CEO SUMMARY: Consolidation in the LIS industry continued during 1997. The impact for laboratory buyers is that market share is concentrated among fewer vendors. Over the long term, this reduces choice and leads to an oligopoly-type of market. In the short-term, all LIS companies are competing aggressively to build market share.
DURING 1997, Cerner Corp. toppled Meditech as the sales champ for new sales of LIS to hospitals in THE DARK REPORT’s annual ranking of the Top Ten LIS Vendors. LabSoft, Inc. was first in the commercial laboratory category for the second consecutive year.
Rankings for 1997 reveal how consolidation among LIS vendors is concentrating control of the marketplace in the hands of a limited number of companies. Three firms now control half of hospital LIS systems in the United States. Market concentration in the non-hospital (commercial) laboratory category is even more extreme, with three companies controlling two thirds of the total marketplace.
Cerner sold 203 new laboratory information systems to hospitals in 1997. Sunquest Information Systems was second, with 102 sales and Meditech ranked third, with 66 new sales. It is these three vendors which now control more than half of the new sales market for hospital-based LIS.
When it comes to installed LIS, Meditech retains its lead, with 1,010 hospitals. Sunquest Information Systems is second and Cerner is third, with 790 and 730 hospitals, respectively. These three companies hold almost 50% of installed hospital LIS software throughout the United States.
Rankings for 1997 reveal how consolidation among LIS vendors is concentrating control of the marketplace in the hands of a limited number of companies.
Meditech led THE DARK REPORT’S rankings in new sales to hospitals for both 1996 and 1997. Its biggest customer is Columbia/HCA Healthcare and Columbia was converting each newly-acquired hospital to Meditech.
As Columbia’s hospital acquisition program slowed during 1997, Meditech saw a decline in new LIS installations to hospitals owned by Columbia. Meditech’s total new LIS sales to hospitals have fallen from 137 (1995) to 82 (1996) to 66 (1997).
In the non-hospital category, LIS sales activity is shifting. LabSoft sold 156 systems, which was almost triple the sales of runner-up Schuyler House, which sold 55 systems. Creative Computer Applications placed third, with 16 new LIS sales.
LabSoft’s excellent sales performance during the last two years gives it the most installations for non-hospital laboratories. LabSoft has 702 systems installed. Next in line is Sunquest Information Systems with 584 LIS installations. Third on the list for 1997 is CPSI, with 195 installations.
Sunquest Acquired Antrim
Antrim traditionally dominated the market for commercial laboratory installations. In 1996, Sunquest acquired Antrim. Under Sunquest, Antrim’s LIS software continues to be a significant force in the market for commercial laboratories. Antrim’s LIS is used by a substantial number of larger commercial laboratories. Because of market consolidation, bankruptcies and other factors, there are fewer independent commercial laboratories in the United States today than five years ago.
Thus it is no surprise that Sunquest is not selling high numbers of LIS to commercial laboratories. In 1997, it was number seven in THE DARK REPORT’S rankings of new sales. But those sales were generally to larger laboratory organizations. It demonstrates that Sunquest’s market position among larger commercial laboratory companies continues to be substantial.
The annual rankings of THE DARK REPORT’S Top Ten LIS Vendors reveal that significant marketplace changes are altering both the structure of the LIS industry and how it services its laboratory customers.
Each year fewer LIS companies are on the total list of vendors with new sales or installed systems. The primary reason is acquisition activity. Larger LIS companies are buying smaller competitors.
These smaller competitors usually have innovative technology or high quality LIS products. But small size and a limited capital base handicap them in three ways. First, they lack the resources required to market themselves on an equal footing with larger LIS companies. Second, they lack the capital necessary to continually integrate new hardware and software technology into their LIS product.
The third reason is not obvious, but illustrates how rapidly managed care has changed the fundamental rules of the game. Rapid and non-stop changes to reimbursement guidelines are accompanied by increasing clinical integration. The smaller LIS companies must invest in adapting their software to meet these evolving requirements. Such investment requires more capital than they have available. Because they lack necessary capital, selling to a larger company is frequently the only viable option for the small LIS vendor.
Consolidation of the LIS industry inhibits innovation and entrepreneurial risk-taking from occurring. As smaller, more market- responsive LIS companies are swallowed by the industry leaders, it becomes tougher to create innovative products using cutting-edge technology and introduce them to the marketplace.
Corporate bureaucracy and internal politics common to all large companies tend to stifle such challenges to the status quo. That is why consolidation within the LIS industry constrains both innovation and early adoption of advanced technology.
It is important for laboratory executives to watch developments in the LIS industry. Information system technology is a major critical success factor for clinical laboratories. If a laboratory has poor LIS product, it will never be competitive in the managed care marketplace.
Most Important Legacy
Whether or not managed care succeeds as the final evolutionary form of healthcare, integrated data system capability will be its most important legacy. Every clinical lab- oratory must acquire the capability to do five things with information.
First, it must be able to gather laboratory results from a variety of settings, including near patient and point- of-care testing sites. Second, it must warehouse this data so it is accessible and usable in a variety of forms.
Third, the clinical laboratory must be able to use the laboratory test data in the warehouse to create population-wide reports on utilization, outcomes, cost of service, and other information requirements. Laboratories must have the capability to develop value-added services from the information streams generated by the laboratory testing they perform.
Fourth, the laboratory must be able to do sophisticated cost and productivity analysis with the data collected by the LIS. Capitation and other forms of prospective reimbursement now mean that a laboratory which lacks sophisticated cost data will find itself either at a competitive disadvantage or out of business entirely.
Fifth, it will soon be necessary for a laboratory to acquire an LIS product which has process control capability. Process controls are the management tools which the LIS uses to control workflow through the laboratory.
Process controls speak to the automated instruments and provide operating instructions that maximize work flow throughout the laboratory.
That is why selecting an LIS product and vendor is probably the single most important bet a laboratory makes on its future success. At the time the decision is made to upgrade an LIS system or purchase a new LIS product, most laboratory executives do not anticipate how each of the five capabilities listed above will affect the financial stability of their laboratory in the near future.
Additionally, LIS vendors tend to sell their products by stressing their existing strong points. That is human nature. But laboratory executives should give equal attention to LIS product capabilities which are weak. Clinical laboratories need a balanced LIS product capable of providing satisfactory service in each of the five critical areas listed here.
Implementation of an upgrade or conversion to a new LIS product should also get rigorous attention. Anecdotal stories continually reach THE DARK REPORT about LIS conversions which go over budget and totally disrupt the laboratory. This is another area where LIS vendors can show definitive improvement, and where laboratory executives should exercise care when making the final purchase decision for their LIS solution.
Final predictions will conclude this year’s rankings: 1) expect to see continued consolidation among LIS vendors; and 2) fewer vendors will hold a larger share of the marketplace. Whether these developments are good or not for the clinical laboratory industry has yet to be determined.