What Physicians Need to Know About In-House Lab Testing

January 2, 2018

A healthcare contract negotiator and laboratory consultant explains how physician offices can open an in-house laboratory to serve more patient care needs and tap into a new revenue stream. She offers advice for understanding the challenges and risks, and steps to take to ensure a successful lab.

Physician offices and other non-acute facilities that offer lab testing are seeing increased patient demand for these services for two reasons. First, patients prefer, if not expect, to get immediate results in a doctors’ office setting. Second, this allows physicians to start a pathway to treatment right away.

Facilities and offices that provide local routine lab testing are able to meet more of their patients’ needs. According to McKesson Medical-Surgical, 85% of patient visits happen outside of a hospital. That increases the need for testing in these non-acute settings.

Existing and emerging challenges in the laboratory testing landscape are making lab testing increasingly problematic for physician offices. Some of these obstacles include:

  • Constantly-changing reimbursement rates and care requirements.
  • A complex and fast-changing lab testing market with new products being introduced and replacing some of the ones doctors are familiar with.
  • Coding and billing can be complicated across the large number of available tests.
  • Regulatory surveillance and the ability of providers to navigate and interpret complex regulations.

Organizations are working to overcome these challenges by using high-quality testing products that can quickly screen for health issues. Organizations are also strategically choosing tests that fit their patient care needs, are profitable, and can be performed with the organization’s available skillsets and expertise.


The point of care testing (POCT) diagnostics market is expected to see a compound annual growth rate (CAGR) of 9.4% from 2016 to 2022, according to Allied Market Research. This will represent a $43 million market by 2022.

Several factors are driving this growth. POC testing can be performed in outpatient clinics, physician office laboratories, retail clinics and other facilities. More tests are now available both for use by healthcare professionals and patients at home. Results can be obtained in minutes versus hours or days.

Personalized healthcare is also driving demand for some tests. As patients become more informed about healthcare from online sources such as WebMD, they are asking their physicians for POCT and other lab tests. Patients who look up their symptoms can now be told what types of diseases might be involved. Using that education, they can have conversations with their providers and request tests to be performed. For example, if a patient suffers from a sore throat, they can look up symptoms and find out about the possibility of having strep or mono. They can then go to their provider and ask for these tests to be performed.


Laboratory testing is part of the patient care pathway that identifies patient illnesses and leads to treatments. Supplies, products and services in this area of the healthcare supply chain require tests that are accurate and deliver rapid results. The POCT devices must be simple to use and offer little or no variability.

Organizations that switch from outsourcing lab tests to handling them within their own lab offer one-stop convenience for patients and can lead to an increase in patient satisfaction. If tests are planned and implemented correctly, organizations can also benefit from this as a source of revenue.

To set up or expand an in-house lab, physician offices should:

  • Understand the business risks. Like making any business decision, investing in a lab requires understanding the risks and rewards, and knowing the landscape. Some testing could open up the facility to increased regulations. When changing from a POCT screening strep test to a confirmatory microbiology test, for example, an organization needs to weigh the financial and clinical benefits versus risks in the form of costs, expertise and need.
  • Determine profitability. This includes knowing which tests are reimbursed by insurance plans, Medicare or Medicaid. Organizations need to know how much money they will make by offering each test. The tests must produce value.
  • Have the proper staffing. Having the bandwidth and resources to perform lab testing is critical. Some tests can be performed by nurses. Others must be performed by certified professionals with a four-year degree or by a person with a two-year degree.


One way to help launch a successful in-house lab is to partner with a hospital and a supply chain partner. Physicians often don’t have time to stay current on the latest tests, requirements and reimbursement rates. They may be getting their information from conferences, which can be limited and become out of date quickly. This may result in physicians over, under or mis-ordering a test on patients, costing themselves, their patients and insurers money. For instance, with many genomic tests, only one test is ever needed for a patient because their genes don’t change. Consequently, previous results can be referred to in their medical record instead of being ordered again.

Many independent physician offices are beginning to work and align with their local hospitals. By partnering with hospital labs, physicians can determine which tests should be performed in their lab and which should be sent to the hospital lab from a profitability and patient care perspective. Hospitals can also help with paperwork, billing and test questions.

Meanwhile, a supply chain partner can help ensure facilities have an adequate and quality inventory of testing products and supplies. Many quality factors can affect laboratory supplies. Having a strong contracting and supply chain partner ensures physician offices maintain their supplies during unexpected manufacturer delays, recalls, or shortages. Some examples include recalls introduced because of manufacturing quality control issues, or an epidemic or spike in diseases causing testing kit shortages.

A supply chain partner may be able to help source alternative testing products and offer price protections to ensure the facility pays only the contracted price. In addition, the supply chain partner can facilitate special buying programs or deals, such as promotions for strep tests prior to the cold and flu season.


Lab testing can be a value-added service for patients who want a diagnosis during their doctor office visit. Testing is also a revenue stream for physician offices.

Organizations need to assess their core competencies and capabilities for testing, and then implement a laboratory solution that works for them financially and clinically. Working with a supply chain partner can help organizations choose the right products and services to meet their unique lab needs while maintaining quality. With the lab testing market changing rapidly, physician offices can benefit from a supply chain partner’s expertise and network to stay current on regulations, new testing products and best practices.


About the Author

Lisa Emiliusen is currently a regional manager for Mayo Medical Laboratories. She is a certified LEAN and Six Sigma Black Belt professional and has previous experience as a healthcare contract negotiator and laboratory consultant.

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