It's the unpublicized story behind the story. Most of the laboratory industry knows that Specialty Laboratories, Inc. is the target of sanctions issued by both federal and state laboratory regulators. But the impact of this development has yet to be recognized across the industry.

Published federal statutes and regulations do not clearly address Specialty Lab's unique situation. Attorneys doing independent research for Specialty and client laboratories acknowledge that laws and regulations lack clarity on the issue of Specialty's CLLIA-88 license, revoked subject to a pending legal appeal. Nor is there clear agreement on how Medicare billing regulations are affected by the sanctions. There is no precedent to guide either government regulators or laboratories. That leaves the ultimate interpretation to government regulators and creates uncertainty among laboratories that refer tests to Specialty Labs.

This uncertainty over a variety of legal and compliance issues has caused a number of Specialty's customers to begin shifting specimens to competing reference and esoteric laboratories. Collectively, they are choosing a conservative course of action to comply with their interpretation of statutes and regulations. The magnitude of this shift appears to be large. A number of competing reference and esoteric labs tell The Dark Report that they have been overwhelmed by requests to open new accounts. To cope, they have added staff and resources to their new account teams.

The magnitude of this customer shift will only become known when Specialty Laboratories files its second quarter earnings report. That won't happen before mid-July. However, the anecdotal stories reported recently by competing reference and esoteric laboratories provide credible evidence that large chunks of market share in this lab testing segment are shifting away from Specialty Labs.

Collectively, the preponderance of evidence says that a sizeable shift in the market for reference and esoteric testing has been occurring. It started on April 15, when news of sanctions against Specialty Laboratories became public. In just 10 short weeks, the shifting of accounts among competing reference and esoteric laboratory companies has been significant. It shows how fast the laboratory marketplace can react to unexpected events.

Specialty Labs Struggles To Maintain Operations

Troubled company has new executive team that must fix regulatory and business problems

CEO SUMMARY: In April, Specialty Laboratories, Inc. disclosed that state and federal regulators had placed sanctions on the esoteric testing company, including revocation of its CLIA-88 license, subject to legal appeal. One main source of concern is the fact that, over the past 10 weeks, a sizeable number of Specialty Labs' customers have begun redirecting specimens to other reference and esoteric laboratories.

Marketing Approved Kits Against "Home Brews"

Major labs continue to aggressively market "home brew" assays against approved tests

CEO SUMMARY: In past years, it was customary for laboratories to shift away from performing or ordering"home brew" tests in favor of FDA-approved test kits as they became available. However, new marketing models for diagnostic testing are shifting this long-standing practice. HIV resistance testing is one type of testing where this battle between"home brew" and approved test kit is playing out.

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