BRLI Seizes NYC Share In Two-Stage Effort

Regional lab company benefits from turmoil from managed care contract changes in NYC

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CEO SUMMARY: Bio-Reference Laboratories, Inc., (BRLI) reported record financial results for its most recent fiscal quarter last month. Much of this success is rooted in BRLI’s discipline in defining itself as a local laboratory and using enhanced lab testing services to align itself as a clinical and operational partner with client physicians in the community. Here is an assessment of why this business strategy is proving effective.

IT WAS A RECORD QUARTER for Bio-Reference Laboratories, Inc. (BRLI), and the opportunities created in New York City from managed care contract changes played an important role. The lab company announced that revenue and earnings were at an all-time high, triggered by uncommonly strong growth in specimen volume since the first of the year.

For its second quarter ending April 30, Bio-Reference reported revenue of $60.9 million, which is an increase of 29% over the $47.2 million it posted in the same quarter last year. Operating income was up by 32%, at $5.9 million this year compared to $4.4 million for Q2-06.

Particularly noteworthy is the increase in patient volume. This number increased more than 19%, to 921,000 in the current quarter from the prior year second quarter total of 772,000. For the full six months of this fiscal year, patient count rose by 17% compared to the first six months of the 2006 fiscal year.

Even as Bio-Reference captured new patients, it was increasing its revenue per patient. The Elmwood, New Jersey-based lab company noted that revenue per patient was $65.59, a respectable increase of 8% over the $60.59 reported for the same quarter of the prior fiscal year.

This strong performance across several key performance measures is not a coincidence. Among the laboratories serving Greater New York, Bio-Reference was uniquely positioned to extract maximum benefit from turmoil in this region triggered by the managed care contracting war between Laboratory Corporation of America and Quest Diagnostics Incorporated.

Business Strategy

To understand why BRLI is delivering these sustained gains in specimen volume, operating margin, and average revenue per patient, it is helpful to explain how Bio-Reference positions itself in the New York marketplace. Bio-Reference Labs is pursuing a three-pronged business strategy.

First, Bio-Reference acknowledges that it is, at its most basic, a regional commercial laboratory company which provides a broad range of testing services to office-based physicians in the Greater New York market. To succeed in this effort, it works earnestly to deliver a consistent and high level of service to its client physicians.

Second, BRLI is committed to using effective sales and marketing to build its business. This strategy runs counter to its larger public lab company competitors, which have fueled their growth with a steady flow of lab acquisitions. For Bio-Reference, however, to succeed as a local laboratory, it must be particularly good at sending sales reps into physicians’ offices and converting prospects into active accounts.

Esoteric Testing Services

The third strategy is to leverage the existing infrastructure to offer specialized esoteric diagnostic services. This helps BRLI differentiate itself clinically with its client physicians, as well as helping to build average revenue per requisition. This strategy is based on another clever business approach, which is to create a national business from each of these sub- specialty esoteric laboratories it creates. In its focused areas of oncology (primarily hematopathology), correctional healthcare, genetic testing, infectious disease testing, and women’s health, BRLI is a top national provider in each category.

As volume in these specialized areas increases, Bio-Reference will retain nationally-known experts to perform the testing. It then sells these specialized esoteric services nationally, using a team of dedicated sales reps to build market share across the country.

The successes of these interlinked business strategies show up in Bio-Reference’s quarterly earnings report. BRLI noted that esoteric business was 44% of revenues for the second quarter of the current fiscal year. That is atypical of a local commercial laboratory company. BRLI’s esoteric testing covers oncology, genetics, toxicology, and immunology.

These are the business reasons why Bio-Reference seems to be getting its share of the UnitedHealth business in New York City that came up for grabs on January 1, when Quest Diagnostics ceased to be a contract lab provider for UnitedHealth.

UnitedHealth Opportunity

“When United Healthcare made their announcement about the exclusive contract, we already had a strong position in New York, as well as surrounding markets,” said BRLI President Marc D. Grodman M.D. “Still, we recognized that the new UnitedHealth contract was going to disrupt the status quo. We’ve worked hard to take advantage of that opportunity.”

Grodman declined to discuss how much of the increased patient volume in recent months is due to convincing New York-area physicians to steer their UnitedHealth patients to Bio-Reference Labs. However, he did provide a useful insight about how Bio-Reference has benefited from the market turmoil related to the UnitedHealth contract.

“Independent of our additional expenses in sales and marketing, we experienced a tripling in the amount of money we spend setting up new accounts in the region during the past quarter,” he observed.” That is four times as much as we spent in earlier years in our local market.

“That money goes for hardware, interfaces, and other system requirements required to set up new accounts,” Grodman continued. “We did what we had to do to make the most of this opportunity.”

“Are You A Network Lab?”

Grodman acknowledged that the months following the news of the new UnitedHealth contract were busy. “We consider this phase one of the opportunity to capture new business,” noted Grodman. “As physicians reacted to the new UnitedHealth contract, we were constantly answering the question of ‘Are you a network provider?’ We have survived and thrived through all of that.

“Now we are working on phase two in how we build long term relationships with these physicians,” he continued. “We are going back to all our clients—existing and new clients—to educate them about the specific ways that we can help them improve patient care.

“BRLI has an inherent belief that physicians want to be treated as professionals and it constantly strives to provide programs that physicians will easily recognize as opportunities to provide better, more efficient healthcare,” observed Grodman. “Unique services, such as our Women’s Health Initiative and our ACT (Advanced Cardiovascular Testing) program, are both patient-and physician-centric solutions. These appeal to physicians’ intellect, curiosity, and concern for patient care.

“Our goal is for physicians to recognize us as a superior laboratory,” he added, “one that provides them a full menu of routine, reference, and esoteric testing to advance the clinical effectiveness of their medical practice.

“We want physicians to consciously recognize these attributes about Bio-Reference Labs. That moves us beyond a perception that we are simply a lab which is an accepted provider for many health plans,” Grodman said. “This is a key point in our strategy. We don’t try to be everything to everyone. We do a number of things very well and we will do them for you day in and day out.

“Don’t forget, we have a long track record over the past 13 years of 20% compounded annual growth,” Grodman said. “We’ve grown in good times and bad times, and we’ve done it by appealing to physicians as a better alternative than most other lab companies.”

Adding Value

“We believe the reason that Bio-Reference is strong at winning new client accounts is rooted in the value proposition it presents to physicians,” observed Grodman. “It is a simple mindset, but one which requires diligence to execute and sustain. The usual mindset of a doctor is to select a laboratory that can service all his patients as a contract provider. Bio-Reference Laboratories is more than that.

“Let me tie these two business strategies back to the UnitedHealth contract, because they explain why we were effective at expanding our share of the market in Greater New York,” offered Grodman. “At the time the UnitedHealth contract was announced, it triggered an outcome that was beneficial to us.

“When physicians faced the fact that their existing laboratory provider would no longer be in the UnitedHealth network, this was a disruptive event that we could use to our advantage,” he explained. “It caused physicians to think about the contracts they had for lab services and what they wanted from a lab. This gave our sales team the opportunity to step in and present Bio-Reference Laboratories as a lab partner that can help them deliver quality patient care.”

Local Lab Serving Local Docs

Other local laboratories and hospital outreach programs should take inspiration from the success of Bio-Reference Laboratories. Like them, it has a local market focus. It enjoys sustained growth in specimens, revenue, and operating profit because it emphasizes the clinical value added it provides to its client physicians.

It is important that lab administrators and pathologists also recognize how a professionally-managed sales force plays an essential role in this strategy. Sales reps are the front-line in building relationships, educating the physicians about the clinical advantages of using Bio-Reference Laboratories, and helping physicians become comfortable with their decision to switch away from their existing laboratory to begin using Bio-Reference. These business strategies explain why Bio-Reference Laboratories has enjoyed great success during the recent disruptions in Greater New York.

 

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