ARUP & Mayo Respond To New Market Cycle

Market for hospital send-out testing evolving in response to key events

CEO SUMMARY: Since the beginning of 2002, several important events changed the competitive status quo among the nation’s leading providers of hospital send-out testing. As part of its ongoing assessment of this market segment, THE DARK REPORT provides strategic management insights from executives at ARUP Laboratories and Mayo Medical Laboratories.

IN THE HOSPITAL SEND-OUT marketplace, a new cycle of competition is forming in response to the year’s tumultuous events.

In the first half of 2002, American Medical Laboratories, Inc. (AML) was purchased by Quest Diagnostics Incorporated. Within weeks of this development, the hospital send-out market was further roiled by the news that Specialty Laboratories, Inc. had problems with laboratory regulators.

These events are causing many hospital lab administrators and pathologists to reassess their existing relationships with the nation’s reference and esoteric laboratory companies. As hospitals initiate changes in their primary and secondary reference lab relationships, there will be winners and losers among the nation’s reference and esoteric testing lab companies. (See TDR, September 16, 2002.)

During the past two decades, ARUP Laboratories of Salt Lake City, Utah and Mayo Medical Laboratories of Rochester, Minnesota have developed a reputation as reliable providers of reference and esoteric testing. Both laboratories remain private companies and are closely-linked to academic and tertiary care centers in their home town.

Emphasizing Specialists

In contrast to their publicly-traded competitors, the owners of ARUP and Mayo Medical Labs have cultivated a different type of working relationship among the hospital laboratories which send them lab specimens. Both labs strive to connect their extensive specialist resources in laboratory medicine with the needs of clinicians served by their hospital lab clients.

Like other competitors in the market for hospital send-out testing, both ARUP and Mayo recognize that 2002’s acquisitions, regulatory problems, and GPO national contract changes will alter competition in the hospital send-out testing marketplace. To learn more about their business strategies, THE DARK REPORT spoke with executives at the two laboratories.

During the next competitive cycle, expect ARUP Laboratories of Salt Lake City, Utah to deliver the same brand of reference and esoteric testing that has been its hallmark since its inception in 1984.

Business Model Unchanged

“Our business model has changed little in 18 years and we intend to stay with it,” observed Ronald L. Weiss, M.D., Senior Vice President, Business Development at ARUP. “We are an esoteric testing laboratory dedicated to providing high-quality test results.

“Our pathologists and laboratory scientists, anchored in a university-setting, place utmost emphasis on laboratory medicine which is patient-centered and physician-concentric,” he explained. “We believe this is an important element which sets us apart. As a private company, we have the freedom to operate in ways that maximize this mission.”

Dr. Weiss pointed out that ARUP Laboratories is organized around two core strategies. “First is our commitment to patient care,” he said. “We constantly expand our esoteric test menu and help our clients educate referring physicians about new assays.

“But if we see that patient care may be improved by helping a particular client set up and run certain tests itself, we will provide the expertise and support to make that happen,” stated Dr. Weiss.

Collaborative Support

“Our second strategy aims to provide business support expertise to hospital labs in a collaborative manner,” he continued. “We help clients in a variety of ways, such as developing business plans, launching lab outreach testing programs, improving logistics, and developing a sales team.

“Consistent with our two core busi- ness strategies, we are seeing some interesting changes in the way our hospital lab and independent laboratory clients relate to us,” noted Dr. Weiss. “For example, we see a business model developing where ARUP is becoming a ‘subspecialty extender.’

“Within our client hospitals, pathologists and laboratorians are increasingly drawing upon our specialty expertise to support their clinicians,” he added. “For example, they will encourage attending physicians to call or email ARUP directly to interact with our experts. As this happens, ARUP becomes part of the client’s clinical care continuum and it reinforces our role as part of their patient care team.”

Another change that ARUP sees in the marketplace is that community hospital-based pathologists are “pulling” new lab test technology.

Another change that ARUP sees in the marketplace is that community hospital-based pathologists are “pulling” new lab test technology. “We see increasing pressure by both pathologists and some early-adopter physicians to move technology more rapidly out of the research setting and into general clinical use. This is an important trend, but generates some complications.

“The benefit is that early adopter clinicians are alert to new opportunities to improve care for their patient,” explained Dr. Weiss. “However, as new tests become available, the challenge is to provide the information and education necessary to allow growing numbers of physicians to understand these tests and use them appropriately in their medical practice.”

Dr. Weiss also sees changes occurring within the anatomic pathology profession. “There are ever-increasing opportunities in both academic and private practice settings,” he noted. “Some technologies, such as FISH, are moving from esoteric labs into common practice. We expect molecular test technologies will migrate into many local pathology group settings.

ARUP and MDS Announce New Business Collaboration

DURING THE SUMMER, ARUP Laboratories and MDS Laboratory Services announced a collaborative business relationship.

Under the agreement, ARUP becomes the primary reference laboratory for MDS laboratory sites in the United States. In return, ARUP will recommend MDS’ services to its hospital laboratory clients.

“This builds upon prior relationships between the two companies,” said Ronald L. Weiss, M.D., Senior Vice President, Business Development at ARUP. “These include scientific collaborations and the use of the MDS AutoLab equipment in ARUP’s automation initiative. Because MDS has considerable experience with laboratory joint ventures in the United States, we also see them as one of several alternatives for those clients seeking help with operational consolidation and improvement in their laboratories.”

Anatomic Pathology

“We also expect that most of these new diagnostic technologies will complement traditional anatomic pathology procedures. Glass slides will not disappear because cell morphology will remain a key part of the diagnostic process,” he predicted.

Another market change seen by ARUP in recent years is the increased interest by hospital laboratories in developing effective lab outreach programs. “Many of our hospital clients are realizing that a professional lab outreach program can help their lab organization in a variety of ways, not the least of which is lowering overall costs, boosting productivity, and generating profits,” stated Dr. Weiss.

“In particular, larger hospitals and health systems are doing a very good job of building their laboratory testing outreach programs,” commented Dr. Weiss. “As specimen volume builds in these programs, it means that a greater number of laboratory tests are done locally, improving patient care in that region.”

Even as the hospital send-out market changes in response to the events of 2002, the message from ARUP Laboratories is clear. “We intend to continue using the same busi- ness model which launched us 18 years ago,” declared Dr. Weiss. “We focus on patient care and provide worthwhile consultative services to our clients.

“It is our goal to be a clinical care partner with our clients,” he added. “That type of collaborative relationship is rooted in laboratory medicine, which we see as our core competency.”

Mayo Medical Labs

Mayo Medical Laboratories (MML) also intends to stick to its longstanding service model. Now in its third decade of service, Mayo is firmly committed to a service strategy that emphasizes anticipating and meeting the esoteric testing needs of its referring physicians and their patients.

This strategy deviates little from Mayo Medical Laboratories’ original roots. “We believe the history of our laboratory outreach service sets us apart from other national laboratories providing reference and esoteric testing,” stated Keith Laughman, Administrative Director at Mayo Medical Laboratories of Rochester, Minnesota.

Extension Of Lab Services

“Mayo Medical Laboratories was a logical extension of the laboratory services we offered to physicians at the Mayo Clinic,” continued Laughman. “Our laboratory was originally organized to provide high quality esoteric lab tests for use by Mayo’s clinicians. Moreover, part of our fundamental mission is to further support those clinicians with the knowledge and expertise necessary to help clinicians order the right tests and accurately interpret the results.”

Stated another way, one way to differentiate MML and its business model from competing lab companies is to understand that Mayo Medical Labs was originally founded to provide the types of esoteric lab tests necessary to support the clinical needs of physicians at the Mayo Clinic.

Over time, it was decided to offer these same lab testing services to hospitals throughout the United States. In contrast, a number of competing reference and esoteric lab companies were incorporated specifically to pursue the business opportunities—and profits— generated by this segment of the lab testing industry.

Caring For Sick People

“In offering esoteric testing services to clients throughout the United States and other countries, our strategy has always centered around providing advanced lab testing services to clinicians,” said Robert Kisabeth, M.D., Medical Director at MML, “Another factor that differentiates us is that our laboratory continues to be located in the midst of the Mayo Clinic. We are enmeshed in the daily activities of physicians and caring for sick people. We see, firsthand, how the quality of lab testing and high service levels can advance patient care.”

The comments from both Laughman and Kisabeth reinforce other attributes that distinguish Mayo Medical Laboratories from its competitors in the marketplace. MML is recognized for its test integrity, its conservative approach toward pricing and its single-minded focus on doing what is right for the patient.

Mayo Medical Labs was originally founded to provide the types of esoteric lab tests necessary to support the clinical needs of physicians at the Mayo Clinic.

Conservative Approach

“We may be conservative in some aspects of our national esoteric business, like marketing and sales, but we work to stay in the forefront of laboratory medicine,” added Dr. Kisabeth. “To serve physicians both within the Mayo Clinic and our many client-hospitals, we devote significant resources to developing and evaluating new diagnostic technology, then helping clinicians incorporate these tests into their medical practice.”

“Staying the course works for us,” concluded Laughman. “Mayo Medical Laboratories remains an important esoteric testing resource today, and we believe that is because of our emphasis on clinical services as well as our recognition that high quality laboratory testing contributes to improved patient outcomes.”

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