A Fable For Our Times: Lab Industry’s Golden Era

Good times are past and gone, replaced by constant change, risk, and uncertainty

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CEO SUMMARY: The clinical laboratory industry’s “Golden Era” is gone forever. Replacing it is a healthcare environment best described as “Darwinian.” It is now survival of the fittest, as hospital laboratories and commercial laboratories struggle to reinvent themselves. Case studies at this year’s Executive War College can be considered adaptive mutations spawned in response to marketplace trends.

ONCE UPON A TIME, the clinical laboratory industry was admired far and wide as a stable, profitable business. Each year, as predictable as clockwork, hospital laboratories and commercial laboratories earned sizeable profits.

During this golden time, employment stability was considered to be a birthright. It was almost the norm for medical technologists to work ten, 20, even 30 years at the same laboratory. The daily routine was predictable and even boring.

Pathologists found easy opportunities to expand their incomes. Hospital contracts were generous and the work pace was predictable. With small investments, pathologists could start clinical laboratory operations which quickly became profitable and grew steadily, almost without effort.

It was a time of abundance, even ease. Little changed during this golden time and laboratory managers found it simple to keep their laboratories running like a finely-tuned machine.

But with unexpected suddenness, this golden era ended. Managed care arrived on the scene. Concern about fast-rising medical costs brought a tidal wave of change to healthcare. The clinical laboratory industry was probably the first segment of the healthcare marketplace to find itself going broke.

Lulled by the easy times of the golden era, laboratory executives were unprepared for the tidal wave of change which engulfed them. Almost overnight, fat profits evaporated. Losses quickly grew to astronomical size. The government discovered that laboratories were biting the Medicare hand that fed them. Investigations for fraud became widespread.

The end of the golden era for clinical laboratories brought widespread layoffs. The birthright of employment stability was stripped away, replaced by ongoing, predictable cutbacks to staff. Cost reduction became paramount because of the continuous year-to-year decline in the reimbursement for laboratory tests.

It is accurate to say that the once-calm world of clinical laboratories has turned Darwinian. Now it is survival of the fittest. There is brutal competition between laboratories. Lab managers find themselves being required to lay off long-time co-workers, downsize facilities, and consolidate testing among numerous sites. There is unrelenting pressure to continuously reduce costs.

For pathologists, changes have been just as disruptive. Hospital mergers, acquisitions, and alliances have altered long-standing compensation arrangements. Consolidation of pathology practices is a growing trend, bringing with it dramatic changes to lifestyle, working arrangements, and income.

Fable For Our Time

This is the fable for our time. Its truths are apparent to anyone familiar with these events. As recently as 1994, most public laboratories reported acceptable profits. It took only three years for these remarkable changes to ripple through the marketplace.

As fat profits of the golden era dis- appeared, laboratories struggled to find ways to operate in the black. Executives in both hospital labs and commercial labs were unprepared to meet the challenges wrought by managed care.

Deterioration to the financial health of laboratories has converted the marketplace into a Darwinian free-for-all. It is now survival of the fittest. Laboratory executives who correctly interpret market trends, develop effective strategies, and implement them nimbly are surviving. But laboratory executives must do all three, or their laboratories will perish.

Which brings me to the point of this article. It was old knowledge and old philosophies which made laboratories successful during the golden age.

But today’s world requires that laboratory managers acquire new knowledge, new skills, and new perspectives on clinical laboratory operations. Today’s world requires a different kind of laboratory manager. This new manager must combine a different operating philosophy with sophisticated management skills for managing people, processes, finances, and assets.

Today we recognize how the golden era of fee-for-service and fat profits failed to teach today’s crop of laboratory executives and managers the lessons they needed to survive managed care. In that respect, the laboratory industry lags behind other industries where disruptive change has already occurred. For example, the auto industry of the 1970s underwent radical transformation through the 1980s. It has only regained consistent profitability during the 1990s.

Corporate Management

Healthcare is a multi-billion dollar cottage industry now undergoing transformation into corporate management forms. It is critical for laboratory managers and executives to realize that the success of their careers, and their laboratory organization, depends on their ability to understand and act upon this fact.

Acquiring that knowledge is one major goal of THE DARK REPORT’s annual Executive War College. Each year this program identifies winning laboratory organizations and invites them to share their management strategies, tactics and performance with War College attendees. The objective is to identify what works in today’s healthcare marketplace and share that knowledge with those in attendance.

If you ascribe to Darwin’s theories about evolution, then many of our War College case studies represent adaptive mutations that are fundamentally unlike most laboratory organizations. These mutant laboratories enter the marketplace with different characteristics. Such differences give them a competitive advantage. It sets them apart form other clinical laboratories.

Since all organizations are comprised of people, these mutations are different in one essential characteristic. They have executive leaders with a distinct view of the world and a different set of management tools.

It is the goal of War College case studies to identify these leadership differences and make them visible to attendees. Our faculty strives to define the management strategies, tools and techniques used to vigorously pursue the business plan of that mutated laboratory organization.

In that respect, the Executive War College is becoming the laboratory industry’s “think tank.” (See sidebar on page 3). Our industry needs a resource where senior laboratory executives can attend a meeting, interact with his or her peers, learn advanced and innovative management initiatives, and network with intriguing people.

When this year’s Executive War College convenes in New Orleans on May 12-13, it will be the third time in as many years that several hundred senior-level laboratory administrators and executives have gathered to acquire advanced knowledge about clinical lab- oratory management.

Future Of The Industry

Each year, this program attracts the type of laboratory executive who is shaping the future of the industry. Both faculty and attendees are experimenting with new ways to organize and operate laboratories. They come with a common interest to learn about what works and to identify what doesn’t.

Remember our fable about the golden era of clinical laboratories? The golden era may be over, but health- care’s need for accurate and sophisticated diagnostic testing is increasing.

A new “golden era” for clinical laboratories approaches. This demand for effective diagnostic services will drive the industry forward. Case studies and Faculty at this year’s Executive War College will provide the earliest clues as to how laboratories can restructure them- selves for the future of healthcare.

Lab Executives Need Industry “Think Tank”

“Given all the changes occurring to health- care and the laboratory industry,” said Mark Smythe, Principal of Management Mentors in Wilsonville, Oregon, “it is time for the industry to develop a ‘think tank.’

“I do not yet see a source of believable management information and information within the clinical laboratory industry,” he continued. “The closest thing I have seen is THE DARK REPORT’s Executive War College. It is one place where I find a strong emphasis on essential management issues and techniques.

“At the same time, I have searched to find a regular place where I can personally network with laboratory managers and pathologists who see the world as I do,” noted Smythe. “My greatest source of learning comes from meeting laboratorians who are successful. The Executive War College, with its distinctive mix of laboratory leaders, is one such place where I connect with fellow travelers.

“It is important for our industry to develop a ‘think tank’ for laboratory management,” concluded Smythe. “I encourage both THE DARK REPORT and War College attendees to tackle that problem.”

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