Clinical Laboratory Testing Volume 2: Business Strategies

Table of Contents

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

LIST OF FIGURES

• 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

LIST OF TABLES

• 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