In 1997-98, CEO Ken Freeman of Quest Diagnostics Incorporated made a keen insight about the commercial lab marketplace. At that time the three blood brothers—Laboratory Corporation of America, Quest Diagnostics, and SmithKline Beecham Clinical Laboratories (SBCL)—dominated the national market for physicians' office testing. Freeman's observation would be prophetic. He noted that, in any industry dominated by three large companies, market forces would soon reduce that group to just two.

Because each of the three blood brothers was laboring to restore financial stability in 1997-98, each was potentially vulnerable to consolidation. On May 13, 2002, I wrote a piece called Survivor: Story of the Nation's Largest Lab Firm. It described how, since 1997-98, Freeman successfully guided Quest through the ensuing market shake-out to emerge as the nation's largest lab firm.

This fine management achievement seems to have another dimension, however. Beginning this January, acquisitions removed American Medical Laboratories and Dynacare from the market. Unilab is under merger agreement and may also disappear as an independent lab company. As The Dark Report did research to understand the significance of these acquisitions and their impact on the lab industry, it uncovered an interesting pattern involving the three biggest lab acquisitions done by Quest Diagnostics in recent years.

In the late 1990s, SBCL aggressively used low prices to project and expand its shares of physicians' office testing. In 1999, Quest bought SBCL. During the past few years, AML emerged as an aggressive price discounter in the market for hospital send-out testing. This January, Quest bought AML, announcing the deal just days before AML was to sign a national reference testing contract with Premier at some eye-popping low prices and terms. (See pages 9-13.) In California, Unilab has used its willingness to do capitated, full-risk contracts with IPAs to keep lab prices in that state at uncomfortably low levels. This April, Quest Diagnostics announced an agreement to by Unilab.

Is it coincidence that, three times in the last years, Quest Diagnostics acquired a sizeable lab competitor which was the aggressive price discounter in one segment of the lab testing market? Or is this an intentional strategy to remove key competitors from the market, exactly the type of antitrust behavior characteristic of a classic corporate oligopolist? Certainly Quest's actions in the coming years will reveal the true motives behind its apparent drive to remove low-pricing lab competitors off the chessboard.

Esoterix Ready to Launch National Marketing Blitz

Company says it's ready to compete vigorously across the US

CEO SUMMARY: It was 1995 when several specialty testing lab companies were acquired by a new company called Esoterix. Immediately the lab industry viewed Esoterix as a "put-together" lab company. However, since 2000, executives at Esoterix have invested $50 million to integrate operations, create a new informatics platform, and position the company for reference and esoteric testing.

Non-Pathologists Altering US Lab Industry

Lack of entrepreneurial pathologists holds back the entire profession

CEO SUMMARY: It's an interesting contradiction. On one hand, most pathologists enthusiastically recognize the value that diagnostic testing services provide to the healthcare community. On the other hand, too often it is non-laboratorians who provide the investment capital and entrepreneurial effort required to build the laboratory organization capable of delivering these diagnostic services.

Changes Expected in Market For Hospital Reference Testing

Acquisitions and regulators disrupt status quo

CEO SUMMARY: For the hospital send-out testing marketplace, 2002 has been an eventful year. First came the acquisition of American Medical Labs by Quest Diagnostics Inc. In April, Specialty Labs disclosed its prbolems with state and federal laboratory regulators. A few months later, Premier announced that Laboratory Corp of America was now the third lab provider on it's national reference testing contract.

Reaction To Florida Court's Ruling On Clinical Pathology Fees

Court says clinical path professional billing requires an advance disclosure to patient

CEO SUMMARY: Reimbursement for clinical path professional services is under attack in a variety of ways throughout the US. Recently a Florida Court of Appeal added a new court ruling to the growing body of legal decisions on this topic.

INTELLIGENCE:

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