demonstrates that cause and
effect are not linearly related; for example, approximately 20% of
the causes account for 80% of the effect (35).
Patient service centers Phlebotomy sites or draw stations lo-
cated off-site in service areas convenient to medical office build-
ings are referred to as patient service centers. The employees are
often cross-trained to offer a variety of services, including elec-
trocardiograms and chain-of-custody drug abuse screening col-
lections for private industry.
Physician hospital organization An organization formed by
hospitals and physicians to negotiate managed-care contracts
with third-party payors.
Physician office laboratory A clinical laboratory operation lo-
cated on-site in a healthcare provider’s office. The testing per-
formed by a physician office laboratory is regulated by the
Clinical Laboratory Improvements Amendment and is limited to
waived, moderate, or complex test services.
Point-of-care testing (POCT) An industry term used to de-
scribe user-friendly instrumentation developed for use in near-
patient testing or bedside testing sites versus traditional
laboratory sites.
Probing A sales technique used to gather information and un-
cover customer needs. An open probe asks a direct question,
while a closed probe limits a customer’s answers to yes or no and
helps to confirm a need.
Profit Earnings above the expenditures for salaries, benefits,
and direct and indirect costs.
Promotion The function of informing, persuading, or other-
wise influencing the consumer’s buying decision.
Return on investment The tangible and intangible returns re-
ceived from an investment, minus the fixed, variable, and capital
expenditures for the venture.
Strategic alliance/partnership An arrangement that enables
companies to combine their resources to share risks, reduce
costs, and solidify customer and supplier relationships.
Strategy The technique, approach, or mechanics developed by
the management team to facilitate the organization’s ability to
perform successfully.
Supply The quantity of goods and services that a company is
willing to produce and sell at a specific price.
SWOT analysis An assessment of the strengths, weaknesses, op-
portunities, and threats for an organization, taking the market
and the competition into account. See chapter 2 for a detailed
description.
Telemarketing A market research technique employed by rep-
resentatives using a predefined list of questions to gather vital
information on the market potential. The survey, conducted by
telephone, is directed to a specific staff member in a prospect’s
office.
 CHAPTER 3. RELEVANT ECONOMIC AND BUSINESS CONCEPTS
Third-party administrator An unrelated third-party entity that
administers and pays claims for multiple small insurers in a geo-
graphic region.
Trademark A brand that has received legal protection for the
exclusive use of the sole owner.
Utility The satisfaction derived from using a product or service.
Zero defections A customer service strategy that strives for no
lost customers, or zero defections. The goal is to keep every cus-
tomer the company can serve, and this strategy empowers the
organization to achieve the goal.
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70

APPENDIX 3.1 Websites

AllBusiness Dictionary of Marketing Terms Howard Richards

http://www.allbusiness.com/glossaries/ http://www.Howardri.org (assessed 12-12-12)
macroenvironment/4954903-1.html#axzz29NuRbPhV (accessed Howard Richards is a professor of global economy at Earlham
12-12-12) College.
U.S. Bureau of Labor Statistics, Division of Consumer Price and Advance for Medical Laboratory Professionals
Price Indexes http://laboratorian.advanceweb.com/Article/Healthcare-Reform.aspx
http://www.bls.gov/cpi/cpifact4.htm (accessed 12-12-12) (accessed 12-12-12)
Greenpeg Peter F. Drucker
http://www.greenpeg.com/index.php/customer-loyalty-management http://www.mtholyoke.edu/acad/intrel/drucker.htm (accessed
(accessed 12-12-12) 12-12-12)
Lifepoint Informatics Peter Drucker is a faculty member at Mount Holyoke College.
http://g2intelligence.com/article/ART873425T?channel=20111021 Reference for Business, Encyclopedia of Business, 2nd ed.
(accessed 12-12-12) http://www.referenceforbusiness.com/small/Bo-Co/Competitive
Healthcare.gov -Analysis.html (accessed 12-12-12)
http://www.healthcare.gov (accessed 12-12-12) Competitive analysis entry
A federal government website managed by the U.S. Department of
Health and Human Services.
Introduction
Workforce
4 Current Challenges to
Availability of Personnel • Training Programs • On-
the-Job Training • Recruitment and
Financial Stability within
Retention • Generational Diversity
Workplace the Diagnostic Laboratory
Centralized versus Decentralized Operations • Local
and Regional Integration of Laboratory Services
Work Flow
Roxanne Mercer and David S. Wilkinson
New Technology • Testing Site Options
Doing More with Less
Systematic Approaches to Managing OBJECTIVES
Change • Rightsizing To discuss the staffing shortage environment for laboratory medicine
Shrinking Reimbursement
To describe methods for recruiting and retaining laboratory staff
Gross versus Net Revenue • Medicare • Managed
Care • Billing To describe advantages and disadvantages of different organizational
Regulations and Unfunded Mandates structures for laboratory operations
Regulations • Unfunded Mandates To illustrate the effect of reimbursement on laboratory operations
Summary To review the regulatory agencies that interact with different laboratory
KEY POINTS operations
GLOSSARY
REFERENCES Chance favors only the prepared mind.
APPENDIX L. Pasteur

T
he economics of healthcare today challenge clinical laboratories
nationwide to provide quality service and patient results in spite of de-
creasing resources. Decreasing reimbursement for patient testing and
dwindling staff resources require the laboratorian to “do more with less.” One
must be aware of one’s professional environment and be creative to utilize the
existing resources effectively and efficiently. In many cases, this will require a
laboratory environment of constant and major change. This chapter addresses
some of these issues and their financial implications.

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch4
Workforce
Availability of Personnel
Recruitment and retention issues continue to challenge medical laboratories
across the nation. One contributing cause is the closing of training programs
for medical laboratory scientists (MLSs) and medical laboratory technicians
(MLTs). Between 1983 and 2009, more than 64% of MLS programs closed
their doors (see Fig. 4.1) (2, 20). The number of MLS candidates passing the
American Society of Clinical Pathology (ASCP) certification exam decreased
from 6,000 in 1983 to a nadir of 1,892 in 2005 (Table 4.1) (33). Professional
groups and employers of laboratory professionals recognized this shortage.
They have organized efforts to interest middle school, high school, and college
students in pursuing careers in clinical laboratory science. It is the hope that
interactions between students and laboratory professionals will stimulate in-
terest in laboratory science as a career option (32). Some states are even plan-
ning to open new MLS and MLT programs.

71
72 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Figure 4.1 Number of National Accrediting Agency for Clinical Laboratory Sciences–accredited
CLS programs by year. doi:10.1128/9781555817282.ch4.f1

Another significant reason for an inadequate supply of The Bureau of Labor Statistics predicts a need for 14,000
clinical laboratory staff is more job opportunities for peo- new laboratory scientists each year, with educational pro-
ple with the skills of a laboratorian. Computer technology grams producing less than 5,000 annually (32). Unless
firms, pharmaceutical companies, and laboratory instru- this trend can be reversed, the clinical laboratory industry
ment manufacturers and distributors all offer laboratory is facing a critical shortage of personnel for the future. It
scientists challenging positions with competitive salaries is encouraging that the number of laboratory professionals
and benefits. Entry-level positions in the clinical laboratory, passing certification exams has increased over the past 12
such as specimen processing and phlebotomy, often pay less years. In 2000, 1,990 scientists passed the ASCP MLS cer-
than entry-level positions in some large home appliance tification exam, with a 66% pass rate. In 2011, this number
stores and fast-food outlets. Another factor contributing to climbed to 3,078, with a 79% pass rate (Table 4.1) (33). The
the recruitment and retention challenges is the increase in increase in successful certifications may be attributed to
the volume and complexity of clinical tests required to keep an increased number of hospitals requiring certification as
up with changes in the population size and patient acuity a condition of employment, more emphasis on College of
(4). Laboratory management must continually monitor American Pathologists (CAP) personnel standards, which
how their staff salaries compare to the competition. require inspectors to look for certification, and the discon-
tinuation of the National Certification Agency for Medical
Laboratory Personnel (NCA) certification in 2009, when
Table 4.1 Annual certification of medical technologists the NCA merged with the ASCP Board of Certification.
by the American Society for Clinical Pathology
Year No. certified Training Programs
1983 6,000 There are several types of formal training programs for the
1989 3,000 clinical laboratory field.
1999 2,100 • Phlebotomy at the high school degree level
2004 1,927
• Histotechnician at the high school or associate degree
2005 1,892
level
2006 2,050
2007 2,463
• MLT at the high school diploma or associate degree
2008 2,484
level
2009 2,712 • Histotechnology at the bachelor of science degree level
2010 3,016 • Cytotechnology at the bachelor of science degree level
2011 3,078 • MLS at the bachelor of science degree level
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY
• MLS at the master of science degree level, categorical
or advanced
• Ph.D.-level training in the specialty areas such as clinical
chemistry, microbiology, immunology, and toxicology
• Postdoctoral training programs in the specialty areas
Most programs start with didactic courses in the first half
of training and rotate students through the major areas of
an operational clinical laboratory to give them clinical ex-
perience in the second half. Some MLS and MLT schools
have difficulty arranging the clinical training sites because
of the short staffing in clinical laboratories. If the shortage
of laboratory professionals is to be resolved, the profession
as a whole must support the training programs.
On-the-Job Training
Some laboratories have developed internal training pro-
grams (nonaccredited) that allow individuals with a
non-MLS degree to become qualified under the Clinical
Laboratory Improvement Amendments of 1988 (CLIA ’88)
standards to perform high-complexity testing. On-the-job
laboratory training programs (also nonaccredited) can also
qualify individuals with high school diplomas to perform
laboratory procedures at the CLIA ’88 moderate complex-
ity level. On-the-job training programs must be approved
by the CLIA laboratory director (CLIA ’88 regulations).
Many laboratories have training programs that provide
high school graduates an opportunity to learn phlebotomy
(26). Once trained, these individuals may take an exam to
become certified phlebotomists.
An advantage of an on-the-job training program is that
it can provide applicants for vacant laboratory positions.
However, some clinical laboratories will only hire MLSs,
MLTs, and phlebotomists who have graduated from na-
tionally accredited programs. Some states, such as Califor-
nia, Florida, and New York, require a state license for MLS
and MLT positions, making use of internal, nonaccredited
training more difficult. The salaries for on-the-job-trained
positions may be lower in some laboratories than for certi-
fied MLS and MLT positions.
There are two disadvantages of on-the-job training. First,
it takes considerably longer to train a new employee who
Table 4.2 Comparison between accredited training programs and on-the-job training programs
Feature Accredited program
Breadth of training Generalist, categorical
Length of training 1–2 years
Salary potential MLS level
Didactic content General, categorical
Flexibility Easily cross-trained in different specialties
(exception: categorical)
Applicant pool Certified MLS (limited)
73
has not completed a formal MLS or MLT program. This
can result in the removal of some staff from the laboratory
bench area to do training, resulting in staffing shortages.
Second, the person trained on the job is usually trained to
function in only one section of the laboratory, such as chem-
istry. This limits the use of personnel resources to provide
coverage for other areas such as hematology or microbiol-
ogy. The more on-the-job-trained technical staff you have,
the less flexibility you will have. On-the-job training pro-
grams can also help an MLS or MLT who has not worked in
a clinical laboratory for many years regain experience and
confidence. Table 4.2 compares the features of accredited
and on-the-job training programs.
Recruitment and Retention
As recruitment becomes more difficult, there are strategies
to increase the number of applicants (Table 4.3).
• National advertising. Using a medium such as profes-
sional publications or the Internet to advertise a posi-
tion nationally.
• Interview expenses. Partial or full coverage by the po-
tential employer to an applicant for expenses incurred
to travel for an interview.
• Sign-on bonus. Usually a lump sum (for example,
$3,000) paid when an applicant accepts a specific posi-
tion. The new employee must stay in the position for a
specified period of time to retain the complete bonus.
• Relocation expenses. Partial or full coverage by the em-
ployer for expenses related to relocation.
• Referral bonus. Usually a lump sum (for example,
$1,000) to any employee of an organization who refers
a qualified applicant who accepts the position.
• Parking expenses. Providing free or subsidized parking
to an employee.
• Flexible hours. Allowing an employee to work nonstan-
dard hours, such as work week of four 10-hour days.
• Tuition benefits. Providing full or partial payment
of educational costs for the employee or employee’s
dependents.
On-the-job program
Usually limited to one lab specialty
3–6 months
May be lower than certified MLS
Usually limited to one lab specialty
Difficult to cross-train in other specialties
High school, AA, and BS/BA (larger)
74 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Table 4.3 Recruitment strategies
National advertising for the position
Interview expenses
Relocation expenses
Sign-on bonus
Referral bonus
Free parking
Flexible hours
Tuition benefits
Competitive salary
The cost of turnover includes overtime to maintain
testing schedules as well as separation pay for the person
leaving. Recruitment costs can be significant with national
advertisements, sign-on bonuses, and payment of reloca-
tion expenses. The cost of turnover can quickly approach
50% of an employee’s annual salary (16). Recruitment and
retention issues and the resulting short staffing can have
a negative impact on laboratory operations. Turnaround
times for patient test results may increase. Mistakes may
increase due to overwork and stress. Outreach contracts
may be at risk if the necessary quality of services cannot
be provided. The morale and proficiency of staff may be
negatively affected (see Table 4.4).
Quality metrics should be monitored to identify nega-
tive impact of short staffing on the laboratory. Table 4.5
lists common indicators for this purpose. Each laboratory
should have a recruitment and retention plan as part of
its ongoing strategic plan. The development of the plan
should include input from the laboratory staff to facilitate
buy-in of the plan. The staff can give feedback on the root
causes of retention problems and provide great ideas for
improvement.
Generational Diversity
One of the challenges of laboratory medicine today is the
mixture of age generations that make up the workforce.
Each generation of people has different needs, wants, and
interests. Management must be aware of this if a strong
work team is to be developed and retained. Recruitment
efforts must take this into consideration, since different
Table 4.4 Potential negative outcomes from staffing shortages
Increased turnaround time
Increased errors
Decreased staff morale
Staff burnout
Increased staff turnover
Increased overtime expense
Increased expense for agency staff
Decreased level of service (e.g., limitations on test menu)
Loss of outreach customers
Table 4.5 Recruitment and retention indicators
Turnover rate (new hires/total FTE)
Vacancies (number)
Overtime (overtime hours per pay period)
Agency staff (hours paid per pay period)
Staff feedback (comments)
recruiting tools will attract each generation. Younger gen-
erations may be interested in salary and perhaps tuition
benefits for further educational opportunities. Older gen-
erations may be more interested in benefits such as health-
care and retirement plans. Competition for workforce
resources requires laboratory facilities to provide benefit
packages that meet the needs of a diverse applicant pool.
Workplace
Centralized versus Decentralized Operations
The implementation of the diagnosis-related group (DRG)
payment methodology by the Medicare program, the
growth of managed care, and the cutback of Medicare fee
schedules have resulted in a downward trend of reimburse-
ments for healthcare facilities, including clinical laborato-
ries (35). This has led to a constant pressure for laboratories
to cut their operating budgets and to adopt a “do-more-
with-less” philosophy since the early 1980s.
Figure 4.2 shows a laboratory organizational structure
that was very common in medium and large hospital labora-
tories until the 1980s. It was not uncommon to have a satel-
lite laboratory in the emergency room, intensive care units,
or large outpatient clinics throughout a medical center.
Many of these satellite laboratories functioned 24 h a
day, 7 days a week. They usually performed stat hematol-
ogy, chemistry, urinalysis, and even immunochemistry
procedures. Procedures they did not perform were per-
formed in the central laboratory of the facility. Even though
test menus were limited in these satellite laboratories, there
was a duplication of equipment and personnel since the
main laboratory also performed the same procedures.
Convenience and fast turnaround times were the driv-
ing factors for the establishment of these satellite labora-
tories. The cost of one full-time equivalent (FTE) to staff
satellite laboratories 7 days a week and 24 h a day could
easily exceed $130,000 a year. With the addition of equip-
ment, maintenance, reagents, and supplies, each satellite
laboratory was very expensive.
The pressure to cut operating costs, use of automated
transport systems such as pneumatic tube systems, and
redesign of the main laboratory have resulted in a more
centralized approach to laboratory testing in many institu-
tions. This automated centralized approach has decreased
costs (elimination of satellite laboratories) while still pro-
viding rapid turnaround times. A “stat” core laboratory
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY 75

MAIN
Satellite Laboratory Satellite Laboratory
Emergency Department LABORATORY Operating Room

Satellite Laboratory
Clinic

Figure 4.2 Relationship of satellite laboratories to the main laboratory. Turnaround time–sensitive
tests are performed near the patient and providers. High-volume, more complex, and less time-
sensitive tests are performed in the main (central) laboratory. doi:10.1128/9781555817282.ch4.f2

within the main central laboratory of a medical facility can
successfully and efficiently provide quality laboratory ser-
vices. Many of these core laboratories have a combination
of chemistry, hematology, and coagulation instrumenta-
tion in one area and trained staff capable of operating each
instrument (8).
The development of point-of-care testing (POCT) in-
strumentation has led to another decentralized-laboratory
approach (Fig. 4.3). Satellite laboratories in many cases
have been replaced with POCT instrumentation, espe-
cially for blood glucose testing. POCT instrumentation
has an increasing menu of available tests (Table 4.6).
POCT may decrease the turnaround time for results, de-
crease the volume of blood collected from patients, and
help improve medical management for the patient. How-
ever, the cost to provide POCT may exceed the cost of
central laboratory testing on a cost-per-test basis, and
management of POCT can be a compliance challenge for
the main laboratory (27). The testing needs for the par-
ticular patient population must be assessed to determine
the best approach to provide quality testing services in
the most cost-effective manner.
Local and Regional Integration
of Laboratory Services
The past two decades have seen the development of mul-
tiple hospital systems. Within a geographical area, one
hospital may purchase multiple hospitals, or several hos-
pitals may merge into a single hospital system. One major
driver of hospital integration is reduction of costs by con-
solidating services (18). Figure 4.4 shows a typical labora-
tory network that can result from the merger of multiple
hospitals into a single healthcare delivery system. Usually
the larger hospital laboratory serves as the core laboratory
and performs the bulk of testing. The remaining smaller
hospital laboratories become rapid-response laboratories,
performing only those procedures that require a fast turn-
around time. These rapid-response laboratories send all
other testing to the core laboratory (31).
A network structured as in Fig. 4.4 can result in signifi-
cant operational cost savings in labor, reagents, supplies,
and major equipment maintenance (estimated 10 to 20%
compared to the total cost of operating each laboratory
independently). The development of rapid-response labo-
ratories reduces duplication of equipment since the core

Figure 4.3 Deployment of POCT. It may be possible to achieve rapid turnaround of key laboratory
test results by using POCT technology under the supervision of the main (or central) laboratory
in lieu of satellite laboratories. Consolidation of key testing into a “core” laboratory may facilitate
rapid turnaround time for most analytes, with only a few critical areas needing POCT capability.
doi:10.1128/9781555817282.ch4.f3
MAIN LABORATORY

POCT CORE LABORATORY POCT

Inpatient Unit (Ultra-Stat Laboratory) Outpatient Unit

POCT
Emergency Department
76 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 4.6 POCT procedures services for specimen transport. Usually the hospital labo-
Electrolytes ratory can provide local stat testing with fast turnaround
Blood urea nitrogen times and some esoteric testing capabilities that the com-
Glucose mercial laboratory cannot provide. All networks are driven
Blood gases by an economic need to either lower operating costs or in-
Hematocrit crease net revenue by increasing testing volume.
Hemoglobin
Creatinine Work Flow
Calcium New Technology
Lactate
Four critical tools that help the clinical laboratory industry
Magnesium
meet the current economic challenges are automation, in-
Pregnancy test
formation systems, POCT, and robotics. Rapid technologi-
Urinalysis (dipstick)
cal advances in these areas allow laboratories to improve
Strep screen
productivity and efficiency.
Occult blood
Automation has had the greatest influence on labora-
Troponin
tory productivity. Virtually every section of the laboratory
Activated clotting time
benefits from automation, including molecular diagnos-
Prothrombin time
tics, transfusion medicine, microbiology, and surgical
Activated partial thromboplastin time
pathology. Chemistry and hematology usually have the
Hemoglobin A1c greatest level of automation. Automated instruments allow
efficiencies in labor resources (12). One person may be
sufficient to perform hundreds or even thousands of tests
laboratory will perform the majority of the high-volume in one day. Implementation of automation can create ex-
routine testing (24). cess testing capacity, which allows the laboratory to bring
Hospital laboratories may work together to form a net- in new volume without adding personnel resources. The
work with larger geographical coverage. This network may additional reagent and supply costs are usually minimal
allow a group of unrelated hospital laboratories to service compared to adding labor costs (30).
statewide contracts for laboratory services. Commercial Automation enables reengineering the laboratory. A
laboratories, also referred to as reference laboratories, all core, automated laboratory where hematology, coagula-
have wide geographic, often nationwide, networks to pro- tion, chemistry, and immunochemistry instrumentation
vide laboratory testing services (29). are grouped together with a staff cross-trained on each
A third network example is a joint venture with a com- instrument may be very cost-effective. Rapid turnaround
mercial laboratory and a separate hospital or hospital times for results obtained on automated instruments allow
system laboratory (13). The commercial laboratory can laboratories to provide results quickly to clinicians. A con-
provide already existing state and nationwide courier cern with total automation is the reliability of the system

Figure 4.4 Organization of an integrated laboratory services delivery network. Several health-
care service delivery sites developed an integrated network to deliver laboratory services. The
bulk of high-volume testing is consolidated at one site, the core laboratory. Other sites may offer
rapid response testing or just phlebotomy services. doi:10.1128/9781555817282.ch4.f4

Rapid Response Laboratory

Physician Office

Rapid Response CORE LABORATORY Rapid Response

Laboratory Hospital A Laboratory
Hospital B Hospital C

Phlebotomy Site
Nursing Home
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY
because, absent a completely redundant system, the back-
up will be a manual process requiring additional labor.
National laboratory conferences, such as the Clinical
Laboratory Management Association and the American As-
sociation of Clinical Chemists, exhibit the large number of
automated instruments available. When choosing automa-
tion, laboratories need to understand the specific needs of
their operation and do the necessary homework to deter-
mine which instrument is best for them. Three elements that
should be considered are quality, service, and cost. If the first
two are equivalent among the instruments being considered,
then cost may be the deciding factor. Many times the right
automation leads to major dollar savings in operational costs.
Computers play a major role in laboratory medicine
today. The combination of a laboratory information sys-
tem (LIS), hospital information system (HIS), and labo-
ratory automation can facilitate a highly efficient and
cost-effective laboratory operation (10). Automated in-
strumentation interfaced to an LIS eliminates the labor of
manual data entry. This allows immediate availability of
electronic (paperless) results to any provider with system
access. It also eliminates the need for manual delivery of
reports. Computer-generated work lists and the ability to
electronically manage quality control data reduce labora-
tory personnel requirements.
Two additional capabilities of some computer systems
are autoverification and logic-based rules (28). Autoveri-
fication allows the computer to automatically check cer-
tain parameters, such as reference values, delta checks, and
quality control results. If all parameters are within defined
ranges, the computer will automatically release patient re-
sults. This eliminates the need for a technologist to review
each test manually, which reduces turnaround time and
reduces some labor requirements.
A logic-based rule is functionality that allows auto-
mated decision making based on specific, preprogrammed
criteria. For example, computer logic may automatically
generate a request for a reflex test if certain results are
obtained on an assay. In addition, logic-based rules can
support pop-up notification to the person requesting a
test, for example, questioning the desire to order a test if
it was ordered already on the same patient in less than
twenty-four hours. Logic-based rules can help the labora-
tory work with medical staff to improve the utilization of
laboratory services. As with automation, one must under-
stand one’s needs before choosing from the many com-
puter systems available.
One of the most rapidly growing technologies in labo-
ratory medicine is point of care testing (POCT). The stan-
dards of medical practice, especially in the emergency
department and intensive care units, require rapid turn-
around times. Even with automation, computerization,
and pneumatic tubes, it is not always possible in some
77
facilities to achieve an acceptable turnaround time from
central lab testing (9). Bringing stat laboratory testing to
the bedside through the use of POCT instrumentation has
become more and more popular as a means to achieve a
clinically acceptable turnaround time. Because POCT is
typically more expensive than central laboratory testing,
a cost/benefit analysis must be performed and should in-
clude operational issues such as quality control, billing,
and technical oversight of the program (6, 12, 14).
Robotics have been one of the core technologies in
industrial automation for years. In the clinical labora-
tory, robotic automation of front-end, back-end, and
workstation-linking processes is common, especially in
very large laboratories. Total robotic systems exist that al-
low a bar-coded specimen to be placed on a track system
that does the following:
1. Logs specimen into the LIS
2. Decaps, mixes, and centrifuges specimen (if necessary)
3. Aliquots specimen into daughter tubes if not using
primary tube sampling
4. Loads specimen onto automated instruments (chemis-
try, hematology, and coagulation)
5. Stores specimen
6. Retrieves specimen for repeat or add-on tests
Front-end or linking robotic systems are usually installed
in larger laboratory operations and are very expensive (25).
Robotics can be approached in a modular fashion where a
system is purchased and installed in segments. The speci-
men receiving and processing areas of most medium and
large operations are very labor-intensive. Front-end robotics,
installed to receive, process, store, and retrieve specimens,
can improve efficiency and decrease costs (10). The front-
end robotic system can be extended to link the automated
instruments. A cost/benefit analysis that shows your return
on investment can help you decide whether or not robotics
are feasible. All of the aforementioned trends must be con-
sidered when designing or renovating laboratory space (15).
Testing Site Options
Laboratory testing may be performed in a variety of set-
tings. Testing site options include the central laboratory,
POCT, a reference laboratory, and patient home testing.
When considering where testing should be performed, one
needs to consider the following:
• Quality—the accuracy, sensitivity, specificity, and clin-
ical importance of the procedures
• Turnaround time requirements
• Service—who will maintain and support instrumenta-
tion, to include calibration, quality control, and profi-
ciency testing
• Cost—the total cost to provide specific testing options
78 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Usually a centralized automated laboratory opera-
tion provides the lowest cost per test (21). However, a
centralized laboratory may not always deliver the fastest
turnaround time. Sometimes it is more cost-effective to
send certain procedures to an outside reference labora-
tory rather than incur the cost to set up and perform low-
volume procedures in-house (23).
POCT may be the only test option that can provide the
turnaround time clinically needed for certain procedures.
Convenience to the physician and the patient drives POCT
demand in inpatient and outpatient settings (27, 37). Some
POCT may be categorized as waived testing under CLIA.
The regulations governing waived tests are substantially
less stringent than those for nonwaived testing. The list
of waived tests changes rapidly, and the latest information
can be obtained from the Centers for Medicare and Medic-
aid Services (CMS) website at http://cms.gov/Regulations
-and-Guidance/Legislation/CLIA/Downloads/waivetbl.pdf
(accessed 4 May 2012).
Table 4.7 lists a few procedures approved by the Food
and Drug Administration (FDA) for over-the-counter pur-
chase and home use by the public without a prescription.
These tests automatically are categorized under CLIA ’88 as
waived. This test option does not require a physician’s pre-
scription. This list will most likely grow over time (FDA web-
site: http://fda.gov/medicaldevices/productsandmedical
procedures/invitrodiagnostics/homeusetests/default.htm
[accessed May 4, 2012]).
Research efforts to develop noninvasive laboratory pro-
cedures, such as bilirubin and glucose testing, are ongoing.
This may replace some of the POCT procedures at the pa-
tient’s bedside (22).
Doing More with Less
Systematic Approaches to Managing Change
The healthcare environment today is one of constant
change. The challenge in many facilities is to keep a posi-
tive financial bottom line. With reimbursement for health-
care services decreasing and operational costs increasing,
a positive bottom line is difficult to achieve. Maintaining
the status quo is not an option today, since the changing
Table 4.7 Tests approved by the FDA for home testing
Human immunodeficiency virus
Pregnancy test
Glucose
Occult blood
Drugs of abuse
Hemoglobin A1c
Ketones
Cholesterol
Prothrombin time
environment requires changes in our laboratory opera-
tions to maintain financial stability. Those laboratories
that have not made incremental operational changes in the
last 15 years may now face the reality of having to make
revolutionary changes to survive. These necessary changes
may be highly disruptive. Laboratories need to take a sys-
tematic approach to managing their operations (19, 36).
Managing the clinical laboratory should integrate all spe-
cialty sections. Open laboratory designs facilitate the abil-
ity to function as an integrated system (16). Instrument
manufacturers are designing instruments that integrate
the testing of traditionally separate areas of the laborato-
ries (for example, chemistry, immunochemistry, toxicol-
ogy, and immunology) into one analytical platform.
A systematic approach allows changes that result in effi-
ciency and economic savings. Cross-training of personnel
and consolidation of separate sections into one opera-
tional area help laboratories meet the demands of the pres-
ent healthcare environment. But there is a cost to change.
Many people are not comfortable with change. With a
good strategic plan, good communication, and involve-
ment of the staff, positive change can result.
Rightsizing
Personnel can represent as much as 50 to 75% of the direct
operating costs of a laboratory. When the operating budget
needs to be significantly reduced, the labor component is
one of the first considerations. How does one determine
the correct number of staff?
Benchmarking tools such as the Laboratory Manage-
ment Index Program (College of American Pathologists,
Northfield, IL) and Healthcare Benchmarking System
International (Soclucient, Evanston, Ill.) can be helpful
in evaluating your laboratory’s productivity. When using
benchmarking tools it is very important that you compare
“apples to apples.” You should benchmark against peer
laboratories. The items for count (such as “test” or “FTE”)
must be precisely defined. The way procedures are counted
must be defined. Are profiles counted as one procedure
or broken out into separate components? Labor costs per
procedure, worked hours or paid hours per procedure,
procedures per FTE, laboratory costs per discharge, and
laboratory cost per patient day are a few of the productivity
indices that can be used for comparison. For larger labora-
tories, section-specific benchmarking may be helpful once
you have documented the need to rightsize.
There are several ways to approach labor reduction if
it becomes necessary. Every time a position comes open,
carefully review the need for filling the position. Can the
position be eliminated (attrition), or can it be moved to
another area of the department where there is a greater
need? Consolidation of two or more areas of the labora-
tory can improve cross-coverage ability and decrease the
overall need for personnel (for example, consolidation of
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY
chemistry and toxicology sections or microbiology and
immunology sections). Front-end robotics and new auto-
mation may result in labor savings (25). Attrition is less
traumatic than layoffs to decrease the workforce.
A review of current laboratory services may reveal
some labor-saving opportunities. Can some procedures
be performed less often (for example, twice a week versus
daily)? Can some procedures be sent to outside reference
laboratories in place of being performed in-house?
Working with the medical staff to change the way they
utilize laboratory services may also save money. Are more
procedures coming into the laboratory on the night shift
than necessary? Are some tests being ordered too often?
Are standing laboratory orders not being reviewed soon
enough to discontinue unnecessary testing?
Shrinking Reimbursement
Gross versus Net Revenue
The bill a medical facility sends a patient or a patient’s insur-
ance company lists what is termed the “gross billing” charges.
Rarely are these gross billing charges paid in full. There are
adjustments that are made (discounts) from the original
charges based on the contractual payment agreements set up
with various insurance payors. The original patient charge
represents the gross revenue that is billed. The adjustments
lower the gross revenue and determine the amount the medi-
cal facility should receive. This is the net revenue or expected
dollars received. The difference between the gross revenue
and the net revenue can be as much as 50 to 60%. A medical
facility could bill a total of $100,000,000 for patient services
but actually receive only $40,000,000 to $50,000,000.
Medicare
The federal government initiated the Medicare program
in 1966. This program provides healthcare for the elderly
and people with certain chronic diseases, such as end-stage
renal failure. Initially hospitals were paid based on their
actual expenses for inpatient care for Medicare patients.
In 1983 this all changed when the government instituted
the prospective payment system that reimburses hospitals
based on DRGs for hospital inpatient services (Medicare
Part A) (5). This system was based on reimbursing hospi-
tals after Medicare patients were discharged and paying a
set amount based on the discharge diagnosis. A major revi-
sion of the DRG system in 2007 resulted in more than 700
medical severity DRGs (MS-DRGs). If a hospital can treat
a patient with a specific MS-DRG for less than they were
reimbursed, then they make money; if it cost more than
the MS-DRG reimbursement, they lose money. The gov-
ernment has instituted a similar program for outpatients
with ambulatory payment classification (APC) (7). Both
the MS-DRG and APC systems have shifted the financial
risk from the government to the provider.
79
Physician services and most nonphysician outpatient
services are paid by the Medicare Part B program based
on a fee schedule. Over the years the Medicare Part B fee
schedule for laboratory services has not kept pace with the
medical price index, so the reimbursement for laboratory
services by Medicare Part B has been decreasing in con-
stant dollars (1).
Managed Care
Managed-care organizations are constantly negotiating
with healthcare providers regarding reimbursement. They
may pay a set fee for each day a patient is in the hospital
(per diem). They may pay on a per-case basis, similar to
Medicare DRGs. They may pay a set fee per month per
member for any healthcare needed (capitated payment).
The net effect of the prospective payment system is a
significant decrease in reimbursement and cash flow for
providers. It does not appear that this trend will change
soon. The payment for laboratory services reflects this
trend, and reimbursements are usually less than half of the
gross laboratory charges. There is very little “profit mar-
gin” left for providers of laboratory services (34, 35).
Billing
Another factor causing decreased reimbursement for hos-
pitals and clinical laboratories is the billing system itself.
Hospital billing systems struggle to keep up with the com-
plexity of the healthcare environment. The need for correct
diagnosis codes (International Classification of Disease,
9th revision [ICD-9]), billing codes (Current Procedural
Terminology, 4th edition), demographic information, and
current insurance information can easily result in missing
or wrong information in the billing system. This results
in lost charges or payment denials. Hospitals have identi-
fied such lost income, and the emphasis has shifted from
cutting operating expenses to fixing billing systems to re-
cover dollars “left on the table” (17). A major challenge to
the laboratory, as well as all healthcare providers, will be
implementation of ICD-10, now scheduled for October
1, 2014. ICD-10 increases the number of reporting codes
from approximately 13,600 to 69,000, providing increased
reporting detail and accuracy of payments.
Regulations and Unfunded Mandates
Regulations
There has been a steady increase in regulatory control of the
healthcare industry by both federal and state government
(6). This increase in regulation extends to all clinical labora-
tories supporting both inpatients and outpatients. All clinical
laboratories must be certified as fulfilling the requirements
of CLIA ’88. Those requirements include personnel qualifi-
cations, quality control, quality assurance, laboratory proce-
dures, proficiency testing, and laboratory safety (3).
80 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
The certification of a clinical laboratory performing
moderate- or high-complexity testing as defined by CLIA
’88 is accomplished through an on-site biannual inspec-
tion process (3). This inspection can be performed by the
federal government, state government, or a voluntary orga-
nization such as The Joint Commission (TJC) or the CAP.
The voluntary inspecting organization must be granted
“deemed status” by CMS, which ensures that the stan-
dards of voluntary organizations are equivalent to their
own. Other agencies granted deemed status include the
Commission on Office Laboratory Accreditation (COLA),
which inspects and accredits physician office laboratories,
and the American Association of Blood Banks (AABB),
which inspects and accredits blood banks.
Once a laboratory successfully passes its inspection,
CMS issues the appropriate certificate of compliance (if
inspected by government agency) or certificate of accredi-
tation (if inspected by a “deemed” organization).
Unfunded Mandates
Many of the government regulations imposed on clinical
laboratories come with a price tag. There is a cost to labora-
tories to obtain a CLIA certificate as well as to keep it current.
There is a cost to have an inspection by TJC, CAP, AABB, or
COLA as well as the required proficiency testing programs.
Government compliance regulations as well as the Health In-
surance Portability and Accountability Act of 1996 (HIPAA)
rules have resulted in unplanned expenses for clinical labora-
tories and hospitals to modify existing computer systems and
even add personnel to help meet the regulations (HIPAA
Complete, available at http://www.hhs.gov/ocr/privacy/
[accessed July 25, 2012]). The FDA has recommended that
blood banks have their own quality assurance coordinator.
This may result in adding a new position to the payroll. All
of these expenses incurred by clinical laboratories to meet
mandated regulations represent additional costs for which
there is no additional revenue.
Summary
We live in very exciting and challenging times and must
constantly utilize new ideas and changes to obtain the
resources, both personnel and nonpersonnel, to move
ahead. Automation, computerization, POCT, and robot-
ics will allow a more integrated, systemwide approach to
providing high-quality laboratory services in support of
patient care. Laboratory networks and multihospital sys-
tems may achieve economies of scale. The status quo is
not a viable option.
The economics of healthcare have changed, decreasing
the flow of dollars into diagnostic laboratories. It is im-
perative today that every laboratorian have a basic under-
standing of laboratory and healthcare finances (11). This
financial knowledge will help the laboratory team work
toward those changes that create a more efficient and cost-
effective operation.
KEY POINTS
■ Between 1983 and 2009 more than 64% of MLS pro-
grams have closed or become inactive.
■ As many as 60% of laboratories in this country report
understaffing.
■ The Bureau of Labor Statistics predicts a need for 14,000
new laboratory scientists each year, with educational
programs producing fewer than 5,000 annually.
■ MLS and MLT on-the-job training programs must be
approved by the medical director of the laboratory.
■ The cost of turnover can quickly approach 50% of an
employee’s annual salary.
■ The cost of one FTE to staff satellite laboratories 7 days
a week and 24 h a day can easily exceed $130,000 a year.
■ Four critical tools that help the clinical laboratory in-
dustry meet the current economic challenges are auto-
mation, computerization, POCT, and robotics.
■ Three criteria that should be considered before the ad-
dition of new technology to any laboratory are quality,
service, and cost.
■ Usually a centralized automated laboratory operation
provides the lowest cost per test.
■ The difference between gross revenue and net revenue
can be as much as 50 to 60%.
■ The prospective payment systems have shifted the fi-
nancial risk from the payor to the provider.
GLOSSARY
Ambulatory payment classification (APC) An outpatient pro-
spective payment system similar to the inpatient DRG system.
American Association of Blood Banks (AABB) A professional
organization that provides a voluntary inspection and accredita-
tion program for blood banks and transfusion services.
Centers for Medicare and Medicaid Services (CMS) Formerly
known as the Healthcare Financing Administration (HCFA),
CMS administers the Medicare program and enforces the CLIA
’88 regulations by conducting laboratory inspections, determin-
ing test reimbursements, auditing billing for medical necessity,
and contracting with carriers and fiscal intermediaries to pro-
vide reimbursement.
Clinical Laboratory Improvement Amendments of 1988 (CLIA
’88) The primary government rules that govern clinical labora-
tory operations. The final rules were first published in The Fed-
eral Register on February 28, 1992.
College of American Pathologists (CAP) A professional orga-
nization that provides a voluntary laboratory inspection and
 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY
accreditation program. It places a major focus on peer review
and education.
Commission on Office Laboratory Accreditation (COLA) An
organization granted deemed status by CMS to inspect physician
office laboratories for accreditation.
Core laboratory This term has several meanings. It may refer to
a main (central) laboratory within a multiple-laboratory system,
or it may refer to a dedicated section within a single laboratory
that does the majority of routine and stat testing.
Diagnosis-related groups (DRGs) Based on the discharge diag-
nosis, DRGs are a system developed by the federal government for
prospective payment of Medicare inpatient services to providers.
Food and Drug Administration (FDA) One of the administra-
tive components of the Department of Health and Human Ser-
vices of the federal government. The FDA regulates the laboratory
instruments, reagents, and systems provided by the medical de-
vice industry. The FDA also regulates blood and blood products
and can inspect laboratory blood banks and donor centers.
Full-time equivalent (FTE) A person working 40 hours in a
week (full-time position).
Healthcare Benchmarking System International (HBSI) A
benchmarking tool used by many healthcare facilities to com-
pare specific departmental operations, including the laboratory,
to other similar healthcare facilities.
Hospital information system (HIS) This term usually refers to
a hospital computer system and its support personnel.
Laboratory information services (or system) (LIS) This term
usually refers to a laboratory computer system and its support
personnel.
Laboratory Management Index Program (LMIP) The LMIP is
a benchmarking tool managed by the CAP. It allows a clinical
laboratory to compare its operational effectiveness to that of
other similar laboratories using ratios from operational manage-
ment data.
Laboratory network A system (formal or informal) of clinical
laboratories spread over a geographical area to provide labora-
tory services in a coordinated, integrated manner. A laboratory
network can include commercial laboratories.
Managed-care organization (MCO) An organization that pro-
vides medical insurance to beneficiaries within a framework that
manages patients’ access to certain healthcare services with the
goal of providing care at a lower cost. The amount of healthcare
coverage varies from one MCO to another depending on the
program and fee paid by the client (patient).
Medical laboratory scientist (MLS) Term generally used to re-
fer to a person that has completed a four-year college-level pro-
gram that requires specific training in the clinical laboratory
sciences. In recent years, MLS has replaced the older terms medi-
cal technologist (MT) and clinical laboratory scientist (CLS).
The designation of MT or CLS also indicates a specific level of
professional certification by the American Society for Clinical
Pathology. An MLS can perform a full range of laboratory tests.
Medical laboratory technician (MLT) An MLT can perform
general tests under the supervision of an MLS. An MLT has
81
completed associate-level laboratory-specific education and
clinical training.
Medicare severity DRG (MS-DRG) Revised DRG system intro-
duced in 2007.
National Accrediting Agency for Clinical Laboratory Sciences
(NAACLS) An international agency responsible for accrediting
educational programs in the clinical laboratory sciences and re-
lated healthcare fields.
Point-of-care testing (POCT) Usually refers to tests performed
near the patient. Often performed by a nonlaboratorian. POCT
is often managed or overseen by clinical laboratory personnel.
Physician office laboratory (POL) A laboratory run by a physi-
cian who performs laboratory tests on his or her own patients.
Robotics Computerized, mechanical equipment that automates
specimen handling and delivery to automated laboratory
analyzers.
Return on investment (ROI) ROI analysis shows how much
profit (or loss) will be made on an investment (usually capital
dollars) for laboratory equipment, projects, or programs.
Satellite laboratory A laboratory separated from the main labo-
ratory, usually with a limited test menu, that is dedicated to a
specific set of patients and locations in a medical facility.
The Joint Commission (TJC) A professional organization that
provides a high-level peer review, on-site survey, and accredita-
tion program for healthcare facilities, including laboratories.
Waived testing Certain simple laboratory tests meet requirements
for waived testing as outlined in CLIA ’88. Waived testing may be
performed without concern for personnel standards or written
procedures. Some of these tests are approved by the FDA for home
use, such as blood glucose monitoring, are simple, and supposedly
have little chance for error or major effect on the patients if an er-
ror occurs. (FDA, available at https://mymail.mcvh-vcu.edu/mail/
dwilkinson.nsf?OpenDatabase [accessed July 16, 2013].)
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5. Crolla, L. J., and P. W. Stiffler. 2000. Reimbursements and fi-
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6. Curren, D. J. 2000. HCFA proposes rule on lab test coverage, pay-
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7. Curren, D. J. 2000. Outpatient reimbursement: final countdown
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8. Dadoun, R. 2000. Automation strategies to improve personnel
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10. Eggert, A. A., K. A. Emmerich, E. R. Quam, and K. L. Bowers.
2000. The LIS as process manager. Save money and reduce tech fa-
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11. Falcone, D. M. 2000. Basic financial management for laboratori-
ans. MLO Med. Lab. Obs. 32:30–34, 36–37.
12. Felder, R. A. 1997. Automation: innovative and inevitable. Clin.
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13. Forsman, R. W. 2001. Joint venture versus outreach: a financial
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Testing. W. B. Saunders Company, Philadelphia, PA.
15. Garikes, R. W., and S. Maxwell. 2001. Flexible and functional:
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16. Glenn, D. 2008. Higher pay reduces costs. Crit. Values 1(4):11.
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21. Kilgore, M. L., S. J. Steindel, and J. A. Smith. 1999. Cost analy-
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22. Kost, J. G., and H. Clifford. 1996. In vitro, ex vivo, and in vivo
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23. Labeau, K. M., M. Simon, and S. J. Steindel. 2001. Clinical lab-
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 CHAPTER 4. FINANCIAL CHALLENGES IN THE DIAGNOSTIC LABORATORY
APPENDIX 4.1 Websites
Centers for Medicare and Medicaid Services
http://www.cms.gov/Regulations-and-Guidance/Legislation/CLIA
(accessed July 25, 2012)
Since the list of waived tests tends to change frequently, the latest
information can be obtained from CMS.
FDA
http://www.fda.gov/MedicalDevices/ProductsandMedicalProcedures/
InvitroDiagnostics/HomeUseTests (accessed July 25, 2012)
83
Procedures approved by the FDA for over-the-counter purchase and
home use by the public without a prescription can be found at this
website. These tests automatically are categorized under CLIA ’88 as
“waived.” The list tends to change with time, so you may want to
check the list content periodically.
U.S. Department of Health and Human Services
http://www.hhs.gov/ocr/privacy (accessed July 25, 2012)
The complete HIPAA can be found at this website.
Introduction
5
Brief History • Overview of the Current State of
The Impact of
Laboratory Regulations
Regulation of Workplace Safety and
Regulatory Requirements
Human Resource Management
Occupational Safety and Health Administration •
American National Standards Institute • National Susan D. Roseff, Denise E. Russell, Christina E. Anderson,
Institute of Occupational Safety and Health • CLSI •
Centers for Disease Control and Prevention • Food and Roxanne Mercer
and Drug Administration • Equal Employment
Opportunity Commission • Department of
Transportation and International Air Transport
Association • Hazard Communication Standard • OBJECTIVES
Blood-Borne Pathogens • Ergonomics •
Tuberculosis • Latex • Sharps • General Laboratory To gain a basic understanding of the regulatory requirements facing
Safety • Chemicals • Transportation of Clinical laboratories
Specimens • Employment Discrimination
To understand the basics of laboratory inspection and accreditation
Accreditation and Licensure
Brief History • Laboratory Inspection and To present an overview of Clinical Laboratory Improvement Amendments 1988
Accreditation • Personnel Certification and Licensure
To understand the impact of increasing scrutiny on the practice of transfusion
Regulations Affecting Transfusion
Medicine
medicine
Overview of Changes in Transfusion Medicine To evaluate model compliance plans and review the intent and impact on patients,
That Have Resulted in Increased Scrutiny • Safety • physician providers, hospital and laboratory providers, employers, and payors
Regulatory Organizations that Specifically Impact
Transfusion Medicine • Biological Product Deviation To review medical necessity, local medical review policies, advanced
Reporting • The Cost of Increasing Regulatory beneficiary notification, and Medicare secondary payor requirements
Oversight
Regulation of Laboratory Business
Practices Law and regulation are man’s product. The sum of their content is of less impor-
Negotiated Rule-Making Process • Corporate
Compliance • Key Elements of a Model Compliance
tance than the manner in which they are applied.
Plan for Hospitals • The Legal Environment J. Solomon (126)
Laboratory Reimbursement and
Medical Necessity
Medicare • Other Federally Funded Programs •
National Coverage Determination and Local Medical
Review Policies • Reimbursement Methods • Code
Introduction
of Medical Necessity (Reasonable and Necessary Brief History
Services) • Overview of the Reimbursement Process •
Registration and Coding • Claims Processing Prior to the passage in 1970 of the Occupational Safety and Health Act
and Submission • Remittance Advice • Audit and (OSHA), providing a safe workplace was left to the ethics and knowledge of
Benchmark Monitors
each employer. Pre-OSHA laboratory safety took a back seat to other priorities
Compliance—the Next Generation: HIPAA
Covered Entities • Privacy Standards: Rules such as profits, productivity, automation, unions, and other concerns (69). In
Governing Protected Health Information • recent years laboratories have seen an ever-increasing plethora of rules, regu-
Administrative Requirements • Personnel Policies
and Procedures • Patient Informed Rights • Business
lations, and laws governing their operations (reference 110, p. 197–212). The
Associates and Business Associate Agreements • many laws emanating from the federal and state governments and their de-
Standards for Electronic Transactions • HIPAA tails, interrelationships, and complexities are too much for most individuals
Compliance and Enforcement
to understand. In a large institution, there should be an office with environ-
Summary
KEY POINTS
mental health and safety professionals to act as a resource. Smaller institutions
GLOSSARY should assign an individual responsible for seeking advice from professionals
REFERENCES at other institutions, the regulatory agencies themselves, or private consultants
APPENDIXES (reference 110, p. 197–212).
Overview of the Current State of Laboratory Regulations
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia Clinical laboratories operate in a constantly changing environment. Much of
©2014 ASM Press, Washington, DC that change is driven by rules, regulations, and laws, as well as voluntary stan-
doi:10.1128/9781555817282.ch5 dards affecting the operation of every clinical laboratory in the United States.

84
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Today’s laboratory manager and laboratory director must
spend considerable time and effort ensuring that their lab-
oratory maintains compliance with what sometimes seems
like a constantly moving target.
In an effort to protect laboratory workers from work-
related diseases and injury, the federal government en-
acts laws and regulations through its various agencies.
The health and safety of employees, their fair and equi-
table treatment, management of pathogens and chemicals,
shipping of specimens, and the accreditation of clinical
laboratories are a few of the aspects of laboratory medi-
cine regulated by laws or standards. The federal agencies
and voluntary organizations that set these regulations and
standards form a veritable vegetable soup of acronyms.
Through the use of increasingly restrictive donor crite-
ria, screening of donor blood for pathogens, and increased
oversight, the federal government seeks to protect the
safety of the blood supply. Donor units are screened for
a large variety of pathogens prior to transfusion. Because
there is a short period after exposure when an infected unit
might test negative, extensive records are maintained, and
a lookback program identifies recipients of those units.
The blood supply has never been safer, but the cost of
achieving that safety continues to rise.
Laboratory business practices do not escape the scru-
tiny of federal lawmakers. As the single largest payor of
healthcare services, the Centers for Medicare and Medicaid
Services (CMS) drives much of laboratory business prac-
tice. Hospitals should have a system in place to develop
and administer programs to ensure regulatory compliance.
Laboratory employees should have a basic understanding
of laws prohibiting self-referral, fraud and abuse, and eth-
ics and standards of conduct. Failure to comply with fed-
eral laws and regulations can lead to institutional, as well
as individual, fines and penalties.
HIPAA is the Health Insurance Portability and Ac-
countability Act of 1996. This progressive, patient-friendly
law has two sections. Title I deals with protecting health
insurance and coverage for people who lose or change
jobs. Title II includes language that mandates healthcare
providers to establish safeguards that guarantee the pri-
vacy of patient information, requiring extensive changes in
the way business is conducted. Section II has the greatest
impact on clinical laboratory operations. HIPAA codifies
institutional security measures to protect the confidential-
ity of any information that specifically identifies patients.
Regulation of Workplace Safety and
Human Resource Management
Occupational Safety and Health Administration
The Occupational Safety and Health Administration (OSHA)
was created as a result of the passage of the Williams-Steiger
Act of 1970, commonly known as the Occupational Safety
85
and Health Act (129). In keeping with its mission to “save
lives, prevent injuries and protect the health of America’s
workers,” OSHA establishes and enforces legally enforceable
protective standards. Most of the standards applicable to the
clinical laboratory fall under Code of Federal Regulations
29 CFR 1910. (More information about OSHA’s mission and
a link to the Occupational Safety and Health Act of 1970
are available at OSHA’s website, http://www.osha.gov/about
.html [accessed January 25, 2012]).
American National Standards Institute
The American National Standards Institute (ANSI) was
founded in 1918. ANSI is comprised of over 1,000 com-
panies and organizations, both public and private (129).
A private, nonprofit organization, ANSI “administers and
coordinates the U.S. voluntary standardization and con-
formity assessment systems” (American National Stan-
dards Institute, available at http://www.ansi.org [accessed
January 25, 2012]). ANSI publishes safety standards
developed by its accredited standards committees and
publishes specifications for safety equipment including
eyewash, emergency shower facilities, and protective eye
equipment (safety glasses and goggles). ANSI, through its
membership in the International Organization for Stan-
dardization (ISO), coordinates internationally adopted
safety standards (129).
National Institute of Occupational
Safety and Health
In addition to creating OSHA, the Occupational Safety and
Health Act of 1970 created the National Institute of Occu-
pational Safety and Health (NIOSH). NIOSH is an agency
of the Department of Health and Human Services (HHS)
and functions as a research agency charged with conduct-
ing research, providing technical assistance, and recom-
mending standards adoption. (More information about
NIOSH is available at http://www.cdc.gov/niosh/about
.html [accessed July 5, 2012]). NIOSH recommends safety
hazard controls, is a leader in assessment and documen-
tation of hazard control technology, and conducts classes
throughout the country, but it possesses no enforcement
authority (129). NIOSH works to reduce the enormous
toll of workplace injury and disease in the United States.
Based on 2010 data, nearly 4 million workplace injuries
and illnesses were reported in private industry and gov-
ernment, with over 30% requiring days away from work.
Every day about 8,300 workers incur a disabling injury and
12 die from a work-related injury. (Additional information
about the impact and cost of workplace injury and disease
is available at http://www.bls.gov/iif/ and www.cdc.gov/
niosh/injury/ [accessed March 3, 2012].)
ANSI and NIOSH work closely with OSHA in setting
laboratory standards. On January 19, 2001, OSHA is-
sued “Memorandum of Understanding: ANSI and OSHA
86 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

working together to enhance and strengthen the national
voluntary consensus standard system of the United States.”
This agreement recognizes OSHA’s authority in the
development and enforcement of health and safety stan-
dards while at the same time recognizing the important
role that national-consensus-standard-producing orga-
nizations play in the development of occupational health
and safety standards. The memorandum states that ANSI
will continue working to develop national consensus
standards for OSHA’s use and that OSHA will cooperate
with ANSI and assist in its mission. The agreement calls
for close cooperation in the areas of technical support,
consultation in planning of standards development ac-
tivities, sharing of reports, and other areas. This coopera-
tive effort is intended to assist OSHA in carrying out its
responsibilities through the use of ANSI’s technical sup-
port and resources.
CLSI
The Clinical and Laboratory Standards Institute (CLSI;
formerly NCCLS) is a voluntary global organization that
develops consensus standards and guidelines for clinical
laboratories and other audiences. Over 2,000 member
organizations drawn from government, industry, and the
professions propose, review, comment on, and approve
standards and guidelines (44). (Information about CLSI
can be found at www.clsi.org [accessed January 30, 2012].)
Centers for Disease Control and Prevention
The Centers for Disease Control and Prevention (CDC)
is an agency of the federal government. The CDC tracks,
monitors, and researches disease. Of interest to labora-
tories is the CDC publication Morbidity and Mortality
Weekly Report. This weekly report provides information on
blood-borne pathogens and infectious waste disposal rec-
ommendations, among other topics. Guidelines published
by the CDC are published in the Federal Register and may
be incorporated into OSHA standards. The blood-borne
pathogen exposure control guidelines set forth by CDC
became the OSHA Bloodborne Pathogen Standard pub-
lished as 29 CFR 1910.1030 (129).
Food and Drug Administration
The Food and Drug Administration (FDA), an agency
of the Department of Health and Human Services, is
charged with regulating laboratory instruments, reagents,
and blood banks. The focus of the regulations is to ensure
that good manufacturing practices are followed and that
instruments, blood, and blood products are safe and ef-
fective (42). Blood and blood product regulations will be
discussed in more detail later in the chapter. The catego-
rization of diagnostic laboratory tests according to their
complexity also falls to the FDA. Tests are classified ac-
cording to the level of potential public health risk into one
of three categories: waived, moderate, or high complexity
(Tables 5.1 and 5.2). Tests that have been approved by the
FDA for home use are automatically classified as waived.
However, versions of those tests marketed for professional
use are not automatically granted waived status. Such tests
qualify for an expedited review, as any differences in the
two versions are all that must be reviewed. (Information
on categorization criteria, CLIA waiver information and a
searchable database are located at www.fda.gov/cdrh/clia/
index.html [accessed January 30, 2012].)
Equal Employment Opportunity Commission
The Equal Employment Opportunity Commission (EEOC)
was formed in 1965 as the federal agency charged with en-
forcing the Civil Rights Act of 1964 (135). Title VII of the
Civil Rights Act of 1964 put into place guarantees of equal
treatment for all persons. The emphasis of Title VII was on
protecting individuals from employment discrimination
through enforcement of individual rights (125). Since the
1960s the emphasis has shifted to addressing and correct-
ing past deficiencies through affirmative action programs
(Table 5.3).

Table 5.1 CLIA categorization of test systems, assays, and examinationsa

Knowledge (required to perform the test)
Training and experience (required of personnel in preanalytic, analytic, or postanalytic steps)
Reagent and material preparation (evaluates stability, reliability, handling and storage conditions, preparation steps)
Characteristics of operational steps (evaluates steps in the testing process: pipetting, timing, calculations, etc.)
Calibration, quality control, and proficiency testing materials (evaluates the availability and stability of calibration materials, quality control, and
proficiency testing materials)
Test system troubleshooting and equipment maintenance (evaluates degree of test operator troubleshooting and maintenance required as well as
the decision making and special skills or knowledge required to perform the test)
Interpretation and judgment (evaluates the degree of interpretation and judgment required to resolve problems in preanalytic, analytic, and post-
analytic processes)
a
CLIA categorizes laboratory tests as waived, moderate, or high complexity. Each test system (test plus instrument), assay, or examination is graded. A grading system
using seven criteria and scores of 1, 2, and 3 is employed—a score of 1 being the lowest, 3 the highest, and 2 intermediate. Scores are totaled. A test system, assay, or ex-
amination with a score equal to or less than 12 is assigned to the moderate-complexity category, and those with a score of greater than 12 to the high-complexity category.
(The Food and Drug Administration website provides additional information on grading of test complexity at www.fda.gov [accessed March 15, 2012].)
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Table 5.2 Examples of waived, moderate-complexity, and high-
a
complexity tests
Waived
Pregnancy test
Rapid strep test
Fecal occult blood
Blood glucose by glucose monitoring devices cleared by the FDA
specifically for home use
Spun hematocrit
Moderate complexity
Gram stain
Urine culture and colony count kits
Manual procedures with limited steps and with limited sample or
reagent preparation
Automated procedures that do not require operator intervention
during the analytic process
High complexity
Manual cell counts
Serogrouping and typing
Hemoglobin electrophoresis
Western blot
Flow cytometry
Cytopathology examinations
a
The Food and Drug Administration website provides additional information
on grading of test complexity at www.fda.gov (accessed March 15, 2012).
Department of Transportation and International
Air Transport Association
The Department of Transportation (DOT) is responsible
for coordinating the safety program for shipment of haz-
ardous goods within the United States. Of particular in-
terest to laboratories, biohazardous materials, infectious
materials, and dry ice are classified as hazardous goods
(Table 5.4). The Office of Hazardous Materials Safety,
which is located in the Research and Special Programs Ad-
ministration Office of the DOT, develops and administers
the Hazardous Materials Regulations (HMRs), which can
be found in the Code of Federal Regulations (49 CFR parts
100–185).
Both the DOT’s HMRs and the International Air Trans-
port Association (IATA) regulate shipment of hazardous
goods sent by air. Air carriers worldwide have a major in-
terest in ensuring the safe shipment of dangerous goods.
The IATA functions as their international trade associa-
tion. The DOT and IATA both base their regulations on
the recommendations of the United Nations Committee
of Experts (UNCOE). Although both organizations de-
rive their regulations from the recommendations of the
UNCOE, IATA’s adds additional restrictions. The IATA
regulations are updated frequently and published annually
in the IATA Dangerous Goods Regulations (IATA DGR).
Laboratories adhering to the IATA regulations for ship-
ping infectious or biohazardous materials can be assured
of also complying with DOT’s HMRs (55).
87
Table 5.3 Federal laws prohibiting job discrimination (EEOC)a
Civil Rights Act of 1964 (Title VII). Prohibits employment discrimi-
nation based on race, color, religion, sex, or national origin.
Equal Pay Act of 1963. Protects men and women doing substantially
the same job in the same establishment from wage discrimination
based on sex.
Age Discrimination in Employment Act of 1967. Protects workers
over 40 years old.
American with Disabilities Act of 1990 (Titles I and V). Protects
qualified individuals from employment discrimination.
Rehabilitation Act of 1973 (Sections 501 and 505). Prohibits
discrimination against disabled federal government employees who
qualify.
Civil Rights Act of 1991. Provides monetary damages in cases of
intentional employment discrimination.
Genetic Information Nondiscrimination Act of 2008. Prohibits
discrimination against employees, applicants, and those individuals’
family members because of genetic information.
a
The website of the Equal Employment Opportunity Commission, www.eeoc.gov
(accessed March 15, 2012), provides details regarding the various laws prohibiting
employment discrimination.
Hazard Communication Standard
OSHA standard 29 CFR Part 1910.1200, also known as the
Hazard Communication Standard (HAZCOM), was origi-
nally published in 1983 (http://www.osha.gov/pls/oshaweb/
owadisp.show_document?p_table=STANDARDS&p
_id=10099, accessed February 29, 2012). Intended to pro-
tect workers from hazardous chemicals in the workplace
(83), this version of the standard specifically included em-
ployees and employers in specific industries. Laboratories
in academic institutions and in other industries were not
Table 5.4 Hazard classes and definitionsa
Class Definition
1 Explosives
2 Gases (flammable, nonflammable,
and poison)
3 Flammable liquids
4 Flammable solids, spontaneously
combustible material, dangerous
when wet
5 Oxidizers, organic peroxide
6 Poisonous materials, infectious sub-
stances (6.2)
7 Radioactive materials
8 Corrosive materials
9 Miscellaneous hazardous materials
(includes dry ice)
Other regulated materials
a
See reference 45.
88 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
included. Following court challenges, OSHA was required
to extend the standard to all employees who work with, or
are exposed to, chemicals. The final Hazard Communica-
tion Standard was published in 1987 and became effective
on May 23, 1988 (reference 75, p. 69–197).
The laboratory community quickly realized that the
OSHA standards, designed for industrial-scale operations,
were not appropriate for laboratories. As a result of com-
ments and concerns from the laboratory community, an
effort to craft a separate regulation for laboratories began.
The result was OSHA Standard 29 CFR Part 1910.1450,
“Occupational exposure to hazardous chemicals in labo-
ratories,” also known as the laboratory standard, which be-
came effective in 1990 (reference 110, p. 197–212) (http://
www.osha.gov/pls/oshaweb/owadisp.show_document?p
_table=STANDARDS&p_id=10106, accessed February
29, 2012). In most cases laboratories are held to the labora-
tory standard rather than the HAZCOM standard (refer-
ence 75, p. 342–352).
Although the laboratory standard and the HAZCOM
standard are very similar, they do have some key differ-
ences. The laboratory standard adds requirements for de-
velopment of a chemical hygiene plan, appointment of a
chemical hygiene officer, and a requirement that there be
available standard operating procedures (reference 75, p.
342–352). The OSHA laboratory standard is not intended
to supersede all OSHA standards. OSHA rules and stan-
dards on areas not mentioned in the laboratory standard
are still in effect. For instance, the Occupational Safety and
Health Act contains a “general duty” clause that requires
employers to provide a workplace free from recognized
hazards that may cause death or serious harm and requires
employees to comply with all OSHA rules and health stan-
dards. Because the requirements of the HAZCOM and
laboratory standards are similar, many institutions have
chosen to institute programs that meet the requirements
of the Hazard Communication Standard while adding the
requirements for a chemical hygiene plan (reference 110,
p. 197–212).
Blood-Borne Pathogens
Over time, and with increasing knowledge, laboratories
have seen changes in the precautions used in handling
laboratory specimens. Laboratories have moved from
procedures that employed special handling of known or
suspected infectious specimens to those requiring the
handling of virtually all human specimens as if they were
infectious. Over the years, handling of human specimens
has progressed from labeling known infectious speci-
mens as “blood and body fluid precautions” to following
the recommendations from the CDC and advisories from
HHS and the Department of Labor on ways to protect
healthcare workers from occupational exposure, warnings
from OSHA that healthcare institutions not following the
guidelines are subject to fines and prosecution (86), and
federal requirements as promulgated in the OSHA Blood-
borne Pathogen Standard.
OSHA’s Bloodborne Pathogen Standard (29 CFR 1910
.1030; http://www.osha.gov/pls/oshaweb/owadisp.show
_document?p_table=STANDARDS&p_id=10051, ac-
cessed February 29, 2012) and its companion compli-
ance directive, OSHA Instruction CPL 02-02-069 (http://
www.osha.gov/pls/oshaweb/owadisp.show_document?p
_table=DIRECTIVES&p_id=2570, accessed March 9,
2012), became effective on March 6, 1992 (31).
The standard protects employees who work with blood,
body fluids, or other potentially infectious materials by
requiring that employers provide certain safeguards. Rec-
ognizing that carriers of blood-borne pathogens are not al-
ways identified and that contaminated materials are not
consistently labeled, the standard fundamentally changed
previous practices. Standard Precautions, the practice of
assuming that all human blood and body fluid specimens
are potentially infectious, is the basis of the standard (47).
Requirements of the plan are summarized in Table 5.5.
On November 5, 1999, OSHA released an updated com-
pliance directive, CPL 02-02-069, “Enforcement Procedures
for the Occupational Exposure to Bloodborne Pathogens”
(111; http://www.osha.gov/pls/oshaweb/owadisp.show
_document?p_table=DIRECTIVES&p_id=2570, accessed
March 9, 2012). The directive provides clarification to
OSHA inspectors and sets policy for use in conducting in-
spections to enforce the Occupational Bloodborne Patho-
gen Standard. Clarifications are provided in Table 5.6.
Ergonomics
Work-related musculoskeletal disorders are most often
caused by repetitive tasks, poor posture, and muscle
strain. The 2010 Bureau of Labor Statistics reports that
29% of all workplace injuries are due to musculoskeletal
Table 5.5 Blood-borne pathogen exposure control plan
requirements
Determination of employee exposure to blood and other potentially
infectious materials
Implementation of methods of exposure control, including:
Universal precautions
Engineering and work practice controls—including sharps man-
agement, laboratory hygiene, and waste disposal
Personal protective equipment
Housekeeping
Policy for hepatitis B virus (HBV) vaccinations
Procedure for postexposure examination and follow-up
Communication of hazards to employees and training
Record keeping
Procedure for evaluating exposure incidents
a
See http://www.osha.gov/Publications/osha3186.pdf (accessed August 1, 2012).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 89

Table 5.6 Clarifications provided in enforcement procedures for the occupational exposure to blood-borne pathogens
All employees (part-time, temporary, and per diem) are covered. OSHA jurisdiction does not include students.

An exposure control plan, either a “cohesive entity” or a guiding document, must be provided stating what separate policies make up the plan.

The plan must be updated at least annually. Updates should include changes in technology, changed or new tasks that present exposure, and
changed or new job classifications presenting exposure. The plan must include provisions for reviewing exposures and the circumstances under
which they occurred.

Because hepatitis B virus (HBV) is easily transmitted by environmental contamination, contaminated work surfaces must be cleaned with an “ap-
propriate disinfectant.” Dilute bleach is an effective disinfectant. A 1:10 dilution of stock household bleach (0.5% sodium hypochlorite) is consid-
ered to be effective in the time it takes to dry. For commercial products, users must follow the instructions. Gross contamination must be cleaned
first with a soap and water solution to ensure a disinfectant’s effectiveness. Other U.S. Environmental Protection Agency–registered products may
be obtained from the EPA Hotline at 1-888-546-8740.

Sharps containers must not be overfilled. OSHA notes that the Exposure Prevention Information Network study “Uniform Needlestick and Sharp
Object Injury Report,” including data from 77 hospitals in 1993–1995, found 717 injuries that occurred during disposal into a sharps container.

Potable eyewash facilities are not acceptable unless they contain at least a 15-minute supply of free-flowing water and both hands are free to hold
the lids open.

OSHA notes changes in treatment of HBV. Employers are required to use the most current CDC guidelines. (Current guidelines may be located on
the Centers for Disease Control and Prevention website at http://www.cdc.gov [accessed February 15, 2012].)

Exposure documentation, to be useful in creating recommendations to prevent future accidents, must contain useful information including the
circumstances of the exposure, the route of exposure, engineering and work practices in use, what device was in use, and personal protective
equipment in use at the time.

Training must include description of blood-borne pathogens in addition to human immunodeficiency virus (HIV) and HBV. OSHA notes that
hepatitis C virus is now the “most common chronic bloodborne infection in the United States.” Training need not include a discussion of the trans-
mission and symptoms of less common diseases.

Training may not be accomplished solely using a film or video. Trainees must have the opportunity to ask questions of the trainer.

Accurate training records must be maintained for three years. Such records should include the names and job titles of the attendees.

disorders, with an estimated 11 days away from work for
every injury (http://www.bls.gov/news.release/archives/
osh2_11092011.pdf, accessed March 12, 2012). OSHA
has been working toward creating an ergonomics standard
since it hired its first ergonomist in March 1979. In 1990
OSHA created the Office of Ergonomics Support. The fol-
lowing decade saw proposed rule making and publication
of a proposed ergonomics standard, culminating in No-
vember 2000 with President Clinton signing the first er-
gonomics rule. The OSHA ergonomics standard went into
effect in January 2001 (57). Court challenges and politics
(56) resulted in Congress repealing the standard in March
2001, thus marking the first time a rule has been success-
fully overturned through use of the Congressional Review
Act (57).
OSHA’s interest in ergonomics was not diminished by
the congressional action. On April 5, 2002, OSHA an-
nounced a “Comprehensive Plan to Reduce Ergonomic
Injuries.” This comprehensive plan calls for guidelines tar-
geted at specific industries combined with enforcement,
assistance with compliance, Hispanic outreach, and ergo-
nomics research (132). Since 2002, OSHA has published
several industry- and task-specific ergonomic guides to
help employers prevent and reduce musculoskeletal disor-
ders in the workplace.
Although the OSHA ergonomics standard was repealed,
employers should continue to be concerned about er-
gonomic injuries. Not only is OSHA likely to implement
ergonomic reviews under their “general duty” clause, but
with an estimated 4–7 million lost days from work in 2010,
employers cannot afford to ignore ergonomic issues (57;
http://www.bls.gov/news.release/archives/osh2_11092011
.pdf, accessed March 12, 2012).
Ergonomics has been defined as “the science of fit-
ting jobs to people” (56). Some laboratory tasks posing a
particular risk of ergonomic injury include conventional
microtomy, microscope use, manual pipetting, phlebot-
omy, sitting for long periods, and long periods of com-
puter entry (89). By studying the amount of time spent
at a particular task, how long people are in the same
position, repetitive motion, and awkward positions,
among other factors, managers can work to reduce er-
gonomic injuries. (Some ergonomic guidelines are listed
in Table 5.7.)
90 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.7 Computer workstation and general ergonomic guidelines (not a comprehensive list)a
Hold head, neck, and body upright and facing forward.
Forearms, wrists, hands, and thighs should be parallel to the floor.
Feet should rest on the floor or on a footrest.
Top of the monitor screen should be at or below eye level and directly in front of the employee.
The mouse or trackball should be next to the keyboard and be easy to activate.
Wrists and hands should not rest on sharp or hard edges. Wrist rests, if used, should be padded, with no sharp or square edges.
Chairs should provide lumbar support and have armrests and a seat size appropriate to the employee.
Chair seats should be cushioned; the front edge of the seat should not be sharp or push against the back of the employee’s lower legs or knees.
Avoid repetitive motions.
Limit microscope use to a total of five hours a day, preferably spread over the day.
Position the microscope so the operator sits as straight as possible.
Use armrests to support the forearms while using adjustment knobs.
Use an antifatigue mat if long periods of standing are required.
Take frequent short breaks to stretch.
a
OSHA provides an “e-tool” on hospital ergonomics, with specifics for laboratories, on its website at http://www.osha.gov/SLTC/etools/hospital/index.html (accessed
March 15, 2012). The CDC provides additional information on ergonomics at http://www.cdc.gov/niosh/topics/ergonomics/ (accessed March 15, 2012).

Tuberculosis pressure rooms, and inform contractors of any poten-

Increases in nosocomial tuberculosis (TB) over the past
few decades have prompted the CDC to issue guidelines
and OSHA to propose a new health standard. Alarmed
over the increases in nosocomial infections seen in the
1980s and early 1990s, the CDC issued guidelines in 1990
that were expanded and revised in 1994 (100). In 1993
OSHA was petitioned by several labor unions request-
ing a permanent standard for occupational exposure to
TB. In their petition the labor unions noted the recent
increase in the number of active TB cases and their con-
tention that the 1990 CDC guidelines were not being im-
plemented (130). On October 16, 1997, OSHA released
its proposed TB standard. According to OSHA, more
than 130 lives can be saved annually under the new pro-
posed standard, and implementation of the standard will
prevent 70–90% percent of occupationally acquired TB.
Noting increased concern due to the emergence of mul-
tidrug resistance and new and often deadly forms of the
disease, OSHA noted an expected prevention of 21,000
to 25,000 new infections per year with implementation
of the standard.
The basics of the proposed standard are very similar to
the 1994 revised CDC recommendations for healthcare fa-
cilities and include (130):
tial occupational exposure.
• Respiratory protection. Employees who enter TB
isolation rooms, work in or enter an area where an
individual known or suspected to have TB has been
segregated, or may be otherwise exposed to aerosol-
ized Mycobacterium tuberculosis (such as work on air-
handling systems) must be provided with respirators
that meet NIOSH guidelines.
• Medical surveillance. All employees will be required to
have medical surveillance before assignment to a job
with occupational exposure and then annually, after
known exposure, when displaying signs and symptoms
of TB, following a skin test conversion, and within 30
days of termination of employment.
• Hazard communication and training. Employers are
required to post signs at the entrance to laboratories
where M. tuberculosis is present, label exhaust systems
noting that aerosolized M. tuberculosis may be present
and that respiratory protection is required, and require
employees to attend a training program.
• Record keeping. Medical and training records, OSHA
logs, and other records have specific retention require-
ments (130).

• Exposure control. Employers will be required to iden- Latex

tify employees who have occupational exposure to
TB and develop a written exposure control plan to
be reviewed at least annually and available to all
employees.
• Work practice and engineering controls. Employers will
be required to identify individuals with TB (suspected
or confirmed) and to segregate them, use negative
Latex allergy has become a major healthcare concern.
While the reasons are uncertain, the number of healthcare
workers exhibiting sensitivity to latex has increased mark-
edly over the last 10 to 15 years. Some of the reasons for the
increase are most likely attributable to the increased use of
latex gloves to prevent the spread of blood-borne pathogens
following implementation of OSHA’s Bloodborne Pathogen
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Standard and its requirement that employees use gloves
when working with blood and body fluids. Struggling to
keep up with the increased demand, manufacturers made
changes in their manufacturing processes and materials
that may have contributed to the increased level of extract-
able latex proteins in the gloves. Latex proteins are the cause
of sensitization and allergic reaction. When these proteins
become attached to the powder used in the gloves, the pro-
teins are more easily spread throughout the environment
(109). In 2008 the FDA published an industry guidance on
medical gloves that includes glove powder limitations and
recommendations for product labeling (37).
Workers exposed to latex may exhibit three types of
reactions:
• Irritant contact dermatitis, though not a true allergy, is
the most common reaction. It is caused by skin irrita-
tion resulting in irritated, dry, itchy areas on the skin.
• Allergic contact dermatitis or chemical sensitivity der-
matitis results from a reaction to the chemicals used
in the manufacturing and harvesting processes. It can
cause a delayed skin reaction (usually 24 to 48 hours
after exposure).
• True latex allergy can be a much more serious reaction
to latex. Reaction is usually much more immediate, of-
ten occurring within minutes of exposure, and may vary
in severity from mild reactions such as hives or itching
to respiratory symptoms and, rarely, shock (109).
NIOSH recommends that employers adopt policies to
protect workers from undue latex exposure in the workplace.
Some strategies to consider include providing nonlatex
gloves where appropriate (minimal contact with infectious
materials), using reduced protein, powder-free gloves when
latex gloves are used, ensuring good housekeeping practices
to minimize latex-containing dust, educating workers about
latex allergy, periodically screening high-risk workers for la-
tex allergy, and evaluating the program whenever a worker
is diagnosed with latex allergy (109).
Sharps
As a result of the efforts of healthcare worker advocates, the
Federal Needlestick Safety and Prevention Act (HR5178)
(http://www.axelbio.com/Needle_Safety_Prevention_Act
.pdf?p_table=STANDARDS&p_id=10051, accessed Feb-
ruary 29, 2012) was signed into law on November 6, 2000.
The bill mandated that OSHA revise and enforce the exist-
ing Bloodborne Pathogen Standard (29 CFR 1930.1030).
Specifically, the law required that OSHA revise the Blood-
borne Pathogen Standard by strengthening employer re-
quirements for “identification, evaluation, documentation
and use of safety engineered sharp devices” (99). In a news
release on May 9, 2001, Secretary of Labor Elaine Chao is
quoted as saying, “Prevention is the best medicine. The
91
more emphasis we place up front on education and pre-
vention, the better able we are to protect workers. By
revising this standard, OSHA is giving employers a stron-
ger tool to help reduce serious injuries and illnesses caused
by needles and sharps” (131). Highlights of the revised
standard are that employers must maintain a sharps in-
jury log that contains, at a minimum, the type and brand
of device involved, where the incident occurred, and a
description of the incident; exposure control plans must
be reviewed annually and include documentation that
consideration has been made of available safety devices
reflective of technological advances; and input must be
solicited from front-line employees for the “identifica-
tion, evaluation and selection of effective engineering
controls, including safer medical devices.” Other revi-
sions include amendment of the term “engineering con-
trols” and the addition of definitions for “needleless”
systems and “sharps with engineered sharps injury pro-
tection” (131).
General Laboratory Safety
Laboratory safety is one of the most important responsibil-
ities of a manager. A complete laboratory safety program
includes all aspects of laboratory safety from identifica-
tion of hazards and procedures for training, maintain-
ing records, and reporting accidents to comprehensive
biohazard, microbiological, chemical, and waste disposal
policies and procedures. Table 5.8 lists components that
should be included in a laboratory safety program.
Chemicals
Plan ahead, minimize exposure, don’t underestimate risks,
and be prepared for accidents are the four basic principles
that should underlie all work with chemicals (109). Table 5.9
lists the elements of a chemical hygiene plan.
Planning ahead allows the worker to prepare for pos-
sible mishaps. Material safety data sheets should be
reviewed, especially for unfamiliar chemicals, to under-
stand the hazards associated with the chemical. General
safety procedures should be observed when working with
or around chemicals. Exposure via the skin, eyes, mucous
membranes, or lungs and ingestion should be avoided.
Eye protection should be required. Gloves should be cho-
sen for their resistance to the chemical in use. Long hair,
jewelry, and loose clothing should be confined. Sandals
and open-toed shoes should be prohibited. Work areas
should be uncluttered and clean, with exits and emer-
gency equipment unobstructed. Minimum quantities of
chemicals should be purchased. Chemicals should be la-
beled properly, with special hazards noted on the label,
and stored with attention to incompatibilities. A plan for
waste disposal should be in place before an activity be-
gins. Equipment should be maintained in good condition
through a program of regular inspection and maintenance.
92 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.8 Elements of a laboratory safety program

Maintenance and inspection of the laboratory
Appoint a laboratory safety officer and chemical hygiene officer.
Establish training protocols.
Identify and assess hazard risks.
General safety program
Develop guidelines for personnel responsibility including prohibiting smoking, eating, drinking, and applying cosmetics in areas where there are
biohazards and chemicals; appropriate dress codes; and use of personal electronic devices in laboratory areas.
Provide proper personal protective equipment and describe appropriate use.
Implement effective work practice and engineering controls.
Comply with local and federal regulations for specimen transport within and outside the facility.
Develop hazardous waste disposal procedures.
Warning signs and labels
Alert employees and visitors to particular hazards such as flammables, combustibles, biohazards, and hazardous chemicals.
Use OSHA-specified signage when applicable.
Fire prevention and emergency management
Develop procedures for fire prevention and control and use of fire prevention equipment.
Establish fire evacuation protocols.
Establish procedures for handling flammable chemicals.
Electrical safety
Include provisions for electrical safety checks of instruments and outlets and proper repair and maintenance.
Compressed gases
Include provisions for proper storage, labeling, transport, maintenance, and pressure regulators and valves of both flammable and nonflam-
mable gases.
Chemical safety
Develop procedures for proper classification of chemicals, material safety data sheets, labels, storage, transportation, personal protective
equipment, spills, clean-up procedures, and proper use of hoods.
PPE
Establish a chemical hygiene plan that includes OSHA-specified information (Table 5.5).
Carcinogens
Develop protocols that include special precautions, proper labeling and disposal, medical exams, storage, and transport.
Microbiological hazards
Establish procedures for blood-borne pathogens (HBV, HIV, and HCV), pathogens commonly encountered in the clinical laboratory, and
specimens and procedures involving highly virulent agents.
Anatomic pathology
Establish procedures for use of special equipment with knives or blades, handling of radioactive specimens for surgical pathology, and
autopsy areas.
Occupational health and safety
Establish procedures for reporting and assessing illnesses, injuries, and incidents.
Develop an ergonomics program.

All employees should be familiar with emergency proce-

dures and the location and use of emergency equipment
(Table 5.10) (reference 110, p. 81–104).
Table 5.9 Elements of a chemical hygiene plana
Basic rules and procedures Transportation of Clinical Specimens
Chemical procurement, distribution, and storage Shippers of hazardous materials are required not only to
Environmental monitoring follow the regulations, but also to have documented train-
Housekeeping, maintenance, and inspections ing every two years. The individual signing the shipping
Medical program documents as the “certified shipper” assumes responsi-
Protective apparel and equipment bility for the complete shipping process. According to law
Records he or she is the one person deemed fully responsible for
Signs and labels the condition of the packaging of the specimen. He or she
Spills and accidents is responsible for determining whether or not the speci-
Information and training program men is a regulated substance, knowing the regulations
Waste disposal program governing that substance and the appropriate packaging
a
See reference 49. to use, accurately completing all required documentation
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Table 5.10 Safe handling of chemicalsa
Review the material safety data sheet.
Plan ahead.
Observe general safety procedures.
Wear eye protection or face protection.
Use the proper gloves.
Purchase minimum quantities of chemicals.
Properly label and store chemicals.
Leave exits and emergency equipment unobstructed.
Know emergency procedures and use of emergency equipment.
a
See reference 109.
and shipping papers, correctly marking and labeling the
package, and notifying the recipient of the shipment.
Fines for improper shipping or lack of training are sub-
stantial. The Federal Aviation Administration (FAA) em-
ploys lawyers and cargo security specialists to conduct
preventive measures ensuring safety. One of the FAA’s re-
cent initiatives is to send “strike teams” to airports, where
they spend one week checking every package coming
through (87).
The DOT document “How to Use the Hazardous Mate-
rial Regulations CFR 49 Parts 100 to 185” provides useful
information about reading and interpreting the regulations
governing shipping and transportation of hazardous materi-
als. (The document can be located on the website of the U.S.
DOT Pipeline and Hazardous Materials Safety Administra-
tion at www.phmsa.dot.gov [accessed February 2, 2012] or
http://www.dgtraining.com/Enforcement/Regulations/
HowToUse03.pdf [accessed February 3, 2012].)
Employment Discrimination
The Americans with Disabilities Act (ADA) of 1990 (Ti-
tles I and V) prohibits employment discrimination based
on disability in qualified individuals. Disabilities are de-
fined as mental or physical impairments limiting at least
one major life activity. Major life activities are defined as
walking, breathing, seeing, hearing, speaking, learning,
and working. It is important to understand that the act
protects “qualified individuals.” Qualified individuals are
those who possess the necessary skills, job requirements,
education, and experience for a particular position and
who can perform the functions of the position. While
not required to lower production standards, an employer
is required to make reasonable accommodation(s) for
such a qualified individual. Reasonable accommoda-
tions may include such things as altering job schedules,
restructuring a job, acquiring or modifying equipment,
or providing readers or interpreters. Applying for a job,
performing a job, or enjoying the benefits of employ-
ment may also require reasonable accommodation. (A
more detailed explanation of required accommodations
can be found on the website of the Equal Employment
93
Opportunity Commission at http://www.eeoc.gov (ac-
cessed February 2, 2012).
Perhaps the disabled employee most likely to require ac-
commodation is the mobility-impaired employee who re-
quires use of a wheelchair. Wheelchair use is relatively easy
to accommodate by providing wider aisles, space to turn the
wheelchair, and variable-height work benches with access
to the equipment on the bench (reference 75, p. 69–197).
Reasonable accommodations are required unless they
create an undue hardship. An undue hardship is defined
as one that imposes significant difficulty or expense in re-
lation to the size, resources, and nature of the business.
Employers may inquire about an applicant’s ability to
perform the job, but not about specifics of any disability.
A job offer may be conditional based on a medical ex-
amination only if the same examination is required of all
applicants in the same job category. The ADA does not
protect employees or applicants currently using illegal
drugs when an employer acts on the basis of the drug use.
(Additional information about reasonable accommoda-
tions may be found on the website for the Equal Employ-
ment Opportunity Commission at http://www.eeoc.gov
[accessed February 3, 2012].)
Since its passage in 1990, many employers have been
concerned about the implications of the law. It is the inclu-
sion of psychiatric and mental, along with physical, disabili-
ties that most concerns employers. Unfortunately, EEOC
guidelines do nothing to relieve their anxiety, as the guide-
lines state that “credible testimony from family members
and coworkers may be sufficient notice to the employer that
a psychiatric disability exists” (95). The Job Accommoda-
tion Network notes that most ADA accommodations cost
relatively little. Data from a survey of employers using the
Job Accommodation Network’s services showed that 70% of
accommodations cost $500 or less (with 21% costing noth-
ing) (118). Accommodations for people with psychiatric or
mental disabilities tend to be no more difficult or expensive
than other types of accommodation. Such accommodations
may range from to-do lists, tape-recorded instructions, or
division of large tasks into smaller components (95).
While the ADA regulations strive for voluntary compli-
ance, it is important to note that the act does include legal
remedies for noncompliance. Employers should ensure
that employees involved in any part of the process of inter-
viewing, hiring, promoting, or firing are well versed in the
law. Lack of such knowledge could result in a legal chal-
lenge when no intention of discrimination was intended.
Accreditation and Licensure
Brief History
Laboratory standards and testing have been evolving for
centuries. The evolution has progressed from urine test-
ing done before 400 B.C. to diagnosing boils by observing
94 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
whether insects were attracted to urine poured on the
ground (18) to today’s modern laboratories. As testing
sophistication grew and hospitals began to appreciate the
skills of laboratory professionals, self-regulating groups
emerged to ensure laboratory quality. The first inspection
of laboratories occurred in 1918 when the American Col-
lege of Surgeons inspected hospitals utilizing standards
that required an adequately staffed and equipped labora-
tory. The year 1918 also saw the first call for a national
method to certify technologists and a Pennsylvania state
law requiring that hospitals install and equip a laboratory
staffed with a full-time technician (19).
Regulation of clinical laboratories began in earnest
soon after the Medicare and Medicaid laws went into effect
in 1966. The Clinical Laboratory Improvement Amend-
ments of 1967 (CLIA ’67) established minimum quality
standards for Medicare participating laboratories engaged
in interstate commerce, a relatively small portion of clini-
cal laboratories. Lawmakers soon saw the need to regulate
all laboratories engaged in testing human specimens. Thus
began the effort to amend CLIA ’67 to establish minimum
standards for personnel, accuracy, and quality control and
to mandate inspections. When the CLIA ’67 final rule
was enacted in 1978, it included rules for quality control,
proficiency testing, and personnel competency. Personnel
working in laboratories receiving Medicare reimburse-
ment were required to be medical technologists with a
bachelor’s degree or equivalent or to demonstrate satisfac-
tory performance on a proficiency exam administered by
HEW (Health, Education and Welfare, the precursor to
Health and Human Services).
In the years following the implementation of CLIA ’67
there were repeated attempts to update the act to include
all laboratories. The breakthrough came in 1988 when
President Reagan signed the Clinical Laboratory Improve-
ment Amendments of 1988 (CLIA ’88) into law. Practical
problems delayed implementation until 1992. This more
comprehensive law requires all laboratories doing human
clinical testing to have a certificate issued by HHS (20),
now known as the Centers for Medicare and Medicaid Ser-
vices (CMS).
The enactment of CLIA ’88 brought virtually all labo-
ratories doing clinical testing for diagnosis or disease
management on human specimens under the umbrella
of federal regulation. The final CLIA regulations pub-
lished on February 28, 1992, are based on the complexity
of the test method; thus, the more complicated the test,
the more stringent the requirements. Three categories of
tests have been established: waived complexity, moder-
ate complexity, including the subcategory of provider-
performed microscopy procedures (PPMPs), and high
complexity (Table 5.11). CLIA specifies quality stan-
dards for proficiency testing, patient test management,
quality control, personnel qualifications, and quality as-
surance for laboratories performing moderate- and/or
high-complexity tests. Waived laboratories must enroll in
CLIA, pay the applicable fee, and follow manufacturers’
instructions. Because problems in cytology laboratories
were the impetus for CLIA, there are also specific cytol-
ogy requirements (http://www.cms.gov/clia, accessed
July 29, 2012). Before the CMS grants a certificate labo-
ratories must register, pay fees, and be surveyed. Mod-
erate- and high-complexity laboratories have the option
of choosing to be surveyed by the CMS or by a private
accrediting organization that has been granted “deemed
status” (Table 5.12). (An excellent overview of the CLIA
program is located on the Centers for Medicare and Med-
icaid Services website at http://www.cms.gov/clia [ac-
cessed January 25, 2012]).
Laboratory Inspection and Accreditation
The type of CLIA certificate held by the laboratory de-
termines whether or not routine inspections are required.
Routine inspections are not required for laboratories
registered with a certificate of waiver or a certificate for
PPMPs. Over time the number of waived laboratories has
increased to 67% of the total laboratories enrolled. Com-
bined with the 17% of enrolled laboratories that hold a
PPMP certificate, 84% of all laboratories do not have
routine inspections or oversight (http://www.cms.gov/
clia, accessed February 1, 2012) (see Tables 5.2 and 5.11).
Table 5.11 Types of laboratory CLIA certificatesa
Certificate of waiver. Issued to a laboratory to perform only waived
tests.
Certificate for provider-performed microscopy procedures. Issued
to a laboratory in which a physician, midlevel practitioner, or dentist
performs no tests other than the microscopy procedures. This certifi-
cate permits the laboratory to also perform waived tests. Examples of
PPMP include fern testing, microscopic urinalysis, nasal smears for
eosinophils, and wet mounts, including preparations of vaginal, cervi-
cal, or skin specimens.
Certificate of registration. Issued to a laboratory and enables the
entity to conduct moderate- or high-complexity laboratory testing or
both until the entity is determined by survey to be in compliance with
the CLIA regulations.
Certificate of compliance. Issued to a laboratory after an inspection
that finds the laboratory to be in compliance with all applicable CLIA
requirements.
Certificate of accreditation. Issued to a laboratory on the basis of the
laboratory’s accreditation by an accreditation organization approved
by the CMS.
a
Information about the various types of CLIA certificates is available at the
Centers for Medicare and Medicaid Services website, www.cms.gov/clia (accessed
February 2, 2012).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Random inspections are conducted at a small percentage
of waived and PPMP laboratories each year. These in-
spections focus on ensuring that the laboratories are not
performing testing at a higher level than their certificate
warrants and that they are following other CLIA regu-
lations. Laboratories holding certificates of waiver may
only perform waived tests. They must enroll in the CLIA
program, pay applicable fees, and follow manufacturers’
test instructions. Laboratories holding a certificate for
PPMP must enroll in the CLIA program, pay applicable
fees, and meet specified quality and administrative re-
quirements. Pilot studies conducted during 1999–2001
in 10 states found significant problems with quality and
certification (laboratories testing beyond their certifi-
cate). As a result, in April 2002, the CMS began on-site
educational and information-gathering visits to approx-
imately 2% of waived laboratories. The CMS currently
has no plans to increase the percentage of site visits to
waived laboratories (http://www.cms.gov/clia, accessed
July 29, 2012).
Laboratories performing moderate- or high-complexity
testing are required to have an inspection every two years.
The laboratory may opt to be inspected by the CMS or
by an organization that has been approved by the CMS
(granted deemed status) as having program requirements
at least as stringent as CLIA. The CMS awards a certifi-
cate of compliance to laboratories that are successfully in-
spected by the CMS and a certificate of accreditation to
laboratories based on a successful inspection by an orga-
nization having deemed status with the CMS (Table 5.12).
A provision of CLIA ’88 exempts from CLIA require-
ments “all State licensed or approved laboratories in a State
that has a State licensure program established by law” if
the state licensure requirements are at least as stringent
as the CLIA requirements. Two states, Washington and
New York, are currently exempt. (The CMS maintains a
list of exempt states on its website at https://www.cms.gov/
CLIA/20_CLIA_Laboratory_Demographic_Information
.asp#TopOf Page [accessed March 2, 2012].)
As noted above, before the CMS grants an organization’s
laboratory inspection program deemed status, the organi-
zation must show that the inspection criteria used are at
least as stringent as those of the CLIA program. Thus, the
basic focus of all accredited inspection programs is to en-
sure compliance with the CLIA standards. However, orga-
nizations that have deemed status use different approaches
to achieve that goal.
Centers for Medicare and Medicaid Services. Labora-
tories inspected under the CMS program experience an
outcome-oriented survey process. CMS inspections uti-
lize a quality assurance focus combined with an educa-
tional approach to assess and ensure compliance. (General
95
Table 5.12 Accrediting organizations with deemed status under
the CMSa
AABB (Formerly American Association of Blood Banks)
8101 Glenbrook Road
Bethesda, MD 20814-2749
Regulatory Affairs
(301) 215-6539
www.aabb.org or regulatory@aabb.org (accessed March 12, 2012)
American Osteopathic Association
142 East Ontario Street
Chicago, Illinois 60611-2864
(312) 202-8000
(800) 621-1773
www.osteopathic.org (accessed March 12, 2012)
American Society of Histocompatibility and Immunogenetics
15000 Commerce Parkway, Suite C
Mt. Laurel, New Jersey 08054
(856) 638-0428
www.ashi-hla.org (accessed March 12, 2012)
COLA (Formerly the Commission on Office Laboratory
Accreditation)
9881 Broken Land Parkway, Suite 200
Columbia, Maryland 21046-1195
(800) 981-9983
www.cola.org (accessed March 12, 2012)
College of American Pathologists
325 Waukegan Road
Northfield, Illinois 60093-2750
Laboratory Accreditation Program
847-832-7000
800-323-4040
www.cap.org (accessed March 12, 2012)
The Joint Commission
One Renaissance Boulevard
Oakbrook Terrace, Illinois 60181
(630) 792-5000
www.jointcommission.org (accessed March 12, 2012)
a
The Centers for Medicare and Medicaid Services maintains a current list of
accrediting organizations with deemed status at its website (www.cms.gov/clia, ac-
cessed February 1, 2012).
information about the CLIA program can be found on the
CMS website at http://www.cms.gov/clia [accessed Febru-
ary 1, 2012].)
The Joint Commission. Experienced in surveying laborato-
ries since 1979, The Joint Commission (TJC) gained deemed
status under CLIA ’88 in 1995. TJC surveys are conducted
by experienced medical technologists who provide consul-
tation on performance improvement throughout the survey
process. (TJC’s survey process is further explained on the or-
ganization’s website at http://www.jointcommission.org [ac-
cessed February 3, 2012].) The specific standards that apply
to transfusion medicine are discussed later in this chapter.
96 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
College of American Pathologists. The College of Ameri-
can Pathologists (CAP) laboratory inspection and ac-
creditation program encompasses all of the laboratory
disciplines. It provides the most comprehensive offerings
of any of the accrediting bodies. Conducted as a peer-
review process, inspections are performed by experienced
working professionals. The peer review process provides
the opportunity for laboratories to learn from both their
own inspection and from the experience of inspecting
other laboratories. CAP has deemed status with both CLIA
’88 and TJC. (Detailed information about the CAP inspec-
tion program is available on the CAP website at http://
www.cap.org [accessed February 1, 2012].)
AABB. Formerly the American Association of Blood
Banks, AABB has been developing voluntary compliance
standards for blood banking since 1957. AABB inspections
have deemed status under CLIA ’88. The inspections are
based on compliance with federal regulations and docu-
ments as well as AABB standards (http://www.aabb.org, ac-
cessed February 16, 2012). This will be discussed in more
detail later in this chapter.
COLA. Formerly known as the Commission of Office
Laboratory Accreditation, but now known by its acronym,
COLA is a nonprofit, physician-directed organization.
COLA was founded in 1988 to provide a private alterna-
tive for complying with CLIA ’88. Originally established
to inspect physician office laboratories (POLs), COLA’s ac-
creditation program now covers many types of laboratories
from POLs to community hospitals and industrial labora-
tories. COLA inspections are conducted in an educational
and friendly peer-review process. COLA has had deemed
status with CLIA ’88 since 1993 and with TJC since 1997.
(Laboratories interested in COLA accreditation can find
more information at the organization’s website at http://
www.cola.org [accessed February 1, 2012].)
American Society of Histocompatibility and Immuno-
genetics (ASHI). ASHI conducts a voluntary inspection
program encompassing over 200 histocompatibility labo-
ratories. ASHI’s laboratory accreditation program has been
evolving since 1976. Deemed status with CLIA ’88 was
granted in 1995, and with TJC and the states of Florida, Or-
egon, and Washington in 1997. ASHI’s accreditation pro-
gram evaluates facilities to ensure compliance with ASHI
standards. Laboratory procedures, staff, and facilities are
surveyed with an emphasis on education and assistance
with correcting deficiencies. (The ASHI website, http://
www.ashi-hla.org [accessed February 1, 2012], provides
more information about the ASHI accreditation process.)
American Osteopathic Association (AOA). The AOA has
deemed status under CLIA ’88 to accredit laboratories that
are in AOA-accredited hospitals. (Laboratories in hospitals
accredited by the AOA can find information about the lab-
oratory accreditation program at the association’s website at
http://www.osteopathic.org [accessed February 1, 2012].)
Foundation for the Accreditation of Cellular Therapy (FACT).
FACT, while not granted deemed status under CLIA ’88, does
set voluntary standards and accredit laboratories in the field
of cellular therapy. Previously known as the Foundation for
the Accreditation of Hematopoietic Cell Therapy, FACT is
a nonprofit corporation that establishes standards covering
all phases of cellular therapy. FACT accredits programs and
laboratories voluntarily meeting these standards. (Informa-
tion about FACT and its parent organization, the Interna-
tional Society for Cellular Therapy can be found at http://
www.celltherapy.org [accessed February 1, 2012].)
Laboratories exempt from CLIA ’88. The CLIA ’88 law
states that laboratories will be cited as out of compliance
unless they have a “current, unrevoked or unsuspended
certificate of waiver, registration certificate, certificate of
compliance, certificate for PPM procedures, or a certificate
of accreditation” or are CLIA exempt.
Laboratories falling under the exempt category include:
• Laboratories performing forensic testing only.
• Research laboratories testing human specimens but
not using patient-specific results in the diagnosis, pre-
vention, treatment, or assessment of disease or health
of individuals.
• Laboratories certified by the Substance Abuse and
Mental Health Services Administration (SAMHSA).
This exemption applies only to drug testing meeting
SAMHSA guidelines and regulation (all other testing is
subject to CLIA regulations).
• Federal laboratories under the jurisdiction of an agency
of the federal government are subject to CLIA regula-
tions unless the application is modified by the secretary.
• Laboratories licensed in states that have their own in-
spection programs that are exempt under CLIA. These
states have inspection programs that CLIA has deemed
at least as rigorous as a CLIA inspection. Washington
and New York are the only two states currently in this
category. (Information regarding laboratories exempt
from CLIA regulations may be found in 42 CFR 493.3,
which is available at http://www.cdc.gov/clia/regs/
subpart_a.aspx#493.3 [accessed February 1, 2012].)
Personnel Certification and Licensure
Certification is a voluntary program, usually administered
by a professional association or governmental agency,
recognizing an individual for having met predetermined
criteria as set by that organization (123). Certification
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 97

programs began as a voluntary method of demonstrat-
ing competence and enhancing competitiveness in the job
market. Current CLIA ’88 regulations emphasize specific
education and experience, rather than certification, for the
various levels of testing complexity. In general, the require-
ments of certifying organizations are more stringent than
those of the CLIA ’88 law (42).
Licensure is the process of a governmental authority
granting an individual legal permission to engage in a spe-
cific practice. Typically, licenses are granted after examina-
tion or proof of specific education. The public is protected
from incompetent practitioners by defining regulated
practices and making unlicensed practice illegal (123).
Personnel requirements under CLIA ’88. The personnel
regulations under CLIA ’88 do not rely on either certifi-
cation or licensure, although some states may require ei-
ther or both. The CLIA ’88 personnel requirements are
determined by the level of testing complexity. There are
no personnel requirements for waived testing. For PPMPs
and moderate- or high-complexity testing, CLIA ’88
personnel regulations define specific job titles and as-
sociated qualifications and responsibilities (Table 5.13).
The regulations spell out several ways an individual may
qualify for each of the job titles, with the qualifications
growing slightly more stringent as complexity increases.
Only laboratory directors are limited in the number of lab
affiliations. Each director may direct no more than five
laboratories.
Qualifications and responsibilities are delineated for
the laboratory director and testing personnel at each test-
ing level. For moderate-complexity certificates the titles of
technical consultant and clinical consultant are added. In
addition to the laboratory director and testing personnel,
high-complexity laboratories must also have a technical
supervisor, clinical consultant, and general supervisor.

Table 5.13 Summary of personnel responsibilities and qualifications under CLIA ’88a
Laboratories Performing Provider-Performed Microscopy Procedures (PPMP)
Lab director
Qualifications. Must be qualified to direct and manage the laboratory personnel and the performance of PPMPs; must either possess a current
license in the state in which the laboratory is located, as required, be a physician or a midlevel practitioner authorized to practice indepen-
dently as authorized by the state where the laboratory is located or a dentist.
Responsibilities. Overall operation and administration of the laboratory, including the prompt, accurate, and proficient reporting of test results.
Testing personnel
Qualifications. Must possess a current license in the state in which the laboratory is located, as required; must be a physician or a midlevel
practitioner authorized to practice independently as authorized by the state where the laboratory is located or a dentist.
Responsibilities. Specimen processing, test performance, and reporting test results.

Laboratories Performing Moderate-Complexity/High-Complexity Procedures

Lab director
Qualifications. Must either be qualified to direct and manage the laboratory personnel and the performance of PPMPs. Must possess a
current license as a laboratory director in the state in which the laboratory is located, as required; be a doctor of medicine or osteopathy
licensed to practice medicine or osteopathy in the state in which the laboratory is located, or have certification in anatomic or clinical pa-
thology or both.
Responsibilities. Overall operation and administration of the laboratory, including the employment of personnel who are competent to per-
form test procedures, and record and report test results promptly, accurately and proficiently and for assuring compliance with the applicable
regulations.
Technical consultant
Qualifications. Must be qualified by education or experience to provide technical consultation for each specialty and subspecialty of service
in which the laboratory performs moderate complexity tests. Must possess a current license in the state in which the laboratory is located, as
required; be a doctor of medicine or osteopathy licensed to practice medicine or osteopathy in the state in which the laboratory is located;
and have certification in anatomic or clinical pathology or both.
Responsibilities. Technical and scientific oversight of the laboratory. The technical consultant is not required to be onsite whenever testing is
performed but must be available to the laboratory on an as-needed basis.
Clinical consultant
Qualifications. Must be qualified to consult with and render opinions to the laboratory’s clients concerning the diagnosis, treatment, and
management of patient care; be a doctor of medicine, doctor of osteopathy, or doctor of podiatry and possess a license to practice medicine,
osteopathy, or podiatry in the state in which the laboratory is located.
Responsibilities. Provides consultation regarding the appropriateness of testing ordered and interpretation of test results.
Testing personnel
Qualifications. Must possess a current license in the state in which the laboratory is located, as required; be a doctor of medicine or doctor of
osteopathy, and possess a license to practice medicine or osteopathy in the state in which the laboratory is located or have earned a doctoral,
master’s, or bachelor’s degree in a chemical, physical, biological, or clinical laboratory science from an accredited institution.
Responsibilities. Specimen processing, test performance, and reporting test results.
a
All qualifications are a partial list. More details can be found at http://www.cdc.gov/clia/regs/subpart_m.aspx.
98 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Specialty boards. The CMS is tightening the qualification
for directors of high-complexity laboratories that hold a
doctoral degree. Until December 31, 2002, they were re-
quired to have two years of laboratory experience or train-
ing and two years’ experience directing or supervising
high-complexity testing. On December 31, 2002, the re-
quirement for certification by a specialty board was added.
Now, in addition to a doctoral degree in a chemical, physi-
cal, biological, or clinical laboratory science and two years’
experience, such individuals must also be board certified
(Table 5.14). This additional requirement does not apply
to laboratory directors who are already serving and who
prior to February 28, 1992, qualified under the state law
in which the laboratory is located, were previously quali-
fied, or could have qualified as a laboratory director under
the CLIA regulations published in March 14, 1990, or for
the subspecialty of oral pathology are certified by one of
several pathology boards. (More detailed information can
be found in 42 CFR 493.1443, which is available at http://
www.cdc.gov/clia [accessed February 1, 2012].)
National certifying organizations. Certification by a pro-
fessional agency is valued (and in many cases required)
by employers because it is a demonstration of basic
competence in the area of examination. There are sev-
eral options for certification as a laboratory professional.
The majority of graduates of programs accredited by the
National Accrediting Agency for Clinical Laboratory Sci-
ences choose to take a certification examination. Success-
ful completion of a certifying examination demonstrates
basic competency in laboratory science. Two national or-
ganizations offer the most widely recognized certifying
examinations. The exams to certify medical technolo-
gists and medical laboratory technicians that are offered
Table 5.14 CMS-approved certification boards, doctoral degree
clinical consultants, and directors of high-complexity testinga
American Board of Bioanalysis (ABB)
ABB public health microbiology certification
American Board of Clinical Chemistry (ABCC)
ABCC 24-month Commission on Accreditation in Clinical Chemis-
try (COMACC) accredited program
American Board of Forensic Toxicology (limited to individuals with a
doctoral degree)b
American Board of Histocompatibility and Immunogenetics
American Board of Medical Genetics
American Board of Medical Laboratory Immunology
American Board of Medical Microbiology
National Registry of Certified Chemists (limited to individuals with
a doctoral degree)b
a
The most current list of approved certification boards may be found at the
Centers for Medicare and Medicare Services website: https://www.cms.gov/
CLIA/16_Certification_Boards_Laboratory_Directors.asp#TopOfPage (accessed
February 1, 2012).
b
NRCC and ABFT will certify individuals who do not hold a doctoral degree;
all others require one.
by the American Society for Clinical Pathology (ASCP)
are most popular. Also offering certification, the National
Credentialing Agency for Laboratory Personnel (NCA)
administers exams for laboratory personnel but uses the
terms clinical laboratory scientist and clinical laboratory
technician (10).
The ASCP, an organization of pathologists and other
clinical laboratory personnel, was the first organization
to offer a certifying examination. Responding to a need
for programs that would allow documentation of the basic
competence of laboratory workers, the ASCP established
the Board of Registry in 1928 to certify nonphysician
laboratory personnel. Certification by the ASCP does not
require recertification or mandate continuing education.
The ASCP does, however, recognize the importance of
continuing documented competence. The ASCP Board of
Registry offers a voluntary program to recognize compe-
tence based on documentation of 60 hours of continuing
education, obtaining a higher level of certification (spe-
cialist or diplomate), or an onsite assessment completed
by a supervisor. The ASCP Board of Registry certifica-
tion program has expanded from its initial offering of the
medical technologist exam to its current offering of 21
different certifications (10).
In 1978 the NCA offered its first credentialing examina-
tions (10). A voluntary, not-for-profit organization, NCA
offers the “only peer-developed and peer-administered ex-
amination for medical laboratory personnel.” NCA’s web-
site (www.nca-info.org, accessed February 1, 2012), is an
excellent resource for information about NCA’s certifica-
tion programs. A major difference between certification by
ASCP’s Board of Registry and NCA is NCA’s emphasis on
continuing education. NCA requires 36 hours of continu-
ing education every three years to maintain certification.
Ten different certifications are currently available from
NCA (10).
Other organizations offering certification include the
American Medical Technologists (AMT) and the Ameri-
can Association of Bioanalysts (AAB). AMT offers cer-
tification in eight areas of practice. Individuals with an
appropriate bachelor’s degree and one year of laboratory
experience are eligible to sit for the medical technologist
certification exam. The AMT medical technologist certi-
fication may be awarded in some circumstances without
taking the examination. The AAB Board of Registry re-
quires the applicant to pass an examination that the AAB
deems acceptable and meet one of several education and/
or experience requirements. (Information about the AAB
certification process can be found at www.aab.org [ac-
cessed February 1, 2012].)
States requiring licensure/certification. While certifica-
tion demonstrates a basic level of competence that may
make it easier to get a job, ten states and one territory also
require that laboratory personnel obtain state licensure.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 99

Requirements for obtaining a state license vary by state Table 5.15 States and territories requiring licensure of laboratory
but usually include a licensing fee, documentation of cer- personnela
tification, some evidence of continuing education, and State or
demonstration of education and competency as defined territory Licensing entity
by the state. Most states accept certification from a rec- California Department of Public Health
ognized certifying organization. The exception is Cali- Laboratory Field Services
(510) 620-3800
fornia, which administers its own examinations and does
www.cdph.ca.gov/programs/LnC/pages/LnC.aspx
not recognize any certification or grant reciprocity for any
other state’s license. Requirements for state licensure may Florida Department of Health
change. The most current information is available at the Division of Medical Quality Assurance
American Society for Clinical Laboratory Science (AS- (850) 488-0595
www.doh.state.fl.us/mqa/ClinLab/index.html
CLS) website (www.ascls.org, accessed February 1, 2012)
(see Table 5.15). Hawaii Hawaii Department of Health
Some states and U.S. territories require that laboratories State Laboratory Division
operating in their borders, and in many cases performing (808) 453-6652
www.hawaii.gov/health/laboratories/laboratories
testing on samples from that state, obtain a license from
that state or territory. The Centers for Medicare and Med- Louisiana Clinical Laboratory Personnel Committee
icaid Services maintains a list of state and territory labo- Louisiana State Board of Medical Examiners
ratory licensure programs at www.cms.gov/clia (accessed (504) 5568-6820
www.legis.louisiana.gov/boards/board_members
February 25, 2012). However, because the number of states .asp?board=468
requiring laboratory licensure is fluid, an individual labo-
ratory is advised to contact the appropriate state survey Montana Montana Department of Commerce
agency for the most current information. Board of Clinical Lab Science Practitioners
(406) 841-2395 or 2369
www.cls.mt.gov
Regulations Affecting Transfusion Nevada Nevada Bureau of Licensure and Certification
Medicine (775) 786-0231
www.nvaccountancy.com/requirements.fx
Overview of Changes in Transfusion Medicine That
Have Resulted in Increased Scrutiny New York Office of the Professions
One of the defining moments in the modern history of Division of Professional Licensing Services
(518) 473-4501
transfusion medicine was the realization that HIV, the www.op.nysed.gov/opsearches.htm
virus that causes acquired immunodeficiency syndrome
(AIDS), can be transmitted by transfusion. With all eyes North Dakota North Dakota Department of Health
on transfusion safety, blood banking and transfusion Division of Microbiology
(701) 328-6272
medicine went through dramatic changes. Blood bank- www.ndhealth.gov/microlab/Default.aspx
ing evolved from a laboratory discipline into transfusion
medicine, focusing on patient care through clinical con- Puerto Rico Puerto Rico Medical Technology Board of Medi-
sultation, and then into a blood manufacturing industry cal Examiners
(809) 792-6400
(127). Blood donors, previously seen as the altruistic givers
www.ctmpr.com
of life, were increasingly seen as sources of infection and
risk (24). Rhode Island Rhode Island Department of Health
In 1991, hearings in the U.S. House of Representatives, Division of Health Services Regulation
chaired by John Dingell (D-MI), clearly expressed the lack (401) 222-2827
www.health.state.ri.us
of faith that our elected officials had in the safety of the
blood supply, echoing the sentiments of their constitu- Tennessee Tennessee State Licensure Board
encies. By referring to blood banking as an industry, an Department of Health
important paradigm had shifted (105). The generalized Tennessee Medical Laboratory Board
(615) 532-5128
concern was apparent when looking at the changes in www.tennessee.gov
blood usage that began in the 1980s: decreases in the use of
volunteer allogeneic blood, in the backdrop of an aging and West Virginia WV Office of Laboratory Science
sicker population, and more use of autologous blood and Department of HHS
(304) 558-3530
directed donor blood (11, 79, 101). www.wvdhhr.org
This climate served as a catalyst for a variety of changes, a
The American Society for Clinical Laboratory Science maintains a list of states
from purely medical to regulatory and legal. The lay pub- requiring licensure of laboratory personnel at www.ascls.org (accessed March 13,
lic, concerned about exposure to known and yet unknown 2012). Click “New Graduate Information.”
100 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
pathogens, sought ways to decrease their risk. The medi-
cal community responded by using pharmacologic al-
ternatives and blood salvage techniques (collecting and
reinfusing blood from the operative field) and by adopting
more conservative transfusion guidelines. On the produc-
tion side of the equation, more sensitive tests were added
to screen donor blood, more restrictive donor criteria
were applied, and more regulations were added to blood
banking to increase oversight and scrutiny (79). The com-
plex process of supplying blood to patients was also taking
place in a more litigious and cost-conscious environment
(101). With infectious complications on the decline, con-
cerns about adequacy are on the rise (6, 106). The public
seeks zero risk, and the industry strives to move closer to
that ideal.
Safety
HIV and hepatitis C virus. As a result of changes in blood
donor screening implemented in response to concerns
about transmissible disease, the United States’ blood
supply has never been safer. In 1993, to prepare for fu-
ture threats to the blood supply, The Institute of Medi-
cine established a committee to retrospectively study
the spread of HIV in the American blood supply. Their
report, published in 1995, and two reports published by
the United States General Accounting Office in 1997 ac-
knowledged the current high level of blood safety, while
recommending continued enhancements in specific man-
ufacturing practices and in FDA oversight (96, 133, 134).
(These reports are available at, respectively, http://books
.nap.edu/openbook.php?isbn=0309053293, http://www
.gao.gov/assets/230/223767.pdf, and http://www.gao.gov/
assets/160/155792.pdf [accessed February 16, 2012].) To
gain perspective into the great strides made in reducing
the risk of HIV in the blood supply, it is helpful to com-
pare the risk of acquiring HIV in the early 1980s to the
current risk. Using a mathematical model, Busch estimated
that the overall risk of posttransfusion HIV infection was
1.1% per transfused unit in San Francisco between 1978
and 1984, prior to implementation of HIV testing (34).
This is in contrast to the current risk of receiving a unit
infected with HIV that is negative for all markers (includ-
ing nucleic acid testing), which is approximately 1 in 1.47
million (143).
Despite all the attention paid to HIV, other pathogens
pose greater risks. While the risk of acquiring HIV through
transfusion had greatly diminished, the risk of hepatitis C
virus (HCV) transmission was actually two to four times
higher than HIV in 1996 (122). With the implementation of
nucleic acid testing, the risk of receiving a unit of blood from
a donor during the infectious window period has gone from
1 in 103,000 (122) to approximately 1 in 1.15 million (143).
With the reduction of risk of transfusion-transmitted
HIV and HCV, the risk of other pathogens, such as bacte-
rial contaminants, attracted attention. Platelets are stored
at room temperature and provide a fertile growth me-
dium for bacteria. Beginning with discussions in 2001 at
the Blood Products Advisory Committee meeting, the
FDA approved blood collection sets with pouches to di-
vert the first portion of the collection, which contains the
skin plug, the major source of contaminating skin flora. In
2002 the FDA cleared the BacT/ALERT culture system as
a quality control method, which was used to culture leuko-
reduced apheresis platelets. In 2003, in the 22nd edition of
the Standards for Blood Banks and Transfusion Services,
the AABB implemented Standard 5.1.5.1, which required
testing to limit and detect bacterial contamination in all
platelet units. Standard 5.6.2 proscribed the use of green
soap for cleansing of the venipuncture. In 2009, with the
26th edition of the standards, pathogen inactivation was
included as a method to meet the standard. Since glucose,
pH, swirling, and Gram stain did not have the same sensi-
tivity as culture, the AABB wrote association bulletins, and
with Standard 5.1.5.1.1 in the 27th edition, the require-
ment was revised to use detection methods that either are
FDA-approved or provide equivalent levels of sensitivity
to FDA-approved methods. The risk of bacterial contami-
nation leading to transfusion-associated sepsis has been
significantly reduced by these actions, but a residual risk
remains. Tests that can be done at the time of release of
platelets from the blood bank are currently available, and
their use continues to be evaluated (76; personal discus-
sions with Jarostav Vostal, FDA, on July 25, 2012, and Edu-
ardo Nunes, AABB, on July 30, 2012).
Infection with babesia, a parasite carried in ticks that
infects red blood cells, has also been increasing, as has
transmission via transfusion. Efforts are under way to
develop a test to screen blood donors, as the incidence of
babesia is increasing; it is considered to be the most impor-
tant blood-borne parasite to have an impact on transfusion
safety (76, 79).
Lookback. It is important to remember that both HIV
and HCV were present in the blood supply prior to the
availability of screening methods. In addition, early HCV
testing was neither sensitive nor specific (1). To address
the risk of window period transmission to blood recipients
transfused prior to testing, a variety of processes known
as lookback were initiated; this involves essentially looking
back at patients with risk of acquiring a pathogen through
transfusion. Targeted lookback, triggered when a blood
donor is found positive for HIV and/or HCV, is the pro-
cess of identifying and informing transfusion recipients
that they might have been exposed to an infectious agent
from individuals who previously donated blood during a
clinically serosilent window period; in other words, dona-
tions of an infected individual with disease are looked back
upon. The recipients can then be notified of their risk,
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
tested, counseled, and referred for proper medical care.
This can also prevent secondary transmission of disease,
which was especially important prior to testing (32).
Lookback programs have been fraught with limitations.
For lookback to be successful, it means that the recipient
has been found, has the disease, and was previously un-
aware of the infection. Targeted lookback requires that
high-risk individuals come back and donate again, so
recipients of the products donated prior to their serocon-
version can be alerted. By asking high-risk individuals
to refrain from donating, this trigger is removed. In fact,
through an education program aimed at high-risk individ-
uals, it was calculated that about 90% of infected donors
were either self-deferred or deferred during the donation
process in San Francisco, prior to implementation of HIV
screening. In contrast, only about 6% of transfusion re-
cipients were identified through early donor-targeted HIV
lookback programs in the same area (32). The logistics of
being able to effectively track a unit of donated blood to
the recipient is challenging in more mobile societies, mak-
ing the process of lookback inefficient (32, 78).
Despite these limitations, proponents of lookback argue
that it is the legal and ethical responsibility of the blood
banking community to provide transfusion recipients any
and all knowledge related to their health. In the backdrop
of previous concerns about blood safety, the public be-
lieves it is their right to have all relevant information. Fur-
thermore, this might renew the public’s trust in the blood
banking industry, by fully disclosing such information
(12). Table 5.16 summarizes the pros and cons of lookback.
In contrast to HCV lookback, HIV lookback was initi-
ated voluntarily as a means to trace infected donors back
to their blood recipients. In the heated climate of blood
safety concerns, it served as one of the few ways to do
something to stop the spread of disease in the early years
of the epidemic. By 1984 the general blood banking com-
munity endorsed the process, which began in earnest as
targeted lookback in 1986, the year following implemen-
tation of HIV screening. In high-risk metropolitan areas,
the process was expanded by using additional means, such
as reports from health departments, to trigger lookback.
In an attempt to find individuals at risk more rapidly, the
Table 5.16 Pros and cons of lookback
Pros Cons
Public health initiative Unnecessary anxiety for recipients
Inform people of their health Low yield
Change people’s lifestyle High-risk people must donate again
Bring to medical attention Record keeping dependent
Ethical and moral obligation Recipient died of underlying illness
to inform Disease not acquired by transfusion
Renew public’s trust
101
CDC recommended a broader alert to the public and med-
ical community known as universal or general lookback.
Through wide-ranged communication and a public health
campaign, transfusion recipients were advised to get tested
for HIV. Some hospitals in high-risk areas also sent out let-
ters directly to all transfusion recipients to alert them of
the risk (32).
Due to the low yield and high cost of HIV lookback,
there was a great deal of debate regarding HCV lookback
in the early 1990s, with the availability of the first serologic
assay. It was estimated that the yield might be even lower,
recognizing that HCV had been present in the general pop-
ulation for decades and in a larger proportion than HIV. In
addition, most people with HCV infection have less clini-
cally significant and serious disease at presentation than
those with HIV. The prevention of secondary infection was
not as of great concern, either, since sexual transmission
of HCV is not very effective (32). Implementation of HCV
lookback was ultimately deferred due to concerns that in-
forming blood recipients, without complete information or
treatment options, might do more harm than good (13, 32).
In January 1998, Donna E. Shalala, the Secretary of the
Department of Health and Human Services, endorsed the
August 1997 recommendations of the department’s Advi-
sory Committee on Blood Safety and Availability regard-
ing HCV lookback, performed on the basis of screening
tests performed since 1992 (EIA [enzyme immunoassay]
2.0 and 3.0). With more sensitive and specific testing for
HCV available at that time, a greater understanding of the
virus, and new treatment options, it was felt that the time
for HCV lookback was upon us (2, 71). The committee felt
that this intervention could improve the patient’s prognosis
by preventing further liver damage and disease progression
(12). HCV lookback was initiated in 1998 under guidance
from the FDA (71).
After 85.5% of the initial phase of lookback was com-
plete, the CDC reported that only 1.5% of recipients tar-
geted for notification found out about their HCV infections
in this manner; HCV lookback yielded poor results. It was
concluded that targeted lookback was of limited value and
that other means were necessary to identify the majority of
people with disease, primarily acquired due to life style, not
transfusion (58). Of interest, the yield in Quebec, Canada,
was reported to be only slightly better, at about 3% (98).
In 1998 and 1999 the Public Health Service’s (PHS)
Advisory Committee on Blood Safety and Availability re-
considered whether to expand testing to include the first
generation of HCV testing (EIA 1.0) that was performed
between 1990 and 1992. Despite the low yield, following
a series of public meetings, the PHS Advisory Commit-
tee endorsed the expansion of testing, and a proposed
rule was published in 2000. The final rule was published
in August 2007 in the Federal Register (67). Simultane-
ously, guidance was published to assist the industry in
102 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
determining how to comply with the new rule. In Decem-
ber 2007 the FDA issued updated guidance on hepatitis C,
“Lookback for hepatitis C virus (HCV): product quaran-
tine, consignee notification, further testing, product dis-
position, and notification of transfusion recipients based
on donor test results indication infection with HCV.” This
was updated in December 2010 (http://www.fda.gov/
downloads/BiologicsBloodVaccines/GuidanceCompliance
RegulatoryInformation/Guidances/UCM238488.pdf, ac-
cessed February 29, 2012) (73).
Precautionary principle. It is ideal to make decisions on
the basis of solid, scientific evidence. This evidence-based
approach has been used to make decisions on the health
of individuals. When there is a lack of evidence, proactive
decisions must be made to limit risks, since the true risks
are unknown. This is the basis of the precautionary prin-
ciple. The precautionary principle has been a part of policy
making in many arenas, such as the environment, but it
has also formed the foundation for many practices related
to blood and transfusion safety. The dictum to first, do no
harm is a hallmark of medical practice (94, 139).
The response to the knowledge that HIV was a
transfusion-transmitted disease was primarily evidence-
based. But without a real understanding of the threat and
the perceived risk, an evidence-based model did not pro-
tect the public health or lead to an effective public health
policy. Waiting for the definitive scientific evidence to
make a decision about risk, by using randomized con-
trolled trials, was not an option. In addition, this type of
study might put the population at risk, since the study
design is not appropriate for public policy decisions; such
studies are designed to look at statistical differences be-
tween different treatment arms, not the assessment of risk
(139). In addition, randomized controlled trials may not
be ethical; the subjects of one arm of the trial might be sub-
jected to a harmful intervention. As a result, public policy
decisions made in arenas where there are knowledge gaps
cannot rely upon the strict tenets of evidence-based data.
Unfortunately, using the precautionary principle is not
without its problems. Putting systems in place to prevent
risk of unknown proportions creates rigidity due to the en-
forcement of stringent requirements. Further, putting these
requirements into place is frequently expensive and may
not meet the criteria of cost-effective care; since the true
risk is unknown in these situations, interventions might
require unlimited resources and will not be feasible. An un-
foreseen consequence of the addition of more policies to
prevent risk is a reduction in the supply of blood products.
This has been seen with the introduction of deferrals for
variant Creutzfeld-Jakob Disease (vCJD), as discussed in
the next section (59). Finally, the reduction of risk for one
intervention might prohibit the ability to add additional
resources for a risk that is subsequently determined to be
more important than the original risk. With so many un-
knowns, it is hard to prioritize which policies need to be put
in place and which is the most cost-effective (139).
Increases in testing and screening leading to decreases in
supply. As mentioned earlier, there is increasing empha-
sis on regulatory compliance and safety. Due to height-
ened concerns, theoretical risks are being monitored and
proactively addressed, primarily using the precautionary
principle. The response to new vCJD is an example of how
the blood industry responded to an emerging pathogen
with possible transfusion transmissibility. In November
2002 FDA guidance required the deferral of all donors
who had been in the United Kingdom for three months
from 1980 to 1996 and Europe for five years from 1980
to the present (72). These policies were estimated to lead
to the deferral of approximately 5% of the current blood
donors (89). Beginning on September 17, 2001, the Ameri-
can Red Cross began deferring all donors who had been
in the United Kingdom for three months and Europe for
six months from 1980 to present, estimated to have re-
sulted in the deferral of 8% of donors at that time (8). New
York, a state that imported 25% of its red blood cells from
Europe, braced itself to face severe shortages (9, 128). Of
interest, an article from the Wall Street Journal in August
of 1999, entitled “Mad Regulatory Disease,” focused on
concerns about imposing new regulations on the ever-
diminishing blood supply without concrete evidence of
transmissibility (137). The balance between safeguarding
the blood supply from pathogens versus adequacy of sup-
ply is one of the ever-present themes as blood shortages
in the United States have become more common. Donors
are still deferred based on travel, family history, and the
possibility of exposure to central nervous tissue. There
have been four cases of transfusion-transmitted vCJD in
the UK (76).
Shift to a pharmaceutical manufacturing model. There has
been an evolution of stricter regulatory oversight of blood
manufacturing and blood banking. As background, in the
1960s and early 1970s, blood establishments were moni-
tored by the National Institutes of Health, as an arm of the
Public Health Service. Their focus was on public health and
research through a collegial relationship, not one of legal en-
forcement. It wasn’t until 1973 that the FDA announced that
all blood banks, including hospital transfusion services, were
required to register as drug manufacturers. The FDA began
writing new regulations specifically applicable to blood es-
tablishments. Regulations used by the FDA are published in
the Code of Federal Regulations (CFR) (101, 127).
In the mid to late 1980s, in response to the nightmare of
HIV, the public and elected officials raised concerns about
the processes and scrutiny being used to ensure a safe blood
supply (127). The FDA is charged with the responsibility to
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
monitor blood establishments and enforces regulations re-
lated to the production of blood and blood products. Dur-
ing this time it also garnered increased scrutiny. Whereas
the relationship between the FDA and the blood banking
community had been that of professional colleagues, it too
changed, since the FDA was also being criticized for its
role in the spread of HIV through the blood supply. As a
result, in the late 1980s and early 1990s, the FDA focused
on enforcement. Inspections were conducted annually,
and they were more thorough. The FDA began frequently
citing blood manufacturers for their lack of process con-
trol and for quality assurance deficiencies (102, 105, 127).
By 1992 the FDA’s direction was clear. Previously blood
products were governed by 21 CFR 600, which classifies
blood products as biologics, and 21 CFR 606, specifically
outlining good manufacturing practices for blood and
blood components. In addition, 21 CFR 210 and 211 were
also enforced. Regulations that had previously been re-
served for pharmaceutical manufacturers with details of
quality assurance requirements were then applied to blood
products. Blood was therefore classified as both a biologic
and a drug. Since the FDA was finding problems in the ar-
eas of process control and quality assurance, they felt that
applying current good manufacturing practices (CGMP)
from 21 CFR 210 and 211 would be the best way for blood
manufacturers to improve their operations. This was espe-
cially important since blood manufacturing had become
increasingly complex with the addition of new tests, com-
puterization, and automated operations (46, 50–52, 105).
Pharmaceutical manufacturing facilities have been
adhering to CGMP in compliance with 21 CFR 210 and
211. The most important aspect of CGMP is process con-
trol, which results from strict and consistent adherence to
standard operating procedures (SOPs). The elements of
CGMP ensure that products are made the same way, every
time, resulting in a safe, pure, potent, efficacious product
(46, 52). A quality assurance (QA) function is defined as
being outside of technical operations, reporting indepen-
dently and directly to management. This gives QA staff the
ability and authority to report serious infractions outside
of the operational chain of command and to shut down
production and/or product release when deemed neces-
sary (70). The QA group must make sure that personnel
follow CGMP. The QA group monitors all aspects of SOP
development, training and education, competency and
proficiency training, validation, audits, error and accident
reporting (as discussed in greater detail later), and product
release. The QA group audits manufacturing operations
and defines critical control points (3, 70, 105, 121).
Manufacturers also have product specifications with
manufacturing pathways that identify and clearly define
the critical steps, or critical control points, of the pro-
cess. Documentation is an essential part of CGMP, so
each step of the process can be re-created, as necessary.
103
An individual designated the responsible head is identi-
fied. This individual is responsible for ensuring compli-
ance with the CFR and enforcing discipline and proper
performance of all individuals engaged in manufacturing.
The responsible head must understand the principles and
techniques of the manufacturing process and serve as the
establishment’s representative to the FDA (105).
By adopting CGMP, many pharmaceutical manufactur-
ers have been able to perform complex operations while
providing safe, pure, potent, and efficacious products. It
was theorized that using these same principles for blood
manufacturing should produce the same results. It is es-
sential to have control of the manufacturing process to
provide the highest-quality, safest blood products (24, 102,
105, 121).
Defining blood manufacturing as equivalent to phar-
maceutical manufacturing was not straightforward and
consequently met with resistance (24, 102, 105, 127). The
most apparent incongruity was trying to apply the regu-
lations that outline requirements for product release of
manufactured goods. Usually in a pharmaceutical op-
eration, these relate to groupings of goods coming off a
production line. In blood manufacturing, since the source
material is an individual blood donor, the same processes
are hard to apply. Since each unit of blood comes from a
different donor, they aren’t uniform and cannot be “man-
ufactured” in a consistent process each time (127). There
was also concern that by placing so much emphasis on
conformity and process control, other important aspects
of transfusion medicine would be overlooked. Instead of
spending time working on new and innovative therapies,
practitioners would be sidelined into regulatory concerns,
leading to stagnation (105).
Despite these concerns, the paradigm shift described
above has become the culture of blood banking and trans-
fusion medicine. Blood banks and transfusion services
must comply with the rules of a variety of regulatory orga-
nizations and can also undergo inspections to earn volun-
tary accreditation. This not only ensures compliance with
legal requirements, but also demonstrates the laboratory
and transfusion services’ dedication to the highest stan-
dards of quality and safety.
Regulatory Organizations that Specifically Impact
Transfusion Medicine
AABB. The AABB was established in 1947. It is an in-
ternational, not-for-profit association that represents
individuals and institutions involved in the field of trans-
fusion medicine and cellular therapies. The AABB states
that its mission is to “advance the practice and standards
of transfusion medicine and cellular therapies to optimize
patient and donor care and safety.” The AABB’s member-
ship consists of about 2,000 institutions (community and
hospital blood banks, hospital transfusion services, and
104 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
laboratories) and about 8,000 individuals comprising phy-
sicians, scientists, administrators, medical technologists,
blood donor recruiters, and public relations personnel.
AABB members are located in more than 80 countries.
The organization supports voluntary donation of blood
and tissue and supports high standards of medical, techni-
cal, and administrative performance, scientific investiga-
tion, clinical application, and education. The committees
and board of directors are comprised of volunteer mem-
bers, as described on the Association’s website (www.aabb
.org, accessed January 30, 2012).
The AABB publishes the “Standards for Blood Banks and
Transfusion Services,” which is updated every 18 months.
The standards are written by experts in blood banking and
transfusion medicine and are consistent with FDA regula-
tions. The AABB maintains a voluntary accreditation pro-
gram, based on its standards, with voluntary compliance
activities that began in 1957. The first edition of “Standards
for Human Progenitor Cells” was published in 1996. The
“Standards for Cellular Therapy Product Services” is now
in its fifth edition.
The AABB accreditation program uses trained peer-
assessors to perform the inspection to verify a facility’s
compliance with their standards, the Code of Federal
Regulations (CFR), and other federal regulations. The
AABB’s program has deemed status for Clinical Labora-
tory Improvement Amendments of 1988 (CLIA ’88) and
has also been accredited by the International Society for
Quality in Healthcare. In addition, the AABB conducts
proficiency testing programs in coordination with the Col-
lege of American Pathologists (CAP), provides a variety of
educational venues, and publishes textbooks as well as the
journal Transfusion. Additional information about these
programs is available at www.aabb.org (accessed January
30, 2012).
The AABB standards require that blood banks and
transfusion services establish and maintain a quality sys-
tem (35). The responsibility for the supervision of the
quality management system must be given to a specific
individual who reports to upper-level management. The
program must contain necessary essential elements as
listed in Table 5.17. Full implementation of a quality pro-
gram was required of all AABB-accredited facilities by
January 1, 1998. The focus of full implementation was to
change the approach from one of detection of errors to one
of prevention of errors, in accordance with requirements
put forth by the FDA in 1995. The essentials required were
consistent with both the AABB Quality Program and the
FDA’s quality assurance requirements (3, 70). Unlike the
FDA’s 1995 requirements, the AABB required transfu-
sion service members, not just manufacturers of blood
and blood components, to develop their own quality pro-
grams. It’s also interesting to note that the AABB volun-
tary standards were written in 1957, 18 years before the
FDA published the federal CGMP for blood and blood
components. Also, some parts of the CFR refer to AABB
standards (121).
The Food and Drug Administration. In stark contrast to
the role of the AABB, the FDA has enforcement power
over blood establishments. It is an agency of the Depart-
ment of Health and Human Services and has been a part
of it since 1979. The FDA is authorized by Congress to
enforce the Federal Food, Drug, and Cosmetic Act. Ac-
cording to its website, the FDA is “responsible for protect-
ing the public health by assuring the safety, efficacy and
security of human and veterinary drugs, biological prod-
ucts, medical devices, our nation’s food supply, cosmetics,
and products that emit radiation. FDA is also responsible
for advancing the public health by helping to speed in-
novations that make medicines more effective, safer, and
more affordable and by helping the public get the accurate,
science-based information they need to use medicines and
foods to maintain and improve their health” (www.fda.gov,
accessed January 10, 2012).
The Center for Biologics Evaluation and Research (CBER)
is a center of the FDA that regulates biological products
including blood, vaccines, therapeutics, and related drugs
and devices. As such, the CBER can be viewed as the “blood
arm” of the FDA, with the role to ensure compliance with
laws and regulations through review, education, surveil-
lance, and enforcement. The CBER regulates biological
products under the authority of the Public Health Service
Act and specific sections of the Food, Drug, and Cos-
metic Act. The safety of the nation’s entire blood supply
and the products derived from it fall into the realm of the
CBER’s responsibility (http://www.fda.gov/BiologicsBlood
Vaccines/default.htm, accessed January 10, 2012).
As an example of the FDA’s regulatory posture, in the
late 1980s, the FDA expressed concern over the Ameri-
can Red Cross’ (ARC) lack of regulatory compliance. In
1988 the ARC entered into a consent agreement with
the FDA, promising that they would take steps toward
tightening their operations (101, 105). Other blood col-
lection facilities were also under increased scrutiny, but
the ARC, representing 45% of the nation’s blood supply,
was by far the largest (101). The FDA issued additional
warnings to the ARC, and the ARC began a major reorga-
nization, separating blood services from the rest of their
operations. This reorganization began a transformation,
focusing on enhancing their computer system, revamp-
ing their training programs, and revising standard op-
erating procedures (SOPs) to create both national and
local-level compliance with current good manufacturing
practices (CGMP). The ARC named a responsible head
and worked on a quality assurance program. The Coun-
cil of Community Blood Centers members (now called
America’s Blood Centers), representing a large number of
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 105

Table 5.17 Essential components of a quality management systema

Organization and leadership
Provide the leadership to establish a quality plan and create the structure.
Define specific responsibilities, including who has authority.
Provide the resources to design and implement processes and procedures.
Enforce adherence.
Customer focus
Serve the needs of the customer.
Work with customers to ensure that their needs are met.
Obtain feedback from the customers and assure them that you are meeting their expectations.
Facilities, work environment, and safety
Follow procedures and controls to provide a safe facility and environment.
Comply with regulations including the provision of adequate ventilation, hand-washing facilities, sanitation, etc.
Human resources
Use processes to hire qualified personnel.
Follow policies and procedures for orientation, training, and competency assessment, in accordance with FDA regulations.
Equipment management
Have plans to install and verify the operation of new equipment that will be installed.
Institute a system to uniquely identify and track all critical equipment.
Suppliers and materials management
Qualify suppliers of critical materials.
Maintain a list of approved suppliers.
Contracts and agreements should be periodically reviewed, with changes agreed upon by both parties.
Process management
Follow policies for all critical functions.
Design a mechanism to ensure that equipment and processes are working as defined after implementation, including quality control.
Follow systematic approaches for all aspects for implementing new processes and for changing existing processes.
Use validations for test methods, equipment, and computer systems.
Documents and records
Documents provide the structure of the organization.
Records serve as evidence of processes and procedures.
Documents and records are important since they serve as evidence of processes and procedures; these are used by inspectors.
Procedures, forms, and labels are examples of types of documents and records.
Information management
Privacy and confidentiality must be ensured.
Policies should delineate who should be granted access to different types of information and how to prevent unauthorized access.
Ensure that data are available, maintained, retrievable, and usable.
Provide backup and redundancy of key data.
Management of nonconforming events
Detect events.
Investigate events, including root cause analysis when indicated.
Address events and implementation of corrective action.
Evaluate the effectiveness of corrective actions.
Require reporting to regulatory agencies.
Monitoring and assessment
Monitor and assess processes.
Make internal and external assessments.
Establish quality indicators for evaluation.
Assess the facility’s blood transfusion practices.
Process improvement
Maintain continuous improvement as a means to ensure patient safety and quality.
Identify problems and their causes using root cause analysis and other tools.
Find solutions and assess their effectiveness.
a
See reference 35.

independent blood centers, also worked on meeting full
regulatory compliance (105).
Despite progress, the FDA still felt the ARC was not
meeting the full extent of the law. On May 12, 1993, the
FDA applied increasing pressure, invoking a consent
degree on the ARC. A consent decree is a formal, bind-
ing, enforceable court order requiring full compliance. If
violated, a party can be found guilty of contempt of court.
The consent decree cited deficiencies in quality assurance,
training, computer and database review, record review,
106 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
record management, error and accident investigation,
adverse transfusion reaction investigation, transfusion-
transmitted disease investigations, and lookback proce-
dures. It also required that the ARC implement an internal
audit system. While the FDA has stated that the ARC is
making progress, there have been setbacks, and it remains
under the consent decree. To date, the FDA has imposed
more than approximately $21 million in fines (7; http://
www.redcross.org/www-files/Documents/Governance/
QualityRegulatoryComplianceCharter.pdf, accessed July
2, 2012).
The Joint Commission (TJC). TJC (formerly the Joint
Commission on Accreditation of Healthcare Organiza-
tions [JCAHO]) is an independent, not-for-profit organi-
zation, formed in 1951, that sets standards for healthcare
facilities. TJC evaluates and accredits nearly 19,000 health-
care organizations and programs in the United States. Its
mission is “to continuously improve healthcare for the
public, in collaboration with other stakeholders, by evalu-
ating healthcare organizations and inspiring them to excel
in providing safe and effective care of the highest quality
and value.” An organization must be inspected every three
years to maintain accreditation; laboratories are inspected
at two-year intervals, to maintain compliance with CLIA
’88. TJC states that their accreditation and certification “is
recognized nationwide as a symbol of quality that reflects
an organization’s commitment to meeting certain perfor-
mance standards” (http://www.jointcommission.org, ac-
cessed February 29, 2012).
During its inspections, TJC uses “laboratory tracers”:
The inspector follows a laboratory test and evaluates the
performance of all of the associated processes. They are
specifically looking at the integration and coordination
of distinct, yet interrelated processes. This allows assess-
ment of how the different departments and programs work
together, thereby identifying strengths and weaknesses in
each process. As an example, TJC describes tracing a unit
of blood to a patient who then experiences a transfusion
reaction. By using the tracer methodology, the inspec-
tor can observe diverse aspects of the organization such
as the laboratory’s standard operating procedures and as-
sessment of training records of personnel and can evaluate
other laboratories or services that would be involved in fur-
ther evaluation and treatment of the transfusion reaction
(http://www.jointcommission.org/tracer_methodology
_101/, accessed February 29, 2012).
Most of the blood and blood products requirements
are covered in standards that have a broader context. Each
standard lists elements of performance. For example,
National Patient Safety Goal Standard NPSG.01.01.01
requires at least two patient identifiers when providing
care, treatment, or services (90). The first element of per-
formance describes the need for patient identifiers when
administering blood or blood components and when col-
lecting blood samples and specimens that will be used for
clinical testing. The second element requires that con-
tainers used for blood be labeled in the presence of the
patient. Provision of Care Standard PC.02.01.07 specifi-
cally relates to blood and blood component administra-
tion. It requires that the organization safely administer
blood and blood components (91). Medical Staff Stan-
dard MS.05.01.01 relates to the medical staff ’s leadership
in performance improvement activities. Element of Per-
formance 5 addresses the need to measure, assess, and im-
prove the use of blood and blood components (90, 92). To
comply with this standard, peer review of blood and blood
product usage is usually accomplished through a hospital
transfusion committee that monitors the use of blood and
blood products against institutional guidelines. Require-
ments for informed consent are also addressed by Joint
Commission Standards, available at http://www.joint
commission.org and https://e-dition.jcrinc.com/Frame
.aspx (accessed January 9, 2012).
International oversight through the World Health Or-
ganization (WHO). The international community has
recognized the need for a standardized approach for the
regulation of blood and products. The WHO’s World
Health Assembly passed a resolution establishing the
need for coordinated blood systems that would be sup-
ported and managed at a national level. In 2006 the
WHO established the Blood Regulators Network to cre-
ate a group of international peers who could exchange in-
formation on aspects of blood-related issues, such as new
technologies and emerging threats, as well as to establish
regulatory collaboration and cooperation. The group is
examining standardized criteria for national regulatory
agencies. Since some blood products are shipped interna-
tionally, coordination and minimal standards are neces-
sary. Regulatory agencies must exist to ensure compliance
with national legislation and to ensure the availability of
safe blood products in an organized manner. This body
believes that international standards will ensure basic
and minimum levels of uniformity, standardization, and
quality in each country. They are interested in improv-
ing and standardizing the method of decision making for
blood safety and evaluation, using scientific data as well
as feasibility, social effects, and economics as some of the
factors required in the development of sound policy. The
organization has also looked at the challenges of decision
making when there is scientific uncertainty, especially
the importance of the precautionary principle, which
is discussed above. It is noted that the establishment of
regulations must ensure safety and availability but must
also ensure that rules do not impose unnecessary harm:
When new regulations are enforced, the risks of reduced
blood availability must be weighed (62, 63).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Biological Product Deviation Reporting
In the manufacturing facility and transfusion service.
Through current CGMP the FDA requires all licensed
manufacturers of biological products to report errors and
accidents affecting the safety, purity, or potency (SPP) of a
product to the FDA. On May 7, 2001, the FDA added 21
CFR 606.171 to extend this requirement to unlicensed reg-
istered establishments and transfusion services. Two other
regulations, 21 CFR 606.171 and 21 CFR 600.14, changed the
terminology of errors and accidents to biological product de-
viations (http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/
cfcfr/CFRSearch.cfm?fr=600.14; http://www.accessdata.fda
.gov/scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=606.171,
accessed March 3, 2012).
In 2004, through 21 CFR 1271/350(b), these require-
ments were extended to include reporting certain devia-
tions in manufacturing of human cells, tissue, and cellular
and tissue-based products (http://www.accessdata.fda.gov/
scripts/cdrh/cfdocs/cfcfr/CFRSearch.cfm?fr=1271.350,
accessed March 1, 2012).
When a deviation occurs, any blood establishment that
has control of a blood product must report the deviation
to the FDA within 45 days if the deviation affects the SPP
of a distributed product. Distributed products are those
that have left the control of the blood establishment. For
example, when a courier comes to pick up a product, and
a deviation affecting SPP is discovered before the courier
leaves the area but after the product has been released to
the courier, this becomes an FDA reportable occurrence.
Control is defined as having responsibility of maintaining
a product’s continued SPP and compliance with applicable
product and establishment standards and CGMP require-
ments. The events must also represent either a deviation
from CGMP, applicable regulations, applicable standards,
or established specifications or be unforeseen or unex-
pected occurrences (50, 51, 53, 54). In 2006 the FDA issued
final guidance, Guidance for Industry: Biological Product
Deviation Reporting for Blood and Plasma Establishments
(http://www.fda.gov/downloads/BiologicsBloodVaccines/
GuidanceComplianceRegulatoryInformation/Guidances/
Blood/UCM062918.pdf, accessed February 29, 2012).
The document also clarifies the earlier draft guidance.
(The FDA’s most recent guidance is available at http://
www.fda.gov/BiologicsBloodVaccines/SafetyAvailability/
ReportaProblem/BiologicalProductDeviations/default
.htm [accessed January 1, 2012].)
These documents highlight the inclusion of the trans-
fusion service as a part of the manufacturing process of
blood, having responsibility for compatibility testing, pro-
cessing, packing, labeling, and final distribution of the
product (60). When deviations meeting the requirements
for reporting are discovered, a biological product devia-
tion report (BPDR), form FDA-3486, must be completed
and emailed or faxed (http://www.fda.gov/BiologicsBlood
107
Vaccines/SafetyAvailability/ReportaProblem/Biological
ProductDeviations/default.htm, accessed January 10, 2012).
The form can be found at http://www.fda.gov/downloads/
AboutFDA/ReportsManualsForms/Forms/UCM061463
.pdf (accessed January 10, 2012). As part of the reporting
process, the initiator assigns a code to characterize the de-
viation so it can be tracked and trended.
Processing a biological product deviation. For deviations
that occur before the product has left control of the blood
establishment, the FDA does not need to be informed,
but the transfusion service must investigate the deviation.
These reports are subject to review during an inspection.
The FDA expects a thorough investigation of the cause. To
have a standardized process, institutional SOPs need to be
written for this activity. The process should include the
mode of documentation of the occurrence, how the cause
of the occurrence is investigated, who has responsibility
for each step of the process, and how the information is
used to prevent future occurrences of the same problem.
The steps of the process are summarized in Table 5.18.
An algorithm for evaluating each deviation, developed
by the FDA, is presented in Figure 5.1 (http://www.fda
.gov/downloads/BiologicsBloodVaccines/Guidance
ComplianceRegulatoryInformation/Guidances/Blood/
UCM062918.pdf, accessed February 29, 2012). The pro-
cess of root cause analysis can be used to determine the
true underlying, or root, cause of the deviation, not neces-
sarily the most obvious cause. During root cause analysis
a group of people delve into the occurrence in a prede-
termined fashion by asking sequential questions or using
standard diagram techniques. The intent of tracking de-
viations is to improve quality, improve patient outcomes,
and prevent future deviations (108). The best way to de-
tect deviations is to encourage employees to report such
occurrences in a non-punitive environment. These prin-
ciples have been successfully applied outside of medicine;
the most well-known arena is the aviation industry. By not
just identifying errors, but by gaining an understanding
of their myriad causes, a true opportunity for process im-
provement is captured (22).
Table 5.18 Steps in processing biological product deviations
Identify deviation; if reportable, must report within 45 days.
Document deviation.
Take immediate corrective action.
Investigate deviation (may involve root cause analysis).
Track deviations.
Look for trends in deviations.
Implement corrective action.
Monitor for effectiveness of corrective action.
Oversee quality assurance.
108 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Was the event

associated with NO No Action

“manufacturing ”?

YES

Was there a Was there an

deviation that might NO unexpected event NO Record per FDA
affect the safety, that might affect the safety, guidance
purity, or potency of purity, or potency of
a product? a product?

Investigate per
YES FDA guidance

Did it occur in Did it occur

your facility? NO at a facility NO Notify
under contract responsible
with you? party

YES

Did you have

control over the product NO Notify the manufacturer
when the deviation who had control over
occurred? the product

YES

Was the
NO Record per FDA
product guidance
distributed?

YES Investigate per FDA

guidance

Evaluate the need for Record and Submit report

product retrieval or investigate per FDA guidance to CBER per
consignee notification FDA guidance
per FDA guidance

Figure 5.1 Flow diagram for management of deviations in accordance with Food and Drug Ad-
ministration requirements. doi:10.1128/9781555817282.ch5.f1
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
The FDA publishes summary reports and the most
frequent BPDRs submitted for different types of estab-
lishments and services. These reports can help organi-
zations see common pitfalls and can also serve as a tool
for benchmarking (http://www.fda.gov/BiologicsBlood
Vaccines/SafetyAvailability/ReportaProblem/Biological
ProductDeviations/ucm240904.htm, accessed February
29, 2012).
The Cost of Increasing Regulatory Oversight
Implementation of safety initiatives in conjunction with
regulatory requirements is a costly endeavor. Data on
the costs incurred by meeting regulatory compliance are
scarce. In this era of cost containment, many employees
are asked to add new tasks to their current workload. The
true allocation of their time for compliance functions is
hard to capture, since it is “fit” into the rest of their respon-
sibilities. Adding new personnel for compliance functions
is more straightforward.
One of the few studies looking at the staff costs associ-
ated with implementing a compliance program was per-
formed at a community blood center between 1989 and
1994 (124). To maintain compliance and keep the orga-
nization on track, the blood center initially hired some-
one with the sole responsibility of compliance officer.
With time, it was necessary to create a separate compli-
ance department. In addition, department heads and
other employees within the operational structure devoted
increasing time and energy to the effort. A list of activities
that comprise “compliance” appears in Table 5.19. During
this period, the number of full-time equivalents dedicated
to compliance rose from 7 to 24, with compensation costs
rising from $367,000 to $1,298,900. These data focus on
personnel costs, but there were additional costs associated
with the raw materials necessary for the program. Meni-
tove estimated that on a yearly basis, training in itself might
actually occupy about 10% of an employee’s time (102).
Of course, there is no alternative to maintaining regula-
tory compliance. In fact, with the goal of compliance being
the maintenance of CGMP, the consequences of poor qual-
ity can be quite onerous and costly, from the patient care
perspective as well as the blood center/transfusion service
perspective. The cost of recalling and withdrawing blood
products can incur additional expense (21). It is unknown
whether or not increasing regulatory compliance leads to
an increasingly safe transfusion (120).
Specific programs aimed at blood safety, as well as their
regulatory components, are also cited as increasing the cost
of transfusion. As blood gets safer, attempts to further de-
crease the risks of pathogen transmission come at a higher
cost per infection saved (33, 106, 120). In 1999 nucleic acid
amplification technology was introduced to donor blood
screening under an experimental protocol. Testing is done
109
Table 5.19 Typical compliance functions within
blood centers and transfusion medicine services
Competency assessment
Documentation of all operational activities
Error and accident reporting
Implementation of new regulatory requirements
Inspections
Preparation
Hosting
Internal audits
Lookback
Validation
Standard operating procedures
Standardizing
Writing
Regular review
Quality control and its documentation
Training: performance and documentation
Regulatory training
CGMP training
Task training
Competency assessment
on samples that are pools of individual donor samples.
However, looking at quality-adjusted life year (QALY) in
the mid to late 1990s, expenditures for testing individual
donations (in contrast to the current pooled testing) by nu-
cleic acid amplification technology were estimated to cost
about $2 million per QALY gained, far exceeding the usu-
ally acceptable levels of $50,000 per QALY for most other
healthcare initiatives (23, 80, 106). Aggregating the costs of
administrative changes across the industry from 1980 to
1997, one author estimated that an additional $226 million
was spent per year to maintain regulatory compliance. It
was also felt that the requirement to be inspected by mul-
tiple organizations contributed to increased expenditures
(25). In addition, the precautionary principle has an impact
on cost as new safeguards are added to the blood industry.
Regulation of Laboratory
Business Practices
The federal government’s Medicare and Medicaid pro-
gram is administered by the Centers for Medicare and
Medicaid Services, a division of the Department of Health
and Human Services. Medicare is the single largest payor
for healthcare services. The CMS maintains the Uniform
Bill (UB-92), institutional and professional electronic
medical chart format specifications, and other specifica-
tions for various certifications and authorizations used
by the Medicare and Medicaid programs. The CMS also
maintains the Healthcare Common Procedural Coding
System (HCPCS) medical code set and the Medicare Re-
mittance Advice Remark Codes administrative code set.
110 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Negotiated Rule-Making Process
Negotiated rule making describes the process of federal
agency representatives and other special interest groups
convening to negotiate the text of a proposed rule. A com-
mittee, with members from each participating group, de-
velops the language for any proposed regulation before it
appears in the Federal Register for comment. Congress has
passed three generations of regulatory legislation to offer
guidance to healthcare providers:
• The Model Compliance Plan in 1984
• The Model Compliance Plan for Clinical Laboratories
in July 1997 (available at http://oig.hhs.gov/authorities/
docs/cpglab.pdf, accessed September 5, 2012)
• The Model Compliance Plan for Hospitals in February
1998
• Model Compliance Plan to Extend Deadline for Com-
pliance with Electronic Transactions Rule March 2002
(http://aspe.hhs.gov/admnsimp/PRelease.htm, ac-
cessed April 4, 2012)
Copies of the programs are available through professional
associations and are published in the United States Code
and the Federal Register.
Corporate Compliance
Corporate compliance has evolved over the last four de-
cades. Starting as a movement to curtail price fixing and
other antitrust violations, it has developed into a quest to
solve the national healthcare debt created by fraud and
abuse. The Office of the Inspector General (OIG) developed
the first Model Compliance Plan (MCP) after the Reform
Act of 1984 was enacted. In February 1998 the Compliance
Program for Hospitals (MCPH) was released and included
essentially the same elements as the MCP for Clinical Labo-
ratories in 1997. The Model Compliance Plans for Clinical
Laboratories and Hospitals are a set of guidelines used to
evaluate past behavior and implement policies and proce-
dure for future compliance. The government recognizes
that it cannot discover and eliminate every instance of fraud
and abuse in healthcare. The intent is for healthcare orga-
nizations, laboratories, and providers to police themselves
through self-regulation, self-auditing, and self-reporting
and to proactively practice prevention. Compliance is an
enterprise-wide attitude, culture, and commitment that sup-
ports honesty, integrity, and diligence in the workplace.
Key Elements of a Model Compliance Plan
for Hospitals
The Compliance Program Guidance for Hospitals devel-
oped by the OIG suggests that the following key elements
be addressed in the compliance plan (64).
• The chief compliance officer is typically a high-level in-
dividual in the organization who is authorized to
develop, oversee, administer, and monitor any neces-
sary regulatory compliance policies and committees.
This individual generally reports directly to the chief
executive officer.
• Other appropriate bodies like the compliance commit-
tee consist of representatives from operations, finance,
audit, human resources, utilization review, social work,
discharge planning, medicine, coding, and legal. Key
managers from areas like laboratory and radiology
should serve on the compliance committee.
• The compliance office must have authority to re-
view documents and information that relate to com-
pliance issues.
• Employee ethics guidelines and standards of conduct.
Human resource policies should include expected
behaviors and standards of conduct related to regula-
tions and guidelines for federally funded programs,
fraud, and abuse. A mission statement that defines the
organization’s core values and commitment is essential.
Hospitals are charged with developing and distributing
written policies that identify areas of risk to the hospi-
tal and include:
• Written standards of conduct for employees
• Development of policies addressing areas of risk to
regulatory exposure
• Claim development and submission
• Medical necessity demonstrated by the provider and
certified on the claim form
• Avoidance of anti-kickback and self-referral viola-
tions created when referrals are made to designated
health services in which the physician or an imme-
diate family member may have a financial interest
• Bad debts
• Credit balances that occur when hospitals fail to
refund overpayments by Medicare
• Record retention for matters related to compliance
(governed by CLIA ’88)
• Education and training programs. All personnel
should be required to attend ethics education and
standards of conduct training initially. New em-
ployees and existing staff must sign a certifying
statement following compliance training that indi-
cates thorough understanding of the standards. The
compliance office generally maintains these records.
Thereafter, managers, supervisors, and employees
who interact regularly should receive annual retrain-
ing. Annual performance evaluations should include
a monitor for measuring adherence with distinct
guidelines for disciplinary actions, including termina-
tion when indicated.
• Compliance communication. The compliance officer
should design a program that ensures each employee’s
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
anonymity and guarantees that the lines of commu-
nication are open 24 hours per day, 7 days per week,
without fear of reprisal for any effort to identify or
report compliance policy violations or problems. Hos-
pitals should also post in a prominent area the HHS-
OIG Hotline telephone number: 1-800-HHS-TIPS
(447-8477). Institutions should maintain an anony-
mous hotline and document all incoming calls in a
log. Compliance programs should strictly prohibit the
use of termination, demotion, and disciplinary action
against employees who report suspected violations.
• Quality monitors and audits. An ongoing evaluation
process is an essential element of a successful compli-
ance program. Regular, periodic, and random inspec-
tions by internal and external auditors should review
a random sampling to detect significant variation or
deviation from a baseline in each of the areas of risk
to exposure as cited above under “Employee Ethics
Guidelines and Standards of Conduct.” The monitor
should include any reserves the hospital may have
established for payments that it may owe to Medicare,
Medicaid, TRICARE, and other federally funded
programs.
• Disclosure. Development of a system to respond to al-
legations of improper activities. Whenever the compli-
ance office becomes aware of any potential employee
misconduct or an incorrect claim submission result-
ing in an erroneous overpayment, it is imperative
that a prompt investigation be conducted, in order to
make a decision to disclose the misconduct within the
60 days reasonable reporting period allowed by the
government. Prompt voluntary unsolicited repayment
within 30 days of the finding will eliminate potential
exposure to possible fraud and abuse allegations.
Repayment is the remedy when the government over-
payment is the result of a one-time billing error. If an
investigation uncovers a systematic billing problem,
the office should consult an attorney and consider
self-disclosure.
• Develop policies to investigate and eliminate system-
atic problems, including the retention of sanctioned
individuals.
Model compliance plan for laboratories. Both the hos-
pital and laboratory must develop and distribute policies
that demonstrate a commitment to employee training in
areas of marketing, medical necessity, billing, and cod-
ing and processing of claims. Key elements include the
following:
• Laboratories should design the order screens and req-
uisitions to include approved panels and indicate the
need to demonstrate medical necessity when ordering
additional individual automated chemistry tests.
111
• Laboratories should send referring physicians annual
notices that provide the following information:
• Medicare only pays for medically necessary testing.
• Lists of Medicare-approved panels and their
components.
• HCPCS and CPT codes used to bill for the panels.
• The national limitation amount (NLA) for the tests
(also referred to as Medicare expect).
• How Medicare will be billed for the service.
• Physicians who request that laboratories develop cus-
tom panels for their patients must acknowledge in
writing on an annual basis that they understand the
components and billing mechanisms for the profiles.
• Laboratories should monitor the utilization pattern for
high-volume testing and investigate shifts in frequency
of more than 10% to determine the reason.
• Claims for testing services submitted to Medicare must
be correctly coded to avoid charges of false claims.
• Physicians are charged to establish medical necessity
and provide the correct diagnosis code (ICD-9 code)
for the test order to the laboratory.
• Laboratories must ensure that any claim submitted has
a corresponding test order and report.
• Do not bill for both calculations and the underlying
tests. The OIG considers this double billing.
Laboratory marketing: compliance issues. Marketing ef-
forts by the laboratory should be honest, clear, correct,
straightforward, informative, and nondeceptive. Labora-
tories are prohibited from offering inducements to phy-
sicians to gain business. Specifically, laboratories must
ensure that physicians are never charged below fair market
value for referred testing to avoid the risk of allegations of
kickback. Physicians should never be offered lower prices
for non-Medicare patients in exchange for obtaining Medi-
care business that is reimbursed at a higher rate. The labo-
ratory supplies provided to a physician’s office should also
be scrutinized carefully. Equipment such as centrifuges,
printers, and faxes must be used for specimen preparation
and results reporting. The laboratory and physician should
sign a document that supports the terms and conditions of
supplies and equipment provided by the laboratory. The
laboratory should have a system to monitor abuse or ex-
cessive use of any supply provided.
The Legal Environment
The OIG’s position is one of zero tolerance. The office ex-
pects a healthcare institution to promote and adhere to
compliance at all levels and expects that noncompliance
will not be tolerated.
The government can potentially file charges under the
Civil False Claims Act for a period of up to 10 years. The
112 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
compliance program should synchronize the institution’s
record retention policies to conform to government reg-
ulations. In a 1995 status report (113) issued by the OIG
and the Department of Justice joint project, three tiers of
penalties were established for hospitals that submit false
claims. The tiers are dependent on the extent of the prob-
lem in relationship to its size (Table 5.20).
Qui tam provisions of the False Claims Act, which orig-
inated during the Civil War, give knowledgeable private
citizens the ability to file lawsuits on behalf of the federal
government and to share in any recovered damages. From
1987 to 1996, whistleblower cases filed by current employ-
ees, employees with grievances, or competitors alleging in-
dividual or corporate healthcare fraud against the federal
government increased nearly 1,000%. Federal prosecutors
use the provisions to their advantage since it requires the
lower standard of preponderance of evidence but autho-
rizes damages and penalties of $5,000–$10,000 for each
false claim submitted. Over the years, whistleblowers have
received an average 18% of the total amount recovered by
the government in these suits.
The physician self-referral law, commonly referred to as
the Stark Law, originated in 1989. It prohibits doctors from
making referrals to an entity for the provision of laboratory
services if they or their immediate family have a financial
relationship with that entity. Submission of Medicare claims
when the ordering physician has a business arrangement
with the laboratory is forbidden unless it fits the exceptions
list as defined in the law. The Stark II legislation expanded
the law to cover 10 other categories including physical and
occupational therapy, radiology, radiation therapy, durable
medical equipment services and supplies, prosthetic de-
vices and supplies, home health services, parenteral and en-
teral nutrients, outpatient prescription drugs, and inpatient
and outpatient hospital services (84). The Phase I Rules of
Stark II included modification to key terms such as “referral,”
“indirect financial relationships,” “indirect referrals,” and
“volume or value of referrals” and the definition of “group
practice.” The most significant additions to the Stark I
legislation include new exceptions to prohibitions for fair
Table 5.20 Hospital financial exposurea
Tier 1
A hospital’s payment or penalty was equal to the
potential overpayments plus interest.
Tier 2
Payment and penalty were equal to 100% of potential
overpayment plus interest.
Tier 3
Payment and penalties were equal to 300% (treble
damage) of potential overpayment plus interest.
a
See http://oig.hhs.gov/oas/reports/region3/39400021.pdf
(accessed October 22, 2012).
market value, academic medical centers, and nonmonetary
compensation. In 2007 the CMS completed the third and fi-
nal installment of the Stark Law. The final rule, referred to
as Phase III, responds to public comments regarding the
Phase II interim final rule and addresses the entire Stark
Law regulatory scheme. In Phase III the CMS continues to
reduce the regulatory burden on the healthcare industry
through its interpretation and modification of exceptions
to the Stark Law’s prohibition on referrals (http://www
.cms.gov/PhysicianSelfReferral/Downloads/66FR856.pdf,
accessed March 1, 2012).
The anti-kickback statutes specifically forbid individu-
als from seeking, receiving, offering, or paying any com-
pensation (bribe or rebate) in exchange for a referral or for
the purpose of purchasing or leasing of goods and services
covered by payments from a federally funded program. In-
ducement is inferred when a laboratory provides anything
of value, not paid for at fair market value, to a provider
who has a referring relationship with the laboratory. The
OIG could consider the following as inducements:
• The provision of phlebotomists who provide other
clerical services
• Picking up of biohazard materials unrelated to the
specimen collection
• Providing medical supplies and equipment not related
to testing referred to the lab
• Provision of computers, printers, or faxes unless exclu-
sively used for the outside laboratory’s work
• Providing free POL consultation
• Waiving managed-care patient charges to retain the
client’s referral work
• Professional courtesy (free healthcare testing) to the
provider and office staff
Violators are subject to criminal penalties and/or exclu-
sion from participating in the federally funded healthcare
programs.
Safe-harbor regulations. The Medicare and Medicaid Pa-
tient and Program Protection Act directed the Office of In-
spector General (OIG) to assure healthcare providers that
they would not be prosecuted for engaging in certain prac-
tices where they assumed compliance while acting in good
faith. Arrangements that may qualify under the regulation
include certain investment interests, equipment or space
rental agreements, management service contracts, manu-
facturers’ warranties, and gain-sharing. Gain-sharing re-
sults when a hospital agrees to share with a provider a fair
market share or percentage of any measurable reduction
in costs for patient care where quality and performance
criteria were met and said reductions could be directly at-
tributed to the efforts of the provider.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
The OIG from time to time issues special fraud alerts
to assist contractors and providers who participate in
federal programs. (These alerts are available on the OIG
website at http://oig.hhs.gov/compliance/alerts/index.asp
[accessed February 28, 2012].)
Legal sanctions. When a lab is cited for violations of any of
the regulations, sanctions could include denial of payment,
refund of monies collected when billed in violation, civil
monetary penalties of $15,000/claim and exclusion, civil
penalties of $100,000 and exclusion for cross-referral bill-
ing schemes, and civil penalties of $10,000/day for failure
to report. The OIG has the authority to exclude healthcare
providers from federally funded programs and maintains
a list of excluded individuals and entities called the List of
Excluded Individuals and Entities. Anyone who contracts
with an excluded individual or entity may be subject to
civil monetary penalties (http://oig.hhs.gov/exclusions/
background.asp, accessed February 28, 2012). The Gen-
eral Services Administration also maintains a monthly list
of debarred contractors. (The list is posted on the Gen-
eral Services Administration website at https://www.epls
.gov/ [accessed February 28, 2012].) Hospitals may request
information from this database as a part of the employee
recruitment, screening, and credentialing process.
Settlement agreements. Corporate integrity agreements
(CIAs) are executed as a result of a civil settlement be-
tween the government and a healthcare provider based
on alleged fraud and abuse under the False Claims Act,
including qui tam. The most compelling reason for a pro-
vider to enter into a CIA is to avoid exclusion from fed-
eral programs. Although the government has a standard
CIA boilerplate agreement, it is in the facility’s best inter-
est to work toward developing an agreement that avoids a
broad-brush approach using language that closely follows
the hospital’s existing compliance program, concentrat-
ing on the issues prompting the investigation. Over time,
CIAs have become more rigorous and now impose lon-
ger terms of duration, investigate a wider span of issues,
include elaborate and expensive provisions, and expand
internal and external monitoring of CIA compliance (77).
Impact of compliance on healthcare providers. Facilities
should design compliance programs that strive to create
a culture that promotes prevention, detection, and resolu-
tion of any occurrence that does not comply with federal,
state, or private payor healthcare program guidelines (J. F.
Boothe and J. A. Gayken, workshop on laboratory com-
pliance, special session, Clinical Laboratory Management
Association Annual Conference and Exhibition, Toronto,
Ontario, 1997). The benefits of having an effective pro-
gram outweigh the managerial costs incurred to estab-
lish and administer a compliance program. Healthcare
113
organizations with established compliance plans can pre-
vent or detect violations and identify employee miscon-
duct prior to an investigation, substantially reducing their
exposure to criminal penalties.
Federal sentencing guidelines. Believing that the federal
court’s sentences for organizations were unfair and un-
predictable, under legislation known as the Reform Act of
1984, Congress authorized the creation of a Federal Sen-
tencing Commission to establish guidelines for judges to
use in sentencing individuals (first issued in 1987) and
organizations (issued in November 1991). A compliance
program becomes most valuable when there is a clear un-
derstanding of how fines are determined under the sen-
tencing guidelines.
Civil monetary penalties. The complex system of civil
monetary penalties enables the government to clearly de-
fine the guidelines for an effective compliance plan in the
clinical laboratory and the hospital setting (65). After ana-
lyzing the seriousness of the offense, a base fine is deter-
mined. Then the organization is scrutinized for the degree
of responsibility and degree of involvement of management
in the commission of the acts to determine the overall cul-
pability score. These two factors are used to calculate the
guideline fine range used by the courts to set the amount
of the overall fine. A well-established compliance program
shields the healthcare provider from suffering longer sen-
tences or harsher penalties. Under the Federal Sentencing
Guidelines, the culpability score for a company being pros-
ecuted for a violation would be reduced by as much as 95%
when a corporate compliance program is in effect (61). The
challenge is to provide and document evidence of the plan’s
effectiveness, targeting training as the key.
Laboratory Reimbursement
and Medical Necessity
Medicare
In 1999 the Department of Health and Human Services
(HHS) established the Centers for Medicare and Medic-
aid Services (CMS), formerly known as the Healthcare Fi-
nancing Administration (HCFA), to provide operational
oversight and administer guidance to third-party health-
care contractors.
Medicare contractors: third-party payors. The CMS con-
tracts with third-party contractors to administer federally
funded programs such as Medicare and TRICARE. The
Medicaid program is administered cooperatively between
the HHS and state agencies. The contractors are generally
companies whose business is the administration of insur-
ance plans. They must demonstrate financial solvency,
114 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
adequate infrastructure, and a satisfactory record of ser-
vice to be awarded a government contract.
In the past, a fiscal intermediary served as a primary
third-party contractor administering Part A payments,
and a different primary third-party contractor adminis-
tered Part B payments. Since 2008, there has been a tran-
sition away from separate Part A and Part B contractors.
Instead, there is a Medical Administrative Contractor that
handles both Part A and Part B payments; this has been
shown to improve efficiency of claims processing.
Provider designation, responsibilities, and agreements. To
be designated as a Medicare provider, a healthcare facility
must first define the types of services being offered as a hos-
pital, clinical laboratory, rural health clinic, skilled-nursing
facility, or home health agency. Survey agencies in each
state certify that each provider meets the statutory regula-
tions governing the conditions of participation defined by
the program (Table 5.21). The Medicare enrollment ap-
plication may be completed using form CMS-855 or the
Internet-based Provider Enrollment, Chain and Ownership
System (PECOS). Both are available at http://www.cms.gov
(accessed February 18, 2012). As participating suppliers,
laboratories are required to accept the assigned Medicare
fee schedule reimbursement as payment in full. The lim-
iting charge covered by Section 1848(g) of the Social Se-
curity Act applies to claims submitted by nonparticipating
physicians or suppliers who do not accept payment on an
assignment-related basis for physician services.
Hospital inpatient services: Medicare Part A. In general
Medicare Part A covers the following services provided to
qualified Medicare beneficiaries (QMB):
• Services related to a hospital inpatient stay
• Services provided in a skilled-nursing facility
• Home health or hospice services
• End-stage renal disease services
Table 5.21 Medicare provider designation
Provider designation Certifying agency
Hospital The Joint Commission
American Osteopathic Association
Det Norske Veritas Healthcare, Inc.
42 CFR. Part 482
Clinical laboratory Clinical Laboratory Improvement Act of 1988
Rural health clinic Federally qualified healthcare center
42 CFR δ491
Skilled-nursing facility 42 U.S.C. δ1395I-3
Medicare excludes or does not cover long-term care and
custodial care in a nursing or private home.
Medicare payments for hospital inpatient stays are re-
imbursed using the diagnosis-related group (DRG), a pro-
spective payment system. The Medicare Hospital Manual
contains billing and coding guidelines for Medicare Part
A. The Balanced Budget Act of 1997 included a provision
to move skilled-nursing facilities’ Medicare payments for
Part A and B services to a prospective payment system re-
ferred to as consolidated billing (28). In 2000 the Benefits
Improvement and Protection Act (BIPA) limited the scope
of consolidated billing to the services covered under Part
A for skilled bed care, and the payment is referred to as
resource utilization group.
Three-day (72-hour window) rule. The CMS issued the
final diagnosis-related group (DRG) 72-hour window rule
in February 1998, which states that the hospital’s inpatient
costs are reimbursed by Medicare Part A under the pro-
spective payment system (PPS) that pays an established
rate for all services during the stay including diagnostic
testing. An institution’s billing service must ensure that
claims are never submitted for any outpatient testing per-
formed by the facility’s laboratory within three calendar
days of a hospital admission if the services are furnished
directly in connection with the admitting diagnosis and
are covered by PPS payment (112). Separate payment is
not allowed for:
• Any nonphysician outpatient service rendered on the
day of the admission or during the inpatient stay
• Diagnostic services rendered up to 72 hours before the
day of admission
• Admission-related nondiagnostic services rendered up
to 72 hours before the day of admission
On June 25, 2010, President Obama signed the Pres-
ervation of Access to Care for Medicare Beneficiaries and
Pension Relief Act of 2010, which contains a section to
clarify the three-day rule. The three-day rule previously
Conditions of participation
Utilization review
Staffing for psychiatric
Adhere to HHS standards or higher
CLIA certificate current and unrevoked
No participation agreement needed
Must accept assignment for negotiated Part B reimbursements
Not physician directed
Located in rural area
Providers: participating or nonparticipating
Participation agreement
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
stated that hospitals must bill as part of an inpatient stay
all diagnostic services provided within three days of ad-
mission, as well as all nondiagnostic services related to the
inpatient admission. “Related” was defined by CMS as an
exact diagnosis code match between the inpatient admis-
sion and the outpatient services. Because hospitals had
struggled to correctly apply the rule in their billing opera-
tions, the statutory change requires that hospitals bill as
part of the inpatient stay all nondiagnostic services pro-
vided on the day of admission as well as those in the three
days prior to admission, unless they can demonstrate
that the services are unrelated to the admission (http://
www.gpo.gov/fdsys/pkg/PLAW-111publ192/pdf/PLAW
-111publ192.pdf, accessed March 1, 2012).
Outpatient services: Medicare Part B. Medicare Part B
covers physician and other outpatient healthcare services
including:
• Physician services and services incident to physician
services
• Ancillary services (clinical lab testing, home health
services, rehab services, and ambulatory surgical
services)
Hospital-based laboratories that perform outpatient and
nonpatient testing submit Medicare UB 92 claims as Part
A reimbursement to the fiscal intermediary but actually
receive payment based on the Medicare Part B fee schedule
for the services. The Medicare Carrier’s Manual contains
useful billing and coding guidelines for independent labs,
group practices, and physician office laboratories for fill-
ing claims for Part B services.
Medicare Part C is known as a Medicare Advantage Plan
(HMO or PPO) and provides Part A (hospital insurance)
and Part B (medical insurance) coverage. Medicare Advan-
tage Plans may offer extra coverage, such as vision, hearing,
dental, and/or health and wellness programs. Most include
Medicare prescription drug coverage (Part D) (https://
www.medicare.gov/default.aspx, accessed July 11, 2012).
Medicare Part D was created when the president signed
the Medicare Prescription Drug, Improvement and Mod-
ernization Act (MMA) of 2003 into law on December 8,
2003. Title I of the MMA added sections that created the
Medicare Prescription Drug Benefit (66).
Outreach (nonpatient) testing. Hospital laboratories pro-
vide services to three different patient types: inpatients,
outpatients, and nonpatients. Classification of a patient as
a hospital inpatient is a straightforward process. The abil-
ity to differentiate between an outpatient and a nonpatient
is more difficult but very important, since the applicable
rules are not the same. The Medicare Intermediary Man-
ual describes nonpatient testing as tissue or blood samples
or specimens that are collected by personnel who are not
115
employed by the hospital and sent to the hospital for test-
ing. Sometimes laboratories are governed by hospital regu-
lations, but there are also instances when the independent
laboratory regulations apply.
Tax-exempt hospitals are subject to taxation on their un-
related business income (UBI) for outreach testing activi-
ties, because outreach testing activities are not substantially
related to the hospital’s tax-exempt purposes. UBI is sub-
ject to taxation at ordinary corporate rates, and the hospital
should file 990-T forms with the IRS. UBI should include
outreach testing income minus deductions for expenses
directly associated with the program. When hospital em-
ployees are used for both patient and nonpatient testing,
allocations between the two should be calculated on a rea-
sonable basis. Hospital outreach programs must maintain
and retain appropriate records to permit calculation of the
outreach testing net contribution to income (74).
Coordination of benefits and coordination of Medi-
care benefits. The Coordination of Benefits (COB and
COMB) program is designed to ensure that a patient’s
alternative healthcare benefits (workman’s compensation
and automobile insurance) are identified before a claim
is submitted to Medicare. The goal is to eliminate im-
proper payments for services when Medicare should be
the secondary rather than the primary payor. The CMS
maintains a COB page (available at http://www.cms.hhs
.gov/COBGeneralInformation, accessed March 1, 2012) to
assist providers with their benefits coordination process.
Medicare secondary payor status. Patient registration
staff should be familiar with Coordination of Benefits and
the organization’s process to establish Medicare second-
ary payor (MSP) status. In certain circumstances another
third-party payor, not Medicare, may be the primary in-
surer for a claim. The claim should always be submitted
to the primary payor first and then to Medicare. The MSP
regulation requires an MSP questionnaire (http://www
.cms.gov/Regulations-and-Guidance/Guidance/Manuals/
downloads/msp105c03.pdf, accessed July 3, 2012) to be
completed to direct providers to other third-party payors
first whenever they are primary to Medicare (140). Medi-
care is considered secondary in the following instances:
• The beneficiary or the beneficiary’s spouse is gainfully
employed.
• The beneficiary is disabled and under age 65.
• Automobile, no-fault medical, personal injury protec-
tion, or third-party liability is involved.
• Pulmonary/respiratory illnesses are associated with
mining, and benefits are covered by the Black Lung
Program.
• The beneficiary is entitled to veteran’s benefits.
116 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• The beneficiary’s injuries occurred on the job and are
covered by workman’s compensation.
• An individual entitled to Medicare on the basis of
end-stage renal disease (ESRD) is covered under an
employer group plan.
MSP policies apply in cases where Medicare does not as-
sume the primary obligation to pay for services, as the bene-
ficiary may have other coverage. (MSP policies are available
on the Centers for Medicare and Medicaid Services website
at www.cms.gov/manuals/downloads/msp105c03.pdf [ac-
cessed April 4, 2012].)
A major reason for Medicare claim denials nationwide
is the inability to correctly verify a subscriber’s eligibility
for coverage. CMS Program Memorandum Transmittal
AB-00-36 assigns the responsibility for updating the com-
mon working files (CWF) and MSP database to a COB
subcontractor (41). CWF editors should include prepay-
ment edits, medical necessity edits, frequency limitations,
and postpayment edits. The contractor will not process
any claims or handle any mistaken payment recoveries or
claim-specific inquiries (141). The CMS intends for the
COB contractor to serve as an information-gathering en-
tity to detect and prevent improper payments for MSP by
ensuring that the CWFs are accurate and current.
Other Federally Funded Programs
Medicare Advantage plans (Medicare Part C). Medicare
Advantage plans are offered by private companies that
contract with Medicare to provide both Part A and Part B
benefits. The plans may take one of several different forms,
including health maintenance organizations, preferred
provider organizations, private fee-for-service plans, or
special needs plans. Many Medicare Advantage plans in-
clude prescription drug coverage. The beneficiary and the
plan share the expenses. The plan company must deliver
the care at a cost below what it receives from Medicare and
the beneficiary in order to make money. It seeks to do this
by managing the care more closely than possible through
traditional Medicare.
Medicaid (Title XIX). Medicaid is a jointly administered
program that is funded by both federal and state government
and provides health insurance for certain low-income and
needy people. There are approximately 62 million enroll-
ees including children, the aged, blind, and/or disabled, and
people who are eligible to receive federally assisted income
maintenance payments (http://www.census.gov/compendia/
statab/2012/tables/12s0152.pdf [accessed June 18, 2013]).
TRICARE. Formerly known as the Civilian Health and
Medical Program of the Uniformed Services, or CHAM-
PUS, TRICARE provides medical and dental care for
members and former members of the uniformed services
and their dependents. It is administered by the TRICARE
Management System within the Department of Defense
Military Health System. Only authorized providers may
participate, and they must agree to accept the TRICARE
allowable fee as payment in full. Participating institutions
must file claims with the third-party administrator on be-
half of the beneficiary.
Railroad Retirement Act. The Railroad Retirement Act is
a federal insurance program similar to Social Security de-
signed for workers in the railroad industry. The provisions
of the Railroad Retirement Act provide for a system of co-
ordination and financial interchange between the Railroad
Retirement program and the Social Security program.
National Coverage Determination and Local Medical
Review Policies
Balanced Budget Act of 1997. The Balanced Budget Act
of 1997 mandated the use of a negotiated rule-making
committee to develop national coverage and administra-
tive policies for clinical diagnostic laboratory services pay-
able under Medicare Part B by January 1, 1999. The bill
included provisions for numerous healthcare issues, such
as civil penalties for fraud and abuse, anti-kickback viola-
tions, guidelines for exclusion from the Medicare program,
diagnostic information on medical necessity, coverage for
additional screening tests, and prospective payment of Part
B services to patients in a skilled bed in a nursing facility.
The provision required that national coverage policies
promote program integrity and national uniformity and
simplify administrative requirements for clinical diagnos-
tic laboratory services.
NCDs. The National Coverage Determinations (NCDs)
are the national policies that establish whether Medicare
will cover or not cover certain healthcare services, proce-
dures, or technologies. The CMS tracks emerging technolo-
gies and patterns of care to determine the application of an
NCD and the need for policy change. When an NCD does
not specifically exclude an indication or circumstance and
does not specify an item or service in an NCD or a Medicare
Manual, Medicare contractors are then responsible for mak-
ing the coverage decision and publishing and updating the
local medical review policies (LMRPs) on a monthly basis.
The final rule, published in the Federal Register on November
23, 2001 (48), included 23 coverage determinations as listed
below. (More details may be obtained from the publication
“Medicare National Coverage Determinations: Clinical Di-
agnostic Laboratory Services,” available on the CMS website
located at http://www.cms.gov [accessed February 18, 2012].)
• Culture, bacterial (urine)
• Human immunodeficiency virus testing (prognosis
including monitoring)
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
• Human immunodeficiency virus testing (diagnosis)
• Blood counts
• Partial thromboplastin time
• Prothrombin time
• Serum iron studies
• Collagen crosslinks (any method)
• Blood glucose testing
• Glycated hemoglobin or glycated protein
• Thyroid testing
• Lipids
• Digoxin therapeutic drug assay
• Alpha-fetoprotein
• Carcinoembryonic antigen
• Human chorionic gonadotropin
• Tumor antigen by immunoassay (CA125)
• Tumor antigen by immunoassay (CA 15-3 and CA
27.29)
• Tumor antigen by immunoassay (CA 19-9)
• Prostate specific antigen
• Gamma glutamyl transferase
• Hepatitis panel (acute hepatitis panel)
• Fecal occult blood
• Cytogenetic studies
• Diagnostic pap smears
• Histocompatibility testing
• Blood platelet transfusions
• Blood transfusions
Each NCD follows a uniform format that includes
policy name, policy number, reason, policy type, bill
type, revenue code, a narrative description of the tests,
clinical indications for their use, coverage limitations,
HCPCS code, a list of related ICD-9 codes covered by
Medicare, a list of ICD codes that will be denied by Medi-
care, a list of codes that are not generally covered unless
certain exceptions are met, national policy, reasons for
denial, sources of information, documentation require-
ments, revision history, and effective dates. The policies
include frequency limitations for tests for which Medi-
care restricts coverage to a specific number of times per
year. In some geographic regions, the NCD policies re-
place the LMRPs. In states where no policies exist, the
NCDs become new restrictions (81). Local carriers and
fiscal intermediaries can supplement the NCDs with ad-
ditional requirements before communicating the LMRPs
to providers in the form of bulletins, determine eligibility
for coverage and reimbursement allowances for services,
pay claims, audit, and determine appeals from providers.
117
Medicare requires that providers retain the bulletins a
minimum of five years. Medicaid differs from Medicare
in that the program is administered jointly by both fed-
eral and state agencies. The reader may want to refer to the
CMS Medicare Coverage Database site at http://cms.gov/
medicare-coverage-database/overview-and-quick-search
.aspx (accessed February 28, 2012) for review of all LMRP
policies by contractor for a specific area.
Reimbursement Methods
Reimbursement is generally driven by the types of service
rendered to a beneficiary and the location in which the
service is rendered. Additional information is available
in the Outpatient Prospective Payment System (OPPS)
patient booklet (located at http://www.medicare.gov [ac-
cessed February 28, 2012]).
Prospective payment system for outpatient services. Con-
gress directed HCFA to develop a prospective payment
system (PPS) for hospital outpatient services in the Om-
nibus Reconciliation Act (OBRA) of 1986. The Balanced
Budget Act established an implementation date of Janu-
ary 2000. Under PPS, hospital services other than those
covered under a fee schedule would be included. Excluded
services include laboratory, ambulance, occupational ther-
apy, physical therapy, and speech pathology.
Ambulatory payment classifications. In July 2000 Medi-
care introduced a new prospective payment system for
outpatient services. The CMS originally proposed an am-
bulatory payment group (APG) after a study done in 1995.
The APGs were mandated by the 1997 Balanced Budget
Act. In 2002 the terminology changed to ambulatory pay-
ment classifications (APCs) (38, 39). Under the APCs,
there are 451 groups defined by clinical relevance and
resource usage (40). In contrast to the Part A diagnosis-
related group approach, which covers a patient’s entire in-
patient hospital stay, multiple APCs may be assigned to a
single encounter. The payment rate for the APC is prede-
termined and is equal to a national conversion rate mul-
tiplied by an APC-specific weight and adjusted for local
area wage differences. The APC system ensures payment
predictability and provides an incentive for efficiency.
Clinical laboratory services are excluded from the outpa-
tient PPS and are paid from the Part B clinical laboratory
fee schedule (15).
End-stage renal disease (ESRD). ESRD facilities provide
services to Medicare beneficiaries who have permanent
kidney dysfunction and require dialysis treatment. The fa-
cilities have strict medical necessity guidelines and utiliza-
tion criteria.
• Medicare composite payment or rate. Reimbursement
for physician, supervisory, and direct care services that
118 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
are routinely rendered in relation to outpatient dialysis
(including hemodialysis, continuous ambulatory peri-
toneal dialysis, continuous cycling peritoneal dialysis,
intermittent peritoneal dialysis, or hemofiltration).
The costs of certain ESRD laboratory services are in-
cluded in the composite rate. The three major risks
associated with billing for tests included in the com-
posite rate are duplicate billing, failure to document
medical necessity for tests not included in the com-
posite rate, and failure to comply with the 50/50 Medi-
care Composite Payment rule (103).
• The Medicare Composite Payment 50/50 rule limits
when a multichannel chemistry panel can be included
in the composite rate. If 50% or more of the covered
tests are included under the composite rate, then the
entire panel is to be part of the composite rate paid to
the facility, and the lab cannot bill for the additional
testing separately. On the other hand, if more than 50%
of the automated tests are not in the composite rate,
then the testing laboratory may bill the entire panel
directly to Medicare. Laboratories can expect increased
scrutiny by the OIG for ESRD claims (93).
• Medicare fee schedule. Laboratory testing not included
in the composite rate is subject to medical necessity
guidelines and is reimbursed under the Medicare fee
schedule when appropriate (17).
Hospice benefits are optional to Medicare beneficiaries
whose terminal illness prognosis is less than six months.
Payment for treatment and management services is made
under the benefit, and all other Part B claims except the
professional fees of the attending physician are waived.
Medicare direct billing rules. Medicare pays only the
healthcare entity that actually performed or supervised a
clinical laboratory test. The exceptions are:
• Laboratory-to-laboratory referrals if the laboratory
billing for the service performs at least 70% of the to-
tal tests billed within the laboratory
• Laboratory-to-laboratory referrals if the laboratory
performing the test is commonly owned by the labora-
tory billing for the test
• Tests provided under an arrangement with a hospital,
critical-care facility, or skilled-nursing facility
Competitive Bidding Demonstration Project. In 1985
Health and Human Services issued a request for propos-
als to establish demonstration projects for the provision
of clinical laboratory services for Medicare beneficiaries
on a competitive bidding basis. The Consolidated Om-
nibus Budget Reconciliation Act of 1985 (COBRA) pro-
hibited HHS from conducting the project until after 1987.
Competitive bidding is a method for setting the price of
healthcare services through a bidding process to establish
payment rates on the lowest price submitted by providers.
Although the Balanced Budget Act of 1997 removed the
prohibition, the demonstration project remains stalled due
to the enormous complexity of the endeavor. The Medi-
care fee schedule and the system’s payment problems are
subject to application of different standards in each of the
carrier jurisdictions. Competitive bidding would further
complicate the system for laboratories that refer tests be-
tween jurisdictions while increasing the costs of processing
claims. Restricting the ability of physicians to choose the
laboratory believed to best serve the needs of their Medi-
care patients might create access problems. Allowing only
a few select providers might create government-sanctioned
monopolies that force necessary providers out of business
(43). The Medicare Improvement for Patients and Provid-
ers Act of 2008 repealed the Competitive Bidding Project.
Code of Medical Necessity (Reasonable
and Necessary Services)
Medical necessity regulation first originated in the Social
Security Act. A test must meet the following criteria to be
considered medically necessary.
• The ordered test must be consistent with the signs,
symptoms, or diagnosis of the injury or illness being
treated and be appropriately documented, both on the
test requisition and in the patient’s medical record.
Medicare does not pay for tests where documentation
in the medical record does not support medical neces-
sity requirements.
• The test must be necessary and consistent with the
generally accepted professional medical standards of
practice (not investigational or experimental).
• The test must not be ordered for the convenience of
the patient or the physician. Medicare generally does
not cover routine screening tests even when the health-
care provider ordering the tests considers it to be ap-
propriate for the beneficiary.
• The test must be provided safely and effectively at
the appropriate level. Medicare only reimburses for
tests that meet the Medicare coverage criteria and are
deemed reasonable and necessary to treat or diagnose
an individual patient.
The intent of the guidelines was to encourage partner-
ships between third-party contractors, physicians, and
providers in providing appropriate care to patients. The
Carrier Advisory Committee was formed to educate and
train physicians after analyzing patterns of practice rather
than denying claims.
Advance beneficiary notice (ABN). The Medicare pro-
gram’s purpose for the ABN is to ensure that all Medicare
beneficiaries are informed in writing prior to receiving a
service or procedure that may not be a covered benefit. The
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
ABN serves as a waiver of liability and is intended to assist
the patient in making a decision to receive a service and to
agree to accept financial responsibility if the claim is not
covered. The use of an ABN should be limited to individual
instances where the provider feels there is reason to believe
reimbursement will be denied. In designing a facility ABN
notice, the correct language to satisfy the CMS requirements
is “Medicare will pay only for items and services it deter-
mines to be reasonable and necessary.” Non-covered services
include routine physical exams, screening tests, cosmetic
surgery, and experimental or investigational services.
The Balanced Budget Act of 1997 made it a require-
ment that physicians provide specific diagnostic informa-
tion when ordering tests for which reimbursement from
the Medicare program will be sought. Failure to comply
with the medical necessity regulations could result in the
government filing false claims charges for performing un-
necessary tests or services. Tests ordered and performed at
a greater frequency than those allowed must have medical
necessity documentation.
In March 2008 the CMS implemented the use of a
revised Advance Beneficiary Notice of Non-coverage
(CMS-R-131-L). The form replaced the General Use
ABN (CMS-R-131-G) and the Lab ABN (CMS-R-131-L)
for physician-ordered laboratory tests. The form is posted
on the Beneficiary Notice Initiative web page (www.cms
.hhs.gov/bni, accessed February 28, 2012).
Authorized representative. The ABN instructions define
an authorized representative as a person who does not
have a conflict of interest with the beneficiary when the
beneficiary is temporarily or permanently unable to act for
him or herself. The representative acts on the beneficiary’s
behalf, in his or her best interest. This definition differs
from the rules on who may sign when the beneficiary is
incapable. The following individuals may qualify to serve
as an authorized representative:
• A person authorized under state law to make health-
care decisions or exercise power of attorney
• A legal spouse, adult child, parent, adult sibling, or
close friend
• A disinterested third party or public appointed
guardian
Although the instruction does not define the method of
determination of conflict of interest, it does state that an
employee of a healthcare provider or supplier of service
may have a conflict and therefore be precluded from serv-
ing in this capacity (138).
Medical necessity guide. Laboratories that develop a med-
ical necessity guide for use by providers and clients who
order tests governed by a national coverage determination
or a local medical review policy must avoid code steering,
the appearance that the laboratory is directing or steering
119
the healthcare provider to select a code that will make the
claim payable, rather than assigning or selecting the code
based on the patient’s medical condition. The code choice
should always be made before payment issues are consid-
ered and should be appropriately documented in the pa-
tient’s chart (medical record) and the test requisition (142).
Standing orders. A standing order is valid for a limited
time as long as it meets medical necessity guidelines. Reg-
ulations require the following criteria for the use of stand-
ing orders for any patient type in any type of facility:
• A healthcare provider placed the order.
• The order was specific to the patient and met medical
necessity guidelines.
• An ABN should be executed for screening or a non-
covered service.
• The order must have a start date and indicate the pe-
riod of time for the standing order (<12 months) and
must be documented in the patient’s chart.
If testing continues once the order expires or is not nec-
essary, the facility could be liable for fraud and abuse.
Laboratory policies related to these orders should include
periodic reviews of all standing orders to eliminate the po-
tential risks associated with their performance (27).
Verbal orders. Federal regulations allow laboratories to
accept verbal orders or modifications to an existing order
and to perform the testing, provided the laboratory docu-
ments the order within 30 days and maintains the records
or the request for authorized signatures for two years (16).
Research or investigational testing. Non-FDA-approved
testing for research or investigational use could be consid-
ered either a non-covered service or not medically neces-
sary. When a third-party payor’s LMRP guidelines define a
test as a non-covered service, an ABN is not needed. How-
ever, if it is deemed not medically necessary, then having
beneficiaries sign an ABN waiver informs them of their
financial responsibility.
Reflex testing. The laboratory’s test ordering pathway
should be based on standards of care developed with
physician oversight. When tests include automatic re-
flex testing (confirmation, sensitivity, antibody elution,
or titer), the computer order screen or requisition should
clearly denote that it includes automatic reflex. Billing
for reflex testing without a specific order could result in
charges of false claims. A laboratory should document a
physician’s request to automatically reflex certain tests in
writing. The agreement should be updated annually. A
useful tool for reflex testing is to create a chart or algo-
rithm that maps the sequence or pathway for confirma-
tory testing (88).
120 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Overview of the Reimbursement Process
The Deficit Reduction Act of 1984 authorized the Medicare
clinical laboratory fee schedule and mandated that the lab-
oratory performing the test bill Medicare for the services
directly. The ordering physician could only bill if the test-
ing was performed in his office laboratory. In the Balanced
Budget Act of 1997, the CMS decreased by more than $100
billion reimbursement to Medicare providers, including
the laboratory. The Benefits Improvement and Protection
Act (BIPA) of 2000 restored some of the reimbursement
previously taken away from Medicare providers. BIPA is
part of the Consolidated Budget Appropriations Act that
allocated $35 billion over five years in federal spending,
primarily for hospitals. Related legislation includes:
• HR 1798/S.1066: the Medicare Patient Access to Pre-
ventive and Diagnostic Tests Act
• HR 1948: the Medical Laboratory Personnel Shortage
Act of 2001
Coverage of New Tests
The laboratory environment has witnessed a remarkable
growth in both the number and the complexity of new di-
agnostic testing. A major problem with the Medicare fee
schedule is the method for determining payment amounts
for new tests (115). CMS either uses a process called cross-
walking, to map a new test that is similar to an existing
CPT or HCPCS codes, or a process called gap-filling to
establish a baseline reimbursement while assigning a tem-
porary HCPCS code. CMS has not established definitive
criteria on how to use the processes, creating many inequi-
ties with the fee schedule.
Presently, tests that are similar enough are cross-walked
to an existing code and receive the current National Limi-
tation Amount (NLA) rate of reimbursement even if the
new test’s technology is more expensive. In the gap-filling
process, CMS and the carriers assess the charge for the new
test to determine the median reimbursement and then ap-
ply the NLA. The resulting reimbursement is 74% of the
median charged by the performing laboratories (28).
Registration and Coding
Institutions have come to understand the need to employ
highly trained and qualified coders to assist with the sub-
mission of timely and accurate claims, utilization review,
and medical records risk management issues. The na-
tional accrediting agency that oversees this group of cod-
ing and health information management professionals is
the American Health Information Management Associa-
tion (AHIMA). Certified coding specialists (CCS) convert
the healthcare provider’s ordering narrative diagnostic
description into the corresponding five digit ICD-9 Code
(International Classification of Disease—9th Revision) and
provide the best Current Procedural Terminology (CPT)
code for the service provided. The coding guidelines are
disseminated by CMS, the National Center for Health Sta-
tistics, the American Medical Association, and the Ameri-
can Health Information Management Association.
On January 16, 2009, the HHS released the final rule man-
dating that everyone covered by the Health Insurance Porta-
bility and Accountability Act (HIPAA) implement IDC-10
for medical coding. IDC-10 will replace ICD-9 coding. The
original effective date for implementation of ICD-10 was
March 17, 2009. Due to the complexity of the project, the
date on which all entities are required to have implemented
ICD-10 (the compliance date) is now October 1, 2014. ICD-
10 increases the number of reporting codes from approxi-
mately 13,600 to 69,000, providing a dramatic increase in
the level of reporting detail and granularity.
Potential benefits of ICD-10 are:
• Support value-based purchasing and Medicare’s anti-
fraud and abuse activities by accurately defining ser-
vices and providing specific diagnosis and treatment
information
• Support comprehensive reporting of quality data
• Ensure more accurate payments for new procedures,
fewer rejected claims, improved disease management,
and harmonization of disease monitoring and report-
ing worldwide (119)
• Allow the United States to compare its data with in-
ternational data to track the incidence and spread of
disease and treatment outcomes, because the United
States is currently one of the few developed countries
not using ICD-10.
(http://www.cms.hhs.gov/apps/media/press_releases.asp
[accessed June 19, 2013]).
Correct coding initiative. There are five coding systems
that third-party payors use (Table 5.22). Each system has
coding manuals available to assist coders with filing ac-
curate claims. A facility’s correct coding must include
the healthcare provider’s documentation of the history,
examination, and decision-making processes that led to
ordering diagnostic laboratory services that are medically
necessary. Coding systems are updated periodically; CPT
code changes and updates occur annually. The following
practices will ensure that your facility remains in compli-
ance with correct coding initiatives (117):
• Revise codes and fees in the charge description master
(CDM).
• Incorporate edits in the CDM into billing systems.
• Modify manual requisitions and electronic order
screens if necessary.
• Notify physicians of changes.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Table 5.22 References for coding systems used for third-party claims
Acronym Coding descriptive name
CPT-4 codes Physicians Current Procedural Terminology,
4th edition
HCPCS Healthcare common procedural coding system
ICD-9-CM International Classification of Diseases, 9th
revision, Clinical Modification
DRG Diagnosis-related groups
Revenue code
a
AHA, American Hospital Association; NCHS, National Center for Health Statistics.
Charge description master. The CDM is the hospital’s
procedural description for each charge code that cross-
references revenue codes and CPT codes to the inpatient
and outpatient charge for the services. Other components
that can be included in a CDM are productivity values, cost
center, and payor billing options (136). Annual review of
the hospital’s inpatient and outpatient charge description
master identifies areas for potential compliance risks, such
as unbundling procedural charges and billing for services
that are already built into payment rates. Annual changes
to the ICD-9, CPT, and HCPCS level II codes should be
updated appropriately (107).
Anatomic and surgical pathology. The Omnibus Rec-
onciliation Act (OBRA) of 1989 charged the CMS with
implementing a reimbursement system for anatomic and
surgical pathology services that include both a technical
and a physician’s professional component. The Resource
Based Relative Value Scale was initiated in January 1992
and included the billing and CPT coding criteria. The suf-
fix modifier TC was added when billing for the technical
component, modifier 26 was added when billing for the
professional component, and no modifier is needed when
one provider is billing for both components. The fee sched-
ule was calculated using relative value units to account for
the actual work, any practice expenses, and associated
costs of malpractice.
Claims Processing and Submission
Medicare carrier and fiscal intermediary manuals and
communications provide ongoing guidance for provid-
ers related to LMRP rules that should be incorporated
into the education and training of personnel handling
registration, coding, and claims submissions. The bill-
ing entity must ensure that all claims submitted accu-
rately reflect the diagnostic information provided by the
121
Commentsa
7,000 five-digit codes and modifiers used for medical, sur-
gical, and diagnostic service descriptions
Alphanumeric codes used to report supplies, equipment,
and devices
Developed by AHA, AHIMA, CMS, and NCHS
Volume 1: disease tabular list
Volume 2: alpha index
Volume 3: inpatient procedure codes
Over 500 three-digit medical and surgical groupings
Inpatient stays split into 25 major diagnostic categories
DRG for admitting diagnosis paid at an established rate
Code used on CMS-1450 (UB-04) to identify type of charge
healthcare professional ordering the test and that it is the
most specific code for each test ordered for the patient. If
the ordering provider uses a narrative description of the
diagnosis, the standard practice should be to only have
certified coders translate the narrative into an ICD-9
code. Commonly used terms for the more frequent cod-
ing errors that might potentially put your facility at risk
are found in Table 5.23 (26).
Claim forms. Healthcare providers use the following two
claim forms when submitting claims:
• CMS-1500 is the standard form used to bill Medicare
carriers or Part A and B. Claims must be submitted
within one year of the date of service, and Medicare
beneficiaries cannot be charged for completing or fil-
ing a claim. Form CMS-1500 is maintained by the Na-
tional Uniform Claim Committee. The Administrative
Simplification Compliance Act prohibits payment of
services or supplies not submitted to Medicare elec-
tronically, with limited exceptions. A sample of the
form may be viewed at www.cms.gov (accessed Febru-
ary 13, 2012).
• UB-04 is used by hospital facilities filing claims with
a fiscal intermediary. In 2005 the National Uniform
Billing Committee approved form UB-04 as the re-
placement for UB-92. A UB-04 form (also known as
an HCFA 1450) requires the billing entity to specify
the revenue code for the accommodation or ancillary
service charge or the type of billing calculation used in
field 42 of the claim. This form does not allow listing
of ICD-9 and CPT codes but requires the use of rev-
enue codes with limited use of modifiers (http://
www.cms.gov/Outreach-and-Education/Medicare
-Learning-Network-MLN/MLNProducts/downloads/
ub04_fact_sheet.pdf, accessed July 3, 2012).
122 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 5.23 Billing and coding errors: areas of potential riska

Coding term Definition Regulation
Simple billing errors Clerical errors such as posting charges to the improper Special fraud alert, November 1994
account, wrong date of service, misunderstanding about
copayments and deductibles, balance billing, etc.
Insufficient documentation Billing for items or services that cannot be substantiated
by the documentation associated with the claim
Unqualified personnel Billing for services provided by unqualified or uncerti-
fied personnel
Lack of system integrity Must demonstrate computer system integrity, record reten-
tion storage and retrieval, and an effective back-up system
Upcoding The practice of using a billing code that yields a higher 42 U.S.C. §1320a-7a(a)(1)(A)
reimbursement than the service actually rendered
Reflex testing Billing for a reflex test performed without a provider’s
specific order could result in charges of false claims.
Carefully design requisitions that clearly indicate that
testing includes reflex to confirmation.
False claim Intentionally submitting claims for medically unneces- 42 U.S.C. §1395y(a)(1)(A)
sary services not warranted by the patient’s condition
False claims must be reported within 30 days of the dis- 31 U.S.C. §3729(a)
covery to avoid double damages.
DRG creep The practice of billing using a DRG code that receives a
higher payment than the DRG actually provided
Duplicate billing When more than one claim is submitted for the same
services or when the claim is submitted to more than
one primary payor at the same time
Unbundling Submitting claims for individual tests or proce-
dures rather than together as required to maximize
reimbursement
72-hour window Filing claims for nonphysician outpatient services that are OIG report, Expansion of DRG Payment
included in the hospital’s inpatient payment under PPS Window, July 1994, A-01-92-00521; OIG
report, Improper Medicare Payments to Hos-
pitals, May 1996
a
See reference 26.

CPT code billing modifiers. Healthcare providers fre-
quently request the same laboratory testing multiple times
within a 24-hour period. Payors require use of a two-digit
numeric CPT code modifier to ensure payment for this
and other special situations (Table 5.24) (97).
Remittance Advice
Third-party payors produce a remittance advice once a
claim has been received to advise the billing entity of the
status of the claim. The remittance advice permits the lab-
oratory to match the payment received to the actual test
and CPT code description as billed. The third-party payors
at the same time generate an explanation of benefits for
the covered beneficiaries to advise them that a claim has
been filed and to notify them of any impending financial
responsibility to the billing entity.
Audit and Benchmark Monitors
Simple billing errors and misunderstandings can be con-
strued as fraudulent by Medicare beneficiaries and are of-
ten reported to Medicare contractors as fraud. The types
of errors reported include posting charges to the wrong
account, billing for the incorrect date of service, misunder-
standings about deductible or copayment responsibilities,
services rendered outside of the outpatient office setting (for
example, laboratory), and services rendered by a provider
with whom the patient had no encounter (for example, ra-
diologists). An audit is an independent and documented
assessment planned to determine if policy requirements are
met. Using periodic audits confirms that policies and pro-
cedures are being followed and that the monitors selected
are effective to analyze coding habits. The audits identify
problems, areas of high risk, and the need for training, and
they document and strengthen an effective compliance
program. Careful scrutiny of each step in the process from
the requisition to coding and claims submission often iden-
tifies opportunities to correct patterns of noncompliance or
denied payments or lost cash flow (114). The following are
useful types of internal or self-audits:
• Baseline audits are useful to determine areas of risk.
These audits are used at the beginning of a program to
identify areas of risk and to establish a baseline for fu-
ture audits. Keep separate records documenting each
issue identified during an audit. Consult counsel prior
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 123

Table 5.24 Billing modifiersa

CPT code two-digit
modifiers Claim form Description Example
Modifier 59 UB04 To identify a separate and distinct Modifier 59 is closely scrutinized by carriers and must
procedure performed on the be justified with physician documentation showing a
same day distinct service such as a separate site or session. For
To report a different or separate instance, if a bone marrow biopsy (38221) and bone
patient encounter marrow aspiration (38220) are taken from separate sites
To report tests not usually per- or separate patient encounters, both codes can be billed
formed together on the same date with a modifier 59 appended to the second code. If both
of service. biopsy and aspiration are taken through the same inci-
sion, reporting together is restricted.

Modifier 91 UB04 Replaced QR (program memoran-
dum AB-97-23).
Used when the same test is per-
formed more than once on the
same date of service
Modifier 91 should only be used when repeating a test that
is medically necessary for treatment. If a physician orders
a blood glucose (82947) more than once for the same
patient on the same day to obtain multiple results in the
course of patient treatment, modifier 59 should be used.

Modifier QW HCFA 1500 Used for waived tests A lab that operates with a waived status under the Clini-
cal Laboratory Improvement Amendment (CLIA) can
only perform tests that are granted waived status. When
a waived test is reported, modifier QW needs to be ap-
pended. The complete CLIA waived list can be found
at http://www.accessdata.fda.gov/scripts/cdrh/cfdocs/
cfClia/analyteswaived.cfm (accessed October 19, 2012).

Modifier GY HCFA 1500 Service is not a covered benefit Not required to issue an ABN in these cases. If a patient is
“curious” about his or her cholesterol level and a physician
orders a lipid panel (80061) for an asymptomatic patient,
modifier GY should be attached to the claim because
Medicare excludes coverage for cholesterol screening.

Modifier GZ HCFA 1500 Provider expects denial If a female patient comes in for an annual exam and pap
No ABN on file smear. Medicare will only pay for a pap smear once every
24 months for low-risk patients. The physician identifies
the patient as low risk and indicates that 14 months have
passed since the last pap smear. The lab evaluates the pap
smear and reports G0123 with modifier GZ to show that
payment is not expected and an ABN is not on file.

Modifier GA HCFA 1500 Expects denial. Procedure does If a physician sends a specimen for an iron test (83540)
not meet LMRP guides to “rule out” iron-deficiency anemia but provides no
Provider has an ABN on file diagnosis to indicate medical necessity, before conduct-
ing the test the lab should obtain an ABN.

Condition code 20 UB04 Indicates a service may be denied See example for modifier GZ
for medical necessity

Condition code 21 UB04 Service is excluded or non-covered See example for modifier GY

Condition code 32 UB04 Indicates that an ABN is on file See example for modifier GA
a
See reference 94.

to initiating audits to ensure protection under attorney-
client privilege.
• A chart audit, also referred to as post-payment review,
is often used by the facility’s compliance officer or legal
counsel to determine if a provider’s orders were appro-
priately documented and support the actual services
billed on the claim form. Each encounter with the pa-
tient should be thoroughly documented in the medical
record and should include date of service, reason for
visit, physical history and exam, risk factors, review of
reports, patient assessment, progress notes and response
to treatment, and a care and discharge plan as indicated.
• Periodic audits should become a regular routine and
ongoing part of any compliance program. Use a check-
list to audit problems identified in the baseline audit.
Random checks of orders versus billing should be
124 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
included. Avoid publishing a schedule for audits that
are impossible to meet, as it could be viewed as failure
to enforce your program.
• Review of laboratory reports. An audit of a laboratory
report should include a review of the procedural code
requested and ordered. The review should check for
up-coding, unbundling, and accurate coding to the
most specific ICD-9 diagnosis code using a fourth or
fifth digit. The second step should include a review of
the CMS 1500 claim and the remittance advice or the
explanation of benefits. Periodic audits should review
ICD-9 coding to ensure that medical necessity guide-
lines are met.
• Internal audit. Many hospitals have an internal audit
team reporting to risk management and the compliance
office that surveys the hospital departments’ processes
annually. Also referred to as a process audit, the intent is
to review procedures and forms for their effectiveness.
The billing or laboratory departments can also establish
an internal audit process. A charge audit reviews indi-
vidual charges for accuracy and appropriateness of bill-
ing. A denial audit reviews denied claims for system and
payor errors. Auditors must have access to all records,
resources, and relevant employees and should func-
tion independently of the management group. Prompt
follow-up and initiating remedial action on any recom-
mendations demonstrates commitment to compliance.
• External or special audits. These audits are external
and are used to check the status of a process change.
Investigations for Medicare contractor or third-party
payor inquiries are privileged and may need to be con-
ducted with advice of counsel. When an outside party
requests an audit, hiring an independent third party
may be recommended by the compliance/risk manage-
ment team. Claims submission sampling is a form of
prepayment review used by Medicare contractors and
third-party payors.
• Recovery Audit Contractors (RAC) audits. In an ef-
fort to eliminate Medicare overpayments, Congress
mandated the nationwide rollout of the RAC program
in 2006. The goal of RAC is to identify improper pay-
ments by performing post-payment reviews on Medi-
care Part A and Part B claims. There are two types of
RAC audits—automated and complex. An automated
review, also called a claims review, is a computerized
analysis of a provider’s Medicare claims based on al-
gorithms that look for specific discrepancies in the
claims. Under a complex audit, up to 300 medical rec-
ords can be demanded from a hospital every 45 days,
based on Medicare claims volume. Medicare has con-
tracted with four companies to perform audits across
the nation. These companies can subcontract with oth-
ers to conduct audits (116).
Compliance—the Next Generation: HIPAA
A relationship of trust with the consumer is difficult to
build, harder to maintain, and can be lost in the blink of
an eye. Healthcare organizations risk losing trust when in-
formation is not kept private, confidential, and secure. The
rapid growth of global e-commerce has heightened con-
sumer concerns about privacy. The existing standards for
the way health information is transmitted electronically,
stored, secured, administered, and utilized, as well as the
standards for patient privacy and safety by every health-
care provider and their business partners, have undergone
a dramatic metamorphosis driven by the Health Insur-
ance Portability and Accountability Act (HIPAA) of 1996.
HIPAA mandates a set of interdependent regulations that
require profound changes in the manner in which health
information is handled and processed and ultimately in
the relationships between patients, healthcare providers,
and insurers.
On July 2, 1999, HHS published the final HIPAA na-
tional privacy standards to regulate how health plans,
healthcare clearinghouses, and healthcare providers and
their business associates should protect all confidential
health information. The final privacy standards were ef-
fective April 14, 2003, for most covered entities.
HIPAA allows people to qualify immediately for com-
parable health insurance coverage when they change
their employment relationships. HIPAA (also known as
the Kennedy-Kassebaum Bill) gives HHS the authority
to mandate the use of standards for the electronic ex-
change of healthcare data; to specify what medical and
administrative code sets should be used within those
standards; to require the use of national identification
systems for healthcare patients, providers, payors (or
plans), and employers (or sponsors); and to specify the
types of measures required to protect the security and
privacy of personally identifiable healthcare informa-
tion. Organizations must comply with the privacy rights
or standards as set forth by the Centers for Medicare and
Medicaid Services (CMS) in an interim final rule regard-
ing patient rights and the conditions of participation de-
signed to ensure beneficiaries’ emotional and physical
health and safety (29, 30). The purpose of the HIPAA
regulation is threefold:
• To protect and enhance the rights of consumers by
providing them access to their health information and
controlling the inappropriate use of that information.
• To improve the quality of healthcare in America by
restoring trust in the healthcare system among con-
sumers, healthcare professionals, and the multitude of
organizations and individuals committed to the deliv-
ery of care.
• To improve the efficiency and effectiveness of health-
care delivery by creating a national framework for
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
health privacy protection that builds on efforts by the
states, health systems, and individual organizations
and individuals (29, 30).
Covered Entities
The HIPAA Privacy Standards apply to three categories of
covered entities:
• Health plans are individual or group plans that provide
or pay the cost of medical care, including health insur-
ance companies, managed-care organizations, insured
or self-insured employee health plans, and federally
funded health plans.
• Healthcare clearinghouses are public or private enti-
ties such as billing agencies, repricing companies, and
community health information network systems that
convert health information from nonstandard formats
into HIPAA standard formats or vice versa.
• Healthcare providers include institutions, professionals,
and medical suppliers that bill the Medicare program
or receive payment for health services rendered and
transmit individually identifiable health information
(IIHI) electronically as defined by the HIPAA standard
transaction.
Privacy Standards: Rules Governing Protected
Health Information
Health information is any information, whether oral or re-
corded, in any form or medium, that is created or received
and relates to the past, present, or future physical or mental
health or condition of a patient. Protected health informa-
tion (PHI) is individually identifiable information that is
transmitted by electronic media, maintained in any me-
dium, and transmitted or maintained in any form or me-
dium. IIHI includes 28 types of demographic information
that identifies the individual or provides a reasonable basis
to believe it will identify the individual, for example, so-
cial security number, driver’s license number, date of birth,
telephone and fax numbers, and patient address.
HHS issued a notice of proposed rulemaking in May
2011 that would modify HIPAA’s privacy rule. The purpose
of the proposed rule is, in part, to implement the statutory
requirement under the Health Information Technology
for Economic and Clinical Health Act that would require
covered entities and business associates to account for dis-
closures of PHI if the disclosure is through an electronic
health record (available at https://www.federalregister
.gov/articles/2011/05/31 [accessed March 1, 2012]; scroll
down to “Health and Human Services-Proposed Rules”).
Minimum necessary. Data privacy standards apply to
all health information pertaining to an individual that is
electronically transmitted or maintained, while data pri-
vacy provisions apply to PHI and IIHI that is or has been
125
electronically transmitted or maintained in any form. A
covered entity must make reasonable efforts to ensure
that no more than the minimum necessary PHI is used
or disclosed. For example, the patient registration process
for signing in at the front desk must limit PHI to the pa-
tient’s name and appointment or arrival time. Individu-
als have the right to request records of any disclosure
of their PHI for the previous six years (http://www.hhs
.gov/ocr/privacy, accessed March 1, 2012).
Security standards. The security standard requires cov-
ered entities to develop a new standard that integrates
every component of security. Procedures must be imple-
mented and certified to ensure the integrity, confidential-
ity, and accessibility of all PHI data. Formal processes for
employee training and termination to safeguard controlled
access to information and records must be followed. A
covered entity’s security management must include a con-
tingency plan for backing up data in case of a disaster.
To comply with PHI security regulations, whenever a
healthcare organization submits electronic data for claim
submission, COB, referral authorization, or eligibility
status to any business partner, a chain of trust agreement
should be executed between all business partners.
Transactions and code sets. HIPAA mandates that all
covered entities and their business associates utilize eight
standard transaction and code sets when filing claims. Ef-
fective October 2003, all participating Medicare providers
are mandated to submit claims electronically. The stan-
dards apply only to electronic transactions. Another by-
product of the HIPAA-mandated electronic data interface
is the opportunity to redesign patient and paper flow.
Administrative Requirements
A covered entity must develop and implement written pri-
vacy policies and procedures that are consistent with the
privacy rule. A covered entity must designate a privacy
official responsible for developing and implementing its
privacy policies and procedures and a contact person or
contact office responsible for receiving complaints and pro-
viding individuals with information on the covered entity’s
privacy practices. Members of the workforce, including
employees, volunteers, trainees, and other persons whose
conduct is under direct control of the entity (whether or
not they are paid by the entity), must be trained on pri-
vacy policies and procedures, as necessary and appropri-
ate for them to carry out their functions. Covered entities
must maintain reasonable and appropriate administrative,
technical, and physical safeguards to prevent intentional
or unintentional use or disclosure of protected health in-
formation that is in violation of the privacy rule. Examples
of data safeguards include shredding documents contain-
ing protected health information before discarding them,
126 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
securing medical records under lock and key, and limiting
access to medical records (http://www.hhs.gov/ocr/privacy,
accessed March 1, 2012).
Personnel Policies and Procedures
Covered entities must categorize personnel consistent
with job responsibilities for the purpose of limiting ac-
cess to PHI to the minimum necessary standard. Firewalls
must be constructed to limit access. Privacy education
and training, including password protection and use of
the Internet for all employees regardless of their job de-
scriptions, are mandated by the HIPAA final regulation.
Human relations policies should be readily accessible and
should clearly articulate the penalties for breaches in se-
curity or patient privacy (http://www.hhs.gov/ocr/privacy,
accessed March 1, 2012).
Patient Informed Rights
A hospital must inform patients of their rights prior to
giving care, must have a grievance process, and must iden-
tify a representative for the patient to contact. Patients
maintain the right to participate in the development of a
care plan with the healthcare provider and must be ad-
equately informed to make educated decisions regarding
their care.
Consent forms and authorization for PHI. Healthcare
providers may not use or disclose a patient’s health infor-
mation, either verbally, written, or electronically via fax or
e-mail, in the course of treatment or billing without prior
signed consent. Consent allows the use and disclosure of
PHI by the covered entity seeking payment, but not by
other persons. Consent forms are not needed when the
covered entity has an indirect treatment relationship or is
providing care to an inmate. Consent forms should fulfill
the following functions:
• Be a formal written form.
• Be signed and dated by the individual (patient) at ini-
tial onset of treatment. (Consent remains in effect un-
less the covered entity changes policies for privacy.)
• Be used to inform the patient that PHI may be used or
disclosed for treatment, payment, or healthcare opera-
tions. (The definition of payment includes coverage
determinations, billing, claims management, medical ne-
cessity review, and utilization review. Operations include
quality assessment, accreditation, medical review, com-
pliance, business planning, and due diligence activities.)
• Inform the individual of the entity’s privacy policies
and allow the patient to review them before signing.
• The entity may reserve the right to amend the form
with a procedure to notify the individual.
• The individual may request restriction on disclosure.
• The individual has the right to revoke the consent in
writing.
Use and disclosure of PHI for purposes other than treat-
ment, payment, and healthcare operation requires an au-
thorization specific to the purpose and must contain key
core elements as cited in the final rule (29, 30). Authoriza-
tions are required for preemployment physicals and deter-
mination, life insurance, psychotherapy notes, and clinical
trials or research and are more detailed than consent forms.
• The information to be disclosed must be specific.
• The person authorized to disclose must be identified.
• The recipient of the information must be named.
• An expiration date is required.
• The patient has the right to revoke disclosure.
Business Associates and Business
Associate Agreements
A business associate is defined as a person or business that
acts on behalf of the covered entity or organized health-
care arrangement. Effective September 23, 2013, busi-
ness associates are also subcontractors that create, receive,
maintain, or transmit PHI on behalf of a business associ-
ate, even if the subcontractor only has an indirect relation-
ship with the covered entity. This broadened definition also
includes health information organizations, e-prescribing
gateways, or other entities that provide data transmission
services to a covered entity which requires routine access
to PHI or offers a personal health record to individuals on
behalf of a covered entity. Associates can also provide man-
agement, administrative, accreditation, or financial ser-
vices to or for a covered entity where the PHI is disclosed in
the transaction (54a).
After satisfactory assurances have been obtained that
the business associate can safeguard PHI according to
HIPAA privacy standards for disclosure, a business associ-
ate agreement is executed between the covered entity and
the business associate. Under the rule, a business associ-
ate agreement entered into before January 25, 2013, that is
compliant with the previous rules may continue until the
agreement is amended or renewed, but not later than Sep-
tember 22, 2014 (54b).
Exceptions to business associate arrangements. Health-
care organizations can also ensure confidentiality and
security by using confidentiality agreements that are not
defined within the scope of business associate agreements
for contractors who incidentally encounter IIHI while in
the course of providing a contracted service, such as envi-
ronmental, linen, or dietary services. The decision on the
type of agreement used should be made with the advice
of counsel (85). Business associate arrangements are not
necessary when:
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 127

Table 5.25 HIPAA benefits Table 5.26 HIPAA criminal penalties

Stakeholder Benefit
Patient or consumer Internal renewal of attention to privacy and
security
System-wide efficiencies reducing costs
Providers Increased opportunity for workflow redesign
Improved cash flow by electronic data
interfaces
Payor or contractor Decreased claims inventory
Improved provider and patient satisfaction
Plan administrators Utilizing electronic enrollment, eligibility,
and authorization processes to reduce time
and provide faster coordination of services
Healthcare Reduction in manual processes
administration Decreased variation in processes
Customer service Reduced processing errors
Shorter claim cycle processing times
Online claim status reporting
• The covered entities are disclosing PHI for clinically
integrated care and treatment purposes.
• A health plan and another agency are collecting and
sharing individually identifiable health information for
the performance of authorized functions.
• A financial institution processes consumer-conducted
financial transactions for healthcare compensation.
The business associate agreement may not authorize an as-
sociate to disclose PHI in a manner that would violate the
privacy rules, unless proper management, administration,
or fulfilling legal responsibilities of the business associate
dictate, or to provide data aggregation services to the cov-
ered entity.
Standards for Electronic Transactions
Healthcare organizations have reduced costs through-
out the system in the face of shrinking reimbursements.
HIPAA is now mandating standardization and uniformity
Tier 1
Up to $50,000 and 1 year in prison for knowingly obtaining
or disclosing PHI
Tier 2
Up to $100,000 and 5 years in prison when the crime is com-
mitted under false pretenses
Tier 3
Up to $250,000 and 10 years in prison if there is intent to
sell, transfer, or use PHI for personal gain or malicious harm
for claims, eligibility, referral certification, authorization,
enrollment data, and premium payments. Using a single
format in each of these areas is an untapped basis for fur-
ther cost savings, estimated to be nearly $30 billion over
the next 10 years.
Another by-product of the HIPAA-mandated electronic
data interface is the opportunity to redesign patient and
paper flow from the front door to the back and from infor-
mation systems operations to and through firewalls. Pa-
tients, consumers, providers, contractors, and payors will
each benefit from HIPAA (82) (Table 5.25).
HIPAA Compliance and Enforcement
Enforcement of the privacy standards rests with the HHS
Office for Civil Rights. Any person, not just the person who
is the subject of the allegedly abused PHI, may file a com-
plaint. There are substantial consequences for failure to
comply with HIPAA. Civil monetary penalties for an organi-
zation are $100 per violation, or up to $25,000 per standard
violated per calendar year. Criminal penalties for individual
violation are listed in Table 5.26, and civil money penal-
ties, in Table 5.27. However, citizens cannot sue providers
for disclosure under the provisions of HIPAA (36) (http://
www.ama-assn.org/ama/pub/physician-resources/solutions
-managing-your-practice/coding-billing-insurance/hipaa
health-insurance-portability-accountability-act/hipaa
-violations-enforcement.page, accessed March 1, 2012).

Table 5.27 HIPAA civil money penalties

Violation
Individual did not know (and by exercis-
ing reasonable diligence would not have
known) that he/she violated HIPAA
HIPAA violation due to reasonable cause
and not willful neglect
HIPAA violation due to willful neglect,
but violation is corrected within the re-
quired timeframe
HIPAA violation is due to willful neglect
and is not corrected
Minimum penalty
$100 per violation, annual maxi-
mum of $25,000 for repeat violations
$1,000 per violation, with an annual
maximum of $100,000 for repeat
violations
$10,000 per violation, with an an-
nual maximum of $250,000 for
repeat violations
$50,000 per violation with an annual
maximum of $1.5 million
Maximum penalty
$50,000 per violation with an annual
maximum of $1.5 million
$50,000 per violation with an annual
maximum of $1.5 million
$50,000 per violation with an annual
maximum of $1.5 million
$50,000 per violation with an annual
maximum of $1.5 million
128 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Summary
Clinical laboratories are governed by federal and state
laws. Regulations are promulgated by many agencies. Pri-
mary among them are the Occupational Safety and Health
Administration (OSHA), the Centers for Disease Control
and Prevention (CDC), and the Food and Drug Admin-
istration (FDA). Other federal agencies and voluntary
standard-setting organizations also regulate and shape the
everyday operations of laboratories. A major responsibility
of laboratory managers and directors is keeping constantly
abreast of new and revised laws and regulations.
In addition to the laws and regulations governing the op-
eration of clinical laboratories, additional expectations are
placed on transfusion medicine services. With increased
awareness of transmissible diseases, and the sophisticated
methods to detect them in the blood supply, have come
mandated programs of donor screening and blood testing.
These programs have contributed to the increased cost of
blood but have also led to a safer blood supply.
In the Model Compliance Plan for Hospitals (MCPH),
the OIG stated that the American healthcare industry
continues to evolve. As the number of beneficiaries and
government expenditures grow, there is no time like the
present for hospitals to embark on a strong voluntary
compliance program. The dynamics of the process enable
healthcare providers to police themselves in order to meet
the changes and challenges imposed on them by Congress
and private insurers. The OIG intended that voluntary
participation would allow hospitals to meet their goals;
improve the quality of care; substantially reduce fraud,
waste, and abuse; and ultimately reduce the cost of health-
care to federal, state, and private insurers.
HIPAA addresses the five basic principles for the pro-
tection of privacy: consumer control, accountability, pub-
lic responsibility, boundaries, and security. Consumers
have the right to see a copy of their medical record, re-
quest corrections, and obtain documentation of disclosure
of their health information. Health information should
only be used for the purposes of treatment and payment.
There is a delicate balance between individual rights, pub-
lic health needs, research, quality of care, and compliance
with regulations. Appropriate security measures should
protect against deliberate or accidental misuse or disclo-
sure of health information. There are civil and criminal
penalties for violations of privacy standards (14).
KEY POINTS
■ Federal laws and voluntary standards governing safety
and human resource management functions in hospi-
tal laboratories are numerous, changing, and must be
monitored constantly.
■ Laboratories performing clinical testing to diagnose,
screen for, manage, or treat disease are regulated by the
federal government under the provisions of CLIA ’88.
■ Transfusion medicine has been under increasing regu-
latory oversight due to concerns about the safety of the
blood supply in response to the HIV epidemic and risks
of HCV.
■ Hospital transfusion services and blood manufacturers
are inspected by the FDA, with voluntary certification
by the AABB and TJC for hospitals.
■ The FDA requires both hospital transfusion services and
blood manufacturers to comply with tracking, trending,
and reporting of biological product deviations.
■ Primary areas of increased compliance risk to exposure
include unbundling, up-coding, duplicate billing, billing
without appropriate documentation, failure to maintain
confidentiality of records, and patient health information.
■ The HIPAA administrative simplification standards ap-
ply only to the transmission of healthcare data, whereas
the security standards apply to all healthcare informa-
tion maintained electronically or used in an electronic
transmission (14).
■ Federal regulations preempt all contrary provisions of
state law, unless the state law is more stringent, requires
the reporting of certain health conditions, or requires a
health plan to provide information about covered lives.
GLOSSARY
Advance Beneficiary Notice (ABN) A waiver of liability used by
providers to notify Medicare beneficiaries prior to receiving cer-
tain services that they may not be covered services and that the
beneficiary may incur financial responsibility for the uncovered
services.
Allogeneic blood Blood donated by a person other than the
recipient.
Ambulatory patient classification (APC) A method of deter-
mining payment for outpatient services based on a predeter-
mined rate for outpatient services. Certain services such as
radiology and blood products have their own APC; others include
supplies bundled into the 345 APCs. Diagnostic laboratory ser-
vices are paid on a fee schedule and are not assigned to an APC.
Americans with Disabilities Act (ADA) A federal law prohibit-
ing discrimination based on disability of qualified individuals.
Authorization Allows the use or disclosure of protected health
information for purposes other than patient treatment, payment,
or healthcare operations.
Autologous blood Blood donated by a person with the anticipa-
tion of being transfused back to the donor later.
Balanced Budget Act of 1997 The bill included provisions for
numerous healthcare issues such as civil penalties for fraud and
abuse, anti-kickback violations, guidelines for exclusion from the
Medicare program, diagnostic information on medical necessity,
coverage for additional screening tests, and prospective payment
of Part B services to patients in a skilled-nursing facility.
Beneficiary A person who has health insurance through the
Medicare or Medicaid program.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Biologics Substances derived from living sources (such as hu-
mans, animals, and microorganisms), in contrast to drugs that are
chemically synthesized. Most biologics are complex mixtures that
are not easily identified or characterized, and many biologics are
manufactured using biotechnology. Biological products often rep-
resent the cutting edge of biomedical research and, in time, may
offer the most effective means to treat a variety of medical illnesses
and conditions that presently have no other treatments available.
(Additional information is available at the website for the Food and
Drug Administration: www.fda.gov [accessed February 29, 2012].)
Blood bank A facility that collects and dispenses blood prod-
ucts, also known as a transfusion medicine service.
Blood center A facility that collects and manufactures blood
and blood products.
Business associate A person or organization to which a covered
entity discloses protected health information to perform a func-
tion or activity on behalf of a covered entity but that is not part of
the covered entity’s workforce. A business associate can also be a
covered entity in its own right.
Carrier Primary third-party contractors with the Centers for
Medicare and Medicaid Services who administer Part B pay-
ments according to the local medical review policies (LMRPs) to
physicians, ancillary services, and clinical laboratory providers.
Centers for Medicare and Medicaid Services (CMS) The federal
agency that runs the Medicare program. In addition, the CMS
works with the states to run the Medicaid program. The CMS works
to make sure that the beneficiaries in these programs are able to
get high-quality healthcare (www.cms.gov/, accessed July 2, 2012)
Chain of trust agreement A pattern of agreements that extends
protection of healthcare data by requiring that each covered en-
tity that shares healthcare data with another entity require that
entity to provide protections comparable to those provided by
the covered entity and that that entity, in turn, requires that any
other entities with which it shares the data satisfy the same
requirements.
Civilian Health and Medical Program of the Uniformed Ser-
vices (CHAMPUS) See TRICARE.
Claim A request for payment for services rendered to beneficia-
ries by providers.
Clinical Laboratory Improvement Act of 1967 (CLIA ’67) First
published in 1967 and amended in 1988, CLIA ’67 is a statute re-
quiring all laboratories performing clinical testing on human spec-
imens to comply with specific federal certification regulations.
Code of Federal Regulations (CFR) “The Code of Federal Reg-
ulations (CFR) is the codification of the general and permanent
rules published in the Federal Register by the executive depart-
ments and agencies of the Federal Government. It is divided into
50 titles that represent broad areas subject to Federal regulation.
Each volume of the CFR is updated once each calendar year and
is issued on a quarterly basis.” (http://www.gpoaccess.gov/cfr/
index.html, accessed January 10, 2012)
Code set Under the Health Insurance Portability and Account-
ability Act (HIPAA), this is any set of codes used to encode data
elements, such as tables of terms, medical concepts, medical di-
agnostic codes, or medical procedure codes. This includes both
129
the codes and their descriptions. Under HIPAA, the code-set-
maintaining organization creates and maintains the code sets
adopted by the secretary for use in the transactions for which
standards are adopted.
Consent A document signed by an individual that allows the use
or disclosure of the individual’s protected health information for
the purpose of treatment, payment, or healthcare operations.
Coordination of benefits (COB) A program that determines
which plan or insurance policy will pay first if two health plans
or insurance policies cover the same benefits. If one of the plans
is a Medicare health plan, federal law may decide who pays first.
A written statement that states which health plan or insurance
policy pays first if two health plans or insurance policies cover
the same benefits.
Corporate integrity agreement (CIA) A settlement agreement
between a healthcare provider and the Office of the Inspector
General that sets forth the terms and conditions for continued
participation in the Medicare program following investigation
and conviction of fraud and abuse.
Cross-walking When a new test is determined to be similar to
an existing test, multiple existing test codes, or a portion of an
existing test code, the new test code is assigned the related exist-
ing local fee schedule amounts and resulting national limitation
amount. In some instances, a test may only equate to a portion of
a test, and in those instances, payment at an appropriate percent-
age of the payment for the existing test is assigned.
Current procedural terminology (CPT) code A code set of
medical procedures, maintained and copyrighted by the Ameri-
can Medical Association (AMA), selected for use with noninsti-
tutional and nondental professional transactions. Some common
examples are 80047 for basic metabolic panel (chemistry), 80162
for digoxin (toxicology), 80110 for automated urinalysis with
microscopy (urinalysis), 85014 for hematocrit (hematology),
86900 for blood typing - ABO (transfusion medicine), and 87210
for wet mount for infectious agents (microbiology) (4).
Diagnosis code A descriptive code describing the principal diag-
nosis or the patient condition, established after study, to be chiefly
responsible for causing the patient to receive medical care.
Diagnosis-related group (DRG) A classification system that
groups patients according to diagnosis, type of treatment, age, and
other relevant criteria. A method of determining payment for hos-
pital services, calculated on a predetermined rate per discharge for
inpatient hospital services based on the discharge diagnosis. Un-
der the prospective payment system, hospitals are paid a set fee for
treating patients in a single DRG category, regardless of the actual
cost of care for the individual. Two common examples are DRG
139 for pneumonia and DRG 194 for heart failure (http://www
.vapricepoint.org/Basic_INP.aspx, accessed October 22, 2012).
Directed donor blood Blood that is donated at the request of a
potential recipient by a friend or family member and designated
for transfusion to that specific recipient, if compatible. Many
people think that this is safer than volunteer, allogeneic blood,
though scientific data do not support this notion.
Disclosure Release, transfer, provision of access to, or divul-
gence of information by an entity to persons or organizations
outside of that entity.
130 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
DRG creep Use of a diagnosis-related group (DRG) code that
provides a higher level of reimbursement than the code that ac-
curately reflects the patient’s condition.
End-stage renal disease (ESRD) The terminology used by
Medicare to designate beneficiaries who have permanent kidney
dysfunction and require dialysis treatment.
Ergonomics The science of fitting the job task to the individual
to reduce exposure to musculoskeletal disorders and repetitive
motion injuries.
Explanation of benefits A notice that is sent to beneficiaries after
a provider files a claim for Part A or B services under the original
Medicare plan to explain what the provider billed for, the Medicare-
approved amount, how much Medicare paid, and what the benefi-
ciary must pay. This is being replaced by the Medicare summary
notice (MSN), which sums up all the services (Parts A and B) that
were provided over a certain period of time, generally monthly.
Fiscal intermediary A primary third-party contractor with the
Centers for Medicare and Medicaid Services (CMS) that adminis-
ters Part A payments according to the local medical review policies
(LMRPs) for hospitals and rehabilitation and skilled-care facilities.
Food and Drug Administration (FDA) An agency of the De-
partment of Health and Human Services charged (among other
things) with regulating clinical laboratory instruments, reagents,
and blood banks (www.fda.gov, accessed February 29, 2012).
Fraud The intentional deception or misrepresentation that an
individual knows, or should know, to be false or does not believe
to be true and makes, knowing the deception could result in
some unauthorized benefit to himself or some other person(s).
Fraud and abuse Fraud is purposefully billing for services that
were not rendered or billing for a service that has a higher reim-
bursement than the service actually performed or provided.
Abuse occurs when payment is accepted for items or services
that are billed by mistake by providers but should not have been
paid by Medicare. This is not the same as fraud.
Gap-filling Method used to determine payment for medical
services when no comparable, existing test code is available.
Carrier-specific amounts are used to establish a national limita-
tion amount for the following year.
HCFA-1450 The basic form prescribed by the Medicare pro-
gram for claims submission for all facility billing, except for the
professional component of physicians services. Also known as
CMS-1450 and UB-92.
HCFA-1500 The basic form prescribed by CMS for the Medi-
care program for claims submissions by physicians and suppliers.
Also known as the CMS-1500 and UCF-1500.
Healthcare Common Procedural Coding System (HCPCS) A
medical code set that identifies healthcare procedures, equip-
ment, and supplies for claim submission purposes.
• Level I codes contain numeric CPT codes that are main-
tained by the American Medical Association (AMA). Ex-
amples include 88305 – Level IV – Surgical pathology, gross
and microscopic exam; 80047 – Basic metabolic panel (4).
• Level II codes are alphanumeric codes used to identify vari-
ous items and services to supplement services that are not
included in the CPT medical code set. These are maintained
by CMS, the Blue Cross and Blue Shield Association, and
the Hospital Insurance Association of America. Example:
G0431 – Drug screen qualitative – multiple drug classes by
high complexity test method (5).
• Level III codes are alphanumeric codes that are assigned by
Medicaid state agencies and local Medicare intermediaries to
identify additional items and services not included in level
I or II. These are usually called local codes, and must have
“W,” “X,” “Y,” or “Z” in the first position.
• HCPCS procedure modifier codes can be used with all three
levels, with the WA–ZY range used for locally assigned pro-
cedure modifiers.
Healthcare Financing Administration (HCFA) The former
name of the federal agency within the Department of Health and
Human Services (HHS) established to administer the Medicare,
Medicaid, and State Children’s Health Insurance Programs
(SHIP). The agency is now known as the Centers for Medicare
and Medicaid Services.
Health information Any information, whether oral or recorded,
in any form or medium, that is created or received and that re-
lates to the past, present, or future physical or mental health or
condition of a patient or the past, present, or future payment for
the provision of healthcare to a patient.
Health Information Technology for Economic and Clinical
Health Act Part of the American Recovery and Reinvestment
Act of 2009 (ARRA). ARRA contains incentives related to health-
care information technology in general (e.g., creation of a na-
tional healthcare infrastructure) and contains specific incentives
designed to accelerate the adoption of electronic health record
systems among providers.
Health Insurance Portability and Accountability Act (HIPAA)
Federal privacy standards that regulate how health plans, health-
care clearinghouses, and healthcare providers and their business
associates must protect confidential health information.
Individual The person (adult, emancipated minor, or legal repre-
sentative) who is the subject of the protected health information.
Individually identifiable health information (IIHI) Certain
health information that identifies an individual or provides a
reasonable basis to identify an individual.
International Classification of Diseases, ninth revision (ICD-9)
A medical code set maintained by the World Health Organization
(WHO). ICD-9 classifies morbidity and mortality information
for statistical purposes and for the indexing of hospital records by
disease and operations for data storage and retrieval.
International Classification of Diseases, ninth revision, Clinical
Modification (ICD-9-CM) The American Medical Association’s
(AMA) ICD-9-CM is based on the official version of the World
Health Organization’s ninth revision, International Classification
of Diseases (ICD-9). The term “clinical” is used to emphasize the
modification’s intent: to serve as a useful tool to classify morbidity
data for indexing medical records, medical care review, and am-
bulatory and other medical care programs, as well as for basic
health statistics. To describe the clinical picture of the patient, the
codes must be more precise than those needed only for statistical
groupings and trend analysis. ICD-9-CM is totally compatible
with ICD-9, thus meeting the need for comparability of morbidity
and mortality statistics at the international level.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
International Classification of Diseases, tenth revision, Clini-
cal Modification (ICD-10-CM) On January 16, 2009, the U.S.
Department of Health and Human Services (HHS) released the
final rule mandating that everyone covered by the Health In-
surance Portability and Accountability Act (HIPAA) imple-
ment IDC-10 for medical coding. IDC-10 will replace ICD-9
coding. The current required compliance date for implementa-
tion is October 1, 2013. ICD-10 increases the number of re-
porting codes from approximately 13,600 to 69,000, providing
a dramatic increase in the level of reporting detail and granu-
larity. (68).
International Organization for Standardization (ISO) The in-
ternational organization that establishes common voluntary
standards for manufacturing, trade, and communications. ISO
standards previously applied to manufacturing are now being ap-
plied to blood manufacturing (104, 121).
The Joint Commission (TJC) Formerly the Joint Commission
on Accreditation of Healthcare Organizations (JCAHO). A non-
profit voluntary safety and quality evaluation and accrediting
organization that accredits nearly 5,000 hospitals and other
healthcare facilities.
Local medical review policies (LMRPs) The medical necessity
guidelines established by local Medicare contractors for partici-
pating providers.
Medically necessary Services or supplies that are proper and
needed for the diagnosis or treatment of a medical condition; are
provided for the diagnosis, direct care, and treatment of a medi-
cal condition; meet the standards of good medical practice in the
local area; and are not mainly for the convenience of the benefi-
ciary or the provider.
Medicaid Title XIX is a program administered by state and fed-
eral government to provide medical benefits to indigent persons
of all ages who meet defined criteria.
Medicare Administrative Contractor (MAC) “Beginning in
2008, Medicare began replacing fiscal intermediaries, carriers
and Regional Home Health Intermediaries with Medicare Ad-
ministrative Contractors (MACs). These MACs will process
claims for both Medicare Part A and Part B in assigned regions.”
(http://www.medicareinteractive.org/page2.php?topic=counselor
&page=glossary [accessed June 18, 2013].)
Medicare Part A Part A is the hospital insurance portion of
Medicare. Medicare was established by §1811 of Title XVIII of the
Social Security Act of 1965, as amended, and covers inpatient
hospital care, skilled-nursing facility care, some home health
agency services, and hospice care. There are no longer separate
Part A and Part B contractors, but Medicare Administrative Con-
tractors (A/B MACs) who serve 15 jurisdictions which will even-
tually be consolidated into 10 jurisdictions. (https://www.cms.gov/
Medicare/Medicare-Contracting/MedicareContractingReform/
PartAandPartBMACJurisdictions.html, accessed June 14, 2013.)
Medicare Part B Part B is the portion of Medicare insurance that
pays for physician services and covered outpatient services, also re-
ferred to as Supplemental Medical Insurance. It was established by
§1831 of Title XVIII of the Social Security Act of 1965, as amended,
and covers services of physicians/other suppliers, outpatient care,
medical equipment and supplies, and other medical services not
covered by the hospital insurance Part A of Medicare.
131
Medicare secondary payor A statutory requirement that private
insurers, workman’s compensation, and the Department of Vet-
erans Affairs, who provide general health insurance coverage to
Medicare beneficiaries, pay beneficiary’s claims as primary pay-
ors before the claims are submitted to Medicare.
National coverage determination (NCD) National coverage
policies developed by the CMS that indicate whether and under
what circumstances certain services are covered under the Medi-
care program. It is published in CMS regulations, published in
the Federal Register as a final notice, contained in a CMS ruling,
or issued as a program instruction.
Negotiated rule making The process of federal agency repre-
sentatives and other special interest groups convening to negoti-
ate the text of a proposed rule.
New variant Creutzfeldt-Jakob disease (vCJD) A disease of the
central nervous system, transmitted through a conformational
protein change (prion), caused by eating by-products of infected
cows, during certain medical procedures, including corneal trans-
plants, or through implantation of contaminated electrodes in
the brain. Clusters of Creutzfeldt-Jakob cases have been docu-
mented among patients undergoing neurosurgery at a few medi-
cal facilities. The prion is neither a virus nor any other previously
known infectious agent, but rather an unconventional agent. Pri-
ons are thought to transform normal, benign protein molecules
into deadly ones by altering their shape. Healthcare professionals
are encouraged to take precautions when handling blood and
spinal fluid samples taken from patients with vCJD.
Noncovered service A service that does not meet the require-
ments of a Medicare benefit category, is statutorily excluded from
coverage on other grounds, or is deemed not reasonable and
necessary.
Notice of proposed rule making The document that describes
and explains the regulation that the federal government proposes
to adopt at some future date and invites interested parties to sub-
mit comments related to them. These comments can then be
used in developing a final regulation.
Nucleic acid testing Amplifying genetic material to detect the
smallest amount of a substance. It allows earlier detection of in-
fectious agents than serologic tests.
Office of the Inspector General (OIG) An independent agency of
the Department of Health and Human Services established in 1976
to perform audits and investigations of federally funded programs.
Omnibus Reconciliation Act (OBRA) of 1989 Prohibits physi-
cians from referring laboratory testing for Medicare beneficiaries
to a laboratory in which the physician has an ownership interest.
Also known as the Stark Law.
Omnibus Reconciliation Act (OBRA) of 1990 Denies Medicare
reimbursement to a laboratory for a test performed off-site un-
less at least 70% of the tests for which the laboratory receives re-
quests and submits claims are performed onsite. Also known as
the “shell lab” act.
Outpatient prospective payment system The method of pay-
ment Medicare uses to determine how much Medicare pays and
how much the Medicare beneficiary pays for outpatient services
at hospitals or community mental health centers under Medicare
Part B. Medicare does not pay for all outpatient services under
132 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
the new prospective payment system begun August 1, 2000 (for
example, procedures Medicare considers inpatient procedures
such as fixing a fractured hip).
Payor In healthcare, a payor is any entity that assumes the risk of
paying for medical treatments for an uninsured patient, a self-
insured employer, a health plan, or an HMO.
Personal protective equipment Equipment or garments used to
protect employees from exposure to workplace hazards.
Preferred provider organization (PPO) A healthcare organization
composed of physicians, hospitals, and other providers that provide
healthcare services at a reduced fee. In a PPO care is paid for as it is
received, rather than as a scheduled fee in advance as with an HMO.
Prospective payment system (PPS) A method of reimbursement
in which Medicare payment is made based on a predetermined,
fixed amount. The payment amount for a particular service is de-
rived based on the classification of that service (for example,
diagnosis-related groups for inpatient hospital services).
Protected health information (PHI) Individually identifiable
health information transmitted or maintained in any form or
medium that is held by a covered entity or its business associate,
identifies the individual or offers a reasonable basis for identifi-
cation, is created or received by a covered entity or an employer,
and relates to a past, present, or future physical or mental condi-
tion, provision of healthcare, or payment for healthcare.
Provider Any entity (for example, hospital, skilled-nursing facil-
ity, home health agency, outpatient physical therapy, comprehen-
sive outpatient rehabilitation facility, end-stage renal disease
facility, hospice, physician, nonphysician provider, laboratory, or
supplier) providing medical services.
Provider-performed microscopy procedures (PPMP) CLIA ’88
term for a limited number of moderate-complexity, microscope-
based tests that may be performed by a physician, midwife, or
nurse practitioner operating under a PPMP certificate.
Quality-adjusted life year (QALY) Used as a standardized mea-
sure of the quality of life. It is a year of life, adjusted for its quality.
The measure takes into account both longevity and the quality of
life lived (23). One year of perfect health is 1.0 QALY.
Quality assurance The sum of activities planned and performed
to provide confidence that all systems and their elements that
influence quality of the product are functioning as expected and
relied upon (70).
Railroad Retirement Act A federal insurance program simi-
lar to Social Security designed for workers in the railroad in-
dustry. The provisions of the Railroad Retirement Act provide
for a system of coordination and financial interchange between
the Railroad Retirement program and the Social Security
program.
Resource-based relative value scale A scale of national uniform
relative values for all physicians’ services. The relative value of
each service must be the sum of relative value units representing
physicians’ work, practice expenses net of malpractice expenses,
and the cost of professional liability insurance.
Resource utilization group The payment for services rendered
to a Medicare beneficiary in a skilled bed of a nursing home facil-
ity; also known as consolidated billing.
Revenue code The UB-92 or uniform bill requires submission
of a revenue code, which is used to identify specific accommoda-
tion charges, ancillary service charges, or a type of billing calcu-
lation. Revenue codes are maintained by the National Uniform
Billing Committee.
Risk The chance of suffering a loss.
Risk management A process to identify, reduce, and eliminate
exposure to risks that result in financial loss.
Root cause analysis Team-based problem-solving tool used to
determine how or why something happened. Asking, “why?” five
times or using cause and effect diagrams are common methods
employed (108).
Sanctions Administrative remedies and actions (for example,
exclusion or civil monetary penalties) available to the OIG to
deal with questionable, improper, or abusive behaviors of provid-
ers under the Medicare, Medicaid, or any state health programs.
Standard transaction The transmission of any health informa-
tion in electronic form in connection with a transaction.
Stark I Amendment A federal law prohibiting physicians from
referring a Medicare patient to an entity for the furnishing of
laboratory services if the physician, or the physician’s immediate
family member, has a direct or indirect financial interest in the
entity providing the laboratory services.
Stark II Amendment An extension of the Stark I Amendment
that prohibits physicians from referring Medicare and Medicaid
patients for certain types of services known as “designated
health services” to entities if the physician, or the physician’s im-
mediate family member, has a direct or indirect financial inter-
est in the entity.
Third-party administrator An entity required to make or re-
sponsible for making payment on behalf of a group health plan.
Transfusion medicine service Department or laboratory that
provides compatibility testing, labeling, and release of blood to
patients. Also provides consultative services to clinicians.
TRICARE The healthcare program for active duty members of the
military, military retirees, and their eligible dependents; formerly
called CHAMPUS (http://www.tricare.mil/, accessed July 2, 2012).
Unbundling Submission of bills for various tests in a piecemeal
or fragmented fashion. Generally this practice is illegal if done to
maximize reimbursement.
Uniform Bill-92 (UB-92) A uniform institutional claim form,
developed by the National Uniform Billing Committee, that has
been in general use since 1993. The form, also known as the
HCFA-1450 or CMS-1450, is used by facilities when filing Medi-
care claims with fiscal intermediaries.
Up-coding Use of a billing code that provides a higher level of
reimbursement than the code that accurately reflects the service
provided.
Validation Establishing documented evidence that provides a
high degree of assurance that a specific process will consistently
produce a product meeting its predetermined specifications and
quality attributes. A process is validated to evaluate the perfor-
mance of a system with regard to its effectiveness based on in-
tended use (70).
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS
Window period The period of time when blood tests are nega-
tive for a pathogen, though the individual is infected and able to
transmit the agent. Targeted lookback and informing transfusion
services of post-donation information from a donor, following
blood donation, are designed to identify recipients of blood who
might have been transfused during the window period.
World Health Organization (WHO) “WHO is the directing and
coordinating authority for health within the United Nations sys-
tem. It is responsible for providing leadership on global health mat-
ters, shaping the health research agenda, setting norms and
standards, articulating evidence-based policy options, providing
technical support to countries and monitoring and assessing health
trends” (http://www.who.int/en/, accessed February 1, 2012).
Zero tolerance The OIG’s position that a healthcare institution
will promote and adhere to compliance at all levels and that non-
compliance will not be tolerated.
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141. Young, C. 2000. MSP questionnaire raises challenging issues
for laboratorians. Vantage Point 4(15):9–12.
142. Young, C. 2002. Clinical Laboratory Management Associa-
tion. Compliance 2002 audio conference series. The New ABN: Un-
derstanding the Rules/Strategies for Successful Implementation.
CLMA, Wayne, PA.
143. Zou, S., S. L. Stramer, and R. Y. Dodd. 2012. Donor testing
and risk: current prevalence, incidence, and residual risk of transfu-
sion-transmissible agents in US allogeneic donations. Transfus. Med.
Rev. 26(2):119–128.
 CHAPTER 5. THE IMPACT OF REGULATORY REQUIREMENTS 137

APPENDIX 5.1 Useful Websitesa

AABB Food and Drug Administration

www.aabb.org www.fda.gov
American Association of Bioanalysts International Society for Cellular Therapy
www.aab.org www.celltherapy.org
American National Standards Institute Information about the voluntary standards and accreditation pro-
gram offered by the Foundation for the Accreditation of Cellular
www.ansi.org
Therapy.
American Osteopathic Association
The Joint Commission
www.aoa-net.org
www.jointcommission.org
American Society for Clinical Laboratory Science
Medicare
http://www.ascls.org
www.medicare.gov
This is a professional organization for clinical laboratory science
Website for use by Medicare beneficiaries.
practitioners. The website contains information about certification,
licensure, and careers. Medicare Payment Advisory Committee (MedPac)
American Society of Histocompatibility and Immunogenetics www.medpac.gov
www.ashi-hla.org Contains copies of MedPac reports.
Information about the accreditation program. National Government Services
Centers for Biologics Evaluation and Research www.ugsmedicare.com/mspindex.asp
www.fda.gov/cber; http://www.fda.gov/BiologicsBloodVaccines/ The Medicare Secondary Payor Index is available at this website.
default.htm National Skills Standards Board
http://www.fda.gov/downloads/AboutFDA/ReportsManualsForms/ www.nssb.org
Forms/UCM061463.pdf The National Skills Standards Board administers certification ex-
Website where a copy of a biological product deviation report, form aminations in many areas including those for the American Medical
FDA-3486, is available. Technologists.
Centers for Disease Control and Prevention Office of the Inspector General of the Department of HHS
www.cdc.gov http://oig.hhs.gov/
The homepage provides links to CDC resources and other websites Information about fraud prevention and detection and compliance
and has a search function. guidance, as well as the Model Compliance Plan for Laboratories.
www.cdc.gov/od/ohs/ergonomics/labergo.htm
OSHA
This CDC web page gives extensive information on ergonomics and
www.osha.gov
a laboratory self-assessment checklist.
News, information, and links to laws and regulations, safety and
Centers for Medicare and Medicaid Services health topics, and other related information.
www.cms.hhs.gov http://www.osha.gov/about.html
Clinical and Laboratory Standards Institute A brief explanation of the OSHA’s mission and the services offered
www.clsi.org by the agency.
The CLSI is a global, nonprofit organization that promotes the de- Research and Special Programs Administration Office of
velopment and use of voluntary consensus standards and guidelines Hazardous Materials Safety
for use in the healthcare industry. http://phmsa.dot.gov/hazmat
COLA Information about transporting hazardous materials by air, rail,
www.cola.org highway, or water.
Information about accreditation and other programs offered by United States Government Accountability Office
COLA, a national healthcare accreditation association. www.gao.gov
College of American Pathologists Contains copies of GAO reports.
www.cap.org U.S. Government Printing Office
Information about CAP, including the laboratory accreditation www.access.gpo.gov/nara/cfr/index.html
program. Features of this website allow the user to browse the Code of Federal
Equal Employment Opportunity Commission Regulations titles and to retrieve specific citations.
www.eeoc.gov
Links to laws, regulations, and policies as well as other useful
information. a
Websites all accessed July 2, 2012.
138 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
APPENDIX 5.2 HIPAA Case Study
You work in the laboratory at General Hospital. You are on a
patient unit delivering some supplies that were needed urgently.
As you wait at the nurse’s station, you notice Dr. Smith logging
into a patient’s record. He has navigated to the lab results and
seems to be looking at the toxicology section. Since you recently
posted those results yourself, you know that Dr. Smith is not this
patient’s physician. Dr. Smith sees you standing there and asks if
you know if this patient has had an HIV test done. He tells you
that this patient is a former patient of his and he is concerned
about how she is doing.
QUESTIONS
1. If you provide this information to the physician, is it consid-
ered to be an appropriate use of health information?
2. Is this physician entitled, under HIPAA, to know these re-
sults since the patient is a former patient of his?
3. What would you say to Dr. Smith?
4. Would you notify your supervisor?
ANSWERS
1. No. Protected health information (PHI) can only be dis-
closed for the purpose of payment, treatment, or healthcare
operations.
2. No. Dr. Smith is no longer involved in the care of this patient
and has no legitimate reason to obtain the results of any tests
or other PHI.
3. Dr. Smith, since you are no longer providing medical care to
this patient you are not permitted by HIPAA to view any of
her results or obtain any other type of information without
the patient’s permission. Please close the record now.
4. Yes, let your supervisor know about this incident. You may
also have a compliance hotline that can be used to report
what you saw and heard.
Introduction
Overview of Major Changes
6 The Changing Practice
Shift from Inpatient to Outpatient Care • Shift
from Centralized to Decentralized Testing • Shift
of Medicine
to Primary Care: Patient-Centered Medical Home •
Shortages of Qualified Staff • Quality of Care and
Error Reduction • Pay for Performance • Healthcare Susan D. Roseff, Denise E. Russell, and Margaret M. Grimes
Reform • Advances in Technology • Wellness and
Prevention • The Aging Population • Recognition of
Women’s Health Needs
The Impact of Technology OBJECTIVES
The Electronic Medical Record • Meaningful
Use/Value-Based Purchasing • Patient Access to To define changes impacting the practice of medicine over the first decade of
Information • Patient Confidentiality • Advances in the 21st century
Diagnostic Testing
To outline the major cost-containment and medicolegal issues faced by the
The Emergence of Clinical Practice healthcare team, including laboratorians
Guidelines
The Role of Evidence-Based Medicine and Outcomes To describe recent advances in medicine and information technology
Data • Concerns about Utilization and Quality • To describe physician practice and utilization patterns developing in response
Clinical Practice Guidelines and Clinical Pathways
Defined • Use of Clinical Practice Guidelines •
to societal, reimbursement, and emerging technology
Pros and Cons • Developing Clinical Pathways and To identify the changes in medical school and residency curricula intended to
Guidelines prepare physicians for medical practice in the 21st century
Medicolegal Issues
Malpractice Litigation • Patient Safety • Disclosure
of Adverse Events/CMS Never Events • CMS Serious To change and to change for the better are two different things.
Reportable Events • Enterprise Risk Management •
Insurance • HIPAA and Patient Confidentiality • German proverb
Contracts • Specimens • Documentation • Research

S
Liability ocietal changes, changes in technology, and changes in expec-
Training Physicians for Practice in the tations have all come together to create a landscape vastly different for
21st Century
The Educational Goal: The Complete Physician •
both practitioners and consumers of healthcare over the last two decades.
New Paradigms in Medical Training • Incorporating The practice of medicine has changed in response to new discoveries in medi-
New Knowledge and Training Techniques into the cine and science but is being shaped by external pressures such as rising costs,
Curriculum • Training Physicians for the Managed-
Care Environment
increasing competition, and a new emphasis on customer satisfaction in the
information-savvy patient. Patients, looking for zero risk, seem more likely to
External Forces Impacting
Undergraduate and Graduate seek legal avenues when adverse outcomes occur. Due to a focus on the rate
Medical Education of errors in medicine, the medical, regulatory, and legislative communities are
Finding the Right Mix: How Many Physicians Do We interested in ways to deliver consistent, high-quality care. With concomitant
Need? • Current Challenges to Academic Centers
concerns about overutilization of certain medical services and investigations
Summary revealing fraudulent practices, there is a tremendous amount of attention and
KEY POINTS scrutiny of all aspects of healthcare. The training programs that educate fu-
GLOSSARY ture physicians have been restructured to prepare students for the practice
REFERENCES environment they will soon enter. The laboratory, always at the forefront of
APPENDIX quality issues, is the perfect paradigm of changes going on at a global level in
healthcare.

Overview of Major Changes

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch6
Americans enjoy one of the greatest healthcare systems in the world. Improve-
ments in technology coupled with increased demands for greater access are
some of the factors responsible for increases in cost. As healthcare costs have
risen, there has been pressure to gain control through restructuring, mostly in

139
140 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
the form of changes in Medicare and Medicaid regulations
as well as the continued growth of managed care. Chang-
ing the rules of payment and reimbursement has had vast
effects on the clinical laboratory (see Table 6.1).
Shift from Inpatient to Outpatient Care
Recognizing that the high cost of inpatient hospital care
has created a shift favoring outpatient treatment, in an at-
tempt to gain control of expenses (82), insurance compa-
nies and hospitals alike continue to move toward the less
expensive outpatient arena for both diagnostic testing and
procedures.
Shift from Centralized to Decentralized Testing
The location of laboratory testing has moved, since the
hospital’s core laboratory may no longer be the best place
to perform testing. Centralization of staff and resources
has traditionally been viewed as the most efficient way to
perform inpatient testing. However, as the patient popu-
lation shifts to outpatient clinics and remote sites closer
to residential areas, decentralized laboratory testing has
become more common. Within the hospital, other sites,
such as the outpatient clinics, the operating suite, or the
bedside, may be ideal. Point of care testing (POCT), of-
ten performed by nonlaboratory personnel, has evolved as
a means to provide more rapid turnaround times and to
provide a more convenient location for patients (79). For
these same reasons, physicians may also provide limited
testing in their offices. POCT, while convenient and ef-
ficient, comes with drawbacks, such as how to maintain
Table 6.1 Themes of change
Financial
Cost containment
Changes to Medicare/Medicaid
Managed care
Pay for performance
Technological
Electronic medical record
Patient portals
Patient confidentiality
Meaningful use/value-based purchasing
Social
Medical home
Wellness and prevention
Aging population
Women’s health issues
Shortages of qualified staff
Legal/regulatory
Concern regarding errors in medicine
Concern regarding fraudulent practice
Increasing malpractice litigation
Training
Preparation for healthcare reform
Addressing technological advances in curriculum
Emphasis on competency/high reliability and patient safety
competency of the person performing the test. Healthcare
regulators such as The Joint Commission (TJC) require
initial and ongoing competency in performing any lab test
at the point of care. This places a burden on laboratorians,
who remain responsible for ensuring the competency of
the provider and the quality of the result (97).
As the venue for laboratory testing has changed, pathol-
ogists and other laboratorians have assumed consultative
roles, in lieu of direct management, to help nonlaborato-
rians run operations that maintain compliance and qual-
ity. For example, at Virginia Commonwealth University
Health System (VCUHS), a laboratory located in the sur-
gical suite is managed jointly by pathology and anesthesia.
Such liaisons will become increasingly common as labora-
tory professionals, specifically trained in these areas, make
themselves available to enterprises outside of their exclu-
sive and direct control.
Shift to Primary Care: Patient-Centered
Medical Home
Managed care was developed to control spiraling health-
care costs. Many insured patients must go through their
primary care provider before seeing a specialist. As a re-
sult, primary care providers are seeing and treating pa-
tients who may have been referred to a specialist in the
past. This has led to a concept known as the patient-
centered medical home (PCMH), where patients are ex-
pected to become involved in their own plan of care and in
shared decision making with their primary care physician
(87). As the medical home model evolves, one can spec-
ulate that more diagnostic testing will be done by these
physicians to gain a broader picture of their patients’ ill-
nesses as well as to promote wellness. Empirically it seems
that this reallocation could affect the use of the laboratory,
though such trends are not yet well documented in the
literature (see Table 6.2).
Independent commercial laboratories have also found
a place in the new order (93). As the Clinical Laboratory
Improvement Amendments (CLIA) have posed some im-
pediments for physician outpatient laboratories perform-
ing increasingly complex testing, outsourcing has become
more common. Each laboratory must weigh the costs and
Table 6.2 Perceived benefits of the medical home
Coordination of care
Involvement of patient and family as appropriate in care
planning and decisions
Smooth transitions of care
Increased trust between patient and provider
Improved communication
Reduced cost
Improved patient safety
Improved communication among the healthcare team
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
benefits of adding high-cost testing versus sending the
tests outside of the facility; the test volume and turnaround
time are important parts of the decision. As a result, com-
mercial laboratories have become the centers of esoteric
testing, since many hospital laboratories cannot justify the
cost of maintaining low-volume esoteric testing.
Shortages of Qualified Staff
Echoing the personnel changes in broader aspects of
healthcare, the laboratory has also seen changes in the
composition of its workers. More generalists staff labora-
tories than in the past (93). In addition, with shortages of
medical technologists (clinical laboratory scientists), these
specialists will assume more supervisory and managerial
roles, with testing being performed by less-trained per-
sonnel. Many medical technologists have left the lab in
search of jobs that offer more flexibility and professional
growth. Also, many training programs have closed as hos-
pitals look for ways to decrease costs. Some organizations
are considering reactivating these programs to fill this void
(55), and some have already done so.
Quality of Care and Error Reduction
The government and managed-care organizations con-
tinue to push healthcare toward a more efficient, cost-
effective practice of medicine, with the provision of
high-quality care. The creation of practice guidelines and
practice parameters is now required by Medicare and
many managed-care providers as a means to practice
medicine in a consistent manner and to receive the full
reimbursement for services provided to the patient. Us-
ing evidence-based methodologies that lead to the best
care should produce the best patient outcomes, which is
a model now coined pay for performance (P4P). Publica-
tions like To Err Is Human, published by the Institute of
Medicine (IOM), have increased the focus on errors in
medicine and have also challenged the medical commu-
nity to improve quality (22). Over the last 20 years, con-
cerns regarding fraud and overuse of testing have forced
laboratories to bundle and unbundle analytes for billing
purposes to comply with changing regulatory require-
ments. This is likely to continue but may help prevent
unnecessary testing and contain costs.
Pay for Performance
Most healthcare payment systems use a fee for services ap-
proach that reimburses providers based on the intensity,
volume, frequency, and type of services they provide. The
pay for performance concept, established by the Affordable
Healthcare Act of 2010, adjusts the fee for service model to
include higher payments for higher-quality care (107). It
has not been demonstrated in the literature that this model
improves quality. For example, in one retrospective study
of more than 325,000 Medicare patients undergoing one
141
of six high-risk surgeries at nearly 2,200 hospitals across
the country in 2005 and 2006, there was no improvement
in outcomes in hospitals that demonstrated better com-
pliance with specific P4P parameters. On the Centers for
Medicare and Medicaid Services (CMS) Hospital Compare
website (http://www.hospitalcompare.hhs.gov/, accessed
February 12, 2012), when the authors compared 30-day
postoperative mortality rate, venous thromboembolism,
and surgical site infection, they found wide variation in
the reported process compliance. They point out that the
selected outcome might not be the best measure to follow
and recommend a reevaluation of the processes and mea-
sures being used; if patients currently use the website to se-
lect a hospital with the highest rate of compliance, they will
not be assured a better outcome (71). Additional informa-
tion available on the Agency for Healthcare Research and
Quality (AHRQ) website notes that there have been mixed
results in some of the P4P programs. Therefore, there
needs to be ongoing evaluation of current programs to
see what makes some successful and others unsuccessful.
This will require more active engagement with providers
to design programs that can improve patient care (http://
www.ahrq.gov/about/annualconf11/young/young.htm,
accessed February 1, 2012). The continuation and expan-
sion of the P4P model is likely to continue as part of the
evolution of healthcare (Table 6.3).
Healthcare Reform
In March 2010, President Barack Obama signed the Patient
Protection and Affordable Care Act of 2010. This bill ac-
knowledged that healthcare should be available for every-
one in the United States. Because of economic pressures,
Table 6.3 Pay for performance a,b
Type of measures available
at www.Medicare.gov Examples of measures
Process measures Surgical improvement
Heart attack care
Pneumonia care
Heart failure care
Children’s asthma care
Outcome measures Death rates
Readmission rates
Use of medical imaging Utilization and appropriate-
ness of imaging studies
Patient hospital experiences Patient’s perceptions of hos-
pital stay
Patient safety measures Hospital-acquired infections
Hospital-acquired conditions
Serious complications
Deaths
a
Medicare Modernization Act of 2005: Hospitals are required to report quality
measures to CMS.
b
October 12, 2012: Performance by the hospital will now tie back to Medicare
reimbursement.
142 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
health reform has been needed for years, but health reform
has gone beyond just an economic fix. Congress placed
substantial emphasis on the power of primary care and the
importance of prevention. Because the new law calls for a
fundamental revamp of practice, the success or failure of
health reform rests on the ability of healthcare delivery
professionals to change. Doctors and nurses are charged to
adopt new attitudes (including population-based medicine
and evidence-based practice) and to use new tools such as
electronic health records and quality-improvement meth-
odology. What is at stake is no less than a transformation
of practice. As this new law rolls out, we should begin to
see incremental increases in physicians who provide pri-
mary and family care. As previously mentioned, this may
result in an increase in the numbers of tests ordered by
these physicians, since they will not refer these patients to
specialists (43).
Advances in Technology
Technological advances created revolutionary changes in
the way medicine and laboratory medicine are practiced.
The application of molecular biology, using analysis of
nucleic acids and proteins to diagnose disease, assess prog-
nosis, and tailor therapy, has had a profound impact on the
laboratory, as well as patient care, globally. For example,
using nucleic acid testing (NAT) for the detection of trans-
missible pathogens allows earlier diagnosis and treatment.
The use of molecular diagnostics to not only enhance di-
agnosis, but guide treatment, has exploded. For example,
in the field of pharmacogenomics, testing can be used
before instituting therapy to determine if a certain medi-
cation will be effective. Along with this cutting-edge tech-
nology comes the need to understand the costs and unique
logistics associated with the rapidly changing landscape of
laboratory testing (30, 104, 109). Cellular-based therapies,
from the use of human stem cells to adipose tissue, are
making their way into the marketplace and are the basis
of a new industry that impacts laboratory practice. Quality
and regulatory agencies are looking for ways to ensure a
safe efficacious product (92, 101).
Wellness and Prevention
It seems plausible that preventing disease and keeping
people well will cause the overall cost of care to decline. In
March 2010, the Patient Protection and Affordable Care
Act (PPACA) was signed as legislation that includes pro-
visions for focusing on wellness, prevention, and public
health (56). With the enactment of the PPACA, tests are
used as a means to maintain wellness (e.g., cholesterol) and
to prevent disease progression through early screening. If
wellness and prevention programs result in improvements
in overall health, the rate of reimbursement for wellness
testing might also become more favorable.
The Aging Population
The population of the United States continues to live lon-
ger. The elderly represent a larger proportion of patients,
as well as a powerful lobbying group. This undoubtedly in-
creases the use of healthcare and laboratory systems. The
recognition of diseases that accompany longevity, such
as osteoporosis, prostate cancer, and Alzheimer’s disease,
changes the demands placed on the laboratory. Looking
for new ways to diagnose these diseases and monitor treat-
ment in a noninvasive manner is one of the charges of
laboratory medicine in the 21st century. As the medical
home model becomes more accepted, it is predicted that
this larger group of healthcare consumers will aggressively
manage their own health and take an unprecedented role
in the changes to the healthcare delivery system, especially
related to choice, service, and availability (http://www
.ncqa.org/LinkClick.aspx?fileticket=ycS4coFOGnw%3d&
tabid=631, accessed January 29, 2012).
Recognition of Women’s Health Needs
Women make up just over half of the U.S. population. Even
so, research involving women’s health, with the exception
of reproduction, has lagged behind research for men’s
health needs. This lack of research focus has compromised
the quality of information available to women as well as the
quality of healthcare they receive. Government support for
women’s health research is on the rise with more funding
available. This transition is changing women’s health for
the better (41). There are a variety of organizations and
institutes that have a primary focus on women’s health is-
sues, such as the VCU Institute for Women’s Health (http://
www.womenshealth.vcu.edu/index.html, accessed June 25,
2012), the Society for Women’s Health Research (http://
www.womenshealthresearch.org/site/PageServer, accessed
June 25, 2012), and Advancing Novel Science in Women’s
Health Research (ANSWHR) (http://www07.grants.gov/
search/search.do?&mode=VIEW&oppId=55568, accessed
June 25, 2012), funded through the National Institutes of
Health. These organizations fund research for areas such
as depression and menopause, reproductive biology, and
addiction. In addition, they fund projects that look at gen-
eral medical issues as they specifically relate to women.
The Impact of Technology
The Electronic Medical Record
The motivation to use computerized information systems
in healthcare is driven by expectations that such systems
will improve the quality of care, increase patient safety, and
lower medical costs (7). Yet there are many other factors
to consider about the use of an electronic medical record
(EMR). The EMR can undoubtedly improve the legibility
of entries and can positively influence the organization
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
of the information in the record, making retrieval of data
more efficient (88). However, the EMR has been blamed
for interfering with the patient-physician relationship. Pa-
tients report feeling like doctors are so busy entering in-
formation into the computer that they hardly have time to
discuss the patients’ concerns and plan of care (88). Many
physicians do not possess the computer skills to become
proficient at data entry and retrieval in the EMR. This may
be a cause of errors such as documenting on the incorrect
patient or choosing an incorrect drug from a drop-down
list. EMR software developers continue to look for ways
to reduce these common human errors through the use of
templates and alerts to providers. Through improved func-
tionality and interoperability, the sharing of information
to all providers of care for the patient will be improved,
thereby facilitating patient care and safety (88) (Table 6.4).
Meaningful Use/Value-Based Purchasing
The Recovery and Reinvestment Act of 2009 tasked the
CMS with developing an EMR financial incentive program
for the “meaningful use” of certified EMR technology to
achieve health and efficiency goals.
The premise was that by putting into action and mean-
ingfully using an EMR, hospitals could not only benefit from
financial rewards but could also realize a reduction in er-
rors, availability of data and information, clinical decision
support, and e-prescribing and automated prescription
refills. The first stage of meaningful use was completed
in 2012 with the roll-out of a baseline for electronic data
capture and information sharing. Clinical quality data will
be submitted electronically from data sources found in the
EMR. Hospitals must be capable of and actively reporting
lab data electronically to public health agencies. Clinical
lab test results must be entered into the EMR as structured
data available for retrieval. While hospitals are working
diligently to meet these requirements, the actual benefits of
improved patient safety have not been well defined in the
literature (http://www.cms.gov/Regulations-and-Guidance/
Legislation/EHRIncentivePrograms/Meaningful_Use.html,
accessed June 14, 2013).
Employers have become a driving force in healthcare
today with their efforts to keep healthcare costs down as a
Table 6.4 The electronic medical record versus the paper record
Electronic record
Improved legibility
Patients feel the provider is ignoring them
Easier to locate information—not reliant on memory
May be slow—providers may have a slow learning curve
Allows easy synthesis of information
Allows for easier, faster information sharing
Difficult for others such as attorneys, to follow
143
means of being able to continue to provide medical benefits
to their employees. There has been a monumental move
away from indemnity coverage to managed care, merg-
ers and acquisitions of healthcare insurance providers, and
more aggressive contracts between hospitals and insurers, all
with the idea of keeping premiums low and getting the most
value for the healthcare dollar. The concept of value-based
healthcare purchasing is that buyers (employers and con-
sumers) should hold providers of healthcare accountable for
both cost and quality of care. Value-based purchasing brings
together information on the quality of healthcare, including
patient outcomes and health status, with data on the mon-
etary outlays going toward health. It focuses on managing
the use of the healthcare system to reduce inappropriate
care and to identify and reward the best-performing pro-
viders. This strategy can be contrasted with more limited
efforts to negotiate price discounts, which reduce costs but
do little to ensure that quality of care is improved (http://
www.ahrq.gov/qual/meyerrpt.htm, accessed February 11,
2012). With value-based purchasing in mind, labs may
continue to see changes in utilization and reimbursement
for some time to come.
Patient Access to Information
There is no doubt that access to information will be a
benefit of the EMR, meaningful use, and value-based
purchasing. Other means of providing information are
also available to the consumer of healthcare (the patient).
Healthcare consumers throughout the country are request-
ing patient portals. A study completed in 2008 suggests
that more than 70% of the respondents wanted a way to
access their data, including laboratory results, X-ray find-
ings, and other information posted by providers. Patients
can find their results but can also communicate electroni-
cally with their providers to get their questions answered.
Appointments for follow-up care can also be made via the
patient portal (51).
Patient Confidentiality
With the move toward making information available elec-
tronically, security of that information must be a foremost
consideration. Ensuring that patient information such as
Paper record
Often not readable
Patient and provider can relate and discuss the plan of care
Difficult to locate information
Faster especially for physicians not raised in information technology era
Information is often disparate and difficult to locate
Paper must be copied and mailed or faxed
Easier for others, such as attorneys, to read and follow
144 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
laboratory or other test results remains confidential is es-
sential. Healthcare organizations must be vigilant about
training staff on the importance of patient confidentiality
as well as ensuring that electronic data are protected from
intruders outside the organization (see also “HIPAA and
Patient Confidentiality,” later in this chapter, and chapter
5 of this volume).
Advances in Diagnostic Testing
New disease patterns, changing demographics, the aging
population, emerging diseases, and the threat of terrorism
require innovative testing methods. Nucleic acid testing,
for example, has truly revolutionized the way medicine is
practiced. Instead of waiting days or weeks to detect cer-
tain viruses in culture, amplifying small amounts of ge-
netic material in a specimen makes it possible to detect a
pathogen within hours. Looking at changes in the genetic
material of a tumor may improve the diagnosis of certain
malignancies. There is also hope that identifying disease
that is not yet macroscopically evident at the genetic level
will lead to earlier treatment (80, 109). Nucleic acid am-
plification testing has been introduced into blood donor
screening over the last decade. The use of NAT has in-
creased the sensitivity of pathogen detection and allows for
the earlier detection of transfusion-transmitted pathogens
than standard serologic tests allow (111).
Miniaturization continues to change the way tests are
performed. The use of smaller “micro” components fa-
cilitates POCT. As these components become smaller and
smaller, the number of analytes in a device can increase,
replacing larger analyzers. In some instances, laboratory
results are available while the patient is still in the doctor’s
office, allowing results to rapidly and directly influence the
course of care (77). Developing smaller and faster com-
puters may lead the way to performing noninvasive tests,
negating the need for blood specimens, especially using
probes that can detect analytes percutaneously (29, 68).
The concomitant reduction in sample size is beneficial to
the patient (61).
Due to changes and reductions in the laboratory work
force, trying to do more with less is a dominant theme in
laboratory medicine. Automation will continue to reduce
personnel and laboratory costs (20). The use of robotics can
reduce the number of tasks that are currently done manu-
ally and thereby reduce the impact of human error (61, 80,
109). Track systems can help automate the process of testing
a single sample for multiple analytes, thereby improving ef-
ficiency and reducing personnel needs. By using a system of
barcodes that identify patients and samples throughout the
process, the risk of misidentified patient samples has been
reduced and may become a thing of the past. This form of
process control may have the ability to greatly reduce medi-
cal errors. Robotics is used for the delivery of supplies, sam-
ples, and blood products in some hospitals (8, 61, 70).
Introducing new tests and more sensitive tests can be
cost-effective and reduce length of stay. An example is
the introduction of troponin levels as an early, specific
marker of myocardial damage; this allows the use of new
treatments that are most effective as part of an early in-
tervention during myocardial infarction. Patients with el-
evated values can be identified and treated immediately,
yielding better outcomes. Conversely, the treatment plan
for patients who have normal levels can be reassessed and
their care redirected to less expensive alternatives. High-
sensitivity troponin tests are also being incorporated into
medical practice and could also help with early diagnosis
and risk stratification (1, 3, 5).
The Emergence of Clinical
Practice Guidelines
The Role of Evidence-Based Medicine
and Outcomes Data
When cost-cutting measures are implemented in response
to decreased reimbursement by Medicare, Medicaid, and
managed-care companies, quality must be maintained. As
discussed earlier, P4P programs have been implemented to
give physicians financial incentives to retain payment for
services while maintaining quality and efficiency. The use
of solid, tangible evidence leads to optimal decision mak-
ing and the best level of care. Evidence-based medicine
is one approach that has been used to address different
aspects of healthcare delivery. By using concrete, up-to-
the-minute facts, this “evidence” can become a part of the
decision-making process. Relying on evidence-based in-
formation requires paying close attention to new discov-
eries and incorporating them into practice. Participating
in outcome research provides a mechanism to study the
problem and influence future care. Using the Internet to
keep abreast of all current changes and to access databases
on a daily basis makes the process manageable. Overall, the
aim is to objectively evaluate patient management by mea-
suring quality and cost of outcomes. By using evidence-
based protocols, variation in practice can be reduced and
patients are managed using objective data (37, 53). These
protocols also serve as great teaching tools.
The Agency for Healthcare Research and Quality
(AHRQ) is one of 12 agencies within the Department of
Health and Human Services. Its role is to support research
that will help people make more informed decisions about
their healthcare. Through its activities the AHRQ strives
to improve the quality of healthcare services by improving
the quality, safety, efficiency, and effectiveness of health-
care in the United States. The AHRQ was formerly known
as the Agency for Healthcare Policy and Research. As dis-
cussed earlier, the agency helps assess P4P plans and lists
current programs on its website (www.ahrq.gov, accessed
February 1, 2012).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
Appropriate utilization (neither over nor under) is an-
other central theme in medical and laboratory services.
While overutilization might lead to unnecessary expense,
underutilization might delay diagnosis and treatment,
leading to low quality of care. Outcome assessment or
outcome research is an attempt to determine which in-
terventions are necessary. Medical interventions and the
use of diagnostic tests must affect the patient outcome to
be considered a necessary part of patient care. Outcomes
are diverse and include morbidity, mortality, length of
stay, quality of life, patient satisfaction, length of time to
diagnosis, laboratory costs, and rates of laboratory test-
ing, just to mention a few (77, 108). Clinical trials look
at similar groups of patients, selected using strict crite-
ria, to assess the impact of changes of single variables.
In contrast, outcomes research attempts to see what hap-
pens after treatment is applied to a more diverse group of
patients (65).
For example, ordering repeated blood cultures on a
patient without signs and symptoms of infection would
be inappropriate since their use is neither supported by
scientific facts nor would the culture results (presumably
negative) change the patient’s outcome. Therefore, the
laboratory has an essential role in fostering both evidence-
based medicine and outcomes research (77). These princi-
ples can be applied to many other services provided by the
laboratory, such as POCT and the use of screening tests. To
adequately perform such large-scale studies, an integrated
information system is essential (53, 108).
The laboratory can play a major role in studying out-
comes research by providing objective data that correlate
with patient outcomes. Conversely, adverse patient out-
comes might be used to screen for laboratory errors. Look-
ing at the outcomes of patients within a critical time frame
following the receipt of laboratory data may yield impor-
tant information related to the performance of the test or
the transmission of results. One example would be assess-
ing outcomes for patients on coumadin therapy following
recent prothrombin time testing. This process is described
as downstream event monitoring (110). Applying out-
comes research to the clinical laboratory can thereby pro-
vide a method to examine quality and prevent errors (65).
Concerns about Utilization and Quality
In 1989, as part of the Omnibus Budget Reconciliation Act
(OBRA), Congress created the Agency for Healthcare Pol-
icy and Research (AHCPR) due to growing anxiety about
costs and inappropriate use of medical care. At the same
time, there were data pointing toward variations in the use
of medical services, questions about the true efficacy of
both expensive and commonly used services, and a lack of
proven efficacy for many services. Since cost containment
measures were not effective, there was a perceived need to
study the issues more thoroughly (21).
145
Through its Forum for Quality and Effectiveness in
Healthcare, one of the agency’s responsibilities was directly
tied to formulating clinical practice guidelines. Its mission,
in this regard, was to “sponsor and encourage the develop-
ment, dissemination, and initial choice of guideline topics”
(21). Now called the Agency for Healthcare Research and
Quality (AHRQ), the agency continues to be the clear-
inghouse for nationally adopted guidelines (the National
Guideline Clearinghouse) in collaboration with the Ameri-
can Medical Association and the American Association of
Health Plans. The guidelines are published on its website,
available at www.guideline.gov (accessed on January 22,
2012). Clinical pathways and clinical practice guidelines
are also developed by individual institutions, as evidenced
by reviews of peer-reviewed publications (21, 34).
The development of clinical practice guidelines is pri-
oritized based on the prevalence of the clinical problem,
burden of illness imposed, cost, variability in practice,
potential to improve healthcare outcomes, and poten-
tial to reduce cost (21). There have also been suggestions
that medical malpractice claims should be used as an ad-
ditional prioritization for the creation of guidelines to
help protect against litigation (12, 84). More importantly,
guidelines may be one approach to prevent variations in
practice, leading to improved patient safety and outcomes
(22). Guidelines are also used as a mode of teaching.
Clinical Practice Guidelines and Clinical
Pathways Defined
The Institute of Medicine defines clinical practice pa-
rameters as “systematically defined statements to as-
sist practitioner and patient decisions about appropriate
healthcare for specific clinical circumstances.” They may
provide clinical, ethical, organizational, or other forms of
advice and can be presented in a variety of formats in-
cluding algorithms, computer-based protocols with com-
puterized order entry, and/or policy documents (21).
The terms care-maps, care algorithms, clinical pathways,
critical pathways, and clinical maps have also been used.
The term clinical pathway is usually used for prescribed
procedures where the patient outcome is more predict-
able. Clinical practice guidelines refer to situations that
have greater variability such as rehabilitation protocols
or complex medical illnesses. When the problem is even
more complex or involves chronic disease processes, case
management may be employed to oversee the overall dis-
ease management, usually by nursing personnel under the
guidance of a physician. Practice guidelines seem to tie
all the trends of healthcare together. They are formulated
using evidence-based medicine in an attempt to reduce
variation in care, maintain quality, and reduce cost and
as a means to influence patient outcomes. Presumably,
when faced with factual evidence, different practitioners
will come to the same conclusion. This, in turn, will lead
146 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
to consistent ways to treat a variety of diseases. It is im-
portant to note that the use of these different terms is not
standardized, and their use may vary in different institu-
tions. As discussed earlier, the incorporation of evidence-
based practice is an implicit part of the Patient Protection
and Affordable Care Act of 2010.
Critical pathways were traditionally more detailed than
initial critical guidelines. Critical pathways were designed
to focus on a multidisciplinary approach to a specific
problem, although the line between clinical pathways and
clinical guidelines is not distinct. It is important to note,
though, that only clinical practice guidelines are defined
by AHRQ. When working on a project that crosses depart-
ments, it is implicit that approval and buy-in of hospital
administration are required (49). Looking at it a different
way, the use and implementation of practice guidelines can
be accomplished through clinical pathways.
Use of Clinical Practice Guidelines
A search of the medical literature, as well as a general
search on the Internet, will show the broad range of clin-
ical questions being addressed, from psychiatric illness
to pediatric transfusion guidelines to the evaluation of
unstable angina. Some of these studies have yielded posi-
tive outcomes such as decreased length of stay, decreased
cost of care, increased patient satisfaction, and improved
transfusion practice in a pediatric hospital. Others have
not been as successful (37). Discussing the specifics of the
guidelines available is not within the scope of this chap-
ter, although some examples are listed in the references
(40, 47, 48, 91). In addition, there is a national guideline
clearinghouse that lists myriad guidelines through its
search engine (http://www.guideline.gov/, accessed June
25, 2012).
In 2007, TJC convened a group of stakeholders in the
blood banking and transfusion community to look at
the formulation of standardized performance measures
for hospital blood banks. A year later, through its Blood
Management Performance Measures Technical Advisory
Panel, TJC released a list of 19 blood-related perfor-
mance measures that it planned to implement as part of
its accreditation program. The document was posted for
public comment and meetings were held to further vet
the measures. Seven measures were ultimately identified:
PBM-01 Transfusion Consent, PBM-02 RBC Transfu-
sion Indication, PBM-03 Plasma Transfusion Indication,
PBM-04 Platelet Transfusion Indication, PBM-05 Blood
Administration Documentation, PBM-06 Preoperative
Anemia Screening, and PBM-07 Preoperative Blood
Type Testing and Antibody Screening.
In 2010 these measures were submitted to the National
Quality Forum (NQF) for consideration of endorsement;
the measures were not endorsed. In June 2011 TJC made
the measures and an implementation guide available,
stating that the measures are “an excellent tool for health-
care organizations to evaluate the transfusion consent
process, blood utilization, blood administration docu-
mentation and identify processes related to elective sur-
gery that may decrease the need for blood and improve
patient safety.” It is possible that these measures could be
adopted, in the future, as a pay for performance tool (http://
www.jointcommission.org/patient_blood_management
_performance_measures_project, accessed February 22,
2012; http://www.jointcommission.org/assets/1/6/pbm
_implementation_guide_20110624.pdf, accessed Febru-
ary 22, 2012).
Patient blood management programs are seen as a way
to reduce unnecessary transfusions, reduce the risks of
transfusion by reducing patient exposure to blood and
blood products, and improve the availability of blood
for patients with the greatest need. There are a variety of
publications on specific patient populations showing that
adhering to more restrictive guidelines for red blood cell
transfusion (i.e., transfusing at hemoglobins of 8 g/dl in-
stead of 10 g/dl) does not appear to worsen patient out-
comes and may, in fact, improve outcomes (17, 39).
Therefore, blood management can be used as a tool to
improve patient outcomes. These programs have been
in development internationally for the last 10 years (99)
(http://www.aabb.org/resources/bct/pbm/pages/default
.aspx, accessed February 22, 2012).
Concern about blood safety, as discussed in chapter 5,
was one impetus for the creation of guidelines, as dis-
cussed. To gather more evidence-based data on the true
scope of blood safety, many countries set up active sur-
veillance systems. In 2006 the United States began the
process of setting up a national biovigilance network,
which began as a cooperative alliance of the AABB (for-
merly the American Association of Blood Banks), the
Centers for Disease Control and Prevention (CDC), and
the Department of Health and Human Services (HHS).
The network will monitor events related to blood recipi-
ent safety and outcomes and blood donor safety (hemovi-
giliance), as well as organ and tissue transplantation and
cellular therapies (57, 96) (http://www.bloodtransfusion
.it/articoli/47/en/Doi%200023.pdf, accessed February 11,
2012). According to the AABB’s website, the activities
of the U.S. Biovigilance Network involve “gathering and
analysis of data to help identify trends and recommend
best practices and interventions intended to significantly
improve patient care and safety while reducing overall
costs to the healthcare system.” With results of active sur-
veillance, blood management programs will be able to
concentrate on the greatest risks to the blood supply and
be able to identify the best outcome measures for pro-
viding the safest blood products for patients (http://www
.aabb.org/programs/biovigilance/Pages/default.aspx, ac-
cessed January 29, 2013).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
Pros and Cons
The creation of standard, reproducible algorithms that can
be applied to patient treatment has always been felt to of-
fer great promise (see Table 6.5). Soon after the concept of
standardized algorithms was introduced, a variety of stud-
ies over the years showed increased efficiency and quality
of care with decreased cost and length of stay. Some have
pointed out that these guidelines may have other uses and
serve as a means of education. As stated earlier, they may
be used as one means to assess physician competency,
proficiency, and peer review and might also be an integral
part of utilization review in the future (21, 36, 85). Hav-
ing a written, detailed care plan to follow leads to better
coordination between the members of the care team. This
in itself may lead to the decreased length of stay that was
demonstrated. For example, if a physician is not available,
a member of the nursing team or respiratory therapy team
may be able to initiate the next step of the protocol in a
timely manner (50).
The introduction of clinical practice guidelines was met
with some resistance, as demonstrated in a survey of mem-
bers of the American College of Physicians in 1992 (103).
Respondents to the questionnaires voiced a variety of con-
cerns. One of their concerns, as discussed earlier, was the
fear that implementation would increase their exposure to
medical malpractice claims if they didn’t strictly adhere
to the guidelines. The members were also concerned that
they could no longer tailor care to the needs of each indi-
vidual patient, and their autonomy to practice medicine
would likely be diminished. This would have a direct influ-
ence on their overall satisfaction in practicing medicine.
In addition, not all studies have shown improved patient
outcomes or decreases in cost. This trend continues and is
the impetus for the P4P programs discussed earlier.
Others have voiced concern about the apparent rigid-
ity of guidelines, since very few patients seem to fit the
Table 6.5 Pros and cons of clinical practice guidelines and clinical
pathways
Pros Cons
Increase in efficiency Too rigid
Increase in quality Decrease in physician autonomy
Increase in patient satisfaction Decrease in physician satisfaction
Decrease in cost Increase in cost
Decrease in variations in Increase in variation of practice
practice Can be used for discipline
Decrease in length of stay Increase in legal liability
Decrease in legal liability Outcomes not always favorably
Educational strategy affected
Means of peer review
Means of proficiency/
competency assessment
Training guides
147
exact mold of the algorithm. There has been concern that
following the algorithms might lead to poor judgment as
physicians try to make patients fit into the wrong treat-
ment plan (74). In addition, different practitioners will
interpret the “evidence” differently and introduce bias,
leading to inconsistency and variation in practice (19, 37,
74). An interesting study by Shaneyfelt et al. (90) critically
evaluated published practice guidelines and found that
between 10 and 25% ignored some of the basic tenets of
designing guidelines. Existing guidelines often undergo
review (21, 89).
Developing Clinical Pathways and Guidelines
The steps required to develop a clinical pathway are sum-
marized in Table 6.6 and begin with the identification of a
problem, where a change in outcome is desired or where
there may be a great deal of variation in care. Assembling
a team to critically evaluate the areas of concern is also
important, especially if the plan will involve a multidisci-
plinary approach. Enlist the support of hospital adminis-
tration. The quality improvement team of your institution
may be very supportive of efforts to improve patient out-
come. A brainstorming session may be the best way to start
and to systematically analyze the problem. A full search
of all available data and literature should be performed
so that the guidelines are evidence-based. Once a list of
concerns is raised, it must be prioritized. Specific, desired
outcomes should be identified. The methods that will be
used to collect and analyze data should be established.
A financial analysis should be performed. The pathway
should identify patients who may have individual factors
not conducive to inclusion in the pathway. For example, a
patient may be excluded when a pathway requires a spe-
cific diagnostic test that the third-party payor will not re-
imburse (49, 84).
The pathway development team may be broken down
into subgroups, each with assignments to address specific
Table 6.6 Elements for developing clinical pathways
Identify suitable problem to address
Identify team members
Initiate a brainstorming session
Identify specific outcome objectives
Search available data and literature
Assign specific parts of the plan to subteams
Identify financial impact
Identify impediments for patient participation (e.g., third-party payor)
Identify data gathering and analysis tools
Educate members of team
Create flow diagram or matrix of process
Develop method to capture variances
Develop method to modify plan as it is being used
Identify individuals to answer questions during process
Identify individuals to monitor compliance
Analyze data
148 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

parts of the project. All team members should reconvene
and a timeline be created to fit the different pieces of the
puzzle together. At this point, the group can work on the
specifics of the pathway. It is best to develop a comprehen-
sive educational program that includes all staff who will par-
ticipate. This can occur at a departmental meeting, specific
retreat, grand rounds activity, or one-on-one for specific
individuals. Clearly identified individuals should be avail-
able throughout the implementation to answer questions as
well as to monitor compliance. Variances from the use of
the pathway should be recognized, recorded, and analyzed
as the process goes forward. Modification of the original
plan may occur during the process. Strict record keeping in
all aspects of the implementation is required to provide the
necessary information for final analysis (49, 84).
Medicolegal Issues
Malpractice Litigation
We live in a litigious society and the medical community
has felt the impact. Providers are asked to pay ever increas-
ing professional liability premiums, which they then pass
on to the consumers of healthcare. The insurance industry
blames the increase on the ongoing trend toward higher
jury awards, requiring them to pass this cost on as a cost
of doing business. The total number of malpractice cases
has been steady for many years, yet the median damages
awarded at trial have continued to increase (31).
Damages for medical malpractice fall into three catego-
ries: (i) economic damages that compensate a patient for
lost wages and medical care expenses, (ii) noneconomic
damages that compensate a patient for pain and suffering,
and (iii) punitive damages that punish a healthcare pro-
vider for conduct considered malicious or reckless (100).
Patients and attorneys continue to complain that the cur-
rent system is difficult to access and takes an unreasonable
amount of time to recover compensation for negligence.
Many also feel that litigation outcomes are often different
for patients with similar injuries (45).
The perceived threat of litigation encourages providers
to practice “defensive medicine,” ordering tests and ser-
vices with the intent of reducing potential liability rather
than because of actual medical necessity. A study done
by the Robert Wood Johnson Foundation looked at tort
reform and whether traditional types of tort reform will
decrease liability costs. The study found that the effect of
applying traditional types of tort reform would result in
only a 0.5 to 5% reduction in health expenditures (Table
6.7) (http://www.medpac.gov-accessed, accessed Febru-
ary 2, 2013).
Currently there are no federal laws affecting tort re-
form. Many states have taken the initiative to take action
on tort reform mainly through the use of caps on damages.
Many feel that comprehensive tort reform at the federal
level should have been included in healthcare reform leg-
islation (94).

Table 6.7 Traditional types of malpractice reforma

Claims Overhead Malpractice Defensive
Reformb frequency Claims costs costs premiums medicine
Attorney fee limits 0 0 0 0
← ← ←

Caps on noneconomic damages 0

←
←

Certificate of merit 0 0 0 0
Collateral-source offset 0 0 0 0 0
Joint-and-several liability 0 0 0 0 0
Periodic payment 0 0 0 0 0
←

Pretrial screening panels 0 0 0 0

←

Shorter statute of limitations 0 0 0 0

a
2 arrows = large change, 1 arrow = moderate change, 0 = none. Some classifications may be theoretical only, with no evidence or certainty
classified.
b
Attorney fee limit: Limits the amount of a malpractice award that a plaintiff ’s attorney may take in a contingent-fee arrangement.
Caps on noneconomic damages: Limits the amount of money that a plaintiff can receive as an award for noneconomic losses or “pain and
suffering” in a malpractice suit.
Certificate of merit: Requires a plaintiff to present, at the time of filing the claim or soon thereafter, an affidavit certifying that a qualified
medical expert believes there is a reasonable and meritorious cause for the suit.
Collateral-source offset: Requires that if a plaintiff has received reimbursement for injury-related expenses from other sources, such as
health insurance, that amount be deducted from the award that a defendant who is found liable for the injury must pay.
Joint-and-several liability reform: Limits the financial liability of each defendant to the percentage of fault that the jury allocates to that
defendant.
Periodic payment: Allows or requires insurers to pay out malpractice awards over a long period of time, rather than in a lump sum.
Pretrial screening panels: Review a malpractice case at an early stage and provide an opinion about whether a claim has sufficient merit to
proceed to trial. A negative opinion can be introduced by the defendant as evidence at a trial.
Statute of limitations: Limits the amount of time a patient has to file a malpractice claim.
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
Patient Safety
Patient safety can be defined as a discipline in the health-
care professions that applies safety science methods toward
the goal of achieving a trustworthy system of healthcare
delivery. It can also be defined as an attribute of health-
care systems that minimizes the incidence and impact of
adverse events and maximizes recovery from such events.
Organizations such as The Joint Commission, the Institute
of Medicine, and the Agency for Healthcare Research and
Quality all provide healthcare providers with resources re-
lated to improving patient safety.
Disclosure of Adverse Events/CMS Never Events
Medical errors and near misses occur in healthcare orga-
nizations in alarming numbers (22). In the past hospitals
and healthcare providers often attempted to hide errors in
treatment of the patient or family. In today’s environment,
disclosure of unexpected outcomes and/or adverse events
is now the norm. TJC requires organizations to develop
a process for reporting adverse events (98). Organizations
have engaged multidisciplinary groups with representation
from risk management, medical staff, nursing, chaplain
services, patient relations, and general counsel to develop
a process for disclosure of error. Many organizations and
providers feel that frank disclosure to patients will increase
litigation, while others believe that it will reduce claims
(http://www.innovations.ahrq.gov/content.aspx?id=2673,
accessed February 22, 2012). At this time, the literature is
inconclusive on which opinion is correct.
There are many situations to consider in framing a pol-
icy for disclosure of outcomes, especially those that involve
negative or adverse events. There may also be state-specific
legal, regulatory, institutional, and cultural considerations.
Training should emphasize the importance of effective
communication with patients and family members and the
need to discuss possible adverse outcomes in the informed
consent process. All healthcare professionals acknowledge
that breaking bad news is a difficult, unpleasant, and ines-
capable part of their role. Although the need to commu-
nicate bad news is common in healthcare, there are few
known objective facts about how it should be done. The
idea of improving one’s skills at disclosing breaking bad
news is viewed as taboo in polite society.
Most clinicians have been taught very little about the
techniques of breaking bad news, partially due to the awk-
wardness of teaching these skills. The goal of training, ac-
cording to Robert Buckman, M.D., is not necessarily to
increase an individual’s ability to “do it right every time,”
but to increase the individual’s right/wrong ratio, to in-
crease the comfort level and ability to provide support, and
to enhance the learning process (13). This learning process
should begin in the early days of the healthcare profession-
al’s training and should be reenforced in an organization’s
149
new employee orientation and competency training. The
role of breaking bad news, while traditionally thought to
be the role of the physician, may now be expanded to in-
clude other members of the healthcare team.
CMS Serious Reportable Events
CMS Serious Reportable Events is a list of 28 events that
Medicare feels should never occur to a patient in a health-
care organization because these events are considered pre-
ventable. Some examples are death or serious disability
related to falls, wrong-site surgery, and administration of
ABO incompatible blood or blood products. When one
of these events does occur, the hospital and the provider
are not able to bill Medicare or many other managed-care
companies for the costs related to the event (Table 6.8)
(http://psnet.ahrq.gov/primer.aspx?primerID=3, accessed
February 22, 2012).
Enterprise Risk Management
Traditional risk management focuses on the reduction of
professional and general liability within an organization,
whereas enterprise risk management integrates traditional
risk management with the strategic planning process using
a systematic approach to manage all of the risks facing the
organization. This concept is becoming more prevalent in
healthcare organizations and if utilized will touch all sys-
tems and processes in all departments (16).
As healthcare continues to change, the focus of liabil-
ity exposure has changed as well. In today’s healthcare
setting, it is necessary to expand the liability focus to in-
clude the following risks: managed care and capitation;
merger and acquisition; employment and worker’s com-
pensation; electronic data processing and media; auto-
mobile, other transportation, and garage; environmental;
directors and officers; commercial crime and employee
dishonesty; fiduciary; foreign recruitment and foreign
travel; research; builders and construction; product li-
ability; and excess liability. An effective laboratory risk-
management program must examine the exposure for
each of the identified and applicable risks and seek the
most comprehensive, but also cost-effective, mechanism
to manage the risk exposure.
Insurance
Risk is the chance or possibility of loss. The most common
mechanism to transfer or finance risk exposure is to pur-
chase insurance. Insurance alone cannot prevent risk, but
it can provide security against loss. Risk transfer and risk
sharing are vital elements of an insurance program. Risk
is most commonly transferred to an insurance company.
By accepting and sharing the risk of many organizations,
an insurance company is able to statistically calculate the
likelihood that losses will or will not occur. It can also pre-
dict the likely severity of the loss and use this calculation to
150 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 6.8 CMS never events and serious reportable events

Never events
Surgery on the wrong patient
Surgery on the wrong body part
Wrong surgical procedure
Serious reportable events
Unintended retention of a foreign object in a patient after surgery or other procedure
Intra-operative or immediate postoperative death in an otherwise healthy patient
Infant discharged to the wrong person
Patient death or serious disability associated with patient disappearance
Patient suicide or attempted suicide resulting in serious disability
Artificial insemination with wrong donor sperm or egg
Death of the mother during labor and delivery in a low-risk pregnancy while being cared for in a healthcare facility
Electric shock or elective cardioversion
Burn incurred from any source within the facility
Patient death or serious disability associated with:
Contaminated drugs, devices, or biologicals
The use/function of a device used in patient care for other intended use/function
Intravascular air embolism
A medication error
Blood incompatibility
Manifestation of poor glycemic control
Failure to identify and treat neonatal hyperbilirubinemia
Pressure ulcers (decubitus ulcers)
Spinal manipulative therapy
A patient fall
Use of restraints or bedrails
Incident wherein a line designated for oxygen or other gas delivery to a patient contains the wrong gas or is contaminated by toxic substances
Patient care ordered or provided by imposters posing as licensed healthcare providers
Patient abduction
Patient sexual assault
Patient or staff member death or significant injury resulting from physical assault
Catheter-associated urinary tract infection (UTI)
Vascular catheter–associated infection
Surgical site infection including:
Mediastinitis after coronary artery bypass graft
Surgical site infection after bariatric surgery for obesity
Surgical site infection after spine, neck, shoulder, or elbow orthopedic surgery
Deep vein thrombosis/pulmonary embolism following total hip/knee replacement

create a premium that it charges back to the organization
wanting to transfer the risk. Sound premium calculations
allow the insurer to pay the claims that are incurred and
still make a profit (16). A comprehensive insurance man-
agement program that is carefully monitored can identify
exposures and effectively manage them in a timely man-
ner. Insurance requirements can change on a daily basis
depending upon the size of the organization and the ser-
vices it provides.
An organization may be willing to retain a portion of
the risk by utilizing a deductible. Virtually every type of
insurance can be written with a deductible. Retaining a de-
ductible may be costly to the organization if the deductible
is so large that all of the organization’s losses come in at a
rate lower than the deductible and have to be paid as oper-
ating expenses. In this case, the organization may have to
pay more than the deductible itself costs. Careful analysis
of losses can determine if the deductible is appropriate for
an organization. This service should be provided by the
insurance provider with oversight from the organization’s
insurance services or legal office staff.
Self-insurance often looks like a commercial insur-
ance policy with a large deductible. In many cases, state
regulations must be met for an organization to become
a qualified self-insurer. The organization must identify
how claims will be administered and who will provide
the excess or umbrella coverage. Self-insurance coverage
is further complicated by federal reimbursement require-
ments such as Medicare or Medicaid reimbursement in
the case of self-insured programs for medical profes-
sional liability.
HIPAA and Patient Confidentiality
The Health Insurance Portability and Accountability Act
of 1996 (HIPAA), also known as the Kassebaum-Kennedy
bill, is an intricate and far-reaching legislation (Public Law
104-191, 104th Congress, 26 USC Subchapter A) (95). It
amends elements of the Employee Retirement Income
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
Security Act (ERISA), the Public Health Service Act
(PHSA), and the Internal Revenue Code of 1986. The act
establishes a variety of health insurance coverage protec-
tions including access to insurance markets for small busi-
nesses and the self-employed, access and transferability of
coverage for individuals who change jobs, and access by
individuals who have preexisting medical conditions.
For healthcare, one of the most far-reaching concerns
resulting from HIPAA is ensuring patient privacy. Once
HIPAA went into effect, healthcare providers needed to
reevaluate their practices to meet the privacy provisions
of the law and to communicate these changes to their pa-
tients. Personal health information could no longer be
shared with anyone without the patient’s permission. It is
important to realize that verbal conversations regarding
patients are also covered under HIPAA. Discussions that
take place on elevators or in hallways must not disclose
confidential information if there are individuals present
that are not privileged to hear that information (see chap-
ter 5 for more details on HIPAA).
Contracts
Careful contract review protects the assets of the organi-
zation. Systematic contract review can minimize prob-
lems due to inadequate knowledge of the subject or lack
of time to devote to the project. Training and experience
will prepare you to focus on areas of liability, insurance,
hold-harmless, indemnification, and other risk elements
common to many healthcare contracts. This systematic re-
view does not eliminate the need for the general counsel’s
involvement in major contracts.
To accomplish an efficient review of any healthcare
contract, one must understand the type of contract being
reviewed, the contractual responsibilities and performance
of the various parties, and the negative consequences of a
poorly drafted contract. A contract is a legal agreement be-
tween two parties that can be enforced through legal chan-
nels. It creates an obligation to perform certain actions.
Other instruments used like a contract are agreements, let-
ters of intent, memoranda of understanding, leases, pur-
chase agreements, orders, and oral contracts. A contract
contains legally binding obligations between two or more
parties and provides one or more of the parties with a legal
remedy if another party fails to perform as specified in the
document. For a contract to exist, all legal essentials must
be included. These are listed in Table 6.9. A well-written
contract confirms the understanding between the parties
and avoids future disagreements about terms, conditions,
and definitions critical to the relationship. Essential con-
tract terms should always be clear and contain adequate
detail to avoid subsequent misunderstanding.
Contracting parties can amend contracts, but the
amendments should always be in writing and be signed
by both parties. There should be a statement in the
151
Table 6.9 Essential elements of a legal contracta
The parties to the contract must be competent
The contract represents a “meeting of the minds” between the parties
There is consideration—a bargained-for exchange of legal value exists
between the parties
The purpose or object of the contract is legal
The contract is documented in writing if required for law enforce-
ment in that state
a
See reference 16
original contract that amendments should be in writing
and signed by both parties. The original contract language
or provisions that are deleted or changed should be noted
in the amendment as well (16). From a practical stand-
point, many contractual relationships do not proceed as
specified in the contract, yet the parties are satisfied with
the arrangement. The services may change in scope or fo-
cus during the contract term without benefit of a written
amendment to the original contract. If the receiving party
continues to compensate the other party according to the
terms of the contract, a strong argument can be made
that the receiving party implied consent to the changes
in performance and cannot later plead breach of contract.
Contract litigation is expensive and rarely rewarding.
Therefore, it is important that any changes in the contrac-
tual relationship be mutually acknowledged in writing to
avoid subsequent problems.
The contract review process should be integrated with
the corporate compliance program. In general, federal
and state laws prohibit healthcare providers from paying
for the referrals of patients or other business, thus requir-
ing careful legal scrutiny of all contractual arrangements
between healthcare organizations, physician providers,
medical groups, and other potential referral sources. Legal
experts are essential to the process of drafting appropriate
contracts to ensure compliance with complex federal and
state laws.
Many contractual relationships in the healthcare indus-
try have confidentiality or privacy issues contained in the
document. As contracts are reviewed, serious consider-
ation should be given to including a confidentiality provi-
sion specific to the proprietary nature of the organization’s
business records, in addition to other protected and sensi-
tive information such as patient information, medical staff
records, committee proceedings, personnel file, payroll,
and compensation (16). Negligent disclosure of protected
information exposes the provider to legal liability. There-
fore, access to the organization’s protected or sensitive in-
formation should be limited to that which the contracting
party has a valid “need to know.” Any unauthorized dis-
closure by the contractor and its employees should subject
the contractor to the resulting financial liability from the
negligent act.
152 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Contracting relationships can include clinical affilia-
tions, sponsorship of educational presentations, tempo-
rary staffing agencies, temporary independent contractors
of any kind, consulting services, building leases, construc-
tion and renovation contracts, equipment purchases, home
care, and managed care, to name a few.
Specimens
The laboratory management process presents numerous
opportunities for potential liability. Departmental policies
should comprehensively address all activities for all hours
of operations. These policies should make special refer-
ence to exceptional times such as holidays and periods of
light staffing or limited service (9, 25).
The two most frequent issues related to specimen col-
lection are mislabeling or misidentification and loss of
specimens that are considered to be irretrievable or very
difficult and impractical to replace (for example, surgi-
cal specimens, interventional procedures, biopsies, cere-
brospinal fluid). Because of the potential for devastating
outcomes related to mislabeling of specimens (leading to
misdiagnosis, mistreatment, and the inability to diagnose
and treat when a specimen is lost), the Commission on
Laboratory Accreditation and the College of American Pa-
thologists (CAP) have developed guidelines and checklists
to assist laboratories with effective management of each
step within this critical process (4, 25). (Note that check-
lists can be purchased through CAP at www.cap.org [ac-
cessed June 25, 2012], under the tab for accreditation for
laboratory improvement.)
Documentation
The healthcare industry is often depicted as drowning in a
sea of paper. The paper trail, which may actually be elec-
tronic, is required to show compliance with regulations and
makes documentation a true paradox that is despised for
its necessity and cherished for its usefulness. In the medi-
cal malpractice arena, documentation is the most reliable
indicator of what was or was not done. “If it wasn’t docu-
mented, it wasn’t done. If it wasn’t documented, it won’t
be reimbursed.” These statements are repeated daily in the
healthcare industry and have become hallmark statements
from regulatory bodies. Plaintiff attorneys also use this as
a common litigation tactic in the courtroom to argue that
if it wasn’t documented it didn’t happen (35).
Documentation is viewed in the broadest sense and in-
cludes documents other than the patient’s medical record.
Critical laboratory documents include policies, protocols,
guidelines, position statements, checklists, quality con-
trol documents, position descriptions, meeting minutes,
personnel schedules, assignments, and any other form of
documented information utilized in the management of
the laboratory. In the courtroom, documentation carries a
great deal of weight, unless something is done to discredit
it. Juries will always place more emphasis on the written
word versus a person’s memory of events because memo-
ries fade over time, and the written word remains. Most
documentation is painstakingly maintained with the hope
that it will never be needed (23).
When setting up systems to maintain documentation
that is accurate, complete, comprehensive, and legible, the
biggest challenge is that healthcare providers are altruistic
individuals who are more interested in providing care and
less interested in capturing the details on paper; this is im-
portant to keep in mind when creating systems and forms
(paper or electronic). Forms that will quickly and easily
capture essential information are crucial to a successful
documentation process. Fortunately, laboratory person-
nel, who are more removed from the direct patient care
role, are generally more detail oriented, as required by the
nature of their work, making the details of the documenta-
tion process less of an obstacle.
With the availability of automated technology such as
the EMR in today’s world, the challenges of record keeping
and storage are somewhat eased. The issue of illegibility
of documentation has definitely been reduced. However,
automation also brings additional challenges such as pro-
tection of sensitive and confidential information and re-
covery of information in the event of technology failure
due to natural or other disasters.
The recording and maintenance of information is by far
the biggest challenge and biggest headache in the health-
care industry from a medicolegal perspective. All efforts
spent on procuring quality technology, training and re-
training of healthcare personnel, and maintenance and
storage of information will be time, effort, and money well
spent, even if it is never challenged in a courtroom. It will
enhance patient safety and protect practitioners, the facil-
ity, and the community.
Research Liability
The relationships between healthcare organizations and
their patients and patients’ families are guided by certain
basic ethical principles and the morally binding obligations
that are derived from those principles. Table 6.10 presents
the basic ethical principles that are most relevant to clini-
cal bioethics. The concepts of doing good (beneficence),
avoiding harm (nonmalfeasance), privacy, confidentiality,
and justice are central to the ethical principles and moral
obligations recognized in the Hippocratic Oath.
Each healthcare organization that receives federal fund-
ing for human research is subject to the Food and Drug
Administration (FDA) or Office for Protection from Re-
search Risks (OPRR) regulation and must have one or
more institutional review boards (IRBs). Under FDA regu-
lations, an IRB is an appropriately constituted group that
has been formally designated to review and monitor bio-
medical research involving human subjects. In accordance
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
Table 6.10 Ethical principles and moral obligations governing the
patient and healthcare organization’s relationshipa
Ethical principles
Beneficence, which creates an obligation to benefit patients and other
persons and to further their welfare and interests
The principle of respect for patients’ autonomy
Nonmalfeasance, which asserts an obligation to prevent harm or, if
risks of harm must be taken, to minimize those risks
Justice, which is relevant to fairness of access to healthcare and to
issues of rationing at the bedside
Moral obligations
To respect the patient’s privacy and maintain a process that protects
confidentiality
To communicate honestly about all aspects of the patient’s diagnosis,
treatment, and prognosis
To conduct an ethically valid process of informed consent throughout
the relationship
a
See reference 16
with FDA regulations, an IRB has the authority to approve,
require modifications in (to secure approval), or disap-
prove research. This group review serves an important
role in the protection of the rights and welfare of human
research subjects.
The purpose of IRB review is to assure, both in advance
and by periodic review, that appropriate steps are taken
to protect the rights and welfare of humans participat-
ing as subjects in research. To accomplish this purpose,
IRBs use a group process to review research protocols and
related materials (e.g., informed consent documents and
investigator brochures) to ensure protection of the rights
and welfare of human subjects of research (http://www.fda
.gov/RegulatoryInformation/Guidances/ucm126420.htm,
accessed January 31, 2012).
The federal research requirements are founded also on
the respect for the autonomy of the research subject evi-
denced by stringent informed consent requirements, the
protection of vulnerable populations, the absence of coer-
cion, and the reasonable balance of benefits and burdens
of the proposed research for the individual subject, not for
society at large.
From time to time organizations may feel increased
pressure from principal investigators and administra-
tors to cut corners and speed up the approval process for
sponsored research. Such an approach places the welfare
of the researcher and the research institution ahead of the
welfare of the subject and is inconsistent with the ethical
foundation of biomedical research. Compliance activities
of the OPRR and the FDA have shown that an approach to
research that minimizes the protection of the subject can
prove to be very costly, in both revenue and reputation.
OPRR and FDA compliance activities are expected to
continue at increased intensity, signaling a rise in public
153
interest in the ethical and procedural propriety of bio-
medical research. Healthcare organizations and their IRBs
have the responsibility to educate investigators and moni-
tor the conduct of research as well as the institutional
responsibility to provide adequate training to the IRB
members, which should include periodic didactic or in-
teractive training. The institution is expected to increase
the IRB infrastructure support to allow for continuous
monitoring of research activities. To the extent that any
laboratory function or employee is involved in research
activities, the above information related to training, docu-
mentation, and monitoring for investigators would apply
as well (16).
Training Physicians for Practice
in the 21st Century
The Educational Goal: The Complete Physician
The sociopolitical and economic currents, demographic
shifts, and technological advances that are reshaping the
practice of medicine in the United States are fostering cor-
responding reforms in medical education at both the un-
dergraduate and graduate levels. These changes in medical
training represent only the most recent phase in the evolu-
tion of medical education over the last two centuries. Papa
and Harasym (73) describe a series of major shifts in the
medical curriculum in North America since 1765, when
the prevailing model was that of an apprenticeship with
little formalized education. By the second half of the 19th
century, the need to improve the quality of medical prac-
tice led to a formalized four-year curriculum centered on
distinct basic science departments in a university setting
similar to the European model. By the turn of the century,
emphasis was being placed on active rather than passive
learning and on critical thinking skills. In the early 20th
century, Abraham Flexner’s influence further entrenched
the separation of basic and clinical science training in
medical schools and the importance of scientific reasoning
in the practice of medicine (73). By the 1950s, the trend
was to develop an integrated cross-departmental approach
to teaching medicine that was based on organ systems and
taught by faculty from multiple disciplines. During clinical
training years, students increasingly were exposed to spe-
cialists rather than to general practitioners. In recent years,
the separation of training into “preclinical” and “clinical”
components is becoming less distinct as students are being
introduced to fundamentals of clinical medicine in their
first year in medical school.
Major influences on reform in the current environment
may be considered threefold. First, society is demanding
increased physician competency and accountability to de-
crease medical error and to justify rising healthcare costs
(28, 54, 78). Efforts to optimize the way in which both the
154 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
scientific and humanistic aspects of medicine are taught
and to develop in physicians the habit of lifelong learning
have been ongoing since their introduction in the early
20th century (69). A vigorous attempt is being made to
define improved assessment methods to measure training
outcomes and the maintenance of competency after com-
pletion of training. Second, new knowledge in such areas
as molecular biology, gender differences in disease mani-
festations and responses to therapy, the pathophysiology of
aging and of chronic diseases, complementary/alternative
medicine, and the applications of advanced technology is
rapidly becoming important in the practice of medicine
and must be addressed in the curriculum. Finally, medical
trainees must be prepared for the practice of medicine in
the managed-care environment, in which there is both an
emphasis on outpatient care and an increasing recognition
of the importance of population-based healthcare, disease
prevention, health maintenance, personalized medicine,
and cost containment.
New Paradigms in Medical Training
Historically, medical schools design their own curricula.
Since 1932 the Association of American Medical Colleges
(AAMC) has encouraged the development of learning
objectives by medical schools (64). In 1981 the AAMC
Project Panel on the General Professional Education
of the Physician and College Preparation for Medicine
(GPEP Panel) was formed with the purpose of improved
educational strategies. The panel’s conclusion was that all
medical practitioners should have a “common founda-
tion of knowledge, skills, attributes and values,” defined by
medical schools and incorporated in the form of specific
learning objectives (64). In 1985 the Liaison Committee
on Medical Education (LCME) added defined learning
objectives to its requirements for accreditation of medi-
cal schools. By the early 1990s, it was evident that despite
these efforts, well-defined learning objectives were the
exception rather than the rule. In 1996 the AAMC initi-
ated the Medical School Objectives Project (MSOP), one
goal of which was to identify the desired characteristics of
graduating medical students. Four attributes were defined:
medical graduates should be altruistic, knowledgeable,
skillful, and dutiful; and for each attribute, 6 to 11 learn-
ing objectives were listed. Objectives for the last attribute,
“dutiful,” include knowledge of epidemiology, psychoso-
cial and cultural aspects of health, biomedical information
retrieval, and the organization and financing of health-
care. The MSOP report also emphasized the importance
of measuring outcomes of learning objectives and called
for the development of improved assessment methods to
accomplish this, especially in areas of attitudes and values
(58, 63). A second phase of the MSOP report addressed
the role of informatics in the practice of medicine and the
need to incorporate fundamentals of population health
into the curriculum (64).
Core competency domains, including biomedical eth-
ics, scholarly medical practice, communication in medi-
cine, medical professionalism, and the healthcare system,
were identified by the Association of American Medical
Colleges in 2000. These areas of competency cross all dis-
ciplines of medicine, and their identification is intended to
facilitate development of core curricula to foster the learn-
ing required to become a competent and independent phy-
sician (75).
In 1999, the Accreditation Council for Graduate Medi-
cal Education (ACGME), the accrediting body for GME
programs in all disciplines of medicine, adopted the General
Competencies as part of the Outcome Project, designed to
optimize educational outcomes in medical training (www
.acgme.org, accessed June 25, 2012). This section describes
the rationale, design, and proposed timeline for imple-
mentation of the General Competency requirements in
graduate medical training programs (96a). Similar to the
thrust of efforts being made at the medical school level, the
goal of the general competency requirements is to foster
the development of training objectives in nontraditional
as well as traditional areas of graduate medical education
to better prepare physicians for the evolving healthcare
environment. The competency domains include patient
care, medical knowledge, interpersonal and communi-
cation skills, professionalism, practice-based learning
and improvement, and systems-based practice. As part
of accreditation requirements, residency programs must
demonstrate training objectives in each area, linked to
assessment methods that are designed to provide reli-
able data documenting resident progress. The program
must review assessment methods periodically and use
the results to continually improve teaching methods.
More recently, the ACGME proposed the development of
specialty-specific “milestones” in resident training, using
nationally accepted benchmarks. An aggregate report on
trainees’ attainment of the milestones will comprise part
of the data on which program accreditation will be based
in the future (96a).
The American Board of Medical Specialties (ABMS), in
a joint initiative with the ACGME, similarly addressed the
public pressure to improve the caliber of medical care by
endorsing the same general competencies and developing
requirements for maintenance of certification by board-
certified physicians. (See the American Board of Medical
Specialties web-based version of their newsletter. Available
at http://www.abms.org/Maintenance_of_Certification/
ABMS_MOC.aspx, accessed June 18, 2013.) All medical
specialty boards now issue time-limited certification with
mandatory periodic recertification to demonstrate reten-
tion of professional credentials and licensure, documented
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
hours of continuing medical education, satisfactory rat-
ings on peer review, and knowledge of new developments
in medicine since the time of the original certification.
Responding to concerns about quality of care and patient
safety in training environments, in 2003 the ACGME ad-
opted duty hour standards as an accreditation requirement
for all specialty residency programs (http://www.acgme
.org/acgmeweb/Portals/0/PDFs/jgme-monograph%5B1
%5D.pdf, accessed June 18, 2013). The standards draw from
research on the effects of sleep deprivation and include,
among other specifications, a weekly 80-hour duty limit
averaged over 4 weeks and a 24-hour limit on continuous
duty time. Recommendations from the Institute of Medi-
cine for revisions of the duty hours regulations (http://www
.iom.edu/Reports/2008/Resident-Duty-Hours-Enhancing
-Sleep-Supervision-and-Safety.aspx, accessed January 31,
2012) led to additional standards including enhanced su-
pervision requirements, required rest opportunities, and
16-hour duty limits for first-year trainees. The potential
benefits of duty hour limitations (improved patient safety
and resident education) versus detrimental impact (loss
of longitudinal experience in patient care, cost associated
with hiring physician extenders) continue to be debated
(15, 44, 59, 72).
Incorporating New Knowledge and Training
Techniques into the Curriculum
Traditional didactic, largely passive, approaches to medical
school teaching increasingly have given way to methods
that emphasize active learning, including small-group ses-
sions, problem-based learning, case-based teaching, and
the use of technology to provide immediate assessment
and feedback to the students (2, 18, 26, 46). An emphasis
on problem-based learning and the development of critical
thinking skills are felt by some to be essential in training
students to be lifelong learners (69, 86).
New domains of medical knowledge have emerged over
the last two decades and are increasingly incorporated into
medical school curricula. For instance, there is a growing
appreciation of women’s health needs beyond reproductive
medicine; many women’s health centers offer comprehen-
sive primary care (106). Women’s longevity compared to
that of men means that women will comprise the majority
of patients in the aging U.S. population and will require
medical care that incorporates emerging knowledge of
gender differences in disease manifestations and response
to therapy (106).
As complementary and alternative medical therapies
such as acupuncture, herbal medicine, and homeopathy
have become increasingly popular with the public, many
schools are recognizing the need to educate medical stu-
dents about these approaches to prepare them to be in-
formed consultants to their patients (32).
155
While students and graduate medical trainees are en-
countering rapid technical developments in diagnosis and
therapy, technology also plays an increasingly important
role in the educational process itself. Paper syllabi are
enhanced or replaced by web-based versions with illus-
trations, interactive graphics, and self-testing (38). Virtual
microscopy is replacing glass slides in web-based self-study
tutorials and other learning venues (6, 42, 60, 102).
Training Physicians for the Managed-Care
Environment
Not surprisingly, medical schools and postgraduate train-
ing programs have been relatively slow in adapting to the
need to produce physicians prepared for practice in a
managed-care environment (10, 11). Medical schools tra-
ditionally have emphasized diagnosis and treatment rather
than disease prevention and community healthcare. The
academic medical center environment, typically a tertiary-
care facility with state-of-the-art technology, a faculty rich
in subspecialty expertise, and a heavy commitment to re-
search, is inherently not conducive to instructing trainees
in a holistic approach to patients, outpatient care, and the
practice of cost-effective medicine. Nevertheless, there are
areas of overlapping interests in academic health centers
and managed care including high-quality care, customer
service, outcomes research, and preventive medicine (52).
While in the 1960s approximately 50% of physicians
were in primary care, by the mid-1990s, the proportion was
30% (27). Over the last few years many medical schools
have implemented improved instruction in primary care,
ambulatory care, cost-effective healthcare, and disease pre-
vention (14). Increasingly, medical students are exposed
to clinical clerkship experience in managed-care settings
(105). Some schools have actively addressed the perceived
shortage of generalist physicians by committing to a goal
of 50% of their graduates entering generalist practice (69).
A national demonstration project, Undergraduate Med-
ical Education for the 21st Century (UME-21) (78), was
funded through the Health Resources Services Adminis-
tration. Over a three-year period, 18 participating medical
schools implemented new educational strategies, includ-
ing a focus on training in primary care and ambulatory
care and the expansion of clerkships or training oppor-
tunities to managed-care organizations and community
health centers. This triggered curricular changes in 12.5%
of medical schools (78).
Provisions of the Balanced Budget Act of 1997 (24), al-
though decreasing graduate medical education funding,
allowed for reimbursement of resident training at certain
off-site ambulatory settings, potentially facilitating the ex-
tension of resident education to these sites.
With the emerging emphasis on health maintenance
and disease prevention, there is growing consensus that
156 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
medical trainees need to be educated in biostatistics, epi-
demiology, managerial skills, resource allocation, risk
management, medical informatics, social and behavioral
sciences, health outcomes, evidence-based medicine, and a
population-based approach to healthcare (11, 26, 83, 105).
At the same time, there is an appreciation of the need to
improve trainees’ proficiency in physical diagnosis skills
as one way to minimize overuse or inappropriate use of
resources (89).
The Patient Protection and Affordable Care Act, signed
into law in March 2010, provides for expanded choices of
medical insurance coverage and accountability of insur-
ance companies. Title V specifies initiatives to improve
access to healthcare services, especially for low-income,
underserved, minority, and rural populations. These in-
clude the gathering of data related to healthcare needs,
increasing the healthcare workforce to meet these needs,
and enhancement of education and training of healthcare
workers. There are provisions for matching funds, grants,
and federally supported student loan funds and loan repay-
ment programs for qualifying institutions and individuals.
Incentives are directed toward the training of primary care
health workers (including those in the fields of family med-
icine, general internal medicine, and general pediatrics)
and the development of innovative approaches to clinical
teaching, including the use of community-based settings.
Teaching health centers (community-based ambulatory pa-
tient care centers) can apply for grants that fund the devel-
opment or expansion of accredited primary care graduate
medical education programs (http://www.healthcare.gov/
law/full/index.html, accessed January 18, 2012).
External Forces Impacting Undergraduate
and Graduate Medical Education
Finding the Right Mix: How Many Physicians
Do We Need?
During the last 30 years, many questions have been raised
regarding overall physician supply, the proportion of gen-
eralist or primary care physicians, and the geographic
distribution of physician practices. From the late 1980s
through the early 1990s, the overall number of trainees in
graduate medical education (GME) programs in the U.S.
increased more than 15%. This was accompanied by an
increase in the proportion of international medical gradu-
ates in the system (27). In 1986 Congress authorized the
Council on Graduate Medical Education (COGME) to
evaluate the physician workforce as well as GME training
and financing. The lack of regulation of the numbers and
specialist types of physicians being trained, coupled with
rising costs and the predicted insolvency of the Medicare
trust fund from which most of the funding of GME is de-
rived, prompted calls from Congress to establish limits on
GME (76). In 1992 Waxman and Rockefeller introduced
legislation mandating an allocation system that would
limit the number of first-year GME positions to 110% of
the number of U.S. medical school graduates and stipulat-
ing that half of all these positions be in primary care. The
bill also provided for development of an “all-payer pool” to
fund GME, essentially placing an assessment on all private
payers to contribute to the cost of training physicians (27).
The latter concept continues to lack consensus. An inde-
pendent advisory group, the Medicare Payment Advisory
Commission (MEDPAC), was established by Congress in
the late 1990s to assess the physician workforce, funding
for international medical graduates, and a possible all-
payer system for GME (76). The Balanced Budget Amend-
ment of 1997 (BBA), in part addressing the rising costs
associated with healthcare, particularly in teaching hos-
pitals, and the perception of an oversupply of physicians,
capped the number of residents for purposes of Medicare
reimbursement at 1996 levels (24).
In the last decade there has been increasing concern that
the nation will face a shortage of physicians in primary care.
Provisions of the Patient Protection and Affordable Care
Act are intended to address the need for an increase in pri-
mary care providers (see above). A conference of the Josiah
Macy Jr. Foundation, noting the projected shortage and
the imbalance in the current physician workforce favoring
specialists over primary care providers, called for reform
of graduate medical education, making recommendations
such as expansion of training sites outside the medical cen-
ter, increased emphasis on population medicine and pro-
fessionalism (including diversity and cultural competence),
exposure to multiple disciplines to enhance team-based
medical care, and greater flexibility in the length of gradu-
ate medical education (http://macyfoundation.org/docs/
macy_pubs/JMF_GME_Conference2_Monograph(2).pdf,
accessed June 18, 2013).
The recent national economic downturn and federal
budget deficit crisis threaten to impact graduate medical
education. Entitlement programs including Medicare,
from which GME funding is derived, have been seen
as potential targets for deficit reduction (https://www
.aamc.org/download/253360/data/trippumbach.pdf, ac-
cessed February 2, 2012).
Current Challenges to Academic Medical Centers
At the same time that curricular changes are being imple-
mented in medical schools, academic medical centers face
a financial crisis (81). Costs are higher in institutions pro-
viding graduate medical education compared with non-
teaching hospitals (27), largely due to the additional time
involved and testing performed in a teaching situation, as
well as the complexity of cases. Teaching hospitals typi-
cally serve a greater number of Medicaid and uninsured
patients than do nonteaching hospitals, and increasing
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
numbers of patients are covered by managed-care plans.
In addition to placing a cap on the number of residents,
the Balanced Budget Act of 1997 decreased both direct
(direct graduate medical education payment [DGME])
and indirect (indirect graduate medical education [IME])
Medicare reimbursements for GME. The bill also stipu-
lated reductions in the disproportionate share (DSH) pay-
ments traditionally made to teaching hospitals because of
the relatively large number of uninsured patients treated
at these institutions (24). However, the bill allowed for
“carving out” of DGME and IME Medicare payments to
managed-care organizations and paying them directly to
teaching hospitals. Prior to this, managed-care organiza-
tions were not required to make payments to teaching
hospitals for their enrollees (11).
In addition to the current threat of decreased federal
funding in response to the deficit crisis, recent changes in
GME are a source of increased stress on academic medical
centers. Concerns have been expressed about the potential
costs associated with duty hour limits, including costs of
hiring physician extenders (72).
Responses by academic medical centers to the changing
environment have included adaptation to the increased
demand for outpatient services, marketing of the sophis-
ticated technology and subspecialty expertise available at
teaching hospitals, consolidations or mergers of hospitals
for cost-cutting and greater efficiency of services, and ef-
forts directed at improving customer service (27, 66).
Summary
The vast changes that have occurred in the practice of
medicine over the last few decades reflect the need for cost
control within a system that focuses on quality and a low
rate of errors. Managed care, which evolved as a means to
achieve these goals, has truly changed the face of medi-
cal practice in the United States. Along with these trends,
American healthcare consumers, equipped with more and
more information about their own healthcare, have placed
increasing demands on the medical community. The roles
of increasing regulatory and legal scrutiny have helped to
shape our current healthcare system. To prepare future
physicians, changes in medical and postgraduate medical
education are preeminent.
KEY POINTS
■ Major changes in the way medical care is delivered and
funded have had a profound impact on the laboratory.
■ Technology, including the World Wide Web, improves
laboratory turnaround time, communication of labora-
tory results, disease detection and treatment, the avail-
ability of information, patient/doctor resources, and all
phases of physician training.
157
■ Changes in demographics have changed the way medi-
cine and the laboratory function.
■ Evidence-based medicine emphasizes cost containment
and quality of care.
■ Clinical practice guidelines are one approach to stan-
dardize medical care.
■ Increases in medical malpractice awards impact medi-
cal care.
■ New regulations and laws change the way medicine is
practiced.
■ Changes in the practice of medicine impact medical
student and resident training.
GLOSSARY
Accreditation Council for Graduate Medical Education
(ACGME) Professional organization responsible for accred-
iting post–medical school training, encompassing more than
7,000 residency programs in 110 specialty and subspecialty areas
(www.acgme.org, accessed June 11, 2012).
American Board of Medical Specialties (ABMS) Organization of
24 medical specialty boards certifying physicians (www.abms.org,
accessed June 11, 2012).
American Society of Healthcare Risk Management (ASHRM)
Organization for healthcare risk management professionals
(www.ashrm.org, accessed June 11, 2012).
Association of American Medical Colleges (AAMC) Associa-
tion of medical schools, teaching hospitals, and academic soci-
eties dedicated to improvements in medical education, research,
and healthcare (www.aamc.org, accessed June 11, 2012).
Balanced Budget Act of 1997 (BBA) Package of spending re-
ductions designed to balance the federal budget by 2002. Changes
in Medicare financing of graduate medical education (GME) in-
cluded a cap on the number of residents counted for reimburse-
ment and reduction in indirect graduate medical education
payment (IME).
Balanced Budget Refinement Act of 1999 Legislation that off-
set or revised some of the GME funding provisions of the BBA.
Case management The collaborative process by various members
of the healthcare team to meet a patient’s needs and garner nec-
essary resources to produce quality and cost-effective outcomes
(http://www.cmsa.org/Home/CMSA/WhatisaCaseManager/
tabid/224/Default.aspx, accessed June 25, 2012).
Clinical pathway Developed to reduce variation in care with the
intention of improving patient outcomes.
Clinical practice guidelines “Systematically developed statements
to assist practitioner and patient decisions about appropriate
healthcare for specific clinical circumstances” (http://www.nhlbi
.nih.gov/guidelines/about.htm#what, accessed June 25, 2012).
They are used to create standard practice for situations that have
variability, such as rehabilitation protocols or complex medical
illnesses.
158 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Clinical trial A research study that looks at a similar group of
patients selected using strict criteria and assesses the impact of
changes of single variables.
College of American Pathologists (CAP) Association of patholo-
gists dedicated to fostering excellence in pathology and laboratory
medicine. Recognized leader in providing laboratory inspection
and accreditation programs (www.cap.org, accessed June 6, 2012).
Commission on Laboratory Accreditation (COLA) Adminis-
ters the CAP Laboratory Accreditation Program, which is ap-
proved to inspect laboratories in lieu of the Centers for Medicare
and Medicaid Services (www.cola.org, accessed June 11, 2012).
Contract A legal agreement between two parties that can be en-
forced through legal channels and creates an obligation.
Corporate compliance program The development of effective
internal controls that promote adherence to applicable federal
and state laws and the program requirements of federal, state,
and private health plans. The program is aimed at the prevention
of fraud, abuse, and waste in these healthcare plans while at the
same time furthering the fundamental mission of all hospitals,
which is to provide quality healthcare to patients.
Council on Graduate Medical Education (COGME) Congres-
sionally authorized body charged with evaluating the physician
workforce and graduate medical training and financing (http://
www.hrsa.gov/advisorycommittees/bhpradvisory/cogme/index
.html, accessed June 12, 2012).
Critical (clinical) pathways Standardized, multidisciplinary ap-
proach to a specific problem. Traditionally more detailed than
practice guidelines, though the difference is not distinct.
Direct graduate medical education payment (DGME) Medi-
care payment to teaching hospitals for costs directly related to
training programs, including residents’ stipends, faculty supervi-
sion costs, and overhead.
Disproportionate share payment (DSH) Payments by Medic-
aid (both state and federal funds) and Medicare to teaching hos-
pitals to offset costs of treating relatively large proportion of
uninsured patients.
Downstream event monitoring Using patient outcomes in a
critical time period following receipt of laboratory data to eval-
uate the performance of the test or to evaluate the transmission
of results.
Evidence-based medicine The use and analysis of solid, tangi-
ble evidence leading to optimal medical decision making.
Functionality and interoperability The ability of a computer
system to bring unrelated data together by integrating dispa-
rate systems.
General competencies Six domains of competency adopted by the
ABMS and ACGME as requisite for physicians: patient care, medi-
cal knowledge, interpersonal and communication skills, profes-
sionalism, practice-based learning, and systems-based practice.
General Professional Education of the Physician and College
Preparation for Medicine (GPEP Panel) AAMC project panel
charged with developing improved educational strategies.
Graduate medical education (GME) Specialty or subspecialty
training occurring after medical school.
Healthcare Integrity and Protection Data Bank (HIPDB) Na-
tional data collection program mandated by Health Insurance
Portability and Accountability Act of 1996 (HIPAA) to combat
fraud and abuse in healthcare delivery. Collects and discloses ad-
verse actions against practitioners, including civil judgments,
criminal convictions, injunctions, federal or state licensing and
certification actions, and other adjudicated actions. (www.ncsbn
.org, accessed June 12, 2012).
Health Insurance Portability and Accountability Act of 1996
(HIPAA) Legislation establishing a variety of health insurance
coverage protections. Also known as the Kassebaum-Kennedy bill.
Health Resources and Services Administration (HRSA) Agency
of the U.S. Department of Health and Human Services charged
with ensuring access to quality healthcare for uninsured and
low-income populations (www.hrsa.gov, accessed June 12, 2012).
Indirect graduate medical education payment (IME) Medicare
payment to teaching hospitals to compensate for higher costs re-
lated to severity of patient illness.
Institute of Medicine Private, nongovernmental organization,
associated with the National Academy of Sciences, whose mis-
sion is to advance science and healthcare policy (www.iom.edu,
accessed June 12, 2012).
Institutional review board (IRB) Reviews research proposals
and monitors human research conducted in healthcare organiza-
tions; required for healthcare organizations receiving federal
funding for such research.
Length of stay The number of days a patient is hospitalized for
a specific diagnosis. This metric has been used by managed-care
organizations to compare institutions and their utilization of
services.
Liaison Committee on Medical Education (LCME) Accrediting
authority for U.S. and Canadian medical schools (www.lcme.org,
accessed June 12, 2012).
Locum tenens A position, usually temporary, for a healthcare
professional, often in an underserved area.
Medical School Objectives Project (MSOP) AAMC project to ex-
amine learning objectives and assessment methods in medical edu-
cation (www.aamc.org/initiatives/msop, accessed June 12, 2012).
Medicare Payment Advisory Commission (MEDPAC) Inde-
pendent advisory group assessing physician workforce and grad-
uate medical education funding. (www.medpac.gov, accessed
June 12, 2012).
Miniaturization The use of smaller and smaller “micro” compo-
nents, which allows the number of analytes in a device to in-
crease, replacing larger analyzers. This facilitates point of care
testing.
National Patient Safety Foundation (NPSF) Nonprofit organi-
zation whose mission is to improve patient safety in the delivery
of healthcare (www.npsf.org, accessed June 12, 2012).
 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE
National Practitioner Data Bank (NPDB) Established through
Title IV of Public Law 99-660, the Healthcare Quality Improve-
ment Act of 1986, to collect reports regarding medical malprac-
tice payments, adverse licensure actions, clinical privileges
actions, and professional society membership actions against
healthcare practitioners. Restricts the ability of practitioners to
move from state to state without disclosure of adverse actions or
incompetent performance (www.npdb-hipdb.hrsa.gov, accessed
June 12, 2012).
Nucleic acid testing (NAT) Testing that relies on measuring
specific sequences of nucleic acid. This can lead to earlier detec-
tion of pathogens and malignancy recurrence.
Office for Protection from Research Risks (OPRR) Section of
the Department of Health and Human Services now known as
the Office for Human Research Protections (www.hhs.gov/ohrp,
accessed June 12, 2012).
Outcome project Accreditation Council for Graduate Medical
Education (ACGME) initiative emphasizing educational out-
comes in the accreditation of resident training programs.
Outcomes research Research that looks at diverse patient
groups to determine which medical interventions or diagnostic
tests have an effect on patients.
Patient-centered medical home (PCMH) The patient-centered
medical home is a healthcare setting that facilitates partnerships
between individual patients, their personal physicians, and when
appropriate, the patient’s family. Care is facilitated by registries,
information technology, health information exchange, and other
means to ensure that patients get the indicated care when and
where they need and want it in a culturally and linguistically ap-
propriate manner (http://www.ncqa.org/tabid/631/default.aspx,
accessed January 29, 2012).
Pay for performance (P4P) Healthcare pay for performance
(P4P) programs reward hospitals, physician practices, and other
providers with both financial and nonfinancial incentives based
on performance on select measures. These performance mea-
sures can cover various aspects of healthcare delivery: clinical
quality and safety, efficiency, patient experience, and health in-
formation technology adoption. Sponsors of P4P programs typi-
cally include government agencies, health insurance plans
(health plans), employers (purchasers), healthcare providers,
and a variety of coalitions (www.iha.org/pay_performance.html,
accessed January 26, 2012; http://www.ahrq.gov/qual/pay4per
.htm, accessed February 2, 2012).
Point of care testing (POCT) Testing that takes place outside of
a centralized/core laboratory setting and closer to the patient en-
counter. This is also referred to as near patient testing. Typical
sites are the emergency department, inpatient hospital units, out-
patient clinics, doctor’s offices, the operating room, etc.
Practice guidelines Systematically defined statements to assist
practitioner and patient decisions about appropriate healthcare
for specific clinical circumstances.
Risk The chance or possibility of loss. This may include finan-
cial loss as well as loss of reputation.
159
The Joint Commission (TJC) Formerly the Joint Commission
on Accreditation of Healthcare Organizations (JCAHO). Pre-
dominant accrediting body for hospitals and other healthcare
organizations in the U.S. TJC accreditation is recognized by the
CMS to achieve and maintain deemed status for Medicare reim-
bursement (www.jointcommission.org, accessed June 12, 2012).
Tort A civil act, intentional or accidental, from which injury oc-
curs to another person.
Troponin A component of cardiac muscle. Blood levels rise af-
ter myocardial damage.
Undergraduate Medical Education for the 21st Century
(UME-21) National demonstration project funded by the
Health Resources and Services Administration to foster medical
school training in primary care and in ambulatory care settings.
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 CHAPTER 6. THE CHANGING PRACTICE OF MEDICINE 163

APPENDIX 6.1 Web Resources

American Board of Medical Specialties The Chronicle of Higher Education

http://www.abms.org/News_and_Events/newsletters.aspx (accessed http://chronicle.com (accessed February 27, 2012)
February 22, 2012) A web-based version of a national weekly newspaper reporting
This section contains the web-based version of the organization’s news and information on all aspects of higher education.
newsletter.
Accreditation Council for Graduate Medical Education
http://www.acgme.org (accessed December 12, 2012)
National Guideline Clearinghouse™ (NGC)
www.guideline.gov (accessed February 22, 2012)
A public resource for evidence-based clinical practice guidelines.
The NGC is sponsored by the Agency for Healthcare Research and
Quality and provides a catalog of published guidelines.
Introduction
Changing Reimbursement Models
7 The Changing
Change from Traditional Indemnity to Managed-Care
Insurance • Four Stages of Managed-Care Market
Healthcare Environment
Development • Reimbursement Strategies in a
Managed-Care Market • Healthcare Stakeholders in
a Managed-Care Market Ann Harris and David S. Wilkinson
Impact of Healthcare Reform
Patient Protection and Affordable Care Act • Payment
Reform and Provider Reimbursement Strategies •
Current Trends and Issues with Healthcare Reform • OBJECTIVES
Hospitals and Laboratories: Concerns in Healthcare
Reform To provide a historical overview of reimbursement for laboratory services from
Changing Emphasis on Quality and Value
1969 to the present
Health Maintenance Organization Network To present an overview of healthcare reform and its impact on the industry
Management • Patient Management • Disease stakeholders
Management • Healthcare Reform: Demonstration
Projects To learn about special issues related to contracting for managed care, including
The Educated Consumer
prospective payment, capitation, and providing service with payment caps;
Baby Boomers and Generation Xers: the Educated to learn the risks related to each of these challenges; to discuss the challenges
and Savvy Consumer • Consumer-Driven Healthcare • ahead as the industry responds to healthcare reform
The Increasingly Litigious Environment To understand the impact of educated and informed consumers, patients,
Changing Technology providers, insurers, and employers on the delivery of healthcare; to learn how
Technological Advances • Direct Consumer Access • consumer-driven healthcare impacts the industry
Direct Access Testing •Advances in Genetic Testing
and Molecular Pathology • Personalized Medicine • To understand the impact of technological advances, home health devices, and
New Regulations to Address Changing Technology: genetic information; to learn how technology is driving personalized medicine
HIPAA • Impact of Reform on Electronic Health
Records and Meaningful Use To understand how society is becoming increasingly litigious; to learn about
the legal issues related to healthcare reform initiatives
Consolidation in the Healthcare Industry
Overview: Laboratories, Hospitals, Physician To learn how consolidation among providers and vendors drives reengineering
Practices, and Managed-Care Organizations • and restructuring; to understand how healthcare reform is fueling
Integrated Delivery Systems • Laboratories: Change consolidation among all stakeholders
from Revenue Centers to Cost Centers • Internal
Consolidation in Hospital Laboratories • Regional
Integrated Laboratory Networks
Strategies for Success in the 21st Century Nations once measured their national wealth in terms of the gold they were able
Strategic Redesign • Developing System-Wide
Thinking and a Common Culture • Differentiating a
to hoard. Then came the transition to products, and Gross National Product
Competitive Advantage • Training Adequate, High- became the measure of wealth. Now the move is on to information. It’s not as if
Quality Laboratory Professionals for the Future there were no value attached to information in the age of gold. Every university
Workforce • Moving from Top-Down Management standing today is a testament to the long lasting value of information and knowl-
to Bottom-Up Customer Focus • Evidence-Based edge. And gold has not lost its luster in an age of information. It’s simply a shift in
Medicine • Meaningful and Relevant Information
emphasis. Gold once predominated, then tangible goods, now information. Even
Summary if the Internet bubble bursts, this current shift in emphasis is likely to leave the
KEY POINTS healthcare landscape permanently transformed. Whatever happens with the In-
GLOSSARY ternet in healthcare, one truth will remain. It is at the interface between a patient
REFERENCES and a caregiver that the greatest opportunity exists for creating value in health-
APPENDIXES
care. The more technology can contribute to the quality of that interface, the more
valuable it will be.
D. Beckham (7)

I
Clinical Laboratory Management, 2nd Edition
n the early 1900s, hospitals performed most of the limited laboratory
Edited by L. S. Garcia healthcare testing for the community. By the late 1960s, the volume of
©2014 ASM Press, Washington, DC laboratory testing increased drastically, and freestanding commercial labo-
doi:10.1128/9781555817282.ch7
ratories emerged to capture much of the physician office and nursing home

164
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
markets. As the commercial laboratory market matured,
laboratories faced declining profits and needed to reinvest
in new technology and automation. Local mom and pop
laboratories became a prime target for acquisition by the
larger national commercial laboratories, whose sophisti-
cated, well-financed marketing and service strategies also
put the local hospital laboratories at a competitive disad-
vantage. Physician loyalty to the local hospital laboratory
was often undermined by the lure of profit received by
marking up their patients’ laboratory tests and then send-
ing them out to be performed at low-cost reference labora-
tories. Before 1984 it was common practice for physicians
to sell laboratory testing that they purchased from a refer-
ence laboratory at wholesale pricing to patients and third-
party payors at retail prices.
The Tax, Equity, Fiscal Responsibility Act (TEFRA)
enacted in 1982 mandated prospective reimbursement
for inpatient services rendered to Medicare beneficia-
ries, subsequently implemented under diagnosis-related
groups (DRGs). The Deficit Reduction Act (DEFRA) of
1984 authorized the Medicare Clinical Laboratory Fee
Schedule (CLFS) and mandated that the laboratory per-
forming the outpatient testing, not the physician that or-
dered the testing, bill Medicare for the services directly.
Hospitals were not equipped to measure or account for
the decreased revenue. Cost shifting the Medicare costs to
other payors was a temporary remedy. The first Medicare
CLFS, enacted in 1984, established the national limita-
tions amounts (NLAs).
The Clinical Laboratory Improvement Amendments of
1988 (CLIA ’88) further impacted the environment. The
costs associated with implementing CLIA performance
standards and proficiency testing increased by 67% (50).
Then, in 1989, the Omnibus Reconciliation Act (OBRA)
was passed and included legislation that prevented physi-
cians from creating “shell laboratories” that contracted out
the majority of testing and marked them up for direct bill-
ing. Laboratories were required to perform at least 70% of
all testing on-site to be able to bill for referred testing. The
Stark legislation prohibited physicians with ownership in a
laboratory from referring testing under self-referral legis-
lation. OBRA ’93 enacted further reductions in the Medi-
care fee schedule ceiling amounts (50).
Today, laboratories continue to lobby for the passage
of direct billing legislation to mandate that the laboratory
provider universally bill third-party payors for services.
Many states have passed such legislation, and some in-
surers have adopted the ruling using a cost-plus formula
based on the Medicare CLFS. Table 7.1 provides a quick
reference and a historical overview of legislation impact-
ing clinical laboratories from 1965 to the present.
The concept of prepaid medical service dates back to
the early 1800s. The term managed care, as we know it,
didn’t gain national attention until coined by a Minnesota
165
physician, Paul Ellwood. The origin of the first health
maintenance organization (HMO) traces to the Rural
Farmers Cooperative Health Plan in Elk City, Oklahoma.
The Ross-Loos Medical Group was founded as a tightly
controlled group model on the west coast as early as 1929.
From 1942 to the present, Kaiser of California has been
the dominating leader. Following endorsement by the
federal government in the HMO Act of 1973, the growth
of managed care has not been as rapid as originally pre-
dicted. The managed-care market penetration in the U.S.
healthcare system increased more than twofold from 28
million enrollees in 1987 to a high of 80 million in 1999
but has slipped in the last decade to 68 million enrollees
in 2011. Additional information can be found in the fact
sheets located at Managed Care On Line’s website (http://
www.mcol.com, last accessed October 1, 2012). The evo-
lution of managed care has witnessed a change in struc-
ture from being nonprofit to for-profit organizations in
order to expand access to capital markets. The infusion
of federal and private funding and the heightened con-
cern over inflation in healthcare were the early stimuli
for growth. Today, the HMO concept has become firmly
established and is a significant segment of the healthcare
industry. Future growth of managed care and response by
the stakeholders is dependent on the competitive environ-
ment, increased physician supply, and the constraints of
the federal budget (53).
The diverse and aging U.S. population places increasing
demands for long-term care for chronic illnesses in cost-
reduced settings. The underinsured and uninsured popu-
lations have grown exponentially.
• In 2002, approximately 45 million U.S. citizens were
without healthcare coverage.
• By 2008 the number had grown to 46.3 million.
• In 2009 the number had grown to 50.7 million.
• In 2010, the number reached 52 million.
The increase in numbers can be attributed to the loss of
health insurance coverage due to the recession, the failing
economy, and the prolonged recovery, according to Bloom-
berg News (http://www.bloomberg.com/news/2011-03-16/
americans-without-health-insurance-rose-to-52-million
-on-job-loss-expense.html, last accessed October 1, 2012).
The costs of the Medicare program during the past 10 years
have more than doubled, from spending $212 billion in
1999 to spending $499 billion in 2009.
The U.S. healthcare system across all industry segments
(including providers, payors, pharmaceuticals, life sci-
ence, government, employers, employees, and patients)
is undergoing dynamic changes in conjunction with the
new healthcare reform act. Efforts to balance cost, qual-
ity, and access will become increasingly more difficult to
manage when faced with reductions in reimbursements
166 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.1 Legislation and regulation concerning healthcare and clinical laboratories
Date Legislation title/name Main feature
1965 Social Security Act Authorized Medicare and Medicaid programs
1967 Clinical Laboratory Improvement Act (CLIA) Government assumed licensing and regulatory authority over some clinical
laboratories
1970 Occupational Safety and Health Administration Agency created to establish and enforce worker safety
(OSHA)
1972 Social Security Amendments Added disability and end-stage renal disease (ESRD) coverage to Medicare
Office of Inspector General (OIG) program
42 CFR § 1001.952 Anti-Kickback Act first enacted
Defined elements of safe harbors
1973 Health Maintenance Organization (HMO) Act Required large employers to offer one federally qualified HMO as alterna-
tive to traditional indemnity
Migration from fee-for-service reimbursement to capitated payments
1976 Office of Inspector General (OIG) Established to identify and eliminate fraud and abuse in HHS programs
1977 Healthcare Financing Administration (HCFA) Administers the Medicare program
Regulates lab testing on humans (except research testing)
1979 National Committee on Quality Assurance (NCQA) A private not-for-profit organization that assesses and reports the quality of
managed-care providers
1982 Tax Equity and Fiscal Responsibility Act (TEFRA) Mandated the prospective payment system (PPS) for pathology services
covered under Part A
1983 Clinical Laboratory Competitive Bidding Demonstration Project first
proposed
1984 Deficit Reduction Act Enacted direct billing requirement for clinical laboratory tests. Only laboratories
that performed testing for Medicare beneficiaries could bill for these services
National laboratory fee schedule implemented
1985 Balanced Budget and Emergency Deficit Control Known as Gramm Rudman Hollins; established limits on federal spending;
Act placed cap on Medicare reduction at 2% per year
1986 National limitations amounts established
1986 Omnibus Budget Reconciliation Act (OBRA)
1986 OBRA Public Law 99-509 Adjustments in PPS and disproportionate share; direct billing for outpatient
services
1987 OBRA Public Law 100-203 Physician mandate to accept assignment; $6 billion in Medicare reductions
1989 OBRA Public Law 101-239 Lab fee schedule reduced from 100 to 93% of national median payment cap;
$2.7 billion in Medicare reductions; prohibited shell laboratories
1990 OBRA Public Law 101-508 Lab fee schedule reduced from 93 to 88% of national median payment cap;
enacted the three-day window (72-hour rule) eliminating the ability to bill
for certain outpatient services within three days of a hospital admission
1993 OBRA Public Law 103-606 Lab fee schedule reduced from 88% to 76% of national median payment cap
1988 Clinical Laboratory Improvement Amendments Established laboratory regulation based on testing complexity (waived,
(CLIA ’88) moderate, or high) and extended federal regulatory authority to all labora-
tories performing clinical laboratory testing for diagnosis and management
of human disease
1989 Office of Inspector General (OIG) Issued fraud alert for shell laboratories
Stark I The original Stark law (Stark I), enacted in 1989, prohibited only self-
interested referrals for clinical laboratory services
1990 Shell Lab Rule Adopted Laboratories billing Medicare for services may not bill for referral testing
unless 70% of testing is performed in-house
1991 Occupational Safety and Health Act (OSHA) Added regulation on the manner in which laboratories handle and ship
infectious substances and biohazard wastes
1992 HCFA, now the Center for Medicare and Medicaid Physician fee schedule moved to relative value units and fully implemented
Services (CMS) resource-based relative value system (RBRVS) by 1996
CLIA ’88 final regulations became effective
Established categories for certificate of waiver laboratories and provider–
performed microscopy procedures
1993 Stark II Congress broadened the Stark law to include physician self-referrals to an
expanded set of “designated health services”
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 167

Table 7.1 (continued)

Legislation and regulation concerning healthcare and clinical laboratories
Date Legislation title/name Main feature
1996 Health Insurance Portability and Accountability Act Preexisting conditions; established medical savings accounts; protection of
(HIPAA) Public Law 104-191 personal health information; mandated administrative simplification for
healthcare transactions
1997 Office of Inspector General (OIG) Model Compliance Plan for Clinical Laboratories
1997 Balanced Budget Act Established Medicare + Choice (Medicare Part C); negotiated rule making
and national coverage decisions became effective
Public Law 105-33 Changed reimbursement for skilled-nursing beds from prospective pay-
ment to consolidated billing and resource utilization groups
42 USC § 1395 y (a) (1) (A) Mandated that physicians provide diagnostic information when ordering
lab tests to be billed by a clinical laboratory
Created provisions for Medicare reimbursements for only reasonable and
necessary services
Administrative simplification required CMS to establish five regional
carriers
1999 OIG Special Advisory Bulletin 42 USC § 1320 a-7a (b) Gain-sharing provisions prohibit hospitals from making payments to physi-
cians as an inducement for patient referrals
2000 Proposed BBA implementation 346 ambulatory payment classifications
Benefits Improvement and Protection Act of 2000 42 CFR 410, 411, 414 Pathology Technical Component; proposed coverage
for annual pap and pelvic, colonoscopy, and mammography
2001 Public Law 106-430: Needlestick Safety and Preven- OSHA revised the blood-borne pathogen standard January 2001 to include
tion Act enforcement procedures and exposure control plans for occupational
exposure
2002 Medicare Policy Hospital laboratories performing outreach must determine Medicare sec-
ondary payor status every 60 days; two standard advance beneficiary notice
(ABN) forms approved
2003 Medicare Modernization Act Congress commissioned the Institute of Medicine (IOM) to align perfor-
mance with payment in Medicare; IOM supports a U.S. healthcare payment
system that pays for performance (P4P)
2005 Deficit Reduction Act Section 5001 (b) Act required HHS to develop a plan to implement a budget-neutral value-
based purchasing program for Medicare
2006 Genomics and Personalized Medicine Act First introduced in 2006, the fourth version in 2010 failed to pass
2008 Medicare Improvements for Patients and Providers Required HHS to develop a transition plan for providers receiving Medicare
Act Section 131 (d) fee for service to P4P
2009 The American Recovery and Reconstruction Act Allocated $1.1 billion to comparative effectiveness research; comparative
effectiveness provides health plans with framework for utilization review,
provider profiling, safety and quality assessment, and medical management
2009 Health Information Technology for Economic and Provides $19 billion in incentives for the adoption and use of health in-
Clinical Health Act (HITECH) formation technology by Medicare and Medicaid providers and eligible
professionals
2010 The American Recovery and Reinvestment Act Includes the HITECH Act and its funding
(ARRA)
2010 Patient Protection and Affordable Care Act The payment reform provisions include value-based purchasing, account-
(PPACA) able care organizations, bundled payments, and the medical home and
target improvements in quality and efficiency
2012 Middle Class Tax Relief and Job Creation Act Clinical laboratories are targeted to receive a 17% reduction in payments by
2016 undergoing a rebasing reduction imposed by Congress

from Medicare mandates to implement meaningful use
and conversion to ICD-10 coding. Since 1967, the Medi-
care program has had the responsibility and authority to
conduct demonstration projects to examine how health-
care is delivered and reimbursed. The Patient Protection
and Affordable Care Act (PPACA) created the Center for
Medicare and Medicaid Innovation operating within the
Centers for Medicare and Medicaid Services (CMS) and
further expanded the authority for demonstration projects
nationwide without approval from Congress or the Secre-
tary of Health and Human Services (66).
In 2009 the United States spent more on healthcare per
capita as a percent of the gross domestic product (GDP)
than any other country, reaching a record high of $2.5
trillion and 17.6% of the GDP. Despite this statistic, the
United States has documented a consistent downward
168 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
trend in the overall rate of healthcare spending growth (in-
cluding inpatient stays, pharmaceuticals, health insurance,
and administration) over the last eight years, down from
9.5% in 2002 to 4.0% in 2009. The trend continued in 2010,
yielding a 3.9% decline, which marked the lowest level of
spending growth in the past 50 years (13). This trend is at-
tributed to a combination of factors:
• The 2008 recession’s impact on wages, credit, net
worth, and economic uncertainty
• Changes in the design of employer health plan benefits
• Record high percentages of people receiving public as-
sistance and people uninsured
• The shift from inpatient to outpatient care
Other factors that may influence healthcare spend-
ing and performance in the years ahead include (i) the
new PPACA regulations and the impact that shifting
reimbursement and incentives may have; (ii) the ongo-
ing trend of increased consolidation industry-wide, in-
cluding pharmaceuticals, health plans, and hospitals;
(iii) the gradual shift away from volume-based fee-for-
service reimbursement to a model that pays for value with
built-in incentives for innovation, efficiency, and quality
outcomes; and (iv) the impact of consumers who make
healthcare buying decisions based on “value-added” ra-
tionale (13).
On June 28, 2012, the Supreme Court upheld the
PPACA regulations in a 5–4 vote, stating that the PPACA’s
mandate that most Americans obtain insurance or pay a
penalty was duly authorized by Congress’s power to levy
taxes and regulate interstate commerce. At the same time,
the court substantially limited the PPACA law’s expan-
sion of the Medicaid program, believing that Congress had
overstepped its constitutional authority by coercing states
to participate in the expansion by threatening loss of exist-
ing federal payments to the program.
Table 7.2 Traditional indemnity versus managed-care insurance: a comparisona
Traditional indemnity
Patients have few restrictions on choice of providers
Reimbursement is fee for service based on units of service or may be
fee schedule at a percent of charges
Finance and service delivery function independently of one another
Role of insurer is limited to paying claim for clinical services
Plan assumes all financial risk
Few incentives to control costs
Plan does not measure quality or appropriateness of services
a
C. Haller, presented at the Executive War College, New Orleans, 1997
Changing Reimbursement Models
Change from Traditional Indemnity
to Managed-Care Insurance
Traditional indemnity insurance pays claims for sub-
scribers/beneficiaries to healthcare providers (hospital
inpatient, outpatient, and provider services claims) on a
fee-for-service (FFS) basis. There is little or no control over
quality, appropriateness of care, or cost of the services.
The goal of managed-care insurance is to keep members
healthy by integrating the selected provider arrangements
with quality improvement and utilization review using fi-
nancial incentives to control costs and utilization. Table
7.2 is a comparative summary of traditional indemnity and
managed-care insurance.
Managed care, by definition, seeks to enhance value to
its customers by lowering overall costs while maintaining or
improving the quality of care. Managed-care organizations
(MCOs) are under pressure to control costs in unconven-
tional ways. Tools used to achieve their financial goals are:
• Negotiate preferred prices for service (hospital per di-
ems, fees, case rates).
• Limit services rendered to only those that are medi-
cally necessary by requiring referrals, preauthorization
for inpatient admissions, precertification for costly
procedures, adhering to practice guidelines, and active
case management.
• Ensure that the services provided are the most
cost-effective (least expensive but medically useful
alternative).
• Direct patients to an urgent-care setting versus emer-
gency room visits, outpatient surgery center versus
hospital inpatient facility, and home care and rehabili-
tation services versus acute care.
• Provide financial incentives to providers.
Managed care
Sets explicit standards for provider participation and restricts patient
access to providers within the network
Pays on contract negotiated rates:
Per member per month (PMPM)
Per diem
Contractor’s fee schedule
Integrates finance and access to delivery systems
Role of insurer expanded to provide healthcare management
Shares financial risk with providers
Offers incentives to control costs
Participates actively in quality assurance measurements and utilization
control
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
• Perform proactive medical management for the pa-
tient’s care.
A provision of the HMO Act of 1973 required that
federally qualified HMOs charge enrollees an across-
the-board community-based rate rather than employer-
specific rates that were reflective of the lower utilization
in HMOs by the younger healthier patients who typically
enrolled in the plans. Federal qualification is generally per-
ceived by both insurers and employers as a sign of qual-
ity. HMOs (as defined under Subpart A, 110.102 of the
Federal HMO Regulations) must offer access to certain
basic health services, including diagnostic and therapeutic
services, inpatient hospital services, short-term rehabilita-
tion, emergency care, short-term outpatient mental health,
drug abuse and addiction services, diagnostic laboratory,
radiology and home health services, and preventive health,
such as prescription services, dental care, and vision care
(53). Community-based rating creates a global approach to
health problems and forces weaker facilities to close. Some
argue that community-based rating impeded the HMOs’
ability to increase their market share. Using experience
rating creates a competitive environment that makes it dif-
ficult for small businesses to compete against the stronger
players (6).
Four Stages of Managed-Care Market Development
Managed-care markets evolve slowly over time. Purchas-
ers and providers differ in their development stages and
the degree of managed-care sophistication according to
the actual managed-care market penetration.
Stage 1. During the first stage of managed care the market
is generally an unstructured, traditional environment.
• Purchaser groups (or employers) offer mostly standard
indemnity products.
• MCOs that exist are typically preferred provider orga-
nizations (PPOs).
• Maintain satisfied employees with freedom of choice.
• Limited sales to small business.
• Low market penetration: 0–10% of true managed care.
Stage 2. As the market begins to coalesce, health main-
tenance organizations (HMOs) gain endorsements and
some consumer acceptance.
• Physicians form loose independent physician associa-
tion (IPA) networks.
• Hospitals develop informal linkages to physicians
through physician hospital organizations (PHOs).
• Employers offer little incentive for employees to switch
to managed-care plans.
169
• Increased sales to small business.
• Managed-care market penetration between 10 and
20%.
Stage 3. As the market begins to consolidate, the HMOs
gain momentum.
• Two or three HMOs dominate the market.
• Managed-care market penetration approaches 20–30%.
• Health plans become more sophisticated in tracking
and reporting data.
• Group purchasers and employers, concerned over es-
calating costs per covered life, offer incentives for em-
ployees to enroll in managed-care plans.
• PHOs become more formal and sophisticated at
credentialing.
• Small business becomes a target segment.
Stage 4. As the market stabilizes and matures, rivalry
among HMOs and healthcare providers becomes hyper-
competitive.
• Managed-care market penetration grows to over 30%.
• Purchaser groups and employers become more inter-
ested in outcomes on their population.
• PHOs become aggressive and accept full capitated
risks.
• Small business becomes a competitive target segment.
• Two or three MCOs dominate the market (17).
Types of managed care organizations. To meet the de-
mands of the stakeholders for geographic service cover-
age, the large and small employer demands for choice,
and patient demands for access, MCOs have used several
provider network models and healthcare plan options to
attract a larger market share (Table 7.3).
Key elements of managed-care contract negotiation. All
providers of services within a network must be held ac-
countable for knowing the associated costs to perform the
services, to evaluate the risks of capitated payments, and
to monitor utilization to maximize efficiencies. You can’t
manage what you can’t measure. Across the continuum of
care, providers must accurately forecast revenues against
expenses.
• Price. Although a major influence in the contract deci-
sion, price is not the only determining factor. Other
factors that influence the contract award follow.
• Scope of services. Providers must be able to provide the
scope of services and procedures that meet the needs
of the insured population. Demonstrating the capacity
170 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Table 7.3 Types of managed-care organizations and services
Acronym Type of managed-care organization
ASO Administrative services only
EPO Exclusive provider organization
HMO Health maintenance organization
Group model
Network model
Staff model
IPA Independent physician organization
ISN Integrated service network
LSO Laboratory services organization
MSO Management services organization
PHO Physician hospital organization
PPO Preferred provider organization
POS Point-of-service plan
to perform and having the necessary infrastructure
also influence the contract decision.
• Service. Providers must demonstrate a commitment to
flexible service strategies.
• Convenient access. Providing convenient patient access
to services for laboratory, radiology, pharmacy, provid-
ers, and procedures drives consumer satisfaction.
• Geographic coverage. Healthcare providers should
have an established network of physicians, outpatient
service centers, and couriers to meet the demands of a
defined service area.
• Quality. Providers must be able to demonstrate quality
and consumer satisfaction using surveys, report cards,
and utilization management based on developed clini-
cal pathways.
• Financial stability. Providers must be able to assess
their exposure to risk and sell the managed-care orga-
nization on their financial and operational abilities and
stability to accept and deliver in such contracts.
• Informatics. The enterprise must be able to generate
and analyze data in a format that meets the managed-
care organization’s needs for utilization information
Definition
An insurance carrier or independent organization that handles the administra-
tion of claims and benefits for a fee for self-insured groups
A network contracted with directly by a payor, usually a self-insured employer or
third-party administrator
A managed-care organization that contracts with employers and providers to
provide comprehensive health coverage to enrollees
The HMO contracts with physician practice groups to provide services; referred
to as a “closed panel,” as enrollees are limited to group providers only
The HMO contracts with one or more medical groups for services
The HMO contracts with a health system’s medical staff for services; providers
may be employees of the MCO; referred to as a “closed panel,” as enrollees are
limited to staff providers only
A provider organization that contracts with physicians to provide services to a
plan’s members at a negotiated cap rate or fee for service
Specialty networks have developed to provide coverage for a geographic area for
care specific to their specialty (e.g., mental health services)
A laboratory management group that administers contracts for a group of
laboratories
An organization that administers organizational and practice management for
physician providers
An organization acting as a joint venture between a hospital and its medical staff
to gain bargaining power with HMOs and PPOs or directly with EPOs
An MCO which provides enrollees with freedom of choice. A selective contract-
ing agreement with a specific network of hospital and physician providers at
reduced or negotiated rates. Enrollees have financial incentives to use PPO
providers in the network.
A managed-care plan that combines the features of prospective prepayment and
fee-for-service insurance payments; the enrollees can elect to use the network or
opt out of the network with a sizable copayment as a disincentive
required for the Healthplan Employer Data and In-
formation Set (HEDIS) reporting by their accrediting
agency, the National Committee on Quality Assur-
ance (NCQA).
Reimbursement Strategies in a Managed-Care Market
Payment strategies and associated risk. Managed-care
products have become a dominating force in the health-
care market over traditional indemnity insurance. As
MCOs continue to negotiate contracts that are heavily
risk based, the providers are put at increased risk for
cost and utilization control. In a risk contract, the pay-
ment received is not tied to actual utilization or costs of
services. Risk sharing arrangements should be carefully
negotiated and should include safety net and stop loss
provisions.
• Safety net provisions limit the amount of risk as-
sumed. Provisions should include:
• Aggregate payments will be no less than the equiva-
lent discounted FFS payment.
• Aggregate payments will be subject to a percentage
increase when utilization targets are exceeded.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
• Set established thresholds will allow for discounted
FFS, when thresholds are exceeded for specific ser-
vices such as extended inpatient stays, costly tests,
and costly implants.
• Stop-loss limits are provisions typically used in PHO
models where gatekeepers and institutions are at risk
for exposure to high-cost procedures (i.e., transplants).
The stop-loss limits are defined as dollars per covered
member per month or year (18).
Managed-care reimbursement models with low risk. The
following reimbursement models are low risk.
• Fee-for-service (FFS). The reimbursement method is
based on payment according to a fee schedule (often
as blended fees or the managed-care organization’s in-
ternal fees) for services rendered. It is critical that the
fee schedule being used be identified, including geo-
graphical and annual adjustments. The Medicare fee
or the resource-based relative value system (RBRVS)
schedule is often used as a reference point in
negotiations.
• Discounted FFS. The provider agrees to accept an FFS
payment that is a percentage of the usual, customary,
and reasonable (UCR) fee schedule.
• Cost-plus. A method of rating often used to determine
a reimbursement rate based on the cost experience
plus an administrative mark-up.
• Per diem. The negotiated daily payment rate for deliv-
ery of all inpatient hospital services provided regard-
less of the actual services rendered. These rates are
often specific to the type of care for general medical,
surgical, and intensive care.
• Carve outs. Services and procedures that are defined by
contract to be separate and apart from the negotiated
capitation rate that are typically paid on an FFS basis.
Managed-care payment methods with moderate associ-
ated financial risk. Capitation is an agreement in which
a provider is paid a predetermined amount per member
per month in exchange for providing services included
in the rate. The rates are typically adjusted by age and sex
and are adjusted according to population groups: commer-
cial, industrial, prison, and Medicare. Rates should all dif-
fer based on actuarial data. Enrollment guarantees assure
the provider that until the targeted membership rates are
reached the provider will receive FFS payments. Capitated
payments are made prospectively to the provider at the be-
ginning of the month for the total members prior to any
utilization or actual services rendered. Adjustments are
made the following month based on change in member-
ship. Since the costs for the services rendered may exceed
the capitation payment, the provider is at risk.
171
• To calculate per member per month:
Total revenue or expense or
utilization units for the period
= PMPM
Number of member months for same period
• To calculate member months in a given period of time:
(Average number of members for each month in a given
period) × (Number of months in period) = Member
months for period
Percentage of premium. An arrangement in which the
provider is paid a percentage of the premium billed or col-
lected by the managed-care organization for the services
rendered and covered by the rate. Assessing the number of
patients, the population type, and the actuarial data is vital.
Include a payment minimum in the negotiation.
Fixed rate. Reimbursement agreements that cover all
services and costs associated with a specific diagnosis or
a procedure. Knowledge of the case mix, average cost per
case, and procedures included in the rate are necessary
to negotiate the contract rate. The contract defines the
payment process based on receipt of a claim (reference
19, p. 9).
Performance-based risk for service.
Withhold. A payment method that withholds a per-
centage of a negotiated payment in a reserve fund for spe-
cialty provider contracts. Periodically, if negotiated quality
and cost criteria have been met, the portion of the fee that
was withheld is returned according to the risk-bearing
terms of the contract.
HMO reimbursement models with high risk.
Contract capitation is based on experience. There are
three types of payments:
• Capitation is paid based on qualifying member
types rather than on a random patient population.
The provider is only at risk for the costs associated
with a referral and not for the number of referrals.
• Global fees are paid for an entire episode of care.
• Monthly fees are paid for a period of time and a
specific condition.
Combined health system capitation (hospital & physician).
• Global capitation (caregivers, hospital, ancillary)
Case rate. Per case also bears risk, as the costs of ser-
vices could exceed the payment per case.
Shared risk funds. Physician groups, pharmacies, and
hospitals share the financial risks and potential profits.
172 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Noncovered services. Services that are not covered need
to be identified during contract negotiation to establish
the method for billing and payment. In the managed-care
environment, patients cannot be billed for services unless
defined by the policy. Having the patient sign a waiver of
liability prior to services ensures that the patient agrees to
accept financial responsibility for the noncovered service
and, according to the insurer’s policies, allows the provider
to then bill their UCR amounts to the patient.
Laboratory service contract strategies. There are five ba-
sic strategies adapted by HMOs. The selected strategy typi-
cally generates the most cost savings for the organization.
The five strategies are:
• Statewide or regional capitation contracts with a na-
tional commercial laboratory
• Inclusion of laboratory services within a global capita-
tion rate (which includes all medical services) paid to a
health system composed of hospitals and physicians
• Inclusion of laboratory services within a physician
group capitation
• Capitation paid to a local clinical laboratory, a subcon-
tractor to a national laboratory, or a network of local or
regional laboratory providers
• FFS payments based on the HMO’s set fee schedule.
The advantages of negotiating a statewide contract with
an exclusive laboratory provider are compelling.
• The strategy shifts the risk to the national laboratory.
• The data needed for HEDIS reporting and financial
analysis resides in a single vendor database.
• The national lab promotes consistent quality and cor-
relation of results across the service area.
• National laboratories negotiate on volume, and larger
HMOs usually negotiate a lower cap rate.
• Contract administration is more efficient using a
single vendor, minimizing claims processing, medical
management, and customer service issues.
A hospital laboratory that serves as a managed-care
contractor or subcontractor for laboratory services should
be cautious. Critical knowledge needed to negotiate the
contract includes laboratory costs, laboratory utilization
patterns, and patient volumes (70). The commodity pric-
ing of healthcare services results in regional competition
with increased discounting practices based on HMO re-
ferral volume. The intense competition forces physician
groups, hospitals, clinical laboratories, and other health-
care providers to evaluate their ability to participate and
compete (101).
Healthcare Stakeholders in a Managed-Care Market
Plan members. Each patient covered by a managed-care
health plan is called a member. The healthcare plan counts
them as covered lives. The health plan identifies the enroll-
ees to the providers as the subscriber, or the insured. When
the subscriber’s policy covers other family members, they
are identified as dependents. Both the subscriber and the
dependents are considered members. A statement of cov-
erage is issued to the insured under a group contract that
outlines the benefits and principal provisions and is called
a certificate of insurance or evidence of coverage statement.
Purchasers. Healthcare purchasers include large self-
insured employers, coalitions of small employers, as-
sociations of trade or professional groups, integrated
networks, physician groups, hospital systems, or
individuals.
Employers. Escalating costs and changes in healthcare de-
livery have forced employers to examine their benefits
package and role in providing comprehensive health-
care benefits. Employers purchase healthcare for their
employees for three reasons: as a form of compensa-
tion, to enhance their health status, and to keep them
productive at work. Employers (who are classified as
large employers under the HMO Act) that offer health-
care coverage are mandated to offer their employees a
managed-care plan as an option to traditional indem-
nity insurance.
Providers. Hospitals and physicians have had to change
the way they traditionally delivered healthcare in re-
sponse to the market changes driven by managed-care
penetration.
Community organizations or federally qualified healthcare
centers (FQHCs). Rural healthcare providers are chal-
lenged by the same forces as urban healthcare provid-
ers, and they continue to rely heavily on government
programs to provide geographic coverage with a short-
age of physicians.
Government-sponsored plans. These include Medicare,
Medicaid, the Federal Employees Health Benefits Plan
(FEHBP), the U.S. Postal Service (USPS) Employees
and Retirees, the Department of Defense, the Depart-
ment of Veterans Affairs, Indian Health Service, and
the Department of Justice.
Insurers. These include commercial carriers, Medicare
contractors, third-party insurance carriers, and third-
party administrators who market their indemnity and
managed-care products to government, groups, pur-
chasers, employers, and individuals.
Cost sharing. Patients are generally responsible for pay-
ing some portion of their healthcare costs. Cost sharing
is a strategy used by MCOs and large employer groups to
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
control utilization of services by the enrollees. Frequency
of services accessed is generally inversely proportional to
the cost-sharing rate strategy. In a low cost-sharing plan
there is generally no deductible, and a flat copayment is
required for physician and outpatient services. Plans with
high cost-sharing strategies have deductibles and copay-
ments similar to traditional indemnity insurance products.
Point-of-service (POS) plans use a combination of the two
risks. Low cost sharing applies if the enrollee uses network
providers, and high cost sharing applies with a percent-
age coinsurance when the enrollee goes out of the network
(reference 19, p. 11).
The various types of payments for the patient’s financial
responsibility are described below (reference 93, p. 39–41):
• Deductible. A payment defined by the policy that is a
percentage of the allowed charges for a procedure or
service that must be paid by the member before the
insurer will assume liability for the balance. The de-
ductible often varies by contract and group.
• Copayment. A specified dollar amount for the medi-
cal service that is defined by the policy coverage and is
made by the member prior to receiving services.
• Coinsurance. In the indemnity market, when a mem-
ber is covered by a secondary insurance policy, the
secondary payor is a coinsurer. To avoid false claims
charges, multiple claims for the same service should
not be filed with both primary and secondary insurer
(the coinsurer) until denial is received from the sub-
scriber’s primary coverage. In the managed-care mar-
ket, coinsurance is a percentage of the cost of covered
services paid by the patient. The coinsurance is calcu-
lated after any copayment or deductible is applied. The
cost-sharing ratio varies by contract and group.
• Laboratory copayment and coinsurance. In legislation
enacted by Congress in 1984, which created the Clini-
cal Laboratory Fee Schedule, the language explicitly
removed all “copayment and coinsurance” terms and
conditions pertaining to the clinical laboratory setting.
Now, once again, the government is considering a 20%
coinsurance for all Medicare Part B services in an ef-
fort to generate savings. This will merely shift the cost
burden to the beneficiaries already burdened by higher
premiums and out-of-pocket expenses and threaten
the patients’ ability to access services.
Employers are using another strategy to regain control
over their healthcare costs by offering a medical savings
account that shifts the control of healthcare dollars. This
forces the employees, as subscribers, to make decisions
about how they spend their healthcare dollars. An em-
ployee’s health savings account (HSA) consists of funds
that can be a combination of employer, employee, or fam-
ily member contributions that are placed in an employee’s
173
individual health reimbursement account (HRA) to pay
for certain allowable medical expenses. An HRA is an
account offered to employees and retirees, funded from
a portion of the health plan’s premium, and can be used
for payment of qualified medical expenses including
deductible limits before the health plan starts to pay. A
healthcare flexible spending account (FSA) is funded by
employee-specified pretax contributions that are placed in
an employer-held account to be used for qualified medical
expenses not otherwise covered by the health plan and is
subject to a federal “use it or lose it” provision. Employees
may opt to pay the deductible with funds from the HSA
or HRA or pay out-of-pocket and allow the savings to ac-
cumulate for future medical expenses. Visit http://www
.planforyourhealth.com/open-enrollment/ for more in-
formation (last accessed, October 1, 2012).
Insurance premium pricing cycle. Traditional indemnity
and managed-care insurance premiums drive the profits
for the companies. If the premiums are too low, even the
best healthcare plans will fall short on profits. On the other
hand, a plan that has high premiums is not guaranteed
profits. The pricing cycle begins when a plan wants to ex-
pand its market share and lowers its premiums. Competi-
tive plans respond by matching the premium to maintain
market share and position. A premium price war similar
to those in petroleum products and airfares ensues. Plans
may move toward multiyear contracting. The terms of
the multiyear contract make it extremely difficult to solve
the problem even when it is apparent. Finally, when the
marketplace in general is recording significant losses, an
insurer decides to change its pricing strategy, raising the
premium, and the competitive players follow the leader.
The increases in premiums continue until all the insurers
are generating profits, and then the cycle starts over again.
Additional information can be found in the fact sheets
located at Managed Care On Line’s website (http://www
.mcol.com, last accessed October 1, 2012).
Impact of Healthcare Reform
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA),
signed into law in March 2010, enacted comprehensive re-
form to health insurance by holding insurance companies
more accountable in an effort to lower healthcare costs,
guarantee more healthcare choice, and enhance the qual-
ity of care for all Americans by providing small businesses
with a tax credit to provide coverage. Starting in 2014, it
will include a tax credit to those needing help in purchasing
insurance, representing the largest middle class tax cut in
healthcare history. It is projected to reduce premium costs
for millions of families and small businesses who haven’t
had access or means in the past, ultimately impacting more
174 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
than 30 million Americans currently without healthcare
coverage. For additional information about the Affordable
Care Act, go to http://www.healthcare.gov/law/full/index
.html (last accessed October 1, 2012).
Beginning in 2011, the law contains a number of new
consumer protections:
• Provides an easy-to-use website where consumers can
compare health insurance coverage options and pick
the policy and coverage that works best
• Prevents insurers from denying coverage to children
under the age of 19 with a preexisting condition
• Prohibits insurers from denying payment or rescind-
ing coverage for errors or technical mistakes on
applications
• Prohibits insurers from imposing lifetime dollar limits
for coverage on essential benefits like hospitalization
• Eliminates annual limits imposed by insurers for es-
sential benefits by 2014
• Provides consumers with an avenue to appeal coverage
determinations or claims, adding an external review
process
• Funds state grants to establish consumer assistance
programs to help navigate the private insurance system
• Prohibits insurers from refusing to sell or renew poli-
cies or to charge higher rates by discriminating against
preexisting conditions or gender
• Ensures continued coverage for individuals participat-
ing in clinical trials
PPACA also includes provisions for providers to im-
prove quality and lower costs. An estimated 4 million
seniors reached the gap in Medicare prescription drug
coverage known as the “donut hole” in 2010. These seniors
received a $250 rebate check as they reached the gap. Dur-
ing 2011, seniors that reached the coverage gap received a
50% discount on brand-name prescription drugs covered
under Part D. Over the next 10 years, seniors will receive
additional savings on brand-name and generic drugs until
the gap is closed in 2020. A supplemental health insurance
policy sold by private insurance companies designed to
pay for healthcare costs and services that are not paid for
by Medicare and any private health insurance benefits is
known as Medigap.
All new insurance plans must include preventive
screening for mammograms and colonoscopies without
charging a deductible, copay, or coinsurance. Beginning
in 2011, annual wellness visits and personalized preven-
tion plans for Medicare beneficiaries will be covered.
Provisions to hold insurers accountable for unreasonable
rate hikes include elimination as a participant in the new
health insurance exchanges (HIEs) targeted to be opera-
tional by 2014. Furthermore, the new law requires that
85% of premium dollars be spent on healthcare services
and quality improvement.
The mandate contains numerous provisions extending
and expanding coverage via enhanced access to care.
• States may opt to oversee the Pre-Existing Condition
Insurance Plan that provides coverage to individuals
who have been uninsured for at least six months due
to a preexisting condition.
• Young adults may remain on their parents’ plan until
they turn 26 years of age.
• States will receive two more years of Children’s Health
Insurance Plan (CHIP) funding for coverage for chil-
dren not eligible for Medicaid.
• Americans between the ages 55 and 65 who retired
early without employer-sponsored insurance before
they were eligible for Medicare pay higher premiums
that deplete their savings. PPACA funds a $5 billion
program to provide employer-based plans with a way
to provide continued coverage to such employees and
their spouses and dependents.
• States will receive matching funds for covering addi-
tional low-income individuals and families who previ-
ously were not eligible for coverage under Medicaid.
Citizens who earn less than 133% of the poverty level
are eligible to enroll in Medicaid.
• The Community First Choice allows states to offer
home and community-based services to disabled indi-
viduals, rather than institutional care in long-term care
(LTC) and intermediate-care (ICF) nursing facilities.
• The mandate promotes individual responsibility, re-
quiring that individuals who can afford coverage buy
basic health insurance or pay a fee to offset the costs of
uninsured citizens.
• It ensures free choice to use employer funds to pur-
chase a more affordable plan offered by HIEs.
The law includes a plan to strengthen access to primary-
care doctors, nurses, nurse practitioners, and physician
assistants through scholarships and loan repayments and
forgiveness for providing healthcare services in under-
served areas or areas with a shortage of professionals. Since
68% of medically underserved communities are in rural
America, where it is difficult to attract and retain health-
care providers, PPACA includes increased reimbursement
payments to these providers and has earmarked funding to
construct or expand community health centers to serve an
additional 20 million patients in the future.
Defining accountable care organizations. Over time, health-
care providers have reported that the main barrier to im-
proving care coordination is the lack of information about
services provided to a patient across the delivery system.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
An accountable care organization (ACO) is composed of
a group of providers and suppliers of services who work
together to coordinate the care provided for a Medicare
beneficiary. The ACO must strive to replace the current
fragmented coordination of care under a fee-for-service
system with goals to deliver “patient-centered care” that
is seamless and high quality. CMS encourages all provid-
ers in good standing to participate in an ACO. The final
rule allows some critical access hospitals, federally quali-
fied health centers (FQHCs), and rural health clinics to
participate independently in the Shared Savings Program
(61, 62). An ACO must apply to CMS to participate in
the Shared Savings Program. Acceptance is dependent on
the ability to meet eligibility criteria, serve at least 5,000
fee-for-service Medicare patients, and sign a three-year
participation agreement. The ACO must have a legal en-
tity for distribution of shared savings payments. They must
have processes that demonstrate evidence-based medicine
and collect data to measure cost and quality of care using
the established patient-centered criteria. Medicare will
continue to pay individual providers for a specified list
of services under a fee-for-service arrangement. CMS has
developed benchmarks for ACOs based on performance
measures that further qualify receipt of shared savings.
The patient-centered medical home (PCMH). The Ameri-
can Academy of Pediatrics (AAP) first introduced the
medical home concept in 1967 when referring to a central
location for archiving a child’s medical record. In a 2002
policy statement, the AAP expanded the definition to in-
clude these operational descriptions: accessible, continuous,
comprehensive, family-centered, coordinated, compassion-
ate, and culturally effective care. The American Academy of
Family Physicians (AAFP) in 2004 and the American Col-
lege of Physicians (ACP) in 2006 developed models for im-
proving patient care called the “medical home.”
Payment Reform and Provider
Reimbursement Strategies
The increasing need for payment reform is primarily driven
by the trend toward “value-based purchasing” over the for-
mer “services-based purchasing” environment. During the
past decade, the strategy to integrate quality performance
with reimbursement incentives has migrated from theory
to common practice. PPACA specifies that organizations
cannot participate in multiple “shared savings” programs
from CMS. However, CMS has issued a clarification in the
application process that states that the bundled payment
program does not constitute a shared savings program and
that organizations that form ACOs may still participate.
Bundled payments for care improvement initiative. In the
current system, Medicare makes separate payments to pro-
viders for the services delivered to a beneficiary for a single
175
episode of care, which has fragmented care by the limited
coordination across the system. Payment is based on how
much instead of how well the provider performs. Bundled
payments compensate the entire team and provide incen-
tives for efficiency and quality of care. The Department of
Health and Human Services (HHS) and CMS are partner-
ing with providers to develop four models for bundling
payments for services.
• Model 1 includes retrospective payment for acute hos-
pital stays only.
• Model 2 includes retrospective payment for both the
physician and hospital during an acute stay plus post-
acute services.
• Model 3 includes retrospective payment for postacute
services, excluding the acute episode.
• Model 4 includes prospective payment for physicians
and hospitals in the acute stay (15).
For additional information please refer to Table 7.4. The
Dark Daily Report recently pointed out that the term
“other services” included in both models 2 and 3 of the
bundled payments program actually include clinical labo-
ratory; durable medical equipment (DME); prosthetics,
orthotics, and supplies (POS); and Part B drugs.
The bundled payment demonstration projects overall
demonstrated savings for the Medicare program. However,
the demonstration projects that paid providers a bonus
based on their quality scorecard ultimately demonstrated
very little savings to Medicare. Other joint initiatives in-
clude Partnership for Patients to improve patient safety
across the healthcare continuum and Pay for Performance
used for dialysis centers and inpatient stays (66). Physicians
are also allowed to voluntarily participate in gain-sharing
programs. Organizations must disclose physician involve-
ment, cost savings processes, and the payment methods
being used to document how care has been redesigned to
improve quality and reduce costs. Gain-sharing payments
may not exceed 50% of the equivalent fee-for-service pay-
ments that the organization would have otherwise received
under bundled payments (73).
Medicare Shared Savings Program. The Shared Savings
Program rewards voluntary participation in ACOs that lower
growth in healthcare costs while meeting performance stan-
dards for quality care and putting the patient first. Under the
program, providers and suppliers participating in an ACO
will continue to be paid in a fee-for-service arrangement but
will also be eligible to receive a shared savings payment if
the ACO meets quality performance measures and demon-
strated cost reductions under the performance-based pay-
ment methodology. In the Shared Savings Program model,
reimbursement is paid to the ACO by the payor to reward
cost reductions in aggregate care expenditures. The funds
176 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.4 Key features of bundled payment modelsa

Model 1: inpatient
Model feature stay only
Eligible awardees Physician group practices
Acute care hospitals paid
under the IPPS
Health systems
Physician-hospital
organizations
Conveners of participating
healthcare providers
Payment of bundle Discounted IPPS payment;
and target price no separate target price
Clinical conditions All MS-DRGs
targeted
Types of services Inpatient hospital services
included in bundle
Expected dis- To be proposed by appli-
count provided to cant; CMS requires mini-
Medicare mum discounts increasing
from 0% in first 6 months
to 2% in year 3
Payment from CMS Acute-care hospital: IPPS
to providers payment less predeter-
mined discount
Physician: traditional fee
schedule payment (not
included in episode)
a
See reference 2
Model 2: inpatient stay
plus postdischarge
services
Physician group practices
Acute-care hospitals paid
under the IPPS
Health systems
Physician-hospital
organizations
Postacute providers
Conveners of participating
healthcare providers
Retrospective comparison
of target price and actual
FFS payments
Applicants to propose
based on MS-DRG for
inpatient hospital stay
Inpatient hospital and phy-
sician services
Related post-acute-care
services
Related readmissions
Other services defined in
the bundle
To be proposed by appli-
cant; CMS requires mini-
mum discount of 3% for
30–89 days postdischarge
episode; 2% for 90 days or
longer episode
Traditional fee-for-service
payment to all providers
and suppliers, subject to
reconciliation with prede-
termined target price
Model 3: postdischarge
services only
Physician group practices
Acute-care hospitals paid
under the IPPS
Health systems
Long-term care hospitals
Inpatient rehabilitation
facilities
Skilled-nursing facilities
Home health agency
Physician-hospital
organizations
Conveners of participating
healthcare providers
Retrospective comparison
of target price and actual
FFS payments
Applicants to propose
based on MS-DRG for
inpatient hospital stay
Post-acute-care services
Related readmissions
Other services defined in
the bundle
To be proposed by
applicant
Traditional fee-for-service
payment to all providers
and suppliers, subject to
reconciliation with prede-
termined target price
Model 4: inpatient
stay only
Physician group
practices
Acute-care hospitals
paid under the IPPS
Health systems
Physician-hospital
organizations
Conveners of participat-
ing healthcare providers
Prospectively set
payment
Applicants to propose
based on MS-DRG for
inpatient hospital stay
Inpatient hospital and
physician services
Related readmissions
To be proposed by
applicant; subject to
minimum discount
of 3%; larger discount
for MS-DRGs in ACE
demonstration
Prospectively established
bundled payment to
admitting hospital;
hospitals distribute
payments from bundled
payment

will be redirected to the primary-care physician (PCP) or
an extension of the practice (nurse practitioners, physi-
cian assistants, etc.) for the patient’s coordination of care.
Specialty providers may be excluded from participating in
shared savings even though they may have a role in the out-
come. Proactive negotiation will be critical for a specialist
to participate in shared savings. Much like payments from
managed-care organizations, payments to specialists may be
limited to a proportionate share from a fixed fund or risk
management pool based on volume of services and number
of specialty providers in the pool. However, as revenues per
procedure increase, volume should decrease and the margin
should improve as costs are eliminated. The groups who are
willing to accept change and adapt will survive, while others
may dissolve (16).
Current Trends and Issues with Healthcare Reform
Traditional indemnity. Since 2004, the managed-care
market has seen a shift in enrollment away from the re-
strictions of the traditional managed-care HMOs toward
more popular PPOs. Between 1999 and 2004, PPO en-
rollment grew from 43 to 58%, while HMO subscrib-
ers decreased from 30 to 27%. The cost to provide care
per subscriber in a PPO approaches $268 more than the
HMO subscriber costs, forcing employers to look for
ways to curtail rising costs. Large employers are showing
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
an increasing interest in consumer-driven health plans
(CDHPs). Insurers have responded with two versions for
employers to select.
• CDHPs give consumers choice in determining their
premium and their financial liability. Employers en-
courage staff to participate as a partner in reducing
costs, and their premium costs are reduced by $1,400
per year per employee.
• High-deductible health plans, marketed as either an
HMO or a PPO product line, have varying out-of-
pocket deductibles and limits for individual and fami-
lies (see Table 7.5).
Managed-care market for laboratories. Since 2006, the
managed-care laboratory market has been primarily
dominated by Laboratory Corporation of America (Lab-
Corp) and Quest Diagnostics, while regional independent
and hospital laboratories continue to hold and even gain
market share, according to a Chi Solutions Survey (http://
www.chisolutionsinc.com, last accessed October 1, 2011).
LabCorp holds a major 10-year contract agreement with
United Healthcare (UHC) that should be up for renewal in
2016. However, LabCorp continues to use a high-risk pric-
ing strategy that sacrifices short-term profits in exchange
for increased “pull-through” testing growth opportunities
over time. Quest has taken a more defensive position to
compete in a competitive managed-care market that is
consolidating by focusing on a strategy that differentiates
their service so as not to compete on price alone. While the
UHC contract with LabCorp is exclusive, UHC still opts
to contract with hospitals and regional and local reference
laboratories in certain localities. Consultants with Labora-
tory Billing Solutions encourage their clients to focus on a
value-added service strategy to offer insurers and provid-
ers who depend on analytical data to track patient care and
depend on disease management information including
high-risk symptoms that could lead to chronic conditions
with long-term increased costs of care (58).
Employers and employees. Healthcare reform has forced
employers to target the behaviors of their employees, their
employees’ dependents, and their covered retirees using a
new technique known as “consumer engagement strate-
gies” via a three-tiered approach:
1. Offer financial and nonfinancial incentives to hold en-
rollees accountable for maximizing health and financial
Table 7.5 High-deductible health plan (HDHP) deductibles and
annual limits
HDHP Minimum deductible Annual limits
Individual $1,000 $ 5,000
Family $2,000 $10,000
177
plan benefits by making lifestyle changes that reduce
their health risks.
2. Use support services and coaches for guidance to increase
the probability that enrollees will utilize education pro-
grams on wellness and disease management for chronic
conditions to maintain a better health assessment.
3. Create an organizational culture with leaders commit-
ted to changing the enrollee’s idea of individual well-
ness, by recognizing that habits become customs and
are embedded in the culture. Personal behavior
changes do not happen overnight.
Employees’ health behaviors impact both the costs of
benefits and productivity. Organizational change requires a
blend of persistence, perseverance, and leadership to achieve
continuous improvement. Purchasing effectiveness is often
enhanced through partnerships with other purchasers, given
an appropriate commitment to development time. Many
employer worksite health promotion and wellness programs
(WHPs) report positive returns on the investment (ROI)
with reductions in healthcare costs, absenteeism, and work-
man’s compensation claims (91). To measure success, WHPs
have at least one year to measure reduced employee risks and
at least three years to measure improved health and financial
outcomes. Laboratory outreach programs have an oppor-
tunity to develop a WHP health fair package for large and
small employers to offer onsite point-of-care wellness test-
ing annually. For more information, visit http://www.uswwa
.org/files/2010/11/USWorkplaceWellnessAllianceLetterand
Attachments052009.pdf (last accessed July 15, 2013).
The increasing demands for more accountability are forc-
ing health plans to continuously determine and improve the
value of their provider network. Competition may emerge
between managed care, delivery systems, and ACOs, as con-
sumers have more insurance options available. Health plans
should follow the lead of purchasers that buy based on value.
Sharing risks between the health plan and the provider net-
work should be coupled with sharing of data to improve
provider performance to add value across the industry to
the purchasers, providers, payors, and patients (83).
Hospitals and Laboratories: Concerns
in Healthcare Reform
Hospitals. Faced with Medicare reductions, cuts in Medicaid
programs, and an exponential increase in uncompensated
care, hospital operating margins are different in 2012 than
they were 10 years ago. The shift from fee for service and vol-
ume-based measures to accountable care organizations and
quality-based measures will force hospitals to either cut costs
or create new revenue streams to remain solvent. The follow-
ing strategies may offer a more profitable operating margin:
• Focus on the entire continuum of care including ad-
mission, service, discharge planning, postacute care,
and follow-up.
178 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• Align efforts of hospitals and physicians to schedule
and have patients attend post-acute-care visits, as re-
admissions have a negative impact on the bottom line.
• Maintain a sound relationship with payors, bench-
marking and renegotiating managed-care contracts
to eliminate underpayment for services, as 35% of
hospital net revenues generally come from private
insurers.
• Research opportunities for new service lines to in-
crease market share with an improved revenue stream.
At the same time, evaluate current service lines for op-
portunities to eliminate the hemorrhage from shrink-
ing returns.
• Control costs of human resources by cross-training
employees to cover in areas of short staffing as needed.
Use metrics (such as “dollar per patient day”) to moni-
tor shifts and trends in the labor force.
• Partner with vendors to negotiate price controls that
reduce supply costs and eliminate excess inventory
using just-in-time supply delivery where it makes
sense. Include physicians in the cost-conscious strate-
gies for supplies.
• Improve operations in the emergency department
(ED) and the operating room. Hospital EDs handle
increasing numbers of uninsured patients daily that
are probably eligible for a publicly funded program.
Financial screening, at the point of entry, is crucial to
insuring reimbursement for services.
• Develop and implement chronic care programs for
asthma, cardiovascular disease, diabetes, and hyper-
tension. Collect data to mitigate costly chronic care
issues before they become long-term health conditions.
• Evaluate benefits and savings from outsourcing ser-
vices such as laundry, housekeeping, food, mainte-
nance, and even nurse education.
• Adopt a “go green” strategy to reduce dependence on
fossil fuels. Hospitals can expect a return on this in-
vestment in seven or more years (34).
Laboratories. Rampant changes in policy and purchasing
and scientific developments are driving the transformation
of the healthcare industry and are creating a major shift in
dynamics, and the clinical laboratory industry must adapt.
The primary drivers of the change include:
• Payment reform that is shifting away from FFS to
value-based purchasing and risk contracting. The
CLFS reimbursements are being reduced annually, and
payors are putting payment caps on new diagnostic
test pricing.
• Healthcare delivery reform based on providers’ coordi-
nation of care and population management.
• Emerging era of personalized medicine with clini-
cians who need assistance in understanding and using
molecular diagnostic laboratory testing and payors at-
tempting to control molecular test utilization.
This shift in dynamics is forcing the industry to focus on
value that could be defined as measurable patient outcome
per unit of resources utilized. The new industry business
metric will be based on value. To create a value-based lab-
oratory service strategy, directors must understand what
value means to healthcare industry stakeholders and ex-
amine the opportunities, features, and benefits of reinvent-
ing a value-driven laboratory service that offers clinical
diagnostic information that improves care and adds value
to patient outcomes using both traditional and emerging
IT delivery systems. Laboratory directors should examine
costs and develop innovative pricing models to capture
new sources of revenue by developing partnerships with
healthcare providers to coordinate care (36).
Ensure equitable reimbursement for laboratory testing.
According to Jen Bowman, Vice President for Policy and
Regulatory Affairs with the American Clinical Laboratory
Association (ACLA), clinical laboratories are targeted to
receive a 17% reduction in payment from Medicare by
2016, resulting from cuts related to PPACA and a rebas-
ing reduction imposed by Congress in the Middle Class
Tax Relief and Job Creation Act of 2012. Laboratories have
received a zero or negative update in the CLFS in 14 of
the past 22 years. Since 1995, clinical laboratories have
received a cumulative 7.7% percent increase in Medicare
reimbursements while during that same period:
• The Consumer Price Index (CPI) increased 42%.
• Inpatient hospital payments increased 51.4%.
• Outpatient hospital payments increased 35.6%.
• Physician payments increased 27.9%.
Clinical laboratories must partner with and engage their
communities to influence Congress not to mandate fur-
ther reductions in reimbursements (82).
Although required to submit diagnosis codes on all
electronic claims and most paper claims to third-party
payors, clinical laboratories are indirect providers and are
dependent on healthcare providers to supply the neces-
sary diagnosis codes when ordering laboratory testing (2).
The primary reason for laboratory services claim denials
and rejections can be attributed to insufficient diagnosis
coding, and when coupled with the transition to the new
ICD-10 coding, laboratories should plan for a significant
reduction in cash flow. Adoption of the new ICD-10 code
set will require substantial time for planning, development,
education, testing, and implementation, as the project is
not about billing as much as it is about information. The
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Table 7.6 Changes in code sets
Changes ICD-9-CM ICD-10-CM
Number 13,000 68,000
of codes
Digits 3–5 digits 3–7 digits
First digit: alpha First digit: alpha
Digits 2–5: numeric Digit 2: numeric
Digits 3–7: alpha or numeric
current ICD-9 diagnosis classification system is completely
restructured and will require complex cross-mapping as
shown in Table 7.6.
On April 17, 2012, HHS published a proposed rule
that would delay the compliance date for the Interna-
tional Classification of Diseases, 10th edition, Diagnosis
and Procedure Codes (ICD-10) from October 1, 2013, to
October 1, 2014. The ICD-10 compliance date change is
part of a proposed rule that adopts a standard for a unique
health plan identifier (HPID), adopts a data element that
would serve as an “other entity” identifier (OEID), and
adds a National Provider Identifier (NPI) requirement.
For more information, refer to http://www.cms.gov/
Medicare/Coding/ICD10/index.html? redirect=/ICD10/
(last accessed May 31, 2012).
Changing Emphasis on Quality and Value
Value-based healthcare models share the following com-
mon elements: management of distinct patient popula-
tions; delivery of coordinated care through integrated
networks of providers; focus on patient outcomes using
evidence-based practices; use of health information tech-
nology for measuring, managing, and reporting quality;
and focus on costs of providing healthcare instead of re-
ductions in itemized fees. Statistical data from the CDC
show that chronic diseases (such as diabetes, obesity, and
heart disease) account for 75% of healthcare costs and can
be directly linked to lifestyle and poor health habits. Of
adults aged 20 or more, 32% are overweight and 34% are
obese. More than 133 million Americans (or 45% of the
population) have at least one chronic disease.
Health Maintenance Organization
Network Management
National Committee on Quality Assurance (NCQA). The
government, public health agencies, employers, patients,
and purchasers of healthcare coverage and services de-
mand efficiency and demonstrated quality. To that end,
managed-care organizations seek accreditation from the
NCQA, established in 1979. The NCQA is a nationally rec-
ognized accreditation organization that includes rigorous
evaluation of the health plan and the management of the
delivery network. Stakeholders use NCQA accreditation as
179
a means to assess managed-care plans. The 50 standards
considered in the NCQA evaluate quality improvement,
physician credentialing, member’s rights and responsibili-
ties, preventive healthcare, utilization management, and
medical records. HEDIS, first published in 1991, is a set
of standard performance measures used to compare the
quality of health plans and requires MCOs to measure and
report performance to allow competing plans to be rated
on a standard set of criteria (see Table 7.7). The NCQA uti-
lizes the accreditation and HEDIS reporting requirement
to publish report cards on managed-care health plans (C.
Haller, presented at the Executive War College, New Or-
leans, 1997).
Impact of healthcare reform. In November 2011, the
NCQA initiated an accreditation program for ACOs (35).
The program introduction gives credence to ACO adoption.
The new program is making forward strides and progress
throughout the healthcare industry. The NCQA evaluates
participating organizations in the following categories:
• ACO organization and operation
• Patient access to providers
• Primary care centered on the individual patient
• Case management
• Care coordination and transitional care
• Patient rights and responsibilities
• Performance reports and quality improvement
NCQA accreditation offers patients assurance that the
ACO is focused on their care and also assists payors and pro-
viders in aligning their partnerships. The program also pro-
vides private and government payors with tools that allow
access to information about ACO performance and link it to
Table 7.7 HEDIS performance criteria developed by the
NCQA for rating MCOs
Effectiveness of care
Immunizations (child, adolescent, adult)
Breast and cervical cancer screenings
Prenatal care (postdelivery care)
Heart attack treatment
Eye care for diabetics
Plan for smokers
Mental illness follow-up
Laboratory data reporting: glucose and glycohemoglobin
(HgbA1C), cholesterol testing, and pap smears
Access and availability of care
Patient satisfaction
Costs of care
Stability of the health plan
Informed choice for patient healthcare
Utilization of services
Health plan descriptive information
180 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
payment. Providers and organizations that seek NCQA ac-
creditation include providers in group practices, networks of
individual practices, hospital and provider partnerships and
joint ventures, publicly governed entities that work with pro-
viders to arrange care, and provider health plan partnerships.
Quality management. Quality management or quality as-
surance policies ensure that members have access to health
services based on established standards of care in the com-
munity. Structured care methodologies (SCMs) are tools
used to identify best practices, facilitate standardization,
and provide a mechanism for variance tracking, outcomes
measurement, and outcomes management. The SCM tools
include standards of practice, guidelines, protocols, algo-
rithms, and critical pathways.
• Standards of practice provide a baseline for the quality
of care delivered to the patient and relate care to the
operational process.
• Guidelines are systematic statements prepared by pro-
fessional groups to assist practitioners and patients in
making specific clinical decisions about care.
• Protocols are formal guidelines that detail specific
clinical therapeutic intervention for health problems
within a defined population.
• Algorithms are binary decision trees that combine pa-
tient response to intervention with other information
to guide stepwise treatment of a specific condition.
• Critical pathways are written criteria to guide care
based on standards of practice by delineating necessary
treatment and facilitating appropriate use of resources.
Table 7.8 Quality management tools used by MCOs
Tool Management target
Quality assurance Profiling encounter data and claims
Chart audits
Surveys
Utilization management Preauthorization
Precertification
Concurrent review
Case profiling
Outcomes Record end result
Demand Member services
Disease (case and outcomes Specific diseases
management)
These methods provide an interdisciplinary focus to
identify the expected outcomes, the processes for resource
management, or methods that lead to improved quality
and cost effectiveness. Use of the tools should never pre-
clude clinical judgment (D. L. Davis, L. Connelly, and V.
Fuldauer, presented at the Clinical Laboratory Manage-
ment Association Annual Conference, 1998). Utilization
management processes monitor the frequency and utiliza-
tion of healthcare services to ensure that the care received
is efficient and cost effective, administered at the correct
level, and does not use unnecessary services. Table 7.8 out-
lines some of the quality management processes used by
managed-care organizations.
Medical management and cost control. Medical manage-
ment is the use of organized medical care systems and a
routine, preventive care approach to help subscribers avoid
health problems rather than treating them after they occur.
Plan members select a participating PCP, or gatekeeper,
who oversees and approves the medical services for the
patient. Whenever a patient requires more technical or
specialized treatment, the PCP issues a referral that rec-
ommends to the HMO that the patient see another par-
ticipating HMO provider or specialist for services. Before
certain expensive outpatient procedures are performed,
the provider must seek preauthorization (a preservice re-
view) from the health plan to ensure that the services meet
the criteria for medical necessity, thereby ensuring that
payment will be received for the service provided. If the
member needs to be admitted, the health plan may require
a preadmission review or precertification to ensure that
the service meets criteria for medical necessity and that the
Purpose or focus
Data analysis
Health plan, providers, facilities
Providers and members for incident reporting and
problem resolution
Providers must seek approval prior to performing
certain procedures or admission
Review cases concurrent with ongoing care
Analysis of cases as they occur
By provider
By procedure
By clinical guidelines
Requests for clinical information
Access to MCO triage by nursing
Request for patient education resources
Claims analysis by procedure
Patient and provider education
Coordination of care across continuum (hospital,
pharmacy, lab, physician)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
services are performed in the most cost-effective setting
(reference 93, p. 74–75). Medical directors at managed-
care organizations evaluate several parameters to help en-
sure quality: cost, resource utilization, provider profiling,
practice guidelines, and outcome studies. Clinical practice
guidelines may assist healthcare providers in preventing,
diagnosing, and treating medical conditions.
Patient Management
An outcome is defined as a measured change or event that
affects the status of a patient during a defined period of
time (for example, death, the onset or disappearance of
symptoms, discharge, readmission, complications, or di-
agnosis). “Our reimbursement system focuses on the ‘right
price’ and on volume . . . We need a system that rewards
providers with good outcomes and those that implement
safety systems,” according to Margaret Amringe from the
Joint Commission on Accreditation of Healthcare Organi-
zations (now The Joint Commission [TJC]) (99).
Outcome research. Outcome research is a formal study
into relationships between treatment and effects. It mea-
sures the impact of medical management in terms of pa-
tient well-being or financial performance. This research
in the clinical laboratory requires a systematic collection
of data that is best accomplished in conjunction with a
broader health services research effort that includes a mul-
tidisciplinary team of laboratorians, clinicians, adminis-
trators, and statisticians (99).
In the laboratory, test efficacy is measured based on
whether or not a patient’s management is influenced by the
test result. Test effectiveness is a measure of whether the test
changes the patient’s outcome. The prevalence of disease
is affected by the demographics of the patient population
(age, socioeconomic status, ethnic background), which in
turn influence the predictive value of a given test in a par-
ticular population.
P sensitivity
PV (+) =
[(P × sensitivity + (1 − P) × (1 − specificity)]
where PV (+) is the predictive value of a positive test (+),
P is the prevalence of disease in the studied population,
sensitivity is positivity in disease, and specificity is negativ-
ity in health. The predictive value of the test influences the
outcomes analysis of the cost/benefit ratio.
The predictive value of a test performed in the commu-
nity PCP office varies from the predictive value of the same
test performed in an academic tertiary-care medical center
where the patients tend to be at higher risk for disease (99).
The purpose of routine laboratory testing should not
simply be to detect abnormalities but also to improve
health through diagnosis and treatment of detected con-
ditions. Case finding is an important tool in preventive
medicine that screens asymptomatic patients for disease.
181
Screening for possible disease is as much a part of an
annual check-up as taking a medical history or giving a
physical exam. Outcome research combines studying the
actual practice, with the medical exam and the medical
record to uncover the factors (such as the patient’s health,
demographics, time of last exam, professional experience,
gender, reasons for ordering tests, and test expectations)
that influence the healthcare provider or the patient dur-
ing an office visit. The research provides a look at test
effectiveness, not just efficacy. The value of a laboratory
test is measured by whether it changes the likelihood of
disease in conjunction with the clinician’s estimate of the
probability of disease (65).
In addition to database repositories, new technology re-
ferred to as data mining shows promise for obtaining new
knowledge in future research. Outcome research seeks to
quantify both the benefits and the costs associated with
introducing new technology. Economic pressures to de-
crease costs of healthcare will impede the introduction of
new technology, unless it can be justified by demonstrat-
ing improved patient outcomes or financial performance.
Laboratory managers will become stewards of the human
and capital resources moving forward (99).
Outcome management. Outcome management is a proac-
tive concept closely aligned with utilization management and
continuous quality improvement. Outcome management
applies theory, philosophy, and continuous quality improve-
ment (CQI) tools to a healthcare treatment or procedure to
measure or determine the effectiveness of the treatment or
procedure being evaluated. Using multidisciplinary teams,
outcome management studies are performed on a specific
patient population. The analysis includes both concurrent
and aggregate data about specific processes rather than the
entire project. The team should have a physician member
to champion effective clinical leadership in implementing
the findings. Teams must collectively analyze the process,
identifying the best practice, then streamline the process by
eliminating variations in practices from provider to provider,
and finally educating the physicians, staff, and patients using
outside sources as benchmarks. The clinical maps, protocols,
guidelines, and algorithms developed by these teams are re-
ferred to as multidisciplinary care plans, as defined in Table
7.9. Focusing on the high-cost, high-volume, or high-risk
populations will yield a bigger impact on future outcomes.
The results of the data analyzed will only be effective if the
data collected can be substantiated and is credible for use in
comparative assessments at a later time (95).
Outcome-based measures. In a constantly changing health-
care environment undergoing reform that purports to
reward value and quality, outcome-based measures and
quality improvement are essential. The increasing demand
for collection of high-quality data to support measurement,
182 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

Table 7.9 Clinical pathways

Pathway
Standard of care treatment
guideline
Clinical guideline
Algorithm
Formulary
Clinical pathway, critical
pathway, care map
Multidisciplinary care team
Definitions
A general or specific medical or mental health treatment
guideline that specifies the appropriate approach to treat-
ment based on scientific evidence and collaboration
between medical or mental health professionals involved in
the treatment of a patient with a particular condition.
Clinical guidelines are used to identify, summarize, and
evaluate the highest-quality evidence and most current
data about prevention, diagnosis, prognosis, and therapy,
including dosage of medications, risk-benefit analysis, and
cost-effectiveness. They define and integrate the identified
decision points with the respective plan of action, best prac-
tices, and clinical judgment and experience of practitioners.
Some guidelines contain recommended decision trees or
algorithms. Many place treatment alternatives into catego-
ries to help providers decide which treatment plan to use.
A technique for standardizing decision making and improv-
ing the technical quality of care that provides a series of
questions and/or a flow chart or decision tree that leads
the caregiver to the correct diagnosis and treatment for the
most commonly observed conditions.
A list of drugs including enough medications and informa-
tion to enable providers to prescribe medically appropriate
treatment and covered services.
Clinical pathways (also known as critical pathways, inte-
grated care pathways, or care maps) are used to standardize
the care process and quality improvement while reducing
variations in clinical practices and improving outcomes.
A management tool based on evidence-based practice for
specific groups of patients with a predictable clinical course
where different tasks (interventions) are defined, optimized,
and sequenced by hour, day, or visit.
A team including patients, physicians, nurses, pharmacists,
laboratorians, social services, mental health professionals,
nutritionists, and health educators. The team members
change depending on the diagnosis, social, or personal
situation of the patient. The team works collaboratively to
provide effective and efficient care to patients with chronic
health conditions by developing a plan of action by combin-
ing forces to initiate a multidisciplinary treatment plan. The
patient is involved and is encouraged to include family to
improve long-term outcomes.
Objectives
To standardize the medical care and treat-
ment within a practice or healthcare facility.
To standardize medical care, improve quality
of care, and reduce exposure to risks for pa-
tients, providers, insurers, and health plans.
To achieve balance between cost of care and
clinical effectiveness.
To systematize or standardize clinical behav-
iors and decisions for frequently occurring
situations.
Hospitals maintain formularies that list all
drugs commonly stocked in their pharmacies.
Third-party organizations such as insurance
companies usually maintain formularies that
list drugs that the company will cover under
plan benefits.
Clinical pathways promote organized and
efficient patient care based on the evidence-
based practice.
Clinical pathways optimize outcomes in the
acute-care and home-care settings.
Provides a forum to enhance the skills and
knowledge of team members to learn about
the strategies, resources, and approaches of
the various disciplines and offers a built-in
consultation component.
Provides the team members with invaluable,
ongoing support while dealing with difficult
patient situations, diseases, and treatments.
Promotes patient satisfaction by building
a community support system with patient
follow-up and more integrated and coordi-
nated medical services.
Follows patients from the hospital back to
their homes and from diagnosis through
treatment for a variety of chronic conditions
including diabetes, heart disease, cancer, and
mental health treatment.

reporting, and document improvement and accountability Disease Management

require investment in infrastructure for organizations and
health plans across the healthcare delivery system. Pressure
on institutions to demonstrate measurable performance is
driven by the shift toward value-based purchasing incen-
tives (83).
Disease management is an MCO tool that emerged in
the 1990s with the premise that it would help prevent or
better manage disease, reducing the need for expensive
medical treatment and hospitalization and ultimately
decreasing costs and improving outcomes. When the
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
evaluation process involves the healthcare system or a
chronic disease process, the review is called disease man-
agement. Indicators used in this evaluation include length
of stay (LOS), turnaround time (TAT), and financial out-
comes. Decision support software with algorithms using
statistical data is used to identify patients who are at risk
for developing severe illness and are more likely to require
hospitalization. The ability to rank patients by risk al-
lows the managed-care organization to use case manage-
ment more efficiently and at the appropriate level of care
required by the patient. The ability to capture laboratory
data electronically and to integrate it with the other data
elements enables the health plan to expand the data set
used for assigning patient risk and performing gap analy-
sis related to the patient’s care. Some of the newest decision
support software packages with advanced logic engines
combine expert rules with artificial intelligence (AI) tools
like neural networks that integrate data variables not gen-
erally used in traditional clinical models (87). In the past,
obtaining provider buy-in has been difficult, as the physi-
cian is typically critical of cookbook medicine and its un-
derlying motives of reduced costs at the expense of quality
care. Communication strategies must clearly demonstrate
to providers that individualizing and standardizing a pa-
tient’s care plan, significantly improves the patient’s out-
come. Physician profiling that compares an individual
physician to a group of physicians helps boost provider
acceptance, stimulates peer pressure, and is an excellent
quality driver (especially when monitored).
According to Hewitt Associates, a human resource
consulting firm, the use of disease management pro-
grams (DMPs) by employers and payors doubled to
19% between 1997 and 2002. Hewitt anticipated that
employers using DMPs would reach 30% by 2003. Rob-
ert Michel predicted that disease management would
drive the next generation of managed care, by focusing
on prevention and early detection, and would represent
a significant opportunity for clinical laboratories. The
ability to provide guidance to physicians and their pa-
tients positions the laboratory as a contributing partner
in the healthcare continuum (63). The CDC reported
that patients with chronic disease accounted for 75%
of overall health spending, while Johns Hopkins Uni-
versity reported that Medicare spending on DMP ac-
counted for 99%. DMP statistics in 2009 indicated that
$2.5 billion was spent in DMPs (http://www.managed
caremag.com/archives/1003/1003.dm.html, last accessed
October 1, 2012).
Healthcare Reform: Demonstration Projects
Disease management and care coordination demonstra-
tions. The DMPs participating in the demonstrations
offered services to hospitals, providers, insurers, and em-
ployers, such as nurse case managers who worked with
patients with chronic disease to improve and monitor
183
self-care, testing, and treatment regimens. In some proj-
ects, the nurses were not affiliated with the provider prac-
tice, and the mode of communication was by telephone.
In other models, nurses were employees of the offices and
had direct interaction with patients. A few projects used
electronic devices to monitor and transmit physiologic in-
formation from the patient’s home to the care manager. Al-
though the DMP projects demonstrated some reductions in
hospitalization and spending, the results were invalidated
by the low number of Medicare enrollees that participated.
Overall, the DMP projects demonstrated little or no effect
on admissions or reductions in spending. The outcomes,
reviewed by the Congressional Budget Office (CBO), con-
clude that either Medicare spending was unchanged or fees
to the program were slightly increased over prior services
provided in the absence of the program (66).
Value-based payment (VBP) demonstration. Value-based
healthcare models share the following common elements:
management of distinct patient populations; delivery of
coordinated care through integrated networks of pro-
viders; focus on patient outcomes using evidence-based
practices; use health information technology for measur-
ing, managing, and reporting quality; and focus on cost
of providing healthcare instead of reductions in itemized
fees. After CMS introduced VBP pilots in 2003, commer-
cial carriers followed the CMS lead by offering their own
versions of VBP, focusing on better care, lower costs, and
more efficiency. The CMS programs can be categorized as
follows:
• Payment for reporting (P4R). Providers receive incen-
tive payments for reporting and making information
available to the public.
• Payment for performance (P4P). Providers receive in-
centives for achieving clinical targeted goals.
• Payment for value. Providers can demonstrate im-
proved quality outcomes and improved efficiency (42).
The value-based payment projects have shown some
success, but the savings achieved varied significantly from
7 to 20%, based on variations in discounts, market-specific
competition, and internal business strategies of partici-
pating providers (66). The projects focused on reducing
spending and improving quality of care. The U.S. health-
care delivery system is decentralized, and paying providers
for services currently cannot prorate payments for coordi-
nation of care with multiple providers. The conclusion of
the VBP demonstration projects suggests that widespread
payment and delivery changes will be necessary to demon-
strate significant reductions in spending to maintain and
improve quality of care. The following strategies may help
attain goals for future demonstration projects:
• Collect timely data and demographics when assessing
patients to better coordinate and manage care.
184 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• Plan and coordinate transitions from one care setting
to another to reduce readmissions.
• Provide collaboration between physicians, pharma-
cists, laboratorians, and care coordination managers as
a team.
• Provide proactive medical care and interventions for
beneficiaries with high-risk chronic disease.
• Limit program incentives so as not to exceed the actual
spending reductions (66).
Value-based purchasing. Value-based purchasing is a new
strategy being used by many private and public sector
purchasers of healthcare and health insurance services to
maximize benefits while maintaining lowest costs (85). The
approach identifies specific performance requirements for
contractors, insurers, third-party administrators, and di-
rect service providers, holding them accountable by invok-
ing clear consequences for inferior performance. Essential
steps to leverage and improve the effectiveness of value-
based purchasing initiatives include:
• Use a structured process that details goals and objec-
tives including measurements and a feedback mecha-
nism to monitor and ensure communication and
promote collaboration with partners and contractors.
• Adjust goals accordingly and reset targets and mea-
surement goals.
• Review data and compare them with other perfor-
mance benchmarks available.
• Create a dashboard to monitor change using perfor-
mance measures for incentives and disincentives.
• Use national data to benchmark a purchasing plan.
• Meet with partners and contractors regularly using
dashboard data to set an agenda.
• Collaborate with partners and contractors, developing
a multipayor system and adjusting it as necessary to
achieve targeted goals.
Table 7.10 The evolution of the educated consumera
Nickname Span of years
GI Generation 1901–1924
Silent Generation 1925–1942
Baby Boomers 1943–1960
Generation Xers 1961–1981
Millennial Generation 1982–2003
a
See reference 46
The Educated Consumer
Baby Boomers and Generation Xers:
the Educated and Savvy Consumer
The new focus of healthcare will be on the five generations
of consumers from the last century. Each generation has
distinctively different ethics, values, beliefs, and needs (see
Table 7.10). The GI Generation refers to more than 60 mil-
lion people born between 1901 and 1924. Known as the can-
do generation, they literally lived the American Dream of
baseball, hotdogs, apple pie, and Chevrolets. The Silent Gen-
eration spanned the years from 1925 to 1942. This genera-
tion is full of wealthy and affluent consumers who are loyal
traditionalists that created bureaucracy to maintain control
of the world around them. This silent generation adheres to
one basic principle: if you work hard, you will get ahead. At
the same time they are relatively inflexible and resist change.
Next are the Baby Boomers, who represent the 76 million
births between 1943 and 1960. Baby Boomers were flower
children, draft dodgers, hippies, and yuppies who benefited
from the economic revolution. Also known for regeneration,
they have redesigned, redeveloped, reinvented, and reengi-
neered their world. On the one hand, they overindulge in
self-gratification; on the other hand, they are type A idealists
who are extremely passionate about being successful. Gener-
ation Xers are the 44 million people born between 1961 and
1981 who have witnessed everything from human immune
deficiency virus (HIV) to the fall of the Berlin Wall. Known
as latch key kids, couch potatoes, and now as boomerang
kids, this generation has a strong need for information and
feedback, is typically savvy with both electronics and com-
puters, but generally speaking, doesn’t like to read. The Mil-
lennial Generation, born between 1982 and 2003, represents
the newest healthcare consumers just entering the work-
place. Generally values, ethics, and needs repeat every fourth
generation, so the Millennials should be successful achievers
who conform to the rules of society and who will aspire to
live the American Dream. They are technologically savvy in-
dividuals who dislike wasting time. Like the GIs in the early
1900s, they will be another get-it-done generation (46).
Behaviors
The “can-do” generation who lived the American Dream
Wealthy, affluent, and loyal traditionalists who believe that
working hard equals success
Flower children, draft dodgers, hippies, and yuppies who
redesigned, redeveloped, reinvented, and reengineered
the world
Composed of latch key, couch potato, and boomerang kids
who are extremely savvy with technology but don’t read
A “get-it-done” generation of achievers who value time
and conform with rules
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Consumer-Driven Healthcare
According to a survey by Mercer, between 2007 and 2011
there was a dramatic increase in consumer-driven health
plans (CDHPs) that were offered among large employers
with more than 500 employees (21). Indiana’s state em-
ployee CDHP has demonstrated savings for both the state
and the employees in a plan that incentivizes consumers
to manage their healthcare dollars carefully. Since 2006,
the overall costs for health benefits have been reduced by
10%. Of the employees enrolled in CDHPs, 98% are satis-
fied with the plan; only 2% have converted back to a tra-
ditional plan. The success is tied to consumer education
and elimination of barriers. Anthem, the CDHP insurer in
Indiana, provides web access to rate information and com-
parable data for enrollees to evaluate. Indiana contributes
a generous benefit payment into their employees’ health
savings accounts (HSAs) for participation. An advantage
for laboratories (independent and outreach laboratories)
is that state enrollees are free to select their lab provider.
Therefore, competing on lowest price is not the primary
driver in the consumer’s purchasing decision. In 2010, the
projected savings from CDHP enrollment approached $20
million due to a combination of factors:
• Enrollees visited emergency departments and physi-
cians 67% less frequently than traditional plan
subscribers.
• CDHP enrollees used generic drugs more than tradi-
tional plan subscribers.
• Hospital admissions for these enrollees were less than
half as frequent as traditional subscribers.
Because the number of subscribers selecting the traditional
indemnity coverage has declined, the rates for premiums
have soared from $3,500 in 2006 to $9,000 in 2010 (21).
The Increasingly Litigious Environment
In the new millennium the relationship between the pa-
tient and the provider will continue to change. Data, not
emotions, will drive the decision-making process. Patients
will elect to change providers more frequently during open
enrollment. Since the role of litigation is inversely linked to
length of relationship, the industry can expect to see an in-
crease in litigation claims. As the population ages, patients’
expectations about their rights and access to care will also
increase. Patient demand for participation in the decision-
making process will increase the need for accuracy and
clarity in communications. John Wennberg and his col-
leagues at Dartmouth developed a new process decades
ago known as informed choice, which encouraged patients
and their physicians to review all treatment regimens avail-
able and then link them to the patients’ objectives for treat-
ment. More and more patients may move away from their
current long-standing relationship with their healthcare
185
providers and opt for nontraditional, episodic alternative
medicine treatments when such treatments become cov-
ered services (43).
Much progress was made between 2006, when the
Genomics and Personalized Medicine Act was first in-
troduced, and 2010, when the fourth version was reintro-
duced but failed to pass. The healthcare industry and the
public have embraced the principles of personalized medi-
cine, but there remains an array of technical, legal, regula-
tory, and payor issues to be resolved before its full potential
and benefits can be realized. Enhanced genetic education
of healthcare providers will facilitate the clinical adoption
and use of the technology. However, there are many out-
standing issues surrounding its regulation:
• Intellectual property issues
• Court challenges on gene patents and eligibility issues
• FDA regulation of direct to consumer (DTC) genetic
tests, kits, and companion diagnostics
• Reimbursement, cost sharing, and payor issues
• Privacy and regulated use of individual genetic
information
• Development of information technology devices and
services
Hospitals and health system administrators should rec-
ognize and be prepared to address any of these major legal
issues and battles that surround healthcare reform (69).
• Lawsuits are likely against the mandate to buy health
insurance. Providing protection for patients with pre-
existing conditions requires that everyone have health
insurance; otherwise patients would have no reason to
pay for coverage until they got sick.
• HIPAA regulations and data breach violations will
increase as the interoperability of electronic health
records (EHRs) expands to share data between IT net-
works. Laptop computers, portable devices, and smart
phones have been attributed to 16% of reported data
breaches.
• The CMS has altered antitrust and safe harbor laws
to make way for ACOs, but government agencies are
watching competing ACOs to ensure that clinical in-
tegration and reduced costs are not creating unlawful
avenues to raise fair market prices.
• The PPACA expands the False Claims Act with in-
creased penalties for submitting false claims and allows
whistleblowers access to public disclosures for report-
ing and eliminates the requirement for them to be a
primary firsthand source of the violation.
• Hospitals must ensure that physician relationships are
not created to incentivize physicians for referrals to
avoid infringement on antikickback statutes.
186 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• The Stark Law prohibits physicians from referring ser-
vices to a hospital where there is ownership interest or
a compensation arrangement.
• Recovery audit contractors are private contractors that
audit providers for overpayments from the CMS and
receive a percentage of their recovery. Appealing a
judgment, if not reversed, may cost an additional 12%
interest on the overpayment amount.
• The PPACA contains specifications that change the
“community benefit standard” used for more than 40
years to receive and maintain tax-exempt status. New
requirements include completing a community needs
assessment every three years, a written financial assis-
tance and emergency care policy, limitation of charges
for emergency or medically necessary care for patients
with financial assistance needs, and limitation of col-
lection actions until reasonable efforts are made to en-
sure that the patient needs financial assistance.
• Comanagement arrangements must be well docu-
mented based on fair market values, not on the value
or volume of referrals.
• Decreased hospital reimbursement rates in 2011 were
approximately $440 million. Beginning in 2015, penal-
ties for providers will include physician penalties for
failing to demonstrate cost-effective and high-quality
performance and hospital penalties for hospital-
acquired conditions and high readmission rates.
• Labor laws related to age discrimination, disabilities,
and grievance processes can impact the workforce and
human resource costs.
• As hospital mergers increase, regulations that forbid
arrangements that restrict trade or harm competition
under the Sherman Act and the Clayton Act must be
carefully evaluated. For more information on antitrust
laws, go to http://www.justice.gov/atr/public/division
manual/chapter 2.pdf (last accessed October 1, 2012).
Changing Technology
Following the onset of managed care, inpatient days de-
creased as a result of new technology and alternative treat-
ment settings, ultimately reducing routine and inpatient
laboratory testing volume. Now, the laboratory’s role is
expanding to promote prevention. Genetic testing, point-
of-care testing, home testing, and direct public access to
preventive and screening testing are increasing (20).
Technological Advances
Fast-occurring changes in microelectronics, chemistry,
genomics, imaging software, and miniaturization are
converging, integrating, and redefining the landscape of
diagnostic testing. The changes include advances in the
disciplines of molecular biology and functional genomics,
the evolution of technology with high throughput, the es-
calating costs of healthcare, and the increasing demands
of the educated consumer. Information is no longer just
a tool but is now a primary asset used to improve patient
management and prevent disease (29).
The information superhighway and the virtualization
of healthcare. The funding for the research and devel-
opment of an experimental, secure data network, now
known as the Internet or the World Wide Web (www.),
was originally budgeted by the Department of Defense.
The Internet quickly evolved into a powerful new social
institution, reaching more than 50 million users in only
five years. That is roughly one-eighth the time for the radio
and less than one-half the time for television to reach the
same numbers of consumers. In 1998, consumers spent
$8 billion online, out of roughly $2 trillion total consumer
expenditures. According to John Horrigan, an associate
director at the Pew Internet Project, Americans use the In-
ternet for product research because online resources make
shopping more efficient and help users explore options
and compare features. And although many users believe
it helps get better deals, very few complete purchases on-
line. Pew Research Center’s Internet and American Life
Project recently reported that 80% of Internet users search
for health information online. However, the report noted
a disparity among households with Internet access—72%
of white households, 55% of African American house-
holds, and 57% of Hispanic households—and also that
only 4 in 10 households with income below $25,000, and
only 50% of rural Americans, have access to home In-
ternet (14a). For more information, refer to http://www
.marketingcharts.com/direct/internets-role-in-consumer
-purchases-important-not-vital-4652/ (last accessed June
3, 2012). The healthcare industry has not totally embraced
and adopted the Internet (Table 7.11). Proponents of the
Internet believe cost savings will ultimately be achieved
by eliminating middlemen, reducing clerical and redun-
dant processes, and decreasing medical errors in the midst
of increased consumer demand. Insurers anticipate cost
avoidance through effective disease management sup-
ported by Internet-based applications (27). The website of
Health Futures, Inc. (http://www.healthfutures.net/p-w.php,
last accessed October 1, 2012) has more information.
Point-of-care testing (POCT). Microelectronics, micro-
fabrication, and microcomputerization have revolution-
ized the way that laboratory tests are performed. These
technologies allow test results to be obtained in a matter
of minutes or even seconds. POCT, or near-patient testing,
has long been touted as the technology that would change
patient management in the world of managed care. The
most obvious benefit of POCT is decreased turnaround
time (TAT). The premise that near-patient testing would
radically change patient management under managed care
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Table 7.11 Internet stakeholders: the barriers and benefits to healthcare
Stakeholders Barriers
Physicians Are skeptical, and reluctant to adopt with
limitations on time
Resent patients with more e-knowledge
Administration Lack motivation to use and are skeptical
Consumers More aggressive at embracing the technology
Healthcare institutions Need systems with standardized coding and
formats for clinical information
Address extensive requirements to protect
privacy under Health Insurance Portability
and Accountability Act (HIPAA)
Security and encryption
Health insurers
has not been substantiated (29). Bickford’s research con-
cluded that POCT had no significant impact on hospital
length of stay (LOS) (104). Receiving rapid results reflects
patient status at a given time and improves pharmaco-
logical management. However, for physicians to act, they
must still wait for a complete manifest of results. As new
technologies for POCT evolve, laboratory medicine pro-
fessionals will continue to question the accuracy and reli-
ability of the instruments and the results. Table 7.12 lists
the advantages and disadvantages of POCT. Research and
development must carefully evaluate instrument limita-
tions, especially for the critical-care setting (53).
Meanwhile, cost minimization strategies push the testing
back to the clinical laboratory, where cost-effective testing
and TAT can be maintained. The latest strategy for near-
patient testing is the move to specialty centers (such as chest
pain centers), where the focus is on specialized manage-
ment of the patient for best overall outcome (28). Following
the development cycle of personal computers, inexpensive
Internet access, and distributed computing, use of POCT
will accelerate in regional care centers, rescue sites, schools,
workplaces, rehabilitation centers, law enforcement settings,
187
Benefits
Access to consultation is easier
Reduces time spent on phone
Access to pharmacy and drug information
Online patient access to provider network directory
Reduces human resource time
Reduces needs for clerical support
Improves productivity
Facilitates needs for outsourcing
Consumers seek health information
Patients can discuss conditions more knowledgeably with
physicians
Consumers seek patient advocates online
Online appointment scheduling and insurance verification
Complete preliminary patient history
Creation of permanent electronic medical record
Paperless transmissions, verification, adjudication, and pay-
ment of claims
Online marketing to consumers and providers
Paperless prescriptions and “mail-order” handling reduce time
Access to online outsourcing for administrative management
needs (billing, finance, data processing, telecommunications,
inventory and human resources)
Eliminates redundant clerical functions.
Online eligibility verifications reduce time on phones
Claims processing and remittance are streamlined
Enables faster electronic funds transfer for payments to
providers
Assists in outcomes and disease management processes
Allows for real-time, direct communication with subscribers
insurance companies, home health, nursing facilities, and
in the patient’s home. Whole-blood analyzers will be built
into stand-alone critical-care monitoring units. The future
POCT black boxes will permit ambulatory self-monitoring
at home. Patients who take personal responsibility for their
healthcare have improved outcomes (45).
Point-of-care testing and home healthcare. The U.S. pop-
ulation is living longer, and providing care for the elderly
has major implications for future healthcare costs. Each
year, approximately 12 million individuals receive health-
care from more than 33,000 providers for various causes
including acute illness, long-term health conditions, per-
manent disability, or terminal illness. In 2009, annual ex-
penditures for home healthcare were projected to be $72.2
billion. Additional statistics about home care can be found
at the National Association for Home Care website at
http://www.nahc.org/facts/10HC_Stats.pdf (last accessed
May 31, 2012). As the number of patient home care visits
increases, it will be important to assign disease manage-
ment teams to minimize costs. In the current model, labor
costs are high. The home health market will increasingly
188 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Table 7.12 Advantages and disadvantages of point-of-care testing a
Advantages
Shortened therapeutic turnaround time
Improved patient outcomes
Reduced preanalytic errors
Requires smaller sample volume
Elimination of sample degradation
Eliminates specimen mislabeling
Self-contained, user-friendly instruments
Shortened critical-care stay
Handles variety of sample types: whole blood, urine, and saliva
Potential applications: home health, rescue, and military operations
Convenience for physicians
a
See reference 52
rely on POCT and vital sign technology combined with
patient management and information systems (49).
Telemedicine clinics. Healthcare facilities are taking a new
approach to providing direct access to outpatient services.
Telemedicine allows rural communities lacking healthcare
professionals to send images to urban medical centers for
consultation or a second opinion. Medical instruments
such as laryngoscopes and otoscopes, modified to work
with a videophone system, are now being placed in sub-
urban malls, major regional referral centers, prisons, and
military field offices. The physician located in the medical
center miles away makes an interactive diagnosis remotely,
using telemedicine technology. The medical information
associated with these encounters can be stored in a per-
manent electronic medical record. The obstacles that limit
wider use of telepathology include the general uneasiness
of pathologists in using computers and video instead of
traditional slides, lack of standards, and legal issues related
to the practice of medicine across state lines (102).
Telemedicine home care. Prior to the 20th century, al-
most all illnesses were treated in the home setting. In the
1900s, the care shifted to institutionally based medicine.
Now, 100 years later, healthcare is returning home. The
change is fueled by a combination of mounting pressure to
reduce costs and emerging telecommunication technolo-
gies. A third factor is the sick patient’s desire to be treated
at home. Home telemedicine applications fall into three
categories: access to information, transfer of data, and in-
teraction with caregivers. Telemedicine allows a combina-
tion of direct, indirect, and periodic data measurements of
blood pressure, heart rate, glucose, and pulse oximetry to
be transmitted to a central point for storage and analysis
and to include immediate patient feedback instructions. In
theory, any parameter that can be measured electronically
Disadvantages
Concerns for inaccuracy, lack of precision and performance
Interfering substances
Analyte ranges more narrow
Quality management and assurance practices poorly defined
Potential for increased clinical errors
Test quality is operator dependent
Lack of password security
Lack of connectivity
Increased costs over core lab
can be transferred, creating ideal conditions for remote
patient management via home-based telemedicine. In-
teraction between the patient and caregiver can either be
synchronous (immediate response) or nonsynchronous
(delayed response). There are many issues related to pa-
tient privacy, quality, and cost that impact the use of tele-
medicine and need to be addressed. Personal computers
are often too complex for the ill patient and the elderly and
are not well suited for patients with visual or orthopedic
impairments. Improved technology is needed to support
the diverse needs of the home telemedicine market (25).
Although telemedicine and enhanced direct access to care
have their advantages, they still have risks and a downside.
Consumers armed with a little bit of knowledge may iso-
late themselves from comprehensive care. Worried about
the time or out of fear of the expense, some consumers
might even attempt to treat themselves without seeking the
benefit of professional guidance (3).
Telepathology. Since the introduction of the personal
computer and the information age more than three de-
cades ago, the practice of pathology has been changing.
By combining digital imaging, the computer, and high-
speed, broadband digital networks, pathologists can now
collaborate in real time over great distances. Telepathology
capability may be considered a value-added service when
marketing reference laboratory services to a pathology
practice. The service can be used to confirm the diagnosis
made by a colleague and to aid in making a diagnosis for a
less experienced pathologist just entering practice.
Telepathology is also used to link the pathologists with
the surgical suite, where a discussion of relevance and details
related to tissue or lesion margins is conveyed. Telepathol-
ogy expands the ability of a pathology practice to provide
services to multiple community hospitals and physician of-
fice laboratories. Even though there is no additional direct
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
reimbursement for the technology or the overhead costs for
the system, the value of the system comes from its potential
to break through geographic boundaries (75).
Telecommunication consortiums. Major telecommuni-
cations and computer hardware and software manufac-
turers are working to develop a process to improve the
distribution and synchronization of information among
electronic devices (such as computers, personal digital
assistants, cell phones, and other information devices).
The ability to share and update information among de-
vices, sources, and recipients in healthcare should prove
useful as the information age continues to evolve (100).
Transmitting patient information between business asso-
ciates over telephone lines and cables is subject to HIPAA
security regulations. Integrating security safeguards like
passwords and encryption may be necessary depending
on system architecture (33).
Direct Consumer Access
The number of people that the Medicare system must
manage will soon double, as the first of the Baby Boomer
generation reached the magic age of 66 in 2012. Altogether
this generation makes up about 76 million Americans,
pushing the financial stability of the healthcare system
nearly to its breaking point. According to Emily Sander-
son with Medical Careers Review (80), people aged 65 and
older currently represent approximately 12% of the popu-
lation but account for the following percentages of health-
care services:
• 20% of physician office visits
• 35% of hospital stays
• 34% of prescription use
• 38% of emergency medical response services
• 90% of nursing home stays
For more information, go to http://medical-careers-review
.toptenreviews.com/the-rising-health-care-needs-of-aging
-baby-boomers.html (last accessed July 15, 2013).
Unlike their parents, who were members of the GI and
Silent generations, the Baby Boomers have a much higher
expectation for customer-specific services, from paying
at the pump for gasoline to managing their portfolios on-
line. Healthcare companies that are progressive recognize
that they must meet the needs of this “pay-at-the-pump”
generation to remain competitive in the consumer-savvy
marketplace. Sometimes referred to as a consumer revo-
lution, the desire and expectation for quick, convenient
services at the store and the bank has spilled over into the
healthcare setting and is more accurately described as con-
sumer demand. Complaints about appointment schedul-
ing and delays, filling out the same form time and time
again, and long wait times in a provider’s office must drive
189
the changes needed to refocus our energy to the front end
to change customer perceptions. Consumers are exposed
to self-service technologies in every other industry, so why
not healthcare?
Focus on the front door. Computer-savvy customers
expect to visit a healthcare provider’s website from the
privacy of their home to schedule a visit, preregister for
care, receive patient information instructions, and print
out travel and parking directions. Healthcare facilities
and their providers whose focus is clearly on the front
door have a strong competitive advantage. As a result,
physician loyalty is typically increased when patients are
no longer required to spend time dealing with service is-
sues. Healthcare stakeholders all benefit from increased
productivity because the physicians have more time for
direct patient care. Hospitals that provide the best cus-
tomer service attract the best physicians, who in turn at-
tract patients (39).
Direct Access Testing
Direct access testing (DAT) refers to laboratory testing per-
formed at the request of the patient as the consumer. Over
the past 20 years, laboratories have offered similar services
in the form of health fairs where a designated medical di-
rector reviewed the reports prior to providing the patient
with the data. Patients who utilize these services are moti-
vated for different reasons:
• Confirm health or wellness as a result of seeing, read-
ing, or family history
• Assess risk from exposure when lifestyle indicates the
need
• Monitor the status of existing conditions
• Ensure confidentiality by avoiding a physician office
laboratory visit
Strategically selecting a highly visible location for a
personal diagnostic center (PDC) is critical. The interior
should be warm and inviting versus the sterile appearance
typically projected by a laboratory. The employees must be
able to support patients in the test selection without giving
medical advice, using patient education brochures pub-
lished by known healthcare associations. Testing can either
be performed on-site while the patient waits, or results can
be mailed directly from the laboratory. The test menu of-
fered can also include other healthcare services from the
enterprise such as bone density, blood pressure, or EKG.
In most institutions, the PDC operations are generally set
up as a cash-and-carry service model. A market survey to
gather information about the perceived need and revenue
projections should be studied along with the state regula-
tory issues prior to entering the direct access testing arena
(31). The number of states that allowed consumers to order
190 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
direct access testing grew from 27 to 34 after 1999 (22). By
2004, the American Society of Clinical Pathology (ASCP)
reported that direct access testing accounted for 10 to 15%
of testing performed by hospital and commercial laborato-
ries in the U.S. each year. Under the DAT model, patients
bypass their physician and order tests directly from clinical
laboratories or other qualified testing sites. The results are
returned directly to the patient. Generally, DAT is not cov-
ered by insurance, so the patient pays up front and there
is no billing. The DAT model raises important consumer,
regulatory, medical practice, medicolegal, economic, and
ethical issues.
Consumer perspective. DAT increases consumers’ control
of their healthcare. Patients may want to save the time and
expense of seeing a physician or may want to keep con-
fidential certain aspects of their medical history (such
as illegal drug use or sexually transmitted diseases). The
emerging availability of genomic and proteomic testing
(for example, BRCA1 and BRCA2 for assessing the predis-
position to breast cancer) offers a nearly unlimited amount
of information of potential interest to consumers. Much of
this testing, at least initially, will not be covered by tradi-
tional insurance, and the biotech companies are likely to
market directly to consumers (28).
Regulatory and reimbursement issues. All laboratories in
the United States that perform clinical tests for the diag-
nosis or management of human disease are subject to the
regulations of the CLIA ’88. These regulations require that
an authorized person order all clinical laboratory tests.
However, there are no federal restrictions on who is autho-
rized to order a clinical laboratory test as long as payment
is not sought from a government program, such as Medi-
care, for the self-ordered test. Laboratories that engage in
DAT should first investigate state legislation that might
restrict the consumer’s access to DAT. For hospital labora-
tories, medical staff policies may restrict who is authorized
to order laboratory tests.
Medical practice and medicolegal issues. Test results re-
turned directly to the consumer must be simplified and in-
clude some interpretive comments. There must be liability
disclaimers that results are provided for informational pur-
poses only, and not for diagnosis or prognosis. The major
concern is that the consumer may use DAT in lieu of nec-
essary physician consultation, may not seek medical help
appropriately as indicated by the test results, or may react
inappropriately to test results taken out of context or with-
out a full understanding of the real medical consequences.
Economic and business issues. Hospital and reference lab-
oratories may see DAT as a promising, cash-based revenue
stream that will improve their financial bottom line (86).
In some cases, DAT may serve as a hook to get patients
attached to a healthcare system or enrolled in long-term
chronic disease management programs. Wellness testing,
case finding, or disease monitoring through DAT may all
be part of a hospital or health system’s marketing plan. An
insurance company, as one way of avoiding some office
visits, might promote DAT.
Internet-based services may facilitate test ordering,
result reporting, and patient privacy. Some of the com-
mercial and independent laboratories that offer tests and
results reporting through their websites are listed below:
• HealthcheckUSA, an Internet-based company that
brokers DAT for participating laboratories (http://
healthcheckusa.com, last accessed April 9, 2012)
• Results Direct, a hospital-based company that offers
DAT via the Internet (http://results-direct.com, last
accessed April 9, 2012)
Reference laboratories must carefully balance the po-
tential rewards of direct marketing of laboratory tests to
consumers against the risks of alienating physicians who
are also clients of the reference laboratory and may see
DAT as an encroachment on their practice.
Ethical issues. For providers of DAT, the traditional ethi-
cal principles should apply. Do no harm. What are the
potential risks? Provide a benefit. Will the DAT result in
better health outcomes? Respect individual autonomy. Is
there full disclosure, in understandable language, of the
risks and benefits of the DAT? Is patient confidentiality
protected? Does DAT promote social justice? Will DAT
impact overall healthcare costs? Will DAT affect consumer
demand for other healthcare services?
Guidelines for providing direct access testing. Not surpris-
ingly, the College of American Pathologists (CAP) and
much of organized medicine feel that patients’ best inter-
ests are served when a qualified physician orders labora-
tory tests. However, if a laboratory decides to offer DAT,
the following issues should be considered:
• Is a physician, or other appropriate healthcare pro-
vider, available to assist the patient in the proper inter-
pretation of the test results?
• Is there a mechanism to assist the patient with appro-
priate access to any additional testing, counseling, or
therapeutic intervention that may be necessary?
• Does the DAT program comply with state law, in-
formed consent, confidentiality, and mandated report-
ing of certain test results (for example, HIV testing)?
The main financial benefit of offering direct access testing
as a service is the introduction of a new reimbursement
stream that is favorable, bringing cash directly to the bottom
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
line. However, there is competition from companies that al-
ready are in the business of providing health screening (3).
Over-the-counter self-testing and self-referral testing. There
are now available a number of diagnostic tests that are
FDA-approved for home use and available over the coun-
ter. Additional information can be found at Lab Tests On-
line (www.labtestsonline.com, last accessed April 9, 2012).
Some of these kits produce immediate results in the home.
Others are sold as collection kits only, and the collected
specimen is mailed to a laboratory for evaluation. Beyond
what is sold over the counter for home use, the range of
DAT available to consumers varies by provider from a very
limited menu of simple tests to a virtually unlimited menu
of the most sophisticated tests on the market.
Manufacturers of at-home diagnostics have introduced
a wide variety of tests beyond the standard pregnancy and
glucose testing in their quest to advance from market po-
tential to profitability. The self-test kit menu has expanded
to targeting bladder cancer, HIV and hepatitis C, nutrition,
fecal occult blood, preterm delivery risks, ovulation cycles,
urinary tract infection, cholesterol, anticoagulation thera-
pies, and drugs of abuse, with more in the pipeline. The
companies have learned an invaluable lesson during the
market’s slow evolution. Producing new test kits doesn’t
come with a guarantee that consumers will purchase them.
The market growth is hampered by limitations on direct-
to-consumer advertising efforts and third-party reimburse-
ment problems. At-home diagnostic manufacturers may
benefit from the growth of e-commerce and the ability to
sell kits online, coupled with step-by-step directions (92).
California passed legislation that permits state resi-
dents to seek laboratory testing for a limited menu of four
clinical lab services as an alternative to purchasing home
testing kits that are not manufactured in the state. As the
number of home test kits approved by the FDA increases,
consumer access to a broader scope of self-directed testing
also increases. The current California legislation (available
at http://www.leginfo.ca.gov/ or http://www.fda.gov, last
accessed April 9, 2012) requires that:
• The testing must be performed in a clinical laboratory
licensed by the state of California.
• The person self-referring assumes full responsibility
for the associated costs of the testing to further ensure
that healthcare insurance costs are not increased as a
result. Third-party payors do not typically cover self-
directed testing.
• Tests can be ordered only on oneself and not for de-
pendents or spouse.
• All results must be reported with reference ranges.
• The report should encourage the need to seek a physi-
cian for interpretation and follow-up.
191
Alternative medicine. In the past, alternative medicine was
not favored by healthcare providers and insurers, but today,
as many as one-third of patients have embraced alternative
healthcare treatment. However, alternative medicine ser-
vices are generally not covered by insurance, and patients
must assume the costs as an out-of-pocket expense. Since
therapeutic practices are not well regulated, providers are
hesitant to recommend them. Healthcare organizations
are integrating new alternative medicine centers dedicated
to providing alternative care to capture some of this non-
traditional, fee-for-service market (105). Typical services
include physical and chiropractic; aromatherapy and mas-
sage; psychological, hypnotherapy, meditation, and bio-
feedback; and energy, acupuncture, and reflexology. Much
like self-directed testing, this cash-and-carry model offers
convenient access and low cost to the consumer, improv-
ing the revenue stream with cash to the bottom line while
eliminating the costs of billing and collections for the visit.
Consumers, electing to visit alternative medicine provid-
ers for convenience, pay out of pocket nearly 75% of the
time. The National Center for Complementary and Al-
ternative Medicine website (http://nccam.nih.gov/health/
decisions/credentialing.htm, last accessed June 14, 2012)
has more information about the credentialing and regu-
lation of alternative medicine providers.
Costs associated with consumer demand. Consumers in-
creasingly believe that the dollar is more important than the
patient to the managed-care organization. To regain patient
trust, health maintenance organizations need to be sensi-
tive to the doctor-patient relationship and put the doctors
at arm’s length from the direct financial aspects of the pa-
tient’s care. According to James Sabin of Harvard Pilgrim
Healthcare, the American public has shown repeatedly “that
it views healthcare as a social good, and even a right, not a
commodity.” Healthcare organizations spent between $150
and $250 million on consumer-related programs in 1996,
and by 2000 had pumped nearly $400 million into market-
ing promotions and customer relations programs (30).
Advances in Genetic Testing
and Molecular Pathology
The Human Genome Project. Over the past 15 years, the
Human Genome Project (HGP), a joint program funded
by the Department of Energy (DOE) and the National In-
stitutes of Health (NIH), has completed the sequencing
of the total human genome. This project yielded genetic
maps and new techniques to further genetic research and
clinical testing (107). The HGP’s significance is vast and
has far-reaching implications:
• Pharmacogenetics. Designing drugs specifically modi-
fied to a person’s genetic make-up will be important in
the treatment of many genetic diseases.
192 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
• Agricultural genetics. Engineering genetically modified
foods to be larger, more nutritious, and pest-free.
• Forensic genetics. DNA-based human identity testing
can be used to convict or acquit an individual accused
of a crime.
• Evolutional and anthropological genetics. Genetics is a
major source of information about the similarities and
differences between humans and other species.
• Microarray technology. Research during the HGP
has produced one technology, the microarray, with
the greatest potential for disease detection and
characterization.
The relationships between the DNA sequence and the lo-
cation in the genome are described by the four mapping
techniques listed in Table 7.13.
At the forefront of federal and state regulatory activity
is ongoing debate about discrimination, quality of testing,
informed consent, and storage of DNA samples. Labora-
tories must carefully weigh the ethical, social, and legal
implications associated with genetic testing. Issues of pa-
tient privacy; patient, professional, and public education;
and the application and use of genetic information must
be considered. The practicality of using genetic testing is
hampered by its high costs. The value it adds to medical
practice and patient treatment must be carefully weighed
against business, political, ethical, and resource versus
consumption risks (107). To further complicate issues,
commercial laboratories commonly license and exclu-
sively offer genetic tests under a patent.
Genetic testing. The NIH and DOE task force has defined
genetic testing as “the analysis of materials derived from
the human body, including human DNA, RNA, chromo-
somes, proteins, and certain metabolites to detect heritable
or acquired disease related genotypes, mutations, pheno-
types, or karyotypes for clinical purposes. The purposes
include predicting the risk of disease, identifying carriers,
and establishing prenatal or clinical diagnoses or progno-
ses in individuals, families, or populations” (68).
Table 7.13 Genetic mapping techniquesa
Type of genetic map Description
Linkage Assigns a location to a specific landmark in
a chromosome
Physical (contig) Continuous gene segments are produced
from a chromosome broken into fragments
using restriction enzymes
Chromosome Smaller fragments of the contig
Sequence Contigs are broken down into smaller
clones for DNA sequencing to occur
a
See reference 107
Today, there are more than 500 specialized laboratories
testing for more than 900 diseases with a wide spectrum of
applications. In 1991, the American College of Medical Ge-
netics (ACMG) was formed to represent providers of genetic
services and patients with genetic disorders and to speak for
the emerging specialty of medical genetics. The ACMG has
issued a number of consensus statements (41) including:
• Apo lipoprotein E for Alzheimer’s disease
• Genetic susceptibility to breast and ovarian cancer
• Laboratory standards for population-based cystic fi-
brosis carrier screening
• Factor five Leiden mutation testing for inherited disor-
ders that increase risk for thrombosis
• Technical and clinical assessment of fluorescence in
situ hybridization
• Fragile X syndrome, an inherited genetic mutation that
causes mental retardation
• Samples for DNA testing
Historically, the lack of expertise and availability of
user-friendly test platforms have limited the development
of molecular assays to academic medical centers, progres-
sive community hospitals, and commercial reference labo-
ratories. The unexpected specificity and sensitivity of PCR
analysis has driven the rapid advancement of the molecular
diagnostics discipline. The field has moved away from the
initial focus on isolating DNA and RNA and cloning dis-
tinct genetic sequences to the present point, where coding of
entire sequences of complex genes is routinely analyzed for
disease-associated mutations. Future test offerings for multi-
genic disorders may be very expensive because of intellectual
property rights and the associated royalties. The proprietary
protections given to molecular discoveries that offer new
value to patients at the same time threaten the very discipline
of molecular diagnostics. Another important issue is pend-
ing FDA legislation that will require a referring provider to
obtain informed consent and mandates the laboratory to
perform reviews of genetic assays for analytic validity and
clinical utility before running or charging for the assay (40).
Uses of map
Used statistically to determine if two gene se-
quences are transferred together in meiosis
Gene walking down chromosome to identify
genes for specific diseases
Disease genes are often located in regions and
not always at specific loci
There are certain regions in the genome that
are polymorphic “hot spots”
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
• Monogenetic diseases. Using genetic testing to predict
and avoid births of children with diseases such as cys-
tic fibrosis or Duchene’s muscular dystrophy may have
a significant impact on human suffering but may not
touch the estimated lifetime costs for these families,
unless case management and counseling are consid-
ered in the equation.
• Pathogen virulence and drug resistance. The ability to
identify pathogens quickly will eliminate the spread of
disease and offer cost savings from avoidance of costly
isolation procedures. Selecting the most appropriate
drug therapy may shorten LOS or improve mortality
rates.
• Genetic variation in therapeutics. The costs of genetic
variation in therapeutics should not be as great as
those observed with monogenetic disease. Genetic
variations affecting therapeutic outcomes are 50–1,000
times more prevalent in the population. The antici-
pated cost savings per patient should justify the use of
the testing.
The issue is not whether genetic testing will be used as
a clinical tool but when (98). As pharmacogenetic testing,
predictive genetic testing, and gene-specific drug therapies
become increasingly available, test reimbursement as a cov-
ered service will be based on the proven effectiveness of the
tests but will probably be subject to frequency limitations.
As new genetic test utilization increases, the American
Medical Association (AMA) typically adds genetic-specific
analyte codes to the Current Procedural Terminology Code
Book (CPT Code) to expedite the claims review and pay-
ment process (51). However, there is a lag time between test
development and formal approval of reimbursement codes,
and billed tests may need to be cross-walked to other CPT
codes in the interim period.
Emerging technological advances in clinical and anatomic
pathology. A key component in the practice of anatomic
and clinical pathology in the future will be molecular pa-
thology. Practice protocols may rely on molecular testing
for diagnosis of disease as well as the prognosis and treat-
ment in the laboratory disciplines such as hematology, mi-
crobiology, histocompatibility, cytogenetics, and surgical
pathology.
Applications of genetic and molecular pathology. Use of
molecular diagnostics and genetic testing is increasing
from 6 to 25% annually (57). These two fields generate
unique problems for the laboratory information system
(LIS). The IT needs include special nomenclature, the
ability to import/export images, and a database to search
karyotypes and to perform sequencing and fragment anal-
ysis and place pressure on LIS systems to adapt. Common
techniques used in molecular diagnostic testing include
193
laser capture microdissection, DNA sequencing, PCR,
fluorescent in situ hybridization, micro- and macro-array
technology, and proteomics with mass spectrometry.
Genomics, proteomics microarray, microfluidics, and
nanotechnology. The proliferation of genomic and pro-
teomic technology has created additional opportunities
for hospitals and clinical laboratories to consider their test
offerings and to develop strategies related to genetic test-
ing. Pathologists now emphasize the role that laboratori-
ans should play as clinical consultants and their role on
multidisciplinary teams for patient management and the
diagnosis and treatment of disease. The field is at the tip of
the iceberg as more sophisticated assays and development
of companion diagnostics continue into the future. As the
technology advances, many scientists believe molecular
analysis will be incorporated into every step of treatment to
optimize therapy. Major obstacles to more rapid advance-
ment in the field of molecular diagnostics include the lack
of training programs for pathologists, technical directors,
and technologists; insufficient funding for the costs of de-
velopment; and the need for well-defined protocols for test
utilization (57).
Personalized Medicine
After nearly 13 years and $3 billion in development, cou-
pled with technological advances, the cost of sequencing
an entire human genome promises soon to be reduced to
$1,000 or less. This targeted price is relatively comparable
to the costs of other medical tests and procedures and will
be of interest to both the consumer (patient) market and
the research and product development markets. More
than 72 products are on the market and in development,
setting the stage for a prototype to be used for personal-
ized medicine. Tests divide the population into actionable
groups of individuals, linking them to a particular therapy
or prognosis. These tests change the dynamics of drug
development and the practice of medicine while creat-
ing new business and economic models for providers and
manufacturers (44). The coalition for personalized medi-
cine has targeted methods that test for variations in genes,
gene expression, proteins, and metabolites. Results of these
tests should correlate with clinical factors like diagnosis of
disease state, prediction of future disease, drug response,
prognosis, and treatment (38).
Laboratory-developed tests. In the United States, the devel-
opment and marketing of commercial tests are regulated by
the Food and Drug Administration (FDA). As such, diag-
nostic testing is evaluated, regulated, and approved by the
FDA (48). Diagnostic kits contain all the reagents and ma-
terials necessary to analyze the test and are regulated by the
FDA as medical devices and require less extensive reagent
and sample preparation than laboratory-developed tests
194 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
(LDTs). These commercial tests are manufactured as kits
and are sold in volume to labs and healthcare facilities. Visit
http://labtestsonline.org/understanding/features/practice/
(last accessed September 28, 2012) for additional informa-
tion in the AACC series, Putting New Tests into Practice
(series I, III, IV, and V).
The FDA further classifies medical devices based on the
level of control needed to ensure safety and effectiveness of
their use.
• Class I tests are exempt from FDA review of submis-
sions and have minimal potential for harm to the user
(i.e., cholesterol, iron, and pregnancy tests).
• Class II testing often requires premarket notification
and data submission on the analytical performance of
the device and its intended use (i.e., drugs of abuse,
toxoplasmosis and ANA testing, and devices like
chemistry and hematology analyzers).
• Class III is the most stringent category and often re-
quires FDA review of clinical data when there is insuf-
ficient information about the safety and effectiveness
to protect the public and human health (i.e., hepatitis
and cancer diagnostic testing).
LDTs are developed for use when commercial kits are
not available. LDTs are used exclusively by the individual
lab and are never distributed, sold, or shared to other labs
or healthcare facilities and currently do not require FDA
approval. However, LDTs must undergo a stringent inter-
nal validation process to establish the accuracy, precision,
sensitivity and specificity, and reliability of the assay.
Companion diagnostics. The definition of companion di-
agnostics varies depending on the user’s perspectives, in-
cluding application, regulatory status, and nationality. The
term might refer to any diagnostic used to select or mod-
ify use of a therapeutic agent or any new diagnostic test
developed in “combination” with a new therapeutic that
provides essential information needed to select patients to
receive or continue to receive the drug therapy. There is
no question that diagnostic testing will continue to play an
important role in selecting patients for therapy and moni-
toring therapeutic status.
Future models for use include predictive testing
to identify patients who would benefit from the drug
therapy and testing that monitors patients over time to
identify clinically significant adverse effects in a timely
manner. Fundamental barriers to the adoption of com-
panion products include the potential for limiting sales
to a target population and recognizing the complexity
of determining and validating the clinical utility of the
companion products (81). Despite this, the pharmaceu-
tical industry is poised to embrace the codevelopment
of companion diagnostics and targeted therapies that
address smaller patient populations, speed the pace of
time to market deployment, and reduce the costs and the
risks associated with drug development by using single or
multiple biomarkers to evaluate efficacy and toxicity (77,
78). Enhanced insurance coverage for diagnostic tests
will be needed to accelerate the widespread adoption of
personalized medicine and is dependent on the insurer’s
requirements to assess the cost effectiveness and impact
on patient outcomes. Medicare reimbursement practices
for noncovered “predictive tests” (except as authorized by
statute) place limitations on the adoption and the ability
to proactively manage disease before the onset of symp-
toms. A clear regulatory path for companion diagnostics
is needed. The FDA recently issued a Draft Guidance for
In Vitro Companion Diagnostics Devices, currently in a
comment period. Refer to the FDA website at http://www
.fda.gov/MedicalDevices/Device RegulationandGuidance/
GuidanceDocuments/ucm262292.htm (last accessed May
31, 2012).
Pathologists’ role and the need for change As personalized
medicine becomes more commonly accepted, it will revo-
lutionize and change the current pathology process from
diagnosis, classification, and subclassification to a process
for diagnosing, characterizing, and treating disease.
• Pathologists must embrace personalized medicine and
offer interpretative genomic, gene expression, and pro-
teomic information as it relates to a tumor’s
morphology.
• Pathologists must include comments on the presence,
absence, and differential expression of biomarkers in:
• Tumor cells versus normal cells
• In situ tumors versus invasive tumors
• Grades and patterns of tumor cells in one specimen
• Pathologists must be able to provide comprehensive
assessments of companion diagnostics and other bio-
markers at the patient, clone, and cell level.
The pathologists’ correlation of biomarker data and histo-
morphology promises to provide crucial insights and di-
agnostic tumor information that will lead to more effective
therapeutic patient strategies (94).
Bioethical issues. The benefits of genetic testing, as well as
the revolutionary changes and medical, ethical, legal, and
socioeconomic issues raised by the testing, are recognized
by the government and healthcare providers. HHS estab-
lished the Secretary’s Advisory Committee on Genetic Test-
ing (SACGT) to evaluate and analyze programs for safety,
effectiveness, adequacy, and oversight measures (5). In Sep-
tember 1997, the Task Force on Genetic Testing, created by
the NIH and DOE, announced recommendations to en-
sure the quality of laboratories performing genetic testing.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Discrimination, quality of testing, informed consent, and
storage of DNA samples are the leading concerns and ma-
jor focus of state and federal policy issues and activities.
The future of U.S. healthcare will continue to be more
regulated, consolidated, and accountable. Consumers will
leverage buying power, buying based less on price and more
on quality. Ethics will influence their decisions. Medical di-
agnosis and treatment will advance rapidly to the molecu-
lar level as it becomes less expensive. Locating single gene
mutations and identifying multifactoral conditions whose
gene changes have undesirable effects will lead to the study
of complex characteristics like obesity, intelligence, and
personality disorders. The primary bioethical concern will
become what to test for and what to treat (103).
Some proponents believe that pharmacogenetics is the
future of laboratory medicine. Advances in gene discovery
will lead to increased identification of protein interactions
and genetic differences in patients’ responses to drugs. The
ability to screen thousands of patients for individual varia-
tions in response to drugs enhances the predictive testing
and rationale for drug design. Identification of susceptible
disease will improve drug utilization, risk factor analysis,
and therapeutic management. The opportunities for mo-
lecular diagnostic laboratories to partner across the con-
tinuum in the industry are unlimited (D. Cooper, personal
communication).
Medical records and genetic privacy. The way society
deals with fundamental issues about health and disease
is undergoing profound change in response to advances
in electronic information technology and biomedical re-
search in molecular genetics and genomics. At the same
time, healthcare delivery has undergone a transforma-
tion influenced by managed care and the emergence of
evidence-based medicine. The very promise of having a
greater understanding of diagnosis, treatment, and pre-
vention of human disease and the concept of rationing
the delivery of medical services help balance the social
burden of human suffering against the costs of medical
resources. As a result, there is a widespread and grow-
ing concern from the general public related to both the
philosophical and ethical consideration of individual
autonomy and privacy. At the same time, these individ-
uals have realistic concerns about the security and con-
fidentiality of sensitive, personally identifiable medical
information (particularly electronically accessible infor-
mation) being used inappropriately by an insurer or an
employer. The major challenge is to secure all medical
information, not just genetic, without impairing the ap-
propriate access necessary for medical management. In a
California-based survey of consumer attitudes regarding
ethics and healthcare web services, 75% of the adults in-
dicated concern about sites sharing information without
permission (97).
195
Ethical guidelines. In any discussion of ethics and medi-
cal information, confidentiality should not be the only fo-
cus. Quality, medical relevance, and usefulness are also key
components (96).
• Physicians need access to accurate, timely, and under-
standable medical information.
• All available medical information should include any
relevant patient decisions.
• Access to the patient’s medical information should be
limited to those authorized by the patient.
• A one-time patient authorization is not sufficient; a
patient’s signature for each encounter is recommended.
• Authorized individuals should not disclose the medical
information to unauthorized persons.
• Those entrusted to maintain the medical records must
safeguard the records to ensure that they are well pro-
tected from unauthorized access.
• The patient’s right to confidentiality is limited by laws
that require reporting of certain medical information.
• A patient’s right to confidentiality is limited by the pro-
vider’s responsibility to protect patients from risk and
to do no harm.
• Medical information should be provided to patients in
a manner that supports the decision-making process.
• Medical information should be objective and educa-
tional in nature.
New Regulations to Address Changing
Technology: HIPAA
The Health Insurance Portability and Accountability Act
(HIPAA) regulations, originally proposed for administrative
simplification with an effective date of October 2002, were
implemented to bring efficiency through standard coding
and guidelines for the format of electronic transmissions
for enrollment, claims, and authorizations and to eliminate
fraud and abuse while protecting patient privacy. Its impact
on the costs of providing healthcare for payors and provid-
ers is far reaching and will continue to be felt as the ICD-
10 coding initiative is implemented over the next five years
(47). HIPAA presents challenges for every healthcare orga-
nization using e-commerce. Although the technology exists,
the cost of compliance seems to outweigh the benefits.
Breach notification rule. Revised in July 2010, the HIPAA
breach notification rule mandates that providers report
any breach that involves 500 or more individuals’ health
records to the individuals, the media, and the HHS secre-
tary. Industry providers have worked to implement sound
policies and procedures to deal with all aspects of breach
of information. Greg Root, CEO and attorney for Code-
Map, believes that it should be common policy to never
196 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT

use laptops for protected health information. Laborato-
ries exchanging clinical information and lab results must
ensure that all involved legal entities and companies with
EHR technology are designated as agents in the informa-
tion transfer and are certified and pass muster (55). Ad-
ditionally, using email (a push technology) for laboratory
results reporting presents many HIPAA issues related to
verification of correct address, access, and security. Using
a pull technology to access results ensures that only physi-
cians with security clearance can view results out of your
system since the results reside in your domain (4).
Impact of Reform on Electronic Health Records
and Meaningful Use
In July 2010, the American Recovery and Reinvestment
Act (ARRA), which includes the Health Information
Technology (HIT) for Economic and Clinical Health
Act (HITECH), fueled an increasing rate of adoption of
electronic health record (EHR) systems. The EHR systems
were funded by billions of dollars in incentive payments
for hospitals and eligible professionals that provide Medi-
care and Medicaid services and who can demonstrate im-
plementation of certified EHR technology and meaningful
use. Incentives to eligible professionals are only considered
when three principal meaningful use elements are demon-
strated (Fig. 7.1).
• Use certified EHR technology to track, record, and ex-
change information in a meaningful way (i.e., comput-
erized physician [or provider] order entry [CPOE]);
use e-prescribing, demographic records, vital signs, and
current problem lists.
• Submit claims using electronic data processing (EDP);
verify eligibility online; use HIT to exchange key clini-
cal information; and implement privacy and security
technology.

Figure 7.1 Elements of mean-

ingful use. Eligible professionals
will receive incentives if they can
demonstrate and provide data for
three of these required elements.
doi:10.1128/9781555817282.ch7.f1

GOAL: advance clinical

processes to improve
patient outcomes

3. Use EHR to submit

clinical quality measures

2. Improve healthcare 1. Demonstrate

quality using electronic meaningful use,
exchange of health i.e., CPOE, ePrescribe,
information electronic claims transmittal
(EDP)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT 197

• Submit clinical quality measures to CMS or the state for
a Medicaid program. The ultimate goal of certified EHR
technology is to capture and share data that will advance
clinical processes and will improve patient outcomes.
By design, the rule includes a three-stage process for
providers to comply and employs criteria that are more
stringent in each stage of the process to collect the incen-
tive payments (89). Stage 1 criteria focus on improving
health outcomes, increasing patient safety, and containing
healthcare costs:
• Collect electronic health information using a specified
coded format.
• Communicate patient care needs with patient and
providers.
• Use EHRs to better manage both disease and
medication.
• Employ clinical decision support tools.
• Report key quality and public health statistics.
Implementation of stage 2 criteria, set to begin in 2013,
emphasizes improving the care of the patient:
• Using the most structured format of HIT to exchange
information (including entering and transmitting elec-
tronic orders, using CPOE and diagnostic test results)
• Applying the HIT exchange more broadly in both the
inpatient and outpatient services provided
Stage 3 criteria, slated for implementation in 2015, tar-
get the following objectives:
• Drive improved outcomes in quality, safety, and cost
efficiency.
• Advance decision support for identified national high-
priority conditions.
• Improve patient access to self-management tools.
• Make comprehensive patient data accessible.
• Improve the health of the general population.
Eligible professionals. Eligibility rules vary between Medi-
care, Medicare Advantage, and Medicaid for eligible profes-
sionals and include incentive payments based on successful
demonstration of meaningful EHR use (72) (see Table 7.14).
• All eligible professionals must have a National Pro-
vider Identifier (NPI) to register.
• Medicare eligible professionals must also be enrolled in
the CMS Provider Enrollment Chain and Ownership
System (PECOS) to receive incentives.
• Each single or group eligible professional may qualify.
• Each eligible professional may qualify for only one
payment per year regardless of the number of locations
for services.
• Eligible professionals practicing at more than one
office site must provide at least 50% of care in a site
where certified EHR technology is utilized.
• Eligible professionals that perform more than 90% of
services in a hospital-based setting will not qualify for
an incentive payment.
Although the original draft of the proposed rule re-
quired that eligible professionals and hospitals meet 28
objectives in reporting meaningful use, the final rules’
approach included provider accountability in adopting
the basic measures of EHRs and also added flexibility to
accommodate the varying needs of providers that were
considering a more comprehensive application of EHR
technology. The list of objectives was divided into a re-
quired “core set” of objectives and a second “menu set” of
objectives that allow providers to defer up to five require-
ments. Eligible professionals will be required to meet 15
core objectives and select 5 from the menu set, whereas
hospitals are now required to meet 14 core objectives and
select 5 from the menu set. Ultimately the deferred menu
set objectives must be met to reach full compliance with
meaningful use requirements.
The final rule contains a total of 44 clinical measures
that apply to eligible professionals for both Medicare and

Table 7.14 Eligible professionals (EPs)

Beneficiary line Eligible professional definition
Medicare EP Doctor of medicine or osteopathy, dental sur-
gery or dental medicine, podiatry, optometry,
or chiropractor
Medicare Advantage EP Doctor of medicine or osteopathy, dental sur-
gery or dental medicine, podiatry, optometry,
or chiropractor
Medicaid EP A physician, nurse practitioner, certified nurse
midwife, dentist, or physician assistant provid-
ing services in an FQHC or rural health clinic
(non-hospital-based)
Timeline and criteria
May participate for five years through 2016; 2014 is the last
year to initiate participation in program
Must be employed by a Medicare Advantage (MA) orga-
nization or by a partner of an MA organization and must
provide patient services at least 20 hours/week serving 80%
of the patient services to MA enrollees or the organization
EP patient volume must be 30% or more for general ser-
vices or 20% for pediatric
EP can participate for six years through the end of the
program in 2021, with 2016 being the last year to initiate
participation
198 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Medicaid incentive programs. Eligible professionals will
be required to report on three primary core clinical qual-
ity measures plus three secondary measures from an alter-
native set other than the core list. Hospitals are required
to report the entire 15 clinical measures identified, as they
are based on automatic calculations. Data from both sets
must be submitted to the CMS to show effective imple-
mentation of meaningful use. In 2011, all providers were
requested to submit self-attestation of the quality mea-
sures, but in subsequent years they must submit direct
reports to the CMS according to the specifications and
limitations of the CMS technological capabilities.
Many healthcare consultants believe that the stage 1 IT
meaningful use criteria and guidelines for both account-
able care organizations and the patient-centered medical
homes (PCMH) will become the foundation and frame-
work for the U.S. healthcare delivery system of the future.
The standards for achieving medical home recognition
include the ability to meet 15 core set requirements and
5 of the 10 menu set requirements in the stage 1 criteria
for meaningful use. Receiving a rating as a level 1, 2, or 3
practice will depend on the numbers and types of IT cri-
teria achieved. Other experts have stated that the PCMH
and the community ACO models will become the foun-
dation for the future of healthcare delivery in America,
as the medical home places the responsibility for coor-
dination, communication, and integration of preventive,
acute, and chronic delivery of care with the primary-
care physician (PCP). The medical home emphasizes
evidence-based care and use of clinical decision-support
tools to improve quality and efficiency and lower costs of
providing care (59).
A 2011 survey, conducted by the Office of the National
Coordinator for HIT, indicated that providers have turned
the corner with indications that the adoption and use of
HIT has accelerated as the providers enroll to take advan-
tage of the meaningful use incentive payments (see Table
7.15). The survey also indicated a 50% increase in the
number of primary-care physicians that have purchased
an EHR system, up from 19.8% in 2008 to 39.6% in 2010.
Financial incentives for eligible professionals vary from
$44,000 under Medicare to $63,000 for Medicaid (55).
Consolidation in the Healthcare Industry
Overview: Laboratories, Hospitals, Physician
Practices, and Managed-Care Organizations
Between 1992 and 1994, efforts to enact comprehensive,
national healthcare reform failed miserably. Since then,
driven by powerful economic forces and the fear of the
economic consequences, the industry’s private sector has
undergone radical restructuring over the past decade. The
healthcare industry has turned to mergers, acquisitions,
joint ventures, and consolidation to fortify their position
Table 7.15 Providers
Percent planning
Percent enrolled to achieve
Providers stage I 2011–2012 meaningful use
Hospitals 66% 81%
Physician offices 33% 41%
and protect their market share. The effects of the consoli-
dation have been felt in every sector of the market.
Commercial laboratory consolidation seemed to be com-
pleted in 1995. However, the dominant players have recently
reached across international boundaries to increase their
market share. In targeted geographic regions, commercial
laboratories continue to acquire other independent or eso-
teric laboratories to solve their need for coverage or comple-
ment their test portfolio. According to the CLIA Laboratory
Statistics (Graphs and Charts) files, the total number of
CLIA laboratories in the United States increased by 30%,
from 169,531 labs in 2000 to 221,793 labs in 2010. During
that same period, the physician office laboratory (POL) seg-
ment grew 18%, from 95,069 to 113,124 labs. CLIA labo-
ratories with COLA accreditation showed a small increase
from 6,348 to 6,796 labs during the past decade. There was
a small downward trend in JCAHO accreditation, from
2,730 labs in 2000 to 2,485 labs in 2010. At the same time, a
small increase was reported for CAP accreditation, up from
5,448 to 5,580 labs in 2010. The CMS CLIA Laboratory
Statistics can be found at http://www.cms.gov/Regulations
-and-Guidance/Legislation/CLIA/Downloads/summary
_chart1993_to2010.pdf (last accessed May 7, 2012).
However, consolidation among hospitals through merg-
ers and acquisition of other facilities has increased over
the past 10 years (23). Pressures from changing reimburse-
ment and other business and competitive factors indicate a
continued trend beyond 2012. Independent hospitals need
to assess the market and their ability to stand alone based
on these concepts:
• Over the past 30 years, the number of hospital admis-
sions has declined 27%, down from 36 million in 1980
to 35 million in 2009. This trend can be attributed to
the increased use of outpatient and office-based facil-
ity procedures. During that same period, the total
number of hospital facilities declined 14%.
• Since 1990, the number of independent hospitals
aligning with other health systems increased from
38% to 62%. Healthcare strategist Chris Myers pre-
dicts that number may increase to 80% over the next
five years (23).
• During the past 20 years, a number of for-profit com-
panies have become interested in the hospital market
segment, resulting from opportunities created by
healthcare reform (23).
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Physician practices have merged, becoming group prac-
tices and networks, to increase efficiency. Sharing office
space in a concept called group practice without walls al-
lows physician groups to expand their service area while
eliminating the duplication of leased space expenses. Solo
practitioners are becoming virtually extinct.
Managed-care organizations have been acquired by larger
firms to lower expenses and increase efficiency through
economies of scale. As competition in the market decreases,
employers and consumers fear deterioration in the quality
of services and price increases more than the anticipated re-
ductions from the efficiencies achieved (37). The maturing
of the managed-care market contributed to consolidation
among managed-care plans. Traditionally, managed-care
penetration is greatest in large urban areas, and POS health
plans are more successful in rural communities.
Integrated Delivery Systems
An integrated delivery system (IDS) is a legal structure
formed by hospitals and physicians to share financial
risk when collectively negotiating contracts for services
with the IDS health system. Hospitals are encouraged
to shift from treating populations in episodes of care to
comprehensive health management. Healthcare provid-
ers form integrated delivery systems to meet the needs of
the payors, purchasers, and consumers. The ability to of-
fer one-stop shopping with convenient access in a defined
region allows providers to offer a seamless continuum of
care from the primary-care physician to tertiary services.
Managed-care enrollment more than doubled, from less
than 30 million enrollees in 1987 to more than 80 million
enrollees in 2000. During the past decade, managed care
has suffered from the inflationary costs of healthcare, and
enrollment fell to 68 million in 2011 according to http://
www.mcol.com/factsheetindex (last accessed July 9, 2012).
Solutions are focused on changes ranging from industry
consolidation and accommodation of the HIPAA regula-
tions to slashing benefits and raising copays. Without an
appropriate response, providers and employers may move
toward direct contracting with providers in the future,
eliminating the insurer as the middleman and leveraging
their buying power (106).
Irrespective of the national trends, the choice about
healthcare is still made at the local level among the stake-
holders. To provide a continuum of care, integrated
delivery systems and regional networks acting as a com-
munity-based system must partner with rehabilitation
centers, skilled care, home health, and laboratories and
must incorporate informatics to be effective (106).
Laboratories: Change from Revenue Centers
to Cost Centers
After decades of profitability based on low incremental costs
of testing and favorable fee-for-service reimbursements,
199
the clinical laboratory industry confronted hard times in
the 1990s created by:
• Severe cuts in Medicare reimbursement levels
• Closed loopholes in federal regulations on unbundling
test panels to increase profits
• Growing influence of managed care
Laboratories watched while as much as one-third of
their total sales from Medicare reimbursements disap-
peared as a result of Medicare reform. Following the shifts
from inpatient to outpatient services under managed care,
hospital laboratories began to look to outreach to fill ex-
cess capacity. Commercial laboratories, whose competi-
tive bidding, commodity, and loss-leader pricing strategies
had driven their profit margins down to the bottom of the
barrel, began looking for revenues to offset their losses
through joint ventures with hospitals. Since 1992, compli-
ance with CLIA ’88 and market dynamics has accelerated
the pace of consolidations, mergers, acquisitions, down-
sizing, and rightsizing in the healthcare industry. Hospital
laboratories, independent laboratories, and commercial
laboratories came together to form regional laboratory
networks. Outreach programs became prevalent in this
period to improve the average cost per test by increasing
test volume (79).
Internal Consolidation in Hospital Laboratories
Consolidation is a strategy whereby several hospital labora-
tories downsize individual facility laboratories and funnel
most specimens into a centralized (also called a core) labora-
tory. This strategy achieves lower costs per test and improves
the competitive position for the consolidated laboratory op-
eration. The primary goals of internal laboratory consolida-
tion include eliminating duplication of services and excess
capacity, restructuring workflow, changing staff resources,
and centralizing management. Another advantage of in-
ternal consolidation is increased test volumes enabling the
laboratory to bring more testing in-house, reducing referrals,
lowering costs, and improving turnaround time (TAT). Lab-
oratory consolidation offers the following benefits:
• Integration of clinical information across the health-
care continuum
• More economical delivery of services
• Management of the test cycle/production times
• Electronic links to the providers and consumers
• Provision of meaningful and relevant information for
improved outcomes
Restructuring trends used in the consolidation process,
such as downsizing, point-of-care testing, internal laboratory
consolidation, and interdisciplinary team approaches, paved
the way for regional network development and alliances
200 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
among laboratories. Reengineering efforts of the 1990s that
were linked to continuous improvement proved more effec-
tive than downsizing or restructuring (88). Reengineering
limited to compliance, quality improvement, and cost con-
tainment produced some internal financial improvements
but had little effect on innovation or long-term growth.
Regional Integrated Laboratory Networks
The primary objective for regionalization is to develop a
system of laboratories capable of providing services to a
larger geographical area and positioning the laboratory
system to compete for managed-care contracts (64). Re-
gional networks were formed with core laboratories linked
to multiple rapid-response and point-of-service sites. The
system enabled the aligned laboratories to market the
combined strengths of the collective test menus, keeping
more tests within the regional system and eliminating re-
ferrals outside of the system.
• Operation and ownership of the laboratories in a re-
gional system remain independent, and internal re-
structuring is usually not linked to the needs of the
system, which makes the collaborative effort toward
integration difficult at best.
• Administration of a regional system is shared among
the participants under a separate management group
umbrella.
There are many arrangements for this type of system,
which may include a combination of independent hospital
laboratories, consolidated laboratories, academic medical
center laboratories, other independent laboratories, and
commercial reference laboratories. Regional laboratories
are uniquely positioned to serve their communities. The
ability to keep the testing in the local community ben-
efits the internal customers (laboratory employees), doc-
tors (with shorter TAT), and patients (better continuity of
care). Outreach sales and marketing for the system is not a
part of this model. Each individual laboratory would con-
tinue to market its services independently of the regional
system, established primarily for managed-care opportu-
nities (64) (see Fig. 7.2). In a network model, independent
laboratories affiliate under a network organization without
any consolidation. In a consolidation model, two or more
laboratories consolidate core operations to one primary
site operating rapid-access operations in remote sites. In a
regional laboratory system, a hybrid operation is formed
with participants from academic medical center laborato-
ries, a commercial laboratory partner, and participating
consolidated hospital laboratory models. In July 2013,
Robert Michel reported a new trend and business model
developing in academic medical centers (AMCs): the
formation of integrated networks with various providers
within a community and the surrounding region. This
trend piggybacks on the healthcare reform movement to
establish accountable care organizations (ACOs). Michel
cites this as a response to recent payor actions to eliminate
providers and narrow their networks, excluding high-cost
providers like AMCs (64a). The mutual objectives of the
new model include:
• Each integrated network is anchored by an AMC and is
designed to foster closer interaction between the aca-
demic subspecialists and the wider clinical community.
• For the pathology laboratories at the AMC, the associ-
ated integrated provider networks may often encourage
participating physicians to send their reference and eso-
teric laboratory test referrals to the academic center and
not to the physicians’ primary laboratory service provider.
(For more information, visit http://www.darkdaily.com/
vanderbilt-university-medical-center-forms-nations
-largest-clinically-integrated-network-that-includes-its
-own-health-insurance-offering#axzz2Z7ptXIJS [64a], last ac-
cessed July 15, 2013.) A virtual laboratory is an organization
or network of separate companies strategically aligned to
develop and market products, giving the appearance of a
larger organization, but does not include merger of assets.
During the past decade, healthcare facilities have im-
plemented various strategies to address the impact of the
shrinking healthcare dollar on laboratory operations. The
trend has shifted to more IDS systems being created. In this
model, hospitals eliminate redundancy by sharing services
and moving the patient to a more cost-effective setting.
Successful managers working in an integrated laboratory
system will need additional knowledge and new skills akin
to industrial and systems engineering combined with an
ability to blend these skills with healthcare economics,
fundamental business principles, human resource manage-
ment, and information technology. Successful consolidated
and regional networks will be the winners, leveraging their
strengths, surpassing the competition, and using excep-
tional customer services to create value, adding buying
power in contract negotiations (79).
Strategies for Success in the 21st Century
Strategic Redesign
Strategic redesign was the tactical strategy of the previous
decade. First, an organization must decide to differentiate
its products or services from the competition by adding
value. Then, it must develop a structured process to add
value and create an environment that welcomes change by
empowering its employees. To accomplish the mission, the
organization needs a clear vision, a change leader to com-
municate the vision, and a management team that consis-
tently walks the talk.
Next, the organization must review and redesign each
of the necessary support processes to eliminate steps that
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
don’t add value. According to Michael Hammer and James
Champy in Reengineering the Corporation: a Manifesto
for Business Revolution, process redesign involves the
fundamental rethinking and radical redesign of business
practices to achieve dramatic improvements in key perfor-
mance measures such as quality, service, and timeliness. In
strategic redesign, the quality indicators chosen for mea-
surement should never be revenue oriented but should in-
clude process cycle times, process costs, costs of servicing
201
Figure 7.2 Evolution toward regional labora-
tory system. In a network model, independent
laboratories affiliate under a network organi-
zation without any consolidation. In a con-
solidation model, two or more laboratories
consolidate core operations to one primary site
operating rapid access operations in remote
sites. In a regional laboratory system, a hybrid
operation is formed with participants from
academic medical center laboratories, a com-
mercial laboratory partner, and participating
consolidated hospital laboratory models. (Re-
printed with permission from reference 64.)
doi:10.1128/9781555817282.ch7.f 2
the customer, and patient outcomes. Leaders must cele-
brate milestones of improvement with employees through-
out the process and not just during implementation.
There are enormous gaps between what we know and
what we do. Typically, the time lapse from recognizing the
need for process change to making the change happen is un-
acceptably long. Ohno, a Japanese engineer at Toyota, devel-
oped the kanban system, which encompasses just-in-time
inventory and assembly line production with no waiting to
202 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
ensure continuity in the process flow. By studying Ohno’s
work, healthcare systems of the future should be able to ac-
curately predict consumer demand and allocate resources
by anticipating the needs for care rather than reacting to
them, virtually delivering healthcare kanban style (9).
Most recently, a new design for laboratory space is
emerging that creates environments that are responsive to
present need while also taking future demands into con-
sideration. The designs include six key areas that require
attention (95a):
1. Create social space that fosters employee interaction
and team-based performance.
2. Balance the amount of open and closed laboratory access.
3. Incorporate flexibility in design to easily accommodate
change.
4. Provide access for technology and electronic commu-
nications throughout the building.
5. Address environmental sustainability.
6. Develop and design locations that foster partnerships
with internal and external customers.
(For more information, visit http//www.wbdg.org/resources/
labtrends.php [reference 95a], last accessed July 15, 2013.)
Developing System-Wide Thinking and
a Common Culture
Healthcare is suffering from internal turmoil and conflict
resulting from the effects of restructuring, mergers, and
acquisitions. To succeed in the future, hospital administra-
tion, employees, and physicians must develop an apprecia-
tion for each other’s culture, values, beliefs, language, and
goals. Once understood, a new system-wide culture can be
agreed upon. By redefining the symbolic barriers of author-
ity, tasks, and politics, the new system should incorporate
business, clinical, and ethical dimensions. If not identified
early in the process, differences in ethical values will be the
crux of ongoing conflict. To achieve the mutual goals, the
following components are essential (90):
• Mutual understanding and agreement on system goals
• Enhanced communication between administration
and physicians
• Greater physician involvement and oversight in the
decision-making process
• Treatment based on evidence beyond controlling costs
• Emphasis on prevention, self-care, and outpatient services
• Focus on quality of patient outcomes working with
multidisciplinary teams
Developing a new culture is a difficult and time-
consuming task. A common culture must be flexible and
based on shared values and constant learning. A rigid cul-
ture is more focused on form. Trust is a perception and
an attitude that influences how people will accept change.
Truthfulness, keeping promises, treating all employees
fairly and equally, and respecting employees as individuals
build trust within the organization (67).
Organizational climate and culture of trust. Employees’
perceptions about their working environment impact their
ability to do a good job. Creating a desirable climate is es-
sential for employee retention. Managers should provide a
working environment that offers:
• Flexibility. With minimal red tape.
• Rewards. With performance feedback.
• Responsibility. Employees empowered to make inde-
pendent judgments.
• Clarity. Goals and expectations must be clear.
• Standards. Hold each employee accountable to the
same standards.
• Team commitment. Lead by example and create pride.
Organizations that create a culture with an atmosphere of
trust among employees and customers maximize their intel-
lectual assets and maintain a competitive advantage in the
marketplace. Developing professional relationships and net-
works and strong lines of communication, promoting team-
work, and having a common mind-set are essential (32).
Differentiating a Competitive Advantage
As laboratories enter the 21st century and market pres-
sures continue to increase, service industries, knowledge
management, and virtual partnerships will lead the way to
future survival. The strategies used to differentiate a com-
petitive advantage will move away from a primary focus on
cost containment to new strategies that include:
• Optimization of new and innovative products
• Flexibility of services
• Formation of strong partnerships with stakeholders
(suppliers, customers, employees)
The short-term survival mechanisms of cost cutting, whether
by restructuring, downsizing, or reengineering strategies,
have not always resulted in increased productivity. Instead,
they may actually decrease morale, increase anxiety, and ul-
timately decrease productivity and innovation.
Loyalty-based management. The last and most critical step
in achieving a competitive advantage is to create a business
environment that sustains loyal customers. Developing a
system-wide culture for understanding the economic ef-
fects of customer and employee retention on revenues and
costs begins with management. Reinvesting cash flow from
knowledgeable decisions attracts and retains loyal employ-
ees and loyal customers. When employees are satisfied and
happy with their work, they are more productive, which ulti-
mately leads to increased customer satisfaction. To evaluate
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
the costs and benefits of a business decision, customer,
product, and employee needs must all be synchronous.
Loyalty-based management systems thrive on effective feed-
back measurements. Customers are an invaluable resource.
Long-term employees are more familiar with the business
and the needs of the customer. The ability to constantly de-
liver value in an ever-changing healthcare environment can
only be accomplished through effective listening and learn-
ing. In the final analysis, loyalty-based management puts
creating customer loyalty ahead of revenue. The only losers
in this environment are the competitors who get the leftover
customers and leftover employees (76).
Training Adequate, High-Quality Laboratory
Professionals for the Future Workforce
The economic recession, shifting business models, and
increased scrutiny from regulatory agencies are placing
increased pressures and demands on the laboratory work-
force. In addition, the current generations of laboratorians
bring changing expectations of a workplace already en-
cumbered with divergent mentalities of four generations of
staffing. It is critical for the future of laboratory medicine
and high-quality healthcare that an adequate number of
appropriately trained medical laboratorians are available
for recruitment. Between 2006 and 2016, the aging of the
American population is expected to aggravate the work-
place shortage as the Baby Boomers (constituting 25% or
76,000 lab professionals currently employed) retire from
the workforce (71). These retirees have been the laborato-
ries’ trainers and mentors for entry-level staff, and the cost
of this turnover will further burden the system.
Projections from the Bureau of Labor Statistics (BLS) in-
dicate that 69,000 more clinical laboratory scientists (CLSs)
and 68,000 more clinical laboratory technicians (CLTs) will
be needed in 2012 than were needed in 2002. Between the
retiring Boomers and the emergence of new technology,
clinical laboratory science departments across the country
anticipate as much as a 14% increase in student enrollment
over the next 10 years. To eliminate the shortage, the BLS
projects that the industry will need to graduate 13,700 new
laboratory professionals each year beginning in 2012:
• 6,900 CLSs (or medical technologists)
• 6,800 CLTs (or medical laboratory technicians)
The American Society for Clinical Laboratory Science
(ASCLS) developed the Coordinating Council for the
Clinical Laboratory Workforce to oversee the efforts be-
tween associations, agencies, and industry toward im-
proved recruitment into the profession. The Council’s
collaborative efforts resulted in $1.25 million donated for
scholarships. The Council also targeted the following ob-
stacles to needed changes:
• Lack of visibility for the profession
203
• Poor wage comparisons to other healthcare
professionals
• Meager annual increases
• Limited opportunities for advancement
The proposed merger of the National Credentialing
Agency (NCA) and the American Society of Clinical Pa-
thology (ASCP) Registry coupled with the recent change
in the job title designation from medical technologist
(MT) to clinical laboratory scientist (CLS) has increased
recognition. The CLS nomenclature is more easily rec-
ognized by new students entering the field. Some believe
that the workforce shortage could go on even longer as
the economy begins to recover. The good news is that the
number of students taking the MT (ASCP) certification
exam has increased from 3,168 in 2003 to 3,843 in 2011.
Now the pressure is on the hospital and clinical laboratory
industry to offer internships for the increasing number of
graduates and to partner with the community to provide
sites for training. Many believe that forming a larger single
credentialing agency will strengthen the image, increasing
the credibility and recognition of the profession in the fu-
ture (54). The BLS website provides employment statistics
(employment estimates and mean and percentile hourly/
annual wage estimates) for Medical and Clinical Technolo-
gists and Medical and Clinical Laboratory Technicians as
of May 2012 (http://www.bls.gov/oes/current/oes292011
.htm#nat).
Moving from Top-Down Management
to Bottom-Up Customer Focus
Quality is one of the most talked about and least under-
stood concepts in healthcare. It is a chameleon term that
means different things to different stakeholders depending
on their needs, beliefs, and motives. Informatics firms of-
fer software tools that capture and measure quality with-
out being able to demonstrate the impact and usefulness
to their customers. Employers, insurers, and accreditation
organizations demand provider commitment to quality
improvement processes but have articulated only minimal
standards for measuring and evaluating their effectiveness.
Collaboration is process driven and results oriented.
Collaboration commits each side of the business relation-
ship to fulfill their responsibilities and becomes the vehicle
to implement quality strategies. The business needs of each
stakeholder must be met in order for quality management
to become a core competency rather than a tactical business
strategy. Business trust, cooperation, a realistic commit-
ment to change, and collaboration are critical to achieving
quality management (11). Everyone in managed health-
care that is involved in care delivery is a customer who de-
pends on someone else for information or cooperation to
get the job done. Recognizing the interdependence with
one another and establishing performance expectations
204 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
develops trust and buy-in among the partnership (12).
Placing the patient in the driver’s seat ensures that we are
listening to and addressing patient needs (Fig. 7.3). More
reliable communication systems should decrease errors,
prevent miscommunication, and avoid costly delays in the
processes, thereby streamlining the encounter. Evidence-
based medicine will encourage decision making based on
reliable data. Donald Berwick believes that the practice of
medicine will migrate from being an enterprise that pro-
vides personal service to one that provides information by
the year 2020 (9).
Evidence-Based Medicine
Science and technology have advanced at a rapid pace over
the last four decades, but the healthcare delivery system
has fallen short in providing consistent, high-quality ser-
vices to transfer its knowledge into practice. The practice
of evidence-based medicine allows the judicious integra-
tion of literature, clinical experience, and patient under-
standing. Clinical guidelines, based on scientific evidence,
and tools for measuring outcomes and patient compliance
effectively bridge the gap between knowledge and practice.
In traditional medicine, the physician depends primar-
ily on his memory, opinions formed without data, and
anecdotal experience to prescribe treatment. The patient’s
participation is minimal. In evidence-based medicine the
physician incorporates current literature and data with
memory and experience. The patient participates in ac-
tively making joint decisions about treatment modalities.
The physician is monitored for adhering to guidelines, and
the patient is monitored for compliance. Evidence-based
Figure 7.3 Bottom-up customer focus: the inverted paradigm.
In the new business paradigm, the customer as king maintains
the position of influence at the top of the chart. Employees are
empowered and trained to provide exceptional customer ser-
vice, exceeding the customer’s expectation. The management
teams within the organization must lead by example, building
trust among the staff. doi:10.1128/9781555817282.ch7.f 3
The Customer Is King
Loyal Employees
Laboratory Management
Healthcare Providers
Hospital Administration
medicine is gaining support from many groups as the
foundation for healthcare reform and the future of medi-
cine. Obtaining physician support in this quality-of-care
movement is critical. Defining the appropriateness of care
for patients, the appropriate practice for providers, and the
appropriate payment from payors for future generations
will all depend on evidence-based medical practices (24).
Meaningful and Relevant Information
Managed care was not originally formed to focus on uti-
lization control. The purpose was to keep track of the pa-
tient’s medical record and steer the direction of care from
treatment to prevention. This was next to impossible,
since the health maintenance organizations primarily han-
dled claims and billing data. Integrated delivery networks
evolved on the provider side in an attempt to gather more
complete information about the patient. In response, hos-
pitals and providers formed community health informa-
tion networks to build a centralized database that would
contain all the medical records for every patient in the
community network. This thinking was correct because
the goal was connectivity. Other attempts at data collection
include data warehousing and the implementation of an
electronic medical record (EMR). Ultimately the ability to
assemble the complete patient care treatment experience
in a single location will decrease medical errors, improve
patient care, and fundamentally change the way healthcare
is delivered (14).
Healthcare is changing throughout the world, with
screening, diagnosis, and chronic disease management be-
ing redirected from the hospital environment to the phy-
sician providers. Demand for faster responses in patient
triage, critical-care medicine, high technology, and rapid
response diagnostics in the tertiary-care environment re-
inforces the premise that time is money. The potential to
provide more value for the money lies in the evolving new
culture that is founded on evidence-based medicine, that
focuses on outcomes, and that is manifested in the labo-
ratory as new technologies, competitive advantage, ethi-
cal promotion, and distribution of information (C. Price,
personal communication).
The laboratory’s role in informatics. Laboratory test re-
sults are of limited use in the absence of supporting clinical
information. Descriptive elements of clinical information
include gender, race, sex, age, occupation, health status,
signs and symptoms, patient status, family and medical
history, and social behavior. Fueled by a complex health-
care environment and an ever-expanding array of diagnos-
tic procedures, there will be a growing need for increased
integration between clinical information and laboratory
data during the decade ahead. Genetic testing in particular
requires that the test be performed as an adjunct to patient
management and be used in conjunction with the patient’s
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
clinical information. The trend toward evidence-based pa-
tient care while focusing on the patient will be challenging.
The role of the laboratory in response to these challenges
and opportunities will be to contribute medically relevant
and value-added information to the future multidisci-
plinary approach to the management of the patient (56).
To determine value, laboratory information must be
differentiated from laboratory data. If we only consider
data, laboratories simply perform the right test on the right
patient at the right time and format at the right price. The
element that brings value to information is the ability to
provide the right result referenced to the right ranges, with
the right interpretations and consideration of the test limi-
tations. The information may also include the right advice
on how to use the test information with the right knowl-
edge of the clinical context of the testing. For laboratory
information to be of value, it must convey results in a man-
ner that assists the provider in estimating the probability of
disease and affects subsequent patient management deci-
sions toward improving patient outcome (10).
Improving clinical decisions through evidence-based lab
medicine. The move to adopt evidence-based medicine is
fueled by the requirements for data collection and patient
outcome information, cost containment, and consumer
demand for the best in diagnostics and treatment (60).
The value of clinical guidelines, care maps, and outcome
measures as useful quality improvement tools is weighed
against clinical appropriateness, efficiency, and effective-
ness of the service. To demonstrate the impact of lab testing
on an increasing number of clinical outcomes, laboratory
professionals must use a number of skill sets:
• Search electronic and paper sources for evidence
• Use analytical, statistical, and epidemiological
knowledge
• Demonstrate critical thinking skills
• Understand the strengths and weaknesses of systematic
review process
The process of systematically finding, appraising, and us-
ing research findings as the foundation for clinical decision
making is not always feasible. To make the best clinical
decision for patients, laboratories serve as clinical consul-
tants, and much effort has been placed on determining best
practices for communicating laboratory results for use in
diagnosis, treatment, and prognosis. Laboratorians should
follow a quality-improvement approach that includes ask-
ing if the care is appropriate, efficient, and effective:
• Clinical practice guidelines are statements developed
to assist practitioners in general decisions about pa-
tient care with specific clinical application from prior
experience and researched evidence.
205
• The care map is the critical pathway document (often
formatted as a grid or algorithm) that maps care by
a set of decision tree steps serving as a guideline in a
structured healthcare process for provision of care.
• Assessment of outcome reviews the initial care map
and may produce improvements in the clinical guide-
line by eliminating bias in the research. Efficacy is the
ability of a procedure or test to achieve the desired
clinical purpose in a controlled setting with a con-
trolled group of patients. Effective treatment is based
on demonstrating the desired effect in a larger popula-
tion, showing the value applied to the standard of care.
• The application of evidence-based medicine research
into daily clinical practice has challenges. There are
major differences between the care that patients re-
ceive and the practice the evidence suggests is effective.
Impact of bioinformatics on pathology. Pathologists have
long suspected that bioinformatics would turn their world
upside down. As test results and clinical patient data merge,
the previously clear distinction between the roles of ana-
tomic and clinical pathologists blurs. The recent technol-
ogy explosion requires that pathologists understand how
molecular diagnostics bridges the gap between the worlds
of research and clinical care. Pathology will witness a grad-
ual shift from cell morphology to the molecular structure
and function of cells as an adjunct to the diagnostic pro-
cess, including genomic and proteomic testing. As bioin-
formatics becomes a significant driving force in pathology,
result reporting will steadily demand a larger share of the
pathologist’s daily routine. At the same time, bioinformat-
ics is raising difficult questions about the nature of disease.
The concept behind bioinformatics is to study significant
patterns in large data sets, not in individual biological enti-
ties. Pathologists must understand the stewardship of the
resource that will become the foundation for bioinformat-
ics research, the development of a comprehensive, well-
organized clinical biorepository. The clinical laboratory
must have expertise in biochemistry and handling of large
data sets, while the anatomic laboratory must have a keen
perspective and understanding of cellular biology (84).
Summary
During the first half of the 20th century, hospital-based
laboratories almost exclusively delivered a limited menu of
anatomical and clinical test procedures. Then in the 1950s,
advances in technology paved the way for rapid growth
in the areas of automation, instrumentation, quality as-
surance, and quality control. Improvements in precision
and accuracy led to more efficient analytical processes.
Computerization was introduced to the laboratory in the
1960s, opening the door for the laboratory to become a
206 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
repository of clinical information and knowledge about
wellness and disease. Concepts of sensitivity, specific-
ity, efficacy, effectiveness, predictive values, and analyti-
cal variability emerged. The capital development of the
1960s shifted testing to remote independent laboratories
where large test volumes were performed in a factory-
like setting. The 1980s witnessed the evolution of more
sophisticated laboratory equipment and computers that
supported bar-coding and instant patient identification.
As early as the 1990s, visionaries predicted that molecular
biology had the potential to change the industry. Today an
estimated 1,500 diseases are now detectable using genetic
testing; however, nearly 300 are limited to testing for in-
vestigational and research purposes only. Since its incep-
tion, the laboratory has provided physicians with valuable
information that supports the diagnosis and treatment of
disease. In the new millennium, the laboratory is strategi-
cally positioned for success, providing more information
about the human condition faster and more accurately
than ever before (8).
During the golden age of healthcare, clinical labora-
tories focused on increasing on-site test menus, reduc-
ing turnaround time, and acquiring the latest technology.
Costs were essentially passed through, and laboratorians
and pathologists became specialists in a discipline. Hospi-
tals ignored the service demands of the non–hospital patient
market, allowing the independent commercial laboratories
to get a stronghold. The reference labs were profitable due to
the economies of scale from automation and the favorable
reimbursement environment. The prospective payment
system for inpatient reimbursement and managed-care
capitation in the outpatient market led to a commodity
pricing strategy, with commercial laboratories using loss
leaders to gain managed-care contracts. The industry re-
sponded with attempts at consolidation, regionalization,
acquisitions, and mergers to offset the losses.
The future of the healthcare industry is being driven by
these five market forces (1):
• Marketization. In this market the stakeholders demand
a higher performance expectation and accountability
for demonstrated efficiency.
• Consumerization. During the golden age, patients
didn’t act like consumers. Today, patients demand
choice, access, quality care, service, and price. The
consumer is driving the healthcare paradigm toward
prevention and wellness. New metrics for quality and
performance in the laboratory hinge on four general
approaches to outcome evaluation and include cost
minimization, cost effectiveness, cost utility, and cost-
benefit analysis.
• Mass customization. In an efficient healthcare market,
competitors must create value for customers by dif-
ferentiating their products and services in order to
succeed. Healthcare is becoming a business of manag-
ing relationships rather than events. A complete and
longitudinal medical record will become a metric in
the future.
• Value chain optimization. Stakeholders in the industry
are restructuring their internal and external customer
focus.
• Digitalization. The information revolution and digi-
tization are driving the next wave of technological
restructuring in healthcare and information-intensive
industries. Information is knowledge, and knowledge
is power. Educated consumers are becoming more
responsible and involved in their healthcare. Laborato-
ries that embrace change through information technol-
ogy are positioned for success in the future.
According to Gammon, “Leroy Hood thinks that the
$2.3 trillion U.S. healthcare system is headed for life sup-
port, but he has a plan for curing its inefficiency, and in-
effectiveness.” Hood, a 69-year-old biotechnologist, bases
his approach on the four Ps: medicine that is predictive,
preventive, personalized, and participatory. The goal shifts
“medicine from treating illness to managing health, saving
money and lives along the way” (26, 77).
According to Hood, the U.S. healthcare system should be:
Predictive
The vision. Using genome sequencing and blood
tests, a doctor will be able to determine a patient’s
probability of developing certain diseases. The
price of those tests is dropping and will soon be
less than $1,000—the same as a CT scan today.
The challenge. Physicians will have to be trained
to use the technology ethically. Patients will have
to make sense of new kinds of choices.
Preventive
The vision. Based on an individualized risk profile,
one could start therapies in advance to cut the
likelihood of illness. Drugs could be designated to
blunt the desire to overeat, drink, or smoke. Aver-
age lifespan could be extended 20–30 years.
The challenge. What qualifies as a disease? Will
we have fewer football players if we quiet the
genes that drive aggression?
Personalized
The vision. With billions of data points for every
patient, drug therapies can be created to suit each
genome. This would eliminate the trial-and-error
approach that doctors use today.
The challenge. Having your genome on Google
could be a huge privacy risk. With so much in-
formation around, data security will become an
important field in the healthcare industry.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Participatory
The vision. People will maintain their own health,
not just by treating existing illnesses but by learn-
ing about their own predispositions.
The challenge. How to explain biomarkers to
someone with little grasp of science? Hood pro-
poses games that teach health concepts, and his
Institute for Systems Biology is working with
school districts to develop top-notch science
curricula.
KEY POINTS
■ The current healthcare reimbursement system focuses
on the right price and volume. The healthcare system
of the future should reward providers who demonstrate
good outcomes and implement safety systems in the
course of treatment.
■ The value of a laboratory test is measured by whether
it changes the likelihood of disease in conjunction with
the clinician’s estimate of the probability of disease.
■ Patients who take personal responsibility for their
healthcare have improved outcomes.
■ Direct access testing accounts for up to 10–15% of the
testing performed in hospital and commercial laborato-
ries in the United States each year.
■ Consumers electing to visit alternative medicine pro-
viders for convenience pay out of pocket nearly 75% of
the time.
■ Consumer demands are forcing change. Consumers
want accurate, legible bills and simplified eligibility
determination and registration. Their focus on pre-
vention and wellness means diagnostic testing must
identify problems early and monitor individuals at
high risk.
■ Hospitals that provide the best customer service attract
the best physicians, who in turn attract patients.
■ Healthcare is becoming a business of managing rela-
tionships rather than events.
■ Disease management will drive the next generation of
managed care, by focusing on prevention and early de-
tection, and will represent a significant opportunity for
clinical laboratories.
■ DNA testing used to adjust doses and to select specific
cancer treatments will allow treatment regimens to be
tailored to the patient, reducing side effects, as specific
genes often control the metabolism of drugs (41).
■ Evidence-based medicine is gaining support from many
groups as the foundation for healthcare reform and the
future of medicine.
207
GLOSSARY
Accountable care organization (ACO) A group of providers
and suppliers of services, such as hospitals. Physicians involved
in patient care that work together to coordinate and deliver
seamless care for the Medicare beneficiaries they treat under a
fee-for-service arrangement.
Actuarial data Information used by an actuary to make projec-
tions regarding service utilization to determine the financial risk
of providing the service.
Age/sex rating A method of structuring capitation payments
based on enrollee membership age and sex.
Algorithm A binary decision tree using patient response to in-
tervention and other information to guide stepwise treatment of
a specific problem.
Ambulatory payment classification (APC) A method used by
the Center for Medicare and Medicaid Services (CMS) to imple-
ment prospective payment for ambulatory procedures. APC pay-
ments combine many different ambulatory procedures into a
single group for purposes of payment.
Bioinformatics The science of developing computer databases
and algorithms for the purpose of speeding up and enhancing
biological research.
Bundled payment CMS links payments for multiple services
patients receive during an episode of care. For example, instead
of a surgical procedure generating multiple claims from multiple
providers, the entire team is compensated with a bundled pay-
ment that provides incentives to deliver healthcare services more
efficiently while maintaining or improving quality of care. Pro-
viders will have flexibility to determine which episodes of care
and which services would be bundled together.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The pay-
ment is usually on a per member per month (pmpm) basis re-
lated to the number of patients enrolled in the health plan.
Carve out Services and procedures that are defined by contract
to be separate and apart from the negotiated capitation rate and
that are typically paid on a fee-for-service basis.
Case management A collaborative process used by healthcare
providers to assess, plan, facilitate and provide advocacy for pa-
tients about medical service options to help meet their healthcare
needs using interdisciplinary communication that promotes
quality and cost-effective outcomes.
Catchment/market/service area A specific service area defined
by geographic boundaries targeted by health plans, providers,
and service networks to market products and services.
Clinical pathways Practice guidelines for routine patient care that
have been adapted to local conditions to standardize treatment. In
more involved cases with underlying disease, treatment complica-
tions, and secondary unexpected issues with unknown outcomes,
the practice guidelines are referred to as critical pathways.
Coinsurance The percentage split of the agreed upon cost shar-
ing ratio between a health plan participant and the insurer or em-
ployer. Usually the employer assumes 80% and the employee 20%.
208 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Community-based rating A method of calculating insurance
premiums based on the combined experience of multiple groups
within a geographic region adjusted for age, sex, and high risk.
Companion diagnostics A new diagnostic test that is developed
in combination with a new therapeutic where the diagnostic test
provides essential information for selecting patients that should
receive or continue to receive a drug. The drug and diagnostic
are tested and approved together, and one would not be intro-
duced without the other. The FDA defines the therapeutic and
companion diagnostic as a “combination product” as defined in
the Federal Register, 21 CFR 3.2(e).
Composite rate A uniform premium that applies to all eligible
members in a subscriber group regardless of the number of de-
pendents covered (commonly used with labor unions and large
employer groups).
Consolidation An internal laboratory system strategy to reduce
costs by eliminating the duplication of services and excess capac-
ity, restructuring of the workflow, implementing changes in staff
resources, and centralizing operation management.
Consumer In healthcare the consumer is the patient. The patient
is sometimes also an employee, a subscriber, or a beneficiary.
Consumer-driven health plan (CDHP) A type of healthcare fi-
nancing designed to reduce healthcare spending by providing
financial incentives for consumers to receive/purchase the best
value. Monthly premiums for CDHPs are typically less than the
traditional health plan premium, giving consumers greater con-
trol and responsibility for their own healthcare spending. With
higher deductibles and out-of-pocket costs, patients are incen-
tivized to learn about the cost and quality of care.
Consumerism A healthcare market trend where patients decide
what type of healthcare plan they need and how much to spend
on it. Driven by decreases in employer-provided health insur-
ance coverage and the development of financial vehicles, such as
tax-free savings accounts, employees are encouraged and incen-
tivized to invest in their healthcare to ensure convenient access
and improve quality.
Contract mix The distribution of enrollees by number of de-
pendents (single, double, family).
Copayment (copay) A fixed dollar amount paid by the sub-
scriber to the provider at the time of service.
Critical pathways Written criteria to guide care based on stan-
dards of practice, delineating necessary treatment and facilitating
appropriate use of resources (also referred to as clinical pathway).
Data mining Sorting through data to identify patterns and es-
tablish relationships. Data mining parameters include:
• Association. Looking for patterns where one event is con-
nected to another event
• Sequence or path analysis. Looking for patterns where one
event leads to another later event
• Classification. Looking for new patterns (which may result
in a change in the way the data are organized)
• Clustering. Finding and visually documenting groups of
facts not previously known
• Forecasting. Discovering patterns in data that can lead to
reasonable predictions about the future
Deductible The amount of medical expense that the insured
must pay before the insurer assumes liability for all or part of the
remaining cost of the covered service.
Deficit Reduction Act (DEFRA) of 1984 Public law that autho-
rized the Medicare clinical laboratory fee schedule and man-
dated that only the laboratory actually performing the testing
can initiate the billing (known as direct billing requirement).
Diagnosis-related group (DRG) Classification system devel-
oped at Yale that defines 467 major diagnostic categories and
places patients into case types based on the International Classi-
fication Disease (ICD-9 CM) code classifications (74).
Direct access testing (DAT) Laboratory testing performed at
the request of the patient as the consumer. These consumers
want control of their medical care and are willing to pay for the
service out of pocket.
Direct billing Medicare mandate that claims for laboratory ser-
vices be submitted by the laboratory rendering the service and
not billed by the provider that ordered the test.
DNA sequencing A method used to determine the order of base
pairs along a stretch of DNA.
Economy of scale Whenever output is increased without in-
creasing the cost of production, economy of scale is achieved.
Electronic medical record (EMR) Documentation of the pa-
tient care treatment experience in an electronic format.
Episode of care The set of services required to manage a specific
medical condition of a patient over a defined period of time.
Evidence-based measures Evidence-based practices integrate re-
search evidence with the patient history and clinical impressions,
using five steps—assess, ask, acquire, appraise, and apply—to eval-
uate the effectiveness of treatment and measure the outcomes.
Evidence-based medicine (EBM) The application of current
best evidence from clinical research to the management of pa-
tient care, taking into account patient preferences and the physi-
cian’s experienced judgment. The practice of evidence-based
medicine allows for the judicious integration of literature, clini-
cal experience, patient understanding, and needs.
Experience rating A method of calculating insurance premiums
based on the experience of one group in terms of claims submitted.
Fee for service (FFS) The method of reimbursing providers a
fee for each unit of service provided rather than by capitation,
case rate, or per diem payment. Payment may be based on a per-
centage of charges or an agreed upon fee schedule.
Fixed rate The negotiated payment rate for a service or group of
services linked to a diagnosis code or procedure that is paid ei-
ther prospectively or retrospectively.
Gap analysis A study of the differences between systems, proce-
dures, or applications, often for the purpose of determining how
to get from the current state to a new state. The analysis defines
the space between where we are and where we want to be, bridg-
ing the gap.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
Gatekeeper The primary-care provider (PCP) responsible for
managing the healthcare of a health maintenance organization
(HMO) enrollee.
Gene therapy The introduction of therapeutic genes into cells to
treat or cure disease.
Genotype All or part of the genetic constitution of an individual.
Group practice without walls (GPWW) When two or more
physician groups share the costs of a lease for an office space.
Each group has assigned days of the week for use of the space.
This time-sharing business arrangement enables physician
groups to expand their service area and eliminates the duplica-
tion of lease expenses for the entire month.
Healthplan employer data and information set (HEDIS) A
survey methodology developed by the National Committee for
Quality Assurance (NCQA) that standardizes the quality perfor-
mance data the managed-care organizations provide to NCQA.
HEDIS allows NCQA to compare managed-care organizations
and issue report cards on the quality of services they offer.
Kanban A Japanese system that monitors production line, in-
ventory, consumer demand, and feedback to deliver goods and
services just in time (JIT), an operational strategy used to elimi-
nate waste by getting the right quantity of materials, supplies,
and products in the right place at the right time (9).
Ligase chain reaction A DNA sequence amplification reaction
using thermostable DNA ligase.
Mapping The method used to determine the chromosomal lo-
cation of a gene.
Medicaid integrity contractor (MIC) The Deficit Reduction
Act of 2005 (Section 1936 of the Social Security Act) provided for
the creation of the Medicaid Integrity Program (MIP), which
dramatically increased the federal government’s role and respon-
sibility in combating Medicaid fraud, waste, and abuse. Section
1936 of the Social Security Act requires the Centers for Medicare
and Medicaid Services (CMS) to contract with eligible entities to
review and audit Medicaid claims, to identify overpayments, and
to provide education on program integrity issues.
Medically unlikely edits (MUEs) Edits that limit the number of
units of service codes reported with certain CPT or HCPCS
codes. MUEs are completely different from the National Correct
Coding Initiative (NCCI) edits that focus on combinations of
codes that should not be reported together. Since they are not
mutually exclusive, both MUEs and NCCI edits could be gener-
ated simultaneously depending on code combinations and total
number of units of service.
Medicare administrative contractor (MAC) In December
2003, Congress passed a law requiring the CMS to reform its
contracting methods for processing Medicare Part A and B
claims and is replacing all Medicare contractors (including 23
fiscal intermediaries and 17 carriers), naming 23 MACs with
new vendors that will be responsible for processing all Medicare
claims for payment. All jurisdictions were transitioned to new
MACs in December 2011.
Medicare Shared Savings Program The Shared Savings Program
rewards voluntary participation in accountable care organizations
209
that lower growth in healthcare costs while meeting performance
standards for quality care and putting patients first.
• Application: http://www.cms.gov/sharedsavingsprogram (last
accessed December 14, 2011)
• Final rule: http://www.ofr.gov/inspection.aspx (last accessed
December 14, 2011)
Medigap A supplemental health insurance policy sold by pri-
vate insurance companies designed to pay for healthcare costs
and services that are not paid for by Medicare and any private
health insurance benefits.
National Correct Coding Initiative (NCCI) Developed by the
CMS, NCCI promotes correct coding methodologies and con-
trols improper coding that leads to inappropriate payment in
Part B claims. The CMS coding policies are based on coding con-
ventions defined in the American Medical Association’s CPT
manual, national and local policies and edits, coding guidelines
developed by national societies, analysis of standard medical and
surgical practices, and a review of current coding practices. The
CMS annually updates the Coding Policy Manual, and it should
be used by MACs as a general reference tool that explains the
rationale for NCCI edits.
Outcome A measured change or event that reflects the status of
a patient during a defined period of time (for example, death, the
onset of symptoms, the disappearance of symptoms, discharge,
readmission, complications, or diagnosis).
Outcome-based medicine Medical practices aimed at assessing
the quality and effectiveness of healthcare and measured against
the ability to achieve a specified end result or outcome. Measures
often include the following parameters: improved health, lowered
morbidity or mortality, and improvement of abnormal states.
Patient-centered medical home (PCMH) An approach to pro-
vide comprehensive primary care for children, youth, and adults
in a healthcare setting that facilitates partnerships between pa-
tients, physicians, and family (when appropriate).
Patient Protection and Affordable Care Act (PL: 111-148) The
PPACA law regulates increased access to health insurance cover-
age, expands the federal private health insurance market require-
ments, and requires the creation of health insurance exchanges
(HIE) to provide individuals and small employers with access to
insurance. The costs associated with expanded access to health
insurance and the other provisions are proposed to be offset by
increasing taxes and revenues and reducing Medicare and Med-
icaid spending on healthcare.
Payor Any third-party insurance company that sells traditional in-
demnity and managed-care products to group purchasers, large and
small employers, and private individuals for healthcare coverage.
PCR A technique for amplifying millions of times a single target
DNA sequence using thermostable DNA polymerase so it can be
detected and studied more easily.
Per diem The negotiated daily reimbursement rate for services
provided for inpatient hospital services. The rates are negotiated
specific to the type of service rendered (for example, general
medical, surgical, or intensive care).
210 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
Personalized medicine A healthcare patient model that cus-
tomizes all healthcare decisions and clinical practices to the indi-
vidual patient, incorporating the use of genetic and other
information, such as family history, social circumstance, envi-
ronment, and behavior.
Point of service (POS) A managed-care plan with reduced ben-
efits that allows the enrollee to select services and benefits at the
point of service for a network prepaid plan and an out-of-
network fee-for-service plan. The out-of-network plan usually
carries a copayment that is a percentage of the fee-for-service
charges to the health plan.
Progressive rates A method used by some health maintenance
organizations in which they implement new rates monthly, quar-
terly, or semiannually when contracting with large employer
subscriber groups.
Prospective payment system (PPS) A method for payment by
Medicare for hospital inpatient services in which the payment is
according to the DRG classification of the discharge and enacted
by the Social Security Amendments of 1983 (P.L.98-21).
Purchaser Buying groups, employers, and individuals who pur-
chase healthcare policies from third-party payors (insurers).
Recovery audit contractor (RAC) A program overseen by the
CMS to audit healthcare providers to ensure that they are not
overbilling Medicare and Medicaid. The CMS only pays RAC
contractors when they identify overpayments or potential fraud.
Referral A recommendation by the primary-care physician that a
member receive services from another network provider. It is a no-
tification process and not a review to establish medical necessity.
Regionalization A system of laboratories capable of providing
services to a larger geographical area. Regional systems allow
the aligned laboratories to market the combined strengths of the
collective testing menus to keep more tests within the regional
system and eliminate referrals outside of the system, positioning
the regional laboratory system to compete for managed-care
contracts.
Resource-based relative value system (RBRVS) A system of
reimbursement that reimburses providers for the true cost or
value of the services they provide. True cost and value are deter-
mined using a formula that multiplies a relative value unit by a
monetary conversion factor. The relative value unit rates the
value of the actual cost of the service based on a physician cost
component (work), a practice cost component (overhead), and
a malpractice cost component. The cost-based approach more
closely approximates a normal, competitive market than charge-
based systems.
Restructuring Tactical measures used in laboratory consolida-
tion include downsizing, point-of-care testing, consolidating
work at benches, and interdisciplinary teams on utilization.
Risk pool A portion of provider fees or capitation payments that
are withheld as financial reserves to cover unanticipated utiliza-
tion of services.
Risk sharing The process of establishing financial arrangements,
utilization controls, and other mechanisms to share the financial
risks of providing care among providers, payors, and users.
Stop-loss A provision within a health plan that limits the members’
or providers’ out-of-pocket expense to a maximum allowance.
Tax, Equity, Fiscal Responsibility Act of 1982 (TEFRA) Public
Law 97-248, which established payment for inpatient stays for
Medicare beneficiaries based on diagnosis-related groups
(DRGs) and introduced the clinical laboratory competitive bid-
ding demonstration project.
Telecommunication Voice, video, or data information is trans-
mitted from one location to another using integrated services
digital network (ISDN) phone lines, T1 lines, digital subscriber
lines, or various forms of wireless communication (102).
Telemedicine The practice of medicine using telecommunica-
tions technology to transmit data, sound, and images between
two or more distant sites.
Telepathology A pathology practice using telecommunications
technology to share diagnostic and microscopic images over
long distances for identification and consultation, linking pa-
thologists and other healthcare providers with patient care.
Universal access The concept that all people, regardless of
health or economic status, have access to a minimal, standard
package of healthcare benefits that provides quality healthcare.
Usual, customary, and reasonable fees (UCR) Fees paid to a
physician:
• If the charge does not exceed the “usual” charge from his or
her office
• If the charge does not exceed the amount “customarily”
charged by other physicians in the area
• If the charge is otherwise “reasonable” (reference 19, p. 76–79)
Utilization management The concurrent or prospective pro-
cess of monitoring, assessing, and controlling the utilization of
healthcare services to promote efficiency and quality. The pro-
cess includes review of length of stay, admission rates, coordina-
tion of physician and nonphysician services, and use of services
like ER, laboratory, pharmacy, and radiology.
Utilization review A retrospective healthcare assessment tool
used by managed-care organizations to ensure that their mem-
bers have received appropriate quality services. Admissions,
length of stay, and utilization of services are included.
Value-based payment A payment method that rewards quality
of care using payment incentives. Healthcare value is considered
a function of quality, efficiency, safety, and cost, where providers
are accountable for the quality and cost of the healthcare services
they provide. The payments are based on rewards that are depen-
dent on meeting specific performance measures and on conse-
quences that discourage patient care that is inappropriate,
unnecessary, and costly.
Withhold A payment method that withholds a percentage of a
negotiated payment in a reserve fund for specialty provider con-
tracts. Annually, if the negotiated quality and cost criteria have
been met, the portion of the fee that was withheld is returned
according to the risk-bearing terms of the contract.
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
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214 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
APPENDIX 7.1 Websites
American Association of Clinical Chemistry (AACC)
www.aacc.org (accessed December 23, 2011)
American Clinical Laboratory Association (ACLA)
www.acla.com (accessed December 28, 2011)
American Medical Association (AMA)
http://www.justice.gov/atr/public/divisionmanual/chapter2.pdf
(accessed May 31, 2012)
American Society of Clinical Laboratory Science (ASCLS)
www.ascls.org (accessed April 9, 2012)
American Society of Clinical Pathology (ASCP)
www.ascp.org (accessed April 9, 2012)
Association of Laboratory Automation (ALA)
www.labautomation.org (accessed on April 9, 2012)
American Telemedicine Association
www.atmeda.org (accessed April 9, 2012)
Association of Telemedicine Service Providers
www.atsp.org (accessed April 9, 2012)
Beckers Hospital Review
www.beckershospitalreview.com (accessed January 20, 2012)
CDC-Division of Laboratory Systems (DLS)
www.phppo.cdc.gov/dhs/genetics/ (accessed April 9, 2012)
Laboratory Genomics Branch.
College of American Pathology
www.cap.org (accessed April 9, 2012)
Effective Healthcare Program of AHRQ
http://effectivehealthcare.ahrq.gov (accessed January 16, 2012)
Food and Drug Administration
http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/
GuidanceDocuments/ucm262292.htm (accessed May 31, 2012)
Healthcare.gov
www.healthcare.gov (accessed August 30, 2011)
Information about the Affordable Care Act.
Healthcheck USA
http://healthcheckusa.com (accessed on April 9, 2012)
An Internet-based company that brokers DAT for participating
laboratories.
Health Futures, Inc.
www.healthfutures.net (accessed April 9, 2012)
Health futurist Jeff Goldsmith is the company president.
Health Level Seven (HL7)
www.hl7.org (accessed April 9, 2012)
Lab Tests On Line
http://www.labtestsonline.org (accessed December 23, 2012)
A public resource on clinical lab testing.
Managed Care On Line (MCOL)
http://www.mcol.com/factsheetindex (accessed September 28, 2012)
Motorola Wireless
http://sg.motorola.com/bluetooth/ (accessed April 9, 2012)
National Association for Home Care
http://www.nahc.org/facts/10HC_Stats.pdf (accessed May 31, 2012)
Plan for Your Health
http://www.planforyourhealth.com/open-enrollment/ (accessed
September 28, 2012)
Open enrollment and healthcare spending accounts.
Results Direct
http://results-direct.com (accessed April 9, 2012)
A hospital-based company that offers DAT via the Internet.
Web MD
www.webmd.com (accessed April 9, 2012)
 CHAPTER 7. THE CHANGING HEALTHCARE ENVIRONMENT
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(continued)
216 BASIC CONCEPTS AND THE CURRENT HEALTHCARE ENVIRONMENT
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Managerial Leadership
II
(section editor: John C.H. Steele, Jr.)
8 The Foundations of Leadership
David S. Hefner and Katharine R. Becker
9 Employee Needs
John C. H. Steele, Jr.
10 Motivating through Intelligent Leadership
Christa Pardue
11 Successful Communication
Diane C. Turnbull
12 Effective Meetings
Mark G. Hanly
13 Conflict Management
Jean Egan
14 Managing Change
Kellie Gibbs
Introduction
Distinguishing Management
8 The Foundations of Leadership
from Leadership
What Is “Leadership” and How Do You Become a
Leader? • Management • Leadership
The First Foundational Factor Is Integrity
The Definition of Integrity • Honoring Your Word •
The Pitfalls in Honoring Your Word • What Is Your
Word? • What Is the Current State of Your Word? •
Trust and Its Relationship to Honoring Your Word •
Preparation for Making a Commitment or Giving
Your Word
The Second Foundational Factor
Is Authenticity
The Definition of Authentic • Knowing Yourself •
How Do You Respond in Various Situations? • The
Importance of Context • The Path to Authenticity
The Third Foundational Factor Is
Commitment to Something Bigger
than Yourself
Succeeding as a Leader • What Happens Next?
Summary
KEY POINTS
ACKNOWLEDGMENTS
REFERENCES
APPENDIXES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch8
David S. Hefner and Katharine R. Becker
OBJECTIVES
To help the reader understand the difference between the realms of
management and leadership
To develop an understanding of the importance of integrity and its relationship
with performance
To clarify the misconceptions about operating with integrity and why people
may disregard it, thereby diminishing their power as a leader
To help aspiring leaders appreciate the inward journey of leadership and
discover for themselves what it means to be authentic
To provide clarity about the relationship between being committed to
something bigger than oneself and becoming a leader
To offer resources for the reader’s continued education
Whatever you can do or dream you can, begin it.
Boldness has great genius, power and magic in it!
Johann Wolfgang von Goethe
B
eing a leader has everything to do with Goethe’s quote. Every leader
has faced the challenge to “just begin it!” This chapter offers access to
actionable pathways for developing the foundational elements that are
key to leading and exercising leadership effectively. You do not need to mas-
ter the elements first, but they will be important for ensuring effectiveness
in your leadership journey. Being a leader is a lifetime endeavor; once you
step out, everything is different and there is no turning back. Healthcare today
needs leaders at every level and in each discipline to succeed in solving com-
plex problems with trans-disciplinary solutions that can deliver cost-effective,
high-quality care that ensures the health of all.
Distinguishing Management from Leadership
What Is “Leadership” and How Do You Become a Leader?
How do you answer these questions about leadership? A 2012 Google search
for leadership returned more than 113 million entries, but that is not really
helpful, as you may only want the five best explanations. If you seek expert
guidance to find a useful definition as a starting point, you will discover that
faculty teaching leadership courses know that there are as many definitions of
leadership as books written about it. When checked in 2012, Amazon listed
96,883 book entries. Add to this the overwhelming amount of potentially
219
220 MANAGERIAL LEADERSHIP
contradictory information that conventional wisdom of-
fers, such as a really good manager will be a great leader,
or leadership is the same as good management, or leader-
ship is only available to those with a position near the top,
or people must be born with the inherent ability to lead
because everyone can’t be a leader.
The critical first step for answering the questions about
leading and leadership posed above is to understand what
management is and how it differs from leadership. Man-
agement and leadership operate in different realms (Table
8.1). Managers are accountable for a known scope and
use a set of well-developed skills to manage in their area.
Conversely, leaders are responsible for and function in
an unknown scope, using quite different skills to exercise
leadership effectively.
Management
The Oxford English Dictionary defines the term manager
as deriving from an Italian verb, maneggiare, which means
“to handle, train, be in charge of, control horses.” Today,
managers are assigned accountability to oversee the pro-
cesses dealing with or controlling things or people. There-
fore, it should not be surprising that managers’ roles and
responsibilities include coordination and interaction with
employees; handling, sharing, and analyzing information;
problem solving and decision making; producing the best
results possible; operating within a budget; and accounting
Table 8.1 Management and leadership: important characteristics and functionsa
Management
Overseeing processes dealing with or controlling things or
people (known scope) that include:
• Coordination and interaction with employees
• Handling, sharing, and analyzing information
• Problem solving and decision making
• Operating within a budget
Typical organizational management levels:
• Top
• Middle
• Supervisory
Shift from focus on performing well to mobilizing employees,
with success measured by the results of those managed
• Results set by top-level managers and strategy
Management authority
• Limited
• Bounded within their assigned area
a
While not mutually exclusive, leadership skills can be found among managers. The focal differences seem to be the willingness to work in the “unknown”
versus the “known” arena and being committed to something bigger than yourself.
for the status of everyone and everything within their
scope of accountability. Larger organizations often have
up to three levels of manager phenotype—top, middle, and
supervisory—and at each level the scope of accountability
varies, and in some cases overlaps.
High-performing staff members are often promoted to
be managers. Some succeed and others learn that being
a manager is not to their liking. The shift to a manager’s
role challenges strong performers to delegate and to de-
velop others. The role requires moving from self-control to
mobilizing employees to tackle tough problems, as a man-
ager’s success is frequently measured by the results of those
they manage. Managers need to be taught skills to succeed
in their new role, which cover a range from delegating, to
building credible and reliable budgets, to delivering per-
formance evaluations, to building a diverse, team-based
workforce. Their roles cover a large span of activities and
meetings, from providing incentives and recognition for
work well done to implementing layoffs when the circum-
stances require it. Managers’ authority is limited and tends
to remain within their assigned area or scope, and their
actions must align with senior management and the orga-
nization’s articulated strategies. Tasks are frequently iden-
tified and assigned by middle- or top-level managers who
have the authority to make such delegations. After 30 years
of teaching and working with managers, the authors have
found that managers are often interested in being taught
Leadership
Working within the unknown (something bigger than your current
base of knowledge)
• Making something happen in the future that would not have
otherwise happened
• Navigating in uncertainty and ambiguity
• Self-generating comfort to experiment (trial and error)
• Having enthusiasm that inspires the engagement of others
Available to anyone at any position in an organization who em-
braces important foundational elements:
• Operating with integrity
• Being authentic
• Being committed to a bold future
Understanding the differences between keeping your word and
honoring your word
• Trust is the outcome of honoring one’s word, and successful
leaders engender the trust of those being led and/or managed
• Your word is what you said you will do or will not do
• Once agreed upon, you honor your word
• Communicating clearly what was or was not done is honoring
your word
Authenticity is the degree to which one is true to one’s self
• Without authenticity, one will not succeed as a leader
• A leader acknowledges his or her successes as well as failures
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP
how to “manage up,” or to get their manager(s) to do what
they think should be done. However, we find that after be-
ing given the tools, rarely do these same managers succeed
at it or even try. If the concept of managing up is of inter-
est, one needs to understand that it has more to do with
being a leader than managing.
Leadership
In contrast with the work of managing a known scope, a
leader’s work is to make something happen in the future
that was otherwise not (predictably) going to happen. Lead-
ers have the courage to take on being responsible for what
is unknown, the sense-making ability to navigate in un-
certainty and ambiguity, the comfort to experiment us-
ing trial-and-error methods to discover their way, and the
enthusiasm to inspire the engagement of others to gar-
ner progress when the pathways are uncertain or current
knowledge argues that the vision being articulated cannot
or will not happen (1).
How does one become a leader? As your parents probably
said, anyone (you) can be a leader in any arena of concern
or from any position in an organization. However, to suc-
ceed in being a leader and to exercise leadership effectively
requires the development of a foundation upon which
your confidence to lead grows and is recognized by others.
Can leadership be taught? Does understanding what
other leaders have done or knowing the styles they used
help someone to lead? The editors of a recent book, The
Handbook for Teaching Leadership, reported an interest-
ing conclusion after interacting with 30 leadership aca-
demics during the publication of this book about their
varied teaching methods (18). In more than 25 years of
using many methods of teaching about leadership and
leadership styles and studying cases to learn what lead-
ers do, the authors found “scant empirical evidence that
any of these approaches work” (18, p. xiii). In addition,
there is insufficient research and an inconsistent body of
knowledge to validate whether the methods being used
succeed in developing the kind of leaders needed for the
uncertain future we face (17). While teaching skills and
imparting knowledge are what educators best know how
to do, “the current state of leadership education lacks the
intellectual rigor and institutional structure to advance
beyond its present (and precariously) nascent stage” (18,
p. iii). In fact, only one of the 30 different teaching meth-
ods in The Handbook for Teaching Leadership has the
objective of leaving students actually being leaders and
exercising leadership effectively (7, 9). Many of the per-
spectives in this book chapter are derived from, or are a
synopsis of, the ground-breaking material developed to
support the precept of actually being an effective leader
(5–8, 14).
So, you may rightly ask, can this chapter possibly be
different? While we cannot reach through these pages and
221
shape you into a leader, the material in this chapter offers
access to foundational elements that provide potency and
bring power to leading. While they can also improve your
management, mastering them is critical for anyone desir-
ing to be a leader and to exercise leadership effectively. The
rest will be up to you.
Few will have the greatness to bend history itself. But each
of us can work to change a small portion of events, and in
the total of all these acts will be written the history of this
generation.
Robert F. Kennedy
The First Foundational Factor Is Integrity
The softest pillow is a clear conscience.
Narayana Murthy, founder and former CEO, Infosys
When you ask people what integrity is, their answers are of-
ten expressed as values and norms. For instance, someone
with integrity does not lie or steal. While there are moral,
legal, and ethical underpinnings in every situation, organi-
zation, or professional group, integrity (as described here as
a foundation for leadership) is not a normative or relative
phenomenon (5–8, 14). Integrity is independent and yet it
underlies everything, and without it nothing works. With-
out being a person of integrity, you can set aside the notion
of ever being a leader, and to be a person of integrity is a
never-ending undertaking.
The Definition of Integrity
To understand this area, we start with the Merriam-Webster
Dictionary definition of “integrity”:
1. firm adherence to a code of especially moral or artistic
values: incorruptibility
2. an unimpaired condition: soundness
3. the quality or state of being complete or undivided:
completeness
Rarely do people notice the second and third components
of the definition, though they are critical to having an ac-
tionable access to operating with integrity. If you focus on
the second and third definitions, the notion that integrity
establishes the underpinning for workability and perfor-
mance becomes clear. We ask you to consider the following
heuristic: as integrity (unimpaired, complete) increases,
the conditions that allow for maximum performance
also increase; therefore integrity is a critical condition of
performance.
But what does it mean for a person or a leader to be un-
impaired and complete? What it means for a person to op-
erate with integrity is to honor one’s word. To clarify what
that means, we will examine what honoring your word is,
and more specifically, what is meant in detail by your word.
222 MANAGERIAL LEADERSHIP
Honoring Your Word
Honoring your word means doing what you said you
would do, or if you cannot or will not be doing what you
said, letting others know as soon as you know (in advance
of the deadline) that you will not be doing what you said,
and dealing with the resultant consequences. Though this
concept sounds relatively simple, many people do not un-
derstand (or they disregard) how important and funda-
mental it is to optimal performance. We are sure you can
think of instances in which people say they will do some-
thing, do not do it, and never talk about it again. Common
misconceptions become pitfalls that often prevent people
from honoring their word (5, 14).
The Pitfalls in Honoring Your Word
Many people fail to let others know what they did or did
not do, sometimes even after the fact. Have you ever awak-
ened in the middle of the night in a panic after a due date
or a deadline had passed, because you didn’t know if your
team member(s) delivered or not?
The first pitfall in the arena of honoring your word oc-
curs when people think that integrity is only a virtue. If
integrity is understood to be a virtue, rather than a ne-
cessity, it conceals the fact that honoring your word is a
necessary condition for performance. As a virtue, integ-
rity can become more easily sacrificed, especially when it
appears to a person that he or she must do so to succeed,
or that it really does not matter. For instance, reporting
only the good news, or the news you think others want to
hear, can seem to be acceptable or smart behavior, as can
saying you finished something that you in fact did not,
simply because it sounds better and you know you can
complete it after the fact, on an evening or weekend. What
is unseen or not easily recognized in these situations is the
resulting damage to the individual and/or the organiza-
tional performance.
When integrity is understood as honoring your word,
then saying both what is and is not happening—the good,
the bad, and the ugly—becomes dependable behavior. In
environments where reliable information is readily avail-
able, managers can make more appropriate decisions about
what is (or is not) getting done. For instance, if a manager
knows what was not done, and the stakeholders who are
expecting the deliverable have been advised of the poten-
tial delay, they can decide together if the deliverable can be
delayed until a later date or if it must be completed imme-
diately. As more people learn to speak openly about what is
and is not done, individual and organizational confidence
grows and performance increases. Honoring your word
helps to establish workable relationships and enable others
to develop a sufficient sense of security so that they will
provide complete and accurate information.
A second pitfall occurs when managers are unaware
that they have not honored their word or have missed
a deadline. For years, we authors have discussed with
people the importance of honoring their word. Many
have admitted that they take better care of their cars than
they do their word, because they can “see” their car but
they cannot “see” their word. Managers have much to
do; it seems almost impossible to know what outstand-
ing commitments are yet to be completed (especially
when many commitments are delegated via e-mail, of-
ten without discussion). Even when managers do know
what has not been done, their energy may be focused on
explaining why they did not complete the commitment
(and constructing a report justifying their nondelivery)
rather than communicating what was not done and fo-
cusing instead on the impact and possible solutions.
When managers and staff operate without full aware-
ness of their commitments, they frequently are unaware
of the increased potential for a decline in performance
in their area of accountability, their organizations, and/
or themselves. It does not take staff long to determine if
deadlines are reliable or not, or if their managers know
the outcomes they are working on (or not), and reliable
performance declines in such settings. If you see perfor-
mance decreasing and it seems like everyone is honoring
their word, you should ask, “When was performance last
progressing at necessary or acceptable levels and/or when
did it go off track, and at that point, what happened, what
commitments were not being honored?”
The third pitfall that managers confront with honoring
their word occurs when people think integrity means keep-
ing your word or that you must always do what you said.
Keeping one’s word and honoring one’s word are not synony-
mous as presented in this chapter. However, most people
think the two are one and the same.
What happens when it is not possible (or when it is
inappropriate, perhaps due to legal reasons, strategic rea-
sons, force majeure, etc.) to fulfill what was previously
committed? In such situations, working to keep your
word, when it is not possible to produce the intended
outcome(s), can waste precious time. It is more appro-
priate to immediately honor your word by letting others
know what you will not or did not do, thus enhancing
your performance (5, 14). When transparency is not em-
braced, it often leads to counterproductive behaviors, like
not responding to e‐mail in a timely manner (or ever) or
avoiding people or meetings, and therefore impairs the
overall coordination of performance. When a manager
cannot keep his or her word and opts for the apparent
short‐term gain of concealing it rather than courageously
acknowledging it, he or she may forfeit the power and
respect that will accrue from honoring one’s word. And
without the respect of others, you can forget about being
a leader.
Once you are aware of what it means to honor your
word and how to honor your word, it becomes important
to understand what constitutes your word.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP
What Is Your Word?
To be a person of integrity requires that you understand
fully how your word is constituted, and that you own the
implications of having constituted your word from the fol-
lowing five different areas (5, 14).
First, your word is what you said you will do or will not
do, and in the case of saying you will do something, doing
all of what was specified and doing it on time. When some-
one asks you to do something, what they have asked you to
do becomes your word unless you respond to the person in
a timely fashion saying that you will not be doing it.
Second, your word includes what you know to do or not
to do. The case of doing it includes doing it as it is meant
to be done, on time, unless you have said something ex-
plicitly to the contrary to the relevant parties. When you
know what there is to do (or not do), it becomes your word
unless you respond in a timely fashion saying that you will
not be doing what was asked.
Third, your word includes doing what is expected of you
to do or not do (and in the case of do, to the specifications
and on time) unless you have explicitly said to the contrary.
Please take note of an apparent paradox: while your word
includes all that is expected of you, what you expect from
others is not for themselves their word unless they have said
they will do it (5).
Fourth, and also related to what is expected of you, are
all of the moral, ethical, and legal standards for your roles
or profession that you have not explicitly declined. These
standards, whether spoken or not, are part of your word.
Fifth, your word includes what you say is possible or what
you stand for, as a declaration made to one or more people
or even to yourself, and it includes taking the actions neces-
sary to realize what you stand for or declare (5, 14).
What Is the Current State of Your Word?
Take a moment to reflect on the current state of your word,
where is it honored and where there might be work to do.
After reflecting for yourself, consider your staff, your de-
partment, and your areas of accountability. Have there been
missed deliverables, or is there an interface your staff has
with another part of the organization where performance
is lower than it could or should be that has been tolerated
and unmentioned? In your areas of accountability, do you
have the necessary tracking, reporting, and measuring in
place to manage the myriad commitments you and your
teams are accountable for? Reports and metrics should help
you and your department to succeed, not be a waste of time
to prepare. What you can see, you can move and manage.
What you cannot see, you cannot manage with integrity.
Do you and your staff have sufficient tracking tools to re-
cord and manage all the commitments you are responsible
for in a timely manner? Investing time to restore your word
where commitments are incomplete or unaligned in the
areas you manage, or inconsistent with your leadership ob-
jectives, will result in a noticeable increase in performance.
223
Trust and Its Relationship to Honoring Your Word
The literature on trust talks about “walking the talk,” say-
ing that to be trusted you must keep your word. Everyone
learns at an early age the consequences of not doing what
they said they would. In some cases such people are called
liars, but no matter what people are called, it is a very un-
comfortable position to be in. To avoid getting caught in
this bind, people frequently report that they have learned
to never make promises and to avoid commitments alto-
gether. However, keeping your word is not the same as hon-
oring your word, and as discussed, you may not always be
able to keep your word. In fact, unless you give your word
to virtually nothing of significance, or make only certain-
to-happen commitments, you will not always be able to do
what you said. When it is impossible or inappropriate to
keep your word, either what you said or by the deadline, or
when you choose not to or find you cannot keep your word,
honoring your word allows you to operate with integrity.
It is often surprising to people that research shows that
you will engender a greater degree of trust and admiration,
even when you do not keep your word, if you honor your
word by saying that you did not or will not able to do what
you said. In research about service encounter satisfaction,
23% of the reported “most memorable satisfactory” en-
counters involved situations where there had been a failure
in a core service delivery, and it had been acknowledged
openly (3). This finding is striking, as it suggests that ser-
vice delivery system failures can be remembered as highly
satisfactory encounters. One generally assumes that failures
can be mitigated by employees who are trained to respond,
but the fact that such incidents were remembered as very
satisfactory is somewhat surprising (3). Results like this can
occur when an organization or person responds in a forth-
right manner, saying what did or did not happen, and offers
to clean up the resulting mess or says what will be done to
ensure that it does not happen again, rather than hiding,
denying, or covering up some of what actually happened.
Successful leaders engender trust, but trust is not some-
thing one can build or work on directly. It is the result of
your being recognized by others, through your actions, as
a person who honors his or her word. Trust is not the same
as likeability—you certainly have the experience of people
whom you like but do not trust. To be trusted by others is
incredibly important for leaders. The path to being someone
who is trusted is by operating with integrity, and the path to
operating with integrity is by honoring your word (5).
Preparation for Making a Commitment
or Giving Your Word
With so much at stake in the area of integrity, trust, work-
ability, performance, and power, it is important to consider
fully, before you give your word, what it will take to keep it.
Multiple discussions and analyses of the benefits and costs
over a designated period of time may be needed among
stakeholders to fully determine whether to give your word
224 MANAGERIAL LEADERSHIP
or make a commitment. When you are ultimately asked
for a yes or no, if you are uncertain, do not give a flippant
answer; rather, ask for some time to do the analysis with
your team, and say when you will respond with a yes or
no. Seeking the counsel of others and getting their ideas
and input for determining possible pathways and strate-
gies to accomplish the outcome build the alignment that
is a hallmark of great leaders. The time to do this type of
analysis is before giving your word, not afterwards. After
your word is given, you need to honor your word, not deal
with whether you should have given it or not.
The most common source of failed leadership today
comes from being irresponsible or casual about one’s word
and, by extension, the word of the organization. Operat-
ing without integrity is a major source of operational mis-
takes and declines in performance and often leaves a mess
in people’s careers or lives. In some cases, it has destroyed
large, seemingly indestructible corporations. People who
lack the strength to operate with integrity are dangerous
when faced with difficult counterforces that challenge
their judgment. To be a leader, you must know yourself
as a person of integrity, have the courage to maintain your
core values in the gray areas, consistently honor your word
to others, and be known to do the appropriate thing, time
after time. There is more discussion about this in the next
section on authenticity, and for more on the subject of in-
tegrity and its importance in leadership, see references 5
and 14 and Appendix 8.1.
The Second Foundational Factor
Is Authenticity
The price they have to pay for leadership is unceasing self-
discipline, constant taking of risks, and the perpetual inner
struggle.
Charles de Gaulle
Authenticity has historical underpinnings in philosophy,
art, and psychology and today has become important to
both managing and leading. In philosophy, the conscious
self is seen as coming to terms with being in a material world
and encountering external forces, pressures, and influences
that are very different from itself. Authenticity is reflected
by the degree to which one is true to one’s own personality,
spirit, or character, despite these external forces. Without
authenticity you will not succeed as a leader.
The Definition of Authentic
The Merriam-Webster Dictionary definition of “authentic”
is as follows.
1. obsolete: authoritative
2. a: worthy of acceptance or belief as conforming to or
based on fact
b: conforming to an original so as to reproduce essen-
tial features
c: made or done the same way as an original
3. not false or imitation: real, actual
4. a: of a church mode: ranging upward from the keynote
b: of a cadence: progressing from the dominant chord
to the tonic
5. true to one’s own personality, spirit, or character
Will the real you please stand up (20)? Sounds bizarre,
right? However, many people spend their lives being the
way they think others want them to be, for instance, doing
what their boss says, whether it provides the optimal solu-
tion or not, rather than what they know best to do. What
about you? Is your freedom to express yourself diminished
in a meeting with people you do not know, or those with
higher positions in the organizational hierarchy than you?
Authenticity is gauged by expression. It reflects both the
extent to which you know and show your true self and
the extent to which you deploy yourself in ways that are
appropriate to the situations you are facing (12).
Knowing Yourself
Let us start with who the real you is. As attributed to
Socrates in some of the earliest accounts about authentic-
ity, “The unexamined life is not worth living” (2). Becom-
ing a leader requires you to take an inward journey, or
quest of introspection and reflection, in order to develop
a profound sense of yourself, your spirit, what made you
that way, and what your values are (19). For guidance
on this journey, we recommend the exercises and ques-
tions designed to assist you in reflecting and discovering
important personal insights that are available in Find-
ing Your True North, by Bill George, a former CEO who
teaches a semester-long course on authentic leadership
at the Harvard Business School (11). This journey is not
about changing who you are; rather, it is about revealing
the limiting ways you wound up being, which include your
knee-jerk behaviors and outdated opinions of whatever
may have happened in the past (15). The process fre-
quently involves reframing your life’s stories and experi-
ences to date, and when done well, it will leave you with
sufficient grounding or stability to tackle tougher chal-
lenges involving greater risk and ambiguity. Leaders rarely
fail from lack of raw intelligence. Research has shown that
hundreds have failed due to lack of emotional intelligence,
which is composed of self-awareness, motivation, empa-
thy, social skill, and self-regulation (13). When people are
left with the sense that there is a fundamental congruency
between who you are and your life story, the values you
espouse and your actions, and that you have made a trans-
formation from self-concern to concern for empowering
and inspiring others, they are likely to see and experience
you as authentic and someone whose leadership they
could follow.
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP
How Do You Respond in Various Situations?
The next step is considering how you deploy yourself, and
whether you act appropriately to the situations you are fac-
ing. Understanding how you got to be the way you are
supports this aspect of authenticity by enabling you to rec-
ognize past situations in which you have responded with
an inappropriate reaction and the fallout that resulted.
Once you fully understand your responsibility for the
consequences, you can take steps to repair any remaining
disorder, restore the relationship(s), and learn other, more
effective or appropriate behaviors with which you can re-
spond differently to similar situations in the future.
Consider this bold assertion: in every leadership situa-
tion, your actions and behaviors will always be correlated
with the way in which the situation occurs for you (6, 7).
From a neuroscience perspective, “occurs” corresponds
to that which is generated by the activated neural net-
works in the brain that produce experiential perceptions,
via our senses, that we project onto the external world
(15). For instance, if a situation occurs for you as excit-
ing, you cannot wait to begin; if the same situation seems
frightening, you dread having to participate and delay
beginning. In either case, your behaviors and actions will
be synchronized with your interpretation of the situation
or, in this vernacular, how the situation occurs or appears
for you (6, 7). For being a leader and providing leadership
effectively, when something occurs to you as hopeless,
your ways of being and acting will convey hopelessness
to others, and no matter what you say, they will perceive
the inauthenticity and will be disengaged or unsuccessful
in addressing the situation.
The Importance of Context
What people often fail to recognize is that the context they
bring to any situation is decisive and has a direct relation-
ship with how the situation will occur for them (6, 8). Be-
ing a leader and taking the effective actions of leadership
are an outcome of the way in which the situation you are
facing occurs for you, and how it occurs for you is colored
or shaped by the context you bring (7, 9). Self-reflection
helps to reveal your unexamined contexts, many of which
originated in childhood and often leave us with blind spots
and unable to see things others can see. Scientists have dis-
covered that we “see” with our brains (i.e., unexamined or
examined contexts), not with our eyes.
If visual sensations were primarily visually received rather
than constructed by the brain, you’d expect that most of
the fibers going to the brain’s primary visual cortex would
come from the retina. Instead, scientists have found that
only twenty per cent do; eighty per cent come downward
from regions of the brain governing functions like mem-
ory. Richard Gregory, a prominent British neuropsycholo-
gist, estimates that visual perception is more than ninety
225
per cent memory and less than ten per cent sensory nerve
signals (reference 10, p. 9).
Once unexamined contexts are discovered, in many cases
they can be shifted to be appropriate with the situations
you are facing today as a fully competent adult. Having a
strong sense of yourself, how you got to be the way you are,
and your values provides an anchor when you find your-
self in a swirl of conflicting pressures, and leaves you with
the courage to follow through—even when you are directly
threatened or challenged—in a way that is consistent with
your values and those of the organization.
You need to answer the question “Why would anyone
be led by me?” This is a strange question, and it can only
be answered by making reference to personal qualities that
are authentically yours, and not as attributes of the posi-
tion you hold. Effective leaders have reached an equanim-
ity and inner peace with themselves, both their strengths
and weaknesses, so they are not compelled to hide their
weaknesses or be caught in the fatal error of thinking they
must always appear to be perfect or successful.
The Path to Authenticity
The path to developing authenticity is increasing your abil-
ity to be courageous enough to be open about your failures,
your weaknesses, and where you are being inauthentic (ev-
eryone is inauthentic from time to time or in certain situ-
ations) (7, 8). Being open is not meant to imply that you
divulge everything to everyone or in every situation, but
that you come to terms with your shortcomings by fully
owning who you are and how you grew to be the person
you are today and understanding that you can move be-
yond your historical ways of being with a freedom and ease
in talking about your life’s developmental path with others.
Personal insecurity is a petri dish for breeding inau-
thentic behavior. When you pretend to be what you are
not, people recognize it immediately. Asking others for
input and subsequently disregarding their input because
you had already made a decision conveys pretentiousness.
Alternatively, if you are not open to input, do not ask, and
thereby be authentic.
The more you grasp that you are not able to fully see
objective reality as it is—the role of context in coloring
everything—and that leading is not about you being per-
fect or knowing everything, the more you will grow to seek
and rely on input and support from others. Recall the data
from medical science mentioned above, and consider that
one could consciously accept that there is an objective real-
ity that is independent of our perception, and we only have
access to the reality generated in our brains. However, most
people don’t operate as if this is true. Understanding that
the challenges in healthcare today do not occur the same
for all the stakeholders increases the need to form teams to
address them, expands one’s appreciation for diversity of
226 MANAGERIAL LEADERSHIP
thought, and opens one to input from multiple and even
conflicting sources as a natural way of operating while
leading others. Knowing yourself, knowing your strengths
and weaknesses, and being open about them empowers
the people you lead and manage to make more relevant
contributions, engage more authentically, and derive more
satisfaction from their job.
What de Gaulle said is true of anyone aspiring to be
a leader. Why would anyone subject themselves to that?
Both the answer, and what actually distinguishes leading
from managing, are found in the third foundational fac-
tor, discussed next. Leaders are responsible for, and func-
tion in, an unknown scope. Their job as a leader begins
the moment they commit to something that they, and per-
haps others, have never done before. They must have the
courage to commit to be responsible for what is unknown.
Where does that courage to make such commitments come
from? Why would someone make such a commitment?
The Third Foundational Factor Is
Commitment to Something Bigger
than Yourself
Seek, above all, for a game worth playing. Such is the ad-
vice of the oracle to modern man. Having found the game,
play it with intensity—play as if your life and sanity de-
pended on it. (They do depend on it.) . . . Move as if your
movements had some purpose. If life does not offer a game
worth playing, then invent one. For it must be clear, even to
the most clouded intelligence, that any game is better than
no game at all.
Robert S. de Ropp (4a, p. 11)
Succeeding as a Leader
Your success in being a leader has a lot to do with discover-
ing or inventing what matters enough to you to be unreason-
able with yourself and others about making it happen. Some
call this “purpose” and say that without purpose, leaders are
at the mercy of their desires for power, prestige, or financial
rewards (11). Purpose, or being up to something bigger than
yourself, drives you as a leader, becomes the source of your
power, and gives you the courage and confidence to keep
going and the strength to take risks. It also helps when the
time comes to explain to others what it is that inspires you,
where your passion and energy come from, and it may, in
some cases, motivate and empower them. How can you
discover your purpose? If you are going to be authentic,
you cannot adopt someone else’s purpose; you must find
your own. What is it that you want to make happen that is
unlikely to happen otherwise?
Answering requires reflection and, in most cases, con-
versing with others. You can begin by considering what
really matters to you, or thinking about times when you
read the news and something resonated with you or made
you think this should or should not be happening, or why
can’t we do that, or why are we tolerating this or that? You
might ask others who know you well what they see you are
most interested in or animated about, to help you land in
an area that is important for you. Whatever you find, start
to think: if my wildest dreams were realized, what might
be the new reality? Take time for defining or crafting a
bold, declarative statement of the possibility to which you
are willing to dedicate your life’s energy and intellect to
realize, something that otherwise would not predictably
happen, something you and others around you do not
know how to do. Without such a commitment you will
not be a leader.
In a certain sense all leaders are heroes, ordinary people
whose being and acting are bigger than their historical
selves because they derive a sense of self from what they
are committed to. Whatever the commitment is, it is be-
yond their personal concerns, and in most cases has little
or no direct personal payoff. As these commitments are
acted on, such big, impossible promises often create some-
thing to which others can also be committed, which leaves
them with a sense that their lives are also about something
bigger than themselves. This is the entrée into being a
leader and exercising leadership effectively.
Not everyone will choose such a path and become a
leader. To do so is a personal choice, a step that must be
authentically taken. Once you step out, there is no turning
back, and stepping out is not always easy, especially when
which action to take is clouded by many unknown elements,
risks, and ambiguities. Arrows can fly. Second-guessing can
abound. Hearing from those who have gone before you as a
leader may shed some light on what can result from being
committed to something bigger than oneself:
It is not the critic who counts, nor the man who points out
how the strong man stumbled, or where the doer of deeds
could have done them better. The credit belongs to the man
who is actually in the arena; whose face is marred by dust
and sweat and blood; who strives valiantly; who errs and
comes short again and again; who knows the great enthu-
siasms, the great devotions, and spends himself in a worthy
cause. Who, at the best, knows in the end the triumph of
high achievement; and who, at the worst, at least fails while
daring greatly . . .
President Theodore Roosevelt,
speech at the Sorbonne, 1910
What Happens Next?
Once you have invented a possibility that is bigger than
yourself and committed to make that possibility a reality,
you will need new skills, many of which are discussed in
detail in the following chapters. One of the most impor-
tant skills involves listening effectively. As Steven Covey
said, “Seek first to understand, then to be understood”
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP
(reference 4, p. 235). By enhancing your listening skills,
you will begin to hear not only what is being said, but
more importantly, what is not being clearly said or stated.
You may notice that you are able to hear when people are
making commitments that you cannot count on. When
you hear inauthentic responses or promises, stop the ac-
tion. Take time and discuss the deliverables and deadlines
and give others a second chance to consider whether or
not they can successfully deliver. Do not let weak commit-
ments slide by; too much is at stake.
Another leadership skill is to find a way of speaking
about the future that makes it seem real and palpable to
others so they can become as inspired about that future
as you are and join you in taking the requisite actions to
make that future happen. You will discover that you need
to stay open to input, whether it is supportive or challeng-
ing, as you never know where the next piece of critical
data you will need might come from. Make sure to have
intermediate and long-term measures, pay attention to
these measures and results, listen keenly to all feedback,
and evaluate and make any necessary midcourse correc-
tions to continue taking ground and making progress.
Communicate, communicate, and then communicate
some more. Celebrate the victories, help people make
sense of the dead ends, and stay open to learning along the
way because you are on a journey no one else has taken.
In the times of inevitable despair, when your thoughts
are filled with doubt or self-concern, find someone you
trust—maybe an advisor or a coach—with whom you can
discharge and discuss what you are thinking. Then recre-
ate the future possibility you committed yourself to, and
renew your resolve to realize it.
As every superhero you ever watched knew, in their quest
to make their world a better place, things will not always
work the way you think they should. When superheroes
find themselves in disarray on the ground, they know . . .
There is only enough time to iron your cape . . . and back to
the skies for you!
Jason Harley, DARPA Transportation
Team member (see Appendix 8.2)
Summary
To be a leader requires that you establish a strong foun-
dation on which you can build a context for exercising
leadership effectively in any leadership situation. In this
chapter, we presented you with an understanding of how
to establish this foundation for yourself. We would like to
leave you speculating about what you would undertake if
you knew you could not fail. When you find your answers,
the foundational elements will be there when you step out
into the realm of leading. In the following chapters, you
will see how the use of different leadership skills can influ-
ence people and alter their performance.
227
KEY POINTS
■ The following are 30 often forgotten and important tips
for good leadership. We thank Major General Perry M.
Smith, USAF (Ret.), for his permission to include these
as key points of this chapter. These are from part 1 of 60
tips that were first published in the Marine Corps Ga-
zette (16). They reinforce the material presented.
• Know yourself. All leaders should realize they are,
in fact, four or more people. They are who they are,
and who they think they are (and these are never
the same); they are who their bosses think they are;
and who their subordinates think they are. Leaders
who work hard to get feedback from many sources
are more likely to understand and control their vari-
ous selves, and hence be better leaders.
• Develop mental toughness. Leaders must be brutally
honest with themselves or they will slip into the ter-
rible habit of self-deception. Even the best leaders
make mistakes. By smoking out these mistakes and
correcting them quickly, a good leader can become
a superb one.
• Be magnanimous. Leaders who share their power
and their time can accomplish extraordinary things.
The best leaders understand that leadership is the
liberation of talent; hence they gain power not only
by constantly giving it away, but also by not grab-
bing it back.
• Squint with your ears. The most important skill for
leaders is listening. Introverts have a great edge,
since they tend to listen quietly and usually don’t
suffer from being an “interruptaholic.” Leaders
should “squint with their ears.” Too many bosses are
thinking about what they will say next, rather than
hearing what is being said now. They are guilty of
“fake listening.”
• Trust your instinct and your impulse. If something
smells bad, sounds funny, or causes you to lose sleep
at night, take another look. Your instincts combined
with your experience can prevent you and your or-
ganization from walking off a cliff.
• Learn by failure. In my professional career, I have
learned much more from my failures than from
my successes. As a result, I have become tolerant of
the honest failure of others. When a major setback
comes along, try to treat it as a marvelous learning
experience, for most certainly it will be just that. To
quote General George Patton, “Success is how high
you bounce after you have hit bottom.”
• Protect innovators. A Medal of Honor recipient from
Vietnam, Army Col. Jack Jacobs, worked for me for
three years. He is by far the most innovative person
I have ever known. Well over 50% of his ideas were
228 MANAGERIAL LEADERSHIP
awful, but buried among these bad ideas was an oc-
casional pearl of great wisdom. I learned that I had
to protect Jack and my organization from his bad
ideas while encouraging him to present all his ideas,
so we could use his great ones.
• Beware of certainty. Leaders should be a bit skepti-
cal of anyone who is totally certain about his or her
position. All leaders should have a decent doubt,
especially when dealing with “true believers” who
are always sure they are right.
• Be decisive. Top leaders usually must make prudent
decisions when they only have about 60% of the
information they need. Leaders who demand nearly
all the information are usually months or years late
making decisions.
• Don’t become indispensable. Organizations need in-
dispensable institutions, not indispensable people.
Leaders should not allow themselves to become
indispensable, nor should they let any of their sub-
ordinates do so.
• Avoid the cowardice of silence. During meetings,
so-called leaders often sit on their hands when it
is time to raise a hand and speak up. Leadership
requires courage—courage to make waves, courage
to take on our bosses when they are wrong, and the
courage of conviction. Every Robert E. Lee needs a
James Longstreet to tell him exactly the way it is.
• Fight against paranoia. Welcome criticism; help
people understand that it is OK to have “love quar-
rels” with the organization. Loyalty and criticism are
mutually supporting while slavish loyalty is deadly.
Avoid the defensive crouch. Never attribute to mal-
ice that which is adequately explained by stupidity.
• Be goal oriented. Leaders, even at a lower level, must
try to set some long-term goals for their associates
and for their organization. People want to know
where they are going and in what order of priority.
• Follow the platinum rule. The golden rule is mar-
velous. But in leadership situations, the platinum
rule may be even better: “Treat others the way they
would like to be treated.”
• Don’t waste people’s time. The best question a leader
can ask a subordinate during a counseling session is
“How am I wasting your time?” Not everyone will
tell you, but cherish the ones that do, for they will
help you grow and prosper as a leader.
• Thank the invisible people. There are lots of fine
people doing great work who seldom get thanks be-
cause they are “invisible.” They work so quietly and
so competently that they often are not noticed by
the leader. Handwritten thank-you notes are espe-
cially appreciated.
• Don’t send out “I don’t trust you” messages. People
who say “I never want to be surprised” or “Check
with me before you start anything” or “I’m off on a
trip; I will call in every morning for an update” are
sending out very strong “I don’t trust you” messages
to their subordinates. People who know they are not
trusted will never contribute at their full potential.
• Serve, don’t humor the boss. Too many leaders see
their big tasks as keeping their bosses happy, getting
to the bottom of the in-box, or staying out of trou-
ble. That is not what leadership is all about. Leader-
ship is serving the mission, serving your people, and
being frank in your dealings with your boss.
• Criticize up, praise down. Leaders must deflect at
least some of the bad guidance they get from above.
Your subordinates expect you to criticize the boss
on occasion. Don’t disappoint them.
• Be physically fit. Everyone has a “health age.” If
you exercise regularly and watch your diet, you
can make yourself four or five years younger than
your chronological age. If you are too busy to ex-
ercise, you will, over time, damage yourself and
those you serve.
• Develop solid leadership skills. The best leaders
are superb at listening and time management and
are competent in speed reading, dictation, and
the use of manual and electronic brainstorming
techniques.
• Help your people understand you. When you take
over a new organization, get your key people to-
gether and tell them what your top priorities and
your pet peeves are. It is especially important for
them to learn very early what really bugs you. They
will appreciate your candor.
• Smoke out those of low integrity. Leaders must sniff
the air constantly to ensure high standards of ethics
are maintained. In almost all large organizations,
someone is walking out the back door with some-
thing. Expense accounts, personnel records, train-
ing reports, and contracts need regular scrutiny.
• Concentrate on performance, not just results. How
you get results is important. Leaders who don’t
concern themselves about the process and the per-
formance that lead to the results are making a big
mistake. Always ask yourself what it took to gain
those great results.
• Maintain a sense of outrage. There are many super-
cool managers who worry too much about keeping
their bosses happy and staying out of trouble. As a
result, they never allow themselves to be outraged
when the system is doing serious damage to those
who work for them. The best leaders get mad
 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP
occasionally, and using controlled outrage can often
make right wrongs that are levied upon their people.
• Beware of intimidation. Be very careful here. Some
bosses allow themselves to be intimidated by outsid-
ers, by their bosses, and even by their subordinates.
An intimidated boss can never be a great leader.
You have to have an independent mind to make the
right choices.
• Avoid the activity trap. Don’t confuse being busy
with being productive. Without discipline, man-
agers can become slaves to their meetings, travel
schedules, in-boxes, computers, and telephones.
Don’t get so wrapped up in the minutiae that you
become paper pushers and “in-box managers”
rather than visionary leaders.
• Build a robust brain trust. One of the great secrets
of leadership success is to have a brain trust of ex-
perts on various issues. A brain trust of around 300
really smart, well-connected, and quick-thinking
friends can be very helpful whenever you need
help. Be sure to have their office and home phone
numbers and their e-mail addresses handy, so you
can get hold of them quickly. The brain trust is re-
ciprocal: they help you and you help them. Within
your large brain trust have a smaller “ethics brain
trust.” When you face a tough ethical issue, this
group can be very helpful. My ethics brain trust
really helped me as I made the decision to resign
from CNN in June 1998.
• Beware of the Paul principle. Too many leaders allow
themselves to slowly slide downhill in competence.
When they lose touch with the issues, the new tech-
nologies, and the people, they have fallen victim to
the “Paul principle.” Many who were highly effective
leaders during their first few years have lost it by
year 10.
• Get ready for the future. The future is coming fast.
Leaders need to think about the future and prepare
their people for it. To keep a close eye on the future,
join the World Future Society and read two maga-
zines regularly—Business Week and The Futurist. All
leaders must work hard to build the future, for that
is where they and their associates will spend the rest
of their lives.
ACKNOWLEDGMENTS
The authors thank Werner Erhard, Michael Jensen, Kari
Granger, Wiley “Chip” Souba, and Major General Perry
M. Smith, USAF (Ret.), for their dedication to leadership
development and their contribution to our thinking. And
we thank our spouses for their encouragement and never-
ending support.
229
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 CHAPTER 8. THE FOUNDATIONS OF LEADERSHIP 231

APPENDIX 8.1 Resources

Erhard, W., M. C. Jensen, and S. Zaffron. 2009. Integrity: a posi-
tive model that incorporates the normative phenomena of morality,
ethics and legality. Harvard Business School NOM Working Pa-
per No. 06-11; Barbados Group Working Paper No. 06-03; Simon
School Working Paper No. FR 08-05. Social Science Electronic
Publishing, Rochester, NY. http://ssrn.com/abstract=920625 (last
accessed June 1, 2012).
George, B., and P. Sims. 2007. True North: Discover Your Au-
thentic Leadership. Jossey-Bass, San Francisco, CA.
Executive program seminar, Olin School of Business. Harvard
Business School NOM Working Paper No. 10-087; Barbados
Group Working Paper No. 10-03. Social Science Electronic Pub-
lishing, Rochester, NY. http://ssrn.com/abstract=1559827 (last
accessed June 1, 2012).
Snook, S., N. Nohria, and R. Khurana (ed.). 2012. The Hand-
book for Teaching Leadership: Knowing, Doing, and Being. Sage
Publishing, Los Angeles, CA.

Jensen, M. C., K. L. Granger, and W. Erhard. 2010. A new Souba, W. 2011. Perspective: a new model of leadership perfor-
model of integrity: the missing factor of production keynote. mance in healthcare. Acad. Med. 86:1241–1252.

APPENDIX 8.2 Further Information

Dugan, R. 2012. From mach-20 glider to humming bird drone.

TED video. 25:02. Posted by TEDtalksDirector, March 27, 2012.
www.youtube.com/watch?feature=player_embedded&v=V
_LurJfOSiA#t=0s (last accessed on July 2, 2012).
Introduction
The Laboratory Workforce—Is There an
Approaching Crisis?
9 Employee Needs
Theories of Human Needs
John C. H. Steele, Jr.
Maslow’s Hierarchy of Needs • Alternative Theories
Meeting Employee Needs
Level 1 and 2 Needs • Level 3, 4, and 5 Needs •
Higher-Level Needs
The Role of Generational Differences
Characteristics of the Generations • Meeting the OBJECTIVES
Needs and Wants of the Four Generations
To understand theories of human needs
Summary
To apply these theories to the laboratory workplace
KEY POINTS
GLOSSARY
To determine if generational differences in employee needs exist
REFERENCES
APPENDIX

The good or healthy society would then be defined as one that permitted people’s
highest purposes to emerge by satisfying all their basic needs.
Abraham H. Maslow, Motivation and Personality

T
he healthy, well-functioning laboratory requires the satisfac-
tion of employees’ needs, both basic and higher-level, if they are to
reach their highest performance and the laboratory is to retain their
knowledge and skills. With a predicted crisis in the laboratory workforce (4, 6,
12) and the increasing need for good technical, problem-solving, and financial
skills, it is critical for laboratory and hospital administrators to successfully
recruit, train, and retain skilled workers. The author believes that an under-
standing of the expectations, hungers, and needs of employees can guide lead-
ers in this process.

The Laboratory Workforce—Is There

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch9
an Approaching Crisis?
The American Society for Clinical Pathology (ASCP) conducts an annual sur-
vey of wages and vacancy rates in U.S. clinical laboratories. The 2011 survey
(7) of 625 facilities and more than 17,000 positions found vacancy rates be-
tween 5.14 and 11.60% (Table 9.1). The survey showed that most nonsuper-
visory laboratory vacancies were being filled within 6 months of posting, but
17 to 27% took 6 to 12 months and 5 to 14% more than 1 year. The situation
was worse for filling supervisory and night-shift positions (unless a differ-
ential was offered) and in small and rural hospitals. Respondents attributed
difficulties to inadequate education and skills of applicants, better salaries and
benefits at competing laboratories, and lack of initiatives to attract and retain
suitable employees.

232
 CHAPTER 9. EMPLOYEE NEEDS 233

Table 9.1 2011 Vacancy rates by specialty for the authors place insufficient emphasis on appreciating the
clinical laboratories needs of the employees. Yet a commitment by an organiza-
Specialty Vacancy rate (%)a tion and by laboratory leadership to meeting those needs
Blood banking 10.3/18.6 to the extent possible is important in both the recruitment
Chemistry 8.22/11.6 and retention of employees. So let us now turn to a consid-
Cytology 2.67/18.55 eration of human needs.
Hematology 6.91/7.65
Histology 8.50/17.8
Immunology 5.56 Theories of Human Needs
Microbiology 5.59/11.8 Maslow’s Hierarchy of Needs
Phlebotomy 7.89/8.20
a
It is quite true that man lives by bread alone—when there
Where two percentages are shown, the first is for non-
supervisory staff and the second for supervisory staff.
is no bread. But what happens to man’s desires when there
is plenty of bread and when his belly is chronically filled?
At once other (and “higher”) needs emerge and these,
rather than physiological hungers, dominate the organism.
A major workforce concern is the so-called graying of
And when these in turn are satisfied, again new (and still
the laboratory staff coupled with the declining number “higher”) needs emerge and so on. This is what we mean
of training programs for clinical laboratory scientists and by saying that the basic human needs are organized into a
medical technologists, from 800 in 1970 to 222 in 2008 (5, hierarchy of relative prepotency.
10). Many current laboratory workers are nearing retire- Abraham H. Maslow
ment age and will take years of specialized knowledge and
experience with them when they leave. The ASCP’s presi- Abraham Maslow’s name is inextricably linked to the study
dent, Mark H. Stoler, reported in 2010 that the average age of human needs. His seminal works (15, 16) presented a
of the laboratory workforce was 50 years and increasing hierarchy of needs represented as a pyramid with four lev-
each year (www.ascp.org/Functional-Nav/BOC-Newsroom/ els of “deficiency needs” and a final top level of “growth
Archive-of-Workforce-Articles.html). It has been estimated needs” (Fig. 9.1). At the lowest level of the pyramid are
that 13% of the 2008 workforce will have retired by 2013 physiologic needs. These are those that are basic for survival
(2). An additional problem is high turnover rates, particu- such as air, water, food, shelter, and sleep. Once these are
larly among bench technical staff (2). met, the next level of the pyramid comprises safety needs:
The College of American Pathologists’ Practice Man- security of the individual and the family; a living place in a
agement Committee cited additional factors contributing safe, orderly environment; stable employment; and health
to a shortage of laboratory workers. These included lower insurance. When the individual feels secure, social needs
wages compared to other healthcare professions with simi- become more important and comprise the third level of the
lar educational requirements (3), stressful working condi- original five-level pyramid. These include love, affection,
tions, lack of career advancement opportunities, the risk of
infectious diseases, and concerns of medicolegal liability
(5). Additional factors include a sense of invisibility, per- Figure 9.1 Pyramid of Abraham Maslow’s original hierarchy of
ceived lack of respect, lack of flexible scheduling, and sig- human needs. doi:10.1128/9781555817282.ch9.f1
nificant competition for technologists from industry.
A number of suggestions have been made to address
what appears to many to be a looming crisis (4–6, 12).
These include increased visibility of a career in laboratory
medicine to middle and high school students; enhanced
recruiting efforts; better compensation and support for
training and education; more effective staffing models,
including targeting of nontraditional workers; more pro-
ductive work environments; the application of knowledge
management by the staff, including a greater role in physi-
cian consultation and process leadership; and more effec-
tive laboratory leadership.
There are hundreds of books and articles that describe
leadership and management principles and techniques,
even a Leadership for Dummies. But with a few exceptions,
234 MANAGERIAL LEADERSHIP
and a sense of belonging that can largely be met by family,
friends, and involvement in church and community activi-
ties. Work teams and informal groups also contribute to
fulfillment of these needs. The next level of the pyramid,
esteem needs, comes into play after the needs of the first
three levels are met. Here self-esteem, a sense of personal
worth and accomplishment, reputation, and recognition
by others are the primary needs. At the highest level of the
original hierarchy are what Maslow termed self-actualizing
needs. Maslow described self-actualization as follows:
What a man can be, he must be. This need we may call self-
actualization. . . . It refers to the desire for self-fulfillment,
namely, to the tendency for him to become actualized in
what he is potentially. This tendency might be phrased as
the desire to become more and more what one is, to be-
come everything that one is capable of becoming. (refer-
ence 15, p. 382)
Those at this level want personal growth and fulfillment
of their potential; their own opinion is more important to
them than the opinions of others. Ethical concerns, realis-
tic perceptions, spontaneity, problem-solving opportuni-
ties, creativity, and similar characteristics are all included
in this level. Individuals who reach this level often have
moments of awe and ecstasy—what Maslow termed “peak
experiences”—which provide inspiration, renewal, and
even transformation to the individual.
In later works Maslow added a sixth motivational level
of self-transcendence. At this new top level, an individual
moves to causes beyond the self. Needs at this level may
be met through service to others, commitment to a cause
such as social justice or religion, or devotion to an abstract
ideal such as art or music (13). Peak experiences were
moved to this level from the fifth level of self-actualization.
Later workers have expanded the levels of Maslow into
additional levels. The current hierarchy contains eight
levels. In this conceptualization, the fifth level is cogni-
tive needs such as knowledge and self-awareness and the
sixth level esthetic needs including beauty and form. Be-
yond this the individual emerges at the seventh level of
self-actualization and attains self-fulfillment through per-
sonal growth. The highest level is transcendence, where
the need is to help others reach their potential and obtain
self-actualization and transcendence for themselves—a
pay-it-forward arrangement of sorts. As individuals reach
the seventh and eighth levels, Maslow posited that they
would become wise and would be able to handle a variety
of situations.
George Norwood in 1999 suggested (11) that the in-
formation needs of individuals vary depending on their
level in the hierarchy—coping information for physiologic
needs, helping information for safety needs, enlightening
information for social needs, empowering information
for esteem needs, and edifying information for cognitive,
esthetic, and self-actualization needs. These differing in-
formation needs should be factored into plans to assist em-
ployees reach higher levels.
Alternative Theories
Maslow’s theory has been widely accepted, although sup-
porting evidence is sparse. Maslow himself appreciated
that not all individuals precisely follow the proposed hi-
erarchy and that they may be in more than one level at the
same time in different areas of their life. The few studies
that have been done in the field suggest alternative theo-
ries (11). William James proposed three levels of human
needs corresponding to Maslow levels 1 and 2, 3 and 4,
and spiritual, while Eugene Mathes discarded safety needs
and esteem needs from the original five levels, leaving only
physiologic, social, and self-actualization needs.
A different approach, also widely accepted, was taken by
Clayton Alderfer in 1972, building on earlier work by Gor-
don Allport that incorporated system theory concepts into
personality. Alderfer’s ERG theory has three categories (1).
Existence encompasses physiologic and biologic needs and
is centered on the self. Relatedness involves one’s relation-
ships with others and includes acceptance and mutual shar-
ing. The highest need level is growth and corresponds with
Maslow’s self-actualization needs. Others have melded these
competing theories into one that also divides each level into
introverted and extroverted personality types (11).
A number of other theories have been proposed (11).
One of the more interesting abandons the pyramid for a
nautilus (Fig. 9.2). Simon Hertnon’s theory of universal
human needs posits two types of need, survival and bet-
terment (9). Each type is divided into two individual needs
and two species needs, the first of which in each group
must be met before the second one can be satisfied. The use
of a nautilus suggests that as an individual moves through
the levels, he or she grows as a person. A ninth need, “to
understand the nature and purpose of human life,” sits out-
side the nautilus, presumably as the ultimate goal.
Meeting Employee Needs
Level 1 and 2 Needs
How do these needs apply in the workplace? Obviously em-
ployment must provide an adequate salary that enables an
employee to meet basic life needs. While the entry salary
may be deemed adequate to the employee, laboratory lead-
ers must work to ensure that it remains so. This requires
knowledge of prevailing salaries in the area and advocacy
for competitive as well as cost-of-living adjustments. With
increasing emphasis on hospital length of stay, the labora-
tory is being pressured to provide specialized tests around
the clock, so shift differentials must keep pace with the in-
creased staffing needed on “off-shifts” to provide justified
after-hours testing.

Figure 9.2 Simon Hertnon’s nautilus of universal human needs. doi:10.1128/9781555817282.ch9.f 2
The laboratory must provide a safe workplace to meet
the protection and security needs of employees. Crime
can occur anywhere, so access to laboratories should be
restricted, a requirement for Biosafety Level 2 and above
facilities. Lounges including restrooms and lockers should
be within the restricted area so that employees do not need
to enter public corridors during low-traffic times. Public
safety escorts should be available when this is necessary,
such as during after-hours shift changes. The potential
for internal threats must also be addressed through ergo-
nomic surveys and constant vigilance for an employee who
may be close to resorting to threatening or violent action.
In the past, stability and order, other second-level
needs, could almost be taken for granted, but in today’s
CHAPTER 9. EMPLOYEE NEEDS 235
world that is no longer the case. Hospitals and laboratories
merge, nonurgent testing can be outsourced to large refer-
ence laboratories, and good employees may be terminated
by reductions in force. This may lead employees to con-
clude that decisions are being made with no consideration
of the impact upon them. This naturally engenders anxi-
ety and a loss of loyalty, which can then adversely affect
employees’ commitment to their work. As Verlander and
Evans (18) put it:
The good business reasons for laboratory mergers and
acquisitions create turmoil and anxiety among employ-
ees. Such emotions cause a shift in employees’ perception
of the psychological contract they have with their em-
ployers, a downturn in motivation, and a corresponding
236 MANAGERIAL LEADERSHIP
psychological shift from “institutional security” to “self-
security.” When this shift occurs, laboratory profession-
als become more concerned about personal survival than
professional performance.
Administrators in healthcare need to be aware of this
shift, with the resulting possibility of diminished morale
and productivity, especially among younger employees,
and ensure that their mentoring (14) and retention (8)
strategies address these concerns.
Level 3, 4, and 5 Needs
Higher-level needs are less threatened by economic
changes. Teams and work groups can help meet the so-
cial needs of employees and should be utilized whenever
needed both to accomplish business goals and to meet
these needs. See chapter 18 in this text for guidance on
this. Workplace friendships can also allow employees to
fulfill these needs as long as they do not violate corporate
policies or interfere with productivity.
Meeting the esteem needs of employees requires man-
agers and leaders, including pathologists, to possess and
practice emotional intelligence, a topic made popular by
Daniel Goleman and covered in chapter 10. Employees at
this level place importance upon a sense of professional
accomplishment and upon recognition of their achieve-
ments. The astute manager will help fulfill these needs by
“praising in public,” which does not always come easily.
It is not uncommon for employees to receive feedback
only when something goes wrong, but to hear nothing
for the vast majority of times when things go well. The
managerial approach that “no news is good news” does
not satisfy these esteem needs. When there is a noncon-
forming event, the manager must appreciate that system
issues underlie the vast majority of these and that a root
cause analysis should be performed before attributing
the cause to an employee; that is, don’t practice “Name,
Blame, and Shame.” When criticism is necessary, it should
be done constructively and privately and in a manner
that ensures successful bidirectional communication. The
manager can also recognize accomplishments by thank-
you notes and by the judicious assignment of additional
responsibilities and emphasis on career and professional
development during evaluations and other times. Sending
personal cards to the employee’s home for birthdays and
other significant life events can promote the feeling of be-
ing appreciated by superiors in the workplace. All of these
actions will help satisfy the status and reputation needs of
the employee.
The cognitive needs of employees in the workplace
are best met by providing opportunities to improve their
knowledge. Continuing education is required by accred-
iting organizations and bodies and can include labo-
ratory rounds; formal lectures and group discussions;
vendor-sponsored presentations and workshops; webinars
and audio conferences from professional organizations;
and attendance at local, regional, and national professional
meetings. Unfortunately, the funding for such activities is
often the first to face the budget ax, so it is necessary to be
diligent in identifying low- or no-cost alternatives and to
advocate for more costly alternatives when needed to ad-
dress the identified knowledge deficits of the staff.
Higher-Level Needs
Most of an individual’s higher-level needs are internally
driven and thus can only be met by employees themselves.
However, there are opportunities for the laboratory manager
to contribute. He or she can promote an attractive workplace
through reducing clutter, encouraging cleanliness and order,
involving staff in decisions about paint colors and carpeting,
etc., to address their esthetic needs. Self-actualization needs
are best met by providing opportunities for professional
growth, be it special projects, new responsibilities such as
maintaining procedure manuals, or promotion. Finally, us-
ing senior employees to mentor others may help meet the
transcendence needs of these future leaders.
An excellent case study that provides a model for ac-
complishing many of the needs at all levels discussed
above is provided by Garletts (8). Garletts’ group designed
an entry-level career ladder for the specimen management
and referral section of their commercial reference labora-
tory, piloted it, and then fully implemented it. It provided
job enrichment opportunities to employees and held them
accountable. This article and others in the November-
December 2002 issue of Clinical Leadership & Manage-
ment Review, titled “Avoiding Crisis: Meeting Laboratory
Staffing Challenges of the 21st Century,” provide many ex-
cellent ideas for meeting employee needs and thus provid-
ing motivation and enhancing retention.
The Role of Generational Differences
Characteristics of the Generations
Four social generations have been described and general
characteristics attributed to each group. These have the
potential of adding complexity and potential conflict in
the workplace, and the astute manager must appreciate
intergenerational differences. These are summarized here
based upon references 14 and 17 and the resources listed
in Appendix 9.1.
Current workplace generations are divided into four
groups based on birth year, with each group having had
certain formative influences that helped to determine their
attributes. Traditionalists, born between 1922 and 1945,
are those workers from “the Greatest Generation,” who
lived through the Great Depression, the Second World
War, and the Korean War. Most of these have retired from
the workplace, although some continue to work into their

70s and beyond. They are self-reliant and disciplined from
having lived through the hardships of these times. The so-
called Baby Boomers were born between 1946 and about
1964. (Different authorities use different years to define
this and later generations.) They typically fill leadership
roles in organizations. Their style was influenced by liv-
ing through the turbulence of the Vietnam War, the civil
rights struggles, the assassinations of John F. Kennedy and
Martin Luther King Jr., Watergate, and the sexual revolu-
tion, leading them to question authority and social insti-
tutions. At the same time, many Boomers grew up in a
prosperous economy with two-parent families, only one
of whom worked; this led to a sense of entitlement. Those
born between 1965 and about 1981 are Generation X.
They grew up in world of economic uncertainty, one filled
with rapid change and without solid traditions. Because
of this and other societal trends, their parents often either
both worked or were divorced. This made these latchkey
children resilient and independent but also cynical; they
received support from small groups of friends and men-
tors. Those of Generation Y, also known as the Millenni-
als, grew up in a time of marked advances in technology,
the Internet, and 24/7 connectivity, yet one also marked
by economic uncertainty. Most were in day care; many
grew up in merged families; and all experienced 9/11 and
were exposed to school shootings and corporate scandals
in the news. As a result, they are also cynical but at the
same time are confident and social, and having fun is im-
portant to them.
Table 9.2 provides a summary of the behaviors attrib-
uted to each generation; it is important to recognize that
there is considerable variation of these behaviors based in
part on education, employment, and the like. The strengths
each generation brings to the workplace are also listed,
along with the attributes that may result in difficulties
in their employment. Their work styles, communication
preferences, comfort level with technology, and cultural
preferences and values are summarized in Table 9.3. This
information provides managers with general principles
upon which to effectively create and maintain a multigen-
erational workplace.
Meeting the Needs and Wants of
the Four Generations
The physiologic and safety needs of the four generations
are essentially the same, with the possible exception of the
physical arrangement of the workplace, where the more in-
dependent generations tend to want their own workspace
while the Millennials prefer group workspaces. For the
higher-level needs and wants of the different generations,
the manager needs to maximize use of the strengths of each
while minimizing their weaknesses in order both to satisfy
them and to achieve the goals of the organization. Based
on Katheryn Inglis’s audio conference (see Appendix 9.1),
CHAPTER 9. EMPLOYEE NEEDS 237
this can best be done by identifying the opportunities that
emerged from her SWOT (strengths, weaknesses, oppor-
tunities, and weaknesses) analysis.
• The Traditionalists should be encouraged to mentor
younger generations but also to be mentored by them,
particularly in technology and “thinking outside the
box.” It is important for them and the Boomers to seek
out younger workers who have good technical skills
and a desire to learn new ones and the ability to incor-
porate their new knowledge into their work processes.
Mentors must stay neutral while being honest in giv-
ing feedback. Guidelines for mentoring Generation X
include providing knowledge of the operational struc-
ture of the enterprise, setting clear expectations and
assignments with enforced deadlines, explaining prog-
ress measures, providing ongoing feedback, encourag-
ing initiative and creativity, and then leaving them to
fulfill assignments in their own way. Mentoring the
Millennials requires a different, more formal ap-
proach, with structured meetings and challenges. Mil-
lennials should be guided with clear, detailed,
step-by-step instructions and directed to needed re-
sources. Whenever appropriate, they should be men-
tored in groups so that they can act as one another’s
peer mentors and resources.
• The Boomers should also participate in two-way men-
toring as described for the Traditionalists. Addition-
ally, they should be utilized as consultants.
• The Gen Xers should be encouraged to find a mentor,
someone they respect and admire. They can find satis-
faction by involvement in process improvements, espe-
cially those that eliminate waste, and by spearheading
the introduction of new technologies.
• The Millennials should also be encouraged to identify
a mentor. Their fresh ideas are ideal for involving them
in team projects.
For employees to excel in their position and thus meet
their social, esteem, and self-actualization needs, genera-
tional differences must be considered when designing their
training and developing retention policies. The platinum
rule of “Treat others as they want to be treated” applies
here. Sarah Vining, in her analysis “Understanding gen-
erational differences: the key to attracting, motivating and
retaining your workforce” (see Appendix 9.1), provides the
example of a Millennial assigned a multiyear project. To
maximize the likelihood of success, the project should be
broken into smaller segments, work assigned to a group,
and frequent feedback and rewards for participation given.
The above provides managers with an introduction to
meeting the needs of a multigenerational workforce. The
interested reader should refer to the sources listed earlier
in this section.
238 MANAGERIAL LEADERSHIP
Table 9.2 Behaviors, strengths, and struggles of the workplace generationsa
Generation Organizational behaviors Workplace strengths
Traditionalists Embody a traditional work ethic Great knowledge
Typically disciplined, loyal team play- Hard-working
ers who work within the system Stable
Respectful of authority, patient, and Loyal
follow the rules Thorough
Vast knowledge legacy to share Detail-oriented
Sense of obligation Focused
Observe fiscal restraint; risk-averse Emotionally mature
Strong commitment to teamwork
and collaboration
Strong communication skills
Baby Boomers Career-oriented Loyal to organization
Tend to be optimistic, ambitious, Have a team perspective
competitive, and focused on their Consensus builders promoting
personal accomplishments group decision making
Believe in working long hours (“live Knowledgeable and experienced
to work”) and expect younger genera- Efficient
tions to do so as the path to success
Service- and quality-oriented
Comfortable in the workplace culture
they created Confident task completers
Accepters of diversity
Effectors of change
Mentors
Generation Xers Redefined loyalty, having seen Well educated
their parents laid off or facing job Independent
insecurity Value learning and development
Committed to their work and the of skills
people they work with rather than the Practical problem solvers
company
Comfortable with change and
Skeptical risk takers who want fun in competition
the workplace
Creative risk takers
Seek more work-life balance (“work
to live”) Techno-literate
Willing to challenge the status quo
Better team workers than
Baby Boomers despite being
individualistic
Value lean and six-sigma ap-
proaches to minimize waste/non-
value-added activities
Millennials Typically team-oriented, working well Goal-oriented
in groups as opposed to individual Optimistic
endeavors Able to multitask
Expect to work hard Tenacious
Good at multitasking Adaptable to change
Seek balanced life Technologically savvy
Highly educated Driven to learn and grow
Team-oriented
Embracers of diversity
Value training
Entrepreneurial
Tolerate failure well
a
Adapted with permission from Birkman International, 2009; Tolbize, 2008; and Inglis, 2012 (see Appendix 9.1).
Workplace struggles
Reticent when they disagree
Respect for diversity
Reluctant to buck the system
Uncomfortable with conflict
and ambiguity
Reluctant to give feedback
Not as comfortable with
technology
Prefer formality
Need respect
Nontraditional work styles of
later generations
Technology replacing human
interaction
Requiring recognition
Sharing praise and reward
Balancing work and family
Uncomfortable with conflict;
reluctant to go against peers
Career development
Independence; prefer working
alone
Conflict resolutions and office
politics
Multigenerational team projects
Balancing work and family
Skeptical and distrustful of
authority
Not overly loyal to employer
Want to be challenged and pro-
vided feedback
Dislike meetings
Independent work
Respectful communication
Functional literacy
Need supervision and structure,
especially with people issues
Reject the concept of “paying
dues”; expect input immediately
Perceived as demanding and
challenging the status quo
Realistic goals

Table 9.3 Generational work, communication, and technology stylesa
Generation Work style
Traditionalists Want a fair and consistent
approach to workplace with
clear direction, expectations,
and long-term goals
Have strong work ethic and
discipline
Want to be valued for age and
experience
Can be a stabilizing influence,
especially when teamed with
Gen-Y employees
Hesitant to disagree and dis-
like conflict
Baby Boomers Tend to have strong work
ethic, good communication
skills, and emotional maturity
Strong team players, insisting
on being involved in deci-
sions and influencing the di-
rection of their organizations
Uncomfortable with conflict
and reluctant to go against
peers
May put process ahead of
results
Generation Xers Prefer to work independently
and are at their best when
given a goal but not told how
to accomplish it
Committed to work and the
people they work with rather
than their company
Skeptical risk takers who
want work to be fun
Seek more work-life balance
Millennials Able to multitask and expect
to be able to social network
at work
Prefer working in teams but
may need supervision and
structure
Reject concept of “paying
dues”
Expect input immediately
Want flexibility to work
where and when they want so
they can pursue their outside
interests
a
Adapted with permission from Birkman International, 2009; Tolbize, 2008; and Inglis, 2012 (see Appendix 9.1).
Communication
preferences
Prefer more formal, profes-
sional language
Messages should relate to
company history and long-
term goals
Words and tone of voice
should be clear, respectful,
and grammatically correct
with no slang or profanity
Preferred style is memos,
letters, and personal notes
Conversations are better
over breaks or meals as they
tend to see relationships
and business results as
intertwined
Ask about mutual interests
such as family
Get one another’s input
and link the message to the
team or individual vision,
mission, and values
Preferred style is phone
calls and personal
interaction
Prefer direct and straight-
forward communication
Because they don’t want
their time wasted, may
seem abrupt
Intolerant of business-
speak; rather want clear
statement of what is needed
and when
Preferred style is voice mail
or e-mail
Want positivity
Prefer text messages or
face-to-face meetings
Want message tied to their
personal or team goals
Intolerant of condescen-
sion, cynicism, and sarcasm
Preferred style is instant
messages, blogs, text mes-
sages, and e-mails
CHAPTER 9. EMPLOYEE NEEDS 239
Cultural preferences
Technology and values
Many are not comfortable Tend to be conservative in
with technology but are dress and language and in
willing to learn their approach to work
View work as a privilege
and believe in a respectful
workplace
Patriotic; grew up as part
of the American Dream
May struggle with respect
for diversity
Worried that technol- Tend to view their value
ogy is replacing human as a person through their
interaction work
Worried they are being Take democratic ap-
left behind proach to work and value
consensus
Prefer a more personal
approach to the workplace
than Traditionalists
May struggle with nontra-
ditional working styles of
younger generations, but
many are now interested
in more work-life balance
Techno-literate Independent, self-reliant,
Worried about being and willing to challenge
outpaced by younger the status quo
coworkers May seem reluctant to
give their loyalty
Adaptable and thrive in
midst of chaos and change
Enjoy achieving measur-
able results and streamlin-
ing systems and processes
Technologically savvy; Very community-oriented
sometimes impatient with Value diversity
those who aren’t See the world as global,
connected, and 24/7
Achievement-oriented
and confident, which may
appear to be cockiness
Informal style may rankle
some members of older
generations
240 MANAGERIAL LEADERSHIP
Summary
People are complex. Everyone develops values and a view
of the world from many sources—family, culture, religion,
education, socioeconomic level, and others. Thus, each
person is unique. But they all have similar needs, although
their relative importance may vary from one individual to
another. Leaders need to be familiar with the needs that
have been identified and to appreciate that helping to meet
those needs in the workplace can be instrumental in at-
tracting and retaining employees. At the same time, they
must consider the generational differences that should
guide their actions in a multigenerational workplace such
as the laboratory.
KEY POINTS
■ A workforce crisis in the laboratory has been predicted
by several experts due to the graying of the staff and
difficulties in attracting new and retaining older staff.
■ These experts have suggested several ways to address
this problem, but implementation has been fragmented
at best.
■ Abraham Maslow developed a hierarchy of hu-
man needs. While there is little evidence supporting
Maslow’s hierarchy or competing theories, it provides a
useful framework for considering what laboratory em-
ployees need while at work.
■ Consolidation in healthcare, including laboratories, has
altered employees’ psychological contract with their
employers. This can adversely affect their performance.
■ Leaders’ emotional intelligence and commitment to
continuing education, orderly workplaces, and profes-
sional development are increasingly important to retain
employees.
■ The attributes, preferences, and motivators of the dif-
ferent generations must be appreciated and used to ad-
vantage to achieve the goals of the laboratory.
GLOSSARY
Alderfer’s ERG theory A human needs theory based on exis-
tence needs, relatedness needs, and growth needs.
Baby Boomers The generation of individuals born between
1946 and the early 1960s.
Generation X The generation of individuals born between the
mid-1960s (usually 1965) and the early 1980s.
Hertnon’s theory of universal human needs A theory that pos-
its survival and betterment needs, with each divided into two
individual needs and two species needs. Conceptually, one must
meet the individual needs before species needs can be satisfied.
Maslow’s hierarchy of needs A popular theory that ranks types
of human needs beginning with deficiency needs such as sleep,
security, sense of belonging, and esteem, often depicted as repre-
senting the bases of a pyramid with higher-level growth needs
above. Conceptually, one must satisfy the bottom-level needs be-
fore progressing to the next level of needs.
Millennials Also known as Generation Yers, this generation
contains individuals born between the early 1980s and the early
2000s.
SWOT analysis A study to identify the strengths, weaknesses,
opportunities, and threats of a current or proposed future state of
affairs.
Traditionalists The generation, largely retired, of those born be-
tween 1922 and 1945.
REFERENCES
1. Alderfer, C. P. 1972. Existence, Relatedness, and Growth. Free
Press, New York, NY.
2. Bennett, A., N. N. Thompson, B. Holladay, A. Bugbee, and C. A.
Steward. 2009. ASCP Wage and Vacancy Survey of U.S. medical
laboratories. LabMedicine 40:133–141.
3. Bureau of Labor Statistics, U.S. Department of Labor. 2012.
Medical and clinical laboratory technologists and technicians. Oc-
cupational Outlook Handbook, 2012-13 Edition. Bureau of Labor
Statistics, Washington, DC. www.bls.gov/ooh/healthcare/medical
-and-clinical-laboratory-technologists-and-technicians.htm (last
accessed May 17, 2012).
4. Cortelyou-Ward, K., B. Ramirez, and T. Rotarius. 2011. The
laboratory workforce shortage: a managerial perspective. Healthcare
Manag. (Frederick) 30:148–155.
5. Eckert, E. R. 2006. College of American Pathologists’ House of
Delegates Resolution F-2004-03. College of American Pathologists,
Northfield, IL. www.cap.org/apps/docs/house_of_delegates/reference/
laboratory_personnel_shortage.doc (last accessed May 17, 2012).
6. Epner, P. L. 2007. Laboratory workforce shortage: implications for
the future. Clin. Leadersh. Manag. Rev. 21:E1–E7.
7. Garcia, E., A. Bennett, M. DeFranco, M. Schulze, P. A. Tanabe,
J. Hampshire, F. Rodriguez, J. Edwards, and H. Lee. 2011. Amer-
ican Society for Clinical Pathology’s 2011 Vacancy Survey of U.S.
clinical laboratories. LabMedicine 42:199–206.
8. Garletts, J. A. 2002. Using career ladders to motivate and retain
employees: an implementation success story. Clin. Leadersh. Manag.
Rev. 16:380–385.
9. Hertnon, S. Simon Hertnon’s theory of universal human needs.
www.nakedize.com/universal-human-needs.cfm (last accessed Oc-
tober 8, 2012).
10. Hilborne, L. 2008. The other big workforce shortage. As labo-
ratory technology wanes as a career choice, a staffing crisis grows.
Mod. Healthc. 38:23.
11. Huitt, W. 2007. Maslow’s hierarchy of needs. Educational Psy-
chology Interactive, Valdosta State University, Valdosta, GA. www
.edpsycinteractive.org/topics/conation/maslow.html (last accessed
October 8, 2012).
12. Kaplan, R.L., and T. E. Burgess. 2010. The impending crisis.
J. Microbiol. Biol. Educ. 11:140–143.

13. Koltko-Rivera, M. E. 2006. Rediscovering the later version of
Maslow’s hierarchy of needs: self-transcendence and opportunities
for theory, research, and unification. Rev. Gen. Psychol. 10:302–317.
14. Laudicina, R. J. 2001. Mentoring for retention and advancement
in the multigenerational clinical laboratory. Clin. Lab. Sci. 14:48–52.
15. Maslow, A. H. 1943. A theory of human motivation. Psychol.
Rev. 50:370–396.
CHAPTER 9. EMPLOYEE NEEDS 241
16. Maslow, A. H. 1954. Motivation and Personality. Harper, New
York, NY.
17. Smola, K. W., and C. D. Sutton. 2002. Generational differences:
revisiting generational work values for the new millennium. J. Or-
gan. Behav. 23:363–382.
18. Verlander, E. G., and M. R. Evans. 2007. Strategies for improv-
ing employee retention. Clin. Leadersh. Manag. Rev. 21:E4.
242
APPENDIX 9.1 Resources on Generational Differences in the Workplace
Birkman International. 2009. How do generational differences
impact organizations and teams? Birkman International, Hous-
ton, TX. www.birkman.com/news/BMI_GenerationsPart1.pdf
and www.birkman.com/news/BMI_GenerationsPart2.pdf (last
accessed October 1, 2012).
Inglis, K. 2012. Managing generational differences in the work-
place: blast your career into the future! Mayo Medical Laborato-
ries Outreach Forum audio conference. Presented in February
2012.
Inglis, K., and J. Breh. 2010. Blasting lab managers into the fu-
ture! CLMA ThinkLab ’10. Presented March 5, 2010. http://c
.ymcdn.com/sites/www.clma.org/resource/resmgr/Professional
_Development_-_Past_ThinkLabs/503_Kathy_Inglis___Julliane
.pdf (last accessed September 28, 2012).
Tolbize, A. 2008. Generational differences in the workplace. Re-
search and Training Center on Community Living, University
of Minnesota. Presented August 16, 2008. http://rtc.umn.edu/
docs/2_18_Gen_diff_workplace.pdf (last accessed September
28, 2012).
Vining, S. 2011. Understanding generational differences: the key
to attracting, motivating and retaining your workforce. National
Conference Center conference. www.conferencecenter.com/
media/docs/pdf/GenerationalDifferencesWP.pdf (last accessed
September 28, 2012).
What Is Motivation?
Knowledge of Self
10
Creating the Vision • Humility • Basic Needs
Knowing What Others See in You
Factors of Motivation • The Right People Need the
Right Leader • Actually Fix the Problems
Knowing the Emotions of Leading
Emotional Intelligence • The Need for Purpose •
Human Motivation Theory
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch10
Motivating through
Intelligent Leadership
Christa Pardue
OBJECTIVES
To consider how the natural internal motivation in people can be sparked by
effective leadership
To accept that knowledge of one’s self as a leader will provide an understanding
of the needs of others
To illustrate through real-life stories of the laboratory how the basic principles
of motivation can be applied
To energize leaders to lead
Leadership is much less about what you do, and much more about who you are.
Jim Collins, Foreword, Hesselbein on Leadership
What Is Motivation?
Why did I want to take on another project like writing about laboratory lead-
ership when I have more things to do in my life than I could possibly ever get
done? For the same reason that I agree to make cupcakes for my daughter’s
third-grade class when I know that I will not be flying back into town until
8:00 the evening before. For me, it’s because of my strong passion and interest,
or motivation, for these two aspects of my life. It’s that same strong motivation
that drives me toward my professional obligations. It’s the striving to be a pro-
ductive member of the profession and the need to promote the profession of
clinical laboratory medicine, but even more it’s the desire to add to society by
supporting the healthcare needed by our community. Ultimately, for health-
care leaders, the question becomes, how do we continuously ignite this type
of motivation in the people around us whom we depend on most to provide
this care? I would state that the answer lies in the leader’s intimate knowledge
of his or her self.
The goal of this chapter is to take the basic theories of motivation and ap-
ply them to real-life settings in the laboratory by relating some experiences
that I have had during my tenure in the profession. Everyone can read these
theories on their own, but often it’s the real-life application of the theories
that challenges us. It’s my intent to make these management theories real and
applicable to laboratorians. If my limited experiences can help, I welcome you
to them.
243
244 MANAGERIAL LEADERSHIP

Knowledge of Self Humility

Creating the Vision Moving to a more obvious concept of leadership and its im-
pact on motivation, it must be recognized that as a leader,
Understanding one’s self as a leader will provide clarity in
it is your own behavior that affects others. “Model the be-
communicating one’s purpose or direction and the reason
haviors you hope to see” (reference 10, p. 1). Consider those
why that direction is appropriate. Leaders must possess
days when productivity, regulations, and compliance chal-
the ability to define a vision and design a path to achieve
lenge your own motivation to keep trying. I know that I can
that vision. Knowledge of why you as the leader defined
sometimes get into a “rut” or emotional low spot when it
the vision in the first place is the same knowledge that will
seems that everything is impossible. I remember that with
motivate others to follow it. I think of the time when my
one of our first productivity challenges my reaction was
administrator sent me an e-mail asking me how much a
not positive. I remember saying things like “This is impos-
particular point-of-care test cost. I hesitated to answer, as-
sible,” “We can’t do this,” and “We already benchmark as
suming that the next question was going to be “Can you
one of the most efficient laboratories,” and it was amazing
bring it into our emergency department?” I answered
how my reactions immediately formed the opinions and
with all kinds of reasons why we didn’t want to do that,
beliefs of the managers and staff who reported to me. I can
citing coefficients of variation, training, and costs. I took
still remember the way their faces dropped when I looked
the whole day designing the perfect rebuttal e-mail. I later
up from that productivity report in my hand. They were
found out that he had actually asked the question because
completely fueled to fight this battle beside me and aware
he was demonstrating the costs our laboratory had avoided
that arguing the obvious was not the answer. My emotional
by maintaining exceptional turnaround times with the
reaction had immediately created a negative perspective to-
laboratory-based test and therefore preventing the need
ward this challenge, and now how would I take this back?
to bring in this point-of-care test. My original mistaken
How, at this point, would I motivate these folks I depended
belief in his motive prevented me from fully buying into
on most to accept this challenge and conquer it?
his question. Once I realized his purpose, I was motivated
In considering the leadership principles conveyed by
to give him more data than he needed. As it turned out, he
Jim Collins in his article titled “Level 5 Leadership: the Tri-
was trying to brag about our team; I’ll take that any time
umph of Humility and Fierce Resolve” (1), I knew at this
I get a chance. This example may seem somewhat superfi-
point the best answer would be for me to admit to them that
cial; let me move toward a deeper concept of knowing my
I had reacted emotionally rather than responded appropri-
own motives for creating a vision.
ately to the challenge. As Collins describes leadership in
Frequently one vision is a stepping-stone to another
this article, it is clear that once a leader has accomplished
goal. Some years back, like many laboratories, our labo-
all of the other basic leadership skills, a leader also needs
ratory underwent a total process flow transformation us-
to know when to be humble. It’s important to acknowledge
ing the lean concepts. The intent was to produce rapid
to those you lead that you too can make mistakes and that
turnaround times for the emergency department. With
you too need them to be understanding and accepting of
this project the laboratory did align the turnaround times
the human side of their leader. It is also through your ac-
within the expected goal, but consider the advantage to
ceptance of your imperfections that your team will learn
the now more global picture for those who have already
that it is appropriate to be humble and recognize weak-
experienced some form of adaptation to more efficient
ness in themselves, with a personal motivation to grow and
methods. As stated by the U.S. Department of Health and
improve their own faults. This will set the example to be
Human Services, “Pay for Performance (P4P) refers to fi-
motivated to improve one’s own performance.
nancial incentives that reward providers for the achieve-
ment of a range of payer objectives, including delivery
efficiencies, submission of data and measures to payer, and Basic Needs
improved quality and patient safety” (11). Any previously Looking at motivation in terms of Maslow’s hierarchy of
accomplished efficiency effort has provided a head start needs, as illustrated in the book titled Maslow on Man-
toward meeting P4P requirements. This vision ultimately agement (8), leaders must consider how they themselves
provided a stronger position for the organization when fall under the requirements for fulfilling their own basic
weathering the storm of healthcare reform. As leaders, needs. “It’s easy to get so wrapped up in building the com-
laboratory managers must ultimately know the purpose of pany that you lose sight of what’s really important in your
the vision that they design and continuously refresh the life and why you have your company in the first place” (ref-
communications about that purpose. For our laboratory, erence 2, p. 1). Leaders often put too much of themselves
team knowledge of the total impact has continued the mo- into their job and do little for themselves or their home life.
tivation to sustain the lean principles and maintain the ef- This will cause a lack of compassion for the basic needs of
ficiencies gained by the process changes. the people around you. Sustaining a reasonable life outside
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP
of work will help the leader to understand the needs of the
staff. I can remember just recently what it felt like to see my
son play t-ball for the first time. It gave me chill bumps to
think that my baby was becoming a big boy and that I was
there to see it. It’s this very realization that allows me to see
why my staff ask for time off to coach little league, or prefer
not to work overtime too often, or would like to know their
schedules in advance. It’s so that they can plan to attend the
things in their life that mean this much to them. Our labo-
ratory has taken a stance in the past few years that “if at all
possible,” we will grant all time-off requests. The staff un-
derstood that vacation requests were no longer a competi-
tion, but a collaboration. They realized that if they helped
us to make this happen, time-off requests would always be
granted even for themselves. It was often a struggle, but we
worked together and went 6 years before we had to deny a
request for time off due to inability to find a way to cover
the work area. Because of this, call-ins are very rare and
the fear of rejected vacation requests is no longer a worry
among the team. It was a simple understanding of how the
fulfillment of my needs for both work and life motivated
me that allowed me to see what would motivate the people
around me.
Knowing What Others See in You
Factors of Motivation
Based on the theories of motivation described by Fred-
erick Herzberg, motivation can be created by a desire for
achievement, recognition, or accomplishment; increased
responsibility; opportunity for growth and development;
or creative and challenging work. I relate these needs back
to goal setting. If people have reasonable and obtainable
goals and are enabled to accomplish them, they have the
potential to achieve the factors described by Herzberg. An
effective leader will collaboratively set goals with those
involved in the work based on the vision of the organiza-
tion and then enable those people to use their abilities to
accomplish the goal. One of the factors of motivation the-
ory is that motivation is driven by accomplishment and
recognition. Last year our laboratory designed a type of
achievement award that is sort of a Most Valuable Player
award for the year. We hold a recognition ceremony dur-
ing National Medical Laboratory Professionals Week
where we recognize the winner of this award. It is based
on the staff member’s achievements over the past year,
but more importantly, it’s based on the ability of the staff
member to design and implement a process, technique,
or technology that will meet their goal. “Motivation to
contribute has to be matched with ability to contribute”
(reference 12, p. 1). Again, a leader must recognize that
it is important to assist in setting the goal but also to en-
able the person to achieve the goal using methods that he
245
or she designs. Enable people to achieve, accomplish, and
grow, and then recognize the achievement.
The Right People Need the Right Leader
One of the strongest lessons I have learned as a labora-
tory manager is that having the wrong people in place will
greatly affect the motivation of those around them. “You
de-motivate people if you have the wrong people, because
there’s nothing that the right people hate more than having to
carry the weight of people who aren’t carrying their weight”
(reference 2, p. 2). From the standpoint of the leader, this
is demonstrated in a leader’s ability to hold everyone to the
same level of expectations. Most importantly, leaders must
hold themselves to the same or greater level of expectations.
One of my first managers told me, “Never ask anyone to do
something that you yourself wouldn’t do.” Personally, I find
it is important to maintain my skills as a bench technolo-
gist, and I encourage all of the laboratory managers who
report to me to keep abreast of the bench-level work. Not
only does it allow me to make better-informed decisions,
it also shows our team that we are all in this together. Even
though they joke with me and say I “look funny in a lab
coat,” when I work on the bench, it shows my commitment
to the vision and my diligence to achieve the goal. Leaders
who demonstrate a base competence or understanding for
the front-line work will be respected and will be effective at
motivating the people around them.
Thinking of the day that one of our flow cytometry tech-
nologists called in sick, I remember when my bench experi-
ence worked out for our laboratory. This was a day when the
two other trained flow cytometry technologists were also not
available to come in for very serious reasons. Being a flow
cytometry technologist myself, I remember saying, “Well, it
looks like it’s me today.” I grabbed a lab coat and worked the
entire day back on the bench. Now, a lot of managers have
done that, but the point of this story is found in the con-
versation that occurred at the end of that day. One of our
technologists came to me to say, “Thank you. Today, it wasn’t
about the work that you did but about the commitment. You
showed us all that you are in it until the end. It looked like
everybody worked harder today.” It was significant to me that
they actually noticed that they were working harder.
Actually Fix the Problems
Have you ever heard, “It doesn’t matter what I say; they
never fix anything”? Our hospital promotes the practice
of leader rounding. I have been doing this for many years,
and I remember the first few times that I spoke with some
particular staff members. The answer was always that ev-
erything was fine. The more that I would pursue their true
opinion, the more I was told that it didn’t matter. It took
some time for me to prove that what they had experienced
in the past was not going to remain true. I can think of one
246 MANAGERIAL LEADERSHIP
issue in particular that we dealt with years back. We were
failing to call some critical results. The further we investi-
gated it, the more we heard from our staff. We soon real-
ized that the reason we were missing them was that half
of the critical limits were set as prompts in our Labora-
tory Information System (LIS) and the other half were not.
We were depending on our extremely busy technologists
to know when a critical result came over their LIS screen
or to check a manual chart for each result, and worse yet,
they only had to do that half of the time. I promised them
that we would fix that and we did. We spent the time to
get all critical values in our LIS. It was relatively easy fix
that had a major impact on our patients and staff. We were
able to guarantee our technologists that if a result fell into
the critical range, the LIS would always prompt them. We
quickly got to a 100% critical call rate and have sustained
that for years now. Once the technologists realized that
we were serious about fixing problems and making their
work easier, they started sharing all of the “frustraters” in
their job. We took them all seriously and fixed everything
that we could, and most importantly, we explained why we
couldn’t fix the remaining problems immediately but we
also pursued new opportunities to keep making our ser-
vice better with time. Because of a few easy fixes, the team
members seemed to be reinvigorated and willing to share
their ideas on how to improve the laboratory and were no
longer content to accept the environment they had.
Knowing the Emotions of Leading
Emotional Intelligence
The ability to consider emotions and feelings to enhance
thought, also known as emotional intelligence, as described
in the theories of Daniel Goleman in both his book titled
Emotional Intelligence and the article titled “Leadership
that Gets Results” (5, 6), is widely considered in leadership
training. In the book titled Leadership in Healthcare: Val-
ues at the Top, Carson Dye discusses how healthcare lead-
ers must recognize their own values in order to understand
their own behavior and thoughts. Healthcare is a demand-
ing field. With pressures to meet productivity standards,
cut budgets, and improve quality, every healthcare profes-
sional is feeling the increase in stress. This is best stated by
Brenda Freshman and Louis Rubino in their article titled
“Emotional Intelligence: a Core Competency for Health-
care Administrators”: “Health Administrators must contend
with providing quality service to their customers during a
period of limited fiscal and human resources” (reference 4,
p. 2). As leaders in laboratory medicine, we must recognize
that the pressure of meeting these tighter expectations car-
ries over all levels in the department. In the past year, I have
seen more technologists reach their capacity for stress over-
load. As an example, at one point we had been looking for
an evening-shift technologist for nearly 10 months. I was
so bogged down in setting up interviews, trying to recruit,
and talking with anyone who might have a lead that I failed
to “look up” and notice the folks who were getting the work
done with a reduced staff. They were getting it done, but as
the months went by, they were getting worn and tired. They
were covering multiple shifts and extra weekends to make
up the difference, and while I was continuously working to
try and fix their problem, I had not taken the time to reas-
sure them that I was working on it. They needed to know
that I recognized how much they were giving in order to
get the work done. In this case, I let the stress of finding
someone block me from taking the few minutes to care for
our folks who were trying so hard.
Freshman and Rubino also point out that many health-
care administrators have a “misconception that the com-
passion that drew them to the industry will serve them
well as they lead their organizations” (reference 4, p. 5).
Compassion to care for the physical well-being of a patient
does not always bring compassion or the realization for
the need for compassion for those who are not patients.
When it comes to our coworkers, we would always care
for them when they are sick but we don’t always recognize
that care goes beyond their sick days and into every inter-
action that we have with them. Sometimes we are so busy
caring for our patients that we forget we are all customers
of each other. What good have we brought if while heal-
ing one person we hurt another. With that ending, we are
still a person down. We need to learn to heal everyone
we come in contact with. One of the five components of
emotional intelligence, demonstrated in Fig. 10.1, is self-
regulation, or the ability to control one’s self either by self-
reflection, by impulse control, or by changing as needed. I
recently received a phone call, as a result of which I didn’t
get what I was asking for and was angry about it. I recog-
nized that being angry wouldn’t change the caller’s mind,
but I knew that it was an emotion that I had to experience
Figure 10.1 The onion of emotional intelligence.
doi:10.1128/9781555817282.ch10.f 1
Self Management
Emotional
Understanding
Personal
Leadership
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP
in order to get over it. I decided that I would allow myself
to be silently angry for a couple of hours but then I had to
get over it, as no one wins every battle. I have seen where
others would react differently and proclaim a full-out war
every time they lost a battle. I believe it is through self-
regulation that I chose to lose battles and stay away from
wars, but I also believe that this level of self-regulation
helps me to motivate those around me. The ability to in-
telligently control your own emotions will allow you to
react appropriately as situations come up. Others will see
that you always stay calm and react well. Understand that
everyone gets disappointed or frustrated, but reactions of
anger should not happen.
While I have no intention to review all of the compo-
nents of emotional intelligence, I do think that for the pur-
poses of motivation, it’s essential to discuss the component
of self-motivation. Self-motivation is drive, positivity, and
passion to achieve. I maintain my self-motivation by watch-
ing the company I keep. Nothing brings me down more
than to be around someone who finds something wrong
in everything. I have also noticed that these types of people
like to feed off of the motivation that you generate in your-
self and walk away from you having taken all of the energy
that you had. Be prepared for these encounters, as it seems
that they seek out self-motivated people to feed on. If these
people work with you, and I’m sure everybody has some,
try to control your encounters with them for times that you
feel strong enough to stay positive even after the encounter.
Keep your encounters on task for the purpose, and once
the purpose is accomplished, move on. Don’t allow them to
drag you into a conversation that has no value, and always
be prepared with positivity to add in every encounter. A
truly self-motivated person has the strength to overcome
negativity. Eventually the self-motivated person will either
displace the negativity with positive motivation or, at the
very minimum, will no longer be “fun” for the negative per-
son to interact with. Don’t let them feed on you.
The Need for Purpose
Purpose is a natural human need. “We want to feel that
our lives have a deeper meaning that goes beyond pay-
checks and discount shopping.  .  .  . Once our physical
needs are met, we long for love, belonging, esteem and
finally what Maslow called ‘self-actualization’—that our
lives count” (reference 7, p. 1). A purpose-driven leader is
one who can clearly define and communicate the purpose
of the direction. As Maslow describes the need for self-
actualization, it becomes clear that we all naturally need a
purpose for existence. Oftentimes leaders in healthcare as-
sume that “patient care” is our purpose, and while it surely
is our overall global purpose, it is not specific enough to
define how all work processes relate back to that purpose.
Consider the need for a hospital-based laboratory to oper-
ate an outreach program. The nature of a hospital’s acute
247
care needs requires redundant equipment in the hospital
laboratory to prevent any potential downtime in critical
testing. This redundant equipment often runs well below
capacity. A hospital outreach program offers an opportu-
nity for the hospital to maximize the productivity of its ex-
isting laboratory services by utilizing the excess capacity
of the redundant equipment and provides a volume boost
that may permit lower pricing tiers when negotiating for
new equipment and lower operational reagent pricing.
Ultimately hospital outreach programs help the organiza-
tion to run more efficiently, but also for nonprofits, the
extra income goes back into the hospital capital budget
and allows the hospital to purchase the capital equipment
required throughout the hospital to care for patients. In
the end it goes back to patient care, but up front it is of-
ten misconceived simply as a revenue source for hospitals
rather than a cost saver for the hospital’s already required
laboratory needs and a means to provide capital funding
for all areas of the hospital. The simple knowledge of the
purpose of a laboratory outreach program has motivated
many administrators to start such programs but has also
motivated laboratory staff to provide the service needed to
maintain a sizable client base.
It is also important to demonstrate how each position
contributes to the overall purpose. Purpose-driven employ-
ees need to know that they are contributing. We run a fairly
strong outreach program for which a few people are re-
sponsible for receiving the courier deliveries. This includes
registering the “nonpatients,” ordering the tests, and dis-
pensing the specimens to the appropriate testing areas. Ap-
proximately 4 years ago we formed a committee designed
specifically to review and work on the laboratory write-offs.
This committee involved staff from revenue management,
registration, and laboratory, including outreach staff. It
was clear that a large portion of write-offs were outreach
specimens. By bringing this awareness and purpose to the
laboratory staff and involving laboratorians in this revenue
cycle, we were eventually able to cut our laboratory write-
offs by 75%. It took time and work, but most importantly, it
took the motivation of the outreach staff to develop meth-
ods of confirming compliance at order entry that ultimately
had the biggest impact. To this day, our continued diligence
maintains this rate. We still meet regularly and refine the
purpose to keep the awareness up and the write-offs down.
Human Motivation Theory
David McClelland proposes in his human motivation the-
ory that people can have one of three dominant motivators
(Table 10.1). As part of this theory, McClelland describes
what is referred to as an achievement motivator. He de-
scribes people who respond to this motivator as having a
strong need to set and accomplish goals, a willingness to
take risks to accomplish goals, and the need for consistent
feedback on the progress of their goals. Effective leaders
248 MANAGERIAL LEADERSHIP
Table 10.1 The three dominant motivators in McClelland’s human
motivation theory
Achievement Affiliation Power
Strong need to set Need to belong Need to control
and accomplish goals
Willingness to take Need for friends Need to win
risks
Need for consistent Feedback should Feedback should be
feedback affirm trust opportunities
must have a mechanism to set goals, measure progress to-
ward those goals, and eventually accomplish the goals they
set. “Goal theory assumes that goals are cognitive repre-
sentations of what individuals are trying to accomplish and
their purposes or reasons for doing the task” (reference 9,
p. 96). Goals are set by leaders and staff in collaboration,
with consideration to the mission. In laboratory medi-
cine, it is often seen that goals include things like specified
turnaround times, efficiency rates, and customer service
goals. Goals for laboratories could also include new instru-
ment implementation or project deadlines. Setting reason-
able, obtainable goals that can be measured will drive the
motivation to achieve these goals. Our experience with a
project to implement a specimen-tracking system demon-
strated many facets where goal setting enabled this project
to be a success. The project involved three different areas
within our organization in addition to the vendor. Each
group had steps that had to be completed. These steps in-
cluded network line installations, facility modifications,
and vendor installations. Each step was dependent on an-
other. In order to initiate motivation on all sides, goals for
accomplishment were set each week at a project meeting.
The goals were measured each week and the next steps
were issued. Every group in this project stayed on task and
the implementation has gone well.
A second part of the human motivation theory discusses
the need for affiliation. Persons with this dominant motiva-
tor have the need to belong. They want to be liked and will
concede to the group’s opinion. People who are motivated by
affiliation do not take risks. These people need to know that
you, as a leader, like them and trust them. It’s important to re-
member that they work in order to ensure that you continue
to like them. You must make certain that you recognize their
efforts by showing that you care about them. It is also sug-
gested that with affiliation-dominated people, you recognize
them privately as they do not like to be singled out.
The third and final part of this theory refers to a domi-
nant motivator of power. These are the people who want to
control and win. They thrive on status and recognition and
love to be challenged with a goal. We have all dealt with a
person who must be in control. Under the human motiva-
tion theory, a leader who recognizes this can use it to his
or her advantage. Sure, give the praise; give recognition,
as long as they get the work done. Allow them to be “in
charge,” give them strong goals, and recognize them by al-
lowing them to grow their career.
Summary
Motivation is defined by the Merriam-Webster Dictionary
as “the act or an instance of motivating, or providing with
a reason to act in a certain way.” By definition alone, mo-
tivation is considered an induced behavior. Whether it is
your own personal inner self-motivation or the motivation
that you fuel in someone else, motivation requires effort to
sustain. It is work. There are many management theories
that support the methods of motivation, but overall it is the
practical application of those theories that makes the differ-
ence. There is no better place to apply those theories than
to one’s self. No one can be motivated by an unmotivated
person. Most people who leave a job leave their managers,
not their jobs. Become motivated in yourself. Put the work
into building the strongest motivation in yourself and
you will then understand what it takes to motivate oth-
ers, as we are all human beings with the same basic needs.
According to W. Edwards Deming, “Long-term commit-
ment to new learning and new philosophy is required of any
management that seeks transformation. The timid and the
fainthearted, and the people that expect quick results, are
doomed to disappointment” (3). Understand that becoming
motivated, and more so staying motivated, is hard work, and
just as with any hard work, you get back what you put into it.
We are certainly in a perpetual state of “do more with
less.” As a leader in a laboratory it is very easy to get over-
whelmed in the fires and tasks that try to consume our day,
but we must stay focused on our basic responsibilities as
leaders. We must not let ourselves get overwhelmed, and
we must get organized so that we can spend time enhancing
our leadership skills. I recommend finding the time to at-
tend any leadership training classes, not because you don’t
know the information but because it will serve as a renewal
or affirmation of the skills that most leaders already know
but tend to lose when focusing on the pressures to produce
billables. Use this time to reinvigorate or motivate your
leadership skills. Reigniting the motivation in you to lead
will produce motivation in those whom you lead.
KEY POINTS
■ Motivation requires effort.
■ Motivating those around you is your job.
■ Always work at developing your leadership skills.
GLOSSARY
Attribution theory The ability to look into the reason for an oc-
currence and adjust one’s behavior accordingly.
 CHAPTER 10. MOTIVATING THROUGH INTELLIGENT LEADERSHIP
Effort The only internal and variable cause to which one can
attribute success or failure. It is the variable that most often
makes the difference between success and failure.
Goals Specific, measurable, attainable, relevant, and timed
(SMART) providers of direction.
The Hawthorne effect The proven, positive effect that attention
and feelings of importance have on production.
Hygiene factors Tangible, physiological factors whose absence
causes employee dissatisfaction but whose presence does not cre-
ate satisfaction (e.g., salary, working conditions, benefits).
Job enrichment The deliberate upgrading of responsibility, scope,
and challenge as they apply to a position, title, or employee.
Level 1 Leadership “Makes productive contribution through
talent” (reference 1, p. 5).
Level 2 Leadership “Contributes to the achievement of group
objectives” (reference 1, p. 5).
Level 3 Leadership “Organizes people and resources towards the
effective and efficient pursuit of predetermined objectives” (refer-
ence 1, p. 5).
Level 4 Leadership “Catalyzes commitment to and vigorous
pursuit of a clear and compelling vision; stimulates the group to
high performance standards” (reference 1, p. 5).
Level 5 Leadership A level of leadership that includes the four
basic levels plus humility and will.
Motivation Internal and external factors that stimulate desire
and energy in people to be continually interested in and commit-
ted to a job, role, or subject and to exert persistent effort in at-
taining a goal.
Motivators Internal factors that relate to the nature of work and
the egos of employees. If properly addressed, these factors can
create employee satisfaction (e.g., recognition, appreciation,
self-actualization).
Pay for Performance (P4P) Strategy to improve healthcare de-
livery that relies on the use of market or purchaser power. Refers
to financial incentives that reward providers for the achievement
249
of a range of payer objectives, including delivery efficiencies,
submission of data and measures to payer, and improved quality
and patient safety.
REFERENCES
1. Collins, J. 2001. Level 5 leadership: the triumph of humility and
fierce resolve. Harvard Business Review 79:66–76, 175.
2. Collins, J. 1996. Looking out for number one. www.jimcollins
.com/article_topics/articles/looking-out.html (last accessed May 15,
2012).
3. Deming, W. E. 2000. Out of Crisis. MIT Press, Cambridge, MA.
4. Freshman, B., and L. Rubino. 2002. Emotional intelligence: a
core competency for healthcare administrators. Health Care Manag.
(Frederick) 20:1–9.
5. Goleman, D. 1995. Emotional Intelligence. Bantam Books, New
York, NY.
6. Goleman, D. 2000. Leadership that gets results. Harvard Business
Review 78:78–90.
7. Karlgaard, R. 2009. Purpose-driven leadership. Forbes.com.
July 23, 2009. www.forbes.com/2009/07/23/bmw-hy-vee-karlgaard
-intelligent-technology-leadership.html (last accessed May 2, 2012).
8. Maslow, A. H. 1998. Maslow on Management. Wiley & Sons, Inc.,
New York, NY.
9. Pintrich, P. R. 2000. An achievement goal theory perspective on
issues in motivation terminology, theory, and research. Contemp.
Educ. Psychol. 25:92–104.
10. Schwartz, T. 2010. Leadership begins at home. Harvard Busi-
ness Review Blog Network. November 23, 2010. http://blogs.hbr
.org/schwartz/2010/11/one-of-the-greatest-gifts.html (last accessed
February 27, 2013).
11. U.S. Department of Health and Human Services. 2012. Pay
for Performance (P4P): AHRQ resources. March 2012. Agency
for Healthcare Research and Quality, U.S. Department of Health
and Human Services, Rockville, MD. www.ahrq.gov/qual/pay4per
.htm#intro (last accessed May 2, 2012).
12. Werhane, W., and M. Royal. 2009. Engaging and enabling em-
ployees for company success. Workspan 52:38–43.
Introduction
Channels of Communication
11 Successful Communication
Formal Channels of Communication • Informal
Channels of Communication Diane C. Turnbull
Types (Methods) of Communication
Oral (Face-to-Face) Communication • Telephone
Communication • Written Communication •
PowerPoint Presentation • Electronic
Communication • Visual Communication • Body
Language and Other Nonverbal Communication
Barriers to Communication OBJECTIVES
Physical Barriers • Nonverbal Barriers • Verbal To describe the process of effective communication
Barriers • Psychological Barriers
To help the reader to select the communication technique appropriate for a
The Importance of Listening
situation based on the advantages and disadvantages
Effective Listening • Ineffective Listening • Stages
of Listening To explain the necessity of using positive language when communicating orally
Types of Listening and in written form
Nonlistener • Marginal Listener • Evaluative Listener • To review the necessity of fostering and nurturing a climate that supports
Active Listener effective communication
Elements of Effective Communication
To discuss how to integrate the six W/H (who, what, when, where, why, and
Skills for Effective Communication • Organizational
Climate • Using Body Language • Using Positive how) points effectively when disseminating information
Language To describe the types of listeners and explain the benefits of active listening
Leadership Essentials for Improving
Communication
The Interaction Process • Adapting Communication When people talk, listen completely. Most people never listen.
Styles
Ernest Hemingway
Summary

C
KEY POINTS ommunication is defined as an exchange or sharing of thoughts or
GLOSSARY information between one person and another. Communicating with
REFERENCES others, both professionally and personally, is an integral part of every-
APPENDIX day life. The root of many problems, conflicts, mistakes, or misunderstandings
is flawed communication. Business consultants vouch that communication is
the number one problem in most workplaces. Counselors reiterate that com-
munication is the number one problem for interpersonal relationships (18).
Misunderstood communication can be one of the largest problems facing or-
ganizations today. Businesses have a multitude of messages being sent, but not
all of the information is received or understood. Even though the communica-
tion problems experienced may never be completely eliminated, they can be
reduced or often avoided entirely.
The ability to communicate is essential to leadership and vital to any or-
ganization. It is a skill that can be acquired, cultivated, and improved upon.
Managers communicate in all aspects of the daily work environment. Strong
leadership cannot be accomplished without communication. For example,
communication skills are important when interviewing applicants for a job,
delegating responsibility and authority, directing the efforts of others, inter-
preting policy, and enforcing procedures and regulations. The communica-
Clinical Laboratory Management, 2nd Edition
tion cycle has three points: the sender conveying the message in a clear and
Edited by L. S. Garcia straightforward manner, the receivers accepting the message and confirming
©2014 ASM Press, Washington, DC that they have comprehended it, and the sender verifying that the message was
doi:10.1128/9781555817282.ch11 understood and received in the manner intended. This chapter will help the

250

reader understand how people prefer to communicate and
suggests ways to adapt his or her own communication style
to enhance understanding and build rapport with others.
Channels of Communication
In every organizational network, there are distinct formal
and informal channels of communication. The purpose
of both channels is to disseminate information and carry
messages from a person or group to others in the organiza-
tion. This flow of information can be downward, upward,
or lateral.
Formal Channels of Communication
Formal channels of communication are typically aligned
according to the organizational chart or structure of the
facility and usually follow an organizational hierarchy.
Typically, strict lines of authority are followed, for example,
chief operating officer to vice president to administrative
director to supervisors to staff.
Downward communication is commonly referred to
as flowing from the top down. It is primarily directive in
nature and often used extensively by management to state
objectives, disseminate policies or policy changes, provide
directives, and convey general information to subordinates.
One pitfall of downward communication is the possibility
of dilution or distortion of information that can occur be-
tween the original sender and the ultimate receiver, which
may cause the message to be misinterpreted or inaccurate.
This is especially true with oral communication when a
large number of people are involved, because the more
people involved in the downward chain, the greater the
chance of error.
Upward communication flows through the ranks of
staff members to top management. Generally, upward
communication is used to report and convey information.
Effective managers encourage a free flow of upward com-
munication as a feedback mechanism. This type of com-
munication can serve as a means to determine whether a
message has been transmitted and received appropriately
and often conveys to management the effects of a message
on staff. A manager should encourage upward commu-
nication by demonstrating a desire to obtain and use the
ideas and information received from one’s staff. A manager
must also act on information provided by staff; otherwise
this channel of communication will eventually close. Lack
of an effective upward flow will destroy the staff ’s desire
to communicate, lead to frustration, and eventually cause
employees to seek different outlets, such as the grapevine,
or ultimately find other employment opportunities.
Lateral communication flows among persons on the
same level in an organization. It is important because
it allows for the exchange of information among peo-
ple with similar responsibilities working on common
CHAPTER 11. SUCCESSFUL COMMUNICATION 251
objectives and fosters intralaboratory and interdisciplinary
communication.
Informal Channels of Communication
The main type of informal communication is the grape-
vine, which is the route by which employees spread in-
formation to one another. Even if the organization has
well-established formal channels, informal channels in-
evitably develop. Every department has a grapevine. The
grapevine is an outgrowth of the social interaction of peo-
ple and their natural desire to communicate. It is a method
of spreading information rapidly and allows employees to
keep abreast of the latest information.
The manager should accept the fact that it is impos-
sible to get rid of the grapevine, but with certain skills, a
manager can influence it. Managers need to stay attuned
to their organization’s grapevine by finding a mechanism
to keep them aware of what information the grapevine is
transmitting. It is unrealistic to believe that rumors can be
eliminated since the grapevine flourishes in every orga-
nization. Rather, a manager’s best approach is to provide
the grapevine with facts. This will help to eliminate partial
truths and will use the grapevine’s energy to the best in-
terest of management; however, this requires effort on the
manager’s part.
Types (Methods) of Communication
Methods of communication may vary according to the style
of the sender, the situation, the audience, and the content of
the message itself. These must all be evaluated before decid-
ing the best way to communicate the information. Types of
communication include oral, written, and electronic com-
munication; pictures; and body language or other nonver-
bal signs. Research indicates that managers spend between
50 and 80% of their total time communicating (6). Typi-
cally the majority of their time is spent speaking and listen-
ing and to a lesser extent writing and reading.
Oral (Face-to-Face) Communication
Speaking is generally superior to written communication in
that it usually achieves better understanding because it per-
mits feedback. It can also save time. This type of communi-
cation is useful in direct person-to-person communications
and group communications. The most important feature
of oral communication is that it provides the opportunity
for immediate feedback, in that it allows the receiver to ask
questions. This type of communication also has some dis-
advantages. Since nothing is written down, permanence is
lost, so the receiver cannot “revisit” the actual words used.
Other potential pitfalls of verbal communication include
mumbling, speaking too fast or too slowly, mispronounc-
ing words, speaking in a monotone, and using distracting
sounds or words such as “er” and “uh.”
252 MANAGERIAL LEADERSHIP
A spoken message has three elements: verbal, vocal, and
visual (3). The verbal elements are the actual words used, the
vocal elements include the tone and intensity of the speak-
er’s voice, and the visual elements incorporate everything
that the listener can see. The visual is the most powerful
element of communication because dynamic visual, non-
verbal communication grabs and holds the listener’s atten-
tion. Once the speaker has the listener’s attention through
strong visual, nonverbal elements, then powerful vocal and
verbal elements can be used to transmit the message. The
vocal elements are processed before the actual words are
heard and translated, so if vocal sounds detract in any way
from the meaning of the words, people will react and under-
stand less of the message intended (3). Because visual and
vocal elements are noticed before the actual words, speakers
should be sure that their appearance and vocal tones work
in harmony with the message. For example, strong messages
should not be delivered in weak or soft tones.
Telephone Communication
The telephone is one of the major methods that people use
to communicate at work. Because of this, it is important
to be aware of how colleagues and customers perceive the
caller. On the telephone, there is no visual contact and con-
sequently no nonverbal cues from body language to help
the caller better understand and connect with those on the
receiving end. Courtesy ranks highest on the telephone
etiquette list. The caller should state his or her name and
verify the identity of the person on the other end of the line.
It is important for the caller to be personable. This develops
rapport and trust with those on the receiving end. Be aware
that demeanor often affects the tone of voice that comes
across on the telephone. Callers should try to begin every
call by sounding upbeat to help set a positive tone for the
call and make the receiver feel more relaxed. Tone of voice
often has more impact than actual words, communicating
an important part of the caller’s personality to others (11).
Analyze and constructively critique several phone calls
by taping your side only of the conversation. Think about
volume, speed, rhythm, inflection, resonance, and clarity.
Determine what if any vocal qualities need improvement
and whether or not you were accurately communicating
the emotions you meant to communicate to the caller.
Identify areas of improvement, and think about ways to
project a positive demeanor and enthusiastic tone of voice.
Five aids to developing an assured voice are to (i) project a
strong but not overwhelming resonance; (ii) use the mouth
and lips to speak clearly and distinctly; (iii) show enthu-
siasm by using appropriate pitch, volume, and inflection;
(iv) avoid speaking in a monotone; and (v) speak naturally
and do not attempt to adopt vocal qualities that do not fit
your style (4). The telephone can be used as an effective
means of communication by following a few simple rules
(Table 11.1).
Table 11.1 Steps for effective telephone communication
Identify yourself and your department or organization.
Converse with patience.
Be aware of your tone of voice.
Do not converse in a monotone. Sound alive.
Tune into the tone of voice of the person you are calling.
Listen carefully. Listen for content and emotion to understand what
the speaker is trying to say.
Close the call before you end it.
When leaving a message on voice mail, make the message worth
returning.
Written Communication
Written communication provides a permanent record to
which the receiver can refer to ensure that he has under-
stood the information presented. It provides accuracy of
information as well as permanence. However, feedback is
limited, and the sender cannot be sure that a written mes-
sage is actually read. The important ingredients of effective
writing are content, style, technique, and format.
Business letters are written contact with people out-
side the organization. Letters document communication
by providing a long-lasting record that can be referred to
whenever necessary. Business letters should be clear, cour-
teous, and concise. Good business writing is a combina-
tion of clear thinking, good organization, and effective
presentation.
Written memoranda are typically used to contact staff
and coworkers within the organization. They should be
organized, coherent, and not open to multiple interpreta-
tions (Table 11.2). Memoranda should be used to facilitate,
simplify, and accelerate internal communication. They can
be effectively used to give instructions, ask for informa-
tion or action, and announce or clarify a new policy or
procedure. Memos provide a simple method to commu-
nicate an identical message to several people. They should
be short, complete, and concise. This can be accomplished
by the use of headlines, short paragraphs, bullets, bolding
Table 11.2 Writing guide for memoranda
Take the time to craft clear memoranda that are short, complete, and
concise.
Ensure that written messages are organized, coherent, and not open
to multiple interpretations.
Anticipate questions the reader might ask.
Include the six W/H (who, what, when, where, why, and how) points.
The memo should address who needs to be involved, what action is
being conveyed or needs to be accomplished, and when and where
the action needs to be completed. The memo should include why the
memo is being written and suggestions on how the action is to be
completed.
Make memoranda easy to read from a visual-layout point of view.
Avoid sending mixed messages.

of important points, and a modified outline format. Think
about key issues before writing the memo. While written
and electronic messages can save time and energy, they
have a tendency to be overused. To ensure quality com-
munication, an organization must define the parameters
of these tools and the ways in which they may and may not
be used (1).
Correct grammar, spelling, and punctuation are essen-
tial elements of all types of written communication and
project a professional image. Always reread all types of
documents prior to sending to look for errors and ambigu-
ous statements.
PowerPoint Presentation
Microsoft PowerPoint is the most widely used presenta-
tion tool in the world and is frequently used in the work-
place to communicate information during meetings (12).
There are many courses on how to use PowerPoint from a
technical standpoint, but when it is used effectively, it can
be a visual and compelling business tool. It is important
to remember that PowerPoint does not give the presenta-
tion, but rather it makes the slides. A few simple concepts
can change an average PowerPoint presentation into an
attention-grabbing, memorable, effective means of com-
munication (Table 11.3).
Content is the most important part of any presentation,
not the graphical appeal. Creating an outline first is helpful
because it helps the presenter reflect on the goals of the pre-
sentation and what points need to be covered. The outline
ensures that the content of the presentation is solid (19).
When designing the presentation, focus on keeping it
simple. Have a consistent visual theme throughout your
presentation, but avoid using PowerPoint templates when
possible. It is far better to design a template tailored to the
needs of your presentation than to use a prepackaged tem-
plate. Use contrasting colors so the audience can see what is
on the slides. In general, it is best to use a dark background
with light text for projection, but the key is contrast. Limit
the overall number of slides to no more than one slide
per minute. Avoid slides that are unnecessarily compli-
cated or busy or that contain unnecessary or superfluous
Table 11.3 Top ten PowerPoint tips
Keep it simple.
Limit bullet points and text.
Use transitions and animations judiciously.
Include high-quality graphics including photographs.
Develop a visual theme, but avoid using PowerPoint templates.
Incorporate appropriate charts and tables.
Utilize contrasting colors for the text and the background.
Choose a font large enough that the audience can read it.
Limit the number of slides.
Enhance readability by using normal case (not all caps).
CHAPTER 11. SUCCESSFUL COMMUNICATION 253
information. Limit the number of bullet points and text
on the slides. Refrain from using more than eight words
per line or eight lines per slide. Font style and size should
be legible. It is best to stay with basic fonts found on most
computers such as Arial, Times New Roman, Tahoma,
Verdana, or Georgia. For a professional-looking presen-
tation, limit the font selection to only two or three fonts.
Enhance the readability of slides by using normal case (not
all capital letters) and limiting the amount of punctuation.
Use text to highlight, not narrate the presentation. Ev-
ery word should convey the message in the strongest pos-
sible way. Instead of using slides that contain only text, use
visuals such as graphs, diagrams, photos, and media clips,
which help engage the audience (20). Consider whether
highly detailed charts or graphics will be readable from a
distance. Keep them simple or include them separately in
a handout if necessary.
Animations and slide transitions can often detract from
a presentation, so avoid overusing them. Too many differ-
ent types of transition in one presentation can make audi-
ence members focus more on the movement than on what
is being said. It is best to use no more than two to three
different types of transition effects and to refrain from us-
ing them between all slides. Use transitions to highlight or
add emphasis.
One pitfall of PowerPoint is that it displays informa-
tion in a fragmented way that dilutes content, weakens
analytical reasoning, and corrupts statistical data. When
more thorough explanations or complete sentences are
necessary to comprehend relationships between complex
ideas, then other tools that more effectively communicate
the content should be used. Sometimes technical docu-
ments and complex graphs presented as printed handouts
can more effectively keep a group on task (22). In this type
of situation, PowerPoint might be used to summarize or
stimulate a discussion once the technical documents and
graphs have been read by the audience. The most impor-
tant thing to remember is that PowerPoint should be used
to support the speaker and supplement the presentation.
Electronic Communication
In recent years, the increased use of electronic communi-
cation in the workplace has brought a whole new set of
challenges. E-mail has become exceedingly common and
borrows the latitude of speech in a format that seems like
writing. This type of communication, with the casualness
of speech but without the inflections or context, still looks
like written communication on the screen (Table 11.4).
Fragmented comments and speedy replies compound the
potential in e-mail for confusion, offense, and misunder-
standing. Speed and spontaneity are the strengths of e-mail
but also its downfall.
The major pitfall is that e-mails are easily forwarded to
others; therefore, never send something electronically that
254 MANAGERIAL LEADERSHIP
Table 11.4 Effective communication in e-mail
Never use e-mail when angry. Wait or talk directly to the person.
Never send anything that cannot be said directly to the other person.
Never send anything that should not be shared in public.
Avoid revealing protected health information.
Recognize that e-mails are permanent and can be used in legal
matters.
Maintain professionalism and confidentiality.
Copy others only as necessary and never as an exercise of authority,
power, or manipulation.
Avoid using e-mail to discuss a topic that is complex, especially one
that people feel strongly about. This is best discussed in a meeting.
E-mail works best as a means of circulating information, providing
notice about events, giving someone a message, and communicating
quickly and efficiently with a person about a circumscribed issue.
should not appear publicly. To maximize the use of e-mail
and minimize problems, state the reason for the e-mail in
the subject line and borrow from standard letter conven-
tions by being sure the e-mail is clear, complete, and con-
cise. Think before e-mailing an important document as an
attachment. Incompatible software can leave the document
unread, and people in a hurry or worried about viruses do
not open attachments. When attachments are sent, be sure
to clearly state which files are attached in the body of the
e-mail. Everyone has hit “Send” and then regretted it. To
maximize the use of e-mail, follow some basic principles
for sending and replying to e-mails (Table 11.5).
In business, e-mail works best as a means of circulating
information, providing notice about events, giving some-
one a brief message, contacting people with updates, and
communicating quickly and efficiently with a person about
a circumscribed issue. However, if complicated issues need
to be discussed or negotiations need to occur, it is better
to do this face-to-face (17). E-mail should not be used to
discuss a topic that is complex and requires feedback.
The recent crop of college graduates has grown up with
e-mail, text messaging, instant messaging, Facebook, and
Twitter. These young professionals are not about to stop
Table 11.5 E-mail tips
Tips for sending
Keep it short.
Try to limit the number of important questions or issues presented.
Include name and contact information in business e-mail.
Do not type messages in upper-case letters.
Use the forward function sparingly.
E-mail works best when one response or no response is required.
Tips for replying
Reply promptly.
Reply to all the questions within the message, not just to the last
question asked.
Think twice before hitting “Send.” Avoid replying without thinking.
Be especially careful with the “Reply to all recipients” option.
once they enter the workforce. While electronic commu-
nication can at times enhance productivity, it can cause
a nightmare for many bosses, who understand that while
technology is a useful tool, it does not replace relationship
building as a primary means for doing business. Today’s
bosses often do not understand why younger professionals
hardly ever come and talk to them.
Young professionals’ first instinct is to instant message
or text message rather than communicate face-to-face. As
this form of communication increases in popularity, it is
being used more and more in the workplace. While this
might be fine for quick questions, it does not work well in
many situations that require more extensive explanations
or interactions. The meaning and value of gestures and
other nonverbal skills just do not come through in a text
message (23). Text messaging is not just a new technol-
ogy, it is also a new language that can be easy to overly rely
on, misinterpret, and misuse. Even though text messaging
is becoming a more common means of communication,
many people are not familiar with text message shorthand.
Many of the same rules (Table 11.6) for e-mail apply, but
since it is a little more informal, text message language can
be confusing.
In recent years, the use of social networking by profes-
sionals is increasing dramatically and social networking
sites such as Twitter, Facebook, and LinkedIn have begun
to establish a significant presence in the workplace. Twitter
is a hybrid broadcast/conversation communication plat-
form. Facebook is more of an identity platform with com-
munication and content distribution. It has become quickly
adopted by employees to connect with friends, family, and
colleagues. Work-related benefits center on creating and
strengthening ties (21). LinkedIn is a business-related
social networking site used for professional networking.
It focuses on professional information and is useful for
recruiters or job seekers as well as to maintain external
professional networks. No one really knows how social
networking will continue to evolve in the workplace. Many
companies have begun using social media for workplace
communication because it permits rapid deployment of
information to multiple users and can also be accessed on
Table 11.6 Texting in the workplace
Texting may be used to acknowledge compliments and
accomplishments.
Always double-check the message before sending.
Never text apologies or criticisms. These are best handled
face-to-face.
Never text personal messages on a company phone, as your employer
has the right to check messages.
Never assume others are familiar with text message shorthand.
Never text during a meeting, as this is very distracting and may be
viewed as disrespectful.

mobile devices (14). These sites can also be used to pro-
mote public awareness or announce upcoming events or
activities in the community.
Despite the benefits and growing popularity of social
media, there are two primary concerns: privacy and pro-
ductivity. Significant privacy issues affect the organiza-
tion as well as the individual. Information deployed by
social media can be spread quickly, and companies that
post employee-focused information on social networking
sites may find that competitors are able to gain easy ac-
cess to the data. Some companies have expressed concerns
about the potential for inadvertent disclosures of propri-
etary information (21). Discussions of social networking
in the workplace also revolve around the potential for loss
of productivity. Some employers believe that providing ac-
cess to social media sites encourages employees to engage
in personal activity during work time. The reality is that
employees can just as easily place personal phone calls or
send non-work-related e-mails using company equipment.
Companies rely on workplace communication to keep
employees informed and to solicit input from staff. Social
media is becoming a valuable way to accomplish these
tasks. This underscores the importance of social media
workplace guidelines and effective employee training.
Visual Communication
Photographs, paintings, diagrams, designs, cartoons, and
caricatures are examples of types of pictures that are used
as visual communication aids. They are important to com-
munication because they are often easier to understand
than written explanations. The image being transmitted
to the brain is already drawn or formed. Pictures are effec-
tive when used with well-chosen words to help the receiver
“see” the message. Effective visual aids can also be in the
form of videos, charts, posters, models, and digital pictures.
Visual communication is especially valuable in present-
ing a process or explaining how to do something. This
can be used in training employees as well as in educating
patients. For example, showing a video about performing
venipuncture is much more effective than just providing
written instructions. Verbal instructions along with ac-
companying pictures can be very helpful when asking pa-
tients to collect a clean-catch specimen for a urinalysis.
Body Language and Other
Nonverbal Communication
Body language and other nonverbal cues reveal much
more about attitudes and emotions than words (5). Body
language, also known as kinesics, describes human interac-
tion excluding the use of written and spoken words. Stud-
ies in the last two decades indicate that more than half of all
verbal messages sent have nonverbal components (16). Re-
searchers in the area of nonverbal communications claim
that as much as 90% of the meaning transmitted between
CHAPTER 11. SUCCESSFUL COMMUNICATION 255
two people in face-to-face communications can occur via
nonverbal channels. Conceivably, only 10% of the mean-
ing derived comes through words alone (5).
Nonverbal cues include posture, gestures, facial expres-
sions, microexpressions, eye contact, and body image or
proximity. For example, leaning toward the person speak-
ing conveys attention and interest. In contrast, standing
up abruptly while talking to a coworker sends the message
that the meeting is over. The person being addressed may
also feel that the speaker feels superior. Movement made
with the eyes, mouth, or forehead conveys a great deal. A
scowl usually signifies displeasure. A stern look can mean
disapproval, while a smile means approval. Eye contact
lends credibility to the spoken message, giving the mes-
sage much of its meaning and also affecting whether the
listener believes and trusts the message.
Microexpressions are the involuntary, subconscious
flashes of expressions on a face according to emotions
experienced. Unlike regular facial expressions, it is dif-
ficult to hide microexpression reactions. Microexpres-
sions express these emotions: disgust, anger, fear, sadness,
happiness, surprise, and contempt. Learning to correctly
interpret microexpressions can help a great deal when
communicating in the workplace, but it is important not
to jump too quickly to conclusions, which can create an
even bigger misunderstanding (13).
Barriers to Communication
Many times communication is not as effective as it could
be because of communication barriers. Both the speaker
and the listener can create communication barriers. A
barrier in this context means any behavior that hinders
the flow of meaningful, nonjudgmental communication.
There are several types of barriers, but basically they fall
into these main categories: physical barriers, nonverbal
barriers, verbal barriers, and psychological barriers. Upon
becoming aware of a barrier, a manager should focus on
dissolving or controlling it.
Physical Barriers
Barriers that can be detected and removed easily have been
identified as physical barriers. Examples of eliminating
physical barriers are reducing background noise, moving
out of a busy area, removing furniture between the par-
ticipants, adjusting the physical distance between partici-
pants, and ensuring privacy.
Nonverbal Barriers
There are several nonverbal behaviors that should be
avoided. These include poor eye contact; unfavorable fa-
cial expressions such as frowning, smirking, scowling, and
blank looks; poor posture such as slouching; and too much
fidgeting and squirming. Ineffective placement not only is
256 MANAGERIAL LEADERSHIP
a physical barrier but also creates a nonverbal barrier to
communication. Speakers and listeners can remain distant
from each other by facing away or turning their backs from
each other or by being preoccupied with something else.
These are all behaviors that should be avoided for effective
communication (10).
Verbal Barriers
Verbal modes of delivery causing barriers to communica-
tion may be less detectable or correctable. However, once a
speaker realizes that there is a problem, steps can be taken
to correct it. Examples of verbal barriers to communication
include speaking in an uninviting tone of voice; using con-
descending, patronizing, harsh, or reactive tones; using bit-
ing sarcasm; and speaking in a monotone (24).
Psychological Barriers
Psychological barriers develop based on the nature of indi-
viduals and their interactions with others. They may con-
sist of preconceived expectations, self-centeredness, lack of
self-esteem, and assumptions by either the sender or the re-
ceivers. Power and status perceptions or a defensive attitude
may also cause psychological barriers (24). Psychological
barriers are more difficult to overcome, but managers need
to be aware that these types of barriers exist.
The Importance of Listening
Poor listening skills create one of the biggest barriers to ef-
fective communication. Listeners inadvertently create bar-
riers, both verbal and nonverbal. Listening is an important
element in communication that is often overlooked. It can
be defined as the process of receiving a message from a
speaker, processing that message to make sense of it, and
then responding to it in ways that show the receiver under-
stands what the speaker means (9). Listening is a powerful
means of communication that can increase job effective-
ness. It ensures parties are communicating completely to
reach a shared meaning through dialogue (1). Listening is
often defined as a manager’s most important skill (2).
Effective Listening
Conducting a positive exchange of information with em-
ployees is sometimes considered the most difficult aspect
of communication, and it cannot occur without effective
listening (1). Good communication encourages creative
interaction between employees. When managers listen to
employees and show understanding, employees believe
that they are valued as partners. Listening to employees
leads to increased trust and credibility and an increased
willingness to cooperate. In organizations, this generally
means a reduction in turnover and a greater commitment
to the organization’s goals. Poor listening contributes to
low employee morale and increased turnover because em-
ployees do not feel that their managers listen to their needs,
suggestions, or complaints. Ineffective listening frequently
causes misunderstandings, mistakes, jobs done incorrectly,
unhappy customers, increased costs, and reduced profits.
Listening more effectively enhances the transfer of infor-
mation, improves teamwork, builds morale, reduces er-
rors, and leads to higher productivity (2).
Ineffective Listening
There are five basic reasons why managers do not listen
more effectively (2).
• Listening is hard work. It requires concentrating on
the other person rather than on oneself, and as a re-
sult, many people just do not do it.
• Competition for attention comes from radio, televi-
sion, reading material, and more. So many stimuli
cause people to screen out information that they
deem irrelevant and at times to also screen out im-
portant things.
• Managers interrupt and do not take the time required
to hear people out.
• The difference between speech speed and thought
speed creates a listening gap. The average person
speaks at about 135 to 175 words a minute but can
listen to 400 to 500 words a minute. That difference
between listening speed and speaking speed is time
spent jumping to conclusions, daydreaming, planning
a reply, or mentally arguing with the speaker.
• There is a lack of training on how to listen. People
do more listening than speaking, reading, and writ-
ing, yet they receive no formal education in listening.
Many people assume that they are good listeners;
however, few actually are. Managers must become
aware that listening effectively is a skill that can be
improved upon by understanding the stages of listen-
ing and the types of listeners and by working toward
improving listening skills.
Stages of Listening
Listening occurs in three stages: receiving, processing, and
responding. Receiving consists of taking in the speaker’s
message through the senses, usually hearing and seeing.
When people are speaking face-to-face, the eyes read the
nonverbal cues that play a part in how the speaker ex-
presses the message. After the listener takes in the speak-
er’s message, the internal processing begins. Processing
involves analyzing, evaluating, and synthesizing the mes-
sage. Responding is the third stage in the listening process.
In this stage the speaker sees and hears what the listener
does. The listener verbally and nonverbally acknowledges
the message has been received and understood (9).

Types of Listening
People typically listen at one of four basic levels of attentive-
ness: nonlistener, marginal listener, evaluative listener, and
active listener (2). These categories are not distinct lines of
differences but general groupings into which people fall.
Depending on situations or circumstances, listeners may
overlap or move from one category to another. The poten-
tial for understanding, trust, and effective communication
is highest when active listening is used consistently (9).
Nonlistener
The nonlistener does not hear anything the speaker says.
Typically the nonlistener is characterized by a blank stare
and nervous mannerisms and gestures. Often this type of
listener pretends to pay attention while thinking about
other unrelated matters. Nonlisteners want to do all or
most of the talking, constantly interrupt, and always have
to have the last word. They are perceived as insensitive and
nonunderstanding (2).
Marginal Listener
The marginal listener hears the sounds and words but not
the meaning and intent. Marginal listeners are often de-
scribed as superficial listeners, are easily distracted, and
prefer to evade difficult or technical presentations or dis-
cussions. Marginal listening is hazardous because there is
enormous room for misunderstanding since the listener
is only superficially concentrating. In the workplace, this
type of listening is often a source of low morale, misunder-
standings, errors, and problems (2).
Evaluative Listener
The evaluative listener is actively trying to hear what the
speaker is saying but is not making an effort to understand
the speaker’s intent. Evaluative listeners are described as
logical listeners and therefore are more concerned about
content than feelings. They remain emotionally detached
from the conversation and evaluate a message strictly on
the basis of the words delivered, totally ignoring that part
of the message conveyed by the speaker’s tone, body lan-
guage, and facial expressions (2).
Active Listener
The active listener is the most comprehensive and power-
ful level of listener. Active listening is also referred to as
responsive listening or reflective listening. It requires the
deepest level of concentration, attention, and processing
effort. The active listener focuses on understanding the
speaker’s point of view rather than constantly judging the
speaker’s message. Attention is concentrated on the thought
and feeling of the other person as well as what the speaker
is saying. Active listeners capture the speaker’s whole mes-
sage, the facts and the feelings. Active listening requires
CHAPTER 11. SUCCESSFUL COMMUNICATION 257
that the listener send verbal and nonverbal feedback to the
speaker indicating that what is being said is really being
absorbed. Verbal feedback to confirm understanding of a
speaker’s message, given without being judgmental, makes
active listening the most effective form of listening (2, 9).
Communication is most effective when both the speaker
and the receiver are active listeners.
Elements of Effective Communication
Effective communication begins with developing an ac-
tive-listening attitude. To develop this type of attitude,
the listener must understand that active listening is as
powerful as speech and also saves time. Those who listen
actively experience fewer mistakes, fewer misunderstand-
ings, fewer dissatisfied customers, and fewer false starts.
Managers must also realize that listening is important
and worthwhile with everyone with whom they come in
contact. Organizations that promote active listening have
fewer communication glitches, increased productivity, and
increased morale.
Skills for Effective Communication
To develop active-listening skills, it is necessary to develop
six separate skills: concentrate, acknowledge, research, ex-
ercise emotional control, sense the nonverbal message, and
structure (2).
Concentrate. Focus attention only on the speaker, which
diminishes environmental noise and aids in receiving
the message clearly. It is also helpful to eliminate dis-
tractions and physical barriers to create the best pos-
sible conditions to allow for a comfortable
conversation.
Acknowledge. Acknowledge the speaker to demonstrate
interest and attention that encourages and helps the
speaker to send a clearer message. This can be done by
making eye contact and/or asking questions to clarify
points. This gives positive feedback and helps the
speaker know that the message is being received. Wait
several seconds before replying to indicate the mes-
sage was received and evaluated before a response was
formulated.
Research. Gather information about the speaker’s interests
and objectives to help understand the message, ask
questions, and respond to the speaker in a way that
promotes communication.
Exercise emotional control. Wait until the entire message is
received before reacting to the message. It is important
to deal with highly charged messages in a thoughtful
manner regardless of how provocative the message
may be. Concentrate on understanding the message
before reacting to it.
258 MANAGERIAL LEADERSHIP
Sense the nonverbal message. Pay attention to what the
speaker is trying to say, which includes body language
and gestures as well as the words being spoken.
Structure. Structure and organize the information as it is
received, which improves retention and understanding
of the material.
Organizational Climate
In addition to becoming a more active listener, a manager
must work on controlling climate and culture. Effective or-
ganizational communication requires a climate or culture
that supports effective communication. A manager who
does not communicate effectively often does not promote
a culture where communication within the organization
is managed properly. This type of manager not only com-
municates ineffectively and discourages effective organi-
zational communication but also is unlikely to hear about
problems. Poor communication is self-sustaining. In this
type of climate, there is no feedback mechanism. The staff
does not communicate their concerns about communica-
tion because management is not perceived as receptive (6).
An effective organizational climate involves trust, open-
ness, reinforcement of good communication practices, and
shared responsibility for making communication effective. It
is up to the manager to be sure that he and the staff have the
skills and knowledge necessary to communicate effectively.
Effective communication requires attention. It develops as a
result of an intentional effort on the part of management and
staff. Once the commitment has been made to improve com-
munication, the manager must play a critical role in fostering
and nurturing a climate that is characterized by open com-
munication. The manager must bring communication to the
forefront of the organization. This can be done by participat-
ing in formal training if necessary, providing it for others in
the organization, actively soliciting feedback on communi-
cation within the organization, defining how communica-
tion should occur, and making clear what information will
be available and when and how it will be communicated. A
communication strategy should support, encourage, and re-
inforce the mission and culture of the organization (1).
When speaking to a group in a formal setting, a man-
ager must speak assertively and should be an expert on the
topic being presented. Generally, managers should know
10 times what they think they need to know on a particu-
lar subject. The message must contain the 6 W/H’s—who,
what, where, when, why, and how (15). This must be done
in both oral presentations and written communications by
taking the time to clearly anticipate questions a listener or
reader might ask. On a personal level, the manager must
be available and approachable. Communication involves
more than just the flow of information (Table 11.7). In
one-on-one conversation or in small groups, the manager
can win the attention and confidence of the other person
Table 11.7 Effective communication at meetings
Listen to others’ opinions and value them.
Compliment the work, help, or support of coworkers.
Ensure that there are no surprises. Do not bring something to a meet-
ing that could embarrass or anger another person. Avoid criticizing
someone at a meeting.
Avoid confrontation and ill words at a meeting. Nobody wins.
Do not dominate a meeting.
Be clear and open. Avoid cryptic statements.
Use clear, simple, and appropriate language to address the audience.
Include the six W/H (who, what, when, where, why, and how) points.
Do not misrepresent or overdramatize what was said at a meeting to
someone who was not present.
or persons by asking for their views on the subject. This
can be done by asking who, what, where, when, why, and
how questions. This communicates the manager’s interest
in and attention to both the topic of the conversation and
the person or persons (8).
Using Body Language
Body language refers to everything done with the body to
express a message. The better the manager is able to trans-
mit messages so that they are received by others as they
were intended, the more effective the manager. It is very
important to be acutely aware of the nonverbal messages
being sent. A sensitive, perceptive communicator uses the
nonverbal feedback he or she is getting from the other per-
son to structure the content and direction of the message.
The ability to project favorable body postures and to read
the body language of others is an asset to organizations (5).
Maintain steady eye contact. Look at the person when
talking to him or her without staring and glaring, which
may be interpreted as aggressive. Sit up and face the receiver.
It is sometimes helpful to lean forward occasionally as well.
Show positive life through facial expression by having facial
expressions match your voice inflections. Body language
pitfalls to avoid include slouching, invading space, hovering
over the listener, looking blank or stern, displaying threat-
ening gestures (finger pointing or pounding a fist on the
table), folding arms, and having distracting habits (picking,
scratching, swirling, pulling on jewelry, rattling change).
Body language is an essential part of interpersonal
communication. Proficiency with reading and projecting
body language is an integral part of communication suc-
cess. Once managers are aware of the importance of body
language, they can become attuned to how others perceive
them and to the nonverbal message from the other person.
Using Positive Language
How a manager uses language is an exceedingly powerful
tool. Whether communication is in oral or written form,
how the message is expressed affects whether the message

is received positively or negatively. Negative language cre-
ates a negative environment and increased confrontation.
A manager who uses negative language frequently criti-
cizes ideas without offering suggestions or alternatives.
Negative language usually tells a person that what he or
she has done is wrong, without stressing the positive things
that can be done to remedy the problem. Positive language
stresses positive actions and positive consequences. It sug-
gests alternatives and choices while sounding helpful and
encouraging rather than being bureaucratic. If a manager
realizes that he uses negative language rather than positive
language, he can start improving his communication strat-
egy by incorporating positive language in written material.
Once this has been accomplished, it will be much easier to
change spoken language to present a more positive tone.
This is most helpful in the workplace. Negative language
conveys a poor image to coworkers and customers. Posi-
tive language projects a helpful, positive image that im-
proves the organizational climate (7).
Leadership Essentials for
Improving Communication
A successful communicator must be a catalyst in the
workplace. A catalyst in a laboratory setting is defined
as a substance that heightens or accelerates a reaction. In
the workplace, a catalyst is someone who sparks action in
others. Managers must choose to consistently behave in
ways that energize and mobilize others. There are several
beliefs that are essential to a successful catalyst’s behavior.
The first is trust, which is an essential ingredient of success.
The second is respect. People deserve respect and there is
value in diversity. The third belief is support. A key role of
the leader is to support others. By acting on these beliefs,
catalyst leaders practice what they preach, make a long-
lasting difference in the lives of the people who look to
them for guidance and support, and influence people who
can make a difference. Successful catalysts are successful
communicators. An integral part of this communication
includes understanding the interaction process as well as
the preferred communication styles of others.
The Interaction Process
When people interact, they generally have two kinds of
needs, the practical and the personal. Achieving a produc-
tive outcome can satisfy practical needs. Personal needs in-
clude feeling valued, understood, involved, and supported.
The interaction process consists of five guidelines that
equip the manager with the skills needed to be successful.
The five interaction guidelines are open, clarify, develop,
agree, and close. When opening a discussion, state the
purpose, the importance of the purpose, and the benefits
of accomplishing it. Clarify the discussion by collecting
facts and figures and then using them to explore issues and
CHAPTER 11. SUCCESSFUL COMMUNICATION 259
concerns. Develop the discussion by involving the person
or group by seeking their ideas. Agree on a course of action
by specifying what will be done, who will do it, and a date
when it will be done. Agree on a tracking process. Close
the discussion by confirming that everyone is clear on the
subsequent steps and committed to following through
with these steps. These guidelines satisfy practical needs
by ultimately ensuring that the discussion achieves its pur-
pose. Clarify, develop, and agree are guidelines that can be
used multiple times in a discussion. To keep the discus-
sion moving and on target, the manager must remember to
check for understanding and make procedural suggestions
when appropriate. Using this process provides the frame-
work for the discussion and ensures that the discussion
achieves a productive outcome. The interaction process
equips a manager with the skills needed to be successful in
any type of discussion or communication.
The interaction guidelines should be used in tandem
with five key principles. These principles meet personal
needs and build trust and stronger working relationships
among staff. The principles are maintain or enhance self-
esteem; listen and respond with empathy; share thoughts,
feelings, and rationales; ask for help and encourage in-
volvement; and provide support without removing respon-
sibility. When the manager communicates using these key
principles, it encourages trust by communicating to the
staff that the manager supports them. These key principles
support the interaction guidelines during discussions. By
using the interaction skills and key principles, the man-
ager is able to achieve critical business objectives while
enhancing working relationships, which in turn enhances
communication.
Meaningful, supportive feedback is also essential to
achieving success within an organization. Effective feed-
back should be timely, balanced, and specific. Timely
positive feedback strongly reinforces positive actions and
results. Timely developmental feedback provides sugges-
tions soon enough for people to adjust and enhance their
performance. Effective feedback balances suggestions for
improvement with reinforcement. Specific feedback pro-
vides a distinct picture of present performance and clear
guidance on actions that will increase the likelihood of
success in the future. Staff should be told what they ac-
complished (or did not accomplish), how they achieved
results, and why their actions were effective. This type of
feedback is effective because it provides a complete picture
of expected performance and enhances communication.
Adapting Communication Styles
One way of improving communication is to modify the
communication style of the speaker to match the indi-
vidual with whom one is communicating. Individuals can
be categorized in one of four ways: active doer, methodi-
cal plodder, people person, and thinker. Active doers like
260 MANAGERIAL LEADERSHIP
a minimal amount of discussion and a quick resolution.
They prefer bulleted information with an outline of key
points. Active doers want things to happen “yesterday.”
Methodical plodders thrive on extensive facts and data
with multiple channels of input. They prefer to mull the
situation over extensively before making a decision or a
commitment. A people person prefers a personable ap-
proach. He does not want to be inundated with facts and
data and is more interested in how issues or problems re-
late to people. The thinker visualizes the finished product
but is not interested in the details. She has no idea how
to translate needs into a finished plan and becomes bored
quickly with facts and figures. A successful communica-
tor understands these categories, knows her audience, and
then adapts her communication method to match the in-
dividual (Table 11.8).
There are four case studies in the appendix that illus-
trate examples of good and bad communication tech-
niques. For each case there is a case scenario, followed by
a brief discussion.
Summary
Effective communication is critical in any organization. It
is a two-way street that requires both talking and listening.
Smart managers realize that they do not have a monopoly
on experience and knowledge. They do much more listen-
ing than talking because they know talented individuals
can be found in every possible job in an organization—
from the very bottom rung of the corporate ladder all the
way to the top. By listening, smart managers often hear
good ideas. They must evaluate the situation and decide
whether they are best served by taking control and direct-
ing the conversation or by listening, asking questions, and
collecting ideas (18).
To be expert communicators, managers must acquire a
variety of skills and learn when to use the appropriate ones.
One of the most important skills is active listening. Effec-
tive managers learn and use active-listening techniques.
This sets the tone and contributes to a positive communica-
tion climate (8). Effective managers realize that it is impor-
tant to avoid communication barriers. Managers can avoid
these barriers by preparing, planning, and organizing the
environment as well as the time for exchange of commu-
nication. Employees are more receptive when the manager
Table 11.8 Adapting communication to specific listening types
Type Nonproductive Productive
Active doer Long explanations Bullet points
Methodical plodder Bullet points Long explanations
People person Memos, e-mails Personalized meeting
Thinker Details Big picture
Table 11.9 Communication tips to build strong working
relationships
Be positive and upbeat.
Engage and smile at others.
Be up-front—no hidden agendas.
Give criticism politely and always privately.
Remember things that are important to others.
Respect others and their opinions.
Do not say something behind someone’s back that cannot be justified
or said to them.
Listen actively.
acts in a supportive and positive manner. Communication
between managers and employees supports performance
and work (24). Managers must treat every communication
with the care it would receive if it were going to be delivered
to a very important customer (Table 11.9).
In every organization, communication from the man-
ager must be considered credible. Credibility means that
the staff finds the manager believable, trustworthy, and de-
serving of respect. A manager earns credibility by taking
positive actions after interactions with staff. These actions
must match positive words and good intentions. Cred-
ibility can be earned by following through, demonstrating
expertise, remaining calm under pressure, taking positive
approaches to problems, showing sincerity, and listening
before acting.
Managers enhance communication by being a catalyst
to others in the organization. Communication improves
when managers use an interaction process that meets both
the practical and personal needs of the staff. Smart man-
agers adapt their communication style to match the indi-
vidual with whom they are communicating.
Successful managers are successful communicators.
Effective communication benefits the entire organiza-
tion, since communication helps in accomplishing tasks
and solving problems. Communication requires several
primary ingredients: setting the climate and the tone, re-
moving barriers, listening actively, and achieving and
maintaining credibility.
KEY POINTS
■ Appreciate that communication is essential to all as-
pects of the daily work environment. The ability to
communicate is essential to leadership and vital to ev-
ery organization.
■ Recognize that while formal channels are the primary
means of official communication, the grapevine exists
in every organization. Management can often use the
information from the grapevine as well as provide the
grapevine with facts.

■ Evaluate the situation, the audience, and the content
of the message to determine the most effective type of
communication.
■ Identify communication barriers. Work toward elimi-
nating or controlling communication barriers.
■ Become an active listener. Learn active-listening tech-
niques and use them consistently.
■ Foster an organizational climate that supports effective
communication.
■ Recognize nonverbal messages, both those you are pro-
jecting and those you are receiving.
■ Utilize positive language when possible.
■ Practice the interaction process and use it to meet the
practical and personal needs of the staff.
■ Give positive feedback.
■ Adapt your communication style to match the individ-
ual with whom you are communicating.
■ Electronic communication has increased in the work-
place. This includes e-mails, texting, and social media
sites. Use electronic communication judiciously and
beware of pitfalls.
GLOSSARY
Active listener One who listens to the whole message, including
facts and feelings.
Communication The exchange of thoughts, messages, or infor-
mation by multiple mechanisms such as speech, signals, or
writing.
Communication barriers Any behavior or physical obstruction
that hinders or restricts the flow of meaningful communication.
Evaluative listener A listener who hears the words but makes no
attempt to understand the feelings of the speaker.
Formal channels of communication Communication networks
designed to follow the structure (lines of authority) of the
organization.
Informal channels of communication Informal routes that
people use to spread information to one another.
Marginal listener One who hears the words but does not com-
prehend the intent.
Negative language Words or phrases used to express and com-
municate thoughts and feelings by using excessive criticism and
confrontation.
Nonlistener A person who does not hear anything that is said.
Organizational culture Social and artistic expression, charac-
teristic of a community or population, that pertains to behavior
patterns, arts, beliefs, institutions, and all other products of hu-
man work and thought.
CHAPTER 11. SUCCESSFUL COMMUNICATION 261
Positive language Words or phrases used to express and com-
municate thoughts and feelings by using positive actions and
consequences.
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Adams Media Corporation, Avon, MA.
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mon & Schuster, Inc., New York, NY.
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cation, p. 14–16. In T. Alessandra and P. Hunsaker (ed.), Communi-
cating at Work. Simon & Schuster, Inc., New York, NY.
4. Alessandra, T., and P. Hunsaker. 1993. It’s how you say it, p. 139–
141. In T. Alessandra and P. Hunsaker (ed.), Communicating at
Work. Simon & Schuster, Inc., New York, NY.
5. Alessandra, T., and P. Hunsaker. 1993. The power of nonverbal
communication, p. 120–122. In T. Alessandra and P. Hunsaker (ed.),
Communicating at Work. Simon & Schuster, Inc., New York, NY.
6. Bacal, R. 2012. Improving communication—tips for managers.
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8. Blair, G. M. 2012. Conversation as communication. www.ee.ed
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Brounstein (ed.), Communicating Effectively for Dummies. Hungry
Minds, Inc., New York, NY.
10. Brounstein, M. 2001. Fixing your radar on the speaker, p. 51–
56. In M. Brounstein (ed.), Communicating Effectively for Dummies.
Hungry Minds, Inc., New York, NY.
11. Brounstein, M. 2001. Ten ideas for effectively handling tele-
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place. Suite 101 Media. February 13, 2011. http://lillianleblanc
.suite101.com/pros-and-cons-of-social-media-in-the-workplace
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Karni, K. R. Viskochil, and P. A. Amos (ed.), Clinical Laboratory
Management. Little, Brown and Company, Boston, MA.
17. McGinty, S. M. 2001. Electronic communication, p. 120–127. In
S. M. McGinty (ed.), Power Talk: Using Language to Build Authority
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18. McGinty, S. M. 2001. Putting language to work, p. 87. In S. M.
McGinty (ed.), Power Talk: Using Language to Build Authority and
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APPENDIX 11.1 Case Studies
CASE 1
Alvin has been hired as the administrative director of the labora-
tory in the hospital at a large academic medical center. After a
year Alvin has made little effort to get to know his employees.
He keeps himself “set apart.” For example, he never stops in the
hall to chat and makes no attempt to learn the names of his staff.
Alvin never eats lunch with his supervisors even though he fre-
quently walks by the table where they are sitting. In laboratory
meetings, he makes cryptic statements and tells bad jokes. He
seldom asks the supervisors for input and never uses the input
he receives. He tells the hospital administrator that he is resign-
ing and has taken a job elsewhere because he can’t work with the
supervisors.
Discussion: To be an effective manager and communicator
at his next hospital, Alvin must learn to develop his interper-
sonal skills. He must be available and approachable. He should
begin to win the confidence of the staff by asking for their views
on subjects and following through with some of their sugges-
tions. A few simple changes such as chatting occasionally with
the staff and learning names would go a long way toward im-
proving the environment. This will help to establish a better or-
ganizational climate, which could be the first step in improving
communication.
CASE 2
Katherine has recently been appointed interim administrative
director in the hospital Alvin just left. Katherine immediately
meets with her supervisors. Within her first month, she holds a
meeting on all three shifts. She presents information, listens to
employee concerns, and answers questions. Katherine makes her-
self approachable and available. She always has a friendly smile
on her face. When Katherine hears of misconceptions through
the grapevine, she takes steps to correct the misconceptions.
Discussion: Katherine promotes a climate that supports ef-
fective communication. She is an active listener. The staff will
communicate their concerns because she is perceived as recep-
tive. She frequently seeks input and acts on that input. Kather-
ine realizes the value of the grapevine in her organization and
CHAPTER 11. SUCCESSFUL COMMUNICATION 263
provides it with facts. She also uses formal channels to dissemi-
nate information and give staff the opportunity to ask questions.
Communication between the laboratory director and the staff
has improved greatly since Alvin left.
CASE 3
Alice makes an appointment to see the administrative director.
She is very agitated and upset about not being chosen for a pro-
motion. The administrator attempts to communicate with Alice
by using a soothing tone of voice, maintaining eye contact, and
being an active listener. When the director tries to give feedback
to her, Alice constantly interrupts, raises her voice, and speaks in
a very accusatory manner.
Discussion: For communication to be effective, both parties
must be active listeners. Because Alice is so distraught and up-
set, she is not hearing anything that the director is attempting
to say. The discussion is essentially nonproductive. After several
attempts at trying to get Alice to remain calm, the director asks
Alice to reschedule the meeting when she is in a more positive
frame of mind and is able to listen to feedback.
CASE 4
Ginny makes an appointment to see her supervisor about some
concerns she has in the laboratory data center. When she ar-
rives, the radio is blaring. There are multiple projects all over
the supervisor’s desk. The supervisor has his back turned to
Ginny and is working at his computer. He frequently shuffles
through the paperwork on his desk looking for the information
he needs for the project he is working on. Ginny attempts to ask
her questions and state her concerns but does not feel valued by
her supervisor.
Discussion: There are many barriers to effective communica-
tion in this situation. This supervisor needs to turn off the radio,
maintain eye contact, face the speaker, and stack work neatly on
the desk prior to the meeting. He should practice active-listening
skills, listening to Ginny and then suggesting a course of action. If
some crisis at the last minute makes this impossible, the best thing
to do would be to apologize to Ginny and reschedule the meeting.
Introduction
12
Things To Do before the Meeting
Determine If There Is a Need for a Meeting •
Determine What Type of Meeting Is Needed •
Develop the Agenda • Use of the Consent Agenda •
Determine Whom To Invite to the Meeting •
Determine the Venue of the Meeting • Determine the
Technology/Equipment Required for the Success of
the Meeting
Things To Do during the Meeting
Things To Do after the Meeting
Calculating the Cost of Meetings
Recurrent Meetings
How To Be an Effective Participant
in a Meeting
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch12
264
Effective Meetings
Mark G. Hanly
OBJECTIVES
To help the reader determine whether or not to have a meeting
To evaluate different methods of disseminating information
To explain how to set up and run an effective meeting
To provide pointers on how to be an effective meeting participant
To outline how to troubleshoot meeting problems
To help managers calculate the cost of a meeting
People who enjoy meetings should not be in charge of anything.
Thomas Sowell
I
f you are involved in any form of management, you will undoubtedly
have had that dreadful sensation, after leaving a long, rambling, poorly
organized meeting, that you have totally wasted an entire morning while
work that really needs to be done is piling up on your desk. Meetings have be-
come the bane of modern clinical laboratory management; they are extremely
expensive in terms of personal and employee time and can cost significant
amounts of money for paper and copying charges. Poorly organized, ineffec-
tive meetings are not only an incredible waste of resources, which can damage
the bottom line of any organization, but they can also be significantly damag-
ing to staff morale. In the corporate world, meeting costs have been estimated
to result in billions of dollars of wasted productivity annually (3, 5).
Despite these observations, an effective meeting can nevertheless be an es-
sential tool in the efficient management of a laboratory. However, all meetings
have to be planned and managed, or they will fill those involved with a dread
that stifles any utility the meeting may ever have had.
Directing an effective meeting or being an effective participant in a meeting
is an important way to cultivate in your staff the goal of working smarter and
not harder.
Below is a brief synopsis of the steps required to ensure that any meeting
you convene will be as effective as possible. The steps can be placed into
three general categories, although there is some crossover: (i) things to do
before the meeting, (ii) things to do during the meeting, and (iii) things to
do after the meeting.

Things To Do before the Meeting
Determine If There Is a Need for a Meeting
In essence, there are at least six reasons to hold a meeting:
• To comply with regulatory requirements
• To make a decision that requires the input of several
people
• To coordinate action on an issue
• To discuss a specific problem with the goal of achiev-
ing a solution
• To convey information to a group of people
• To motivate a group or team
Each of these reasons will require a meeting with a slightly
different structure, but the key components of holding an ef-
fective meeting will remain true no matter what the setting.
Before a meeting is called, it is necessary to evaluate if
there is a better way of communicating with the group. If
the issue is a simple, straightforward, easily understood
transfer of information, it is quite acceptable to inform the
staff of a decision with a clear, well-thought-out memoran-
dum. This may be issued in written form, sent via e-mail,
or in some modern laboratory information systems, pro-
grammed to appear on the sign-in screen at the time of
employee log-on. If it is decided that a meeting is needed,
planning is essential for success.
Determine What Type of Meeting Is Needed
An important factor in the strategy for arranging a suc-
cessful meeting is for the convener to have a clear idea of
why the meeting is being called. The convener must have
defined goals in mind and must ensure that sufficient
planning has been undertaken to secure those goals.
In the past, a “meeting” essentially meant a face-to-face
encounter with all participants in a single room. While this
is still the most common form of meeting, the growing size
of healthcare campuses and the complexity of practices, in-
stitutions, and organizations, as well as the development of
new technology, mean that other forms of meeting formats
need to be considered and may be more appropriate and
cost-effective than the traditional single-venue meeting.
Meeting options include the following.
Face-to-face meeting. This is the most traditional way of
holding a meeting but requires booking of an appropri-
ate venue, coordination with other departments such as
information technology to ensure that equipment is
ready, and prolonged time away from one’s work area.
In a large hospital complex, walking from one end to
the other may easily add up to 30 minutes on either end
of the meeting. This means that even a scheduled
60-minute face-to-face meeting will require 2 hours of
the workday. The great advantage of a face-to-face
CHAPTER 12. EFFECTIVE MEETINGS 265
meeting is that it facilitates personal contact; large
numbers of participants can be invited, and the close
personal contact allows for the building of networks
and the development of friendships. This environment
also permits attentive participants to read nonverbal
cues and body language from other participants.
Telephone conference/conference call. These types of
conferences are best utilized for small numbers of
participants and urgently called meetings with limited
agendas, but with planning, they may be utilized for
most meetings. They have as a great advantage the
reduction in the need for travel or time away from the
office, but the disadvantages are the generally limited
number of participants and the inability to read non-
verbal cues—that is, the nuances derived from facial
expressions and body language may be missed. In ad-
dition, the temptation is always there for participants
to multitask or be distracted by local issues, and par-
ticipants will need to be familiar with the equipment
used. Most telephones now have buttons to permit
conference calls, and there are several companies that
organize these calls through toll-free numbers (for ex-
ample, www.freeconference.com).
Videoconference. Videoconferences are increasingly being
utilized, particularly in large organizations or organiza-
tions spread over several locations. Several companies
now offer online videoconferencing programs that
greatly facilitate the introduction of this type of tech-
nology (e.g., www.webex.com). Like the telephone
conference, this type of meeting has the great advan-
tage of not requiring travel, which can be very expen-
sive. As with telephone conferences, the number of
active participants usually has to be limited. However,
videoconferencing does allow for an improved but not
complete access to the nonverbal cues of the meeting
participants. This technology allows for instant, clear
distribution of presentations such as PowerPoint im-
ages. Specialized equipment will usually be required,
such as video cameras, and some level of technological
understanding is usually necessary to allow partici-
pants to actively and usefully engage in the proceed-
ings. It is important to understand that the utilization
of this technology does not negate the need for proper
planning; indeed, it probably makes detailed planning
even more essential.
Pros and cons for each of these technologies are pro-
vided in Table 12.1.
Develop the Agenda
The next step in conducting an effective meeting is devel-
oping an appropriate, well-thought-out agenda. While in
the past it was routine to develop an agenda along the lines
266 MANAGERIAL LEADERSHIP
Table 12.1 Meeting types
Meeting Type Pros
Face-to-face Traditional
Easy to manage
Limited technology needed
Large numbers of participants can be accom-
modated without overwhelming confusion
Nonverbal cues available
Telephone conference No travel time
Side discussions cannot occur
Limited technology needed
Videoconference No travel time
Nonverbal cue evaluation improved
Permits visual sharing of presentations
of “Roberts Rules of Order,” it is now more common to
dispense with this style for a more user-friendly format.
Consideration should be given to including an “Action
Plan” column in all agendas, a feature designed to drive
the meeting toward setting goals and implementing deci-
sions that have been made. Planning the agenda should
begin early; in fact, time spent at the end of a meeting
identifying items to be discussed at the next meeting is
often time well spent. In addition, the meeting convener
should send out a call for agenda items as soon as plan-
ning for a meeting begins.
While agendas will vary to some extent depending on
the nature of the meeting and the issues to be discussed, a
useful agenda should be designed to provide the following
information. Figure 12.1 provides a sample agenda.
• Nature of the meeting
• Venue of the meeting with instructions if necessary on
how to get to the meeting
• Scheduled time of the meeting
• Contact person in charge of developing the meeting
• List of people who are invited to the meeting
• Order and type of presentations
• Time allotted for each presentation
• Information that must be assimilated, evaluated, or
brought to the meeting
• An action column for notes and decisions
Do not overload the agenda. Meetings that extend
over 60 minutes rarely produce useful results. Try not to
waste valuable meeting time by a long recitation of rou-
tine reports or other standardized, uncontentious infor-
mation. This can be curtailed by considering the use of a
consent agenda.
Cons
Venue needed
Staff members may be away from office
Increased cost due to travel time
Technological skill required of participants
Nonverbal cues cannot be read
Networking hindered
Distractions may be increased by participants’
temptation to multitask
Limited number of active participants
Technological skill required of participants
Technical equipment needed
Limited number of active participants
Use of the Consent Agenda
Consent agendas may be used to maximize the effective-
ness of some types of meetings by allowing participants to
focus on those agenda items that matter most (2). A consent
agenda is a bundle of items that is voted on, as a package,
without discussion. It differentiates between routine mat-
ters not needing explanation and more complex issues re-
quiring more detailed examination and decision making by
the meeting participants. The use of a consent agenda will
require the convener to decide on those items that warrant
full discussion. While experience will assist in determining
those components of the agenda that will be placed in the
consent agenda, attendees will all have an opportunity prior
to or at the start of the meeting to request removal of items
from the consent agenda so as to allow discussion.
Items most commonly found on consent agendas in-
clude minutes from previous meetings, confirmation of
decisions that have been discussed previously, and routine
informational reports that need no discussion or action
from members of the meeting. While it is a valuable tool
and is not difficult to use, a consent agenda requires disci-
pline and requires the following steps.
• Clear delineation of the components of the consent
agenda from the items within the agenda
• Distribution of the complete consent agenda material
in advance of the meeting
• Requirement that all meeting participants read the ma-
terials in advance
• Willingness of the convener, if requested by a meet-
ing participant, to remove an item from the consent
agenda
• Unambiguous introduction of the consent agenda
items at the start of the meeting
 CHAPTER 12. EFFECTIVE MEETINGS 267

[Organization/Department Name]
Meeting Agenda
Meeting Date Meeting Time
Meeting Venue

Type of Meeting:
Meeting Facilitator: Name E-mail: Phone Number:
:

Meeting Chair: Name

Invitees:

ITEM Presenter Time Action

Welcome/Call to Chairperson 3 Informational
Order/Overview
Approval of Chairperson 3 Vote
Minutes
Open Issues
1 Name of Presenter
2
3
Committee Reports
1 Name of Presenter
2
3
New Business
1 Name of Presenter
2
3
Summary Chairperson 3 Informational
Next Meeting Chairperson 2 Informational
Adjournment Chairperson Figure 12.1 Sample meeting
agenda.
I. doi:10.1128/9781555817282.ch12.f1

• Unanimous vote by meeting participants in favor of
accepting all components of the consent agenda at the
meeting
Determine Whom To Invite to the Meeting
This of course will depend on the type of meeting. How-
ever, the following points are useful to remember when
developing the list of participants.
• Invite only those staff members whose input is salient
to the meeting. To require people to attend meetings
unrelated to their responsibilities wastes their time
and can be demoralizing.
• Ensure that representatives from appropriate depart-
ments are invited. Sometimes this requires extensive
premeeting planning to identify who would be most
suited to deal with issues.
• If someone is not usually invited to a particular meet-
ing and the convener believes that this individual’s at-
tendance is necessary, it is important for the convener
to call the participant and explain why his or her pres-
ence is important. This can be very insightful and may
indeed change a decision as to who should appropri-
ately be invited to the meeting.
• Confirm with the attendees that they know the in-
formation they will be required to bring or present.
This can be done by an e-mail or placing a note on the
agenda at the time of distribution.
Determine the Venue of the Meeting
The following points should be considered when deciding
on a meeting venue.
• If a face-to-face meeting is to be held, choose a venue
with sufficient room for the invited attendees.
• Choose a centrally located venue if possible.
• Choose a venue with easy access if possible.
• Ensure that the room is suitable for any technology
you intend to use in the meeting such as a projected
presentation.
268 MANAGERIAL LEADERSHIP
• Ensure that the room has been booked in accordance
with facility guidelines and that the facilitator or con-
vener has obtained a confirmation of the booking.
Determine the Technology/Equipment Required
for the Success of the Meeting
Many face-to-face meetings include agenda items that will
require the use of technology such as video projection, or
there may be a combination of technologies, including
videoconferencing, utilized as a component of a face-to-
face meeting. Unless the convener is able to provide all of
the required technology, it is essential that the responsible
departments within the facility such as Information Tech-
nology or the Educational Department be contacted to en-
sure that the appropriate connectivity and equipment are
available, in place, and working at the time of the meeting.
If the number of participants in a meeting is large, con-
sider requesting appropriately placed microphones to en-
sure that all participants can be heard.
Things To Do during the Meeting
Similar to an orchestra, a meeting brings together the indi-
vidual players of a group or organization. Just as a conduc-
tor adapts to the type of music being played, it is essential
for the meeting convener to adapt to the meeting type.
However, as with an orchestra, it is equally important for
the meeting to be controlled, or even in the most expe-
rienced groups disorder will soon prevail. The convener
should consider the following.
• The meeting convener should arrive early and make
certain that the meeting room is appropriately set up
and that all the technology required is working.
• In small, defined groups, it is often worthwhile to
develop a folder for each participant that includes the
agenda, minutes from the last meeting, supporting
documents, etc. This provides the attendees with all
the information required to participate fully in the
events. These folders can be collected at the end of the
meeting and refreshed for use and distribution at the
next scheduled meeting.
• Taking control of the meeting does not mean being
rude but it does mean being assertive.
• Ensure that you speak audibly and definitively.
• Ensure that the meeting starts on time.
• Commence the meeting by ensuring that everyone is
brought to order.
• Set the tone for the meeting by being enthusiastic and
interested.
• If necessary, tell the participants where they can find
restrooms, telephones, etc.
• Clearly state the reason for and goals of the meeting.
• If components of the meeting are confidential, take an
early opportunity to remind participants of this fact.
• If this is the first meeting of a particular group, in-
troduce yourself and ask attendees to provide a brief
introduction for themselves, including who they are
representing.
• If the meeting is an established group and a new per-
son has been invited to the meeting, introduce the new
attendee and again allow everyone the opportunity to
provide a brief introduction for themselves.
• If a consent agenda is to be utilized, complete its adop-
tion as the first item in the proceedings.
• While ensuring that all components of the agenda
are addressed, consider the use of a dynamic agenda,
particularly if there is a participant who is present only
for a single agenda item. Allow that person to present
his or her information early and then leave rather than
sitting through the delivery of information that has no
relevance for them.
• Pay attention to what is being said, and keep the dis-
cussion on the relevant topics. Refocus the conversa-
tion when needed.
• Be prepared to request clarification of any answer
given by a participant if it is unclear. At times, particu-
larly if you see that other participants are confused by
the answer, it may be useful to confirm that they have
understood the information.
• Interruptions can be very disruptive to meetings. Al-
though this is very difficult in the healthcare arena,
discourage all interruptions and make it clear to your
personal staff that you are in a meeting and should
only be contacted in the event of an emergency.
Showing this form of courtesy to the people you have
brought to the meeting indicates the degree of impor-
tance you place on their time.
• Control meeting time.
• Questions will inevitably be part of every meeting. If
some agenda item obviously requires more detailed
discussion, consider the formation of a subcommittee,
which can report back after studying the issue. Com-
plete the tasks or delegate the issues for consideration.
• Ensure that meetings do not arise within meetings. If
a group within the meeting begins to discuss a topic
separate from the group, indicate that you will provide
them a venue to discuss the topic if it is pertinent to an
agenda item.
• Ensure that when a decision has been made it is clearly
stated in the minutes.
• If action is decided upon, make certain that the action
has been clearly defined and that both the person re-
sponsible for this action and the time by which it must

be completed are understood. In other words, define the
action in terms of “What action; by whom; by when.”
• As you approach the end of the meeting, spend a mo-
ment to recap the meeting’s achievements. If necessary,
a brief review of decisions and commitments made can
be very useful.
• Ensure that the attendees leaving the meeting have un-
derstood what is required of them, and ensure that all
questions have been answered.
• Spend a few moments discussing the next meeting in
terms of date, venue, and agenda items.
• After the meeting, ensure that minutes, documents,
and any material of a confidential nature have been
collected and removed from the meeting venue.
Things To Do after the Meeting
As soon as it is feasible after the meeting, the convener and,
if present, the person responsible for taking the minutes
should meet and review all documents and notes prior to
completing the official record of the meeting (1). Accurate,
timely distributed minutes are important to document the
decisions made at the meeting, and in addition, they can be
key to ensuring that participants complete the tasks allotted
to them. After the meeting, the minutes should be promptly
prepared and distributed to all attendees. The minutes must
indicate clearly the name of the meeting, the date on which
the meeting occurred, the individuals present at the meet-
ing, and the decisions made and responsibilities assigned.
While there is no necessity for the minutes to report ver-
batim what was said, meeting participants who presented
should be identified in the minutes, as should those partici-
pants who offered motions, seconded motions, and voted.
If a vote was required and the vote was not unanimous, it
is useful to identify who voted for and against a particular
decision. If action is to be taken, the nature of the action,
who is responsible for taking the action, and when the ac-
tion will be completed must be clearly stated.
Calculating the Cost of Meetings
As mentioned earlier in this chapter, meetings can be ex-
pensive. Although it is extremely difficult to determine the
true cost of a meeting, the most expensive component is
the salaried time of the participants. Calculators are avail-
able online that allow at least this expense to be assessed; see
www.effectivemeetings.com/diversions/meetingcost.asp.
Recurrent Meetings
While some meetings, particularly those required by ac-
creditation agencies and medical staff bylaws and ongoing
meetings to continue the direction of a busy laboratory,
CHAPTER 12. EFFECTIVE MEETINGS 269
will have to be scheduled regularly, not all “meeting series”
should be considered a commitment for life. Meetings des-
ignated for a particular activity, such as the introduction of
a new piece of equipment or a new laboratory information
system, should have a defined life span. Once the task al-
lotted to the group has been completed, the meeting series
should end. Indeed, it is often worthwhile with any regular
scheduled meeting to periodically discuss with the partici-
pants whether the meeting still needs to be held or if the
meeting frequency needs to be changed. If a meeting regu-
larly runs over the allotted time because too many items
are on the agenda, it may be worthwhile to meet more fre-
quently with a more manageable agenda.
How To Be an Effective Participant
in a Meeting
Although much of what has been addressed above refers
particularly to a person who is planning a meeting, skills
are also required to be a useful meeting participant (4).
Preparation prior to the meeting is as important for the
participant as it is for the meeting convener.
The following points will certainly assist you in being
an effective participant.
• Ensure that you have read the minutes from the previ-
ous meeting.
• Make sure to read and understand any supporting
documentation provided for discussion at an upcom-
ing meeting.
• Make sure that any presentation you are to make is
succinct and clear.
• If you are bringing a presentation on a disk or “stick
drive,” you must ensure that the presentation is cor-
rectly loaded.
• If you are bringing documentation for distribution,
ensure that there are enough copies for all those who
will be required to read and evaluate the document.
• If particular questions can be anticipated, make a
brief note of what issues may need to be discussed or
brought up for clarification at the upcoming meeting.
• Make clear to your staff that you are in a meeting and
should not be disturbed except for an emergency.
• Consider placing your phone and pager on silent mode.
• Arrive on time.
• Wait your turn to talk. In most meetings the convener
will indicate when you are to speak.
• Speak clearly.
• Listen attentively and participate actively.
• Keep the discussion and comments pertinent to the
agenda items.
270 MANAGERIAL LEADERSHIP

• Answer definitively. effective participant is also key to a meeting’s success and

• Monitor your nonverbal cues to ensure efficient, non- will allow you to work smarter rather than harder. Specific
confrontational completion of the meeting. recommendations to deal with meeting problems are pre-
sented in Table 12.2.
• Take notes, particularly of tasks requested of you.

KEY POINTS
Summary ■ Make meetings effective by holding them when:

Face-to-face meetings are not always required to share in- —They are necessary.
formation. Unnecessary or poorly planned meetings can —There is a specific goal.
be problematic and wasteful of resources. However, if after
■ Provide a detailed agenda.
consideration, the decision has been made to hold a meet-
ing, define the goal of the meeting, prepare for the meeting ■ Provide supporting documentation.
in detail, and control the meeting environment. Being an ■ Expect everyone invited to be prepared.

Table 12.2 Quick reference guide for troubleshooting meetings

Problem
Meeting seems to have no purpose
Venue not ready
Equipment not ready
Meeting fails to begin on time
Participants do not want to attend
meeting
Participants attend meeting
unprepared
Overall planning appears minimal
or missing
Meeting objectives are unclear
Participants appear to be disinter-
ested and confused
There are interruptions
Undercurrent discussions or meet-
ings within meeting occur
One person dominates the discus-
sion (could be the leader or a
participant)
The overall discussion appears to
stray from the original agenda
The meeting runs over the allotted
time
Participants are not clear about
what they have been asked to
accomplish
Meeting appears to end without
conclusion or decisions
The participants do not receive a
written summary in the form of
minutes
Failure of the leader to follow up
on meeting decisions, assignments
Solution
Evaluate the need for the meeting. Evaluate whether other methods of delivering information would
be better.
Reassess preplanning procedures.
Reassess preplanning procedures.
This indicates disregard for the value of participants’ time. Begin on time, regardless of whether or not
everyone is present.
Evaluate whether the meeting is needed, evaluate whether the participants are needed at the meeting,
have a clear idea why the meeting is being held, and be able to explain to the participants why their
attendance is important. If you cannot do this, then you must ask if you need the meeting.
Ensure that the agenda is distributed well before the meeting and the participants understand why they
are needed and what information they are required to pass on to the group.
Planning ahead of time will increase the level of productivity and decrease the overall meeting time
required to meet objectives.
Begin the meeting by clarifying objectives per written agenda (distributed well ahead of time).
Make sure the correct participants are present (relevant to the topics under discussion). Continue to
clarify goals throughout the discussion. Provide time for questions.
Make certain that it is made clear that these are unacceptable. Ensure that your staff knows where you
are and that interruptions without good cause should not occur. Limit the length of the meeting. The
shorter the meeting, the fewer the interruptions that will occur.
Keep the meeting on track. Inquire of the participants in the undercurrent discussion if there is infor-
mation that needs to be shared with all. Make it very clear that interruptions are not acceptable; talking
during any presentation is also unacceptable. Set up the ground rules from the beginning.
It is the leader’s responsibility to ensure that everyone has input and to prevent one person from taking
over the meeting; be polite but firm.
The leader needs to keep the discussion on track and to follow the written agenda.
Prior to the meeting, set up realistic time frames; keep the meeting on track and moving forward.
Use action column of agenda to indicate who has to accomplish what by when.
Make sure a verbal summary is provided and that all participants understand the decisions that were
made.
A recorder should be identified before or at the beginning of the meeting. Record and distribute writ-
ten minutes within a day of the meeting; this written documentation serves as a reminder of decisions,
pending issues, “to-do” responsibilities, etc.
This lack of follow-through renders the meeting ineffective. Confirm assignments and due dates, and
set up a calendar for confirmation of task completion.

■ Start the meeting on time.
■ Keep the meeting on topic.
■ Control unnecessary discussions.
■ Summarize the meeting at the end with particular ref-
erence to the conclusions, goals met, and tasks to be
completed.
■ Stop the meeting on time.
■ Promptly provide written minutes.
■ Periodically review the necessity for continued meetings.
GLOSSARY
Agenda A list of things to be discussed and acted on at a meeting.
Consent agenda A useful tool in managing a meeting, which
allows premeeting evaluation of routine material that can be
voted on without need for significant discussion or review.
Convener The person who calls a meeting and plans to act as
the chairperson.
Facilitator The person who will assist the convener in planning
a meeting.
CHAPTER 12. EFFECTIVE MEETINGS 271
Meeting Interaction between two or more people to discuss a
topic of mutual interest or importance.
Minutes An official record of the meetings of an organization.
REFERENCES
1. Benson, D. D. 1982. The Art of Taking Minutes. Snyder Publishing
Company, Los Angeles, CA.
2. Dorfman, R. F. 2000. Use a consent agenda to streamline board
meetings. Assoc. Manag. 52:91.
3. Mosvick, R. K., and R. B. Nelson. 1987. We’ve Got To Start Meet-
ing Like This: a Guide to Successful Business Meeting Management.
Scott, Foreman, Glenview, IL.
4. Pohl, A. N. 1991. Committees and Boards: How To Be an Effective
Participant. NTC Publishing Group, Lincolnwood, IL.
5. Romano, N. C., Jr., and J. F. Nunamaker, Jr. 2001. Meeting analy-
sis: findings from research and practice. In R. H. Sprague, Jr., and
J. F. Nunamaker, Jr. (ed.), Proceedings of the Thirty-fourth Hawaii
International Conference on System Sciences, Maui, HI, USA, Janu-
ary 3-6. IEEE Computer Society Press, Washington, DC. http://www
.hicss.hawaii.edu/HICSS_34/PDFs/CLUSR19.pdf (last accessed July
20, 2012).
Introduction
Conflict Defined
13 Conflict Management
What Conflict Is and Is Not Jean Egan
Constructive Conflict
Destructive Conflict
Common Causes of Conflict
Internal and External Origins of Conflict
Internal Sources of Conflict • External Sources of
Conflict
OBJECTIVES
Power Is the Underlying Issue
Two Basic Beliefs about Handling
To define and describe conflict
a Conflict To differentiate between constructive and destructive conflict
Five Conflict Resolution Styles To identify five different strategies for resolving conflict and the pros and cons
Working with Each Style To Resolve of each style
Conflict
To describe the role of the manager in resolving conflicts
Creating an Environment Where Conflict
Is Addressed and Resolved To discuss the seven-step model for resolving conflict
The Role of the Manager • The Role of the Staff •
Creating the Right Environment To Resolve Conflict
A Communication Model To Manage
and Resolve Conflict You cannot shake hands with a clenched fist.
The GGMG Model
Mahatma Gandhi
A Seven-Step Plan for Resolving Conflict

A
When Conflict Resolution Fails lthough conflict is inevitable, it can be healthy for an organiza-
Key Steps in Resolving Conflict
tion if it is addressed and resolved in a rational manner. While conflict
What the Organization Can Do can be destructive or constructive, managing conflict is a key compo-
Summary nent to structuring a successful workplace. Success depends on being able to
KEY POINTS acknowledge, manage, and resolve conflict, and managers need to take the
GLOSSARY lead in helping staff recognize and manage conflict. Staff training and develop-
REFERENCES ment along with an organizational climate that values conflict resolution are
APPENDIX keys to healthy conflict resolution. Also, open dialogue and creative problem
solving are constructive methods to use when dealing with conflict.
The ability to manage and resolve conflict is a universal skill that crosses
all life domains, and recognizing and managing conflict is a skill that can be
learned. All successful managers must exercise the skills to identify, analyze,
and resolve conflict. When conflict is managed and resolved, it can be a source
of growth for individuals as well as institutions. Ultimately, the success of an
organization depends on how well staff members recognize, understand, and
resolve conflict, hopefully within a climate and culture where conflicts are an-
ticipated and not ignored.

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch13
Conflict Defined
Conflicts or potential conflicts occur in every life domain and can range from
simple disagreements to complex arguments with each person insisting on his
or her version of what is right. Conflict can be defined as the simultaneous
arousal of two or more incompatible motives (5). A second common view of
conflict is one person blocking another from reaching her goal (2). A conflict
is simply a disagreement over goals or how to accomplish them. Two strangers

272

may both want to park their cars but have a conflict over
who will get the single open space they have each spotted.
Members of a couple may agree that they both want to take
a vacation but disagree about where to go or how long to
be away. Roommates may agree that sleeping is an impor-
tant life activity but disagree about the hours during which
sleep should occur. Coworkers may want to take time off
around a major holiday, discuss it between themselves, and
work out an arrangement, but their manager might not
want anyone taking vacation at that time of year. Conflict
is inevitable; how you deal with it makes all the difference.
Conflict can be resolved at any level in an organization.
It does not always involve taking it up the chain of com-
mand. In fact, the healthiest organizations are those where
employees or members at every level are empowered to
resolve conflict. An organization that values conflict res-
olution will be healthy and has a much better chance of
survival in a competitive environment. Organizations that
try to ignore or cover up conflicts will be rife with high
rates of turnover, unhappy staff, poor communication, lost
time spent griping to or about coworkers, rigid adherence
to rules, lack of cooperation, and reduced creativity. People
are discouraged when they are forced to live or work in
situations where conflict goes unresolved. Workplace vio-
lence is the worst form of frustration over unresolved con-
flict. Successful managers in the future will need to know
how to recognize, address, resolve, and even encourage
conflict. They must train their staff to resolve conflict and
reward people for doing so (7).
What Conflict Is and Is Not
Conflict tends to be viewed as a negative event. However,
it, like stress, is neither good nor bad. In fact, conflict can
lead to growth if it is resolved. The disagreement or dif-
ferent views that people bring to a given situation can be
helpful and constructive if they lead to open dialogue and
creative solutions. The goal of conflict is growth and posi-
tive change. What most people refer to when they use the
word “conflict” really is what they experience when they
are caught in a conflicted situation and either they have
no power to improve it or someone else has forced an out-
come on them with which they do not agree. This is a clas-
sic definition of unresolved conflict. Unresolved conflict
is always destructive. Conflict is a simultaneous arousal of
two or more incompatible motives (5). It exists when a gap
develops between what someone expects and the reality
that exists (7). Figure 13.1 illustrates how conflict begins.
Constructive Conflict
It is important to draw a clear distinction between con-
flict that is constructive and conflict that is not. Conflict
is constructive when the involved parties recognize and
CHAPTER 13. CONFLICT MANAGEMENT 273
Expectations
Gap
CONFLICT
Reality
Figure 13.1 How conflict begins.
doi:10.1128/9781555817282.ch13.f1
acknowledge that they have a disagreement and actively
work to resolve it. Constructive conflict resolution results
in outcomes that may involve a compromise on both sides,
and the best interests of the organization are served by
addressing the conflict (4). Real conflict resolution takes
time to work out a creative solution so that both parties
are happy with the outcome. Conflict has been resolved if
both parties walk away satisfied and neither one harbors
the desire to even the score later.
Destructive Conflict
Destructive conflicts occur when people try to ignore a sit-
uation and when one person forces a resolution on another
that results in a win-lose outcome. The net result is that
the organization is harmed (4). People often try to ignore
a brewing conflict. They may have learned to keep their
mouths shut and keep their heads down. They may have
seen a negative outcome for a coworker who tried to bring
a conflict to the attention of a supervisor. They may have
tried to resolve an issue and felt discouraged and gave up.
Managers need to intervene to resolve destructive conflict.
Common Causes of Conflict
Conflict in the workplace differs from conflict in our pri-
vate lives in one major way—power. Power is not gener-
ally evenly distributed at work. The work environment is
almost always set up in a stratified hierarchy. That “pecking
order” may be established in formal or informal ways (or-
ganizational charts versus how things really get done), but
power is not evenly distributed to all the staff. Even among
members of the same profession, power is not equalized.
Among physicians, for example, seniority, specialty, tenure,
political connections, grant funding, research projects, gen-
der, race, and a number of other overt and hidden criteria
impact who has power and who is expected to yield to it.
274 MANAGERIAL LEADERSHIP
Among laboratory technical staff, power differentials
can occur based on differences in formal or informal
training and statewide or national credentials, as well as
years and types of experience. When offices or companies
merge, political alliances, seniority, and old reporting re-
lationships have to be renegotiated in combined offices.
These and myriad other potential conflicts need to be an-
ticipated, addressed, and resolved. Otherwise, the under-
lying issues build until they erupt into hostile differences.
Common causes of conflict include the following.
• Incompatible goals
• Poor communication
• Style of supervision
• Different ideas about task achievement
• Different perceptions
• Different values and philosophies
• Personality differences
• Work assignments
• Approaches to change
• Competition
Conflict is going to exist. These major categories of conflict
must be identified and addressed before they build into
major disruptions to the office or laboratory environment.
Internal and External Origins of Conflict
Sources of conflict can be further differentiated by internal
or external origins. There are stressful life events that occur
both at work and at home. Individuals have different toler-
ances for managing life stresses. The ability to compart-
mentalize stress plays a major role in the ability to tolerate,
address, or appropriately respond to situations of conflict.
Internal Sources of Conflict
Work-related, or internal, conflict has its origins in the
workplace. It can, however, be affected by nonwork (exter-
nal) conflicts. Typical examples of internal conflict include
the following.
• Work that is not challenging, that has become routine,
or that is boring
• Work that is too challenging because of staff shortages,
lack of training, or time pressures
• Poor relationships with coworkers
• Poor relationship with the supervisor
• Pay that does not seem fair for the work performed
• Feeling undervalued, devalued, or unappreciated
• Office politics
• Favoritism
• Lack of resources to successfully complete the job, in-
cluding time, technology, and tools
These types of internal conflicts develop over time. They
may result from a lack of attention to employee morale,
misunderstandings that are ignored, lack of emphasis on
teamwork, lack of staff and management training, or poor
management practices. Conflict in the workplace can be
managed with good employee relations and setting perfor-
mance objectives that are uniformly applied and measured
for all staff, as well as by providing training in teamwork
and conflict management.
External Sources of Conflict
Employees all have stressors in their private lives that can
negatively affect their performance at work. These external
sources of stress can contribute to conflicts at work. Ex-
amples include the following.
• Interpersonal stress at home
• Scheduling conflicts between work and home demands
• Traffic
• Medical problems
• Illness of family members
• Life transitions such as marriage, divorce, becoming
a parent, death of a family member, or retirement of a
spouse
Frequently, these types of conflict occur simultaneously.
An employee may have had a fight with his teenager before
work, have encountered two traffic accidents en route, and
be debating whether he can afford the time and money to
pursue additional college coursework. These issues weigh
on the employee before he ever gets to the workplace. A
small instance of friction with a coworker on top of the
already existing external stressors can combine to create
a larger problem. That problem may manifest itself as a
negative attitude when it really is a symptom of mounting
stress. Stress that continues to build is likely to erupt as
workplace conflict. Managers are wise to know their em-
ployees and show sensitivity to both the work and non-
work demands all staff face. Managers can take steps to
communicate that conflicts are normal, are to be expected,
and can be a source of growth in the office when they are
addressed and resolved.
Home-related problems are not left at the office door
when an employee reports to work. Similarly, work-related
problems are carried home. Staff members need to under-
stand how to identify sources of conflict they bring to the
work environment, manage their own sources of stress,
and work to collaborate with coworkers to resolve conflicts
at work. Having an employee assistance plan, providing op-
portunities to talk formally and informally with managers
and coworkers, and training in stress reduction can help.

Resolving conflicts improves productivity at work and life
satisfaction at home. With proper training, managers can
identify multiple sources of stress, spot conflicts that are
building, and take action to address them. Employees who
learn conflict resolution skills will experience the benefits
in both domains of life.
Power Is the Underlying Issue
Power imbalances at work are a major factor in conflict
and conflict management. People receive and exercise
power and authority in different ways. Power may be re-
lated to their position in the organization, seniority, title,
rank, education or training levels, credentials, political
connections, reporting relationships, history, gender, race,
or a host of other criteria. When power is shared and dis-
tributed in ways that are perceived as fair, conflict is mini-
mized. Shrinking the gap between expectations and reality
reduces conflict. If conflict is not resolved, it can erupt into
workplace tension or hostility, and usually results in de-
structive interaction patterns. Regardless of the source of
the conflict, it still needs to be resolved. Power imbalances
make resolution challenging, but conflict can be resolved
if all parties are willing, and skilled in conflict resolution
techniques. The goal of conflict resolution is mutually
agreeable solutions. When all parties approach conflict
with an openness to change, solutions can be found (10).
Two Basic Beliefs about Handling a Conflict
Our history with conflict, whether it is resolved or not, and
the outcome of a conflict both influence our willingness to
engage in trying to address and resolve conflict. Our ap-
proach to conflict can take one of two polar positions. Paul
and Paul (10) characterize this polarity as two dichoto-
mous choices in looking at a conflict. They state that when
faced with a conflict, we can choose to react either with the
intent to protect ourselves or with the intent to learn. The
choice we make leads to very different outcomes.
The intent to protect themselves leads individuals to
defend their position or behaviors and results in negativ-
ity and distance between the parties. Approaching conflict
with the intent to learn about the other person’s views, share
your own views, and find a mutually agreeable resolution
leads to a healthy outcome and collaboration between the
parties. An awareness of whether one is choosing to pro-
tect or to learn is the first step toward change. Suspending
the pattern of defending one’s position, letting go of the
need to blame, and adopting a willingness to learn will re-
sult in a positive outcome. Conflict can only be resolved
when both parties are willing to approach a disagreement
with the intent to learn, change, and grow.
Another similar but expansive view of conflict is of-
fered by Kritek (9). She states that in attempting to address
CHAPTER 13. CONFLICT MANAGEMENT 275
conflicts, the parties can choose between staking and win-
ning their “claim” or approaching conflict to create a work-
able outcome for everyone involved. Kritek’s approach to
conflict recognizes that people often negotiate at an uneven
table. There are different levels of power between parties in
a conflict. If one is focused on claiming victory, the outcome
is already determined. There is a win-lose certainty, creat-
ing a zero-sum game where one party wins by making the
other party lose. If both want to claim victory, the outcome
is the same: win-lose. However, if both parties are interested
in creating a mutually agreeable resolution, both can win. A
truly collaborative outcome is possible only if neither party
needs to be right or to win by making the other person lose.
The desire to reach a mutually agreeable resolution is
the core of successful conflict resolution. When all the par-
ties involved want to resolve the issue, are willing to com-
promise, and seek an outcome that leaves everyone whole,
conflict can be resolved. In the absence of this approach,
conflict remains unresolved.
Five Conflict Resolution Styles
Five common approaches for conflict resolution are forc-
ing, accommodation, collaboration, avoidance, and com-
promise (5). Most people have a primary style, but it is
possible to draw upon more than one approach when
faced with a conflict. Two distinct strategies are at play
among the use of these five approaches. Each strategy
has advantages and disadvantages. At issue is the balance
between concern for people and concern for results (3).
Figure 13.2 illustrates the dynamics of these two polarities
and how each of the five conflict resolution styles operates.
One primary difference is the degree to which communi-
cation between parties is a goal. Collaboration is possible
with a strong concern for people and results. Aggression,
or forcing, results from a focus on results at the expense of
relationship building. Avoidance results when a person de-
termines that an issue is unimportant or the person lacks
Figure 13.2 Conflict resolution styles based on task or people
concerns (3). doi:10.1128/9781555817282.ch13.f 2
Accommodation Collaboration
Concern
Compromise
for
People
Avoidance Aggression
Concern for Results
276 MANAGERIAL LEADERSHIP
the skills or drive to address the issues at hand. Accom-
modation is the end result of a strong desire to please the
parties involved, even if task results are delayed or made
subordinate. Compromise results from a middle ground
with a balance between task results and people, coupled
with a strong desire to move ahead. Compromise often
sacrifices detail for speed to obtain a “good enough” out-
come for all concerned.
A humorous method to understanding conflict resolu-
tion styles is to compare the five styles to animals (6), as
shown below.
The Teddy Bear. People who use this approach to conflict
would rather accommodate your needs than debate,
speak up, or ruffle any feathers with their own views.
Their approach is “You win—I give in.”
The Turtle. People who use this approach to conflict would
rather avoid conflict altogether. Like the turtle, they
pull into their shells, avoiding, ignoring, stonewalling,
or otherwise escaping the entire issue of conflict.
The Owl. People who use this approach to conflict would
rather collaborate and work diligently to resolve a con-
flict no matter how long it takes. The Owl shares ideas
and works to bring about a win-win outcome. Those
with this approach will not settle for anything less than
total satisfaction for all sides in the conflict.
The Fox. People who use this approach to conflict would
rather compromise. The Fox likes to engage in mean-
ingful discussion and move quickly to a resolution
that both parties can live with. Each party gets some of
what they need but also makes concessions by giving
up something else.
The Shark. People who use this approach to conflict force
others to give in so that the Shark can win. It is a clas-
sic “kill or be killed” approach, an “I win, you lose”
outcome. Sharks move quickly to vanquish anyone in
their way to get what they want—a win at any cost.
Working with Each Style To
Resolve Conflict
The Teddy Bear wants to get to agreement and often goes
along with the group even when he or she does not want
to do so. If you manage a Teddy Bear, get her to state what
she really wants and what she is willing to do, and have all
parties sign an agreement to preserve the outcome.
The Turtle does not like conflict. Managers need to gen-
tly coach the Turtle out of his shell, point out the benefits
of addressing the conflict, reassure him of his safety, and
provide lots of reinforcement for him to engage in the con-
flict resolution process.
The Owl wants to engage and take as much time as is re-
quired to resolve a conflict so that all parties are completely
satisfied. In a busy work environment, that is not always
possible. Managers need to encourage a deadline, help
the Owl focus on the priorities, brainstorm options, find
agreement that meets the majority of the priorities, and
then move on to the next task.
The Fox wants to compromise and do so quickly. Man-
agers can help the Fox put his cards on the table, set a
deadline to explore options fully, find areas of overlap, get
agreement, and then move on. Taking time to fully explore
the options is a key to success with a Fox.
The Shark is a difficult player to manage. The Shark
needs to be managed in ways that encourage her to see the
good of the group, not just her own goals. Winning at any
cost is not effective for the organization. Requiring her to
engage in a 50% win–50% concession approach can con-
tain the Shark. Put any agreements into writing and have
the Shark sign off on the document.
Creating an Environment Where Conflict
Is Addressed and Resolved
The Role of the Manager
Managers face multiple demands in today’s complex work-
ing environments. Managing conflict is one of the key skills
all managers need to master. Unresolved conflicts result in
the staff becoming discouraged and disillusioned and giving
up. Problems do not go away when we try to ignore them.
Training staff on how to recognize and resolve conflicts em-
powers them to manage their own experience at work. Es-
tablishing an atmosphere of trust and open communication
is critical to addressing conflict. Conflicts will occur. How-
ever, they can lead to growth and positive change.
The job of every manager involves planning, organiz-
ing, directing others, and controlling. The ability to man-
age conflict runs across each of those skills. Managers who
plan well will establish an atmosphere of trust and open
communication in the workplace. Those who train staff to
recognize and resolve conflicts, who direct staff to man-
age conflicts successfully, and who organize opportunities
for open and constructive communication will control the
successful workings of the workplace and the quality of
work life for everyone in the laboratory environment.
The Role of the Staff
It is important to create an atmosphere in the laboratory
or office environment where individuals are rewarded for
raising issues of conflict that need to be addressed and
resolved. The biggest problems result when people try to
ignore conflict. It is essential to value and reward staff for
bringing issues of conflict to the forefront. The key to suc-
cess is empowering staff members to identify conflicts and
to work as a team to resolve them. Staff members need to
be encouraged to take steps to identify, analyze, and solve

problems at the lowest level possible. Individuals need to
be given the power and authority to resolve issues on their
own. Managers need to support this process by regularly
reminding staff to communicate, collaborate, and resolve
problems quickly. The first question a manager or supervi-
sor needs to ask a staff member when she brings a conflict
forward is whether she attempted to resolve the issue at a
lower level. Taking a conflict to a supervisor should occur
only after individuals have attempted to resolve the con-
flict themselves.
Creating the Right Environment To Resolve Conflict
Every member of the staff plays a role in creating the en-
vironment at work. The culture of the organization either
supports resolving conflict or supports ignoring it. In to-
day’s stressful world, conflicts must be recognized and
resolved quickly for the sake of the staff and the organiza-
tion. Managers need to have simple models to use to re-
solve conflict.
A Communication Model To Manage
and Resolve Conflict
The GGMG Model
Psychologist Robert Carkhuff (1) suggests a model for in-
terpersonal communication that works well when resolv-
ing conflicts. In most conflicts, each person wants to be
right and communication skills are seldom practiced. The
give-get-merge-go (GGMG) model allows all parties to
speak, be heard, and negotiate a mutually agreeable resolu-
tion and to implement it.
Give Get Merge Go
During a conflict, two individuals frequently give infor-
mation and expect the other person to simply implement
the directive. A common form of this interaction would
be “I give you instructions—now go follow them.” If the
person on the receiving end does not want to comply with
the directive, a conflict results. A battle of wills can ensue
in which each person tries to convince the other to agree
with him. No mutual understanding is reached, no merger
of ideas is achieved, and progress is stymied.
When the entire GGMG model is implemented, this
tug-of-war pattern stops. With the GGMG model, all par-
ties involved need to share information about what bothers
them and what their goals are. This is the “give” and “get”
portion of the model. The parties need to listen and pay
attention to what each person wants. In the midst of the
interaction, there is an opportunity to find overlap in their
goals. This is the “merge” step. Once overlapping goals are
identified, the parties take steps to reach the newly agreed-
upon goals. The “go” piece is the final step that leads to
conflict resolution.
CHAPTER 13. CONFLICT MANAGEMENT 277
A Seven-Step Plan for Resolving Conflict
There is a seven-step model for resolving conflict that can
be implemented in any organizational setting. It can be
used to resolve all types of conflict. The steps are as follows.
1. Identify the source of the conflict. What was the source
of the conflict? Is it one major issue? Has there been
simmering hostility or frustration over time between
the parties? Do the parties involved want it resolved?
Can it be resolved? What is the goal of each party?
2. Identify the players. What are the personalities? What is
their history? Did they ever get along? Do you want to
keep both people employed? Why? Do they know that?
3. Have participants state their goals. What are the areas
of agreement or overlap? Have each person paraphrase
the other’s points. It encourages them to listen to each
other and helps avoid a focus on being “right.” Focus
on what behaviors are getting in the way of effective
workplace interaction.
4. Explore options. What behaviors need to change? You
cannot change an attitude, and it is not essential that
you try. What behaviors need to change for the indi-
viduals to work effectively with one another? Identify
common goals. What steps need to be taken to change
those behaviors? Ask the individuals involved to make
suggestions of what they are willing to do to improve
their part of the problem.
5. Pick a solution. After exploring options, select the
ideas that are workable and can be immediately imple-
mented. Focus on behavioral steps and the desired
outcome. Make sure the outcome is win-win or at least
a compromise. Set a reasonable time frame for the em-
ployees to implement the solution.
6. Summarize and seek commitment. State the ideas to
which all parties have agreed. Hold the individuals ac-
countable. You may have all the parties sign an agree-
ment that states what behavioral steps they have
committed to implement. Provide support and re-
sources for helping the individuals make the changes
they agree to make. Follow up within a day to make
sure the parties are implementing the solutions. Follow
up on a regular basis with the individuals to ensure
that progress continues.
7. Be open to third-party assistance. I frequently get called
in to resolve conflict in the workplace when individu-
als reach the breaking point, at which point the ongo-
ing conflict can no longer be ignored. While it may
result in immediate dismissal or intervention in many
workplaces, I have been involved in conflict resolu-
tions that involved employees who threw objects or
used extremely profane comments in open office areas
directed to another employee. The conflict usually has
been brewing for quite a long time before help is re-
quested. If managers and employees were empowered
278 MANAGERIAL LEADERSHIP
and trained to resolve conflict, it would seldom be
necessary to seek outside help. However, do not be
afraid to ask for assistance from an internal human
resources department if you have one, or from an ex-
ternal consultant trained in conflict resolution.
When Conflict Resolution Fails
There may be extreme cases when parties fail to resolve
the conflict. This may be due to employee substance abuse
problems, such as drug or alcohol dependency, or to em-
ployees who refuse to comply with the terms of the conflict
resolution agreement. Alternatively, an employee may not
have the skills and capabilities to succeed on the job. The
conflict between the job performance levels needed and
those demonstrated must be resolved by formal personnel
actions. Internal progressive disciplinary processes need to
be applied. Progressive disciplinary steps generally include
an oral warning, a written warning, a final written warn-
ing, suspension, and finally termination.
Key Steps in Resolving Conflict
• Listen actively.
• Level with each other about the real issues.
• Address the issues directly; deal with the identified
problem.
• Do not attack.
• Speak for yourself.
• Take responsibility for your role in the problem.
• Focus on ways to resolve the problem.
• Stick to the issue.
• Ask for the change that you want; be willing to
compromise.
• Remember that it is not a zero-sum game.
What the Organization Can Do
Whether you are in a management capacity at a hospital,
laboratory, or medical office, managing conflict is a criti-
cal skill for career success. There are several measures that
can be taken by the organization to support an environ-
ment where conflict is managed instead of ignored. They
include the following.
• Create an organizational culture that supports and en-
courages staff to address conflict and bring it to the
attention of management. Conflict is inevitable. Re-
solving it must be, too, in order for productive and
meaningful work to occur.
• Provide in-service workshops for staff at all levels to
teach conflict resolution skills.
• Provide training to all new employees as a part of new-
employee orientation programs. Technical skills are
essential, but if individuals cannot resolve conflict, the
technical skills can be overshadowed by interpersonal
troubles.
• Have regular “letting off steam” meetings twice a
month. Structure lunch meetings where problems can
be addressed and resolved. Problems can be submitted
anonymously and a team approach to resolving prob-
lems can be used.
• Encourage staff at all levels to bring up conflicts with
coworkers and empower them to address them to the
point of resolution.
• Have managers and supervisors at every level serve as
role models in addressing and resolving conflict.
• Provide ongoing support through the human resources
department if the organization has one, or outsource
the role to a consultant to provide training and guid-
ance for resolving conflict.
• Provide an employee assistance program for employ-
ees experiencing job or life stress to resolve issues that
contribute to high levels of conflict.
• Provide posters, newsletters, and other visible re-
minders that resolving conflict is important to the
organization.
• Focus on identifying, analyzing, and resolving conflicts
so that the quality of life at work is the highest it can
be. This enhanced quality of life at work can also serve
to attract and retain the best employees.
Summary
Rosabeth Moss Kanter said, “Our future will be shaped
by the assumptions we make about who we are and what
we can be” (reference 8, p. 27). Conflict is inevitable and
should be expected as a normal part of working with oth-
ers. It is problematic only when it goes unresolved. Em-
ployees at all organizational levels are affected by events
inside and outside of work that cause stresses. Staff mem-
bers may attempt to avoid conflict or may rely on dysfunc-
tional patterns for dealing with their differences.
Managing conflict is a key component to structuring a
successful workplace. Success depends on being able to ac-
knowledge, manage, and resolve conflict. Managers need
to take the lead in helping staff manage conflict. Staff train-
ing and development along with an organizational climate
that values conflict resolution are keys to healthy conflict
resolution. Open dialogue and creative problem solving are
constructive methods to use when dealing with conflict.
The ability to manage and resolve conflict is a universal
skill that crosses all life domains. Recognizing and man-
aging conflict is a skill that can be learned. All successful

managers must exercise the skills to identify, analyze, and
resolve conflict. When conflict is managed and resolved,
it can be a source of growth for individuals and institu-
tions. Ultimately, the success of an organization depends
on how well staff members recognize, understand, and re-
solve conflict.
KEY POINTS
■ Conflict is inevitable but can be healthy for an organiza-
tion if it is addressed and resolved.
■ Conflict can be constructive or destructive to organiza-
tions.
■ Individuals have conflict resolution styles, and there are
pros and cons to each style.
■ Managers and staff members play key roles in identify-
ing and resolving conflict.
■ Communication is a key to successful conflict resolution.
■ There is a seven-step model to use for conflict resolution.
■ The organization needs to create a climate and culture
where conflicts are expected and resolved.
GLOSSARY
Conflict A disagreement over the goals or methods to achieve
them.
Conflict resolution The process of identifying, analyzing, and
eliminating conflict.
Conflict resolution styles Five approaches to resolving conflict.
Constructive conflicts Disagreements that are acknowledged
and lead to resolution.
Destructive conflicts Disagreements that are not addressed or
resolved.
CHAPTER 13. CONFLICT MANAGEMENT 279
External sources of conflict Issues and concerns in the envi-
ronment.
Give-get-merge-go (GGMG) model A communication model
used to resolve conflict.
Internal sources of conflict Issues and concerns within the
individual.
Win-win outcome A resolution that works well for all parties.
Zero-sum game When one person wins by making the other
person lose.
REFERENCES
1. Carkhuff, R. R. 1983. The Art of Helping, p. 14–27. Human Re-
source Development Press, Amherst, MA.
2. Catt, S. E., and D. S. Miller. 1991. Supervision: Working with Peo-
ple, p. 398–414. Irwin, Boston, MA.
3. Cloke, K., and J. Goldsmith. 2000. Resolving Conflicts at Work,
p. 39–40. Jossey-Bass, San Francisco, CA.
4. DuBrin, A. J. 2000. Fundamentals of Organizational Behavior,
p. 133–159. South-Western, Cincinnati, OH.
5. DuBrin, A. J. 2000. Essentials of Management, p. 390–401.
South-Western, Cincinnati, OH.
6. Egan, J. 2003. Conflict Resolution Workbook. Jean Egan Associ-
ates, LLC, Suffield, CT.
7. Egan, J. 2007. Managing conflict resolution. LabMedicine
38:145–148.
8. Kanter, R. M. 2007. America the Principled. Crown Publishing
Group, New York, NY.
9. Kritek, P. B. 1996. Negotiating at an Uneven Table: Developing
Moral Courage in Resolving Our Conflicts, p. 17–19, 71–72, 241–244.
Jossey-Bass, San Francisco, CA.
10. Paul, J., and M. Paul. 2002. Do I Have To Give Up Me To Be
Loved by You? p. 47–52. Hazeldon Information Education, Center
City, MN.
280 MANAGERIAL LEADERSHIP
APPENDIX 13.1 Case Studies
Conflict management requires three major steps: Identify, ana-
lyze, and resolve the conflict. While viable solutions always in-
clude the option to do nothing or fire the person you perceive is
causing the problem, there are better approaches. It is helpful to
consider the following questions to resolve conflict. Apply them
to the case studies.
1. What is the background to this conflict?
2. What are the major issues that are contributing to the
conflict?
3. How would you identify the conflict in this case?
4. What are possible strategies for managing this conflict?
5. What could go wrong with your resolution strategy and how
will you handle that problem if it occurs?
6. How will your conflict management solution solve the
problem?
7. What is your implementation strategy and timetable?
8. How will you know if your solution worked?
CASE 1
Donna has been working as a laboratory technician for 6 years.
She joined the hospital laboratory 3 months ago. She has good
technical skills and impressive credentials. She seemed a little
formal during the interview, but you suspected that it was due to
nerves. Now that she has been hired, she talks to the older staff in
a way that others have described as “superior” because of her na-
tional credentials. Most of your staff have some college training,
but there is a mix of credentials and on-the-job training among
laboratory staff. Donna works well alone and often ignores the
requests of coworkers to help with the backlog of work in the
laboratory. She gets her own work assignments done on time and
well, but when she needs to interact with other staff members,
she is abrupt, impatient, and often rude. Several of the other staff
members have complained to you to do something about Donna.
You see the value of her technical skills in the laboratory environ-
ment but need to step in to manage the situation.
Pros and cons to consider
You want to avoid creating or perpetuating an “Us versus Donna”
approach. Both the existing, older staff and Donna have some-
thing to learn about and from each other. Do you want to speak
only with Donna or bring everyone together for a meeting, or
both? Do you want to keep Donna on staff? She is within the 90-
day probationary period. If you elect not to keep her, what are the
pros and cons of that decision?
CASE 2
Jennifer is a happy, productive, effective team player. She shows
up for work on time, works overtime if needed, and even asks
coworkers if they need assistance. On her last performance ap-
praisal, she earned high marks for her rate of production and her
ability to get along with coworkers. The hospital has just installed
new software for processing orders and returning laboratory re-
sults. You have tried several times to schedule Jennifer for the
training to update her skills, but she seems to be making one
excuse after another. You overheard Jennifer telling a coworker
that she was not interested in learning any new software because
it took a long time to learn the system currently in use. You need
everyone in the department to be up-to-date on the new software
and procedures for using it. You need to take action as the man-
ager of the entire laboratory.
Pros and cons to consider
Jennifer is doing her job well with the skills she has. Can you af-
ford for her to avoid using the new software? Can you assign the
administrative part of her job to someone else? What message
will you be sending to Jennifer and others if you do? What do
you need Jennifer to understand? What approach do you need
to take with Jennifer to get to the goal? What is in it for Jennifer
if she learns the new software? What is the downside of insisting
that she does?
CASE 3
You have just merged your practice with another group and have
moved your staff into their office. The office staff from the origi-
nal group seemed friendly enough during the initial stages of the
merger, but you note some friction developing. There seem to
be cliques forming between the staff of the two former offices.
You had hoped that everyone would just merge their desks and
operating procedures and get along well. Your office manager,
Daniel, is having difficulty adjusting to being under the direction
of the group office manager. He had systems and processes set
up and ran the office efficiently. You do not know if his trouble
is the result of the recent changes or caused by now reporting to
a younger female supervisor, Amanda. Daniel seems to be lining
up the old staff to challenge Amanda at every turn. You are busy
with your own issues as a result of the merger and really had
hoped that the staffs would be operating as one big happy family
by this point. You have been ignoring the small disagreements
that you have witnessed between the two groups of staff mem-
bers but are not sure if more action is needed.
Pros and cons to consider
There are micro and macro issues to consider in this case. What
are the issues as a result of the merger? Who owns the conflict(s)
presented in this case and how do you get them to take owner-
ship? What steps need to be taken to handle the immediate issues
of conflict? What steps need to be taken to address the issues cre-
ated by two different staffs that did not magically merge into one
unit? How do you handle the issues of power, shared power, and
collaboration instead of competition?
Introduction
Key Concepts of Change
14 Managing Change†
Types of Change Kellie Gibbs
Factors Affecting Change
The Change Curve
Laboratory Change Roles
How To Become an Agent of Change
Why People Resist Change
Fear • Lack of Trust • Comfort • Perception of OBJECTIVES
Need • Lack of Knowledge/Competence • Poor
Communication • Exhaustion/Saturation To define change and understand the concepts and types of change
Forms of Resistance to Change To explain the change curve and help managers deal with the human side of
Steps to Managing Change change
Prepare • Implement • Monitor • Sustain • Reevaluate To instruct the reader on how to become a change agent
Changes that Are Common Today To explore why people resist change
Looking Ahead
To identify the steps needed to manage change effectively
Paradigm Shifts in Today’s Healthcare
Industry To help the reader understand the changes and trends occurring in the
Trends and Changes healthcare arena
Competing in the Future in the To clarify the paradigm shifts occurring in the healthcare arena
Healthcare Arena To discuss survival and winning strategies for workplace changes
Summary To identify the skills needed for the future to succeed in the healthcare arena
KEY POINTS
GLOSSARY
The key to change . . . is to let go of fear.
REFERENCES
Rosanne Cash
APPENDIX

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch14
C
hange is inevitable, and as a manager or leader in today’s laboratory,
you are expected to drive and implement change. This involves taking
numerous and various challenges head-on. Change is both a challenge
and an opportunity for growth (4). Laboratory and information technology
is changing rapidly, expectations are higher than ever before, and laboratory
professionals are expected to be electricians and computer experts as well
as specialize in test methodologies. In addition, constant healthcare reform
changes, such as the invention of accountable care organizations, Medicare
payment bundling, and payment incentive programs for improved patient and
quality outcomes, are forcing laboratories to make changes to survive. Labo-
ratories need to focus on cutting costs, providing competitive services, and
decreasing excess and unnecessary laboratory testing. This requires changing
age-old protocols that are ingrained in physician and laboratory practices. As
a laboratory manager, it is imperative to encourage innovative changes and
promote modifications to meet these needs.
Change is the process of becoming something different. It is the transforma-
tion of a process, culture, or people into an alternate form. With the proper guid-
ance and implementation measures, the change or proposed changes will come
†
Some sections are revised and updated from chapter 14 by Christopher Frings in the pre-
vious edition of this Manual (reference 2a).

281
282 MANAGERIAL LEADERSHIP
with improvements that make your laboratory a better place
to work, enhance quality, and improve patient outcomes.
Although people have a desire to change and know that
change is needed, they still fear change. Therefore, you will
undoubtedly encounter resistance. Resistance to change
will come in various degrees and forms; to deal with this
resistance, you will need to change your management ap-
proach based on the situation and individuals involved.
You must develop the skills needed to encourage and guide
staff toward making the changes and even eventually wel-
coming them. You should learn to utilize the power of per-
suasion and fine-tune these skills to be able to cater to an
individual as well as a group. Lastly, learn from your expe-
riences and the experiences of others and study the subject
in order to gear your methods accordingly.
This chapter covers important questions related to
change, such as: What is change, and why is it important to
manage it? What are the key concepts of change, and how
does each fit into your workplace or laboratory? What are
the factors affecting change, and how are people affected
by the process of change? Why do people resist change?
What are the steps to managing change, and how can you
as a manager be an agent of change and help promote con-
structive changes in your laboratory?
Key Concepts of Change
There is a tremendous amount of discussion pertaining to
various theories of change. Some are old and tried, while
some are new and alternative. I have studied the various
concepts and change models and noted that there are com-
mon themes that run through them. For the purpose of
this text, I have merged and morphed a combination of
the various change concepts and models into a condensed
version. First, change may be either planned or unplanned.
Planned changes are also referred to as anticipated changes
and are intended and thought out. They are carefully im-
plemented and have usually been studied and examined to
ensure a successful outcome. Examples of planned changes
in the laboratory are transferring laboratory locations or
Figure 14.1 Key concepts of change.
doi:10.1128/9781555817282.ch14.f1
functions from one area to another, remodeling or reno-
vating, installing automation, and acquiring new equip-
ment. Planned changes often require staff training in new
tests and methodologies. Unplanned changes are changes
that are not anticipated.
There are three timing levels of change. Each one rep-
resents the intensity and the circumstances in which a
change is needed. An emergent change is made when a
pressing or important issue dictates the need. Emergent
changes are frequently unplanned, and patient safety
or quality issues are often dictators of urgent changes.
These changes are deemed absolutely necessary to resolve
an issue. Opportunity changes often result when, just as
stated, an opportunity arises. Opportunity changes can
be planned or unplanned. Sometimes these changes arise
from changes other areas have made, improvements in
equipment, or newly acquired skill sets of individuals. Evo-
lutionary change is change that just happens over time. It is
the gradual adaptation or responsiveness to change; it can
be planned but is often unplanned. Competitors are usu-
ally doing the same, and it is understood and accepted as
common practice. Figure 14.1 demonstrates the relation-
ships among these key concepts of change.
Types of Change
Change is inevitable in any organization, and in the health-
care arena the speed with which change is occurring is tre-
mendous. Recent healthcare reform policies require that we
do more with fewer resources. In order to help you with the
implementation of change, you must understand the types
of change and organize your leadership approach to fit the
goal of each type of change. The three types of change are
transactional, transitional, and transformational (11). Each
of these types of changes is respectively more complex.
Transactional change is also referred to as developmental
change. Transactional change occurs when an organization
makes improvements to stay competitive. It is a continual
process, and it should require little effort to implement this
type of change. Transactional change is the most common

type of change and is usually based on the improvement of
an existing skill, method, performance standard, or condi-
tion (1). Transactional changes usually encounter little re-
sistance because most often they are logical adjustments to
current operations and strengthen what you already have.
One example of transactional change is implementing ad-
ditional training to improve a process already in place, e.g.,
training certified phlebotomists to perform point-of-care
testing so as to allow medical technologists and medical
laboratory technicians additional time to work on more
technical or complex testing.
Transitional change is a more complex type of change
in that it replaces processes or procedures with new con-
cepts and procedures. It is designed to increase efficiency
by replacing an old process with an entirely new one. This
type of change is often referred to as a project implementa-
tion. You may incorporate new products or services and
establish appropriate start and end dates for the project’s
timeline (1). An example of a transitional change is the
implementation of new automation when the previous
process was manual, e.g., implementation of automated
cross-match when all cross-matches were previously per-
formed by hand in the blood bank.
The most complicated and most difficult type of change
to achieve is transformational change. It is a shift in the en-
tire business culture of the organization. This is the most
complex type of change because it involves the human side
of change and encounters the most resistance. Transforma-
tional change is exactly what the title states, a total transfor-
mation of the work culture, a different way of thinking, and
a change in culture. It results from a change in strategy and
results over a period of time. An example of a transforma-
tional change is the merger of two different hospitals or in-
corporation of a college or medical school into your facility
to establish an academic medical center. Figure 14.2 shows
the process of how the types of change build on each other.
CHAPTER 14. MANAGING CHANGE 283
Factors Affecting Change
There are three factors that affect a person’s reaction and
ability to make a change. The skill, knowledge, and mo-
tivation of the person involved determine the success or
failure of the change. The skill of the individual expected to
implement the change refers to the person’s job specifica-
tions, selection criteria, performance review, and training
needs. Knowledge refers to the individual’s understanding
of the mission or strategy of the change. Are they knowl-
edgeable about the processes or procedures, and what is
their personal development? Lastly, motivation plays a
significant role. When a person is motivated, he or she
tends to make sure that the task is accomplished on time.
What motivates each person? Are your people strategically
aligned, socially aligned, capability aligned, or empowered
to make the changes? Refer to Fig. 14.3 to see how these
factors come together to determine the success or failure
of a change.
The Change Curve
The following change curve is a modified version of the
Kubler-Ross grief curve and consists of four phases (2a, 4).
This theory describes the process in which people grieve
or react to change. While people may move more slowly
or more quickly through change, complete mastery of the
change involves transition through each of the four phases,
especially if the individual did not initiate the change. This
does not mean that every individual will move through each
phase in order. Sometimes people move back to a previous
phase or get stuck in one phase. Despite these different pat-
terns, however, one must eventually reach the commitment
stage in order to perform effectively within the changed or-
ganization (4). The more you understand people’s needs,
the better you will be able to manage change (2).
Figure 14.2 Types of change.
doi:10.1128/9781555817282.ch14.f2
284 MANAGERIAL LEADERSHIP

that you allow for mourning and recovery. Figure 14.4

demonstrates how productivity and morale increase and
decrease as individuals move through the different phases
of the personal change curve over time.

Laboratory Change Roles

When change transpires, it is important to recognize the
different roles encountered within the laboratory setting.
A laboratory administrator’s role is to become the change
agent and lead the change. Managing change isn’t enough;
you have to lead it (5). Laboratory managers and adminis-
trators should cultivate the vision. They must inspire others
to believe that they can change and motivate them to take
action. The laboratory manager or administrator should
Figure 14.3 Factors affecting change. provide mentorship and guide staff to make the change.
doi:10.1128/9781555817282.ch14.f3 Most importantly, a laboratory manager or administrator
should make expectations clear and communicate effec-
tively. A technical supervisor or bench working supervi-
Denial. Employees ignore or do not respond to the infor- sor has the role of being the implementer. As the tactical
mation or awareness of change. It doesn’t sink in right agent, he or she must execute and accomplish the mission.
away that the change is occurring and that it will affect The technical supervisor must enforce the process and ful-
them. A typical response might be, “They can’t be fill the expectations of laboratory or hospital managers or
merging our laboratory with that reference clinical lab- administrators. The technical supervisor should manage
oratory across town.” When in the denial stage, they mistakes as they occur and realign steps to ensure success.
are in withdrawal, tend to focus on the past, and avoid The general laboratory staff have the toughest job of all as
the topic as much as possible. they must change the process while maintaining the qual-
Resistance. Here strong feelings about the change emerge, ity of the present method. They are responsible for uphold-
such as anger, blame, depression, anxiety, uncertainty, ing customer expectations and guaranteeing test results. In
frustration, and self-doubt. Change is frequently addition, the general laboratory staff endure the brunt of
resisted, just because it is change. Often change is re- anxiety and stress, the burden of altering the process, and
sisted because people are fearful of the unknown. the confusion of the execution.
Exploration. During the exploration phase people ac-
knowledge the change and accept that the change is
Figure 14.4 Personal change curve.
necessary (4). They draw upon internal resources and
doi:10.1128/9781555817282.ch14.f4
creativity to figure out new responsibilities and to vi-
sualize our future. This can be an exciting time if they
take on change as a new adventure and a new oppor-
tunity. In this stage they have concern about details,
confusion, new ideas, and lack of focus.
Commitment. At this point people acknowledge that
the change is the norm, are motivated, and are ca-
pable of achieving success. They are able to set new
goals and make plans to reach new goals. Here they
are cooperative, are focused, and feel confident and
in control.
The longer employees stay in the denial and resistance
stages, the harder and more painful the change will be.
Try to get them through the denial and resistance stages
quickly and go on to a commitment to change. Exchang-
ing the familiar for the new, even if it is better, means the
“death” of something familiar. You need to make certain
 CHAPTER 14. MANAGING CHANGE 285

How To Become an Agent of Change

Table 14.1 lists actions you can take to become receptive to
change (2a). When you do these things, you are no longer
part of the problem but are part of the solution.

Why People Resist Change

Why do some people have a tough time adapting to
change? Unfortunately, people dislike things they find dif-
ficult. Becoming knowledgeable about resistance, expect-
ing it, and planning for it from the start will allow you to
effectively manage objections. Managers and employees
who persistently resist change over time create measurable
impacts on a company, including decreased productivity,
negative customer satisfaction, and loss of valued employ-
ees. In some cases, excessive resistance can cause change to
fail (9). It’s not possible to be aware of all sources of resis-
tance to change, but expecting that there will be resistance Figure 14.5 Reasons for resistance.
to change and being prepared to manage it is a proactive doi:10.1128/9781555817282.ch14.f5
step. Recognizing behaviors that indicate possible resis-
tance will raise awareness of the need to address the con-
cerns (Fig. 14.5). new conditions competently, and they will not do well fol-
At the end of the day, all sources of resistance to change lowing the modified process (11, 12).
need to be acknowledged and people’s emotions validated.
It’s far better to anticipate objections than to spend your Lack of Trust
time putting out fires, and knowing how to overcome re- When employees doubt their leaders and question their
sistance to change is a vital part of any change manage- motives, they tend to resist change (3, 10).
ment plan (10).
Comfort
Fear People are creatures of habit and do not like a change in
People often fear the unknown. Employees may simply routine. Many employees feel connected to the old way
resist change because it is unfamiliar. They fear that the or have a personal preference and a certain way of doing
new way will not work, they may not be able to handle the things (3, 10).

Perception of Need
Table 14.1 Actions to become an agent of change a Some employees feel that the old/current way is good or
Get buy-in to create ownership.
is working fine. They may not understand the need for
Involve every level of staff.
change or see any benefits of the change (3, 10).
Speak from your own experiences.
Set a good example.
Lack of Knowledge/Competence
Control the rumor mill. Employees may be concerned that they do not have the
Network with other change agents. skills or knowledge to implement the changes. They may
Don’t be afraid to learn. doubt their ability to handle the change and may feel they
Be mindful of people’s weaknesses. may lose something they once had. They may have to start
Keep up the momentum. over, do not like the idea of being retrained, and feel less
Don’t fight losing battles. competent than they did with the previous way (3).
Learn to refocus rapidly.
Practice good stress management.
Poor Communication
Invent the future instead of trying to redesign the past. Employees may feel that they were not informed or con-
Finish what you start. sulted about the change. They may feel as though their
a
The key to implementing change is to give clear and direct com-
opinion doesn’t matter or that their opinions are insignifi-
munication (8). cant (10).
286 MANAGERIAL LEADERSHIP
Exhaustion/Saturation
Employees may resist change because they are over-
whelmed by continuous change (10).
Forms of Resistance to Change
The following are different ways people resist change: (i) the
negative view (“It won’t work! We already tried that”),
(ii) apathy and indifference (“I just work here”), (iii) pet
project attitude (“Are you criticizing my plan?”), (iv) un-
conscious dissension (“Whatever the boss says . . . but it
won’t work”), (v) free translation (“We’ll implement my
variation . . . it’s better anyway”), and (vi) authoritarian ap-
proach (“You are not to reason why . . .”) (2a).
Steps to Managing Change
In today’s constantly changing environment, it is gener-
ally recognized that change is persistent. Effective strategic
leaders understand that change in the strategic environ-
ment is a continuous process (7). Applying this theory, one
must assume that the situation can almost always be im-
proved. To ensure that change is successful and continual,
the following steps should be followed in any change man-
agement scenario.
Prepare
Prepare for the change by communicating effectively.
Establish and maintain open lines of communication by
holding regular meetings and becoming as transparent as
possible. Make staff aware of the current state, and justify
the importance of the proposed change. Persuade them to
be on board with the changes. Staff is more likely to be
receptive when they are informed of the purpose of the
change. Knowing the expected positives and negatives
associated with the change can help them cope and over-
come their resistance. Motivate the staff to become excited
about the change, and convince them to buy into the proj-
ect. Design and develop a plan of action and create a sense
of urgency. Utilize global thinking and envision strategic
partnering, prepare for the unexpected, make a list of
tasks, and set realistic and acceptable milestones.
Implement
Execute and coordinate the change by delegating tasks
and assigning completion dates. Hold individuals ac-
countable for accomplishing the assigned tasks within the
agreed-upon time frames. Ensure that each phase of the
implementation occurs in the appropriate order to ensure
success of the next phase. Make the vision a reality.
Monitor
Develop a feedback process, establish key metrics, and re-
view the process. Circle back and follow up on the status
of each assignment. Are there delays? Can the delays be
overcome to meet the expected completion dates?
Sustain
Reinforce the change. Ensure that systems do not revert back
to the way they were prior to the change. Recognize people
for making the change happen and express your apprecia-
tion by word or deed. Talk about progress every chance you
get. Tell success stories about the change process, and repeat
other stories that you hear. Include the change ideals and
values when hiring and training new staff. Publicly recog-
nize key members of your original change coalition, and
make sure the rest of the staff—new and old—appreciate
the contributions made by the originators. Create plans to
replace key leaders of change as they move on. This will help
ensure that their legacy is not lost or forgotten (5).
Reevaluate
Perform an assessment of the process, and review and ana-
lyze to see if further changes are necessary. Can the new
process be improved? Brainstorm for new ideas and ask
questions.
Figure 14.6 demonstrates the cycle of steps needed to
manage change effectively.
Changes that Are Common Today
The following are changes that are common today (2a):
change in the name of your professional organization, change
in the name of your company or business, technology
changes, reengineering, merger, acquisition, divestiture,
layoffs, downsizing, startup of a new company, division
or department changes, changes in top management, cul-
ture change (new policies, values, and/or expectations),
deregulation, reorganization, serious new competitors,
changes in your company benefits, reporting to a different
manager or a different reporting structure, and promotion
to a “higher” position in the organization. Which of these
changes have you already experienced? Are you ready for
the other changes listed?
Looking Ahead
The following are some of the changes you might expect
to see in many organizations in the future (2a): more em-
ployee involvement in all levels of decision making; in-
creased emphasis on meaningful work; more responsibility
for individual employees; fewer managers; a focus on hu-
man intellectual capital as demonstrated by an investment
in training, retraining, and new skill development; an atmo-
sphere that encourages more mutual respect and trust; an
increase in the protection of employee rights; a continuing
need for workers with good communication skills; programs
(for example, flextime) that support both work and family;

better recognition of and reward for superior performance;
greater diversity in the workplace, with more women and
minorities; further graying of the workforce; a continu-
ing need for workers with specialized skills; emergence of
multi-skilled, cross-trained professionals (generalists) with
specialized skills; smaller workspace area per employee
(smaller cubicles); increased utilization of the Internet and
social media; practice of evidence-based medicine; direct
result reporting to patients; and use of surveillance tools to
maximize productivity and security and to minimize loss.
How many have you already noticed in your organization?
Paradigm Shifts in Today’s
Healthcare Industry
Paradigm shifts that are occurring in the healthcare arena
are listed in Table 14.2. Many of these are occurring in other
industries. Each industry has its unique set of paradigm
shifts; however, many share some of the same changes (2a).
Trends and Changes
Expect the expected and the unexpected (2a). Changes you
can expect in the future in the healthcare industry and many
other industries are discussed in this section. Many are
CHAPTER 14. MANAGING CHANGE 287
Figure 14.6 Steps for managing
change.
doi:10.1128/9781555817282.ch14.f6
already happening. Which changes are you ready for? What
skills do you need to develop to get ready for the others?
Trends are rapidly changing, and so are attitudes, expec-
tations, and roles. More changes are occurring, and this will
continue for years to come. Due to new healthcare reform
policies, healthcare professionals are forming more alli-
ances with those previously looked upon as competitors.
Healthcare professionals are reforming themselves and at-
tempting to collaborate and share resources before manda-
tory change is imposed. This results in the rate of change
increasing, while expectations at all levels are rising, there
are fewer managers, and costs (a very important issue) are
being reduced. Most workers are expected to increase their
personal productivity and their team’s productivity.
Medical care is being managed, which results in re-
duced test volume, cost containment, rightsizing, capitated
reimbursement, reduced reimbursement, and emphasis on
appropriateness of laboratory test selection (economic cre-
dentialing). Healthcare professionals must become better
managers of budget, personnel, self, and business. Oppor-
tunities are different, and thus different skills are required.
Changes are technology driven in addition to cost driven
and driven by legislative issues. Our environment is not
going to change to please us. Some of us are only rearrang-
ing the chairs on the deck of the Titanic!
288 MANAGERIAL LEADERSHIP

Table 14.2 Paradigm shift in today’s healthcare industry remedies, fueled mostly by aging baby boomers’ openness
From To to new concepts. This will not be a threat to conventional
Activity orientation Outcome orientation medicine but will be a complement to traditional medicine.
Task focus Customer focus Moore’s (Gordon Moore) law says that the number of
Illness care Health maintenance and outcomes components that can be packed on a computer chip dou-
management bles every 2 years while the price remains the same. This
Fragmented services Integrated care law has amazingly held true for more than half a century.
Competition based on price Competition based on quality This means that computer power per dollar doubles every
Competition Partnerships 24 months. Moore’s law will probably not hold true forever.
Revenue Cost The lesson to be learned from this is that personal comput-
Economics of scale Economics of coordination ers become obsolete about every 3 years due to improved
Fee for service Managed care computer technology.
Revenue from services Revenue from covered lives
Downsizing Rightsizing
Competing in the Future in the
Department focus Interdisciplinary focus
Healthcare Arena
Turf protective values Group protective values
Individuals and groups Teams committed to common Table 14.3 lists things you can do to become a master of
missions change and improve your destiny in the healthcare arena
Individual Teamwork and in other arenas (2a). Build the skills you’ll need for
Low trust and guardedness High trust and openness the future, listed in Table 14.4, to stay competitive and
Manager Leader strengthen your abilities.
Boss Mentor, facilitator, or coach Suggestion: When you are resisting change, use a rub-
Controlling others Empowering others ber band to snap out of it! Some people wear a rubber
Fixing the blame Fixing the problem band around their wrists as a self-motivator. When they
Quality control Continuous quality improvement are resisting change, they snap out of it by snapping the
Quality assurance Service excellence rubber band. The snap of the rubber band serves as a self-
New technology Appropriate technology motivator to remind them to take action toward getting
Resisting change Viewing change as an opportunity
Reacting to change Initiating change Table 14.3 Actions for becoming a master of change
Get involved.
Become different.
There will be an unprecedented demand for “alterna- Be part of the solution, not part of the problem.
tive” therapies; this reflects a trend from institutional- Demonstrate your worth.
ized managed care to self-managed care. More and more Develop positive relationships.
consumers will turn to alternative therapies, such as bio- Expect and get ready for the expected.
feedback, herbs, prayer, and chiropractic, whose holistic Expect and get ready for the unexpected.
approaches often seem more natural and less intimidat- Lead the technology revolution.
ing. In 2007, adults in the United States spent $33.9 billion Keep a positive mental attitude.
out of pocket on visits to complementary and alternative Make managing change part of your job description.
medicine (CAM) practitioners and purchases of CAM Be tolerant of management mistakes.
products, classes, and materials. Nearly two-thirds of the Keep (or develop) a sense of humor. Humor is healing.
total of these out-of-pocket costs were for self-care pur- Don’t let your strengths turn into weaknesses. Refocus rapidly.
chases of CAM products, classes, and materials ($22.0 bil- Practice effective stress management. Worry is a misuse of
lion), compared with about one-third spent on practitioner imagination.
visits ($11.9 billion). Despite this emphasis on self-care Support upper management.
therapies, 38.1 million adults made an estimated 354.2 mil- Initiate or join cross-functional teams.
lion visits to practitioners of CAM. About three-quarters Invent the future rather than trying to reinvent the past.
of visits to CAM practitioners and of total out-of-pocket Look 3 to 5 years into the future.
expenditures on CAM practitioners were associated with Shape the future of your industry.
manipulative and body-based therapies. A total of 44% of Don’t constantly react to each new competitive threat as it comes. Be
all out-of-pocket expenditures for CAM, or about $14.8 proactive, not just reactive.
billion, was for the purchase of nonvitamin, nonmineral, Anticipate the evolution of the healthcare industry and build capabili-
ties now to win in the future.
natural products (6). Demand will accelerate for alternative

Table 14.4 Skills needed for the future
Financial management
Cost analysis
Budgeting
Return on investment
Break-even analysis
Outcome assessment and analysis
Continuous quality improvement
Resource management and utilization allocation
Personnel
Materials
Self-management and personal development
Setting and reaching goals
Time management
Change management
Stress management
Team building
Negotiation skills
Presentation skills
Informatics
Systems
Reporting
Telecommunications
Risk assessment and management
Knowledge of regulatory and legal issues
out of the denial and resistance stages so they can make the
change happen in a positive way.
Summary
It is important to familiarize yourself with the process of
change. Knowing the reasons for resistance and how to
deal with the different forms of resistance will make you a
better manager and a master of change.
KEY POINTS
■ Change can be intentional or not, i.e., (i) planned or
(ii) unplanned.
■ The three timing levels of change are (i) emergent, (ii)
opportunity, and (iii) evolutionary.
■ The three types of change are (i) transactional, (ii) tran-
sitional, and (iii) transformational.
■ The reasons we resist change are (i) fear, (ii) lack of trust,
(iii) comfort, (iv) perception of need, (v) lack of knowl-
edge/competence, (vi) poor communication, and (vii)
exhaustion/saturation.
■ The different ways people resist change include (i) the
negative view (“It won’t work! We already tried that”),
(ii) apathy and indifference (“I just work here”), (iii) pet
project attitude (“Are you criticizing my plan?”), (iv) un-
conscious dissension (“Whatever the boss says . . . but it
won’t work”), (v) free translation (“We’ll implement my
CHAPTER 14. MANAGING CHANGE 289
variation . . . it’s better anyway”), and (vi) authoritarian
approach (“You are not to reason why . . .”).
■ We all go through the following four stages in respond-
ing to change, whether it is a major or a minor change:
(i) denial, (ii) resistance, (iii) exploration, and (iv) com-
mitment to change.
■ The steps to managing change are (i) prepare, (ii) im-
plement, (iii) monitor, (iv) sustain, and (v) reevaluate.
■ Track trends by identifying major new trends that affect
your workplace and its environment.
GLOSSARY
Change The process of becoming something different.
Paradigm shift A change from one way of doing things to an-
other; often encompasses a change in an entire concept, model,
or standard.
Resistance to change A force active in groups and individuals
that limits the amount of change that occurs.
REFERENCES
1. Anderson, D., and L. A. Ackerman. 2001. Beyond Change Man-
agement. Jossey-Bass/Pfeiffer, San Francisco, CA. www.scribd.com/
doc/49570467/4 (last accessed March 28, 2012).
2. Chapman, A. 2012. Change management: organizational and
personal change management, process, plans, change management
and business development tips. www.businessballs.com/change
management.htm (last accessed April 18, 2012).
2a. Frings, C. 2004. Managing change, p. 267–273. In L. S. Garcia
(ed.), Clinical Laboratory Management. ASM Press, Washington, DC.
3. Hajek, J. 2010. 8 reasons people resist change. Velaction Continu-
ous Improvement. February 10, 2010. www.velaction.com/8-reasons
-people-resist-change/ (last accessed April 18, 2012).
4. Jaffe, D. T., and C. D. Scott. 2012. Mastering the Change Curve,
2nd ed. http://store.teambuildinginc.com/images/Theoretical%20
Backgrounds/Mastering-Change-Curve-Theory.pdf (last accessed
April 18, 2012).
5. Mind Tools. 2012. Kotter’s 8-Step change model: implementing
change powerfully and successfully. www.mindtools.com/pages/
article/newPPM_82.htm (last accessed April 18, 2012).
6. Nahin, R. L., P. M. Barnes, B. J. Stussman, and B. Bloom. 2009.
Costs of complementary and alternative medicine (CAM) and fre-
quency of visits to CAM practitioners: United States, 2007. National
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Hyattsville, MD. www.cdc.gov/nchs/data/nhsr/nhsr018.pdf (last ac-
cessed June 6, 2012).
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change. In National Defense University, Strategic Leadership and De-
cision Making. Industrial College of the Armed Forces. www.au.af
.mil/au/awc/awcgate/ndu/strat-ldr-dm/pt4ch19.html (last accessed
April 18, 2012).
8. Nigon, D. L.  2000. Clinical Laboratory Management, p. 293–307.
McGraw-Hill, New York, NY.
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9. Prosci. 2004. Understanding resistance—Prosci’s Flight and Risk
Model. www.change-management.com/tutorial-flight-risk.htm (last
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10. Rick, T. 2011. 12 reasons why people resist change. May 23,
2011. www.torbenrick.eu/blog/change-management/12-reasons-
why-people-resist-change/ (last accessed April 18, 2012).
11. Tucker, J. 2007. Types of change. Suite 101 Media. August 12,
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12. Wilkinson, I.  1998. Managing ME Incorporated, p. 23–28. Clini-
cal Laboratory Management Association, Wayne, PA.

APPENDIX 14.1 Case Studies of How To Overcome Resistance to Change
One example is given below for each change situation. These ex-
amples are not meant as the best or only way to deal with the situa-
tion. The examples are included to give you one way to handle each
change situation. (From reference 2a.)
CHANGE SITUATION A
Situation: Employees do not understand or have little or inac-
curate information about the problem.
Response: Provide in advance as much information as possible
about the change and why you are making the change.
Example: A new branch reference laboratory located 61 miles
from the central laboratory was opened. Initially the laboratory
was open from 8:00 a.m. until 5:30 p.m. Some of the labora-
torians worked from 8:00 a.m. to 5:00 p.m., and some worked
from 8:30 a.m. to 5:30 p.m. The laboratory has been open for 6
months; the flow of work has changed due to new clients, and
there is a need for the laboratory to be open until 6:30 p.m. There
is a need for only one laboratorian to arrive at 8:00 a.m. The work
schedule must be changed to meet the needs of the physicians
and their patients. The laboratory manager meets with all of the
employees as soon as possible after the decision is made. He in-
forms everyone that the working hours must be changed to meet
the needs of the clients and gives specific information. He gives
everyone a 30-day notice of the change in hours to allow affected
employees time to make appropriate transportation and child
care arrangements.
CHANGE SITUATION B
Situation: You do not have all of the information needed to im-
plement the change, and others have considerable power to resist.
Response: Allow the people who will be affected by the change to
participate in the decision as to what needs to be done and how
to implement the change. This could be a great team-building
opportunity.
Example: An HMO recently purchased two hospitals in the
medical center of a large metropolitan area. The chief executive
officer and chief operating officer of the HMO don’t want to du-
plicate nonessential laboratory services. There is a lot of talk and
rumors as to when and how the duplicate services will be elimi-
nated. You appoint a team with a team leader that consists of two
individuals from each lab, an assistant administrator from each
hospital, and the medical director of both hospitals to work out
the details during the next 14 days. They are to present a written
and oral proposal of how to implement the change.
CHANGE SITUATION C
Situation: Speed is essential, and you have considerable power to
enforce your ideas.
Response: Announce the change and enforce the change with
authority, certainty, and firmness.
CHAPTER 14. MANAGING CHANGE 291
Example: The hospital chief executive officer, chief operating of-
ficer, and laboratory director have decided to offer point-of-care
(POC) testing in the hospital effective in 2 weeks. One labora-
torian will have to act as a troubleshooter, problem solver, and
quality control and quality assurance coordinator for the nurses
who are performing the POC testing under the central labora-
tory’s Clinical Laboratory Improvement Amendments license.
This position will be rotated weekly among four laboratorians.
Several of the laboratorians are upset about the change because
they will not be able to have the same days off as before. After
hearing complaints, the laboratory director called the four labo-
ratorians together and stated that the decision has already been
made and that it will take place in 2 weeks.
CHANGE SITUATION D
Situation: Someone will clearly lose out in the change, and they
have lots of resisting power.
Response: Negotiate for a win-win situation.
Example: Organizational changes are necessary due to the
merger of two large reference laboratories to form one central
laboratory. There were two laboratory managers (Jim Bob and
Georgia Lou), and now only one laboratory manager is needed.
Both laboratory managers have been productive, key employees
with positive attitudes and great team-building skills. The chief
operating officer talks to Jim Bob and Georgia Lou together and
separately. He lets both laboratory managers know how impor-
tant they are to the newly combined reference laboratory. Geor-
gia Lou is given the new laboratory manager position. Jim Bob is
given the job of coordinating laboratory operations between all
six satellite laboratories and the central laboratory. Each is given
a 6% raise effective immediately to let them know that the reor-
ganization is not a demotion for either person. This results in a
win-win situation for everyone.
CHANGE SITUATION E
Situation: People resist change because they are unconvinced by
the change.
Response: Help them adjust by making the change as easy and as
comfortable as possible.
Example: Refer to the example in change situation C above. One
of the laboratorians is extremely upset by the change because it will
cause hardships for her and her son. By changing her day off she will
have a problem getting her son with cystic fibrosis to the clinic each
Wednesday for therapy. The lab manager explains the situation and
repeats that POC testing is needed and the nurses will do some of
the test volume previously performed in the laboratory. The labora-
torian states that her parents will be moving to this city in 2 months
and will be able to take her son to the clinic on Wednesdays. The lab
manager makes an exception and will give this employee 2 months
to make the adjustment due to the special situation.
Personnel Management
III
(section editor: John C. H. Steele, Jr.)
15 Employee Selection
Anthony S. Kurec
16 Performance Appraisals and Competency Assessment
Kari Jones
17 Staffing and Scheduling
Patti Medvescek
18 Teams, Team Process, and Team Building
James W. Bishop, K. Dow Scott, Stephanie Maynard-Patrick, and
Lei Wang
19 Labor Relations
Lynne S. Garcia
20 Workplace Drug Testing and the Clinical Laboratory
Jimmy R. Lea
 15
Introduction Employee Selection
Diversity in the Workplace
Criterion-Based Job Description Anthony S. Kurec
Requirements
Job Description Review • Minimal Personnel
Requirements
Search Process
Search Committee • Advertising
Interview Process
Screening Résumés • Interview Formats • Interview OBJECTIVES
Questions • Interview “Do’s and Don’ts”
To describe the differences in attitudes attributable to generational groups
Hiring Process
Orientation
To discuss the desirable elements of a criterion-based job description
Documentation To describe how to establish a search committee
Retention To list, then critique, various approaches to the interview process
Resignation and Termination To give examples of appropriate and inappropriate interview questions
Progressive Discipline To describe the ideal orientation process
Summary To address potentially useful retention techniques available to managers
KEY POINTS To describe the steps of progressive discipline
GLOSSARY
REFERENCES
APPENDIX Good training will not fix a bad selection.
D. Mass (21)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch15
L
aboratory personnel have experienced significant changes over
the past few decades in how they are managed. Management styles have
evolved over the years based on existing environmental, governmental,
and cultural trends. The function of the clinical laboratory is to ensure good
patient care by providing quality laboratory services in an efficient and cost-
effective way. Through these conscientious efforts, it is now well established
that an estimated 70% of all medical decision making by primary-care provid-
ers is based on laboratory results (27). The need for an adequate number of
trained laboratory personnel has been, and continues to be, a concern. Over
the past several decades, many training programs have closed, with a con-
comitant reduction in the number of graduates. Through a concerted effort by
numerous professional organizations and participating laboratories, this issue
has been actively addressed and partially resolved. Vacancy rates that were as
high as 20% a few years ago have decreased to 12% or less in most areas of the
laboratory (9, 30). Due to a large number of baby boomers entering retirement
in conjunction with the modest number of graduating students, predictions
by the Bureau of Labor Statistics (4) show a 14% increase in the number of
laboratory personnel needed over the next few years.
Related to issues dealing with retirement-age individuals, the U.S. Census Bu-
reau predicts that the number of individuals over the age of 65 will double over
the next few decades (11). As the largest segment of the population, they will
place a greater demand on the healthcare system, ultimately requiring a greater
number of healthcare employees. For many of the upcoming new graduates,
data gathering, analysis, test result monitoring, and information dispersal will

295
296 PERSONNEL MANAGEMENT
be the their main focus. Further, as molecular-based testing
increases, it is clear that managers will need the best and
brightest to meet the challenges of these advanced tech-
nologies. To attract and keep these key people, a collective
effort between employer and employee will be required, so
both reap the benefits of this relationship.
Diversity in the Workplace
If human nature were predictable, there would be no need
for human resource management. However, with today’s
globalized world and the confluence of diversity within the
workforce, leaders, through learned or innate skills, must
take charge in identifying and selecting those individuals
who can best accomplish these complex tasks. For today’s
manager, understanding diversity based on race, gender,
ethnicity, language, culture, age, and social, psychological,
or personal attributes is critical when hiring and managing
new employees (5). Stereotyping, based on the “not like me
syndrome,” can lead to a stifled and cloned workforce (21).
Judging a potential new employee without considering
other personal characteristics (in addition to technical-
and/or knowledge-based skills) can result in not selecting
the right person for the job (6, 19).
For most of the 20th century, and now in the 21st cen-
tury, various cultural attitudes have influenced the manage-
ment of the workforce and have in part been identified by
generational differences. There are five commonly recog-
nized age-based groups of workers that have been identified
loosely based on their birth year, each with characteristics
that appear to be common to that group (10, 12). They are
the Traditionalists (1934 to 1945), the Baby Boomers (1946
to 1960), Generation X (1961 to 1980), Generation Y (1981
to 2000), and the Millennials (born after 2000) (1, 19). While
the Millennials’ work ethic and characteristics are still in
development, specific identities for each stage are reflected
through each group’s lifestyle, social activities, and motiva-
tional characteristics. Managers must be aware of these dif-
ferences to ensure that they are not unduly influenced in the
selection process. Listed in Table 15.1 are some character-
istics that have been identified for each generational work
group. While many are unique to an age group, some over-
lap and are not an absolute in describing each group (20).
There is a considerable range of other cultural and eth-
nic differences that managers must also consider when
hiring new employees (13, 15). Modern technologies have
enhanced opportunities to identify a wider pool of poten-
tial applicants, thus requiring a process that allows for the
selection of the best-qualified individual in a fair and con-
sistent manner. Lost opportunities for both employer and
employee may occur if cultural, ethnic, and gender-related
traits are not appreciated or are misunderstood. A manager
may inadvertently miss an opportunity that would other-
wise capture an excellent employee by not taking the time
Table 15.1 Age-related differencesa
Age group Characteristics
Traditionalists Work first, loyal to employer, work hard, save
money, like chain-of-command, exercise if
forced to, community service (e.g., Masonic
Lodge, Knights of Columbus, Kiwanis Clubs,
VFWs), quality first, must vote, motivated by
money and responsibility
Boomers Work first, care about what others think, work
hard, play hard, spend hard, family and friends
first, some exercise is good, community service
and vote if convenient, want even more money
and recognition, loyal to self
Generation X Driven somewhat by money but also by prin-
ciple, work hard, play hard, worry about money,
exercise is a duty, the “Gap” generation, look for
bonuses and stock options
Generation Y Principled/satisfaction, don’t care what oth-
ers think, prefer to work alone, individual
first, exercise for mental health, will vote but
privately, friends are like family, wants time off,
concerned about own goals
Millennials Lifestyle first, like small groups, state-of-the-art,
individual first, live with parents, community
service is punishment, Abercrombie’s genera-
tion, want time off, portable skills, company
loyalty is minimal, self-employment is best
a
From reference 12.
to learn about and understand some of the fundamental
differences encountered when interviewing candidates
that present as “different.” This does not mean that manag-
ers should “profile” individuals based on specific charac-
teristics, but they should raise their level of sensitivity in
recognizing the uniqueness of those individuals. Hiring de-
cisions must be based on education, skills, experience, and
personal traits that would seem most compatible with the
existing laboratory environment—a person that would be
a “good fit.” Table 15.2 identifies four cultural dimensions
that may be helpful in appreciating some of these differ-
ences. Be aware that these differences may be the basis of
how an individual responds to interview questions or situa-
tions; thus, it is important to recognize what is actually said.
Criterion-Based Job Description
Requirements
A criterion-based job description offers a clear and com-
plete format that addresses the expectations for both
the employer and the employee. A typical format for a
criterion-based job description might include the infor-
mation presented in Table 15.3 (16). It should be based on
legal regulations, certification needs, educational essen-
tials, critical tasks related to the job, and work environment
 CHAPTER 15. EMPLOYEE SELECTION 297

Table 15.2 Cultural differences: four dimensions of cultural values and some examplesa
Dimension Definition High Low
Power distance Power distance addresses the distribution of power. A culture that Mexico, Arab countries, Austria, Sweden,
reflects a low power distance views power as being distributed Indonesia, India England, United States,
rather equally. Cultures with a high power distance define the Australia
workplace as “the haves” and the “have-nots,” where there is a clear
distinction between employer and staff.

Individualism- Individualism is found in those social structures that promote the United States, Australia, Columbia, Indonesia,
collectivism individual and encourage people to take care of themselves and England, Canada, The Pakistan, Taiwan, Korea
their immediate families. Collectivism focuses on the extended Netherlands
family and loyalty to that clan. The clan will take care of the
individual.

Masculinity- Cultures that rank high are aggressive, competitive, and focused on Japan, Mexico, Jamaica, Sweden, The Nether-
femininity material things. “Machismo” is a common characteristic. A culture England lands, Thailand, Korea,
that ranks low tends to be more nurturing and focuses on the qual- Taiwan
ity of life. One works in order to live.

Uncertainty This is a more intuitive dimension of social behavior. It reflects Greece, Japan, Argentina, Singapore, Jamaica,
avoidance how a culture generally reacts in unstructured, ambiguous situ- Korea, Mexico Hong Kong, Sweden,
ations. Those ranked low are more tolerant of differing opinions. England
Those ranked high tend to be more structured so as to avoid the
uncertainty.
a
From references 14 and 15.

needs (24). Within the job description, each job duty may Table 15.3 Criterion-based job description
be classified as a basic core task, an advanced technical Element of
skill, or a supervisory responsibility. Certain criteria useful description Information to include
in establishing these tasks are found in Table 15.4. Departmental job title Official payroll title of job offered
There are five key sections common to most job Minimum Education, license or certification, skills/
descriptions: requirements training, minimum number of years of
experience
• Job title General duties May include safety, confidentiality, cus-
• Minimum qualifications and desired worker skills tomer service, and/or time and attendance
responsibilities
• Job duties Technical duties Technical duties specific to the job title
• Responsibilities and accountability Administrative duties Accountability: Does this position require
• Job relationships direct supervision, work under general su-
pervision, or provide direct supervision?
Job titles should be consistent throughout the labora- Fiduciary: Does this position require an
individual to interpret existing policies,
tory with consideration of local and national nomencla-
implement policies, or develop policies?
ture that may be used in describing laboratory job titles.
Teaching duties Does this position require teaching of
Inconsistency in title usage can result in confusion for staff, students, or the public?
both laboratory and hospital staff. Only minimum quali- Research duties Does this job require research activities
fications (education, experience, etc.) should be listed in such as research and development of new
the job description to avoid inadvertent elimination of an techniques, instrumentation, etc.? Will
otherwise good candidate. A second section can be added the incumbent have to provide on-the-job
that reflects other desired worker or personal traits, such training of staff?
as “graduate degree preferred,” “supervisory experience Professional What are the regulatory requirements for
development professional development and continuing
strongly considered,” “must have a proven track record of education?
good attendance,” and “demonstrates honesty and reliabil- Organizational How does this position fit into the
ity.” Because a new employee is an unknown, documenta- departmental or institutional table of
tion by way of the job description and by including these organization?
latter characteristics may play an important role in any po- Direct reports: To whom or to which
tential disciplinary issues that may arise. Hiring a qualified position(s) does the incumbent report?
candidate starts with establishing the right criteria needed Which positions report to the incumbent?
298 PERSONNEL MANAGEMENT
Table 15.4 Job description criteria
Criteria Attributes
Regulatory State or federal laws mandate qualifications
and may require licensure of some labora-
tory personnel. Often denotes specific scope
of practice
Certification Voluntary action that declares that the
individual has passed an accredited exami-
nation indicating that they possess at least
entry-level knowledge of the job
Education Educational requirements related to aca-
demic degrees and/or specific course work
Training On-the-job training that is directly related
to the position
Experience The number of years of experience that is
preferred and/or required
Physical demands Any specific physical requirements (such as
color recognition, standing, walking, etc.)
related to the job
Skills, abilities, Special individual skills such as speaking a
knowledge base second language, writing skills, communi-
cation or presentation skills
Work environment Where the major amount of work is to be
performed (clinical lab, nursing home, sat-
ellite labs, home draws, etc.)
to meet the goals of the organization. Finding the “right
fit” based on education, specific technical skills, and experi-
ence is critical. Of equal importance is identifying appro-
priate personality traits that are conducive to being a team
player. These traits, such as honesty, initiative, ethics, loyalty,
and attitude, are subjective and are not easily quantifiable
or tangible. While there is no one scheme available to select
the perfect employee, there are some guidelines that might
assist in maximizing the chance of making the right choice.
A needs assessment should be completed when a vacancy
is first encountered. A position questionnaire might be con-
sidered to provide an objective review to determine if the
position is still necessary. This form can be customized ac-
cording to laboratory/hospital needs but in general should
consist of certain key questions that help identify the exact
duties, the complexity, and the minimum qualifications
that are required. It should show where this position falls
within the organizational table; what supervision level is re-
quired; the level of responsibility for hiring, firing, assign-
ing work, and setting budgets; and whether this position
includes establishing departmental policy. Benchmarking is
a standard practice in most laboratories (28, 29), and thus
the use of workload statistics, estimated revenue, a cost-
benefit analysis, and any other relevant projections should
be included. Ask questions such as “Do I still need this po-
sition?” “Can existing staff absorb these duties?” “Could a
part-time person handle these duties?” “Should these tests
be outsourced?” An honest needs assessment is important
to determine if the vacancy needs to be refilled. This due
diligence also speaks to your responsibility as a manager.
Job Description Review
As part of the needs assessment, a criterion-based job de-
scription should be reviewed for accuracy to ensure that
job duties listed are based on established policies and
procedures (criteria) and are still relevant to laboratory
operations. This is a critical step because this document
serves as an informal “contract” between the employee
and management by setting the job expectations for both
employee and employer. Criterion-based job descriptions
need to include balanced detail. Those that are too brief
in definition may invite applicants who are not qualified,
thus unnecessarily adding to recruitment efforts. Con-
versely, requirements that are too detailed or restrictive
may discourage good candidates from submitting their
applications. Whether creating a new or revamping an
existing criterion-based job description, consider recent
changes to the laboratory environment. Financial con-
straints have forced some laboratories to downsize, com-
bine sections into core facilities, merge multiple hospital
laboratories into one, and outsource a greater number of
laboratory tests. These changes have resulted in adding
or eliminating certain duties, creating the need to adjust
staffing accordingly.
Minimal Personnel Requirements
For the laboratory, minimum personnel requirements
are addressed in the Clinical Laboratory Improvement
Amendments of 1988 (CLIA ’88) (8). These requirements
have reduced numerous laboratory titles to the following,
which are described in detail elsewhere: director, technical
consultant, clinical consultant, technical or general super-
visor, testing personnel, and cytotechnologist (24). In ad-
dition, a number of states mandate licensure of laboratory
personnel, adding another level of personnel requirements.
In states without licensure, many laboratories require cer-
tification through a professional agency such as the Board
of Certification, American Society for Clinical Pathology
(ASCP). By definition, individuals that are certified have
demonstrated that they have met the educational require-
ments and possess the minimum level of knowledge in
their specified area of laboratory science.
Specific job duties must be identified to ensure that the
incumbent understands what he or she is to do. Overly de-
tailed descriptions can lock a manager into an unwanted po-
sition when staffing needs have to be flexible. An employee
claiming, “That’s not in my job description” is something a
manager does not want to hear. However, incorporating a
general statement covering “other duties as assigned” is of-
ten discouraged by human resources professionals. For ex-
ample, assigning nontechnical duties to a clinical laboratory
scientist as punishment for poor job performance (such as
washing glassware, mopping floors, or trash removal) may
be considered working out of title and possibly discrimi-
natory. Similarly, informing secretaries that their job now
includes performing phlebotomies can also lead to formal

complaints. If the disgruntled employee tenders his or her
resignation as a result of this type of practice, legal action
could be taken. Therefore, a balance in detail and flex-
ibility must be considered when revamping or creating a
new criterion-based job description. Other attributes to
be noted include levels of responsibility and accountabil-
ity, thus letting incumbents know where they stand in the
decision-making process. It is useful to list job relationships
so the incumbents clearly know the laboratory’s hierarchy
and what other internal/external relationships must be es-
tablished. With each new hire, the experience gained by a
manager in an employee selection process is cumulative
and can be applied to future hiring practices.
Search Process
Search Committee
The search process can be simple or complex depending
on the level of the position. For entry-level positions, the
interview process need only involve the supervisor and
manager. When hiring at the supervisory level or above,
it is advisable to assemble a formal search committee con-
sisting of an appropriate mix of individuals. While the
committee should remain small (five to seven people),
the mix should reflect the desired diversity of the de-
partment. Consider including a pathologist, a supervisor
from another section, and/or a staff person. By adding a
front line staff member to the group, subtle nuances of
the job may be made evident. This also creates a sense of
contributing to the workforce and offers training oppor-
tunities for individuals who want to learn interviewing
skills. Also consider an appropriate gender, ethnic, race,
and age mix of the committee to eliminate any perceived
bias in selecting the candidate (32). This is consistent
with affirmative action and equal opportunity guidelines
and protects the employer from situations where the se-
lection process might be questioned. If a committee is
not formed, ensure that at least two individuals review
résumés, interview candidates, and provide some level of
input to the final decision.
It is important to have a written policy that prevents
discrimination in the workplace and provides guidance in
appropriate hiring practices. Table 15.5 lists a few regula-
tions that were designed to prevent discriminatory hiring
practices based on gender, age, race, religion, sexual ori-
entation, or other non-work-related characteristics. They
were created to provide oversight, with severe penalties for
those who violate them (33).
Advertising
An employer must make a reasonable effort to ensure that
there are equal opportunities for all qualified candidates
to become aware of the open position. The advertise-
ment should be concise, stating the job title, the mini-
mum educational requirements, any applicable licensure
CHAPTER 15. EMPLOYEE SELECTION 299
Table 15.5 Equal opportunity employment regulations
Legal standard Purpose
Civil Rights Act of 1964 Prohibits discrimination based on
(amended 1972 and 1991) color, race, religion, gender, or na-
tional origin; established EEOC
Age Discrimination in Em- Prohibits employment discrimina-
ployment Act of 1967 tion based on age
Equal Pay Act of 1963 Prohibits discrimination in com-
pensation based on gender
Vocational Rehabilitation Prohibits discrimination in employ-
Act of 1973 ment based on physical or mental
disability
Guidelines on Sexual Ha- Defines sexual harassment and
rassment (1980) establishes standards
Americans with Disabilities Prevents discrimination on the
Act of 1990 basis of a disability
or certification requirements, and a brief summary of
the main job responsibilities. The advertisement should
contain only the minimum qualifications. Avoid using
“preferred” qualifications as requirements, as that may
eliminate some good candidates. The salary range should
not be stated, as it might deter good candidates from ap-
plying or encourage less qualified candidates. It may also
create internal conflicts with existing employees, especially
if the salary advertised is higher than for current equiva-
lent employees or is perceived as inappropriate for that po-
sition level. (Salary ranges may be discussed as part of the
interview process, but they are often best addressed as part
of the final negotiations.)
Consider also where to advertise. Seeking both in-
ternal and external candidates provides the largest pool
from which to select and should be used whenever pos-
sible. However, there may be times when union contracts,
financial limitations, or institutional practices prevent
such a wide search. Internal postings only can offer some
advantages, such as portraying the opportunity for inter-
nal advancement, greatly reducing the learning curve for
the new employee and the recruitment time, and mini-
mizing recruitment costs (no travel/hotel expenses, min-
imal advertising expenses, and possibly a salary less than
that commanded by an external candidate). Conversely,
the disadvantages of hiring from within are the lost op-
portunity to bring in “new blood,” loss of potential in-
novation and leadership skills, internal competition for
the position resulting in poor morale, a time-consuming
process (may take weeks or months to fill position), in-
creased recruitment costs, and creation of a “vacancy
chain reaction” by sequentially moving people from one
position to the next.
If you have access to potentially good internal can-
didates, a limited search could be completed, thereby
300 PERSONNEL MANAGEMENT
reducing the time to hire for that position and related
costs often incurred with an outside search. The place-
ment of an advertisement in the classified section of the
local newspaper is relatively inexpensive compared to
posting one in national magazines and often leads to a
quicker response. Almost all hospitals support their own
website that includes a job opportunity section. Many, if
not most, will now only accept electronic submission of
resumes and applications, thus further reducing adver-
tising costs and recruitment time. Job seekers frequently
use the Internet by visiting professional associations’
websites, such as the American Society for Clinical Pa-
thology (www.ascp.org) or the Clinical Laboratory Man-
agement Association (www.clma.org), in addition to
general employment websites (www.monster.com). Also
consider advertising with organizations affiliated with
underrepresented populations, such as the NAACP, the
Urban League, or other similar associations.
Some laboratories may need to conduct a national search
for senior-level positions or when the local pool of appli-
cants is sparse. The cost can be thousands of dollars and the
process can take considerable time to complete. Advertising
in professional journals is expensive, and they are published
infrequently, adding months to the search time. While web-
site advertising is much less costly, it requires active search-
ing on the part of a potential incumbent, whereas journal
placements may be more readily encountered. Bringing
interviewees to your institution may include the cost of
airfare, hotels, and meals. While such searches generate a
greater number of diverse résumés, it also requires signifi-
cant committed professional time from each of the search
committee members to review and interview each candi-
date. An alternative is to use a job search service that han-
dles the overall process, thus significantly minimizing the
time commitment of the search committee. A fixed fee or a
certain percentage of the incumbent’s annual salary (about
15 to 20%) is usually charged for this service.
Interview Process
Screening Résumés
Depending on the number of résumés received, screen-
ing for the appropriate qualifications can be very time-
consuming and should not be taken lightly. While there is
no one great technique for screening résumés, a common
one is to divide them into three groups. Group 1 consists
of those individuals who have outstanding qualifications
and are strong candidates for the job. Group 2 includes
those who meet just the minimum qualifications. If none
of the group 1 candidates are viable, those in group 2 move
up the list. Group 3 includes those individuals who do not
meet one or more of the qualifications. Key points to con-
sider when reviewing résumés are spelling, grammar, and
syntax. Not taking the time to carefully review and submit
a well-written résumé suggests a lazy, irresponsible, poorly
educated, or otherwise less than acceptable candidate.
Consider the following:
• Informal writing, inappropriate use of abbreviations,
colloquialisms. These suggest a less than professional
applicant.
• Handwritten or photocopied résumé. Shows that the
candidate really doesn’t care about this job.
• Appearance. The résumé should be professional look-
ing, on quality stock white paper, and not too lengthy
(two pages or less). Use of different fonts, inconsistent
font size, or inappropriate bolding, underlining, capi-
tals, or italics are distracting and slow down review of
the résumé.
• Colored paper, embossed emblems or watermarks, per-
fumed paper. These do not speak to the candidate’s
qualifications and add little to the selection process.
• Minimum qualifications. Accepting a candidate who does
not meet the advertised minimum qualifications but has
other acceptable qualifications could be subject to legal
concerns regarding inappropriate hiring practices.
• Too much information. Mention of personal facts, such as
marital status, children, political activities, risky hobbies,
etc., may inadvertently prejudice the reviewer. Informa-
tion related to the candidate’s last job (why they were let
go, had a “bad boss,” supervisor was prejudiced, “other
workers did not like me,” etc.) is another warning sign.
• Discriminatory practice. Be cautious in prejudging can-
didates based on their names—unique spelling, foreign
or ethnic derivation, or gender-based.
• Inconsistencies in work history, education, or other time-
relevant events. While inconsistencies may become the
deciding factor in accepting the candidate for hire or
not, they should not be the sole reason for initial dis-
qualification. Acceptable reasons might include mili-
tary service, illness, or spouse’s job transfer. Allow the
candidate to explain during the interview.
A poorly organized résumé that requires a reviewer to
search for key points should signal a concern that speaks
to that individual’s lack of real interest in the position. This
becomes particularly important when many résumés are
received. Professional recruiters have to make quick deci-
sions and will spend little time with a difficult résumé.
Interview Formats
Once several viable candidates are identified, decide which
interview formats will be used. A structured, one-on-one in-
terview involves preparing questions and follows a consistent
format process. This preferred style keeps the interviews fo-
cused and serves as a guide in asking appropriate questions.
Unstructured interviews (no prepared questions) may be
more free-flowing but also can lead to a confused and ram-
bling interview. Prewritten questions serve as a guide during

the interview process, offering consistency in questioning
and avoiding inappropriate queries. Questions should be
constructed to provide flexibility in asking questions that re-
quire follow-up questions. The questions also serve as docu-
mentation of the kind of queries made of the interviewees.
In some instances a group interview may be appropri-
ate. Two to four individuals interview a candidate together,
working off the same set of questions. The advantages are
that a greater number of individuals can be involved in
the process at one time, questions and answers are heard
by all, time commitments and scheduling difficulties are
minimized, and the candidate can observe interactions
among potential new coworkers. The main disadvantage of
a group interview is that it can be overwhelming to the can-
didate. The candidate should be notified of the agenda and
interview process prior to the meeting. In addition, a group
interview lessens the chance to make a personal connection
with the candidate and requires a coordinated effort on the
part of the interviewers, usually by preassigning questions.
Another less used interview process is the phone inter-
view. This is sometimes used as a screening tool to clarify
issues not fully explained in a résumé. It is also done when
a potentially good candidate cannot travel to your institu-
tion due to an unexpected (death in the family, bad weather,
etc.) or other reasonable cause. It is an inexpensive and con-
venient way to conduct an interview but lacks the personal
connectivity one gets in a face-to-face interview and makes
it impossible to read body language. Use of cell phones may
lead to a less than optimal connection with dropped calls,
background noise, call waiting, text messaging notifications,
and other annoying interferences, resulting in an incom-
plete interview. More recently, web-based technology has
made possible remote interviewing through Internet image
technology (such as Skype), thus creating a virtual interview
process. This offers a more direct encounter that can be con-
veniently scheduled and is less costly than an on-site inter-
view. This is a particularly useful screening tool when there
is a large pool of good candidates that are not local.
Interview Questions
Different interview question formats can be used during
the interview process; in general, these fall into five cat-
egories (16, 33):
• Leading questions are easy and result in obvious an-
swers. These are not very informative and should not be
used. An example might be “Are you a hard worker?”
• Direct questions require short or simple answers, such
as yes or no or another one-word answer. A limited
amount of information is obtained, but these questions
can be helpful in gaining specific information. An ex-
ample is “Have you had hands-on training in perform-
ing phlebotomies?”
• Open-ended questions are more difficult for the in-
terviewer to construct and require the interviewee to
CHAPTER 15. EMPLOYEE SELECTION 301
provide a more complex answer. A significant amount
of information can be obtained from these types of
questions. Answers to these questions allow the inter-
viewer to observe the candidate’s manner, style, affect,
and level of articulation. The candidate must think
about the response and provide an acceptable answer.
Asking candidates how they would describe their rela-
tionship with their current or previous coworkers gives
them the opportunity to express themselves in greater
detail. Probing questions allow for follow-up questions.
Once a candidate answers a question, a specific point
can be probed with another question that reveals even
more information. An example is a follow-up question
to a query about the level of training or education a
candidate professes to have, such as “How does your
training apply to the job offered?”
• Hypothetical questions can be useful and are often
asked toward the end of the interview as an opportunity
to determine how candidates think on their feet. These
are problem-solving questions that require the candi-
dates to utilize their training and/or experience to prop-
erly answer the question. A question such as “If you had
to reduce your budget by 20%, how would you go about
it?” gives an interviewee the opportunity to demonstrate
knowledge of budgeting, staffing, finances, and other
related operational skills. Questions unrelated to job du-
ties that may be construed as “psychological” or “stress-
situation” questions are not appropriate. For example,
“What is the worst lab error you have ever made?”
Interview “Do’s and Don’ts”
Before the interview, review the criterion-based job descrip-
tion, the résumé, and the list of prepared questions (see Ap-
pendix 15.1). Table 15.6 offers some interviewing tips. Bring
the candidate to a quiet and private area. Put the candidate
Table 15.6 Ten interview tipsa
• Prepare before the interview; do not use the interview time to look
at the candidate’s résumé for the first time.
• Allow an adequate amount of time for the interview.
• Avoid interruptions. Schedule the interview in a quiet area.
• Welcome each candidate warmly and make the candidate feel at
ease.
• Explain the interview process and what follow-up the candidate
might expect.
• Avoid asking stress questions.
• Avoid controversial issues. Do not ask illegal questions (see text).
• Do not make promises to the candidate that you cannot keep.
• If you do not know the answer to a question, don’t guess.
• Don’t do all the talking.
a
From reference 18. (This information was originally printed in the September/
October 1999 issue of Clinical Leadership & Management Review, published by
the Clinical Laboratory Management Association. For more information, visit
www. clma.org.)
302 PERSONNEL MANAGEMENT
at ease by asking a question not related to the job—about
the weather, the commute to the interview, or some other
light topic. This will help to establish rapport and put the
candidate at ease. Avoid any personal comments about the
candidate’s dress, haircut, body art, the “two-carat diamond
earrings,” or any other personal features that are not relevant
to performing the job. Questions about marital status, age,
nationality, family, sexual orientation, religion, or politi-
cal or social affiliations are not acceptable (19). Table 15.7
provides some examples of questions that should always be
avoided. It is appropriate to ask about gaps in work experi-
ence, about a lack of job progression or responsibilities as
noted in the résumé, or about the candidate’s time and atten-
dance history (33). Questions regarding arrest records are
not legal since anyone can be arrested but not guilty until
proven otherwise. However, one may ask candidates if they
have ever been convicted of a felony. This information be-
comes evident if a background check is performed.
Managers must also be familiar with the Americans
with Disabilities Act and avoid any questions that may ap-
pear to be discriminatory to those with physical or men-
tal disabilities. You may ask the candidate if there are any
tasks listed in the job description that he or she could not
do, but you cannot discriminate based on the perception
of a candidate’s inability to accomplish job-related require-
ments. Those individuals who appear to have a disability
may be able to accomplish assigned tasks with the use of
technological aids or workspace modifications.
Hiring Process
Candidates interviewed should be evaluated based on
their qualifications: education, abilities, experience, and
responses to the interview questions. A fixed ranking sys-
tem can be developed to assist each member of the search
committee in presenting an objective evaluation of the
Table 15.7 Interview questions that should be avoided
Interviewer: “I see you have quite a lot of experience.”
How old are you?
When did you graduate from high school/college?
How many children do you have?
Do you plan on having children?
Interviewer: “That’s an interesting name.”
What nationality is that?
Can you speak (select a language)?
What is your religion?
So you must belong to the Society of (select a society)?
Interviewer: “Yes, these are troubling times.”
What do you think of the president’s policy on (select a topic)?
Who did you vote for in the last presidential election?
Interviewer: “I see you were in a fraternity.”
What kind of wild parties did you have?
Have you ever been arrested?
candidates. Before any job offer is made, it is essential that
each of the candidate’s references is checked. References
that do not include an immediate supervisor or some other
higher-level individual should be scrutinized carefully un-
less the candidate has specifically addressed this issue dur-
ing the interview. Given America’s litigious society, most
employers are very discreet in what information they re-
lease (generally, confirmation of employment, dates em-
ployed, and job title) unless the candidate has given them
specific permission to be a reference. While you may learn
much from what the reference says about the candidate, lis-
ten carefully to what is not said. A reference will offer high
accolades for an exceptional employee, with little or no
prompting, while only basic information of employment
will be offered for a marginal or poor employee. A hesitat-
ing response from a reference when asked about the candi-
date’s capabilities or personal attributes can speak volumes.
Doing background checks and obtaining financial credit
reports has become a common practice and is often one of
the final steps of the hiring process. This has become nec-
essary to ensure the safety of patients and staff as well as
to provide protection for the employer. Greater security in
screening employees, especially since September 11, 2001,
for past indiscretions can be a critical deciding factor in
placing the individual in a position that involves manage-
ment of people, finances, chemical/biological materials, or
patient information (25). Such investigations may include
review of driving record, past bankruptcies, felonies, drug
problems, and sex offender status. Employers may perform
official background checks on the final candidate in spite of
the expense and length of time it takes to complete. Failure
to do so may cause legal repercussions for the employer if a
new hire repeats a crime while under their employ.
An employer can request a preemployment check after
receiving permission from the candidate. Note that indi-
viduals denied a position after what was perceived as an
illegal background check have brought lawsuits against po-
tential employers. Some employers have embraced Internet
social media sites such as Facebook, Myspace, or YouTube
as additional resources in scrutinizing candidates. Since all
job applicants tend to put their best foot forward during
an interview, visiting these sites may reveal a perspective of
the candidate that otherwise would have been missed. The
use of the Internet for this purpose has become controver-
sial and has recently raised privacy issues with the National
Labor Relations Board (NLRB). Because this is an evolving
legal concern, use of social media when making hiring and
firing decisions should be reviewed with a human resource
professional who has the latest guidelines from the NLRB.
Orientation
Proper and prompt orientation is critical to initial success
once a candidate is hired (7). Implementing an organized
orientation program provides needed guidance that will
 CHAPTER 15. EMPLOYEE SELECTION 303

minimize confusion and frustration for the new employee
yet maximize the feeling of being part of the team. This
protects the employer from any future problems that may
arise with a new employee. Table 15.8 lists some key points
that should be covered during orientation.
The more a new employee knows about operations, ex-
pectations, and the general atmosphere of the workplace,
the better the assimilation into the team. A prepared ori-
entation checklist that is signed by the new employee and
the trainer documents what has been covered and will

Table 15.8 Employee orientation program checklist

Item Done
Table of organization
Historical overview of the organization
Laboratory tour and meet the staff
Mission and vision statements (departmental, hospital, or other)
Operations
Share/review job description
Laboratory safety, fire safety, universal precautions
Hospital security, ID cards
Health Insurance Portability and Accountability Act
Laboratory compliance plan
Quality assurance, quality control, total quality management, and continuous quality improvement programs
Laboratory information system training
Purchasing requests: supplies, equipment, etc.
Performance evaluation, competence training, continuing education
Promotion/raises
Laboratory policies
Right to know
Material Safety Data Sheets (MSDS)
Sexual harassment policy
Patient Bill of Rights
Miscellaneous issues
Educational opportunities (personal development, continuing education
Customer service, telephone etiquette
Use of fax machine
Personal phone calls, cell phones, iPods, etc.
Internet use
Dress code/appearance
Time and attendance expectations
Vacation, sick leave, overtime accruals, and requests for time off
Continuing education policies
Lunch/break area
Lavatory location
Pay day
Parking
Smoking policy
Required vaccinations

Employee signature:
Supervisor signature:
304 PERSONNEL MANAGEMENT
prevent any misunderstandings about responsibilities.
Orientation must be completed on the first day of employ-
ment to ensure employee and patient safety. Reviewing
the criterion-based job description and initiating a per-
formance program during this orientation process will
establish a foundation by setting reasonable expectations
for the employee. Conversely, this process also identifies
what will be expected from the employer. The orientation
is best presented by the immediate supervisor, but other
designated staff can be useful in providing a more detailed
review of the day-to-day operations. This review will also
give the supervisor a basis for future employee evaluations.
With a clear path forward, both employer and employee
will start off knowing there is an established line of com-
munication and accountability. However, any problems
that arise before the formal evaluation should be dealt with
immediately and appropriately documented.
Documentation
It is important to document the search, hiring, and orien-
tation processes. This ensures consistency, addresses any
legal requirements, and demonstrates fairness in hiring
practices. Examples of the kind of documentation to be
retained include a copy of the criterion-based job descrip-
tion, résumés of those seriously considered for the position
(retaining résumés on file for any future vacancies may
also come in handy), a copy of the advertisement(s) and
where posted, a sample of interview questions, the ethnic-
ity of candidates to ensure a diverse pool of applicants was
considered, and responses from references. These records
must be retained for a minimum of one year, but in prac-
tice, most employers keep these documents for consider-
ably longer (3). This documentation provides protection
for the employer if ever questioned about hiring practices.
However, be aware that retention of records longer than
required can be discoverable during a legal inquiry and
can become a liability issue. Consult with your human
resources professional for guidance in determining how
long records should be retained. In today’s litigious society,
every manager must be cautious by ensuring that docu-
mentation is complete and follows established institutional
human resources guidelines to best protect the manager
and institution from accusations of unfair hiring practices.
Retention
The cost of losing an employee, hiring, and then train-
ing a new one can be very expensive. According to the
Society of Human Resource Management, the average
cost of replacing an entry-level individual is $3,500 (2).
This can be an even greater expense when filling higher-
level positions. These costs include the loss of produc-
tivity, potential loss of customers, advertising, interview
process, overtime, training, personnel processing, and/
or other recruitment or start-up expenses (18). This may
also include the additional expense of any kind of pay-
out to the departing employee (such as unused vacation
time, pro-rated bonuses, etc.) and hiring at a higher salary
for a replacement. Losing an experienced employee can
be particularly costly in terms of lost institutional knowl-
edge and experience. Thus, when an employee asks for a
pay raise, the manager must consider replacement costs
versus the raise in addition to any equity issues that must
be addressed. No manager wants to be held hostage to an
employee’s salary demands, but a fair and equitable review
should follow. The employee should be advised that sala-
ries are set based on the education and experience require-
ments of the position. Further, any adjustments would be
limited to available funding and institutional guidelines.
When additional funding is just not available, an hon-
est and straightforward discussion with the employee is
warranted, perhaps with the promise of reconsidering the
situation at a later date.
A good manager will also attempt to be proactive by
recognizing excellent employees by rewarding them in a
timely fashion before such a situation occurs. Good man-
agers must also work within their budgets. If negotiations
have broken down, consider alternatives to monetary com-
pensation. Promotion, end-of-year bonuses (if possible),
an improved benefits’ package, additional time off, or any
other form of recognition may meet the employee’s needs,
but again, may be limited to funding availability and insti-
tutional guidelines. An employee who is unwilling to work
with the manager, especially during a period of finan-
cial concerns, might be a better fit elsewhere. Frequently,
money issues can turn an otherwise excellent employee
into a disgruntled one, creating an unproductive, disloyal,
and angry employee who is no longer a team player.
People leave their jobs for many reasons. Some are
personal (marriage, spousal job change, pregnancy, ill-
ness), others are work related (burnout, dislike of boss,
desire for more money, poor work conditions, poor work
hours, no recognition), and still others involve a search
for professional development opportunities (returning
to school, joining the military, promotional opportunity)
(18, 23). Whatever the reason, a good leader will listen
to his or her employees and establish avenues of bidirec-
tional communication. Employers need to be sensitive to
employee needs, stress levels, multicultural differences,
and the general morale of the work environment. Some
options, such as implementing pay raises, enhancing
benefits, offering continuing education opportunities, or
providing opportunities for promotion, may be beyond
the control of the immediate supervisor. However, ac-
knowledgment of a job well done by a supervisor shows a
level of sensitivity that is appreciated by staff. Recogniz-
ing what can and cannot be done and sharing that with

Table 15.9 Suggested retention options
Practice Option
Good hiring practices Hire the right people
Have realistic goals and expectations
Perform a thorough job search
Check references
Communication Bidirectional communication
Have frequent meetings
Manage by walking around
Training Develop an orientation process
Adequately train staff and supervisors in
job duties, interpersonal skills, communi-
cation, etc.
Encourage teamwork
Encourage continuing education
Recognition Find people doing something right
Praise people often
Foster a positive work environment
Encourage ideas, positive attitudes, and
innovative thinking
Allow more employee participation in
decision making
Celebrate successes
Work environment Maintain a safe work environment
Provide adequate tools to do the job
Establish a workable infrastructure
Survey/feedback Measure outcomes as part of quality
assurance
Monitor attitude
Be aware of workplace stress inducers
Know employee problems and how they
relate to the workplace
Communicate
employees often demonstrates to them that you, as the
representative of the employer, are not indifferent to their
concerns and serve as an advocate for them. Table 15.9
summarizes some practical retention options.
Resignation and Termination
One goal of all good managers is to ensure that they make
the best attempt in hiring what they hope will be a long-
term and productive employee. Loss of an employee may
be due to voluntary or involuntary discharge. The former
may be due to a number of issues, as suggested above. In
some cases, voluntary resignation may be averted through
better channels of communication or through other ad-
justments as already noted.
Yet there are circumstances that may lead to the in-
voluntary termination of the employee due to budgetary
constraints forcing work staff reductions, failure in com-
municating expectations, or poor job performance. The
CHAPTER 15. EMPLOYEE SELECTION 305
first is generally a function of fiduciary responsibilities
of the employer that may be necessary to keep laboratory
expenses within budget. Often, a decision to terminate an
employee based on financial need is not necessarily a re-
flection of the employee’s performance or job ability, but a
bottom-line decision. There are other times when an em-
ployee has proven to not be a good fit for either the em-
ployer or employee. While it is incumbent on the employer
to make every reasonable attempt to correct a problem
situation and help the employee to understand where the
lack of communication exists, there are times when it is
best for both to seek other options.
Involuntary termination must be free from any dis-
criminatory actions based on race, age, sex, or disability
(26). Over the years, a number of laws and court cases
have addressed wrongful termination issues; thus, an em-
ployer must use care in proceeding to terminate an em-
ployee. Consider employee situations that may fall under
the Americans with Disabilities Act. In addition to com-
monly recognized physical limitations, other conditions,
such as alcoholism, substance abuse, job stress, mental ill-
ness, or cumulative trauma disorders (such as carpal tun-
nel syndrome) are covered by this law (22). Employees
that fall within one of these categories are best referred to
employee assistance programs for appropriate counseling.
The immediate termination of an employee without care-
ful review of the situation can lead to lengthy and costly
legal outcomes. However, an employee who has threatened
or abused patients or staff, intentionally falsified or com-
promised patient data, purposefully damaged equipment,
or committed a felony can generally be terminated imme-
diately even if they fall within one of these categories.
Progressive Discipline
Even when a manager has completed due diligence in
hiring an employee, there may be situations when that
employee will require corrective action. The process of
progressive discipline gives the employee ample oppor-
tunity to address the employer’s concerns and take nec-
essary corrective actions. Conversely, it also provides
the employer with an opportunity to review and adjust
any unreasonable expectations that set the employee up
for failure. How far the counseling is taken depends on
the severity of the problem and the employee’s history
and status. If discussions between the supervisor and the
employee do not result in the desired outcome, a more
aggressive approach is required that progresses in an es-
tablished manner. This progressive process will end either
with a mutually acceptable resolution or with employee
termination. This process is rigidly adhered to for many
institutions, especially those facilities that have union
representation. While there is some flexibility in the pri-
vate sector, the rules, if ignored or unfairly deployed, can
306 PERSONNEL MANAGEMENT
lead to legal action by a terminated employee The main
steps in progressive counseling are:
• Verbal counseling. This initial communication between
the employer and employee specifically addresses the
concerns. This is the first recognition of the problem
and is documented. Depending on the degree of severity
and the length of time between the undesired actions,
several episodes of verbal counseling may be appropri-
ate. Counseling should take place as soon as possible
after the incident to avoid any additional complications
of the issue. For most employees, no further action is
needed once the concerns are pointed out to them.
• Written counseling. If there is no performance im-
provement after verbal counseling, additional coun-
seling occurs with preparation of a formal, written
memorandum. The memorandum must be specific,
noting the circumstances, times, dates, individuals
involved, and proposed corrective actions. This often
involves an official investigation with extensive docu-
mentation that becomes part of the employee’s person-
nel record.
• Penalty stage. If unacceptable employee actions con-
tinue after the written counseling, penalties may be
imposed, such as a fine, leave without pay, a decrease
in pay, or demotion. Documentation of the additional
improprieties is put in a written memorandum to
the employee. When discipline reaches this level, the
relationship between employee and employer is very
strained, creating additional problems and spiraling
into a very unpleasant work environment. Poor atti-
tudes, a loss of productivity, and inefficiencies may be
evident. Coworkers may also be directly or indirectly
affected when working in a tense environment. Termi-
nation may be the only option at this point.
• Discharge. When no other options or corrective ac-
tions are apparent, termination of employment is the
final stage.
Regardless of the stage of discipline, guidance from the
human resource department is recommended to ensure
that all legal procedures are followed, thus minimizing any
basis for legal recourse by the dismissed employee. A good
manager creates the kind of work environment that offers
opportunities for employees to be their most productive
and efficient in their jobs. The goal is to maximize use of
available resources, whether human, financial, physical,
or other, to ensure that the workforce is fruitful, content,
loyal, and proud of what they do. Employees who know
what is expected from them and what support they can
expect from their employer, work in a clean and safe envi-
ronment, and have the right materials and tools to do the
job are satisfied employees who will be loyal and provide
long-term service to the institution.
Summary
As in any business, supply and demand dominates com-
petition for qualified candidates. As more hands-on
procedures become automated, it is anticipated that labo-
ratorians will spend more time gathering data, analyzing,
monitoring, and dispersing information to healthcare pro-
viders. Laboratory test results that took days if not weeks to
report can now be done in hours, and sometimes minutes.
Managers will need the best and brightest to meet the chal-
lenges of these new technologies and to ensure accurate
and timely dispersion of information. Attracting and keep-
ing these key people will take a collective effort between
employer and employee so both reap the benefits of this
relationship and are able to provide quality patient care.
KEY POINTS
■ Every vacancy should prompt a reconsideration of the ne-
cessity, qualifications, and requirements for the position.
■ The criterion-based job description, advertising method,
interview process, and selection criteria should be care-
fully analyzed before attempting to fill a job vacancy.
■ Those responsible for these processes must be aware of
local policies and legal requirements governing the se-
lection and hiring process, as well as employee termina-
tion procedures.
■ Documentation of hiring, employee supervision, and
separation from service is a critical management skill.
■ Managers must constantly work to retain valued em-
ployees by using a variety of techniques.
GLOSSARY
Americans with Disabilities Act Federal act that precludes dis-
crimination in hiring and retention based on non-job-related
characteristics.
Criterion-based job description Written delineation of the title,
duties, responsibilities, and reporting relationships of a position
and the requisite qualifications needed to meet these.
Equal Employment Opportunity Commission (EEOC) Estab-
lished to prevent discrimination in hiring and retention of em-
ployees based on non-work-related characteristics.
Executive Order 11246 of 1965 Created affirmative action pro-
grams requiring employers to establish plans to address racial
disparities in hiring and promotion, in conjunction with the
Civil Rights Act (1964).
Progressive discipline Stepwise process to address deficiencies
in job-related activities or attitudes.
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308 PERSONNEL MANAGEMENT

APPENDIX 15.1 Example of a Search Committee Interview Process and Evaluationa

Position
The search committee consists of (names of individuals). The committee met on the following dates: (insert dates). The purpose of the committee
is to interview and set the agenda for the interviewee. It was explained that committee members may take notes for better accuracy in remembering
some details. Specific duties of the criterion-based job description will be shared at the end of the interview process. A consensus of the committee
will be obtained and the incumbent selected based on educational background, technical experience, and personal attributes. The following ques-
tions were used as general guidelines in the evaluation process.
Please rate the applicant on a scale of 1 (low) to 5 (high) for each item (circle rating).

Personal What are your career goals? 1 2 3 4 5

What continuing education have you been involved with in the last two years? 1 2 3 4 5
Briefly explain your current position to us. 1 2 3 4 5
What are your two most important achievements in your current job? 1 2 3 4 5
What is your level of computer expertise: laboratory information system, spreadsheets, and word processing? 1 2 3 4 5
How do you best communicate with staff? Employer? Non-lab personnel? 1 2 3 4 5
Describe a stressful situation you encountered and how you resolved it. 1 2 3 4 5

Supervisory Describe your supervisory experience. How long? Number supervised? 1 2 3 4 5

Describe your experience in preparing employee evaluations, counseling sessions, recruiting, and interviewing. 1 2 3 4 5
Describe your involvement in quality assurance practices. 1 2 3 4 5
How would you handle an increased workload that exceeds the normal capabilities of your staff? 1 2 3 4 5
Describe your knowledge of medico-legal issues and procedures. 1 2 3 4 5
Have you had marketing experience in developing proposals and client interaction. 1 2 3 4 5
What is your experience in providing customer service? 1 2 3 4 5

Clinical Where did you do your training? Under whose supervision? 1 2 3 4 5

Professional Describe your technical experience in (specific task or function) 1 2 3 4 5

Experience What other specific skills do you bring that would be an asset to this job? 1 2 3 4 5
What professional activities are you involved with outside the lab? 1 2 3 4 5

Teaching/training What level of teaching have you done: Undergraduate? Graduate? Medical students? Residents? 1 2 3 4 5

Experience What is your area of interest in teaching? 1 2 3 4 5

Give an example of your teaching/training experience. 1 2 3 4 5
Describe your experience in training new employees. 1 2 3 4 5
Describe your experience in continuing education exercises. 1 2 3 4 5

Research Describe your research experience. 1 2 3 4 5

Any specific areas you would like to pursue? 1 2 3 4 5
Do you have any publications? Presentations? 1 2 3 4 5

Total Points:

Final Comments:

Recommendation: Hire: Yes Hold: Yes Not Acceptable: Yes

Evaluator:

Position/Title: Date:
a
From reference 18. (This information was originally printed in the September/October 1999 issue of Clinical Leadership & Management Review, published by the
Clinical Laboratory Management Association. For more information, visit www.clma.org.)
Introduction
Performance Appraisals
16
Definition of Performance Appraisals • Purpose of
Performance Appraisals • Benefits of Performance
Appraisals • Appraisal Types: Formal and Informal
Appraisals • Responsibility for Developing a
Performance Appraisal Program • Legal Aspects of a
Performance Appraisal Program • Elements of
a Meaningful Formal Performance Appraisal •
Competency-Based Appraisals • Rating Methods •
Other Types of Performance Appraisals • Who Should
Perform the Appraisal? • Preappraisal Preparation •
Steps to a Successful Performance Appraisal
Interview • Benefits of Becoming a Mentor •
Salary Adjustments • Strategies To Reinforce
Appropriate Behaviors • Guidelines for Appraising
Poor Performers • Dealing with Emotional Outbursts
during Performance Appraisals • Completed
Performance Appraisal Documents • Improvement
Plan • Web-Based Software Products and Websites
Competency Assessment
Regulatory Foundation for Competency Assessment •
Timing of Competency Assessment • Methods for
Assessment of Competency • Practices • Personnel
Excellence
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch16
Performance Appraisals and
Competency Assessment
Kari Jones, Diane C. Halstead, and Donna L. Oblack
OBJECTIVES
To understand the purpose of performance appraisals
To define the key elements in developing a meaningful performance appraisal
To identify methods to measure employee performance
To describe the steps that may be taken in conducting a successful appraisal
interview
To list three accreditation agencies that issue competency standards
To specify three intervals or events that require competency assessment
To describe four competency assessment methods
The quality of a person’s life is in direct proportion to their commitment to excel-
lence, regardless of their chosen field of endeavor.
Vincent T. Lombardi
T
he goal of this chapter is to provide you with tools that will allow
you to develop and execute a successful formal performance appraisal
process and competency assessment program. Specific examples of
documentation are provided in the appendixes to this chapter.
Performance Appraisals
Definition of Performance Appraisals
The word “appraisal” is derived from the Latin word appratiare, to set a price
or value (32). In this context, employees work for compensation. Does this
mean that the appraisal process was developed solely for the purpose of finan-
cial rewards? Certainly not, but the concept of performance appraisals was in-
troduced in the mid-twentieth century as a result of the recession years when
companies found it necessary to decrease costs and increase efficiencies. It
was not until the 1980s that performance appraisals gained a foothold due to a
need for an equitable means of determining pay for performance.
A formal performance appraisal, also known as a merit review, perfor-
mance evaluation, interview, or rating (26), is a planned, periodic manage-
ment activity to evaluate an employee’s on-the-job behavior, competency,
work skill improvement, need for training, progress toward completing
goals, and salary and promotion (26, 44, 51). It is a key human resource
function that is closely integrated not only with compensation and training
but also career planning.
309
310 PERSONNEL MANAGEMENT
Purpose of Performance Appraisals
Some leading management authorities, such as W. Edwards
Deming, renowned for his transformation of Japanese
business philosophy, believe that performance appraisals
are unnecessary and, in fact, may destroy initiative and
encourage competitiveness rather than teamwork, process
performance, and a concern for organizational success (26,
34). Others contend that formal performance appraisal
programs cost billions of dollars annually (32) for ques-
tionable benefits (6, 27, 32, 34). Stress associated with the
appraisal process is another reason cited for not conduct-
ing performance appraisals (32). In contrast, many human
resource experts believe that by implementing a well-
designed performance appraisal program, the competitive
aspect can be minimized and the motivational aspect can
be emphasized (42).
Disadvantages of performance appraisals:
• Destroy initiative
• Encourage competitiveness
• Produce stress
• Require large financial investment
• Consume significant time for managers with many
employees
Some managers and employees dislike and even dread per-
formance appraisals (37). They go through the motions,
albeit halfheartedly, because senior management requires
them to participate in a formal appraisal process. Unfor-
tunately, they do not realize the potential benefits that can
be derived from performance appraisals, nor have they de-
veloped the skills necessary to conduct or participate in a
productive performance appraisal process. An objective of
this chapter is to provide you with an appreciation for the
performance appraisal as a powerful motivating tool.
Benefits of Performance Appraisals
Appraisals can be challenging as well as productive, re-
warding, and energizing (33). Positive feedback provides
employees with the opportunity to learn their strengths
and weaknesses (2). Employees can be empowered to con-
trol their growth and development, as well as the outcomes
of the performance appraisal (19). If carefully performed,
the appraisal process can enhance relationships with em-
ployees and open doors to communication. Managers and
their employees can set realistic goals that reflect and sup-
port the mission and goals of the organization as well as
the employees. Finally, the performance appraisal system
and the performance standards specifically are objective
tools to use as a basis for merit pay increases, promotions,
and termination.
A successful performance appraisal promotes good com-
munication and constructive feedback between managers
and their staff. It provides an opportunity to clarify job
requirements and performance expectations. When used
as an evaluation tool, the appraisal becomes a critical com-
ponent of reinforcing appropriate behaviors and providing
a fair and consistent foundation for promotions, transfers,
demotions, terminations, and salary adjustments. An ef-
fective appraisal process can be used as a recruitment tool
to attract candidates for employment into a program that
recognizes employee accomplishments. Employers may
highlight how their organization provides opportunities
for skill development and promotion. Retention in today’s
market is important, given the dwindling work force that
the laboratory is now facing. When employees feel val-
ued, they tend to remain on the job as loyal employees.
In summary, performance appraisals can be used as a tool
to recognize outstanding employee achievements and to
provide desirable work-related experiences and career
opportunities.
Advantages of performance appraisals:
• Foster good communication
• Provide constructive feedback
• Clarify job requirements
• Provide an opportunity to refine job skills
• Define performance expectations
• Promote behavioral modification
• Identify educational needs
• Provide documentation for promotion, compensation,
and termination decisions
• Promote recruitment and retention
• Protect the organization from discrimination lawsuits
• Provide an opportunity to share departmental and or-
ganizational visions
• Encourage teams to improve the way their organiza-
tion operates
Appraisal Types: Formal and Informal Appraisals
An effective appraisal system should include formal as
well as informal ongoing performance feedback. A formal
performance appraisal generally occurs at least annually
on a specific date and time, such as the anniversary of the
employee’s hire date (26, 51). Performance appraisals can
also be given at a set time of the year identified by the hu-
man resources department for larger groups of employ-
ees within an organization. Appraising everyone during
the same time period is generally viewed as most fair be-
cause the same guidelines can be applied to all employees
evaluated (26, 32). A performance appraisal form is gen-
erally completed during the interview, and this written
documentation is placed in the employee’s file as part of
the permanent record. In contrast, informal performance
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
feedback appraisals are useful for monitoring behavior
modification, recognizing accomplishments, identifying
stumbling blocks in achieving set goals, giving support
where applicable, and fostering ongoing communication
between formal appraisals. Informal appraisals also ensure
that the formal appraisal does not come as a surprise to
employees. They know what is expected and can work at
fulfilling those expectations.
Benefits of informal performance appraisals:
• Provide an opportunity to monitor behavioral
modifications
• Allow for timely recognition of accomplishments
• Identify stumbling blocks to achieving goals
• Provide ongoing support
• Foster good communication
Responsibility for Developing a Performance
Appraisal Program
The organizational philosophy and purpose for having
performance appraisals should be clear to those who are
designing a performance appraisal system. The perfor-
mance appraisal program is frequently developed by one
or more members of upper management and supervisory-
level employees, including the chief executive officer, man-
agers, human resource professionals, and staff employees,
particularly those who are strong performers or who wel-
come new opportunities. There are several reasons for in-
cluding staff employees in the planning process. First, they
are intimately acquainted with all of the tasks that make up
their jobs and with the factors that affect their ability to get
the job done. If they know their input is valued, they will
feel that their opinions matter and that they are an impor-
tant part of the decision-making body of the organization.
In turn, their involvement is likely to engender support for
the program and loyalty to the organization. Finally, they
will feel that they are being given a new opportunity to
learn and advance in their careers (26).
Who is responsible for developing a performance ap-
praisal program?
• Upper management
• Supervisors/managers
• Human resources staff
• Staff employees
Legal Aspects of a Performance Appraisal Program
The form that is used to document the performance ap-
praisal may be a standardized form or it may be created
by human resources and/or organizational managers and
staff (32). Performance appraisals are discoverable in a
court of law. In other words, the information may be con-
sidered evidence in a legal case, so it is important to always
311
apply the performance appraisal process fairly and equita-
bly (30, 43). Discriminatory policies can and will get you
in trouble. Clearly defined standards, feedback, and docu-
mentation are key factors in defending your program and
appraisals (30, 51).
Evaluating employees and awarding pay increases
based on the evaluation scores is paramount to keeping
your program defensible. Performance appraisals are con-
fidential and should be shared with individuals only on an
as-needed basis, except by subpoena (26). The following
factors help to ensure that you are using a legally defensible
performance appraisal system:
• Appraisers should receive written instructions and
specific training on how to utilize the appraisals
correctly.
• Job descriptions should be used to determine what is
evaluated.
• Performance expectations should be reviewed in ad-
vance with the employee.
• Appraisals should be designed to evaluate behavioral
criteria that can be measured, not personality traits.
• The content of a completed appraisal form should be
discussed with the employee, and the employee in turn
should have a chance to add his or her own comments.
• Everyone should be evaluated fairly and consistently.
Legal considerations:
• Train appraisers
• Review job descriptions and performance expectations
prior to interview
• Evaluate behavior, not personality
• Provide employees with an opportunity to respond to
appraisal
• Evaluate fairly and consistently
• Document appraisal
Elements of a Meaningful Formal
Performance Appraisal
An effective appraisal program is based on an honest and
sincere discussion of expectations, job performance, and
plans for improvement and follow-up between apprais-
ers and their employees. Performance appraisals must be
clearly developed to meet the requirements of specific po-
sitions. It takes a concerted effort and up-front expense to
develop and maintain an effective performance appraisal
system. Time must be devoted to analyzing and prepar-
ing job descriptions for each job title within an organiza-
tion; designing performance appraisal forms; executing
a successful performance interview, including preinter-
view planning; follow-up (22, 30); ongoing monitoring;
documenting; training; and compensation. An effective
312 PERSONNEL MANAGEMENT
program requires total management commitment of time
and money (32).
Elements of a formal appraisal:
• Clear expectations: mission statement, job description,
performance standards
• Valid and fair performance assessment
• Plan for improvement
• Follow-up
Mission statement. A meaningful performance appraisal
should begin with a current organizational mission state-
ment. The organizational philosophy should be incor-
porated into the mission statement of each performance
appraisal. Understanding organizational goals and values
is paramount to setting goals for the employees and ulti-
mately to ensuring organizational productivity and suc-
cess. As a manager, it is important that you convey the
goals and values of the organization and department to
your employees.
Job description. A job description is a written document
that generally includes the title of the position; depart-
ment; job code or number, if applicable; Federal Labor
Standards Act status as to whether the position is exempt
(salaried) or nonexempt (hourly), full-time, part-time, or
temporary; job summary; four to six essential functions
or tasks; level of authority; reporting relationship; essen-
tial skills or traits required to perform the tasks; qualifica-
tions; physical requirements; and effective date of the job
description (26) (Appendix 16.1). All employees in an or-
ganization should have an up-to-date job description so
they know what is expected of them (32).
A job description is a valuable tool when terminating an
employee for failing to do the job. It provides documenta-
tion that the employee knew what was expected of him or
her. “Essential functions” are those duties and responsibili-
ties that are an inherent part of a particular job. The term
is included to protect the rights of disabled workers under
the 1990 Americans with Disabilities Act (ADA) and is ap-
plicable to organizations with at least 15 employees. The
ADA is enforced by the Equal Employment Opportunity
Commission (26). To meet legal requirements, a skill must
be shown to be a valid, true, and necessary requirement of
the job. The two controlling principles in developing writ-
ten job descriptions and standards are job-relatedness and
fairness (26).
Performance standards. Evaluations based on perfor-
mance standards were introduced in the 1990s and are
commonly used in the laboratory setting. Standards are
formal requirements that outline expectations of job per-
formance, i.e., how well a job should be performed (Ap-
pendixes 16.2 and 16.3). Performance appraisals must
contain specific, measurable, and realistic standards of
performance (37, 51). In other words, the job description
defines the job responsibilities, and the standards quan-
tify your expectations, e.g., how many cultures are read
per day and percent of errors tolerated. Standards can be
used to compare the quality of work among staff members.
Different types of jobs may call for demonstrable skills or
behaviors rather than numerically quantifiable units of
production. For example, a standard of performance in the
laboratory may be to demonstrate familiarity with safety
regulations to provide a safe work environment. Another
method of measure is to include percent timeliness, e.g.,
technologists will finalize 75% of the 48-hour cultures on
time. Established and specific performance standards al-
low employees to know how they are doing compared to
expectations (18, 19). It makes them accountable (32).
Criteria. A criterion is a standard for judging task perfor-
mance. Three to four specific, detailed, and realistic writ-
ten criteria should be developed, understood, and agreed
upon by employee and supervisor for each key task (19,
51). These need to be objective, observable, and measur-
able (37).
Norms. Norms (33) are informal behaviors that are gener-
ally accepted in the workplace. For example, treating co-
workers with respect is an organizational norm. Norms are
more difficult to identify and more subjective than stan-
dards. The problem with using norms to measure employee
performance is that they are subjective. A behavior may be
considered acceptable to one manager and unacceptable to
another. Alternatively, a manager may consider a behavior
to be acceptable when exhibited by one individual and un-
acceptable when exhibited by another individual. Norms
are not less important than standards because violations of
an organization’s norms can have as much impact as viola-
tions of its standards. For example, one of your employees
may exceed all standards but frequently offend or insult
other coworkers. As a manager, you may find yourself
repeatedly calming the other coworkers from the ongo-
ing violation of the laboratory’s norms. In this case, when
the violation of a norm interferes with the performance of
other employees, the individual violating the norm needs
to be counseled.
Characteristics of performance standards:
• Specific
• Measurable
• Realistic
Competency-Based Appraisals
Appraisals are often position-specific and competency-
based using observable and measurable standards. The
Joint Commission (TJC) initially required employers to use
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
criteria-based performance appraisals and later replaced
the requirements with competency-based appraisals. In
other words, performance appraisals must ensure that all
healthcare workers are competent in all areas necessary to
perform their jobs. Competency is the state of having the
correct or needed skills for the position. In a competency-
based performance appraisal, each required competency
should be evaluated in some quantitative format. Appraisal
forms that use a rating system with a structured scale gen-
erally are easy to complete. The disadvantage of a rating
system is that it tends to set up a competitive feeling among
employees. The most recognizable company to have used
a rating system is General Electric. Managers would evalu-
ate employees by dividing talent into three groups—a top
20%, a middle 70%, and a bottom 10%. The bottom 10%
were considered low achievers and were usually the ones
let go. This created an environment of competition rather
than one of collaboration. It is important that the appraiser
qualify a rating with behavioral examples. For example, if
you score an employee above or below what is considered
the minimally acceptable score, you should provide writ-
ten details.
Rating Methods
The validity of a rating system depends on such things as
rater training and observable and quantifiable behaviors.
Employees should have a current, detailed job description
and know performance standards and criteria used for
assessing performance. Appraising an employee’s perfor-
mance means that you are rating actual performance, not
ability. A person may have the ability but may not be per-
forming up to the standards set for that job. Characteristics
commonly assessed are competency, accuracy, communi-
cation, creativity, productivity, problem solving, decision
making, delegating, and administrative effectiveness. You
must be able to consistently observe the employee per-
forming the assigned tasks, and your rating criteria must
be the same for all employees doing the same job. Perfor-
mance must be described accurately and must be based on
documentation. Be careful when rating subjective qualities
such as attitude, cooperation, enthusiasm, and initiative. A
qualitative characteristic such as interpersonal skills may be
appraised: e.g., unsatisfactory, fails to meet acceptable stan-
dards in relationships with others; average, gets along well
with others; and outstanding, excels in developing relation-
ships of trust and respect with supervisors and peers (32).
Quantifiable performance measures, such as the number of
times stat turnaround times were within acceptable limits,
specimens were processed, critical values were called, er-
rors were made, and percent of time within budget, are pro-
ductive measurements that are easier to defend.
Results-based evaluations (RBEs) are performed by
managers who focus on attainment of specific measur-
able results. RBEs may be used in intangible areas such
313
as attaining specific goals in management development,
reaching personal goals, and collaborative efforts. Key re-
sults areas and expectations are agreed upon at the begin-
ning of a period and measured regularly by staff submittal
of monthly progress reports. This type of evaluation al-
lows a manager and employee to set and prioritize reason-
able goals.
A rating system may be used to compare the perfor-
mance of employees through a set of criteria that produces
a numerical value. There are four factors to consider when
designing a written performance appraisal and selecting a
rating system: the purpose of the appraisal, your work en-
vironment (e.g., self-directed teams), verbal and analytical
skills of the employees being evaluated, and the manager’s
management style (51). Rating requires clear definitions
of the terms “exceeds standards,” “meets standards,” and
“does not meet standards.” Absolute methods include a
graphic rating scale, critical incident evaluation, a behav-
iorally anchored rating scale, and use of a checklist.
Factors to consider when selecting a rating system:
• Purpose of appraisal
• Work environment
• Skills of employees
• Manager’s management style
A graphic rating scale provides a ranking scale (usu-
ally 1 to 5) for unsatisfactory to outstanding performance
(51). An overall rating can be calculated by averaging the
individual rankings. This is one of the most popular meth-
ods. It is easy to use and understand. The forms are easy
to revise and the method is not usually time-consuming
(Appendix 16.4).
Free-form or narrative rating (51) is generally an ad-
junct to other methods (2, 26, 30, 32). A variation of this
rating is the critical incident evaluation—documenting
written notations of exceptional performance, good or
bad, that are then summarized in the written performance
evaluation (30). A disadvantage is the lack of reference to
the day-to-day, noncritical performance that makes up
the greatest portion of an employee’s on-the-job behavior
(Table 16.1).
A behaviorally anchored rating scale (BARS) entails
writing a competency statement for each aspect of the job.
The BARS (10) focuses on employee behaviors and avoids
any evaluation of attitudes. A numerical rating scale is
used with a description of behaviors that correspond to
each of the ratings (30). It is based on critical incidents or
actual examples of how employees behaved in a given situ-
ation. This type of rating is generally more expensive and
time-consuming to implement. It is also more difficult to
develop because it must identify all work behaviors of a job
with a specific description of each behavior, ranging from
unsatisfactory to outstanding.
314 PERSONNEL MANAGEMENT

Table 16.1 Rating systems pros and cons

Appraisal methods Pros Cons
Rating scale Many managers and employees are familiar with them The assumption that they are directly tied to an
Simple way to communicate areas of strengths and employee’s raise or bonus
weaknesses Managers can also have negative bias toward
Ease of use and understanding employees
Narrative technique Can focus on praising positive behavior and addressing Employee might interpret the evaluation too posi-
areas for correction tively or too negatively relative to a scoring system
Thoroughness of detail in analyzing employee behaviors
Comparison method Can motivate performance in competitive workplaces The potential of infighting and the lack of har-
and among competitive employees mony in the employee ranks
Allows you to communicate to an employee about areas
in which he or she over- or underperforms relative to
others in similar positions
360° feedback Allows a better chance to compare different perspectives Biased evaluators
in the evaluation process Negative employee feelings
Offers the employee a glimpse of how others view his or Poor alignment with goals
her performance in various relationships critical to the job

Checklist adjectives evaluation is based on the use of
descriptive phrases to describe a laboratory worker’s most
outstanding personal characteristics (51). Checklists in-
clude statements describing positive and negative behav-
iors that may be exhibited on the job. If the employee
exhibits one of the described behaviors, the item is checked
off; otherwise the item is left blank. With a weighted
checklist, each behavior is weighted differently rather than
considering them of equal importance. Points are assigned
based on the organizational value placed on that behavior.
Forced choice rating is not commonly used. A rater
chooses the most applicable of several unrelated descrip-
tions of performance. The choices are purposefully dif-
ficult, with the intent of improving the reliability of the
rating (33).
Comparative methods used in the 1980s included
forced distribution, ranking employees, and paired com-
parison. Forced distribution (19, 33, 51) requires the rater
to distribute a certain percentage of employees in each
ranking category, e.g., 5% outstanding, 10% above average,
etc. (19). This helps an organization control and forecast
salary budgets.
In a ranking, employees are compared and ranked nu-
merically from best to worst among their peers. Because it
is not possible for all employees to be ranked as excellent
even if they are, a ranking system (33, 51) does not provide
feedback about the employees’ performance and generally
is neither reliable nor valid.
Paired comparison means that employees are compared
two at a time (51). Ranking occurs on the basis of the num-
ber of times a given employee is deemed to be the better
performer of a pair.
Person-to-person comparison is similar to paired com-
parison. Employees are ranked below average, average,
above average, or outstanding on the basis of comparison
of their performance with that of peers who are currently
performing similar tasks (51).
Absolute methods of ratings and ranking:
• Graphic rating scale
• Free-form
• Critical incident evaluation
• Behaviorally anchored rating scale
• Forced choice
• Forced distribution
• Paired comparison
• Person-to-person comparison
Other Types of Performance Appraisals
Self-appraisal. Self-appraisal forms are generally distrib-
uted approximately two weeks prior to a formal appraisal
and are not meant to take the place of a manager’s appraisal.
They give a different perspective of an employee’s perfor-
mance and possibly a better understanding of the poten-
tial obstacles that may impede performance. Employees
may be provided with a copy of the same form used by the
manager so that they can use the same criteria for evalu-
ation of their performance. Ratings and scores can then
be easily compared. Interestingly, most employees tend to
appraise themselves at the same level or lower than their
manager does (26). As an alternative, some laboratories
design a form with a different format that elicits additional
information by asking open-ended questions (26). The
self-appraisal generates active participation by employees.
It provides an opportunity for employees to reflect on their
own performance and achievements (19, 35). They may
identify additional accomplishments that the manager
may not have identified or has forgotten. The self-appraisal
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
also promotes a two-way conversation regarding the need
for additional training and development (30, 32).
Peer-to-peer appraisal. Peer-to-peer appraisals require
trust among employees working together. Coworkers are
asked to evaluate each other. This approach may engender
fears among staff members, some without foundation, that
need to be addressed. A comprehensive training program
on how to give feedback is required to successfully imple-
ment this type of appraisal (26). The technique may be
risky when conflict exists among employees, thus prevent-
ing an objective evaluation. Conversely, if you are working
with an experienced and mature group of employees, the
process may be very educational. If the appraisals are per-
formed honestly and sincerely, employees may gain great
insight into their work relationships and performance. If
you are using a team approach to accomplish institutional
goals, you may want to consider a variation of this concept.
One team of employees may be asked to evaluate another
team, rather than appraising individual coworkers.
360-degree evaluation. 360-degree evaluations are de-
signed to obtain well-rounded appraisals that tend to be
reserved for individuals in management-level positions
(33). As with peer-to-peer evaluations, both trust and
a comprehensive training program are required to suc-
cessfully implement this technique (26). The evaluation
is often performed anonymously and invites open, con-
structive in-depth feedback (9) from all levels, i.e., peers,
subordinates, supervisors, customers, and self (32, 37).
Raters are frequently asked to complete a series of open-
ended questions. Solicited evaluations with rater identity
removed may be given to the employee being appraised, or
they may be summarized to obtain an overall feedback ap-
praisal. This type of evaluation is used for developmental
purposes, not for salary adjustments (Table 16.1).
Who Should Perform the Appraisal?
The appraiser should be a direct observer of work perfor-
mance in order to give a credible appraisal (26). He or she
should have a firm foundation in what needs to be accom-
plished to get the job done successfully. Some managers
will ask for input from other individuals who interact with
the employee being evaluated to ensure an unbiased ap-
praisal. Just remember that sincerity and honesty are the
keys to a successful performance appraisal.
Preappraisal Preparation
Appraiser. Approximately two weeks before the perfor-
mance appraisal, appraisers should schedule the appraisal
in a comfortable, nonthreatening, neutral location where
there will be no interruptions (40). Prepare for the meet-
ing by reviewing your documentation and the employee’s
self-appraisal and/or list of accomplishments (30, 32, 40,
315
48, 51). Make the appraisal a priority and start on time. It
is advisable to sit next to the employee, rather than across a
desk, to encourage open conversation. Refrain from taking
phone calls during the interview. Allow enough time (at
least 1 hour) to complete a formal appraisal (26, 33).
Preparation by appraiser:
• Schedule meeting
• Select neutral location
• Prepare/review documentation
• Start on time
• Hold phone calls
• Allow enough time
Employees. Employees should be on time for the meeting.
Self-appraisals should be submitted to the manager well in
advance so that the manager has a chance to review the
information before the formal appraisal meeting. Employ-
ees should review their job description, the standards for
the position, the organizational mission statement, and
their goals and accomplishments (37, 48). They should
connect their goals with the organizational goals (26). Em-
ployees should prepare a list of goals for the coming year
and should discuss any obstacles that might impede the
accomplishment of those goals. They should be prepared
to suggest a solution to a problem. Goals should be estab-
lished that stretch the employees’ capabilities. Employees
should be forthright, positive, and honest and provide
feedback to their managers. Employees should listen and
be open to suggestions. They should ask for specifics and
clarification if they believe the appraisal is not reflective of
their performance. When given the opportunity to provide
written comments, they should document any specific dis-
agreements on their performance appraisal form (32, 48).
Preparation by employee:
• Complete self-appraisal
• Review job description, performance standards, mis-
sion statement, goals, and accomplishments
• Relate personal goals with organizational goals
• Prepare list of future goals
• Identify obstacles
• Provide feedback
• Listen and be open to suggestions
• Ask for specifics and clarification
Steps to a Successful Performance
Appraisal Interview
Preliminary meeting with employee. The purpose of the
meeting is to explore ways to achieve personal and orga-
nizational goals and make improvements. Begin the in-
terview by initiating a friendly conversation to put the
316 PERSONNEL MANAGEMENT
employee (and yourself) at ease. Explain the purpose of
the performance appraisal and review the organizational
and departmental mission statements, the job description,
the performance standards, the goals of the organization
and those previously set with the employee, and the self-
appraisal before beginning the formal interview. Remem-
ber that performance appraisals should hold no surprises
and should not be punitive. Reinforce that the overall intent
is for feedback to be motivational (26). Instead of covering
every point on the form, be more conversational because
the employee will receive a copy of the form to read later.
Formal meeting. Approach the performance appraisal in a
positive and respectful manner. The performance appraisal
process should motivate employees and should encourage
their feedback, so don’t do all of the talking and don’t an-
swer your own questions. Ask open-ended questions to
stimulate discussion and obtain employee responses (26).
For example, you may ask questions (48) such as, “What
is your understanding of the performance expectations?”
“Do you need more training?” “What kind of support can I
provide for you to help you accomplish your goals?” Listen
actively and intently, do not interrupt, and give feedback.
Summarize comments made by the employee during the
discussion to ensure that you understand what the em-
ployee is conveying to you. Be forthright and constructive
in your evaluation, but not critical. Now is not the time to
be timid. Most employees have some room for improve-
ment. Using the halo effect (26, 32, 33, 37, 40), whereby
you give positive performance appraisals even when unde-
served, does nothing to stimulate behavioral modification
(32). Likewise, avoid the pitchfork effect (33, 37), by which
a single instance of poor performance adversely affects
your overall assessment.
If you point out deficiencies without a plan for improve-
ment, the employee may leave the meeting not knowing
how to change the situation (37). The end result is that
you will not see behavioral modification. Even if behavior
modification is needed, focus on how you and your em-
ployee can work together to create a positive outcome. Set
goals (generally at least four) for the coming year and help
the employee specify the behaviors that must be changed
to meet these goals. Make sure the goals are realistic, but
at least one of them should be a stretch (26, 37, 40, 42). It
is important that you communicate with your staff on a
daily basis and keep them informed. Listen to them, don’t
micromanage, and share your vision and the organization’s
vision. Celebrate small and large victories and be generous
with your praise. Finally, treat others with respect.
At the beginning of the meeting, inform the employee
that you may refer to your notes and that during the dis-
cussion you may take notes that will become part of the
personnel file. Let the employee know that he or she will
have an opportunity to review your written summary, add
statements to the document, sign it, and receive a copy be-
fore you place it in the personnel file (26). If the employee
refuses to sign the performance appraisal, document this
and sign the form along with a witness. Also include the
date of the meeting and a summary of the agreements you
have made. Set follow-up dates and make sure you keep
the appointments (22, 30). Disciplinary sessions should
be scheduled separately from the performance appraisal.
The “do’s” and “don’ts” of a performance appraisal (26) are
summarized in Table 16.2.
Steps for appraiser to take during a formal appraisal:
• Observe directly
• Rate behavior
• Measure productivity
• Determine if specific goals have been accomplished
• Establish organizational initiatives
• Identify incidents
• State impact or consequences of behavior
• List additional training received
• Identify future goals
If managers lack the skills necessary to execute an ap-
praisal, they should receive training in how to effectively
give feedback to staff members (26). Training should in-
clude a review of the organizational philosophy, the pur-
pose of the program, and how to complete the forms and
score the evaluation (51), give feedback in a positive man-
ner, focus on performance and not personality, coach for
improvement (6, 27, 32, 44), make wage and promotion
decisions using performance data, and discover weak spots
and correct them. Establish a list of words or phrases to be
used for coaching and appraisal discussions (31, 32). Some
organizations provide this training at orientation for new
managers and annually thereafter.
Appraiser training:
• Review organizational philosophy
• Understand purpose of performance appraisals
• Know how to complete the form and score the
evaluation
• Provide feedback in a positive manner
• Focus on performance, not personality
• Coach for improvement
• Understand how to make wage and promotional deci-
sions based on performance appraisals
Benefits of Becoming a Mentor
The appraisal process can be a forum for career develop-
ment by focusing on employee development, coaching,
and training needs. You may, in fact, take on the role of
a mentor or trusted advisor to your employees. A mentor
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 317

Table 16.2 Do’s and don’ts when conducting a performance performance appraisal and salary increase so that you do
appraisala not run the risk of feeling pressured to start the conversa-
Do’s Don’ts tion by announcing a salary adjustment and then justify-
Prepare ahead. Use the appraisal to discipline ing your decision (33, 40).
Explain the purpose of the for past negative performance.
appraisal. Focus on personality issues. Strategies To Reinforce Appropriate Behaviors
Review the mission statement, Make gender-based statements. According to the law of effect, behaviors that are followed
job description, standards, and Generalize. by positive consequences are more likely to be repeated.
goals. Use subjective language. Providing positive consequences or rewards increases the
Focus on performance. probability that an appropriate behavior will be repeated
Provide specific performance (32). To be effective, however, positive reinforcement
examples and offer actions.
should be applied as soon as possible following the behav-
State impact or consequences of
behavior. ior and must be contingent on the desired behavior. This is
Communicate sincerely. one reason why informal appraisals are crucial to the suc-
Ask open-ended questions. cess of the appraisal process; the employee does not have
Listen to the employee. to wait a year to learn which behaviors are appropriate and
Summarize to ensure which are inappropriate.
understanding.
Encourage feedback. Guidelines for Appraising Poor Performers
Be objective and use objective Don’t wait until appraisal time to address a poor performer.
language. You should have documentation of coaching to address
Be as clear and concise as problems throughout the year. Ensure that the employee
possible. has a current copy of his or her job description and per-
Use examples of behaviors you formance standards. During the interview, give examples
observed. of poor performance to support your assessment and the
Set new goals and standards. consequences of the behavior (2). This can best be done
Develop an action plan. by providing documentation of how the employee’s work
Document the appraisal. does not meet standards and by reviewing previous discus-
Follow up. sions you may have had with the employee regarding the
a
From reference 27. problem. Prepare a list of specific changes you would like
him or her to make and the time frame in which to cor-
typically shares information, experiences, and lessons in rect the behavior. Present the information in a manner that
leadership. You must believe in your employees, encour- shows confidence in the employee’s ability to improve. Set
age, support, and coach them to aspire to higher goals. measurable standards for improvement and plan together
Proudly represent your employees to others, lead by ex- how this can be accomplished. It is important that you plan
ample, and exhibit a positive attitude. Mentors tend to take on meeting in the interim to review the improvement and
a big-picture approach, getting involved only when help assess and encourage the employee.
is requested. Mentors thus become a positive force in em-
ployee career development (26). Dealing with Emotional Outbursts during
Mentor responsibilities: Performance Appraisals
If the employee engages in an emotional outburst or dem-
• Share information and experiences onstrates signs of aggression, the manager should deal
• Believe in your employees cautiously with the individual and should have another
• Encourage, support, and coach your employees manager come to the room. You may want to encourage
the employee to seek assistance from the employee assis-
• Proudly represent your employees to others
tance program (26), if your organization has one. If you
• Lead by example anticipate an interview with a negative employee, spend
• Exhibit a positive attitude extra time preparing for the meeting. This may require
consultation with human resources on how to deal with
Salary Adjustments out-of-control employees. It is important that you do not
Merit increases usually are the end product of formal per- respond emotionally to an employee who is out of control
formance appraisals that connect levels of performance (30). Results of performance appraisals can incite emo-
with varying levels of salary increase or performance tions that sometimes are difficult to deal with. For exam-
incentive. It is better to have separate meetings for the ple, crying or shouting may call for a postponement so that
318 PERSONNEL MANAGEMENT
the employee can regain his or her composure and the ap-
praisal can be productive. Employees can disengage either
due to the appraisal or for personal reasons. You will need
to conduct an intervention as soon as possible, particularly
if you are interested in retaining the employee.
Completed Performance Appraisal Documents
A fully executed written appraisal is a complete and confi-
dential original document, with any changes, added com-
ments, and signatures in place (26) (Appendix 16.4). The
original document should be placed in the employee’s per-
sonnel file and kept in a secure place for the number of
years that is specified by organizational policy. Employees
should be given a completed copy for their records. Finally,
the manager should keep a copy in his or her files.
Requirements for performance appraisal documents:
• Maintain confidentiality
• Complete original, sign, and date
• Place original with human resources
• Keep documents according to policy
• Provide a copy to employee
• Place copy in manager’s file for internal use and for
accrediting agency review
Improvement Plan
One of the most important points of the appraisal form
is to document feedback and improvements (30, 32). An
improvement plan may be added to the performance ap-
praisal form to identify ways to help an employee improve
or attain a higher level of performance. Courts tend to
rule more favorably when an organization assists poor
performers in improving their performance. Examples of
ways to improve performance may include working side-
by-side with a more experienced technologist, attending
continuing education programs, and working in another
section of the laboratory to understand how each section
is related to other sections (Appendix 16.11).
Web-Based Software Products and Websites
Software can be purchased to automate the performance
appraisal process (Appendix 16.5). A software program
may provide action plans for an employee who is rated be-
low average for a task. Although software programs may
make it easier to execute appraisals, the downside is that
they tend to decrease interpersonal communication, one
of the key factors in a successful appraisal program.
Competency Assessment
Even though laboratories regularly evaluate the perfor-
mance of their employees for salary increase and job pro-
motion, a regulatory requirement to have an objective
system to document employee competency did not exist
prior to 1988. Although external proficiency testing is a
measurement of the ability to achieve a desired outcome
for a particular analyte, it is not synonymous with compe-
tency. What is competency? TJC defines competency as a
determination of an individual’s capability to perform up
to defined expectations (46). Another helpful definition of
competency is the ability to do a job correctly and safely
and to recognize and solve minor problems without need-
ing assistance (38).
Regulatory Foundation for Competency Assessment
Assessment of personnel competency is mandated by fed-
eral statute and is a component of the accreditation pro-
grams of the College of American Pathologists (CAP), The
Joint Commission (TJC), and the Commission on Office
Laboratory Accreditation (COLA). This section reviews
the specific regulations.
A federal statute resulted from passage by Congress
of the Clinical Laboratory Improvement Amendments
(CLIA) of 1988 and subsequent signature by the president
of Public Law 100-578 (3). CLIA ’88 (5) classifies commer-
cially marketed in vitro diagnostic tests into three levels
of complexity (waived, moderate, and high) and defines
qualifications for personnel performing testing across
the spectrum of sites in which testing is performed (i.e.,
qualifications are site-neutral). The CLIA ’88 personnel
standards provide a number of routes for individuals with
diverse educational and training backgrounds to meet the
federal regulations. To provide quality assurance of per-
sonnel within this framework, the laboratory must have
an ongoing mechanism to evaluate the effectiveness of its
policies and procedures for ensuring employee compe-
tence (42 CFR Sec. 493.1713).
CLIA ’88 charges both the laboratory director and the
technical consultant or technical supervisor with specific
responsibilities for the competency assessment program of
the laboratory. Policies and procedures should address the
entire testing process, including preanalytical, analytical,
and postanalytical phases (Table 16.3).
Through the Laboratory Accreditation Program (LAP),
CAP provides inspection checklist guidelines (7) that ad-
dress employee training and experience, performance re-
views, and competency assessment (Table 16.4). In 1996,
TJC initiated a standard to be used by hospitals to assess,
document, and improve the competency of all employees.
The standards focus on job-specific, measurable, dem-
onstrated, age-specific competency statements (12). In
addition, TJC standards specify the responsibilities of labo-
ratory management pertaining to the assessment and main-
tenance of employee competency and ongoing learning and
development (46). For office-based laboratories, COLA re-
quires that the laboratory director or technical consultant
periodically evaluate personnel performance (8).
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
Table 16.3 Responsibilities for competency assessment mandated by CLIAa
Moderate-complexity testing
42 CFR Sec. 493.1407
“The laboratory director must ensure that policies and procedures
are established for monitoring individuals who conduct preanalytical,
analytical and postanalytical phases of testing to assure that they are
competent and maintain their competency to process specimens, per-
form test procedures and report test results promptly and proficiently,
and whenever necessary, identify needs for remedial training or con-
tinuing education to improve skills. . . .”
42 CFR Sec. 493.1413
“The technical consultant is responsible for evaluating the compe-
tency of all testing personnel and assuring that the staff maintain
their competency to perform test procedures and report test results
promptly, accurately, and proficiently.”
a
Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 21, 2012).
Timing of Competency Assessment
CLIA ’88 mandates that the technical consultant of a
laboratory performing moderate-complexity testing (42
CFR Sec. 493.1413) or the technical supervisor of a labo-
ratory performing high-complexity testing (42 CFR Sec.
493.1451) be responsible for evaluating and documenting
employee performance at least semiannually during the
first year of employment. Subsequent evaluations are to
Table 16.4 CAP checklist questions pertaining to competencya
GEN.54400 Personnel Records (Phase II)
Personnel files are maintained on all current technical personnel and
personnel records include all of the following items.
1. Summary of training and experience
2. Copy of academic degree or transcript
3. License if required by state
4. Certification, if required by state or employer
5. Description of current duties and responsibilities as specified by
the laboratory director.
a) Procedures the individual is authorized to perform,
b) Whether supervision is required for specimen processing, test
performance or result reporting,
c) Whether supervisory or director review is required to report
patient test results.
6. Records of continuing education
7. Records of radiation exposure where applicable (such as with in
vivo radiation testing), but not required for low exposure levels
such as certain in-vitro testing
8. Work-related incident and/or accident records
9. Dates of employment
GEN.54750 Testing Personnel Qualifications (Phase II)
For laboratories subject to US federal regulations, all testing personnel
meet CLIA requirements.
GEN.55400 Visual Color Discrimination (Phase I)
Technical personnel are tested for visual color discrimination.
a
From reference 7.
319
High-complexity testing
42 CFR Sec. 493.1445
“The laboratory director must ensure that policies and procedures
are established for monitoring individuals who conduct preanalyti-
cal, analytical and postanalytical phases of testing to assure that they
are competent and maintain their competency to process specimens,
perform test procedures and report test results promptly and profi-
ciently, and whenever necessary, identify needs for remedial training
or continuing education to improve skills. . . .”
42 CFR Sec 493.1451
“The technical supervisor is responsible for evaluating the compe-
tency of all testing personnel and assuring that the staff maintain
their competency to perform test procedures and report test results
promptly, accurately, and proficiently.”
be performed annually unless test methodology or instru-
mentation changes have occurred, in which case, prior to
reporting patient test results, the individual’s performance
using the new test methodology or instrumentation must
be evaluated.
Upon employment, all new hires should participate in a
laboratory orientation program to ensure that patient test
results will not be reported until the desired skill level has
GEN.55450 Initial Training (Phase I)
There is documentation that all staff have satisfactorily completed
initial training on all instrument/methods applicable to their desig-
nated job.
GEN.55500 Competency Assessment (Phase II)
The competency of each person to perform his/her assigned duties
is assessed.
Elements of competency assessment include but are not limited to:
1. Direct observations of routine patient test performance, includ-
ing, as applicable, patient identification and preparation; and
specimen collection, handling, processing and testing
2. Monitoring the recording and reporting of test results, includ-
ing, as applicable, reporting critical results
3. Review of intermediate test results or worksheets, quality con-
trol records, proficiency testing results, and preventive mainte-
nance records
4. Direct observation of performance of instrument maintenance
and function checks
5. Assessment of test performance through testing previously
analyzed specimens, internal blind testing samples or external
proficiency testing samples; and
6. Evaluation of problem-solving skills
GEN.57000 Competency Corrective Action (Phase I)
If an employee fails to demonstrate satisfactory performance on the
competency assessment, the laboratory has a plan of corrective ac-
tion to retrain and reassess the employee’s competency.
320 PERSONNEL MANAGEMENT
been demonstrated. An orientation checklist (Appendixes
16.6, 16.7, and 16.8) may facilitate this process and may
help to ensure standardization when multiple trainers are
involved. Orientation may encompass a variety of activities
such as reviewing laboratory procedure and policy manu-
als, observing the procedure being performed, performing
the procedure under supervision, and completing a post-
test examination. A guideline from the Clinical and Labo-
ratory Standards Institute (CLSI) provides a framework by
which the laboratory may develop a program for training
verification (4). The length of time required for orientation
will vary depending upon the employee’s formal training
and work experience and the number of test procedures
to be mastered. CLIA ’88 (42 CFR Sec. 493.1425 and 42
CFR Sec. 493.1489) specifies that training (Table 16.5) of
testing personnel must ensure (i) the skills required for
proper specimen collection, including patient preparation,
if applicable, labeling, handling, preservation or fixation,
processing or preparation, transportation, and storage of
specimens; (ii) the skills required for implementing all
standard laboratory procedures; (iii) the skills required for
performing each test method and for proper instrument
use; (iv) the skills required for performing preventive
maintenance, troubleshooting, and calibration procedures
related to each test performed; (v) a working knowledge
of reagent stability and storage; (vi) the skills required to
implement the quality control policies and procedures of
the laboratory; (vii) an awareness of the factors that influ-
ence test results; and (viii) the skills required to assess and
verify the validity of patient test results through the evalu-
ation of quality control sample values prior to reporting
patient test results.
Both the employee and the trainer must sign the docu-
mentation showing the specific training performed and
the skill level attained. This documentation is maintained
in the employee’s file.
Accrediting agencies such as The College of American
Pathologists (CAP) and The Joint Commission (TJC) re-
quire that competency of testing personnel be maintained
Table 16.5 Employee skills required for competency
Collect, label, process, transport, and store specimens.
Implement all standard laboratory procedures.
Perform each test method.
Perform preventive maintenance, troubleshooting, and calibration
procedures.
Understand reagent stability and storage.
Implement the quality control policies and procedures of the
laboratory.
Understand factors that influence test results.
Assess quality control sample values prior to reporting patient test
results.
Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 21, 2012).
on an ongoing basis. In addition to changes brought about
by technological advances that may affect specific labo-
ratory procedures or instrumentation, changes may also
occur in the mission of an organization as delivery of
healthcare evolves. To meet these challenges, ongoing edu-
cation may be offered through a variety of formats, such
as in-service educational programs, on-the-job training,
audioconferences or teleconferences, self-instructional ma-
terials, local or national workshops, and local or national
professional meetings. Documentation of the educational
event, including the topic, date of presentation or partici-
pation, name of the presenter or trainer, and the individual
participating, should be maintained in the employee’s file
as supporting evidence of ongoing competency.
Timing of competency assessment:
• Semiannually during first year for new employees
• Annually for all employees
• Preceding implementation of new methods or
instrumentation
Methods for Assessment of Competency
CLIA ’88 standards for assessment of personnel compe-
tency are the same for laboratories performing moder-
ate- or high-complexity testing (42 CFR Sec. 493.1413 and
42 CFR Sec. 493.1451). The procedures (Tables 16.6 and
16.7) for evaluation of competency must include, but are
not limited to, (i) direct observations of routine patient test
performance, including patient preparation, if applicable,
specimen handling, processing, and testing; (ii) monitor-
ing the recording and reporting of test results; (iii) review
of intermediate test results or worksheets, quality control
records, proficiency test results, and preventive mainte-
nance records; (iv) direct observation of performance of
instrument maintenance and function checks; (vi) as-
sessment of test performance through testing previously
analyzed specimens, internal blind testing samples, or ex-
ternal proficiency testing samples; and (vi) assessment of
problem-solving skills.
Table 16.6 Methods to assess competencya
Directly observe specimen collection, handling, processing, and
testing.
Monitor recording and reporting of test results.
Review preliminary/interim test results or worksheets, quality control
records, proficiency test results, and preventive maintenance checks.
Directly observe performance of instrument maintenance and func-
tion checks.
Assess test performance through testing previously analyzed speci-
mens, internal blind testing samples, or external proficiency testing
samples.
Assess problem-solving skills.
a
Available at http://wwwn.cdc.gov/clia/default.aspx (accessed May 12, 2012).
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 321

Table 16.7 Competency assessment methods: CAP’s Competency Assessment Program and LAP checklist question GEN.55500a,b
Does the CAP’s Competency Assessment Does the CAP’s Competency
Program Satisfy GEN.55500 Requirement Assessment Program Satisfy GEN.55500
with No Manipulation of the Program by Requirement with Manipulation of the
Requirements of GEN.55500 the Laboratory? Program by the Laboratory?
Direct observations of routine patient Maybe. This can be achieved through the use of Yes. If an instrument-specific observation
test performances, including patient the instrument-specific observation checklists. checklist does not exist for the instrument used
preparation, if applicable, specimen However, the Competency Assessment Program by a laboratory, then the laboratory would use
handling, processing, and testing does not have observation checklists for every CourseBuilder or ChecklistBuilder tools.
available instrument. Also, there are no checklists
available for laboratory tests/procedures that are
performed manually.
Checklists should be reviewed and modified as
necessary to meet the laboratory’s standard oper-
ating procedures (SOPs).
Monitoring the recording and report- No. Yes. This can be achieved through the use of
ing of test results CourseBuilder or ChecklistBuilder tools. A
checklist could be created to use for observa-
tion and tracking.
Review of intermediate test results or No. Yes. This can be achieved through the use of
worksheets, quality control records, CourseBuilder or ChecklistBuilder tools. A
proficiency testing results, and preven- checklist could be created to use for observa-
tative maintenance records tion and tracking.
Direct observation of performance of Maybe. This can be achieved through the use of Yes. If an instrument-specific observation
instrument maintenance and function the instrument-specific observation checklists. checklist does not exist for the instrument used
checks However, the Competency Assessment Program by a laboratory, one can be created using the
does not have observation checklists for every CourseBuilder or ChecklistBuilder tools.
available instrument.
Checklists should be reviewed and modified as
necessary to meet the laboratory’s standard oper-
ating procedures (SOPs).
Assessment of test performance No. Yes. This can be achieved through the use of
through testing previously analyzed the CourseBuilder or Checklist Builder tools.
specimens, internal blind testing A checklist could be created to use for observa-
samples, or external proficiency testing tion and tracking.
samples
Evaluation of problem-solving skills Yes. Competency assessments (which include Yes. If a laboratory requires additional mate-
customized training courses) and reassessments rial to assess an employee’s competence, the
can satisfy this requirement. CourseBuilder tool will allow the laboratory to
modify a CAP course or create a new course.
a
Available at http://www.cap.org/apps/docs/education/competency_assessment/competency_requirements_GEN55500.pdf (accessed August 14, 2012).
b
This chart is an assessment of how the CAP’s Competency Assessment Program can be used to satisfy the elements of competency included in Laboratory General
Checklist question GEN.55500 and the CLIA regulations. For each requirement, we have attempted to explain how the program can satisfy the element using two sce-
narios: with no manipulation by the laboratory (i.e., without using the CourseBuilder or ChecklistBuilder tools to customize a course/checklist) and with manipulation
by the laboratory.

Accrediting agencies such as the CAP and TJC will ver-
ify that all six required elements were used for the compe-
tency assessment for each test system.
Other than this requirement, CLIA ’88 does not specify
in detail how competency assessment should be accom-
plished to preserve flexibility for laboratory managers to
design programs that will meet their own unique needs.
Examining, documenting, and continually expanding the
competency of staff is essential for maintaining test quality,
particularly in an environment in which allied health train-
ing programs are closing and the workforce is downsiz-
ing. When designing a competency assessment program,
laboratory managers must determine which assessment
method(s) will best suit their needs (14, 28). Assessment
may be targeted at functions identified as problem-prone
or at critical functions in which errors are likely to go
unnoticed (17). It is the intent of CLIA ’88 and TJC that
competency assessment programs be grounded in staff
development (46) and efforts geared toward quality im-
provement (13). The assessment plan should be designed
to give objective measurements (27). The assessment plan
should also delineate who will conduct the assessments.
Senior technologists proficient in a subspecialty area may
be recruited to perform subspecialty evaluations (29), or
experienced staff members may be trained in performing
and documenting competency assessments (49).
322 PERSONNEL MANAGEMENT
Direct observation of technical skills is especially useful
for those procedures that are manually performed, such as
primary plating of cultures and venipuncture procedures.
A checklist of predetermined skills (Appendixes 16.9 and
16.10) will enable systematic documentation of the critical
procedural steps under review (1, 39). Direct observation
is also indicated for monitoring performance of instru-
ment maintenance and function checks.
Review of preliminary and final result work sheets, re-
ported patient results (either via online or hard-copy for-
mat), quality control records, proficiency test results, and
instrument preventive maintenance records should occur
as part of the quality assurance program of the laboratory.
Documentation of the review is the essential component
that will satisfy the competency regulations. For example,
in the competency program of one laboratory, three pa-
tient reports for three to six analytes were monitored and
documented (36).
Assessment of test performance may be accomplished
using previously analyzed specimens, internal blind test-
ing samples, or external proficiency testing samples. An
example is the College of American Pathologists’ Histo-
QIP tool in which histotechnologists submit slides for
various tests such as an H&E stain of a breast core biopsy.
The slides are evaluated by an expert panel for histologic
technique, and the participants receive constructive feed-
back, peer comparisons, and benchmarking data. Given
the limited amount or number of samples provided in
external proficiency testing programs, a laboratory with
many employees may need to utilize a combination of
several methods to assess test performance. In one he-
matology laboratory, an exam based on microscope slides
proved to be better than one based on color transparen-
cies for improving daily practice skills (21). Another labo-
ratory used a computer-assisted chi-square calculation
on a 100-cell differential as an effective competency as-
sessment tool (50). In the microbiology laboratory, reten-
tion of challenging Gram-stained smears (e.g., unusual
organisms, Gram-negative diplococci in blood cultures,
cerebrospinal fluid, or other body fluid with occasional
organisms present) can be used for a microscope slide-
based competency evaluation.
A TJC standard requires assessment of age-related com-
petencies of those staff providing direct patient care (45,
46). This standard is therefore applicable to laboratory
phlebotomists whose practices vary with the patient age
group. A continuing education exercise pertaining to age-
specific phlebotomy techniques has been published (24).
Demonstration of problem-solving skills may be assessed
through self-reports of problem resolutions submitted by
the employee. For example, if the quality control of an as-
say is outside expected limits, an employee can report the
corrective action taken to achieve quality control results
within range. Documentation of the steps taken to resolve
receipt of unlabeled or mislabeled specimens is another
example of problem-solving skills. Alternatively, an em-
ployee may complete a written exercise indicating how he
or she would resolve an issue (15). This documentation
should be maintained in the employee’s file to support on-
going competency.
The laboratory’s competency assessment plan should
include procedures to address employees who fail the as-
sessment. These procedures should include the time for
retraining, reassessment, and expected outcomes (16, 20,
41, 46).
Practices
Practices of employee competency assessment are re-
flected in data from an interlaboratory survey in 2000 (23).
In this study, employee competency was evaluated through
the use of test and quality control results (77.4%), direct
observations (87.5%), instrument preventive maintenance
(60.0%), and written testing (52.2%). In 77 to 95% of labo-
ratories surveyed, the supervisors/managers performed
the competency evaluation of employees, whereas in 19
to 31% of laboratories, the evaluations were performed by
peers. Delegation of competency assessment may be neces-
sary to execute the plan. If the employee failed the compe-
tency evaluation, in 52% of laboratories, the employee was
retested within four weeks, while in 8.6% of laboratories,
the policy was to disallow the employee from continuing
usual work. Adherence to the plan was inversely related to
the number of full-time equivalents, the total number of
employees, and the number of supervisors in the labora-
tory. There was less compliance with the plan in teaching
hospitals compared to nonteaching hospitals. These data
indicate that difficulties may occur in completing the as-
sessment of each employee each year as the size and com-
plexity of the laboratory increase.
TJC requires that hospitals provide annual competency
evaluation of employees in fire safety, infection control,
and blood-borne pathogens. Beyond traditional lectures
or written self-study modules, computer-based programs
can be a cost-effective and efficient method of providing
and documenting this assessment (52). This modality of-
fers uniform presentation and 24-hour availability, features
that are particularly helpful in healthcare organizations
that must assess staff on three different work shifts.
Personnel Excellence
In addition to specific competencies reflected in job skills
and knowledge, managers and executives should encour-
age professionalism, accountability, and self-esteem as
competencies required to ensure customer service (11).
These three competencies form the foundation of a hier-
archy of all other generic competencies (11). In the 21st
century, the quality and success of a laboratory depend on
selecting, developing, and retaining competent staff.
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
Summary
In summary, always remember that a successful appraisal
recognizes people as the most valuable resource of an or-
ganization. The most important reason for doing apprais-
als is to motivate your employees positively, not to punish.
Recognizing accomplishments is a powerful way to moti-
vate. Providing performance appraisals will show employ-
ees that you and the organization are interested in their
work and in their development. An integral part of assess-
ing employee performance is a well-designed competency
program. Documentation of each individual’s job-related
competency is one way that a laboratory can not only en-
sure quality results, but also fulfill federal and accrediting
agency requirements.
KEY POINTS
■ Performance appraisals are powerful motivating tools
that are closely integrated with compensation, training,
and career planning.
■ An effective appraisal system includes formal and infor-
mal ongoing performance feedback.
■ A well-designed appraisal program requires clearly de-
fined standards, feedback, and documentation that are
applied consistently among all employees.
■ Job expectations must be clearly stated.
■ Elements of a formal appraisal should be based on an
organization’s mission statement, the job description,
and the performance standards.
■ Performance standards should be specific, measurable,
and realistic.
■ An employee’s performance, not his or her ability,
should be rated.
■ Selection of a rating method depends on the purpose
of the appraisal, the work environment, the skills of the
employee, and the management style of the manager(s).
■ Self-appraisals give a different perspective of the em-
ployee’s performance and a better understanding of ob-
stacles that may impede performance.
■ Peer-to-peer and 360-degree evaluations, if performed
honestly, sincerely, and anonymously, may provide the
employee with insight into his or her work relationships
and performance.
■ Preappraisal preparation by employees and manag-
ers is essential for a successful performance appraisal
interview.
■ Performance appraisals should recognize any problems
throughout the year, should hold no surprises for the
employee, and should not be punitive.
■ The performance appraisal process should be motivat-
ing and should encourage feedback.
323
■ If behavior modification is needed, focus on how you
and your employee can work together to create a posi-
tive outcome.
■ The employee should set at least four realistic goals for
the coming year.
■ Individuals performing appraisals should be given
training and review the do’s and don’ts of conducting
appraisals to sharpen their skills in executing a success-
ful interview.
■ The appraisal process can and should be a form of ca-
reer development.
■ A manager can become a mentor and a positive force in
an employee’s career development.
■ Appropriate behaviors may be reinforced with positive
consequences.
■ Recognizing accomplishments is a powerful way to
motivate.
■ A manager should provide examples of poor perfor-
mance, if applicable, and the consequences of an unsat-
isfactory behavior.
■ A manager should not overreact if an employee has an
emotional outburst during an interview.
■ Encourage the employee to seek assistance from the
employee assistance program, if available.
■ Documentation and confidentiality are essential com-
ponents of any performance appraisal program.
■ A manager should identify ways to help an employee
attain a higher level of performance.
■ A successful appraisal program recognizes employees as
the most valuable resource of an organization.
■ Employee competency should be assessed semiannually
the first year of employment and annually thereafter.
■ Employee competency should be assessed whenever a
change in test method or instrumentation occurs.
■ Ongoing training and education are necessary to main-
tain and enhance employee competency.
■ Thorough documentation of employee competency must
be maintained for inspection by accreditation agencies.
■ Competent employees are the foundation for the qual-
ity and success of any laboratory.
GLOSSARY
360-degree evaluation Multilevel assessment adopted by AT&T,
IBM, and other Fortune 500 corporations. May be used to iden-
tify how a manager is viewed by his or her supervisor, peers, sub-
ordinates, and customers. Full-circle feedback.
Americans with Disabilities Act (ADA) Prohibits discrimina-
tion against qualified disabled individuals. Applies to institutions
with 15 or more employees.
324 PERSONNEL MANAGEMENT
Appraisal type Formal and informal appraisals, self-appraisals,
peer-to-peer appraisals, 360-degree appraisals.
Behaviorally anchored rating scale (BARS) Assessment of per-
formance requiring input from other observers based on how
employees behaved in a given situation.
Checklist adjectives evaluation At least three adjectives (e.g.,
aggressive, articulate, meticulous) from a checklist are selected to
describe desirable as well as undesirable characteristics of an
employee.
Clinical and Laboratory Standards Institute (CLSI) Formerly
the National Committee for Clinical Laboratory Standards (NC-
CLS). A voluntary national organization that issues guidelines
for laboratory practices.
Clinical Laboratory Improvement Amendments (CLIA) ’88
An act passed by Congress in 1988 that requires an objective sys-
tem to document competency of employees performing testing
on patient specimens.
COLA Formerly the Commission on Office Laboratory Ac-
creditation. A national nonprofit physician-directed organiza-
tion that provides continuing medical education programs,
accreditation standards, and accreditation of physician office
laboratories.
College of American Pathologists (CAP) A medical society of
board-certified pathologists that provides proficiency testing sam-
ples, continuing medical education programs, accreditation stan-
dards, and accreditation of pathology and laboratory services.
Competency Ability to do a job correctly and safely and to rec-
ognize and solve minor problems without needing assistance.
Criterion: Standard of judging task performance.
Critical incident evaluation Written notations of exceptional
performance are summarized in the performance appraisal.
Employee Assistance Program Psychological assessment and
brief treatment; considered an employee benefit.
Equal Employment Opportunity Commission of 1972 En-
forces the ADA.
Forced distribution Rater distributes a certain percent of em-
ployees in each category (e.g., outstanding, above average, aver-
age, below average, unsatisfactory).
Graphic rating scales A quality or characteristic rated by choos-
ing a point along a horizontal axis. The scale may be discrete
(1–5: excellent, good, fair, poor, unacceptable) or continuous.
Halo effect Appraiser gives all employees an acceptable rating,
regardless of their performance. When an employee is outstand-
ing in one area, an evaluator ignores performance problems in
other areas. Opposite of the “pitchfork effect.”
Interview A two-way discussion between employee and manager
about the employee’s performance (inter “between,” view “look”).
The Joint Commission (TJC) An independent, not-for-profit
organization that develops accreditation standards and accredits
healthcare organizations.
Key results area An aspect of a job on which employees must
concentrate time and attention to ensure that they achieve the
goal for that job. Forces the manager to focus only on those ac-
tivities that add value. Although it’s motivational, staff may be
slow to accept it.
Narrative rating Includes concise, specific illustrations. Easy to
construct but subjective, and it’s difficult to compare employees’
ratings.
The National Committee for Clinical Laboratory Standards
(NCCLS) Currently referred to as the Clinical and Laboratory
Standards Institute (CLSI). A voluntary national organization
that issues guidelines for laboratory practices.
Norms Informal behaviors that are generally acceptable in a
workplace.
Performance appraisal A planned, formal, and periodic man-
agement activity in which an employee’s on-the-job behavior is
evaluated to enable salary and promotion decisions, change an
employee’s behavior, determine competence, improve work
skills, identify training needs, and determine progress toward
goals and career development.
Performance standards Defined performance expectations that
are specific and measurable.
Pitchfork effect Poor performance in an isolated instance that
adversely affects an employee’s assessment.
Ranking system Evaluates employees based on comparison
with their peers (e.g., paired comparison, person-to-person
comparison). This system does not allow all employees to be
ranked as excellent, even if all employees have an excellent work
performance.
Rating system Compares employee performance to some set of
criteria and produces either a number or a letter grade that rep-
resents the employee’s level of performance (e.g., graphic scale,
free form, critical incident, behaviorally anchored scale, checklist
of adjectives, forced choice, or distribution). Allows everyone to
be rated highly, if they deserve it.
Results-based evaluations (RBE) Evaluations performed by
managers who focus on attainment of specific, measurable
results.
Standard Operating Procedure (SOP) Organizational ap-
proved protocol that defines step-by-step instructions for all staff
to follow when performing a particular test or activity to ensure
a consistent and accurate result or outcome.
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 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 327

APPENDIX 16.1 Senior Medical Technologist Job Description

Cost Center Name: Cost Center Number: Position Number: FTE:

Proposed Position Title: Please check the appropriate response.

Senior Medical Technologist New Position Change in Existing Position X

Basic Function: The Senior Medical Technologist serves to maintain the integrity of day-to-day laboratory operations through
focused oversight of laboratory procedures with a high accountability for problem solving and meeting regulatory requirements
in the assigned area of responsibility. This position may also collect specimens, perform complex analysis (manual and automated
tests) of clinical and/or forensic specimens to detect and measure components that reflect health or disease in patients, and pre-
pare reports for use of physicians in caring for patients. Utilizes sophisticated instrumentation to obtain accurate laboratory test
results for use in the diagnosis and treatment of disease. Assists in writing procedures for proper specimen handling, processing
and testing. Reports and maintains patient test result data in an accurate and timely manner. Tasks include: assessing Quality
Control, Quality Assurance and Quality Improvement procedures, and a wide variety of laboratory tests. This position also assists
in teaching laboratory policies and procedures to nurses, clinicians, students and residents. A senior medical technologist must be
able to multitask and perform all duties independently with no supervision, manage time and resources judiciously, exercise good
judgment and initiative, have both verbal and written communication skills and perform complex technical instrument mainte-
nance and problem solving.

Reports to (Please attach a department organizational chart.):

Laboratory Clinical Operations Manager

(continued)
328 PERSONNEL MANAGEMENT

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Competencies (Additional Space Provided on Page 2): Essential (E) or

% of Time Non-Essential (N)

Compliance with Patient/Family-Centered Care standards through the following:

• Demonstrate dignity and respect for patient and family knowledge, values, beliefs, and 3 Essential
cultural background in the planning and delivery of care.

• Provide information sharing, ensuring patients and families receive timely, complete, and 5 Essential
accurate information in order to effectively participate in care and decision-making.

• Encourage patient and family participation in care and decision-making at the level they 30 Essential
choose.

• Promote collaboration with patients and families in policy and program development, 10 Essential
implementation, and evaluation in healthcare facility design, professional education, and
delivery of care.

Compliance with Customer Service standards:

• Oversee the daily responsibilities of an assigned technical area. Initiate training of new
staff within the technical group. Train staff technologists and laboratory technicians in
proper laboratory techniques for existing and new methods. Evaluate daily performance
of staff for adherence to standard operating procedures (SOPs) and efficient workflow.

• Act as primary resource for Technologists and Laboratory Technicians in the technical
area to resolve testing issues and analyzer maintenance. Notify management of any delays
in testing and any related factors.

Approved by: Date:

Department Head:

FOR COMPENSATION USE ONLY

APPROVED TITLE AND BAND
Title Job Code Pay Band Minimum Midpoint Maximum

Approved by: Date:

Director of Compensation and Performance Management

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 329

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Competencies: % of Time Essential (E) or

Non-Essential (N)

• Maintain quality control of laboratory testing to ensure accurate and timely lab report- 10 Essential
ing. Assist in maintaining procedure manuals and protocols to ensure compliance with
CAP, State, TJC and CLIA regulations; including documentation for all QA/QI proce-
dures and proficiency testing. Document corrective and preventative actions taken using
good documentation practices.

• Perform moderate/highly complex analysis of patient specimens. Evaluate validity of 10 Essential

specimen results as per SOP guidelines. Document all corrective actions taken.

• Assist management in establishing new methodologies. Assist in completion of valida- 2 Essential

tion packages. Participate in selection process for new instrumentation. Assist manage-
ment with implementing SOPs for laboratory testing and safety procedures. Implement
changes in laboratory and notify all employees of necessary changes.

• Verify analytic accuracy, precision, sensitivity and references ranges for test methods. 5 Essential
Work with Pathologist and Managers to analyze results and conduct more difficult, non-
routine tests.

• Follow safety procedures and Standard Precautions using personal protective equipment 3 Essential
as required as per laboratory SOPs.

• Participate in continuing education through self-study, attending off-site lectures and 3 Essential
preparing programs to share with coworkers.

• Establish and follow protocols for shipping and receiving outside laboratory tests. 2 Essential

• Responsible for maintaining adequate supplies for laboratory. 5 Essential

• Teach pertinent aspects of laboratory skills and processes to medical technology students 5 Essential
and pathology residents and orient and mentor new staff members.

• Demonstrate competency with LIS policies and procedures to enter an order, enter the 5 Essential
testing results, release a report, correct a report, update a report, finalize a report, and
retrieve a report.

• Share with other lab staff all general responsibilities as they arise as well as any tasks re- 2 Essential
quested by attending pathologists or supervisor.

(continued)
330 PERSONNEL MANAGEMENT

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Minimum Requirements (Education, Experience, Licensure, Skills):

(Please specify any preferred requirements as such for recruiting purposes)

• Bachelor degree in Medical Technology or a lab-related field with the appropriate education requirements as defined by GA
Rule 290-9-8 for clinical laboratory technologist.

• Must have state approved certification per GA Rule 290-9-8 such as MT(ASCP), MLS (ASCP), CLS (NCA), MT (AAB) certi-
fication or equivalent required.

• Individual must have at least 3 years experience and extensive organizational skills.

• Basic computer knowledge with experience in using Microsoft software, Groupwise, Healthquest, and IDX preferred.

In addition to the above requirements, one or more of the following must be met:

• Specialty Certification in any Laboratory Discipline

• Masters Degree

• 25 Hours of continuing education annually

Supervision Exercised: Interpersonal Relationship: Has contact with a variety of

personnel including pathology faculty and residents, students,
Supervises in absence of a Supervisor or Manager and other pathology personnel, faculty (clinicians) outside the
department, nurses and secretarial staff, patients, referral labo-
ratories, and insurance providers.

Accountability: Responsible for entering patient case infor-
mation correctly, performing multiple tests accurately; meeting
required TAT (turn-around time) in lab procedures involv-
ing patient care specimens and responsible for patient care
confidentiality.
Decision Making: Actively troubleshoots problems and re-
solves issues while ensuring that the quality of work is main-
tained and progresses in a timely fashion.

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 331

APPENDIX 16.1 Senior Medical Technologist Job Description (continued)

Working Conditions Environmental Conditions

Note: the percentages indicated in this section reflect the percentage of the total job in which the incumbent is exposed to
the conditions listed and not necessarily the percentage of exposure on a daily basis.
Exposure Critical
Critical to Performance to Performance
Physical Factors (Yes/No) % of Time Factors (Yes/No) % of Time
Lifting/ Carrying Yes 20% Atmospheric N/A
25–50 lbs. Conditions
Standing Yes 40% Weather Conditions N/A
Walking Yes 15% Noise Yes 75%
Sitting Yes 40% Blood-borne Yes 30%
Pathogens
Pulling/Pushing Yes 10% Needle Sticks Yes 5%
Climbing No Electric Shock Yes 50%
Reaching Yes 10% Radiation N/A
Kneeling Yes 10% Chemicals Yes 30%
Stooping Yes 5% Bio-hazardous Waste Yes 30%
Other—Computer Yes 15% Patient-induced N/A
Operation Injuries
Other Hazards N/A
Functional or Sensory Requirements: List any functional or sensory requirements that are critical to job performance and
describe how they relate to the job competencies, such as verbal skills, color discrimination, sense of taste/smell, hearing,
touch, manual dexterity, memory for detail.

Requires manual dexterity, memory for detail, literacy skills and decision-making abilities to receive and process specimens.
Requires verbal skills and hearing ability in order to communicate with physicians, nursing staff, secretarial staff, etc., over the
phone or in person. Must be able to discriminate between colors in order to evaluate staining results. Must pass color blindness
test. Must be able to manage multiple tasks at one time and demonstrate ability to remember details to perform complicated tasks
in a fast-paced environment.
332 PERSONNEL MANAGEMENT

APPENDIX 16.2 Medical Technologist Performance Standards

Name:

Rating Period:

Service excellence standards

Consistently Occasionally Occasionally
exceeds exceeds Meets meets Rarely meets
standards standards standards standards standards NA
Care—friendliness, respect, diversity, and commitment
1. Greets patients with a smile and 4
says “Hello.”
2. Makes eye contact, listens, and 4
provides assistance.
3. States name and uses patient’s 4
name whenever possible.
4. Knocks on the door before en- X
tering patient’s room.
5. Closes curtains and door during X
exams and procedures.
6. Does not discuss patient infor- 3
mation in public areas.
7. Keeps patient information 3
confidential.
8. Works to provide a clean and 3
safe environment.
Professional Appearance
9. Maintains a professional 4
appearance.
10. Clothing is neat and clean. 4
11. Wears employee identification 4
badge consistently, in a manner
that is easily seen.
12. Hair is clean and well-groomed. 4
Communication—information, education, call lights, telephone, listening and empathy
13. Uses easily understood language 4
when interacting with patients or
customers.
14. Introduces him- or herself to X
patients and explains his or her
role in the patient’s care.

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 333

APPENDIX 16.2 Medical Technologist Performance Standards (continued)

Consistently Occasionally Occasionally

exceeds exceeds Meets meets Rarely meets
standards standards standards standards standards NA
15. Answers call lights, addressing X
patient by name.
16. Answers telephone in a pleasant 4
tone, identifying department and
giving name.
17. Explains delays and thanks pa- 3
tients for waiting.
18. Concludes interactions by ask- 3
ing, “Is there anything else I can
do for you?”
Service—service recovery and teamwork
19. Recovers service disappointments.
20. If approached for directions, of- 3
fers to escort patients/customers
to their destination.
21. Interacts with coworkers respect- 3
fully and professionally.
22. Does not discuss staffing levels or 3
system deficits with customers.
23. Demonstrates teamwork. 4
Department-specific standards (optional)
24.
25.
Sum 40 27
Sum of scores for standards: 67
Number of standards scored: 19
Score per standard: 3.5263
Total number of standards: 25
Total score 88.16
Service excellence score 88.16

(continued)
334 PERSONNEL MANAGEMENT

APPENDIX 16.2 Medical Technologist Performance Standards (continued)

Employee Mandatory Requirements

Note: By responding yes to the mandatory items, you are indicating that documentation Yes No N/A*
can be provided upon request.
Licensure is current and appropriate for present job.
Received annual employee health screening in a timely manner.
Meets mandatory educational requirements of regulatory/accrediting agencies by attending
training or viewing videos.
Meets mandatory training requirements for the present job. Includes such items as fire safety, etc.
Annually reviews and signs the nondisclosure and appropriate use agreement (Health Insur-
ance Portability and Accountability Act).
Annually attends training or views videos regarding the organizational compliance program.
Attends department-specific compliance testing.
Attends all meetings identified as mandatory
Meets timekeeping and attendance expectations.
Mandatory score Met
* N/A, Not applicable.
Scoring: 4: consistently exceeds standards, 3: occasionally exceeds standards, 2: meets standards, 1: occasionally meets standards,
0: rarely meets standards.
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies

COMPETENCY ASSESSMENT
JOB-SPECIFIC COMPETENCIES
Histocompatibility/Immunology Laboratory

Employee Name: _________________________________________________________ Department: __________________________________________________________

Job Title : ______________________________________ Date of Review: _______________________________ Reviewer: _____________________________________

Annual Evaluation
Level of Performance Frequency of Measure How Standard Was Met
M = Meets Expectations Q = Quarterly A = Review Policy E = Observation
P = Partially Meets Expectations A = Annual B = Video/CBT F = Return Demonstration
N = Does Not Meet Expectations O = Once C = Lecture/Inservice G = Self Study
N/A = Not Applicable Other = Indicate Time D = Test (written) H = Other
CATEGORY: Group like competencies. Ensure that each desired outcome or standard is age specific.
Indicate which patient categories the standard applies to i.e., neonate, pediatric, adolescent, adult, or geriatric. 3.9
(Max. 5.0)

Desired Outcome/ Frequency of
Standard Measurement
SPECIMEN
HANDLING
Age-Specific Criteria:
Pediatric patients
usually have a higher
number of lympho-
cytes per cubic mil-
limeter. Less blood
may be required.
Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Behaviors Level of How Standard 4 Highly Effective
Required Performance Was Met 5 Outstanding Comments/Score:
Q/A Follows SOP M X E/H Effective: Follows SOP in 5
in determining P determining specimen ac- Technologist resolves issues
acceptability of ceptability. Rejects unaccept- with problematic samples
N
specimens. Re- able specimens. and takes appropriate ac-
solves problems N/A Highly Effective: Resolves tion as needed. Technolo-
without delay in problems without a delay in gist collaborates well with
testing (Circle one) testing. Provides information clinicians as needed when
to clients. re-collections are warranted.
Outstanding: Educates cli- He additionally works well
ents to ensure compliance with the BMT coordinators
with laboratory require- to assure timely send out of
ments. Assists clients to High Resolution testing to
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT

assure timely and proper Histogenetics

specimen handling.
335

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)
336
Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Desired Outcome/ Frequency of Behaviors Level of How Standard 4 Highly Effective
Standard Measurement Required Performance Was Met 5 Outstanding Comments/Score:
BENCHWORK Q/A Performs test- M X E/H Effective: Performs testing to 3
Accuracy ing according to P SOP with minimal errors. Technologist’s bench is
Age Specific Criteria: standard proto- Highly Effective: Pro-active thorough with minimal
N
PERSONNEL MANAGEMENT

Pediatric patients cols and reports in correcting and avoiding errors. He can be counted
usually have a higher complete and N/A errors. upon to perform second
number of lympho- correct results. Outstanding: Appropriately review on SSP typings and
cytes per cubic mil- (Circle one) resolves discordant and/or UNET Unacceptables.
limeter. Less blood unexpected results at all levels.
may be required.
BENCHWORK Q/A Performs as- M X E/H Effective: Performs assigned 4
Timeliness signed tasks P testing within set turnaround Technologist efficiently
within set turn- times. handles routine workflow
N
around times ac- Highly Effective: Organizes and meets required TAT’s
cording to SOP, N/A and schedules work hab- for results. Technologist
avoids unneces- its efficiently to maximize assists with training new
sary overtime. (Circle one) workload. staff, and helps to assure
Outstanding: Completes Renal Activation turn
assignments efficiently. As- around meets high perfor-
sumes additional responsi- mance level.
bilities. Assists others
QUALITY Q/A Consistently M X E/H Effective: Consistently pro- 4
CONTROL produces accu- P duces accurate QC results Tech consistently performs
Accuracy rate QC results. within SOP. external proficiencies/
N
Follows labora- Highly Effective: Identifies surveys without significant
tory QA/QC and N/A and deals with discrepant error. He can be counted
QI policies. QC results. Notifies super- upon to perform reagent
(Circle one) visor and/or director of and equipment QC within
problems. defined thresholds and
Outstanding: Actively seeks notify the supervisor and/
to improve the QA/QI sys- or director when there are
tem. Acts as a QA officer. problems.

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

QUALITY Q/A Performs and M X E/H Effective: Performs/docu- 4

CONTROL appropriately P ments QC procedures in a Tech monitors and performs
Timeliness documents timely manner. equipment QC for the
N
quality control Highly Effective: Moni- thermal cyclers, syringes,
(reagent/equip- N/A tors reagent/equipment Lambda Jet, and Centri-
ment) without check points. Identifies and fuges. He performs the
supervision or (Circle one) addresses QC problems duties without significant
reminders as independently. reminders.
scheduled with Outstanding: Identifies
no omissions per ways to streamline QC sys-
year. tems/checks. Identifies and
resolves trends in a timely
manner.
SAFETY Q/A Maintains work- M X B/C/D/E Effective: Adheres to all 4
Performance ing knowledge P safety policies and regula- Tech is a good role model
of all safety tions without reminder. for laboratory safety. He
N
procedures and Highly Effective: Acts helps to quickly store new
chemical/reagent N/A as a role model for safety supplies of reagents and lab-
storage require- procedures. Seeks to avoid ware out of high traffic areas
ments. Follows (Circle one) and correct potential safety in the lab. Tech has been
all OSHA and problems. identified as an alternate to
safety guidelines Outstanding: Educates oth- attend Clinical Pathology
ers. Acts as laboratory OSHA Safety meetings.
safety officer

(continued)
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
337
 338
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

Performance Standard
Reference: (SCORE)
1 Unacceptable
Measurable 2 Improvement Needed
Criteria Skill/ 3 Effective
Desired Outcome/ Frequency of Behaviors Level of How Standard 4 Highly Effective
Standard Measurement Required Performance Was Met 5 Outstanding Comments/Score:
PROFESSIONAL Q/A Attends appro- M X A/B/C/D/G/H Effective: Attends minimal 3
PERSONNEL MANAGEMENT

GROWTH priate number of P number of contact hours Technologist’s continuing

Quantity continuing edu- (12) or maintains ABHI Cer- education hours meet the
N
cation contact tification. CHT (60 contact required ABHI contact
hours, specified N/A hrs/3yr.) CHS (80 contact hours for the year.
by level of certi- hrs/3yr.)
fication. (ABHI (Circle one) Highly Effective: Exceeds
approved) the minimum number of
contact hours and main-
tains continuous ABHI
certification.
Outstanding: Provides and
promotes continuing educa-
tion through identification of
opportunities and presenta-
tion of information.
PROFESSIONAL Q/A Seeks education M X A/B/C/D/G/H Effective: Seeks education 3
GROWTH that is timely P that is pertinent and timely Tech attends appropriate
Quality and appropriate Highly Effective: Attends and relevant Con Ed when
N
to the scope of appropriate CE; Teaches stu- it is available. He can be
testing. (ABHI N/A dents/fellows. Pursues inde- counted upon to teach visit-
approved). pendent learning. ing students and doctors.
(Circle one) Outstanding: Participates
in journal clubs/ lectures/
presentations and/or poster
sessions.

(continued)
APPENDIX 16.3 Histocompatibility Technologist Job-Specific Competencies (continued)

INFORMATION Q/A Properly enters M X E Effective: Follows SOP in 4

SYSTEMS laboratory data/ P determining specimen ac- Tech performs duties well
Result Reporting results into the ceptability. Accepts no unac- in Cerner, PathNet and in
N
hospital infor- ceptable specimens. OTTR. Tech performs tasks
mation network N/A Highly Effective: Resolves in “UNOS/UNET” with-
and into the problems without delay in out problem and can be a
UNOS network. (Circle one) testing. Provides information “backup” for UNOS activa-
to clients. tion renew.
Outstanding: Educates cli-
ents to ensure compliance
with requirements. Assists
clients to assure timely and
proper specimen handling.
LABORATORY Q/A Performs equip- M X Effective: Appropriately 5
EQUIPMENT ment main- P performs all routine main- Tech is counted upon to
Maintenance tenance and tenance and QC without efficiently troubleshoot,
N
Quality Control quality control reminder. maintain, and perform QC
Troubleshooting according to N/A Highly Effective: Takes on several laboratory instru-
SOP. initiative and troubleshoots ments including Thermal
(Circle one) equipment problems. Appro- cyclers, Lambda Jet, centri-
priately notifies lab director/ fuges, and syringes without
supervisor of instrument and reminder. Tech can also be
reagent problems. counted upon to proactively
Outstanding: Troubleshoots. perform maintenance on the
Identifies problems and freezers, water baths, and
solutions. Actively resolves other equipment in the labo-
problems. ratory on an as needed basis.
CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT
339
340 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology

Performance Appraisal

Employee: Employee Number:

Job Title: MLT Department Name:

Appraiser: Cost Center:

Hire Date: Date of Review:

Appraisal Period:

Type of Evaluation: _______ Probationary Final Numerical Rating: ______________________

_______ Regular PI Percentage: _________________________________

Section I—Job Prerequisites (If the prerequisites are not complete, the performance evaluation process cannot proceed.)

At the start of the review cycle, check each item the employee is required to complete. At the end of the review cycle, check
whether each applicable item has been completed. Those items pre-checked are required of all hospital employees. Documenta-
tion of job prerequisites must be maintained in the employee’s personnel file. All education records must be documented in the
employee’s file or on the employee’s education record that is updated through the training tracking management system. All edu-
cation not provided through Hospital Inc. must be documented in the employee’s departmental file.

PLEASE ENTER EXACT DATES (mm/dd/yy) Required Date

Department Orientation/Checklist (new employee requirement):
Annual Safety & Compliance Training:
Annual Physical/TB Screening/TB Respirator Fit Testing:
CPR Training:
Credentials/Certification:
OTHER:

Job-Specific Competencies:
(Unit competencies are completed and documented in the unit competency manual) YES NO
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 341

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Age-Specific Competency Write N/A here if age-specific competency is not applicable: N/A

Success Criteria:
Demonstrates knowledge and skills required to provide care and/or service appropriate to the age level of development of pa-
tients, with consideration of the needs of patients’ families. For a detailed list, refer to the competency assessment form found in
the unit competency manual within the department.

For DIRECT OR INDIRECT PATIENT CARE: (Check only groups served.) Determined by:
Neonate

N/A Infant N/A Adolescent X Competency Assessment

N/A Pediatric N/A Adult Other

N/A Geriatric

Section II—Core Performance Standards (Core Standards account for 40% of the performance evaluation.)

All employees are responsible for demonstrating MCG Health, Inc.’ s core values. Below are listed seven categories of performance
that are key to providing quality service to patients and customers in a manner that reflects these values. At the start of the review
cycle, review the expected performance with the employee in each of these categories.

Performance Level
(Place X in box or circle score.)
Improvement Needed

Highly Effective

Core Standards of Excellence

Unacceptable

Outstanding
Effective

RESPECT
Success Criteria: Demonstrates respect and responds to all individuals with honesty and integrity. 1 2 3 4 5
Demonstrates commitment to promoting an atmosphere of respect, caring and sensitivity for di-
verse population of patients, visitors, students, employees and others.

Comments:

(continued)
342 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Core Standards of Excellence

Unacceptable

Outstanding
Effective
SERVICE
Success Criteria: Provides and/or promotes quality service in a patient/family-centered environ- 1 2 3 4 5
ment throughout the continuum of care. Demonstrates commitment to the highest standards of
clinical outcomes, operational support systems, customer service and ethical behavior.
Comments:

DIVERSITY
Success Criteria: Values the uniqueness of all individuals, recognizing their beliefs, culture, needs 1 2 3 4 5
and strengths. Demonstrates a commitment to and supports a culture that is sensitive to the di-
verse population of patients, visitors, students, employees and others.
Comments:

COMMUNICATION
Success Criteria: Demonstrates open, honest and timely communications to strengthen relation- 1 2 3 4 5
ships and enhance a cooperative spirit.
Comments:

QUALITY
Success Criteria: Provides excellent service to meet the needs of individuals and communities in 1 2 3 4 5
a patient/family-centered environment throughout the continuum of care with emphasis on opti-
mal quality.
Comments:

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 343

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Core Standards of Excellence

Unacceptable

Outstanding
Effective
COLLABORATION
Success Criteria: Seeks opportunities to collaborate as teams within the organization and the com- 1 2 3 4 5
munity to provide excellence in healthcare. Demonstrates a commitment to teamwork and adapts
to continuous change by being collaborative, creative and flexible.
Comments:

COST EFFICIENCY
Success Criteria: Efficiently uses resources to provide quality services. Accepts personal respon- 1 2 3 4 5
sibility for the use of resources to ensure the highest quality of services are provided in a cost-
efficient manner.
Comments:

Core Standard Score =

(continued)
344 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section III—Job-Specific Performance Standards—Measurable Outcomes

(Job-specific standards account for 60% of the performance evaluation.)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
1. Compliance with Rules of Conduct. 1 2 3 4 5
5.0%

Comments: Weighted score =

(Performance Level × Weight)

2. Compliance with Environment of Care Standards. 1 2 3 4 5

5.0%

Comments: Weighted score =

3. In patient care environment, compliance with Patient/Family-Centered Care. 1 2 3 4 5

0.0%

Comments: Not applicable to Laboratory Services. Weighted score =

4. Compliance with Customer Service Standards. 1 2 3 4 5

10.0%

Comments: Weighted score =

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 345

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
5. Retrieves specimens from frozen rooms, Labor & Delivery, and occasionally from 1 2 3 4 5
clinics. Verifies that patient and specimen identification is correct. Assures that all
25.0%
requisitions are received and contain the minimum required information.

Comments: Weighted score =

6. Demonstrates a general understanding of computer operations and accurately en- 1 2 3 4 5

ters data into the computer. Properly accessions specimens into the LIS and prepares
10.0%
cassettes for each case prior to cutting.

Comments: Weighted score =

7. Assists pathologists and residents in frozen section room, gross room and 1 2 3 4 5
autopsy room.
10.0%

Comments: Weighted score =

8. Prioritizes daily activities to assure that the department meets turnaround times. 1 2 3 4 5
Demonstrates team spirit by volunteering assistance to other team members. Dem-
10.0%
onstrates good organizational skills through multitasking.

Comments: Weighted score =

(continued)
346 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Performance Level
(Place X in box or circle score.)

Improvement Needed

Highly Effective
Job-Specific Performance Standards

Unacceptable

Outstanding
Weight %

Effective
9. Keeps gross room, frozen rooms, and autopsy rooms clean and well stocked. 1 2 3 4 5
Maintains adequate reagents and supplies.
15.0%

Comments: Weighted score =

10. Verifies outstanding tasks, labels frozen section slides and ensures that frozen 1 2 3 4 5
sections are ordered correctly.
10.0%

Comments: Weighted score =

(the total sum of weights must equal 1.00 or 100%)

Job-Specific Standard Score =

To identify each standard weighted score, multiply the weight by the performance level

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 347

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section IV—Future Goals and Action Plans In the first column, identify AREAS FOR DEVELOPMENT and GOALS for the
next review period. In the second column, outline an ACTION PLAN to address each AREA FOR DEVELOPMENT and the GOAL.

Areas for Development and Goals Action Plans

(For the next review period) (To address area for development; Include target dates)

Developmental Resources
(Indicate specific learning resources the employee agrees to utilize)
Category Examples Note Specific Areas

PC Software
Information Systems
Computer Applications

Customer Service

Communications
Learning Resources Center
Supervisory Skills

Management Skills
Advanced Job Skills

Cross-training
On-the-Job Training
Age-Specific
Competencies

Conferences

Other Seminars

Continuing Education

(continued)
348 PERSONNEL MANAGEMENT

APPENDIX 16.4 Performance Evaluation—MLT Surgical Pathology (continued)

Section V—Summary and Review Acknowledgment

Overall Performance Rating

Rating × Weight = Rating

Section II—Core Performance Standards Score 0.00 × 0.4 0.00

Section III—Job-Specific Performance Standards Score 0.00 × 0.6 0.00

Final Numerical Rate (Sum of Excellence Ratings) 0.00

PI Percentage

Employee Name: Outstanding (4.50–5.00)

Date of Employment: Highly Effective (3.76–4.49)
Employee Number: Effective (3.00–3.75)
Date of Appraisal: Improvement Needed (1.50–2.99)
Unacceptable (.00–1.49)
Immediate Supervisor’s Comments:

Employee’s Comments:

Employee Signature:
My signature acknowledges receipt of the evaluation* Date:

Appraiser Signature: Date:

Department Head/Senior Administrator Signature: Date:

*If employee does not agree with content and/or ratings, he or she may note in Employee’s Comments section above.
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 349

APPENDIX 16.5 Web-Based Software Products and Websites

Performance Appraisal Software Competency Assessment Websites

Halogen Software (web-based software) http://www.asm.org/Division/c/competency.htm

www.halogensoftware.com, info@halogensoftware.com
Telephone: +1 613-270-1011 http://www.medtraining.org/viewlabcomp (accessed 5/21/12)
North America Toll-Free: 1-866-566-7778
www.medialabinc.net/checklists.aspx (accessed 5/21/12)
Performance Impact Enterprise™ (web-based software)
Performance Impact Workplace™ (Windows-based software) http://www.a2la.org/training/aolc.cfm?private=no
Knowledge Point, 1129 Industrial Avenue (accessed 5/21/12)
Petaluma, CA 94952
707-762-0333/0375 http://www.cap.org (accessed 5/21/12)
Fax: 707-762-0802

Performance Appraisal Websites

http://www.worldatwork.org (accessed 5/21/12)

http://www.work911.com (accessed 5/21/12)

350 PERSONNEL MANAGEMENT

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech initial Trainer initial Comp meet Semi-annual

Communication

1. Calls critical values in accordance with departmental

critical value list
2. Calls for additional information as needed
3. Relays results and reports using appropriate laboratory
information system (LIS) function to nurse or physicians
LIS

1. Understands LIS accessioning function for sequencing

cultures
2. Uses appropriate computer function to result blood
cultures
3. Uses templates to work up cultures and understands
how charges are generated in LIS
4. Understands required reports for cultures and knows
how to send corrected reports
5. Knows how to order and cancel susceptibilities
General lab duties

1. Has knowledge of lab safety, including use of the BSC

and personal protection equipment
2. Keeps work area clean, stocked, and organized
3. Assists with inventory and QC
4. Completes instrument maintenance as assigned
Interpretation of cultures

1. Understands purpose of various media for the selec-

tion and differentiation of organisms
2. Reports colony count for urine and IC cultures
3. Knows criteria for reporting and working up mixed
urine and wound cultures
4. Understands what is normal flora in respiratory,
wound, stool, and reproductive specimens
5. Has good colony isolation technique
6. Understands the principles of isolation and work up of
anaerobic organisms
7. Knows which body sources are normally sterile

(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 351

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Blood cultures (BC)

1. Knows how to load and unload bottles, generate re-

ports, and send preliminary and final reports
2. Prepares, stains, and interprets positive BC
3. Knows which organisms are considered to be contami-
nants when isolated in one set of BC
4. Stocks all isolates
5. Sends notification form to floor when cultures are con-
taminated for phlebotomist follow-up
6. Clears out positive box as cultures are completed
Biochemical and spot tests

1. Demonstrates competence in the performance and

interpretation of the following tests:
Catalase
Oxidase
Spot indole
Tube indole
Staph latex agglutination
BBL™ coagulase (tube)
L-Pyrroglutamyl-peptide hydrolase (PYR)
BBL™ Cefinase™
Catarrhalis Test Disk™
Microdase™ disk
Desoxycholate test
BBL™ Taxo™ P disk
Phadebact® pneumococcal reagent
Strep PathoDx® test
BE/NACL
Hippurate Disk™
Novobiocin test
2. Understands the frequency and documentation of re-
agent QC
Stains

1. Prepares, stains, and interprets Gram stains on direct

specimens and culture isolates
2. Understands when to perform wet preps
3. Sets up and reads germ tubes
4. Prepares and reads India ink smears
5. Prepares and reads KOH smears
(continued)
352 PERSONNEL MANAGEMENT

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Biochemical identification (ID) systems

1. Sets up the following ID cards:

GPI™
GNI™
NHI™
ANI™
YBC™
2. Sets up and reads the following ID systems:
api® 20E
api® 20 NE
RapID™ NH
RapID™ ANA II
RapID™ STR (Strep)
Referrals

1. Refers IDs to SBH when needed

2. Sends the following isolates to the SBH for serotyping:
H. influenzae from blood or CSF
N. meningitidis
Salmonella (upon request or from blood)
3. Refers CF isolates as needed for ID and synergy
Susceptibility testing

1. Understands colorimeter standardization and

maintenance
2. Demonstrates knowledge of the basic operation and
troubleshooting of the Vitek® instrument
3. Knows how to handle and store Vitek® cards
4. Knows how to set up GNS™ and GPS™ cards
5. Understands the Vitek® Expert system
6. Understands how Etest®s are set up and how they are
interpreted, including various types of growth that
are seen
7. Knows how to read Bauer-Kirby disk diffusion
8. Knows how to read Microscan® or other micro-broth
dilution panels
9. Knows when to set up an anaerobe MIC panel and
how to read the results
10. Understands frequency and documentation of sus-
ceptibility QC
11. Knows how to set up and report experimental antibi-
otics and how to document QC
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 353

APPENDIX 16.6 Training Checklist for Microbiology Medical Technologist (continued)

Function Tech initial Trainer initial Comp meet Semi-annual

Susceptibility reporting

1. Knows the usual susceptibility pattern for:

Klebsiella
Citrobacter
Enterobacter
Proteus
Serratia
Pseudomonas
Acinetobacter
2. Understands the oxacillin screen for S. aureus
3. Knows how to confirm a VRE
4. Knows when and how to confirm an ESBL
5. Knows age-dependent rules for the following
antibiotics:
Ampicillin/sulbactam
Levofloxacin and ciprofloxacin
Tetracycline
6. Understands how the following classes of antibiotics
cascade:
Ampicillin/penicillin
Aminoglycosides
Quinolones
Cephalosporins
Imipenem
7. Recognizes unusual susceptibility results:
Vancomycin resistance in Staphylococcus
Imipenem resistance in enteric GNB
Piperacillin resistance with pip/tazo susceptible
Levofloxacin resistance in S. pneumoniae
8. Knows which antibiotics are reported in urine, blood,
and CSF
9. Knows where to find antimicrobial susceptibility stan-
dards (CLSI standards) document
354 PERSONNEL MANAGEMENT

APPENDIX 16.7 Training Checklist for Third-Shift Microbiology

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech date Trainer Comp meet Semi-annual check

Rapid Procedures

1. Interpretation of direct Gram stains

2. Set up and interpretation of:
India ink
Wet prep
3. Performs strep A Ag procedure
4. Sets up stool for pus (WBC)
LIS

1. Understands laboratory information system (LIS)

functions for logging in cultures
2. Enters Gram stain results in LIS
3. Results strep Ag and orders beta-strep culture if
strep Ag is negative
4. Communicates with day shift through communi-
cation log
Culture set-up

1. Knows how to set up CSF for culture and how to

use cytocentrifuge for smear prep
2. Knows how to set up sputum cultures
3. Knows how to set up urine cultures
4. Subcultures GN broths to XLD at 4–6 hours
5. Knows how to store specimens that are not being
set up
6. Knows how to use CO2 bags
Blood cultures

1. Knows how to enter information in the BC in-

strument computer
2. Knows how to load bottles into the instrument
3. Knows how to unload positive bottles
4. Knows how to enter the positive BC Gram stain
and how to send a preliminary report
5. Orders template to record information
6. Notifies patient’s nurse
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 355

APPENDIX 16.8 Training Checklist for Microbiology Medical Laboratory Technician

Employee: ______________________________________________ Employee #: ______________________________________________

Date: ___________________________________________________ Hire date: ________________________________________________

Function Tech date Trainer Comp meet Semi-annual check

Communication

1. Answers phone courteously and effectively (giv-

ing name and department)
2. Assists floors with ordering tests
3. Calls for additional information as needed
4. Relays results and reports using appropriate
laboratory information system (LIS) function to
nurses or physicians
LIS

1. Orders tests through appropriate LIS function

2. Knows proper test for specimen types
3. Aware of all tests that are ordered (specimens
may have multiple orders)
4. Knows how to cancel and credit tests
5. Knows how to receive specimens through ap-
propriate LIS function
6. Knows how to receive using appropriate LIS
function, BCs with the proper drawn ID
7. Logs cultures into Micro through appropriate
LIS function
8. Knows how to change default media
9. Knows how to change the work center
10. Knows how specimens are routed and how to
change the routing of specimens
General lab duties

1. Knows about lab safety, including use of the BSC

and personal protective equipment
2. Keeps work area clean, stocked, and organized
3. Assists with inventory control, including putting
away supplies and media
4. Knows how to operate the autoclave
5. Works with specimen management to see that
specimens are received ASAP

(continued)
356 PERSONNEL MANAGEMENT

APPENDIX 16.8 Training Checklist for Microbiology Medical Laboratory Technician (continued)

Function Tech date Trainer Comp meet Semi-annual check

Specimen setup

1. Knows how to assess the quality and transport

time of specimens (specimen rejection policy)
2. Knows appropriate tests for each specimen type,
including immunocompromised panel
3. Knows appropriate plates for each culture
4. Knows when to add media to a culture
5. Knows how to prioritize culture set up (i.e., set
up anaerobe, surgical, and CSF before other
cultures)
6. Sets up cath and cc urine with .001 loop and
cysto and suprapubic urine with .01 loop
7. Batches stool cultures
8. Knows how to grind tissue (except for fungus)
9. Knows which cultures have a Gram stain
10. Knows how to set up fungus culture on tissue
11. Knows how to handle AFB cultures
12. Knows how to set up ANA and Campy jars
13. Knows what media to set up on fungus cultures
14. Understands where to incubate plates:
Peds and all cultures CF, THR, BETA,
EAR, CSF
Pediatric urine
Adult urine
Infection control
Adult cultures
Fungus cultures
15. Knows how to handle viral, O&P, and serology
specimens
Blood cultures

1. Knows how to load and unload bottles

2. Knows how to process positive BC
3. Transfers positive cultures to appropriate work card
Rapid procedures

1. Prepares smears and performs Gram stains

2. Knows how to set up
India ink
Calcofluor white
KOH
Wet prep
3. Performs strep A Ag procedure
4. Knows how to set up stool for pus (WBC)
5. Knows how to set up stool occult blood
6. Interprets Helicobacter screening test
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 357

APPENDIX 16.9 Competency Assessment Form: Microbiology Specimen Processing

Employee name: ______________________________________________________

Evaluation interval: ___________________________________________________

Task-direct observation Met Not met Evaluator Date

Match order slip with specimen
Match identification on specimen and order
Perform laboratory information system (LIS) specimen receipt function
Utilize specimen rejection criteria
Select appropriate media for culture
Place computer labels on media
Label glass slide for smears
Operate biological safety cabinet (BSC)
Wear gloves and protective coat when handling and plating specimens
Perform plating of specimens inside BSC
Use aseptic technique handling specimens
Inoculate and streak plates using method appropriate to body site of specimen
Use tissue grinder for tissue specimens
Use centrifugation for fluid specimens
Place inoculated media in appropriate gaseous/temperature environment
Achieve well-isolated colonies on cultures
Smear dried and fixed
Perform Gram stain on smears
Interpret Gram-stained smears
Record Gram stain results on work card
Call critical Gram stain results
Enter Gram stain results in LIS
Complete requisition for reference lab
Use appropriate packaging materials for referred specimens
Complete external courier shipping forms
Store specimens until referred
QC/instrument function-review records

(continued)
358 PERSONNEL MANAGEMENT

APPENDIX 16.9 Competency Assessment Form: Microbiology Specimen Processing (continued)

Task-direct observation Met Not met Evaluator Date

Gram stain QC
Function checks of BSC
Problem solving—review records
Mislabeled specimens
Unlabeled specimens
Remedial action:

Reassess: [ ] Met [ ] Not met Date ______________________________

Evaluator _________________________________________________

Employee name ___________________________________________ Date ______________________________

Supervisor ________________________________________________ Date ______________________________

Director __________________________________________________ Date ______________________________

 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 359

APPENDIX 16.10 Competency Assessment Form: Blood Culture Procedures—Bactec® 9240

Employee name: ______________________________________________________

Evaluation interval: ___________________________________________________

Task-direct observation Met Not met Evaluator Date

Use personal protective equipment
Inspect bottles for fill volume
Note underfilled bottle on work card
Note on work card if only one bottle received
Review order for unusual organisms
Extend protocol length function
Use FOS™ for fluid specimens
Check receipt/collection date/time: if .48 h, perform blind subculture
Load bottles into instrument
Resolve anonymous bottles
Resolve orphan bottles
Safely dispose of bottles
Subculture positive bottles in biological safety cabinet
Call Gram stain results
Results/records review
Record results on work cards
Enter results into on-line patient record
Instrument function—review records
Perform function checks of Bactec® 9240
Problem solving—review records
Resolve failure of tape backup
Remedial action:

Reassess: [ ] Met [ ] Not met Date ______________________________

Evaluator _________________________________________________

Employee name ___________________________________________ Date ______________________________

Supervisor ________________________________________________ Date ______________________________

Director __________________________________________________ Date ______________________________

360 PERSONNEL MANAGEMENT

APPENDIX 16.11 Performance Improvement Plan

PERFORMANCE IMPROVEMENT PLAN (PIP)

Print Employee Name ________________________________________ Emp # _____________________________________________

Job Title _____________________________________________________ Dept Name ________________________________________

Print Manager Name _________________________________________

Date of Infraction ______ /______ /______

Reason for PIP: (ENTER CODE HERE) ______________ Is this a Final Warning? YES NO

ATT Attendance GMC Gross Misconduct HIP HIPAA Violation

PER Performance SAF Safety Violation VIO Rules Violation

The following written counseling is in reference to recent issues.

• Specific description of infraction(s) or area(s) for improvement (if reason is attendance, list date and reason given by em-
ployee for unscheduled absence, start of scheduled shift and arrival time for tardy or partial absence, or time left for partial
absence, and/or time called in for late call):

• You must understand it is crucial all employees perform their job responsibilities correctly and consistently. The following
outlines specific performance expectations plan for improvement (when appropriate, list specific dates for completion of
plan):

We expect these changes to be made immediately (when appropriate) or by the dates listed in the expectations plan above. The
requirement for successfully achieving the goals of the PIP is improved and sustained performance, in addition to meeting spe-
cific goals and requirements.

We have every confidence the problem will be corrected. However, your work performance must improve and will be closely
monitored. If any other issues or situations occur where abuse of Hospital, Inc. policy, or other performance related concerns ex-
ist, you will be disciplined, up to, and including, termination of employment.

This document will be placed in the employee’s official employment record, which is in Human Resources. If the employee received a
“Needs Improvement” on his/her performance appraisal, please submit this form along with it.

I have read and understand the above written counseling. I understand this counseling does not constitute any type of contract. I
understand my continued employment with Hospital, Inc. depends upon my successful completion of this PIP.

Signature/Acknowledgement: Employee Date

Signature: Manager Date

Signature: Witness (if applicable) Date

Cc: Employee, Manager’s File for follow-up, Employee Relations, Human Resources
(continued)
 CHAPTER 16. PERFORMANCE APPRAISALS AND COMPETENCY ASSESSMENT 361

APPENDIX 16.11 Performance Improvement Plan (continued)

PEFORMANCE IMPROVEMENT PLAN—MANAGER REFERENCE TOOL

FOR MANAGER USE ONLY—NOT FOR DISTRIBUTION TO EMPLOYEE

CODE REASON EXAMPLES OF BEHAVIORS

ATT ATTENDANCE • UNSCHEDULED ABSENCES-FULL OR PARTIAL
• TARDINESS
• LATE CALL
• FAILURE TO CLOCK IN/OUT
• NO CALL, NO SHOW

GMC GROSS MISCONDUCT • ENGAGING IN RUDE OR DISCOURTEOUS CONDUCT TOWARD PATIENTS/

EMPLOYEES/VISITORS
• THEFT, UNAUTHORIZED USE OR WILLFUL DESTRUCTION OF PROPERTY
• COMMISSION OF A CRIMINAL ACT
• FALSIFICATION OF DOCUMENTS/RECORDS
• HARASSMENT
• DISCRIMINATION
• WORKPLACE VIOLENCE
• INSUBORDINATION/WILLFUL DISOBEDIENCE
• SUBSTANCE ABUSE VIOLATIONS OR DRUG OFFENSES
• CARRYING A WEAPON WHETHER LICENSED OR UNLICENSED ON MCG
HEALTH, INC. PROPERTY
• SLEEPING ON JOB
• FAILURE TO REPORT ARREST, CHARGE, CONVICTION, PLEA, OR DRUG
OFFENSE
• INAPPROPRIATE SHARING CONFIDENTIAL INFO (NOT HIPAA
VIOLATION)
• EXPLOITATION OF PATIENTS OR FAMILIES FOR PERSONAL GAIN OR
BENEFIT
HIP HIPAA VIOLATION • HIPAA VIOLATIONS—HR & LEGAL CONSULT REQUIRED

SAF SAFETY VIOLATION • PATIENT ID ERRORS

• MEDICATION ERRORS
• MISLABELED SPECIMENS
• HAZARDOUS ACTIVITIES
• ANY OTHER VIOLATION THAT WOULD CAUSE A PATIENT SAFETY
CONCERN
PER PERFORMANCE • EMP DOES NOT MEET REQUIREMENTS TO PERFORM JOB
• ERRORS
• INACCURACIES
• CAN NOT MEET PRODUCTIVITY STANDARDS (NOT BEHAVIORAL ISSUES)

VIO RULES VIOLATION • EMP VIOLATES A SPECIFIC RULE OR POLICY OR DEPT PRACTICE
• ENGAGING IN NON BUSINESS ACTIVITIES WHILE AT WORK

This list contains examples of actions that would fall under each code; however, it is not all-inclusive. Should you have any questions
or concerns in completing this form, please contact Employee Relations, Human Resources.
Introduction
17
Laboratory Personnel: Current Dynamics
Staffing and Scheduling
Affecting Staffing
Labor Shortage • Business Need • Increasing Patti Medvescek
Opportunities for Medical Technologists
Personnel Requirements
Education • Training and Competence Assessment •
Functional Definitions • Generalist versus Specialist
Laboratory Staffing
Staffing Requirements • Basis for Determination:
Workload Recording
OBJECTIVES
Staff Scheduling To explain the dynamics of staffing and scheduling laboratory personnel with
Key Success Factors • Metrics for Success • respect to current labor trends and business requirements
Alternatives • Special Considerations • Flexible To describe the personnel classifications as determined by governing bodies,
Staffing
accreditation agencies, and specific laboratory needs
Summary
To compare and contrast traditional versus alternative staffing plans, using
KEY POINTS
personnel classification and qualification and service requirements
GLOSSARY
To describe key success factors for laboratory scheduling and metrics for
REFERENCES effectiveness and efficiency
APPENDIX

Creativity seems to emerge from multiple experiences, coupled with a well-

supported development of personal resources, including a sense of freedom to
venture beyond the known.
Loris Malaguzzi

P
atty Enrado wrote in Healthcare Finance News in 2009, “Labor costs
continue to be hospitals’ biggest expense” (4). This statement includes
the clinical laboratory, where human resources account for 42% of the
laboratory budget (Truven Health Analytics, http://truvenhealth.com/products/
action_oi.aspx [accessed June 27, 2013]). Table 17.1 shows that maximizing
utilization of staff is a key to controlling expenses in the laboratory. The edu-
cation and experience required of the staff as well as staff scheduling models
can optimize laboratory operations. Failure to recognize the impact of staffing
and scheduling might diminish services provided and negatively affect the op-
erating budget. Laboratory managers must understand the current and future
dynamics that influence staff availability and must be aware of scheduling op-
portunities to provide efficient and effective laboratory operations.

Laboratory Personnel: Current Dynamics

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch17
Affecting Staffing
Labor Shortage
Many organizations, including the American Association of Clinical Chemis-
try and the Bureau of Labor Statistics, have reported on the shortage of clinical
laboratory scientists. The root cause is varied, including fewer people entering
the field, resulting in fewer schools for medical technology, combined with
decreases in available funds for education and an increase in opportunities
outside of the laboratory sector.

362

Table 17.1 Average labor expense as percentage of total expensesa
Type of facility % of total expenses
All respondents 39.66
Total operating beds 1–100 45.50
Total operating beds 101–200 40.97
Total operating beds 201–300 41.50
Total operating beds 301–400 39.57
Total operating beds 401–600 37.69
Total operating beds 601 or more 40.19
Major teaching hospitals 38.52
Minor teaching hospitals 39.51
Nonteaching hospitals 41.56
a
Average wage adjusted, excluding physician compensation, including sal-
ary, wages, and benefits. Source: ActionOI® data, 2010 (Truven Health Analytics,
http://truvenhealth.com/products/action_oi.aspx).
In May 2011 the American Association of Clinical
Chemistry’s Clinical Laboratory News published the article
“Trends in Recruitment and Retention,” which addresses
the potential labor shortage with ideas to improve staff re-
tention, highlighting techniques that have been successful
in retaining trained laboratory staff to mitigate the impact
of the decreasing labor pool (7). Three years earlier, this
organization addressed the issue of staff shortages: “The
number of people needed annually to fill clinical labora-
tory positions exceeds 10,000. But graduates of baccalaure-
ate and associate degree programs in laboratory medicine
number only about 4,500, so current educational programs
meet only about half of the actual need” (5). Today, the
laboratory manager must be aware of the potential labor
pool available in the community as well as the tenure of
laboratory staff to predict potential shortages.
A 2010 Bureau of Labor Statistics report stated that
the need for clinical laboratory professionals will in-
crease 10 to 20% over the next decade, while medical
technology schools are closing because of the high cost of
maintaining quality programs. “Employment of medical
laboratory technologists is expected to grow by 11 per-
cent between 2010 and 2020, about as fast as the average
for all occupations. Employment of medical laboratory
technicians is expected to grow by 15 percent between
2010 and 2020, about as fast as the average for all occupa-
tions” (1).
The availability of trained individuals to perform labo-
ratory testing is and should be a concern for laboratory
managers. The creative staffing and scheduling needed to
reduce staffing requirements are as important in 2012 as
they were in the late 1990s to lessen the impact of this
shortage. In addition, the absolute need to maintain ef-
ficiency in labor utilization to control costs is increasingly
apparent based on the potential and future changes in
reimbursement based on patient satisfaction and patient
outcomes.
CHAPTER 17. STAFFING AND SCHEDULING 363
Business Need
The Occupational Outlook Handbook reports, “Technolog-
ical advances will continue to have two opposing effects
on employment [of clinical laboratory technologists and
technicians] through 2010. New, increasingly powerful di-
agnostic tests will encourage additional testing and spur
employment. On the other hand, research and develop-
ment efforts targeted at simplifying routine testing proce-
dures may enhance the ability of non-laboratory personnel,
physicians and patients, in particular, to perform tests now
done in laboratories” (1). As hospitals (and laboratories)
continue their evolution from healthcare providers to busi-
nesses providing healthcare services, laboratory managers
are faced with the challenges of achieving a balance be-
tween skill levels of staff and scheduling staff to maintain
services while reducing costs. How the laboratory interacts
with other ancillary and hospital departments becomes
important as cost sharing, cost savings, and point-of-care
testing are integrated into the hospital.
Increasing Opportunities for Medical Technologists
The Bureau of Labor Statistics, in the Occupational Out-
look Handbook, lists related fields in chemistry, materials
science, veterinary technologists, technicians, and assis-
tants. Also available to laboratory personnel are positions
in manufacturing and industry, including sales, technical
support, and research and development positions. Clearly,
the labor shortage, the increased need for trained person-
nel, the availability of jobs in nonhealthcare settings, and
the barriers for entry into the field (perceived low salary
and schedule demands) mandate the need for effective
staffing and scheduling in the clinical laboratory to make
the best use of and retain available talent.
Personnel Requirements
Education
Medical and clinical laboratory technologists generally
have a bachelor’s degree in medical technology or one of
the life sciences or a combination of formal training and
work experience. Technicians generally have either an
associate’s degree or certification from a hospital voca-
tional or technical school. Several programs provide cer-
tifications for technologists and technicians or training
program guidelines, including the American Society for
Clinical Pathology (ASCP), the American Society of Clini-
cal Laboratory Scientists (ASCLS), the National Creden-
tialing Agency, and the Clinical and Laboratory Standards
Institute (CLSI), formerly the National Committee for
Clinical Laboratory Standards (NCCLS).
The basic requirements for personnel to perform testing
in a clinical laboratory are proscribed in the Clinical Labora-
tory Improvement Amendments of 1988 (CLIA ’88). Tests
364 PERSONNEL MANAGEMENT
are grouped by complexity (as defined within the CFR
Sec. 493), with specific licensure, education, or experience
requirements for each complexity model. The degree re-
quired for testing personnel varies and includes doctors of
medicine or osteopathy; doctoral, master’s, or bachelor’s
degrees; associate degrees; or high school diplomas. The
common denominator is documented training for each in-
dividual performing laboratory testing, based on the com-
plexity of the tests performed. The credentialing options
(for example, bachelor of science degree in medical tech-
nology or chemistry, or high school diploma plus military
training) provide the laboratory manager with flexibility in
hiring decisions and scheduling. This flexibility can be de-
fined in terms of ratios of technologists, technicians, and
employees with a high school education plus training. The
College of American Pathologists (CAP) and other organi-
zations with deemed status under CLIA ’88 to provide ac-
creditation programs for clinical laboratories require that
“all testing personnel meet CLIA ’88 requirements” (2).
If the overall laboratory staff increases, the ratio of
technicians to technologists may change in favor of techni-
cians and those trained on the job. As staffing decreases,
more technologists (qualifying as technical supervisor) are
needed to ensure that qualified personnel perform all ser-
vices over all shifts.
Training and Competence Assessment
Accreditation processes address the need for continuous
training for laboratory staff. In the 2012 General Check-
list, the CAP states that there should be “a functional con-
tinuing clinical laboratory education program adequate to
meet the needs of all personnel” and that “the competency
of each person to perform his/her assigned duties is as-
sessed” (2).
Each technologist or technician must be competent to
perform laboratory tests based on the specific policies and
procedures of the laboratory. Training and competence
must be documented within personnel records. In addi-
tion, on-the-job training may be integrated into the labo-
ratory for those with the minimum education required.
Consideration should be given to on-the-job training,
especially for laboratory assistants or phlebotomy staff,
for job improvement and promotion. As the labor pool of
skilled employees decreases, developing a pool from within
provides the laboratory manager with additional resources
to staff the laboratory. Employees who are trained and
ready to perform a variety of tests limit the negative im-
pact of staff absence, leaves of absence, or open positions
in the laboratory.
The ASCP, the American Society for Microbiology, the
National Credentialing Agency, and the Clinical Labora-
tory Management Association, among others, provide
continuing education opportunities through journal re-
views, educational programs, and meeting seminars.
Functional Definitions
For purposes of this text, several terms are discussed within
the context of staffing and scheduling in the laboratory:
• Laboratory size is identified due to the differing needs
for the laboratory based on physical limitations (mul-
tiple locations, floors, laboratories requiring additional
personnel to efficiently perform testing). Small labora-
tories occupying less square footage may require fewer
personnel if a generalist can cover all the areas.
• Laboratory location, also a variable, should be con-
sidered. For example, for a hospital laboratory,
proximity to high-use areas, such as the emergency
room (ER) or intensive care unit, will lessen the time
required for transportation of personnel services be-
tween these areas and the laboratory. Decentralized
services will affect staffing requirements. Staffing
STAT laboratories, outpatient facilities, and nursing
unit stations requires additional personnel. The ben-
efit of decentralized services is improved turnaround
time for direct services; the cost is trained personnel
to staff the areas.
• Laboratory test menus are a factor in determining
staffing patterns, based on the complexity of testing
performed. A generalist model may be appropriate for
a hospital or physician office laboratory (POL) that
refers microbiology identification and susceptibility
testing or blood bank antibody identification; the spe-
cialist model may be required for laboratories, regard-
less of size, that provide a tertiary level of service.
• Laboratory service levels include activities defined by
process or contract. These may include specimen col-
lection on- and off-site, POL support, reporting proce-
dures, and other support provided by the laboratory to
one or more facilities.
• Flexible staffing involves staffing to workload demand
by assessing workload on a shift-by-shift basis, rou-
tinely canceling or floating staff based on workload.
• Fixed staffing involves a fixed, budgeted number of
full-time equivalents (FTEs) projected to complete the
anticipated workload.
Generalist versus Specialist
The staffing model widely used 30 years ago was based
on specialists for every discipline in the laboratory. Labor-
saving instruments and computerization have changed
the testing process in the laboratory, allowing ease of
test performance. This opens the opportunity to employ
a generalist model in the laboratory. Generalists can be
cross-trained for all laboratory sections. Cross-training
can be defined for staffing purposes as training an indi-
vidual to perform testing in more than one functional
area of the laboratory. Traditionally, medical technologists

were assigned to a specific section, e.g., hematology or
chemistry, and their competency was assessed only for
those tests performed in that area. By training personnel
to perform testing in multiple areas of the laboratory, the
laboratory manager has the skill mix available to assign
individuals where the need is greatest at the time. Cross-
training in multiple areas of the laboratory requires more
resource allocation for competency assessment. The cost
of increasing breadth of training must be balanced by
efficiencies gained from cross-training. Cross-training
generalists, however, may not be advantageous for very
complex facilities for all areas of testing. Esoteric or highly
specialized disciplines need the depth of knowledge that a
specialist provides. The laboratory manager can employ a
hybrid model by identifying those tasks common to all ar-
eas of the laboratory and training all qualified staff mem-
bers. The pros and cons of generalist versus specialist are
shown in Table 17.2.
In addition to the generalist versus specialist model,
the laboratory manager should review career levels within
each job function. Career advancement in medical tech-
nology can follow the administrative track (to laboratory
supervision) or the technical specialist’s track, e.g., senior
technologists. Having two career tracks does provide op-
tions for laboratory employees to stay in the laboratory
through job enrichment and job enhancement. When
staffing is adequate to accommodate multiple levels of job
categories, the potential exists to reduce turnover and pro-
vide additional resources for problem resolution, technical
consultation, and staff education.
If cost savings are needed in the laboratory and labor
accounts for a large percentage of the laboratory budget,
then changing the skill mix of the staff is one way to achieve
cost savings. However, the optimal mix of assistants, tech-
nicians, and technologists (specialists and generalists)
should be specific for each facility based on the functional
definitions of the laboratory. Once the CLIA ’88 require-
ments are satisfied for testing personnel, it is up to the labo-
ratory manager and director to determine the proper mix.
Cost/benefit analysis can assist in determining this mix, as
shown in Table 17.3.
Table 17.2 Generalist versus specialist staffing models
Model Pros Cons
Generalist Staffing flexibility Increased resource alloca-
Entry level tion to maintain and docu-
opportunities ment staff competency
Breadth of knowledge Entry level, as staff gain
experience in tenure
Lack of depth
Specialist Depth of knowledge Narrow base of experience
Career ladder Limited flexibility in
opportunity scheduling
CHAPTER 17. STAFFING AND SCHEDULING 365
Table 17.3 Staffing ratio: costs and benefits
Staff Cost Benefit
Technologists Expense and Expertise in testing
availability methods
Ability to analyze
and solve problems
Technicians Expertise may be Less expensive
insufficient to review
or troubleshoot test
results
On-job trained Training program Resource supply,
preparation and lower labor cost
implementation
Laboratory Staffing
Staffing Requirements
The laboratory manager must assess the needs of the labo-
ratory to determine the number of employees needed as
well as the mix of expertise, training, or credentials of
technical staff. The following are elements within the labo-
ratory that should be addressed.
Test mix. A large test menu, including moderately and
highly complex tests, requires a different group of tech-
nical staff than a laboratory performing mostly routine
testing on automated analyzers. Specialty areas in microbi-
ology, surgical pathology or cytology, and blood bank also
require special consideration.
Hours of operation. A full-service laboratory supporting
an ER and/or intensive care units requires a different pat-
tern than an outpatient laboratory or POL providing ser-
vices Monday to Friday for one shift. Staff must be available
to support the emergency room and critical care units, at
least for those tests that must be available as STAT tests at
all times. The STAT test menu is an important tool for the
laboratory manager to ensure adequate staffing at all times
to meet the expectations for services provided.
Supervision. The requirements for on-site technical su-
pervision in CLIA ’88 mandate the need for technologists
in addition to technicians on off shifts, weekends, and
holidays.
Service levels. Turnaround time, phlebotomy, results re-
porting, and sequential testing are all variables to consider
when staffing the laboratory. An outpatient laboratory
may provide all test results by the next day, allowing for
a smaller staff to perform specimen collection during the
day, with batch testing performed in the early evening. A
full-service laboratory performing tests for the ER will re-
quire testing personnel 24 hours/day to perform a STAT
366 PERSONNEL MANAGEMENT
test menu with turnaround times within minutes. Com-
puterized result reporting eliminates the need for labo-
ratory assistants to hand-deliver test results. Automatic
sequential or cascade testing relieves clerical or technical
staff of contacting physicians with results and/or wait-
ing for additional test requests. The laboratory manager
should understand the costs/benefits of utilizing a refer-
ence laboratory for routine testing, if the desired service
level can be maintained, based on the expectations set by
the medical staff and hospital administration.
Services supported. Laboratories that support level 1
trauma centers, transplant programs, cardiovascular sur-
gical programs, and clinics, to name a few, could have
different minimum staffing requirements than a general
acute-care suburban facility.
Productivity levels. The author has based productivity
goals on a “traditional” 80% productivity measure. The
key, however, is to know how to define the term “produc-
tivity,” including the metrics to measure productivity. For
example, if the amount of time available to work is used
as maximum opportunity, then the 8-hour day is actually
7 hours (assuming 1 hour for lunch and breaks). 100%
productivity of available work time is 87% of total worked
time. Productivity is also a useful indicator to determine
optimum staffing in conjunction with minimum staffing.
Few laboratories can afford to hire enough personnel to
staff the laboratory for maximum workload levels. Simi-
larly, few laboratories can afford the quality issues inher-
ent in minimum staffing levels, so productivity approaches
100% when workload increases. The creative manager will
staff for the typical workload day, with additional person-
nel available to call in when workload exceeds projections.
This flexibility is the primary advantage to part-time, flex-
time, and cross-trained individuals.
Productivity levels are also based on the unit of mea-
sure used, typically the number of billable tests. However,
the mix of billable tests (inpatient versus outpatient, STAT
versus routine, increased nonbillable components) can
impact productivity comparisons. Assessing staffing needs
daily, or even on a shift-by-shift basis, ensures tighter con-
trol of labor expense, as long as trained staff are available
to “flex-up” or staff is willing to “flex down” as volume
changes. Both are key components of the flex (variable)
staffing model. In addition, predicting when volumes
will increase or decrease allows the laboratory manager
to effectively predict shifts of higher or lower volume and
schedule accordingly to mitigate the impact of a variable
staffing model. For example, correlating high test volume
with surgery schedules or low test volume with commu-
nity events can provide the basis for staff schedules that
meet but don’t exceed the workload.
Basis for Determination: Workload Recording
Some method should be used to objectively document the
amount of “work” performed by the laboratory. The units of
work are factored by the hours required to perform the work
to determine productivity. The Laboratory Management In-
dex Program (LMIP) is one program that provides bench-
marks for productivity, utilization, and cost effectiveness.
The standard billable test (SBT) is the primary unit of mea-
sure for LMIP (3). The SBT is a method of standardizing test
counts and eliminates billing, accounting, and interpretation
variations to ensure that valid comparisons are created.
There are other productivity measurement tools as well,
such as the Thomson-Reuters Action O-I® operational im-
provement tool (http://truvenhealth.com/products/action
_oi.aspx) that measures labor productivity (primarily) for
acute-care hospitals, including all departments within the
hospital. Laboratories are reported in this database based
on hours worked or paid per billable test, adjusted days,
or adjusted discharges. The key to workload recording is
to determine the basis for calculation, while reducing the
variables that can affect the comparisons and limiting the
exceptions that will skew performance. The key to produc-
tivity comparison is understanding the variables among
laboratories, including outpatient volumes, services sup-
ported, overall size and scope of the laboratory, and avail-
ability of alternative testing sites. If the laboratory manager
chooses to engage in an external comparison for produc-
tivity measurement, several key factors must be consid-
ered. The measurement tool must be updated as new tests
are added. The sample size of participants must be statis-
tically valid and should allow for comparison with other
laboratories of similar volumes and/or test mixes.
Workload recording is a valuable tool used to assess
(and justify) staffing levels; however, the laboratory man-
ager must understand the information that is provided and
must ensure that the comparisons used are valid. When
using a productivity tool, the definition of the workload
recording unit must be established. The worked hours
that are included must be comparable. For example, if
some participants in the comparison group record only
direct worked hours (excluding business leave, orienta-
tion, or meeting time) while others include all productive
hours, then the results will be skewed in favor of the labs
reporting only direct hours. Counting all analytes tested
versus counting panels reported can result in one lab ap-
pearing very productive in comparison to labs that only
report panels. Understanding the database definitions of
the productivity reporting tool is key to obtaining relevant
information. Interpreting the comparison results requires
an understanding of the seasonality of test volumes when
reviewing an annual report. Productivity reports are more
directional (you use more staff per test) than absolute (you
use 5.4 more FTEs per test) and typically require addi-
tional research to obtain specific staffing requirements.
 CHAPTER 17. STAFFING AND SCHEDULING 367

The laboratory manager and director should be in-
formed about projected patient volumes. If inpatient vol-
umes are declining, staff may be downsized, despite an
increasing outpatient volume. It is critical to understand
the resource requirements for each patient “sector” and
to justify staffing requirements via documentation of
workload and efficiency. Retrospective data review of test
volumes, correlating to surgery schedules, for example,
provides the laboratory manager with a template for days
off and vacation time requests.
Staff Scheduling
Once the staffing mix has been developed and implemented,
employees must be assigned to their work schedules. To
schedule staff effectively, the laboratory manager must un-
derstand the needs of the laboratory, hours of operation,
and the staff required versus the needs of the employees,
for whom a work-life balance is becoming more impor-
tant. The key, in the author’s experience, involves open and
frequent communication about operational needs along
with an understanding of employee preferences. When the
laboratory manager can include employees in the schedul-
ing process, individual needs can be considered, as long as
business needs are met. Some facilities have implemented
self-scheduling. Following scheduling guidelines for skill
level and number of shifts, among other factors, employ-
ees select their own schedules, based on their preferences.
Self-scheduling is available on a first-come, first-serve
basis. If self-scheduling is not available, at minimum the
laboratory manager should utilize employee-driven meth-
ods for scheduling shifts, including the opportunity for
same-skill employees to trade shifts with approval.
Some laboratories utilize a flexible or variable staffing
model to flex up or down based on volume. The Thomson-
Reuters Action O-I® comparative database includes a labo-
ratory characteristic question: Is staff routinely canceled,
rescheduled, or floated out? This question allows partici-
pants to compare their productivity with other facilities
that employ the same practice. Currently a number of fa-
cilities do indicate that they routinely cancel or resched-
ule staff (Table 17.4). The percentage of laboratories using
flexible staffing increases with bed size up to 600 beds. As
expected, smaller labs have less opportunity to flex their
staff if they are already at minimum staffing levels. This re-
port also finds that flex staffing increases for minor teach-
ing or nonteaching hospitals, based on reporting from
those facilities in 2010.
The issue of work-life balance continues to be the subject
of numerous articles (6). Hospital administration, human
resources, and laboratory management should have a strat-
egy to address the issues of work-life balance. By acknowl-
edging and addressing work-life balance, the laboratory
manager can improve or increase staff retention while con-
tinuing to provide the services required of the laboratory.
Key Success Factors
The laboratory manager should not only understand the
factors that are critical to the success of the laboratory but
also be able to demonstrate or document these key areas.

Table 17.4 Flexible staffing a

Laboratories that routinely % of labs that routinely
No. of hospital cancel, reschedule, or float cancel, reschedule, or
Hospital type laboratories staff to other departments float staff
Bed sizeb
Total 503 239 47.51%
<101 97 35 36.08%
101–200 110 48 43.64%
201–300 100 56 56.00%
301–400 66 38 57.58%
401–500 47 19 40.43%
501–600 34 17 50.00%
>600 49 19 38.78%

Teaching statusc
Total 462 232 50.22%
Major teaching 94 28 29.79%
Minor teaching 111 64 57.66%
Nonteaching 257 126 49.03%
a
Source: ActionOI® data, 2010.
b
Smaller (<100 beds) or larger (>600 beds) hospitals are less likely to routinely cancel, reschedule, or float staff than mid-sized facilities.
c
Major teaching facilities are less apt to routinely cancel, reschedule, or float staff than minor teaching or nonteaching facilities.
368 PERSONNEL MANAGEMENT
For a department or cost center, two key success factors
are financial performance and quality assurance. When
reviewing staffing and scheduling, labor costs can be used
to target areas of opportunity for improvement. The cost
of overtime and turnover will affect overall person-hour
and expense budgets. The achievement of targeted per-
formance metrics influences the satisfaction of customers
(e.g., physicians, patients).
Metrics for Success
Reporting efficiency. Laboratories have measured their
reporting efficiency in terms of percent of tests reported
within required or requested time frames. This metric is
particularly important to those who take action on the
test results, as treatment options and procedures depend
on laboratory results. Reporting efficiency also can affect
the financial performance of the hospital. When labora-
tory results are available and patient care is delivered ef-
ficiently, the patient length of stay may be decreased. For
the reference laboratory, reporting efficiency to their cus-
tomers is not only an indicator of performance; it may also
be included in the contractual agreement, with financial
considerations if metrics are not achieved.
Turnaround time. Turnaround time for results reporting
includes all components of testing—specimen collection,
processing, analysis and review, and reporting—and is an
important indicator of effectiveness as well as efficiency.
One component, specimen collection, can and should be
monitored separately, whether the laboratory has respon-
sibility for collecting patient samples or nursing units pro-
vide for specimen collection. The metric is the percent of
tests collected within a time frame around the test request.
For example, a hospital laboratory may report the percent-
age of 6 a.m. labs collected between 5:30 a.m. and 6:30 a.m.
When the laboratory objective is to complete all timed
blood draws within 30 minutes of the requested time,
the laboratory manager has to staff sufficient numbers of
employees to meet this objective. And collecting samples
at the time requested can improve the results of the tests
requested. The importance of the timed lab collection is
based on one or more of several factors. Some laboratory
tests must be drawn at a certain time after (or before) ad-
ministration of medication.
Productivity measurements. The productivity of the labo-
ratory is a function of the number of tests performed by
the number of personnel working, or workload units per
full-time equivalent. Not all tests performed are billed,
and there must be a distinction between billed, billable
(but not billed for whatever reason), and nonbillable tests
when comparing productivity to financial performance.
This distinction is also important when contracting for
reagent purchases so the correct quantity of reagents for
tests performed is used for negotiation and contractual
obligation. If the laboratory staff is unable to complete the
billable tests within an acceptable percentage of all tests,
inventory levels, pricing, and efficiency are all affected. It
is important to note the impact of the nonbillable tests.
Examples include repeat testing based on laboratory pro-
tocol or repeats based on physician request. The volume of
quality control testing (QC) should also be considered, for
labor as well as supply utilization. If, for example, the labo-
ratory runs tests as they are received, and the QC protocol
requires QC testing for each run, this lab will require more
resources than the laboratory that batches tests. The best
solution is to batch when appropriate as long as expected
result turnaround times are met.
Impact on staff. The implementation of productivity
measurements can affect the laboratory staff. Productivity
measures are an objective, quantitative means of review-
ing performance but may be perceived as changing the
workplace from a laboratory to an assembly line, where
productivity is the only indicator of laboratory success. By
including quality indicators such as proficiency surveys of
performance in laboratory metrics, the laboratory man-
ager can emphasize the importance of quality as well as
productivity.
Scheduling processes. At a minimum, the manual sched-
ule is prepared for the staff in advance. Scheduling software
programs are available that include parameters for skills
and training. The need for computerized scheduling is dic-
tated in part by the size of the laboratory staff and the time
available to devote to maintaining a manual versus a com-
puterized system. Laboratory managers should examine
the time required to prepare, distribute, post, and amend
manual schedules and compare the labor intensity with the
cost and implementation of a computerized process.
A basic template (Table 17.5) uses annual budgeted
volumes and targeted productivity hours per test to proj-
ect staffing needs by shift. Including the volume changes
driven by seasonality or by day of week variances provides
a more definitive schedule for the laboratory. Skill mix and
staff experience should also be considered. As volumes
fluctuate from budget, adjustments can be made in the
schedule to accommodate changes. Ultimately, the labora-
tory must be staffed with sufficient personnel trained for
the areas in which testing is provided.
Alternatives
Outsourcing. Reference laboratories have in the past
provided esoteric testing not usually done in clinical lab-
oratories. With overnight testing and air couriers, refer-
ence laboratories have expanded their menus to include
routine testing. Routine testing that can be performed by
a reference laboratory that provides 24-hour turnaround
 CHAPTER 17. STAFFING AND SCHEDULING 369

Table 17.5 Shift scheduling template

Data required Example
Annual volume of tests 300,000
Productivity target (hours per test) 0.12
Shift length 8 hours
Days of operation 7 days
Seasonal variability none
Day of week variability none
When volume is constant by month and day of week Mon Tue Wed Thur Fri Sat Sun
Input average volume per day (annual volume divided by 365) 822 822 822 822 822 822 822
Input total worked hours required 99 99 99 99 99 99 99
Divide total hours required by average shift length to calculate 12 12 12 12 12 12 12
number of shifts required
Day shift @ 60% 7.4 7.4 7.4 7.4 7.4 7.4 7.4
Evening shift @ 30% 3.7 3.7 3.7 3.7 3.7 3.7 3.7
Night shift @ 10% 1.2 1.2 1.2 1.2 1.2 1.2 1.2

time could include any test that is not part of the STAT
grouping (tests that must be reported within specific time
frames to maintain patient safety). For example, choles-
terol levels are an important test that could be performed
at the bedside, in the laboratory, or by a reference labo-
ratory. The laboratory manager should understand the
costs for each scenario, including labor, as well as the
benefits of in-house versus referral testing to determine
the best course of action. The laboratory manager is chal-
lenged with deciding which tests to send out versus per-
form in-house, based on cost per test as well as service
levels provided. For some laboratories with minimal test
volumes, the ability to bill for tests performed must be
also considered. The incremental opportunity for addi-
tional tests may justify the additional costs for technolo-
gists or equipment.
Opportunity cost and benefit. The laboratory manager
should consider the impact of staffing decisions on the
facility or physician using the laboratory. The manager
should also consider the opportunity to combine job func-
tions across departmental lines when feasible to take full
advantage of the benefits provided. For example, locating
the phlebotomy staff on nursing units provides efficiency
for the laboratory in less travel time to the patient and also
provides nursing units with ancillary personnel trained to
provide defined levels of patient care. In some facilities,
nursing services has the responsibility for specimen col-
lection, utilizing their RN staff or training patient care as-
sistants for phlebotomy,
Creative scheduling. Creative scheduling includes oppor-
tunities for job sharing, flextime, part-time, telecommut-
ing, and self-directed teams (Table 17.6). Similarly skilled
and trained employees can elect to share a position. This
often decreases fringe benefit costs while providing equal
hours worked. Flexible scheduling, based on employee
need or request, can result in increased employee satisfac-
tion, reducing turnover and poor performance. Telecom-
muting for specific positions such as medical transcription
reduces space requirements for the laboratory, may en-
hance work performance, and provides an additional re-
source of experienced employees. Using self-directed
teams reduces the time demands on the laboratory man-
ager while providing job enrichment and satisfaction.
Scheduling employees in nontraditional shifts (e.g., 10 a.m.
to 6:30 p.m.) or four 10-h days may provide work hours
needed by the laboratory while meeting personal needs of

Table 17.6 Scheduling alternatives

Alternative
Job sharing
Flexible schedules
Part-time schedules
Telecommuting
Self-directed teams
Pros Cons
Decreases benefit costs Potential lack of continuity
Employee satisfaction Must be administered consistently and in
accordance with human resource policy
Increases pool of employees Lack of continuity
Reduces overhead requirements, employee Limited to specific jobs, cost to establish and
satisfaction maintain links to the laboratory
Employee satisfaction, reduces management Consistent application of policy
hands-on time
370 PERSONNEL MANAGEMENT
the staff. Part-time employees can also provide additional
resources for staff coverage in emergencies. The author rec-
ommended 20-h coverage in one laboratory, from 4 a.m.
to midnight, staffed by two 10-h shifts. Testing was limited
between midnight and 4 a.m. to the critical test menu, with
limited swing shift staffing available to perform routine in-
strument maintenance and STAT testing as needed. These
techniques can be as effective for variable (flex) staffing as
for the fixed staffing model.
Special Considerations
Inpatient testing requires a 24/7 response for patient test-
ing with more specific criteria for emergency, intensive
care, or surgical patients. These requirements may add
staff to the laboratory roster. Outpatient testing may still
include weekend hours but is more limited in hours of
operation. The facility or laboratory may have specific
customer satisfaction metrics for outpatient visits, includ-
ing waiting time. Shared services (inpatient facilities and
outpatient testing stations within one department) provide
more flexibility for shared staffing and an increase in the
pool of trained personnel available for coverage.
Flexible Staffing
More hospitals today are using a variable staffing method for
hospital departments that can “flex to volume,” including the
laboratory. The premise is that FTEs are budgeted based on
the volume projected and the variable workload target that
has been established (via external benchmarks, history, min-
imum staffing or service line support, or some combination
of these). When actual volume exceeds budgeted volume,
budgeted hours increase to match. Conversely, when actual
volumes are less than budget, hours are decreased. The chal-
lenge for laboratory managers is multidimensional: When
volume is down, staff can be sent home or rescheduled. But
when volume increases, is there a pool of laboratory staff to
call on to support the increase? If fluctuations are “managed”
on a daily basis, are employees dissatisfied by the reduction of
hours? Because of the opportunities available to clinical labo-
ratory staff in other industries, employee dissatisfaction could
lead to employee turnover, without the needed influx of new
technicians and technologists. The laboratory manager must
carefully assess the impact of routinely canceling or resched-
uling staff and balance labor utilization with labor resources.
Working with hospital administration is a key for effectively
managing both components.
Summary
Effective laboratory staffing and scheduling will have a
positive impact on the laboratory as a service provider.
Changes in the availability of skilled employees, in the way
laboratories are operated as businesses (cost center versus
revenue center), and in the regulatory environment all
create challenges today for laboratory managers hoping
to optimize human resource utilization. These challenges
can be limited or eliminated by understanding workload
patterns, using creative scheduling, and utilizing available
personnel for optimum productivity.
KEY POINTS
■ Personnel classification and qualifications for labora-
tory operations are detailed.
■ Traditional scheduling methods are under review as the
laboratory as a service provider evolves (or has evolved)
into the laboratory as an integral part of the business of
healthcare.
■ A key to understanding the depth of opportunity within
a laboratory is to recognize the base requirements and
the incremental impact of creative scheduling, labor
pool, and services provided.
■ Staffing and scheduling are very dependent on the lo-
cale, the availability of technical staff, the practice pat-
terns by physicians, the service lines offered by the
healthcare facility, and patient expectations.
■ Scheduling processes are reviewed to provide options
and opportunities that meet the key success factors for
the laboratory.
■ Variable staffing is defined as staffing to workload vol-
ume using targeted (or budgeted) hours per unit of vol-
ume, with productivity reports comparing actual labor
to flex budget labor.
GLOSSARY
Clinical and Laboratory Standards Institute (CLSI) Voluntary
consensus standards–developing organization disseminating
standards and guidelines to the healthcare community.
Contingency workforce Employees not defined as permanent
or regular employees, usually assigned jobs based on short-term
needs.
Full-time equivalent Forty hours worked per week.
Generalist One trained in multiple areas of the laboratory.
Laboratory supervisor Individual responsible for staffing and
scheduling the laboratory.
Medical Technician Also known as clinical laboratory techni-
cian. A person with an associate’s degree in medical laboratory
technology (or equivalent).
Medical Technologist Also known as clinical laboratory scien-
tist. A person with a bachelor’s degree in medical technology or in
a selected health science who has completed a 1-year practicum.
Outsourcing Contracting with consultants, reference laborato-
ries, or other clinical laboratories to provide services.

Productivity measures Raw numbers or calculations that de-
scribe work performed relative to hours worked, tests billed, rev-
enue generated, reagents used, etc.
Specialist A person trained and experienced in one specific labo-
ratory discipline; formally, one who has a minimum of 5 years’
experience in that discipline and has passed a qualifying examina-
tion for that discipline by an accepted accrediting organization.
REFERENCES
1. Bureau of Labor Statistics, U.S. Department of Labor. 2012. Oc-
cupational Outlook Handbook, 2012–13 Edition, Medical and Clini-
cal Laboratory Technologists and Technicians, http://www.bls.gov/
ooh/healthcare/medical-and-clinical-laboratory-technologists-and
-technicians.htm (accessed May 6, 2012).
2. College of American Pathologists. 2012. Laboratory general
checklist. #GEN.54200, #GEN55500. College of American Patholo-
gists Laboratory Accreditation Program. Northfield, IL.
CHAPTER 17. STAFFING AND SCHEDULING 371
3. College of American Pathologists. Laboratory management
index program (LMIP). http://www.cap.org/apps/cap.portal?_nfpb
=true&_pageLabel=accreditation (accessed May 6, 2012).
4. Enrado, P. 2009. Hospitals face new challenge in controlling labor
costs. Healthcare Finance News. http://www.healthcarefinancenews
.com/news/hospitals-face-new-challenge-controlling-labor-costs
(accessed May 6, 2012).
5. Kibak, P. 2008. The worsening shortage of lab staff: what’s being done
to turn it around? Clin. Lab. News 34(5). http://aacc.org/publications/
cln/2008/may/Pages/cover1_0508.aspx# (accessed May 6, 2012).
6. LeClaire, J. Stress-management tips for healthcare workers. Mon
ster.com. http://career-advice.monster.com/in-the-office/Work-Life
-Balance/Stress-Management-Tips-in-Healthcare/article.aspx (ac-
cessed May 6, 2012).
7. Malone, B. 2011. Trends in recruitment and retention: how can
labs thrive despite the staffing shortage? Clin. Lab. News 37(5).
http://www.aacc.org/publications/cln/2011/May/Pages/Trendsin
Recruitment.aspx# (accessed May 6, 2012).
372 PERSONNEL MANAGEMENT

Appendix 17.1 Further Information

WEBSITES Clinical Laboratory Management Association (CLMA)

American Medical Technologists http://www.clma.org (accessed May 6, 2012)
http://www.amt1.com 401 N. Michigan Avenue, Suite 2200
10700 West Higgins, Suite 150 Chicago, IL 60611
Rosemont, IL 60018 Tel: 312-321-5111
Tel: 847-823-5169 or 1-800-275-1268 College of American Pathologists (CAP)
American Society for Clinical Laboratory Sciences (ASCLS) http://www.cap.org (accessed May 6, 2012)
http:www.ascls.org (accessed May 6, 2012) 325 Waukegan Road
1861 International Drive, Suite 200 Northfield, IL 60093-2750
Tysons Corner, VA 22102 Tel: 1-800-323-4040
Tel: 571-748-3770 Thomson-Reuters Operational Improvement (Action O-I®)
American Society for Clinical Pathology (ASCP) http://thomsonreuters.com (accessed May 6, 2012)
http://www.ascp.org (accessed May 6, 2012) 3 Times Square
33 West Monroe Street, Suite 1600 New York, NY 10036
Chicago, IL 60603 Tel: 646-223-4000
Tel: 312-541-4999
American Society for Microbiology (ASM)
REGULATIONS
http://www.asm.org (accessed May 6, 2012)
1752 N Street, NW Bureau of Labor Statistics, U.S. Department of Labor, Occupational
Outlook Handbook, 2012–13 Edition, Medical and Clinical
Washington, DC 20036 Laboratory Technologists and Technicians
Tel: 207-737-3600 http://www.bls.gov/ooh/healthcare/medical-and-clinical
Clinical and Laboratory Standards Institute -laboratory-technologists-and-technicians.htm (accessed May 6,
http://www.clsi.org 2012)
950 West Valley Road, Suite 2500 Clinical Laboratory Improvement Amendments
Wayne, PA 19087 Public Law 100-578, Section 353
Tel: 610-688-0100 Public Health Service Act (42 U.S.C. 263a), October 31, 1988
Introduction
Definition of a Team
18 Teams, Team Process,
Distinguishing Teams from Work Groups • Types and
Classifications of Teams • Why Define a “Team” So
and Team Building
Precisely?
Group Process and Teams James W. Bishop, K. Dow Scott,
Guidelines for Choosing Whether To
Have Teams Stephanie Maynard-Patrick, and Lei Wang
Common Purpose • Interdependent Tasks •
Summary • A Cautionary Note
Selecting Team Members OBJECTIVES
Task-Related Training • Team-Related Training
To define a work team and distinguish it from a work group
Leading Teams
General Ideas about Leadership: A Brief Review • To indicate why a precise definition of “team” is important
Leadership in a Team Environment • Team Leader To explain the concept of group process within teams
Selection
To describe the situations in which teams can be productive and those in which
Motivating Team Performance
they cannot
Goal Setting and Performance • Goal Setting and
Teams • Evaluating Teams and Team Members • Pros To define “task interdependence,” the types of task interdependence, and their
and Cons of Rewarding Team Members importance; to explain how task interdependence influences choices related
Virtual Teams to teams
Global Teams To explain the basic concepts behind selecting team members
Summary To explain the importance of training with respect to teams, distinguish the
KEY POINTS differences between task-related training and team-related training, and
GLOSSARY understand the concept of team building
REFERENCES To list the types of leadership associated with teams and the advantages and
APPENDIXES disadvantages of each
To explain the importance of goals, both individual and team; to explain how
team goals can be set and achieved
To explain how to evaluate team and team member performance and
emphasize individual performance in terms of contribution to the team

What sets apart high-performance teams . . . is the degree of commitment, par-
ticularly how deeply committed the members are to one another.
Jon R. Katzenbach and Douglas K. Smith

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch18
T
eams can be found everywhere in organizations. Employees are
placed in work teams, task forces, committees, quality improvement
teams, safety teams, and teams by a variety of different names. Employ-
ees working together is nothing new. In fact, it is the very nature of organiza-
tions to put employees into groupings. However, managers, consultants, and
academicians make distinctions between employees organized into groups as
compared with those who operate as teams. In fact, they point out numerous
advantages that are derived from teams. These include increased individual
performance, better quality, less absenteeism, improved employee engagement,
reduced employee turnover, leaner plant structures, and substantial improve-
ments in production cycle time (4, 14, 21). In general, teams are considered an
important ingredient of organizational success in the modern economy due to
needs for rapid information exchange and response to customer demands (16).

373
374 PERSONNEL MANAGEMENT

On the other hand, virtually everyone has had negative
experiences working in teams or in work groups. Dysfunc-
tional work groups and teams can have a negative impact
on employee performance, retention, and morale. These
dysfunctions include conflict among team members, so-
cial loafing, misdirected goals to satisfy members of the
team and not the organization, and poor communication
(8, 26, 70).
This chapter will examine what is involved in creating
effective teams first by differentiating between work units
and teams, examining team processes, understanding how
and when teams can contribute to a more effective organi-
zation, and discussing how to select and develop the best
team members, develop effective team leadership, and mo-
tivate team performance. Then we will examine some of
the latest developments and challenges in teams, including
virtual and global teams.
Definition of a Team
There are many definitions of the term “team.” These in-
clude, but are not limited to:
• A small number of people with complementary skills
who are committed to a common purpose and perfor-
mance goals for which they hold themselves mutually
accountable (34)
• A group whose individual efforts result in a perfor-
mance that is greater than the sum of those individual
parts (59)
• Two or more people with different tasks who work
together adaptively to achieve specified and shared
goals (9)
• A collective of individuals who are interdependent in
their tasks, who share responsibility for outcomes, who
see themselves and who are seen by others as an intact
social entity embedded in one or more larger social
systems (for example, business unit or corporation),
and who manage their relationships across organiza-
tional boundaries (16)
Although teams meet all of the defining characteristics
of groups (configurations of more than two interdepen-
dent individuals who interact over time), teams incorpo-
rate skill differentiation in a context where performance
outcomes including rewards or punishments are shared by
all team members (30, 34). Common to each of the above
definitions is the idea of blending different skills to accom-
plish objectives that individuals, working independently,
could not accomplish. Furthermore, implicit in each defi-
nition is the idea of both individual and collective account-
ability. That is, each individual can be rewarded or taken to
task for the results of both the team’s results and his or her
own contribution to the results.
Distinguishing Teams from Work Groups
The difference between “team” and “group” can be ex-
amined from the perspective of synergy. A work group
is defined as “a group that interacts primarily to share
information and to make decisions to help each mem-
ber perform within his or her area of responsibility” (59).
Thus, a group does not require joint effort. The group’s
outcomes are the sum of individual members’ contri-
butions. A team, on the other hand, generates positive
synergy through the coordinated efforts of its members.
Team members produce a level of performance that is
greater than the sum of individual inputs. Within a work
group, members share information, have neutral or even
negative synergy, and accountability is at the individual
level. Members’ skills may or may not complement each
other. By contrast, a team is designed for collective per-
formance, synergy among its members should be posi-
tive, and accountability is both individual and mutual.
Members’ skills are complementary to each other, and
members of the team help each other to accomplish team
goals (59) (see Table 18.1).
Types and Classifications of Teams
There are various ways to categorize teams. Based on how
members allocate their time, teams can be full-time or
part-time. Teams can be permanent or temporary. From

Table 18.1 Differences between work groups and teams

Information sharing
Accountability for outcomes
Rewards
Effort required
Performance achieved
Relationship between tasks
Work group
Information is typically shared between those who
have it and those that need it most; information is
not freely shared with everyone in the work group
Accountability at the individual level
Rewards (punishment) limited to one individual
Individual effort
Output is equal to the sum of the individual inputs
Related tasks
Team
Information is shared freely with all members even if
the information does not seem relevant to everyone’s
task
Accountability for the overall outcome is shared by
all team members with often specific members held
accountable for individual components
Outcomes shared by all members
Joint effort
Output is greater than the sum of individual inputs
Interdependent tasks
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING
a functional perspective, teams can be classified into
three types (16):
• Teams that recommend things include task forces,
project teams, and audit, quality, or safety teams asked
to study and solve particular problems.
• Teams that make or do things include people at or near
the front lines who are responsible for doing the basic
manufacturing, development, operations, marketing,
sales service, and other value-adding activities of a
business.
• Teams that run things include managers from the top
of the enterprise down through the divisional or func-
tional level.
Other typologies of teams have been identified, some
of which overlap in their dimensions. One classification of
teams includes work teams, parallel teams, project teams,
and management teams (16).
• Work teams: Continuing work units responsible for pro-
ducing goods or providing services; memberships are
typically stable, well defined, and usually full-time (15)
• Parallel teams: Teams that pull together people from
different work units or jobs to perform functions that
the regular organization is not well equipped to per-
form, such as safety teams or quality improvement
teams (41)
• Project teams: Teams that produce one-time outputs,
such as a new product or service to be marketed by the
company, a new information system, or a new plant (46)
• Management teams: Teams that coordinate and provide
direction to the subunits under their jurisdiction, lat-
erally integrating interdependent subunits across key
business processes (51)
Another classification scheme includes problem-solving
teams, self-managed teams, and cross-functional teams (59).
• Problem-solving teams: Members share ideas or offer
suggestions on how work processes and methods can
be improved. However, these teams are rarely given
the authority to unilaterally implement any of their
suggested actions.
• Self-managed work teams: Groups of employees who take
on the responsibilities of collectively planning and sched-
uling work, controlling the pace of work, making op-
erating decisions, and taking action on problems. Fully
self-managed work teams even select their own members
and have members evaluate each other’s performance.
• Cross-functional teams: Teams made up of employees
from about the same hierarchical level but from dif-
ferent work areas, who come together to accomplish a
specific task.
375
Teams can also be classified based on their degree of
autonomy (from low to high) in the following five team
types (3).
• Traditional work teams: Workers perform core produc-
tion activities but have no management responsibility
or control.
• Quality circles: Members join voluntarily with no fi-
nancial rewards. The team has the responsibility for
making suggestions but does not have the authority to
make and implement decisions. The problem-solving
domain is limited to quality- and productivity-related
issues and cost reduction.
• Semiautonomous work teams: Workers manage and
execute major production activities.
• Self-managing teams (or autonomous work teams):
Members have control over the management and ex-
ecution of an entire set of tasks—from the acquisition
of raw materials through the transformation process
to shipping, including all support activities, such as
quality control and maintenance, required to produce
a definable product. The product could be a definable
part of a production process as well as a completed
process.
• Self-designing teams: These have all the characteristics
of self-managing teams. In addition, they have control
over the design of their teams and decide such issues as
what tasks should be done and who should belong to
the teams.
Why Define a “Team” So Precisely?
By defining the term “team” precisely and paying atten-
tion to our own business needs as they relate to team at-
tributes, we can make informed decisions about whether
we can or should implement teams. Furthermore, a clearly
defined notion of what is in fact a team provides a set of
expectations for both management and team members.
For example, collaboration is an important characteristic
of teams and is a major contributor to their performance.
If the work unit does not have a high degree of collab-
oration, then it is not really operating as a team. Thus,
management must understand that they must facilitate
and provide the resources for a team to collaborate, and
the team members must understand that this is how their
team should operate.
The definition should guide the structure, purpose,
and composition of the teams, as well as the decision of
whether to employ them in a particular situation. “But
wait,” you might be thinking. “Isn’t the team the ‘thing’ in
business organizations these days?” Well, it’s certainly true
that teams are quite popular and that their implementation
has produced good results for many businesses (7). How-
ever, that does not mean that every organization or every
376 PERSONNEL MANAGEMENT
department in an organization should implement teams
or, if they do, that they should expect the same results.
We should recognize that teams are not for every orga-
nization. Nor is it always wise to use them. For one thing,
teams are expensive to implement and maintain. Hours of
training are usually required before employees are com-
fortable with each other and able to function effectively
and efficiently as a team. This is not to say that teams aren’t
worth it. Rather, it should remind us to be sure that the use
of teams is necessary and that the outcomes are desirable
before committing resources for their implementation.
Group Process and Teams
Now that we know what teams are (and are not), we can
take a look at how they go about performing their tasks.
Basically, the group process model says that the sum of
the individuals’ potential plus process gain minus pro-
cess loss equals group effectiveness (62) (Fig. 18.1). Group
processes include communication patterns used by team
members when they exchange information and ideas, the
techniques and processes they use to develop norms and
arrive at decisions, the interaction with and the behavior
of the leader, the power dynamics within the team, and the
way the team resolves conflicts (59). Recognize that the
use of teams generates process loss as well as process gain.
Process loss includes such things as the time used for team
meetings, the extra time it takes for a group to come to a
decision, administrative functions that must be performed
when people work in teams, and production loss associ-
ated with social loafing. (Social loafing is a phenomenon
that occurs when some slack off and let others “carry”
them by performing the tasks they themselves should be
doing.) Process gains are referred to as synergy. For ex-
ample, when performing a task that requires diverse skills,
such as those found in a laboratory, the quality of the deci-
sions and therefore of the output tends to be better than if
the individuals worked alone or independently (59).
The group process model is based on the concept that
for teams to be worthwhile, process gain must exceed pro-
cess loss over the long term. The phrase “over the long
term” can be illustrated by the following. A number of
team-based organizations with which the authors are fa-
miliar have weekly team meetings that last approximately
one hour. These weekly meetings take time away from the
teams’ performing their production responsibilities and
thus represent process loss. Therefore, the meeting time
Figure 18.1 Group process model. doi:10.1128/9781555817282.ch18.f1
Potential team Plus Minus
Process gains
effectiveness
spent planning work and figuring out ways to be more pro-
ductive must result in the teams being more productive by
working 39 hours and meeting one hour than by working
40 hours with no meeting. Stated another way, the process
loss resulting from having the meetings is more than offset
by the process gain resulting from the implementation of
the decisions made at the team meetings, thus demonstrat-
ing how teams can enhance productivity.
Awareness of the time spent on team meetings provokes
the following questions: “Are all of these meetings neces-
sary, and are they productive?” and “What would happen
if a weekly meeting was skipped?” The answer to the last
question is that if a meeting were skipped one week, pro-
duction would probably increase by about 2.5% (the per-
centage increase from 39 to 40 hours) during that week. By
the same token, if meetings were continually missed and
if the meetings were productive to begin with, then their
omission would lead to problems not getting resolved,
fewer suggestions being made, and no suggestions receiv-
ing the benefit of refinement by the group. Furthermore,
conflicts would smolder and metastasize. Hence, these
meetings are looked upon not only as a corrective mecha-
nism for past issues but also as an investment of time for
future efficiency and increased effectiveness. That is, while
the time used for meetings represents one component of
process loss, the results of the meetings will be process gain.
It should also be noted and understood that team meet-
ings do not automatically ensure net process gains. There
are numerous guides and techniques for conducting ef-
fective meetings, and the details will not be repeated here.
However, some general guidelines are in order:
• Have a clear purpose or objective for the meeting. Can
the objective be accomplished more efficiently in an-
other format, perhaps by posting information on web
page or newsletter?
• Have an agenda and distribute it in advance of the
meeting. Be sure that each item on the agenda ad-
dresses goals of the meeting.
• Make sure the right people are at the meeting.
• Be sure that all team members understand the format
of the meetings. Ample opportunity for input from
each member should be provided. Input from those
who are more reserved, thoughtful, or introverted
should be solicited.
• When action is required, tasks should be assigned, re-
sources allocated, and action items followed up. If this
Equals Actual team
Process losses
effectiveness
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 377

is not done, the message imparted is that the team is another important question: Do the individuals who would
not a serious entity and the products and outcomes of make up the team really need to collaborate to accomplish
the meetings are not important. team goals? In particular, we are interested in the degree of
interdependence among their tasks. Tasks are interdepen-
For teams to be effective, team members must at times
dent if their progression or completion is influenced by,
put the team’s objectives ahead of their own. For many
determined by, or subject to the progression or completion
employees, especially ones new to the organization, this
of one another. Stated another way, task interdependence
is not a natural behavior and indeed is contrary to what
can be thought of as the degree to which the completion
most people are taught. Hence, in some ways, when we ask
of a given task requires that other tasks are completed, the
people to work in a team, we are asking them to do some-
degree to which the given task must be completed for an-
thing that is not natural for them. Therefore, anything that
other task to be completed, or the degree to which the indi-
would belittle the importance or value of the team in the
vidual performing the given task must interact with others
eyes of the team members should be avoided if at all pos-
to complete the task.
sible, even if it seems trivial.
Task interdependence can be thought of as having three
types or forms: (i) pooled interdependence, (ii) sequen-
tial interdependence, and (iii) reciprocal interdependence
Guidelines for Choosing Whether (Fig. 18.2). Pooled interdependence occurs when two in-
To Have Teams dividuals function with relative independence but their
Now that we have discussed why an organization would combined output contributes to the group’s or organiza-
want to have teams, we are in a position to discuss how tion’s overall goals. An example of pooled interdependence
to determine whether the use of teams is appropriate for would be an assembly shop that has a number of employ-
given situations and circumstances. ees, each working alone to assemble radios. At the end of
the day, the completed radios are shipped out together.
Common Purpose In this case the workers’ efforts are independent, but the
One precondition that supports the use of teams is for the
teams to have a common purpose. “A common, meaning-
ful purpose sets the tone and aspiration . . . inspires both Figure 18.2 Types of task interdependence.
pride and responsibility . . . conveys a rich and varied set of doi:10.1128/9781555817282.ch18.f2
meanings to guide what the team needs to do, particularly
in meeting its goals . . . gives teams an identity that reaches
Individual A
beyond the sum of the individuals involved .  .  . keeps
conflict constructive by providing a meaningful standard Pooled
against which to resolve clashes between the interests of Outputs
the individual and interests of the team” (33). A common Individual B
purpose is not a nebulous, tautological admonition exhort-
ing people to “work together,” nor is it a far removed objec-
Pooled Interdependence
tive such as “corporate profitability.” Common purpose, in
the context used here, consists of objectives and goals that
can only be reached if all members of the team contribute,
and the success of a given member’s contribution depends
upon the success of other members’ contributions. Stated
another way, a common purpose is one that is unlikely to Individual A Individual B
be achieved without a meaningful and competent contri-
bution from each team member. Teams must not only have
a common purpose; all members must understand, accept, Sequential Interdependence
and be committed to accomplishing the objectives and
goals associated with it (38).

Interdependent Tasks
By examining the nature of the tasks that must be per-
formed and the relationships among those tasks, we can Individual A Individual B
sometimes reach an understanding of how each member
will contribute to the successful accomplishment of the
team’s purpose. This understanding should help answer Reciprocal Interdependence
378 PERSONNEL MANAGEMENT
results of their efforts are pooled, and it could be said that
the shop produced x number of radios. An example of
pooled interdependence in a laboratory setting would be
two technologists independently reading culture plates,
one for the aerobic bacterial culture and the other for the
anaerobic culture.
Sequential interdependence occurs when workers de-
pend upon others for their inputs. The dependency is in
only one direction, and if those who provide the inputs don’t
perform their jobs properly, those who are dependent on
them will be significantly affected. An example of sequen-
tial interdependence is an assembly line. In the above radio
shop example, sequential interdependence would exist in a
case where each worker installed a component in a partially
completed radio and passed the partially assembled unit on
to the next worker in the line. That worker would then in-
stall a component, and so on. The steps have a specific order,
and individuals cannot perform their tasks until the tasks
that precede theirs are completed. In a laboratory setting an
example of sequential interdependence might be specimen
accessioning by one individual, specimen processing by a
second, and specimen analysis by a third.
Reciprocal interdependence occurs when individuals
exchange inputs and outputs. If the performance of any
task is compromised, the effect will eventually be visited
upon the other tasks. For example, sales people in contact
with customers acquire information about the customers’
future needs. The sales department relays this information
back to the product development department so they can
create new products or alter existing ones to meet the de-
scribed needs. At the same time, the product development
department may try to anticipate customers’ future needs.
By keeping the sales force informed of their innovations,
they influence the interactions that sales representatives
have with customers. A medical example would be a sur-
gical team wherein the actions of each member influence
and are influenced by the actions of the others (33).
It is possible to make rather objective assessments of the
type and degree of task interdependence that exists among
specific tasks. However, whether the workers who are
performing the tasks would agree with the assessment is
another matter. Current research indicates that various in-
dividuals can perceive the degree of task interdependence
of the same set of tasks differently (6). This research also
indicates that the level of task interdependence perceived
by employees is related to their commitment to their or-
ganizations and their work teams. The idea behind this is
that as employees perceive their efforts as interdependent
with the efforts of others, they become more aware of the
contributions they are making to the successful attainment
of the organization’s goals and to the success of those with
whom they are working. According to theory, this height-
ened awareness should enhance employees’ ego involve-
ment with their jobs and cause more positive attitudes
toward their organizations and teams (6, 48, 52). The les-
son is that it is important for employees to understand how
their tasks contribute to (read: “are interdependent with”)
the success of others’ tasks and what the successful perfor-
mance of these tasks means to the organization.
Summary
The use of teams should be considered if (i) a common
purpose for the collective can be identified, (ii) the indi-
viduals who would make up the team thoroughly under-
stand this purpose and accept it, and (iii) one or more of
the goals that must be met to achieve the common purpose
can be accomplished only through a collective effort.
A Cautionary Note
Always keep in mind that teams are not panaceas. Even if
it is the right thing to do, even if the teams perform well as
independent entities, and even if it appears that the teams’
goals are congruent with those of the organization, it does
not automatically follow that teams are doing the best for
the organization. Typically, effective teams require substan-
tial initial investment to design and develop. The example
found in case study 1 in Appendix 18.1 illustrates this.
Selecting Team Members
Skill requirements for team members can be categorized
into three types: (i) technical or functional expertise, (ii)
problem-solving and decision-making skills, and (iii) in-
terpersonal skills. While members can possess these skills
when the team is formed or develop them after it is in
place, team performance will erode without them. Thus, it
is important that team members are selected based on ei-
ther possessing these skills or having a strong aptitude for
their development. These three basic skill categories are
used to set the criteria for team member selection. In prac-
tice, these categories take various forms and degrees, de-
pending on the type of team. For example, one can expect
task-related skills for a management team to be drastically
different from those for a work team. Similarly, decision-
making skills and interpersonal skills in those two contexts
are also likely to differ to a large extent (33).
While the technical expertise and decision-making skills
may differ across teams depending upon their goals, objec-
tives, and methods, the required team-related skills tend to
be common among all types of teams. Team-related skills
can be further categorized as shown in Table 18.2. New
team members can be internally or externally recruited,
and the tools that the organization uses to select new team
members may differ depending on whether the candidates
already work for the organization or come from outside.
Internal candidates are those that already work for the
organization, and managers have knowledge about their
knowledge, skills, and abilities (KSAs), as well as their
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 379

Table 18.2 Knowledge, skill, and ability (KSA) requirements for teamworka
Interpersonal KSAs
Conflict resolution KSAs:
Recognize and encourage desirable, but discourage undesirable, team conflict.
Recognize the type and source of conflict confronting the team and implement an appropriate conflict resolution strategy.
Employ an integrative (win-win) negotiation strategy rather than the traditional distributive (win-lose) strategy.
Collaborative problem-solving KSAs:
Identify situations requiring participative group problem solving and utilize the proper degree and type of participation.
Recognize the obstacles to collaborative group problem solving and implement appropriate corrective actions.
Communication KSAs:
Understand communication networks and utilize decentralized networks to enhance communication where possible.
Communicate openly and supportively, that is, send messages that are (i) behavior- or event-oriented, (ii) congruent, (iii) validating,
(iv) conjunctive, and (v) owned.
Listen without judging and appropriately use active listening techniques.
Maximize consonance between nonverbal and verbal messages and recognize and interpret the nonverbal messages of others.
Engage in ritual greetings and small talk, recognizing their importance.

Self-management KSAs
Goal-setting and performance management KSAs:
Help establish specific, challenging, and accepted team goals.
Monitor, evaluate, and provide feedback on both overall team performance and individual team member performance.
Planning and task coordination KSAs:
Coordinate and synchronize activities, information, and task interdependencies among team members.
Help establish task and role expectations of individual team members and ensure proper balancing of workload in the team.
a
Adapted from reference 63, p. 505.

personality and past performance. Thus, the need for inter-
nal candidates to complete a variety of selection tests to gain
information may be low compared to external candidates.
Sample questions from a selection instrument designed to
measure these attributes are shown in Table 18.3.
In addition to written tests, other selection tools can be
developed to measure KSAs. For example, structured in-
terviews can be designed to measure whether candidates
have adequate levels of these KSAs. Assessment center
techniques can be used to measure candidates’ leadership
and other social skills through group exercises. Biographi-
cal data measurement may provide information about can-
didates’ KSAs in dealing with social problems, especially
those focusing on experiences candidates had in previous
jobs, school, and recreational activities involving teams.
One can also integrate team-related KSAs into the recruit-
ing process by communicating the importance of these
KSAs through such methods as realistic job previews (63).
The following is an example of how individual traits
may affect various attributes of teams, including produc-
tivity. In a study of work teams conducted at an apparel
factory, certain dispositions of team members were found
to be negatively related to team performance or quality.
For example, team members who possessed a higher de-
gree of aggression and autonomy were less likely to report
high levels of team commitment and team cohesion, two
factors often regarded as important antecedents of team
performance. In addition, teams were found to have more
difficulty in controlling quality when members were talk-
ative or valued extraneous communications among team
members at the expense of attention to the team’s tasks.
Teams with more members willing to use cross-training
skills tended to have higher productivity, quality, cohesion,
and commitment (60).
In teams, as elsewhere, success breeds success. There
is evidence that team members’ preferences for teamwork
are related to the effectiveness of the team (12). Hence, it is
important for teams to experience success early; this starts
with member selection. For two examples of team self-
selection issues, see case study 2 in Appendix 18.1.
Task-Related Training
Task-related training focuses on the actual tasks for which
the team is responsible. Because of rapidly changing tech-
nology, the associated technical skills and knowledge re-
quire continuous upgrading. Hence, task-related training
is an ongoing process. Training programs should be de-
signed to satisfy the team’s need for particular technical
skills. Consequently the design should consider each in-
dividual member’s current abilities, interests, and profes-
sional direction. Task-related training can be conducted
through formal classroom instruction, on-the-job train-
ing, and member-to-member mentoring (56). A variety
of e-learning methods are also available, which include
380 PERSONNEL MANAGEMENT

Table 18.3 Example items from the teamwork-KSA testa

1. Suppose that you find yourself in an argument with several coworkers about who should do a very disagreeable but routine
task. Which of the following would likely be the most effective way to resolve this situation?
a. Have your supervisor decide because this would avoid any personal bias.
b. Arrange for a rotating schedule so everyone shares the chore.*
c. Let the workers who show up earliest choose on a first-come, first-served basis.
d. Randomly assign a person to do the task and don’t change it.

2. Your team wants to improve the quality and flow of the conversations among its members. Your team should:
a. Use comments that build upon and connect to what others have said.*
b. Set up a specific order for everyone to speak and then follow it.
c. Let team members with more to say determine the direction and topic of conversation.
d. Do all of the above.

3. Suppose you are presented with the following types of goals. You are asked to pick one for your team to work on. Which
would you choose?
a. An easy goal. This will ensure that the team reaches it, thus creating a feeling of success.
b. A goal of average difficulty. The team will be somewhat challenged, but they will be successful without too much effort.
c. A difficult and challenging goal that will stretch the team to perform at a high level. The goal is attainable so that
effort will not be seen as futile.*
d. A very difficult or even impossible goal. Even if the team falls short, it will at least have a very high target to aim for.
a
Adapted from reference 63, p. 519. Asterisks indicate correct answers.

webinars, online content, and simulations that allow par-
ticipants to practice necessary skills.
Team-Related Training
Research indicates that when team members possess the
appropriate team-related KSAs (Table 18.2), there will be
positive effects on team performance (10, 18, 54, 56, 63, 64,
69). One of the most important of these skills is the abil-
ity to communicate well. Teamwork relies on collective ac-
tions and decisions. Furthermore, team members achieve
these actions and decisions through exchange of opinions,
negotiation, persuasion, compromise, and collaboration.
Thus, communication skills and group decision-making
skills are essential for collective creation. Training to en-
hance these skills can start before the work teams are
formed and should be made available on an ongoing basis
as teams develop and mature.
Numerous authors and consultants have also endorsed
team awareness training. The purpose of team awareness
training is to give employees an overview of what teams are
all about, why the organization is adopting them, and how
employees can benefit personally from their team member-
ship (56). Self-managing work teams, and to a lesser degree
other types of teams, may take over leadership roles and re-
sponsibilities such as scheduling work, safety training, select-
ing new team members, assigning team members to tasks,
and obtaining necessary resources to perform their work.
J. R. Hackman has proposed a four-stage process for
creating and developing work teams (Table 18.4). A set of
questions associated with each stage can be used to guide

Table 18.4 Guidelines for team buildinga

Stage 1: Prework
Q1: What is the task?
Q2: What are the critical task demands?
Q3: Will the group be manager-led, self-managing, or self-designing?
Q4: Overall, how advantageous is it to assign the work to a team? How feasible is it?

Stage 2: Creating performance conditions

Q5: How should the group be composed and the task be structured?
Q6: What contextual supports and resources must be provided?

Stage 3: Forming and building the team

Q7: How can a team be helped to get off to a good start?

Stage 4: Providing ongoing assistance

Q8: How can opportunities be provided for the group to renegotiate its design and context?
Q9: What process assistance can be provided to promote positive group synergy?
Q10: How can the group be helped to learn from its experiences?
a
From reference 24, p. 335–337.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING
actions. Once these questions are addressed and all four
stages are achieved, team members should get substantial
return from their effort in terms of work effectiveness and
the quality of their interactions with teammates (24). For
an example of team-related training, see case study 3 in
Appendix 18.1.
Leading Teams
General Ideas about Leadership: A Brief Review
Leadership is a process in which one individual exerts in-
fluence to structure the behavior of other people within a
group (71). Various leadership theories have hypothesized
about leadership roles and behaviors, their relationship
with group performance, and external conditions that
moderate such relationships. Two of the earliest behav-
ioral leadership theories came from studies performed at
The Ohio State University and the University of Michi-
gan. The Ohio State study categorized various leadership
behaviors into two basic types, labeled “consideration”
and “initiating structure.” The Michigan study also identi-
fied two basic categories of leadership behaviors, labeled
“relationship-oriented behaviors” and “task-oriented behav-
iors.” The consideration and relationship-oriented be-
haviors focus on relationship building and maintenance
between leaders and followers. These behaviors have also
been referred to as “supportive behaviors” and include
acting friendly toward followers, respecting followers’
ideas and feelings, appreciating their contributions, rec-
ognizing their accomplishments, and showing concern
for their welfare and needs.
Both initiating structure and task-oriented behaviors
focus on task completion. These include planning, orga-
nizing, and scheduling work, planning activities, assigning
tasks, coordinating activities, and providing the necessary
direction, materials, and support. Initiating structure and
task-oriented behaviors have also been termed “directive
behaviors” (31). There are numerous other typologies of
leadership behaviors, but most tend to be subcategories of
the two main categories described above. While there are
subtle differences in the definitions of the terms “consider-
ation,” “relationship-oriented,” and “supportive behavior,”
as well as the terms “initiating structure,” “task-oriented,”
and “directive behavior,” we will not go into that here. For
our purposes, we will consider the terms within each cat-
egory to be synonymous. The Ohio State studies have re-
ceived the most attention by academics and tend to appear
in textbooks more often than the others, though in recent
years the terms “directive” and “supportive” have appeared
more and more. In any event, we will use the Ohio State
designations for the rest of this discussion.
One of the most common errors made by students
when first confronted with the two categories of leader-
ship behavior is that they tend to think of “consideration”
381
as good and “initiating structure” as bad. Nothing could be
further from the truth, and why students tend to think this
remains a mystery to the authors. We suspect they equate
consideration with “being nice” and initiating structure
with “bossing people around” in an abrasive manner. Such
conclusions are erroneous. Each type of behavior has its
place, and employees under the right circumstances ap-
preciate each.
For example, when the employee is new, inexperienced,
or lacks knowledge or direction, guidance and direction
are needed and usually appreciated. This calls for the leader
to initiate structure by providing the needed guidance and
direction. Employing consideration at such a time would
likely be seen as ineffective and evidence that the manager
does not understand what is going on. Similarly, initiat-
ing structure may be called for if the task is very complex,
the situation is ambiguous, or the environment uncertain.
Some employees lack confidence, are timid, or have an ex-
ternal locus of control. Individuals with these characteris-
tics may respond well to initiating structure. On the other
hand, if the employee is experienced, highly skilled, and
particularly competent, then initiating structure may not
be needed and may even be resented. Such an employee
would respond more positively to the behaviors we have
labeled “consideration.” Likewise, if the task is simple and
generates its own feedback—that is, the employee can eas-
ily and quickly see how he or she did and corrective action
is easily determined—then consideration is likely to be
more appropriate. In such cases, initiating structure would
be redundant and ineffective.
Even though these examples may be clear, in the work-
place we are often confronted with ambiguous and con-
flicting situations. For example, what about the situation
in which the task is simple (suggesting that initiating
structure is not needed) but the employee is inexperienced
(suggesting that initiating structure is needed)? In such
a case, managerial judgment is required. One alternative
might be to ask the employee what he or she needs. Those
with an internal locus of control may ask for time to figure
it out while those with a more external locus of control
may ask for instructions. Take the first individual. Suppose
time is of the essence and you don’t have time for them to
“figure it out.” Take the second individual. Suppose figur-
ing things out is a skill they must develop. There are two
points here. One is that while managerial education may
be a fine thing and while management scholars believe that
managerial theory and research are important and helpful,
they are not immutable dogma. We must realize that the-
ory, research, and education provide important guidelines
to help managers make the tough decisions for which,
many times, there are no single “right” answers. The sec-
ond point is that initiating structure and consideration are
not mutually exclusive. Managers can engage in both types
of behavior as they are required. It is up to managers to
382 PERSONNEL MANAGEMENT

apply judgment along with the theories and concepts to 4. Encourage a positive work environment.
the situations they face. 5. Reward self-leadership and promote constructive criti-
cal feedback.
Leadership in a Team Environment 6. Promote self-leading teamwork.
7. Facilitate a self-leadership culture (47).
Performing successfully as a team leader requires a num-
ber of skills (34). Successful team leaders know that team Team Leader Selection
performance comes from collective effort and action. An
There are a number of ways to select a team leader. The
important focus is to motivate team members to support
leader can be assigned externally, be elected internally,
collective performance. To do this, team leaders need to
emerge naturally, or be rotated among team members. Dif-
accomplish several objectives. First, “clarify purpose and
ferent methods of leader selection have different effects on
goals, build commitment and self-confidence, strengthen
the leader’s legitimacy—how followers perceive the lead-
the team’s collective skills and approach, remove exter-
er’s source of authority and respond to the leader. Electing
nally imposed obstacles, and create opportunities for
the team leader makes it more likely that the followers will
others” (34). Second, keeping in mind that team success
identify with the leader, have more sense of responsibility
depends on the combined contributions of all members
to the leader, and perceive a greater investment in him or
of the team, team leaders should, as much as possible, in-
her (28). However, elected leaders will be more likely to
volve team members in decisions that affect the team and
face criticism from followers for performance failure (29).
its performance. This approach helps keep members “in
Research has shown that teams whose leaders were elected
the game” and gives them an additional stake in team out-
by team members performed better than teams with no
comes. To this end, team leaders should consciously avoid
leader or teams whose leaders were appointed (22) and
any action that might threaten the desire of team members
that, when compared to appointed leaders, elected lead-
to make contributions. For example, team leaders should
ers received higher ratings from the members on respon-
avoid ridiculing or harshly criticizing members’ ideas and
siveness to members’ needs, interest in the group task, and
opinions. Third, it is the team leader’s role to develop and
competence (5).
facilitate team members, not just control them. Consonant
A naturally emergent leader can be expected to receive
with this objective, leaders must decide upon the amount
similar responses from team members as an elected leader.
of autonomy given to members, when to make decisions
In both selection processes, team members evaluate the po-
alone or with the team, and how much responsibility to
tential leader to determine if the individual possesses the
give inexperienced members: too much and they may fail
appropriate qualities of a team leader. The difference in
and hurt the team’s performance and their own develop-
the processes is the timing of the evaluation, because with
ment; too little and they may never develop, develop too
elected leaders potential leader candidates are evaluated be-
slowly, or become discouraged.
fore work begins on the group assignments rather than over
Team leaders can take on other roles. For example, they
the course of the project as happens with naturally emergent
can be (i) liaisons between the team and other parts of the
leaders. However, when leaders emerge on their own, they
organization or even other organizations; (ii) resource pro-
may shift the team’s direction depending on the immediate
viders, assisting the team in defining their resource needs
task and goal. This may not be amenable to the smooth and
and helping to secure those resources; (iii) counselors,
timely achievement of the organization’s and team’s goals.
helping team members develop problem-solving skills;
There are other dangers in waiting for a team leader to
(iv) mentors, guiding team members to develop organiza-
emerge. First, unless the team’s production norms are clear
tional savvy; (v) teachers, passing on technical information
and high, an emergent leader may lead the team away from
to team members; or (vi) devil’s advocates, challenging the
the purpose for which the team was formed. Second, two or
team process of decision making, interpersonal relation-
more rival leaders may begin to emerge and coalitions may
ships, and progress toward the team’s goal (2). Team lead-
form around them and split the team. Finally, a leader may
ers may also be working members of the team, performing
not emerge or may take too long to do so.
team-related tasks within the purview of the team.
Rotating leaders is another way to generate and maintain
Team leaders and members should be aware that the
team-leading function. In certain self-directed teams, team
leader’s role may change with the growth of the team (13).
members rotate the position of team leader. Here, the focus
Team leaders should also guide members to lead them-
is on the function of the leader position rather than who the
selves. To do this, some management scholars suggest the
team leader is. Rotating leaders tends to work when the task
following seven steps:
is clearly defined and the direction, vision, and purpose of
1. Become an effective self-leader. (For further discus- the team are well understood and do not depend upon who
sion of self-leadership, see reference 47.) the leader is. This is also an excellent way to give leadership
2. Model self-leadership for team members. experience to the team members and encourage each mem-
3. Encourage team members to set their own goals. ber to buy in to the team’s purpose.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING
Another approach for team leader selection is through
a process in which both upper management and the team
members participate. Participative selection, if properly
structured and guided, can have at least four positive results:
• Selecting high-quality leaders
• Engendering high levels of participant satisfaction
• Fostering better understanding of the leader’s job
• Creating positive expectations that enhance the
chances of the leader’s success through the process of
self-fulfilling prophecy (53)
Motivating Team Performance
Goal Setting and Performance
One of the most viable and successful motivational tech-
niques to appear in the management literature is goal set-
ting. Goal-setting theories suggest that goals can improve
performance because they generate, direct, and sustain ef-
fort (43). For goals to have the most positive effect, they
should be specific, rather than general or vague; difficult
but attainable, rather than easy; and accepted by the team.
Attempts to reach them should be accompanied by feed-
back (19, 43, 44, 66).
General or vague goals, such as “do your best,” do not
result in the levels of performance that occur when goals
are specific, e.g., “increase production by 10%.” The speci-
ficity of the goal acts as a guide and stimulus, allowing em-
ployees to make reasonable inferences about the effort and
resources that will be required to obtain the goal. Difficult
goals, when met, obviously result in greater performance
than corresponding easy goals. However, simply setting dif-
ficult goals is not automatically effective. Workers must see
the goal as attainable. If the goal is unreasonably high and
perceived as unattainable, it may discourage effort rather
than motivate it. At the same time, a goal must be accepted
by those who will strive to attain it. If a goal is not accepted,
individuals are unlikely to strive very hard to reach it.
From this discussion, we might infer that less difficult
goals are more likely to be accepted than more difficult
ones. However, more difficult goals can be associated
with greater rewards, extrinsically as well as intrinsically.
Managers who set goals for their employees walk a fine
line between setting goals so high as to discourage effort
and setting them so low that good performance is not at-
tained. Therefore, managers would do well to ensure that
goals are accepted and, to the degree possible, implement a
reward structure to support their attainment. This means
that leaders must be knowledgeable both in terms of the
difficulty of the work and the capability of the team.
Researchers disagree over the usefulness of having em-
ployees set their own goals or participate in setting them
versus having goals be assigned by management. One
school of thought is that employees will try harder if they
383
have the opportunity to participate in setting their own
goals. The other school holds that it doesn’t matter. The
results of research on this question are mixed (40), with
participative goal setting being superior in some cases and
assigned goals being superior in others. Current thinking
is that what matters is that the goal be accepted regard-
less of how it was set. Therefore, a major advantage of em-
ployee participation is the acceptance of the goal.
The final dimension in goal-setting theory is feedback.
When people have accepted a goal and are striving to achieve
it, they need to know how they are doing. This knowledge
helps them identify discrepancies between where they are
and where they want to be and what they are doing versus
what they should be doing. In effect, feedback acts as a guide
for behavior. Research indicates that self-generated feedback
is a more powerful motivator than externally generated feed-
back. In other words, if employees can monitor their own
progress, results tend to be better than if they cannot (32).
Goal Setting and Teams
The performance-enhancing effect of goal setting has been
found not only at the individual level but also at the group
level (11, 36, 43, 55, 57, 58, 67, 68). The results of research
with groups parallel those obtained with individuals in
terms of goal specificity (55), difficulty (67), attainability
(38), acceptance, and feedback (63). Conversely, team ef-
fectiveness can be lowered because of a lack of unity or
clarity about goals (63). Furthermore, improper assess-
ment of goal difficulty leads to team failure (37, 72).
As with individuals, team goals can be assigned or
participatively set. Which technique to use depends on
the type of team and the tasks the team is assigned. Stud-
ies show that participatively setting goals is likely to en-
hance the acceptance of goals by team members (49, 57),
increase congruence between individual and team goals
(20, 45), lead to better-quality goals and satisfaction with
the process (42), and increase the likelihood of producing
positive outcomes (55). Another possible benefit of team
members participating in goal setting is the cohesive-
ness that can be generated by such interaction. Further,
as teams discuss various goal levels, individual members
become aware of their teammates’ strengths, weaknesses,
and overall capabilities. This awareness should assist
members in making sound and realistic judgments con-
cerning the team’s capabilities as a unit. Frank discussions
of member roles in achieving team goals should increase
the knowledge of how and to what degree the various tasks
are interdependent. As was mentioned before, heightened
perceptions of task interdependence are associated with
increased organizational and team commitment (6).
Evaluating Teams and Team Members
Performance evaluation gives feedback to the team and
should be used to guide the team in making any adjust-
ment that may be needed (23). Teams need to be evaluated
384 PERSONNEL MANAGEMENT
as units. A team’s achievement can be evaluated based on
(i) the degree to which the results that a team delivers are
acceptable to those who receive them, (ii) the team being
able to work effectively together in the future, and (iii) in-
dividual members being more satisfied than frustrated in
achieving their personal goals (25).
When the collective outcome (team performance) is
assessed, individual team members’ contributions must
be evaluated as well (65). Different individuals may make
disproportionate contributions. In general, this should be
avoided. At the same time, the nature of a given team may
be that one individual (or a subset of individuals) is simply
more capable than the others. In such cases, others may
respond by relieving that individual of some of the admin-
istrative or “housekeeping” duties and supporting him or
her in other ways. Even so, it is important to monitor in-
dividual performance so as to prevent social loafing (1, 27,
35, 39, 49). Most of the time, a team’s visible outcome is
the result of a collective effort. Consequently, evaluation
of individual team members can be problematic. Some
experts suggest creating a behavioral instrument based on
the sample KSAs for teamwork as displayed in Table 18.3.
Honest and constructive peer evaluation is also important.
Pros and Cons of Rewarding Team Members
Some managers with whom the authors are familiar have
suggested giving rewards to individuals who exhibit out-
standing performance on a team. In general, we discour-
age such action. In fact, there are times when it can be
counterproductive. For example, when teams are new and
have been recently introduced in an organization, there
may be a tendency by individuals to resist sacrificing their
own autonomy for the sake of the team. To offer individual
rewards during this time would, in our view, undermine
the team concept and the idea of subordinating individual
goals for team goals. For teams to prosper, especially dur-
ing the initial stages of their formation, we suggest that
all rewards be at the team level and all recognitions be for
team results. Later, individual rewards may be appropriate,
but this action should be carefully considered and done
with extreme caution.
Virtual Teams
Virtual teams are characterized by members who are typi-
cally geographically dispersed and communicate primar-
ily through electronic media including email, telephone,
texting, video-conferencing, webinars, etc. (17). Virtual
teams are quickly moving to the forefront as an organizing
strategy as business becomes more global, employees work
from remote locations, and travel costs increase. Their use
has been facilitated by the expansion of electronic media
such as phones, webinars, emails, video conferencing,
Skype, texting, and social media.
However, the use of virtual teams can create challenges
for organizations and the individuals serving on those
teams. Virtual teams can make employees feel increasingly
isolated, increase chances of misunderstanding among team
members, and create conflicts. Members of virtual teams
are also likely to have individual responsibilities in addi-
tion to their team assignments or be members of more than
one team. Furthermore, virtual exchanges may be less pro-
ductive because members may attempt to multitask during
meetings when they cannot be observed. To minimize the
potential problems of virtual teams and take advantage of
their positive attributes, we suggest that managers:
• Conduct an initial face-to-face meeting so that team
members can get to know the people with whom they
will work and can subsequently visualize that person
when they are working remotely. When possible, have
team members meet in person on occasion through-
out the life of the team.
• Use multiple forms of electronic communications to
liven up exchanges and encourage individuals to com-
municate information in different ways depending on
what information needs to be shared, work done, or
decisions made.
• Make sure that team members have access to all forms
of electronic devices that will be used and are comfort-
able using them.
• Keep in mind that members of the team may be in dif-
ferent time zones or working under different schedules
when virtual meetings are scheduled.
In today’s world, most teams have a virtual element to
them. Other than teams that show up each day to work on
a physical product, most teams interact to some extent us-
ing some form of electronic medium. Probably we should
think about the degree to which teams operate virtually
and focus on creating the right balance between virtual
and face-to-face interaction.
Global Teams
Globalization has transformed how business is conducted.
A survey of global managers indicated that most of their
time was spent working with global teams, and two-thirds
of the sample said that they were on multiple global teams
(50). Companies “go global” for a number of reasons, in-
cluding to (i) reach new markets, (ii) realize labor savings,
(iii) access cheaper raw materials, and (iv) realize supply
chain advantages. Hence, global companies should not
be thought of as a set of stand-alone organizations across
the globe, but as integrated operations designed to obtain
the value of being an effective and efficient global entity.
Global teams deal with issues that transcend countries
and the cultures in which any single operation is imbedded.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING
Members of global teams may have to communicate using
languages in which they are not fluent and interact with
people from different cultures who have different mental
models of how to approach problems, make decisions, in-
teract with others, and handle conflict (61).
Given the nature and challenges faced by global teams,
more time and resources must be invested for them to be
effective. First, consideration must be given to the charac-
teristics of the individuals who are placed on global teams.
Successful global team members must have language, tech-
nical, and social skills as well as an understanding of how to
work with those who operate in different cultures. Second,
getting a global team together face to face is important, es-
pecially when the team is being formed. This is expensive
both in time and money. The team’s goals and objectives,
as well as how the team will work together, should be dis-
cussed at the face-to-face meeting. Time should also be al-
located for the team members to get to know one another
as individuals. Third, local issues and obligations often
trump global responsibilities. Clear goals, work structure,
and performance criteria must be established. Again, note
that responsibility for meeting performance goals may be
defined differently by people from other cultures. For ex-
ample, in some cultures a deadline is absolute, and in other
cultures it is fluid. These differences must be discussed up
front since these kinds of differences tend to upset people
and damage relationships between teammates when en-
countered while working on a task. Finally, one must allow
for misunderstandings and complications.
Common elements of effective teams are trust and com-
mitment among members. One must recognize that dis-
tance and culture can be significant barriers for building
trust and commitment, and thus members of international
teams need to put forth extra effort to ensure a successful
and effective team. Furthermore, one can even argue that
teams within a diverse country like the United States offer
similar challenges as when people from different cultures
work together.
Summary
The use of teams is not easy, and it is certainly not free.
In fact, using teams can have important and salient draw-
backs. Such drawbacks must be looked upon as invest-
ments in the business before teams are implemented.
Organizations should be as sure as they can be that their
investment in teams will bring forth worthwhile returns.
That is, the use of teams should be evaluated just like any
other investment.
KEY POINTS
■ The effectiveness of a team can be determined by:
• The acceptability of its results
385
• The ability of its members to work together in the
future
• The value of the team experience to each member
■ Conditions that facilitate effective teamwork are:
• A group structure that promotes competent work on
the task
• Support and reinforcement of excellence by the or-
ganization
• The availability of expert coaching and process as-
sistance
■ The essence of a team is a common commitment lead-
ing to specific performance goals.
GLOSSARY
Common purpose A state that is achieved when team members
fully understand the team’s purpose or reason for existing and
there is significant goal congruence.
Gainsharing A financial plan in which improved group produc-
tivity determines the amount of money that is shared among the
company, investors, and members of the group.
Goal congruence The degree to which team (or group) mem-
bers’ individual goals coincide with the team’s (or group’s) goals.
Goal setting The process by which team and/or individual goals
are determined, communicated, and agreed upon.
Group effectiveness The sum of the group members’ individual
capabilities, plus process gain, minus process loss.
Group process The way groups get things done, including com-
munication patterns, decision-making methods and techniques,
leader behavior and interaction, power dynamics, conflict reso-
lution methods and techniques, and the way members interact
with each other.
Leadership legitimacy The degree to which a team or group
leader is accepted by both the team or group members and the
employing organization.
Participative selection A process in which team members
choose new members of their team based on team-related crite-
ria that were determined and agreed upon prior to candidate
identification.
Process loss (gain) The degree to which group processes inhibit
(enhance) the successful completion of group objectives.
Task interdependence The degree to which a task’s progression
or completion is influenced by, determined by, or subject to the
progression or completion of one or more other tasks.
Work group Two or more individuals who interact primarily to
share information and to make decisions that help each other
perform within their areas of responsibility.
Work team Two or more individuals whose individual efforts
result in a performance that is greater than the sum of those in-
dividual parts and who have different tasks but work together
adaptively to achieve specified and shared goals.
386 PERSONNEL MANAGEMENT
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388 PERSONNEL MANAGEMENT
APPENDIX 18.1 Case Studies
CASE 1: WHEN A GOOD TEAM GOES BAD
Team Commitment
(This is a stylized account of an actual situation that occurred
in a branch of the armed services in a country that will remain
nameless.)
Generally, we think of commitment to one’s team and its goals as
a precursor to team performance. Certainly team performance is
a good thing, isn’t it? After all, isn’t that what we wish for? How-
ever, as the old saying goes, “Be careful what you wish for. You
might get it.” Consider the following anecdote.
In a branch of the armed services, there was a company of he-
licopter “flights.” Each flight consisted of several helicopters, and
the company consisted of several flights. Each flight had a main-
tenance team, or ground crew, that was responsible for keeping
the helicopters in their flight up and running.
In one particular company there was an “all-star” ground crew
who, it seemed, never had an inoperable helicopter. Their “birds”
were always airworthy. Their success was the stuff of legends and
was in sharp contrast to the “up-time” achieved by other flight
crews. Though competent and hardworking, the other crews
seemed to have one or more of their birds down at any given
time. Knowing just this, one would be tempted to say, “The All-
Stars are really a great team. Clearly their goals and objectives
are congruent with the company’s goals and objectives. Further-
more, they should serve as a role model for other teams, who
should copy their methods.”
But do they have goal congruence with the company? Should
they serve as a role model for other teams? Let’s take a closer look
and see.
The Situation
As those familiar with helicopters can attest, because of the na-
ture of the movable wing aircraft design, helicopters are notori-
ous for wearing out parts. Therefore, a good supply of spare parts
is absolutely essential to keep a company of helicopters flying.
In addition to their skill and motivation, one of the reasons for
the success of the All-Stars was that they never experienced a
shortage of spare parts. On the other hand, the other crews were
constantly short of parts and even resorted to cannibalizing parts
from inoperable helicopters, something the All-Stars never had
to do. Why was this? Wasn’t there a common store of parts from
which the flights drew replacements? Yes. Well then, didn’t ev-
eryone have the same access to parts? Yes—at least officially. But
in reality the truth was quite different.
It turned out that the All-Stars had their own parts procure-
ment process to “supplement” company procedures. They went
around the chain of command; they established informal rela-
tionships with the appropriate quartermaster personnel, and
they devised an extra-official parts procurement process and
procedure of their own. As if that wasn’t enough, they hoarded
parts. Because some helicopter parts wear out in a predictable
manner, it was known beforehand which parts would likely be
needed in greater quantities. It was these parts that the All-Stars
hoarded in the greatest quantity. The result was that although the
All-Stars had 100% up-time for their helicopters, the company as
a whole had a number of helicopters down for want of parts that
the All-Star team members possessed in abundance.
The Lesson and What To Do
A major lesson here is that even though the achievement of team
goals may appear to coincide with and further organizational
goals, the methods of achieving team goals may inhibit or even
prevent the achievement of organizational goals.
What should a manager do in such a circumstance? Usually
with exercises of this type, students want more information be-
fore making a decision. Granted, in such cases it is difficult to
know exactly what we would do. Furthermore, we need to keep
in mind that this is a military unit and therefore may be subject
to military rules and regulations that differ significantly from
those in the civilian world.
However, with the information provided, we can articulate
some reasonable alternative actions that would be appropriate
in the civilian sector. First, it is highly unlikely that the All-Star
team could be salvaged as an intact unit. The team norms are too
strong and run too much counter to the objectives of the orga-
nization. Second, hoarding parts may be grounds for dismissal.
At the very least the team should be broken up and the members
dispersed throughout the company, or preferably, across several
companies (or units in a civilian organization). Similar action
would be required with respect to those in the parts supply chain
who enabled the All-Stars’ shenanigans.
It is easy, though often counterproductive, to point out to
people what should have been done. Even so, in this case, what
should have been done and what must be done now are much
the same. In addition to the actions related to the ground crew
team and the parts personnel, the organization must reevaluate
its team training program and the components that comprise it.
Those responsible for training, as well as company management,
must ensure that team objectives include knowledge of organi-
zational objectives and techniques for advancing team goals in
such a way as to fulfill and not impede these objectives. Care
should be taken to ensure that as team norms develop, team
members are aware of, concerned with, and take action for the
furtherance of organizational goals.
Though our primary purpose in analyzing this case is to
consider the issues related to the implementation and use of
teams, other aspects of the situation must not be neglected. It
is important to do this to avoid a myopic view that would cause
us to become one-dimensional in our problem-solving thought
processes.
With this in mind we would recommend that a control sys-
tem for the distribution and use of parts be put in place and its
use mandated and supported by management. Particular care
must be taken in the design and implementation of such a sys-
tem. For example, a charge-back scheme has some characteris-
tics that would help prevent situations like the one exemplified
by the All-Stars. Charge-backs would require ground crews to
have a financial component for which they must be responsible.
(continued)
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING
APPENDIX 18.1 Case Studies (continued)
On the other hand, if the charge-back scheme includes an overly
restrictive budget or if rewards for a parts budget surplus are em-
phasized, then teams may be motivated to skimp on the use of
parts and try to stretch the usable life of the parts too far—with
disastrous consequences.
Summary
Team goals did coincide with organization goals, but the meth-
ods of achieving the team goals inhibited the achievement of or-
ganizational goals.
CASE 2: TWO EXAMPLES OF HOW AND HOW NOT
TO SELECT TEAM MEMBERS
Example 1: Selecting New Members for Established Teams
(an Automotive Outsourcing Plant)
Invariably, the composition of teams will change over time.
Members quit or get fired, promoted, or transferred. When a po-
sition on a team opens, filling that position presents unique chal-
lenges. In addition to the traditional selection criteria involving
task-related KSAs, team-related criteria must be considered for
a successful match to be made. Some of the additional questions
that arise are, “Can the applicant work well in a team environ-
ment? Can the applicant work well with the particular team that
has the vacancy? Can the team work well with the applicant?”
One organization with which the authors are familiar ap-
proached this problem in the following way. First, the human
resources department screened the applicants for the traditional
KSAs that are required for successful performance on the job
in question, checked references, confirmed job histories, and
performed the appropriate background checks. Following this
screening process, three to five candidates whom the company
would hire were presented to the team. The team members re-
viewed the documentation gathered by the human resources de-
partment and, considering this information in light of the team’s
requirements, interviewed the candidates for the purpose of
making the final selection. The candidates interviewed with the
team members individually and as a group. Team members were
trained in structured and unstructured interviews. They were
fully aware that their purpose was twofold. One, they were trying
to sell their team to the candidate and, two, they were trying to
determine if the applicant would make a good teammate.
This system seemed to produce sufficient initial commitment
between the chosen new member and the established team; after
all, they chose each other. These initial positive feelings can be
enhanced or squandered depending upon subsequent actions by
the parties involved. But at least it’s a positive start, and the sys-
tem worked well for this organization and its employees.
Example 2: Selecting Members for Newly Formed Teams
(a Sewing Plant)
The previous example illustrated a reasonable and effective
method of selecting replacement members for existing teams—
teams that are up and running. We now turn our attention to an
example of a method for selecting team members when teams
389
are first implemented in an organization. In this instance, the or-
ganization was the owner of more than a dozen sewing plants,
both in the United States and overseas. Management made the
decision to go from individual sewing to team sewing. The indi-
vidual sewing method involved tasks that were characterized by
sequential interdependence. Individual sewers performed their
tasks on partially completed garments before they were passed
on to other stations where other tasks were performed. Each in-
dividual was responsible for his or her own task and no other.
Compensation was based on piecework.
In the team method the tasks had characteristics of both
sequential and reciprocal interdependence. Compensation was
still based on piecework but at the team level, that is, every-
one on the team was compensated at the same rate for what
the team produced. The objectives for implementing teams
included cutting costs by reducing work-in-process inventory;
reducing turnaround time between customers’ orders and the
organization’s delivery; improving quality by reducing dirt, oil,
and grease; and achieving a more flexible workforce by cross-
training employees and having them be collectively responsible
for results. Employees received task-related and team-related
training. The latter included communication skills develop-
ment, conflict resolution and problem-solving techniques, and
other group process training.
Because there were no teams already in place, team member
selection meant choosing all members of all teams, not filling
an opening on an existing team. This called for the organization
to employ a different selection strategy as contrasted with the
one described in the previous example. For one thing, the em-
ployees were already working for the company. Therefore, initial
screening was not required. For another, teams were new in the
work environment and required that the employees work in a
significantly different way. Consequently, management rightly
anticipated some resistance to the change. To reduce resis-
tance, increase employees’ acceptance of the team concept, and
promote psychological ownership of employees’ teams, man-
agement concluded that the employees should form their own
teams, in their own way, with their own selection criteria. Note
that the formation was done after initial training was given in
team-related skills.
Management predicted that employees would choose their
teams based on friendships and kinship. Management also be-
lieved that this initial attempt would most likely fail. Even so,
management was willing to accept this initial setback to allow
employees the decision-making authority it believed would, in
the long run, enhance employee buy-in to the team concept and
obviate some of the initial resistance. Management also felt it was
better not to be in the position of forcing people to work together.
Management was right on both of their predictions. First,
teams initially consisted of friends and relatives; the employees’
selection criteria focused on these attributes and tended to ignore
other, more task-related, ones. Second, the teams soon failed. The
team strategy was not halted because management’s assessment
was that the use of teams was not an option but a necessity based
on the competitive environment. Hence, the teams were reformed.
(continued)
390 PERSONNEL MANAGEMENT
APPENDIX 18.1 Case Studies (continued)
When the teams were formed the second time, selection was
again left to the employees’ discretion. Only this time, on their
own, the employees used different selection criteria. This time,
the ability to sew at a similar speed as others who would make
up the team and the desire to make the same amount of money
were the top criteria. This meant that team members shared the
same goal and possessed the same means to achieve it. It should
be noted that just because the initial teams were composed
of friends and family, this was not the problem. In fact, when
friends and family members possessed similar skill levels and
shared the same monetary goals, their teams worked quite well.
This example illustrates the importance of shared goals and
the collective means of achieving them. In no way does this il-
lustration negate the importance of personal compatibility within
teams. Rather, it illustrates that while personal compatibility may
be important for team success, it does not constitute a sufficient
condition. Further, personal compatibility can be enhanced when
members possess common goals and the means to achieve them.
CASE 3: TEAM-BUILDING EXERCISES: AN EXAMPLE
A number of exercises are frequently used for team building and
to train individuals in group process skills. One of the more pop-
ular exercises involves having the trainees rank a list of objects
in a survival situation. There are numerous survival scenarios,
including being stranded in the Artic, in the desert, on the moon,
in a lifeboat, and in the wilderness where it’s hot, cold, wet, or ex-
cessively dry. Trainees are asked to come up with their rankings
of the items based on the situation. First they do so individu-
ally and then as a group. The group must reach a consensus and
produce a single ranking. Both the individual and group rank-
ings are scored against experts’ rankings. Difference scores for
the individuals and the group are computed. The individuals’
difference scores are averaged; this represents the team potential
without considering process gain and process loss. This average
is subtracted from the group’s score; the difference represents
one component of the process gain (positive number) or process
loss (negative number). Usually, but not always, the team’s score
is superior to the average of the individuals’ scores, indicating a
process gain in accuracy by the group over the individuals. In-
variably, the groups take longer than the individuals to complete
this task. This added time represents one component of process
loss. Changes in members’ knowledge about each other and their
preference for working together can represent either process
gain or process loss, depending upon whether team members
perceive the knowledge they gain about each other to be posi-
tive or negative and if their preference for working together in
the future is increased (process gain) or decreased (process loss).
Such exercises must have several characteristics to work. First,
the solution to the problem must require knowledge that is not
generally known to the trainees. If the solution to the problem
is well known, then no problem solving will be required by the
group. Hence, group discussion, compromise, give and take,
trade-offs, and conflict resolution will not be required. Second,
the objects that are on the list should be items with which most
people have some familiarity. Third, while the environment de-
scribed in the exercise can be a place or situation with which the
trainees are not intimately familiar, it must at least be recognizable
in terms of some of its more unique and salient features. These
last two points are important because they move the problem-
solving techniques employed by the teams toward the application
of logical deductions and away from simple guesswork.
Such exercises are designed to show the trainees that teams
can make superior decisions when a variety of experiences, view-
points, and perspectives are brought to bear on a problem. They
should also illustrate that team decisions require more time than
individual decisions. The trainees should also realize that there are
a variety of communication styles and techniques, and the level
of communication skills varies from person to person. Trainees
should gain insight into their own communication styles as they
interact with others to perform a task. These insights should
form a base for trainees to evaluate their own and others’ styles of
working in a team environment and ready them for further train-
ing to become productive team members.
 CHAPTER 18. TEAMS, TEAM PROCESS, AND TEAM BUILDING 391

APPENDIX 18.2 Representative Websitesa

National Association for Healthcare Quality Clinical Laboratory Management Association

http://www.nahq.org www.CLMA.org
Publications related to quality healthcare, including team building Links to relevant government agencies, other organizations, and
other resources; excellent resource
Training Services On Demand
http://www.tsod.com/team_building/teambuilding_books.htm
Work teams, team building, and total quality
BusinessTrainingMedia.com Inc.
http://www.business-marketing.com/ or email sales@business
-marketing.com
Videos and training packages, including teams and team building a
Verified July 14, 2012.
Introduction
Labor Law
19 Labor Relations
National Labor Relations Act (Wagner Act), 1935 •
Fair Labor Standards Act (Black Act), 1938 • Labor- Lynne S. Garcia
Management Relations Act (Taft-Hartley Act) •
Labor-Management Reporting and Disclosure Act
(Landrum-Griffin Act) • 1974 Amendments to the
NLRA
National Labor Relations Board
Description • Function • Structure • Processing of
Cases • Authority To Secure Injunctive Relief from a OBJECTIVES
Court • Current Issues Related to the NLRB
To describe the legal framework for labor relations activities
Union Structure
Formal Structure • Union Membership • Function of To understand and describe the reasons why employees seek union
the Union Steward representation
Unionization Process To discuss the union organizing campaign and the “dos and don’ts” for the
Individual, Group, and Union Image: Reasons Why union and management
Employees Join a Union • Relevance for Healthcare
Employees To describe the election process
Organizing Campaign To discuss the collective bargaining process
Authorization Cards • The Bargaining Unit • To understand the concept of unfair labor practices
Information Distribution and Solicitation •
Election • Certification
Collective Bargaining Why is it that those who are the quickest to judge are often those in possession of
Issues for Bargaining • Preparation Phase • the fewest facts?
Negotiation Phase • Administration of the
Agreement • Management Rights Clause John Wooden
Summary

T
KEY POINTS
he term “labor relations” has been defined as the interactions be-
tween an employer represented by management and supervisors and
GLOSSARY
groups of employees who are in bargaining units represented by a
REFERENCES
union. These interactions involve the rights of employees, unions, and em-
APPENDIXES ployers under law and the interpretation and application of collective and
bargaining agreements addressing issues such as wages, hours, and working
conditions. Procedures for resolving disputes that may arise over the applica-
tion and interpretation of the contract are also included (6).
Regardless of whether you support or dislike the concept of unionization,
it is mandatory that all parties obtain a basic understanding of labor relations,
including the law, organizing campaigns, collective bargaining, and contract
administration. The topic of labor relations is often discussed within a very
emotional atmosphere, and factual information is minimal or absent. It is
particularly important that management and supervisory staff understand
the ramifications of their actions regarding personnel management within the
context of unionization.
A number of laws govern healthcare labor relations in the United States.
These laws are generally divided into three categories: those covering federal
government employees, state and local government employees, and for-profit
Clinical Laboratory Management, 2nd Edition
and nonprofit employees in the private sector (Table 19.1). The laws relevant
Edited by L. S. Garcia to these three categories undergo constant review and modification, based on
©2014 ASM Press, Washington, DC changes in the actual laws and regulations and agency or court decisions re-
doi:10.1128/9781555817282.ch19
lated to administration of the laws.

392

Table 19.1 Labor law coverage for healthcare institutions and
employees in the United States
Healthcare employees Coverage
Federal government 1978: Civil Service Reform Act
State and local government State labor laws
For-profit and nonprofit 1935: National Labor Relations
institutions Act, as amended
In 2011, there were 7,204,000 union members in health-
care (healthcare practitioners and technical occupations;
13% of those employed), with 3,178,000 in healthcare sup-
port occupations (8.4% of those employed). In 2012, there
were 7,309,000 union members in healthcare (healthcare
practitioners and technical occupations; 12.5% of those
employed), with 3,340,000 in healthcare support occupa-
tions (8.3% of those employed) (http://bis.gov/news.release/
union2.t03.htm, accessed April 23, 2013).
Labor Law
Current labor law supports two major objectives. First, it
supports stability through collective bargaining and de-
fined dispute resolution. Second, it tends to equalize the
balance of bargaining power between employees and man-
agement. Until the Norris-LaGuardia Act of 1932, unions
had very few rights; this act declared a federal policy that
employees were free to form unions (4).
National Labor Relations Act (Wagner Act), 1935
Until the National Labor Relations Act (NLRA) of 1935,
employers were not required to collectively bargain with
unions. This legislation included some very important pro-
visions: (i) Employees have the right to form, join, or assist
unions; the freedom to bargain collectively with the em-
ployer; and the right to engage in group activity. (ii) Employ-
ers must bargain collectively with the employees’ certified
bargaining representative and must refrain from employer
unfair labor practices. (iii) The National Labor Relations
Board (NLRB) is the regulatory body responsible for ad-
ministration of the NLRA.
Section 8 of the NLRA prohibits certain actions by the
employer, identified as unfair labor practices. These prac-
tices are very detailed and can be seen in Table 19.2. Specific
examples of employer discrimination include (i) discharg-
ing employees for urging other employees to join a union,
(ii) refusing to reinstate an employee to an open job because
the employee participated in a union strike related to an
unfair labor practice or economics, (iii) refusing to hire a
qualified applicant for a job because the applicant belongs
to a union, and (iv) demoting employees for exercising their
right to organize (7).
CHAPTER 19. LABOR RELATIONS 393
Fair Labor Standards Act (Black Act), 1938
More than 130 million workers in more than 7 million
workplaces are protected by the Fair Labor Standards Act
(FLSA), which is enforced by the Wage and Hour Divi-
sion of the U.S. Department of Labor. Almost every em-
ployee in the United States is covered by the FLSA. Hours
worked issues include waiting time, on-call time, meal
and rest periods, training time, travel time, and sleep
time. Covered, nonexempt employees must receive one
and one-half times the regular rate of pay for all hours
worked over 40 in a workweek. Exempt medical profes-
sions include doctors, registered nurses, and registered or
certified medical technologists (three years of preprofes-
sional study in an accredited college or university, plus
one year of professional study in an accredited school of
medical technology).
Some of the common errors to avoid include (i) assum-
ing that all employees paid a salary are not due overtime,
(ii) improperly applying an exemption, (iii) failure to pay
for all hours an employee is permitted to work, (iv) limit-
ing the number of hours employees are allowed to record,
(v) failure to include all pay required to be included in cal-
culating the regular rate for overtime, and (vi) failure to
add all hours worked in separate sites for the same em-
ployer when calculating overtime due (www.dol.gov/whd/
flsa/, accessed April 25, 2013).
Table 19.2 Employer unfair labor practices that interfere with
employee rights (NLRA)a
1. Interference with rights to unionize and to bargain collectively
• Threatening employees with loss of jobs or benefits
• Withholding customary periodic wage increases
• Offering increased wages or benefits to occur if and when the
union loses the election
• Threatening to relocate or close the business
• Questioning employees about their union activities or member-
ship under circumstances that would tend to restrain or coerce
employees in their right to organize
• Spying on union gatherings or pretending to do so
• Granting wage increases timed to discourage employees from
forming or joining a union
2. Domination of or contributing to a union
• Employer must remain neutral during the organizing process
• Employer cannot solicit employees to join a particular union or
to oppose a competing union
• Employer cannot contribute financial or other support to the
union
3. Discrimination against employees because of their union activities
or because they filed charges or testified under the NLRA
4. Refusal to bargain in good faith with the employees’ elected
representatives
a
Based on an NLRB report, there were 22,177 unfair labor practices filed in
2011 and 21,629 filed in 2012 (http://www.nlrb.gov/news-outreach/graphs-data/
charges-and-complaints/charges-and-complaints, accessed April 23, 2013).
394 PERSONNEL MANAGEMENT
Labor-Management Relations Act (Taft-Hartley Act)
An NLRA amendment, the Labor-Management Relations
Act of 1947, addresses four problems that arose after pas-
sage of the NLRA in 1935, one of which was unfair labor
practices by unions. Union unfair labor practices were
clearly defined and are listed in Table 19.3. The Taft-Hartley
Act guaranteed a broader interpretation of “free speech” for
both the union and the employer; this provision allows both
to express their views, arguments, and opinions. As long as
these views are expressed without any threats of reprisal or
promise of benefits, no unfair labor practice has been com-
mitted. Table 19.4 describes the five titles within this act.
The requirement for “good faith” bargaining by both the
union and the employer is also a part of the Taft-Hartley
Act; this includes meeting at reasonable times and places
and conferring honestly regarding wages, hours, and other
working conditions. However, there is nothing in the act
that requires either the union or management to agree to
concessions or proposals.
There are also notification guidelines if either the union
or management wants to terminate or modify a contract
upon expiration. Specific requirements include (i) a 60-
day written notice prior to the expiration of the contract,
(ii) an offer to meet and confer with the other party, (iii)
notification to the Federal Mediation and Conciliation
Service (FMCS) and any relevant state agency within 30
days of serving notice, and (iv) maintaining all terms and
conditions of the contract for a period of 60 days after
notice has been served or until the expiration date of the
contract, whichever is later (1). These notification require-
ments are summarized in Table 19.5 and are based on the
1974 Healthcare Amendments (see below).
Labor-Management Reporting and Disclosure Act
(Landrum-Griffin Act)
The Labor-Management Reporting and Disclosure Act of
1959 was passed to address some problems with the Taft-
Hartley Act and to prevent abuses by union officials. The
Table 19.3 Union unfair labor practices that interfere with
employer rights (NLRA)
• Refusing to bargain in good faith with the employer
• Paying employees for work not actually performed
(feather-bedding)
• Charging discriminatory initiation fees or dues
• Interfering with employees’ choice of a labor union
•
Discriminating against certain employees and/or seeking the
employer’s discrimination against certain employees or potential
employees (e.g., to discourage or encourage membership in a
particular union)
• Picketing, striking, and carrying out boycotts against businesses
other than the employer involved in the primary labor dispute
• Strikes or boycotts designed to make an employer assign work to a
particular group to recognize a union without NLRB certification
Table 19.4 Titles within the Taft-Hartley Act (1947)
Title Content
I Amended NLRA (1935)
Increased size of NLRB from three to five members (ad-
judicate cases)
Established the Office of the General Counsel of the
NLRB (supervises regional and field offices, investigates
and prosecutes unfair labor practice charges)
Granted employees right to form, join, or assist formation
of union
Granted employees right to bargain through representa-
tive of own choosing
Granted employees right to engage in other protected
activities for purpose of collective bargaining
Outlined series of employer unfair labor practices, which
violate employee rights.
II Concerned with prevention of work stoppages (estab-
lished FMCS)
Outlined procedures by which president of the United
States can obtain federal court injunction when strike or
threatened strike endangers national welfare
III Provided that suit to enforce labor-management contracts
be brought in a federal district court
IV Established a labor-management commission to study
labor-management relations in the United States
V Gave employees the right to refuse to work under abnor-
mally dangerous conditions of employment without such
a work stoppage being considered a strike
act prevents unions from restricting members regarding
the right of free speech, assembly, and participation in
union elections and meetings. Union officers are required
to be bonded and accountable for union property and
funds. The act also prevents dues from being increased
without all members first voting by secret ballot.
Federal regulation for union internal operations is also
addressed, including the NLRB supervision of union of-
ficer elections; minimum standards are in place for those
wishing to be candidates for office, as well as for voting
procedures. These include the following provisions: (i) All
union members in good standing must be allowed to vote;
(ii) elections for local officers must be held at least every
three years; (iii) secret balloting procedures must be fol-
lowed in local elections, but delegates to a national or in-
ternational union convention may cast open votes; (iv) a
reasonable opportunity to nominate candidates must be
given to all eligible voting members; and (v) qualifications
for candidate eligibility must be reasonable (5).
1974 Amendments to the NLRA
Prior to these amendments in 1974, nonprofit healthcare
institutions were excluded from coverage by the NLRA; af-
ter passage of the amendments, nonprofit healthcare insti-
tutions were no longer grouped with employers excluded
from the coverage of the act. A number of other features

Table 19.5 NLRA notice requirements in the healthcare industry (1974 Healthcare Amendments)
Notice type Other party
Modify or terminate contract
Initial bargaining 30 days
Existing contract 90 days
Notice of strike or picketing
activity
Initial bargaining 40 days: 10 days after the
initial 30 days seen above
Existing contract 10 days
of the 1974 amendments involve the written notification
rules described in Table 19.5. In passing these amend-
ments, Congress was very concerned about maintaining
the continuity of patient care. Thus, the “ally doctrine”
does not apply in certain healthcare settings. If employees
in a hospital setting are on strike and patients are trans-
ferred to another hospital, the ally doctrine does not apply;
therefore, the striking employees from the first hospital
cannot legally picket the second hospital.
National Labor Relations Board (NLRB)
Description
The NLRB is an independent federal agency created by Con-
gress in 1935 to administer the National Labor Relations Act,
the primary law governing relations between unions and em-
ployers in the private sector. The statute guarantees the right
of employees to organize and to bargain collectively with
their employers or to refrain from all such activity. Based on
well-defined definitions, employers, employees, and labor
unions understand the roles and expectations of each group.
Function
Based on its statutory duties, the NLRB has two main
functions: (i) to determine through secret-ballot elec-
tions the free choice by employees whether they wish to
be represented by a union in dealing with their employers
and if so, by which union; and (ii) to prevent and remedy
unlawful acts, called unfair labor practices, by either em-
ployers or unions. The agency does not act on its own in
either function but processes only those charges of unfair
labor practices and petitions for employee elections that
are filed with the NLRB in one of its regional, subregional,
or resident offices. The NLRB also resolves disputes about
what constitutes an appropriate employee bargaining unit,
one in which the employees have a community of inter-
ests, including workplace conditions and concerns. Super-
visors and managerial employees, as well as government
workers and independent contractors, are not covered by
the NLRA. Other groups not covered include municipal
CHAPTER 19. LABOR RELATIONS 395
Notice to:
FMCS Appropriate state agency
30 days 30 days
60 days 60 days
40 days: 10 days after the 40 days: 10 days after the initial
initial 30 days seen above 30 days seen above
10 days 10 days
companies and religious schools. Although healthcare
workers were previously exempted, they are now covered.
Structure
The agency has two major, separate sections (Figure 19.1).
The board itself has five members and acts as a quasi-
judicial body in deciding cases on the basis of formal rec-
ords in administrative proceedings. NLRB members are
appointed by the president to five-year terms, with Senate
consent, the term of one member expiring each year. The
General Counsel, appointed by the president to a four-year
term with Senate consent, is independent from the board
members and handles the investigation and prosecution of
unfair labor practice cases and the supervision of field of-
fices in processing cases.
Processing of Cases
When an unfair labor practice charge is filed, the field of-
fice investigates the charge to determine if there is reason-
able cause to believe the NLRA has been violated. If the
charge is determined to lack merit, it will be dismissed
unless the charging party withdraws the charge. The dis-
missal of a charge can be appealed to the General Counsel’s
office in Washington, DC.
If the regional director finds reasonable cause that the
NLRA has been violated, the region seeks a voluntary
settlement to remedy the alleged violations. However, if
settlement efforts fail, a formal complaint is issued and
the case goes to a hearing before an NLRB administrative
law judge. The judge issues a written decision that may be
appealed to the five-member board in Washington for a
final agency ruling. This ruling is subject to review in a
U.S. Court of Appeals. Of the approximately 25,000 unfair
labor practice charges filed each year, about one-third are
found to have merit, of which over 90% are settled (8).
Authority To Secure Injunctive Relief from a Court
The NLRB is able to petition a federal district court for an
injunction to temporarily prevent unfair labor practices by
employers or unions and to restore the status quo, pending
396 PERSONNEL MANAGEMENT

The General
The Board
Inspector General Counsel

Office of Equal
Board Member Office of
Employment
Staffs Employee
Opportunity Development
Office of Executive
Secretary

Office of
Representation
Appeals
Division of Division of Enforcement Division of Operations- Division of
Advice Litigation Management Administration
Office of
the Solicitor

Regional Supreme Appellate

Court Personnel Security Finance Budget
Advice Court
Division of Branch Branch Branch Branch
Branch Branch Branch
Judges

Legal
Contempt
Division of Research Special
Litigation & Information Library & Procurement
Information & Policy Litigation
Compliance Technology Administrative & Facilities
Planning Branch Branch Branch Branch
Branch
Branch

Division of Regional
Injunction
Advice Offices
Litigation
Branch

Figure 19.1 Structure of the National Labor Relations Board. doi:10.1128/9781555817282.ch19.f1

the full review of the case by the board. In determining
whether this action is appropriate in a particular case,
the main question is whether injunctive relief is required
to preserve the board’s ability to remedy the unfair labor
practice charge and whether the alleged violator would
otherwise benefit from the violation. The act requires the
board to seek a temporary federal court injunction against
certain forms of union misconduct, mainly involving “sec-
ondary boycotts” and “recognitional picketing.”
recess appointments of three members to the board were
invalid. Decisions issued by the NLRB and its regional of-
fices are now being challenged by a number of companies.
The NLRB will ask the Supreme Court to resolve the legiti-
macy of these recess appointments; if the Court of Appeals
ruling stands, as many as 600 prior NLRB decisions could
be negated (www.nlrb.gov/news-outreach/news-release/
nlrb-seek-supreme-court-review-noel-canning-v-nlrb,
accessed April 24, 2013).

Current Issues Related to the NLRB

When President Barrack Obama took office, the NLRB
had only two members instead of the normal five. Fail-
ing to gain approval for the three additional appointments
to the board in 2009, President Obama reappointed three
individuals to the NLRB in 2010, two of whom were con-
firmed by the Senate. When one member’s term expired
in early January 2012, the NLRB no longer had a quorum
to make decisions. Three additional members were ap-
pointed during the Senate recess, thus restoring the board
to the standard five members. However, a Court of Ap-
peals for the DC circuit held that the January 4, 2012,
Union Structure
Formal Structure
The majority of national unions in the United States be-
long to the voluntary federation, the American Federation
of Labor–Congress of Industrial Organizations (AFL-
CIO). The AFL-CIO provides research, education, lobby-
ing, and public relations activities for its unions; it does not
get involved with the internal affairs of its member unions.
The individual unions are autonomous regarding strikes,
contract demands, and internal affairs.

Usually, local unions are subunits of the national unions.
However, in the absence of a national union, a local union
may form to bargain with one or more employers. Gener-
ally, local unions vary considerably in size and may range
from fewer than 10 members to more than 40,000.
Each union has a constitution that is on file with the
Secretary of Labor; the content specifies the titles and
duties of the officers, normally including elected officers
such as president, vice-president, business manager, trea-
surer, financial secretary, recording secretary, and griev-
ance committee chair. Some of these positions may be
full-time paid officers, while others are volunteers and are
reimbursed for out-of-pocket expenses and work time lost
while conducting union business.
Union Membership
In 2012, 11.3% (down from 13.2% in 2002 and 13.4% in
2001) of wage and salary workers were union members.
This represents a decline of 280,000 between 2001 and
2002 to 16.1 million in 2002 and 14.3 million in 2012.
Union membership has steadily declined from 20.1% in
1983. Table 19.6 shows some 2012 data (3). Table 19.7
shows data from healthcare practitioners and technical oc-
cupations (major group); this table contains labor statis-
tics and does not reflect union representation (2). Unions
that have become more active within the healthcare envi-
ronment include Service Employees International Union
(SEIU); National Union of Hospital and Health Care
Workers; American Federation of State, County, and Mu-
nicipal Employees (AFSCME); International Brotherhood
of Teamsters; Retail Clerks International Association; the
American Federation of Government Employees; and
the American Nurses Association. Generally, wherever
Table 19.6 2012 union membership dataa
• Men (12.0%) (14.7% in 2002) were more likely to be union mem-
bers than women (10.5%) (11.6% in 2002).
• Union membership for blacks (13.4%) (16.9% in 2002) remained
higher than the rates for whites (11.1%) (12.8% in 2002), Hispan-
ics (9.8%) (10.5% in 2002), and Asians (9.6%) (no data for 2002).
• trainers; and residual “all other” occupations in this major group.
Public-sector workers had a union membership rate of 35.9%,
while 6.6% were union workers in private-sector industries.
• 4.8% in 2002)
Nearly 40% of workers in protective service occupations, includ-
ing fire-fighters and police officers, were union members; this
group has had the highest union membership rate of any broad
occupation every year since 1983.
• About 1.6 million wage and salary workers were represented by a
union, while not being union members themselves (down from
1.7 million in 2002).
• Three states had union membership >20% (New York, Hawaii,
and Alaska) (New York, Hawaii, Alaska, and Michigan in 2002).
• The largest numbers of union members live in California (2.5 mil-
lion) (2.7 million in 2002), New York (1.8 million) (2 million in
2002), and Illinois (800,000) (1.1 million in 2002).
a a
From reference 3.
CHAPTER 19. LABOR RELATIONS 397
working conditions and salaries are poor, unions will at-
tempt to organize.
Function of the Union Steward
One of the most important positions in any union is the
steward; this position is comparable to one of the levels
in management (5). The steward listens to grievances by
employees in the bargaining unit, counsels them on a
course of action, and depending on the circumstances,
intercedes with management on their behalf. Reasons for
grievances might include discipline, failure to get a merit
increase or promotion, and disagreement with the em-
ployer evaluation process. A part of the steward’s respon-
sibility is to review all the evidence related to grievances
and to obtain a factual account from both the employee
and management regarding the issues involved. Generally,
a union steward will not defend inappropriate employee
behavior, particularly if this approach would result in a
loss of credibility with the employer, a situation that would
complicate future contract negotiations. In many collective
bargaining agreements, the initial grievance must be pre-
sented to the employee’s immediate supervisor as the first
Table 19.7 2012 healthcare practitioners and technical occupa-
tions (major group)a
• This major group comprises the following occupations: chiroprac-
tors; dentists; dietitians and nutritionists; optometrists; pharmacists;
anesthesiologists; family and general practitioners; internists, gen-
eral; obstetricians and gynecologists; pediatricians, general; psychia-
trists; surgeons; physician assistants; podiatrists; registered nurses;
audiologists; occupational therapists; respiratory therapists; speech-
language pathologists; veterinarians; medical and clinical laboratory
technologists; medical and clinical laboratory technicians; dental
hygienists; cardiovascular technologists and technicians; diagnostic
medical sonographers; nuclear medicine technologists; radiologic
technologists and technicians; emergency medical technicians and
paramedics; dietetic technicians; pharmacy technicians; psychiatric
technicians; respiratory therapy technicians; surgical technologists;
veterinary technologists and technicians; licensed practical and
licensed vocational nurses; medical records and health informa-
tion technicians; opticians, dispensing; orthotists and prosthetists;
occupational health and safety specialists and technicians; athletic
• Employment: 7,649,930 (5.9% of the total, 130,287,700) (up from
• Mean hourly wage: $35.35 (up from $24.01 in 2002)
• Mean annual wage: $73,540 (up from $49,930 in 2002)
• Specific groups are indicated below:
1. Medical and clinical laboratory technologists
• Employment: 160,700 (0.12% of the total, 130,287,700)
• Mean hourly wage: $28.19
• Mean annual wage: $58,640
2. Medical and clinical laboratory technicians
• Employment: 157,920 (0.12% of the total, 130,287,700)
• Mean hourly wage: $18.91
• Mean annual wage: $39,340
From reference 2.
398 PERSONNEL MANAGEMENT

step; employees may ask for assistance from the steward
at this beginning step in the process. The Supreme Court
has ruled that a member of the bargaining unit has a right
to union representation during a management interview
if the employee feels that disciplinary action might result
from the interview (9).
Unionization Process
Individual, Group, and Union Image: Reasons Why
Employees Join a Union
Although there may be a number of reasons why employ-
ees decide to join unions, generally these reasons can be
categorized as (i) personal, (ii) related to the social envi-
ronment, and (iii) the image of the union. Table 19.8 shows
a combination of these factors. One of the main consider-
ations against unionization has been the perception that
professionals don’t equate being concerned about socio-
economic issues with unionization. However, some groups
of professionals have moved beyond this perceived barrier
to unionization and are willing to consider collective bar-
gaining as just another component of their “professional
activities.” In some cases, unions have or have considered
establishing a separate professional division within their
union in an attempt to make unionization a more attrac-
tive alternative. Another approach is to limit the bargain-
ing unit to professional employees, thus fostering the idea
that the union and professionals are not incompatible.
Relevance for Healthcare Workers
For many years, healthcare professionals as a group have
been somewhat skeptical and apprehensive about union-
ization; many always assumed that they would never need
to join a union. As professionals, they felt that their con-
cerns could be taken directly to management and that
they would always have a fair hearing and reasonable out-
comes. Employees may question the need for a union if
the institution uses a fair system for work assignments,
raises, promotions, and corrective action policies and has
an appropriate policy for handling employee grievances.
However, over the years some of these perceptions have
changed, and many healthcare employees are now rep-
resented by unions. Often, just the potential of a union
entering a healthcare institution may stimulate manage-
ment to improve salaries and benefits. Generally, if both
management and unions are well informed, approach the
organizing campaign within specific guidelines, maintain
professional attitudes, and express appropriate behavior,
the outcome of an election may be acceptable to both
parties, even if the union receives the required number
of “yes” votes. Unfortunately, when either management
or the union fails to “play by the rules,” the outcome can
lead to chaos, inappropriate behavior, anger, and feelings
of betrayal and mistrust. How the organizing campaign is
handled will impact relations with employees for years to
come, regardless of the outcome.
Professional workers are confronting increasing chal-
lenges to their careers, brought about by rapidly changing
technology, the turbulent world economy, and new work
methods. Like so many other workers, professionals are
forming unions to enhance their professional autonomy, to
be involved in making the decisions that affect their careers,
and for greater professional and personal security. Current
information on unions and professionals includes the fol-
lowing (www.bls.gov/ooh/about/projections-overview.htm,
accessed April 25, 2013; www.bls.gov/news.release/union2
.t03.htm, accessed April 25, 2013):
• In 2011, 13.0% of healthcare practitioners belonged to
unions, while in 2012, the number declined to 12.5%.
Of those represented by unions, the percentages were
14.7% in 2011 and 14% in 2012.
• Employment in the professional and technical oc-
cupations is growing faster and adding more workers
than any other major occupational group. While total
U.S. employment is projected to increase by 20.5 mil-
lion jobs from 2010 to 2020, industries and occupa-
tions related to healthcare, personal care and social
assistance, and construction are projected to have the
fastest job growth.

Table 19.8 Reasons why employees decide to seek union representation

Personal reasons Social environment
Individual Family tradition and history
Economic benefits (salary, fringe benefits) Work-category tradition and history
Job security Unionization within the organization
Fairness in job conflict resolution and/or community
Group Unionization within the profession,
Unity and togetherness pros/cons
Advancement of profession Based on work group union member-
ship, pressure to conform to the group
Image of the union
Success in bargaining
Ability to represent workers
Goals consistent with individual
goals
Ability to support and advance the
profession
Professional in their approach to
labor relations
Reasonable dues
No evidence of violence

• The healthcare and social assistance industry is pro-
jected to create about 28% of all new jobs created in
the U.S. economy from 2010 to 2020. This industry—
which includes public and private hospitals, nursing
and residential care facilities, and individual and fam-
ily services—is expected to grow by 33%, or 5.7 million
new jobs. Employment growth will be driven by an
aging population and longer life expectancies, as well
as new treatments and technologies.
• Employment in computer systems design and related
services is expected to increase by 47%, driven by
growing demand for sophisticated computer network
and mobile technologies.
• Computer and information technology occupations
are projected to grow by 22%, adding 758,800 new jobs
from 2010 to 2020. Demand for workers in these occu-
pations will be driven by the continuing need for busi-
nesses, government agencies, and other organizations
to adopt and utilize the latest technologies. Workers in
these occupations will be needed to develop software,
increase cybersecurity, and update existing network
infrastructure.
Organizing Campaign
The first step in the process of gaining union represen-
tation is the organizing campaign. Situations may exist
where the employees contact a union representative to
initiate a discussion regarding union representation. How-
ever, union representatives may initiate the contact to de-
termine whether employees want to pursue discussions
about possible unionization. Employees’ right to seek or
aid unionization or to refrain from such activities is guar-
anteed by the National Labor Relations Act. There may be
more than one union involved in an organizing campaign,
competing for the employees’ interest and eventual votes
for union representation.
Authorization Cards
It is highly unlikely that management will voluntarily rec-
ognize employees’ wishes to be represented by a union for
the purposes of collective bargaining. The union must fol-
low set procedures to demonstrate employee interest, lead-
ing to an election for union representation. The union will
ask employees to sign authorization cards; such cards state
that the employee wishes to be represented for purposes
of collective bargaining by the union named on the cards.
The union must have 30% of the employees sign authori-
zation cards before the NLRB will honor a petition for a
union-representation election. The union must specify in
its petition exactly which occupational groups it seeks to
represent; this specification begins the process of defining
the bargaining unit.
CHAPTER 19. LABOR RELATIONS 399
The Bargaining Unit
Final responsibility for determining the job categories
within a bargaining unit resides with the NLRB; often the
employer may challenge the union’s proposed bargain-
ing unit. Generally, the employer will want to include
occupational groups perceived to be unfavorable toward
unionization or may want the bargaining unit decreased to
eliminate groups perceived to be in favor of unionization.
Key factors considered by the NLRB include (i) the history
of bargaining within the industry and occupational groups
under consideration, (ii) the community of interest among
employees and common supervision, and (iii) the wishes
of the employees. Certainly, they will also consider the
pros and cons of inclusion and exclusion of various groups
as requested by the union and the employer. In general,
the NLRB will allow up to six different bargaining units
in a healthcare institution: physicians, registered nurses,
other professional employees, technical employees, service
and maintenance employees, and business office clerical
employees. However, recognition of these bargaining units
does not mean the NLRB is forced to maintain these cat-
egories; several groups can also be combined into a single
bargaining unit.
Information Distribution and Solicitation
Information distribution generally refers to distribution
of printed materials to employees, in which the content is
informational only. Solicitation is directed to a specific in-
dividual, with the intent to elicit a specific response from
that individual; an excellent example is the request for an
employee to sign and return an authorization card. There
are very specific rules that govern these activities, both for
the union and for the employer. Table 19.9 shows several
Table 19.9 Rulings regarding information distribution and solici-
tation in the hospital setting
Union Distribution and solicitation by an employee (pro-
union) are allowed during nonworking time in non-
working areas of other nonworking employees on the
premises other than patient care areas (patient rooms,
operating rooms, treatment rooms).
Union Solicitation is banned in sitting rooms and corridors ad-
joining or accessible to patient rooms; crowding issues.
Employer Cannot ban solicitation in the cafeteria, gift shop, and
lobbies on the first floor of the institution; however,
employer need only show that solicitation is likely
to disrupt patient care or disturb patients in order to
enforce a ban on solicitation in non–patient care areas.
Employer May allow solicitation in “normal gathering places” for
employees, but ban it in certain areas such as lobbies
and gift shops.
Employer If management insists on a very broad “no solicitation
rule,” it is important that supervisors and managers
realize this approach may be found to be invalid if
challenged by the union.
400 PERSONNEL MANAGEMENT
specific examples. It is important that a proper balance be
achieved between the rights of the employees and the rights
of management to guarantee safe and efficient patient care.
Election
Once at least 30% of the employees in a proposed bargain-
ing unit have signed and turned in authorization cards,
the union may petition the NLRB for a representation
election. Certainly the union would prefer a showing of
much more than 30%, particularly since there is a time
lag between the submission of the petition for election
and the election itself. During this interim, management
will campaign vigorously to counteract the union’s posi-
tion and will try to change employees’ minds regarding
the necessity for unionization. Therefore, some employees
may change their minds during this time lag between pe-
tition submission and the actual election. The NLRB, or
in the case of federal workers the Federal Labor Relations
Authority, reviews the petition and makes a number of de-
terminations directly related to approval or rejection of the
election proposal (Table 19.10).
If there are no reasons to preclude the election, and the
bargaining unit is appropriate, agreement is sought regard-
ing a “consent” election; there are two types of agreements
to consent elections. The first consent-election agreement
provides for an election over which final authority regarding
disputes with the NLRB itself resides with the regional di-
rector. The second type of agreement, termed stipulation for
certification, provides for an election over which the final
authority regarding disputes resides with the NLRB itself.
If either the employer or the union(s), or both, fail to
agree to a consent election, a formal hearing occurs be-
fore a hearing officer appointed by the regional director.
Employees, the employer, the union, or any of their repre-
sentatives may appear at the hearing and may testify and
introduce additional evidence. These issues must be rel-
evant to representation and may include jurisdiction of the
NLRA over the employer and the occupational makeup of
Table 19.10 NLRB determinations regarding acceptance or rejec-
tion of union election petition
1. Confirm whether there are any statutory or policy reasons that
would preclude an election.
a. Participation in interstate commerce
b. Large enough in size to quality; use of dollar volume amount
2. Determine whether the bargaining unit is an appropriate unit.
3. If there are no reasons to preclude the election and the bargain-
ing unit is appropriate, agreement is sought regarding “consent”
election.
a. Consent-election agreement provides for an election; final
authority over disputes with the NLRB itself resides with the
regional director.
b. Stipulation for certification provides for an election: final author-
ity over disputes resides with the NLRB itself.
the bargaining unit. Although the regional director makes
the decision, either ordering the election to occur or dis-
missing the petition, a party may appeal the decision to
the NLRB.
If all parties agree to the consent election based on
the filing of the petition, the date is set, and the election
normally occurs 60 days after the union files the petition.
However, if the parties do not agree and the hearing pro-
cess is instituted, the election normally occurs between 25
and 30 days following the final decision.
Employees who have been confirmed as being in the
bargaining unit at the end of the payroll period immedi-
ately preceding the date of the election are eligible to vote.
The employer must provide the NLRB and the union a list
of names and home addresses of eligible employees within
seven days after the final decision on the consent election.
The election is held at a place and time that is designed
to provide maximum participation for all bargaining unit
employees to vote for or against union representation; mail
ballots may also be used in the election process. The elec-
tion is by secret ballot, and the union must have a simple
majority of the votes cast to win and to be certified by the
NLRB as the bargaining representative.
All relevant parties may have observers at the polls; an
NLRB agent supervises the observers to ensure appropri-
ate behavior during the election process. Ballots may be
challenged, and these ballots are impounded. If the num-
ber of impounded ballots would make a difference in the
election outcome, the regional office investigates these bal-
lots and makes a decision regarding whether or not they
will be counted. If the number of impounded ballots will
not impact the election outcome, they are not counted. De-
pending on the ballot count, there may need to be a runoff
election; this occurs if more than one union is involved in
the election process and there is no majority vote for one
union or for no representation.
Certification
If union representation is rejected, another election within
that bargaining unit cannot be held for 12 months. If a
union wins the election, the NLRB issues a certification
of representative confirming the union’s status as the ex-
clusive bargaining representative for a period of one year
after the date of certification. During this one-year pe-
riod, the employer is required to bargain with the certi-
fied union. It is important to remember that although the
bargaining unit may be composed of union members and
those who choose not to join the union, a negotiated col-
lective bargaining agreement applies to all those within
the bargaining unit. All members of the bargaining unit
are subject to the contract terms and provisions. Because
compulsory union membership is prohibited but all mem-
bers of the bargaining unit benefit from union representa-
tion, some states allow the union to collect some portion
 CHAPTER 19. LABOR RELATIONS 401

Informal Organization Based on perceived inequities by employees.

Signed by a “representative group” (minimum of 30% of persons

Authorization Cards
from a bargaining unit).

• Determines whether a minimum of 30% of persons have

National Labor signed authorization cards.
Relations Board • Determines whether the institution fits within NLRB jurisdiction.
• Holds hearing to determine those eligible to vote in the election.
• Sets date of election.

Solicitation and Distribution of Information

from both Union(s) and Management

Election:
Union must receive a majority (50% + 1) of the votes cast.
Decided by majority of the votes cast

Union A, 50 votes Union A, 43 votes Union A, 82 votes Union A, 50 votes

No union, 49 votes Union B, 52 votes Union B, 63 votes No union, 50 votes
No union, 72 votes No union, 52 votes

( Union wins and represents all ( A runoff election would be conducted ( A runoff election would be conducted ( Tie: No Union )
persons within the bargaining unit, between Union B and No Union since between Union A and Union B since none
whether those persons voted or not ) none of the three ballot choices received of the three ballot choices received a
a majority of the votes cast ) majority of the votes cast )

Figure 19.2 Union organizing campaign from first inquiries to election results.
doi:10.1128/9781555817282.ch19.f 2

of the monthly union dues from nonunion members of the
bargaining unit. A review of the organizing, election, and
certification phases of the process can be seen in Fig. 19.2.
Collective Bargaining
After a bargaining unit selects a particular union as its rep-
resentative, both the employer and the union must bargain
in good faith. This negotiating process addresses many is-
sues, such as (i) establishing work rules, (ii) selecting the
form and mix of employee compensation, (iii) providing
uniformity among competitors, and (iv) setting priorities
for both labor and management.
Issues for Bargaining
There are three basic categories of bargaining subjects:
mandatory, permissive, and illegal and prohibited (3).
Mandatory subjects include wages, hours, and other terms
and conditions of employment. Permissive subjects are
bargained only if both parties voluntarily agree to do so.
However, neither party may refuse to bargain on manda-
tory subjects to force bargaining on permissive subjects. Il-
legal or prohibited subjects include those that would cause
one or both parties to violate federal or state law, such as
(i) bargaining for a closed shop, (ii) bargaining for a contract
clause under which union members could refuse to work
with nonunion goods and materials, and (iii) bargaining
for contract language that would permit discrimination as
defined by the Civil Rights Act. Attempts to negotiate these
illegal subjects would constitute an unfair labor practice
(ULP). Other ULPs associated with the bargaining process
include (i) refusing to bargain collectively, (ii) failing to of-
fer meaningful counterproposals, (iii) refusing to discuss
economic terms until noneconomic issues are resolved,
and (iv) attempting to delay meetings or move meet-
ing sites. Although the NLRB cannot force an agreement
402 PERSONNEL MANAGEMENT
between the parties, as a remedy for an unfair labor prac-
tice, the Board can order them to bargain or may order a
cease and desist order to refrain from bad faith bargaining.
With the current changes in healthcare reform (Patient
Protection and Affordable Care Act, passed in 2010) be-
coming more of an issue, the union can demand to bargain
over the implementation of reforms, which definitely in-
clude health benefits. They can bargain for improvement
of the minimum requirements of the new law; however,
the employer does not have to agree. Although the par-
ties may not reach agreement on proposed changes, the
employer must implement the terms of the new law. The
union can also bargain over the pros and cons of imple-
mentation, rather than allowing the employer to unilater-
ally implement the new law (www.cwa-union.org/issues/
entry/c/health-care, accessed April 25, 2013).
Preparation Phase
The union and the employer begin the process by selecting
negotiating teams. The union team is often led by a full-
time paid official, while the management team is led by
industrial relations managers and key department manag-
ers. Both parties may also include attorneys experienced in
labor law and contract negotiations. Depending on the size
and complexity of the bargaining units and relevant issues,
preparations by both negotiating teams may begin several
months prior to actual negotiations or may begin as long
as a year prior to initiation of the bargaining process.
Negotiation Phase
Table 19.11 shows a representative list of bargaining sub-
jects. It is important to remember that almost any topic fall-
ing within the context of wages, hours of work, and other
terms and conditions of employment is a mandatory bar-
gaining subject. Some issues may be bargained to the point
of impasse but not lead to a work stoppage if the union feels
they are not issues about which members feel strongly. In
these situations, the final contract between the union and
the employer would just eliminate wording about these
particular issues. Some contracts allow either party to re-
open negotiations on any section of the contract by giving
the other party a notice of such interest. A change may also
be accomplished by amending the contract through a letter
of agreement covering a specific issue.
Administration of the Agreement
Unfortunately, there is no such thing as a “perfect” con-
tract. The negotiating teams cannot envision all the poten-
tial problems that could arise during the time span of the
contract. Different people will interpret the contract differ-
ently, especially depending on healthcare environmental
changes, economic conditions, and a number of other po-
tential changes. If the union, the employer, or an employee
believes that the collective bargaining agreement has been
Table 19.11 Representative topics for contract negotiations
Recognition and representation
Membership requirements
Wage rates (including cost-of-living clause)
Hours and overtime
Flextime options, including four days on, four days off, etc.
Shift differentials
Seniority
Vacations
Personal leave and provisions for time off
Holiday, overtime, on-call, “incentive,” and merit pay
Lunch and rest periods
Employee benefits (e.g., insurance, pensions)
Safety and health
Grievance procedure
Corrective action and discharge procedure
Strikes and lockouts
Effect of agreement and amendments
Use of bulletin boards
Management rights
Union security clause
Dues “checkoff ” clause
Terms of the contract
violated, the process for handling such disagreements is
contract administration, which uses the agreement’s griev-
ance procedure, which likely contains arbitration as the
final step. The purpose of such a process is to provide a
mechanism for handling day-to-day differences among
the union, management, and employees.
The grievance procedure includes a series of steps
through which the complaint may move toward resolu-
tion. The initial step usually includes a verbal discussion
with the opposite party. Each step contains time limits
for the appeal and response after the preliminary discus-
sions. Each step in the process also includes the addition
of higher levels of decision makers. If resolution is not
obtained, most collective bargaining agreements provide
that either the union or the employer, but not an aggrieved
employee, may appeal to arbitration; usually 60 to 120 days
elapse before a grievance reaches arbitration. During arbi-
tration, a neutral third party, or arbitrator, hears the facts
and each party’s position. The arbitrator then renders a
final and binding decision. These arbitrators are selected
and agreed upon by both parties prior to the beginning of
the arbitration process. The arbitration hearing is similar
to a court hearing; witnesses are called and subjected to
cross-examination, exhibits are introduced, and the op-
posing parties present opening and closing arguments.
However, there is no jury. Although a single individual
conducts most arbitration hearings, an arbitration panel
may be used.

Management Rights Clause
Although the length of this clause in the contract may vary
from several paragraphs to several pages, the management
rights clause generally states that management has the sole
right and prerogative to unilaterally make decisions con-
cerning the operation of the institution except as it may
be limited by the contract (10). These rights include the
right to hire, fire, suspend, and discharge for just cause;
to temporarily assign, promote, or discharge employees
according to the needs of the business; to determine the
methods of work; and other items. The inclusion of the
management rights clause can often eliminate prolonged
disagreement over many issues, one of which is the right
to suspend and discharge employees for just cause. These
policies must be clearly defined and consistently used. Of-
ten the union may challenge a suspension or discharge for
lack of just cause. The arbitrator may reinstate an employee
who has been improperly terminated. The arbitrator may
also decide on remedial action, such as full pay for all time
lost and restoration of all benefits that resulted from im-
proper discharge. Due to the potential for lengthy reme-
diation of such issues, many contracts include provisions
for an expedited grievance procedure, thus limiting the
potential for substantial remedial legal liability.
Summary
Contemporary labor law attempts to balance two goals: the
encouragement of stability through collective bargaining
and reasonable dispute settlement and the balance of bar-
gaining power between employees and management. In
the past few years, the field of labor relations has become
more relevant to the healthcare industry. Therefore, it is
critical that all levels of management personnel recognize
the importance of understanding labor relations, both as a
general concept and as a complex process with many parts.
Also, all of the systems inherent in labor relations must
be seen as dynamic, changing entities, primarily based on
changes in the laws themselves, changes in the regulations,
decisions of agencies participating in the administration of
the laws, and the decisions of the federal and state courts.
Through the years a number of changes have been
proposed regarding the NLRB’s regulations. However,
each proposed change has been carefully reviewed for its
impact on the balance of power between employees and
employers.
KEY POINTS
■ Labor laws are relevant for different groups of employ-
ees and employers.
■ Specific legal entities support, guide, and confirm appro-
priate behavior by unions, employers, and employees.
CHAPTER 19. LABOR RELATIONS 403
■ The unionization process is very clearly defined, with
specific actions that can and cannot be taken by all par-
ties involved.
■ The organizing campaign, election, and certification
form a step-by-step process through which a union may
or may not be voted in as the exclusive representative of
a particular bargaining unit.
■ Collective bargaining is comprised of mandatory, per-
missive, and illegal topics for negotiation.
■ Although some contracts are very detailed and inclu-
sive, there is no such thing as the “perfect” contract.
Therefore, the ability to administer the contract specifi-
cations can require a day-to-day working knowledge of
the contract and its use.
GLOSSARY
Administrative law judge The National Labor Relations Board
(NLRB) has a corps of judges who conduct hearings at which the
parties present evidence. These judges work for the NLRB. Deci-
sions of administrative law judges can be appealed to the five-
member Board in Washington, DC.
AFL-CIO American Federation of Labor–Congress of Indus-
trial Organizations; voluntary federation of unions that provides
education, lobbying, public relations, and consultation services
for unions; currently has 65 member unions covering more than
13 million employees.
Agency shop Requires nonunion members of the bargaining
unit to pay a “collective bargaining service fee” to the union;
however, the person is not required to join the union; other
terms are collective bargaining service fees and fair-share
arrangements.
Ally doctrine Acceptance of work normally performed by strik-
ing employees of a struck employer by a neutral employer; thus
the neutral employer becomes an “ally” of the struck employer;
the neutral or ally employer may be legally picketed by the strik-
ing employees of another employer; the ally doctrine does not
apply in healthcare settings (example: hospital).
Arbitration A process during which a neutral third party de-
cides the outcome of a dispute between labor and manage-
ment, typically regarding a collective bargaining agreement.
The arbiter then issues a decision, which is binding on the
parties.
Authorization card A card that authorizes the union to repre-
sent the employee during the collective bargaining process once
the card is signed by the employee.
Authorization card, required percentage The union must ob-
tain authorization cards from at least 30% of the employees in a
bargaining unit as proof of “employee interest” before the NLRB
will allow an election for union representation.
Bargaining topics Include wages, hours, and conditions of em-
ployment; neither labor nor management can refuse to bargain
on these issues.
404 PERSONNEL MANAGEMENT
Bargaining unit A group of employees (approved by the NLRB)
that share a community of interest and can vote in a union repre-
sentation election; they will be the group represented by the
union and are covered by the terms of the collective bargaining
agreement if the union wins the election and negotiates a con-
tract with the employer.
Bargaining unit, employees Usually composed of a family of
closely associated jobs.
Certification election Conducted by the NLRB to determine
whether employees do or do not want to be represented by the
union that wants to represent them.
Certified union Has the exclusive right to bargain on behalf of
the employees it represents; individual employees within the rep-
resented group are not allowed to enter into separate agreements
with the employer.
Charge An allegation made by an individual, employer, or labor
organization of an unfair labor practice (ULP) under the Na-
tional Labor Relations Act (NLRA); charges are filed at the NL-
RB’s regional offices.
Closed shop Illegal; an employment site where all employees
must join the union prior to employment.
Collective bargaining Contract negotiations between union
and employer; mandatory topics include wages, hours, and con-
ditions of employment. Collective bargaining is governed by fed-
eral and state statutory laws, administrative agency regulations,
and judicial decisions; in areas where federal and state law over-
lap, state laws are preempted.
Complaint After investigating a ULP charge, if the regional of-
fice finds merit and no settlement is reached, the regional direc-
tor of the NLRB issues a complaint in the name of the Board
stating the unfair labor practices and containing a notice of hear-
ing before an administrative law judge. The complaint does not
constitute a finding of wrongdoing but raises issues to be decided
by the judge.
Decertification An election in which bargaining-unit employees
vote to rescind the union’s certification as their representative.
Decertification requirement Petition for decertification elec-
tion requires a minimum of 30% of the employees within the
bargaining unit.
Dues Paid by the union members, usually on a monthly basis;
with employee-signed authorization, can be paid through auto-
matic payroll deduction.
Election (NLRB) Election process for union representation
with a secret-ballot election at the work site, including voting
booths and ballot boxes; overseen by an NLRB agent in a space
where the employee and union are not present during the ballot-
ing process.
Feather-bedding Union having employees paid for work not ac-
tually performed.
Full-time workers Workers who usually work 35 hours or more
per week at their sole or main job.
Good faith bargaining To bargain collectively is the perfor-
mance of the mutual obligation of the employer and the repre-
sentative of the employees to meet at reasonable times and confer
in good faith with respect to wages, hours, and other terms and
conditions of employment, or the negotiation of an agreement or
any question arising thereunder, and the execution of a written
contract incorporating any agreement reached if requested by
either party, but such obligation does not compel either party to
agree to a proposal or require the making of a concession.
Grievance Allegation, typically by a union or bargaining unit
employee, that the employer has acted improperly, usually by
violating provision(s) of the collective bargaining agreement.
Impasse A deadlock in negotiating between management and
union over terms and conditions of employment. According to
the NLRB, whether an impasse in bargaining exists “is a matter
of judgment” and depends on such factors as “bargaining history,
the good faith of the parties in negotiations, the length of the
negotiations, the importance of the issue or issues as to which
there is disagreement, the contemporaneous understanding of
the parties as to the state of negotiations.”
Labor laws, agency:
• 1936: National Labor Relations Act (Wagner Act) Federal
law passed in 1935; gives employees the right to organize,
select their representative(s), and bargain with the employer
regarding wages, hours, and working conditions; established
the authority of the NLRB.
• 1938 Fair Labor Standards Act (Black Act) Federal law
passed in 1938 that establishes minimum wage, overtime pay,
record keeping, and youth employment standards affecting
employees in the private sector and in federal, state, and local
governments.
• 1947: Labor-Management Relations Act (Taft-Hartley Act)
Federal law passed in 1947; amended the National Labor
Relations Act and established the authority of the Federal
Mediation and Conciliation Service.
• 1954: Labor-Management Reporting and Disclosure Act
(Landrum-Griffin Act) Designed to close loopholes in the
Taft-Hartley Act pertaining to internal union affairs; pro-
vides amendments to the National Labor Relations Act.
• 1974: Amendments to the NLRA Provides NLRA notice
requirements in the healthcare industry.
• 1978: Civil Service Reform Act Established the Federal La-
bor Relations Authority (FLRA) for administration of federal
sector labor relations.
• Federal Mediation and Conciliation Service (FMCS) Federal
agency that provides mediation services to labor and man-
agement to resolve bargaining impasse situations or to assist
in securing arbitrators.
Lockout When the employer closes the business or dismisses
employees in order to deny current employees access to the
workplace.
Management rights clause Contract clause in a bargaining
agreement that states that anything not covered in the contract
remains within the purview of management.

Managerial “employee” Persons who provide managerial func-
tions are not employees and are excluded from protection under
the National Labor Relations Act (NLRA).
Medicaid A federal health program for low-income adults, their
children, and people with certain disabilities. It is jointly funded
by the state and federal governments but is managed by the states.
Medicare A federal health program for people aged 65 or older
and younger people with certain disabilities. Those enrolled in
the program must pay deductibles and copayments. Medicare is
divided into four parts: Part A covers hospital bills, Part B covers
doctor bills, Part C provides the option to choose from a group of
healthcare plans, and Part D provides prescription drug coverage.
No-solicitation rule Rule instituted by management to prevent
solicitation of employees for union membership at the work-
place. Rules that are too broad are often found to be invalid by
the NLRB and the courts.
No-strike, no-lockout clause During the life of the contract, a
clause in which the union agrees not to strike and management
agrees not to lock employees out or keep them from reporting to
work.
Part-time workers Workers who usually work less than 35 hours
per week at their sole or main job.
Professional employees Employees meeting the NLRA (amended)
criteria; generally professionals and nonprofessionals are not in-
cluded in the same bargaining unit.
Represented by unions Employees who may or may not be
union members but whose jobs are part of a bargaining unit rep-
resented by a union.
Steward Individual within a union who serves as the union’s
counterpart of the employer’s manager or supervisor.
Unfair labor practice (employers) Interference with employee
rights to organize, join, or assist a labor organization.
CHAPTER 19. LABOR RELATIONS 405
Unfair labor practice (labor organizations) Restraining or co-
ercing employees as they exercise their legal rights; “even con-
duct that does not actually restrain or coerce employees but is
reasonably calculated to do so is prohibited” (www.lae.cornell
.edu/wex/unfair_labor_practices_ulps, accessed April 23, 2013).
Union shop A site where all employees must join the union after
a short introductory period.
REFERENCES
1. Bakke, E. W. 1960. To join or not to join. In E.W. Bakke, C. Kerr,
and C.W. Anrod (eds.), Unions, Management and the Public. Har-
court Brace Jovanovich, New York, NY.
2. Bureau of Labor Statistics. 2012. National occupational employ-
ment and wage estimates. www.bis.gov/oes/current/oes_nat.htm,
accessed April 25, 2013.
3. Bureau of Labor Statistics. 2013. Union members summary.
www.bls.gov/news.release/union2.nr0.htm, accessed April 25, 2013.
4. Emerson, R. W., and J. W. Haardwicke. 1987. Business Law, 3rd
ed. Barron’s Educational Series, Inc., Hauppauge, NY.
5. Fitzgibbon, R. J. (ed.). 1981. Legal Guidelines for the Clinical Lab-
oratory, p. 280–283. Medical Economics Co., Oradell, NJ.
6. Karni, K. R., K. R. Viskochil, and P. A. Amos (ed.). 1982. Clini-
cal Laboratory Management, p. 519–553. Little, Brown and Co., Bos-
ton, MA.
7. NLRB. 1979. NLRB no-solicitation rule guidelines. Labor Rela-
tions Reporter: News and Background Analysis. Bureau of National
Affairs, Washington, DC. 102:164.
8. NLRB. 2013. Fact sheet on the National Labor Relations Board.
www.nlrb.gov/news-outreach/fact-sheets, accessed April 25, 2013.
9. NLRB v J. Weingarten Inc. 1975. 420 US. 251, 35 LRRM 2689.
10. Snyder, J. R., and A. L. Larsen. 1983. Administration and Super-
vision in Laboratory Medicine, p. 262–280. Harper & Row, Philadel-
phia, PA.
406 PERSONNEL MANAGEMENT

APPENDIX 19.1 Helpful Websites Related to Unions and Collective Bargaininga

Workforce National Labor Relations Board

www.workforce.com www.nlrb.gov/rr/rr5.pdf
Stories on arbitration, employer-employee relations, the National Authority and assigned responsibilities.
Labor Relations Act, unions, and non-union shops.
United States Department of Labor
Federal Mediation and Conciliation Service www.dol.gov/compliance/guide/
www.fmcs.gov/ Elaws—employment law guide.
Independent agency to promote sound and stable labor-manage- American Constitution Society for Law and Policy
ment relations in such areas as dispute mediation, preventive media- www.acslaw.org/acsblog/the-future-of-the-national-labor-relations-act
tion, and alternative dispute resolution. FMCS mediators work from
more than 60 field offices around the United States, administer Communications Workers of America
through 10 geographic regions. www.cwa-union.org/issues/entry/c/health-care
Department of Health and Human Services
Legal Information Institute, Cornell University Law School
www.healthcare.gov
www.law.cornell.edu/topics/collective_bargaining.html
Primer on the laws of collective bargaining. a
All websites accessed April 25, 2013.

APPENDIX 19.2 Do’s and Don’ts for Management Regarding Union Activity
Things Management Can Do Regarding Union Activity (5)
• Tell employees that if a majority of the employees in the bar-
gaining unit select the union, the employer will have to deal
with the union on all their daily problems involving wages,
hours, and other conditions of employment. Advise the em-
ployees that the employer would prefer to continue working
with them directly on such issues.
• Emphasize that members of management are always willing
to discuss any subject. Remind the employees how earlier
problems have been resolved through such discussions.
• Remind employees of the benefits they currently enjoy, all
of which have been obtained without union representation;
avoid threats or promises, either direct or indirect.
• Point out how wages, benefits, and working conditions com-
pare favorably with other institutions in the area, whether
unionized or not; all information must be factual.
• Advise employees of the disadvantages of belonging to a
union, such as initiation fees, dues, fines, strike assessments,
and membership rules. Quote from the union’s constitution
and bylaws granting it authority to impose punishment and
discipline against its members and giving the international
organization power over the local.
• Tell employees there is a possibility that a union will call a
strike or work stoppage even though many workers may not
want one and the employer is willing to negotiate or has al-
ready been bargaining.
• Point out that any strike can cost employees in lost wages.
• Explain that in negotiating with the union, the employer does
not have to agree to all of its terms, and certainly not to those
terms that are not in the economic interest of the institution.
• Relate any experience with unions, especially the ones involv-
ing the organizing campaign; be factual.
• Provide employees with information about the union or its
officers; identify the source of the information.
• Point out any untrue or misleading statements made by an
organizer, in a pamphlet, or through any other medium; man-
agement may always give employees the facts.
• Advise employees that signing an authorization card does not
mean they have to vote for the union.
• Inform employees of the NLRB election procedures and the
importance of voting, and emphasize that the vote is by secret
ballot.
• Make and enforce rules limiting solicitation of membership
or discussion of union affairs to outside working time. How-
ever, remember that employees can solicit members and dis-
cuss the union on their own time, even on the premises, when
it does not interrupt work.
• Prohibit the distribution of union literature in patient care
areas.
• Restrict the wearing of union buttons to areas where there is
no patient contact.
• Enforce all other institution rules impartially in accordance
with established procedures.
CHAPTER 19. LABOR RELATIONS 407
Things Management Cannot Do Regarding Union Activity
• Promise employees a pay increase, promotion, benefit, or spe-
cial favor if they vote against the union.
• Threaten loss of job, reduction of income, or elimination of
privileges or benefits.
• Discharge, discipline, or lay off an employee because of union
activities (or threaten to do so).
• Spy on union meetings.
• Discriminate against workers actively supporting the union.
• Transfer employees because of union affiliation.
• Show partiality to employees not involved in union activities
over those active in union activities.
• Discipline or penalize employees supporting a union for an
action permitted to employees not supporting a union.
• Separate pro-union employees from other employees through
assignments or transfers.
• Ask employees how they intend to vote in a union election.
• Question workers about whether they belong to a union or
have signed an authorization card.
• Inquire about internal affairs of the union.
• Ask employees about the union sentiments of their coworkers.
• Say that the employer will not deal with the union.
• Urge employees to persuade others to oppose the union.
• Give financial support or assistance to a union, its represen-
tatives, or employees; this restriction prevents an employer
from favoring one union over another.
• Make speeches to assemblies of employees on institution time
within the 24-hour period prior to a representative election.
• Call employees to your office or visit their homes to discuss
the union.
• Remember these TIPS; do not do the following:
• Threaten
• Intimidate
• Promise
• Spy
Introduction
20
Regulated and Nonregulated Testing
Workplace Drug Testing
Whom To Test
Preemployment Testing • For Cause/Reasonable
and the Clinical Laboratory
Suspicion • Random Testing • Return to Duty
Drug Testing Protocol Jimmy R. Lea
Specimen Collection • Specimen Testing • Cutoff
Concentrations • Drug Confirmation • Reporting
Results
Managing Clinical and Forensic Drug OBJECTIVES
Testing
Summary
To learn the rationale for and differences between regulated and nonregulated
testing
KEY POINTS
To provide guidelines for collection, testing, and reporting of results in
GLOSSARY
workplace drug testing
REFERENCES
To give the reader insight to the commonalities and differences between clinical
APPENDIXES
and forensic drug testing

Doveryai, no proveryai (Trust but verify).

Russian proverb

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch20
O
n December 8, 1987, President Ronald Reagan quoted this Russian
proverb as the opening statement to the signing of the Medium Range
Missile Treaty with the Soviet Union. The English translation, “Trust
but verify,” could just as well have been stated the previous year, when on Sep-
tember 15, 1986, President Reagan signed executive order 12564, Drug-Free
Federal Workplace, launching the first widespread initiative to deter drug use
in the workplace. One can reasonably argue that this maxim of trust and ver-
ify is a core principle for this new federal workplace drug testing program.
Twenty-five years later, regulated (federal) and nonregulated (private sector)
drug testing is commonplace in our culture. Clinical laboratory scientists
(CLSs), whether they manage a federal laboratory or a private sector labora-
tory, may utilize their expertise and understanding of quality management to
enhance the hiring process for their own employees as well as the institution
they represent. While the human resources (HR) department sets the guide-
lines for the hiring process, the CLS manager can represent a vital quality and
technical resource for the employer’s drug policy. After all, drug testing results
are laboratory results, and who recognizes the need for quality laboratory re-
sults better than the CLS manager?
Technical competence and quality assurance are the foundation of any
laboratory. This is also true for any workplace drug testing program. Review-
ing processes for workplace drug testing provides CLS managers an opportu-
nity to understand how basic laboratory management skills can benefit their
employers’ drug testing policies. The hiring of qualified laboratory staff and
maintenance of a safe working environment for the laboratory are direct ben-
efits of a well-designed workplace drug testing policy.

408
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 409

Regulated and Nonregulated Testing (How many HR people do not realize pH directly affects
the immunoassay of some drugs?) Furthermore, the CLS
The Mandatory Guidelines for Workplace Drug Testing
manager understands the need for confirmation of any
Programs (53 C.F.R. 11979) clearly define federal work-
presumptive (preliminary) positive screening result.
place drug testing as to the drugs/drug class and speci-
Trust but verify.
men validity parameters to be tested (3), as shown in
Table 20.1. The majority of laboratories are in the state
or private employment sector and must be considered Whom To Test
for nonregulated testing. While some states may have
Workplace drug testing is designed to provide a safe work
specific requirements for workplace drug testing of lab-
environment, discourage drug use, and provide assistance
oratory employees, private sector laboratories are free
in the treatment, recovery, and return to work of individu-
to design their own programs. Certainly, the 53 C.F.R.
als with substance abuse problems. As stated by The Coun-
11979 documents have been used as a reference point
cil on Alcohol and Drugs (http://www.livedrugfree.org/
for nonregulated testing. Many private sector employers
Drug-Free-Workplace-FAQ.72.0.html, accessed March 1,
choose to broaden the scope and depth of the require-
2012), “The one place where there can be mandated adult
ments. This may include changing the cutoff concentra-
education is the workplace.” Testing acts not only as a de-
tion for each analyte screened (higher or lower) as well as
terrent, but as an opportunity to educate about the prob-
increasing the number of drugs and drug classes tested
lems of substance abuse.
from five to ten or more (see Table 20.2). A key difference
The most common utilization of workplace drug testing
is the creatinine requirement, with many nonregulated
includes:
protocols raising the cutoff of acceptability to 20 mg/dl
(4). This is an effective change to detect and deter the do- • Preemployment testing as a condition of hiring. Testing
nor from “flushing” a drug with mass quantities of water of applicants may be restricted to a particular job de-
prior to submitting a sample. CLS personnel can provide scription or category such as safety-sensitive positions
employer clarity in the technical explanation of the ben- or may be applied as a nondiscriminatory practice (4, 6)
efits of this and other requirements for specimen validity. to all applicants for all positions.

Table 20.1 Analytes and cutoff concentrations for federally regulated testinga
Initial test cutoff Confirmatory test Confirmatory test cutoff
Initial test analyte concentration (ng/ml) analyte concentration (ng/ml)
Marijuana metabolites 50 THCAb 15
Cocaine metabolites 150 Benzoylecgonine 100
Opiate metabolites 2,000 Codeine 2,000
or or
Codeine/morphinec 2,000 Morphine 2,000
6-Acetylmorphine 10 6-Acetylmorphine 10
Phencyclidine 25 Phencyclidine 25
Amphetaminesd,e 500 Amphetamine 250
and
Methamphetaminef 250
MDMAg 500 MDMA 250
and
MDAh 250
and
MDEAi 250
a
Effective date: October 1, 2010. See reference 3.
b
Delta-9-tetrahydrocannabinol-9-carboxylic acid (THCA).
c
Morphine is the target analyte for codeine/morphine testing.
d
Either a single initial test kit or multiple initial test kits may be used, provided the single test kit detects each target analyte indepen-
dently at the specified cutoff.
e
Methamphetamine is the target analyte for amphetamine/methamphetamine testing.
f
To be reported as positive for methamphetamine, a specimen must also contain amphetamine at a concentration greater than or equal
to 250 ng/ml.
g
Methylenedioxymethamphetamine (MDMA).
h
Methylenedioxyamphetamine (MDA).
i
Methylenedioxyethylamphetamine (MDEA).
410 PERSONNEL MANAGEMENT

Table 20.2 Drug categories and cutoff concentrations for nonregulated testinga
Screening cutoff Confirmation cutoff
Drug (ng/ml) (ng/ml) Comments
Amphetamine 1,000 500 If amphetamine is ≥500 ng/ml, assay is confirmed. If meth-
amphetamine is ≥250 ng/ml, then amphetamine must be
>250 ng/ml for confirmation.
Barbituratesb 200 or 300 200 or 300 Confirmed analyte is the parent drug.
Benzodiazepinesb 200 or 300 200 or 300 Confirmed analyte is the parent drug.
Cannabinoids 50 15 Confirmed analyte is the metabolite THCA.
Cocaine 300 300 Confirmed analyte is the metabolite benzoylecgonine.
Methadone 300 300 Confirmed analyte is the metabolite 2-ethylidine-1,5-
dimethyl-3,3-diphenylpyrrolidine (EDDP).
Methaqualone 300 300 Confirmed analyte is the parent drug.
MDMA (ecstasy) 500 500 If MDMA is ≥500 ng/ml then MDA must be >250 ng/ml.
Opiates 2,000 2,000 If morphine is >5,000 ng/ml then 6-mono-acetyl-morphine
must also be present at >10 ng/ml.
Opiates 300 300 Confirmed analyte(s) are codeine, morphine, hydrocodone,
and/or hydromorphone.
Oxycodone 300 300 Confirmed analyte(s) are oxycodone and/or oxymorphone.
Phencyclidine (PCP) 25 25 Confirmed analyte is the parent drug.
Propoxyphene 300 300 Confirmation is of metabolite norpropoxyphene.
a
Modified from: Cut-off and Toxicity Levels For Drugs-of-Abuse Testing, http://www.clr-online.com (4 April 2012). See Table 20.1 for abbreviations.
b
Some laboratories use 200 ng/ml as the screening cutoff concentration for these drugs while others use 300. The confirmation cutoff must be the same concentration
as used for screening.

• “For cause” or reasonable suspicion. Performed when co-
workers or supervisors observe inappropriate behavior,
work performance, or behavior indicative of drug im-
pairment/intoxication (4, 6). Specific and detailed poli-
cies for identifying worker impairment and subsequent
testing should be followed with this testing to avoid
claims of discrimination, personal vendetta, or the like.
• Postaccident testing. As outlined by the employer’s HR
policy, testing may be a routine requirement to protect
the employer and the employee in worker’s compensa-
tion claims stemming from on-the-job injury (4, 6).
• Random testing. Sometimes referred to as “neutral
selection” testing (3), personnel in safety- and security-
associated jobs may be the only workers required to
be tested (4, 6).
• Return to duty. Also designated as “fitness testing” (3),
return-to-duty testing may be a requirement for an
employee assistance program (EAP) (6).
Preemployment Testing
The basic component of any workplace drug policy is the
preemployment drug test (3). At some point in the hir-
ing process, the job candidate will be required to submit
a specimen for testing. This should come as no surprise
to the candidate, as it is routine on many applications to
make the candidate aware that this employer requires
completion and passing of a urine drug test in order to be
hired. CLS managers should embrace and encourage this
practice to ensure that the candidate chosen during the
hiring process will not be a safety issue to coworkers or to
the patients served through the quality of results generated
by the laboratory.
For Cause/Reasonable Suspicion
For-cause drug testing should follow a written policy
and procedure (1) that documents the preliminary steps
taken prior to collection and analysis. This policy should
be approved by the employer’s risk management or legal
department. The request should document a specific ad-
ministrative approval chain of command. Rationale for
conducting a for-cause test must be based on specific, ob-
jective, and articulated facts. Any drug history related to
the source of impairment is beneficial to establishing the
breadth of the testing to be performed. Much has been re-
ported about identifying and treating addicted healthcare
workers (5). Specific statistics on clinical laboratory em-
ployees have not been reported.
Random Testing
Preemployment testing notification before and during the
hiring process forewarns an applicant with recreational or
chronic substance abuse issues to take steps to avoid de-
tection. Random testing is the most effective and continu-
ous monitoring tool available for maintaining a drug-free
workplace (6). The element of surprise in random testing
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY
allows no time to attempt to take adulterants or delay test-
ing. Notification of intent to test and a defined time to
complete collection are critical to the success of random
testing. There should be strict guidelines in a written pol-
icy prior to implementing testing (6). Checking state and
federal guidelines for allowance of random testing is ad-
visable. All employees must have an equal chance of being
tested to eliminate any hint of bias or discrimination (4).
Return to Duty
A worker seeking help with a substance abuse problem
is required to submit to monitoring (testing) during and
upon completion of the recovery program (4, 6). The ben-
efits to the employer and manager are as significant as
those to the employee. The time, effort, and expense to
recruit, hire, and train new personnel are greater than
the cost of the EAP and the cost of drug testing during the
monitoring for return to duty.
Drug Testing Protocol
Specimen Collection
The most vulnerable point of the drug testing process is at
specimen collection (3, 4, 6). In nonregulated testing, direct
observation is generally not an option. A review of the col-
lection procedure by the critical eye of an experienced CLS
is beneficial to ensure that the process is sound. The funda-
mentals should include a clear and concise chain of custody,
a control form, a controlled physical environment at the
collection site, and a well-trained collector. (See http://www
.reginfo.gov/public/do/PRAViewIC?ref_nbr=201007
-0930-002&icID=193835 [accessed July 13, 2012] for a
regulated chain-of-custody form.)
Figure 20.1 shows the first page of a sample six-part drug
testing request and custody form for nonregulated testing.
• Copy 1 is retained by the testing laboratory.
• Copy 2 is identical to copy 1 and is sent to the medical
review officer (MRO) once testing is completed and
the results are entered into section 9.
• Copy 3 unblocks section 7 (Fig. 20.2) and blocks sec-
tions 9 and 10; this copy is also given to the MRO.
• Copy 4 is identical to copy 3 but is given to the donor.
• Copy 5 is retained by the collector. It is identical to
copy 3 except that the phone numbers and information
below the signature line are blocked out.
• Copy 6 is identical to copy 5 and is given to the employer.
• The back of copy 6 contains the specimen collection
instructions (Fig. 20.3).
A criterion for specimen collection is outlined in Sub-
part H of the Department of Health and Human Services
SAMHSA Collection Site Manual (see Appendix 20.2). The
411
53 C.F.R. 11979 collection protocol is an excellent standard
to follow when training collectors and implementing an
effective urine collection process. Accurately document-
ing the process is critical to protecting the integrity of the
donor, the collector, and the results. Experience in under-
standing the necessity to link the requisition, specimen,
and result is second nature in CLS management and is a
valuable insight to the forensic collection process and re-
quirements. It is the chain of custody that distinguishes the
clinical from the medicolegal. Although clinical laborato-
ries may experience mislabeled, misplaced, or lost speci-
mens (albeit a relatively small percentage for the volume of
specimens received and processed), forensic documenta-
tion is specifically designed to negate any such occurrence.
The chain-of-custody/control form, initiated at collection,
represents a diary of that specimen through the preanalyti-
cal, analytical, and postanalytical processes. Furthermore,
each aliquot’s disposition associated with the process can
be traced from the original sample bottle (2, 3, 6).
Specimen Testing
Having completed the collection, the initial step in testing
is receipt of the sample, while verifying and maintaining
the chain of custody. The difference in managing the clini-
cal receiving process from a forensic receiving require-
ment is not the verification of sample demographics but
the documentation of that verification (2). Specimen integ-
rity is also part of this process. Any evidence of tampering,
errors, or irregularities are strictly noted and are potential
fatal errors to continuing the process toward analysis. All
scenarios should be detailed in the policy and procedures.
Once verified, accepted, and logged into the laboratory,
aliquots can be prepared from the original sample(s) to
perform analytical testing. Immunoassay is the most com-
mon analytical method (2) to perform the initial screen-
ing for drugs of abuse. A CLS manager may be acquainted
with one or more immunoassay techniques. Based upon his
or her experience or existing technology within the clinical
laboratory, a CLS manager may select between a radioim-
munoassay, enzyme immunoassay, fluorescence polarization
immunoassay, and particle assay analyzer. The advantages
and disadvantages of each method may have already been
determined by the manager’s evaluation for clinical test-
ing. Batch analysis provides economy of scale and cost ef-
ficiency. An important distinction for the CLS manager to
note is that quality control samples are included with each
batch of samples, at a greater frequency than necessary in
clinical testing. A typical forensic sample batch consists of
positive, negative, and blank (2, 3) samples. The positive
control will contain the specific analytes to be tested, typi-
cally at a concentration 20–25% above the cutoff calibration
concentration. The negative control will contain the specific
analytes to be tested at a concentration 20–25% below (2, 3)
the cutoff calibration concentration. The blank control is
412 PERSONNEL MANAGEMENT

Figure 20.1 Nonregulated custody and control form containing multiple forms to serve as docu-
mentation for donor, collector, laboratory, and medical review officer. The choice of drugs to be
tested is dependent upon the client’s requirement. doi:10.1128/9781555817282.ch20.f1
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY 413

a true drug-free (2, 3) sample. Use of the terms “negative”

and “blank” may be misleading to the CLS manager, as
negative in the clinical setting is commensurate to a blank
specimen. The utility of the negative control in the forensic
batch, followed by the blank control, is an effective safe-
guard for the presence of carryover by the instrument. Ad-
ditional positive and negative controls are placed within
the batch, with a recommended frequency of one set per
10 samples. The blank is only analyzed once.

Cutoff Concentrations
In nonregulated testing, an employer may have specific

the formats differ slightly, documentation for donor, collector, laboratory, and medical review
Figure 20.2 Federal custody and control with mandated drugs/drug classes to be tested. Although
concerns or rationale for requesting cutoff concentrations
that differ from the standards specified in the 53 C.F.R.
11979 document for regulated testing. Knowledge of the
specificity and sensitivity for a particular immunoassay
is beneficial to the CLS manager when discussing an em-
ployer’s request to utilize a higher or lower cutoff for test-
ing. Direction and guidance may be required to assist the
employer (or your own HR department) in selecting the
correct calibration or specific immunoassay to best meet
the expressed desire. Most importantly, the CLS manager
will be able to explain that the chosen method and cutoff
for screening provides only a “presumption” of the pres-
ence of drug or drug metabolite and therefore must be
confirmed by an alternate methodology.

officer is included. doi:10.1128/9781555817282.ch20.f2

Drug Confirmation
Once a specimen within the screening batch has been
identified as “presumptive positive” for a particular drug
or metabolite, confirmation must be performed on a new
aliquot from the original sample (2–4). To the CLS man-
ager, this may be akin to the verification of a panic value
for a clinical specimen by repeating the analysis on the
sample to ensure that the result is true. It is essential that
all presumptive positive results be confirmed by an alter-
native method, using a calibration cutoff at least as sen-
sitive as the screening cutoff (2). The accepted standard
for confirmation is mass spectroscopy (MS), with either
gas chromatography (GC) or liquid chromatography (LC)
as the separation technique (2, 3). Recent technology ad-
vances have allowed for more sophisticated choices to in-
clude a tandem mass spectrometer (MS-MS) coupled to
either a GC or LC instrument. With MS technology, the
cutoff concentration for confirmation can be tied to spe-
cific drugs and metabolites at greater sensitivity and lower
concentration than with immunoassay. Both MS technol-
ogies may be a novelty to a CLS manager; however, the
blossoming use of tandem mass spectrometry in clinical
testing, particularly immunosuppressant drugs and vita-
min D analysis, is worth noting. Acquiring this technology
is of mutual benefit to clinical and workplace drug testing,
thereby enabling a CLS manager to multitask the instru-
mentation. Use of GC-MS and/or LC-MS-MS technology
for drug confirmation or clinical testing has the added
414 PERSONNEL MANAGEMENT

Forensic Drug Lab Requisition and Specimen Collection Instructions

Sample Collection Materials

Complete urine collection kit includes the following:
• Drug Testing Request and Custody (DTRC) Form
• 60 mL Tamperproof Urine Specimen Bottle with Temperature Indicator, Chain-of-Custody Label and optional ID Label
• Female Collection Adaptor
• Dox™ Easy Press Closer
• Chain-of-Custody Bag with Absorbent Pad

Completing the Requisition

Complete the DTRC Form by providing the following information. Press firmly, as you are making six copies.

Collector: The use of gloves and universal precautions are recommended during sample preparation.
• Verify identification of the donor with a picture ID.
• Open the sample collection kit in the donor’s presence.
• Complete the Drug Testing Request and Custody Form as described below.

Before Specimen Collection

• Collector completes lines 1 through 4 of Copy 1 of the DTRC Form.
• Collector deactivates the water supply and places dye in the toilet and removes any soap or other foreign material.

Specimen Collection
• Collector gives clean specimen bottle to the Donor.
• Collector instructs the Donor to void at least 30 mL of urine into the specimen bottle. The Donor must not flush the
toilet or attempt to use the lavatory until returning the specimen bottle to collector!

After Specimen Collection

• Collector activates the water system and allows the Donor to return to the collection unit.
• Collector enters the Specimen ID number (from the top right of the DTRC Form) on the Chain of Custody Label, places
the specimen bottle in the ring of the Easy Press Closer and places a closure top on the specimen bottle with the spout
through the hole in the handle. The Collector holds the base firmly with one hand and presses the handle down with the
other until the closure “snaps” and locks into place.
• Collector has the Donor complete the “From” line on the Chain-of-Custody Label, then the Collector completes the “To”
line, dates and times the collection on the Label, and places the Label on the specimen bottle.
• Collector reads and records temperature on line 5 of Copy 1 of the DTRC Form.
• Donor completes section 7 (all parts) of Copy 3 of the DTRC Form.
• Collector completes lines 6 and 8 of Copy 1 of the DTRC Form and gives Copy 4 to the Donor.
• Collector places sealed bottle and completed DTRC Form in the Chain-of-Custody Bag, seals the bag, and has the donor
initial and date Chain-of-Custody Bag, then the Collector initials the Bag.

THE SPECIMEN IS NOW READY FOR TRANSPORT.

Figure 20.3 Specific and detailed instructions for the chain-of-custody collection are essential. Speci-
men collection remains the most vulnerable component of forensic drug testing. Inaccurate or incom-
plete information may invalidate the collection as a “fatal error.” doi:10.1128/9781555817282.ch20.f3

management challenges of hiring, training, and retaining
personnel with the skills and proficiency necessary to pro-
vide accurate, reliable, and defendable results.
Reporting Results
Just as a CLS manager implements protocols for result
review or autoverification prior to release of results to a
clinician or client, workplace drug testing results require
specific review also. Designated, experienced, and quali-
fied personnel certify (verify) both negative and presump-
tive positive screened results (3, 6). Presumptive positive
screens subjected to confirmation testing are certified as
confirmed positive or negative. Certified positive results
in regulated testing are required to undergo final review
by a certified medical review officer (MRO) (3, 6). Indeed,
the use of an MRO review for nonregulated testing is a
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY
valuable and beneficial quality assurance procedure. The
MRO is responsible for making the final determination
about the validity of the confirmed positive result. The
donor may have legitimate reasons for testing positive
for a particular drug or metabolite in the urine sample
provided for testing. Through personal contact and in-
terview, the MRO may determine if the positive result is
caused by a valid medication or from medical treatment
or ingestion of particular food (poppy seeds) (6). There-
fore, a confirmed positive by the laboratory may have a
final negative result reported by the MRO, with the em-
ployer or client unaware of the presumptive positive or
confirmed positive result. The MRO’s training and certi-
fication provide the combined medical and analytical ex-
pertise (6) to make the correct final analysis of the result.
A working knowledge of MRO certification by the CLS
manager offers benefits and opportunities if the decision
is made to include workplace drug testing in the clinical
laboratory. Utilizing existing pathologist staff as a certified
MRO is a viable and cost-effective option.
Managing Clinical and Forensic
Drug Testing
CLS managers are experienced in the accreditation process
and requirements for clinical laboratory testing, having
met CLIA, CAP, and/or state standards for their laboratory.
Clearly, this is an advantage to negotiating the challenges
associated with regulated and nonregulated workplace
drug testing. While standards and requirements for clini-
cal and workplace drug testing share commonalities (2, 6),
the intertwining of clinical and forensic specimens is to
be avoided. Instrumentation utilized for analysis of both
specimen types may be the same, but it is important to
have separate policies and procedures for each. Batching
of specimens is cost-effective for any analysis, but clinical
specimens must be sequestered from forensic specimens.
Following sound chain-of-custody practices will prevent
mixing clinical and forensic specimens when the same
analyzer must be used for both.
The training, skill, and documentation of competency
in workplace drug testing may involve greater detail for
the personnel engaged in this activity within the clinical
laboratory. As stated previously, the instrumentation and
methods of analysis for clinical and workplace drug testing
may be identical for a particular laboratory, but detailed
documentation for forensic specimens may seem onerous
to the clinical laboratorian. Identifying laboratory person-
nel to perform specific functions and maintain specific
responsibilities (2) for workplace drug testing is key to
management. This element must be well thought out by a
CLS manager before considering adding workplace drug
testing to the clinical laboratory’s responsibilities.
415
Summary
Workplace drug testing is a reality of employment in the
majority of small and large businesses. Clinical labora-
tories may choose to expand revenue and service oppor-
tunities within this growing market. As such, the CLS
manager should be aware of the benefits of testing to their
own workplace safety and to the requirements to establish
and maintain a quality workplace drug testing laboratory.
Expertise in the preanalytical, analytical, and postanalyti-
cal procedures for workplace drug testing is an achievable
goal for any CLS manager.
KEY POINTS
■ The instrumentation and methodology for clinical and
workplace drug testing are similar.
■ CLS manager experience with accreditation standards,
requirements, and implementation are skills that enable
clinical and workplace drug testing to enhance the labo-
ratory management of either.
■ Management policies for drug testing benefit from tech-
nical knowledge provided by the laboratory. Whether
contributing as the site of testing or not, the CLS man-
agement should be actively engaged in providing tech-
nical and practical expertise to ensure a safe workplace
for their laboratory.
■ Drug and drug classes to be tested differ for regulated
(federal) and nonregulated workplace drug testing. Ac-
creditation is required for regulated testing (SAMHSA).
Nonregulated testing may be subject to state law and re-
quire either SAMHSA or CAP-FDT accreditation.
■ A medical review officer (MRO) is required for regu-
lated testing and may be a state requirement for non-
regulated testing. Review by a certified MRO is strongly
recommended for nonregulated workplace drug testing
programs.
GLOSSARY
American Association of Medical Review Officers (AAMRO)
Voluntary medical organization dedicated to establishing na-
tional standards for the certification of medical practitioners
who perform drug and alcohol testing.
College of American Pathologists Forensic Drug Testing (CAP-
FDT) Accreditation for forensic drug testing by College of
American Pathologists provides standards and proficiency in fo-
rensic drug testing. Drugs and drug classes included in the profi-
ciency go beyond the limited scope designated in mandatory
federal drug testing programs.
Cutoff concentration The concentration of drug designated to
determine a positive screening or confirmatory test from a nega-
tive result.
416 PERSONNEL MANAGEMENT
Enzyme immunoassay A competitive binding assay that em-
ploys an enzyme-bound antibody to detect a specific antigen
(drug). The enzyme catalyzes a reaction when exposed to a sub-
strate, and the reaction rate is measured spectrophotometrically
to quantitate the concentration of antigen.
Fluorescence polarization immunoassay Fluoroimmunoassay
where detection of the hapten-antibody reaction is based on
measurement of the increased polarization of a fluorescence-
labeled hapten when it is combined with antibody. The assay is
very useful for the measurement of small haptenic antigens such
as drugs at low concentrations.
Gas chromatography mass spectrometry (GC-MS) Analytical
instrument that consists of methodologies. The gas chromatog-
raphy portion separates the sample into a pure compound, and
the mass spectrometer identifies and quantifies the compound
based on structure.
Kinetic microparticle immunoassay Immunoassay in which a
conjugate reagent consists of drug bound to microparticles. The
microparticle conjugates in solution minimally block light trans-
mission. When antibody to the drug is added to the conjugate
solution, lattice formation takes place as the antibodies cross-
link the microparticles by binding to the drug moieties. The re-
sulting lattice structure effectively blocks light transmission and
increases absorbance. Unconjugated drug in the sample com-
petes with the drug conjugates for antibody-binding sites, and
the degree of lattice formation is inhibited proportional to the
concentration of the drug in the urine.
Liquid chromatography–mass spectrometry (LC-MS-MS)
Analytical technique that combines the physical separation capa-
bilities of liquid chromatography with the mass analysis capabili-
ties of dual mass spectrometers.
Medical review officer (MRO) The role of the medical review of-
ficer is to review and interpret lab results obtained through a foren-
sic drug testing program. The MRO must be a licensed physician
trained and certified in the knowledge of substance abuse, interpre-
tation of analytical results for drugs of abuse, and evaluation of
medical history and relevant biomedical information to render a
final decision on positive drug results.
Radioimmunoassay Competitive binding assay that uses a
radio-labeled antibody to detect the concentration of unlabeled
antigen (drug).
Substance Abuse and Mental Health Services Administration
(SAMHSA) Branch of U.S. Health and Human Services charged
with improving the quality and availability of prevention, treat-
ment, and rehabilitative services to reduce illness, death, disabil-
ity, and cost to society resulting from substance abuse and mental
health. The administrator of SAMHSA reports directly to the
secretary of the U.S. Department of Health and Human Services.
The agency is responsible for accreditation of all laboratories en-
gaging in federal workplace drug testing.
REFERENCES
1. Chamberlain, R. T. 1988. Legal issues related to drug testing in
the clinical laboratory. Clin. Chem. 34(3):633–636.
2. Clinical and Laboratory Standards Institute. 2007. Toxicology
and Drug Testing in the Clinical Laboratory; Approved Guideline,
2nd ed. CLSI document C52-A2. Clinical and Laboratory Standards
Institute, Wayne, PA.
3. Federal Register. 2008. Substance Abuse and Mental Health Ser-
vices Administration: mandatory guidelines for federal workplace
drug testing programs. Fed. Regist. 73(228):71858.
4. Kapur, B. M. 2012. Drug testing methods and clinical inter-
pretation of test results. eNotes. http://www.enotes.com/drug
-testing-methods-clinical-interpretations-test-reference/drug-testing
-methods-clinical-interpretations-test (accessed May 21, 2012).
5. Kenna, G. A., and D. C. Lewis. 2008. Risk factors for alcohol and
other drug use by healthcare professionals. Substance Abuse Treat-
ment Policy 3:3.
6. Shults, T. F. 2009. Medical Review Officer Handbook, 9th ed.
Quadrangle Research, LLC, Research Triangle Park, NC.
 CHAPTER 20. WORKPLACE DRUG TESTING AND THE CLINICAL LABORATORY
APPENDIX 20.1 Case Vignettes
CASE 1: SPECIMEN COLLECTION
A 24-year-old male reported to the forensic collection site for a
preemployment drug screen (nonregulated test). Upon comple-
tion of the chain-of-custody and control (C-o-C) form, he re-
ceived the specimen cup and entered the collection stall. Within
a few minutes, he placed the filled collection cup in the desig-
nated area for processing by the collector. The collector noted that
the specimen container had no reading on the temperature strip
(90–100°F). Per protocol for the forensic laboratory, the collector
labeled and sealed the specimen and completed the C-o-C form.
The donor was requested to complete another C-o-C form and
submit for a second collection. The donor complied and submit-
ted a second specimen, which met the temperature requirement.
The collector completed the second C-o-C form and submitted
both the donor specimens to the laboratory for analysis. Analy-
sis of the specimens yielded GC-MS–confirmed results for both
specimens; however, specimen 1 was confirmed for cocaine
metabolite and specimen 2 was confirmed for THC metabolite.
During the MRO review, the donor admitted to recent use of
APPENDIX 20.2 Websites
American Civil Liberties Union
http://www.aclu.org/files/FilesPDFs/testing-chart.pdf (accessed
May 5, 2012)
This section lists state-by-state statutes and orders applying to work-
place drug testing.
American Presidency Project
http://www. presidency.ucsb.edu/ws/index.php?pid=36416#px22/
mw4/cufk (accessed February 20, 2012)
This section contains Ronald Reagan Executive Order 12564—
Drug-Free Federal Workplace.
Council on Alcohol and Drugs
http://www.livedrugfree.org/Drug-Free-Workplace-FAQ.72.0.html
(accessed March 1, 2012)
This section contains Drug-Free Workplace FAQ.
Federal Register
https://www.federal.register.gov/ (accessed March 20, 2012)
This government agency archives all government directives and
documents. Information on current and past revisions to federal
regulations may be accessed by the public.
417
marijuana and that the first specimen was from a surrogate who
he was unaware had used cocaine. Doveryai, no proveryai.
CASE 2: SPECIMEN VALIDITY
A preemployment specimen received by the forensic drug labo-
ratory was analyzed for drugs of abuse (nonregulated), adher-
ing to a urine creatinine cutoff of 20 mg/dl as requested by the
employer client. The specimen was negative by immunoassay for
all drugs of abuse tested but flagged for a urine creatinine value
of 15 mg/dl. The laboratory reported the result to the MRO, who
requested a recollection to obtain a valid specimen (creatinine
≥20 mg/dl). The donor was recollected within 24 hours and the
specimen submitted to the forensic lab for drugs of abuse analy-
sis. The immunoassay was presumptive positive for THC, with a
urine creatinine of 120 mg/dl. The THC was confirmed positive
by GC-MS and reported to the MRO. The MRO noted that had
this specimen been submitted as a regulated testing sample, the
original result would have been accepted since the creatinine was
>5 mg/dl.
Substance Abuse and Mental Health Services Administration
http://www.samhsa.gov/data/NSDUH/2k10/Results/web/HTML/
2K10Results.htm (accessed April 1, 2012)
This is the site for Drug Use and Health: Summary of National Find-
ings (accessed April 1, 2012).
U.S. Archives
http://www.archives.gov/federal-register/codification/executive
-order/12564.html (accessed March 1, 2012)
This is the citation for Executive Order 12564—Drug-Free Federal
Workplace.
U.S. Department of Justice
http://www.deadiversion.usdoj.gov/pubs/brochures/drug_hc.htm
(accessed April 4, 2012)
This section describes drug addiction in healthcare professionals.
Requirements for Effective
IV
Laboratory Management
(section editor: Andrea J. Linscott)
21 Quality Management
Ron B. Schifman, George S. Cembrowski, Donna M. Wolk, and
Joanne I. Brisbois
22 International Organization for Standardization
Anne Marsden and Amy Shahtout
23 Effective Communication in Laboratory Management
Elissa Passiment and Andrea J. Linscott
24 The Laboratory Information System: Making the Most of It in the
Clinical Microbiology Laboratory
Joseph M. Campos
25 Management of Point-of-Care Testing
Glen L. Hortin and Christopher D. Doern
26 Principles of Preanalytic and Postanalytic Test Management
Adarsh K. Khalsa, Michael Santacruz, and Michael A. Saubolle
27 Selection and Implementation of New Equipment and Procedures
Paula Revell and Lakshmi Chandramohan
28 Laboratory Safety
James J. Dunn and David L. Sewell
29 Emergency Management
Andrea J. Linscott, Patti Medvescek, and David L. Sewell
Introduction
21
Quality Management of Preanalytical
Quality Management
Processes
Test Selection and Ordering • Quality of Specimen Ron B. Schifman, George S. Cembrowski, Donna M. Wolk,
Collection • Patient and Client Satisfaction •
Specimen Transport, Storage, Receipt, and and Joanne I. Brisbois
Preanalytical Processing
Quality Management of Analytical
Processes
Method Selection and Evaluation • Quality Control •
Quality Control Rules • Frequency of Quality Control OBJECTIVES
Analysis • Specification of MAE • Use of Patient
Data for Quality Control • External Quality Control To understand the three phases of the total testing process
(Proficiency Testing) To understand factors affecting quality of test ordering, specimen collection,
Quality Management of Postanalytical and patient satisfaction
Processes To understand basic statistical processes involved in monitoring analytical
Turnaround Time performance
Corrected and Incomplete Reports To understand factors affecting test turnaround time
Document Control
To understand the role of corrected and incomplete reports in quality
Summary management
KEY POINTS
To understand systems for document control
GLOSSARY
REFERENCES
APPENDIXES Quality has to be caused, not controlled.
Philip Crosby, Reflections on Quality

Q uality management is a system for continuously analyzing, improv-

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch21
ing, and reexamining resources, processes, and services within an or-
ganization (7, 25, 34, 36, 43, 92, 94, 98, 127). This is accomplished by
defining quality indicators that are measured and analyzed either over time or
compared to similar or identical indicators from other departments or organi-
zations (benchmarking) (100). The primary objective of quality management
is to achieve the best possible outcome. Quality indicators provide informa-
tion on which to base strategies for improvement, and quality is achieved by
reducing variability by standardizing these processes across the organization.
Managing the development and implementation of a quality program requires
a global understanding of the various resources, processes, and outcomes as-
sociated with laboratory medicine as well as healthcare systems and their reg-
ulatory environment in general (32).
The design of a quality management system depends in large part on ex-
pected outcomes. For example, processes involving identification of patient
specimens for blood transfusion purposes are much more rigorous than pro-
cesses for identifying patient specimens for general chemistry testing because
the possible risk of a poor outcome from a misidentified specimen is substan-
tially higher for the former (72). Fortunately, poor outcomes from laboratory
errors are uncommon. The frequency of laboratory mistakes is estimated to be
about 1 per 1,000 patient visits in which laboratory testing is performed. Of
these errors, only about a quarter of mistakes are judged to have any impact on
patient management, and very few are associated with any significant adverse
patient outcome (24, 87). In 2005 a 5-week prospective study of patient and

421
422 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
specimen identification errors at 120 (primarily hospital)
laboratories documented 345 adverse events arising from
6,100 identification errors (126). More than 70% of the ad-
verse events resulted in significant patient inconveniences
with no known change in treatment or outcome.
Developing an effective quality management program
is challenging because the goal of the program (good
outcomes) is often difficult to quantify and may involve
processes that are not directly under the laboratory man-
ager’s control (73). In this context, quality assessment of
laboratory medicine should be viewed as part of the orga-
nization’s total quality plan. The “total testing process” is
a concept that provides a comprehensive working model
for evaluating the components of the laboratory’s quality
management plan as an interdependent component of the
organization’s total quality improvement program (54, 84,
103, 104, 135).
The total testing process consists of three phases. The
first phase, the preanalytical phase, involves all the various
processes and resources that precede the measuring step.
This phase includes proper ordering and test selection by
the clinician, patient preparation, specimen collection,
identification, transport and/or storage, and premeasure-
ment laboratory processing.
The second phase, the analytical phase, involves man-
aging the reliability of instruments and reagents used for
measuring patient specimens and obtaining test results.
This phase relies heavily on statistical quality control pro-
cesses to reduce errors and variation in test measurements.
Quality management of the analytical phase is the most
standardized and regulated and has therefore received the
most attention. The fewest errors occur during this part of
the testing cycle. For example, various studies have shown
that only 13 to 32% of laboratory errors are due to analyti-
cal problems (9). Howanitz et al. (51) have suggested that
the heavy focus on laboratory quality control processes has
diverted attention and resources away from other equally
important quality objectives associated with the pre- and
postanalytical phases of testing.
The last phase, postanalytical, involves reporting, inter-
pretation, and clinical use of test results. Application of dif-
ferent quality management processes may involve one or a
combination of all three phases. For example, turnaround
time and examination of reasons for corrected reports are
important quality indicators that may cross over any or all
phases of the testing process.
The College of American Pathologists (CAP) (http://
www.cap.org) provides numerous management tools to
assist laboratories with quality improvement. Two in par-
ticular, the Q-Probes and Q-Tracks programs, focus on
pre- and postanalytical phases of the testing process (100,
138). Several standardized monitors are provided each
year to participants. The Q-Probes program provides a se-
ries of cross-sectional quality assurance studies with peer
evaluations, while the Q-Tracks program provides con-
tinuous quality monitors for tracking changes over time.
These programs have substantial value for benchmarking
performance and tracking improvement. Table 21.1 shows
the 2011 Q-Probes and Q-Tracks monitors. A broad range
of Q-Probes studies from the last 15 years is available from
the CAP for use by laboratories. These predesigned quality
assurance studies are linked with historical data for bench-
marking performance and can be a useful supplement to a
laboratory’s quality program.
Organizational structure, personnel information, and
utilization management as well as laboratory safety are im-
portant components of the total quality management plan
and are discussed in other chapters. In addition, many
of the laboratory’s quality management procedures con-
ducted in clinical laboratories today have been mandated
by regulatory and accreditation requirements. Participat-
ing in on-site laboratory inspections and appropriate ex-
ternal proficiency programs is required to comply with
government regulations (see chapter 5, this volume).
Quality Management
of Preanalytical Processes
Even the most accurate measurement using the most up-
to-date technology by a highly trained technologist may
cause an untoward clinical outcome if the wrong test is or-
dered or the specimen is compromised prior to analysis
(28, 67, 68, 95, 116). The preanalytical phase of the testing
cycle is complex and is prone to the most variation and
the highest proportion of errors (24, 64, 110). For example,
one study uncovered only 0.47% erroneous results arising
from 40,490 stat tests performed for critical-care patients.
Of these erroneous results, 68% occurred during the pre-
analytical phase of testing, compared to 13% of errors
during the analytical phase and 18% in the postanalytical
phase. About one-quarter of all erroneous results led to
unnecessary additional testing or therapy (91).
Test Selection and Ordering
The first step in the testing process occurs at the moment
of test selection. While the majority of laboratory testing is
ordered by physicians and nurse clinicians, other groups,
including pharmacists in some jurisdictions, can order
tests. Information on laboratory testing is expansive and
involves knowledge of the indications for testing, includ-
ing test sensitivity and specificity for the patient’s condi-
tion or diagnosis. Many tests are performed for monitoring
or screening, so frequency of test ordering may need to
be considered. Multiple clinical guidelines provide ex-
pert opinions about clinical indications for testing based
on specific signs, symptoms, or suspected disorders (27,
78). However, implementation of these guidelines has
proven difficult (11). Some approaches for managing the

Table 21.1 CAP Q-Tracks and Q-Probes quality assurance pro-
gram, 2011a
Q-Tracks
Patient Identification Accuracy (QT1)
Assess the incidence of wristband errors within individual institu-
tions, compare performance between participating institutions, and
identify improvement opportunities.
Blood Culture Contamination (QT2)
Determine the rate of blood culture contamination using standard-
ized criteria for classifying contaminants.
Laboratory Specimen Acceptability (QT3)
Identify and characterize unacceptable blood specimens that are
submitted to the chemistry and hematology sections of the clinical
laboratory for testing.
In-Date Blood Product Wastage (QT4)
Compare the rates of blood product wastage (i.e., units discarded
in-date) in participating hospitals and track rates of improvement
over time.
Satisfaction with Outpatient Specimen Collection (QT7)
Assess patient satisfaction with outpatient phlebotomy services by
measuring patients’ assessment of waiting time, level of discomfort,
courteous treatment, and overall satisfaction.
Stat Test Turnaround Time Outliers (QT8)
Monitor the frequency with which stat test turnaround time inter-
vals exceed institutional stat test turnaround time expectations.
Critical Values Reporting (QT10)
Evaluate the documentation of successful critical values reporting
in the general laboratory for both inpatients and outpatients ac-
cording to the laboratory’s policy.
Turnaround Time (TAT) for Troponin (QT15)
Determine the median order-to-report turnaround time of tropo-
nin (I or T) ordered on patients presenting to emergency depart-
ments (EDs) with signs and symptoms of acute myocardial injury.
Corrected Results (QT16)
Monitor the number of corrected test results within individual
institutions and compare performance with that of all institutions
and those institutions similar to yours.
Outpatient Order Entry Errors (QT17)
Measure the incidence of incorrectly interpreted and entered out-
patient physician test orders, compare performance across institu-
tions, and track performance over time.
Specimen Acceptability in Blood Bank (QT18)
Identify and characterize incorrectly collected and labeled blood
specimens submitted to the blood bank for testing.
Q-Probes
Laboratory Services for Emergency Department (QP111)
Measure order-to-report turnaround times for laboratory tests
requested from the ED and measure ED physician satisfaction with
the provided TAT.
Appropriateness of Plasma Transfusions (QP112)
Assess the conformance of plasma transfusion practice to institu-
tional guidelines and assess the posttransfusion coagulation testing
documentation and extent of coagulation correction achieved.
Clinical Consequences of Specimen Rejection (QP114)
Quantify the effect of laboratory specimen rejection on the delay in
test result availability. Determine the effect on test result availability
by (i) the reason for specimen rejection, (ii) the detection method
for mislabeled specimens, and (iii) the laboratory’s policy regarding
resolution of improperly labeled specimens.
a
CAP (http://www.cap.org).
CHAPTER 21. QUALITY MANAGEMENT 423
quality of test selection include monitoring the frequency
of testing use by algorithms and instituting test restriction
policies (59). Limits can be established for test ordering
frequency. Thus, for a slowly changing analyte like hemo-
globin A1c (used to monitor glucose control in diabetics),
some healthcare systems cancel any new test order if the
hemoglobin A1c is ordered within 28 days of the last test
(75). Some laboratory information systems can notify the
clinician about potential excess ordering patterns when the
number of tests (e.g., two serum cholesterol orders within
a week) exceeds a predetermined number (4, 117). Use of
algorithms in which indications for ordering a test depend
on the results of another test or other patient parameters
can be effective. Examples include deferring serological
testing for acute hepatitis A when alanine aminotransami-
nase is normal or deferring ova and parasite examinations
in patients who have been hospitalized for more than three
days (82). To promote optimal test usage, a multifaceted
approach is recommended, including clinician education
about laboratory testing, controls on ordering, and feed-
back about the individual clinician’s test utilization (108).
New Zealand offers such a program for its general practi-
tioners that combines physician education and utilization
feedback; initial results have been dramatic (120).
Preanalytical errors associated with ordering tests in-
clude inaccuracies or omissions when transcribing from
paper requisitions into a laboratory computer system,
tests performed but not actually ordered, associating the
order with the wrong physician, and mistakes with as-
signing priority status to the order (e.g., stat, routine). Of
all tests ordered, about 2% are not completed because of
these problems (124). In one study involving 660 labora-
tories, 4.8% of about 115,000 outpatient orders resulted in
mistakes (125). The most common was assignment of the
wrong physician with an order, and the least common was
test priority assignment. High test volume, verbal orders,
and lack of laboratory policies and procedures to ensure
a high-quality order entry process were associated with
higher error rates.
While ordering errors and inappropriate test requests
should be tracked and trends should be investigated, ma-
jor advances in improving the quality of test selection will
depend on advances in healthcare information systems
strengthening their ability to assist clinicians based on other
information in the patient’s electronic record (4, 44, 93).
Schiff reported that 2% of patients with a laboratory diag-
nosis of hypothyroidism were not informed of this finding
by their clinician. Another 5% with hypothyroidism were
lost to follow-up, and patients with thyroid replacement
therapy were not considered (97). Computer linkage of lab-
oratory data to a pharmacy database would decrease such
issues and improve patient safety. Use of computerized test
ordering directly by the physician reduces clerical and tran-
scription errors associated with paper requisitions, reduces
424 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
costs, and improves utilization (106, 118). Electronic access
to patients’ imaging and laboratory results is not a panacea;
physicians who were able to access their patients’ radiology
and laboratory results online tended to order more tests,
especially radiologic tests (77).
Quality of Specimen Collection
Laboratory test results may be affected by the patient’s
condition at the time of specimen collection, as well as by
the materials and procedures used for specimen collec-
tion (80). These types of errors may be easily overlooked
and lead to inaccurate test interpretations or incomplete
testing due to specimen rejection (e.g., hemolysis), insuf-
ficient volume, or incorrect collection containers. In one
study that examined more than 800,000 outpatient visits at
210 facilities, about 0.4% of phlebotomy procedures were
unsuccessful (31). The most common causes in order of
frequency were nonfasting patient, missing orders, unsuc-
cessful phlebotomy procedure, patient left collection area,
and patient not prepared for test (other than nonfasting
status). Of the successful blood collections, 0.26% of speci-
mens were unsuitable for testing. In order of decreasing
frequency, this was caused by hemolyzed specimen, insuf-
ficient specimen volume, clotting of anticoagulated speci-
men, lost specimen, mislabeling, and rejection based on
delta check failure. Other studies have shown that about
0.35% of specimens submitted for chemistry examinations
are rejected, with hemolysis being the most common rea-
son, and about 0.45% of specimens received for hematol-
ogy testing are rejected, with specimen clotting being the
most common reason (56, 57). The quality of coagulation
testing depends greatly on good collection technique and
full sampling (1, 64). A review of videotaped phlebotomies
showed that 4 of 10 phlebotomists did not mix their filled
blood tubes and 2 of 10 delayed mixing (45). Delayed mix-
ing of filled plasma separator tubes can cause artifactual
increases in troponin and hCG (115).
Well-documented and validated specimen collection
procedures used by trained phlebotomy and nursing staff
are key factors to prevent preanalytical errors from affect-
ing the overall quality of the testing process (6, 8). It is im-
portant to provide patients with detailed instructions about
preparation prior to collecting the specimen and then to
make sure the instructions were followed. For example, two
consecutive studies have found that between 25 and 34% of
toxic serum digoxin levels were likely falsely elevated due to
specimen collection too soon after patients ingested their
medication (49). These falsely high results can be avoided
by instructing phlebotomists to ask patients when they last
took a digoxin pill to determine if a specimen collection
should be deferred to a later time. To mitigate the prob-
lem of falsely elevated digoxin results in northern Alberta,
an interdisciplinary team of a clinical biochemist, phar-
macists, and clinicians mandated evening digoxin dosing.
This nocturnal dosing coupled with the usual morning
therapeutic monitoring has resulted in very few incorrectly
timed digoxins (D. LeGatt, personal communication).
Phlebotomists should always ask if a patient is fasting prior
to collecting a specimen for triglyceride, as false elevation
of serum triglyceride occurs in specimens collected from
nonfasting patients, making this determination meaning-
less. Measuring total creatinine on 24-h urine specimens
helps determine whether a complete 24-h collection was
obtained, and this can be monitored as a quality indicator.
Special attention must be given to the collection of
specimens for microbiological examinations. Poor-quality
specimens that are collected improperly or inappropriately
will produce useless or even misleading results that may
be misinterpreted as having significance to patient care
(134). In some cases, specimen quality can be evaluated
by smear examinations before cultures are performed,
and specimens may be deferred from testing if judged to
be of poor quality (83). For example, excessive epithelial
cells seen on a Gram stain from a sputum specimen sug-
gest that the specimen contents are from the mouth rather
than the lower respiratory tract; this may warrant rejection
of the specimen for culture. Another example, the failure
to collect a sufficient number of sputum specimens, is the
most common cause of delayed diagnosis of tuberculosis
in HIV-infected patients (37, 76).
While contaminated cultures from sterile sources can-
not be completely eliminated, they can be reduced with
good aseptic collection techniques. Proper sterile prepa-
ration of the venipuncture site with the correct materials
and careful collection procedures by a properly trained
phlebotomist significantly reduce the cost of blood culture
contamination, which varies up to fivefold between labo-
ratories (42, 69, 102, 107, 130). Blood collection processes
have important implications for costs and outcomes. A
preliminary false-positive blood culture results in addi-
tional costs of $4,000 per episode because of prolongation
of hospitalization and concomitant laboratory testing and
therapies (3). Finally, the specimen may be collected prop-
erly, but there may be insufficient blood volume or inad-
equate specimen numbers to provide the highest-quality
result. For example, collection of solitary rather than mul-
tiple blood cultures makes it difficult to differentiate con-
tamination from true bacteremia when coagulase-negative
Staphylococcus sp. is isolated (99).
It is critically important that specimens be labeled cor-
rectly and properly. The frequency and reasons for incor-
rect patient identification should be part of the laboratory’s
quality assessment program. Delta checking (see Use of
Patient Data for Quality Control) is a method in which the
laboratory manager establishes parameters in the labora-
tory information system that flag current patient results
that differ substantially from previous results (53, 62,
63). Generally, delta checks are not very helpful in highly

automated laboratories because of the relative absence of
sample mix-up and analytic error. Delta checks also lack
utility for most analytes because of large expected changes
in these analytes (e.g., glucose). Other analytes are more
sensitive (e.g., red blood cell mean corpuscular volume).
Depending on how the parameters are set, only a small
proportion of delta check investigations will uncover spec-
imen mix-up errors in today’s healthcare organizations,
where the median identification error rate is 4 per 10,000
(88, 105, 114, 126).
Patient and Client Satisfaction
Typically, the only direct experience patients have with
the laboratory is during phlebotomy. Patient satisfaction
with this experience is an important preanalytical quality
measurement. This is determined by patient surveys as
well as objective parameters such as patient waiting times
or number of self-reported hematomas (47), number of
needlesticks, and even the cleanliness of the phlebotomy
area (22).
Laboratories should also conduct nurse and physician
satisfaction surveys. Excessively long turnaround time is
usually the most significant concern expressed by both phy-
sicians and nurses (54, 57, 111). Esoteric test turnaround
time has been associated with low levels of physician sat-
isfaction (55). Nurse customers were the least satisfied
with test turnaround time in the intensive care units and
emergency departments (58). Setting up a hotline through
which clients can report potential problems or errors and
make inquiries may help large laboratories improve cus-
tomer support services. It is useful to track this information
to look for trends or ideas for quality improvement.
Specimen Transport, Storage, Receipt,
and Preanalytical Processing
Specimens can deteriorate through prolonged delays or
failure to maintain proper conditions during transport.
Some tests (e.g., urine culture, coagulation tests) are more
susceptible than others to processing delays. The World
Health Organization has published a very useful compre-
hensive monograph that documents the stability of anti-
coagulated blood and serum and plasma specimens (137).
It is difficult to monitor transport times or even collec-
tion time when the collection is not under the control of
the laboratory. Specimens that are lost or mishandled in
other ways (e.g., broken tube) during transport or preana-
lytical laboratory processing should be tracked as a quality
indicator (see Corrected and Incomplete Reports). Specifi-
cations for specimen transport and storage based on stabil-
ity of analytes should be validated and documented.
Accurate identification of the specimen throughout the
testing process is facilitated by the use of bar codes that
can be scanned by laboratory instruments prior to testing
(119). Bar codes are significantly more reliable than the
CHAPTER 21. QUALITY MANAGEMENT 425
manual entry of specimen information. Bar-coded speci-
mens prevent errors due to misplacement of specimens
into instruments or when aliquoting specimens into sec-
ondary containers. Bar code systems work best when in-
tegrated into the blood collection process with wristband
(inpatient) or identification card (outpatient) positive pa-
tient identification schemes. Finally, significant error re-
duction can be accomplished with the implementation of
robotic technology for the automated handling of all as-
pects of preanalytical within-laboratory specimen process-
ing (10, 46).
Quality Management
of Analytical Processes
Quality management of the analytical phase involves re-
ducing inaccuracy and imprecision (variability) of test
methods as much as possible (109). Attention to stan-
dardizing test procedures and monitoring method perfor-
mance with a well-designed quality control system are the
key elements for meeting this management goal. Appro-
priate method selection and proper training are additional
factors that are important for success.
Method Selection and Evaluation
Method selection is laboratory dependent and based on
characteristics that best fit internal goals for cost, timeli-
ness, and reliability (see chapter 27, this volume). These
characteristics include type of specimen required, sample
volume, run size, population to be tested, instrument ca-
pacity, analysis time, personnel requirements, existing
equipment, safety, utilities (e.g., electrical, water), and
space requirements. The complexity of analysis, includ-
ing calibration, stability of reagents and controls, sensitiv-
ity and specificity of the method, linear range of analysis,
and interferences, as well as types of internal and external
proficiency systems, are factors that may affect method
selection decisions. In the United States, most laboratory
methods require review of rigorous premarket evaluations
and approval by the U.S. Food and Drug Administration
(FDA). As a result, implementation of FDA-approved
tests is usually relatively straightforward. Validation and
implementation of non-FDA-approved methods can be
much more complex and labor-intensive and require sub-
stantially more development and evaluation, as well as re-
sources. Sometimes, the best decision is to outsource a test
when rapid turnaround time is not necessary, test volume
is low, or it is difficult to maintain an acceptable quality of
proficiency.
Method evaluation and implementation involves as-
sessing the analytical process statistically by the use of
control materials, establishing or validating the reference
(normal) range of the population being tested, document-
ing the procedure in writing (both for laboratory use and
426 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
another document for client use), and training personnel
(Table 21.2). When a new method is introduced, it must
be compared to the old method before bringing it into
use. All procedure changes, training, and analytical per-
formance data from the previous method should be docu-
mented, and clients should be notified of changes affecting
interpretation of results.
Quality Control
The term “quality control” describes the approach used to
monitor the analytical process to ensure that the test results
meet their quality requirements. Quality control includes
establishing specifications for the analytical process, moni-
toring the analytical process to determine conformance to
these specifications, and taking any necessary corrective ac-
tions to bring the analytical process into conformance (16).
The primary quality characteristic that is monitored
during the analytical process is the deviation of an analyti-
cal measurement from expected. If the size of this devia-
tion (also known as error) is large, the analytical process
may be defective and thus must be investigated. Errors
can be classified as systematic (resulting in a shift) or ran-
dom (resulting in increased imprecision). They may also
be classified as persistent or intermittent. Other typically
monitored quality characteristics of the analytical process
include specific instrument checks that are usually unique
to a particular instrument.
The deviation of the analytical measurement from the
expected value is usually monitored by repetitively assaying
one or more levels of quality control specimen. The results
of testing these commercially prepared, stabilized control
specimens are compared to a range of expected values cal-
culated as the mean and variance (standard deviation) of
Table 21.2 Method evaluation and implementation
Stage I
Prepare and document procedure
Validate linearity and calibration
Determine within-run imprecision
Evaluate for interferences
Stage II
Determine between-day imprecision
Compare to old method
Evaluate acceptability of imprecision and bias
Perform or validate reference range(s)
Stage III
Establish final quality control ranges, critical values, and delta checks
Train personnel
Complete and sign procedure documents
Notify clients of any significant changes in method
these measurements. If the quality control result deviates
significantly as defined by quality control rules (see below),
routine analysis is suspended, the analytical run is investi-
gated, and corrective action is taken.
Usually two or three different control levels are used.
In hematology and hormone (ligand) measurements, it is
standard to use three levels; in general chemistry, two levels
are standard. As a rule, it is better to have more measure-
ments on fewer control products. Laboratories may also
compare their own quality control results to those gener-
ated in other laboratories using the same lot of control ma-
terials and instrument/reagent systems. This information
is provided by most commercial manufacturers of quality
control materials and provides a way to assess bias and
imprecision of the laboratory’s methods relative to others’
tests performed under similar quality control conditions
(Fig. 21.1). Quality control systems for microbiological
and serological testing are primarily qualitative in nature.
Control testing is performed to check the performance of
media, biochemical reactions (positive or negative), im-
munological reactions, or expected growth in the presence
of antibiotics (susceptibility testing). In molecular micro-
biology, more than three standards are typically used to
generate standard curves for quantitative measurements
and are combined with two or three density levels (e.g.,
low, mid, and high density), external positive controls, or
standards.
Quality Control Rules
Quality control rules developed for the clinical laboratory
originated in the early 1950s with Levey-Jennings charts.
These charts were implemented with three standard de-
viation (SD) limits for the mean and range of two controls
analyzed just twice per week. By the 1960s, the limits had
been reduced to two SD for single controls (Fig. 21.2). In
the next decade, statistical quality control rules were im-
plemented to help reduce the number of false rejections.
Table 21.3 shows some of the common quality control
rules used to evaluate control measurements today. West-
gard et al. have developed a nomenclature for these control
rules and devised graphical summaries (power function
curves) of their sensitivity and specificity (131, 132). For
most applications of clinical laboratory quality control, a
combination of the 1-3SD and the 2-2SD control rules is
adequate. The 1-3SD rule can detect increases in random
error and large systematic errors, while the 2-2SD control
rule detects moderate-sized systematic errors. This qual-
ity control combination is relatively simple to implement
and has a relatively low false rejection probability. Figure
21.3 shows how the 1-3SD and the 2-2SD control rules
are applied at one laboratory. On highly precise analyz-
ers, the analytical variation of some analytes may be so
small that violations of the 1-3SD or 2-2SD rules can be
 CHAPTER 21. QUALITY MANAGEMENT 427

Laboratory Performance Overview

Lab 123456 Cardiac Markers Lot 30710 TM

QC Coordinator Data For: 07-2003

Associated Regional Laboratory Lot Exp: 06-2004
Printed: 08-15-2003
123 Main St.
Page 1
Anytown, NY 12345-6789

Troponin-I 2.0
Chemiluminescence
L Bayer ADVIA Centaur
e Dedicated Reagent 1.0
v mg/dL S
e D 0 CVR
Peer Method I
l
SDI: -0.39 0.32 -1.0
1 CVR: 0.5 0.1
# Labs: 37 224
# Points: 1500 7964 -2.0

2. 0

L
e 1. 0
v S
e D 0 CVR
l Peer Method I
SDI: -0.44 0.01 -1. 0
2 CVR: 0.5 0.0
# Labs: 30 150
# Points: 1269 5181 -2. 0

2.0

L
e 1.0
v S
e D 0 CVR
Peer Method I
l
SDI: -0.07 -0.08 -1.0
CVR: 0.7 0.1
3 # Labs: 40 210
# Points: 1706 7608 -2.0

© 2003 BIO-RAD LABORATORIES • ALL RIGHTS RESERVED

Figure 21.1 Examples of interlaboratory quality control reports. (A) The SDI (a peer-based mea-
sure of bias) and CVR (a peer-based estimator of precision) are combined as an x, y coordinate
within three performance zones: acceptable, acceptable to marginal, and marginal.
(continued)
428 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Laboratory Comparison Report

Lab 123456 Cardiac Markers Lot 30710 TM

QC Coordinator Data For: 01-2003

Associated Regional Laboratory Lot Exp: 06-2004
123 Main St. Printed: 08-15-2003
Anytown, NY 12345-6789 Page 1

The following statistics are derived from user-supplied data and are provided by Bio-Rad Laboratories as a service to customers. Such action does not imply
support of reported analytes and test methods. Refer to the package insert for specific analyte claims and stability information.
Peer group statistics contained in this report may not be used without the express written consent of Bio-Rad Laboratories.

Analyte
Method Units Temp Level 1 Level 2 Level 3
Instrument/Kit
Reagent Mon Cum Mon Cum Mon Cum

Troponin-I
Chemiluminescence ng/mL
Bayer ADVIA Centaur
Dedicated Reagent

Your Lab Mean 1.49 1.60 10.78 11.08 38.94 38.17

SD 0.053 0.074 0.332 0.405 1.60 1.49
CV 3.6 4.6 3.1 3.7 4.1 3.9
(Peer) CVR 0.5 0.6 0.5 0.6 0.7 0.7
(Method) CVR 0.1 0.1 0.0 0.1 0.1 0.1
(Peer) SDI -0.39 0.27 -0.44 0.03 -0.07 -0.28
(Method) SDI 0.32 0.37 0.01 -0.03 -0.08 -0.17
# Points 4 151 4 151 4 151

Peer Group Mean 1.53 1.57 11.08 11.06 39.10 38.78

SD 0.102 0.111 0.677 0.635 2.14 2.20
CV 6.7 7.1 6.1 5.7 5.5 5.7
# Points 1500 5889 1269 4917 1706 6900
# Labs 37 39 30 32 40 41

Group Values by Method Mean 1.21 1.23 10.70 11.34 40.46 41.98
SD .0866 .100 .786 1.023 1.901 2.294
CV 7.15 8.13 7.35 9.02 4.70 5.46
# Points 7964 37806 5181 25366 7608 35479
# Labs 224 254 150 179 210 238

© 2003 BIO-RAD LABORATORIES • ALL RIGHTS RESERVED

Figure 21.1 (continued) (B) Reports provide monthly and cumulative statistics for the laboratory
and between-laboratory comparisons with a peer group. Report includes mean, standard deviation,
coefficient of variation, CVR, SDI, number of data points, and number of laboratories. CVR, coef-
ficient of variation ratio, a ratio of laboratory imprecision to peer group imprecision. A value less
than 1 indicates better than average imprecision; a value greater than 1 indicates more than average
imprecision compared to the peer group. doi:10.1128/9781555817282.ch21.f1

Figure 21.2 Quality control charts. doi:10.1128/9781555817282.ch21.f2
caused by very small errors that would not affect the clini-
cal interpretation of the test result. For these tests, it might
be reasonable to expand the control limits and diminish
the frequency of attempts at correction and prevention
of these small errors. Variations of these rules have been
adapted for testing platforms in quantitative molecular mi-
crobiology (66).
Frequency of Quality Control Analysis
The more frequently control products are analyzed, the more
quickly analytical errors can be detected, investigated, and
corrected. For some tests, government regulations specify
the longest period over which controls need not be analyzed.
While many laboratories analyze controls more frequently,
CHAPTER 21. QUALITY MANAGEMENT 429
the government-mandated period tends to become a de
facto standard for control analysis. The average time to de-
tect a persistent error has been shown to be one-half of the
period between control analyses (90). Thus, if the period be-
tween control analyses is 24 h, an error may impair labora-
tory testing for an average of 12 h before being detected. It
is possible to shorten the interval between control analyses
without increasing the number of controls analyzed. Rather
than analyzing several controls one after another, each con-
trol can be tested at different times of the day. As a result,
the period between control testing is shortened. For example,
rather than analyze three blood gas controls every 24 h, one
can be tested every 8 h. Using this control analysis schedule,
the average time to detect a persistent error will be 4 h.
430 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 21.3 Common quality control rules

1-2SD Use as a rejection or warning when one control observation exceeds the Overused. Should only be used with manual
x − (±2SD) control limits; usually used as a warning. assays with low number of analytes/control
materials.
1-3SD Reject a run when one control observation exceeds the x − (±3SD) con- Detects random error and large systematic
trol limits. error.
1-3.5SD Reject a run when one control observation exceeds the x − ±(3.5SD) Detects large random and systematic error.
control limits. Use only with highly precise assays.
1-4SD Reject a run when one control observation exceeds the x − ±(4SD) con- Detects large random and systematic error.
trol limits. Use only with highly precise assays.
2-2SD Reject a run when two consecutive control observations are on the same Detects systematic error.
side of the mean and exceed the x − (+2SD) or x − (−2SD) control
limits.
4-1SD Reject a run when four consecutive control observations are on the same Detects small systematic error; very few
side of the mean and exceed either the x − (+1SD) or x − (−1SD) control applications.
limits.
10x Reject a run when 10 consecutive control observations are on the same Detects very small errors; do not use.
side of the mean.
R-4SD Reject a run if the range or difference between the maximum and mini- Detects random errors; use within run.
mum control observation out of the last 4 to 6 control observations
exceeds 4SD.
x-0.01 Reject a run if the mean of the last N control observations exceeds the Underutilized
control limits that give a 1% frequency of false rejection (pfr = 0.01).
R-0.01 Reject a run if the range of the last N control observations exceeds the Underutilized
control limits that give a 1% frequency of false rejection (pfr = 0.01).

Some laboratories do not analyze quality control speci-
mens on a periodic basis; rather, the number of controls
analyzed depends on the number of patient specimens run.
Because reference laboratories can analyze large numbers
of specimens over the course of a day, regular but infre-
quent control analysis may result in large numbers of sam-
ples being analyzed with minimal information provided
about the run quality. As such, many reference laborato-
ries test their patient samples in batches, with a specific
number of controls analyzed in each batch. Only when the
quality control specimens are within quality control limits
is the batch of patient results reported. Some authors have
suggested that for high-volume multichannel chemistry
analyzers, control specimens be tested between every 30
and 100 patient specimens (85). Some referral laboratories
do not use specimen number to establish quality control
frequency; they test quality control specimens more fre-
quently, e.g., each hour.
Specification of MAE
The primary function of quality control is to maintain a
stable analytic process. Once the process is stable, then
any required improvements can be implemented. Speci-
fications for maximum allowable error (MAE) provide
information about the adequacy of an analytic system for
patient care. MAE represents the magnitude of total error
that can be tolerated without invalidating the medical use-
fulness of the result. The analytical quality of a test can be
evaluated by comparing its total analytic error to the MAE;
this is a method for setting goals for the analytical perfor-
mance of a laboratory test.
Several different approaches have been used for deter-
mining the MAE of laboratory tests. One of the first was
offered in 1963 (121) by Tonks, who insightfully suggested
that the MAE be based on interindividual variation. For
most analytes, he suggested that the MAE should be no
greater than one-quarter of the analyte’s reference inter-
val (normal range) (121). Cotlove et al. proposed that the
MAE should be less than one-half of the intraindividual
range (29). Ricos et al. tabulated MAEs for over 300 differ-
ent analytes based on biological variation and associated
method biases and imprecisions (96).
Table 21.4 compares the MAE for select analytes to typi-
cal amounts of imprecision of current laboratory analyzers.
There is tremendous variation in the MAEs, ranging from
around 1% for serum sodium to 30% for various urine as-
says. The MAE/imprecision ratio is a measure of the analyti-
cal quality of the test method. The ratio can be thought of
as the magnitude of shift, expressed in standard deviations,
which will render a test measurement unfit for medical us-
age. Thus, for sodium, whose ratio is approximately 1, just a
1% shift in measured sodium might make the measurement
too inaccurate for serial monitoring. Sodium is an extreme
example because its plasma concentration is tightly con-
trolled by multiple feedback mechanisms. Where a test’s
MAE/imprecision ratio is less than 2.5, it is highly desirable
 CHAPTER 21. QUALITY MANAGEMENT 431

Figure 21.3 Flow chart showing implementation of the 2-2SD/1-3SD control procedure. Courtesy
of Tammy Hofer. doi:10.1128/9781555817282.ch21.f3

that the manufacturer reduce the method’s imprecision.
This is a better approach than adding extra quality control
samples to attempt to detect small analytical errors on a
system that has insufficient reproducibility. Such effort is
highly frustrating and, in the authors’ opinion, generally
nonproductive. For analytes with MAE/imprecision ratios
of 2.5 or less, we recommend the combination of the 1-3SD
and 2-2SD rules, possibly combined with the R-4SD rule.
Table 21.5 shows recommended quality control rules for
various MAE/imprecision ratios. Whenever possible, the
laboratory manager should deploy instruments that pro-
vide tests with MAE/imprecision ratios that exceed 3.5.
For analytical systems with high MAE/imprecision ratios,
it is possible to employ control rules with very low false
432 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Table 21.4 Comparison of MAEs derived from physiological variation to typical instrument imprecisions
Analyte MAE (%), 95% limits
Serum albumin 3.9
Urinary albumin 46.1
Urinary creatinine, 24 h 6.9
Activated partial 4.5
thromboplastin time
Hemoglobin 4.1
Serum sodium 0.9
Urinary sodium, 24 h 28.8
rejection probabilities, such as 1-3SD or 1-3.5SD or even
1-4SD (21).
Unfortunately, selection of analyte-specific control
rules can require variations in the timing of quality control
testing. Alterations in control frequency are difficult be-
cause many quality control analytes are measured together
on a single instrument. It is almost impossible in a busy
hospital laboratory to schedule more frequent analyte-
specific quality control testing and interpretation. At this
time, very few instruments can automatically sample and
analyze on-board quality control material on a per analyte
basis. As a result, most laboratories use the same schedule
of control analysis for all of the analytes measured. Some
laboratories apply analyte-specific quality control rules
through the use of a sophisticated laboratory information
system or instrument-based quality control systems.
Use of Patient Data for Quality Control
Virtually all laboratories that perform patient specimen
testing for ongoing care must alert the caregiver of any
results that are critical (sufficiently outside of their usual
physiological limits such that they are incompatible with
life). Each laboratory must have a critical value list that
specifies the limits for alerting the caregiver (60, 61, 89,
128). In the past, many areas of the clinical laboratory
have repeated testing in the most timely manner if the
initial results were “critical.” This kind of a check (some-
times called a limit check) delays the reporting of the
critical value to the caregiver. As successive generations
Table 21.5 Control rules that can be used for various
MAE/imprecision ratiosa
MAE/imprecision Control rule
2 to 4 Multirule consisting of combination of
1-3SD, 2-2SD, and R-4SD (2 or 3 control
levels at start-up)
3.5 to 5 1-2.5SD (2 or 3 control levels at start-up)
4.5 to 7 1-3SD or 1-3.5SD (2 or 3 control levels at
start-up)
a
Adapted with permission from reference 14.
Typical imprecision (%) MAE (%)/imprecision
1.5 2.6
8 5.8
2.5 2.8
3 1.5
0.8 5.1
0.8 1.1
4 7.2
of analyzers become more precise, and as laboratories de-
termine that the repeat values are substantially the same,
more laboratories are ending the practice of confirming
the critical value. Such decisions should be data driven;
if an evaluation of the last 50 to 100 critical-value repeats
does not yield clinically significant differences, the labo-
ratory director can confidently suspend this increasingly
non-value-added practice.
For analytes exhibiting large random errors (usually in
the low-volume, manual laboratory), specimens should be
analyzed in duplicate with the average reported as long as
the difference between duplicates does not exceed certain
limits—originally around ±15%, but presently around
±5%. Some laboratories use duplicate analyses of another
type: patient-sample comparisons. These comparisons re-
quire the regular analysis of split samples on identical or
dissimilar instruments that measure the same analyte. Dif-
ferences between instruments that exceed predetermined
limits are investigated and corrected (19, 79). Too often,
these comparisons are performed retrospectively and con-
tribute little to quality improvement. We recommend that
the analyst enter the patient comparison data into an active
database; outlying data should be signaled immediately to
the analyst and laboratory supervisor. Such prospective
analysis can easily be followed by reanalysis of another
sample, adjustment of calibration, perhaps widening of the
acceptable differences, and rarely, instrument replacement.
The average of patient (AOP) data is another control
procedure that uses patient data. In AOP, an error condi-
tion is signaled when the average of consecutive centrally
distributed patient data is beyond the control limits estab-
lished for the average of the patient data. The assumption
underlying AOP is that the patient population is stable.
Any shift would thus be secondary to an analytical shift.
The error-detection capabilities of AOP depend on several
factors (17). The most important are the number of pa-
tient results averaged and the variances of the patient pop-
ulation and analytical method. Using averages of patient
endocrine data has demonstrated high error-detection
capabilities for thyroid testing (33). However, AOP is not
commonly used for clinical chemistry. In contrast, AOP

has been used extensively in hematology to monitor pa-
tient red blood cell indices and, indirectly, their constitu-
ent measurements, hemoglobin and red blood cell count,
as well as hematocrit (23, 65, 74). The primary limitation
of AOP in the hospital laboratory is the lack of randomiza-
tion in the order of receipt and analysis of patient samples.
In hematology, for example, the averaging of a large num-
ber of specimens from a neonatal unit or a hematology
unit can cause the red blood cell indices to inappropriately
indicate an out-of-control situation. In clinical chemistry,
analysis of specimens primarily from renal units will cause
large shifts in the AOP of creatinine, glucose, and urea ni-
trogen. In referral laboratory testing, there is “natural ran-
domization” of patient specimens, and AOP is a powerful
tool in guaranteeing acceptable analytical performance
(20). Hospital laboratory AOP is significantly influenced
by longer-term, within-day and within-week trends. Over-
night and over weekends, less testing is ordered; this week-
end and nightly testing is performed on more acutely ill
patients. As a result, these evening and weekend AOPs will
demonstrate elevated glucose, lower sodium, lower pro-
tein, and lower calcium averages (13).
One other quality control approach uses patient data:
the delta check, in which the most recent result for a pa-
tient is compared to the previous value. The difference
between consecutive laboratory values (deltas) is calcu-
lated and compared to previously established limits (62).
A difference that exceeds these limits is investigated; this
difference is either the result of specimen mix-up or real
changes in the patient’s test results. The difference is usu-
ally calculated in two ways: as a numerical difference (cur-
rent value minus last value) and as a percentage difference
Table 21.6 CLIA testing criteria for acceptable external proficiency testing performance
Test or analyte
Chemistry, toxicology
Alanine aminotransferase
Albumin
Alcohol, blood
Alkaline phosphatase
Alpha-1 antitrypsin
Alpha-fetoprotein
Amylase
Anti-HIV
Antinuclear antibody
Antistreptolysin O
Aspartate aminotransferase
Bilirubin, total
Blood lead
Blood gas pO2
Blood gas pCO2
CHAPTER 21. QUALITY MANAGEMENT 433
(numerical difference times 100 divided by the current
value). There is a tremendous range in the true positive
rate of delta check methods depending on the analyte and
its delta limit (133). While delta checks are almost univer-
sally applied, there is a high cost in investigating the many
false positives, especially in tertiary-care hospital popula-
tions in which there are large excursions in laboratory val-
ues secondary to disease or therapy.
External Quality Control (Proficiency Testing)
Proficiency-testing programs provide samples of un-
known concentrations of analytes to participating labora-
tories. Their purpose is to evaluate the ability of laboratory
personnel to achieve the correct analysis. Participation in
these programs is usually government-mandated, with
the premise that acceptable performance indicates pro-
ficiency in patient specimen analysis. This assumes that
proficiency specimens are comparable to and treated the
same as patient specimens. Acceptable performance is de-
termined by some form of consensus by peer comparisons
using “fixed limits,” which are expressed either in measure-
ment units of the analyte (e.g., ±0.5 mmol/liter from the
mean for potassium) or as percentages (e.g., ±10% for to-
tal cholesterol) (122). Statistically defined limits of accept-
ability are used for a far smaller number of methods (e.g.,
thyroid-stimulating hormone) (Table 21.6). The standard
deviation index (SDI) is used for this purpose and is cal-
culated as the numerical difference between an individual
laboratory’s results and the mean of all laboratory results,
divided by the standard deviation of all laboratory means.
For these analytes, the participant result is acceptable if it
falls within ±3 SDI of the group mean.
Acceptable performance (+ target value)
20%
10%
25%
30%
3 SD
3 SD
30%
Reactive or nonreactive
2 dilution or positive/negative
2 dilution or positive/negative
20%
0.4 mg/dl or 20%
10% or 4 mg/dl
3 SD
5 mmHg or 8%
(continued)
434 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 21.6 CLIA testing criteria for acceptable external proficiency testing performance (continued)
Test or analyte Acceptable performance (+ target value)
Blood gas pH 0.04
Calcium, total 1.0 mg/dl
Carbamazepine 25%
Chloride 5%
Cholesterol, total 10%
CK isoenzymes MB present or absent, or 3 SD
Complement C4 3 SD
Complement C3 3 SD
Cortisol 25%
Creatine kinase 30%
Creatinine 0.3 mg/dl or 15%
Digoxin 20% or 0.2 ng/ml
Ethosuximide 20%
Free thyroxine 3 SD
Gentamicin 25%
Glucose 6 mg/dl or 10%
HDL cholesterol 30%
Hepatitis (HBsAg, anti-HBc, HBeAg) Reactive, positive or nonreactive, negative
Human chorionic gonadotropin (HCG) 3 SD or positive/negative
Immunoglobulin A (IgA) 3 SD
IgE 3 SD
IgG 25%
IgM 3 SD
Infectious mononucleosis 2 dilution or positive/negative
Iron 20%
Lactate dehydrogenase 20%
Lithium 0.3 mEq/liter or 20% (greater)
Magnesium 25%
Phenobarbital 20%
Phenytoin 25%
Potassium 0.5 mEq/liter
Primidone 25%
Procainamide (and metabolite) 25%
Quinidine 25%
Rheumatoid factor 2 dilution or positive/negative
Rubella 2 dilution or positive/negative
Sodium 4 mEq/liter
T3 uptake 3 SD
Theophylline 25%
Thyroid stimulating hormone 3 SD
Thyroxine 20% or 1.0 mg/dl
Tobramycin 25%
Total protein 10%
Triglycerides 25%
Triiodothyronine (T3) 3 SD
Urea nitrogen 2 mg/dl or 9%
Uric acid 17%
Valproic acid 25%
(continued)
 CHAPTER 21. QUALITY MANAGEMENT 435

Table 21.6 (continued)

CLIA testing criteria for acceptable external proficiency testing performance
Test or analyte Acceptable performance (+ target value)
Hematology
Cell identification 80% or greater consensus on identification
White cell differential 3 SD based on leukocyte percentage
Erythrocyte count 6%
Hematocrit 6%
Hemoglobin 7%
Leukocyte count 15%
Platelet count 25%
Fibrinogen 20%
Partial thromboplastin time 15%
Prothrombin time 15%

An alternative multirule system has been developed
to evaluate proficiency test results (12, 15, 18). The alter-
native method is simple and can be used by pathologists,
doctorate-level scientists, and medical technologists. The
most current approach is illustrated in Fig. 21.4. When sig-
nificant deviations are detected in a set of five survey results
(the mean of the five results exceeding +1.5 SDI, or the
range of the observations exceeding 4 SDI, or at least one
observation exceeding 75% of the total allowable error), the
laboratory records, including the internal quality control re-
sults, should be reviewed. Mix-ups of proficiency specimens
or of proficiency and clinical specimens should be ruled out.
Whenever possible, aliquots of the survey specimens
should be frozen and saved. If the survey results differ sig-
nificantly from those obtained on peer instruments, these
aliquots should be reassayed. Results that still deviate

Figure 21.4 Flow chart illustrating proficiency

Examine Proficiency
Testing Data
test review, from reference 14 with permission.
doi:10.1128/9781555817282.ch21.f4

Yes
X1.5 SDI Probable
Failure? Systematic Error

No

R4 SDI Yes
Probable Random
Failure? Error

No

Yes
1 75% EA
“Near Miss” Detected
Failure?

No

Acceptable
436 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
significantly after retesting can indicate a long-term bias.
If the deviations are variable in magnitude and direction,
there may be a problem with imprecision (random error).
In the event that repeat analysis yields satisfactory results,
the error probably represented a random error or transient
bias encountered during the testing period.
Quality Management of
Postanalytical Processes
The two most important factors affecting the postanalyti-
cal phase of the testing process are test reporting and result
interpretation (113, 129). One source of inaccurate report-
ing is clerical errors due to data entry mistakes. Laboratory
instrument interfaces with computer reporting capabilities
prevent most of these types of errors. Phone reports have a
relatively high rate of errors and should be avoided if pos-
sible. To mitigate such errors, both The Joint Commission
and CAP require the healthcare provider to read back the
information conveyed during the telephone reporting of
patient critical values. If computer reporting is unavailable,
printed results should be promptly delivered to the patient’s
chart or physician’s office. Whenever possible, calculations
should be done by preprogrammed computer systems.
Procedures for defining and reporting critical labora-
tory test results must be developed and periodically re-
viewed by the laboratory director in conjunction with the
medical staff to ensure that clinicians are immediately no-
tified about abnormal results when necessary (35, 70, 71).
Common examples of critical values that require imme-
diate notification include severe hypo- or hyperglycemia,
thrombocytopenia, and positive blood cultures. Failure to
notify a clinician of a critical test result is a serious quality
failure and requires investigation.
Quality management of results utilization and proper
test interpretation is underdeveloped at this time. For ex-
ample, the appropriateness and timeliness of treatment of
patients with serious infections improve when the labora-
tory actively broadcasts the findings of clinically significant
bacterial culture results (30, 101). Recent publications, such
as those using PCR or peptide nucleic acid fluorescence in
situ hybridization (PNA-FISH), document the laboratory’s
ability to provide postanalytical impact (5, 38–40, 136).
Turnaround Time
Excessively prolonged laboratory test turnaround time is
one of the most common complaints voiced to the labo-
ratory manager (55, 58). The slow delivery of laboratory
results is associated with increased diagnostic uncertainty
and delays in patient management. From an outcome per-
spective, slow test turnaround times lead to longer waiting
times for the patient or incomplete information at the time
of a clinical encounter. Pressure to provide test results more
rapidly has led, in part, to the growth of point-of-care test-
ing by nonlaboratory personnel outside of the main clini-
cal laboratory. As a general rule, faster service is associated
with higher costs and sometimes lower quality of test re-
sults. Therefore, it is the laboratory manager’s responsibility
to determine the most effective testing process and testing
schedules that will provide the most cost-effective and reli-
able results within a clinically appropriate time frame.
Evaluation of test turnaround time is an important
component of the laboratory’s quality assurance program
(50, 123). Turnaround time involves all stages of the testing
process and is a good way to globally assess performance.
Table 21.7 shows the major intervals in the testing process
that are potential bottlenecks for delayed testing. Measure-
ment of turnaround time can involve any of these intervals,
although the typical measurement is usually specimen col-
lection to result reporting or specimen delivery to result
reporting. Typically, the distribution of turnaround times
is shifted to the right with a few cases of prolonged times
due to various factors such as verification protocols, dilu-
tions, or instrument malfunction. Therefore, simply tak-
ing an average of all turnaround time measurements is
misleading. A more appropriate measure is to examine the
percentage of outlier turnaround times (86, 112). These
are also the events that will most likely be noticed and be of
concern to clinicians. The key to this approach is to estab-
lish an appropriate target for turnaround time based on the
goals of the clinical staff and the capabilities of the labora-
tory and facilities infrastructure (48). For example, in one
study involving 496 hospitals, about 90% of stat tests from
the emergency department were completed in less than 70
min. Test ordering and specimen collection accounted for
nearly 60% of all reasons for delays (112).
Corrected and Incomplete Reports
Corrected reports are an important indicator of a failure
in one or more laboratory processes. They are analo-
gous to shipping a defective part in the manufacturing
Table 21.7 Stages in the testing cycle where
turnaround time may be measured
Order received and recorded
Patient registration
Specimen collection
Specimen delivery
Specimen processing
Test
Result verification
Result reporting
Interpretation by clinician

industry. Fortunately, only about 4% of these errors have
a significant impact on patient care (52). The largest pro-
portion tend to be associated with hematology testing,
while the fewest are documented in transfusion medicine.
Prior to a result being reported, any number of quality
processes may come into play to prevent incorrect results
from being reported. However, after the result is verified
and reported, the defective result has the potential to af-
fect patient outcome. Incorrect results may be detected
in a variety of ways, including input from the physician
about a clinical inconsistency, a delta check that uncovers
a mislabeled sample that was previously tested, delayed
recognition of a significant quality control failure, or a
clerical error found during routine supervisory review.
All corrected reports should be treated as opportunities to
reexamine and improve processes to prevent recurrences
of the same problem.
Incomplete reporting of results arises from about 2%
of orders received by laboratories (124). This may oc-
cur for a variety of reasons that involve the total testing
process, including improper specimen collection, an un-
available patient, broken tube, lost specimen, misinter-
pretation of the order, an interfering substance in the
specimen, or failure to provide the result in the patient
record. Whenever possible, incomplete testing should
be reported to the clinician as soon as possible so that
testing can be repeated, if necessary. As with corrected
reports, incomplete tests should be monitored and ex-
amined with the goal of modifying processes to prevent
future occurrences.
Document Control
Clinical laboratories process and handle an enormous
amount of information each day. These processes require
an organized approach for controlling, organizing, and re-
taining this information and making it readily accessible
to busy laboratory staff and laboratory inspectors. Docu-
ment control can be a challenge to manage; electronic soft-
ware packages are available to help the laboratory manage
its documents. Nationally, the top three laboratory defi-
ciencies identified during CAP on-site inspections in the
years 1998 to 2001 were related to document control items
(41). The Joint Commission inspection of laboratories
yields similar results, especially when off-site or multi-
site laboratories are involved. A document control policy
should state the intent and direction the laboratory takes
to document and record the structure it uses for creating,
revising, approving, distributing, storing, retrieving, and
destroying documents. Using the Clinical and Laboratory
Standards Institute Quality Systems approach, documents
are broken down into 12 quality system essentials (Table
21.8) to provide laboratories with a mechanism to manage
CHAPTER 21. QUALITY MANAGEMENT 437
Table 21.8 CLSI quality system essentialsa
Organization
Leadership’s commitment to laboratory quality and quality plan
Organizational charts, definitions, responsibilities, and
relationships
Customer focus
Identifies laboratory customers and expectations and a means to
monitor
Facilities and safety
Overall safety plan with regard to facility and staff safety and emer-
gency response planning
Personnel
Hiring, training, competency, qualifications, job/position
descriptions
Purchasing and inventory
Supplier agreements to provide needed inventory and verification
of incoming supplies.
Equipment
Selection and installation, equipment list, validation records, op-
eration/maintenance checks
Process management
The path of workflow to make the most efficient use of laboratory
resources.
Documents and records
Policies, processes, and standard operating procedures that control
the creation, revision, approving, distribution, storing, retrieving,
and destruction of laboratory documents
Information management
Confidentiality and security of patient information
Nonconforming event management
Reporting and analyzing of events that do not adhere to laboratory
policies, processes, or standards
Assessments
Internal and external monitoring to ensure laboratory meets
requirements
External proficiency testing, accreditation, and quality indicators
Continual improvement
Identifying opportunities to continually look for ways to improve
a
See reference 26.
the information required to provide quality laboratory
services (26).
Summary
Clinical laboratories are required to have in place a com-
prehensive quality program. This requires managing the
quality of a wide spectrum of resources, procedures, and
services by continuously evaluating quality indicators and
making adjustments to improve laboratory performance
and patient outcomes. The program involves ongoing in-
spection of the total testing process, from the time a test is
ordered until the results are utilized. The quality program
is supported by a robust document control system and is
conducted by measurement and analysis of indicators to
provide information to guide improvement.
438 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
KEY POINTS
■ Quality management is a system for continuously ana-
lyzing, improving, and reexamining resources, pro-
cesses, and services within an organization.
■ The total testing process provides a comprehensive
working model for evaluating the components of the
laboratory’s quality management plan as an interdepen-
dent component of the organization’s total quality im-
provement program.
■ Well-documented procedures and trained phlebotomy
and nursing staff are key factors for ensuring quality of
specimen collection.
■ Patient satisfaction is an important quality indicator.
■ Quality control is a method for establishing specifica-
tions for an analytical process, assessing the procedures,
monitoring conformance by statistical analysis, and
taking corrective actions to bring the procedures into
conformance.
■ The two most important factors affecting the postana-
lytical phase of the testing process are test reporting and
result interpretation.
■ Turnaround time, corrected reports, and incomplete
testing are important indicators for monitoring the to-
tal testing process.
■ A document control policy should state the intent and
direction the laboratory takes to document and record
the structure it uses for creating, revising, distributing,
storing, retrieving, and destroying documents.
GLOSSARY
Accuracy Agreement between the best estimate of a quantity
and its true value.
Analyte Sample to be measured.
Analytical error The difference between the result of an analyti-
cal method and the true value.
Analytical method Set of written instructions that describe the
procedure, materials, and equipment necessary for the analyst to
obtain a result.
Analytical range The range of concentration or other quantity
in the specimen over which the method is applicable without
modification.
Bias Systematic error that describes the difference between
measured and true or assigned value.
Calibration Process of using standards of known concentration
to establish a relationship between the measured signal from the
instrument and analyte concentration.
Coefficient of variation A measure of variance expressed as a
percentage of the mean ([standard deviation/mean] ×100).
Confidence interval Expected range of values within a group
with a specified probability.
Constant systematic error An error that is always in the same
direction and of the same magnitude, even as the concentration
of analyte changes.
Control limit A range of expected values that, if exceeded, warns
of random and/or systematic error in an analytical process.
Control material Specimen that is repeatedly analyzed, with test
results statistically analyzed to monitor method performance.
Delta check Rule-based method to compare a patient’s current
test result to a previous measurement to check for unexpected
differences that might be due to analytical or nonanalytical er-
rors in the testing process.
Error Deviation of measured concentration from expected or
true value.
Gaussian distribution A random distribution of values de-
scribed by their average and variance (standard deviation); used
to describe analytical imprecision.
Imprecision Analytical variance, usually expressed as the stan-
dard deviation or coefficient of variation ([standard deviation/
mean] ×100).
Interference One or more specimen constituents that cause bias
by affecting the analytical method.
Matrix Total constituents of the specimen that may affect the
analytical process.
Maximum allowable error (MAE) Amount of error associated
with an analytical method that can be tolerated without invali-
dating the medical usefulness of the result.
Mean Arithmetic average of a set of values.
Medical usefulness limits Quality control limits derived from
clinical application of results rather than statistical imprecision
of the method.
Normal range See reference range.
Proportional systematic error An error that is always in one di-
rection and whose magnitude is a percentage of the concentra-
tion of analyte being measured.
Quality assurance A systematic approach to continuously ana-
lyzing, improving, and reexamining the total testing process.
Quality control A process for monitoring assay performance to
detect deviations from expected outcomes.
Random error A variance from expected that is not reproduc-
ible or predictable.
Recovery Amount (usually expressed as percentage) of known
quantity of an analyte that is measured when added to a specimen.
Reference range Test results that are within expected parame-
ters for about 95% of all individuals in a defined healthy popula-
tion. Values outside of the range are classified as abnormal and
may be associated with a pathological condition.

Sample Part of specimen that is measured.
Sensitivity, analytical The lowest detection limit of an assay;
sometimes measured as the concentration of an analyte that can
be differentiated from a blank within a 95% confidence interval.
Specificity, analytical The ability of an analytical method to de-
termine solely the component(s) it purports to measure.
Standard Material of known or assigned concentration used for
assay calibration.
Standard deviation A statistic that describes the amount of
variance of a set of measurements about the mean value. It is
used to describe the random error of an analytical method.
Turnaround time The interval between the beginning of one
event to the end of another event in the total testing process.
Typically measured as the collection to reporting time or as the
receipt of specimen in laboratory to reporting time.
Variance Standard deviation squared. Assuming all sources of
error are independent of each other, total error is the sum of vari-
ances of individual sources of error.
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444 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
APPENDIX 21.1 Regulations, Guidelines, and Information with Application to a Clinical Laboratory
A listing of relevant regulations grouped according to the regula-
tory agency from which they are issued.
FDA
http://www.fda.gov/scienceresearch/specialtopics/runningclinical
trials/ucm155713.htm (accessed May 7, 2013)
21 CFR 11, Electronic Records; Electronic Signatures, Subpart B—
Electronic Records
21 CFR 58, Good Laboratory Practice for Nonclinical Laboratory
Studies
58.185 Reporting of nonclinical laboratory study results
58.190 Storage and retrieval of records and data
58.195 Retention of records
21 CFR 211, Current Good Manufacturing Practice for Finished
Pharmaceuticals
Subpart J—Records and Reports (211.180–211.198)
21 CFR 600, Biological Products, General
600.12 Records
21 CFR 606, Current Good Manufacturing Practice for Blood and
Blood Components
606.100 Standard operating procedures
Subpart I—Records and Reports (606.160–606.171)
21 CFR 640, Additional Standards for Human Blood and Blood
Products
640.72 Records
21 CFR 803, Medical Device Reporting of Adverse Events and Cer-
tain Malfunctions
803.17–803.18 Written MDR procedures, Files
21 CFR 820, Good Manufacturing Practice, Quality System Regulation
Subpart M—Records (820.180–820.198)
Department of Labor: Occupational Safety and Health
Administration (OSHA)
29 CFR 1904, Recording and Reporting Occupational Injuries and
Illnesses
1904.6 Retention of records
1904.9 Falsification or failure to keep records or reports
29 CFR 1910 Occupational Safety and Health Standards
Appendix C to 1910.120
4. Training (records)
8. Medical surveillance programs (records)
Department of Health and Human Services: Center for Medicare
and Medicaid Services (CMS)
42 CFR 493, Laboratory Requirements (CLIA 88)
493.1107 Test—Records
493.1201(b) Written quality control procedures
493.1202(c)(2) Procedure manual, moderate-complexity testing
493.1211 Procedure manual, high-complexity testing
493.1221 Quality Control—Records
493.1721 Quality Assurance—Records
Department of Health and Human Services, Public Health
42 CFR 72, Interstate Shipment of Etiologic Agents
Department of Transportation
49 CFR 171–7 Shipment of Hazardous Materials
Department of Labor
29 CFR 71—Protection of individual privacy and access to records
under the Privacy Act of 1974
Miscellaneous sources (specifics not listed)
American Association of Blood Banks: http://www.aabb.org (ac-
cessed 5/7/13)
CDC Guidelines: http://www.cdc.gov (accessed 5/7/13)
Clinical Laboratory Standards Institute (CLSI): http://www.clsi.org
(accessed 5/7/13)
College of American Pathologists (CAP): http://www.cap.org (ac-
cessed 5/7/13)
FDA Guidelines, Guidances, and Memoranda: http://www.fda.gov/
(accessed 5/7/13)
Federal Register, multiple sources: https://www.federalregister.gov/
(accessed 5/7/13)
International Organization for Standardization (ISO): http://www
.iso.org/iso/home/standards/management-standards/iso_9000.htm
(accessed 5/7/13)
The Joint Commission: http://www.jointcommission.org (accessed
5/7/13)
 CHAPTER 21. QUALITY MANAGEMENT 445

APPENDIX 21.2 CAP Laboratory Inspection Checklist Associated with Quality Management

The checklist is comprised of declarative statements for which 6. Proper specimen labeling
the laboratory must show evidence of compliance. The check- 7. Need for appropriate clinical data, when indicated
list provides “notes” that provide further detail on the declarative
GEN.40125 For specimens sent to reference laboratories, the re-
statements.
ferring laboratory properly follows all requisition, collection and
handling specifications of the reference laboratory.
Quality Improvement
GEN.40470 There is documentation that all personnel perform-
GEN.13806 The laboratory has a documented quality manage-
ing patient blood collection have been trained in collection
ment (QM) program.
techniques and in the proper selection and use of equipment/
GEN.16902 For laboratories that have been CAP accredited for supplies.
more than 12 months, the QM plan is implemented as designed
GEN.40490 The individual collecting the specimen positively
and is reviewed annually for effectiveness.
identifies the patient before collecting a specimen.
GEN.20100 The QM program covers all areas of the laboratory
GEN.40935 The laboratory has a policy that personnel receiving
and all beneficiaries of service.
verbal or phone orders read back the entire order to verify ac-
GEN.20208 The QM system includes a program to identify and curacy of transcription.
evaluate errors, incidents and other problems that may interfere
GEN.40938 The laboratory has a policy on confirmation of test
with patient care services.
orders that may be unclear (e.g., orders using non-standard or
GEN.20316 The QM program includes monitoring key indica- non-specific terms).
tors of quality in the pre-analytic, analytic, and post-analytic
phases. Quality of Specimen Collection
GEN.20325 The laboratory has a procedure for employees and GEN.40505 There is a mechanism to provide feedback to the col-
patients to communicate concerns about quality and safety to lector of the specimen on issues related to specimen quality.
management.
GEN.40825 There is a system to positively identify all patient
GEN.23584 The laboratory conducts an interim self-inspection specimens, specimen types, and aliquots at all times.
and documents efforts to correct deficiencies identified during
GEN.43750 The system provides for comments on specimen
the process.
quality that might compromise the accuracy of analytic results
(e.g., hemolyzed, lipemic).
Quality Management of Preanalytic Processes:
Test Selection and Ordering GEN.40535 There is an adequate process for monitoring the
quality of submitted specimens, correcting problems identified
GEN.40000 There is a procedure manual or other source for the
in specimen transportation, and improving performance of cli-
complete collection and handling instructions of all laboratory
ents or offices that frequently submit specimens improperly.
specimens.
GEN.40016 There is documentation of at least biennial review of Patient and Client Satisfaction
the specimen collection/handling procedure manual by the cur-
GEN.20335 Referring physicians’/clients’ or patients’ satisfaction
rent laboratory director or designee.
with laboratory service was measured within the past two years.
GEN.40050 The specimen collection manual is distributed to all
specimen-collecting areas within the hospital (nursing stations, Quality Management of Analytic Processes
operating room, emergency room, out-patient areas) AND to
GEN.30000 There is a written quality control program that
areas outside the main laboratory (such as physicians’ offices or
clearly defines policies and procedures for monitoring analytic
other laboratories).
performance.
GEN.40100 The specimen collection manual includes instruc-
GEN.30070 If the laboratory performs test procedures for which
tions for all of the following elements, as applicable
neither calibration nor control materials are available, proce-
1. Preparation of the patient
dures are established to verify the reliability of patient test results.
2. Type of collection container and amount of specimen to
be collected
Proficiency Testing (PT)
3. Need for special timing for collection (e.g., creatinine
clearance) COM.010000 The laboratory has written procedures for profi-
4. Types and amounts of preservatives or anticoagulants ciency testing sufficient for the extent and complexity of testing
5. Need for special handling between time of collection and done in the laboratory.
time received by the laboratory (e.g., refrigeration, imme-
diate delivery) (continued)
446 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
APPENDIX 21.2 CAP Laboratory Inspection Checklist Associated with Quality Management (continued)
COM.01100 The laboratory has a procedure for assessing its per-
formance on PT challenges that were intended to be graded but
were not.
COM.01500 For tests for which CAP does not require PT, the
laboratory at least semi-annually 1) participates in external PT,
or 2) exercises an alternative performance assessment system for
determining the reliability for analytic testing.
COM.01600 The laboratory integrates all proficiency testing
samples within the routine laboratory workload, and those sam-
ples are analyzed by personnel who routinely test patient/client
samples, using the same primary method systems as for patient/
client/donor samples.
COM.01700 There is ongoing evaluation of PT and alternative
assessment results, with prompt corrective action taken for unac-
ceptable results.
COM.01800 There is a policy that prohibits interlaboratory com-
munication about proficiency testing samples until after the dead-
line for submission of data to the proficiency testing provider.
COM.01900 There is a policy that prohibits referral of profi-
ciency testing specimens to another laboratory.
Quality Management of Postanalytic Processes: Reporting
GEN.43825 Manual and automated result entries are verified be-
fore final acceptance and reporting by the computer.
COM.30000 The laboratory has procedures for immediate no-
tification of a physician (or other clinical personnel responsible
for the patient’s care) when results of designated tests exceed es-
tablished “alert” or “critical” values that are important for prompt
patient management decisions.
COM.30100 When critical results are communicated verbally or
by phone, there is a policy that laboratory personnel ask for a
verification “read-back” of the results.
Turnaround Time
GEN.41345 Has the laboratory defined turnaround times (i.e.,
the interval between specimen receipt by laboratory personnel
and results reporting) for each of its tests, and does it have a pol-
icy for notifying the requester when testing is delayed?
Corrected and Incomplete Reports
GEN.41307 When errors are detected in patient test reports, the
laboratory promptly notifies responsible clinical personnel or
reference laboratory as applicable and issues a corrected report.
GEN.41310 All revised reports of previously reported, incorrect
patient results are identified as revised, and both the revised and
original data are clearly identified as such.
Document Control
GEN.20375 The laboratory has a document control system.
GEN.20377 Laboratory records and materials are retained for an
appropriate time.
Introduction
ISO Background
22 International Organization
Benefits of the ISO Standards for Standardization
ISO 9000 Family
ISO 15189
Anne Marsden and Amy Shahtout
ISO Certification Process
ISO 15189 and the CAP
Summary
KEY POINTS OBJECTIVES
REFERENCES To provide an overview of the International Organization for Standardization
To describe the ISO standards most relevant in a clinical laboratory service setting
To describe the process for obtaining and maintaining ISO certification

Without continual growth and progress, such words as improvement, achieve-

ment, and success have no meaning.
Benjamin Franklin

A
quality-management system (QMS) is the combination of organiza-
tional structure, resources, people, documents, and activities designed
to ensure quality in an organization’s products and services. It de-
scribes the coordinated activities needed to direct and control an organization
with regard to its quality. Worldwide, the most widely adopted QMS regime is
the ISO 9000 family. A related QMS stems from ISO 15189, which is tailored
to clinical laboratories.

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch22
ISO Background
Operating since 1947, the International Organization for Standardization
(ISO) is a nongovernmental association consisting of representatives from
over 150 countries, one member per country. There are approximately 3,000
ISO technical committees and working groups, with participation from about
50,000 experts, contributing to the development of ISO standards that provide
the framework for compatible technology internationally. Efforts to achieve
technical consensus for each standard are coordinated by a central secretariat
in Geneva, Switzerland. As the world’s largest developer of standards, the orga-
nization’s goal is to define quality standards for organizations to facilitate and
promote the trade of products and services internationally. (Isos, Greek for
“equal,” is the basis for the organization’s short name, ISO.) The standards are
also used by governments to establish health, safety, and environmental laws.
While ISO certification is voluntary in the United States, it serves as an
attractive credential—especially for companies that intend to reach an inter-
national market—and demonstrates the intent to manage quality through

447
448 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
practices deemed acceptable by the ISO. Conformance to
standards inherently contributes to higher quality, safety,
reliability, and interchangeability of products and services.
This potentially increases a company’s marketability, cus-
tomer retention, and acquisition of new customers.
Benefits of the ISO Standards
An ISO certificate does not ensure a company’s product or
service quality; it attests that a company adheres to docu-
mented processes and quality controls. Product quality is
achieved through adherence to defined processes that are
designed to deliver products and services that meet the
company’s predefined requirements.
The increased credibility associated with ISO certifica-
tion leads to the following advantages:
• Decreased operating expenses stemming from scrap
and rework
• Enhanced management control through management
review participation
• Reduced product liability risk due to a robust quality-
management system
• Increased customer satisfaction as a result of customer-
focused quality systems (2)
• Increased marketability from the commitment to
meeting internationally accepted quality standards
ISO 9000 Family
The quality standards in the ISO 9000 family focus on
quality management and include QMS requirements
that are general for the manufacturing and service in-
dustries. In 2000, the ISO 9000 series was revised with an
increased focus on customer satisfaction. Based on basic
quality-management principles, ISO 9001 (4) provides
the criteria for a quality-management system. The eight
quality-management principles are (5):
• Leadership
• Customer focus
• Process approach
• System approach to management
• Involvement of people
• Factual approach to decision making
• Continual improvement
• Mutually beneficial supplier relationship
The standard requires that the organization appoints a
member of management as a management representative,
who shall have the responsibility of ensuring that the QMS
is established, implemented, and maintained and who shall
report on the performance of the QMS to top management
and ensure the promotion of the awareness of customer
requirements to the organization as a whole.
ISO 9001 is a short document that outlines a series of
“must haves” for a quality system but does not go into de-
tail about how the requirements are to be approached, car-
ried out, or met. As a result, ISO 9001 is a one-size-fits-all
standard that can be implemented in many different in-
dustries and services.
ISO 9001 first requires that an organization determine
its quality policy and related quality objectives. Quality ob-
jectives must be measurable and include those needed to
meet the requirements of the product, for example, on-time
results or employment of assays with sufficient specificity
to meet medical needs. The organization must also develop
a quality manual (QM), which will include a description
of how the processes in the QMS interact, either as a flow
map, cross-references to the standard, or a written descrip-
tion. The QM is to be updated whenever there is a change
to the QMS or to the ISO standard. It defines the QMS and
describes the scope of the services provided and any exclu-
sions from the ISO. The QM also contains information on
the six written procedures that ISO 9001 requires:
• Control of documents
• Control of records
• Internal audits
• Control of nonconforming product
• Corrective action
• Preventive action
The standard requires regular management review of
the objectives and documented output from the reviews
in terms of resource provision, improvement to the ef-
fectiveness of the QMS, and improvement to the product.
It also mandates activities in competence, training, and
awareness—the first two being familiar to all laboratorians
and the third being a requirement that the staff members
are aware of the role they play in the achievement of qual-
ity objectives. There are further requirements for planning
product realization, research and development, purchas-
ing, identification and traceability, control of measuring
equipment (e.g., calibration activities), internal audits,
measurement of customer satisfaction, control of noncon-
forming product, continual improvement, and corrective
and preventive action.
The advantage of adopting ISO 9001 in the laboratory is
the standard’s skeletal outline that can be easily developed
into a strong framework that fits the exact circumstances
under which it is to be deployed. However, the language
used in ISO 9001 may be daunting to laboratorians. It is
so generalized that it may have to be translated into more
familiar terms in the QM; for example, one kind of non-
conforming product is the failure of an assay to meet QC
acceptability. The “control of nonconforming product” can
 CHAPTER 22. INTERNATIONAL ORGANIZATION FOR STANDARDIZATION 449

therefore be translated into the commonly understood ISO Certification Process

process of ensuring that no results are released from an
Although the ISO develops standards, it is not a certi-
assay that fails QC.
fying body (or registrar); rather, assessment and certi-
As medical laboratory leaders and professionals real-
fication to an ISO standard are performed by external
ized the advantage of applying systemic quality models to
certification bodies. An independent, U.S.-based cer-
the clinical laboratory environment, it became clear that
tifying body for clinical laboratories can be identified
the ISO 9001 standard required a great deal of reinter-
through the International Laboratory Accreditation Co-
pretation to be relevant. The ISO then set out to lever-
operation (ILAC) website (www.ilac.org, accessed April
age the ISO 9000 principles to develop ISO 15189, which
13, 2013). The ISO’s Committee on Conformity Assess-
outlines quality standards specific to medical laboratory
ment (CASCO) has developed and published standards
operations.
related to the certification process; the standards contain
assessment techniques, deemed good practices based on
an international consensus.
ISO 15189
Maintaining an ISO certificate is an iterative process,
First published in 2003, ISO 15189 (3) is based on ISO as demonstrated by requirements for annual surveillance
9001 and a standard known as ISO/IEC 17025. It is an and certification renewal every three years (Fig. 22.1).
international standard specifically developed for medical
laboratories, although it may be of relevance to such dis-
ciplines as clinical physiology and medical imaging. It is a
much longer document than ISO 9001, and the require- Figure 22.1 Skeletal representation of the ISO certification pro-
cess. doi:10.1128/9781555817282.ch22.f1
ments are very detailed; to the QMS requirements of ISO
9001 it adds the technical and competency factors that are
ISO Certification Process
relevant to laboratories. It is the standard for reimburse-
ment in some countries and in some ways is regarded as a
regulation, but in the United States it is a guidance docu-
ment and certification is voluntary. Application submission
Unlike the 9001 family, the standard begins with the re-
quirement that the laboratory shall be a part of an entity
legally responsible for its activities. There is a similar re-
quirement to ISO 9001’s management representative; the
laboratory shall appoint a quality manager, with similar
duties to a representative. However, the ultimate authority,
as under the Clinical Laboratory Improvement Amend- Assessments
(certifying body reviews submission
ments of 1988 (CLIA ’88), is the laboratory director. and performs initial assessment
The requirements for the QMS are similar to those of of Laboratory QMS)
ISO 9001—quality manual, quality policy, document con-
trol, management review, internal audit, and so forth. The
technical requirements are detailed and closely aligned
with U.S. regulatory language. For example, there are re-
quirements for the selection and evaluation of referral Certification Assessment
laboratories, periodic reviews of the laboratory’s examina- (certifying body assesses
tions to ensure that they are clinically appropriate, compe- Laboratory QMS)
tence assessment with wording following that of CLIA ’88,
request forms, proficiency testing, result report format,
and revised reports.
One area where ISO 15189 is considerably less de- Laboratory
tailed than ISO 9001 is in the verification and validation demonstrates
of examination procedures. ISO 9001 specifies exactly compliance?
how product development should occur and be docu-
mented. ISO 15189 requires only that it takes place and is
documented. The language is less detailed than CLIA ’88,
and if a laboratory is intending to bring up laboratory- Certifying body issues
developed tests, ISO 15189 alone would not supply an Certificate of Compliance
adequate framework.
450 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
ISO 15189 and the CAP
As with ISO 9001, many companies can certify an organi-
zation as compliant with the ISO standard. Additionally,
in 2008, the College of American Pathologists (CAP) an-
nounced its own accreditation process based on ISO 15189
(15189:2007) and has since updated the program to ISO
15189:2012. The CAP had input into the development of
the ISO 15189 standard and continues to participate in the
ISO TC 212 Committee. Under the Centers for Medicare
and Medicaid Services, the CAP is a body with deemed
status for medical testing and regards the standard as an
adjunct to its mission of supporting excellence in pathol-
ogy and laboratory medicine. The CAP Laboratory Ac-
creditation Program (LAP) inspection process focuses
on technical procedures, and the ISO 15189 certification
focuses on the quality management system. The ISO ac-
creditation is voluntary and does not replace the LAP, as
ISO does not fulfill U.S. federal regulatory requirements.
Once a laboratory has applied, the CAP assigns a lead
assessor to guide the laboratory through accreditation. A
gap analysis is performed, and once the laboratory is ready,
the CAP performs an accreditation assessment. As with
ISO 9001, a successful accreditation is followed up with
on-site surveillance audits (1).
Summary
ISO certification can be an attractive credential for a clini-
cal laboratory. Although the ISO standards discussed here
each provide QMS framework, the ISO 9001 standard
requires extensive interpretation, while ISO 15189 is
written specifically for a medical laboratory setting. The
CAP continues to play a role in the development of the
ISO 15189 standard and, since 2008, has been a certify-
ing body for this standard. The certification process is
followed by ongoing maintenance of the QMS by the lab-
oratory, as well as surveillance audits performed by the
certifying body.
KEY POINTS
■ The ISO 9000 series is based on eight quality-management
principles.
■ ISO 15189 provides a quality-management system frame-
work specific for medical laboratories.
REFERENCES
1. College of American Pathologists. CAP 15189SM Quality Man-
agement Program. www.cap.org, accessed April 12, 2013.
2. Hoyle, D. 2006. ISO 9000 Quality Systems Handbook, p. 39–54,
6th ed. Routledge, New York, NY.
3. ISO 15189. 2012. Medical laboratories: requirements for quality
and competence. http://www.iso15189.com/ http://www.iso.org/iso/
catalogue_detail.htm?csnumber=56115.
4. ISO 9001. 2008. Quality management systems: requirements.
http://www.iso.org/iso/qmp_2012.pdf.
5. Levett, J., and R. G. Burney. 2011. Using ISO 9001 in Healthcare,
p. 75–84. ASQ Quality Press, Milwaukee, WI.
Introduction
Delivering the Message
23 Effective Communication
Communicating to Diverse Audiences in Laboratory Management
Means and Mechanics of Effective
Communication
Spoken Word • Written Word • Intradepartmental Elissa Passiment and Andrea J. Linscott
Communication • Interdepartmental
Communication • External Communication
Summary
KEY POINTS OBJECTIVES
GLOSSARY To describe the importance of effective communication to laboratory
REFERENCES management
To identify the recipients of laboratory communication
To discuss the means and methods of communication

The newest computer can merely compound, at speed, the oldest problem in the
relations between human beings, and in the end the communicator will be con-
fronted with the old problem, of what to say and how to say it.
Edward R. Murrow

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch23
I
n this era of information overload, effective communication is one
of the most important skills needed in pathology and clinical laboratories.
Laboratory services cannot be delivered effectively without a coordinated,
intricate system of communication. In many institutions, the laboratory is
viewed as a mystery or a black hole, as stated by one hospital administrator,
into which money, body fluids, and body parts go, but little comes out. A major
contribution to that perception of the laboratory is the necessary practice of
sending the laboratory’s output—patient test results—directly to the patient’s
chart or caregiver. However, the mystery of the laboratory is perpetuated by
the lack of an organized, systematic, flexible, and bidirectional exchange of
information, ideas, standards, and beliefs between the laboratory and its cus-
tomers, i.e., effective communication.
Communication can be defined a number of ways:
• The exchange of thoughts, messages, or information using speech, signals,
writing, or behavior (1)
• The art and technique of using words effectively to impart information or
ideas (1)
• A system, such as mail, telephone, television, or computer, for sending and
receiving messages (1)
• The exchange or transmission of ideas, attitudes, or beliefs between indi-
viduals or groups (9)

451
452 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
The importance of communication has been discussed
and documented since formal management theories were
first promulgated. Chester I. Barnard wrote in 1938 in
Functions of the Executive that the first executive function
is to develop and maintain a system of communication (2).
Management textbooks throughout the decades have de-
voted chapters to the need for effective communication. In
The Management of Organizations, Hicks (6) stated, “Or-
ganizational interaction depends on communication.  .  .  .
Communication is of prime concern to managers because
it makes cooperative action possible.” It was his belief that
as one moved up any management structure, more time
had to be devoted to communication to succeed. Because
he taught that “communication is a primary requirement of
decision making,” it was the only way to achieve any change
in direction or activity of the company or institution.
As management theory evolved, the importance of
communication grew. Peters and Waterman, in In Search
of Excellence (10), state, “The nature and uses of commu-
nication in excellent companies are remarkably different
from those of their nonexcellent peers. The excellent com-
panies are a vast network of informal, open communica-
tions.” The results of constant communication include
getting the right people together and maintaining the con-
tinuous transmission of ideas and information. Peters and
Waterman (10) say, “The intensity of communications is
unmistakable in the excellent companies.” If laboratories
are to provide excellent service, i.e., function as excellent
companies for their clients, communication should still be
the first priority of everyone in laboratory management.
Communication within healthcare, or the lack thereof,
was a major focus of the Institute of Medicine’s (IOM) two
reports, To Err Is Human: Building a Safer Healthcare Sys-
tem (7) and Crossing the Quality Chasm: A New Health Sys-
tem for the 21st Century (8). The reports discuss the lack
of efficient flow of information within healthcare and the
misconception in our health system that the need for pri-
vacy has been translated into secrecy and has severely com-
promised the necessary sharing of information. In this era
of patient safety concerns, laboratory management must
strive to create an “excellent company” to provide the level
of care and information every individual hopes to receive.
Many of the concerns that surround laboratory ser-
vices are directly attributable to a lack of communication.
Communication does not come easily for laboratorians.
The traditional scientific personality types attracted to the
profession may be focused and introverted. Communi-
cation skills are not routinely taught in the curricula for
physician and nonphysician laboratorians. In fact, com-
munication among members of the healthcare “team” is
generally not taught at all. The IOM study (7) states, “Be-
cause medical training is typically isolated from the train-
ing of other health professionals, people have not learned
to work together to share authority and collaborate in
problem solving.” The same can be said for the training
of all health professionals. It is rare to find an interdisci-
plinary course on communication and problem solving in
any allied health school. The health professions that com-
monly interact with the patient and other members of the
healthcare team often develop their communication skills
on the job. But that opportunity does not always present
itself to laboratorians.
Communication and information flow or transfer
throughout the healthcare setting are very complicated.
Information must be exchanged between internal depart-
ments, external departments, external vendors and regula-
tors, and the laboratory’s clients (customers). Any time the
flow of information is improved, the efficiency of the labo-
ratory will be improved. For instance, if all of the ordering
providers in your client base (hospital, system, network,
etc.) know what tests your laboratory offers, when they are
performed, and the expected turnaround time (TAT), the
service center will field fewer phone calls about these as-
pects of the operation. The service center will be able to
spend more time on the patients, specimens, and reports
that are part of their function. If these providers also know
when and what tests to order, the laboratory’s resources,
staff, and materials will be more efficiently utilized. In the
past few years, laboratories have begun to emphasize and
provide specific and detailed guidelines on the use of labo-
ratory services for their healthcare clients, many of which
can be found on the Internet.
It is the responsibility of laboratory management to en-
sure that the information flow is bidirectional. The labo-
ratory should not simply send out information, memos,
policies, and procedures but should have a mechanism for
receiving information from its clients. Clients (healthcare
providers) should be able to retrieve information from the
laboratory easily. If the retrieval system is inadequate, these
clients will not be happy and their patient care needs will
not be met. For inpatients, the needs include feedback on
the effects and efficacy of any medication and/or proce-
dures. For the consumer, that translates to an affable, help-
ful voice on the phone or a short TAT to an Internet inquiry.
Delivering the Message
Management should have a communication strategy—a
plan that is used whenever the laboratory has information
that it wants to disseminate (Table 23.1). This plan should
first identify the specific purposes for communication. The
purposes should include the education of all clients on:
• The appropriate utilization of laboratory services (test
orders, frequency of test orders, specimen collection
and transport, testing turnaround times, report for-
mats, additional report comments, reference ranges,
consultation options, and test limitations)
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT
Table 23.1 Elements of a communication plan
Define objectives and purpose of the plan.
Use a concise message.
Gear communication to education level of recipient.
Identify the structure and format of written communiqués.
Design a format and use it as a template for all written
communications.
List recipients of laboratory communication.
Identify all stakeholders who should receive communication
(medical staff, laboratory staff, administration, clients, computer
services, patients, etc.).
Identify the method(s) of communication.
Written (memo, newsletter, email, specimen collection manual,
etc.), verbal (phone call, intercom, etc.) or visual (banner, poster,
video, etc.)
• The extent of services offered (test menu, test available
for STAT testing, and comprehensive test parameters)
• Regulations concerning the operation of the laboratory
as well as any mandated communication (hours of op-
eration, performance of tests per shift, STAT reporting,
critical value reporting, and laboratory organization
chart)
The plan should also contain the formal structure or
format of all written communiqués such as memos, news-
letters, and flyers. Once a uniform look and feel of the writ-
ten word has been adopted, all communications from the
laboratory will convey an image and eventually establish
an identity for the department. The plan should also in-
clude the elements of the strategy, i.e., recipients of the in-
formation, the communication options that the laboratory
will use, and the purpose of the communication. Commu-
nication should be considered a way of marketing the lab-
oratory and its services, and a well-constructed plan will
aid in that marketing by focusing the message. Whether
the information concerns a protocol; a new test; a change
in procedure; discontinuation of a test that is now obsolete,
no longer has reagents being made, or for which there is
a better test; or a new service, the information should be
presented so that the laboratory’s expertise and its concern
for its customers are obvious. Performed properly, effec-
tive communication can be a competitive advantage.
Communicating to Diverse Audiences
Laboratories should communicate with all of their cus-
tomers: physicians, nursing and allied health professionals,
patients, third-party payors, and paying customers. Each
of these customers has very different needs and processes
information differently. As Hicks (6) states, “A person may
not communicate with his supervisor in the same manner
that he does with a person of equal standing.” Adapting
that statement to laboratories means that the laboratory
453
manager may not tell the hospital administrator about
federal rules and regulations in the same fashion used to
inform the staff of each department. Indeed, the actual in-
formation that the hospital administrator needs to know
will be different from that required by the staff. It is incum-
bent on the laboratory manager to tailor the message to
each audience so that the message is understood.
Boyett and Boyett (3) implore managers to communi-
cate, communicate, communicate, and communicate some
more. There is really no such thing as too much commu-
nication. Clients will only perceive that there is too much
communication if the information is superficial or not
pertinent to their needs.
Visitor encounters in many laboratories are treated
as trespassing or interruptions. They should be treated as
opportunities to exchange information with other health-
care providers. The successful laboratories are often those
in which clinicians can be found looking through micro-
scopes in hematology, microbiology, and pathology and
consulting with the staff. These laboratories are highly val-
ued and perceived as very credible sources of important,
accurate information. Heller (5) wrote, “For successful op-
erations, information must be totally visible.” Laboratories
that open their doors to their customers and become vis-
ible will be successful and valued. However, these options
will also depend on the physical location of the laboratory
and its proximity to the medical staff.
Laboratories communicate to convey information
about policies and procedures (including rules and regu-
lations that determine policies), results of tests ordered,
status of testing, and new technology and services that are
being added or tests that are being discontinued. The job
of all managers is to coordinate the human and physical
elements of an organization into an efficient and effec-
tive working unit. Communication is of prime concern to
managers because it makes cooperative action possible (6).
The higher one is in the organizational hierarchy, the more
likely it is that communication becomes a key priority (6).
Means and Mechanics of
Effective Communication
Heller (5) wrote, “For effective communication, you must
be aware of the means and the channels .  .  . with which
to transmit and exchange information” (Table 23.2). The
means of communication are fairly simple: the spoken
word, the written word, and visual images. The mechan-
ics include written memoranda, emails, reports, notices,
newsletters, flyers, telephone service, manuals, and for-
mal presentations, among others. These messages can be
delivered by direct mail, the Internet, fax, or video using
the hardware of communication such as telephone sys-
tems, computer information systems (and their interface
with the institution’s information system), terminals, fax
454 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Table 23.2 Methods of communication
Action Examples
Verbal Telephone, intercom, face-to-face
Written Memoranda, email, newsletter, flyer, manual
Visual Videos, posters, presentation, personal
digital assistants
machines, intercoms, headsets, and beepers. The trick is to
match the mechanics to the message so that the message
is well received. For instance, many laboratories produce
a handbook that describes all of the tests they offer (test
menus), with information about the specimen require-
ments, expected TATs, indications for ordering, and ref-
erence ranges. While this is an excellent communication
device for anyone needing laboratory services, it isn’t al-
ways used effectively. In many instances, the reason that
this effort does not achieve the intended results is that the
book is huge and imposing. The individuals needing the
information in this book are the very people who do not
have the time to read it. Many laboratories have minia-
turized the book; the most successful have made it truly
pocket-sized. The real key to communicating all of this
information is determining what the ordering providers
and nurses use as help aids (e.g., wall charts, the institu-
tion’s computers, personal digital assistants, the Inter-
net, etc.) and employing that mechanism to transfer this
information.
Any type of communication can be misinterpreted or
contain errors. That is a risk that must be understood, but
it should not impede the flow of information. The IOM’s
reports remind us that the majority of medical errors oc-
cur because of a lack of an open flow of information (7, 8).
Spoken Word
While we may not realize it, communication via the spoken
word occurs daily in our laboratories—every time some-
one answers the phone. This is the most direct means of
communication, but it can be the most damaging if words
are not chosen carefully and if tone is not modulated. In
our society of instant information, it is necessary to edu-
cate laboratorians in the use of the spoken word. Much can
be accomplished with a telephone exchange or the clini-
cian-laboratorian encounter in the laboratory if the words
are carefully chosen, if body language and facial expres-
sions are positive, and if we state our knowledge clearly
without a great deal of laboratory shorthand that may be
misunderstood by other members of the healthcare team.
Scripting can be used to deliver a concise message when
information or questions are routinely asked, for example,
questions asked to verify a patient’s name and medical rec-
ord number or when relaying information about testing
delays. Staff and management should be encouraged to
engage caregivers in a discussion of the tests, the appropri-
ateness of the tests, and the meaning of the results based
on their level of knowledge. Each level of staff should be
trained in consultation techniques and when to refer the
provider to the next level of expertise. The traditional
policy that no one other than the physician communicates
information to other physicians is no longer workable
given the increasing amount of information that needs to
be communicated. However, it is necessary that laboratory
personnel continually receive updated information that is
relevant and appropriate for their job level, thus expanding
the laboratory’s consultative services.
It is the responsibility of the laboratory management
to provide continuing education opportunities, both in-
house and through external meetings, to improve the ver-
bal skills and knowledge level of its personnel. It is not
appropriate to rely on self-study modules to improve ver-
bal skills. While self-study continuing education can be
very efficient for the transfer of new scientific knowledge,
it does nothing to enhance verbal skills because there is
no verbalization going on. In this day of personnel short-
ages, it is difficult to free employees to attend meetings,
in-house or externally. However, if one considers the pay-
back when employees become adept at the spoken word
and the laboratory’s image and usefulness are improved,
the sacrifices needed to send them to meetings will be
worth it.
Written Word
As Heller (4) states, “The written word is the basis of orga-
nizational communication and . . . is relatively permanent
and accessible.” Laboratory management should learn how
to design written communications to optimize readability.
The physical design of the piece should be easy to read,
with standard fonts and font sizes. The page should not
be crowded—the reader will be overwhelmed with the
amount of information and either will not read it or will
only skim it, potentially missing important information.
While clip art has expanded our ability to become artistic,
resist the urge to use it when communicating with most cli-
ents unless the visual image will really convey the message.
Intradepartmental Communication
Laboratory managers must encourage a routine exchange
of thoughts and messages between the laboratory depart-
ments, management and staff, and different shifts. The
laboratory’s organizational structure is based on the disci-
plines of pathology and laboratory science, which may not
always be conducive to an open flow of information. Many
laboratories use established intranets—communication
superhighways for internal information exchange.
Without good internal communication, the potential
for error increases. It is common for one department or
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT
shift to be unaware of new announcements concerning
testing or schedules that were disseminated to the labora-
tory’s customers. Laboratory managers may mistakenly as-
sume that because the testing will not occur on that shift
or in that department, for instance, that all personnel don’t
need to know about the changes. Because your customers
(e.g., nurses, physicians, outpatients) read memos at any
time of the day and night, you cannot predict when or to
whom a query will be addressed. Written intradepartmen-
tal communication is very effective because there is docu-
mentation that it occurred and it can reach every shift and
all staff, whether they were present on the day it was issued
or not. However, communication should not be exclusively
in the written form. Meetings, informal chats, and im-
promptu announcements allow the staff to ask questions
and exchange ideas immediately. This active communica-
tion can improve staff morale, as personnel know that they
are being heard.
Interdepartmental Communication
The flow of communication beyond the laboratory in-
cludes that between the laboratory and the institution’s
administration (whether it is the vice president of clini-
cal services or the office manager in a physician’s office)
and its clients (e.g., patients, physicians, and nonphysician
caregivers). Written interdepartmental communication
tends to be more formal than intradepartmental and needs
to be carefully structured.
Memos, letters, and notices are adequate forms of
communication for most announcements and responses
to inquiries from other departments of the institution.
However, when laboratory management wants to start a
new service, change protocols, discontinue a test, acquire
instrumentation, or reorganize any part of the business,
they should communicate through formal proposals
(Table 23.3). Structuring a request this way ensures that
you will address all of the questions that the reader may
have. Before you write the proposal, you need to fully un-
derstand the missions and strategies of your institution.
Your proposal should always point out how it will fulfill or
complement the missions and strategies of the organiza-
tion, particularly related to patient care. The components
of a proposal, or a business plan, should (i) explain why
the change or plan is needed and how it will contribute
to the strategies of the overall institution/business (e.g.,
economic benefits, objectives); (ii) estimate the resources
required, the cost of the program, revenues from the plan,
and the timeline for completion, and identify the individ-
ual responsible for completion of the proposal; (iii) pro-
duce an outline of a plan of action; and (iv) describe what
success will look like. If you cannot verbalize or quantify
outcomes, the project will not be noticed and probably
will not be approved.
455
Table 23.3 Elements of a formal proposal to change laboratory
services
Identify the benefits to the organization.
Better patient care (e.g., quicker TAT, better test sensitivity, lower
limits of detection)
Better patient safety (e.g., less toxic ingredients in specimen collec-
tion devices, needles with shield guards to prevent needle sticks)
Lean (e.g., less technologist time, better throughput)
Identify project-required resources, costs, and revenues.
Cost saving may also include less technologist hands-on time.
Specify the responsible individual.
Identify owner of the project who is responsible for making sure
that all stakeholders (medical staff, laboratory staff, administration,
clients, information service, and/or patients) are notified.
Communicate project completion timelines for implementation of
the service.
Communicate any delays in the timeline to the appropriate
stakeholder.
Describe the final outcome.
Put procedures in place for periodic review and revision, if necessary.
External Communication
Entities external to the organization include insurance
companies, the federal government, accrediting agencies,
competitors, and others. There are myriad regulations that
affect a laboratory’s operation, such as a license to operate
and personnel policies. The federal government requires
that every laboratory performing tests for diagnostic pur-
poses be certified by the Centers for Medicare and Medic-
aid Services under the Clinical Laboratory Improvement
Amendments of 1988. Laboratory managers must con-
tinuously remain current with these federal rules and
regulations and must communicate any changes to their
superiors. The changing rules for Medicare reimburse-
ment also require monitoring and reporting up the chain
of management. In addition, clinical laboratories are re-
quired by the Centers for Medicare and Medicaid Services
to have a compliance plan (Health Insurance Portability
and Accountability Act) that helps employees avoid actions
that might be construed as fraud and abuse. The Office of
the Inspector General has outlined what that compliance
plan should look like. The human resources department in
most institutions dictates personnel policies that must be
followed in the laboratory.
The manner in which individuals communicate de-
pends upon the formal organizational structure. In an
organization that is rigidly structured, individuals will act
and interact differently than in an organization that is very
informal. The organizational chart will define how and
with whom a manager will communicate; however, actual
communication channels do not always strictly adhere to
the organizational chart.
456 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
The most important activity that laboratory managers
should undertake is to get out of the office and out of the
laboratory. Managers should volunteer to serve on hospi-
tal committees and should encourage their staff to do so
as appropriate. “Management by walking about” (MBWA)
contributes to informal communication. As a manager
from Hewlett Packard (identified as an excellent com-
pany) stated, “We just plain talk to each other a lot with-
out a lot of paper or formal rigmarole” (10). The lesson
from all successful companies is that management must be
visible. Sitting in the laboratory, monitoring TATs, qual-
ity assurance, compliance, and billing, while essential to
keeping the laboratory functioning, will not achieve the
goals of a good communication system. Laboratory man-
agers should practice MBWA, not just in the laboratory
but also in the institution of which the laboratory is a part.
The informal communication that occurs will be of im-
measurable benefit to the laboratory as a whole. As nurses,
physicians, patients, patients’ families, and the institution’s
management begin to recognize the laboratory manage-
ment, additional impromptu communication will occur.
Managers should visit the nursing units (or any depart-
ments in which patients/customers are using the labora-
tory’s services) on a routine, predictable basis. The agenda
of these visits should include but not be limited to check-
ing on the phlebotomy service, satisfaction with TATs, and
the interpretation of laboratory reports.
As care providers come to know that the laboratory is
interested in its performance, the department will be in-
creasingly perceived as a member of the team. Some hos-
pital laboratories have assigned personnel to a nursing unit
or department so that there is a recognizable liaison with
whom caregivers can readily communicate.
The laboratory should survey its clients periodically to
determine how they get the majority of their information
and what information they routinely need. The survey re-
sults will also tell management whether the services the
laboratory is providing are pertinent and can be used to
identify future services. All avenues for communication
with people who interact with the laboratory should be ex-
plored and used to improve laboratory services.
Summary
Communication is the exchange of ideas, attitudes, and in-
formation through the spoken word, written word, and
visual images. Communication should be targeted to a spe-
cific audience and understood by that audience and can be
delivered by myriad methods (e.g., telephone, fax, news-
letters, manuals, Internet, videos, etc.). Effective commu-
nication is a critical skill that laboratorians need to ensure
effective delivery of laboratory services. It must be bidi-
rectional between the laboratory and its customers, clients,
and members of the organization’s hierarchy.
KEY POINTS
■ Effective communication, whether internal or external
to the organization, is critical to the management of the
laboratory.
■ Communication must be tailored to the understanding
and needs of its audience.
■ Communication occurs by the written word, the spo-
ken word, and visual images.
GLOSSARY
Communication Exchange of thoughts, messages, or informa-
tion (through speech, signals, writing, or behavior); art and tech-
nique of using words effectively to impart information or ideas;
system, such as mail, telephone, or television, for sending and
receiving messages; exchange or transmission of ideas, attitudes,
or beliefs between individuals or groups.
External communication Occurs with entities outside of the or-
ganization (e.g., insurance companies, regulatory agencies, ac-
creditation organizations).
Hierarchy A group of individuals organized or classified ac-
cording to rank or authority.
Interdepartmental communication Occurs between the labo-
ratory and other organizational departments, clients, and health-
care providers. Tends to be structured and formal.
Intradepartmental communication Occurs within the labora-
tory between management, sections or divisions, and work shifts.
Tends to be informal.
Management by walking about (MBWA) A process that pro-
motes informal communication between managers and
employees.
Quality assurance A systematic approach to continuously ana-
lyzing, improving, and reexamining the total testing process.
Turnaround time (TAT) The interval between the beginning of
one event and the end of another event in the total testing process.
REFERENCES
1. American Heritage Dictionary of the English Language, 4th ed.
2000. Houghton Mifflin Company, Boston, MA.
2. Barnard, C. I. 1938. Functions of the Executive. Harvard Univer-
sity Press, Cambridge, MA.
3. Boyett, J., and J. Boyett. 1998. The Guru Guide: The Best Ideas
of the Top Management Thinkers. John Wiley & Sons, Inc., New
York, NY.
4. Heller, R.  1998. Communicate Clearly, 1st ed. DK Publishing,
Inc., New York, NY.
5. Heller, R. 2002. Manager’s Handbook: Everything You Need to
Know about How Business and Management Work. DK Publishing,
Inc., New York, NY.
6. Hicks, H. 1967. The Management of Organizations. McGraw-Hill
Book Company, New York, NY.
 CHAPTER 23. EFFECTIVE COMMUNICATION IN LABORATORY MANAGEMENT 457

7. Institute of Medicine. 2000. To Err Is Human: Building a Safer
Healthcare System. National Academy Press, Washington, DC.
http://www.iom.edu/, accessed September 28, 2012.
8. Institute of Medicine. 2001. Crossing the Quality Chasm: A New
Health System for the 21st Century. National Academy Press, Wash-
ington, DC. http://www.nap.edu/books/0309072808/html/, accessed
September 28, 2012.
9. On-line Medical Dictionary. 1997. Academic Medical Publish-
ing & CancerWEB, Lexico Publishing Group, Los Angeles, CA.
10. Peters, T. J., and R. H. Waterman, Jr. 1982. In Search of Excel-
lence: Lessons from America’s Best-Run Companies. Harper & Row
Publishers, New York, NY.
Introduction
24
The Microbiology Laboratory in the 21st
The Laboratory Information
Century
A Primer on Information System
System: Making the Most
Terminology and Architecture
A Primer on the LIS of It in the Clinical
LIS Interfaces
Admission/Discharge/Transfer (ADT) Interface •
Order-Entry Interface • Results-Entry Interface •
Microbiology Laboratory
Instrument Interface • Billing Interface • Reference
Laboratory Interface • Peripheral Hardware Joseph M. Campos
Laboratory Informatics
Laboratory Data Repository • Data-Mining Tools •
Connectivity
OBJECTIVES
Miscellaneous Applications
Preparation of a Periodic Antibiogram • Electronic To review the principles of laboratory informatics
Surveillance for Clusters of Hospital-Associated To review the architecture of information systems
Infections • Unique Device Identifiers
To identify methods to enhance the cost-effectiveness and accuracy of
Summary
microbiological data through informatics
KEY POINTS
GLOSSARY
REFERENCES What I am going to tell you about is what we teach our physics students in the
third or fourth year of graduate school. . . . It is my task to convince you not to
turn away because you don’t understand it. You see my physics students don’t
understand it. . . . That is because I don’t understand it. Nobody does.
Richard P. Feynman, The Strange Theory of Light and Matter

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch24
Y
ears from now, the 1980s, the 1990s, and the first decades of the 21st
century will be recalled as the dawn of a new era for diagnosis and man-
agement of infectious diseases. That is because the clinical microbiol-
ogy laboratory is in the midst of a period of historic change as its utilization of
diagnostic tools changes in a remarkable fashion. This laboratory discipline is
evolving before our very eyes in a manner that is affecting the management of
testing and the flow of information into and away from the laboratory.
The first decades of the 21st century will also be remembered for major
changes to the healthcare landscape that impacted hospitals in an enormous
way. A highly significant event was the passage of the Patient Protection
and Affordable Care Act, which was signed into law by President Obama on
March 23, 2010. Among its many provisions is language defining the steps
that physician groups, hospitals, and other providers must take to form ac-
countable care organizations (ACOs). ACOs are the centerpiece of a health-
care delivery model in which the levels of reimbursement to providers are
dependent upon them meeting quality standards while reducing the cost of
healthcare (22). Among other requirements, physicians within an ACO must
have an electronic health record (EHR) system available that can maintain dis-
ease registries and population-based care records and can provide advanced
reporting capabilities to confirm that the expectations of an ACO are being
met. Populating the ACO EHR with the laboratory data that are required is a
connectivity challenge that must be met by the laboratory and collaborating
information technology personnel.

458
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
Another piece of recent legislation affecting healthcare
information technology is the Health Information Tech-
nology for Economic and Clinical Health (HITECH) Act,
which was enacted under Title XIII of the American Re-
covery and Reinvestment Act of 2009. The HITECH Act
grants authority to the Department of Health and Human
Services to implement programs that improve healthcare
quality, safety, and efficiency via improvements in health
information technology, including the use of EHRs. Un-
der the HITECH Act, healthcare organizations can qualify
for Medicare and Medicaid incentive payments when they
adopt certified EHR technology and use it to achieve a
group of “meaningful use” goals (12). The EHR stimulus
money becomes available to organizations that can docu-
ment that their EHRs are being used in a meaningful fash-
ion, e.g., e-prescribing medications, ordering laboratory
tests electronically, exchanging health information with
other information systems to improve the overall qual-
ity of health care, and demonstrating the benefits that the
EHR is contributing to patients under their care.
The Microbiology Laboratory
in the 21st Century
Returning to the microbiology laboratory itself, there are
other momentous changes underway. A growing number
of laboratories are being affected by a trend that started
near the end of the 20th century—forwarding microbiology
work from individual hospitals to full-service central labo-
ratories. From a financial perspective it makes perfect sense
to capitalize on the economies of scale such an arrangement
offers (5). However, taking this step introduces complica-
tions that must be resolved from the standpoint of infor-
mation access. When this model is employed, maintaining
steadfast communication between the peripheral hospitals
and the central laboratory presents difficulties that require
informatics expertise and close attention to detail.
Whether microbiology testing is being referred to a
central laboratory or is being performed in the hospital it-
self, the complete automation of workflow from receipt of
specimens to the issuance of final test results is no longer
just a fanciful notion (8). Platforms that enable hands-free
inoculation of cultures and preparations of smears already
exist. “Smart incubators” that depend on digital photog-
raphy and computerized image analysis to monitor the
growth of cultures have left the drawing board and actu-
ally exist today in prototype format. It is now conceivable
that a microbiology technologist will be able to examine
cultures and designate colonies for further work-up from
a remote location—even while telecommuting from home!
The availability of automated specimen-handling tracks,
comparable to what is already available in core chemistry
and hematology laboratories, is also just around the cor-
ner. All of this automation will be greatly dependent upon
459
connectivity with a robust laboratory information system
(LIS) that is able to assist microbiology technologists serv-
ing at the helm of the laboratory operation.
Another transformation affecting the workflow and
information management in microbiology laboratories
is the shift from diagnostic testing based on culture,
antigen detection, antibody detection, and microscopy
to a greater dependence upon molecular technologies.
Reporting the results of single-target molecular assays,
whether qualitative or quantitative, does not pose much
of a challenge to a modern LIS. However, multiplex assays
in which 10, 20, 30, or more targets are sought simultane-
ously introduce complexities that today’s systems are not
prepared to handle. Even more daunting are microarray
assays where thousands, tens of thousands, or even hun-
dreds of thousands of targets may be in play. Assays in-
volving the sequencing of genes, multiple genes, or entire
genomes are equally difficult for current systems to man-
age. LIS vendors are finding themselves playing catch-up
to keep pace with the influx of molecular technology into
the clinical laboratory as a whole and the microbiology
laboratory in particular.
The responsibilities of the microbiology laboratory
leadership team are becoming more informatics-centric
as well. Along with ensuring that the laboratory is em-
ploying the most appropriate test methodologies, is pro-
ducing clinically relevant test results, is passing biannual
accreditation surveys, and is scoring well on proficiency
tests, they must be assured that the LIS is receiving test or-
ders and disseminating test results reliably. As in the rest
of the laboratory, it is clear that the preanalytical and post-
analytical phases of microbiology testing are much more
prone to clinically significant errors than is the analytical
phase (23). Yet the preanalytical and postanalytical phases
of testing receive much less attention than the analytical
phase during test development and validation.
In the preanalytical phase, correct ordering of appropri-
ate tests is greatly dependent upon information supplied
by the laboratory (20). Clearly differentiating tests that
detect antigens versus antibodies, recognize IgG versus
IgM antibodies, and provide qualitative versus quantita-
tive molecular results is the duty of the laboratory. That
kind of information is provided most effectively in an on-
line format that can be viewed anytime of the day or night
(14). In addition, there should always be a knowledgeable
individual on call who can answer questions not addressed
by the online information.
Postanalytically, physician understanding of the clini-
cal significance of test results can be aided by the labora-
tory supplying interpretive comments. They can be in the
form of composed text comments that the LIS automati-
cally appends to test results, or they can be ad hoc free text
statements created on-the-spot for a particular patient. In
addition to explaining the implication of test results, they
460 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
can suggest follow-up tests that may be ordered to better
understand a patient’s medical situation.
Most microbiology laboratories today depend on the
LIS for much more than ordering and resulting laboratory
tests (2, 4). The LIS can be used to manage the quality con-
trol and quality assurance activities of the laboratory and
monitor the inventory of laboratory supplies, among other
things (11). The remainder of this chapter will review in-
formation system architecture and the principles of labora-
tory informatics. The manner in which the LIS can serve
to enhance the cost-effectiveness and accuracy of microbi-
ology testing will also be discussed.
A Primer on Information System
Terminology and Architecture
Lack of understanding of terminology is a major source
of intimidation for any field of technology. Computer ter-
minology may be incomprehensible to microbiologists,
just as microbiology terminology may be unintelligible to
information system personnel. Simple definitions of com-
puter components and terminology can be found in the
glossary at the end of the chapter. It is advisable that all
personnel working in the microbiology laboratory have a
fundamental understanding of information system termi-
nology and architecture.
A healthcare enterprise information system provides
a computerized platform that facilitates the management
of a hospital’s clinical, financial, and quality improvement
activities. The information system may consist of a patch-
work of “best of breed” products that are interfaced to each
other to meet the needs of the facility. Then again, the hos-
pital may employ a software suite from a single vendor in
which component applications work together in an inte-
grated fashion.
The cornerstone of either design is the patient-centered
hospital information system (HIS) (13). The HIS is the
home of the master patient index (MPI), which is a listing
of current and past patients receiving medical care from
the hospital. It is also the storage site for all of the patient-
related information gathered before, during, or after each
episode of care, including the patient demographic data.
It is the location of the official record that feeds patient
information to all of the other information systems in
the enterprise.
Because of its critical role, the MPI should be strongly
protected. Additions, deletions, modifications, and merges
of patient records in the MPI should be tightly controlled
and under continuous surveillance. The integrity of the MPI
should be verified on a regular basis. User access to MPI ed-
iting functions should be restricted to authorized individu-
als who are thoroughly trained and assessed as competent.
Other information systems are also present in the hos-
pital setting. Examples include systems for warehousing
patient care records (the EHR), scheduling patient visits,
billing for services rendered (financial information sys-
tem), enabling decision support analyses, coordinating
physician practice management, administering materials
management, operating pharmacy services (pharmacy
information system), and overseeing diagnostic imaging
services (radiology information system).
Most hospitals and healthcare information technology
vendors have adopted the Health Level 7 (HL-7) data ex-
change standard to support communication of informa-
tion between information systems. The HL-7 standard is
composed of a set of rules that dictates how healthcare
clinical and administrative data can be shared in a uniform,
consistent manner. Its specifications identify the appropri-
ate location and sequence of data elements (“segments”) in
messages between healthcare information systems.
It is common for hospitals to install an interface en-
gine at the hub of the information system architecture to
manage the flow of data between disparate information
systems. The interface engine is analogous to a traffic cop
who oversees the orderly passage of vehicles through a
busy intersection. A properly functioning interface en-
gine grants hospitals the freedom and flexibility to select
HL-7-compatible information systems of their choice
from a variety of vendors and link them together to pro-
vide system-wide communication.
Each information system in the hospital environment
is installed on at least one server that houses the operating
system and application software. An ideally designed ar-
chitecture includes redundant servers housed in physically
separate locations to provide effective disaster recovery
and efficient use of server resources. Locating redundant
servers several miles apart minimizes the likelihood that
all will be affected during the same disastrous event. The
detrimental impact of heavy concurrent user activity on
system resources can be lessened by distributing users
across redundant servers (load balancing). Redundant
servers are also an important safeguard during system
downtime. When a primary server is not available during
scheduled or unscheduled downtime, user sessions logged
onto that server can be moved quickly to a different server
and remain productive.
One other point regarding information system archi-
tecture deserves emphasis. There must be a mechanism
available for scheduling regular system backup. Informa-
tion contained on each server should be copied to quickly
accessible storage media on at least a daily basis. One copy
of the backed-up system and database files should be
stored in a location that is remote from the server location.
Should a disaster occur at the location where an informa-
tion system server is located, the stored information and
application software within that server can be activated or
loaded onto a replacement server using the system backup
media as the source.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
A Primer on the LIS
Because the data management needs of microbiology labo-
ratories are advancing right along with the newer technol-
ogies being used, the features of the ideal LIS vary widely
from laboratory to laboratory. Thus, it is not possible to
come up with a standard list of LIS specifications that will
meet the demands of all microbiology laboratories.
The rationale for building the first LIS was to man-
age the billing for testing performed by laboratories (27).
Once that was accomplished, they have become ever more
sophisticated and feature-rich in response to competitive
forces in the marketplace.
An LIS consists of one or more servers that provide the
array of services described in the sections that follow. Not
surprisingly, the information entered into, stored within,
and reported from the LIS is directly or indirectly related
to laboratory testing. The LIS counterpart to the HIS MPI
is a dynamic database usually referred to as the patient lab-
oratory file (PLF). Within the PLF resides all of the patient
demographic information sent to the LIS via the admis-
sions/discharges/transfers (ADT) interface from the MPI,
as well as complete information about laboratory tests that
have been ordered and the results of those tests.
Users generally have access to the LIS via “thick client”
or “thin client” workstations. Thick client workstations are
usually personal computers capable of running a wide va-
riety of software applications in addition to the LIS (e.g.,
email, word-processing, spreadsheet, and presentation
software). Application software resides on both the user
workstations and the LIS servers. While such worksta-
tions have extreme functionality, they have consequential
disadvantages. They are more expensive. The presence of
unrelated software that is incompatible with LIS function-
ality can prevent the workstation from behaving properly.
Information technology support of a group of dissimilar
workstations is a major headache when problems need to
be solved or LIS upgrades are ready for installation. Ac-
cordingly, many laboratories have migrated away from the
thick client environment.
Thin client workstations are personal computers that
are minimally equipped and often limited to running ap-
plications that are loaded on network servers. They are
usually web-enabled and thus can access applications
via secure connections over the Internet. They are inex-
pensive, as workstations go. LIS upgrades do not require
support personnel to have hands-on contact with all work-
stations, as changes to the LIS need be made only on the
network servers.
The relatively recent popularity of “cloud computing”
can be adapted to a thin client environment. Cloud com-
puting is analogous to having a laboratory staff of 100 full-
time equivalents (FTEs) who have been cross-trained to
perform all laboratory testing. The number of those FTEs
allocated to a particular activity can be flexed up or down
461
depending upon the workload and the urgency with which
test results are needed. The “laboratory cloud,” in this ex-
ample, is able to adjust available resources rapidly to meet
fluctuating and unpredictable demand. Similarly, cloud
computing permits a group of linked servers to assign the
requisite processing power to a task for the time period
required to complete the task.
LIS Interfaces
Transactions that are communicated between information
systems are conveyed by one of several interfaces. Each of
the interfaces includes generation of an error log that must
be monitored continuously by information technology
personnel. Many of the messages recorded in the error log
are informational and of little consequence. However, the
most critical of errors are found also in the same log, and
it is those errors that must be recognized and that warrant
immediate resolution.
Typically encountered interfaces between the LIS and
other information systems include the ones described below.
Admission/Discharge/Transfer (ADT) Interface
The LIS depends on the MPI for the most current informa-
tion regarding individual patient admissions, discharges,
and transfers. Usually, the creation of new MPI records or
changes to existing records are sent to the LIS instanta-
neously via an ADT interface. Such an interface obviates
the need for manual entry of patient demographics in the
LIS and guarantees that the information within the LIS is
up-to-the-minute.
Order-Entry Interface
Direct entry of laboratory orders into EHRs by caregivers
and other patient care personnel is the norm in hospitals
today. Although it can be argued that the placement of
orders by patient care personnel requires time that might
be better spent seeing additional patients, this practice is
a central component of the universal strategy to eliminate
medical errors.
The ordering of laboratory tests that takes place in the
EHR should be simplified by logically organized, online
test menus that offer easy access to information concern-
ing testing (e.g., specimen requirements, turnaround time
for test results, and the costs of testing). Verifying that the
content and organization of the microbiology ordering
screens in the EHR are easily navigated and understand-
able is a task best handled by a laboratorian.
Once laboratory test orders are entered in the EHR,
they are sent electronically to the LIS via an order-entry
interface. Specimen container labels, usually bar-coded,
are generated either by the EHR or by the LIS and applied
to the containers in the presence of the patient. Specimens
are transported to the laboratory, where they are received
462 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
into the LIS, and then testing is initiated. If a specimen is
not received into the LIS within a user-defined timeframe
(e.g., 72 hours) and an acknowledgment of receipt is not
sent back to the EHR, at most hospitals the EHR will can-
cel the test automatically.
Medicare, Medicaid, and third-party payors now re-
quire that the current procedural terminology (CPT) 4
code(s) for laboratory tests being ordered on outpatients
be accompanied by an International Classification of Dis-
ease (ICD) 9 (soon to be ICD10) ordering diagnosis code
that justifies the medical necessity of the test. This require-
ment is intended to discourage indiscriminate ordering of
laboratory tests as part of a “shotgun” approach to working
up a particular patient. Many outpatient order-entry infor-
mation systems today offer an optional medical necessity
checking module that automatically alerts the ordering
clinician when there is not an appropriate match between
the CPT4 and ICD9 codes. Inclusion of this module in
the outpatient order-entry information system is strongly
recommended.
EHR ordering systems often include rules engines or
“expert systems” that can assist clinicians in selecting the
correct test, can identify tests that require consultation
with “gate keepers” before ordering is permitted, and can
check automatically for redundant test orders. The recog-
nition of medically unnecessary or redundant tests can
be displayed in real time on the ordering clinician’s work-
station. If that capability does not exist in the ordering
system, such tests can also be identified by the LIS after
orders have come across the order-entry interface. These
essential features are most effective when the information
is presented to an ordering clinician rather than after the
fact to a laboratory employee.
Results-Entry Interface
The same EHR application used for placing laboratory test
orders is often tapped by patient care personnel for viewing
test results. Thus, installation of an order-entry interface
generally is accompanied by installation of a results-entry
interface. The microbiology laboratory should play a cen-
tral role in testing and validating the functionality of the
results-entry interface to ensure that its test results display
in an accurate, unambiguous, and clinically advantageous
way. This is especially true for the presentation of antimi-
crobial susceptibility results, which should be laid out in
an arrangement that clearly distinguishes susceptible from
resistant results. Consideration should be given to display-
ing cascaded results, meaning that the agents showing sus-
ceptible results are limited to those that are safer and less
costly for the patient.
Along with test results, the LIS can supply information
to the EHR that improves the utilization of laboratory ser-
vices and assists in the “back-office” management of test-
ing. Preliminary and final test results should be viewable
in the EHR immediately after they are filed in the LIS. Test
result reports may be printed on paper or delivered elec-
tronically to patient care personnel by fax, email, alphanu-
meric pager, or video monitor display on remote personal
computers, tablets, or smart phones. Interpretive com-
ments can be attached to reports by the laboratory to assist
clinicians in understanding their significance and learning
which additional tests should be considered for ordering.
Efforts are under way to develop a standard “plug and
play” interface that would enable connectivity between
LIS/HIS and EHR software (25). That is because the fi-
nancial incentive for practicing physicians to implement
EHR software has increased profoundly under the tenets
of the HITECH Act. Such software includes laboratory test
order-entry capability complete with medical necessity
checking and test results viewing capability in the context
of a patient’s electronic health record. More than 300 dif-
ferent EHR systems are on the market now in the United
States alone, all competing for this lucrative business.
Developers of these systems are not always familiar
with the requirements mandated by the Clinical Labora-
tory Improvement Act of 1988 (CLIA ’88) for the display
of laboratory test results. Therefore, it is obligatory that the
responsibility for ensuring the display of laboratory data
by EHR software meets CLIA ’88 standards is assigned to
individuals who are competent to make that judgment. For
infectious disease testing, generally an individual with mi-
crobiology expertise should be given this responsibility.
Instrument Interface
Connectivity between high-volume test instruments and
the LIS is critically important for eliminating tedious,
resource-intensive, manual entry of information into the
instrument data management system and into the LIS.
Manual transcription of this information is also a major
source of preanalytical and postanalytical errors, leading
to avoidable harm in patients.
The current standards for communication between
laboratory instruments and the LIS were promulgated by
the American Society for Testing and Materials (ASTM)
in the 1980s. The primary goal at that time was to define
standards usable for the current day yet permit them to
be adaptable to new technology as it was developed in the
future. Such flexibility actually contributed to the ASTM
standards becoming so broadly defined that customized
software code known as “drivers” has had to be created for
each laboratory instrument to make it possible for the in-
struments and the LIS to understand each other.
If standardized connectivity protocols were accepted by
instrument manufacturers and LIS vendors, plug and play
instrument interfaces could become a reality. The current
lack of standardization, however, leads to expenditure of
much time and money by laboratory users and vendors alike,
trying to establish reliable channels of data communication.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
To put this problem into a present-day context, the pur-
chaser of a music player, a portable tablet, or a notebook
expects to be able to plug the device into a personal com-
puter or connect to a wireless network to access content
immediately that can be downloaded to the device. Imag-
ine how sales would plummet if it became necessary to de-
velop, validate, and implement costly interfaces between
these devices, computers, and wireless networks before be-
ing able to enjoy use of the devices.
There is promising news on the horizon. A group known
as the IVD Industry Connectivity Consortium is hard at
work defining a new uniform connectivity standard that
should enable laboratories to benefit from the same plug
and play ease of use with which home consumers are ac-
customed with their electronic devices. The timing of this
effort is favorable for microbiology laboratories as they
add newer molecular diagnostics platforms to their testing
armamentarium.
Billing Interface
From a dollars-and-cents perspective, the billing interface
between the LIS and the hospital financial system is crucial
(29). Laboratory test charges are sent either individually as
they are incurred or, more typically, in a daily batch across
this interface. The hospital’s financial leadership must de-
cide whether charges should be levied upon test ordering
or upon specimen receipt by the laboratory. Selecting the
former choice inevitably means crediting a large number of
charges for tests that are ordered without specimens being
received by the laboratory. The latter option risks delays in
billing that encourage some payors to deny reimbursement
if too much time has elapsed since the date/time of service.
Automatic billing for laboratory services often is trig-
gered by the transmission of billing transactions across
the interface between the LIS and the financial informa-
tion system. Complex financial algorithms dictated by
contracts with third-party payors, accountable-care orga-
nizations, and managed-care providers can be processed
by LIS tools included in some systems but probably are
better left for handling by financial information system
software. An important requirement that must be met
with respect to laboratory billing is that the test charges
are precise, complete, and convertible into a format dic-
tated by the payors—or denial of reimbursement becomes
a likely outcome.
Reference Laboratory Interface
Virtually all hospital laboratories send specimens to refer-
ence laboratories for esoteric testing that is not performed
on-site. The results of send-out tests often are complicated
and accompanied by large blocks of interpretive text. Man-
ual transcription of results into the LIS by clerical employ-
ees who are frequently unfamiliar with testing terminology
can be fraught with mistakes. Interfaces between the LIS
463
and the information systems at each reference laboratory
are attractive to both the originating and reference labora-
tories because they automate what is ordinarily a resource-
intensive process and they minimize the occurrence of
errors during test ordering and results entry into the LIS.
Peripheral Hardware
Peripheral hardware connected to the LIS server(s) either
directly or through a personal computer (PC) workstation
may include:
• Data entry devices (e.g., keyboards, light pens, touch
screens, barcode wands, scanners, terminal-emulation
devices, and digital cameras).
• Printers for preparation of specimen identification la-
bels, worksheets, and reports.
• Laboratory instruments to permit batch or real-time
transfer of patient demographic data and test results.
Instrument connections are mediated by interface
software. These interfaces permit the LIS server and
the attached instruments to communicate in much the
same way that an interpreter enables people who speak
different languages to understand one another. Instru-
ment interfaces may be unidirectional (instrument to
server or server to instrument) or bidirectional (server
to instrument to server).
• Middleware, in the laboratory context, is software that
is usually loaded on a high-storage-capacity server that
enables multiple instruments and other peripheral de-
vices to feed information to a data repository so that it
can be aggregated and displayed in a manner defined
by and made valuable to the user (9). An especially
helpful use of middleware makes possible the display
of real-time data-derived dashboards that furnish
practical workload and quality indicator information
at a glance.
Laboratory Informatics
The specialty of laboratory informatics was originated to
better manage the expanding quantity of laboratory data
and the growing complexity of the LIS (3, 26). Laboratory
informatics is defined simply as the application of infor-
mation technology to optimize laboratory operations.
Just about every hospital microbiologist interacts with
one external information system, and many deal with
several such systems on a daily basis. Despite this circum-
stance, most microbiologists understand the complexities
of antimicrobial susceptibility testing or molecular diag-
nostics better than they do information technology. That
is because most microbiologists lack training in labora-
tory informatics and consider the LIS to be a “black box”
that keeps them happy when it does what is expected and
makes them miserable when it doesn’t. They are driven to
464 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
understand the intricacies of microbiology and decide to
leave the mysteries of information technology to others. It
needn’t be that way.
Much of the data residing in the LIS is of little inter-
est to clinical microbiologists. Buried within the patient
laboratory file (PLF), however, are all of the records of
microbiology test orders and results. Data elements of in-
terest that are stored within these records can be extracted
and exported to personal computer spreadsheets and re-
lational tables during queries of the LIS. Results of these
queries can be displayed on computer workstations or in
printed reports.
Long-term storage and retrieval of laboratory data can
be easily accommodated by a suitably configured LIS. The
current emphasis by payors and healthcare accrediting
agencies on utilization review of laboratory services and
quality assurance analysis of laboratory testing requires that
laboratory activity be evaluated on a regular basis. Genera-
tion of hard-coded “canned” or ad hoc user-defined reports
from the LIS, middleware, or institutional decision-support
systems can be instrumental to this effort.
Data from canned reports that would ordinarily be
printed to paper can be stored electronically as formatted
text files, PDF files, or XML files. Such files can be opened
using off-the-shelf data extraction software (e.g., Monarch
from Datawatch) that enables the assembly and conversion
of data elements of interest into spreadsheet format. Once
the data are in spreadsheet format, business analytics tools
(e.g., Excel and Access from Microsoft) can be employed
to query and organize the data in tabular or graphical for-
mat to simplify the assessment of laboratory activities.
To make the most of the wealth of information stored
within the LIS, individuals must be on-board who under-
stand the qualitative aspects of the laboratory data avail-
able and who have the skills needed to query the data in
a manner that yields answers to the questions at hand (7,
24). This includes clinical microbiologists who ought to
be able to take advantage of the many capabilities that are
placed at their disposal by healthcare information systems.
They can position themselves ideally to make this happen
by becoming facile in the use of information system tools.
This expansion of personal proficiencies places individuals
in a position to help achieve institutional priorities such
as conducting patient outcome studies, eliminating un-
necessary laboratory testing, maximizing reimbursement
for necessary laboratory testing, developing clinical prac-
tice guidelines, and actively participating in hospital-wide
performance improvement activities. By doing so, clinical
microbiologists increase their visibility within their orga-
nizations and simultaneously diversify their skill sets to
make themselves more attractive to future employers.
The subspecialty known today as laboratory or pathol-
ogy informatics emerged several years ago to help meet
the laboratory’s data-mining needs (18, 19). The ideal
laboratory informatics specialist is first and foremost a
laboratory professional who understands the principles,
requirements, and flow of laboratory testing. He or she
also possesses the knowledge, know-how, and inner drive
to leverage his or her skills effectively to unearth data that
lead to beneficial changes both internally and externally to
the laboratory. Informatics specialists should have at their
disposal a standard set of hardware and software tools, in-
cluding the following.
Laboratory Data Repository
A storehouse of laboratory data (preferably online) should
be readily accessible and span a period of at least three
years. Queries encompassing three or more years of data
make longitudinal trending of laboratory activities pos-
sible. Given the relatively low cost of information system
memory these days, the price tag should not be a signifi-
cant impediment.
Not to be overlooked is the need to maintain enough
processing power in the LIS server upon which data que-
ries will be run so that searches can be conducted within a
reasonable time frame and without degrading system per-
formance for other users. If server upgrades are required
to meet this requirement, they can entail a significant fi-
nancial outlay.
Data-Mining Tools
The software tools essential for performing ad hoc queries
of the LIS data repository must be on hand. Such tools are
normally an extra-cost option purchased from LIS ven-
dors. They may be referred to as ad hoc or user-defined
report writers or as report engines. They may include com-
mercial, off-the-shelf software (e.g., Crystal Reports from
SAP) that is installed on a user’s workstation to make pos-
sible relational database queries. The server hosting the
report engine needs access to a complete copy of the PLF.
The PLF copy may be located on a separate server that is
kept up-to-date through a dynamic link with the primary
LIS server.
Connectivity
An electronic channel through which data can be transferred
quickly from the LIS to a personal computer is needed. This
may be accomplished in a variety of ways:
• Reports can be “printed” in flat field text format to a
file on a PC linked to the LIS via a wired serial
connection.
• Report files can be sent directly to a PC from the LIS
using file transfer protocol (FTP) over a network con-
nection or a wireless network connection.
• The LIS PLF can be queried directly with PC-based
software (e.g., Crystal Reports from SAP or Access
from Microsoft), assuming that the PLF data are stored
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
in an open database connectivity (ODBC)–compliant
table format. The driver needed to link the querying
software to the LIS also must be available.
• The screen capture functionality that is a component
of the terminal emulation software (e.g., SmarTerm
from Esker) used to display character-based LIS
screens on a PC workstation can be used to capture LIS
reports as formatted text files.
Once the data are delivered to a PC, spreadsheet, data-
base, and/or data extraction software can be used to per-
form sophisticated analyses. The types of analyses that can
be conducted are virtually limitless, and the results can be
displayed in a multitude of formats (e.g., Word or Power-
Point from Microsoft or PDF from Adobe).
Miscellaneous Applications
Preparation of a Periodic Antibiogram
Organism-specific antibiotic susceptibility data collected
over a discrete period of time should be analyzed and dis-
tributed to clinicians on a regular basis. The purpose is to
present local cumulative data to assist them in selecting
empiric antimicrobial therapy prior to the availability of
actual antibiotic susceptibility results. The data are re-
trieved from the LIS, from a middleware repository be-
tween the LIS and the testing instrument, or from the data
management system linked to the testing instrument.
The data should be analyzed according to the guide-
lines published by the Clinical and Laboratory Standards
Institute (CLSI) (6). The guidelines recommend that the
antibiogram be issued at least annually, that only organ-
isms for which there were at least 30 isolates during the
analysis period be included, that surveillance culture iso-
lates be excluded, that only the first isolate per species per
patient, regardless of the specimen type or antibiogram, be
included, and that the data for each organism be reported
as the percent susceptible for each routinely tested antibi-
otic, not including intermediately susceptible results.
Electronic Surveillance for Clusters of Hospital-
Associated Infections
Data mining has been described as the process of exam-
ining large bodies of data to recognize tessellations and
associations that unearth trends, forecast future events,
and judge the virtues of assorted courses of action. It is
possible to employ an automated data-mining software
solution (e.g., MedMined from CareFusion) for detect-
ing clinically relevant patterns of microbiology culture
isolates (10, 28). These patterns would include clusters
of hospital-associated infections, increased frequency of
multiply resistant microorganisms, or other user-defined
observations that contribute measurably to improving pa-
tient safety.
465
These applications usually run on a separate server
and receive an HL7-standardized feed of patient registra-
tion and microbiology test result data. After “scrubbing”
the data to remove duplicate tests, outlandish test results,
and anomalous information, the data that remain are ana-
lyzed in an algorithmic fashion to recognize trends and
associations that would otherwise escape detection. Real-
time alerts can be issued as notification that a set of recent
events warrants closer scrutiny.
Unique Device Identifiers
Recently, the U.S. Food and Drug Administration (FDA) is-
sued a proposed rule that each medical device in the United
States, including those in the microbiology laboratory, be
assigned a unique device identifier (UDI) (http://www
.fda.gov/MedicalDevices/DeviceRegulationandGuidance/
UniqueDeviceIdentification/default.htm, last accessed Au-
gust 27, 2013). The idea is to bolster the quality of infor-
mation included in adverse event reports, which will assist
in the identification of device-related problems that could
negatively impact patient safety.
The UDI is an alphanumeric identifier that encodes the
device model and lot number, the device serial number,
and the device expiration date if appropriate. A database
that is available for public scrutiny will be created that
specifies a basic set of identifying elements for each UDI.
Once it is in place, the UDI system should offer several
advantages:
• It will provide manufacturers, distributors, and health-
care facilities the information they need to efficiently
manage device recalls.
• It will decrease the frequency of medical errors by
identifying problem devices early on that should be
replaced.
• It will provide a way to document in the LIS the use of
specific devices, contributing to the establishment of
an effective postmarket surveillance program within
the laboratory.
Summary
When new technology transforms into a “must-have” staple
of the laboratory, the question becomes not should we adopt
the technology, but which iteration of the technology should
we implement? The LIS certainly falls into this category.
There are a wide variety of options available in today’s mar-
ketplace. Whether it is a first-time decision for the labora-
tory or it is a decision for a laboratory seeking an upgrade
over existing technology, the selection of an LIS is an action
that should be made only after thorough consideration of the
pros and cons of the contenders for the laboratory’s business.
No single LIS is ideal for every laboratory setting. That
is a good thing because it encourages vendors to strive
466 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
continuously to make their LISs more appealing to all sec-
tors of the laboratory community. Competition between
vendors breeds technological progress fueled by innova-
tion. The big winners are the customers and their patients,
who benefit from the game of technological “leapfrog”
that the LIS vendors are playing with each other. The other
winners are the vendors who are creative enough to de-
velop what the industry calls “killer apps”—LIS features
that a laboratory cannot live without.
It is the responsibility of laboratory leadership to con-
vince hospital administrators of the wisdom of investing in
state-of-the-art or at least near state-of-the-art LIS hardware
and software. Older servers that lack the processing power
required to efficiently run current versions of LIS software
will create user frustration and encourage reliance upon
“Band-Aid” work-around solutions that are not always in
the best interests of patients. Similarly, software that lacks
newer feature sets that have quickly become the community
standard because of their criticality to optimum laboratory
service will place the organization in risk-management
jeopardy. The analytics tools that can be so valuable to labo-
ratory and hospital leadership in engaging in performance
improvement activities cannot be employed to their fullest
extent if the LIS infrastructure is subpar.
There has been much interest in recent years in trans-
forming healthcare practices with an eye toward greater ef-
ficiency, lower costs, and elimination of medical errors—in
other words, the pursuit of excellence (15). The packaging
of lean approaches to optimize workflow with Six Sigma
principles to reduce error rates has been discussed in virtu-
ally every healthcare organization board room during the
past decade. What has been learned is that it is a concept
that is very easy to talk about but oh so difficult to imple-
ment. The clinical laboratory, including the microbiology
laboratory, is an ideal candidate for lean/Six Sigma reor-
ganization. Leveraging the capabilities of the LIS to track
bar-coded specimens, to connect with testing instruments
to improve error-free data flow, and to display laboratory
productivity snapshots on workstation dashboards are all
important components of a program to pursue excellence
in laboratory testing.
A near-universal problem in healthcare is overuti-
lization of laboratory services. It may be due to fear of
litigation on the part of clinicians, or it may result from
ignorance that tests being ordered have already been or-
dered by someone else. Tools are available in the modern
LIS to help recognize and eliminate such unnecessary test-
ing (29). For example, a query of the LIS PLF can quickly
generate a list of tests that appear to be requested more
often than they should. An individual with informatics
skills can easily “drill down” in that list to identify order-
ing physicians, patient locations, patient diagnoses, and
work shifts associated with the apparent abuse of labora-
tory testing.
Laboratories can also eliminate laboratory errors and
improve their quality of testing by employing investiga-
tive informatics to pinpoint technologists whose testing
results exhibit questionable elements (16). This approach
can be particularly useful in the microbiology laboratory
for evaluating qualitative test results that are interpreted
by subjective criteria. The use of lateral flow technology for
rapid detection of microbial antigens or antibodies is an
excellent example. Test data from the microbiology labo-
ratory over the course of time can be extracted from the
LIS and imported into a PC-based spreadsheet or database
application. Then, using tools from either software appli-
cation, test data can be stratified by technologist to deter-
mine whether any test performers differ significantly from
the laboratory mean in the percentage of positive results
reported. After taking potential confounding factors into
account, such as work shift or ordering location of tested
patients, individuals that remain as notable outliers can
have their testing competency reassessed and be provided
with retraining if that is deemed necessary.
More than ever before, the clinical microbiology labo-
ratory is a purveyor of information—much of it valuable
but some of it valueless (21). Clinical microbiologists have
become information brokers, in effect, and it is their job to
determine whether the data they have generated are clini-
cally important enough to be passed on or whether the
data are unimportant or potentially misleading. The LIS is
a valuable ally in this regard. Comparing a patient’s current
result with past results (i.e., “delta checking”), identifying
incongruities between smear and culture results, and rec-
ognizing antimicrobial susceptibility results that vary sig-
nificantly from those expected for a particular organism
are all tasks that can be greatly simplified by the LIS.
The responsibility of selecting, maintaining, and op-
erating an LIS is much more complex than it used to be.
Discharging these responsibilities is more than a full-time
job in all but the smallest laboratories. The subspecialty
of laboratory informatics has emerged for this reason, but
there unfortunately is a shortage of knowledgeable person-
nel. The work is challenging and constantly changing and
carries tremendous potential for job security and career
advancement. The blending of clinical microbiology, mo-
lecular diagnostics, and laboratory informatics expertise is
an excellent combination for today and for the future. It is
a career path that can be highly recommended.
The informatics skills described in this chapter are eas-
ily acquired and can be extremely practical for the rea-
sons outlined earlier. Because of the strong dependence
of healthcare organizations on information technology,
individuals who possess informatics skills and knowledge
are considered valuable members of the hospital work-
force by laboratory and hospital administrators (1, 17).
Today’s healthcare environment is change-oriented, with
a definite emphasis on becoming more cost-efficient.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
Clinical microbiologists who have earned the respect of
their leadership because of the diverse skills they bring to
the workplace can expect to be rewarded with continu-
ing employment and opportunities for promotion—both
within their organization and in the world beyond.
KEY POINTS
■ Failure to keep data stored in the information systems
up to date can lead to medical errors.
■ The HIS contains the master patient index and is the
source of demographic data provided to other inter-
faced information systems.
■ Transactions between the LIS and other information
systems occur by five typical interfaces:
• ADT
• Order entry
• Results entry
• Billing
• Reference laboratory
■ The LIS can be used to identify and eliminate unneces-
sary testing.
GLOSSARY
This glossary contains informatics terms and mnemonics
with which laboratorians should be familiar. Definitions of
some of these terms and mnemonics were adapted from The
PC Glossary—Definitions of Computer and Internet Terms
(http://pc.net/glossary/, accessed September 23, 2012).
AIX (advanced interactive executive) An operating system
(OS) that is installed on many large enterprise-level servers be-
cause of its robust security capabilities. It was developed by
IBM and is UNIX-based. It also is able to run most LINUX
applications.
API (application program interface) The set of tools that pro-
grammers use when building software to run on a particular OS.
It permits them to use standardized approaches for interacting
with an OS instead of having to redefine them from scratch
each time.
Application A software program that is able to run on a worksta-
tion or server. In the Windows (Microsoft) environment, applica-
tion software uses the “.exe” extension, whereas in the Macintosh
(Apple) environment, application software uses the “.app”
extension.
BIOS (basic input/output system) The program stored on a
ROM (read-only memory) chip that a Windows-based computer
uses to begin its operations when it is turned on (booted up). The
program checks all of the computer’s hardware connections and
locates all of the attached devices. If all is fine, the BIOS then
loads the OS (e.g., Windows) into the computer’s RAM (random
access memory) and finishes the boot-up process.
467
Browser A browser (e.g., Internet Explorer) is the application
people use to access content on the Internet. It is able to interpret
HTML and XML code to display web pages in readable format.
Central processing unit (CPU) The main information proces-
sor (the brain) in a computer that interprets and implements in-
structions. The CPU performs calculations, makes logical
decisions, and stores information transiently.
Client In network parlance, the client is a computer/worksta-
tion that communicates commands to a server in a client/server
relationship.
Cloud computing The use of hardware and software services
that are delivered to a client workstation over a network (e.g., the
Internet). Users access cloud-based hardware and software via a
browser or a network connection to enable sharing of resources
with other users during periods of fluctuating demand.
Driver A computer file that enables a computer to recognize
and control a hardware device.
Ethernet An Ethernet connection is the most common type of
wired link between a computer workstation and a LAN (local
area network) server. An Ethernet port resembles a telephone
jack but is a little bit wider. The two main types of Ethernet are
10BaseT and 100BaseT, the latter enabling data transfer rates at
tenfold higher rates.
Firewall A computer firewall limits the information that can
flow from outside a network to servers and workstations within
the network. Its purpose is to prevent access to the network by
unauthorized individuals and to protect the network from dam-
age from external malware. Firewalls are either hardware- or
software-based.
FTP (file transfer protocol) A commonly used routine for mov-
ing data files from one workstation to another on a network or
through the Internet.
Graphical user interface (GUI) A format for displaying content
on a computer OS (e.g., Windows from Microsoft) in which us-
ers interact with objects on a monitor via a pointing device (e.g.,
a mouse) rather than issuing text commands via manually placed
key strokes. With a mouse users are able to click on and drag
objects on the monitor instead of entering instructions on a com-
mand line.
Hard disk Data and installed programs on a computer are typi-
cally written to one or more hard disks. A hard disk is a group of
magnetic disks, called platters, upon which information is re-
corded. Because information is stored on magnetic medium, it
remains in place when the computer is turned off. This is an im-
portant distinction between a hard disk and RAM, which is
erased when the server’s power is turned off. The hard disk is
located within the hard drive, which reads and writes data to the
disk. The hard drive also moves data between the CPU and the
hard disk.
Health level 7 (HL7) A nonprofit organization concerned with
the promulgation of international interoperability standards for
healthcare informatics. It also has become a generic term for spe-
cific standards created by the organization. The “HL7 standard”
defines a set of guidelines and methodologies through which
468 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
healthcare information systems converse with one another. The
guidelines and methodologies establish the rulebook for sharing
information in a consistent manner. They define how a data
stream is packaged into segments that are then passed on to and
interpreted by another information system.
Hospital information system (HIS) An integrated set of infor-
mation systems that oversee the medical, administrative, finan-
cial, and legal activities of a hospital. Linked to the HIS may be a
variety of other medically oriented information systems such as
the laboratory information system (LIS).
HTML (hypertext markup language) HTML is the language
used for creating Internet web pages. HTML syntax is composed
of a group of instructions (tags) that define a web page’s format
for a browser and how the page’s content should be displayed.
Hub A central connection point for a group of workstations and
other devices on a network. Information from one workstation
or device connected to the hub can be directed to any other
workstation or device connected to the hub.
Instrument interface A hardware and software connection be-
tween a server and a laboratory instrument that enables elec-
tronic communication of patient demographic and laboratory
test data. In today’s architecture there is frequently instrument
interface manager middleware between the instruments and the
LIS to streamline communication.
Interface A port on a hardware device that allows it to be con-
nected to another device. Examples of interfaces include RS232,
serial, parallel, modem, USB, Firewire, and Ethernet ports.
IP (Internet Protocol) address An IP address is a numerical
code consisting of a number or a group of numbers separated by
three dots (e.g., 123.45.67.89) that specify a particular worksta-
tion or server on a network or on the Internet. The address can
be static (never changing) or dynamic (assigned on-the-fly when
the computer logs in).
Laboratory information system (LIS) Software running on
server hardware that provides the tools needed to support a labo-
ratory’s operations. The tools have advanced over the years from
sample tracking and billing to a suite of tools that manages virtu-
ally all of the activities within the clinical laboratory.
LINUX An open-source OS that is derived from UNIX and is
available at no cost to users. It is widely used by web-hosting
companies.
Local area network (LAN) A network of neighboring, linked
computers and other devices within a work group (e.g., a hospi-
tal, an office building, a university, or even a home). The primary
advantage of a LAN is that it makes it easy for computers and
other devices on the network to share information. Devices on a
LAN may be linked through a router by network cable. Wireless
connections of devices to a network router have become ex-
tremely popular lately.
Master patient index (MPI) A database that contains a unique
identifier for every patient registered within a healthcare organi-
zation along with the patient’s demographic information and a
history of previous encounters with the healthcare organization.
The MPI is referred to during patient registration to guarantee
that each patient has a single identifier and that multiple patients
do not share the same identifier.
Modem (modulator/demodulator) A device that allows one
computer to connect to another computer over a telephone line
to transfer data. Dial-up modems are almost obsolete because of
the slow data transmission speed. They have been replaced by
cable modems and DSL (digital subscriber line) modems, which
transfer data at a much faster rate.
ODBC (open database connectivity) The ODBC standard was
formulated in 1992 to enable any application that supports the
standard to access data from any ODBC-compliant database
(e.g., Access from Microsoft) regardless of what database man-
agement system the database uses. To be ODBC-compliant, a
database must include an ODBC driver to allow other applica-
tions to access its data with a standard set of commands.
Operating system (OS) The OS (e.g., Windows from Microsoft)
is the computer software that allocates memory, processes tasks,
accesses disks and peripherals, and serves as the user interface.
The OS prompts users (or peripheral devices) for input and/or
commands, takes actions, and then reports back the results of
these actions. Without an OS, software programs cannot run.
Patient laboratory file (PLF) The LIS version of the MPI. It con-
tains the information about patients that is relevant to LIS users,
including demographics and information about laboratory tests
previously ordered and resulted.
Plug and play (PnP) PnP devices are able to communicate with
computer workstations as soon as they are connected. New driv-
ers do not need to be loaded, nor does the workstation need to be
notified that a new device has been attached.
Processor The processor (or microprocessor) is a chip (e.g.,
Pentium from Intel) located in the heart of a workstation or
server that handles all of the arithmetic computations that are
necessary to run the computer. The speed of a processor is mea-
sured in cycles per second (also known as megahertz).
Random access memory (RAM) RAM is made up of individual
memory chips that collectively form a memory module. The
RAM is where copies of the OS, the application software, and the
data in current use are stored temporarily so that they can be
quickly accessed by the CPU. Accessing or storing data in RAM
is much faster than accessing or storing it on a hard drive or a
CD-ROM drive, but the data are present in RAM for only as long
as the computer is turned on.
RFID (radio frequency identification) RFID-tagged objects
can be detected, recognized, and tracked by the emission of an
identifying signal when the object is within an electromagnetic
field produced by an interrogator device. The interrogator re-
ceives the signal and transmits information to a workstation
running RFID software or middleware. Miniaturization of
RFID chips is an active area of research, with current chips be-
ing as small as 50 microns by 50 microns. The cost of these
chips is as little as $0.05 each. They can be embedded in speci-
men labels and patient wristbands to enable effective tracking
of both.
 CHAPTER 24. THE LABORATORY INFORMATION SYSTEM
Router Hardware that distributes data from a LAN to devices on
the network or to another authorized network (e.g., via a cable
modem portal to the Internet). The router also screens and al-
lows only authorized devices to connect to the LAN.
SAN (storage area network) A networked repository of storage
devices that can be accessed by networked workstations. Because
the individual hard drives in a SAN can be reached by a group of
workstations, the SAN facilitates the sharing of large amounts of
information by these workstations.
Server A server is at the service of the workstations that con-
nect to it. A server is a storage location for application software
and data files that can be accessed by client workstations. Ex-
amples of servers include Internet servers, email servers, and
LAN servers.
SQL (structured query language) A querying language that al-
lows workstations with SQL-compatible software to access or
modify information in databases. SQL is frequently used for de-
velopment and management of Internet-based databases.
TCP/IP (transmission control protocol/Internet protocol)
TCP/IP protocols were developed in the early days of the Inter-
net by the U.S. military. It has since become the heart of the In-
ternet and specifies how data should be formatted, addressed,
transmitted, routed, and received during its travel through the
Internet.
Thick client A thick client workstation is a full-fledged com-
puter that is functional whether it is connected to a network or
not. When it is connected to a network, it functions as a client of
the network server using programs and files that are not present
on the client’s hard drive.
Thin client A personal computer that lacks a hard drive and
most of the ports that are part of a standard computer. Its activity
is limited to running programs and accessing data stored on a
network server. Thin clients are cost-effective in that they are less
expensive than full-fledged computers and require minimal
maintenance since software troubleshooting and upgrades need
only be performed on the network server.
UNIX (Letters do not stand for anything.) An OS that was first
created by Bell Laboratories in the 1960s. It is the most common
OS for Internet servers. Derivative OSs of UNIX, such as UL-
TRIX, XENIX, LINUX, and GNU are also in use today.
URL (uniform resource locator) The Internet address for a par-
ticular web page (e.g., http://www.google.com/search). The ad-
dress cannot have spaces in it and thus uses periods and forward
slashes to designate different components of the address.
USB (universal serial bus) USB ports have become the most
widely used ports in today’s computers. Up to 127 devices can be
connected to a single USB port through a series of hubs. They
transfer data at significantly faster rates than the serial and paral-
lel ports they are replacing.
Video card Most of the processing done by a computer worksta-
tion is performed by the CPU. To relieve the CPU of some of the
workload, video cards can be installed to handle the graphics
portion of the processing load. The video adapter enables the
469
digital-to-analog conversion of a video signal so that data can be
displayed on a monitor.
Virtualization Virtualization permits a single workstation or
server to run multiple OSs simultaneously. The OSs running on
top of the standard OS are referred to as “virtual machines.”
VPN (virtual private network) A VPN is the result of “tunnel-
ing” through a wide area network (WAN) like the Internet. Using
high-level encryption protocols and other security measures, the
VPN is able to scramble the data sent from the WAN so that con-
nection from the Internet through a network firewall is virtually
private. Thus, hospital employees with VPN access can connect
to the hospital LAN via the Internet and move about the LAN as
if they were physically present in the hospital.
Wide area network (WAN) Similar to a LAN but spans a much
larger territory. A WAN may comprise several LANs that are in-
terconnected. A WAN is a large group of personal computers or
workstations that are linked via a geographically dispersed tele-
communications network, for example, the Internet.
WEP (wired equivalent privacy) A security protocol used for
encrypting data sent over Wi-Fi networks. Wireless networks
transmit data via radio waves; thus, it is not difficult to eavesdrop
on wireless transmissions. The purpose of the WEP protocol is to
make wireless networks as secure as wired Ethernet networks.
Access to a WEP-protected network is authorized by entry of a
password.
Wi-Fi A wireless networking standard developed by the Wi-Fi
Alliance. Wi-Fi allows computers and other devices to connect to
wireless routers that then provide a gateway to the Internet. They
may also connect to other devices on the network for data-
sharing purposes.
Wiki (From the Hawaiian wiki wiki, meaning “super-fast.”) An
Internet site that allows individuals to add and update content via
their own Web browser. An example of a wiki is Wikipedia (www
.wikipedia.com), a free encyclopedia that anyone can edit. An-
other example is MicrobeWiki (www.microbewiki.kenyon.edu), a
student-initiated resource on microbes and microbiology.
WPA (Wi-Fi protected access) A security protocol designed to
protect transactions taking place over a wireless (Wi-Fi) net-
work. It is similar to WEP but offers advancements in the way
security keys are handled and the way individuals are authorized
for access.
Workstation A computer that is assigned to a particular task,
e.g., accessing the LIS. Since processing speed is usually more
important than in an all-purpose personal computer, worksta-
tions tend to have a fast microprocessor, a large amount of RAM,
and a high-speed video adapter.
XML (extensible markup language) Despite the origin of its
name, XML is not a markup language. Instead, it can be de-
scribed as a markup “metalanguage” that defines a set of rules for
encoding documents in a format that is both human- and
machine-readable. Hundreds of XML-based languages have
been developed. They are often used in Internet applications, but
many other applications can read XML documents as well.
470 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
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Introduction
25
Organizational Challenges
Political Challenges • Setting Goals for POCT
Management • Developing Management Structures
for POCT • Laboratory Licensure and Accreditation
Operational Challenges
Determining the Scope of POCT Services • Weighing
Alternatives to POCT • Analyzing Costs and
Benefits • Assessing the Impact of POCT Services •
Quality Assurance Challenges • Information Systems
and Billing
POCT in Developing Countries and Rural
Settings
Challenges • Organizing POCT in Resource-Limited
Settings
Technological Challenges
Rapid Changes of Menu, Devices, and Technology •
Lack of Equivalence between POCT and Central
Laboratory Tests • New Monitoring Technologies
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIX
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch25
Management of
Point-of-Care Testing
Glen L. Hortin and Christopher D. Doern
OBJECTIVES
To identify how management of point-of-care testing (POCT) differs from
other types of laboratory testing
To describe cost factors in POCT and approaches for analysis of the costs of
testing
To provide information about how to operate a POCT program and to ensure
the quality of testing
To identify the challenges of implementing POCT in developing countries
To understand the clinical benefit of POCT
To provide an understanding of how technological advances are driving change
in the scope of POCT
Ther nys no workman, whatsoever he be,
That may bothe werke wel and hastily
Chaucer
P
oint-of-care testing (POCT) presents some of the most controver-
sial and difficult laboratory management challenges (Table 25.1). There
is a commonly held view among laboratory workers that POCT repre-
sents a compromise in test quality in the interest of speed to obtain results.
Many of the challenges presented by POCT are substantially different from
those of any aspect of centralized laboratory testing. Common challenges in-
clude crossing traditional physical and organizational boundaries, performing
tests at a large number of locations, training a large number of personnel with
limited laboratory experience, using technologies or devices that differ from
those in central laboratories, capturing test results and control values into in-
formation systems, and difficulty in tracking costs and program activity. In
many respects POCT requires management “outside of the box,” not only the
physical box of laboratory space but also the usual boxes of organizational
structures, groups of coworkers, testing devices and technologies, laboratory
practice, and management information systems. In this chapter, the manage-
ment challenges of POCT are categorized into organizational, operational, and
technological issues as listed in Table 25.1, although in reality some of the is-
sues listed overlap into more than one category.
There is not complete agreement about the definition of POCT, and a va-
riety of other terms such as “near patient,” “bedside,” or “alternative site” test-
ing have been used as approximate synonyms. For this chapter, POCT will be
471
472 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Table 25.1 Management challenges of POCT
Organizational Historical resistance of laboratories to POCT
challenges Competition between POCT and central
laboratories
Setting goals
Cooperation across multiple departments
Deciding who controls/directs testing
Developing a management structure
Assignment of costs and revenue
Management across usual lines of authority
Deciding about licensure and accreditation of
POCT
Operational Determining the scope of POCT services
challenges
Weighing alternatives to POCT
Analysis of costs
Performance of POCT at a large number of sites
Training a large number of staff to perform
POCT
Lack of experience and training of staff in per-
forming laboratory tests
Lack of centralized records of test results
Quality assurance
Inventory management
Management of information
Billing
Technological Growing menu of tests that can be performed
challenges as POCT
Rapid change in POCT devices
Rapid changes in testing technology
Linking POCT data systems
Lack of equivalence of POCT versus central
laboratories
New monitoring technologies
defined as testing that is performed outside defined labo-
ratory facilities, including not only central laboratories but
also small satellite or special-function laboratories in phy-
sician offices, intensive care units, and emergency rooms.
The College of American Pathologists (CAP) uses this
definition to define POCT for laboratory inspections (3).
POCT represents one of the most rapidly growing and
changing segments of laboratory testing. A recent survey
shows that nearly every hospital has some form of POCT.
Glucose testing is the most widespread component of
POCT, but there were substantial increases in the menu
of testing in many hospitals between 1999 and 2001 (26).
POCT devices are evolving very rapidly, and recent tech-
nological advances have made it possible to perform vir-
tually any laboratory test as POCT. The growing scope of
POCT has led to the publication of entire books related to
this topic that serve as general resources of information
about POCT (21, 42, 54, 59). This chapter concentrates on
aspects of the management of POCT that differ from other
areas of the laboratory and that are controversial.
Organizational Challenges
Political Challenges
Up until the mid-1990s, laboratory workers often were
highly antagonistic to the perceived competition and lower
analytical quality provided by POCT. Laboratory direc-
tors and managers secured the four walls of the labora-
tory by building a fortress of organizational boundaries,
regulations, and arguments to serve as moats and barri-
ers to prevent outsiders from intruding into the domain of
laboratory testing. This management strategy sought the
disappearance of POCT. However, the historical resistance
of laboratory workers to POCT did not make it disappear.
Instead, POCT often developed under separate manage-
ment from the central laboratory, and testing volume grew
rapidly as testing technologies advanced. It was only with
recent attention to the licensing of all laboratory testing
and efforts to control costs that POCT began to be merged
with laboratory management. Nevertheless, the previous
independent operation of POCT and the resistance of lab-
oratory workers to POCT serve in many organizations as
political and historical contexts that must be overcome in
the management of POCT.
Recently, acceptance of POCT among laboratory work-
ers has grown, and laboratories have participated more
actively in managing POCT. Input from laboratory pro-
fessionals in POCT appears to be an important element in
promoting the quality of testing based on long-standing
problems recognized for POCT (33) and on studies of test-
ing in physician office laboratories (27, 67). Some of the
reported problems with testing included inaccuracy of test
results, failure to perform quality control (QC) testing and
correct test procedures, and inadequate staff training. De-
spite increased recognition of the importance of teamwork,
healthcare organizations are complex political environ-
ments. Each department or nursing unit where POCT is
performed will have its own experience, expectations, and
sense of ownership of POCT performed within its domain.
Acceptance of centralized management of POCT requires
commitment from central administration and leaders of
departments and the perception from individuals that their
needs will be addressed and that there is overall benefit
from such a structure.
On a federal level, POCT has proven to be equally polar-
izing. Rapid HIV tests of waived Clinical Laboratory Im-
provement Amendments complexity have been available
since 2002, but it was not until July of 2012 that they were
approved as over-the-counter home-use tests (see Appen-
dix 25.1 for a link to the FDA press release). This issue had
been hotly contested among laboratorians for some time.
Principal arguments against allowing HIV POCT to be
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING
sold over-the-counter were that patients would not have
immediate access to proper medical counseling upon re-
ceiving the results. There were also concerns that allowing
untrained users to perform these tests would result in a
high percentage of false results. In the end it was decided
that the benefit of increasing access to HIV testing out-
weighed the risks.
Setting Goals for POCT Management
One of the key initial steps in the management of POCT is
the development of institutional goals. Common motiva-
tions for hospital administration and nursing units to seek
additional management support for POCT are deficien-
cies in accreditation surveys, difficulty in meeting accredi-
tation standards, problems with the quality of test results
of POCT, resulting in complaints or lawsuits, and requests
from nurses who feel the need for assistance to address lab-
oratory regulations. In response to these acute problems,
plans to revamp POCT management structure often are
made in a crisis mode. Success is viewed narrowly as pass-
ing the next inspection or solving the acute problem. How-
ever, deciding that the primary goal in managing POCT is
to address regulatory requirements is a very limited vision
that may lead to overlooking opportunities for improv-
ing the quality and efficiency of patient care or potential
clinical benefits of POCT. It would be tantamount to say-
ing that the primary goal in the management of a clini-
cal laboratory is to maintain accreditation. Developing a
broader vision of the goals of POCT and a commitment
from institutional leadership is important for moving be-
yond a minimal standard of performance and generating a
positive sense of mission and purpose. More far-reaching
goals in management of POCT are to provide testing that
will improve patient care and to improve organizational ef-
ficiency (Table 25.2). Meeting regulatory standards is also
a necessary goal, but regulations may be of greater value as
a means than as an end. Regulations and inspectors pro-
vide guidance, incentives, and useful tools for maintaining
the quality of testing and meeting more ambitious goals.
Developing Management Structures for POCT
In developing the management structure for POCT, there
are political issues that central administration and depart-
mental leaders need to sort out. These include issues such
Table 25.2 Goals of management of POCT
Improve the quality of patient care
Enhance the efficiency of patient care
Increase physician and nursing satisfaction
Improve patient education and satisfaction
Address accreditation standards
Fulfill federal and state laboratory regulations
Decrease liability risk
473
as what department and who will direct testing, institu-
tional priorities for POCT, and how costs and revenues
will be assigned. An oversight committee can serve as a
useful mechanism to assess evolving needs for POCT. It
also provides bidirectional communication with partici-
pants in POCT. Considering the diverse range of stake-
holders in POCT, it may be useful to have representation
of nurses, physicians, laboratory and hospital administra-
tors, information technology specialists, and laboratory
directors and technologists. Such a committee can advise
about needs for general changes in policy and review re-
quests for changes in the menu of tests or sites of POCT.
Day-to-day operations usually are overseen by testing
coordinators and a laboratory director. However, there is
much greater variation in organizational structure than
there is in other areas of the laboratory. Some POCT pro-
grams are organized as extensions of the clinical labora-
tory, with all testing performed by laboratory staff such as
phlebotomists or medical technologists. In these circum-
stances, management of POCT differs little from other
sections of the laboratory: All of the staffing, training,
employee evaluations, instrument and reagent inventory,
analytical and quality assurance processes, reporting of re-
sults, data systems, and budgeting are handled within the
laboratory. From a management standpoint, this results
in the simplest structure. The main practical problems
with this model are the need to hire extra staff to perform
POCT and to have staff available at the appropriate sites
when testing is needed.
A more common organizational structure is that test-
ing is performed by nurses or other nonlaboratory staff,
but these are organized under a single POCT manage-
ment. Problems inherent in the centralized management
of a far-flung POCT program are difficulty in training a
large number of nonlaboratory staff, maintaining effective
communication to and from all units and staff, maintain-
ing accountability, avoiding interdepartmental competi-
tion and turf battles, and managing a large number of staff
across usual lines of management authority. It is important
to identify POCT skills as core competencies and elements
of job performance for the staff who perform testing and
to have active participation of nursing managers in cor-
rective action. Problems with POCT compete with many
other urgent patient care issues on individual units. POCT
program managers, then, sometimes need to resort to
drastic actions such as withdrawal of testing devices or au-
thorization for testing to create the necessary urgency for
correcting problems.
A third organizational model, more common in the
past, is for POCT in each clinical department or nursing
unit to operate as a separate laboratory. This does simplify
the management of each unit. However, it has become less
common due to the inefficiencies of applying for separate
licenses for multiple sites, the lack of standardization of
474 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
procedures and equipment, and the coordination of test-
ing activities within an institution. This organizational
model may apply where POCT or a specific type of POCT
is limited to a single unit or at a remote location.
Laboratory Licensure and Accreditation
Decisions about how POCT will be licensed and accredited
influence how POCT will be managed and the types of tests
that can be performed. Federal licensure is required for all
clinical laboratory testing in the United States (12, 13). Spe-
cific standards are described for three levels of complexity
of testing—high, moderate, and waived. If all testing is in
the waived category, laboratory testing can be performed
under a certificate of waiver, which has less stringent re-
quirements than other levels of testing. Several agencies
including CAP, The Joint Commission (TJC, formerly the
Joint Commission on Accreditation of Healthcare Organi-
zations [JCAHO]), the American Osteopathic Association,
and the Commission on Office Laboratory Accreditation
(COLA) have the authority to accredit laboratories. Some
states have specific regulations that must be met.
The initial question to address is how many and what
types of licenses to apply for. It is possible to perform
POCT under the same license as the central laboratory.
However, many laboratory directors have been reluctant
to cover POCT under their licenses due to concerns about
compliance of POCT with laboratory standards and lack
of direct control over how testing is performed. Also, in-
cluding POCT under the main laboratory license means
that the same accreditation standards must be applied for
POCT and central laboratory testing. CAP, which does not
recognize any relaxation of standards for waived testing,
accredits many hospital laboratories (7, 13). Some POCT
programs, particularly those including only waived test-
ing, decide to apply for a separate license or certificate of
waiver for POCT to simplify requirements. Although CAP
may inspect the central laboratory, if POCT is under a dif-
ferent license, it may be inspected by a different accrediting
agency, such as TJC. POCT can be performed at multiple
locations within a facility under the same license. For the
sake of efficiency in the application process and avoidance
of additional fees, all POCT within a facility often is oper-
ated under a single license or certificate of waiver.
Operational Challenges
Determining the Scope of POCT Services
One of the most critical operational challenges is deciding
what sites will perform POCT and what menu of tests should
be offered. A starting point for this analysis is to inventory
the types and testing volumes of ongoing POCT. Obtaining
an accurate inventory of POCT can be difficult due to the
dispersed nature of testing, the lack of information systems,
and in some cases, the lack of recognition of what represents
a laboratory test. Commonly overlooked POCT activities
might include occult blood testing, urine dipstick testing,
physician-performed microscopy, and whole blood coagu-
lation testing. Many POCT devices are small, portable, and
distributed among many sites, so it can be difficult to find
or count the devices. Surveys of patient care units often pro-
vide incomplete responses. It may be necessary to resort to
information from vendors, purchasing departments, or ma-
terial management departments to determine the number
of analyzers and the volume of testing.
The major source of demand for POCT has been from
clinicians who desire rapid laboratory results for clinical
decision making. A large gap exists between the expecta-
tions of clinicians and laboratory targets for turnaround
times (32, 68). Surveys of clinicians indicate that they be-
lieve that stat test results for analytes such as electrolytes
and glucose should be available within about 15 minutes,
while laboratory professionals often have set a goal of stat
turnaround times of less than 60 minutes (32). This gap
between clinical expectations and laboratory service deliv-
ery has led to the high demand for POCT.
Turnaround time usually is perceived as the key advan-
tage of POCT, but there are a number of other factors that
may come into play for specific tests or clinical situations
(Table 25.3). Use of a smaller specimen volume for POCT
may be an important consideration for care of infants and
young children. Lower capital costs of POCT for equip-
ment or facilities may be important advantages for infre-
quently performed tests. For some tests, such as whole
blood coagulation tests, the specimen must be tested im-
mediately, so POCT becomes necessary. For the care of
diabetics, POCT of blood glucose can be viewed to have
educational value and to address patient expectations.
Some common disadvantages of POCT that must be
weighed are lower accuracy and precision of tests, less lab-
oratory experience of staff performing tests, lack of com-
parability with central laboratory results, and the greater
difficulty of managing POCT, ensuring quality, and cap-
turing test results into central information systems.
One point that may be overlooked in considering where
to perform a test is whether to offer the test at all. Con-
sider, for example, the bleeding time test. A large body of
evidence suggests that this test is of questionable clinical
value and it should not be performed (47). There must be
a clear clinical justification for any test that is performed
as well as an assessment of whether increasing the speed of
testing will result in significant improvement in the qual-
ity or efficiency of patient care. A full discussion of POCT
clinical utility is addressed in a subsequent section.
Weighing Alternatives to POCT
Usually, POCT is not the only option for performing a test.
Common choices for delivering a test include perform-
ing it in a central laboratory, in a satellite laboratory, or
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING
Table 25.3 Common advantages and disadvantages of POCT versus central
laboratory testing
Advantages
Faster turnaround time
Smaller specimen volume
Lower capital cost
Testing of labile samples
Immediate access to results
Patient education/satisfaction
Physician satisfaction
as POCT. A fourth option that has become available re-
cently is a robotic or remotely controlled analyzer. The first
option, and in many cases the most efficient, may be to
improve central laboratory processes to meet turnaround
time goals. This might involve changes in infrastructure
such as installation of a pneumatic tube system for rapid
specimen delivery, changes in laboratory instrumenta-
tion to perform analyses on whole blood rather than se-
rum or plasma, and improving mechanisms for delivery
of test results (21). For tests designed for POCT use, such
as fecal occult blood tests, qualitative drugs of abuse tests,
urine pregnancy tests, or whole blood cardiac marker tests,
sometimes an assumption is made that the tests should be
performed as POCT based on history within an organi-
zation or the design of a device for POCT use. However,
the advantages and disadvantages of performing the test as
POCT should be weighed considering the factors listed in
Table 25.3. As long as the specimens are stable, it may be
desirable to perform these tests in the central laboratory
even though the test device is acceptable for POCT use. For
some tests such as those for drugs of abuse, there may be
special considerations such as complicated legal issues and
a need to confirm positive results, and this issue must be
considered in evaluating whether it is desirable to perform
the tests as POCT (18). Conversely, a barrier to perform-
ing Group A Streptococcus (Streptococcus pyogenes) POCT
outside the laboratory is the need to reflexively confirm
negative results with bacterial culture.
An instructive example of the decision to perform a
test as POCT or in a laboratory is provided by intraop-
erative parathyroid hormone (PTH) testing. This test is
performed during parathyroid surgery, and test results are
needed rapidly (29). The first commercially available ana-
lyzer to perform this test was designed to be on a mobile
cart that could be moved to the operating room. However,
many hospitals that offer this test now perform it in a labo-
ratory setting and set up processes for rapid transport of
the specimen to use staff and equipment most efficiently
(23, 31).
Setting up or maintaining a satellite laboratory rep-
resents a major commitment and expense for facilities,
475
Disadvantages
Lower accuracy and precision
Less skilled testing personnel
Higher supply costs
Lack of comparability with laboratory results
Lack of data systems
Difficulty in assuring quality
Difficulty in managing testing
equipment, and laboratory staff. Usually, this commitment
of resources is justified only when there is an acute clinical
need for rapid turnaround time, a high volume of testing,
and use of relatively complex testing procedures. Remotely
controlled analyzers may represent a new alternative to sat-
ellite laboratories. Considerable engineering expertise was
required for early application of the approach (15). How-
ever, this has become a practical option now that functions
such as calibration and QC testing have been automated
on some analyzers and operation of the analyzers can be
monitored remotely by laboratory workers (see surveys
of blood gas analyzers in CAP Today, accessible at http://
www. cap.org, for current information).
Analyzing Costs and Benefits
Although it would seem that the cost of a test would be
an objective quantity that could be calculated precisely, the
absolute and relative costs of POCT and central labora-
tory testing are some of the most controversial issues relat-
ing to POCT. The majority of older published references
conclude that POCT is more expensive than the same test
performed in a central laboratory (8, 37, 46). One report
went so far as to conclude, “The costs of central laboratory
testing are always very much less than that of distributed
testing” (79). However, in examining these reports, it is no-
table that the major cost identified for POCT is for labor.
It turns out to be difficult to account for labor for POCT,
which involves small bits of time by a large number of staff.
There is a paradox in that if you add up all of the time
spent collectively performing POCT, it represents a sub-
stantial number of hours that may equal the time of sev-
eral full-time staff members (full-time equivalents [FTE]).
However, POCT usually has no impact on FTEs within the
units that perform the testing; usually, the only recognized
impact on FTEs is one or more positions as central coor-
dinators of POCT.
POCT and impact on FTEs. There are several possible
reasons why performing POCT on a clinical unit has no
direct impact on FTEs. A time-and-motion study of nurses
comparing time spent to perform a POCT glucose test
476 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
versus time spent to draw a specimen for central labora-
tory testing noted that less time was required by nurses to
perform a glucose test than to collect a specimen and send
it to the laboratory (21, 52). The entire POCT process from
specimen collection and testing to result retrieval was
completed in one brief episode about the length of time
required to draw blood. Sending a sample to the labora-
tory required multiple steps at different locations spread
over about 1 hour—generating a test requisition and la-
bel, performing phlebotomy, transporting the specimen to
the nursing station, and retrieval of results from the com-
puter. The timing study points out that there may be an
underaccounting of the labor required to send specimens
to the laboratory and retrieve results and that there is the
potential for POCT to save labor even without account-
ing for the labor to perform the test within the laboratory.
In addition to the greater amount of time directly spent
by nurses to send the sample to the laboratory, the delay
between testing and receipt of results may lead to indirect
inefficiencies and less effective patient care because adjust-
ments of diet and medication wait on receipt of test results.
Based on its higher efficiency and low volume within an
individual clinical unit, POCT will rarely result in the need
for additional staff or worked hours within the clinical
unit. However, the aggregate volume of testing for a large
POCT program sometimes reaches hundreds of thousands
of tests. This volume of testing can significantly affect lab-
oratory staffing, particularly if there is a demand for stat
results at the time of peak demand in the early morning.
One published estimate is that each reduction of 100,000
specimens sent to the laboratory would result in the reduc-
tion of work by four FTEs (21). This value obviously will
vary depending on the levels of automation and efficiency
of the laboratory. Coordination of POCT for this volume
of testing requires about one FTE, depending on the com-
plexity of testing and the number of testing sites. Analy-
sis of the impact of POCT on FTEs suggests that at a low
testing volume, POCT usually would require an additional
FTE in the form of a test coordinator but would have no
impact on staffing within the central laboratory. However,
at higher test volumes, there is the potential for greater
FTE reduction in the laboratory than the additional FTE
required for coordinating POCT. One other situation in
which POCT may result in an overall reduction of FTEs
is in the replacement of a satellite laboratory with POCT.
If work is not evenly distributed for a satellite laboratory,
often there is a high labor cost for idle time between testing
activities. An analysis of the costs of various testing op-
tions indicates that POCT may result in direct cost reduc-
tions versus satellite laboratories (39).
Cost analysis complications. There are a number of other
complicating factors that affect cost analysis. First, two fun-
damentally different approaches are applied—a bottom-up,
or microcost, analysis that adds up individual cost ele-
ments and a top-down, or macrocost, analysis that divides
budgeted costs. Second is the problem of allocation of
overhead or small bits of labor that do not result in changes
of FTEs, such as nursing time spent on POCT. Third, most
analyses of labor costs do not account for any changes in
productivity; e.g., if nursing staff perform an additional
task without any increase in worked hours, that represents
a change in productivity, not a labor cost. Finally, the most
important complicating factor is weighing the indirect ef-
fects of POCT on the overall cost of patient care (4). Labo-
ratory tests account for a small proportion, perhaps 5%, of
healthcare costs (5). If changes in laboratory testing have
any impact on factors such as length of stay or changes in
clinical outcome, the cost impact potentially could be far
greater than the total amount spent on laboratory testing.
Two recent studies provide evidence that POCT affects
treatment decisions in a substantial proportion of testing
episodes, although the net effect on costs was not clear (5,
20). Other interesting examples have been described in
which POCT may result in substantial savings by having
impacts on processes such as frequency of transfusion (9)
or in which rapid intraoperative PTH testing contributes to
an overall cost reduction. Although providing intraopera-
tive PTH testing results in an increase in laboratory costs,
total costs for patient care appear to be decreased substan-
tially (31, 66, 76). Improvements in the quality and the ef-
ficiency of patient care delivery or reduction in transfusion
frequency have been considered to result from POCT in a
number of other cases, with the potential for overall cost
reduction (3, 19, 53, 58, 59a). Difficulty in arriving at an
exact dollar benefit for a change in clinical process makes
these analyses challenging.
In deciding how to analyze the costs of POCT, it is
necessary to decide what question is being asked. A com-
mon question is, How much is POCT going to cost the
organization? That is, what is the overall budgetary im-
pact? Usually, addition of POCT will have little effect on
facilities or overhead costs within the organization, so
there is negligible effect on these cost factors. In analyz-
ing the budgetary impact of POCT, the labor cost would
be represented primarily by any change in FTEs or paid
working hours. Management of a POCT program is time-
consuming, so it is appropriate to allocate some labor ex-
pense for management and medical direction. Depending
on the nature of POCT within a facility and the alterna-
tives of POCT versus no POCT, labor costs may be either
positive or negative. To these labor costs will be added
costs for equipment, supplies, and information systems.
Adding all of these expenses together yields an estimate
of the annual organizational cost or impact on expense
budgets. Dividing these costs by the total number of tests
performed will provide an estimate of the average cost to
perform a test by POCT.
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING
A second common question is, What charge would be
necessary to recover the costs of POCT? In this analysis,
there usually would be an allocation of nursing time for
performing the analysis and an allocation of a portion of
facilities and administrative overhead costs that must be
recovered in some manner. These costs would be added
to costs for equipment, supplies, etc. In addressing this
question, usually there is no accounting for potential sav-
ings of expenses for central laboratory testing, changes in
worker productivity, or efficiency of clinical care. This type
of analysis usually provides a much higher estimate of per
test cost than an analysis of the budgetary impact of POCT.
It is notable that if calculations are performed to address
these two questions, very different values usually result for
the average cost of a test. This comparison underlines the
importance of understanding exactly how a cost analysis
is being performed and what question is being addressed.
One of the major problems in many of the published anal-
yses of the costs of POCT (8, 37, 46, 79) is that they use
cost allocation approaches that do not directly assess the
budgetary impact of a test. Differences in approaches of
cost analysis and lack of recognition that there is more
than one way to calculate the costs of a test lead to much of
the controversy about the economics of POCT. For most
purposes, costs of POCT are better represented by an anal-
ysis of budgetary impact performed by a macrocost analy-
sis of labor (measured as FTEs) rather than by a microcost
analysis of labor (measured as minutes performing tests)
because measurement of labor as change in FTEs accounts
for changes in productivity and efficiency.
Other differences in the economics of POCT. Besides the
labor component, there are a number of other ways in
which the economics of POCT generally differ from cen-
tral laboratory testing. Usually, the supply costs are higher
for POCT and a higher proportion of tests are used for
quality assurance purposes because a much larger number
of analyzers need to be checked. The high proportion of
tests used for QC and the relatively fixed time required for
staff training and management of testing lead to substan-
tial economies of scale for performing a higher volume of
testing (46). The significance of this economy of scale for
the management of POCT is that efficiency is best served
by restricting POCT to sites that perform a high volume
of testing. Performing POCT at sites with low volumes of
testing leads to higher supply, equipment, and labor costs
per test. Due to wide variation in the cost elements of dif-
ferent POCT procedures, there is no fixed threshold value
for the volume of testing that reaches a significant econ-
omy of scale; each situation must be analyzed with respect
to both the direct cost factors and clinical necessity for
rapid turnaround time.
Three final potential problem areas in the economics of
POCT are in management of reagent wastage, utilization
477
of testing, and duplication of POCT and central laboratory
testing. These problems may lead to higher than expected
costs for POCT. Checking a small proportion of POCT re-
sults with the same test performed in a central laboratory
may serve as a useful quality assurance process (38). How-
ever, if most POCT is repeated with a duplicate test in the
laboratory, this will have a major impact on the analysis of
costs, and it may represent a substantial problem either in
test-ordering patterns or in clinical confidence in the reli-
ability of the POCT. Keys to managing these sources of in-
creased costs are good systems for inventory management,
data systems that allow review of test utilization patterns,
agreement with and among clinicians regarding appropri-
ate test ordering practices, and effective training of staff.
Assessing the Impact of POCT Services
Clinical impact. An important part of deciding whether a
point-of-care test should be adopted is assessing its poten-
tial clinical impact. The general assumption is that faster
results make for better patient care and better outcomes.
However, as has been discussed elsewhere in this chapter,
POCT does not always offer optimal results if proper pro-
tocols are not followed and QC is not performed. Even if
the testing is conducted properly, performance may be in-
ferior to that of more robust laboratory-based methods. A
performance trade-off in favor of a more rapid turnaround
time may be acceptable, but it is important that the risk
of lower performance be weighed carefully against the
benefit of a faster result. Quantifying the benefit of POCT
can be difficult because many important outcomes such
as patient satisfaction and employee efficiency do not lend
themselves to objective measure. The following are just a
few examples of how POCT has been shown to improve a
variety of outcomes.
Resource utilization. Resource utilization is a key consid-
eration when implementing point-of-care testing. In some
cases POCT can be used to more efficiently allocate valu-
able supplies such as blood products. In one prospective,
randomized trial POCT was used in coagulopathic cardiac
surgery patients to manage hemostatic therapy. In this
study patients were randomly assigned to either conven-
tional testing or a POCT group. The study found that on
average the POCT group required fewer blood products
(five units conventional versus three units) (72). These
findings have been replicated in other settings and suggest
that POCT can have a meaningful impact on the use of
blood products (63, 73).
Length of stay. Length of stay is a common measure used
to assess the impact of laboratory testing and can be con-
sidered a marker of both resource utilization and quality
of care. It seems logical that faster test results would lead
to shorter lengths of stay, but if testing provides erroneous
478 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
results and inappropriate care, lengths of stay may actu-
ally be longer. A number of studies have shown that a va-
riety of POCT can reduce lengths of stay for patients seen
in the emergency department. Comprehensive metabolic
panels; multimarker cardiac panels including myoglo-
bin, creatinine kinase-MB fraction, and cardiac troponin;
whole blood D-dimer; and urine tests for drugs of abuse
all reduced lengths of stay in the emergency department
by between 20 minutes and 1 hour 15 minutes (24, 49, 51,
65). It is important to note that these results may not be
generalizable to all settings, as some studies have demon-
strated no impact on ED length of stay (55). In addition,
POC pregnancy testing was shown to have no effect on
length of stay in the emergency department (57). There
is a paucity of literature addressing the impact of POCT
on inpatient length of stay. Although evidence suggesting
that POCT has any impact on inpatient length of stay is
scarce, it has been shown to reduce the need to admit
patients in the first place, which is an equally valuable
outcome (17).
Improved access to healthcare. Another potential benefit
of offering POCT is the ability to provide better access to
healthcare for patients. This can manifest in several im-
portant ways. POCT can be used in developing countries
and rural settings where complex laboratory services are
not readily available. The management of POCT in these
settings is discussed elsewhere in this chapter. POCT can
also be used to provide rapid and discreet results to pa-
tients who might not otherwise submit to testing. HIV
POCT can be used to reach patient populations who are
unlikely to seek healthcare. The goal of offering HIV test-
ing in these settings is not only to make the diagnosis but
to link newly diagnosed patients to care. This may seem
obvious, but understanding this goal can help guide the
management of how HIV POCT is offered and who con-
ducts the testing. Several studies have looked at how effec-
tive different caregiver groups are at consenting patients
for testing and subsequently linking those HIV-positive
patients to care. Hsieh et al. showed that when compared
to medical staff indigenous to the ED, exogenous staff who
were placed in the ED for the sole purpose of conduct-
ing POC HIV testing identified more positive patients,
conducted more tests, and were more effective at linking
those positive patients to care (25). Similarly Walensky
et al. found that counselors dedicated exclusively to HIV
POCT consented more patients for testing than the ED
provider arm of the study (71). Modeling studies have
extrapolated these findings to conclude that increased
HIV test volume is a critical component to reducing HIV
transmission. In their model, which considered the per-
formance limitations of POCT HIV testing inside the
window period, testing did not reduce transmission un-
less frequency of testing increased (77).
Clinical outcomes. The most important measure of a
test’s value is, of course, clinical outcome. The wide vari-
ety of point-of-care tests available makes a comprehensive
review of their clinical impact outside the scope of this
chapter. The following are a few representative examples
to illustrate the clinical impact one can hope to achieve
with POCT. (i) POCT along with an extensive resident
education program and team-based approach resulted in
a statistically significant improvement in the number of
diabetic patients who achieved their goals of A1C, LDL,
and BP levels (62). (ii) In a South African study research-
ers found that offering CD4 POCT significantly improved
the chances of initiating patients on antiretroviral therapy
for the treatment of HIV infection (14). Others have found
the same thing in other settings (30). (iii) Mortality was
significantly lower when i-STAT POCT was used to man-
age pediatric patients following congenital heart disease
surgery (61). When compared to conventional testing, the
POCT group had statistically lower mortality in neonates
(2.4% vs. 6.2%, P < 0.007) and those patients undergoing
the highest-risk surgeries (9% vs. 30%, P < 0.03).
It is clear that POCT can have a positive impact on many
different aspects of patient care. It may not be surprising,
however, that the vast majority of studies assessing the im-
pact of POCT focus on cost, resource utilization, and ED
length of stay. More studies are needed to assess the true
impact of these tests on clinical outcome.
Quality Assurance Challenges
POCT has many of the same overall quality assurance
requirements as testing in the central laboratory, such
as training of staff, confirming competency, equipment
maintenance, recording of patient results, inventory con-
trol, QC of testing, proficiency testing, documentation
of processes to meet regulatory requirements, review of
utilization and budgets, and billing for testing activities.
Recent reports about patient harm from errors in medical
care underscore the importance of developing improved
strategies for avoiding error in POCT (41). Although the
goals of quality assurance activities are similar to those in
the central laboratory, there may be substantial differences
in implementation due to the highly distributed nature of
testing and the large number of staff involved.
Staff training and competency. One of the greatest chal-
lenges and a key to making POCT work is training and
assurance of the competency of staff. Even if test devices
are operating perfectly, accurate test results will not be
produced if staff personnel are not educated about appro-
priate specimen collection and operation of test devices.
Fecal occult blood testing could be considered one of the
least complicated tests to perform. However, without ap-
propriate training a number of breakdowns in test proce-
dure have been noted in the past, such as use of the wrong
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING
developer solution, refilling bottles of developer solution
with water, incorrect timing of test procedures, and lack
of understanding of color changes (22). Completion of
training by staff must be an essential component of job-
specific competencies. Considering that training is one
of the most important functions of the coordinators of
POCT, teaching skill should be one of the prime factors
in the selection of testing coordinators. It can be difficult
to schedule enough training sessions to accommodate a
large number of staff, so it may be helpful to have self-
instruction videos or web-based instruction as additional
options. Vendors of a number of POCT products have
recognized the critical role of training and provide assis-
tance with initial training of staff.
Quality assurance. Quality assurance of POCT can be a
very demanding activity due to the large number of ana-
lyzers that need to be tracked. Most POCT devices require
limited maintenance such as cleaning and battery replace-
ment, but if this is neglected, devices may fail. Portable
devices may be dropped or exposed to vibration, water,
extremes of heat or cold, or other environmental chal-
lenges that may lead to equipment failure. In part, this is
a training issue, but even with appropriate maintenance
and use, periodic device failures are likely. The greater
potential for equipment damage in an uncontrolled en-
vironment emphasizes the need for control processes to
detect malfunctions of devices. Usually, failure of POCT
devices is handled by replacement of the failed unit rather
than attempts at recalibration, service, or repair. This is
handled by having one or more devices available as back-
ups or by having a contingency plan for how service will
be delivered. Lack of experience of the testing staff with
troubleshooting equipment or reagent problems requires
on-call support by POCT coordinators or other experts.
The central laboratory may assist with troubleshooting,
particularly with interferences or with systematic changes
of analyzers or reagents that may be identified by compari-
son of test results from POCT and the central laboratory.
Changes in U.S. federal regulations in 2003 have af-
fected quality assurance of testing (11). Control processes
of POCT ideally should assess equipment, specimens,
reagents, and testing personnel. Some POCT equipment
executes internal checks of electronic components, batter-
ies, photometers, and other components with each use of
the device. Mechanisms may exist for detecting specimen
problems, such as inadequate specimen volume, clots, or
bubbles. Many devices that are interpreted by direct visual
inspection, such as tests for fecal occult blood, pregnancy,
and other rapid antigen and antibody tests, have internal
procedural controls that indicate whether the individual
device is operational and whether there are inadequate
specimens or interferences with the test. These control
processes are highly desirable for POCT and should be
479
sought when selecting equipment because they check the
instrument, specimen, and in some cases, the reagents
with each use.
The primary quality assurance focus of laboratory
workers and regulations usually is on external QC testing
and proficiency testing. These external controls do serve
as additional checks for equipment and reagent failure.
However, standard QC processes are designed primarily
to detect systematic shifts in performance over time, and
these are less of a problem with POCT, where reagents and
equipment often are stable for months. A standard from
NCCLS (now the Clinical Laboratory Standards Institute
[CLSI]) on unit-use devices has suggested that the fre-
quency of QC testing should be one-tenth of the shelf life
of reagents rather than more customary testing per shift or
per day (75). Discussion of this standard provides an excel-
lent overview of potential sources of error in POCT (75).
Standard QC processes are not well designed to detect spo-
radic failures of unit-use devices and do not detect speci-
men problems. Two areas in which QC testing may make
a positive contribution in the POCT environment are to
evaluate and provide ongoing competency assessment of
testing staff and to provide ongoing training of staff who
infrequently perform a test. To achieve these benefits, it is
important for QC testing to be rotated among all staff.
Electronic simulators vs. control materials. One contro-
versial issue with respect to QC testing is the suitability
of using electronic simulators rather than control materi-
als (12). Advantages of using electronic controls are sub-
stantial reduction in the costs for test supplies and control
materials. Often, control testing represents as much as
one-quarter to one-half of the total volume of testing at a
low-volume testing site. Therefore, use of electronic con-
trols could reduce supply costs by as much as 50%. This
reduction in costs may be critical to the economic viability
of some testing activities in which unit costs of supplies
are high. The major argument against the use of electronic
simulators is that although they check performance of the
electronic components of an analyzer, they do not check
the performance of the reagents. If electronic simulators
are used, there should be some mechanism to periodi-
cally check the appropriate function of the reagents. Other
drawbacks of the simulators are that they may provide less
assistance with ongoing training and competency evalua-
tion of testing staff.
Information Systems and Billing
Extensive record keeping is essential for meeting the regu-
latory and quality assurance requirements for POCT (33,
39, 41, 54). The only way to prove that appropriate proce-
dures have been followed is to provide documentation of
all activities. Historically, this was one of the most onerous
aspects of the management of POCT. Most information
480 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
was recorded manually, and it was a constant struggle to
encourage complete recording of necessary data and to
collect all of the data sheets. In organizations in which the
scope and volume of POCT grew, it became increasingly
critical to develop data systems to collect this informa-
tion. Many POCT analyzers now have data systems that
collect information about control testing, patient results,
and which operators performed testing. Also, analyzers
may have security functions to limit access to authorized
users and lockout functions that require control testing at
defined intervals before patient testing can be performed.
Information from individual analyzers is gathered by pe-
riodic uploading of information into a central data station
via modem or electronic network or by taking a laptop
computer to testing sites.
There is increasing recognition of the value of con-
solidating all patient test results into central information
systems. Entry of POCT results into central laboratory
information systems provides many advantages: increased
access to the results of POCT for patient care, improved
ability to track and manage testing activities, ongoing
quality assurance by providing comparison of POCT ver-
sus central laboratory results (38), and improved records
for liability purposes. A major consideration in the selec-
tion of equipment for POCT should be the data-handling
capabilities and how it will be interfaced with central in-
formation systems.
The decision to bill for POCT and the selection of bill-
ing methods are complex issues that have been handled in
completely different ways by different organizations (56).
Some organizations have decided not to bill for POCT, oth-
ers have rolled these costs into nursing or room charges,
and others have billed for individual tests. To perform bill-
ing, it is necessary to have effective information systems
that can document ordering of the test, performance of the
test, and patient diagnoses suitable for reimbursement. If
there is some duplication of POCT and central laboratory
testing, this could be identified as double billing. It may be
necessary to review the frequency of testing on bills to see
that this is within allowable limits. Creating the necessary
documentation and reconciling bills with rules for reim-
bursement are formidable challenges.
POCT in Developing Countries
and Rural Settings
Challenges
The challenges of conducting quality POCT in developed
countries with established hospital infrastructures are
magnified when performed in the context of a developing
country or rural setting. Yet these are precisely the envi-
ronments in which POCT can have the greatest impact.
One of the primary problems encountered in these settings
is that populations are often dispersed over large areas and
are small in number. These patients travel long distances
to seek healthcare and are unlikely to make the trip back
to follow up on laboratory results that are not immediately
available. An example from sub-Saharan Africa suggests
that an average of 40% of HIV-positive patients either do
not provide a blood sample for testing or do not return
for their CD4 count results (48, 60). This is one of the pri-
mary reasons that POCT has proven so beneficial in these
environments.
The simplicity of POCT also offers some obvious ad-
vantages. These environments may have inconsistent
power, lighting, and refrigeration, which make offering
conventional laboratory testing difficult if not impos-
sible. High staff turnover is a constant problem in any lab
but can be particularly problematic in these settings. The
simpler the test, the easier it is to maintain competency
and train new technologists. In India, Kabra and Kanugo
speculated that this was the single greatest challenge to
maintaining a quality POCT program (35). One problem
with POCT training is the common misconception that
because it is so simple, it does not require training. In a
setting where personnel are unfamiliar with laboratory
procedures and practices, quality control and proficiency
testing (PT) programs can be difficult to implement. Not
only can it be difficult to institute quality control and PT
programs because they are time-consuming, but they are
expensive. In these resource-limited settings it can be dif-
ficult to convey the importance of performing testing that
is not going to contribute directly to patient care and may
add significantly to total cost. A review article by Shott
and colleagues illustrates how critical it can be to elimi-
nate laboratory error in these settings. Using HIV test-
ing in sub-Saharan Africa as an example, they postulate
that with the high volume of HIV testing in this setting,
just a 0.5% error rate could lead to the misdiagnosis or
mismanagement of approximately 50,000 patients (64).
Although ideally testing would be conducted by trained
laboratory technicians, this is not a realistic possibility in
these settings. Examples from Botswana and Zimbabwe
demonstrate that when proper training programs are in
place, nonlaboratory personnel can provide reliable test-
ing results.
Another issue in managing POCT in resource-limited
settings is developing physician confidence in test results.
For the reasons just discussed, complex laboratory testing
is very difficult to perform reliably, and as a result physi-
cians grow to distrust laboratory results and often rely on
clinical diagnosis and empiric treatments. POCT may offer
a simpler form of testing with a better chance of success.
Despite their simplicity, though, point-of-care tests are
not without their problems, as numerous examples from
Uganda, Ethiopia, the Democratic Republic of Congo, and
Cameroon demonstrate poor sensitivity and specificity of
POCT (1, 10, 36, 40).
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING
Organizing POCT in Resource-Limited Settings
In response to the need for high-quality healthcare in these
settings, there have been significant movements from do-
nors such as Global Fund for AIDS, Tuberculosis and
Malaria, the World Bank, The U.S. President’s Emergency
Plan for AIDS Relief (PEPFAR), the Global Health Initia-
tive, and private foundations (2). These programs provide
valuable materials and access to healthcare, but it is im-
portant that proper laboratory infrastructure be in place
to take advantage of these resources. Due the nature of the
rural setting, it is important that some form of decentral-
ized laboratory system be in place to provide testing. The
centralized lab model does not work in situations where
the population is spread out over a large area and people
are unlikely to make long trips to seek care at a central
location, much less follow up on test results. These rural
“laboratories” can be present in traditional hospital or
clinic settings if they exist, or they can be mobile, in which
case the testing can be brought directly to those in more
rural settings.
To manage quality of testing and maintain proper
training as well as distribution of supplies Alemnji and
colleagues (2) recommend what they call a “tiered stan-
dardized integrated structure.” An important key to this
kind of system is having a robust referral center and cen-
tralized national public health laboratory that can help
to manage the testing program on a national level. These
centers should be able to perform more complex confir-
matory testing if needed as well as provide counseling and
treatment for patients with new diagnoses. Importantly,
these centers should also help to maintain the quality con-
trol and quality assurance programs and be responsible for
maintaining training and proficiency testing.
Quality assurance (QA) programs are critical to the
success of POCT in these settings. QA programs should
include external proficiency testing (PT) specimens, fol-
low-up on discrepant results, and routine site visits. An
obvious barrier to a successful QA program is the cost and
challenge of distributing PT specimens. The Centers for
Disease Control and Prevention (CDC) has developed a
dried tube specimen that simplifies the shipping of HIV
serology and viral-load proficiency specimens. The same
distribution concerns that exist for PT specimens also exist
for the tests themselves. There are many potential pitfalls
for implementation of effective in-country distribution
systems; lack of reliable human resources, inventory track-
ing, and delayed processes for requesting laboratory tests
are a few of the most significant.
In the end, implementing a successful POCT program
in a rural setting or developing country is dependent on
having a strong system approach. There must be coordi-
nation among the many interested parties, from local, re-
gional, and national governments to other interest groups
outside the country. It is recommended that stakeholder
481
meetings are held to ensure that the many moving parts in
such a system are all involved in the development, imple-
mentation, and maintenance of the program.
Technological Challenges
Rapid Changes of Menu, Devices, and Technology
Historically, POCT was severely limited by the small menu
of tests that could be performed and by the relatively poor
analytical quality of tests. However, advances in technol-
ogy and successful miniaturization of devices have made it
technically feasible to perform virtually any test as POCT
(41, 54). Ongoing advances in the microfabrication of
devices and in nanotechnology provide the promise of
substantial future technological change and further reduc-
tion in the size of POCT devices. Miniaturization of test-
ing devices alone is not sufficient to make a test suitable
for POCT. It is also important to reduce analysis times,
to simplify the operation of test devices, and to minimize
requirements for specimen preparation. To be suitable for
POCT, a test usually must accept an unprocessed sample
such as whole blood, and the analysis times must be less
than about 15 minutes. If these conditions are not met, it is
difficult to perform the procedure as POCT or the advan-
tage in turnaround time of POCT versus central labora-
tory testing is not sufficient to provide a strong advantage
for POCT.
The previously cited example of intraoperative PTH
testing provides an interesting example of the interplay
between testing technology and the decision to perform
a test as POCT. When technological advances reduced the
time it takes to perform PTH tests from hours to less than
15 minutes, it became practical to perform testing during
surgical procedures (29). Some organizations decided to
perform intraoperative PTH testing as POCT, while other
organizations decided to transport specimens rapidly and
to perform intraoperative PTH testing in a central labora-
tory (23). The decision of how to provide this testing ap-
pears to be influenced strongly by the characteristics of the
testing devices—size, complexity of operation, cost, and
testing menu. This test serves as just one example of how
technological advances are greatly complicating the man-
agement of POCT by expanding the menu of tests that can
be performed. In the past, it was easy to make the choice
of POCT versus central laboratory when a test such as
PTH could not be performed rapidly or no analyzer was
available that was suitable for POCT. Now it is necessary
to evaluate critically a much wider range of potential tests
and devices for POCT.
The rate of innovation and change of POCT devices has
been faster than for high-throughput analyzers in the cen-
tral laboratory. This is possibly due to the lower complexity
and much smaller capital investment for manufacturers to
design a POCT device than a large laboratory analyzer. For
482 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
example, there have been about five generational changes
in the fundamental technology applied to POCT glucose
measurement over the past 25 years from (i) visually in-
terpreted test strips to (ii) test strips read by optical meters
after wiping away blood to (iii) no-wipe test strips read by
optical meters to (iv) test strips read electrochemically to
(v) microsample testing with electrochemical detection (6,
16, 74). Other changes in approach, allowing testing with
minimally invasive or noninvasive technologies, are de-
scribed in the next section; they may be viewed as further
generational changes in technology. At the same time as
all these changes in POCT devices and testing technology
have occurred, there has been little change in the technol-
ogy applied to glucose testing in central laboratories other
than increased automation of analyzers and availability
of whole blood glucose testing through expansion of the
menu of blood gas analyzers.
The high rate of change and innovation in POCT de-
vices presents a management challenge to stay abreast of
information about these products. When advertisements
and salespeople tout the latest and greatest new POCT de-
vices and tests, how can your organization evaluate these
claims? There are continuous upgrades for existing POCT
devices, so a vendor of devices currently in use in your
organization is likely to propose or require an upgrade as
a change in the product is made and the old product is
discontinued. It is difficult for laboratory workers to be
knowledgeable about the characteristics of a wide range of
new POCT devices, many of which are not used in central
laboratory settings. Technologies and performance char-
acteristics may differ from central laboratory analyzers,
and extensive track records of clinical use and published
evaluations may be lacking. It is difficult to even keep up
with the range of test devices that are available, and most
published reports become outdated quickly. As a result,
the most useful resources for surveying what devices are
available are periodically updated surveys such as those
in CAP Today (accessible at http://www.cap.org). A web-
site of the U.S. Food and Drug Administration includes a
list of approved devices and devices that are classified as
waived (http://www.fda.gov/cdrh/oivd). For the most cur-
rent information about individual products, it is necessary
to consult with vendors.
At the same time as there has been rapid evolution of the
analytical capabilities of POCT devices, there have been
major changes in the quality assurance processes, internal
data systems, and the ability to transmit data to central in-
formation systems. A major problem with POCT devices
has been the lack of common standards for internal data
systems and for communication between other devices or
central information systems. Recent development of stan-
dards by the Industry Connectivity Consortium should
lead to improved ability to link devices to information
systems (10a). How to link devices to information systems
has become an increasingly important consideration in the
evaluation of devices.
Lack of Equivalence between POCT and Central
Laboratory Tests
In many cases, the specimen type or fundamental mea-
suring principles of POCT devices differ from those used
in the central laboratory, and these can be confusing to
clinicians who are trying to interpret test results. Thus,
it is important to perform careful comparisons of POCT
and central laboratory results. Differences in whole blood
specimens used for POCT versus serum or plasma samples
used for central laboratory testing can lead to systematic
differences in results for tests such as glucose (6, 28, 44).
Efforts have been made to reach agreement on a common
reference standard such as plasma for glucose measure-
ment to reduce the problem with comparison of POCT
and laboratory results (28). However, the volume dis-
placement and viscosity effects of hematocrit still can af-
fect the reliability of results for specimens with extremely
high or low hematocrits (6). Fundamental problems of
comparability of methods often have been experienced
for POCT hematocrit measurements by conductivity ver-
sus laboratory measurements (69) and for POCT whole
blood coagulation tests versus laboratory measurements
on plasma specimens (45). Sometimes variation in the
site of specimen collection can affect results. The glucose
concentration of capillary blood from fingers can differ
substantially from the concentration in venous blood (44).
Collection of capillary blood from a forearm can yield dif-
ferent results than sampling from a finger (16, 34, 50). Dif-
ferences in testing technology can lead to differences in
the interferences with POCT devices (6, 43), so it is im-
portant to become informed about the potential limita-
tions of each test device.
Practical consequences when there is nonequivalence
between POCT and laboratory methods include a need
(i) for careful comparison studies by the laboratory to
guide device selection and to provide data about expected
differences for clinicians, (ii) for education of clinicians
about differences, and (iii) to report values by nonequiv-
alent methods in separate columns in laboratory reports
with appropriate reference values. It is desirable to have
POCT and laboratory values side by side in reports to pro-
vide ongoing comparison.
New Monitoring Technologies
One growing source of uncertainty in defining the limits
of POCT is the blurring of the boundaries between physio-
logical monitoring—traditionally, measurements such as
blood pressure, pulse rate, and temperature—and labora-
tory testing. It is now possible to perform measurements
 CHAPTER 25. MANAGEMENT OF POINT-OF-CARE TESTING 483

of analytes such as electrolytes, blood gases, and glucose Summary

with new types of devices attached to a patient (70, 78).
POCT presents some of the greatest and most controver-
Electrodes can be inserted into blood vessels or subcuta-
sial political, organizational, operational, and technologi-
neously to provide continuous measurements. Specimens
cal challenges for laboratory workers. POCT often crosses
can be collected through the skin barrier by micropunc-
traditional organizational boundaries, encompasses test-
ture or iontophoresis and analyzed by devices placed
ing activities performed at a large number of different
on the skin surface. Measurements can be made photo-
sites, and requires training and coordination of a large
metrically through tissue or by reflectance to measure
number of staff with limited experience performing labo-
bilirubin, glucose, hematocrit, or other compounds. The
ratory tests. One of the most controversial issues is whether
greatest commercial and clinical interest is in noninva-
POCT costs more or leads to lower costs relative to central
sive measurement of glucose for diabetes care. This is
laboratory testing. Part of this controversy relates to a lack
a very large and dynamic field for which current infor-
of standard approaches for analyzing costs. There is evi-
mation is best obtained through websites such as http://
dence that POCT can reduce total organizational costs in
www.diabetesmonitor.com/meters.htm and http://www
certain circumstances. POCT is also one of the most dy-
.childrenwithdiabetes.com.
namic and rapidly changing fields of diagnostic testing,
Federal regulations in the United States (Clinical Labo-
driven by rapid technological change as well as evolving
ratory Improvement Amendments of 1988) define labora-
clinical demands. There are no simple solutions to the
tory tests as procedures in which specimens are removed
complex issues of POCT that are universally applicable to
from the body for analysis (13). Procedures that are per-
varying organizational structures, political and historical
formed by devices attached to patients, such as those
contexts, laboratory operations, and clinical demands for
described above, or that involve the analysis of breath spec-
testing. With all of the organizational and operational hur-
imens are considered to represent physiological monitor-
dles to overcome, perhaps the greatest challenge in POCT
ing rather than laboratory testing. This raises a question:
is to try to maintain a focus on the goals of using POCT to
Is a glucose measurement performed by a device attached
achieve the greatest organizational efficiency and the best
to a patient not a laboratory test, while a glucose measure-
possible patient care.
ment performed on a specimen physically removed from
a patient is a laboratory test? At this point, it is not clear
how tests performed by monitoring devices will be classi- KEY POINTS
fied in the future or whether the same standards will apply ■ POCT presents different management challenges than
to measurements made by monitoring devices. other types of laboratory testing.
In addition to posing fundamental questions about ■ Cost analysis of POCT requires a clear understanding
the limits and regulation of laboratory testing, monitor- of the question that is being addressed. Analysis of la-
ing technologies pose new challenges in the interpretation bor costs usually is best addressed by evaluation of the
of test results. Some of these devices measure concentra- impact on FTEs.
tions in tissue or interstitial fluids rather than in plasma
■ There is evidence that POCT can lower organizational
or blood, and there may be physiological differences in
the specimens sampled (34, 50, 70). Accuracy and perfor- costs in selected circumstances.
mance characteristics of these devices may differ substan- ■ Advances in testing and information technology are
tially from those delivered by usual laboratory tests, and driving rapid change in the form and scope of POCT.
the number of test results may be much greater. These is-
sues will complicate the interpretation of results and the GLOSSARY
management of a large number of test results. For clini-
American Osteopathic Association A professional association
cians to interpret results from these devices, it will be im- of doctors of osteopathy that also provides laboratory accredita-
portant for any organization using monitoring devices to tion services, primarily for physician office laboratories.
perform comparisons versus traditional laboratory mea-
surements to generate information about how results from Clinical and Laboratory Standards Institute (CLSI) A global,
nonprofit, standards-developing organization.
the monitoring device and the laboratory compare. Also,
whether these devices are officially classified as laboratory COLA (formerly the Commission on Office Laboratory Ac-
tests or not, there will be a need for mechanisms to ensure creditation) An organization that provides laboratory accredita-
the quality of the test results. Processes and management tion services primarily for physician office laboratories.
structures developed for POCT may be effective mecha- College of American Pathologists (CAP) A professional asso-
nisms for supporting monitoring devices even if these are ciation of pathologists that provides laboratory proficiency test-
not covered by the same regulations as laboratory testing. ing and accreditation services.
484 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Full-time equivalent (FTE) A labor component equivalent to
the time worked by one full-time employee on a standard
schedule.
Industry Connectivity Consortium A group that has developed
engineering standards for electronic communication between
POCT devices.
The Joint Commission An organization that accredits health-
care facilities and components of their services such as labora-
tory testing.
Macrocost analysis Analysis of costs by breaking down overall
budgetary costs.
Microcost analysis Analysis of costs by adding up costs for per-
forming an individual test.
Monitoring devices Devices that are attached directly to a pa-
tient and provide periodic or continuous measurements.
NCCLS (formerly National Committee for Clinical Laboratory
Standards)  An organization that develops standards for labora-
tory practice.
Physician-performed microscopy Microscopic examinations
such as potassium hydroxide preps and wet preps performed by
primary-care physicians outside the laboratory setting.
Point-of-care testing (POCT) Testing performed outside of a
laboratory facility.
Waived testing Laboratory testing with the lowest level of com-
plexity that can be performed under a certificate of waiver rather
than a full laboratory license.
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 CHAPTER25. MANAGEMENT OF POINT-OF-CARE TESTING 487

APPENDIX 25.1 Websites with Information Relating to POCT

Children with Diabetes DiabetesMonitor.com

http://www.childrenwithdiabetes.com, accessed September 26, 2012
Information about new developments in the field of diabetes includ-
ing POCT devices.
Clinical and Laboratory Standards Institute
http://www.clsi.org, accessed September 26, 2012
Website with many links to laboratory standards information.
College of American Pathologists (CAP)
http://www.cap.org, accessed September 26, 2012
Checklists and information about laboratory inspections, articles
and instrument surveys in CAP Today, and information from the
POCT Committee.
Critical and Point-of-Care Testing Division of the AACC
http://www.aacc.org/members/divisions/cpoct/pages/default.aspx,
accessed September 26, 2012
Information about educational programs and other resources.
http://www.diabetesmonitor.com/meters.htm, accessed September
26, 2012
Information about POCT devices and technologies useful for testing
diabetics.
Point of Care
http://journals.lww.com/poctjournal/pages/default.aspx, accessed
September 26, 2012
Website for the journal Point of Care; access to articles requires
subscription.
U.S. Food and Drug Administration
http://www.fda.gov/cdrh/oivd, accessed September 26, 2012
Provides a list of approved diagnostic devices and devices classified
as waived.
U.S. FDA Press Release: FDA approves first over-the-counter
home-use rapid HIV test
http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/
ucm310542.htm, accessed September 26, 2012
Introduction
Preanalytic Activities
26 Principles of Preanalytic and
Test Selection and Implementation • Appropriate Test
Utilization • Specimen Acquisition, Transport, and
Postanalytic Test Management
Storage • Test Ordering
Postanalytic Activities Adarsh K. Khalsa, Michael Santa Cruz, and
The Report • Storage and Retention • Assessment of
Test Results on Patient Outcomes Michael A. Saubolle
Summary
KEY POINTS
GLOSSARY OBJECTIVES
REFERENCES To familiarize readers with the principles of selection, assessment, and
incorporation of diagnostic tests
To review principles of test evaluation and utilization and their effect on
patient outcomes
To describe major elements of requisition and test menu formats
To review principles of formatting of reports of test results
To review the necessity for report interpretation and consultation comments
To review the needs for record storage

When you are called to a sick man, be sure you know what the matter is—if you
do not know, nature can do a great deal better than you can guess.
Nicholas de Belleville

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch26
T
he primary function of a clinical laboratory is to provide ac-
curate, clinically relevant data for the diagnosis of medical conditions
in patients. Once available, the data can be used to provide the indi-
vidual patient a management plan to increase the probability of achieving a
desirable outcome (32). The production of laboratory data is a culmination
of sequential processes constituted of preanalytic, analytic, and postanalytic
laboratory activities that begin with a clinician’s request for specific studies on
an individual patient (11). Such sequential processes are also known as “path
of workflow” and have been described and defined by the Clinical and Labora-
tory Standards Institute (CLSI; previously called National Committee on Clin-
ical Laboratory Standards or NCCLS) and Clinical Laboratory Improvements
Amendment (CLIA) regulations (Table 26.1).
The level of quality of service provided by a laboratory can affect patient
care outcomes considerably, either positively or negatively (32). To achieve
optimal patient outcomes, it is imperative to evaluate the effect of preanalytic
and postanalytic activities on the clinical significance and medical impact of
laboratory tests (36).
Processes and procedures implemented within the laboratory should be
understood as to their impact on workflow. Their design should have the
level of quality needed to minimize errors and resource waste while maxi-
mizing efficacy. Quality standard guidelines and regulatory accreditation re-
quirements have been published and need to be met (Table 26.2) (10, 21, 26,
27, 55, 56).

488
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
Table 26.1 Processes in the clinical laboratory: path of workflowa,b
Process type Description or definition
Preanalytic Steps taken before test is performed (preex-
amination phase). Processes beginning with
test request and its format, patient preparation,
specimen collection, specimen transportation,
specimen receipt in the laboratory and prepara-
tion for testing (specimen processing).
Analytic Activities related to the performance of labora-
tory testing or examination of specimens (ex-
amination phase).
Postanalytic Steps that occur after a laboratory test has been
performed (postexamination phase). Processes
include data review, report formatting, result
interpretation and presentation, permission for
release, result transmission, and sample storage.
a
Path of workflow: sequential sum of all preanalytical, analytical, and postana-
lytical processes, beginning with test order and culminating with laboratory data
output.
b
Compiled from references 11 and 21.
It is not adequate to evaluate tests solely from the
laboratory-centered perspectives of accuracy, rapid turn-
around time, low cost, and high sensitivity/specificity.
Rather, to achieve the highest quality in all processes,
laboratory management must be dedicated to the contin-
uous assessment of both pre-and posttesting of all labora-
tory studies.
The laboratory medical director should be responsible
for the assessment of test results on patient outcomes
and therapeutic protocols (34). After careful test selec-
tion and implementation, the laboratory should evaluate
both test utilization and appropriateness of test ordering
Table 26.2 Partial list of guidelines and regulatory
accreditation requirementsa
Test method validation
Accuracy
Precision
Analytic sensitivity (lower level of detection)
Analytic specificity
Reportable range
Reference range
Verification of FDA-approved tests
Retention of validation/verification data
Proficiency testing
Personnel requirements
Competency of personnel
Reporting of critical results (critical list)
Computer system accuracy checks
Format of reporting corrected reports
a
For additional description and listing see CAP Checklist Up-
dates, 2009 LAP Audioconference Series, sponsored by the Com-
mission of Laboratory Accreditation of the College of American
Pathologists (CAP) at www.cap.org (accessed November 12, 2012).
489
to achieve the most positive effect on patient outcomes
and cost effectiveness. Because, subsequent to laboratory
testing, various actions or interventions may occur that
are not under laboratory control, to ensure quality care
and follow-up for the patient, it is important for labora-
tory management to interact with teams of nonlaboratory
specialists, including infectious disease clinicians, hos-
pitalists, infection control epidemiologists, radiologists,
pharmacists, clinical case managers, and the nursing staff.
The reporting format of test results and the accompanying
interpretation also play crucial roles in assisting clinicians
to best serve their patients.
Preanalytic Activities
The preanalytic phase refers to all steps taken before ac-
tual testing is performed on a patient’s specimen. It in-
cludes test selection, test ordering, patient/specimen
identification, specimen collection and transportation,
specimen processing and preparation, as well as appro-
priate specimen storage prior to testing. Referral of speci-
mens to reference laboratories for additional or otherwise
esoteric testing is included in this phase. Processes must
be maintained for the assessment of all preanalytic activi-
ties. Business management strategies such as application
of Six Sigma practices and the College of American Pa-
thologists (CAP) Q-Probes Program (www.cap.org/appa/
cap.portal, accessed October 17, 2012) may further assist
in the analysis of laboratory processes for appropriateness
and efficacy (40).
Test Selection and Implementation
Test complexity. The Clinical Laboratory Improvements
Amendments were passed by Congress in 1988 (CLIA ’88)
to establish quality standards for laboratory testing and to
ensure the accuracy, reliability, and timeliness of patient
test results. Initially, laboratory tests were categorized by
CLIA ’88 as either waived, moderate complexity, or high
complexity. However, a “final rule” published in the Fed-
eral Register in 2003 recognized only two classifications
of laboratory tests: waived and nonwaived (14). Thus, the
original classifications of moderate complexity and high
complexity were combined together under the classifica-
tion of “nonwaived testing.” Waived tests are defined as
simple laboratory examinations and procedures that are
cleared for home use by the U.S. Food and Drug Admin-
istration (FDA), have simple methodologies, or pose no
reasonable risk of harm to the patient if performed incor-
rectly (21). Nonwaived tests (both moderate and high com-
plexity) have more difficult methodologies and, with one
exception, more rigorous regulatory requirements. The ex-
ception is the differing levels of training required for per-
sonnel performing either moderate- or high-complexity
testing. When determining whether to add a specific test
490 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
to the menu, laboratories must decide into which of these
categories the test fits and whether or not the laboratory
meets the requirements to perform this level of testing.
Further information regarding categorization of tests can
be found at the FDA website at http://www.fda.gov (last
accessed October 12, 2012). Laboratories performing non-
waived testing must be certified or licensed under CLIA
regulations. They must operate with guidelines in place for
proper patient test management and must set specifica-
tions for all areas that can impact specimen integrity and
positive identification throughout preanalytic, analytic,
and postanalytic processes. The laboratory must maintain
an adequate number of qualified employees to perform
these tests (21).
Types of tests. At the most basic level, laboratory tests
are tools to gain information about a patient (16). Tests
are commonly ordered for a variety of reasons, includ-
ing diagnosis, screening for disease, and patient manage-
ment (Table 26.3) (23). Clinicians’ self-described reasons
for ordering tests are usually somewhat diverse, in that
tests are often ordered for establishing a baseline, assess-
ing prognosis, reassuring patients, and helping with treat-
ment decisions. Appropriateness of ordering and effects
of testing often go beyond diagnosis or immediate treat-
ment decisions in this setting (16). Thus, understanding
testing needs from the clinician’s point of view can help
in developing strategies to optimize patient care while at
the same time enhancing cost-effectiveness. Testing that
may appear unnecessary to the laboratory may be based on
physical findings known only to the clinician (3).
The diagnostic process in patient care is critical in that
it leads to prognosis and treatment (23). A clinician may
inappropriately order diagnostic tests because the tests
appear to pose minimal risk while providing possible fur-
ther useful information. Unfortunately, in general, there
are no perfect diagnostic laboratory tests. This type of
Table 26.3 Applications of laboratory testsa
Basic screening
Establishing (initial) diagnosis
Differential diagnosis
Estimating prognosis
Evaluation of current medical case management and outcomes
Evaluating disease severity
Detecting disease recurrence
Monitoring course of illness and response to treatment
Selecting drugs and adjusting therapy
Group and panel testing (often with authorized “reflex” testing)
Regularly scheduled follow-up tests as part of ongoing care
Testing responding to specific events or certain signs and symptoms
(such as sexual assault, drug screening, postmortem)
a a
Adapted from references 16 and 39.
overuse may burden the laboratory unnecessarily, may
cause the patient avoidable harm, and does not contribute
to improved quality of medical care, shorter hospital stays,
or reduced mortality (37). An unexpected result may lead
to unnecessary additional testing or inappropriate care for
a particular patient (23). It has been shown that, even for a
healthy person, the greater the number of tests ordered,
the greater the probability that some of the test results will
fall outside of the “normal” range. Table 26.4 lists the prop-
erties of useful diagnostic tests (31, 39).
Clinically relevant screening tests (such as lipid pan-
els for evaluation of risk for coronary artery disease, PSA
for prostate cancer, and carriage of group B Streptococcus
during the 35–37th week of pregnancy as a risk factor for
neonatal infection during delivery after premature rup-
ture of membranes) are those that may show previously
undetected disease in asymptomatic people or identify
risk factors for a disease (23, 39). Table 26.5 lists various
parameters for the ideal setting for diagnostic screening
tests. When these criteria are applied to measure the ef-
ficacy of screening tests, it becomes evident that only a few
such tests are appropriate and only for a handful of dis-
eases. People shown to have an increased risk of disease by
a screening test are usually advised to consult a physician
for follow-up when appropriate (7).
Input from clinicians and other healthcare providers is
vital for the best possible selection of tests. Diagnostic and
monitoring criteria can be established through collabora-
tion with specialists in each area of clinical practice. From
these criteria, essential tests for a particular clinical setting
can be chosen. It is also crucial to work with managed-
care leaders, case managers, contract providers, insurance
payors, and government representatives, as certain types of
testing may not be covered by insurance or other financial
reimbursement. Needs assessment should also consider
the testing environments, of which there are many more
options than in the past. Testing may be done “in the field,”
commonly known as point-of-care, or may be done in a
clinician’s office, a clinic, hospital, or freestanding diagnos-
tic facility (16). Collection of specimens or administration
of some tests may require hospital admission, albeit nor-
mally as outpatient status.
There is increasing interest in patient-directed orders
for testing, both by consumers and laboratories. Direct
Table 26.4 Properties of useful diagnostic testsa
Methodology is well described and easily reproducible.
Accuracy and precision have been ascertained.
Established reference range.
Sensitivity and specificity established based on an appropriately wide
spectrum of clinical presentations and patient types (including age
where necessary).
Adapted from references 16 and 39.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
Table 26.5 Parameters for ideal settings for screening tests
Characteristics of population
Sufficiently high prevalence of disease
Likely to be compliant with subsequent tests and treatments
Characteristics of disease
Significant morbidity and mortality
Effective and acceptable treatment available
Presymptomatic period detectable
Improved outcome from early treatment
Characteristics of test
Good sensitivity and specificity
Low cost and risk
Confirmatory test available if necessary and practical
a
Adapted from reference 39.
access testing (DAT) is initiated by an individual patient,
without evaluation or order by a clinician (1, 50). Results
are returned directly to the patient ordering the test rather
than to a clinician. Reimbursements for DAT come directly
from the patient and not from third-party payors (e.g.,
Medicare, managed-care plans). This type of testing is be-
coming increasingly popular due to a move toward a more
health-conscious society that wishes to be more proactive
in its health management. Avoiding the cost of the copay
or the cost of the entire physician visit is another reason
that DAT is becoming popular in the outpatient setting.
Self-initiated testing is a natural progression to testing of-
fered at health fairs and home test kits (19, 24).
Laboratories must develop an awareness of some of the
issues related to offering DAT (Table 26.6). Many states al-
low test ordering and result release only to appropriately
licensed practitioners. State regulations must be reviewed
Table 26.6 Pros and cons of direct access testing (DAT)a
Pros
Allows patients to keep sensitive test results out of medical records or
away from insurers if desired
Empowers consumers to take charge of their own health
Opportunity to reduce costs by eliminating the middleman
Gives educated patients opportunity to be involved in managing and
monitoring their own health
Makes it easier for patients with chronic conditions to be involved in
monitoring; could reduce unnecessary physician visits
Testing not limited by geography of provider
Other considerations
Testing laboratories need to establish clear lines of communication when providing results to patients.
Individual state regulations may differ and need to be closely examined.
DAT testing is often not covered by insurance providers; patients must be made aware.
Concerns may be addressed through education, regulation, oversight, and enforcement.
a
See references. 1, 23, and 50.
491
to ascertain local regulatory constraints, if any, on releas-
ing results to unauthorized people, including the patients
themselves. Many of the tests performed at DAT centers
are classified as waived. However, there are tests offered at
these facilities that are categorized as nonwaived, requiring
stringent regulatory compliance. Laboratories considering
offering DAT may damage their relationships with their
physician clients. Although it appears that corporations
are welcoming this type of testing as a business opportu-
nity, physicians may be more concerned about its ramifi-
cations and effects. Laboratories will have to find ways to
bridge the gap between these differing opinions.
Test sensitivity, specificity, and predictive values. The pa-
rameters of the sensitivity, specificity, and predictive value
of a test, in essence, describe the clinical value of a test.
Numerous detailed descriptions and analyses are available
(16, 17, 23, 28). The sensitivity of a test is the percentage of
individuals who have the particular disease for which the
test is used and for whom positive test results are found.
Expressed as a formula, percent sensitivity is the percent-
age of people with the disease/analyte who test positive
using the test in question divided by the total number of
people tested with the disease multiplied by 100. Specificity
shows the percentage of individuals who do not have the
particular disease being tested and for whom negative test
results are found (16, 17). Expressed as a formula, percent
specificity is the percentage of people without disease who
test negative with the test in question divided by the total
number of people without the disease multiplied by 100.
While sensitivity and specificity do not change with
various populations of unwell or healthy people, predic-
tive values can vary considerably depending on the age,
gender, or geographic location of those tested. The positive
Cons
Potential to have negative impact on health status for certain patients
Potential to leave patient’s physician unaware of conditions or problems
that need care or attention
False positives or false negatives may have adverse impact on patient
health
Physicians may have less control over patient management
Potential to play into patient hypochondria
Potential for charlatans to take advantage of uninformed consumers
Testing costs may be higher because they are not negotiated by an insur-
ance company
492 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

predictive value provides the probability that a positive
result indicates the presence of disease. Conversely, the
negative predictive value provides the probability that a
negative result indicates the absence of disease.
Test reimbursement. To remain viable, laboratories need
to be reimbursed appropriately for the testing they per-
form. In most instances, for a test to be reimbursable by
Medicare and other third-party payors it must have been
reviewed and approved by the FDA. The test must also
have received recognition by the American Medical As-
sociation (AMA) by being assigned to the code book of
current procedural terminology (CPT) by the AMA’s CPT
committee; it often takes a year or longer for an approved
test to receive a designated CPT code for billing pur-
poses. When a laboratory performs a test that is deemed
experimental by the AMA or is not approved by the FDA,
the Centers for Medicare and Medicaid Services (CMS),
previously known as Health Care Financing Administra-
tion (HCFA), will not allow reimbursement for that test,
and Medicare will not reimburse the laboratory for that
test. Managed-care providers generally follow this pattern
as well. Thus, laboratory managers must review the AMA’s
official CPT code book, which is published and updated
yearly, to keep current with the available chargeable tests.
Failure to do so may compromise the financial viability
of the laboratory due to the performance of tests whose
expense is incurred solely by the laboratory. Beyond the
initial evaluation, it is imperative to consistently monitor
the reimbursement of frequently ordered tests. Laborato-
ries need to reevaluate the reimbursement of individual
tests and to use this during negotiation for managed-care
contracts in order to be appropriately compensated and to
be able to continue offering the tests.
Available technology. Advancements in science and tech-
nology have allowed and will continue to allow laborato-
ries the opportunity to increase and enhance test menus to
aid clinicians in their endeavors to monitor and provide
medical services to patients. Improvement in diagnostic
capability and decreasing turnaround times (TATs) have
brought clinical medicine to the verge of “real-time” diag-
nosis, in which early intervention has a real chance to im-
prove outcomes significantly. Molecular-based technology
and computerized automation will continue to improve
diagnostic capability. Often, clinicians request diagnos-
tic tests whose overall effect and efficacy on patient care
have not been well evaluated and whose reimbursement by
third-party payors is in doubt. It is imperative that the lab-
oratory evaluate such innovations and categorize them as
to clinical and diagnostic efficacy and financial feasibility.
Fiscal as well as clinical responsibility is paramount when
making decisions on implementing tests (Table 26.7).
Cost studies. Cost-benefit analysis is a very important step
in the assessment for test implementation. Several meth-
ods are available to assist with the cost accounting process.
The instrument cost accounting technique was published
by Travers in 1989 and is presented elsewhere in detail (56).
This method takes into account instrument-related costs,
direct materials costs, and labor costs. The process is suf-
ficiently generic to apply to any department in the labora-
tory. As the cost for each test is determined, total costs for
patterns of disease-related groupings can be calculated.
Procedural analysis can also be implemented using
published CLSI guidelines (38). These guidelines include
methods for analysis that can justify the addition of new
procedures, assist in determining the frequency of test
runs, and supply information regarding the performance
of laboratory personnel or instrumentation. The guide-
lines provide in-depth definitions of terms, numerous
sample forms, examples of different scenarios, relevant
variables, and frequently asked questions. The importance
of first having a functional model of the laboratory in place
is emphasized. The model should include component
working instruments and laboratory cost centers, as well
as availability of ancillary data from finance, payroll, and
purchasing departments.

Table 26.7 Factors affecting the decision to implement or discontinue a test

Category Reasons to implement Reasons to discontinue
CLIA Have staff with adequate education Staff fails to meet CLIA guidelines
and experience
Have system to ensure accurate results
Managed care/Medicare reimbursement Assay reimbursed by Medicare and Inability to obtain adequate reimbursement
managed care from managed care or Medicare
Testing technology Ease of use with test kits Testing becomes obsolete
More readily obtained Manufacturers discontinue test kits/reagents
Technology advanced
Cost effective High-volume ordering Test volumes too low
Increase in reimbursements from
managed care
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
A formula has been described for determining the
cost-effectiveness of screening tests (51). Each of the fac-
tors (prevalence of the disease, cost of the test, and the
benefit of detecting the disease) is assigned a numerical
value, yielding a benefit-to-cost ratio. For a test to be cost-
effective, the ratio should be greater than 1.00.
The consideration of whether to perform a test in-
house or to send it to a referral laboratory is influenced by
several factors (33). One factor is the comparison of the
estimated total cost of performing the test in-house versus
the estimated total revenue for that test. The costs must
include capital expenditure for equipment, instrument
maintenance, reagents, consumables, controls, repeat test-
ing, and personnel expenses. Expected test volume must
be considered in the equation. Other issues concern the
technical expertise of existing personnel, space availabil-
ity in the laboratory, frequency of test performance, the
time and complexity of processing the specimen for refer-
ral, and the test’s clinical acceptance (i.e., likely to become
commonplace or remain esoteric).
Additional factors playing important roles in the
decision-making process on in-house performance of
testing include consideration of required turnaround
time, accreditation and quality of the available reference
laboratories, specimen transport issues, reporting format,
and method of report delivery (computer, fax, mail, or
courier). Because of variances in individual laboratories
and the population or community that they serve, there
will also be variances in needs for and utilization of tests
among laboratories.
As noted above, reimbursement from Medicare, managed-
care plans, and any third-party payors must also be consid-
ered when determining if a test is considered cost-effective
or not. As utilization increases for a particular test, a
conclusion can be drawn as to the cost-effectiveness of
that assay. Even though reimbursement is an important
component, there are other ways to measure a test’s cost-
effectiveness. A test’s contribution to patient care and ap-
propriate patient outcomes also plays a crucial role in the
decision of whether to perform a test. Although a test may
be a financial loss, it may contribute significant savings to
institutions from either a patient safety standpoint or in
financial savings by other means. For example, a nonre-
imbursable, rapid molecular-based test of sputum that is
smear positive for acid-fast bacilli can show the absence of
Mycobacterium tuberculosis, thus forestalling the need to
isolate the patient and providing a significant cost-savings
to the institution. Another example is the rapid, same-day
diagnosis of enterovirus meningitis precluding the need to
hospitalize the patient or beginning other antiviral or an-
tibacterial therapies, thereby saving the organization the
associated costs. To recognize such financial savings to
all areas within the institution, the laboratory must work
closely with other clinical departments.
493
Test implementation: verification and validation. CLIA
’88 specifies that for a newly introduced or modified test
methodology a laboratory process must be in place to
initially verify the test and periodically validate its per-
formance (10, 21). The topic, including discussion of
methods for verification and validation, is well reviewed
elsewhere (10). Verification includes evaluation of the per-
formance of a new or modified test being introduced into
the laboratory. It focuses on the determination of new per-
formance characteristics or confirmation of commercially
determined and published performance characteristics for
a test. Specifically, in verification, test sensitivity, speci-
ficity, and perhaps predictive values must be determined
or confirmed. Verification results must be available for
physician review during the tenure of the test method in
the laboratory (10, 45). Validation, on the other hand, as
a component of an ongoing laboratory quality assurance
program, periodically evaluates and documents the per-
formance of a test over time to ensure its continued pro-
vision of expected results established during verification.
Guidelines from manufacturers and accreditation agencies
may be used to determine the validation frequency for a
test; CLIA ’88 suggests six-month intervals.
Appropriate Test Utilization
In the patient-oriented, cost-effective laboratory, periodic
evaluation of test utilization and appropriateness of test
ordering is mandatory. Inappropriate or excessive test-
ing takes scarce laboratory resources that could be used
elsewhere (55). The Joint Commission (TJC), formerly
called the Joint Commission on Accreditation of Health-
care Organizations (JCAHO), describes the foundation for
laboratory responsibility for clinician education in test ap-
propriateness. In its standards (Accreditation Manual for
Hospitals, standard PA 1.2.7) TJC stresses that the medi-
cal director of clinical and pathologic laboratory services
should ensure that an active policy for the monitoring and
evaluation of the quality and appropriateness of the ser-
vices provided be in place (26, 27). Because laboratory tests
are a form of clinical intervention, the laboratory medical
and administrative management teams have a professional
and moral responsibility to clinicians to advocate for the
patient (34, 35). Legal and ethical implications also dictate
providing the patient with information to aid in under-
standing the risks and benefits of testing (16, 29).
Test evaluation. It may appear difficult to determine
which tests should be evaluated. There are many exam-
ples of tests for which monitoring of testing practices is
mandatory to determine appropriateness. These examples
may include, but are not limited to, repetitive testing on
the same specimen sites within short time periods (e.g., 24
hours), excessive numbers of cultures (e.g., more than two
to four blood cultures per episode, daily sputum cultures),
494 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
cultures of superficial sites (e.g., pressure ulcers), and cul-
tures of inappropriate specimens (nasal swabs for etiologies
of pneumonia). If available, technical specialists or other
senior personnel in each area may encounter situations
through studies, day-to-day tracking duties, quality assur-
ance, recently published articles, interdepartmental inter-
actions, meetings, or other problem-solving circumstances
that indicate which tests are good candidates for further
appraisal. Input from bench technologists concerning
clinician-laboratory interactions, usually from telephone
calls, may also be a source of potential problems suggest-
ing additional test evaluation.
Some suggest that the Pareto principle, also known
as the 80/20 rule, can be applied (38). This rule is com-
monly employed in many types of industry and states that
80% of an entity’s total revenues are produced by 20% of
its products. For the laboratory, this means first listing all
tests performed by the lab and ranking them according to
total annual revenues produced by each test. Basic Cost Ac-
counting for Clinical Services: Approved Guideline gives fur-
ther details of using the principle, along with definitions
and examples (38).
Laboratory tests may be overutilized, underutilized, or
utilized incorrectly (29, 42). Overutilization occurs when
tests are ordered in the wrong clinical setting or too fre-
quently; underutilization implies that relevant tests are
not ordered in the right clinical circumstances. Incorrect
utilization occurs when results are ignored or interpreted
improperly. Various studies have shown that increased
laboratory testing does not enhance quality of patient care
and that there are no serious negative consequences with
the reduction in testing (52). A potential problem with su-
perfluous testing is that with a larger volume of informa-
tion to read and comprehend, a clinician may overlook the
more important and relevant test values.
Utilization and appropriateness. Utilization and appropri-
ateness issues are related. While utilization may have more
to do with frequency of testing, appropriateness is con-
cerned with the use of tests for the right patient in the cor-
rect setting for the proper monitoring and for diagnostic or
therapeutic reasons. Improving utilization has the ability to
reduce laboratory costs while precluding several unpleasant
alternatives such as rationing laboratory tests or eliminat-
ing some altogether (59). Several published studies illus-
trate types of possible changes by reviewing utilization and
appropriateness. In 2000, Jacobs et al. questioned whether
all trauma victims being admitted to the hospital required,
per hospital protocol, a complete battery of 11 laboratory
tests (25). To examine alternatives, trauma patients were
divided into two categories with established criteria: those
with defined severe injuries and those in whom severe in-
juries were unlikely. A team leader or attending physician
placed each patient in one of the two groups. Patients in the
severe injury unlikely group received only two laboratory
tests, while those in the severe injury group received five.
Evaluation after the three-month study period showed no
patient care problems, no change in quality of patient care,
and a cost savings for the organization.
Toubert et al. assessed possible overutilization or inap-
propriate use of various thyroid tests within their hospital
network (54). Thyroid test needs vary, whether for disease
screening, diagnosis, or monitoring. In a trial period subse-
quent to an information campaign, physicians were asked
to provide justification and clinical information if tests
other than thyroid-stimulating hormone were ordered.
The endocrinology staff collected and analyzed order
forms for appropriateness. With education and a require-
ment for justification, appropriateness of ordering was
increased by approximately 30% for most tests. At times,
studies involving multiple institutions may be suitable. In
the mid-1990s, Valenstein et al., working with the College
of American Pathologists and 601 institutions, assessed the
use of routine stool microbiology tests in the hospital set-
ting (57). Nearly 60,000 specimens were evaluated, leading
to the establishment of guidelines to limit routine bacterial
stool cultures to the first three days of hospitalization. In
a final example, panels of preoperative laboratory tests ap-
peared to have high usage with low yield and little change
in patient management (48). Studies at a variety of facili-
ties led to new guidelines based on patient age and history,
thus reducing automatic use of large preoperative panels
while not adversely affecting patient outcome.
It has been described in the past to be very difficult, if
not impossible, to change physicians’ test-ordering prac-
tices (28, 41, 45, 55). Physicians often have prior experience
with hospital “quality” programs under various guises and
may feel that, in the end, beyond “harassment” and poorly
disguised cost-cutting, little has occurred to improve pa-
tient outcome (9). For these reasons, it becomes impera-
tive to include clinical specialists and service leaders when
attempting to alter laboratory utilization patterns.
In spite of the reported past failures to modify physi-
cian test ordering, a plethora of articles has been published
containing salient points and methods to consider when
working with clinicians concerning utilization and appro-
priateness of testing. One hurdle to overcome is the use of
diagnostic testing to ostensibly reduce the risk of malprac-
tice liability (13). Analysis has shown that “defensive test-
ing,” as it is known, appears rational but is actually costly
and harmful to patients. The incremental knowledge
gained does not affect the course of treatment but more
often leads to misdiagnosis and inappropriate treatment.
Physician education and/or guidance offer the simplest so-
lution to this situation.
Importance of communication. Consensus between med-
ical staff and laboratorians can help effect positive change.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
Of primary importance are communicating and establish-
ing professional relationships. First, it is necessary to ex-
amine patterns of clinical thinking, clinical pathways, local
and national peer guidelines, preferred practice patterns,
and if available, clinician algorithms for decision making
(9, 37, 45, 55). This examination can lead to the establish-
ment of customized groupings of laboratory tests for vari-
ous specialties, which can provide quality results for the
lowest cost (e.g., hepatitis serology panel for acute hepatitis
and Epstein-Barr virus serology panel for acute mononu-
cleosis). Outdated tests may be eliminated, and sequential
protocol testing may be developed in line with diagnos-
tic algorithms (41). To facilitate actual change, validated
best-practice information has to be accepted by physicians
(20). Other helpful steps include having recurring meet-
ings with medical staff committees to explain policies, new
tests, or changes in protocol; publishing schedules or time
tables of particular assays; publication of practice guide-
lines; integration of the laboratory information system
(LIS) into clinician workflow; issuing handbooks (hard-
copy or Web-based); and education by clinical leaders or
respected peers (2, 6, 9, 42, 47). The laboratory physician
may also use consultation, interpretive reporting, cumula-
tive laboratory reports, and narrative or interpretive state-
ments about particular tests (55). Free-texting comments
may be necessary for some specific situations in which the
laboratorian needs to interpret or explain a unique report
in the LIS; however, for consistency, error-free reports,
and later data retrieval, standardized (canned) comments
should be created for more common reporting situations.
One laboratory created a Clinical Laboratory Informa-
tion Consulting Center, staffed by a medical technologist
and a clinical pathologist, which offers telephone consul-
tation during weekdays and e-mail or fax on weekends
(46). By providing information, interpreting testing, and if
needed, offering clinical advice, the center assists in com-
bating unnecessary testing while establishing relationships
with the medical staff. Another option would be to provide
individual feedback to family doctors as a routine health-
care activity (58). The purpose is to improve the quality of
test-ordering behavior. What is unique in this setting is the
use of thorough and comprehensive personal feedback over
the course of many years, not just in a temporary study set-
ting. Feedback is provided in a report by respected clinical
specialists and concerns both overuse and rationality (in
accordance with guidelines or standards). This system re-
quires enlisting experts to give feedback and a requisition
form that allows for basic input of patient clinical data.
Some institutions make use of the availability of more
sophisticated software programs to assist with ordering
compliance and appropriate test utilization (20). Essen-
tially these systems use information technology to en-
hance clinical decision making, allowing compliance to
increase reimbursement rates and timeliness in processing
495
of orders. As with the previously described solutions, the
software must be designed with cooperation leading to
mutual confidence. It must employ legitimate expert in-
formation, be monitored by specialists, and provide infor-
mation in real time while test ordering is occurring. In one
organization, the computerized order entry system utilizes
initial screen views designed to look like the paper order
forms they replaced (20). Indicator lists then guide the
clinician to lists of the most appropriate choices for test
ordering for the specific situation at hand. The system is
continually evolving as new procedures become available,
as professional guidelines are updated, and as the users
provide feedback.
The presence of house staff provides a unique envi-
ronment for influencing and training in optimal test or-
dering. Clinical service leaders, in cooperation with the
laboratory, can track frequency and volume of testing by
residents and use this as an instructive tool (55). One in-
vestigation found that education, peer review, and feed-
back were most helpful in combination to alter staff test
utilization (43). Part of the education concerned informa-
tion about the cost of tests, while the feedback showed
residents their own results of tracking the numbers of tests
per patient. Studnicki et al. also showed a reduction in the
number of tests exceeding frequency guidelines by using a
feedback system comparing resident test ordering patterns
to predetermined guidelines (52). Such feedback may also
be used for nonresident physicians. Feedback seems to be
most constructive when it contains cost-audit information
and shows clinicians how their test usage compares to that
of their peers (15).
Pharmacists and infection preventionists play a role in
selecting or recommending laboratory tests as well and,
when appropriate, should be consulted by the laboratory
for input (8). Not only may they order or recommend lab-
oratory tests pursuant to consult with a clinician, but they
also need to interpret and apply test results when making
recommendations concerning therapy or isolation precau-
tions. Their role as intermediaries between the laboratory
and clinicians should be used for any applicable evalua-
tions or studies.
The informational technology department can also be
a great asset in influencing ordering practices. Algorithms
can be applied to influence ordering of tests or in tracking
utilization. Schubart et al. studied the use of algorithm-
based decision rules to employ appropriate intervals for re-
peat testing for some commonly ordered laboratory tests.
For example, for serum potassium testing in their hospital,
application of the established algorithm allowed for a 34%
reduction in testing for the first five days of hospitalization
without a reduction in quality of care (44).
Even a model laboratory compliance plan can assist in
controlling redundant testing (29). With the passage of
the Health Insurance Portability and Accountability Act
496 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
of 1996 (HIPAA), and later the Medicare Integrity Pro-
gram, laboratory managers may now have legal liability
for inappropriate test utilization. The development of an
institution’s individual compliance plan is an occasion to
incorporate processes for tracking utilization and mak-
ing appropriate changes. The most successful plans should
define the roles of various departments in compliance
monitoring and tie the hospital laboratory to the compli-
ance office, usually with the use of the LIS. Commonly, LIS
records have the ability to show test usage rates and pat-
terns. Follow-up to potential compliance problems is best
affected by meetings with the nursing, physician, or other
staff involved. Through this venue, any noted opportuni-
ties for improvement in utilization can be discussed.
Recently, the federal government mandated that elec-
tronic medical records (EMRs) be implemented by 2014
and offered incentives, in the form of both rewards and
penalties, to help drive their adoption by physicians and
health organizations. The American Recovery and Rein-
vestment Act was legislated to provide a network of incen-
tives that could be directly resourced toward healthcare
professionals or physicians for adoption of EMRs by 2014.
Support for EMRs is based on the advantages that they
provide: benefits of securing patient information and low-
ering healthcare costs. Such records can be used rapidly to
monitor utilization and to correlate it to increased or de-
creased good patient outcomes, thereby affecting patient
management strategies.
Specimen Acquisition, Transport, and Storage
Requisition information. There has been a tendency in to-
day’s medical climate to place more emphasis on primary
care clinicians seeing more patients and fewer referrals
to the specialists or subspecialists. Often, this empha-
sis encourages the use of more diagnostic tests to ensure
high-quality patient care but decreases the time allocated
to evaluate the patient or to research diagnostic test rami-
fications. One of the laboratory’s primary responsibilities
is to ensure that adequate information is provided to the
clinician-client to make appropriate choices in specimen
collection and test ordering. CLIA regulations state that
the laboratory must establish and follow written policies
and procedures characterizing and describing each of the
following, when applicable:
• Patient preparation
• Specimen collection (routine vs. STAT)
• Specimen labeling, including patient name or unique
patient identifier and, when appropriate, specimen
source (some cases require more information; can be
modified as required)
• Specimen storage and preservation
• Conditions for specimen transportation
• Specimen processing
• Specimen acceptability and rejection
• Specimen referral
• Specimen reporting timelines
For each test offered, the laboratory must be able to
provide the appropriate collection materials and instruc-
tions together with adequate transport systems and suit-
able equipment to process and/or store the specimen (Fig.
26.1) (23). Additionally, the laboratory must document the
date and time of receipt of the patient’s specimen.
Specimen transfer to reference laboratory. When a speci-
men requires transfer to a reference laboratory, it is the
submitting laboratory’s responsibility to ensure that the
reference laboratory receiving the specimen is either
CLIA-certified or meets equivalent requirements as deter-
mined by CMS (33). When tests are to be referred to an-
other laboratory, all pertinent information should still be
provided to the clinician, including the destination of the
referred specimen. Written instructions should be avail-
able for the client to be able to get additional assistance
for unusual circumstances or special specimen handling
Figure 26.1 An example of information and instructions
in a laboratory users’ manual for collection and submis-
sion of specimens for evaluation of whooping cough.
doi:10.1128/9781555817282.ch26.f1
BORDETELLA CULTURE
(WHOOPING COUGH) [Includes B. pertussis and
B. parapertussis]
Specimen: Submit 2 nasopharyngeal swabs in Regan-
Lowe transport medium. Specimens should be stored
refrigerated until and during transport to the labora-
tory. Other transport media are not suitable for main-
taining the viability of pertussis organisms.
Method: Conventional Culture
Setup: Monday through Sunday
Available: Negatives 7 Days
CPT: 87081
Reference Ranges: None Isolated
Note: Cultures are not useful in adults. Serologies or
PCR studies should be considered. All positives are
called upon isolation.
Collection: Use a mini-tipped culturette to collect
2 nasopharyngeal swabs. The swab is gently inserted
through the nose to the posterior nasopharynx where
it is gently rotated. It should remain in this position
for several seconds. The withdrawal should be slow to
minimize irritation. Place in Regan-Lowe transport
medium. Specimens should be stored refrigerated
(2–8°C) until and during transport to the laboratory.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
situations. Instructions and testing schedules can be ob-
tained from manuals published by the individual reference
laboratories.
Mechanisms for problem identification and resolution.
For quality assessment and performance improvement,
the laboratory must establish and follow written policies
for an ongoing mechanism to monitor, assess, and when
indicated, correct problems identified in the preanalytical
testing phase. The preanalytical systems assessment must
include a review of the effectiveness of corrective actions
taken to resolve problems, revision of policies and proce-
dures necessary to prevent recurrence of problems, and
discussion of preanalytic systems assessment reviews with
appropriate staff. Furthermore, the laboratory must also
document all preanalytic systems assessment activities as
well as its attempts to modify clinicians’ ordering patterns
or behavior when consistent problems in specimen sub-
mission occur.
Test Ordering
Test requests may be received in a variety of ways but must
be in either written or electronic form and must originate
from an authorized person. Such authorization is pre-
scribed by state law and may vary from state to state. The
laboratory should encourage the clinicians to specifically
write in the orders for any add-ons they decide on at the
last minute. Oral requests for laboratory tests are accept-
able if followed within 30 days by written orders (21). The
laboratory must document its attempts to obtain written
authorization in cases where oral requests are not followed
by written ones in a timely fashion.
A detailed test requisition enables the laboratorian to
provide a higher caliber of service to the physician and
patient. Timely, accurate, and relevant results are attained
with a comprehensive requisition form. Additionally,
proper reimbursement is more likely to occur with this
type of form. The form must be easy for the client to com-
plete and must contain all pertinent information necessary
for proper result interpretation. Phone calls to verify any
missing or vague data severely consume resources from
both the laboratory and physician’s viewpoint. Therefore, a
considerable amount of time should be spent on develop-
ing a requisition format and educating clients in its usage.
Electronic test requests. Electronic requests are frequently
utilized in hospital settings where the laboratory informa-
tion system (LIS) is connected with either handheld de-
vices or stationary terminals that the medical staff may use
to order tests. Electronic test ordering systems are becom-
ing more common, even in off-site locations and clinics,
and in many instances can be designed to help guide phy-
sician test order choices. Such formats can include “care-
sets” for specific diagnoses, which list the appropriate tests
497
first and leave out the less desirable ones. The conventional
manually printed multicopy paper request form may still
be common in some facilities, such as clinics or clinician
offices, or when sending tests from one facility to another;
however, with today’s connectivity, electronic requests are
gaining popularity. Often, a physician will handwrite the
desired tests on a prescription pad (script) rather than use
a requisition. Such a practice should be discouraged, as
multipart requisitions or electronic orders are preferred to
scripts for a multitude of reasons. In any laboratory setting,
it is imperative to possess a down-time procedure for oc-
casions when the standard operating procedure cannot be
followed, such as with electrical or computer outages.
Test requisition. Typically, a written or electronic requisi-
tion consists of a demographics section and a test selection
section. The general information needed for the demo-
graphic section of a test requisition is depicted in Table 26.8.
If the laboratory transcribes or enters test requisition or au-
thorization information into a record system or a laboratory
information system, the laboratory must ensure that the in-
formation is transcribed or entered accurately. Requisitions
must include two unique identifiers such as the patient’s
name and medical record number, as well as the name and
address of the person authorized to request the test (21). It
is also recommended that a contact person and phone num-
ber be listed in case additional information is required or
when critical values require immediate notification.
All applicable diagnosis codes for the date of service
should be specified on the requisition. Diagnosis codes
are typically referred to as International Classification of
Disease (ICD) codes, which are published by the World
Health Organization. These codes not only help interpret
results, but may also be required for reimbursement by
third-party payors.
The evaluation of specimen stability depends on the
date and time of specimen collection. Some demographics,
Table 26.8 Demographic information needed on test requisitiona
Authorized person ordering test
Individual using test results (when appropriate)
Laboratory submitting specimen (with contact person for STAT tests)
Patient name or unique identifier
Patient sex and age (or date of birth)
Source of specimen (if appropriate)
Time and date of collection of the specimen (as needed)
Patient’s last menstrual period and indication of whether patient had
a previous abnormal report, treatment, or biopsy (for PAP smears
only)
Additional information that may be needed for specific tests to
ensure timely, accurate testing and reporting (with appropriate
interpretation)
a
See reference 21.
498 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
such as the patient’s sex, date of birth, and fasting state,
may affect patient reference ranges in certain procedures.
This information also ensures accurate patient identifica-
tion for appropriate billing and charting of laboratory tests.
The billing information required depends on how the
client has the account set up with the laboratory. The labo-
ratory can bill the patient, a third-party payor, or the client
(the client can then bill the patient or his or her insurance
provider), or a combination of payors. Thus, the Social Se-
curity number, patient home address, and patient phone
number may not be required if billing the client. Similarly,
insurance information may not be necessary. Laboratories
often print the most common tests and their test codes in
the test-request section of the requisition for user conve-
nience. Not only specific tests, but test panels can be pre-
printed on the requisition. However, due to compliance
issues, it is the responsibility of the laboratory to educate
the client that, although there is a panel or test preprinted
on the form, the option to order any panel or component
separately is still available.
The test selection section should include an area to in-
dicate the specimen site or source. This is especially true
when handling anatomic pathology or microbiology spec-
imens. In such situations it is also imperative to know the
type of procedure that was performed and the nature of the
disease. For PAP smear testing, CLIA ’88 requires inclu-
sion of the date of patient’s last menstrual period, age or
date of birth, and indication of whether the patient had a
previous abnormal report, treatment, or biopsy.
Other information that should be included on a test
requisition includes notation of any medications the pa-
tient may be on, symptoms or suspected diagnosis or or-
ganism, antibiotic allergies (where pertinent), priority of
testing (e.g., STAT), and copy-to instructions for addi-
tional reports where needed.
Advanced beneficiary notice. The CMS developed a new
advanced beneficiary notice (ABN) form in 2002. The
new ABN is intended to provide a standardized form that
results in more effective communication to beneficiaries.
For limited-coverage laboratory tests that Medicare is ex-
pected to deny, an ABN form must accompany the test
request. Patients have the option to ask for an estimated
cost and may decline testing if they choose (which is doc-
umented on the ABN). An ABN does not take the place of
a test requisition.
Local Medicare carriers disseminate specific instruc-
tions on when and how to order screening tests. If these
specific tests are ordered more often than is medically
necessary as indicated by CMS guidelines, the benefi-
ciary may be held responsible for payment. However,
the same test that is used for screening purposes may
also be used as a diagnostic tool if specific symptoms
or diseases are present. Medicare will cover this testing
when the diagnosis codes provided support the necessity
requirements.
Postanalytic Activities
The postanalytic phase refers to all steps taken after actual
testing is performed on a patient’s specimen. It includes
the reporting of test results, report review, result archiving,
and specimen storage, as well as assessment of all postana-
lytic activities (Table 26.9).
The Report
Although the laboratory should release results only to au-
thorized people or the individual responsible for utilizing
the test results, some state regulations allow reporting di-
rectly to patients (e.g., Arizona). The reports can be sent
through a variety of means, including verbal, written, or
electronic. Clear processes must be in place to allow timely
reporting of preliminary, interim, or final reports. Writ-
ten procedures for reporting of results exceeding normal
values (STAT or critical) must be published and clearly un-
derstood and followed by laboratory personnel. Any such
reporting must have documentation of when, where, to
whom, and what was reported.
Report turnaround time. The caregiver should have avail-
able the expected turnaround time (TAT) for a report to be
generated from the time the specimen is collected. It is the
laboratory’s responsibility not only to make available the
TAT information for all tests, but to periodically monitor
TAT to determine that reports are being sent without ex-
cessive delay and that there are no problems in the process.
When excessive TAT is confirmed, corrective action (CA)
must be initiated, and all steps in the CA process must be
documented. If any delay occurs beyond the expected TAT
for any test, the laboratory must have a process in place to
notify the clinician of the status of the specimen.
Table 26.9 Areas that should be reviewed or evaluated in quality
assessment of postanalytic systemsa
Effectiveness of corrective actions
Procedures and policies to prevent recurrences
Accuracy and completeness of test results and reports
Disposition of unacceptable specimens
Turnaround times
Referral specimens and their reports
Corrected reports
Procedures for notification of test results, including for STAT situations
For analyte-specific reagents, test reports should include information
necessary for proper interpretation of results, including disclaimers
as needed
Ensure confidentiality of patient information
a
See references 14 and 21.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
Types of reports. The main means used for reporting
laboratory results are EMR, Web-based reports, and stan-
dard paper reports. Although somewhat infrequently used
now, paper reports will likely survive for a period of time as
backup systems in the event of electric or computer down-
time. With the EMR, laboratory data are transmitted to a
hospital information system (HIS) and are integrated with
patient demographic information, providing integrated
reports for in-house patients. When available, Web-based
reports have the advantage of multiple access points, and
clinicians can access them from any Internet connection.
Web-based and EMR reports must be validated initially
and periodically to verify that the information transmit-
ted is being translated accurately and in the approved
format. Ultimately, regardless of how many or what types
of computer systems or networks results travel through,
the laboratory must ensure that results get to the autho-
rized person who will act on the results in an accurate and
timely manner.
Results format. The standard test report must include the
name and address of the laboratory at which the test was
performed, the test that was performed, the test results
(including the unit of measurement, if applicable), any
information regarding the condition and disposition of
specimens that do not meet the laboratory’s criteria for ac-
ceptability, as well as the laboratory’s reference or normal
ranges for specific tests, if applicable. If the latter is not in-
cluded on the report, it must be available to the authorized
person who ordered the test or to the person responsible
for utilizing the test results.
It is also the responsibility of the laboratory to make
available to clients a list of test methodologies, including
any information regarding interpretation of test results.
Any changes to this testing information that would affect
results or interpretation of results must be communicated
to physicians. For tests using analyte-specific reagents or
test systems not FDA approved for use on patients, dis-
claimers reflecting such status must be added to reports.
The disclaimer statement may read, “This test was per-
formed using a kit that has not been cleared or approved
by the FDA. Performance characteristics of this test have
been determined by (laboratory name). This test should
not be used for diagnosis without confirmation by other
medically established means.” The FDA has further clari-
fied that testing systems labeled by manufacturers as being
for “research use only” should not be used for decisions
in actual patient care, and reports based on such testing
should have the appropriate disclaimer attached; testing
performed for “research” purposes is not reimbursable by
Medicare. Additional “value-added” textual comments can
be added to reports to help the clinician interpret results
or to better understand how to use the results appropri-
ately (Fig. 26.2) (36). Although free-texting allows greater
499
flexibility in comment writing, it also provides a greater
potential for errors and a lack of standardization of re-
sponses to specific, commonly encountered situations.
Thus, predetermined (canned) and standardized com-
ments are preferred in such cases.
The reports should be easy to read, unambiguous, read-
ily interpretable, and use standard terminologies. Studies
on a variety of surgical pathology reports found that subtle
nuances in wording of the diagnosis and comment lines
could be significant if misinterpreted (22). They stressed
using redundancy (restating what might seem obvious)
and avoiding certain ambiguous words.
Quality assessment and corrected reports. The laboratory
must have a process in place to monitor and evaluate its test
results and reports for inconsistencies and inaccuracies.
Such evaluation must include a review of patient test re-
ports for completeness of patient information, accuracy of
test results, normal ranges, correlation between test results,
validation of LIS reports to verify accurate transmission
and/or transcription, and review of corrected reports (21).
There must be a mechanism for correcting an erroneous re-
port and identifying the new report as one that is corrected
while maintaining both reports in the patient’s record.
Storage and Retention
Regulatory constraints require that the laboratory have
processes and procedures for the retention and storage
of specimens and records. Storage regulations may differ
between various agencies (Table 26.10). Individual state
laws are typically more stringent than those of the federal
government or other agencies. In any case, the labora-
tory should follow the more stringent regulations, which
should be reviewed periodically to ensure they are current.
Specimens. A sample list of specimens that have to be
stored is given in Table 26.10 (11). A procedure should
be in place for their retention based on the most stringent
regulatory requirements for the individual laboratory.
Records. Typically test requisitions and reports must be
stored in a retrievable fashion for a minimum of two years.
Some records, especially in areas of immunohematology
(5 years), histocompatibility (5 years), histology (10 years),
cytology (10 years), bone marrow (10 years), and cytoge-
netics (25 years), may require longer retention periods (11).
In this litigious era, many laboratories are opting to hold
records and documents for longer periods of time. Record
retention is made easier if electronic copies are used.
Assessment of Test Results on Patient Outcomes
Outcome analysis. The science of outcome analysis has
been in common use by physician, nursing, and phar-
macy staffs for many years. However, only recently has it
500 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

MICROBIOLOGY/INFECTIOUS DISEASES
• Coagulase positive staphylococci are rare causes of primary UTI. In the absence of catheterization, such infec-
tions may originate via hematogenous dissemination from another source.
• Methicillin (penicillinase-R-penicillin) resistance in Staphylococcus species infers resistance to all other penicillins,
beta-lactamase inhibitor combinations, cephalosporins and carbapenems.
• A characteristic of the Streptococcus anginosus group is its frequent association with abscesses. When these or-
ganisms are isolated from the blood, the possible presence of an abscess should be considered.
• Presence of this organism at this site is not indicative of its role as a cause or contribution in an infectious pro-
cess, and may not require specific therapy.
• Plasmodium spp. seen: Unable to rule out Plasmodium falciparum or P. knowlesi.
• Entamoeba histolytica/E. dispar: Differentiation between the pathogen E. histolytica and the nonpathogen E. dispar
not possible based on organism morphology.
SEROLOGY/IMMUNOLOGY
• Antibodies to cardiolipin have been found in a subgroup of patients with autoimmune disorders as well as in
some patients with myocardial infarction and acute and other infections, including syphilis and AIDS.
• IgG and IgA cardiolipin antibodies have been associated with thrombocytopenia, arterial and venous throm-
bosis and recurrent fetal loss with the predictive value and specificity increasing with the level of cardiolipin
antibodies.
• IgM cardiolipin antibody is predominately found in association with infections unless a lupus anticoagulant is
also present.
CHEMISTRY
• In addition to congenital Protein C deficiency, decreased Protein C activity can be seen in association with Vi-
tamin K deficiency, severe liver disease, nephrotic syndrome, disseminated intravascular coagulation and other
disease states where consumption is increased. Decreased Protein C activity is also seen in patients on Warfarin
therapy or oral contraceptives.
• A low ratio is indicative of activated protein C resistance due to a factor V gene mutation. This could be con-
firmed by ordering a Factor V Leiden (PCR) assay. Note that the presence of inhibitor activity (e.g. phospho-
lipid antibodies or a specific factor inhibitor) may cause an abnormal APCR result.
• Specimen is grossly hemolyzed. The following results may be affected: increase in glucose, potassium, ALT,
AST and total bilirubin; decrease in alkaline phospatase. Suggest recollection if clinically warranted.
URINALYSIS
• Color interference noted- may affect the result of the dip stick tests.
• Unable to read due to color of urine.
HEMATOLOGY
• Analyzer counts may be inaccurate due to platelet clumping; suggest redrawing in citrate tube.
• Platelets clumped on smear, invalidating results.
COAGULATION
• Proteins C and S results may be falsely decreased due to coumadin therapy.
• Specimen is hemolyzed and may cause shortened PT and APTT results. Evaluate results with extreme caution.
• Findings suggest the presence of a platelet autoantibody. Recommend obtaining a direct platelet antibody test
for confirmation.

Figure 26.2 Sample list of textual “value-added” comments attached to specific laboratory reports.
doi:10.1128/9781555817282.ch26.f2
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
Table 26.10 Example of specimen retention requirements by regulatory agency
Specimen
Body fluids, CSF, serum
Bone marrow smears
Fine-needle aspirates
Histology slides
Negative or unsatisfactory cytology slides
Normal blood films, body fluid slides
Paraffin blocks
Positive/questionable cytology slides
Wet and formalin-fixed tissue
gained importance in the laboratory as regulatory agen-
cies focus on laboratory-associated patient safety and
outcome issues (53). In its 1996 Comprehensive Accredita-
tion Manual for Pathology and Laboratory Services, TJC
defines quality to include outcomes: “the degree to which
patient care services increase the probability of desired
patient outcomes and reduce the probability of undesired
outcomes, given the current state of knowledge” (27).
More recently, the Affordable Care Act has elevated the
importance of outcomes by focusing on their application
to payment by CMS, with organizations being either re-
warded or penalized depending on the outcomes in their
patient populations. The concept of accountable care or-
ganizations (ACO), with single payments for the overall
medical care of individual patients over time, has further
increased the importance of measuring outcomes so as to
implement strategies to improve care.
Measurable outcomes. Generally, measurable outcomes
are defined in two areas: clinical and financial. Clinical
patient outcomes, as a result of medical care, relate to the
patient’s functional status, health status, and quality of life
(7). Measures that are often used for outcomes are familiar
to those in the hospital setting: length of stay, mortality,
morbidity, infection rate, complication rate, readmission
rate, and others. Case management and quality manage-
ment departments are good sources of quality indicators
and measures of performance typically used across in-
stitutions and within their statistical analyses. Financial
outcomes may concern costs to the patient, a particular
department within the healthcare institution, the institu-
tion itself, the insurer, or even society at large. One author
suggested that all tests offered by the laboratory need clini-
cal trials with outcome result studies to show whether they
are valid or not (35). Such studies become even more rel-
evant with the focus on population health management,
on chronic disease, and on preventive care and wellness
with the potential growth of ACOs.
501
Retention period required by:
CAP CLIA TJC
24 hours
10 years 20 years
10 years
10 years
5 years 5 years 5 years
7 days
10 years 2 years 2 years
5 years 10 years 5 years
2 weeks 7 days
Outcome studies. Outcome studies may take a narrower
perspective in the laboratory. In simpler terms, the ques-
tion may be posed, “When the laboratory reports a specific
result for a specific patient for a particular test reported
in a specific way, what is the clinician response and sub-
sequent change (if any) in patient management?” Actions
taken from the more limited focus will, of course, have an
effect on the larger measures described above. It may be
said that the only true assessment of the quality of labora-
tory testing is reflected by the quality of patient outcomes
(41). The laboratory must come to be seen as playing an
integral role in patient management rather than be viewed
as an “ancillary” department. The clinical laboratory’s con-
tributory role is already crucial in antimicrobial steward-
ship programs and in prevention of hospital- or healthcare
facility–acquired infections. Ultimately, various studies
may lead to new roles for the clinical laboratory (5, 7).
Such roles should include expansion of direct participation
in patient care and in contribution to clinical care consen-
sus groups.
As with test evaluation, ideas for outcome studies may
arise from technical coordinators, technical specialists,
clinical laboratory scientists (bench technologists), tech-
nical directors, or laboratory/department directors. They
may be pursuant to articles read in the literature or discov-
eries made during an annual budget review or subsequent
to discussion with a clinician or other staff member. Many
good studies focus on a targeted clinical service, such as
pharmacy (4, 5, 53). A multidiscipline team is usually
needed to gather all necessary information and complete
the analysis. The team may include, as needed, but is not
limited to, nursing, pharmacy, case management, labora-
tory, epidemiology or infection control, clinical special-
ists, statisticians, information technology, medical records,
and finance and legal departments. Data may be derived
from medical records, LIS, pharmacy IS, billing/charge
databases, patient account databases, quality improve-
ment studies, and satisfaction survey systems. Generally,
502 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
information systems are used as well in radiology, respira-
tory care, dietary, operating room, and other departments
and can provide valuable information for studies.
For example, in a published study, Barenfanger et al.
sought to examine the impact of a program used to im-
prove interventions involving antibiotic therapy (4, 5).
The manual, paper-based method of pharmacy review was
compared with a system using a computer software pro-
gram that linked immediately to the pharmacy in cases of
alerts for possible intervention. Alerts could show patients
with a bacterial isolate and no order for antimicrobial
therapy, patients with a bacterial isolate resistant to their
current therapy, patients receiving a therapy not tested, or
patients with no cultures collected but who were receiving
antimicrobial therapy. For the group of patients with alerts
generated by the computer software program, the physi-
cian received more rapid notification of the information
in the intervention. Analysis showed that this group had
significant differences in lengths of stay, total costs, vari-
able costs, and radiology costs.
Other institutions have had success with comparable
programs (18, 49). Some laboratories may have sophis-
ticated algorithms available to search for, among other
situations, suboptimal therapy or use of intravenous an-
timicrobials when an oral agent might be substituted.
This system and others can provide savings by keeping
antimicrobial costs down but, more importantly, have
been shown to reduce length of stay, days of intubation,
number of subsequent laboratory and radiology tests, and
days in intensive care for many patients (3). In almost all
instances, multidisciplinary teams oversee interference or
outcome evaluation programs.
In a second example, Kollef et al. worked with the mi-
crobiology department in a study involving ICU patients
who were mechanically ventilated (30). Ventilator-asso-
ciated pneumonia (VAP) can be a significant factor in the
mortality of critically ill patients. By collecting mini-BAL
cultures, the researchers hoped to determine the best
strategies for administration of antibiotics to improve
outcomes of the patients with VAP. From their data, they
were able to confirm the findings of earlier investigators
and develop recommendations for the empiric treatment
of VAP.
The College of American Pathologists has developed a
series of patient outcome templates—education-based in-
formation tool sets to assist member pathologists in setting
up outcome measurement studies at their institutions (12).
Each template set contains several modules: a set of text
pages reviewing a particular disease, references, a table of
applicable indicators for outcome measures, and a Power-
Point presentation with tables, charts, and cost-saving
models. For example, one template works with the under-
utilization of lipid analysis in identifying patients at risk
for coronary artery disease. Additional tools such as these
templates will be emerging as laboratories become more
routinely involved in patient outcomes.
Summary
The clinical laboratory has an expanding role in today’s
healthcare setting. It must, first and foremost, provide ac-
curate and timely, quality-minded, appropriate analytical
testing to help clinicians diagnose and manage medical
conditions in patients. It must also recognize its respon-
sibility to provide the overall guidance for appropriate test
utilization and result interpretation and to assess the im-
pact of its results on patient outcomes. As such, the labora-
tory is becoming more of a team player and participant in
overall patient management. To fulfill its role adequately,
the laboratory must outline, measure, and document the
processes needed for all phases of work performed; it must
be especially cognizant of the crucial role of preanalytic
and postanalytic activities in the provision and applica-
tion of its accurate, quality-assured, and cost-effective end
products. Laboratory professionals must provide services
that help physicians focus their test selection. They must
also convey and connect the importance of patient prepa-
ration and identification with patient safety and improved
outcomes to all levels of care givers. Clinical laboratory
professionals will need to explain, interpret, and relate re-
sults to patient care and outcomes. As laboratory profes-
sionals extend their expertise and attention to the pre-and
postanalytical phases of their services, one may see im-
proved quality of laboratory testing.
KEY POINTS
■ Preanalytic activities include, but are not limited to, test
selection, implementation, appropriate utilization, and
ordering, as well as specimen collection, transport, and
storage.
■ Postanalytic activities include, but are not limited to,
reporting of results, storage and retention of specimens
and information, and assessment of the effect of test re-
sults on patient outcomes.
■ Preanalytic and postanalytic activities are crucial to ac-
curate laboratory results and to their appropriate inter-
pretation for patient care.
■ Effective laboratory test menu formats and comprehen-
sive listing enhance appropriate test ordering.
■ Adequate explanation and interpretation of result re-
ports is important and can greatly influence patient
care and outcomes.
■ The role of the clinical laboratory includes assessment
of the effect of its results on patient care and outcomes.
 CHAPTER 26. PREANALYTIC AND POSTANALYTIC TEST MANAGEMENT
GLOSSARY
Accountable care organization (ACO) A healthcare organiza-
tion characterized by a payment and care delivery model that
seeks to tie provider reimbursements to quality metrics and re-
ductions in the total cost of care for an assigned population of
patients.
Affordable Care Act (ACA, 2010) A series of reforms to health
insurance designed to increase the availability of health insur-
ance policies to individuals.
Analytic activity Pertaining to actual performance of a test pro-
cedure on a specimen.
Analyte-specific reagents Defined by the FDA as “antibodies,
both polyclonal and monoclonal, specific receptor proteins, li-
gands, nucleic acid sequences, and similar reagents which,
through specific binding or chemical reaction with substances in
a specimen, are intended to use in a diagnostic application for
identification and quantification of an individual chemical sub-
stance or ligand in biological specimens.” (21 CFR 864.4020)
Centers for Medicare and Medicaid Services (CMS) Primary
federal body responsible for the oversight of clinical laboratory
activity and licensure. In the United States, the CMS regulates all
nonresearch laboratory testing performed on humans through
the Clinical Laboratory Improvement Amendments (CLIA).
Clinical Laboratory Improvements Amendments of 1988
(CLIA ’88) Passed by Congress in 1988 to establish quality
standards for laboratory testing and to ensure the accuracy, reli-
ability, and timeliness of patient test results. Laboratory tests are
categorized as being waived, moderate complexity, or high com-
plexity. Laboratories performing tests in the latter two catego-
ries have to register and comply with a set of regulatory rules to
become certified (licensed). In 2003, a final rule was issued in
the Federal Register that defined some new regulations and
changed the categorization of tests into two categories (waived
and nonwaived tests).
Clinical laboratory scientist The title designation for individu-
als that perform laboratory testing on patient specimens.
Current procedural terminology code (CPT®) Test codes rec-
ognized by the American Medical Association and required for
filing claims and billing to Medicare.
Direct access testing (DAT) Generally defined as consumer- (as
opposed to physician-) initiated testing of human specimens.
DAT is also known as direct-to-consumer or patient-authorized
testing.
Electronic medical record (EMR) A medical record in digital
format.
Food and Drug Administration (FDA) Federal agency respon-
sible for the oversight of commercial tests and for their approval
and licensure for use in clinical health laboratories.
Health Insurance Portability and Accountability Act (HIPAA)
The U.S. Department of Health and Human Services issued the
Privacy Rule to implement the requirement of the Health Insur-
ance Portability and Accountability Act of 1996.
503
International Classification of Diseases (ICD) A healthcare
classification system that provides codes to classify diseases and
a wide variety of signs, symptoms, abnormal findings, com-
plaints, social circumstances, and external causes of injury or
disease.
Negative predictive value Probability that a negative result indi-
cates absence of disease or analyte.
Pareto principle (80/20 rule) Used in many industries, it states
that 80% of an entity’s total revenues are produced by 20% of its
products.
Path of workflow Combined sequential activities in the labo-
ratory, beginning with a clinician’s ability to order a test and
culminating in data being generated and reported for use in
patient care.
Positive predictive value Probability that a positive result indi-
cates presence of disease or analyte.
Postanalytic activity Pertains to the period after the actual test-
ing of a specimen and includes phases such as reporting of re-
sults, storage and retention of specimens and data, and assessment
of effect of results on patient outcomes.
Preanalytic activity Pertains to the period prior to actual testing
of a specimen and includes phases such as test selection and im-
plementation, appropriate test utilization, specimen collection,
transport and storage, as well as test ordering.
Procedure/protocol A prescribed way to carry out a diagnostic
test or other activity.
Process Systematic course of definitive actions or activities cul-
minating in a desired end product.
Research use only A product that is not FDA approved for gen-
eral diagnostic purposes and is labeled by the manufacturer for
testing in the initial research phase of product development.
Sensitivity The ability of a test to detect a condition (# with con-
dition testing positive ∕ # having the condition × 100 = percent
sensitivity).
Specificity Ability of a test to define a true condition (number
without condition testing negative ∕ total number without condi-
tion × 100 = percent specificity).
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Introduction
27
Defining the Laboratory’s Requirements
Selection and Implementation of
Technical/Performance Considerations New Equipment and Procedures
Physical/Technology Requirements
Human Resources
Paula Revell and Lakshmi Chandramohan
Financial
Confidentiality and Conflict of Interest
Information Review
Implementation and Product Placement OBJECTIVES
Verification and Validation
To establish the requirements that mandate acquisition and implementation of
Verification • Validation
new equipment or procedures
Personnel Competency Assessment
and Training To list the practical considerations involved in the selection and
Proficiency Testing
implementation of new equipment or procedure(s)
Summary To describe the preevaluation and information gathering stages of planning,
KEY POINTS
selection, and decision making
GLOSSARY To review the process of implementation of new equipment or procedures
REFERENCES

He that will not apply new remedies must expect new evils; for time is the greatest
innovator.
Francis Bacon, Essays, II, On Innovation

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch27
T
o offer the best possible care for the patients they serve, clini-
cal laboratories are in constant need of newer and more efficient di-
agnostic testing methods. The acquisition of new equipment and/or
diagnostic procedures is an important factor in this constant quest for quality
improvement. The primary driver for the acquisition of new equipment and/
or implementation of new procedures is this ever-present need to offer the
best possible quality of patient care. The constant demand to improve quality
patient care is, however, often combined with limited available resources and
pressure to reduce testing costs. A critical mistake during the selection pro-
cess not only impacts the organization’s financial resources but also affects the
workflow, staffing, and turnaround times and can result in less than optimal
patient care.
The selection of new laboratory equipment or procedures is complex and
time-consuming. Faced with changing clinical needs and limited financial re-
sources, laboratorians must make difficult choices about which new equip-
ment, technology, procedures and assays, or combinations of these to acquire
and implement and how to incorporate them into their diagnostic laborato-
ries. The choice of which to buy may be further confused by conflicting advice
and persuasive salesmanship, as well as the rapidly changing policy environ-
ment. The selection process calls for a clear understanding of the principal
need for the acquisition of the new equipment, and the selection process must
be carried out in an objective manner, taking into account the practicality, reli-
ability, and fitness for purpose with input from potential end users, clinicians,
and management teams.

506
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES
Some common scenarios that lead laboratorians to
initiate the selection process include replacement of old
equipment because it is no longer able to meet the labora-
tory’s clinical needs, has become excessively expensive to
maintain, and/or is no longer supported by the manufac-
turer and the need to acquire new technology that provides
the laboratory with opportunities to improve the quality of
patient care by expanding or updating the test menu (10).
Every laboratory has its unique requirements. Since there
is no “one size fits all” approach, there are no official guide-
lines or regulations to guide laboratorians in this decision-
making process. This chapter will serve as an overview of
the important considerations involved in the selection and
acquisition of new equipment and the implementation of
new procedures in a diagnostic laboratory.
For any purchase or implementation, it is imperative to
look at the big picture. Caveats to be considered include (i)
Does the introduced change provide information of signifi-
cant clinical utility to the clinicians and patients? (ii) Does
it facilitate the recapture of resources and generate long-
term and short-term cost benefits? (iii) Will this acquisi-
tion interact with other technology or personnel within the
laboratory? And (iv) how will future upgrades, expansions,
or consolidations be impacted by it? Other factors that will
play a vital part in the selection process are current and pro-
jected test volumes, instrument flexibility and throughput,
laboratory information system (LIS) and infrastructure re-
quirements, impact on staffing, and maintenance (8).
The introduction of new equipment or procedures into
the routine clinical laboratory is a three-stage process that
involves (i) planning and selection, (ii) method verification
and validation, and (iii) implementation and continuous
monitoring of the performance (9). The majority of this
chapter will focus on the selection and decision-making
process involved in introducing new equipment and/or
procedures and will briefly review the other two processes.
Defining the Laboratory’s Requirements
Prior to the acquisition or implementation of any new di-
agnostic equipment or assay it is critical that the laboratory
define exactly what is driving the potential process change.
New processes or procedures can offer tremendous bene-
fits ranging from improved workflow to increased volume
and throughput to increased efficiencies that lead to cost
savings; however, the lab may fail to achieve these benefits
if the specific problems are not well defined. With the in-
creasing arsenal of diagnostic options today, it becomes
imperative to ask the right questions during the planning
and selection process. The definition of the laboratory’s re-
quirements depends on what the clinical needs are now as
well as what is planned for the future. Some examples of
factors that may drive process change include but are not
limited to the following:
507
• Changing clinical needs of the community served by
the laboratory, for instance, change in the prevalence
of local diseases or new patient populations with
unique testing needs. For example, the opening of a
maternity center that adds a new patient population
focused on labor and delivery will require that the lab-
oratories serving this center implement a process
change to accommodate the center’s clinical needs.
• New guidelines or recommendations for diagnostic
testing by agencies such as the Centers for Disease
Control and Prevention (CDC) (http://www.cdc.gov/
labstandards/, accessed September 25, 2012) and the
World Health Organization (http://www.who.int/en/,
accessed September 25, 2012), e.g., the CDC’s recom-
mendations for an alternative HIV diagnostic testing
algorithm in 2010.
• Emergence of new and promising technologies (in-
strumentation or procedures) with better testing ac-
curacy, improved clinical performance, reduced cost
per test, and multianalyte testing, e.g., converting end
point PCR-based testing to multiplex real-time PCR-
based assays.
• A need for improved turnaround times for critical tests
that in turn produces quicker diagnosis and timely ini-
tiation of therapy, e.g., testing for neonatal central ner-
vous system infections caused by herpes simplex virus.
• Clinician’s interest in providing tests that have im-
proved diagnostic confidence as a result of improved
feasibility and interpretability, e.g., introducing tests
that the clinician can easily interpret with reduced fre-
quency of indeterminate results.
Once you establish the drivers or needs that mandate
acquisition and implementation of a new instrument or
procedure, you must gather both objective and subjective
information to facilitate the decision-making process. The
following section will attempt to provide a comprehensive
list of practical considerations that may be important fac-
tors in choosing the best instrument or assay for a specific
laboratory or a group of associated laboratories.
Every laboratory is unique, with various different aspects
driving the acquisition of new platforms or the implemen-
tation of new assays or procedures. Discussed below and
listed in Table 27.1 are potential factors to consider; how-
ever, due to the varying needs of each individual lab, this
list is not intended to be a universal fit for all data collection
prior to choosing or implementing a platform, but rather
is a starting point from which managers and directors can
begin gathering relevant information to aid in making the
most informed and educated decision possible. The follow-
ing sections describe in detail several of the objective and
subjective considerations for which information should be
collected to aid in the decision-making process.
508 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 27.1 Factors to consider prior to the acquisition of new equipment or implementation of new procedures
Technical/Performance Consideration Physical/Technology Requirements
Specimen types Labor space requirement
Specimen volumes Power
Test menu Can current power supply support the platform?
Current menu Requirements for additional or backup power
Expansion capability and history of vendor offering new assays Data
as planned On-board data management
Turnaround time/batch size Linking with lab automation systems
Time from sample loading to result reporting Plumbing/water system
STAT result capability for some/all tests offered External plumbing
Batch processing capability for specimen testing and/or Waste disposal system
reporting Temperature/humidity requirements
Random access Requirements for additional ventilation and air conditioning
Operational throughput
Maximum capability of testing offered per shift or per day Human Resources Requirements
On-board time Staffing
Open vs. closed platform Workflow
LIS interfacing capability (bidirectional, ease of maintenance) Running the assay all shifts
Assay performance Hands-on time
Sensitivity and specificity Ease of use
Assay precision, accuracy, and linearity Complexity of operation
Regulatory clearance/approval Ease of troubleshooting
FDA cleared/approved assays Error alerts (audio/visual)
Complexity of offered testing Training requirements
Control availability Off-site/on-site training
Available from the manufacturer Number of staff that can be initially trained
Control usage and type if supplied Future training of staff available with/without charge by vendor
QC tracking programs
Proficiency testing Financial Considerations
Instrument cost
Cost of operation
Cost per result
Warranty
Maintenance contract
Other costs (consumable and disposable costs, software require-
ments, reimbursement)

Technical/Performance Considerations • Test menu. What assays/tests are offered on a platform?

• Specimen type. For example, whole blood, CSF, serum,
plasma, etc. This factor is critical in terms of the flex-
ibility of various platforms or assays; a platform with
limited specimen flexibility will have limited flexibility
in routine laboratory operations. Additionally, it is
critical to consider what specimen types are currently
being used for a given assay if the laboratory is transi-
tioning to a new platform or assay rather than bringing
in something new. Education regarding new specimen
type requirements will be an essential aspect of imple-
mentation if there are new specimen requirements.
• Specimen volume. What are the minimum and maxi-
mum volumes required to run the assay? This volume
should include the dead volume and can be an issue
particularly for pediatric specimens and short collec-
tions. The sample volume requirement can also be an
issue for shared specimens or limited-volume speci-
mens such as CSF and pleural fluid.
Does the platform offer multiple test options and thus
increase the flexibility and growth potential? This is an
important consideration given the decreasing budgets
of many modern laboratories; by offering multiple as-
says on one platform the laboratory can often increase
efficiency and decrease reagent cost due to volume-
based purchasing of reagents.
• Turnaround time/batch size. What is the total elapsed
time from sample loading to reporting results? Are STAT
results needed for some or all of the tests offered on the
platform? Are specimens tested in a batch capacity, and if
so, what are the batch sizes? Does the platform offer truly
random-access testing or partially random access test-
ing? Some platforms claim a “random access” feature, but
there may be limitations such as the inability to interrupt
a batch run to perform a different test type or run a dif-
ferent sample type. Are the results continuously reported,
or are results reported in a “batch” format?
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES
• Operational throughput. What is the maximum ca-
pacity of testing offered per shift or per day? The
throughput incorporates multiple variables including
the number of samples that can be loaded onto the
platform at one time and the total “onboard time” for
any given sample. For example, a completely random
access platform with a single reaction chamber and
an onboard time of 2 hours would have a throughput
of 12 tests/24 hours. Other variables that can influ-
ence throughput include the “hands-on time” for
sample preparation and the time required to load
the samples onto the platform. The throughput may
change for various combinations of specimen types
or assays, and all potential profiles should be consid-
ered. It is important to consider not only whether the
throughput will meet existing needs, particularly at
peak demand, but also whether it will allow for po-
tential future growth.
• Open vs. closed platform. Does your laboratory have
any plans for internal assay development? Some plat-
forms allow for laboratory test development, while
others only allow vendor-specific assays and reagents.
• Available interface. Does the system interface effec-
tively with any laboratory information system (LIS),
and if so, is the system compatible with your laborato-
ry’s LIS? The ability to directly transfer results from the
testing platform to the LIS and to avoid manual data
entry is a critical factor in terms of improving patient
safety through accurate result reporting.
• Assay performance. These factors represent objective
measures of an instrument or assay, such as preci-
sion, accuracy, linearity, sensitivity, and specificity. It
is important to know how the numbers reported by
the vendor were determined. During the evaluation
period the laboratory must verify the performance
of these objective measures through the validation
process. Laboratories need to be aware of both the
analytical performance (usually reported by the
manufacturer) as well as the clinical performance,
which is much more difficult to determine. The
specific needs of your patient population should be
considered.
• Regulatory clearance/approval. The Food and Drug
Administration (FDA) regulates all medical devices,
and platforms and assays fall under this umbrella. It
is critical to understand the specific classification of
the instrument or assay you are considering for your
laboratory. Most platforms must be FDA cleared to
be marketed in the United States; however, there is
much more variability regarding commercially avail-
able assays. Assays can be considered for research
use only, analyte-specific reagents, FDA cleared, or
FDA approved. FDA clearance indicates the establish-
ment of analytical performance for the assay by the
509
manufacturer when the assay is performed exactly
as described in the package insert. FDA approval
indicates that not only analytical performance char-
acteristics have been established, but also clinical
performance characteristics. FDA-approved assays
are much less commonly available; examples include
RNA viral load assays for HIV and hepatitis C virus,
as well as others. FDA-cleared assays are also given
an additional designation regarding the complexity
of testing. “Waived” tests are considered the simplest
and can be run as point-of-care assays; additional
designations include moderate-complexity and high-
complexity tests. The designated level of complexity
significantly impacts who in the laboratory can per-
form the various assays.
• Control availability. Many vendors sell controls, and
thus availability is not an issue; however, this is an im-
portant factor to consider because for certain assays
controls are not available commercially, and thus issues
such as consistency and reliability can become limita-
tions to assay performance.
Physical/Technology Requirements
• Space requirement. What are the physical specifica-
tions of the equipment, including size and weight,
and how will the instrument fit in the laboratory
and within any existing workstations if applicable?
Additionally, it is important to consider not just the
physical footprint of the instrument but also the space
needed for proper ventilation and access required for
routine maintenance and servicing of the instrument.
In certain parts of the country, natural disaster is-
sues must also be considered (earthquake protection
and equipment lock-down; potential flooding/floor
models).
• Power. Will the existing power supply in the laboratory
be sufficient to support the operation of the equipment?
Will additional dedicated or backup power be required?
Alterations to existing electrical supply can significantly
increase the overall cost of implementation.
• Data. If the instrument will require a connection to the
Internet for cloud-based services or be interfaced with
other equipment or the laboratory information system,
the data line requirements must be carefully evaluated.
• Plumbing/water. Some instruments require high-
quality water supplies or direct access to plumbing to
remove waste.
• Temperature/humidity. Most equipment requires spe-
cific environmental controls to operate optimally. Con-
sider not just the existing environmental conditions
but also the impact the addition of the new equipment
will have through heat production, etc. Ventilation and
air conditioning are critical factors for optimal instru-
ment performance.
510 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Human Resources
• Staffing. What is the number of staff required to oper-
ate the equipment, and what level of skill and expertise
is required of the staff? How will the implementation
of the platform impact current staffing levels? Depend-
ing on the assay or instrument in question, staffing
requirements could go up or down. With automation
or platforms that require less hands-on time, the new
instrumentation could free up existing staff to perform
different laboratory tasks.
• Workflow. Can the equipment or assay be run during
all shifts? What is the required hands-on time? How
will the addition of the new assay or platform impact
existing work practices? All aspects of testing need to
be included in the evaluation, not only direct testing
but sample preparation time, quality control practices,
and maintenance.
• Ease of use. Do the technologists who will use the in-
strument find it “user friendly”?
• Training requirements. What types of training are
required prior to implementation, and are training
programs offered by the vendor? Is there an additional
cost associated with the required training?
Financial
• Instrument cost. In addition to the actual cost of the
equipment, what are the available options for purchas-
ing or financing? Are there options for lease or reagent
rental agreements?
• Cost of operation. What are the direct and indirect
costs over the lifetime of the instrument?
• Cost per result. This number involves a variety of
factors including the cost of reagents, disposables,
calibrators, controls, labor, maintenance, repeats, etc.
Additionally, it is important to have a good idea of the
volume of samples you will be running, as the cost of
reagents is typically impacted by the volume of reagent
purchased from the vendor.
• Warranty. Many instruments have a limited warranty.
• Maintenance contract. The details of the annual main-
tenance contract should be discussed up front, as they
can vary widely and significantly impact the cost to
operate the equipment. Details should include what
is covered by the annual contract as well as the cost of
additional requirements such as after-hours or holiday
repair calls and parts that need to be replaced on main-
tenance schedules (e.g., bulbs, probes, etc.).
• Consumable costs. What are the estimated reagent,
calibrator, and control costs given the laboratory’s
estimated test volume? Important factors to consider
in this analysis include the size of the reagent kits and
their shelf life once opened. If a vendor sells only large
kits and the shelf life of reagents is short, a laboratory
may end up paying for wasted reagents, increasing the
cost unnecessarily.
• Disposable cost. What are the costs for tips, reagent
bins, etc.?
• Software requirements. Are there up-front costs associ-
ated with software purchases, and will there be costs
associated with software upgrades? Is there a cost as-
sociated with the implementation of an LIS interface?
Who will actually be handling the upgrades, interface,
etc. (company or laboratory personnel)?
• Evaluation and validation. What are the costs associated
with equipment evaluation prior to the purchase, and
if purchased, what will be the cost to properly validate
and verify performance characteristics. Keep in mind
that if the laboratory is transitioning to a new or differ-
ent technology, platform, or assay, physician end users
may need to see extensive parallel testing to know how
to appropriately apply new diagnostic values.
• Personnel Costs. What are the costs associated with
travel, hotel, meals, etc., for laboratory personnel un-
dergoing training off-site?
Prioritization of Requirements
Once the decision has been made as to what the laboratory
needs and wants from a given assay or platform, and the
data regarding the subjective and objective specifications
of available platforms or assays have been collected, the
list of possible choices will be narrowed due to elimination
of those products that do not meet the minimal criteria.
Prioritizing the desired features that are not minimum re-
quirements can further refine the list of possible choices
that meet the laboratory’s basic needs.
In today’s environment of limited budgets and higher
demands on productivity, whether the final decision about
which assay or instrument to implement is left to the indi-
vidual supervisor or director, or more commonly to a team
of decision makers including administrators, clinicians, and
even hospital board members, communication regarding
the final choice is critical. A clear and concise presentation
of the logic and motivation behind the decision to purchase
any given platform can be the difference between a suc-
cessful purchase and a failed attempt. In situations where
a team of decision makers is involved, be cognizant of the
fact that many of the team members may not be experts in
the area for which the equipment will be purchased.
Confidentiality and Conflict of Interest
Throughout the entire process of selection and decision
making, it is critical that all those involved in the process
remain independent, free of obligation or suspicion, and
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES
completely fair and impartial. Maintaining the integrity,
credibility, and confidentiality of selection and acquisi-
tion of equipment requires a clear set of guidelines, rules,
and responsibilities to govern the behavior of the decision
makers. For example, an employee or team member may
not solicit or accept anything of value from an actual or
potential manufacturer or vendor, be employed by or agree
to work for a vendor or potential vendor, or knowingly
disclose confidential information for personal gain. Those
involved in the selection process are not permitted to com-
municate about or discuss the procurement or evaluation
process with any other employee who is not involved in
this process. Furthermore, the employees and team mem-
bers shall not disclose the scoring outcomes or content of
the proposals. Depending on the institution, all those who
have been delegated the authority to purchase may also be
required to sign a conflict of interest statement each year.
In case of an actual or potential violation, the employee or
team member involved may be reprimanded, suspended,
or dismissed. The manufacturer or vendor may be barred
from receiving future contracts and/or have an existing
contract canceled.
Information Review
Once the laboratory’s requirements for introducing new
equipment and/or a new procedure have been clearly defined,
the next critical step in the selection process is preevaluation
and information review. It is important to review the latest
information on as many commercially available platforms
and procedures as you can via thorough Internet searches
(PubMed, manufacturer’s websites, and commercial adver-
tisements), review of trade journals and existing literature,
review of manufacturers’ package inserts, and conversations
with vendors’ representatives and other users. Accurate
data collection is vital in choosing the appropriate system.
Recommendations of relevant professional bodies such as
the CDC, the Infectious Disease Society of America (http://
www.idsociety.org/, accessed September 25, 2012), and the
American Association for Clinical Chemistry (http://www
.aacc.org/Pages/default.aspx, accessed September 25, 2012)
and regulatory agencies such as the College of American
Pathologists (CAP; http://www.cap.org/apps/cap.portal, ac-
cessed September 25, 2012) and the Clinical and Labora-
tory Standards Institute (CLSI; http://www.clsi.org/, accessed
September 25, 2012), as well as clinical outcome trials and
presentation at professional conferences and review of ex-
ternal quality assurance schemes (7) can be vital sources of
information. Professional publications and specialty jour-
nals also have articles on clinical evaluations of equipment
and procedures. Contact other laboratories or scientists
who already have implemented a new system that might
be of interest and ask them about cost, performance, reli-
ability, and service. Assessment of available information is
511
best performed by tabulating the data to compare and con-
trast variables that are high on the list of laboratory needs
or wants. Select or short-list those that will best serve the
laboratory’s needs. Once the necessary information is tab-
ulated, decision makers should meet to discuss the short-
listed choices and the reasoning behind each selection
criterion. The process can then be refined or modified as
needed, with the modified criteria retabulated to address
all issues of concern. Figure 27.1 provides an overview of
the planning and selection of equipment or procedures
leading to clinical implementation in the laboratory for
routine patient care.
Implementation and Product Placement
The implementation of a new procedure or instrument
requires coordination between the placement site and the
vendor. Typically the vendor requires the placement site to
fill out questionnaires regarding the physical characteris-
tics of the space, and then the vendor will inspect the site
to clarify what, if any, physical changes might be required
prior to placement. The timing of the purchase can be sig-
nificantly impacted by any required changes to the space
such as electric, plumbing, data, etc. If the purchase of an
instrument is delayed, this can impact the original quoted
price, so laboratories need to be diligent about planning
and coordinating the entire process.
Figure 27.1 Overview of the selection of equipment and imple-
mentation of procedures. doi:10.1128/9781555817282.ch27.f1
Defining the laboratory’s requirements:
new patient populations, disease prevalence, new
technology, test volumes, cost, staffing limitations
Gathering objective and subjective information:
quality of assays, test menu, turnaround time,
operational requirements, instrument features,
equipment maintenance, LIS, manufacturer’s support,
cost and contract issues, backup options . . .
Implementation and product placement:
Contract review, placement of equipment, on-site
or off-site training, verification and validation studies
Communication with clinicians/providers
and clinical testing
512 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Once the instrument is placed, many vendors offer on-
site training of key laboratory personnel. After key person-
nel have been trained on the operation of the instrument
or performance of the assay, the laboratory is responsible
for verification and validation of the new purchase.
Verification and Validation
On acquisition of equipment and/or implementation of
new procedures, laboratories are required to establish poli-
cies and procedures to maintain or improve the reliability,
efficiency, and clinical utility of the testing systems. Two
critical analyses performed in the laboratory are method
verification and validation. These processes provide criti-
cal objective evidence that the chosen system is fit for
purpose, meaning that the particular requirements for a
specific intended use are fulfilled.
Verification
According to the Cumulative Techniques and Procedures
in Clinical Microbiology (Cumitech) (2), verification is the
one-time process performed to determine or to confirm a
test’s expected performance prior to implementation in the
clinical laboratory. Verification requires determination of
performance characteristics that include sensitivity, speci-
ficity, predictive values, precision, and accuracy of the test.
In contrast, validation is an ongoing process of monitoring
a test, procedure, or method to ensure that it continuously
performs as expected.
Validation
According to the Clinical Laboratory Improvement Amend-
ments (CLIA) (http://wwwn.cdc.gov/clia/regs/toc.aspx, ac-
cessed September 25, 2012), validation is an integral part of
a laboratory’s quality assurance programs, and it requires
personnel competency assessment, quality control, internal
and external proficiency testing, and correlation with clini-
cal findings. It is important to note that the definitions for
validation and verification as written above are accepted
by the CLSI, the CLIA, and the International Organization
for Standardization. However, the definitions accepted by
the CAP are the inverse. The CLIA requires that for FDA-
cleared and approved tests, a laboratory must document its
verification of the following four performance character-
istics: accuracy, precision, reference range, and reportable
range. These performance characteristics are published in
the manufacturer’s package insert. Furthermore, labora-
tories performing laboratory-developed tests (LDTs) and
modified FDA-cleared and approved tests are required to
“establish” the same four performance characteristics that
are required for FDA-cleared and approved tests, as well
as to determine the analytic sensitivity, analytic specificity,
and any additional performance characteristics. It is also
important to keep in mind that the processes of validation
and verification add to the cost of implementation of a new
laboratory testing system.
Personnel Competency Assessment
and Training
Establishing the competency of each laboratory employee
is an extremely important component of laboratory qual-
ity control. It ensures that personnel are trained appro-
priately to perform prompt and accurate clinical testing.
All newly implemented tests or testing procedures must
have proper, documented personnel training before pa-
tient results can be reported. The competency of all per-
sonnel must be assessed semiannually during the first
year of their employment and then annually thereafter (3,
6). According to the CLIA, the necessary components of
a competency assessment program are (i) direct observa-
tion of performance during routine testing; (ii) monitoring
of recording and reporting of patient results; (iii) review
of worksheets, quality control records, proficiency testing
results, and preventive maintenance records; (iv) direct
observation of performance of instrument maintenance
and function; (v) assessment of test performance through
testing of previously analyzed specimens, internal blind
testing, or external proficiency testing samples; and (vi)
problem-solving skills assessment. Training is required
before a new or current employee can perform a new test
or when a new assay is introduced. Training updates are
required whenever changes are implemented to a proce-
dure or when new learning objectives are added to the
training document.
Proficiency Testing
Proficiency testing (PT) is a critical tool used by clinical
laboratories to verify the accuracy and reliability of their
testing (4). Laboratories that are CLIA-certified are re-
quired to enroll in a Centers for Medicare and Medicaid
Services–approved (1) proficiency program for each spe-
cialty and subspecialty for which certification is sought.
Routine reviews of proficiency testing reports by the labo-
ratory director and staff will help determine areas of test-
ing that are not performing as expected and also indicate
subtle shifts and trends that, over time, would affect pa-
tient results. Proficiency samples are tested in the same
manner as any other patient sample. A score of at least 80%
is required for satisfactory performance. The laboratory
must establish an internal proficiency program for those
tests that have no external proficiency testing programs
available (5). Monitoring and disseminating information
about trends in PT performance during the ongoing im-
plementation of the CLIA regulations can assist individual
 CHAPTER 27. NEW EQUIPMENT AND PROCEDURES
laboratories in assessing their performance relative to
other laboratories.
Summary
The overall value of diagnostic testing is measured not only
by its analytical performance or financial value but also by
how well it meets the clinical needs of the clinicians and
patients. Thus, establishing benefit to patient health is the
primary driving force when introducing changes in rou-
tine diagnostic testing. The critical nature of communica-
tion with the clinicians or community health workers who
will be using the laboratory tests cannot be overempha-
sized. It is important to remember that a new diagnostic
system must be examined as a part of a broader manage-
ment strategy.
Although this chapter has emphasized the objective
consequences of a process change due to either acquisition
of equipment or implementation of procedures, other vari-
ables such as clinicians’ views and diagnostic confidence
can positively or negatively impact the outcome of any
process change. Clinicians’ perspectives of testing, their
experience of the testing process, and their understand-
ing of the test can all affect downstream patient care. The
clinicians who utilize the new procedure must agree that
its performance characteristics are satisfactory and meet
the clinical need. To purchase equipment simply because it
is economically feasible may not be in the best interest of
the laboratory. Therefore, whenever possible, the selection
process should be performed keeping in mind the range of
conditions in which the intended equipment or procedure
is likely to be used in routine clinical practice.
KEY POINTS
■ Defining the requirements that mandate the labora-
tory’s purchase and implementation of new equipment
and/or procedures is the first and most critical compo-
nent of the planning and selection process.
■ Practical considerations when choosing the best instru-
ment or assay for a specific lab include testing volumes,
specimen types, test menu, turnaround time, opera-
tional throughput, physical requirements, assay per-
formance, cost, manufacturer’s contract and warranty,
computer interfacing, and staffing considerations.
■ Method verification, validations, competency, proficiency
testing, and training are required before new equipment
or procedures can be implemented in a clinical laboratory.
■ Throughout the process, timely and accurate com-
munication with end users is critical to the successful
purchase and implementation of any new laboratory
equipment or procedure.
513
GLOSSARY
American Association of Clinical Chemistry A professional
organization of clinical laboratory professionals, physicians, re-
search scientists, and other individuals involved with clinical
chemistry and related healthcare disciplines.
Centers for Medicare and Medicaid Services (CMS) Previously
known as the Health Care Financing Administration (HCFA). A
federal agency that administers the Medicare program and en-
forces the CLIA ’88 regulations by conducting laboratory inspec-
tions, determining quality standards through its survey and
certification process, and auditing billing for medical necessities
and reimbursements.
Clinical and Laboratory Standards Institute (CLSI) An inter-
national organization responsible for developing and promoting
best practices in clinical and laboratory testing throughout the
world through accreditation and educational programs.
Clinical Laboratory Improvement Amendments (CLIA) The
primary government rules that set standards designed to improve
quality in all laboratory testing. They include specifications for
quality control, quality assurance, patient test management, per-
sonnel, and proficiency testing.
College of American Pathologists (CAP) A professional orga-
nization of board-certified pathologists, involved in fostering
and advocating excellence in the practice of pathology and labo-
ratory medicine. It also provides voluntary laboratory inspection
and accreditation programs.
Infectious Disease Society of America (IDSA) A professional
organization that develops guidelines to improve the health of
individuals and communities and promotes excellence in patient
care, education, research, public health, and prevention relating
to infectious diseases.
U.S. Centers for Disease Control and Prevention (CDC) A fed-
eral agency that focuses on developing and implementing disease
control and prevention and environmental and occupational
health and protects public health through educational programs
and partnerships with state health departments and other
organizations.
REFERENCES
1. Centers for Medicare and Medicaid Services. 2003. Medicare,
Medicaid and CLIA programs; laboratory requirements relating to
quality systems and certain personnel qualifications, final rules. Fed.
Regist. 68:3640–3714.
2. Clark, R. B. 2009. Cumitech 31A: Verification and validation of
procedures in the clinical microbiology laboratory. Coordinating
ed., S.E. Sharp. ASM Press, Washington, DC.
3. Clinical and Laboratory Standards Institute (CLSI). 2009.
Training and competence assessment; approved guideline, 3rd ed.
CLSI document GP21-A3. CLSI, Wayne, PA.
514 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
4. Clinical and Laboratory Standards Institute (CLSI). 2007. Us-
ing proficiency testing to improve the clinical laboratory; approved
guideline, 2nd ed. CLSI document GP27-A2. CLSI, Wayne, PA.
5. Clinical and Laboratory Standards Institute (CLSI). 2009. As-
sessment of laboratory tests when proficiency testing is not avail-
able; approved guideline, 2nd ed. CLSI document GP29-A2. CLSI,
Wayne, PA.
6. Elder, B. L. 2003. Cumitech 39: Competency assessment in the
clinical microbiology laboratory. Coordinating ed., S.E. Sharp. ASM
Press, Washington, DC.
7. Olson, J. D. 2007. External quality assurance in thrombosis and
hemostasis: an international perspective. Semin. Thromb. Hemost.
33(3):220–225.
8. Mina, A. 2008. A practical approach to instrument selection, eval-
uation, basic financial management and implementation in pathol-
ogy and research. Clin. Chem. Lab. Med. 46(9):1223–1229.
9. Murphy, P. G. 2008. Selection of a suitable assay. Clin. Biochem.
Rev. 29(Suppl. I):S17–S22.
10. Myers, J. 2007. Primer for selecting lab equipment. MLO Med.
Lab. Obs. 39(1):26–27.
Introduction
28
Safety Management Plan and
Laboratory Safety
Responsibilities
Laboratory Hazards
James J. Dunn and David L. Sewell
Biological Hazards • Chemical Hazards • Physical
Hazards • Radiation Hazards
Standard Precautions
Hazard Prevention and Containment
Risk Assessment • Handwashing • Barrier
Protection • Engineering Controls • Work Practices • OBJECTIVES
Respiratory Protection • Immunization • Warning
Signs and Labels • Biological Safety Cabinets and To define the essential components of a laboratory safety program
Chemical Fume Hoods
To administer the program to meet safety requirements
Sterilization and Decontamination
To evaluate the program for regulatory compliance
Spill Management
Biological • Chemical To identify hazardous materials and procedures in the laboratory
Fire Safety
Waste Management
Regulatory Oversight • Management Program
Packaging and Shipping Infectious
Substances
Infectious Substances Classification • Packaging,
Labeling, and Shipping Regulated Material Before anything else, preparation is the key to success.
Personnel Training Alexander Graham Bell
Training Program • Methods • Documentation •

T
Monitoring and Evaluation he laboratory environment can be a hazardous place to work.
Summary Laboratory workers are exposed to numerous potential hazards including
KEY POINTS chemical, biological, physical, and radioactive hazards, as well as muscu-
GLOSSARY loskeletal stresses. Laboratories, by the nature of the work performed, contain
REFERENCES inherent risk to workers that is often difficult to measure and manage because
APPENDIXES safety is not an intrinsic, absolute, and measurable property (23). Therefore, we
must continually assess and manage risk in the laboratory based upon current
knowledge and propose and enforce commonsense safety practices to minimize
harm or injury to the worker and to prevent laboratory contamination (53). Ac-
cidents in the laboratory are often attributable to a person’s inability to recognize
a hazardous situation, an individual’s diminished concern for risk over long pe-
riods of time, or excessive risk taking. Thus, an individual’s behavior influences
the degree of occupational risk present in the workplace (48). Risk takers and
individuals who ignore safety precautions not only suffer the consequences from
their acts but also pose a risk to their colleagues, families, and friends.
Biological hazards (e.g., exposure to blood, body fluids, and other poten-
tially infectious materials [OPIM]) are a major concern for laboratory work-
ers today and have heightened the need for implementation of sound safety
practices. Exposure to these pathogens through specimens, aerosols, or drop-
lets may cause an occupationally acquired infection that can be transmitted to
other employees, employees’ families, or the public. Today, the potential use
Clinical Laboratory Management, 2nd Edition
of biological, chemical, and radioactive materials as terrorism agents imposes
Edited by L. S. Garcia additional safety and security concerns in the laboratory (6, 27, 31, 32).
©2014 ASM Press, Washington, DC Exposure to hazardous chemicals may result in acute and/or chronic dis-
doi:10.1128/9781555817282.ch28 ease that may be exacerbated in employees with preexisting medical conditions.

515
516 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Although there is a continuing effort to reduce the number
and quantity of laboratory chemicals that are toxic, carcino-
genic, caustic, flammable, or radioactive, these compounds
cannot be eliminated completely from laboratories.
In addition to biological, radiological, and chemical haz-
ards, fires and electrical accidents may occur, and laboratory
instruments and equipment may cause injury to the user.
However, the laboratory can be a safe workplace when the
risks are recognized and reduced through appropriate train-
ing of personnel and implementation of safe work practices,
appropriate containment equipment, well-designed facili-
ties, and administrative controls (13, 15, 16, 33, 40, 42).
Many laboratories use a combination of control meth-
ods to protect workers. This hierarchy of controls priori-
tizes intervention strategies based on the premise that the
best way to control a hazard is to systematically remove it
from the workplace, rather than relying on workers to re-
duce their exposure. These types of measures, prioritized
from the most effective to least effective, include engineer-
ing controls, administrative controls, work practices, and
personal protective equipment (PPE).
Safety Management Plan
and Responsibilities
The key to a safe laboratory environment is the devel-
opment, implementation, and enforcement of a high-
quality safety management program that considers
worker safety as a responsibility of the facility (Table
28.1). The Occupational Safety and Health Administra-
tion (OSHA) requires a risk assessment (exposure deter-
mination) of each task performed in the laboratory. The
safety program begins with a well-written safety manual
that defines the program and identifies the individuals
responsible for specific tasks (15, 18, 28). Management
must commit to the program and provide the necessary
resources (e.g., equipment and time) to produce and
implement the plan, assign oversight and responsibil-
ity for the plan, and communicate the plan and expec-
tations to the employees. The risk associated with each
task performed in the laboratory is assessed, and prac-
tices are implemented to minimize these risks. These
practices include the use of standard precautions, PPE,
engineering and work practice controls, workplace de-
sign, vaccination, safe handling and disposal of hazard-
ous waste, and use of safety devices (16). In addition,
the safety plan should include sections on blood-borne
pathogens, a medical surveillance program, a chemical
hygiene plan, infection control procedures, hazard com-
munications, record keeping, waste disposal, fire safety,
and spill cleanup. The federal regulations that directly
address general laboratory safety include Hazard Com-
munication Standard 29 CFR 1910.1200 (43), Blood-
borne Pathogens Standard 29 CFR 1910.1030 (45), and
Table 28.1 Elements of a safety management plan
Administrative support
Develop and maintain written safety information identifying work-
place hazards.
Appoint a safety officer and members of the safety committee.
Appoint a chemical hygiene officer.
Appoint a radiation safety officer (if radioactive materials are used
in testing).
Provide for occupational health services.
Provide funds and time for surveys, meetings, education, and de-
velopment of a safety management plan. The plan should address
safety and security, exposure control, emergency preparedness,
waste, utilities, and equipment management.
Risk assessment
Perform safety audits and risk assessments.
Obtain MSDS and other necessary safety information.
Develop chemical inventory lists.
Identify safety needs and controls.
Training
Provide safety training for new employees, annual training for all
employees, and training as needed for workers assigned to a new
workstation.
Plan review and record keeping
Review all audits, surveys, and accident reports to measure the ef-
fectiveness of the plan and make changes to reduce the probability
of additional occupational exposures.
Evaluate and update the plan when new information is available or
new hazards are introduced.
Maintain records of all surveys, accidents, and inspections and the
resulting corrective actions.
Occupational Exposure to Hazardous Chemicals in the
Laboratory 29 CFR 1910.1450 (44).
To ensure that the laboratory safety policies and pro-
cedures are active and enforced, a safety officer and safety
committee should be established. All sections of the lab-
oratory should be represented on this committee. These
individuals ensure that the safety program’s policies, pro-
cedures, and training programs are uniform throughout
the laboratory and that the laboratory is in compliance
with all state and federal safety regulatory requirements.
In larger organizations the laboratory safety officer also
participates on the other institutional safety-related com-
mittees. A laboratory chemical hygiene officer should also
be designated to coordinate and be responsible for the lab-
oratory’s chemical waste disposal. The coordinator should
evaluate hazardous chemicals based on their properties,
according to national and/or regional regulations. It is es-
sential that all employees review the safety manual, receive
annual training based on the hazards and risks present in
the laboratory, and understand the specific safety precau-
tions required for each procedure or workstation.

Laboratory Hazards
The laboratory contains numerous hazards that fall into
four general classes: biological, chemical, physical, and ra-
diological. A hazard is any material, condition, or action
that may result in physical harm or impairment to em-
ployees. The management of these hazards poses a signifi-
cant challenge due to the complexity of the work and the
diversity of the hazards that are present in the laboratory
environment. The risk from these hazards is related to ex-
posure levels, duration of exposure, toxicity or pathogenic-
ity of the hazardous material, safety controls present, and
other factors such as the general health or age of the labo-
ratory worker. In general, the risk of suffering an adverse
event from a laboratory hazard is decreased by minimizing
the exposure to the hazard, storing only small quantities of
the hazard in the laboratory, and storing hazardous mate-
rials in appropriate containers. Whenever possible, a less
hazardous material should be substituted for highly toxic
or dangerous chemicals.
Biological Hazards
Biological hazards include infectious agents such as bac-
teria, parasites, fungi, and viruses that may be transmit-
ted through contaminated body secretions, tissue, or other
materials. All clinical specimens are potentially infectious,
and the isolation and culture of pathogenic microorgan-
isms from these specimens increases the risk to the clinical
microbiologist. Bacteria cause the majority of laboratory-
acquired infections (LAI), followed by viruses, rickettsia,
fungi, and parasites. Today, 96% of all LAIs are caused by
bacteria, viruses, and rickettsia (30). The major routes for
acquiring an infection in the laboratory are from expo-
sure to a specimen containing a potential pathogen and
the procedures used to culture and identify the agent.
Agents that are transmitted by aerosols cause most of the
serious LAIs and include Mycobacterium tuberculosis, Bor-
detella pertussis, Corynebacterium diphtheriae, Neisseria
meningitidis, Bacillus anthracis, Brucella spp., Francisella
tularensis, Burkholderia pseudomallei, and Yersinia pestis
(7, 9, 15). The factors that influence the risk of acquiring
an infection from blood, body fluids, or other potentially
infectious material (OPIM) are related to the quantity of
specimen involved in the exposure; the concentration,
prevalence, and type of pathogen in the specimen; the
number and types of contact experienced by the worker;
the susceptibility and behavior of the host; and the routes
of exposure (e.g., percutaneous exposure, splashes to mu-
cous membranes, splashes to intact or nonintact skin, oral
ingestion, or aerosol inhalation) (2, 30, 51). Aerosols are
especially problematic because they are generated by nu-
merous procedures performed in the laboratory such as
sonication, homogenization, centrifugation, mixing, pi-
petting, heating inoculation loops, streaking agar plates,
CHAPTER 28. LABORATORY SAFETY 517
opening lyophilized ampoules, and expelling bubbles from
a syringe (15, 49, 50). Because symptoms of infection are
often delayed following an exposure, the person generally
cannot recall the specific event that caused the infection
but only that he or she was working with the agent or was
in the laboratory (30). Traditional safety guidelines have
emphasized the use of safe work practices, well-designed
laboratories, containment equipment, and management
controls (3, 13). Today, laboratories also need to prevent
unauthorized entry to the laboratory areas and removal of
potential bioterrorism agents (6).
Chemical Hazards
Chemical hazards include all chemicals that may be toxic
or irritating and include solids, liquids, and gases such as
mercury, acetone, xylene, stains, and formaldehyde. The
diversity of chemical hazards found in the clinical labo-
ratory is as great as the biological hazards. The risk and
severity of an exposure to a chemical is influenced by the
amount of chemical to which one is exposed (dose), the
route of exposure (i.e., inhalation, ingestion, absorption
through or contact with mucous membranes and intact/
nonintact skin), the chemical properties of the compound,
the susceptibility of the individual, and the duration of ex-
posure (54).
Because containment procedures are based on the
chemical hazard class, laboratory chemicals are labeled and
described by their hazard classification, such as irritant,
corrosive, flammable (gas, liquid, solid), poison (toxic),
or carcinogen. Reactive chemicals must be segregated for
storage. Acids are not stored with bases, oxidizers are not
stored with reducing agents or organics, and flammables
are stored in flammable-safe cabinets. Poisons or toxic
compounds can cause acute or chronic symptoms when
ingested, inhaled, or absorbed through the skin and can
affect the nervous, respiratory, or reproductive systems.
Carcinogens may cause malignant neoplasms in humans
or animals long after exposure to the compound. Use of
highly toxic chemicals or carcinogens should be restricted,
and they should be handled only in a designated area by
well-trained personnel.
When possible, disposable PPE should be used when
handling toxic chemicals. A chemical hygiene plan (re-
quired for all laboratories) details the specific safety mea-
sures (i.e., engineering and work practice controls, PPE,
exposure monitoring, waste management) required for
each class of chemicals used in the laboratory.
When exposure monitoring is required, a trained indus-
trial hygienist can measure the chemical level as the work
is performed and determine whether the level exceeds the
permissible exposure limit (PEL) (4, 33, 41). PELs repre-
sent the maximum concentration of a chemical to which
an employee may be exposed over an 8-h workday or
40-h workweek (time-weighted average). PELs may also
518 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
be expressed as a short-term exposure (15-min period) or
a ceiling limit not to be exceeded. These limits are set so
that employees are not exposed to chemical levels that may
cause acute or chronic symptoms.
Physical Hazards
Physical hazards abound in the laboratory and include
such things as ergonomic issues, fire, electrical hazards,
noise levels, equipment, accidents (e.g., slipping, falling,
and lifting), UV light exposure, and compressed gases
(25). Accidents often occur from overcrowding in the
work area, poor lighting, poor maintenance, and lack of
attention to detail by the employee. All accidents should
be investigated with the intent of identifying the cause of
the accident and correcting the problem. For example,
back injuries are reduced by training employees on the
correct method for lifting heavy objects. Falling is often
caused by slippery floors, obstructed vision, or obstacles.
Electrical safety relies on the proper grounding of equip-
ment, the availability of adequate electrical outlets, and
the prohibition of the use of extension cords. UV lights
should be installed according to the manufacturer’s instruc-
tion to avoid skin or eye injuries. Also, the laboratory
should be evaluated for ergonomic problems, excessive
noise, and excessive stress on employees. Workers under
excessive stress tend to make more mistakes and have
more frequent accidents.
Radiation Hazards
Any laboratory that performs tests using radioactive ma-
terials needs to meet the requirements of the U.S. Nuclear
Regulatory Commission (NRC), including a radiation con-
trol plan. The implementation of a radiation safety pro-
gram and control plan monitored by a radiation safety
officer can minimize the occupational exposure to ion-
izing radiation from radioactive material or ionizing radi-
ation-producing equipment (39). The degree of risk from
ionizing radiation is related to the type of radiation (i.e.,
alpha, beta, or gamma) emitted, the quantity of radioac-
tive material present, and the source of exposure (i.e.,
internal or external). Engineering and work practice con-
trols are essential to minimizing the risk of working with
radioactive material. Three factors must be considered:
time, distance, and shielding. The goal is to minimize
the length of exposure, maintain the greatest distance be-
tween the radioactive material and the worker, and use an
effective shield (i.e., lead, Plexiglas). Work practice con-
trols for radiation, including a dedicated area for working
with radioisotopes, are similar to other laboratory haz-
ards and include appropriate PPE (e.g., lead aprons) and
monitoring badges (39). Today, most tests that were once
performed by radioimmunoassay are now performed by
enzyme immunoassay, so many clinical laboratories no
longer handle any radiolabeled compounds.
Standard Precautions
All laboratories should adhere to the concept of standard
precautions, which states that all patients and all labora-
tory specimens are potentially infectious and should be
handled accordingly (15, 34). This concept arose from the
observation that infections are often unrecognized in pa-
tients. “Standard precautions” replaces earlier terms, such
as “blood and body fluid precautions,” “universal precau-
tions,” and “body substance precautions,” found in OSHA
documents (45, 46). The OSHA documents place the em-
phasis on blood-borne pathogens such as HIV, hepatitis B
virus (HBV), and hepatitis C virus, whereas the concept of
standard precautions recognizes that all infectious agents
and all OPIM, except perspiration, pose risk to the health-
care worker (51).
OSHA identifies a number of practices that should
be implemented to protect the worker from exposure to
blood-borne pathogens, including an exposure control
and risk assessment plan (15). Methods that can be imple-
mented to minimize exposure to infectious agents shield
the laboratory worker from infectious material through a
set of engineering and work practice controls and the use
of PPE. In addition, the OSHA regulations require that
employers provide HBV vaccination, postexposure evalu-
ation, and follow-up; communicate the hazards to employ-
ees; and maintain appropriate records (2, 5, 15). Employees
who decline immunization against HBV are required to
sign an HBV vaccine declination form (Appendix 28.1).
Hazard Prevention and Containment
Risk Assessment
The risk associated with handling hazardous material
should be assessed, and an exposure control plan should
be implemented. Rather than retrospectively analyzing
problems, laboratory managers need to proactively assess
risk and institute the necessary procedures to reduce the
potential risk. For chemical, physical, and radiological
hazards, the classification of the hazard is straightforward,
and usually the risk can be determined. For biohazardous
material, the assessment of risk is more difficult, is often
qualitative, and is based on the pathogenicity and concen-
tration of the agent, the infectious dose, the route of trans-
mission, the viability of the agent in the environment, and
the availability of treatment or prophylaxis (13, 23, 38).
Two lists of risk groups have been published to facilitate
the assessment of risk from different microorganisms and
to recommend the appropriate safety practices for handling
infectious agents (13, 60). The World Health Organization
(WHO) lists four groups of biohazardous agents based on
the level of risk to the individual and community and the
availability of effective treatment and prevention (Table
28.2). The Centers for Disease Control and Prevention/

Table 28.2 WHO classification of microorganisms by risk groupa
Risk group Characterization
1 Low or no individual and community risk. Un-
likely to cause human disease.
2 Moderate individual and low community
risk. Unlikely to cause serious disease or be
transmitted. Effective treatment and prevention
available.
3 High individual and low community risk.
Causes serious infections but not readily
transmitted. Effective treatment and prevention
usually available.
4 High individual and high community risk.
Causes serious human disease and readily
transmitted. No effective treatment or preven-
tion available.
a
From reference 60.
National Institutes of Health (CDC/NIH) guidelines pro-
pose four biosafety levels (BSLs) and recommendations
for appropriate containment practices for a list of agents
known to cause LAIs. Each BSL is based on the increased
risk associated with the factors listed earlier (Table 28.3).
Each BSL consists of combinations of PPE, engineering
and work practice controls, and laboratory design that
are appropriate for work with a particular infectious agent
(Table 28.4). The BSL numbers (1 to 4) imply increased
occupational risk from exposure to an agent and the need
for additional containment for work with that agent. A
conservative approach should be used when safety infor-
mation is not available for a microorganism or new labo-
ratory procedure. Generally, routine clinical laboratories
operate with BSL-2 practices or BSL-3 practices for some
Table 28.4 Laboratory biosafety level criteriaa
BSL Practices
1 Standard microbiological practices
Controlled access
Sharps precautions
Display biohazard signs
2 BSL-1 practices
Restricted access
Staff trained with pathogens
Safety manual available
3 BSL-2 practices
Consider baseline serum for all at-risk personnel
4 BSL-3 practices
Clothing change before entering
Shower on exit
Decontaminate all waste on exit
a
From reference 13.
CHAPTER 28. LABORATORY SAFETY 519
Table 28.3 CDC/NIH-recommended biosafety levels for infec-
tious agentsa
BSL Characterization
1 Well-characterized agents not known to consistently
cause disease in healthy adult humans. Minimal poten-
tial hazard to laboratory personnel and the environment.
2 Agents associated with human disease of moderate po-
tential hazard to personnel and the environment.
3 Indigenous or exotic agents that cause serious or poten-
tially lethal disease as a result of exposure by the inhala-
tion route.
4 Dangerous and exotic agents that pose a high individual
risk of aerosol-transmitted laboratory infections and
life-threatening disease.
a
From reference 13.
mycobacterial or fungal agents (13). Additional informa-
tion can be found on websites listed in Appendix 28.2.
A risk assessment and exposure plan for the clinical
laboratory should identify the appropriate safety practices
for handling infectious material that may contain any of
a variety of pathogenic microorganisms (Table 28.5). Risk
assessment must take into account the agent, the host, and
the work activity in the development of a comprehensive
safety plan (23). Management must monitor the plan, doc-
ument accidents in writing, and make adjustments based
on accidental exposures to infectious agents and new in-
formation. Laboratory accidents should be discussed at the
quality assurance or safety committee meeting (preferably
quarterly but no less than yearly) and immediately with
the staff in the section where the accident occurred. The
Safety equipment and facilities
PPE (coats, gloves) as needed
Class I or II BSC used for specimen processing and work producing
aerosols or splashes: PPE (coats, gloves, eyewear/face shields) as
needed; self-closing laboratory doors; eyewash station available
BSL-2 equipment/facilities and BSC (class II or III) used for work
with all specimens and cultures; PPE (gowns, masks) as needed;
negative pressure airflow; exhausted air not recirculated; decon-
tamination (e.g., autoclave) in laboratory
Class III BSC or class II BSC in combination with full-body, air-
supplied, positive pressure personnel suit; anteroom for clothing
change/shower; specialized ventilation and decontamination system
520 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.5 Risk assessment and exposure control plan for clinical microbiology laboratorya
Exposure risk from: PPEb Engineering controlsc
Cultured Sharps
Blood and biologic Lab coats/ Face/splash containers
Laboratory section and task body fluids agents Gloves gowns shields BSC availabled
General
Supplies inventory Low Coat
Clerical: computer entry, tele- Low P Coat
phones, records, etc.
Instrument maintenance:
Parts contaminated High Variable R Gown
Parts not contaminated Low Variable D Coat
Surface decontamination Low Variable R Coat
Waste disposal High Variable R Gown A(D) Sharps
Bacteriologye
Specimen processing High BSL-2 R Coat R Sharps
Subculture blood culture bottles High BSL-2 R Coat Af Af Needles
Subculture colonies or broth Low BSL-2e Coat Sharps
cultures
Prepare, fix, stain, and read Low BSL-2 Coat Slides
slides
Identification tests and antimi- Low BSL-2 Coat Sharps
crobial susceptibility testing
Mycology and Mycobacteriology e
Specimen processing High BSL-2/3 R Gown Re Sharps
Prepare smears, wet mounts; fix High BSL-2/3 R Gown R Slides
slides
Read wet mounts from High BSL-2/3 R Coat Slides
specimens
Read wet mounts from cultures Low BSL-2/3 R Coat Slides
Examine sealed cultures Low BSL-2/3g Coat
Stain fixed smears, read Low Coat Slides
Handle yeast cultures, smears, Low BSL-2 Coat D Slides
and fixed slides
Handle molds and mycobacteri- Low BSL-2/3h R Gown Re Sharps
ology cultures
Virology i
Specimen processing High BSL-2 R Coat R Sharps
Feed and manipulate uninocu- Low Coat Pipettes
lated cells
Read cells for cytopathic effect Low BSL-2 Coat
Feed and manipulate inoculated High BSL-2 R Coat R Pipettes
cells
Perform identification tests High BSL-2 R Coat D Sharps
Stain fixed slides, read Low Coat Slides
Parasitology
Concentrate fecal specimens, Low BSL-2 R Coat Pipettes, sticks
smears, wet mounts
Read fecal wet mounts Low BSL-2 R Coat Slides
Prepare blood smears; fix slides High BSL-2 R Coat A Slides
Stain and read slides Low Coat Slides
Molecular testing
Specimen processing High BSL-2/3 R Coat Aj Aj Pipettes
Cultured microorganism Low BSL-2 D Coat R Sharps
BSL-3 R Gown Rk Sharps
 CHAPTER 28. LABORATORY SAFETY 521

Table 28.5 Risk assessment and exposure control plan for clinical microbiology laboratorya
(continued)
Exposure risk from: PPEb Engineering controlsc
Cultured Sharps
Blood and biologic Lab coats/ Face/splash containers
Laboratory section and task body fluids agents Gloves gowns shields BSC availabled
Serology
Manipulate serum High BSL-2 R Gown A Pipettes
Arrange tubes; prepare and dis- Low Coat
pense reagents
Mix serum and reagents; read High BSL-2 R Gown Aj Aj Pipettes
and discard tests
a
Adapted from reference 26. Abbreviations: R, required; D, discretionary; P, prohibited; A, one of the required alternatives.
b
Remove PPE when leaving the laboratory. Gowns must have a solid front and be impervious to liquid.
c
Recapping of needles is prohibited. Carry tubes in racks or use plastic tubes. Plan each task to minimize known hazards. Wash hands before leaving the laboratory.
d
Sharps include needles, scalpels, pipettes, sticks, syringes, slides, plastic loops, and coverslips.
e
Requires surveillance and action plan for occasional isolation of BSL-3 organism (e.g., Brucella spp., Francisella spp., Mycobacterium spp., and systemic fungi), espe-
cially when plates are held more than three days. M. tuberculosis requires the use of a safety centrifuge, a BSC, and a HEPA-filtered mask or respirator.
f
Use a BSC or acrylic splash shield.
g
Requires a contingency plan for breakage of culture containers.
h
Mycobacteria other than tuberculosis can be handled at BSL-2; however, use BSL-3 practices because most manipulations precede organism identification.
i
Special precautions for BSL-4 agents (e.g., hemorrhagic fever virus, smallpox) should be arranged through CDC’s emergency number (770-488-7100).
j
Vortexing or other splatter-generating steps require use of a BSC or safety shield.
k
Requires BSL-3 practices if there is potential for aerosols.

accident report and corrective action are documented in
the minutes of the committee meeting. Common safety
mistakes or compliance issues are listed in Appendix 28.3.
Laboratories that use or store Select Agents (Table 28.6)
under BSL-2, -3, or -4 practices must address the following
security and safety concerns:
• Risk and threat assessment
• Facility security plans
• Physical security
• Security of data and electronic technology systems
• Security policies for personnel
• Access controls to the laboratory
• Procedures for agent inventory and accountability
• Shipping, transfer, and receiving of Select Agents
• Emergency response plans
• Reporting of incidents, unintentional injuries, and se-
curity breaches
The select agents plan must be part of the daily opera-
tion of the laboratory, and all employees must be knowl-
edgeable about the plan (6). For security of Select Agent
areas and public safety, access to the laboratory should be
limited and restricted to individuals who have a legitimate
purpose for entering the work area. Laboratory entrances
should be locked by keypads, keys, or identification card
keys. Laboratory employees should continuously moni-
tor entrances that remain open. The laboratory should
have a policy that defines who may visit and a procedure
for removing unauthorized persons. Visitors and service
workers should sign an entry log, be issued an identifica-
tion badge with an expiration date, wear a laboratory coat,
and be accompanied by a laboratory employee. Labora-
tory supervisors should ensure that all visitors and service
workers understand the laboratory’s security and safety
requirements, safety signage, and areas that are posted off-
limits to visitors.
Most clinical laboratories serve as sentinel laboratories
in the national Laboratory Response Network (LRN). The
primary responsibility of a sentinel laboratory is to rule
out and refer suspected Select Agents to the nearest LRN
reference laboratory (usually a state health laboratory) or a
federal level laboratory, depending on the suspected agent.
Laboratory personnel should be familiar with the mor-
phological, cultural, and identification characteristics of
certain Select Agents that might be encountered in clinical
specimens. The laboratory should notify the institutional
infection control or epidemiology personnel who are re-
sponsible for assessing the situation and notifying local or
state public health officials.
Maintenance workers and cleaning staff must also un-
derstand the laboratory’s security and safety procedures,
sign the entry log, and ideally, perform their tasks when
laboratory employees are present. The laboratory supervi-
sor should instruct the maintenance and cleaning staff on
the restricted areas of the laboratory (e.g., mycobacteriol-
ogy laboratory) and precisely define their duties (e.g., do
not handle biohazardous material). When work is required
in the restricted areas, a laboratory worker should escort
or monitor the person.
522 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.6 Select agents and toxinsa and contact with work surfaces, telephones, and equip-
Bacteria ment. Laboratory personnel should wash their hands:
Bacillus anthracis
• Immediately after removing gloves
Brucella species
Burkholderia mallei and B. pseudomallei • After obvious contamination
Clostridium botulinum • After completion of work
Francisella tularensis • Before leaving the laboratory
Yersinia pestis
• Before hand contact with nonintact skin, eyes, or mu-
Rickettsiae cous membranes
Coxiella burnetii Handwashing sinks should be located at each entry
Rickettsia prowazekii and R. rickettsii and exit door, and ideally the faucet should be operated
by a knee or foot control. If these controls are not avail-
Fungi
able, the faucet should be turned on and off using a pa-
Coccidioides immitis and C. posadasii
per towel. Handwashing should be performed using a
Viruses soap or antiseptic compound, starting at the wrist area
Crimean-Congo hemorrhagic fever virus and extending down between the fingers and around and
Eastern equine encephalitis virus under the fingernails. Hands should be rinsed from the
Ebola virus wrists downward (21). Recently, the CDC recommended
Equine morbillivirus (Hendra, Nipah) that in addition to traditional soap and water handwash-
Herpesvirus 1 (herpes B virus) ing, healthcare personnel can also use alcohol-based gels
Lassa fever virus (Table 28.7) (8).
Marburg virus
Monkeypox virus Barrier Protection
Rift Valley fever virus PPE shields the individual from contact with a particular
South American hemorrhagic fever viruses hazard. OSHA standards require that PPE shall be pro-
Tick-borne encephalitis complex viruses vided, used, and maintained for all hazards found in the
Variola major and minor virus (smallpox virus) workplace, including biological, environmental, chemical,
Venezuelan equine encephalitis virus and radioactive compounds and mechanical irritants ca-
Viruses causing hantavirus pulmonary syndrome pable of causing injury or illness through absorption, in-
Yellow fever virus halation, or physical contact. Employees must be trained
in the appropriate use of PPE for a specific task, the limita-
Toxins tions of PPE, and procedures for maintaining, storing, and
Abrin disposing of PPE.
Botulinum toxins
Clostridium perfringens epsilon toxin Gloves. Gloves protect the wearer from exposure to po-
Conotoxins tentially infectious material and other hazardous material
Diacetoxyscirpenol and are available in materials designed for specific tasks.
Ricin Gloves must be provided by the employer and should be
Saxitoxin of the proper size and appropriate material for the task.
Shigatoxin Gloves are available in wrist, elbow, and shoulder length.
Staphylococcal enterotoxins Thin latex, vinyl, or nitrile gloves offer protection from
Tetrodotoxin exposure to potentially infectious material and should
T-2 toxin be changed frequently. Because of latex hypersensitivity
a
From reference 58. in some workers, only powder-free latex gloves should
be used, or better yet, gloves should be made of nitrile,
polyethylene, or another material. The prevalence of latex
Handwashing allergy in healthcare workers ranges from 6 to 16% and
Handwashing is the most important procedure to reduce usually presents as a type of allergic reaction (e.g., skin
the duration of exposure to an infectious agent or chemi- rashes; hives; flushing; itching; nasal, eye, or sinus symp-
cal, prevent dissemination of an infectious agent, and re- toms; asthma; and rarely, anaphylaxis). While removal of
duce overall infection rates in a healthcare facility. Hand latex products from the workplace is the final solution,
contamination occurs during manipulation of specimens other exposure control measures include education of new

Table 28.7 Characteristics of hand-hygiene antiseptic agentsa
Bacteria
Group GP GN
Alcohols +++ +++
Chlorhexidine (2% and 4% +++ ++
aqueous)
Iodine compounds +++ +++
Iodophores +++ +++
Phenol derivatives +++ + +
Triclosanb +++ ++
Quaternary ammonium + ++
compounds
a
From reference 8. +++, Excellent; ++, good, but does not include entire bacterial spectrum; +, fair; −, no activity or not sufficient; F, fast; I, intermediate; S, slow;
GP, Gram positive; GN, Gram negative.
b
A polychlorophenoxyphenol.
employees on latex allergies, screening high-risk employ-
ees for latex allergy symptoms, and frequent cleaning and
changing of ventilation filters in latex use areas. When an
employee suffers from the more serious type I hypersensi-
tivity to latex, latex cannot be used in the employee’s work
area, which should be posted as “latex free.”
When working with chemicals, the gloves should be of
a material known to resist the particular chemicals. Gener-
ally the material will be neoprene, nitrile, or a butyl rubber.
General-purpose utility gloves should be used for house-
keeping chores. Insulated gloves are available for handling
hot or cold items. Puncture-resistant gloves should be used
in the autopsy suite or when handling scalpels or other
sharp objects.
Protective clothing. Laboratory workers should wear
fully closed long-sleeved coats or gowns that extend be-
low the level of the workbench. When there is a potential
for splashing or spraying, the material must be fluid re-
sistant. Fluid-proof clothing (plastic or plastic lined) must
be worn when there is the potential for soaking by infec-
tious material. When handling chemicals, clothing must
be composed of a material that is resistant to the particu-
lar chemical. Laboratory workers should not wear labora-
tory clothing out of the laboratory. All protective clothing
should be changed immediately when contaminated to
prevent the potentially infectious material or chemical
from contacting the skin. Coats and gowns should not be
taken home for cleaning but should be laundered by the
institution. When handling highly toxic compounds, com-
plete body suits should be worn.
CHAPTER 28. LABORATORY SAFETY 523
Speed of
Mycobacteria Fungi Viruses action Comments
+++ +++ +++ F Optimum concentration
60–95%; no persistent activity
+ + +++ I Persistent activity; rare allergic
reactions
+++ ++ +++ I Causes skin burn; usually too
irritating for hands
+ ++ ++ I Less irritating than iodine
+ + I Neutralized by nonionic
detergents
+ − +++ I Acceptability on hands varies
− − + S Used only in combination
with alcohols; ecologic
concerns
Face and eye protection. Face and eye protection should
be used when splashes or sprays of infectious material
or chemicals may occur. Face and eye protection equip-
ment includes goggles, face shields, and splash guards.
Face shields provide the best protection for the entire face
and neck. Splash guards provide an alternative method for
face and eye protection. If only goggles are worn, the user
should also wear an appropriate mask to prevent contami-
nation of mucous membranes. Hazardous materials such
as corrosives should always be manipulated behind splash
guards or while wearing appropriate PPE.
Engineering Controls
Engineering controls are those that involve making
changes to the work environment to reduce work-related
hazards. These types of controls are preferred over all oth-
ers because they make permanent changes that reduce
exposure to hazards and do not rely on worker behavior.
By reducing a hazard in the workplace, engineering con-
trols can be the most effective solutions for laboratories to
implement. These controls include mechanical pipettes,
bench tops impervious to liquids and chemicals, biohaz-
ard bags, centrifuge safety cups, eye wash stations, ventila-
tion systems, biological safety cabinets (BSCs) and fume
hoods, plasticware, and plastic collection devices (e.g.,
vacutainers, hematocrit tubes) (19). An OSHA standard
requires that safety needle devices or needleless systems be
used whenever possible (14, 47). All hazardous chemicals
should be stored below eye level and transported in safety
carriers. Incompatible chemicals should be stored apart,
and flammables should be stored in a safety canister and
524 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
a flame-resistant cabinet. The maximum quantity of flam-
mable material that can be stored in a cabinet is defined
by the manufacturer (33). Flammables requiring refrigera-
tion can only be stored in an explosion-proof refrigerator.
Compressed gas cylinders must be moved with the valve
safety cover in place and secured to a handcart. When sta-
tionary, the cylinder must be secured upright with bottom
and top restraints.
Work Practices
Work practices are procedures for safe and proper work
that are used to reduce the duration, frequency, or inten-
sity of exposure to a hazard. These controls need to be un-
derstood and followed by all who work in the laboratory.
These practices include not allowing mouth pipetting and
selecting less hazardous chemicals for a specific procedure.
Wearing open-toed shoes or sandals should not be allowed
in the laboratory to prevent accidental spillage on bare
skin. Movements that bring the hand to the mouth, eyes,
or mucous membranes should be discouraged. Therefore,
employees should not eat, drink, apply cosmetics or con-
tact lenses, etc., in the laboratory. Visitors should be dis-
couraged or accompanied by an employee.
Respiratory Protection
Respiratory devices are available to prevent inhalation of
chemical dust or fumes and infectious aerosols. The type
of mask used depends on the specific hazard. For exam-
ple, a properly fitted N95 mask is employed for protection
against aerosolized M. tuberculosis (15). A chemical fume
mask employs cartridges that are designed to reduce expo-
sure to a particular chemical, but the cartridge must be re-
placed periodically. A self-contained breathing apparatus
offers the greatest degree of protection and is used when
toxic levels are high or the danger is unknown (33).
Immunization
The current CDC/APIC (Association for Professionals
in Infection Control and Epidemiology) guidelines on
immunization of healthcare workers, including labora-
tory personnel, provide recommendations for agents on
the basis of documented nosocomial transmission, for
which there is substantial risk of acquisition or trans-
mission. These include hepatitis B, influenza, measles,
mumps, rubella, pertussis, and varicella (10, 11) (Table
28.8). The recommendations for vaccination of health-
care personnel are represented by two categories: (i) dis-
eases for which routine vaccination or documentation of
immunity is recommended because of risks to personnel
in their work settings and, should a healthcare worker be-
come infected, to the patients they serve and (ii) diseases
for which vaccination of personnel might be indicated
in certain circumstances. Vaccines recommended in the
first category are hepatitis B; seasonal influenza; measles,
mumps, and rubella; pertussis; and varicella vaccines.
Vaccines in the second category are meningococcal, ty-
phoid, and polio vaccines.
Warning Signs and Labels
Warning signs and labels are designed to provide a uni-
versal policy to alert visitors and employees to potential
laboratory hazards and hazardous areas in the laboratory.
A comprehensive warning labeling system should be im-
plemented to identify contaminated objects or hazardous
materials. OSHA-specified signage should be used when-
ever applicable (18, 43, 44). The color of the sign identifies
the level of risk: (i) danger (red, white, and black), (ii) cau-
tion (yellow and black), or (iii) safety instruction (green
and white) (18). Containers of hazardous reagents, radio-
nuclides, chemicals, and waste must be labeled with the
chemical name and appropriate hazard label (e.g., flam-
mable, corrosive, carcinogen, irritant).
Biological Safety Cabinets and Chemical
Fume Hoods
Chemical fume hoods should be used when there is risk of
exposure to hazardous fumes or splashes while preparing
or dispensing chemical solutions. Airflow is generally con-
trolled by a movable sash and should be in the range of 80
to 120 feet per minute (33, 44). Objects in the hood should
not obstruct the airflow or the workspace. Chemical fume
hoods are certified annually.
Biological hazards are best contained within a class IIA
or class IIB BSC. BSCs are the most important contain-
ment equipment in the microbiology laboratory. Class III
cabinets are used with infectious agents requiring BSL-3
or -4 containment. BSCs operate at a negative air pressure,
with air passing through a HEPA filter. The vertical airflow
serves as a barrier between the cabinet and user. BSCs are
certified annually. More detailed information on the selec-
tion and use of BSCs can be found in Appendix 28.2 and
references 12, 13, and 15.
Sterilization and Decontamination
When discussing germicides, sterilants, disinfectants, and
decontamination, it is important to understand the dif-
ferences between the terms (15, 19, 21). A germicide is a
substance that kills pathogenic organisms on inanimate
surfaces. Disinfectants destroy all microorganisms, but
not necessarily their spores, on inanimate surfaces. Steri-
lants are agents that kill all microbial life, including spores,
on inanimate surfaces. Prions (abnormal host proteins) are
not covered by these definitions.
Decontamination is a procedure that eliminates or re-
duces microbial or toxic agents to a safe level with respect
 CHAPTER 28. LABORATORY SAFETY 525

Table 28.8 Immunizing agents and schedules for healthcare personnela

Name Primary schedule/booster(s) Indications
Immunizing agents recommended for all healthcare personnel
Hepatitis B recombinant vaccine Two doses 4 weeks apart; third dose 5 months Personnel at risk for exposure to blood or
after second; booster doses not necessary body fluids
Influenza vaccine (TIV and LAIV) Annual vaccination with current seasonal All healthcare personnel
vaccine
Measles live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity b; should
be considered for those born before 1957
Mumps live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity c; should
be considered for those born before 1957
Rubella live-virus vaccine Two doses at least 28 days apart Recommended for all personnel who lack
presumptive evidence of immunity d
Tetanus and diphtheria (toxoids) and acel- One dose regardless of last Td; after Tdap, re- All healthcare personnel
lular pertussis (Tdap) ceive Td for routine booster every 10 years
Varicella-zoster virus live-virus vaccine Two doses 4 to 8 weeks apart if aged greater All healthcare personnel who do not have
than 12 years evidence of immunity e

Other immunologics that might be indicated in certain circumstances for healthcare personnel
Quadrivalent meningococcal conjugate One dose; booster dose in 5 years if person Microbiologists who might be routinely ex-
vaccine (ages 19–54 years); quadrivalent remains at increased risk posed to isolates of Neisseria meningitidis
meningococcal polysaccharide vaccine
(age ≥ 55 years)
Typhoid vaccine IM: one dose, booster every 2 years; Oral: four Microbiologists who frequently work with
doses on alternate days, revaccination with Salmonella typhi
entire four-dose series every 5 years
Inactivated poliovirus vaccine (IPV) If unvaccinated, two doses 4 to 8 weeks apart; Healthcare personnel with exposure to pa-
third dose 6 to 12 months after second dose tients who might be excreting polioviruses
a
From reference 11.
b
Written documentation of vaccination with two doses of live measles or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles
immunity or laboratory confirmation of measles disease or birth before 1957.
c
Written documentation of vaccination with two doses of live mumps or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles im-
munity or laboratory confirmation of measles disease or birth before 1957.
d
Written documentation of vaccination with one dose of live rubella or MMR vaccine administered greater than 28 days apart or laboratory evidence of measles
immunity or laboratory confirmation of measles disease or birth before 1957.
e
Evidence of immunity is defined as written documentation of vaccination with two doses of varicella vaccine or laboratory evidence of immunity or laboratory confir-
mation of disease or diagnosis/verification of varicella disease by a healthcare provider.

to the transmission of infection or other adverse effects.
Routine decontamination of the work environment is usu-
ally performed with disinfectants (Table 28.9). It is impor-
tant that the manufacturer’s instructions for preparation
and use be followed carefully. The selection of a disinfec-
tant depends on the degree of microbial killing required, the
effectiveness against an extended spectrum of pathogens,
compatibility with the surface or device being decontami-
nated, toxicity, residue activity, and odor. Disinfectants can
be hazardous compounds when not used properly (Table
28.9). No single product is adequate for all decontamination
purposes. Appropriate PPE (i.e., gloves, impervious gowns,
eye protection, masks) should be worn when cleaning and
decontaminating equipment. Alcohol should not be used in
a poorly ventilated area or near flames, and corrosive so-
dium hypochlorite solutions should not be used on metals.
Prions, the causative agents of Creutzfeldt-Jacob disease
and transmissible spongiform encephalopathies, are resis-
tant to standard disinfection and sterilization procedures
(1, 15, 19, 22). The disinfection procedures for high-risk
specimens (central nervous system tissue), medium-risk
specimens (cerebrospinal fluid, lymph node, spleen, pi-
tuitary gland, and tonsil) and low-risk specimens (bone
marrow, liver, lung, thymus, and kidney) or equipment
contaminated with these specimens differ according to
the level of risk (15, 22). Devices or material contaminated
with high-risk tissue should be discarded or decontami-
nated by steam sterilization at 121°C for 1 h or soaked in
1N NaOH for 1 h or in 0.5% sodium hypochlorite (2%
free chlorine) for 2 h before cleaning and sterilization by
conventional means (15). Conventional heat, chemical,
or gas sterilization or high-level disinfection can sterilize
526 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.9 Activity levels and hazards of selected germicidesa

Procedure/product Aqueous concentration Activity level Hazards
Sterilization
Glutaraldehyde Variable NA Dermatitis, toxic
Hydrogen peroxide 6–30% NA Irritant
Formaldehyde 6–8% NA Irritant, toxic, sensitization
Chlorine dioxide Variable NA Irritant, gas toxic
Peracetic acid Variable NA Irritant

Disinfection
Glutaraldehyde Variable High to intermediate Dermatitis, toxic
Hydrogen peroxide 3–6% High to intermediate Irritant
Formaldehyde 1–8% High to low Irritant, toxic, sensitization
Chlorine dioxide Variable High Irritant, gas toxic
Peracetic acid Variable High Irritant
Chlorine compounds 500–5,000 mg/liter free avail- Intermediate Gas toxic, irritant
able chlorine
Alcohols Ethyl, isopropyl: 70% Intermediate Toxic (isopropyl)
Phenolic compounds 0.5–3% Intermediate to low Leukoderma, depigmentation
Iodophor compounds 40–50 mg/liter free iodine; up to Intermediate to low Skin irritation
10,000 mg/liter available iodine
Quaternary ammonium compounds 0.1–0.2% Low Dermatitis, sensitization
a
From references 8, 15, and 21. NA, not available.

devices contaminated by medium- or low-risk specimens.
Formaldehyde (3.7 to 4.0%)–fixed brain tissue (0.5 mm
thick) is soaked in 95 to 100% formic acid for 1 h followed
by immersion in fresh 4% formaldehyde for 48 h before
preparing histological slides for examination.
Spill Management
Biological
The management of biohazardous spills in the clinical labo-
ratory must account for the specific infectious agent, the
volume of infectious material spilled, and the presence of
aerosols. Spills involving BSL-3 agents are serious because
aerosols can transmit these agents. Occupants should hold
their breath, evacuate the area immediately, close the doors,
and not reenter the area for 30 to 60 min (15, 24). When
breakage occurs in a centrifuge, the equipment must re-
main closed for at least 30 min before decontamination is
undertaken. A tuberculocidal disinfectant should be used
for decontamination (19). A low-level disinfectant such as a
quaternary ammonium compound should not be used. Ad-
ditional factors that influence decontamination of the spill
site include the type of infectious material (blood, culture
medium), the concentration and virulence of the infectious
agent, the protein content of the material, and the spill sur-
face (porous or fluid resistant). Initially, spills should be
absorbed with paper towels, gauze pads, or commercial ab-
sorbents such as granular or silica gel absorbents.
Generally, the spill cleanup should be performed by the
individual who accidentally spilled the infectious mate-
rial or by people specifically trained in the cleanup of bio-
hazardous materials. Appropriate protective equipment
must be used in decontaminating spills involving BSL-2 or
BSL-3 agents. The PPE includes disposable gloves (heavy-
weight and puncture resistant), fluid-impermeable shoe
covers, coats or gowns with long sleeves, and facial protec-
tion. When the spill involves a BSL-3 agent, a respirator
or HEPA-filtered mask should be used. In this situation it
is usually best to call the spill emergency response team,
which is trained to handle this type of spill.
Any broken glass in the spill area should be removed
and discarded without contact with the hands. This is ac-
complished with rigid cardboard, tongs, forceps, hemo-
stats, or a plastic scoop (dustpan). Glass is discarded into
a puncture-resistant container, and other contaminated
material is discarded into a biohazardous waste container.
After the absorbent material is discarded, the spill site
can be cleaned with an aqueous detergent solution to di-
lute any remaining infectious material and to remove ex-
cess protein. You should use a tuberculocidal disinfectant
that remains on the site for 20 min. Then absorb any re-
maining disinfectant with absorbent material, rinse the
area with water, and dry.
When spills occur in a BSC, do not turn off the cabinet
fan. Minor spills can be absorbed with absorbent paper,
and the area can be decontaminated with a disinfectant.

When the infectious material has flowed into the grille, all
items in the cabinet should be wiped with a disinfectant
and removed. The drain valve should be closed, and dis-
infectant should be poured onto the surface and through
the grille into the drain pan. You should allow 20 min of
contact time with the disinfectant and then absorb the
disinfectant with paper towels. Attach a hose to the drain
valve and drain into a container with disinfectant. Remove
the grille and rinse the drain pan with water. For major
spills involving BSL-3 agents, a service consultant should
be contacted for decontamination.
All materials necessary for the cleanup of a biohazard-
ous spill should be assembled and stored as a biohazard
spill kit (Appendix 28.4). The kit should contain an appro-
priate disinfectant (e.g., 10% household bleach), absorbent
material (e.g., paper towels, gauze pads, and granular ma-
terial such as BioZorb for large spills), PPE (e.g., puncture-
resistant utility gloves, water-impermeable shoe coverings,
gown, mask, face shield, or eyewear), and autoclavable
dustpan, tongs or forceps, plastic scoop and pusher, and
bags. For BSL-3 agents a full-face respirator or HEPA-
filtered mask should be available. The biohazard spill kit
can be stored in a puncture-resistant biohazardous waste
container. Examples of spill cleanup procedures may be
found in various guidelines (13, 15, 19, 24) and Appendix
28.5. Following the spill cleanup, a report should be com-
pleted and submitted to the safety committee.
Chemical
The laboratory should have adequate spill response equip-
ment readily available as a chemical spill kit (18). In the
event of a chemical spill or leak, an initial determination on
the need for an evacuation is made based on the immedi-
ate danger to life or health or when employees experience
severe discomfort. Any or all of the following conditions
usually warrant an evacuation:
• Injured or ailing personnel
• Symptoms of irritation reported by employees
• Large-volume spill
• Flammable or explosive material spilled
• Carcinogen spilled
• Presence of strong odors
When an evacuation is required, close off the area, notify
employees in the immediate vicinity of the spill, and report
the situation to the emergency response team. Provide the
location, nature of the spill, personnel injured or trapped,
and hazard involved. Do not attempt to rescue patients or
employees if your life or health may be endangered.
For minor spills (not involving flammables, explosives,
or carcinogens), contain the spill, close off the spill area,
CHAPTER 28. LABORATORY SAFETY 527
and contact the emergency response team. An example
of a chemical spill cleanup procedure for minor spills is
shown in Appendix 28.6. A trained person should clean
up the spill using appropriate PPE (gloves, gowns, and
shoe covers resistant to the chemical, plus a face shield).
Contain the spill with spill pads, pillows, or socks. Clean
the spill using approved absorbents and neutralizing
agents. Package the waste appropriately for pickup, label-
ing the container with the substance, date, and amount of
material. As with biological spills, the response is depen-
dent on the chemical hazard and volume of the spill. Pre-
pare a spill report and submit it to the safety committee.
The material safety data sheets (MSDSs) contain informa-
tion on the hazard classification, appropriate PPE, symp-
toms arising from exposure, and instructions for the safe
handling, disposal, and cleanup of laboratory chemicals.
OSHA requires that MSDSs for all laboratory chemicals
be readily available to all employees. Emergency aids such
as eyewash stations and an emergency shower should
be available in locations in which caustic and corrosive
chemicals are used and in which the possibility of a large
spill exists.
Fire Safety
While proper procedures and training can minimize the
chances of an accidental fire, laboratory workers should
still be prepared to deal with a fire emergency should
one occur. Laboratories should have a written emergency
plan and ensure that workers are trained. A training pro-
gram should be provided for new employees and updates
provided to current employees as needed. The program
should include recognition and evaluation of fire hazards,
planning to reduce the risk of fire, and all actions to take
when a fire occurs (18).
Waste Management
The laboratory is a major generator of chemical and bio-
hazardous waste in the healthcare facility. Procedures for
the handling of chemical waste are well defined because
the hazardous substance is usually identifiable. However,
medical or infectious wastes are not well defined and in-
clude categories such as contaminated sharps, cultures
and stocks of infectious agents, blood and body fluids,
and pathological waste (17, 37). For effective and efficient
management of infectious wastes, a comprehensive man-
agement plan is essential to ensure the safety of the em-
ployees handling the waste, compliance with the various
regulatory requirements, meeting the standards of The
Joint Commission and the guidelines of other professional
groups such as CLSI, and implementation of cost-effective
strategies for waste disposal.
528 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Regulatory Oversight
There are numerous federal, state, and local regulations
governing the management of biohazardous waste:
• Federal regulations
• OSHA’s Bloodborne Pathogen Standard (45): Ap-
plies to the handling and packaging of regulated
waste and the implementation of procedures to pro-
tect employees against potential exposure to infec-
tious medical waste.
• Department of Transportation (DOT) (55, 56): Sets
requirements for transport of hazardous materials
and regulated medical waste.
• Guidelines and standards
• CDC/NIH (13): Management of infectious waste.
• CLSI (17): Management of waste generated by a
clinical laboratory.
• The Joint Commission (36): Requires a waste man-
agement plan for the institution that is in compli-
ance with all federal, state, and local regulations.
• State and local regulations: Many state and local
jurisdictions have passed regulations governing the
handling, treatment, and disposal of biohazardous
waste.
Management Program
The laboratory’s waste management plan should be part of
the overall facility plan and must comply with the numer-
ous federal, state, and local regulations. Most plans address
the following elements.
Identification of hazardous waste. Although no generally
acceptable definition of medical waste is available, there
are categories of waste that are considered potentially in-
fectious, namely human blood, body substances, and blood
products; contaminated sharps; cultures and stocks of mi-
crobial agents; contaminated laboratory waste; PPE grossly
contaminated with blood, body fluids, or microbiological
cultures; and pathological waste (13, 15, 17, 20, 45).
Segregation. Knowledgeable personnel segregate waste
into designated categories (i.e., chemical, routine trash,
radiological, and infectious) at the point of generation to
reduce the cost of disposal and to protect employees and
others from exposure to hazardous material.
Packaging and labeling. Appropriate containment of haz-
ardous material is the key to minimizing personnel and pub-
lic exposure. Chemical and radioactive waste is separated
and handled differently from other regulated medical waste.
Containers for liquids are leak-proof. All containers must
have secure closures and maintain their integrity through-
out the handling and transportation process. Containers
must comply with the OSHA requirements for the category
and volume of waste and treatment, transportation, labeling,
and disposal method. For example, sharps must be placed
in impervious, rigid, leak-proof, color-coded, puncture-
resistant containers with secure lids. Other medical waste
may be placed in containers that are leak-proof and labeled
or color-coded as to hazard and have secure closures.
Storage. All waste should be treated as soon as possible.
The waste storage area should be posted as to the hazard,
be sited near the treatment area or loading dock for off-
site treatment, and maintain a temperature and duration
of storage that prevents spoilage. Access should be limited
to authorized personnel.
Transport. Waste is transported in labeled and leak-proof
containers or carts appropriate for the hazard. When
shipped to an off-site treatment facility, the contain-
ers must meet the specifications established by the DOT.
Transportation containers or carts should be routinely
disinfected.
Treatment and disposal. The treatment and disposal of
waste must comply with all federal, state, and local regula-
tions. Most institutions contract with companies licensed
to treat and dispose of hazardous waste. A number of waste
treatment techniques and disposal methods are available
for organizations that produce a small amount of waste
(17, 20), but they must meet all regulatory requirements.
Contingency planning. The waste management plan should
include a written plan for alternative treatment and dis-
posal in the event of the failure of the normal waste man-
agement process. This plan must provide for increased
storage or include an agreement with another generator to
handle the waste in an emergency.
Training. Employee training must comply with OSHA’s
requirements and should include exposure risk infor-
mation, safety policies, procedures for handling waste,
required PPE, and the duties and responsibilities of the
position. Training occurs annually for all employees, im-
mediately for new employees, and before workers assume
new duties or tasks.
Packaging and Shipping
Infectious Substances
A complex and confusing set of national and international
guidelines and regulations governs the packing and ship-
ment of clinical specimens and cultures of microorganisms
(35, 55, 57, 60). The most widely recognized, copied, and ac-
cepted requirements come from the International Air Trans-
port Association (IATA). Most national and international
 CHAPTER 28. LABORATORY SAFETY 529

regulations are based on or are at least in substantial agree-
ment (harmonization) with IATA requirements. In the
United States, the Department of Transportation (DOT)
regulates the commercial transport of dangerous goods by
both air and ground carriers. The DOT revised its regula-
tions for the transportation of infectious substances to be in
substantial harmonization with IATA requirements. These
regulations dictate the packaging and labeling of infectious
material that is shipped via commercial carriers with the
stated goal of protecting employees in the transportation
industry and the general public. This protection is based
on packages that are unlikely to leak or be damaged during
shipment, labels affixed to the package that identify the par-
ticular hazard, and trained personnel who are responsible
for the shipment of infectious material. These regulations
and guidelines are constantly evolving as the various groups
and organizations attempt to agree on one set of standards.
Infectious Substances Classification
Classes of dangerous goods that are regulated include ex-
plosives, gases, flammables (liquids and solids), oxidizing
substances, toxic and infectious substances, radioactive
material, corrosives, and miscellaneous (includes dry ice).
The two classes encountered in the clinical laboratory are
class 6 (toxic [6.1] and infectious substances [6.2]) and
class 9 miscellaneous dangerous goods (including dry ice).
Infectious substances are materials known or suspected
to contain a pathogen with the potential to cause disease
upon exposure. A pathogen is a virus or microorganism
(including its plasmids or other genetic elements) or pro-
teinaceous particle (prion) that has the potential to cause
disease in humans or animals. In most clinical laborato-
ries, division 6.2 infectious substances must be classified
into one of the following four types:
• Category A infectious substance
• Category B infectious substance
• A patient specimen
• Exempt human specimen
A category A substance (pathogen or agent) is “an infec-
tious substance which is transported in a form that, when
exposure occurs, is capable of causing permanent disability
or life-threatening or fatal disease to otherwise healthy hu-
mans or animals.” Category A pathogens were previously
classified as WHO risk group 4 substances and ostensi-
bly encompass cultured select agent organisms. If there is
doubt as to whether or not a substance meets the criteria of
category A, it must be included in category A. Category A
pathogens must be assigned the UN number UN2814 (in-
fectious substance, affecting humans) or UN2900 (infec-
tious substance, affecting animals). A category B substance
is defined by IATA as “an infectious substance which does
not meet the criteria for inclusion in Category A.” Category
substances are not in a form generally capable of causing
disability, life-threatening illness, or fatal disease. Exam-
ples include typical clinical, diagnostic, or patient speci-
mens and typical clinical laboratory cultures of routinely
encountered non–category A microorganisms. Category
B substances must be assigned UN number UN3373 (bio-
logical substance, category B). Exempt specimens are those
for which there is “minimal likelihood there are pathogens
present.” A patient specimen is material collected directly
from humans for diagnostic, treatment, prevention, inves-
tigational, or research purposes. Patient specimens that
have category A or B criteria should be classified, packed
and shipped as category A or B. Patient specimens that have
neither category A nor B criteria should be packed and
shipped as exempt human specimens (Table 28.10). For
category A shipments, an itemized list of contents must be
placed between the secondary and outer packaging.
The shipper is legally responsible for correctly classify-
ing the material being shipped and for packing substances
correctly to ensure the safety of all personnel who handle
the package before, during, and even after shipment to the
point of acceptance of the package by the consignee. When
there is uncertainty about the infectious nature of the mate-
rial, it is prudent to declare and ship the material as an in-
fectious substance. The following questions may be helpful
for classifying diagnostic specimens and biological prod-
ucts (52) and in determining substances that are regulated.
• Is the substance known or suspected to contain a
pathogen?
• Is the sample being shipped for diagnostic or investiga-
tional purposes?

Table 28.10 Shipping classification examples

Substance Classification UN number/label
Blood sample suspected to contain Category A; infectious substance, UN2814
Ebola virus affecting humans
Culture of foot and mouth disease virus Category A; infectious substance, UN2900
affecting animals
Blood sample suspected to contain Category B, biological substance UN3373
hepatitis B virus
Blood sample for cholesterol testing Exempt Exempt human specimen
530 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
• Is there a low probability for the occurrence of risk
group 4 pathogens in the sample?
• Is the sample known not to contain a pathogen?
• Is the substance a licensed biological product?
• Is the substance being shipped for any other reason?
Packaging, Labeling, and Shipping
Regulated Material
All packages containing infectious substances must meet
the shipping regulations of various organizations or agen-
cies (35, 59, 60). However, the International Air Transport
Association (IATA) requirements are usually acceptable
under all regulations. They require triple packaging con-
sisting of a primary receptacle that is leak-proof, second-
ary packaging that is also leak-proof, and an outer package
that is durable (Appendix 28.7). These containers are com-
mercially available. For liquid infectious substances, an
absorbent material should be placed between the primary
receptacle and secondary packaging and be sufficient to
absorb the entire contents.
There are specific instructions for labeling packages
containing infectious substances, diagnostic specimens,
and biological products (29). Under IATA requirements,
labeling and marking of the outer package must include the
following as appropriate for the substance (Appendix 28.8):
• An address label with the shipper’s and receiver’s
names and addresses
• A hazard label for category A shipments; “Infectious
Substance” label UN2814 or UN2900
• A hazard label for dry ice; class 9 “Miscellaneous Dan-
gerous Goods” label
• Marking required for category B shipments; UN3373
• Label for “Exempt Human Specimens” if neither cat-
egory A nor B
A shipper’s declaration is required for dry ice (a danger-
ous good) if dry ice is used as a refrigerant for a category
A substance, but not for a category B substance or exempt
human specimens. A shipper’s declaration form may be
available electronically from the carrier. The shipper
should prepare at least three copies: one for their records
and two for the carrier. The carrier must deliver a copy
to the consignee. The shipping documents must be affixed
to the outer package and include the shipper’s declaration
(Appendix 28.9) and an airway bill if shipping by air. Ori-
entation labels (arrows) must be placed on all packages
containing greater than 50 ml of material.
The Federal Aviation Agency and/or Department of
Transportation may inspect any shipper or receiver of
dangerous goods unannounced at any time. The inspector
may review training records, oversee the actual packaging
and labeling of a shipment, and/or call the 24-h emergency
number listed on the paperwork. The shipper or receiver
may be quizzed on the hazards and characteristics of the
dangerous goods, the proper decontamination and dis-
posal of the hazardous material (information found on
the MSDS), and accident mitigation. It is critical that the
training program for the shipment of dangerous goods
emphasizes this safety information. Anyone involved in
the shipping or transportation of dangerous goods must
be trained and certified. Recertification is required every
two years.
Personnel Training
Safety training and the education of workers about poten-
tial hazards and safe work practices are essential to creating
a safe work environment (15, 33). All personnel employed
in the clinical laboratory must receive adequate safety
training applicable to their positions in order to perform
their assigned tasks in a safe manner. Safety policies should
be applied to work practices. This training is mandated by
various governmental regulations and accreditation orga-
nizations and is required for new employees and students,
individuals assigned new tasks, before the introduction of
new hazards or procedures to the work environment, and
on an annual basis for all personnel.
Training Program
The size and complexity of a safety training program will
vary with the needs of the institution but must cover all
applicable safety topics and policies. Some topics include:
• Chemical information regarding job-specific hazards
(e.g., exposure to formaldehyde or carcinogens)
• Management of hazardous material and waste
• Blood-borne pathogen information (epidemiology,
symptoms, transmission)
• Standard precautions
• Selection, use, and limitations of PPE, safety equip-
ment, and other control procedures
• Postexposure management, accident reporting, and
investigation of incidents
• Emergency preparedness, including bioterrorism issues
• Availability of all safety regulations
• Medical surveillance program
• The employee’s responsibility to follow all safety poli-
cies and inform supervisors of potential safety hazards
The laboratory safety training program should be de-
veloped with input from the infection control practitioner,
industrial hygienist, and other knowledgeable individuals;
highlight the potential risk from infectious agents and haz-
ardous chemicals; and emphasize the reduced risk when
work is performed according to the safety guidelines. The
 CHAPTER 28. LABORATORY SAFETY 531

contents of the training program should be updated fre-
quently as new safety information becomes available or
regulations change.
Methods
The training format can be lectures, hands-on demon-
strations, safety workshops, videos, computer programs,
or distance learning. However, no matter which method
is used, the trainer must be available to immediately re-
spond to the trainee’s questions during the session. The
trainer must be competent in the area of laboratory safety
and knowledgeable about current safety regulations, work
practices, safety equipment, and hazards found in the clin-
ical laboratory.
Documentation
The date of training, a summary of the presentation (or
contents of the session), and attendance should be docu-
mented and placed in the employee’s record. Training rec-
ords should be maintained for 3 years.
Monitoring and Evaluation
The effectiveness of the training program can be evaluated
with a test but realistically must be assessed by observing
the daily practices of the employees for compliance with
safety policies. When safety practices are not followed, the
individual should be counseled and reeducated on the ap-
propriate practice. Repeated disregard for safety guidelines
should trigger strict disciplinary action. It is the employer’s
responsibility to enforce adherence to safe work practices.
The overall effectiveness of the laboratory safety pro-
gram is assessed through safety audits (Table 28.11), in-
spections by outside agencies and organizations, review
of incident and accident reports (Appendix 28.10), and
observations and suggestions from employees. Audits and
inspections should highlight concerns and provide recom-
mendations to improve the safety program. Management
provides the resources to address and correct any deficien-
cies, beginning with the most frequent and severe prob-
lem. However, in the end, a safe workplace develops from
the efforts of all individuals in the organization.

Table 28.11 Sample laboratory safety audit

Date: Location:
Instructions:
• Answer yes, no, or N/A (not applicable)
• Explain N/A responses on separate sheet
• If insufficient space, include information on separate page

General Describe deficiency

_______ Has a Safety Officer been appointed?

_______ Employee safety training at hire and then annually?
_______ Current posted listing of emergency contacts?
_______ Are BSCs certified annually?
_______ Blood-borne pathogen and chemical spill kits available?
_______ Are chemical fume hoods certified annually?

Housekeeping/signage

_______ Are aisles/hallways unobstructed?

_______ Are work surfaces routinely disinfected?
_______ Are doors and storage areas labeled appropriately?
_______ Are proper warning labels on containers?
_______ Are handwashing sinks available?
_______ Are heavy objects stored on lower shelving?
_______ Are biohazard receptacles separate from regular trash?
_______ Is trash removed at least once daily or when full?
_______ Is storage in hoods limited to not obstruct ventilation?
_______ Are tops of centrifuges locked down when in use?
_______ Are refrigerators clean and defrosted?

(continued)
532 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

Table 28.11 Sample laboratory safety audit (continued)

Personal Protective Equipment Describe deficiency

_______ Has PPE assessment been completed and documented?

_______ Are proper lab coats worn while in work area?
_______ Are lab coats and gloves removed before leaving the lab?
_______ Are appropriate gloves worn while testing?
_______ Are gloves available in appropriate sizes?
_______ Are glove liners available for those with latex allergy?

Documentation

_______ Are current CLSI documents M29 and GP17 available?

_______ Are safety training records kept for three years?

Blood-borne pathogens

_______ Is blood-borne pathogen written program available?

_______ Do employees understand standard precautions?
_______ Are hands washed before leaving the work area?
_______ Are sharps containers disposed of when ¾ full?
_______ Is mouth pipetting prohibited?
_______ Do employees refrain from eating, drinking in lab?
_______ Are those shipping infectious substances certified?

Chemical Hygiene

_______ Is chemical hygiene plan available and current?

_______ Do employees know where MSDSs are located?
_______ Has the chemical inventory been performed and updated?
_______ Is there a list of carcinogens, mutagens, teratogens?
_______ Has chemical risk assessment been updated?
_______ Are chemicals stored appropriately?
_______ Have employees been trained in spill clean-up?

Fire

_______ Is there a fire alarm pull station nearby?

_______ Can fire alarm be heard in the lab?
_______ Are emergency exits accessible?
_______ Are fire extinguishers accessible?
_______ Have fire extinguishers been serviced?
_______ Have quarterly fire drills been completed/documented?

Waste Management

_______ Is there a waste management plan?

_______ Is there a recycling program?
_______ Is waste disposed of according to regulations?
_______ Has the use of mercury been eliminated in the lab?

Summary
The laboratory contains many biological, chemical, ra-
diological, and physical hazards, including new infec-
tious agents and the possibility of the use of biological
and chemical agents for acts of terrorism. However, many
tools and practices are available to reduce the occupational
risk from exposure to these hazards, including safety de-
vices, standard precautions, PPE, BSCs and chemical fume
hoods, warning signs and labels, safe work practices, and
proper disposal of biological and chemical waste. A well-
written safety management plan is a blueprint for imple-
mentation of safe practices and includes the necessary
training to produce a safe work environment.
KEY POINTS
■ Laboratory workers are exposed to biological, chemical,
physical, and radiological hazards.
■ A well-written and enforced safety management plan
can minimize occupational risk.
■ All laboratory personnel should adhere to the con-
cept of standard precautions and use available barrier
precautions.
GLOSSARY
Aerosol A system of respirable particles dispersed in a gas,
smoke, or fog that can be retained in the lungs.
Airborne transmission The spread of infection by inhalation of
droplet nuclei containing an infectious agent.
Blood-borne pathogens Pathogenic microorganisms that are
present in human blood and can cause disease in humans.
Carcinogen Substance capable of causing a malignant tumor in
humans or animals.
Category A substance An infectious substance or microorgan-
ism that is transported in a form that, when exposure to it oc-
curs, is capable of causing permanent disability or life-threatening
or fatal disease in an otherwise healthy human or animal.
Category B substance An infectious substance that does not
meet category A criteria. Category B substances generally are
considered to be one of the following: (i) patient or clinical speci-
men reasonably expected to contain, or being cultured or other-
wise tested for, a pathogen and (ii) microorganisms not specifically
listed in category A.
Ceiling limit The airborne concentration of a substance that
cannot be exceeded at any time during the workday.
Contaminated Describes the presence or reasonably anticipated
presence of blood or other potentially infectious materials on an
item or surface.
Corrosive Any substance that causes visible destruction of hu-
man tissue at the site of contact. The U.S. Environmental
CHAPTER 28. LABORATORY SAFETY 533
Protection Agency defines corrosivity as a substance that is
highly acidic (pH < 2.1) or highly alkaline (pH > 12.4).
Decontamination A procedure that eliminates or reduces mi-
crobial or toxic agents to a safe level with respect to the transmis-
sion of infection or other adverse effects.
Disinfectant An agent intended to destroy or irreversibly inacti-
vate all microorganisms, but not necessarily their spores, on in-
animate surfaces, e.g., work surfaces or medical devices.
Disinfection A procedure that kills pathogenic microorganisms
but not necessarily their spores.
Engineering controls Controls (e.g., sharps disposal containers,
self-sheathing needles, safer medical devices) that isolate or re-
move the hazard from the workplace.
Germicide A general term for an agent that kills pathogenic mi-
croorganisms on inanimate surfaces.
Infectious waste Waste containing or assumed to contain patho-
gens of sufficient virulence and quantity that exposure to the waste
by a susceptible host may result in a communicable disease.
International Air Transport Association (IATA) A trade orga-
nization of the commercial airline industry that governs interna-
tional aviation and publishes Dangerous Goods Regulations for
use by anyone who packs, ships, or handles dangerous goods.
Latex allergy Allergic reaction associated with latex glove use.
The two types of allergic reactions are contact dermatitis (type
IV delayed hypersensitivity), due to chemicals used in process-
ing latex, and the more serious immunoglobulin E/histamine-
mediated allergy (immediate or type I hypersensitivity), due to
latex proteins.
Material safety data sheet (MSDS) Provides detailed informa-
tion about hazards and protective measures relative to hazardous
chemical substances.
Occupational exposure Reasonably anticipated skin, eye, mu-
cous membrane, or parenteral contact with a hazard that may
result from the performance of an employee’s duties.
Other potentially infectious material (OPIM) Human body flu-
ids including semen, vaginal secretions, urine, cerebrospinal
fluid, synovial fluid, pleural fluid, pericardial fluid, peritoneal
fluid, amniotic fluid, saliva, body fluids that may be contaminated
with blood, unfixed tissue, HIV- or hepatitis virus–containing cell
or organ cultures, blood or tissue from an infected animal, re-
agents, infectious waste, and cultures.
Parenteral Piercing mucous membranes or the skin through
events such as needlesticks, human bites, and abrasions.
Permissible exposure limit (PEL) Maximum allowed exposure
during a time-weighted average period (e.g., 8-h workday or
40-h workweek).
Personal protective equipment (PPE) Specialized clothing or
equipment worn by an employee for protection against a hazard.
Primary container A vessel, including its closure, that contains
a specimen.
534 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
Prions Infectious, abnormal host proteins that cause transmis-
sible spongiform encephalopathies and are resistant to a number
of standard disinfection and sterilization procedures.
Regulated waste Liquid or semiliquid blood or OPIMs, con-
taminated items that would release blood or OPIMs in a liquid or
semiliquid state if compressed, items that are caked with dried
blood or OPIMs and are capable of releasing these materials dur-
ing handling, contaminated sharps, and pathological and micro-
biological wastes containing blood or OPIMs.
Secondary container A vessel into which the primary container
is placed for transport within an institution. It contains a speci-
men if the primary container breaks or leaks in transit.
Sharps container A container approved for the containment
and transport of contaminated sharps.
Short-term exposure limit Maximum exposure to a hazardous
substance allowed at one time (normally measured in a single
15-min period).
Standard precautions Set of precautions applied to all patients;
designed to reduce risk of transmission of microorganisms in the
healthcare setting.
Sterilant An agent intended to destroy all microorganisms (vi-
ruses, vegetative bacteria, fungi, and a large number of highly
resistant bacterial endospores) on inanimate surfaces.
Sterilization A procedure that effectively kills all microbial life,
including bacterial spores, on inanimate surfaces.
Universal precautions Set of precautions designed to reduce the
risk of transmission of HIV, HBV, and other blood-borne patho-
gens in the healthcare setting.
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 CHAPTER 28. LABORATORY SAFETY 537

APPENDIX 28.1 Sample Form for Declination of Hepatitis B Vaccinationa

HEPATITIS B VACCINE DECLINATION

I understand that due to my occupational exposure to blood, or other potentially infectious materials, I may be at risk of acquir-
ing hepatitis B virus (HBV) infection. I have been given the opportunity to be vaccinated with HBV vaccine, at no charge to
myself. However, I decline HBV vaccination at this time. I understand that by declining this vaccine, I continue to be at risk of
acquiring hepatitis B, a serious disease. If, in the future, I continue to have occupational exposure to blood or other potentially
infectious materials and I want to be vaccinated with HBV vaccine, I can receive the vaccination series at no charge to me.

Print full name Date of birth

Signature of employee Date

a
See reference 45.

APPENDIX 28.2 Information Resources on the Interneta

U.S. GOVERNMENT AGENCIES Office of Health and Safety

Centers for Disease Control and Prevention (CDC)
http://www.cdc.gov
Resources related to public health issues in the United States.
U.S. Department of Health and Human Services (HHS)
http://www.hhs.gov
Information on policies and regulations, disasters and emergencies,
safety, diseases and conditions, aging, resource locators, drugs and
food, and other topics.
U.S. Department of Transportation (DOT)
http://www.dot.gov
Resources related to the transportation of infectious and diagnostic
specimens.
U.S. Environmental Protection Agency (EPA)
http://www.epa.gov
Information on general-purpose disinfectants.
U.S. Food and Drug Administration (FDA)
http://www.fda.gov
Information on chemical germicides formulated as antiseptics, pre-
servatives, sterilants, high-level disinfectants, and agents used on
the body.
National Institute for Occupational Safety and Health (NIOSH)
http://www.cdc.gov/niosh
Training materials and information on chemical agents and emer-
gency preparedness.
Occupational Safety and Health Administration (OSHA)
http://www.osha.gov
Training materials, standards, and regulations related to safety in
the workplace.
http://www.cdc.gov/biosafety
Training materials and information on safety, biosafety, and safety
survival skills.
U.S Government Printing Office
http://www.gpo.gov/fdsys
A source for federal regulations.
BIOSAFETY RESOURCES
CDC/NIH: Biosafety in Microbiological and Biomedical
Laboratories, 5th ed.
http://www.cdc.gov/biosafety/publications/bmbl5
CDC/NIH: Primary Containment for Biohazards: Selection,
Installation and Use of Biological Safety Cabinets
http://www.cdc.gov/biosafety/publications/bmbl5/BMBL5_
appendixA.pdf
Medical Surveillance and Biosafety Program References
http://www.cdc.gov/biosafety
References on occupational health and laboratory safety with mate-
rials on medical screening and surveillance.
International Healthcare Worker Safety Center at University
of Virginia
http://www.healthsystem.virginia.edu/pub/epinet
Information on the prevention of occupational transmission of
blood-borne pathogens and resources for complying with the fed-
eral Needlestick Safety and Prevention Act.
(continued)
538 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
APPENDIX 28.2 Information Resources on the Interneta (continued)
BIOTERRORISM
American Society for Microbiology (ASM)
http://www.asm.org
Information related to bioterrorism and protocols for the isolation
and identification of select agents.
Bioterrorism Preparedness and Response
http://www.bt.cdc.gov
Information on bioterrorism preparedness, training materials, and
protocols for handling, identifying, and shipping select agents.
Health Alert Network
http://www.bt.cdc.gov/HAN
Communications to local and state health departments, distance
learning offerings from the CDC, and health alerts.
Infectious Diseases Society of America (IDSA)
http://www.idsociety.org
Clinical information related to bioterrorism and select agents.
a
Last accessed September 23, 2012.
APPENDIX 28.3 Common Safety Compliance Failures
STANDARD PRECAUTIONS, PPE,
AND CONTAINMENT EQUIPMENT
Laboratory coats worn open
Staff not wearing gloves at the workbenches
Handling contaminated objects with gloves (e.g., telephones)
Wearing laboratory coats outside the work area
Not using splash guards or appropriate eyewear when required
Improper storage of chemicals in fume hoods and BSCs
Improper storage of flammables, corrosives, and acids
Overfilled sharps containers
Sharps containers not properly secured
Gas tanks not properly secured
Eye wash stations not checked on a periodic basis
Disposal of biohazardous waste in routine trash receptacles
Food stored in refrigerators containing laboratory supplies
LABELING AND SIGNAGE
Improper labeling of chemical waste containers
Primary and secondary containers not labeled as to hazard
Lack of signage for biohazardous areas
SHIPPING AND PACKAGING OF INFECTIOUS
SUBSTANCES
International Air Transport Association (IATA)
http://www.iata.org
Information on shipping dangerous goods.
GUIDELINES, STANDARDS, AND ACCREDITATION
Clinical Laboratory Standards Institute (CLSI)
http://www.clsi.org
Information on laboratory standards and guidelines.
College of American Pathologists (CAP)
http://www.cap.org
Standards for laboratory accreditation.
The Joint Commission
http://www.jointcommission.org
Information on standards for accreditation.
FIRE
Storage of combustibles within 18 inches of sprinkler heads
Hallways used for storage
Fire doors blocked open
CHEMICAL HYGIENE PLAN
Chemical inventories not current
Employees’ exposure to OSHA-regulated substances (e.g., form-
aldehyde) not monitored
TRAINING/MONITORING
Staff lacks knowledge of MSDS location
Staff lacks knowledge of fire alarm and extinguisher location
Accident/incident reports are not submitted or reviewed
 CHAPTER 28. LABORATORY SAFETY 539

APPENDIX 28.4 Biohazard Spill Kit Sample

Disinfectant (e.g., 10% household bleach or a tuberculocidal Eyewear (face shield or goggles)
agent) Mask
Full-face respirator or HEPA-filtered mask for BSL-3 agents
Absorbent material
Small spills: paper towels, gauze pads, etc. Collection material (autoclavable)
Large spills: granular material (e.g., BioZorb) Dustpan
Tongs or forceps
PPE
Plastic scoop and “pusher”
Puncture-resistant utility gloves
Biohazard bag
Water-impermeable shoe coverings
Gown Puncture-resistant biohazardous waste container

APPENDIX 28.5 Biological Spill Cleanup Procedure (possible aerosol)

Alert personnel in area and evacuate. Decontaminate the area with an appropriate disinfectant:
Close doors and do not reenter area for 30 to 60 min. • Pour disinfectant on the spill site or wipe down the site
Don PPE appropriate for type of spill. with disinfectant-soaked paper towels or gauze pads.
Wear gown, gloves, and facial protection (full-face respirator or • Absorb the disinfectant or permit it to air dry.
HEPA-filtered mask for BSL-3 agents). Rinse the spill site with water and allow the site to dry.
Remove and discard broken glass or other objects. Place all disposable, contaminated material in the biohazard bag
Absorb the spill with absorbent material. or container. Treat as infectious waste.
Discard contaminated material in the biohazardous waste Wash hands.
container. Prepare a spill/incident report, identify the cause of the spill, and
Clean the spill site with aqueous detergent. determine remedial action.

APPENDIX 28.6 Minor Chemical Spill Cleanup Procedurea

Evacuate personnel in the immediate spill area. Dike area of spill to prevent further spread of chemical.
Attend to any contaminated individuals. Clean the spill area with appropriate neutralizing agent and
Extinguish all sources of ignition. absorbent.
Contain the spill. Place contaminated material in disposal container.
Ventilate the area of the spill. Scrub area with soap and water.
Close off the spill area (call emergency response team when no Package all waste appropriately for pickup. Label containers with
trained individuals are available). substance, amount, and date.
Notify safety officials. Prepare a spill/incident report, identify cause of spill, and deter-
Review MSDS for appropriate PPE and specific instructions for mine remedial action.
cleanup and disposal.
Don appropriate PPE (chemical-resistant gloves, gown, and shoe
covers; face shield or goggles; mask).

a
Spill does not involve flammables, explosives, carcinogens, or life-threatening chemicals.
540 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.7 Shipping Containers a

Figure A7.1 Example of packing and marking for category A infectious substances. The smallest external dimension of the outer
packaging must not be less than 100 mm; the primary receptacle or secondary receptacle must be capable of withstanding, without
leakage, an internal pressure of not less than 95 kPa. doi:10.1128/9781555817282.ch28.fA7.1

Figure A7.2 Example of packing and marking for category B infectious substances. At least one surface of the outer packaging must
have a minimum dimension of 100 mm × 100 mm; the primary receptacle or secondary receptacle must be capable of withstanding,
without leakage, an internal pressure of not less than 95 kPa. doi:10.1128/9781555817282.ch28.fA7.2

(continued)
 CHAPTER 28. LABORATORY SAFETY 541

APPENDIX 28.7 Shipping Containers a (continued)

Figure A7.3 Example of packing and marking for exempt specimens. At least one surface of the outer packaging must have a mini-
mum dimension of 100 mm × 100 mm; the outer packaging must be of adequate strength for its capacity, mass, and intended use.
doi:10.1128/9781555817282.ch28.fA7.3

a
Images courtesy of Saf-T-Pak, Inc.
542 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.8 Shipping Label Examples a

Figure A8.2 Label: biological substance, cate-

gory B. doi:10.1128/9781555817282.ch28.fA8.2

Figure A8.1 Label: infectious substance, category

A (class 6). doi:10.1128/9781555817282.ch28.fA8.1

Figure A8.4 Label: package orientation.

doi:10.1128/9781555817282.ch28.fA8.4

Figure A8.3 Labels: miscellaneous dangerous goods (class 9).

doi:10.1128/9781555817282.ch28.fA8.3

Figure A8.5 Label: exempt human specimen.

a
Images courtesy of Saf-T-Pak, Inc. doi:10.1128/9781555817282.ch28.fA8.5
 CHAPTER 28. LABORATORY SAFETY 543

APPENDIX 28.9 Shipper’s Declaration for Category A, Infectious Substances

Note: The original shipper’s declaration given to the carrier must have vertical red stripes along the left and right edges of the document,
and shippers must retain copies for two years.
544 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 28.10 Employee Accident and Exposure Report

Employee information (to be completed by the employee)

Name: Employee I.D. number:

Date of birth: Sex: M F Home phone: Work phone:

Address (include city, state, and ZIP code)

Job title: Department:

Signature: Date signed:

Accident/incident information (to be completed by the employee)

Date incident occurred: Time: Location:

Date incident reported: Reported to:

List names of witnesses:

Witness statement:

Description and cause of incident (identify injury and part of body):

Blood/body fluid exposure (identify source patient):

Supervisor’s report

Name: Work phone:

Was employee injured during performance of duty? Yes No (explain)

Date medical care received:

Do medical reports indicate employee is disabled for work? Yes No

Identify corrective actions or safety violations:

Additional comments:

Signature: Date:
Introduction
29
Emergency Management Plan
Purpose or Policy • Hazard Analysis • Incident
Management System
Elements of an EMP
Emergency Operations Center • Communications •
Medical Treatment Areas • Decision To Shut Down
Laboratory • Damage Assessment • Evacuation •
Personnel Pool • Personnel Care • Locator System •
Security • Training • Monitoring and Evaluation
Disasters
Fire • Hazardous Materials • Radioactive Material •
Utility Failure • Bomb Threat • Natural Disasters •
Terrorism Threats • Civil Disorder
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch29
Emergency Management
Andrea J. Linscott, Patti Medvescek, and David L. Sewell
OBJECTIVES
To list emergencies and disasters that could affect the clinical laboratory
To identify the elements of an emergency management plan
To implement the emergency management plan
To evaluate the plan for regulatory compliance
It’s no use saying, “We’re doing our best.” You have got to succeed in doing what is
necessary.
Sir Winston Churchill
 D
“ isaster” is defined in the dictionary as a calamitous event,
especially one occurring suddenly and causing great loss of life, dam-
age, or hardship, such as a flood, airplane crash, or business failure,
whereas “emergency” is defined as an unexpected situation or sudden occur-
rence of a serious and urgent nature that demands immediate action (16). In
the healthcare arena, external emergencies and disasters generally include me-
teorological disasters (e.g., tornadoes, hurricanes, hailstorms, snowstorms),
landslides, floods, earthquakes, tsunamis, warfare, civil disorder, terrorism,
and transportation accidents. Internal emergencies usually include utility fail-
ures, hazard spills, fires, bomb threats, and personnel or reagent shortages. A
disaster caused by any of these events could ultimately prevent the laboratory
from providing test results or services.
Programs or plans that respond to these situations are known as emergency
preparedness, emergency management, or disaster plans. In this chapter we
will use the term “emergency management plan” (EMP). Often the EMP de-
veloped by the laboratory is part of a larger plan for the entire healthcare orga-
nization and may be part of a regional or national EMP.
Emergency planning and preparedness are the keys to preventing interrup-
tion or cessation of laboratory services when an emergency or disaster oc-
curs. Understanding the type of external and internal disasters or emergencies
fosters appropriate preparation and planning that diminishes or eliminates
the disruption of services provided by the laboratory and healthcare facility.
The EMP collects in one document the information required by employees
to respond appropriately to any emergency. Because disasters or emergencies
545
546 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
are unpredictable, an EMP can serve only as a guide. The
plan assumes that individuals will use good judgment and
adapt the response plan to the unique needs of the situa-
tion. A well-written EMP can reduce confusion and panic
during an emergency, allow responsible individuals to as-
sess the situation and make information-based decisions,
and provide a predictable response for the employees (12).
Emergency Management Plan
An organized emergency management program begins
with a written comprehensive document that defines the
scope and goals of the program and lists the responsible
individuals. The College of American Pathologists and The
Joint Commission require that laboratories and healthcare
facilities have an emergency plan in place and be prepared
to accommodate and respond to a disaster so that patient
care can be provided in an emergency (2, 4). Accreditation
guidelines require that the EMP (i) address both internal
and external disasters in a general manner such that the fa-
cility can respond to multiple scenarios and (ii) document
incidents and training of staff.
The basic EMP should include the following sections.
Purpose or Policy
The purpose or policy states the need for a response plan
that deals with the natural or human-caused events that
may disrupt normal operations, as well as the responsibility
to provide services to patients through effective utilization
of limited resources and to assist any injured individuals.
Hazard Analysis
Hazard analysis requires that laboratory personnel prepare
a risk assessment for the occurrence of both internal and
external disasters, utility failures, hazard spills, epidemics,
reagent shortages, civil disorder, and terrorism. This as-
sessment should attempt to define the direct and indirect
impact on the facility and reduce the risk or diminish the
damage from an emergency or disaster.
Incident Management System
The incident management system is used to manage emer-
gency and disaster events through a flexible response
regardless of when or where the event occurs. The first
employee to discover the problem is in charge of the emer-
gency response until someone higher in the supervision
chain arrives. Each employee is expected to provide the
leadership necessary to protect life and property and to
carry out the responsibilities of the laboratory. He or she
will ensure patient, visitor, and employee safety, will report
the incident to the proper authorities, and will use proper
procedures as outlined in the plan.
Emergency management generally falls into four
phases: (i) identification of the emergency (e.g., tornado,
transportation accident, electrical failure, etc.), (ii) con-
tainment (limit the impact of the disaster), (iii) response
(assist victims and confine the physical damage of the
event), and (iv) recovery (restore the organization’s normal
operation). The plan must reflect and include the facility,
local, regional, state, and federal requirements for disas-
ter planning. The laboratory EMP should be complete but
concise. To be effective, a plan must be well written and
easy to execute. Laboratory staff should be familiar with
the plan, the location of the plan, and each individual’s role
in the execution of the plan. Possible disaster scenarios
should be covered in the plan based on the probability or
frequency of occurrence of an event for a specific labora-
tory or geographical location or based on the hazardous
material and equipment present in the facility. All plans
must consider first the safety of employees, patients, visi-
tors, and individuals with special needs and then address
alternative sources of utilities and communications, areas
for radioactive or chemical isolation and decontamination,
and alternative roles and responsibilities of personnel dur-
ing the emergency.
For example, the plan must address the following ques-
tions in emergency planning and recovery.
• Is there sufficient instrumentation to perform testing?
• All instruments (or critical instruments) should be
on emergency power.
• Is an alternative test method or instrumentation avail-
able in-house?
• Identify manual test methods not requiring instru-
mentation or use point-of-care test analyzers when
laboratory instruments are not available. A standard
operation procedure variance may be needed.
• Are there sufficient supplies and reagents to perform
testing?
• As supply chains are often affected, inventory
levels may need to be adjusted if there is ample
warning. If there is no warning, inventory levels
will need to be assessed to determine how long
reagents will last if supplies cannot be delivered.
A list of alternative resources (vendors or a neigh-
boring laboratory) of supplies and reagents should
be available. Phone numbers, both cell and office
numbers, fax numbers, and email addresses should
be available for any vendor or laboratory that may
be called upon.
• Are there sufficient personnel to perform testing?
• To ensure that sufficient personnel are available, an
emergency call-back list should be available at all
times. A plan should address possible delays or ab-
sence of personnel during a disaster. A plan should
address personnel transportation or lodging for a
weather-related event.

• Is the test menu sufficient to provide requested
services?
• A test menu may need to be scaled back or speci-
mens sent to a reference laboratory during an emer-
gency. A plan should include the use of a reference
laboratory or discontinuation of certain tests during
an emergency.
• How will specimens be transported to the laboratory if
an electrical or mechanical failure prevents the use of
the pneumatic tube system?
• A backup plan detailing who will be responsible for
getting specimens to the laboratory in the event of
pneumatic tube failure should be available.
• Who will be responsible for the packaging and
shipping of specimens or organisms to a reference
laboratory?
• All federal and state regulations must be followed
when specimens are packaged and shipped to an-
other laboratory. A plan outlining who can package
and ship specimens or organisms should be available.
The impact of the emergency or disaster on the staff itself
must be considered. Ignoring the emotional response to di-
sasters can create a disaster itself, resulting in staff members
who are unable to perform the actions required. At a mini-
mum, employee assistance personnel should be contacted
to assist when national or local emergencies or disasters di-
rectly affect laboratory staff. Immediate and complete veri-
fication of personnel location is important when the staff
are involved in the emergency. Open, complete communi-
cation with status updates is critical to maintaining labora-
tory operations throughout the disaster. To handle a disaster
successfully, the laboratory must anticipate and plan for the
problems that will arise (Table 29.1). The keys to success
include (i) development of flow charts detailing potential
events and actions to be taken; (ii) identification of the level
of laboratory service required based on the anticipated du-
ration and severity of the emergency or disaster; (iii) pro-
jection of the impact of limited service on other hospital
services, e.g., emergency room, intensive care units; (iv) es-
tablishment of effective lines of communication with labo-
ratory staff and other healthcare providers; (v) identification
of alternative sites to provide the necessary laboratory ser-
vices; (vi) plans for recovery activities, e.g., scheduling and
staff changes, alternative test procedures; and (vii) drills to
test the effectiveness of the plan. Successful planning must
involve all of the affected personnel so that they are aware
of their individual responsibilities during an emergency as
well as activities necessary to maintain essential services to
support patient care activities.
The level of service provided by the laboratory dictates
the depth and breadth of involvement by the laboratory
staff in disaster recovery. A full-service, hospital-affiliated
CHAPTER 29. EMERGENCY MANAGEMENT 547
Table 29.1 Elements of emergency planning
Element Action
Identify potential disasters Prepare list of authorities to notify
and laboratory’s response Identify critical positions and assign
individuals
Identify critical space and supplies
Prepare security measures
Develop criteria for evacuation
Define level of service and Full service (normal operations)
impact on patient care Limited service (prioritize testing)
Emergency service (prepare minimal
test menu)
Develop communication Identify critical healthcare staff
plan Identify critical laboratory staff
(call-back)
Identify critical suppliers
Alternative operations Identify alternative site of operations
Identify alternative laboratory for
service work
Prepare alternative scheduling or
staffing
Drills Assess performance of emergency
plan
Modify plan to correct deficiencies
laboratory may be required to play a more comprehensive
role in disaster recovery than a satellite facility or rural labo-
ratory. It is important to recognize, however, that national
disasters can significantly affect laboratory operations, re-
gardless of the geographic proximity or services offered.
Governmental and private agencies that are available to
assist in a large community or regional disaster should be
listed in the EMP with contact information (Appendix 29.1).
A business failure, such as manufacturer’s recall of
products, could also prevent the laboratory from provid-
ing services. Just-in-time inventory levels absolutely re-
quire a dependable delivery system. The receipt of back-up
reagents from other sources depends on the availability of
transportation and possible reciprocal relationships with
local or regional clinical or reference laboratories. Other
possible scenarios that may affect the laboratory, and the
questions they raise, include:
• A mail or airline strike prevents delivery of reagents or
supplies. What is the back-up plan for routine and
emergency testing? How quickly can medical staff be
notified of a reduction in services based on supply
delivery?
• An influx of victims of bioterrorism requires more so-
phisticated testing than the laboratory has available.
Where should the tests be sent? Who should be notified?
548 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
• Staffing levels are routinely at or below minimum
levels and an earthquake occurs. How and when does
the laboratory manager contact additional staff? What
testing should be performed until additional staff
arrive?
Emergency planning and preparedness allow for more
efficient and effective deployment of activities to mitigate
the impact of the disaster on laboratory services and staff.
The laboratory manager may assign members of the labo-
ratory staff to assist the facility in maintaining patient ser-
vices. Emergency management requires that all possible
events are considered to ensure that appropriate actions are
taken to provide laboratory services where needed and to
prevent a negative impact on laboratory operations. To do
so, emergencies and disasters are categorized as external or
internal to the laboratory and by the severity of the event
(Table 29.2). External events occur outside of the physical
laboratory and can affect the laboratory’s delivery of ser-
vices or require additional services from the laboratory. In-
ternal emergencies occur within the facility or laboratory
and significantly influence delivery of services.
Each laboratory, regardless of size or affiliation with
hospitals or clinics, may be required to participate in
emergency or disaster recovery in response to national or
regional events that include terrorist acts, acts of war, or
accidents threatening public safety.
Table 29.2 External and internal disasters and impact on the laboratory
Disaster
External
Severe weather and natural disasters
Hazardous material spill or contamination
Community illness
Transportation accident
National disaster
National recall of product
Terrorism
Internal
Utility failure
Hazardous material spill, fire, bomb threat
Shortage of personnel
Shortage of reagents or supplies
Civil disorder
Computer issues (security breach, downtime, data loss)
Elements of an EMP
Emergency Operations Center
The emergency operations center (EOC) represents the
situational leadership that is necessary to manage the
emergency, protect life and property, carry out the func-
tion of the laboratory, and assist in other areas of the fa-
cility. Generally, individual employees are empowered to
manage the event until relieved by someone higher in au-
thority as defined by the order of succession of manage-
ment. This concept means that individuals must step up
and accept responsibility to perform tasks and supervise
areas outside of their normal duties. The EMP (Table 29.3)
defines who will automatically return to the facility (e.g.,
department chairperson, laboratory manager), describes
the emergency call list, and defines the level of service that
will be provided and how personnel will be deployed. Ap-
pendixes 29.2 and 29.3 show examples of an EOC checklist
and a status report.
Communications
Communication is the most critical and difficult aspect of
managing an emergency. The EMP must define the com-
munication lines and how employees will be notified of
the emergency. Communication by telephone, cell phones,
runners, two-way radios, and other means provides links
to internal and external events, responses to the event, and
Impact
Staff availability; relocation of patients and services; utilities and
supplies/reagents disrupted
Staff availability; laboratory services required to treat patients;
implement decontamination protocols
Staff availability; increase in patient and test volume
Staff availability; increase in patient volume and specialty require-
ments (i.e., transfusion services)
Supply/reagent availability
Supply/reagent availability
Staff availability; necessary laboratory services for patient care;
implement decontamination protocols; increased safety precau-
tions; notification of authorities
Services interrupted; relocation or assistance from another
laboratory
Personnel affected; testing delayed; special testing may be required;
relocation or assistance from another facility
Testing delayed or cancelled; assistance from another laboratory
Testing delayed or cancelled; assistance from another laboratory
Staff availability; supplies/reagents and utilities may be disrupted
Delay or manual test reporting; incomplete database

Table 29.3 Elements of a laboratory EMP
Element Function
Emergency operation Describes leadership hierarchy
center Constructs emergency call-back list
Defines level of service required
Deploys laboratory personnel
Maintains supply level
Establishes communication services
Communication Defines communication lines
Identifies individuals for notification
Maintains list of emergency numbers
Disseminates information to employees
and authorities
Medical treatment Locates medical treatment areas
areas Provides service to the medical treatment
areas
Damage assessment Conducts a damage assessment of
laboratory
Reports assessment to facility’s command
center
Determines need to evacuate
Evacuation Posts evacuation routes
Identifies evacuation leaders
Notifies facility’s command center
Personnel pool Assesses availability of personnel
Assigns personnel to laboratory or where
needed
Locator system Develops system for tracking location of
employees, patients, and visitors
Communicates locations to facility’s
command center
Security Assigns individual to provide labora-
tory security until relieved by security
personnel
Restricts access to laboratory
Training Addresses personnel responsibility, role
in an emergency, communication system,
and supply system
Conducts drills
Monitoring and Documents deficiencies during drills
evaluation Corrects deficiencies
the recovery operation. Generally, a bell code system or
the public address system is used to identify the location
of a fire.
The EMP should identify who is notified of internal and
external disasters (e.g., on-duty staff, off-duty staff, organi-
zational staff, etc.) and should include a list of emergency
phone numbers for external agencies and organizations
(e.g., local law enforcement agencies, local and regional
emergency management organizations, the Federal Bu-
reau of Investigation [FBI], the state health laboratory,
the Centers for Disease Control and Prevention [CDC])
that can assist the facility or that may need to be contacted
CHAPTER 29. EMERGENCY MANAGEMENT 549
during the emergency (Appendix 29.1). The plan should
identify key personnel, their alternates, and their respon-
sibilities. A part of communications involves assessing
the nature of the emergency and the potential impact on
patients, employees, and the public and developing a plan
to include employee meetings, internal dissemination of
information, and public information releases. Cell phone
texting, cell phone calls, pagers, or internal and external
emails can be used to disseminate information depending
on the disaster and resources available. Inquiries from out-
side sources (e.g., press, employee family members) should
be forwarded to the individual responsible for addressing
these concerns. A hot-line phone system with updated
recorded messages can be used to disseminate informa-
tion to those not on site. Accurate information must be
provided to prevent rumors and to inform individuals in-
volved in the event.
Medical Treatment Areas
The laboratory staff must be aware of the areas in the facil-
ity that are designated as medical treatment areas in the
event that they require treatment or specimens need to be
transported to the laboratory.
Decision To Shut Down Laboratory
A decision may be made to shut a laboratory down when
there is ample warning, as in the case of a hurricane, or a
laboratory may be shut down as a result of an emergency.
A procedure should be available for how to power down or
off all instruments, equipment, and computers according
to manufacturer’s specifications, when possible. In addi-
tion, a procedure for steps that need to be taken to bring
a laboratory back up should also be included in the EMP.
For example, before an instrument or piece of equipment
can be placed back into use, a safety assessment must be
performed. Validation of instruments may be warranted,
depending on the extent of the damage and time frame
in which the instrument was down. Storage temperatures
should be monitored to ensure that any reagents, collec-
tion devices, or equipment are stored within their specified
temperature ranges. If temperature ranges are not met and
additional product is not readily available, quality control
or verification studies may be needed to show that the
product is working as expected.
Damage Assessment
A damage assessment should be performed as soon as pos-
sible following a disaster. The assessment can be rapid (5 to
10 min) or more detailed (1 to 2 h) and should determine
whether an area can be used safely or must be evacuated.
The plan must identify who will assess structural damage,
equipment failures, hazard contamination, etc. The assess-
ment should provide uniformity in assessing damage due
to structural problems and fire and should address safety
550 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

and the status of the environment (e.g., gas, water, electri- Table 29.4 Stockpile items
cal power, lighting, etc.). Damage assessment should also Item Comment(s)
include reviewing temperature charts to determine if re- Ready to eat food items Can opener, scissors, plastic silverware,
agents were affected by electrical outages. Results are re- etc.
ported to the organization’s command center. Appendixes Water Drinking water, potable water, etc.
29.4 through 29.7 contain examples of assessment check- Flashlight Extra batteries
lists for a healthcare organization, but the forms can be Tools Pliers, hammer, wrenches
modified for the laboratory. Protective wear Hardhat
Paper products Toilet paper, paper towels, paper plates
Evacuation
Evacuation may be necessary if a fire, hazardous spill, or
structural damage occurs. The immediate area should be
evacuated, the affected area should be isolated, and the Security
command center should be notified. Evacuation routes An individual should be assigned responsibility for pro-
must be posted and can be in a vertical or horizontal fash- viding direction to the staff regarding security and crowd
ion. Individuals should be identified who are responsible control until the security personnel arrive in the affected
for the safe evacuation of other employees, visitors, patients, area. Access to the laboratory is restricted to allow employ-
and anyone who requires assistance. Employees should not ees and emergency staff to respond to the emergency. The
return until authorized by a designated individual. individual with temporary security duty provides informa-
tion to security personnel and may determine whether to
Personnel Pool evacuate the laboratory.
The incident manager (e.g., laboratory manager) will de-
cide which personnel can be released from their normal re- Training
sponsibilities to assist elsewhere in the laboratory or facility. The EMP outlines an orientation and education program
for facility personnel, including interaction with other
Personnel Care emergency organizations in the region. The training ad-
Plans for the care of personnel should address the begin- dresses (i) specific roles and responsibilities during an
ning, during, and aftermath of an emergency (1). Plans emergency, (ii) the information and skills required to per-
should include the availability of staffing and the use of form duties, (iii) the back-up communication system used
supplemental staff, if needed. It is important to remem- during disasters, and (iv) the system to ensure that sup-
ber that state and federal laws be followed when using plies and equipment are delivered where needed. The most
supplemental staffing. In areas where known disasters oc- important element of training is drills that are conducted
cur, stockpiles of essential items should be available and to test whether the EMP works as anticipated. A challeng-
checked regularly for expiration dates (Table 29.4). For ing aspect of emergency planning and training is the as-
natural disasters that provide some warning (hurricanes, signment of responsibilities to the various participating
ice storms, etc.), personnel should bring enough personal
supplies to last three to five days (Table 29.5). Depending
on the emergency, makeshift housing may need to be ar- Table 29.5 Personal supplies
ranged; often the offices of pathologists or other clinic staff Item Comment(s)
are available for use. Arrangements for family members
Food Ready to eat foods, canned juice, high energy
and pets may also need to be addressed. More frequent bars, condiments, comfort food
breaks may be needed during these times. Downtime ac- Water 1 gallon of water per person/day (3 day supply)
tivities (card games, watching DVDs, etc.) may be needed Sleeping gear Air mattress, sleeping bag, sheets, blanket, pillow,
to release stress. Plans should be put into place to protect etc.
the personnel from any hazards and to protect personnel Medications 7-day supply of prescription and over-the-
when leaving the premises. counter medication
Toiletries Toilet paper, towelettes, deodorant, toothbrush,
Locator System toothpaste, soap, shampoo, gel hand sanitizer,
The EMP must address the problem of communicating plastic bucket with tight lid, etc.
the location and status of employees, patients, and visitors Cell phone Charger and batteries
to a central location so that the public can locate family Money Bills and change
and friends quickly (Appendix 29.8). Often victims of a Extra clothes
disaster may be spread over an entire metropolitan area Special items Clock, portable radio, games, DVDs, books, con-
tact lens supplies, glasses, infant or pet supplies
or region.

community agencies and organizations, especially when
there are competing agendas among the groups.
Monitoring and Evaluation
The EMP must address ongoing monitoring of perfor-
mance regarding staff knowledge and skills, level of staff
participation, inspection activities, incident reporting, and
interagency cooperation. The Joint Commission requires
that an EMP be activated yearly. Activation of the EMP
may be as a result of an actual disaster or as a planned ex-
ercise. The goal of the activation is to identify weaknesses
in the program. An evaluation of the drill or emergency
should be documented, and corrective actions must be
implemented to correct any deficiencies.
Disasters
Fire
All staff must be familiar with the potential fire hazards
within the laboratory and be aware of the procedures neces-
sary to ensure the safety of personnel in the area. These pro-
cedures include minimizing working supplies of flammable
material, storing flammables in a flammable-safe cabinet,
and identifying and controlling ignition sources. Training
should emphasize response according to the RACE (res-
cue, alarm, confine, evacuate/extinguish) approach, sound-
ing the alarm, knowing the preferred and alternative exit
route from the work area, which may be dark and smoke-
filled, using a fire extinguisher, knowing the fire codes, and
closing all fire/smoke barrier doors. Fire extinguishers are
classified by the type of fire that they will extinguish. Clas-
sifications are denoted by an initial. Most laboratories use a
class C fire extinguisher, which is designed to combat fires
involving live electrical equipment. When a fire is discov-
ered, the RACE approach is as follows.
Rescue. Immediately notify others on the floor or in the
area. Rescue any patients or victims in the fire area and
close the door to the room or area involved. Do not reopen
door.
Alarm. Activate the alarm by pulling the nearest fire
alarm. Next, report the fire to the emergency center and
give the location (room number, building, etc.) and the
type of fire (type of material burning, how extensive, etc.).
Generally, this information is relayed to the responding
fire department so they can be prepared when they arrive.
Confine. Close all windows and doors on the floor as ap-
propriate. Advise patients and visitors to keep the doors
closed until notified otherwise. Keep calm and try to re-
assure patients. Check to make sure all fire/smoke barrier
doors have been closed and are not blocked. Clear corridors.
CHAPTER 29. EMERGENCY MANAGEMENT 551
Evacuate/extinguish. Attempt to extinguish only small
fires. Do not attempt to fight large fires. Your best defense
is to close the door and evacuate the immediate areas.
When using a portable fire extinguisher, PASS guidelines
should be followed (12):
• Pull the pin on the extinguisher.
• Aim the nozzle at the base of the fire.
• Squeeze the handle firmly.
• Spray in a sweeping motion.
Hazardous Materials
Hazardous materials are any substances cited as a health
and physical hazard by OSHA. Laboratory hazards are usu-
ally identifiable and quantifiable, and personnel should be
knowledgeable about hazardous materials, be familiar with
procedures to follow in an emergency, and be aware of mea-
sures to ensure the safety of personnel. Laboratories are re-
quired to maintain a chemical inventory list that identifies
the type of hazard, the location, and the quantity present.
This list should be posted in the laboratory and submitted
to the facility’s industrial hygienist and the local fire depart-
ment. The plan should identify and assign responsibility to
responders (i.e., safety officer, industrial hygienist) who can
shut off utilities to prevent the spread of the hazard through
the ventilation system and to minimize the potential for fire
or explosions. Individuals must be trained to clean up spills
and to decontaminate individuals exposed to chemical, ra-
diation, or infectious agents. The telephone number for the
regional hazmat team should be posted.
Generally, the industrial hygienist or safety officer can
make a prompt evaluation of the hazard severity and based
on available information determine what action is nec-
essary. The severity of the hazard is based on room size,
type of chemical, and volume of material released. The de-
cision to evacuate and notify the region’s hazmat team is
based on assessment of imminent danger to life or health
as marked by injured or ailing personnel, symptoms of se-
vere irritation, evidence of a large-volume spill, gas leaks,
fire hazard, presence of carcinogens, or presence of very
strong odors beyond the immediate area. When it can be
done safely, individuals should be posted at entrances to
prevent other people from entering the hazard area. When
possible, response personnel will disconnect any heat- or
flame-generating equipment. The RACE approach to haz-
ardous materials incidents should be followed.
• Rescue. Rescue only when applicable and safe to do so.
Provide first aid (eye wash or showers) to victims and
control access to the spill area.
• Alarm. Activate the emergency response system. Re-
port the spill to the responsible person and provide
relevant information such as who, what, when, where,
and how much.
552 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
• Confine. Contain the spill, if possible, but only if
trained to do so.
• Evacuate. Evacuate when there is immediate danger to
life or health.
Radioactive Material
Sources of toxic, ionizing radiation in the laboratory in-
clude devices and reagents containing radioactive material.
Policies should restrict access of untrained individuals to
areas containing radioactive substances. The EMP should
describe appropriate responses in the event of a spill, such
as preventing spread by covering the spill with absorbent
paper, limiting movement of contaminated individuals,
shielding the radioactive source if possible, closing and
locking the room, or otherwise securing the area. The
individual is decontaminated by removing contaminated
clothing and flushing contaminated skin with lukewarm
water and then washing with mild soap. The affected area
should be evacuated when the spill is large. Only trained
persons should decontaminate an area, and they must
wear protective clothing, gloves, and eye protection. After
decontamination, the area must be checked for residual ra-
diation. Each spill incident and decontamination must be
documented (Appendix 29.9).
Utility Failure
Utility failures may be long or short in duration, may re-
quire an alternative means of providing service, or may
require evacuation of the laboratory or facility.
Water. The EMP must address the need for emergency
water for both equipment and potable water. The De-
partment of Homeland Security (www.ready.gov) recom-
mends 1 gal of water per person per day and at least a
3-day supply. The potable water should be replaced every
6 months (www.redcross.org). Areas requiring water must
be prioritized, and nonessential water consumption must
be curtailed.
Electrical. Because loss of electrical power can paralyze
a modern clinical laboratory, essential equipment must
be attached to lines powered by emergency generators.
Battery-powered lighting must be available in case the
emergency generators fail so that employees can safely
exit the premises. Plans must anticipate the loss of venti-
lation and airflow to chemical and biological safety cab-
inets (BSCs). Loss of ventilation in the laboratory may
cause instruments to overheat and accumulate noxious or
toxic fumes. Inoperative chemical hoods and BSCs pre-
vent the performance of procedures requiring their use.
BSCs should have a safety mechanism that automatically
prevents backflow of air through the filter when the fan
shuts off.
Sewer. The EMP should address a failure in the sewer sys-
tem due to lack of water or inability to discharge effluent.
Priority is given to infection control measures (e.g., hand-
washing), direct patient testing, and meal preparation.
Bomb Threat
All threatening telephone calls should be taken seriously.
The employee must remain calm, attempt to keep the
caller on the line without increasing his or her antagonism,
record details of the call, and notify police immediately
(Appendix 29.10). Often, a colleague can notify the secu-
rity personnel while the first employee talks to the caller.
Security personnel will decide whether the facility should
be evacuated.
Natural Disasters
Earthquakes, tornadoes, floods, hurricanes, and similar
weather-related disasters usually arrive with little warn-
ing and can have a major impact on the hospital or clinic
and the surrounding community. The EMP should con-
tain definitions of storm warnings used in the local area,
provide instructions for employees (e.g., take cover under
sturdy furniture or in a doorway during initial earthquake
shaking), and establish an early release from work for non-
essential employees. When structural damage is suspected,
clinical operations should not resume until a qualified in-
spection of the premises has occurred. The effects of a nat-
ural disaster include damage to the facility, interruption of
communications, inability of employees to leave or return
to the facility, and injured individuals requiring treatment.
Initially, a survey of the area should be performed to iden-
tify trapped people, structural damage, inoperative equip-
ment or systems, unsafe or unhealthful conditions, and
hazardous locations. Damaged containers of chemicals
must be removed and infectious material must be bagged
and safely discarded. Visitors, patients, and employees
within a dangerous area should be evacuated.
Terrorism Threats
Terrorism threats pose a very complex problem for labo-
ratories, facilities, communities, and the nation. Sources
of expert information on chemical and biological agents
should be readily available (Appendix 29.11). The labora-
tory EMP must outline procedures for handling terrorism
material (e.g., chemical, radiological, or biological) in the
laboratory and for managing a large number of walk-in
patients and subsequent clinical specimens (Appendix
29.11) (5, 6, 13, 14, 15). Key elements of an effective ter-
rorism EMP include issues such as prompt recognition
of an event; identification of individuals who are first
responders (e.g., staff who have received smallpox vac-
cination), staff, and facility security; obtaining assistance
from community and federal agencies (e.g., hazmat teams,
FBI, local police, CDC, state laboratory); coordination of

activities with other external emergency response agencies
or organizations; release of public information; and decon-
tamination plans for patients and staff. The administration
should address physical security, airflow and ventilation,
and maintenance of the facility’s structure (8). Security of-
ficers must plan for crowd control, directing the flow of
casualties and vehicles, and preventing unauthorized entry
to decontamination and treatment areas. Plans need to be
in place to rotate staff into work areas and to provide food,
psychological support, and rest for employees.
The CDC’s Bioterrorism Preparedness and Response
Program addresses a unified public health response to
bioterrorism events that includes measures for disease
surveillance, laboratory diagnosis of biological agents,
communication between various public health authorities,
epidemiological investigations, and readiness assessments
(www.bt.cdc.gov). The Laboratory Response Network links
local, state, federal, military, veterinary, and environmen-
tal laboratories and classifies laboratories based on their
anticipated role in the event of a biocrime or bioterrorism
event and on their capacity to safely handle and identify
agents of bioterrorism (3, 7, 10). The original Laboratory
Response Network model involved four levels of labora-
tories (levels A, B, C, and D) but currently contains three
classification levels (sentinel, reference, and national labo-
ratories). Sentinel laboratories (formerly level A) include
most clinical and commercial laboratories, whose function
is to recognize, rule out, and refer potential agents to the
reference laboratories (formerly levels B and C). Reference
laboratories are generally local or state public health labo-
ratories, whose function is confirmatory testing and pro-
cessing of environmental samples. There are presently only
two national laboratories (the CDC and the U.S. Army
Medical Research Institute of Infectious Diseases) that can
operate at a biosafety level 4 capability.
Clinical microbiology laboratories must develop proto-
cols for the recognition and identification of the potential
agents of bioterrorism and procedures for management of
these events. These protocols should be part of the routine
bench procedures so that potential agents are not misiden-
tified or improperly handled and can be rapidly referred
to a reference laboratory for confirmation (9). Protocols
developed by authorities are available on various websites
(www.bt.cdc.gov, www.asmusa.org) and in publications
(11). Sentinel laboratories should not process specimens
for smallpox or viral hemorrhagic fever from high-risk pa-
tients. These samples should be sent to the CDC after con-
sultation with the state public health division. Instructions
for the collection and shipment of specimens for smallpox
can be found at http://emergency.cdc.gov/agent/smallpox/
vaccination/vaccinia-specimen-collection.asp. In addition,
sentinel laboratories should not process environmental
samples (e.g., suspicious powder for Bacillus anthracis
spores) or animal specimens but rather should contact the
CHAPTER 29. EMERGENCY MANAGEMENT 553
FBI and reference laboratory for instructions. Often the
latter samples involve a chain-of-custody procedure.
Civil Disorder
In most situations, the local law enforcement agency is
aware of planned demonstrations and arranges for control
measures. Unplanned acts of civil disturbance are handled
by the facility security personnel in cooperation with the
local law enforcement agency. An effective communica-
tion system must be in place to keep the employees and
public informed.
Summary
Emergency preparedness planning and management must
involve the entire healthcare organization, the commu-
nity, and with the present threat of terrorism, the nation.
Effective disaster planning requires anticipation of any
type of disaster that prevents the laboratory from provid-
ing services. The laboratory manager may be involved in
overall disaster recovery, providing laboratory resources as
needed for patient care and facility support. Disasters can
be external (e.g., weather, failures in transportation ser-
vices) or internal (e.g., facilities breakdowns, equipment
malfunctions, lack of personnel). Consideration should be
given to the impact on laboratory personnel, depending
on the nature of the disaster. Planning, preparation, and
communication will improve the laboratory’s response to
a disaster if and when it occurs.
KEY POINTS
■ Disasters may stem from a variety of root causes but re-
sult in consistent impact on operations—failure to pro-
vide services.
■ EMPs should be comprehensive and included in labora-
tory policy and procedures.
■ Guidelines are available from many resources, based on
local, regional, and national regulations.
GLOSSARY
Biohazard An agent of biological origin that has the capacity to
produce deleterious effects on humans, e.g., microorganisms,
toxins.
Disaster Any incident that interferes with a facility’s ability to
operate in a normal manner.
Emergency A natural or human-caused event that suddenly or
significantly disrupts the environment of care, disrupts care and
treatment, or changes or increases demands for the organiza-
tion’s services.
External disaster An event external to the physical laboratory
location that may affect operations by limiting available staff or
supplies or changing laboratory workload (e.g., influx of patients,
554 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT
uncommon tests required). Examples include major storms,
earthquakes, transportation accidents, or acts of terrorism.
Facility A healthcare organization (hospital, clinic, physician’s
office) that includes an on-site laboratory.
Hazardous material A substance or material that has been de-
termined by the U.S. Department of Transportation to pose an
unreasonable risk to health, safety, and property when trans-
ported in commerce.
Hazmat team Group of individuals who are trained to respond
to and clean up hazardous material spills.
Internal disaster An internal event within the laboratory or facil-
ity that affects patient care and facility operation, including power
failure, hazardous chemical spill, fire, or lack of personnel.
Laboratory A facility that provides services including specimen
collection, testing, and results reporting.
RACE Acronym describing the appropriate approach by first
responders to a fire or disastrous situation: rescue, alarm, con-
fine, evacuate/extinguish.
Reference laboratory An on- or off-site laboratory performing
tests on behalf of a clinical laboratory or facility, typically includ-
ing rare or esoteric test menus.
Service levels Test menu, results reporting, and ancillary assis-
tance provided by the laboratory to hospitals, clinics, physicians,
and patients.
REFERENCES
1. CLSI. 2003. Planning for Challenges to Clinical Laboratory Op-
erations During a Disaster; A Report. CLSI document X4-R. CLSI,
Wayne, PA.
2. College of American Pathologists. 2012. Laboratory Accredita-
tion Program, Laboratory General Checklist. College of American
Pathologists, Northfield, IL.
3. Gilchrist, M. J. R., W. P. Mckinney, J. M. Miller, and A. S. Weiss-
feld. 2000. Cumitech 33: Laboratory Safety, Management, and Diag-
nosis of Biological Agents Associated with Bioterrorism. Coordinating
ed., J. W. Snyder. ASM Press, Washington, DC.
4. Joint Commission. 2012. Laboratory Accreditation Standards.
The Joint Commission, Oakbrook Terrace, IL.
5. Londorf, D. 1995. Hospital application of the incident manage-
ment system. Prehosp. Disaster Med. 10:184–188.
6. Macintyre, A. G., G. W. Christopher, E. Eitzen, Jr., R. Gum,
S. Weir, C. DeAtley, K. Tonat, and J. A. Barbera. 2000. Weapons
of mass destruction events with contaminated casualties: effective
planning for healthcare facilities. JAMA 283:242–249.
7. Miller, J. M. 2001. Agents of bioterrorism: preparing for bioter-
rorism at the community health care level. Infect. Dis. Clin. North
Am. 15:1127–1156.
8. National Institute for Occupational Safety and Health. 2002.
Guidance for Protecting Building Environments from Airborne
Chemical, Biologic, or Radiological Attacks. DHHS publication no.
NIOSH2002-139. U.S. Government Printing Office, Washington, DC.
9. Shapiro, D. S., and D. R. Schwartz. 2002. Exposure of laboratory
workers to Francisella tularensis despite a bioterrorism procedure.
J. Clin. Microbiol. 40:2278–2281.
10. Snyder, J. W. 2003. Role of the hospital-based microbiology
laboratory in preparation for and response to a bioterrorism event.
J. Clin. Microbiol. 41:1–4.
11. Sharp, S. E., and M. Loeffelholz. 2011. Biothreat agents, p. 174–
187. In J. Versalovic (ed.), Manual of Clinical Microbiology, 10th ed.
ASM Press, Washington, DC.
12. Tweedy, J. T. 2005. Healthcare Hazard Control and Safety Man-
agement, 2nd ed., p. 121–155. CRC Press, Boca Raton, FL.
13. U.S. Department of Health and Human Services. 1996. Health
and Medical Services Support Plan for the Federal Response to Acts
of Chemical/Biological (C/B) Terrorism. U.S. Government Printing
Office, Washington, DC.
14. U.S. Army Medical Research Institute of Chemical Defense.
2000. Medical Management of Chemical Casualties Handbook, 2nd
ed. U.S. Army Medical Research Institute of Infectious Diseases, Fort
Detrick, MD.
15. U.S. Army Medical Research Institute of Infectious Diseases.
2011. Medical Management of Biological Casualties Handbook, 7th
ed. U.S. Army Medical Research Institute of Infectious Diseases, Fort
Detrick, MD.
16. Webster’s American College Dictionary. 1998. Random House,
New York, NY.
 CHAPTER 29. EMERGENCY MANAGEMENT 555

APPENDIX 29.1 List of Selected Emergency Preparedness Agencies and Organizations

Governmental Agencies U.S. Army Corps of Engineers

Centers for Disease Control and Prevention U.S. Geological Survey National Earthquake Information
Domestic Preparedness Information Line Center
Federal Bureau of Investigation U.S. Public Health Service
Federal Emergency Management Agency
Homeland Security Operations Center Nongovernmental Organizations
National Centers for Environmental Predictions American Red Cross
National Hurricane Center Church charities
National Oceanic and Atmospheric Administration Corporation for National Service (disaster services)
National Response Center National Emergency Management Association
National Weather Service Salvation Army

APPENDIX 29.2 Emergency Operations Center (EOC) Checklist

Determine status of the emergency and implement emergency management plan as

appropriate.

Set up EOC in the designated area. Determine the presence of all key personnel in the
EOC and triage areas.

Establish command activity and direct all emergency relief activities.

Identify the departments needed to support the relief activity and ensure that each
department knows what is expected of it.

Ensure that the triage area is functioning.

Ensure that appropriate call-back is progressing and all necessary supplies are deliv-
ered to the triage area. Utilize personnel pool to ensure that appropriate assistance is
maintained.

Request necessary assistance from state or local agencies (i.e., fire, police, ambulance,
bomb squad, hazmat team, etc.).

Notify other divisions of the emergency and request aid or place staff on standby.

Brief all individuals reporting to the EOC. Dismiss individuals that are not required for
the relief effort.

Ensure that all departments (e.g., security, safety) that automatically respond to exter-
nal and internal emergencies are notified and responding.

Ensure that internal communication is established.

Ensure that recorders are assigned to key response functions to document activities for
the incident manager.
556 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.3 Operating Status Report Form

Name of hospital: Date/time report given:

Contact person: Title/location:

Contact method: Contact number:

Questions Comments

1. Y N Can you continue to treat incoming patients? If no, why not?

2. Y N Any patients evacuated to outside the hospital? If yes, why?
Total # evacuated
# unstable or critical patients
3. Y N Any patients or staff injured? # of injured people. Deaths?
4. Y N Any structural damage? Partial or total collapse?
5. Y N Any major non-structural problems? List
6. Y N Power from any source?
7. Y N Can generator power essential areas?
8. Y N Can you communicate with the outside world?
9. Y N Access to all essential areas? Anyone trapped?
10. Y N Sufficient number of elevators working?
11. Y N Water lines intact to essential areas?
12. Y N Natural gas lines intact to essential areas?
13. Y N Sewage system intact in essential areas?
14. Y N Adequate staff at the hospital? What do you need?
15. Y N Adequate supplies and equipment? What do you need?
16. Y N Any outside assistance needed? What?
17. Y N Need structural engineer?

APPENDIX 29.4 Damage Assessment Chart a

Damage assessment Report Post:

Rapid evaluation by department Safe Inspected
Questionable Limited entry
Unsafe Unsafe

Detailed evaluation by engineering Safe Inspected

Questionable Limited entry
Unsafe Unsafe

Engineering evaluation by consultants Safe Inspected

Unsafe Unsafe
a
Adapted from reference 12.
 CHAPTER 29. EMERGENCY MANAGEMENT 557

APPENDIX 29.5 Rapid Evaluation Safety Assessment Forma

Building/area description: Overall rating:

Area name: Inspected

Limited entry

Room numbers: Unsafe

Primary occupancy: Inspector:

Patient care Office Name:

Laboratory Mechanical Date:

Research Engineering Time:

Other:

Instructions: Review area for the conditions listed below. A “yes” answer is grounds for posting an area UNSAFE. If more review is
needed, post LIMITED ENTRY.

Condition

1. Collapse, partial collapse, or building off foundation Yes No Review Needed

2. Building or floor leaning Yes No Review Needed

3. Severe cracking of walls, severe damage and distress Yes No Review Needed

4. Ceilings, light fixtures or other non-structural hazards Yes No Review Needed

5. Hazmat spill Yes No Review Needed

6. Other hazard present Yes No Review Needed

Recommendations

No further action required

Detailed evaluation required (circle one): Structural Hazmat Other

Barricades needed in the following areas:

Other:

Comments:

a
Adapted from reference 12.
558 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.6 Safety Considerations for Fixed Equipmenta

Item Principal concern

Boilers
Refrigerator/freezer
Emergency generators
Fuel tanks
Fire pumps
On-site water storage
Communication equipment
Transformers
Electrical panels
Elevators
Radiation equipment
Toxic chemicals
Liquid oxygen tanks
Infectious hazards
Equipment
a
Adapted from reference 12.
Sliding, broken gas/fuel lines; broken exhaust, steam, and/or relief lines
Sliding; loss of function; leaking refrigerant
Failed isolation mounts; sliding; broken fuel, signal, and/or power lines; broken exhaust lines
Sliding or overturning; leaks; broken fuel lines
Anchorage failure; misalignment between pump and motor; broken piping
Tank or vessel rupture; pipe break
Sliding, overturning, or toppling leading to loss of function
Sliding; leaking; loss of function
Sliding or overturning; broken or damaged conduit or electrical bus
Counterweights out of guide rails; cables out of sheaves; dislodged equipment
Breach of containment
Spills; fumes in ventilation system
Sliding or overturning; leaks; broken lines
Overturned incubators; broken culture bottles
Sliding or overturning leading to loss of function or damage to adjacent equipment
 CHAPTER 29. EMERGENCY MANAGEMENT 559

APPENDIX 29.7 Equipment Checklist a

General items Equipment Damaged Comments

No Yes

Boilers _________ _________

Refrigerator/freezer _________ _________
Emergency generators _________ _________
Fuel tanks _________ _________
Fire pumps _________ _________
On-site water storage _________ _________
Communications equipment _________ _________
Transformers _________ _________
Electrical panels _________ _________
Elevators _________ _________
Radiation equipment _________ _________
Chemical storage:
_________ _________

_________ _________

Gas tanks:
_________ _________

_________ _________

Other equipment:
_________ _________

_________ _________

Comments:

a
Adapted from reference 12.
560 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.8 Patient Locator Information Form

Provide the following information by telephone to the Patient Locator System on each new or readmitted disaster victim during
the emergency status.

1. Patient name:

2. SSN:

3. Date of birth:

4. Age:

5. Patient’s sex: Male Female

6. Patient’s condition: Critical Serious Fair Good Excellent Deceased Not sure

7. Treated by:

8. Released from care: Yes No Date of release:

9. Patient’s Address:

City: State: ________ Zip: ______________

10. Person to notify:

Relationship: Husband ________ Wife ________ Father ________ Mother ________

Brother ________ Sister ________ Other ______________________________

Address:

City: State: ________ Zip: ______________

Phone: Home/Cell: Work:

Name of person filling out form:

Information called in: Date: Time:

Patient condition update called in:

Date: Time: Condition:

Date: Time: Condition:

 CHAPTER 29. EMERGENCY MANAGEMENT 561

APPENDIX 29.9 Radioactive Spill Report

The spill occurred at __________ : (am/pm) on ______/ ______/ ______ Bldg __________________________ Room ______________

Instrument used to check for personnel contamination:

Meter manufacturer Meter model

Meter S/N Probe model Probe S/N

Personnel present Personnel contamination results*

* On the back of this sheet, indicate any personnel decontamination or care instituted. Please be detailed.

Survey the spill area to identify hot spots and then begin decontamination.
When finished, conduct a post-cleaning contamination wipe test.

Radioisotopes present or suspected in the spill:

_________ mCi of as

_________ mCi of as

_________ mCi of as

Provide a brief description of the accident:

Provide a brief description of action taken to prevent a recurrence:

Name:

Date:
562 REQUIREMENTS FOR EFFECTIVE LABORATORY MANAGEMENT

APPENDIX 29.10 Bomb Threat Checklist

Date and time of call:

Words of caller:

Questions to ask:

1. When is the bomb going to explode?

2. Where is the bomb?

3. What does it look like?

4. What kind of bomb is it?

5. What will cause it to explode?

6. Did you place the bomb?

7. Why?

8. Where are you calling from?

9. What is your address?

10. What is your name?

Caller’s voice (circle)

Calm Disguised Nasal Angry Stutter Sincere Lisp Rapid

Deep Crying Squeaky Excited Stressed Accent Scared Normal

If the voice was familiar, whom did it sound like?

Were there any background noises?

Remarks

Person receiving call

 CHAPTER 29. EMERGENCY MANAGEMENT 563

APPENDIX 29.11 Selected Information Resources on the Internet

EMERGENCY PREPAREDNESS WEBSITES BIOTERRORISM WEBSITES

Federal Emergency Management Agency American Society for Microbiology
http://www.ready.gov/are-you-ready-guide http://www.asmusa.org
Source of materials for emergency preparedness Training materials, laboratory protocols, and regulations related to
bioterrorism preparedness
The Joint Commission
http://www.jointcommission.org College of American Pathologists
Guidelines on emergency management standards http://www.cap.org
Links to other websites on bioterrorism preparedness
National Institute for Occupational Safety and Health
http://www.cdc.gov/niosh Centers for Disease Control and Prevention
Resources on chemical agents and emergency preparedness http://www.bt.cdc.gov
Training materials, laboratory protocols, regulations, guidelines for
Occupational Safety and Health Administration
laboratory and healthcare facilities preparedness
http://www.osha.gov
Training materials, standards, and regulations related to safety in Department of Homeland Security
the laboratory http://www.ready.gov
Information on preparedness for all terrorism events
Office of Health and Safety
http://www.cdc.gov/od/ohs Infectious Diseases Society of America
Resources on safety, biosafety, and safety survival http://www.idsociety.org
Resources related to bioterrorism preparedness
U.S. Government Printing Office
http://www.access.gov/nara/cfr U.S. Army Medical Research Institute of Infectious Diseases
Source for federal regulations http://www.usamriid.army.mil
Reference material on biological and chemical warfare agents
Financial Management
V
(section editor: Michael R. Lewis)
30 Financial Management: Setting the Stage
Ronald B. Lepoff
31 Strategic Planning
Paul Valenstein
32 Human Resources at the Local Level: an Important Component
of Financial Management
Washington C. Winn, Fred Westenfeld, and Michael R. Lewis
33 Costs, Budgeting, and Financial Decision Making
Geoffrey C. Tolzmann and Richard J. Vincent
34 Financial Decision Making: Putting the Pieces Together
Ronald J. Bryant and Michael R. Lewis
Introduction
The Hospital Environment
30 Financial Management:
Operating in the Inpatient Hospital Setting •
Operating in the Outpatient Hospital Setting
Setting the Stage
The Non-Hospital Environment
Summary Ronald B. Lepoff
KEY POINTS
GLOSSARY
REFERENCES
OBJECTIVES
To establish the importance of the environment in which the laboratory
operates
To review the constraints placed upon management in the hospital and
independent laboratory settings
To introduce the fiscal considerations that may be important for laboratory
management in these settings

All the world’s a stage,

And all the men and women, merely Players;
They have their Exits and their Entrances,
And one man in his time plays many parts . . .
William Shakespeare
As You Like It, Act II, Scene VII

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch30
T
here are approximately 233,000 clinical laboratories in the
United States (4). Roughly 117,000 of these laboratories are located in
physician offices; of these, 60,000 perform only Clinical Laboratory Im-
provement Amendments (CLIA)–waived testing (see Glossary), and 37,300
do only provider-performed microscopy. In contrast, there are approximately
8,800 hospital laboratories. Of the remainder, about 5,600 are independent.
The total U.S. clinical laboratory market is about $57 billion in revenue. Table
30.1 summarizes the demographics of the laboratory industry.
In this chapter, we will concentrate on hospital and independent labora-
tories, which usually perform moderate- and high-complexity testing. As
laboratory instrument and supply manufacturers innovate and improve their
products, the number of high-complexity tests done in clinical laboratories
has declined somewhat; it is obvious that the market incentives for manufac-
turers lie in simplicity and reliability of operations. The supply of individuals
qualified to perform high-complexity testing has declined along with this lack
of demand (although not solely for this reason; the number of schools training
medical technologists/clinical laboratory scientists has also dramatically de-
clined). In contrast, testing in most physician office laboratories is limited, of
waived or moderate complexity, and performed by individuals whose primary
training and responsibilities are not in laboratory medicine.

567
568 FINANCIAL MANAGEMENT

Table 30.1 The demographics of the laboratory industry a because the work of the clinical laboratory is relatively in-
Laboratory type No. visible compared to direct patient care, it can be at a rela-
Total clinical laboratories 233,000 tive disadvantage in these negotiations. Consequently, it
Physician office laboratories 117,000 becomes even more important for laboratory management
Performing CLIA-waived testing only 60,000 to be perceived as a team player in the hospital—to be seen
Performing provider-performed 37,300 as clinically responsive and fiscally responsible. These at-
microscopy only tributes become increasingly important when large capital
Other physician office laboratories 19,700 expenditures or program expansions are sought.
Hospital-associated laboratories 8,800 In these situations the role of the laboratory medical di-
Independent laboratories 5,600 rector becomes critically important. To be most effective
Others (includes public health, insurance, etc.) 101,600 the director must speak for the medical needs of patients,
a
See reference 4. All numbers approximate.
particularly as they relate to laboratory services, but must
also present a credible front to the hospital administration
when addressing the business aspects of the laboratory,
The most important contributors to financial perfor- such as budgeting, billing, and planning.
mance in the laboratory industry are: In certain sections of the laboratory, such as anatomic
pathology and the blood bank, the director must be a phy-
• Leadership
sician. The directors of all sections—and especially the
• Operations management overall laboratory director—will be able to function most
• Information management effectively, whatever their academic degree, if they have a
• Marketing medical or clinical background that gives them credibility
• Laboratory specialty niches with the medical staff. Similarly, the relationship with the
hospital administration may be enhanced if the laboratory
• Service area
director has a business background or at least demonstra-
• Competition ble competence in business matters.
• Customer service The ideal director, who fully satisfies both sets of com-
• Couriers petencies, may be difficult to find. In fact, it is not essen-
• Phlebotomy tial that all that talent be manifest in one individual if the
director can utilize other resources within the laboratory.
• Client services
It is essential, however, that the person at the top have a
• Billing and pricing balanced view of the laboratory world.
• Availability of consultation/expertise
• Payor mix and policies Operating in the Inpatient Hospital Setting
• Network contracts (local and national) The major differences in the cost and operational structures
of independent and hospital laboratories lie in the patient
• Out-of-network policies
populations and the nature of the services provided. The
This section of the book deals with the operational man-
agement of the laboratory, including strategic planning,
human resource management in the operational units, cost Figure 30.1 The organizational chart of a hospital that is orga-
analysis, and financial decision making. Before discussing nized in a traditional manner. Note that the chief operating officer,
the details, it is worthwhile to consider the broad outlines who is parallel in reporting responsibility to the VP of nursing,
of the challenges that face laboratory managers and work- is responsible for all ancillary services through a director who is
ers in the industry as a whole and in the major segments. responsible for operations. doi:10.1128/9781555817282.ch30.f1
Chief Executive Officer

The Hospital Environment

In the hospital institutional environment, the laboratory Chief VP Chief Chief
usually operates as a division under a vice president or Operating Nursing Financial Information
Officer Officer Officer
director of operations. Along with other operational divi-
sions such as pharmacy and dietary, the laboratory must
Director
compete for resources with direct patient care divisions
such as nursing (Fig. 30.1). Because the laboratory may
not be directly represented at the table where administra- Laboratory Pharmacy Dietary Other operational
tive and fiscal decisions are made for the institution, and departments
 CHAPTER 30. FINANCIAL MANAGEMENT: SETTING THE STAGE
two are dramatically different in their institutional mis-
sions, patient populations, hours of operation, percentage
of tests requiring rapid turnaround (STAT testing), com-
munication and reporting requirements, and the need for
highly specialized testing. In this section we will explore
the environment of the hospital laboratory and how these
factors may affect financial performance (Table 30.2).
Hospital laboratories have primary responsibility for an
inpatient population of seriously ill people. Care has shifted
to the outpatient environment, and length of hospital stays
has dramatically decreased in the United States since the
introduction of diagnosis-related reimbursement. As a
consequence, the acuity of illness of hospitalized patients
has increased. More than ever, hospital laboratories must
dedicate significant resources to 24-hour-per-day, 7-day-
per-week support for critically needed testing, often with
a rapid turnaround time, to care for these patients. The si-
multaneous requirement to support the care of an increas-
ing population of patients who are seeking emergent care
further adds to the burden.
In this environment, the primary mission of the insti-
tution requires staffing, procedures, and instrumentation
that support rapid production of testing results around the
clock. The financial consequence of this mission is rela-
tively low productivity for both instruments and person-
nel; as a consequence, costs are relatively high. Fortunately,
the per-unit cost of equipment and reagents for most of
the required tests is low. Additionally, economies can be
achieved if additional nonemergent testing can be used to
fill excess capacity.
The high-acuity setting also leads to its own set of
requirements for communication and information tech-
nology. The frequent need to transmit highly abnormal
results to clinicians who care for critically ill patients
often requires staff to leave the workspace, both to call
in results on the telephone and to answer requests for
results. As the laboratory obtains more critically abnor-
mal results, more tests must be repeated or additional
procedures must be performed. For example, the per-
centage of routine blood counts that require a manual
differential count in the usual outpatient setting is less
than 10%, while in a hospital, especially one seeing a sub-
stantial number of patients with cancer, that proportion
may reach 30 to 35% or more. Balancing the demanding
Table 30.2 Components of diagnostic laboratory testing
Category of testing Examples
STAT; immediate response Blood gases; frozen sections
required
Intermediate response; same Routine chemistry and
day or shift hematology
ASAP response; depending Microbiology, surgical pathology,
on technology molecular testing
569
requirements for testing among sites with critical needs,
such as intensive care units and emergency departments,
often becomes very difficult to manage. Table 30.3 sum-
marizes the factors that detract from the efficiency of
hospital-based laboratories.
Depending on their size, hospital laboratories find it fi-
nancially feasible to add batch processing for tests that do
not require rapid turnaround times. Cutting-edge technol-
ogy, such as molecular diagnosis and molecular genetics,
does not at present require immediate response—although
as technology improves, this is likely to change. Thus, these
laboratories tend to have a portion of their staff devoted to
relatively low-complexity, rapid-turnaround testing oper-
ating around the clock and a second component of staff
devoted to batch production of relatively high-complexity
testing that requires special expertise, high-cost reagents
or instrumentation, and longer turnaround times (refer-
ence 6, p. 435–480). It should be noted that even in the
rapidly expanding arena of molecular testing, pressure is
growing to produce speedy results using real-time amplifi-
cation technologies.
The two components of staff needed for these two cat-
egories of testing are not interchangeable. Cross-coverage
for vacations, illness, or other mandated benefits, such as
training and continuing education, is impractical because
the skill sets (and mind-sets) for the two forms of testing
are so different. In some hospitals, laboratories support
decentralized testing in or near operating rooms, inten-
sive care units, and emergency departments, again in-
creasing cost and lowering staff productivity. Table 30.4,
which is derived from the College of American Patholo-
gists Laboratory Management Index Program (LMIP),
shows a clear inverse relationship between the per-test
cost of labor and laboratory size; larger laboratories are
more productive.
Reagent and supply costs are the second-largest com-
ponent of laboratory costs, after personnel. There is a clear
relationship between laboratory size, as measured by test
volume, and supply costs. Larger laboratories have lower
per-test supply costs than do smaller laboratories. Table
30.4 presents the cost-effectiveness ratios for the four
quartiles of participating laboratories in the LMIP. The rel-
ative decrease in the cost of consumables with increases in
laboratory size presumably occurs because larger purchas-
ers get better pricing from suppliers; the development of
group purchasing alliances such as Novation and Premier
may well have blunted some of this effect.
Table 30.3 Factors that produce inefficiency in hospital-based
laboratories that serve inpatients
Requirement for rapid laboratory response
Necessity for frequent repetition of tests
Need to telephone emergent or critical results to providers
570 FINANCIAL MANAGEMENT

Table 30.4 Laboratory productivity and volumea

Quartile b ($)
Expense per All
billed test 1 2 3 4 laboratories
Consumables 2.96 2.65 2.31 2.14 2.74
Labor 6.03 5.51 4.99 4.65 5.02
Direct test 10.22 8.78 8.05 7.34 8.43
a
Data from Laboratory Management Index Program of the College of American Pathologists (1994).
b
Quartile values are the means of independent distributions. The sum of mean consumable and labor
expense is not necessarily the same as direct expense.

Reimbursement of hospitals for inpatient stays is based
on one of the following schemes, depending on the payor
(Table 30.5):
• Percent of charges
• Per diem
• Reimbursement for diagnosis-related groups (DRGs)
The second and third of these schemes are the most com-
mon in the United States, where reimbursement based on
charges has almost disappeared for inpatients. As discussed
earlier, payment schemes affect the financial performance
of hospital laboratories in complex ways. For example, the
intent of diagnosis-based reimbursement for hospital care
is to create incentives for hospitals to minimize unneeded
expenditures for all aspects of hospital care (commonly
measured as length of stay), including laboratory test-
ing (2). The efficacy of this incentive is illustrated by two
changes in health care. Length of hospital stay has dropped
substantially, from around 7.5 days in 1980 (before DRGs)
to approximately 4.8 days in 2008–2009, a decrease of 36%
(5). Additionally, de novo systems of less expensive home
care, including the ongoing administration of intravenous
medications, for example, have proven very popular (1).
Generally, reimbursement for care of hospitalized patients
that is not driven by DRGs is done on a per diem basis.
For the laboratory, the consequence of both payment
schemes is that inpatient revenue is unrelated to the quan-
tity of testing. The institution gains if the length (cost) of
stay declines and if the number of laboratory tests done on
each inpatient is reduced. Under this scenario, however,
physicians are faced with the need to care for increasingly
Table 30.5 Reimbursement mechanisms in the inpatient, outpa-
tient, and independent laboratory settings
Outpatient and independent
Inpatient laboratories laboratories
DRGs Percent of charges
Per diem Fee schedule
Percent of charges Capitation
Ambulatory payment classification
groups (APCs)
ill patients quickly. It is estimated that upwards of 70% of
the patient data in hospitals comes from the clinical lab-
oratory. The bulk of laboratory testing during a hospital
admission occurs in the first few days, when the patient is
most acutely ill and when diagnoses are being tested and
rejected or established by clinicians. The financial gain for
the laboratory produced by earlier discharge after these
initial intensive days may, therefore, be minimal. Pressures
to reduce length of stay will tend to compress the same
amount of testing into a shorter period, leading to little if
any reduction in laboratory costs (7).
Laboratory administrators are often surprised by the
amount of indirect costs borne by the laboratory in the
hospital setting. The laboratory is one of the few hospital
departments that bills for services directly; other charges
include those for pharmaceuticals, medical supplies, and
“hotel” functions (bed charges). The simplest way to ap-
proach these costs is to examine the hospital’s annual
Medicare cost report, which allocates all indirect costs in
a uniform way to departments. Often, direct laboratory
costs for labor and supplies may be only half of total costs,
with the remainder resulting from these charges for insti-
tutional indirect costs (reference 6, p. 154–155).
Operating in the Outpatient Hospital Setting
Many hospital laboratories, especially those in academic
medical centers, serve significant numbers of outpatients.
These encounters with the outpatient facility may be asso-
ciated with prior or future inpatient stays, for example, be-
fore or after surgical procedures. Here one might suppose
the demand for rapid turnaround times must be less than
in the inpatient setting. In fact, the need for high-volume
outpatient clinical operations is as varied and complex as
the inpatient operations. In some cases the need for rapid
turnaround of test results may be surprising—and it re-
sults from the increasing shift of sophisticated patient care
from the hospital ward or operating room to the outpatient
medical clinic, dialysis unit, or surgery. Oncology clinics,
for example, often need the results of laboratory testing to
decide if and at what dose a patient may receive chemo-
therapy that day. The complexity and sophistication of test-
ing in this environment actually tends to be higher than in
the inpatient setting; complex endocrinologic diagnoses,
 CHAPTER 30. FINANCIAL MANAGEMENT: SETTING THE STAGE
for example, are usually sought in the outpatient setting.
In this instance the tests do not usually require rapid turn-
around and are best batched.
Hospital reimbursement in the outpatient setting is
based on (Table 30.5):
• Percent of charges. Contractually negotiated by the
hospital with payors
• Fee schedule. Contractually negotiated with payors or
as prescribed by the government for Medicare
• Capitation. A contractual scheme in which the health-
care system (in many cases including both hospitals
and physicians) undertakes to provide needed care to
a defined population at a certain fixed rate per month,
regardless of the volume of care
• Ambulatory payment classification groups (APCs) (3)
The first two methods are straightforward and tradi-
tional. Capitation first appeared to any significant degree
after the failed Clinton-era attempt at reconstruction of
healthcare. Health maintenance organizations and other
payors found that their market power enabled them to de-
mand favorable, often capitated contracts from providers
in many areas of the country. At one point, capitation of
laboratory testing was paid at $0.60 per member per month
in some areas. Over the past 15 years, as excess capacity has
been wrung out of the healthcare system, providers have
regained some of their market power, and the pendulum
has swung back toward the first two approaches. Medicare
now reimburses hospital outpatient services on a modified
diagnosis-related scheme (APCs).
In this outpatient arena, hospital laboratories compete
with the commercial laboratory sector for business. In re-
cent years, the market share of hospital laboratories has
increased at the expense of the commercial sector. While
serving hospital outpatients has its own set of service de-
mands, as indicated earlier, hospital laboratory outreach
programs require, in addition, marketing, courier and
phlebotomy services, business services such as billing and
accounting, and customer support. Hospital laboratories
often have excess technical capacity for testing, resulting
from their need for rapid turnaround and their diurnal
variation in demand (highest during the day and lowest
at night). The unused capacity in the evening may allow
the addition of outreach testing at minimal marginal cost.
While most hospitals in the United States are still not for
profit, laboratory operations in the for-profit sector are ba-
sically similar to those in the not-for-profit sector.
The Non-Hospital Environment
The breadth of testing provided by independent laborato-
ries generally mirrors that of hospital-associated labora-
tories. The major differences lie in the population served,
571
hours and scope of operation, turnaround time require-
ments, and need for ancillary functions, such as busi-
ness operations. Some of these facilities do a substantial
amount of reference (esoteric) testing for hospitals and
other laboratories.
Most of the testing done by the independent laborato-
ries is for outpatients of physicians and clinics. Some may
provide phlebotomy services at or near the offices and
clinics they serve. Essentially all provide couriers for the
transportation of specimens back to the home laboratory.
Except for work that requires rapid turnaround, which is
unusual in this setting, most specimens are transported
during daylight hours and arrive at the laboratory in the
late evening or night. Thus, the major testing effort takes
place during the night in one large batch, and most results
of routine tests are transmitted before the physicians’ of-
fices open the next morning.
This type of workload and scheduling influences the
laboratory’s staffing pattern and even its instrumentation
choices. For example, the setting requires batch instru-
mentation that can process large numbers of samples rela-
tively expeditiously but with no need for rapid turnaround
of any individual sample. An instrument that operates in a
batch mode, then, may be better suited to this setting than
one that may be somewhat slower but allows the interposi-
tion of STAT samples at any time. To the extent that these
laboratories do esoteric work, for which a longer turn-
around time of up to four or five days is often acceptable,
that work is usually done separately during a smaller day
shift. If the marketplace justifies provision of the service,
some independent laboratories perform forensic, veteri-
nary, or environmental testing. A number of highly spe-
cialized niche laboratories operate in still other areas such
as cytogenetics, molecular genetics, forensic toxicology,
and other areas that the large national laboratories have
been reluctant to enter because of cost or need for special-
ized expertise.
For the most part, independent laboratories serve an
outpatient population. To be sure, in some (mostly rural)
areas, an independent laboratory may contract with a lo-
cal hospital to supply laboratory services. The reimburse-
ment schemes for this sector of the industry are the same
as those listed above for hospital outpatient work (Table
30.5). Major requirements for these laboratories include,
in addition to the aforementioned courier and phlebotomy
services, medical consultation, billing, accounting, client
relations, marketing, sales, and information services func-
tions. In the hospital setting, these functions are usually
performed mostly outside the laboratory.
The small independent laboratory has the advantage
of flexibility and the ability to move quickly to adapt to
the market; it is not burdened with hospital administrative
overhead and cumbersome decision-making processes. Of
course, management decisions are reflected rapidly in the
572 FINANCIAL MANAGEMENT
bottom line, for better or worse. Because diagnosis-related
reimbursement is usually not an issue in this market seg-
ment, and because the prevalence of capitation has been
declining, it is in the interest of the independent laboratory
to maximize laboratory utilization and thus revenue.
As the independent laboratory industry has rapidly
consolidated, the number of independent laboratories has
plummeted; two large public corporations now dominate
the industry, and consolidation continues apace (8). Oper-
ating in the corporate setting involves less local autonomy
and more centralized decision making. Local choices of
tests offered, instrumentation, reagents, and so forth are
likely to be very limited. On the other hand, the corpo-
ration will supply a centralized purchasing capability and
likely similar data processing functions, releasing the local
branch from these duties. On the revenue side, while the
small independent laboratory must negotiate with provid-
ers or with payors who still permit local contracting, the
large national corporations negotiate national contracts
with payors when possible.
Summary
The objectives of laboratory management must reflect the
demands of the laboratory’s clients and the clinical and fi-
nancial environment in which it operates. There are funda-
mental and striking differences in clinical need and demand,
financial constraints and considerations, and laboratory
mission and cost structures, which depend on the labora-
tory’s situation. Whether inpatient or outpatient hospital
or independent laboratory, each has its own set of func-
tional drivers of which laboratory management must be
acutely conscious.
KEY POINTS
■ The demands for capable, effective management differ
in the hospital inpatient, hospital outpatient, and inde-
pendent laboratory settings.
■ Laboratory management must be able to demonstrate
intimate knowledge not only of the clinical needs for
laboratory testing in various situations, but also the
fiscal constraints of the institution in which it oper-
ates and be able to communicate this understanding to
higher administration.
■ Reimbursement mechanisms vary according to setting,
and laboratory management must have a clear under-
standing of all of the relevant mechanisms, payor re-
quirements, and limitations.
GLOSSARY
CLIA ’88 The Clinical Laboratory Improvement Amendments
of 1988 and their implementing regulations, as published since
1992.
CLIA-waived testing A category of laboratory test complexity
under CLIA (q.v.) which applies to tests that (i) are cleared by the
U.S. Food and Drug Administration for home use, (ii) employ
methods that are so simple and accurate as to render the likeli-
hood of erroneous results negligible, or (iii) pose no reasonable
risk of harm to the patient if the test is performed incorrectly.
Provider-performed microscopy A category of moderate-
complexity tests under CLIA (q.v.) involving a patient care pro-
vider using a microscope for testing, such as urine microscopic
examinations.
REFERENCES
1. Centers for Disease Control and Prevention. 2001. National
Hospital Discharge Survey. Centers for Disease Control and Preven-
tion, Atlanta, GA.
2. Centers for Medicare and Medicaid Services. 2012. Acute Inpa-
tient Prospective Payment System. http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/AcuteInpatientPPS/index.html
(last accessed August 30, 2012).
3. Centers for Medicare and Medicaid Services. 2012. Hospital Out-
patient Prospective Payment System. http://www.cms.gov/Medicare/
Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/index
.html (last accessed August 30, 2012).
4. Centers for Medicare and Medicaid Services. 2012. CLIA Statisti-
cal Tables/Graphs. http://www.cms.gov/Regulations-and-Guidance/
Legislation/CLIA/CLIA_Statistical_Tables_Graphs.html (last ac-
cessed September 4, 2012).
5. National Center for Health Statistics. 2012. Health, United States,
2011: With Special Feature on Socioeconomic Status and Health.
Table 103. http://www.cdc.gov/nchs/hus/contents2011.htm#103 (last
accessed September 14, 2012).
6. Travers, E. M. 1997. Clinical Laboratory Management. Williams &
Wilkins, Baltimore, MD.
7. Valenstein, P., A. Praestgaard, and R. Lepoff. 2001. Six year
trends in productivity and utilization of 73 clinical laboratories: a
College of American Pathologists Laboratory Management Index
Program Study. Arch. Pathol. Lab. Med. 125:1153–1161.
8. Washington G-2 Reports. 2003. Laboratory Industry Report,
vol. 12, no. 42003.
Introduction: What Is Strategy?
Evidence To Recommend Strategic
31 Strategic Planning
Planning
Randomized Controlled Trials • Case Studies • Paul Valenstein
Economic Theory
Developing and Maintaining a Business
Strategy: the Strategic Planning Process
Structure of the Clinical Laboratory
Industry
Size of the Testing Market • Concentration of
Competitors • Barriers to Entry • Separation of Payor, OBJECTIVES
Purchasing Agent, and Beneficiary • Economies of To define strategy and contrast strategic planning with the management of
Scale • Restrictions on Markups and Kickbacks • operations
Powerful Sellers and Buyers • Substitute Products •
Unique Economics of Inpatient Care • Conclusions To describe the competitive structure of the laboratory industry
Competitor Analysis To articulate the elements of competitor analysis
Competitors’ Goals • Competitors’ Assumptions •
Competitors’ Capabilities • Interactions of
To characterize strategic positions commonly used by clinical laboratories
Competitors • Conclusions To explain how strategies are sustained and why they commonly fail
Strategic Positions in the Laboratory
Industry
What Are Strategic Positions? • Types of Strategic
Positions • Strategic Positions of Clinical
Laboratories • Conclusions The essence of strategy is choosing what not to do.
Implementing the Strategy: Activity Fit Michael E. Porter
What Is Activity Fit? • Activity Fit Involves Trade-Offs
Failure of Strategy
Straddling • Growth Trap • Profitability Trap • Hubris
Introduction: What Is Strategy?
Summary
KEY POINTS Strategy is an elusive concept for the typical manager of a clinical laboratory,
GLOSSARY
who is often more comfortable working with operational issues. The word
“strategy” evokes images of generals planning vast military campaigns—a pro-
REFERENCES
cess that would appear to have little relevance in the quiet and measured atmo-
APPENDIXES
sphere of the diagnostic laboratory.
Business strategy complements the management of operations, which com-
prises the main focus of this book. Operational management consists of opti-
mizing individual business processes. It may involve the efficient use of human
resources, supply chain management, financial planning, or quality control.
Managing laboratory operations includes the oversight of marketing, client
services, specimen processing, billing, safety, and information technology, as
well as the testing operations that constitute the heart of the diagnostic clini-
cal laboratory.
In contrast to operational management, business strategy is about equip-
ping an organization to withstand competitive market forces. Whereas the
operational manager seeks to maximize the effectiveness of each part of a
business, the business strategist seeks to arrange the parts into a whole that
will succeed in a competitive environment and to toss out any parts that do
not fit with a firm’s strategy, no matter how well the part seems to function.
Business strategists concern themselves with understanding the structure of
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia the industry and their firms’ competitors, defining unique market positions
©2014 ASM Press, Washington, DC for the laboratory, and creating interlocking processes that provide the labora-
doi:10.1128/9781555817282.ch31 tory with a sustainable competitive advantage in its target market. Business

573
574 FINANCIAL MANAGEMENT
strategists value focus over growth; they are creative but
also disciplined and not easily distracted.
Operational effectiveness and sound business strategy
both produce competitive advantage. However, neither
stands on its own. If all laboratory competitors enjoy excel-
lent operational effectiveness and produce test results that
are equally accurate, inexpensive, and timely, none of the
competitors will enjoy a healthy financial return. Competi-
tion within the market will drive out profitability and lead
to commoditization of laboratory services. Conversely, a
laboratory may have a well-developed strategy to serve a
defined group of customers that is not being well served
by others, but at the same time may lack the operational
wherewithal to execute the strategy and keep its target cus-
tomers satisfied. It, too, will flounder.
A sound business strategy requires several elements
(Table 31.1). These are (i) understanding the underlying
structure of the industry in which an organization com-
petes; (ii) assessing a firm’s strengths, weaknesses, assump-
tions, and goals, as well as those of its nearest competitors;
(iii) identifying a distinctive market position that the firm
can occupy more successfully than its rivals; (iv) developing
interlocking and reinforcing business activities that drive
the organization toward its desired position in the market;
and (v) avoiding common traps that upend the best-laid
strategy. These five elements form the basis of this chapter.
Readers may believe that special characteristics of the
clinical laboratory industry make it unsuitable for strategic
planning. Many individuals hold this view because most
laboratory activity is concentrated within not-for-profit
hospitals; laboratories are subject to a regulatory environ-
ment that imposes a high degree of uniformity on testing
practices, and the strong market power of payors such as
Medicare seems to limit managers’ options to find unique
market positions. Nevertheless, this chapter will show that
clinical laboratories have developed a variety of distinctive
strategic positions to differentiate themselves from rivals.
Evidence To Recommend
Strategic Planning
Randomized Controlled Trials
The process of strategic planning has not been tested in
randomized controlled trials. Business leaders are not will-
ing to subject the fates of their companies to experiments
Table 31.1 Elements of strategy
Understanding industry structure
Assessing a firm’s and competitors’ strengths and weaknesses
Identifying a distinctive market position
Adopting business activities that reinforce a market position
Avoiding common strategy traps
in which their firms are randomized to either using or not
using a particular business strategy.
Moreover, strategic planning is not a standardized, well-
defined intervention that can be dispensed to corporate
leaders in the same manner as a pharmaceutical product.
A strategic plan must take account of the unique strengths
and vulnerabilities of competitive adversaries and will
therefore be different for every business.
Because of these limitations, the strongest type of re-
search evidence—the randomized controlled trial—has
not been applied to strategic planning. If strategic planning
were a medical device, it would not be approved for sale. If
it were a drug, it would not be licensed or prescribed.
Case Studies
A number of studies carried out by the faculty of business
schools have evaluated the role of strategy in business.
For example, Porter evaluated the 35-year diversification
histories of 33 large U.S. companies, using annual reports,
10K forms, Moody’s ratings, and several other sources (9).
Porter concluded that a large number of acquisitions were
later divested as a result of their poor strategic fit with the
acquiring firm. Studies such as Porter’s rely on qualitative
examination of an individual company or, as in this ex-
ample, a series of companies. Many of the case studies have
been conducted in considerable depth; it is not unusual for
an industry case study to be drawn from hundreds of pages
of interview transcripts and financial data. Still, case stud-
ies are subject to several types of bias. There is likely to be
selection bias in the firms authors choose (or are permit-
ted) to study. Authors may also demonstrate interpretive
bias when deciding which attributes of a company led to
its market success or failure.
In addition to the case studies published by academi-
cians, consultancies involved in strategic planning have
published articles attesting to the importance of strategic
planning for organizational success. These publications
are subject to the same selection and interpretive biases
that beset academic case reports and may additionally be
troubled by conflicts of interest when the consultancies
derive revenue from helping firms develop strategic plans.
In published case studies and reviews, academicians
have identified strategy as a critical component in the
success of particular firms (10). For example, Southwest
Airlines’ strategy of flying only short-haul, point-to-point
routes between midsized cities and secondary airports of
larger cities has been linked to its ability to attract price-
sensitive travelers while maintaining profitability. Jiffy
Lube International’s strategy of limiting its product line
to lubrication services has allowed it to offer faster service
and thereby attract time-sensitive customers.
When a particular firm is identified in a case study as
having a successful business strategy and the firm later
stumbles in the marketplace, readers may conclude that

the study author misinterpreted the facts of the case. How-
ever, authors argue that the identification of a company
with a successful business strategy does not represent an
endorsement of the company in all respects or indicate
that the company’s strategy will be successful for all time.
Case studies of strategy represent an analysis at a particular
point in time and under specific business circumstances.
In this sense, a business author’s work is analogous to that
of a historian who asserts that a specific historical figure
was able to effect political reform at a particular time in
history, without also arguing that the subject was a model
citizen in all respects or would have been successful in pro-
moting reform under different historical circumstances.
Economic Theory
Classical economic theory provides indirect support for
the value of strategy in business. Economic theory sug-
gests that when one firm earns profits that are larger than
average, other organizations will emulate the firm’s prac-
tices until the increased competitive pressure brings the
firm’s profits down to an average level. The more bench-
marking rivals in an industry perform and the more ri-
vals outsource similar activities to third parties, the more
alike their operations become (10). Even if operational ef-
ficiency improves for the first firm, theory holds that the
first firm will not be able to maintain a relative productiv-
ity advantage over its rivals. Therefore, classical econom-
ics predicts that the profitability of firms in an industry
should tend to equalize over time, as firms’ products be-
come commoditized.
The fact that some firms are able to outperform their
adversaries over extended intervals suggests that factors
other than increased operational effectiveness are at work
in the marketplace. Business authors suggest that strategy—
the ability of firms to stake out and defend unique market
positions—explains the capacity of some firms to earn re-
turns that consistently exceed those of their competitors.
A successful business strategy tends to weaken competi-
tive pressure and allows organizations to achieve above-
average returns for extended periods of time.
Developing and Maintaining a Business
Strategy: the Strategic Planning Process
There is little consensus in the business literature about
how strategies are best developed. Bruce Henderson,
founder of the Boston Consulting Group, describes the de-
velopment of strategy as “an iterative process that begins
with a recognition of where you are and what you have
now. Your most dangerous competitors are those that are
most like you. The differences between you and your com-
petitors are the basis of your advantage” (3). Henderson
does not require that all of the stakeholders in an organiza-
tion participate in developing a business strategy or that
CHAPTER 31. STRATEGIC PLANNING 575
it be contained in a written document. He requires only
that a business strategy take into account existing differ-
ences between a firm and its competitors and purposefully
build upon these differences. To Henderson, development
of strategy is a creative act.
Other business authors also downplay the importance
of developing a written strategic plan, and some maintain
that a formal strategic planning process can lead orga-
nizations astray. Campbell and Alexander argue that the
planning frameworks managers use to develop strategy
often yield disappointing results because business strat-
egy is about insights and not about plans, which tend to
be operational in nature (1). Kim and Maugorgne believe
that when an inclusive planning process is used to formu-
late strategy, the competing agendas of an organization’s
various stakeholders limit development of a clear sense of
purpose (4).
Other authors recommend a more formal procedure
in which input is solicited from a firm’s owners, board of
directors, managers, employees, and customers and is in-
corporated into a written document called a strategic plan.
Not-for-profit companies tend to be particularly attracted
to a formal, inclusive planning procedure. This may be the
result of discomfort that many not-for-profit organiza-
tions experience in framing their business in competitive
terms. Mission-based organizations also lack some of the
direct feedback that for-profit companies obtain from the
market, and a formal strategic planning process sometimes
substitutes for the validation that for-profit companies re-
ceive in the marketplace.
It should come as little surprise that consultancies en-
gaged in selling strategic planning services recommend a
more structured approach to strategic planning. The for-
mal strategic planning process consists of several steps
(Table 31.2). The process generally begins with a com-
mitment by leadership to identify a strategic direction
for the organization. Typically, a planning committee of
a half dozen individuals is created to specify important
stakeholders and the information that will be collected
in the planning process. The second step of the planning
process involves development or refinement of a mission
statement—what the organization values and seeks to ac-
complish. The third step involves a situation analysis, in
which the strengths and weaknesses of the organization
are articulated, along with external threats and opportuni-
ties. This generally takes the form of a competitor analysis,
a process described later in this chapter. The fourth step of
the strategic planning process involves the development of
specific objectives and tactics that will further the organi-
zation’s mission, given the realities that surface during the
situation analysis. Finally, a subset of the planning com-
mittee summarizes the conclusions in a document called a
strategic plan, which is given to the board of directors and
senior staff to put into practice.
576 FINANCIAL MANAGEMENT

Table 31.2 The formal strategic planning process
Formation of the strategic planning committee
Development of a mission statement
Situation analysis
Development of tactics to further the organization’s mission
Writing of formal strategic plan
Whether or not a formal process is used to develop a
business strategy, all strategies are shaped by the under-
lying structure of the industry in which a firm competes.
We therefore turn our attention to the organization of the
laboratory industry.
Structure of the Clinical
Laboratory Industry
Competition in any industry is rooted in economics
unique to the industry. Competitive pressure is applied not
only from existing rivals, but also from potential entrants,
substitute products, customers, and suppliers (8). The clin-
ical laboratory industry has its own underlying structure,
which is described in the paragraphs that follow and sum-
marized in Table 31.3.
Size of the Testing Market
Excluding over-the-counter testing products, the clini-
cal laboratory market comprises approximately 3% of the
healthcare industry, which in turn represents 18% of the U.S.
gross domestic product. The U.S. diagnostic testing indus-
try had annual revenues in 2010 of approximately $55 bil-
lion. More than two-thirds of all testing is performed on
outpatients, a fraction that has been growing by 1 to 2%
per year over the past decade. Overall, clinical test activity
has been growing by slightly less than 4% per year due to
changes in clinical practice, the introduction of new tests,
and the growth and aging of the U.S. population. Demand
for testing increases with age; testing activity per Medicare
beneficiary is four to five times higher than testing per
commercial insurance beneficiary. Cumulative revenue
for the laboratory industry has been growing at a rate of
slightly more than 4% per year (14). Growth in revenue
is the result of a shift in test mix toward more esoteric
tests, including gene-based testing, and increases in test
volume, offset by reductions in payor fee screens. Trends
in laboratory costs are more difficult to measure than rev-
enue trends. In one report that focused on hospital-based
laboratories, the variable cost of testing remained constant
over a 6-year period in nominal dollars and declined in
real (inflation-adjusted) dollars; increases in the cost of
wages and reagents were offset by commensurate increases
in productivity (15).

Table 31.3 Structural elements of the clinical laboratory industry

Market size Concentration of Competitors
Inpatient vs. outpatient The U.S. outpatient clinical laboratory industry is highly
Routine versus esoteric fragmented geographically; there are many providers but
Concentration of competitors few that operate over large geographic areas. Within any
Mergers and acquisitions of hospitals local market there are relatively few competitors. As of this
Consolidation of commercial laboratories
writing most outpatient markets are served by only one
Barriers to entry
Regulations, e.g., CLIA
or two national commercial laboratories, which in 2009
Customer (physician) loyalty shared only 13% of the outpatient testing market. The ref-
Staff-model hospital systems erence testing is more concentrated. The five largest ref-
Cost to customers of switching erence laboratories accounted for 88% of 2009 reference
Barriers to exit laboratory activity (14). Mergers have reduced competition
Local resistance to hospital closing in the outpatient and reference laboratory testing market;
Separation of payor, purchaser, and beneficiary the number of laboratory consolidations in 2010 and 2011
Economies of scale were at decade-long highs, and acquisition prices in 2010
Supplies, reagents, and testing instruments
Other laboratory functions
approached three times revenues. Mergers or strategic alli-
Regulatory restrictions
ances have also reduced competition among hospital labo-
Markups ratories. Although hospital markets are somewhat difficult
Kickbacks to define, most communities are served by no more than
Powerful buyers and sellers three local hospitals. The physician office laboratory mar-
Buyers, e.g., Medicare, Blue Cross ket is less concentrated than the commercial and hospital-
Sellers, e.g., American Red Cross based laboratory markets. Physician office laboratories,
Substitute products however, typically perform testing only on behalf of their
Potentially, home diagnostics
owner’s patients and as a result do not compete directly
Economics of inpatient care
with one another.

Barriers to Entry
State and federal regulations constitute a significant barrier
to the entry of new competitors to the clinical laboratory
field. Certificate of need laws in many states prevent the
construction of new hospitals without regulatory approval.
In addition, laws in several states limit the acquisition of
not-for-profit hospitals by for-profit companies. Clinical
laboratories must also meet regulatory and performance
hurdles specified in the Clinical Laboratory Improvement
Amendments (CLIA) of 1988 and elsewhere. Most labora-
tories meet this requirement by participating in the College
of American Pathologists (CAP) Laboratory Accreditation
Program or The Joint Commission Laboratory Accredita-
tion Program, both of which enjoy deemed status from the
Centers for Medicare and Medicaid Services of the U.S. fed-
eral government. CLIA regulations specify that laboratory
directors and workers must meet certain education and
experience standards and impose other requirements that
limit entry to the laboratory industry.
Little capital is required to enter the laboratory industry,
so capital is not a significant barrier to entry. Depreciation
accounts for less than 7% of the operating costs of most
clinical laboratories, even after analytical instruments
obtained on a reagent rental basis are capitalized and the
costs of information systems are amortized.
Because physicians order the vast majority of laboratory
tests, doctors represent an important distribution channel
that must be accessed by any new entrant in the laboratory
business. Most physicians in private practice who partici-
pate in managed-care arrangements are accustomed to us-
ing several different laboratories for patients enrolled in
different health plans. These physicians are fairly easily in-
troduced to new laboratory services. However, physicians
employed in staff-model practices or who are affiliated
with tightly integrated independent practice associations
may not be available to new laboratory entrants and there-
fore represent a barrier to entry into the testing market.
The consolidation of physician practices that is taking
place as of this writing can be expected to increase barriers
to entry for clinical laboratories.
Switching costs—the cost incurred by a customer
switching from one producer to another—may constitute
a barrier to entry. In the specialty laboratory market, the
effort required to configure and test new laboratory-to-
laboratory computer interfaces tends to lock in customers
and reduce competitive pressure. Many community-based
physicians do not currently experience difficulty switching
laboratories, but difficulties are increasing as laboratories
develop sophisticated interfaces with practice manage-
ment systems and the electronic medical records increas-
ingly common in office practices.
Barriers to exit also influence industry economics.
Unprofitable hospitals supported by local communities
CHAPTER 31. STRATEGIC PLANNING 577
may not be permitted to close, perpetuating an oversup-
ply of hospital-based laboratories. Specialized staff in un-
profitable clinical laboratories who are reluctant to leave
their employers or retrain may also produce a surplus of
competitors.
Separation of Payor, Purchasing Agent,
and Beneficiary
The healthcare industry is characterized by an unusual
separation of roles that are typically combined in other
businesses. The beneficiaries of services (patients) do not
generally pay for services directly; less than 20% of care
delivered in the United States is paid for directly by pa-
tients. Most payments for health services are made by
government insurance programs (principally Medicare
and Medicaid) or private insurance companies that are
supported by employer contributions. To add to the com-
plexity, neither the payors nor the beneficiaries act as pur-
chasing agents of clinical laboratory services. Physicians
order almost all laboratory tests. In fact, in many states it
is illegal for patients or insurers to order laboratory tests.
The separation of beneficiaries, payors, and purchasing
agents creates a number of market distortions that have
been widely studied. Teisberg et al. review the implications
of this separation of roles on competition and incentives in
healthcare (13).
Economies of Scale
There is strong evidence that analytical operations in
chemistry, hematology, gynecological cytology, and blood
banking are subject to substantial economies of scale. In
the CAP Laboratory Management Index Program, test vol-
ume (standardized billable tests/year) was the factor most
closely correlated with labor productivity (tests/full-time
equivalent) and with overall efficiency (cost/test). Most
laboratories that participate in the CAP program operate
with test volumes that are well below the level at which
efficiency tends to flatten out. There are insufficient data
to determine whether significant economies of scale oper-
ate in other aspects of clinical laboratory operations, such
as marketing, courier and transportation services, profes-
sional oversight, surgical pathology, and informatics. Stud-
ies on economies of scale for microbiology operations have
produced conflicting results.
Restrictions on Markups and Kickbacks
Federal law prohibits physicians and their employers from
marking up Medicare and Medicaid charges billed to their
practices. Further, antikickback laws prohibit laboratories
from providing referring physicians with goods or ser-
vices of value in exchange for referral of laboratory tests.
These restrictions have been enacted to reinforce the fidu-
ciary duties of physicians to their patients by eliminating
578 FINANCIAL MANAGEMENT
financial incentives to order unnecessary tests or to select
laboratories based on the physician’s potential to profit
from the transaction. However, these laws dampen mar-
ket forces that would otherwise pressure laboratories to
lower their prices. Some states, such as New York, New
Jersey, Michigan, and Rhode Island, prohibit physicians
from marking up laboratory charges when billing nonfed-
eral insurance programs. In states that do not have these
restrictions, laboratory charges to physicians for patients
enrolled in non-Medicare programs tend to be lower and
are then typically marked up by the physician before bill-
ing an insurer.
Powerful Sellers and Buyers
Powerful sellers of analytical equipment do not generally
trouble the laboratory industry. Large purchasing coopera-
tives have enabled clinical laboratories to impose competi-
tive pressures on the manufacturers of testing equipment
and reagents. There are a number of providers of laboratory
information systems that compete on the basis of price,
support, stability, and functionality. In a few instances,
however, specialized vendors of specific tests have strate-
gically positioned their products with consumers (Cytyc’s
positioning of liquid-based cytopathology tests) or with
clinicians (Athena Diagnostics’ positioning of neurologi-
cal tests) to blunt competitive pressure and increase costs
to purchasers. Myriad Genetics holds a patent that gives it
a dominant position in testing for genetic predisposition
to breast cancer. Another powerful seller to the laboratory
industry is the American Red Cross, which dominates the
blood supply in most American communities. As a result of
American Red Cross market power, coupled with increased
requirements for testing, blood and blood products have
been the fastest growing expense for hospital-based labo-
ratories (15). Prices for blood products in markets where
American Red Cross facilities compete with community
blood centers are significantly lower than in markets in
which the American Red Cross is the sole supplier.
The laboratory industry experiences significant pres-
sure from powerful buyers, which the industry refers to as
“payors.” Medicare, the federal government’s largest health
insurance program, makes up approximately 20% of the
clinical laboratory market by volume. In most communi-
ties, Blue Cross/Blue Shield and two or three other insur-
ers dominate the remainder of the market. These buyers
profoundly shape the clinical laboratory industry through
imposition of (i) fee screens that place upper bounds on
effective industry pricing, (ii) claims edits that place limits
on the frequency or clinical setting in which services can
be ordered and the manner in which tests can be billed,
(iii) requirements that laboratories offer broad geographic
service before they become eligible for exclusive testing
arrangements, and (iv) turnaround time or result report-
ing requirements.
Substitute Products
The clinical laboratory industry is not currently subject
to significant pressure from substitute products. However,
over-the-counter testing products, point-of-care instru-
mentation used by nonlaboratory providers, and disease
management programs run by pharmaceutical companies
that incorporate laboratory testing have the potential to
alter the configuration of the laboratory industry. Cur-
rently, most clinical laboratory testing is categorized as
high or moderate complexity and thereby subject to exten-
sive regulation under CLIA, which makes it unsuitable for
displacement by over-the-counter or small-office testing.
This situation may change rapidly as manufacturers ex-
ploit new technologies to create reliable, low-cost analytic
test platforms that the FDA classifies as waived.
Unique Economics of Inpatient Care
For most inpatient care, laboratory testing is not a sepa-
rate reimbursable service. More than 80% of inpatient
care is reimbursed on a per diem basis or on the basis of
diagnosis-related groups. As a result, inpatient laboratories
are inextricably tethered to the providers of inpatient care,
most of which have elected to own and manage their inpa-
tient testing operations. If a hospital-based laboratory does
not have an outreach testing program, it will invariably fol-
low the strategic direction set by its parent institution.
Conclusions
The structural elements of the laboratory industry are gird-
ers that impose a rough shape on any laboratory business
strategy. To develop a unique strategy for a particular labo-
ratory, the strategist must work within these constraints.
This is most often accomplished by studying the strengths
and weaknesses of the firm’s closest competitors.
Competitor Analysis
The objective of a competitor analysis is to predict com-
petitors’ behavior, both when the competitors are left to
their own devices and in response to the moves of rivals.
The strategy, position, and capabilities of competitors may
limit a firm’s opportunities for growth in some areas while
simultaneously suggesting other areas in which a firm
might expand with little challenge.
Popular back-of-the-envelope competitor analysis relies
on a procedure referred to as a “SWOT” analysis, an acro-
nym that describes an assessment of an organization’s own
strengths and weaknesses and external opportunities and
threats. This procedure begins with an inward examina-
tion of an organization’s capabilities and ends with an out-
ward examination of rivals (Fig. 31.1). Through a SWOT
analysis a manager may discover opportunities for market
expansion or repositioning or identify areas in which a
firm is vulnerable. Appendix 31.2 provides a hypothetical

Favorable Unfavorable
Strengths Weaknesses
Internal
Opportunities Threats
External
Figure 31.1 SWOT analysis. doi:10.1128/9781555817282.ch31.f1
example of the sort of competitive information that the
manager of a laboratory might receive about rivals during
the normal course of business. Interested readers are en-
couraged to reorganize this information in the form of a
SWOT analysis.
In the academic business literature, competitor analysis is
a sophisticated process in which the future goals, assump-
tions, and capabilities of competitors are analyzed with the
aim of predicting a competitor’s response profile (11). A fully
developed competitor analysis is beyond the means of most
clinical laboratories, which are generally too small to con-
duct extensive systematic research about rivals. The follow-
ing assessments are included in a formal competitor analysis.
Competitors’ Goals
What are the business objectives of major competitors and
potential competitors? Is the company most interested in
generating returns on investment or sales growth? Is short-
run or long-run performance most important? What in-
centive systems are used for management and sales? Does
the competitor have noneconomic values that form part
of its culture and that help determine how it will behave?
If the competitor is a business unit of a larger company,
how important is the unit to the overall company strategy?
Most hospital-based laboratories are part of not-for-profit
hospital companies that have a distinctive culture. Em-
phasis is often placed on fulfilling a noneconomic social
mission for which laboratory success is tangential. Volume
of medical center activity is often expressed in “adjusted
discharges”—a unit of activity that reflects the historical
importance of inpatient care and the secondary consider-
ation of outpatient and outreach efforts. From these two
observations, it can be predicted that most hospital com-
panies will not vigorously defend outpatient laboratory
operations that are under attack by competitors.
CHAPTER 31. STRATEGIC PLANNING 579
Competitors’ Assumptions
Organizations operate with assumptions about their in-
dustry and their place within the industry. One labora-
tory’s managers might believe (correctly or incorrectly)
that the laboratory enjoys greater physician loyalty than
its rivals. Another laboratory manager might believe (cor-
rectly or incorrectly) that the testing industry will rapidly
integrate genomic testing to the exclusion of more tradi-
tional microbiological assays. These assumptions will gov-
ern competitors’ behavior. When rivals’ assumptions are
incorrect, they create business opportunities. A laboratory
that overestimates its customer loyalty will be vulnerable
to discounts or incentives. A laboratory that overestimates
the importance of offering broad geographic access to
managed-care plans may lose business in a regional mar-
ket in which a smaller rival has partnered with a physician
group or a group of hospitals.
Competitors’ Capabilities
The strengths and weaknesses of a firm determine its abil-
ity to meet its goals. A weak rival is unlikely to represent
a competitive threat even if its goals overlap with goals of
one’s own enterprise. An assessment of a rival laboratory’s
strengths and weaknesses includes a study of its testing
menu and other services it provides clients, the number
and loyalty of physician and institutional customers, mar-
keting capabilities, operational skills (diagnostic speed and
accuracy, specimen logistics, and informatics), patents and
proprietary research to which the rival has access, cost struc-
ture, financial strength (cash flow and access to capital),
and organizational strength (reputation, clarity of purpose,
management talent, and special structural characteristics
that might make it subject to different regulatory pressures).
Interactions of Competitors
In a market operating with what economists term perfect
competition, the actions of one producer do not influence
the actions of other producers. If one farmer stops growing
corn, the price of corn does not rise. However, in the clini-
cal laboratory industry, which has significant barriers to
entry and relatively few direct competitors in a given com-
munity, the actions of one party are likely to precipitate
reactions from rivals. Competitive situations in which ac-
tions precipitate reactions are described by game theory, a
branch of mathematics pioneered by John von Neumann,
Oskar Morgenstern, and John Nash. The theoretical and
economic underpinnings of game theory are complex and
beyond the scope of this chapter. However, the wise busi-
ness strategist will consider likely reactions of rivals before
making a change in the marketplace. Every move in busi-
ness has the potential to shift the competitive equilibrium.
Armed with an understanding of a rival’s goals, attitudes
toward risk, and historic behavior, a strategist may be able
580 FINANCIAL MANAGEMENT
to predict his or her rivals’ responses to moves the firm
might make. For example, if a competitor has recently re-
moved a phlebotomist from one of its client’s offices, what
will be the competitor’s reaction to your placing a phlebot-
omist in the office to woo the client? Will the competitor
retaliate by scrapping a joint venture with your laboratory,
or will the competitor’s loss of volume from the client be
the straw that breaks its back in a local market and cause
it to exit?
Conclusions
An understanding of a laboratory’s and its competitors’ as-
pirations and capabilities prepares the strategist to identify
the distinctive needs or customer groups that the organiza-
tion can satisfy better than its competitors. Defining these
groups and needs is the subject of the next section.
Strategic Positions in the
Laboratory Industry
What Are Strategic Positions?
The term “strategic position” refers to an organization’s
commitment to serve many needs of a specific group of
customers or the specific needs of many customers. This
section will describe generic types of strategic positions
common in many industries and will then enumerate
particular positions held within the clinical laboratory in-
dustry. The list of strategic positions that appears in this
section is not exhaustive and should not discourage the
development of creative new positions. In a competitive
environment, the best strategic positions are often those
that are off rivals’ radar screens.
Types of Strategic Positions
There is no single taxonomy of strategic positions. Porter
has identified several types of strategic positions that suc-
cessful organizations may develop (10, 11). Implicit in his
discussion is the tenet that a single company cannot be all
things to all people. Strategy involves choices and trade-offs.
Variety-based positioning. Companies that offer only a
single or narrow scope of service and perform the service
exceptionally well or inexpensively demonstrate variety-
based positioning. For example, Jiffy Lube International
has chosen to offer only automotive lubrication services
and does not perform automobile repair or general main-
tenance. The company has been organized to offer faster
service at lower costs than rivals that offer a broader spec-
trum of services.
Group-based positioning. When groups of customers
have different needs, a firm can elect to serve many needs
of a defined demographic group. Ikea has been organized
to meet the furniture needs of young families who seek
style but lack resources. Ikea offers services that appeal to
its target demographic, such as in-store childcare and ex-
tended hours. Costs are kept low by requiring customers to
deliver and assemble their own furniture, a trade-off that
the target customer is willing to make.
Access-based positioning. Access-based positions arise
when different groups of customers must be accessed in
different ways. These differences may be due to geogra-
phy or differences in the size of the customer pool. Car-
mike Cinemas targets customers in rural communities and
small towns and has organized its operations around the
constraints and demands of this market.
Cost-based positioning. Competitors with lower produc-
tion costs may be able to profit at market prices that leave
other providers without earnings. As of this writing, Acer,
a manufacturer of computers and other electronic devices,
has lower production costs than its competitors and has
lowered industry pricing to a level that allows it to profit
while other firms are forced to exit the industry.
Product differentiation–based positioning. Some produc-
ers, through marketing or other distinctive attributes, are
able to convince purchasers that their product is superior
to their competitors’ and thereby command a price pre-
mium. It can be argued that the Mayo Clinic enjoys this
position in the market for certain elective clinical proce-
dures. As with most firms that differentiate their product
to obtain a price premium, the Mayo Clinic does not com-
mand a large share of the market for its hospital services.
Strategic Positions of Clinical Laboratories
Diagnostic laboratories have sought a number of distin-
guishable market positions to differentiate themselves
from rivals and defend their operations from competition
(Table 31.4).
Outpatient-centered testing. Several laboratories with
national scope have organized themselves primarily to
serve the testing needs of physicians operating in offices.
These companies compete vigorously for exclusive man-
aged-care contracts that allow them to become a “one-
stop shop” for the office practitioner who treats patients
enrolled in a variety of insurance products. The large size
of these companies allows testing costs to remain low and
permits profitability despite the low payment levels offered
by managed-care organizations. An extensive courier sys-
tem and a sophisticated billing system that can handle the
insurance requirements of different payors reinforce these
companies’ strategic positions. These companies are also
well positioned to offer electronic medical records (EMRs)
and EMR interfaces to practitioners.

Table 31.4 Sample strategic positions in the laboratory industry
Outpatient-centered testing
Exclusive contracts with multiple insurers
Large volume to contain costs
Blood collection and specimen pickup
Reference-centered testing
Specialized and esoteric tests
Specimen logistics
Professional support for referring laboratories
Hospital-centered testing
Support for inpatients and intensive care
Participation in hospital planning committees
Discipline-centered testing
Niche markets serving a particular subspecialty
Customized reports for specialists
Community-centered testing
Outreach by hospital laboratories to physicians on medical staff
Multihospital core laboratory
Centralization of routine testing by laboratories of a multihospital
system
Co-tenancy
Shared ownership of esoteric laboratory by a group of hospitals
Purchasing and contracting consortia
Reference-centered testing. A handful of laboratories
provide reference testing that smaller hospital-based or
regional laboratories cannot economically perform on
their own. Successful competitors in this market manage
complex shipping logistics, typically by air, and provide
electronic interfaces to referring laboratories’ information
systems. Professional support is provided to the staff of re-
ferring laboratories who are unsure which test to order or
how to interpret results. Specialized software allows refer-
ring institutions to track the status of orders.
Hospital-centered testing. Many laboratories have staked
out strategic positions serving a hospital’s core patient
population—inpatients, ambulatory surgery patients, and
emergency department patients. These operations are de-
signed to provide rapid turnaround time appropriate to
high-intensity patients. Laboratory representatives serve
on hospital patient care committees and are attuned to the
special coordination and communication needs of this de-
manding patient population. The emergence of in-office
laboratories, particularly in anatomic pathology, repre-
sents a variation on the hospital-centered model, with such
laboratories confining their reach to patients seen in the
office of a group practice.
Discipline-centered testing. Specialized clinical laborato-
ries have evolved to meet the particular needs of physi-
cians within one medical specialty or the needs of one type
of commercial concern. Dermatopathology laboratories,
forensic testing laboratories, pharmaceutical trial testing
facilities, and urological pathology laboratories provide
CHAPTER 31. STRATEGIC PLANNING 581
specialized diagnostic skills required by a subset of labora-
tory purchasers. These organizations typify variety-based
positioning; they may offer unique reporting formats ap-
propriate to their customers, such as provision of reports
to urologists that include serial prostate-specific antigen
graphs alongside prostate biopsy reports.
Community-centered testing. A number of in-hospital
testing operations have expanded into the community
outpatient market, serving a defined medical staff that
sees patients in both the hospital and outpatient settings.
These laboratories maintain tight connections with local
physicians and often allow seamless access to old test re-
sults as patients move through the healthcare continuum.
In one variant of this model, a for-profit company provid-
ing management expertise and capital enters into a joint
venture with a not-for-profit hospital or local pathologists
to provide community testing services.
Multihospital core laboratory. Innovative hospital systems
have created core laboratories where routine testing from
several hospitals is performed. Outpatient testing from
each of the participating hospitals or from a separate com-
bined outreach operation is also processed within the core
laboratory. This strategic position drives large volumes of
testing into the core laboratory, lowering costs beyond lev-
els that can be achieved in many other configurations. The
large test volume permits the economical introduction of
robotic equipment to handle repetitive testing and trans-
port tasks. Rapid response laboratories remain in hospitals
to serve the urgent testing needs of hospital patients.
Cotenancy. The author is involved in an operation in
which a group of not-for-profit hospitals collectively own
esoteric testing services as tenants-in-common. This oper-
ation amounts to a shared cost center and provides hospi-
tal laboratories with governance control, pricing flexibility,
and a cost structure that cannot be acquired from many
reference-centered laboratories (12).
Purchasing and contracting consortia. Purchasing and
contracting cooperatives have evolved to provide clinical
laboratories with more favorable relations with suppliers
and payors. Although not performing testing themselves,
purchasing consortia allow testing laboratories to obtain
favorable pricing on analytical instruments and supplies.
Contracting consortia allow testing laboratories to com-
pete collectively for managed care contracts that require a
geographic scope of service that individual members can-
not offer on their own. In the author’s state of Michigan,
Joint Venture Hospital Laboratories has allowed hospital-
owned laboratories to acquire exclusive laboratory con-
tracts for major health maintenance organization (HMO)
insurers in the state (12).
582 FINANCIAL MANAGEMENT
Conclusions
The design of a business strategy is fundamentally the pro-
cess of identifying a strategic position for an organization,
informed by the underlying structure of the industry and
knowledge of an organization’s and its competitor’s capa-
bilities and proclivities. From the brief preceding discus-
sion, the reader will appreciate that clinical laboratories
have developed a wide variety of strategic positions to dif-
ferentiate themselves in the market.
We now turn our attention to implementing a business
strategy. Sadly, managers too often content themselves
with design and never move on to implementation. It is
during implementation that strategy collides with opera-
tions and difficult trade-offs must be made.
Implementing the Strategy: Activity Fit
What Is Activity Fit?
Academicians who study businesses with robust strategies
emphasize the importance of interlocking and reinforcing
business processes that sustain the strategy. The activities
of a company with a successful strategy must fit with one
another and reinforce the strategy.
For example, Southwest Airlines limits itself to short-haul,
point-to-point flights between midsized cities and secondary
airports. This activity frees the company from having to co-
ordinate connections between flights or to transfer baggage
between planes, which in turn reinforces another Southwest
activity—15-minute gate turnaround of aircraft. The short
gate turnaround time achieved by Southwest reinforces yet
another activity—more frequent and more reliable depar-
tures. All of these activities—point-to-point flights, rapid
gate turnaround, and more frequent departures—allow the
airline to maintain a lower cost structure and reinforce its
market position as the low-cost airline. Low ticket prices lead
to higher demand, which increases the airline’s load factor
(percentage of occupied seats) and supports its ability to offer
more frequent departures.
The operational activities of Southwest Airlines rein-
force one another and make its business model more re-
sistant to competitive pressure. A competitor that copies
only one of Southwest’s business activities will not be able
to emulate the whole. In Porter’s view, “fit locks out com-
petitors by creating a chain that is as strong as its strongest
link” (10). Milgrom and Roberts have studied successful
manufacturers and found that they too use complemen-
tary manufacturing and inventory processes to defend
their market positions (6, 7).
Activity Fit Involves Trade-Offs
A commitment to reinforcing business activities that sustain
competitive advantage requires trade-offs. While the suc-
cesses of Southwest Airlines have been widely commented
upon, we might also consider the many markets that South-
west has skipped over to maintain its strategic position. A
traveler who wishes to fly first class will not choose South-
west. There are many cities that Southwest does not serve,
and travelers who fly to these cities will select other airlines.
Travelers who prefer to use travel agents will use other car-
riers. Southwest’s success in one arena excludes the airline
from many other markets. Yet Southwest earns a return its
larger rivals envy.
Most hospital-based laboratories focus their activities
around a small group of local physicians with whom they
maintain close relationships. These laboratories strive to
meet the broad testing needs of a narrow group of clients.
Activities that fit with this strategy may be found in other
departments of a hospital, which may be marketing radi-
ology, cardiology, and other services to the same group of
community physicians. The hospital-based laboratory that
wishes to maintain its competitive advantage will look to
other hospital departments for activities that reinforce its
strategic position. For example, community physicians
might be offered convenient electronic access to the hospi-
tal’s entire clinical data repository, which will contain radi-
ology and consultation reports as well as laboratory results.
Alternatively, a local laboratory and physician group can
bid together for a managed-care contract that includes both
physician and laboratory services. These activities would fit
well with other activities that strengthen a hospital-based
laboratory’s ties with community physicians.
However, the fit of activities that optimizes a labora-
tory’s value to community physicians may not be suited to
other strategic positions. Electronic access to a local hos-
pital’s clinical data repository would not serve a laboratory
seeking to service a statewide commercial contract, the
reference testing market, a geographically dispersed group
of dermatologists, or businesses in need of forensic drug
testing. From a strategic perspective, the hospital-based
laboratory that markets a broad bundle of services to lo-
cal physicians should pass up the opportunity to market
a more narrow set of services over a broad geographic ex-
panse because a different set of interlocking activities will
be required.
Failure of Strategy
The best-laid strategy may fall short through bad luck or
external developments that no strategist could reasonably
foresee. Business authors, however, have identified four
types of preventable errors (described in the following sec-
tions) that account for the majority of strategic failures.
Straddling
The term “straddling” describes an attempt to hold several
strategic positions at once. This failure to focus has also
been called “mission creep” and “stuck in the middle.”

The business consequences of straddling may be severe.
Continental Airlines attempted to emulate some of South-
west’s business practices by offering point-to-point service
with frequent departures, low pricing, and short gate turn-
around. It maintained its position as a full-service airline,
however, using travel agents to book flights and assign
seats, operating with a mixed fleet of aircraft, and allowing
interflight baggage checking. The results were severe: late
flights and lost baggage generated several thousand com-
plaints per day. Payment of commissions to travel agents
prevented the airline from competing on price. Ultimately,
the new service was withdrawn.
Other examples of straddling may be found closer to
the laboratory industry. Premier, a large purchasing co-
operative for hospitals, developed a number of strategic
partnerships with suppliers of goods and services. The
perception of conflict of interest has resulted in nega-
tive publicity for Premier and pushback from its hospital
owners, significantly reducing Premier’s size and market
power (16). Quest Diagnostics has attempted on a number
of occasions to manage hospital-based laboratories, but in
this author’s opinion the difficulty of straddling between
operations suited for the commercial market and those
required for hospital-based operations has resulted in the
abandonment of several joint ventures between Quest and
hospitals. The adoption of Internet laboratory portals by
many community-based laboratories may represent an-
other case of straddling. Laboratory portals that do not
include radiology and other ancillary results represent a
better strategic fit for a company that offers only labora-
tory services.
Although many examples of straddling are readily iden-
tified in retrospect after a venture has failed, it should be
noted that straddling may not be easy to recognize in its
early stages. The concept of leveraging existing competen-
cies and current market position to enlarge a business is an
accepted competitive practice. Where leveraging ends and
straddling begins can be difficult to determine. This di-
lemma is familiar to anyone who has attempted to rapidly
cross a river by stepping on rocks spaced some distance
apart. How far is too far may be clear only in hindsight.
Growth Trap
An overemphasis on growth can cause an organization to
lose its competitive advantage. The unfocused pursuit of
growth causes managers to add features and services with-
out first considering whether they fit with a firm’s exist-
ing strategy and set of competencies. Often, new types of
customers are pursued when an organization has little dis-
tinctive ability to serve the new customers. In the testing
industry, the occasional community-centered laboratory
has attempted to acquire managed-care contracts on its
own without partnering with other laboratories or other
providers. These facilities have little chance of succeeding
CHAPTER 31. STRATEGIC PLANNING 583
in the managed-care market on their own. A few hospital-
centered laboratories have added expensive forensic or
molecular testing operations without acquiring the distri-
bution channels and client services, billing, and logistics
infrastructure that are necessary to support these services.
These operations will also fail.
Authors who study strategy advocate that firms seek
deep penetration of markets in which they already have a
distinctive presence, rather than “slugging it out in poten-
tially higher growth areas where a company lacks unique-
ness” (10). Henderson points out that “chasing market share
is almost as productive as chasing the pot of gold at the end
of the rainbow. You can never get there. . . . If you are in
business, you already have 100% of your own market” (3).
Profitability Trap
Clayton Christensen has documented the difficulties ex-
perienced by some competitors that focused on their most
profitable (and typically most demanding) customer seg-
ments (2). Successful firms have a tendency to embrace
the value system of profitable customers and seek to add
features to products and services that will appeal to this
segment. Christensen has documented that these firms
sometimes ignore what appear to be inferior technolo-
gies that are only attractive to less profitable customer
segments. As the inferior technology improves, however,
it moves “upstream” in the value chain and becomes at-
tractive to more customers, eventually disrupting entire
industries such as the makers of 8-inch high-capacity disk
drivers or owners of large steel mills.
It is not difficult to imagine the disruptive potential of
miniaturized, portable microbiology testing instruments
that exploit nanotechnology, microfluidics, and molecu-
lar diagnostic techniques. High testing costs and a lim-
ited spectrum of target organisms might initially confine
such instruments to low-profitability, low-volume settings
where turnaround time and portability are particularly
valuable (such as in detecting group B streptococci imme-
diately before delivery). As the technology improves, the
convenience and speed become combined with a lower
price point and larger repertoire of detectable organisms,
eventually displacing much of the work currently per-
formed by traditional microbiology laboratories.
It is extremely difficult for a company to embrace a dis-
ruptive technology before the technology appeals to the
company’s most profitable customer segments. The strate-
gic implications of this vulnerability are obvious.
Hubris
Because strategic initiatives are a deliberate perturbation
of the competitive equilibrium and because strategic dis-
cipline requires explicit trade-offs that must permeate an
organization, strategy is best championed by confident
high-visibility leaders with the ability to persevere amid
584 FINANCIAL MANAGEMENT
distractions. Excessive confidence, however, may also
undermine disciplined analysis and result in a loss of fo-
cus. There is evidence that corporate acquisitions that are
preceded by favorable business press about the acquiring
company’s chief executive officer are less likely to be suc-
cessful than acquisitions made in a publicity vacuum (5).
Accordingly, hubris must be added to our short list of rea-
sons that strategies frequently fail.
Summary
Business strategy is about equipping an organization to
thrive in a competitive market. In competitive markets,
producers tend to emulate one another until their products
and services become indistinguishable. This process of
commoditization benefits consumers through lower costs
and higher quality but minimizes profits for producers.
Strategy represents a deliberate effort to resist com-
moditization and maintain an organization’s competi-
tive advantage by defending a distinctive position in the
market. A successful strategy is a creative approach that
is shaped by the particular industry in which an organiza-
tion operates and the particular competitors it faces in the
marketplace.
Business strategy complements but is different from op-
erational efficiency. Both produce competitive advantage.
Many authors believe, however, that strategy is more likely
to produce sustained competitive advantage than opera-
tional effectiveness, because rivals can more easily emulate
operational improvements than good business strategy.
Business strategy is informed by an understanding of
the structure of the industry in which an organization
competes. It is further advanced by a competitor analy-
sis in which the capabilities and proclivities of individual
competitors are analyzed. An essential element of business
strategy is the selection of a strategic position that defines
the particular customers or needs that an organization
seeks to serve. Finally, a strategy is maintained by the im-
plementation of interlocking activities that drive the com-
pany toward its strategic position and that are collectively
difficult to emulate.
There is no consensus about how good strategies origi-
nate. Some argue for a defined strategic planning process
in which a formal, written strategic plan is developed fol-
lowing input from a variety of stakeholders. Others believe
that the creative insight of a small group of individuals is
more likely to produce a successful strategy. Thus, ideas
about how to best undertake strategic planning are var-
ied and debated, even though the importance of a well-
articulated strategy is widely recognized.
Strategies commonly fail because organizations lose
their focus and attempt to emulate competitors. This may
be due to straddling—an attempt to assume several stra-
tegic positions concurrently—or due to the unbridled
pursuit of growth. Failure may be due to excessive focus on
the needs of the most demanding customer segments or to
leadership hubris.
In the clinical laboratory industry, a number of distinc-
tive strategic positions are identifiable. These positions
allow focused laboratories to maintain a competitive ad-
vantage over rivals in a segment of the testing industry the
laboratory claims as its own, while ceding the rest of the
market to other competitors.
KEY POINTS
■ Business strategy is about equipping an organization to
thrive in a competitive market. Strategy is distinct from
the pursuit of organizational efficiency. Both produce
competitive advantage, but neither stands on its own.
■ Strategy requires that an organization pursue a defined
strategic position, focusing on meeting many needs of a
particular set of customers or particular needs of many
customers. In the clinical laboratory industry, labora-
tory competitors have staked out several distinguish-
able strategic positions.
■ The differences between an organization and its rivals
are the source of an organization’s competitive advan-
tage and the basis of its strategy. Emulating rivals usu-
ally weakens an organization’s competitiveness.
■ Strategy requires trade-offs. Organizations are not well
served by pursuing several strategic positions concur-
rently or by adopting capabilities that are not central to
maintaining the organization’s strategic position.
■ An effective strategy is maintained by interlocking busi-
ness capabilities that reinforce an organization’s market
position and that are collectively difficult to emulate. If
rivals copy only one or two of these capabilities, they
will still remain at a competitive disadvantage.
GLOSSARY
Activity fit Interlocking and reinforcing business practices that
define and defend a strategic position.
Commoditization The process by which a product provided
by one firm becomes indistinguishable from products provided by
other firms.
Competitive advantage Qualities that allow a firm to outper-
form its rivals consistently.
Competitor analysis Assessment of the capabilities, goals, as-
sumptions, and strategies of competitors, with the aim of pre-
dicting competitor behavior.
Economy of scale The reduction in the cost to produce a unit of
product when the level of production increases.
Straddling The attempt to execute several distinct business
strategies or to hold several strategic positions at once.

Strategic planning An organized process for developing a busi-
ness strategy.
Strategic position Serving a particular set of customers or meet-
ing a defined set of needs, usually in a manner that is unique.
Strategy Quest for sustainable competitive advantage by means
of analysis of industry structure and competitors, identification
of a strategic position, and adoption of business practices that
defend that position.
SWOT An abbreviated strategic analysis that is based on assess-
ment of an organization’s own strengths and weaknesses and ex-
ternal opportunities and threats.
REFERENCES
1. Campbell, A., and M. Alexander. 1987. What’s wrong with strat-
egy? Harv. Bus. Rev. Nov.–Dec.:42–51.
2. Christensen, C. 1997. The Innovator’s Dilemma: The Revolution-
ary Book that Will Change the Way You Do Business. Harvard Busi-
ness Press, Cambridge, MA.
3. Henderson, B. 1989. The origin of strategy. Harv. Bus. Rev.
Nov.–Dec.:139–143.
4. Kim, W. C., and R. A. Maugorgne. 2002. Charting your com-
pany’s future. Harv. Bus. Rev. June:76–83.
5. Malmendier, U., and G. A. Tate. 2008. Superstar CEOS. NBER
working paper no. w14140. http://ssrn.com/abstract;eq1152681 (last
accessed September 14, 2012).
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6. Milgrom, P., and J. Roberts. 1991. The economics of modern
manufacturing: technology, strategy, and organization. Am. Econ.
Rev. 80:511–528.
7. Milgrom, P., and J. Roberts. 1995. Complementarities and fit:
strategies, structure, and organizational changes in manufacturing.
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8. Porter, M. E. 1979. How competitive forces shape strategy. Harv.
Bus. Rev. March–April:2–10.
9. Porter, M. E. 1987. From competitive advantage to corporate
strategy. Harv. Bus. Rev. March–April:117–150.
10. Porter, M. E. 1996. What is strategy? Harv. Bus. Rev. Nov.–Dec.:
61–78.
11. Porter, M. E. 1998. Competitive Strategy: Techniques for Analyz-
ing Industry and Competitors. The Free Press, New York, NY.
12. Smart, J. 2002. Hospitals in Michigan build unique shared labo-
ratory. Dark Rep. Oct. 28:1–6.
13. Teisberg, E. O., M. E. Porter, and G. B. Brown. 1994. Making
competition in health care work. Harv. Bus. Rev. 72(42):131–141.
14. Terry M. (ed). 2010. Lab Industry Analysis 2010: Test Volumes,
Revenues, and Category Leaders. Washington G-2 Reports, Peterbor-
ough, NH.
15. Valenstein, P., A. Praestgaard, and R. Lepoff. 2001. Six year
trends in expense, productivity, and utilization of seventy-three
clinical laboratories. Arch. Pathol. Lab. Med. 125:1153–1161.
16. Walsh, M. W. 2002. More hospitals change the way they buy
drugs and supplies. The New York Times. December 28.
586 FINANCIAL MANAGEMENT

APPENDIX 31.1 Websitesa

Alliance for Nonprofit Management College of American Pathologists

http://www.allianceonline.org/
The alliance is the professional association of organizations devoted
to improving the management of nonprofit organizations. Their
website provides links to strategic planning resources.
Centers for Medicaid and Medicare Services
http://www.cms.gov
This division of the U.S. Department of Health and Human Services
maintains an extensive website that provides information about reg-
ulations pertinent to the laboratory industry. These regulations
shape the competitive landscape and limit the strategic options of
competitors.
a
Last accessed September 14, 2012.
http://www.cap.org/
The College of American Pathologists Laboratory Accreditation
Program represents the largest laboratory accreditation program
approved under the Clinical Laboratory Improvement Amend-
ments. The CAP program and its standards for accreditation are
contained in the CAP website. A complete list of accrediting orga-
nizations approved under CLIA can be found at http://www.cms
.gov/Regulations-and-Guidance/Legislation/CLIA/index.html.
Securities and Exchange Commission
http://www.sec.gov/
This website provides access to the EDGAR database of company fil-
ings. Quarterly and annual statements of publicly traded laboratory
companies discuss company strategy and financial performance.

APPENDIX 31.2 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats)
To illustrate SWOT analysis in practice, the current position of
a hypothetical but fairly characteristic clinical laboratory will be
discussed (Lab A), along with its major competitors. This illus-
tration contains the typical snippets and fragments of informa-
tion that all managers receive about their competitors and their
own operations during the normal course of conducting busi-
ness. As an exercise, the reader is encouraged to extract essential
competitive information from the narrative that follows and to
list strengths, weaknesses, opportunities, and threats in a 2 × 2
SWOT table of the form illustrated in Fig. 31.1.
INTERNAL ASSESSMENT
Lab A processes 700,000 billable tests per year and is located in a
not-for-profit hospital in a metropolitan area of 300,000 people.
The organization has an active outreach program that accounts
for 50% of its total test volume.
Strengths
Lab A employs managers who enjoy personal relations with
managers in other hospital departments. The pathologists affili-
ated with Lab A are members of the local hospital medical staff
and market to their colleagues, many (but not all) of whom are
the laboratory’s outreach customers. A recent hospital-sponsored
satisfaction survey demonstrated a moderately high level of sat-
isfaction with laboratory services—86% of physicians and nurses
considered Lab A performance to be “highly satisfactory” or
“excellent.” Lab A staff are well represented on hospital commit-
tees and are aware of other departments’ needs for special testing
services (rapid myocardial infarction testing in the emergency
department and intensive care units, for example). Lab A trans-
mits test results to a hospital clinical information system that is
used to treat inpatients. Many of the laboratory’s customers are
located in a physician office building constructed by the hospital,
in which the laboratory has placed a convenient blood drawing
station. The hospital is contemplating the construction of a sec-
ond office building that may bring in more business. The labora-
tory contracts with reliable outside couriers to serve members of
the medical staff with nearby offices. The analytical equipment
in chemistry and hematology is used for both inpatient test-
ing (which is run mostly during the day shift) and outpatient
testing (which is run mostly during the afternoon shift), which
lowers fixed costs. Patients who lack insurance and financial
resources are eligible for the hospital’s charitable care program,
which absorbs the expenses of laboratory testing.
Weaknesses
Because Lab A does not operate its own courier service, it has
difficulty adding courier routes on short notice. Compared to
commercial laboratories, the relatively small size of Lab A leads
to higher testing costs. During the evenings, when outreach lab-
oratory work arrives, stat testing from the intensive care units
sometimes interferes with workflow. Although the laboratory
has its own information system, all billing is done through a
CHAPTER 31. STRATEGIC PLANNING 587
hospital-operated billing system. This system does not handle
front-end advanced beneficiary notice and medical necessity
checking and does not offer flexible pricing schedules that would
allow the laboratory to match competitors’ pricing. The hos-
pital does not participate in TrueCare, the second largest pre-
ferred provider organization in the state; when physicians send
their TrueCare patients to the laboratory, the patients are billed
directly, which disturbs many referring physicians. Although
the hospital participates in the state’s largest HMO, BlueChoice,
the HMO has carved out laboratory services to a commercial
laboratory that offers statewide coverage. The local chapter of
the American Red Cross increased the cost of blood products
by 18% two months ago, after the laboratory’s expense budget
was approved. As a result the laboratory will exceed its budget,
which means that laboratory management will not be able to fill
the open phlebotomy position in the physician office building
or purchase a blood irradiator. Because of declining professional
reimbursement, the pathology group affiliated with Lab A has
decided to operate its own anatomic pathology laboratory for
nonhospital patients. Lab A’s marketing director was told by four
busy pulmonologists in the neighboring community that they
will not use Lab A because the hospital that owns Lab A cancelled
their contract to provide intensivist services to the intensive care
unit. The hospital’s chief operating officer has indicated that the
hospital’s big push for the new fiscal year will be strengthening
the hospital’s cardiovascular surgery program; he wants the labo-
ratory to open a phlebotomy site in the new ambulatory heart
center, even though projected demand for laboratory tests at this
site will be low.
EXTERNAL ASSESSMENT
An external assessment begins with the identification of specific
rivals that compete with the organization for business. In this ex-
ample, we will limit our external assessment to two hypothetical
rivals—a large commercial laboratory that operates in the same
community as our hospital laboratory (OmniLab) and a second
hospital laboratory that is part of a seven-hospital system in the
process of building a core laboratory (Lab B).
Opportunities
Word-of-mouth indicates that Lab B is likely to be spending sig-
nificant effort during the next two years planning its core labora-
tory and installing a robotic system to reduce costs. Lab B has left
its outpatient marketing director position open while it recruits a
new manager for its laboratory information and robotics system.
Lab B has also pulled a phlebotomist from a physician client’s
office. The physician is now offering to change to any laboratory
that provides him with a phlebotomist. Lab B is part of a con-
sortium that is bidding for the BlueChoice laboratory contract
in the next calendar year. There may be an opportunity for Lab
A to join this consortium. OmniLab recently closed a phlebot-
omy station in the community, presumably due to slack demand.
Wages paid by OmniLab are below those paid by Lab A, and two
(continued)
588 FINANCIAL MANAGEMENT
APPENDIX 31.2 SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) (continued)
technologists were recently lured away from the competition’s test-
ing center 30 miles away. There are rumors that OmniLab’s testing
center may be closed, which will mean that OmniLab will have
to transport specimens to its next nearest testing site, across the
state border.
Threats
Lab B has hired two dermatopathologists and appears to have a
stranglehold on dermatology biopsies in the community. Hospi-
tal administrators overseeing Lab B wish to partner with a labo-
ratory management company that has significant interest and
experience in the outreach business, a prospect that would in-
crease competitive pressure in the local market. Lab B participates
in TrueCare and therefore has access to patients who cannot be
served by Lab A. OmniLab recently interfaced its computer sys-
tem with the practice management system used by a group of five
family practitioners; office staff no longer have to copy insur-
ance information onto test requisitions and can have advanced
beneficiary notices printed automatically at the time of ordering.
The practice’s office manager is telling other family practitioners
in the community about the labor she hopes to save. In addition,
OmniLab has started making test results available to physicians
and patients over the Internet. A group of gastroenterologists
who are important clients of Lab A want to know why Lab A
cannot offer the proprietary ultrasensitive quantitative hepatitis
C test that OmniLab offers.
Introduction
32
Constraints on Managerial Function
The Cardinal Rules for Optimizing
Performance
Get It Right at the Outset • Expect Cooperative
Behavior and Best Possible Performance • Lead by
Example • Involve All Members of the Team •
Perceived Fairness Is More Important than Rigid
Equality • Maintain Communication in All
Directions • Keep Your Eyes and Ears Open • Act
Quickly and Decisively • When Problems Surface,
Involve the Laboratory Manager Immediately;  Washington C. Winn, Jr., Fred Westenfeld, and
Involve Human Resources as Appropriate
Classic Situations that May Interfere
with Optimal Performance
The Underperforming Employee • The
Overperforming Employee • The Intrusion of
Personal Issues • The Underground Troublemaker •
The Cabal • Weakness at the Top
Practical Issues in Utilization of
Personnel Resources
Skill Mix of Personnel • Cross-Training and
Rotation • Mix of Employment Arrangements •
Coverage of Vacations, Holidays, and Routine
Shifts • Use of Overtime
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch32
Human Resources at the
Local Level: An Important
Component of Financial
Management†
Michael R. Lewis
OBJECTIVES
To establish the importance of managing personnel resources effectively at the
individual unit level as well as at the institutional level
To review the constraints on the ability of a manager to lead his or her crew
optimally
To review some important tools for getting the most out of employees
To consider some of the classic problems that may face a unit manager
To provide some specific examples of ways that a manager may get the biggest
return from the investment in personnel resources that the institution has made
If my boss calls, be sure to get his name.
Anonymous ABC executive, quoted by William S. Rukeyser, 1986
T
he two most important manageable components of any business
enterprise are the costs of personnel and materials. The relative impor-
tance of these two factors depends on the business of the organization.
A highly automated producer of expensive physical products will have very
high materials costs and lower personnel costs. In contrast, for a service indus-
try that produces no physical products, the cost of materials will be minimal,
but the highly trained, competent workers who are required to run a successful
enterprise will probably come at a high cost.
In the laboratory industry, managers are faced with a difficult situation—an
information product for which a highly trained workforce must operate ex-
pensive equipment and reagents. On the other hand, the fact that both sides
of the equation are important means that there are opportunities for savings
in two very different managerial areas. In this chapter, we will concentrate on
†
A significant portion of this chapter was originally written by Dr. Washington Winn, our
beloved colleague, who passed away on July 3, 2011. His contributions to this book and
the medical microbiology world have touched so many. Dr. Winn’s incredible knowledge,
dedication to the field, sense of humor, and friendship are sorely missed by us and by his
many friends and colleagues (16). We dedicate this chapter to Dr. Washington Winn. We
miss you, Wash, and we will do our best to uphold the high standards that were so clearly a
part of everything you did.
589
590 FINANCIAL MANAGEMENT
personnel costs because they are the ones over which a
manager can exert the greatest influence. Although careful
negotiation of contracts and searches for alternative sup-
pliers can reduce the expense of materials, these costs are
even more heavily driven by volume than are the salaries
of workers.
Table 32.1 summarizes selected examples of manage-
able and unmanageable costs. It must be recognized that
there are cost components that are beyond a manager’s
control. Examples of such unmanageable components are
sickness, pregnancy, and military conscription of employ-
ees. Although these factors cannot be avoided and often
cannot be predicted, their consequences can usually be
managed within the budget that has been approved. For
an organization to be successful in today’s rapidly evolving
healthcare environment, provisions for such exigencies in
the budget process must be made if at all possible.
Strong leadership at all levels of the organization is es-
sential if costs are to be kept in line with institutional plans
and goals (8). The many theories and practical approaches
that are useful for good management have been covered
in other sections of this book and in a variety of excellent
books on management (1, 10, 12, 13). In this chapter, we
will attempt to address some practical issues that face the
manager on the front lines. There is no “correct” way to
deal with the problems that come up in daily life, so this
discussion will reflect our prejudices and experiences.
A frontline manager must function within the rules
established by the organization, as well as in accordance
with pertinent state and federal laws. The first and most
important task, therefore, is to become familiar with the
personnel policies and procedures of your organization.
Familiarity with basic tenets of employment law (e.g.,
the Fair Labor Standards Act) is advisable, as is know-
ing whom to contact in human resources when specific
questions arise. In addition, it is critical to understand the
written and unwritten culture both of the organization as
a whole and of the smaller unit to which you belong, pre-
sumably the laboratory or one of its subunits. Most organi-
zational rules and regulations are open to interpretation. A
manager must understand that flexibility in interpretation
Table 32.1 Manageable and unmanageable cost components
Manageable Unmanageable
Number of employees Employee fringe benefits
Skill mix of employees Legal or institutional limitations
on permitted duties of employees
Scheduling and cross-training Injury, illness, pregnancy, and
of employees military duty
Competitive bidding and selec- Volume requirements for
tion of cost-effective materials materials
Direct costs of operation Indirect costs assessed by institu-
tional management
of the rules is part of the job. Understanding the culture of
the organization, however, will help you avoid going out
on a poorly supported limb only to find out there is no-
body behind to extend a helping hand.
At the start of a new job, it is useful to look around and
identify those managers who appear to have mastered the
system. They can serve as invaluable aids until you gain
enough experience to become a resource for subsequent
neophytes.
Even an experienced manager must maintain regular
contact with superiors. There should be a sixth sense about
the possibility of trouble, depending on the nature of the
problem and the nature of the employees involved. Areas
that are controversial, such as repetitive stress injuries, and
employees who are considered difficult or potentially liti-
gious should elicit early rather than late discussions with
superiors. When an issue begins to manifest itself, it is ab-
solutely essential that both superiors and institutional con-
tacts in human resources be involved. The most valuable
manager is the one who takes the initiative in dealing with
problems without burdening superiors unnecessarily yet
keeps upper-level managers in touch with what is going on.
Constraints on Managerial Function
The first potential constraint on a manager is implied in
the introduction to this chapter. If upper-level leaders lack
vision, steadfastness, and consistency, it may become ex-
tremely difficult or even impossible for subordinates to
do their jobs (4, 7). The higher up in the organization the
problem extends, the greater the odds against correcting the
problem quickly. The manager in this situation has only two
options: to do his or her best with the tools available and/or
to look for a position in another organization. This may also
be the case when confronted with inadequate administra-
tive support in the finance or human resources domains, an
inability to employ an appropriately qualified staff, and/or
unworkable limits on allocated hours (“head count”).
The presence or absence of a unionized workforce
will dramatically affect the way a manager interacts with
workers. Depending on the quality of labor-management
relationships, a unionized workforce is not necessarily a
constraint on managerial function, though unionization
adds a layer of complexity that may prove unnecessary in
an organization that has policies and provisions that sup-
port staff members and foster a positive working relation-
ship. The challenges are often substantial with or without a
union representative, but the rules may be very different in
the two situations, and the manager must constantly keep
the specifics of the union contract in mind. We have never
worked with a unionized workforce, so we have no personal
experience from which to draw. We do suspect, however,
that the talented manager will be successful in either situ-
ation and that the marginal manager will struggle in each.
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL
Finally, there may be significant constraints placed
on a manager by the history and culture of the unit, and
perhaps by the capabilities of the employees. In this case,
however, the appropriate way to view the situation is as
a challenge rather than a constraint. Given support from
above, a capable manager should be able to work through
any difficulties that may detract from optimal function of
the unit (Table 32.2).
The Cardinal Rules for
Optimizing Performance
In very simple and straightforward terms, following the
biblical Golden Rule by all concerned is the surest way to
motivate employees. A manager must ask whether subor-
dinates are being treated the same way he or she wants to
be treated by superiors. Among the employees, it is obvi-
ously in everyone’s best interest if cooperative activity is
the order of the day.
Staff members who feel that they are making strong
contributions to the goals of the department will gener-
ally be more motivated. It is important that the manager
reminds himself or herself daily to act in a manner pro-
moting a positive work place, to the extent that specific
circumstances allow. If the manager can promote devel-
opment of staff self-confidence and self-respect, this will
go a long way toward creating an environment of constant
learning and improvement (2).
Get It Right at the Outset
A manager will be presented with a group of employees
who were selected by previous incumbents. Unless the
workforce is totally ossified, however, there will be turn-
over. When that happens, the new manager has an oppor-
tunity to influence the tone of the laboratory unit. Technical
competence is obviously an important consideration in
a production worker, and a certain base level of ability is
essential. From years of experience, however, we are con-
vinced that an indefinable characteristic called “attitude”
is even more important. Quoting a well-known leadership
expert, Michael Henry Cohen, “Hire for attitude, train for
skill” (3). The team player who hits singles consistently and
furthers the position of the organization will, in the long
run, be far more valuable than the flashy home run hitter
Table 32.2 Constraints on unit managers
Quality of upper-level management
Adequacy of financial and accounting support
Adequacy of human resources support
Quality of work force available
Quantity of allocated hours
Unionized workforce
Past practices (culture) of the unit
591
who denigrates fellow workers. Often that slugger is, in re-
ality, not so competent as the hyped self-image would make
one think. One of the most difficult managerial decisions
is to defer hiring the ready applicant if the right candidate
is not immediately available. In the long run, however, it
pays to wait. The challenge is to convince coworkers of the
need to continue the search. If a mistake is made in the ini-
tial hiring decision, it is critical to recognize the problem
during the evaluation or trial phase that is used by many
organizations. A divorce is always easiest when the partners
have not been married very long.
Expect Cooperative Behavior and Best
Possible Performance
If the expectations are clear, it will be impossible for any-
one to plead ignorance (9). Most people respond to high
expectations. If nothing else, expecting less is likely to
produce less. Expecting the best may not be easy for the
manager. It is entirely too easy to make value judgments
about individuals and to expect only those things that are
implicit in the assumption. Moving beyond initial preju-
dices, however, is an early step toward success. Some of
the best leaders, colleagues, teachers, and mentors we’ve
known were the most demanding of excellence.
Lead by Example
Employees will adopt the outlook and habits of their man-
ager, just as children emulate their parents. If workers are
expected to pitch in and work collaboratively to get the
work done, they must see their supervisor doing the same
thing. Supervisors must “roll up their sleeves” and work
in the trenches as needed. It is important to remember,
however, that good habits do not come equally easily to
everyone. Some will take more encouragement and coach-
ing than others (5).
Involve All Members of the Team
Most work groups consist of individuals with differing
backgrounds and talents. It will not be possible for every-
one to pitch in on every project or in every way. There
should be an opportunity, however, for all to contribute
their abilities to make the unit function optimally. Even
those individuals who find it most difficult to excel should
be challenged. If any employee is not given the opportu-
nity to do his or her best, there is a risk that the individual
will feel undervalued or inferior and that colleagues will
feel that they have a shirker in their midst. The reluctant
or recalcitrant employee will require special attention
and a firm, but gentle, insistence on participation. On the
other side, any employee who feels taken advantage of
will require gentle counseling to see that, in fact, everyone
is pulling an appropriate load (5). Good managers learn
over time to sort out the strengths of their staff and use
them accordingly.
592 FINANCIAL MANAGEMENT

Perceived Fairness Is More Important than
Rigid Equality
It is impossible to interact with each individual in the same
way all the time, although every effort should be made to
be as fair and consistent as possible. Circumstances change,
and individuals vary in their needs. Judgment is essential
when applying rules and regulations to a specific situation.
The essence of leadership is making everyone feel valued
and a part of the process (15).
Maintain Communication in All Directions
It is extremely important that subordinates feel comfort-
able talking to each other and to their supervisor without
fear of retribution. The best way to prevent rumor and in-
nuendo is to avoid secrets by facilitating open discussion.
Most importantly, free interchange of ideas and concerns is
the best way to quash the development of cliques, the most
destructive phenomenon in any group. If a topic cannot
be discussed because of institutional strategy or employee
confidentiality, it may be possible to indicate that there are
constraints but that full information will be made available
at the first opportunity. Managers and supervisors should
be seen regularly out in the open, mingling with staff, not
tucked away in their offices.
Communication should naturally proceed in multiple
directions. It is just as essential that the lines of communi-
cation upward be free and clear as that lateral and descend-
ing channels be protected.
Keep Your Eyes and Ears Open
The recommendation to keep your eyes and ears open is a
companion to the one above. The best way to detect discon-
nects in the communication network is to observe and listen
closely in the course of going about the normal routine of
daily business. Body language is as important as speech in
giving the alert manager clues to incipient problems. Physi-
cal proximity to the activity hub is key for the manager, as is
regularly leaving the office area to mingle with staff.
Act Quickly and Decisively
The best way to turn a brewing crisis into one that has
boiled over the top of the pot is to ignore it. Action need
not be manifested by confrontation. On occasion, judi-
cious temporizing may reduce the heat sufficiently to abort
the overflow, but unless the basic problem is addressed, a
recurrence is guaranteed.
When Problems Surface, Involve the Laboratory
Manager Immediately; Involve Human Resources
as Appropriate
As discussed above, the art of management includes know-
ing when to involve superiors in a problem. Alerting up-
per-level management to a potential difficulty does not
necessitate their involvement. In fact, the better the inter-
action, the more likely a manager will be left alone to solve
the problem.
Human resources personnel can be excellent advisors
regarding the handling of problematic situations. Once a
potentially serious problem has been identified, it is impor-
tant to seek the advice and input of your human resource
colleagues. Other experienced managers and supervisors
can also serve as excellent mentors. Where personnel ac-
tions are possible, countermeasures, including legal chal-
lenges, are also possible. Involving experienced colleagues
may help mitigate any repercussions.
Table 32.3 provides a summary of cardinal rules of per-
sonnel management and potential consequences of break-
ing them.

Table 32.3 The cardinal rules for optimizing performance and possible consequences of breaking them
Cardinal rule Potential consequences
Get it right at the hiring stage An underperforming employee or troublemaker who will consume
managerial resources
Expect cooperative behavior Employees who are not so inclined will not feel constrained to
modify behavior
Lead by example “If gold ruste, what shal iren do?”—Geoffrey Chaucer describing the
Parson in The Canterbury Tales
Team involvement A solution that is perceived as imposed may be less readily accepted
Perception of fairness A decision with unpleasant consequences will be better received if
perceived as fair
Open communication Without communication, problems will arise and proliferate
Eyes and ears open Brewing problems may boil over if not recognized early
Act quickly and decisively Matters are likely to deteriorate if not addressed forthrightly
Involve superiors Support in a difficult situation will be more difficult if your superior
is not prepared
Involve institutional human resources A problem that escalates will be more difficult to manage if your
support system is not activated early
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL 593

Classic Situations that May Interfere with
Optimal Performance
Some classic personnel situations are described in Table
32.4 and discussed in the following sections.
The Underperforming Employee
The first challenge in dealing with an underperformer is
to understand why the employee is not reaching his or
her potential. If there is a lack of confidence, counsel-
ing should be directed at boosting self-esteem. Technical
confidence can be advanced by successfully achieving
specialty certification and should be considered for
those who are interested. Encouraging involvement in a
special project may be a useful tack. If the problem is
boredom, once again an additional challenge may be
useful. Teaching and/or presenting interesting cases, new
information, reviews of proficiency testing specimens,
technical advances, and meeting summaries are a good
way for staff to gain knowledge and confidence in their
abilities. If, on the other hand, the employee has tired of
the job or was never truly committed, the direction of
counseling may be toward an honest and critical evalua-
tion of career opportunities and challenges. In any event,
thorough documentation must be kept throughout the
period of evaluation.
The Overperforming Employee
It may seem strange to consider an overperforming em-
ployee a problem. In most situations, of course, the re-
sponse should be to encourage the star to attempt ever
greater feats. However, when the employee is capable of
work beyond that defined in the job description, or is lim-
ited by official rules based on paper qualifications (degrees
and/or licensure), a difficult conundrum arises. Should
the employee be limited strictly to the tasks defined in the
job description? That course may well result in a bored
and frustrated employee who will seek a job that is more
challenging. The other option is to allow the employee to
advance to the limits of intellectual ability rather than bu-
reaucratic guidelines. The result may be an employee who
is enriched cerebrally by the expanded experience but not
monetarily due to the salary restrictions of the job descrip-
tion. It is an exceptional individual who does not eventu-
ally resent colleagues who do the same tasks, perhaps less
well, for significantly higher pay. The decision as to which
road to take must be guided by the rigidity of institutional
or union rules, regulatory limitations, and by frank and
open discussion with the employee. Those discussions
should not be one time only but should continue to ensure
that resentment does not arise.
The Intrusion of Personal Issues
One of the potential causes of friction in the workplace is
carryover from previous experience, either on the job or
outside. If a manager senses that personal antipathy may
be at the root of a problem, or if that information is vol-
unteered, the response should be the same. The only ac-
ceptable behavior in the workplace is collegial or at least
tolerant. Past personal experiences must be parked at the
door each day. Rarely, the problem is more remote, the
result of a perceived similarity of a coworker to some-
one with whom the employee has had a previous negative
interaction. If it is possible to separate the parties physi-
cally, lack of interaction may solve the problem. Should
separation not be possible, coaching and documentation
should occur, after which transfer or resignation may be
the only alternative for an employee who cannot exert
self-control.
The Underground Troublemaker
A very difficult problem is the employee who stirs up
trouble surreptitiously—outside of work, on breaks, or
in the hallway. Usually the promotion of cliques is the
tactic chosen. It is a recalcitrant problem because it is
underground, and the fomenter will usually deny such
activities. The only recourse of the manager is to coun-
sel the disruptive employee and deal with the problems
that arise. Clear expectations must be delineated, and the
importance of teamwork emphasized. If the employee
cannot be induced to join the team, an isolation strategy

Table 32.4 Classic personnel situations

Situation
The underperforming employee
The overperforming employee
The underground troublemaker
The cabal
Weakness at the top
Necessary action
Identify the reason for the failure to reach potential and tailor coun-
seling accordingly.
Channel energy in productive ways. Watch for the potential conse-
quences of performance at a level above pay grade.
Attempt to convert the employee to productive behavior. If unsuc-
cessful, attempt to isolate the troublemaker.
The single troublemaker magnified. Break up the clique if possible by
reassignment or introduction of others into the group.
Same approaches as for lower-level personnel but with more urgency.
594 FINANCIAL MANAGEMENT

may be adapted. With patience and care, eventually other
employees will see what is going on. It is particularly im-
portant not to make the troublemaker a martyr, so to the
extent possible, the counseling must be done so as not to
appear punitive (14).
The Cabal
A particularly virulent version of the underground trou-
blemaker is the cloned version. A small group of work-
ers, acting in concert, can make life miserable for fellow
workers, for superiors, and for those in lower personnel
classifications. In addition to the actions recommended
for the individual troublemaker, there are a couple of
other possibilities for the cabal. If it is possible to sepa-
rate the group, either spatially or temporally, the problem
may be alleviated. An attempt should be made to isolate
any obvious leaders. Alternatively, it may be possible
to introduce a new actor into the play, someone who is
equal in stature to the members of the cabal but has an
appropriate outlook.
Weakness at the Top
Personnel problems can occur at any level in the organiza-
tion. The higher up the problem is, the more difficult it is
to pinpoint the issue. It may take considerable effort and
persistence to determine that the problem is with a super-
visor or assistant supervisor, rather than with the lower-
level employees. The symptoms may well be manifest at a
level below that of the person who is truly responsible. It
is often difficult to deal with problems in managers. For
a start, it is important to keep an open mind as to where
the difficulty lies, as the cure is dependent on correct diag-
nosis of the dysfunction. It is common to promote people
who possess great technical ability but may be lacking in
management skills and experience; possession of these, or
at least potential to acquire them, ought to be considered
in the hiring process. Regardless, providing training and
tools to recently appointed leaders is critical to building
leadership skills and enriching the organization.
Practical Issues in Utilization
of Personnel Resources
There are relatively few means available to a manager for op-
timizing the workforce of a unit. The success of these means
will depend to a significant extent on the efficacy of the
management approaches described above (Table 32.5) (6).
Skill Mix of Personnel
It is important to examine on a regular basis the skills re-
quired for accomplishment of the goals set for the unit.
At the very least, the question should be raised each time
there is a new vacancy. Soliciting input from your best staff
members often yields insight into how to do things bet-
ter and more efficiently. Hiring incompletely trained or
educated workers for complex tests is false economy (al-
though the intrinsic intelligence of the individual may be
as important, or more important, than the credentials).
Conversely, it is not good stewardship to use overqualified
individuals. Some simple testing may be assigned to tech-
nicians, who, along with laboratory assistants, can perform
other support functions, such as maintenance and acces-
sioning of specimens (11). When using less qualified staff
in roles that are appropriate and accepted by regulatory
agencies, our experience has demonstrated time and again,
that good supervision is key to being successful.
Cross-Training and Rotation
Some degree of cross-training (or competence in multiple
areas) and rotation through multiple areas is necessary in
most laboratories to ensure constant coverage with com-
petent workers. The breadth of coverage of an individual
worker depends on the depth of experience and knowledge
required for the tests. Workers in a small laboratory in a rural
hospital may need to perform many simple tests in a variety
of scientific disciplines, whereas a technologist working in
a large university hospital will probably be responsible for
a restricted number of very sophisticated procedures. Even
in a large unit, cross-training within the unit is important.
The important goal is to strike a balance between what is

Table 32.5 Practical approaches to optimization

Parameter Approach
Skill mix To the greatest extent possible consistent with good practice, utilize less
trained individuals for more routine or menial duties.
Cross-training and rotation Give employees the stimulation of multiple tasks or areas, being careful
not to stretch them too thin.
Mix of employment arrangements Consider part-time and/or per diem arrangements if costs of maintaining
competency and consistency do not exceed benefits of increased schedul-
ing flexibility.
Scheduling Make clear what is needed to do the job. To the extent possible, allow
employees to work out the details among themselves.
Use of overtime Within the constraints of the budget, allow overtime if required to get the
job done, but always look for other options.
 CHAPTER 32. HUMAN RESOURCES AT THE LOCAL LEVEL
needed to get the work done, the needs of employees, and
the ability for each worker to perform a sufficient number
of procedures to maintain proficiency.
Mix of Employment Arrangements
While having a solid core of full-time employees is es-
sential to the continuity of a unit’s day-to-day work and
for progress toward long-term goals, having a comple-
mentary cohort of part-time workers and individuals who
can work on a per diem or ad hoc basis can significantly
enhance the supervisor’s ability to provide appropriate
coverage. Including part-time technologists as part of the
team can enhance the skill mix and broaden the spectrum
of knowledge and experience available to a unit when the
number of allocated full-time equivalents is fixed. In a
large hospital, some part-time technologists may be cross-
trained individuals who split their time between two di-
visions of the laboratory; care must be taken, though, to
ensure that competency in each area is maintained. Provi-
sions must be made to ensure that even those technolo-
gists who log relatively few hours not only keep up with
changes in routine laboratory operations (as when new
procedures are introduced) but also fulfill their regula-
tory requirements (continuing education, participation
in proficiency testing). Managers may reach differing
conclusions regarding the desirability of diversifying em-
ployment arrangements after considering the potential
benefits and associated costs.
Coverage of Vacations, Holidays, and Routine Shifts
In some instances institutional policies or contractual
obligations will determine the rules of coverage for va-
cations, holidays, and routine shifts. Often, however, the
procedure is undefined and will vary with each unit. Con-
sistent with the cardinal rules, a manager might adopt the
following policy:
1. Define the minimum personnel requirements for each
type of work situation, e.g., weekday, weekend, holiday.
2. Define positions so as to provide the most flexible
coverage. When a new position opens, give the exist-
ing workers a chance to review their schedules. If a
worker wants to increase or decrease hours or to
change the distribution of work among the daily time
periods that must be covered, attempt to balance the
request with the needs of the department, but make it
clear that all requests may not be possible. Getting the
work accomplished well and expeditiously is always
the first priority.
3. Entrust development of the schedule to the involved
workers, preferably with a single individual as coordi-
nator. That individual may be an assistant manager or
senior technologist but should not be the unit man-
ager. It is important that the coordinator have the sup-
595
port of the group as a whole. The manager should have
good working knowledge of the schedule and be avail-
able as needed to resolve discrepancies.
4. Solicit requests for vacation time well in advance (as
much as six months). Make it clear that it may not be
possible to grant everyone his or her first choice. Try
to even out assignment of priority vacation times over
a period of years. It may be necessary for the group to
make a decision as to whether they will pitch in and
work harder during the vacation months to allow ev-
eryone to have desired time off. Getting the work
done, without sacrificing quality, must be the first pri-
ority for all concerned.
5. Publish the work schedule far enough ahead for peo-
ple to make plans (minimum of one month, prefer-
ably more).
6. When holes appear in the schedule, ask for volunteers
to fill in. Encourage switching of shifts or use of part-
time workers, with overtime as a last resort. It should
be clear that the possibility of assigning the slot to a
nonvolunteer lurks in the background, but avoid re-
sorting to that tactic if at all possible.
Use of Overtime
The objective of every manager should be to get the work
done in the most efficient manner with the least expendi-
ture of financial resources necessary. On occasion it may
be necessary to use overtime to complete necessary work.
When possible, however, an attempt should be made,
within the rules of the institution and in compliance with
applicable laws, to use other methods, such as providing
compensatory time or increasing the hours of part-time
employees. Staff whose work may be completed before the
end of the shift should be trained to pitch in and help
their colleagues without hesitation. In a well-run opera-
tion, this occurs automatically, promoting teamwork and
reducing overtime.
Conversely, there may be occasions when work has
been completed expeditiously, leaving free time at the end
of the shift. It is useful to have a plan for such occasions.
There are usually odds and ends of maintenance, writing
of procedures, etc. that could be completed at these times.
Another option is to offer the possibility of early depar-
ture, leaving the residual time for use on another occasion
as regular time.
Summary
Unit managers can make important contributions to the
success of an organization by exerting careful control
over manageable components. Although economies can
be realized in both materials and personnel, the optimi-
zation of personnel resources will present the greatest
challenge and the greatest opportunity for a manager. To
596 FINANCIAL MANAGEMENT
accomplish this goal there is a series of mainly common-
sense rules. The savvy manager must recognize some
classic personnel challenges, including overperforming
and underperforming employees and individuals who
work at cross purposes to the goals of the team. Specific
areas where financial economies may be accomplished
include careful scheduling, cross-training and/or rota-
tion, and judicious utilization of employees with varying
backgrounds and skills.
KEY POINTS
■ Provide compassionate, interactive leadership so that
employees will understand the goals of the unit as well
as the challenges and barriers to achieving those goals.
■ Involve all employees in the process so that they feel that
they are a part of the solutions that you discover jointly.
■ Acknowledge the constraints under which the unit op-
erates and accommodate plans accordingly.
■ Recognize at an early stage problems in performance
that will interfere with achievement of goals, and take
appropriate action.
■ Identify the practical issues that will allow employees to
use their time most efficiently and get the job done with
a minimum of disruption.
GLOSSARY
Cabal A group of people working secretly and underhandedly
to overthrow a regime. An acronym for a group of ministers cho-
sen by Charles II of England in 1667: Clifford, Arlington, Buck-
ingham (of Three Musketeers fame), Ashley Cooper (later Earl of
Shaftesbury), and Lauderdale.
Constraints Factors that limit the flexibility of action.
Cross-training Training individuals to perform more than
one task.
Golden Rule “Do unto others as you would have them do
unto you.”
Manageable components A parameter over which a manager
has control. Scheduling and use of overtime are manageable. Va-
cation time and work breaks are defined by government or the
institution and are thus not manageable (although the number of
employees eligible for these benefits may be).
Rotation Movement of personnel through the tasks for which
they have been trained, often on a regular, sequential basis.
Skill mix The variable backgrounds of personnel, all of whom
will contribute to the operation. The nature of the work will de-
fine the required proportion of workers of each background.
REFERENCES
1. Baron, R. A. 1986. Behavior in Organizations. Understanding and
Managing the Human Side of Work, 2nd ed. Allyn and Bacon, Inc.,
Boston, MA.
2. Branden, N. 2001. The Psychology of Self Esteem: A Revolutionary
Approach to Self-Understanding that Launched A New Era in Modern
Psychology. Jossey-Bass, San Francisco, CA.
3. Cohen, M. H. 2011. Time to Lead. Creative Health Care Manage-
ment, Minneapolis MN.
4. Kanter, R. M. 1992. Power failure in management circuits, p.
449–461. In J. M. Shafritz and J. S. Ott (ed.), Classics of Organization
Theory. Brooks/Cole Publishing Company, Pacific Grove, CA.
5. Kotter, J. P. 1990. What leaders really do. Harv. Bus. Rev.
May-June:103–111.
6. Martin, B. G. 1985. Cost containment: strategies and responsi-
bilities of the laboratory manager. Clin. Lab. Med. 5:697–707.
7. Mechanic, D. 1992. Sources of power of lower participants in
complex organizations, p. 424–431. In J. M. Shafritz, J. S. Ott, (ed.),
Classics of Organization Theory. Brooks/Cole Publishing Company,
Pacific Grove, CA.
8. Rodgers, T. J. 1990. No excuses management. Harv. Bus. Rev.
July-August:84–98.
9. Schaffer, R. H. 1991. Demand better results—and get them. Harv.
Bus. Rev. March-April:142–149.
10. Schuler, R. S., and S. E. Jackson. 1996. Human Resource Man-
agement. Positioning for the 21st Century, 6th ed. West Publishing
Company, Minneapolis/St. Paul, MN.
11. Snyder, J. R. 1992. Technician or technologist? Sorting out over-
lapping roles in the lab. Med. Lab. Observ. June:36–41.
12. Snyder, J. R., and D. A. Senhauser. 1989. Administration and
Supervision in Laboratory Medicine, 2nd ed. J.B. Lippincott Com-
pany, Philadelphia, PA.
13. Szilagyi, A. D., Jr., and M. J. Wallace, Jr. 1990. Organizational
Behavior and Performance, 5th ed. Scott, Foresman/Little Brown
Higher Education, Glenview, IL.
14. Umiker, W. O. 1991. Turning around the behavior of uncoop-
erative employees. Med. Lab. Observ. October:59–66.
15. Umiker, W. O. 1992. How to qualify as a praise master. Med. Lab.
Observ. July:41–46.
16. Walker, D. H., R. LaSala, B. Pritt, E. Koneman, and J. M.
Miller. 2011. In memoriam: Washington C. Winn, Jr. (1941–2011).
Emerg. Infect. Dis. 17:2400–2401.
Introduction
Cost Accounting
33 Costs, Budgeting, and Financial
Classification of Costs • Behavior of Costs •
Measuring Full Cost • Average versus Marginal
Decision Making
Costs • Actual Cost versus Standard Cost • Costing
Issues • A Formula for Developing Laboratory Costs •
Laboratory Costing Examples Geoffrey C. Tolzmann and Richard J. Vincent
Break-Even Analysis
Equipment Purchase • Capitation Contract
Capital Acquisition Concepts
Time Value of Money • Depreciation OBJECTIVES
Budgeting To learn the types and behaviors of costs, how to measure them, what data are
Types of Budgets • The Budgeting Process • Budget needed to generate a cost analysis, and how to cost a basic laboratory test
Examples To understand the relationships among cost, volume, and profits and calculate
Variance Analysis contribution margin and break-even point
Financial Statements To apply time value of money concepts to capital acquisition plans using net
Financial Ratios
present value
Summary
To understand the three common types of budgets, the budgeting process, and
KEY POINTS how budgets are used to measure financial performance and to control costs
GLOSSARY
To be able to analyze the causes of differences in actual financial performance
REFERENCES from budgeted amounts and understand how this information is used for
management control
To learn about the three primary financial statements: the balance sheet, the
income statement, and the cash flow statement
To learn how to calculate key financial ratios that reveal information about an
organization’s financial health

Accounting is the most useful “information system” for managers, because it or-
ganizes and accumulates related information over time and aligns it with initial
objectives and requirements, called “budgets.” Principles of accounting must be
applied to other types of information managers use in order to make “informa-
tion technology” useful.
Peter F. Drucker, at the Forbes CEO Forum
“Management in the 21st Century,” June 1997

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch33
T
oo often the financial aspects of the laboratory business can
intimidate managers who have a scientific background. However, man-
agers must understand and participate in cost accounting and budget-
ing. In addition, they must understand the principles of financial accounting
and financial analysis in order to gauge performance, because “what gets mea-
sured gets managed.” This chapter will provide an overview of these extensive
and complex activities (1–4).
A note on accounting conventions:
• Variances that are “favorable” are depicted unmodified. A favorable vari-
ance is an expense that is less than budgeted or revenue that is greater
than budgeted.

597
598 FINANCIAL MANAGEMENT
• Variances that are “unfavorable” are depicted in pa-
rentheses. An unfavorable variance is an expense that
is greater than budgeted or revenue that is less than
budgeted.
• Profit is depicted unmodified and in black ink; loss is
depicted in parentheses and in red if a color document
is employed.
• “Productive” labor is labor that actually produces a
product directly (be it a physical product or an intel-
lectual one).
• “Nonproductive” labor may be necessary for proper
functioning of the organization but is not directly
involved in production of the product. Vacation, con-
ferences, sick time, all management functions, and sup-
port activities such as financial analysis and marketing
are examples of nonproductive labor. Note that “non-
productive” is not a pejorative term in accounting lingo.
Cost Accounting
Cost accounting is a system of measuring and reporting
information about costs. Its purpose is to generate infor-
mation sufficient for managers to make intelligent deci-
sions. A common challenge of cost accounting systems is
balancing the degree of specificity needed with the amount
of work required to reach that specificity in light of the
decisions to be made. A good system does not require un-
necessarily detailed information.
Cost accounting is useful for several purposes:
• Profitability analysis. Cost accounting enables managers
to determine whether a laboratory division or a market
segment is generating revenues in excess of expenses.
• Cost control. Cost accounting helps define the relation-
ship between cost and activity and can help align re-
sponsibilities with incurred costs.
• Planning. Cost accounting helps us understand what
happens to costs as activity changes.
• Decision making. Cost accounting aids in setting
prices, negotiating reimbursement or capitation rates,
and making staffing decisions and make-versus-buy
decisions (for example, whether to perform a labora-
tory test in-house or send it to a reference laboratory).
Classification of Costs
Costs can be categorized in many different ways, but the
most critical distinction is direct cost versus indirect cost.
Direct costs are those costs clearly associated with the item
being costed (be it a patient, a service, a department, or an in-
dividual assay). In the laboratory, direct costs include testing
supplies and reagents, instrument depreciation, maintenance
and repairs, and the labor involved in performing testing.
Indirect costs are those costs that are not directly associated
with the item being costed. The most common types of in-
direct costs are general laboratory supplies; labor costs as-
sociated with supervision, administration, and training; and
hospital overhead. The full, or total, cost of an item includes
its direct costs and an allocated portion of indirect expenses.
Behavior of Costs
Costs behave in four basic ways depending on their re-
lationship to the relevant range of activity. Variable costs
vary in direct proportion to the volume or level of activity,
such as reagent cost. Therefore, variable costs are constant
per unit of service (UOS), which is whatever the logical
measure of work for a given area is. Fixed costs, such as
rent, are constant regardless of changes in levels of activity.
Therefore, fixed costs per UOS change with volume. Semi-
variable costs have a fixed and a variable cost component.
An example is telephone service, for which customers are
usually charged a fixed amount per month that may include
a specified amount of service above which a per-unit charge
is incurred. Step-fixed costs are fixed over a relatively small
range of activity and then change to a new fixed level over
another relatively small range of activity. Labor costs often
exhibit step-fixed behavior, as a certain staffing level sup-
ports a range of activity beyond which additional staffing
must be added. The behaviors of most costs are fairly intui-
tive. Figure 33.1 illustrates these behaviors.
Measuring Full Cost
There are four steps to the process of measuring full costs:
1. Identify the responsibility centers into which costs
may be appropriately grouped. For a hospital, these
areas might be laboratory, radiology, laundry, etc.
Within the laboratory, these centers might be chemis-
try, hematology, microbiology, central receiving, etc.
Within chemistry, the centers might be individual ana-
lyzers or testing modalities.
2. Trace all revenues and expenses to the responsibility
center incurring them.
Figure 33.1 Cost behavior. doi:10.1128/9781555817282.ch33.f1
Costt
Volume
Fixed Cost Variable Cost Step Fixed
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
3. Allocate the costs of supporting responsibility centers to
the revenue-producing centers. There are several tech-
niques by which this allocation may be accomplished:
• Direct allocation
• Step-down allocation (which usually entails starting
with allocating the costs of centers that provide the
most services to all other centers, then allocating
the costs of those that provide the next level of ser-
vice, including those costs that were just allocated in
the first round, to all others, etc.)
• Algebraic allocation (used by sophisticated cost ac-
counting systems)
Allocation also requires some sort of basis, such
as cause and effect, or facilities provided or ability to
bear the allocated costs. Examples of bases include
square footage, utilization, visits, number of person-
nel, revenues, and payroll expense.
4. Determine the average cost of each procedure or ser-
vice by dividing the responsibility center’s costs by the
measure of activity (in the laboratory, the measure is
usually the number of procedures or billed tests). The
average cost per procedure for the laboratory center
might be $10, while the average cost per procedure for
the chemistry center might be $5, and the average cost
per procedure for a specific analyzer center within
chemistry might be $2.
Average versus Marginal Costs
As noted above, the average cost equals the full costs di-
vided by the UOS. Marginal cost equals the change in total
cost relative to the change in volume. It is the variable cost
plus any additional fixed costs incurred because the vol-
ume change exceeds the relevant range. In most instances,
there are no additional fixed costs. Marginal costs are also
called incremental costs. Over the long run, average rev-
enues must be greater than or equal to average costs for
an organization to survive, but in the short run, decisions
should be made based on marginal costs. For example, the
incremental cost of adding another sample to a chemistry
analyzer that is running below capacity is very low. If add-
ing another sample requires the purchase of another ana-
lyzer, however, its incremental cost is very high.
Actual Cost versus Standard Cost
Standard costs represent what a given item should cost
under normal circumstances. Standard costs are useful for
comparison to actual cost experience when analyzing cost
variances and for budgeting.
Costing Issues
When performing cost accounting, it is always worthwhile
to examine the results and ask, Is it fair? Is it equitable? Is it
understandable? Do the benefits justify the effort required
to ascertain cost?
599
A Formula for Developing Laboratory Costs
Direct costs of test (instrument depreciation, main-
tenance and repair, reagents, calibration, quality con-
trols, direct labor)
+
Indirect costs (general laboratory supplies), indirect
labor (such as supervision, training), other indirects
(such as research and development expenses)
=
Laboratory section cost
+
General laboratory overhead (specimen collection,
report distribution, information systems, manage-
ment, education, quality assurance, sales, marketing)
=
Laboratory test total cost
Laboratory Costing Examples
Tables 33.1 through 33.6 are examples of the types of infor-
mation that need to be collected and some of the calcula-
tions involved in generating unit costs. Table 33.1 shows
the key variables that are needed to generate unit cost, in-
cluding staff costs that are both variable (tester) and fixed
(nontester), plus indirect fixed divisional, overall labora-
tory, and overall hospital costs.
Table 33.2 is an example of the calculation involved in
generating a per-unit cost for a test that is run in a batch
with other tests. It is an example of a step-fixed cost.
Should the threshold of 250 tests per run be exceeded, an-
other run would need to be instituted, along with its con-
comitant expenses. The “step” is the period jump in costs
with each new test run, whereas the cost per test progres-
sively decreases within each test run as more samples are
added. The most efficient position would be the inclusion
of 250 tests in every run, the situation in which no further
savings could be achieved without increasing the capacity
of the run. In Table 33.2, the average number of tests per
run is 228, a point that approaches the most economic ef-
ficiency possible.
Table 33.3 combines all the costing information thus far
to calculate a unit cost for a given volume. After gener-
ating this cost information it is important to validate the
model by running a check on the total cost captured by the
model. This total is measured by multiplying the unit costs
by the volume over a given period of time and comparing
that to actual costs for the same time period, which were
generated in Table 33.1.
Tables 33.4 through 33.6 are the same as the previous
examples, except they show the effects of adding an ad-
ditional 7,500 partial thromboplastin time tests to the mix.
600 FINANCIAL MANAGEMENT
Table 33.1 Key variables for a hematology laboratory with static volume
Clearly, the additional tests make all the indirect fixed
costs less expensive because the same fixed costs are now
being divided over a larger number of tests. This relation-
ship is important when generating pricing proposals for
new business.
Comparing Table 33.5 with Table 33.2 shows the ef-
fects of adding additional tests to the cost of a test run. In
Table 33.2 we were able to run the batch of tests five times
a week and still be under the test run maximum of 250.
With the addition of 7,500 tests, one can see in Table 33.5
that the batch now needs to be run six times a week, which
adds more cost and increases the per-unit cost of the tests.
Thus, the cost for these tests was fixed within a certain
volume level (250 tests per batch), but when the volume
went over that level, the costs shifted upward, an example
of a step-fixed cost.
Break-Even Analysis
Contribution margin is the revenue per UOS less the mar-
ginal cost per UOS and is often written as contribution
margin = price − variable costs. As long as the contri-
bution margin is positive, the organization benefits. The
margin can go to supporting fixed costs (or to supporting
items or activities whose contribution margin is negative),
and if fixed costs have been covered, it represents profit.
The break-even point is the volume of activity required
for all fixed costs to be covered. Therefore, the break-even
Table 33.2 Test run calculation for a hematology laboratory with static volume

Table 33.3 Cost calculation for a hematology laboratory with static volume
602 FINANCIAL MANAGEMENT

Table 33.4 Key variables for a hematology laboratory with additional volume

point equals the total fixed cost divided by the contribu-
tion margin.
total fixed costs
Volume break-even point =
contribution margin per unit
total fixed costs
=
price − variable costs
This equation underscores the relationships among
costs, volume, and profits. In the previous section, we
discussed cost behavior and displayed the relationships
of fixed and variable costs to volume. A given responsi-
bility center incurs both fixed and variable costs, and its
total costs are the sum of the two, as illustrated in Fig. 33.2.
Adding the revenue line, which increases at a rate equal to
the revenue per unit, yields Fig. 33.3.
If the revenue per unit is greater than the variable cost
per unit, the revenue line and the total cost line must cross
at some point, where revenues equal costs—the break-
even point. Note that the graph illustrates not only the
break-even volume, but also the unit revenue required to
reach break-even. Figure 33.4 shows this calculation for a
hypothetical hematology division.
Equipment Purchase
When considering expensive equipment purchases, it is
critical to know the point at which the volume of procedures
Table 33.5 Test run calculation for a hematology laboratory with additional volume

Table 33.6 Cost calculation for a hematology laboratory with additional volume
604 FINANCIAL MANAGEMENT

$60,000 $80,000

$70,000
$50,000
$60,000
Revenue

Cost / Revenue
$40,000
$50,000
Cost / R

$30,000 $40,000

$30,000
$20,000
$20,000
$10,000
$10,000

$- $-
0 100 200 300 400 500 0 100 200 300 400 500

Volume Volume

Fixed Cost Variable Cost Total Cost Fixed Cost Variable Cost Total Cost Revenue

Figure 33.2 Fixed, variable, and total cost. Figure 33.3 Fixed, variable, and total expense and revenue.
doi:10.1128/9781555817282.ch33.f 2 doi:10.1128/9781555817282.ch33.f3

performed on the equipment covers its annual depreciation
and maintenance costs, compared to the projected demand
for the procedures, as illustrated in Fig. 33.5.
Capitation Contract
Under “capitation,” healthcare providers are paid a fixed
amount per member per month (PMPM). Revenue varies,
therefore, with member enrollment, not with the vol-
ume of procedures performed. To understand what the
break-even point is in terms of the number of members,
a provider must first understand the expected utilization
by those members (see Fig. 33.6). The provider, not the
health plan, is usually at risk for variations in utilization.
This risk can be ameliorated by negotiating utilization

Figure 33.4 Graphical representation of the $1,600,000

Fixed Cost $ 397,700
break-even point for a hematology division. Variable Cost $ 1.42
doi:10.1128/9781555817282.ch33.f4 Price $ 10.00
$1,400,000
BE Point = 397,700
= 46,381
(10.00 - 1.42)
$1,200,000

$1,000,000
Cost & Revenue

$800,000

$600,000
Break-Even Point
46,381
$400,000

$200,000

$-
- 15,000 30,000 45,000 60,000 75,000 90,000 105,000 120,000 135,000

Volume
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 605

$250,000
Cost of Equipment $ 300,000
Annual Depreciaon $ 42,857
Maintenance Contract $ 4,286
Variable Cost $ 4.00
Price $ 8.00
$200,000

BE Point = 47,143
= 11,786
(8.00 - 4.00)

$150,000
Cost & Revenue

Break-Even Point
11,786
$100,000

$50,000

$-
- 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000

Figure 33.5 Break-even point for equipment

Volume purchase. doi:10.1128/9781555817282.ch33.f5

corridors into the contract, whereby the PMPM revenue is
adjusted up or down if utilization is over or under budget
by a certain amount. If not, the provider can incur signifi-
cant losses if utilization is over budget.
Capital Acquisition Concepts
Time Value of Money
Before evaluating potential capital acquisitions, it is impor-
tant to understand the concept of the time value of money.
Most people prefer current consumption to future con-
sumption. Similarly, investors expect to be rewarded for
their patience by receiving a rate of return on an investment,
which could be interest, dividends, or capital gains. Intrinsic
in this is the notion that money received in the future is not
as valuable as money received today. We can quantify this.
The future value (FV) of an investment = its present value
(PV) multiplied by (1 + interest rate, k) raised to the num-
ber of investment periods, n (usually expressed as years), or
FV = PV × (1 + k)
The future value in 3 years of $100 invested at 5% interest
equals $100 × (1 + 0.05)3 = $115.76. This formula be-
comes useful in considering capital acquisitions when we
rearrange the terms:
FV
PV =
(1 + k)n
Here, the rate k is called the discount rate (not the inter-
est rate), and the practice is called discounting (we are
discounting the value of money, not to be confused with
discounting, or reducing the price of, a test charge). This
approach allows us to value different investments in today’s
dollars in relation to their future values. Which would you
rather receive: $115.76 in 3 years or $120.34 in 4 years? At
a 5% discount rate, we already know that the present value
of $115.76 after 3 years is $100.00. For $120.34 after 4 years,
$120.34
PV = = $99.00
(1 + 0.05)4
Therefore, the first choice (3 years) has a higher value.
Investments are evaluated based on their cash flows
(CF), where CF = cash revenues − cash expenses. The net
present value (NPV) of a project equals the sum of the PV
of the CF of the project.
n
CF
t
NPV = ∑
t
–––––
(1+k)t
=0
Here, the rate k is referred to as the required rate of return,
n the cost of capital, or the hurdle rate. If the NPV is > 0, the
investment is warranted. If NPV < 0, it should not be pur-
sued. If you are comparing two alternatives, pick the one
with the higher NPV. A special case is when the NPV = 0.
The rate k that induces this is called the internal rate of
return (IRR). Instead of calculating the NPV for two com-
peting investments, you can calculate their internal rates
of return. Pick the investment with the higher IRR, as long
as the IRR is greater than your cost of capital (if it is not,
then your capital would be better invested elsewhere). For
example, a new analyzer costs $100,000 and will allow the
606 FINANCIAL MANAGEMENT

Number of Members 10,000

PMPM Rate $ 8.00
Yearly Revenue $ 960,000
Variable Cost per Procedure $ 5.00

BE Point$1,600,000
= 960,000 192,000 Total 1.6 Tests
=
5.00 Tests PMPM

$1,400,000

2.0 Tests PMPM

$1,200,000

Break-Even Point 1.6

Tests PMPM

Cost & Revenue

$1,000,000

$800,000

$600,000
1.0 Tests PMPM

$400,000

$200,000

$-
- 30,000 60,000 90,000 120,000 150,000 180,000 210,000 240,000 270,000
Figure 33.6 Break-even point for a capitated
contract. doi:10.1128/9781555817282.ch33.f6 Volume

laboratory to perform testing it does not perform today, IRR = 14.96%. This IRR would then be compared with
so it will generate $35,000 in net cash flow per year for the the other possible returns the company might get with the
next 4 years. If our required rate of return is 10%, is this a money if it were invested in other projects.
worthwhile investment? Many laboratory investments do not create new reve-
Time Cash flow nues, but these same techniques can be applied to calculat-
0 −$100,000 ing net present cost and then choosing the option with the
1 $35,000 lowest cost.
Table 33.7 evaluates a direct purchase versus an install-
2 $35,000
ment purchase, where payments are made over time, as
3 $35,000 an example of a net present cost application. Assume the
4 $35,000 following: direct purchase price equals $200,000; install-
ment purchase equals $40,000 per year with a useful life of
−$100,000 $35,000 $35,000
NPV = + + + 7 years; discount rate equals 10%. In this example it would
(1 + 0.10)0 (1 + 0.10)1 (1 + 0.10)2
be less expensive to purchase the equipment directly than
$35,000 $35,000 make an installment purchase, $200,000 versus $213,397.
+
(1 + 0.10)3 (1 + 0.10)4 Nonetheless, other factors may favor installments, such as
available cash.
NPV = $10,945
Table 33.8, the evaluation of two different pieces of
Solving for the internal rate of return (spreadsheet soft- laboratory equipment that serve the same function, is
ware and most financial calculators automate this): an example of calculating the NPVs. Equipment 1 costs
$200,000 and generates $60,000 of net cash flow per year
−$100,000 $35,000 $35,000
0= + + + for the 7-year useful life of the equipment. Equipment 2
(1 + IRR)0 (1 + IRR)1 (1 + IRR)2
costs $300,000 and generates $90,000 per year for the
$35,000 $35,000 7-year useful life of the equipment. The cost of the equip-
+
(1 + IRR)3 (1 + IRR)4 ment and depreciation is spread evenly over the 7 years
 Table 33.7 NPV of direct purchase versus installment purchase

Table 33.8 NPV of two different pieces of equipment

CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
607
608 FINANCIAL MANAGEMENT
of useful life. Based on these figures, equipment 2 would
be chosen over equipment 1 because of its higher NPV—
$125,598 versus $83,732.
Depreciation
Depreciation is associated with capital investments, so it
is worth commenting on. Depreciation is the allocation of
the cost to acquire an asset that has a useful life of greater
than 1 year into each year of the asset’s life. It is common
to use a “straight line” method in healthcare, whereby the
depreciation is evenly allocated across the item’s useful life.
For example, if a piece of equipment costs $100,000 and
has a useful life of 10 years, after which it is worth nothing,
an annual depreciation expense of $10,000 per year would
be recorded for each of the 10 years. There are other meth-
ods of depreciation that are driven by tax laws and usually
allow for a more accelerated treatment of this expense.
Investment decisions are based on cash flows, and de-
preciation is not a cash flow. The relevant cash flow is the
purchase event. From an accounting standpoint, the orga-
nization is simply exchanging one asset, cash, for another,
the asset. Depreciation serves to reduce the value of the as-
set over time on the organization’s financial statements, but
it should be ignored when evaluating capital acquisitions.
Budgeting
It is through budgeting that an organization turns its strate-
gic plans into daily operations. A budget expresses planned
revenues and expenses, as well as the volumes of services
and amounts of resources required to realize them. Through
the budget process the organization establishes priorities for
its plans, allocates its resources, and controls its costs. It au-
thorizes new programs and services and sets performance
standards for existing ones. A budget thus serves as a tool
and a benchmark for monitoring the performance of the
organization throughout its fiscal year. In addition, it is a
mechanism for imposing discipline on the organization.
Two key concepts are integral to healthcare budgeting:
full-time equivalents (FTEs) and UOSs. An FTE is one or
more employees paid for a total of 2,080 h per year (based
on 8 h per day × 5 days per week × 52 weeks per year); this
is the standard labor measure. An employee who is paid for
two 8-h days per week represents 0.4 FTE, while an em-
ployee who is paid for two 12-h days per week represents
0.6 FTE. Together, they represent 1.0 FTE to the organiza-
tion. Labor is divided into productive time, the time spent
working on job-related activities, and nonproductive time,
which includes vacation, holidays, and sick time. Depend-
ing on an organization’s fringe benefit policies, it will need
1.1 or more FTEs to realize 1.0 FTE of productive time.
Each area of the organization needs a way of quantify-
ing its productivity. As stated earlier, a UOS is the logical
measure of work for a given area. In the laboratory, it is
usually either the number of billed tests or the number of
procedures performed. For the operating room, it may be
the number of surgeries; for a physician office, it may be the
number of patient visits. UOSs are useful for measuring and
comparing resource consumption, such as total expenses
per billed test or billed tests per FTE, as we saw in the cost
accounting section.
Types of Budgets
Three separate budgets are developed during the budget-
ing process.
The first, and the one with which you are probably
most familiar, is the operating budget. This is prepared at
the level of the cost center, usually by those managers who
have direct responsibility for managing the cost center and
who can affect its operations. The operating budget can be
broken down into three components:
• Statistical budget, or volume budget, which is the fore-
cast of activity for the unit
• Revenue budget, which determines the gross charges
that will be generated by the forecasted volume
• Expense budget, which projects the amounts of re-
sources that will be required to produce the forecasted
volumes
The capital budget is the second type of budget. Its
development can occur simultaneously with the operat-
ing budget. It is usually prepared at the organization level
and includes new or replacement property, physical plant,
and equipment needs of the organization for the coming
year. Most organizations have a system in place to col-
lect information on these needs from departments across
the organization and then arrange the priorities centrally
with respect to acuity of need, organizational goals, and
available funding. Capital budgeting is separated from the
operating budget because the impact of capital purchases
is predominantly on cash, with only the depreciation ex-
pense affecting the operating budget (see the previous sec-
tion’s discussion of depreciation).
With the operating and capital budgets prepared, an or-
ganization can develop the third type, the cash budget. This
is usually prepared by the organization’s finance depart-
ment and predicts the cash flows in and out of the organi-
zation and the resultant cash availability. While obscure to
most, it is the most critical of the three budgets. To remain
solvent and thus stay in business, the organization must
carefully plan its cash reserves, timing of cash disburse-
ments, and any borrowing and investing activities.
The Budgeting Process
Creating a budget entails a fairly linear set of sequential
steps, some of which occur at the organizational level and
some that are done at the departmental or cost center levels.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
Step 1. Establish organizational goals and objectives.
Although the senior management usually sets these, it is
not uncommon for departments to develop their own ob-
jectives in support of the broader organizational goals. For
instance, a hospital may set a goal to expand market share
in ABC County by 3%. This, in turn, might lead to a goal
of establishing a satellite facility in that county. The labo-
ratory might then establish objectives for equipping and
running a laboratory or phlebotomy station at that satellite.
Step 2. Review key environmental factors, such as de-
mographics, political and regulatory issues, competition,
technology, and the economy. This function is usually per-
formed at the organizational level, although the laboratory
may have unique information about its particular niche,
such as the marketing activities of a regional reference lab-
oratory with which it is competing for outpatient testing.
Step 3. Determine starting assumptions about inflation,
payment levels, admissions, and other key volumes. This
function is usually performed at the organizational level.
Step 4. Develop the statistical budget for each UOS in the
organization. This budget is completed at the department
level using the information garnered in steps 1 to 3. The
laboratory manager will need to consider projections of the
number of admissions and the length of stay to forecast vol-
umes of inpatient laboratory tests and will have to estimate
the activity for various outpatient departments to forecast
volumes of outpatient laboratory tests. If the laboratory is
freestanding or has nonaffiliated clients, managers must de-
velop forecasting methods for these markets as well.
Step 5. Develop the revenue budget, based on the statis-
tical volumes forecasted in step 3 multiplied by the applica-
ble charges per UOS, resulting in the gross revenue budget.
In most organizations, consideration of contractual allow-
ances, write-offs, and bad debt occurs at the organizational
level, for purposes of estimating the net revenue budget.
Step 6. Prepare the expense budget on the basis of the
data gathered in steps 1 to 4. Because labor often consti-
tutes roughly 70% of a healthcare organization’s budget,
the expense budget is frequently broken down separately
into a staffing budget and a nonpersonnel expense budget.
The staffing budget takes into account the numbers and
types of employees, pay rates, and FTEs required in each
cost center. Nonpersonnel expenses include the various
supplies consumed and services utilized to produce the
UOS forecasted.
Step 7. Assuming the capital budget was produced in
parallel with the previous steps, there is usually a process
of negotiation and revision between department heads and
senior managers once all of the departments’ budgets are
rolled into one organizational budget and the operating in-
come is calculated.
Step 8. Develop the cash budget.
Step 9. Continue negotiations and revisions across the
organization.
609
Step 10. Submit the budget to the organization’s board
of directors for approval. Usually, current year and prior
year results form the basis on which the new budget is
developed. This process is called incremental budgeting.
An alternative used in some organizations is zero-based
budgeting. Under this approach, every expenditure must
be justified as if the service were starting from scratch, and
it must be established that other ways to provide a ser-
vice are not more cost-effective. While this can be time-
consuming, it forces a regular reexamination of why things
are done the way they are and whether they still fit with the
organization’s mission.
Another refinement to the budget process is the use of
flexible budgets. The process that has been described so far
results in a fixed budget, one in which an annual budget
is developed and approved, after which this agreed-upon
budget acts as the yardstick against which monthly perfor-
mance is monitored. Recall, however, the earlier discussion
about cost behavior (fixed, variable, etc.). It is relatively
straightforward to divide an organization’s expenses into
those that vary with changes in UOS and those that do
not. Subsequently, the variable portion of the budget may
change with volume for purposes of monitoring perfor-
mance. This approach is known as flexible budgeting.
Budget Examples
Table 33.9 is an example of a staffing worksheet that is
prepared to calculate how many FTEs a laboratory di-
vision would need for the upcoming fiscal year and the
costs associated with those FTEs. In practice, more de-
tailed information is required than just FTEs and hourly
rates to generate an accurate staffing budget. A manager
also has to break down each employee’s hours into the
different shifts that he or she works, so that any differen-
tial rates can be applied. Examples of typical differential
rates would be for weekends, evenings, nights, holidays,
overtime, etc. In this example, the manager is requesting
19.36 FTEs, which equates to $998,247 in salary expense
and $299,474 in fringe benefit expense (such as payroll
taxes, health insurance premiums, etc.). Notice that the
salary expense is broken down into productive and non-
productive components. This allocation is commonly
done to track nonworked but paid hours versus the actual
worked hours.
Table 33.10 is an example of a worksheet that is used
to analyze a budget being requested by a manager. In this
example, the starting point is a pro forma budget that was
calculated by (i) projecting any changes in volume and
(ii) using the revenue and expense per UOS from the pre-
vious year to adjust both revenues and costs.
This calculation allows for a comparison between what
one would expect for revenue and expense, given a certain
volume level, and what the manager is actually requesting.
The manager will need to present a valid case for deviating
610 FINANCIAL MANAGEMENT
Table 33.9 Staffing worksheet
from the pro forma budget. Once the differences between
the pro forma budget and the requested budget, i.e., the vari-
ance, have been resolved with senior management, the last
step in the process is to apply inflation factors to the ap-
proved budget (if all the variances have been accepted) and
generate the final budget for the upcoming fiscal year.
Variance Analysis
Management reporting is a process of communicating
actual versus budget performance throughout the orga-
nization to identify necessary corrective actions and help
make decisions. Distribution of reports usually follows the
organizational structure. Detailed line item reports are
analyzed at the cost center level. These reports roll up into
more and more summaries as one moves up the chain of
command. For example, a chemistry supervisor reviews
more detail than does the laboratory manager, who looks
at summary reports across the laboratory, while the vice
president for ancillary services looks at summary reports
for the laboratory, radiology, pharmacy, etc.
Variance analysis is critical to the control function of
management. Having established a budget, the extent to
which actual experience differs from the budget represents
a variance. Controllable variances can be resolved by man-
agement action. Vendors may be substituted, contracts
may be renegotiated, or alternative methodologies may be
pursued. Other variances are not controllable, such as a flu
epidemic that drives up demand for services above what
was budgeted, but as a result may require management to
make changes to more discretionary expenditures to off-
set the uncontrollable epidemic factor. Variance analysis
commonly focuses on the company’s actual results versus
budgeted expectations on a line-by-line basis for each cost
center. It is important that the line manager who has the
understanding of the cost center and the ability to make
any necessary changes actually perform this analysis. It is
the job of the manager to explain the variances to superiors.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
Table 33.10 Worksheet for constructing a budget
Table 33.11 is an example of a typical variance report for a
laboratory division.
Cost variances can have several causes. Volume vari-
ances result from a change in the volume of services per-
formed, either up or down. A flexible budget, described in
the previous section, takes account of these variances. At
the top of Table 33.11, you can see that volume is under
budget by $1,797, or a little less than 1%. Price variances
are due to a change in the price of a supply or service ver-
sus what was anticipated in the budget. In Table 33.11, lab-
oratory supplies are budgeted at $1.13/UOS, but the actual
cost is $0.89, a $0.24 favorable price variance. Quantity, or
efficiency, variances represent differences in the amount
of inputs (labor and/or supplies) used to produce each
UOS. The budget in Table 33.11 considers 16,818 tests per
FTE (290,784 tests divided by 17.29 FTEs), and the actual
is only 15,792/FTE, so more employee hours are required
611
than was budgeted, an unfavorable quantity variance that
helps explain the unfavorable salary dollar variance.
Any variance can be broken down into one of three
main causes: volume, price, or quantity. If the cause of the
variance is understood, a manager can tailor the response
rationally and appropriately. Analysis and reporting of
variances are ongoing processes and should be conducted
monthly in order to respond quickly. As with cost account-
ing, however, the effort should be justified by the informa-
tion gained in the process. Normal random fluctuations
will cause small variances, so it is useful to establish trig-
gers to indicate when further investigation is warranted.
Control charts, as illustrated in Fig. 33.7, are useful tools
for this purpose. In this chart the budget monthly test vol-
ume serves as the median line. The upper and lower limits
represent arbitrary figures that are 5% above and below the
budgeted volume.
612 FINANCIAL MANAGEMENT
Table 33.11 Variance report
Variations in labor, which can be further analyzed,
are important because labor costs constitute such a large
portion of expenses. Both labor costs and hours can be
divided into worked and paid categories. The duties of
workers who are vacationing, attending conferences,
sick, or injured must be assumed by others; the propor-
tion of costs due to a reduction in worked versus paid
time may be important for the organization. Worked
time can be further subdivided into productive and
nonproductive. The variance due to assuming the du-
ties of staff who are attending a conference is considered
nonproductive worked time. Only if such expenses are
adequately identified and characterized can a rational
decision be made as to whether they are justified by suf-
ficient benefit to the organization. At the bottom of Ta-
ble 33.11, one can see that in this example FTEs are over
budget by 1.01, or 5.86%.
Laboratory productivity, defined as the UOSs produced
divided by the laboratory inputs required to produce
them (in either hours or cost), should be benchmarked
against regional and national peers to gauge the labora-
tory efficiency of the organization. At the bottom of Table
33.11, you can see that for this example hours per UOS
are over budget by 0.01, or 6.51%. This variance is caused
by a combination of volume being slightly under budget
and FTEs being over budget.
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING 613

12,500
Financial Statements
In the previous section, we discussed internal reporting
12,000
and variance analysis, which management uses to control
Upper Limit expenses and help make decisions. In this section, we turn
11,500 to external reporting of an organization’s finances. The var-
Volume
e

ious groups of people interested in the financial health of an

Budget
11,000
organization include stockholders who have invested in the
company (or potential stockholders), creditors who might
loan the company money, and government agencies that
10,500
Lower Limit
regulate the company. Management itself also uses finan-
cial statements to help monitor the activities of the firm.
10,000
OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP
The three primary financial statements are the balance
sheet, the income statement, and the cash flow statement.
Month The balance sheet (Table 33.12) is a snapshot of a firm’s
Figure 33.7 Volume control chart. financial position at a particular point. It has two sec-
doi:10.1128/9781555817282.ch33.f 7 tions: assets and equities. Assets are economic resources
that are expected to benefit the company’s activities. Eq-
uities are claims against or interests in the assets. Equities
are divided into liabilities and owners’ equity. Liabilities
are economic obligations of the organization. Owners’ eq-
uity (usually called stockholders’ equity) is the ownership

Table 33.12 Balance sheet for an organization as of September 2012

614 FINANCIAL MANAGEMENT

claim against the total assets. Balance sheet account bal-
ances carry over from year to year, whereas income state-
ment account balances start from zero at the beginning of
each new fiscal year.
The income statement in Table 33.13 reports the results
of a firm’s operations over a period of time by matching its
revenues to its expenses, while the cash flow (CF) statement
in Table 33.14, also called the statement of changes in finan-
cial position, reports the impact of operating, investing, and
financing activities over a period of time. Its purpose is to
present the results of financial management, as opposed to
the operating management reflected in the income statement.
Financial Ratios
Several key indicators, expressed as ratios, can help us under-
stand the financial health of an organization as represented
in its statements. There are four categories of financial ratios:
• Liquidity ratios measure the ability of a firm to meet
its immediate obligations, i.e., the relationship

Table 33.13 Income and expense statement for an organization, year-to-date September 2012
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
Table 33.14 Cash flow statement for an organization, September 2012
between a firm’s cash and other current assets to its
current liabilities.
• Asset management, or activity, ratios measure how ef-
fective a firm is at managing its assets.
• Debt management, or leverage, ratios measure both
the extent to which the firm is financed with bor-
rowing and its likelihood of defaulting on its debt
obligations.
• Profitability ratios measure the combined effects of
liquidity, asset management, and debt management
policies on operating results.
Although the financial ratio values themselves, or
their trends over time, provide useful information, their
greater value comes from comparing them to industry av-
erages. As an example, the automotive industry, with its
well-established firms, will have a very different financial
structure than firms in the Internet industry. A negative
profitability ratio in the automotive industry would be
viewed as a sign of poor financial health, but in the In-
ternet industry it may not be viewed this way (or, at least,
so it was once thought). Table 33.15 shows the financial
ratios for the financial statements shown in Tables 33.12
through 33.14.
Summary
In this chapter, we began with cost accounting and dis-
cussed the types and behaviors of costs. Direct costs are
clearly associated with the item being costed, while all
other costs are indirect. The behavior of costs relative to
changes in volume can be variable (in direct proportion to
volume) or fixed (constant regardless of volume) or some
615
combination thereof. We reviewed how to measure full cost
and how it differs from marginal cost, which is the change
in total cost relative to a change in volume. An extensive
costing example showed what data are needed to generate a
cost analysis and how to cost a basic laboratory test.
Understanding the relationships among cost, volume,
and profits allowed us to calculate contribution margin—
the revenue per UOS less its marginal cost—and break-even
point, which is total fixed cost divided by the contribution
margin per UOS. These concepts were applied to an equip-
ment purchase and to evaluating a capitation contract. The
equipment purchase decision was then augmented by ap-
plying time value of money concepts to capital acquisition
plans using the NPV and IRR calculations. These tech-
niques allow for acquisitions with different future cash
flow patterns to be compared in today’s dollars. We looked
at purchasing versus leasing and compared two pieces of
equipment using these techniques.
We then turned to the budget process and reviewed
the three common types of budgets: the operating budget
(which consists of a statistical, or volume, budget; a rev-
enue budget; and an expense budget), the capital budget,
and the cash budget. We learned the concepts of FTE and
UOS, two key building blocks in budget development. We
walked through the 10 steps of the budgeting process and
illustrations of staffing and budget worksheets. With the
budget as the baseline, we looked at management report-
ing and how to analyze the causes of differences in actual
financial performance from budgeted amounts. We broke
variances down into one of three causes: volume, price, or
quantity variances. Finally, we discussed the importance
of understanding which factor is responsible in order to
direct the manager’s response.
 616

Table 33.15 Ratio analysis for an organization, September 2012

FINANCIAL MANAGEMENT
 CHAPTER 33. COSTS, BUDGETING, AND FINANCIAL DECISION MAKING
We learned about the three primary financial state-
ments: The balance sheet is a snapshot of the company’s
financial condition at a given point in time and is a cu-
mulative statement; the income statement reports the re-
sults of the company’s operations over a period of time;
the cash flow statement presents the results of financial,
as opposed to operating, management of the company. We
used four types of financial ratios to reveal information
about an organization’s financial health from its financial
statements: liquidity ratios, asset management ratios,
debt management ratios, and profitability ratios. Ratios
are best used in comparison to other companies in the
same industry.
KEY POINTS
■ Cost accounting is an important tool for controlling ex-
penses and making good resource allocation decisions.
■ Marginal costs and the break-even point are relevant
when considering taking on additional work.
■ Capital investments, such as equipment purchases, re-
quire an NPV approach to decision making.
■ Budget creation and monitoring should be vested in the
managers responsible for implementing the changes
that affect the budget.
■ Regular variance analysis, especially in regard to labor,
is critical to managing within a budget.
■ Financial statements and their corollary financial ratios
are useful for benchmarking against other organiza-
tions in the same industry.
GLOSSARY
Accounts receivable Money that is owed to the firm by outsiders.
Accrual accounting System that records revenue and expenses
as they occur.
Asset (and asset accounts) The resources owned or used by
the firm.
Asset management ratios Measure of how effective the firm is
at managing its assets.
Average cost Full cost divided by the unit of service.
Bad debt Recorded as an expense for gross charges that are
deemed uncollectable from self-payors.
Balance sheet Shows assets on the left side and liabilities or
claims against assets on the right side. The balance sheet shows a
firm’s financial position at a particular point in time.
Break-even point The level of activity at which revenue and to-
tal costs are exactly equal.
Capital The cash required to purchase the firm’s property, plant,
and equipment.
Capital budget The financial plan for the acquisition of capi-
tal assets.
617
Capital lease A lease in which the firm retains ownership of the
asset at the end of the lease period.
Capitation A reimbursement mechanism in which the service
provider receives a fixed payment based on the number of covered
lives. The payment does not fluctuate with the level of activity.
Cash accounting Records revenue and expenses when the cash
has either been paid out or collected.
Cash budget The cash management plan for how the opera-
tional and capital budgets will be supported.
Cash flow (CF) Cash revenues less cash expenses; excludes non-
cash expenses such as depreciation.
Cash flow statement Reports the impact on cash flow of a firm’s
operating, investing, and financing activities over a period of time.
Contractual allowances Discounts on gross charges given to
third-party payors who have a negotiated contract with the bill-
ing provider.
Contribution margin The excess of revenue over variable costs.
Cost accounting A system of measuring and reporting informa-
tion about cost.
Debt management ratios Measure of both the extent to which
the firm is financed with borrowing and its likelihood of default-
ing on its debt obligations.
Depreciation An annual charge of an asset’s cost into each year
of the asset’s useful life, for assets that have a useful life of greater
than 1 year.
Direct allocation Allocates costs of each service department di-
rectly and only to revenue-producing responsibility centers.
Direct cost A cost that can be traced to, or caused by, a particu-
lar service, product, segment, or activity of the department.
Discount rate The rate used to calculate the present value of fu-
ture cash flows.
Equity Claims against, or interests in, the assets of a company;
divided into liabilities and owners’ equity.
Expense budget The amount of resources that will be required
to produce the forecasted activity.
Fiscal year The year on which the general ledger is based. It can
be different from the calendar year. The fiscal year used by a firm
is usually based on the norm of the industry to which it belongs.
Fixed budget A budget in which the budgeted amounts do not
fluctuate with the volume.
Fixed costs Costs whose total remains constant regardless of
changes in level of activity.
Flexible budget A budget in which the variable portion of the
budget fluctuates with the level of volume.
Full-time equivalent (FTE) The proportion of an employee’s
paid hours per year to the standard labor measure, which is typi-
cally 2,080 h (5 days × 8 h × 52 weeks per year).
Fund accounting A form of accounting in which revenues and
expenses must always be equal and expenses are stopped when
revenue is exhausted.
618 FINANCIAL MANAGEMENT
Future value (FV) The amount to which a given amount of cash
will grow at the end of a given period of time when compounded
at a given rate of interest.
General ledger The system that records all accounting activity.
Income statement Reports the financial results of a firm’s opera-
tions over a period of time.
Incremental budgeting Uses prior year results as a basis for
building the current year budget.
Indirect cost A cost that cannot be traced to a particular service,
product, segment, or activity.
Interest rate The amount charged by lending institutions for the
use of the money borrowed by a firm.
Internal rate of return (IRR) The rate that equates the present
value of a project’s expected cash inflows to the present value of
the project’s costs.
Liabilities (and liability accounts) The debts or obligations
owed to outsiders.
Liquidity ratios Measure of the firm’s ability to meet its imme-
diate obligations; thus, the relationship between a firm’s current
assets and its current liabilities.
Long-term debt The firm’s obligations that are due after more
than a year.
Management reporting A process of communicating actual
versus budgeted performance throughout the organization to
identify necessary corrective actions and help make decisions.
Marginal cost The change in total cost relative to the change in
volume, i.e., the cost of producing one more unit of service; in-
cremental cost.
Net present value (NPV) The present value of future net cash
flows, discounted at the cost of capital.
Nonproductive time Paid time for non-job-related activities
such as vacation, holidays, and sick time.
Operating budget The financial plan for managers with direct
responsibility for managing the operations of a responsibility
center(s). The operating budget is made up of a statistical budget,
a revenue budget, and an expense budget.
Overhead costs Costs that are from non-revenue-generating
departments.
Owners’ equity The ownership claim against the total assets of a
company (also called stockholders’ equity).
Present value (PV) The value today of a future cash flow.
Price variance The difference between the price of a supply or
service versus the price that was budgeted.
Productive time Paid time for job-related activities.
Profitability ratios Measure of the combined effects of liquid-
ity, asset management, and debt management policies on oper-
ating results.
Quantity variance The difference between the amount of inputs
(labor and/or supplies) used to produce each unit of service ver-
sus the quantity that was budgeted.
Required rate of return Known as the hurdle rate or cost of
capital, it represents the minimum return on investment a firm
requires on capital expenditures.
Revenue budget The revenue that will be generated by the fore-
casted activity for a responsibility center.
Semi-variable costs Costs that include both variable and fixed-
cost elements.
Standard cost A measure of how much an item should cost,
rather than a record of how much it actually did.
Statistical budget The forecast of activity for a responsibility
center.
Step-down allocation Distributes the costs of the service de-
partments providing the most services to all departments. All
remaining service departments’ costs are then allocated in de-
scending order determined by the amount of service they
render.
Step-fixed costs Costs that are fixed over a range of activity and
are then increased when activity levels go up.
Stockholder equity accounts The difference between a firm’s as-
sets and liabilities (claims against assets). The accounts are re-
ported on the balance sheet and have natural credit balances.
Time value of money A concept that recognizes that a dollar of
cash today is worth more than a dollar of cash to be received at
some time in the future.
Unit of service (UOS) The logical measure of work for a given
area. In the laboratory, it is usually the number of billed tests or
procedures performed.
Variable costs Items of cost that vary, in total, directly, and pro-
portionately with volume or level of activity changes.
Variance analysis The process of analyzing differences in actual
versus budgeted performance to identify necessary corrective ac-
tions and help make decisions.
Volume variance The difference between the volume of services
performed versus the volume that was budgeted.
Write-offs Recorded reductions in revenue for gross charges
that are deemed uncollectable from third-party payors.
Zero-based budgeting A budgeting methodology in which ev-
ery expenditure must be justified regardless of the prior year’s
results.
REFERENCES
1. Finkler, S. A. 1994. Cost Accounting for Health Care Organiza-
tions. Aspen Publishers, Inc., Gaithersburg, MD.
2. Horngren, C. T. 1984. Introduction to Management Accounting,
6th ed. Prentice-Hall, Inc., Englewood Cliffs, NJ.
3. Joy, O. M. 1983. Introduction to Financial Management, 3rd ed.
Richard D. Irwin, Inc., Homewood, IL.
4. Pavlock, E. J. 1994. Financial Management for Medical Groups.
Medical Group Management Association, Englewood, CO.
Introduction
34
Contextual Considerations
Financial Decision Making:
Analytical Underpinnings of a Decision Putting the Pieces Together
Executing the Plan
Summary
Ronald J. Bryant and Michael R. Lewis
KEY POINTS

OBJECTIVES
To place the financial decision-making process in the context of the laboratory,
the institution, and the broader healthcare environment
To review important considerations in the financial decision-making process

If you know how to spend less than you get, you have the philosopher’s stone.
Benjamin Franklin

O
ptimal allocation of a laboratory’s finite financial resources,
while ultimately a numbers-driven task, depends not only on the
quality of available financial analyses but also on factors that are not
readily quantified: the manager’s understanding of the organization’s strat-
egy, his or her recognition of the institutional and extra-institutional envi-
ronments in which the laboratory is operating, and his or her aptitude for
employing nonfinancial (e.g., human) resources effectively. Each of these
facets of financial management has been addressed in a preceding chapter in
this section; we seek here to integrate these perspectives into an approach to
making financial decisions.

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch34
Contextual Considerations
The sweeping influence of reimbursement reform will have an impact not
only on hospitals and individual physicians but on laboratories of all sizes and
structures, regardless of the laboratory’s position as an independent entity or
a subunit of a large organization. Fundamentally, the laboratory will be trans-
formed from a profit center to a cost center, and the effects of this shift will
be predictably dramatic. The shift from a model in which higher volumes are
rewarded financially to one in which containment of volumes and elimination
of unnecessary testing directly affect the bottom line will necessarily influence
decisions about which activities make sense to start, continue, or stop.
Compounding the difficulty of analyses in this new environment is the ex-
pected integration of many laboratories into accountable care organizations
(ACOs) that will more directly link the financial fortunes of the laboratory

619
620 FINANCIAL MANAGEMENT
with those of a variety of physician practices and hospitals.
Much of a laboratory’s revenue will likely be fixed based
on the size of the population receiving care from an ACO,
making cost containment an even greater imperative. In
such circumstances, a valid cost analysis will look not
merely at costs borne directly by the laboratory but also
at those incurred by the larger organization. While taking
a broad view such as this has been intellectually appealing
even in the fee-for-service era, such forward-thinking ap-
proaches have not always been well rewarded under the
existing management structures of large institutions.
Consider, for example, a decision regarding the intro-
duction of molecular techniques (e.g., real-time PCR) in
the virology section of a microbiology laboratory. Capi-
tal expenditures would be substantial, and there would
be associated needs for space, training time for technical
staff (“nonproductive” time in the accounting sense), and
infrastructural support (including building tests in the
laboratory information system and billing system, client
education, etc.), all of which would increase laboratory
costs in the short term. Assuming that reimbursement
for these new tests is unlikely to offset the associated
start-up costs, a management culture reliant on “silo”-
based budgets and variance reports could cause a labo-
ratory manager to hesitate when contemplating such a
move. Even if the manager believes that the overall im-
pact on the organization’s finances would be favorable,
deciding whether to proceed may not be straightforward.
Can the overall financial impact be known? Would this
move be aligned with the laboratory’s strategy and with
that of the broader organization?
Analytical Underpinnings of a Decision
An accurate assessment of the costs associated with differ-
ent options is clearly essential, as is a reasonable forecast
of the associated revenues. Techniques such as those de-
scribed in chapter 33, by Tolzmann and Vincent, are em-
ployed by many laboratories to develop cost data—costs
under the status quo as well as costs of contemplated ini-
tiatives. Communication with laboratory marketing and
billing staff is necessary to develop plausible revenue sce-
narios for options under consideration. Generating data
that managers trust and that are timely is no small feat;
nonetheless, while laboratory-specific figures are neces-
sary for the decision-making process, they are, as suggested
above, less and less likely to prove sufficient to the task as
the laboratory’s financial fate becomes even more tightly
intertwined with those of other institutions and providers.
Understanding the impact of laboratory decisions on
the operations of the hospital or system, and being able
to quantify that impact, will become increasingly impor-
tant. Consequently, close collaboration with colleagues
outside of the laboratory to ensure that managers are up
to speed on institutional initiatives and conversant in the
operational and financial language of the institution is im-
perative if laboratory decisions are to make sense in the
broader context. Returning to our example, how can the
laboratory manager make an evidence-based decision re-
garding molecular virology without an understanding of
the extra-laboratory effects of such testing? Would inpa-
tient length of stay (LOS) be shortened if such tests were
available? Would empirical use of antimicrobials be re-
duced? Would admissions be reduced? How much would
these changes save the system? While assigning precise
dollar figures to incremental changes in LOS is problem-
atic and beyond the purview of the laboratory manager,
communication between the manager and colleagues ad-
dressing such issues is necessary to ensure that financial
decisions in the laboratory are based on consideration of
the wide range of pertinent data.
Executing the Plan
As the influences on and ramifications of financial deci-
sions made in the laboratory broaden with the evolution
of the environment in which laboratories operate, it is clear
that effective collaboration among colleagues with varied
backgrounds is essential for effectively making and imple-
menting decisions. The need for teamwork in develop-
ing a suitable evidence base for decision making has been
addressed above; no less important is effective human re-
source management to ensuring optimal performance in
the implementation phase. Returning to the example of mo-
lecular testing in virology, among the many tasks associated
with implementation would be communication with staff
concerning the change, planning for resources (physical,
human, financial) to implement the new technology, and
collaboration with billing, compliance, and information sys-
tems personnel and with clinical colleagues, nursing staff,
and institutional authorities. All of these components are
necessary to ensure that the expected benefits are realized.
Not to be overlooked is the role of ongoing review of
the laboratory’s decision-making process. Given the rapid
pace at which challenges arise, it is easy to postpone sys-
tematic consideration of decision-making effectiveness.
Reflection on what has worked well and on ways to im-
prove the process, while unlikely to be considered urgent,
is often undervalued and underutilized.
Summary
Effective financial decision making draws on varied aspects
of management. Beyond having the appropriate analytical
tools, the manager must bring to bear an understanding
of the organization’s strategy, of the environment in which

the laboratory is operating, and of how to collaborate to
make and implement decisions optimally.
KEY POINTS
■ Financial decision making takes place not only in a lab-
oratory context but also under the influence of broader
healthcare forces.
CHAPTER 34. FINANCIAL DECISION MAKING 621
■ Strategic planning and clear delineation of goals are
necessary prerequisites for effective financial decision
making.
■ Successful decision making draws heavily on effective
collaboration among motivated colleagues within and
outside the laboratory.
Generation of Revenue
VI
(section editors: Vickie S. Baselski and Alice Weissfeld)
35 Correct Coding of Billable Services in the Clinical Laboratory
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
36 Approaches to Billing Laboratory Services
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
37 Charges and Fees for Laboratory Services
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Introduction
35
Procedure Coding: What Test Procedures
Correct Coding of Billable
Have Been Performed?
The CPT System
Services in the Clinical
Description • Types of CPT Codes • Modifiers • The
Process for Change • Procedure Coding Guidance Laboratory
Procedure Coding Alternatives
Capitated Services Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Diagnosis Coding: Why Is the Service
Being Performed?
Inpatient Diagnosis Coding • Outpatient Diagnosis
Coding • Other Unique Patient Groups • ICD-CM • OBJECTIVES
SNOWMED CT To explain the importance of using the standardized coding systems recognized
Service Location by payors
Role of CLIA and State Licensing • Revenue Codes
To discuss laboratory responsibilities to ensure that correct and complete
Documentation of Codes coding has been done
Requisition • Claims • Code Mapping
To describe the importance of the ICD-CM coding system and its relationship
Summary
to proper billing
KEY POINTS
To discuss the fundamental principles of correct and complete coding
GLOSSARY
REFERENCES
APPENDIX
Let the good service of well-deservers be never rewarded with loss. Let their
thanks be such as may encourage more strivers for the like.
Elizabeth I (1533–1603),
Queen of England (1558–1603)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch35
T
he primary goal of laboratory medicine is to provide a variety of
laboratory services that facilitate the role of physicians and other di-
rect healthcare providers in the prevention, diagnosis, and treatment
of diseases by generating data upon which clinical decisions are made. It has
been estimated that although laboratory medicine accounts for only 5 to 7%
or less of total healthcare costs, the information generated drives 60 to 70% of
subsequent resource utilization and is estimated to direct at least 80% of all
clinical decision making (8). In turn, laboratory payments constitute a very
low percentage of actual payments to healthcare providers. For example, lab-
oratory services represent just under 2% of program spending for Medicare
Part B outpatient healthcare services and just over 2% of national healthcare
expenditures (13). By any standard, these figures demonstrate that laboratory
medicine services are a bargain as well as a critical component in the provision
of healthcare services. As a critical component of healthcare, it is essential that
a uniform approach to documenting laboratory services be used to track uti-
lization (16). The critical parameters that one must specify in accounting for
laboratory services include (i) the actual laboratory service (i.e., what test pro-
cedures the laboratory performed), (ii) the clinical reason for performing the
laboratory service (i.e., why the test procedures were performed), and (iii) the
specific laboratory type (i.e., the setting in which the work was performed).
For each of these parameters, the laboratory must use standard language to
communicate with payors and for use in benchmarking comparisons of prac-
tices to assess efficiency and effectiveness of services provided.

625
626 GENERATION OF REVENUE
Procedure Coding: What Test Procedures
Have Been Performed?
A number of procedure coding systems have been de-
veloped to standardize the documentation of services
rendered for financial purposes, although one particular
system is primarily used in the United States and is also in
use in many other countries. The predominant procedure
coding system is the Current Procedural Terminology
(CPT) system (2). This system is recognized by the U.S.
federal healthcare payment programs (i.e., Medicare and
Medicaid) as the official coding system and has been ad-
opted in its entirety as the federal procedure coding system
known as the Healthcare Common Procedure Coding Sys-
tem (HCPCS). For procedures or practices not yet defined
by a CPT code, HCPCS codes may be established that are
used until an appropriate CPT code is available. The CPT
system is recognized by all other major third-party payors;
thus, it is an oft-stated adage that “as goes Medicare, so go
others.” The CPT system has also been designated as the
Standard Electronic Healthcare Transaction Code Set for
procedures under the Health Insurance Portability and Ac-
countability Act of 1996. However, it should be recognized
that alternatives do exist, and it was a recommendation of
the 2000 Institute of Medicine report Medicare Labora-
tory Payment Policy, Now and in the Future that “HCFA
(Health Care Financing Administration, now known as
the Centers for Medicare and Medicaid Services [CMS])
should review alternatives to the current system for coding
outpatient clinical laboratory services for claims process-
ing. More accurate, open, and timely coding processes for
new technologies, as well as tests and services should be
sought” (10). Thus, general familiarity with alternatives
(e.g., International Classification of Diseases, Version 10,
Procedure Coding System [ICD-10-PCS], based on an
approach similar to the Logical Observation Identifier
Names and Codes [LOINC]) is recommended (3, 17).
The CPT System
Description
The CPT system, a proprietary product of the Ameri-
can Medical Association (AMA), is a listing of five-digit
descriptors and numeric and alphanumeric identifiers
that are used for documentation of services rendered
(Table 35.1). The system was first developed in 1966 and
is currently in its fourth edition. The purpose of CPT is
to provide a uniform language that accurately describes
medical, surgical, and diagnostic services for financial and
administrative purposes and to serve as a standard means
of identifying and documenting services performed (2).
These codes are multifunctional and serve as the basis
for service order documentation and procedure results,
claim and invoice generation and billing, fee-for-service
Table 35.1 The CPT system
Definition The CPT system is a proprietary product of the
AMA and is a listing of five-digit numeric and
alphanumeric identifiers with narrative descrip-
tors, which are used for documentation of services
rendered.
A “billable service” may be defined as one that is
CPT codeable.
Purpose To provide a uniform language that accurately de-
scribes medical, surgical, and diagnostic services
for financial and administrative purposes.
CPT serves as a standard means of identifying and
documenting services performed.
Code uses The basis for service order documentation and
procedure results
Claim and invoice generation and billing
Fee-for-service payment schedules
Development of edits that assess the appropriate-
ness of payment for the service
Assessment of the productivity of laboratories in
providing services
Utilization review and outcomes in specific clini-
cal situations
payment schedules, development of edits that assess the
appropriateness of payment for the service, assessment of
the productivity of laboratories in providing services, and
utilization review and outcomes assessment in specific
clinical situations (4, 11). All aspects of effective financial
management of the clinical laboratory begin with correct
and complete coding for all services rendered (14). In es-
sence, a “billable service” may be defined as one that is
CPT codeable.
Types of CPT Codes
All generally accepted laboratory service codes, termed
category I codes, are found in a specific pathology and
laboratory section that includes both clinical laboratory and
anatomic services (Table 35.2). Clinical laboratory services
are further divided into discipline-specific subsections (e.g.,
chemistry, hematology, immunology, transfusion medicine,
microbiology, molecular pathology). In addition, both
technical testing services and professional, physician-pro-
vided services may be coded. In general, category I codes
represent services that are performed by many healthcare
professionals in multiple locations throughout the United
States, that have received Food and Drug Administra-
tion clearance or approval, if required, and that have been
shown to have clinical efficacy. Technical category I codes
are of several types. Primary codes are those that denote a
specific procedure. Add-on codes are those that are per-
formed in addition to a primary code and are indicated
by a “+” symbol or by the descriptor language “use in
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES
Table 35.2 Types of CPT-4 codes
Category I All generally accepted laboratory service codes;
found in the specific pathology and laboratory
section (includes both clinical laboratory and
anatomic services)
Divided into specific subsections (e.g., molecular
pathology, chemistry, hematology, immunology,
transfusion medicine, microbiology)
Represents services that are performed by many
healthcare professionals in multiple locations
throughout the United States, that have received
Food and Drug Administration clearance or
approval, if required, and that have been shown
to have clinical efficacy
Category II Developed for performance measurement tools
Initially released in 2003, with annual updates
Currently, there are no Category II codes that
specifically address laboratory practices.
Use is optional and nonessential for correct
coding.
Category III Implemented in 2001
Designed to be a temporary code set for proce-
dures that represent emerging technologies not
yet meeting the requirements for assignment of a
category I code
Retired after five years if not moved to Category I
There have been several category III codes that
describe laboratory procedures.
addition to.” Organ- or disease-oriented panels represent
AMA-approved and CMS-accepted test groupings that
are coded as a single billable test procedure and are gen-
erally performed conveniently as such on automated in-
struments. Technical services are often subject to payment
under a defined fee schedule that is updated on a regular,
generally annual basis.
Professional services are identified by specific CPT
codes found in the anatomic pathology and cytology sub-
sections and by two defined codes in a clinical pathology
consultation section. In addition, for a few designated
clinical laboratory codes requiring clinical interpreta-
tion, one may attach a two-digit modifier indicating that
the code has both a technical and a professional compo-
nent that may each be billed by different entities. Cod-
ing and billing for professional services are also generally
subject to payment under a defined fee schedule that is
developed through a resource-based relative value sys-
tem (6, 12, 15).
Category II codes and category III codes represent
newer components of the CPT system that were developed
as a component of the CPT-5 (5th edition) project (Table
35.2). Category II codes were developed as performance
measurement tools and were initially released in 2003,
with updates generated annually. They are designed to
627
track best practices associated with specific clinical con-
ditions and are thus similar conceptually to Healthplan
Employer Data and Information Set (HEDIS) monitors,
which are widely used by managed-care plans. However,
at this point there are no category II codes that specifically
address laboratory practices, although laboratory test use
may be a component of the best practice algorithm asso-
ciated with a specific category II code. At this time, the
use of category II codes is optional and nonessential for
correct coding.
Category III codes were implemented in 2001 and are
designed to be a temporary code set for procedures that
represent emerging technologies not yet meeting the re-
quirements for assignment of a category I code. They are
intended to be used to track utilization of these types of
procedures and are updated biannually. It is possible that a
category III code may eventually satisfy criteria for assign-
ment of a category I code. However, from a correct-coding
perspective, if a category III code is available, it must be
used. In addition, if not assigned to a category I code in a
five-year period, these codes may be retired. There have
been several category III codes that describe laboratory
procedures.
Modifiers
Modifiers are another important component of the CPT
system. Modifiers are composed of two-digit numbers that
are attached to a specific code prior to the billing process
(Table 35.3) (1, 2). They are “used to indicate that a ser-
vice or procedure has been altered by some specific cir-
cumstance but not changed in its definition or code” (1).
In laboratory medicine, there are several critical modifi-
ers. The modifier -26 is used when a certain procedure is
a combination of a physician component and a technical
component. This modifier for “professional component” is
only applicable in selected circumstances, usually involv-
ing inpatients, when the professional “interpretative” com-
ponent is reported separately.
Duplicate services of the same type on the same type
of specimen from the same date of service are generally
not reimbursed but may be appropriate if modified with
-91 (repeat clinical diagnostic test performed on the same
day to obtain subsequent reportable and clinically useful
test values). However, this modifier may not be used when
tests are rerun to confirm initial results (due to testing
problems with specimens or equipment) or for any other
reason when a normal, one-time, reportable result is all
that is required.
Modifier -59 (distinct procedural service) identifies
distinct and separate multiple services of the same type on
the same date of service that “are not normally reported to-
gether but are appropriate under the circumstances.” This
modifier generally refers to different encounters with the
same patient or different anatomic sites. Modifier -59 is
628 GENERATION OF REVENUE
Table 35.3 CPT modifiers used in laboratory medicine
Modifier Description
-26 Certain procedures are a combination of a physi-
cian component and a technical component;
this modifier for “professional component” is
applicable only in selected circumstances, usually
involving inpatients, when the professional “inter-
pretative” component is reported separately.
-91 Repeat clinical diagnostic test performed on the
same patient, on the same type of specimen from
the same date of service, to obtain subsequent
reportable and clinically useful test values; this
modifier may not be used when tests are rerun to
confirm initial results (due to testing problems
with specimens or equipment) or for any other
reason when a normal, one-time reportable result
is all that is required.
-59 This modifier (distinct procedural service) identi-
fies distinct and separate multiple services of the
same type on the same date of service that “are not
normally reported together but are appropriate
under the circumstances.” This modifier generally
refers to different encounters with the same patient
or different anatomic sites.
-90 Used to indicate that a laboratory has referred a
procedure it is billing to a reference laboratory.
To use this code, laboratories must follow a 70-30
rule, which states that no more than 30% of total
testing is referred out.
also used to report services that may be considered a com-
ponent of another service but have been carried out in a
distinctly unrelated fashion. The modifier is not appropri-
ate if a procedure is repeated due to analytical error or to
confirm or verify a result.
Modifier -90 is used to indicate that a laboratory has
referred a procedure it is billing to a reference laboratory.
To use this code, laboratories must follow a “70-30” rule,
which states that no more than 30% of total testing is re-
ferred out.
Laboratorians must also be familiar with a two-digit al-
pha character HCPCS modifier set to denote situations for
which a CPT modifier does not exist. Modifier -QW is used
to indicate that a procedure being performed in a Clinical
Laboratory Improvement Amendments (CLIA) waived-
status laboratory has received a waiver to be performed as
such from the CLIA program. A series of very important
HCPCS modifiers indicate the status of the acquisition of
a “waiver of financial liability” (termed an advance ben-
eficiary notice [ABN]) from the patient. The Medicare
ABN must adhere to a specific format that should not be a
component of a requisition. An ABN should be obtained
whenever it is likely that a service does not meet Medicare
payment rules and is therefore likely to be denied. Other
third-party payors use notices modeled after the ABN to
inform patients of their financial obligations for payment
for coded services.
Use of modifier -GA is mandatory and indicates that
Medicare is not likely to pay for a service and the patient
has signed an ABN. Modifier -GZ is optional and indicates
that Medicare is not likely to pay for a service but the pa-
tient has not signed an ABN. Modifier -GY indicates that
a service is statutorily excluded from payment and the pa-
tient has acknowledged financial responsibility by signing
an ABN. Finally, -GX may be used when an ABN has been
voluntarily issued for a noncovered service.
The Process for Change
Since laboratory procedures are constantly evolving, par-
ticularly with the emergence of new technology, it is neces-
sary for the CPT system to undergo regular updates (Table
35.4). Updates, which add, delete, and modify existing
codes, are issued annually after an extensive and system-
atic review process that begins with the submission of an
AMA coding change request form by any individual, pro-
fessional group, or corporation. Each request undergoes a
complete review by AMA-appointed specialty committees,
general CPT committees (the CPT Advisory Committee
and the Health Care Professionals Advisory Committee),
and ultimately the CPT Editorial Panel. The time frame
to effect a change is usually 15 months or more, with new
codes being released in midsummer since 2001 and the
completely updated CPT manual released in hard copy by
October prior to the January implementation date. Federal
payors require use of new codes beginning in January (2).
Table 35.4 Process and schedules for CPT code revisions
Timing Action
18 mo prior Code changes are proposed.
18 to 9 mo prior Proposals are reviewed by multiple AMA
committees including:
Healthcare Professionals Advisory
Committee
AMA CPT Advisory Committee and
subcommittees
AMA CPT Editorial Panel
February prior Final changes for the next calendar year
are approved by CPT Editorial Panel.
Summer prior Early release of new codes for determina-
tion of reimbursement
October prior Publication of the new edition for the
upcoming year
January 1 Mandatory Medicare implementation of
new codes
October–January 1 Time for action. Systematic efforts to
verify codes, perform new cost analyses,
update charge masters, change informa-
tion systems, etc.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES
Other third-party payors generally follow the same time-
line, but there may on occasion be disconnects.
HCPCS codes are also published annually but may be
developed and issued any time it is deemed necessary to
supplement the CPT system.
Procedure Coding Guidance
The selection and verification of CPT codes should be
performed annually, coincident with the release of an-
nual changes by the AMA. Correct coding is clearly the
responsibility of the laboratory, in which the technical
knowledge of the current procedures resides. Laborato-
rians must pay close attention to the narrative descriptors
for the test procedures when selecting codes for use in
documentation. Descriptors relate only to the procedure
and do not reflect the reason for performing the test. Doc-
umenting why a test is performed generally requires an
ICD-CM code. Note that there are some exceptions to this
duality of purpose. For example, the newly established
Medicare HIV screening benefit requires the use of newly
established HCPCS codes that indicate both method and
purpose (i.e., screening).
There is an established hierarchy for choice of CPT
codes that places analyte first, followed by method, and
then finally the use of a generic “not otherwise speci-
fied” code. If no match for the analyte and method can be
found, then an “unlisted code” (usually ending with “-99”)
is available. However, as specificity of coding decreases,
the probability that a code will not be reimbursed without
submission of additional documentation increases. One
should also review current HCPCS codes to determine if
the procedure in question is described there. It is very im-
portant to ensure that one does not “unbundle codes,” that
is, select multiple individual codes rather than a compre-
hensive single code (e.g., when coding for panels). Further,
the National Correct Coding Initiative directs that for fed-
eral payor programs, “multiple tests to identify the same
analyte, marker, or infectious agent should not be reported
separately.” Keep in mind that the same guiding principles
generally apply to other third-party payors.
Procedure Coding Alternatives
The CPT system is obviously firmly entrenched in labora-
tory management as the primary tool for procedure cod-
ing and subsequent billing of laboratory services. However,
there are alternatives that may gain wider use at a future
date. Foremost among these is a system known as LOINC
(17). With input from a consortium of laboratories, infor-
mation system vendors, hospitals, and academic institu-
tions, the grant-supported Regenstrief Institute developed
and maintains LOINC. LOINC is considered a universal
laboratory language that is based on the systematic break-
down of the components of a service into more specific
629
units, ultimately creating a highly standardized, typically
seven-digit, number, with each possible result from a proce-
dure being mapped to a specific code. The breakdowns take
into consideration where the procedure was performed, the
specific analyte type, the method, and the type of result. Un-
like CPT, LOINC is publicly available and can be used with
no license fee. It is widely used by commercial laboratories
to track specific procedures from order to result.
The LOINC system formed the basis for the develop-
ment of the CMS ICD-10-PCS laboratory coding system
intended for use as an alternative to CPT (3). This system
was developed by 3M under contract to the Health Care
Financing Administration (now CMS), with substantial
input from specialty professional groups. It was finalized
and released in 1999 but has remained inactive, as CPT has
continued to be used as the “official” procedure code set.
Capitated Services
Beginning in the 1980s, a trend toward paying capitated, or
predetermined, amounts for management of a specific dis-
ease or in a specific clinical circumstance rapidly emerged
(19). This trend began with the development of diagnosis-
related groups (DRGs) under Medicare to classify reasons
for hospitalization, where payment amounts were defined
based not on the actual procedures performed but on
the final diagnosis, while in other capitated payor plans,
hospitalizations were paid for on a per-diem basis. Subse-
quently, this concept was extended to cover all outpatient
healthcare costs, and managed-care plans emerged that
paid for all required services under terms like “per mem-
ber per month” or “per covered life.” Finally, Medicare rec-
ognized special categories of patients for whom payments
were similarly categorized by the condition or situation of
the patient and not by a compilation of individual proce-
dures. Examples may be found in payment for services to
patients in skilled-nursing facilities (SNFs) or patients be-
ing treated in dialysis centers for end-stage renal disease
(ESRD). More recently, Medicare has similarly initiated an
outpatient prospective payment system based on defined
ambulatory payment classifications (APCs). Needless to
say, other third-party payors find inpatient payment by
this method to be financially gratifying, and Medicare is
seeking to move outpatients into managed-care situations.
In other words, the trend is definitely to try to find ways to
minimize payment for services.
Under such capitated or prospective payment systems,
laboratories may find themselves in the situation of repre-
senting financial liabilities rather than revenue generators.
To balance this perception, it is extremely important for
laboratories to develop mechanisms to document all work
performed in a given clinical setting. Therefore, correct
coding is also a key to success in capitated payment situa-
tions. Knowledge of the exact amount of work performed
630 GENERATION OF REVENUE
per DRG or APC allows one to justify the allocation of a
specific proportion of the total payment to the laboratory.
This also allows one to “carve out,” or specifically exclude,
unique high-cost niche test procedures from the contract.
Thus, even in capitated payment situations, laboratorians
should seek to code correctly for every laboratory proce-
dure performed.
Very recently, in keeping with healthcare reform changes
promoted through the Patient Protection and Affordable
Care Act of 2010, the key concepts of coordinated, cen-
tralized, and cost-effective care coupled with prospective
payment have been extended through accountable care
organizations (ACOs). While it is not clear how pathology
and laboratory medicine services will be most efficiently
structured under ACOs, it is clear that the intent will be to
provide services in the most cost-effective manner. While
some models suggest that laboratory algorithms may be
used to reduce unnecessary testing, other models suggest
that laboratory testing may increase in some settings due
to expansion of the use of laboratory tests used to screen
for disease or disease precursors (7). In either model, cor-
rect coding and accurate documentation of services will be
essential for effective laboratory management.
Diagnosis Coding: Why Is the Service
Being Performed?
As previously stated, the purpose of laboratory testing is
to facilitate the management of a patient by a physician or
other authorized healthcare provider. Thus, to accurately
and completely document laboratory testing for both finan-
cial and clinical purposes, it is important to also document
the reason(s) for performing the test. This too requires the
use of a standardized and systematic approach if maximum
information is to be readily obtained for administrative and
financial purposes. The systems currently in use take into
account the patient environment (e.g., inpatient versus out-
patient) as well as the actual diagnosis, signs and symptoms,
or other reason for the encounter. It is now both a statutory
requirement for Medicare as well as an almost uniformly
accepted requirement for other third-party payors to pro-
vide diagnostic information for claim review prior to pay-
ment for services. The information is used to verify that a
procedure is clinically necessary for payment purposes and
to determine if it is clinically appropriate and useful for pa-
tient management in utilization review. It should also be
acknowledged that provision of specific diagnostic infor-
mation with each orderable and billable test is useful in the
laboratory to ensure appropriate laboratory handling.
Inpatient Diagnosis Coding
For inpatient purposes, the DRG prospective payment sys-
tem has already been mentioned. Effective in 1983, this
system assigns a final diagnosis to each patient admitted to
the hospital. The system was expanded in 2007 as a Medi-
care Severity DRG system (MS-DRG). Currently more
than 750 MS-DRGs have been defined that take into ac-
count clinical condition or reason for admission, medical
responses, and presence or absence of complications. Each
MS-DRG is weighted according to relative costs, inclusive
of laboratory costs (although as already noted, the actual
laboratory component is generally quite low), and payment
schedules are published annually for a January implemen-
tation date. DRGs are now used by many third-party pay-
ors to determine payment rates and are the primary basis
for developing algorithms for cost-effective management
of the condition specified by the DRG. These algorithms
are known as “critical pathways,” “clinical pathways,” or
“care paths” and often include delineation of laboratory
tests that should be performed as well as when testing is
appropriate (18). Correct coding of these tests provides the
laboratory a valuable means to track utilization as well as
costs (16).
Such tracking has become very important recently,
as the CMS has begun investigating why certain specific
DRGs are consistently increasing both in relative propor-
tion of total admissions and in percentage of total costs in
a project dubbed “Project DRG Creep.” In addition, begin-
ning in 2008 the CMS began to identify specific hospital-
acquired conditions (HACs) that were not present on
admission (POA) and are deemed preventable. In the case
of the occurrence of a specified HAC, no additional reim-
bursement for the complication is made. Documentation
of both the HAC as well as the tests performed as a com-
ponent of documenting the HAC will assume increasing
importance as the list of HACs increases.
One other critical parameter in coding for inpatient
procedures pertains to the DRG payment window. At pres-
ent, any procedure performed by an affiliated laboratory
three days or less prior to an admission is deemed to be
a component of the payment for the admission DRG that
should not be billed separately. After discharge as well, any
tests ordered on specimens collected during the hospital
stay are considered as a component of the DRG assigned.
However, it is still in the laboratory’s best interest to con-
tinue to code for these procedures to document the actual
work performed. Physician professional services are not
included in the DRG but are billed separately.
Outpatient Diagnosis Coding
Medicare has initiated a prospective payment program
for outpatient visits similar to the DRG system. As previ-
ously discussed, this prospective payment system is based
on APCs. However, at this point, laboratory payments are
excluded from the APC payments, and tests continue to
be billed on a fee-for-service basis. It is likely that at some
point in the future, to control costs, the prospective pay-
ment will be modified to include laboratory services.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES
Other Unique Patient Groups
Medicare also recognizes some unique patient groups for
management and administrative purposes. For these groups,
laboratory tests are frequently combined with other services
for reimbursement. Examples include patients in end-stage
renal disease (ESRD) clinics and patients in skilled-nursing
facilities (SNFs). If providing services to these groups, labo-
ratories must be aware of the specific billing rules.
ICD-CM
For all of the above diagnosis groups, the actual payment
is based on a complex formula that takes into account both
the specific clinical conditions as well as the diagnostic
procedures used. The primary coding system for docu-
mentation of the clinical conditions leading to a patient
encounter is the International Classification of Diseases,
Clinical Modification (ICD-CM). The ICD-CM used in
the United States is currently the 9th edition (ICD-9-CM)
but will be replaced in 2014 with a significantly modified
and expanded 10th edition (ICD-10-CM) (9). Basically, the
ICD-CM system provides a mechanism to classify morbid-
ity data for medical records, for medical care review, and for
basic health and utilization statistics. It is the official CMS
system for assigning codes for clinical conditions associ-
ated with consequent medical procedures, including labo-
ratory testing. The system is maintained by a consortium of
professional clinical medicine groups, professional medical
record groups, the National Center for Health Statistics,
the CMS, and the World Health Organization. Updates are
made on a quarterly basis and published for public use.
The ICD-CM is composed of a tabular numerical list
of diagnoses, signs and symptoms, and clinical conditions
or reasons for a physician encounter. The system includes
both disease conditions or signs and symptoms, and pre-
ventative medical reasons for encounters. When a test is
performed on a patient with signs, symptoms, or a specific
diagnosis, the purpose is typically diagnostic or for moni-
toring progression. Such tests are often deemed “medically
necessary” and are typically reimbursed. When a test is
performed in the absence of signs, symptoms, or a specific
diagnosis to identify patients with clinically silent disease, a
disease precursor, or risk factors for a disease, it is referred
to as a “screening test.” Such tests may or may not be eligible
for reimbursement (an issue further discussed in chapters
36 and 38). The system also allows coding for exposures
and sources of external injury, as well as a classification
system for surgical, diagnostic, and therapeutic procedures
for inpatients. While ICD-9-CM lists approximately 13,000
codes, ICD-10-CM lists approximately 68,000 codes.
SNOMED CT
An alternative clinical coding system developed by the
College of American Pathologists is called SNOMED CT,
which is an acronym for a comprehensive and precise
631
“systematized nomenclature of medicine clinical termi-
nology.” This system was developed in conjunction with
the United Kingdom’s National Health Service and is
now maintained by the International Health Terminol-
ogy Standards Development Organisation (IHTSDO).
The system is designed to easily map to other diagnostic
terminology systems, but it is unique in its ability to show
expected and logical relationships between clinical con-
ditions (5). For example, with the ICD-9-CM a foot ulcer
may have diabetes as a contributing diagnosis, but with
SNOMED, it is a diabetic foot ulcer. It should be noted
that the ICD-10-CM revisions similarly improve upon
condition linkages. Like other major proprietary coding
products, SNOMED is subject to regular updates and re-
quires an appropriate license for use.
Service Location
The last major issue in correct coding is the assignment
of credit for the work performed as well as credit for the
revenue generated to the entity performing or billing the
services. In most large laboratories, there are multiple de-
partments performing testing, and it is necessary to assign
each entity designated as an independent financial center a
unique identifier for financial analysis purposes.
Role of CLIA and State Licensing
Under CLIA, each laboratory has a unique certificate
number that validates its status as a billing entity for fed-
eral healthcare programs. Most other paying entities also
use CLIA certification as an indicator of the operational
validity of the laboratory. Laboratories may only bill for
work performed that is compatible with the CLIA service
level that they are assigned unless the laboratory is billing
reference work properly modified as previously discussed
with modifier -90 and not exceeding 30% of the test vol-
ume. Many states also have stringent facility licensing re-
quirements, and in those states, a billing entity must also
have a valid state licensure status. CLIA and some states
require the facility certificate or license numbers to appear
on claims.
Revenue Codes
Revenue codes comprise a system for categorizing and
billing services that is recognized by CMS and most third-
party payors. This system is maintained by the National
Uniform Billing Committee of the American Hospital As-
sociation and is designed to standardize major revenue-
producing centers in an institutional setting, particularly
hospitals. For each test performed and charge code billed,
the institution should determine which revenue code
is most appropriate to assign credit. Both charge codes,
which map to CPTs, and revenue codes, which map to ac-
tual testing location, must appear on claims.
632 GENERATION OF REVENUE
Documentation of Codes
Two types of documents important in the billing and reim-
bursement process require the documentation of the codes
assigned for procedures, diagnoses, and revenue centers
appropriate to the testing. First is the requisition, which
documents both the order and the diagnosis, and then the
claim form or invoice, which allows transmission of the
bill for services to a payor. Healthcare providers frequently
use coding data from both requisitions and claims in over-
all financial assessments of the laboratory operational ef-
ficiency. Therefore, it is important that the laboratory have
a clear understanding of how each test name or procedure
relates to a specific code.
Requisition
Requisitions may be manual (hard copy) or, preferably,
electronic but should be designed to facilitate the capture
of all of the required data for accurate processing of an
order as well as effective processing of a claim or invoice.
Standard elements include demographics of the patient,
billing information, ordering provider contact and au-
thenticity information (the unique provider identification
number), date of service, and a menu of tests that may be
ordered. The test menu should map to CPT coding infor-
mation and to diagnostic information justifying payment
by a third-party agency, and it should identify those tests
requiring an ABN. Any test groupings not strictly defined
as a panel by the AMA and any standard reflex protocols
should also be clearly delineated. Of course, each orderable
test should also have an easily accessible reference defining
specimen requirements and clinical utility as well.
Claims
Claims submitted to third-party payors are now generally
required to be electronic, but they may occasionally be
prepared as a manual process. It is also common to engage
an independent contractor to perform procedure billings
due to the complexity of the process, with many rules for
ordering, billing, and reimbursement often being payor
specific. However, claim forms have remarkable similar-
ity in that they all depend on the use of standard coding
nomenclature for patient identification, provider identi-
fication, laboratory identification, procedures including
modifiers, diagnoses, and revenue centers. The forms used
by the Medicare program serve as a model for the format
of claims. Form UB-04 is the form currently required by
Medicare for laboratory services submitted from healthcare
institutions (e.g., hospitals), having replaced form UB-92,
which was used until 2007. However, it should be noted
that some nongovernment payors may still use form UB-92.
Form CMS-1500 is required by Medicare Part B for claims
submitted by physicians and independent laboratories to
the contractor. Failure to complete all required information
on either the requisition or the claim form may result in
failure to be reimbursed for otherwise payable services.
Code Mapping
For optimal use of coding data obtained from requisitions
and claims as a component of operational efficiency analy-
sis, it is essential that there be a direct link between com-
mon elements in use. The common test names that appear
on the requisition or in the electronic order entry system
used by ordering providers should link to a specific CPT
code or code set. Similarly, the common name and the re-
lated CPT code(s) should link to line items on the charge
master for billing purposes. In addition, the laboratory
service manual should have information on codes used,
particularly for external clients who may independently
bill for services. Since CPT codes are updated annually, a
careful and well-documented annual review of all related
documents is strongly encouraged.
Summary
It is of paramount importance for the documentation of
services rendered that laboratories employ the standard-
ized coding systems recognized by payors. While use of
each code set is subject to general guidelines provided by
the maintaining entity, it is ultimately the responsibility of
the laboratory to ensure that correct and complete coding
has been done. This pertains particularly to assignment
of correct CPT codes for delineation of services and veri-
fication that the codes map to the assigned charge code
on a charge master, as well as the determination of cir-
cumstances in which appropriate modifiers may be used.
Documentation of the ICD-9-CM code provided by the
ordering provider is absolutely required for claim process-
ing, although it is generally the responsibility of the labora-
tory to ensure that claims are appropriately and correctly
completed. However, diagnosis classification groups such
as DRGs and APCs are assigned by medical record profes-
sionals within institutions, and revenue codes are assigned
by appropriate finance personnel within an institution. Re-
gardless of where the operational responsibility lies, there
still remains a clear responsibility for the laboratory to un-
derstand the importance of these coding systems to their
operations and to verify assignments of codes when ap-
propriate. Without a doubt, all other aspects of billing and
reimbursement processes begin with a solid understand-
ing of and application of fundamental principles of correct
and complete coding (11).
KEY POINTS
■ It is mandatory that laboratories use standardized cod-
ing systems, which are recognized by payors for docu-
mentation of services rendered.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES
■ Although each code set is subject to general guidelines,
it is the responsibility of the laboratory to verify that
correct and complete coding has been done.
■ Documentation of the ICD-CM code provided by the
ordering provider is required for claim processing and
may be the responsibility of the laboratory.
■ It is recommended that the laboratory perform an-
nual updates of procedure coding, including impact of
changes on service manuals, requisitions and order en-
try systems, and charge masters.
■ It is the laboratory’s responsibility to understand all as-
pects of correct and complete coding principles.
GLOSSARY
Advance beneficiary notice A waiver of liability used by the
provider to notify Medicare beneficiaries prior to receiving a ser-
vice that it may not be a covered service and that they may have
to assume financial responsibility.
Bundling Placing codes together in a panel.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The rate is
established per person (per capita) enrolled in the health plan.
Carve out To exclude from a capitated contract and bill as fee
for service.
Claim The manual or electronic document or invoice, which al-
lows transmission of the bill for services to a payor.
CMS-1500 The claim form authorized by the Centers for Medi-
care and Medicaid Services for filing Medicare Part B claims with
contractors. Previously designated the HCFA-1500 (Health Care
Financing Administration).
Contractors Centers for Medicare and Medicaid Services
(CMS) primary third-party claims management entities who ad-
minister Part A and/or Part B payments to facilities, physicians,
and commercial laboratory providers according to national and
local coverage determination policies.
Covered lives Population insured by a managed-care contract
for prospective payment.
Current Procedural Terminology (CPT) Proprietary service
codes developed and maintained by the American Medical As-
sociation and required for filing claims and billing Medicare and
other payors.
Diagnosis code Medical diagnoses are assigned a numerical
code from a document entitled International Classification of
Diseases, Revision (Clinical Modifications). The 9th edition
(ICD-9-CM) will be replaced by a substantially updated 10th
edition (ICD-10-CM) in 2014. The ICD-CM code refers to the
clinical reason for a patient’s encounter.
Diagnosis-related groups (DRGs) Classification system devel-
oped at Yale that defines more than 700 major diagnostic catego-
ries and places patients into case types based on the ICD-CM
633
classifications. Substantially updated in 2007 as MS-DRG (Medi-
care severity adjusted).
Downcode The use of a lower-reimbursed test, generally cou-
pled with rebundling, to induce unnecessary utilization.
Eligibility/Medicare Part A Federally managed health insur-
ance plan covering Americans over age 65, and Americans under
age 65 who have certain disabilities, and most patients with end-
stage renal disease (ESRD); established by a 1965 amendment to
the Social Security Act. Part A covers part of hospitalization and
skilled-nursing facility costs.
Eligibility/Medicare Part B Federally managed health insur-
ance plan covering Americans over age 65, Americans under age
65 who have certain disabilities, and most patients with ESRD;
established by a 1965 amendment to the Social Security Act.
Part B provides supplementary coverage for medical services and
supplies, including physician services, outpatient services, and
certain home healthcare services, as well as diagnostic laboratory
tests and services, X rays, and the purchase and rental of durable
medical equipment.
End-stage renal disease (ESRD) The term used for Medicare
beneficiaries who have permanent kidney dysfunction requiring
dialysis treatment.
Health Insurance Portability and Accountability Act of 1996
Title I resulted in regulations to protect health insurance coverage
for workers and their families when they change or lose their jobs.
Title II requires the Department of Health and Human Services to
establish national standards for electronic healthcare transactions
and national identifiers for providers, health plans, and employ-
ers. It also addresses the security and privacy of health data.
Adopting these standards will improve the efficiency and effec-
tiveness of the nation’s healthcare system by encouraging the
widespread use of electronic data interchange in healthcare.
International Classification of Diseases, Version 10, Procedure
Coding System (ICD-10-PCS) Laboratory coding system in-
tended for use as an alternative to CPT; not currently in use.
Logical Observation Identifier Names and Codes (LOINC)
Considered a universal laboratory language that is based on the
systematic breakdown of the components of a service into more
specific units, ultimately creating a highly standardized, typically
seven-digit, number, with each possible result from a procedure
being mapped to a specific code. Unlike CPT, LOINC is publicly
available and can be used with no license fee. It is widely used by
commercial laboratories to track specific procedures from order
to result.
Medicaid Program established under Title XIX of the Social Se-
curity Act, which provides health insurance to the impoverished;
the state and federal governments fund the program jointly.
Medical necessity The determination of ICD-CM codes for which
a CPT code will be reimbursed as reasonable and necessary.
Medicare A/B contractor Designation for primary third-party
contractors who administer Part A and Part B payments for
covered services. Previously known as fiscal intermediaries for
Part A and carriers for Part B claims management.
634 GENERATION OF REVENUE
Modifier Two-digit numbers (CPT) or letters (HCPCS) that are
appended to a specific CPT code prior to the billing process (see
Table 35.3). Modifiers are “used to indicate that a service or pro-
cedure has been altered by some specific circumstance but not
changed in its definition or code” (1).
National Correct Coding Initiative (NCCI) Listings of CPT
codes that should not be used simultaneously due to a determi-
nation that their use is not in accordance with the intended use;
updated quarterly by a Medicare contractor.
Neg reg Negotiated Rulemaking Committee for diagnostic clin-
ical laboratory tests. The committee was charged with the devel-
opment of national coverage determinations of medical necessity
for select laboratory tests as a component of the Balanced Budget
Act of 1997.
Not medically necessary The determination that an ICD-9-CM
code does not justify payment for a service denoted by a spe-
cific CPT.
Prospective payment system (capitated payment) Payment
amounts are predetermined prior to the delivery of services.
Profit results from care delivered at a total cost below the con-
tract payment; loss results from care delivered at a total cost
above the contract payment.
Retrospective payment system Payment is rendered for specifi-
cally coded services after the service is rendered; also known as
fee-for-service.
Skilled-nursing facility (SNF) A Medicare Part A benefit in de-
fined circumstances for rehabilitative and extended care after a
hospital discharge.
Unbundling Coding individual tests rather than using an ap-
propriate AMA panel approved for payment by the CMS.
Upcoding Using a higher-paying code than justified to maxi-
mize reimbursement.
REFERENCES
1. American Medical Association. 2012. Principles of CPT Coding.
AMA Press, Chicago, IL.
2. American Medical Association. 2013. Current Procedural Termi-
nology, Professional Edition. AMA Press, Chicago, IL.
3. Averill, R. F., R. L. Mullin, B. A. Steinbeck, N. I. Goldfield, and
T. M. Grant. 2001. Development of the ICD-10 procedure coding
system (ICD-10-PCS). Top. Health Inf. Manag. 21:54–88.
4. Baselski, V., L. Garcia, and A. Weissfeld. 2001. The ABCs of CPT
coding in microbiology. Clin. Microbiol. Newsl. 23:37–42.
5. Brouch, K. 2003. AHIMA project offers insights into SNOWMED,
ICD-9-CM mapping process. J. AHIMA 74:52–55.
6. Burke, M. D. 2003. Clinical laboratory consultation: appropriate-
ness to laboratory medicine. Clin. Chim. Acta 333:125–129.
7. Evans, M. 2011. Test-driving an ACO. Mod. Healthc. 41:38–41.
8. Forsman, R. W. 1996. Why is the laboratory an afterthought for
managed care organizations? Clin. Chem. 42:813–816.
9. Grider, D. 2012. Principles of ICD-10-CM Coding. AMA Press,
Chicago, IL.
10. IOM. 2000. Medicare Laboratory Payment Policy Now and in the
Future. National Academy Press, Washington, DC.
11. Kovar, M., and E. Shannon. 2011. Laboratory pricing: charge
master risks and rewards. New Perspect. 30:15–17.
12. Kratz, A., and M. Laposata. 2002. Enhanced clinical consulting—
moving toward the core competencies of laboratory professionals.
Clin. Chim. Acta 319:117–125.
13. The Lewin Group. 2008. Laboratory medicine. A national status
report. https://www.futurelabmedicine.org/pdfs/2007%20status%20
report%20laboratory_medicine_-_a_national_status_report_from_
the_lewin_group.pdf, accessed October 15, 2012.
14. Lorence, D. P., and I. A. Ibrahim. 2003. Benchmarking varia-
tion in coding accuracy across the United States. J. Health Care Fi-
nance 29:29–42.
15. MacMillan, D. H., B. L. Soderberg, and M. Laposata. 2001.
Regulations regarding reflexive testing and narrative interpretations
in laboratory medicine. Am. J. Clin. Pathol. 116(Suppl.):S129–S132.
16. Malone, B. 2012. The future of lab utilization management. Are
lab formularies the answer? Clin. Lab. News 38:1, 6–7.
17. McDonald, C. J., S. M. Huff, J. G. Suico, G. Hill, D. Leavelle,
R. Aller, A. Forrey, K. Mercer, G. DeMoor, J. Hook, W. Williams,
J. Case, and P. Maloney. 2003. LOINC, a universal standard for
identifying laboratory observations: a year update. Clin. Chem. 49:
624–633.
18. Schubart, J. R., C. E. Fowler, G. R. Donowitz, and A. F. Con-
nors, Jr. 2001. Algorithm-based decision rules to safely reduce labo-
ratory test ordering. IFIP World Conf. Ser. Med. Inf. 10:523–527.
19. Travers, E. M. 1997. Clinical Laboratory Management, p. 759–
760. Williams and Wilkins, Baltimore, MD.
 CHAPTER 35. CORRECT CODING OF BILLABLE SERVICES
APPENDIX 35.1 Publications, Phone Numbers, Websites, and Guidance Documents
PUBLICATIONS
ICD-9-CM manual (issued every October)
ICD-10-CM manual (effective October 2014)
CPT manual (issued every October)
HCPCS Level II manual (issued every January)
Medicare Clinical Laboratory Fee Schedule (issued every November)
Medicare Physician Fee Schedule (issued every November)
National Correct Coding Policy Manual, Chapter X—Pathology
and Laboratory Services, 2012, version 18 (issued quarterly,
National Technical Information Services)
CPT 2013, Professional Edition (updated each year; available Oc-
tober prior to January implementation)
CPT Changes 2013. An Insider’s View (2013, AMA Press, Chi-
cago, IL)
CPT Assistant (monthly newsletter, CAP)
CPT Network (online subscription service from AMA for CPT
inquiries)
Codemap (subscription service available at http://www.codemap
.com)
Clinical Laboratory News (newsletter of the American Associa-
tion of Clinical Chemists)
National Intelligence Report (newsletter published by Washing-
ton G-2 Reports, Washington, DC)
Laboratory Industry Report (newsletter published by Washington
G-2 Reports, Washington, DC)
Laboratory Compliance Insider (Brownstone Publishers)
The Clinical Laboratory Compliance Alert (Eli Research)
Compliance Hotline (American Health Consultants)
PHONE NUMBERS
AMA: 1-800-621-8335
CMS (formerly Health Care Financing Administration): 1-800-
447-8477 or 1-800-633-4227
Note: Coding resources are available from many vendors includ-
ing the AMA
WEBSITES
American Medical Association (AMA)
http://www.ama-assn.org (last accessed November 9, 2012)
AMA searchable website.
http://www.ama-assn.org/ama/pub/physician-resources/solutions
-managing-your-practice/coding-billing-insurance/cpt.page (last
accessed November 9, 2012)
AMA CPT information.
Centers for Disease Control and Prevention
http://www.cdc.gov/nchs/icd/icd10cm.htm (last accessed
November 9, 2012)
ICD-10 resources, CDC.
635
Centers for Medicare and Medicaid Services
http://www.cms.gov (last accessed November 9, 2012)
CMS searchable website.
http://www.cms.gov/Medicare/Medicare.html (last accessed
November 9, 2012)
Medicare searchable website.
http://www.cms.gov/Regulations-and-Guidance/Guidance/
Manuals/Internet-Only-Manuals-IOMs-Items/CMS018912.html
(last accessed November 9, 2012)
Medicare Claims processing manual, Internet version.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/Downloads/MLNCatalog.pdf (last
accessed November 9, 2012)
Instructional resources for Medicare billing:
• Remittance guide: http://www.cms.gov/Outreach-and
-Education/Medicare-Learning-Network-MLN/MLN
Products/downloads/RA_Guide_Full_03-22-06.pdf (last
accessed November 9, 2012)
• Remittance and remark codes: http://www.cms.gov/Outreach
-and-Education/Medicare-Learning-Network-MLN/
MLNMattersArticles/downloads/MM6229.pdf (last accessed
November 9, 2012)
• UB-04 guide: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
ub04_fact_sheet.pdf (last accessed November 9, 2012)
• POA guide: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/down-
loads/wPOAFactSheet.pdf (last accessed November 9, 2012)
• HAC fact sheet: http://www.cms.gov/Medicare/Medicare
-Fee-for-Service-Payment/HospitalAcqCond/downloads/
hacfactsheet.pdf (last accessed November 9, 2012)
• CLFS fact sheet: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
clinical_lab_fee_schedule_fact_sheet.pdf (last accessed No-
vember 9, 2012)
• PFS fact sheet: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
MedcrephysFeeSchedfctsht.pdf (last accessed November 9,
2012)
• ABN booklet: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
ABN_Booklet_ICN006266.pdf (last accessed November 9,
2012)
• CLIA brochure: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
CLIABrochure.pdf (last accessed November 9, 2012)
• Form 1500: http://www.cms.gov/Outreach-and-Education/
Medicare-Learning-Network-MLN/MLNProducts/downloads/
form_cms-1500_fact_sheet.pdf (last accessed November 9,
2012)
• HIV screening coding guidance: http://www.cms.gov/Outreach
-and-Education/Medicare-Learning-Network-MLN/MLN
MattersArticles/downloads/MM6786.pdf (last accessed No-
vember 9, 2012)
(continued)
636 GENERATION OF REVENUE
APPENDIX 35.1 Publications, Phone Numbers, Websites, and Guidance Documents (continued)
http://www.cms.gov/Medicare/Coding/NationalCorrectCodInitEd/
index.html (last accessed November 9, 2012)
National Correct Coding Initiative (NCCI) edits.
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
ClinicalLabFeeSched/index.html (last accessed November 9, 2012)
Clinical laboratory fee schedule.
http://www.cms.gov/apps/physician-fee-schedule/ (last accessed
November 9, 2012)
Physician fee schedule.
http://www.cms.gov/Medicare/Coding/ICD10/downloads/pcs
_final_report2012.pdf (last accessed November 9, 2012)
ICD-10 final report.
http://www.cms.gov/medicare-coverage-database/ (last accessed
November 9, 2012)
Searchable database for NCDs and LCDs.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/AcutePaymtSysfctsht
.pdf (last accessed August 23, 2013)
Inpatient Prospective Payment System
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/hospitaloutpaysysfct
sht.pdf (last accessed August 23, 2013)
Outpatient Prospective Payment System
College of American Pathologists (CAP)
http://www.cap.org (last accessed November 9, 2012)
Searchable CAP website.
Healthcare Compliance Association
http://www.hcca-info.org (last accessed November 9, 2012)
Institute of Medicine
http://www.iom.edu/ (last accessed November 9, 2012)
Institute of Medicine reports.
International Health Terminology Standards Development
Organisation (IHTSDO)
http://www.ihtsdo.org/snomed-ct/ (last accessed August 23, 2013)
National Technical Information Service
http://www.ntis.gov (last accessed November 9, 2012)
Source for hard copy NCCI updates.
Office of Inspector General (OIG)
https://oig.hhs.gov/ (last accessed November 9, 2012)
OIG searchable website.
https://oig.hhs.gov/authorities/docs/cpglab.pdf (last accessed
November 9, 2012)
Laboratory compliance program guidance.
U.S. National Library of Medicine
http://www.nlm.nih.gov/services/medcodes.html (last accessed
November 9, 2012)
Links to standard code set websites.
FEDERAL REGISTER AND RELEVANT
GUIDANCE DOCUMENTS
Federal Register. 2001. Medicare program; negotiated rulemaking:
coverage and administrative policies for clinical diagnostic
laboratory services. Fed. Regist. 66(226):58788–58890.
Federal Register. 2008. HACs Medicare program; changes to the
hospital inpatient prospective payment systems and fiscal year
2009 rates; payments for graduate medical education in cer-
tain emergency situations; changes to disclosure of physician
ownership in hospitals and physician self-referral rules; updates
to the long-term care prospective payment system; updates to
certain IPPS-excluded hospitals; and collection of information
regarding financial relationships between hospitals. Fed. Reg-
ist. 73(161):48434–49083.
Introduction
36
Interactions in the Billing Process
Approaches to Billing
Provider Mix • Payor Mix
Terms of Coverage
Laboratory Services
Types of Services • Payment for Services
Logistics of the Billing Process Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Claim versus Invoice Submission • Invoice Billing •
Claim Billing
Capitated Arrangement Billing
Pay for Performance OBJECTIVES
Summary To illustrate the importance of hiring individuals well versed in all aspects of
KEY POINTS correct coding, including the rules and regulations
GLOSSARY To discuss the importance of having a comprehensive information technology
REFERENCES platform and software resources that ensure accuracy and completeness
APPENDIX To explain the need for laboratory personnel to be involved in the billing
process and to maintain a close working relationship with members of the
billing department
To explain the relationship between complete and accurate billing and the
generation of sufficient income to continue to perform expected functions

Alas! How deeply painful is all payment!

George Gordon Noel, Lord Byron (1788–1824)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch36
I
t is an extreme understatement that the billing of clinical laboratory
services is a tedious and complex process. The billing process can be said
to be frequently overwhelming, rarely straightforward, always changing,
and never easy. There are a number of variations among providing entities and
among paying entities as well as in the actual process of how reimbursement
for services is made. The complexity is further increased by the sequential
financial relationships between the patient requiring testing, the ordering pro-
vider making decisions about which tests to order, the laboratory interpreting
the provider’s order and verifying the appropriate mechanism to bill for ser-
vices, and the payor, who reimburses an amount generally predetermined per
contractual agreement and who may also deny payment based on criteria that
are not always readily available or logical. The laboratory occupies a painful
middle position in the entire process, where there is little or no input into the
patient-physician process to effect appropriate test ordering and the acquisi-
tion of a properly executed requisition and advanced beneficiary notice (ABN)
if necessary. However, as the billing entity, the laboratory has total fiscal re-
sponsibility and complete financial liability for the procedures the physician
may have ordered rightly or wrongly (10).
An understanding of the specific requirements for billing laboratory ser-
vices and a systematic approach for ensuring that the processes are carried out
as specified are key to the financial success of a laboratory (5, 11, 12, 14, 15).
Underpayments due to denials by payors to providers under their payor agree-
ments are a cause of significant lost revenue. Providers should devise a plan
to make sure that payments made to them are accurate and timely and adhere

637
638 GENERATION OF REVENUE
to other contractual obligations. Specific areas where un-
derpayments are common include underfunding due to
late payments, fee schedule changes that are contractually
disallowed, miscalculation of performance-based bonuses
and errors in risk payment reconciliations, inappropriate
denials or inappropriate downcoding of claims, and non-
payments (15). Claim denial management can enhance
revenue, particularly in times of declining payment and in-
creasing cost containment pressures (2). Proactive preven-
tion strategies can minimize denials through accurately
defining the scope of service, tracking causes for denials
and nonpayments, and improving related processes.
Interactions in the Billing Process
While the entire laboratory test process from test order to
test result reporting to payment for services involves sev-
eral categories of individuals, the actual billing process can
be considered in terms of two main categories (Fig. 36.1).
The “provider mix” describes those entities that actually
perform and/or bill the services, and the “payor mix” de-
scribes those entities that have fiscal responsibility for pay-
ment for services.
Provider Mix
Since 1992, all laboratory providers must be registered un-
der the Clinical Laboratory Improvement Amendments
(CLIA) to provide the type of services they are billing for.
CLIA classifies laboratories into four main categories: high-
complexity laboratories (capable of providing all services),
moderate-complexity laboratories (capable of perform-
ing procedures with slightly lower skill requirements and
slightly lower patient risk), certificate-of-waiver labora-
tories (may perform only tests meeting “waived” criteria
under CLIA and requiring minimal skill and carrying min-
imal risk to a patient), and provider-performed micros-
copy services (applying to only a selected few microscopic
Figure 36.1 Payor-provider interactions Traditional
in reimbursement. POL, physician office Medicare
laboratory. & Medicaid
doi:10.1128/9781555817282.ch36.f1
Hospital
Lab
procedures when performed by a physician or other autho-
rized individual). When billing for laboratory services, the
laboratory must have the appropriate CLIA status for the
service being billed or the service will be subject to denial.
Laboratory services are provided in several types of facil-
ities. Hospital-based laboratory units generally perform and
bill more tests than the other categories, with the exception
of independent laboratories. They provide services for in-
patients and often for outpatients in institutionally affiliated
clinics and occasionally for nonaffiliated clinics termed “out-
reach business.” Independent laboratories perform testing
for a variety of clients, including hospitals, physicians, other
healthcare providers, patients in areas where direct-access
testing is allowed by law, and by contract for non-healthcare
purposes (e.g., employee drug screens). With such a diverse
clientele, independent laboratories are frequently quite high
volume. Some develop and perform highly complex pro-
cedures not performed in a routine setting and are termed
reference or esoteric laboratories. Physician office laborato-
ries are generally established to provide convenient, rapid-
response-type procedures that may impact immediate
clinical decision making. The test mix is generally less com-
plex in a physician office laboratory setting than in the other
two settings. The final type of laboratory is the “niche” labo-
ratory, which exists to provide services to specific groups of
patients. For example, laboratories may focus on service to
end-stage renal disease (ESRD) or skilled-nursing facility
(SNF) patients. Each type of laboratory must be prepared to
follow the billing processes specified by all of the payors for
which it is an approved provider. If the laboratory is not an
approved provider, the laboratory services provided will be
subject to denial.
Payor Mix
The entities disbursing payment also fall into several
categories. Federal payors include those in the Medicare
program for senior and disabled citizens, a program that
Third party
fee for Capitated Clients Patients
service contracts
Independent Niche
POL
Lab Labs
Ordering
Provider
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES
was initiated in 1965 as a result of the Social Security Act.
Medicare pays for services that are “reasonable and nec-
essary for the diagnosis or treatment of illness or injury,
or to improve the malfunctioning of a malformed body
member.” Payments are made for either inpatient services,
including services provided in an SNF (termed Part A),
or outpatient services (termed Part B), with both parts
administered through a CMS (Centers for Medicare and
Medicaid Services)–selected Medicare A/B contractor. In
1972 the Social Security Amendments added coverage to
two additional high-risk groups—those disabled and re-
ceiving cash benefits from Social Security and individuals
suffering ESRD. The Medicaid programs provide federal
assistance to states for payment for healthcare for indigent
citizens, and the Balanced Budget Act of 1997 created the
State Children’s Health Insurance Program to assist with
the healthcare of children.
Both Medicare and Medicaid are third-party payors;
payment for services provided by a healthcare provider to
a patient is made by a contracted entity. Many other third-
party payors render payment to laboratories as a compo-
nent of a healthcare benefit plan, also referred to as simply
a “health plan.” These insurance plans require payment
of regular premiums so that in the event of a high-cost or
catastrophic illness, the third party will cover an agreed-
upon percentage or fee for the services provided. There are
Figure 36.2 Generic billing flowchart: third-party. LIS, laboratory information system.
doi:10.1128/9781555817282.ch36.f2
Initiate Order
Log-in to LIS
Claims processing software
Denied
File clean claim
Paid
Post Co-pay (secondary)
Paid
639
multiple types of plans, including traditional indemnity,
preferred provider organizations, point-of-service plans,
and health maintenance organizations. Within the Medi-
care and Medicaid programs there also exist variations
comparable to those seen in the private sector. Adding to
the complexity is the frequent presence of a “secondary
payor,” that is, another healthcare plan that provides cov-
erage on the balance after payment by the primary payor.
A generic third-party process is diagrammed in Fig. 36.2.
Laboratories may also receive payments through con-
tracts with specific physicians and other healthcare pro-
viders, who in turn bill third-party payors. These are
probably the easiest billing arrangements to execute. A
generic client-bill process is diagrammed in Fig. 36.3. It
is important to note that this practice may be subject to
“anti-mark-up” provisions for specific categories of tests
pursuant to federal and state regulations. Laboratories are
also required to bill patients who have no insurance cover-
age or have received a noncovered service, as well as in any
circumstance in which the patient is expected to copay a
percentage of the total bill.
In some cases, laboratories do not directly bill or receive
payment for individually defined services. Rather, a par-
ent organization negotiates payment prospectively. These
arrangements are termed capitated, and the payment is
made at a set amount on a basis other than individual
Determine need for ABN
Patient accepts or declines ABN
Demographics
Payer info
Test requests
Diagnoses Convert narratives
ABN status
Request missing or incomplete information
Rework incomplete claims
Re-work and re-file Bill client or patient
Denied
Appeal See Fig. 36.3
Denied
Bad debt
640 GENERATION OF REVENUE

Initiate Order

Log-in to LIS
Demographics
Payer info
Test requests

Request missing or incomplete information

Submit invoice
Not Paid
Paid
Paid
Post Re-bill

Paid Collection
agency

Bad debt

Figure 36.3 Generic billing flowchart: client or patient. LIS, laboratory information system.
doi:10.1128/9781555817282.ch36.f3

test. For example, payments may be per diem or per in-
dividual according to contractual terms. Medicare DRG
(diagnosis-related group) payments are an example of capi-
tated payment for hospitalizations, APC (ambulatory pay-
ment classification) payments are for hospital outpatient
services, and more recently, ACO (accountable care orga-
nization) arrangements may be globally constructed to en-
compass all aspects of laboratory medicine. In these kinds
of arrangements it is critical that the laboratory have a sys-
tem in place to completely document services performed
so that accurate capitated payment terms can be negotiated
that include consideration of expected laboratory services.
used to categorize whether a specific type of service will be
covered. Diagnostic tests assist in the determination of an
etiology for a specific disease or clinical condition. They
are almost always covered by third-party payors, although
there may be restrictions on which specific tests may be
used. In addition, there may be restrictions on when a test
may be used based on diagnosis or clinical condition. This
type of restriction is generally known as “medical neces-
sity.” Monitoring tests are used to follow disease progres-
sion or response to therapy or to detect side effects of a
therapy. Monitoring tests are generally covered when the

Table 36.1 Types of laboratory services

Terms of Coverage
Each individual payor sets criteria for payment for ser-
vices (both which types and under what conditions).
Further, each payor is intimately involved in the determi-
nation of the actual payment amount. Each payor may in-
teract with each provider through one of two main types
of payment: retrospective (or fee for service) and prospec-
tive (or capitated).
Types of Services
Three general categories of laboratory services are per-
formed based on clinical utility, and payors vary in
whether these services will be covered (Table 36.1). The
terms “covered services” and “noncovered services” are
Diagnostic tests Used to identify physiological abnor-
malities associated with disease.
Monitoring tests Used to follow disease progression or
response to therapy or to detect side
effects of therapy.
Screening tests Performed in the absence of signs,
symptoms, complaints, injury, or per-
sonal history of a disease to discover
potentially treatable or preventable
diseases.
Tests requiring prior In some cases, there may be a require-
authorization ment for prior authorization from the
third-party payor for the test provided.
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES
therapy is also covered and may also be subject to restric-
tions. Screening tests are performed in the absence of
signs, symptoms, complaints, injury, or personal history of
a disease to discover potentially treatable or preventable
diseases. They may or may not be covered by a third-party
payor, depending on the particular health plan coverage
conditions. A classic example of noncoverage of screening
is in the Medicare program, which by historical interpreta-
tion of statute allows payment only for “treatment of illness
or injury” and not for “screening.” For all test types, there
may be frequency restrictions that limit the number of
times a test may be performed in a given period. In addi-
tion, in some cases, there may be a requirement for “prior
authorization” for the test service provided. This is, in es-
sence, the obtaining of approval of payment for the ser-
vice by the third-party payor. If a particular test is deemed
noncovered, then the patient generally assumes financial
liability for the service if there has been prior notification
and acceptance of such.
Payment for Services
There are two general approaches to payment for health-
care services, including laboratory services (Table 36.2).
The traditional approach and the one most commonly em-
ployed is based on a fee-for-service strategy. This approach
is retrospective in that the total amount to be billed is not
known until services have been rendered and a cumula-
tive bill is generated. However, the fee schedule used for
billing has been prospectively determined and accepted by
both the provider and the payor. Traditional federal pay-
ment programs are based on a fee schedule set annually
by a specific formula. Other payors generally develop fee
schedules after negotiation with providers. Fee schedules
may vary considerably based on considerations related to
the “cost of doing business” with a particular payor.
The alternative approach is one based on capitation.
This approach is prospective in that a payment amount
has been established based on a designated denomina-
tor such as per member per month, per diagnosis-related
group or ambulatory payment classification, or per some
Table 36.2 Payment for services
Fee for service This approach is retrospective; total amount to
be billed is not known until services have been
rendered; results in cumulative bill; fee sched-
ule prospectively determined and accepted by
provider and payor
Capitation This approach is prospective; payment amount
established on some denominator (per mem-
ber per month, per DRGa, or per APCb); pay-
ment based on average anticipated utilization
in the denominator group
a
DRG, diagnosis-related group.
b
APC, ambulatory payment classification.
641
other patient-related parameter (6). The payment is based
on average anticipated utilization of healthcare services
by patients in the denominator group and should include
specific consideration of laboratory medicine services. For
select high-cost, esoteric laboratory tests, the parent organi-
zation may choose to “carve out,” or exclude, the test from
the capitated payment and bill separately. A recent Medi-
care demonstration project for certain genetic tests has been
recently undertaken. Payment for outpatient services on a
capitated basis is not currently common in laboratory medi-
cine. However, in the inpatient population, in SNFs, and in
other specialty niches (e.g., ESRD facilities), both Medicare
and other payors have moved toward a prospective payment
system (16). In addition, a recent move toward the estab-
lishment of ACOs that will negotiate payment for complete
healthcare services for a covered population suggests a move
toward greater use of capitated systems (7). Thus, the labo-
ratory needs to be familiar with both approaches.
Logistics of the Billing Process
The actual billing process is obviously quite complex
considering all of the variations in possible interactions
between providers and payors. There are numerous fee
schedules, various billing arrangements, multiple payors,
diverse manual and electronic forms, variable coverage
conditions, and payor-specific rules. Nonetheless, one can
outline and compare the general processes involved in bill-
ing for laboratory services.
Claim versus Invoice Submission
Claims for payment are generated for submission to third-
party payors, while invoices are generated for contractual
payment by clients or by patients (Table 36.3). Claims
are typically submitted electronically, although the same
information may be submitted on a manual claim form.
Claims are very complex and require that a great deal of
information be accurately and completely provided. This
includes date of service, correct codes for services and di-
agnosis codes, complete patient demographic information,
complete payor information, and an ABN specific to each
service likely to be denied. It is also possible to outsource
billing activities to an independent entity that is familiar
with the various rules and regulations pertaining to ma-
jor payors. Invoices may also be generated manually or
electronically; however, invoices are much less complex,
generally including only the date of service, patient demo-
graphics, and types of services. Thus, billing costs are gen-
erally much lower for non-third-party billings.
Invoice Billing
Invoice billing is a relatively simple process (Fig. 36.3).
After an order is placed and logged in to a laboratory
information system, the tests ordered are performed and
642 GENERATION OF REVENUE
Table 36.3 Billing process: invoice versus claims
Invoice billing Relatively simple process; can be based on
fee-for-service or capitated payment schedule;
amounts generally posted upon completion
of testing; generated at some regular interval
(e.g., weekly, monthly)
Claim billing Very complex; requires extensive and complete
information; careful review prior to payment;
payment often denied; need for rechecking
all claim information and resubmission for
payment
result reports are generated in the appropriate labora-
tory department, and a cumulative invoice is generated
at some regular interval (e.g., weekly, monthly). The in-
voice may be based on either a fee-for-service or capi-
tated payment schedule. It may on occasion be necessary
to verify information pertaining to an order from the
requisition, but the overall process is relatively straight-
forward. The billed entity either pays or does not pay in
the expected time frame. Nonpayment generally results
in one or more repeat billings and, eventually, action by a
collection agency. The amounts due are generally posted
upon completion of testing but on occasion may be gen-
erated at the time of order. This, however, carries the risk
of billing for tests that may not have been completed and
requires that a system be in place to issue credits when-
ever necessary.
Claim Billing
The entire claim process is quite complex, requiring mul-
tiple steps conducted over a lengthy period. It also begins
with the generation of an order. However, at the time of
test order, it is necessary to compare the tests ordered to
the diagnoses given to determine if a waiver of financial
responsibility (ABN) is required. If it is required, an at-
tempt may be made to contact the ordering provider for
additional relevant diagnostic information, but documen-
tation of the attempt must be signed by the patient and
maintained on file. Test orders are then logged in the lab-
oratory information system, and samples are routed to the
appropriate laboratory for testing and result reporting.
During log-in, if any information critical to processing
the order for testing or billing is missing, it is again neces-
sary for the laboratory to contact the ordering provider to
seek additional documentation. As in invoice situations,
a bill for service may be posted at the time of log-in or
at the time of result reporting, but if the former is done,
there must be a system in place to accurately issue credits
when necessary.
Claims are generally processed according to date of
service, so multiple services may be submitted on a single
claim. However, the ABN, if required, must be both date
and test specific. It is also necessary to attach appropriate
modifiers to any test code requiring one for payment.
After preparation, each claim is generally subjected to a
review using “claims processing software” (13). This kind
of review evaluates each claim to determine if all of the in-
formation required is complete and accurate. Importantly,
this review also assesses whether a claim is likely to be
covered by the particular payor (1, 3, 9). If not, then once
again, calls are made to the ordering provider to attempt to
obtain appropriate documentation. Once “clean,” the claim
is actually filed with the payor.
After filing, there are several possible outcomes. In the
best case, the claim is paid and the funds are posted to an
appropriate account. If the claim is denied, the denial doc-
umentation may be reevaluated to ensure that everything
was in order, and if not, the claim must be corrected and
refiled (8). Denial documentation is generally sent to both
the laboratory and the patient as an explanation of benefit
(EOB) or explanation of medical benefit form. Denials are
coded with a generic description outlining the reason(s)
for the denial. Careful review of the EOBs can greatly as-
sist in correction of documentation to subsequently obtain
payment. If upon review it is determined that payment was
appropriate, it is also possible to initiate an appeal for re-
view and reconsideration by the payor.
Alternatively, a new claim or a claim for remaining
amounts may be filed with a secondary payor by follow-
ing the same general pattern. If no payment is forthcoming
from any payor, and an ABN or other acceptance of liabil-
ity is on file, the patient may be billed. It is also necessary
to bill the patient in any case in which a copay is part of
the process. In cases in which a provider has consistently
failed to provide essential information, a laboratory may
choose to bill the errant provider. Once a patient or client
is billed, the process follows the pathway described for the
invoice process. Certainly the billing format and accuracy
can play a large role in both client and patient satisfaction
and understanding (4).
Capitated Arrangement Billing
In a capitated arrangement with a laboratory, billing
and payment are operationally similar to invoice billing.
Terms and conditions, frequency, and amounts are, of
course, defined contractually. If a parent healthcare or-
ganization is the billing provider, the laboratory is not
directly involved in billing or receipt of payment. Under
these conditions, the laboratory is frequently seen as a
cost center rather than a revenue center. Thus, it is very
important for laboratory managers to maintain accurate
and complete documentation of the laboratory service
activity, both for utilization review and for future con-
tract negotiations.
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES
Pay for Performance
While not strictly an operational issue, laboratorians
should take note of an increasing trend toward use of pay-
for-performance monitors in adjustment of reimbursement
amounts. Laboratories already generate utilization and di-
agnostic data of value for assessing patient outcomes in
specified disease conditions, and these data influence capi-
tated payments. For example, nonpayment of DRG amounts
for complications resulting from hospital-acquired condi-
tions defined in part through laboratory results are already
a reality. It is highly likely that specific laboratory payments
may similarly be linked to performance data.
Summary
With the complexity of the billing process, it is no wonder
that in many laboratories, the billing department has un-
dergone rapid expansion in the number of employees. The
billing department must employ individuals who are well
versed in all aspects of correct coding and who are knowl-
edgeable about the myriad rules and regulations pertain-
ing to each payor. The billing processes are so complex that
it is virtually impossible to develop and submit claims and
receive payment without a sound information technology
platform and software resources that ensure accuracy and
completeness of the process.
However, it is also critical that laboratorians remain in-
volved in the billing process and maintain a close working
relationship with members of the billing department. Ex-
tensive technical expertise is required to ensure that test
procedures are coded correctly, as well as to determine that
best practices for laboratory medicine are being followed.
For clinical laboratories, the key to survival is in complete
and accurate billing for all services performed so that timely
and comprehensive payment can be made for those services.
Regardless of the corporate structure of the laboratory one
practices in, the generation of sufficient income to continue
to perform expected functions is absolutely essential.
KEY POINTS
■ It is mandatory that laboratories hire personnel who are
well versed in all aspects of correct coding, including
the rules and regulations.
■ It is almost impossible to develop and submit claims
and receive payment without adequate information
technology systems (platforms and software).
■ Selected laboratory personnel must be involved in the
billing process and work closely with members of the
billing department.
■ Complete and accurate billing is required to generate
sufficient income for laboratory operations to continue.
643
GLOSSARY
Accountable care organization (ACO) A coordinated care sys-
tem in which providers are incentivized on the basis of outcomes
rather than the number of services.
Advance beneficiary notice (ABN) A waiver of financial liabil-
ity form used by the provider to notify Medicare beneficiaries
prior to receiving a service that it may not be a covered service
and that they may have to assume financial responsibility.
Ambulatory payment classification (APC) A prospective pay-
ment amount assigned to an outpatient visit for a specified clini-
cal condition.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The rate is
generally established per person (per capita) enrolled in the
health plan.
Claims denial management A set of processes to enhance rev-
enue by assessing reasons for denials; denials often arise from
process problems leading to inadequate documentation.
Copay A fixed dollar amount or a percentage of a charge paid by
the subscriber to the provider at the time of services.
Diagnosis-related groups (DRGs) Classification system devel-
oped at Yale that defines more than 700 major diagnostic catego-
ries and places patients into case types based on the ICD-CM
classifications. Substantially updated in 2007 as MS-DRG (Medi-
care severity adjusted).
End-stage renal disease (ESRD) The terminology used for
Medicare beneficiaries who have permanent kidney dysfunction
requiring dialysis treatment.
Explanation of (medical) benefit form (EOB/EOMB) Provides
reasons for denial of payment.
Fee-for-service A payment system in which individual service
codes are reimbursed after service is rendered.
Health maintenance organization A prepaid system of health-
care with emphasis on the prevention and early detection of dis-
ease and on continuity of care. HMOs generally offer a package
of services; however, the choice of physician is frequently limited
to those working within the HMO.
Health plan or health benefits plan Any plan or organized for-
mat for delivering healthcare services.
Payor mix Describes those entities that have fiscal responsibility
for payment of services.
POL Physician office laboratory.
POS Point-of-service insurance plan; a type of plan combining
elements of both an HMO and a PPO. Referrals out of network
are allowed but at some additional cost to the subscriber.
Preferred provider organization (PPO) A healthcare organiza-
tion that negotiates set rates of reimbursement with participating
healthcare providers for services to insured clients; a type of pro-
spective payment system.
644 GENERATION OF REVENUE
Provider mix Describes those entities that actually perform
and/or bill the services.
Regulation Legally binding rules developed to implement a
statute.
Secondary payor An additional healthcare plan that provides
coverage on the balance after payment by the primary payor.
SNF Skilled-nursing facility providing rehabilitative services af-
ter a hospitalization.
Statute A law passed by the U.S. Congress or a state legislature.
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12. Moss, M. M., and S. M. Schexnayder. 2001. Coding and billing
in the pediatric intensive care unit. Pediatr. Clin. N. Am. 48:783–793.
13. Segal, M. J., S. Morris, and J. M. Rubin. 2002. Automated claim
and payment verification. J. Med. Pract. Manag. 17:297–301.
14. Smith-Shoemake, M. A. 2002. Solving the claims conundrum.
Manag. Care Q. 10:13–14.
15. Welter, T., and P. Stevenson. 2001. Calculating five types of typi-
cal underpayments. Healthc. Financ. Manag. 55:46–50.
16. Wolf, P. 2001. Charge-process strategies for outpatient prospec-
tive payment. Healthc. Financ. Manag. 55:58–61.
 CHAPTER 36. APPROACHES TO BILLING LABORATORY SERVICES 645

APPENDIX 36.1 Websites

Centers for Medicare and Medicaid Services Office of Inspector General

http://www.cms.gov (last accessed November 19, 2012) https://oig.hhs.gov/compliance/compliance-guidance/index.asp
CMS home page with search feature. (last accessed November 19, 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning OIG compliance guidance documents.
-Network-MLN/MLNGenInfo/index.html (last accessed November
19, 2012)
Medicare Learning Network resources.
Introduction
37
Calculating Costs and Charges
Setting Costs • Setting Charges
Determining Payment Amounts
Fee Schedules • Medicare Clinical Laboratory Fee
Schedule • Fee Setting for New Codes on the CLFS •
The Medicare Physician Fee Schedule • Other Fee
Schedules • Capitated Payments
Keys to Success in Reimbursement
Retrospective Payment • Prospective Payment
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIX
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch37
646
Charges and Fees
for Laboratory Services
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
OBJECTIVES
To discuss the four key concepts related to payment for laboratory services
To explain the relationship between charges and fee schedules and a reasonable
profit margin
To describe the uses for profits and how they relate to generating returns on
investments
To describe the following terms: market competitive and value-added services
To discuss appropriate ways to avoid the appearance of kickbacks and how this
relates to compliance
Put money in thy purse.
William Shakespeare (1564–1616)
T
he ultimate goal in the provision of laboratory services is
to make certain that information is delivered to ordering healthcare
providers in a timely manner that ensures that quality is maintained,
costs are minimized, and clinical relevance is established. At the same time,
it is paramount to make sure that the laboratory does not lose money in do-
ing so. This concept applies regardless of the corporate structure. It has been
said, “For-profit entities exist to make money, and not-for-profit entities make
money to exist, but both need to make money to survive.” To make money
in the laboratory business, it is critical that one establish charges that at least
cover total costs and control expenditures such that low-paying fee schedules
do not put the laboratory at risk for significant loss.
Calculating Costs and Charges
Setting Costs
The responsibility for cost analysis of individual laboratory procedures rests
primarily with the laboratorian. Chapters in section V present an in-depth
look at the process of cost accounting in the clinical laboratory. However, for
purposes of determining a charge structure, it is critical to have a clear under-
standing of the total costs of a procedure (7, 8, 11). A commonly used measure
for this purpose is the “cost per reportable test.” In general an “orderable and
reportable test” will map to a specific Current Procedural Terminology (CPT)
code or codes, as well as to the institutional charge code for accounting pur-
poses. The cost per reportable test is a composite of all related costs. These in-
clude the obvious costs such as average direct costs (e.g., reagents, equipment),
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES
including labor, and indirect costs, including overhead and
support services (e.g., housekeeping, couriers, billing, cus-
tomer service, marketing), but they also include hidden
costs such as quality control, calibration, repeats, dilutions,
and wastage. The cost per reportable test is considered to
be a parameter that allows “apples to apples” comparisons
between methods (interassay) and between laboratories
(intra-assay).
In addition, the cost per reportable test is a useful tool
for setting charges such that the laboratory maintains an
appropriate profit margin. The break-even point is the
point at which net income equals total costs. Net income
takes into account actual payment for services and deducts
actual costs as well as “bad debt,” that is, the amount that is
not reimbursed by any potential payor. Obviously, the goal
is to do better than break even since profits are essential to
support business development. To be profitable, one must
have a clear understanding of both total costs per report-
able test as well as expected net income.
Setting Charges
A number of general principles guide the process of setting
a charge (6). One must consider the actual total costs and
the expected reimbursement, so that one can exceed the
break-even point. In general, it is never good business to
price any service below cost, and in fact, this practice could
be viewed as an inducement for ordering providers to sub-
mit federally reimbursed testing to a particular laboratory.
On the other hand, one cannot charge federal payors “sub-
stantially in excess of usual charges,” potentially leading
to a conclusion that these payors are being overcharged.
At the same time, one must review the market situation
and ensure that charges are comparable to those of com-
petitors unless the service offered has a quantifiable value-
added component. In some market settings, laboratories
may identify tests that are high volume and offer them at
a charge below cost (termed a “loss leader”). At the same
time, more esoteric, high-cost procedures with lower uti-
lization may be offered with a substantial profit margin to
make up the difference (termed “pull-through”). In addi-
tion, the billing simplicity of a contractual arrangement in
which clients or patients are billed directly is considered a
justification for offering deep discounts since billing costs
are substantially lower and the percentage of services paid
for is significantly higher.
However, the entire area of discounts and multiple fee
schedules has come under intense scrutiny in recent years,
and this practice needs to be carefully evaluated for provid-
ers, particularly those doing business with federal payors.
Although it is a longstanding interpretation of Medicare
law that one cannot charge federal payors “substantially in
excess of usual charges,” exactly what “substantially in ex-
cess” means is not well established, although the Office
of Inspector General (OIG) has proposed a level of 120%
647
greater than a usual charge for the same item or service
for any payor. “Usual charge” is generally defined as ei-
ther the average or median of charges to all parties for
the most recent one-year period. In addition, a previous
OIG advisory opinion noted that discount arrangements
may be reviewed to determine “whether the discount on
the PPS-covered services makes business sense standing
alone without reference to any other business the pro-
vider may receive.” Legislation known as the Stark and
Anti-Kickback Laws is designed to ensure that laborato-
ries provide services to ordering providers without any
evidence of inducement or kickback. Thus, determina-
tion of charges currently has both financial and compli-
ance implications.
Determining Payment Amounts
The amount of payment made for laboratory services may
be based on one of two general categories. A fee schedule
represents one category, although payment amounts typi-
cally vary based on payor. Actual provider charges may ap-
ply to some payors, while payor-defined fee schedules may
be the basis for others. In capitated payment agreements,
the payment takes the form of a negotiated agreement for
a specified level or category of service, often based on di-
agnosis or clinical condition.
Fee Schedules
Counter to attempts to develop rational charges based on
real costs and net income is the concept of payor-established
fee schedules. Many payors will arbitrarily establish a fee
schedule for defined services, and it is the laboratory’s re-
sponsibility to determine whether to do business with that
particular payor. Fee schedules are generally loosely based
on charges although usually set at a percentage substan-
tially lower than actual charges. In addition, fee schedules
may vary considerably by payor. The quintessential exam-
ple of payment according to fee schedule is the Medicare
Part B clinical laboratory payment system.
Medicare Clinical Laboratory Fee Schedule
Medicare currently pays for technical clinical labora-
tory tests according to a set clinical laboratory fee sched-
ule (CLFS) initially established in 1984 and based on
1983 charge data. Fees are assigned based on the CPT or
Healthcare Common Procedure Coding System (HCPCS)
code established for each procedure (1, 9, 12). The actual
Medicare payment is the lowest of (i) the actual charge,
(ii) the fee schedule amount set by the Medicare contrac-
tor, or (iii) the national fee cap, termed the national limi-
tation amount (NLA). For tests established before January
1, 2001, the NLA is currently 74% of the median of lo-
cal fees, a percentage that has been rapidly reduced from
115% in 1986 to the current level. Local fees are set at 60%
648 GENERATION OF REVENUE
of prevailing charges (except for sole community hospitals,
which are set at 62%). Thus, Medicare payments can be seen
to be substantially lower than actual charges. In addition,
there may be significant geographic variation in the actual
payment amount based on the Medicare contractor (10).
Medicare clinical laboratory payments are also not subject
to copayments, a situation endorsed by the laboratory com-
munity, as billing costs often exceed the copay amount.
Adjustments are made to the NLA on a regular ba-
sis. After 2001, as a result of the Balanced Budget Act of
1997, the NLA was set at 100% of the median to allow for
improved reimbursement for new CPT codes, ostensibly
representing emerging technology. For other test codes,
the Centers for Medicare and Medicaid Services (CMS)
should adjust the fee schedule annually to reflect changes
in the consumer price index (CPI). However, in response
to a number of federal budgetary “fixes” mandated by var-
ious statutes enacted since 1990, the actual adjustments
have been zero or a negative percentage for 14 of the 23 en-
suing years, primarily due to fee schedule CPI “freezes.” In
addition, the Medicare program has the authority to man-
date modifications in fees (increases or decreases) that are
viewed as inappropriate or unreasonable. One strategy is
termed “inherent reasonableness.” Under this strategy,
the CMS may employ “reasonable-charge methodology”
to arbitrarily reduce or increase an NLA deemed “grossly
excessive or grossly deficient” against market values. In
point of fact, reasonable-charge methodology has resulted
primarily in reduced payments. On occasion payments
are adjusted upward, as in 1999 when it was determined
that cervical cytology (Pap smear) payment amounts were
unreasonably low. In addition, reasonable charge method-
ology is used for laboratory services at critical access hos-
pitals to help ensure beneficiary access. Another strategy
is termed the “least costly alternative” approach, which
makes a determination that a new more costly procedure
has the same clinical utility as a less costly alternative, and
payment is adjusted to that of the older methodology,
thus impeding the implementation of new technologies.
In addition, laboratories have successfully withstood sev-
eral attempts to lower payment amounts due to a com-
petitive bidding model. Despite representing less than 2%
of total Medicare expenditures, the laboratory has been a
repeated target of a disproportionate share of attempted
Medicare savings. Payment amounts are published annu-
ally on the CMS website in the fall and are effective the
following January 1.
Fee Setting for New Codes on the CLFS
For new CPT test codes, Medicare fees are assigned based
on one of two methods: cross-walking or gap filling. Cross-
walking is used when new tests employ a method that is
deemed comparable to an existing method or combina-
tion of methods, and the fee is simply set according to that
of the existing code(s) to which the new code is mapped.
Gap filling is used when a new code describes a test using
a novel technology for which no comparable code exists.
The fee is then set after collection of data by local contrac-
tors, who then apply the formulas previously described.
Since 2001, the process of assigning fees to new codes has
involved open meetings in which laboratorians and profes-
sional laboratory groups may present public recommenda-
tions on the best method to use. Subsequently, proposed
fees and the rationale for setting each are published by
the CMS for comment prior to the final publication of the
CLFS for the next year.
It is something of a paradox in the Medicare fee
schedule process that a laboratory may have to accept a
fee lower than its costs but has no recourse for recoup-
ing costs other than to develop strategies aimed at other
payors. This paradox led the Institute of Medicine (4) to
issue 6 of 12 recommendations in its report on Medicare
laboratory payment policy pertaining to the fee schedule
(Table 37.1). These recommendations are (i) that “Medi-
care payments for outpatient clinical laboratory services
should be based on a single, rational, national fee schedule”;
(ii) that “on an interim basis, relative payments for Medicare
outpatient clinical laboratory services should be based on
the current NLA”; (iii) that “a data driven consensus pro-
cess” be used to refine the Medicare fee schedule; (iv) that
fees be “adjusted for geographic location” and evaluated
for other circumstances “likely to affect beneficiary ac-
cess”; (v) that there be processes to “periodically update”
the fee schedule; and (vi) that there be an “open, timely,
Table 37.1 Recommendations related to fee schedulesa
Recommendation 1 Medicare payments for outpatient
clinical laboratory services should be
based on a single, rational, national fee
schedule.
Recommendation 2 On an interim basis, relative payments
for Medicare outpatient clinical labora-
tory services should be based on the
current NLA.
Recommendation 3 A data-driven consensus process should
be used to refine the Medicare fee
schedule.
Recommendation 4 Fees should be adjusted for geographic
location and evaluated for other circum-
stances likely to affect beneficiary access.
Recommendation 5 There should be processes to periodically
update the fee schedule.
Recommendation 6 There should be an open, timely, and ac-
cessible process to incorporate new tests
into the fee schedule.
a
See reference 4.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES
and accessible process” to incorporate new tests into the
fee schedule that does not “impede clinical decision mak-
ing that is essential to providing appropriate care.” These
goals have not yet been reached in the Medicare clinical
laboratory payment system.
The Medicare Physician Fee Schedule
Laboratory tests that have both a technical component
and a physician interpretation component are priced on
the Medicare Physician Fee Schedule (PFS). These include
primarily anatomic pathology and cytology services and
are subject to a copay by beneficiaries. Payments on the
PFS are updated according to a complex formula for both
technical and professional components and include con-
sideration of relative value units for physician, practice,
and malpractice expense adjusted by a conversion factor
based on the geographic practice cost indices. A statu-
tory change was introduced in 1998 using the sustainable
growth rate to ensure that Medicare expenditures did not
exceed targets. This approach has proved to be very prob-
lematic, with double-digit reductions projected over the
last few years. To prevent loss of patient access to services,
Congress has stepped in each year to date to prevent such
dramatic decreases. However, the future of payment ad-
justments for the PFS is uncertain, and a permanent solu-
tion is needed. PFS payments are updated annually each
fall and are effective January 1.
Other Fee Schedules
The importance of the Medicare fee schedules, both the
CLFS and the PFS, is quite simply, the impact on the fee
schedules developed by other third-party payors. Medicare
fees are generally a starting point for negotiations between
laboratories and other payors, which may lead to the deep
discounts and special pricing situations already discussed.
Alternatively, forced acceptance of lower fees may result
in setting higher charges for noncontracted entities (e.g.,
patients) to attempt to achieve a break-even status. The ad-
age “as goes Medicare, so go other payors” is of particular
relevance in the realm of payment for services.
Capitated Payments
Capitated contracts for laboratory services are somewhat
uncommon in outpatient arenas, but they may play a
major role in the provision of laboratory services in ex-
tremely cost-constrained markets. In federal programs,
there are a number of examples of capitation for lab services
in managed-care Medicaid programs, and capitation will
likely emerge in the managed-care Medicare Part C pro-
grams. The Medicare ambulatory payment classification
and payment system for clinical services may also in the fu-
ture encompass laboratory testing services (2, 3). Account-
able care organizations being developed under healthcare
reform are almost certainly going to use capitation as a
649
means to control costs (1). In other managed-care environ-
ments, such as health maintenance organizations (HMOs),
laboratories may also be asked to develop a capitated pay-
ment scheme. In laboratories, a common payment mecha-
nism is a per-member-per-month basis for provision of
the most common laboratory services, with a separate fee
schedule often appended for high-cost, esoteric services
carved out of the capitated contract.
Inpatient service reimbursement may also be consid-
ered a type of capitated payment. Medicare and most other
payors generally reimburse for inpatient stays as a speci-
fied amount based on either a diagnosis-related group or
a per diem amount. To document both labor and financial
input and to justify resources needed to provide services,
laboratories should keep complete documentation of all
activities. This information can also be used in future ne-
gotiations with specific payors.
Certain healthcare environments represent a hybrid
between retrospective and prospective payment systems.
End-stage renal disease dialysis facilities are reimbursed a
composite amount, which includes some laboratory ser-
vices, while other additional services may be billed sepa-
rately. Testing done for patients in skilled-nursing facilities
is usually done by contract with an independent labora-
tory, while the actual stay is reimbursed as a Medicare Part
A capitated amount, and other third-party payors gener-
ally follow the Medicare model.
Keys to Success in Reimbursement
Regardless of the type of payment situation, there are a few
key actions that can help guarantee that a laboratory will
be able to attain a reasonable profit or, at the least, avoid
any significant losses in fulfilling its mission to provide
high-quality, clinically relevant information at a reason-
able cost. Integral to this process is a firm understanding
of costs for procedures as well as correct coding for pro-
cedures performed and complete knowledge of all billing
rules promulgated by a given payor (Table 37.2).
Table 37.2 Key concepts related to successful reimbursement
Costs Know your real/total costs for any given
orderable and billable procedure.
Charges and fee Set charges and accept fee schedules or
schedules other payments to guarantee a reason-
able profit margin.
Market competition Set charges to be market competitive and
provide services that are equivalent to
or better than those of your competitors
(value-added services).
Compliance Avoid any appearance of kickbacks.
650 GENERATION OF REVENUE
Retrospective Payment
The primary key to success in a retrospective (fee-for-
service) payment situation is to obtain payment for all ser-
vices that a physician orders and that you perform and for
which you report the result. Therefore, you should code
correctly and completely for all that you do and bill for
all that you code for. In any situation in which more than
one code applies, or if a procedure is added on by request
or as a reflex, the associated codes should be added to the
bill. You should obtain the diagnosis, preferably as an In-
ternational Classification of Diseases, Clinical Modifica-
tion code (ICD-9-CM or in the future, ICD-10-CM), but
translation of a narrative diagnosis into an ICD-CM code
is generally acceptable. The diagnosis will help to satisfy
any documentation requirements that a payor may have to
determine whether a service is covered. One should obtain
a waiver of financial liability (e.g., an advance beneficiary
notice for Medicare Part B) from the patient in any situa-
tion in which there is a question as to whether the payor
will cover the services. Finally, make every effort to price at
a level at least equal to the cost per reportable test and pref-
erably at a level that maintains a reasonable profit while
remaining competitive in the marketplace.
Prospective Payment
The primary key to success with prospective (capitated)
payment is also correct and complete coding. To deter-
mine if a proposed payment amount is acceptable, you
must know (or project) the utilization rates for services,
including rates of use of add-on and reflex tests. You
should understand the patient mix according to diagno-
ses and/or medical subspecialty to help project utilization
of specific, especially esoteric or niche, tests. You must
certainly know your costs by CPT code and must proj-
ect total expenditures based on the terms of the contract.
If certain esoteric tests are extremely high cost, you may
wish to carve out those services and amend the agreement
with a separate fee schedule for specific services. As for
retrospective payment situations, if the proposed terms of
the agreement are not financially favorable, you can de-
cline to provide service.
Summary
In considering payment for laboratory services, there are
four key concepts to remember. First, know your real costs
for any given orderable and billable procedure, and make
sure the terms of the payment agreement allow the recov-
ery of costs. Second, set charges and accept fee schedules
or other payments to guarantee that a reasonable profit
margin has been attained. To continue to develop any
laboratory business unit, it is essential to generate revenue
that can be used to enhance the services offered. Beyond
simply paying the bills, profits are essential for additional
research and development, for facility improvements, for
professional development of employees, and in the case of
a for-profit entity, for generating returns on investments.
Third, set charges to be market competitive and provide
services that are equivalent to or better than those of your
competitors. “Better than” is synonymous with “value-
added” and includes developing a strong and knowledge-
able customer support team. Finally, avoid any appearance
of kickbacks. Under the Office of Inspector General com-
pliance program guidance for clinical laboratories, it is es-
sential to avoid any appearance of inducement of ordering
providers to submit testing from patients under federal
payment programs. All of these concepts make for good
clinical laboratory practice and also ensure that one is
equipped to make good business decisions.
The establishment of reimbursement for laboratory
services is a complex process with a variety of possible
payor-provider relationships. Many relationships fail to
make financial sense, and laboratories must carefully as-
sess each potential client for impact. Increasing the use of
prospective payment systems will only make it more diffi-
cult for a laboratory to determine if an arrangement makes
financial sense. A recent IOM report on providing “Best
Care at Lower Cost” (5) provides a very accurate analogy
for laboratory pricing: “If shopping were like healthcare,
product prices would not be posted, and the price charged
would vary widely within the same store, depending on the
source of payment.” Clearly, improvements to the process
are desirable.
KEY POINTS
■ The responsibility for cost analysis of individual labora-
tory procedures rests primarily with the laboratorian.
■ To have a clear understanding of the total costs of a pro-
cedure, the best parameter to use is the cost per report-
able test.
■ The determination of charges has both financial and
compliance implications; one generally does not charge
below cost (which may be construed as an inducement
for ordering providers) or substantially in excess of
usual charges.
■ The Medicare fee schedule is quite complex and is ad-
justed regularly, and payments can be substantially
lower than actual charges. A laboratory may have to ac-
cept a fee lower than its costs and assess other mecha-
nisms to remain financially sound.
■ The importance of the Medicare fee schedule is its
impact on the fee schedules developed by other third-
party payors.
■ The laboratory must maintain a thorough understand-
ing of coding for procedures performed, as well as com-
plete knowledge of all billing rules for each payor.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES
■ Payment for laboratory services is based on four key
concepts: (i) know your real test costs, (ii) set charges
and accept fee schedules that guarantee a reasonable
profit margin, (iii) set charges to be market competi-
tive and provide services that are better than those of
your competitors, and (iv) avoid any appearance of
kickbacks.
GLOSSARY
Actual charge The amount of money a provider charges for a
certain medical service or supply. This amount is often more
than the amount Medicare or another third-party payor
reimburses.
Assignment The fee Medicare sets as approved for a covered
medical service (also known as an approved charge). This is the
amount Medicare pays a provider for a service or supply. It may
be less than the actual amount charged by a provider. Other
third-party payors also set approved payment amounts.
Balanced Budget Act of 1997 (BBA ’97) An omnibus legislative
package with many far-reaching effects on Medicare. The pack-
age included reductions in payments to providers and mandated
a negotiated rule-making process to develop coverage determi-
nations for laboratory services.
Balanced Budget Refinement Act of 1999 (BBRA ’99) Legisla-
tion that addressed flawed policy and excessive payment reduc-
tions for federal healthcare programs resulting from BBA ’97.
Break-even point Point at which net income equals total costs.
Capitation A predetermined, fixed amount paid to providers in
return for rendering a specified set of health services. The rate is
generally established per person (per capita) enrolled in the
health plan.
Carve out To exclude from a capitated contract and bill as fee
for service.
Claim The claim form or invoice, which allows transmission of
the bill to a payor.
Contractors Centers for Medicare and Medicaid Services
(CMS) primary third-party claims management entities who ad-
minister Part A and/or Part B payments to facilities, physicians,
and commercial laboratory providers according to national and
local coverage determination policies.
Covered lives Population insured by a managed-care contract.
Cross-walking The fee is set at the same rate as that for another
CPT code (or codes) deemed “equivalent” and to which it is
“mapped.”
Current Procedural Terminology (CPT) Proprietary service
codes developed and maintained by the American Medical As-
sociation and required for filing claims and billing of Medicare
and other payors.
Diagnosis code Medical diagnoses are assigned a numerical code
from a document entitled International Classification of Diseases,
Revision (Clinical Modifications). The 9th edition (ICD-9-CM)
651
will be replaced by a substantially updated 10th edition (ICD-
10-CM) in 2014. The ICD-CM code refers to the clinical reason
for a patient’s encounter.
End-stage renal disease (ESRD) The term used for Medicare
beneficiaries who have permanent kidney dysfunction requiring
dialysis treatment.
Gap filling A new code is deemed novel and not adequately
described by an existing code. Payments are set by individual
contractors based on existing charges, and these payments are
then used to subsequently set a national limitation amount
(NLA).
HCPCS (Healthcare Common Procedure Coding System) The
code set recognized by federal and other third-party payors to
describe medical, surgical, and diagnostic services. The CPT sys-
tem is accepted as the HCPCS level 1 code set for laboratory and
physician services.
Health maintenance organization (HMO) A prepaid system of
healthcare with an emphasis on the prevention and early detec-
tion of disease and on continuity of care. HMOs generally offer a
package of services; however, the choice of physician is frequently
limited to those working within the HMO.
Inherent reasonableness The CMS may employ “reasonable-
charge methodology” to arbitrarily reduce or increase a national
limitation amount (NLA) deemed grossly excessive or grossly
deficient.
International Classification of Diseases, Version 10, Procedure
Coding System (ICD-N-PCS) Laboratory coding system in-
tended for use as an alternative to CPT.
IOM (Institute of Medicine) The IOM is an independent, non-
profit organization that works outside of government to provide
unbiased and authoritative advice to decision makers and the
public concerning health and science policy.
Loss leader High-volume test that is charged below cost to ob-
tain additional, more profitable business.
National limitation amount (NLA) The national fee cap for a
particular test.
Pull-through A marketing approach in which some mecha-
nism, usually a financial benefit, is used to entice utilization of a
product or service.
Reflex test Second related test performed automatically when
the initial test results are positive (e.g., identification and suscep-
tibility tests on pathogens).
Stark and Anti-Kickback Laws Legislation passed governing
physician referrals and payments that ensures that laboratories
provide services to ordering providers without any evidence of
inducement or kickback.
Substantially in excess of usual charges Under certain provi-
sions of Section 1128 of the Social Security Act, the submission
of claims for services substantially in excess of an entity’s usual
charges may result in the exclusion of that entity from partici-
pation in Medicare and Medicaid programs.
652 GENERATION OF REVENUE
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11. Travers, E. M. 1997. Clinical Laboratory Management. Williams
and Wilkins, Baltimore, MD.
12. Weiss, R. L., D. Sundwall, and J. M. Matsen. 2002. Estimating
the budgetary impact of setting the Medicare clinical laboratory
fee schedule at the national limitation amount. Am. J. Clin. Pathol.
117:691–695.
 CHAPTER 37. CHARGES AND FEES FOR LABORATORY SERVICES
APPENDIX 37.1 Publications, Phone Numbers, Websites, and Guidance Documents
PUBLICATIONS
Clinical Laboratory Strategies (newsletter of the American Asso-
ciation of Clinical Chemists Delta Project (https://www.aacc
.org/publications/strategies/Pages/default.aspx#, [last accessed
November 20, 2012])
National Intelligence Report, Laboratory Industry Report, G2
Compliance Report, and Diagnostic Testing & Technology Re-
port (newsletters published by Washington G-2 Reports,
Washington, DC [http://www.g2reports.com [last accessed No-
vember 20, 2012])
Laboratory Compliance Insider, Medicare Weekly Update, Coding
Compliance Strategies (newsletters available from HCPro at
http://www.hcpro.com/ [last accessed November 20, 2012])
The Dark Report (newsletter available at http://www.darkreport
.com/ [last accessed November 20, 2012])
CodeMap (e-newsletter available at http://www.codemap.com
[last accessed November 20, 2012])
PHONE NUMBERS
AMA: 1-800-621-8335
CMS (formerly Health Care Financing Administration): 1-800-
447-8477 or 1-800-633-4227
Note: Coding resources are available from many vendors includ-
ing the AMA
WEBSITES
CMS
http://www.cms.gov (last accessed November 20, 2012)
Searchable CMS website.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNGenInfo/index.html (last accessed November
20, 2012)
Medicare Learning Network resources.
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
ClinicalLabFeeSched/index.html) (last accessed November 20, 2012)
Medicare Clinical Laboratory Fee Schedule (issued every November).
653
http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/
PhysicianFeeSched/index.html (last accessed November 20, 2012)
Medicare Physician Fee Schedule (issued every November).
Government Accountability Office
http://www.gao.gov/highrisk/agency/hhs/reforming-medicare
-payments.php (last accessed November 20, 2012)
GAO studies on reforming and refining Medicare payments.
Institute of Medicine
http://www.iom.edu (last accessed November 20, 2012)
Office of Inspector General
https://oig.hhs.gov/compliance/ (last accessed November 20, 2012)
Compliance program guidance, fraud alerts, advisory opinions, and
work plan.
http://oig.hhs.gov/fraud/docs/safeharborregulations/lab.htm (last
accessed August 23, 2013)
Discount arrangements between clinical laboratories and SNFs
FEDERAL REGISTER AND RELEVANT
GUIDANCE DOCUMENTS
Negotiated Rulemaking
Federal Register. 2001. Medicare program; negotiated rulemak-
ing: coverage and administrative policies for clinical diagnostic
laboratory services. Fed. Regist. 66(226):58788–58890
Inherent Reasonableness
Federal Register. 1998. Medicare program; application of inher-
ent reasonableness to all Medicare part B services (other than
physician services)—HCFA. Interim final rule with comment
period. Fed. Regist. 63:687–690.
Substantially in Excess
Federal Register. 2007. Medicare and state health care programs:
fraud and abuse; clarification of terms and application of pro-
gram exclusion authority for submitting claims containing exces-
sive charges. Fed. Regist. 72:33430–33432.
Profitability, Contribution,
VII
and Reimbursement
(section editors: Vickie S. Baselski and Alice Weissfeld)
38 Rules and Regulations in Reimbursement
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
39 Reimbursement Compliance
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
40 Determination of Profitability
Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Introduction
General Criteria
38 Rules and Regulations
Basic Rules in Reimbursement
Procedure Code Edits
Basic Edits • National Correct Coding Initiative •
Mutually Exclusive Codes • Comprehensive/ Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Component Edits • Medically Unlikely Edits
Conditions of Coverage
Medical Necessity • National Coverage
Determination • Local Coverage Determination • OBJECTIVES
Screening Tests • Experimental Testing •
Administrative Policies To discuss the rules set forth by third-party payors that determine claim
Special Coverage Conditions payment
End-Stage Renal Disease • Skilled-Nursing Facility • To describe the term “medical necessity” and its relationship to reimbursement
Ambulatory Payment Classifications • Inpatients •
Three-Day Window • Date of Service Rule • Other To discuss the importance of claim compliance to reimbursement
Private-Payor Rules To describe certain special coverage conditions for which unique billing rules
Remittance Advice Review may apply
Beneficiary Documents • Provider Documents •
Auditing Remittance Advice
To discuss national coverage determinations and the relationship between
these determinations and local coverage determinations
Summary
To describe the most common reasons for reimbursement denial and what can
KEY POINTS
be done to correct the problems
GLOSSARY
REFERENCES
APPENDIXES Call them rules or call them limits, good ones, I believe, have this in common:
They serve reasonable purposes; they are practical and within a child’s capability;
they are consistent; and they are an expression of loving concern.
“Mister” Fred Rogers (1928–2003)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch38
B
eyond the basic logistical issues surrounding the battle for labo-
ratory reimbursement are a number of issues that pertain to the rules
of engagement. The logistical aspects include the documentation of
what is done through Current Procedural Terminology (CPT) and Health
Care Common Procedure Coding System (HCPCS) coding, why it is done
through International Classification of Diseases, Clinical Modification
(ICD-9-CM and ICD-10-CM) or alternative diagnosis coding, where it is
done through use of revenue and place-of-service codes, and what the actual
billing processes and amount of payment are (see section VI). The rules of
engagement pertain to the establishment of criteria for the actual execution
of payment, also known as conditions of coverage. Providers must meet all
conditions imposed by regulations as well as terms of business set upon them
by payors. In addition, to evaluate services for appropriateness for coverage
and subsequent payment, payors generally employ standard sets of prepay
edits, which specify clinical conditions for payment or nonpayment. Fur-
ther, payors often conduct postpay audits to evaluate the accuracy of claim
payments based on the defined coverage conditions, including prepay edits.
While it might be a stretch to compare these rules to the limits imposed
upon a child by a parent, they do share some common features. They are ba-
sically simple and clearly defined; they are relatively easily applied through
an electronic claim review process; and they represent a form of “tough-love”

657
658 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
in that they attempt to place some controls on the exces-
sive spending associated with healthcare out of concern
for the effective management of healthcare resources.
Unfortunately, one can easily find examples of errors in
the reimbursement system, thus strengthening the need
for well-defined limits. While the focus of this chapter is
the conditions payors place upon providers, one should
recognize that payors are also subject to rules governing
good business practice.
General Criteria
Criteria for conditions of coverage for laboratory services
historically have as their bases a number of elements. First
is the evidence-based-medicine element, which specifies
that laboratory services should be covered if shown in
the medical literature to be necessary, safe, and effective
in the management of a particular condition. Second is
the medical-ethics element, which suggests that patients
should not be denied a procedure proven to be neces-
sary, safe, and effective. Third is the medical-judgment
element, which places the burden of decision making on
the ordering provider, whose training and experience in
patient management should justify performance of a pro-
cedure. These criteria have been traditionally adequate
to determine coverage. However, as healthcare costs have
risen, and rationing of available resources has become a
necessity, more uniform and systematically applied crite-
ria to verify that a service should be covered have emerged
in the form of payor rules, which in federal payment pro-
grams are based on interpretation of regulations arising
from statutes. These rules are applied through stringent
claim review processes in which both procedures and di-
agnoses are considered in making a payment determina-
tion (1, 3, 5, 7).
The primary statute upon which federal programs are
based is the Social Security Act of 1967. This provided
for healthcare benefits for “the diagnosis or treatment
of illness or injury or to improve the functioning of a
malformed body part” in the elderly and, subsequently,
in disabled individuals. Many regulations have evolved
from this phraseology, which limits services to those
that have been interpreted by the Centers for Medicare
and Medicaid Services (CMS) and its contractors as
meeting the intent of the law. Furthermore, many other
third-party payors have adopted similar types of pay-
ment rules. These rules can be divided into three gen-
eral categories: those that are basic and review a claim
for standard identifying information, those that evaluate
the appropriateness of the procedures that are ordered in
a given time frame, and those that assess the “medical
necessity” of performing a test in view of the established
coverage criteria.
Basic Rules
The claims for laboratory services must meet certain ba-
sic requirements for processing. The coding requirements
for claim transactions have been standardized under the
Health Insurance Portability and Accountability Act
(HIPAA), and the CMS requires submission of all stan-
dard code and transaction sets. CMS claims are filed using
one of two basic formats for laboratory services that are
used in their entirety or as models for claims submitted to
other payors. Form CMS-1450 (formally UB-92) is used
for institutional (e.g., hospitals, nursing homes) claims for
Medicare Part A services. It is designed and maintained by
the National Uniform Billing Committee and used by many
institutional providers. Form CMS-1500 is used by nonin-
stitutional providers (e.g., independent laboratories) to
bill Medicare Part B services and some Medicaid services,
and it has become a universal claim form for many other
third-party payors. While these are manual forms, the re-
quired data elements are the same as those in electronic
forms. As a result of the Administrative Simplification and
Compliance Act of 2001, providers are required to submit
electronic claims after October 2003, with only a few ex-
ceptions. Under HIPAA, the Department of Health and
Human Services has adopted ASC X12 (Accredited Stan-
dards Committee) Version 5010 as the HIPAA standard
for electronic transactions after January 2009, with man-
datory implementation as of January 2012. Importantly,
form 5010 will be able to accommodate ICD-10-CM codes
when required in 2014.
The major required elements for claim submission and
subsequent reimbursement for covered services are as fol-
lows (Table 38.1). The patient must be identified using a
unique identifier, and all demographic information neces-
sary for subsequent communications, particularly bills for
services if indicated, must also be provided. The date of
service, which is defined as the date of collection of clinical
specimens, must be provided. The ordering provider must
be identified using a national provider identifier, or NPI
(previously called the unique provider identifier number,
or UPIN), and adequate demographic information must
be provided for subsequent communications, including
acquisition of additional documentation, test results, and
bills for services if indicated (8). The authentication of the
laboratory service provider requires a Clinical Laboratory
Improvement Amendments (CLIA) number and designa-
tion (high complexity, moderate complexity, certificate of
waiver, provider-performed microscopy) appropriate to
the service being billed. The place of service must be des-
ignated, either as a revenue code in the case of an inpatient
or using a place-of-service code for outpatient testing. The
actual services provided on the specified date must be indi-
cated using the appropriate CPT or HCPCS codes, includ-
ing units of service and modifiers where appropriate as
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
Table 38.1 Major required elements for claims submission and
subsequent reimbursement
Unique patient identifier
Date of service
Bills for services
Ordering provider number (national provider identifier)
Provider CLIAa number and designation (high complexity, moderate
complexity, certificate of waiver, provider-performed microscopy)
Place of service (either revenue code for inpatient testing or place-of-
service code for outpatient testing)
Actual services provided (CPT or HCPCS codes, including units of
service and modifiers where appropriate, and actual charges for each
service)
Reason for performing the test (ICD-9-CM or ICD-10-CM diagnosis
code for outpatients and DRG or narrative diagnosis for inpatients)
a
CLIA, Clinical Laboratory Improvement Amendments.
well as the actual charges for each service. Reimbursement
is rarely made at the charge level, but Medicare and other
third-party payors use this information for determination
of fee schedule payment amounts. Finally, the reason for
performing the test must be indicated using an appropriate
ICD-CM diagnosis code (ICD-9-CM or ICD-10-CM) for
outpatients and a diagnosis-related group (DRG) or am-
bulatory payment classification (APC) for hospital inpa-
tients and outpatients, respectively. Failure to complete all
required data fields is likely to result in a denial of payment
from any third-party payor (2, 8, 10).
Procedure Code Edits
Basic Edits
The next category of prepay edits used for claim review
evaluates the actual procedures performed as identified by
HCPCS or CPT codes (Table 38.2). The most basic edit is
a determination of whether a service may be a duplicate
service (i.e., same procedure on the same date of service).
If a laboratory procedure is performed more than once on
a given date of service for a valid medical purpose, an ap-
propriate modifier (-59 or -91) must be appended to the
procedure code. Similarly, frequency limits are used to de-
termine how often a particular laboratory procedure may
be reimbursed. These types of edits may be problematic for
clinical laboratories if a patient has presented to more than
one ordering provider or laboratory provider during the
time frame for reimbursement. For this reason, it is rea-
sonable to obtain an advance beneficiary notice (ABN) for
frequency-limited test procedures.
National Correct Coding Initiative
Procedure codes are also reviewed to determine if two
or more different codes are appropriately ordered on
the same date of service. The Medicare National Correct
659
Table 38.2 Procedure code edits
Basic edits Determination of whether a service may
represent a duplicate service (review of
actual procedures identified by HCPCS or
CPT codes)
Frequency limits (how often a particular
laboratory procedure may be reimbursed);
it may be necessary to obtain an ABN for
frequency-limited test procedures.
NCCI Review to determine if two or more dif-
ferent codes are appropriately ordered on
the same date of service. NCCI provides
an extensive system for this type of claim
review process, administered through
Correct Coding Solutions, LLC (Medicare
contractor).
Documents published on quarterly basis;
available on the CMS website or as a printed
version from the NTIS
Comprehensive/ These edits identify cases in which a spe-
component edits cific code has been identified as represent-
ing a component of a more comprehensive
code documented on the same date of
service (AMAa-approved panel—one would
not also code and bill for individual analytes
included in the panel).
Mutually exclusive Codes for services that are not reasonably
codes performed during the same patient encoun-
ter; these codes are considered to provide
duplicate information.
Multiple tests to identify the same analyte,
marker, or infectious agent should not be
reported together.
a
AMA, American Medical Association.
Coding Initiative (NCCI) provides the most extensive sys-
tem for this type of claim review process. This program
was initiated by the CMS in 1996 through a contract with
a Medicare contractor and is currently maintained by Cor-
rect Coding Solutions, LLC. The program is designed to
promote correct coding of healthcare services, including
laboratory services, and to control improper payment for
incorrect coding. Edits have been developed based on na-
tional and local coverage policies, coding guidelines and
practice guidelines published by professional societies, and
review of provider current coding and billing practice.
The NCCI documents are published quarterly. Hard
copies are available from the National Technical Informa-
tion Service (NTIS), and electronic versions are publicly
available on the CMS website. The complete document
includes a table of contents and 13 narrative chapters,
with chapter X specific to pathology and laboratory ser-
vices. However, on occasion, there is crossover between
chapters in edit pairs, and laboratorians should be aware
660 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
of all edits pertaining to the laboratory. NCCI is provided
to contractors as a set of automated edits that examine all
CPT and HCPCS codes submitted on the same date of ser-
vice. As expected, NCCI also serves as a model for claim
review by other third-party payors. The edits fall into
several types but are now combined into a single listing
of edit pairs in two columns. For codes that appear in
these columns, payment is made only for the code in col-
umn 1 and payment is denied for any associated codes
in column 2. The edits also indicate the code pairs in the
columns for which a modifier (generally -59) may be ap-
propriate to indicate that the tests were in fact unique and
appropriate under the circumstances. Because denials are
due to incorrect coding, an ABN is not appropriate for use
to render patients financially liable for payment.
The NCCI contractor bases the edits on a number of
features of CPT codes. Particular attention is given to the
narrative descriptors for the codes to determine if the code
is appropriate for use more than once per date of service.
In addition, narratives are evaluated to determine if two or
more codes provide the same information, in which case
codes are deemed mutually exclusive. Narratives are also
evaluated to determine if elements of one code are embed-
ded in another code, in which case the edit is considered a
comprehensive/component edit.
Mutually Exclusive Codes
Mutually exclusive codes are those that are not reasonably
performed during the same encounter. In essence, these
are considered to provide duplicate information. There
is a long-standing CMS interpretation of the Medicare
statute that has influenced the development of mutually
exclusive edits—that multiple tests to identify the same
analyte, marker, or infectious agent should not be reported
together. For example, it would not be appropriate to per-
form an enzyme immunoassay and a nucleic acid detec-
tion procedure to detect the same infectious agent from
the same specimen on the same date of service, nor would
it be appropriate to perform and bill a nonamplified and
an amplified nucleic acid test for the same analyte from the
same specimen on the same date of service. Again, if ad-
ditional clinically useful information may be obtained by
performing both procedures in a mutually exclusive code
set, modifier -59 may be attached. When mutually exclu-
sive codes are billed together inappropriately, in general,
the lower-paying code is the code that is reimbursed.
Comprehensive/Component Edits
Comprehensive/component edits identify cases in which
a specific code has been identified as representing a com-
ponent of a more comprehensive code documented on
the same date of service. The most obvious example is
the performance of an American Medical Association–
approved panel. In this situation, one would not also code
and bill for the individual analytes included in the panel
unless a subsequent measurement of a specific analyte
was necessary for patient care. In other cases, the descrip-
tor for a procedure may include several related codes. All
of the molecular infectious disease codes are considered
inclusive of all individual procedural step codes previ-
ously found in the chemistry section of the CPT code-
book as molecular diagnostic procedural steps. It should
be noted that these procedural step codes (termed “stack-
ing codes”) were eliminated in 2013 and all noninfectious
analytes were reassigned to a new, analyte-specific mo-
lecular pathology section. Finally, if after a test is ordered
and performed, an additional related procedure is neces-
sary to confirm the result, this would be considered a part
of the original ordered test unless a specific confirmatory
code is available (e.g., in the case of several serologic tests
for infectious agents, including human immunodefi-
ciency virus and Treponema pallidum, and for hepatitis B
surface antigen). When incompatible comprehensive edit
code pairs are billed, the most comprehensive code, but
not the component codes, is generally reimbursed. As for
mutually exclusive codes, these edit pairs may also allow
use of modifier -59 in some cases if the component test is
determined to be appropriate for the circumstances. It can
be extremely challenging for laboratorians to assess how
the NCCI process applies to their standard operating pro-
cedures and subsequent billing for procedures performed.
Medically Unlikely Edits
In 2007, the NCCI established an additional set of edits
known as medically unlikely edits (MUEs). An MUE is a
frequency edit and represents the maximum number of
units of service allowable under most circumstances for a
single CPT or HCPCS code billed by a provider on a single
date of service for a single beneficiary. MUEs are devel-
oped based on a number of considerations including CPT/
HCPCS code descriptors, CPT coding instructions, ana-
tomic considerations, established CMS policies, nature of
service/procedure, nature of analyte, nature of equipment,
and clinical judgment. Not all HCPCS/CPT codes have an
MUE, and not all MUEs are published. For example, if the
MUE is set at greater than 3, it is not published due to con-
cerns about risk for overutilization. In addition, the MUE
should not be considered as a guide for utilization, and any
repeat testing should be clinically indicated. Since some
MUEs are not published, careful claim denial review is often
indicated to recognize that a frequency edit is operational.
Conditions of Coverage
The term “conditions of coverage” has two distinct mean-
ings for reimbursement. First, the term may apply to the
conditions that a healthcare provider must meet to be
able to bill a payor and be reimbursed by that payor for a
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
service. Also known as “conditions of participation,” this
may entail having the correct CLIA certificate and state
facility and professional licenses, meeting patient noti-
fication requirements under HIPAA as well as providing
patients notice of their rights, accepting assignment of
specified payment amounts for services, and meeting all
other applicable regulatory requirements. The second
meaning applies to the conditions that a patient must meet
for a service to be paid for. In this situation, conditions of
coverage refers to a determination by a payor of the clinical
circumstances under which a particular procedure will be
paid for. Note that for both meanings, the payor sets the
conditions of coverage and subsequent payment.
Medical Necessity
“Medical necessity” refers to a specific mechanism for de-
fining conditions of coverage for a patient. Under Medi-
care, this terminology derives from Section 1862(a)(1)
(A) of the Social Security Act of 1965, which stipulates
that Medicare payment will be made only for expenses in-
curred for items or services that are reasonable and neces-
sary for the diagnosis or treatment of illness or injury or
to improve the functioning of a malformed body member.
Medicare has consistently interpreted this provision to
exclude services that have not been determined to be safe
and effective, are experimental, and are not performed in
accordance with accepted standards of medical practice as
demonstrated through peer-reviewed literature and pub-
lished professional society guidelines or practice standards
(2). In addition, Section 1862(a)(8) excludes coverage for
expenses for routine physical checkups and for testing per-
formed to screen for an illness or an illness precursor in
the absence of signs, symptoms, complaints, or personal
history of disease or injury except where explicitly allowed
by statute (e.g., cervical cytology in women and prostate-
specific antigen testing in men).
Medical-necessity edits have been developed that spec-
ify both the procedures performed and the reason for per-
forming the procedures on a given date of service. These
edits may be developed and applied nationally and are
known as national coverage determinations (NCDs). Al-
ternatively, where there is not an NCD or where an NCD
is silent, local policies may be developed by individual
contractors. These are known as local coverage determina-
tions (LCDs). However, a local contractor may not develop
an LCD in conflict with an NCD. Both types of policies ex-
plicitly delineate the ICD-CM diagnosis codes, which are
recognized as providing evidence of medical necessity for
coverage of a particular laboratory procedure identified by
CPT code. As would be expected, private third-party pay-
ors have embraced this concept, and while not as extensive
as the system used for Medicare reimbursement, medical
necessity nevertheless forms the basis for denials of pay-
ment in the private sector as well.
661
National Coverage Determination
Section 4554(b)(1) of the Balanced Budget Act of 1997
mandated the use of a negotiated rule-making process to
develop national coverage and administrative policies for
Part B clinical diagnostic laboratory services (Table 38.3).
Beginning in 1998 and continuing through 1999, 18 pro-
fessional groups representing laboratory, physician, and
beneficiary interests and the Department of Health and
Human Services Medicare Program participated in this
process, culminating in the publication of 23 national cov-
erage policies developed through consensus. A notice of
proposed rulemaking was published in March 2000, and
a final rule was published in November 2001, with an im-
plementation date one year hence. These 23 policies are
believed to represent 60% of the Part B laboratory outlays
and provide consistency in coverage for beneficiaries. Fur-
ther, a system has been developed to allow for the continu-
ation of the development of new NCDs through a formal,
defined process.
The format for an NCD is also defined. A narrative de-
scription of the covered services is given and the associated
Table 38.3 National Coverage Determinations
Definition Balanced Budget Act of 1997 mandated
the use of a negotiated rule-making
process to develop national coverage and
administrative policies for Part B clinical
diagnostic laboratory services.
Participation From 1998 to 2000, 18 professional groups
representing laboratory, physician, and
beneficiary interests and the Department
of Human Services Medicare Program
participated in this committee.
Publications National coverage policies developed
through consensus; 23 policies are
believed to represent 60% of the Part B
laboratory outlays and provide consistency
in coverage for beneficiaries.
NCD format Narrative description of the covered ser-
vices and associated CPT codes
Specific ICD-9-CM codes that may be
covered, those that are generally not cov-
ered, and those that are never covered due
to statutory interpretation (e.g., screening
tests for diseases or disease precursors)
Content of narrative Defines indications, coding guidelines,
section and limitations
Updates NCDs have been updated with technical
corrections on a regular basis and commu-
nicated to payors and providers through
program memoranda and transmittals
issued by the CMS.
662 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

CPT codes are identified, as well as the ICD-CM codes that
may be covered, those that are not generally covered, and
those that are never covered due to statutory interpretation
(e.g., screening tests for diseases or disease precursors). In
addition, each NCD has a narrative section that defines in-
dications, coding guidelines, and limitations upon which
the coding portions are based. These NCDs are updated
with technical corrections based on annual coding changes
or new CMS interpretations and communicated to pro-
viders on a regular basis through transmittals issued by
the CMS. During the claim review process, the procedure
codes (CPT or HCPCS) that have been submitted are com-
pared to diagnosis codes (ICD-CM) to determine if pay-
ment is appropriate.
Local Coverage Determination
Where a national policy does not exist, or for any aspect
of a national policy for which coverage conditions are not
specified (e.g., frequency limits), a regional contractor
may issue an LCD. The contents of LCDs are very simi-
lar to those of NCDs, and each contractor must develop
software for claim review, again comparing procedure
codes (CPT or HCPCS) to diagnosis codes (ICD-CM) to
make a payment decision. A contractor advisory commit-
tee (CAC) generally develops LCDs through a systematic
process. LCDs are published in local contractor bulletins
for a review-and-comment period (generally 90 days), af-
ter which a final policy is developed and implemented.
The inequities in coverage promulgated by LCDs led to a
Government Accountability Office recommendation that
future LCD development be eliminated and existing poli-
cies be evaluated to determine if they should be incorpo-
rated into national policies or rescinded. However, at this
time LCDs are still being routinely developed and used by
local contractors. Some, particularly those for emerging
technology like molecular pathology tests, may be very
restrictive and controversial.
The Medicare Coverage Database contains all NCDs
and LCDs, local articles, and proposed NCDs. The da-
tabase also includes several other types of national
coverage policy–related documents including national
coverage analyses (NCAs), coding analyses for labs
(CALs), Medicare Evidence Development and Cover-
age Advisory Committee (MEDCAC) proceedings, and
Medicare coverage guidance documents. It should be
noted that other third-party payors similarly use medi-
cal review or technology assessment groups to develop
coverage policies. These payors generally maintain cov-
erage policies on websites. Laboratories should remain
aware of all relevant coverage documents from both fed-
eral and other payors, particularly if medical-necessity
denial trends are noted.
Screening Tests
Historically, preventive tests that screened for disease, dis-
ease precursors, or increased risk for disease in asymptom-
atic patients were not considered to meet medical-necessity
indications under Medicare. Only a very few screening
tests were reimbursed as a result of congressional action.
However, under the Medicare Improvements for Patients
and Providers Act of 2008 (MIPPA), CMS now has the au-
thority and the flexibility to add to the Medicare-covered
preventive services, including laboratory tests, if there is
sufficient evidence published such that the United States
Preventive Service Task Force (USPSTF) issues a recom-
mendation. The current laboratory screening benefits are
listed in Table 38.4. The CMS uses the NCD proposal pro-
cess to make such new screening coverage decisions. As
expected, other third-party payors similarly set coverage
conditions for specific screening tests.

Table 38.4 Medicare laboratory screening benefits

Condition Test(s) Frequency
Cardiovascular disease risk Cholesterol, lipid, and triglycerides Every 5 years
Colorectal cancer Fecal occult blood Every 12 months
Diabetes if at risk, e.g., high blood pressure, Fasting blood glucose Up to twice per year
dyslipidemia, obesity, elevated glucose, age >65,
family history, gestational diabetes
Human immunodeficiency virus if pregnant, at HIV antibody ± antigen screening testa Every 12 months or up to 3 times in
risk, or on request pregnancy
Cervical cancer Papanicolaou test (Pap smear) Every 24 months or 12 months if
high risk
Prostate cancer Prostate-specific antigen (PSA) Every 12 months
Sexually transmitted infections if pregnant or Chlamydia, gonorrhea, syphilis, and hepatitis Bb
at risk
a
See coding guidance at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM6786.pdf (last
accessed November 20, 2012).
b
See coding guidance at http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNMattersArticles/downloads/MM7610.pdf (last
accessed November 20, 2012).
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
Experimental Testing
Medicare has historically interpreted the “reasonable and
necessary” clause to mean that services that are experimen-
tal (i.e., for research or investigational use) are not reason-
able or necessary and therefore are not reimbursed. Further,
clearance or approval by the Food and Drug Administra-
tion is taken as evidence that a procedure is not experimen-
tal. Currently, however, there is much controversy in this
area, particularly in the realm of newly emerging molecular
technologies. Procedures with a category B investigational
device exemption may be reimbursed at a contractor’s dis-
cretion, as may routine tests used in support of a new in-
vestigational device or procedure in a clinical-trial setting.
However, it is still generally accepted that failure to have
Food and Drug Administration clearance or approval if re-
quired is justification for denial. In the case of laboratory-
developed tests using analyte-specific reagents (ASRs), the
tests may be approved for reimbursement by a contractor
if the assay has been properly verified in accordance with
CLIA regulations in a high-complexity laboratory, the ASR
is being used in accordance with the ASR rule, and all other
conditions for medical necessity are met. In the case of
other third-party payors, there tends to be more leniency in
coverage, as payor-specific independent technology assess-
ment groups make individual coverage decisions.
Administrative Policies
A number of Medicare administrative policies were also
developed during the negotiated rule-making process.
These policies were related to the actual processing of
claims and required contractors to accept and evaluate
all diagnostic codes submitted before making a medical-
necessity determination, allowed a narrative diagnosis to
be translated into an ICD-9-CM code if a match could be
found, and forbade the use of unpublished frequency edits
as a basis for denial of payment. In addition, although the
laboratory remains the entity that receives payment and
therefore is the entity at risk for nonpayment when a claim
is denied, the policy did clarify that the ordering providers
have a responsibility to submit required medical-necessity
documentation. Further, if documentation is not provided,
CMS contractors should notify the ordering provider that
additional documentation is required to complete the
claim for payment. The policies also clarified that absent
evidence or clear proof of medical necessity, laboratories
are encouraged to seek beneficiary signing of an ABN as-
suming financial liability in the case of denial. Such docu-
ments are also common in third-party-payor situations.
Special Coverage Conditions
The rules discussed thus far apply primarily to laboratory
services for outpatient populations. In a number of other
specific clinical circumstances, unique billing rules may
663
apply (Table 38.5). In the Medicare program, special rules
apply, particularly in the setting of end-stage renal disease
(ESRD) and its management in dialysis centers and in
payment for laboratory services in Part A skilled-nursing
facilities (SNF). Patients admitted to hospitals with pread-
mission testing are also subject to a rule called the “DRG
payment window” prior to admission and to a “date of
service rule” after discharge. Finally, each individual payor
may impose other arbitrary rules that may be discerned
only through careful evaluation of denials.
End-Stage Renal Disease
ESRD payment rules are rather complex and represent a
combination of a capitated system and a fee-for-service
system (6). Most clinical laboratory tests are included in a
composite rate payment through the Medicare contractor.
To bill separately according to the clinical laboratory fee
schedule for additional tests, 50% or more of the covered
tests must be noncomposite rate tests for a given date of
service. In addition, several unique HCPCS modifiers are
used to identify a separately billable test.
Skilled-Nursing Facility
The Balanced Budget Act of 1997 altered the manner in
which the majority of services are provided to Medicare
beneficiaries in a Part A–covered SNF stay. All reimburse-
ment was bundled into a single composite prospective
payment. While there are a few exceptions that represent
separately payable services, laboratory services are gener-
ally included in the composite per diem. In a Part B stay in
Table 38.5 Special coverage conditions
ESRD Complex payment rules that represent a
combination of a capitated system and a
fee-for-service system
SNF All reimbursement is bundled into a single
composite prospective payment; there are a
few exceptions, but laboratory services are
included in the composite per diem.
Three-day window Used to prevent transfer of charges from the
capitated DRG system to a fee-for-service
Part B system. Specifies that laboratory ser-
vices performed by a hospital are included
in the DRG payment for a related admission
within the preceeding three-day period.
Date of service rule Tests ordered after discharge on exist-
ing samples within a 14-day window are
covered under the DRG payment and not
billed separately. May place costs for eso-
teric procedures on the hospital.
Other private-payor Third-party payors model coverage rules
rules on Medicare; however, each has its own
guidelines for reimbursement.
664 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
which Part A benefits have been exhausted, certain medi-
cal services, including laboratory tests, may be payable ac-
cording to the previously described rules.
Ambulatory Payment Classifications
Ambulatory payment classifications (APCs) are used
for prospective payment for outpatient services. At this
time, laboratory services are not included in the prospec-
tive payment but are billed and paid separately as previ-
ously described for outpatients. In order to better control
laboratory spending as healthcare reform progresses and
accountable care organizations (ACOs) become predomi-
nant brokers for services, it is likely that APC payments
will be modified to include laboratory services.
Inpatients
Laboratory services for hospitalized inpatients are often
established to comply with additional sets of rules. Al-
though edits such as the NCCI edits may form a basis
for correct code utilization, it is equally important to ap-
ply other diagnosis- and institution-specific checklists to
ensure that testing is performed according to established
protocols. Since payment is made prospectively (e.g., by
DRG), it is very important to establish laboratory proto-
cols that contribute to safe and clinically effective patient
management while expending resources in a rational and
cost-effective manner.
Three-Day Window
Patients admitted to the hospital and eligible for Part A
services frequently require preadmission testing. To pre-
vent the transfer of charges from the capitated DRG system
to a fee-for-service Part B system, Medicare implemented
the three-day payment window, which specifies that labo-
ratory services performed three days prior to admission by
a hospital or by an entity wholly owned or operated by a
hospital are included in the DRG payment for the subse-
quent hospitalization. In short-term hospital settings, the
window is reduced to one calendar day.
Date of Service Rule
After discharge, there are also Medicare rules restricting
payment for tests ordered on samples collected during the
hospital stay. Tests ordered on existing samples within a
14-day window are covered under the DRG payment and
not billed separately. This policy may cause delays in test
ordering and may also place a hospital in an unfavorable
reimbursement situation for more esoteric tests referred
out for testing. Under a provision of the Patient Protec-
tion and Affordable Care Act, a demonstration project is
planned to review payment mechanisms for certain com-
plex laboratory tests, particular molecular pathology tests,
in this setting.
Other Private-Payor Rules
While many third-party payors model their coverage rules
on Medicare, each has its own guidelines for reimburse-
ment. A large laboratory may interact with several hun-
dred unique payor plans, and the ability to triage claims for
compliance with all payment rules absolutely depends on
regularly updated claims-processing software. Fortunately,
these payors tend to be more liberal in reimbursement for
services, yet as healthcare costs rise, rules restricting pay-
ment for services will almost certainly become an attrac-
tive means to control costs.
Remittance Advice Review
Beneficiary Documents
The importance of review by the laboratory of the bases
for denial or adjustment of claims by all payors cannot be
overemphasized (9). For beneficiaries, a specific explana-
tory statement termed an explanation of benefits or expla-
nation of medical benefits accompanies each denial by any
payor. In the Medicare program, a beneficiary receives a
Medicare summary notice (previously termed an expla-
nation of Medicare benefits). These documents provide
specific and standardized explanatory information that
identifies the reason for the denial. This information can
be used to attempt to obtain additional documentation
from the ordering provider to resubmit the claim, initiate
an appeal process, or bill an alternative responsible party
(i.e., client or patient) if appropriate.
Provider Documents
Laboratories also receive remittance advice reports from
Medicare contractors and other payors that provide an ex-
planation of the disposition of a claim for specific patients
in a given period. These reports list the deficient items that
are responsible for preventing expected payment. Under
the Health Insurance Portability and Accountability Act
of 1996, two sets of standardized codes are now required
to convey this information to providers. The claim adjust-
ment “reason codes” communicate why a claim for service
was “adjusted” (i.e., paid differently from expected) and are
maintained by the American National Standards Institute
(ANSI). The “remark codes” add greater specificity and ad-
ditional explanatory narrative to the reason codes. The CMS
is the national maintainer for the standard remark codes.
Current reason and remark codes are maintained and ac-
cessible at a centralized website (http://www.wpc-edi.com/
Reference/, last accessed November 20, 2012).
Auditing Remittance Advice
Careful review of these remittance documents provides a
mechanism to identify billing problems that are costly in
terms of both uncompensated labor and lost revenue (4).
Recent data indicate that the most common reasons for
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
denial include lack of medical-necessity documentation,
the fact that the service performed is noncovered (gener-
ally if used for screening purposes), inadequacy or lack
of basic identifying documentation (particularly date of
service, ordering provider identifier number, and patient
identification number), and incorrect coding (both pro-
cedure and diagnosis). Studying these reports to identify
trends can identify systematic problems often resulting
from a simple failure to follow the payor rules and can lead
to successful interventions to correct the problems and
enhance appropriate reimbursement. A number of case
studies have demonstrated significant improvement in re-
imbursement after implementation of processes to ensure
adequate documentation and compliance with rules prior
to claim submission.
Summary
Knowledge of and understanding of the rules set forth by
third-party payors that determine whether a claim submit-
ted for laboratory services will be paid are key to success
in the laboratory. Many of the rules emanate from Medi-
care statutes, with resulting regulations that are designed
to ensure that only services that are deemed medically
necessary for management of a disease condition are paid
for. However, in a few defined circumstances, payment has
been deemed appropriate for certain specific preventative
medicine test procedures. Design of a system that attempts
to ensure compliance with all of the known rules and reg-
ulations from federal and other payors can significantly
reduce costly and time-consuming claim resubmissions.
Likewise, the system will ensure timely reimbursement for
services that are considered to be covered and allow for al-
ternative billing of the appropriate responsible party in the
event of a denial. Indeed, such rules lay a consistent and
logical, if not always mutually agreed upon, ground for re-
imbursement. In addition, since the majority of these rules
are published and readily accessible from payors, a system-
atic approach not only ensures payment for services, but
lays a firm foundation for regulatory compliance.
KEY POINTS
■ Medicare payor rules are based on regulations arising
from statutes and often form the basis for claims review
by other payors.
■ Rules for reimbursment are applied through stringent
claim review processes.
■ Failure to complete all required data fields in a claim for
laboratory services will result in a denial from a third-
party payor.
■ It is important to understand the types of prepay edits
that can result in claim denials.
665
■ Both procedures and diagnoses are considered in mak-
ing a medical necessity payment determination.
■ The concept of medical necessity forms the basis for
claim denials in both the public (Medicare) and private
sectors.
■ It is important to understand how NCDs, LCDs, and
other conditions of coverage are set and how to contact
the payors for claim denial clarifications.
■ It is important to recognize that postpay audits may be
conducted by payors to ensure compliance with billing
rules.
■ Postpay audits may result in the laboratory being re-
quired to return payments if billing compliance prob-
lems are noted.
■ The importance of reviewing all claim denials to iden-
tify trends for process improvement cannot be overem-
phasized.
GLOSSARY
Advance beneficiary notice (ABN) A waiver of liability used by
the provider to notify Medicare beneficiaries prior to receiving a
service that it may not be a covered service and that they may
have to assume financial responsibility. Similar notices are used
by other payors.
Ambulatory payment classification (APC) A prospective pay-
ment amount assigned to an outpatient visit for a specified clini-
cal condition.
American National Standards Institute A private organization
that oversees development of and accredits nationally used stan-
dards. In the Medicare program, the claim adjustment reason
codes are maintained by ANSI.
Analyte-specific reagent (ASR) An essential component of a
laboratory-developed test that is integral to the detection of an
analyte. If the ASR is used in accordance with the ASR regula-
tions and all other reasons for medical necessity are met,
laboratory-developed tests may be reimbursed at the discretion
of a contractor.
Claim The claim form or invoice, which allows transmission of
the bill to a payor.
CMS-1450 (formerly UB-92) Manual claim form used for insti-
tutional (e.g., hospitals, nursing homes) claims for Medicare Part
A services.
CMS-1500 Manual claim form authorized by the CMS for filing
Medicare Part B claims.
CMS-5010 Standard form used for electronic claims submission.
The CMS requires electronic submission with few exceptions.
Conditions of coverage A determination by a payor of the cir-
cumstances under which a particular procedure will be paid for.
Conditions of participation The requirements that a healthcare
provider must meet to be able to bill a payor and be reimbursed
by that payor for services rendered.
666 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
Contractor Third-party payor who administers Medicare Part
A and Part B payments according to providers (e.g., hospitals,
physicians, ancillary and commercial laboratories) in accordance
with payment policies (e.g., NCDs and LCDs).
Contractor advisory committee (CAC) A committee estab-
lished by a Medicare contractor to assist in development of local
coverage determinations (LCDs).
Current Procedural Terminology (CPT) Proprietary service
codes developed and maintained by the American Medical As-
sociation and required for filing claims and billing of Medicare
and other payors.
Diagnosis code Medical diagnoses are assigned a numerical
code from a document entitled International Classification of
Diseases, Revision (Clinical Modifications). The 9th edition
(ICD-9-CM) will be replaced by a substantially updated 10th
edition (ICD-10-CM) in 2014. The ICD-CM code refers to the
clinical reason for a patient’s encounter.
Diagnosis-related groups (DRGs) Classification system devel-
oped at Yale that defines more than 700 major diagnostic catego-
ries and places patients into case types based on the ICD-CM
classifications. Substantially updated in 2007 as MS-DRG (Medi-
care severity adjusted).
End-stage renal disease (ESRD) The term used for Medicare
beneficiaries who have permanent kidney dysfunction requiring
dialysis treatment.
Food and Drug Administration clearance Failure to have re-
quired Food and Drug Administration clearance or approval for
a particular test is generally justification for claim denial.
Health Insurance Portability and Accountability Act of 1996
Title I resulted in regulations to protect health insurance cover-
age for workers and their families when they change or lose
their jobs. Title II requires the Department of Health and Hu-
man Services to establish national standards for electronic
healthcare transactions and national identifiers for providers,
health plans, and employers. It also addresses the security and
privacy of health data. Adopting these standards will improve
the efficiency and effectiveness of the nation’s healthcare sys-
tem by encouraging the widespread use of electronic data inter-
change in healthcare.
International Classification of Diseases, Version 10, Procedure
Coding System (ICD-10-PCS) Laboratory coding system in-
tended for use as an alternative to CPT; not yet in use.
Medicaid program Established under Title XIX of the Social
Security Act, which provides health insurance to indigent pa-
tients; the state and federal governments fund the program
jointly.
Medical necessity The determination of ICD-9-CM codes for
which a CPT code will be reimbursed as reasonable and
necessary.
Medicare Federally managed health insurance plan covering
Americans over age 65 and Americans under age 65 who have
certain disabilities and for most patients with ESRD; established
by a 1965 amendment to the Social Security Act.
Modifier Modifiers are composed of two-digit numbers (CPT)
or letters (HCPCS) that are appended to a specific CPT code
prior to the billing process. Modifiers are “used to indicate that a
service or procedure has been altered by some specific circum-
stance but not changed in its definition or code” (1a).
National Correct Coding Initiative (NCCI) A Medicare pro-
gram initiated in 1996 and managed by a specific contractor that
evaluates and publishes procedure code sets to determine if two
or more unique codes are appropriately ordered on the same date
of service. Edits fall into two major categories: comprehensive/
component and mutually exclusive. Edits also indicate the code
pairs in these edit categories for which a modifier (generally -59)
may be appropriate.
National Technical Information Service (NTIS) Publishes the
NCCI procedure code edit documents on a quarterly basis.
Neg Reg Negotiated Rulemaking Committee for diagnostic
clinical laboratory tests. The committee was charged with the de-
velopment of national coverage determinations of medical ne-
cessity for select laboratory tests as a component of the Balanced
Budget Act of 1997.
Not medically necessary The determination that an ICD-9-CM
code does not justify payment.
Postpay audits A targeted evaluation of claims for accuracy
and compliance with billing rules after payment has been made.
Detected errors render payments already made subject to
reimbursement.
Prepay edits Edits used for the systematic evaluation of claims
for accuracy and compliance with billing rules prior to payment.
Detected errors render the claim subject to denial.
Reason codes The Claim Adjustment Reason Codes (CARC)
are part of a national code set that identifies the reasons for any
difference between the provider charge for a service and the pay-
or’s payment for a service. This code set is maintained by a na-
tional code maintenance committee.
Reasonable-charge methodology Based on inherent reason-
ableness, authority to arbitrarily increase or decrease payment.
Regulations Legally binding rules developed to implement a
statute.
Remark codes The Remittance Advice Remark Codes (RARC)
are used to convey information about remittance processing or
to provide a supplemental explanation for an adjustment already
described by a Claim Adjustment Reason Code (CARC). RARC
codes are maintained by the CMS.
Social Security Act of 1967 Provided for healthcare benefits for
“the diagnosis or treatment of illness or injury or to improve the
functioning of a malformed body part” in the elderly and, subse-
quently, in disabled individuals.
Statute A law passed by the U.S. Congress or a state legislature.
Transmittal The mechanism by which the CMS conveys infor-
mation regarding the Medicare program to providers and payors
(e.g., national coverage determinations that have been updated
with technical corrections).
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
REFERENCES
1. Alwell, M. 2003. Stem revenue losses with effective CDM man-
agement. Healthc. Financ. Manag. 57:84–88.
1a. American Medical Association. 2012. Principles of CPT Coding.
AMA Press, Chicago, IL.
2. Carter, D. 2002. Optimizing revenue by reducing medical neces-
sity claims denials. Healthc. Financ. Manag. 56:88–94.
3. Cathey, R. 2003. 5 ways to reduce claims denials. Healthc. Financ.
Manag. 57:44–48.
4. Mesaros, F. 2000. The remittance advice, auditing for compliance.
Clin. Leadersh. Manag. Rev. 14(2):69–71.
5. Murray, M. E., and J. B. Henriques. 2003. Denials of reimburse-
ment for hospital care. Manag. Care Interface 16:22–27.
667
6. Parker, S., N. Davidson, and R. Gagliano. 2002. Preventing and
dealing with ESRD claim denials. Nephrol. News Issues 16:18–21,
25–26.
7. Reed, R. L., II, K. A. David, G. M. Silver, T. J. Esposito, V. Tsit-
lik, T. O’Hern, and R. L. Gamelli. 2003. Reducing trauma pay-
ment denials with computerized collaborative billing. J. Trauma
55:762–770.
8. Reiser, W. S., and B. O. Brunicardi. 2002. Assessing the impact of
Medicare payment changes. Healthc. Financ. Manag. 56:68–71.
9. Scott, M., and D. Nguyen. 2009. Clinical laboratory compliance:
something old, something new. Lab Med. 40:428–435.
10. Wallack, S. S., and C. P. Tompkins. 2003. Realigning incentives
in fee-for-service Medicare. Health Aff. (Millwood) 22:59–70.
668 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
APPENDIX 38.1 Federal Register Guidance Documents
NEGOTIATED RULEMAKING
Federal Register. 2001. Rules and regulations, Medicare pro-
gram; negotiated rulemaking: coverage and administrative
policies for clinical diagnostic laboratory services. Fed. Regist.
66:58788–58890.
CATEGORY B IDEs
Federal Register. 1995. Medicare program; criteria and pro-
cedures for extending coverage to certain devices and related
services—HCFA. Final rule with comment period. Fed. Regist.
60:48417–48425.
APPENDIX 38.2 Websites Related to Reimbursement Processes
CMS
http://www.cms.gov (last accessed November 20, 2012)
Searchable CMS homepage.
http://www.cms.gov/Medicare/Coding/ICD10/downloads/
Versions5010TestingReadinessFactSheet.pdf (last accessed
November 20, 2012)
Electronic form 5010.
http://www.cms.gov/medicare-coverage-database (last accessed
November 20, 2012)
Medicare NCD and LCD database.
http://www.cms.gov/Medicare/Coding/NationalCorrectCodInitEd/
index.html (last accessed November 20, 2012)
NCCI index.
http://medicare.gov (last accessed November 20, 2012)
Searchable Medicare beneficiary information website.
http://www.medicare.gov/Pubs/pdf/11100.pdf and http://www
.medicare.gov/Pubs/pdf/10110.pdf (last accessed November 20, 2012)
Preventive services.
http://www.cms.gov/MLNGenInfo (last accessed November 20, 2012)
Medicare Learning Network index.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/ABN_Booklet
_ICN006266.pdf (last accessed November 20, 2012)
Advance beneficiary notices.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/form_cms-1500_fact
_sheet.pdf (last accessed November 20, 2012)
Form 1500.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/ub04_fact_sheet.pdf
(last accessed November 20, 2012)
Form UB-04.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/RA_Guide_Full_03-22
-06.pdf (last accessed November 20, 2012)
Remittance advice guide.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNMattersArticles/downloads/MM7683.pdf
(last accessed November 20, 2012)
Remittance advice remark codes.
ANALYTE-SPECIFIC REAGENTS
Federal Register. 1997. Medical devices; classification/reclassifi-
cation; restricted devices; analyte specific reagents—FDA. Final
rule. Fed. Regist. 62:62243–62260.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/MedicareClaim
SubmissionGuidelines-ICN906764.pdf (last accessed November 20,
2012)
Claims submission guide.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/MCRP_Booklet.pdf
(last accessed November 20, 2012)
Claims review process.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/How-To-Use-NCCI
-Tools.pdf (last accessed November 20, 2012)
National Correct Coding Initiative.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/AcutePaymtSysfctsht
.pdf
Acute care hospital inpatient prospective payment system.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/hospitaloutpaysysfctsht
.pdf
Outpatient prospective payment system.
Office of Inspector General
https://oig.hhs.gov/ (last accessed November 20, 2012)
Compliance program guidance, fraud alerts, advisory opinions, red
book, and work plan.
Washington Publishing Company
http://www.wpc-edi.com/reference/ (last accessed November 20,
2012)
ASCX12 code maintenance site.
http://www.wpc-edi.com/reference/codelists/healthcare/claim
-adjustment-reason-codes/ (last accessed November 20, 2012)
Claim adjustment reason codes.
http://www.wpc-edi.com/reference/codelists/healthcare/
remittance-advice-remark-codes/ (last accessed November 20,
2012)
Remittance advice remark codes.
U.S. Preventive Services Task Force
http://www.uspreventiveservicestaskforce.org/ (last accessed
November 20, 2012)
 CHAPTER 38. RULES AND REGULATIONS IN REIMBURSEMENT
APPENDIX 38.3 Medicare’s NCCI Editsa,b
PART 1: HELPFUL QUESTIONS AND ANSWERS
How do I obtain a copy of the CCI Policy and Edits Manual?
Two ways: (i) through the CMS website at http://www.cms.gov/
Medicare/Coding/NationalCorrectCodInitEd/index.html (last ac-
cessed November 20, 2012) and (ii) by purchasing the manual, or
sections of the manual, from the National Technical Information
Service (NTIS) website at http://www.ntis.gov/products/cci.aspx
(last accessed November 20, 2012) (NTIS: 1-800-363-2068).
Are the edits in the CCI Edits Manual valid for a whole year?
No, the edits are updated quarterly. However, the NCCI Policy
Manual is updated annually in October.
What does the effective date mean for CCI edits?
This date applies to the dates of service on or after a given date.
Do I need to obtain each version update of the CCI to manage
our coding practices effectively and efficiently?
Yes, there are various numbers of changes in every update.
Do the edits change that much between quarterly updates?
The number of changes depends on the volume of comments
received, modifications processed, and edits reviewed.
There are some software coding programs that already con-
tain the CCI edits. Do I still need to purchase the manual from
NTIS?
At this time, the official method for providers to receive the CCI
edits is through the CMS website or through NTIS. It is up to the
hospital and the physician to be aware of the quarterly updates to
the CCI Edits Manual.
Is there a list of deletions to each version update available, or
do I have to do a comparison between the previous and the cur-
rent version updates to determine what was actually deleted?
The electronic file that is available on the CMS website has sev-
eral columns that include the effective dates and deletion dates of
the CCI edits. However, the CCI Manual (specifically the printed
version) available from NTIS does not list the effective and dele-
tion dates of the CCI edits.
How are the CCI edits arranged in the manual?
The edits are arranged in a single table as column 1/column 2 cor-
rect coding edits. This table now includes codes previously des-
ignated mutually exclusive codes and comprehensive/component
edits, and other edits based on correct coding conventions. In the
table, the column 2 codes are not payable with the column 1 codes
unless the edit permits the use of a modifier associated with CCI.
If I want to determine what codes/procedures are paired with
a certain code, how can I find this out?
NTIS provides the printed versions of column 1/column 2 cor-
rect coding. The NTIS electronic version allows you to search for
a code in the database in either position.
669
What are some of the possible denial messages that may be dis-
played on the beneficiary’s explanation of medical benefits?
“Medicare does not pay for this service because it is part of an-
other service that was performed at the same time.”
“Payment is included in another service received on the same
day.”
Does anyone have input about these edits before they are
implemented?
Edit modifications resulting from comments are often referred
to medical societies prior to final disposition of the edit. In ad-
dition, the American Medical Association receives a listing of all
changes at least one month prior to the quarterly implementa-
tion of a new version of the CCI.
PART 2: TERMS AND DEFINITIONS THAT APPLY
TO CCI
What are CCI edits?
CCI edits are pairs of CPT or HCPCS level II codes that are not
separately payable except under certain circumstances; the edits
are applied to services billed by the same provider for the same
beneficiary on the same date of service.
What does it mean when codes are considered mutually exclu-
sive of each other?
Mutually exclusive codes represent procedures or services that
could not reasonably be performed at the same session by the
same provider for the same beneficiary.
What exactly does “column 1” mean in the coding edits table
and in the mutually exclusive edits table?
The column 1 code generally represents the major procedure
or service when reported with the column code. When reported
with the column 2 code, “column 1” generally represents the
code with the greater work relative-value units of the two codes.
However, within the mutually exclusive edit category, “column 1”
generally represents the procedure or service with the lower work
relative-value units and is the payable procedure or service when
reported with the column 2 code.
What are mutually exclusive edits?
This edit table contains edits consisting of two codes for services
that cannot reasonably be performed together based on the code
definitions of anatomic considerations. If the two codes of an
edit are billed by the same provider for the same beneficiary for
the same date of service without an appropriate modifier, the col-
umn 1 code is paid.
a
The information in this appendix is from http://www.cms.gov/Medicare/Coding/
NationalCorrectCodInitEd/index.html (last accessed November 20, 2012).
b
The website for the current NCCI contractor is http://correctcodingsolutions.com
(last accessed November 20, 2012).
Introduction
Improper Payments
39 Reimbursement Compliance
Program Integrity Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Authority for Program Integrity • Activities in
Program Integrity
Payor Integrity
Prepayment Review • Postpayment Review
Laboratory Provider Integrity
The Seven Essential Elements • Specific Areas of
Concern OBJECTIVES
Coding and Billing Issues To describe what constitutes fraud and/or abuse
CPT Coding • Modifiers • ICD-CM Coding • The
Requisition • Special Ordering Situations To discuss specific examples of the most common forms of fraud and abuse
Medical-Necessity Issues found in the public and private sectors
Record Retention To discuss a prepayment review and its relationship to reimbursement
Marketing Practices To describe some of the legal ramifications that might be associated with a
Pricing and Inducements • Ordering Provider and postpayment audit
Patient Communication
To define the seven key elements within a sound compliance program
Fraud Alerts and Advisory Opinions
To list some of the acceptable marketing practices, as well as some that may not
Auditing and Monitoring
be in compliance
Response to Possible Fraud or Abuse
To provide several specific examples of potential laboratory fraud and abuse
Laboratory Examples of Fraud and
Abuse
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Money made through dishonest practices will not last long.
Chinese proverb

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch39
W
ith the extensive array of statutory, regulatory, and other payor-
defined rules that exist with regard to billing for healthcare services,
including laboratory medicine, it is no surprise that improper pay-
ments are not uncommon. Improper payments may be either over or under
the appropriate amount, and they may result from actions on the part of the
provider or a provider’s contracted billing entity or the payor. To minimize and
control improper payments, including those that are intentional and therefore
potentially fraudulent, all entities involved in reimbursement should have for-
mal review processes in place. Collectively these processes are referred to as
a “compliance program.” The most extensive review program encountered in
the laboratory is that developed by the federal government under the head-
ing of “program integrity.” A strong compliance program uses a systematic
approach for prevention, detection, and correction of improper payments for
healthcare services to preserve the integrity of the provision of healthcare ser-
vices. In laboratory medicine, program integrity includes elements that ensure
both accurate billing by the laboratory and accurate payment by the payor.
Compliance expectations modeled after the federal program exist for essen-
tially all third-party payors to ensure that appropriate payment is made for
covered services but not made in noncovered situations.

670
 CHAPTER 39. REIMBURSEMENT COMPLIANCE 671

Improper Payments medicine industry has been the subject of intense scru-
tiny for evidence of systematic attempts to receive im-
Improper laboratory payments are payments made to a
proper payment (15). A systematic process of receiving
laboratory provider for testing that was not indicated based
inappropriate payment is often referred to collectively as
on the documentation provided, including the codes sub-
“fraud and abuse.” Identification of fraud and abuse may
mitted or the clinical condition of the patient. Improper
result in criminal and civil liabilities as well as payback of
payments can be categorized as errors, waste, abuse, or
amounts determined to be paid in error by both federal
fraud (Fig. 39.1). Errors generally result from simple mis-
payors and private third-party insurers. However, it is im-
takes in completing documentation on the requisition or
portant to recognize that innocent errors and mistakes do
claim form or from unintentionally assigning an incorrect
occur. Only in the case of actual knowledge of the falsity of
code for the procedure or the diagnosis. Waste generally
a claim, reckless disregard of the truth of the claim, or de-
results from inefficient practices leading to overutilization
liberate ignorance of the correct process will civil or crimi-
or in some cases from performing medically unnecessary
nal legal action be taken. Truly innocent false or incorrect
testing. Abuse can be considered as “bending the rules”
claims generating overpayment are generally simply sub-
and generally results from improper billing practices.
jected to repayment.
This can include a wide range of behaviors including but
Both private insurers and federal payors have identified
not limited to billing for a noncovered service, misusing
situations that are associated with fraud and abuse. These
codes on a claim out of compliance with coding conven-
activities include the following:
tions (e.g., upcoding or unbundling), and inappropriately
allocating costs on a cost report (e.g., for diagnosis-related
• Providing an incorrect diagnosis or misrepresenting the
group submission). While these types of activities are not
diagnosis to justify payment. This is known as code
acceptable, and any payment deemed inappropriate should
jamming (i.e., inserting a code that was not provided
be returned, they are not considered fraudulent. Fraud is
by the ordering provider but that will justify payment).
distinguished on the basis of intent. Thus, laboratory fraud
Another practice is code steering (i.e., providing lists
may be defined as the intentional deception or misrepre-
of diagnosis codes that are known to justify payment).
sentation of documentation on a claim to purposely receive
reimbursement for services not performed, not necessary, • Billing for services not performed as ordered. Perform-
or performed at a higher level or frequency or including ing and billing for tests not ordered is a straightfor-
more units of service than appropriate. Fraud may also re- ward incorrect practice, but performing a related test
sult from certain business arrangements that may lead to for which the Current Procedural Terminology (CPT)
inappropriate utilization of and overpayment for services. code pays at a higher level is also incorrect (termed
Fraudulent activities are frequently systematic and may re- “upcoding”).
sult in significant amounts of improper payment. • Unbundling or “exploding” charges by billing for indi-
Claim review processes will identify many unintentional vidual codes rather than using a Center for Medicare
errors, particularly those pertaining to inadequate docu- and Medicaid Services (CMS)–approved comprehensive
mentation. However, for two decades now, the laboratory or panel code or routinely billing mutually exclusive

Figure 39.1 Program integrity activities focus on

prevention and detection of improper payments re-
Spectrum of improper payments
sulting from a spectrum of related coding and bill-
in the laboratory ing activities (adapted from http://www.cms.gov/
Medicare-Medicaid-Coordination/Fraud-Prevention/
Errors Waste Abuse Fraud $ MedicaidIntegrityProgram/downloads/cpiinitiatives
$ .pdf). doi:10.1128/9781555817282.ch39.f1
Lost
Bending Intentional $
Mistakes Inefficiencies
the Rules Deception
$
Medically Improper Billing for
Incorrect
Unnecessary Billing Test Not
Coding
Test Practice Performed
672 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
codes. The National Correct Coding Initiative (NCCI)
has been previously discussed (chapter 38) as a system
by which all federal claims are subjected to a prepay
review process to identify incorrect use of codes as
described above. The correct use of “comprehensive”
codes rather than “unbundled” individual codes, the
routine “bundling” of codes and attaching them to a
specific orderable code absent evidence of the medical
appropriateness of doing so and with the knowledge
and approval of the ordering providers that it is being
done, and the routine use of mutually exclusive codes
with modifiers to bypass edits absent the same criteria
for medical appropriateness and with provider knowl-
edge and approval are all considered suspect.
• Referral of testing to a laboratory facility in which the
ordering provider has a financial interest. Legislation
known as the Stark Laws generally disallows billing for
services performed in a laboratory in which a provider
or an immediate family member has a financial inter-
est. There are some clearly defined exceptions that
allow billing, but self-referral arrangements are highly
suspect and intensely scrutinized.
• Routine waiver of deductibles and copayments on non-
Medicare patients or offering charges lower than ac-
cepted market value. Any attempt to offer incentives to
nonfederal payors to encourage them to also submit
federal program testing is termed “inducement” and is
a violation of elements of both the Stark legislation and
the federal Anti-Kickback Statute. The routine offering
of waivers for amounts due or the routine billing for a
service that pays at a lower level to encourage utiliza-
tion (termed “downcoding”) is similarly inappropriate.
Recent Office of Inspector General (OIG) proposals in-
dicate the intent to look closely at the common practice
of laboratory discounts to determine if the Medicare
program payment amounts are excessive relative to the
charges to a laboratory’s other clients.
• Soliciting, offering, or receiving a kickback in exchange
for receiving business. The provision of any item of
value in exchange for referral of federal business to a
laboratory is also prohibited as a violation of elements
of both the Stark legislation and the federal Anti-
Kickback Statute. The provision of free testing services
to clients (termed “professional courtesy”), free sup-
plies other than those used strictly in the provision of
laboratory services, and free data summary reports
used for purposes other than evaluation of laboratory
utilization (e.g., antibiograms, drug-of-abuse profiles)
are unacceptable practices. Also suspect are clinical
trial work done for no charge and routine leasing of
laboratory space, primarily for specimen collection by
a laboratory-affiliated phlebotomist, at rates higher
than usual. One can say that any value-added service
has value and should therefore be billed to the client at
its fair market value. There are some well-defined ex-
ceptions to the Stark laws, termed “safe harbors.” These
exceptions are particularly important in the provision
of electronic health record (EHR) systems for test or-
dering and result transmission.
Many specific examples of situations involving these or
other practices have been identified through review pro-
cesses under program integrity. Descriptions are available
in documents from both CMS and OIG.
Program Integrity
Simply stated, the goal of program integrity is to “pay it
right.” That is, the goal is topay the right amount to the
right provider for the right service to the right beneficiary.
Provisions to address the issue of program integrity in fed-
eral programs can be found in a number of statutes and
resulting regulations.
Authority for Program Integrity
A primary basis for Medicare program integrity lies in pro-
visions of the Social Security Act and CMS interpretation
of resulting regulations. Services that are authorized by
law are those described in Section 1828(a)(1)(A), which
states that Medicare will pay for services “that are reason-
able and necessary for the diagnosis or treatment of illness
or injury or to improve the functioning of a malformed
body member.” This provision has been interpreted to in-
dicate that preventative services are in general not covered
except as defined by statute or CMS rulings. This phrase
is also the basis for the development of medical-necessity
rules for reimbursement. Medicaid and Children’s Health
Insurance Program (CHIP) coverage is generally based on
criteria established by states administering the program,
and other third-party payors establish their own coverage
criteria, but in all cases the Medicare system frequently
serves as a model. Failure to comply with and abide by the
rules established by any payor may put a laboratory at risk
for legal action.
To enforce compliance with government rules and reg-
ulations for federal reimbursement for healthcare services,
in 1981 Congress enacted the Civil False Claims Act and
the Civil Monetary Penalties Law. These laws authorized
the Secretary of Health and Human Services (HHS) to
impose civil monetary penalties (CMPs) for knowingly
violating Medicare rules and regulations to receive im-
proper payment from the federal government for services.
In addition, the Secretary could specifically exclude an in-
dividual or entity determined to be in violation from par-
ticipation in providing services to and receiving payment
for federal program beneficiaries for designated periods.
In 1994, the responsibility for enforcing Medicare statutes

was realigned between both the CMS (the Health Care Fi-
nancing Administration, HCFA, at that time) and the OIG.
The HCFA was given responsibility for program compli-
ance, and the OIG was given responsibility for CMPs
involving fraud and abuse. Finally, in 1996, the Health
Insurance Portability and Accountability Act (HIPAA) in-
creased maximum CMPs to $10,000 per item or service
in noncompliance (increased from $2,000) and increased
assessments to three times the amount claimed (increased
from two times the amount). HIPAA also established a
formal Health Care Fraud and Abuse Control Program to
combat such activities in claims filed by both public and
private payors. It is noteworthy that HIPAA also paved the
way for better enforcement of billing compliance for non-
Medicare payors.
Two additional pieces of legislation that are important
for program integrity are the Anti-Kickback Statute from
1987 and the physician self-referral laws known as the
Stark Laws initially passed in 1989. The Anti-Kickback
Statute makes it a criminal offense to knowingly offer,
pay, solicit, or receive any type of payment as an induce-
ment or reward for referrals of items or services payable
by a federal health care program. The Stark Laws prohibit
physician referral for designated healthcare services per-
formed by an entity in which the physician or an immedi-
ate family member has a financial interest. The intent of
both is to ensure that business practices do not allow for
improper payments.
It should also be noted that the CMS has the author-
ity and responsibility under the Clinical Laboratory Im-
provement Amendments (CLIA) to ensure compliance by
registered laboratories with all applicable federal rules and
regulations. On a yearly basis, the CMS makes publicly
available a listing of laboratory providers who have failed
to comply with regulations pertaining to billing and reim-
bursement. The listing includes those laboratory providers
to which the following apply:
• They have been convicted of fraud and abuse under
federal or state laws.
• They have appeals and hearings pending for the same.
• They have been excluded from participation in federal
programs.
• CMPs have been imposed on them.
Also under HIPAA’s Privacy Rule is the authority to
perform automated tracking. Complaints, incidents, al-
legations, investigations, and dispositions logged by any
beneficiary or participant in a federal program can be
tracked by CLIA number to generate provider-specific
data. Automated tracking is recognized as an extremely
important strategy for the future, and such efforts have
been greatly enhanced under the Affordable Care Act. Sys-
tematic, electronic analysis and tracking has the potential
CHAPTER 39. REIMBURSEMENT COMPLIANCE 673
to move efforts to reduce improper payments away from
dependence on recovery to an early detection and proac-
tive prevention approach.
In sum, there are numerous lines of authority that govern
and enforce compliance with billing and reimbursement
statutes and regulations. The lines are well established, and
specific entities, primarily the CMS and the OIG together
with the Department of Justice (DOJ), carry the authority
to require payback and to impose both civil and criminal
penalties as appropriate to the situation. The Govern-
ment Accountability Office (GAO) considers healthcare
programs to be high risk for improper payment, includ-
ing fraud, since payments are generally made to “any will-
ing provider” and are made in a relatively timely manner.
Both of these features lead to a “pay and chase” approach to
dealing with improper payments. However, new program
integrity enforcement and monitoring enhancements are
being added on a regular basis, and such programs apply
not only to federal payor programs but also to private pay-
ors. In any case, if judged by indictments and payments,
program integrity efforts may be deemed highly success-
ful. A recent Health Affairs Policy briefing (7) notes that
for 2011 there were 1,430 healthcare fraud charges, with
743 criminal convictions, 977 new civil investigations, and
recovery of $4.1 billion. In addition, almost 5,000 provid-
ers had billing privileges revoked. However, since almost
25% of the $428 billion in federal healthcare payments are
thought to be improper, much work remains to be done.
Activities in Program Integrity
Given the importance of program integrity, it is not sur-
prising that the federal and state governments as well as
other third-party payors have a number of programs in
place to prevent, detect, and correct improper payments.
Several entities are involved in ensuring program integrity
for the CMS healthcare programs and are outlined in Table
39.1. In 2010, the CMS created the Center for Program In-
tegrity to serve as a focal point for all activities pertain-
ing to Medicare, Medicaid, and CHIP programs. However,
well before that date a number of ongoing activities were
in place. Contractors who administer benefits have exten-
sive medical review programs in place that evaluate both
prepay and postpay situations. In addition, several other
contractor-directed programs are in place to address pro-
gram integrity issues. For example, prepay issues have
been regularly addressed by the NCCI contractor through
quarterly update of edits since 1996.
Postpay concerns have been addressed through several
programs. The Comprehensive Error Rate Testing (CERT)
program was established in 2000. In this program, a desig-
nated contractor has responsibility for the random review
of selected claims processed by federal payors to verify that
contractor decisions are accurate and based on sound policy
674 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

Table 39.1 Government payor program integrity activities

Prepay or
Abbreviation Entity or program Postpay Activities
CERT Comprehensive Error Rate Postpay CMS program to collect and review data on statistically valid ran-
Testing dom samples of fee-for-service claims to produce annual improper
payment rates
CPI Center for Program Both CMS coordinating center for all activities pertaining to prevention,
Integrity detection, and recovery of improper payments
GAO Government Accountability Both The investigative arm of Congress charged with examining matters
Office pertaining to receipt and payment of public funds; has published a
number of reports on government healthcare spending
HEAT Health Care Fraud Preven- Both HHS and DOJ collaborative program to prevent waste, abuse, and
tion and Enforcement fraud in Medicare and Medicaid programs; uses a multiagency Medi-
Action Team care Fraud Strike Force team in selected cities
MIC Medicaid Integrity Both Contractors assigned to identify cases of suspected improper pay-
Contractors ments and take appropriate action in the Medicaid program
MR Medical review Both Targeted review by a contractor to assess claim and payment accu-
racy that may result in corrective action or lead to a formal payment
policy
NCCI National Correct Coding Prepay CMS program designed to identify procedure code pairs that are not
Initiative generally used together and to establish frequency limits on codes
OIG Office of Inspector General Both Responsible for protecting the integrity of HHS programs by devel-
oping policy guidance documents and through a system of audits,
investigations, inspections, and reports of findings; also maintains
a list of individuals and entities excluded from CMS payment pro-
grams due to misconduct
PERM Payment Error Rate Postpay CMS program to collect and review data on statistically valid random
Measurement samples of state Medicaid and CHIP claims to produce annual im-
proper payment rates
PSC Program Safeguard Postpay Contractors assigned to identify cases of suspected improper pay-
Contractors ments and take appropriate action; similar to the ZPIC program
RAC Recovery Audit Contractors Both (initially Contractors assigned to systematically identify and correct improper
postpay) payments
ZPIC Zone Program Integrity Postpay Contractors assigned to identify cases of suspected fraud and take
Contractors appropriate action; similar to the PSC program

compliant with statutes and regulations. The goal is to gen-
erate national paid claim error rates, claim processing er-
ror rates, provider compliance rates, and benefit-specific
error rates. The purpose is to provide benchmark data that
can be utilized to identify emerging trends and implement
effective corrective action. A similar program, the Pay-
ment Error Rate Measurement (PERM), was implemented
for Medicaid and CHIP data analysis in 2006.
For focused review of provider payments, Program
Safeguard Contractors were engaged in 2003 to assume
formal responsibility for the Medicare Integrity Pro-
gram. These contractors were charged with identifying
and reviewing any suspected case of improper payments.
A related entity, Zone Program Integrity Contractors
(ZPIC), focuses specifically on suspected fraud cases,
and Medicaid Integrity Contractors (MIC) focus on is-
sues regarding payment in that program. A final group,
Recovery Audit Contractors (or Recovery Auditors),
was initially established in 2003 as a pilot program and
subsequently extended nationally in 2010. These con-
tractors identify both overpayment and underpayment
and refer providers to the appropriate administrative
contractor for action.
Finally, it should be noted that there are other sig-
nificant contributors to program integrity. In 2009, the
Health Care Fraud Prevention and Enforcement Action
Team (HEAT) was developed as a joint effort by the De-
partments of Justice and HHS to evaluate potential im-
proper payments in selected cities. The GAO plays a role
in developing reports on healthcare spending to identify
potential problem areas, and of course, the OIG facilitates
all program integrity efforts. Medicare even solicits as-
sistance from beneficiaries to identify questionable reim-
bursement situations through a number of mechanisms.
Recently, the National Fraud Prevention Partnership was
announced to engage a variety of public and private enti-
ties in sharing information to stop losses to payors, in-
cluding patients, before they occur (7).

Payor Integrity
While much of the focus has been on laboratory provider
error in the claim submission process, contractors or third-
party insurers paying claims also have an absolute obliga-
tion to develop effective medical review processes. In fact,
contractors have on occasion been found to be responsible
and liable for payment errors. There are two main cat-
egories of review processes that must be developed and
implemented by the administrative contractors: those per-
formed prepayment and those performed postpayment.
Prepayment Review
Prepayment review is the preferred approach for a very ob-
vious reason. It eliminates the need to “pay and chase,” i.e.,
attempt to recoup payments made in error. Prepayment re-
view is ordinarily accomplished through a computer-based
system of defined edits similar to those used by laboratory
providers to submit “clean claims.” Prior to payment, claims
are assessed for complete documentation, correct coding,
and evidence of medical necessity (i.e., meets criteria as a
covered service). As already discussed (chapter 38), a va-
riety of edits are currently in place and include those pub-
lished as frequency limits, NCCI edits, national coverage
determinations (NCDs), and local coverage determina-
tions (LCDs). In a small percentage of cases, claims may be
manually reviewed to ensure that the edit process is correct,
and medical record documentation may be requested from
both the ordering provider and the laboratory provider. In
addition, any laboratory provider that has been identified
as having problems with correct claim submission may be
placed on routine prepayment review status.
Postpayment Review
Postpayment review is also an important component of the
claim review process. This process focuses on statistical
evaluation of subsets of claims (i) to check claims on a ran-
dom basis to function as a deterrent for fraud and abuse,
(ii) to identify aberrant patterns of utilization and billing
that may indicate a general emerging or provider-specific
problem, and (iii) to determine the extent of a particular
kind of problem that has been previously identified. When
a review is performed to detect aberrancies or specific
problems for a particular laboratory or other healthcare
provider, it is termed a focused medical review. In turn, a
focused medical review may identify a problem that results
in development of a prepayment LCD.
Postpayment review may be performed on individual
claims or on samples of claims. From review of a statis-
tically valid sample, the payor can estimate the extent of
incorrect payment made without necessarily undertaking
a complete medical record review. However, the possibility
exists that complete evaluation of all individual documen-
tation associated with testing may be performed whenever
CHAPTER 39. REIMBURSEMENT COMPLIANCE 675
a postpayment review identifies a significant problem as-
sociated with large expenditures.
Laboratory Provider Integrity
While payors have an obligation to “pay it right,” labora-
tory providers obviously have an obligation to “do it right”
in the first place. The continuing recognition of costly
systematic billing errors, including some categorized as
fraudulent, led the OIG to issue the Compliance Program
Guidance for Clinical Laboratories in August 1998 (2–4, 6,
9, 11, 13, 14). This document, which updated the previous
Model Clinical Laboratory Compliance Plan published
by the OIG in 1997, is designed primarily to ensure that
appropriate reimbursement is made through federal pro-
grams, that is, to ensure that payors “pay it right.” However,
it also provides commonsense principles for conducting
laboratory business in general by promoting the concept
of “doing it right.” The document provides guidance for
“doing the right thing” (through compliance with all reg-
ulatory and statutory rules and regulations), for “getting
paid for doing the right thing” (through correct coding
and billing practices), and for “making sure the right thing
is done” (through a systematic approach to ensuring that
rules and regulations are followed).
While the 1998 guidance is voluntary, the strategies rec-
ommended represent sound business practices and serve to
make certain that laboratories function as business entities
providing laboratory services in an ethical and legal man-
ner. The importance of a compliance program has recently
been affirmed in the 2010 Patient Protection and Affordable
Care Act (PPACA or simply, ACA) provisions that require
the Secretary of HHS to promulgate “core elements” and set
an effective date for mandatory compliance programs. The
core elements were not specified but will likely be similar
to those in the 1998 guidance. They will presumably be de-
fined through a rulemaking process, but the legislation did
not set a deadline for these actions. ACA provisions also in-
creased monies for activities related to program integrity, for
example ramped-up computer capabilities to support pro-
active data analysis and systematic audits. Under the ACA-
required revalidation process, laboratories are classified
as moderate risk, so unannounced on-site visits to ensure
compliance programs are operational may occur.
A strong foundation for an effective compliance pro-
gram requires that a laboratory provider have understand-
able and updated compliance program policies. These
policies should follow the recommendations and address
the situations discussed in the 1998 OIG guidance and
any ACA-driven core elements and should apply equally
to all payor types. The compliance program should be
comprehensive and address all relevant aspects of preana-
lytical, analytical, and postanalytical processes. The labo-
ratory must also be in compliance with all other applicable
676 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
federal, state, and local statutes and regulations (e.g., CLIA,
the Occupational Safety and Health Act, HIPAA). Labo-
ratories are in a truly unique position to provide essential
information on appropriate testing to ordering providers,
and rather than being a burden, a sound compliance pro-
gram can be thought of as an opportunity to provide such
information.
The Seven Essential Elements
The OIG compliance guidance specifies that, at a mini-
mum, a sound compliance program should include seven
key elements. These are as follows:
• There should be written standards of conduct. These
standards should promote the laboratory’s commit-
ment to the accurate, ethical, and legal practice of lab-
oratory medicine.
• There should be a chief compliance officer (CCO)
charged with procedure and protocol development,
education and training, and auditing and monitoring.
The CCO should interact with a formal corporate (or
institutional) compliance committee (CC) composed of
key individuals who are charged with approval of com-
pliance policies and with oversight of all other elements
of the compliance program. Both the CCO and the CC
should report directly to the chief executive officer.
• There should be an effort to provide standardized edu-
cation about compliance. Compliance training should
be a mandatory component of an employee’s initial ori-
entation as well as the annual competency assessment
process.
• There must be a defined process for receipt and docu-
mentation of complaints, including an opportunity for
anonymity, if desired, via a hotline.
• There must be a system to respond to allegations of
possible fraud or abuse, as well as disciplinary policies
that clearly delineate consequences for violations of
compliance policies. It is expected that a zero-tolerance
approach to violations will be taken.
• The compliance program must include the use of
ongoing monitoring and auditing tools to detect pos-
sible compliance problems as soon as possible and to
measure the effectiveness of interventions designed to
minimize the occurrence of such problems.
• The program must specify the processes for remedia-
tion of identified systemic problems and address indi-
viduals or other business associates who are sanctioned
from participation in federal programs due to a known
previous violation.
The laboratory must have representatives drawn from
the technical side of operations to address scientific and
medical concerns in policy development and assessment.
On the business side, individuals who are involved in
management, marketing, client services, coding, billing,
accounts receivable, and medical records are equally im-
portant contributors to an effective compliance program.
Specific Areas of Concern
To guarantee that the overall goals of the above elements
are met, there are a number of specific areas that the OIG
guidance identifies as critical to address. Each area should
ideally be discussed in a specific compliance policy, with
protocols or procedures for implementing the policies de-
veloped for each. In addition, each policy area should be
specifically monitored using defined audit criteria. Table
39.2 provides a listing of areas commonly requiring com-
pliance policy development. However, these may be di-
vided into five main general areas of concern:
• Coding and billing issues
• Medical-necessity issues
• Record retention
• Marketing practices
• Compliance with OIG and CMS compliance issuances
Coding and Billing Issues
Key to any successful compliance program is a clear un-
derstanding of the principles of procedure coding as well
as the accurate and complete application of those princi-
ples (chapter 35). The laboratory should be familiar with
the HIPAA standard data sets, particularly those used for
billing. These include CPT codes, International Classifi-
cation of Diseases, Clinical Modification, Revisions 9 and
10 (ICD-9-CM and ICD-10-CM) codes, diagnosis-related
groups, ambulatory payment classifications, revenue cen-
ter and provider type codes, and remittance advice codes.
CPT Coding
The laboratory must have access to a current copy of the
American Medical Association (AMA) CPT codebook as
well as to current supplementary Healthcare Common Pro-
cedure Coding System (HCPCS) codes. A comprehensive
annual review of procedure coding must be conducted to
ensure that additions, deletions, and modifications made
by the CPT editorial panel and published by the AMA
each fall are incorporated by the laboratory into the cur-
rent recommended coding by January 1. This also provides
an opportunity to ensure that previous code selections
are compatible with coding convention and reimburse-
ment rules. All associated documents such as requisitions
(manual forms and online order entry), service manuals,
charge masters, and fee schedules must also be updated to
reflect any changes. It is also recommended that at the time
of the annual CPT review, laboratories review and update
their cost analyses for use in setting laboratory charges for
procedures. In November, the CMS generally publishes a
 CHAPTER 39. REIMBURSEMENT COMPLIANCE
Table 39.2 Summary of areas requiring compliance policiesa
ABN
Ambiguous test orders
Anonymity and nonretribution
Billing for calculations
Claim submission, postsubmission review of EOMBs
Claim submission, presubmission review
CLIA regulations
Client contracts
Client supplies, provision of and monitoring
Confidentiality of medical information
Contracts with third-party billing companies
Cost reporting, laboratory component
Courier service
CPT coding
Custom panels and physician acknowledgment
Data summaries as a free service
Diagnosis information, translation to ICD-9 codes
Discounts and special prices
Education and training for customers as inducement
Employees, phlebotomists in client offices
ESRD arrangement
Excused charges and adjustments
Fraud alerts, review and compliance
Gifts, contributions, and entertainment
Health fairs as inducement
a
EOMBs, explanations of medical benefits; OSHA, Occupational Safety and Health Administration.
transmittal that sets the national limitation amounts (NLA)
for Medicare reimbursement of each CPT code, thus allow-
ing revenue projections to be made for budget purposes. In
addition, it is necessary to submit actual current charges on
Medicare claims so the lowest amount of the actual charge,
the NLA, or the contractor fee schedule amount may be
paid. Of course, it is absolutely essential that all payors be
informed of any coding or charging changes.
Modifiers
The laboratory has the responsibility for the appropriate
use of modifiers, both AMA-approved and HCPCS-based.
In general, these are added at the time of billing. However,
it is up to the laboratory to review coverage rules and edits
to determine when use of a modifier is indicated. The most
common modifiers used are those that designate advance
beneficiary notice (ABN) status (GA, GY, and GZ), those
that designate replicate use of a code (-59 and -91), one that
indicates CLIA waived status (QW), and the referred test
modifier (-90).
ICD-CM Coding
ICD-CM codes are updated twice per year and published
annually. While the ordering provider rather than the
laboratory provider selects diagnostic codes used for a
677
Home health service client arrangements
ICD-9 codes, obtaining and using
Indigent care
Medical-necessity guidelines
Monitoring utilization of laboratory services by clients
Nonemployment of sanctioned individuals
Notices to physicians
Nursing home client arrangements
OSHA regulations
Placement of equipment or products in client offices
Professional courtesy
Record retention
Reflex testing
Release of test results by phone, fax, and/or other nonroutine methods
Removal of hazardous waste for clients as inducement
Rental or lease of space from healthcare providers
Reporting compliance issues and open-door policy
Requisition design
Sales and marketing
Sales proposals
Standing orders
Test not ordered and/or not performed
Test ordering by authorized individual
Test orders, requisitions, and electronic order review
Verbal and add-on test orders
test order, it is still necessary that the laboratory maintain
updated data files for claim review. In addition, labora-
tories do have the authority to translate a narrative code
provided on a requisition into an ICD-CM code if an ex-
act match is available. Under government and most other
payor programs, a narrative or ICD-CM diagnosis is ab-
solutely required on all claims submitted, and laboratories
must make a serious attempt to obtain this information
if it is not provided. The transition from Version 9 (ICD-
9-CM) to Version 10 (ICD-10-CM) in 2014 will require
an extraordinary effort by laboratories to ensure that elec-
tronic edit systems are updated.
The Requisition
The requisition, whether online or manual, represents the
major tool used by ordering providers to select tests for use
in patient management. Thus, it should be designed to be
user friendly and include all data elements required for bill-
ing. All orderable tests must be clearly defined and represent
only AMA-developed and CMS-approved codes represent-
ing procedures, individual tests, or panels. If a special situa-
tion exists (as described below), this too should be indicated
on the requisition. It is not required that the actual CPT code
be on the requisition, although many billing experts rec-
ommend that it should be. If not on the requisition, CPT
678 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
codes must be readily accessible elsewhere (e.g., in the ser-
vice manual). In the event of receipt of an ambiguous or-
der, the laboratory is required to take action to clarify the
order. An ambiguous order is one that does not match the
test description or conditions in the laboratory. In these
cases, a laboratory should not attempt to guess the order-
ing provider’s intent. Rather, it is necessary to contact the
physician to determine the exact procedure desired.
Special Ordering Situations
There are several situations in which an orderable proce-
dure may be represented by more than one code, and these
must be clearly indicated on a requisition (Table 39.3). First
is a reflex procedure. A reflex test is defined as a second
related, codeable test that is performed automatically when
initial tests are positive or abnormal. Replicate testing per-
formed per protocol and repeat testing performed to con-
firm or verify a result are not considered a reflex (10).
Second is a composite procedure. This term is most com-
monly used to describe the battery of tests that are included
under end-stage renal disease (ESRD) payment, but the term
can also be used to describe the routine simultaneous use of
two or more unique codes to meet accreditory guidelines or
in accordance with an accepted standard of practice (e.g., mi-
crobiology: test 1, microbial stain; test 2, microbial culture).
Another term, “code-stacking,” has been used in particular
reference to procedural step code groups previously used in
molecular pathology (note that this approach was replaced
with an analyte-specific coding approach in 2013).
Under compliance guidance, the codes used for both re-
flex and composite coding situations should meet medical-
necessity requirements. In addition, what is actually done
and its associated codes must be clearly communicated to
the ordering provider, generally through the requisition
and service manual. There should also be documentation
of such communication, and notifications should be per-
formed annually. For outpatient providers a written an-
nual notice should be sent, but for inpatient care annual
Table 39.3 Examples of reflex test proceduresa
Laboratory category Primary test
Immunology RPR or VDRL, positive
Microbiology Primary culture, positive
Molecular diagnostics Pap smear with ASCUS
Toxicology Qualitative drug screen, positive
Urinalysis Nonculture bacteriuria screen or bio-
chemical urinalysis
Chemistry (7) Quantitative RT-PCR for HCV
Hematology (14) Reticulocyte count, erythrocyte mor-
phology, bilirubin, haptoglobin (help
diagnose hemolytic anemias)
a
HPV, human papillomavirus; RT-PCR, reverse transcriptase PCR; HCV, hepatitis C virus; DAT, direct antihuman globulin test.
approval by the medical staff may be preferred. Finally,
each ordering provider must have the clear choice to not
have the testing performed in that manner, but rather to
order only specific codes if desired.
The third multiple-code situation is the custom panel.
This is a grouping of several independent codes made
available as a single orderable procedure, usually as an or-
dering convenience, and generally specifically requested
by a physician to meet his or her own style of practice.
These kinds of test order groupings must meet the same
medical-necessity determination requirements as the in-
dividual components and require that a physician formally
acknowledge in writing his or her understanding of such
on an annual basis.
Lastly, one should address the issue of “standing orders.”
This practice is most common for chronically ill individu-
als with extended courses of treatment, as in a skilled-
nursing facility or ESRD setting. Although not prohibited,
the practice is discouraged. The reason is that the tests
included in the order must meet medical-necessity re-
quirements for the date of service, and that information
may not be known in advance. At a minimum, laborato-
ries should ensure that standing orders have a fixed term
and be defined in writing and that such arrangements are
renewed at expiration. The term of expiration should be
no more than one year and preferably a shorter interval.
Medical-Necessity Issues
“Medical necessity” has a specific meaning for the CMS
but is a concept used by other payors as well. It is a deter-
mination by the payor of whether the ordering provider’s
reason for ordering a test represents a condition that meets
criteria for coverage and reimbursement at a designated
level. The term does not address whether a particular test is
believed to be necessary for management of an individual
patient by a physician. From the CPT and ICD-CM codes,
the laboratory should be able to make a determination of
Reflex test
Specific treponemal serology and RPR titer
Identification and susceptibility
HPV DNA
Drug confirmation, each procedure
Urine culture positive
If quantitative test result is below limit of detection,
qualitative RT-PCR for HCV is performed.
If acute intravascular hemolysis is suspected, plasma
and urinary hemoglobins and a DAT may be ordered.

whether a claim will be paid for by a third-party payor
based on its knowledge of the particular billing rules of
the payor. The complexity of the rules, and the numbers
of payors that any given laboratory may do business with,
is such that electronic rule-based claim review is essential
to accomplish this task. If it is determined that payment is
unlikely, then the laboratory should obtain a waiver of fi-
nancial liability from the patient (e.g., the Medicare ABN)
(5). In the common setting of specimen collection by the
ordering provider, the ordering provider should make this
determination and obtain the waiver. It is acceptable for
laboratories to make copies of LCDs and NCDs, as well
as National Correct Coding Initiative edits, including in
the form of a software application, available to ordering
providers to facilitate this process. It is also recommended
that laboratories clearly indicate on requisitions tests that
are likely to be noncovered or have limited coverage (i.e.,
LCDs and NCDs). For Medicare, an annual notice should
be sent to physicians describing laboratory practices with
respect to coding and billing and reaffirming the concept
of medical necessity in making a payment determination.
Indeed, it is the responsibility of the laboratory to ensure
that physicians are aware of all Medicare and other payor
rules for coverage.
Record Retention
Adequate record retention is an extremely important
component of a compliance program. All records should
be maintained as required by applicable federal statutes
and regulations for use if needed in the investigation of
potential fraud or abuse. There might also be additional
requirements based on voluntary accreditation standards
and state laws and regulations. Federal statutory retention
times include the following:
• 42 CFR 482.24(b)(1). Condition of participation for
hospitals in federal programs specifies five years.
• 42 CFR 488.5(a). Discussion of accreditation standards
deemed to meet Medicare conditions of participation
indicates variable times of at least five years.
• 42 CFR 493.1105. CLIA of 1988 (CLIA ’88) specifies
two years for test requisitions.
• 42 CFR493.1107. CLIA ’88 specifies two years for test-
ing records.
• 42 CFR 493.1107 and 1109. CLIA ’88 specifies that
transfusion medicine records should be held for a
minimum of five years.
• 42 CFR 493.1257(g). CLIA ’88 specifies that cytology
slides should be held for five years.
• 42 CFR 1003.132. The False Claims Act specifies that
claims related to civil actions may be initiated up to six
years after the date of claim presentation.
CHAPTER 39. REIMBURSEMENT COMPLIANCE 679
While most laboratorians are aware of the CLIA re-
quirements, the need to maintain records that document
test orders and test performance for a longer period in
case civil or criminal legal action is taken is not as well
appreciated.
Marketing Practices
All marketing efforts in a laboratory setting should adhere
to strict principles of offering clear, correct, nondeceptive,
and fully informative guidance and pricing regarding test-
ing services. It is simply good laboratory medicine practice
to ensure that all parties understand both the testing and
billing processes.
Pricing and Inducements
No free supplies, equipment, or services of any kind should
be offered that are not an essential component of perform-
ing and reporting laboratory tests. No other services or
items should be provided that may be construed as an
inducement for the submission of federally reimbursed
work. Rather, any special services should be billed to a cli-
ent at a fair market value rate. Similarly, prices charged to
physicians and other payors should represent fair market
value and be based on careful and consistent cost account-
ing practices for each test procedure. For Medicare in par-
ticular, you cannot establish a charge to be substantially in
excess of any charge offered to another payor. “Substan-
tially in excess” has been redefined in a recent proposal
as 120% of the average charge to all payors for each test.
Although you will likely not be reimbursed at your charge
rate, the data are used in the determination of the NLA.
Medicare laboratory reimbursement is made at the lower
amount of the charge, the NLA, or the local fee schedule.
Discounts that place charges below costs, particularly if of-
fered to match competitor pricing, may be viewed as an in-
ducement. In addition, failure to attempt to bill patients for
services that were denied on the basis of medical necessity
may also be viewed as an inducement. Any form of induce-
ment is a violation of both Stark Laws and Anti-Kickback
Statutes and may therefore be a federal offense.
Ordering Provider and Patient Communication
To ensure that all parties understand the testing and billing
processes, it is critical that a laboratory establish clear and
consistent lines of communication. For ordering providers,
coding information should be readily accessible through a
service manual or other test-listing document. The labora-
tory must send an annual notice to each client detailing the
ordering and billing processes and must clearly document
any special ordering or billing situations. In particular,
the notice should address current NCDs and LCDs, use
of AMA-developed and custom panels, special situations
involving reflex and composite testing or standing orders,
680 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
appropriate use of an ABN, and current fee schedule in-
formation. Finally, the name of the individual who serves
as the CLIA clinical consultant for a specific laboratory
should be readily available. In a health care institution or
system setting, it may be most convenient to provide an-
nual notice at a medical staff meeting.
Open lines of communication between providers and
payors regarding billing must be maintained during reg-
ular business hours. For patients, open lines of commu-
nication regarding billing must similarly be available. It
may be helpful to have written patient information readily
available that describes unfamiliar terms such as medical
necessity and ABN. As in all endeavors, a thorough, con-
sistent, and honest approach is the best one to take.
Fraud Alerts and Advisory Opinions
A number of guidance documents are issued on a regular
basis by both the CMS and the OIG. Each laboratory CCO
and CC should be aware of the issuance of any such docu-
ments. Obviously, laboratories should remain abreast of
any new coverage decisions and edits that are issued by any
payor. Other documents that should be reviewed include
relevant program transmittals from the CMS, specific
fraud alerts from the OIG, and advisory opinions issued by
the OIG that are specific to a given provider situation but
may set important precedents. Also important is the an-
nual OIG work plan that describes proposals designed to
reduce reimbursement for services that have been assessed
to be at risk for overpayment. Every work plan since the is-
suance of the Compliance Program Guidance in 1998 has
included clinical laboratory targets. Careful review of these
documents will prepare a laboratory to effectively manage
situations with emerging compliance ramifications.
Auditing and Monitoring
To demonstrate that a compliance program is effective, it
is essential to have in place a series of monitors and au-
dits (7, 11). Monitors simply measure a parameter that
can be used to assess some aspect of compliance. The
most common monitor is test utilization. The OIG rec-
ommends an annual review of the top 30 test codes or-
dered to determine if any significant pattern changes (i.e.,
greater than 10%) are noted. Further investigation should
be performed to ascertain the reasons for the change.
In most cases, the change can easily be explained by
test volume growth, new-procedure implementation, or
correct-coding adjustments. However, if not explainable,
additional review of the reasons for testing may be indi-
cated. Another essential monitor is the tracking of denied
claims (12). Patterns that are identified are important in-
dicators of possible billing problems that may be rectified
by some specific process adjustment.
Audits are a more comprehensive and systematic re-
view of a specific compliance policy to determine that
the policy is in fact being followed. For each compliance
policy in place (Table 39.1), there should be some mea-
surable parameter that assesses its effectiveness. The most
common audit is one that simply reviews a statistically
significant sampling of claims to determine the tests that
were ordered, confirm that they were actually performed
and the results were reported, and confirm that the tests
were billed correctly. This audit technique encompasses
the entire process. Other audits may be applicable to a spe-
cific policy. For example, one might review the accuracy of
translation of narrative diagnoses to ICD-CM codes, the
frequency and appropriateness of obtaining ABNs, and
whether a high percentage of supplies for sample collec-
tion are being returned with samples and requested ser-
vices. The overall effectiveness of the training program
might be assessed by examination of employees after train-
ing, and the effectiveness of the overall program might be
determined by an employee survey. Careful and complete
audits are a time-consuming task and are often outsourced
to external parties. This is an acceptable practice, although
review of findings and plans for improvement remain the
responsibility of the CCO and the CC.
Response to Possible Fraud or Abuse
Every laboratory must have plans in place to evaluate
complaints that indicate the possibility of fraud or abuse.
If a complaint is determined to actually indicate receipt of
improper payment, the OIG Compliance Program clearly
specifies the actions that must be taken. If the overpayment
represents a true mistake, caused by misunderstanding or
misapplication of rules, the laboratory should take prompt
action to correct the problem and to make voluntary re-
payment as outlined in the OIG Compliance Program. Evi-
dence of systematic “rule-bending” (abuse) can be handled
in a similar manner. If a specific employee is found to be re-
sponsible, standard disciplinary actions should be taken. If,
however, there is evidence of intent to defraud a payor, the
potential violation should be reported to the Department
of Justice. All subsequent actions will then be directed as
part of a legal investigation process, with outcomes includ-
ing both settlements and indictments. For individuals, lab-
oratories should maintain a zero-tolerance policy toward
deliberate disregard for compliance policies. In the event of
an indictment, both facilities and individuals will be listed
on the OIG sanction list and prohibited from doing further
business with or for the federal government. Other non-
federal payors may similarly file suits, and they may also
exclude an entity from participation when evidence of a
systematic error representing fraud or abuse is found.
Laboratories must also be prepared to deal with a legal
process emanating from an external complaint reported

by a whistle-blower directly to the Department of Justice.
There should be a well-defined plan of action in which em-
ployees are advised as to the correct course, particularly
with regard to notification of superiors. Certainly, coop-
eration is expected, and any type of obstruction is to be
avoided. However, laboratories should take steps to legally
protect their interests. For example, categories of docu-
ments protected by client-attorney privileges should be
clearly marked as such and maintained separately, and le-
gal counsel should be sought as soon as possible after rec-
ognition or allegation of fraud or abuse.
Laboratory Examples of Fraud and Abuse
Sadly, there are many examples of deliberate attempts by a
small number of healthcare providers to obtain improper
and illegal reimbursement for services. While some have
resulted in indictments, many more are settled out of court
when it is recognized that there may be actions that could
be construed as evidence of impropriety. Some of the more
dramatic and visible laboratory compliance cases have in-
volved the following practices:
• Billing for tests not performed, e.g., billing for identifica-
tions and susceptibilities on “no growth” urine samples
• Failure to clearly define the test being performed, e.g.,
performing a CBC with differential but describing the
test as CBC only
• Routinely performing additional tests that were not
part of the original order, e.g., adding a chemistry test
to an approved panel
• Improper billing for panels, e.g., when not all compo-
nents of a chemistry panel were performed
• Routinely performing reflex testing that was not
subject to a defined review process, e.g., performing
microscopic analysis on a urine sample with abnormal
urinalysis
• Routinely reporting results for and billing tests when
quality control was out of range and therefore in viola-
tion of CLIA
• Routinely performing procedures, including laboratory
testing, in specific DRGs to artificially inflate the pay-
ment, e.g., in the case of pneumonia
Unfortunately, these isolated episodes of improper bill-
ing influence the overall view that many who hold politi-
cal office share: (i) that laboratories cannot be trusted and
must be subjected to close scrutiny and (ii) that overpay-
ment is rampant, and therefore payment reductions are
justified. To combat these negative opinions, it is para-
mount that laboratorians adopt the attitude that a success-
ful compliance program that guarantees that laboratories
“get paid right” is essential to survival.
CHAPTER 39. REIMBURSEMENT COMPLIANCE 681
Summary
Compliance has assumed a new meaning in the last two
decades as laboratories have been accused of and found
guilty of fraud and abuse. The actual concept of adherence
to rules and regulations is not new, however. Laboratories
must comply with the rules and regulations promulgated
by many government entities. What is new is the concept
that laboratorians must also comply with rules and regu-
lations pertaining to reimbursement. A sound knowledge
of coding and billing practices is an absolute key to suc-
cess. The OIG Compliance Program Guidance for Clini-
cal Laboratories published in 1998 provides the basis for
development of policies and procedures that ensure that
laboratories are paid appropriately for what they do. In es-
sence, the document provides the basis for application of
commonsense principles for receiving requests for labora-
tory services, performing those services, and getting paid
for those services. While the OIG Compliance Guidance
is considered voluntary, provisions in the PPACA specify
that compliance programs will soon become a mandatory
process. Indeed, the importance of an effective compliance
program should be considered as vital to the success of a
clinical laboratory as compliance with CLIA is.
KEY POINTS
■ Compliance has taken on a new meaning during the
last few years as laboratories have been accused of and
found guilty of fraud and abuse.
■ Laboratories and laboratorians must be knowledgeable
about and comply with rules and regulations related to
reimbursement.
■ It is mandatory that laboratory personnel maintain a
thorough understanding of coding and billing practices.
■ All laboratories should have in place a comprehensive
compliance program, with its key provisions and re-
quirements in effect at all times with a zero-tolerance
approach.
■ It is critical and appropriate that laboratories be paid for
the services they provide within the framework of the
compliance regulations.
GLOSSARY
Advance beneficiary notice (ABN) A waiver of liability used by
the provider to notify Medicare beneficiaries prior to receiving a
service that it may not be a covered service and that they may
have to assume financial responsibility. Similar notices are used
by other payors.
Any willing provider An approach by federal payors that allows
any healthcare provider willing to meet all specified conditions
to provide services for beneficiaries.
Bundling Placing codes together in a panel.
682 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
Civil False Claims Act and the Civil Monetary Penalties Law
Authorizes the Secretary of Health and Human Services to im-
pose civil monetary penalties (CMPs) for violations of Medicare
rules and regulations, as well as additional assessments for statu-
tory violations of Medicare law.
Code jamming Inserting a code that was not provided by the
ordering provider but that will justify payment.
Code steering Providing lists of diagnostic codes that are known
to justify payment.
Compliance program Processes, policies, and procedures de-
signed to ensure that all applicable regulatory and other condi-
tions for operations are met; specifically applicable to the area of
reimbursement.
Compliance Program Guidance for Clinical Laboratories (1998)
Updated Model Clinical Laboratory Compliance Plan (1997);
designed to ensure that appropriate reimbursement is made
through federal programs, to ensure that payors “pay it right”;
provides guidance for doing the right thing (through compliance
with all regulatory and statutory rules).
Current Procedural Terminology (CPT) Proprietary service
codes developed and maintained by the American Medical As-
sociation and required for filing claims and billing of Medicare
and other payors.
Custom panel Grouping of several independent codes made
available as a single, orderable procedure, usually as an ordering
convenience.
Diagnosis-related groups (DRGs) Classification system devel-
oped at Yale that defines more than 700 major diagnostic catego-
ries and places patients into case types based on the ICD-CM
classifications. Substantially updated in 2007 as MS-DRG (Medi-
care severity adjusted).
Downcode The use of a lower-reimbursed test, generally cou-
pled with rebundling, to induce unnecessary utilization.
End-stage renal disease (ESRD) The term used for Medicare
beneficiaries who have permanent kidney dysfunction requiring
dialysis treatment.
Fraud and abuse The receipt of payment for services that are
not appropriate to the patient situation; generally results from
the systematic application of incorrect coding approaches. Fraud
is distinguished as being intentionally deceptive.
Health Insurance Portability and Accountability Act of 1996
(HIPAA) Title I protects health insurance coverage for workers
and their families when they change or lose their jobs. Title II
requires the Department of Health and Human Services to estab-
lish national standards for electronic healthcare transactions and
national identifiers for providers, health plans, and employers. It
also addresses the security and privacy of health data. Adopting
these standards will improve the efficiency and effectiveness of
the nation’s healthcare system by encouraging the widespread
use of electronic data interchange in healthcare.
Improper payment Payment made for a healthcare service that
is not indicated based on documentation or clinical condition.
Inducement Offering incentives to nonfederal payors to en-
courage them to also submit federal program testing; violation of
the Stark legislation.
Kickback The provision of any item of value in exchange for re-
ferral of federal business to a laboratory; the Anti-Kickback Stat-
ute explicitly prohibits this practice.
Medical necessity The determination of ICD-9-CM codes for
which a CPT code will be reimbursed as reasonable and necessary.
Modifier Modifiers are composed of two-digit numbers (CPT)
or letters (HCPCS) that are appended to a specific CPT code
prior to the billing process. Modifiers are “used to indicate that a
service or procedure has been altered by some specific circum-
stance but not changed in its definition or code” (1).
National Correct Coding Initiative (NCCI) A Medicare pro-
gram initiated in 1996 and managed by a specific contractor that
evaluates and publishes procedure code sets to determine if two
or more unique codes are appropriately ordered on the same date
of service. Edits fall into two major categories: (i) comprehensive/
component and (ii) mutually exclusive. Edits also indicate the
code pairs in these edit categories for which a modifier (generally
-59) may be appropriate.
Pay and chase A strategy whereby reimbursement for services is
made as quickly as possible and reviewed after the fact for ap-
propriateness. If inappropriate, payback is required and legal ac-
tion is possible.
Pay it right Pay the right amount to the right provider for the
right service to the right beneficiary.
Program integrity A systematic approach to prevention, detec-
tion, and correction of improper payments for healthcare services.
Reflex test Second related, codable test, which is performed au-
tomatically when initial tests are positive or abnormal.
Standards of conduct Standards should promote commitment to
the accurate, ethical, and legal practice of laboratory medicine.
Stark legislation Legislation prohibiting referral of designated
health services including laboratory services to an entity with
which an ordering provider has a financial relationship. Specific
regulatory exceptions do exist.
Substantially in excess Defined as 120% of the average charge to
all payors for each test.
Unbundling Coding individual tests rather than using a CMS-
recognized and AMA-approved CPT panel.
Upcoding Performing a related test for which the CPT code
pays at a higher level; using a higher-paying code to maximize
reimbursement.
REFERENCES
1. American Medical Association. 2012. Principles of CPT Coding.
AMA Press, Chicago, IL.
2. Beatty, M. F. 1999. A survey measuring the degree of model com-
pliance plan for clinical laboratories implementation in small/rural
hospital laboratories. Clin. Lab. Manag. Rev. 13:81–86.

3. Belton, P. R., and S. E. Roughton. 1999. The ideal compliance
world: integrating physicians into the compliance program. QRC
Advis. 16:4–10.
4. Campen, R. B., and D. DiLoreto. 2000. Here to stay: health care
compliance. An overview. Med. Group. Manag. J. 47:30–33.
5. Carter, D. 2003. Obtaining advance beneficiary notices for Medi-
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7. Goldman, T. R. 2012. Health policy brief: eliminating fraud and
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policybrief_72.pdf (last accessed November 20, 2012).
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10. MacMillan, D. H., B. L. Soderberg, and M. Laposata. 2001.
Regulations regarding reflexive testing and narrative interpretations
in laboratory medicine. Am. J. Clin. Pathol. 116(Suppl.):S129–S132.
11. Matusicky, C. F. 1998. Fraud and abuse. Building an effective
corporate compliance program. Healthc. Financ. Manag. 52:77–80.
12. Mesaros, F., Jr. 2000. The remittance advice, auditing for com-
pliance. Clin. Leadersh. Manag. Rev. 14:69–71.
13. Saner, R. J. 1999. Third-party biller compliance guidance em-
phasizes risk awareness. Healthc. Financ. Manag. 53:43–45.
14. Saum, T. B., and J. Byassee. 2000. Effective health care corpo-
rate compliance. Physician Exec. 26:56–59.
15. Scott, M., and D. Nguyen. 2009. Clinical laboratory compliance:
something old, something new. Lab Med. 40:428–435.
684 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT

APPENDIX 39.1 Federal Register Documents

Federal Register. 1998. Publication of OIG Compliance Program
Guidance for Clinical Laboratories. Fed. Regist. 63:45076–45087.
Federal Register. 2001. Rules and regulations, Medicare program;
negotiated rulemaking: coverage and administrative policies
for clinical diagnostic laboratory services. Fed. Regist. 66:
58788–58890.
Federal Register. 2011. Medicare, Medicaid and Children’s Health
Insurance Programs; additional screening requirements, appli-
cation fees, temporary enrollment moratoria, payment suspen-
sions, and compliance plans for providers and suppliers; final
rule (CMS-6028-FC). Fed. Regist. 76:5862–5970.

APPENDIX 39.2 Websites for Laboratory Compliance Information

CMS Office of Inspector General

http://www.cms.gov (last accessed November 20, 2012) https://oig.hhs.gov/ (last accessed November 20, 2012)
CMS searchable website. OIG searchable website: compliance, fraud alerts, advisory opinions,
http://www.cms.gov/Medicare/Medicare-Contracting/ work plan.
MedicareContractingReform/Downloads/compliance.pdf (last https://oig.hhs.gov/compliance/compliance-guidance/index.asp
accessed November 20, 2012) (last accessed November 20, 2012)
Medicare compliance program guidance. OIG compliance information.
http://www.cms.gov/MLNGenInfo (last accessed November 20, 2012) https://oig.hhs.gov/authorities/docs/cpglab.pdf (last accessed
Medicare Learning Network index of information documents. November 20, 2012)
http://www.cms.gov/Outreach-and-Education/Medicare-Learning OIG Program Guidance for Clinical Laboratories.
-Network-MLN/MLNProducts/downloads/MCRP_Booklet.pdf U.S. Department of Health and Human Services
(last accessed November 20, 2012)
http://www.stopmedicarefraud.gov (last accessed November 20, 2012)
Medicare claims review process.
Beneficiary fraud prevention website.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/Fraud_and_Abuse.pdf
(last accessed November 20, 2012)
Fraud and abuse fact sheet.
http://www.cms.gov/Outreach-and-Education/Medicare-Learning
-Network-MLN/MLNProducts/downloads/MedQtrlyCompNL
_Archive.pdf (last accessed November 20, 2012)
Medicare Quarterly Provider Compliance Newsletter archives.
Introduction
40
Pitfalls in Cost Accounting
Determination of Profitability
Laboratory Profitability Vickie S. Baselski, Alice S. Weissfeld, and Fran Sorrell
Balance Sheets • Income Statements • Cash Flow
Statements
Key Indicators
Key Income Indicators • Key Expense Indicators
Institutional Profitability
Human Profitability
Laboratory Value OBJECTIVES
Summary To describe those items that are included in the true costs of a laboratory
KEY POINTS
procedure
GLOSSARY To discuss possible reasons why cost analyses rarely account for all
expenditures
REFERENCES
To list the three primary tools used in the laboratory to assess profitability
To describe several of the key indicators used to evaluate an institution’s
performance (benchmarking)
To discuss the term “outcome assessment” and its relationship to institutional
profitability
To discuss the concept of human profitability and its relationship to quality
patient care
To describe the trend toward value-based laboratory medicine

If you don’t do it excellently, don’t do it at all. Because if it’s not excellent, it won’t
be profitable or fun, and if you’re not in business for fun or profit, what the hell
are you doing there?
Robert Townsend (from Further Up the Organization), 1988

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch40
I
n any business, including laboratory medicine, the ultimate goal is
to be profitable. From financial profits come funds for enhancements in
facilities, equipment, and personnel. From profits also come the means to
continue to exist as either a for-profit or nonprofit entity. A laboratory must
certainly be profitable as a business unit, and there are well-defined financial
monitoring tools to demonstrate this. However, profits in laboratory medicine
are measured by more than simply dollars made or lost and dollars spent or
saved. A profitable laboratory is also one that contributes positively to patient
care. In the current healthcare climate, the term “outcome assessment” has
been used to describe the success or failure of a disease management strat-
egy with regard to both financial and medical measures (13). The profitabil-
ity of an institution arises at least in part from effective and efficient patient
care, including the effective and efficient use of laboratory medicine. In fact,
provision of healthcare services is undergoing a major shift under healthcare
reform. The emphasis is moving from one focused on procedures to one fo-
cused on patients. In today’s world the laboratory is being viewed as neither
a “cash cow” nor a “cost center,” but as a unit vital to an institution’s ability to
provide healthcare services. Therefore, in laboratory management today, one
must be able to discuss both the individual profitability of a laboratory unit and

685
686 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
the contribution of the laboratory to the profitability of pa-
tient care. It must also be appreciated that at least in part,
one can also measure the satisfaction of making a posi-
tive contribution to patient care as a measure of human
profitability. In addition, one must understand that labora-
tory medicine is a service that provides value, not a simple
commodity to be delivered at the lowest cost possible.
Pitfalls in Cost Accounting
Integral to any determination of profitability is a clear un-
derstanding of the true costs of a procedure. Chapter 37
deals with cost accounting in detail, but a few key con-
cepts justify consideration here as well. First is that a com-
plete cost analysis should consider all identifiable costs for
a service. One must consider many factors, including all
of the following:
• Direct material costs, including all consumables, qual-
ity control, repeats, and wastage
• Direct labor costs, including benefit costs
• Equipment and other capital costs, either leasing or
depreciation based on purchase as well as maintenance
and repair costs
• Laboratory-specific indirect costs, generally based
on an allocation method and including licensure and
accreditation maintenance (e.g., inspections, docu-
ments, proficiency testing) and training or continuing-
education costs
• Indirect facility costs, also generally based on alloca-
tion of a percentage of costs due to utilities, rent or
purchase notes, housekeeping and medical waste dis-
posal, and information technology and communica-
tion systems
• Indirect administrative costs, again allocated and
including courier services, marketing, customer ser-
vice, and financial processes (e.g., billing, collections,
payments)
Careful systematic consideration of all of these fac-
tors will allow a laboratory to make reasonable decisions
regarding price structure for fee-for-service testing ser-
vices. The information is particularly useful when assess-
ing whether a discounted fee schedule approximates the
laboratory expenses. However, cost analyses in any busi-
ness, including in a laboratory, are rarely able to account
for anywhere near 100% of expenditures. There are fre-
quently many unpredictable variables, particularly in areas
in which the laboratory has little or no control. For ex-
ample, supplies provided for collection and submission of
samples are rarely accounted for 100% on return, and rates
of recollections due to preanalytical issues, repeats due to
analytical issues, and wastage due to insufficient product
in a kit lot to complete an additional run all contribute to
inaccuracies in projecting total technical expenses. In ad-
dition, allocated costs are similarly subject to changes as-
sociated with unanticipated events.
In a like manner, attempts to account for anticipated
revenue are also subject to inherent inaccuracies. The in-
ability to obtain critical documentation, misunderstand-
ing or misapplication of payor rules or issuances of new
rules, failure to obtain patient waivers of financial liability,
and failure to collect billed amounts due all contribute to a
reduction in anticipated revenues.
To determine true costs and revenues, and to subse-
quently assess profitability as well as efficiency, it is nec-
essary to measure resources actually expended, including
through amortization, and compare that measurement to
amounts actually collected. In a strict accounting sense,
revenues less expenses equals profit, and revenues divided
by expenses equals profitability.
Laboratory Profitability
Analyses to assess laboratory profitability are usually per-
formed on a regular basis, not less than quarterly and typi-
cally monthly. To accomplish this there are three primary
tools used in the laboratory setting: the balance sheet, the
income statement, and the cash flow statement (11, 12, 15).
Balance Sheets
The balance sheet provides an indicator of an organiza-
tion’s overall financial well-being. It compares an organi-
zation’s total assets to its total liabilities. In the laboratory,
assets include not only cash holdings and accounts receiv-
able but also facilities and all possessions used to create
services (e.g., equipment and supplies). Liabilities include
all money owed and, in the case of a for-profit institution,
shareholder equity amounts. Simply stated, a balance sheet
should at least balance. However, to be considered profit-
able, total assets should exceed total liabilities. From a lab-
oratory management perspective, while a positive balance
sheet is critical to success and may certainly be reassuring
to employees and shareholders, it provides little informa-
tion that may be used to improve operational efficiency in
an individual laboratory setting.
Income Statements
An income statement is used to demonstrate profitability
over a given period. These statements are also known as
“profit and loss” statements because they compare the net
profit for a specified period to the total expenses of doing
business during the same period. Calculating total gross in-
come and subtracting total expenses determines net profits
or losses. The net profit may also be expressed as a percent-
age of gross income and may be referred to as the profit
margin. The net profit should not be considered an absolute
value, however. This figure is generally determined prior to
 CHAPTER 40. DETERMINATION OF PROFITABILITY
consideration of taxes and interest amounts due and is re-
ferred to as earnings before taxes and interest. Clearly, an
accurate determination of profit requires considerations of
these expenses as well.
Income statements also frequently include figures re-
flecting budgeted and expected revenue and expense
amounts. Thus, they allow a laboratory to assess whether
there are significant variances from the amounts expected
in both categories. In general, variances of more than 3 to
5% require evaluation to determine if other downstream
adjustments may be necessary. For example, loss or gain of
a major client or medical specialty service may necessitate
renegotiation of standing reagent orders for delivery of a
more appropriate quantity of supplies.
As with the balance sheet, the income statement often
reflects the overall financial situation of a laboratory and
therefore is most useful to upper management for deter-
mining profitability for the entire laboratory. However,
this statement may be configured to reflect the income and
expenses of a specific department as well. In this configu-
ration, individual department heads may find the docu-
ment useful to assess whether expenses and income are as
expected and to assess whether an individual department
is profitable.
Cash Flow Statements
Cash flow statements demonstrate exactly what the name
implies. They provide a summary of the amounts paid out
and to whom (accounts payable) and the amounts received
in payment for services or other items and activities (ac-
counts receivable). Again, simply stated, accounts receiv-
able should exceed accounts payable. Similar to balance
sheets, these documents are not very useful in assessing
operational efficiency for a given laboratory.
Key Indicators
In addition to these institutional summary reports, most
laboratories employ the use of key indicators to assess not
only profitability but also overall operational efficiency.
Such indicators are often financial or other ratios (i.e., a
numerator/a denominator) that may be used to evaluate
an institution’s performance over time or in comparison to
that of like institutions. This practice is known as bench-
marking and can provide very useful information for oper-
ational improvement leading to financial benefit (14). Key
indicators can assess both sides of doing business: income
and expenses. In addition, they are useful in both prospec-
tive and retrospective payment systems.
Key Income Indicators
Key income indicators are used to determine whether a lab-
oratory is financially successful. They measure both success
in an institutional sense and success from an investment
687
perspective. In a business sense, monitors generally com-
pare assets to liabilities or revenue to expenses. Clearly the
expectation is that in each case the ratio should exceed 1.
In addition, it is customary to track volume indicators that
translate into income. Most laboratories track daily num-
bers of billable tests and look for significant deviations that
may have a financial impact. For independent laboratories,
new sales or lost business can also be used to monitor po-
tential for future financial success or failure.
From an investment perspective, for-profit laborato-
ries must also demonstrate earning potential for investors.
This is usually done by comparing price per share to earn-
ings per share. Here as well, data on volumes may be used
to demonstrate earning potential.
It should be appreciated that tracking volumes has
potential utility beyond simply predicting income in fee-
for-service-payment systems. In a prospective payment
system, tracking utilization is an important activity (7, 8).
One may detect overutilization of testing outside of what
is expected for a given patient population. However, one
can also detect underutilization of services deemed to be
necessary for patient management. Either situation can
contribute to less than optimal patient care. Recall as well
that utilization tracking is also an important component of
compliance activities (chapter 39).
Key Expense Indicators
While income monitors should show favorable perfor-
mance for a laboratory to be considered profitable, mon-
itors that assess efficiency or effectiveness over time are
more useful to individual laboratory managers seeking
to ensure that their departments contribute to overall
profitability. While it is useful to monitor indirect and
fixed expenses for deviation and for comparability to
those of similar institutions, of most importance to labo-
ratorians are those monitors that assess an aspect that
can be adjusted or controlled. Both labor and material
expenses are considered useful for the development of
such monitors.
Monitors for labor efficiency generally focus on pro-
ductivity. It has become customary to use billable tests
(i.e., Current Procedural Terminology [CPT] or codable
tests) produced per full-time equivalent for this purpose,
although the monitor may also be inverted and expressed
as time paid or time worked per billable test. There is wide
variation in expectations for productivity based on the
department being evaluated. Obviously, an automated-
testing department will show higher output than a labora-
tory employing more manual processes. For this reason,
productivity assessments are most useful when used for
benchmarking either temporally to assess performance of
a single institution over time or when comparing labora-
tories that have been determined to be comparable in both
scope and processes for services provided.
688 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
Another commonly used labor effectiveness monitor is
percentage of overtime used. In a properly staffed labora-
tory, overtime usage should be minimal (<3%). Excessive
overtime payments, generally paid at an elevated hourly
rate, reduce profitability.
Expense monitors generally focus on actual costs per
billable test. These monitors may be constructed to be
comprehensive and include all direct costs (materials and
labor) as well as an allocated indirect cost. For bench-
marking purposes and for assessing new methods for the
laboratory, a comprehensive cost-per-reportable monitor
is generally preferred. However, material costs as a stand-
alone item should also be evaluated. A monitor of material
cost per billable test is, as for labor cost per billable test,
most useful for temporal evaluations or in comparison to
that of a similar laboratory. These kinds of analyses are
distinct from an actual cost analysis for a specific billable
test in that they measure the actual and not simply the ex-
pected cost. A wide variation between calculated cost and
actual cost per billable test is cause for concern regarding
possible inefficiencies.
One additional monitor for material use efficiency is ac-
tual versus potential utilization rates for specific high-cost
items. With all commercial kit products, it is common for
wastage to occur when small amounts of product remain
that are insufficient for a complete run including controls
and patient samples. Utilization rates of substantially less
than 100% may indicate a need to redesign workflow pro-
cesses to improve efficiency.
Institutional Profitability
It is clear that each individual laboratory must be able to
operate efficiently within a defined budget and that each
laboratory manager must continue to seek ways to oper-
ate more effectively to decrease overall costs in an era of
ever-continuing decreases in available revenues. However,
laboratory medicine is unique in that the product, which
has defined costs and specific individual value, may also
have a positive financial impact in a manner not directly
financially benefiting the laboratory. In other words, the
results of a specific test may be used to improve the clinical
outcome for a patient such that the total costs of providing
care for that patient are decreased. Thus, the beneficiary of
the savings is the payor and not the laboratory providing
essential information. Therefore, laboratory managers and
payors must not be shortsighted in making a decision to
perform and pay for a particular test based simply on the
laboratory economics of the situation. The term “outcome
assessment” has been used to describe the process of deter-
mining whether a particular measure will have a positive
clinical and presumably financial impact on patient care.
In laboratory medicine, there are several well-designed
studies that demonstrate healthcare system savings
emanating from the performance of a particular labora-
tory procedure (9). Rapid diagnostic procedures may
allow for more timely institution of therapeutic and infec-
tion prevention protocols that may contribute to overall
lower healthcare costs. For example, implementation of
rapid antimicrobial susceptibility testing via an automated
system has been shown to decrease length of stay, use of
additional services and drugs, and overall hospital charges
compared to an overnight system (3). In a nursing home
setting, implementation of rapid influenza virus antigen
testing has been shown to decrease the numbers of second-
ary cases through prompt implementation of appropriate
prophylaxis, thereby reducing the total costs of caring for
ill residents (2, 4).
Screening tests used to detect asymptomatic patients or
to identify patients at risk for a disease or disease compli-
cations may also have an overall positive impact, both on
individual patients and on costs of care for populations. In
an outpatient setting, testing for Chlamydia trachomatis us-
ing a rapid method, while less sensitive than an overnight
method, was shown to reduce the occurrence of costly sec-
ondary salpingitis cases and allowed immediate treatment
in a patient population at risk for such due to failure to
present for follow-up care (6). In fact, acceptance of rou-
tine testing for asymptomatic infections with Chlamydia in
at-risk patient populations to prevent costly sequelae has
achieved status as a Healthcare Employer Data Information
Set (HEDIS) monitor for effectiveness of healthcare under
various payor plans. Similarly, screening for other clinically
silent risk factors (e.g., heart disease risk markers), precur-
sor conditions (e.g., HPV testing to predict risk for cervical
cancer or a variety of newer molecular pathology tests to
identify genetic risk factors for disease), or early evidence
of chronic disease conditions (e.g., use of hemoglobin A1c
to identify early diabetes) has been shown to reduce over-
all healthcare costs (9).
In the future, decisions regarding whether to imple-
ment costly new technologies in a laboratory will have to
take into consideration the financial impact on healthcare
in a more comprehensive sense as well as the immediate
financial impact on a given laboratory (10).
Human Profitability
Through all discussions of profitability, one must not lose
sight of the reason for the existence of laboratory medicine
as an accepted discipline. The role of the laboratory is to
provide data used for effective management of patients. In
doing so, laboratory professionals feel a sense of pride and
accomplishment in assisting in patient care that cannot
easily be measured in financial terms. However, a life saved
or salvaged from a serious illness does have a lifetime earn-
ing value, which can be calculated, and additional value in
terms of human existence that cannot be calculated. Our
 CHAPTER 40. DETERMINATION OF PROFITABILITY
hope is that the human profit margin will be given consid-
eration equal to the financial profit margins in the provi-
sion of quality laboratory medicine services. Further, it is
fervently hoped that some degree of rationale and logic will
be applied in the realm of reimbursement for laboratory
services, including in setting appropriate compensation
for laboratory scientists performing the work, such that
the ultimate financial and human benefit may be reaped.
Laboratory Value
While financial profit is essential to the survival of any
business, assuming that financial profit alone will ensure
that a laboratory is successful is unrealistic in today’s eco-
nomic climate (5, 10). Table 40.1 outlines some of the
essential differences between traditional fee-for-service
laboratory medicine and a coordinated care system in
which the laboratory is viewed as a component of the care
process. In the traditional model, procedures ordered by
physicians are the focus, and profitability is determined
by evaluating primarily financial data. Increased utiliza-
tion is encouraged and the goal is to make money.
With the current focus on healthcare reform, there is
a shift in focus from procedures to patients (1). Testing is
used as an integral part of a management strategy, and test
groupings are designed to facilitate best practices for the
most efficient and effective patient care in a given diag-
nostic setting. Benefits are measured in terms of improved
outcome with regard to quality of care, patient safety, and
service. Such benefits may be patient-specific, but cumula-
tive benefits in a population are also important. Since pay-
ment is prospective, the goal is to use resources wisely. In
essence, profitability results from saving money.
Healthcare spending cannot continue to grow un-
checked, and resources to provide healthcare are not un-
limited. Carefully designed studies to assess best practices
for overall patient management are essential. Compara-
tive effectiveness studies are needed to determine whether
newer, more costly technologies offer any true benefits in
terms of patient outcome. Laboratory professionals need
Table 40.1 Comparison of features of traditional laboratory medicine and coordinated laboratory medicine
Traditional laboratory medicine
Reimbursement Fee for individual service
Focus Procedures
Approach Offer individual tests, approved panels,
and other well-defined and compliant
test groups for physician order
Performance measures Focused targets, e.g., financial and pro-
ductivity ratios
Financial goal Make money
Measure for profitability Reimbursement should exceed total
expenses
689
to be careful stewards of the laboratory component of
healthcare expenditures. The value of laboratory medicine
and the positive contribution of the data to patient care
must be recognized and promoted.
Summary
Absolute profitability or lack thereof in laboratory medi-
cine may be easily measured within an individual labora-
tory or laboratory department. To do so, one may use a
number of standard accounting tools to compare real ex-
penses to real revenues. However, profitability in labora-
tory medicine may also extend beyond the boundaries of
the laboratory by allowing clinical decisions to be made
that have an overall positive impact on a patient’s clinical
outcome, which may also be measured in financial terms.
In addition, a positive clinical outcome may result in many
unquantifiable benefits to patients, their families, and their
healthcare providers. Therefore, while laboratory profes-
sionals must necessarily make sound financial decisions,
which allow their facilities to operate with a reasonable
budget, administrators and other purchasers of laboratory
services must remain cognizant of the overall importance
of laboratory medicine to profitability in the provision of
healthcare services.
KEY POINTS
■ A complete cost analysis must include all identifiable
costs for a service.
■ Although cost analyses rarely account for all expendi-
tures, it is important to understand what some of these
unpredictable variables may be.
■ Analyses to assess laboratory profitability usually in-
clude balance sheets, income statements, and cash flow
statements.
■ Key income and expense indicators are required to as-
sess not only profitability but also overall operational
efficiency.
Coordinated laboratory medicine
Payment for continuum of care
Patients
Design test groupings (e.g., checklists or caremaps/
carepaths) to facilitate or require best practices for
specific diagnostic settings
Improved patient or population outcome, e.g.,
quality, safety, service
Save money
Expenses should improve measurable outcome
690 PROFITABILITY, CONTRIBUTION, AND REIMBURSEMENT
■ Future decisions regarding implementation of expen-
sive technologies will have to take into consideration
the financial impact on healthcare in a more compre-
hensive sense.
GLOSSARY
Analytical time Time for the labor required to analyze the spec-
imen or specimens and to perform all routine procedures up to
reporting of results. This time includes any required calculations
and checking but does not include test repeats.
Balance sheet Shows assets on the left side and liabilities and
claims against assets on the right side. The balance sheet shows a
firm’s financial position at a particular point in time.
Billable test (Current Procedural Terminology [CPT] codable
tests) A test performed and charged to a patient, physician, or
third-party payor account that generates revenues. The billable
test is the focal point in laboratory cost accounting for laborato-
ries that generate revenue.
Cash flow Case revenues less cash expenses; it therefore ex-
cludes noncash expenses such as depreciation.
Cash flow statement Reports the impact on cash flow of a firm’s
operating, investing, and financing activities over a period of
time.
Comparative effectiveness In laboratory medicine, the system-
atic comparison of two or more approaches to determine which
approach provides the best patient outcome.
Cost accounting A system of measuring and reporting informa-
tion about costs.
Direct cost A cost that can be traced to, or caused by, a particu-
lar service, product, segment, or activity of the department. Ex-
amples are labor and consumables.
Fixed costs Costs that remain constant in total regardless of
changes in the level of activity. Fixed costs are only fixed in rela-
tion to the given time period and are only fixed within a relevant
range of activity.
Full-time equivalent The proportion of an employee’s paid
hours per year to the standard laboratory measure, which is typi-
cally 2,080 h (5 days × 8 h × 52 weeks per year).
Healthcare Employer Data Information Set Monitors for effec-
tiveness of healthcare under various payor plans.
Income statement Reports the financial results of a firm’s opera-
tions over a period of time.
Indirect cost All expenses that cannot be directly assigned to a
billable test but contribute to the production of a test and the
provision of an adequate work environment. Examples are lease
or rental contracts, maintenance contracts, maintenance for
physical plant, utilities, etc.
Not-for-profits Companies whose primary purpose is some-
thing other than generating a profit. Typical not-for-profits are
hospitals and charitable organizations.
Outcome assessment The process of determining whether a
particular measure will have a positive clinical, and presumably
financial, impact on patient care.
Overtime Time worked before or after regularly scheduled
working hours or pay for such time worked.
Postanalytical time Time for labor required to report results, as
well as the sorting, filing, and telephoning related to final
reports.
Preanalytical time Time for specimen collection, work list and
label preparation, start-up, sample-cup, and daily quality con-
trols and standards.
Profitability ratios Ratios that measure the combined effects of
liquidity, asset management, and debt management policies on
operating results.
Revenue budget The revenue that will be generated by the fore-
casted activity for a responsibility center.
Unit of service The logical measure of work for a given area. In
the laboratory, it is usually the number of billed tests or proce-
dures performed.
Value A measurable quality improvement as a result of expendi-
tures (i.e., quality/cost)
Variable costs Cost items that vary, in total, directly and propor-
tionately with volume or level of activity changes.
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10. Miles, J., and R. L. Weiss. 2011. The role of laboratory medicine
in accountable care organizations ARUP laboratories. http://www
.aruplab.com/suite/documents/ACO%20Lab%20Strategy_white
paper.pdf (last accessed November 20, 2012).
11. NCCLS. 1998. Basic Cost Accounting for Clinical Services. Ap-
proved guideline GP11-A. NCCLS, Wayne, PA.
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12. Travers, E. M. 1997. Clinical Laboratory Management, p. 259–
283. Williams and Wilkins, Baltimore, MD.
13. Wilkinson, D. S. 2000. Technology assessment: measuring the
outcomes of laboratory practice. Clin. Leadersh. Manag. Rev. 14:
267–271.
14. Wilkinson, D. S., and D. D. Reynolds. 2003. Using benchmark-
ing to manage your laboratory. Clin. Leadersh. Manag. Rev. 17:5–8.
15. Wilkinson I. 1999. Money! Money! Money! A Hitchhiker’s Guide
to Laboratory Finance. AACC Press, Washington, DC.
Outside Marketing and Expansion
VIII
section editor: Dale A. Schwab
41 Outreach Considerations and Overall Goals
Charlene H. Harris
42 Outreach Implementation Requirements: a Case Study
Frederick L. Kiechle, Jack Shaw, and Joseph E. Skrisson
43 Finance and Decision Making in Outreach
Michael G. Bissell and Harry E. Pukay-Martin
44 Outreach: Obstacles to Hospital Outreach and Enhancing
Customer Satisfaction
Beth H. Deaton
Introduction
41
Considering an Outreach Program
Outreach Considerations
Administrative Interest • Exploring the Market •
Strategic Plan • Business Plan • Sales Plan
and Overall Goals
Commitment from All Relevant Parties
Feasibility Report • Philosophical Understanding • Charlene H. Harris
Service and Financial Support
Implementing the Outreach Program
People • Processes • Facilities • Equipment • Supplies
Outreach Indicators OBJECTIVES
Growing the Outreach Program To determine initial interest and make a position assessment
Market Assessment • Client Needs
To perform in-depth market and operational assessment
Summary
KEY POINTS
To develop a business plan
GLOSSARY To implement the outreach plans
REFERENCES To assess program progress
APPENDIXES To evaluate program growth
To provide examples of letters, forms, graphs, questionnaires, etc., that support
guidance

Our mission: to boldly go where no man has gone before.

James T. Kirk, Captain, Starship Enterprise

A
laboratory outreach program can broaden the scope of services for
any hospital laboratory and meet the outpatient needs of the community
if it is well researched prior to implementation. Hospital-based laboratory
outreach can describe everything from patients coming to the hospital outpatient
services to have laboratory work done to a stand-alone reference laboratory with
draw sites and courier services. Referrals can come from people ranging from the
hospital medical staff to providers with patients who will never use the sponsor-
ing hospital’s services. The structure of each outreach program is as unique as the
set of customer needs that it satisfies. The key to success is in-depth planning and
administrative support. In this chapter, we’ll provide you with practical, step-by-
step guidance on setting up your outreach program, including
• Initial interest and position assessment
• In-depth market and operational assessment
• Business plan construction
• Implementation plan
• Program assessment
• Program growth

Considering an Outreach Program

Clinical Laboratory Management, 2nd Edition The implementation of outreach programs can present many opportunities:
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC • Restructuring and strengthening the role of the hospital laboratory in the
doi:10.1128/9781555817282.ch41 community

695
696 OUTSIDE MARKETING AND EXPANSION
• Redefining the relationship with various reference
laboratories
• Increasing market share
• Marketing the laboratory’s specialty or niche testing
• Promoting vertical integration with other departments
within an organization or system
• Establishing potential mergers and affiliations with
other outreach programs
• Providing true STAT testing for outpatients
• Instituting systems to evaluate new revenue
opportunities
• Managing quality across a continuum of care
Administrative Interest
No outreach program can be successful without the com-
plete support of your facility’s administration, including the
associated pathologist. This support must include not only
operational funding but also strategy, understanding, and
backing. Prior to approaching Administration with the idea
of an outreach program, you need to perform an industry
analysis, a situational analysis, and a SWOT (strengths,
weaknesses, opportunities, and threats) analysis.
Industry analysis. An industry analysis recognizes unique
factors within the industry, outside the direct control of the
healthcare institution, that affect the survival of the program.
Barriers to entry. Each industry has its own set of en-
try requirements that must be met by any organization or
program desiring to function within that industry. This
is also true for an established organization, such as your
healthcare institution, which introduces new services into
the industry in your market area.
The medical laboratory industry is highly regulated by the
U.S. government. These regulations address such operational
areas as personnel requirements, quality control and im-
provement activities, proficiency testing, methodology vali-
dation, etc. The Centers for Medicare and Medicaid Services
(CMS), the federal agency that administers the Medicare
program as well as the Clinical Laboratory Improvement
Amendments (CLIA), and the Food and Drug Adminis-
tration (FDA), which has oversight of medical devices and
licensure of blood banks and blood donor services, are the
two main federal regulatory agencies. Many states also have
statutes covering laboratory operations and personnel.
In addition to regulations dealing with certification or ac-
creditation, several other federal initiatives further affect the
laboratory industry and must be considered. Job safety reg-
ulations are applied by the Occupational Safety and Health
Administration (OSHA), including recent directives deal-
ing with needle safety and transport of hazardous materials.
The Equal Employment Opportunity Commission (EEOC)
oversees employee recruitment and relations. The landmark
Stark legislation, prohibiting certain types of physician self-
referrals, and Medicare Fraud and Abuse Alerts, released by
the Office of Inspector General (OIG) and defining illegal
inducements to clients by medical laboratories, have fur-
ther structured how laboratories do business. Recent Medi-
care requirements related to Advanced Beneficiary Notices
(ABNs), determined by Local Medical Review Policies
(LMRPs) and National Coverage Decisions (NCDs), and
Medicare Secondary Payor (MSP) questionnaires have had
an effect on consumers as well as medical laboratories.
Nongovernmental regulations are also present within the
laboratory industry. Outreach programs are subject to in-
spection by The Joint Commission (TJC) as part of an overall
hospital accreditation program. Many laboratories undergo
voluntary inspections by the College of American Patholo-
gists (CAP) to meet accreditation requirements through
“deemed status.” This means that one accrediting agency
recognizes another accrediting agency’s certification in lieu
of its own certification, i.e., CAP has deemed status for TJC.
The advent of managed healthcare plans has added
another barrier that many outreach programs must over-
come. Many plans that are national or regional in scope
have contracted with a single laboratory testing entity to
perform all the testing for their insured individuals. The
large, national laboratories are in a good position to pro-
vide services over a large geographic area. In effect, this
capability prevents many local or regional outreach pro-
grams from even bidding on a contract due to their geo-
graphic limitations. The direct impact of these laboratory
changes is summarized in Table 41.1.
The managed care picture, however, is not totally dark.
Successful outreach programs have discovered several seg-
ments of opportunity:
• Test utilization
• Linkages with other hospitals
• Superior service
• Wellness programs in collaboration with managed care
programs
Table 41.1 Direct impact of laboratory changes in the current
healthcare environment
From To
Revenue center Cost center
Test-based payment Capitated payment
Limited utilization controls Strong utilization controls
High quality Commodity pricing
Centralized testing Point-of-care and satellite testing
Internal laboratory Core laboratory
Semiautomated processing Fully automated processing
Reputation facilitates referrals Value-added facilitates referrals
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
• Relationships with community providers: physicians,
home health, hospice, nursing home
• Laboratory services that meet changing patient needs
Opportunities for cost management or reductions are
readily available through alterations to the staff mix, levels
in the organizational structure, and relationships within
the organization. Cost analysis becomes a necessity. Supply
and equipment costs may be examined. Make-versus-buy
decisions are made. Process improvement and work rede-
sign are examined. All strategies must be framed within
the CMS’s new payment-for-value program.
The capital requirements in the medical laboratory
industry are high. To offer a new service or open a new
site, the most recent technology must be available to gain
a competitive edge. This technology refers not only to
laboratory testing equipment but also to the implementa-
tion of highly sophisticated information systems includ-
ing local area network (LAN) and Internet-based systems.
Laboratory-related requirements in the federal meaningful
use program for healthcare information technology have
recently stimulated even more interest in the laboratory’s
use of information systems.
Another factor deals with the availability of qualified
personnel. For years, there has been a shortage of quali-
fied laboratory personnel, and that shortage has now
grown to include a shortage of training programs. As with
other professions, such as teaching, the number of new
technicians and technologists entering the personnel pool
is less than the number of individuals approaching retire-
ment. Not only is it difficult to recruit personnel, but once
they are hired, their learning curve for each laboratory
takes weeks, sometimes months. There is very little trans-
fer of process knowledge from facility to facility.
Determinants of supplier power. Medical suppliers are
very powerful within the medical laboratory industry. A
few vendors dominate the supplier distribution, including
the emerging molecular and genetic testing market. This cli-
mate may result in the inability to solve ongoing problems
with reliable shipments and repair services from vendors.
The advent of regional and national group purchasing
organizations, such as the Voluntary Hospitals of America,
plus the added emphasis on cost-effectiveness, has con-
tributed to the increased number of laboratories that have
aggressively negotiated more-favorable purchasing agree-
ments, including a change to using price per reportable
test. These same factors are active in the increased use of
multiple vendors by individual laboratories. The luxury of
dealing with one vendor is outweighed by the need for the
best pricing available, although convenience is regained
with the awarding of aggregate bids to a single distributor.
Usually the suppliers of the most recent technolo-
gies are not obliged to contend with substitutes for their
697
products because very few, if any, substitutes exist. There-
fore, switching costs are high. To counteract this high
substitution cost, many laboratories are negotiating “pack-
aged deals up front” with the vendors for stable or no-cost
maintenance contracts and/or training and continuing
education on the equipment at no cost.
Determinants of substitution threat. Medical laborato-
ries have seen their activity base within the industry erode.
In the past, medical laboratories were the only places
where consumers/patients could have laboratory testing
done. These laboratories were in the physician office, in
the core hospital laboratory, or associated with a reference
laboratory. Micro technology (which utilizes very small
sample sizes and more-compact testing equipment) and
patient education have allowed laboratory testing to move
to alternate substitution sites. The introduction of home
testing for pregnancy often allows a woman to know she is
pregnant before her physician knows. Most diabetics now
do their own glucose testing in the privacy of their own
home. Laboratory testing at the patient’s bedside rather
than in a designated place called “the laboratory” is avail-
able, and utilization is growing at a geometric rate. Many
physician office laboratories, emergency rooms, or out-
reach satellite laboratories are now performing analyses
that formerly were done only by hospital laboratories.
These alternate sites often provide care at a lower price,
thereby competing with most medical laboratory charges
for the same services. They also provide a convenience fac-
tor for the client that is not always present with a station-
ary core hospital laboratory. In many cases, the insurance
industry’s emphasis on cost reduction through a reduction
in both patient hospitalization days and outpatient care
also encourages use of these substitutes.
Determinants of buyer power. The medical laboratory
industry shares a unique characteristic with the rest of the
healthcare industry: the ultimate consumer, the patient, is
usually not the final purchaser or payor. Payor or buyer
may refer to one of many groups, including patients, in-
dividual physicians or physician group practices, employ-
ers, federal and state governments through Medicare and
Medicaid, insurance companies, and business coalitions.
Thus, discussion of buyer power is complex, especially
when one considers the use of forward integration within
the industry by some buyers such as physician-owned joint
ventures with insurance companies and independent prac-
tice associations with their own laboratories.
The components of buyer power are varied. Buyers are
powerful if they purchase large volumes of products or ser-
vices relative to the total provider’s volume. The majority of
laboratory testing is ordered by physicians and/or physician
extenders, who act as the gatekeepers to the laboratory in-
dustry, although there is a growing national trend toward
698 OUTSIDE MARKETING AND EXPANSION
self-ordering of tests by patients. The major buyers/payors
have begun directing the flow through the gatekeepers
with direct provider contracting—the use of preferred-
provider organizations, managed care programs that can
include capitation or “at-risk” arrangements or possibly
competitive bidding as considered by Medicare. Because
most outreach programs are not well differentiated from
other outreach programs, it is relatively easy for any payor
to switch to another provider.
Price sensitivity. The medical laboratory industry, in
relation to the entire healthcare industry, has a history of
moderate to high price sensitivity. However, in relation to
other U.S. service industries, it has had a sluggish response
to price sensitivity. This situation is changing.
Until recently, price has not been a major concern for
patients, either because they had insurance coverage or
because the costs of laboratory testing had been small in
proportion to the entire picture. As individual healthcare
consumers have become responsible for larger portions of
the bill payment, their concern about price has increased.
Corporate and government consumers are increasingly
concerned about the rising costs of laboratory testing in re-
lation to their total budgets. Consumer demand for lower
prices is increasing. Managed care contracts demand lower
prices. Insurance companies have progressed from en-
couraging their enrollees to use outpatient healthcare
services, rather than inpatient, to price shopping among
the laboratory providers. Because of the cutbacks in physi-
cian reimbursement, physician practices are searching for
lower laboratory prices. Although some individuals have
raised quality of care as a concern, the overwhelming tide
of concern is associated with price. The recent advent of
accountable care organizations that include the medical
home concept is stimulating even closer examination of
competitive pricing within a geographic market.
Rivalry determinants. When the growth of new provid-
ers within an industry is rapid, the level of competition is
also high. Many hospital laboratories have entered into the
outreach industry segment. The character of the industry
itself is changing in response to the aging of the popula-
tion, the diagnosis of newly discovered maladies, and the
development of the field of molecular pathology along
with genetics and companion diagnostics.
Although brand identity or product differentiation is just
now emerging on the national level, low switching costs, lit-
tle competitor diversity, and local concentration of outreach
providers have increased the rivalry between laboratories.
Buyers tend to select outreach programs according to
• Low pricing
• Good customer service, which includes timely consul-
tation services by respected pathologists
• Rapid test turnaround time
• The availability of electronic data entry and reporting,
including interfacing with office electronic medical
records
• Accurate billing practices
• The range of testing provided
Just as hospitals are beginning to negotiate regional and
sometimes national relationships, outreach programs are
forming loose organizational networks aimed at securing
regional managed care contracts for physician office labo-
ratory work. The sharpest competitive edge that hospital-
based laboratory networks enjoy is the potential to offer
physicians a comprehensive, integrated clinical database or
electronic health record containing inpatient, outpatient,
and physician office laboratory data. However, competing
hospitals seeking to form laboratory networks also face
the task of overcoming long-standing rivalries and antago-
nisms to unify behind a composite strategy. Despite these
challenges, many networks are slowly but surely making
inroads into the regional outreach market. For an indi-
vidual laboratory to survive the current industry changes,
it must be responsive both to the fluctuation of its local
environment and to industry-wide restructuring.
Situational analysis. Answering the question “Does an
outreach program fit with who we are?” is the purpose of
a situational analysis. It describes the major features of the
local environment influencing the program’s operation.
It also describes where the organization is and where it
might go. The outreach program must “fit” with the orga-
nizational goals.
Background. This summarizes the organizational fac-
tors affecting the potential success of the proposed pro-
gram. It includes a brief history of the organization or
institution with an emphasis on founding purpose, mis-
sion, values, and community need. A description of the
events leading to the laboratory’s decision to look into es-
tablishing an outreach program is desirable.
Current activity and normal forecast. The background
information is followed by a summary of key performance
indicators for the past few years and a forecast of future
volume under normal conditions. This assumes no ma-
jor changes in the marketing environment or strategies.
The forecast may be done first without considering the
proposed outreach volume and then with that projected
volume. The comparison of the two forecasts provides im-
portant information needed to decide if the costs outweigh
the benefits of establishing an outreach program. It gives
your Administration a picture of what to expect. The basis
of the forecast could be statistical curve fitting, conduct-
ing focus groups of potential clients, or other accepted
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
marketing procedures. The forecast needs to be revised if
there are changes in environmental conditions or strate-
gies. At times, depending on the location of the market
you’re in and its volatility, trying to do a “normal” forecast
is like trying to build a castle with dry oatmeal.
Market description. Another picture is painted for
Administration with the market description. A primary
purpose is to clarify the market in which the outreach pro-
gram will be operating. Some of the elements that may be
included are
• A map of the proposed service area
• A list of the targeted clients or customers
• A demographic profile of the service area
• A discussion of other competitors within the market
including current activity, services, and location
• Results from a satisfaction survey of the area’s provid-
ers and patients
Product review. We have worked our way down from
a broad view of the local environment (background),
through a prediction of what future performance could be,
to a picture of what the potential market looks like. Now
we need to examine the product itself: the laboratory. Dis-
cussion may include
• The current services of the department, both inpatient
and outpatient
• How those services fit into the portfolio of the
institution
• The value that both providers and patients place on the
service
• The life-cycle position, both within the community
and within the organization
• A breakdown of potential product lines such as physi-
cian office services, nursing home collection, or service
center establishment
SWOT analysis. Both external (outside the organiza-
tion) and internal (inside the organization) factors that
will influence the successful implementation of an out-
reach program need to be considered. This is the SWOT
analysis, and it answers the question “Can we do this?”
External factors can be categorized as opportunities
or threats. An opportunity is a positive element of the
market in which an organization is likely to enjoy supe-
rior competitive advantage. A proposed outreach service
center location convenient to a large number of prospec-
tive patients would be an opportunity. A threat is a chal-
lenge posed by an unfavorable trend or competitor that
would lead, in the absence of purposeful marketing ac-
tion, to the stagnation, decline, or end of a program or
699
product. An example would be the establishment of a re-
gional reference laboratory within your market area by a
competitor.
Internal factors are addressed through examination
of strengths and weaknesses inside the organization.
Strengths need to be supported and maximized, while
weaknesses need to be corrected. A weakness could be
the inability to determine test costs, thereby inhibiting
the establishment of a pricing methodology. A strength
is exemplified by the presence of state-of-the-art tech-
nology within the testing laboratory. Special consider-
ation needs to be given to factors dealing with specimen
transport and processing, information systems including
reporting functionalities and remote order entry/report-
ing, marketing and sales availability, and customer ser-
vice capabilities.
Although opportunities, threats, strengths, and weak-
nesses describe different factors, the presentation of
these factors may have common elements. All are written
to suggest some actions that might be needed. The per-
son preparing the analysis may be asked to rate each for
its potential impact and to determine which deserve the
most planning attention. All have implications for strategy
formulation.
Exploring the Market
Having a picture of your market that is accurate and as
complete as possible prior to making the decision to start
an outreach program is a must. This will serve as a founda-
tion for all subsequent actions.
Determination of the service or market area is needed.
This may be accomplished by looking at the area from a
functional and geographic viewpoint. Within the hospital
organization itself, especially if a healthcare system is in-
volved, a determination of what services the core labora-
tory will provide (and where) as compared to what services
Outreach will provide (and where) must be determined.
Some questions to be answered are
• Who will do the reporting and how?
• Where and by whom will testing services be provided?
• Who will provide customer services support, including
information technology troubleshooting?
• How, where, and by whom will the specimens be
processed?
Geographically, the outreach program’s service area
may be different from that of the hospital or healthcare
system. A primary service area (specimen transport within
2 hours of collection) may be structured around local pro-
viders such as physicians and home healthcare agencies.
A secondary service area (specimen transport within 2 to
24 hours) is best developed after the initial market share
involving the primary service area is gained.
700 OUTSIDE MARKETING AND EXPANSION
Market segments need to be identified. There are a
number of resources that can provide demographic infor-
mation concerning market segments such as
• Physician practices
• Home healthcare agencies that can also assist in deter-
mining a possible need for a home draw program
• Hospice programs
• Long-term-care facilities
• Dialysis centers
• Mental health facilities
• Occupational health programs
• Other hospitals
• Veterinary practices
Your hospital marketing department may already have this
information. If not, a list of demographic resources ap-
pears in Appendix 41.1.
Assessing the market segments may be done by several
methods. Since medical staff physician referrals are the
most easily accessible segment and offer the most potential
return on investment for the beginning outreach program,
we will use this segment as an example; however, similar
strategies may be utilized with each market segment. Ini-
tial focus needs to be on the specialties that usually provide
most of the test referrals: Family Practice, Internal Medi-
cine, and Obstetrics/Gynecology. In some markets, Pediat-
rics and Urology may be added to this list.
Information concerning the community need for out-
reach laboratory services may be gathered by interviews
with 10 to 15 carefully selected physicians and a mail-in
survey to all medical staff. Generally, the return on mail-in
surveys is about 10 to 15%, but the responses can be im-
proved by active promotion by pathologists and hospital/
medical staff committees through individual discussions,
a newsletter to local offices explaining the purpose of the
survey, and announcements in hospital or medical society
newsletters. Focus groups made up of physician office staff
members who regularly interface with a laboratory are also
useful. In addition, it is also valuable to identify physicians
who, based on their specialties and/or their ability to influ-
ence other physicians within the medical community, may
serve as champions for the outreach program.
The survey questionnaires or interview and focus group
guides need to solicit responses about issues related to lab-
oratory testing that are important to the physicians and of-
fice staff. Sample forms are provided in Appendixes 41.2
to 41.4.
Another useful tool in exploring the market is an im-
age analysis. An organization’s image is a function of its
deeds (services) and its communication (public relations).
It is the organization’s image, not necessarily its reality,
to which people respond. This has strategic implications
for the development of any new program. Services can be
designed to be more responsive to the consumer when
thought has been given to the structure of the image de-
sired for the new program. Consequently, the level of cus-
tomer satisfaction can be expected to be higher because
of the great congruence between expectations and actual
service features.
Many methods have been proposed for measuring im-
ages. The last section of the sample questionnaire in Ap-
pendix 41.4 is designed to provide information to measure
image. Each characteristic listed is an image element.
The last step prior to presenting your findings to Ad-
ministration is to develop a plan for planning. It estab-
lishes a planning framework by determining the specific
planning steps to be followed, identifying the internal and
external constituencies that need to be involved, and speci-
fying the roles of the individuals on the planning team. It
also establishes the planning time schedule. The plan for
planning is summarized below:
• Planning objectives. These are statements that describe
the goals or objectives of the planning exercise or why
a plan is being made. Examples include “develop func-
tional and useful strategic, business, and implementa-
tion planning documents” or “gather support for the
development of a laboratory outreach program.”
• Planning environment. These factors, both positive and
negative, will influence the planning process. Examples
include “the amount of time available for the planning
process” or “the management style prevalent within the
organization.”
• Planning approach. This describes how the planning
will take place, who will participate, and which stake-
holders are involved. The planning might be done
through a collaborative approach by a planning task
force or team involving such stakeholders as Registra-
tion, Billing Services, Information Systems, and Labo-
ratory as the process progresses.
• Course of action. A brief description of the events lead-
ing up to the determination that there was a need to
investigate the development of an outreach program is
valuable in providing background in the plan for plan-
ning document. Individuals involved in developing the
planning documents need to be identified, along with
their areas of responsibility. Future activities including
the structure of the planning documents need to be
outlined.
• Planning schedule. A plan of action needs to be
roughed out. It should include the broad planning
steps and a Gantt chart outlining expected timelines
and responsibilities for the planning process only. Re-
member, this is a plan to plan—not a strategic plan or
an implementation plan.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
It is now time to return to your Administration with
the information you have gathered to solicit support for
further planning, including a strategic plan, business plan,
sales plan, and implementation plan. Without administra-
tive support, both financially and strategically, any out-
reach program is doomed to fail.
Strategic Plan
Strategic planning entails making intelligent choices in
determining future programs and goals. Although it is a
continuous process of taking a long view of the planning
horizon, it can also involve an immediate response to a
sudden shift in circumstances. It can be considered a blue-
print for dealing with changing circumstances. Planning is
important if for no other reason than it forces us to think
about how we are going to remain or become a viable entity
under different sets of assumptions and circumstances—
whether they are related to the government, community,
or market.
Strategic planning poses such questions as
• What is the purpose of this program?
• What is its mission?
• What major category of clients or patients will it serve
next year? In 15 years?
• What will be the program’s major geographic area next
year? In the future?
• What are the upcoming trends in delivery of outreach
and hospital services?
• What major services should we pursue?
• At what point would changes in funding or demogra-
phy affect these plans?
• What alternative services would have to be introduced
to deal with the new situation?
• What effect would these alternatives have on the origi-
nal purposes of the program?
• Will a new mission statement have to be defined?
Once a commitment to strategic planning has been
made, a strategic-planning team needs to be formed. The
team needs to be large enough to represent all outreach
stakeholders but small enough for an exchange of ideas.
Seven to 10 members is ideal. A common denominator
should be their problem-solving ability and their knowl-
edge of the market from their own unique perspectives. Sug-
gested stakeholders include representatives from Hospital
Administration and Finance, Patient Access or Registration,
Billing and Collection Services, Physician Services, Infor-
mation Systems, Marketing and Public Relations, affiliated
hospital services such as Home Health and Hospice, and of
course, the laboratory, including Pathology. After complet-
ing the strategic plan, this group could easily become the
701
outreach advisory group discussed later in the “Business
Plan” section of this chapter.
The process of strategic planning is best accomplished
over a relatively short period to ensure continuity of pur-
pose and participants as well as maintain the momentum
that the process generates in its early phases. Consen-
sus is essential to the implementation of a strategic plan.
It cannot be achieved if one or two people dominate the
planning process. The plan that evolves from the process
should provide a framework for orderly decision making.
It should make it possible for problems and services to be
examined with a sense of perspective.
An effective strategic plan needs to include the follow-
ing sections.
1. Mission statement. A program’s mission statement is its
fundamental purpose or reason for existence. The mis-
sion statement should not be so vague as to provide no
direction, nor so restrictive as to inhibit the strategic-
planning process, nor so broad as to substitute for the
final planning document. The future should be dis-
cussed as well as the present. The outreach program
mission statement must be compatible with the insti-
tution’s mission statement. The process should be part
fact-finding, part brainstorming, and part evaluation
of the present situation.
2. Goal development. Based on the information from the
industry, situational, and SWOT analyses, strategic
goals need to be developed. Goals reflect the results
that the outreach program seeks to achieve and are the
means for achieving the mission. Goals translate the
mission into concrete terms. To be effective, the goals
established need to be prioritized and stated in quanti-
tative terms so progress may be measured.
3. Strategy formulation. A strategy is a broad course of
action designed to achieve a program’s goals and objec-
tives. Strategy formulation is a decision-making activity
for choosing between alternative courses of action.
Strategies may include focusing on target markets, such
as physician offices or long-term care, or deciding what
the outreach program’s portfolio will include regarding
product, price, place, and promotion. A truly effective
strategic plan should facilitate the day-to-day decision-
making process so that decisions are not agonized over
but seem inevitable. In addition to defined strategies, a
broad timeline needs to be developed to provide a
background for expectations.
4. Control procedures. Missions, goals, and strategies are
not written in stone—or they shouldn’t be. Even the
most carefully designed plans require periodic review
and revision if results deviate from objectives. The es-
tablishment of control procedures ensures that strate-
gic planning is a continuous process. The plan should
include a mechanism for evaluating new and ongoing
702 OUTSIDE MARKETING AND EXPANSION
services so that criteria for success are defined before
the services are initiated. The plan should include a
process for scanning the environment to make sure
that the program’s strategies and even its mission are
still desirable and feasible given changing
circumstances.
Business Plan
Although we have come a long way from just thinking
about starting an outreach program, we still have unan-
swered questions that must be addressed before we are
ready to implement the program. Based on the informa-
tion previously gathered, a plan is developed defining
organizational structure and relationships, compliance is-
sues, fee schedule policies, and a cost-benefit analysis.
How will the outreach program be structured and orga-
nized? The types of organizational structures are as numer-
ous as the number of outreach programs. Each is unique to
the needs of the particular program and market, but it is
vital that all responsibilities be clearly described and as-
signed, keeping in mind that the program must be able to
respond rapidly to changes in the marketplace, whether
they are opportunities or threats. Many hospitals choose
to establish the outreach program as a separate business
entity with its own provider ID and tax ID to facilitate this
responsiveness to the market.
The administrative structure of the outreach plan is,
like the organizational relationship, structured to meet the
unique needs of the market.
1. An advisory group, composed of the same stakehold-
ers involved in the strategic plan plus the outreach di-
rector, is often beneficial. In addition to providing
feedback about the performance of the outreach pro-
gram and related activities within the service area
from their unique perspectives, these individuals may
assist with coordinating services with other hospital
departments, monitoring quality assurance and
customer/client satisfaction, and providing ideas for
future program development based on client needs.
Having support and buy-in from these key stakehold-
ers and utilizing them as champions for Outreach is
valuable to ensuring broad support for the program
from the entire facility.
2. The outreach program is driven primarily by the ex-
ternal customer base, not the internal operations of the
hospital or laboratory. It is vital that the outreach direc-
tor not only be capable of operationally managing the
program but also be able to communicate clearly the
needs of the clients to Administration. In addition,
the director must have prior experience in marketing
and sales to be able to successfully balance the needs of
the clients with the needs of the outreach operations.
A sample job description is included in Appendix 41.5.
3. Depending on the size and scope of the planned out-
reach program, additional administrative or manage-
rial personnel may be needed. Usually a client services
or operations coordinator is needed to supervise the
day-to-day activities of the patient service center(s)
and personnel, including functions such as order entry
and registration, telephone or call center operations, and
interaction with the testing laboratory, usually the hos-
pital laboratory. A logistics coordinator may be needed
if the number of couriers warrants a supervisor unique
to the specimen pickup function. If the service area is
large enough to require more than one person to pro-
vide adequate client sales and account management, a
sales representative may be needed to assist the direc-
tor. It is often advisable to consider hiring a financial
assistant to oversee billing and collections, both client
and patient, if that function is done by the outreach
program rather than the hospital billing office. Sam-
ple job descriptions may be found in Appendixes 41.6
to 41.9.
4. The front-line staff will have the most contact with
patients and clients. It is through them that the con-
stituents of the market see the outreach program, and
they are the major determinants of what image is
formed. Again, depending on the services offered by
the outreach program, phlebotomists, couriers, and
customer service associates may be needed. Hospital
registration, if necessary, may be performed by either
the registration department or Outreach, and the func-
tion may be combined with the phlebotomy process.
Sample job descriptions are found in Appendixes 41.10
and 41.11.
An operational assessment of the facility’s and labora-
tory’s abilities to provide the types and level of services
defined by the prior market and client needs analyses is
absolutely necessary to determine the cost and operational
impact that the outreach program will have. Service re-
quirements may include
• Efficient and extremely reliable courier service for
both routine and STAT testing—either facility owned
or contracted
• Effective methods and appropriate equipment to reg-
ister patients, order tests, obtain samples, and process
specimens
• Reporting capabilities and turnaround times that meet
most customer needs
• Knowledgeable, personable, and customer-focused
client service representatives for problem-solving
activities
• An adequate telephone system to handle the volume of
different types of calls, from courier dispatch to infor-
mation about location or hours of operation
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
• Information systems that support efficient patient reg-
istration and test ordering; remote order entry; inter-
face with client electronic medical records; flexibility
of reporting types and format (fax, electronic and hard
copy); call center management including telephone call
workflow and customer service software; and timely
program evaluation based on volume, process, and fi-
nancial indicators including utilization data
• Requisition forms, preferably customized by client or
specialty, that address not only testing designation but
also test status (STAT or routine), compliance needs, bill-
ing assignment/information, and special requirements
• Regular and consistent client contact done in person
• Sales literature explaining the outreach program’s ser-
vices, technical updates, and periodic newsletters
• A complete and up-to-date directory of services that
includes not only phlebotomy instructions but also
specimen-handling requirements
• Customer- and client-focused educational programs
• Market-driven, competitive fee schedules that may
include multilevel client fees based on discounting
levels due to client volume (please note that a method-
ology of establishing charges based on test cost must
be in place to meet the most basic of OIG compliance
requirements)
• Flexible billing options including the typical third-
party requirements, monthly client billing, managed
care billing for capitated contracts, and individual pa-
tient billing
Each outreach program is uniquely structured to meet
the needs of its targeted market. Not only does this apply to
administrative and organizational structure, it also applies
to physical arrangement and processes. If there is a need
for patients to have their blood drawn at a site convenient
to them rather than solely at the hospital, service centers
need to be developed. If there is a need for patients to have
their blood drawn within a physician’s practice, a phle-
botomist needs to be placed at that service site, given the
presence of adequate volume to justify the associated costs.
The physical layout for specimen processing and testing
also needs to be examined from the outreach viewpoint
rather than solely from a hospital inpatient perspective.
A clear, explainable process for the establishment and
periodic review of the outreach fee schedule and associated
Current Procedural Terminology (CPT) codes must be de-
veloped. Without the presence of a competitive fee schedule
and correct CPT and diagnosis (International Classification
of Diseases [ICD]) coding, your outreach program has little
chance for success. The charges developed should be based
on marginal, per-test costs, leveraging off the already pres-
ent capacity and overhead of the inpatient and traditional
703
outpatient (emergency room, ambulatory surgery, observa-
tion/day treatment) hospital laboratory. Usually, this means
that only the supply and reagent costs of performing the test
are used as the foundation of the fee schedule. The testing
personnel costs do not need to be included for most out-
reach programs, especially in their initial development, be-
cause they would be part of the hospital laboratory budget
whether or not the outreach program was in existence. The
direct costs, such as salaries, gasoline, postage, and space
rental, and indirect costs, such as education, marketing, and
equipment service agreements, of operating the outreach
program need to be added to the test cost. Other indirect
facility costs, such as the cost of billing a test, may also be
added. Markups to the base cost for both patient and cli-
ent charges need to developed, but be cautious of using any-
thing lower than a 10% markup. Client pricing is based on
various volume categories, which can be as sophisticated as
a per-test determination (i.e., volume discounts calculated
by number of individual tests) to a total client volume (i.e.,
volume discounts calculated by total number of tests). It is
imperative that these client volume categories be strictly
adhered to so that no hint of inducement is present. Based
on the volume figures from the normal forecast done previ-
ously, a projection of both the costs and billed revenue needs
to be done to assure the profitability of the program.
Processes related to compliance issues must be ad-
dressed. CLIA and CMS certification is required. Certifi-
cation by CAP, TJC, or your state may also be necessary. A
documented, usable compliance plan must be constructed.
Service agreements that outline what outreach services are
provided to which clients along with billing requirements
and that have been approved by your facility’s legal depart-
ment need to be drafted for later signature as clients are
developed. A mechanism to obtain descriptive diagno-
sis or ICD-9/10 (International Classification of Diseases,
Ninth/Tenth Revisions) codes prior to registration and
billing needs to be formulated. Medicare patients must
have ABNs and MSPs documented prior to testing. The
advent of NCDs in addition to LMRPs makes Medicare pa-
tient registration and billing even more complex.
Customer service processes need to be developed. Usu-
ally, customer service issues relate to client education, cli-
ent problem solving, quality assurance monitors, quality
improvements, and problem reporting.
Marketing and sales functions also need to be examined
and assigned. Broadly, marketing functions include
• Developing, conducting, and evaluating market research
• Identifying market changes and developing strategies
to address them
• Developing and implementing professional-standard
sales literature
• Promoting the outreach program within the service area
704 OUTSIDE MARKETING AND EXPANSION
Many hospital laboratories will find marketing and sales
to be a new function that may necessitate additional staff,
especially for sales, which requires one-on-one contact with
the clients, sometimes at very short notice—a requirement
not easily addressed by most laboratory managers due to
their already full schedules. Sales personnel are usually com-
pensated with a competitive base rate of pay plus clearly de-
fined incentives for accomplishing defined sales objectives.
In addition, the question of mileage reimbursement versus a
car provided by the institution needs to be decided.
Sales Plan
Development of a sales plan is also valuable. The sales
plan not only needs to outline sales expectations such as
targeted markets and/or clients, test volume, number of
patient contacts/registrations, and billed revenue for the
coming year, but it also needs to discuss the sales approach
adopted by the outreach program. The concept that sales-
people have about their role influences their attitude about
themselves and the client, the behavior demonstrated in
the approach to the client, and whether or not the client
believes that the salespeople and/or the program they rep-
resent are there to serve that client. If salespeople believe
that their role is simply to make the sale, they will focus
on their own needs rather than the client’s needs. On the
other hand, if the sales force personnel see themselves as
resources and problem solvers, they will focus on the client
and will seek ways to meet the client’s needs.
There are four basic steps in the sales approach to de-
veloping a client.
1. Relating. The first step is to build a solid relationship.
The salesperson must address the client’s initial lack of
trust and act to reduce the feeling of anxiety or dis-
comfort that we all have about other people when we
first meet them. One way to accomplish this is to com-
municate why we are meeting, how the meeting will
proceed, and how we both will benefit from this
meeting.
2. Discovery. During the discovery phase, the salesperson
needs to uncover all the factors that would affect the
client’s decision to utilize the outreach services. The
outcome should summarize the gap between what the
client has and what the client wants. The process is
similar to peeling an onion. It is accomplished one
layer at a time until the core is uncovered.
3. Advocating. The purpose of the advocating phase is to
assist a client in understanding how the outreach ser-
vices will aid them in meeting their business needs.
The sales force will also develop a stronger, more last-
ing relationship with the client because they are able to
demonstrate appreciation and understanding of the
client’s problems and needs.
4. Supporting. From the first three steps, the salesperson
gains the information and develops the client relation-
ship to meet the client’s expectations after the sale. Sup-
porting the client is built upon four principles: support
the buying decision, manage the implementation, deal
with dissatisfaction, and enhance the relationship.
The role of service or value-added elements has never
been more important than now. Outreach programs can
no longer rely solely on price or test menu to differentiate
themselves from their competitors. Most competing pro-
grams offer comparable test menus at similar prices and
can quickly copy any innovations. Today, the emphasis is
on service, and service is the key business strategy for gain-
ing and keeping the competitive advantage. In addition,
more and more clients are not only demanding higher lev-
els of service but are also placing more and more emphasis
on value added as the basis for deciding where to look for
services and what to retain. In short, this growing empha-
sis on service means that organizations will rely even more
heavily on the quality of their service, the success of their
service providers, and the effectiveness of their sales force.
Prior to making a sales call, a list of prospects and in-
formation about the prospects must be developed. Several
questions can be used to facilitate this part of the process:
• Who are your prospects?
• Where do you get names of prospects?
• How do you qualify prospects?
• How do we know their potential?
• How does the salesperson get the information to qual-
ify the prospects?
• What is the ideal prospect?
• How long does it take to turn a prospect into a client?
• Who are the top five prospects?
• What will it take to sell them?
Once the prospects are identified, the “Probability
Pipeline” scale for rating prospects is used in true territory
management. The theory behind the Probability Pipeline
is that the salesperson needs to have enough prospects
evenly distributed through the Pipeline to flow through to
consistently completed sales. Prospects may be graded as
seen in Table 41.2.
Each prospective client is unique in not only the ser-
vices they desire but also the rate at which the account may
Table 41.2 “Probability Pipeline” scale for rating prospects
Prospect status Score
All prospects—any possible client 0.00
Initial contact—left literature, gathered information, set 0.25
appointment
Secondary contact—met with prospect, prospect interested 0.50
Client setup—ready to send business 0.75
Specimen received from client 1.00
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
be developed. Some prospects will become clients during
the first meeting, while other prospects will require nu-
merous meetings before they reach client status; however,
some overall guidelines may be used in developing the
“typical” visit scenarios (see Appendix 41.12).
Promotional literature is a necessity. It can range from
basic (business cards and handbook) to sophisticated. A
list of promotional literature that may be considered for
the salesperson is in Appendix 41.13.
Client profiles need to be built on each prospect by the
salesperson and updated upon each contact. The profile
will be the complete story about each prospect/client, from
initial contact to current or most recent sales interaction.
The minimum information that should be contained in
the client profile can be seen in Table 41.3.
One of the tenets of being a successful salesperson is
the development of strong relationships with existing cli-
ents. Communication and personal service are the keys. To
facilitate the use of these keys, a schedule for client visits
by the salesperson can be developed based on the volume
generated by each client and the preference of the client as
to visit frequency. The visits may be as often as once a week
or as infrequently as once a quarter.
Communication about sales activity is vital to the co-
ordination of an integrated outreach program. It is the
responsibility of the salesperson to keep Outreach man-
agement and personnel informed of prospect develop-
ment and client relations. In addition, it is the salesperson
who will play a major role in coordinating the outreach
program’s sales efforts with other areas of the hospital or
health system that are also involved in sales. A monthly
report of sales activity may facilitate the communication.
The report should also include prospects rated according
to the Probability Pipeline, visit summaries for current cli-
ents, and any issues of importance.
Now it is time to put together a budget based on the
people, processes, equipment, facilities, and fee schedule.
Table 41.3 Minimum information that should
be contained in the client profile
Provider/physician name
Mailing address
Voice phone number
Specialty
Hospital affiliations
Original service agreement date
Method of reporting results
Organization name
Pickup/delivery address
Fax number, e-mail address
Contact person and position
Beginning service date
Last service agreement renewal date
Check-off of equipment issued
705
Most hospitals already have a budget template that may be
used. Usually, additional expense categories that may not
be routinely addressed by the facility need to be developed,
including
• Marketing/sales/public relations
• Rent
• Gasoline
• Utilities (electricity, natural gas, water)
• Postage
• Printing
• Billing service
• Courier service
In concert with the budget, a cost-benefit analysis must
be done to look at the expected profitability of the pro-
gram, including the test volume and revenue (sales), both
billed and collected, that are needed for the program to
break even.
Commitment from All Relevant Parties
Feasibility Report
Final commitment for the outreach program from the
facility’s administration must be solicited before imple-
mentation can occur. A feasibility report or business plan,
based on the data previously acquired, provides valuable
information for the administration to use in making the
“go or no-go” decision. The report is a summary of
• The market assessment
• The service assessment
• The cost-benefit analysis
• Operational options
• Recommendations
Philosophical Understanding
Commitment from Administration must not only pro-
vide financial and human resource support; it must also
provide a philosophical understanding of the plans and
goals of the outreach program and how it fits into the
overall organizational plan—both short term and long
term. Administration must also have a clear understand-
ing of the nature of the volatile outpatient outreach in-
dustry and how it differs from the traditional inpatient
hospital industry.
Service and Financial Support
The commitment should include service support for is-
sues related to information services, marketing, sales, and
billing and collections. Once this commitment is firmly in
place, you are ready to plan the implementation of the out-
reach program.
706 OUTSIDE MARKETING AND EXPANSION
Implementing the Outreach Program
After all the time and effort spent on researching the pos-
sibility, probability, and need for your outreach program,
planning the implementation of the program seems fast and
effortless in comparison. It’s the juggling of the different areas
of implementation and bringing them to fruition in a coor-
dinated manner by the required deadline that is challenging:
people, processes, facilities, equipment, and supplies. No one
part of the implementation plan is more important than any
other. Each is integral to a successful startup. Use of some
sort of project management software is strongly suggested
due to the complexity of the coordination needed.
People
In his book Good to Great, Jim Collins asserts that it’s not
just the people, but the right people, who are important to
the success of a company (1). He compares the company
to a bus. If the right people are on the bus and in the right
seats, then no matter where the bus goes, that group of peo-
ple can adapt to the challenges facing the bus. Job descrip-
tions are the seat designs. The more defined and complete
they are, the more likely you are to find the right person to
fill the seat. Recruitment must follow job description devel-
opment, not precede it. The training program needs to ad-
equately prepare the people for the seats they will be taking,
and it is an investment in the future operational efficiency
of the outreach program. Too many programs find out the
hard way that although skimping on training puts person-
nel in their seats faster, it also leads to increased error rates,
patient and client dissatisfaction, and employee dissatisfac-
tion. Competency testing, mandated by several accrediting
organizations, is the documented story of training success.
Processes
The processes that the outreach program will use need to
be consciously thought out, documented, and commu-
nicated, not only to the outreach people hired but also to
interfacing departments such as the laboratory staff, Infor-
mation Systems, and Billing—possibly through a series of
presentations outlining the program development. Work-
flow, including physical layout and process steps, needs to
be developed and documented. The use of flow charts can
point out redundant steps and bottleneck points. Policies
and procedures must be written and shared with all involved
staff. Planning and implementation of a process improve-
ment program, including quality control, quality indicators,
quality improvement, and compliance audits, is necessary in
addition to processes related to patient and client services.
Facilities
Depending on the goals and size of the outreach program,
some attention will need to be paid to the facilities in
which the people and processes will be functioning. Many
organizations have personnel within their engineering or
facilities management departments who may be helpful.
Example questions to be considered include
• Will service centers or draw sites be necessary? If so,
where will they be located? What size and space ar-
rangement is necessary?
• Will any construction or renovation be necessary if
existing structures are to be used?
• What requirements are there related to utilities, patient
access, patient parking, and courier parking?
• What look and feel does the program want to project
to its clients and their patients? To the community as a
whole?
• What resources are available to announce new service
center openings?
Equipment
The equipment required, like the facilities required, will be
unique to each outreach program. You must decide what is
best for your program when evaluating equipment for infor-
mation services, technical areas (such as phlebotomy chairs
or telephone systems), testing (waived or more-complex
testing), and specimen transport (contracted courier ser-
vices or your own). The materials management department
may be able to assist in those selections, and many organiza-
tions have already-existing contracts with multiple vendors.
Remember that installation and training, as well as repair,
need to be considered in your equipment selections.
Supplies
Now that you’ve hired the people, outlined the processes,
designed the facilities, and selected the equipment, it’s time
to address the subject of supplies. Most outreach programs
not only stock supplies for their own use, but they also pro-
vide supplies at no charge for clients to use in collecting
specimens that will later be sent to the outreach program.
The OIG of CMS has issued a fraud abuse alert specifically
on this subject. Supplies may be provided free of charge to
clients only if those supplies are used exclusively for the col-
lection of specimens sent to the outreach program provid-
ing those supplies. Supplies such as tourniquets or syringes
that may be used for procedures other than venipuncture
may not be provided free because they are not exclusive to
venipunctures. By what method will the clients order their
supplies? How and when will the supplies be delivered? How
will you monitor client supply usage versus tests ordered?
Outreach Indicators
Once the outreach program is up and running, it is time to
monitor its performance by developing outreach indica-
tors. To date, there is very little in the literature concerning
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 707

Table 41.4 Outreach indicators
Service
Customer satisfaction surveys
Clinical errors
Missed specimen pickup
Days in Accounts Receivable
Telephone call center summary
Finance
Cost/revenue per patient contact
Test volume
Test cost-to-charge ratio
Net collections
Tests per requisition
Efficiency
Patient wait times
Test-to-report turnaround time
Staff hours per patient contact
Ratio of patients to specimens
Sales
Pipeline report
Current client visit summary
Client billing report
outreach benchmarking, so it is difficult for one program
to assess how it compares to other programs. However,
month-to-month progress can be tracked in terms of ser-
vice, finance, efficiency, and sales (Table 41.4).
Growing the Outreach Program
Congratulations! Your data gathering and planning have
paid off. The outreach program is set up and is a success!
Now what happens? The market, competition, and opera-
tional processes must continually be monitored to uncover
changes and make improvements.
Market Assessment
Ideally, market assessments (Appendix 41.4) should be done
on a yearly basis, although in some markets, biannually is
sufficient. Anyone who has contact with the customers—
sales personnel, couriers, service representatives—needs
to provide continuous feedback about the concerns of
patients and providers (Appendix 41.14). The key to the
prolonged success and growth of an outreach program is
responding quickly to market changes and the needs of
the customers.
viewpoint. Once this is accomplished, the successful labo-
ratory outreach program is an asset not only for the parent
facility but also for the community it serves.
• Each laboratory outreach program is unique, depend-
ing on the particular needs of its customers, the mar-
ket environment, and the resources available. The
structure and processes of the outreach program must
be designed to meet those needs for sustained success.
• Meeting customer needs is not rocket science. It is
primarily listening to customers, whether patients or
providers, and addressing their concerns—sometimes
successfully, sometimes not—but always demonstrat-
ing your desire to provide them with solutions.
• The successful outreach program contains a strong yet
flexible infrastructure constructed to meet the ever-
changing market needs through efficient processes,
placement of the right people in the right jobs, and
strong commitment to the program from hospital
administration.
• Outreach is a business and, as such, needs to be oper-
ated as a business, with strong fiscal policies, effective
operational procedures, accurate market research, and
enlightened strategic management.
Summary
We have seen how a laboratory outreach program can
broaden and enhance the scope of services for a hospital
laboratory and meet the outpatient needs of the com-
munity. However, development of such a program must
be thoroughly researched prior to implementation. Im-
portant aspects of planning include an initial interest and
position assessment, an in-depth market and operational
assessment, construction of a detailed business plan,
timely implementation, an ongoing program assessment,
and an ongoing commitment to the program’s growth and
improvement.
Commitment from all relevant parties must be ongoing,
including both service and financial support. Implementa-
tion requires comprehensive understanding and coopera-
tion on the part of all involved, with a solid commitment to
growth potential; component parts will include people, pro-
cesses, facilities, equipment, supplies, and financial support.

Client Needs
If the expectation is to have a successful outreach pro-
gram, then development and implementation cannot be
haphazard or casual. It is not something that a laboratory
does in its “spare time.” It is a business and must be oper-
ated as such. It must be customer focused. Services and
processes must be structured from the customer’s point of
view rather than from a traditional, inpatient laboratory
KEY POINTS
■ Several issues must be considered prior to obtaining
administrative commitment for the implementation of
an outreach program. These include determination of
administrative interest, a thorough exploration of the
market potential, and development of potential strate-
gic, business, and sales plans.
708 OUTSIDE MARKETING AND EXPANSION
■ Once a detailed feasibility report has been reviewed and
discussed by all relevant parties, then there should be
some confirmation of philosophical understanding and
service and financial support required from all parties,
particularly the administration.
■ Detailed plans related to people, processes, facilities,
equipment, and supplies must be developed and re-
viewed by all relevant personnel and then implemented
using a detailed timeline.
■ Indicators for ongoing assessment of the program’s
progress must be reviewed on a continuous basis, with
anticipated growth being a critical component of the
overall plan.
GLOSSARY
Advanced Beneficiary Notice (ABN) Advises Medicare benefi-
ciaries, before items or services are actually furnished, when
Medicare is likely to deny payment for them.
Business plan A financial and operational analysis of the feasi-
bility of the implementation of a program.
Centers for Medicare and Medicaid Services (CMS) A federal
agency within the U.S. Department of Health and Human Ser-
vices that runs the Medicare program, Medicaid program, and
State Children’s Health Insurance Program (SCHIP).
Clinical Laboratory Improvement Amendments (CLIA) CMS
regulates all laboratory testing (except research) performed on
humans in the United States through the Clinical Laboratory Im-
provement Amendments (CLIA). In total, CLIA covers approxi-
mately 175,000 laboratory entities. The Division of Laboratory
Services, within the Survey and Certification Group, under the
Center for Medicaid and State Operations has the responsibility
for implementing the CLIA program. The objective of the CLIA
program is to ensure quality laboratory testing. Although all
clinical laboratories must be properly certified to receive Medi-
care or Medicaid payments, CLIA has no direct Medicare or
Medicaid program responsibilities.
College of American Pathologists (CAP) The principal orga-
nization of board-certified pathologists, CAP serves and rep-
resents the interests of patients, pathologists, and the public by
fostering excellence in the practice of pathology and labora-
tory medicine.
Cost-benefit analysis A projection of the resources needed to
implement a program and the benefits derived from such a
program.
Equal Employment Opportunity Commission (EEOC) The
EEOC was established by Title VII of the Civil Rights Act of 1964
and began operating on July 2, 1965. The EEOC enforces the fol-
lowing federal statutes:
• Title VII of the Civil Rights Act of 1964, as amended, pro-
hibiting employment discrimination on the basis of race,
color, religion, sex, or national origin
• The Age Discrimination in Employment Act (ADEA) of
1967, as amended, prohibiting employment discrimination
against individuals 40 years of age and older
• The Equal Pay Act (EPA) of 1963, prohibiting discrimina-
tion on the basis of gender in compensation for substantially
similar work under similar conditions
• Title I and Title V of the Americans with Disabilities Act
(ADA) of 1990, prohibiting employment discrimination on
the basis of disability in the private sector and state and local
governments
• Section 501 and 505 of the Rehabilitation Act of 1973, as
amended, prohibiting employment discrimination against
federal employees with disabilities
• The Civil Rights Act of 1991, providing monetary damages
in cases of intentional discrimination and clarifying provi-
sions regarding disparate impact actions
Food and Drug Administration (FDA) The FDA Moderniza-
tion Act of 1997 (PL 105-115) affirmed the FDA’s public health
protection role and defined the agency’s mission:
• To promote the public health by promptly and efficiently
reviewing clinical research and taking appropriate action on
the marketing of regulated products in a timely manner
• With respect to such products, to protect the public health
by ensuring that foods are safe, wholesome, sanitary, and
properly labeled; human and veterinary drugs are safe and
effective; there is reasonable assurance of the safety and ef-
fectiveness of devices intended for human use; cosmetics are
safe and properly labeled; and public health and safety are
protected from electronic product radiation
• To participate through appropriate processes with represen-
tatives of other countries to reduce the burden of regulation,
harmonize regulatory requirements, and achieve appropriate
reciprocal arrangements
• As determined to be appropriate by the Secretary, to carry
out paragraphs above in consultation with experts in science,
medicine, and public health and in cooperation with con-
sumers, users, manufacturers, importers, packers, distribu-
tors, and retailers of regulated products
International Classification of Diseases, Ninth Revision (Clini-
cal Modifications) (ICD-9-CM) Based on the official version of
the World Health Organization’s ICD-9, which classifies morbid-
ity and mortality information for statistical purposes, for the in-
dexing of hospital records by disease and operations, and for data
storage and retrieval.
Image analysis An evaluation of the customer’s beliefs, ideas,
and impressions of an organization.
Industry analysis An evaluation of an industry that recognizes
unique factors within the industry that have an impact on the sur-
vival of an organization. It includes barriers to entry, determinants
of supplier power, determinants of substitution threat, determi-
nants of buyer power, price sensitivity, and rivalry determinants.
The Joint Commission (TJC) Evaluates and accredits nearly
17,000 healthcare organizations and programs in the United
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS
States. An independent, not-for-profit organization, TJC is the
nation’s predominant standards-setting and accrediting body in
healthcare. TJC’s evaluation and accreditation services are pro-
vided for the following types of organizations:
• General, psychiatric, children’s, and rehabilitation hospitals
• Critical-access hospitals
• Healthcare networks, including managed care plans,
preferred-provider organizations, integrated delivery net-
works, and managed behavioral healthcare organizations
• Home care organizations, including those that provide home
health services, personal care and support services, home in-
fusion and other pharmacy services, durable medical equip-
ment services, and hospice services
• Nursing homes and other long-term-care facilities, including
subacute-care programs, dementia special-care programs,
and long-term-care pharmacies
• Assisted-living facilities that provide or coordinate personal
services, 24-hour supervision and assistance (scheduled and
unscheduled), activities, and health-related services
• Behavioral healthcare organizations, including those that
provide mental health and addiction services, and services
to persons with developmental disabilities of various ages, in
various organized service settings
• Ambulatory-care providers, for example, outpatient surgery
facilities, rehabilitation centers, infusion centers, and group
practices, as well as office-based surgery
• Clinical laboratories, including independent or freestanding
laboratories, blood transfusion and donor centers, and public
health laboratories
Local Medical Review Policies (LMRPs) Local policies outline
how contractors will review claims to ensure that they meet
Medicare coverage requirements. The CMS requires that LMRPs
be consistent with national guidance (although they can be more
detailed or specific), developed with scientific evidence and clin-
ical practice, and developed through certain specified federal
guidelines. Contractor medical directors develop these policies.
Marketing Determining the customer’s needs and wants.
Market segment A portion of the market where consumers
share a group of common characteristics.
Medicare Secondary Payor (MSP) A Medicare provider,
whether a physician, nonphysician practitioner, laboratory, or
other supplier (durable medical equipment supplier, etc.), is re-
quired to indicate if there is other insurance that may be primary
to Medicare when submitting a Medicare claim for payment.
The purpose of this questionnaire is to determine whether
Medicare or the other insurance has primary responsibility for
meeting the beneficiary’s healthcare costs. The goal of these
MSP information-gathering activities is to identify MSP situa-
tions rapidly, thus ensuring correct primary and secondary pay-
ments by the responsible parties.
National Coverage Decision (NCD) An NCD sets forth whether
Medicare will cover, or not cover, specific services, procedures,
709
or technologies on a national basis. Medicare contractors are re-
quired to follow NCDs. If an NCD does not specifically exclude
an indication or circumstance, or if the item or service is not
mentioned at all in an NCD or in a Medicare manual, it is up to
the Medicare contractor to make the coverage decision (see Lo-
cal Medical Review Policies).
Occupational Safety and Health Administration (OSHA) The
mission of OSHA is to save lives, prevent injuries, and protect
the health of America’s workers. OSHA and its state partners
have approximately 2,100 inspectors, plus complaint discrimina-
tion investigators, engineers, physicians, educators, standards
writers, and other technical and support personnel spread over
more than 200 offices throughout the country. This staff estab-
lishes protective standards, enforces those standards, and reaches
out to employers and employees through technical assistance
and consultation programs.
Office of Inspector General (OIG) The mission of the OIG, as
mandated by Public Law 95-452 (as amended), is to protect the
integrity of Department of Health and Human Services pro-
grams, as well as the health and welfare of the beneficiaries of
those programs. The OIG has a responsibility to report to both
the Secretary and the Congress program and management prob-
lems and recommendations to correct them. The OIG’s duties
are carried out through a nationwide network of audits, investi-
gations, inspections, and other mission-related functions per-
formed by OIG components.
Operational assessment An evaluation of the organization’s
ability to provide the types and levels of services defined by prior
market needs.
Situational analysis Description of the major features in a local
environment that affect an organization; includes a background,
current activity, normal forecast, market description, and prod-
uct review.
Stark legislation The Stark legislation prohibits a physician
from referring his or her patients to entities with which the phy-
sician or his or her family members have a financial relationship,
such as an ownership interest or compensation arrangement.
The initial Stark legislation, known as Stark I, was enacted in
1989 and applies only to clinical laboratory services. In 1993,
Congress enacted the Stark II legislation, which extends the pro-
hibition to referrals made by a physician to an entity for the fur-
nishing of “certain designated health care services” if the
physician or his or her family member has a financial relation-
ship with that entity.
Strategic plan Documentation of a process that develops the or-
ganization’s future goals and programs within the context of a
changing industrial and market environment. The plan includes
a mission statement, goal development, strategy formulation,
and control procedures.
SWOT analysis An evaluation of internal (strengths, weaknesses)
and external (opportunities, threats) factors that may influence
the successful implementation of a program.
Target market The market segment(s) chosen by the organiza-
tion to focus on.
710 OUTSIDE MARKETING AND EXPANSION
REFERENCES
1. Collins, J. 2011. Good to Great: Why Some Companies Make the
Leap and Others Don’t. HarperCollins Publishers Inc., New York, NY.
2. The Disney Institute. 2003. Be Our Guest. Disney Editions, New
York, NY.
3. Harris, C. 1988. An image analysis of hospitals in the Austin,
Texas, area market. Master’s thesis. Southwest Texas State University,
San Marcos, TX.
4. Kotler, P. (ed.). 2008. Strategic Marketing for Nonprofit Organi-
zations, 7th ed. Prentice-Hall, Inc., Englewood Cliffs, NJ.
5. Magrath, A. J. 1992. The 6 Imperatives of Marketing. American
Management Association, New York, NY.
6. Nigon, D. L. 1997. Within Your Reach: a Manual for Developing
a Laboratory Outreach Program. Clinical Laboratory Management
Association, Inc., Wayne, PA.
7. Romig, D. A. 2002. Side by Side Leadership. John Wiley & Sons,
Somerset, NJ.
8. Rubin, B. (ed.). 1991. The Department of Pathology Outreach
Program Proposal. The University of Iowa Department of Pathology,
Iowa City, IA.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 711

APPENDIX 41.1 Resource List for Obtaining Provider Demographics

Directory of Board Certified Medical Specialists Doctor Finder

American Board of Medical Specialties
Available at most public libraries or http://www.abms.org/ (last
accessed September 25, 2012)
Guide to Hospitals
American Hospital Association
Available from the American Hospital Association (312-422-3000
or http://aharc.library.net/ [last accessed September 25, 2012])
Available from the American Medical Association (312-464-5000
or https://extapps.ama-assn.org/doctorfinder/recaptcha.jsp [last
accessed September 25, 2012])
State and County QuickFacts
Available from the U.S. Census Bureau (301-763-4636 or http://
quickfacts.census.gov/qfd/index.html [last accessed September 25,
2012])

APPENDIX 41.2 Model Letter for Interview

Dear Dr. :

Medical Center is assessing how well we meet the needs

of the medical staff for medical laboratory services. As part of this research, we would like
to get the opinion of physicians and their staff concerning the provision of inpatient, outpa-
tient, and office-based testing services and how we can improve those services.
We value your opinion as a user about how these services can be provided. Would it be
possible to set up a brief interview of no more than 30 minutes with you to discuss laboratory
issues? This interview, of course, can be conducted at any time and place that is convenient
for you.
I will be contacting you by phone within the next few days to set up an appointment. We
appreciate your setting aside time for this brief interview. I look forward to talking with you.

Sincerely,

APPENDIX 41.3 Model Cover Letter for Market Survey

Dear :

We are very interested in what you think about outreach laboratory services for healthcare
providers in the ___________________ (geographic location) medical community. Every
two years we survey current and potential clients, so we can tailor our services to meet
your specific needs. Your assistance in completing the enclosed brief questionnaire will be
a great help.
In appreciation for returning the completed survey, we will send you a coupon for
_________________________ (pizza, cookies, donuts, etc.) per physician. For those respondents
outside the _________________________ (city) metropolitan area, we will be glad to bring the
_________________________ (pizza, cookies, donuts, etc.) to you. Please return your completed
questionnaire by _________________________ (due date about two weeks from mailing). You
may fax it to _________________________ (fax number) or mail the survey by using the fold-
over option.

Thank you for your assistance!

(Note: Careful consideration must be given to the annual Stark legislated monetary limit
allowed per client.)
712 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.4 Model Questionnaire for Interview, Focus Group, or Market Survey

Practice Name Specialty

Number of Physicians Location

How many laboratory tests are ordered in your practice during a typical month?

Estimated percentage of total testing performed as in-house laboratory testing?

Primary reference laboratory:

Name

Location

Principal reason used

If (your outreach program) is not your main reference lab, have you used it for any testing?

Yes _______ No _______

Would you be willing to consider a proposal to use (your laboratory) as your primary reference lab?

Yes _______ No _______

What would it need to do to be considered?

Please rate, on a scale of 1 to 5, the importance of the lab services listed below.
5 = critically important, 4 = very important, 3 = moderately important, 2 = somewhat important, 1 = not important

Also, please rate the quality of your current laboratory and of (if you have used our service).
5 = outstanding, 4 = good, 3 = satisfactory, 2 = poor, 1 = extremely poor

Services Importance Quality of current reference laboratory Quality of __________________________

Overall satisfaction 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Price 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Courier 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Specimen-collection site 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Telephone communication 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Quality of testing 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Availability of Path/tech consult 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Request forms 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Test ordering manual 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Reports 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Billing accuracy 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Participates in Ins/Mng care 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Computer interface 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 713

APPENDIX 41.5 Sample Job Description—Administrative Director

• Reports to: Vice President, Clinical Services

• Jobs reporting to this position: Direct reports include Operations Coordinator, Logis-
tics Coordinator, Financial Coordinator, and Sales Associate. Indirect reports include the
Pathologist and Hospital Lab Director. Works very closely with Main Lab, Business Office,
Registration, and Medical Records. Responsible for approximately _____________ full-time
employees and an annual budget of approximately _________________ dollars in revenues.

JOB SUMMARY
Responsible for the overall operations, marketing, and sales activities of lab outreach services.
Ensures that personnel adhere to all regulatory standards and guidelines. Works to ensure that
the identified needs of the medical staff, patients, families, coworkers, and other customers are
addressed in a timely and efficient manner within the medical center. Acts as a liaison between
clients and the hospital lab. Accountable for forecasting, developing, and meeting strategic mar-
keting plans and sales goals.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or a related field. Additional degree/educa-
tion or prior experience in marketing, sales, or a related field is desirable.
• Licensure: Required as Medical Technologist.
• Experience: Five years’ experience in all phases of the clinical laboratory. Two years’ expe-
rience in management. Successful track record in marketing and sales.
• Skills: Works well with people, organizes and plans well, good management skills. Strong
interpersonal communication skills, written and oral. Problem-solving skills and good
judgment skills. Demonstrates ability to organize, orient, train, and develop staff. Dem-
onstrates the ability to plan and improve the processes and functions of Lab Outreach.
Able to interact effectively with physicians, patients, families, vendors, hospital staff, and
other customers. Must be able to deal fairly and consistently with personnel under his or
her supervision. Communicates effectively with administration, medical staff, department
directors, subordinates, hospital staff, and other providers. Deals with patients in a caring,
professional manner and ensures the same approach by his or her staff. Additional skills in
salesmanship and customer service.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Frequently exposed to moving objects and loud noise. Occasionally exposed to dust and
radiation. Rarely exposed to blood, body tissue/fluids, hazardous materials, chemicals, high
elevations, slippery surfaces, special clothing and safety equipment, vibration, wetness, po-
tential electrical hazards, and potential burns.
• Able to see objects closely, as in reading, frequently. Able to see objects far away occasion-
ally. Able to discriminate color occasionally. Able to perceive depth frequently. Able to hear
normal sounds with some background noise, as in answering a telephone, frequently. Able to
distinguish sounds, as in voice patterns, continuously. Able to give and receive verbal com-
munications continuously. Able to read and write written communications continuously.
• Able to lift objects weighing 10 pounds or less occasionally, 35 pounds or less rarely. The
highest point of any lift, the shoulder; the lowest point of any lift, the floor. Able to carry
objects weighing less than 10 pounds occasionally.
• Able to sit 45 minutes consecutively, 5 hours per shift. Able to stand in place 10 minutes con-
secutively, per hour per shift. Able to remain on feet 10 minutes consecutively, 2 hours per shift.
• Able to perform motor skills frequently such as grasping, finger manipulation, feeling per-
ception. Occasionally climbing stairs, reaching out, fast response. Rarely bending, twisting,
turning, kneeling, squatting, reaching in, wrist turning/torquing, pinching. Able to perform
tasks that require hand-eye coordination continuously, arm-hand coordination and upper
body coordination frequently, lower body coordination occasionally.
(continued)
714 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at

a time or less occasionally, 60 minutes at a time or more rarely. Able to concentrate on fine
detail with constant interruptions occasionally. Able to concentrate on moderate detail with
constant interruptions frequently. Able to understand and relate to the theories behind sev-
eral related concepts continuously. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor
duties or other responsibilities that may be assigned from time to time. Requirements are repre-
sentative of minimum levels of knowledge, skills, and/or abilities. To perform this job success-
fully, the incumbent will possess the abilities or aptitudes to perform each duty proficiently. All
requirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Maintain a staffing level that is consistent with quality patient care.

Standards
• Provide for the recruitment of prospective employees following the guidelines of the De-
partment of Human Resources.
• Ensure that quality staff is hired according to licensure regulations and the Human Re-
sources policies.
• Ensure that coaching, counseling, and disciplinary action are performed according to the
Human Resources policies.
• Monitor staff scheduling to ensure proper coverage of the work area.
• Provide pertinent and complete orientation for new employees.
• Coordinate the preparation and/or update of criteria-based performance evaluations annually.
• Ensure the annual performance evaluation of personnel according to the established time
frame.
• Delegate authority and work assignments, taking into consideration priority of work and
skills of the employees.
• Monitor the system maintenance of timekeeping mechanism to ensure correct payroll.

Responsibility
Direct, supervise, and administer the outreach program to maintain high-quality technical
work and good working conditions.

Standards
• Maintain compatible working relationships with personnel of other departments, as dem-
onstrated by the cooperation between departments in providing patient services.
• Participate in department and medical center committees and task forces relative to areas of
practice or interest.
• Develop and meet goals and objectives that support department and medical center goals.
• Demonstrate ability to use all channels of communication to address inter- and intradepart-
mental concerns, solve problems, and address conflicts.
• Inform the Vice President of any unusual concerns, situations, or conditions relative to staff,
patients, families, or physicians.
• Assess new products and equipment to promote and ensure quality patient care and meet
medical center cost-effectiveness goals.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 715

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Demonstrate effective time management by completing commitments within negotiated

time frames.
• Coordinate and collaborate with the Safety Committee and Infection Control Committee to
ensure a safe workplace.
• Participate in 80% of the department head meetings.
• Conduct a departmental meeting monthly as indicated by meeting minutes.
• Communicate changes in philosophy, goals, procedures, plans, and activities of the depart-
ment and of the medical center to the staff in a timely manner, as demonstrated by the de-
partment implementing changes.

Responsibility
Plan and implement marketing and sales activities for Outreach.

Standards
• Conduct market research and analyze data gathered to serve as basis for annual strategic
marketing and sales plans.
• Develop annual marketing and sales plans in accordance with medical center strategic
initiatives.
• Act as a resource on legislative, regulatory, reimbursement, and competitive issues for all
medical center laboratory services and outreach client providers.
• Develop promotional activities and printed materials including brochures, fee schedules,
and directory of services.
• Develop pricing strategy based on cost per test in accordance with medical center guide-
lines to maximize collections and ensure competitive position in the market.
• Act as a sales representative for outreach activities to client providers, visiting providers on
a regular basis as dictated by testing volume.

Responsibility
Responsible for the annual management plan and budget, which includes a 5-year capital equip-
ment and system management plan.

Standards
• Actively participate in the medical center retreat and preparatory meetings for the annual
plan.
• Establish goals and objectives for the department that are compatible with and enhance
those of the medical center.
• Demonstrate effective time management by completing the annual plan within the allotted
time frame.
• Review and take action when necessary on the monthly budget reports.
• Inform the Vice President of staffing needs or changes.
• Review workload recording to monitor staffing needs or trends.

Responsibility
Responsible for quality assurance activities for the department.

Standards
• Prepare an annual report of the quality assurance activities for the Quality Assurance
Committee.
• Ensure that variance reports and client problem reports involving the department are re-
searched, including documentation of root cause and improvement actions.
(continued)
716 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.5 Sample Job Description—Administrative Director (continued)

• Formulate plans for improvement of outreach services that will enhance quality patient care.
• Keep abreast with CAP and state inspection requirements.
• Ensure the maintenance of files of CAP and state inspection materials, communicating with
these agencies as necessary.

Responsibility
Responsible for inventory control of supplies for the department and clients.

Standards
• Ensure that an adequate amount of acceptable supplies are on hand for collection of
specimens.
• Oversee the monitoring of inventory so that no excessive outdating or overstocking occurs.
• Minimize the need for emergency supply orders.
• Direct cost-comparison analysis to ensure cost-effective purchasing.
• Request bids for supplies on like products to ensure cost-effective purchasing.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend at least 60% of the monthly laboratory in-service education classes.
• Review current literature in field, as demonstrated by contributing this knowledge in the
workplace.
• Attend at least two area workshops annually in field of need or interest.
• Attend 75% of the management development seminars offered by the medical center.
• Establish and meet annual individual goals that are developed to assist the department and
medical center in achieving their established goals or projects.
• Collaborate with supervisor to suggest and/or contribute to the monthly laboratory in-
service programs.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 717

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Patient Service Specialists, Technical Support Specialists

JOB SUMMARY
Provides supervision for all applicable outreach staff, which involves assigning workload, sched-
uling, staffing, training, resolution of problems, etc. Liaison to providers, Hospital Laboratory,
and patients. Oversees overall daily functions of patient service centers and sites.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or an equivalent combination of an associ-
ate’s degree and experience.
• Licensure: Required as Medical Technologist.
• Experience: Five years of clinical laboratory experience to include rotation through the
technical areas. Supervisory experience and a demonstrated performance in sales and out-
reach program support a plus.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
718 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.

Responsibility
Supervise the staff to ensure the quality of work and workflow is maintained.

Standards
• Assign staff workload, taking into consideration the priority of work, training, and skill of
the employee.
• Assess the number and level of personnel necessary to provide quality services; adjust staff-
ing and assignments as workload and workflow dictate.
• Constantly monitor the job performance of each employee and evaluate annually.
• Complete all employee annual performance appraisals in the required time frame.
• Initiate counseling and/or disciplinary action according to medical center policy.
• Recruit, interview, and hire employees according to the guidelines and policies of the medi-
cal center and department.
• Keep staff informed of events and changes that affect their jobs. Conduct regular staff
meetings.
• Effectively serve as a consultant and role model for outreach personnel.
• Inspire confidence from others by performing and communicating in a highly professional
manner at all times.
• Ensure that all staff members have a clear definition of their work responsibilities and man-
agement’s expectations for performance.
• Always provide recognition for good work performance; give positive feedback both
verbally and in writing to staff members when their performance and/or special efforts are
deserving.
• Regularly encourage staff participation and communication in decision making. Dem-
onstrate the ability to be creative and maintain an environment conducive to optimal ef-
ficiency where employees are encouraged, reinforced, and supported for their desire to
contribute fully.

Responsibility
Manage the workflow of the department to ensure the completion of work assignments.

Standards
• Ensure that policies and procedures manuals are current and are reviewed regularly by all
staff members; review and revise policies and procedures manuals on an annual basis or as
necessary.
• Assess new products and equipment that may benefit the quality of care of the patient.
• Demonstrate professional communication skills and grammar. Maintain calm and profes-
sional manner.
• Demonstrate ability to adapt to increasing or changing department workload and duties.
• Effectively coordinate and oversee the ordering of supplies. Regularly monitor the use
of supplies and identify potential savings through the appropriate use or substitution of
products.
• Demonstrate knowledge and ability as “resource” contact for Outreach. Provide accurate
and complete testing and lab information. Find answers for customers in a reasonable
amount of time.
• Promptly investigate complaints concerning outreach services and take appropriate actions.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 719

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

• Maintain awareness of “potential” accounts; promptly communicate with Sales Associates,

Director, and hospital laboratory staff.

Responsibility
Perform specific responsibilities assigned to the Coordinator.

Standards
• Demonstrate effectiveness in maintaining a well-organized operation to ensure efficiency
and accuracy of the work and information flow; monitor procedures and implement correc-
tive actions as required.
• Ensure that equipment is maintained and that staff is familiar with the operation and main-
tenance of the equipment.
• As part of the management team, participate in maintaining a current, complete directory
of services on an annual basis or as needed.
• Provide a general orientation of new employees. Oversee rotation and review performance
in each section. New employees are assigned a mentor and provided with a verbal and writ-
ten overview of Outreach and Hospital Laboratory operations.
• Be responsible for the coordination of orientation and training of all students.
• Assist the department Director in administering a program of continuous quality
improvement—accept assignments to monitor, measure, and report on outreach processes
for continuous quality improvement.
• Assist the Director in coordinating laboratory efforts in preparation for announced inspec-
tions from regulatory agencies. When assigned, provide a plan for ensuring compliance;
inform Director and Pathologists of problem areas or concerns.
• Evaluate contract cleaning services routinely and provide comments on performance.
• Maintain an adequate inventory of supplies.
• Ensure balance of petty cash box.
• Administer and monitor continuing education program for employees.
• Maintain payroll and time and attendance.
• Assist the Director in the preparation and monitoring of the budget.
• Proactively monitor the computer system for problems that may culminate in downtime.
• Provide input that develops procedures and policies for downtime procedures and make
recommendations during downtime for course of action.
• Perform Laboratory Information Systems troubleshooting consistent with the extent of
training or recognize need for and request assistance when necessary.
• Provide support for personal computers.

Responsibility
Manage and regulate all departmental safety activities.

Standards
• Serve as departmental Safety and Chemical Hygiene Officer.
• Lead the departmental Safety Committee.
• Coach employees to ensure and maintain compliance of the department with all regulatory
requirements for safety; note problems and concerns with compliance regarding safety is-
sues. Inform the Director, make recommendations, and offer solutions.
• Administer departmental safety orientation to new employees and/or students. Employees
and students are tested on knowledge. Inform Director of any problems or concerns.
(continued)
720 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.6 Sample Job Description—Operations/Client Services Coordinator (continued)

Responsibility
When designated, perform the duties of the Director in his or her absence.

Standards
• Accept the additional responsibility of acting department Director; demonstrate good judg-
ment and decision-making skills when confronted with problems, inquiries, or concerns—
act as department Director when designated. Address problems and concerns and answer
inquiries. Report to the department Director upon return.
• Attend meetings when requested by the department Director. Effectively listen and take
detailed notes. Inform the department Director of the content and outcome.
• Accept special assignments as requested by the department Director. Keep the Director in-
formed of progress and concerns. Usually complete assignments by the deadline. Provide a
report on the project.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year and keep records.
• Equitably schedule supervised employees for continuing education.
• Review code and safety manuals annually.
• Attend the departmental management team meetings.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department through litera-
ture, workshops, seminars, courses, and conferences with other laboratory professionals.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 721

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Couriers (directly), Patient Service Specialists (indirectly)

JOB SUMMARY
Supervises and directs logistics and reverse-logistics activities and personnel related to the pro-
curement, receipt, shipment, and disposition of materials in a variety of areas such as inventory
management, warehousing, supply and delivery-chain management, material control, transpor-
tation activities, and technical documentation in a highly demanding and time-sensitive work
environment. Coordinates safe, reliable transport of specimens and scheduling and provision of
venipuncture services to nursing homes and homebound patients throughout the service area.
Establishes and maintains customer relations as it concerns service levels to ensure the ability
to resolve day-to-day operating issues with customers. Work is performed independently under
the general guidance and direction of the department Director.

JOB QUALIFICATIONS
• Education: Bachelor’s degree in Logistics, Transportation or Supply-Chain Management,
or related field or an equivalent combination of an associate’s degree and experience.
• Licensure: Valid state driver’s license.
• Experience: Two years of experience in performing related work.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information within a multitasking environment. Must work well with people and
possess excellent communication and customer service skills, demonstrating an ability to
deal with internal and external customers in a courteous, professional manner at all times.
Knows and applies a broad knowledge of principles, practices, and procedures of inventory
control and material management in providing logistics support services. Must have clear
understanding of or demonstrated success in route planning and be able to use analysis
skills to develop and manage transportation projects in anticipation of the organization’s
needs. Experience may be necessary for those aspects of transportation efforts that relate to
the handling of hazardous materials for domestic shipments. Must have computer experi-
ence with Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Occasionally exposed to loud noise. Rarely exposed to radiation, potential electrical haz-
ards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
(continued)
722 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator (continued)

detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.

Responsibility
Direct personnel to achieve prescribed business objectives while contributing to the promotion
of personal employee career goals.

Standards
• Coordinate and schedule Couriers for specimen pickup and supply and report delivery, and
coordinate and schedule Patient Service Specialists for nursing home and/or home draw pro-
grams to include contingency plans supporting the consistent and timely provision of services.
• Meet with Couriers and Patient Service Specialists to discuss base transportation issues,
monitor performance, and review current practice versus potential improvements.
• Monitor and follow up on logs of Couriers and Patient Service Specialists daily to ensure
compliance with operational standard.
• Monitor compliance with pickup, delivery, and sample-collection requirements to provide
event history to client if needed.
• Ensure that personnel comply with both internal and external issues relating to company
policy and procedures.
• Develop, coordinate, and provide training for Couriers and Patient Service Specialists for
Courier duties, resulting in capable, well-rounded employees.
• Develop and maintain a productive staff of Couriers by hiring, training, and professional
development; matching the skill and background of Couriers to the work required; apply-
ing sound communication and motivational techniques to supervise and counsel staff and
implementing in timely fashion the performance evaluation system for recommending pro-
motions, wage increases, and terminations.

Responsibility
Provide flawless execution of transportation services to clients.

Standards
• Hold monthly review meetings or contacts with customers and provide summary to Direc-
tor by the fifth working day of the month.
• Interface daily with Operations to resolve any problems associated with scheduling and
dispatching.
• Notify customers of status and delivery changes.
• Improve outbound and inbound customer service while minimizing transportation expense.
• Effectively communicate with associates, customers, and personnel in person or via com-
puter or phone to accomplish necessary objectives.

Responsibility
Provide input to Director related to areas of responsibility on day-to-day operations, process
improvement, and budget.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 723

APPENDIX 41.7 Sample Job Description—Logistics/Courier Coordinator (continued)

Standards
• General responsibilities include total cost reduction, total supply-chain process improve-
ment, OSHA and Department of Transportation hazardous materials compliance, and ISO
and FDA compliance.
• Develop and operate an effective transportation information reporting system; ensure the
accurate and timely preparation, processing, distribution, and retention of all necessary
reports and records regarding transportation operations; and develop additional and/or
enhanced reports to support customers’ changing needs.
• Direct development of transportation studies for analyzing trends and make recommenda-
tions to improve the flow of information, costs, and delivery-cycle times.
• Evaluate customer service efficiency and design new processes to reduce nonconformances
such as supply returns, missed specimen pickups, and customer complaints.
• Responsible for forecasting workload volume, determining client distribution alignments,
determining the number of Couriers and routes needed, identifying the timing and location
of new routes, and analyzing the impacts of changing distribution strategies.
• Recommend programs to the Director that improve the transportation function, including
reduction of cost and delivery/pickup time.

Responsibility
Responsible for inventory control system and supply ordering and delivery system.

Standards
• Provide leadership for the effective use of the inventory control system for all inventory
movement, supply, and distribution.
• Develop system to monitor and reconcile, by client, test volume and supply usage to meet
requirements issued by the CMS OIG.
• Direct all warehousing activities, including receiving, stocking, order picking, replenish-
ment, intradepartmental shipping, cycle count, manpower planning, budget development,
capital equipment management, and customer service level goals.
• Direct and supervise the scheduling of supply shipments to ensure the most economical
utilization of Couriers based on service parameters.
• Develop service contingencies to support the entire supply chain.
• Monitor and develop financial controls related to scheduling personnel, pickup of speci-
mens, and filling and delivering supply orders.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year (one regional), and
record attendance—no more than two instances of failing to record continuing education or
missing no more than two of the required continuing education meetings.
• Review code and safety manuals annually.
• Attend the departmental management team meetings—no more than two instances of
missing the meetings or failure to communicate with the Director or failure to follow up
and obtain distributed information.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department and core labs
as needed to provide a basis for sales promotions through literature, workshops, seminars,
courses, and conferences with other laboratory professionals.
724 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: With expansion-information system and/or financial techs

JOB SUMMARY
Responsible for compliance and reimbursement auditing, information gathering and analysis,
and revenue structure for third-party and client reimbursement. Duties include development
and implementation of coding, billing, and reimbursement audits based on federal, state, and
regulatory guidelines; review, analysis, and updating of fee schedules to ensure reimbursement
commensurate with cost and revenue goals of Outreach; and analysis of accuracy and integrity
of information between Laboratory and Hospital Information Systems, to include coordination
of development of Hospital and Laboratory Information Systems to meet Outreach’s operational
and information needs. Job requires considerable knowledge of general accounting practices,
healthcare coding, regulatory guidelines, and information systems. Work is performed indepen-
dently under the general guidance and direction of the department Director.

JOB QUALIFICATIONS
• Education: Bachelor’s degree in Business Administration, Accounting, or related field.
• Licensure: Registered Health Information Administrator, Certified Coding Specialist, or
Certified Professional Coder preferred; Certified Patient Accounts Representative required
within two years.
• Experience: Three to five years of experience in performing related work, to include rev-
enue management, information systems, and regulatory compliance guidance. Job requires
considerable knowledge of general accounting practices, healthcare coding, regulatory
guidelines, and information systems.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience with Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Occasionally exposed to loud noise. Rarely exposed to radiation, potential electrical haz-
ards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 725

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator (continued)

detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor
duties or responsibilities that may be assigned from time to time. Requirements are representa-
tive of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully,
the incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Coordinate financial and reimbursement monitoring, auditing, and reporting.

Standards
• Review and process requests for clinical and financial records and information accurately
and promptly.
• Working with Outreach management and facility directors, analyze record requests and
complete corrective-action plans based on internal and external audit results. Monitor ac-
tion plans and provide summaries as needed.
• Perform random audits on a statistically significant number of accounts for compliance,
from physician order through third-party reimbursement documents. Prepare and present
audit analyses to department and facility directors as requested.
• Working with Outreach management and ancillary department management, prepare and
revise corrective-action plans. Review all plans annually and report as requested.
• Prepare, analyze, and provide information to internal auditors as requested.
• Coordinate specialized financial audits as needed within specified time frames.

Responsibility
Coordinate financial compliance auditing to ensure Outreach’s adherence to federal, state, and
regulatory guidelines.

Standards
• Working with Outreach management, train personnel on compliance needs for outreach
functions.
• Audit and analyze daily, monthly, and annual reporting, including billing to third-party
payors, to determine and document compliance with federal, state, and regulatory
guidelines.
• Develop policies and procedures as well as corrective-action plans as necessary.
• Perform and report on topic audits as required by Director and Corporate Compliance. Act
as Outreach’s representative in absence of Director for financial or compliance issues.
• Educate outreach clients regarding regulatory issues and monitor adherence to said regula-
tions. Prepare and present corrective-action plans as necessary.

Responsibility
Responsible for information management, including all Outreach databases, Hospital Informa-
tion Systems patient clinical and financial data, and Laboratory Information Systems system
coordination, including patient and customer satisfaction, medical necessity, clinical documen-
tation and compliance, service, and other performance.
(continued)
726 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.8 Sample Job Description—Billing/Financial Coordinator (continued)

Standards
• Oversee existing database maintenance to ensure data integrity and compliance with perti-
nent regulatory guidelines.
• Develop new databases as needed.
• Develop database training policies and procedures for new users.
• Prepare and provide data analysis and reports for Outreach databases as requested. Coor-
dinate, review, and develop reports from Hospital and Laboratory Information Systems to
meet informational needs of Outreach and facility directors.

Responsibility
Maintain revenue structures for third-party payment, including government programs, com-
mercial insurers, and client payors.

Standards
• In collaboration with the Director, determine and document pricing schema for all payors
and services.
• Maintain and update fee schedule and related databases and spreadsheets.
• Prepare and provide notification to customers and clients of changes in pricing at least 30
days prior to effective date.

Responsibility
Coordinate the billing and reimbursement cycle for all payors.

Standards
• Prepare and distribute client statements by the 15th of each month.
• Research and analyze client accounts as requested by clients within 48 hours. Correct rev-
enue assessed as necessary.
• Submit client billing summary to Director by 10th working day of each month.
• Review and reconcile client problem accounts daily. Respond to clients and patients con-
cerning billing and reimbursement concerns within 24 hours.
• Review and correct account referrals and reporting exceptions on a daily basis.
• Work with Outreach management to educate clients concerning appropriate billing prac-
tices and industry guidelines.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Establish and meet annual individual goals.
• Review code and safety manuals annually. Attend mandatory medical center in-services.
• Maintain confidentiality of information and ensure disposal of confidential records and
documents according to established practices.
• Demonstrate effective time management by completing commitments within negotiated
time frames.
• Attend the departmental management team meetings.
• Attend the required number of continuing education meetings to maintain professional
licensure requirements.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 727

APPENDIX 41.9 Sample Job Description—Sales Associate

• Reports to: Laboratory Outreach Director

• Jobs reporting to this position: Future Sales Representatives

JOB SUMMARY
Assists in the marketing and sales activities of Regional Lab Outreach. This person is the pri-
mary liaison between Outreach and customers and is responsible for maintaining superior cli-
ent relationships.

JOB QUALIFICATIONS
• Education: B.S. degree in Medical Technology or an equivalent combination of an associ-
ate’s degree and experience.
• Licensure: Required as Medical Technologist.
• Experience: Two years of clinical laboratory experience to include rotation through the
technical areas. Supervisory experience and a demonstrated performance in sales and out-
reach program support a plus.
• Skills: Highly motivated, good organizational skills, proactive in problem solving and pro-
cessing of information. Must work well with people and possess excellent communication
skills. Ability to deal with internal and external customers in a courteous, professional man-
ner at all times. Must have computer experience.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
728 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the
incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Assist Director in managing all marketing functions to achieve the objectives for sales, growth,
profits, and visibility while ensuring a consistent marketing message and positioning on a re-
gional basis consistent with the corporate direction.

Standards
• Develop and implement appropriate strategies by
• Selecting, segmenting, and targeting markets.
• Promoting services to those markets.
• Providing enhancements for program development.
• Determine a pricing approach and set prices for services.
• Maintain and update fee schedule database.
• Develop and update pricing policy.
• Provide adequate notification to customers of changes in pricing.
• Set goals in terms of market share and growth.
• Develop plans in relation to advertising, sales promotion, public relations, and sales man-
agement by working with Corporate Development to
• Ensure the proper amount and type of coverage to raise awareness, win reviews, and
ensure consistent corporate and product branding and image.
• Create the media schedule, negotiate the rates, and prepare and execute the deliverables.
• Follow up and measure the advertising campaign using print and electronic methods.
• Ensure a consistent look and feel among collateral materials such as sell sheets, product
slicks, folders, trade show graphics, and all other program imaging.
• Undertake marketing audits to monitor outreach performance and to ensure that services
are demand driven.
• Create research methodologies.
• Design data collection tools.
• Analyze data collected, prepare reports, and present findings.
• Prepare annual marketing plan.
• Identify and analyze the organization’s strengths and weaknesses and the marketing
environment’s opportunities and threats.
• Develop and review (annually) client contracts.
• Prepare sales collateral, brochures, data sheets, and new-client packets.

Responsibility
Assist Director in coordinating sales activity of Regional Lab Outreach.

Standards
• Develop specific sales plans and strategies to meet laboratory goals.
• Find new ways to bring in business and prospects.
• Develop lead-generation strategies including cold calling, direct-mail campaigns, trade
shows, and list acquisition.
• Identify top 20 prospective clients.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 729

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

• Arrange a program of visits to all major potential clients by contacting people and making
appointments.
• Maintain established clients.
• Provide best follow-up possible consistent with need and arranged schedule.
• Qualify leads and contacts.
• Determine the best methods of promoting services.
• Develop and update knowledge of competitors’ services.
• Maintain competitor profiles.
• Speak with other medical center sales and marketing personnel.
• Assess customers’ needs and explain services to them, which may involve providing techni-
cal descriptions as well as describing the purposes for which they may be used.
• Quote and negotiate prices within established guidelines, prepare contracts for signature by
clients, and maintain client database.
• Updates must be completed within two working days of client acquisition.
• Database data must be clean and accessible for direct mailings and client-list
preparation.
• Ensure consistent, accurate data coding.
• Report to Director on sales and acquisition of new clients by the 10th working day of each
month.
• Generate a report of tests ordered by account in table and graphic format within 10
working days of the beginning of the month.
• Generate a report of sales activity and new-account acquisition within two working days
of the beginning of the month.
• Generate a report summarizing client visits, concerns, and problem resolution within 10
working days of the beginning of the month.
• Coordinate development and production of promotional and informational material.
• Prepare and carry out formal presentations and/or proposals of services customized to
fit individual client needs by using overheads, slides, videos, and other training aids.
• Represent program at promotional markets such as trade association meetings.
• Organize services displays.

Responsibility
Perform specific responsibilities assigned.

Standards
• Promptly investigate complaints concerning outreach services and take appropriate actions.
• Ensure that customers are familiar with the operation and maintenance of the equipment
received from Outreach.
• As part of the administrative team, participate in maintaining a current, complete directory
of services on an annual basis or as needed.
• Be responsible for the coordination of orientation and training of all customers who
are provided with a verbal and written overview of laboratory operations, policies, and
procedures.
• Monitor customer orders to see that they are filled promptly and accurately. Maintain
timely communication with Logistics Coordinator to ensure no more than one documented
instance of supplies not being delivered or failure to communicate problems to the Director
or Logistics Coordinator.
• Assist the Director in the preparation and monitoring of the budget.
(continued)
730 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.9 Sample Job Description—Sales Associate (continued)

• Monitor budget to determine if the department is operating within allocated funds.

• Provide input that develops procedures and policies for downtime procedures as they relate
to customer sites; make recommendations during downtime for course of action. Allow no
instances of downtime procedures not being current or failure to communicate an appro-
priate course of action or failure to update customers on status of repair/rebuild.
• Provide support for customers’ personal computers—allow no more than one instance of
not responding to a request for assistance on a computer or not notifying Information Sys-
tems of the need for assistance.

Responsibility
Demonstrate commitment to professional growth and competence.

Standards
• Attend the required number of continuing education meetings per year, and record
attendance—no more than two instances of failing to record continuing education or
missing no more than two of the required continuing education meetings.
• Review code and safety manuals annually.
• Attend the departmental management team meetings.
• Establish and meet annual individual goals.
• Remain informed and up-to-date in all technical aspects of the department and hospital
laboratory as needed to provide a basis for sales promotions through literature, workshops,
seminars, courses, and conferences with other laboratory professionals.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 731

APPENDIX 41.10 Sample Job Description—Courier

• Reports to: Logistics Coordinator

• Jobs reporting to this position: None

JOB SUMMARY
Picks up and/or delivers specimens and supplies for the laboratory and represents medical cen-
ter laboratory in a positive, professional manner as contact to the customers. Uses courier logs
and appropriate compliance with safety standards. Helps with specimen processing by labeling
and packing specimens/requisitions for transport to the core lab. Uses Laboratory Information
Systems (LIS) in processing and tracking down specimens.

JOB QUALIFICATIONS
• Education: High school diploma or equivalent.
• Licensure: Valid state driver’s license.
• Experience: Good driving record, dealing with public.
• Skills: Good people skills, customer service skills, and organizational skills. Neat, orderly,
and conservative appearance.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONS AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading, frequently. Able to discriminate color and perceive
depth continuously. Able to hear normal sounds with some background noise, as in an-
swering a telephone, continuously. Able to hear job-specific sounds and to give and receive
verbal communications continuously. Able to read and write written communications
continuously.
• Able to lift objects weighing 10 pounds or less continuously, 20 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less continuously, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 45 minutes consecutively. Able to stand in place 5 minutes consecutively.
• Able to remain on feet 1 hour consecutively. Able to sustain awkward position 5 minutes
consecutively. Able to perform motor skills continuously such as bending, twisting, turning,
reaching out, reaching up, wrist turning/torquing, grasping, pinching, finger manipula-
tion, feeling perception. Frequently fast response. Occasionally kneeling, squatting. Able to
perform tasks that require arm-hand, hand-eye, and upper and lower body coordination
continuously.
• Needs to attend to task/function 10 minutes at a time or less continuously, 20 minutes at a
time or less occasionally, 45 minutes at a time or less occasionally, 60 minutes at a time or
less rarely. Able to concentrate on fine detail with some interruptions continuously. Able to
understand and relate to the concepts behind specific ideas continuously. Able to understand
and relate to the theories behind several related concepts frequently. Able to remember mul-
tiple tasks/assignments given to self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to re-
flect the major responsibilities and duties of the job, but is not intended to describe minor duties
or other responsibilities that may be assigned from time to time. Requirements are representative
of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the in-
cumbent will possess the abilities or aptitudes to perform each duty proficiently. All requirements
are subject to possible modification to reasonably accommodate individuals with disabilities.
(continued)
732 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.10 Sample Job Description—Courier (continued)

Responsibility
Complete courier pickup and delivery.

Standards
• Complete pickup and delivery of specimens, reports, and/or supplies according to accepted
procedure, including timeliness and problem resolution resulting from specimen mislabel-
ing or transport delay. Maintain patient confidentiality when delivering reports to clients.
Deliver reports according to defined time schedule.
• Notify supervisor of any concerns or conflicts in completing courier duties according to
schedule as documented by supervisor.
• Immediately respond to and complete STAT services in a timely manner.
• Modify and adjust courier runs in accordance with priority and direction received from the
supervisor as evidenced by correct follow-through.
• Identify and communicate to the supervisor any questions pertaining to run instructions
prior to start of run.
• Represent Outreach in a positive, courteous, professional manner regarding “appearance,”
“attitude,” and “communication skills.”

Responsibility
Assist with processing, inventory, maintenance, and courier logs.

Standards
• Assist in inventorying and restocking of supplies. Date all supplies when stocking shelves.
Rotate stock, keeping most recently received supplies behind older supplies. Notify Logis-
tics Coordinator when supplies reach critically low limits.
• Deliver requests for supplies within 24 hours. Notify clients when supplies are
back-ordered.
• Accurately maintain and record all patient names, specimens, times, and special instruc-
tions in courier log.
• Receive specimens into LIS, matching patient name with form, complete information, and
computer labels.
• Correctly generate order labels from LIS, matching patient name on the forms, complete
information, and patient name on the tube(s).
• Correctly label specimens according to the Outreach secondary labeling of specimen policy,
matching patient name and information on the patient order label(s) and the patient speci-
men tube(s).
• Perform duties of appropriate specimen preparation for transport.
• Deliver specimen and labels to appropriate laboratory department, communicating, as nec-
essary, any appropriate information.
• Consistently and in a timely manner, perform maintenance procedures on the client cen-
trifuges, including timer check, tachometer check, and evaluation of centrifuge physical
condition.
• Communicate routinely with Biomedical Engineering regarding centrifuge maintenance
and record keeping.

Responsibility
Obey Outreach and other laws and regulations when operating the courier vehicle.

Standards
• Obey all traffic laws and regulations, as evidenced by lack of citations.
• Allow no one other than an appropriately assigned Outreach employee to operate vehicle.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 733

APPENDIX 41.10 Sample Job Description—Courier (continued)

• Check tires, water, oil levels, and gas prior to each shift and before operating vehicle, as ob-
served by supervisor.
• Fill with gas if tank is less than half full.
• Fill with oil if more than 1 quart low.
• Keep tires properly inflated.
• Keep vehicle clean and wash vehicle when needed to maintain professional appearance.
• To ensure security and confidentiality, keep vehicle doors locked when not in vehicle.

Responsibility
Actively contribute to the efficient operation of Laboratory Outreach.

Standards
• Page Couriers in an accurate and timely manner according to accepted procedures. Consis-
tently and accurately document required information on the courier call log.
• Promote the image of Laboratory Outreach by adhering to the medical center policy and
departmental guidelines and dress code.
• Participate in computer downtime recovery team, being available when assigned and assist-
ing with specimen labeling and dissemination of work.
• Accept, in a positive manner, delegation of new responsibilities and changes in
responsibilities.
• Clarify directions or communications that are unclear.
• Maintain patient privacy at all times according to established procedures.
• Maintain confidentiality of departmental information according to established procedures.

Responsibility
Demonstrate commitment to departmental growth and competence.

Standards
• Willingly perform other duties as assigned according to procedure.
• Attend laboratory in-service education classes when scheduled.
• Attend departmental meetings and/or read and sign corresponding minutes.
• Remain current in field, as demonstrated by proactively contributing this knowledge in the
workplace, generally sharing ideas, information, and knowledge of the field.
• Contribute to improving the department’s operations.
• Establish and meet annual individual goals that are developed to assist the department in
achieving its established goals or projects.
• Review code and safety and infection control manuals annually, as evidenced by knowledge
and signature in each manual’s log sheet.
• Participate in the TJC-required safety procedure review/update annually, as indicated by
in-service record.
• Participate in continuous improvement in the department.
734 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative

• Reports to: Operations Coordinator

• Jobs reporting to this position: None

JOB SUMMARY
As needed, performs a range of duties that include, but are not limited to, testing patient samples,
training new employees or current staff on new procedures, registering patients and specimens,
and collecting specimens. Represents Outreach in a positive, professional manner as contact to
the customers. Will also assist with insurance verification and management and with the coor-
dination of department operations. Provides patient care for patients of all ages. Uses Hospital
and Laboratory Information Systems as needed.

JOB QUALIFICATIONS
• Education: Associate’s degree in related medical field or high school diploma or equivalent
with related applicable experience.
• Licensure: Valid state driver’s license. Certified Phlebotomist or Certified Patient Accounts
Representative preferred.
• Experience: Good driving record. Successful completion of medical terminology course or
experience in clinical setting preferred.
• Skills: Excellent communication skills, both verbal and written; general office skills with
computer experience in Microsoft Word, Excel, and Access.

ESSENTIAL PHYSICAL AND MENTAL FUNCTIONAL AND

ENVIRONMENTAL CONDITIONS
• Continuously exposed to blood, body tissue/fluids, hazardous materials, and chemicals,
requiring special clothing and safety equipment. Occasionally exposed to loud noise. Rarely
exposed to radiation, potential electrical hazards, and potential burns.
• Able to see objects closely, as in reading; to see objects far away; and to discriminate color
and perceive depth continuously. Able to hear normal sounds with some background noise,
as in answering a telephone, continuously. Able to hear job-specific sounds and to give and
receive verbal communications continuously. Able to read and write written communica-
tions continuously.
• Able to lift objects weighing 10 pounds or less continuously, 35 pounds or less rarely. The
highest point of any lift, overhead; the lowest point of any lift, the floor. Able to carry ob-
jects 10 pounds or less frequently, 50 pounds or less rarely. Able to push and pull objects
using minimum effort occasionally.
• Able to sit 2 hours consecutively, 6 hours per shift. Able to stand in place 10 minutes con-
secutively, 30 minutes per shift. Able to remain on feet 1 hour consecutively. Able to sustain
awkward position 5 minutes consecutively.
• Able to perform motor skills continuously such as bending, twisting, turning, reaching out,
reaching up, wrist turning/torquing, grasping, pinching, finger manipulation, feeling per-
ception. Frequently fast response. Occasionally kneeling, squatting. Able to perform tasks
that require arm-hand, hand-eye, and upper and lower body coordination continuously.
• Needs to attend to task/function for 45 minutes at a time or less frequently, 60 minutes at
a time or less occasionally, 60 minutes or more at a time rarely. Able to concentrate on fine
detail with some interruptions continually. Able to understand and relate to the concepts
behind specific ideas continuously. Able to understand and relate to the theories behind
several related concepts frequently. Able to remember multiple tasks/assignments given to
self and others over long periods of time continuously.

JOB DUTIES
The following description of job responsibilities and performance expectations is intended to
reflect the major responsibilities and duties of the job, but is not intended to describe minor du-
ties or responsibilities that may be assigned from time to time. Requirements are representative
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 735

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

of minimum levels of knowledge, skills, and/or abilities. To perform this job successfully, the
incumbent will possess the abilities or aptitudes to perform each duty proficiently. All re-
quirements are subject to possible modification to reasonably accommodate individuals with
disabilities.

Responsibility
Provide technical support and front-desk services courteously and in an efficient manner.

Standards
• Answer phone using appropriate phone etiquette with no more than three rings.
• Monitor incoming and outgoing faxes, including confirmation of the receipt of test orders
by Outreach within one hour of receiving orders.
• Able to operate copier according to procedure.
• Acknowledge on-site patients in a timely manner according to customer service standards.
• Notify patients of expected wait times upon check-in and every 10 minutes during peak
times when longer than 15-minute wait times occur or if a special situation occurs, e.g.,
patient fainting.
• Communicate with waiting patients on reason for taking STAT patient out of order.
• Dispatch Courier within five minutes of notification and follow up according to procedure.
• Process patient payments according to procedure.
• Ensure that correct forms are completed by patient prior to registration, including the
proper signatures on consent form and copy of insurance card and proper identification.
• Notify all back-office areas of arriving patients to ensure that wait times are kept at a mini-
mum, including possible temporary reassignment of job duties.
• Verify status of patient or specimen requirements including STAT, fasting status, legal
name, etc.
• Perform accurate clinical quality assurance as required according to procedure and with
minimal backlog.
• Call patients and providers concerning re-collects according to procedure.
• Release results to appropriate personnel according to procedure.
• Problem-solve with clients, including issues involving supplies, reports, courier service, and
billing.
• Advocate for patients and clients in billing issues with Patient Billing Services, insurance
company, etc., including problem solving, issue resolution, and request to resubmit bill if
necessary.

Responsibility
Exhibit customer-focused behavior and provide excellent customer service.

Standards
• Follow the safety plan, recognizing that safety always comes first, and proactively take steps
to maintain a safe environment.
• Follow guidelines for customer service.
• Meet quality service standards.
• Continuously set the proper environment for customers so that their outreach experience is
as positive as possible.
• Follow dress code.
• Meet attendance (tardiness and absences) expectations.
(continued)
736 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

Responsibility
Provide clinical testing (testing waived).

Standards
• Perform accurate testing, including quality control and troubleshooting (if necessary), ac-
cording to established procedure and in a timely manner.
• Report test results according to established procedure and turnaround-time guidelines.
• Alert provider(s) of panic and/or critical values according to established procedure.
• Demonstrate knowledge of principles or concepts related to testing performed.

Responsibility
Collect specimens appropriately and as needed.

Standards
• Label specimens legibly, correctly, and immediately after collection.
• Identify patients correctly according to standards.
• Collect blood specimens using proper technique and in a timely manner by finger stick,
heel stick, or venipuncture according to standards, including special collection and/or han-
dling requirements and test priority.
• Label specimens legibly, correctly, and in a timely manner.
• Collect specimens correctly (clinical accuracy).
• Collect other specimens according to procedure, including monitoring and starting glucose
tolerances, random urinalysis, 24-hour urine assays, throat swabs, nasal saline washes, se-
men specimens, stool specimens, sputum specimens, and nasal swabs.
• Instruct patients effectively and correctly in the collection of 24-hour urine, stool, semen,
sputum, and clean-catch urine specimens.
• Meet standard for minimum number of re-collects within a 12-month period.
• Maintain patient confidentiality at all times.
• Reassure patients by explaining procedures.

Responsibility
Process specimens appropriately and as needed.

Standards
• Reconcile requisition and testing requirements with specimen received both at front desk
and in processing area.
• Order test correctly.
• Be able to cancel test or generate add-ons according to policy and procedure.
• Register patients and specimens correctly (registration accuracy).
• Process specimens in a timely manner, including readiness for transport.
• Process patients in a timely manner, including registration and collection.
• Demonstrate knowledge of billing process steps.
• Make corrections and insurance changes as needed.

Responsibility
Demonstrate knowledge of and participation in outreach process improvement.
(continued)
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 737

APPENDIX 41.11 Sample Job Description—Phlebotomist/Patient Service Representative (continued)

Standards
• Actively participate in at least one process improvement group, either at the departmental
or institutional level.
• Willingly adjust to change as needed.
• Demonstrate ability to be part of the solution rather than part of the problem.
• Demonstrate problem-solving abilities.
• Demonstrate knowledge of and adherence to quality control procedures related to testing.
• Utilize client problem reports, variance reports, and other quality improvement documents
as needed and according to established procedure.
• Review distributed professional journal articles to improve job knowledge.

Responsibility
Participate in training of other staff.

Standards
• Model appropriate behavior for new employees, providing advice and counseling.
• Participate in training new employees or existing staff in new procedures, using accepted
methodologies and techniques.
• Review and sign off on all manuals on a yearly basis.
• Evaluate trainees at end of module and recommend further training if needed to training
coordinator.
• Evaluate other staff during annual competency assessments and recommend further train-
ing if needed to Operations Coordinator.
• Attend at least __________ hours of continuing education outside of Outreach.
• Attend seminars as requested, to include a written summary of information and presenta-
tion to staff.
• Attend departmental meetings as assigned.

Responsibility
Perform routine maintenance and assist with supplies as required.

Standards
• Perform and document required preventative maintenance on equipment and facilities as
assigned.
• Order supplies as needed by clients and when inventory reaches reorder level.
• Receive supplies as needed according to procedure.
• Stock supplies in storage areas as needed according to procedure.
• Stock supplies in work area as needed according to procedure.
738 OUTSIDE MARKETING AND EXPANSION

APPENDIX 41.12 Guidelines for Client Visits

1. First contact. Set up appointment by phone or in person.
2. Second contact. In person, determine client needs and leave
initial literature. Follow up within two working days with
thank-you note.
3. Third contact. By phone or preferably in writing, confirm
information found during the discovery phase. Set up an
appointment to outline how the outreach program can help
the client with their issues.
4. Fourth contact. In person, present customized services and
fee schedule.
5. Fifth contact. Within five working days and in writing,
send thank-you for opportunity to make presentation. Also
notify client of intent to contact client representative about
their decision.
6. Sixth contact. By phone within five working days, discover
client issues—if any. Ask for the business and set up meet-
ing to discuss implementation plans.
7. Seventh contact. In person within five working days, de-
velop implementation plan with client.
8. Eighth contact. Provide on-site assistance with implementa-
tion in person.
9. Ninth contact. Within five working days and in person, fol-
low up on implementation and solicit client satisfaction.
10. Tenth and subsequent contacts. Schedule periodic visits
based upon size of account, client preference, and problem-
solving needs to develop strong relationship with client.

APPENDIX 41.13 List of Promotional Literature

Three-fold brochure for patients Fact sheet for clients

Brief history of outreach program List of current clients
List of participating insurance plans Sample client service agreement
Sample fee schedule Sample client bill
Services handbook Rolodex punchout page
Business cards Sample requisition
Electronic presentation template Proposal cover
Literature folder Giveaways like pens, notepads, etc.*

*Careful consideration must be given to the annual Stark legislated monetary limit allowed per client.
 CHAPTER 41. OUTREACH CONSIDERATIONS AND OVERALL GOALS 739

APPENDIX 41.14 Model Patient Satisfaction Survey

Please take a moment to tell us about your visit to our Patient Service Center. Your comments are important to us and will help us
look at ways to make your future visits more comfortable.

We thank you.

Name:
(optional)

How did you hear about Outreach?

______ Relative ______ Friend ______ Physician

______ Newspaper/magazine ______ Other

Was our staff caring, courteous, and responsive to your needs?

______Yes ______ No

Would you use Outreach in the future?

______ Yes ______ No

Did you consider your wait time reasonable?

______ Yes ______ No

Can we do anything to improve our services?

______ Yes ______ No

Comments and/or suggestions:

Introduction
42
Outreach Plan Approval Process
Outreach Implementation
Barriers to the Plan’s Approval • Consultants to the
Rescue • Bureaucratic Simplification Equals Success
Requirements: A Case Study
Requirements for Outreach
Implementation Frederick L. Kiechle, Jack Shaw, and Joseph E. Skrisson
Sales and Marketing Program • Courier Services:
Basics and Logistics
Beaumont Reference Laboratory:
1993 to 2004
Annual Growth and Its Implications • Projecting
OBJECTIVES
Future Volume • Send-Out Tests • Monitoring To describe the planning process to implement an outreach program
Financial Outcome
To identify potential barriers to acceptance of the implementation plan for an
Joint Venture Hospital Laboratories outreach program
History of JVHL • Benefits of BRL’s Affiliation
with JVHL To discuss the impact of a successful outreach program on various laboratory
Summary sections
KEY POINTS To discuss the advantages of computer-assisted routing for couriers
GLOSSARY To describe methods for monitoring the financial success of an outreach
REFERENCES program
To discuss the advantages of initiating a joint venture with affiliating
hospital-based outreach laboratories to obtain contracts with managed-care
organizations

The headlines never say good morning any more.

Every day the forecast reads: A chance of showers.
The Tigers keep losing the ballgames.
And Dick Tracy is reported missing.
His smashed wrist-radio recovered
From a burned-out crater of the moon.
The market has plunged again;
Clad dimes and quarters have replaced the real ones.
But you ring the doorbell with a Sunday sunrise
Rolled up casually in one pocket
And a handful of silver coins
With rare mint-marks in the other.
Naomi Long Madgett, “Good News” (33)

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch42
L
aboratory medicine has been increasingly commercialized since
1950 in three phases (52). Since 1985, the primary focus has been on
the business aspects of laboratory medicine. The method of healthcare
reimbursement has resulted in decreased revenue for the healthcare provider.
Laboratories have responded to this gradual conversion of fee-for-service to
managed-care contracts with a fixed fee per member per month by restructur-
ing laboratory operations with a focus on both cost containment and revenue
enhancement (26, 30). A variety of methods to improve hospital laboratory
efficiency have been developed during the continuous evolution to the next
iteration of healthcare delivery and reimbursement. Methods have been de-
signed to reduce cost per procedure, which include increased test volume
through hospital laboratory mergers, consolidation, and integration (17, 23,

740
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS
30, 51, 53, 60) and/or development of an outreach pro-
gram that markets laboratory services to physician offices,
nursing homes, and other hospitals (1, 4, 12, 13, 39, 40, 44,
50). Other methods have been designed to reduce the op-
erating costs and increase the efficiency of the laboratory,
including the introduction of robotics and/or automation
(20, 25, 30, 47, 49), point-of-care testing (27–30, 34, 46),
and a different mix of skill levels in the workforce (14, 19,
28, 30, 32).
Increasing laboratory test volume through the intro-
duction of an outreach program has been described in a
variety of settings: a national reference laboratory (40),
smaller hospitals (4, 39), larger hospitals (12, 30, 40, 44,
50), and hospitals in Malaysia (44). The success of each
of these outreach programs depends on many factors, one
of which is the ability of the outreach laboratory to obtain
provider status with local and regional insurance carriers
and managed-care organizations (1, 12, 50). The follow-
ing case study describes the implementation of a hospital-
based clinical laboratory outreach program, Beaumont
Reference Laboratory (BRL), in Royal Oak, Michigan, and
its affiliation with a regional hospital laboratory network
to secure provider status with major local and regional in-
surance carriers (6, 10).
Outreach Plan Approval Process
Barriers to the Plan’s Approval
An “intrapreneur,” or “a person within a corporation who
takes direct responsibility for turning an idea into a prof-
itable finished product through assertive risk-taking and
innovation” (45), is required to initiate the change pro-
cess needed to facilitate the implementation of an out-
reach plan. The intrapreneur must convert the illusion of
revenue consisting of clad coinage created by delusional,
magical thinking to a coherent outreach program generat-
ing genuine profits. Numerous potential barriers may be
encountered during this change process, including myths,
active inertia, lack of incentive, insufficient support from
financial analysis and other groups, a slow approval pro-
cess, conflicting visions, and others (26, 30). At times, the
task of strategic alliance building (36) required to achieve
the goal will seem overwhelming. Capitalize on serendipi-
tous circumstances and use variable-term opportunism
(36). For example, the mental visualization of the plan has
no effect until the vision is verbalized. An intrapreneur
will use every opportunity to introduce the new plan dur-
ing any conversation or meeting where the problem the
new plan will resolve is discussed. Continuous, relentless
use of this strategy subtly convinces many individuals that
the new plan has been approved, and they will then ex-
press dismay that there are apparent delays in their area of
responsibility in its implementation. Gandhi said, “Satis-
faction lies in the effort, not in the attainment. Full effort
741
is full victory” (15). Carl von Clausewitz, the 19th century
Prussian general, wrote, “In the dynamics of execution,
under the ever-changing conditions of the surroundings
(whether terrain and weather in war, or the economy and
consumer attitudes in business), the contestants must in-
creasingly evaluate the potential advantages to be gained
from shifting their perceptions between any number of
polar opposites” (59). Remember to retain the flexibility,
fluidity, and dynamic resilience required to “weigh the
situation, then move” (56).
Active inertia and myths are two indolent, disruptive
barriers to outreach program implementation. Myths rep-
resent inaccurate information perceived as truth by major
administrative decision makers. “Fiction, like all operas: a
lie, but a lie is sort of a myth, and a myth is sort of a truth”
(18). Myths are plentiful and reflect the need for admin-
istrators to codify apparent truths, thus eliminating the
need for their further evaluation or validation. There are
myths related to customers (57), laboratory management
(37), and tribal knowledge (26, 30). Does it mean, “There
is no such thing as ‘truth?’ There’s only language. There’s
no such thing as a ‘fact.’ There is no truth or falsehood,
just dominant processes by which reality is socially con-
structed” (54). However, language is the primary method
of communication, and work-arounds may be required.
For example, myths within an organization are difficult
for local storytellers to dispel. Three efforts to initiate an
outreach program at our institution failed because the data
were generated and presented by the Department of Clini-
cal Pathology. Myths surrounded the legality of the proj-
ect, the ability to bill, and the financial analysis. To reverse
this indocility, we spent money and hired a consultant who
had a global view of many other hospitals, each of which
had successfully initiated an outreach program. Field trips
for numerous decision makers were organized to sites with
successful outreach programs as a preemptive strike to dis-
lodge the myths. After this drill, the consultant’s presenta-
tion confirmed the findings of the field trips, thus building
administrative enthusiasm for the project. In this situation,
the myths were removed from their pedestal by convincing
data contradicting their authenticity.
A manifestation of active inertia, which is the insensate
repetition of the same behavior pattern without regard to
the magnitude of the paradigm shift (55), can effectively
destroy all of the efforts outlined above. In this environ-
ment, “Do anything, but do something” is the mantra, and
values become dogma. The combination of active inertia
(55) and myths can send the most reasonable plan to a
committee for eternity. The decision makers on that com-
mittee have descended to “the lowest level of awareness”
in a stepwise manner, as defined by Albert Einstein: “ ‘I
know.’ Then, ‘I don’t know,’ ‘I know I don’t know,’ ‘I don’t
know that I don’t know’ ” (11). Having achieved the low-
est level of awareness through the promulgation of myths
742 OUTSIDE MARKETING AND EXPANSION
and active inertia, the committee members will leave these
meetings feeling as if “we, none of us, ever mean anything”
(9). Remember that tough financial times make tough de-
cisions easier. A failure to achieve the margin (profit) goal
will initiate the change process faster in a hospital admin-
istration than any other consequence (30).
Consultants to the Rescue
This is a case study, and certainly there are successful out-
reach efforts that have been initiated without the aid of
consultants. However, with the past history of three failed
attempts over five years to obtain administrative approval,
it was suggested that we needed to try a different approach.
In April 1991, we retained the services of a consulting firm
to investigate the feasibility of starting an outreach program
either as a joint venture with a commercial laboratory or as
a stand-alone hospital laboratory outreach program (12).
The market was evaluated by first reviewing the subspe-
cialty mix for the more than 1,000 physicians on the hospi-
tal staff. Physicians in subspecialties with high laboratory
utilization, like internal medicine, obstetrics/gynecology,
family practice, and others (Table 42.1), were sent a sur-
vey asking if they would be interested in doing business
with BRL if outreach services were developed. More than
90% of the physicians responded in the affirmative. Cur-
rent managed-care contracts were reviewed. The potential
for attracting work from local nursing homes and other
hospitals was explored. Discussions with several commer-
cial laboratories about potential joint venture relationships
were uniformly unsuccessful. Their primary message was,
“We want to run your laboratory.” Of course, we began to
wonder what our role would be in this takeover strategy.
Frankly, we preferred to run our own laboratory.
The positive results of the feasibility study led to a
second engagement that produced a market survey and
a three-year pro forma financial projection. The pro
forma reflected conservative volume increases over the
three-year period in each of the market sectors, including
physician offices, nursing homes, and other hospitals. Re-
imbursement was based on payor mix averages for tests
Table 42.1 2002 BRL outreach laboratory utilization analyzed by
specialty
Specialty No. of physicians Total procedures
Family practice 464 631,086
Pediatrics 219 123,244
Internal medicine 831 1,347,426
Cardiology 126 82,068
Endocrinology 96 68,880
Gastroenterology 60 60,860
Nursing homes 575 395,742
OB/GYN 309 250,520
Urology 126 16,668
frequently ordered in each sector. This plan was approved
by hospital administration with support from the chair-
men of the Department of Clinical Pathology and the
Department of Anatomic Pathology. The two pathology
departments operate independently of each other at Wil-
liam Beaumont Hospital. BRL was defined as a for-profit
unrelated business enterprise within a nonprofit hospital.
Registered hospital outpatients were excluded from BRL
pricing. BRL clients were limited to those who drew their
patients’ blood or who had adequate volume to justify hav-
ing BRL provide a phlebotomist in their office.
Bureaucratic Simplification Equals Success
In general, administration in a hospital is focused on inpa-
tient and registered outpatient issues (1). A large number
of middle or upper managers are assigned the task of pro-
viding signature approval for procedures, pricing, capital
equipment, personnel, and other details. These individuals
are usually so far removed from issues related to the request
that a lack of urgency will guarantee delays. For example,
the delay in approval of open employee positions caused by
requests for additional documentation may represent a co-
vert effort by a manager to cook the books and save on total
overall personnel dollars for the quarter. Once this objec-
tive is attained, approval for filling the open position is very
rapid. A successful outreach program must be run more like
a business. Approvals must be streamlined from the usual
ten managers to three or fewer managers who are very fa-
miliar with the operation. The competition for outreach
clients is more volatile than the competition for inpatients.
The volatile environment requires a method for rapid as-
sessment of options and rapid initiation of a solution.
An outreach program will require continuous, intense
support from financial analysis, information services
(42), marketing (1), and managed-care services (1). Ad-
equate staffing will be required to address the complaints
of outreach clients and meet the needs of the program’s
growth. Hospital administration provides staff for the
cyclic changes anticipated for inpatients and registered
outpatients. For example, during the financial cycle, the
preparation of the annual budget and end-of-the-year fi-
nancial reports may completely preoccupy all of the staff-
ing resources for at least three months. During this period,
the financial analysis department is paralyzed and unable
to perform routine evaluations for capital equipment or
new personnel. The consequence of this paralysis is that
outreach business development grinds to a halt while re-
quests for approval sit on someone’s desk. A potential solu-
tion is to establish a financial staff that responds only to
the needs of the outreach program. These staff members
must be sequestered and protected from being removed
from their tasks during the crisis of hospital financial
analysis. A similar strategy may be required to ensure that
there are adequate personnel available to handle outreach-
related computer issues, such as electronic medical record
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 743

interfaces (42), autofax, outreach billing using a stand-
alone system, nursing home setup, new client setup, requi-
sition scanning, client services, critical values, and others.
In short, for the implementation and future success of an
outreach program, the departments that support the new
program and the laboratory, such as personnel, informa-
tion services, financial analysis, and marketing, must be
attentive, efficient, streamlined, and responsive.
The complexity of establishing an outreach program pre-
dicts that a small-scale demonstration project will fail. Aban-
don any idea of experimenting with outreach. All elements
of the outreach initiative, including sales force, couriers, cli-
ent services, registration, accessioning, result delivery, and
patient or client billing, must be in place before the first day
of operation is announced (1). A failed pilot project or small-
scale experiment will tarnish the program’s reputation, a per-
ception that may take years of hard work to reverse. The goal
is to dazzle each customer from the beginning and nurture
loyalty through a continuous high level of performance.
Requirements for Outreach Implementation
Figure 42.1 shows the current organizational chart for
BRL. This section will review the development of the sales
and marketing department, as well as courier services (1).
Sales and Marketing Program
Step 1. Design a competitive salary and commission pack-
age for sales staff. Base salary should be aligned with the
degree of experience the individual brings to the job. For
example, the ideal candidate would have had previous ex-
perience in a clinical laboratory and in laboratory sales
and training (preferably from a national laboratory). The
commission program should be competitive when com-
pared to the marketplace in order to attract the top can-
didates. In addition, the commission structure should be
aggressive to promote new-sales efforts and also provide
a reward for maintaining existing business. Ideally, the
top sales representatives would derive 66% of their yearly
earnings from commissions and the remaining 33% from
their base salary. Remember, the hardest sell is going to be
the hospital administrators when you tell them that a top
laboratory sales representative could make six figures or
more a year. If the majority of these earnings come from
commissions, then it will be easier to get administrative
approval for a competitive sales compensation program.
New-sales and overall business growth targets are
set annually at budget time. BRL sales representatives
are given their team’s annual new-sales target along with
their individual minimal sales quota. BRL’s commission
program rewards sales representatives for new-business
sales, existing-business growth (upgrades), and overall
maintenance and growth of their territory (bonus). For
new-business growth, BRL has an aggressive commission
program based on a rolling three-month average of new-
business sales. This program is structured to encourage
sales representatives to bring in new business quickly and
steadily, since the higher their three-month rolling aver-
age, the greater the commission that is paid. The new-sales
commission program also penalizes the sales representative
for lost business. Monthly lost-business numbers are sub-
tracted from monthly new-sales numbers before establish-
ing the three-month rolling average. BRL has experienced
great success with this program, and it has been a great mo-
tivator for the sales staff.
Sales representatives also get paid an upgrade commis-
sion on existing-business growth. These business upgrades
are treated separately and paid based on a less aggres-
sive commission structure than new-business sales. Sales
representatives are also rewarded quarterly with a bonus
based on their overall territory growth and meeting their
business sales quota. This sales compensation program has
worked well for BRL, as it has kept our sales staff highly
motivated in bringing in new business and maintaining
(retaining) and growing existing business, as highlighted
in our past years’ business growth numbers (Table 42.2).

Table 42.2 Beaumont Reference Laboratory’s annual client numbers and clinical pathology procedures
BRL total clinical BRL procedures as a percentage of hospital’s
Year Client number pathology procedures total clinical pathology proceduresa
1994 170 307,403 14.5%
1995 300 570,014 22.8%
1996 543 598,689 21.6%
1997 677 805,463 28.1%
1998 761 1,484,874 38.0%
1999 841 1,897,526 41.0%
2000 998 2,081,245 44.8%
2001 1,085 2,258,252 41.1%
2002 1,175 2,292,672 46.2%
2003 1,383 2,921,135 50.0%
2004 1,423 3,058,599 47.0%
a
Total clinical pathology procedures include inpatients, hospital-registered outpatients, and BRL clients.
 744

ADMINISTRATIVE
Medical Director
DIRECTOR

OFFICE ORIENTATION
COORDINATOR TRAINING SPECIALIST

DIGITAL IMAGING INVENTORY

CLERK COORDINATOR

INFORMATICS PATIENT ACCOUNTING CUSTOMER SERVICE SALES & MARKETING LABORATORY PATIENT SERVICES
MANAGER MANAGER MANAGER SUPERVISOR DEPARTMENT
OUTSIDE MARKETING AND EXPANSION

PHYSICIAN OFFICE CORPORATE NURSING

SYSTEM BILLING CSR SPECIALISTS COURIER REF LABORATORY PATIENT SERVICES
LABORATORY LABORATORY
ANALYST COORDINATOR COORDINATOR COORDINATOR COORDINATOR
SERVICES SERVICES
REPRESENTATIVE REPRESENTATIVE

LOGISTICS A/R SPECIALISTS CSR II COURIER PHYSICIAN OFFICE NURSING HOME REFERENCE DRAWSITES NURSING HOMES
TECHNOLOGY SPECIALIST TECHNICAL SERVICES TECHNICAL SERVICES TECH II

COORDINATOR REPRESENTATIVE REPRESENTATIVE

A/R SENIOR CSR I COURIER II REFERENCE SENIOR SENIOR

CLERKS TECH I
PHLEBOTOMIST PHLEBOTOMIST

A/R CLERKS COURIER I REFERENCE PATIENT CARE PATIENT CARE

LAB
ASSISTANT ASSISTANT ASSISTANT

Figure 42.1 BRL organization chart. doi:10.1128/9781555817282.ch42.f1

 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS
Step 2. Nurture the experience level of staff. Our experi-
ence at BRL has demonstrated that there is no substitute
for sales training and field experience. National labora-
tories excel in this area, and most hospital-affiliated out-
reach programs fall short. Significant time, dollars, and
resources are required to train the sales staff in basic sales
techniques, compliance training, and end-sell strategies.
Step 3. Develop a new sales and maintenance program.
Know your market and make sure your market knows you.
To maximize market penetration, first identify prospective
clients in the target market, prioritize the most profitable
prospects, and then assign those prospects to sales staff
members for office calls and/or sales presentations. Pros-
pects lists (physicians, nursing homes, hospitals, and other
healthcare facilities) can normally be acquired or pur-
chased from your state medical societies, insurance pro-
viders (network listings), and third-party research firms.
We have found that buying a prospect list from a market-
ing research firm is worth the investment since the list can
be customized to your specifications. For example, request
a list of only practicing physicians in a certain county and
only their office addresses. Often a state medical society
lists all members, both practicing and retired, and their
home and office addresses.
Once the target list of prospects/customers is estab-
lished, your sales staff can focus on contacting these
prospects. Sales presentations must be customized for
the respective business lines: physician offices and long-
term-care/nursing homes. Sales presentations for physi-
cian offices should always stress that you are providing
information services, highlighting such value-added ser-
vices as office web-based order entry and result-reporting
software. Sales staff should customize their presentations
based on the physician specialty and be prepared to dis-
cuss the physician’s patient mix (disease states), most com-
monly ordered tests, and emerging new tests that can be
of benefit to patient diagnosis and treatment. Up-selling
existing and emerging tests helps improve diagnostic ef-
ficiency as well as operating margins. Up-selling refers to
the practice of informing clients of new or improved labo-
ratory tests that may have superior sensitivity and specific-
ity compared to the routine screening assays. These new
or improved assays may be applicable to patients with a
well-defined subset of a certain disease or for patients who
have failed the usual therapeutic strategies.
Long-term-care/nursing homes and assisted-living
(LTC) facilities create another business opportunity for
outreach programs. Most laboratories have shied away
from LTC facilities because they are unable to meet the
special needs of skilled nursing homes. For those outreach
programs that can customize their services to provide rou-
tine and STAT phlebotomy, same-day test results, standby
orders, and Medicare Part A billing, then LTC facilities
745
provide a business opportunity with minimal competition.
Outreach programs interested in servicing LTC facilities
may want to consider partnering with a firm that brokers
nursing-home services (i.e., radiology, podiatry, dentistry,
psychiatry, occupational therapy, physical therapy, etc.)
and contract to have one of these firms market their lab
services to the LTC market.
Courier Services: Basics and Logistics
An outreach program’s courier service is the front line in
terms of customer service and relations (see Fig. 42.2).
Couriers act as your ambassadors of good will and your
intelligence service in regard to customer satisfaction (1).
At BRL, we train the courier staff to put the customer first,
and this emphasis gets results, as demonstrated by their
high score on BRL’s customer satisfaction surveys. The fol-
lowing are the key characteristics of a high-performance
courier network that consistently meets the expectations
and requirements of its customers (external and internal):
• Courier routing/scheduling is performed dynamically
to optimize the use of resources (staffing, vehicles, etc.).
• Couriers maintain the integrity of specimens, mate-
rials, and supplies transported and handled (keep-
ing frozen specimens frozen and room-temperature
specimens at room temperature, performing special
handling as required and ensuring that supplies are
transported and stored according to manufacturer
specifications).
• Couriers maintain confidentiality of patient reports.
• Couriers are responsible and reliable transport agents
(vehicles are routinely serviced and checked; couriers
complete a driver safety course).
• Couriers are trained to handle, transport, and clean up
hazardous materials.
• The courier department assists in monitoring/auditing
supplies delivered and utilized by clients.
The courier department serves as the program’s rep-
resentatives to customers, in both the delivery of services
and the monitoring of your customers’ overall satisfaction.
What is required when putting together an efficient
courier network? The first task is to create a routing net-
work that meets customer needs while maximizing the ef-
ficient use of resources (drivers, automobiles, etc.). Routing
optimization, however, usually occurs in an environment
of multiple conflicting priorities. For example, service re-
quirements, especially turnaround times, vary with client
type. Delivery of client specimens to the laboratory should
be coordinated with the laboratory production schedule to
maximize the efficient use of laboratory staff and equip-
ment. Courier routing is a dynamic process with many vari-
ables, including day and time of service, courier availability,
746 OUTSIDE MARKETING AND EXPANSION

Figure 42.2 Courier management, client services, and client interaction with software for courier
routing, specimen counts, STAT pickups, client supplies inventory, specimen tracking, and client ser-
vice problem logs. Note: Client numbers and procedures continue to increase by 10 ± 5% annually.
doi:10.1128/9781555817282.ch42.f2

weather conditions, and cyclic traffic congestion. A system routing, or routing “on the fly.” In other words, the cou-
needs to be designed to monitor specimen location and to rier department can reroute in minutes to adjust to staffing
verify specimen pickup. Designing courier travel manually shortages, weather, traffic, special events, and/or vehicle
results in routes located in geographically defined sectors breakdowns. RIMMS has made it more convenient to
without regard to optimization. Courier route optimization handle client will-calls and STATs and assign them to the
can be achieved using commercial software. appropriate route and driver.
In February 1995, BRL introduced routing-optimization This software permits rerouting for extreme cold-
(logistics) software. BRL selected a routing package called weather conditions (temperature range, 0 to 15°F). Cou-
RouteSmart (Boune Distinct Ltd., Columbia, Md.) to assist rier management was concerned about specimen integrity
the courier department with route creation. Operational when specimens would be left in drop boxes located out-
issues or constraints that management had to consider in side for extended times in this extremely cold weather. To
route formulation included service-time window, stag- address this issue, courier routes were redefined or reopti-
gered start times, average service duration per client of mized to pick up all clients’ work within two hours of clos-
2 minutes, drop-box service duration of 1.5 minutes, ing (or placement in drop boxes). The RIMMS software
special deliveries, draw-station sweeps, last pickups (30 accomplished this task in real time within minutes and
minutes after close), maximum route duration (7 hours without an increase in resources (Table 42.4). Surprisingly,
with breaks), all routes being in by 6:00 p.m., and other the cold-weather afternoon-evening (p.m.) route optimi-
special client requirements. By July 1995, BRL was testing zation actually saved labor hours.
the RouteSmart routes, and the program was fully imple- Other applications for route-optimization software in-
mented by August 1, 1995. Results achieved included a 25% clude home-care service, hospital materials management
reduction in labor, excess capital resources of 23% (fleet
car returned), and more productive use of staff drivers. In
Table 42.3 Courier routing optimization results: the BRL
short, BRL realized a savings of $82,094 (see Table 42.3), experience
with a return on its investment in 7.5 months (30, 31).
Attribute of Before After
In 1997, BRL moved to a new generation of routing
courier program May 1995 May 1996 Change
software called RIMMS (Resources in Motion Manage-
ment System), offered by the Lightstone Group (Mine- No. of routes 9 6 233.3%
ola, N.Y.). RIMMS is a customizable, Windows-based No. of accounts 408 471 115.4%
open-architecture system that supports real-time dynamic Full-time employees 16 14 212.4%
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 747

Table 42.4 Route-optimization results: rerouting for cold weather

Optimization
condition Miles Labor (min) Drive time (min) Vehicles Routes Requisitions
Baseline 1,176 65:49 37:26 17 17 1,308
Cold 1,206 55:58 38:10 17 17 1,308
Gain −30 9:51 −0:44 0 0 0

department, and nursing-home phlebotomy service (sched-
uling and routing). William Beaumont Hospital has had
success utilizing RIMMS for home-care services and mate-
rials management transportation. BRL’s future plans call for
utilization of logistics software in optimizing the schedul-
ing, routing, and dispatching of phlebotomists in the long-
term-care division (a network of more than 70 nursing and
assisted-living homes).
In December 2001, BRL implemented handheld per-
sonal computers for its courier staff. These handheld
PCs utilize courier-management software for specimen
logging (tracking), routing, and supply ordering (inven-
tory) (Fig. 42.2). The software is called Frontline and
is offered by Gajema (Charlotte, N.C.). The Frontline
product includes integrated call-management, client-
services, and courier modules. BRL evaluated and im-
plemented the Frontline call-management module in the
fall of 2002. With the Frontline modules, BRL was able
to automate and go paperless for incoming and outgoing
calls handled by its client services department, includ-
ing client supply orders, courier will-calls, STATs, add-
on tests, and client problem logging. With an interface
to Frontline, RIMMS can pass the courier routes to the
handhelds and place dynamic or “on the fly” routing
right at the courier’s fingertips. With the handhelds, the
couriers are now able to log or document electronically
their entire stop, indicating whether it’s a pickup or de-
livery of specimens, reports, and/or supplies; scan their
arrival time and patients; and enter or log the number of
specimens and tube types. All this information is down-
loaded to the courier-management module server when
the couriers dock their handhelds back at the lab. In
addition, with products such as RIMMS and Frontline,
BRL was able to achieve true cross-department integra-
tion and communication (Fig. 42.2). The wealth of in-
formation captured and retrievable from these software
products will have a positive impact in the areas of cus-
tomer satisfaction, process improvement, compliance,
and accountability. The new handhelds required an addi-
tional 22 seconds per requisition to enter data and inter-
act with the device. To minimize the impact of this time
loss, BRL management reoptimized all the p.m. routes
with RIMMS (Table 42.5). It was determined that the new
routes were more efficient in spite of the additional time
couriers required to interact with the handhelds. These
findings indicate that BRL’s courier operations need to
reoptimize their routes more frequently.
Beaumont Reference Laboratory:
1993 to 2004
Annual Growth and Its Implications
In the summer of 1993, BRL opened for business in a con-
struction trailer behind the hospital. BRL provides both
clinical pathology and anatomic pathology (cytology and
biopsy microscopic evaluation) services. For the first three
to four years, the majority of clients were physicians on
the staff at William Beaumont Hospital. These physicians
had computers in their offices connected to the hospital
information system. As a result of becoming a BRL client,
each physician, through the hospital information system,
had electronic access to results for inpatients, registered
outpatients, and patients seen in his or her office, all in
one location. This convenience factor was a major selling
point for many of the early clients. There was no need for
an additional computer for laboratory results for their of-
fice visit data.
Table 42.2 illustrates BRL’s growth in clinical pathol-
ogy from 1994 to 2004. For 2004, BRL volume represents
47.0% of the total clinical pathology test volume. Physician
offices represent 81% of total clients and 89.5% of all test
requests, while nursing homes represent 19% of all clients

Table 42.5 Route optimization results: reoptimization of Monday p.m. routes

Optimization Labor Drive time Route Vehicles/ Requisitions
condition Miles (min) (min) segments drivers expected
Baseline 1,233 69:23 40:22 17 17 1,323
Reoptimized 1,014 50:24 33:19 17 13 1,323
Gain 219 18:59 7:03 0 4 0
% Gain 18% 27% 17% 2% 24% 2%
748 OUTSIDE MARKETING AND EXPANSION

Table 42.6 Annual volume of tests of cervical cytology at BRLa Table 42.7 Tests performed in 2002 in the molecular pathology
laboratory at William Beaumont Hospital
Conventional Liquid-based Annual
Year Papanicolaou test cytologyb total Testa,b No. of tests
2000 54,524 14,359 68,883 PCR, RT-PCR
2001 39,375 33,795 73,170 Chlamydia trachomatis 10,374
Neisseria gonorrhoeae 10,101
2002 17,009 63,973 80,982
HCV qualitative 523
2003 7,836 81,860 89,696 HCV quantitative 1,190
2004 4,098 86,319 90,417 HIV quantitative (standard, ultrasensitive) 968
a
Data collected by Jennifer Shimoura. HBV quantitative 171
b
Liquid-based cytology specimens continued to be greater than 95% of GYN CMV 165
specimens annually from 2005 to 2011. ACE polymorphism 212
Angiotensinogen mutation 34
Angiotensin receptor type 1 mutation 36
CYP2C9 genotyping (for Coumadin 30
and 10.5% of all tests requested. BRL clients generated 82% hyperresponsiveness)
of the volume in the cytology laboratory. Hereditary hemochromatosis mutations 414
Table 42.6 demonstrates that there has been a dramatic Glycoprotein Pl A1/A2 mutation 35
shift from cervical cytology in anatomic pathology evalu- TMA
Mycobacterium tuberculosis 181
ated by the conventional Papanicolaou method to the
Invader technology
liquid-based method, which provides a specimen compat- Factor V Leiden mutation 1,218
ible for oncogenic human papillomavirus (HPV) detec- Prothrombin mutation 713
tion (58, 59, 62). Approximately 15 of the more than 100 MTHFR mutations 448
types of HPV are associated with cervical cancer, espe- Apo E genotype 122
cially types 16, 18, 31, and 45 (http://www.jvhl.org; 21, 61). Hybrid capture
The detection of HPV DNA is reliable and highly sensi- HPV low-risk group 1,237
HPV high-risk group 1,240
tive for precancerous lesions of the cervix compared to the
Hybridization/PCR
insensitivity and subjectivity of the conventional cytology
HCV genotyping 376
method (47, 50). This relatively rapid shift in physician or-
DNA sequencing
dering practice illustrates the need for flexibility in plan- HIV genotyping for drug resistance 306 in 2003
ning for future outreach growth. a
RT-PCR, reverse transcriptase PCR; HCV, hepatitis C virus; HIV, human
BRL’s growth has had an impact on the test menu in each immunodeficiency virus; HBV, hepatitis B virus; CMV, cytomegalovirus; ACE,
laboratory section. For example, the total number of bill- angiotensin-converting enzyme; TMA, transcription-mediated amplification;
MTHFR, methylene tetrahydrofolate reductase; HPV, human papillomavirus.
able procedures increased each year from 1993 to 2002 in b
The test menu had increased to more than 45 billable procedures in 2011.
the molecular pathology laboratory (Fig. 42.3). Table 42.7
outlines the specific assays and test volumes for 2002. In
late 1992, a royalty agreement was signed with Roche for In late 2001, HPV DNA detection by hybrid capture was
the clinical use of PCR. In 2002, the assay for Chlamydia introduced, and 2,477 identifications of HPV types with
trachomatis and Neisseria gonorrhoeae in urine was moved a low and high risk for cervical cancer were completed
from ligase chain reaction to PCR (8, 41). More than 95% in 2002. There has been a steady increase in molecular-
of the requests for these two assays are by BRL clients. based tests, from 0.04% (84 assays) of total laboratory test

Figure 42.3 Annual volume of tests, includ-

ing total tests and five different methods, per-
formed from 1992 to 2002 in the molecular
pathology laboratory at William Beaumont
Hospital. Note: The test menu increased
from 33 tests in 2006 to over 45 tests in 2011.
doi:10.1128/9781555817282.ch42.f3
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS
volume in January 1994 to 0.57% (28,531 assays) in 2002
to 0.70% (43,824 assays) in 2004. This laboratory section
has been profitable since 1997. To fulfill the prediction that
molecular testing would encompass 5% of total laboratory
test volume in the early 21st century (24), a total of 22,200
molecular pathology procedures per month would need to
be performed.
Projecting Future Volume
The numbers of BRL clients and the test volume have in-
creased each year since 1994 (Table 42.2). Each year a tar-
get figure for annual growth is established that is between
8% and 15% of the volume from the previous year. We have
utilized several methods to monitor this growth and pro-
ject its impact on the individual laboratory sections. The
number of requisitions received from each of the two ma-
jor client types (physician offices and nursing homes) is
tracked each day. Figure 42.4 shows a summary of Janu-
ary 2002. During the Monday-to-Friday cycle, the great-
est total volume of requisitions is received on Monday,
usually with a nadir in requisitions from physician offices
on Wednesday, when many offices are closed in the after-
noon. These data provide a global baseline for monitoring
fluctuations in volume.
We also monitor the volume generated by nine different
practice categories and calculate annually the number of
requisitions per physician, the number of procedures or-
dered per physician, and the number of procedures per req-
uisition (Table 42.8). In 2002, the number of requisitions
Figure 42.4 The daily requisitions for tests at BRL received by physician offices (▲) and nursing
homes (♦), and totals (■), in January 2002. doi:10.1128/9781555817282.ch42.f4
749
per year per physician fluctuated from 94 for urology to
282 for OB/GYN, while the number of procedures per
requisition varied from 1.4 for urology to 10.3 for inter-
nal medicine. This information is useful when the sales
team is targeting specific physician categories for growth.
The laboratory sections will require further analysis of
the data before they can project their capital equipment
and personnel needs to support the projected additional
test volume. Table 42.9 illustrates the distribution within
eight laboratory sections of the tests requested by the nine
practice categories. Given the new client’s subspecialty
and the number of physicians in the group, these data can
be used to estimate the number of procedures each of the
eight laboratory sections should analyze over a period of
time. The clinical chemistry section receives the greatest
volume of test requests from six of the practice categories
but fewer than 40% of the total procedures from OB/GYN
and Urology. Microbiology procedures are ordered most
frequently by Urology. Table 42.10 enumerates the aver-
age monthly number of specific tests ordered per physi-
cian in each of the nine practice categories in the five most
frequently used laboratory sections. Managers of the five
laboratory sections, armed with the expanded data com-
piled in this manner, can easily begin to project capital
equipment and personnel needs based on projected new
client volume. In OB/GYN, HPV DNA analysis is re-
quested four times less frequently than analysis for the
presence of Chlamydia or Neisseria DNA in Molecular
Pathology (Table 42.10).
750 OUTSIDE MARKETING AND EXPANSION

Table 42.8 Summary of tests performed by BRL in 2002 according to specialty

No. of Total Total Requisition/ Procedures/ Procedures/
Specialty physicians requisitions procedures physician requisition physician
Family practice 464 66,970 631,086 144 9.4 1,360
Pediatrics 219 21,172 123,244 97 5.8 563
Internal medicine 831 130,460 1,347,426 157 10.3 1,621
Cardiology 126 19,766 82,068 157 4.2 651
Endocrinology 96 11,540 68,880 120 6 717
Gastroenterology 60 6,566 60,860 109 9.3 1,014
Nursing homes 575 108,536 395,742 189 3.6 688
OB/GYN 309 87,004 250,520 282 2.9 810
Urology 126 11,886 16,668 94 1.4 132

Send-Out Tests described by Carter and Bennett (7). A resident in Clinical

Send-out tests represent procedures that are not performed
in any of the laboratory sections and must be sent to an
accredited laboratory. We review the volume of these pro-
cedures every six months. Cost analysis and the feasibility
of bringing assays with increasing volumes into the main
laboratory are also evaluated. One of the benefits of an out-
reach program is the expansion and enhancement of the test
menu (30). In our state, send-out laboratory charges cannot
be marked up, and frequently patients’ third-party reim-
bursement fails to cover the charge or the cost. In general,
the reduction of send-out test volume is an excellent project
for laboratory cost containment (7). Table 42.11 illustrates
the volume of send-out tests for BRL and non-BRL patients
from 1998 to 2005. Although BRL’s contribution to the total
number of send-out tests has fluctuated from 32% in 2000 to
a high of 56% in 2005, the total number has usually increased
each year. In 2001, BRL send-out test charges were $996,000.
In 2000, we initiated a review of low-reimbursement, high-
cost send-out requests from both BRL and non-BRL, as
Pathology contacts the admitting physician for inpatients or
the ordering physician for registered outpatients or outreach
customers and explains the cost, clinical value, and alterna-
tive tests. Most tests are canceled because the admitting or
ordering physician was not aware that a resident or consul-
tant had ordered it. Table 42.12 demonstrates that although
the total number of tests called on per year was a fraction
of the total number requested (listed in Table 42.11), almost
half of the requesters called in 2002 canceled the request,
saving approximately $70,000. This program will expand in
the future, and BRL will also develop methods for outpa-
tients to pay for these tests with a credit card, check, or cash
before they are sent out.
Monitoring Financial Outcome
It is imperative that the financial well-being of an outreach
program be monitored frequently. Table 42.13 outlines a
few examples of items to monitor, including test volume,
supply costs, personnel costs, and revenue cycle (3, 30). We

Table 42.9 Breakdown of tests performed by BRL in 2002 according to specialty

% Total Billable Procedure/
Specialty (no. of physicians) Lab areaa procedures procedures requisition
Family practice (464) CHE 86.20 544,822 8.10
HEM 5.20 35,562 0.53
IMM 3.50 22,058 0.33
MIC 2.70 17,096 0.25
MOL 0.40 2,418 0.04
FLO 0.10 754 0.01
BLB 0.10 802 0.01
CYT 1.20 7,574 0.11
Gastroenterology (60) CHE 82.00 50,482 7.70
HEM 8.30 5,092 0.78
IMM 6.40 3,934 0.60
MIC 0.50 306 0.05
MOL 1.70 1,046 0.16
FLO – 0 –
BLB – 0 –
CYT – 0 –
(continued)
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 751

Table 42.9 (continued)

Breakdown of tests performed by BRL in 2002 according to specialty
% Total Billable Procedure/
Specialty (no. of physicians) Lab areaa procedures procedures requisition
Pediatrics (219) CHE 72.10 88,800 4.20
HEM 5.60 6,916 0.33
IMM 2.60 3,148 0.15
MIC 18.60 22,902 1.08
MOL 0.20 232 0.01
FLO – 4 –
BLB 0.03 34 –
CYT 0.50 644 0.03
Nursing homes (575) CHE 84.80 335,650 3.10
HEM 9.20 36,346 0.33
IMM 0.40 1,756 0.02
MIC 5.50 21,902 0.20
MOL 0.01 24 –
FLO 0.01 56 –
BLB – 8 –
CYT – 0 –
Internal medicine (831) CHE 90.20 1,222,434 9.40
HEM 4.40 58,878 0.45
IMM 2.50 34,478 0.26
MIC 1.40 19,200 0.15
MOL 0.30 3,916 0.03
FLO 0.20 1,992 0.02
BLB 0.03 418 –
CYT 0.60 8,110 0.06
OB/GYN (309) CHE 34.50 90,534 1.00
HEM 6.60 17,286 0.20
IMM 11.20 29,244 0.34
MIC 10.40 27,180 0.31
MOL 4.60 12,162 0.14
FLO 0.01 20 –
BLB 6.80 17,776 0.20
CYT 21.50 56,318 0.65
Cardiology (126) CHE 94.80 77,926 3.90
HEM 2.60 2,154 0.11
IMM 2.20 1,816 0.09
MIC 0.20 124 0.01
MOL 0.04 34 –
FLO – 0 –
BLB 0.01 12 –
CYT – 2 –
Urology (126) CHE 38.20 7,320 0.62
HEM 1.60 306 0.03
IMM 0.70 128 0.01
MIC 33.40 6,414 0.54
MOL 0.60 116 0.01
FLO – 0 –
BLB – 0 –
CYT 12.40 2,384 0.20
Endocrinology (96) CHE 88.60 61,606 5.30
HEM 1.70 1,202 0.10
IMM 5.10 3,550 0.31
MIC 1.00 724 0.06
MOL 0.10 68 0.01
FLO – 0 –
BLB 1.00 682 0.06
CYT 1.50 1,048 0.09
a
CHE, chemistry; HEM, hematology/coagulation; IMM, immunology; MIC, microbiology; MOL, molecular pathology;
FLO, flow cytometry; BLB, blood bank; CYT, cytology.
Table 42.10 Frequently ordered tests performed by BRL in 2002 listed in rank order according to specialty

752
Avg no. of specific
tests/physician/montha Chemistry Hematology/coagulation Immunology Microbiology Molecular pathology
Family practice (113) AST 34.00 CBC 39.00 ANA 2.30 Urine cul 6.50 C. trachomatis 0.89
K 32.00 ESR 2.70 RA 1.60 Prel aerobic cul ID 3.70 N. gonorrhoeae 0.85
ALT 32.00 Retic 0.41 HBsAg 1.20 Antibiotic sens 1.20 HPV 0.29
BUN 32.00 PTT 0.19 Anti-HCV 1.10 Smear 1.10 HIV RNA Quant 0.15
Na 32.00 PT 0.19 Anti-HBcIGM 0.92 Def aerobic cul ID 1.00
Pediatrics (47) T Bili 12.00 CBC 13.00 ANA 0.55 b-Hemolytic strep 8.40 C. trachomatis 0.24
AST 12.00 ESR 1.50 EBV VCA IgG 0.46 Prel aerobic cul ID 7.50 N. gonorrhoeae 0.23
ALT 12.00 Smear (Eos/PMN) 0.84 EBV VCA IgM 0.45 Urine cul 6.00
Glu 11.00 Send-out 0.18 Helicobacter pylori 0.43 Infl A DFA 4.80
CR 10.00 Retic 0.11 Anti-HCV 0.43 Infl B DFA 4.70
Internal medicine (135) T Bili 40.00 CBC 30.00 ANA 2.20 Urine cul 4.70 C. trachomatis 0.38
AST 39.00 ESR 5.90 Homocyst 1.30 Prel aerobic cul ID 2.30 N. gonorrhoeae 0.37
K 39.00 Retic 0.58 HBsAg 1.30 Antibiotic sens 0.94
Na 38.00 P Bld Smear 0.10 Anti-HCV 1.20 Def aerobic cul ID 0.65
CR 38.00 Send out 0.06 RA 1.10 Smear 0.60
Cardiology (54) AST 25.00 CBC 8.00 Homocyst 5.40 Urine cul 0.19 Factor V 0.02
CHOL 24.00 ESR 0.36 HS CRP 0.76 Blood cul 0.17 ACE 0.02
ALT 24.00 ANA 0.11
TRIG 24.00
OUTSIDE MARKETING AND EXPANSION

HDL 24.00
CPK 20.00
Endocrinology (60) GLU 18.00 CBC 5.70 VDRL 2.50 Urine cul 3.10 HPV 0.15
E2 17.00 ESR 0.25 HBs Ab 2.40 Antibiotic sens 0.26 C. trachomatis 0.09
T Bili 16.00 PTT 0.13 HIV Ab 2.30 N. gonorrhoeae 0.09
ALT 15.00 PT 0.13 Anti-HIV 2.20
AST 15.00 Rubella IgG 2.00
Gastroenterology (84) T Bili 48.00 CBC 36.00 Reticulin Ab 3.40 Urine cul 0.77 HCV viral load 0.62
ALT 32.00 ESR 5.00 Endomysial Ab 3.40 Clostridium difficile toxin 0.30 HH 0.32
Alb 31.00 Retic 0.67 Gliadin Ab 3.40 Ova/parasites 0.28 Hep C 0.27
AST 31.00 Send-out 0.13 Antiparietal Ab 3.00 Stool pathogens 0.27
Alk Phos 31.00 HBsAg 2.20 Stool culture 0.27
Nursing homes (57) K 34.00 CBC 28.00 HS CRP 0.16 Urine cul 6.10
Na 33.00 Hct 8.30 VDRL 0.13 Antibiotic sens 3.60
CO2 33.00 Hgb 1.10 Prot elect 0.11 Def aerobic cul ID 1.70
CR 33.00 ESR 1.10 HBs Ag 0.11 Clostridium difficile toxin 1.50
BUN 30.00 Retic 0.62 Anti-HIV 0.10 Urine ID 1.50
OB/GYN (68) Glu 10.00 CBC 16.00 VDRL 5.10 Urine cul 9.60 C. trachomatis 4.90
TSH 9.50 Sickle cell 0.11 Rubella IgG 5.00 Prel aerobic cul ID 4.90 N. gonorrhoeae 4.90
U/A 6.70 ESR 0.10 HBs Ab 4.70 Smear 3.20 HPV 1.20
b-HCG 6.30 PTT 0.06 HIV Ab 3.10 Strep B cul 3.00 Factor V 0.03
CHOL 4.00 PT 0.06 E3 1.70 Def aerobic cul ID 1.40
Urology (11) PSA 15.00 Semen 0.73 Alpha FP 0.07 Urine cul 18.00 C. trachomatis 0.24
U/A 1.30 CBC 0.33 HSV-2 IgG 0.06 Antibiotic sens 3.70 N. gonorrhoeae 0.22
Testosterone 1.20 Hgb 0.07 HSV-1 IgG 0.06 Def aerobic cul ID 1.50
CR 0.94 Hct 0.07 HIV Ab 0.06 Urine ID 1.40
BUN 0.88 ANA 0.03 Prel aerobic cul ID 0.15
a
E2, estradiol; U/A, urinalysis; ESR, erythrocyte sedimentation analysis; Ab, antibody; Ag, antigen; E3, estriol; Prel, preliminary; Def, definitive; HS, high sensitivity; HH, hemochromatosis gene mutation; ID, identifica-
tion; cul, culture.
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 753

Table 42.11 Send-out test volumes at William Beaumont Hospitala class to a lower job class (30). The basic principle is that
Year BRL (% of total) Non-BRL b
Annual total personnel should be assigned a job level, perform only du-
1998 16,316 (40%) 24,641 40,957 ties defined for that job level, and rarely be required to per-
1999 16,924 (34%) 32,777 49,701 form tasks assigned to individuals at lower job levels. This
2000 16,211 (32%) 34,660 50,871 mandate ensures that the greatest efficiency for perform-
2001 21,585 (38%) 34,781 56,366
ing high-complexity tasks is achieved.
2002 30,719 (46%) 35,837 66,556
The revenue cycle is the sequence of events that the
2003 40,893 (53%) 35,647 76,540
provider must monitor to maximize the amount and time-
2004 28,101 (45%) 32,241 62,342
liness of payment from payors. A few examples of areas
2005 40,919 (56%) 32,454 73,373
to monitor are given in Table 42.13 (3, 30). If payment is
a
denied for Part A or Part B reimbursement, a rejection re-
The distribution in percentage for BRL vs. non-BRL send-out specimens re-
mains approximately the same. The total volume exceeded 100,000 in 2011. port from the billing/receivable system will provide data
b
Non-BRL represents inpatient, emergency center, and registered outpatient on the reason for denial of payment. Recurrent rejection
send-out procedures. episodes for the same reason may require direct inquiry of
the third-party carrier to resolve the problem.
have excluded capital equipment and reagents related to Table 42.14 reports the gross and net revenue BRL
laboratory testing since our clinical laboratory represents achieved from 1994 to 2002. Improvements in the effi-
a hybrid operation consisting of 50% outreach and 50% ciency of the current revenue cycle process will improve
nonoutreach testing. These supply and capital equipment the level of reimbursement noted in the past. Reimburse-
costs are charged back to BRL based on annual volumes. ment will fluctuate based on contractual arrangements
Requisition counts from global sites (physician offices, with capitated and noncapitated payors. Table 42.15 lists
nursing homes, other hospitals) (Fig. 42.4) or more spe- the payor mix for BRL in 1996, 2000, 2002, and 2004. In
cific designations can be used to monitor unexpected fluc- general, there has been a decrease in Blue Cross and Select-
tuations. Potential new clients targeted by Goldmine (48) care and an increase in Medicare and a variety of other
or other methods, as well as careful review of causes for providers. The payor mix may be determined for each of
lost business, should be tracked. Client issues directly re- the nine physician categories listed in Tables 42.8 through
lated to lost business, if monitored, may lead to quality- 42.10. Using this information, the average reimbursement
improvement projects to prevent repetition. Supplies for the most commonly ordered tests can be calculated for
required for specimen collection are provided to clients each of the nine physician groups.
and should be returned to BRL. Monitoring the supplies Most financial reports calculate labor per procedure
provided to and returned from a client will determine if and supply costs per procedure, which have decreased for
any of these resources are being diverted for the client’s BRL from $0.86 and $1.72, respectively, in 1997 to $0.58
office laboratory use or being sent to another testing site. and $1.59 in 2000 (30). Table 42.16 reviews six years of fi-
Personnel costs can be evaluated by reviewing overtime nancial data for both clinical and anatomic pathology ser-
expenses in each of the major job categories, like bill- vices provided by BRL. In general, over that time period,
ing, courier services, client services, phlebotomy, and the number of requisitions and procedures and the net
processing. In general, the greater the number of open revenue per procedure increased each year. Therefore, the
positions in these categories, the greater the savings in goals of lowering unit costs and increasing revenue have
salary dollars and the more inefficient the operation be- been achieved (30).
comes. Personnel should be hired with adequate training
Table 42.13 Potential areas to monitor to track financial outcome
to perform the assigned tasks. Diversification of person- in an outreach program
nel based on the complexity level of tasks they perform
Topic area Specific monitor
would facilitate the introduction of tiers (layers) within
Test volume Requisition count
a single job class or reassigning duties from a higher job Lost-business report
New-business prospects
Supply costs Client supply utilization
Table 42.12 Review of send-out tests by telephone at William Personnel costs Overtime report
Beaumont Hospital Open positions
Canceled Diversification
Year (% of total) Approved Annual total Revenue cycle Financial reports
Rejection reports
2000 77 (27%) 208 285
Accounts receivable report
2001 62 (46%) 73 135 Capitation contracts report
2002 70 (49%) 74 144 Ratio of uncollected charges to payment received
754 OUTSIDE MARKETING AND EXPANSION

Table 42.14 Annual revenue at BRLa

Year Proceduresb Gross revenue Net revenue
1994 307,043 $7,499,834 $4,539,275
1995 571,014 $15,085,483 $6,174,779
1996 598,689 $20,112,825 $8,115,697
1997 805,463 $26,509,990 $10,934,010
1998 1,484,874 $35,018,448 $13,990,098
1999 1,977,514 $45,387,965 $18,455,008
2000 2,401,202 $66,985,910 $31,401,994
2001 2,731,837 $77,224,829 $32,705,163
2002 2,796,113 $93,499,882 $38,999,895
a
From 2003 to 2011 the gross and net revenues generally increased in proportion with the
total procedure count. At the specific procedure level there are exceptions based on Centers for
Medicare and Medicaid Services changes in billing policies.
b
Total procedures performed by BRL in anatomic and clinical pathology.

Joint Venture Hospital Laboratories negotiations for managed-care contracts or distribution of

laboratory procedures to be shared. In summary, regional
History of JVHL
laboratory networks provide specific geographic cover-
To achieve success, BRL must market and sell its labora- age without consolidation, downsizing, or restructuring
tory services. This objective can only be met if BRL ob- among the member laboratories.
tains provider status with the major insurance carriers JVHL was founded in 1992 by four southeast Michi-
and managed-care organizations. Since many of these gan hospital-affiliated laboratories (St. John Hospital,
contracts require one major regional laboratory provider, Providence Hospital, William Beaumont Hospital, and
BRL, as a solo outreach program with a limited coverage Oakwood Hospital) in response to increasing competi-
area, would be ruled out. To resolve this dilemma, BRL tion from the national commercial laboratories (MetPath,
joined a regional laboratory network of other hospital- SKBL, and National Health Labs, at that time) for outpa-
based laboratory outreach programs, Joint Venture Hos- tient and physician office (outreach) client testing services.
pital Laboratories (JVHL), to meet the wide geographic The organization acquired its first contract, 80,000 capitated
coverage required by third-party payors (6, 10, 30, 50). lives, in 1994, permitting member laboratories to develop
Regional laboratory networks are a recent phenomenon their competency in this market environment. In 1996,
and have experienced a dynamic evolution in both devel- the managed-care organization renewed its contract and
opment and longevity (1, 5, 6, 10, 16, 35, 38, 53). The pur- increased the total covered lives to 340,000. In December
pose of such a laboratory network may be to share testing 2002, JVHL consisted of 127 hospital-affiliated laboratories
or to obtain managed-care contracts, but rarely both (30). throughout Michigan, with 12,000 physician clients served
The participating laboratories are independently owned by 440 patient service centers and a combined fleet of more
and operated. A central network administrator coordinates than 150 courier vehicles (6, 10; http://www.jvhl.org). By
December 2011, JVHL had 23 managed-care contracts
representing 3.2 million covered lives (6, 10).
Table 42.15 Payor mix for four years at BRLa
In an interview, Jack Shaw, the executive director of JVHL
Percent of revenue since 1992, described three benefits the hospital network
Payor 1996 2000 2002 2004 delivered to its members and respective parent organiza-
Blue Cross/Blue Shield 30.4 19 28 28 tions (6). First, “it delivered additional revenue by creating
Medicare 17.3 33 28 25 an organization that competed successfully with commer-
Medicaid 1.5 1 1 1 cial lab companies.” Second, JVHL provided a method for
Selectcare 27.8 8 – – increasing laboratory test volumes that in turn reduced the
Health Alliance Plan – – 7 10.6 fixed costs associated with these laboratory services. The
Patient pay 4.0 5 4 4.7 third benefit is the wealth of information JVHL member
Blue Care Network – 4 10 7.3 hospitals have provided in aggregate throughout the years.
Otherb 19.0 30 22 24 A fourth benefit is the billing and collection service for
a
The payor mix has fluctuated with the local economy and changes in unem-
managed-care contracts that JVHL provided for its hospi-
ployment in the state of Michigan. tal members. For example, in 2000, BRL received $574,000
b
Comprises capitated and fee-for-service contracts. from JVHL for testing, representing 3.4% of JVHL’s total
 CHAPTER 42. OUTREACH IMPLEMENTATION REQUIREMENTS 755

Table 42.16 Annual statistics relating to procedures performed by BRL

Year Proceduresa Requisitions Procedures/requisition Net revenue/procedure
1997 1,226,906 279,466 4.39 $8.44
1998 1,600,643 339,028 4.72 $8.36
1999 2,020,721 410,748 4.92 $9.63
2000 2,401,202 535,330 4.49 $13.03
2001 2,731,837 608,066 4.49 $12.10
2002 2,796,113 637,066 4.39 $13.95
a
Total procedures performed by BRL in anatomic and clinical pathology.

revenue of $16,711,000. In 2011, BRL received $10,027,000
from JVHL, representing almost 1% of JVHL’s total revenue
of $103,430,000. Currently, JVHL is initiating an improved
and efficient program for connecting hospitals to multiple-
physician electronic medical records as described by Pan-
tanowitz et al. (42). In the future, these organizations will
implement telepathology techniques for anatomic pathol-
ogy services using static, dynamic, and/or whole slide im-
aging to enhance diagnostic assistance for frozen sections
and remote second opinion consultations (2, 30, 43). The
implementation of this technology will require overcom-
ing challenges in workflow integration, infrastructure for
the technology, global standardization for clinical practices,
and reimbursement issues before there will be wider accep-
tance in hospital outreach programs (2, 43).
Benefits of BRL’s Affiliation with JVHL
What impact has JVHL membership had on the growth of
BRL? To answer this question, we need to first compare the
overall business growth of BRL, including both procedures
and revenue from all payors, to that of BRL’s JVHL work
and related business (so-called pull-through volume).
Table 42.17 indicates that for 1997 through 2000, JVHL
and related work ranged from 63% to over 90% of BRL’s
total business. The total revenue for all BRL business com-
pared with the total revenue gained through JVHL (JVHL
only) highlights the contribution of JVHL and JVHL
pull-through test volume to BRL’s overall business growth.
It is important to note that in 2000, BRL’s procedures num-
bered 268,000, which represented approximately 10.6% of
the total JVHL procedures for that year (Table 42.17). For
BRL, JVHL has been a major positive factor in its success-
ful business growth. Other member laboratories will have
to evaluate their own situations to determine what finan-
cial benefit JVHL membership has achieved.
In conclusion, laboratory networks appear to provide
an advantage in increasing pull-through in laboratory
volume due to the network’s extensive coverage of basic
managed-care organizations, thereby providing one-stop
shopping for laboratory services.
Summary
This case study has shown how one hospital laboratory
outreach program (BRL) has built success through affili-
ation with a laboratory network, in this case JVHL. The
key factor to success in this network affiliation is the abil-
ity of the laboratory network to win provider status for its
members with the major managed-care organizations. The
implementation of the outreach program has led to many
benefits, including using spare capacity and thus achiev-
ing economies of scale, generating a new revenue stream,
lowering unit costs, enhancing the test menu, and creat-
ing a new avenue for customer (physician) bonding. The

Table 42.17 Comparison of procedures and revenue for BRL and JVHL business
Procedures Gross revenue
Year BRL JVHL Total BRLa JVHL and relatedb JVHL onlyc
1994 NAd NA
1995 NA 405,000
1996 88,000 412,000
1997 78,000 414,000 $26,265,000 $16,553,000 $1,754,000
1998 113,000 602,000 $35,098,000 $28,945,000 $2,157,000
1999 171,000 987,000 $45,119,000 $38,313,000 $1,873,000
2000 268,000 2,527,000 $66,986,000 $60,636,000 $9,174,000
a
Refers to all BRL business and all payors (Medicare, Blue Cross, JVHL, etc.).
b
Refers to the total revenue for clients with JVHL activity and includes JVHL-only gross revenue column.
c
Refers to JVHL capitated contracts (payments) only and excludes pull-through business.
d
NA, not applicable.
756 OUTSIDE MARKETING AND EXPANSION
implementation of the outreach program required care-
ful planning. Its success is dependent on efficient support
from financial analysis, information services, hospital
administration, and the departments of clinical and ana-
tomic pathology. Improvements in operating efficiency
have been implemented: computer-assisted courier rout-
ing, online test directory, client interaction tracking and
report system, and software to identify prospective new
clients (26, 27). Remember, the goal is to dazzle all the cli-
ents most of the time with excellent service.
KEY POINTS
■ An outreach program will expand the laboratory’s core
business—providing laboratory services.
■ A champion or intrapreneur is required to facilitate
implementation of a new outreach program.
■ Hospital administration is aligned with inpatient issues.
■ The aid of a consultant may be of value in developing
the outreach program.
■ Simplify the bureaucracy surrounding the approval
process for new equipment and personnel for outreach
program needs.
■ Sales and marketing staff require training to design
sales strategies specific for client categories.
■ Computer-assisted courier routing is more efficient
than manual routing.
■ Outreach volume growth will increase the test menu in
each laboratory section.
■ Develop a system to project future volume from pro-
spective new clients to aid in planning for personnel
and laboratory equipment.
■ Reduce the number of low-reimbursement, high-cost
send-out test requests.
■ Monitor the outreach program’s financial outcome at
least monthly, including test volume, supply costs, per-
sonnel costs, and revenue-cycle issues.
■ Affiliation with a joint venture with other hospital-
based outreach laboratories will increase success in ob-
taining contracts with managed-care organizations.
GLOSSARY
Active inertia Insensate repetition of the same behavior pattern
without regard to the magnitude of the paradigm shift.
Clad A coin consisting of an outer layer of one metal bonded to
a core of a different metal.
Entrepreneur A person who organizes, manages, and assumes
responsibility for a business or other enterprise.
Fee-for-service The provider of services is paid according to the
service performed, after the service is delivered.
Intrapreneur A person within a corporation who takes direct
responsibility for turning an idea into a profitable finished prod-
uct through assertive risk taking and innovation.
Managed-care organizations A means of providing healthcare
services within a network of healthcare providers.
Medicaid Federal and state matching entitlement program es-
tablished under Title XVIII of the Social Security Act intended to
provide medical assistance to eligible needy individuals.
Medicare Federal health insurance for the aged established un-
der Title XIX of the Social Security Act.
Myth Inaccurate information perceived as truth by major ad-
ministrative decision makers.
Organization chart Defines the formal lines of reporting and
communication.
Outreach program Marketing laboratory services to physician
offices, nursing homes, and other hospitals.
Payor mix The preparation of revenue realized from different
types of payors.
Revenue Actual or expected cash inflow due to the outreach
program’s major business.
Revenue cycle Sequence of events that the provider must moni-
tor to maximize the amount and timeliness of payment from
payors.
Send-out test Procedure not performed in any of the hospital’s
clinical laboratories that, therefore, must be sent to another labo-
ratory to be assayed.
Up-selling The practice of informing clients of a new or im-
proved laboratory test that may have improved sensitivity and
specificity over the routine screening assay. These new or im-
proved assays may be applicable to patients with a well-defined
subset of a certain disease or for patients who have failed the
usual therapeutic strategies.
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Introduction
43
The Clinical Laboratory as a Business • The Phases of
Finance and Decision Making
the Growth Curve
Decision Making in Laboratory Outreach
in Outreach
Management
Types of Costs Michael G. Bissell and Harry E. Pukay-Martin
Direct and Indirect Costs • Fixed, Variable, and
Mixed Costs • Unit Costs • Additional Cost Concepts
for Decision Making • Characteristics of Laboratory
Costs • Microcosting
Levels of Decision Making in Outreach OBJECTIVES
Operations To provide background on some basic financial concepts related to operational
Menu: To Test or Not To Test • Operation: To Perform and strategic decision making in laboratory outreach and the logic behind them
In-House or Send Out • Capital: Whether or Not
To Acquire New Equipment • Financing Capital: To To provide formulas and worked examples of calculations in the appendixes
Lease or Buy Equipment
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
I can make more generals, but horses cost money.
Abraham Lincoln

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch43
Introduction
The Clinical Laboratory as a Business
As a business, the clinical laboratory is unique and complex, sharing the eco-
nomic characteristics of both a service business and a manufacturing industry
(1–6). It is a service industry that is nonetheless responsible for a product: clinical
information. The production of laboratory data requires a heavy investment in
assets such as scientific instruments, advanced facilities, and trained personnel.
This heavy endowment of assets is more typical of manufacturing firms. The lab-
oratory’s service is characterized by an extremely short service turnaround time
compared to many other service industries. Clinical laboratory operations (par-
ticularly those that are “24/7”) require a more constant and demanding manage-
ment of human and financial resources than does the average service business.
It is often overlooked that laboratory work can have a seasonal component,
as, for example, when setting up assays for influenza. When found to be pres-
ent, seasonality should be an important planning factor, especially in efforts to
deploy the usually limited human and financial resources.
Constant technological innovation characterizes the clinical laboratory to
a greater extent than in many other service industries. The frequent changes
and improvements in techniques and methods of producing laboratory results
create much uncertainty in the acquisition of equipment and material, which
may have a relatively fast rate of obsolescence.
Some have compared the clinical laboratory business to a bakery or a
photo-finishing firm, in that both product and rapid turnaround time are ba-
sic components of the service.

759
760 OUTSIDE MARKETING AND EXPANSION
The Phases of the Growth Curve
A product, technology, firm, or industry is said to evolve
through phases of development during which aspects of
its economics may change. The initial or startup phase is a
time when the new venture is usually not profitable, and its
rate of growth is sluggish at first. This is the phase in which
many laboratory or product failures occur. Financial plan-
ning for this phase is inherently difficult and challenging
because of the number of uncertainties involved.
The growth phase is the phase of fastest expansion and
the greatest operational challenge, when a laboratory ven-
ture breaks even or a product begins to pay off. The chance
of its long-term survival is considered much improved if it
has successfully weathered this phase. Financial planning
during this phase is exciting because of the unusual growth
rate, though some residual uncertainty remains.
During the mature phase, typically operational pains
are no longer as great and the rate of growth has slowed.
When a laboratory or product reaches this stage, its pros-
pects for survival in the market are favorable. Financial
planning becomes routine and continuous.
The declining phase is the phase of negative growth,
which presents a special challenge. At the least, it should be
anticipated so that it will trigger a search for a new product
or technology. The clinical laboratory industry as a whole
has often been portrayed as being in the mature phase
currently, though foreseeable changes in technology may
modify this assessment one way or the other.
Given all of the clinical laboratory’s special character-
istics as a business, and given the fundamental dynamics
of change in the contemporary U.S. healthcare industry,
the ongoing challenge is to provide lower prices and easy
access to services while reducing per capita costs and
maintaining high standards of quality. As more decisions
about the cost and volume of health services to be deliv-
ered move from the physician and hospital to the pur-
chasers of care, both hospital and physician office clients
have focused energy on accounting for and managing
costs. The economic mission of the hospital laboratory
has shifted from revenue generation per se to managing
the cost side of the equation. Hospital laboratories have
increasingly replaced labor with technology; creatively
dealt with productivity issues; and merged, consolidated,
regionalized, and formed joint ventures to achieve econ-
omies of scale.
Decision Making in Laboratory
Outreach Management
Outreach potentially represents an alternative approach to
ensure the survival of the hospital clinical laboratory in the
midst of unparalleled industry change. The transition to
outreach, however, represents a true change of culture, in
that price competition, external service demands, and the
quest for market share vie with and may supplant certain of
the internal preoccupations of traditional hospital-focused
laboratory management. More of the decision making has
a distinctly financial character, and a deeper understand-
ing of a variety of cost concepts and cost behaviors is the
ultimate basis for it.
Types of Costs
Direct and Indirect Costs
Direct costs are all costs that can be specifically linked to
a test. Examples of direct costs include technical, supervi-
sory, and clerical wages; overtime; on-call payments; and
chemicals and supplies related to the test. Service costs are
direct costs that are incurred as tests are performed. They
represent variable costs plus those fixed costs that are most
directly traceable to the testing. The service cost concept is
useful in budgeting and analyzing cash flow.
Indirect costs (or overhead) are all costs not directly
traceable to the test but included in the total laboratory
expenses. Examples of indirect costs include depreciation,
building and equipment maintenance, insurance, utilities,
housekeeping and purchasing and billing services, as well
as sales, marketing, and development costs. Many indi-
rect costs are period costs, i.e., costs that represent fixed
outlays for the whole laboratory or the whole hospital per
unit time for outreach operations that are integral with
hospital laboratories. The details of the allocation for-
mulas by which hospital administration assigns indirect
costs from the general hospital operation to the outreach
laboratory operation can be the deciding factor in under-
standing the true profitability of lab outreach. These allo-
cation rules must be explicit, well-justified, and mutually
agreed upon at the outset for laboratory outreach to have
any hope of success.
Fixed, Variable, and Mixed Costs
Fixed costs remain unchanged for a given period of time,
despite fluctuations in test volume. Examples of fixed costs
include supervisory and custodial wages and benefits, re-
quired regardless of volume, as well as depreciation of the
building, space, and equipment. Variable costs change in
more or less direct proportion to test volume. Examples of
variable costs include technologist wages and benefits, re-
agents, glassware, disposable supplies, and forms. It is ap-
propriate to regard some costs as mixed costs, since costs
are often difficult to classify definitively as either fixed or
variable. Clerical staff can be reduced upon a decrease in
clinical activity, but a certain number of such positions are
required regardless of volume. Fixed costs hold constant
only over a relevant range of activity. If volume increases or
decreases dramatically, as under catastrophic conditions,
all fixed costs become variable to some extent.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
Unit Costs
Unit costs are the costs per unit of production or unit of
service provided, accountable as fixed and variable costs
per unit. Variable cost per unit generally remains the same
regardless of volume. As volume increases, the total vari-
able cost increases by the same percentage, yet on a per-
unit basis the variable cost remains unchanged. Fixed
cost per unit is generally reduced as the total fixed cost is
spread over more tests. Total fixed costs remain the same
regardless of volume increases, whereas on a per-unit basis
they decline. Economy of scale means that the higher the
volume of tests, the lower the overall unit cost.
It is important to be able to differentiate the varieties of
unit costs that occur in clinical laboratory operations. Cost
per test (or cost per result) is typically the total of the di-
rect (both fixed and variable) costs, as well as allocations of
certain of the “more direct” indirect costs associated with
the production of a single individual analyte test result:
reagents, disposable supplies, equipment, and labor. Cost
per reportable result includes the same costs not only for
the individual analyte test result itself but also for all the
quality control, calibrator, waste, and repeat results neces-
sary to be able to report that result. Cost per billable result
accounts for the costs of all the reportable results that are
included in a unit of service, such as a test panel or battery,
that is made up of multiple individual analyte results but
billed as a group, i.e., counts a 12-test panel as 1 result unit,
not 12. Cost per relative value unit (RVU) applies to certain
results, like surgical pathology reports, that have a labor
component involving significant professional time spent
on cognitive interpretative tasks. For such results, various
systems of RVUs have been devised and implemented by
professional organizations to account for these activities in
order to bill for them. The laboratory costs associated with
these billables can be accounted as cost per RVU.
Additional Cost Concepts for Decision Making
Costs can be accounted in a variety of ways, and the par-
ticular cost concepts used in a given situation may dif-
fer depending on the nature of the decision to be made,
i.e., planning and budgeting, reporting, or monitoring
and feedback. Each cost concept thus has a task-specific
usefulness.
Out-of-pocket costs represent cash outlays made at or
close to the time of a given activity. Timing of cash flows
in capital transactions may have out-of-pocket costs as im-
portant considerations in decision making. In contrast to
out-of-pocket costs, book costs reflect allocations of past
outlays to the current period and have more limited use-
fulness in budgeting and capital decision making.
Historical costs are actual cash payments accounted for
and recorded at the time of outlay. They are used exten-
sively in external reporting and represent what are also
761
called sunk costs, since they are not changeable by any
management decision and have importance mainly in
forecasting trends. Future costs, both fixed and variable,
direct and indirect, on the other hand, have the potential
to be changed by current decisions and thus represent the
most appropriate focus for planning efforts, like budget
and capital-acquisition decisions.
Differential or incremental costs represent the change
in future fixed and/or variable costs resulting from specific
courses of action. A special case is the unit incremental or
marginal cost, which is the cost of adding one additional
unit of production. Total costs represent the sum of these
incremental costs plus those costs that do not change due
to the course of action being considered.
Opportunity costs represent benefit that may be missed
as a result of rejecting a more profitable alternative use
of resources (materials, labor, facilities, or capital) when
making a decision. They represent lost revenue, not expen-
diture, and they are variable costs whose amounts depend
on the alternatives under consideration. Imputed costs are
all costs (including opportunity costs) that do not involve
outlay of cash. An example might be depreciation of capi-
tal equipment. For capital-expenditure decisions and in
other situations in which investment alternatives are being
considered, opportunity or imputed costs become useful
concepts. They are not explicitly listed in accounting rec-
ords but must be derived.
Controllable costs are fixed or variable costs that can
be influenced by a specific individual’s decision making.
Noncontrollable costs are outside the scope of a specific
individual’s control. The concepts of controllable and
noncontrollable costs are useful in evaluating individu-
als’ performance in terms of fiscal accountability. Thus,
the statement that an executive has “P and L” (profit and
loss) responsibility for any portion of the operation im-
plies that all of its costs are controllable, either directly or
indirectly, by that individual. Table 43.1 compares vari-
ous types of costs.
Characteristics of Laboratory Costs
Fixed costs constitute a large proportion of overall cost in
a typical clinical laboratory. This fact has implications for
certain key decisions, such as those involving analyses of
cost, volume, and margin interrelationships. It also means
that in a typical hospital laboratory, the range of alterna-
tives may be limited by the fact that a change in volume
does not necessarily result in a directly corresponding
change in costs. The existence of this phenomenon may, on
the other hand, create opportunity for outreach in terms of
the potential for utilizing the de facto marginal excess pro-
duction capacity these necessary fixed costs may represent
when viewed from the outreach perspective. An example
might be expanding volume on off shifts in a three-shift
operation to “fill the factory” 24 hours per day.
762 OUTSIDE MARKETING AND EXPANSION

Table 43.1 Comparisons of different types of costs

Dimension Cost Characteristics Examples Related concepts
Operational traceability Direct Traceable to production of indi- Reagents, supplies, technical
vidual tests wages
Indirect Not directly traceable to produc- Utilities, capital, maintenance, Overhead
tion of individual tests marketing and sales expenses

Volume behavior (may Fixed Total remains unchanged regard- Supervisory wages, rent
be direct, indirect, or a less of test volume
combination) Variable Total changes with test volume Reagents, disposable supplies
Mixed Hard to classify with regard to Clerical wages, IT costs
volume behavior

Denominator (may be Incremental Accounted per unit of Cost per test Marginal cost, unit cost
direct, indirect, or a production per: result, billable, RVU
combination) Period Accounted per unit of time Annual cost

Cash flow impact (may Out-of pocket Involves outlays of cash during Supplies, reagents, salaries,
be direct, indirect, or a production utilities
combination) Imputed Incurred in ways other than Capital payback, depreciation, Historical costs, sunk
direct cash outlays inflation costs, book costs

Accountability (may Controllable Influenced by individual lab Reagents, supplies, overtime Opportunity costs
be direct, indirect, or a manager’s decisions Benefits, utilities
combination) Noncontrollable Not usually influenced by indi-
vidual manager’s decisions

Microcosting to available hours by taking into account the hours con-

It is essential that an outreach laboratory account explicitly
for all of its direct and indirect costs of production. Ideally,
each test on its menu should be microcosted to account for
each and every category of expense involved in the pro-
duction of each unit of service at the test volume at which
the laboratory is operating. Microcosting can be either
bottom-up (built up from known unit-cost inputs; also
known as job order costing) or top-down (unit costs esti-
mated from aggregate expenses divided by units of service;
also known as process costing). Either way, the availability
or nonavailability of cost data by areas or tests may restrict
the analysis of cost behavior. Microcosting using the bot-
tom up or job order costing methodology involves four
important aspects: labor costing, material costing, other
costing (overhead and equipment costs), and the detailed
analysis of those costs over the relevant range of volume
produced in various production runs.
For labor costing, it is important to determine the real
labor cost per hour. Not only should the nominal hourly
rate paid be taken into account, but so should the fringe
benefit cost rate per hour. Usually this is stated as a per-
centage of the hourly labor cost; e.g., 28.8% of labor costs
added to the nominal hourly rate. This hourly rate must
be further adjusted by actual available hours versus po-
tential hours per year (potential hours per year is usu-
ally stated as 2,080 hours = 52 weeks times 40 hours per
week). In other words, potential hours must be adjusted
sumed in holidays, vacations, and sick leave. Depending
on the laboratory, this can drive down the available hours
by 10 to 23%. The consequence is to drive up the hourly
rate proportionately. Finally, the hourly rate must be ad-
justed by the production hours (time spent on producing
tests or other outputs) versus available hours. Available
hours can be reduced by the two 15-minute breaks pro-
vided each day, meeting times to discuss objectives, and
other important matters such as continuing education
provided on work time. The model in Appendix 43.1
provides a range of production hours from 60% to 100%
depending on the judgment of the supervisor after taking
into account the variables above. The production rate is
the real labor cost per hour.
In terms of material costing, it is important to review
the production process in great detail to ensure that all
the supplies are taken into account. Their unit costs can
be determined by reviewing the suppliers’ invoices. It is
important to remember to translate the units purchased
(package, box, etc.) into the units consumed in produc-
tion and adjust the unit cost appropriately. In addition, it is
important to divide those costs into the fixed portions over
the batch and the variable portions over that same batch.
For other costing, overhead and equipment costs (main-
tenance and depreciation) must be taken into account
to move to full costing. This may be accomplished using
many different methods. In the methodology illustrated in
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
Appendix 43.1, this is done by adding a percentage of the
direct costs for both overhead and equipment costs.
In terms of the detailed analysis of costs over a relevant
range of production volume, it is important to distinguish
cost components as variable or fixed. The model presented
here starts with a batch size of one and ranges up to a typi-
cal average batch size and beyond. This method allows
the lab to determine cost points and pricing points given
a particular customer’s needs and demands. If an average
price at the expected volume is used and an order for a
small set of samples is received, a net loss may result. How-
ever, given cost and pricing points, negotiations with the
customer may result in an agreement to send in a larger
volume at a time in exchange for substantially reduced
pricing. This pricing methodology is especially important
in price negotiations on testing for research clients.
Levels of Decision Making in
Outreach Operations
Menu: To Test or Not To Test
Ideally, of course, a hospital clinical laboratory’s decision
about whether or not to offer a given test on its test menu
should be driven by objective evidence of clinical need, by
perceived patient benefit, and ultimately, by measures of
patient outcome associated with the test’s use. In this con-
text, it is largely a medical-technical decision that depends
upon a consideration of the test’s potential “contribution
to mission” for the institution and is the responsibility of
the laboratory director. Within the hospital, typically the
laboratory director is also responsible for participating in
the management of laboratory test utilization, especially
important under managed-care arrangements and in-
creasingly necessary for federal compliance. If offering a
given test will result in increased levels of inappropriate
utilization (e.g., if its published diagnostic performance
is such that a great many false positives or false negatives
leading to unnecessary workups are associated with its
use), then the laboratory director may face the challenge
of educating the medical staff about this by opposing the
test’s inclusion in the laboratory’s menu.
In outreach, while most of these underlying ethical and
regulatory considerations are the same, the economic as-
pects of this decision making can be somewhat different.
It will be useful to compare and contrast the situations in
each setting with respect to the important questions asso-
ciated with test-menu decisions.
First, is the test reimbursed? The decision about in-
cluding a test in the laboratory’s menu will have this as a
fundamental consideration, whether the test is offered for
hospital inpatients, outpatients, or outreach clients (non-
patients). But whether and how any given test is paid for,
and the circumstances under which it may make sense to
763
include an under- or unreimbursed test in the menu, will
definitely differ. The subject of clinical laboratory reim-
bursement is an extremely complex one, requiring knowl-
edge of the detailed history of federal and state healthcare
reimbursement programs, third-party payors, and man-
aged care.
In dealing with this issue, first of all, it is essential to
know the difference between reimbursements and charges.
In the context of outpatient fee-for-service within the
hospital, the charge for a given test is the amount associ-
ated with it in the institution’s charge description master
(CDM). It represents the amount the hospital theoretically
bills all fee-for-service payors for the test. It is important
to realize that this is a purely nominal figure, however, and
the “revenue stream” that results from such fee-for-service
billings, called gross revenue or gross billed revenue, does
not actually exist as such in today’s world, except in certain
increasingly unusual circumstances. Note, however, that
gross revenue is typically the only laboratory revenue data
available to laboratory management on in-hospital work.
What the hospital actually gets paid is either directly
determined by federal or state government policy (in the
case of Medicare/Medicaid) or strongly influenced by it
(in the case of other third-party payors). The test’s rate
of reimbursement by these payors is driven by its billing
code, e.g., the Current Procedural Terminology (CPT)
code assigned by the American Medical Association and
updated annually. To know whether or not a given test is
reimbursed, therefore, the first question to be answered
is, Does it have a CPT code assigned at this time? (There
is usually a very long time lag between application for
and assignment of new CPT codes.) If the answer is no,
financing the test through the usual channels will be dif-
ficult. New tests and laboratory-developed (or “home-
brew”) tests that are truly novel analytes (as opposed to
merely novel methods for accepted analytes) are often
assigned to a category of “research use only” or “not for
in vitro diagnostic use” until they have been approved for
diagnostic use by the U.S. Food and Drug Administration
under its 510(k) or premarket approval processes. Medi-
care/Medicaid does not reimburse this test category until
specific CPT codes are assigned. Attempting to bill under
a general “miscellaneous”-type billing code is virtually
guaranteed to be unsuccessful.
In contrast to this, in fee-for-service situations the
outreach laboratory will bill not based on a CDM but
rather from a fee schedule. The price at which the test
is sold to a client will usually represent a value that is
negotiated to include a discount off of the fee schedule
list price. These negotiations may often include loss lead-
ers, i.e., tests sold to the client at or below cost to meet
an overall service need or provide “one-stop shopping.”
Note, however, that predatory pricing, involving discount
of the full fee schedule below the lab’s cost, usually done
764 OUTSIDE MARKETING AND EXPANSION
for the purpose of excluding competition, is unethical
and may be illegal as well. Clearly, such pricing cannot
be sustained over the long run, and it is only the larger
laboratories, i.e., the “deeper pockets,” that can hold out
long enough to drive smaller competitors out of specific
markets. In general, the outreach laboratory will be bill-
ing other providers (hospitals or physician offices) on an
account-bill or client-bill arrangement or billing patients
directly on a patient-bill arrangement, but not billing
state or federal agencies directly. Under these circum-
stances, questions of CPT coding and/or Food and Drug
Administration approval need not drive decision mak-
ing to the same degree, as long as Clinical Laboratory
Improvement Amendments (CLIA) and any other ap-
plicable regulatory quality requirements are met. In fact,
clinical considerations may drive utilization of tests that
are under- or unreimbursed within the hospital so that it
may have to buy them from a reference lab or outreach
program under an account-bill arrangement.
The amount that either the hospital or the outreach
program actually gets paid for a given test (called the net
revenue or net collected revenue) is equal to the billed
amount minus allowances and bad debt. Allowances in-
clude cost-based reimbursements, reductions in payments
based on discounted charges, and charity care. Bad debt is
other unpaid and uncollected billings. The reimbursement
rate depends upon the type of financing in place for the
patient on whom the test was ordered (known in the ag-
gregate as the provider’s payor mix).
If the service is being provided under a managed-care
arrangement governed by capitation, then there is no bill-
ing at all for the test; its cost is simply reimbursed as part
of the managed-care organization’s per capita payments to
the hospital or laboratory for its members’ care (e.g., a pre-
negotiated per member per month, or PMPM, rate). Any
positive margin earned by the hospital or laboratory un-
der these circumstances is strictly a function of the degree
to which it can minimize both unit cost and utilization of
testing. Negotiating managed-care contracts under capita-
tion is a very specialized subject and is beyond the scope
of this chapter.
As previously mentioned, pricing of outreach testing
must ultimately be based on the unit cost plus a markup
representing profit margin. It must also, of course, re-
flect what the market will bear, i.e., it must be competi-
tive with the pricing of the other lab providers, including
national reference laboratories, operating in the area.
Therefore, it can be crucial that the costing of the test
reflect a true sense of the marginal or incremental net
cost of its production, given the hospital’s sunk costs and
excess capacity. Table 43.2 presents the levels of financial
decision making involved when deciding whether to of-
fer a test. These concepts are illustrated in some of the
material below.
Table 43.2 Levels of financial decision making in lab outreach
Question Answer Resulting action
Offer test? Yes Proceed to next question
No Monitor potential need
Perform test in Yes Proceed to next question
house? No Make send-out arrangements
Test requires new Yes Proceed to next question
equipment? No Validate, set up assay
Purchase new Yes/No Analyze alternatives
equipment? financially
Operation: To Perform In-House or Send Out
Given a decision to offer a test as part of the laboratory’s
menu, the next decision is whether to set up the new test
in-house or to send it out to a reference lab. In addition to
the logistical considerations of test turnaround time and
availability, an essential financial consideration in this de-
cision is the concept of the laboratory’s net contribution
margin (for in-hospital work) or net profit (for true out-
reach) for a given test. This is defined as the total net rev-
enue generated by the test minus the total unit cost (both
direct and laboratory-related indirect) for which the labo-
ratory is responsible.
A sample problem adapted from one presented in ref-
erence 5 should make this clear, while also showing how
some of the different cost-related concepts above are used
in a typical make-or-buy decision: Suppose a laboratory
offers a test on its menu and charges $10.00 per billable
result for it. Suppose further that a calculated, fully loaded
total cost per billable for this test is $13.00, which includes
all test-specific direct costs at $5.00, all laboratory-specific
indirect costs at $4.25, and all hospital-wide allocated indi-
rect costs at $3.75. Calculating the test’s profit or contribu-
tion then gives $10.00 − $13.00 = −$3.00, a loss on each
test performed. If the laboratory performs 1,000 of these
tests annually, the extended loss becomes $3,000 per year.
If the test, offered at $10.00 per billable, were purchased by
the laboratory as a send-out from a commercial laboratory
at $8.00 per billable instead of being produced in-house,
the loss would apparently turn to a profit (handling fee) of
$2.00 per billable. Is this what should be done?
The reasoning here needs to be scrutinized by concen-
trating on exactly which costs of performing this test are
relevant in this decision-making process. The test-specific
direct costs of $5.00 per billable include $3.52 for direct
labor, $0.48 for direct reagents and disposables, and $1.00
of other direct costs. These are out-of-pocket cost savings
that will be realized by no longer performing the test on
site. The labor cost may be considered fixed in this case,
because the technologists are likely to remain on staff. For
purposes of this example, assume labor to be a truly vari-
able cost savings. The appropriate analysis, then, would be
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
as shown in Table 43.3. The $8.00 purchase price, if the test
is sent out, results in a net increase in out-of-pocket cost of
$3.00 per billable above the savings in direct costs of $5.00.
Since the indirect costs incurred by the laboratory remain
in effect, regardless of this decision, arguably they should
not be considered relevant. Therefore, if the test is contin-
ued in-house, its net profit is greater. If the labor component
is treated as a fixed cost (the technologist would remain on
staff), then labor, like the indirect costs, would no longer
be relevant, and the argument for continuing to do this test
in-house would become even stronger. The methodology
underlying this discussion is called break-even analysis. If
the revenue and cost associated with a procedure like this
one (or an instrument or a methodology) are both plotted
on a graph of test volume (x) versus dollars (y), they will
cross at a point representing a net contribution of zero, i.e.,
the point at which revenue equals cost, called the crossover
or break-even point.
Assume for the moment that a hypothetical labora-
tory is currently operating at the break-even point deter-
mined by the calculations above. What about next year?
What happens if volume, cost, and/or revenue increases
or decreases? The method most often used for explora-
tion of such what-if scenarios is sensitivity analysis. This
technique uses data provided from the break-even analysis
and provides potential insight into the effects of changes
in costs, revenues, volumes, and/or net income. Basically,
the calculations are repeated with substitution of the hy-
pothetical change in one variable at a time. For example,
consider whether the above decision would be different
with any of the following changes in the conditions. Sup-
pose there were a 20% increase in test volume, or a price
increase that produces a 20% increase in revenue, assum-
ing no bad debts or allowances, or a 20% reduction in vari-
able labor expense for the same test volume. Virtually any
future situation may be simulated with the use of current
data. Although sensitivity analysis has the virtue of rela-
tive simplicity, it should be applied with some caution. It
assumes that all costs are either variable or fixed (i.e., no
mixed costs), that variable costs are a linear function of
(directly proportional to) volume, and that a relevant range
exists for all levels of activity. Though these simplifications
make the analysis possible, they may influence interpreta-
tion of analytical results, such that an appropriate “taking
it with a grain of salt” is always in order.
Table 43.3 Factors in the decision to make or buy a test
Make (continue Buy (from
Factor in-house testing) reference lab)
Charge $10.00 $10.00
Direct costs $5.00 $8.00
Indirect costs Not relevant Not relevant
Contribution $5.00 $2.00
765
Note that federal tax and regulatory considerations, the
so-called shell laboratory provisions, dictate an effective
upper limit for the portion of a laboratory’s volume that can
be sent out to another laboratory. Basically, a laboratory that
is sending out more than 30% of its work to be performed
elsewhere is regarded as not actually being in the laboratory
business under federal fraud and abuse regulations.
Capital: Whether or Not To Acquire New Equipment
Given a decision to “make,” i.e., produce test results in-
house, the next decisions involve the use or acquisition of
any capital equipment that may be involved. This aspect
of planning, capital budgeting, may be interdependent in
the outreach laboratory with both operational budgeting
and strategic planning. It may include allocations for ma-
jor investments in buildings as well as equipment. In ac-
counting terms, a capital item is commonly defined as a
fixed asset that is expected to provide service (i.e., have
a useful life) of more than one year. Within this broad
definition, some important distinctions among concepts
should be kept in mind.
Repair and maintenance of capital items, for exam-
ple, should be differentiated from capital improvements.
Maintenance and repair provide ongoing upkeep of the in-
vestment and are most appropriately treated as operating
expenses. Since capital improvements are just that, that is,
they make the items better than when purchased, they are
most appropriately treated as capital expenses. Replacing
an entire fixed asset should be regarded as a capital expen-
diture, whereas replacing a component part is best treated
as an operating expense.
Leasing arrangements differ in whether they define a
given expense as a capital or an operating line item. Rela-
tively inexpensive new items with useful lives of greater
than one year are often initially classified as capital, but
their replacements are treated as operating expenses from
then on (e.g., certain furniture items and items costing
$500 or less).
The budgeting period is very important for capital bud-
geting. In outreach work, review of capital needs should
occur at least annually. Long-term planning, while always
desirable, may often not be possible in today’s dynamic
marketplace. The longer the time horizon used, the more
likely are the predictions involved to be inaccurate, so this
process must always be approached flexibly.
Capital budgets typically contain separate categories for
minor and major items. Minor capital consists of relatively
low-cost items, perhaps under $2,500, requiring less in the
way of analysis. This may just be an outline of the costs,
along with an indication of whether the item is a replace-
ment, new item, renovation, improvement, or regulatory
requirement, along with a brief budgetary justification.
These items may just be prioritized numerically or may
be classified into the following categories: (i) needed to
766 OUTSIDE MARKETING AND EXPANSION
continue present service, (ii) needed to support recent vol-
ume growth, (iii) providing opportunity for cost savings or
profit at the existing volume, (iv) providing opportunity for
improvement in quality or service levels, and (v) providing
opportunity to implement new programs or initiatives.
Major capital items, e.g., items over $2,500 (or a similar
figure), may be split up into annual purchase requests over
a longer (three- to five-year) period and generally require
more in the way of analysis. Supporting documentation
needs to be more detailed and specific, often involving
statements or descriptions of (i) general purpose, (ii) im-
portance, (iii) projected client demand and utilization,
(iv) availability of alternatives, (v) estimated useful life,
(vi) estimated total acquisition cost, (vii) estimated as-
sociated yearly cash outflows, and (viii) estimated yearly
cash inflows or savings.
It may be difficult to make these last two projections,
but such data on expected cash flows are crucial to the ana-
lytic techniques used in evaluating capital alternatives. In
performing these projections, consider only incremental
amounts. Be concerned only with marginal or additional
cash outflows and inflows that will occur as the direct
result of the new project above and beyond the current
baseline. Count only cash inflows and outflows, bearing in
mind that accounting statements of revenue and expense
that are maintained on other than a cash basis are likely to
yield inaccurate estimates of the actual cash either gener-
ated or spent.
In the clinical laboratory business, capital items are vi-
tal to financial capability and future viability. An attempt
must therefore be made to ensure a reasonable return on
the investment represented by each capital item. Return-
on-investment (ROI) calculations (discussed in some de-
tail in Appendix 43.2) need to start with an estimation of
this return percentage, referred to as the required rate of
return (or discount rate). In the example adapted from ref-
erence 4 and given in the appendix, a 10% rate is used. The
actual required rate of return on a given project may be
based on any of a number of factors that may include (i)
the cost of borrowing new funds (i.e., the interest rate at
which the laboratory can borrow money); (ii) the return
realized on investments of laboratory profits in short-term
liquid investment instruments such as money markets,
government securities, or certificates of deposit; (iii) in a
for-profit environment, the return on investment expected
by stockholders; and/or (iv) a “fudge factor” accounting
for possible misestimates in the calculation or the relative
riskiness of the project.
Financing Capital: To Lease or Buy Equipment
Given a decision to acquire a new piece of equipment,
the next decisions revolve around determining the least
costly financing alternative. The lease-or-buy decision is
an application of present-value analysis, as described in
Appendix 43.3. Following generally accepted accounting
principles (GAAPs), there are two types of leases, known as
cancelable and noncancelable leases. In cancelable leases,
if the laboratory can cancel the lease and cease making
payments whenever it chooses without penalty, the lease
is called an operating lease and is treated as an operating
expense. If, for the term of the lease, it cannot be canceled
and there is an option to purchase the equipment, then the
lease is called a capital lease, is viewed as a form of capital
borrowing for a purchase, and is accounted for as a capital
acquisition within the capital budget.
Financing alternatives typically are (i) to purchase the
item from the laboratory’s internal funds, (ii) to borrow
external funds for its purchase, or (iii) to lease the equip-
ment. The costs associated with each of these approaches
can be analyzed side by side using the present-value meth-
odology as described in Appendix 43.3.
Summary
Outreach can represent an alternative path in the develop-
ment of a hospital laboratory, but it is one in which price
competition becomes a basic reality and market share be-
comes a critical measure of success. The outreach labora-
tory, to provide its customers with the benefits of one-stop
shopping, must compete on quality and service, and these
are critical success factors that require investment. It may
also, if it is large enough, have the opportunity to compete
on technological innovation, but in reality this applies to
relatively few hospital-based startup ventures. Mainly, it
will have to compete on price, which means that, of neces-
sity, it must produce as much or more with the same or
fewer material and human resource inputs per unit of ser-
vice than does the competition. It also means that the cost
of new sales, in terms of the cost of marketing, sales activ-
ity, distribution, client service, and quality enhancements
and/or technology improvements, must be managed as
actively as are the costs of daily production. In all of this,
familiarity with the basic types and interrelationships of
costs is crucial.
KEY POINTS
■ An understanding of the nature and analysis of cost be-
havior has fundamental significance for decision mak-
ing in outreach laboratory management.
■ A large proportion of the typical hospital laboratory’s
costs are fixed, and this can create opportunity for out-
reach when properly viewed as such.
■ Key decisions that are financially driven include pric-
ing and test menu decisions, make-or-buy decisions,
and decisions about the financing and acquisition of
equipment.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
GLOSSARY
Accounts payable A buyer’s obligations or liabilities that usually
arise from normal operations of a business. They are neither
backed up by a negotiable instrument nor considered overdue.
Contract obligations owed by individuals or the business on an
open account.
Accounts receivable Balances due from debtors on current
accounts.
Allowances Amounts to be subtracted from gross billings (along
with bad debt) in the calculation of net revenue, including con-
tractual and cost-based reimbursements, reductions in payments
based on discounted charges, and charity care.
Assets All money, property, or valuables that are owned by an
individual or organization. Assets may be used in whole or in
part to pay off liabilities (debts).
Average rate of return (ARR) The average dollar return on a
project divided by the average dollar investment it represents,
usually calculated on an annual basis.
Bad debt Billings that are unpaid and uncollected and/or
uncollectible.
Billing Presenting a statement of charges to another healthcare
provider, such as a hospital or physician office (account bill or
client bill), or to a patient (patient bill).
Billing code Standardized designation for medical procedures
(such as laboratory tests) that are billable under federal govern-
ment reimbursement rules, e.g., the Current Procedural Termi-
nology (CPT) code assigned by the American Medical
Association and updated annually.
Book costs Outstanding liabilities counted against the assets of
a business as shown on its account books and reflecting alloca-
tions of past outlays to the current period.
Bottom-up microcosting Estimating the unit cost of a labora-
tory test by summing the estimated unit costs of each of the input
components (materials, labor, etc.) for a single performance of
that test (also called job order costing).
Break-even or crossover point The point in the lifespan of a
business or project at which the revenue it generates equals its
cost and thus represents a net contribution margin or profit of
zero.
Capital item A fixed asset that is expected to provide service
(i.e., have a useful life) of more than one year.
Capital lease A lease that cannot be canceled during its term and
that typically includes an option to purchase. It is accounted as
a form of capital borrowing for a purchase and is accounted for as
a capital acquisition within the capital budget.
Cash flow The patterns of receipts and expenditures of a com-
pany (or other entity) resulting in the availability or nonavail-
ability of cash.
Charge In the context of outpatient fee-for-service within the
hospital, the charge for a given test is the amount associated with it
in the institution’s charge description master (CDM), representing
767
the amount the hospital theoretically bills all fee-for-service pay-
ors for the test.
Controllable costs Fixed or variable costs that can be influenced
by a specific individual’s decision making.
Cost per billable result Unit cost of production of all the report-
able results that are included in a unit of service, such as a test
panel or battery that is made up of multiple individual analyte
results but billed as a group.
Cost per reportable result Unit cost of production for all the
items necessary to report a test result, including the individual
analyte test result itself and all the quality control, calibrator,
waste, and repeat results that are necessary to be able to report it.
Cost per test (or cost per result) Unit cost of production of a
single individual analyte test result, representing both fixed and
variable direct costs as well as allocations of certain indirect costs
most closely associated with production: reagents, disposable
supplies, equipment, and labor.
Depreciation Estimated allowance made in accounting for the
decrease in value of a fixed asset through wear, deterioration, or
obsolescence during its useful life; may be calculated by different
standard methods.
Differential or incremental costs The change in future fixed
and/or variable costs projected to result from changes in produc-
tion methods, costs of inputs, or other events or specific courses
of action.
Direct costs All costs that are incurred directly as a result of
producing test results, e.g., technical, supervisory, and clerical
wages; overtime; on-call payments; and chemicals and supplies
specifically expended to perform the test.
Economy of scale Positive relationship between increased vol-
ume and decreased unit cost of production.
Fee schedule Listing of the prices charged for tests by an out-
reach laboratory in fee-for-service situations, i.e., in billing indi-
viduals who are nonpatients of the laboratory or its parent
institution or in billing clients representing nonpatients.
Fixed assets The items of physical property (equipment, build-
ings, and/or land) owned by a business or other entity; also
known as tangible or nonliquid assets.
Fixed costs Laboratory costs that remain unchanged for a given
period of time, despite fluctuations in test volume, e.g., supervi-
sory and custodial wages and benefits required regardless of vol-
ume, building maintenance and utilities, and depreciation.
“Fraud and abuse” provisions Portions of the Medicare and
Medicaid regulations pertaining to definitions of prohibited lab-
oratory business practices, such as physician self-referral and
other forms of inducement and conflict of interest.
Future costs Anticipatable costs that potentially can be affected
by current budget and capital-acquisition decisions and thus rep-
resent the most appropriate focus of planning.
Generally accepted accounting principles (GAAPs) A widely
recognized set of standard accounting procedures and
definitions.
768 OUTSIDE MARKETING AND EXPANSION
Gross revenue or gross billed revenue The amount of gross in-
come that would theoretically result if a hospital or laboratory
could bill and collect all its charges from all its payors.
Historical costs Costs incurred by a business in the form of pay-
ments that are accounted for and recorded at the time of actual
cash outlay (also known as sunk costs).
Imputed costs Costs incurred by a business in any form that do
not involve actual outlay of cash, such as opportunity costs, de-
preciation, etc., which are not explicitly listed in accounting rec-
ords but must be derived by calculation.
Indirect costs (overhead) All general laboratory costs not easily
or directly traceable to the production of individual test results
but included in total laboratory operating expenses, e.g., depre-
ciation; building and equipment maintenance; insurance; utili-
ties; housekeeping; and costs associated with purchasing and
billing services, sales, marketing, and development.
Inflation Effective relative increase in the amount of money in
circulation, resulting in a fall in its value and a rise in prices
over time.
Job order costing See Bottom-up microcosting.
Lease A written agreement or contract by which one party (the
lessor) gives to another (the lessee) the use and possession of
property for a specified time (the term) and for fixed payments.
List price The price of a test listed in a laboratory’s fee schedule
and representing the nominal price charged to its fee-for-service
clients (nonpatients and clients representing nonpatients). The
actual price is typically negotiated to include a discount off of the
fee schedule list price.
Loss leader A test sold to a client at a price discounted below
cost in order to meet an overall service need or provide “one-stop
shopping.” Note that it is not legal to loss lead entire accounts,
but only individual tests within an account. See also Predatory
pricing, and “Fraud and abuse” provisions.
Marginal cost The incremental cost of adding one additional
unit of test production.
Microcosting Calculating the unit costs of test production to
account for each and every category of expense involved at the
laboratory’s current test volume: performed in either a bottom-
up or top-down fashion.
Mixed costs Costs that are somewhat, though not totally, de-
pendent on volume, i.e., are difficult to classify definitively as ei-
ther fixed or variable, e.g., clerical staff.
Net contribution margin For all hospital inpatient and outpa-
tient testing, the total net test revenue generated by the labora-
tory, minus the total cost of test production (both direct and
laboratory-related indirect) for which the laboratory is respon-
sible, constitutes its contribution to the hospital’s bottom line.
Net present value (NPV) The present value of all the cash flows
created by a project minus the dollar amount of the initial invest-
ment in it (also known as the time value of money associated
with the investment).
Net profit For all true outreach nonpatient testing, the total net
revenue generated by the laboratory, minus the total cost of test
production (direct and indirect) for which the laboratory is re-
sponsible, constitutes the laboratory’s profit.
Net revenue or net collected revenue The amount either the
hospital or the outreach program actually gets paid for a given
test is equal to the billed amount minus allowances and bad debt.
Noncontrollable costs Costs outside the scope of a specific indi-
vidual’s control.
Operating lease A lease that can be canceled during its term and
that typically does not include an option to purchase. It is ac-
counted as a form of operating expense.
Opportunity costs Imputed costs representing missed opportu-
nity, i.e., the potential financial gain that is missed when a more
profitable use of resources (materials, labor, facilities, or capital)
is rejected or abandoned in favor of a less profitable one. Oppor-
tunity costs are lost revenue, not expenditures, and they repre-
sent variable costs whose amounts depend on the alternatives
under consideration. (They are related to the concepts of the
time value of money or net present value, i.e., best use of funds
among competing investments.)
Out-of-pocket costs Costs involving immediate expenditures,
i.e., incurred as cash outlays occurring at or near the time of pur-
chase; potentially important in capital budgeting.
Overhead See indirect costs.
“P and L” (profit and loss) responsibility Individual financial
accountability for a business or portion of a business implies that
all of its costs are controllable, either directly or indirectly, by that
individual.
Patients Individuals receiving care (and laboratory testing) after
being registered and seen in a clinic (hospital outpatients), after be-
ing registered and admitted to the hospital (hospital inpatients), or
as clients of the laboratory’s outreach business with no other con-
nection to the hospital per se (hospital nonpatients).
Payback period The period of time that a capital investment
takes to be completely recovered from its resulting cash flows.
Payor mix The distribution of the different forms of healthcare
financing in place among the population served by a healthcare
provider, e.g., Medicare, Medicaid, private pay, managed care,
uninsured, etc.
Period costs Costs that represent fixed outlays for the whole lab
or the whole hospital per unit time.
Per member per month (PMPM) rate For services provided un-
der a managed-care arrangement, the managed-care organization’s
per capita payments to the hospital for its members’ care. Under
such arrangements, laboratory tests are most typically bundled,
i.e., there is no separate billing for tests, which are regarded as be-
ing reimbursed as part of the overall capitated payment.
Predatory pricing Discount of the full fee schedule to a client
below the laboratory’s cost, if done for the purpose of excluding
competition, is unethical and illegal.
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
Present value (PV) or time value of money The dollar amount
that, if it were invested now at a given rate of return, would accu-
mulate to a given specified value at a specified time in the future.
Process costing A method of microcosting in which unit costs
are estimated from aggregate expenses divided by units of ser-
vice. See also Top-down microcosting.
Relative value unit (RVU) Workload units accounted under any
of several weighting systems devised and implemented by pro-
fessional organizations to account for a labor component involv-
ing significant professional time spent on cognitive interpretative
tasks in the production of certain test results, like surgical pa-
thology reports, in order to equitably bill for them. The labora-
tory costs associated with these billables can be accounted as cost
per RVU.
Return on investment (ROI) Calculation (involving a variety of
different methods) of a specified payback amount (also known as
the required rate of return or discount rate) on a given
investment.
Sensitivity analysis A method for testing premises used in deci-
sion making, i.e., determining the sensitivity of conclusions de-
rived from calculation to the ranges of numerical values chosen
as inputs with substitution of the change in one variable at a time
to determine their effects (also known as what-if calculations or
best- and worst-case scenarios).
Service costs Costs that are incurred as tests are performed, rep-
resenting variable costs plus those fixed costs that are most directly
traceable to the testing, and related to the concept of cash flow.
“Shell lab” provisions Portion of federal fraud and abuse regula-
tions dictating an effective upper limit for the portion of a labora-
tory’s volume (30%) that can be sent out to another laboratory.
Straight-line depreciation Standard accounting method of cal-
culating depreciation of fixed assets that involves equal weight-
ing of time periods.
769
Sum of the years’ digits (SYD) method Standard accounting
method of calculating depreciation of fixed assets that involves
unequal weighting of time periods.
Sunk costs See Historical costs.
Top-down microcosting See Process costing.
Unit costs Costs per unit of production or unit of service pro-
vided (test, reportable result, billable result, or RVU), account-
able as total of fixed plus variable costs per unit.
Variable costs Direct or indirect costs that vary in direct pro-
portion to test volume, e.g., technologist wages and benefits, re-
agents, glassware, disposable supplies, and forms.
REFERENCES
1. Abraham, M., Beebe, J. A. Dalton, et al. 2010. Physicians Current
Procedural Terminology, CPT 2010. American Medical Association
Press, Chicago, IL.
2. Bennington, J. L., G. E. Westlake, and G. E. Louvau. 1974. Fi-
nancial Management of the Clinical Laboratory. University Park
Press, Baltimore, MD.
3. Shuffstall, R. M., and B. Hemmaplardh. 1979. The Hospital Lab-
oratory: Modern Concepts of Management, Operations, and Finance.
C.V. Mosby Co., St. Louis, MO.
4. Snyder, J. R., and D. A. Senhauser. 1989. Administration and Su-
pervision in Laboratory Medicine, 2nd ed. J.B. Lippincott, Philadel-
phia, PA.
5. Travers, E. M., D. C. Delahunty, L. L. Hunter, K. D. McClatchey,
J. M. Rudar. 1998. Basic Cost Accounting for Clinical Services. Ap-
proved Guideline GP11-A. National Committee for Clinical Labora-
tory Standards, Wayne, PA.
6. Ullmann, J. E. 1976. Theory and Problems of Quantitative Meth-
ods in Management. Schaum’s Outline Series. McGraw-Hill, New
York, NY.
770 OUTSIDE MARKETING AND EXPANSION

APPENDIX 43.1 Microcosting

LABOR
Below is an example of the calculations to determine real labor costs.

Salary spreadsheet Potential hours

Sara Smith
Base salary ($) 48,006.40
Salary per hour 23.08
Fringe benefits (%) 32.2%
Salary per hour with benefits 30.51

Days Hours
Starting amount 2,080
Vacation 20 160
Holidays 10 80
Sick leave 6 48
Available hours 1,792

Rate 0.86
Available hours rate 35.42

Production percentage 90%

Production rate or real cost of labor 39.35

Production Table
Production percentage Nominal rate
100% 35.42
90% 39.35
80% 44.27
70% 50.59
60% 59.03

TEST
See the next page for an example of microcosting a single test.
 Test: XYZ Test IHC
ENTER# in one Case ALL COSTS ARE COST PER SLIDE
Patient slides 1
Neg control slides 1.00
Separate pos control slides 0
Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Fixed costs Normal
run
Supplies Dako High pH Antigen Re- $8.84 $9.42 $6.28 $4.71 $1.57 $1.26 50 ml from a 10× concentrate (or 5 ml of actual products),
trieval Solution, code S2367 used for 1–24 slides, 110 ml per order @ $414.48 per order or
APPENDIX 43.1 Microcosting (continued)

$18.84 per run

Fisher 30% H2O2, catalog $1.64 $0.82 $0.55 $0.41 $0.14 $0.11 1 run requires 20 ml (1–24 samples), 500 ml per order
H325-500 @ $41.01, or $1.64 per run for 1–24, $3.28 for 25–48
Xylene $5.39 $2.70 $1.80 $1.35 $0.45 $0.36 1 run requires 100 ml, 1 liter per order @ $53.92 or $5.40 per
run
100% alcohol $1.63 $0.82 $0.54 $0.41 $0.14 $0.11 1 run requires 100 ml, 1 liter per order @ $16.33 or $1.63 per
run
95% alcohol $1.59 $0.80 $0.53 $0.40 $0.13 $0.11 1 run requires 100 ml, 1 liter per order @ $15.9 or $1.59 per
run
Richard Allan Hematoxylin, $6.43 $3.21 $2.14 $1.61 $0.54 $0.43 1 run requires 50 ml, 1 liter per order @ $128.51 or $6.43 per
catalog 7211 run

Total cost per slide $35.52 $17.76 $11.84 $8.88 $2.96 $2.37

Labor Technician time $117.18 $58.59 $39.06 $29.30 $9.77 $7.81 2 hrs total (5 hrs w/machine time) 60% productivity
@ $60.63/hr

Total $117.18 $58.59 $39.06 $29.30 $9.77 $7.81

Total fixed costs $152.70 $76.35 $50.90 $38.18 $12.73 $10.18
Total cost per case $305.41 $152.70 $101.80 $76.35 $25.45 $20.36 Total fixed costs multiplied by the number of slides in the
case

(continued)
CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
771
 772

Test: XYZ Test IHC

APPENDIX 43.1 Microcosting (continued)

ENTER# in one Case ALL COSTS ARE COST PER SLIDE

Patient slides 1
Neg control slides 1.00
OUTSIDE MARKETING AND EXPANSION

Separate pos control slides 0

Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Variable costs
Patient slide/pos control Antibody Diluent, DAKO $0.15 $0.15 $0.15 $0.15 0.15 $0.15 Approx 299 μl, 110 ml per bottle @ $62.48 per order or $0.15
per slide
AMCAR antibody $1.14 $1.14 $1.14 $1.14 1.14 $1.14 266 slides per order @ $303.60 per order or $1.31 per slide
Envision Dual Link Detec- $3.14 $3.14 $3.14 $3.14 3.14 $3.14 300 μl per slide, 110 ml per order, @ $1,150 per order or
tion System, Dako code $3.14 per slide
K4061
Dako Wash Buffer, code $0.75 $0.75 $0.75 $0.75 0.75 $0.75 10 liters @ $74.80 per order, runs 100 slides or $0.75 per slide
S3006
Serum Free Block, Dako code $0.30 $0.30 $0.30 $0.30 0.30 $0.30 300 μl per slide, 110 ml per order, @ $108.24 per order or
X0909 $0.30 per slide
DAB chromogen, Dako code $0.37 $0.37 $0.37 $0.37 0.37 $0.37 300 μl per slide, 110 ml per order, $134 per order, or $0.37
K3468 per slide
NovaRed chromogen, Vector $1.05 $1.05 $1.05 $1.05 1.05 $1.05 100 slides per kit, @ $105 per kit or $1.05 per slide
catalog SK-4800
Pipette tips $0.39 $0.39 $0.39 $0.39 0.39 $0.39 7 tips per slide, 1,000 tips per order @ $55 per order, or $0.39
per slide
Coverglass $0.26 $0.26 $0.26 $0.26 0.26 $0.26 1 coverglass per slide, 100 glasses per order @ $25.90, or
$0.26 per slide
Total cost per slide $7.53 $7.53 $7.53 $7.53 7.53 $7.53
Total cost for case $7.53 $7.53 $7.53 $7.53 $7.53 $7.53 Total variable cost multiplied by number of patient slides

Test: XYZ Test IHC

ENTER# in one Case ALL COSTS ARE COST PER SLIDE
Patient slides 1
Neg control slides 1.00
Separate pos control slides 0
Number of slides Enter #
Item 1 2 3 4 12 15 Comment
Negative control(s) Antibody Diluent, DAKO $0.15 $0.15 $0.15 $0.15 $0.15 $0.15 300 μl per slide, 125,000 μl per order @ $62.48 per order or
$0.15 per slide
Envision Dual Link Detec- $3.14 $3.14 $3.14 $3.14 $3.14 $3.14 300 μl per slide, 110 ml per order @ $1,150 per order or $3.14
tion System, Dako code per slide
K4061
Dako Wash Buffer, code $0.75 $0.75 $0.75 $0.75 $0.75 $0.75 10 L @ $74.80 per order, runs 100 slides or $0.75 per slide
S3006
Serum Free Block, Dako code $0.30 $0.30 $0.30 $0.30 $0.30 $0.30 300 μl per slide, 110 ml per order, @ $108.24 per order, or
X0909 $0.30 per slide
DAB chromogen, Dako code $0.37 $0.37 $0.37 $0.37 $0.37 $0.37 300 μl per slide, 110 ml per order, @ $134 per order, or $0.37
K3468 per slide
NovaRed chromogen, Vector $1.05 $1.05 $1.05 $1.05 $1.05 $1.05 100 slides per kit, @ $105 per kit or $1.05 per slide
catalog SK-4800
Pipette tips $0.39 $0.39 $0.39 $0.39 $0.39 $0.39 7 tips per slide, 1,000 tips per order @ $55 per order, or $0.39
per slide
Coverglass $0.26 $0.26 $0.26 $0.26 $0.26 $0.26 1 coverglass per slide, 100 glasses per order @ $25.90, or
$0.26 per slide
APPENDIX 43.1 Microcosting (continued)

Total cost per control slide $6.39 $6.39 $6.39 $6.39 $6.39 $6.39
Total cost for case $6.39 $6.39 $6.39 $6.39 $6.39 $6.39 Total variable cost multiplied by number of control slides

Total variable costs $13.92 $13.92 $13.92 $13.92 $13.92 $13.92

Total direct costs $319.33 $166.62 $115.72 $90.27 $39.37 $34.28

Overhead Rate
Overhead 0.38 $121.34 $63.32 $43.97 $34.30 $14.96 $13.03
Equipment costs 0.1 $31.93 $16.66 $11.57 $9.03 $3.94 $3.43
Total $153.28 $79.98 $55.55 $43.33 $18.90 $16.45

Cost per case $472.60 $246.60 $171.27 $133.60 $58.27 $50.73

CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
773
774 OUTSIDE MARKETING AND EXPANSION
APPENDIX 43.2 ROI Calculation Methods
The calculation of the monetary benefit realized as a result of
a given capital expenditure is called a return-on-investment or
ROI calculation. When this amount is prespecified, it is known
as the required rate of return or discount rate for the investment.
Major methods for ROI calculations and typical laboratory ex-
amples follow.
PAYBACK METHOD
The number of years that a capital investment takes to be fully
recovered from cash flow is called the payback period. The sim-
plest method for calculating the return on an investment is the
payback method. When payback periods (number of years nec-
essary for incremental cash inflows to equal the capital acquisi-
tion cost) for different candidate items are ranked from shortest
to longest, the shortest is the best, and the differences between
the shortest payback period and the others represent (at least a
portion of) the opportunity cost of each investment.
As an example, consider an immunoanalyzer with a purchase
price of $100,000 and an estimated useful life of 5 years. Suppose
the estimated yearly incremental cash inflow generated by the
machine is:
Year 1 = $55,000
Year 2 = $55,000
Year 3 = $58,000
Year 4 = $60,000
Year 5 = $45,000
Total = $273,000
Estimated yearly cash outflows related to the machine are esti-
mated to be:
Year 1 = $15,000
Year 2 = $15,000
Year 3 = $20,000
Year 4 = $30,000
Year 5 = $35,000
Total = $115,000
Calculated net cash flow for each year is then:
Year 1 = $40,000 ($55,000 − 15,000)
Year 2 = $40,000 ($55,000 − 15,000)
Year 3 = $38,000 ($58,000 − 20,000)
Year 4 = $30,000 ($60,000 − 30,000)
Year 5 = $10,000 ($45,000 − 35,000)
Total = $158,000
Payback of the original $100,000 occurs between years 2 and 3:
$100,000 = $40,000 + $40,000 + [$20,000].
The payback time is:
Year 1 + Year 2 + Year 3 ($20,000∕$38,000) = 2.53 years
This method is most useful when comparing projects with
similar useful lives and provides a crude measure of risk in the
opportunity-cost estimation. It fails, however, to take into ac-
count the effects of depreciation or inflation and, more generally,
the time value of money, i.e., the best use of funds, and it does
not take into account the impact of any cash flows beyond the
payback period.
DEPRECIATION
The rate of depreciation is an additional datum often used in the
analysis of capital alternatives. Depreciation recognizes the fact that
fixed assets have a finite useful life and accounts for this by charging
a fraction of the cost of the capital item as an expense in each ac-
counting period of its use. Useful lives of capital items are difficult
to establish precisely, so the rate of depreciation (fraction expensed
each year) is usually estimated. Different standard methods for per-
forming this estimation (e.g., for tax purposes) are in use.
Straight-line depreciation is a simple, and therefore very com-
monly used, method for calculating the expensing of capital
items. In the straight-line method, the total cost of the item is
simply divided by its estimated useful life in years to give the
amount to be expensed as depreciation in each period. For ex-
ample, in our sample problem, (item’s price)∕(item’s useful life) =
$100,000/5 years = $20,000 per year listed as depreciation.
The sum of the years’ digits (SYD) method of depreciation is
a weighted calculation that assigns a large amount of deprecia-
tion in the first year, which then declines uniformly to a small
amount for the last year. Under this formula, annual rates are
derived as follows.
1. Add the ordinal numbers of the years, i.e.,
5 + 1 + 2 + 3 + . . . + [n′ (n′ − 1)]∕2 = Sn
2. Write the numbers of the years in reverse order, i.e.,
n′, n′ − 1, n′ − 2, . . . , 3, 2, 1
3. The annual fractional rates of depreciation (d) are
n′∕Sn, (n′ − 1)∕Sn, (n′ − 2)∕Sn, . . . , 3∕Sn, 2∕Sn, 1∕Sn
In our example, Sn would be 1 + 2 + 3 + 4 + 5 = 15, and the
yearly fractional depreciation rates would be 5∕15 (= 1∕3), 4∕15,
3∕15 (= 1∕5), 2∕15, 1∕15. The actual dollar amounts of annual de-
preciation would then be:
Year 1: $100,000(1∕3) = $33,333
Year 2: $100,000(4∕15) = $26,667
Year 3: $100,000(1∕5) = $20,000
Year 4: $100,000(2∕15) = $13,333
Year 5: $100,000(1∕15) = $6,667
AVERAGE RATE OF RETURN
The calculation of the average yearly return on a project divided by
the average yearly investment it represents is called the average rate
of return (ARR) for that investment. When these ARRs are ranked
(continued)
 CHAPTER 43. FINANCE AND DECISION MAKING IN OUTREACH
APPENDIX 43.2 ROI Calculation Methods (continued)
from highest to lowest positive values, the highest ARR is the best.
In our example, the average annual investment return = (sum of
net cash flows)∕(useful life) = $158,000∕5 years = $31,600∕year.
The average annual investment is calculated as follows:
The initial value of the investment = $100,000, and its useful
life is 5 years, so the annual straight-line depreciation = $20,000∕
year. The yearly value of the investment then is:
Year 1 = $100,000
Year 2 = $80,000
Year 3 = $60,000
Year 4 = $40,000
Year 5 = $20,000
Year 6 = $0
The sum of these values for years 1 through 6 total $300,000,
and the average annual investment = $300,000/6 years =
$50,000/year. The ARR then equals (average annual investment
return)/(average annual investment) = $31,600/$50,000 = 63%.
This method accounts for all the cash flows, but it does not rec-
ognize the time value of money.
TIME VALUE OF MONEY (PRESENT VALUE)
The present value of all the cash flows created by a project mi-
nus the amount of the initial investment is called the net present
value (NPV) of that investment, or the time value of money in-
volved with it. Present value (PV) represents the dollar amount
that, if it were invested now at a given rate of return (r), would
accumulate to a given specified value a specified number of years
(n) in the future. The formula for present value assumes that
there are unequal annual rates of cash flow (CF) in years 1 to n:
775
PV = [(CF1)∕(1 + r)1] + [(CF2)∕(1 + r)2] + [(CF3)∕(1 + r)3] +
. . . + [(CFn)∕(1 + r)n]
When NPVs of different projects are ranked from highest to low-
est positive values, the highest NPV is the best. In our example, if
the required rate of return r = 10% and the term n = 5 years, the
PV would equal the sum of the annual net cash flows according
to the above formula:
PV = [$40,000∕(1.10)] + [$40,000∕(1.10)2] + [$38,000∕(1.10)3]
+ [$30,000∕(1.10)4] + [$10,000∕(1.10)5] =
$44,000 + $48,400 + $50,578 + $43,923 + $16,105 = $203,006
NPV = PV − initial investment = $203,006 −
$100,000 = $103,006
This method accounts explicitly for the time value of money
and evaluates projects at a common required rate of return, but
it does not take into account differences in the size of different
investments or allow easy comparison of projects with differ-
ent useful lives. These considerations must be kept in mind in
the final analysis.
Inflation, of course, corrects for changes in the value of money
itself over time. The effect of inflation can be calculated as fol-
lows: If prices increase at a rate of i per year, and if an item costs
P0 now, then n years from now it will cost An = P0ein, using a
general exponential formula for continuous compounding of in-
terest. In our example, if the rate of inflation is 2% per year, the
cost of our $100,000 immunoanalyzer in 5 years will be:
A5 = ($100,000)e[(.02)(5)] = ($100,000)e(.10) = ($100,000)
(1.1052) = $110,520
776 OUTSIDE MARKETING AND EXPANSION
APPENDIX 43.3 Financing Alternatives
Methodology based on calculation of the present value is rel-
evant for making choices among alternative sources of funding
for capital acquisition.
PURCHASE
In the case of purchase from hospital funds, the present value
equals the initial investment. Returning to the example of the
immunoanalyzer in Appendix 43.1, purchase with hospital funds
involves a cash outflow of $100,000.
For purchase with borrowed funds, the present value equals
the annual loan payments plus interest, discounted at the re-
quired rate of return for the term of the loan. In the example, for
a loan with a term n = 5 years, a required rate of return r = 10%,
and an annual loan payment CF at 12% interest = $27,168, the
PV of loan payments, discounted at 10%, is calculated by using
the formula for PV with even cash flows:
PV = CF {[1 − (1 + 1 r)−n]∕r} = $27,168 {[1 − (1.10)−5]∕0.10}
= $27,168(3.7908) = $102,988
LEASE
A 5-year lease with a required rate of return r = 10% and an an-
nual lease payment CF of $24,000 has a PV of lease payments,
discounted at 10%, calculated as follows using the formula for
PV with even cash flows:
−n −5
PV = CF {[1 − (1 + 1 r) ]∕r} = $24,000 {[1 − (1.10) ]∕0.10}
= $24,000(3.7908) = $90,797
Here the alternative with the lowest present value is the best
method, in this case the lease. If this is to be a noncancelable
lease and there is no potential opportunity to sell the equipment
at the end of the lease term, no further analysis is required. If, on
the other hand, the equipment can be sold at the end of the lease
(i.e., it has what is known as a salvage market), further analysis
is relevant. If the PV for the lease is subtracted from the PV for
the purchase, the result will be positive and represent the PV of
the amount required to be obtained from the future resale.
This should then be compared with the best estimate of the
future market for this resale. If it looks as if the equipment can be
sold for more than the required future resale price, then purchase
is favored; if not, then leasing is. The lease-or-loan decision can
be approached in the same way.
In the example:
PV of resale = PV of purchase − PV of lease =$100,000 −
90,797 = $9,203
The required future value of resale to provide for PV of resale is:
PV(1 + r)n = $9,203(1.10)5 = $9,203(1.61051) = $14,821
which is what the future resale will have to fetch at the end of 5
years. For the choice between lease or loan,
PV of resale = PV of loan − PV of lease = $102,988 −
90,797 = $12,191
The required proceeds of the resale will then be
PV(1 + r)n = $12,191(1.10)5 = $12,191(1.61051) = $19,633
Thus, if the resale nets $9,202 or less, leasing is favored; at $9,203,
there’s no difference between leasing and borrowing; in the range
$9,204 to $19,622, borrowing is favored; at $19,633, there’s no
difference between leasing and purchasing; and at $19,634 or
greater, purchasing is favored.
Introduction
44
Making Organizational Changes
Outreach: Obstacles to Hospital
Centralize Work • Place Laboratory Management on
Off Shifts
Give Outreach Its Due
Outreach and Enhancing
Make Outreach High-Profile • Manage Outreach as a
Business, Not a Department
Information Technology Changes
Customer Satisfaction
Hospital Systems versus Separate Systems • Nonstaff
Physicians • Data Interface • Patient Registration and
Accounting Concerns • Populating the Patient Record •
Beth H. Deaton
Physician Office Connectivity
Meeting the Needs
Capital • FTEs OBJECTIVES
Hospital versus Outreach Contracting
Defining Insurance Plans • Contracting • Acceptance To understand the items that must be in place to compete in the outreach
of Payors market and why some will conflict with hospital practices and policies
Failure To Understand Financial Implications
and Requirements
To understand how to capitalize on the strengths of the hospital or health system
Unrelated Business Income Tax • Other Taxes To understand the obstacles that must be overcome as part of a hospital or
Understanding the Hospital’s Point of View health system
Lower Cost per Test • Make Money
Translating Hospital and Laboratory To understand all of the pieces that make up customer service
Compliance for an Outreach Operation To know when to say yes and when to say no to customers
Physician Communication • Medicare Secondary Payor
Questionnaires • Physician Acknowledgments • Advance To be able to plan the customer service aspects of the outreach program
Beneficiary Notices • Requisition Design • Pricing •
Add-On Tests • National and Local Coverage Policies •
Sanctioned Physicians • Contracts • Audits and Reviews •
Participation and Cooperation
Enhancing Customer Satisfaction:
You need to show some insensitivity to the organization’s history in order to show
Communication the proper respect for its future. Be willing to break with the past.
Newsletter • Marketing and Sales Team • Laboratory Price Pritchett
Guidebook • Website • Focus Group
Customer Satisfaction Assessment

Surveys • Problem Reporting and Resolution
Couriers: the First Line
Client Services
Access to Draw Sites and Patient Service
Centers
Building and Retaining Your Client Base
Leverage the Continuum of Care • Keep Asking Why •
Follow Up When Clients Leave
Professional Marketing and Sales Personnel
Commission Plans • Reports • Prepackaged Information
Technical Expertise Accessibility
Accounts That Require Special Care
Nursing Homes • Drug Accounts • Home Health
Agencies • Veterinary Lab Services
Define Service Area and Services
Range of Services • The Importance of Standardization
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIXES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch44
N
avigating a complex hospital system to set up a service that in
many respects is counter to conventional hospital thinking can be a
daunting and complex task. Hospitals have many policies that suc-
cessfully guide their actions, but hospital laboratory outreach programs com-
pete with large national reference laboratories for their place in the market
and need to be able to act and respond in a similar way. This means changing
hospital policies or having exceptions made for parts of the outreach business.
The level of customer service the laboratory decides to provide will, in many
cases, decide the level of success the outreach program will achieve. This is a
decision that is made by the policies put in place and management’s actions.
The ability of the organization and the staff members to communicate quickly
and accurately with its customers and the ability to respond to issues can be
deciding factors in the success of the program.
Making Organizational Changes
A hospital outreach program needs to operate differently from a hospital lab-
oratory department. The laboratory needs to evaluate the test menu, where
testing is performed, and the turnaround time that is available, as well as its
management, equipment, and staffing. In an outreach program, where cost
is of primary concern, volume drives cost. Because approximately a third of
the cost of producing a laboratory test is fixed, the volume of testing that is

777
778 OUTSIDE MARKETING AND EXPANSION

produced will be paramount to reducing cost on a per-test (chemistry, hematology, microbiology, etc.). The shift man-
level. Fixed costs are costs that do not vary with volume. ager can report to a supervisor who has human relations re-
Examples are depreciation, administration and manage- sponsibilities, while assigning the clinical responsibility to
ment, some full-time equivalents (FTEs) (those necessary a shift leader or different manager. Another option would
for coverage), professional fees (Part A coverage), license be to have all of the staff report to managers who rotate
fees, controls, and standards. To begin to build volume management responsibilities to all shifts.
and expand the test menu, look at other entities within the
organization. Other hospitals and nursing homes can pro-
vide much-needed volume. However, other facilities will Give Outreach Its Due
not be eager to give up this volume. They will only be will- Make Outreach High-Profile
ing to participate if they achieve a financial advantage.
Make sure the outreach laboratory’s place in hospital man-
Centralize Work agement is high-profile. Outreach programs complicate
laboratory operations and increase the level of complex-
Review the volume of send-out testing by test. By consoli-
ity of every area within the laboratory. For this reason the
dating to one location, the laboratory may have enough
laboratory needs to ensure that it has an appropriate place
volume to bring additional testing in-house. Then review
in the organizational structure of the system or the hospi-
the more esoteric testing being performed at other facili-
tal. The person in charge of the laboratory needs to have
ties in your organization. If there is more than one hospital,
the ability to access every major department and have re-
clinic, physician office laboratory, or home health agency
sources allocated to the laboratory that are important to
in the health system, review the testing that is performed
ensure that the business can grow and operate efficiently.
in those settings. Centralize as much of the testing as pos-
The person in charge of the laboratory should be at least a
sible to the central laboratory. Special chemistry is usually
director and should attend the workgroup meetings with
a good place to start. This may need to be done in steps,
hospital leadership. If successful (usually based on reve-
depending on the politics of the organization and its phi-
nue), there will be a point where the laboratory should be
losophy about change. Review the testing offered at each
able to break away from hospital management and operate
site and agree on a standard list of tests that will be per-
as an entity on its own. Laboratory management must be
formed at each site. In return, the central laboratory will
at an appropriate level in the organization to communicate
have to agree to and meet stringent service standards. By
what outreach testing encompasses and must be able to en-
consolidating the test volume, the laboratory will be able to
list the help of senior management when needed.
lower test expenses for all facilities by reducing fixed costs
on a per-test basis, reducing FTEs, and standardizing. Manage Outreach as a Business, Not a Department
Place Laboratory Management on Off Shifts The laboratory outreach program must be viewed and oper-
ated as a business, not as a department (cost center) of the
Another area that will need to be reviewed is management.
hospital. Laboratories in hospitals are typically treated as
Place appropriate laboratory management personnel on
cost centers. Depending on how an organization displays
off shifts, because that is where the workload will be the
department financial statements, revenue is sometimes not
heaviest. Management structure needs to be addressed very
even on the financial statements available to the department;
early in the analysis of outreach. While the laboratory is re-
only expenses are. This gives rise to the attitude, and subse-
viewing the testing from other system facilities, it may be a
quent management, of the laboratory as a cost center. When
good time to consider complete laboratory integration. If
the outreach business begins to operate, the financial state-
the laboratory is not ready to go that far, it will need to as-
ments need to reflect the revenue procured by the program,
sess its internal management. More laboratory testing will
the reimbursement, and the expenses. If this cannot be done
be performed on the second and third shifts than ever be-
on the current hospital monthly financial statements pro-
fore, so management resources need to be in place on those
duced by Finance, it is imperative that these data be made
shifts. Technologists, who are in charge but still working
available for review in order to manage the laboratory.
the bench, will not suffice. Someone who has leadership
qualities and is authorized to make decisions through-
out the entire laboratory should be on each shift, at least
Information Technology Changes
Monday through Friday. The reporting relationships can
be structured in a number of ways. For example, each shift Hospital Systems versus Separate Systems
manager can be responsible for the human relations duties Should hospital systems be used to operate the outreach
(hiring, firing, and employment reviews) for the shift he or program or would it be better to use different systems? A
she is on, as well as be responsible for a specific clinical area system that allows separation of the billing and financial
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
operation of the outreach program from the rest of the
hospital is optimal. It is best if the laboratory can manage
both patient and client billing and receivables separately
from hospital-based patients. Hospital systems require a
great deal of patient demographic information that is not
necessary or cost-efficient to collect for reference labora-
tory patients. Because other reference laboratories do not
require the expanded information, if the laboratory is re-
quired to collect such information, it will be at a disadvan-
tage in the marketplace.
The average revenue per bill is significantly lower for
the laboratory than for other hospital services. Hospital
patient accounting departments focus on the high-dollar
accounts. Often, reference laboratory accounts are below
the level for even a cursory review, leaving the laboratory
struggling to obtain reimbursement from payors and pa-
tients. If these issues can be addressed with the current
hospital system, then you would be wise to use it. Other-
wise, look to the laboratory system or an outsource vendor.
There are several companies that provide an outsource
option for laboratory billing. Be sure the company you
select has specific experience with laboratory outreach
programs and not just physician office lab billing. Addi-
tionally, be sure to look at the reporting that will be avail-
able, how the company will interface with the general
accounting system, and how they will receive and provide
information for patient accounting. Be sure to delineate all
expectations in the contract and consider putting the bill-
ing company financially at risk for some indicators.
Client billing is an area where the hospital patient ac-
counting department will have little or no experience.
The laboratory’s ability to accurately code, bill, adjust, and
manage these accounts will be a direct reflection of its abil-
ity to compete in the outreach world. Even if the laboratory
is unable to convince Finance to relinquish management
of the patient accounts, Finance may be happy to have the
laboratory manage the client accounts. This is an area that
needs monthly management, and the ability to access the
laboratory system to review charges and testing performed
is advantageous.
Nonstaff Physicians
Nonstaff physicians may present a problem when work-
ing with the hospital system. The physician database in
the hospital information system is built with very few, if
any, nonstaff physicians. Most hospitals require all phy-
sicians to be approved by the medical staff office to be
entered into the system. Outreach will require that the
laboratory be able to accept, process, and bill for speci-
mens received from nonstaff physicians. The physicians
must be put into the database so they can appear on
the bill and patient results can be correctly routed. The
laboratory must be diligent in updating the database, as
779
physicians will continually enter, leave, and move within
the geographic area.
Data Interface
As the program grows, others are going to want the data
that can be mined from the system for a variety of pur-
poses. Health plans will want the data for utilization and
for the employer reporting that it is required to deliver.
Physician offices will want to interface with the system or
an intermediate product so that they do not need to rekey
results. The pharmacy will want to review the microbiol-
ogy susceptibility profile of organisms to review how in-
fections are reacting to drugs. Others will want the data,
blind and in other formats, to use for research. The system
used will determine, to a large extent, the laboratory’s abil-
ity to provide data to other systems. After HIPAA (Health
Insurance Portability and Accountability Act) consider-
ations are reviewed, the next question is what value the
laboratory and outreach programs gain from an interface.
It will be the responsibility of the laboratory staff to en-
sure that the data are crossing the interfaces and display-
ing properly. Each time a change is made to either system,
the laboratory will need to keep the interfaces in mind and
ensure that data continue to flow properly.
Patient Registration and Accounting Concerns
The demographic data required for most insurance com-
panies for an outpatient bill include patient name, date of
birth, address, ordering physician, diagnosis, insurance
company, insurance address, group number, and member
or subscriber identifier. This list is significantly shorter
than the list of requirements for an inpatient admission
or hospital-based service. This seemingly simple issue can
make or break specimen processing. The laboratory must
be able to collect only what is absolutely required for out-
reach billing. The list of information for client billing is
even more abbreviated, and a separate process will need to
be developed to bill these accounts.
Carefully review the Model Laboratory Compliance
Program and determine if your organization is comfortable
with offering multiple fee schedules. If your organization
determines that it is valid to have multiple fee schedules,
the laboratory will need to be able to manage the fee sched-
ules. The system chosen for billing must have the capabil-
ity to have multiple fee schedules, to set up contracts for
individual clients, and to apply percentage discounts. It is
important to develop and enforce a set of fee policies from
the beginning. As part of the compliance program, all fees
should be reviewed each year against the policies that have
been set and in relation to the cost of testing.
The form used for billing will determine, for some in-
surance companies, how the laboratory is reimbursed.
780 OUTSIDE MARKETING AND EXPANSION

Hospitals bill using a UB04 form, because this is the form or add to patient records is not normal for most hospitals.
required for hospitals. Freestanding laboratories and other To compete with the reference laboratories for these prac-
Part B providers bill on a CMS-1500. Some insurance tices, the laboratory will need to support this technology.
plans will require that the laboratory bill on a CMS form It will also help the outreach program obtain better reg-
and therefore be treated as an outpatient or reference istration information, reduce medical necessity denials,
laboratory and not as part of the hospital. These differ- properly identify the testing desired, and deliver results.
ences are important because they may affect the amount Overall, there should probably be an upside in terms of
patients are required to pay. Patients’ insurance benefits FTE reductions.
are often different if they visit a hospital versus a refer-
ence laboratory. Even if the laboratory testing was picked
up from the physician office, the insurance company may Meeting the Needs
not make the distinction between the outreach labora- Capital
tory and the hospital outpatient. The patient will there-
In most hospital systems capital funding is difficult to ob-
fore be charged the hospital copay or coinsurance, which
tain, and there is competition for the limited funds. This
is usually higher than if the testing was sent to a reference
is why the outreach program must be a priority for the
laboratory.
hospital. Defining a process with Finance and Adminis-
Populating the Patient Record tration to purchase items that are critical to the outreach
program will make it easier to obtain items that are vital
The hospital’s requirements to populate the patient record
to outreach programs. Finance and Hospital Administra-
with results may prove burdensome. In most hospital sys-
tion need to be continuously educated about the outreach
tems, client billing is out of the norm. Depending on how
business and why items are necessary for program suc-
your hospital accepts patients billed to a client account
cess. Leasing some items is an option, depending on how
(physician office, clinic, or other bulk bill), they may not
the organization views these types of agreements. The
be accessible as individual patients. Therefore, it is difficult
advantage to leasing is that the leasing company will usu-
to update the patient record/history that already exists on
ally service the equipment for a flat fee. The service is
the system. The laboratory could decide not to populate
usually worth the price.
the patient history with reference laboratory information.
This is not the best solution, because one of the advantages FTEs
for customers is the continuum of care. Outreach results
Anytime the hospital is experiencing a financial slow-
in the patient’s hospital history offer an advantage that sets
down, one of the first things to occur is a freeze on FTEs.
an outreach program apart from the stand-alone labora-
Even when no freeze is in effect, approval of FTEs can be
tories. There are numerous information technology solu-
an arduous process. This is difficult for a growing busi-
tions that can be applied, but they take planning, capital,
ness. The laboratory must have contingency plans for
and forward thinking.
replacement of key FTEs, such as couriers, in case open
Physician Office Connectivity positions occur. Maintaining a few part-time employees
is a great option if you can keep these positions filled. A
Physician office connectivity (POC) is a system that al-
temporary employment service can help with staffing, but
lows physicians to register, order tests, and receive results.
keep in mind the lead time required for training. Temp
Most physicians now have practice management systems
services can help in other areas. If you plan correctly and
or electronic medical records that will require inbound
have portions of jobs that can be easily delegated and re-
and outbound interfaces for their system. Some offices will
quire little training, these responsibilities can be given to
require the placement of computers for physicians to use
a temp. The best, but most expensive, option for courier
the software. Working with the Information Technology
coverage is to have contracts with one or more local cou-
(IT) Department, you will need to develop a method to
rier services. Form relationships with these vendors and
limit the use of the computer to only the POC function.
share route information in advance of requiring their help.
Additionally testing, installation, and training will need to
be supplied either directly by the lab staff or through IT.
The information the office inputs will interface with
Hospital versus Outreach Contracting
the laboratory system. Depending on the vendor used, cli-
ents can register patients, review results online, screen for Defining Insurance Plans
medical necessity, graph results over time, and have on- Research and define the important insurance plans in
line lookup to the laboratory test guide, as well as many your area. If the hospital or system owns physician prac-
other functions. The patient registration portion may be tices, use their information to determine the major insur-
difficult for the hospital. Allowing nonemployees to create ance companies in the area. If not, the hospital should
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
be able to supply its payor mix. Medicare, Medicaid, and
most point-of-service plans accept any provider. If the in-
surance company allows it, and after checking reimburse-
ment and how the billing system can support it, apply for
a provider number separate from the hospital. If the in-
surance company views the laboratory as a laboratory and
not just as part of the hospital, patients may be eligible
for lower copayments, but the reimbursement may also
be reduced. Review the other insurance companies and
identify the most important payors.
Contracting
Obtain permission to contract on your own within certain
parameters. The hospital contracting department can be a
tremendous help, but to the extent possible, have someone
who knows the outreach business do the contracting. At a
minimum, attend the meetings during contract negotia-
tions. This has several benefits. The laboratory may decide
that the administrative burdens of the contract are too
costly for the reimbursement offered. Also, if the labora-
tory is in control of the negotiations, you should be able to
control the timeline to coincide with the volume you want
or need for the laboratory.
Acceptance of Payors
The laboratory does not have to accept all payors but will
need to participate with most providers to secure the busi-
ness of clients. Plan to be shocked as you review the vari-
ous terms and pricing structures set out by some of the
insurance companies. This is another area that the hospital
will have difficulty understanding. The idea that the labo-
ratory can accept reimbursement that is significantly be-
low the hospital fee schedule will be difficult. Know and
understand the laboratory costs and the reimbursement
that can be accepted. Do not accept low capitation rates
or fee schedules that do not cover at least the variable cost
with the expectation that the laboratory will make up the
difference on the “pull-through” business. First, this can
be a compliance problem, because government payers may
see this as an inducement. Second, there is no way to be
assured that the pull-through business will materialize. Al-
ways request utilization data. For large populations, data
should be required.
Failure To Understand Financial
Implications and Requirements
Unrelated Business Income Tax
Unrelated business income tax (UBIT) is an income tax
that must be filed annually. Make sure that the corporate
finance office understands the outreach business and will
file this return for the outreach program. Depending on
the practices using outreach services, not all of the income
will be taxable. The laboratory may be able to exclude
781
some of the clients because they are corporately “related”
to the outreach program. Work closely with the finance tax
department to clearly understand the income that can be
excluded from the calculation. Keep the work papers and
reports used to produce this information.
Other Taxes
Other taxes that the laboratory may be subject to include
sales tax, business license tax, and personal property tax.
Depending on the tax status of the parent company and
the laws in your locality or state, some or all of these
taxes may apply to the outreach business. The hospital
may not have detailed information about some of these
taxes, because it may not be required to pay them. But the
outreach business may be required to pay some or all of
these taxes. Investigate which taxes will need to be paid
and, if necessary, build these taxes into the expenses for
the outreach program.
Understanding the Hospital’s
Point of View
There are generally some underlying reasons for, or a char-
ter for, an outreach business. The hospital has expectations
that must continue to be met, even as the laboratory pro-
gresses from a cost center to a product line.
Lower Cost per Test
Securing the laboratory testing of a hospital or hospital
system is usually one of the main objectives of an outreach
program. A hospital’s cost per test is generally high because
of fixed costs and underutilized resources. By adding vol-
ume to a facility, you decrease the cost per test, assuming
minimal incremental resources are added. Employees and
equipment are not fully utilized on off shifts. The balanc-
ing act for outreach is to add testing to fill this void. This
will work for a while, during the time the outreach pro-
gram begins to build its business. As outreach grows and
outgrows the unused capacity, be careful to add testing and
resources that make sense. Cost per test should at worst
remain static after an initial drop, but even as resources
must be added, cost per test should continue to decrease.
This will be imperative for long-term success.
Make Money
The hospital will, at worst, expect the laboratory outreach
business to break even on direct expenses and make a con-
tribution to hospital and system expenses. It is important
to be able to produce financial documents, get them in the
hands of the right people, and have a break-even financial
position. UBIT will be a factor, but there may be other un-
related business lines that are losing money. The hospital
may be able to apply the outreach income against those
losses to avoid paying UBIT.
782 OUTSIDE MARKETING AND EXPANSION
Translating Hospital and Laboratory
Compliance for an Outreach Operation
All hospital laboratories should have a written compli-
ance plan that follows the Model Laboratory Compliance
Program. A current active compliance plan will help keep
the laboratory on track during outreach implementation;
however, the plan will need to be modified, and some poli-
cies not previously applicable will need to be added.
Physician Communication
The depth and breadth of physician communication will
probably need to be improved. This communication must
include information related to compliance policies. Medical
necessity and advanced beneficiary notices will need to be
explained. Billing practices will need to be covered in detail.
Specifically, physicians need to know what is included in
various panels and when more than one Current Procedural
Terminology (CPT) code is billed for a group test. A clinical
pathologist contact must be listed, with information on how
that person can be reached. Take this opportunity to explain
other compliance policies, such as supply orders, standing
orders, reflex testing, and requisitions (Appendix 44.1).
Medicare Secondary Payor Questionnaires
Medicare secondary payor (MSP) questionnaires are com-
pleted in the current hospital setting when patients first
present to the hospital. Hospital outreach programs are not
required to complete the MSP questionnaire if there is no
face-to-face contact with the patient. There is still the bur-
den of determining if Medicare is the primary payor, but
the questionnaire is not mandatory. Additionally in cases
where a patient visits a draw site or is drawn by a reference
lab employee in a practice, the form will be required.
Physician Acknowledgments
Physician acknowledgments must be completed if the
laboratory is going to allow physicians to order non-CPT-
approved panels. For instance, if the laboratory allows a
physician group to create a panel that includes all of the
components of the basic metabolic panel plus serum glu-
tamic oxalacetic transaminase (SGOT), the group must
sign a physician acknowledgment. The acknowledgment
must include the CPT codes that will be billed, the charges,
and the expected Medicare reimbursement. There is also
specific language required. It states (i) that the physician
understands that the only laboratory tests that should be
ordered are those that he or she believes are medically nec-
essary for the care of the patient, (ii) that he or she is aware
that using a customized profile may result in the order-
ing of tests for which Medicare or other federally funded
healthcare programs may deny payment, (iii) that as the
ordering physician, he or she will order individual tests or
a less inclusive profile when not all of the tests included
in the customized profile are medically necessary for an
individual patient, and (iv) that as the ordering physician,
he or she understands that the Office of the Inspector Gen-
eral (OIG) takes the position that a physician who orders
medically unnecessary tests may be subject to civil penal-
ties. These notices must be completed annually (5).
Advance Beneficiary Notices
Train, train, train, and train some more. Training and us-
ing electronic checking from the POC system are the only
ways that the laboratory will receive advance beneficiary
notices (ABNs) as necessary. It is the laboratory’s re-
sponsibility to properly train the physician offices, when
appropriate, to collect and properly complete an ABN. Re-
member, if the physician does not provide the laboratory
with a correct diagnosis code or an ABN, and the labora-
tory does not get paid, the physician is unaffected. How-
ever, there is a provision in the instructions that will allow
the laboratory to collect an ABN after the specimen has
been received but before the test is performed. The patient
can be called for authorization to perform the test, and
then a follow-up ABN can be sent by mail or email (1).
This presents obvious processing problems but does leave
an avenue to pursue to solve this particular problem.
Beware of locations that collect too many ABNs. The
ABN should only be collected when appropriate (i.e., when
there is a valid reason to believe Medicare will not pay for
the test). Also, remember that the instructions require that
a copy of the form be given to the patient along with an es-
timate of the charges. It is the laboratory’s reimbursement at
stake and therefore the laboratory’s responsibility to train the
physician office to collect this information when necessary.
Requisition Design
The requisition design should be carefully planned and
evaluated. If a requisition is already in place, a comprehen-
sive review should be completed before using it for outreach
purposes. Ensure that billing for panels is properly repre-
sented and that all components of a panel, as well as the
panel, can be ordered. Make sure the form flows easily for
data-processing purposes. Carefully select the tests that will
appear on the requisition. Too many or too few tests can be
a problem. Leave space for write-ins but place instructions
on the requisition that detail the required information for
write-in tests. There is required language from the Model
Laboratory Compliance Program about ordering tests that
must be on the requisition (5). Supply proper space for all
of the billing information. Use this opportunity to denote
when an ABN might be necessary and when there will be
a separate bill from the professional group. Ensure that the
laboratory’s phone number is on the form. Provision for
storage of requisitions must also be considered; these req-
uisitions/orders will need to be retained for a minimum of
five years. Check the latest requirements and the policies of
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
your company to determine your policy. The requisitions
must be accessible for audits but not necessarily stored on-
site, and electronic storage is acceptable.
Pricing
Special pricing should be carefully considered on a case-
by-case basis. There should be an overriding policy that
dictates pricing and discount guidelines (5). Pricing for any
client-bill portion of an account must be determined sepa-
rately from pricing of other testing that will be received.
A client bill is for the testing that is billed directly to the
physician/client rather than to an insurance company. Do
not cost-shift between payors (client, Medicare, and other
insurance) to win an account. Cost shifting is when the
laboratory uses profits from one portion of the account,
insurance for instance, to offset shortfalls in profitability
from another portion, for instance the client-bill portion.
Each part of the testing received must be profitable.
Add-On Tests
There must be a policy that covers how add-on tests will
be processed. An add-on test is a test that is requested on
a specimen after the initial requisition is received. When
an add-on is called in, it must be followed by a written or-
der and, if needed, the laboratory must be able to produce
that order, just as if it were a requisition. An internal pro-
cess to determine specimen availability and quantity also
needs to be considered. This is probably an instance when
the technical section should be involved. Even if speci-
men processing is responsible for locating the specimen,
the technical section should assess specimen viability and
adequacy before responding to the client. Requiring the
order to be faxed before processing the additional test re-
quest alleviates the issue of matching the phone order with
the written order before billing. Otherwise, a review of the
phone orders every 30 days is advised.
National and Local Coverage Policies
Negotiated rule-making is a process that includes mem-
bers of the laboratory industry, physicians, and officials
from the Centers for Medicare and Medicaid Services
(CMS) to develop coverage policies for tests. The cover-
age policies include the diagnosis codes that will be paid
for by the CMS. Local carriers and financial intermediaries
are allowed to add to the policies or add new policies but
may not delete parts of the existing policy. These policies
are updated as often as quarterly. There are services avail-
able to ensure that the latest information is available in the
system(s) being used for medical necessity checking.
Sanctioned Physicians
A policy for identification and resolution of specimens re-
ceived from sanctioned physicians will need to be put in
place. Sanctioned physicians are doctors who have been
783
restricted from submitting claims and ordering services for
Medicare patients. Most laboratory and hospital compliance
programs bar the hospital and laboratory from doing busi-
ness with sanctioned physicians for any testing. Hospital
Admissions uses the medical staff office to research doctors
and determine their status before granting privileges, if ap-
propriate. In the outreach business, specimens will be pre-
sented to the laboratory from physicians who are not on the
medical staff. The laboratory will need to be able to identify
physicians who have been sanctioned to know whether or
not to process the test. If the test is not going to be processed,
you will need to determine how to notify the physician
and handle the disposition of the specimen. Stat and non-
recollectable specimens will require special consideration.
Contracts
A standard client contract will need to be developed and
approved by the Legal Department. The contract should
be signed by all clients, but it will be a requirement for cli-
ents who have a client bill. Try to keep the contract short
(three pages or less) and include only key points. In the
agreement, set the terms of the agreement, including pay-
ment terms, compliance guidelines, services offered, fees,
requirements concerning retention of records, where to
send contract changes, and governing law. The Legal De-
partment will also have a number of items to include.
Audits and Reviews
Each of the areas discussed here will need to be reviewed
annually, and some areas will require an audit. Add-ons,
sanctioned physicians, physician acknowledgments, and
requisitions should be reviewed or audited annually. Billing
(including ABNs and medical necessity forms) should be
audited at least quarterly. For the items that require an audit,
a specified format should be followed and the documenta-
tion should be maintained for a minimum of two years.
Participation and Cooperation
An outreach program is a large undertaking and will re-
quire changes in every area of the laboratory. Some depart-
ments that will require detailed review include Specimen
Processing, Transfusion Services, Anatomic Pathology,
Professional Services, Immunology, and Cytology. Each
area will need to review its operations, make decisions, and
perhaps create new policies to prepare for the new business.
If successful, the second and third laboratory shifts will
change from a slower pace to the busiest time of the day.
Successful outreach business is based on the ability of the
second- and third-shift employees to complete the bulk
of the outreach testing. Equipment, staffing, and facility
design will need to be examined to ensure that a larger
volume of testing can be produced in the time frame re-
quired. A review of on-site testing will also be necessary.
With the additional testing that will be procured, tests that
784 OUTSIDE MARKETING AND EXPANSION
were previously sent out will be able to be, and should be,
performed in-house. The decreased turnaround time for
these tests will benefit not only the outreach program but
the hospital patients as well.
Transfusion Services. Although Outreach will not get
involved in the transfusion of patients, blood typing and
screening and ABO and Rh tests will be ordered. Transfu-
sion Services needs to decide how these specimens will be
handled in relation to patient history. Transfusion depart-
ments may not accept outreach specimens for transfusion
because they do not have control over how patient identifi-
cation is monitored in the physician office setting. If that is
the policy, then outreach specimens for transfusion testing
must be ordered and processed differently than for hospi-
tal patients. The policies for this area need to be developed
and communicated before Transfusion Services receives
outreach specimens.
Anatomic Pathology. Many of the items discussed for the
clinical laboratory also apply to Anatomic Pathology. The
same shift of workload, in terms of time of day, will occur
in Anatomic Pathology. Additionally, Anatomic Pathology
may want to evaluate whether it wants a different number-
ing sequence for the cases received from Outreach. This is
an area where the continuum of care is very valuable for
clinicians and should be marketed.
Professional services. Reimbursement for professional pa-
thology services needs to be discussed and decided upon
prior to beginning sales for Outreach. This is especially
true for any client-bill testing. Normally, the professional
component for testing is included with the clinical portion
for client billing. This means that the laboratory must have
a method to capture and pay the professional group for
those services. The fee schedule for the professional group
must also be completed beforehand so that the fees for the
clients can be set to include this cost. If the professional
group has a company that does its billing, it may be able
to bill the outreach program for the testing. The labora-
tory may also want to agree with the pathologists about
how much the patients will be charged and how the demo-
graphic and insurance information for patient billing will
be transferred to the pathologist.
Multiple pathology groups. If there is more than one pathol-
ogy group within the hospital system, there will need to be
a predetermined method for the distribution of work. Care-
fully consider how this is done and the rules for competition.
Inform the Marketing Department of the method and pro-
vide them with guidelines and talking points for the clients.
Immunology. The Immunology Department may or may
not be willing to accept specimens from the outreach
program. Determine if this is a service that can be offered
and what hours it will operate. Usually, Immunology’s re-
quirements for specimen transportation are very strict, so
transportation may need to be arranged outside of that for
the clinical laboratory. Immunology may be interested in
using the processes the outreach program sets up for deliv-
ery of results and client billing.
Cytology (gynecologic and nongynecologic). Pap smears
will be an important part of the outreach business. Deter-
mine the acceptable turnaround time for the market. If you
are beginning the outreach program as a new program,
this is an area where resources may need to be invested.
Hospitals do not traditionally perform many Pap smears,
so Cytology may lack the ability to easily add volume. The
laboratory will need to address the issue of liquid-based
and image-guided Pap smears. If the hospital offers non-
gynecologic cytology, this service could be marketed as
a niche. Not all laboratories have this capability and the
professional expertise that is needed, so this is an excellent
service to develop as a niche. This testing is expensive, so
do not under-price it, but offer short turnaround time and
superior professional expertise for the outreach program.
Enhancing Customer Satisfaction:
Communication
It has been said that you need to communicate seven times
in seven ways . . . and it still will not be enough. Keep this
in mind when implementing a new program or making
changes to existing programs and policies for staff and cli-
ents. It will help remind those communicating that once,
twice, or even three times is probably not enough. There
are some things that can be done to help with this endeavor.
Create a consistent format and brand for all communi-
cation. This includes the name of the outreach program,
the letterhead, the logo, and the format of the newsletter,
guidebook, and any other printed material used for the lab
program. Use either the hospital logo or one that is cre-
ated for the laboratory program. If the hospital has good
name recognition and a good reputation in the commu-
nity, the laboratory program should use that advantage. It
is important that the same name for the program be used
consistently. This consistency will help to begin to create
an image and recognition for the outreach program.
Newsletter
A newsletter can be a great communication and marketing
tool if done correctly. If the laboratory is going to publish
a newsletter, it should be published on a regular schedule
in a consistent format and should deal with issues that are
important to the laboratory and the clients. Do not let the
client newsletter double as the employee newsletter. It is ac-
ceptable to profile the laboratory director, the pathologists,
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
and the other managers, but do not list birthdays, wed-
dings, births, etc. The newsletter should be professional
in its writing and presentation. Place the logo and name
prominently on the newsletter. Include information about
new procedures performed in the laboratory, and include
technical information in the newsletter. Include policy
changes that will affect the clients. Use the newsletter as a
marketing tool by telling everyone about proficiency test-
ing excellence, courier on-time information, phone answer
times, and turnaround time statistics. However, remember
that although the newsletter is delivered faithfully, it will
only be read by about 30% of the clients.
Marketing and Sales Team
The marketing and sales team should be used to commu-
nicate more in-depth issues and to reinforce information
contained in the newsletter. These employees should be
excellent communicators. They need to be comfortable
speaking with people of all ages, education levels, and na-
tionalities. There should be a standard communication
checklist completed with each client setup. The market-
ing staff is limited, so they will not be able to visit all of
the clients each time a communication is necessary. Also,
since this may be the same staff that is responsible for sales,
do not consume all of their time communicating to cur-
rent clients about operations. Use this staff for operational
communication only when it is very important.
Laboratory Guidebook
The laboratory guidebook should be complete and concise.
Ensure that the guidebook is available in an online format.
It is much easier to keep the online information up to date.
Use the guidebook to provide comprehensive information
about the laboratory and its operations, policies (including
forms), testing, specimen preparation, result reporting, bill-
ing, staff, and licensure. The guidebook should serve as the
client’s primary source of information about the laboratory.
If successful in its layout and content, the guidebook should
reduce calls to the laboratory. Use the logo and name brand-
ing discussed earlier on the cover and throughout the guide.
Take this opportunity to list all of the management staff,
the pathologists, and any other specially trained personnel
on staff. Give their names, degrees, certification, and phone
numbers. Provide information on important policies. In-
formation about the policy on laboratory compliance,
medical necessity, inclement weather, how to complete a
requisition, patient confidentiality, specimen retention, and
ordering supplies should all be available in the guidebook.
Give step-by-step instructions for collection and prepara-
tion of all specimens, not just urine and blood. Publish the
list of tests that must be transported frozen and the tests
that can be ordered STAT.
The most important portion of the guidebook is the
test listing/menu. Make sure that this section is user
785
friendly. Use the names of tests that are typically used
across the laboratory industry. List the sample size and
tube requirement, the CPT code(s), how often the test is
performed, the expected turnaround time, the reference
range, and any special instructions for collection and
preservation. Unfortunately, the minute the directory is
published, it will already be out of date. If the guidebook
can be posted on a website, updates can be made often.
For the printed guidebook, it is very important to send
out updates as changes occur and to revise the guidebook
every 18 months to two years. If this resource becomes
very outdated, the program will begin to lose credibility
as a reference laboratory in the community.
Website
The website can be a very useful tool. In its most advanced
form it can be used to replace the guidebook for many of-
fices and can include interactive communication with the
laboratory that the client might require. Functions to con-
sider for the website include placing supply orders, look-
ing up information on tests, registering patients, ordering
tests, looking up results, printing results, requesting a cou-
rier pickup, and changing the time of a pickup. Web design
should be carefully thought out and again identified with
the prominent name and logo.
Focus Group
Focus groups can be organized to help the laboratory with
marketing and change. A focus group should consist of 10
to 15 clients. The clients selected should be important to
the outreach program but not necessarily the largest cli-
ents. A particular client may be chosen because they rep-
resent a specialty that is important or uses a portion of the
laboratory that is marketed as a niche market. Include peo-
ple who are not afraid to be critical. Recognize that they
are giving their time for the laboratory program and do
not waste it. The meetings should be about an hour long,
and the agenda should be comprehensive but clear. This
should not be an information session but a fact-gathering
session. The clients should do most of the talking, so make
sure someone who is comfortable with that format is avail-
able to lead the meeting. Use this group to review new
print pieces that are in development, the guidebook for-
mat, and new programs and to let them learn about new
testing prior to official publications. Solicit their ideas for
improved ways to deliver appropriate information and im-
provements that can be made to the program.
Customer Satisfaction Assessment
Surveys
Conduct a survey of the clients annually. Carefully select
the questions for the first survey. Changing the survey
questions makes year-to-year comparisons difficult and
786 OUTSIDE MARKETING AND EXPANSION
not necessarily valid. The survey should not be longer than
40 questions and should include room for client comments.
Be prepared for a low response rate. A 30% response rate
is considered very successful. Designing ways to improve
the response rate is tricky because most respondents also
want to remain anonymous. Be prepared to make changes
in response to the survey data. Completing a survey is only
worthwhile if the laboratory uses the results to improve the
outreach program.
Problem Reporting and Resolution
Have a defined process for problem reporting and resolu-
tion. There are a number of policies that should be written
and tested before the first phone call is answered. All calls
should be logged. If a system is not available for this pur-
pose, use paper logs. But this should be a last resort. Prob-
lem reporting and resolution should be a defined cycle.
Responses to the typical questions should be quick, efficient,
and automatic. Some necessary policies and items to include
are listed below. In addition, scripting is a great resource for
the Client Services Department and is a method to ensure
that the same service is delivered to each caller each time.
Written policies.
Printer problem. The use of remote printers and faxes
is an effective, efficient means to communicate results. A
policy needs to be in place to troubleshoot this equipment
over the phone. The policy should detail what to do if the
initial troubleshooting does not work and should deter-
mine if the marketing representative, the phone company,
or the equipment vendor should be called.
Calls for result inquiry. This will be the most frequent
type of client calls received. Clients inquire about when
a result will be available, why they have not received a
result, whether a duplicate can be faxed, or what the re-
sult means. Because patient confidentiality is an issue, the
policy should first detail how to identify the person call-
ing and should ensure that the individual is “eligible” to
receive patient results. This can be determined by having
the caller identify his or her client number, doctor num-
ber, or even complete street address. The policy should
also state what to do if the caller cannot provide this in-
formation. After identity is established, the policy should
contain information about how to correctly identify the
patient in the laboratory system and the acceptable meth-
ods for communicating the results. Providing long lists of
test results and reference ranges verbally is not the best
approach; this is also a problem for microbiology suscep-
tibility results. After the caller is identified, the patient is
identified, and the results are appropriately communi-
cated (including a read-back), the laboratory should at-
tempt to determine why the results were not available to
the clinician in the office when needed.
Faxing results. A policy for the method and validation
of faxing results will be needed. Because so many homes
and computers have fax numbers, it is necessary to ensure
that all fax numbers are validated before faxing. This pro-
cess should include sending a test fax and then using that
tested fax number to send the patient information. When
sending the patient information, it is best if the laboratory
does not have to hand dial the number. Work with IT and
telecommunications to develop a process to store the fax
numbers during the test phase so numbers do not have to
be rekeyed.
Wrong test ordered. Write a policy to describe the pro-
cess to follow if the wrong test is ordered. When the client
calls, determine the patient and test in question. Check to
see what test was performed or if a test was missed. The
original requisition will need to be obtained. If speci-
men processing ordered the incorrect test, the correct test
should be ordered. If the physician ordered the incorrect
test, a new order will be needed from the physician. For
missed tests, the new test should be ordered immediately
and performed STAT if possible. In any of these situations,
determine specimen adequacy and viability before indicat-
ing that the new test will be performed, and include a step
to credit incorrectly ordered tests. Employee education
may also be required.
Information. There should be a policy for informational
requests. These include questions about turnaround time,
specimen collection and preservation, location of the lab-
oratory and collection sites, and services available. When
the client service representative provides this information,
the call should be logged and information provided to the
client regarding where the requested information can be
found. The policy should outline when, if the client service
representative is unable to answer the call, it is appropriate
to send the call to the technical section or other resource
and how the call will be handled from that point. The best
practice is for the client service representative to use three-
way calling or conference call capability to have the client
and technical section on the line together so he or she can
hear the answer and also take care of any follow-up that
may be necessary. This provides the advantage of includ-
ing technical expertise without just passing the call to the
technical section, in case further follow-up is needed. If
the client needs a guidebook or some other information
that is available, the marketing representative should fol-
low up with the client.
Missed pickup. A missed pickup is a difficult service
recovery call for the client services staff. This is a good op-
portunity to develop and practice scripting with the client
services representatives so that a consistent and thoughtful
message is delivered. The policy for this call will be largely
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
determined by the process in place for making pickup as-
signments and the client’s status for pickups (daily pickup
vs. call-in). The specimen(s) should be picked up as
quickly as possible, even if specimen viability is not an is-
sue, because the client will view further delay as further
lack of customer service. These calls should be logged and
tracked for trends that may reveal problems with the pre-
determined routes or other courier issues.
Lost specimens. It is difficult to write a policy for lost
specimens, especially ones that cannot be replaced, because
service recovery is extremely difficult. This is another good
opportunity to develop scripting. If the specimen can be re-
collected, the laboratory may offer to call the patient and
perform the phlebotomy at the patient’s home or office if
necessary, at no charge. The tests should be performed
STAT and results communicated by phone and fax. The
good news, if there is any, about specimens that cannot be
replaced is that they generally stay viable for an extended
period. Search all of the courier cars, all of the coolers, the
client’s lockbox (and their next-door neighbors’), the re-
frigerators in the laboratory and at the client’s office, all of
the technical sections, and anywhere else imaginable. If the
specimens cannot be replaced, report to the quality assur-
ance department and do whatever service recovery is appro-
priate for the client and the patient. Obviously, this kind of
situation needs to be logged and studied carefully, perhaps
using a root cause analysis (RCA), to determine where the
process failed and how this can be prevented in the future.
Other. For problems not covered by a specific policy,
there should be a policy that covers how to document an
issue and generally what department will handle certain
issues. The policy should explain in general the problem-
resolution flow and philosophy for handling calls. For
atypical or serious problems, there should also be a
problem-resolution cycle that includes notifying manage-
ment as early in the process as possible.
All calls should be logged, and the data should be re-
viewed and trended for system or procedural problems
that may need to be addressed. Client services should be
able to handle more than 95% of the calls that are placed to
the laboratory. If not, the employees and policies in place
should be revisited, and these calls should be monitored
routinely. There should be a clear escalation policy in place
for the remaining calls.
Quality assurance. Quality assurance monitors should
be developed for the outreach program. Know what is ex-
pected of the program and measure against that baseline.
Establish thresholds for turnaround time, call abandon
rate, on-time courier pickup, call wait time, registration
accuracy, missed pickups, and lost specimens. Track num-
bers on a daily basis. The numbers of tests performed by
787
section per day, the number of requisitions processed, and
the number of daily courier pickups will help identify staff-
ing requirements and find weaknesses. Outreach volume is
not the same every day, not even Monday through Friday.
Know the peak-volume times and days and plan resources
accordingly.
Couriers: the First Line
Couriers are the face of the outreach business to the clients.
Clients see their couriers daily, and couriers are the only
people from the lab they see except when they have a seri-
ous problem or during marketing visits. Couriers should
be neatly groomed, be in uniform, have two-way radios or
cell phones, and be in vehicles identified with the organi-
zation’s logo (even if they only pick up from lockboxes).
Give the couriers the respect and resources they need,
because the clients will look to them for help when prob-
lems occur. Make them accountable for their route by de-
signing route sheets that have all the information on it that
they need. Provide the couriers with the ability to access
the laboratory if they have a question or problem. Remem-
ber, the entire cycle starts with the courier. The on-time
delivery of results for the specimens they are collecting
begins with the courier pickup. If the courier is late or a
pickup is missed, it sets in motion a chain of events that
may culminate with late results or no results until the sec-
ond day. Clients expect to have the majority of reports by
the next morning when they open. The ability to deliver
this level of service depends on all steps in the process be-
ing performed quickly and accurately. A delay in any step
may not be correctable later in the process.
If possible, give couriers the ability to please their cus-
tomers. For instance, they can carry blank requisitions,
supply request forms, and SST and lavender tubes. This is
a level of service that most laboratories do not provide.
A specimen tracking system will need to be developed
that allows the courier to input the specimens picked up
and verify that information with the specimens delivered
to the lab. Discrepancies must be researched before the
end of business for that day.
Client Services
Client Services should be open when the physician office
staff begins to arrive in the morning at a minimum. 24/7
coverage is best but may not be feasible or cost effective
depending on the client base. If the laboratory has nursing
home clients, Client Services should be available when the
physicians make rounds in those facilities. This is usually
before office hours, around 7:00 a.m. The Client Services
area can be staffed with some “on-the-job-trained” staff
but should also be staffed with medical laboratory techni-
cians (MLTs) or medical technologists (MTs). At least one
788 OUTSIDE MARKETING AND EXPANSION
MT or MLT should be in Client Services during peak call
hours. The more technical the staff in Client Services, the
better the overall service will be. The technical staff has
the advantage of understanding all aspects of the testing,
including specimen collection and acceptability and test-
ing protocols.
Offer clients flexibility in reporting. They should be
able to choose how they want the reports delivered. De-
livery can be by printer, by fax, by mail, in an electronic
format, or by courier. The laboratory should also have the
ability to send results at multiple times each day. Decide
how to comply with requests for multiple copies of reports.
Will you fax it, print it, or call it in to one, two, or three dif-
ferent locations? What are the processing ramifications of
providing this kind of service? Does the laboratory system
support this kind of request? Results that are to be deliv-
ered by the courier need to be ready before the couriers
leave each day. The schedule needs to be determined so
that adequate staff is on hand to ensure that the reports are
printed and prepared for delivery before the couriers leave.
A critical result notification policy will need to be es-
tablished for the outreach program and will often differ
from the inpatient policy. The outreach critical result noti-
fication policy may include a variance for notification after
hours, reducing the number of tests that will need to be
called through the night. Also consider how to involve pa-
thologists or other physicians when the ordering physician
cannot be reached to communicate a critical result.
Access to Draw Sites and Patient
Service Centers
Draw sites and patient service centers will be vital to labo-
ratory outreach success. Decide on the overall strategy for
access to the laboratory by examining options for each of
these areas.
Hospital-owned facilities are a great start for patients
to access outreach services. Facility locations are generally
known, well marked, and easy to find. However, sometimes
that is where the advantage ends. A hospital is not always
easily accessible in terms of parking and navigating the in-
side of the building. Do not eliminate the use of the hospital
as a draw site, but depending on its layout and accessibility,
you may not count on it as a primary source for collections.
Large competitor laboratories often have many patient
service centers set up and may allow you to contract with
them to perform collections for your patients. This gives
you geographically broad, ready-made, pay-as-you-go ac-
cess for patients. However, remember that this is the com-
petition and clients may ask, “If I am sending my patient to
laboratory X to be drawn, why shouldn’t I let them do the
testing?” Keeping this potential problem in mind, try to
open sites specific for your laboratory outreach operation
and phase out this type of competitor agreement.
When opening draw sites and patient service centers,
remember that location is critical. Select a location that is
highly visible, has easy access, and is in an area where the
medical community practices. Staff it with friendly, cus-
tomer service–oriented staff, and ensure adequate staff
support as the volume grows. Keep it clean and well or-
ganized. Signage should be large, and hours of operation
should be listed on the door. Here are a few hints from
lessons we have learned.
• Select a location only after reviewing demographic
information for patients, physician offices, and spe-
cialties. Also keep in mind competing draw sites.
• Begin communication about the draw site after a firm
opening date has been established.
• Execute a formal marketing campaign to announce the
new site and entice practices to use the location. The
campaign should be four to eight weeks long. Include
flyers, client visits, invitations to an open house, and
perhaps a cholesterol screening. The communication
about the new draw site needs to be reinforced contin-
uously, but you must provide various communications
for the marketing representative to take to the clients.
Sending the same flyer or using the same verbal mes-
sage will not keep the clients interested.
• Use the new site to draw new business. It is the only
way the site will pay for itself. Diverting existing busi-
ness to the site will not result in overall growth or pro-
vide any financial advantage.
• Continue to visit practices and encourage them to use
the site. Expect that the volume will be very slow at
first, but with continued communication, it should
grow. Establish targets and timelines for expected vol-
ume and be prepared to reevaluate a site if the targets
are not met.
• Since laboratory staff are available to collect demo-
graphic and insurance information, it is not necessary
that the client complete all of this information on the
form. However, it is recommended that the client use
something other than a prescription pad. A test req-
uisition gives the client the ability to check the tests
needed and the opportunity to include a map to the
draw site on the back for the patient.
• Employers may let the laboratory put information
about the draw site in their employee newsletter.
• Put an announcement in the section of the newspaper
that announces new physicians.
• Update insurance provider directories with the new site
and put an announcement in the member newsletter.
When a competitor asks to contract for the use of the
draw sites, evaluate the value to the draw site and your
business versus the advantage to the competitor. It is
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
usually less expensive to pay only for the expenses on a per
draw basis then to invest in a draw site. If you agree, make
sure you charge according to the expenses for that site.
Building and Retaining Your Client Base
Leverage the Continuum of Care
If the physician community has loyalty to the hospital or
hospital system, start the campaign for the outreach business
with the medical staff. Find the practices that primarily ad-
mit to the facility. Leverage the continuum of care for their
patients. The same laboratory can produce results for their
patients regardless of the patients’ status: inpatients, same-
day surgery, or referred specimens from the physician’s labo-
ratory. This way there will never be a problem with reference
ranges or varying technology when comparing patients’ re-
sults from one setting to another.
Keep Asking Why
Continually review and understand why decisions are
made. The answers that have been standard over the years
may no longer apply. Constantly ask customers about their
needs for service, supplies, couriers, client services, and
turnaround time. This does not have to be done with a
formal survey; client service representatives, couriers, and
marketing representatives are great sources of informa-
tion. Make sure the laboratory is meeting the client’s needs
and make the client feel involved in the process.
Follow Up When Clients Leave
When customers notify the laboratory that they are leav-
ing or when you determine that an account has been lost,
follow up as soon as possible to find out why. Even if the
account is not salvageable immediately, taking the time to
follow up may help you win accounts back in the future.
Follow up again about three months after the client leaves
and then at least annually. Many “new accounts” will be old
accounts that have returned. Also remember to review and
discuss the information clients shared about why they left
and determine if any other accounts are in jeopardy for the
same reason.
Professional Marketing and
Sales Personnel
Some laboratories use their current technical staff for sales
and marketing. If you are able to find laboratory profes-
sionals who possess the skills for selling, they could be
transitioned into the sales and marketing role. However,
this may not be the best strategy. They will require sales
training that may not be readily available. Laboratory
professionals are trained to be very detail-oriented and
very analytical. They like following procedures, and being
789
creative is not encouraged. Not all laboratory professionals
fit this cookie-cutter image, but many do, and these are not
the same set of skills and traits needed for a sales employee.
Hiring sales professionals with proven sales records brings
this ready-made expertise to the outreach program. While
the laboratory is not an easy area to learn about, laboratory
professionals with many years of training should be able
to help train the sales staff. Do not underestimate the time
required to train a new sales representative. Each person
should spend at least a month in the laboratory, followed
by quarterly training sessions. The time spent in the labo-
ratory will help sales personnel understand laboratory
operations so they can communicate effectively when
speaking with clients. It also helps them build personal
relationships with the technical staff producing the prod-
uct they sell.
Training should also take place on how to conduct ne-
gotiations and set boundaries for what is acceptable. Some
of the training is dictated by the laboratory’s compliance
program, but there should be additional guidelines set by
the sales manager. The sales representative needs to un-
derstand that it is acceptable to walk away from a contract,
even a large one, if it does not serve the business objec-
tives of the laboratory. These guidelines need to include
profitability and service requirements. Negotiations with
any given client “should not hinge solely on the nego-
tiator’s individual skill level” (2). Sales managers should
follow up with the client on any negotiations that do not
result in a sale.
Commission Plans
Each commission plan must start with a baseline against
which results can be measured. It is a good idea to break
the commission into several parts. For example, pay a dif-
ferent percentage rate on new sales than on growth of ex-
isting territory. Decide how to treat the commission for
related entities if, for example, the hospital also owns or
has ownership relationships with physician practices or
nursing homes. If the laboratory has managed-care con-
tracts, decide if testing received as part of these contracts
will be allowed as part of the commission payment. It may
be appropriate to pay a “new account” commission for up-
grade of an account. An upgrade occurs when the market-
ing representative is able to obtain a new line of business
from an existing account. This could be an account that is
currently only sending testing related to a managed-care
contract and later adds more payors. Reports needed to
calculate commissions must be ready early in the month.
The revenue used to pay commissions should be after
contractuals, so be prepared to calculate that informa-
tion. Also, be able to calculate contractuals when the fee
schedules change, and change historical data so that the
marketing and sales representatives are unaffected either
positively or negatively.
790 OUTSIDE MARKETING AND EXPANSION
Reports
Sales representatives should be encouraged to stay on the
road. Assignment of a personal desk in the laboratory may
not be a good idea. Office time should be kept to a mini-
mum. This presents certain challenges for staff manage-
ment. Over time you will be able to tell if the representative
is producing sales. However, you need to keep communi-
cation open so you can monitor progress, give feedback,
track problems or problem patterns, and ensure that the
facilities that management defines as important are vis-
ited. Weekly and monthly (see Appendix 44.2) reports are
useful to convey information in a consistent format and to
track progress. These reports should be in a standard for-
mat and should be completed and turned in at appointed
times. The weekly report should include information
about each visit made with client decision makers the pre-
vious week. Dropping off information to a client office or
seeing the receptionist does not count. There should be a
minimum number of visits required each week and an ac-
counting of time that is not spent in the field. The monthly
report recaps the month’s sales efforts. All active prospects
should be listed and their status provided. This also serves
as the document used to identify accounts that are eligible
for commission. Each account should have data available
in an online system. The manager should review the in-
formation a few times a year. The information will vary
but should include basic demographic information, con-
tact information, the names of all of the physicians in the
group, the hours, and all of the visits made to the account.
Prepackaged Information
Print pieces are a great source of prepackaged information
for the sales and marketing team, and a number of pieces
should be developed detailing information about the labo-
ratory. Pieces might cover new product offerings, special
programs, a niche service, and the professional group, if
they provide a competitive advantage. Each piece should
stand alone, but identify each with the corporate name and
logo, as discussed previously.
Technical Expertise Accessibility
Identify how and when to access technical staff. The tech-
nical staff is a tremendous resource for client services,
marketing, and clients. Use them wisely, as this is the same
staff the outreach program relies on to produce the high-
quality, quick results the clients count on. Identify situa-
tions when it makes the most sense to involve the technical
staff and contact the right person in the technical section
for assistance. For Client Services, contacting the technical
section should be done according to a policy. There should
be other steps to follow before calling the technical section
for help. Once it is decided that the technical section needs
to be involved, it should be called by Client Services and
conferenced in with the client. That way the section can
answer the client’s question, and the Client Services repre-
sentative can record the answer and complete any neces-
sary follow-up. Marketing personnel should build rapport
with the technical staff during their training and in subse-
quent training so they will be able to contact them directly
for quick answers to questions.
If it is necessary to take someone from the technical
staff to meet with a client, the visit should be well planned.
The exact source of questions and problems should be re-
searched before a meeting is scheduled. The marketing
representative should complete the follow-up whenever
possible so the technical staff member can return to the
bench. Use this option only for large clients and when the
material warrants this level of attention. For instance, a
large drug-screen account that has specific requirements
might be a good opportunity to bring a technical staff
member from Toxicology. He or she will be able to discuss
changes that have occurred with the testing, the technol-
ogy, and any plans for future changes.
Use the in-area (hometown) availability to your advan-
tage, but do not overburden staff. Being able to provide
this level of service to clients is going to be difficult for the
competition to match. The large commercial laboratories
that have STAT labs in the area do not readily have this
expertise to offer. The technical staff is a powerful weapon
when used correctly. Be careful not to let them become
overwhelmed with phone calls and client commitments
that could have an adverse effect on test turnaround time.
For the most part, the technical staff will welcome the op-
portunity to answer questions and visit with clients occa-
sionally, which will help to win and keep business.
Accounts That Require Special Care
Each of these account types can be lucrative but also has
specific demands that must be met. Before deciding to en-
ter any of these market segments, review the demands and
ensure that the laboratory can meet them and still generate
a profit.
Nursing Homes
Nursing homes are attractive because of the opportunity
to collect many specimens in one location and to control
the entire account. Marketing representatives like nursing
homes and rehabilitation facilities because they produce
large commissions. To compete in the nursing home busi-
ness, the laboratory will likely need to commit a phleboto-
mist to the facility each morning, Monday through Friday,
and be available on weekends and after hours to collect
specimens for emergent situations. Results must be turned
around the same day they are collected. The laboratory
must have a commitment from the nursing home to pro-
vide medical necessity information or pay for the charges
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
that do not meet medical necessity, because collecting an
ABN is usually not an option. If the nursing home has Part
A patients, a process must be in place to establish the pa-
tient’s status at the time the specimen is collected and also
to check it before a bill is sent. Part A patients are patients
for whom Medicare reimburses the nursing home on a case
rate that includes all of their ancillary services (laboratory,
radiology, rehabilitation). The laboratory will need to bill
the facility for the testing performed for these patients.
Keep in mind that a patient’s status can change retroac-
tively. A commitment must exist from the nursing home
to collect MSP information and either make and commu-
nicate primary payor information or forward the MSP in-
formation to the laboratory. This is a demanding business
that has some compliance risks, but we have found that it is
profitable for mid-sized to large nursing homes.
Drug Accounts
Drug accounts for pre-employment screening also have
unique demands. Drug-screen accounts usually require
chain-of-custody forms to be completed and can be de-
manding concerning locations for specimen collection.
The more sophisticated employee health programs will
want specific testing in place for drugs. Ensure that Market-
ing and the client understand the difference in testing and
pricing between a drug screen and a quantitative drug test.
Home Health Agencies
Home health agencies want easy access to a large number
of facilities, quick turnaround time, and delivery of reports
to numerous places. Requests to call and send reports to the
agency, as well as to a number of doctors, are not unusual.
The advantage to this segment of business is that it usually
comes to the laboratory. Most home health agencies will de-
liver the testing to the laboratory. This may be enough of a
benefit to offset the requirements of the additional reporting.
Veterinary Lab Services
Providing laboratory services for the veterinary commu-
nity is very demanding. The service requirements are ex-
tensive and payment is generally low. IT systems will need
to be prepared to accept the different breeds and normal
ranges required for animals. Also, veterinary pathologists
are difficult to recruit and retain, although this segment of
the business could be sent to a third party. The business
can be a niche service line if you have buy-in from the lo-
cal veterinary community, you are able to use your current
equipment, and you are able to provide STAT service.
Define Service Area and Services
Determine how to define services offered and the service
area. Marketing will press for additional services and a
larger service area. Any changes to service or service area
791
should be pursued only after a careful marketing and fi-
nancial analysis. Decisions should be made about the
services offered and the territory to be covered based on
financial information and resource availability. Stepping
outside of the original plan may mean that other ser-
vices will be compromised or that more resources will be
needed. Do not presume that extension of services can be
accomplished without sacrifice. If the laboratory has an
opportunity and the flexibility to change plans, then the
change should be planned and pursued. Flexibility and
adaptability are qualities that young businesses tend to be
better able to attain than established businesses. Take ad-
vantage of that strength, but understand the consequences
before a change is made.
Range of Services
What other services will you offer? System courier, home
draws, arterial blood gases, and pulse oximetry are some
of the services we have provided over the years. We deter-
mined that most of these were not our core business, as
they were expensive or administratively burdensome, and
since we did not feel we serviced them well, we discontin-
ued these services. Other laboratories have been willing to
invest the resources to make this a niche for themselves in
their system.
Courier for the system. The service for the laboratory
can be expanded to serve the health system, and there are
advantages and disadvantages that should be considered.
If the laboratory decides to take on the responsibility of
transporting items other than laboratory supplies and
specimens, ensure that there is a tracking system in place.
Some items cannot be replaced. Transporting other items
while transporting specimens can provide a good busi-
ness case for a specimen-tracking system, which will be
an added benefit to your clients. If the laboratory can ad-
equately provide this service or join a system-wide courier
network without sacrificing the timeliness of pickup and
delivery of specimens, it could be a win for everyone. Re-
member, though, that if couriers do not have the ability to
do their laboratory job well, the laboratory will be behind
schedule from the time the specimen arrives, and making
up that time is not easy.
Pulse oximetry. The laboratory sometimes will take on
the responsibility of pulse oximetry, since the same people
performing this function also collect arterial blood gases.
Pulse oximetry testing is needed to certify patients for
oxygen. However, there is limited reimbursement from
Medicare in terms of both the value of the reimbursement
and medical necessity requirements. Additionally, the task
is administratively burdensome. The patients often need
the equipment delivered and picked up from their homes.
Then there is the issue of ensuring that the results are
792 OUTSIDE MARKETING AND EXPANSION
reported as needed. This service can be an added benefit
for existing clients, but the number of people who will use
the service does not usually provide sufficient benefits to
distinguish the program in the market.
Arterial blood gases. Some hospital laboratories include
this function because it is related to phlebotomy, but usu-
ally it is provided by the Respiratory Department. Someone
will need to be available in the hospital at all times for this
service. The skills that are required are different from those
of phlebotomy. More in-depth training is required to collect
arterial blood gases, so the function is generally limited to
a subset of the phlebotomy staff. Nursing homes will want
this service and will view it as an added benefit of dealing
with the outreach program. Most reference laboratories do
not provide this service. This draw is usually not scheduled,
unlike the daily draws performed for nursing homes, and as
discussed, the entire phlebotomy staff will probably not be
trained to do this testing, thus making the service difficult
to deliver. The respiratory vendor that the nursing home
contracts with will also offer this service, and it may be ad-
visable to direct inquiries for this service to them.
Home draws. Doctors and home health agencies will be
very pleased with the laboratory for providing this service.
If the laboratory can rigidly control the service area and
hours of operation, meet medical necessity standards, and
only provide the service for offices that have signed con-
tracts for their complete business, it may be worthwhile.
Profitability is difficult with this business because of the
time and distance involved in collecting the specimens and
the limited number of tests that will be drawn at each stop.
Enlist the aid of the Compliance Department to determine
the rules for homebound patients, certification for home-
bound status, and the billing of travel fees. There is also
a safety factor to consider for the phlebotomist. Consider
the neighborhoods they will be asked to visit and the fact
that they are in the homes of strangers. Do not ask that
they collect funds, even if the patient is self-pay.
In-office phlebotomy. This is a service that will help win
accounts and may be required for larger practices. Be care-
ful not to run afoul of the compliance issues and ensure
that the physician office is large enough to support the cost
of a phlebotomist. This service should normally be offered
to accounts with three or more providers in the office each
day, keeping in mind the practice specialty. Family prac-
tice, internal medicine, oncology/hematology, infectious
disease, rheumatology, and large OB/GYN groups are all
excellent opportunities for placement of a phlebotomist.
Surgical groups are usually not a good option because al-
though they generate a large volume of testing, the blood-
bank criteria may be difficult to meet even if the patient is
being admitted to your facility. Even very large pediatrics,
psychiatry, dermatology, and orthopedic medicine groups
generally do not generate enough volume to make place-
ment of a phlebotomist profitable. Gastroenterology,
urology/nephrology, and other specialties may work out,
depending on the size of the practice and the types of ser-
vices they offer. When profitability is calculated, remem-
ber to consider not only the time for the phlebotomist who
is assigned to the office but also the cost of coverage when
that person is sick or on vacation. Also consider what hap-
pens to that employee if the office is closed on a day the
employee would normally work.
The Importance of Standardization
Some companies build their reputation on their ability to
personalize service and are sometimes able to charge a pre-
mium rate for the additional service. To some extent, the
laboratory needs to be prepared to personalize service and
should determine in advance what personalization could
be offered. But because reimbursement is largely fixed
based on a fee schedule or a capitated rate for an insurance
company, recouping additional expenses will be difficult.
Product offering. Decisions need to be made about the
testing that will be performed and the schedule that will be
offered. What testing will be offered STAT? STAT fees can
be charged but will not be reimbursed by many insurance
companies. In Virginia, the STAT fee cannot even appear
on the bill for Medicaid patients. Decide on fees for services
and discount schedules. Decide what the discounts will be
based on, keeping in mind the compliance restrictions.
Process. Testing referred to the laboratory should be han-
dled in a consistent format for ease and accuracy of pro-
cessing. However, the laboratory will have many requests
to alter the process to accommodate clients. Use of a stan-
dard requisition is ideal, and there may be compliance
concerns if clients do not use it, because the laboratory will
be required to determine from the client’s form the test-
ing that needs to be completed. Clients may send separate
printouts with demographic and billing information. This
usually allows for better, more legible information, but
the client’s printout may not have all of the information
required. Identify how to meet clients’ needs if they want
to change the report format or add specific identifying in-
formation on the report. A physician office connectivity
system will help meet some of these needs. For clients with
faxes or printers, there should be multiple print options
available. Also be prepared to let clients control when their
reports print (if they have a printer or autofax) or choose
to receive only final reports. Have a process to allow de-
livery of reports to more than one doctor. A billing and
reporting process will need to be established.
A process will need to be developed to collect infor-
mation not received on the original request. This policy
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH
must address two kinds of issues. First, a policy will be re-
quired for situations when information needed to run the
test (test name, patient name, and patient identifier) is not
received or additional patient history is required. Second,
a policy will need to be developed for when proper bill-
ing information, including ABNs, is not received. If the
test information is not received, the laboratory will have
to determine if any testing will be done. For instance, if a
lavender tube is received, should a complete blood count
be performed? If this is done, billing must be held until an
order is received. If an ABN is needed but not received,
and the test is performed, the laboratory will risk not be-
ing paid. Some laboratories will send a comment about the
problem on the report and call the physician office for the
missing information.
For every step of the process, the laboratory will receive
requests to alter the process. To the extent that the labo-
ratory can customize its service without compromising
overall service or quality, the program will be better able to
compete. Ensure that the laboratory can consistently de-
liver the service promised and administer the agreed-upon
exceptions.
Courier routes. Practices across the service area will close
at approximately the same time and want their specimens
picked up as they leave the office. Knowing that is not
possible, the laboratory needs to design the routes so that
the majority of the specimens are picked up as quickly as
possible and returned to the laboratory for processing to
begin. Couriers will need to be equipped to handle a num-
ber of requests and issues. If a client is not ready when
the courier arrives, the courier must decide whether to
wait for the specimens, try to come back, or call another
courier to pick up the specimens. If a client who rou-
tinely leaves specimens in a lockbox daily does not leave
the lockbox out, an attempt should be made to contact
the practice by phone. If that is unsuccessful, the courier
should have preprinted notes to leave on the door. The
laboratory will also need to decide how to handle calls
for STAT transports or requests for multiple pickups in
the same day. Depending on the size of the account, mul-
tiple pickups may be a good idea for both the client and
the laboratory, so processing of the specimens can begin
sooner. Requests for STAT pickups should be monitored
and addressed if problematic.
Summary
Successful establishment of an outreach program can have
numerous benefits for the hospital laboratory, the hospital
system, the physicians, and the community. Leverage the
intellectual and capital assets of the hospital while working
internally to offset any challenges that being part of a hospi-
tal presents. The decisions made regarding how to maintain
793
and service customers while still being able to expand the
business are important and will affect the program’s overall
success. Choose the service offerings and service standards
carefully and always deliver what is promised.
KEY POINTS
■ Deciding how to implement an outreach program
within the current hospital environment requires deci-
sions at many levels of the organization. Contracting,
information technology, finance, and compliance are
key areas that require attention. Understanding each of
these areas is critical to success.
■ Being part of a hospital system offers advantages to the
physician base and to the patients. Leverage those ad-
vantages to make a winning and profitable business.
■ Consider all of the points and options for customer
service. Customer service is not only a department or
something people do in their spare time. It must be a
united, consistent strategy employed to win and keep
customers.
GLOSSARY
Add-on Test that a physician adds on after the initial lab order is
received.
Advance beneficiary notice (ABN) Notice that must be pro-
vided to patients for testing that is not medically necessary so
that the lab may bill the patient should Medicare deny payment.
Client bill Bill sent to the client for payment of lab services as
opposed to billing the patient or the patient’s insurance.
Commission plan A written plan for calculation and distribu-
tion of commission payment to marketing staff and other
individuals.
Continuum of care A patient’s continuum of care includes the
hospital, physician office, skilled nursing facility, outpatient sur-
gery, primary care, specialty care, and any other health service a
patient may need.
Fixed costs Costs that remain constant in spite of changes in
output (3).
Full-time equivalent (FTE) A standard 2,080-hour work year.
This may be one employee that works a standard 40 hours per
week each year or a combination of employees that equal 2,080
hours per year.
Guidebook A book that provides comprehensive information
about the laboratory and its operations, policies (including
forms), testing, specimen preparation, result reporting, billing,
staff, and licensure.
Health Insurance Portability and Accountability Act of 1996
(HIPAA) A law to improve the flow of information between in-
surance companies and providers and protect the privacy of pa-
tient information (4).
794 OUTSIDE MARKETING AND EXPANSION
Medical necessity Services that are “covered, reasonable and nec-
essary for the beneficiary, given his or her clinical condition” (5).
Medicare secondary payor (MSP) Information that is collected
from the patient to determine when Medicare is not the primary
payor.
Model Laboratory Compliance Program A statement of expec-
tations published by the CMS (Centers for Medicare and Medic-
aid Services) for laboratories to use as a model for behavior.
Nonstaff physicians Physicians who are not part of the hospital
medical staff.
Physician office connectivity (POC) System that allows clients
access to the laboratory information, usually via the Web. The
system should also provide the client the ability to register pa-
tients, order tests, and print results.
Pull-through The testing that is sent to a laboratory because the
client already has to use the laboratory for other testing. Usually
associated with a laboratory that has a health maintenance orga-
nization (HMO) contract. Clients that have a large volume of
testing for that HMO may send the laboratory testing for other
patients whose insurance does not require a specific laboratory.
Sanctioned physicians Physicians who have been barred from
billing Medicare, Medicaid, or other government payors, usually
for compliance/billing issues. Other providers and people can
also be barred from the government programs.
Unrelated business income tax (UBIT) An income tax that
must be filed and paid annually for net income that is not related
to the hospital. Laboratory testing and revenue generated from
physician offices, clinics, and employers that do not have a cor-
porate relationship with the laboratory or parent company would
be considered unrelated.
REFERENCES
1. Department of Health and Human Services. 2011. Advanced
beneficiary notice of noncoverage (ABN) Part A and Part B, second
edition.
2. Ertel, D. 1999. Turning negotiation into a corporate capability.
Reprint number 99304. Harvard Bus. Rev. May–June.
3. Kieso, D. E, and J. J. Weygandt. 1983. Intermediate Accounting,
4th ed., p. 347. John Wiley & Sons, Inc., New York, NY.
4. Payne, S. 2003. A privacy law. WaveNet. https://wavenet.sentara
.com/ HIPAA/Forms/SEEP.ppt.
5. Taulbee, P. 1998. The HHS office of Inspector General’s Compli-
ance Program Guidance for Clinical Laboratories.
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 795

APPENDIX 44.1 Sample Physician Letter

Note: This client letter is for demonstration purposes only. Actual names, phone numbers, and CPT codes may have changed.

(continued)
796 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 797

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
798 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 799

APPENDIX 44.1 Sample Physician Letter (continued)

(continued next page)

(continued)
800 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 801

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
802 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 803

APPENDIX 44.1 Sample Physician Letter (continued)

(continued)
804 OUTSIDE MARKETING AND EXPANSION

APPENDIX 44.1 Sample Physician Letter (continued)

 CHAPTER 44. OBSTACLES TO HOSPITAL OUTREACH 805

APPENDIX 44.2 Monthly Sales Report

Monthly Prospect Report

Market Rep Page of
Month Ending

• The following are fully qualified prospects.

• The decision-makers, decision-influencers, and decision-making processes are clearly identified.
• A “yes” answer has been obtained for each of the qualifying criteria.

Last Month’s Prospects (all must be listed): Close in 30-45 days

Name Clt# EMV Current Lab Close Date Next step or reason for deletion

New Qualified Prospects, this Month: Must close in 60-75 days

Name Clt# EMV Current Lab Close Date Next step

Suspects this Month: Qualification

Name Clt# Dec Time Needs Price Sentara Next step

Comments:
Clinical Trials and Evidence-Based
IX
Laboratory Medicine
section editor: Donna Wolk
45 The Current State of the U.S. Food and Drug Administration Process
and Regulations for Diagnostic Laboratory Assays
Donna M. Wolk, Natalie N. Whitfield, Elizabeth M. Marlowe, and
Marilyn M. Marshall
46 The Clinical Trial Laboratory: Research Compliance for Clinical
Research Microbiologists
Donna M. Wolk and Marilyn M. Marshall
47 Clinical and Evidence-Based Research in the Clinical Laboratory
Donna M. Wolk
Introduction
45
Background: The FDA Processes for
Classification and Assessment of
New IVDs
Premarket Approval (PMA) • Premarket Notification
[510(k)] and 510(k) Review • Alternative Application
Submission Approaches • The Pre-IDE Process • The
Expedited Review
Miscellaneous FDA Requirements
Establishment Registration • Medical Device
Listing • Good Manufacturing Practices and Quality
System Regulations • Quality Control
Automated Laboratory Assays
Postmarket Review
Limitations Inherent to Current FDA
Processes
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch45
The Current State of the U.S.
Food and Drug Administration
Process and Regulations for
Diagnostic Laboratory Assays
Donna M. Wolk, Natalie N. Whitfield,
Elizabeth M. Marlowe, and Marilyn M. Marshall
OBJECTIVES
To understand the role of the U.S. Food and Drug Administration (FDA) in the
regulation of in vitro diagnostic devices (IVDs)
To understand the process by which the FDA approves a laboratory assay
To describe the different processes used during FDA review
To describe the risk categories the FDA uses to determine the type of process for
review
To understand the premarket approval (PMA) forms, requirements, and
process
To recognize the importance of good clinical practices (GCPs), good
manufacturing practices (GMPs), and Quality Systems Regulations (QSR) in
the FDA approval process
To understand requirements related to 510(k) notification to the FDA
To understand the pre-investigational device exemption process
To understand the part that the Office of In Vitro and Radiological Health
plays during the approval process
To review various FDA requirements
Chance favors only the prepared mind.
Louis Pasteur
M
uch attention and effort is focused on the interface be-
tween scientific methods and their transition to clinical diagnostics
supporting diagnosis, prognosis, population screening, therapeu-
tic decision making, and therapeutic monitoring practices. The U.S. Food
and Drug Administration (FDA) regulates the sale and distribution of in vi-
tro diagnostic devices (IVDs), commonly referred to as laboratory assays or
laboratory tests. To achieve the optimal utility of new diagnostic laboratory
tests for the purposes listed above, clinical laboratory scientists (CLSs) and
laboratory management/administration must fully understand the process
and regulatory framework defined for diagnostic assays by the FDA in or-
der to best participate in clinical trials and to aspire to achieve a greater voice
809
810 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
in the process as participants and end users. This chap-
ter provides an overview of (i) the FDA process for risk-
based classification and regulation of IVDs, (ii) the FDA
methods used to assess performance of IVDs prior to their
clearance or approval for release in marketing and distri-
bution to diagnostic laboratories, (iii) the laws that impact
clinical laboratories that are participating in FDA clinical
trials, and (iv) the process by which the FDA conducts
postmarket regulation of IVDs and associated postmarket
performance.
For an updated review of FDA-approved and cleared
molecular assays for infectious disease testing, a recent re-
view details the state of the art in FDA-approved laboratory
methods (4). To maintain accuracy, abiding by the laws
and regulations surrounding the submission and approval
of new laboratory diagnostics, parts of this chapter were ex-
cerpted and paraphrased from: http://www.fda.gov/Medical
Devices/DeviceRegulationandGuidance/IVDRegulatory
Assistance/ucm123682.htm (accessed March 18, 2013).
Background: The FDA Processes for
Classification and Assessment of New IVDs
Under the Federal Food, Drug, and Cosmetic Act, the FDA
maintains regulatory authority for IVDs and IVD com-
ponents that are distributed via interstate commerce (14).
IVDs are medical devices as defined in section 210(h) of the
Federal Food, Drug, and Cosmetic Act (14). In addition,
IVDs may also be biological products subject to section
351 of the Public Health Service Act (10). Like other medi-
cal devices, IVDs are subject to premarket and postmarket
controls, and laboratories performing diagnostic testing are
subject to the regulations set forth in the Clinical Laboratory
Improvement Amendments of 1988 (CLIA ’88) (3), under
the oversight and authority of the Centers for Medicare
and Medicaid Services (CMS).
The Office of In Vitro Diagnostic Device Evaluation
and Safety, recently renamed the Office of In Vitro Diag-
nostics and Radiological Health (OIR), performs review
of new IVDs (aka premarket review) within one of three
divisions: microbiology devices, chemistry and toxicology
devices, and immunology and hematology devices. For
IVDs that relate to the human blood supply and to retro-
viral testing, premarket review is commonly performed by
the Center for Biological Evaluation and Research (33).
The FDA classifies IVD products into class I, II, or III
according to the level of risk and, therefore, the level of
regulatory control that is necessary to ensure safety and ef-
fectiveness for their intended use or application (i.e., what is
being tested), and their indicated use (why a patient is tested).
Most oversight of IVDs is logically focused on the IVDs clas-
sified as having the most risk to humans being tested or us-
ing the device. Class I represents those IVDs with low risk,
class II with moderate risk, and class III with the highest risk.
For example, class I devices are those that present mini-
mal potential for harm to the user, are generally simple in
design, and are substantially equivalent to other products
already on the market. Most class I products are exempt
from FDA review but are subject to the use of general con-
trols. When a company produces a class I medical device,
it must register the product with the FDA, but most of the
time further scientific review is not necessary. Some class
I products may also be exempt from some of the Qual-
ity System Regulations (QSRs). Examples of class I exempt
IVD products include unassayed, qualitative, third-party
controls (as long as they are not used for blood screening),
general purpose laboratory reagents, and most analyte-
specific reagents (ASRs). Although third-party controls
and ASRs are exempt from scientific review, they must be
manufactured in a QSR-compliant manner.
Class II medical devices are products that are substan-
tially equivalent to previously approved products but, from
the FDA’s perspective, they require additional review, study,
and control, which may include the need for a clinical trial.
Class II products are subject to scientific review via mar-
keting applications called 510(k)s or premarket approvals
(PMAs) and must be manufactured in a QSR-compliant
environment. An example of a class II IVD product is an
infectious disease genotyping assay.
The FDA created a special category for products that
they consider to be in a class II risk category but there is
no previously cleared product (i.e., no predicate devices).
This category is reviewed via a de novo 510(k) route. The
de novo 510(k) was the pathway used to obtain the first
microarray-microarray instrumentation FDA clearances.
Class III medical devices are products for which no sub-
stantially equivalent product exists for comparison or are
types of products that the FDA considers too high risk to
categorize as class I or II, for example, a molecular assay
for detection of Mycobacterium tuberculosis.
The classification of an IVD determines the appropri-
ate premarket process and the depth and detail required
by that process, with greater scrutiny given to high-risk
IVDs. The Code of Federal Regulations lists the classifica-
tion of existing IVDs in three sections, 21 CFR 862 (19),
21 CFR 864 (20), and 21 CFR 866 (23), as well as other
supporting documentation (30); therefore, manufactur-
ers can generally assess the classification with accuracy.
In some cases, classification status is unclear and the
manufacturer can request the FDA’s potential classifica-
tion in the form of a nonbinding process called 513(g)
determination.
To date, randomized controlled trials, such as those
used for pharmaceuticals, have not been performed prior
to FDA clearance of a diagnostic assay. Rather, method
comparison study designs (diagnostic accuracy experi-
ments) are typically used yet may not be appropriate for
all purposes (34, 35). Although the FDA process and
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS
diagnostic clinical trial designs may change in the future,
this chapter describes the current FDA process.
Premarket Approval (PMA)
A PMA is an application submitted to the FDA to request
approval to market, or to continue marketing, a class III
medical device (those with substantial importance to pre-
vention or impairment of health or that have the poten-
tial for unreasonable risk of illness or injury and for which
general and special controls are considered inadequate). A
PMA is also required for devices that test for a new ana-
lyte or substance or that claim a new intended use for an
existing analyte that has not gone through a previous FDA
approval process.
PMAs receive the highest level of regulatory review.
For most PMAs, sponsors identify surrogate endpoints
and establish the device performance (clinical sensitivity
and specificity, or agreement) with relation to the identi-
fied endpoints in corollary studies. Studies are required
to demonstrate safety and effectiveness. If the FDA finds
that a product is safe and effective, it receives an official
approval order for marketing in the United States. If the
FDA finds that a product is not safe and effective, it may
not be approved.
PMA applications must include information and data
describing preclinical evaluation of the IVD (testing per-
formed by the manufacturer prior to the clinical trial), as
well as evaluation of clinical performance in representative
U.S. laboratories performing clinical trials using samples
from patients with predefined trial enrollment criteria.
PMA is based on the composite scientific evidence, pro-
viding a reasonable assurance that the device is safe and
effective for its intended use(s). In certain cases, stored
biorepository samples or a body of literature may be in-
cluded in the assessment.
For IVD products, the safety of the device relates to
the impact of the device’s performance, i.e., that the assay
can accurately and reproducibly measure the target ana-
lyte under defined and controlled conditions stated in the
package insert for the product. In particular, the impact of
false-negative and false-positive results on patient health
is critically reviewed. The FDA reviews PMA submissions
in a 180-day timeline. If there are unaddressed scientific
issues, the review scientists can ask for additional infor-
mation and place the submission temporarily on hold. If
a product is the first of its kind, or if it presents unusual
issues of safety and effectiveness, it is generally reviewed
before it is approved by an advisory panel of outside ex-
perts. Review panels often include CLSs, biostatisticians,
medical officers, and biomedical engineers.
To be approved for use, the device should have clear
and documented clinical validity and utility (effective-
ness). Clinical trials are often performed under the regu-
lations provided by good clinical practices (GCP). PMA
811
also requires review of the manufacturing processes (good
manufacturing practices [GMP]), an inspection of the
manufacturing facility, a bioresearch monitoring audit of
clinical data sites, as well as comprehensive review of the
premarket data. Compliance with QSRs can be assessed,
typically via an inspection process. A manufacturer con-
sidering a PMA should consult 21 CFR 814 (18).
Proof of substantial equivalence is required for some
studies. The types of studies required to demonstrate sub-
stantial equivalence commonly include analytical studies
using clinical samples (sometimes supplemented by care-
fully selected artificial samples). In some cases, the link
between analytical performance and clinical performance
is not well defined, and in these circumstances, clinical
information may be required. The FDA rarely requires
prospective clinical studies for IVDs but regularly requests
clinical samples with sufficient laboratory and/or clini-
cal characterization to allow an assessment of the clinical
validity of a new device. In this case, the results are usu-
ally expressed in terms of clinical sensitivity and clinical
specificity or agreement. Figure 45.1 shows a flow diagram
outlining the PMA process.
Premarket Notification [510(k)] and 510(k) Review
Anyone who plans to sell a medical device, including
IVDs, in the United States must submit a 510(k) to the
FDA. Likewise, a 510(k) is required when a manufacturer
or distributor proposes a different intended use, change,
or modification for a device or device process that could
significantly impact safety or effectiveness of a previously
approved IVD. A 510(k) is a premarketing FDA submis-
sion to demonstrate that the device to be marketed is as
safe and effective, i.e., substantially equivalent to a legally
marketed device that is not subject to PMA. There is no
formalized 510(k) form, but the format for the submis-
sion is described in 21 CFR 807 (17). Each person or en-
tity who wants to market class I or II and some class III
devices intended for human use in the U.S. must submit a
510(k) to the FDA unless the device is exempt from 510(k)
requirements. The 510(k) is filed at least 90 days before
marketing. Some class I and class II devices require 510(k)
submission; however, certain class I and II devices can be
marketed and sold for the first time without a 510(k) being
filed with the FDA. Many ASRs fall into the latter category;
however, ASR-specific regulations apply.
Review of a 510(k) is based on the evaluation of the
analytical performance characteristics of the new device
compared to the predicate device (older reference stan-
dard assay). Performance characteristics include the bias
or inaccuracy of the new device, the imprecision of the
new device, and the analytical specificity and sensitivity.
The FDA reviews 510(k) submissions in a 90-day time-
line. The FDA scientists can ask for additional informa-
tion focusing on unaddressed scientific issues and put the
812 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE

Figure 45.1 PMA review milestones in total FDA calendar days—domestic inspections. From http://
www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/
ucm077795.pdf (accessed March 18, 2013). doi:10.1128/9781555817282.ch45.f1

submission temporarily on hold. If the FDA finds that the
information provided by the sponsor meets the standard
of equivalency, the product is cleared for marketing in the
United States. If the FDA finds that there is no predicate
for the device or that the new device does not perform
equivalently to the identified predicate, then the device is
found to be not substantially equivalent.
Alternative Application Submission Approaches
Because the FDA understands that new devices with the
potential for significant and positive public health impact
should be made available as quickly as possible, there are
two new optional approaches for device manufacturers to
obtain marketing clearance for devices subject to 510(k)
requirements: special and abbreviated 510(k)s (28, 29). A
manufacturer considering either a special or abbreviated
510(k) should first consult 21 CFR 807.81(a) (17), as all
IVDs on the market as of May 28, 1976, were classified
according to their risk, and any device that was not clas-
sified was automatically assigned to class III, requiring a
PMA application. A device can be moved out of class III,
but only after a cumbersome reclassification process. The
Food and Drug Administration Modernization Act of
1997 (FDAMA) amended Section 513(f) to provide a new
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS
mechanism for classifying new class III devices, for which
there are no predicate devices. It allows the recipient of
an NSE (not substantially equivalent) letter to request a
risk-based classification determination to be made for the
device. In some cases, this allows a manufacturer to use
the de novo process to submit a 510(k) for a new IVD
that would otherwise have to get to market via the PMA
process (5, 6).
The Pre-IDE Process
The “pre-IDE” (investigational device exemption) process
is one of two processes to facilitate market entry for prod-
ucts with positive public health impacts. The pre-IDE is an
informal presubmission process for IVDs, during which
time the FDA can assign a process an official tracking
number, similar to the numbers assigned to 510(k)s and
PMAs. A sponsor (manufacturer) submits a pre-IDE to
solicit the FDA’s thoughts about the study or proposal. A
sponsor should submit a pre-IDE only if they would like
the FDA’s thoughts on the study or proposal prior to start-
ing the study. The pre-IDE process can involve meeting
with the FDA to discuss protocols and/or possible regula-
tory pathways or sending analytical or clinical protocols
to the FDA for review and comment before proceeding
with studies. Manufacturers who engage in this process
with the FDA are not required to subsequently submit an
IDE application. In fact, most IVDs are exempt from the
medical device IDE regulations. Pre-IDE submissions and
meetings are voluntary, and any comments or recommen-
dations made in the review of protocols or during these
meetings are not binding on either side—the manufac-
turer or the agency. A submission made under the pre-IDE
process is not an official IDE application as described in 21
CFR Part 812 (8, 26).
Protocol review or a pre-IDE meeting is requested un-
der the following circumstances:
• The new product involves new technology, and it will
be helpful to familiarize the FDA with the technology
in advance of the submission.
• Assistance is needed in defining possible regulatory
pathways.
• The study designs are complex, and advice is required
to identify ways to simplify them and keep costs
reasonable.
• The studies involve complex data and/or complex sta-
tistical approaches.
• To reduce the cost of research studies by focusing on
the important information needed for FDA approval
(or clearance).
• To speed the review process for the future marketing
application.
813
The Expedited Review
The FDA review of a PMA or 510(k) application may be
expedited for a new device upon sponsor request or based
on the FDA preliminary review. If granted, an expedited
review means that the submission moves to the head of
the review queue and additional resources may be ap-
plied to accelerate the review process. To merit expedited
review, the condition to be diagnosed by the product
must be irreversibly debilitating or life-threatening, and
the device must address an unmet medical need, as dem-
onstrated by any one of the following: (i) breakthrough
technology, (ii) no approved alternative, (iii) significant
clinically meaningful advantage, or (iv) the best interest
of patients.
Although expedited review ensures that the device of
interest receives a high priority, it does not guarantee a
particular review outcome or a particular time line. The
single most important determinant of review time re-
mains the quality of the sponsor’s submission. Sponsors
with devices that could be eligible for expedited review
are encouraged to work with the FDA in the pre-IDE
process to ensure that review questions have been ad-
dressed and criteria have been met. It is strongly rec-
ommended that companies use all requisite scientific,
statistical, and regulatory resources that are appropriate
to ensure that submissions are clear and complete and
can be reviewed quickly.
Miscellaneous FDA Requirements
Establishment Registration
Establishments involved in the production and distribu-
tion of medical devices intended for commercial distribu-
tion in the United States are required to register with the
FDA. Registration provides the FDA with the location of
medical device manufacturing facilities and importers.
Registration of an establishment is not an approval of the
establishment or its devices by the FDA, nor does it pro-
vide FDA clearance to market. Unless exempt, premarket-
ing clearance is required before a device can be placed into
commercial distribution in the United States (27).
Medical Device Listing
Most medical device establishments required to register
with the FDA must list the devices they have in commer-
cial distribution, including devices produced exclusively
for export. Listing keeps the FDA advised of the generic
category(s) of devices an establishment is marketing. List-
ing a device does not provide FDA clearance to market.
Unless exempt, premarketing clearance is required before
a device can be placed into commercial distribution in the
United States (27).
814 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
Good Manufacturing Practices and Quality
System Regulations
The GMP requirements are part of the QSRs. They require
that domestic or foreign manufacturers have a quality system
for the design, manufacture, packaging, labeling, storage, in-
stallation, and servicing of finished medical devices intended
for commercial distribution in the United States. The QSR is
contained in 21 CFR 820 (15) and related documents (16).
Quality Control
Quality control (QC) is a material or mechanism that,
when used with or as part of a test system, monitors the
analytical performance of that test system. It may monitor
the entire test system or only one aspect of it. The ways in
which a QC component is used within a laboratory are not
within the FDA’s jurisdiction. Other agencies, such as the
CMS, the College of American Pathologists (CAP), or The
Joint Commission (TJC), have jurisdiction over the proce-
dures and practices within laboratories.
Automated Laboratory Assays
The FDA also regulates OIR-classified devices in clinical
laboratory automation. The OIR uses a risk-based regula-
tory approach to these products to ease the burden on in-
dustry while ensuring public safety. Standalone automated
clinical analyzers are exempt class I devices and do not re-
quire premarket notification (510[k]).
When an automated clinical analyzer measures a spe-
cific analyte, the analyzer plus the associated reagents be-
come a test system, which is considered a combination
device (13). As such, automated clinical analyzers are not
exempt from premarket notification when they include
any class I reserved device or a class II device. Automated
clinical analyzers that include class III devices are subject
to premarket approval. Laboratory information systems
(LISs) and laboratory automation systems (LASs) meet the
definition of combination devices when a manufacturer
makes an integration claim to a specified analyzer, with
the following exceptions: (i) If the device only receives in-
formation for the patient record and neither transmits any
instructions to any interfaced device (other than test or-
ders) nor controls any device functions or alarms, no pre-
market notification is required; (ii) if the device performs
only simple physiological and clinical calculations, as long
as the algorithms are established and well accepted by the
clinical community, no premarket notification is required.
For example, if the LAS takes over the pipetting that the
analyzer normally does for analysis, or the LAS hands off
the sample ID directly to the analyzer without the analyzer
performing the sample identification, then a premarket
notification is required. Regardless of classification, de-
vices automated with computer software are subject to de-
sign controls under the QSR 21 CFR Part 820 (15).
Postmarket Review
The revised regulations for GMPs are an important regula-
tory tool. The QSR 21 CFR 820 established a system for
ensuring quality production of medical devices. Devel-
oped in alignment with international standards for quality
systems, the QSR emphasizes the need to build quality into
the design of products by introducing a variety of process
and production/manufacturing controls. It also includes
corrective action requirements for deviations. For selected
class I and all class II and class III devices, the QSR calls
for the implementation of design controls that dictate that
the manufacturer of a product will identify both device in-
puts and outputs, ensure verification of performance, and
establish validation of performance to predict and ensure
proper use in the hands of the end user.
Postmarket control of medical devices is further moni-
tored by existing requirements for reporting problems to
the FDA and for companies to take corrective action when
problems are identified. The FDA reporting system, Med-
Watch (http://www.fda.gov/medwatch/), documents prob-
lems and can be accessed by phone, fax, or Internet. For
IVDs, monitoring of MedWatch reports is now performed
by more than a half dozen technical analysts who also par-
ticipate in premarket review and compliance actions. It is
hoped that these and other efforts will lead to improved
postmarket regulatory oversight, more sophisticated out-
reach and educational initiatives, and ultimately more in-
formed premarket decision making.
Limitations Inherent to Current
FDA Processes
There are several unavoidable limitations to the FDA’s re-
view of 510(k) applications. Since the FDA does not have the
facilities to perform laboratory product evaluation, it bases
its review on the materials submitted by the industry spon-
sor. There are few performance standards to ensure that
regulatory decisions are based on clearly defined scientific
parameters (9, 12). Moreover, there are also several limita-
tions to the FDA’s review of PMA applications, including
(i) lack of a “gold standard” against which to judge perfor-
mance, (ii) bias, which may occur in the collection of data to
establish safety and effectiveness, (iii) problems in the study
design or conduct, and (iv) the challenge of determining the
minimum performance required for approval (36).
Summary
While often statistically and operationally simpler than the
pharmaceutical clinical trial and FDA submission process
(2), the FDA process to classify, assess, clear, or approve
IVDs presents a challenge to manufacturers and end us-
ers. By virtue of the sheer number of clinical trials and
 CHAPTER 45. CURRENT STATE OF FDA PROCESS/REGULATIONS
the various nuances in their performance, it is difficult to
keep up with so many new trials and new products (1, 33).
Limitations of the process and the clinical trials lead to
challenges that CLS staff and managers will face once the
product is released. Therefore, it is prudent for all labora-
torians to understand the FDA process that manufacturers
follow to bring a new diagnostic test to market and for lab-
oratorians to think about ways they can add value to that
process, such that the final product will improve patient
care and laboratory operations. The overview presented
here is in no way intended to supplant the regulations
that apply to these processes; rather, it is meant to provide
an overview and general understanding of the processes.
Consultation with a regulatory specialist or agency will al-
ways be required to confirm processes and details of the
myriad regulations.
The FDA works hard to develop a standardized review
process that is based on state-of-the-art evaluation tech-
niques and is grounded in the FDAMA mandate. The
FDA aspires to provide the least burdensome premarket
reviews and brings to bear considerable resources to help
the bioindustry and manufacturers of IVDs to establish
performance. There are over 70 recognized standards, and
multiple review guidelines, which provide assistance. A
search engine available at http://www.accessdata.fda.gov/
scripts/cdrh/devicesatfda/index.cfm (accessed March 18,
2013) and links to summaries of cleared or approved prod-
ucts provide the medical community with insight into the
classification, review, and approval process for a wide vari-
ety of laboratory products.
The FDA process is intended to prevent bad outcomes
that may occur if diagnostic assays are not properly vet-
ted and assessed for accuracy and utility. Although error
in laboratory testing is not completely avoidable, “Chance
does favor the prepared mind” (paraphrased from a quote
by Louis Pasteur). In the case of IVDs, chance favors the
well-prepared FDA submission.
KEY POINTS
■ The process the FDA uses to bring a new diagnostic as-
say to market is explicit.
■ Guidelines are accessible and assistance is available
through the entire process.
■ Using GCP and GMP guidelines ensures accuracy and
quality.
■ Utilizing the preapproval submission and suggested pre-
IED process ensures a more accurate final submission.
GLOSSARY
Analyte-specific reagents Analyte-specific reagents (ASRs) are
“polyclonal and monoclonal antibodies, specific receptor proteins,
ligands, nucleic acid sequences, and similar reagents that, through
815
specific binding or chemical reactions, are intended for use in a
diagnostic application for identification and quantification of an
individual chemical substance or ligand in biological specimens.”
Classification information is found in 21 CFR 864. 4020(a) (22).
Automated instrument A laboratory instrument that performs
measurements on a patient’s sample and may or may not be con-
nected to a laboratory information system (LIS), hospital infor-
mation system (HIS), and/or laboratory automation system
(LAS). Note: These instruments may have specific hardware and/
or software modifications that allow interface to a laboratory au-
tomation system.
General controls The basic provisions (authorities) of the 1976
Medical Device Amendments to the Food, Drug, and Cosmetic
Act, which provide the FDA with the means to regulate devices
to ensure their safety and effectiveness. The general controls in
the amendments apply to all medical devices, including IVDs.
They include provisions that relate to adulteration; misbranding;
device registration and listing; premarket notification; banned
devices; notification, including repair, replacement, or refund;
records and reports; restricted devices; and good manufacturing
practices (GMPs) (7).
General purpose reagent A general purpose reagent (GPR) is “a
chemical reagent that has a general laboratory application and is
not intended or labeled or otherwise for a specific diagnostic test
application. It is used to collect, prepare, and examine specimens
from the human body for diagnostic purposes.” Classification
information is found in 21 CFR 864.4010(a) (21).
Investigational device exemption (IDE) An IDE allows an in-
vestigational device to be used in a clinical study to collect safety
and effectiveness data to support premarket approval (PMA) or
510(k) submission. An IDE permits a device to be shipped law-
fully for the purpose of conducting investigations without com-
plying with requirements of the Federal Food, Drug, and
Cosmetic Act that apply to devices in commercial distribution.
Many IVDs are exempt from IDE requirements (11, 25).
Investigational use only (IUO) While clinical studies are be-
ing performed, most in vitro diagnostics are exempt from IDE
submission but are considered investigational use only (IUO)
devices. IUOs are intended to be used to gather data to support
an intended use for a device that will be the subject of FDA
premarket review and are not intended to be used for obtaining
test results from human specimens for the diagnosis, treatment,
or management of patients without confirmation by other
medically established procedures. Nearly all submissions to the
OIR are studied as investigational use devices with or without
the use of the IDE process, and local institutional review board
review (21 CFR Part 56) and informed consent (21 CFR Part
50) apply. IUOs must be labeled “For Investigational Use Only.
The performance characteristics of this product have not been
established.” The minimal requirements for IUO devices are
that testing (i) is noninvasive, (ii) does not require invasive
sampling presenting significant risk (routine phlebotomy is ac-
ceptable), (iii) does not introduce energy into a subject, and
(iv) is not used as a diagnostic procedure without confirmation
of the diagnosis by another, medically established diagnostic
device or procedure.
816 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
In vitro diagnostic (IVD) In vitro diagnostic devices (products)
are reagents, instruments, and laboratory systems that are de-
signed for use in the diagnosis of disease or other conditions, to
cure, mitigate, treat, or prevent diseases or disease sequelae. Such
products are intended for use in the collection, preparation, and
examination of specimens collected from the human body (24).
Laboratory assays that are sold by a commercial entity or devel-
oped by a laboratory are considered IVDs and are subject to
oversight by the FDA (33).
Laboratory automation system (LAS) A system of information
and hardware technology that allows the operation of the clinical
laboratory process without significant operator intervention.
Note: Typical functionality includes information system control
of the instruments through direct LAS interfacing, including any
technology that manipulates the specimen (i.e., centrifuge);
transportation of the specimen; result evaluation, repeat testing,
or reflex testing; and quality assessment and results reporting.
Laboratory-developed assays/tests (LDAs/LDTs) LDAs are as-
sembled, verified, validated, and performed within a clinical
laboratory that provides results for clinical care but does not sell
assay components to other users. Laboratory-developed assays
may incorporate analyte-specific reagents (ASRs) sold by manu-
facturers, or they may use reagents produced by the laboratory.
Laboratories that make and perform LDAs, with or without us-
ing ASRs, are not required to submit data on the test for FDA
review; however, the FDA does maintain authority to review data
in the future. Currently, laboratories that develop their own clini-
cal diagnostic tests follow the CLIA ’88 regulations.
Laboratory information system (LIS) The information system
that is responsible for management of data regarding patient
specimen identification, tests requested, results reported, quality
control testing, and other aspects of sample analysis. Note: (i) The
LIS interfaces directly with the LAS to communicate patient,
visit, container, test orders, specimen status, and results about
specific testing to be done. (ii) Instrument or specimen process-
ing and handling devices may be interfaced with the LIS or the
LAS to direct specific testing and to retrieve results for reporting.
(iii) The LIS is frequently also interfaced to a clinical information
system for use by physicians and other medical personnel.
Research Use Only (RUO) Laboratory assays or regents that are
intended for performing basic scientific or animal research in the
search for a diagnostic hypothesis or intended use for a new di-
agnostic device are called research use only devices (RUOs).
RUOs do not equate with IVDs, and product labeling should in-
clude the statement “For Research Use Only. Not for use in diag-
nostic procedures.” RUOs require no premarket regulation
except for this labeling requirement, and these devices are not
subject to good manufacturing practices or other general con-
trols. As such, RUOs are not intended for use as building blocks
for laboratory-developed assays, and this category of products is
not intended to be used to facilitate the reporting of results to
patients or healthcare professionals for clinical purposes. RUOS
often show wider variability than commercial FDA-approved as-
says (31, 32). Nevertheless, some laboratories use RUO assays,
and the FDA can impose regulatory authority if they choose to.
Special controls Measures required and implemented for use
with class II devices when general controls alone are insufficient
to provide a reasonable assurance of safety and effectiveness. All
class II devices require special controls, i.e., existing methods
that are implemented by the sponsor and the FDA to provide as-
surance of safety and effectiveness. Special controls can include
(i) guidance documents, with performance specifications and
labeling recommendations, (ii) mandatory performance stan-
dards, and (iii) postmarket surveillance. The use of general and
special controls is not considered sufficient to ensure the safety
and effectiveness of high-risk class III devices, which require the
FDA PMA process to provide a more complete and thorough
demonstration of safety and efficacy.
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Introduction
46
Funded Clinical Research in Laboratory
The Clinical Trial Laboratory:
Medicine
Sponsored Projects • Office of Research and Contract
Research Compliance for Clinical
Analysis (ORCA)
Compliance with Human Subject Research Microbiologists
Regulations
Background for Human Subject Regulations •
Regulatory Requirements for Human Subject Donna M. Wolk and Marilyn M. Marshall
Protection • Human Subject Research: Classifications
Based on Risk • Human Subject Training
Requirements and Site Authorization • Informed
Consent • Special Populations • Continuing Review OBJECTIVES
by the IRB • Records Retention for HSPPs To describe the research compliance responsibilities for human subjects
Compliance with HIPAA protection laws
Compliance with Conflict of Interest To understand the key restrictions of the Health Insurance Portability and
Policies Accountability Act (HIPAA)
Intellectual Property Considerations
GLP and GCP Regulations
To understand the definition of conflict of interest
Sponsor Responsibilities • Study Director and To list the key aspects of good laboratory practice (GLP)
Responsibilities • Quality Assurance Office:
Organization, SOPs, Inspections, Reporting Data •
GLP Background • Equipment and Equipment
Validations • Standard Operating Procedures •
Reagent and Solutions: Test and Control Article •
Final Research Reports It is easier to do a job right than to explain why you didn’t.
Summary Martin Van Buren
KEY POINTS

T
GLOSSARY here are many aspects of research compliance that impact clini-
REFERENCES cal researchers whose practice is based in academia, private reference
APPENDIX
laboratories, or hospital-based diagnostic laboratories (2–4, 13, 14,
21, 22). Since clinical laboratory researchers may also have operational re-
sponsibilities in clinical laboratories and may be responsible for aspects of
clinical practice, it is important that the guidelines and regulations for clini-
cal research align with objectives of clinical practice; however, boundaries
between the two functions are critical. Clinical laboratory directors, consul-
tants, and managers who perform research are responsible for compliance
and are often defined as a project’s principal investigator, co–principal inves-
tigator, co-investigator, consultant, collaborator, or simply as research staff.
No matter what the role, research compliance is an important responsibility.
Critical components of clinical research include compliance with human
subjects protection laws, the Health Insurance Portability and Accountability
Act (HIPAA), conflict of interest policies, good clinical practices (GCPs), and
research integrity (i.e., responsible conduct of research). In addition, compli-
ance with biosafety, biosecurity, import and export controls, chemical safety,
and other safety regulations is quite important and is reviewed elsewhere.
Disclaimer: This chapter is intended as an overview of important aspects
of clinical research processes, but it is not to be considered all-inclusive. Those
performing clinical research must follow the rules and regulations defined by
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia their organization, their professional societies, and the federal government.
©2014 ASM Press, Washington, DC Rules can change rapidly; therefore, each investigator must keep current and
doi:10.1128/9781555817282.ch46 informed of relevant compliance issues.

818
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
Funded Clinical Research in
Laboratory Medicine
Sponsored Projects
There are many different types of funded research: federal
and nonfederal funding (grants and contracts) as well as
industry-sponsored clinical trials or research contracts.
A “sponsored project” is defined as any externally
funded research or scholarly activity that has a defined
scope of work or set of objectives and that provides a
basis for sponsor expectations (2, 25). More specifically,
this activity involves research, demonstration, profes-
sional development, instruction, training, curriculum
development, community and public service, or other
scholarly activity involving funds, materials, other forms
of compensation, or exchanges of in-kind efforts under
awards or agreements. The presence of any one of the
following conditions normally identifies the activity as a
sponsored project:
• The proposal is submitted in response to a request for
proposals or similar solicitation.
• The proposal commits the organization to a specific
line of scholarly or scientific inquiry, typically docu-
mented in a statement of work to be performed.
• The proposal includes a set of objectives that provides
a basis for sponsor expectations.
• The proposal commits organization resources, such as
the level of personnel effort or use of equipment, facili-
ties, or other resources.
• The proposal includes a detailed budget.
• The proposed project involves the use of human sub-
jects, laboratory animals, radioactive or hazardous
materials, recombinant DNA, carcinogens, pathogens,
or proprietary materials.
• There is a specified period of performance, typically
defined by “start” and “end” dates.
• The sponsor requires deliverables stated in an agree-
ment, such as reports, financial accounting, or intellec-
tual property ownership.
• The award restricts or monitors publications or the
use of results or requires protection of confidential
information.
• The award provides for the disposition of tangible or
intangible property that may result from the project,
such as equipment, records, formal activity reports,
theses and dissertations, rights in data, software, copy-
rights, inventions, or research-related materials.
• The award specifies fiduciary responsibilities such as
adherence to a line item budget, project audit, pay-
ment contingencies, and the return of any unexpended
funds at the end of the project.
819
• The sponsor is involved in making decisions regarding
project performance or stands to derive benefit from
the work performed.
Sponsored awards are made to an organization on
behalf of the principal investigator (PI), who is primar-
ily responsible for carrying out the requirements of the
award. The PI may also be referred to as the project di-
rector. The few exceptions to this principle are certain
awards that may be made to individuals, such as some
faculty fellowships. In developing a proposal and admin-
istering an award, the PI represents the organization and
is responsible for upholding high standards for project
performance. The PI also serves as the fiscal officer of the
project, with all the attendant responsibilities of project
fiscal management.
Sponsored projects are subject to facilities and adminis-
trative (F&A) costs at the organization’s rate applicable to the
type of project being conducted. If the sponsor has a published
federally negotiated policy, uniformly applied, prohibiting or
restricting the payment of F&A costs, the organization will
accept the reduced F&A rate in accordance with the sponsor’s
policy. This policy does not apply to “for-profit” sponsors
that are expected to provide full F&A recovery (http://www
.research.drexel.edu/administration/Overview/Sponsored
_Projects.aspx, accessed October 30, 2012).
Office of Research and Contract Analysis (ORCA)
Typically, organizations will have an Office of Research
and Contract Analysis (ORCA), sometimes called the Of-
fice of Research Compliance Administration. Whatever
their organizational name, these offices provide admin-
istrative resources to ensure that members of the organi-
zation conduct their educational, research, and business
processes in a manner that is consistent with regulatory,
statutory, and organization requirements. This collabora-
tive effort is designed to achieve compliance and establish
standards guiding research activities to protect the rights
of the researchers, the environment, and the community.
An ORCA office typically provides support for the fol-
lowing areas:
• Human subjects (IRB Committee)
• Animal care and use (IACUC Committee)
• Conflict of interest (COI) committee
• Responsible conduct of research training
• Research misconduct investigations
• Consultation on other research compliance areas
Types of agreements that are typically processed and
reviewed by ORCA include research agreements and con-
fidentiality agreements (aka nondisclosure agreements),
proprietary information agreements, secrecy agreements,
820 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
material transfer agreements, clinical trial agreements, and
government and nonprofit research subcontracts.
Compliance with Human Subject
Regulations
Background for Human Subject Regulations
On July 12, 1974, the National Research Act (PL 93-348)
was signed into law, creating the National Commission for
the Protection of Human Subjects of Biomedical and Be-
havioral Research. One of the responsibilities assigned to
the commission was to identify the basic ethical principles
that should underlie the conduct of biomedical and behav-
ioral research involving human subjects and to develop
guidelines that should be followed to ensure that such re-
search is conducted in accordance with those principles.
The Belmont Report (1979) is a historic document that
represents attempts to summarize the basic ethical prin-
ciples identified by the commission (7, 15). Compliance
with the three founding principles of the Belmont Report
is key to protecting human subjects participating in either
funded or unfunded research: (i) respect (i.e., informed,
voluntary consent of subjects), (ii) beneficence (i.e., assess-
ment of the risk/benefit to the subjects), and (iii) justice
(i.e., fairness in human subject selection) (7, 15).
Regulatory Requirements for Human
Subject Protection
Regulatory requirements defining human subject law can be
found in several regulations: (i) Department of Health and
Human Services (DHHS)—45 CFR 46; (ii) Food and Drug
Administration (FDA)—45 CFR 50, 56, 312, 812; (iii) Health
Insurance Portability and Accountability Act (HIPAA)—45
CFR 160,164; and (iv) Family Educational Rights and Pri-
vacy Act—34 CFR 99. Adherence to these regulations is in-
tegral to the researcher’s ability to perform clinical research.
In these regulations, a “human subject” is defined as a
living individual for whom an investigator conducting re-
search collects or otherwise obtains data, through interven-
tion or interaction with the individual or his or her private
identifiable information. The rights of human subjects are
protected by a local Human Subjects Protection Program
(HSPP) in collaboration with local and/or national institu-
tional review boards (IRBs) (15, 20). The HSPP’s role is to
provide administrative support to the IRB and regulatory
expertise to the IRB and to investigators. The HSPP also
serves as an independent unit where complaints or con-
cerns about clinical research may be reported (5, 9, 10). Of-
ten, more than one IRB is affiliated with a given HSPP. IRBs
may have more than one committee, each typically special-
izing in either social or biomedical research. Committees
review all clinical research applications to evaluate the risks
to human subjects who participate in the research (15, 20).
HSPPs define research involving human subjects as a
systematic investigation (i.e., having or involving a system,
method, or plan), including research development, testing,
and evaluation, which are designed to develop, elaborate,
expand, or contribute to knowledge that is generalizable to
a larger population. A clinical researcher must describe the
planned research and submit a written or electronic plan
to the HSPP prior to full review by the appropriate IRB
committee. Each academic or nonacademic entity engaged
in clinical research will have a local HSPP to coordinate
the application process. The HSPP categorizes the research
based on perceived risks to the human subjects (8, 15).
Human Subject Research: Classifications Based
on Risk
There are three classifications of research applications
(8): (i) exempt (low or no risk), which receive only an ad-
ministrative review, (ii) expedited (minimal risk), which
are subject to federal regulations and reviewed by the IRB
committee chair/co-chair or designee, and (iii) full com-
mittee (greater than minimal risk), which are subject to
federal regulations and require a review by an IRB com-
mittee at a convened meeting. IRB approval of the research
plan must come before any subject recruitment, consent,
or enrollment is implemented. There is no retroactive ap-
proval, and data may be lost if permission is not obtained
prior to collection. Any changes to the research protocol
must also be submitted for review.
Several types of research studies are not inherently consid-
ered to be human subjects research and are often classified as
exempt from IRB review, for example, quality improvement
activities, diagnostic test development and verification when
no publication is planned, case studies, program evaluations,
secondary analysis of existing data not collected specifically
for the proposed project, and not identifiable.
Even if investigators suspect that the project is not likely
to be classified as human subjects research, they must still
obtain a review and all required signatures and submit to
the HSPP for review, as these types of studies can be classi-
fied as human research after HSPP review. Typical exempt
applications include research studies for the following
activities: normal educational practices; tests, surveys,
interviews, and some observations; collection or study of
existing data that cannot be linked to a subject; and pub-
lic benefit or service programs (e.g., Medicare). In some
special circumstances, identifiable subjects are accepted;
however, these exceptions are rare.
An “expedited minimal risk” definition is described
in 45 CFR 46.102.i as research in which “the probability
and magnitude of harm or discomfort anticipated in the
research are not greater, in and of themselves, than those
ordinarily encountered in daily life or during the perfor-
mance of routine physical or psychological examinations
or tests.” Studies performed in diagnostic laboratories that
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
use “remnant” or “discard” specimens are often placed into
this category.
In contrast, “full committee” projects include all other
projects. After review by the HSPP and IRB, these projects
may be approved by the IRB under the following regulatory
criteria (45 CFR 26.111). Researchers must ensure that:
• Risks to subjects are minimized.
• Risks are reasonable in relation to anticipated benefits.
• Selection of subjects is equitable.
• Informed consent will be sought.
• Informed consent will be appropriately documented.
• There are adequate provisions for monitoring of data.
• There are adequate provisions to protect the privacy of
subjects and to maintain confidentiality of data.
Human Subject Training Requirements and Site
Authorization
To become eligible to submit an application to the HSPP,
or to participate in human research projects, collaborative
IRB initiative (CITI) training is required for investigators
and staff involved in the research. After successful comple-
tion of CITI training, a verification of training form must
be completed and reported to the HSPP. Training is valid
for four years, after which time retraining must occur.
When research will be performed outside of the prin-
cipal investigator’s (PI’s) home department—for example,
when an academic researcher requires subjects or clini-
cal samples from a hospital—a written document, called
a “site authorization,” is required. The site authorization
document or letter ensures that the site is aware of and ac-
cepts collaboration for the research project. The site autho-
rization letter must contain signatures that document site
review and must be submitted to the HSPP.
When recruitment will be performed outside the PI’s de-
partment, a written site authorization is also required and is
maintained in the PI’s files. Posting a flyer or brochure or us-
ing a facility to identify potential subjects is considered off-
site recruitment and is part of site authorization. Copies of
any recruitment materials must be IRB approved prior to use
(e.g., flyers, handouts, emails, scripts). The type and method
of recruitment must also be approved. Materials must be
clear, concise, and not include language that may place coer-
cion or undue influence on a subject to participate. Specific
dollar amounts or awards for participation in the research
are not allowed to be listed in recruitment materials; it is ac-
ceptable to state that “compensation will be provided.”
Informed Consent
For projects that are categorized as requiring full review,
the human subject consenting process is defined in detail
and compliance with HSPP protocol is critical. Several
types of consent (subject consent, parental permission,
821
minor assent, subject disclosure) are defined and are
meant to fully inform the subjects of everything that they
are going to be experiencing because of the study and ev-
erything they will be receiving from the research study. A
consent form is required and should include a thorough,
clear description of the research goal, sufficient detail
about the study procedures, and answers to all questions
on the HSPP project approval form (PAF), which may vary
slightly by organization. If PAF questions are not applica-
ble to the study, then the investigator must document why
they are not applicable. Any changes in the consent form
must be resubmitted for approval by the IRB prior to use,
documenting changes with a version date and line num-
bers on the document to help track changes.
For written consent forms, the preferred writing stan-
dard is to use a sixth- to eighth-grade language level so that
the subject can easily understand the consent forms. Spe-
cial considerations, such as a witness, a third party, or a test
of knowledge, are expected for certain populations (e.g.,
children, the cognitively impaired, those under extreme
duress, other vulnerable or special populations, etc.). In
some cases, a waiver of consent or a waiver of documen-
tation of informed consent (signature requirement) is
available—for example, research performed in emergency
departments in life-saving circumstances when there is no
time to obtain informed consent and the patient is unlikely
to survive without intervention.
Special Populations
Special populations are those identified in regulations as
vulnerable and may require additional protections:
• Children
• Pregnant women
• Prisoners
• Cognitively impaired individuals
In addition, each state may have its own policies and
laws related to tribal nations. Tribal authorization is gener-
ally required prior to conducting research. Native Ameri-
can nations have the legal right to:
• Approve or deny requests for research
• Halt research activities without disclosing their reasons
• Decide whether the outcomes of research activities
conducted within their jurisdiction will be disclosed/
disseminated (or not) in oral or written form
• Negotiate exclusive or shared ownership of research data
• Require consultation by American Indian Studies (so-
cial and behavioral) and Office for Multicultural Af-
fairs (biomedical)
• Include the use of secondary data that were not col-
lected by the PI of the proposed project, even if the
data are de-identified
822 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
Continuing Review by the IRB
Projects that are nonexempt must be reapproved by the
IRB each year before their expiration date. If the project
is not re-approved by the expiration date, the project is
administratively closed and a new application will be re-
quired. Investigators are restricted from submitting new
human research until the completed continuing review
form has been received and approved. If data for a project
are no longer required, the project can be concluded and
closed. However, if a PI is leaving an institution, the PI is
responsible for transferring oversight or concluding the
project before leaving the institution.
Records Retention for HSPPs
While requirements in each state vary in accordance with
the local records retention and disposition schedule, the PI
maintains human research records, including signed and
dated consent documents, for whichever of the following
time periods is the longest. Consider this example from
the state of Arizona (http://web.arizona.edu/~records/
common_retention_schedules.pdf, accessed October 30,
2012):
• Six (6) years after the completion of the research; or
• Six (6) years after the age of majority, if the research
involves children; or
• The length of time required by law; or
• As long as the sponsor requires (for sponsored
research)
Compliance with HIPAA
Also referred to as the Kennedy-Kassebaum Act, the Health
Insurance Portability and Accountability Act of 1996 (PL
104-191; HIPAA) was enacted by the federal government
on August 21, 1996, with the intent to ensure health in-
surance portability, reduce healthcare fraud and abuse,
guarantee security and privacy of health information, and
enforce standards for health information (11). HIPAA was
created to establish minimum federal standards for safe-
guarding the privacy of individually identifiable health
information. The regulation has three areas of focus: (i)
portability of and access to health benefits, (ii) prevention
of fraud and abuse, and (iii) administrative simplification.
HIPAA expands the False Claims Act to define healthcare
claims with intentional fraud as a criminal act.
The term “HIPAA privacy” refers to rules that control
the accessing and sharing of a patient’s data and protected
health information (PHI), i.e., the information that iden-
tifies an individual and relates to the person’s physical
or mental health or condition, the provision of healthcare
to that person, or payment for the provision of health-
care to that person. In essence, PHI is any information
transmitted or maintained in any form, such as prescrip-
tion records, patient profiles, and oral communications on
the phone or during patient counseling. Compliance with
the rule involves implementation of policies and proce-
dures to ensure the confidential use and disclosure of PHI
by all staff. Confidentiality practices for PHI limit who
can access the data, define how the data will be stored,
and ensure individuals’ access to their own PHI.
Common personal identifiers that cannot be shared
without prior permission include:
• Names
• Geographic subdivisions smaller than a state, includ-
ing street address, city, county, precinct, ZIP code and
equivalent geocodes, except for the initial five digits of
a ZIP code to 000
• All elements of dates (except year) for dates directly re-
lated to an individual, including birth date, admission
date, discharge date, date of death, and all ages over 89
• Telephone numbers
• Fax numbers
• Email addresses
• Social security numbers
• Medical record numbers
• Health plan beneficiary numbers
• Account numbers
• Certificate/license numbers
• Vehicle identifiers and serial numbers including li-
cense plate numbers
• Device identifiers and serial numbers
• Web Universal Resource Locators (URLs)
• Biometric identifiers, including finger or voice prints
• Full face photographic images and any comparable
images
• Internet protocol address numbers
• Any other unique identifying number characteristic
or code
According to 45 CFR 164.530(c), standard information
security safeguards must encompass appropriate adminis-
trative, technical, and physical safeguards to protect the pri-
vacy of PHI. Entities must “reasonably” safeguard PHI from
intentional or unintentional uses or disclosures in violation
of the standards and must “reasonably” safeguard PHI from
incidental uses or disclosures that result from a permitted
or required use or disclosure. Organizations must protect
the confidentiality and security of health information as it
is used, disclosed, and electronically transmitted and create
a framework using standardized formats for transmitting
electronic health information more efficiently.
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
Multiple users may access health information when re-
lated to patient care. For healthcare workers, access is lim-
ited to those persons or classes of persons in the workforce
who require access to PHI to carry out their healthcare du-
ties. Disclosure of PHI is limited to the minimum amount
necessary to accomplish the intended purpose of the au-
thorized use, disclosure, or request. Organizations must
make reasonable efforts to limit access. It is the right of an
individual to request restrictions on uses and disclosures
of PHI and permit an individual to request confidential
communication of PHI at alternative locations or by alter-
native means.
Researchers may access PHI with approval from the
HSPP. One approach is the de-identification of the subject’s
samples. De-identified PHI, for which one removes identifi-
ers of the individual or of relatives, employers, or household
members of the individual, is commonly thought to limit
the disclosure to the minimum amount necessary to accom-
plish the intended purpose of the authorized disclosure.
An aspect of HIPAA, the Administrative Simplifica-
tion Rule, includes electronic data interchange (EDI)/
transmission, privacy, security, and unique identifiers.
Electronic transmission of healthcare data is most com-
monly used for claims processing and payment, reduction
in paper transactions, reduction of risk of lost paper docu-
ments, and referrals and enrollment. The privacy aspect
of EDI requires covered entities (e.g., healthcare providers,
healthcare plans, and healthcare clearinghouses) to safe-
guard patient healthcare information. Security is compre-
hensive and coordinated and applies to all aspects of data
security. An intricate interaction of all aspects of our in-
formation systems is required to ensure the protection of
data such that the information system will be scalable for
all sizes of covered entities. The information system should
be technology-neutral and flexible and use technology to
ensure compliance by the workforce.
The Centers for Medicare and Medicaid Services (CMS)
is required to conduct audits of organizations that work
with protected health information, and CMS penalties for
HIPAA violations include fines or imprisonment. Civil
monetary penalties are tiered based on knowledge from the
audits, and penalties can reach $1.5 million maximum an-
nually for the HIPAA violations. The knowing misuse of
individually identifiable health information may result in
imprisonment for up to 10 years.
Compliance with Conflict of
Interest Policies
A conflict of interest (COI) is a situation in which there are
conflicting incentives with identified potential for inject-
ing inappropriate considerations into a given decision or
evaluation—a potential to compromise or jeopardize the
integrity or the credibility of a study’s results (1, 12, 17–19).
823
A COI can be described as a set of conditions where
professional judgment has the potential to be biased by
either financial or nonfinancial secondary interests of a
clinical practitioner or research investigator (24). A COI
is not an outcome, but rather it is a situation, a confluence
of potentially competing factors. It is not in and of itself a
measure of character or integrity, but it has potential ef-
fects that may operate consciously and/or unconsciously
and that must be addressed to maintain both integrity and
credibility in clinical practice and research.
In organizations, it is the potential for COI that needs
to be managed to maintain integrity and credibility. Iden-
tified COIs are most often financial, because they are
more readily measurable than other conflicting incen-
tives; however, nonfinancial COIs are equally important.
For example, careers, lives, personal relationships, and in-
stitutions with multiple facets will have these perceived
conflicts whenever there are intersections of potentially
competing interests. Scientific evidence supports con-
cerns about subconscious COI influences (https://www
.aamc.org/initiatives/coi/75306/coi_science.html, accessed
October 30, 2012).
Disclosure of COIs is important, both to individuals
and to their organizations. In reviews of the literature,
nondisclosure was noted to occur in clinical practice
guidelines across a wide variety of clinical disciplines;
however, there is little evidence to characterize the ef-
fects on clinical recommendations (18). Attention to COI
issues is longstanding, sometimes driven by corporate
sponsorship of clinical trials in the pharmaceutical indus-
try (23). A growing number of publications are publishing
COI policies, including some in pathology and laboratory
medicine (12), while some include details in the instruc-
tions to authors (e.g., http://jcm.asm.org/site/misc/ifora
.xhtml, accessed July 26, 2013).
Some potential poor outcomes in COI situations in-
clude the following:
• Avoidable injury to human research subjects
• Compromised institutional resource allocations
• Damage to research integrity
• Damage to research credibility
• Damage to institutional credibility with external
stakeholders
Most organizations have a policy and review proce-
dure for COI related to research and practice, as it is a
requirement for organizations that receive federal re-
search funding, for research involving FDA approval,
and for accreditation by the Association for Accredita-
tion of Human Research Protection Program. Many or-
ganizations have similar policies for clinical practice and
for purchasing. An organization’s COI policy is designed
to protect the integrity and credibility of research and
824 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
related teaching, public service, and business operations.
It includes an institutional policy for disclosure of COI,
as well as review and oversight of personal financial in-
terests related to the research.
The COI policies apply to all faculty, staff, and stu-
dents (including full-time and part-time faculty and
staff, visiting faculty, postdoctoral scholars, undergradu-
ates, graduate students, postdoctoral fellows, and all re-
search team members) who are in a position to influence
or commit organizational resources, that is, anyone who
can impact decision making or offer advice on purchas-
ing, hiring, or anything involving organizational funds or
facilities. Research team members include the PI and any
other person who is responsible for the design, conduct,
or reporting of research.
The critical components of a COI policy and process in-
clude identifying the potential conflicts, the intersections
of a personal financial interest with a transaction for which
the individual has evaluation/decisional authority. In addi-
tion, review, assessment, and decision processes regarding
those identified conflicts of interest should detail the com-
position of a review panel and criteria for COI review. The
review panel assesses the relationship between the transac-
tion and the decision or evaluation activity and potential
for change in value of the financial interest.
COI management strategies include disclosure in all
presentations of the research, performance of interaction
with human subjects by a different and not subordinate
qualified researcher, independent data monitoring, inde-
pendent supervision of potentially vulnerable subordinate
researchers (trainees, students, or junior faculty), change
in PI, and divestiture.
An actual COI arises in a situation where financial or
other personal or professional considerations compromise
an individual’s objectivity, professional judgment, profes-
sional integrity, and/or ability to perform his or her respon-
sibilities. Perceived or potential COIs exist in situations
where an individual member of the organization, a mem-
ber of the individual’s family, or a close personal relation
has financial interests, personal relationships, or profes-
sional associations with an outside individual or organiza-
tion, such that his or her activities within the organization
could appear to be biased against the organization by that
interest or relationship. A COI disclosure form should be
completed as soon as the situation comes up and before
beginning the activity in question. A COI disclosure sur-
vey is typically completed annually.
The concepts of COI and conflict of commitment arise
out of the fiduciary duty that an employee owes to his or
her employer. This means that when we make decisions
as employees, we must make those decisions with the or-
ganizational interest of our employer as our guide. When
an outside interest or commitment prevents us from fully
doing the job we have accepted or prevents us from using
only our organization’s interest in guiding our decisions as
employees, there is a COI or conflict of commitment.
There are two common avenues for identifying poten-
tial COIs related to sponsored research and technology
transfer:
• During the processing of a sponsored project agree-
ment, the PI will determine whether he or she and/or
a key investigator or any family member of these indi-
viduals has a financial or management interest in the
project sponsor or some other entity related to the
project.
• During the disclosure of an invention and the develop-
ment of subsequent technology transfer agreements,
it is determined that the inventor(s) or their family
members have a financial or management interest in
a company the organization may wish to work with
on the invention’s development, manufacturing, or
marketing.
If a conflict is deemed to exist, the committee designs
a plan to manage the specific conflict situation. An ap-
propriate management plan must be in place before orga-
nizations will accept any sponsored award or technology
transfer agreement in which a financial or management
conflict is judged to exist. The relevant COI review com-
mittee will monitor any management plans and will re-
quire updates of disclosures from individuals involved in
those management plans at least annually.
A COI policy also provides guidelines for employees in-
teracting with companies through consulting agreements,
the formation of spin-off companies, and research agree-
ments with companies in which faculty members have sig-
nificant equity positions or financial interests. Department
heads typically have the front-line responsibility for ensur-
ing compliance with the COI policy. Any potential COI
must be reviewed by the institutional review committee
(IRC), and any commitment involving intellectual prop-
erty receives special attention.
Intellectual Property Considerations
Policies relating to intellectual property (IP) encourage
employees to engage in creative endeavors and recognize
intellectual property as one tool that organizations may
use to disseminate new knowledge (4). The policy gener-
ally specifies the categories of IP, describes factors that
determine IP ownership, lists the administrative respon-
sibilities of the organization and its employees, describes
the interaction between publication rights and the pro-
tection of IP, specifies that revenue from the commer-
cialization be shared with those who created the IP, and
provides guidelines for faculty-owned companies regard-
ing COI. An organization’s IP policy also describes crite-
ria for the ownership and use of organization-owned IP
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
and defines procedures to be used in the management of
IP at the organization (4).
GCP and GLP Regulations
Good clinical practice (GCP) encompasses all aspects of
clinical trials involving human subjects (26). GCP pres-
ents regulations for the sponsor of the research as well
as the study directors. Principles of GCP involve ethi-
cal aspects of research including risks and benefits to
the human subjects, protection of human subjects, in-
formed consent, confidentiality, and the quality of sci-
ence employed. GLC also considers the investigational
product to be studied; the science of the protocols used;
quality assurance practices such as compliance with pro-
tocols; and data handling including data acquisition,
documentation of data, record keeping, correspondence,
data analysis and monitoring, and data and document
storage. Clinical and laboratory data used in national
regulatory decisions are legally mandated to meet the
written specifications detailed under the GCP regula-
tions. Adverse event reporting is also an aspect of GCP.
Specific aspects of GCP are detailed in the following
link (http://www.fda.gov/ScienceResearch/SpecialTopics/
RunningClinicalTrials/GuidancesInformationSheetsand
Notices/ucm219433.htm, accessed July 26, 2013) and partly
summarized below.
Sponsor Responsibilities
The sponsor is an individual, company, institution, or or-
ganization that takes responsibility for the initiation, man-
agement, and/or financing of a clinical trial (26). A sponsor
is usually a pharmaceutical or biotechnology company. A
sponsor’s duties include the following:
• Maintaining records
• Developing the study protocol
• Developing case report forms, which are printed or
electronic documents designed to record all of the
related information to be reported to the sponsor on
each trial subject or sample
• Selecting qualified investigators/study directors
• Providing investigational articles, reagents, and instru-
ments to investigators
• Being responsible for training sessions for study
personnel
• Ensuring adherence to research protocols by perform-
ing regular monitoring and data and compliance audits
• Informing the FDA and investigators of safety infor-
mation and adverse events
• Submitting preliminary and final reports to the FDA
and other regulatory agencies
825
Study Director and Responsibilities
The study director is called the principal investigator (PI)
on submitted sponsored projects research and on research
contracts (26). A study director may appoint a GCP man-
ager for operational issues; however, the study director is still
responsible for the conduct, interpretation, analysis, docu-
mentation, and reporting of results of the GCP study. The
study director typically may write or provide advice for pro-
tocols and submits the protocol for IRB review. The study
director obtains a quality assurance office (QAO) signature
for the proposal’s routing sheet (a form most organizations
use to document that all relevant parties and departments
are aware of and agree to participation in the project and
the project budget). The study director also ensures that all
personnel have a copy of the protocol and standard operat-
ing procedures (SOPs). Examples of additional duties of the
study director include:
• Ensure that the signature/initial log is completed for
the study
• Provide a study calendar of study phases/study activi-
ties to the QAO
• Review raw data/records
• Ensure that unforeseen circumstances are documented
and reviewed by the QAO
• Respond in writing to written QAO inspection/audit
reports
• Prepare/sign the final report after review by the QAO
• Ensure that study materials are placed in departmental
archives or the organization’s Records Management
and Archives Department
• Report safety information to the institutional IRB and
to the sponsor
Quality Assurance Office (QAO): Organization,
SOPs, Inspections, Reporting Data
The Quality Assurance officer(s) in an organization works
with students, staff, and faculty to ensure that all research
conducted is compliant with federal regulations guid-
ing GCPs for studies supporting applications related to
the FDA for medical devices for human use. The QAO is
typically completely independent of any federal or sponsor
funding and is located within the organization department
that is responsible for all safety and regulatory compliance.
Examples of QAO oversight include:
• Review of the study and SOPs before the study is
initiated.
• Coordination of protocol discussions with study
personnel.
• Inspection of equipment maintenance and calibration
records before the study is initiated.
826 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
• Monitoring at random intervals throughout study.
• Coordination of regulatory inspections and recording
of all inspection report data and any corrective action.
• Ensuring that QAO checklists for all inspections dur-
ing the study are filed under the study number in the
QAO office.
• Ensuring that the study name, inspection dates, and
phase of the study inspected by the QAO are available
for inspection by regulatory inspectors.
• Ensuring that all records and checklists are archived
at the end of the study. State and federal law mandates
what the organization does with its records and how
long they are retained.
GLP Background
Good laboratory practice (GLP) is a system of manage-
ment controls for nonclinical research laboratories and
organizations to try to ensure the uniformity, consistency,
reliability, reproducibility, quality, and integrity of research
(6, 16). GLP applies to nonclinical studies conducted for
the assessment of the safety or efficacy of chemicals (in-
cluding pharmaceuticals) to humans, animals, and the en-
vironment and is not required for clinical trials involving
human subjects; however, GLP regulations define stan-
dardized practices that are aimed to ensure reproducibil-
ity of results and are valuable to any professional scientist
by providing practices for the processes, organization,
and conditions under which laboratory studies are con-
ducted (26). An internationally recognized definition of
GLP can be found on the Medicines and Healthcare Prod-
ucts Regulatory Agency website (http://www.mhra.gov
.uk/#page=DynamicListMedicines, accessed March 20,
2013). GLP practices are not required but often useful for
laboratories during clinical trials for in vitro diagnostics
devices and laboratory methods whose analytical results
will be submitted to the FDA for review. In many cases
GLP quality assurance practices provide a practical way
to deal with the large quantities of data, documents, and
operating procedures required for participation in clinical
trials for in vitro diagnostics. The applicability of GLP to
analytical methods and instrument assessment supports
their usefulness for all scientific disciplines regulated by
the FDA (26).
The original GLP regulatory mandate was promulgated
in 1978 by the FDA, published in the Federal Register (43
FR 59985-60020) (6). It was followed a few years later by
the U.S. Environmental Protection Agency, as outlined in
the Organization for Economic Cooperation and Devel-
opment principles of GLP in 1992. GLP is, in essence, a
data quality system and should not be confused with stan-
dards for laboratory safety or practice or with the Clinical
Laboratory Improvement Act guidelines for laboratories.
GLP defines responsibilities for investigators and appro-
priate practices and safeguards for research activity. GLP
regulations cover many areas, several of which are key to
good scientific practices and provide the underpinnings
of successful clinical trial laboratories as described below
(16, 26).
Equipment and equipment validations. SOPs are required
for equipment specified in the protocol (6). The equipment
name and identification are entered on the GLP study
checklist for each phase of the study, and SOPs are defined
for inspection, cleaning, calibration, and maintaining of
equipment specific to the study. These SOPs are discussed
with the staff for specific use during the study. The QAO
reviews SOPs and equipment calibration records before
the study is initiated.
Standard operating procedures. SOPs are the foundation
of any GLP study (6).
• SOPs are in place for test and controls and any process
policy or procedure.
• Study SOPs are reviewed by the QAO and are included
in the protocol.
• Study SOPs are distributed to all personnel on the GLP
study.
• The study SOPs are filed in a binder in the study man-
ager’s office. A checklist is completed for each phase of
the study, and copies are made for each phase and filed
in a study binder in the study manager’s office.
Reagents and solutions: test and control article. Reagents
and solutions are under the purview of GLP regulations (6).
• Pharmaceutical-grade compounds, reagents, and
drugs are within the expiration date and recorded on
the GLP study animal checklist.
• Solutions for cell culture are prepared and used ac-
cording to SOPs and recorded on the checklist.
• All of a solution’s formulation is recorded and dated on
the GLP checklist.
Final research reports. The final research report is scru-
tinized and reviewed, with attention given to the raw data
from which conclusions were drawn (6).
• The QAO reviews the final report for all phases of the
study. The raw data are reviewed to verify that the
study director’s data charts and tables are derived from
the raw data.
• The QAO inspections and review dates are written in
the quality assurance statement, which is given to the
study director for inclusion in the final report.
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
Summary
The goal of the clinical research compliance program is to
promote operational excellence, best practices, and regula-
tory compliance in clinical research conducted within an
organization. The compliance program promotes research
activities by supporting the clinical trial’s administrative
process. It creates a culture of ethics, integrity, and compli-
ance with applicable laws, regulations, and organizational
policies. It also provides educational opportunities to re-
search staff and enhances the exposure and opportunities
for the organization’s clinical trial capabilities.
KEY POINTS
■ Human subject protection laws are designed to protect
research subjects from harm.
■ The Health Insurance Portability and Accountability
Act (HIPAA) protects the privacy of healthcare records
and personal information.
■ Conflict of interest (COI) policies are designed to mitigate
biases that could occur when researchers have a financial
investment in companies that sponsor clinical research.
■ Good Clinical Practices (GCPs) encompass many areas
of research compliance and are key to successful com-
pletion of clinical research.
GLOSSARY
In part, definitions were directly accessed from http://www.hhs
.gov/ohrp/archive/irb/irb_glossary.htm (accessed March 20, 2013).
Adverse effect An undesirable and unintended, although not
necessarily unexpected, result of therapy or other intervention
(e.g., headache following spinal tap or intestinal bleeding associ-
ated with aspirin therapy).
Assent Agreement by an individual who is not competent to
give legally valid informed consent (e.g., a child or cognitively
impaired person) to participate in research.
Assurance A formal written, binding commitment that is sub-
mitted to a federal agency, in which an institution promises to
comply with applicable regulations governing research with hu-
man subjects and stipulates the procedures through which com-
pliance will be achieved.
Autonomy Personal capacity to consider alternatives, make
choices, and act without undue influence or interference of others.
Belmont Report A statement of basic ethical principles govern-
ing research involving human subjects issued by the National
Commission for the Protection of Human Subjects in 1978.
Beneficence An ethical principle discussed in the Belmont Re-
port that entails an obligation to protect persons from harm. The
principle of beneficence can be expressed in two general rules: (i)
do not harm; and (ii) protect from harm by maximizing possible
benefits and minimizing possible risks of harm.
827
Benefit A valued or desired outcome; an advantage.
Biologic Any therapeutic serum, toxin, antitoxin, or analogous
microbial product applicable to the prevention, treatment, or cure
of diseases or injuries.
Children Persons who have not attained the legal age for con-
sent to treatment or procedures involved in the research, as de-
termined under the applicable law of the jurisdiction in which
the research will be conducted [45 CFR 46.401(a)].
Class I, II, III Devices Classification by the Food and Drug Ad-
ministration of medical devices according to potential risks or
hazards.
Clinical Laboratory Improvement Act (CLIA) Law governing
practices and training levels in clinical laboratories (http://
wwwn.cdc.gov/clia/default.aspx, accessed March 20, 2013).
Clinical trial A controlled study involving human subjects, de-
signed to evaluate prospectively the safety and effectiveness of
new drugs or devices or of behavioral interventions.
Cognitively impaired Having either a psychiatric disorder (e.g.,
psychosis, neurosis, personality or behavior disorders, or de-
mentia) or a developmental disorder (e.g., mental retardation)
that affects cognitive or emotional functions to the extent that
capacity for judgment and reasoning is significantly diminished.
Others, including persons under the influence of or dependent
on drugs or alcohol, those suffering from degenerative diseases
affecting the brain, terminally ill patients, and persons with se-
verely disabling physical handicaps, may also be compromised in
their ability to make decisions in their best interests.
Compensation Payment or medical care provided to subjects
injured in research; does not refer to payment (remuneration)
for participation in research. Compare Remuneration.
Competence Technically, a legal term, used to denote capacity
to act on one’s own behalf; the ability to understand information
presented, to appreciate the consequences of acting (or not act-
ing) on that information, and to make a choice. See also Incom-
petence, Incapacity.
Confidentiality Pertains to the treatment of information that an
individual has disclosed in a relationship of trust and with the
expectation that it will not be divulged to others without permis-
sion in ways that are inconsistent with the understanding of the
original disclosure.
Consent See Informed consent.
Data and safety monitoring board A committee of scientists, phy-
sicians, statisticians, and others that collects and analyzes data dur-
ing the course of a clinical trial to monitor for adverse effects and
other trends (such as an indication that one treatment is signifi-
cantly better than another, particularly when one arm of the trial
involves a placebo control) that would warrant modification or ter-
mination of the trial or notification of subjects about new informa-
tion that might affect their willingness to continue in the trial.
Declaration of Helsinki A code of ethics for clinical research
approved by the World Medical Association in 1964 and widely
adopted by medical associations in various countries. It was re-
vised in 1975 and 1989.
828 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
DHHS A federal agency: U.S. Department of Health and Hu-
man Services; formerly the Department of Health, Education
and Welfare (DHEW).
Diagnostic (procedure) Tests used to identify a disorder or dis-
ease in a living person.
Equitable Fair or just; used in the context of selection of subjects
to indicate that the benefits and burdens of research are fairly
distributed.
Ethics advisory board An interdisciplinary group that advises
the Secretary of DHHS on general policy matters and on research
proposals (or classes of proposals) that pose ethical problems.
Expedited review Review of proposed research by the IRB chair
or a designated voting member or group of voting members
rather than by the entire IRB. Federal rules permit expedited re-
view for certain kinds of research involving no more than mini-
mal risk and for minor changes in approved research.
Experimental Term often used to denote a therapy (drug, de-
vice, procedure) that is unproven or not yet scientifically vali-
dated with respect to safety and efficacy. A procedure may be
considered “experimental” without necessarily being part of a
formal study (research) to evaluate its usefulness. See also
Research.
FDA U.S. Food and Drug Administration, an agency of the fed-
eral government established by Congress in 1912 and presently
part of the Department of Health and Human Services.
Federal Policy (the) The federal policy that provides regulations
for the involvement of human subjects in research. The Policy
applies to all research involving human subjects conducted, sup-
ported, or otherwise subject to regulation by any federal depart-
ment or agency that takes appropriate administrative action to
make the Policy applicable to such research. Currently, 16 federal
agencies have adopted the Federal Policy. (Also known as the
“Common Rule.”)
Full board review Review of proposed research at a convened
meeting at which a majority of the membership of the IRB are
present, including at least one member whose primary concerns
are in nonscientific areas. For the research to be approved, it
must receive the approval of a majority of those members present
at the meeting.
Human subjects Individuals whose physiologic or behavioral
characteristics and responses are the object of study in a research
project. Under the federal regulations, human subjects are de-
fined as living individual(s) about whom an investigator conduct-
ing research obtains (i) data through intervention or interaction
with the individual or (ii) identifiable private information.
Incompetence Technically, a legal term meaning inability to
manage one’s own affairs. Often used as a synonym for
incapacity.
Informed consent A person’s voluntary agreement, based upon
adequate knowledge and understanding of relevant information,
to participate in research or to undergo a diagnostic, therapeutic,
or preventive procedure. In giving informed consent, subjects
may not waive or appear to waive any of their legal rights, or
release or appear to release the investigator, the sponsor, the in-
stitution or agents thereof from liability for negligence.
Institution Any public or private entity or agency (including
federal, state, and local agencies).
Institutional review board A specially constituted review body
established or designated by an entity to protect the welfare of
human subjects recruited to participate in biomedical or behav-
ioral research.
Institutionalized Confined, either voluntarily or involuntarily
(e.g., a hospital, prison, or nursing home).
Investigator In clinical trials, an individual who actually con-
ducts an investigation [21 CFR 312.3]. Any interventions (e.g.,
drugs) involved in the study are administered to subjects under
the immediate direction of the investigator (aka principal
investigator).
Justice An ethical principle discussed in the Belmont Report,
requiring fairness in distribution of burdens and benefits; often
expressed in terms of treating persons of similar circumstances
or characteristics similarly.
MHRA A non-U.S. government agency that is responsible for
ensuring that medicines and medical devices work and are ac-
ceptably safe. It is a center of the Medicines and Healthcare Prod-
ucts Regulatory Agency, which also includes the National Institute
for Biological Standards and Control (NIBSC) and the Clinical
Practice Research Datalink (CPRD). The MHRA is an executive
agency of the Department of Health (http://www.mhra.gov.uk/
index.htm#page=DynamicListMedicines).
Minimal risk A risk is minimal where the probability and mag-
nitude of harm or discomfort anticipated in the proposed re-
search are not greater, in and of themselves, than those ordinarily
encountered in daily life or during the performance of routine
physical or psychological examinations or tests. For example, the
risk of drawing a small amount of blood from a healthy individ-
ual for research purposes is no greater than the risk of doing so
as part of routine physical examination. The definition of mini-
mal risk for research involving prisoners differs somewhat from
that given for noninstitutionalized adults. [See 45 CFR 46.303(d)
and Guidebook Chapter 6, Section E, “Prisoners.”]
Monitoring The collection and analysis of data as the project
progresses to ensure the appropriateness of the research, its de-
sign, and subject protections.
National Commission National Commission for the Protection
of Human Subjects of Biomedical and Behavioral Research. An
interdisciplinary advisory body, established by congressional
legislation in 1974, which was in existence until 1978 and which
issued a series of reports and recommendations on ethical issues
in research and medicine, many of which are now embodied in
federal regulations.
New drug application Request for FDA approval to market a
new drug.
Nonaffiliated member Member of an Institutional Review
Board who has no ties to the parent institution, its staff, or fac-
ulty. This individual is usually from the local community (e.g.,
minister, business person, attorney, teacher, homemaker).
 CHAPTER 46. THE CLINICAL TRIAL LABORATORY
Nontherapeutic research Research that has no likelihood or in-
tent of producing a diagnostic, preventive, or therapeutic benefit
to the current subjects, although it may benefit subjects with a
similar condition in the future.
Nuremberg Code A code of research ethics developed during
the trials of Nazi war criminals following World War II and
widely adopted as a standard during the 1950s and 1960s for pro-
tecting human subjects.
Office for Human Research Protections (OHRP) The OHRP
provides leadership in the protection of the rights, welfare, and
well-being of subjects involved in research conducted or sup-
ported by the U.S. Department of Health and Human Services.
The OHRP helps ensure this by providing clarification and guid-
ance, developing educational programs and materials, maintain-
ing regulatory oversight, and providing advice on ethical and
regulatory issues in biomedical and social-behavioral research.
Office for Protection from Research Risks (OPRR) The office
within the National Institutes of Health, an agency of the Public
Health Service, Department of Health and Human Services, re-
sponsible for implementing DHHS regulations (45 CFR Part 46)
governing research involving human subjects.
Permission The agreement of parent(s) or guardian to the par-
ticipation of their child or ward in research [45 CFR 46.402(c)].
President’s Commission President’s Commission for the Study
of Ethical Problems in Medicine and Biomedical and Behavioral
Research. An interdisciplinary advisory group, established by
congressional legislation in 1978, which was in existence until
1983 and which issued reports on ethical problems in healthcare
and in research involving human subjects.
Prisoner An individual involuntarily confined in a penal insti-
tution, including persons: (i) sentenced under a criminal or civil
statue; (ii) detained pending arraignment, trial, or sentencing;
and (iii) detained in other facilities (e.g., for drug detoxification
or treatment of alcoholism) under statutes or commitment pro-
cedures providing such alternatives to criminal prosecution or
incarceration in a penal institution [45 CFR 46.303(c)].
Privacy Control over the extent, timing, and circumstances of
sharing oneself (physically, behaviorally, or intellectually) with
others.
Regulatory Affairs Professionals Society (RAPS) Dedicated to
providing regulatory affairs professionals with all the informa-
tion necessary to advance in their careers. Presents job postings,
articles, and information on career development (http://www.raps
.org, accessed March 20, 2013).
Remuneration Payment for participation in research. (NOTE: It is
wise to confine use of the term “compensation” to payment or provi-
sion of care for research-related injuries.) Compare Compensation.
Research A systematic investigation (i.e., the gathering and
analysis of information) designed to develop or contribute to
generalizable knowledge.
Respect for persons An ethical principle discussed in the Bel-
mont Report requiring that individual autonomy be respected
and that persons with diminished autonomy be protected.
829
Review (of research) The concurrent oversight of research on a
periodic basis by an IRB. In addition to the at least annual re-
views mandated by the federal regulations, reviews may, if
deemed appropriate, also be conducted on a continuous or peri-
odic basis.
Risk The probability of harm or injury (physical, psychological,
social, or economic) occurring as a result of participation in a
research study. Both the probability and magnitude of possible
harm may vary from minimal to significant. Federal regulations
define only “minimal risk.” (See also Minimal risk.)
Scientific review group A group of highly regarded experts in a
given field, convened by the National Institutes of Health (NIH)
to advise NIH on the scientific merit of applications for research
grants and contracts. Scientific review groups are also required
to review the ethical aspects of proposed involvement of human
subjects. Various kinds of scientific review groups exist and are
known by different names in different institutes of the NIH (e.g.,
Study Sections, Initial Review Groups, Contract Review Com-
mittees, or Technical Evaluation Committees).
The Society of Quality Assurance (SQA) A professional mem-
bership organization dedicated to providing a forum for infor-
mation exchange and utilization of knowledge in research and
regulatory quality assurance, promoting the profession through
leadership and effective professional relationships, enhancing
knowledge of regulatory and quality assurance concerns that im-
pact research, and fostering the highest professional standards
leading to growth, development, and recognition of the quality
assurance profession worldwide (http://www.sqa.org/, accessed
March 20, 2013).
Voluntary Free of coercion, duress, or undue inducement. Used
in the research context to refer to a subject’s decision to partici-
pate (or to continue to participate) in a research activity.
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 CHAPTER 46. THE CLINICAL TRIAL LABORATORY 831

APPENDIX 46.1 Useful Websites

Federal Drug Administration (FDA)
www.fda.gov (accessed March 20, 2013)
Environmental Protection Agency
www.epa.gov (accessed March 20, 2013)
International Organization for Standardization
www.iso.org (accessed March 20, 2013)
Organization for Economic Cooperation and Development
www.oecd.org (accessed March 20, 2013)
Office for Human Research Protections (OHRP)
http://www.hhs.gov/ohrp/ (accessed March 20, 2013)
United States Department of Health and Human Services
http://www.hhs.gov/ohrp/ (accessed March 20, 2013)
Introduction
Types of Studies
47 Clinical and Evidence-Based
Observational Studies • Mechanistic Studies •
Therapeutic Studies • Large-Scale Clinical Trials •
Research in the Clinical
Meta-Analysis
Translational Research Laboratory
Sequence of Investigation • Literature Search •
Hypothesis Generation • Designing the Study To Test
the Hypothesis Donna M. Wolk
Biostatistics
Descriptive Statistics • Inferential Statistics: General
Issues for Medical Devices • Other Issues for OBJECTIVES
Diagnostic Studies
Other Research Considerations
To acquaint the clinical laboratory with the basic types of experimental
approaches used by clinical (patient-oriented) researchers
Systematic Reviews and Laboratory
Medicine Best Practices To define the basic terms typically used in clinical research
Evidence-Based Laboratory Medicine • Laboratory To describe the concept of systematic review of literature
Medicine Best Practices Initiative
To describe initiatives occurring for evidence-based laboratory medicine
Summary
KEY POINTS
GLOSSARY
REFERENCES We are what we continually do; excellence then is not an act but a habit.
APPENDIX Aristotle

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch47
L
aboratory interventions are becoming more data driven, out-
come oriented, and evidence based. As such, laboratory professionals need
more background in experimental study design and biostatistical meth-
ods, so that laboratory data can be used to generate outcomes data from quality
improvement (QI) activities and comparative analytics of new testing methods.
In vitro diagnostic clinical research studies that utilize human tissues or flu-
ids, which cannot be linked long-term to a living individual, are common in
many clinical laboratories that perform research. This type of clinical research
differs from what is defined as patient-oriented research (POR), which is com-
monly interventional, may occur in collaboration with clinical laboratories,
and is defined as “research conducted with human subjects” (or on material of
human origin such as tissues, specimens, and cognitive phenomena) for which
an investigator (or colleague) directly interacts with human subjects, consented
for the purpose of the study. In vitro research shares many of the basic prin-
ciples of the methodology used in basic science, animal research, and POR (29).
Several types of POR are found in academic and non-university-based
healthcare systems and, though diverse in scope, include (i) mechanistic (phys-
iological) studies of human disease involving detailed investigation of a biologi-
cal process; (ii) therapeutic studies that focus on treatment designed to improve
a disease or condition; and (iii) clinical trials, which are most often large, defin-
itive studies of new drugs or new technologies and devices, from which data are
submitted to the U.S. Food and Drug Administration (FDA) for review (29).
In any clinical study, formulation of a sound and reasonable hypothesis is
always the starting point, followed by appropriate and ethical study design,
choice of relevant endpoints, feasibility, statistical analysis, and hypothesis
testing (29).

832
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
Types of Studies
Observational Studies
Observational studies are those involving humans (cohort
or epidemiological studies) but not specifically categorized
as POR; rather, they involve recruitment of patients (human
subjects) and are often critical to hypothesis generation and
for subsequent interventional studies. Observations gener-
ally relate to a public health concern or biological principle.
Observational studies are primarily descriptive in nature
and often lead to the determination of data associations.
The goals of these studies are to obtain data or determine
an association, and they typically do not have well-defined
mechanistic hypotheses. Observational studies are typically
large population-based studies, which collect detailed data
on clinically relevant endpoints (29). Such studies are not
considered definitive or causative, since confounding phe-
nomena can occur (2). These studies are considered to be
hypothesis generating, rather than hypothesis testing. Anal-
yses may be performed to control for confounders, e.g., in
multivariate regression, but causality can only be inferred,
not proven (2). For example, human genome studies are be-
coming an important type of observational study and may
show an association between a particular genotype and dis-
ease, or may be useful to determine potential efficacy of a
particular therapy in a pharmacogenomic analysis.
Mechanistic Studies
In contrast to observational studies, mechanistic stud-
ies are useful to determine causality. Such studies are hy-
pothesis driven, and formulation of the hypothesis is the
critical element for the success of the study. These stud-
ies are commonly smaller than observational studies and
are designed to determine disease physiology or mecha-
nism. They define detailed endpoints which are assessed
in response to a relevant intervention or a disruption of
biological function. Because they use novel endpoints to
assess detailed physiology, small mechanistic studies may
not be generalizable to large populations and may have less
clinical relevance than large-scale trials; nevertheless, they
are important in stimulating larger therapeutic studies and
definitive large-scale clinical trials (29).
Therapeutic Studies
Therapeutic studies determine the efficacy of a medicine
or a treatment which is designed to improve a condition
or disease. These studies are often smaller, more prelimi-
nary, and less generalizable than clinical trials, but involve
some of the same design issues. For example, when test-
ing a new drug in humans, Phase I studies are designed to
assess safety, Phase II studies are the first therapeutic tri-
als, and Phase III studies are commonly larger therapeutic
studies, which are often called clinical trials. Therapeutic
studies are generalizable only to the conditions of the study
833
and the patients in the study. They are usually less likely to
assess hard endpoints and tend to be less definitive than
large-scale clinical trials. Nevertheless, they are a critical
to determine the risk-benefit ratio of a drug, which is then
further explored in large-scale trials (29).
Large-Scale Clinical Trials
Randomized clinical trials may take a long time to com-
plete and are costly but are necessary to definitively prove
new treatment strategies, to define new interventional ap-
proaches, and to confirm the proof for existing approaches
in clinical medicine. Most large-scale clinical trials are ran-
domized and placebo controlled to minimize confound-
ing. Because such studies are often multicenter, endpoints
must be the same for all sites. Stratification and analyses
of pooled data and data from each site help to ensure that
potential confounding variables are spread equally across
the data groups (29).
Clinical trials are always hypothesis driven and need to
be adequately powered, i.e., large enough to ensure that a
negative result is not the result of insufficient samples or
patients, but rather is the result of a true biological result
or diagnostic condition. Even these large studies can only
be generalized to the specific population and intervention
studied, and they may be misinterpreted or overgeneral-
ized. Large clinical trials are often more important in de-
termining the clinical efficacy of a drug than elucidating
mechanisms. It is a requirement to register all clinical tri-
als, and they can be searched in an existing database, like
www.clintrials.gov (accessed May 15, 2013).
Meta-Analysis
A meta-analysis is the process by which the results of mul-
tiple individual studies are statistically combined (1, 9, 18).
For more information, see the section “Systematic Reviews
and Laboratory Medicine Best Practices,” later in this chap-
ter. A meta-analysis is the formal evaluation of the evidence
from two or more trials focused on answering the same
question. Meta-analysis commonly involves the statistical
combination of summary statistics from the various stud-
ies, but the term is sometimes also used to refer to the com-
bination of their raw data.
Translational Research
Translational research can be described as the transition-
ing of basic research practices and findings to day-to-day
use in a clinical setting, such as the clinical laboratory. The
National Institutes of Health (NIH) developed Clinical and
Translational Science Awards (CTSAs) to focus research
efforts and provide resources for translational research.
Although the phrase “bench to bedside” is a colloquial
description of this process, translational research is not
unidirectional. Once a biological premise or tool is adapted
834 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
to a medical setting, clinical data derived from patients may
inform both patient-oriented and basic investigation. An ex-
ample of this process would be the discovery of procalcitonin
and its relationship to sepsis, which led to the use of this bio-
marker as an indicator of sepsis and for monitoring success-
ful antimicrobial therapy (12, 13, 17, 20, 28, 36, 39–41, 43).
A second, important translational step is the translation
of research findings from POR and clinical trials into daily
clinical practice. Thus, POR plays an important role in the
translation of basic research findings and clinical trial data
to improve medical practice and patient care (29). As an
example of how diagnostic clinical trial data may enhance
our understanding of infections, studies with multiplex
molecular panel testing identified an increased frequency
of respiratory coinfections, which spawned investigations
to detail the clinical impact of coinfections and their effect
on disease severity.
Sequence of Investigation
The sequence of POR involves observation, generation of a
testable hypothesis, the design of a study that will test this
hypothesis, the performance of the study (hypothesis test-
ing), the collection of data from the study, data analysis,
interpretation of the data, and formulation of conclusions.
1. Study design
a. Identify and document a problem, uncover an idea,
and perform literature search
b. Develop a definition of the problem
c. Identify possible solutions; formulate a hypothesis
d. Define study population and sample size
e. Create database to store data
f. Create subject recruitment plan or sample acquisition
g. Develop or select a statistical analysis plan
h. Select measurements, data collection tools, analyti-
cal tools, and biostatistics
i. Develop data collection forms
j. Define and assess confounders and bias
k. Assess overall feasibility and budget
l. Consider human subjects, regulatory approval com-
pliance requirements, and safety
m. Seek expert review and opinion
2. Hypothesis testing
a. Collect experimental data and demographic data
b. Collect study outcome data
c. Assess and analyze data and perform biostatistical
analysis
d. Interpret data/results
3. Conclusion formulation and description
a. Formulate conclusions
b. Establish whether hypothesis was proven
c. Assess unexpected results
d. Consider limitations of the study
e. Consider needs for future studies and develop ac-
tion plan
Literature Search
Literature searches are essential to every step of an inves-
tigation, from beginning to end. They are critical to help
establish a hypothesis, to determine whether there are
sufficient preliminary data to justify a study, to define the
study parameters, to establish safety and inclusion crite-
ria, and to determine study endpoints. Collection of litera-
ture can be performed for free with Web-based database
searches such as PubMed or via a library with databases
such as OVID. Furthermore, software solutions such as
EndNote and Reference Manager will help speed a lit-
erature search and facilitate categorization and storage of
publications found in the database query. Direct commu-
nication with other research and medical experts in the
field is also useful for hypothesis generation.
Hypothesis Generation
Formulation of a hypothesis is the most important process
in POR and is the core of the clinical research proposal
(16). Hypotheses are generated from (i) data associations
from epidemiological or observational studies, (ii) animal
or in vitro data, (iii) direct observations in a patient or pa-
tient group, or (iv) already established but unproven inter-
ventions or strategies.
Four essential questions must be asked in the formula-
tion of a hypothesis (29):
1. Is the question important and relevant?
2. Has the question already has been answered elsewhere;
if so, was the study of sufficient power and breadth or
have conclusions been confirmed?
3. Will the answer to the question be relevant to patient
care, elucidate a biological mechanism, or establish
drug or device efficacy or safety?
4. Can the hypothesis be proven, given the constraints
involved in POR?
a. Is it safe to perform the study?
b. Are endpoints well established to determine efficacy?
c. Can an adequate number of patients be enrolled to
determine a definitive result?
Designing the Study To Test the Hypothesis
Sampling the population. Choosing the appropriate study
population and the sample size is an integral step in study
design. One approach is to start by recruiting subjects or
gathering specimens from subjects with a well-established
medical condition. Choosing a representative population,
with adequate representation of age groups, ethnicities,
and gender, will facilitate generalization of the data to ap-
propriate groups.
Deciding on measurements and endpoints. The inves-
tigator’s choice of study endpoints includes (i) clinical
characteristics or endpoints (aka variables), and (ii) sur-
rogate endpoints. A clinical endpoint is a characteristic
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
that characterizes patient function or survival and may
include physiologic markers and events (5). A surrogate
endpoint measures an effect of a certain treatment or diag-
nostic test that may correlate with a real clinical endpoint
but doesn’t necessarily have a guaranteed role in the dis-
ease process. A surrogate endpoint can be used to predict
clinical benefit (or lack of benefit) based on epidemiologic,
therapeutic, pathophysiologic, or other scientific evidence
(24). An example of a surrogate endpoint might be a spe-
cific biomarker that is objectively measured and evaluated
as an indicator of normal biological processes, pathogenic
processes, or pharmacologic responses to a therapeutic in-
tervention (24). Variables are typically characterized as in-
dependent variables or dependent variables. For complete
definitions of various types of study variables, refer to the
glossary at the end of this chapter.
Feasibility. The success of the study is dependent on sev-
eral feasibility factors which must be considered in the de-
sign phase. These include availability of research subjects,
ability to recruit research subjects into the study, availability
of the techniques and personnel required for the measure-
ment of study endpoints, expertise in the use of these tech-
niques, and adequacy of funds to cover research costs (5).
Assessment of confounding variables. For any research
study, it is important to determine whether the study that
is designed will actually answer the question raised in the
hypothesis. Assessing confounding variables helps to en-
sure that results are interpreted correctly. In statistics, a
confounding variable (aka a confounding factor or con-
founder) is an extraneous variable in a statistical model
that correlates (positively or negatively) with both the
dependent variable(s) and the independent variable(s). A
perceived relationship between an independent variable
and a dependent variable can be incorrectly estimated due
to the failure to account for effect of a confounding factor.
It is important to control for confounding effects to isolate
the impact of the variables of interest.
In laboratory-based research, the control of confounders
may be more easily achieved as the investigator can match
samples for many baseline characteristics and have control
over the environment during the course of the study. Con-
sideration of subject age, gender, race and comorbidities
can help the investigator match subjects placed in a control
and an intervention group. In clinical research, the ability
to control for confounders is often more challenging.
When effects of confounders are not controlled for, they
are often dealt with through statistical adjustment, i.e., the
use of regression analyses (21, 23, 26). However, assessing
the impact of confounders by these techniques on study
outcomes may be inadequate (21, 23, 26).
Human subject protection. Clinical investigators must en-
sure the safety of each research subject. Exclusion criteria
835
are established to prevent subjects with a higher risk from
participating in the research study. All studies are reviewed
by an institutional review board (IRB). Refer to chapter 45
of this volume for further discussion.
Collecting and storing data. It is critical to store data in a
properly designed data log and database. Ideally a spread-
sheet or database is designed prior to the start of the study,
and data storage can range from a simple Excel file to an
Access database or any number of larger databases used
for research purposes. Common information captured in
databases includes demographic data, such as age, gender,
ZIP code, and ethnicity, and outcome data such as length
of stay, mortality, laboratory test data, etc.
The best study designs are those that allow data to be
electronically transferred from one database to another
and to common statistical software without manual re-
entry. Manual data entry is prone to error but may be a
necessity at some point in the study. Some ways to decrease
risk of error include creation of drop-down boxes, yes/no
buttons, or “pick lists” to limit the typing required. Other
useful processes include barcoding processes, double
checks of data entry, relevant training of personnel who
perform data entry, regular review of the entered data for
accuracy and consistency, and use of an appropriate soft-
ware program to identify outliers which may be due to
manual data entry errors.
Because laboratory data typically include private or sen-
sitive information, it is critical that the database is set up in
a secure system that complies with IRB and Health Insur-
ance Portability and Accountability Act (HIPAA) regula-
tions. Most hospitals support compliant systems, so it is
important to keep data on those secure servers unless ap-
propriate accommodations are made to secure data.
Data analysis. The data analysis plan is a key element in
the design of a clinical research study. It helps to determine
the number of subjects or samples needed to sufficiently
power the study. It may be necessary to consult with a
biostatistician to properly assess power, study design, end-
points, and method of data analysis.
After analysis, researchers must ask if the data are defini-
tive, i.e., strong enough to stand alone for recommending a
change in practice, or whether further studies are required.
Forming accurate conclusions that do not go beyond the data
is a critical aspect of research. Determining the limitations of
your research is also a critical component of data analysis.
Biostatistics
Descriptive Statistics
Critical biostatistical analysis and assessment are critical
for interpretation of literature, for mindful participation
in clinical trials, translational research, or basic research,
for publication of your data, for intelligent conversation
836 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
with your statistician, and for documentation of evidence-
based improvements due to laboratory interventions (38).
The following test attributes are often described using
descriptive statistics with confidence intervals; however,
comparative statistics can also be used and are often war-
ranted (38).
• Accuracy
• Precision
• Analytical sensitivity
• Analytical specificity
• Analytical measurement range (limit of quantitation,
linearity)
• Reportable range
• Normal values
Inferential Statistics: General Issues for
Medical Devices
Statistical issues in medical device studies include almost
all those confronted by clinical trials for pharmaceuticals.
Examples of statistical challenges posed by medical de-
vices (7) include considerations of sample size and power,
handling of missing data, survival analysis, analysis of
quality-of-life variables, interim analysis, adjustments for
multiplicity of primary and/or secondary endpoints or of
hypotheses, sample size re-estimation, and meta-analysis.
For in vitro devices, noninferiority statistics are com-
mon for premarket announcements and also in premarket
notifications, aka 510(k)s, where the focus is on “sub-
stantial equivalence” in diagnostic accuracy. For nonin-
feriority studies, the determination of the noninferiority
margin (i.e., the percentage of difference allowed between
the methods) is a critical component. In contrast, when
comparing a new device to a reference standard there is a
possibility that the novel device is superior, in which case
traditional comparative statistics may be used (42).
In contrast, there are a number of statistical issues that
are unique to laboratory device studies, specifically, blind-
ing of the bench technologists and investigators, as well as
biases introduced by the type of testing personnel used in
the study and the type of specimens used. In many cases,
the studies performed on in vitro devices are not random-
ized clinical trials, either because there is a single concur-
rent comparison group with a historical control or there
are two concurrent experimental arms but no randomiza-
tion. In contrast to pharmaceuticals, where randomized
control trials are the norm, few in vitro laboratory devices
seeking regulatory approval in the U.S. were submitted
to the FDA as well-controlled, randomized clinical trials,
nor are they required to be. Even when a device is Class
III and involves a premarket announcement submission,
historical controls are often used rather than a random-
ized clinical trial.
These circumstances pose a challenge to those who use
statistical inference methods. Without subject or sample
randomization, one needs to place substantial emphasis on
the description of bias in the experimental design. Causal
inferential methods, particularly propensity scores, have
proven to be useful to assess whether the historical control
can begin to provide a valid comparator. The propensity
score methodology has been applied in a number of medi-
cal device studies to provide insight into how comparable
the historical control data are compared to those for the
current new device (42). In some cases the performance
of the control group is so well characterized that, rather
than point to a particular source of data for the histori-
cal control, an Objective Performance Criterion (OPC) or
a performance goal is established by experts. Using this
approach, if the new device performs according to the
specifications established in the OPC, then its safety and/
or effectiveness can be demonstrated. Some of the statisti-
cal issues in such cases include the sample size necessary
for such an assessment and how to incorporate variability
assessments into the OPC.
Other Issues for Diagnostic Studies
It is estimated that about 30 to 35% of medical devices
are diagnostic in nature, some with the aim of being in-
troduced into the clinical laboratory and some for phar-
maceutical studies that rely on diagnostic or monitoring
devices for defining the inclusion/exclusion criteria or to
describe disease progression or recurrence. The simulta-
neous development of both a novel pharmaceutical agent
as well as a new diagnostic test to indicate who should or
who should not take this pharmaceutical agent (aka com-
panion diagnostics) could present a substantial challenge
to performance of clinical trials.
There are imposing statistical issues about how to design
companion diagnostic studies. The FDA released a draft
white paper entitled “Drug-Diagnostic Co-Development
Concept Paper” on how to prospectively develop both a
biopharmaceutical product and a diagnostic device in a
scientifically robust and efficient manner (14). A funda-
mental issue concerns the claim for the diagnostic prod-
uct in a drug-diagnostic codevelopment. Key questions
include, Is it a prognostic claim for the diagnostic product,
reporting the natural history of the disease (or condition),
or is it a predictive claim in that the result of the diagnos-
tic test predicts the likelihood of a patient’s response to the
novel drug therapy (19)?
The field of diagnostic evaluation is in its infancy com-
pared to the statistics used in the pharmaceutical field, which
are almost exclusively therapeutic and use well-defined sta-
tistical methods. The statistical problems in diagnostics are
in some ways more challenging. The statistical tools for the
design and analysis of diagnostic test evaluations are very
different from those used in therapeutics experiments. In
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
many situations, randomization is abandoned in favor of
a much more efficient design that compares two diagnos-
tic tests by applying both tests to the same individuals or
samples. If the order of testing is important, then the design
could prescribe a randomization for the order of test perfor-
mance, but the randomized parallel design is somewhat rare
except for evaluation of screening tests. The paired design
is generally preferred for considerations of power (and the
sample size), which can make the cost and the trial prohibi-
tive for diagnostic methods. For diagnostic test evaluation,
the different sorts of bias become enormously important
and a concern to statisticians (4).
For diagnostic studies, it is important to distinguish
whether the true disease state can be determined or not—
is there a true gold standard? In cases where the truth is
known and the test is dichotomous (e.g., positive or nega-
tive), the analysis involves truth tables (two-by-two tables)
and the inference concerns confidence intervals and/or
hypothesis tests for sensitivity, specificity, and positive and
negative predictive values.
For diagnostics, one often needs to establish the limit
of detection (LOD), for which a nonparametric statistical
approach can be used (19). For more detail on reporting
the results of such diagnostic tests, refer to the current
document called “Statistical Guidance on Reporting Re-
sults from Studies Evaluating Diagnostic Tests; Guidance
for Industry and FDA Reviewers” (34).
Of concern is the fact that, in many diagnostic prod-
uct evaluations, either there is no gold standard or its use
is completely impractical. In these instances, the ideal
situation would be to calibrate the new test to the known
performance of the reference standard. This calibration
may be impossible; however, without such calibration,
the indiscriminate use of terms such as “sensitivity” and
“specificity” is fraught with danger due to the bias that
an imperfect standard might introduce. In cases such as
these, “positive agreement” and “negative agreement” are
the preferred terms.
When the true disease state is unknown, an approach
called latent variable analysis may be used to estimate the
performance of the new tests being studied as well as the
unknown prevalence of disease. In agreement studies,
the focus is on the evaluation of a diagnostic test by assess-
ing its agreement in performance with some other well-
understood but imperfect test.
In diagnostic test evaluation, there are also situations
in which the clinical truth may be known, but only for a
subset of subjects or samples. In such cases, adjustment for
verification bias is imperative because the establishment of
the truth of the condition of the patient depends inher-
ently on the test or tests applied to the patient. An example
of this would be the use of “discrepant testing,” a resolution
of discrepancy in which discordant results between the
two methods receive further testing. Although commonly
837
reported, this practice introduces bias toward confirma-
tion of the new test, and is discouraged.
A variety of biostatistical methods can be applied to
evaluation of clinical laboratory methods. For example,
with continuous or ordinal data, the usefulness of receiver
operating characteristic (ROC) methodology is relevant
for evaluating diagnostic tests when there is an extremely
reliable reference standard (6, 11, 30, 35, 37, 44, 45). In
contrast, in the comparison of two continuous diagnostic
tests in the absence of truth, method comparison tech-
niques are used. This includes techniques, such as Dem-
ing or orthogonal regression, that allow for errors in both
test measurements (3, 27). Special challenges exist for the
assessment of microarray data, and statistical and regula-
tory issues associated with microarrays and other genetic
tests have been well discussed (7, 32). Finally, for inferen-
tial questions to assess comparability or equivalence of two
such diagnostic tests, one must be able to assess not only
comparability (i.e., whether the slope is 1 and the intercept
0), but whether the total error is well controlled. Note that
the use of statistical methods to establish the (two-sided)
equivalence of two methods is very similar to the question
of bioequivalence in the study of generic drugs (10).
Other Research Considerations
Continuing medical education and habits of lifelong learn-
ing are key to the future of clinical laboratory science. For
laboratory scientists who are working in quality control,
quality assurance, or evidence-based medicine (EBM)—
or who are considering a research career or graduate
school—coursework with focus on biostatistics, regulatory
issues, grant writing, experimental design, and clinical
trial development can be extremely useful.
In addition, as clinical research expands, clinical labo-
ratories are often asked to provide core services for de-
identified specimens, and personnel should be trained to
comply with guidances for Good Banking Practices if they
enter into this role.
More advanced coursework may also be available
through certificate programs or in master’s level programs
in clinical sciences, public health, biostatistics, epidemiol-
ogy, applied biosciences, and other programs. Such train-
ing supports career advancement in research track positions
such as study coordinators, quality assurance, laboratory
management, and directorship.
Systematic Reviews and Laboratory
Medicine Best Practices
Historically, laboratories store and analyze large amounts of
data; however, there are many instances in which the utility
of the data is not well explored. Compilation and analysis of
laboratory data linked to clinical data is critical to clinical
838 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
research and to the emerging field I term “interventional
diagnostics.” Interventional diagnostics embraces the exam-
ination and analysis of the impact of diagnostic test inter-
vention on patient care. Data to describe postanalytic effects
of actionable interventions, based on relevant laboratory
tests, are the key to the future impact of laboratory science
and the growing awareness of the importance of laboratory
medicine to nearly all aspects of healthcare practice.
Evidence-Based Laboratory Medicine
Clinical laboratory scientists have been leaders in quality
assurance practice for decades, but have not always placed
their results in the peer-reviewed literature. The laboratory
intervention approach to research aligns with evidence-
based medicine (EBM), a practice that refers to the applica-
tion of existing data to answer questions and solve problems
through systematic synthesis and appraisal of data.
In the EBM process, standardized data acquisition and
analysis are used so that the data derived from the process
will add to the evidence-based body of knowledge. The
underlying premise of an evidence-based approach is that
healthcare decisions are guided by the synthesis and ap-
praisal of evidence from well-designed studies, balanced
with clinical expertise and individual patient preferences.
The Agency for Healthcare Research and Quality (AHRQ)
is one leader in this initiative, dubbed “Patient-Centered
Outcomes Research” (http://www.ahrq.gov/index.html
[accessed April 30, 2013]).
Challenges to practicing EBM in clinical laboratories
include the lack of research time allocated to the clini-
cal laboratory; lack of experimental design and advanced
biostatistical training in medical laboratory science pro-
grams and fellowships; lack of institutional support for
mentoring and implementing an evidence-based approach;
and the lack of evidence from well-designed diagnostic
studies (8, 31).
The premise of evidence-based practice recommenda-
tions relies on two processes, “systematic reviews” and “meta-
analysis” (see Appendix 47.1) (31). A systematic review
collates and analyzes the findings from well-designed studies
and pools the results from individual studies to reduce bias
and maximize the interpretation of the conclusions. Various
terms are used for systematic reviews, including “compara-
tive effectiveness” and “patient-centered outcomes research,”
but the common objective is to use available data to make
optimal decisions for diagnostic laboratory practice and pa-
tient care. Systematic review methods consist of key steps to
address a problem about the quality of a practice (8, 31).
Laboratory Medicine Best Practices Initiative
The Laboratory Medicine Best Practices (LMBP) initiative
at the Centers for Disease Control and Prevention (CDC)
(https://www.futurelabmedicine.org/ [accessed April 30,
2013]) adapts EBM concepts to clinical laboratory prac-
tice and quality improvement (QI) studies. Current LMBP
systematic reviews can be found at www.futurelabmedicine
.org/our_findings (accessed April 30, 2013) and are de-
scribed in general terms in a recent publication (31).
Within LMBP, systematic reviews can provide infor-
mation to support decision making for health outcomes
achieved from use of a diagnostic test and for additional
outcomes that influence cost and quality of patient care (e.g.,
decreased mortality, inpatient length of stay, earlier treat-
ment). Considering that evidence generated in the labora-
tory is typically derived from observational studies rather
than randomized controlled trials, the LMBP A-6 Methods
are applied to conduct reviews that assess the effectiveness
of practices in improving the quality of laboratory medicine
service delivery. Via the LMBP systematic review process,
unpublished QI data, that typically are not disseminated
through the peer-reviewed literature process, are incorpo-
rated with data from the peer-reviewed literature. Although
such data may be hampered by a lack of the following ele-
ments of sound research design: explicit focused purpose of
the study, defined sample size, defined practice of interest,
collection of baseline data or data on the usual (or current)
practice (comparator), and defined outcome measures (8,
31), some of the data may contain the proper elements.
Key evidence-based practice principles to improve QI
projects include:
1. Frame quality problems as clinical questions using
what is called the PICO format (Population, Interven-
tion, Comparison, Outcome; see below)
2. Conduct literature searches
3. Apply elements of research study design to QI project
design
4. Capture and disseminate project results
A systematic review is designed to answer a clearly
stated question. The important steps in a systematic review
process include:
1. Pose an explicit statement of one or more clinical
questions
2. Develop a search strategy for published primary studies
3. Review titles and abstracts generated by the search
4. Select and review full papers and extract relevant data
5. Analyze data, including use of meta-analytic tools
6. Summarize findings
7. Identify further research needed
Types of PICO questions and measures include (15,
25, 33):
• Intervention: What practice, policy, or therapy leads to
the best outcome
• Diagnostic: Which test is more accurate and precise in
diagnosing a condition
• Prognosis: The likelihood of a particular outcome for
a population with specific changes observed in the re-
sults of laboratory questions
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
An example of a PICO for rapid technology PCR (rPCR)
is described here (31):
1. Population (sample): All adult inpatients with a posi-
tive blood culture result for Staphylococcus aureus bacte-
remia admitted during study time period: pre rPCR =
74 patients; post rPCR = 82 patients.
2. Intervention (practice evaluated): rPCR with com-
munication; rPCR result paged to infectious disease
pharmacists Monday–Friday 8 a.m.–5 p.m. or logged
by laboratory and reviewed by infectious disease phar-
macists next business day.
3. Comparison practice: Gram stain, final identification,
and antibiotic susceptibility completed in 24–72 hours
and reported in electronic medical record without no-
tification to physician.
4. Outcome: In this scenario a probable outcome could be
reduction in time to targeted therapy, but it would be
important to list the definition of this outcome and how
it was recorded. Staff at a hospital laboratory conducts a
QI project to assess whether employing rPCR with direct
communication of results improves the time to report
identification of microbes causing suspected blood-
stream infections. The project involves just one hospital,
and compares reporting times before and after the de-
ployment of the rPCR with direct communication. Out-
come Measurement Source/recording could include:
• Reduction in time to targeted therapy
• Time from identification of positive blood culture
to receipt of antimicrobial therapy for patient for
specific type of bloodstream infection from chart
review
For the analysis in the LMBP initiative sponsored by
the American Society for Microbiology and CDC, a re-
view team is compiled that is composed of experts in
fields such as clinical microbiology, biostatistics, epide-
miology, laboratory sciences, infectious diseases, health-
care management, and other related specialties. This
team works to perform and document literature searches,
using PubMed (www.pubmed.gov [accessed April 30,
2013]) and other free reference databases (e.g., Cochrane
Library, www.cochrane.org [accessed April 30, 2013])
available to search the current peer-reviewed literature,
a process undertaken to identify publications which are
then called primary studies.
The team reviews primary studies, unpublished QI proj-
ects, and other literature according to a critical appraisal
checklist for evaluating the study quality. This LMBP Study
Quality Appraisal Checklist can also guide further planning
and documentation of QI projects, standards, or guidelines
for optimal laboratory practice (8, 22; Standards for Quality
Improvement Reporting Excellence [SQUIRE] Guidelines,
http://squire-statement.org/ [accessed April 30, 2013]) and
provide templates for preparing a publication about the
findings of a project.
839
LMBP Study Quality Appraisal Checklist (8, 31).
Study setting.
• Is information about the study setting provided?
(e.g., intensive care unit, emergency department)
• Is the duration of the QI project or study (start and
end dates) noted?
Practice.
• Is there a practice description that includes require-
ments and components for operations?
• Is the duration (start and end dates) for the practice
reported?
Sample size.
• Is the sample population identified (e.g., samples,
tests)?
• Is the total number of observations for the sample
size provided (e.g., total number of phlebotomy ser-
vice blood collections)?
• Are the selection criteria for participants or speci-
mens provided (what was included and excluded)?
Comparator practice (original or usual practice).
• Is there a comparator practice or standard (status
quo)?
• Are key characteristics of the original practice
described?
Outcome measures.
• Are the measurements to assess practice impact
identified and defined (e.g., length of stay)?
• Are the measures relevant to the QI question?
• Is the method of data collection described?
Results.
• Are the study results described and supporting data
provided?
• Are reported results clearly related to the practice of
interest?
The LMBP process is poised to yield important infor-
mation derived from laboratory data and should play an
important tole in identifying best practices in laboratory
medicine.
Summary
Clinical laboratory scientists are leaders in quality assur-
ance practices and are poised to engage in research op-
portunities that can further improve patient outcomes. In
some cases, new skills will be required of both students
and professionals to leverage data to benefit the health-
care system. Guidance can be found in the long-standing
840 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
experimental design, data analysis, and biostatistics prac-
tices used in clinical and patient-oriented research. Using
these principles, government and professional societies are
leading evidence-based initiatives for the diagnostics com-
munity. Active participation in such activity can broaden
the impact of clinical laboratories and make valuable con-
tributions to the health improvements.
KEY POINTS
■ Clinical research is a valuable component of healthcare
improvement that benefits from participation by clini-
cal laboratories.
■ Various study design and data analysis methods can be
adapted for use in the clinical laboratory.
■ Translational research can be described as the tran-
sitioning of basic research practices and findings to
day-to-day use in a clinical setting, such as the clinical
laboratory.
■ Systematic reviews and meta-analysis are fast becoming
a valuable tool to improve or guide clinical laboratory
practices.
■ Evidence-based laboratory medicine can be used to
identify reasons for improvements and to help identify
best practices for laboratory medicine.
GLOSSARY
Definitions related to clinical research. Note: Definitions are
adapted from the following sources:
• http://en.wikipedia.org/w/index.php?title=Glossary_of_
clinical_research&oldid=536225556 (accessed April 30, 2013)
• Public domain material from websites or documents of the
U.S. Department of Health and Human Services, as follows:
• 21CFR50.3: Code of Federal Regulations, Title 21—Food
and Drugs, Chapter I—Food and Drug Administration,
Department of Health and Human Services, Part 50—
Protection of Human Subjects, Subpart A—General Provi-
sions, Sec. 50.3 Definitions
• 21CFR312.3: Code of Federal Regulations, Title 21—Food
and Drugs, Chapter I—Food and Drug Administration,
Department of Health and Human Services, Part 312—
Investigational New Drug Application, Subpart A—General
Provisions, Sec. 312.3 Definitions and Interpretations
• ICH E6: Guidance for Industry—E6 Good Clinical Prac-
tice: Consolidated Guidance, U.S. Department of Health
and Human Services, Food and Drug Administration,
April 1996
• ICH E9: Guidance for Industry—E9 Statistical Principles
for Clinical Trials, U.S. Department of Health and Human
Services, Food and Drug Administration, September 1998
• National Cancer Institute, Dictionary of Cancer Terms
• U.S. National Library of Medicine, National Institutes of
Health, Glossary of Clinical Trials Terms
Adverse event An unexpected medical problem that happens to
a patient during treatment with a drug or other therapy while
enrolled in a clinical investigation. Adverse events do not have to
be caused by the drug or therapy, and they may be mild, moder-
ate, or severe.
IRB approval In relation to institutional review boards (IRBs),
the affirmative decision of the IRB that the clinical trial was re-
viewed and may be conducted at the institution site within the
constraints set forth by the IRB, the institution, Good Clinical
Practice (GCP), and the applicable regulatory requirements.
Arm Any of the treatment groups in a randomized trial. Most
randomized trials have two arms, but some have more.
Baseline An initial measurement that is taken at an early time
point to represent a beginning condition and is used for com-
parison over time to look for changes.
Best practice In medicine, treatment that experts agree is ap-
propriate, accepted, and widely used. Healthcare providers are
obligated to provide patients with the best practice. Also called
standard therapy or standard of care.
Bias In a scientific research study or clinical trial, a flaw in the
study design or the method of collecting or interpreting informa-
tion. These statistical biases can lead to incorrect conclusions
about what the study or clinical trial showed. The systematic ten-
dency of any factors associated with the design, conduct, analy-
sis, and evaluation of the results of a clinical trial to make the
estimate of a treatment effect deviate from its true value. Bias
introduced through deviations in conduct is referred to as opera-
tional bias.
Bioinformatics The science of using computers, databases, and
math to organize and analyze large amounts of biological, medi-
cal, and health information. Information may come from many
sources, including patient statistics, tissue specimens, genetics
research, and clinical trials.
Biostatistics The science of collecting and analyzing biologic or
health data using statistical methods. Biostatistics may be used to
help uncover the possible causes of a disease in a certain group of
people. Biostatistics is called biometry and biometrics.
Blind A randomized trial is “blind” or “masked” if the partici-
pants are not told which arm of the trial they are in. A clinical trial
is blind if participants are unaware of whether they are in the ex-
perimental or control arm of the study. Single blinding usually re-
fers to the subject(s) being unaware, and double blinding usually
refers to the subject(s), investigator(s), monitor, and, in some
cases, data analyst(s) being unaware of the treatment assignment(s).
Blind review The checking and assessment of data during the
period of time between trial completion (the last observation on
the last subject) and the breaking of the blind, for the purpose of
finalizing the planned analysis.
Blinded study A type of study in which the patients (single-
blinded) or the patients and their doctors (double-blinded) do
not know which drug or treatment is being given. The opposite
of a blinded study is an open label study.
Case report A detailed report of the diagnosis, treatment, and
follow-up of an individual patient. Case reports also contain
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
some demographic information about the patient (for example,
age, gender, ethnic origin).
Case report form A printed, optical, or electronic document de-
signed to record all of the protocol-required information to be
reported to the sponsor on each clinical trial subject.
Case series A group or series of case reports involving patients
who were given similar treatment. Reports of case series usually
contain detailed information about the individual patients. This
includes demographic information (for example, age, gender,
ethnic origin) and information on diagnosis, treatment, response
to treatment, and follow-up after treatment.
Case-control (or retrospective) study A study that compares
two groups of people: those with the disease or condition under
study (cases) and a very similar group of people who do not have
the disease or condition (controls). Researchers study the medi-
cal and lifestyle histories of the people in each group to learn
what factors may be associated with the disease or condition.
Clinical Pertaining to or founded on observation and treatment
of participants, as distinguished from theoretical or basic science.
Clinical investigation Any experiment that involves a test arti-
cle and one or more human subjects.
Clinical investigator A medical researcher in charge of carrying
out a clinical research protocol.
Clinical practice guidelines Guidelines developed to help health-
care professionals and patients make decisions about screening,
prevention, or treatment of a specific health condition.
Clinical researcher A health professional who works directly
with patients, or uses data from patients, to do research on health
and disease and to develop new treatments, tests, or interven-
tions. Clinical researchers may also research how healthcare
practices affect health and disease. (Source: National Cancer In-
stitute, Dictionary of Cancer Terms)
Clinical study, clinical trial A type of research study that tests
how well new medical approaches work in people. These studies
test new methods of screening, prevention, diagnosis, or treat-
ment of a disease. A clinical trial is a research study to answer
specific questions about vaccines, therapies, or in vitro devices,
or new ways of using known treatments. For investigational de-
vices such as laboratory tests, “alpha,” “beta,” and “clinical” are
used to describe phases in the FDA submission process, as are
“preclinical,” “clinical,” and “postmarket,” the latter being studies
funded after FDA approval.
Clinical trial/study report A written description of a trial/study
of any therapeutic, prophylactic, or diagnostic agent conducted
in human subjects, in which the clinical and statistical descrip-
tion, presentations, and analyses are fully integrated into a single
report.
Cohort In medicine, a cohort is a group that is part of a clinical trial
or study and is observed over a period of time. In epidemiology, it is
a group of individuals with some characteristics in common.
Cohort study A research study that compares a particular out-
come in groups of individuals who are alike in many ways but
differ by a certain characteristic.
841
Comparator An investigational or marketed product (i.e., active
control), or placebo, used as a reference in a clinical trial.
Consecutive case series A clinical study that includes all eligible
patients identified by the researchers during the study registra-
tion period. The patients are treated in the order in which they
are identified. This type of study usually does not have a control
group.
Content validity The extent to which a variable (e.g., a rating
scale) measures what it is supposed to measure.
Contract A written, dated, and signed agreement between two
or more involved parties that sets out any arrangements on del-
egation and distribution of tasks and obligations and, if appro-
priate, on financial matters. The research protocol may serve as
the basis of a contract.
Contract research organization A person or an organization
(commercial, academic, or other) contracted by the sponsor to per-
form one or more of a sponsor’s trial-related duties and functions.
Control group In a clinical trial, the group that does not receive
the new treatment or diagnostic being studied. Results from this
group are compared to those from the group that receives the
new intervention.
Controlled clinical trial An experiment or a clinical study that
includes a comparison (control) group. The comparison group
receives a placebo, another treatment, or no treatment at all.
Coordinating investigator An investigator assigned the respon-
sibility for the coordination of investigators at different centers
participating in a multicenter trial.
Data and Safety Monitoring Board (DSMB) or Independent
Data Monitoring Committee An impartial group that oversees a
clinical trial and reviews the results to review their acceptability.
This group determines if the trial should be changed or closed.
Diagnostic trials Refers to trials that are conducted to identify
better tests or procedures for diagnosing a particular disease or
condition. Diagnostic trials usually include people who have
signs or symptoms of the disease or condition being studied.
Direct access Permission to examine, analyze, verify, and repro-
duce any records and reports that are important to evaluation of
a clinical trial. Any party with direct access should take all rea-
sonable precautions within the constraints of the applicable reg-
ulatory requirement(s) to maintain the confidentiality of
subjects’ identities and sponsor’s proprietary information.
Documentation All records, in any form (including, but not
limited to, written, electronic, magnetic, and optical records, and
scans, X-rays, and electrocardiograms) that describe or record
the methods, conduct, and/or results of a trial, the factors affect-
ing a trial, and the actions taken.
Double-blind study A clinical trial design in which neither the
participating individuals nor the study staff knows which partici-
pants are receiving the experimental drug and which are receiv-
ing a placebo (or another therapy). Double-blind trials are
thought to produce objective results, since the expectations of
the doctor and the participant about the experimental drug or
device do not affect the outcome.
842 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
Efficacy The maximum ability of a drug or treatment to pro-
duce a result regardless of dosage.
Effectiveness In medicine, the ability of an intervention (for ex-
ample, a drug, laboratory test, or surgery) to produce the desired
beneficial effect.
Eligibility criteria In clinical trials, requirements that must be
met for an individual to be included in a study. These require-
ments help ensure that patients in a trial are similar to each other
in terms of specific factors such as age, general health, and previ-
ous treatment. When all participants meet the same eligibility
criteria, it gives researchers greater confidence that results of the
study are caused by the intervention being tested and not by
other factors.
Empirical Based on experimental data, not on a theory.
Endpoint In clinical trials, an event or outcome that can be mea-
sured objectively to determine whether the intervention being
studied is beneficial. The endpoints of a clinical trial are usually
included in the study objectives. Some examples of endpoints are
survival, improvements in quality of life, relief of symptoms, etc.
Enrolling The act of consenting participants into a study. Gen-
erally this process involves evaluating a participant with respect
to the eligibility criteria of the study and going through the in-
formed consent process.
Epidemiology The branch of medical science that deals with the
study of incidence, distribution, and control of a disease in a
population.
Equivalence trial A trial with the primary objective of showing
that the response to two or more treatments or tests differs by an
amount which is not clinically important.
Essential documents Documents that individually and collec-
tively permit evaluation of the conduct of a study and the quality
of the data produced.
Evaluable disease Disease that cannot be measured directly by,
for example, the size of the tumor, but rather can be evaluated by
other methods specific to a particular clinical trial.
Evaluable patients Patients whose response to a treatment can
be measured because enough information has been collected to
meet the study requirements.
Experimental (or Investigational) In reference to pharmaceuti-
cal clinical trials, this refers to a drug (including a new drug,
dose, combination, or route of administration) or procedure that
has received approval from the U.S. FDA to be tested in human
subjects. In clinical trials for diagnostics, it refers to the new re-
agent and/or instrument.
Follow-up Monitoring a person’s health over time after treat-
ment or intervention. This includes keeping track of the health of
people who participate in a clinical study or clinical trial for a
period of time, both during the study and after the study ends.
Generalizability, generalization The extent to which the find-
ings of a clinical trial can be reliably extrapolated from the sub-
jects who participated in the trial to a broader patient population
and a broader range of clinical settings.
Good Clinical Practice (GCP) A standard for the design,
conduct, performance, monitoring, auditing, recording, analy-
ses, and reporting of clinical trials that provides assurance that
the data and reported results are credible and accurate and that
the rights, integrity, and confidentiality of trial subjects are
protected.
Healthy control In a clinical study, a person who does not have
the disorder or disease being studied. Results from healthy con-
trols are compared to results from the group being studied.
Historic cohort study A research study in which the medical
records of groups of individuals who are alike in many ways but
differ by a certain characteristic are compared for a particular
outcome. This is also called a retrospective cohort study.
Historical control subject An individual treated in the past and
used in a comparison group when researchers analyze the results
of a clinical study that had no control group.
Human subject An individual who is or becomes a participant
in research, either as a recipient of the test article or as a control.
Hypothesis A supposition or assumption advanced as a basis
for reasoning or argument, or as a guide to experimental inves-
tigation.
In vitro In the laboratory (outside the body). The opposite of in
vivo (in the body).
Incidence The number of new cases of a disease diagnosed each
year.
Inclusion/exclusion criteria The medical, social, or safety stan-
dards determining whether a person may or may not be enrolled
into a clinical trial. These criteria are based on such factors as
age, gender, the type and stage of a disease, previous treatment
history, and other medical conditions.
Indication In medicine, a sign, symptom, or medical condi-
tion that leads to the recommendation of a treatment, test, or
procedure.
Informed consent A process by which a subject voluntarily con-
firms his or her willingness to participate in a particular trial,
after having been informed of all aspects of the trial that are rel-
evant to the subject’s decision to participate. Informed consent is
documented by means of a written, signed, and dated informed
consent form. (Source: ICH E6)
Informed consent document A document that describes the
rights of the study participants and includes details about the
study, such as its purpose, duration, required procedures, and key
contacts. Risks and potential benefits are explained in the in-
formed consent document. The participant decides whether or
not to sign the document. Informed consent is not a contract, and
the participant may withdraw from the trial at any time.
Inspection The act by which a regulatory authority conducts
an official review of documents, facilities, records, and any
other resources that are deemed to be related to the clinical trial
and that may be located at the site of the trial, at the sponsor’s
and/or contract research organization’s facilities, or at other
establishments.
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
Institution Any public or private entity or agency or medical or
dental facility where clinical trials are conducted.
Intent to treat Analysis of clinical trial results that includes all
data from participants in the groups to which they were random-
ized, even if they never received the treatment. Subjects allocated
to a treatment group are followed, assessed, and analyzed as
members of that group irrespective of their compliance to the
planned course of treatment.
Interaction (qualitative and quantitative) The situation in
which a treatment contrast (e.g., difference between investiga-
tional product and control) is dependent on another factor.
Inter-rater reliability The property of yielding equivalent re-
sults when used by different raters on different occasions.
Interim analysis Any analysis intended to compare treatment or
intervention arms with respect to efficacy, safety, or effectiveness
at any time prior to the formal completion of a trial.
Intervention In medicine, a treatment or action taken to pre-
vent or treat disease or to improve health in other ways. Primary
types of interventions include drug, gene transfer, vaccine, be-
havior, device, or procedure.
Intervention group The group receiving the study agent that is
being tested in a clinical trial or clinical study.
Intra-rater reliability The property of yielding equivalent re-
sults when used by the same rater on different occasions.
Investigational product or experimental option In clinical tri-
als, refers to a drug (including a new drug, dose, combination, or
route of administration) or procedure that has undergone basic
laboratory testing and received approval from the U.S. FDA to be
tested in human subjects. A drug or procedure may be approved
by the FDA for use in one disease or condition, but be considered
investigational in other diseases or conditions. The term is also
used for in vitro devices/diagnostics.
Investigator A researcher in a clinical trial or clinical study. A
person responsible for the conduct of the clinical trial at a trial
site. If a trial is conducted by a team of individuals at a trial site,
the investigator is the responsible leader of the team and may be
called the principal investigator.
Levels of evidence A ranking system used to describe the
strength of the results measured in a clinical trial or research
study. The design of the study (such as a case report for an indi-
vidual patient or a randomized double-blinded controlled clini-
cal trial) and the endpoints measured (such as survival or quality
of life) affect the strength of the evidence.
Meta-analysis The formal evaluation of the quantitative evidence
from two or more trials focused on answering the same research
question. This most commonly involves the statistical combina-
tion of summary statistics from the various studies, but the term is
sometimes also used to refer to the combination of the raw data.
Monitoring The act of overseeing the progress of a clinical trial,
and of ensuring that it is conducted, recorded, and reported in
accordance with the protocol, standard operating procedures,
GCP, and the applicable regulatory requirement(s).
843
Monitoring report A written report from the monitor to the
sponsor, created after each site visit and/or other trial-related
communication according to the sponsor’s procedures.
Multicenter study A clinical trial that is carried out at more
than one medical institution. A clinical trial conducted accord-
ing to a single protocol but at more than one site, and, therefore,
carried out by more than one investigator.
National Institutes of Health (NIH) A United States federal
agency that conducts biomedical research in its own laborato-
ries; supports the research of non-federal scientists in universi-
ties, medical schools, hospitals, and research institutions
throughout the country and abroad; helps in the training of re-
search investigators; and fosters communication of medical in-
formation. Access the National Institutes of Health website at
http://www.nih.gov.
Natural history study A study that follows a group of people
over time who have, or are at risk of developing, a specific medi-
cal condition or disease. A natural history study collects health
information in order to understand how the medical condition
or disease develops and how to treat it. Study of the natural de-
velopment of something (such as a condition or a disease) over a
period of time.
New Drug Application (NDA) An application submitted by the
manufacturer of a drug to the FDA—after clinical trials have
been completed—for a license to market the drug for a specified
indication. An NDA be relevant for companion diagnostics.
Nonblinded Describes a clinical trial or other experiment in
which the researchers know what treatments are being given to
each study subject or experimental group. If human subjects are
involved, they know what treatments they are receiving.
Nonclinical study Biomedical studies not performed on human
subjects.
Nonconsecutive case series A clinical study that includes some,
but not all, of the eligible patients identified by the researchers
during the study registration period. This type of study does not
usually have a control group.
Non-inferiority trial A trial with the primary objective of show-
ing that the response to the investigational product is not clini-
cally inferior to a comparative agent (active or placebo control).
Nonrandomized clinical trial A clinical trial in which the par-
ticipants are not assigned by chance to different treatment groups.
Participants may choose which group they want to be in, or they
may be assigned to the groups by the researchers.
Objective improvement An improvement that can be measured
by the healthcare provider.
Objective response A measurable response.
Observation Closely monitoring a patient’s condition but with-
holding treatment until symptoms appear or change. Also called
watchful waiting, active surveillance, and expectant management.
Observational study A type of study in which individuals are
observed or certain outcomes are measured. No attempt is made
to affect the outcome (for example, no treatment is given).
844 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
Off-label Describes the legal use of a prescription drug or de-
vice to treat a disease or condition for which the drug has not
been approved by the U.S. FDA. This term is also used to de-
scribe use of in vitro devices/diagnostics prior to FDA approval
or outside the conditions of use described by the FDA.
Outcome A specific result or effect that can be measured. Ex-
amples of outcomes include decreased pain, survival, improve-
ment of disease, etc.
Outpatient A patient who visits a healthcare facility for diagno-
sis or treatment without spending the night.
Peer review Review of a clinical trial by experts chosen by the
study sponsor. These experts review the trial for scientific merit,
participant safety, and ethical considerations.
Per protocol set (valid cases, efficacy sample, evaluable subjects
sample) The set of data generated by the subset of subjects who
complied with the protocol sufficiently to ensure that these data
would be likely to exhibit the effects of the treatment or interven-
tion, according to the underlying scientific model. Compliance
covers such considerations as exposure to treatment, availability
of measurements, and absence of major protocol violations.
Pilot study The initial study examining a new method or
treatment.
Population study A study of a group of individuals selected
from the general population who share a common characteristic
such as age, sex, or health condition. This group may be studied
for different reasons, such as their response to a drug or risk of
getting a disease.
Preclinical Refers to the testing of devices that occurs before tri-
als in humans are carried out.
Predictive factor A situation or condition that may increase a
person’s risk of developing a certain disease or disorder.
Prevention trials Refers to trials to find better ways to prevent
disease in people who have never had the disease or to prevent a
disease from returning. These approaches may include medi-
cines, vaccines, vitamins, minerals, or laboratory interventions.
Primary endpoint The main result that is measured at the end
of a study to see if a given treatment worked (e.g., the number of
deaths or the difference in survival between the treatment group
and the control group). The primary endpoint is defined before
the study begins.
Prospective A study or clinical trial in which participants are
identified and then followed forward in time.
Prospective cohort study A research study that follows groups of
individuals over time who are alike in many ways but differ by a
certain characteristic and compares them for a particular outcome.
Protocol, clinical trial protocol An action plan for a clinical
trial. The plan states what the study will do, how, and why. It ex-
plains how many people will be in it, who is eligible to partici-
pate, what study agents or other interventions they will be given,
what tests they will receive and how often, and what information
will be gathered. (Source: National Cancer Institute, Dictionary
of Cancer Terms)
Protocol amendment A written description of a change to or
formal clarification of a protocol.
Quality assurance All those planned and systematic actions that
are established to ensure that the trial is performed and the data
are generated, documented (recorded), and reported in compli-
ance with GCP and the applicable regulatory requirement(s).
Quality control The operational techniques and activities un-
dertaken within the quality assurance system to verify that the
requirements for quality of the trial-related activities have been
fulfilled.
Quality of life trials (or, supportive care trials) Refers to trials
that explore ways to improve comfort and quality of life for indi-
viduals with a chronic illness.
Randomization When referring to an experiment or clinical
trial, the process by which animal or human subjects are assigned
by chance to separate groups that compare different treatments
or other interventions. Randomization gives each participant an
equal chance of being assigned to any of the groups. The process
of assigning trial subjects to treatment or control groups using an
element of chance to determine the assignments in order to re-
duce bias.
Randomized clinical trial A study in which participants are
randomly (i.e., by chance) assigned to one of two or more treat-
ment arms of a clinical trial. Occasionally placebos are utilized.
Recruiting The period during which a trial is attempting to
identify and enroll participants. Recruitment activities can in-
clude advertising and other ways of soliciting interest from pos-
sible participants.
Recruitment status Indicates the current stage of a trial, whether
it is planned, ongoing, or completed.
Regimen A treatment plan that specifies the dosage, the sched-
ule, and the duration of treatment.
Retrospective Looking back at events that have already taken
place.
Retrospective cohort study A research study in which the med-
ical records of groups of individuals who are alike in many ways
but differ by a certain characteristic are compared for a particu-
lar outcome. Also called a historic cohort study.
Retrospective study (also called case control study) A study
that compares two groups of people: those with the disease or
condition under study (cases) and a very similar group of people
who do not have the disease or condition (controls). Researchers
study the medical and lifestyle histories of the people in each
group to learn what factors may be associated with the disease or
condition. For example, one group may have been exposed to a
particular substance that the other was not. Also called a case-
control study.
Risk-benefit ratio The risk to individual participants versus the
potential benefits. The risk/benefit ratio may differ depending
on the condition being treated.
Safety and tolerability The safety of a medical product or device
concerns the medical risk to the subject, usually assessed in a
 CHAPTER 47. CLINICAL AND EVIDENCE-BASED RESEARCH
clinical trial by laboratory tests, vital signs, clinical adverse events
(diseases, signs and symptoms), and other special safety tests
(e.g., electrocardiograms, ophthalmology). The tolerability of the
medical product represents the degree to which overt adverse ef-
fects can be tolerated by the subject.
Screening trials Refers to trials which test the best way to detect
certain diseases or health conditions.
Selection bias An error in choosing the individuals or groups to
take part in a study. Ideally, the subjects in a study should be very
similar to one another and to the larger population from which
they are drawn (for example, all individuals with the same dis-
ease or condition). If there are important differences, the results
of the study may not be valid.
Serious adverse event Any untoward medical occurrence that
results in death, is life-threatening, requires inpatient hospital-
ization or prolongation of existing hospitalization, results in per-
sistent or significant disability/incapacity, or is a congenital
anomaly/birth defect.
Side effect A problem that occurs when treatment affects
healthy tissues or organs. Any undesired actions or effects of a
drug or treatment. Negative or adverse effects may include head-
ache, nausea, hair loss, skin irritation, or other physical prob-
lems. Experimental drugs must be evaluated for both immediate
and long-term side effects.
Significant, or statistically significant In statistics, describes a
mathematical measure of a difference between groups. The dif-
ference is said to be significant if it is greater than what might be
expected to happen by chance alone.
Single-blind study A study in which one party, either the inves-
tigator or participant, is unaware of what medication the partici-
pant is taking; also called a single-masked study.
Source data All information in original records and certified
copies of original records of clinical findings, observations, or
other activities in a clinical trial necessary for the reconstruction
and evaluation of the trial. Source data are contained in source
documents (original records or certified copies).
Source documents Original documents, data, and records (e.g.,
hospital records, clinical and office charts, laboratory notes, etc.)
that are involved in the clinical trial.
Sponsor An individual, company, institution, or organization
that takes responsibility for the initiation, management, and/or
financing of a clinical trial.
Standard treatment A treatment currently in wide use and ap-
proved by the FDA, considered to be effective in the treatment of
a specific disease or condition.
Standards of care Treatment or diagnostic regimen or medical
management based on state-of-the-art participant care.
Statistical analysis plan A document that contains a more tech-
nical and detailed elaboration of the principal features of the
analysis described in the protocol, and includes detailed proce-
dures for executing the statistical analysis of the primary and sec-
ondary variables and other data.
845
Statistical significance The probability that an event or differ-
ence occurred by chance alone. In clinical trials, the level of sta-
tistical significance depends on the number of participants
studied and the observations made, as well as the magnitude of
differences observed.
Study endpoint A primary or secondary outcome used to judge
the effectiveness of a treatment.
Study type The primary investigative techniques used in an ob-
servational protocol; types include Purpose, Duration, Selection,
and Timing.
Subinvestigator Any individual member of the clinical trial
team designated and supervised by the investigator at a trial site
to perform critical trial-related procedures and/or to make im-
portant trial-related decisions (e.g., associates, residents, re-
search fellows).
Subject Identification Code A unique identifier assigned by the
investigator to each trial subject to protect the subject’s identity
and used in lieu of the subject’s name when the investigator re-
ports adverse events and/or other trial-related data.
Subject or trial subject An individual who participates in a clin-
ical trial, either as a recipient of the investigational product(s) or
as a control.
Superiority trial A trial with the primary objective of showing
that the response to the investigational product is superior to a
comparative agent (active or placebo control).
Surrogate variable A variable that provides an indirect mea-
surement of effect in situations where direct measurement of
clinical effect is not feasible or practical.
Test article Any drug (including a biological product for human
use), medical device for human use, laboratory test, or any other
article subject to regulation under the FDA.
Treatment effect An effect attributed to a treatment or interven-
tion in a clinical trial. In most clinical trials the treatment effect of
interest is a comparison (or contrast) of two or more treatments.
Trial site The location(s) where trial-related activities are actu-
ally conducted.
Trial statistician A statistician who has a combination of educa-
tion/training and experience sufficient to implement the princi-
ples in this guidance and who is responsible for the statistical
aspects of the trial.
Uncontrolled study A clinical study that lacks a comparison
(i.e., a control) group.
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848 CLINICAL TRIALS AND EVIDENCE-BASED LABORATORY MEDICINE
APPENDIX 47.1 Professional Guidelines and Systematic Review Resources
Agency for Healthcare Research and Quality (AHRQ), National
Guideline Clearinghouse
A public resource for evidence-based clinical practice guidelines.
www.guideline.gov/index.aspx
AHRQ’s National Quality Measures Clearinghouse (NQMC)
A public resource for evidence-based quality measures and mea-
sure sets.
http://qualitymeasures.ahrq.gov, http://qualitymeasures.ahrq.gov/
browse/by-topic.aspx
AHRQ Innovations Exchange
A database of evidence-based innovations and tools for a range of
healthcare settings and populations.
www.innovations.ahrq.gov
Clinical and Laboratory Standards Institute
A resource for laboratory practice procedures and guidelines.
www.clsi.org/
National Academy of Clinical Biochemistry (NACB)
Consensus-based guidelines for the laboratory evaluation and moni-
toring of patients with specified disorders.
www.aacc.org/MEMBERS/NACB/LMPG/Pages/default.aspx#
Laboratory Medicine Best Practices (LMBP)
Conduct of systematic reviews (initiated in 2011) to identify effec-
tive laboratory medicine practices.
www.futurelabmedicine.org/our_findings/
Defining and Measuring Standards
X
for Success
section editor: Michael R. Lewis
48 Benchmarking and Performance Monitoring for the Clinical
Laboratory
Lionelle D. Wells, Washington C. Winn, Jr., and Michael R. Lewis
49 Test Utilization and Clinical Relevance
Michael L. Wilson, Gary W. Procop, and L. Barth Reller
50 Benchmarking and Performance Monitoring: What Is Appropriate
for Your Laboratory?
Ronald J. Bryant and Michael R. Lewis
Introduction
Why Benchmark?
48 Benchmarking and Performance
The Payoff from Benchmarking Monitoring for the
The Basic Steps
Prioritization • Data Collection and Analysis •
Development and Implementation of Plans
Clinical Laboratory†
Where Do We Find Information about
Benchmarks? Lionelle D. Wells, Washington C. Winn, Jr.,
Quality Benchmarks • Financial Benchmarks
General Approach to Financial and Michael R. Lewis
Benchmarking and Performance
Monitoring
The Problem of Comparability • The Problem of Cost
Accounting • Workload Recording • The Search for
OBJECTIVES
Simplicity • Selection of Indicators for Benchmarking To discuss the reasons for undertaking benchmarking
or Performance Monitoring • Problems Associated
with Benchmarking by UOS • UOS Benchmarking in
To review the types of benchmarking activities and where to find benchmarks
a Competitive Environment To discuss the general approach to the most common types of benchmarking
Measuring Laboratory Financial and performance monitoring—for productivity and cost
Performance To discuss specific approaches to performance monitoring and external
Performance Monitoring • External Benchmarking
benchmarking
Interpretation of Performance
Monitoring Data To discuss the interpretation of performance monitoring and external
Summary Measure as Unifying Force • Prerequisites benchmarking data
for Effective Use of a Summary Measure
Interpretation of External
What is a cynic? A man who knows the price of everything and the value of nothing.
Benchmarking Data
Measuring Laboratory Performance in
Oscar Wilde, Lady Windermere’s Fan, 1892
the Broader Clinical Setting

W
Effect of Accountable Care Organizations • Linkage of hat is benchmarking? What benchmarks do you use to evaluate
Payment to Measures of Quality • Laboratory-Related your financial performance, human resources activities, customer
Standards in Broader Accreditation Programs
satisfaction, marketing success, or overall performance? Do you
Summary hope to wait for benchmarking to pass like just another management fad?
KEY POINTS Or have you embraced it as you may have previously embraced Total Quality
GLOSSARY Management (TQM) or Six Sigma? (15).
REFERENCES Galloway and Nadin define benchmarking as “the process of measuring
APPENDIXES products, services, and practices against leaders in a field, allowing the iden-
tification of best practices that will lead to sustained and improved perfor-
mance” (9). Put another way, benchmarking involves learning from others
through the use of external standards (4). Some large organizations engage
in “internal benchmarking” to facilitate dissemination of best practices across
business units; a standard from another department or division is external
to the unit using it as a benchmark but internal to the larger institution (4).
Benchmarking is something that should be done regularly on both a personal
and professional basis. Benchmarking (with a capital B) is merely a more sys-
tematic and planned approach to our personal “benchmarking.” Just as Six
Sigma provides a common language and systematic approach to go beyond

Clinical Laboratory Management, 2nd Edition

Edited by L. S. Garcia †
This chapter is an updated version of chapter 43, Laboratory Benchmarking, by Lionelle
©2014 ASM Press, Washington, DC D. Wells and Washington C. Winn, Jr., in the first edition of this manual. Much of the text
doi:10.1128/9781555817282.ch48 from the original is preserved.

851
852 DEFINING AND MEASURING STANDARDS FOR SUCCESS
a 95% or 99% success rate, Benchmarking allows you to
compete more effectively, obtain and retain resources for
your department, enhance the reputation of your depart-
ment, and improve the satisfaction of your employees.
Benchmarking is necessary if your laboratory is li-
censed or accredited by the Centers for Medicare and
Medicaid Services (CMS), the College of American Pa-
thologists (CAP), The Joint Commission (TJC), or any of
a number of other organizations concerned with ensuring
the quality of clinical laboratory services. For licensure
or accreditation, a laboratory must meet or exceed a se-
ries of externally imposed performance standards. CMS
is charged by Congress, through the Clinical Laboratory
Improvement Act of 1967 and its amendments in 1988,
with regulating laboratory testing of specimens from hu-
man patients. All other organizations that accredit labora-
tories must be “deemed” by CMS to substantially meet or
exceed the standards adopted by CMS. This deemed status
is time-limited, and the continuing performance of the ac-
crediting agencies is monitored and evaluated by CMS. A
laboratory that is accredited by an organization other than
CMS is responsible for ensuring that the deemed status of
the accrediting agency is current.
The standards range from attracting and retaining
qualified personnel to recording and documenting the lab-
oratory’s performance in all phases of testing (quality as-
surance), to compliance with all relevant federal, state, and
local rules and regulations. Most rules or regulations that
pertain to laboratory licensure and accreditation are based
on generally accepted principles of good laboratory prac-
tice. While regulations may incorporate only the basic or
minimal standards for good practice, most voluntary ac-
crediting agencies include far more stringent performance
standards, reflecting principles that move an accredited
laboratory’s performance closer to that of the highest-
performing laboratories (quality improvement [QI]).
Why Benchmark?
In the United States, the cost of providing healthcare has
increased at a rate consistently and considerably greater
than the general inflation rate over the years (5), and there
is broad consensus regarding the need to rein in medical
costs. As a result, laboratories, much like other healthcare
organizations, have limited resources and must maximize
their returns on the investment of scarce resources. The
returns sought include at a minimum a combination of im-
proved health for the population served, perceptions that
the laboratory provides high-quality care, and effective and
efficient use of allocated resources. If the laboratory is in a
market-based system, as in the United States, then finan-
cial returns are of paramount importance to the survival
of the laboratory. Laboratory licensure and accreditation
are typically effective in ensuring high-quality care and
perceptions of quality. They are not, however, typically fo-
cused on effective and efficient use of resources.
Performing well at a price is much more difficult than
performing well when price is no object. It requires con-
tinuous evaluation and reevaluation of performance. En-
suring the best possible achievement requires a standard
against which performance can be evaluated; that standard
is a benchmark. Benchmarking is a fundamental process
necessary for any laboratory, and indeed for any healthcare
organization, with limited resources to survive and thrive.
For best efficiency, each process in the laboratory must
perform close to the best balance between what is envi-
sioned and what is possible. What is envisioned are the
mission, vision, and goals of the laboratory personnel—
why they are there, whom they want to serve, what they
hope to accomplish, and how they plan to reach their
goals. What is possible reflects the constraints imposed
by the customers, equipment, facility, physical space, staff,
funding, and organizational culture that the laboratory
has acquired over time. Many of these constraints could
be changed, but analyzing the effect of changing the con-
straints is much more than benchmarking. Benchmarking
typically involves measuring a process and improving that
process. Benchmarking is primarily focused on doing the
best you can with whatever you have today.
The Payoff from Benchmarking
Picking benchmarks and attempting to understand what
they mean in terms of your own performance may lead to
an analysis of “what if ” scenarios (or what could be called
strategic benchmarking). During the planning for a bench-
marking activity, you may realize that changes in the mix
of customers, laboratory staff, or location of the labora-
tory would allow performance to reach even higher levels.
Thus, benchmarking may eventually include an analysis of
strategic changes as well as an analysis of process changes
that may, in turn, alter the mission, vision, and goals of a
laboratory. Ultimately, this process represents good busi-
ness. Benchmarking is but one of many tools that a labora-
tory or healthcare entity employs to improve performance,
focus on customers, survive, and thrive in an environment
with limited resources.
The Basic Steps
Prioritization
While details of the benchmarking process vary across or-
ganizations, some common themes emerge as one examines
different approaches (Table 48.1) (3, 4). Begin your bench-
marking process by prioritizing areas in which your orga-
nization should seek to improve, bearing in mind that the
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
Table 48.1 Basic steps in the benchmarking processa
Prioritize areas in need of improvement
Determine scope of the benchmarking project and develop a plan
Enlist support of leadership and process owner(s) to ensure adequacy
of resources
Identify organizations against which to benchmark
Collect data from comparison organizations
Compare your organization’s data against those obtained from the
other organizations
Develop plans for improving processes to close gaps between current
and desired states
Communicate with stakeholders and implement plans
Monitor performance over time and recalibrate or replace bench-
marks as needed
a
Adapted from reference 3.
feasibility of benchmarking some processes may be limited.
Dedicate time to determining the scope of the benchmark-
ing project and to developing a realistic plan; make sure that
the purpose of the project is clear to everyone on the bench-
marking team. Enlisting the support of laboratory (and pos-
sibly institutional) leadership and the process owner(s) is a
key step to ensure adequacy of time and resources to im-
prove the process and correct any disconnects discovered.
Data Collection and Analysis
Once you have identified organizations against which you
would like to benchmark your organization’s performance,
collect the pertinent data and compare your laboratory’s
numbers to those of the external organization. Ensure
that data collection and other standards are maintained
throughout the measurement period and that there are
sufficient resources so that parts of the planned analysis
and measurement do not get delayed due to unavailability
of key personnel. Be prepared to expand your analysis and
plans for change beyond the scope of the original activity
as new or additional relevant findings or needs are uncov-
ered. You must be prepared to communicate findings on an
ongoing basis, so as not to surprise the process owner(s).
Development and Implementation of Plans
Finally, document your findings and carefully develop
plans for process improvement that will close the gaps be-
tween your organization’s present state and the desired state
as determined by your study. Take care to communicate ef-
fectively with team members and other stakeholders, and
ensure adequate piloting of planned changes. Make sure
that there is adequate training of process owner(s) and
staff in the new planned process. Implement your plan,
monitor performance over time, document your findings,
and plan for additional change(s). Throughout the process,
apply good management techniques just as you would for
853
any organizational change: pick your team members well,
ensure buy-in of relevant groups, and keep up the team
spirit throughout the project.
Sometimes during a benchmarking activity, additional
items will come up for review that impinge on a process
and that may be more relevant to the final solution than
was originally expected. Organizational knowledge about
processes is usually accurate but may be incomplete. Su-
pervisors and managers can explain in detail the reasons
why a process cannot be changed or improved. Often,
however, that knowledge does not fully take into consid-
eration some of the less frequent variations that can oc-
cur in a process. Changing the way you manage these less
frequent, but often very disruptive, variations in a process
may result in a substantial but unexpected improvement
in the process, even though supervisors and managers
“knew” that this process could not be improved. Docu-
mentation of the project from start to finish is an impor-
tant tool for finding and using this additional knowledge
to improve what cannot be improved and change what
cannot be changed.
Where Do We Find Information
about Benchmarks?
Business organizations outside of healthcare typically use
benchmarking to evaluate performance in areas such as
employee development, customer satisfaction, human re-
sources, marketing, and process improvement. While a
laboratory manager’s first instinct may be to locate bench-
marks within the clinical laboratory industry, the search
need not be firmly constrained within healthcare, as some
business processes are common across many other indus-
tries. Thinking broadly about where you have received
outstanding customer service or heard about excellent
process improvement techniques reduces the likelihood
of settling for suboptimal targets; it makes little sense to
aim only for “best in class” status if the class as a whole
is in need of improvement (20). Searching for informa-
tion from other industries, whether related or not, may
yield new insights into processes and introduce further
improvements in performance.
Quality Benchmarks
Most laboratories prefer benchmarks that are specifically tai-
lored to the services that a laboratory provides. In the area
of quality performance, the CAP’s Q-Probes and Q-Tracks
programs are excellent benchmarking projects (13, 23). They
allow laboratories to share competitive and best practices
data in a blinded study focusing on areas that typically could
be improved in most laboratories. Q-Probes and Q-Tracks
studies are intended to help laboratories meet the QI stan-
dards in accreditation surveys. The Q-Probes are short-term
854 DEFINING AND MEASURING STANDARDS FOR SUCCESS
studies that generate a single report without trended data.
They tend to be detailed, contain extensive analysis, and
require relatively long turnaround times because of the
complexity. The Q-Tracks are long-term, focused moni-
tors with tabular and graphic reports; data are submit-
ted quarterly. Analysis is less extensive than in Q-Probes,
turnaround time is shorter, and trended data are supplied.
Both programs extend beyond the laboratory environ-
ment to focus on key processes and areas of concern,
including such issues as reducing telephone calls to a sur-
gical pathology department through the incorporation of
standardized reporting formats, measures of satisfaction
with laboratory services, and effectiveness of services.
Many of these studies are published in the Archives of Pa-
thology and Laboratory Medicine and are also available on
the CAP website (www.cap.org, last accessed September
29, 2012); recent examples include a Q-Probes study as-
sessing the accuracy of labeling of blood specimens (10)
and a Q-Tracks study examining critical value reporting
over a period of up to four years (21). If the concerns of
highest priority for the laboratory are in these areas, these
programs are a good place to start the search for infor-
mation about benchmarks. They will serve the laboratory
well when benchmarking preanalytic and postanalytic
activities. These approaches to benchmarking issues of
quality have been applied in Great Britain as well as in the
United States (9).
Financial Benchmarks
One of the most difficult areas to benchmark is financial
performance. However, difficult does not mean impossi-
ble; with some thought and creativity, you can find a num-
ber of measures that can be used effectively to assess the
financial performance of a laboratory. The two general cat-
egories that are of interest to the directors of laboratories
and hospitals are cost data and productivity data. That is,
how much does it cost to operate the laboratory, and how
efficient is the operation?
General Approach to Financial
Benchmarking and Performance
Monitoring
The Problem of Comparability
One important issue that comes up when looking for fi-
nancial benchmarks is the lack of comparability of a given
organization’s accounting system with that of another or-
ganization. For example, one organization may not allo-
cate a line item for overhead (e.g., for the executive office
staff); instead, it loads all of these costs, including utilities,
into a charge per square foot for laboratory space. This ap-
proach makes line-by-line budget comparisons with other
organizations that analyze costs in a more traditional
manner very difficult, because the charge per square foot
cannot be broken out into the components for utilities,
overhead, etc.
In another organization, costs for overhead are taken
out and paid before a budget is allocated for the laboratory
service. As a result, the laboratory managers in this orga-
nization do not have access to the fully loaded cost of their
laboratory services; this type of budgeting process seems to
be more prevalent in governmental than in for-profit enti-
ties. Laboratories may also vary with respect to allocation
of types of testing across sections or divisions; some un-
common arrangements may persist for years after evolv-
ing in response to particular laboratorians’ interests and/or
expertise. Thus, when seeking comparisons, it is essential
to identify organizations that function and are organized
in a similar manner so that the likelihood of making valid
comparisons and consequently drawing valid conclusions
is maximized. Approaches to this apples-to-oranges prob-
lem will be discussed in the section on interpretation of
benchmarking data.
The Problem of Cost Accounting
Most laboratory professionals will agree that determining
the cost of an individual laboratory test is very difficult.
For tests performed in one of the relatively automated sec-
tions of the laboratory, such as chemistry or hematology,
the true cost of a test will vary substantially with the shift,
the day of the week, and the instrument on which it is
performed. Most laboratories have multiple instruments
or systems that may be used for performing some tests;
for example, a test for blood glucose may be performed
using point-of-care instrumentation or on a chemistry
analyzer in the core laboratory. If the laboratory is re-
sponsible for the cost of both systems, what is the true
cost of a glucose test? If an attempt is made to analyze
performance at the level of methodology as well as ana-
lyte, the system becomes very complex. As discussed by
Tolzmann and Vincent in chapter 33, for batched tests,
the cost of a test will vary with the size of the batch be-
cause the expense exhibits a stepwise, not linear, progres-
sion with increasing volume.
Even for relatively manual sections of the laboratory,
such as microbiology and the blood bank, the problem
remains difficult. Not all microbiology specimens are cre-
ated equal; a specimen that yields no bacterial growth will
generate costs in labor and materials that are very different
from a specimen with several potential pathogens. Simi-
larly, blood samples received for a pretransfusion antibody
screen vary widely in the quantity of resources they require
for complete testing. Once again, cost accounting becomes
very complex if an attempt is made to account for each of
the variables.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
Workload Recording
The classic attempt to measure laboratory costs and pro-
ductivity was the workload recording method developed
by the CAP (19). It followed traditional industrial meth-
ods for assessing productivity, concentrating on produc-
tivity of labor. Each laboratory operation was assessed by
detailed time-motion studies. The labor required for an
individual test was the sum of the labor required for each
component of the test. The sum of labor inputs for all tests
of that type could then be calculated, after which the labor
input for the division could be derived, etc. Eventually, a
value for the laboratory as a whole could be determined.
The results of the time-motion studies were published and
were widely used in the laboratory industry. Theoretically,
comparable data would be generated if every laboratory
used the same standard. A committee that was broadly
representative of the industry was charged with maintain-
ing the program.
After many years of swimming against the stream, the
workload recording system was eventually abandoned in
favor of a unit-of-service (UOS) approach, as described
below. The workload recording approach foundered on
the multiple shoals of complexity, variability, and most
importantly, an inability to keep pace with the constant
changes in methodology. The method made people feel
good about measuring all of the variables, but it was ulti-
mately nonviable. As it has receded into the mists of dis-
tant memory, there has been a tendency to yearn for the
“good old days” when we measured everything. Hidden in
the mists are all of the problems that led to the demise of
the workload approach.
The resilience of workload recorders was well dem-
onstrated when a national consultant promised to save
an institution millions of dollars by improving efficiency.
The method that the consultants employed was workload
recording under another name, but unfortunately, the re-
branding did not make the approach work any better. The
first attempt at measuring the “efficiency” of the histology
laboratory, for example, resulted in a productivity figure
exceeding 1,000%. There was, of course, a simple expla-
nation for this aberration. The consultants did not realize
that the time allotted for staining a single slide with he-
matoxylin and eosin did not translate into a valid number
when a whole rack of slides was stained at once! Eventu-
ally, a number for productivity was negotiated between the
consultant and the manager of the histology laboratory,
but the number was based on guesswork rather than sci-
ence. Not surprisingly, a new hospital administration fi-
nally admitted that the consultants had not only failed to
realize the savings that they had promised, but also failed
even to generate enough savings to pay the enormous fee
that they had taken home. The more things change, the
more they stay the same.
855
The Search for Simplicity
According to the law of parsimony (Occam’s razor), the
simplest solution is preferred and should be sought first.
Everyone is painfully aware of the complexity of the prob-
lems faced in the laboratory; a complex solution, therefore,
is intuitively appealing. Settling for a parsimonious solu-
tion makes us feel unfulfilled and unappreciated. But in
truth, these good intentions lead to you-know-where. You
must look for proxies that can be used on either a global
or indirect basis to monitor the financial performance of a
laboratory. Programs can determine these costs in various
ways; some include benchmark data. Current laboratory
information systems often include activity-based costing
or attempts at workload recording. Various consulting
firms, including many large accounting firms, also claim to
have benchmark data and expertise in this type of analysis
of the financial performance of the laboratory, as described
above. The consultants, although often very expensive, are
readily available if needed by any laboratory. But a sophis-
ticated laboratory should beware the facile solution to an
incredibly difficult problem. For instance, laboratory in-
formation systems still do not take account of such issues
as batch size, work shift, or technical level of the operator.
Nor can they keep up with changes in the negotiated price
of labor and materials without a large amount of time and
effort to keep the data current (assuming the presence of
an adequate computer system in the first place). It is fea-
sible, though time-consuming and expensive, to develop a
snapshot of laboratory cost and efficiency at the test level
at a single time point. It is entirely another matter to track
performance over time, a process that provides most of the
managerial value.
What, then, are some of the alternatives to detailed
and specific financial benchmarks? One alternative is to
move to a higher level, so that many of the distortions
that occur in pricing individual tests average out across a
section, division, or laboratory. One technique that many
managers have used successfully in the past involves the
following steps:
1. Determine in some reproducible fashion the total
number of laboratory tests done (with or without tests
referred to a reference laboratory).
2. Determine the total budget of the relevant laboratory
unit.
3. Finally, use these numbers to calculate an average cost
per test.
This approach might be termed “benchmarking by unit
of service.” It is an example of the ratio method described
in the next section. Not surprisingly, the greater the num-
ber of tests counted, the greater the statistical robustness
of the analysis. Thus, cost and productivity measurements
at the level of the laboratory will be more accurate and
856 DEFINING AND MEASURING STANDARDS FOR SUCCESS

reproducible than divisional data, which will, in turn, be
more robust than test-specific data.
Selection of Indicators for Benchmarking or
Performance Monitoring
As in epidemiology and financial analysis, ratios are much
more useful than raw numbers. Knowing the denomina-
tor does not ensure that the numbers will be meaningful,
but the numerator alone will be useful only rarely. The two
general types of instructive ratios may be characterized as
cost ratios and productivity ratios. In both cases, the most
valid denominator is a UOS. A readily employed unit is
the billed test, because most financial systems capture the
data and because Current Procedural Terminology (CPT;
published by the American Medical Association and up-
dated yearly) codes allow for a relatively standardized
characterization of laboratory tests among all laboratories,
whether for-profit or not-for-profit and whether commer-
cial, hospital-based, or physician-office-based (2). Labora-
tories may differ in the services for which they actually bill
clients; some systems, therefore, use the term “billable test”
to describe any procedure for which there is a CPT code
and for which a client could have been billed, and this is in
many instances the preferred UOS.
Although quality control procedures, repeat tests, and
research procedures do not have CPT codes and can-
not be billed to payors, a laboratory could, at its discre-
tion, include these procedures in the denominator of its
benchmarking tool if systems are available to integrate the
numbers with the officially billed tests. Alternatively, the
assumption may be made that the numbers of such tests
will be consistent over time and may be excluded from
analysis. Commercially available systems for external
benchmarking will define the criteria for tests that should
be counted in the system.
Examples of variables that are frequently analyzed are
summarized in Table 48.2. Commonly used ratios are de-
tailed in Table 48.3.
The use of the ratio method to evaluate cost per test, as
summarized above, can be applied to the components of
the cost. The two major components are labor cost and ma-
terials cost. Depending on the scientific discipline and the
nature of the clientele served by the laboratory, the division
of costs between these two categories can vary greatly. Sim-
ilarly, the productivity of laboratory labor can be evaluated
based on worked hours (a component of productive labor
costs) and paid hours (a component of nonproductive la-
bor costs and a direct measure of the total labor costs in the

Table 48.2 Variables that are frequently assessed in benchmarking programs

Variables
Billable tests: total, on-site, off-
site, referred
Billable tests: total, inpatient,
outpatient, nonpatient
Inpatient days, inpatient
discharges
Outpatient visits vs. nonpatient
encounters
Total FTEs and total hours
Testing FTEs and testing hours
Worked versus paid hours
Total and testing labor expense
Consumable expense
Maintenance expense
Depreciation expense
Manageable expense
Blood expense
Comments
The most frequently used denominator for cost and productivity. May also be used as
the numerator when analyzing work by patient population. Separation by testing site
allows analysis of costs associated with work done locally or referred.
Commonly the denominator but may be the numerator (see above). Allows analysis of
various patient populations. “Nonpatients” represent work from outside hospitals or
other clients. To be truly useful, it must be feasible to dissect the costs actually incurred
for each category (often difficult or impossible).
Denominator for evaluation of workload by patient type. A hospital with a large popu-
lation of chronically ill patients may have an aberrantly small value when days are the
denominator, but discharges will provide a better comparison.
The most problematic distinction because of the variation in how institutions catego-
rize their outpatients vs. physician office patients
Often used as the denominator in productivity ratios. Measures productive and non-
productive labor.
Measures productive labor only. In comparison programs, each laboratory must count
productive labor identically for this variable to be useful.
Comparing ratios may shed light on the fringe benefits (vacation, sick time, conference
time, etc.) granted by a laboratory to employees.
Defines the cost of productive and total labor. When analyzed with FTE/hour, the ef-
fects of differing skill mixes, wage rates, and fringe benefits may be evident.
Cost of supplies and reagents.
Reflects the cost of maintenance contracts.
The cost of equipment depreciation; may or may not be broken out by the institution to
the level of department or division.
Refers to those expenses that should be under the control of laboratory managers; usu-
ally the sum of labor, consumable, depreciation, and maintenance expenses.
The cost of purchased blood products; increasingly separated from other consumables
because of the increasingly high cost. This expense may not be easily managed.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
Table 48.3 Commonly used ratios in benchmarking
Financial ratios
Testing (total)a expense/FTE (h)
Consumable expense/total (on-site) billable
tests
Total expense/inpatient day (inpatient dis-
charge, outpatient visit)
Referred billable test expense/referred bill-
able test
Blood expense/total (on-site) expense
Maintenance expense/total (on-site) expense
Depreciation expense/total (on-site) expense
a
Items in parentheses are other, similar parameters; h = hours.
laboratory). “Productive” and “nonproductive” are terms
used to differentiate those activities that produce test re-
sults directly from other activities (which may also be very
important or even essential).
Problems Associated with Benchmarking by UOS
There are many obvious flaws in a measure such as overall
cost per test. One problem is that it is much easier to ac-
complish a reduction in cost per test in an environment
where there is a substantial increase in the number of tests
ordered each year than it is to achieve the goal in an envi-
ronment where volume of testing is stable or decreasing.
The relationship of volume and cost has been well demon-
strated and is discussed by Lepoff in chapter 30.
A second drawback is that by giving up nuclear detail to
get a valid picture of the whole organism, managers at the
front line may feel shortchanged as they try to address de-
tailed challenges of everyday life. Scientists and physicians
should be used to these kinds of tradeoffs. In the microbiol-
ogy laboratory, for example, we recognize that in standard-
izing the conditions of antimicrobial susceptibility tests to
get reproducibility from day to day and laboratory to labora-
tory, we are giving up the ability to reproduce the nonstan-
dardized conditions that occur in each individual patient.
We have adjusted to that necessary scientific compromise;
we must learn to adjust to the similar financial compromise.
UOS Benchmarking in a Competitive Environment
If you use a measure such as overall cost per test in a com-
petitive environment, other laboratories would likely expe-
rience similar increases or decreases in their work, unless
there is a difference in the marketing, service, or customer
base of your laboratory leading to significant differences in
growth of testing. Again, since overall cost per test is a rela-
tively easily derived number, you should be able to determine
if anomalies such as this are influencing your performance
against the benchmark. If there are significantly different in-
terinstitution changes in the underlying costs and number of
tests used to calculate overall cost per test, you may have to
857
Productivity ratios Miscellaneous ratios
Billable tests/total FTE (h) Testing FTE/total FTE
Billable tests/testing FTE (h) Worked hours/paid hours
Billable tests/inpatient day (inpatient On-site billable tests/total billable tests
discharge, outpatient visit)
Inpatient (outpatient, nonpatient) bill-
able tests/total billable tests
find a new benchmark or perhaps spend time and resources
addressing the issues that are causing you to fall short of your
goals. For example, if your laboratory is losing market share,
you may need to improve the marketing of your laboratory
services to meet your goal for overall cost per test.
Measuring Laboratory Financial
Performance
There are several possible approaches to assessing your
laboratory’s financial performance. Most of those in com-
mon use may be classified as either performance monitor-
ing or external benchmarking; internal benchmarking of
laboratory performance against standards from other de-
partments or units in the hospital appears to be less com-
monly employed. The various approaches described below
are not mutually exclusive, and each has its pros and cons,
which are summarized in Table 48.4.
Performance Monitoring
The simplest and most straightforward approach to evalu-
ating financial performance is to use your own laboratory
as the standard and monitor performance over time. What
you gain by this maneuver is reproducibility, because man-
agement has control over the assumptions and can ensure
consistency over time. In addition, departments, divisions,
and laboratories within the organization that are difficult
or impossible to compare against each other can legiti-
mately be compared against themselves. It is not valid to
expect the same productivity or expense in a cytogenet-
ics laboratory as is required in an automated chemistry
laboratory, but it is valid to ask each of those laboratories
to make ongoing improvements in both productivity and
cost on a continuing basis.
An example of continuous monitoring of performance
is displayed in Appendix 48.1. A great deal of useful infor-
mation can be derived from close examination of sequen-
tial numerical data. Added value can be obtained if the
data are displayed visually as control charts (Fig. 48.1, 48.2,
858 DEFINING AND MEASURING STANDARDS FOR SUCCESS

Table 48.4 Approaches to assessment of laboratory financial performance

Type
Performance monitoring
Performance monitoring
External benchmarking
External benchmarking
External benchmarkinga
External benchmarkinga
External benchmarkinga
a
These activities involve external comparisons, but they are performed at the local level. They are discussed in the text under performance monitoring.
Method Pros
Workload recording Measures actual work performed.
UOS monitoring Variables are known and can be
controlled; temporal comparisons
legitimate; should be done even if
external benchmarking performed.
Commercial program Standardized reporting form; flex-
(laboratory-based) ibility in assessing performance rela-
tive to peers; program constructed
and data analyzed by peers in the
laboratory industry.
Commercial program See above; however, constructed by
(hospital-based) individuals who may not under-
stand laboratory structure and per-
formance; design may be relatively
unsophisticated from a laboratory
perspective.
Comparison of UOS with selected Control over construction of peer
peers in voluntary group group; contacts for discussing
anomalies easily available.
Comparison against “arbitrary” If the standard comes from the
standard institutional leadership, it will be
the operative goal from a practical
point of view.
Comparison with published indus- Provides useful comparison data
try norms with published recommendations
on publicly traded companies.
Cons
In practice, difficult or impossible
to validate and maintain.
Continuous improvement in
financial and productivity indica-
tors can be documented, but per-
formance relative to peers cannot
be assessed.
Required data may be difficult
and/or time-consuming to obtain.
Peer groups may not be valid and/
or peers may not submit their
data according to instructions,
potentially producing misleading
interpretations. Results may be
viewed skeptically by institutional
administration.
Results may be more useful to
institutional managers, who can
see them in the context of total
institution benchmarking. Results
may be more easily accepted by
institutional managers.
Number of peers may not produce
statistically valid comparisons.
Standard may be flawed; it should
be validated (carefully and with
political sensitivity).
Ensure that the laboratories are
truly comparable or that recom-
mendations come from evaluating
comparable laboratories.

Figure 48.1 Control chart for performance monitoring.

The parameter depicted is billable tests, followed over
time. Upper and lower control limits are statistical param-
eters that can be set at any desired value (e.g., ± 1, 2, or 3
standard deviations around the mean). The data are plot-
ted by quarter over a period of three years. Note that the
laboratory has achieved a steady increase in billable tests
beginning in the first quarter of 1995. The trend is going in
the desired direction, but it is important to understand the
reason(s) for the change. Compare with Fig. 48.2 and Fig.
48.3. Data adapted from a report provided to a participant
in the CAP’s LMIP.
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
and 48.3). The control chart is familiar to most members
of the laboratory team as a means of tracking the quality
control of laboratory tests.
By limiting the analysis to a single unit (the laboratory)
within a single institution, however, management loses the
value of comparing performance with peers in the indus-
try, some of whom might even be competitors. Although
it is not possible to evade this deficiency completely, it is
possible to provide surrogates that approach the kind of
comparisons found in external benchmarking.
• In truth, the most important external effect of bench-
marking is to convince the institutional leadership that
the laboratory is functioning efficiently. If the labora-
tory and institutional managers can establish a mutu-
ally agreed-on definition of good performance, formal
external comparisons become less important.
• Sometimes it is possible to develop voluntary agree-
ments with other institutions to share productivity and
859
Figure 48.2 Control chart for performance monitoring.
The parameter depicted in this chart is paid hours, followed
over time. Note that a dramatic increase in paid hours was
recorded in the first quarter of 1995, after which the number
of employees stabilized. Such a large increase in personnel
might appear undesirable, but it must be understood in the
context of other changes in the operations of the laboratory.
Compare with Fig. 48.1 and Fig. 48.3. Data adapted from a
report provided to a participant in the CAP’s LMIP.
cost data (11). Although this approach does not have
the statistical rigor of comparison with a large number
of institutions, you do have complete control over the
comparison group. Appendix 48.2 provides an example
of a hypothetical agreement among hospitals.
• Most healthcare institutions and all publicly traded
companies are required by law to file financial reports
with government regulators. The degree of detail and
the depth of analysis available in the public records
of most hospitals are probably insufficient to yield
productivity data that are adequate for purposes of
comparison. The filings of publicly traded laboratories,
however, contain much more relevant detail. Table 48.5
provides an example of an analysis using such data.
Several notes on these approaches to comparisons are
in order.
1. If a laboratory director takes (or is forced to take)
the road of agreed standards with institutional managers,
Figure 48.3 Control chart for performance monitoring. The
parameter depicted in this chart, billable tests per FTE, in-
corporates the changes depicted in Fig. 48.1 and Fig. 48.2.
Despite the dramatic increase in FTEs in the first quarter of
1995, the productivity of the laboratory steadily increased.
Plotting the ratio yields a more complete picture than viewing
only the components would allow. Compare with Fig. 48.1 and
Fig. 48.2. Data adapted from a report provided to a participant
in the CAP’s LMIP.
860 DEFINING AND MEASURING STANDARDS FOR SUCCESS
Table 48.5 Internal benchmarking with “homemade” standard by reference to published information on publicly traded
commercial laboratoriesa
Commercial
Parameter laboratory A
Annual billable tests 306,020,000
FTEs 33,200
Annual billable tests per FTE 9,217
Daily billable tests per FTE 35.5
Hours per billable test 0.226
a
Data courtesy of Thomas Wadsworth.
the same issues of comparability that plague external
benchmarking may apply. An example can be found in the
following brief play, titled “The Tragical Comedy of the
Laboratory Director and the Chief Executive Officer.”
Act I [Office of the Chief Executive Officer (CEO)]
CEO (a former consultant with a prominent na-
tional consultancy): In my extensive experience, a
valid laboratory benchmark for productivity is 0.2 h
per billed test.
Laboratory Director: That may be difficult to
achieve. We are an academic institution with respon-
sibilities for training residents and medical tech-
nologists. In addition, we have active programs that
serve transplant and cancer patients, all of whom are
immunosuppressed and very ill, requiring extensive
laboratory support.
CEO: That is all very well and good, but my
benchmark comes from one of the most prestigious
academic institutions in the country, one that far
exceeds ours in the amount and sophistication of re-
search and transplant service.
Laboratory Director: May I ask which institution
that is, please?
CEO: That is Superstar Medical Center, which is
always ranked in the top 10 in the national polls.
Act II, one month later [Office of the CEO]
Laboratory Director: Thank you for agreeing to
see us. After our last meeting, the laboratory financial
manager and I talked in detail with our counterparts
at Superstar Medical Center. They confirmed that
their productivity goal, which they regularly meet, is
0.2 h per test. It turns out, however, that they are a very
dispersed academic medical center. Many of the units
that are part of our laboratory are separate adminis-
trative units at Superstar. Examples include anatomic
pathology, cytogenetics, and electron microscopy,
which are among the most manual, labor-intensive
divisions. If one drops those units from our mix, we
are meeting the 0.2 h per test standard already. I hope
that this makes you feel better about our performance.
Combined total for
Commercial 20 independent University hospital
laboratory B laboratories laboratory
205,660,000 26,344,792 2,271,772
24,000 3,037 255
8,569 8,675 8,897
33.0 33.4 34.2
0.243 0.240 0.234
CEO: Well, now, actually Superstar Medical Cen-
ter was only one of the institutions I had in mind.
There are a number of others that are even more
productive.
Act III, Scene One, two years later [Office of the Lab-
oratory Director]
Laboratory Director: Isn’t it a shame that the Board
fired the CEO?
Laboratory Financial Manager: I’m crying buckets.
Act III, Scene Two, one year later [Office of the CEO]
CEO: I have been reviewing the records of the
previous administration, and I have now visited with
each of the major divisions. What is your assessment?
Chief Operating Officer (a holdover from the
previous administration): Well, it seems clear that
the laboratory is still a problem. I am not at all sure
that I trust their assessment of productivity and
competitiveness.
CEO: That may be true, but we have the regulators
breathing down our necks. The nurses want to union-
ize. The Board has been chastened and is getting too
darned active for their own [read “our own”] good.
It does appear that the laboratory is making money
from their active outreach program, so I think we are
better off letting sleeping dogs lie.
CURTAIN
2. Comparisons with peers: All external benchmark-
ing programs seek to form comparison groups of peers
who are as alike as possible in critical characteristics. It
seems intuitively obvious that a voluntary group should be
constructed similarly. If you set a goal to reduce cost per
test year after year, you could, for example, compare local
performance with that of other laboratories by following
the change in cost per test from period to period. The ve-
locity, rate, or percentage change in local costs compared
to similar laboratories, rather than the absolute cost per
test, would be the standard against which performance is
then measured. If you succeed in reducing cost per test at
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
a faster rate than peers, you will eventually achieve a lower
cost per test, no matter what the starting points were.
3. The counterintuitive approach of comparing oneself
with a competitor who should be much more productive
and efficient than oneself also has some advantages and at-
tractions. Managers in their right minds would not perform
such a comparison publicly or make the results known un-
less they were favorable. If the expected unfavorable results
were to materialize, they could be used inappropriately
against the laboratory by institutional managers who do
not understand the nature of the exercise. Table 48.5 sum-
marizes such a comparison between an academic medical
center (local data) and publicly traded laboratory compa-
nies (data from company reports, available on the Internet).
External Benchmarking
All things being equal, the added value of external bench-
marking should make it the evaluation method of choice
(Table 48.4). You could take a dual approach, tracking
performance internally to observe temporal changes, but
also measuring local performance against the best in the
field. To use a sports analogy, performance monitoring, as
described in the preceding section, is similar to a sprinter
measuring performance only by comparison to previous
efforts without ever testing that performance against the
best in the field; competing in a race would correspond to
external benchmarking. It is possible to continuously im-
prove without ever actually being very good. In the best
of all worlds, of course, you would do both internal and
external comparisons, but financial and workforce con-
straints may make this difficult.
There are two types of formal external benchmarking
approaches (exclusive of the kinds of informal compari-
sons described previously under performance monitoring).
In each, an external organization, which may be a for-profit
entity or a not-for-profit group, provides a service. In one
case, the benchmarking program for the laboratory is part
of a comprehensive system that covers the whole institution,
usually a hospital or a medical center. In the other case, the
program is focused on laboratories and does not address
issues outside of the laboratory. Two such programs have
been described in published reports (11, 17).
Table 48.4 summarizes the advantages and disadvan-
tages of these two external benchmarking alternatives.
Both alternatives suffer from a common defect, selection
bias, which will vary in severity from program to pro-
gram; the comparison group will be constructed of par-
ticipants who have not gone out of business, who have
volunteered to be a part of the process, and who possess
the organizational skills and resources required for partic-
ipation. Admittedly, for the hospital-wide programs, the
“voluntary” aspect may be on the part of institutional, not
laboratory, administration. Nonetheless, the composition
of comparison groups is not random; this difficulty can be
addressed, but not eliminated, by statisticians analyzing
861
the data (7). It has been documented by the organizers
of some programs that participants who withdraw or do
not continue participation have performed less well than
those who remain in the program (21). Such a phenom-
enon is not surprising, because no one wants to look bad
(especially if the results may be seen by superiors), and it
is easy to argue that the program was simply inadequate
and the results, therefore, invalid (an argument that could
be either true or a rationalization). Whatever the reason
for withdrawal, the result is to tighten the comparison
group and to skew the results by trimming off only one
end (the lower one) of the curve.
Those who participate in an external benchmarking
program should assure themselves that:
• The comparison group is comparable to the local in-
stitution, and there are enough members of the group
to make statistical comparisons reasonable.
• There is adequate and sophisticated statistical analysis
of data. The purveyors should be able to document the
validity of their criteria for comparison and the ad-
equacy of their comparison groups. A recent published
report detailing a CAP Q-Probes study of laboratory
staffing provides a nice example of external bench-
marking that satisfies these specifications (12).
• Data are analyzed and results are returned in a timely
fashion. It should be noted that the goal of external
benchmarking is not fine-tuning of operating issues,
so it is better to accept a somewhat extended time for
analysis in return for sophisticated, useful informa-
tion. There is no need for external benchmarking more
frequently than quarterly. Semiannual or even annual
evaluation is adequate and probably preferable, as the
volume of data underlying the analysis will be larger,
and the extra work required to gather data for external
providers will be limited to once or twice a year.
• The data required by the external agency are reason-
able, and the laboratory is comfortable with the accu-
racy of the data. You should direct particular skepticism
at data that are generated by hospital financial analysts
without review and acceptance by knowledgeable de-
partmental managers, including those in the laboratory.
• There is an understanding by administrators and man-
agers both in the laboratory and at the institutional
level that the results will be evaluated honestly and
without prejudice. The goal should be to understand
the data, accept or reject the apparent “messages,” and
improve performance. A program that is used only to
punish or denigrate people or departments will not
yield the desired improvement in performance.
If a hospital-wide benchmarking program is mandated
by the leadership of the institution, the managers of the
laboratory should also consider participating in a program
that is focused specifically on the laboratory. Wilkinson
862 DEFINING AND MEASURING STANDARDS FOR SUCCESS
and Reynolds provided a dramatic illustration of the use
of data from a laboratory-focused program (the CAP’s
Laboratory Management Index Program [LMIP]) to iden-
tify problems that were produced by a less finely tuned
hospital-wide program (22).
Interpretation of Performance
Monitoring Data
Summary Measure as Unifying Force
Using a simple number such as average cost per test as a
summary measure of financial performance can provide
insights into your own operations as well as those of other
laboratories. Most laboratories can derive a number such
as overall cost per test with relatively little effort.
Using a measure such as overall cost per test means that
the accumulation of each small decision made in every sec-
tion of the laboratory must, on average, move the labora-
tory toward the goal of reducing cost per test. A focus on a
global goal, rather than on multiple smaller departmental
goals, allows you the opportunity to make an up-front in-
vestment in one area with the aim of achieving eventually
much lower overall costs. This approach may be viewed
as a team investment in the future, whereas a division-by-
division approach inhibits development of a team spirit
and discourages such forward-thinking investments. Use
of a summary measure such as cost per test may also en-
hance your ability to invest in changes that may not yield
results within one or two years. If a particular investment
for the future raises short-term costs in a particular area,
such a consequence may not prove problematic as long
as overall performance measured for the total laboratory
demonstrates a continuing reduction in costs that meet or
exceed targets.
Prerequisites for Effective Use of a Summary Measure
To realize the potential benefits of employing a summary
measure to assess laboratory performance, the leadership
of the laboratory and/or the institution must exhibit a
number of qualities. Honesty requires us to admit that the
scenario we envision may be utopian. Some of these char-
acteristics and approaches are as follows:
• Management must not depend on numbers alone but
must use all senses to sort out where the problems are
and where attention must be directed. We suspect that
in many laboratories everyone knows where the prob-
lems, challenges, and opportunities are, although they
may not be identified openly and honestly.
• Management must treat all members of the laboratory
as if they are truly members of a team. Such an ap-
proach requires an honest understanding of barriers
and challenges, combined with a willingness to face
them together. If resolution of issues is difficult or im-
possible for a supervisor who is trying hard, support
rather than recrimination is essential. If sacrifices must
be made in a certain division or if a division must do
without until its time comes, that sacrifice must be
appreciated, and a good faith effort must be made to
ensure that the time does indeed come for that division
(and in a realistic time frame).
• All members of the laboratory must truly believe that
they are part of a team, that their efforts are recognized
and appreciated, and that they will not be penalized for
making sacrifices for the greater good.
Whether the team is the laboratory as a whole or a
subunit, when the performance monitoring approach is
used, analysis consists of directing constant attention to
improving all relevant ratios and following the improve-
ment (or lack thereof) in each ratio. Attention can then be
directed to any indicators (ratios) that are not improving
over time.
If there is an informal and/or arbitrary standard against
which the laboratory is to be measured, such as the direc-
tive of the CEO in the drama above, analysis must focus on
attempting to understand deviations from the goal.
Interpretation of External
Benchmarking Data
When the external benchmarking approach has been cho-
sen, the analysis can be more sophisticated and potentially
more instructive, but the process is also more complicated.
If external benchmarking is performed using a contracted
service, the analysis is both assisted by and limited by the
way the data are massaged and presented by the bench-
marking service. It is obvious that limitations include the
choice of items that are presented by the program and the
statistical rigor of the presentation. The simplest presen-
tation is a depiction of institutional data on a continuous
scale with other participants, usually divided into quartiles
or deciles (Fig. 48.4 and 48.5). Viewing each item in isola-
tion is a downside to this approach. A drawback of percen-
tile analysis is that 25% of the participants will necessarily
fall in the bottom quartile, even if everyone is performing
adequately on an absolute scale. Conversely, 25% of par-
ticipants will be able to celebrate a ranking in the top quar-
tile, even if the performance of the group as a whole may
be lackluster in absolute terms.
More sophisticated analytical schemes may present
multiple relevant indicators in a single graphical sum-
mary; for example, one might include a productivity ratio
on one axis and a cost ratio on the other axis. The best per-
formers will have high productivity and low cost; the worst
performers will conversely have high cost and low produc-
tivity. Figure 48.6 shows an example from the CAP’s LMIP.
When data are available for each indicator, it is possible
to dissect the information and construct possible explana-
tions for the observations. It may be impossible to discover
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
Figure 48.4 Percentile graph of billable tests for an institution
for a single time period. The results of the participant laboratory
can be compared with (i) all laboratories in the database, (ii) all
participating laboratories in the same region, (iii) a group of lab-
oratories selected (from a list of participating laboratories) by the
participant, (iv) a “fingerprint cluster” of laboratories that were
closest to the participant by statistical analysis (performed by
the program), and (v) the two closest matches to the participant.
Note that the participant laboratory is an outlier when compared
to other laboratories in the program as a whole and in the region,
but it falls in a similar range with more closely matched labora-
tories, whether they were self-selected or chosen by the program.
There are obvious advantages to having multiple comparison
groups from which to draw conclusions. Data adapted from a
report provided to a participant in the CAP’s LMIP.
the explanation, but at least the laboratory manager has
the data to supplement direct observation of laboratory
performance. It must be mentioned once again that no
analytical program can substitute for astute management,
careful study of daily events in the laboratory, and most
importantly, listening to peers and subordinates.
Given the complexity of laboratory function and the
variability of available benchmarking programs, it is not
possible to provide an exhaustive catalogue of all possible
analytical permutations. In Appendix 48.2, benchmark-
ing data from four laboratories during one time period are
compared and analyzed. Two of the laboratories (A and
B) are similar, and these comparisons are closest to the
paragon of “apples to apples.” The other two laboratories
differ in enough ways from each other and from the first
two laboratories to make comparisons more problematic.
In each instance, the benchmarking data should be viewed
only as a starting point from which to work. The most use-
ful purpose served by the comparisons is that they may
point the way to valuable lessons about your own business
and the road to improvement.
Measuring Laboratory Performance
in the Broader Clinical Setting
Ultimately, the goal of measuring and improving clini-
cal laboratory performance is to improve the quality and
value of medical care provided to patients and to improve
the health of the population the laboratory serves. Most
863
Figure 48.5 Percentile graph of blood expense for an institu-
tion for a single time period. Comparisons are as described in
Fig. 48.4. The expenses for the participant institution are con-
siderably higher than those for the program as a whole and for
laboratories in the region, but they are in line with the laborato-
ries in the comparison groups that are better matched. The im-
portance of multiple comparisons and valid comparison groups
are demonstrated once again. Data adapted from a report pro-
vided to a participant in the CAP’s LMIP.
commonly employed laboratory benchmarking and per-
formance monitoring techniques and indicators relate
more directly to internal laboratory processes than to pa-
tient or population outcomes, however (18). Changes in
payment models and policies, as well as in accreditation
standards, will require laboratory directors and managers
to think more broadly about appropriate measures of labo-
ratory performance.
Effect of Accountable Care Organizations
The move toward formation of accountable care organiza-
tions (ACOs) is well under way in the American health-
care industry. As noted by Bryant and Lewis in chapter 34,
this will even more closely tie the financial performance
of the laboratory to that of the physicians and hospitals
with which it works to manage the care of a population.
The expansion of the ACO model, together with the on-
going trends toward decreased overall reimbursement for
specialty care (including laboratory services) and toward
performance-based payment, will likely spur greater col-
laboration among laboratories, clinicians, and hospitals
to enhance the value (outcomes relative to costs [16]) of
the care they provide. Incentives to document labora-
tory contributions to value will be considerable; devising
manageable ways to quantify such contributions will be
no small feat, however. How much of an observed change
in inpatient length of stay, for example, is attributable to
a change in laboratory practice (e.g., results reporting in
a more timely fashion) versus any of the myriad changes
elsewhere in the system in a given period is very difficult
to determine with certainty.
Some consolation may be taken in the fact that devising
appropriate measures is problematic not only for labora-
tory managers, but also for institutional leaders. Lee has re-
cently described an initiative to define outcome measures
864 DEFINING AND MEASURING STANDARDS FOR SUCCESS
Figure 48.6 Graphical depiction of laboratory performance.
Cost is plotted on the y-axis (manageable expense per bill-
able test); productivity is plotted on the x-axis (billable test
per FTE). The position of the “best performing” laboratory
in the group is in the lower-right quadrant (greatest produc-
tivity and lowest cost). The upper-left quadrant (lowest pro-
ductivity and highest cost) is the least desirable position. The
center of the graph is “middle of the road.” The participant
laboratory is represented by a black diamond, which is po-
sitioned in the lower-right quadrant but relatively close to
the center point. Thus, the performance is respectable, but
there is room for improvement. Such a graphical depiction
transforms a morass of potentially confusing data and makes
it much easier to see the big picture. Data adapted from a
report provided to a participant in the CAP’s LMIP.
from the patient’s perspective, as these will enable the or-
ganization to enhance the value provided to patients (14).
Even once such measures are identified, though, novel
means for data collection will have to be devised, as some
possible measures, such as “days spent at home during the
first 90 days after a stroke” are not as readily assessed as
more traditional figures, such as “30-day readmission rate.”
As organizations strive to improve the value of the health-
care they provide, more patient-oriented measures are
likely to be embraced, and laboratory managers will need
to determine how their laboratories can best support in-
stitutional efforts to meet performance goals with respect
to outcomes important to patients. Given an appropriate
culture of collaboration, broader institutional measures
such as these—summary measures, if you will—may have
a unifying effect on organizational units, including the
laboratory, akin to that noted above under interpretation
of performance-monitoring data.
Linkage of Payment to Measures of Quality
Payors are increasingly attempting to link payment to
the meeting of quality standards, and this has resulted
in the possibility of reimbursement for nonlaboratory
providers being directly influenced by appropriate use of
laboratory resources. The CMS administers the Physician
Quality Reporting System, a program in which payments
to physicians for care provided to Medicare beneficiaries
are adjusted to promote reporting of quality data (6).
While certain quality measures can directly influence pa-
thologists’ reimbursement, laboratory-related measures
of quality influencing other physicians’ payments include
the percentage of patients with chronic hepatitis C who
have quantitative HCV RNA testing 12 weeks after ini-
tiation of antiviral therapy, as well as the percentage of
patients with chronic lymphocytic leukemia who have
baseline flow cytometry testing. Laboratorians can col-
laborate with clinical colleagues to develop systems that
maximize the likelihood of patients receiving the neces-
sary laboratory testing. While a small financial incentive
has been offered to encourage participation in the early
years of this program, beginning in 2015, physicians who
fail to meet the standards will face deductions from their
payments. One measure of a laboratory’s contributions
to an ACO’s success may well be the degree to which the
laboratory supports the provision of high-quality care
(and reimbursement maximization) by ensuring that
laboratory-related quality standards are consistently met
or exceeded.
Laboratory-Related Standards in Broader
Accreditation Programs
Accreditation programs for particular clinical programs
within hospitals or healthcare delivery systems increas-
ingly incorporate standards pertaining to laboratory per-
formance, particularly with respect to the reporting of
results. For example, many hospitals with cancer programs
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
seek accreditation by the American College of Surgeons
Commission on Cancer. To ensure that the information
needed for developing an individualized cancer treatment
plan is available to the patient’s physician(s), Standard 2.1
of the Cancer Program Standards requires that “College of
American Pathologists (CAP) protocols are followed to
report the required data elements in 90% of the eligible
cancer pathology reports each year” (1). The accompany-
ing explanatory materials go on to state that the hospital’s
cancer committee “should encourage its pathology depart-
ments to adopt the synoptic format defined by the CAP
cancer committee for use in cancer-related pathology re-
ports.” Standards pertaining to other units of the labora-
tory are similarly promulgated by accreditation bodies that
are not primarily laboratory-focused; examples include
cellular therapy accreditation standards for hematopoi-
etic progenitor cell transplant programs (8). The need for
awareness of new or evolving laboratory-related standards
in such programs is yet one more good reason for labora-
tory managers to be in regular communication with col-
leagues elsewhere in the institution.
Summary
Determining which improvements in technology, which
computer systems, and what test mix will improve patient
outcomes, provide the best quality, and meet financial
objectives is an overwhelming task. With benchmarking,
we have a method to measure performance and improve
our ability to meet our goals, which typically include im-
proved health, high quality, and an overall increase in ef-
ficiency. Accreditation and licensure focus primarily on
improving health and increasing quality; we can apply
benchmarking and performance monitoring to improve
efficiency. Most hospital laboratories operate on a 24 h
per day, 7 days per week schedule, resulting in a high fixed
cost structure in an environment of declining reimburse-
ments and continuing shortages of personnel. Continu-
ous and significant gains in productivity and efficiency
are required to do more with less each year. Changes in
the financial and regulatory environment will necessitate
a broader conception of what it means to measure labora-
tory performance.
KEY POINTS
■ A creative approach to benchmarking allows you to
find measures of industry-leading performance in al-
most any area.
■ The most effective benchmarks either address a specific
concern (such as the Q-Probes and Q-Tracks) or overall
concerns reflecting performance in summary measures.
■ Validation of high-level benchmarks often yields more
information about overall performance.
865
■ If the resources are available, it is optimal to participate
in both performance monitoring and external bench-
marking activities.
■ Review of performance against benchmarks frequently
identifies areas in which additional interventions could
yield improvements in performance.
■ Networking and membership in leading laboratory or-
ganizations are excellent ways to find relevant bench-
marks.
GLOSSARY
Accreditation Approval, generally for a limited time, of an insti-
tution or program based on a review of the institution or pro-
gram by one or more independent examiners who determine
that specific requirements or standards have been met.
Accrediting agencies Organizations that validate the ability of a
laboratory to perform laboratory testing. In the United States, the
federal government is charged by statute (CLIA ’67 and CLIA ’88)
with the task of regulating diagnostic laboratory testing on hu-
man patients. CMS is charged by Congress with the task of devel-
oping and implementing regulations. CMS can “deem” other
organizations to issue accreditation if their standards substan-
tially meet or exceed those of CMS. Testing of animals and re-
search subjects is not covered by these regulations.
Benchmark A standard against which performance is measured.
The standard typically represents performance that is considered
the best in the field or the gold standard of possible performance.
Various internal, external, industry-wide, and nonindustry per-
formance measures may all be used as benchmarks.
Benchmarking Comparing your own performance against a
standard—usually representing the gold standard or best prac-
tice for similar activities—and engaging in processes to improve
performance against the chosen standard.
Billable test Usually defined in benchmarking parlance as a test
for which there is a CPT code and that could, therefore, be billed
to Medicare or other payors.
Billed test A test that is actually billed to an insurer or client.
Billable test, not billed test, is the parameter usually preferred by
benchmarking programs because institutions vary in what they
actually bill.
Clinical Laboratory Improvement Act of 1967 (CLIA ’67) Es-
tablished the initial authority to regulate laboratories in the
United States. It was superseded by CLIA ’88.
Clinical Laboratory Improvement Amendments of 1988 (CLIA
’88) Currently the governing authority for regulations regarding
function of all laboratories that perform clinical testing of hu-
man specimens in the United States.
Clinical Laboratory Management Association (CLMA) Pro-
fessional organization concerned with all aspects of laboratory
management. Many local chapters have been organized.
Competitive benchmarking Comparing your own performance
against that of competitors in the same industry or market, rather
866 DEFINING AND MEASURING STANDARDS FOR SUCCESS
than focusing primarily on gold standards or best practices as
standards for performance.
Deemed authority The approval by CMS, as agent for the fed-
eral government, of another organization to represent the gov-
ernment in accrediting clinical laboratories that evaluate human
specimens. Deemed status is time-limited, so each deemed orga-
nization must document that it holds a valid certificate. The
standards of each deemed organization must be reviewed and
accepted by CMS.
External benchmarking Benchmarking activities that include
comparison of the performance of one laboratory with that of its
peers. The comparisons may be made through an external orga-
nization or by informal arrangement among laboratories.
Full-time employee (FTE) A measure of the workforce. Part-
time employees are counted as fractions of an FTE. Generally,
FTEs are calculated by dividing total paid hours by 2,080 (52
weeks × 40 h per week).
Internal benchmarking Benchmarking activities comparing
performance of subdivisions of a single organization, intended to
facilitate dissemination of best practices across business units.
Nonproductive FTE Commonly used to describe those person-
nel who are not involved directly in the generation of test results.
This category includes supervisory personnel, support personnel
(marketing, customer service, washroom, etc.), and the portion
of line personnel devoted to activities such as quality control and
maintenance.
Paid hours The number of employee hours actually paid by the
laboratory. It includes those hours that were worked and those
that are due to employees as part of a benefit package (sick leave,
vacation, etc.).
Performance monitoring The tracking of performance over
time.
Productive FTE Usually employed to define those laboratory
workers who directly produce test results. In practice, defining
who these individuals (or parts of individuals) are becomes very
difficult and even more difficult to calculate. For instance, do
you count those people who enter the specimen into the system
or enter results into the information system?
Quality assurance A systematic process of assessing and im-
proving processes to ensure that laboratory services are of high
quality.
Quality improvement (QI) Involves outcomes, results, ends,
and information rather than just concerns with specific pro-
cesses. Whereas quality assurance is focused on providing a
quality test result, QI is concerned with improving the entire
process so that the results are more accurate, more timely, and
presented in a more useful and informative manner to the clini-
cian. Thus, QI is concerned with all aspects of testing, including
the preanalytic, analytic, and postanalytic phases.
Six Sigma An approach to improving quality that involves mea-
suring defects or adverse events per opportunity. This approach
could be viewed as a variation on benchmarking.
Skill mix The mixture of personnel with varying degrees of
training, education, and certification.
Summary measure A variable that integrates multiple underly-
ing parameters: here, a simple number (e.g., cost per billable test)
used to broadly assess laboratory financial performance.
Testing FTE See Productive FTE.
Total FTE The total number of FTEs employed in the labora-
tory, regardless of their duties.
Total quality management An approach to integrating multiple
activities revolving around QI.
Unit of service (UOS) The denominator in ratios used to ana-
lyze cost or productivity. The most commonly used UOS is the
billable test.
Worked hours The number of hours actually worked by em-
ployees (cf. paid hours).
Workload recording A means of measuring laboratory output
and, consequently, productivity by tallying individual compo-
nents of laboratory test performance quantitatively. The most
prominent national program that provided norms for quantify-
ing effort was eventually abandoned because of the difficulty in
maintaining a viable system.
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 FY 2003 868
FY 2003 Operating Year to
Total Budget Year to Year to Date
Operating Year to Date Date Variance

Using Ratios a

October
November
December
January
February
March
April
May
June
2 Budget Date Actual Variance (%)
3
4 VOLUMES
5 Unit of Service
6 Inpatient Volume 47,283 35,462 4,117 4,002 4,154 4,204 3,820 3,783 4,258 3,854 3,376 35,568 106 0.30
7 Outpatient Volume 100,476 75,357 9,291 8,346 8,202 8,999 9,280 9,060 9,604 9,766 8,801 81,349 5,992 7.95
8 Total Volume 147,759 110,819 13,408 12,348 12,356 13,203 13,100 12,843 13,862 13,620 12,177 116,917 6,098 5.50
9
10
11 EXPENSES
12
13 LABOR EXPENSE
14 NON PRODUCTIVE REG SAL 104,768 78,576 5,014 6,352 13,724 8,014 10,000 8,577 12,443 9,482 12,386 85,992 (7,416) (9.44)
15 PRODUCTIVE REG SAL 847,665 635,749 70,081 69,251 65,022 69,482 61,895 72,066 64,387 69,622 62,193 603,999 31,750 4.99
16 PRODUCTIVE OT SAL 4,685 3,514 625 3 84 557 602 (103) 107 1,226 117 3,218 296 8.42
17 Staff Salaries 957,118 717,839 75,720 75,606 78,830 78,053 72,497 80,540 76,937 80,330 74,696 693,209 24,630 3.43
18
19 EMPLOYEE APPRECIATION 2,070 1,552 0 0 0 0 15 685 150 100 125 1,075 477 30.73
20 Other Personnel Expense 2,070 1,552 0 0 0 0 15 685 150 100 125 1,075 477 30.73
21 Total Salaries 959,188 719,391 75,720 75,606 78,830 78,053 72,512 81,225 77,087 80,430 74,821 694,284 25,107 3.49
DEFINING AND MEASURING STANDARDS FOR SUCCESS

22
23 Allocated Fringe Benefits 259,857 194,893 20,558 20,527 21,402 21,192 19,683 21,866 20,888 21,809 20,280 188,205 6,688 3.43
24
25 Total Salaries & Fringe 1,219,045 914,284 96,278 96,133 100,232 99,245 92,195 103,091 97,975 102,239 95,101 882,489 31,795 3.48
Benefits
26
27
28 CONSUMABLE EXPENSES
29 MEDICAL SURGICAL 5,130 3,848 126 94 277 39 129 295 86 201 119 1,366 2,482 64.50
30 LAB SUPPLIES 589,658 442,243 29,178 44,099 57,780 103,427 61,828 93,519 64,662 38,125 54,661 547,279 (105,036) (23.75)
31 OXYGEN 5,130 3,848 233 359 233 233 277 204 175 550 303 2,567 1,281 33.29
32 INSTRUMENTS AND 667 500 36 36 61 36 73 36 36 0 61 375 125 25.00
NEEDLES
33 Med/Surg Supplies 600,585 450,439 29,573 44,588 58,351 103,735 62,307 94,054 64,959 38,876 55,144 551,587 (101,148) (22.46)
34
35 PHARMACEUTICALS 156 117 16 0 5 0 1 5 8 20 0 55 62 52.99
36 IV-IRRIGATING SOLUTIONS 52 39 0 11 0 0 11 0 11 0 0 33 6 15.38
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,

37 Pharmaceuticals 208 156 16 11 5 0 12 5 19 20 0 88 68 43.59

38
39
40 OFFICE SUPPLIES 0 0 1 7 0 0 0 0 0 0 333 341 (341) —
41 SUPPLIES OFFICE-PRINTED 0 0 0 50 3 2 0 863 0 0 288 1,206 (1,206) —
42 SUPPLIES OFFICE-GENERAL 0 0 0 0 0 0 0 4 0 2 4 10 (10) —
43 CHINA GLASS AND 100 75 0 0 0 0 0 0 0 0 0 0 75 100.00
FLATWARE
44 Supplies Other 100 75 1 57 3 2 0 867 0 2 625 1,557 (1,482) (1,976.00)
45
46 MAIL & PRODUCTION 0 0 70 (65) 0 1 0 0 0 0 0 6 (6) —
47 Utilities 0 0 70 (65) 0 1 0 0 0 0 0 6 (6) —
Using Ratios a (continued)

48
49 BOOKS/SUBS/DUES NONMD 150 113 81 0 60 0 0 320 129 0 0 590 (478) (424.44)
50 TRAVEL/MEET/ 1,599 1,199 0 0 0 0 0 0 0 0 0 0 1,199 100.00
DUES-GENERAL
51 UNIV MAINT/REPAIR 0 0 0 0 500 395 0 0 0 0 0 895 (895) —
OFFICE
52 MAINTENANCE- 1,261 946 0 0 15 3,535 0 50 0 0 0 3,600 (2,654) (280.65)
NONCONTRACT
53 CAFETERIA 250 188 0 0 44 0 0 0 0 0 0 44 144 76.53
54 CELEBRATION FUNDS 418 314 0 0 0 69 0 0 0 0 0 69 245 77.99
55 PROFESSIONAL DEVELOP 303 227 0 0 0 0 0 0 0 0 0 0 227 100.00
NON
56 SMALL EQUIPMENT 550 413 0 0 0 0 0 0 0 0 0 0 413 100.00
57 Other Expenses 4,531 3,398 81 0 619 3,999 0 370 129 0 0 5,198 (1,800) (52.96)
58
59 Total Consumable Expenses 605,424 454,068 29,741 44,591 58,978 107,737 62,319 95,296 65,107 38,898 55,769 558,436 (104,368) (22.99)
60
61 TOTAL EXPENSE 1,824,469 1,368,352 126,019 140,724 159,210 206,982 154,514 198,387 163,082 141,137 150,870 1,440,925 (72,573) (5.30)
62
63
64 LABOR
65 Staffing FTEs
66 Productive-Regular FTEs 18.36 18.36 17.32 18.85 15.72 17.12 17.83 18.13 16.83 17.92 15.96 17.30 1.06 5.79
67 Productive-Overtime FTEs 0.07 0.07 0.10 0.00 0.02 0.10 0.08 0.00 0.03 0.22 0.04 0.07 0.00 6.35
68 Subtotal Productive FTEs 18.43 18.43 17.42 18.85 15.74 17.22 17.91 18.13 16.86 18.14 16.00 17.36 1.07 5.79
69 Non-Productive FTEs 2.27 2.27 1.62 0.93 4.21 2.51 2.77 2.35 3.52 2.29 3.80 2.67 (0.40) (17.47)
70 Total FTEs 20.70 20.70 19.04 19.78 19.95 19.73 20.68 20.48 20.38 20.43 19.80 20.03 0.67 3.24
71
72 Productivity Labor Hours
73 Productive-Regular Hours 38,181 28,635.75 3,059.93 3,221.98 2,776.22 3,024.66 2,845.17 3,203.11 2,877.70 3,165.51 2,728.42 26,903 1,733 6.05
74 Productive-Overtime Hours 153 114.75 18.50 0.14 3.36 16.82 13.39 0.79 4.75 38.78 6.08 103 12 10.58
75 Subtotal Productive Hours 38,334 28,750.50 3,078.43 3,222.12 2,779.58 3,041.48 2,858.56 3,203.90 2,882.45 3,204.29 2,734.50 27,005 1,745 6.07
CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING

76 Non-Productive Hours 4,719 3,539.25 286.81 159.76 743.31 444.11 441.35 415.81 601.79 404.67 650.30 4,148 (609) (17.20)
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,

77 Total Hours 43,053 32,289.75 3,365.24 3,381.88 3,522.89 3,485.59 3,299.91 3,619.71 3,484.24 3,608.96 3,384.80 31,153 1,137 3.52
869

(continued)
 870

Using Ratios a (continued)

FY 2003
FY 2003 Operating Year to
Total Budget Year to Year to Date
Operating Year to Date Date Variance

October
November
December
January
February
March
April
May
June
Budget Date Actual Variance (%)
78
79
80 Per Unit of Service (UOS)
Statistics
81 Total Salaries & Fringe 8.25 8.25 7.18 7.79 8.11 7.52 7.04 8.03 7.07 7.51 7.81 7.61 0.64 7.76
Benefits/UOS
82 Med/Surg Supplies/UOS 4.06 4.06 2.21 3.61 4.72 7.86 4.76 7.32 4.69 2.85 4.53 4.68 (0.62) (15.27)
83 Consumable Expense/UOS 4.10 4.10 2.22 3.61 4.77 8.16 4.76 7.42 4.70 2.86 4.58 4.73 (0.63) (15.37)
84 Total Expense/UOS 12.35 12.35 9.40 11.40 12.88 15.68 11.80 15.45 11.77 10.37 12.39 12.34 0.01 0.08
DEFINING AND MEASURING STANDARDS FOR SUCCESS

85
86 Productive Hours/UOS 0.26 0.26 0.23 0.26 0.22 0.23 0.22 0.25 0.21 0.24 0.22 0.24 0.02 7.69
87 Total Hours/UOS 0.29 0.29 0.25 0.27 0.29 0.26 0.25 0.28 0.25 0.26 0.28 0.27 0.02 6.90
88
89 Productive to Total Hours 89.04 89.04 91.48 95.28 78.90 87.26 86.63 88.51 82.73 88.79 80.79 86.69 2.35 2.64
Ratio
APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 871

APPENDIX 48.1 Performance Monitoring: Monitoring Financial and Productivity Data on a Sequential Basis,
Using Ratios a (continued)

NOTES 2. Despite the variance in test volume, there is a positive vari-

ance in labor expense, both as an absolute number (rows
1. Test volume (measured as billable tests), labor expense, con-
17 and 21) and per UOS (row 81). Total FTEs are close to
sumable expense, other expense, and staffing are displayed
budget (row 70), so the explanation is probably that some
as absolute numbers. The budgeted amount is adjusted for a
budgeted employees are not being paid. Possible reasons in-
nine-month period. Deviations of actual data from budgeted
clude employees who have exhausted allotted time for illness
projections are depicted as a variance and percent variance.
or family leave or have taken a temporary leave of absence
2. FTEs are calculated as paid hours divided by the appropriate
for other personal reasons. Such shortfalls can be tolerated
number of hours. On a yearly basis, that calculation is paid
for brief periods but may produce difficulties for remaining
hours divided by 2,080. The denominator varies from month
workers if sustained. If the combination of increased volume
to month because of the varying lengths of the months, so a
and decreased staffing continues, a manager could question
simple conversion is not easy.
whether the staffing levels are too high. The unit manager
3. Ratios are displayed with financial (or labor) data as the nu-
must make every effort to limit the duration of the staff
merator and test volume (billable tests) as the denominator.
shortage if it is causing problems but must be forthright if
The actual data for year-to-date are compared to the bud-
the staffing level is, in fact, greater than necessary.
geted numbers to obtain the variances.
3. It is very difficult to hit budget targets on the head. Poli-
4. Fringe benefits are driven by a formula that will vary by in-
cies on variances may vary among institutions. A common
stitution, depending on organizational policies.
recommendation is to investigate variances that exceed 5%
5. When finances are tracked monthly, there will be large
or $1,000. The variances in test volume and labor expense
swings from month to month, especially in categories with
have been noted. In addition, there is a considerable variance
small budgets. The manager must recognize the variation
in consumable expense (row 59). That variance is almost
and not overreact to an outlier. For example, in January,
completely determined by an overage in lab supplies (row
there was a large expense for noncontract maintenance
30) and consequent negative variance in med/surg supplies
(row 52) that stands out among the other months and ac-
(row 33). After careful analysis of consumable expenses, the
tually puts the category over budget. It is likely that in the
manager determined that the negative variance was entirely
long term (multiple years), maintenance expenses are well
related to a change in methodology for a small number of
controlled.
tests from a nucleic acid probe (lower cost for reagents) to
6. For those who believe in operations budgets, it is important
amplified molecular testing (more expensive reagents). The
to recognize that they represent projections and even “best
switch had been justified by improved quality of results and
guesses.” When there is a deviation from the budget (vari-
service for clients. The administrative managers of the labo-
ance), it is most important that the manager(s) understand
ratory and of the institution approved the switch, but the
the reason(s) for the discrepancies.
change occurred in the middle of the year after budgets had
been established and resulted in an ongoing variance.
OBSERVATIONS 4. The negative variance in consumable expense is sufficiently
large that the positive variance in salary expense cannot
1. Test volume has a positive variance, most of which is caused compensate. As a result, there is a small negative variance
by an increase in outpatient tests (row 7). Budgeted volume in total expense (row 61). Because of the increased volume
data are projections that are based on past experience and in outpatient testing, however, there is actually a very small
estimates of the local market. The figure should have input positive variance when expenses are calculated as a ratio
from both financial and technical personnel. If the budget is against UOS (row 84). The power of increasing test volume
adjusted for volume, a shortfall in tests can obviously cause in a volume-adjusted budget is very apparent.
headaches for the manager. Conversely, greater than pre-
dicted volumes can improve the perception of performance a
The spreadsheet illustrates the data from a microbiology laboratory for a portion of
but can cause significant problems for staff if sustained. a fiscal year (October 2002 through June 2003).
872 DEFINING AND MEASURING STANDARDS FOR SUCCESS

APPENDIX 48.2 Performance Characteristics of Four Laboratories

3 PARAMETER Laboratory A Laboratory B Laboratory C Laboratory D

4 Total Billable Tests (BT) 788,674 1,014,980 878,932 956,873
5 On-Site Billable Tests 777,448 1,009,087 786,453 954,417
6 Referred Tests 11,226 5,893 92,479 2,456
7 Inpatient Billable Tests 257,896 573,217 784,921 0
8 Outpatient Billable Tests 466,916 389,529 94,011 750,275
9 Nonpatient Billable Tests 63,862 52,234 0 204,142
10 Hospital Inpatient Days 28,656 47,504 62,879 N/A
11 Hospital Inpatient Discharges 5,037 8,023 7,543 N/A
12 Outpatient Visits 57,233 74,167 18,802 N/A
13 Productive Paid Hours 61,269 75,421 60,720 63,191
14 Total Laboratory Worked Hours 90,357 116,902 82,406 77,409
15 Total Laboratory Paid Hours 100,662 125,701 86,473 78,989
16 Calculated Productive FTEs 117.83 145.04 116.77 121.52
17 Calculated Total FTEs 193.58 241.73 166.29 151.90
18 Productive Labor Expense ($) 1,569,131 1,552,929 971,522 884,677
19 Total Labor Expense ($) 2,348,641 2,352,923 1,387,888 1,105,846
20 Consumable Expense ($) 1,074,239 1,418,697 983,066 1,049,859
21 Equipment Maintenance and Repair ($) 68,429 67,707 54,987 32,343
22 Equipment Depreciation ($) 96,952 121,494 76,354 54,985
23 Referred Test Expense ($) 154,406 136,750 801,793 12,771
24 Blood Expense ($) 604,654 926,001 345,890 0
25
26 RATIOS
27 On-Site BT as % of Total BT 98.58 99.42 89.48 99.74
28 Referred Tests as % of Total BT 1.42 0.58 10.52 0.26
29 Inpatient BT as % of Total BT 32.70 56.48 89.30 0.00
30 Outpatient BT as % of Total BT 59.20 38.38 10.70 78.41
31 Nonpatient BT as % of Total BT 8.10 5.15 0.00 21.33
32 On-Site BT/Productive FTE 6,598 6,957 6,735 7,854
33 On-Site BT/Total FTE 4,016 4,174 4,729 6,283
34 Productive FTE/Total FTE 0.61 0.60 0.70 0.80
35 On-Site BT/Total Worked Hours 8.60 8.63 9.54 12.33
36 On-Site BT/Total Paid Hours 7.72 8.03 9.09 12.08
37 Total Worked Hours/Total Paid Hours 0.90 0.93 0.95 0.98
38 On-Site BT/Total BT 0.99 0.99 0.89 >0.99
39 Inpatient BT/Day 9.00 12.07 12.48 N/A
40 Inpatient BT/Discharge 51.20 71.45 104.06 N/A
41 Outpatient BT/Outpatient Visit 8.16 5.25 5.00 N/A
42 Productive Labor Expense/On-Site BT ($) 2.02 1.54 1.24 0.93
43 Total Labor Expense/On-Site BT ($) 3.02 2.33 1.76 1.16
44 Consumable Expense/On-Site BT ($) 1.38 1.41 1.25 1.10
45 Referred Test Expense/Referred BT ($) 13.75 23.21 8.67 5.20
46 Testing Paid Hours/On-Site BT 0.08 0.07 0.08 0.07
47 Worked Hours/On-Site BT 0.12 0.12 0.10 0.08
48 Paid Hours/On-Site BT 0.13 0.12 0.11 0.08
(continued)
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING 873

APPENDIX 48.2 Performance Characteristics of Four Laboratories (continued)

PARAMETER Laboratory A Laboratory B Laboratory C Laboratory D

49
50 LABORATORY CHARACTERISTICS
51 University Affiliated Laboratory Yes Yes Yes No
52 Primary University Laboratory Yes Yes No No
53 Pathology Residency Program Yes Yes Yes No
54 Number of Pathology Residents 14 25 4 0
55 Surgical Pathology Yes Yes Yes No
56 Cytopathology Yes Yes Yes No
57 Cytogenetics Yes Yes No No
58 Autopsy Yes Yes Yes No
59 Electron Microscopy Yes Yes No No
60 Molecular Diagnostics Laboratory No Yes No No
61 Courier Service Yes Yes No Yes
62 Marketing Personnel Yes Yes No Yes
63 Customer Service Personnel Yes Yes Yes Yes
64 Dedicated Compliance Personnel Yes Yes Yes Yes

NOTES
Start by examining the characteristics of the four laboratories
(rows 51–64). Note that the “numbers” in rows 4–48 serve only
as clues to which issues require deeper analysis. Laboratories A
and B are those for which comparisons are most legitimate. It is
more difficult to compare either of these laboratories to labora-
tory C, and laboratory D is in quite a different category from the
other three.
1. The test volume of all four laboratories is similar (B > D >
C > A).
2. Laboratories A and B are the most complex of the group.
Both are primary university-affiliated laboratories with large
pathology residency programs, a full range of services, and
a relatively small number of referred tests. Blood expense is
correspondingly high. Laboratory B appears to be the most
complex of the group.
3. Laboratory C is also a hospital laboratory but with a more
restricted range of services. It is located in a teaching hos-
pital but is an affiliate with a small number of pathology
residents.
4. Laboratory D is an independent laboratory with a clientele
that consists entirely of outpatients and nonpatients. The
menu of offered services appears to consist of simple tests, as
a very small percentage of tests are referred, and the labora-
tory does not contain scientifically complex divisions. The
nonpatient tests could represent work done for physicians
who bill as a group or could represent work from other
institutions, such as nursing homes and other chronic care
facilities.
5. Compare laboratories A and B, the two primary university
laboratories.
a. They are similar in most parameters (rows 51–64), but
laboratory B performs a larger volume of tests (row 4).
b. Both laboratories do most of their testing on-site (row 27)
and send only a small fraction of tests to a referral labora-
tory (row 28).
c. The two laboratories differ in the origin of their testing
(rows 29–31); the majority of business for laboratory A
is from its outpatient business, whereas inpatient work
comprises a majority of laboratory B’s business. Non-
patient tests account for a minority of business for both
laboratories A and B, though they comprise a slightly
higher percentage for laboratory A.
d. Productivity for the two laboratories is similar, whether
measured by productive paid hours, total paid hours, or
FTEs (rows 32–36, 46–48).
e. Consumable expenses are similar in the two laboratories
(row 44).
f. Referred test expense per billed test is greater for labora-
tory B than for laboratory A (row 45), suggesting that the
tests sent out by laboratory B are more time-consuming,
use more expensive reagents, or are less susceptible to
competition in the marketplace. Alternatively, laboratory
A may use a less expensive reference laboratory or have
negotiated a better contract than laboratory B.
g. Although productivity, as measured by hours, is similar
between the two laboratories, labor expenses are very
different (rows 42–43). There are several possible expla-
nations for the difference; the explanation may be due to
a single factor or a combination of the following:
i. The ratio of worked hours to paid hours is higher for
laboratory B (row 37), suggesting that the benefits
are more generous in laboratory A than in laboratory
B. Alternatively, personnel in laboratory A may have
achieved better benefits because of a longer average
length of service.
(continued)
874 DEFINING AND MEASURING STANDARDS FOR SUCCESS
APPENDIX 48.2 Performance Characteristics of Four Laboratories (continued)
ii. The salaries in laboratory A may be higher than in
laboratory B because of regional differences, competi-
tive factors in the local marketplace, or better negoti-
ated contracts if the workforce is unionized. Once
again, if the workers in laboratory A have greater
length of service, their salaries may be higher on aver-
age than those in laboratory B.
iii. The skill mix utilized in the two laboratories may be
different. If laboratory B uses more technical assistants
and medical technicians, whereas laboratory A uses
more medical technologists, labor costs would be
higher in laboratory A. Ultimately, all of the possible
differences in labor costs might be acceptable to the
management of each laboratory because of other per-
ceived advantages.
h. The utilization of tests for inpatients is more efficient in
laboratory A than in laboratory B (rows 39–40). Once
again, there are several possible explanations:
i. Laboratory A may have better control over the utiliza-
tion of laboratory services than does laboratory B.
ii. There may be more chronic care patients, who require
less intensive laboratory support, in the institution
served by laboratory A (less likely as an explanation,
however, as the phenomenon is observed whether the
denominator is inpatient days or discharges).
iii. The acuity of illness of patients served by
laboratory B may be greater than that of patients
served by laboratory A (more trauma, more trans-
plants, etc.). To some extent, this variable could be
analyzed by including objective characterizations of
the patient population, such as the Medicare case mix
index.
i. The reverse situation occurs with outpatient tests, where
laboratory B appears to function better (row 41). This
parameter is more difficult to assess, however, because of
the difficulties involved in determining outpatient visits
objectively and comparatively.
6. Compare laboratory C with laboratories A and B.
a. Laboratory C is a university-affiliated laboratory with a
pathology residency program but only a small number of
residents (rows 53–54).
b. Laboratory C serves inpatients primarily (rows 7–9,
29–31); notably, there are no nonpatient tests.
c. Laboratory C sends a relatively large percentage of its
tests to a reference laboratory (rows 5–6, 27–28), compat-
ible with a general hospital laboratory.
d. Productivity for laboratory C is, not surprisingly for a
less complicated laboratory, better than for laboratories
A and B (rows 32–33, 35–36). Interestingly, productivity
looks less different when only productive labor is com-
pared (row 32), because laboratory C has relatively few
nonproductive personnel (more of the employees in that
laboratory are actually involved in turning out results;
fewer are in managerial or support services) (row 34).
e. All costs are lower for laboratory C than for laboratories
A and B (rows 42–44). The fact that testing (productive)
costs are also lower suggests that salaries and/or benefits
may be lower in this laboratory (row 42). This interpreta-
tion is compatible with the observation that the ratio of
productive to total personnel is higher in laboratory C
than in either laboratory A or B (row 34).
f. Although the number of tests sent to a reference labora-
tory from laboratory C is higher than for either labora-
tory A or B (rows 6 and 28), the cost of referral testing
is less on a unit basis (row 45). The explanation for this
phenomenon may be that laboratory C is performing less
complicated or sophisticated testing in general and is also
sending less complicated tests to the reference laboratory
than are laboratories A and B. In fact, laboratory A or B
could be the reference laboratory for laboratory C.
g. Utilization of laboratory resources for inpatients is actu-
ally higher in laboratory C’s institution than in the two
primary university-affiliated laboratories (rows 39–40).
The difference is greater when tests per discharge are
compared than when the comparison is by tests per inpa-
tient day. This situation suggests a greater proportion of
chronic care patients at the institution served by labora-
tory C and provides a potential target for improvement
of laboratory utilization and costs. Outpatient utilization
appears similar in the three institutions (row 41).
7. Comparison of laboratory D with laboratories A, B, and C:
a. Laboratory D is very different from any of the other three
laboratories (rows 51–64). It serves outpatients and non-
patients exclusively (rows 7–9, 29–31). The nonpatients
may represent patients of physicians with whom the labo-
ratory has a contract or patients in chronic care facilities
such as nursing homes. Data for outpatient visits are not
given (row 12), suggesting that the laboratory does not
have access to the records of those patients who are clas-
sified as outpatients. Not surprisingly, there is no blood
expense (row 24). If the data were broken out in more
detail, you might expect to find a high percentage of
simple automated chemistry and hematology tests in the
workload of Laboratory D.
b. Despite the large volume of tests, very few of laboratory
D’s tests are sent to a reference laboratory (rows 6 and
28). The cost of these referred tests is low (row 45), sug-
gesting that they are relatively uncomplicated.
c. All major costs are less for laboratory D than the other
three (rows 18–22, 42–44), again reflecting the outpatient
nature of the laboratory.
d. Some clues as to the reasons for lower labor costs can be
found in the high ratios of worked to paid hours and of
productive to total FTEs (rows 34 and 37).
 CHAPTER 48. BENCHMARKING AND PERFORMANCE MONITORING
APPENDIX 48.3 Organizations and Websitesa
AABB
www.aabb.org
Formerly the American Association of Blood Banks, AABB is an in-
ternational association of blood banks and related services dedicated
to promoting the highest standard of care for patients and donors in
all aspects of blood banking, transfusion medicine, cellular and gene
therapies, and tissue transplantation. AABB accredits transfusion
services, blood banks, parentage testing laboratories, hematopoietic
progenitor cell services, and cord blood services.
American Association for Clinical Chemistry (AACC)
www.aacc.org
AACC is an international scientific/medical society of clinical labo-
ratory professionals, physicians, scientists, and others advancing the
practice and profession of clinical laboratory science and its applica-
tion to healthcare.
American College of Medical Genetics and Genomics (ACMG)
www.acmg.net
ACMG provides resources and a voice to the medical genetics pro-
fession and promotes the development and implementation of
methods to diagnose, treat, and prevent genetic disease. The ACMG
provides a publication, Standards and Guidelines for Clinical Genetics
Laboratories, used to improve genetic testing.
American Society for Microbiology (ASM)
www.asm.org
ASM is a worldwide professional organization that is open to all prac-
ticing microbiologists, including those who are active in the clinical
laboratory. ASM Press publishes books and materials in all fields of
microbiology; this book is just one indication of the interest of this
organization in laboratory improvement.
American Society for Reproductive Medicine (ASRM)
www.asrm.org
ASRM is devoted to advancing knowledge and expertise in infertil-
ity and maintains a joint program for accreditation of fertility labo-
ratories with the College of American Pathologists.
875
Centers for Disease Control and Prevention (CDC)
www.cdc.gov
CDC is a U.S. government agency protecting the health and safety of
people through applying disease prevention and control, environ-
mental health, and health promotion and education.
Centers for Medicare and Medicaid Services (CMS)
www.cms.gov
CMS is a U.S. government agency with responsibility for administer-
ing the Medicare and Medicaid programs and is therefore responsi-
ble for monitoring laboratories that bill Medicare and Medicaid for
services rendered.
COLA
www.cola.org
Formerly the Commission on Office Laboratory Accreditation,
COLA is a nonprofit organization providing programs of voluntary
education, consultation, and accreditation, including laboratory
accreditation.
College of American Pathologists (CAP)
www.cap.org
CAP is a medical society in the United States serving over 15,000
pathologist members and is considered a leader in providing labora-
tory QI programs and accreditation programs.
The Joint Commission (TJC)
www.jointcommission.org
Formerly the Joint Commission on Accreditation of Healthcare Or-
ganizations, TJC sets standards by which healthcare is measured and
accredits institutions and laboratories worldwide.
U.S. Food and Drug Administration (FDA)
www.fda.gov
FDA defines QA as planned and systematic activities to ensure that
a laboratory will meet certain requirements for quality.
a
Websites last accessed on September 28, 2012.
Introduction
49
Evaluating Potential and Real Problems
Clinical Relevance • Cost-Effectiveness Analysis,
Cost-Benefit Analysis, and Cost-Utility Analysis
Documenting the Extent of the Problem
Literature Review • Centralized Studies • Local Data
Laboratory-Based Approaches
to Control
Newsletters • Policy Changes • Personal and Ad Hoc
Communication • LIS/HIS-Based Controls on Test
Ordering • LIS-Based Feedback in Reports
Institution-Based Approaches to Control
Working with the Medical Staff • Formal Protocols
Validated by Medical Staff • Working with the
Nursing Staff • The Concept of the Laboratory Test
Formulary • Using Major Events To Effect Change
(e.g., Institutional Quality Assurance [QA] Office,
Root Cause Analysis)
What Works and Doesn’t Work: How To
Take the First Steps
Putting It All Together
Base Policy Approaches and LIS/HIS-Based Controls
on Evidence-Based Medicine • Track Results • The
Plan, Do, Study, Act Model • The Future: Better
Teaching and Training
Summary
KEY POINTS
GLOSSARY
REFERENCES
APPENDIX
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch49
876
Test Utilization and
Clinical Relevance
Michael L. Wilson, Gary W. Procop, and L. Barth Reller
OBJECTIVES
To become familiar with the concepts of clinical relevance and cost effectiveness
and how they are related
To learn how to document the extent of the problem of laboratory test
utilization, including relevant sources of information
To learn laboratory-based approaches to the control of laboratory test
utilization
To learn institution-based approaches to the control of laboratory test
utilization
To learn one approach for the implementation of change in a patient care
setting (McLaughlin’s approach)
To learn one approach for integrating evidence-based medicine with computer-
based systems for controlling laboratory test utilization
The truth is always the strongest argument.
Sophocles
C
linical laboratories provide much of the information that is
necessary for contemporary medical practice; by some estimates up to
70% of clinical data are derived from laboratories. Obviously the era
in which high-quality healthcare can occur in the absence of high-quality and
timely laboratory testing is long past. The fundamental reason for this is that our
understanding of pathophysiology and treatment of diseases and chronic medi-
cal conditions is more advanced, and the diagnosis of many conditions is entirely
laboratory-based. As our understanding of the causes of diseases becomes more
sophisticated, it is clear that a number of “diseases” are, in fact, simply the final
common pathway of a number of predisposing genetic mutations, exposures to
drugs or toxins, or other pathophysiologic mechanisms. Moreover, there is in-
creasing evidence that many diseases have genetic bases that not only predispose
the patient to developing the condition, but also influence the efficacy of therapy
and clinical outcomes. Yet our understanding of the role of laboratory testing in
guiding diagnosis and treatment is far from complete. Just as our understanding
of pathophysiologic mechanisms is evolving, the availability of the right tests
lags somewhat in the discovery process. In addition, there are many tests that
were developed to diagnose specific disease states or conditions but that we now
know measure or detect only a part of the disease or condition or detect it only
at a specific time in the disease process. Clearly we have much to learn in order
to provide cost-effective, timely, and clinically relevant laboratory testing.
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
Clinical microbiology laboratories have unique chal-
lenges. They perform tests to aid in the diagnosis of in-
fectious diseases, guide therapy for those diseases, help
control and prevent infection in healthcare settings, and
educate and train professionals. Most importantly, “clini-
cal microbiology” is not a discipline per se, but rather a
melding of many different disciplines that have little in
common other than the fact that they study infection. For
example, it is obvious that parasitology has little in com-
mon with virology or antimicrobial susceptibility testing
of bacteria, yet clinical microbiology laboratories must
perform all of these tests and do so in a high-quality man-
ner. This is a broad and challenging mission with some
unique challenges, but it also provides a paradigm for lab-
oratory testing in general. Even though the issues facing
clinical microbiology laboratories may be more challeng-
ing than those facing some other routine laboratory test-
ing, the overall mission is the same for all sections within
clinical laboratories.
This mission—providing high-quality, cost-effective labo-
ratory testing—has become even more challenging in recent
years because of the emphasis on cost control in healthcare,
the introduction of new (and often more expensive) diag-
nostic technologies, and increasing regulations. Thus, labo-
ratories must maintain quality while expanding services
with ever-diminishing resources. One of many approaches
to solving this dilemma is for laboratories to limit testing to
tests that are both clinically relevant and cost-effective. In
the past, laboratories could control costs by using traditional
management techniques, yet most laboratories exploited
this technique to its fullest many years ago (48). For most
of the recent past, there were more—and stronger—reasons
to perform tests than there were reasons to limit test utiliza-
tion. Only in the past few years have economic incentives
for limiting utilization coincided with medical incentives
for improving clinical relevance. The alignment of these in-
centives affords the clinical laboratories an opportunity to
eliminate useless tests, offer only tests known to be clinically
relevant, and begin using information technology to facili-
tate implementation of these changes.
The purpose of this chapter is to provide the reader with
a strategy for making changes in laboratory utilization that
are based on the clinical relevance of the tests. The informa-
tion contained herein is not meant to be a theoretical ap-
proach to making change. Rather, it specifically addresses
strategies for dealing with political realities and other im-
pediments to making change. Although this book covers
clinical laboratory management in general, the informa-
tion that has been selected for this chapter deals primarily
with clinical microbiology. This information was selected
because some of the information and tactics were devel-
oped first and specifically for clinical microbiology labo-
ratories. Another reason for using clinical microbiology as
a paradigm for change was that attempts at changing the
877
utilization of microbiology services can be more controver-
sial than in other areas of the laboratory. This is because
clinical microbiology tests (i) are more interpretive in na-
ture compared with most other clinical laboratory tests, (ii)
are less standardized than many other clinical laboratory
tests, (iii) deal with living microorganisms that have vari-
able phenotypic characteristics, and (iv) are often made
more complicated by the presence of contaminating flora.
Evaluating Potential and Real Problems
Attempts to improve laboratory utilization must begin with
an assessment of current and potential issues with labora-
tory utilization. The question “Where to start?” is easier to
answer than is the question “When to start?” One can ap-
proach laboratory utilization from a number of perspectives,
including financial models, staffing ratios, productivity or
other benchmarks, treatment and evaluation guidelines,
and so on. To some extent, the approach that is selected
should be the one that prompted the assessment. For ex-
ample, if a laboratory is being reorganized to meet financial
constraints, then financial models and productivity bench-
marks should be guides for the assessment. If the assessment
is being done because of the introduction of new diagnostic
technology or the expansion of services to meet new clinical
needs, then the assessment should be based on treatment
and evaluation guidelines, clinical protocols, or other clini-
cally driven considerations. Regardless of the approach that
is taken, the one principle that must play a role in any assess-
ment of laboratory utilization is that of clinical relevance; no
test can be cost-effective, no laboratory can be efficient and
productive, and no organization can provide good patient
care unless laboratory testing is clinically relevant.
Clinical Relevance
Most laboratorians and providers have an idea of what
is meant by the term “clinical relevance” (or the roughly
synonymous terms “clinical significance” and “clinical im-
portance”). The term is not used consistently, however,
because there is no standard definition, nor is there yet a
quantifiable way to measure clinical relevance. This lack
of objectivity should not impede assessments of clinical
relevance or lead to inaction. There are many instances
wherein standing orders no longer are clinically relevant
when they are filled. These orders may have been medi-
cally appropriate when the standing order was written,
but as the condition of the patient changed, these orders
became unnecessary. A timely and thoughtful review of
standing orders is a simple way to reduce unnecessary
testing for inpatients. One simple approach is to time limit
standing orders (e.g., daily × 3 days), rather than leaving
orders open ad infinitum (e.g., daily). As shown in Table
49.1, clinically relevant tests share certain characteristics
that can be used in an audit.
878 DEFINING AND MEASURING STANDARDS FOR SUCCESS
Table 49.1 Characteristics of clinically relevant laboratory tests
Test results can be used to initiate, modify, or terminate therapy.
Test results are available in an acceptable time frame.
Test sensitivity and specificity are acceptable to users.
Test positive and negative predictive values are acceptable to users.
Test results are easily reported to and interpreted by users.
Cost-Effectiveness Analysis, Cost-Benefit Analysis,
and Cost-Utility Analysis
Cost-effectiveness analysis (CEA) has been defined as “the
primary tool for comparing the cost of a health interven-
tion with the expected health gains” (13) and as “a method
for evaluating the health outcomes and resource costs of
health interventions” (10). The method has been in use for
many years and has been the subject of much discussion
as a potential means of helping guide healthcare policy
and allocation of resources (34). Not surprisingly, there is
understandable confusion between the terms CEA, cost-
benefit analysis (CBA), and cost-utility analysis (CUA).
These terms do have specific meanings and usages:
• CEA expresses outcomes in natural units (e.g., cases
prevented or number of lives saved).
• CBA assigns dollar values to the outcomes attributable
to the program.
• CUA is a specialized form of CEA that includes a
quality-of-life component associated with morbidity
using common health indices such as quality-adjusted
life years and disability-adjusted life years.
Compared with CBA and CUA, CEA is:
• Less time- and resource-intensive
• Easier to understand
• More readily suited to decision making (Centers for
Disease Control and Prevention, Cost Effectiveness
Analysis; http://www.cdc.gov/owcd/eet/CostEffect2/
fixed/1.html, accessed August 25, 2012)
Despite being a better type of analytical tool compared
with the other two methods, CEA may not be useful as a
tool to evaluate laboratory tests. Trying to determine the
contribution of a laboratory test result to a natural outcome
such as “cases prevented” is not easy; there are so many
other variables that determining the relative role and con-
tribution of the laboratory test result may not be possible.
For example, the impact of using a rapid malaria diagnos-
tic test as part of a malaria control program depends not
only on the accuracy of the test, but also on whether the
providers based their treatment on the test result, whether
the treatment was appropriate, patient compliance, the
presence or absence of comorbid conditions, the severity
of the infection, and the general health of the patient (49).
As another example, a new test to confirm infection in
critically ill patients may provide accurate and timely test
results, but the variables of getting the provider to order
(appropriate) therapy, the time needed to dispense and ad-
minister that therapy, pharmacokinetic variation between
patients, the presence or absence of comorbid conditions,
the severity of the infection, and the general health of the
patient may all influence the outcome of the intervention;
sorting out the contribution of the new test to the eventual
outcome simply may not be possible.
Not surprisingly, despite wide use of the term in the
context of laboratory testing, relatively few laboratory
tests have been subjected to true CEA. Because laboratory
tests are so widely used, and in some situations are the ba-
sis for initiation, change, or withholding of therapy, better
analytical tools to assess the “effectiveness” of laboratory
tests are badly needed.
Documenting the Extent of the Problem
Effective laboratory management requires continuous
evaluation of the tests performed in the laboratory in
terms of their clinical relevance, cost effectiveness, and
whether new diagnostic methods should be used, either to
replace methods currently in use or as new tests. This type
of evaluation requires an unbiased assessment of the test
in light of published information, including a review of the
literature, use of centralized studies that yield benchmark
information, and if necessary, use of local data.
Literature Review
The published data regarding appropriate laboratory test
utilization have, until recently, focused on the issues of the
relative accuracy of diagnostic methods, the clinical rele-
vance of tests, or the cost-effectiveness of different diagnos-
tic methods. These issues first received emphasis in the early
1970s, when controlled clinical comparisons of diagnostic
laboratory methods became more common, investigators
began looking at the clinical relevance of diagnostic tests,
and the issue of cost control became increasingly important.
As noted by van Walraven and Naylor (45) and commented
on by Lundberg (21), much of the published literature about
the clinical relevance and cost-effectiveness of laboratory
tests lacks the scientific rigor that characterizes evaluations
of other diagnostic modalities and therapies.
These criticisms almost certainly are valid, but holding
laboratory tests to the same standards as other diagnostic
procedures or methods may be unrealistic. There are two
reasons for this. First, laboratory methods usually are used
to confirm clinical impressions or to supplement clinical, ra-
diographic, or other laboratory data. This is different from,
for example, a biopsy that by itself may provide definitive di-
agnostic information. In other words, many laboratory tests
do not stand alone for the purposes of making diagnoses.
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
Second, the clinical impressions of providers play an impor-
tant role in the interpretation of test results. This is because
the pretest probability of a disease affects interpretation of
test results. (For an example and further statistical explana-
tion, the reader is referred to Aronson and Bor’s [3] clas-
sic discussion of blood cultures, specifically the section on
the influence of pretest probability on posttest probability).
Thus, while it often is possible to design controlled clinical
trials of novel diagnostic methods or therapies, evaluating
laboratory methods is not as straightforward.
Despite these limitations, some issues regarding labora-
tory tests can be studied adequately via controlled clinical
trials, including product comparisons, comparison of new
diagnostic tests with older methods, evaluations of the
cost effectiveness of different tests, and some evaluations
of clinical relevance. Some aspects of the clinical effects of
laboratory testing also can be studied adequately, such as
the impact of the timeliness of result reporting (7, 14).
Centralized Studies
A second type of study exists that can be useful in compar-
ing laboratory practices among peer groups, also known as
benchmarking studies. These studies differ from scientific
studies in that the purpose is not to test a hypothesis, but
rather to compare laboratory practices in such a way as to
develop statistically valid standards against which individ-
ual laboratories can compare their relative performance.
By their design they do not test clinical outcomes, so they
cannot be used to determine clinical efficacy. Nonethe-
less, because these studies tend to involve many hospitals
and laboratories, they can be used to collect large data sets
about laboratory practices.
Examples of centralized studies include the College of
American Pathologists (CAP) Q-Probes and Q-Tracks pro-
grams (43). In these studies, laboratories provide data about
specific laboratory practices, which are then collated and
analyzed. The Q-Probe is based on a single observation, such
as turnaround times for certain tests sent from emergency
departments, used to establish benchmarks for specific tests.
In contrast, the Q-Track is based on a series of observations
taken during specific times to determine trends for specific
tests. These studies typically involve collecting data from
hundreds of hospitals for hundreds of thousands of tests. As
a result, they are of a scale that is unique in the United States,
matched only by reporting to the Centers for Disease Con-
trol and Prevention (e.g., the National Nosocomial Infections
Study) and other data collected by the federal government.
When the data are sorted and analyzed by hospital type, size,
geographic region, and other parameters, they provide labo-
ratory directors with a powerful benchmark tool.
Large data sets also are collected as part of the CAP
Proficiency Testing program. These data are not collected
for the purpose of evaluating specific laboratory tests, but
some of the results can be pooled to yield information
879
regarding laboratory practices. As an example, the CAP
Microbiology Resource Committee has evaluated data re-
garding the utility of user-based quality control (QC) for
commercial microbiological media (19). The data show
that, for a number of types of commercial media, user QC
adds little to manufacturer QC and therefore can be elimi-
nated without adversely affecting quality (19). Eliminat-
ing superfluous QC not only saves money, but also allows
technologists to focus their time and efforts on tasks that
are more beneficial to patient care.
Local Data
Making a change often requires convincing users that
the change is necessary and that the decision to make the
change was based on data. For the most part, data should
be from published clinical trials, particularly those that
meet the requirements of evidence-based medicine. In
specific circumstances, as noted by McLaughlin, it helps to
supplement published data with data collected locally (24).
The reason for this is that many providers believe that their
patients are in some way different from those elsewhere.
While this may be true if one is dealing with patient popu-
lations that are specific in terms of age, gender, or ethnic-
ity, it is not true when applied to the general population.
Nonetheless, many providers do believe that their patients
are different, and collecting local data can help to convince
them that observations made elsewhere do apply to their
patients. The implementation of changes is often subject
to local politics, even in the presence of evidence. It is im-
portant, therefore, to gain a thorough understanding of
the medical and administrative hierarchy within the local
system. It is also useful to explore how others have success-
fully implemented changes. Although one would hope that
in an era of “evidence-based” medicine one would not have
to consider such variables, this is in fact the real world.
One author (GWP) has found that a multidisciplinary test
utilization committee is a useful venue in which to brain-
storm ideas as well as to formulate recommendations. The
recommendations can then be presented to the medical
executive committee or its equivalent for further consider-
ation and (hopefully) implementation.
While collecting local data may be necessary for specific
purposes, studies performed locally are unlikely to meet
the requirements of evidence-based medicine. They are
expensive, and performing them delays implementation of
necessary changes. Moreover, even though there has not
been a systematic study of this issue, it is unlikely that the
results of local studies (if performed correctly) will differ
from those performed on broader populations. Most clini-
cal studies published in peer-reviewed publications are of
a magnitude and cost that cannot be duplicated locally.
Additionally, if a local study yields findings that are differ-
ent from those of larger studies, the investigator will be in
the position of needing to explain why the results differed
880 DEFINING AND MEASURING STANDARDS FOR SUCCESS
and were not just wrong. If the results are valid, the in-
vestigator should publish the findings in a peer-reviewed
journal so that others can benefit from the observations.
As an example, in 1990, Siegel, Edelstein, and Nachamkin
published a study showing that there was no yield in per-
forming stool cultures or tests for ova and parasites after
patients had been hospitalized for three or more days (35).
This study was repeated in a number of hospitals during the
next few years, culminating with a CAP Q-Probe study that
was published in 1996 (15, 28, 43). Each of these studies
yielded almost identical results as the Siegel study. In one
author’s experience (MLW), the local data were found to be
more persuasive than were the original data in convincing
physicians to accept the recommended changes, which ini-
tially were met with some skepticism by providers. Subse-
quent studies have indicated some exceptions to the initial
findings, but for the most part the “three-day rule” is now
standard practice in clinical microbiology laboratories.
Other examples of local data that were published and
that have resulted in widespread changes in laboratory
practice include screening cerebrospinal fluid specimens
before performing cerebrospinal fluid Venereal Disease
Research Laboratory tests or mycobacterial smears and
cultures (1, 2), performing nucleic acid amplification tests
for the etiologic agents of viral meningoencephalitis (36,
39), eliminating bacterial antigen tests for the diagnosis
of bacterial meningitis (16, 25, 30), and eliminating broth
“backup” cultures for most tissue and fluid specimens (27).
Morris et al. reviewed the cost and time savings that re-
sulted when several of these changes were made in one
laboratory; the time savings in particular were substantial
(26). Test utilization changes that both improve patient
outcomes or the patient experience while decreasing costs
are often the changes most readily accepted by both medi-
cal and administrative professionals.
Laboratory-Based Approaches to Control
As medical care facilities implement computerized physi-
cian order entry (CPOE) systems, there are opportunities
to intervene and stop unnecessary test orders before speci-
mens are even collected. This approach saves time and
money associated with unnecessary collection and speci-
men transportation. In addition, decreased phlebotomy
decreases iatrogenic anemia in hospitalized patients and
improves the patient experience. If these types of interven-
tions are not possible, the laboratory remains an excellent
place to control (limit) test utilization. Not only is the labo-
ratory the site where specimens are processed and testing
is performed, but in many hospitals the laboratory is re-
sponsible for the phlebotomy service. In addition, labora-
tories are ultimately responsible for specimen collection. A
number of laboratory-based approaches to control labora-
tory test utilization have been described (Table 49.2).
Table 49.2 Laboratory-based approaches to control
Newsletters
Policy changes
Personal and ad hoc communication
LIS/HIS-based controls on test ordering
LIS/HIS-based feedback in reports
Newsletters
Newsletters, like all written materials, often are ineffective
as a means of communication for the obvious reason that
busy providers are unlikely to read them. This is particu-
larly true if they are not written well, are not timely, or con-
tain a lot of trivial information. On the other hand, they
have the advantage of being a dispassionate means of dis-
seminating information. This can be a strategic advantage
when introducing contentious changes. They also have the
advantage of being impersonal, which again can be ad-
vantageous when introducing contentious or unpopular
changes. Although one should never dodge the respon-
sibility of explaining and defending proposed changes to
those who will be affected the most, there is only a finite
amount of time for doing so, and it is unrealistic to meet
with every provider or stakeholder, particularly in large
organizations. Moreover, some individuals will not agree
to proposed changes, no matter how rational the change
is, so there is little point in trying to persuade them. When
this occurs, it is better simply to announce the change as a
fait accompli, usually as a policy change, and move on to
other issues.
Policy Changes
As with newsletters, policy changes have the advantage of
being impersonal and dispassionate. They have the addi-
tional advantage of having an air of authority about them,
an attribute that can be advantageous when it can be an-
ticipated that the policy will face some opposition.
Personal and Ad Hoc Communication
The preceding paragraphs emphasize the use of dispas-
sionate and impersonal written communication as a
mechanism of reducing any potential opposition to mak-
ing changes in laboratory practices. This is not intended
to be a substitute for direct personal communication with
providers as a means of explaining why changes are neces-
sary, for receiving input from those who will be affected
by the changes, and for monitoring the effect(s) of the
changes. One of the first steps is to ensure support from
the institutional leadership. Next, one should discuss the
proposed changes at length with those who will be af-
fected. These discussions may not reverse the decision to
make the change, but merely having the discussions often
ameliorates the emotional impact of the changes. In some
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
instances, unanticipated consequences may be discovered
during these conversations, and improvements to the pro-
posed changes can be made. Approaching changes from
the perspective of the provider can affect the way that the
change is implemented.
LIS/HIS-Based Controls on Test Ordering
Modifying the test ordering process has been shown to be
an effective approach to changing test utilization behavior.
Tierney et al. showed that the computerized display of test
charges for outpatients resulted in a significant decrease
in test utilization (40). Although Bates et al. showed that
a similar effect did not occur with inpatients, there were
trends in that direction (5). The same authors, in a similar
study, showed that computerized display of redundant tests
was an effective intervention but that the effect was limited
(6). In another similar study, Solomon et al. showed that
a computer-based intervention was effective in reducing
unnecessary serologic testing in an inpatient setting (38).
Despite the limited effect associated with some of these in-
terventions, there appears to be increasing evidence that
computer-based interventions can be effective for chang-
ing test utilization behavior.
Most commercial laboratory information systems
(LISs) have the capability to identify duplicate orders, to
flag orders that meet specific criteria (e.g., the number of
blood cultures ordered within a defined period), to docu-
ment test changes or cancellations, and to notify provid-
ers of changes to an order. These rudimentary capabilities
allow laboratories to improve test utilization substantially,
as duplicate or redundant tests are by any definition clini-
cally irrelevant and wasteful. This is particularly impor-
tant in settings where more than one provider may be
ordering tests for patients, a circumstance that results in
increased duplicate testing (9, 42). The ability to deter-
mine test utilization by provider also is within the capabil-
ity of most commercial LISs; this information can be used
to track test ordering patterns and to provide feedback to
the provider.
As useful as these capabilities may be, by no means are
they a feature of all commercial LISs. Moreover, many LISs
cannot be used to modify test ordering at the time orders
are placed. This capability is a feature of LISs that can be
used for computerized physician order entry (CPOE).
These LISs are integrated with the hospital or organization
information system; the more sophisticated CPOE systems
are integrated with software that allows for the analysis of
information regarding other laboratory tests, drug aller-
gies and other adverse drug reactions, nutrition, radio-
graphic findings, and clinical findings. The LISs that have
some CPOE capability vary considerably in their ability to
integrate this information so that orders can be modified
either by alerting the provider at the time of entry or by
the CPOE system directly. A fully functional and robust
881
CPOE system would have all of these features and would
have the potential to reduce errors and to change orders so
that practice standards, clinical pathways, and other efforts
to improve care would be realized (31, 32, 37).
The advantage of a hospital information system (HIS)
intervention that works in conjunction with CPOE is
that the intervention occurs prior to specimen collection.
One author has helped to implement an intervention in
his institution that blocks unnecessary (i.e., redundant)
same-day repeat test orders. The tests on this list were vet-
ted with the medical leadership prior to intervention, and
means are available to complete these orders if the pro-
vider believes they are medically necessary. In 2011, 7,243
unnecessary same-day duplicate orders were blocked by
this electronic intervention. The cost avoidance from this
intervention, calculated based on materials and technolo-
gist time, was $115,590. Although the cost avoidance as-
sociated with specimen collection and transportation was
not calculated, it too was likely significant. As IT systems
become more sophisticated, with better connectivity be-
tween individual modules such as the HIS and the LIS,
developing “rules” to eliminate redundant testing should
become easier. More highly developed IT systems will have
the ability to block tests that do not meet other criteria. As
an example, the LIS will have the ability to check with the
pharmacy system to see if a patient has received a dose of
drug at the correct time before allowing for measurement
of a peak or trough drug level. Other potential rules are
obvious, but at this time many IT systems do not have the
functionality for such programming.
LIS-Based Feedback in Reports
Even without a rules-based CPOE system, many LISs can
be programmed to provide information about the cost of
laboratory tests, information regarding the clinical util-
ity of tests, and warnings about the use of certain drugs
in patients with specific laboratory findings (such as renal
failure). Many LISs have the ability to show specific com-
ments either automatically (based on rules within the sys-
tem) or by manual ad hoc request. These systems can be an
inexpensive and effective way to disseminate information
to providers.
There are a number of types of feedback that can be
given to providers. In clinical microbiology, one of the most
commonly used types of feedback is the selective reporting
of antimicrobial susceptibility test results, with or without
comments, to help guide interpretation of the results. Even
without comments, the provider receives test results only
for those antimicrobial agents that are likely to be clinically
relevant, information that should improve patient care.
Another common type of feedback is the average daily cost
of drugs that are reported for antimicrobial susceptibility
test results. Other common types of feedback for micro-
biology tests include comments regarding the presence of
882 DEFINING AND MEASURING STANDARDS FOR SUCCESS
contaminating flora, the lack of clinical relevance for some
types of testing (e.g., microorganisms recovered only from
broth cultures), specimen adequacy (e.g., the evaluation
of sputum specimens for neutrophils and epithelial cells),
the types and numbers of microorganisms recovered from
midstream urine specimens and their likely clinical rel-
evance, and the number and adequacy of specimens re-
ceived for blood culture. Given adequate laboratory and
computer resources, comments can be developed to help
guide the interpretation of most laboratory tests.
Institution-Based Approaches to Control
As with laboratory-based approaches to control, a num-
ber of institution-based approaches to control laboratory
test utilization have been described (Table 49.3). The two
types of approaches are not exclusive: Each complements
the other, and used together, they might be more effective
than either type of approach used alone.
Working with the Medical Staff
In most organizations, the medical staff is in a leadership
position regarding patient care. There are several reasons
for this. First, most hospital-based medical care continues
to be provided by physicians, and hospital care is much
more expensive than is outpatient primary care. Second,
physicians provide most outpatient specialty care, and
specialty care often is the most expensive and cutting edge
and therefore requires the most immediate oversight of
cost control. Third, The Joint Commission requires that
the medical staff fulfill specific roles within organizations,
including overseeing the quality of medical care in the or-
ganization, participating in committees that affect patient
care (e.g., the pharmacy and therapeutics committee), and
overseeing graduate medical education (resident and fel-
low training). Fourth, although nonphysician providers
such as nurse practitioners and physician assistants pro-
vide a great deal of primary (and some specialty) care, in
many states these providers work under the supervision
of a physician. Last, physicians generally are the most out-
spoken group when changes in patient care are proposed,
and some changes are unlikely to occur without their
concurrence.
One can approach the medical staff in a number of ways
when a change is needed. One effective strategy is to first
meet with the medical staff leadership and senior physicians
Table 49.3 Institution-based approaches to control
Working with the medical staff
Formal protocols validated by medical staff
Working with the nursing staff
Institutional protocols
Using major problems to effect change
before meeting with the general membership. This is be-
cause (i) medical staff leaders typically have a better un-
derstanding of issues that necessitate changes, (ii) leaders
are selected because of their experience and the respect
that physicians have for them, (iii) most leaders have been
through a number of changes and thus are less resistant to
change, and (iv) obtaining leader support facilitates chang-
ing the way medicine is practiced. Medical staff leaders can
also serve as a liaison with the general membership. It is
difficult to overstate the importance of having their support
when contentious or unpopular changes must be made.
In teaching hospitals and clinics, one of the leading roles
of the medical staff is to provide adequate supervisions of
students and residents. Laboratory test overutilization is
well known to be higher in teaching settings, is partially
attributable to trainees (12), and does require adequate
oversight. One of the more important roles of attending
physicians is to teach and train when to order tests; which
tests to order; how to interpret test results in the context
of the patient’s other clinical, laboratory, and radiographic
findings; and what interventions (if any) should be based
on the test results.
Formal Protocols Validated by Medical Staff
A particularly effective means of implementing changes is
the use of clinical protocols or guidelines that have been
reviewed and validated by the medical staff. These have
a number of synonyms, including care protocols, clinical
pathways, key clinical pathways, clinical care standards,
and patient care guidelines. When developed correctly,
these protocols incorporate findings and guidelines from
evidence-based medicine, as well as specific guidelines
from organizations such as the Centers for Disease Con-
trol and Prevention, into the practices and workflow of an
organization. The end result should be the application of
state-of-the-art medical knowledge to a specific patient
population in a specific setting. Such protocols not only
provide the best patient care but also improve medical train-
ing and education and should help providers use the most
cost-effective approach to healthcare. For obvious reasons,
these protocols should specify the use of the most appropri-
ate laboratory testing and radiologic tests and procedures.
Working with the Nursing Staff
In the hospital and the outpatient clinic settings, there is
no group other than the nursing staff that can be of more
support in making changes. Nurses provide almost all of
the immediate patient care in hospitals. They provide a
large amount of primary care, they are responsible for most
specimen collection in both inpatient and outpatient set-
tings, and they play an important role in medical training
and education. Moreover, nurses bring different training
and insights to patient care that are just as important as
those of physicians. Thus, it is of particular importance to
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
discuss proposed changes with nurses, as they know best
the practical side of implementing changes and how each
setting functions throughout the day and the week.
One current challenge in working with the nursing
staff is the shortage of trained nurses in the United States.
To maintain appropriate nurse-to-patient ratios, hospi-
tals have opted to use nurses from companies that pro-
vide nurses for varying periods, from one shift to several
months. Another change, particularly in hospitals, is to as-
sign nurses to different units depending upon the number
of patients on those units at a given time. Although these
staffing approaches are necessary for purposes of patient
care, one consequence is that it is more difficult to train
nurses adequately and to work with them to implement
changes smoothly. It is unlikely that this will change in the
immediate future. Consequently, the best approach at this
time is to work with the nursing leadership in the organi-
zation and to take the extra steps necessary to work with
the nurses who are temporarily assigned to a given setting.
The Concept of the Laboratory Test Formulary
Pharmacies improve the use of drugs, reduce costs, and
work to minimize or slow the emergence of antimicrobial
drug resistance by several mechanisms, one of which is the
development and use of drug formularies. At its most ba-
sic level, a formulary is little more than a list of drugs that
have been approved for use in a given healthcare setting or
program. It obviously is more complicated than that, but
the principle behind a formulary is simple: For condition
X, only drugs Y and Z are available. Other drugs in that
class, and even drugs in different classes that could be used
to treat condition X, are unavailable. The concept of devel-
oping a similar mechanism to direct and limit laboratory
test utilization is not new; all laboratories select specific
assays and specific platforms on which to run those assays
rather than offering multiple tests for the same condition.
This is part of good laboratory practice. What is a newer
concept involves a more directed and systemic approach
involving a committee of both laboratorians and providers
who develop a tiered formulary and then act to enforce it.
A number of models exist, but all have in common a list of
tests available to any provider at any time, a second tier of
tests restricted to a specific group or groups of providers
(usually specialists who can order certain tests relevant to
their specialty), a third tier of tests available only under
specific circumstances and with prior authorization, and
a fourth tier of tests that are not available (23). Despite the
variations that have been described, most of these systems
are similar in their structure and function. Whether they
are an effective and sustainable means of controlling and
improving laboratory utilization requires further research.
Laboratory tests are not used the same way as drugs, do
not have the same direct impact on patients, and often are
used for many different conditions; furthermore, there are
883
far more laboratory tests than there are drugs. That said,
there are enough similarities between the two that it is
worth testing the hypothesis that a laboratory test formu-
lary is an effective method for controlling utilization. One
author, in conjunction with medical leadership at his in-
stitution, has instituted a restricted use initiative, wherein
only providers with subspecialty training in medical ge-
netics or other advanced training can order expensive mo-
lecular genetic testing. The cost avoidance associated with
this intervention, which was only active for part of 2011,
was $248,923. There are already opportunities to make
similar interventions in the use of some of the expensive
molecular diagnostic assays that are used for the detection
and characterization of infectious agents. A second author
helped develop a similar system whereby a list of tests sent
to reference laboratories was hidden in the CPOE system
used for inpatients at his institution. The reasons for devel-
oping this system were straightforward. First, the results of
many (if not most) tests sent to reference laboratories are
not available prior to discharge and therefore cannot af-
fect the care of the patient during the hospitalization. Sec-
ond, because of the way reimbursement occurs with the
diagnosis-related group system, hospitals do not receive
reimbursement for many of these tests when they are or-
dered on an inpatient basis. In contrast, if one waits for 72
hours following discharge before ordering these tests, the
healthcare system can charge for these tests and receive re-
imbursement at the rate covered by the patient’s insurance
or healthcare plan. Lastly, in teaching hospitals in particu-
lar, it is often better to defer esoteric testing to an outpa-
tient specialty clinic where more experienced providers are
responsible for selecting tests. Even though these tests are
hidden in the CPOE system, a process was developed to al-
low providers to order a test when necessary for inpatients.
The most recent estimate for the cost savings during hos-
pitalizations is $330,000 annually.
Using Major Events To Effect Change
(e.g., Institutional Quality Assurance
[QA] Office, Root Cause Analysis)
Major events in healthcare provide opportunities to make
changes that otherwise may not be possible. This is nei-
ther a cynical observation nor opportunistic management.
Rather, it is recognition of the fact that some issues can-
not be dealt with under normal circumstances because
of political, financial, or other constraints. During major
events, however, these constraints may diminish or disap-
pear, providing an opportunity to bypass them. Change
occurs more easily during major events because there typi-
cally is an acknowledgment that the status quo no longer
can be preserved, individuals may need to take a different
view of circumstances, and many departments may be in-
volved. A particularly opportune time to eliminate proce-
dures or tests that are of marginal utility, or that providers
884 DEFINING AND MEASURING STANDARDS FOR SUCCESS
are unwilling to give up at other times, may be during a
reduction in operating budgets. Other events that provide
unique opportunities for change include changes in orga-
nizational management, changes in ownership, relocation
of laboratory facilities within the building or complex,
construction of new facilities, implementation of CPOE
systems (particularly when rules-based orders will be
implemented), and changes in academic or other types of
affiliations. Although these changes may not afford equal
opportunity for change, or for the same types of change,
laboratory directors should look for opportunities that ac-
company what otherwise are challenging circumstances.
Important allies for implementing changes include the
quality assurance (QA) office and the compliance office.
The QA office plays a number of important roles within
organizations, including ensuring compliance with accred-
itation standards, investigating adverse events, performing
root cause analyses, and developing organizational poli-
cies and procedures. The compliance office deals primarily
with ethics, business practices, and compliance issues re-
lated to financial matters. The QA office, given its broader
role within the organization, can assist with change by
helping develop clinical protocols, particularly those that
involve changing organizational policies and procedures.
It can also assist with change when an adverse event or the
findings from a root cause analysis indicate that a change
is necessary. Obviously, either office can assist with change
when the change is necessary for compliance reasons. In
some cases, this type of assistance can be invaluable for
making changes that are contentious but necessary.
What Works and Doesn’t Work:
How To Take the First Steps
There is a substantial body of literature regarding the ef-
fectiveness of different methods for changing laboratory
test utilization. Most of this literature reflects the notion
that “changing” test utilization usually means limiting test
utilization. This undoubtedly is an oversimplification of
the issue, as there are good examples of how laboratory
tests can be underutilized as well as overutilized. Nonethe-
less, the problem of overutilization receives more emphasis
because it probably is more pervasive in modern medicine
than is underutilization, and decreasing overutilization
can yield substantial cost savings. It is true that increasing
the use of tests that are underutilized can decrease costs
in the healthcare system as a whole, but until recently, few
systems have taken the broader approach to cost control,
instead focusing cost control efforts on specific issues.
Changing/controlling laboratory test utilization means
changing/controlling provider (usually physician) behav-
ior. This has proven to be a complex and difficult issue for
healthcare systems to address, as most interventions in-
tended to change physician behavior have been ineffective
or have had only a temporary effect (4, 41). As reviewed by
Valenstein, physician education has been shown to be an
ineffective approach to changing test utilization (despite
being the most commonly used intervention), and both
clinical and financial feedback has been shown to have
variable effectiveness (41). In the same review, Valenstein
noted that administrative interventions have been shown
to be effective in changing test utilization (41). These in-
clude requiring justification for certain tests, changing
the test request process, and changing “informal testing
rituals” (29, 41). The first of these, requiring justification
for certain tests, may be an effective intervention, but it
is impractical to implement in many settings and almost
certainly will be unpopular with physicians. The second,
changing the test request process, may ultimately be the
most practical and effective intervention, particularly
when it involves the use of CPOE systems. Hindmarsh
and Lyon report a similar observation (17). The third in-
tervention, changing testing “rituals,” usually falls under
the penumbra of clinical pathways, and in settings where
physicians adhere to the pathways it can be an effective in-
tervention (8).
In their review, Axt-Adam et al. noted that one explana-
tion for the lack of effectiveness of many interventions is
that physician behavior depends upon the physician’s per-
sonality, education, training, specialty, location of practice,
years of clinical experience, estimated test charges, and
expectations (4). Malcolm et al. also reported that “per-
sonal factors” affect the way physicians use laboratory tests
(22). The effect of clinical experience on test utilization has
been reported in a number of studies, one recent example
being the increased use of ancillary tests by inexperienced
physicians in the evaluation of acute febrile illness (33). In
his review, Valenstein reported that risk-taking attitudes
might affect test-ordering behavior, although some inves-
tigators have not found a relationship between personality
and test utilization (41). Given the number of factors that
may affect test-ordering behavior, it comes as no surprise
that many specific interventions have been found to be in-
effective in changing behavior. It may be that at any time
and in any place only a subset of physicians is amenable to
a particular intervention and that over time no static inter-
vention will result in sustained changes in test utilization
behavior. As Valenstein noted in his review, “to the extent
that differences in the test-ordering behavior of physicians
reflect ingrained and immutable psychological traits, one
would expect little success in modulating test utilization
by trying to influence individual providers” (41). This may
be the most realistic assessment of the effect of personality
on test utilization behavior and the lack of effectiveness of
educational interventions in changing that behavior.
Despite the reported variable success in changing
test utilization behavior and the difficulty in sustaining
changes, there is cause for optimism. First, there has been
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
for many years little or no doubt among laboratorians—
and many clinicians—that more laboratory tests are per-
formed than are needed for patient care and that many
laboratory tests are used incorrectly (18, 20). Second,
there is a growing awareness among providers that health-
care resources are limited and should be allocated so as to
maximize their benefit to patients. Third, improvements
in information systems have resulted in CPOE systems
that have the capability to affect test utilization via im-
mediate feedback to providers as well as by use of artifi-
cial intelligence. Last, the growing body of literature on
evidence-based medicine makes it much easier for health-
care systems to develop rational clinical pathways and for
laboratorians to use those pathways as part of their strat-
egy to change test utilization.
From a purely pragmatic standpoint of making changes
in diagnostic microbiology testing, McLaughlin has pub-
lished a step-by-step approach that is rational, practical,
and (by anecdotal experience) effective (24). Table 49.4
shows a modified version of this approach. As emphasized
in McLaughlin’s approach, building support for change is
crucial (24). Many changes that are needed to make a lab-
oratory more cost-effective or clinically relevant are con-
tentious, even when they are not costly. There are several
reasons for this. The first is that making changes can mean
taking something away from providers, and it is axiomatic
that it is more difficult to take something away than it is
to not give it in the first place. The second reason is that
making changes shifts control from the provider to the lab-
oratory, and providers may perceive that this affects their
clinical autonomy and/or their ability to act on behalf of
their patients. The backlash against managed care by pro-
viders illustrates this principle. Last, making changes is dif-
ficult under most circumstances, even when it is perceived
to be in one’s best interests. To facilitate changes, having
the support of departmental and organizational leadership
is crucial. By support, one hopes for an understanding and
analysis of the recommended changes, including an un-
derstanding of the impact on services as well as of benefits,
costs, and alternatives. In all circumstances, one should
Table 49.4 Implementation of diagnostic microbiology policiesa
Base proposed changes on published data.
Supplement these data with in-house data.
Gain the support of the infectious diseases service.
Discuss proposed changes in advance with influential providers.
Educate providers who will be affected by the changes.
Announce changes by effective means of communication.
Educate laboratory staff who will implement the changes.
Revise laboratory manuals accordingly.
Initially give providers an “override” mechanism.
Provide necessary explanations and follow-up to users.
a
Modified from reference 24.
885
avoid presenting support as an edict, as this approach may
yield not the desired response but instead its opposite.
Perhaps the single most effective argument that can
be presented to providers is to emphasize that the change
will result in the best care for the patient. That may mean
that the change is supported by evidence-based medicine,
a topic that has received much emphasis recently. This
concept is a process by which evaluation and treatment
guidelines are based on published evidence regarding their
effectiveness.
Putting It All Together
Base Policy Approaches and LIS/HIS-Based Controls
on Evidence-Based Medicine
The published data about changing physician behavior in-
dicate that most approaches achieve only a temporary ef-
fect or are ineffective altogether. Of the described methods
that have been shown to be effective, use of LIS-based con-
trols may be one of the more effective methods. Data re-
garding the effectiveness of evidence-based medicine as a
tool for limiting test utilization are available for only a lim-
ited number of tests, but the data that are available (as well
as anecdotal experience) suggest that physicians may be
more accepting of changes that are derived from evidence-
based medicine (46). There are at least two reasons why
this observation may be true. First, by the nature of their
education and training, physicians are more receptive to
information based on sound scientific or medical research.
Second, information that is scientifically persuasive is likely
to be adopted as the standard of care, and physicians by and
large adhere to what is perceived to be the standard of care
within their community. Thus, one approach to increase
the likelihood that physicians will accept change is to use
LIS-based controls on physician ordering and to base the
changes on evidence-based medicine. As stated previously,
one of the advantages to the use of LIS-based controls is
that test-ordering patterns can be tracked automatically,
thereby generating physician-specific utilization data.
Track Results
As with any type of decision to make changes within an
organization, the effectiveness of changes in laboratory
test utilization is determined by (i) the quality of the de-
cision to make the change, (ii) the success of the imple-
mentation, (iii) the likelihood that the intervention can
be sustained, (iv) the willingness to modify the change
as needed, and (v) whether the change improves patient
care and/or outcomes. Documenting the effectiveness of
the change requires the collection of data prior to imple-
mentation of the change followed by tracking the results
of the change. For some changes, this is simple. Changes
made to decrease or increase utilization of a specific test
can be tracked simply by auditing test utilization over
886 DEFINING AND MEASURING STANDARDS FOR SUCCESS
specific intervals. On the other hand, changes intended to
improve patient care or outcomes require the collection of
large amounts of data, often over long periods of time, and
interpretation of the data in light of other clinical, radio-
graphic, and laboratory findings. In some instances, they
require formal study of the issue via randomized clini-
cal trials. Finally, feedback to the governing bodies (e.g.,
medical executive committee, board of governors) of the
positive outcomes (e.g., improved response, decreased
length of stay, or cost savings) is important, as it builds
relationships and trust, which will be important for your
next proposal.
The Plan, Do, Study, Act Model
Once the effects of a change have been tracked for some
time, a decision can be made to either continue the change
without modification, to modify it, or to discontinue the
change. This approach parallels what The Joint Com-
mission for many years promoted as the plan, do, study,
act approach for making change. The approach is self-
explanatory, is simple, and can be used to address many
types of issues. For this approach to be used effectively, the
study and act stages of the process require the use of quan-
tifiable data that can be tracked through time. Nardella et
al. described a model system that incorporates many of the
issues discussed in this chapter (29). The model is a good
example, without use of the specific terms of the plan, do,
study, act model for creating an effective intervention.
The Future: Better Teaching and Training
Because physicians, and those working under their su-
pervision, drive the demand for most laboratory testing,
it would seem intuitive that medical education and train-
ing should place a priority on test ordering as part of
learning to care for patients. Unfortunately, this is not the
current state in the United States, either in undergradu-
ate or graduate medical education (GME). In fact, past
GME tradition has caused some of our current problems;
omissions were chastised more often than commissions:
“Did you order/get X?” and not “Why did you order/get
X?” was the paradigm for generations of trainees. Cooke
(11) clearly delineates the responsibility of GME to in-
culcate cost-consciousness, and Weinberger (47) presents
a realistic mechanism for changing this paradigm, as he
advocates for the addition of a seventh competency, cost-
conscious care and stewardship of resources, to the six
general competencies promulgated by the Accreditation
Council for Graduate Medical Education (ACGME). The
ACGME has the influence to mandate change in training
programs, as teaching institutions certainly seek to com-
ply with regulations rather than risk being placed on pro-
bation or even shut down. Education has grave limits for
changing behavior: Regulation works better. As the “com-
petencies” permeate undergraduate education and GME,
there is the possibility of change. The best patient care and
societal outcomes will derive from stewardship, which is
what Weinberger’s proposed seventh competency really is
about, particularly if implementation of this competency
changed care based on evidence. It is unlikely that many
GME programs will implement (or even explicitly ac-
knowledge) this competency in the evaluation of trainees
unless required to do so by the ACGME.
Summary
The principle that guides changes in laboratory test utiliza-
tion must be that of clinical relevance. Clinically relevant
tests may or may not be cost-effective, but tests that are
not clinically relevant cannot be cost-effective, regardless
of how inexpensive they may be. Although the tools for
assessing clinical relevance are imperfect, efforts are being
made to improve the way that clinical evaluations of labo-
ratory tests are performed so that assessments of clinical
relevance, the impact on patient outcomes, and cost effec-
tiveness can be standardized and quantified. Until those
assessment tools are available, however, laboratorians
should make use of the characteristics of clinically relevant
tests presented in Table 49.1.
There is now good evidence that any effective and sus-
tainable approach must include a combination of inter-
ventions (44). Based on the available evidence, and on the
experience of the authors and others, changing laboratory
test utilization requires (i) careful planning and prepara-
tion; (ii) establishment of guidelines (clinical pathways
or other types) derived from evidence-based medicine;
(iii) a detailed plan for introducing and implementing the
changes; (iv) use of informatics to disseminate guidelines,
automatically perform some tasks (e.g., elimination of du-
plicate tests), and track data regarding utilization; (v) con-
tinuous monitoring of the effectiveness (and the effects of)
the change; and (vi) continuous modifications as necessary.
KEY POINTS
■ A number of laboratory-based approaches to control-
ling laboratory test utilization are described, including
newsletters, policy changes, personal and ad hoc com-
munication, LIS-based controls, and LIS-based feed-
back in reports.
■ A number of institution-based approaches to control-
ling laboratory test utilization are described, including
approaches to working with the medical and nursing
staff and using formal protocols that have been vali-
dated by the medical staff, institutional protocols such
as clinical pathways, and major events to effect change.
■ Effective control of laboratory test utilization requires
the use of more than one approach or intervention.
Of the different types of interventions that have been
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE
evaluated, education appears to be the least effective.
Feedback to providers appears to be the most effective
intervention, particularly when it is computer-based
and when it is linked to evidence-based medicine.
■ Effective interventions require the tracking of results,
modification as indicated by data, and sustained effort.
GLOSSARY
Cerebrospinal fluid Venereal Disease Research Laboratory
(CSF-VDRL) test A serologic test for neurosyphilis that is per-
formed on a cerebrospinal fluid specimen rather than on a pe-
ripheral blood specimen.
College of American Pathologists (CAP) One of the profes-
sional societies for pathologists. One of the organizations that
accredit laboratories and provide a service for proficiency test-
ing. CAP also provides services such as Q-Probes and Q-Tracks
(see below).
Computerized physician order entry (CPOE) A computer-
based system for placing clinical orders. Some systems have the
ability to integrate orders with pharmacy and laboratory data, to
make recommendations for drug dosage and timing, and to alert
the ordering physician of issues such as drug allergy.
Evidence-based medicine The application of medical data (evi-
dence) that have been analyzed using rigorous criteria to clinical
decision making.
The Joint Commission (TJC) An organization that accredits
most hospitals and healthcare organizations in the United
States. TJC can also accredit clinical laboratories as deemed
organizations.
Laboratory information system (LIS) A computer system used
to report laboratory test results. A large number of commercial
systems are available. Most can be interfaced directly with instru-
ments to facilitate test result reporting and to minimize the need
for manual data entry. Some systems have added functionality
such as order entry.
Q-Probes A program provided by the CAP that allows laborato-
ries to collect data regarding laboratory processes and to com-
pare their data with data collected from peer organizations. The
data are collected for one time only.
Q-Tracks A program provided by the CAP that allows laborato-
ries to collect data through time regarding laboratory processes
and to compare their data with data collected from peer organi-
zations on a quarterly basis.
Quality assurance (QA) Systematic approaches to assessing and
improving the quality of care within a specific healthcare setting
(e.g., a hospital or clinic) or healthcare program.
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18. Johnson, H. A. 1991. Diminishing returns on the road to diag-
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19. Jones, R. N., K. Krisher, and D. S. Bird, for the College of
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38. Solomon, D. H., R. H. Shmerling, P. H. Schur, R. Lew, J. Fiskio,
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39. Tang, Y. W., J. R. Hibbs, K. R. Tau, Q. Qian, H. A. Skarhus, T. F.
Smith, and D. H. Persing. 1999. Effective use of polymerase chain
reaction for diagnosis of central nervous system infections. Clin. In-
fect. Dis. 29:803–806.
40. Tierney, W. M., M. E. Miller, and C. J. McDonald. 1990. The
effect on test ordering of informing physicians of the charges for out-
patient diagnostic tests. N. Engl. J. Med. 322:1499–1504.
41. Valenstein, P. 1996. Managing physician use of laboratory tests.
Clin. Lab. Med. 16:749–771.
42. Valenstein, P., A. Leiken, and C. Lehmann. 1988. Test-ordering
by multiple physicians increases unnecessary laboratory examina-
tions. Arch. Pathol. Lab. Med. 112:238–241.
43. Valenstein, P., M. Pfaller, and M. Yungbluth. 1996. The use and
abuse of routine stool microbiology. A College of American Pathol-
ogists Q-Probes study of 601 institutions. Arch. Pathol. Lab. Med.
120:206–211.
44. van Walraven, C., V. Goel, and B. Chan. 1998. Effect of
population-based interventions on laboratory utilization. A time-
series analysis. JAMA 280:2028–2033.
45. van Walraven, C., and C. D. Naylor. 1998. Do we know what
inappropriate laboratory utilization is? A systematic review of labo-
ratory clinical audits. JAMA 280:550–558.
46. van Wijk, M. A. M., J. van der Lei, M. Mosseveld, A. M.
Bohnen, and J. H. van Bemmel. 2001. Assessment of decision sup-
port for blood test ordering in primary care. A randomized trial.
Ann. Intern. Med. 134:274–281.
47. Weinberger, S. E. 2011. Providing high-value, cost-conscious
care: a critical seventh general competency for physicians. Ann. In-
tern. Med. 155:386–388.
48. Wilson, M. L. 1997. Clinically relevant, cost-effective clinical
microbiology. Strategies to decrease unnecessary testing. Am. J. Clin.
Pathol. 107:154–167.
49. Wilson, M. L. 2012. Malaria rapid diagnostic tests. Clin. Infect.
Dis. 54:1637–1641. Epub May 1, 2012.
 CHAPTER 49. TEST UTILIZATION AND CLINICAL RELEVANCE 889

APPENDIX 49.1 Websites for Performing Searches for Published Information Regarding Cost Control, Clinical
Relevance, and Cost Containmenta

The Cochrane Collaboration U.S. Food and Drug Administration Center for Devices and
http://www.cochrane.org/ Radiological Health
A nonprofit organization that studies the effects of healthcare inter- http://www.fda.gov/MedicalDevices/default.htm
ventions. One of the leading organizations for evidence-based Provides access to a wide variety of information regarding labora-
medicine. tory devices that are regulated by the FDA.
EBM Online
a
http://ebm.bmj.com/ All sites last accessed on August 28, 2012.
The website for the electronic version of the journal Evidence-Based
Medicine.
PubMed
http://www.ncbi.nlm.nih.gov/PubMed/
One of the easiest ways to search the medical literature. This website
is supported by the National Library of Medicine. It provides access
to the published results of recent controlled clinical trials.
Introduction
50
Starting at the Beginning: What To
Benchmarking and Performance
Measure?
Where Can We Get Help?
Monitoring: What Is Appropriate
How Will I Fund This?
Evaluation of Data and Monitoring of
for Your Laboratory?
Performance
Summary Ronald J. Bryant and Michael R. Lewis
KEY POINTS
GLOSSARY

OBJECTIVES
To discuss the importance of selecting measures appropriate to the laboratory’s
strategy and environment
To discuss considerations relevant to the evaluation of benchmarking data

It’s a funny thing about life: if you refuse to accept anything but the best, you very
often get it.
W. Somerset Maugham

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch50
A
laboratory director encounters a colleague at a conference; it’s
been a while since they’ve talked, and the colleague asks, “How are
things going in your lab?” How does the laboratory director answer
this question? Quickly, now—how would you answer this question about your
laboratory? Would you hesitate? On what basis would you form your answers?
Do you have data to support your response?
Why do these questions matter?
Most laboratory managers and directors would agree that doing a good
job is important for several reasons. We’re professionals; we strive to do our
work well for the sake of our patients, and we derive personal satisfaction from
knowing that we have served them well. We have colleagues in a variety of spe-
cialties who depend on our diagnostic work to inform their decisions regard-
ing therapeutic interventions. We have inspections to survive, administrators
to please, and a variety of other possible reasons to want to know that things
are going well in our laboratories.
As noted in the chapter that introduces this section, there are many data
relating to laboratory performance that are collected regularly—some selected
by laboratory management, some required by external agencies, some deliv-
ered by the Web or the mail (proficiency testing results). These data frequently
relate to precision and accuracy in the analytical phase of testing; many finan-
cial figures are analyzed, and some of the data extend into the preanalytic and
postanalytic realms. Because possible measures of performance are numerous
and varied, one of the laboratory director’s most important tasks is to deter-
mine which of these are most applicable to his or her particular laboratory

890
 CHAPTER 50. BENCHMARKING AND PERFORMANCE MONITORING
and how best to use the data. Effective selection of perfor-
mance measures not only facilitates assessment of progress
toward organizational goals and minimizes waste associ-
ated with unnecessary measurement and analysis, but
it also enables leaders to make a data-driven case for the
quality of the laboratory’s work. The last of these points is
increasingly salient, given the evolution of healthcare de-
livery and reimbursement models. While system changes
are being driven at the federal and state levels, their effects
have implications for those responsible for making the fol-
lowing determinations at the local level:
• Which measures should we use to gauge our
performance?
• Against what standards should we measure (bench-
mark) our performance?
• How do we effectively incorporate performance moni-
toring into ongoing management of our laboratory
operations?
Starting at the Beginning:
What To Measure?
It is essential that the laboratory director understands what
he or she is attempting to measure and why; the analogy to
clinical laboratory practice is straightforward, as there is
no sense in performing a test if the result will not influence
subsequent actions. It is easy to become bogged down with
the broad array of possible techniques and measures for
benchmarking, but a clear sense of which tasks and issues
are most important is essential to avoid drowning in a sea
of data of dubious value. The earlier chapter on strategic
planning highlights the importance of knowing where the
operation is headed.
Selection of variables for consideration and measure-
ment requires a clear vision of the laboratory’s strategy
and precision with respect to defining measures that can
guide subsequent decisions. Definitions must be clear,
stable, and sensitive for detection of noteworthy changes.
That is, the measures must be sensitive to the tasks that
one seeks to measure and be specific to those tasks as
well. Identifying such measures is not straightforward.
Information from colleagues at other institutions, as well
as experience that has been published in the literature,
can be of assistance in defining the types of measures that
are sensitive and specific, though it is important always
to remember that institutions differ in ways both obvious
and subtle. Consequently, the degree to which experience
at other institutions is analogous to that at your institu-
tion is always limited, just as performance of an assay
even using the same reagents may yield different results
in different settings.
Putting appropriate effort into defining measures well at
the outset is essential, because anything worth measuring
891
is unlikely to change immediately, and a precise definition
is essential for stability and suitability for monitoring over
the long term. Stepping back from the data and avoiding
overreaction to short-term variations that may represent
noise, not signal, is important. Additionally, avoiding dis-
couragement that may result from the inertia of some mea-
sures is important; the initial “stickiness” of a measure at
an unacceptable level may indicate a need to apply greater
force to the intervention or to employ an alternative (and
more effective) intervention.
Interfaces between people and between divisions or
departments pose special challenges to laboratories,
both operationally and with respect to measurement. It
is easier to look at ourselves and our unit’s performance
in isolation than to assess how well our patients are be-
ing served by the complex systems in which we operate.
Nonetheless, a superb laboratory within a dysfunctional
institution has limited value. While it may be difficult to
measure performance across interfaces, given the dispa-
rate data sources and frames of reference involved, effort
invested here may be well rewarded by increases not only
in performance level but also in the satisfaction of all in-
volved. Employing several measures that address specific
components of a process that involves interfaces may
identify particular processes requiring attention. Once
each component of the larger system is functioning at a
reasonable level, however, a summary measure may not
only prove more efficient for measurement and review
but may also align the interests of those contributing to
the process.
As an example, a laboratory director may seek to
have laboratory results available for clinicians early in
the morning for rounds, so that decisions can be made
with respect to possible discharges during the day. In-
stinctively, the director might believe that turnaround
time is a sensible measure to examine. A few questions
quickly arise: What interval of time should be measured,
and what interval can be measured using the currently
available systems? Should the clock start when an order
is placed, when an order is received in the laboratory, or
when the sample is received? Does the clock stop when
the result is reported or when the ordering provider re-
ceives the information? Measuring turnaround time well
may be difficult, particularly if you have only laboratory
data that reflect the time of sample receipt and the time
at which the test was resulted. One could readily generate
data, track them over time, and act to modify processes
on the basis of this measure, but important factors relat-
ing to the timely availability of phlebotomy services or
to effective reporting of results would not be reflected
in such a measure. Alternatively, the order times may be
irrelevant if the main topic is early morning laboratory
work. If, in fact, the only measure that matters is result
time, then using this as the monitor may not only save
892 DEFINING AND MEASURING STANDARDS FOR SUCCESS
the considerable effort required to refine turnaround
time but also appropriately focus attention on address-
ing broader system issues (e.g., specimen collection and
transport) rather than on fine-tuning what is likely a
well-functioning laboratory process.
Suppose that the laboratory director takes the next step
of comparing local data to those of other institutions. How
do they define turnaround time? From when to when?
What tests should be included in a study of turnaround
time? Are there separate turnaround times for chemistry
and hematology? Which tests are performed on the major
chemistry analyzer? Are they the same as those performed
on the high-volume instruments at other institutions?
Which tests do the physicians need to complete their
rounds? How do the rounding patterns of local doctors
compare to those of their colleagues at other institutions?
Even if one obtains data for comparisons at other institu-
tions, these will have to be interpreted in light of the local
clinical needs and of variation in the specifications under-
lying the measures.
There is no doubt that every laboratory is capable of
generating spreadsheets filled with vast quantities of mea-
surement data; the question becomes what to do with
these and how to use them to improve your practice. It is
easy to float adrift in kilobytes and megabytes of data and
lose sight of the desired destination; let us hope that our
goal does not become the mere manipulation of the data
that are available to us.
Where Can We Get Help?
External resources for benchmarking data are available
from a number of sources, as noted in the benchmarking
chapter that introduces this section. Of particular note are
the Q-Probes from the College of American Pathologists,
which feature precise, well-validated measures.
The importance of interacting with clinical services
served by the local laboratory cannot be overemphasized,
as the laboratory will not be able to address their needs if
there is a deficit of interaction and if the needs to be met
are not recognized.
Another internal data source is data mining. This term
refers to searching blocks of data for meaningful infor-
mation reflective of underlying relationships; this search
is driven by computer algorithms and is analogous to the
genome-wide association studies (GWAS) that are prolif-
erating in the scientific literature. As in GWAS, much of
what is found is of little significance. Additionally, data
mining reveals associations, not causes; establishing a
causal relationship requires application of the laboratory
director’s insight, and there is no guarantee that the as-
sociations uncovered by data mining will yield the best
measures of processes in terms of sensitivity, specificity,
and stability.
How Will I Fund This?
Much attention has been paid over the years to financial
benchmarking, yielding reams of data. Precision may ap-
pear great—down to the nearest cent. Unfortunately, the
accuracy of allocation of cost to various clinical functions is
problematic at best and sometimes misleading; benchmarks
addressing personnel costs in the lab must be carefully un-
derstood. How comparable are the laboratories being com-
pared in terms of services, size, and structure? What are
the units of the benchmark? Lab payroll? Lab tests? Do the
benchmarks make sense given the local laboratory’s struc-
ture and services? Of particular note are costs allocated
to the hospital laboratory that facilitate better quality and
lower costs for the broader institution; expensive but timely
virology services are but one example in which excessive
focus on the direct testing expense without concomitant
attention to decreased length of stay or decreased risk of
nosocomial infection may lead to decisions contrary to the
hospital’s broader goals. More and more hospital adminis-
trations are spending resources to generate broad bench-
marks applicable to the laboratory and all of their functions
throughout their institutions, but it is essential to set aside
resources internally to develop and monitor appropriate
performance measures in the laboratory.
Evaluation of Data and Monitoring
of Performance
As with test results, benchmarking data must be evalu-
ated in light of the broader context: Do these results make
sense? Do they square with the reality of our laboratory’s
operation? If there is an apparent mismatch, then while it
is true that the data may be inaccurate, it is also possible
that a heretofore unrecognized problem is presenting an
opportunity for laboratory improvement. Such a situation
may be especially likely to be encountered in the context of
external benchmarks that take a broader view of laboratory
performance in the context of the institution, and it is criti-
cal that the laboratory director’s ingenuity and creativity
be aimed at identifying and solving underlying problems,
not at discrediting data and circumventing administrative
necessities. As is frequently encountered with test results,
often there are multiple data to be reconciled; similarly, in-
ternal and external benchmarking data must be evaluated
together, performing an internal check on each other.
Summary
We do not propose a universal standard for what types of
benchmarks or performance monitoring are applicable to
all laboratories. Fundamentally, the laboratory director
cannot determine whether he or she is doing a good job
without first defining what that job is, so effective measure-
ment of performance starts with effective defining of the
 CHAPTER 50. BENCHMARKING AND PERFORMANCE MONITORING
laboratory’s goals. There are many variables that influence
the applicability and accuracy of performance measures,
and it is essential that the laboratory directors, managers,
and others interpret the data accurately and confront the
available choices with an open mind. Consideration of the
context in which the data were obtained is fundamental to
effective use of these measures.
KEY POINTS
■ Arrive at consensus on critical processes that must be
improved or maintained above certain thresholds for
benchmarking and for performance monitoring.
■ Clearly define measures that are appropriate to the task
and that are realistic in terms of data availability and
resource availability.
893
■ Follow up on performance measures consistently, so
that appropriate actions can be taken in response to
changes. Change measures with care, keeping the un-
derlying goal in mind.
GLOSSARY
Benchmarking Comparison of one’s performance with that of
peers.
Data mining Searching of data (usually large quantities) for un-
derlying patterns or other information.
Summary measure A variable that integrates multiple underly-
ing parameters; for our purposes, the underlying parameters
could be performance measures pertaining to each of several in-
terrelated tasks.
The Future of Clinical Laboratories
XI
section editor: Paul Bachner
51 The Future of Pathology and Laboratory Medicine: Political, Social,
Economic, and Regulatory Impacts
Paul Bachner
52 The Future of the Clinical Scientist Workforce
Diana Mass and John R. Snyder
53 Electronic Health Records and Their Implications and Opportunities
for Laboratories
Walter H. Henricks
54 Current Trends in Instrumentation and Technology: Outlook for the
Future
Sheshadri Narayanan and Audrey N. Schuetz
55 The Future Practice of Laboratory Medicine
Paul Bachner and M. Desmond Burke
Introduction
51
The Current Environment of Healthcare
The Future of Pathology
Current Regulations
CLIA ’88 • HIPAA • OSHA Standards for
and Laboratory Medicine:
Occupational Exposure to Blood-Borne Pathogens •
The Stark Laws Political, Social, Economic,
Liability Considerations
The Future Regulatory Climate under
CLIA ’88
and Regulatory Impacts
Personnel Standards and Quality Control Standards •
Complexity Categories • Waived Testing • Changes to Paul Bachner
CLIA and Alternative Approaches
The Impact of HIPAA
Laboratory Requirements • The Future of HIPAA
OBJECTIVES
Bioterrorism
Recent History • Future Impact
To discuss major features of the current healthcare environment
Long-Term Effects: Legislation, To describe current regulations affecting laboratory practice
Regulation, Accreditation To identify likely future regulations and political and economic events
Quality, Value, and Patient Safety • The Patient Safety impacting pathology and laboratory practice
Movement
Issues Affecting Research and Academic
Laboratories
Stem Cell Research • Biorepositories
All predictions are wrong, that’s one of the few certainties granted to mankind.
Restrictive Patents and Restraints on But, though predictions may be wrong, they are right about the people who voice
Use of Human Tissues them, not about their future but about their experience of the present moment.
Summary
M. Kundera (14)
KEY POINTS

I
GLOSSARY t is alleged that Henry Ford observed, “History is bunk.” If he was
REFERENCES correct, predictions about future events are even more suspect. Given the
APPENDIX volatility of current political, economic, and social events and the enor-
mous changes that we have witnessed in the science, technology, and practices
of healthcare during the last half of the 20th century and the first decade of the
21st, any attempt at predicting the future is undertaken with considerable te-
merity and only because it is extremely unlikely that readers of the future will
remember the accuracy of prior predictions. It is my intention to examine the
current environment of healthcare with particular attention to political, social,
economic, and regulatory factors and to attempt to identify trends within and
external to that environment that are likely to influence future developments. I
will restrict myself to trends that I believe will emerge during the next decade;
any attempt to try to “see” farther into the future would be foolhardy since I
firmly believe the axiom that prediction is very difficult, especially about the
future. Rather than making explicit predictions, I will emphasize emerging
and at times conflicting trends and suggest what I believe to be likely options
and directions that may arise in response to those trends. My summary of
regulatory requirements is meant to be illustrative only. Readers are referred
Clinical Laboratory Management, 2nd Edition
to the references and to websites within the text that provide greater detail and
Edited by L. S. Garcia additional information. Readers are also strongly urged to seek legal and other
©2014 ASM Press, Washington, DC professional advice for specific issues related to their own laboratory practice
doi:10.1128/9781555817282.ch51
and environment.

897
898 THE FUTURE OF CLINICAL LABORATORIES
The Current Environment of Healthcare
A high level of volatility and uncertainty, reflecting the po-
litical, economic, and social instability of our current envi-
ronment, characterizes healthcare in the United States in the
second decade of the 21st century. Our country—as well as
the global economy—which had enjoyed a prolonged period
of political stability, economic growth, and prosperity, is now
enmeshed in global economic uncertainty and concerns
about national security. Funding and support for healthcare
are diminishing, and the economic future of healthcare is
hostage to the following identifiable trends and concerns:
• A growing federal deficit and concerns about the fu-
ture sustainability of Medicare and Medicaid.
• An increasing inability of state budgets to fund rising
Medicaid expenditures.
• The expanding potential of molecular technologies to
identify a potential for disease at the genotypic level
prior to the onset of detectable phenotypic changes.
• A healthcare insurance and delivery system plagued by
problems of access, quality, and safety.
• An insurance, payment, and delivery system for
healthcare, sometimes loosely described as “managed
care,” that is increasingly viewed as dysfunctional by
consumers (formerly known as “patients”), providers,
and employers, the latter constituting the primary but
decreasing source of funding for health insurance for
the employed sector of the population.
• Continuing major increases in healthcare costs driven by
the aging of the population and the growth of technology.
• A highly politicized climate of blame and intense con-
troversy in which the various players in the healthcare
arena—insurers, drug companies, patients, providers,
lawyers, politicians, and economists—reproach each
other and advance conflicting solutions. Although sig-
nificant modification of the managed-care system has
occurred, there is a notable absence of any consensus
about the contours of politically or economically vi-
able alternatives. The Affordable Care Act, which was
passed during the first term of the Obama administra-
tion, contains provisions that radically alter all aspects
of healthcare delivery and financing. Although the
constitutionality of major provisions and the core of
the entire law were affirmed by the Supreme Court in
June of 2012, the ultimate fate of the Affordable Care
Act—the specifics of its implementation as well as the
trajectory of decreasing financial resources available
for healthcare—remains unclear. It may be that specific
events such as the February 17, 2012, congressional
cut in Medicare lab fees ($2.7 billion over 10 years) to
pay for the Medicare physician fee “fix” is but an early
example of how reduced funding will differentially
impact healthcare providers and lead to increasing
conflict over the allocation of resources.
Current Regulations
Historically, regulations concerning public health and
healthcare in general, as well as those affecting laboratory
medicine specifically, have tended to reflect social and po-
litical concerns. They have also reflected the periodicity of
alternating cycles of regulatory enthusiasm for consumer
protection versus the traditional American reluctance to
restrict and regulate commerce. The locus of regulations
concerning public health and the laboratory community
has traditionally been at the state level, reflecting a con-
stitutional and judicial preference to default health and
welfare issues to the states. The initiatives to establish and
regulate public health and safety testing that took place in
the middle years of the 20th century were largely at the
level of municipal and state health departments and were
concerned primarily with environmental issues such as
safe water, food, sanitation, and infectious disease preven-
tion. In the closing years of the 20th century, Congress
turned its attention to legislation and regulation in health-
care, perhaps the two most striking examples of which
are the Clinical Laboratory Improvement Amendments
of 1988 (CLIA ’88) and the Health Insurance Portability
and Accountability Act (HIPAA). The “four horsemen” of
federal laws and regulations that are particularly pertinent
to pathology and laboratory medicine services are CLIA
’88, HIPAA, the Occupational Safety and Health Admin-
istration (OSHA) standards for occupational exposure to
blood-borne pathogens, and the so-called Stark regula-
tions that prohibit self-referral by healthcare providers.
CLIA ’88
CLIA ’88 represents the foundation of regulation and ac-
creditation of laboratory testing in the United States (1, 2).
Subsequent to a series of Pulitzer Prize–winning newspaper
articles that appeared in the Wall Street Journal in 1988 that
described major flaws in cytopathology testing in so-called
“pap mills” and laboratory testing practices in physicians’
offices, a series of congressional hearings resulted in the
very rapid passage by Congress and the signing into law
of the CLIA ’88 amendments by the president. Although
the law was enacted in 1988, the regulations were not
implemented until 1992, in part because of a prolonged
and contentious rule-making process involving two fed-
eral agencies, the Health Care Financing Administration,
now called the Centers for Medicare and Medicaid Ser-
vices (CMS), and the Centers for Disease Control and Pre-
vention (CDC). An extended public commentary period
ensued, characterized by lobbying efforts by organized
medicine and by the laboratory equipment manufactur-
ing industry as well as by groups representing hospitals
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE
to make the regulations less stringent. At the same time,
organizations representing laboratory professionals ar-
gued to maintain existing personnel and quality control
standards. Although changes to the regulations continue
to be made, the amendments in their current form have
been well established for many years and are applicable to
all testing performed on humans, with few exceptions and
without regard to venue of testing (site neutrality). The
regulations encompass personnel standards, patient test
management, quality assurance, proficiency testing, provi-
sions for inspection and certification, and both civil and
criminal penalties for noncompliance. Inspection and ac-
creditation options are multiple and include government
and private-sector organizations such as the College of
American Pathologists and The Joint Commission.
HIPAA
Congress enacted HIPAA partially in response to public
concerns about portability of employer-provided health
insurance for workers changing jobs as well as related con-
cerns about denial of insurance coverage for preexisting
medical conditions. The administrative simplification com-
ponents of the law—which were enacted very much below
the radar of major insurance industry, hospital, and health-
care professional organizations—contain far-reaching stan-
dards concerning simplification of electronic transactions
and the privacy and security of protected health informa-
tion (PHI). The privacy standards do the following:
• Limit the use and disclosure of PHI
• Provide patients the right to access their medical rec-
ords, to know who has accessed their records, and to
request amendments to their records and restrict ac-
cess to their records
• Restrict disclosure to “minimum necessary” purposes
• Establish criminal and civil penalties for improper use
and disclosure and restrict access to records for re-
search purposes
The regulations permit the use and disclosure of PHI for
treatment, payment, or healthcare operations (e.g., quality
assurance, accreditation, certification, credentialing, and
medical review) without consent or authorization and also
allow for disclosure of PHI for treatment by another health-
care provider. More complete information can be found at
http://www.hhs.gov/ocr/privacy/hipaa/understanding/
summary/index.html (accessed June 30, 2012).
OSHA Standards for Occupational Exposure to
Blood-Borne Pathogens
The standards for exposure to blood-borne pathogens
were promulgated in 1991 by OSHA, part of the Depart-
ment of Labor, in response to widespread concerns by or-
ganized labor—particularly unions representing healthcare
899
and hospital workers—about the inadequacy of protective
practices, equipment, and other safeguards for employees
with regular and predictable exposure to body fluids and
substances with the potential to transmit human immuno-
deficiency virus and hepatitis B virus. More complete in-
formation can be found at http://www.osha.gov/SLTC/
bloodbornepathogens/index.html (accessed June 30, 2012).
The Stark Laws
The Stark regulations constitute a series of congressional
actions enacted sequentially over a period of several years
that severely limit referral of a wide variety of services—
including laboratory testing—to entities in which the re-
ferring provider has a financial stake. The regulations are
named for Rep. Fortney “Pete” Stark (D–CA), who was the
legislative sponsor of the initial regulations enacted in 1992
(Stark I) that prohibited a physician from making Medicare
referrals for clinical laboratory services if the physician or
an immediate family member had any financial relationship
with the laboratory. The Stark II legislation, enacted in 1993,
extended the regulations to Medicaid and broadened cover-
age to 10 additional health services, including, among others,
occupational and physical therapy, durable medical equip-
ment, radiology, and radiation therapy. The regulations are
very complex and difficult to interpret and have spawned a
new industry of lawyers and consultants specializing in the
intricacies of the regulations. The Stark regulations have
been regarded by some as inhibiting innovative and poten-
tially beneficial restructuring of the relationships between
healthcare providers and other entities. Enforcement by the
government, particularly the Justice Department, is closely
linked to other “fraud and abuse” enforcements under a
variety of federal antikickback and “false claims” statutes
(4). An area of concern to pathologists as well as hospital
and independent laboratories has been the in-office ancil-
lary services exemption under the Stark laws, which allows
specialty physician groups (urologists, dermatologists, gas-
troenterologists) to “in-source” pathology professional and
technical services into their office practices. The services are
provided by affiliated or contracted pathologists and labo-
ratory entities; revenue is diverted to the clinical practice.
The exemption is supported by physician groups who argue,
somewhat questionably, that provision of service in the office
facilitates continuity and immediacy of patient care. A recent
study from Georgetown University (17) demonstrated that
self-referring urologists billed Medicare for approximately
72% more biopsies than urologists who derived no financial
benefit from the pathology studies.
Liability Considerations
Although the scope of this chapter precludes a discussion
in detail, a presentation of legislative and regulatory influ-
ences on the practice of medicine and laboratory medicine
900 THE FUTURE OF CLINICAL LABORATORIES
is incomplete without mention of the enormous impact of
the judicial system and medical liability concerns on pa-
thology and laboratory practice. Decisions by juries and
judges at primary and appellate levels as well as increas-
ingly high monetary awards for noneconomic damages
(“pain and suffering”) are increasingly having an impact on
decisions that hospitals and physicians make concerning
services to be offered and the circumstances under which
services should be made available. This impact may also
play a role in decisions concerning how laboratory medicine
and pathology are practiced. Specific examples include con-
cerns about the reporting of results from methods not ap-
proved by the Food and Drug Administration or decisions
by blood transfusion services not to implement available
screening tests for infectious markers absent clear mandates
or regulatory requirements. Although neither of these prac-
tices constitutes violations of existing laws or regulations,
concerns about possible future civil law claims of failure to
follow “standards” may determine operational decisions by
laboratory services. It is widely acknowledged that a major
motivation for overutilization of laboratory and imaging
studies is attributable to desires to avoid liability exposure.
The Future Regulatory Climate
Under CLIA ’88
Congress conceived CLIA ’88 to protect consumers against
shoddy and poor-quality laboratory testing, particularly in
physician office laboratories and “pap mills” in which cy-
totechnologists were paid “by the slide.” Although widely
viewed by the organized physician community as an intru-
sion into the practice of medicine as well as a regulatory
overreach by the federal government and conversely by
some segments of the professional laboratory community
as a dangerous lessening of federal standards for testing
personnel, CLIA has by now been generally accepted—
albeit with some reluctance—by most interested parties as
the law of the land, and it is unlikely that in the foreseeable
future there will be serious legislative initiatives to repeal
or significantly modify CLIA. The broad outlines of labo-
ratory practice under CLIA will continue in the foresee-
able future to include the following three features.
Personnel Standards and Quality Control Standards
Personnel standards, quality control standards, and in-
spection requirements will vary with the complexity of
testing categories. Some modification in quality control re-
quirements will reflect changes in technology, particularly
the advent of unitized, self-contained testing platforms.
Recent changes have included the promulgation of a single
set of quality control standards for all nonwaived testing
(moderate and high complexity) as well as a reduction in
frequency requirements for most specialties and subspe-
cialties of testing (7).
Complexity Categories
Complexity categories are based upon analyst training
and experience in the testing performed as well as the op-
erational characteristics of testing that is performed. The
complexity categories may remain as (i) high complexity,
e.g., histopathology, cytopathology, cytogenetics, blood
banking, histocompatibility, and complex chemistry, he-
matology, and microbiology procedures; (ii) moderate
complexity, for the bulk of routine hematology and chem-
istry procedures; (iii) provider-performed microscopy,
encompassing a limited number of procedures (e.g., mi-
croscopic urinalysis) commonly performed in physician
offices in conjunction with patient visits; and (iv) waived
testing, performed in any location with essentially no qual-
ity control or personnel requirements and without any
inspection requirement. Recent revisions have simplified
complexity categories into waived and nonwaived catego-
ries only, although personnel requirements remain differ-
ent for moderate- and high-complexity tests.
Waived Testing
In the decade since the regulations were implemented, the
category of waived testing has undergone the most change,
with a striking expansion of the original list of eight
waived tests to the current number in excess of 1,000 pro-
cedures. Although many of these tests represent alternative
analytic versions of common tests such as hemoglobin, oc-
cult blood, and cholesterol, more esoteric procedures have
been approved in recent years (e.g., influenza virus test-
ing, coagulation tests). There will be continuing efforts at
the regulatory level to increase the scope and breadth of
waived testing and continuing debate about the relative
allocation of the responsibility for guaranteeing quality
testing standards between the laboratories and the manu-
facturers of diagnostic systems.
Changes to CLIA and Alternative Approaches
Other changes to CLIA have been recently announced and
include changed requirements for frequency of quality
control, an increased regulatory focus on personnel quali-
fications and competency, and increasing emphasis on the
role of the laboratory director for laboratory operations
and ensuring the quality of testing (21). The CMS has re-
vised the guidelines to include risk management principles
similar to those used in manufacturing industries.
A general consensus exists that the major components
of CLIA pertaining to the complexity model, personnel
standards, patient test management, quality control, and
proficiency testing will not change substantially. Change
could occur through legislative action, but incremental
change through regulatory action is more likely and would
be far less likely to result in disruptive impacts on labo-
ratory practice. Because of the rapid momentum of ad-
vances in genomic medicine and the promised transition
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE
to next-generation sequencing and other technologies, the
clinical, societal, and privacy implications of these modali-
ties will invite regulatory attention (8, 11).
It is probable that increased oversight of lab-developed
tests (LDTs) will occur. The Food and Drug Administration
(FDA) has draft guidelines under review addressing FDA
concerns about the ability of test manufacturers to bypass
FDA approval through the CLIA process, which does not
address clinical validity. The FDA is expected to seek the
ability to review LDTs based on a risk model. An alterna-
tive approach is contained in a bill that has been introduced
into Congress (H.R. 3207) that would move regulatory
oversight from the FDA to CLIA and thus allow the CMS,
through CLIA, to review tests for clinical validity. As of this
writing, the FDA has not yet released its proposals for com-
ment, and the future of the House bill is uncertain.
The Impact of HIPAA
In the opinion of many knowledgeable observers, HIPAA
may have been the most important legislative and regu-
latory event impacting healthcare in the first decade of
the 21st century. The final privacy rule regulations speci-
fied that by April 14, 2003, laboratories that transmit data
electronically must implement policies and procedures
safeguarding against unauthorized use of or disclosure of
identifiable patient information.
Laboratory Requirements
To comply with the regulations, a laboratory is required to
do the following.
• Designate a “privacy official” to assume responsibility
for developing and implementing privacy rules and pro-
cedures. This individual may have other responsibilities.
• Develop specific policies and procedures stating how
PHI may be used and disclosed by its employees and
agents and state how the laboratory intends to comply
with the HIPAA rules.
• Train all personnel on understanding and enforcing
privacy policies and procedures. Documentation of
training must be available.
• Prepare a notice of privacy practices explaining how
the laboratory will protect, use, and disclose PHI.
While direct treatment providers must make a good-
faith effort to obtain written acknowledgment from the
patient of provision of the notice of privacy, patholo-
gists and laboratories, as indirect providers, are exempt
from this requirement.
• Establish administrative, technical, and physical safe-
guards for PHI. These may include periodic audits,
password protection schemes, and physical safeguards
such as secured backup copies of patient data.
901
The Future of HIPAA
In view of these mandates, it is now obvious that HIPAA
has had enormous operational and economic impacts
upon the entire healthcare industry. The scope and extent
of these impacts and efforts to respond to the regulations
have required the expenditure of significant economic and
human resources and will continue to do so in the future.
Although the societal benefits of HIPAA in safeguarding
patient privacy are obvious, the law and the implementing
regulations clearly constitute another unfunded mandate
for an already heavily burdened healthcare system.
Bioterrorism
Recent History
In the wake of the events of September 11, 2001, credible
threats of terrorism that include the potential for use of
nuclear, chemical, and biological agents have had signifi-
cant impacts on the funding and costs of providing labo-
ratory services. The identification of clinical cases and
environmental contamination attributable to deliberate
dissemination of Bacillus anthracis through the mail sys-
tem during the early part of 2002 brought this lesson home
to a number of microbiology laboratories. These events
and the fear of additional terroristic uses of other infec-
tious agents—not to mention the concurrent emergence of
other “natural” biological threats to public health such as
acute respiratory syndrome, West Nile, Middle East Res-
piratory Syndrome, bird flu, and other variant influenza
viruses—have not only alarmed the public, the govern-
ment, and the medical and microbiological community,
but also focused attention on technical capabilities, bio-
logic safety infrastructure, and staff preparation.
Future Impact
The potential for utilization of these agents for terroristic
purposes remains a concern. Public anxiety and govern-
mental action in response to these threats may have sig-
nificant budgetary impacts on a wide variety of healthcare
facilities, including laboratories. These budget impacts will
reflect training costs, acquisition and deployment of equip-
ment, facility modification, and other unfunded mandates,
such as the CDC-issued rules (August 2002) requiring all
laboratories to report to the government whether they are
in possession of “select agents” that could be used in a bio-
terrorist attack. The rule is available on the CDC website
at http://www.cdc.gov/od/ohs/1rsat/possess.htm (accessed
June 30, 2012).
Increased federal concerns about laboratory prepared-
ness may generate some increased funding for specific
areas of the laboratory; it is more likely that in the event
of actual or suspected biological attacks, the impact on
all areas of the laboratory will be to significantly increase
902 THE FUTURE OF CLINICAL LABORATORIES
utilization of laboratory services not only for unusual di-
agnostic challenges but also because of potentially massive
increases in demand for routine laboratory services re-
quired for the care of large numbers of acutely ill patients.
Long-Term Effects: Legislation,
Regulation, Accreditation
It is important to remember that legislative and regula-
tory mandates—both of which are closely intertwined
with the requirements of accreditation and certification
organizations—play a significant role in the delivery of
healthcare services and the conditions of access to those ser-
vices. In general, in addition to other economic imperatives,
increases in the often fixed “overhead” costs of regulations
tend to be more easily absorbed by larger entities, particu-
larly in an industry in which prices and payments are of-
ten fixed by regulatory authority or subject to market force
constraints. Thus, any increase in regulatory burdens can
be expected to accelerate the trend toward aggregation of
laboratory services into larger and larger entities. The trend
toward aggregation in the laboratory industry will be sec-
ondary to the larger trend of consolidation of hospitals and
hospital systems in response to economic considerations
and changes in the healthcare system driven by the Afford-
able Care Act or successor regulations and legislation.
Quality, Value, and Patient Safety
The landmark report of the Institute of Medicine (IOM)
published in 1999, To Err Is Human: Building a Safer
Health Care System (13), has had a transformative impact
on the agenda of medicine and healthcare and, therefore, on
the practice of pathology and laboratory medicine. The as-
sertion that as many as 98,000 patients die annually be-
cause of medical error has driven initiatives to improve the
quality of care and to minimize risk to patients. A 1999
study (3) claiming that medical errors were responsible
for an estimated annual cost of $17 to $29 billion further
highlighted the criticality of this problem. Many educa-
tional, administrative, and regulatory changes at both the
national level and at the level of individual hospitals and
caregivers have been deployed. Some have argued that the
numbers cited in the IOM report may be excessive (5), and
others have argued that they underestimate the gravity of
the problem. Most agree, however, that efforts have met
with variable degrees of success, although the consensus is
that the ambitious goals of the IOM report have not been
met (3, 5, 15). The impetus to imbed value, quality, and
patient safety into everyday healthcare will continue and
will become linked to the efforts to make healthcare more
efficient and less costly. Hospital and physician “report
cards” are available from both private and governmental
sources (9) and were initially introduced as voluntary ef-
forts to spur improvement and to provide consumers and
payors with data concerning performance. However, the
use of such data to provide both rewards and punishments
through payment and public disclosure has started (19).
The Patient Safety Movement
The societal, market-driven, and political pressures for
increased standardization in healthcare have led to a va-
riety of initiatives to monitor and improve patient safety
by many powerful private-sector and government entities.
Many of these entities serve as a source of comparative
data, performance-based ratings, and benchmarks. It is
likely that as the impact of these initiatives becomes ap-
parent, demands for external standards will become more
prevalent in all areas of medical and laboratory practice—
scientific, operational, fiscal, and legal. The interactions
between the above-described initiatives for standardiza-
tion, patient safety, and error prevention with the move-
ment for evidence-based medicine will be considerable
and important. It is already evident that the prevention of
adverse events (i.e., error) has been confounded with other
aspects of provision of optimal care (16). It may be reason-
able to predict that standardization of laboratory practice
arising from multiple sources, such as consolidation of
laboratories and laboratory testing platforms, automation,
bar-coding, and other “fail-safe” patient and specimen
identification systems, including standardized nomencla-
tures and languages (18), will have a positive impact on
patient safety outcomes. The availability of standardized
nomenclatures and languages that will allow for coded
capture, aggregation, and retrieval of granular (detailed)
data expressed in a variety of terminologies and across a
variety of information systems will become increasingly
important in patient safety and quality improvement ef-
forts as well as for more mundane operational applica-
tions. The efforts of public and private sector organizations
to promote increased standardization and improvement in
educational practices will also play a positive role (20).
Several recent trends including growth in point-of-care
testing, increasing autonomy of nurse and mid-level practi-
tioners, and a well-informed consumer-oriented public will
generate initiatives to increase patient involvement with and
control of their medical care. This will facilitate patients’ di-
rect access to clinical laboratory tests, already provided by
some laboratories subject to state regulations. The Depart-
ment of Health and Human Services, the Centers for Medi-
care and Medicaid Services, the Centers for Disease Control
and Prevention, and the Office for Civil Rights proposed a
rule in September 2011 that will allow patients to have direct
paper or electronic access to their laboratory results from
the performing laboratory. Many arguments have been
made in favor of and opposing this rule (10). If the rule is
implemented, changes in both the CLIA and HIPAA regula-
tions will need to be made, and the impact on laboratory
operations and costs is likely to be significant.
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE
The continuing push to improve quality and patient
safety coupled with cost control mechanisms will increas-
ingly limit payment to laboratories and pathologists, al-
though the impact on the latter is more likely to mirror
reductions in payment to all physicians. Medicare’s Physi-
cian Quality Reporting System (PQRS) has been in place
for several years as a form of pay-for-performance. The
latter is a generic approach to payment for hospital and
professional services that provides additional payments
for demonstrated performance of certain indicators. It is
inevitable that the carrot of additional payment will even-
tually morph into the stick of reduced payment if indica-
tors are not met successfully. This methodology is an early
manifestation of a general move for bundled payment for
services to replace fee-for-service. While this methodol-
ogy of “payment for performance” has not yet materialized
in the clinical laboratory arena, there are now five PQRS
measures for pathology (use of reporting templates for
breast, colon, and prostate cancer; documentation of Bar-
rett’s esophagus; documentation of HER2 testing for breast
cancer), and additional measures can be expected.
Issues Affecting Research and
Academic Laboratories
The future of academic laboratories—the traditional
source for much of the innovation and new knowledge
that has infused American medicine—remains cloudy and
is linked to the future of academic health centers (12, 6).
This uncertainty reflects many realities, including the fis-
cal perils facing academic health centers as they attempt to
fulfill their traditional missions of patient care, education,
and research in the face of decreasing clinical revenues, flat
or diminishing support for teaching activities, and height-
ened competition for research funding as NIH research
support declines.
Stem Cell Research
An area of research and laboratory practice that will be
critically impacted by political developments, and there-
fore by complex and interrelated legislative, regulatory, and
administrative events, is stem cell research and, eventually,
the application of so-called cloning technology to medical
practice in two broad areas: tissue and organ transplanta-
tion and reproductive technology. The cloning research is-
sue is closely tied to the highly emotional controversy over
abortion and genetic manipulation and has elicited strong
and conflicting opinions from various constituencies, in-
cluding the research and medical community, religious
groups, and organizations committed to the research and
treatment of specific diseases. Absent some compromise
solution to this controversy, the continuing uncertainty of
funding and the threat of federal and state restrictions on
research in both reproductive and stem cell cloning will
903
impede research into stem cell technology and may drive
investigators to other countries that are more supportive
of stem cell research. The highly specialized technology
suggests that clinical applications of stem cell research will
take place in dedicated laboratories. However, over time,
some of these functions may migrate into larger general
laboratory settings to take advantage of the economic and
operational advantages of centralization.
Biorepositories
Concurrent with the explosive growth of molecular genetic
testing and the development of “personalized” medicine,
the need for biospecimens that can be used for research
linking particular therapies to specific disease entities such
as neoplasms has become imperative. The increasing re-
search and clinical demands for validated biospecimens
can be expected to lead to significant growth in the num-
ber and size of biorepositories. Although many of these
will be located in academic and research settings, it is pos-
sible that other clinical and commercial entities may estab-
lish such facilities as well.
Although many biorepositories (biobanks) have es-
tablished policies and procedures that ensure appropriate
specimen sourcing, identification, accessioning, storage,
processing, and distribution, there is little data concerning
the overall compliance of biorepositories with good practice.
The College of American Pathologists has recently inaugu-
rated an accreditation program that attempts to provide doc-
umentation and confirmation of good practices (see http://
www.cap.org/apps/docs/laboratory_accreditation/lap_info/
bio_brochure_042011.pdf, accessed June 30, 2012).
Restrictive Patents and Restraints
on Use of Human Tissues
Two other areas of concern to research and clinical labora-
tory practice are restrictive patents and excessive restraints
on the use of human tissue and data for research and clini-
cal purposes. In general, the laboratory community has
opposed attempts to patent life forms and has argued that
attempts to do so will impede scientific progress, lead to
high laboratory testing costs, and impede access of patients
to necessary testing. This view is strongly supported by
professional and public organizations in the United States,
Canada, and Europe, but industry and portions of the aca-
demic research community argue that to eliminate genetic
patenting will impede research. Recent decisions by the Su-
preme Court that the human genome cannot be patented
will undoubtedly have a major impact on the ability of labo-
ratories to develop modifications of genetic tests previously
restricted by patents as well as spur competition by alterna-
tive suppliers. However, there remains considerable uncer-
tainty about the ultimate impact of the decision on the ability
to patent diagnostic tests based upon genetic principles.
904 THE FUTURE OF CLINICAL LABORATORIES
Summary
Political, social, and economic trends and events are inex-
tricably intertwined and often interact with the legislative
and regulatory arena in unpredictable ways. The economic
future of healthcare funding in the United States remains
uncertain and subject to continuing competition for re-
sources within and external to the healthcare industry. As
U.S. healthcare costs continue to rise and significantly ex-
ceed costs in other developed economies, it is predictable
that legislative and regulatory mandates as well as market
forces will constrain that rate of growth and impose sig-
nificant reductions on available resources for all areas of
healthcare including the laboratory and pathology. It is
also predictable that the allocation of resources will in-
creasingly take into consideration the value and effective-
ness of services that are delivered.
As hospitals respond to increasing economic pressures
by seeking reductions in costs, laboratory services will be
required to implement immediate and long-term reduc-
tions in costs. These may include, in addition to reduction
in services and attempts to control utilization, enhanced
deployment of front-end and tube-specific automation,
robotic technologies, and consolidation of technologies on
unitary testing platforms, middleware, and miniaturiza-
tion. These initiatives will be inevitably accompanied by
increasing concentration within the healthcare delivery
and laboratory industry. Parallel phenomena will include
increasing “commoditization” of the laboratory product,
the growth of point-of-care testing, “consumerism,” and
self-directed healthcare, including direct-access testing.
All of these phenomena will occur in the context of the
globalization of communication and other components of
healthcare and laboratory practice.
In tandem with those mandates, the medical model
will shift to one dominated by a medical effectiveness
and “a need to know” strategy that will compel a linkage
between the gathering of patient data (testing), available
therapeutic and management options, and positive out-
comes (clinical relevance). Although the progression may
be less rapid than predicted by some, I believe that the da-
tabase of pathology and laboratory medicine—currently
characterized by static and discontinuous phenotypic,
quantitative, and morphological observations—will be su-
perseded by an augmented and integrated continuum of
morphologic, immunophenotypic, genetic-proteomic, and
clinical information. All of these will be linked by increas-
ingly sophisticated information systems that will integrate
alphanumeric, graphic, and digital data in real time. Thus,
the paradigm will shift from morphological and other clas-
sification schemata based on laboratory data to classifica-
tion hierarchies that recognize biological heterogeneity and
clinical relevance with an increased emphasis on specific
disease entities susceptible to targeted therapies (“personal-
ized or precision medicine” and “companion diagnostics”).
An interesting and important side effect of this emphasis
for the laboratory and pathology community will be the
blurring of the traditional distinction between anatomic
and clinical pathology. The time frame in which these pre-
dictions will take place will be influenced by the rate of
development of technology, by the extent to which health-
care will remain as a social contract or will be replaced by a
purely marketplace ethic, and to an unpredictable extent by
external events totally unrelated to healthcare.
KEY POINTS
■ Laboratory practice is currently constrained and will be
increasingly so in the coming years by political, social,
economic, and regulatory considerations.
■ The most important of the regulatory constraints will
be CLIA ’88, HIPAA, OSHA, and enforcement under
the Stark regulations as well as related fraud and abuse
statutes.
■ Funding and payment restrictions, concerns about legal
liability, patient safety, and a changing medical model
emphasizing effectiveness and evidence-based care will
also significantly impact how laboratory services will be
delivered.
GLOSSARY
Centers for Disease Control and Prevention (CDC) The fed-
eral agency within the Department of Health and Human Ser-
vices with broad responsibility for disease monitoring and
prevention, epidemiology and statistics, and laboratory practice.
Centers for Medicare and Medicaid Services Formerly the
Health Care Financing Administration. The federal agency
within the Department of Health and Human Services with pri-
mary responsibility for payment and payment standards for the
Medicare and Medicaid programs.
Clinical Laboratory Improvement Amendments of 1988 (CLIA
’88) A federal law and regulations constituting the foundation of
regulation and accreditation of all laboratory testing in the
United States. The amendments are applicable to all testing per-
formed on humans in all locations. Complexity categories are
based upon analyst training and experience as well as operational
characteristics of testing that is performed. They include (i) high
complexity (e.g., histopathology, cytopathology, cytogenetics,
blood banking, histocompatibility, and complicated chemistry,
hematology, and microbiology procedures); (ii) moderate com-
plexity, for the bulk of routine hematology and chemistry proce-
dures; (iii) provider-performed microscopy, encompassing a
limited number of procedures (e.g., microscopic urinalysis)
commonly performed in physician offices in conjunction with
patient visits; and (iv) waived testing, performed in any location
with minimal quality control and personnel requirements and
without any inspection requirement. In 2003, a final rule was is-
sued in the Federal Register that defined some new regulations
and changed the categorization of tests to two categories (waived
and nonwaived tests).
 CHAPTER 51. FUTURE OF PATHOLOGY AND LABORATORY MEDICINE
Evidence-based medicine An approach to the teaching and
practice of medicine that utilizes literature review and outcome-
based studies of effectiveness and possible harm to patients,
rather than tradition or anecdotal experience, to guide diagnos-
tic and treatment interventions.
Health Insurance Portability and Accountability Act of 1996
(HIPAA) Federal regulations establishing conditions for eligi-
bility and transferability of health insurance and provisions for
“administrative simplification” that promulgate far-reaching
standards concerning electronic transactions of health data and
the privacy and security of protected health information.
Indirect provider Under the HIPAA regulations an indirect
provider is an entity or individual (e.g., laboratory or patholo-
gist) without a direct treatment relationship to a patient. The in-
direct provider delivers healthcare based on the orders of another
provider and typically provides services or reports the diagnosis
or results to another provider.
OSHA A federal standard for occupational exposure to blood-
borne pathogens requiring the use of protective equipment
and other safeguards for employees at risk of occupational
exposure.
Stark regulations Federal regulations prohibiting referral of
laboratory and other health services to entities in which the re-
ferring provider has a financial interest.
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8. Evans, J. P., and J. S. Berg. 2011. Next-generation DNA sequenc-
ing, regulation, and the limits of paternalism. JAMA 306:2376–2377.
9. Fung, C. H., L. Lim, C. Mattke, and P. G. Shekelle. 2008. System-
atic review: the evidence that publishing patient care performance
data improves quality of care. Ann. Intern. Med. 148:111–123.
10. Giardina, T. D., and H. Singh. 2011. Should patients get direct
access to their laboratory test results? JAMA 306:2502–2503.
11. Hudson, K. L. 2011. Genomics, health care, and society. N. Engl.
J. Med. 365:1033–1041.
12. Iglehart, J. 2011. The uncertain future of Medicare and graduate
medical education. N. Engl. J. Med. 365:1340–1345.
13. Institute of Medicine. 1999. To Err Is Human: Building a Safer
Health Care System. National Academy Press, Washington, DC.
14. Kundera, M. 2002. The great return. The New Yorker. May 20.
15. Leape, L. L., and D. M. Berwick. 2005. Five years after To Err is
Human. JAMA 293:2384–2390.
16. Leape, L. L., D. M. Berwick, and D. W. Bates. 2002. What prac-
tices will most improve safety? Evidence-based medicine meets pa-
tient safety. JAMA 288:501–507.
17. Mitchell, J. M. 2012. Urologists’ self-referral for pathology of bi-
opsy specimens linked to increased use and lower prostate cancer
detection. Health Affairs 31:741–749.
18. Spackman, K. 2002. SNOMED CT unlocks the power of clinical
data for pathologists. Lab. Med. 33(3):1–4.
19. Wachter, R. M., N. E. Foster, and R. A. Dudley. 2008. Medi-
care’s decision to withhold payment for hospital errors. Jt. Comm. J.
Qual. Patient Saf. 34:116–123.
20. Wilson, M. L. 2002. Education and training: practice makes per-
fect. Am. J. Clin. Pathol. 118:167–169.
21. Yost, J. 2012. CLIA update: what’s on the agenda for 2012? Natl.
Intelligence Rep. 12(6):4–7.
906 THE FUTURE OF CLINICAL LABORATORIES
APPENDIX 51.1 Websites
Centers for Disease Control and Prevention
CDC regulations concerning guidelines for reporting select agents
potentially utilized for bioterrorism.
http://www.cdc.gov/od/ohs/1rsat/possess.htm (accessed
June 30, 2012)
College of American Pathologists
Description of new CAP accreditation program for
biorepositories.
http://www.cap.org/apps/docs/laboratory_accreditation/lap_info/
bio_brochure_042011.pdf) (accessed June 30, 2012)
U.S. Department of Health and Human Services
Federal rules concerning patient privacy regulations contained in
HIPAA law.
http://www.hhs.gov/ocr/privacy/hipaa/understanding/summary/
index.html (accessed June 30, 2012)
U.S. Department of Labor
Federal rules concerning prevention of infection with bloodborne
pathogens.
http://www.osha.gov/SLTC/bloodbornepathogens/index.html.
(accessed June 30, 2012)
Introduction
52
Essential Role in Healthcare • Other Continuing
Imperatives • A New Workforce • Laboratory
Paradigms • The Old Laboratory • The New
Laboratory • The Changing Workforce • Creating
Conditions of Good Work
The Changing Nature of Work
The Consultation Role and Process • Consultant
Skills • The Internal Consultant
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch52
The Future of the Clinical
Scientist Workforce
Diana Mass and John R. Snyder
OBJECTIVES
To describe laboratory practices that provide value-added services
To discuss the information society as it relates to clinical laboratory services
and patient safety needs
To define the “knowledge worker” and advocate the benefits of clinical
scientists who perform this role
To compare and contrast the old laboratory and new laboratory paradigms
and determine the value of the new laboratory as it improves patient safety
To describe conditions of good work, which can have a positive impact on
current clinical laboratory vacancy rates
To explain the consultation process and determine the benefits in clinical
laboratory practice as it relates to patient safety
To apply systematic reviews (ask, acquire, appraise, analyze, apply, and assess)
in determining evidence-based decisions
To characterize four interactive skills that contribute to the effectiveness of
consulting practice
To describe the various competencies of successful consultants
To assess the benefits to the healthcare delivery system when clinical scientists
act as consultants
The task is not so much to see what no one yet has seen, but to think what nobody
yet has thought about that which everybody sees.
Arthur Schopenhauer, 1788–1860
Introduction
Today’s laboratory manager faces a unique set of challenges in a healthcare
environment shaped by financial constraints and increasing federal regula-
tion. An imperative exists to ensure quality while exercising prudent fiscal
responsibility, and this within the context of a dramatically changing work-
force (12, 38) that must better serve patients in an era of expanding knowl-
edge and rapid change. Further, “value-added” laboratory services continue to
be today’s watchword because customer (patients, physicians, administrators,
etc.) satisfaction is necessary to achieve the goal of long-term sustainability
and economic success for the laboratory (22, 38). The focus of this chapter
is this value-added service, that is, service that addresses effectiveness (Does
it work?) as well as cost and efficiency. This can only be accomplished if the
right test is ordered and interpreted properly. Regardless of how accurate and
907
908 THE FUTURE OF CLINICAL LABORATORIES
precise the result is, it is of no value unless it contributes to
appropriate and timely diagnosis and treatment (4). Thus,
the future workforce not only must provide accurate and
reliable laboratory results but also must be prepared to in-
teract with healthcare providers in a consultative manner
regarding appropriate test utilization (20, 22, 31, 38).
Essential Role in Healthcare
Traditionally the information provided by the clinical sci-
entist (clinical laboratory scientist/medical technologist)
workforce has been essential in supporting the diagnosis
and treatment of patients. There is no doubt that their ex-
pertise has provided information that physicians require to
make critical decisions regarding their patient care respon-
sibilities (4). In 1985, Strandjord estimated that 45% of
medical decision making relied on information generated
by laboratory tests (52). Today this number is estimated to
be 70% (21). The Mayo Health System demonstrated that
the laboratory contributes as much as 94% of the objective
data in a clinical record. Furthermore, this information is
accessed as often as 200,000 times per day as evidenced
by retrievals from an electronic medical record (22). Thus,
there can be no doubt that laboratory services are essential
to the delivery of healthcare. Additionally, a knowledge-
able and committed workforce that provides clinical labo-
ratory consultative services by communicating directly to
healthcare providers regarding appropriate testing options
is now increasingly essential. A recurring theme is the need
to improve laboratory services particularly in the preana-
lytical and postanalytical phases of the laboratory service
continuum (3). Studies have shown that the greatest num-
ber of errors occurs in the preanalytical and postanalytical
phases (6, 7), and thus the practices in these services pro-
vide the greatest opportunity for improvement.
The Laboratory Medicine Best Practices (LMBP) Ini-
tiative, sponsored by the Centers for Disease Control and
Prevention since 2006 (8), seeks to change the status quo.
The overall purpose of this effort is to improve the qual-
ity of laboratory medicine by promoting the use of effec-
tive, evidence-based practices. Using methods adapted
from other tested systematic review methods, the LMBP
method referred to as the A-6 cycle (10) has conducted
systematic evidence reviews to evaluate and identify prac-
tices that improve healthcare quality outcomes consistent
with the Institute of Medicine’s quality aims (safe, timely,
effective, efficient, equitable, and patient-centered) (27).
An evidence-based approach is applied through the sys-
tematic synthesis and appraisal of existing evidence to
answer questions and solve problems. The A-6 cycle has
six steps: ask, acquire, appraise, analyze, apply, and as-
sess. This evidence is used to evaluate practice effective-
ness and thus help clinical scientists and other healthcare
stakeholders determine what is effective, for whom, and in
what settings. With this type of evidence, consultants can
recommend medical laboratory strategies to change proto-
cols, procedures, or practices (50).
Engagement in the preanalytical and postanalytical
phases of laboratory service signals a fundamental shift in
the nature of laboratory work. The shift is away from a sole
focus on technology and the performance of procedures
and toward an enhanced focus on the generation of labora-
tory information, an “information revolution” in laboratory
medicine. Inherent in this information revolution are new
tasks related to gathering, distributing, and adding value to
the information provided by clinical laboratories (25, 46).
More than 20 years ago, Peter Drucker foresaw the
transformation from an industrial society to an informa-
tion society (15, 16). He noted a new era in information
technology, one in which information concepts would take
the place of a focus on data collection, storage, transmis-
sion, and presentation. Drucker proposed that the ques-
tion, “What is the meaning of information and its purpose?”
would help define a hierarchy of information. Indeed, data
as simply raw descriptors may help diagnostic and patient
management efficacy. Data in context becomes informa-
tion improving the care of patients. Information in light of
experiences and judgment becomes knowledge, improv-
ing therapeutic efficacy and effectiveness. Outcome-based
testing protocols support enhanced service and aggregate
cost savings but do require workers with expanded roles.
Drucker coined the term “knowledge worker” for those
fulfilling these expanded roles by gathering, distributing,
and adding value to information. Throughout this chapter,
the imperative for an information revolution in laboratory
medicine practice will be described with corresponding
implications for a future workforce composed of clinical
scientists as knowledge workers.
Other Continuing Imperatives
The Pew Health Professions Commission Report (1995) de-
scribed an emerging transformation of traditional health-
care practice into “systems of integrated care that combine
primary, specialty, and hospital services” that require ex-
traordinary collaboration skills across all levels and types
of healthcare professions (31). Almost two decades later
this concept has materialized in the accountable care or-
ganization (ACO), a major component of current health-
care reform proposals (http://www.healthcare.gov/news/
factsheets/2011/03/accountablecare03312011ahtml, last ac-
cessed October 19, 2012). Nowhere is the change more ur-
gent than in the clinical laboratory, where institutional goals
can be achieved only by effectively collaborating with other
healthcare practitioners to enhance the quality of diagnostic
and therapeutic decisions.
Subsequent to the Pew Report, the 1999 Institute of
Medicine report To Err Is Human: Building a Safer Health
System (27) was published, stating that as many as 98,000
people die annually in U.S. hospitals as a result of medical
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE
errors. This stunning statistic does not even represent
the additional deaths associated with missing a diagno-
sis from failing to order a laboratory test or incorrectly
interpreting test results (29). Two years later, in 2001, the
Institute of Medicine report Crossing the Quality Chasm:
A New Health System for the 21st Century reinforced the
critical necessity to decrease medical errors (26). The re-
quirement for educating physicians to utilize the appro-
priate tests and understand their clinical significance may
never have been greater than it is now. This is not a new is-
sue. The call for the laboratory to accept the responsibility
to directly communicate to physicians regarding proper
test utilization has been discussed for over 30 years (13).
Unfortunately, the will and courage in laboratory manage-
ment to do so have been lacking. The parochial view of
providing only test results and algorithms will not lead to
optimal patient care or financial success. Appropriate uti-
lization of the clinical scientist workforce will contribute
to enhanced patient safety and help to ensure that fiscal
objectives are met (12).
Now the clarion call is to be patient-centered. Pro-
gressive management is looking for ways to implement
practices that improve patient outcomes and are patient-
centered. Clinical laboratory scientists/medical technolo-
gists have for decades been taught clinical correlation with
disease status but have only recently been expected to
apply this knowledge in practice. In part this may reflect
resistance from the physician community but may also re-
flect insufficient leadership on the part of the laboratory
community to further this agenda. Consequently, an un-
derutilized laboratory workforce may be one of the factors
contributing directly to some of the safety, efficiency, and
effectiveness problems plaguing healthcare.
Engaging laboratory scientists in the pre- and postan-
alytical phases of testing requires a fundamental shift in
operations. Few scientists are engaged in the input subsys-
tem (physician order and requisition) despite their unique
understanding of the subtle differences in testing proce-
dures. Similarly, few scientists are consulted on the output
subsystem (physician review, interpretation, and appropri-
ate action) despite their knowledge of predictive value and
potential limitations of laboratory results (28).
To prepare and deploy a knowledge-based laboratory
workforce, and indeed legitimize the clinical scientist
worker title, laboratorians must be engaged in the testing
process as a scientific process, from posing hypothetical
answers, through generation and analysis of information
to illuminate those answers, to considering the patient care
outcome of those answers.
If the clinical scientist staff is more appropriately deployed
in an interactive, consultative role in improving test utiliza-
tion, it is expected that unnecessary testing will diminish,
which will have a very positive impact on the laboratory’s
budget. Additionally, a laboratory is most cost-effective if
909
the staff is used at the highest level of capability and poten-
tial, not their lowest (31).
A New Workforce
The emergence of clinical scientists as consultants rep-
resents a natural evolutionary growth in the role of the
clinical laboratory profession as it adapts to a changing en-
vironment. This emerging role is being fostered not only
by the need to improve laboratory test utilization (34), as
already discussed, but also by the extraordinary growth
of decentralized testing (47). In addition, the vast growth
of molecular testing, not only for familiar analytes or or-
ganisms, but for specific new and esoteric disease markers,
has created a need to improve communications between
clinical scientists and healthcare providers.
The increasing complexity of the clinical laboratory sci-
ences is causing many physicians to seek information and
to use interpretive guidelines, such as disease-specific care
maps, necessary to make optimal and cost-effective use of
the laboratory. These guidelines were first evidenced fol-
lowing the diagnosis-related group initiatives as a means
to reduce costs and provide more consistent patient care
(53). Rapid advances in clinical laboratory technology and
diagnostics have made it nearly impossible for physicians
and other healthcare providers to stay abreast of available
tests and their implications for diagnosis and treatment
(54). As primary care increasingly devolves to nonphysi-
cian providers, the need for guidance from the laboratory
will certainly increase.
Fueling this process are the medical-necessity guidelines
released by the Centers for Medicare and Medicaid Ser-
vices, formerly known as the Health Care Financing Ad-
ministration, which prohibit Medicare and Medicaid from
reimbursing for Part B services that are not medically nec-
essary and reasonable for the diagnosis and/or treatment
of the disease suspected (2). These guidelines have directly
affected laboratory test utilization; however, there still are
cases of misutilization and, more importantly, underuti-
lization. The clinical scientist is a natural link between the
clinical laboratory and other providers or patients on mat-
ters of test selection, specimen collection, interpretation
of test results in light of specimen quality and sources of
interference, and patient education. Laboratory profession-
als should be able to provide information, solve problems,
analyze situations, and implement decisions related to lab-
oratory testing (29). A good example is sepsis, a primary
cause of death in hospitals and a condition in which early
organism identification and antimicrobial susceptibilities
are vital to survival. Clinical scientists have a critical op-
portunity to consult with healthcare providers regarding
various diagnostic tests that can identify the cause of sepsis
in the early stages, thus improving patient outcomes (17).
The second development, decentralized and point-
of-care testing, reflects a variety of incentives and
910 THE FUTURE OF CLINICAL LABORATORIES
technological innovations that have caused a shift of diag-
nostic testing outside of hospital and private laboratories.
Decentralized testing continues to grow with respect to
types and numbers of tests because of the increased avail-
ability of less labor-intensive, more compact, and inexpen-
sive equipment as well as reliable diagnostic kits that offer
a wide range of testing. At these sites, physicians and other
healthcare providers require advice and instruction on clin-
ical laboratory practice and management (35). An example
of this is the emergency department’s use of different car-
diac markers and other analytes to diagnose specific condi-
tions in patients presenting with shortness of breath (48).
This new consultative role will enrich the work of
clinical scientists who desire new responsibilities that are
beyond the process of producing a test result. Now an
additional set of skills is also valued: skills to determine
whether a test should be done at all and that assist physi-
cians and other healthcare professionals to use the labora-
tory appropriately. Clinical scientists are well practiced in
problem solving. Now we need to take these skills outside
of the laboratory to the source of potential problems and
begin to prevent problems by interacting with physicians
and other healthcare providers to ensure better patient
care and patient safety (31, 36).
It is important to recognize that clinical scientist knowl-
edge workers do both knowledge work and “manual work”
(16). Performance of a laboratory procedure constitutes
manual work. Knowledge work related to the laboratory
procedure begins with data analysis and the use of per-
sonal intellectual capital (experience). Knowledge work
also includes consultation with other clinical service pro-
viders (pooled intellectual capital) and electronically avail-
able intellectual capital.
This new workforce of clinical scientist knowledge
workers has some unique characteristics, which managers
will need to recognize and support (15, 49):
• Knowledge workers are specialized.
• They are able to acquire and supply theoretical and
analytical knowledge.
• They are learning-based, prepared through formal
education.
• They exhibit the habit of lifelong learning.
Figure 52.1 The new interactive labo- Input
ratory model. Adapted from reference 3. (Preanalytical)
doi:10.1128/9781555817282.ch52.f1
Test
Ordered
• They are effective in teams.
• They seek meaning in their work and advancement
opportunities.
• They require flexible, fully networked and connected
environments.
• They reach decisions by consensus, not command.
Obviously, development and retention of knowledge work-
ers in laboratory medicine poses a challenge.
Laboratory Paradigms
Before describing specific consultative roles, it is useful to
discuss the new interactive laboratory and compare it to the
old, or traditional, laboratory. The concept of the new in-
teractive laboratory was formulated (4) prior to the Clini-
cal Laboratory Improvement Amendments of 1988 (CLIA
’88) (19); however, regulations promulgated under this law
defined a total testing process as a continuum in laboratory
practice that has been universally accepted by the laboratory
community. The CLIA ’88 concepts of preanalytical, ana-
lytical, and postanalytical activities serve as benchmarks for
laboratory practice. These three phases as they occur in the
new laboratory are described by Barr’s (4) model of labora-
tory utilization (Fig. 52.1) as input, process, and output.
The Old Laboratory
Today, many clinical laboratories still operate according
to the traditional laboratory model (Fig. 52.2), which is a
linear, unidirectional flow process of one activity preced-
ing the next activity. The major concern in this model is
the quality of the test performance and the production
features and internal organization of the laboratory (ana-
lytical phase). In the traditional model, the focus is on the
science and technology and quality of test performance,
and communication is almost nonexistent prior to the test
request or after the result is released. In this model, the
clinical laboratory is not concerned with clinical appropri-
ateness or interpretation of test results (4).
The New Laboratory
The new laboratory model (Fig. 52.3) is an interactive
process, and the scope of laboratory services is broader.
In this model, the focus is not only on the quality of test
Process Output
(Analytical) (Postanalytical)
Test Test
Performed Interpreted
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE 911

Input Process Output

(Preanalytical) (Analytical) (Postanalytical)

Test Test Test

Ordered Performed Interpreted Figure 52.2 Traditional laboratory
model. Adapted from reference 3.
doi:10.1128/9781555817282.ch52.f 2

data generated (process/analytical) but also on the clini-
cal appropriateness of test requests (input/preanalytical)
and the correct interpretation of and response to labo-
ratory information (output/postanalytical). The involve-
ment of the laboratory in the entire total testing process
will have a positive impact on patient outcomes, improve
the clinical relevance and value of the laboratory’s ser-
vice, and greatly enhance the cost-effectiveness of the
laboratory operation (4).
To demonstrate how appropriate test utilization will
promote a better integration of laboratory services into the
patient care process, Barr’s model is briefly described. In
the input phase, one must question if the test is appropri-
ate for the stage of the clinical condition and if the time of
specimen collection is correct. During the process phase,
one must determine if, within clinically relevant guide-
lines, the test result is accurate and precise and timely
with respect to the turnaround time needs of physicians.
Finally, in the output phase, one must evaluate if the re-
sults are properly interpreted and integrated into patient
care or if data overload is confusing or misleading physi-
cians. An expanded role in this case is to determine the
effectiveness of the laboratory services and the impact on
patient outcomes.
Barr’s model identifies the factors that affect the clini-
cian’s decisions or actions at each step of the laboratory use
process. It also demonstrates appropriate roles for the clin-
ical scientist at each step of this process. Starting with the

Figure 52.3 Model of laboratory utilization. MT/CLS, medical technologist/clinical laboratory

scientists. Adapted from reference 14. doi:10.1128/9781555817282.ch52.f3
912 THE FUTURE OF CLINICAL LABORATORIES
clinician’s assessment of the patient’s condition, the labo-
ratory utilization process proceeds in seven steps, which
result in the application and integration of the test results
into patient care.
If a test is not clinically indicated or the laboratory’s
precision is insufficient for that needed for clinical judg-
ments, or if the result is misinterpreted, then an accurate
and precise laboratory result is of no value. It must be ac-
knowledged that such tests are of no value because they
unnecessarily consume resources and may lead to diag-
nostic and therapeutic delay and patient harm (4, 31).
Medical laboratory sciences and medical technology
educational programs have historically included patho-
physiology, clinical correlation, algorithms, and more
recently clinical pathways in the curriculum (34). This
clinical knowledge was always a part of the graduates’
knowledge and skill mix, but they have not been called
upon to use it due to many historical factors including the
laboratory management’s lack of vision regarding the role
of this knowledge in the total testing process.
The Changing Workforce
The clinical laboratory profession continues to experience
unprecedented vacancy rates that will not be resolved in
the near future (56). Statistical projections show that an
overall expanding population that includes a large elderly
group with chronic health problems will require a greater
supply of healthcare professionals that currently are in
short supply (11). Meeting staffing needs has become the
laboratory manager’s most pressing problem on a daily
basis. As the shortage of certified medical technologists/
medical laboratory scientists continues to grow due to
fewer graduates entering the workforce and baby boom-
ers beginning to retire, laboratory managers are evaluating
staffing patterns needed for various testing methodologies.
While laboratory managers prefer to hire the most highly
educated personnel, the fact that these personnel are dwin-
dling is causing managers to assess the requisite skills nec-
essary to perform more routine procedures and hire less
educated personnel to fill this need (5).
The appropriate role of the various levels of clinical lab-
oratory personnel is the focus of much discussion and con-
tention today. While the staffing shortage is creating much
debate about the appropriate personnel levels required to
perform various types of testing, the concerns about pa-
tient safety are linked to the need to improve utilization in
order to improve patient outcomes. These two concurrent
challenges must be faced with creativity, innovation, and
courage by laboratory management to provide laboratory
services that not only are reliable but will also add value to
patient care.
Pontius interviewed the chief executive officers of
the major laboratory industry manufacturers in a series
of published articles. It is not surprising that most chief
executive officers believe that technology, automation,
and robotics will substitute for large numbers of personnel
(39–45). Indeed, this has been industry’s mantra for over
30 years (34). Many laboratories have moved to increas-
ingly automated operations including front-end automa-
tion. This direction, however, has proved inadequate, as
the demographic reduction in the workforce has deprived
laboratories of individuals with the cognitive abilities nec-
essary to provide accurate laboratory information for di-
rect patient care. It is increasingly evident that technology
and automation cannot substitute for qualified personnel
to the extent originally suggested (37).
Various factors, including the absence of state person-
nel licensure for clinical laboratories, have altered the mix
of people with various levels of training and credentialing
and have created serious problems for laboratory manage-
ment. In a profession dictated by stringent rules regarding
test performance, it is ironic and troublesome that rules
regarding personnel are so ambiguous and inconsistent.
The implementation of CLIA ’88 in 1992 forever
changed laboratory management’s perception of the lab-
oratory workforce. In essence, CLIA ’88 regulations gave
many laboratory managers permission to use less quali-
fied personnel to perform moderate-complexity tests. This
option allowed these managers to hire individuals with
less training and experience. In some laboratories, such
as large reference laboratories, this option may work well
if there is sufficient oversight. In other laboratories, par-
ticularly community hospital laboratories, this experiment
may have proven to be problematic.
Forecasting or speculation regarding workforce needs
has almost become sport in various circles. Laboratory
financial officers claim that they can effectively operate
a laboratory with individuals who can simply function
routinely. It is a fact that workforce needs can vary ac-
cording to laboratory function and tasks. For example, a
high-volume chemistry department in an urban reference
laboratory with highly automated, sophisticated instru-
mentation may use support-level personnel to operate the
equipment. However, if the instrumentation is highly so-
phisticated and complicated, supervisory oversight is even
more necessary. Every laboratory operation will need to
determine the appropriate staffing pattern for its unique
analytical processes (5). Assuming that test information is
reliable and accurate, the more important question with
regard to service to the physician, and thus the patient, will
be, What does this result mean with respect to patient care
and safety (8)?
Creating Conditions of Good Work
Contributing to the unprecedented vacancy rates in the
clinical laboratory is not only the lack of graduates and
predictable retirements but also the purposeful defection
of qualified people for other opportunities that grant them
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE
respect, value their intellectual worth, and financially re-
ward their contributions (38). In the search for profit or
cost containment, clinical laboratories have neglected to
provide meaningful and challenging opportunities for
their workforce, who may feel justifiably underutilized.
In the global economy, and now within the broader
scope of laboratory practice as described above, knowledge
workers are identified as the route to success (49). Using
the clinical scientist workforce as one group of knowledge
workers in ensuring patient safety will lead to clinical sci-
entist careers that are viewed as meaningful, challenging,
and rewarding (22). In addition, the fulfillment of good
work leads to personnel recruitment and retention, which
contribute to a much-needed stable workforce that will
improve the budget’s bottom line (38).
By the same token, support personnel with appropri-
ate oversight can perform the more routine analytical
processes in the laboratory. However, it should be kept
in mind that there are analytical processes that require a
more educated scientist because of the requirements for
problem solving and diagnostic interpretation. Best con-
ducted a task analysis to determine the appropriate staffing
levels for various types of tests and found that in the labo-
ratory environment there is a need for clinical scientists to
perform various functions that are scientific and techni-
cal in nature as well as myriad roles in a supervisory and
administrative capacity (5). Many talented scientists pre-
fer work that typically exists in the traditional laboratory
(internal operations and sophisticated technical analytical
processes), while others prefer to be involved with patient
care in a consultative capacity. All functions are necessary,
however, and the latter needs to be cultivated and encour-
aged (22).
Limiting laboratory work to the application of tech-
nology to produce patient care results, devoid of the con-
nection to why the information is requested or how the
information is used, has led to more than just underuti-
lization of people; it has led to a sense of “invisibility,” to a
lack of recognition, and ultimately to declining self-worth
and the search for more challenging work. For work to be
intrinsically rewarding to individuals, there must be a link
between behavior and reward with the following psycho-
logical conditions (24):
• Experienced meaningfulness
• Experienced responsibility
• Knowledge of results
Unfortunately, job design for laboratory personnel has
traditionally been accomplished using a technical approach
based in scientific management rather than a psychological
approach. The technical approach extracts “maximum ef-
ficiency from workers by designing narrow, repetitive jobs”
(9). By contrast, a psychological approach to job design seeks
913
to motivate workers with responsibilities that are broad and
relatively autonomous from supervisors. Proponents of the
technical approach advocate that simplifying work enables
the worker to develop proficiency through repetition of
tasks, producing a highly skilled, productive worker. Ad-
vocates of the psychological approach argue that repetitive
tasks are not rewarding to individuals and that work should
represent whole tasks with which the worker can identify,
e.g., the preanalytical through postanalytical process in lab-
oratory testing.
Additional insight about creating conditions for good
work is found in the motivating potential of a job. Hack-
man et al. (24) expressed a job’s motivating potential score
(MPS) as follows:
MPS = (skill variety + task identity + task significance)
× autonomy × feedback
The higher the MPS, the higher the motivation for the
employee.
Knowledge workers with a strong need for achievement
and personal development will be most motivated if they
are given a full opportunity to use their education and po-
tential through consultative activities and have a sense of
accomplishment in how patient care was affected by labo-
ratory information rather than simple accomplishment of
a procedure.
The Changing Nature of Work
The Consultation Role and Process
Consultants are individuals with recognized expertise who
are asked by a client, in this case a healthcare provider, to
apply their knowledge and skills to a given situation. A
consultant is a facilitator and a specialist in determining
needs and identifying resources. The primary value of a
consultant lies in the expertise to accurately identify, ana-
lyze, and resolve the problems and needs of the client.
Consultants can be categorized as either internal or ex-
ternal. Internal consultants are employees of the organiza-
tion for which they consult, and many clinical scientists
have been serving in this capacity without being formally
identified as such in a job description. External consultants
are proprietors of private consulting businesses. These in-
dividuals have total responsibility, authority, and account-
ability for their professional practices (33). The acceptance
and legitimization of clinical scientists as consultants have
been demonstrated by the federal regulatory authority of
CLIA ’88, which specifies the position of a “technical con-
sultant” who is responsible for the technical and scientific
oversight of laboratory testing in moderate-complexity
laboratories (19). In the last few years, clinical scientists
have performed the functions as outlined in the regula-
tions and have proven their abilities to occupy this role.
Now, this role must be internalized in the clinical setting,
914 THE FUTURE OF CLINICAL LABORATORIES
where test utilization questions require the clinical scien-
tist’s input to ensure good patient care and safety.
The consultation process can involve the following gen-
eral functions: evaluation of a problem, research, advis-
ing, planning, implementation, supervising, training, and
evaluation of problem resolution. Consulting is aimed at
helping a person or a group deal with problems and efforts
to change. “Change” is the operative word, because effec-
tive consultants deal primarily with the effect of change on
an organization and on its staff.
Consulting involves people dealing with people, as op-
posed to people dealing with machines or mathematical so-
lutions. Successful consultants understand organizational
dynamics and the unique functions and boundaries of the
consultant role. They are aware of the effects and conflicts
of using new technologies. They understand change pro-
cesses and the powerful influence of individual and organi-
zational resistance. They are clear about the boundaries of
their role, and they do not become involved in unproduc-
tive conflicts over authority and responsibility. They avoid
using a narrow set of techniques without evaluating their
relevance to a particular situation. The inability to under-
stand these concepts and to apply these skills can produce
barriers to positive outcomes, resulting in consultant ser-
vices that are ineffectual (18, 23, 30, 33, 55).
Consultant Skills
The consultant’s potential to affect the quality of labora-
tory testing depends on the effectiveness of the consulting
practice. A combination of four interactive skills makes a
successful consultant. A consultant must excel in the area
of technical knowledge and skill. The successful consul-
tant translates expert knowledge into useful application.
The consultant’s knowledge must encompass the leading
edge of the client’s technology; he or she should be aware
of emerging technologies and should evaluate their appli-
cation. If consultants have the best information and ap-
proach, or the most effective solution to a problem, but
they do not have the ability to work with the client, then
the result is negative and failure is inevitable. Therefore,
a consultant must excel in interpersonal skills, the second
area, which includes skills in leadership, communication,
understanding value structures, conflict resolution, and
teamwork. Good conceptual skills are another important
requirement. A consultant must be able to see beyond the
immediate problem, relate all of the pieces, and integrate
them into a conceptual working whole (33). And finally,
empowerment skills enable the consultant to demonstrate
the confidence necessary to influence others (38).
Consultative competencies have been identified and
grouped according to the knowledge, skills, and attitudes
necessary for success. These competencies are identified in
Table 52.1 (30, 36). If we examine these competencies and
relate them to a similar set for clinical laboratory sciences,
Table 52.1 Consultant competencies
Knowledge areas
Foundation in administrative philosophies, policies, and
practices
Knowledge of educational and training methods
An understanding of the stages in the growth of individuals,
groups, and organizations
Knowledge of how to design and help a change process
Knowledge and understanding of human personality, at-
titude formation, and change
Knowledge of oneself: motivations, strengths, weaknesses,
and biases
Skill areas
Communication skills: listening, observing, identifying, and
reporting
Teaching and persuasion skills: ability to impart new ideas
and insights effectively
Counseling skills to help others reach meaningful decisions
Skill in designing surveys, interviewing, and other data-
collecting methods
Skill in using problem-solving techniques and in assisting
others in problem solving
Ability to work with groups and teams in planning and
implementing change
Ability to be flexible in dealing with all types of situations
Ability to form relationships based on trust
Attitude areas
Attitude of a professional: competence, integrity, feeling of
responsibility
Maturity: self-confidence; willingness to take necessary
risks; ability to cope with rejection, hostility, and suspicion
Open-mindedness, honesty, intelligence
Possession of a humanistic value system
we will find a great disparity. Since the traditional role and
environment of clinical laboratory personnel are remark-
ably different from those of a consultant, this should be
expected. Consulting is based on the behavioral sciences,
an area that has not been stressed in the highly technical
education of clinical laboratory personnel.
The Internal Consultant
Internal consultants include clinical scientists who attend
patient rounds in teaching hospitals and advise physicians
on the selection of laboratory tests and those who work
for reference laboratories as sales or client representatives
and advise physicians on proper screening methods with
appropriate reflex (follow-up) testing. The internal consul-
tant role is one that usually does not require the establish-
ment of a formal consultant-client relationship each time
service is provided. When clinical scientists who are inter-
nal consultants earn the respect of their colleagues in the
organization, they often become essential participants on
the healthcare team.
 CHAPTER 52. THE FUTURE OF THE CLINICAL SCIENTIST WORKFORCE
In an effort to retain qualified laboratory scientists, the
University of North Carolina Hospital Core Laboratory
developed the Laboratory Ambassador Program in 2004.
This program provides a more challenging work experi-
ence and at the same time improves communications be-
tween the laboratory and nursing services. The goals of
the program are to enhance employee satisfaction, mod-
ernize laboratory services, and improve patient outcomes.
Clinical scientists are selected who demonstrate many of
the characteristics listed above under Consultant Skills.
Following a training program, the ambassadors visit the
units and solve problems that potentially impede patient
care (51).
The consultant within the hospital environment can
function in a variety of ways to improve patient care and
enhance the efficiency of the facility. Too often the role of
the laboratory has been perceived to begin with receipt of
a specimen and end with reporting a result. On the con-
trary, there are numerous opportunities in the preanalyti-
cal and postanalytical phases of the testing process that
require consultation in addition to clarification regarding
the various aspects of the analytical phase. One important
utilization activity that should be increased is the clini-
cal scientist’s involvement in interpreting and integrating
laboratory information in the management of the pa-
tient’s condition. Recent studies conducted at the Center
for Quality Improvement and Patient Safety confirm this
need (57). A successful program to improve laboratory
utilization described by Luckey and Davis uses clinical
scientists as “laboratory resource consultants.” Initially
the program focused on the more frequently ordered tests
and diagnosis-related groups. With time, the program ex-
panded and provided other needed services. Refer to Table
52.2 for an example of internal consultant functions con-
ducted by the laboratory resource consultant (31).
Clinical scientists should be involved in providing
guidelines for the selection of tests. What test will provide
the most information? What type of specimen should be
Table 52.2 Laboratory resource consultant tasksa
Monitor utilization reports of high-volume test usage patients
Communicate opportunities for improved utilization to case manag-
ers, physicians, and service line administrators
Assess need for involvement of pathologists/administrators in utiliza-
tion issues
Review care paths to affirm appropriate laboratory utilization
Consult with physicians, nurses, and laboratory professionals on cur-
rent guidelines and protocols for proper test ordering
Educate physicians and nursing groups on current and new policies
and procedures regarding laboratory utilization, medical-necessity,
and compliance issues
Consult with laboratory administrators and practitioners about cur-
rent laboratory utilization practices
a
Adapted from reference 31.
915
obtained? Under what conditions should the specimen be
collected? When and how often? Involvement in discus-
sions with physicians about the patient’s situation could
avoid delays and inadequate or inappropriate samples,
reduce the patient’s trauma due to unnecessary venipunc-
tures, and improve the cost-effectiveness of patient care.
Today there is a flurry of discussion that revolves around
proper test utilization, and opportunities abound for clini-
cal scientists to provide valuable information (1).
The laboratory’s responsibility does not end when an
accurate test value is obtained. The clinical scientist must
ensure that the physician, nurse, therapist, pharmacist, or
other healthcare provider understands the meaning of the
results. The care these people give depends on such un-
derstanding. Whenever the test results are inconclusive
or appear to be inappropriate, subsequent steps are indi-
cated; the clinical scientist should discuss these steps with
the physician or follow up with institutionally sanctioned
protocols (4, 31, 32).
Summary
It is clear that today both the nature of work in laboratory
medicine and the workforce that performs testing and
provides relevant information are in transition. Spurred
by continued demands for efficiency and effectiveness
and new demands for safety and better utilization, manag-
ers are challenged to rethink the development and role of
clinical scientists.
The broadened role of clinical scientists will include
engagement with other healthcare providers in an inter-
active process about the relevance of clinical tests (input/
preanalytical), the generation of value-added test data and
information (process/analytical), and the correct interpre-
tation of and response to laboratory information (output/
postanalytical).
The laboratory manager of the 21st century has the ob-
ligation not only to introduce a new laboratory paradigm
but also to create, foster, and nourish a new workforce to
bring about substantive change.
KEY POINTS
■ Work and the workforce in laboratory medicine are in
transition.
■ The broadened role of clinical scientists will require
those who can gather and distribute information with a
value-added component.
■ The total testing process will become very interactive;
the focus will encompass the preanalytical (appropri-
ateness of test requests), analytical (generation of test
data), and postanalytical (correct interpretation of and
response to laboratory information) aspects of testing.
916 THE FUTURE OF CLINICAL LABORATORIES
■ Only clinical laboratory personnel effectively collabo-
rating with other healthcare practitioners to enhance
the quality of diagnostic and therapeutic decisions can
achieve institutional goals.
■ In the global economy and now within the broader
scope of laboratory practice, knowledge workers (those
who are specialized, acquire and supply theoretical and
analytical knowledge, possess learning based on formal
education, engage in lifelong learning, are effective team
players, seek meaning in their work, are fully networked
and connected, and reach decisions by consensus) will
be identified as critical to achieving success.
GLOSSARY
Barr’s model of laboratory utilization A model that identifies
the factors that affect the clinician’s decisions or actions at each
step of the laboratory utilization process.
Clinical laboratory consultative services Services that provide
direct communications to healthcare providers regarding appro-
priate testing protocols.
Clinical Laboratory Improvement Amendments of 1988 (CLIA
’88) technical consultant One who is responsible for the techni-
cal and scientific oversight of laboratory testing in moderate-
complexity laboratories, while the director is responsible for the
overall oversight of the laboratory.
Clinical scientist A title that currently represents the clinical
laboratory scientist/medical technologist. Some states and cer-
tifying agencies use the term to reflect a generalist rather than
a specialist (chemist, microbiologist hematologist, toxicologist,
etc.).
Consultants Individuals with recognized expertise who are
asked by a client, in this case a healthcare provider, to apply their
knowledge and skills to a given situation.
Information revolution in laboratory medicine A change in
laboratory services that includes tasks related to gathering, dis-
tributing, and adding value to the information provided by clini-
cal laboratories.
Knowledge work Work that begins with data analysis and the
use of personal intellectual capital and includes consultation
with other clinical service providers.
Knowledge workers Those who fulfill expanded roles by gath-
ering, distributing, and adding value to information.
New laboratory model A model that describes the total testing
process as an interactive process; the focus is not only on the qual-
ity of test data generated (process/analytical) but also on the
clinical appropriateness of test requests (input/preanalytical) and
the correct interpretation of and response to laboratory informa-
tion (output/postanalytical).
Value-added service Laboratory service that addresses effec-
tiveness as well as cost and efficiency.
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Introduction
Electronic Health Records
53
Definition and Components • Status of EHR Use
Federal Regulations Related to EHRs and
Their Implications for Laboratories
Meaningful Use: the EHR Incentive Program •
Meaningful Use Requirements Directly Relevant
to Laboratories • EHR Certification Program:
Functional Criteria and Data Standards •
Certification Criteria and Standards Most Relevant
to Laboratories
Concerns/Implications for Laboratories
Related to Increased Use of EHR Systems
Results Management • Test Result Management when
Multiple Laboratories Serve a Single EHR System •
Computerized Provider Order Entry • EHR-LIS
Interfaces • Technical Aspects of Interfaces: HL7 and
LOINC • Operational Challenges for Laboratories
with LIS-EHR Interfaces
Strategies for Laboratories To Succeed
in Laboratory Information Management
in the EHR Era
Steps To Increase Involvement and Influence in
EHR Processes Related to the Laboratory • Tactics
for Working with EHR Support Staff • Laboratory
Involvement in EHR Selection and Implementation
Summary
KEY POINTS
GLOSSARY
REFERENCES
Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch53
918
Electronic Health Records and
Their Implications and
Opportunities for Laboratories
Walter H. Henricks
OBJECTIVES
To describe the basic components of electronic health record (EHR) systems
To describe recent federal regulations aimed at increasing the use of EHRs,
including the criteria for meaningful use of EHR technology and federally
directed certification of EHR systems
To recognize potential concerns and regulatory impact of increased use of
EHRs in physician practices for pathologists and laboratories
To anticipate the pertinence to laboratories of requirements that are expected
in future stages of regulations and the expansion of EHR uptake
To describe strategies for laboratories to succeed in laboratory information
management in the EHR era
In the middle of difficulty lies opportunity.
Albert Einstein
E
lectronic health records (EHRs) are transforming the delivery of
healthcare and the practice of medicine. Governmental actions, tech-
nological advancements, and economic and other factors are driving
greater use of EHRs on the part of hospitals and physician practices. The
proliferation of EHR use presents laboratories with new challenges and op-
portunities in meeting their core mission: to deliver to healthcare providers
information that is pivotal to clinical decisions and patient care.
EHRs are the new “portal” through which clinicians interact with labora-
tory information, and in a sense, with the laboratory. For decades, laboratories
have relied on their internal laboratory information systems (LISs) to support
and to manage operations inside the laboratory. In addition, laboratories have
in the past had greater control over upstream and downstream information
flows. For instance, laboratories could design their own requisitions to capture
test order information, and laboratories designed the format of laboratory re-
sult reports based on definitions they set up in the LIS. The EHR represents a
new intermediary, of sorts, between the laboratory and the clinician.
In a sense, laboratories will depend on EHRs for preanalytic and postan-
alytic data management and processes just as they depend on LISs for data
management and operations inside the laboratory. Test order information
coming to the laboratory will increasingly originate in the EHR, and labora-
tory test results will be presented to clinicians in the context of the EHR. Con-
sequently, it is crucial to their success that laboratories, at minimum, have an

awareness of how the EHR affects laboratory information
management and processes. Moreover, active engagement
by laboratories can influence EHR issues in their environ-
ments that affect laboratory operations or the delivery of
laboratory results.
This chapter provides an overview of EHRs and their
relevance to laboratories.
Electronic Health Records
Definition and Components
An EHR is at its core a longitudinal record of a patient’s
medical history. An EHR, however, is much more than
just an electronic or computerized representation of the
paper patient chart. In a 2003 landmark report (19), the
Institute of Medicine (IOM) described a vision for EHR
systems in which, in addition to information about an in-
dividual’s healthcare, EHRs also include population-level
information, decision support tools that enhance the qual-
ity and efficiency of patient care, and support of efficient
processes in healthcare delivery. Specifically, the IOM re-
port defined eight core functionalities for an EHR system,
which are summarized in Table 53.1.
While all of the core EHR functionalities described by
the IOM in one way or another could relate to the labo-
ratory, the components of the EHR that are most directly
relevant to the laboratory are health information, results
management, computerized provider order entry (CPOE),
and decision support. Health information provides labo-
ratories with access to clinical information that can be
important to interpreting tests correctly and to the labo-
ratory’s role in patient management. Results management
functions determine how laboratory results are displayed
Table 53.1 Core functionalities for an electronic health record
systema
Health information and data: information about the individual pa-
tient and records of his or her healthcare
Results management: automated display of current and previous test
results of all types
Order entry/order management: capture of healthcare providers’
orders directly into the EHR through CPOE
Decision support: rule-based alerts, recommendations, and remind-
ers presented to the user in context; access to knowledge bases
Electronic communication and connectivity: sharing data within and
across organizations
Patient support: computer-based patient education, communications,
reminders; facilitation of telemedicine
Administrative processes: scheduling of appointments and proce-
dures, insurance authorization
Reporting and population health management: public health and
private sector reporting for safety and quality indicators
a
From reference 19.
CHAPTER 53. ELECTRONIC HEALTH RECORDS 919
and available to clinicians. Order entry functions are the
means by which clinicians order laboratory tests. Decision
support tools provide the laboratory with an opportunity
to participate in development of rules or alerts that affect
test selection and utilization.
Recent federal legislation also sets forth an EHR defini-
tion that mirrors some of the functionalities and themes
from the IOM report. Section 3000 of the Public Health
Service Act (30) defines an EHR as an electronic record
of health-related information about an individual that
includes:
• Patient demographic and clinical health information,
such as medical history and problem lists
• Clinical decision support
• CPOE
• Capture and query of information relevant to health-
care quality
• Capability to exchange and integrate electronic health
information with other sources
Status of EHR Use
Although EHRs have existed in various forms for years, use
of EHRs has remained relatively low until recently. Recent
data indicate that implementation of EHRs is increasing in
healthcare organizations and medical practices, presum-
ably in large part owing to recent federal programs aimed
at stimulating EHR use (see later section). In the most re-
cent data available from the Centers for Disease Control
and Prevention (CDC)/National Center for Health Sta-
tistics (16), an estimated 55% of office-based physicians
were using a “basic” EHR system in 2011, up from 10% in
2006. In the most recent survey of healthcare information
technology leadership performed by the Healthcare Infor-
mation Management Systems Society, in 2011 (12), 27%
of healthcare organizations reported that they had a fully
operational EHR system in place across their organization
(up from 17% in 2009), and 26% stated that they had an
EHR system fully operational in one facility. In the same
survey, only 2% of organizations had not yet begun to plan
EHR implementation.
A note on terminology is in order. The term “electronic
medical record” (EMR) is widely used interchangeably
with “electronic health record.” Some strict definitions
of EMR confine the term to mean those elements of the
medical record that document patient diagnosis and treat-
ment in one practice or institution. EHR, on the other
hand, may be said to be a more comprehensive term that
encompasses a broader data set from all providers involved
in a person’s healthcare as well as the ability to share infor-
mation across sources. As stated, there remains consider-
able overlap in the practical usage of these terms. EHR is
used in this chapter and is the term that the Office of the
920 THE FUTURE OF CLINICAL LABORATORIES
National Coordinator for Health Information Technology
(ONC) uses almost exclusively.
Federal Regulations Related to EHRs and
Their Implications for Laboratories
Recent landmark federal legislation and regulations have
dramatically altered the healthcare information technol-
ogy (IT) landscape, with the aim of spurring utilization of
EHRs. EHRs are the key component of the federal govern-
ment’s goals for improving healthcare (28):
• Improve the quality, safety, and efficiency of healthcare
and reduce health disparities
• Engage patients and families in their healthcare
• Improve coordination of healthcare
• Improve population and public health
• Maintain the privacy and security of health
information
• Reduce costs
The Health Information Technology Economic and Clin-
ical Health Act, or HITECH Act, was signed into law as part
of the American Recovery and Reinvestment Act (ARRA)
of 2009. The HITECH Act promotes the use of health infor-
mation technology (HIT), specifically EHRs and electronic
exchange of health information. Based on the HITECH Act
provisions, two agencies within the Department of Health
and Human Services (HHS)—the Centers for Medicare and
Medicaid Services (CMS) and the Office of the National
Coordinator for Health Information Technology (ONC)—
subsequently developed related programs and regulations
intended to increase the use of EHRs.
The CMS and ONC worked together to develop and to
coordinate two programs—the Electronic Health Record
Incentive Program, commonly known as “meaningful
use,” and the Certification Criteria for Electronic Health
Record Technology. The relationship among HITECH,
meaningful use, and certification criteria is depicted in
Fig. 53.1. EHR certification criteria ensure that certified
EHR technology has the functional capabilities that en-
able a user to meet requirements for meaningful use of
the EHR. In short, meaningful use objectives define how
an eligible provider or hospital must use an EHR system,
and EHR certification criteria define what an EHR sys-
tem must be able to do.
Meaningful Use: the EHR Incentive Program
In 2010, the CMS issued a final rule entitled Medicare and
Medicaid Programs; Electronic Health Record Incentive
Program (29). This program has become known as “mean-
ingful use” because it establishes the criteria, reporting re-
quirements, incentive payments, and penalties for eligible
providers (i.e., individual practitioners) and for hospitals
EHR Incentive
CMS Rule Program
(“Meaningful Use”)
HITECH
Act
(part of ARRA)
EHR Standards
ONC Rule and Certification
Criteria
Figure 53.1 Relationships between the HITECH Act and the
CMS and ONC EHR-related programs. ARRA, American Re-
investment and Recovery Act; HITECH, Health Information
Technology for Economic and Clinical Health; CMS, Cen-
ters for Medicare and Medicaid Services; ONC, Office of the
National Coordinator for Health Information Technology.
doi:10.1128/9781555817282.ch53.f1
necessary to achieve meaningful use of EHRs. The CMS
published this final rule in conjunction with a final rule
from ONC that established criteria for EHR certifica-
tion (see following section). Providers and hospitals can
achieve meaningful use only through the use of certified
EHR technology.
The CMS will implement meaningful use objectives in
three stages:
• Stage 1: Data capture and sharing
• Stage 2: Advanced clinical processes
• Stage 3: Improved outcomes
Each stage of the meaningful use roll-out will introduce
additional user requirements and functional and techni-
cal capabilities for CEHRT. The 2010 rule describes stage 1
requirements applicable to 2011 and 2012. CMS published
stage 2 requirements in September 2012 (29a), with the
requirement deadline pushed back to 2014. The expected
release date for stage 3 is uncertain.
Eligible providers and hospitals meet the definition of
meaningful use of EHRs by demonstrating that they use
EHR technology to meet certain specific EHR use objectives
defined in the regulation. Objectives are a combination of
required core objectives and, in stage 1, an optional menu
set of objectives from which providers and hospitals must
choose. Examples of objectives include using e-prescribing
for medications, recording vital signs, maintaining a prob-
lem list, and providing patients with summaries of their
visit or discharge. In future stages, objectives will become
increasingly rigorous, and optional menu objectives will
shift to core requirements.
The CMS EHR meaningful use program provides for in-
centives and penalties for hospitals and eligible providers.
As incentives, eligible providers who meet requirements
can receive up to $44,000 in incentives over five years in the
Medicare program and $63,750 in the Medicaid program (if

participating by 2012). Hospital-based providers are not eli-
gible to receive incentive payments. In both programs, eligi-
ble hospital incentive payments begin with a $2 million base
payment and may go up from there, depending on variables
such as number of acute care inpatient discharges and num-
ber of inpatient bed-days. In 2015, penalties start for provid-
ers who have not demonstrated meaningful use of EHRs,
with a 1% reduction in the Medicare physician fee schedule
amount for professional services. Penalties increase to 2% in
2016 and to 3% for 2017 and each subsequent year.
Meaningful Use Requirements Directly
Relevant to Laboratories
The stage 2 meaningful use objective that is most directly
relevant to laboratories is that more than 55% of all clini-
cal laboratory tests whose results are in either a positive/
negative or numerical format are incorporated in certified
EHR technology as structured data. The regulation de-
scribes “structured” in this context only as a requirement
for the system to be able to identify the data as provid-
ing specific information, such as by creating fixed fields
within a record on file, but not solely accomplished in this
manner. For example, each result in a chemistry panel
should be stored in the EHR system as a discrete value
with a discrete reference range, etc., as opposed to being
entered into the EHR by digitally scanning in an image of
a printed laboratory report that would have no data struc-
ture in the EHR.
Another stage 2 objective that directly affects labora-
tories in the inpatient setting is to submit electronic data
on reportable laboratory results to public health agencies,
where applicable. While this requirement refers to submis-
sion from the certified EHR that is in use, it is possible
that, if the hospital LIS in use is certified as an EHR mod-
ule (see later section), hospitals could choose to use sub-
mission directly from the LIS to the public health agencies
to satisfy this requirement.
The use of CPOE for at least 30% of laboratory test or-
ders is a new requirement in stage 2. This new objective
applies both to eligible providers and to hospitals. The rule
does not explicitly require electronic submission of labora-
tory test orders from the EHR to the laboratory, although
it highly encourages electronic exchange.
EHR Certification Program: Functional Criteria and
Data Standards
In 2010, ONC published the Final Rule: Health Informa-
tion Technology: Initial Set of Standards, Implementation
Specifications, and Certification Criteria for Electronic
Health Record Technology (45 CFR Part 170) (31). This
regulation (i) defines functional and technical capabilities
that an EHR system must possess to ensure that users can
use it to achieve stage 1 meaningful use criteria and (ii) sets
forth the health IT data standards that HHS deems to have
been adopted. The data standards include:
CHAPTER 53. ELECTRONIC HEALTH RECORDS 921
• Data exchange standards, including HL7 version 2.5.1
• Vocabulary standards for representing electronic
health information, such as ICD-9-CM, SNOMED CT,
and LOINC (Logical Observation Identifier Names
and Codes)
• Data security and encryption standards
In support of meaningful use stage 2 requirements, in
September 2012 ONC published an updated set of EHR
Standards and Certification Criteria, known as the 2014
Edition (31a). Furthermore, ONC specified that LIS-EHR
interfaces be implemented in accordance with ONC’s re-
cently developed Laboratory Results Interface (LRI) Im-
plementation Guide (12a), which involves use of LOINC,
HL7 v2.5.1, and SNOMED-CT. An analogous Implemen-
tation Guide of specifications for laboratory orders (LOI)
is in development (Standards and Interoperability [S&I]
Framework Laboratory Orders Interface Initiative, http://
wiki.siframework.org/Laboratory+Orders+Interface+
Initiative 2013 [last accessed July 18, 2013]).
EHR systems may be certified as “complete” EHR sys-
tems or as a combination of separate EHR “modules” that
in aggregate meet the criteria. Some laboratory informa-
tion systems have achieved certification as EHR modules.
ONC also established a certification program (32) through
which it authorizes third-party organizations to certify
that EHR systems meet the criteria as specified in the fi-
nal rule. ONC maintains a publicly available Certified HIT
Product List (33), which as of this writing lists 3,478 certi-
fied ambulatory EHR products and 1,161 certified inpa-
tient EHR products.
Certification Criteria and Standards Most Relevant to
Laboratories
The EHR certification criteria that most directly relate to
laboratory testing require that the EHR must be able to:
• Receive clinical laboratory test results electronically in
a structured format and display such results in a
human-readable format (in support of the correspond-
ing meaningful use objective)
• Display all the information for a test report specified
in the Clinical Laboratory Improvement Amendments
(CLIA) rule (Table 53.2) (26)
• Attribute, associate, or link a laboratory test result to a
laboratory order or patient record
Some amplifying points relevant to these criteria are im-
portant for laboratories. First and foremost, the requirement
for result reports is only that all CLIA-mandated elements
of the test report are displayed; there are no further require-
ments as to formatting or other factors that may affect us-
ability for test results. Second, the rule does not impose
specific requirements for what constitutes a “structured”
format for laboratory data in this context.
922 THE FUTURE OF CLINICAL LABORATORIES
Table 53.2 CLIA-required information for test reports
Patient’s name and identification number or unique identifier and
identification number
Name and address of the laboratory location where the test was
performed
Test report date
Test performed
Specimen source, when appropriate
Test result and, if applicable, the units of measurement or interpreta-
tion or both
Any information regarding the condition and disposition of speci-
mens that do not meet the laboratory’s criteria for acceptability
Other EHR certification criteria correlate with mean-
ingful use requirements involving laboratory tests. EHRs
must have the capability to transmit reportable laboratory
results to public health agencies (inpatient setting). The ca-
pability to support CPOE for laboratory testing is a certifi-
cation requirement, to support the analogous requirement
in stage 2 of meaningful use. Some other certification cri-
teria speak to secondary uses of laboratory results within
the EHR, such as decision-support rules based on labora-
tory results and providing patients with online access to
clinical information that includes laboratory results.
The data standards in the regulation that are most im-
portant for the laboratory are HL7 v2.5.1 and LOINC. The
use of HL7 v2.5.1 is required for transmitting reportable
laboratory results to public health agencies. Hospitals may
choose to meet this requirement through the use of an LIS
that has been certified as an EHR module.
LOINC is specified as a vocabulary standard for repre-
senting laboratory test results. The current requirements
are that certified EHR technology must be able to reuse a
LOINC code when it has been received from the labora-
tory and that such a code is accessible in the EHR.
An important point for laboratories is that ONC has in-
dicated that broader requirements for the use of HL7 v.2.5.1
and LOINC will be incorporated into future editions of the
certification criteria and data standards. Given the impor-
tance of electronic transmission of laboratory results be-
tween laboratories and EHRs, laboratories can expect that
such requirements will increasingly apply to LIS-EHR in-
terfaces. Laboratories are advised to monitor developments
in these requirements closely to ensure that their LISs and
interfaces comply with the required data standards.
Concerns/Implications for Laboratories
Related to Increased Use of EHR Systems
EHR systems and CPOE have profound implications for
the management of laboratory information across the
healthcare enterprise. The EHR is the portal through which
clinicians receive, provide, and interact with laboratory
information. Laboratory information is among the most
important EHR data elements used in clinical decision
making. An earlier study by Forsman found that 94% of
information in the Mayo Clinic EHR was laboratory data
(6). A commonly used (although debatable) estimate
is that 70% of data in the EHR is laboratory-related and
that laboratory data influence 70% of treatment decisions
(5). A study in a major healthcare institution found that a
primary care physician on average reviews 930 pieces of
chemistry/hematology data and 60 pathology/radiology
reports per week (24).
Although laboratory data are among the most impor-
tant elements in an EHR, significant limitations may exist
in how EHRs are able to present laboratory results and test
request information. Such issues are magnified in an inte-
grated delivery network setting in which multiple laborato-
ries and facilities feed an EHR. Administratively, EHRs are
outside of the control of the laboratory, and pathologists
and laboratories stand to lose influence over the manner
in which laboratory information is conveyed to clinicians.
Yet problems with presentation of laboratory information
in the EHR may negatively affect clinician perceptions of
laboratory service quality and potentially compromise pa-
tient care.
Compared to traditional laboratory reports emanating
from an LIS, the concept of a “report” is different in the
era of electronic data elements that may be presented in
different ways or through various channels. Integration of
information from multiple data feeds, and possibly mul-
tiple laboratories, will occur at the level of the EHR. Not
only hospitals but also individual offices will expect that
pathology and laboratory information be integrated seam-
lessly into their EHRs.
Results Management
EHRs vary in the modes and effectiveness of their dis-
play of laboratory results. The constraints of EHR design,
including formatting, font, and arrangement of data ele-
ments, often dictate the presentation of laboratory results
in the EHR. Laboratory results are not homogeneous data
types, and some level of laboratory domain expertise is
necessary in the configuration of laboratory results in EHR
systems to foster appropriate presentation and reduce risk
for misinterpretation. Failure to account for laboratory
discipline-specific considerations or requirements in the
display of the data could increase the potential for missed
data or misinterpreted results.
EHRs typically have multiple types of formats for re-
sult display. For instance, a list of clickable links to the
results for each test ordered on a selected patient may be
presented, with each test on a different line. The result
and all other information related to the selected test ap-
pear on a new screen after the clinician clicks on the link.
This method for reviewing information has the advantage
 CHAPTER 53. ELECTRONIC HEALTH RECORDS 923

that the person doing the viewing can see all information, The laboratory has a crucial role to play in the validation
such as reference ranges, comments or footnotes, and of laboratory reports as they are presented in the EHR. The
performing laboratory name and location, on one screen. display of laboratory results in the EHR must accurately
Disadvantages are that lists of results may not be further reflect what is reported from the laboratory. Such valida-
categorized and that individual test results must be re- tion is important not only for best patient care but also to
viewed one at a time. comply with regulatory requirements (see section below).
A common format for displaying laboratory test results Questions to address during validation include:
in an EHR is a cumulative results view. In this grid type of
• Does the EHR present laboratory results accurately?
display, laboratory test names are listed in rows along the
left side of the screen, and corresponding results for each • Are all required data elements present?
test are displayed in columns for successive dates, typi- • Are results displayed in a manner that may be mislead-
cally in reverse chronological order, left-to-right across the ing to the clinician?
screen. The organization of the test names and groupings
While the display of a column of numbers such as
will greatly affect the usability of such displays and may
chemistry panel results is relatively straightforward in a
affect the clinicians’ ability to find laboratory tests. For ex-
cumulative display format as described above, laboratory
ample, it would not make sense clinically to list the rows
results are more heterogeneous than simply columns of
of tests alphabetically by name; rather, grouping of tests
numbers. Table 53.3 lists laboratory result types that may
by laboratory discipline (e.g., chemistry, hematology, etc.)
be subject to suboptimal display in EHRs and merit inclu-
and by hierarchy (e.g., WBC as a component of CBC) is
sion in laboratory validation procedures. Many types of
more intuitive for the clinician to find results of interest.
tests in Table 53.3 require presentation of numerical values
In cumulative result displays, determining appropriate
and interpretive text in the same report. Other types of re-
test groupings, and more importantly, deciding into which
ports are entirely text-based. An example of a problem is
categories individual tests are placed, can be challenging.
incorrect or inappropriate splitting (“carriage returns” or
A good example is serologic testing for infectious diseases
line breaks) of text lines that can lead to misleading or con-
(e.g., viral hepatitis serologies). A decision will be neces-
fusing sentences or display. In addition to the test result
sary as to whether infectious serology results should be
itself, other data elements in laboratory reports are impor-
placed with other noninfectious serologic tests, with non-
tant to test interpretation. Verification of the manner in
serologic infectious disease tests, or generically with all
which the EHR handles such data is also an important part
microbiology results. Determination of such test group-
of validation. Table 53.4 lists such data elements.
ings is at minimum an issue about which the laboratory
With EHRs come new mechanisms for clinicians to
needs to be aware and is preferably seen as an opportunity
review and to filter new laboratory results. In the past,
for the laboratory’s active participation in laboratory result
the arrival of a printed laboratory report served as both a
management in the EHR.
prompt and a filter for newly available results. In the EHR
Cumulative results displays have the advantage of pro-
system, clinicians cannot be expected to look up every pa-
viding results from many tests on a single screen but have
tient every day (or multiple times a day) to check for new
a number of issues important for the laboratory to under-
results. Laboratory results in the EHR can be missed (25,
stand. A disadvantage of the cumulative results display is
34). EHR systems typically have some type of filtering or
that to maximize the number of results, the space available
alerting function that presents to clinicians only those re-
for each result is limited, typically to only the numerical
sults that are new since the previous inquiry. Such a func-
value and symbols that might represent abnormal flags or
tion requires correct configuration in the EHR system,
the presence of an explanatory comment. Such displays,
and the institution (or practice) may have the option of
therefore, are best suited for the display of results that have
tailoring the rules for different settings. For instance, an
a numerical or positive/negative format. To see more infor-
mation, such as reference ranges and comments, requires
additional action on the part of the user, such as clicking on
Table 53.3 Types of laboratory reports with
the result. The steps required of the user to display reference unique display considerations in EHRs
ranges may not be immediately evident. Visual cues must be
Microbiology
available on the cumulative display for a given result to alert
Transfusion medicine/blood bank
the user to the existence of comments or other additional
Molecular and genetic testing
information, when present, lest they be overlooked and im-
Coagulation panels
portant interpretive or clarifying information be missed,
Electrophoresis
leading to possible misinterpretation. A common example
Drug peak and trough identification
is a footnote in which note is made of hemolysis in a blood
Anatomic pathology
sample in which the serum potassium level is elevated.
924 THE FUTURE OF CLINICAL LABORATORIES
Table 53.4 Laboratory report elements subject to
variation in EHRs
Cumulative result display and format
Reference ranges
Abnormal result flags
Result comments and footnotes
Name and address of performing laboratory
Preliminary reports
Corrected reports
institution may determine that it is not desirable to send
notifications for inpatient chemistry tests while ensuring
that notifications are sent for all anatomic pathology re-
sults, inpatient and ambulatory. Tests may be missed if the
clinician does not receive notification of results or if infor-
mation is routed to the wrong clinician. Such errors hap-
pen if settings in the EHR are not configured appropriately
(36) or if rigorous procedures are not in place to maintain
currency of information about responsible physicians and
patient status.
To ensure optimal communication of laboratory re-
sults, and to reduce the chance that laboratory results are
missed in the busy clinical work flow, laboratories need to
understand how such an alerting/filtering function works
in their institution’s EHR system. Key questions in the
laboratory’s assessment of a test notification function in
an EHR include:
• Are there any types of results that do not fall under
the function?
• Does the function work differently in the inpatient vs.
ambulatory environment?
• Do notifications go to all physicians listed on a test or-
der (as “copy to”) or just to the ordering physician?
• Do corrected reports and addenda trigger notifications
as new results?
Test Result Management when Multiple Laboratories
Serve a Single EHR System
In an integrated delivery network (IDN) that has imple-
mented a standardized EHR across the enterprise, issues
in laboratory result management may arise in the EHR
system if multiple laboratories in the network are deliver-
ing results to the unified EHR. A uniform EHR across an
IDN implies an integrated, longitudinal view of laboratory
results regardless of data sources. Multiple laboratories
serving an IDN, however, may have disparate legacy LISs
and nonstandardized test methods, both of which impact
integration of laboratory information in the EHR.
Standardization of IDN laboratories on a single LIS uti-
lizing multifacility capability can be a step toward integra-
tion of laboratory information in the EHR (13). Workman
et al. (35) described benefits that accrue from standard-
izing the LIS in an IDN and contrasted other IDN con-
solidation projects that did not realize full savings due to
failure of integrated LIS implementation. While standard-
izing on a single LIS platform reduces variations stemming
from different LIS databases and interfaces, a common LIS
alone does not address test result integration issues arising
from differing test methodologies.
A major challenge in integrating laboratory results
when an EHR receives results from multiple laboratories
occurs when multiple methodologies for the same analyte
are in use. Reference ranges and possibly units of measure
may differ among methods in use in different laboratories.
Each result typically carries its reference range and units of
measure with it dynamically in the interface to the EHR.
The display and definitions in the EHR must account for
these differences and present the results unambiguously
with the reference range and units of measure appropriate
for each individual result. Static definitions for reference
ranges and units of measure in the EHR will not accom-
modate the need to display the reference range and units of
measure appropriate to each individual result.
The laboratory will likely need to raise awareness
among clinicians about the implications of differing meth-
odologies and reference ranges in the EHR for the same
analyte. Results from different laboratories with different
methodologies may appear side by side in a cumulative
results display. These results may (appropriately) have dif-
ferent reference ranges listed for them. Furthermore, it is
possible that on the same screen could appear a numerical
result for a given test that has an abnormal (out of range)
flag in one instance but no flag for the same numerical
result performed in a different laboratory with a different
reference range. Such apparent discrepancies may prompt
questions from clinicians and require clarification from
the laboratory, particularly if the name of the performing
laboratory is not obvious in the results display. Potentially
of greater importance, comparing all results in an EHR
over time for a given analyte may not yield appropriate
comparisons or could lead to misinterpretation of trends
(or lack thereof) when the tests are generated from differ-
ent methods. These issues may be particularly problematic
with decentralized or point-of-care testing.
Computerized Provider Order Entry
The use of CPOE has significant implications for how lab-
oratories receive and process laboratory test orders. With
CPOE, clinicians enter test requests directly into the EHR.
Test orders may then reach the laboratory via an electronic
interface with the LIS or on paper forms printed from the
EHR. The configuration of CPOE screens and sequences in
the EHR determine the process for generating laboratory
orders and the content of such orders. Effective laboratory
operations require laboratories to be involved in how the

EHR handles laboratory test order/requisition informa-
tion. Improperly designed or configured CPOE processes
can result in negative consequences for the laboratory, in-
cluding incorrect, incomplete, and/or inappropriate test
orders as well as inefficiencies owing to CPOE problem
resolution (9, 23).
Elements of CPOE that are unique to laboratory testing
and merit the laboratory’s attention include CLIA-mandated
test request information, the need for test-specific infor-
mation in some requests, and test menu management. The
CLIA rule mandates that the laboratory ensure that test
requests solicit specific information items that are listed in
Table 53.5. The laboratory must ensure that the CPOE sys-
tem meets these requirements. The requirement to provide
test-specific additional information relevant to timeliness,
accuracy, or interpretation of results can be challenging to
address in CPOE systems. One way such information is
solicited is through “ask at order entry” questions that the
user must answer as part of the CPOE process. Examples
include provision of an actual time period for timed (e.g.,
24-hour) urine collections and demographic information
for interpretation of cystic fibrosis genetic testing. For mi-
crobiology tests in particular, clinical information on test
requests is important for appropriate testing and inter-
pretation (10). CPOE sequences must enable the user to
provide the laboratory with information such as specimen
type and source. Data fields for such information in the
CPOE system may be configured to allow the user to enter
free text or may constrain the user to choices in a drop-
down menu. The laboratory’s expertise is important to de-
termining (i) the type of data format that is appropriate for
a given test (or question) and (ii) accurate, complete, and
appropriate choices for responses to a drop-down pick-list.
One of the most important aspects of CPOE is manag-
ing the menu of test order choices available to the clinician
in the EHR. The choices available in the menu reflect the
test definition entries in the data definition tables of the
EHR. Laboratory involvement will contribute to ensuring
that the test choices and their nomenclature in the EHR
match correctly with corresponding tests as defined in the
Table 53.5 CLIA-required information for test requests
Identifying information of person or laboratory requesting the test
Patient’s name or unique patient identifier
Sex and age or date of birth of the patient
Test(s) to be performed
Source of the specimen, when appropriate
Date and, if appropriate, time of specimen collection
For Pap tests, the patient’s last menstrual period and indication of
previous abnormal report, treatment, or biopsy
Any additional information relevant and necessary for a specific test
to ensure accurate and timely testing and reporting of results, includ-
ing interpretation, if applicable
CHAPTER 53. ELECTRONIC HEALTH RECORDS 925
LIS. Such congruence is necessary to ensure that the test
that the clinician thinks he or she is ordering is actually
the one that gets performed in the laboratory, particularly
where orders are interfaced between the EHR and LIS.
CPOE enables types of laboratory test orders that af-
fect preanalytic laboratory processes—future orders and
standing orders. Future orders are test orders for which
the patient is to return at a later time, either at a follow-up
interval or prior to a scheduled return office visit. Standing
orders are related to future orders in which the ordering
clinician enters an order for recurring testing to be per-
formed at specified intervals (e.g., prothrombin time every
two weeks for a patient on an anticoagulant). In the pre-
CPOE era, these types of orders were of less consequence
to the laboratory because the patient would appear with
a paper requisition at each encounter, and the labora-
tory would enter an order manually into the LIS. In the
environment where CPOE orders are interfaced into the
LIS, the laboratory must understand the logic and timing
of how future and standing orders are transmitted to the
laboratory. The key need is for a mechanism to be in place
that ensures that a test order that was placed via CPOE at
some date in the past is available to the phlebotomy site
when the patient appears for blood draw.
Anatomic pathology (surgical pathology, cytopathol-
ogy) orders differ in complexity and content compared to
routine clinical laboratory orders. Although ordering pro-
cesses for surgical pathology specimens may not be rou-
tinely present in EHR/CPOE currently (4), such processes
can be reasonably expected to be part of comprehensive
CPOE functions in the future. Proper configuration of
CPOE in the EHR for anatomic pathology orders will
require expertise from the laboratory. Pap testing (cervi-
covaginal screening) is more amenable to CPOE owing
to the uniformity of process and specimens. In anatomic
pathology, a single pathology report is issued for cases that
may consist of multiple discrete specimens. An anatomic
pathology order must be able to accommodate and convey
accurate part-specific information about multiple speci-
mens from one or multiple organs. In addition, there is the
need to provide clinical information applicable to the en-
tire case (e.g., “history of cancer”).
In addition to the value generated by laboratory in-
volvement in the CPOE workflow issues described above,
CPOE offers opportunities for the laboratory to create
value in managing the test ordering process. Decision sup-
port tools in the form of rules and alerts make it possible to
intervene at the point of test order entry to facilitate appro-
priate test selection and utilization. Table 53.6 summarizes
CPOE methods to improve test utilization as reviewed by
Baron and Dighe (4). An evolving trend in laboratories
leading test utilization efforts is the development of labo-
ratory test formularies (22, 34a). A laboratory test formu-
lary, analogous to a medication formulary, defines what
926 THE FUTURE OF CLINICAL LABORATORIES
Table 53.6 CPOE-based methods to improve test utilizationa
CPOE ordering templates and order sets
Alerts for redundant orders
Constraints on recurring orders
Display of previous laboratory results during ordering process
Integration of practice guidelines, care maps/care pathways
Corollary test recommendations
Display of test costs
Unbundling of test panels into individual components
a
Modified from reference 4.
laboratory tests can be ordered and/or by whom certain
tests can be ordered, such as by specialists, or restricts or-
dering by some user category such as resident physicians or
physician assistants without attending physician approval.
Laboratory test formularies may be used to curb the use of
high-cost send-out tests. Rules and choices reflecting the
laboratory test formulary are encoded into the CPOE test
menu and possibly its decision support configuration.
EHR-LIS Interfaces
Laboratories exchange test orders and results with EHRs
through electronic interfaces. An interface consists of soft-
ware and connections that translate electronic messages so
that otherwise incompatible systems can exchange infor-
mation (20). In the EHR environment, correct functioning
and management of LIS-EHR interfaces becomes a cru-
cial success factor for laboratories. LIS-EHR order entry
interfaces transmit test order information from the EHR/
CPOE system to the LIS. LIS-EHR result interfaces trans-
mit test result information from the LIS to the EHR. These
interfaces also typically transmit status information such
as “specimen received” back to the EHR.
Potentially the single greatest impact to laboratories of
the federal meaningful use regulations and the greater use
of EHRs is that laboratories can anticipate a dramatic in-
crease in requests for LIS-EHR interfaces from physician
practices and other settings (14). Having gone to the ex-
pense and effort of installing an EHR, clinician groups will
expect direct electronic exchange with laboratories and
integration of results into their EHR system. This greater
need for interfaces has important business, technical, and
operational implications and challenges for laboratories.
Table 53.7 summarizes the concerns for laboratories re-
garding LIS-EHR interfaces.
Establishing LIS-EHR interfaces is a complex undertak-
ing that has technical, operational, and financial elements,
all of which contribute to the time and costs required for
interface implementation (21). Laboratories will need to
establish some type of network connectivity with sites to
be interfaced. Interface software in both the LIS and EHR
systems to be interfaced must be purchased and installed.
Such software manages the interface messages for outgoing
Table 53.7 Concerns for laboratories regarding EHR interfaces
Limitations of EHRs in laboratory test order and result handling
Lack of control or involvement in the EHR management at physi-
cians’ sites
Expenses of interface implementation and maintenance
Laboratory responsibility for transmission and validation of labora-
tory results to EHR; compliance with federal and state laws
Poor process design resulting in laboratory testing problems being
blamed inappropriately on the laboratory
and incoming messages for the specific interfaces. These
software modules have acquisition costs and will add to in-
cremental ongoing software maintenance fees. Definition
work is required to match test codes between systems (see
below). Extensive testing and validation are necessary to
ensure accuracy and reliability of data exchange.
Interface engines are widely used in laboratories and
healthcare organizations and can facilitate interface de-
ployment (8). An interface engine is a hub of sorts that
routes and translates messages among disparate computer
systems. Interface engines eliminate the need for numer-
ous point-to-point interfaces among multiple systems.
Rather, an interface for each system is developed once for
the interface engine. Messages are routed through the in-
terface engine to and from all other systems. When any
one system is changed or upgraded, only the interface to
the interface engine or hub needs to be redone instead of
multiple point-to-point interfaces to numerous other sys-
tems. Whether laboratories interface directly from their
LIS to EHRs or interface through some type of integra-
tion services provider or interface engine, laboratories will
need the capability to establish interfaces with a wide va-
riety of EHRs and vendors. As of this writing, the ONC
website lists 3,478 certified ambulatory EHR products and
1,161 certified inpatient EHR products.
Technical Aspects of Interfaces: HL7 and LOINC
LIS-EHR interfaces generally use the HL7 interface stan-
dard. A standard (in the context of information systems) is
a set of agreed-upon rules, specifications, and/or conven-
tions that govern the design and function of information
systems, with the intent that systems that adhere to a given
standard will be compatible with other systems that adhere
to the same standard (1). HL7 (Health Level 7) is a standard
for electronic data exchange among healthcare systems and
is ubiquitous in healthcare system interfaces (15). The HL7
standard defines syntax and rules for healthcare data mes-
sages, including laboratory test orders and results. HL7
facilitates interface development by providing common
ground for disparate information systems to exchange data.
The use of HL7, however, does not eliminate technical
challenges encountered in developing interfaces. LIS and

EHR vendors develop HL7 interface software for their own
systems, and HL7 interface specifications from one vendor
typically do not exactly match those of another vendor. So
when developing an interface, the two vendors must still
cooperate to resolve differences. Additionally, healthcare
organizations can add local modifications to the HL7 pro-
tocol to meet site-specific needs.
HL7 does not define the content of individual data
fields, such as laboratory test codes. Test codes are defined
in data definition tables in the LIS and EHR, and often,
the different information systems use different names and
codes to define the same test. For instance, serum sodium
may be defined as “SNa” in one system and as “NaS” in the
other. The translation table in the interface is necessary to
cross-reference the different test codes.
LOINC (Logical Observation Identifier Names and
Codes) is a data standard that defines a set of universal
codes for identifying laboratory tests (and other clinical ob-
servations) in computer systems (18). LOINC is aimed at
enabling exchange and comparison of laboratory data across
different information systems. More than 30,000 LOINC
codes have been defined. LOINC is one of the healthcare
IT data standards that ONC has formally adopted. LOINC
codes can standardize laboratory test codes in HL7 mes-
sages, provided the interface systems share LOINC codes,
and can theoretically eliminate the need for laborious devel-
opment of translation tables in LIS-EHR interfaces.
Barriers exist, however, to the widespread use of LOINC
to achieve interoperability of laboratory data. Laboratories
must assign LOINC codes to all tests, a process that can
be laborious. The LIS must have a data field available for
assigning LOINC codes, and LOINC codes must be ac-
commodated in the interface software. LOINC by itself
does not ensure compatibility because even when LOINC
is used, inconsistencies in data elements and LOINC code
assignments can limit interoperability (17).
Operational Challenges for Laboratories with
LIS-EHR Interfaces
Laboratories must pay attention to operational aspects of
LIS-EHR interfaces. Table 53.8 summarizes operational
considerations in LIS-EHR interfaces. Personnel with ded-
icated time and with LIS system experience or expertise are
required to carry out interface implementation, definition,
testing, and validation steps. In addition, such people must
interact closely with counterparts at the referring (EHR)
site and also with vendor technical support personnel,
often including EHR vendor support. A significant chal-
lenge with LIS-EHR interfaces may be a lack of contact or
expertise at referring (EHR) sites, particularly in smaller
physician offices with newly implemented EHR systems.
Once an interface is established, it is not “set and forget.”
Monitoring by someone in the laboratory and/or clear com-
munication if nonlaboratory IT personnel are monitoring
CHAPTER 53. ELECTRONIC HEALTH RECORDS 927
Table 53.8 Operational considerations in LIS-EHR interfaces
Maintenance of EHR settings related to laboratory tests
Change control and communication (e.g., test definition updates)
Troubleshooting and client support
Training of EHR users in test result viewing and (eventually) test
ordering
Handling of corrected results
Monitoring or quality of service
Client site contact and engagement
the system is required to detect, correct, and communicate
problems with the interface. Attention to change control is
important to prevent service interruptions. Sufficient lead
time is required for clients to make changes (definitions,
reference ranges, and new tests) in their EHR systems.
Methods are needed for (i) how laboratory changes that
affect the interface are communicated to clients, (ii) how
clients communicate problems to the laboratory, and (iii)
how the laboratory will address reported problems.
CLIA regulations place a responsibility on the labora-
tory to ensure accurate transmission of laboratory results
in interfaces:
42 CFR 493.1291(a) The laboratory must have adequate
manual or electronic system(s) in place to ensure test re-
sults and other patient-specific data are accurately and
reliably sent from the point of data entry (whether inter-
faced or entered manually) to final report destination, in a
timely manner. This includes the following: . . . (2) Results
and patient-specific data electronically reported to network
or interfaced systems [italics added]
To assist laboratories and other stakeholders exchang-
ing laboratory data, the CMS recently published “Issuance
of Revised Survey Procedures and Interpretive Guidelines
for Laboratories and Laboratory Services in Appendix C of
the State Operations Manual” (27). In this document, the
CMS provides guidance for interpretation of and compli-
ance with CLIA requirements for laboratory result report-
ing and laboratory information exchange. The guidance
includes information on data retention and management
of corrected reports and an extensive frequently asked
questions (FAQ) section.
Strategies for Laboratories To Succeed
in Laboratory Information Management
in the EHR Era
In the past, the laboratory had greater control over the
information inputs, i.e., test orders (through design or
generation of test requisitions) and outputs (printed test
reports). Going forward, EHRs impact the laboratory’s
ability to achieve its mission by affecting upstream data
928 THE FUTURE OF CLINICAL LABORATORIES
sources (orders) and the output stream (result display).
EHRs dictate many aspects of how test orders are created
and delivered to the laboratory and how the laboratory’s
product—test results and interpretations—is delivered and
used. Laboratories will be well served to develop organiza-
tional and administrative strategies to succeed in the EHR
environment.
The laboratory will likely be viewed as responsible for
aspects of laboratory testing, from order entry through
result distribution, whether or not the laboratory par-
ticipated in development of the systems and procedures
involved or whether it has control over such. Busy phy-
sicians cannot be reasonably expected to dissect whether
a problem they encounter with a laboratory testing pro-
cess is truly a laboratory problem or the result of an issue
in the EHR or in the interplay between the EHR and the
LIS. The manner of presentation of laboratory information
in the EHR may affect clinician perceptions of laboratory
service quality. Operationally, problems with CPOE lead
to delays and errors in patient testing, leading to patient
care problems and physician dissatisfaction.
A central challenge to laboratory involvement in labora-
tory information management in the EHR is that the EHR
lies outside of the administrative control of the laboratory.
In hospitals and integrated delivery networks, the EHR is
typically under the control of a centralized IT organiza-
tion or is possibly even outsourced to a third-party orga-
nization. As EHR use in physician practices proliferates,
laboratories will face an ever greater diversity of groups
and expertise levels and commitment of people/staff that
are responsible for the management of the EHR in these
outpatient settings. Lack of laboratory-specific expertise
among nonlaboratory staff that implement and support
EHRs may compound the challenges.
Despite the probable lack of direct control over EHR
management and processes, the laboratory has an important
role to play in laboratory information management issues
regarding the EHR. The laboratory possesses the domain
expertise necessary to convey the intricacies and nuances
of laboratory processes and information requirements (e.g.,
requisition requirements, reference ranges, test groupings,
addendum reports). Such involvement is important not
only for the laboratory but also to promote optimal labora-
tory information management in pursuit of the best care of
patients. Barriers include lack of time, skill sets, inclination,
and compensation to participate in such activities.
How the laboratory meets the organizational needs of
laboratory information management of the EHR depends
in part on the approach that the laboratory uses to manage
its LIS. Because laboratories have depended on LISs for de-
cades as a crucial tool for successful laboratory operations,
laboratories typically have people who are expert in the LIS
application, even if the hardware and infrastructure for the
LIS are managed by a centralized IT group. The LIS support
people have LIS support as part of their responsibilities in
addition to other management or bench work. Some labo-
ratories have a group solely dedicated to all aspects of LIS
support, a concept first set forth by Friedman in the earliest
definition of the field of pathology informatics (7). More re-
cently, the American Society for Clinical Pathology (ASCP)
has developed a certification program for qualification in
laboratory informatics, in recognition of the importance of
this expertise (3). In addition, the American Association
for Clinical Chemistry (AACC) offers an on-line certifica-
tion program in basic principles and architecture of labora-
tory information systems (2).
It is from the expertise pool of laboratory staff mem-
bers who provide LIS support that laboratories can draw
the experience and skill sets necessary to work on labora-
tory information management issues in the EHR system.
Such individuals combine knowledge of laboratory opera-
tions, work flow, and requirements with an understanding
of laboratory information systems and their databases and
interfaces. As such, they are the natural people to become
involved in EHR issues and can be invaluable in interact-
ing with the EHR support team(s). A key strategy for labo-
ratories in the EHR setting will be to cultivate and support
such expertise if it is lacking in their environment.
Activities that translate well from the LIS to the EHR
laboratory information support domains include:
• Test definition in the LIS database
• Interface implementation and maintenance
• System testing and validation appropriate for labora-
tory information
• Change control practices
Steps To Increase Involvement and Influence in EHR
Processes Related to the Laboratory
To influence EHR-related issues, laboratories must become
active beyond the laboratory and establish credibility with
groups at the institutional level. Among the most impor-
tant of the latter are those groups that are responsible for
oversight and support of the EHR system. The ways that
laboratories can establish credibility over time include:
• Anticipating challenges in EHR-laboratory informa-
tion management
• Providing laboratory resources to troubleshoot and
resolve EHR-laboratory issues as they arise
• Raising awareness of EHR-laboratory issues with clini-
cians and IT support staff
Laboratories can insinuate themselves into EHR pro-
cesses through formal and informal methods. The labo-
ratory can ensure that it is represented on EHR-related
formal committees or other groups. Cultivating key rela-
tionships at various levels of the organization is one of the

most important ways for the laboratory to influence EHR-
related issues. The laboratory director or designee can
establish relationships with the institution’s chief infor-
mation officer. Pathologists and laboratory scientists can
build or leverage existing peer relationships with clinicians
who are interested or influential in EHR issues. Examples
of such people include the chief of staff, the safety officer,
the quality officer, and other clinicians who carry weight
in the institution. Increasingly, organizations are hiring
chief medical information officers (CMIOs) to oversee
EHR matters, and a CMIO would be a natural person with
whom the laboratory could develop a peer relationship
(11). The LIS personnel can reach out and establish rela-
tionships at peer levels with EHR system support analysts.
Another place to which the laboratory can reach out for
assistance in EHR issues is the compliance office. As noted
above, there are regulatory requirements related to labora-
tory information that impact configurations in the EHR,
including data required for test orders, billing compliance
(e.g., ICD codes), and report requirements (data elements
in the report, performing laboratory). The compliance
office can aid in endorsing and reinforcing laboratory re-
quests for configurations or changes in the EHR when nec-
essary to meet regulatory requirements.
Tactics for Working with EHR Support Staff
A good working relationship at the “grassroots” level be-
tween the laboratory and the systems analyst team(s)
responsible for EHR application support can be key to ad-
dressing EHR-laboratory information management issues.
The EHR analysts (or application/technical support staff),
on a day-to-day basis, create the EHR definitions and con-
figurations that directly affect user experience. Such indi-
viduals are also responsible for EHR testing and change
control processes. Initiative on the part of the laboratory
will likely be necessary to reach out and build such ties,
although it is possible that the EHR support group will
reach out to the laboratory, particularly if there have been
problems that required laboratory expertise. The labora-
tory can seize such opportunities to build relationships
and influence.
The laboratory should use every opportunity that pre-
sents itself to demonstrate to EHR support staff (and to
others in the institution) the benefit of having laboratory
subject matter experts involved with the EHR. Opportuni-
ties often present when problems arise and the laboratory
is involved in resolution. Other opportunities arise in the
course of laboratory representation on EHR-related com-
mittees (as mentioned above). Not working with EHR sup-
port staff potentially leaves laboratory-related decisions in
the hands of people who may not understand laboratory
needs or the implications of EHR design or configuration
decisions, with negative consequences for the laboratory
testing cycle.
CHAPTER 53. ELECTRONIC HEALTH RECORDS 929
In a busy laboratory with many competing demands for
people’s time, the laboratory’s contributions in such situa-
tions can go underestimated or forgotten as people move
on to the next issue. A tactic to prevent this and to build
the case for laboratory involvement in the EHR is to keep
track of the lab’s efforts in such instances and in situa-
tions otherwise related to EHRs. For instance, the labora-
tory might keep a log of brief descriptions of EHR-related
problems and the laboratory’s role in troubleshooting and
resolution. Doing so and communicating such examples
in the appropriate venues can help the laboratory build
a case over time for greater influence and involvement.
When this is done, however, it is important to avoid finger-
pointing (if possible) but rather to emphasize the need and
benefit of collaboration in pursuit of optimal patient care.
Periodic, scheduled meetings between appropriate labora-
tory and IT staff may be beneficial.
Laboratory Involvement in EHR Selection
and Implementation
EHR purchases and implementations are high-stakes and
high-cost initiatives for healthcare institutions, and partici-
pation in them is an opportunity to be an integral part of
the success of a strategic project. Furthermore, participation
will demonstrate the laboratory’s commitment and expertise
as well as potentially set the groundwork for roles in future
EHR efforts such as advanced decision support and guide-
line development. Strategically, political power accrues to
those subunits of an organization that are best able to solve
its strategic problems (7). Conversely, lack of laboratory in-
put may lead to overlooking issues that result in adverse op-
erational consequences for the laboratory and the institution.
Selection and implementation of a new EHR provide
golden opportunities for the laboratory to increase its
involvement and influence with respect to the EHR. The
laboratory should participate actively in the EHR selection
process. Institutions typically will convene some type(s)
of selection committee and/or one or more work groups
for an EHR evaluation and selection project. These are
venues in which the laboratory can have peer represen-
tation that may include the laboratory director at higher
levels and laboratory operational or IT representatives on
the work groups.
Opportunities during the EHR selection process in-
clude contributing laboratory-oriented considerations and
functional requirements to the development of the institu-
tion’s request for proposal for the new EHR system. Insti-
tutions may develop “use cases” or clinical scenarios (e.g.,
patient admitted to emergency department with chest
pain) against which to judge candidate vendors’ offerings.
Since such use cases would include laboratory testing, lab-
oratory participation can be integral to their development.
At minimum, the laboratory should attend EHR vendor
demonstrations and provide evaluations.
930 THE FUTURE OF CLINICAL LABORATORIES
Once a new EHR has been selected, the laboratory will
have important roles in its implementation. As in the selec-
tion process, the institution will likely convene committees
and work groups on which the laboratory should expect to
have formal representation. Such teams will typically work
through the configurations and definitions in the EHR sys-
tem that will underpin clinical work flow and documenta-
tion. Key areas for the laboratory include configuration of
order entry (CPOE) processes and results management.
The laboratory has a vital role to play in testing EHR pro-
cesses and interfaces. Considerations for these issues were
outlined earlier in this chapter. A particular area, for in-
stance, in which the laboratory can provide valuable in-
put is the design of the structure and display of screens for
cumulative display (by date) of laboratory results, in par-
ticular how tests are grouped logically by discipline (e.g.,
chemistry, hematology, etc.). The implementation phase is
when the laboratory can work with the EHR implemen-
tation team to establish processes for change control and
communication for laboratory test definition changes or
new tests. Doing so is necessary to ensure correct mapping
and data exchange between the LIS and EHRs.
Summary
The use of EHRs has profound implications for laborato-
ries. The core mission of the laboratory is to provide in-
formation for patient care decisions; the EHR dramatically
affects preanalytic and postanalytic laboratory informa-
tion management.
EHRs are more than just computerized versions of the
paper chart. EHRs employ functions that directly affect
not only laboratory information management but also
laboratory processes. EHR design dictates the display and
handling of laboratory results. Order entry in the EHR is
a dynamic function that affects the receipt and process-
ing of laboratory orders and has implications for labora-
tory operations. Proper functioning and management of
the interface(s) between the LIS and EHRs is necessary to
ensure appropriate data flow between the laboratory and
the clinician. Regulatory requirements include laboratory
responsibility for ensuring accurate delivery of test results.
EHR uptake by physicians and hospitals has been rela-
tively slow in the past but is gaining momentum. Two ma-
jor recently enacted federal programs—the CMS’s EHR
Incentive Program (commonly known as “meaningful
use”) and the ONC’s related EHR certification criteria
and data standards—aim to spur greater use of EHRs by
hospitals and individual providers. These programs have
specific elements that are directly relevant to laboratories.
More broadly, laboratories can anticipate increasing ex-
pectations for electronic interfaces to EHRs.
Going forward, involvement in EHR-related issues
will likely be an important success factor for laboratories.
To influence EHR issues, laboratories must become ac-
tive outside of the laboratory. The importance of hav-
ing laboratory personnel with informatics expertise
dedicated to LIS-EHR issues cannot be overemphasized.
Such activities, however, require commitment of time
and resources. The laboratory can establish credibility
at the institution level by contributing its unique sub-
ject matter expertise to EHR matters related to labora-
tory information management. By reaching out to other
key stakeholders, including EHR oversight groups, clini-
cians, and others, the laboratory can raise awareness of
EHR-laboratory issues.
KEY POINTS
■ Electronic health records (EHRs) are transforming
information management in healthcare and have sub-
stantial implications for the mission of the laboratory to
deliver information for patient care.
■ Recent federal regulations and programs aim to drive
more widespread use of EHRs and define criteria for
“meaningful use” of “certified” EHRs that eligible
healthcare providers and hospitals must meet in order
to qualify for payment incentives and to avoid future
penalties.
■ The EHR is the mechanism, or “portal,” through which
clinicians will interact with the laboratory and labora-
tory information.
■ The components of EHRs with most relevance for the
laboratory are laboratory results management, com-
puterized physician order entry (CPOE), and inter-
faces between laboratory information systems (LISs)
and EHRs.
■ Constraints or limitations in how EHRs manage labora-
tory results and test order information may negatively
impact the use of laboratory information in patient
care, the processing of laboratory test orders, and clini-
cians’ perception of the laboratory.
■ As EHR use by hospitals and provider practices ex-
pands, laboratories can expect to see a great increase in
expectations for electronic exchange of laboratory data
and LIS-EHR interfaces.
■ Deployment and ongoing support of LIS-EHR inter-
faces require attention to technical, operational, and
financial considerations.
■ Although the laboratory may lack direct control over
the EHR system, the laboratory possesses the domain
expertise to contribute to the optimal handling of labo-
ratory information in the EHR.
■ Laboratories can develop organizational approaches
and allocate resources toward influencing EHR-related
issues in their institutions.

GLOSSARY
Certified EHR An EHR (single or combination of EHR mod-
ules) that has been tested and certified in accordance with the
certification program established by ONC as having met all ap-
plicable ONC certification criteria.
CMS (Centers for Medicare and Medicaid Services) U.S. fed-
eral agency that administers the Medicare and Medicaid national
health insurance programs.
CPOE (computerized provider order entry) Electronic func-
tions that enable healthcare providers to enter orders, such as
laboratory test orders or medication orders, directly into an in-
formation system.
EHR (electronic health record) Longitudinal, computerized
collection of health information related to an individual’s health
and healthcare; EHRs include functions that include computer-
ized provider order entry (CPOE), decision support, and capa-
bilities for electronic exchange of health information.
EHR module A system that meets at least one of the ONC EHR
certification criteria and that can be tested and certified in ac-
cordance with the ONC EHR certification program; combina-
tions of EHR modules can be used to meet the definition of
certified EHR technology.
HITECH Act Health Information Technology Economic and
Clinical Health Act; federal law that aims to promote the use of
interoperable health information technology and electronic
health records.
HL7 (Health Level 7) Widely used standard for electronic data
exchange in healthcare; specifies format and syntax for data mes-
sages in system interfaces.
Interface Software and connections that translate electronic
messages so that otherwise incompatible systems can exchange
information.
Interface engine Hub-like system that translates and routes elec-
tronic messages among multiple disparate systems. It reduces the
number of individual interfaces needed for multiple systems.
Laboratory test formulary List or menu of laboratory tests that
are approved or available for ordering by providers in a health-
care organization.
LIS (laboratory information system) Interrelated software pro-
grams and hardware that provide electronic data processing and
information management functions necessary to support labora-
tory operations.
LIS dictionary LIS database table that stores data definitions
that determine conventions, names, formats, and rules for infor-
mation processing in the laboratory.
LOINC (Logical Observation Identifier Names and Codes) A
data standard that defines a set of universal codes for identifying
laboratory tests (and other clinical observations) in computer
systems; aimed at enabling exchange and comparison of data
across different information systems.
Meaningful use Typically refers to the CMS’s Electronic Health
Record Incentive Program; meaningful use is the use of certified
CHAPTER 53. ELECTRONIC HEALTH RECORDS 931
EHR technology to meet specific objectives defined in the
regulation.
ONC (Office of the National Coordinator for Health Informa-
tion Technology) U.S. federal agency, in the Department of
Health and Human Services, in charge of national efforts to ad-
vance the use of health information technology.
Standard In the context of information systems, a set of agreed-
upon rules, specifications, and/or conventions that govern the
design and function of information systems, with the idea that
systems that adhere to a given standard will be compatible with
other systems that adhere to the same standard.
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Introduction
Chemistry
54 Current Trends in
Core Laboratory • Rapid-Response Laboratory and
Point-of-Care Testing • Noninvasive Testing
Instrumentation and Technology:
Hematology
Automation in the Routine Laboratory Outlook for the Future
Coagulation Laboratory
Routine Coagulation • Point-of-Care Testing •
Molecular Testing
Sheshadri Narayanan and Audrey N. Schuetz
Microbiology
Molecular Testing
OBJECTIVES
Blood Bank
Automation • Molecular Testing To provide the reader with an overview of current trends in instrumentation
Outlook for the Future and technology in the clinical laboratory (chemistry, hematology, coagulation,
Driving Forces • Miniaturization and Microfluidics • microbiology, blood bank, and molecular, point-of-care, and noninvasive
Biochips • DNA Sensors testing)
Summary To acquaint the reader with current trends in miniaturization and micro- and
KEY POINTS nanofluidic technology and their impact on microarray and chip technology in
GLOSSARY a lab-on-a-chip format
REFERENCES To provide a perspective on how these developments and other new
APPENDIXES
ultrasensitive technologies are and will be shaping the laboratory of the future

As in life, so in science; our incredibly wild prophecies of today become the rou-
tine realities of tomorrow.
Anonymous

Clinical Laboratory Management, 2nd Edition
Edited by L. S. Garcia
©2014 ASM Press, Washington, DC
doi:10.1128/9781555817282.ch54
T
his chapter examines current trends in instrumentation and
technology in key disciplines in the clinical laboratory. It also pro-
vides an outlook for the future based on the driving forces toward
technology for miniaturization and microfluidics, with applications ranging
from bedside analysis geared toward instituting prompt and optimal therapy
to molecular analysis of pathogens and the study of mechanisms of malig-
nancy. Before beginning a discussion of current trends in instrumentation
and technology in each key laboratory discipline, it is appropriate to briefly
touch upon the physical organization of the clinical laboratory. The Japa-
nese model of clustering automated chemistry and hematology instruments
around a belt line is the model that has been generally emulated by some of
the highly mechanized large-volume core and reference laboratories with-
out walls. Depending on the turnaround time and the throughput needed,
automation extends also to the preanalytical process. However, unlike in Ja-
pan, where a shortage of medical technologists made it necessary to innovate
in the direction of total automation including the preanalytical process, in
the United States, total laboratory automation (TLA) has been limited to a
few of the large medical centers and corporate reference laboratories. A 2002
College of American Pathologists survey listed fewer than 200 sites in which
TLA including automated centrifugation was in place (5). Daunted by the
huge costs of TLA and the long time frame needed to achieve returns on
investments, there has been a focus on the front end of automation primarily

933
934 THE FUTURE OF CLINICAL LABORATORIES
confined to specimen sorting, decapping, aliquoting, and
even centrifugation steps. As needed, instruments can be
added to the automated line in a modular approach.
There are, however, some who question the economics
of this piecemeal approach and favor TLA. Without go-
ing into the merits of the modular approach versus TLA,
suffice it to say that while the extent of automation varies
depending on the needs and cost constraints of specific
laboratory operations, the trend is toward integration of
compact instruments with laboratory information sys-
tem (LIS) functions under one roof. Thus, typically even
a rapid-response laboratory would be expected to be con-
figured in one room with blood gas instruments, chem-
istry, hematology, coagulation, and urinalysis instruments
nestled side by side.
The synergy between the LIS and the intelligent com-
puterized instruments contributes to the efficiency of to-
tal automation from the time of accessioning and receipt
of specimen to analysis and reporting of the results to the
physician’s workstation. Indeed, the computerized instru-
ments are able to perform many tasks, such as the appli-
able to measure a wide selection of analytes ranging from
therapeutic drugs and hormones to tumor, cardiac, hema-
tological, and infectious disease markers and to detect au-
toimmune disease (3). Just as homogeneous enzyme and
fluorometric immunoassays and fluorescence polarization
immunoassays revolutionized the measurement of thera-
peutic drugs and drugs of abuse over the last two decades,
chemiluminescence and other ultrasensitive immunoas-
says have expanded the scope of detection to a wide range
of diagnostically relevant analytes. Indeed, hormones
such as thyrotrophin can be measured at levels as low as
0.001 mIU/ml with chemiluminescent labels. Likewise,
the newer high-sensitivity troponin I (hs-cTnI) assays can
achieve a sensitivity of 0.0028 µg/liter at the 99th percen-
tile level (37).
Evolution of ultrasensitive immunoassay technologies. As
ultrasensitive technologies have been introduced, their
limitations have also been uncovered, thus leading to a re-
finement of the original assays. Using chemiluminescence