By Nicholas Borgert

This article is based on a presentation by Frederick L. Kiechle, MD, PhD, at The Dark Report’s Executive War College held last May in New Orleans.

Frederick L. Kiechle, MD, PhD

Many labs struggle to offer the advanced technology required by the growing demand for testing at the molecular level. Here’s how one large Michigan hospital system’s laboratory made the transition and built a financially sustainable molecular diagnostics program over the past decade.

Frederick L. Kiechle, MD, PhD, is chairman of the Department of Clinical Pathology and serves as medical director for the Beaumont Reference Laboratory (BRL), an outreach program for physician offices, nursing homes, and other hospitals. The laboratory is part of Michigan’s William Beaumont Hospital. Kiechle has spent 22 of his 30 years in medicine at the Royal Oak-based hospital lab.

With more than 1,000 beds, Beaumont is a large, established hospital. It provides for the care and testing needs of physician offices and smaller, less specialized labs in seven counties across southeastern Michigan.

In 2004, the last year in which complete statistics are available, the hospital performed more than 52,000 surgeries and had nearly 58,000 admissions, with an average stay slightly more than 5 days. The hospital logged twice as many emergency-department visits as admissions for the year, and handled 900,000 outpatient visits. Hospital occupancy was listed at 90.1%, and the hospital employed 8,000 full-time-equivalent positions.

Kiechle’s timeline for clinical laboratory services—covering 1988 to the present—indicates that the BRL has seen its molecular pathology testing grow at the second fastest rate among the lab’s available testing services.

In the past 10 years or so, clinical pathology testing has increased dramatically thanks to the BRL’s efforts. Total clinical pathology testing volume includes inpatients, hospital-registered outpatients, and BRL clients. BRL clients increased from 170, who provided 14.5% of the total lab procedures in 1994, to more than 1,423 with more than 3 million clinical pathology procedures that grew to represent 47% of the total clinical pathology testing procedures by 2004. Between 2003 and 2004, according to Kiechle, his lab was able to manage major growth in analytical cytometry (up 23%); molecular pathology (up 13%); hematology (up 8%); and chemistry (up 7%).

The molecular laboratory’s key services include testing for inherited disorders such as hemochromatosis mutations, cystic fibrosis, Ashkenazi Jewish panel (complete panel or as nine individual tests), genetic risk factors, molecular detection of infectious agents, molecular hematology, and pharmacogenomics.

Patents and Genes Don’t Mix
Kiechle questioned efforts to seek patent protection for genetic sequencing that serves to add another layer of costs to molecular diagnostics. (By the end of 2001, there have been 18,174 patent filings for human DNA sequences, with 365 more on single-nucleotide polymorphisms. Records show 62% of the patent filings took place in the United States.) Gene patents have had minimal influence on levels of biomedical industrial research, but have had a large impact on clinical molecular testing, he says. “Patents and genes don’t mix, and the situation is intolerable. It’s silly to patent genes. The work should be available to the public. Lest we forget, the patent system was established to protect and promote inventions, not investments,” Kiechle says.

He says margins on many tests are already so small that the added licensing fee cost simply forces clinical labs to avoid offering certain tests.

Kiechle’s lab also focused on enhancing revenue opportunities and eliminating troublesome spots within the revenue-cycle pipeline. Findings from the Health Care Advisory Board indicate that typical hospital laboratory facilities lose between 2% and 5% of their net revenues because of shortcomings and inattention to conditions within their revenue pipelines. The most common villains range from errors in patient registration, lack of authorizations, coding errors, billing errors, underpaid claims, and denied appeals.

Important Steps
The Beaumont Hospital system has provided its clinical laboratory support for a projected 10% to 20% annual growth of the BRL. Growth is monitored using revenue-cycle metrics for financial data from the laboratory and hospital. There has been a commitment for adequate capital equipment funds to meet the BRL’s future needs.

A critical part of the BRL’s strategy was to convert expensive molecular send-out tests to in-house procedures and to align test charges, costs, and reimbursements to attain a positive margin. “Michigan is one of the handful of no-markup states for send-out test charges; you can’t make a profit on tests sent to other laboratories. Because reimbursement is less than this charge, you always lose money when you send the tests out,” Kiechle says.

Other key steps included the BRL’s opening of a trace-element laboratory and the addition of more advanced molecular tests. The lab’s initial menu of 30 molecular diagnostic tests has been enlarged to include an expanded variety of microbiology and virology assays.

An important feature: The hospital system provided support for an effective evaluation of the needs for the market it serves. It also supported its molecular diagnostics capabilities with an ambitious program for educating target client segments. The program included brochures, lectures, and a number of symposia; however, the effort didn’t stop there. Diagnostic testing procedures were followed up by carefully reviewing client segment-ordering patterns for other selling opportunities as well as by monitoring client ordering by specialty. This comprehensive effort has paid dividends for the BRL. Today, the clinical pathology laboratory is performing in excess of 6.8 million tests, and about 50% of its revenue results from the system’s ambitious outreach program to client clinics and labs.

Areas For Improvement
Additional opportunities remain for the BRL. It is completing the revenue analysis for 2004 molecular tests using insurance-payment validations. It is defining discrepancies that arise between contract charge and actual payments. The lab will continue to focus on educating third-party payors on the value and benefits of molecular-based diagnostics, refine terms of patents and licenses, and hone competencies for use of analytic specific reagents (ASRs).

Unlike “home-brew” assays that are developed and validated within a single lab, ASRs are developed elsewhere using reagents from several sources and are subject to a number of limitations, Kiechle says. For example, with guidance from the Mayo Clinic, the molecular lab was able to develop and validate Herpes Simplex types 1 and 2 using a Roche Light Cycler system and an ASR protocol.

While ASRs can be used for patient results after in-house validation, they cannot be sold in kit form. Manufacturers are prohibited from disclosing what reagents and what quantities to use. Performance characteristics such as accuracy, precision, analytical sensitivity and specificity, reportable range, and reference range, must be established by each lab.

“For smaller labs, ASRs will continue to be popular because they save a lot of time,” Kiechle says. “But [smaller labs are] faced with having to beg, borrow, and steal the details of each ASR protocol from other labs. The [Food and Drug Administration (FDA)] created the category, and the ASR certainly shortens the validation period.”

A common tool for clinical molecular laboratories, home-brewed assays are hard to regulate. Several years ago, the FDA decided to address the issue of regulating these assays and ended up shifting the area of focus away from regulating the laboratory development of the assays to regulating the reagents themselves and who can purchase them.

Beyond the Reach
According to Kiechle, molecular testing is not for every hospital lab. “Hospitals with 300 to 400 beds or less shouldn’t go into molecular diagnostics if they aren’t willing to make the necessary investment in people, space, and equipment,” he says. “There’s also a learning gap between older medical technologists not trained in molecular testing and the younger MTs who are better trained. That gap can be closed, but are time and costs involved.”

Nicholas Borgert is a contributing writer for Clinical Lab Products.