With each instance of lab consolidation, the commercial lab sector of the laboratory industry comes closer to a true duopoly. Economists define duopoly as a market substantially controlled by two companies. Economists believe that a duopolistic market shares many characteristics of a monopolistic market. Of course, in the clinical lab industry, the likely candidates for a duopoly are Quest Diagnostics Incorporated, with 2001 revenues of $3.6 billion, and Laboratory Corporation of America, with 2001 revenues of $2.2 billion.

When the market for physicians' office testing is viewed at the national level, many of us would agree that the two blood brothers have come to dominate. Dynacare and Unilab, both with estimated 2001 revenues slightly more than $400 million, are the next closest competitors. In selected regional markets around the United States, Quest Diagnostics and LabCorp, individually or together, have market shares which would meet the economists' definition of monopoly or duopoly.

But in pondering the impact of Quest Diagnostics' acquisition of American Medical Laboratories, Inc. (see pages 2-5), I see another segment of the lab testing industry possibly evolving toward oligopoly (a market dominated by a handful of companies) if not duopoly. That lab testing segment involves hospital send-out testing. Today, at least seven labs compete actively in this segment and perform the majority of testing for hospital customers. These seven include AML, ARUP Labs, Esoterix, LabCorp, Mayo Medical Labs, Quest Diagnostics (including its Nichols Institute division), and Specialty Labs.

With AML becoming part of Quest Diagnostics (which had acquired Nichols Institute in 1994), that leaves six lab competitors in the hospital send-out market. ARUP, Esoterix, Mayo, and Specialty all have annual revenues of $250 million or less and could easily be purchased by either of the two blood brothers, if their owners were willing to sell.

I will be first to observe publicly that consolidation of the hospital send-out testing market is a real possibility. Generous purchase offers often cause recalcitrant owners to sell. The $500 million offered to AML's owners was certainly a big factor in their decision to sell the company and leave the marketplace. During the next five years, don't be surprised if the two blood brothers manage to acquire a couple more of the four remaining independent players serving the hospital send-out testing market.

More Consolidation: Quest Acquires AML

AML's owners decide ending company's independence is best financial option

CEO Summary:  In December, American Medical Laboratories, Inc. (AML) was preparing a second attempt to raise capital through an initial public offering (IPO). But a tempting purchase offer by Quest Diagnostics Incorporated led to a decision by AML's owners to sell the company. This transaction is reminiscent of Quest Diagnostics' bold move to buy SmithKline Beecham Clinical Laboratories in 1999.

Lab Automation Subject of "How To" Program

Experienced "Vets" to share experiences of introducing automation into their labs

CEO Summary:  Mastering lab automation is more difficult than it appears. The first-ever "Lab Automation Boot Camp" is assembling experienced lab administrators who have experience (and scars) in automation and are committed to telling the real story about making automation successful. It's a "no-spin zone" where truth is the goal and there is balanced reporting of the good and the bad of lab automation.

How Dr. Al Nichols Changed The Lab Testing Marketplace

He Created A New Lab Business Model