Being the Biggest Doesn’t Guarantee Success

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NEWS THAT ANOTHER HEALTHCARE GIANT is in financial trouble and the object of an unwanted acquisition offer should not be surprising. Even if Aetna, Inc. is purchased by WellPoint Health Insurance Networks Inc. and ING Group NV, the new buyers must fix the same problems now plaguing the nation’s largest health insurer. (See page 8.)

Aetna’s difficulties bring to mind an important business principle: being the biggest certainly gives a company clout, but it doesn’t guarantee success. Aetna provides another example for thoughtful laboratory executives and pathologists of why large size does not automatically mean profits.

I mention this for two reasons. First, THE DARK REPORT has always encouraged local laboratories and pathology groups to pursue the business opportunities that exist in their marketplace. Demand always exists for a nimble competitor that can be highly responsive to the needs of its customers. Billion-dollar companies with national reach are much less responsive to the unique needs of individual communities across the country.

Second, size may have its benefits, but it also has its disadvantages. Regional laboratory organizations can compete quite effectively against national companies, but only if they are willing to get close to their customers and offer unique services which meet the needs of these customers.

These two points are validated by the experience of a few healthcare companies that used acquisitions and consolidation to become the biggest. Columbia/HCA Healthcare took only nine years to grow from two hospitals in El Paso into a $20 billion corporation with more than 400 hospitals. Its nine years of increasing profits ceased in 1997. MedPartners had a similar story. Founded in the early 1990s, it quickly grew into a multi-billion PPM (physician practice management company). But huge losses in 1998 proved its downfall, and MedPartners exited the PPM business.

In the lab industry, there are comparable stories of a spectacular rise, followed by an equally spectacular financial decline. As a new class of “biggest” companies emerges in lab and pathology, smaller competitors should watch closely and seize the competitive opportunities unaddressed in our industry’s “biggest” market leader.

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