Care Redesign
Relentless Reinvention

Improving Care and Cutting Costs: Implementation of a Laboratory Formulary to Facilitate Better Laboratory Ordering Practices

Case Study · September 20, 2017

Rapid technological developments in laboratory testing have facilitated the application of scientific advances in genomics, proteomics, metabolomics, and other areas to routine clinical care. The promise for personalized diagnostics tailored to enhance patient care is exciting but comes at an ever-increasing cost to patients, payers, and health care institutions as well as with a dizzying array of choices with which clinicians must keep pace. At Vanderbilt University Medical Center (VUMC), one effort to provide the highest-quality evidence-based care involved the development and implementation of a laboratory formulary through the formation of an institutionally chartered Laboratory Formulary Committee.

Key Takeaways

  1. Endorsement by executive physician leadership is critical. Development and implementation of the laboratory formulary requires collaboration among laboratory directors and administration, ordering clinicians, nurses and clinic staff, hospital finance, and health IT. Without executive buy-in, it is difficult to align these diverse stakeholders behind a common goal that often requires significant changes.

  2. Our laboratory formulary is a collaborative endeavor in which both ordering clinicians and laboratorians participate as equals; it is not top-down regulation imposed by the laboratory or hospital administration on ordering clinicians.

  3. Data are essential. Our experience illustrates the importance of granular data about laboratory test ordering, both to identify opportunities for improvement as well as to monitor the effectiveness of implementations.

The Challenge

Rapidly advancing laboratory technologies offer the opportunity to deliver on the promise of personalized medicine to provide tailored care for each individual across the lifespan. Evidence demonstrating improved patient outcomes in association with the use of these technologies often lags behind adoption. Furthermore, the use of advanced diagnostics within an often-fragmented health care delivery system lessens their potential impact. In parallel, the escalating costs of these innovative tests are outpacing the rising costs of health care in general; the cost of health care in the United States has grown by 4% to 5% a year, but some payers have reported increases in costs for advanced diagnostic testing of up to 14%, with the costs of some genetic tests exceeding $10,000 for a single patient. As we seek to be judicious with limited health care resources, the costs of increased and advanced laboratory testing are not sustainable in the current health care environment.

The Goal

Our goal was clear but complex: to design and implement a system that facilitated ordering of the right test, at the right time, and in the right environment to ensure optimal patient care. To achieve this goal, VUMC chartered a Laboratory Formulary Committee with oversight over all laboratory test ordering for both inpatients and outpatients. The committee is responsible for reviewing evidence, consulting with content experts, and developing guidelines, substitutions, or restrictions to promote the appropriate utilization of diagnostic and laboratory testing across the enterprise. One major objective was to control the rapid cost inflation of laboratory testing, similar to how pharmacy formularies at VUMC and across the country have successfully maintained the cost of drugs for individuals within their systems.

The Team

At VUMC, the Laboratory Formulary Committee is a subcommittee of the Pharmacy, Therapeutics and Diagnostics Committee and exists outside of the laboratory or any department. The Laboratory Formulary Committee comprises voting members representing multiple and diverse clinical departments and specialties, including a single pathologist. Assisting the committee is an equally diverse and dynamic implementation team consisting of laboratory medical directors, administrators, medical center finance representatives, laboratory information systems (LIS) specialists, health IT developers, data analysts, genetic counselors, and project managers.

This organization allows the Laboratory Formulary Committee to be a collaborative space in which pathologists and laboratorians, ordering physicians, and clinical staff can identify opportunities for improvement and work with support staff to develop and operationalize solutions. In this way, the clinical laboratories serve as both initiators and effectors of formulary implementations. Laboratory directors and staff frequently propose changes in testing or ordering availability in response to utilization patterns observed in the laboratory. In addition, operational changes — from the establishment of new testing to the redesign of send-out workflows — are often needed in the laboratory in order to implement best practices approved by the committee.

Execution and Metrics

The review and management of the laboratory menu are ongoing activities. At its inception in October 2014, the Laboratory Formulary Committee prioritized the review of a few categories of tests: tests with limited clinical value or outdated methodologies, high-cost tests ordered for inpatients, and high-cost genetic tests. In addition, the committee currently reviews all requests for new additions to the laboratory menu. In 2016, formulary implementations resulted in total savings of greater than $1 million to the institution. Notable examples of Laboratory Formulary Committee implementations are highlighted below.

  • Eliminating tests with limited clinical utility. The committee’s first efforts focused on eliminating tests from the laboratory menu that were no longer the gold standard or were of limited clinical utility. A hallmark example is fractionated 25-hydroxyvitamin D, which is only recommended when the total Vitamin D levels do not align with the clinical presentation but which was frequently being ordered in addition to total Vitamin D. Fractionated 25-hydroxyvitamin D was removed from the test menu in August 2015 and was made available only for rare cases, resulting in a cost savings of $102,842.
Implementation of a Laboratory Formulary to Facilitate Better Ordering: Fractionated 25-Hydroxyvitamin-D Orders Before and After Orderable Elimination

  Click To Enlarge.

  • Restricting the ordering of tests with long turnaround times for inpatients. The turnaround time for many tests, especially genetic tests, exceeds the average length of a hospital stay. Thus, the results of tests that are ordered during inpatient admissions often do not return until after discharge and therefore do not meaningfully contribute to acute care. To address this problem, the Laboratory Formulary Committee requires tests with median turnaround times of >7 days to be approved by an on-call laboratory medical director before they can be ordered for inpatients. In 2016, this restriction resulted in a 48% decrease in the ordering of tests that were unlikely to contribute to inpatient care, with an estimated cost savings of $257,745.
Laboratory Formulary to Facilitate Better Ordering: Outcome of Orders for Restricted Inpatient Tests in 2016

  Click To Enlarge.

  • Implementing expert review of all ordered genetic tests. In order to promote optimal ordering of most genetic tests, we implemented a system of expert review by a team of genetic counselors and pathologists. Reviewers evaluate multiple factors, including the appropriateness of ordered testing given the clinical presentation, price variations among multiple vendors, optimal reflex testing arrangements (in which tests are prioritized in order and some testing may be avoided based on initial results), and best turnaround times. Reviewers then work with ordering clinicians to recommend either modification or cancellation of the testing, when warranted. In the laboratory, a system was implemented in the send-out department to facilitate holding samples for review and quickly redirecting them to new laboratories, if needed, without the need for new blood draws. In 2016, this genetic test review system resulted in estimated cost savings of $394,625 while improving care by ensuring that the most appropriate tests were ordered.

Lessons Learned

  1. Collaboration between pathologists and ordering providers is key to developing evidence-based ordering practices that both serve the patient and can be integrated reasonably within both clinic and laboratory operations.
  2. Effective implementation requires collaboration among the laboratory, clinical departments, finance, and health IT. Executive champions are critical to achieving buy-in across all of these important domains.
  3. Follow the data. By identifying tests or test categories that represent targets for significant, achievable improvement, it is possible to avoid costly implementations with minimal impact and without overburdening ordering providers and clinical staff with unnecessary restrictions.
  4. A focus on laboratory testing, as on drug prescribing, can effectively control lab test spending at an institutional level while at the same time improving the appropriateness of test ordering.

Next Steps

The Laboratory Formulary Committee’s efforts to date have focused largely on eliminating or restricting overutilized or inappropriately utilized testing. Future efforts will focus on the design of diagnostic decision-support algorithms, automated when possible, that will build on the foundation of collaboration between pathologists and ordering clinicians. It is our goal to extend these tools to our local health care network and beyond so that meaningful improvements in appropriateness and reductions in unnecessary laboratory testing may be more easily achieved nationwide.

Call for submissions:

Now inviting expert articles, longform articles, and case studies for peer review


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »

More From Care Redesign

What Is Lean Healthcare?

Lean Healthcare is the application of “lean” ideas in healthcare to minimize waste with ongoing process improvement. Learn how to use Lean to improve patient satisfaction and care outcomes while reducing costs.

Zane05_pullquote3 hospital decentralization

Do Hospitals Still Make Sense? The Case for Decentralization of Health Care

The future is here: moving care out of the hospital and into the home and community.

Sociotechnical dimensions used to analyze EHR-related health IT safety concerns

Frustrated with Your EHR? Don’t Blame Your Vendor — Safety Is a Shared Responsibility

Two informatics experts urge individuals and organizations to work together toward safer EHR-enabled patient care.

Relative Health Care System Performance and Spending in 11 High-Income Countries

From Last to First — Could the U.S. Health Care System Become the Best in the World?

The United States could achieve the best-performing health care system in the world by undertaking coordinated efforts that address four challenges.

Addressing the Prescription Opioid Crisis: Advancing Provider Education and Collaborating with All Stakeholders

Providers have a large role to play in tackling the opioid overdose epidemic, but they can’t go it alone.

Collaboration Between Doctors and Computers - Machine Learning

Lost in Thought — The Limits of the Human Mind and the Future of Medicine

It’s ironic that just when clinicians feel that there’s no time in their daily routines for thinking, the need for deep thinking is more urgent than ever.

Root Cause Analysis: Typical Domains of Root Cause: Medical Errors

Does Every Hospital Admission Deserve a Root Cause Analysis?

Will applying the RCA rubric to hospital admissions better help define and manage care?

Uniquely Identified: The Impact of a National Health Index

What does the NHI mean to a New Zealand clinician, researcher, and health care consumer?

The Intersection of Home-Based Primary Care and Home-Based Palliative Care

My Favorite Slide: The Intersection of Home-Based Primary Care and Home-Based Palliative Care

What are the overlapping provider skill sets needed to care for homebound patients?

Simplifying Person-Centered Care with Use of the Personalized Perfect Care (PPC) Bundle

Personalized Perfect Care

The Personalized Perfect Care Bundle: Making quality metrics easier to understand and more patient-centered.


A weekly email newsletter featuring the latest actionable ideas and practical innovations from NEJM Catalyst.

Learn More »


Proactively Catching the Declining Patient

A coordinated effort by UCLA leaders to identify a high-cost population with chronic kidney disease…

Coordinated Care

145 Articles

Proactively Catching the Declining Patient

A coordinated effort by UCLA leaders to identify a high-cost population with chronic kidney disease…

Assessing and Addressing Social Needs in…

Lincoln Community Health Center improved care quality by measuring and responding to upstream social and…

Insights Council

Have a voice. Join other health care leaders effecting change, shaping tomorrow.

Apply Now