"Lab Industry Briefs"

Associated Pathologists Laboratories, Dynacare, Bio-Reference Labs, Quest, AmeriPath

ASSOCIATED PATH LABS WINS PATENT FOR DRUGS OF ABUSE TEST

IT’S NOT TOO OFTEN that independent commercial laboratories are awarded patents. Las Vegas-based Associated Pathologists Laboratories received a patent for a technique it developed relating to drugs of abuse testing.

The patent involves a unique method for detecting drugs of abuse in hair samples. APL has two additional patents pending relating to its proprietary method for using hair samples to test for drugs of abuse.

“Hair testing for drugs of abuse can detect drug use for the past 90 days, compared to traditional urine testing which can only detect drug use in the past 72 hours,” said Craig Shanklin, Vice President, Marketing at APL. “Further, hair testing can detect up to twice as many drug users as urine testing.”

DYNACARE IS AGAIN ON THE MOVE

SEEKING TO BUILD MARKET SHARE in the United State, Dynacare, Inc. has expanded into two new areas.

During June, Dynacare took title to Medical Pathology Laboratory Ltd. of Jackson, Mississippi. The laboratory operation does about $9 million per year in testing and offers services throughout the state.

Dynacare is building an extensive laboratory service infrastructure in Louisiana, Mississippi, Arkansas, and East Texas. These are markets which are relatively uncontested by the national laboratories and Dynacare is taking advantage of that fact.

In California, Dynacare has cracked a long-time partnership between a hospital system and a commercial laboratory. Effective July 1, 1999, it will become the turnkey laboratory services manager for the Scripps Health System. Scripps operates five hospitals in San Diego County.

Until July 1, Scripps had a partnership with Pathology Medical Laboratories (PML) of La Jolla, continually described by both participants in the past as a successful, long term relationship. Clients of THE DARK REPORT are familiar with this arrangement. It was one of the earliest commercial lab-hospital laboratory joint ventures established in the United States.

BIO-REFERENCE LABS WRITES DOWN ASSETS BOUGHT FROM SMITHKLINE

AT TIME OF PURCHASE, the dialysis testing business offered by SmithKline Beecham Clinical Laboratories (SBCL) looked attractive to Bio-Reference Laboratories, Inc. of Elmwood Park, New Jersey.

That was back in 1996. By December 1996, Bio-Reference was suing SBCL for misrepresentation, fraud, and breach of contract regarding SBCL’s sale of its customer list and associated goodwill to Bio-Reference.

Now, three years later, Bio-Reference is writing down the remaining goodwill from the dialysis testing business, a charge of $1 million. It is also taking a reserve of about $2 million on accounts receivable, most of it attributable to dialysis testing activities.

For its second quarter, ending April 30, 1999, Bio-Reference is reporting
revenues of $13.4 million and a net loss for the quarter of $3.5 million. It’s stock price is sagging below $1.00 per share, which may cause it to be delisted on Nasdaq’s small cap market.

Of interest is the report by Bio-Reference that it saw a decrease in net revenue per patient (per accession) of 16% from the corresponding quarter last year. Revenue per patient declined from $50.96 to $42.93, even as the number of patients served increased by 6% over the same period.

Although Bio-Reference’s revenue per patient is high for most commercial laboratories, the decline in average revenue per patient during the last fiscal year demonstrates that revenue erosion is still affecting clinical laboratories.

MORE DATA AVAILABLE
ON CAPITATED LAB TESTING CONTRACTS

LABORATORY EXECUTIVES FOLLOWING the path of capitation as it transforms laboratory practices will find this information both useful and relevant.

Doug Pearl, of Insight Consulting in Brookline, Massachusetts, notes that during the 1997-1998 time period, Quest Diagnostics Incorporated filed public documents reporting that its capitated volume grew from 17% to 23% of total (accession) volume. Meanwhile, capitated revenues grew from only 6% to 8% of total revenues.

This indicates that the number of specimens covered by capitated agreements grew by 5%, yet revenues associated with those capitated specimens increased only 2% during the same period of time. Thus, it demonstrates that reimbursement for capitated testing remains at unsatisfactory levels for laboratories trying to recoup a fully-loaded cost per test.

As a point of comparison with Quest Diagnostics, in the May 17, 1999
issue of THE DARK REPORT, we provided some information from Laboratory Corporation of America. As of the year ending on December 31, 1998, LabCorp reported that “managed care represents between 35% and 45% of its accessions…and generated between $10 and $40 per requisition.”

PATHOLOGY PPM SCENE EXTRA QUIET DURING RECENT MONTHS

IT SEEMS LIKE A NUCLEAR BOMB went off inside the physician practice management industry. In the aftermath, things became extraordinarily quiet.

Pathology-based PPM (physician practice management) companies are deliberately keeping a low profile since the spectacular failure of the industry’s multibillion dollar tyrannosaurus rex, MedPartners, Inc. during 1998.

Not only are pathology PPMs choosing to stay out of the public limelight, they are also busy reinventing themselves. New business strategies are emerging as these companies evaluate changes to the pathology marketplace. Some of these will be reported in coming months.

Best-known of the pathology PPMs is AmeriPath, Inc. of Rivera Beach, Florida. As of the end of first quarter 1999, its annual revenue run rate had climbed to $208 million. During the second quarter, it has been quietly working to implement its business plan, which includes a strategy of growth through acquisition.

Other than the acquisition of a $3.5 million pathology practice in Hialeah, Florida in May, AmeriPath has yet to disclose additional acquisitions for the quarter. With the end of the second quarter approaching, it would be reasonable to expect AmeriPath to make announcements this week of additional pathology practice acquisitions.

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