Small is Beautiful

Small is Beautiful

I MAY BE THE FIRST TO PUBLICLY DESCRIBE an emerging market trend in the laboratory industry. Starting in the mid-1980s, small laboratories disappeared from the landscape at an astonishing rate. Within the commercial laboratory segment, acquisitions of small laboratories fueled the consolidation process. Eventually three huge laboratory companies emerged as the industry behemoths.

Since 1990, the hospital industry has undergone a tidal wave of mergers, acquisitions, joint ventures and alliances. In its own way, this movement fueled the consolidation of hospital-based laboratories. The process of hospital laboratory consolidation continues at a frenetic rate today.

Tenet Healthcare Corporation’s Southern California laboratory project (described here and here) is an example of this consolidation process. But it is also an example of the new trend I have identified. That trend is toward smaller laboratory business units and away from inter-regional or national laboratory systems.

There is an increasing volume of anecdotal evidence which documents that the most successful laboratory business models in those markets with advanced managed care possess four characteristics. First, they have total focus and concentration on the market area they serve. Second, the geographical region they serve usually encompasses the same area where the major managed care plans have beneficiaries. Third, the organization has a leader who imparts vision and strategic direction to the laboratory organization. Fourth, the laboratory understands how to meet and exceed the expectations of its physician users, and delivers such services better than its competition.

Tenet’s Southern California project seems to have these four characteristics. Although not given a public profile, the leader of this effort may well be Neil Sorrentino, Senior Vice President and Chief Operating Officer of Tenet’s Southern California region. Another good example in California is Pathology Medical Laboratories in San Diego. This laboratory demonstrates all four characteristics that I described above.

At our upcoming Executive War College in New Orleans (May 12-13), there will be more examples of these highly successful, but relatively small, regional laboratory systems. There will be reports by ancillary contract managers of major managed care plans on their growing appreciation of small, regionally-focused laboratory providers. These early indicators seem to validate my prediction that “small is beautiful” once again in the laboratory industry!

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