War College 2008 Theme: Get Close to Customers!

What’s hot in laboratory and pathology is customer-facing organizations and integrated IT

CEO SUMMARY: Over the course of two days, pathologists, lab directors, and other laboratory professionals repeatedly heard speakers urge them to work hard to ensure that customers are the top priority for their laboratory organization. Another theme is the need for labs to organize their data so that they can send actionable information to referring physicians and other partners in the healthcare system. Forward-looking labs and pathology groups are already forging ahead with enriched consultative services for client physicians.

THERE WAS A SURPRISING THEME that emerged at this year’s Executive War College on Laboratory and Pathology Management, conducted in Miami earlier this month. Contained in many of the 42 presentations during the two-day event was this consistent message: “clinical laboratories and anatomic pathology groups need to get up close and tight with their customers to survive and prosper through the coming healthcare storms!”

This common thread in so many presentations should not surprise clients and regular readers of THE DARK REPORT. For more than a decade, these pages have documented the converging trends which place consumers (patients) in the primary role of, one, deciding which providers to use and, two, spending greater sums out-of-pocket to pay providers directly for their care.

The fact that so many speakers at this year’s Executive War College emphasized the need to be customer-focused is thus not a coincidence. It is tangible proof that shrewd healthcare executives and laboratory leaders already see tangible evidence in their own communities that those providers who are best at meeting and exceeding the needs of their patients will be clear winners.

This “consumer first” imperative was crystal clear in each of the presentations made by three speakers at one special general session. Leading off that morning was Trisha Brown, Vice President of DNA Direct (www.dnadirect.com) in San Francisco, California. She provided attendees with a detailed overview on the explosion of Web-based companies organized to offer genetic testing directly to consumers. According to Brown, consumer interest in genetic testing is increasing sharply from year to year.

Lots of entrepreneurs recognize this trend, along with the willingness of consumers to spend $1,000 or more for genetic tests. But the downside to this development is that many genetic tests offered by these Web-based start-ups fail to measure up to rigorous scientific standards long-recognized by the medical community as necessary to deliver clinical value.

In her remarks, Brown provided examples of intelligent, informed consumers who come to DNA Direct with a genuine need for a scientifically valid test—often because their personal health provider was either unknowledgeable about such genetic tests or was unwilling to order the genetic assays.

Brown also flashed a series of slides that showed the seamier side of genetic tests on the Web. These ranged from genetic tests on hair baldness at HairDX.com to genetic love match testing at ScientificMatch.com.

In his remarks at the closing session, Executive War College Founder Robert L. Michel observed that “Trisha Brown showed us something profound when she explained the growing consumer interest in buying genetic tests over the Web. If such well-financed companies as 23andMe (owned by Google), Navigenics (also with some Google funding), and DeCode Genetics are willing to do genetic tests for consumers who find them via the Internet, then clearly, a Pandora’s box has been opened.

Lab Profession Loses Control

“But laboratory medicine is not in control of this Pandora’s box,” Michel continued. “For the first time, both sophisticated genetic testing and charlatans advertising their own version of genetic tests, can be accessed directly by consumers doing a Web search. Physicians and laboratories will no longer be the recognized gatekeepers for diagnostic testing.

“Moreover, how long will it be before patients begin to wonder why clinical labs in their cities do not have a presence on the Web and why they cannot go down the street and have their local lab perform a genetic test they see offered on the Internet?” asked Michel. “The entire lab profession should recognize the red flags raised by these early genetic testing land grabs on the Internet.”

Opportunities for Labs

Following Brown on the podium was Paul Smolke, Director, Health Industry Strategy & Solutions at Microsoft Corporation in Redmond, Washington. He was there to discuss key trends in healthcare informatics and describe likely paths to full digital integration of health information.

He discussed three trends. First is business intelligence, which is how companies use information technology to gather the “right information at the right time in the right format” so that managers can make informed, correct decisions.

Smolke’s second trend is communications convergence. Essentially, this trend involves creating a unified identity for an individual across devices and networks. Smolke demonstrated how companies are spending money today to achieve this unified identity to make it easy to reach an individual in the work, mobile, and home environments.

For laboratory directors and pathologists, the third and most important of Smolke’s trends is consumerism. He identified four areas of attention: 1) focus on health and wellness; 2) focus on self-directed care; 3) obtaining relevant on-line health information; and, 4) consumer-centric collecting, storing and sharing of health information.

Smolke then explained Microsoft’s vision of consumers as aggregators of their health information. Thus, Microsoft’s strategy is to use informatics integration and communications convergence to cut across the existing silos of information that exist in today’s healthcare system—thus allowing the consumer’s health information to flow as needed throughout the health system of the future.

Next speaker during this session was Bill Wing, Vice President, Healthe Services, of Cerner Corporation in Kansas City, Missouri. He took Executive War College attendees on a fascinating tour of how Cerner is transforming its health benefits program into a customer-facing/customer-first model. A full description of the Cerner Healthe program, which Cerner Corporation now actively sells to other companies, follows on pages 7-9.

Emphasis on Consumers

What linked Wing’s presentation to the earlier speakers during this session was his continual emphasis on developing services that are customer-friendly and engage the consumer (employee) to be more responsible for making healthcare decisions, for paying a larger share of costs out-of-pocket to providers, and to be motivated to participate in wellness and disease avoidance programs.

Most of the laboratory and pathology group strategic case studies presented at this year’s Executive War College had an unmistakable emphasis on moving the laboratory organization to a closer customer/patient orientation. For instance, Nate Headley, Chief Executive Officer of Spectrum Laboratory Network in Greensboro, North Carolina, described his lab’s strategy of using integrated informatics to build loyalty with client-physicians, to reduce errors on test requisitions that irritate physicians and adversely affect patients, and to generate significant financial and operational benefits.

As Michel noted during his closing remarks, “Few laboratories are willing to spend the money for staff, resources, and the capability to electronically connect a new doctor in one day and regularly interface with his EMR in as little as 48 hours. Yet, Spectrum’s investment in making such connections with physicians in such a short time brings it a handsome return on its investment, beside fueling a steady growth in market share, specimens, and revenue.”

If Spectrum Laboratory Network can claim to be at the head of the class in integrating its LIS and informatics platforms with referring physicians, then Pathology Associates Medical Laboratories (PAML) in Spokane, Washington, can claim to be at the head of the class in its use of integrated informatics to support an impressive, world-class level of customer service.

Rosalee Allan, Chief Operating Officer, at PAML “wowed” the Executive War College audience as she explained how PAML’s strategy of using client relationship management (CRM) software, in tandem with digitized, real-time operational data flows, has boosted PAML’s customer service performance far past the lab industry standard.

The genesis of this strategy was the loss of a $1 million-per-year client several years ago. PAML made the decision to drive down the number of pre-analytical errors and give management real-time monitoring capabilities to directly improve the daily customer service it provides to clients and patients. After spending heavily to implement the CRM and install middleware to capture and feed real-time data into the CRM, PAML has cut the number of lost clients to zero, while boosting client satisfaction.

Other Important Themes

Of course, with more than 75 topics and speakers spread out over the two-day Executive War College and the Merger & Acquisitions Conference that followed on the next day, there was a wide range of innovations, operational successes, and business strategy breakthroughs presented. Along with the customer focus, other clear and distinct themes were use of integrated informatics, using Lean/Six Sigma methods to drive operational excellence, and how labs are utilizing new technologies in automation and diagnostic instruments to achieve further clinical and operational gains.

Lab Industry’s First Mergers & Acquisitions Day Reveals Lots of Interest, More Lab Sales Ahead

By Robert L. Michel

IT’S ALWAYS AN EXPERIMENT to bring together pathologists and put them in the same room with professional investors and other Wall Street types. Yet that formula generated lots of energy, enthusiasm, and networking earlier this month at the lab industry’s first-ever “Mergers & Acquisitions in Pathology and Clinical Laboratory” conference.

This special day took place in Miami on May 15, following the Executive War College. A sell-out crowd of almost 200 folks jammed the room and networking was at a high pitch throughout the day. For laboratory owners and pathologists who are partners in group practices, there was keen interest in what experts on valuation, finance, legal, and operations had to say about the right and wrong ways to prepare a laboratory for sale.

In organizing this unique conference, I had three primary objectives. First was to break down the wall that seems to separate the professional investment community from the general rank and file of laboratory owners and pathology group partners. Too often, when laboratory owners decide to sell the business, they fail to get the first-rate advice and experience they need to properly prep and offer their laboratory for sale.

Learning Environment

Second was to create a learning environment for all types of laboratory owners. To achieve that, the program offered four distinct learning tracks: 1) clinical laboratories and pathology practices; 2) hospital/health system laboratory outreach programs; 3) specialty/niche laboratories and those labs offering patent-protected or proprietary diagnostics tests; and, 4) a general learning track for lab owners.

The third objective was to offer all this information in a setting that would encourage senior laboratory executives attending the Executive War College to stay over and participate in the Mergers & Acquisitions day. This would be a different opportunity, since standard practice generally means these individuals must travel to investment conferences in New York in order to meet investment professionals and explore opportunities for the sale of their laboratory.

How Much Is My Lab Worth?

If there was one single topic of greatest interest, it was about the high prices paid for clinical laboratories in the past 24 months. Laboratory sellers are curious about the value of their lab and what motivates sellers to pay high multiples of EBIDTA (earnings before interest, depreciation, taxes, and amortization).

For that reason, the acquisition of AmeriPath, Inc. by Quest Diagnostics Incorporated last year, at a multiple estimated to be around 17 times EBIDTA, triggered lots of questions and discussion. Most Wall Street experts who had studied the deal told the audience that this particular sale represented a unique opportunity to this particular buyer. Overall, there seemed to be consensus that, in today’s market, a valuation of 10 times EBIDTA seems to be common for a profitable, growing, and well-managed laboratory—with a caveat that many factors can affect a lab’s value positively or negatively.

Another surprise was the attendance of a number of hospital laboratory outreach program directors. It seems that recent sales of DSI Laboratories, Inc. in Fort Meyers, Florida, and Pathology Laboratories, Inc., of Muncie, Indiana, have made hospital and lab administrators aware that they own a valuable asset—one that can be worth tens of millions of dollars to an interested buyer.

At the urging of attendees and our faculty, we plan to conduct more such programs on this topic. Your suggestions for speakers and topics are welcome. Send them to me at rmichel@darkreport.com.


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