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Complete Issue > Volume XVII, Number 8, Monday, June 1, 2010 (June 1st, 2010 — $ 36.00)
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R.
Lewis Dark:
California's Legal Challenge to Discount Pricing
PROBABLY NO
TOPIC IN THE LAB TESTING INDUSTRY generatesmore controversy than
discounted pricing for physicians, managed care companies, and IPAs
(independent
physician associations). Almost every pathologist and laboratory
executive
decries the corrosive effects of below-cost pricing.
Yet, many of these same lab executives quietly continue to solicit new
clients
by dangling deeply discounted, and often money-losing-prices to
physicians
and health insurers. Competing labs recognize that often the prices are
at marginal
cost which means that the lab doesn't recoup its fully loaded cost of
performing
the test. Sometimes a lab company will even offer prices that are less
than
the lab's marginal cost to perform the test.
The only way the lab can offer these money-losing prices is because it
"pulls
through" enough Medicare and other fee-for-service specimens to offset
the
losses incurred for testing the discount priced tests. Typically it is
national lab companies or investor-owned labswhich aremostwilling to
play this price game.
Local labs, hospital lab outreach programs, and pathology groups
continously
grumble about these business practices. Among these laboratory
professionals,
price discounting particularly if the lab test price is less than the
offering lab's
marginal cost to perform the test is seen as a form of inducement or
kickback.
The lab gives the discount for one part of the client's test referrals,
and gains
access to the Medicare and other fee-for-service specimens in exchange.
At the federal level, there has never been enforcement action that draws
a clear
boundary as to where a deeply-discounted lab test price falls on the
wrong side
of the law. That allows a number of laboratory companies to operate in
the grey
area, while labs with conservative compliance policies lose a
competitive edge in
the market. I point all this out because the deeply-discounted lab test
pricing
game might soon get a new set of rules in California.
Last year, Attorney General Jerry Brown unsealed the whistleblower
lawsuit
that alleges seven lab companies in California defrauded theMedi-Cal
program.
Now there is news that one laboratory has signed a settlement, and two
others
may have also settled. Brown argues that California state law requires a
lab to bill
Medi-Cal at the same lowest price for a test that the lab offers its
other clients. If
Brown gets the other four to six labs to settle and agree to bill
Medi-Cal in this
manner, then hemay disrupt a long-standing lab industry practice in
California.
For that reason, the progress of this whistleblower suit bears watching.
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Westcliff Labs Announces
BK and Sale to LabCorp
Chapter 11 bankruptcy reveals huge
losses
at what was once a profitable independent lab
CEO SUMMARY: Subject to court approval, Laboratory
Corporation of America is poised to acquire the assets of
California-based Westcliff Medical Laboratories, Inc., which
just filed a Chapter 11 bankruptcy action in federal court on
May 19. In a separate transaction, LabCorp has an agreement
to acquire Diamond Reference Laboratory of Diamond Bar,
California. The two acquisitions will build LabCorp's share of
the market for laboratory testing in California.
AG Jerry Brown Settles With Westcliff Med Labs
First look at the settlement agreement
reveals
how the AG may want labs to price tests to Medi-Cal
CEO SUMMARY: In California, Attorney
General Jerry Brown
is making progress in the whistleblower lawsuit alleging that
seven lab companies in California violated state law by not giving
Medi-Cal, the state's Medicaid program, the same lowest
lab test prices they extend to physicians, managed care plans,
and IPAs. Westcliff Medical Laboratories, Inc., is the first of the
seven defendants to publicly acknowledge that it finalized a
settlement agreement with the State of California.
Did Wrong Strategy Sink Westcliff Medical Labs?
California's third-largest commercial
lab firm
took just 46 months to slide into bankruptcy court
CEO SUMMARY: All sorts of people will
argue all sorts of opinions
about the financial demise of BioLabs, Inc., and its subsidiary,
Westcliff Medical Laboratories, Inc., and why it ended up in a
California bankruptcy court. Documents filed in the case indicate
that, from the birth of the new company in June, 2006, it never produced
an annual profit. During the 46 months of BioLabs/Westcliff's
business life, its owners worked with two different management
teams, each of which had a different strategy for growth.
Taming the Blood Beast
With Better Utilization
Rapid yearly increases in blood product
cost
motivates hospital labs to educate physicians
CEO SUMMARY: For hospital labs, explosive
increases in the
cost of blood products is a budget buster. At St. Vincent
Indianapolis Hospital, a multi-year blood management program is
paying big dividends. Patient safety has improved, even as utilization
of blood dropped by 7,000 units per year. Annual savings
from this innovative blood management program now total $4
million. One key element behind this succes was for the lab to
engage and educate physicians in a multi-disciplinary approach..
INTELLIGENCE:
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BIO-REFERENCE
GROWS 27% IN ITS
SECOND QUARTER MORE ON: Kaiser
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R.
Lewis Dark:
Irish Labs Are at an Important Crossroads
GLOBAL
OUTSOURCING OF CLINICAL LABORATORY TESTING IN IRELAND has entered its
second
phase. The Irish Health
Service Executive (HSE) granted Quest Diagnostics
Incorporated a contract for an additional two-years of cervical
cancer screening
tests while awarding 25% of the nation'' annual Pap testing to Sonic
Healthcare
Ltd. in a similar two-year contract.
These developments are significant, because as long as the Irish
outsourcing
experience is favorable, it makes it easier for other nations to
outsource laboratory testing to lab testing companies located in other
countries.
But there is another dimension to the lab testing story in Ireland which
fascinates me even more. As clients and regular readers of THE DARK
REPORT know, the
Irish HSE has announced a complete restructuring of laboratory services
throughout the country. (See pages 6-8 and The
Dark Report, January 25, 2010).
I'd like to make two observations about this ambitious project, which is
a typical government health official approach to saving money. First,
veteran pathologists and lab managers know all too well that, over the
past 25 years, there are more disasters than successes when a government
health system decides that it can take out costs by consolidating
pathology testing, laying off medical technologists, and
reducing the number of labs and blood collection centers serving a
community.
Certainly the cost of lab testing did go down in the short term in these
cases. But
it was physicians and patients in these communities who often endured
service deficiencies,
glitches in the process of consolidating lab testing, and even serious
problems
in the accuracy and trustworthiness of lab test results.
Second, I'll guess that the Irish Health Service Executive, in
developing its "total
laboratory consolidation" plan with a consulting company from England
back in
the years 2004-2007, did not spend much money sending a team of
experienced
pathologists, laboratory scientists, and healthcare policy makers on a
tour to several
countries to do first-hand investigations of successful, innovative
regional laboratories,
along with an on-the-ground visit to some of the larger-and often
not-sosuccessful-
laboratory consolidation projects.
If this assumption is true, it is an interesting comment on the due
diligence of
Ireland's healthcare leaders that they would embark on a major makeover
of the
nation's pathology service without having invested a rather modest
amount of time
and money to send their laboratory profession's best and brightest out
on a factfinding
tour of the world's best examples of lab testing. To the contrary, might
it be
true that the HSE, for the cost of a consulting fee to an English
company, has gotten
the answer it wanted and is proceeding with a laboratory restructuring
and consolidation
plan that was likely pre-ordained as early as 2004?
Not getting The
Dark Report in your mailbox every 3 weeks?
Optimism & Opportunity
at Executive War College
This year's gathering was high-energy
and marked by a positive outlook for lab testing
CEO SUMMARY: Instead of our annual review
of key
speakers as a source of emerging trends and common themes,
this year we assess the attitudes, opinions, and activities of the
pathologists, laboratory administrators, managers, and industry
executives in attendance at the 15th Annual
Executive War
College. These people are the grass roots of laboratory medicine
and they are ready to tackle all the coming challenges in
healthcare and the laboratory testing marketplace. ALL SESSION AUDIO RECORDINGS ARE AVAILABLE NOW!
Sonic Health Wins Irish
Contract for Pap Testing
First nation in the world to outsource
100%
of its Pap testing also renews contract with Quest
CEO SUMMARY: Evidently the Irish Health Service
is satisfied
with its decision to outsource all the nation�s cervical cancer
screening tests. In recent weeks, it announced that two international
laboratory companies would handle Pap testing for the next
two years. Sonic
Healthcare, Ltd., won a contract to perform 25%
of Ireland's 300,000 Pap tests annually. Quest Diagnostics
renewed its contract and will perform the balance. Both lab companies
indicate they will build laboratory facilities in Ireland.
Pathologists Can Still Earn
Medicare PQRI Incentives
Federal program offers pathologists a
2% bonus
during 2010 for reporting required quality measures
CEO SUMMARY: During 2010, the Medicare Physician
Quality Reporting Initiative (PQRI) will pay a 2% bonus to
pathologists who register and report data on 80% of their
cases for the specified CPT codes. However, independent
pathology laboratories still cannot participate in the PQRI program.
Also, PSA, LLC, reports it can be challenging to audit the
Medicare PQRI bonus amount paid at year's end against the
actual amount that was billed to Medicare by individual pathologists
for the CPT codes included in the PQRI program.
French Company Buys
Pittsburgh-Based RedPath
ExonHit Therapeutics acquires Redpath�s
proprietary molecular test and its CLIA laboratory
CEO SUMMARY: Here's a deal that is all
about proprietary
molecular assays and access to new markets. With
its purchase of RedPath Integrated Pathology, ExonHit Therapeutics,
S.A., of Paris, France, gains a CLIA laboratory
and access to the U.S. market, even as the new owner opens
the door to the European market for RedPath. As announced
by the two companies, ExonHit will spend $22.5 million to
acquire RedPath Innovative Pathology and will pay an additional
$9.5 million if RedPath achieves certain sales targets.
LETTER TO THE EDITOR: Letter to Editor on EMR
Donations,
Deeply-Discounted Client Prices
Starting 10 years ago, physicians in
Bristol, England
alerted NHS officials about problems in lab test accuracy
EMR Donations, Client Bill
Issues in Anatomic Path
Federal law has lots to say on EHR
donations
and discounted client bill pricing to referring docs
CEO SUMMARY: In today's market for
anatomic pathology
services, local pathology practices are facing tough
competition from national pathology companies that are
quite aggressive at using EHR donations and discounted
client bill arrangements to win new clients. Attorney Jane
Pine Wood of McDonald
Hopkins identifies federal safe harbor
requirements governing EHR donations involving laboratories
and referring physicians, then discusses compliance
issues triggered by discounted client billing arrangements.
INTELLIGENCE:
Late & Latent
PERKIN ELMER PAYS
$90 MILLION TO BUY
SIGNATURE GENOMICS MORE ON: Aurora
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R.
Lewis Dark:
Is Laboratory Industry Ready for Facebook and MySpace?
WHO COULD
HAVE IMAGINED, JUST A FEW YEARS AGO, that social networking sites
such as Facebook.com,
MySpace.com, and YouTube.com would
become a useful
platform that allows clinical laboratories, pathology groups, and in
vitro diagnostics
(IVD) companies to engage in two-way conversations with patients and
customers?
After all, in those days, the preponderance of active users of these
social networking
services were young people. There were no obvious business reasons
why a clinical laboratory might want to establish its own page on any of
these
sites. If that was the popular wisdom then, it is not accurate today.
In my neighborhood, even the retired ladies now maintain Facebook or
MySpace pages and regularly communicate with each other via this medium.
Of
course, since elderly folks tend to have a variety of health problems,
there is plenty
of conversation taking place about these topics. I suspect that is why
certain lab
companies, like Myriad Genetics with its predictive genetic test
for breast cancer,
have established a presence on these social networking sites and find
themuseful
for communicating with women concerned about breast cancer.
On pages 3-6, THE
DARK REPORT provides the lab industry's first briefing about
why IVD companies and certain clinical laboratories are consciously
incorporating
social networking activities into their marketing and business
development
programs. I suspect it will surprise many pathologists and lab managers
at how
rapidly social networking has become a useful conduit for organizations
to
directly conduct two-way conversations with patients, customers, and
prospects.
In fact, it might be smart for clinical labs and pathology groups to
invite their
Generation Y pathologists and medical technologists to enlighten the
marketing
and sales teams at their labs about how social networking works. An even
bolder
move would be to empower themost enthusiastic of these Gen Y laboratory
professionals
to help design social networking programs in tandem with the lab's
sales and marketing team.
By way of full disclosure, this aging curmudgeon acknowledges that he
doesn't
surf such social networking sites as FaceBook.com and MySpace.com.
However,
he has learned that he can go to YouTube.com and easily find
entertaining clips of
musical performers popular during his youth. With just a couple of mouse
clicks,
performances by Mitch Miller and Patti Page can be accessed!
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Dark Report in your mailbox every 3 weeks?
Social Networking Is New Laboratory Marketing
Channel
Clinical labs and IVD companies
encourage
customer dialogue at Facebook, YouTube, Twitter
CEO SUMMARY: Using social marketing sites
on the Web
allows labs and IVD manufacturers to interact with customers
in ways that were not possible years ago. Marketers use these
interactive web sites to supplement traditional methods of
advertising. Inviting customers to discuss your company and
products on a Facebook site can result in powerful word-ofmouth
testimonials. But proceed with caution! Negative comments
about your company or laboratory can pop up as well.
Pre-authorization Coming
For Pricey Molecular Tests
Health insurers ready to control
utilization
of expensive genetic and molecular tests
CEO SUMMARY: In response to the steep
ramp-up in the
utilization of genetic and molecular testing, the nation's largest
health insurers are preparing to institute new guidelines for
coverage and reimbursement. These will include pre-authorization
by physicians, a more effective genetic test coding
arrangement for claims submission by laboratories, and implementation
of evidence-based medicine (EBM) guidelines. All of
these developments create opportunities for clinical laboratories
to step up and add value in new ways to payers.
ISO 15189 Accreditation
Requires Specific Steps
For Global Recognition
CEO SUMMARY: This intelligence briefing is
the third in an ongoing series
about quality management systems (QMS) and their role in advancing the
performance
of clinical laboratories and improving the quality of the testing
services
they provide. ISO 15189 is a set of standards for medical laboratories
based
on the ISO 9001 quality management system. It provides a way for medical
laboratories
to demonstrate to outside examiners both conformance to the QMS
and competence in the performance of laboratory testing services.
Competitive Bidding Update: Two Years Later,
CMS Still Holds
Labs' Competitive Bid Documents
LAB QUALITY: Errors in Surgical Pathology
Surface in the United Kingdom
Starting 10 years ago, physicians in
Bristol, England
alerted NHS officials about problems in lab test accuracy
INTELLIGENCE:
Late & Latent
FIRE DESTROYS
TACOMA FACILITY
OF STERLING LABS HBO BIOPIC ABOUT
JACK KEVORKIAN
TO AIR ON APRIL 24
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R.
Lewis Dark:
For Better or for Worse: Nation Has New Health Law
CONGRESS AND
THE CURRENT ADMINISTRATION HAVE THEIR HEALTH LAW. Whether
this new law serves the citizens of this country for the better or for
the worse will
not be known for several years into the future.
I suspect that many of our elected officials in the House and Senate do
not
fully understand the major elements of the health bill that has just
become law.
I believe I amalso on safe ground to state the opinion that few of these
"servants
of the people" actually took the 2,700+ pages of the bill and perused
themcarefully
before deciding how to cast their vote.
Therein lies the rub. First, these legislators have exempted themselves
and
their Congressional staffs from the health mandates that they are
imposing on
the remainder of the country. They know this insulates themselves and
their
families from whatever negative consequences develop fromthe parts of
the new
law which prove detrimental to the healthcare system. As an American
citizen of
good standing, I find it sad that our political leaders deliberately
take themselves
out of the legislative solution they consider best for the nation.
Second, in coming years, none of us should be surprised when various
unintended
consequences of this health law become obvious and troublesome.
Expect these same senators and representatives to tell news reporters
that "I didn't
know that was in the bill," or "I didn't understand how this specific
mandate
would cause health providers to change the way they practiced medicine."
Forgive me for being skeptical about these developments. Like many of
you,
early last year I was hopeful that the goal of improving our nation's
health system
would include a robust exploration of innovative ways to organize
healthcare.
Healthcare's "best practices" examples, such as Mayo Clinic, Cleveland Clinic, Kaiser
Permanente, and Geisinger Health,
would be studied by policymakers
and legislators. As part of the health bill, seed funding to encourage
similar
"health innovation incubators" would be authorized with the goal of
covering more people at lower cost while achieving improved health
outcomes.
On this point, I am not aware of any provision in the new law that
financially
encourages a health system, hospital, or physician group to experiment
with innovative
ways to organize and deliver healthcare. I amwilling to be proven wrong
on
this point. If you know of such a provision, contact me at our editorial
offices. In the meantime, like most of you, I am reserving judgement
about whether this health law
is good for our country. Like the residents of Missouri, I say "Show
me."
2.3% Medical Device Tax Hits Clinical Labs in
2013
Newly-enacted health reform bill
requires
medical device companies to pay excise tax
CEO SUMMARY: One aspect of the massive new
health bill
is that medical device companies will pay a 2.3% tax, effective
January 1, 2013. Students of economics know that it is customers
who invariably end up paying such direct taxes. Thus,
clinical laboratories in the United States should prepare to see
this 2.3% tax show up as a line item on sales contracts and in
the form of higher prices for in vitro diagnostics analyzers, lab
equipment, reagents, consumables, and even medical software.
Business Advantages From Whole Slide Imaging
* WSI creates ways to significantly
improve
collaboration between pathologists and physicians
CEO SUMMARY: Whole slide
imaging (WSI) is a niche product
today, but it offers the potential to redefine the practice of
pathology.
That's the opinion of pathologists presenting at a digital
pathology workshop last month. One pathologist explained how
WSI significantly improves collaboration between pathologists and
referring physicians. Another pathologist explained how regulators
soon may require standards for WSI and why such standards are
likely to result in a call for standards for light microscopes as well.
Use of Point-of-Care Testing
Reduces Mortality by 50%
In a thinly-populated region
the size of Texas and New Mexico combined, an
integrated clinical care program based on point-of-care
testing (POCT) has delivered impressive gains
in health outcomes. For rural residents, mortality
rates from cardiovascular disease have fallen by
50%. There were comparable declines in hospital
length of stay and the rate of readmissions. A reliable
test result and speed to answer fromPOC testing
is a major factor in these improved outcomes.
Serious Problems Plague
Newfoundland Laboratory
Inaccurate
cyclosporine test results trigger
lab director resignations and more media scrutiny
Newfoundland's St. John laboratory was
rocked by revelations in February that its cyclosporine testing
was flawed, exposing patients to the harmful affects from
inappropriately high doses of the immunosuppressant drug.
Within weeks of this news, the Chief of Laboratory Medicine
resigned. Now a team from Toronto's University
Health
Network (UHN) is at the laboratory to conduct a review of operations
and make recommendations to the health authority.
INTELLIGENCE:
Late & Latent
JUAN ROSAI, MD'S
CASES TO BE PUT
IN DIGITAL ARCHIVE
PHLEBOTOMIST
GETS
LUCKY,
WINS $111,250
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R.
Lewis Dark:
Oncologists Cut Into Pathologists' Revenue Pie
EVENTS NOW
UNFOLDING IN DALLAS, TEXAS, SIGNAL A DIFFERENT DIRECTION for
pathology and clinical laboratory testing. As you will read on pages
3-9, in May,
just weeks from now, a new laboratory company, funded with $40 million
from
an unlikely combination of four partners, is about to become
operational.
The primary business objective of the new partnership between
Pathologists Bio-Medical Laboratories, Baylor Health Care, Texas
Oncology, and US Oncology is to build a state-of-the-art reference and
esoteric
laboratory, to be known as MedFusion. First the partnership will offer
this testing to hospitals and other clients in the Dallas area, before
expanding
across Texas and into other parts of the United States.
I want to focus on another intriguing aspect of the new business
relationship
among these four unexpected bedfellows. Within the same building
where MedFusion's
laboratory is located, US Oncology is building its own
laboratory that will focus on providing oncology testing for its 1,300
oncologists
who practice in Texas and in 38 other states across the country.
Because it currently serves about 720,000 cancer patients per year in
this
country,US Oncology has the ability to refer a huge volume of biopsies
and cancer
tests to its new laboratory, currently under construction in Dallas. At
the same
time, the pathologist-owners of Pathologists Biomedical Laboratories (PBL) in
Dallas have positioned themselves to become the primary and preferred
source
of pathology subspecialty expertise to analyze and diagnose these
specimens.
The obvious conclusion is that US Oncology represents the first wave of
oncologists ready to cut into the pathologists' revenue pie, just as
dermatologists,
urologists, and gastroenterologists have done during the past two
decades. I think that conclusion�even if true�is rather simplistic and
misses a more subtle and important insight.
Personalized medicine and companion diagnostics are making the diagnosis
and treatment of cancer and other diseases more complex. I believe the
Dallas
pathologists at PBL have their sights on amuchmore valuable prize. They
are positioning themselves to become an essential part of the cancer
care team. In coming
years, this means that they evolve into necessary consultants on every
case of cancer,
from diagnosis to selection of therapies and monitoring the patients'
progress. As
that happens, I predict these Dallas pathologists will earn more
compensation by
providing services that have significant value to patients and their
care teams.
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Baylor Pathologists Form
Lab with US Oncology
Four partners prepare to open two
sizable
new laboratory businesses to be based in Dallas
CEO SUMMARY: In Dallas, Pathologists
Bio-Medical
Laboratories is part of a new laboratory partnership that includes
Baylor Health Care System, Texas Oncology,
and US Oncology. The
four partners ponied up a total of $40 million in cash and debt to
build a state-of-the art laboratory in a 172,000 square foot building.
To be called "MedFusion," the laboratory partnership expects
to provide reference and esoteric testing to Baylor Health, hospitals,
other clients, and to clinical trial service organizations.
Two New Pathology Models
Will Soon Be Tried in Dallas
Goal is to deeply integrate laboratory
testing
into healthcare continuum in ways that add value
CEO SUMMARY: There are notable aspects to
how and why
four unlikely partners are banding together to invest $40 million
and create the nation's newest reference and esoteric testing
laboratory. It was the pathologists at Baylor University Hospital
in Dallas, Texas, who originated the vision and initiated conversations
with the other three partners. This new business shows
how pathologists can leverage their knowledge and play a
greater role in advancing personalized medicine.
Multispectral Tests Use "Smart" Systems To
Analyze Tissue
Pathology Updates: Pathology Errors in
Canada
Make National News Once Again
Mastectomy on a patient who didn't have
cancer
triggers suspension of one pathologist, review of cases
Preparing for New Lab Role
In Personalized Medicine
Multiple
disruptive forces are actively reshaping
clinical laboratory testing and anatomic pathology
Laboratory medicine is about to find
itself
between the two jaws of a powerful vise. One jaw is pending
major legislative overhaul of the entire healthcare system, along
with dwindling reimbursement as Medicare and Medicaid runs
out of money. The other jaw is personalized medicine, companion
diagnostics, and expensive molecular testing. As these jaws
squeeze tighter, clinical laboratories and anatomic pathology
groups will need effective response strategies.
DARK
INDEX: Assessing the Year-End Financials
For Nation's Biggest Lab Companies
Quest
Diagnostics, LabCorp, Sonic Health,
and Bio-Reference Labs report performance
INTELLIGENCE:
Late & Latent
DLS IN HONOLULU
BUILDS NEW LAB
LENETIX
LAB SELLS
TO BIO-REFERENCE
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R. Lewis Dark:
New Cycle Begins for Lab and Pathology Acquisitions
THERE'S A NEW TRANSITION JUST GETTING STARTED in the laboratory testing
industry. For the past two decades, laboratory acquisition activity has primarily
centered around independent clinical laboratories-often owned by
local pathologists. This was true in both the size of the transactions and in the
volume of transactions. Our stories on pages 3-9 describe these processes.
That is about to change. From 2010 onward, laboratory acquisition activity
is likely to center around two different segments of the laboratory testing
industry. One segment involves the laboratory outreach businesses owned
and operated by hospitals and health systems. The second segment is comprised
of the regional and local anatomic pathology laboratories and group
practices owned by pathologists. For both segments, a new cycle of acquisition
activity is now beginning.
In segment one, in the 14 months since January 2009, four significant
acquisitions of hospital/health system-owned lab outreach businesses have
taken place. Plus, there is the investment by Catholic Health Initiatives
(CHI) in Pathology Associates Medical Laboratories (PAML) that happened
in November 2009.
Collectively, these laboratory acquisitions and investments demonstrate
that hospitals and health systems are waking up to the substantial value that
is created from a profitable laboratory outreach program. It is reasonable to
expect that-as hospital CEOs learn about these acquisitions and the prices
realized by the sellers-more hospitals and more health systems will be willing
to entertain the sale of their laboratory outreach businesses.
For segment two involving anatomic pathology laboratories, the simple
fact that will drive laboratory acquisitions is the pending retirements of baby
boomer pathologists who are partners in these laboratories and pathology
group practices. Thatmotive played a role inmost of the pathology laboratory
acquisitions announced during the past 14 months. (See table on page 5.)
I believe the longer-term impact of these developments will be the further
consolidation of both segments of the laboratory testing industry. Deal-by-deal,
hospital laboratory outreach business will be sold and resold into the hands of
the nation's largest lab operators. A similar process will unfold in anatomic
pathology. It will take some time to consolidate the 3,300 independent pathology
practices that exist today, but that cycle of change is now under way.
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Pace of Lab Acquisitions
Increased during 2009
Lab buyers show strong interest in acquiring
both clinical labs and anatomic pathology groups
CEO SUMMARY: After two years of relatively slow sales of
clinical labs, there is pent up demand for lab acquisitions and
a declining supply of independent labs available for sale. That's
the assessment of one expert on laboratory mergers and acquisitions,
who predicts that the accelerating pace of clinical lab
and anatomic pathology practice acquisitions seen in the second
half of 2009 is likely to carry on well into 2010. Professional
investors continue to look for opportunities to buy into the laboratory
testing market.
Predict 2010 To Be Busy
For Lab Owners & Buyers
Capital gains tax rates may rise next year and
that may motivate laboratory sellers to do deals soon
CEO SUMMARY: Along with a recovering economy, the possibility
of an increase in the capital gains tax rate for 2011 may
encourage owners of clinical labs and anatomic pathology companies
to sell their businesses during 2010. That could make
2010 a busy year for laboratory mergers and acquisitions, particularly
if valuations for laboratory companies hold or increase
from current levels. A growing number of credible buyers is
another reason why laboratory sellers are likely to make 2010 a
busy year for laboratory M&A.
(LIVE! Mergers and Acquisitions Audio Conference Recording by Chris Jahnle - LEARN MORE)
Multispectral Tests Use "Smart" Systems To Analyze Tissue
Research Pathologists Use Next Research Pathologists Use Next Generation Methods
CEO SUMMARY: ogists at the Hospital of the University of Pennsylvania are using a new system that combines image analysis
software and algorithms to evaluate images containing numerous
stains and biomarkers. Pathologists teach the system to identify tumor
cells and distinguish them from non-tumor cells. Now used for research
purposes, this sophisticated digital pathology system is designed to do
much of the manual activity required of a pathologist when assessing
an image while producing highly accurate quantitative data.
LAB BRIEFS: BECKMAN COULTER
REPORTS EARNINGS THAT
INCLUDE OLYMPUS
ANTHEM CRITICIZED
AFTER RAISING PREMIUMS
BY 39% IN CALIFORNIA
LABCORP EXPANDS
ITS BILLING OPERATIONS
IN GREENSBORO, NC
MEDTOX REPORTS GAIN
IN CLINICAL LAB VOLUME
AS DRUG TESTING DECLINES
INTELLIGENCE: Late & Latent
ADD TO: GENETIC &
MOLECULAR TESTS
TRANSITIONS: Philip Chen, M.D., Ph.D.,
resigned from Sonic Healthcare
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R. Lewis Dark:
Anatomic Pathology's Likely Path of Transformation
RECENT DEALS INVOLVING PRIVATE EQUITY FIRMS and several of the nation's
larger pathology groups hint at a major transformation soon to come to the
pathology profession. No one should be surprised that pathologists of the
baby boomer generation will be an important trigger in this transformation.
It is the coming wave of retirements by baby boomer pathologists that
will provide the momentum for these changes to the profession. As you will
read on pages 13-14, our editor observes that many pathology group practices
will soon need money to cash out their retiring partner-pathologists. In
response to this need, a growing number of pathology groups will either
allow themselves to be acquired or will sell significant equity to outside
investors. In both cases, some of the money raised by these methods will be
used to purchase back the equity owned by the retiring partners.
I can see this having two direct consequences to the pathology profession.
First, it is likely to signal the end of the pre-eminence of the private pathology
group practice, usually anchored by one or more contracts with community
hospitals. Because of either outright sale of the practice or the sale of significant
equity to outside investors, private pathology practices-professional corporations
(PCs)-will begin to decline in numbers and influence.That's because the
buyers or new investors of these private practice groups will operate themusing
a different business model than the professional corporation.
Second, each time a private pathology group either sells itself to a buyer
or sells a significant share of equity to outside investors, these investors will
insist on one major change in the pathology group's business activity. That
change will be to increase the rate of growth in specimens and revenue. To
achieve this, these pathology groups will initiate their first-ever sales and
marketing programs or expand and intensify existing sales efforts.
Thus, the rather collegial pathology profession we see today, dominated by
private pathology group practices (often smaller groups serving community
hospitals and not funding a professional sales program) is about to undergo a
gradual transformation. If professional investors change anatomic pathology in
a similar fashion to how the clinical laboratory was changed between 1985 and
the present, then we should expect a fundamental restructuring of the
anatomic pathology sector. This may take more than 10 years to accomplish,
due to the pace of retirement by baby boomer pathologists.
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Ireland Is Restructuring National Lab Test System
Government health program plans to integrate,
consolidate, and regionalize lab testing services
CEO SUMMARY: Working from a consultant's report and
recommendations based on studies dating back to 2006 and
2007, Ireland's Health Service Executive is moving forward to
effect a comprehensive reconfiguration of clinical laboratory
testing across the nation. This may be the first time that the
government health program of a developed nation has
attempted to consolidate, regionalize, and integrate all the laboratory
testing services within its borders.
Predict 60,000 Doctors
To Adopt EMRs Each Year
Expanding EMR use by physicians creates
opportunity for clinical labs & pathology groups
CEO SUMMARY: Only about 180,000 U.S. physicians have
adopted electronic medical record (EMR) systems over the past
14 years-mostly in largermedical groups. Now experts believe
asmany as 60,000 physicians per year will begin to adopt EMRs
because of new federal incentives funded by the stimulus bill
passed early last year. This is amajor development and requires
a response by every clinical lab and pathology group practice,
since physicians will need their lab provider to enable electronic
lab test ordering and lab test reporting for their EMRs.
Health Market Update: Rate of Health Spend Increase
in 2008 Was Lowest Since 1960
Centers for Medicare
and Medicaid Services report says a total of $2.3 trillion was spent
on health during 2008, which is an increase of 4.4%
Two Big Pathology Groups
Tap Investors for Capital
Each deal infuses new capital in the group,
while leaving pathologists with significant control
CEO SUMMARY: Pathology supergroups in California and
Tennessee have each announced major recapitalizations. Both
groups will use some of the money to cash out retiring partners.
The balance of the new capital will be used to expand their businesses.
With so many baby boomer pathologists approaching
retirement, these two transactions are likely to be studied by
many pathology groups and should be considered early examples
of a trend that is soon to become more prominent.
Pathology Inc. Sells
Equity to Raise Capital
Pathology group accesses growth capital
by selling shares to professional investors
CEO SUMMARY: In looking how to propel its business to the
next level, the partners at Pathology Inc. opted not to sell their
pathology group practice. Instead, they chose to raise capital by
selling equity in their company to a group of investors. In this
exclusive interview, executives from Pathology Inc. share their
business strategy. Among the priorities are expansion of the
sales and marketing program, possible acquisitions of other lab
companies, and acquiring sophisticated information technology.
INTELLIGENCE: Late & Latent
ADVAMED CREATES
NEW DIAGNOSTICS
ADVOCACY EFFORT MORE ON: NeoGenomics, Inc., of Ft.
Myers, Florida,
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R. Lewis Dark:
Lab Medicine's Potential Versus Its Challenges
WE ARE STARTING A NEW YEAR. But is it the start of a new decade? That depends
on how one decides to determine the first year of a decade. Even Webster's
Dictionary recognizes this difference of opinion as to the start year of a decade.
For the word "decade," Webster's Dictionary offers a definition with two distinctions,
as follows. "...2) a period of ten years; esp., in the Gregorian calendar:
a) officially a ten-year period beginning with the year 1, as 1921-1930, 1931-
1940, etc.; and, b) in common usage, a ten-year period beginning with a year 0,
as 1920-1929, 1930-1939, etc. "Therefore, Webster's provides cover to advocates
of either method for measuring the start and finish of an individual decade.
Having provided you with an argument you can use to defend either
method of defining the start of a decade, I'd like to share some thoughts on
what lies ahead in laboratory medicine for the years that run from 2010 to
2019 (a decade as defined by "common usage," according to Webster's).
First is the opportunity. All of us in laboratory medicine will be part
of
history�s first-ever exploration of the human genome and all the
processes
associated with the mysteries of life. Science is peeling back the
secrets of DNA, RNA, and the human proteome, while at the same time
learning practical was to use this knowledge to heal the sick and
improve the health and
life of every individual, potentially from the moment of conception to
death.
This is an unprecedented opportunity for laboratorymedicine. Pathologists
and laboratory scientists are poised to contribute immense value to individuals
and to society at large. Itmeans that entrepreneurs in lab testing should do well
in the coming years by recognizing how to adopt laboratory businessmodels in
the new ways necessary to package and deliver valuable diagnostic, therapeutic,
and patient-monitoring services to the healthcare system.
On the other hand, the challenge for labmedicine will be how to overturn the
resistance to change that is a trait of healthcare in the United States so that the best
new genetic science can find its way into clinical diagnostics. It is a challenge built
around the adage of "follow the money." Expect the folks getting themoney today
to resist changes to the status quo which favor rapid adoption of new genetic and
molecular testing technologies. Therefore, whether you agree that the new decade
starts in 2010 or 2011, what remains true is that the next 10 years have the
potential to make pathology a pre-eminent clinical service because of how it
delivers life-saving and life-enhancing genetic/molecular information.
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New Clinical Lab Trends
To Shape Events in 2010
Trends point to more emphasis on excellence
in clinical laboratory management and operations
CEO SUMMARY: In presenting this list of macro trends for
clinical laboratories, several themes are in play. They range from a
continued emphasis on improving lab operations to the need to
acquire and deploy sophisticated information technology. During
the next few years, the long-predicted retirement of Baby Boomers
will kick in. That will aggravate the existing shortage of medical
technologists and skilled lab professionals. It is just one of several
critical issues soon to challenge lab executives and pathologists.
LAB INDUSTRY MACRO TREND FOR CLINICAL LABORATORIES
No 1: Quality Management Systems
Now an Option for Clinical Laboratories
No 1: Quality Management Systems
Now an Option for Clinical Laboratories
No 2: More Labs Use Lean Six Sigma
To Improve TAT, Performance
No 3: Work Flow and Work Processes
Become a Management Driver
No 4: Automation Serves Lab Goals
To Improve TAT, Quality, Service
No 5: Automation Is New Option
In Micro, Histology, Molecular
No 6: Hospital Lab Outreach Programs
Become Service-Rich Offerings
No 7: As Docs Adopt EMRs, Labs Offer
E-Prescribing, Imaging Orders
No 8: EMR Funding Incentives Open
Door to New Compliance Issues
No 9: Middleware Comes into Its Own
And Gives Labs Extra Function
No 10: SaaS and Cloud Computing
Gaining Acceptance by Laboratories
No 11: Molecular Testing Contributes
Ever More Clinical Value
No 12: Consumers Step Up Interest
In Ordering Their Lab Tests
No 13: Home Brew Testing Grows,
As Does FDA Intent to Regulate
No 14: Patient Satisfaction Surveys
Raise Competitive Bar
No 15: Clinical Labs Get Creative To
Maintain Med Tech Staff Levels
No 16: Point-of-Care Testing Poised
To Make Bigger Contributions
No 17: Multi-Modality Diagnosis
Makes Early Progress
No 18: Many Local Labs Still Access
Managed Care Contracts
No 19: Underfunding for Laboratory Testing Can Undermine Quality
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R. Lewis Dark:
Lab Utilization Is Healthcare's Ticking Time Bomb
TODAY I WOULD LIKE TO SPEAK TO ONE OF THE ELEPHANTS IN THE LAB INDUSTRY'S
ROOM. It is the ticking time bomb of lab utilization. Sometime in the next 36
to 60 months, this time bomb will go off. It will catch both health policy
makers and payers unprepared and, the consequences will be corrosive to the
laboratory testing profession.
Going forward, three trends will drive utilization of lab testing. One trend is
the increased volume of lab tests ordered by physicians who are responding to
pressures and financial incentives to provide all the recommended care to 100%
of their patients. For example, think of 100%of diabetic patients getting HgA1c
tests annually at the same time that doctors diligently work to diagnose more
of the tens of millions of undiagnosed diabetics in this country. The increased
utilization of lab tests is a result that is desired by the health system.
Second is the natural uptake of lab testing that occurs as baby boomers
leave their fifth decade of life and push into their sixth decade. Both
payers and laboratories that bid private Medicare contracts know that,
on average,
an individual 65 years and older, uses more than four times the number
of
lab tests per year than a commercial life. Again, this increased
utilization is a
natural consequence of the aging process and the system should
ethically be
prepared to provide those services, as appropriate.
Third is the ongoing addition of new diagnostic tests to the existing lab test
catalogue. As physicians have new diagnostic assays that support more precise
and earlier diagnosis for an expanding number of diseases, they will naturally
and appropriately order a higher volume of tests. As with the two other trends,
this trend underpins higher diagnostic and treatment accuracy-which benefits
the healthcare system by reducing the overall cost per episode of care.
However, in THE DARK REPORT'S travels across the United States and a
number
of other developed countries in Europe and the Pacific Rim, it has been
unable to identify any government health system or healthcare policy
maker
which recognizes and discusses these approaching developments. This
lack of
perceptive analysis about the essential value of clinical laboratory
testing, in the context of the three trends described above, represents
a "black hole" for the lab medicine profession. It means that health
policy makers are not likely to establish budgets and reimbursement for
lab testing based on the most relevant factors. As that happens,
further underfunding for lab testing will occur.
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2009's Top Ten Lab Stories Reflect Some Good, Bad
Year unfolds with a mixed bag of developments even as economic recession dampens activity
CEO
SUMMARY: As the closing year of the first decade of the new century and
the new millennium, 2009 brought neither disruption nor upheaval to the
majority of laboratories in the United
States. Rather, it was marked by at least two themes. One was how
public disclosure of problems with lab testing services generated
media headlines. The other was economic, and ranged from the
effects of the recession to how specific healthcare reform proposals
might negatively affect the financial status of laboratories.
Quest Diagnostics' Vitamin D Test
Alert/Retest Effort Makes Headlines
Quest Diagnostics Pays $302 Million
To Resolve Federal Qui Tam Lawsuit
Hospitals Prune Budgets, Causing
Laboratories to Rein in Spending
Labs Dodge $750 Million Annual Tax
Proposed in Baucus Reform Bill
Labs Experience Quiet Fall Flu Season
Despite More Cases of Novel A/H1N1
Testing Failures in Canadian Labs
Are Warning to Govt. Health Programs
Cost of Whole Genome Sequencing
Falls as Low as $20,000 per Person
Auckland Lab Contract Decision
Disrupts Physicians and Patients
Companion Diagnostics Activity
Gains Momentum During 2009
Catholic Health Initiatives Invests
In Pathology Associates Med Labs
DNV Offers Accreditation
For Both CMS and ISO
DNV offers hospital accreditation that
combines CMS CoP with ISO 9001 compliance
CEO SUMMARY: For about a year, hospitals and health systems
have had a new choice formeeting the Medicare Conditions
of Participation. This new choice is Det Norske Veritas (DNV).
Because DNV offers a dual process for achieving Medicare
accreditation and ISO 9001 certification, it brings client hospitals
a different bundle of benefits. As hospitals adopt ISO 9001, it will
require the clinical laboratory to align management and operations
to the standards of this quality management system (QMS).
Lab Briefs: DNA NANOCHIP
IS GOAL OF IBM SCIENTISTS, QIAGEN NV POISED
TO BECOME NEXT IVD FIRM TO TOP $1 BILLION DOLLARS, HEALTH INFORMATION
ON THE INTERNET CHANGES
PATIENT-DOCTOR TALKS
The Dark Index: Laboratory Merger & Acquisitions
Saw Several Deals during 2009
Sonic and LabCorp remain opportunistic buyers, some pathology groups tap private equity capital
Catholic Health Initiatives
Ramps Up Lab Outreach
78-hospital health system says lab outreach
is right vehicle to support integrated patient care
CEO SUMMARY: Catholic Health Initiatives (CHI) wants to
expand its presence in outpatient and outreach services. It sees
hospital laboratory outreach programs as a key component of
this strategy. It will use an equity investment in Pathology
Associates Medical Laboratories (PAML) as the foundation of a
series of laboratory outreach joint ventures between its 78 hospitals
and PAML. Along with generating a new source of revenue,
CHI expects these lab JVs will help it establish
tightly-integrated electronic links with office-based physicians.
INTELLIGENCE: Late & Latent
TRANSITIONS
Aperio Technologies, Inc., of
Vista, California, MORE ON: Fraud
The criminal complaint states
that Adeyemi stole the identities
of more than 150 of his coworkers.
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R. Lewis Dark:
The $1,000 Genome and Laboratory Testing
IT WAS 1953 WHEN JAMES D.WATSON AND FRANCIS CRICK, working from X-ray
data collected by Rosalind Franklin, described the double helix structure of
the DNA molecule. That discovery inspired scientists to begin investigating
the genetic basis of life.
In the 56 years since Watson and Crick published their findings, there has
been steady progress at cracking open the human genome. One useful
marker for this progress is the declining expenses required to sequence a base
pair of DNA. In 1990, it cost $10 to sequence one base pair of DNA.
Currently, Knome, Inc., says it will sell a whole genome sequence to anyone
for $20,000. That represents a cost of $0.0003 per base pair of DNA.
But wait! That's not all... Complete Genomics, Inc., is selling a whole
human genome for $20,000. That is a further reduction of 80% in the cost
to sequence one base pair of DNA. (See pages 13-16.) These two examples
demonstrate that both the cost and time required to sequence the entire
human genome are rapidly falling to the goal of $1,000 and one hour.
I predict this will have a profound effect on laboratory medicine as we
know it today. For the first time in human history, it will be economically
feasible and scientifically possible to sequence the entire genome of individual
humans. As many of you are aware, this is expected to revolutionize the
prescription drug industry. It will also play a role in helping physicians make
pre-symptomatic diagnoses for a variety of diseases.
But, it is the second application of cheap, fast, accurate gene sequencing
that will be disruptive to pathology and laboratory testing as we know it
today. Imagine the ability to use a lab-on-a-chip, operated within a handheld
device, to do sophisticated molecular analysis of a patient's specimen,
for pennies per gene, that produces highly sensitive results in minutes.
Tome, this is themore significant point about the race to the $1,000 whole
human genome, sequenced in one hour or less. The same technologies which
enable this achievement will be downsized and miniaturized for the express
purpose of supporting sophisticated molecular assays to be performed in clinical
laboratories, physicians' offices, point-of-care (POC) settings, and maybe
even for patient self-test purposes. Although this will be disruptive to existing
clinical and business models for pathology and clinical lab testing, it will also
create tremendous new opportunities for the pathology profession.
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Costs Falling Swiftly for Whole Genome Sequence
Complete Genomics says it is now selling
$20,000 sequences to researchers and pharma
CEO SUMMARY: Several companies want to be first to
achieve the holy grail in sequencing: an accurate whole human
genome sequence produced in an hour for $1,000. Complete
Genomics announced earlier this month that it could sequence
the full human genome for a materials cost of $4,400 (not
including labor and overhead). Another competitor, Illumina, is
selling whole genome sequences for $48,000 to private individuals-
and has customers!
Explaining Certification Versus Accreditation
ISO standards make it important for labs
to understand the meaning of each term
CEO SUMMARY: Early signs are that the quality management
systems (QMS) most likely to find favor with hospitals
and clinical laboratories in the United States will be those that
meet standards developed by the International Organization
for Standardization (ISO. Many hospitals and clinical labs are
considering adopting ISO 9001 or ISO 15189, respectively. As
they do, it will be important to understand how the terms
"accreditation," "certification," and "registration" are used in
the application of standards published by ISO.
Geisinger's Use of EHR Creates
Opportunity for Lab to Add Value
Integrated EHR allows clinicians to use lab test data to greater effect
CEO SUMMARY: Every health reform proposal
makes it a high priority to implement a
universal electronic medical record (EHR).
Because lab test data is the essential component
of a successful EHR, laboratory managers
and pathologists may soon have a once-in-alifetime
opportunity to use EHR implementation
to boost the value to lab testing services. This is
exactly what the laboratory at Geisinger Health
has achieved in the 15 years since the system
first implemented its integrated EHR solution.
Molecular Update: "Liked the Product-Bought the Company,"
BD Acquires HandyLab and Jaguar System
Health IT Update: Xerox, Dell, and Hewlett-Packard
Each Buy Into IT Outsourcing Market
Growth opportunities are expected in outsourcing
of information technology services to providers
INTELLIGENCE: Late & Latent
TRANSITIONS
Aperio Technologies, Inc., of
Vista, California, MORE ON: Fraud
The criminal complaint states
that Adeyemi stole the identities
of more than 150 of his coworkers.
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