CEO SUMMARY: Here’s proof positive that effective management can make a positive difference in the financial performance of clinical labs. Upon taking title to American Medical Laboratories in the spring of 1997, its new owners used an emphasis on “customer-first” service and aggressive sales to transform the lab operation into a fast-growth revenue engine, doubling annual sales in just 30 months!
In just two years, new owners of American Medical Laboratories (AML) have made it probably the fastest-growing clinical laboratory operation in the United States.
Based in Chantilly, Virginia, just across the Potomac River from Washington, DC, AML is rapidly morphing from a regional provider of testing to doctors’ offices and hospitals into a credible national reference laboratory.
Many clients of THE DARK REPORT on both coasts can attest to this fact. AML sales reps and executives have swarmed into their laboratories, telling the AML story, asking for the business, and developing new relationships. An increasing number of hospital laboratory administrators are touring AML’s Chantilly headquarters and lab to learn more about the “new” reference laboratory source.
To become a nationally-recognized reference laboratory, AML’s management team is juggling multiple priorities and pushing change into the organization at a rapid rate. One measure of AML’s progress is revenue growth. As a private company, AML does not release financial information. But its executive team does state that revenues will have doubled between spring 1997 and the end of this year.
THE DARK REPORT estimates that AML’s annual revenues were about $75 million going into 1997. If this number has doubled, then AML has grown to $150 million! That would make it one of the 10 or 15 largest independent laboratories still operating in the United States.
Such an achievement, coming at a time when many big laboratories have been shrinking and posting significant losses, is one reason why laboratory executives should learn more about the business philosophies and methods used to energize AML.
“Only after purchasing AML did we begin to understand the business opportunities that exist today in the clinical laboratory industry,” stated Tim Brodnik, AML’s President. “It turned out that AML had a unique combination of resources and infrastructure. We decided to build our strategic growth plan around those unique assets.
“What we found at AML was a double business,” he continued. “On one hand, AML was a leading provider of lab tests to physicians offices throughout Northern Virginia and the Washington, DC area. It had a reputation for quality, high market share, and acceptable profits.”
“On the other hand, AML also had a major business in hospital reference testing, focused along the central Atlantic seaboard states,” added Brodnik. “Hospital clients were very loyal to AML. Within the markets served by AML, it was viewed as a quality lab and a regional asset.”
Unusual Business Strategy
AML used these two distinct business operations to formulate an unusual business strategy. “We viewed these testing businesses as the perfect hybrid,” he noted. “We’ve established an integrated services model for laboratory testing. AML’s laboratory services are supported by aggressive client service and promoted through an intense sales and marketing program.“
According to Brodnik, AML will build upon three strengths in its bid to become a full-service national esoteric and reference testing laboratory. “One, all testing is done from our single laboratory site in Chantilly,” he said. “This helps us concentrate on technical and operational excellence.
“Two, our physicians’ office testing business in Northern Virginia gives us direct experience in all aspects of laboratory testing and operations. We package this expertise and make it available to our reference clients. It’s a source of added value we provide our clients and we use it to differentiate ourselves from competitors.
“Three, AML is situated near three major airports (Washington Dulles, Washington National, and Baltimore),” noted Brodnik. “We have access to excellent transportation resources and a favorable location relative to the entire United States.”
Different Model For Lab
When Brodnik and his fellow buyers Jack Bergstrom and Jerry Glick first assumed control of AML in the spring of 1997 (see TDR, May 12, 1997), they created a very different model for laboratory services than those of competing labs.
“We describe our clients and customers as partners,” stated Jack Bergstrom, Executive Vice President at AML. “We provide more than a simple menu of lab tests. We offer a full package of laboratory expertise to support client partners seeking to improve their own laboratory’s technical, operational, and financial performance.”
This concept of partnering helps AML’s sales force distinguish its laboratory from those of competitors. “As we expand nationally, AML seeks a special kind of customer,” explained Brodnik. “We don’t want to simply put lower test prices on a piece of paper. That lasts only until a competing lab comes along and offers even lower prices.
“AML is interested in a special relationship with a special kind of customer,” he continued. “We want to have the right service to offer each laboratory customer as it responds to service needs in its own marketplace.”
What Brodnik is describing is the concept of “long-term customer-supplier relationship” described by quality management guru W. Edwards Deming. Deming observed that a relationship built on adding value over the long term generated more profit for both supplier and customer than one based on low prices, renegotiated from contract to contract.
AML’s strategy is to add value by leveraging its expertise with the physicians office testing segment of its business. “Typically, hospital-based laboratories are now operating within a multi-hospital health system,” Brodnik noted.
“Effectively, this means they need a similar infrastructure as a regional commercial lab,” he continued. “This includes a courier and logistics system, multi-site information system capabilities, outreach operations, sales and marketing, billing, collections, and multi-site management systems. AML offers its client-partners expertise in all these sectors.
“After all, our physicians office business in Northern Virginia means we must do these things every day. So our operations team can provide a variety of information, expertise and guidance to our hospital lab customers in these critical areas.”
Brodnik and Bergstrom are describing a business model which positions AML differently than other sources offering reference testing to hospitals. They believe their market strategy will appeal to hospital lab administrators seeking more than simply the cheapest test prices.
On one hand, the national reference labs such as ARUP Laboratories, Mayo Medical Laboratories, and Specialty Laboratories offer quality reference testing, but are not as well- positioned to provide operational expertise in managing a regional hospital lab and its outreach sales program.
On the other hand, the three blood brothers, Laboratory Corporation of America, Quest Diagnostics Incorporated, and SmithKline Beecham Clinical Laboratories can offer this expertise, but they also compete with hospital laboratories for physicians’ office testing.
It has yet to be demonstrated whether hospital laboratory administrators will recognize this difference with AML. Further, laboratories mentioned above are fierce competitors for hospital reference testing. AML will be challenged in pursuing its goal of becoming a first-tier national reference laboratory.
Brodnik and Bergstrom have a well-deserved reputation for sales and marketing prowess. But that is not the full story behind AML’s dynamic growth. The executive team at AML recognizes that operational excellence must accompany a professional sales and marketing program.
After all, why pay a sales rep generous commissions to bring in new business, only to disappoint those new clients with operational problems? That scenario is all too familiar to clinical lab sales reps.
AML’s leadership is attempting to thwart that traditional weakness in lab operations. To accomplish this, they are empowering AML’s staff to take responsibility for identifying problems and solving them. That is one reason for “measuring everything.” Good information allows managers and staff to make good decisions.
Further, AML’s executive team understands that people are what make a laboratory organization successful. That is why they manage people with the same intensity that most lab administrators manage technical processes.
In assessing what makes AML different from other laboratory organizations, there are probably five key management strategies underpinning the dynamic changes under way at this once tranquil laboratory.
First is the unequivocal commitment to meet and exceed the needs of customers. It’s not just lip service, since first thing every morning the lab’s top executives meet with department heads to address even the most mundane of customer concerns.
Two, professional sales and market- ing (which requires a significant investment of capital) takes AML’s message directly to prospective clients. This gives AML control over its destiny.
Third, the company rigorously collects accurate and timely cost and productivity data, then uses it to drive intelligent decision-making.
Fourth, AML’s leaders recognize that people are the real asset in the laboratory. Thus, they focus attention on managing people and motivating them to excel.
Fifth, AML’s executive team stays close to both customers and staff. They are out on the road closing deals, supporting the sales process, and responding to customer concerns.
As Brodnik says, none of this is “rocket science.” It is basic management which requires crisp execution to succeed. It is a formula which can be copied by any clinical laboratory willing to set aside old organizational politics and concentrate on managing fast growth and dynamic change.
Should American Medical Laboratories continue to profitably expand at the same rate as the last two years, it will demonstrate that fundamental business principles, skillfully implemented, can generate financial success for clinical laboratories.
American Med Labs
- Laboratories in Chantilly, VA (250,000 sq. ft.)
- 33 Patient service centers
- 7 Stat laboratories
- Handling approximately 90,000 specimens per week
- 300 Hospital clients
- 1,300 Employees; 1,010 FTEs
- 33 Marketing/Sales employees
- 10 Field service reps and 40 in-house service representatives
- SAMSA certified for toxicology testing
- American Medical Laboratories offers clinical laboratory services in Maryland, Virginia, and District of Columbia
- AML offers esoteric reference testing to hospitals and other laboratories nationally.