CEO SUMMARY: Since 1994, Las Vegas-based Associated Pathologists Laboratories has carved a thriving business from drugs of abuse testing. Its fast-growing toxicology business is built around a full-service menu of testing services. This includes a patented drug screen based upon testing hair samples, which can detect up to twice the number of drug users as the more common urine-based drug screen.
DESPITE THE FACT THAT drugs of abuse testing is a highly competitive, low margin business, Associated Pathologists Laboratories, Inc. of Las Vegas has developed a competitive advantage and is now reaping the rewards.
That competitive advantage is a patented hair test for drugs of abuse detection. Associated Pathologists Labs (APL) is successfully building its toxicology testing volume at annual rates which would be the envy of most labs.
“As most laboratorians know, drugs of abuse testing can be a lousy business,” said Craig Shanklin, APL’s Vice President, Marketing. “There is tremendous overcapacity among labs offering urine drug screening. That leads to price competition, and profit margins which can be razor-thin.
“Also, the recent explosion of on-site test kits is eroding what profitability remained for most traditional urine testing labs,” he added.
Here is where the APL story takes an interesting twist. “Some years back, we did a strategic planning session,” noted Shanklin. “We recognized the problems caused by overcapacity and poor profit margins. But we also realized that if we could distinguish ourselves from competitors, we would have a competitive advantage with an important benefit. We could charge higher fees if we offered something different than the competition.”
Seeking Competitive Edge
“We began researching ways to improve the existing system of urine-based testing for drugs of abuse,” he continued. “That is what originally led us to investigate using hair samples as a way to test for drugs of abuse.”
It was 1994 when APL began offering drug screens based on hair samples since. Companies that screen employees for drug abuse find that the hair tests provide additional benefits over urine tests.
“To understand the advantages of hair samples over urine samples, it is necessary to look at what is happening in the workplace,” Shanklin stated. “First, the positive rate for urine testing has declined steadily over the last six or seven years. We track this by following SmithKline Beecham Clinical Laboratories’ (SBCL) annual report on the average positive rates for drugs of abuse testing it performed during the year. We consider that to be a useful benchmark for national trends.
“Second, there is the adulteration problem with urine testing,”explained Shanklin. “In recent years, an entire industry sprang up to help drug users beat drug screens. Head shops and web sites sell a variety of products which are to be added to a urine specimen or ingested by the subject prior to providing a sample. Their objective is to create a negative result even though the subject has been using drugs.”
Lab Industry’s Response
“The lab industry’s response to this trend was to test for adulterants, such as nitrites,” said Shanklin. “Labs will report a negative test result, along with the detection of nitrites in the sample.”
Executives at APL watched these trends develop. “That is why we looked for a way that we could differentiate ourselves from other labs offering drug testing, while providing a better solution to drug screening.
“Hair testing for drugs of abuse was our answer,” declared Shanklin. “The benefits are clear and indisputable. One, unlike urine samples, hair samples cannot be adulterated. Two, hair samples can detect drug use going back as far as 90 days. Urine testing is generally only reliable for detecting drug use within the previous 72 hours.”
Employer Can Collect
“Three, because the employer can elect to collect the hair sample themselves, it can lower the cost of the drug screen, since no outside collection service is involved,” he said.
“Fourth, and more importantly, hair testing generates a higher number of positives,” Shanklin said. “This is because of its 90-day look-back ability, its increased sensitivity, and its resistance to adulteration.”
Shanklin’s fourth benefit is the jackpot answer to the success of APL’s hair testing program. Employers recognize that a hair test will detect more drug users among their employees than a urine test. But how many more?
“It is our experience that hair testing doubles the positive rate,” answered Shanklin. “For employers, this is highly significant. It means hair testing allows them to identify drug users that would slip past a urine test.
“Since the goal of most private company drug testing programs is to identify any drug abuser prior to employment, this higher rate of detection is a valuable benefit,” noted Shanklin. “It sets APL apart from competing labs that can only offer urine-based drug testing.”
Tandem Gas Mass Spec
APL gives nothing away on turnaround time with hair testing. It reports negative results in 24 hours and confirms positive results within 72 hours. “We confirm all positives using a GC/MS/MS arrangement that operates in tandem. This permits us to have increased sensitivity with hair testing over urine testing.”
As an independent regional laboratory serving Las Vegas and Nevada, APL’s drug testing business has allowed it to create a national business. “Our largest customers are Fortune 1,000 companies,” said Shanklin. “We operate a SAMHSA-certified laboratory and offer a full menu of drugs of abuse testing using both urine and hair samples.”
This national business is large enough to support ten sales reps and four regional offices, in Chicago, Atlanta, Philadelphia, and Dallas. Growth has been steady, with hair testing leading the way. “Every year since 1995, we’ve seen more than double the growth rate in the number of hair- based screens compared to urine-based drug screens,” noted Shanklin. “Employers have significant interest in hair-based screens.”
It’s enough of a differentiation that Laboratory Corporation of America signed a referral agreement with APL. Anytime a LabCorp drug testing client would like hair testing performed, LabCorp refers the samples to APL.
APL has a few competitors in the hair sampling field. “Another established firm offers a hair-based drug screen,” Shanklin said. “Their patents are based on RIA technology. In contrast, we use ELSIA technology, which we believe offers improved sensitivity and specificity.”
APL’s accomplishments in devel- oping a patented hair-based drug screen, then successfully selling it to a national market, demonstrate that plenty of opportunities remain for clinical laboratories to make money. It requires some imagination, a sharp eye to spot market trends, and a willingness to invest money in developing a specialized service.
Success Not Happenstance
APL’s success was not happenstance. Its leaders were bold enough to invest in research, then used professional sales and marketing to deliver their message to potential clients. With ten sales reps in the field, it is one reason why its scientific accomplishments are generating operating profits.
Associated Pathologists Laboratories’ sustained profitability in recent years demonstrates that clinical laboratories can exploit a variety of niche testing opportunities as a way to diversify revenues and improve operating profits.