Specialty Laboratories, Enterix, Medicare, Blue Cross/Blue Shield Association

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SPECIALTY LABORATORIES REPORTS THIRD QUARTER FINANCIAL PERFORMANCE

THIRD QUARTER FINANCIAL REPORTS for Specialty Laboratories, Inc. show that the company is returning to a more normal routine, following the two unusual and unrelated events which hit it during 2002.

Specialty Labs reported net revenue of $29.9 million for third quarter 2003. This is a decline of 9.7% from third quarter 2002’s net revenue of $32.5 million. For third quarter 2003, it posted a net loss of $2.3 million.

A more significant measure is specimen volume, as measured by accessions. For third quarter, accessions were 630,000. This number was down 7.4% from third quarter 2002’s 685,000 accessions. But it was a 3% increase from second quarter accessions of 612,000.

Following its licensure problems with federal and state regulators last year, a number of hospital laboratory clients began using alternate sources for send-out testing. Switching from one reference laboratory to another can take a hospital lab client as long as six months to accomplish. That is why it is only now, 14 months after resolution of its licensure problems, that a clearer picture of Specialty Laboratory’s long-term relationship with its hospital lab customers is evident.

Another factor in this analysis is Specialty Lab’s changed relationship with what was its single largest customer, Unilab Corporation. In 2002, Quest Diagnostics Incorporation acquired Unilab, completing the purchase early this year. Specimens from Unilab represented 10% of Specialty’s total business through 2002. Since February 2003, Specialty Labs has watched the volume of Unilab specimens it tested decline as Quest Diagnostics began performing those tests inside its own laboratory network.

Seen from this perspective, the fact that Specialty was able to increase accessions by a modest amount between second quarter and third quarter indicates that the company is bringing on new business to replace volumes lost during the past 18 months.

Another sign that Specialty Laboratories is focusing on building testing volume through its sales and marketing program is the announcement that it has delivered a next-generation of “Outreach Express ® ” to the marketplace. This is a browser-based lab test ordering and reporting software product designed to allow hospital laboratory outreach programs to connect with their office-based physician-clients.

Outreach Express was redesigned with assistance from Microsoft Corporation. This is the second example known to THE DARK REPORT of Microsoft Corporation working with laboratories to develop informatics products that handle laboratory test data. The other example is in Washington State, where the PacLab regional laboratory network collaborated with Microsoft to develop a similar product that links hospital laboratories with office-based physicians.

MEDICARE TO COVER COLORECTAL CANCER SCREENING ASSAY

IT WAS ANNOUNCED LAST WEEK by Enterix Inc. that the Centers for Medicare and Medicaid Services (CMS) had issued a “National Coverage Decision Memorandum for the use of immunochemical fecal occult blood tests, including its InSure™ Fecal Immunochemical Test (FIT), as a method to screen for colorectal cancer.”

As noted in earlier issues of THE DARK REPORT, colorectal cancer screening is the target for a major marketing push by the two blood brothers. The test developed by Enterix, based in Falmouth, Maine, has been licensed by Quest Diagnostics Incorporated.

Having achieved coverage approval from Medicare, the next big step for Enterix and its InSure test is the level of reimbursement which CMS establishes for this test. Without adequate reimbursement, there will be less incentive for laboratories like Quest Diagnostics to offer this type of test.

Lab directors and pathologists should watch how the marketplace responds to the efforts by the two blood brothers to introduce colorectal screening assays. Following the last big wave of lab acquisitions in 2002, this represents the first major effort by the two national laboratories to capitalize on their size and market clout to license new diagnostic technology and bring it to market on an exclusive basis.

CONGRESS CONSIDERS MEDICARE PROPOSAL ON PROVIDER QUALITY

PROVIDER QUALITY is now on the Congressional radar screen. Last week house-senate conferees discussed linking hospital Medicare reimbursement to hospitals’ participation in a quality initiative.

In simplest terms, hospitals that voluntarily participated in a recently-launched quality initiative in partnership with the Centers for Medicare and Medicaid Services (CMS) would receive a full inflation update from Medicare in 2004 and the following three years. Hospitals that did not participate would receive a partial inflation update in the three years 2005, 2006, and 2007. The inflation update would be 0.4% below the inflation rate for those three years.

Reported earlier in THE DARK REPORT, the existing quality initiative is run in conjunction with the three major national hospital associations. This is the first year of the program and 1,790 hospitals are participating. They are reporting data to CMS on ten measures of quality relating to heart failure, heart attacks, and pneumonia.

For the laboratory industry, this CMS quality initiative demonstrates that increased visibility for healthcare quality is already a reality. From these early steps, more comprehensive quality programs and public reporting will be forthcoming. The CDC’s lab Quality Institute is one such effort directed toward establishing national standards and measures for quality in clinical laboratories. (See TDR, August 18, 2003.)

CHANGEOVER TO ICD-10-CM MAY BE OVERLY COSTLY, SAYS BC/BS ASSOCIATION

MANY LABORATORY DIRECTORS and pathologists are probably unaware that preparations to have the healthcare system shift to ICD-10-CM are under way, with a vote scheduled this month by the working task force of the federal Health and Human Services Department (HHS).

Now comes a study by the Blue Cross and Blue Shield Association (BCBSA). It says that the healthcare industry would incur costs of up to $14 billion to implement ICD-10. This covers spending over a three-year period. BCBSA also predicts the implementation effort would be more disruptive than the Y2K conversion.

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