Clinical Laboratory Testing Volume 2: Business Strategies

Clinical laboratory testing is generally categorized as either of two general areas--clinical testing and anatomical pathology testing. Clinical and anatomical pathology procedures are frequently ordered as part of regular physician office visits and hospital admissions in connection with the diagnosis and treatment of illnesses. As such, clinical laboratory analysis is one of the most important sections of medical care. The purpose of this TriMark Publications report is to describe the specific segments of the clinical laboratory analysis business. The emphasis in this review is on those companies that are actively developing and marketing laboratory data for the clinical setting, including hospitals, independent labs, physician's offices and miscellaneous clinics. This study concentrates on the clinical laboratory industry in the U.S. It defines the dollar volume of sales in each major market and analyzes the factors that influence the size and the growth of the individual market segments. The study surveys some of the primary companies known to be marketing clinical laboratory data into the market. Each company is discussed in depth with a section on the history of the company, the product line, business and marketing analysis, and a subjective commentary of the position of the company in its market. The report attempts to answer the questions:

• What companies are the key players?
• What are the opportunities in clinical laboratory testing?
• What is happening with the information revolution?
• What are the development trends?
• Where are the new market growth areas?

This examination reviews the market for clinical laboratory data used in clinical practice. It defines the dollar volume of sales in each major market and analyzes the factors that influence the size and the growth of the individual market segments. The report details market sizes and growth rates for the U.S. and world markets. The study surveys some of the primary companies known to be marketing clinical laboratory data into the market. Each company is discussed in depth with a section on the history of the company, the product line, business and marketing analysis, and a subjective commentary of the position of the company in its market. Unique benefits of this report are:

• In-depth analysis of the major sectors of the clinical laboratory business sector, their size, growth rates and major drivers.
• Presentation of some of the emerging business practices, elucidating the potential areas that could gain traction in this market.
• Analysis of the partnerships and alliances the various key sector players have forged, as well as describing financings of these market participants, giving insight into potential market collaborations.
• Examination of new business methods for clinical laboratories to identify lead positions and potential future growth areas.
• The reader will gain an understanding of key areas of the clinical laboratory testing business.
• New ways to adapt technology innovations and create new revenue streams.
• Sales and marketing strategies that will improve net income.
• Which diagnostic tests are emerging as high profit products.
• Transition to a consumer-based lab model.
• Financial underpinnings of entrepreneurial labs.
• Networking opportunities.
• Insights into the boomer emerging market and their growing expenditures on healthcare.
• Increased merger and acquisition (M&A) activity.
• Shift to preventative medicine.
• Point of care testing.
• Elements of personalized medicine, genetic testing and pharmacogenomics.
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1. Overview 5
1.1 Objectives of the Report 5
1.2 Methodology 6
1.3 Scope of the Report 7
1.4 Executive Summary 8

2. IVD Clinical Laboratory Market 10
2.1 Introduction 10
2.2 Key Players for Independent Clinical Labs 11
2.3 Reimbursement Pressure 11
2.4 Medicare Part B Spending Trends 13
2.5 Cost of Billing and Average Receipts for Commercial Labs 15
2.6 Hospital Outreach Programs 16
2.7 Criteria for Selection of Lab Services 20

3. The Clinical Laboratory Testing Market 21
3.1 U.S. Market 21
3.1.1 Hospital-based Clinical Laboratories 23
3.1.2 Commercial Clinical Laboratory Testing 23
3.1.3 Physician Office Laboratories (POLs) 24
3.2 Clinical Lab Testing Key Players 29
3.2.1 Commercial Clinical Labs 29
3.2.2 Hospital Lab Collaborative Ventures 30
3.2.3 Specialty Labs 31
3.3 Revenue and Reimbursement 32
3.4 Outlook for Clinical Laboratory Testing 35
3.4.1 Long-Term Changes 35
3.4.2 Market Drivers 36
3.4.3 The Limits to Growth 37
3.4.4 Key Technologies 37
3.4.5 Conclusion 38

4. Hot Sectors in the Clinical Lab Testing Market 39
4.1 Workplace Drugs-of-Abuse Testing 39
4.2 Clinical Toxicology 39
4.3 Clinical Testing for the Pharmaceutical Industry 40
4.4 Heavy Metal, Trace Element, and Solvent Analyses 40
4.5 Diabetes (Glucose) Testing 40
4.6 Molecular Diagnostic Testing 40
4.7 Cardiac Markers 41
4.8 Blood Bank Screening 41
4.9 Genetic Testing 41
4.10 Predictive Medicine Testing 42
4.11 Personalized Medicine 44
4.12 Cancer Testing 44
4.13 Cell Based Cancer Testing 45
4.14 Monitoring Technologies 47
4.15 Anatomic Pathology 48

5. Important Technology Trends 49
5.1 Technology Platform Innovations in Point-of-Care Testing 49
5.2 The New Paradigm 49
5.3 Consolidated Workstations 49
5.4 Automation in the Laboratory 51
5.5 Laboratory Information Systems 52
5.6 New User-friendly Interface 52
5.7 Data-Management Issues 53
5.7.1 Wireless LANs 53
5.7.2 Data and Workflow Management Systems 54
5.7.3 Beckman Central Command 54
5.7.4 Clinical IT More Widely Available in Physician Practices 55
5.7.5 Physician Electronic Health Records (EHRs) 56
5.7.6 Specimen Tracking and Processing 56

6. Business Trends in the Clinical Laboratory Analyzer Sector 57
6.1 Key Developments 57
6.2 Sector Consolidation 57
6.3 Acquisition Pricing 58
6.4 A Closer Look at Recent Lab Deals 59
6.5 Acquisition, License Agreements, Internal Development and Partnerships 60
6.6 Merger, Acquisition, Financing and Partnering Activities in the Clinical Lab Industry 61
6.7 Comparison of Quest and LabCorp 65
6.7.1 Acquisitions 65
6.7.2 Quest's Growth, 2000-2006 65
6.7.3 Laboratory Corporation of America 66
6.7.4 LabCorp's Growth, 2000-2006 66
6.7.5 Competitive Advantages at Quest and LabCorp 67
6.7.6 National Managed Care Contracts 67
6.7.7 Billing and Collection Management 68
6.7.8 Lower Reagent and Supply Costs 68
6.7.9 Esoteric Testing Capabilities 68
6.7.10 Ability to Invest in Web-Based Connectivity Solutions 68
6.7.11 Competitive Disadvantages of Quest and LabCorp 68
6.7.12 Difficulties with Turnaround Times and Stat Services 69
6.7.13 Physician-Laboratory Communication 69
6.7.14 Specimen Pickup Scheduling Inflexibility 69
6.8 Regulation of Clinical Laboratory Operations 70
6.8.1 CLIA and State Regulations 70
6.8.2 Drug Testing 70
6.8.3 Controlled Substances 71
6.8.4 Medical Waste, Hazardous Waste and Radioactive Materials 71
6.8.5 FDA 71
6.8.6 Occupational Safety 71
6.8.7 Specimen Transportation 71
6.8.8 Corporate Practice of Medicine 71
6.9 Hospital Outreach Programs 72
6.10 Supply Chain and GPO Contracting 72
6.11 Specialty Labs 72
6.12 Expansion of Hospital-Based Labs and Hospital Outreach Programs 73
6.13 Managed Care 73

7. Company Profiles 74
7.1 ACM Medical Laboratory 74
7.2 American Esoteric Laboratories (Sonic Healthcare) 74
7.3 American Pathology Partners 74
7.4 AmeriPath (Quest) 75
7.5 ARUP Laboratories 75
7.6 Athena Diagnostics 76
7.7 Aurora Diagnostics 76
7.8 Bio-Reference Laboratories, Inc. 76
7.9 BioTech Labs 77
7.10 CBLPath 77
7.11 Centrex Clinical Laboratories 77
7.12 Clarient, Inc. 77
7.13 Clinical Laboratories of Hawaii (Sonic Healthcare) 78
7.14 Clinical Reference Laboratory 78
7.15 Clongen Laboratories 78
7.16 CompuNet Clinical Laboratories 78
7.17 Diagnostic Systems Laboratories 79
7.18 Enzo Biochem, Inc. 79
7.19 Esoterix 79
7.20 Focus Diagnostics 80
7.21 Fresenius Medical Care AG & Co. KGaA 80
7.22 Geneva Laboratories 81
7.23 Genomic Health, Inc. 81
7.24 Genzyme 82
7.25 IBT Laboratories 83
7.26 Integrated Regional Laboratories (IRL) 84
7.27 LabCorp 84
7.28 MDS Diagnostic Services 85
7.29 MEDTOX Scientific, Inc. 86
7.30 Meriter Health Services 86
7.31 Mid America Clinical Laboratories (MACL) 86
7.32 Monogram Biosciences, Inc. 86
7.33 Myriad Genetics, Inc. 87
7.34 National Jewish Medical and Research Center 87
7.35 Parkway Clinical Laboratories 88
7.36 Pathology Associates Medical Laboratories (PAML) 88
7.37 Psychemedics Corporation 88
7.38 Quest Diagnostics Incorporated 88
7.39 RDL Reference Laboratory 89
7.40 Satellite Laboratory Services 89
7.41 Spectrum Laboratory Network 89
7.42 Sonic Healthcare 90

8. Clinical Laboratory Testing Sector Trends and Forecasts 91
8.1 Home Care Analysis 91
8.2 Non-Traditional Collection for Laboratory Testing 91
8.3 New Systems for Critical-Care and Near-Patient Testing 91
8.4 Shift to Preventative Medicine 91
8.5 Mergers of Diagnostic Companies 91
8.6 Information Management Advances 91
8.7 Test Ordering Patterns 91
8.8 Patient Satisfaction 91
8.9 Move Away from Central Laboratory 92
8.10 Healthcare Cost Controls 92
8.11 Competition for Services 92
8.12 Drivers and Barriers of Clinical Laboratory Testing 92
8.13 Confluence of New Technology 93
8.14 New Trends in Clinical Laboratory Testing 93
8.14.1 Trends in Reimbursement Practices 93
8.14.2 Managed Care 95
8.14.3 Point of Care Testing 96
8.14.4 Satellite Facilities 96
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Table 2.1: Medicare Spending on Clinical Lab Services, 1991-2007 14
Table 2.2: Allowed Charges for Top 25 Clinical Laboratory Procedures, 2009 15
Table 2.3: Washington G-2 Hospital Lab Outreach Survey 19
Table 3.1: U.S. Clinical Laboratory Testing Market Revenue, 2005-2012 21
Table 3.2: U.S. Clinical Laboratory Diagnostic Test Market Segments, 2008 21
Table 3.3: Growth Rates of Test Types 23
Table 3.4: Independent Commercial Laboratory Testing Test Volume, 2005-2012 24
Table 3.5: Twenty Most Common Laboratory Tests Offered at Family Physician Offices 29
Table 3.6: Important New Waived Tests 29
Table 3.7: Revenue and at Leading Publicly-Traded Lab Companies, 2008 30
Table 3.8: Payer Group wise Percentage of Total Volume of Requisitions and Net Revenues 33
Table 4.1: Pap Testing at the Largest U.S. Laboratory Companies, 2006 47
Table 5.1: Applications for Wireless LAN Technology 53
Table 6.1: Laboratory/Pathology Acquisitions 59
Table 6.2: Revenue Growth at Quest Diagnostics, 2000-2008 69
Table 6.3: Revenue Growth at LabCorp, 2000-2008 69
Table 6.4: LabCorp Revenue from Managed Care Contracts, 2004-2006 70
Table 6.5: Quest Diagnostics Revenue from Managed Care Contracts, 2004-2006 70
Table 7.1: Recent Acquisitions by Sonic Healthcare 90
Table 8.1: Medicare Billing Guidelines for Multi-channel Laboratory Tests 94
Table 8.2: U.S. POCT Market, 2000-2012 96
Table 8.3: U.S. POCT by Performance Location, 2008 96
Table 8.4: Targeted Lab Tests and Brief Educational Reminder Messages 97

Figure 2.1: Total Medicare Expenditures, 1995-2008 12
Figure 2.2: Effect of Medicare Laboratory Fee Schedule Changes on a $10 Test, 1984-2006 13
Figure 2.3: Part B Spending on Clinical Laboratory Services, 1991-2007 14
Figure 2.4: Cost Per Billable Test 16
Figure 2.5: Annual Billable Tests Processed Per FTE 17
Figure 2.6: Outreach Business Operated at a Freestanding Lab Facility 18
Figure 2.7: Volume of Dedicated Sales and Marketing Staff for Outreach Business 18
Figure 2.8: Separately Managed Outreach Billing and Collection 19
Figure 3.1: Lab Revenue by Lab Type 22
Figure 3.2: Lab Revenue by Test Type 22
Figure 3.3: Physician Office Laboratory Revenue, 2000-2006 25
Figure 3.4: Unweighted Average Medicare Reimbursement for the 10 Most Common POL Tests 26
Figure 3.5: Total Number of Non-Waived POLs, 2000-2006 26
Figure 3.6: Number of New Tests Granted CLIA-Waived Status, 2000-2008 27
Figure 3.7: High-Volume Waived Tests 28
Figure 4.1: U.S. Molecular Diagnostics Market Average Reimbursement Rate, 2009 41
Figure 4.2: Laboratory Service Revenue from Pap Testing, 1998-2005 46
Figure 4.3: Percentage of Pap Tests Performed Using Mono-Layer Methods, 1998-2006 46
Figure 4.4: Market Share for Pap Test Vendors, 2006 47
Figure 5.1: Percentage of Physicians in Practices with IT for Specific Clinical Activities 55
Figure 6.1: Average Revenue Multiple Paid to Acquire Labs, 2000-2006 58
Figure 6.2: Value of Laboratory Mergers, Acquisitions, and IPO's 2004-2008 61
Figure 6.3: Hospital Market Share for Outreach Programs 72
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