Optimising clinical laboratory service delivery with electronic decision support: An analysis of market structure and impacts of regional clinical information strategy - Part 1

• Abstract
• Introduction
• Market Analysis of Auckland Metropolitan Diagnostic Laboratory Service Provision
  • Funder (Supply Side) Considerations
  • Provider (Demand Side) Considerations
  • Orderer and Patient (Demand Side) Considerations: the Role of Evidence Based Medicine (EBM)

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Abstract
Diagnostic laboratory tests in New Zealand accounted for approximately $200 million (2004/05 financial year), 95 percent of which was taxpayer funded. Laboratory test expenditure continues to accelerate, resulting in increasing pressure on District Health Boards to improve both demand (test orderers and consumers) and supply (providers of community laboratory tests) side management to contain costs and improve the clinical cost-effectiveness of test ordering. The impending expiry of the national laboratory contract has highlighted the absence of a regional laboratory strategy and of robust, reliable information about laboratory costs and capacity that would assist in the formulation, implementation and evaluation of such a strategy. There are also significant flaws in information flow within the economic structure underpinning diagnostic test provision, including the "third-party payer problem", service provision monopoly and a dearth of good clinical evidence about what constitutes optimal laboratory test utilisation. Electronic Decision Support (EDS) has been identified in the international literature as a tool that has the potential to address this information deficit for both supply and demand side laboratory market management. This paper presents an analysis of the community laboratory market structure in the Auckland metropolitan region, identifies the place of EDS in the regional clinical information strategy and documents the considerable benefits that judiciously implemented EDS would offer to laboratory services’ funding, planning and delivery for the Auckland metropolitan region. An inventory of regional diagnostic EDS resources is the recommended first step towards preparing a business case for diagnostic EDS development within the Auckland metropolitan region.

Introduction
Diagnostic laboratory tests are making an increasingly important contribution to the quality and cost-effective delivery of clinical health care in the developed world, due in part to ongoing technological innovation, advances in evidence-based medicine and changing demographic profiles. Increasing affluence and improved medical care have resulted in a population that is ever more dependent on diagnostic testing to support increasingly sophisticated disease treatment and disease prevention programmes. For New Zealand, these global trends have translated into a diagnostic laboratory expenditure of in excess of $200 million, over 95 percent of which is funded by the New Zealand taxpayer. As is the case in most developed countries, the rate of increase in laboratory test expenditure continues to accelerate at a rate that is of concern to health funders and planners.

Laboratory services in the Auckland metropolitan region are funded collaboratively by the three Auckland metropolitan District Health Boards^{[ a ]}(DHBs): Auckland, Counties Manukau and Waitemata. Each DHB is directly funds its own hospital laboratories. Community laboratory services follow a "lead DHB" model, with Auckland DHB taking the lead on behalf of Counties Manukau and Waitemata DHBs.

Understanding the economic structure underpinning the Auckland metropolitan laboratory market is critical to understanding the dynamics of test ordering. The accelerating cost of laboratory testing is in many ways the surface manifestation of a number of underlying economic drivers, the key theme being poor or even absent information signals. These include, firstly, the fact that in the Auckland metropolitan region, the traditional market description of supply and demand side considerations is complicated by the fact that the consumer and orderer of laboratory tests do not pay for the costs of those tests. This fundamental market flaw, the so-called "third party payer problem", and other market externalities such as a near monopoly provision of community laboratory services are discussed in the following section on laboratory economics.

Secondly, the contract for community laboratory services in the Auckland metropolitan region is due to expire in the middle of the calendar year 2005. This presents both an opportunity and a threat to the DHBs; an opportunity in that there is space to consider options to improve the cost-effectiveness of diagnostic laboratory service provision and a threat, given the near monopoly in community laboratory services provision, of the potential for service failure.

Finally, a lack of documented good evidence that increased uptake of laboratory tests improves the quality of patient care in common clinical situations such as primary care, and therefore of patient care outcomes, is of grave concern.^{[ 1 ]}

The authors contend that the many variants of electronic decision support (EDS) - clinical, financial and managerial - have the potential to greatly improve the quality of information and, therefore, the signals that are essential to improve the functioning of diagnostic laboratory service planning, funding and delivery in the Auckland metropolitan area. The authors also contend that the Auckland metropolitan laboratory work streams, project-managed by the NDSA (Northern DHB Support Agency)^{[ b ]}, present an excellent opportunity for the development and support of diagnostic test-based EDS in the Auckland metropolitan region.

This paper therefore begins with a description of the economic underpinnings of diagnostic test services provision in the Auckland metropolitan region. The nature of the "third-party payment problem" renders problematic any discussion of the Auckland metropolitan laboratory market using the standard breakdown of supply and demand side considerations. The components of the Auckland metropolitan laboratory market will therefore be discussed under four headings beginning, firstly, with a high level overview of the Auckland metropolitan laboratory market. Secondly, funders, the Auckland metropolitan DHBs, incorporating largely what would be termed supply side considerations. Thirdly, providers, those laboratories providing community laboratory services incorporating largely what would be termed demand side considerations. Fourthly, the test-ordering health professionals and the patients, the so-called consumers of diagnostic testing, incorporating largely what would also be termed demand side considerations.

Given the authors’ contentions regarding the importance of market information, the potential for EDS to add value to this type of information and the role of the NDSA, the position of EDS in the Auckland Regional Information Services Strategic Plan^{[ 2 ]}(RISSP) will be outlined, followed by an overview of the NDSA managed Auckland metropolitan laboratory workstreams project. The paper concludes with a discussion of how EDS might add value to the various information flows underpinning the regional laboratory market and some recommendations on how the regional uptake of laboratory service provision focused EDS might be enhanced.

Market Analysis of Auckland Metropolitan Diagnostic Laboratory Service Provision
Economic policy is the means by which scarce resources are allocated between competing requirements in the most efficient manner. It is important to separate policy aims and objectives from the means by which those aims are carried out. A rejection of either the State or the market as an economic tool does not serve the interests of the individual or society at large. It cannot be too strongly stressed that the choice of an appropriate mix between market and State intervention should wherever possible be made on an empirical basis, and made after the aims of any economic policy have been determined.

The "invisible hand" theorem holds that the market is the most efficient means of allocating resources if, and only if, a number of assumptions, called the standard assumptions, hold true, in which case no State intervention is required on efficiency grounds. Where one or more of the standard assumptions fails it becomes necessary in each case to consider which type or types of State intervention should be made: regulatory, financial or through public production.

It is particularly important that the market not be rejected out of hand as a means for providing diagnostic laboratory services in the Auckland metropolitan region, given that New Zealand is a Western social democracy currently governed by a left of centre political party that campaigned on the merits of state intervention in the health care sector. On the other hand, it is important that a repeat of the excesses due to deregulation ensuing from the reforms instituted by the 1984 Lange Labour Government and concluded under the Bolger-led minority National Government does not recur because of an inappropriate reliance on market forces. For example, according to France^{[ 4 ]} the change in that case towards market controls not only destroyed assets of the existing centrally controlled laboratory system (co-operative arrangements between centres and sectors, attractive career structures, a research and development-oriented culture), but greatly increased expenditure on laboratory testing "with no clearly demonstrable evidence of health gain". Additional costs, the transaction costs of contracting, have added to the price-per-test borne by the taxpayer but, sadly, it would seem, to no advantageous end.

In a landmark Harvard Business Review article^{[ 3 ]} it was asserted that poor quality information about relevant market signals to consumers, funders and providers was an internationally recognised problem in the healthcare industry. Laboratory test orderers in particular tended to treat laboratories like "black boxes" with little or no knowledge/concern about many characteristics of the tests except the test results.

Of particular concern is the dominance of the "third-party payment" problem. The cost of laboratory testing is considered "free" to patients and doctors. As a consequence, both doctors and patients can act as if the cost of the test ordered was zero. The resultant minimal constraints on ordering lead to a natural tendency to over-servicing. In addition, recent empirical New Zealand research has confirmed the need to seek alternatives to price signalling as a tool for the efficient provision of diagnostic laboratory testing. France^{[ 4 ]} concluded that because price signals were so flawed, competitive contracting, as a means of price control for diagnostic laboratory services, should be abandoned.

There is evidence that attempts to provide test-orderers with the dollar cost of tests on order forms have had some impact on test ordering. However, the current design of the New Zealand clinical diagnostic laboratory system, including its current laboratory remuneration schedule, has not been rigorously investigated since 1974^{[ 4 ]}. The ad hoc adjustments to schedule pricing cannot, therefore, be considered a true reflection of the current costs of laboratory testing.

Funder (Supply Side) Considerations
Community Laboratory Services in the Auckland Region are funded by ADHB, CMDHB and WDHB with ADHB as lead DHB for non-DHB based providers. The total annual expenditure for laboratory tests has been increasing over time at an accelerating rate. There also exists the perception (although unsubstantiated by any empirical data) that considerable unused laboratory testing capacity exists, particularly in the area of automated equipment. This perception raises the question of whether greater scale of economy can be achieved by better supply side management, for example, by more rational allocation of segments of the laboratory test market. A planned, and therefore interventionist, approach such as this would signify the departure from a pure market approach in favour of more governmental regulation to address this market failure.

The contract for community laboratory services in the Auckland Region is due to expire within the next two years. Decisions on the future laboratory contracting process (at strategic and operational level) need to be made such that:

1. Services delivery be maintained.
2. Service costs can be properly managed within the context of anticipated growth in demand.
3. Resources allocation and demand for services are properly managed so that demand and supply are appropriately aligned.
4. Relevant workforce skill mix and appropriate infrastructure are maintained.

In the light of the impending service contract expiry a number of important questions need to be considered. Is the market the most appropriate means by which laboratory services should be provided in the Auckland metropolitan region? Another way of phrasing this question is, therefore, do the "standard assumptions" of the invisible hand theorem hold for the provision of laboratory services in the Auckland Region? Should this be the case, would the market be the most appropriate means through which laboratory services should be provided in Auckland? Or, if the success of Pharmac’s pharmaceutical purchase policy offers any guide, is state-intervention a more effective mechanism to extract greater efficiency while holding down the costs? Currently no accurate cost or capacity information is available to answer these questions.

Provider (Demand Side) Considerations
Currently, a privately owned company, Diagnostic MedLab (DML), provides the great bulk of community laboratory services for the Auckland metropolitan region with the remaining service coverage provided by Southern Community Laboratory (SCL) for the DHB provider laboratories. This raises the issue of a monopoly of community laboratory diagnostic provision as a potential impediment to the efficient operation of a community diagnostic laboratory market. In addition, DML and SCL own and operate the only two Auckland metropolitan community specimen collection and transport service networks. The DHB provider laboratories are currently dependent on DML for the collection and transport of community specimens and this is a potential additional impediment to a competitive community diagnostic laboratory market.

Orderer and Patient (Demand Side) Considerations: the Role of Evidence Based Medicine (EBM)
To fulfil the perfect information criteria for efficient laboratory market operation both test orderers and patients need high quality information about the appropriate utilisation of diagnostic tests. To quote from a recent evidence based medicine literature review carried out on behalf of the Australian Commonwealth Department of Health and Ageing, "...our literature review showed that evidenced-based information on the majority of pathology tests is sadly lacking".^{[ 1 ]}

Harvey and Visser^{[ 1 ]} conclude that most diagnostic tests are evaluated using methods that are subject to considerable bias and poor study design, which often results in an over-estimation of the accuracy of pathology tests. For many tests there is too little information about how to use them, and when this has been examined it demonstrates significant lack of agreement. There will always be some pressure on the prescribers to order laboratory tests, be it as a defence against litigation by health care practitioners or due to demand from patients. Effective and successful demand side management relies heavily on evidence-based answers to questions such as:

1. Do the tests ordered increase or decrease post-test diagnostic probabilities for the clinical problems that health practitioners are required to manage, particularly for those conditions which are vague and, most importantly for general practice, where practice circumstances are necessarily uncertain?
2. For New Zealand, what is the disease prevalence at the national, regional, DHB and individual general practice levels? This is information that is critical for determining the usefulness of a laboratory test in any given patient encounter.

Few systematic reviews of diagnostic tests have been found to meet evidence-based standards because of methodological flaws.^{[ 1 ]} In most circumstances, it has been suggested, we may need to start afresh with new, better, and more directed research. Some form of evidence-based decision support will be an essential prequel to the formulation of a solution to the third party over-servicing tendency.

Click here for Part 2 of this paper.