Intense Competition for Market Share in New York

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ONE OF THE MOST TURBULENT MARKETS FOR LAB SERVICES TODAY is New York City and the Tri-State area of New York, New Jersey, and Connecticut. This is ground zero in the fight for market share between Quest Diagnostics Incorporated and Laboratory Corporation of America and competition is intense. The stakes are highest for Quest Diagnostics. It has long held a dominant market position in New York City, so it has the most to lose.

Adding to the competitive pressure are the submarkets to the east and to the west of New York City itself. Located to the west, across the Hudson River, is Bio-Reference Laboratories, Inc., (BRLI), which is enjoying record revenue and operating profit. (See pages 7-9.) East of New York City, Sunrise Medical Laboratories is prospering on Long Island. (See pages 3-4.) And now that Sonic Healthcare Limited of Sydney, Australia, will acquire Sunrise, the level of competition just got “kicked up a notch,” as the famous New Orleans chef Emeril Lagasse is fond of saying.

Generally, competition is good for physicians and patients. But Thomas Rafalsky, President of the New York State Clinical Laboratory Association (NYSCLA), observes that the current managed care contracting war between the two blood brothers may have a long-term negative financial effect on NYSCLA’s independent laboratory members. (See pages 10-11.) Rafalsky also notes that, when national managed care contracts for lab testing services are priced on a formula that is a discount from Medicare fee schedules, it can be used by Medicare officials to support Medicare’s plan for competitive bidding of lab testing services. And, the deeper the contract discount from Medicare fees in such contracts in the private sector, the stronger the argument Medicare officials have to support competitive bidding.

What intrigues me is how New York City and the Tri-State region have quickly evolved into probably the nation’s most competitive market for lab services. LabCorp’s national contract victory with UnitedHealth led it to open several hundred patient service centers and expand its network of rapid response labs, couriers, and sales force across Greater New York. That has been a direct challenge to Quest Diagnostics. Meanwhile, a handful of independent labs in the region, such as Bio-Reference and Sunrise, have scrambled to take advantage of the fact that changes to managed care lab networks have caused physicians to reconsider their choice of laboratory provider.

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