Making $1 Billion Disappear

Making $1 Billion Disappear

MOST PEOPLE WOULD AGREE WITH ME THAT $1 BILLION IS A HUGE AMOUNT of money. It generally takes the federal government to squander amounts that big. The Internal Revenue Service’s $2 billion computer boondoggle is the latest example of government incompetence with taxpayers’ money.

So I feel I will be in good company when I express my surprise and disappointment upon learning that the three national laboratories, plus two public labs in California, are in the process of writing down an incredible sum of money from their balance sheets. The story on page 10 discusses how Quest Diagnostics, Unilab and Physicians Clinical Laboratories have already written down more than $550 million of intangible assets from their balance sheets in the last fiscal year. Apparently, neither Laboratory Corporation of America nor SmithKline Beecham Clinical Laboratories has yet declared how they will handle this issue. Should they also write down similar percentages of their intangible assets, the laboratory industry total will most likely exceed $1 billion!

This is really a black eye for management of the laboratory industry. It directly reflects on their poor stewardship over the last five years. I say that because these write-downs come on top of two other significant financial events for the same companies. First, the publicly traded laboratories have paid the federal government almost $1 billion to settle allegations of Medicare billing fraud. Second, during the last two years, several (but not all) of the public laboratories have taken special charges as a result of internal problems. I’ll bet if somebody totaled up those special charges since 1994, the number would exceed $500 million dollars.

At my age, I have earned the right to be opinionated, and my opinion is that this group of three national laboratories, including their acquired predecessors, along with their two California-based brethren, should not be proud of how they dissipated as much as $2.5 billion of their company’s money and assets during the last five years. Why do I hold this opinion? Because I see many independent regional laboratories still operating comfortably in the black throughout the United States. They had the management acumen and discipline to run their business profitably. They succeeded in the same declining clinical laboratory marketplace served by the public laboratories.That being the case, maybe the public laboratories should borrow a page from the independent regional laboratories’ book. After all, nothing succeeds like success, and the regional independents have proved that they know how to provide good service and still make money!

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