CEO SUMMARY: Market evidence points to a shifting role in the sales priorities of the national labs. Meanwhile, regional laboratories and pathology companies are enjoying surprising success with their sales and marketing programs. These shifting patterns may indicate a new stratification in the laboratory services marketplace. It may be closely linked to managed care contracting practices.
EVIDENCE IS ACCUMULATING THAT sales and marketing of laboratory testing services may be undergoing a rebirth, at least among regional independent and hospital-based laboratories.
Moreover, in the anatomic pathology segment, several companies have made adjustments to increase the effectiveness of their national sales and marketing programs. These moves will probably intensify the competition for anatomic pathology specimens.
In recent months, a number of independent commercial labs and hospital labs with outreach programs have told THE DARK REPORT that their sales programs are generating healthy volumes of new client accounts.
Two National Labs Remain
Part of this phenomenon is related to the fact that only two national laboratories remain, once SmithKline Beecham Clinical Laboratories (SBCL) was acquired by Quest Diagnostics Incorporated in 1999. Once this acquisition took a major player out of the market, it left just a handful of cities where both Quest Diagnostics and Laboratory Corporation of America maintain sizeable regional laboratories.
Minimal National Presence
The remainder of cities in the United States have either just one national lab with a strong local presence, or no significant national lab presence at all. It is this “vacuum” that has created the opportunity for regional laboratories to successfully expand their sales and marketing to local physicians’ offices.
For these and other reasons, local laboratory competitors appear to be doing well. Sales reps from the local labs seem to be playing three sales cards: 1) we represent choice (the Avis “we’re number two—we try harder!” strategy; 2) we’re local, thus we know your needs better and have faster turnaround time; and 3) we have better service than those guys, who often are “out-of-towners” in the local marketplace.
Another contributing factor to this situation is the relative status quo in managed care contracting for lab testing services. During the mid- and late- 1990s, as national labs scooped up the biggest managed care contracts in city after city, local lab competitors were forced to cope with lost specimen volumes and the need to bring costs in line with lower revenues.
Having adapted to this situation over several years, these same local lab competitors now have the financial stability to aggressively move back into the marketplace. In particular, they have learned how to pick off the remaining fee-for-service business, leaving the national labs with capitated or heavily-discounted fee-for-service contracts.
Easy Sales Environment
In some cities, the market is wide open. Along the east coast and southeast coast, three different lab CEOs have told THE DARK REPORT that they are opening up new accounts after only one sales call to the physician’s office. One of these labs reports that it actually has several doctors per month calling them and asking for someone to come out and open a lab account for their office!
The sales opportunities for local labs may have become better since New Year’s Day for another reason. Quest Diagnostics Incorporated implemented a new sales incentive plan for 2001. By design, many of its top lab sales producers will earn significantly less money under this new plan. As a result, a number of these sales stars are shopping for new employment.
A few will surely be hired by regional lab competitors. However, it remains to be seen whether the collective impact of this situation affects the ability of Quest Diagnostics to continue generating quarter-to-quarter increases in specimen volume.
On the anatomic pathology side of the lab services market, professional sales programs are generating significant growth in specimens and revenues for both national and local anatomic pathology firms willing to fund such sales efforts.
At AmeriPath, which is under continual pressure to deliver earnings growth to its shareholders, a new sales strategy has been announced. It will now operate two distinct sales divisions.
The new sales division will be called Dermpath Diagnostics. It will market the services of AmeriPath’s 67 board-certified dermatopathologists directly to dermatologists, plastic surgeons, family practitioners, otolaryngologists, and podiatrists. This will be a national effort, managed by Annette L. Bell, Vice President and General Manager. It will probably be the first time that local dermatopathologists will have sales reps from a national anatomic pathology company competing for their existing client business.
Office-Based Sales Force
The second sales division will continue AmeriPath’s existing sales activities. It will be under the direction of Ed Dooling, Vice President and General Manager. Dooling came to AmeriPath as part of the Inform DX acquisition. This sales division already markets to office-based specialists such as urologists, gastroenterologists, gynecologists, oncologists, surgery centers, and the like.
AmeriPath’s new sales strategy is another sign that specialized sales and marketing programs will become increasingly common in the anatomic pathology marketplace. It will also provide pathologists with further evidence that sales and marketing is a good investment. Because AmeriPath must report its financial performance, its quarterly reports will provide clues as to how well this dermatology sales division performs.