HCA Buys IRL From MDS, Makes Plans for Future

South Florida laboratory operation supports 13 HCA hospitals and has outreach program

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CEO SUMMARY: When HCA purchased the MDS partner share in Integrated Regional Laboratory of Ft. Lauderdale, Florida, it marked the end of MDS Laboratories’ ten-year “United States Adventure.” It also put HCA in full ownership of an automated core laboratory and a laboratory outreach testing program full of promise. Efforts are underway at IRL-FLA to build specimen volume and revenues.

IN A MOVE TO CONSOLIDATE its regional presence in Southeast Florida, Health Corporation of America (HCA) recently acquired Integrated Regional Laboratory (IRL-FLA) from MDS Laboratories, Inc., its original partner in the IRL lab- oratory joint venture.

As sole owner, HCA is supporting efforts at IRL-FLA to expand its share of the lab testing market in South Florida. “HCA decided to buy out MDS and bring IRL-FLA 100% in-house for two reasons,” stated Joanne Trout, Chief Operating Officer at IRL-FLA. “One, the shared service market model for hospital laboratory services works extremely well. Two, HCA wants to expand existing outpatient laboratory services. IRL-FLA will retain its name to build on brand-name recognition.

“It’s been a smooth transition to full HCA ownership,” Trout stated. “Our non-management staff was already on the HCA payroll and benefits platform. Managers have moved from MDS to HCA’s platform.”

IRL-FLA—with its 28,000 square foot lab—is the largest independent provider of hospital laboratory services and reference testing in South Florida. It serves 13 South Florida hospitals, eighteen acute/tertiary care facilities, and operates 14 patient service centers. “We provide 100% of the microbiology testing for these hospitals and 28% to 30% of the total billable test volumes,” noted Trout.

Expectations for IRL-FLA

HCA has several expectations for IRL- FLA. It believes a market-based laboratory serving both hospital inpatient/outpatient needs and office-based physicians has a number of competitive advantages. “We are well-positioned to compete in the South Florida market for several reasons,” observed Trout. “First, HCA understands the managed care, service, and infrastructure requirements to compete in both the hospital and commercial laboratory markets. It is committed to growing outpatient services.

“Second, fewer commercial laboratory options exist for physicians as a result of laboratory consolidation,” she added. “Physicians are looking for choices. They want access for their patients, responsive services, and high quality.

“We can meet those expectations. Our laboratory has the opportunity to serve physicians in both their office-based practice and with their hospital patients. That is why we have strong regional relationships,” noted Trout.

Opportunity For Growth

“It is not uncommon for patients in this community to wait as long as two hours to have their specimens drawn at other laboratories,” she added, “This motivates both physicians and patients to look for alternative sources of laboratory testing. Our network of patient service centers in this nine-county area gives us a strong competitive position.

“Also, the Florida Medicaid program has been looking to cut costs and reduce spending. There have been calls for consolidation and fewer laboratory providers,” Trout said. “Our laboratory is well-positioned to balance operational efficiencies with service to customers. We think geography works in our favor in South Florida.”

Simple Business Strategy

HCA’s business strategy for IRL-FLA is simple and familiar. It wants to create cost savings through the consolidation of appropriate types of testing and it wants to generate profitable revenues from outreach activities.

“HCA’s investment in this laboratory is part of its growth strategy,” noted Trout. “IRL-FLA is pursuing two major goals. One is to further reduce costs by better utilizing our automated core laboratory. The second goal is to expand our commercial out- reach program.

“To meet the first goal, we built the core lab, using MDS’ proprietary laboratory automation, in Ft. Lauderdale,” she explained. “This is a 45-minute drive from approximately 40% of our hospitals.

“Moreover, five hospitals are located within a 30-minute drive from the core lab,” added Trout. “Consolidation of microbiology testing from our HCA hospitals allowed us to improve the turnaround time for microbiology testing by 15% to 40%.” This generated significant efficiencies and demonstrated the value of our geographical strategy.

IRL-FLA’s History As Lab Joint Venture

WHEN HCA PURCHASED MDS LABORATORIES’interest in Integrated Regional Laboratory (IRL-FLA), it marked the end of MDS’ laboratory presence in the United States.

IRL-FLA was a laboratory joint venture between HCA, the largest for-profit hospital company in the United States, and MDS, a Canadian health and life sciences company. The 50-50% partnership was formed in 1998 to develop two regional laboratories with HCA: one in Georgia and one in Ft. Lauderdale, Florida. The objective was to provide lab testing support for HCA’s hospitals in both regions and develop a laboratory outreach program.

By 2000, IRL-FLA’s 28,000-square foot laboratory was in full operation. HCA’s goal was to bring enhanced service levels, cost efficiencies, and consistency to its Florida Division. HCA’s hospitals in the South Florida market provided critical mass in laboratory testing volumes, as well as efficiencies and compliance experience. MDS brought expertise in automation, laboratory integration, marketing, management, and information technology.

In recent years, MDS reassessed its U.S.-based lab operations and decided to exit the market. The sale of its partnership interest in IRL-FLA ended the last laboratory business operation MDS had in the United States.

“We have continued to enhance our service infrastructure,” she said. “We utilize our hospital laboratories to support stat testing needs. To assure patient convenience and accessibility, we located several patient services centers on hospital campuses and in outpatient centers.

Expanded Test Menu

“Once our consolidated core laboratory was up and running, we leveraged the specimen volume to expand the scope of our test menu and our services,” added Trout. “This gives us a broader menu of services and allows us to offer faster turnaround times for more tests.”

A subject of much interest to pathologists and lab administrators is how HCA, a for-profit hospital operator, views laboratory consolidation and hospital laboratory outreach programs. According to Trout, its views on these two subjects are evolving.

“HCA has hospital laboratories all over the United States, some of which have lab testing outreach programs,” she explained. “Lab consolidation has occurred in some regions, but HCA has never formally developed the type of comprehensive infrastructure needed to support an integrated outreach program.

“IRL-FLA’s regional core lab model provides that infrastructure,” Trout noted. “Since we’ve only recently formalized the sale, we are only now beginning to further explore this business strategy. We are extremely excited about the new opportunities in the areas of outpatient services and outreach within our new business model.

“We are approaching our growth strategy now by asking two questions. First, what do physicians want from their lab? Second, can we meet that need better than the existing provider?” she asked. “We think we can with a regional model. We believe it is the business model that offers the optimum balance between cost efficiencies and responsive service.

“Additionally, HCA has a distinctive competency that differentiates us from the national labs—laboratory management. We believe our ability to integrate hospital work and commercial testing within our geographical market gives us a competitive edge and is a viable strategy for a regional, market-driven laboratory. We now function as a unified single lab with 14 sites—the core lab and our 13 hospital labs. We work closely with the patient service centers. This was a major change for our laboratory staff and they are up to the challenge.

“Our laboratory has identified two critical success factors for this business model,” offered Trout. “One is connectivity. IT solutions must be user-friendly and accessible from the very beginning. After all, the product our laboratory provides is information. At IRL our goal is full electronic exchange of laboratory information, not just the exchange of files. The other critical success factor is contract access to managed care patients.”

Future Plans For Lab Model

Will IRL-FLA become a consolidated lab template for other HCA hospital regions? “It’s too soon to say,” answered Trout. “HCA may look at IRL- FLA as a model for regional laboratories to support hospital and commercial lab services in other HCA markets, or for building internal referral testing capabilities. The better IRL-FLA performs, the more likely it is that this business model might be adopted in other HCA hospital markets.”

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