This category covers establishments that provide professional analytic or diagnostic services to the medical profession or to patients upon prescription of their physicians.
621511 (Medical Laboratories)
The laboratories in this classification are independent, commercial enterprises that provide bacteriological, biological, histological, blood, chemical, and pathological analysis; urinalysis; and medical and dental x-rays. While demand is high due to the increased health care needs of the country's aging population and the outbreak of new and serious diseases, intense competition, cost-cutting measures implemented by managed care organizations, and a lack of skilled workers presented challenges to the industry's continued growth in the twenty-first century.
Laboratory companies have met these challenges by growing through mergers and acquisitions and by continually developing faster, cheaper, and less invasive testing procedures. One significant trend is toward more point-of-care testing, in which tests are performed in a doctor's officer—or in the case of home health care, at home—with testing, diagnosis, and treatment consolidated to one location. By 2001, over half of all simple medical testing was completed in doctors' offices.
Medical laboratories are governed by the Clinical Laboratory Improvement Act of 1988 (CLIA '88). These regulations, implemented in 1992, increased requirements for proficiency testing, thereby raising costs. The cost of proficiency materials tests went up by 67 percent in the first eight months of 1992. While the new regulations caused the cost of materials to go up, the regulations also simplified administrative costs by unifying separate rules that had been established under previous programs.
National health care expenses more than doubled between 1980 and 1990, from $250 billion to $696 billion per year, and nearly doubled again by 2000, reaching $1.3 trillion. Because of these huge increases, employers and insurers sought to control costs. They took steps to substitute outpatient treatment for hospitalization when possible. Insurers and employers wanted to see laboratory tests and x-rays to determine if hospitalization recommended by physicians was really necessary. Hospitals also had a stake in making sure that unnecessary hospitalizations were not occurring. After 1983, hospitals were reimbursed for Medicare patients at a modest rate as determined by federal "diagnostic related groups (DRG)"—standard rates determined by a patient's diagnosis, age, sex, treatment modality, and discharge status. If costs exceeded DRG prices, the hospitals were required to absorb the cost. Ironically, the new emphasis on tests caused the cost of diagnostic procedures to skyrocket. Insurers and employers sought to hold down costs for these as well.
One of the most vigorous debates in medicine in the mid-1990s centered on clinical laboratories owned by doctors. In 1989, the federal government passed a law prohibiting doctors from referring Medicare or Medicaid patients to clinical laboratories in which they had invested, but critics wanted to ban doctors from referring any patients to such laboratories. Self-referral, they argued, leads to unnecessary diagnostic procedures. Government studies indicated that 10 percent of the nation's doctors had invested in a business to which they sent their patients and that these doctors made more such referrals than doctors who had not invested in the facilities to which they referred patients.
Other legal issues that haunted the industry during the early 1990s included fraud and charges of unsafe practices. In 1993 state and federal officials subpoenaed the Medicaid and Medicare records of at least five of the country's largest medical labs in an effort to stop suspected fraud, such as unallowable overhead Medicare charges, overcharging, and false claims. The owner and president of Diagnostic Technology Inc. and New York Blood Components was convicted of a felony and misdemeanors and fined $25,000 for sending lab test kits containing HIV-and hepatitis B-contaminated blood through the mail. In the late 1990s, industry observers were concerned with the future direction of EPA rulings governing lab waste disposal.
Total revenues for all clinical laboratory services in the United States in 1999 were $39.2 billion. Commercial laboratories of the sort represented in this industry sector were responsible for more than one-third of those totals, with 1999 revenues of $14.9 billion. Other providers of clinical laboratory services were hospitals and physicians' offices. Of these types of laboratories, commercial labs showed the most growth, with a compound growth rate of 5.4 percent, compared to 2.5 percent for hospitals and 1.2 percent for physicians' offices. Hospitals continued to reduce the number of laboratories they operate.
The increasing presence of managed care in the health care industry has been a major influence on the continued consolidation of medical laboratories. As in other sectors of the economy, large national chains dominated and often drove out independent laboratories. While there were fewer large chains in the late 1990s, those chains in existence increased dramatically in size. Some analysts suggest that only large chains—or laboratories that join to form "purchasing groups"—can afford to provide services at the extremely low costs managed care firms demand. Some managed care groups have also negotiated a "subscription" rate with laboratories so that they pay one total annual fee for all services instead of paying for each test individually. The trend toward managed care has also compelled physicians to order fewer tests to cut costs and to take fewer samples for testing.
According to the 2002 U.S. Statistical Abstract, in 2000 the medical and diagnostic laboratory industry took in nearly $23.2 billion in revenues, up from $19.2 billion in 1998. Employment statistics also grew steadily reaching 216,000 in 2001, up from 166,000 in 1990. During the early 2000s the industry was struggling with a shortage of qualified laboratorians, and laboratories were thus turning more to automated systems for simpler tests.
The diagnostic laboratory industry was undergoing a significant trend toward point-of-care testing, in which patients enter a doctor's office for "test-and-treat" care. Physicians' testing facilities was the fastest growing sector of the medical laboratory industry. S. Wayne Kay, chief executive officer of Quidel Corporation, which specializes in point-of-care diagnostic tools, told Medical Laboratory Observer, "The movement towards decentralization of the laboratory and the need for more accessible diagnostic testing where the physician can test and treat will contribute to this demand curve. This speed of service—fast turnaround times—combined with a medically important need to diagnose and treat as quickly as possible, makes our mission exciting." In 2001, approximately 58 percent of the nation's 170,000 medical laboratories were located in doctors' offices.
Another trend in the industry was the rapid growth of molecular diagnostic testing. Diagnostic laboratories were also on the cutting edge in developing tests and solutions in anticipation of any bioterrorism attacks on the United States, following the terrorist attacks of September 11, 2001.
The medical laboratories industry underwent significant reorganization during the late 1990s. In February 1999 SmithKline Beecham announced an agreement to sell its laboratory division to Quest Diagnostics (formerly MetPath/Corning Clinical Laboratories, until Corning sold it off in 1997). The division was sold for $1.02 billion and a 29 percent equity interest in Quest (estimated worth, $245 million). In 2002 Quest reported net income of $322.2 million on revenues of $4.1 billion, making it the largest medical laboratory company in the United States. Its acquisition of SmithKline Beecham's lab operations in 1999 also made it the industry leader in drug testing services for employers. In early 2000, Quest announced a joint venture with online health services provider Caresoft Incorporated to make patients' lab results available through Caresoft's Web site.
For 2002, Laboratory Corporation of America Holdings (LabCorp), another industry leader, reported earnings of $254.6 million on $2.5 billion in sales. Despite its high sales ranking, LabCorp also faced serious difficulties in the second half of the 1990s, starting with its guilty plea to accusations of criminal fraud in 1996. The company lost $166 million between 1996 and 1997. Some company officials, as well as some industry observers, suggested that the government was partially to blame for the fraudulent billing because it lacked clear billing guidelines. Nonetheless, LabCorp retained a good position for growth, rebounding in the 2000s to post a profit. LabCorp owns DynaCare, which also provides diagnostic testing services.
Employment in this industry grew steadily through the last thirty years of the twentieth century. According to the U.S. Department of Labor, Bureau of Labor Statistics, in 2001 the medical and dental laboratory industry accounted for 224,110 workers. Medical and clinical laboratory technologists and technicians held nearly 20 percent of the industry's workforce. Technologists had a mean annual salary of $42,790; technicians, $28,360.
Clinical laboratory technologists have a bachelor's degree in medical technology or in another life science. They can perform a variety of complex tests. In larger laboratories, they generally specialize in a particular area, such as microbiology or immunology. Technicians have associate degrees or a diploma from a vocational or technical school and perform more routine tests. Some states require lab personnel to obtain licenses. Certification is another way that individuals in this field prove their competence. Because technicians are cheaper to employ than better-educated technologists, many labs began to use more technicians; at some companies, technicians constituted up to 75 percent of the staff.
Developments that may affect the workforce in the twenty-first century include increasing automation, a growing number of products that allow patients to self-test at home, and more "point-of-care" testing (testing that does not need to be performed at a central laboratory site). In 1999, the Medical Automation Research Center reported that 50 percent of tests performed at central laboratories could be performed at the point of care using only existing technology. The center predicted that by 2004, 80 percent of tests would be performed "at the patient's bedside." Others suggest, however, that the need for manually obtained specimens and the increasing number of lab tests available will ensure continued job growth in this field.
An important trend in the development of new clinical testing procedures is the increase in early-stage testing procedures that can find disease much sooner than tests used in the past could. These procedures are often less invasive and quicker than older methods. Examples include a test that more accurately determines one's risk of heart disease by "listening" to fats in the blood, thus allowing a more precise reading of cholesterol levels. Researchers have also developed an instrument that analyzes the breath to detect diseases, including kidney problems and diabetes. This device was expected to be available by 2005.
Testing for cancer was another growth area—early testing could mean thousands of lives saved each year. New technologies in 1999 included a less invasive test for prostate cancer that more precisely measured the amount of prostate-specific antigens. A test that detected unusually high amounts of certain DNA elements in the urine—a potential sign of cancer—was in the early trial stage. Genetic testing was also a major area of research for the detection and prevention of cancer, but as of 1999, over 90 percent of this type of testing was performed in university hospitals—an indication that this technology was still at a very early stage of development.
Other areas of expected development included the miniaturization of laboratory devices, allowing them to fit in the hand, and molecular biotechnology, an example of which is applying knowledge gained from the sequencing of the human genome, a project expected to be completed by 2003.
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