• Using a Lab Formulary to Improve Value

    By Lola Butcher Dec 18, 2018

    At Vanderbilt University Medical Center, a multidisciplinary committee restricts laboratory tests to those that provide the best value—and saves the organization millions of dollars.

    The ongoing flood of newly available laboratory tests comes with a big downside: They are increasing healthcare costs but, in many cases, not improving the value of care.

    Lab Formulary_Mary Zutter“Although there are new diagnostic tests coming out, there are few studies that focus on when a test is clinically useful and when it is appropriate to perform a test,” says Mary Zutter, MD (pictured at right), vice president-integrative diagnostics at Vanderbilt University Medical Center (VUMC) in Nashville.

    In some instances, in fact, there is a lack of clarity about the utility of a given test under any circumstances. “We often see new tests that have almost no evidence—tests that are only available from one small company and the only paper about it was paid for by that company,” she says.

    VUMC is tackling the challenge with a laboratory formulary—a list of approved tests and the guidelines for ordering them. A multidisciplinary committee vets every new test proposed for the formulary and reviews the value of longstanding tests to identify those that need to be dropped. 

    In 2016 alone, the formulary approach saved more than $1 million, in part by eliminating some low-value tests—for example, tests that are commonly used but only appropriate for specific situations. The savings also came from restricting the circumstances under which some tests can be ordered and controlling who can order certain tests.

    Physicians historically have been trained to prioritize “thoroughness,” but today’s medical practice must be guided by value, says Tina Hartert, MD, co-chair of VUMC’s Laboratory Formulary Committee. “Sometimes on the clinical side, we don't ask the question of why we need this, what we're going to do with the information, and what's the downside of getting the same tests done every day during an inpatient stay,” she says. “This is an area where there has been a lot less focus on both improving quality and containing costs.”

    The concept of a laboratory formulary began to emerge in health care several years ago, although it has not been widely adopted. That may reflect the lack of consensus about what a good formulary includes.

    “What is amazingly lacking are guidelines for the most efficient and effective use of a laboratory test,” Zutter says. “We have to create our own knowledge base around the guideline deficiency.”  

    Why Lab Tests Get Overlooked

    VUMC’s Laboratory Formulary Committee supports the organization’s commitment to Choosing Wisely, a national initiative of the American Board of Internal Medicine Foundation that encourages providers and patients to avoid common medical tests and procedures unless they are truly needed.

    “From an institutional perspective, there's this broad campaign about ‘choosing wisely’ to improve the quality of care and contain costs,” says Hartert, who is VUMC’s assistant vice president for translational science. “Does a patient need a blood count every day? It’s the idea of asking, ‘Do I need to order this test?’ and ‘What am I going to do with the information from this test?’”

    The proliferation of new tests is contributing to America’s healthcare cost crisis. As of mid-2017, there were about 75,000 genetic tests on the market, with about 10 new tests appearing daily, according to a Health Affairs article. Each DNA sequencing costs about $1,000.

    Those advanced diagnostic tests contribute to the cost trends in laboratory testing overall. “Laboratory spend is increasing at nearly double the rate of the healthcare spend in general, so people are beginning to recognize it as a genuine monetary issue,” Zutter says.

    More than 5 billion laboratory tests are ordered each year, according to Costs of Care, and many of them are either duplicates or the wrong test. In fact, a study found that, when a clinical-decision support tool blocked unnecessary duplicate test orders during computerized physician order entry (CPOE), nearly 12,000 tests were prevented over two years, saving more than $180,000.

    Despite the “low-hanging fruit” in U.S. medical labs, the cost of testing has traditionally not received much attention because, compared to other areas of spending, most tests are relatively inexpensive. In most cases, clinicians who order lab work have no idea what a test costs, so it’s easy for “more is better” thinking to take hold, Hartert says.

    “It’s not just the cost of the test,” she says. “Every test requires a paid person to draw the blood and a paid person to run the test, even if the blood test itself is very inexpensive.”

    The biggest value in eliminating unnecessary tests is in improving the quality of care. “Inappropriate testing actually leads to more inappropriate testing,” Zutter says. “If a patient receives a borderline test result, they have to come back to the hospital or clinic for retesting, thereby delaying diagnosis, increasing costs, and consuming more time—not to mention the unnecessary anxiety and inconvenience we’ve created for the patient.”

    How It Works at VUMC

    The Laboratory Formulary Committee—a subgroup of the Pharmacy, Therapeutics and Diagnostics Committee—reports to the medical center’s medical board. The committee consists of voting members from several clinical departments and specialties, including a pathologist.

    “At VUMC we’ve been extremely careful to ensure that the process is not perceived as driven by a select group,” Zutter says. “Providers from across the institution are involved in making decisions that impact patient care.”

    The following elements help the committee function effectively.

    A standardized decision-making process. A template guides the presentation of each new test being considered. The presentation includes a description of the test, the data that supports its utility, when the test should be ordered, how test results should be interpreted, and the financial impact of the test.

    Committee members discuss what they heard in the presentation and then vote on whether to add the test to the formulary. A simple majority decides the vote, but Zutter says every vote has been unanimous (sometimes after delaying a vote and asking the requesting provider for additional evidence or for a way to monitor testing over time).

    The committee votes not only on new tests but also on removing tests from the formulary, restrictions on who can order or when a test can be ordered, and clinical-decision support protocols to be added to the CPOE system.

    “We don't completely eliminate anything that has some value,” Zutter says. “We'll often provide an alternative test, and our health IT team will develop a best-practice alert that pops up to tell a physician that this is the better test to be ordering.” 

    Support from the finance department. For each test under review, a member of the finance department uses several data points—including the applicable CPT codes; estimated volumes for the test; the ratio of tests likely to be done in the inpatient versus the outpatient setting; and the payer mix for the patient population most likely to receive the test—to estimate the cost to individual patients and to the institution. 

    A finance department leader presents that information to the Laboratory Formulary Committee right after the clinical-utility information is presented.

    Efficient implementation of decisions. An implementation team, which Zutter leads, includes laboratory medical directors, administrators, finance department representatives, laboratory information systems specialists, health IT developers, data analysts, genetic counselors, and project managers. 

    That team meets—typically a week after the formulary committee meeting—to communicate the committee’s decisions to all laboratory staff and providers. The IT team members make sure formulary changes, along with decision-support guidance, are reflected in the CPOE system that providers use to order tests, and they track the outcomes of the formulary changes.

    “If we add something, take something away, change an algorithm, or provide clinical-decision support, we ask Dr. Zutter’s group to look at the impact of that and come back to our committee with outcomes data in six or nine months,” Hartert says. The data provide insight into changes in test ordering and, when applicable, in clinical outcomes.

    Where Savings Are Found

    About 60 percent of the committee’s work is evaluating new tests that a provider has proposed for the formulary; the rest is reviewing tests already on the formulary, Zutter says. For example, if there is wide variability in the usage of a certain test among different physician groups, or the National Comprehensive Cancer Network Guidelines change for a given test, the committee conducts a review.

    In 2016, savings came from:

    Eliminating tests that offer low value. For example, providers often were ordering a special test—fractionated 25-hydroxyvitamin D, in addition to a total Vitamin D test—as a matter of course, even though the special test was recommended only for certain clinical presentations. By removing the test from the order menu, VUMC saved nearly $103,000 in 2016. (The test remains available for patients who meet the clinical criteria.)

    Restricting when certain tests can be ordered. Physicians often order certain tests for inpatients—for example, genetic tests—that might provide helpful information, but the turnaround time for getting results typically exceeds the patient’s expected length of stay. Thus, the results are not available for decision making about treatment during the inpatient stay.

    The Laboratory Formulary Committee set a rule that, if an inpatient test has a median turnaround time of more than seven days, it must be approved by a laboratory medical director before it will be conducted. In 2016, the rule led to a 48 percent decrease in the ordering of tests with long turnaround times, saving VUMC more than $250,000.

    Requiring expert review for all genetic tests. These tests, some of which cost more than $10,000, are among the most expensive and most likely to be ordered inappropriately. The committee established a team of genetic counselors and pathologists to review all orders for genetic tests to consider appropriateness, price variations among vendors, and other factors. In 2016, canceled and modified genetic test orders resulted in more than $390,000 in savings.

    Gaining Support

    Tests that have traditionally been in the formulary but are of questionable value are reviewed by the committee only after providers have been contacted. If a test is being considered for review, the health IT staff creates a list of the physicians who order it.

    “We engage the providers and senior leaders prior to a presentation to the formulary committee,” Zutter says. “It's really the teamwork that has made us successful.”

    The laboratory formulary concept also has the clear support of Jeffrey Balser, MD, PhD, president and CEO of the medical center. Zutter recommends that other health systems adopt a formulary only if senior leaders are enthusiastic about the concept.

    “The senior leadership of the hospital as well as the involved stakeholders must be supportive and be willing to provide not only support for the individuals leading the program, but also guidance that endorses and solidifies the path for the institution,” she says.


    Lola Butcher writes about healthcare business and policy topics for several HFMA publications.

    Interviewed for this article: Tina Hartert, MD, MPH, assistant vice president of translational science, professor of medicine, and director of the Center for Asthma Research, Vanderbilt University Medical Center (VUMC), Nashville; Mary Zutter, MD, vice president-integrative diagnostics and professor of pathology, microbiology, and immunology, VUMC.

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