CEO SUMMARY: Spectrum Laboratory Network, a joint venture among several large hospitals, recently selected Nate Headley to be its new Chief Executive Officer. Since its launch in 1997, Spectrum has performed below the expectations of its hospital owners. It was to enhance laboratory services to the hospitals, while generating additional cash flow by expanding specimen volume from outreach testing.
TO FULFILL ITS SEARCH for a new chief executive officer (CEO), Spectrum Laboratory Network, based in Greensboro, North Carolina, decided to reach all the way into California.
Spectrum announced on April 10 that Nate Headley would be its new CEO. Spectrum Laboratory Network is a joint venture owned by three hospitals, Forsyth Memorial Hospital, Moses H. Cone Memorial Hospital, and High Point Regional Health System.
Emerging Business Model
Spectrum Laboratory Network is an example of a laboratory business model that will become increasingly common. Competing hospital opera- tors in the Greensboro/Winston-Salem area came together to start a for-profit, shared laboratory services company.
Spectrum’s hospital owners created the shared laboratory in 1998 to enhance lab services while using consolidation of inpatient testing to squeeze down lab costs. At the same time, the enlarged core laboratory has sufficient specimen volume and cash flow to support an aggressive outreach testing sales program. This generates net profits while further lowering the average cost per test for all specimens.
In tapping Nate Headley to run Spectrum Laboratory Network, its hospital partners selected someone with plenty of business experience in running a hospital-owned laboratory joint venture. Headley was formerly President of Physicians Clinical Laboratory (PCL), owned by the Sutter and Mercy Healthcare Systems in Sacramento, California.
This hospital lab joint venture was founded in the late 1980s. Headley joined it in 1990 and built it into a publicly-traded laboratory with annual revenues of $111 million at its peak in 1995. Rapid expansion and a precipitous decline in lab reimbursement pushed PCL into bankruptcy reorganization in 1996-7. (See TDR, November 25, 1996.)
Spectrum Laboratory Network constructed a 54,000 square foot, state-of-the-art core laboratory in 1998, but its financial performance since that time was disappointing. According to Headley, Spectrum’s hospital owners are keenly motivated to make the shared laboratory venture successful.
Less Managed Care
“North Carolina remains a viable market for the sales and marketing of lab services,” remarked Nate Headley to THE DARK REPORT, in his first interview since assuming full-time responsibilities as CEO. “Managed care penetration in this area is less than that of California. There is still the potential to leverage additional fee-for-service business from major managed care contracts in this marketplace.”
Headley is enthusiastic about the double market opportunity available to Spectrum. “First, our lab supports three hospital systems with a total of 2,200 beds,” he noted. “There are a sizeable number of physicians with offices on the campuses of these major hospitals. As their hospital lab, Spectrum is well- positioned to capture lab tests from nearby office-based practices.
“Second, Spectrum recently signed an important contract with Partners Health Plan, a major insurer in North Carolina,” continued Headley. “This gives us an important foothold in a large number of physicians’ offices. Our sales efforts will concentrate on these physicians.”
Headley considers this new opportunity to be deja vu. “There are remarkable parallels between PCL’s potential in 1990 and the potential of Spectrum today,” he observed. “Lessons learned from the PCL experience at dealing with California’s tough managed care market can be put to good use here at Spectrum.”
Laboratory executives and pathologists should keep a watchful eye on Spectrum Laboratory Network. First, it represents a business model which will become increasingly common: that of a laboratory joint venture owned by multiple hospitals or hospital systems.
Second, unlike many hospital-based laboratories, CEOs of Spectrum’s hospital owners are highly supportive of the shared laboratory venture. They are committed to its success and have invested in both equipment and people to create a winning organization. This provides Spectrum with resources and administrative support often lacking in other hospital labs.
Third, Nate Headley has the opportunity to build, for a second time, a shared laboratory joint venture owned by major regional hospitals. If experience does count, then Spectrum seems to have all the resources in place to become a major player in its regional market.
Because multi-hospital systems are now predominant in urban areas, THE DARK REPORT expects to see more shared laboratory joint ventures.
Ex-NHL Executives Continue To Pop Up
Nate Headley is the latest ex-National Health Labs executive to assume leadership of a lab company.
First it was Tim Brodnik, who surfaced at American Medical Laboratories in 1997 to become its President and CEO.
During 1999, Bob Whalen became President and CEO of Unilab Corporation after the company had been acquired by Kelso & Company and taken private.