Specialty Labs Moving To Web-Based Services

CEO SUMMARY: Competition for hospital reference and esoteric testing remains intense. Three years ago, Specialty Laboratories made an early bet on Internet technology. It believed that being first to offer faster and less complicated access to laboratory informatics resources would give it a competitive edge among hospital laboratory clients. Here’s a look at the management strategies behind Specialty Lab’s decision.

WITHIN THE SOFTWARE INDUSTRY, “vaporware” is the term used to describe software and upgrades announced by a company which are not ready to sell to customers.

At Specialty Laboratories, Inc. of Santa Monica, California, executives are quick to point out their support software system for hospital laboratory clients is not vaporware, but the real thing. To defend that statement, they point to the installed base of clients already using Specialty’s software services.

Up And Running

“We currently have 1,000 installations up and running among our clients,” stated Dan Angress, Vice President of Marketing at Specialty. “We are also proud of the fact that we have an exclusive arrangement with VHA and offer our DataPassportMD™ system over their private network.”

Specialty’s installed base of users makes it one of the first labs in the United States to introduce web-based support on a wide scale. To accomplish this in 1999, Specialty’s executive team had to make some risky decisions several years earlier.

“In 1997, we looked for ways to differentiate ourselves from other reference laboratories,” recalled Angress. “What kind of added-value services could we bring to our clients?

“Nobody familiar with the lab business should be surprised at the one gripe that topped the list of most hospital lab administrators,” he continued. “It was the expense and frustration of dealing with CPU-CPU links between their lab and their primary reference testing providers. Even PC workstations were an expensive option, with lots of maintenance.

“We realized that, if Specialty could use Internet technology to make life easier for our hospital lab clients, we would have a competitive market edge,” noted Angress.

“We also realized that this Internet technology would have a greater long term benefit,” he added. “We can piggy- back a host of other added-value services onto our web-based system. These would also be valuable for our specialist physician clients who order esoteric tests.”

Back in 1997, it was a bold choice to design this system around the Internet. “Although the technology was not fully embraced by the industry,” noted Angress, “we recognized that it could allow us to control data at one site and make changes quickly and efficiently [the thin server concept].

Access The System

“Moreover, if clients proved reluctant to use the Internet, we were prepared to set up an extranet, a private network, and let them access the system via direct phone connections,” he said. “That flexibility helped. It is one reason we were able to get 1,000 installations operational in the 18 months since we introduced this system.”

Specialty’s DataPassportMD (DPMD) is designed to meet the reference testing needs of hospital labs. It handles all basic functions, along with some enhanced services.

According to Angress, hospital labs connect in three basic ways. One, they can use the hospital’s existing T1 lines and their own ISP (Internet service provider). Two, they can connect using a PC workstation. Three, if they already have a CPU-CPU link, then the hospital lab can use DPMD to order or query for results and pending tests.

Lab Outreach Programs Face Several Choices

“We agree with THE DARK REPORT’S recent prediction about web-based test ordering and results reporting,” stated Dan Angress, Vice President of Marketing at Specialty Laboratories.

“Hospital labs with outreach programs will need to select a vendor and a product to link with their physician office clients,” he continued. “But no one yet knows for sure if doctors want all the information that some of these vendors can offer.

“And each of these products comes with a different pricing model,” added Angress. “Healtheon/WebMD offers a transaction-based model. Advanced Health Technologies, Abaton.com, Specialty and others offer a system and hardware which can be purchased. Some lab outreach programs may opt for their existing LIS vendor’s solution.

“We believe that hospital lab outreach programs cannot sit and wait to see what shakes out before they decide on a solution,” concluded Angress. “The marketplace is moving too fast. That is why we are aggressively bringing our outreach solution to market. We think its content and ease of use will appeal to hospital labs.”

Robust and Reliable

“We have 18 months experience with this system and we’ve done three version upgrades,” noted Angress. “It is robust and reliable. We are now ready to launch a web-based outreach system so hospital labs can connect with their physician office clients.

“Helping hospital labs link with physician offices is another way that Specialty wants to differentiate itself from competitors,” he explained. “Beta testing of our outreach system is completed. The system is ready to offer to any serious hospital prospect.

“Because we know the hospital lab business inside and out, we’ve designed this outreach system to meet the unique needs of hospital labs and their physician office clients,” noted Angress.

“Since many outreach programs compete head-to-head with commercial labs, this outreach system will give them the added-value punch they need to maintain and expand their client base,” he said. “We designed this outreach system to allow the hospital laboratory to differentiate itself with its physician clients by using its own logos and a look specific to their lab.”

As a business strategy, Specialty’s Internet-based informatics platform was designed to streamline connections between hospital lab and reference lab. However, Specialty has not overlooked the potential to use laboratory data to create added-value services.

Relational Data Base

“Because our server functions as a relational database, clients can access and work with data previously unavailable,” said Angress. “For example, a simple query will tell a hospital how many TSHs were performed last month, and by which doctors. As a result, our hospital and specialty physician clients will be able to slice into their data in a variety of new ways.”

THE DARK REPORT believes that Specialty’s data repository, and others like it, represent the foundation for the next generation of laboratory industry profits. Gathering lab test data from regional and national sources, these repositories will be mined for utilization patterns, disease management purposes, and cost reduction opportunities.

Further, the speed at which this will occur should not be underestimated. For example, Specialty’s 1997 business strategy, to design and introduce an Internet-capable reference lab/client lab information link, has certainly been successful. Not only does it support 1,000 operational installations, but it is linked into VHA’s private network.

Outreach Connectivity

Specialty’s second phase business strategy is to offer the outreach connectivity product. Assuming that Specialty’s hospital client base proves as receptive to this product as it did the DataPassportMD, then it is reasonable to expect a steady flow of installations.

Phase one and phase two strategies set up Specialty’s phase three plan: to use these lab data systems as the platform to offer more sophisticated information management services to its laboratory and physician clients.

As manager of the master repository for clinical data flowing from its clients, Specialty is well-positioned to give these same clients the ability to study lab test data. This would allow hospital labs and other clients to package this knowledge and sell it to managed care companies, pharmaceutical companies, and clinical trials companies.

In this respect, Specialty follows the same path as IMPATH, Inc. of New York City. IMPATH’s primary service is supporting community hospital-based pathologists do evaluations of difficult-to-diagnose cancer cases. IMPATH then puts these cancer cases into a state-of-the-art relational data base. (See TDR, February 1, 1999 and June 7, 1999.)

Support Its Clients

By the end of this year, IMPATH’s data base will have more than 600,000 cancer cases, with full clinical work-ups. IMPATH packages this data into different forms and sells it, earning additional revenue. Specialty’s relational data base will allow it to support its clients in a similar fashion.

THE DARK REPORT continually predicts that future profits and success for both commercial laboratories and hospital labs will derive, not from performing and reporting simple lab test results, but from converting these test results into more sophisticated tools for diagnostic, prognostic, and patient monitoring purposes.

From this perspective, the business strategies of Specialty Laboratories bear watching. Compared to most laboratories in the United States, its batting average for innovation and execution ranks it among the leaders.

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