Survivor: Story of the Nation’s Largest Lab Firm

Survivor: Story of the Nation’s Largest Lab Firm

TELEVISION’S “SURVIVOR” IS THE UNFOLDING STORY of how one person competes to outlast 16 fellow players in a remote outdoor setting. The winner of “Survivor” walks away with a $1 million prize. The show has proven to be popular and is now airing episodes of its fourth group of competitors, stuck on a tropical island in the South Pacific.

Since the early 1990s, competition among public lab companies has been intense. The number of competitors declined steadily. The process was much like the TV show “Survivor.” One at a time, lab companies would falter and disappear from the marketplace. Their labs, their clients, and their employees would be absorbed by a surviving lab company, usually through acquisition.

Thus, it was 1995 when the public lab industry ended up with three billion-dollar lab companies. They were Quest Diagnostics Incorporated, Laboratory Corporation of America, and SmithKline Beecham Clinical Laboratories (SBCL). Here is where my story begins. In a national market overshadowed by three billion-dollar lab testing behemoths, one was to pursue a business strategy that would make it the true survivor in the public lab consolidation game.

Around the offices of THE DARK REPORT, we remember the comments made by Quest Diagnostics CEO Ken Freeman in the years following its 1997 spin-off from Corning Corporation. Freeman observed publicly that, in any industry where three companies were large and dominant, economic forces invariably worked to eliminate one of the three. In this business analysis of his company’s situation, it became a strategic goal of Quest Diagnostics to survive this expected shake-out.

Thus, when Quest Diagnostics acquired SBCL in 1999, it did not surprise those in the lab industry who understood the business strategy underpinning this acquisition. Freeman was taking active steps to insure the survival of his company by pushing the commercial lab industry into the two-company oligopoly that it is today and making Quest Diagnostics one of its two survivors.

I think this story is relevant for hospital lab administrators and pathologists. At a regional level, these same management dynamics argue that metropolitan areas dominated by three major hospitals or health systems will eventually see that number reduced to just two. For that reason, hospital labs and pathology groups in such cities should develop a business strategy that insures they are one of the two survivors!

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