Winners and Losers in the Lab Industry

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NOTHING WAS EASY FOR COMMERCIAL AND HOSPITAL LABS during the past decade. Reimbursement for lab tests was slashed. Onerous compliance requirements for Medicare increased costs and added to the legal risk of operating a laboratory. Patient access was restricted through exclusive HMO and managed care contracts. These problems took a huge toll on our industry. There are a lot fewer laboratories operating today than in 1990.

On the positive side, a number of laboratory organizations got it right during the 1990s. In the face of all these negative forces, they developed a business strategy that works in the reality of today’s healthcare marketplace. Within the hospital laboratory sector, the winners are those lab organizations which did two things: they consolidated hospital inpatient testing for a number of hospitals and launched a professional outreach program to physician offices. The combined volume reduced their average cost per test, while outside revenues contributed increased profits to their lab operation.

Within the commercial laboratory sector, those independent labs which did not sell to the nationals generally maintained a high level of service to their physician clients. This was enough to help them survive the decade. But the best among this class flourished, demonstrating healthy growth in revenues. Among them were labs like Clinical Pathology Laboratories, Inc. of Austin, Texas; Pathology Associates Medical Laboratories, Inc. of Spokane, Washington; and Associated Pathologists Laboratories, Inc. of Las Vegas, Nevada. In each case, these companies developed a business strategy that made them a preferred resource in their chosen service region. They also diversified revenues by exploiting market niches. LabOne, Inc. of Lenaxa, Kansas is a prime example of this.

The emergence of a new class of “specialty” laboratories should also be recognized. These lab companies identified customers with unmet needs and grew rapidly by meeting precisely those needs. UroCor, Inc. of Oklahoma City, Oklahoma; IMPATH, Inc. of New York City; DIANON Systems, Inc. of Stratford, Connecticut all finished the decade with strong revenue growth and generally robust profits.

As the next decade creates a new class of lab industry winners and losers, it is useful to stand back and recognize that there is still opportunity to prosper, so long as the laboratory positions itself to provide enriched services that meet the evolving needs of clinicians and the healthcare system.

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