CEO SUMMARY: As healthcare E-commerce rapidly approaches, clinical laboratories will find they have a built-in competitive advantage—their existing business relationship and communication links to physician offices. Bio-Reference Laboratories, Inc. is moving rapidly to capitalize on this competitive advantage. It is making sizable investments to offer physicians more than just laboratory tests.
IN THE COMING WORLD of healthcare E-commerce, clinical laboratories have a built-in advantage over new “dot.com start-ups” that want to enter the healthcare marketplace.
In Elmwood Park, New Jersey, one laboratory company intends to capitalize on this favorable situation. Bio-Reference Laboratories, Inc. (BRLI) is moving swiftly to position itself as a major healthcare connectivity portal to physicians in the tri-state area of New Jersey, New York, and Connecticut. From this initial base, BRLI will then help other clinical laboratories sell E-commerce services to their physician clients.
Although Bio-Reference is a public laboratory company, it has kept a low profile within the laboratory industry. It is one of the largest laboratories in the Northeast, and primarily serves physician offices, along with a drugs of abuse testing program. It has a direct sales force of 30 people. Revenues in 1999 were $53.8 million, and BRLI is on track to hit $64 million in 2000.
“Clinical laboratories already possess one of the most valuable assets in the healthcare marketplace,” said Bio- Reference President and CEO Marc Grodman, M.D. in a presentation to the Executive War College’s Lab CEO SUMMIT on May 18 in New Orleans.
“This asset is the network of physician clients served daily by the clinical laboratory,” he explained. “The business plans of many healthcare dot.com start-ups require access and distribution to a physician network before revenues can be generated. Much of their seed capital will be spent to acquire or develop a network of connected physicians to which they can sell products and services.
Valuable Physician Network
“But clinical laboratories already possess this valuable network of physicians,” added Dr. Grodman. “Most labs have yet to realize that they are already in the best position to profit from the coming tidal wave of Internet-based health services.
“At Bio-Reference Labs, like all clinical labs, we possess four important business assets. One, our technical skills in laboratory medicine is what we do every day. We are not defined by our instruments and equipment in the lab,” he said. “This is complemented by our existing management team.
“Two, we have an enormous amount of clinical data generated by both patients and physicians,” continued Dr. Grodman. “It’s data which has great importance to the healthcare system, but its potential to generate improved outcomes has yet to be tapped in any significant way.
“Three, we have an experienced and proven marketing and sales staff. In recent years, we did not downsize our sales effort at Bio-Reference Labs,” noted Dr. Grodman. “These people are an important link in our ongoing relationship with our physician clients. Sales reps are essential for us to expand and develop new physician clients.
Daily Interaction With Docs
“Four, we have a physician network. Daily we interact with these physicians, their staffs, patients, and payers,” he explained. “Also, like other clinical labs, we have an established communications infrastructure with physicians. This includes courier service and direct electronic connections between the laboratory and the doctor’s office.
“Collectively, these four assets have great value in the changing healthcare landscape. People want these assets. They are what business people raise money to develop or acquire. In fact, businesses will spend a lot more to buy assets already in place than to develop them.”
Laboratory executives and pathologists should pay close heed to Dr. Grodman’s statements. His strategic business assessment of clinical laboratory assets is a fundamentally different way to look at the laboratory’s value to the healthcare community it serves.
Not only does the management of Bio-Reference Laboratories recognize the change in strategic drivers for added- value laboratory services, but it is acting to capitalize on these changes. It is already pushing several business initiatives into the physicians marketplace.
“During the past year, we acquired several businesses that position us to be more than just a laboratory to our physician network,” said Dr. Grodman. “One of these is a nutritional products company. Our sales force offers these to doctors, who, in turn, can sell specialty food items to their patients as part of a total package of medical and nutritional care.
“Our biggest strategic initiative is a web-based product called CareEvolve.com. It brings physicians a variety of needed services, of which laboratory test ordering and results reporting is only one.”
Like the multitude of competing services, BRLI’s CareEvolve.com product connects physicians with the Internet and uses it to bring them a host of services beyond lab tests. These include claims processing, insurance eligibility, patient referrals, CME credits, immunization tracking, medical supplies, office supplies, and many other medical and administrative services.
“It is important to understand that our CareEvolve.com philosophy is to bring doctors things which provide value, and don’t simply make their lives easier,” said Dr. Grodman. “CareEvolve.com is organized to bring compelling value to different aspects of the physician’s daily practice of medicine.”
Two other strategic elements set BRLI’s CareEvolve.com apart from competing connectivity vendors that want to solicit the doctor’s business. “First, we already have an established relationship with the physician,” noted Dr. Grodman. “He knows us well, and we interact daily with him, his staff, his patients, and payers. This is credibility that outside competitors do not have.
“Second, we’ve positioned CareEvolve.com to be a natural complement to what the physician is already doing in the daily operations of his medical practice,” explained Dr. Grodman. “It enhances and adds value to the range of activities which occur in the typical medical practice.”
Healthcare B2B Requires Distribution; Labs Already Have Doctor Access & Distribution
IN THE COMING WORLD OF INTERNET-BASED healthcare services, the name of the game will be interconnectivity. That gives clinical laboratories a competitive advantage, because they already have established service links with their network of physician clients.
“Our strategic business plan makes two assumptions,” noted Marc Grodman, M.D., President and CEO of Bio-Reference Laboratories, Inc. in Englewood, New Jersey. “One, no matter how our healthcare system changes, we believe physicians will continue to control the decisions.
“Second, healthcare will continue to be a local business and will consolidate into regional organizations,” explained Dr. Grodman. “Doctors are independent. They don’t like to be told what to do. Thus, we believe that connectivity and control of the desktop will also be local. If it’s not local, physicians will not respond to it.
“Distribution is the key in B2B (business-to-business), which means distribution to the physician (who controls the decisions),” said Dr. Grodman. “Thus, it is imperative to have access to the physician. Clinical laboratories, like BRLI, already have access to the physician. On a daily basis, our lab has ongoing information exchange with the physician.
“If the question is ‘who has access to the physician?’, the answer is clinical laboratories,” he added. “We are already there. At BRLI, we are moving to seize that competitive advantage and use it to generate additional revenues by offering physicians additional value-added services.”
Bio-Reference Laboratories is ahead of the clinical lab industry on two counts. First, it recognizes the strategic shift under way to the American healthcare system. This continuing shift creates new profit opportunities for any clinical laboratory perceptive enough to act upon that recognition.
Second, Bio-Reference Laboratories understands that Healtheon/WebMD, CareInsight, and other healthcare E-commerce companies need access and distribution to the physicians’ desktops in order to succeed. Clinical laboratories already have that access, and BRLI does not intend for these competitors to come between it and its physician clients.
Thus, BRLI’s business strategy is both offensive—to generate new revenues from expanded services; and defensive—to protect its existing business relationship with physicians. Other clinical laboratories should heed this early warning and join BRLI in protecting their physician network from outside intrusion.
New Profit Opportunities
BRLI’s strategic business plan is more sophisticated than those of most clinical laboratories. It points the way to new profit opportunities for labs as the American healthcare system shifts from its cottage industry roots into an interconnected, integrated industry where information—and knowledge extracted from raw data—becomes the prime driver for added-value and enhanced reimbursement to clinical laboratories.
“I want to emphasize two additional key strategic points that lab executives should understand. One, we believe that physicians will continue to control the important decisions in the healthcare system,” observed Dr. Grodman. “No matter how managed care changes our healthcare system, it will be doctors who control decisions about patient care, technology, and other aspects of healthcare.
One essential theme underlying every aspect
of BRLI’s Internet business strategy is to emphasize the value of laboratory test data.
“Two, business-to-business (B2B) Internet activities in healthcare will be huge,” he continued. “We believe that both physicians and patients will migrate to Internet-based services. But they cannot be forced to change overnight. We believe physicians and patients will migrate to the Web slowly, safely, and comfortably. Our experience to date confirms this observation.
“BRLI’s business strategy accomodates both dynamics,” he said. “We’ve designed CareEvolve.com to sit on top of the physician’s existing practice management system and procedures. He doesn’t have to discard existing equipment nor retrain or lay off staff.
“Instead, CareEvolve.com provides the physician with an additional resource for his medical practice, without changing anything that is already there,” noted Dr. Grodman. “It enhances and brings recognizable value to the physician.”
Value Of Lab Test Data
Although CareEvolve.com may deliver a wide range of services and products to the physician’s practice, BRLI has not overlooked its opportunity to add value to BRLI’s laboratory testing. One essential theme underlying every aspect of BRLI’s Internet business strategy is to emphasize the value of laboratory test data.
“The way we introduce our Web-based product is by setting it on top of the physician’s existing laboratory arrangements,” noted Dr. Grodman. “For example, why go to a physician, who may really like his lab printer or lab computer, and tell him that he must abandon those to get this wonderful, Web-based lab ordering/results reporting system?
“We all know that’s a tough sell. Instead, BRLI’s approach is to give him both the option and the flexibility to access lab results by the Internet and enable him to go one step beyond the existing capabilities of lab printers and computers,” stated. Dr. Grodman. “We give him the ability, after accessing his lab results through a Web browser, of transmitting those results securely to his patient.
“Moreover, our Internet solution gives him the ability to review results and create customized presentations for his office and his patients,” he explained. “We believe some physicians spend a lot of time, in person and on the phone, giving normal test results to the patient and explaining them. Our Web-based solution makes this easier for the doctor, even if it is not appropriate for all patients and all types of tests.”
Revenue Strategy At BRLI
The revenue aspect of BRLI’s Internet strategy goes beyond how most labs currently view the potential of the Internet. CareEvolve.com will cost the physicians about $39.95 per month, including the charge for the ISP (Internet service provider).
“It is important to understand that, with this strategy, we are not competing with any other clinical laboratory,” observed Dr. Grodman. “Our competitors are all the E-commerce companies and the traditional healthcare IS vendors who are moving toward thin server/Web browser-based information services.
“We expect that Web-based solutions will reduce the expenses involved in lab test ordering and results reporting,” he continued. “But it is more important to realize that the healthcare world is changing in a very different way than in past years.
“Connectivity providers are entering healthcare and affecting our lives in a similar way as managed care did to healthcare during the past decade. Our CareInvolve.com product is a way for clinical laboratories to protect their physician network from other companies who want to connect to doctors.”
Dr. Grodman’s comment reflects the fact that Bio-Reference Laboratory wants to offer CareInvolve.com to other clinical laboratories as a tool they can use to protect their existing physician network and to generate additional income. “We believe that, by working with CareInvolve, clinical labs can generate revenues, cut expenses, and protect the integrity of their own physician networks,” explained Dr. Grodman, “CareEvolve allows them to offer their physicians an extensive menu of added-value services.”
BRLI’s ambitions for CareEvolve.com and its Internet business strategy demonstrate that clinical laboratories and pathology group practices do have substantial opportunities to enhance services and generate additional revenues and profits.
Its internal business focus—to protect and develop its existing physician network from healthcare E-commerce predators—is a timely wake-up call to all clinical laboratories.
External Business Strategy
BRLI’s external business strategy—to offer its CareEvolve.com product to other clinical laboratories—demonstrates that a variety of unexpected, and low cost, business solutions are flowing into the competitive marketplace. Laboratory executives and pathologists will have an increasing number of competitive weapons to use in preserving and enlarging their existing revenue base.
Dr. Grodman’s master strategy for BRLI includes more intensive use of laboratory and clinical data. A business unit called PsiMedica is developing effective disease management and patient management tools for physicians. THE DARK REPORT will provide more information when this lab-based business initiative moves closer to the marketplace.