"Lab Industry Briefs"

DIANON Systems, UroCor, Cytyc, Digene, McKesson HBOC, Abaton.com, Abbott

FEDERAL ATTORNEY SERVES SUBPOENA ON DIANON SYSTEMS

NEWS BROKE LAST WEEK that DIANON Systems, Inc. had received a subpoena from the U.S. Attorney’s Office in Connecticut for documents relating to laboratory billing.

Apparently “LabScam” is still alive and well within the Department of Justice. LabScam is the OIG’s code word for its extensive investigations into claims of laboratory billing fraud and abuse throughout the 1990s.

DIANON disclosed the federal subpoena in its annual report, filed last Wednesday. The company said it was under subpoena to provide “a variety of documents, with a particular focus on documents relating to billing for tumor biomarkers, DNA testing and screening tests.”

This disclosure comes only four weeks after UroCor, Inc. announced it had signed an agreement with the Department of Justiceto settle charges of improper billing for laboratory tests. UroCor will refund about $8.5 million to various government health programs, including Medicare. The agreement covers alleged violations which occurred during the years 1992 and 1998.

There is an obvious link between the government’s interest in UroCor and DIANON. Both companies compete aggressively in the urology sector for lab tests and biopsies. At least one Wall Street analyst compared DIANON’s potential billing problems with those of UroCor.

Based on the government’s past pat- tern of laboratory investigations, the timing of DIANON’s disclosure may not be coincidental. If allegations against DIANON include similar billing practices covered under UroCor’s $8.5 million settlement with the federal government, then it would be reasonable to assume that the Department of Justice believes it can use the UroCor refund agreement as a template to pursue allegations of illegal billing practices by other labs for the same types of lab tests.

If this proves true, and federal prosecutors eventually prevail in their claims against DIANON Systems, then other laboratories doing extensive volumes of urology-based lab tests and biopsies could also find themselves under investigation for similar allegations of Medicare billing fraud and abuse.

MEDICARE ANNOUNCES NATIONAL FEE OF $28 FOR THINPREP® PAP TEST

IT’S A MILESTONE ACCOMPLISHMENT for Cytyc Corporation. Last Thursday, the company announced it had learned that HCFA “has established a national fee of $28 for the CPT codes describing the ThinPrep® Pap Test.”

Compared to a conventional Pap smear, HCFA will now pay almost double for a ThinPrep Pap test. This decision will certainly influence many managed care plans which have been slow to accept the ThinPrep Pap test, or have chosen to reimburse for ThinPrep at a significantly lower rate than what Medicare will now pay.

For Cytyc, this culminates a carefully-crafted marketing plan. When ThinPrep was rolled out to the clinical marketplace five years ago, payer acceptance of the test and adequate reimbursement for labs performing ThinPrep testing were critical factors. Without either, the product could not succeed.

In contrast to Cytyc’s strong marketing push to payers, NeoPath, Inc. (original developer of the AutoPap® automated QC/QA and screening system), devoted considerably less resources to marketing its products and technology to payers. Five years later, market penetration and clinical usage of AutoPap is significantly lower than ThinPrep.

The lessons of the Cytyc and NeoPath marketing strategies will not be lost upon diagnostic vendors. Cytyc’s successful campaign to introduce ThinPrep will be studied and duplicated for years to come.

In fact, its major elements are already being copied by Digene, Inc., maker of the Hybrid Capture® 2 HVP DNA test. Borrowing a page from the Cytyc marketing playbook, Digene issued a press release on March 14 to trumpet the fact that health plans insuring more than 200 million members now provide coverage for its HPV test.

In the United States, Digene’s test is used as an adjunct test to the Pap smear for cervical cancer screening. However, in several other countries, Digene is marketing its HPV test as a primary cervical cancer screen, as well as an adjunct test to the pap smear.

ABATON.COM CAUGHT IN ONGOING MAELSTROM AT MCKESSON HBOC

SINCE THEIR COMPANY WAS ACQUIRED by McKesson HBOC, Inc. in 1999, it’s been a rocky ride for Minneapolis-based Abaton.com, developer of a viable system for Web-accessed lab test ordering and results reporting.

McKesson HBOC paid $103 million to purchase Abaton.com in November 1999. A change of ownership is always difficult, but just seven months later, in June 2000, McKesson threw Abaton.com into a new business unit—dubbed iMcKesson.

iMcKesson was intended to be the “e-health” flagship for McKesson HBOC. Along with Abaton.com, another five operating divisions were folded into iMcKesson. This new company got started with $300 million in revenues and 2,000 employees.

But iMcKesson proved to be a short-lived concept. Born of the investor fever for anything “dot-com,” it faded as investors abandoned Internet stocks. On February 26, 2000, just eight months after its creation, McKesson HBOC is disbanding iMcKesson and folding its business units back into the parent company.

This means another wrenching corporate change for Abaton.com. At one time, prior to its acquisition by McKesson HBC, Abaton.com was poised to capture a good share of the market for Web-accessed lab test ordering and results reporting. However, during the past 18 months, the need to accommodate McKesson’s shifting management goals has hindered the roll-out of Abaton.com’s key products to the laboratory industry.

REVENUES IN 2000 CLIMB AT ABBOTT LABS—SO DOES CEO’S PAY!

LOTS OF LAB EXECUTIVES and pathologists were more than aggravated when the FDA forced Abbott Laboratories, Inc. to cease selling more than 100 of its diagnostic tests early in 2000.

So how did the year 2000 end for Abbott Labs? Worldwide sales, mainly pharmaceuticals, were up 4.3%, to $13.2 billion. But worldwide diagnostic sales declined by 2.9%, totaling $2.9 billion.

But the interesting number is the compensation paid to Abbott CEO Miles White. Following Abbott’s diagnostics debacle with the FDA, total 2000 compensation to White is reported to be $29.6 million, mostly from the value of stock options issued to him.

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