Regionalization And Consolidation Continue

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STORIES IN THIS ISSUE REVEAL HOW PERVASIVE THE TRENDS of regionalization and consolidation are. Whether one agrees or disagrees that managed care is the future of healthcare, it is obvious that regionalization and consolidation will continue to transform healthcare.

Consolidation transformed the commercial laboratory industry. Consolidation is now transforming hospitals, directly impacting hospital- based laboratories. But I find it fascinating that consolidation is also trans- forming the health insurance industry. The story on page 16 about Aetna’s acquisition of New York Life’s NYLCare HMO business will directly touch clinical laboratories. There will be changes in how laboratory services are contracted as a result of this acquisition.

It is important to recognize that changes in every segment of healthcare will directly alter how clinical laboratories deliver testing services and get paid for those services. That is why shrewd laboratory executives should watch the various mergers, acquisitions and earnings announcements of the major players in healthcare. Their successes and setbacks teach us which management strategies are worth emulating and which strategies to avoid.

Persistence also contributes to success in the healthcare revolution. Middle Tennessee Healthcare Network (MTHN) provides an interesting example of persistence. After three years of planning and effort, the regional laboratory network is about to commence formal operations. Executives at MTHN tell THE DARK REPORT that the economics continue to look favorable. If the network can implement its business plan, it projects a doubling of outreach testing volume for its participating hospital laboratories. That is a goal which merits the effort.

Having acknowledged these market trends, I continue to wonder about the pursuit of “bigness”? at the expense of profitability. The three blood brothers demonstrate that huge size creates little value if the laboratory cannot earn a profit. It seems like the national HMOs are learning that same lesson, given the sizeable losses posted by companies like Oxford, Pacificare, and Kaiser.

With MedPartners posting an $840 million loss, I wonder if large size is about to curse the physician practice management (PPM) industry with financial losses. As clients and regular readers of THE DARK REPORT know, I believe strongly that value-added services, delivered locally, is the key to sustained profitability. That is certainly not the strength of healthcare’s multi-billion dollar behemoths.

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