Despite the Recession, Many Local Labs Thrive

Secret is priority emphasis on lab operations, complimented with strong outreach sales effort

CEO SUMMARY: Each year, the Executive War College offers useful perspectives on the current lab testing marketplace. This year’s gathering took place as the recession deepened. Yet that didn’t dampen the optimism and energy of 60 speakers and more than 450 attendees from 12 countries. Collectively, the 60 sessions offered credible evidence that those labs emphasizing operational excellence in tandem with a professional outreach sales effort are holding their own, despite the tough economy.

IN THE MIDST OF THE DEEPEST ECONOMIC RECESSION experienced by this country since 1981-82, a goodly number of local labs and hospital laboratory outreach pro- grams are posting admirable gains in specimen volume, revenue, and net profit.

Moreover, the lab administrators and pathologists leading these successful lab organizations are quite optimistic that their laboratories will continue to outperform both the economy and their laboratory competitors. This development has two particularly interesting elements.

First, why are many local and regional clinical laboratories doing so well at a time of economic contraction? Second, could the ability of these same laboratory organizations—coming at a time when employees are becoming more frugal with their spending on healthcare services and companies are pruning back staffing levels—be a sign that the balance of competitive advantage could be swinging back to local laboratories and away from their big national lab competitors?

At the 15th Annual Executive War College on Laboratory and Pathology Management, conducted on April 28-29, 2009, in New Orleans, more than 60 expert speakers presented their management strategies and shared their successes. Common elements to the winning accomplishments of these lab organizations provide at least partial answers to the two questions listed above.

As to why so many local labs are prospering during tough economic times, one important reason is that they run their laboratory with management discipline and operational excellence. This plays out in two ways. One, these laboratory organizations are good at reading their local market and developing a strategic plan that exploits the most lucrative opportunities and generates cash flow that is used to: a) internally finance ongoing expansion; and b) return cash profits to the parent hospital or health system.

Lab Operated As A Tight Ship

Two, these labs are equally disciplined at operating a tight ship. That means use of Lean/Six Sigma quality management methods to continuously improve the quality of testing services while squeezing out unnecessary costs. It means diligence in coding/billing/collections with the goal of presenting 100% clean claims at first submission. At these labs, sales and marketing programs are professional and productive. The resulting volume of new specimens is profitable and provides the cash flow to fund further growth.

Examples of all these strategic and operational themes were evident at the Executive War College. For example, the current recession is hitting the state of Michigan and the city of Detroit with full strength. Yet, the laboratory division at Henry Ford Health is expanding its outreach market share while raising service levels in ways that appeal to physicians and patients.

Henry Ford Health’s Success

These strategies, market outcomes, and operational achievements were shared in different sessions by Richard Zarbo, M.D., Senior Vice-President and Chair, Pathology and Laboratory Medicine; and John Waugh, Director of Laboratory Operations. Zarbo described how the use of the Henry Ford Production System is transforming quality and work flow within surgical pathology. For his part, Waugh explained how tight clinical and operational integration of laboratory services within seven hospitals and 40 ambulatory care centers at Henry Ford has been leveraged to generate significant operational cost savings while supporting aggressive growth in outreach specimens and revenue.

Tackling the question of whether the competitive market pendulum may be swinging back in favor of local and regional laboratories, the Henry Ford Health Laboratory case study at the Executive War College provides evidence of this trend.

More anecdotal evidence in favor of the this assessment was provided by Marc Grodman, M.D., CEO of Bio-Reference Laboratories, Inc. (BRLI) of Elmwood Park, New Jersey. In his strategic case study, Grodman turned back the clock to May 2000, when he first addressed the Executive War College. At that time, BRLI was a $59 million lab company and Grodman laid out his strategy to expand market share in the greater New York City market while building specialized testing businesses. At this year’s Executive War College, Grodman explained how BRLI is now a $350 million lab company, with a significantly larger share of the New York City market.

Broad Attendee Consensus

These examples are only a small sampling of the broad and comprehensive range of laboratory management sessions. With more than 450 senior lab administrators and pathologists in attendance from 12 countries, the audience’s validation of remarks made by the speakers adds credibility to the insights presented here.

All of this is not to say that the clinical laboratory industry is immune to the consequences of a shrinking economy and the larger number of unemployed in this country. These are tough times and they challenge laboratory managers at all levels.

On the other hand, lab administrators and pathologists should not ignore the fact that there are a large number of clinical labs and pathology groups which remain profitable and are even able to grow. These are the labs which can teach us how to guide our own labs to financial sustainability and clinical excellence, even during a recession.

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