Spectrum Lab Network Expands Into Tennessee

Laboratory joint venture claims service is major reason for its sustained growth

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CEO SUMMARY: During the past four years, this energized hospital laboratory joint venture has posted significant growth in its laboratory outreach program. One notable accomplishment has been the effective deployment and use of Web browser-based lab test orders and results reporting with its client physicians. The operational and service benefits from this strategy have been significant.

STARTING IN JANUARY, TENNESSEE had a new laboratory competitor. Spectrum Laboratory Network activated its new branch in Knoxville, Tennessee and has sales representatives in the field soliciting new clients.

But there is more to the story of Spectrum’s success than its expansion into new territory. It is an example of two management philosophies—and two radically different outcomes.

In the first three years of its life, Spectrum Laboratory Network was managed by veteran hospital laboratory administrators. Regardless of the reasons, a succession of administrative leadership could not work through the issues and bring the lab- oratory to profitability.

With the arrival of a new CEO four years ago, the situation changed. Within months, profitability was restored. In the years since, Spectrum has attracted national attention for its ability to capture market share. It demonstrates the potential every well-managed hospital laboratory outreach program has to become a dominant player in its regional service area.

The numbers speak for themselves. After three years of operation, outreach net revenues were $18 million per year. By 2003, that number had climbed to $60 million. In 2004, revenue is projected to exceed $70 million. Cost and productivity measures advanced in comparable ways.

Same Story, Different Results

The story of Spectrum’s creation is similar to other hospital laboratory consolidation projects launched during the 1990s. “Spectrum Laboratory Network was established in 1997 by three local hospital systems,” stated Nate Headley, CEO at Spectrum. “ Moses Cone Health System, High Point Regional Health System, and Novant Health System were the original owners.

“Back then, the goals were to consolidate testing across all the hospitals to lower overall costs and develop an effective outreach program,” explained Headley. “The original investment by the three health systems was almost $6 million.”

However, the effort to create an integrated laboratory organization did not go well. During the next three years, the three health systems poured additional capital into the foundering laboratory. Headley arrived four years ago, when Spectrum’s CEO slot was vacant.

“From my perspective, Spectrum was an unusual opportunity,” observed Headley. “First, the three health systems are respected in their communities and physicians can be very loyal in their support of their hospitals’ lab outreach programs.

Potential for Profit

“Second, managed care is a relatively minor factor in this region. This means physicians still have freedom to choose their laboratory provider. Third, average revenue per accession in this area remains relatively high, thus providing the profit margins necessary to sustain a dynamic outreach program and still deliver profits to the health system owners,” noted Headley.

“Fifth, this was a market that had not seen much competition in the past five or six years,” he added. “That’s because Laboratory Corporation of America’s headquarters and big national laboratory are just down the road. It was the major laboratory provider, but in the absence of significant lab competitors, it had thinned down its service network over the years.

Emphasizing Service

Starting four years ago, once the financial stability had been restored to Spectrum, emphasis turned to its outreach program. “Our goal was to offer physicians laboratory testing services comparable to what they experienced through the mid-1990s,” stated Headley. “That was a time when local labs, owned by local pathologists, were proud to provide high quality laboratory test services. That type of service gives any laboratory the capability to compete effectively with the national laboratories.”

Spectrum’s ability to capture market share from its big neighbor to the east has given LabCorp more than a few fits. (See TDR, December 9, 2002.) Its management strategy has been simple: 1) execute well; 2) offer services that differentiate it from competing laboratories (like Web browser-based lab test ordering and results reporting); support a professional and aggressive sales effort; and, 3) set ambitious goals and hold people accountable for accomplishing them on time and on budget.

“We are proud of the accomplishments here,” noted Headley. “Our team shows that it is possible to provide high quality testing for the hospitals’ inpatients even while building a fully-competitive and profitable outreach program.

“We do inpatient testing at cost for our owners,” he added. “During the span of Spectrum’s lab operations, our owners have seen cost savings of $31 million for inpatient testing.

The ongoing success of Spectrum Laboratory Network and its thriving
outreach program, taken together with the performance of Sonora Quest Laboratories in Phoenix (see pages 2-
.) provide examples of how management leadership can make a huge difference in the performance of a multihospital laboratory organization. The similarity in their real-world accomplishments
demonstrates that something more than luck or coincidence is
responsible for their success.

Web-Based Lab Test Orders & Results Plays a Key Role in Spectrum’s Strategy

WIDESPREAD USE of a Web-based lab test ordering and lab test reporting system by physician clients of Spectrum Laboratory Network is the source of both competitive advantage and lower costs in the laboratory.

“Currently 30% of our 2,500 clients are connected to our laboratory electronically,” stated Nate Headley. “One of our strategic goals is to maximize the number of clients which use this system.

“As a result of this high conversion to electronic ordering, 55% of our daily accessions are ‘automated’ in the field. When they arrive in our laboratory, they are simply wanded into our system,” explained Headley.

The financial benefit to Spectrum is substantial. “We staff 35% fewer people in accessioning than is typical for our daily test volume,” he said. “We also have 40% fewer data entry people than laboratories of equal size.

“But the real payoff is in customer service,” noted Headley. “The error rate common to most laboratories has been greatly reduced here. We attribute some of this to a higher ratio of test requisitions which come to us with information which is complete and accurate. Physician clients notice our consistent service. It has been a source of competitive advantage in winning and keeping new business.”

Good management execution lies behind this high rate of client conversion to electronic ordering. “Along with sales reps and customer service reps in the field, we have ‘automation’ installers,” explained Headley. “It takes us just 72 hours from the time a physician tells us to start his account until his office is electronically connected to our laboratory.”

Not only is this impressive service to the new customer, but the speed with which a new account is converted makes it tough for the laboratory losing the business to respond.

Spectrum Laboratory Network uses AtlasLabworks, from Atlas Medical Systems, for its Web browser-based lab test ordering and lab test resulting system. Spectrum’s success with electronic ordering and resulting has been mirrored by Memphis Pathology Laboratory (MPL) of Memphis, Tennessee.

Like Spectrum, MPL is using Web test ordering and resulting as a winning double-play. Its deployment in physician offices generates competitive advantage and new outreach accounts. At the same time, the increased number of complete, accurate, and legible electronic requisitions is reducing errors, cutting costs, and boosting customer service. All of these benefits translate into additional competitive advantage for MPL’s outreach sales effort.

At the upcoming Executive War College in New Orleans on April 27-28, John Mazzei, MPL’s Executive Director, will discuss how his lab’s effective deployment of browser- based lab test ordering and lab test resulting has accelerated growth in new accounts and net revenues.


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