Diagnostic & Medical Laboratories in The US Industry Report

WWW.IBISWORLD.
COM Diagnostic & Medical Laboratories in the USJune 2017 1
Good results: The industry will benefit from

increasing demand from an aging population
This report was provided to
University of Michigan (2126835696)
by IBISWorld on 22 August 2017 in accordance with their license agreement with IBISWorld
IBISWorld Industry Report 62151

Diagnostic & Medical
Laboratories in the US
June 2017 Jack Curran
2 About this Industry 19 International Trade 36 Regulation & Policy

2 Industry Definition 20 Business Locations 38 Industry Assistance
2 Main Activities
2 Similar Industries 22 Competitive Landscape 40 Key Statistics
3 Additional Resources 22 Market Share Concentration 40 Industry Data
22 Key Success Factors 40 Annual Change
4 Industry at a Glance 23 Cost Structure Benchmarks 40 Key Ratios
25 Basis of Competition 41 Industry Financial Ratios
5 Industry Performance 26 Barriers to Entry
5 Executive Summary 27 Industry Globalization 42 Jargon & Glossary
5 Key External Drivers
7 Current Performance 28 Major Companies
9 Industry Outlook 28 Quest Diagnostics Inc.
11 Industry Life Cycle 29 Laboratory Corporation of America
Holdings
13 Products & Markets

13 Supply Chain
32 Operating Conditions
32 Capital Intensity
13 Products & Services
33 Technology & Systems
15 Demand Determinants
35 Revenue Volatility
16 Major Markets
www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

WWW.IBISWORLD.COM Diagnostic & Medical Laboratories in the USJune 2017 2
About this Industry
Industry Definition Operators in this industry provide patients history, examination and data.
analytic services to identify or determine These services are provided to healthcare
the nature and cause of a disease or providers or patients upon referral from
injury through the evaluation of a health practitioners.
Main Activities The primary activities of this industry are

Operating diagnostic imaging centers
Operating dental or medical X-ray laboratories
Operating medical forensic laboratories
Operating medical testing laboratories
Operating blood analysis laboratories
Operating medical bacteriological laboratories
Operating computer tomography (CT-scan) centers
Operating magnetic resonance imaging (MRI) centers
Operating medical radiological laboratories
Operating ultrasound imaging centers
The major products and services in this industry are

Anatomic pathology services
Clinical pathology services
General pathology services
Magnetic resonance imaging (MRI) services
X-ray/radiography imaging services
Other
Similar Industries 33911a Medical Instrument & Supply Manufacturing in the US

Medical instrument manufacturers supply laboratory apparatus and furniture, surgical and medical
instruments and surgical appliances to wholesalers, hospitals, private practices and laboratories.
62111b Specialist Doctors in the US

Doctors in this industry specialize in providing health screening, pathology, forensic or radiology services.
62199 Blood & Organ Banks in the US

Blood and organ banks collect, store and distribute blood, blood products and body organs.
62211 Hospitals in the US

Hospitals provide a range of patient care services, including anatomical pathology tests, diagnostic x-rays
and clinical laboratory services.
Provided to: University of Michigan (2126835696) | 22 August 2017

About this Industry
Additional Resources For additional information on this industry

www.acla.com
American Clinical Laboratory Association
www.cdc.gov
Centers for Disease Control and Prevention
www.clma.org
Clinical Laboratory Management Association
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WWW.IBISWORLD.COM Diagnostic & Medical Laboratories in the US June 2017 4
Industry at a Glance
Diagnostic & Medical Laboratories in 2017
Key Statistics Revenue Annual Growth 12-17 Annual Growth 17-22

Snapshot
$53.3bn 0.9% 2.7%
Profit Wages Businesses
$7.3bn $18.1bn 29,914

Revenue vs. employment growth Number of people with private health
Market Share insurance
Quest Diagnostics 6 4
Inc.
4
14.3% 2
2
% change
% change
Laboratory 0
Corporation of 0
America Holdings -2
-2
13.3%
-4 -4
Year 09 11 13 15 17 19 21 23 Year 10 12 14 16 18 20 22
Revenue Employment
SOURCE: WWW.IBISWORLD.COM
p. 28
Products and services segmentation (2017)
6.8%
Key External Drivers Anatomic
pathology services
Number of people with 10.0%
Magnetic resonance
private health insurance
Total health expenditure
imaging (MRI) services
36.8%
General
Federal funding for pathology services
Medicare and Medicaid 10.3%
X-ray/radiography
Number of adults imaging services
aged 50 and older
Technological change
for the Diagnostic and
Medical Laboratories
industry
17.5%
Other
p. 5 18.6%
Industry Structure Life Cycle Stage Growth Regulation Level Heavy

Revenue Volatility Low Technology Change High
Capital Intensity Low Barriers to Entry Medium
Industry Assistance Medium Industry Globalization Low
Concentration Level Low Competition Level High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 40

Industry Performance
Executive Summary | Key External Drivers | Current Performance
Industry Outlook | Life Cycle Stage
Executive Operators in the Diagnostic and Medical expenditures and secure large-scale
Summary Laboratories industry are an integral part contracts with hospitals that lack in-
of patients medical evaluation and house laboratory testing. While the aging
treatment. Laboratories are vital to the population has prompted demand for
healthcare sector, as industry operators laboratory services, it has also posed a
provide healthcare practitioners with challenge for the industry. For example,
information concerning the onset, laboratories are facing a shortage of
severity and cause of patients ailments skilled labor as baby boomers, which
and illnesses. The aging population and constitute a significant portion of the
the movement toward preventive care industry workforce, retire and fewer
have stimulated demand for industry individuals pursue healthcare
services. For example, as more elderly professions. According to the US
patients received preventive screening Department of Labor, demand for
tests, many required laboratory services medical laboratory professionals is
exceeding supply, which is being further
exacerbated by a significant share of the
Consolidationhas boosted profitability due to laboratory workforce retiring. To mitigate
larger operations enabling laboratories to share the shortage, many operators have
increased salaries as a method to entice
their R&D expenditures workers into the field, while also
retaining their current employees.
to address irregular screening results. In Over the five years to 2022, industry
the five years to 2017, industry revenue is revenue is forecast to grow at an
anticipated to grow at an annualized rate annualized rate of 2.7% to $60.7 billion.
of 0.9% to $53.3 billion, including 2.1% The industry will benefit from scientific
revenue growth in 2017. Profit is advances that yield new and improved
expected to increase from 9.8% in 2012 service capabilities, coupled with the aging
to 13.7% in 2017 as a result of growing US population requiring more laboratory
demand for industry services and stable testing and diagnostic imaging services.
operating costs. As healthcare reform mandates that all
Industry consolidation has also individuals have healthcare insurance,
boosted industry profitability due to out-of-pocket costs for laboratory services
larger operations enabling laboratories to are expected to decline, spurring demand
share their research and development for industry services.
Key External Drivers Number of people with Total health expenditure

private health insurance Health expenditure relevant to this
Health insurance reduces patients out-of- industry includes the cost of physician
pocket costs for healthcare, encouraging visits and prescriptions that require a
individuals to visit their physicians. laboratory test prior to being written.
Payments from private insurance make up Physicians rely on diagnostic testing to
41.6% of industry revenue; however, help identify the risk for a disease and aid
healthcare insurers have taken steps to in the choice of therapeutic procedures.
control pricing, thus constraining demand Moreover, many drug therapies require a
for healthcare services. The number of lab test before a prescription can be
people with private health insurance is written. The increasing level of spending
expected to increase in 2017. on healthcare in the United States will

Key External Drivers positively affect expenditure on industry obstructive pulmonary disease and
continued services. Total health expenditure is arthritis, are more common in older
expected to increase in 2017, creating a populations; therefore, the need for
potential opportunity for the industry. diagnostics will continue to increase as
the population matures. The number of
Federal funding for Medicare and Medicaid adults aged 50 and older is expected to
Medicare and Medicaid are federal increase in 2017.
programs that assist seniors and
individuals with low incomes with paying Technological change for the Diagnostic
their medical bills. Medicare and and Medical Laboratories industry
Medicaid reimbursements account for Technological advancements typically
20.3% of industry revenue and lower bolster patients access to laboratory
patients out-of-pocket healthcare testing, which is becoming increasingly
expenditures, thus stimulating greater accurate and affordable. For example,
patient demand for industry services. point-of-care testing (POCT) is
Federal funding for Medicare and implemented in hospitals and other
Medicaid is expected to increase in 2017. healthcare practices, meaning patients do
not have to travel to clinical laboratories.
Number of adults aged 50 and older The rising use of POCT has decreased
The aging population drives demand demand for some tests that have been
because the need for industry services traditionally performed at laboratories.
increases considerably with age. Many Technological change is expected to
chronic diseases, such as diabetes, increase in 2017, posing a potential threat
congestive heart failure, chronic to the industry.
Number of people with private health Total health expenditure

insurance
4 6
5
2
4
% change
% change
0
3
-2
2
-4 1
Year 10 12 14 16 18 20 22 Year 10 12 14 16 18 20 22

Current Healthcare has been shifting from

curative care to detection, prevention and Industry revenue
Performance personalized care over the past five years,
6
which has benefited the Diagnostic and
Medical Laboratories industry. More 4
physicians and payers, such as Medicare,
recognize the vital role diagnostic testing 2
% change
and disease prevention play in improving
patient health and reducing healthcare 0
costs. As a result, the trend of preventive

-2
care has stimulated demand for industry
services, as more physicians examined -4
patients blood and tissue and tested for Year 09 11 13 15 17 19 21 23
health ailments with technology such as
magnetic resonance imaging scans. SOURCE: WWW.IBISWORLD.COM
Furthermore, the burgeoning elderly

population has stimulated industry of 0.9% to $53.3 billion, including 2.1%
revenue, as people in this demographic revenue growth in 2017. Profit is
require laboratory services to monitor expected to increase from 9.8% in 2012
their high rate of chronic illnesses. In the to 13.7% in 2017 as a result of increasing
five years to 2017, industry revenue is demand for industry services and
anticipated to grow at an annualized rate stagnant operating costs.
Laboratory technician The burgeoning elderly population has about 7,000 laboratory jobs are needed
shortage spurred demand for clinical testing. With each year, which exceeds the supply of
the number of individuals aged 50 and about 6,000 new graduates each year.
older anticipated to grow at an However, according to the US
annualized rate of 1.7% in the five years Department of Labor, only about
to 2017, demand for laboratory testing one-third of the needed medical
has risen, as this demographic frequently laboratory professionals are actually
monitors their chronic illnesses and other being trained, thus resulting in a
health ailments. While demand for shortage. Industry employment is
industry services has increased, the anticipated to grow at an annualized rate
industry has contended with a shortage of 1.8% to 292,489 workers in the five
of laboratory technicians. For example, years to 2017. Many laboratories have
about half of the nations laboratories hired temporary staff to handle patient
have struggled with hiring personnel, testing. Moreover, wages are expected to
according to the American Society for grow at a slightly lower annualized rate
Clinical Pathology. of 1.3% to $18.1 billion during the
As many baby boomers retire, the five-year period, due to the average wage
availability of skilled labor in this declining as more diagnostic and
industry has been strained, since this medical laboratories hire part-time staff.
demographic accounted for a significant While many laboratories have adopted
share of the workforce. The National new technologies to reduce the need for
Accrediting Agency for Clinical human processing, skilled workers are
Laboratory Sciences has estimated that still required to analyze data results.

Pricing pressures As healthcare expenditures have increased,

more healthcare providers (e.g. physicians As
healthcare expenditures
and hospitals) have implemented cost-
cutting strategies. Consequently, managed-
rise, healthcare providers
cost healthcare has become a primary have implemented cost-
method of cost control over traditional cutting strategies
fee-for-service medicine.
Managed-care organizations (MCOs),
organizations that contract physicians to affects laboratories. Since 2011, healthcare
deliver medical care and maintain control reform cut 1.8% of the Medicare lab fee
over the care provided, often have a schedule. The adjustment also led to a
multitude of contracting philosophies. drop in the annual update (i.e. the annual
While some MCOs have contracts with a change in Medicare reimbursement
limited number of clinical laboratories amounts) for clinical laboratory testing.
and negotiate the fees charged, others Furthermore, additional reductions in
contract willing providers at specified Medicare reimbursement are expected to
rates. In addition, some MCOs have used hamper industry revenue.
capitated payment contracts in an In response to cost-cutting pressures,
attempt to fix the cost of laboratory customers and payers (e.g. physicians,
testing services for their enrollees. Under health insurance providers, employers
this type of contract, the clinical and pharmaceutical companies) have
laboratory and MCO agree to a per- consolidated. This consolidation is
member, per-month payment plan for all increasing customer and payer
authorized laboratory services. bargaining power and encouraging
In addition, Medicare, Medicaid and internalization of testing. For example,
insurers have increased efforts to control MCOs seeking to restrict spending on
the cost, use and delivery of healthcare healthcare costs for members can use
services. Measures to regulate healthcare their size to negotiate lower prices on
delivery and laboratories, such as new laboratory services. In response,
regulatory requirements, have resulted in diagnostic and medical laboratories have
reduced prices, added costs and fewer consolidated, with the number of
tests. The productivity adjustment is a industry enterprises increasing at an
provision of the 2010 Patient Protection estimated annualized rate of 2.2% to
and Affordable Care Act, which directly 29,914 companies during the period.
Personalized care Over the past five years, consumers, example, Quest Diagnostics, one of the
employers, health insurers and government industrys leading companies, has
institutions have been focusing on the developed tests that determine a patients
importance of detection, prevention and genotype and susceptibility to diseases.
personalized care to improve patient health While these efforts have sustained
and reduce healthcare costs. Research and growth, advances in medical
development activities in genomics (the technologies, particularly point-of-care
study of DNA, genes and chromosomes) testing (POCT), have posed as a
and advancements in medical technology competitive threat to laboratories. POCT
have spurred interest in, as well as demand provides convenient and immediate
for, personalized medicine that relies on testing to patients by locating testing
diagnostic and prognostic testing. For sites near patients and hospitals, which

Personalized care has allowed patients and physicians to Diagnostics, have formed contracts and
continued receive results more quickly. Still, joint ventures with hospitals, limiting
according to a 2014 Modern Healthcare their exposure to external competition
article, hospitals may outsource their from hospitals with in-house
laboratory services to cut costs, enabling laboratories. Regardless of whether or
hospitals to instead focus on their core not hospitals outsource their laboratory
operations. Moreover, some larger services, laboratories are still required to
diagnostic laboratories, such as Quest process and integrate POCT results.
Industry Operators in the Diagnostic and Medical

Laboratories industry will benefit from
illnesses, which will require frequent
monitoring and testing by healthcare
Outlook healthcare reform over the next five years. providers. As more insured individuals use
As healthcare reform increases the number industry services, such as magnetic
of insured individuals, demand for industry resonance imaging and CT scans and
services will rise in line with lower out-of- biopsies for irregular screening results,
pocket costs, enabling more patients to revenue is expected to grow, increasing at
afford laboratory tests. Moreover, the aging an annualized rate of 2.7% to $60.7 billion
US population will bolster demand for in the five years to 2022. Profit is expected
laboratory testing due to this to remain steady at 13.7% or industry
demographics high prevalence of chronic revenue over the next five years.
Healthcare reform The Patient Protection and Affordable

Care Act (PPACA), signed into law in Whilehealthcare reform
2010, will continue to affect the industry
during the five-year period. The PPACAs
presents opportunities, not
focus on disease prevention and its all new regulations will be
inclusion of laboratory services as part of positive for the industry
the basic coverage for those currently
uninsured will increase the number of
patients with access to industry services. testing volumes. In 2015, the Centers for
Under the PPACA, Medicare will cover Medicare and Medicaid proposed cutting
the entire cost of preventive services, its laboratory testing fees by about $5.0
such as screening tests. All private health billion. This resulted in significant cuts in
plans must also provide coverage for laboratory payments from Medicare and
preventive services without cost sharing, Medicaid, which collectively account for
such as insurance providers sharing costs about 20.3% of total revenue.
with the patient through copayments, Overall, the Congressional Budget
coinsurance or deductibles. Office projects that these reforms to the
While healthcare reform presents clinical laboratory fee schedule will cut
some opportunities, not all new Medicare spending by $1.0 billion
regulations will be positive for the between 2014 and 2019 and an additional
industry. The Protecting Access to $2.5 billion from 2014 to 2024. This
Medicare Act, implemented in 2014, has legislation will require laboratories to
required clinical laboratories to disclose report variations in payment rates, such
their private insurance payments and as varying payments across payers, thus

Healthcare reform likely translating to fewer discrepancies rates. In addition, laboratories can be
continued in payments. Diagnostic and medical fined up to $10,000.00 per day for
laboratories will likely contend with failing to report or misrepresenting
increasingly competitive reimbursement laboratory payments.
Increased The industry will continue to consolidate

over the next five years. Large operations Theindustry will continue
consolidation
will enable companies to increase their to consolidate over the next
test volumes and secure supply-side
contracts with hospitals. As a result, the five years
number of industry enterprises is
expected to increase at an annualized rate healthcare providers, including
of 1.8% to 32,676 companies in the five laboratories. Healthcare plans and
years to 2022. However, wages are independent physician associations may
anticipated to grow at an annualized rate demand that clinical testing providers
of 2.6% to $20.6 billion as laboratories accept discounted fee structures or
contend with the shortage of workers by assume all or a portion of the financial
increasing the average wage to attract risk associated with providing testing
and retain employees. services to members through payment
The PPACA initiates various methods arrangements. In addition, some
of reducing healthcare spending in the healthcare plans are willing to limit the
United States. In response, the healthcare laboratory network to only a single
sector is projected to experience a trend national laboratory to obtain improved
of consolidation among insurance plans. fee-for-service pricing. This trend will
The resulting few, but large insurance benefit laboratories of considerable size
plans will have more bargaining power to that have a national presence and
negotiate fee arrangements with negotiating power.
Medical advances Medical advancements will allow for molecular diagnostics, protein
more accurate and timelier diagnoses chemistry, cellular immunology and
and treatments. In particular, research advanced microbiology. These tests
in genomics will result in the typically require hands-on attention
development of more specialized from highly skilled technical personnel
diagnostic tests. Physicians will and sophisticated technology,
increasingly order gene-based and other equipment or materials. They can also
esoteric tests to assist them in the be performed less frequently than
diagnostic process, establish prognoses routine tests. Consequently, esoteric
and choose therapeutic regimens. tests are generally reimbursed at higher
Esoteric tests include procedures in levels than routine tests.

Life Cycle Stage Industry value-added is forecast to grow faster than
the overall economy over the ten years to 2022
Technology is increasing the
range of services available
Industry services can reduce
overall healthcare costs
20 Maturity Quality Growth

% Growth in share of economy
Key Features of a Growth Industry

Company High growth in economic
consolidation; importance; weaker companies Revenue grows faster than the economy
level of economic close down; developed Many new companies enter the market
importance stable technology and markets Rapid technology & process change
Growing customer acceptance of product
15 Rapid introduction of products & brands
10
Quantity Growth
Many new companies;
minor growth in economic
importance; substantial
5 technology change
Primary Care Doctors
Diagnostic & Medical Laboratories

Specialist Doctors Veterinary Services
0
Inorganic Chemical Manufacturing
Medical Instrument & Supply Manufacturing
-5 Decline
Shrinking economic
importance
-10
-10 -5 0 5 10 15 20
% Growth in number of establishments

Industry Life Cycle The Diagnostic and Medical Laboratories promote growth in specialty tests, which
industry is in the growth stage of its life typically generate higher revenue and
cycle, evidenced by the industry growing profit than routine tests. Potential threats
This industry faster than the overall US economy. Over to the industrys growth include
is G
rowing the 10 years to 2022, industry value added substitute services, such as more cost-
(IVA), which measures the industrys effective point-of-care testing equipment.
contribution to the overall economy, is These developments allow physicians to
expected to increase at an annualized rate perform tests in their offices without
of 2.8%. Comparatively, GDP is projected requiring services from clinical
to grow at an annualized rate of 2.1% laboratories. In addition, health
during the period. Industry growth is due expenditure savings are being sought,
to the aging population and greater which will likely put downward pressure
funding for preventative medicine. on reimbursement rates.
Laboratories have been used for many Although the industry has undergone
decades, which will allow a few players to some consolidation, which is usually a
dominate the industry over the next five sign of a mature industry, rising demand
years. Many industry services can provide for diagnostic and medical laboratory
low-cost results, compared with services contributes to the industrys
substitute interventional approaches, growth life cycle stage. Industry
such as exploratory surgery. Early operators are consolidating to reduce
diagnosis of treatable diseases can also costs and maintain their bargaining
lower overall health costs, thus causing power with downstream markets.
diagnostic services to grow in popularity. Companies are also consolidating in
In the medical laboratory-testing response to any potential challenges or
segment, this trend is expected to opportunities from healthcare reform.

Products & Markets

Supply Chain | Products & Services | Demand Determinants
Major Markets | International Trade | Business Locations
Supply Chain KEY BUYING INDUSTRIES

54194 Veterinary Services in the US
Veterinarians use industry services to help diagnose ailments of animals.
62111a Primary Care Doctors in the US
Family and general medical doctors use industry services to help diagnose and treat their
patients ailments. These physicians have been ordering more tests per average patient, but
some physician offices have their own laboratories and imaging centers.
62111b Specialist Doctors in the US
Specialist medical doctors use industry services to help diagnose and treat their patients
ailments. Some physician offices have their own laboratories.
62131 Chiropractors in the US
Chiropractors use diagnostic imaging services (usually related to the spine) to help diagnose
and treat patients ailments.
62149 Emergency & Other Outpatient Care Centers in the US
Outpatient care clinics use industry services to help diagnose and treat patients ailments.
62211 Hospitals in the US
Hospitals use the services of both clinical laboratories and diagnostic imaging centers to help
diagnose and treat patients ailments. Many hospitals have their own laboratories and
imaging centers.
62221 Psychiatric Hospitals in the US
Psychiatric hospitals use the services of both clinical laboratories and diagnostic imaging
centers (such as for images of the brain) to help diagnose and treat patients ailments.
62231 Specialty Hospitals in the US
Specialty hospitals use industry services to help diagnose and treat patients ailments (such as
cancer). Many hospitals have their own laboratories and imaging centers.
KEY SELLING INDUSTRIES

32518 Inorganic Chemical Manufacturing in the US
Inorganic chemicals are used in medical testing.
32519 Organic Chemical Manufacturing in the US
Organic chemicals, such as reagents, are used in medical testing.
33451b Medical Device Manufacturing in the US
Medical device manufacturers supply equipment used in this industry, such as MRI equipment
and medical ultrasound equipment. Other items include tubes used for medical diagnostic and
medical therapeutic evaluation.
33911a Medical Instrument & Supply Manufacturing in the US
Medical instrument manufacturers supply equipment used in this industry. Some items of
equipment can be expensive (e.g. MRI machines and large medical testing equipment).
42345 Medical Supplies Wholesaling in the US
Wholesalers provide medical supplies to this industry.
42469 Chemical Wholesaling in the US
Chemical wholesalers supply chemicals, such as reagents, to the medical testing industries.
Products & Services General pathology services molecular pathology services and
General pathology services are expected excludes both anatomic and clinical
to make up 36.8% of total revenue. This pathology services. For example,
product segment typically encompasses molecular pathology focuses on diseases

Products & Markets
Products & Services Products and services segmentation (2017)

continued
6.8%
Anatomic pathology services
10.0%
Magnetic resonance imaging (MRI) services
36.8%
General pathology services
10.3%
X-ray/radiography imaging services
17.5%
Other
18.6%
Total $53.3bn SOURCE: WWW.IBISWORLD.COM
at the molecular level, which may involve clinical pathology embodies taking bodily
studying patients at a more macro level, tissue to help diagnose diseases. In
such as examining results after addition, clinical pathology includes
anatomical pathology, clinical pathology, chemical pathology, immunology or
genetics, molecular biology and immunopathology and hematology or
biochemistry are factored in. Moreover, hematopathology. Chemical pathology
general pathology services entails encompasses bodily fluid analysis, in
examining patients from the perspective addition to blood serum and plasma
of analyzing the basic mechanisms of analysis. Conversely, immunology
disease, rather than how disease occurs includes studying immune system
in each organ system. disorders (e.g. immunodeficiencies and
As the prevalence of disease rises, allergies). Lastly, this product segment
partly driven by the burgeoning elderly includes hematology, or the process of
population, so will demand for general diagnosing blood diseases. Over the past
pathology services. Overall, this product five years, this product segment has
segment examines how cells react to grown due to clinical pathology services
abnormal stimuli at a more macro level being integral to the detection,
than clinical pathology. Still, the classification and interpretation of
healthcare landscape may impede rising patients clinical data.
demand for general pathology services.
In particular, according to data from the X-ray/radiology imaging
College of American Pathologists, by In 2017, x-ray and radiology imaging
2020, there is expected to be 14.0% fewer generates 10.3% of total revenue. X-rays
pathologists than needed. take images of a patients body tissues,
which, in turn, is used to diagnose patients
Clinical pathology services with bone fractures, arthritis, scoliosis,
Clinical pathology services comprise an tumors and osteoporosis, among other
estimated 18.6% of total revenue. This clinical applications. Conversely, radiology
product segment includes extracting imaging encompasses additional forms of
laboratory samples and analyzing testing, including testing bone density and
patients body fluids, including blood, upper gastrointestinal (GI) series. Over
urine and cerebrospinal fluid. Moreover, the past five years, demand for x-ray and

Products & Markets
Products & Services radiology imaging has risen, partly thanks demand for MRI imaging is expected to
continued to the increasing incidence of cancer. As slow, thanks to some healthcare
radiation imaging becomes more common providers (e.g. hospitals) being wary of
to look for cancer, which may also be used purchasing high-cost equipment in line
to determine if a patient is in remission, with increasingly stringent Medicare and
demand for this product segment has Medicaid reimbursements.
risen. According to the American Cancer
Society, there was about 1.7 million new Anatomic pathology
cancer cases in the United States in 2015 Anatomic pathology makes up an
(latest data available). estimated 6.8% of total revenue. This
segment involves analyzing patients
MRI imaging surgically removed specimens or
MRI imaging accounts for 10.0% of total examining the patients body (i.e.
revenue. Typically, MRI imaging is used autopsies). Anatomic pathology
to evaluate patients organs (including encompasses surgical pathology (i.e.
the chest and the abdomen), pelvic specimens removed during surgery),
organs, blood vessels and lymph nodes. histopathology (i.e. examining cells after
In turn, physicians can use MRI imaging they have been dyed), cytopathology (i.e.
results to evaluate if patients have studying cells that have been extracted
tumors, liver diseases (e.g. cirrhosis), form bodily fluids), forensic pathology
inflammatory bowel disease (e.g. Crohns and dermatopathology. As there is the
disease), heart issues and malformations advent of new laboratory tests to examine
of blood vessels, among other clinical patients tissues and cells, demand for
applications. Over the next five years, this product segment will rise.
Demand Demand for diagnostic and medical treatments and therapeutics, which is
Determinants laboratory services is mainly influenced by leading to new diagnostic and monitoring
scientific advancements, which are yielding tests and interventional treatments. The
new and improved service capabilities; an continuing research and development in
aging population, which increases demand genomics is expected to yield new genetic
for laboratory testing and diagnostic tests and techniques. There is the risk,
imaging services; the extent to which however, that new technologies could
physicians and their patients appreciate the allow substitute services and products to
value that these services bring to health be provided. These substitutes could take
and wellness; and the cost of services, the form of more cost-effective, point-of-
which can be influenced by government care testing equipment that physicians can
program reimbursement. In addition, perform in their offices without requiring
demand for services is affected by the services of clinical laboratories.
competition from other types of facilities Advances in technology and systems
that also render these services, but have are also reducing the cost of providing
another primary activity (i.e. hospitals and these services, which is being passed on
physician offices). to consumers as more affordable tests.
Some industry services provide low-cost
Technology alternatives to traditional surgical
Acceleration in the development of new procedures, such as opening arteries as a
technologies provides better and earlier radiology procedure, versus major
disease diagnosis, accompanied by new vascular bypass surgery.

Products & Markets
Demand Population aging practicing preventative medicine, where

Determinants Laboratories face increased demand for blood testing is a primary tool. Many
testing as the population ages, and the medical problems are reflected in a
continued
industry is expected to establish patients blood before any noticeable
reference ranges for this unique group of symptoms. The rising cost of healthcare
patients. Although people live longer in the United States has encouraged the
today, a significant portion of the use of preventive care, including
population older than 65 years has some laboratory testing, to decrease patients
type of disability or impairment limiting need for costly procedures further down
their daily routine. Nearly half of the the road.
population older than 85 years needs
help with everyday living activities, and Cost of services and
this age group comprises the fastest- healthcare expenditure
growing group of the elderly population The availability and level of
in the United States. reimbursement from third-party payers,
The elderly makes up a such as Medicare, Medicaid and managed
nonhomogeneous population that has care, can reduce out-of-pocket costs and,
few well-defined physiological and hence, can bolster demand. However,
biochemical changes. One of the laboratory testing is somewhat protected
challenges is that low-level pathology from fluctuations in deductibles and
masks new or exacerbated conditions. copayments. Cost sharing is expected to
Consequently, the onset of a problem is reduce overuse of health services,
less clear and symptoms may blur with including laboratory testing, by making
the aging bodys diminished patients more aware of service costs. The
responsiveness. Therefore, disease patient does not initiate the use of
presentation is not always laboratory testing, though; rather,
straightforward in the elderly, and so physicians refer patients to laboratories
laboratory testing can improve and patients are unlikely to challenge the
preventative medicine. physicians order. Because physicians or
other healthcare providers request
Preventative medicine laboratory tests to aid with the diagnoses
Most physicians use laboratory testing to or monitoring of a patients medical
identify and diagnose diseases or assess a condition, demand is more sensitive to
persons general health at a point in time. the number of physician visits than to the
Medical professionals are increasingly cost of industry services.
Major Markets In most cases, the customer who orders provider venue (e.g. inpatient, outpatient
the testing is not responsible for the or ambulatory care) and type of test (e.g.
service payments. Depending on the clinical or anatomical pathology). For
billing arrangement and applicable law, most inpatient care, public and private
the payer may be a third party payers apply prospective payment
responsible for providing health systems, wherein rates are based on the
insurance coverage to patients, such as a patients diagnosis. Most other federal
health insurance plan, self-insured payers and many private payers use
employer benefit fund or Medicare or Medicares diagnosis-related group
Medicaid. Payment methods for (DRG) codes with assigning their own
laboratory tests vary by the type of payment rates.

Products & Markets
Major Markets Major market segmentation (2017)

continued 1.6%
Other healthcare
providers
5.9% payments 3.0%
Patient out-of-pocket Outpatient care facility payments
6.6%
Other
10.0%
Hospital payments 41.6%
Private insurance payments
11.0%
Health practitioners payments
20.3%
Total $53.3bn Medicare and Medicaid payments
Private insurance payments product offerings on point-of-service

Although physicians and patients are the plans and consumer-driven health plans
ultimate users of laboratory tests, health that offer a greater choice of healthcare
plans typically negotiate directly or providers. Reimbursement under these
indirectly with laboratories. Over the past programs is typically negotiated on a
five years, healthcare insurers have been fee-for-service basis, which generally
consolidating, which has increased their results in higher revenue per test than
ability to negotiate low prices for industry under capitation arrangements. In
services, with this trend expected to addition, several health plans have made
continue in the next five years. In certain strategic acquisitions or have developed
markets, such as California, health plans products to more broadly serve the
may delegate the ability to negotiate for individual market.
clinical testing services on behalf of Most agreements with major health
certain members to independent plans are nonexclusive arrangements.
physician associations (IPAs). However, certain health plans have
Health plans and IPAs often require limited their laboratory network to a
clinical test service providers to accept single national laboratory to obtain
discounted fee structures or assume all or improved pricing. In cases where
a portion of the financial risk associated members choose to use a noncontracted
with providing testing services through provider due to service, quality or
capitated payment arrangements and convenience, the noncontracted provider
discounted fee-for-service arrangements. is generally reimbursed at rates that are
Under capitated payment arrangements, considered reasonable and customary
industry operators provide services at a by the health plan provider. Contracted
predetermined monthly reimbursement rates are generally lower than
rate for each covered member, generally reasonable and customary rates.
regardless of the number or cost of A laboratory may also be a member of a
services provided. Average complementary network, which is
reimbursement rates under capitated generally a set of contractual
payment arrangements are typically arrangements that a third party will
lower than the average reimbursement maintain with various providers that will
rate. Health plans continue to focus then offer discounted fees for the benefit

Products & Markets
Major Markets of its customers. A member of a health providers and commercial clients. The
continued plan may choose to access a tests assist in the diagnosis, evaluation,
noncontracted provider that is a member detection, therapy selection, monitoring
of a complementary network. If so, the and treatment of diseases and other
provider is reimbursed at a rate negotiated medical conditions through the
by the complementary network. examination of substances in the blood,
tissues and other specimens. These
Medicare and Medicaid payments customer groups often enter into
Medicares implementation of DRGs and agreements with laboratories and centers
other prospective payment systems in the to provide services, generally at
1980s transformed hospital laboratories discounted rates. Other customers that
from profit centers to cost centers. DRGs use tests include dental practices,
created incentives to reduce the number veterinary clinics, pharmaceutical
of tests ordered and to shift inpatient companies (e.g. for pathology clinical
care to hospital outpatient and research on new drugs) and government
ambulatory care settings. This increased entities. During the five years to 2017,
the number of patients that independent there were no significant changes in the
laboratories serviced. Rising healthcare industrys market segmentation;
costs and efforts to control them, heightened demand for healthcare
however, have prompted payers to services has sustained the growth for
bundle hospital outpatient services under services provided by hospitals, physicians
outpatient prospective payment and other healthcare providers.
systems. Under Medicare, this move has Physicians that require testing for their
created an administrative and financial patients are one of the industrys primary
burden for some independent sources of testing services. Physicians
laboratories because they must bill determine which laboratory to
hospitals directly for the technical aspect recommend or use based on a variety of
of testing and bill Medicare directly for factors. Physicians also purchase and use
pathologist fees. industry point-of-care tests, such as
Most federal payers and the majority gene-based testing, which helps doctors
of commercial payers base their to diagnose and predict diseases and
reimbursement rates for laboratory improve their ability to analyze the
services on those paid by Medicare; effectiveness of treatments.
consequently, its payment policies are The industry provides hospitals with
influential on industry performance. services ranging from routine and
Reimbursement rates from Medicare specialty testing to contract management
have been following a downward trend services. Hospitals generally maintain an
during most of the five years to 2017 on on-site laboratory to perform patients
an inflation-adjusted basis. tests that are needed immediately.
However, hospitals also refer less time-
Independent physicians, physician sensitive procedures, less frequently
groups and hospitals needed procedures and highly specialized
Diagnostic and medical laboratories procedures to outside facilities, including
provide services that are used by independent clinical laboratories and
hospitals, physicians, other healthcare larger medical centers.

Products & Markets
International Trade The Diagnostic and Medical Laboratories are, however, very limited exports of
industry provides the majority of services specialized tests (i.e. specialized genetic
to domestic customers. The need for fast tests). Moreover, developments in
turnaround times, presence of telemedicine (i.e. providing clinical
government regulations (including those healthcare at a distance by using
related to Medicare and Medicaid telecommunication and information
reimbursement) and use of expensive technologies) may create potential for
high-tech equipment for many tests extending the pathology and diagnostic
represent barriers to foreign trade. There imaging practice into foreign countries.

Products & Markets
Business Locations 2017
West
AK
0.4 New
England
ME
Mid- 0.3
Great Atlantic 1 2
Lakes NY 3
WA MT ND 9.1
5 4
2.1 0.1 MN
Rocky
0.2 1.2
WI
OR Mountains SD
0.1
Plains 1.0 MI
2.5
PA
3.7
7
6
0.8 ID IA OH 9 8
0.4 WY 2.3
0.2
NE
0.5
IL IN WV VA
3.3 1.1 1.9
West NV
0.4 0.3
KY
UT MO
1.0 NC
0.9
0.4 CO KS 1.7 2.7
1.5 0.9 TN
SC
Southeast
1.6
CA 1.1
12.4
OK AR GA
1.6 0.6 AL 2.9
AZ MS 1.2
2.5 NM
0.5 Southwest 0.6
TX LA
1.6 FL
9.5 10.8
West
HI
0.3 Additional States (as marked on map) Establishments (%)
1 VT 2 NH 3 MA 4 RI Less than 3%
0.1 0.2 1.9 0.6 3% to less than 10%
10% to less than 20%
5 CT 6 NJ 7 DE 8 MD 9 DC
1.7 4.0 0.6 2.5 0.1
20% or more

Products & Markets
Business Locations The location of industry establishments is

Distribution of establishments vs. population
largely influenced by the size of the
population in the United States and the
30
age distribution of the region. Diagnostic
and medical laboratories are generally 25
located in proximity to hospitals and 20
physicians offices because these
healthcare providers refer patients to 15
%
laboratories. Because laboratories locate 10
near hospitals and physicians, the
geographic distribution of industry 5
operators follows that of healthcare 0
providers. Physicians are not consistently
West
Great Lakes
Mid-Atlantic
New England
Plains
Rocky Mountains
Southeast
Southwest
distributed, though, with much fewer
located in rural areas.
Geographic access to physicians has
improved during the past five years, Establishments
whereas laboratories have not diffused to Population
rural areas as quickly. This trend may be SOURCE: WWW.IBISWORLD.COM
due to a lag as laboratories wait for

demand to increase in rural areas and population; the Mid-Atlantic, accounting
accumulate the capital necessary to open for 20.1% of establishments and 15.3%
new locations. Substantial variation in of the population; and the West,
the supply of laboratories across accounting for 16.9% of establishments
communities remains. and 17.2% of the population. The largest
Industry activity is concentrated in states in terms of activity in this overall
the three most populous regions of the industry are California, with 12.4% of
United States: The Southeast, total industry establishments, Florida
accounting for 26.3% of industry (10.8%), Texas (9.5%), New York (9.1%)
establishments and 25.6% of the and Arizona (4.0%).

Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks
Basis of Competition | Barriers to Entry | Industry Globalization
Market Share The Diagnostic and Medical Laboratories is able to secure pricing discounts due to
Concentration industry exhibits a low level of large bulk orders.
concentration, with the top four players Large commercial clinical laboratories
accounting for an estimated 31.1% of may be able to increase their share of
Level
industry revenue in 2017. However, the overall clinical testing market due to
Concentration in market leaders Quest Diagnostics and their expansive service networks and
this industry is L ow Laboratory Corp of America generate lower cost structures. These advantages
27.7% of total industry revenue. Over the should enable larger clinical laboratories
past five years, consolidation has to more effectively serve large customers
increased, particularly in the laboratory and members of sizeable healthcare
segment, but the industry still remains plans. Medicare reimbursement
highly fragmented. reductions and the growth of managed
The laboratory business model is highly healthcare entities is also affecting
based on fixed costs, which allows industry structure because these
laboratories to benefit from large-scale customers are requiring low-cost testing
operations and larger volumes. About and national service networks. In
20.0% to 22.0% of the costs are variable addition, legal restrictions on physician
(primarily supplies and bad debt); though referrals, the ownership of laboratories
more sizeable operators can purchase and increased regulation of laboratories
supplies at a discount. For example, and diagnostic imaging centers are
Laboratory Corp of America purchases expected to contribute to further
supplies directly from manufacturers, and industry consolidation.
Key Success Factors Ensuring pricing policy is appropriate Economies of scale

Many operators compete based on price. A In this industry, companies can accrue
companys price structure should ensure cost efficiencies through growth and can
IBISWorld identifies profitability and concentrate on services gain access to nationally based customers
250 Key Success where there is competitive advantage. (e.g. managed-care entities).
Factors for a
business. The most Having a good reputation Proximity to key markets
It is important to establish a strong Operators should have collection points
important for this
reputation and relationship with and centers near to referring doctors and
industry are: referring doctors, hospitals and readily accessible to the public. Proximity
managed-care entities. to a hospital is also desirable.
Understanding government Ability to quickly adopt

policies and their implications new technology
Regulations are high in the healthcare Operators should have good billing
sector. Industry companies must be aware systems and efficient laboratory and
of and comply with regulations to maintain diagnostic equipment. They need to keep
smooth operations and take advantage of abreast of advances in the field to
potential government incentives. maintain a competitive service.

Cost Structure The principal components of the 1.75% fee cut to the clinical laboratory fee
Benchmarks industrys costs are compensation paid to schedule from the Centers for Medicare
technologists and drivers, system and Medicaid since 2011 that continued
maintenance costs and medical supplies. through 2017. This reduction was a result
The majority of these expenses are fixed, of negotiations to prevent a deeper cut in
meaning they do not vary significantly reimbursement or new taxes.
with the increase or decrease in revenue. In the diagnostic imaging segment,
As a result, a relatively small reduction in profit margins will decline and will be
the prices or volume of industry services adversely affected by competition from
could have a disproportionately negative physician-owned facilities, which will
effect on industry profit margins. affect independent operators scan
Economies of scale can be critical to volumes and margins. This trend will
driving profitability. The unit costs of lead to pressure from payers and an
automated laboratories fall as volumes increase in salaries of technologists. In
rise. The need for a more extensive contrast, the medical laboratory segment
collection network to obtain a sufficient is expected to enjoy growing profit
level of samples for efficient equipment margins, due mainly to efficiency gains
usage somewhat offsets the cost and growth in higher-margin esoteric and
advantage held by larger laboratories. gene-based tests.
Cost savings can come from improved Gasoline costs, which constitute a
purchasing procedures (there can be significant portion of the industrys
more than 1,000 supply items mobile operating expenses, have also
purchased), centralization of testing and been rising during the past five years.
improvement of information technology. Many industry companies operate mobile
Larger operators can also use their size laboratories, thus a rise in the cost of fuel
and volumes to negotiate lower prices. can negatively affect industry
Industry costs are also subject to the profitability. Similarly, because the lab
extensiveness and efficiency of the business operates on a predominately
collection center network, the staffing fixed-cost business model, higher costs of
structure (i.e. the number of technicians labor and supplies could also adversely
employed compared with scientists or impact profit margins.
technologists), the size of laboratory
facilities, the degree of automation of Wages
testing and the location of the laboratory Wages have accounted for a smaller share
and collection centers. Due to mounting of industry revenue over the past five
cost pressures, inflation in the cost of years, due to the mounting use of
materials and labor can have a significant automation. In 2017, wages are expected
effect on cost structures and margins. to account for 33.9% of total industry
revenue. The average wage has slightly
Profit declined over the period as more
During the five years to 2017, diagnostic and medical laboratories have
government payers and healthcare implemented part-time staff or
insurers have taken steps to control assistants. Moreover, pathology
pricing and the use of industry services, companies are more automated than
which has slightly limited profit growth. diagnostic imaging companies, so their
In 2017, profit (earnings before interest labor costs tend to make up a lower
and taxes) is expected to account for percentage of revenue.
13.7% of revenue, up from 9.8% in 2012. Standardization and automation are
Clinical laboratories contended with a improving efficiency, reducing costs and

Cost Structure providing industry operators with the and radiologists, make up about 43.0% of
Benchmarks necessary tools to deal with the personnel all jobs in the industry. The remainder is
shortages. Standardization includes the composed of service workers, including
continued
use of identical operating systems; medical assistants, medical equipment
standardized results and reference preparers and medical transcriptionists.
ranges; and the same calibrators, Similar to the healthcare sector as a
controls, reagents, consumables and whole, qualified industry workers are in
parts. Also, standardization reduces short supply. Workers in healthcare tend
startup and training time, expedites cross to be older than workers in other
training and promotes cost-saving industries, and in the next decade,
inventory management. Because annual thousands of workers will reach
sample-handling processes are labor- retirement age. This trend, coupled with
intensive, time-consuming and prone to the aging populations increasing demand
high error rates, automation systems of health services, presents one of the
allow labs to integrate timesaving, industrys most formidable challenges.
cost-effective automation into their
pre- and postanalytical operations. Purchases
Automated sample sorting, decapping, The cost of laboratory-related supplies
aliquoting and archiving preserve sample (such as chemicals, reagents, imaging
integrity, while reducing labor costs and materials and sample containers)
turnaround time. represents 10.0% of revenue. Over the
Professional and related workers, past five years, increasing chemical prices
primarily clinical laboratory technicians and shifts in the test mix have been
Sector vs. Industry Costs
Average Costs of
all Industries in Industry Costs
sector (2017) (2017)
100 n Profit
11.0 13.7 n Wages
n Purchases
80 n Depreciation
n Marketing
40.5 33.9 n Rent & Utilities
n Other
Percentage of revenue
60
10.0
40 16.6 2.7 0.9
5.3
3.1 0.5
3.8
20
33.5
24.0
0

Cost Structure adding to the rising costs of materials. operator in the medical laboratory
Benchmarks Due to many large-scale laboratories segment, has depreciation expenses of
acquiring small laboratories, purchase 3.0% of revenue. Alliance Healthcare
continued
costs are expected to increase over the Services, the largest operator in the
next five years in line with higher diagnostic imaging segment, reports
laboratory testing volumes. depreciation expense of about 12.6% of
revenue. This expense differs according
Rent and utilities to the type of equipment needed for
In 2017, rent and utility costs will account testing. As diagnostic testing equipment
for 5.3% of industry revenue. Typically, manufacturers develop new products,
rental costs are high because operators depreciation expenses increase in the
have to secure large facilities in proximity industry due to the more rapidly
to hospitals and other downstream declining value in previously purchased
medical industries, such as veterinarians. equipment. Typically, depreciation costs
comprise 2.7% of industry revenue. Other
Depreciation and other costs costs incurred by the industry include
Depreciation expenses vary by industry research and development, marketing
segment. Quest Diagnostics, the largest and other expenses.
Basis of Competition Operators in the Diagnostic and Medical these tests are often outsourced to
Laboratories industry compete with other independent clinical laboratories that
Level & Trend laboratories as well as other types of specialize in the procedures. Competition
organizations that offer analytical or in this market segment is often based on
ompetition
C in this diagnostic services (i.e. physician offices the type and range of tests performed.
industry is H
ighand and hospitals). Hospitals and physician Consolidation has occurred in the
the trend is S teady offices can actually be both customers medical laboratory segment of this industry
and competitors. Competition for the because large operators can get cost
provision of analytical or diagnostic efficiencies from large-scale automated
services is principally based on the price testing equipment and large collection
of services; accuracy, timeliness and networks. The Laboratory Corporation of
consistency in reporting results; America asserts that consolidation results in
convenience; reputation in the medical greater price competition. Large service
community; and service capability and networks can also offer payers (e.g.
the range of tests or procedures offered. managed care organizations) economies of
scale. These larger networks are often in a
Internal competition better position to monitor and comply with
In the medical laboratory market, the significant amount of complex
esoteric tests (tests of rate substances regulation. In recent years, there has been
and molecules that cannot be performed significant growth in the number of people
in a routine clinical lab) generally require participating in managed-care plans.
sophisticated instruments and materials Managed care organizations have used their
and highly skilled personnel to perform market power to negotiate lower prices.
and analyze results. There are thousands
of tests that can be performed. Because it External competition
is not cost effective for most hospitals or Independent diagnostic testing facilities
physician-office laboratories to develop provide an estimated 10.0% to 15.0% of
and perform a range of esoteric tests, all diagnostic imaging services in the

Basis of Competition United States; hospitals, physician their own laboratory and imaging
continued offices, dental practices and other facilities. During the past five years, the
facilities provide the remaining services. industry has been facing increased
According to a 2008 (latest data competition from hospital outreach
available) report by the US Accountability programs and physician insourcing,
Office, a large share of Medicare Part B which has created pressure on anatomic
spending for imaging services has shifted pathology testing volume. In the years
to physician offices from independent ahead, broader adoption of point-of-care
settings. Commercial laboratories, testing in physician offices could reduce
however, have made gains in market the volume of routine testing in
share in recent years, largely by independent labs.
contracting with managed-care The medical laboratory-testing
companies. Independent medical segment also faces emerging external
laboratories are estimated to account for competition from point-of-care testing
about 42.0% of the US medical devices. Advances in technology may lead
laboratory testing market (hospital-based to the development of more cost-effective
laboratories account for about 55.0%, tests that can be performed outside a
and physician-office laboratories account commercial clinical laboratory, such as
for about 4.0%). Some hospitals home testing and near-patient tests that
encourage community physicians to use physicians can perform in their offices.
Barriers to Entry Barriers to entry in this industry are

moderate, although they vary by Barriers to Entry checklist
segment. For instance, barriers are Competition High
Level & Trend higher in the medical laboratory segment. Concentration Low
arriers to Entry
B A significant barrier is the requirement Life Cycle Stage Growth
in this industry for licensure, certification and Capital Intensity Low
are M ediumand accreditation, which can raise the cost of Technology Change High
entry. In addition, certificate-of-needs Regulation & Policy Heavy
Increasing
laws in some states can restrict new Industry Assistance Medium
supply in these states.
The cost of establishing a new SOURCE: WWW.IBISWORLD.COM
business can be high, mostly due to the

cost of equipment. The establishment In the pathology segment, there are some
of a viable service network, a referral established large-scale operators that can
base, systems and a trained workforce accrue economies of scale and scope,
can be costly and time intensive. particularly in the medical laboratory
Regulation accreditation and segment. Such economies can be passed on
compliance can also be relatively to customers in the form of lower prices,
high-cost. These requirements include which may make it difficult for a smaller
assessment of a laboratory to operator to compete. In addition, incumbent
determine competence, impartiality operators often have established reputations
and consistency as well as and relationships with referring doctors and
qualifications and competency of hospitals and may have contracts with
personnel, the laboratory equipment, hospitals, managed-care organizations and
accommodation and supplies. other payers.

Industry This industry has a low level of Quest Diagnostics, the largest industry
Globalization globalization, with relatively little foreign operator, generates only 2.0% of its
ownership of establishments providing revenue from foreign operations, but the
services in the United States. In addition, company has a longer-term goal to
Level & Trend no US-based company has significant increase revenue from foreign operations
lobalization
G in investment in the provision of services to about 10.0% of total revenue. The
this industry is overseas. Customers require fast company anticipates opportunities to
Lowand the trend turnaround times, which creates a barrier expand its presence in Ireland and
to foreign trade in industry services. In Mexico and in developing countries.
is I ncreasing
addition, government regulations Another trend contributing to
(including those related to Medicare and increased globalization is developments
Medicaid reimbursement) restrain trade. in telemedicine. These advancements will
Globalization is increasing in this industry, create potential for extending the
though, mainly through acquisitions of US pathology and diagnostic imaging
companies by foreigners. practice overseas.

Major Companies
Quest Diagnostics Inc. | Laboratory Corporation of America Holdings | Other Companies
Major players
(Market share) Laboratory Corporation of America Holdings 13.3%
72.4%
Other
Quest Diagnostics Inc. 14.3%

Player Performance Quest Diagnostics Inc. is the worlds growing demand in cancer diagnostics
leading provider of diagnostic testing, and personalized medicine. Quest also
information and services. The company provides testing for clinical trials and its
Quest Diagnostics offers patients and physicians access to other operating segment consists of the
Inc. these services through its nationwide companys nonclinical testing business,
Market share: 14.3% network of laboratories and company- including the risk assessment services
owned service centers. Founded in business, clinical trials testing,
1967, Quest employs about 42,000 healthcare information technology and
workers and is headquartered in diagnostics products business. In
Madison, NJ. The company operates 80 addition, Quest is enhancing its line of
locations in the United States, where it point-of-care tests, which are becoming
coordinates paramedical examinations increasingly popular as they can be
related to life insurance applications. performed in the doctors office or at a
The company is recognized for patients bedside.
developing new tests, technology and Although the company generates
services, which include personalized about 98.0% of revenue in the United
and targeted medicine. States, Quest is expanding its presence
Clinical testing includes gene-based in India, Mexico, Puerto Rico, Sweden,
and other esoteric testing, anatomic Australia, Ireland and the United
pathology services and risk assessment Kingdom. The company has also been
services. Currently, the company is focusing on bringing its diagnostic
focused on growing its product offerings testing to other international markets,
in gene-based and esoteric testing due to particularly to developing countries
Quest Diagnostics Inc. (US operations) - financial performance*

Revenue Operating Income
Year ($ million) (% change) ($ million) (% change)
2012 7,383.0 -0.1 1,201.0 21.7
2013 7,003.1 -5.1 1,445.5 20.4
2014 7,286.3 4.0 963.3 -33.4
2015 7,343.1 0.8 1,371.0 42.3
2016* 7,364.7 0.3 1,251.5 -8.7
2017 7,475.5 1.5 1,357.3 8.5
*Estimates
SOURCE: ANNUAL REPORT AND IBISWORLD

Major Companies
Player Performance where the testing markets are highly Financial performance
continued fragmented and less mature. Quest was forced to lower prices in light of
Quest is also actively looking for reduced customer volumes in recent years,
potential acquisitions, particularly in partially due to external dynamics
specialized testing labs that provide including increased competition and
access to new markets. In 2013, the physician insourcing (i.e. performing tests
company procured a number of small internally). Additionally, the company
clinical outreach laboratory facilities, renegotiated some managed-care contracts
including the Advanced Toxicology earlier than expected, which reduced
Network from Concentra and Dignity pricing growth. Overall, in the five years to
Health. Additionally, in 2013, the 2017, revenue is anticipated to slightly
company acquired the clinical outreach decline at an annualized rate of 0.2% to
and anatomic pathology business $7.5 billion. Quest has still contended with
segments of UMass Memorial Hospitals a decrease in the price for anatomic
and ConVerge Diagnostic Services LLC, pathology testing, as well as an increase in
a laboratory that provides clinical, consumer and healthcare provider demand
cytology and anatomic pathology for lower priced drugs-of-abuse testing.
testing services. In 2014, the company The companys large operating scale
acquired Solstas Lab Partners Group allows it to offer a range of tests while
and its subsidiaries, which has maintaining a strong operating profit
expanded the companys commercial margin. In 2012, the company announced
laboratory services. Quest also acquired a multiyear plan, called Invigorate, to
Steward Health Care Systems in 2014 help reduce costs. Overall, the company
for $34.0 million, expanding the is focusing on implementing strategies
companys outreach laboratory services. that mitigate reimbursement pressures
In 2015, Quest acquired MemorialCare and higher wage costs. In particular, the
Health Systems laboratory outreach company has restructured its workforce
services business segment. to cut costs.
Player Performance Laboratory Corporation of America LabCorp processes tests on more than
Holdings (LabCorp) is the largest 470,000 patient specimens daily for
independent provider of clinical clients including physicians, hospitals,
Laboratory laboratory services in the United States. managed-care organizations,
Corporation of The companys services include routine governmental agencies, employers,
America Holdings and specialty testing, with a focus on pharmaceutical companies and other
infectious disease, oncology and genetics. independent clinical laboratories. The
Market share: 13.3%
LabCorp offers these services through a company also has a long-standing
national network of 50 primary relationship as an exclusive national lab
laboratories, more than 1,800 patient services provider with United Healthcare.
service centers and a system of branches The partnership began in 2007 and was
and laboratories. Headquartered in recently extended through the end of
Burlington, NC, the company employs 2018. This collaboration has benefited
about 34,000 workers and provides LabCorp because United Healthcare
laboratory-testing services to the United represents 9.0% of LabCorps revenue.
States, Puerto Rico, Belgium, Japan, the LabCorps acquisition activity has
United Kingdom, China, Hong Kong, helped boost revenue over the past five
Singapore and Canada. years. The company has focused on

Major Companies
Player Performance acquisitions to expand its specialty testing grow at an annualized rate of 4.2% to
continued operations and strengthen its geographical $7.0 billion. LabCorps ability to
presence. In 2012, the company acquired generate strong operating profit margins
Medtox Scientific, a provider of high- is due in part to steady increases in
quality specialized laboratory testing revenue from an ever-expanding
services and point-of-collection testing portfolio of gene-based and esoteric
devices. This acquisition is expected to tests. The company also has lower real
extend LabCorps specialty toxicology estate and labor costs due to its
testing group and enhance the companys geographic locations and a centralized
scientific differentiation and esoteric IT system.
testing capabilities. In 2013, the company LabCorps operational effectiveness
acquired various laboratories to expand its and strong financial position have
geographic presence in important market provided the company with the
areas and increase LabCorps flexibility to invest in acquisitions.
competitiveness and esoteric testing While the company is able to keep costs
capabilities. LabCorp then acquired under control, operating profit margin
LipoScience Inc., a provider of expansion will most likely be driven by
cardiovascular diagnostic laboratory lab automation, continued
testing, in 2014 and Covance Inc. in 2015. implementation of advanced robotics
and penetration of advanced testing,
Financial performance including molecular and genetic testing,
Over the five years to 2017, LabCorps companion diagnostics and
industry-relevant revenue is expected to personalized medicine.
Laboratory Corporation of America Holdings - financial performance*

Revenue Operating Income
Year ($ million) (% change) ($ million) (% change)
2012 5,671.4 2.3 1,023.5 7.9
2013 5,669.4 0.0 1,061.8 3.7
2014 5,838.0 3.0 976.2 -8.1
2015 6,199.3 6.2 1,053.7 7.9
2016 6,593.9 6.4 1,187.6 12.7
2017 6,951.4 2.9 1,221.9 2.9
*Estimates
SOURCE: ANNUAL REPORT AND IBISWORLD
Other Companies Sonic Healthcare Ltd. operates through three business

Estimated market share: 2.4% segments: pathology, radiology and
Based in Austin, TX, Sonic Healthcare other. The pathology segment offers
USA Inc. is a subsidiary of Sonic pathology laboratory services in
Healthcare Ltd., which is an Australian Australia, New Zealand, the United
company with operations in pathology Kingdom, the United States, Germany
and diagnostic imaging. The company and Switzerland and operates through

Major Companies
Other Companies various subsidiaries, such as Capital fixed-site imaging centers, primarily to
continued Pathology, Bunbury Pathology, Douglass hospitals or health systems. The company
Hanly Moir Pathology, the Schottdorf offers imaging services, systems
Group, Melbourne Pathology, Hobart operation by technologists, equipment
Pathology and GLP Medical Group. The maintenance and upgrades and
radiology segment focuses on providing management of day-to-day shared-
radiology and diagnostic imaging services service and fixed-site diagnostic imaging
in Australia and New Zealand. operations. It also provides nonscan-
Sonics revenue base is diverse and, based services, which include only the
through its subsidiaries, offers diagnostic use of its imaging systems under a
medical services in all Australian states short-term contract. The companys
and territories, the North and South radiation oncology business operates
Islands of New Zealand, the United through its wholly owned subsidiary,
Kingdom, the United States, Germany Alliance Oncology LLC. It also provides
and Switzerland. The company derives stereotactic radiation oncology services
23.0% of its revenue from its pathology through its other wholly owned
operations in the United States. Having subsidiary, Alliance Radiosurgery LLC.
several key markets protects the company In recent years, Alliances core advance
from high overall volatility. In addition, imaging business has suffered from the
geographic diversity in its major markets loss of some major clients that acquired
reduces vulnerability to adverse their own MRI systems. However, the
economic and political developments in company is committed to investing in the
any particular region. Sonics laboratory growth segments of its business,
operations in the United States have been including fixed-site imaging centers,
internally expanding over the past five radiation therapy centers and positron
years and also through acquisitions. In emission tomography and CT systems. In
2017, the company is estimated to 2017, Alliances revenue is expected to
generate $1.2 billion in revenue in the reach $544.1 million.
United States. Additionally, the growth rate of
magnetic resonance imaging scan volumes
Alliance Healthcare Services Inc. has slowed partly due to weak hospital
Estimated market share: 1.0% volumes, additional patient-related,
Alliance Healthcare Services Inc., cost-sharing programs and an increasing
formerly Alliance Imaging, is a national trend of third-party payers intensifying
provider of outpatient diagnostic imaging utilization management efforts to control
services and radiation oncology services. the growth rate of imaging services. About
Alliance also provides imaging and 80.0% of Alliances revenue is derived
therapeutic services to hospitals and from hospitals and other healthcare
other healthcare providers on a shared- providers, while the remainder comes
service and full-time service basis. It also from direct billings to patients and their
provides services through a number of third-party payers.

Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility
Regulation & Policy | Industry Assistance
Capital Intensity Operators in the Diagnostic and Medical

Laboratories industry require substantial Capital intensity
Capital units per labor unit
amounts of capital investment; however,
Level
relatively high labor costs put the 0.5
The levelof capital industry at a low level of capital intensity.
intensity is L ow In 2017, for every dollar spent on labor, 0.4
the industry invests an estimated $0.08 0.3

in capital. While there is an increasing
need for specialized, high-cost equipment 0.2
in the industry, which causes capital costs 0.1

to escalate, the average wage is increasing
at a faster pace. 0.0
Economy Healthcare and Diagnostic &
Competition has encouraged efforts to Social Medical
Assistance Laboratories
develop new tests, mechanize processes Dotted line shows a high level of capital intensity
and streamline the number of staff SOURCE: WWW.IBISWORLD.COM
required. Nevertheless, a large staff is

still required to conduct tests and skill and training required for this
procedures and to provide marketing, industrys labor force is relatively high as
collection and distribution networks. The well. Workers include scientists,
Tools of the Trade: Growth Strategies for Success
New Age Economy Investment Economy

Recreation, Personal Services, Information, Communications,
Health and Education. Firms Mining, Finance and Real
benefit from personal wealth so Estate. To increase revenue
stable macroeconomic conditions firms need superior debt
are imperative. Brand awareness management, a stable
and niche labor skills are key to macroeconomic environment
product differentiation. and a sound investment plan.
Capital Intensive
Labor Intensive
Primary Care Doctors

Diagnostic & Medical Laboratories
Specialist Doctors
Traditional Service Economy
Veterinary Services Inorganic Chemical Old Economy
Medical Manufacturing
Wholesale and Retail. Reliant Instrument Agriculture and Manufacturing.
on labor rather than capital to & Supply Traded goods can be produced
sell goods. Functions cannot Manufacturing using cheap labor abroad.
be outsourced therefore firms To expand firms must merge
must use new technology or acquire others to exploit
or improve staff training to economies of scale, or specialize
increase revenue growth. in niche, high-value products.
Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM

Capital Intensity technicians and radiologists; therefore, satisfaction. To this end, in-house
continued labor costs per employee are high. experts, including medical directors,
Furthermore, as tests become more scientific directors, genetic counselors
complex, providing sound medical and and board-certified geneticists, will
scientific consultation will be important continue to be in high demand, thereby
for improving patient outcomes and maintaining a high wage cost.
Technology & Systems Scientific advancements, which are opportunity to improve patient care and
yielding new and improved service reduce medical costs.
Level capabilities, are a major feature of the
Diagnostic and Medical Laboratories Diagnostic imaging
The level
of industry. Medical advances allow for Diagnostic imaging clinics use highly
Technology more accurate and earlier diagnoses and sophisticated equipment and procedures.
Change is H
igh treatment of diseases. Continuing These clinics periodically replace or
research and development in the area of upgrade equipment with the latest
genomics is yielding new, more technology to improve imaging quality,
sophisticated and specialized diagnostic provide shorter examination times, expand
tests. These advances are also spurring capacity and broaden the type of services.
demand for personalized or tailored X-rays use high-energy radiation in
medicine, which relies on diagnostic and low doses to diagnose diseases. X-ray is
prognostic testing. In addition, now employed in computed tomography
pharmacogenetic testing is being used as (CT) scanners and digital x-ray systems.
a parameter to help speed drug approval In high doses, x-rays are used to treat
processes and to better focus therapy cancer. In CT imaging, a computer
based on patient- and tumor-specific analyzes the information received from
genetic markers. an x-ray beam to produce multiple
Advances in medicine have begun to cross-sectional images or a particular
fundamentally change diagnostic testing, organ or area of the body. CT imaging is
and new tests are allowing clinical used to detect tumors and other
laboratories to provide unprecedented conditions affecting bones and internal
amounts of health-related information to organs. CT systems are typically priced in
physicians and patients. Significant new the range of $300.0 million to $1.1
tests have been introduced over the past million each.
five years, including a gene-based test for Magnetic resonance imaging (MRI)
human papillomavirus (HPV), human involves the use of high-strength
immunodeficiency virus (HIV) magnetic fields to produce computer-
genotyping tests for drug resistance and processed cross-sectional images of the
molecular genetic testing (such as for body. Due to its superior image quality,
cystic fibrosis). MRI is the preferred imaging technology
One major emerging trend is for evaluating soft tissue and organs,
increased demand for same-day including the brain, spinal cord and other
processing. Technology advances are internal anatomy. With advances in MRI
enabling testing to move closer to technology, MRI is increasingly being
patients, and point-of-care tests are used for new applications such as
becoming increasingly available and imaging of the heart, chest and abdomen.
reliable. These moves enable more Conditions that can be detected by MRI
timely and effective decisions, with the include multiple sclerosis, tumors,

Technology & Systems strokes, infections, and injuries to the specialist pathologists is decreasing.
continued spine, joints, ligaments and tendons. Today, technicians under the supervision
Unlike x-rays and computed tomography, of specialist pathologists can perform
MRI does not expose patients to many tests, reducing costs. A new
potentially harmful radiation. MRI generation of technological sophistication
systems are typically priced in the range has resulted in fully robotic
of $900,000 to $2.5 million each. establishments, employing no scientific
Nuclear medicine is a subspecialty staff. It is believed that miniaturization of
within the field of radiology. It comprises the processes involved is likely in the
diagnostic examinations that result in foreseeable future.
images of body anatomy and function. Genetic testing is a high growth area in
The images are developed based on the the pathology segment (currently worth
detection of energy emitted from a over $2.0 billion per year). The unveiling
radioactive substance given to the of the human genome, new genes and the
patient, either intravenously or by association of these genes with disease
mouth. Generally, radiation to the patient will continue to be discovered at an
is similar to that resulting from standard accelerating pace, leading to research
x-ray examinations. that will result in ever more complex and
Positron emission tomography (PET) thorough diagnostic testing.
is a nuclear medicine procedure that
produced images of the bodys metabolic Communication developments
and biological functions. At present, the Electronic communication has a number
major clinical applications of PET are in of ramifications for this industry. Some
the areas of oncology, cardiology and laboratories and imaging centers have
neurology. A growing body of clinical established on-line communications with
research supports PET as a diagnostic hospitals, physicians and other sources of
tool for cancer diagnosis, staging, and business, to return results as soon as
treatment monitoring. PET systems are possible. Similarly, some kinds of test
typically priced in the range of $800.0 material data can be transmitted to
million to $1.2 million each. A PET and laboratories and imaging centers by
CT system fuses together the results of a electronic means.
PET and CT scan at the scanner level. Developments in telemedicine are
PET and CT systems are typically priced likely to create potential for extending the
in the range of $1.8 million to $2.3 pathology and diagnostic imaging
million each. practice overseas. Telemedicine involves
the storage and transmittal of diagnostic
Pathology radiology and pathology data images, so
Pathology test analysis equipment can be that practitioners can provide diagnostic
highly sophisticated and expensive, and advice to remote locations.
needs frequent updates. Pathology
reagents are combined with the raw Automation on the rise
material to be tested. Increasingly, test Laboratory automation has been
analyzers are being designed around increasing during the five years to 2017.
particular reagents, so that the reagents Fueled by an intractable medical
used are determined by the capital the technologist shortage, considerable price
company has invested. decreases, and improved modularity,
As the level of sophistication of automated systems have taken off. A
equipment increases (and thereby the driver for many organizations is a lack of
level of automation), the need for labor, making automation a defensive

Technology & Systems strategy to protect profitability. There has automated inspection systems that will
continued been a tremendous rate of progress, and use a variety of technologies to check
there will be many more automation specimens for interferences and sufficient
installations in the next five years. In the volume. In addition, ARUP Laboratories is
coming five years, several improvements working on a system that will use optical
in automation systems are projected. For character verification to read specimen
instance, manufacturers are developing labels and determine if any are mislabeled.
Revenue Volatility The Diagnostic and Medical Laboratories diagnostic devices also pose a threat to
industry has a low level of revenue some pathology labs. These devices
volatility. Industry revenue volatility is enable doctors to perform tests in-house,
Level
limited because many services are high rather than outsourcing them to
The level of priority or essential for medical purposes, independent diagnostic laboratories.
Volatility is L ow and pathology and diagnostic imaging Despite this trend, growth in demand has
services can reduce total healthcare costs. been consistently strong, due in part to
The availability of managed care and the aging of the population and the
insurance coverage reduces the cost to availability of new tests.
patients, thereby keeping demand A number of factors can affect industry
moderately stable despite fluctuations in profit margins, including payers policies
income. Government payers (Medicare affecting utilization and reimbursement
and Medicaid) account for 20.3% of rates and bad debt experience, which is
revenue, exposing the industry to affected by the economy and levels of
changes in political whims. Additionally, patient deductibles and copayments.
government and private healthcare Services provided under contract to
insurers have taken steps to control hospitals tend to involve relatively low
pricing and utilization. Handheld reimbursement and credit risk.
A higher level of revenue Volatility vs Growth

volatility implies greater
industry risk. Volatility can 1000 Hazardous Rollercoaster
negatively affect long-term
Revenue volatility* (%)
strategic decisions, such as 100

the time frame for capital
investment.
10
When a firm makes poor
investment decisions it
1
Diagnostic & Medical
may face underutilized
capacity if demand Laboratories
suddenly falls, or capacity 0.1 Stagnant Blue Chip
constraints if it rises 30 10 10 30 50 70
quickly. Five-year annualized revenue growth (%)
* Axis is in logarithmic scale

Regulation & Policy Clinical laboratories and diagnostic be approved to perform drug testing on
imaging centers are subject to significant employees of federal government
levels of government regulation at the contractors and certain other entities.
Level & Trend federal, state and local levels. There has Today, the National Laboratory
he level of
T been a push for more regulation in Certification Program (NLCP) certifies
Regulation is diagnostic testing and more 130 laboratories; more than 60.0% of
Heavyand the standardization to reduce cost and NLCPs operating costs are derived from
improve quality. fees paid by participating laboratories.
trend is S
teady
Clinical laboratories Diagnostic imaging
The Centers for Medicare and Medicaid Diagnostic imaging services usually
Services (CMS) regulates all laboratory require the use of radioactive materials to
testing (except research) performed on produce the images, and diagnostic
humans in the United States through the imaging providers are subject to federal,
Clinical Laboratory Improvement state and local regulations governing
Amendments (CLIA). CLIA extends storage, handling and disposal of
federal oversight to virtually all clinical radioactive materials and waste products.
laboratories by requiring that they be The operation of outpatient imaging
certified by the federal government or by centers requires a number of licenses,
a federally approved accreditation including licenses for technical personnel
agency. Pursuant to CLIA, clinical and certain equipment. Licensing
laboratories must meet quality assurance, requirements may vary somewhat from
quality control and personnel standards. state to state. Under regulations by the
Labs must also undergo proficiency FDA pursuant to the Mammography
testing by the College of American Quality Standards Act of 1992, all
Pathologists and are subject to mammography facilities must be
inspections. Although all clinical accredited by an approved nonprofit
laboratories must be properly certified to organization or state agency.
receive Medicare or Medicaid payments, CMS has established a category of
CLIA has no direct Medicare or Medicaid Medicare provider referred to as
program responsibilities. independent diagnostic treatment facilities
Laboratories performing simple tests, (IDTFs). Imaging centers have the option
known as waived tests, are exempt from to participate in the Medicare program as
many of the federal regulations that apply either IDTFs or medical groups.
to labs that do more complex testing.
Waived tests are commonly performed in Healthcare reform of 2010
physician-office laboratories, skilled In March 2010, President Obama signed
nursing facilities, rural health clinics and the Patient Protection and Affordance
pharmacies, where on-site testing speeds Care Act (PPACA). Cost-cutting
the delivery of appropriate treatment. In measures, including cuts to
recent years, the number of waived test reimbursement and taxes on virtually all
devices and number of laboratories healthcare industries, were inevitable.
performing these tests has expanded. While the laboratory industry agreed to a
Drug testing for public-sector five-year annual rate reduction of 1.75%
employees is regulated by the Substance to the Medicare clinical lab fee schedule
Abuse and Mental Health Services under healthcare reform, the long-term
Administration, which has established positives are expected to outweigh this
detailed performance and quality reduction. Healthcare coverage has been
standards that laboratories must meet to mandated since 2014, thus increasing

Regulation & Policy laboratory-testing volumes and reducing services. For example, Medicare carriers
continued the incidence of bad debt, in line with have adopted policies under which they do
there being fewer uninsured patients. not pay for many commonly ordered
Additionally, as the healthcare industry clinical tests unless the ordering physician
landscape adjusts to changes from has provided an appropriate diagnosis
healthcare reform, there could be some code supporting the medical necessity of
volume shifted to independent labs from the test. Physicians are required by law to
hospital outreach programs, where provide diagnostic information when they
laboratory-testing costs are considerably order clinical tests for Medicare and
higher in some instances. The laws focus Medicaid patients.
on quality and prevention and its The healthcare industry has
inclusion of laboratory services as part of experienced significant changes in
the basic coverage for those currently reimbursement practices during the
uninsured could increase the patient past several years. Historically, many
population with access to these services. different local carriers administered
The law will cut the Consumer Price Medicare Part B, which covers services
Index (CPI) update to the lab fee schedule provided by commercial clinical
in two ways over the next five years. The laboratories. They often had
lab fee schedule should, by law, be inconsistent policies, increasing the
updated every year according to CPI and is complexity of the billing process for
intended to keep the fee schedule at pace clinical laboratories. They are being
with inflation, but Congress has usually replaced with contractors who will
acted to reduce or eliminate the update. administer Part B benefits for
The PPACAs 1.75% cut to the fee schedule beneficiaries in larger regional areas. It
update for five years is much less is expected that the revised system will
damaging than the permanent annual reduce the administrative complexity of
2.0% to 3.0% tax on all laboratory revenue billing for services provided to
originally proposed. Medicare beneficiaries.
PPACA also establishes a permanent Federal law contains a Medicare fee
productivity adjustment to the fee schedule payment methodology for
schedule update. This productivity clinical testing services performed for
adjustment on all Medicare Part B patients covered under Part B of the
providers has been estimated to range Medicare program, and a national ceiling
from 1.1% to 1.4% each year over the 10 on the amount that carriers could pay
years to 2022. The productivity reduction under their local Medicare fee schedules.
is taken first from the CPI adjusted Federal law also contains a Medicare fee
amount and cannot result in a negative schedule payment methodology for
update, whereas the 1.75% reduction can pathology and other physician services
result in a negative update. Collectively, performed for patients covered under
these reductions will not generally result Part B of the Medicare program.
in a negative fee schedule update in years Historically, most Medicare and
in which the CPI update is 3.0% or more. Medicaid beneficiaries were covered
under the traditional Medicare and
Government coverage and Medicaid programs directly administered
reimbursements by the federal government. Over the past
Government payers, such as Medicare and several years, the federal government has
Medicaid, will continue to take steps to continued to expand its contracts with
control the cost, utilization and delivery of private health insurance plans for
healthcare services, including clinical test Medicare beneficiaries and has

Regulation & Policy encouraged such beneficiaries to switch programs and of beneficiary enrollment
continued from the traditional programs to the in these plans. In recent years, in an
private programs, called Medicare effort to control costs, states also have
Advantage programs. There has been increasingly mandated that Medicaid
continued growth of health insurance beneficiaries enroll in private managed
plans offering Medicare Advantage care arrangements.
Industry Assistance Government healthcare programs, deductible, except in an outpatient

mainly Medicare and Medicaid, make up setting, for diagnostic tests.
a significant portion of Diagnostic and In general, Medicare reimburses
Level & Trend Medical Laboratories industry revenue. radiology services under a physician fee
he level of Industry
T Medicare and Medicaid account for schedule that covers services provided
Assistance is 20.3% of industry revenue. As a result, not only in a physicians office, but also in
Mediumand the the industry receives a form of assistance freestanding facilities, portable x-ray
from the government in that patients are suppliers, hospitals and other entities.
trend is S
teady
able to pay for services through the use of The scheduled amount is based on a
government funds. Government policy resource-based relative value scale,
makers recently agreed that the Medicare recognizing three separate components of
program is becoming unsustainable. the physicians services: professional,
Healthcare costs are rising and aging of technical and malpractice. For radiology
the baby boomer generation is resulting there are separate Medicare scheduled
in an increasing proportion of the amounts for the professional component
population being eligible for Medicare. of a service or procedure (i.e. the
There have been initiatives to reduce the physicians time) and the technical
rate of growth in Medicare spending, component of the service or procedure
particularly in areas where demand is (i.e. services and supplies necessary to
growing at rapid rates, such as pathology perform the procedure). Congress and
and diagnostic imaging. Medicare has the US Department of Health and
looked closely at the way private Human Services have taken various
healthcare plans have used certain actions over the years to reduce
practices to manage spending growth. reimbursement rates for radiology
In 1984, Congress established a services and proposals to reduce rates
Medicare fee schedule for clinical further are anticipated. In July 2000, the
laboratory services performed for Centers for Medicare and Medicaid
patients under Part B of the Medicare Services established Ambulatory
program. Since 1984, Congress has Payment Classifications (APCs) for
reduced the ceiling on Medicare imaging services performed at hospital-
reimbursements to clinical laboratories based imaging centers.
and diagnostic-imaging centers from The US Deficit Reduction Act of 2005
previously authorized amounts. (DRA) imposed caps on certain imaging
Currently, patients who are insured services, including MRIs and PET scans,
under Medicare Part B (which requires a furnished in physicians offices and other
monthly premium to be paid by the nonhospital settings. Under the cap,
insured) pay nothing for Medicare- which became effective on January 1,
approved clinical laboratory services, and 2007, payments for specified imaging
pay a $100 deductible and 20.0% of the services cannot exceed the hospital
Medicare-approved amount after the outpatient payment rates for those

Industry Assistance services. In addition, the DRA also

continued codified a reduction in Medicare
payments for multiple images performed
on contiguous body parts.

Key Statistics
Industry Data Industry No. of people with pri-
Revenue Value Added Establish- Wages Domestic vate health insurance
($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand (Mils)
2008 49,816.2 25,051.7 33,540 28,116 262,405 -- -- 16,236.4 N/A 202.6
2009 51,849.8 24,067.0 32,922 27,576 265,914 -- -- 16,798.8 N/A 196.3
2010 51,258.1 24,778.0 32,138 26,768 267,051 -- -- 16,833.0 N/A 196.2
2011 52,124.2 26,678.3 31,729 26,428 267,467 -- -- 16,931.2 N/A 197.3
2012 50,974.2 23,218.6 32,499 26,824 268,136 -- -- 16,897.8 N/A 198.8
2013 50,270.5 22,826.6 32,954 27,407 269,897 -- -- 16,522.1 N/A 201.0
2014 49,995.6 24,652.6 32,201 26,483 270,175 -- -- 16,624.5 N/A 208.6
2015 50,632.4 25,459.5 34,049 27,900 280,704 -- -- 17,206.4 N/A 214.2
2016 52,157.7 26,355.0 35,866 29,266 286,851 -- -- 17,663.3 N/A 216.2
2017 53,268.7 26,752.7 36,672 29,914 292,489 -- -- 18,053.9 N/A 217.4
2018 54,335.0 27,399.4 37,270 30,375 298,327 -- -- 18,450.6 N/A 218.6
2019 55,916.2 28,099.7 38,112 31,037 305,455 -- -- 18,964.4 N/A 219.5
2020 57,327.1 28,962.4 38,746 31,514 312,465 -- -- 19,456.1 N/A 220.3
2021 58,830.2 29,660.3 39,483 32,099 319,653 -- -- 19,967.2 N/A 221.4
2022 60,742.3 30,726.1 40,248 32,676 327,900 -- -- 20,574.0 N/A 222.4
Sector Rank 11/71 14/70 23/71 23/71 21/71 N/A N/A 16/71 N/A N/A
Economy Rank 211/1733 129/1569 252/1733 254/1733 154/1733 N/A N/A 110/1733 N/A N/A
Annual Change Industry Establish- Domestic No. of people with pri-

Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand vate health insurance
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
2009 4.1 -3.9 -1.8 -1.9 1.3 N/A N/A 3.5 N/A -3.1
2010 -1.1 3.0 -2.4 -2.9 0.4 N/A N/A 0.2 N/A -0.1
2011 1.7 7.7 -1.3 -1.3 0.2 N/A N/A 0.6 N/A 0.6
2012 -2.2 -13.0 2.4 1.5 0.3 N/A N/A -0.2 N/A 0.8
2013 -1.4 -1.7 1.4 2.2 0.7 N/A N/A -2.2 N/A 1.1
2014 -0.5 8.0 -2.3 -3.4 0.1 N/A N/A 0.6 N/A 3.8
2015 1.3 3.3 5.7 5.4 3.9 N/A N/A 3.5 N/A 2.7
2016 3.0 3.5 5.3 4.9 2.2 N/A N/A 2.7 N/A 0.9
2017 2.1 1.5 2.2 2.2 2.0 N/A N/A 2.2 N/A 0.6
2018 2.0 2.4 1.6 1.5 2.0 N/A N/A 2.2 N/A 0.6
2019 2.9 2.6 2.3 2.2 2.4 N/A N/A 2.8 N/A 0.4
2020 2.5 3.1 1.7 1.5 2.3 N/A N/A 2.6 N/A 0.4
2021 2.6 2.4 1.9 1.9 2.3 N/A N/A 2.6 N/A 0.5
2022 3.3 3.6 1.9 1.8 2.6 N/A N/A 3.0 N/A 0.5
Sector Rank 34/71 53/70 28/71 29/71 40/71 N/A N/A 41/71 N/A N/A
Economy Rank 857/1733 979/1569 551/1733 532/1733 711/1733 N/A N/A 766/1733 N/A N/A
Key Ratios Imports/ Exports/ Revenue per Share of the

IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy
(%) (%) (%) ($000) (%) per Est. ($) (%)
2008 50.29 N/A N/A 189.84 32.59 7.82 61,875.35 0.17
2009 46.42 N/A N/A 194.99 32.40 8.08 63,173.81 0.17
2010 48.34 N/A N/A 191.94 32.84 8.31 63,032.90 0.17
2011 51.18 N/A N/A 194.88 32.48 8.43 63,302.01 0.18
2012 45.55 N/A N/A 190.11 33.15 8.25 63,019.51 0.15
2013 45.41 N/A N/A 186.26 32.87 8.19 61,216.32 0.15
2014 49.31 N/A N/A 185.05 33.25 8.39 61,532.34 0.15
2015 50.28 N/A N/A 180.38 33.98 8.24 61,297.31 0.16
2016 50.53 N/A N/A 181.83 33.87 8.00 61,576.57 0.16
2017 50.22 N/A N/A 182.12 33.89 7.98 61,725.06 0.16
2018 50.43 N/A N/A 182.13 33.96 8.00 61,846.90 0.16
2019 50.25 N/A N/A 183.06 33.92 8.01 62,085.74 0.16
2020 50.52 N/A N/A 183.47 33.94 8.06 62,266.49 0.16
2021 50.42 N/A N/A 184.04 33.94 8.10 62,465.24 0.16
2022 50.58 N/A N/A 185.25 33.87 8.15 62,744.74 0.16
Sector Rank 54/70 N/A N/A 14/71 59/71 39/71 18/71 14/70
Economy Rank 299/1569 N/A N/A 1129/1733 323/1733 1059/1733 583/1733 129/1569
Figures are in inflation-adjusted 2017 dollars. Rank refers to 2017 data. SOURCE: WWW.IBISWORLD.COM

Industry Financial Ratios

Apr 2015 - Mar 2016 by company revenue
Apr 2012 - Apr 2013 - Apr 2014 - Apr 2015 - Small Medium Large
Mar 2013 Mar 2014 Mar 2015 Mar 2016 (<$10m) ($10-50m) (>$50m)
Liquidity Ratios
Current Ratio 1.3 1.3 1.3 1.3 1.2 1.4 1.4
Quick Ratio 1.1 1.2 1.1 1.2 1.2 1.2 1.2
Sales / Receivables (Trade Receivables
Turnover) 17.2 31.0 34.2 n/c n/c 10.8 8.5
Days Receivables 21.2 11.8 10.7 n/a n/a 33.8 42.9
Cost of Sales / Inventory (Inventory Turnover) n/a n/a n/a n/a n/a n/a n/a
Days Inventory n/a n/a n/a n/a n/a n/a n/a
Cost of Sales / Payables (Payables Turnover) n/a n/a n/a n/a n/a n/a n/a
Days Payables n/a n/a n/a n/a n/a n/a n/a
Sales / Working Capital 60.9 55.2 28.5 41.6 52.8 39.4 17.2
Coverage Ratios
Earnings Before Interest & Taxes (EBIT) /
Interest 8.6 8.5 10.8 12.9 11.5 13.4 13.5
Net Profit + Dep., Depletion, Amort. / Current
Maturities LT Debt 1.6 2.4 3.9 3.7 n/a 2.0 n/a
Leverage Ratios
Fixed Assets / Net Worth 1.4 1.3 1.2 1.3 1.5 1.2 1.2
Debt / Net Worth 1.9 2.0 2.0 1.9 2.1 1.6 1.9
Tangible Net Worth 13.5 14.0 23.1 21.0 19.1 25.4 20.5
Operating Ratios
Profit before Taxes / Net Worth, % 56.4 50.1 52.7 62.2 93.1 53.4 38.6
Profit before Taxes / Total Assets, % 19.7 15.9 15.2 21.0 21.7 18.1 20.6
Sales / Net Fixed Assets 5.7 6.6 6.3 6.6 7.1 6.5 6.1
Sales / Total Assets (Asset Turnover) 2.2 2.4 2.3 2.8 2.9 2.8 1.9
Cash Flow & Debt Service Ratios (% of sales)

Cash from Trading n/a n/a n/a n/a n/a n/a n/a
Cash after Operations 16.0 12.9 14.9 17.0 19.7 11.4 11.4
Net Cash after Operations 15.6 12.8 14.5 17.0 20.0 14.4 11.5
Cash after Debt Amortization 1.3 1.3 1.4 2.0 2.2 0.9 2.7
Debt Service P&I Coverage 2.7 2.3 2.7 3.8 2.9 3.8 5.1
Interest Coverage (Operating Cash) 13.7 10.8 13.2 16.7 14.6 22.0 16.3
Assets, %
Cash & Equivalents 18.9 19.0 19.5 22.5 25.5 20.2 13.3
Trade Receivables (net) 16.3 16.9 16.1 15.5 11.5 21.4 22.0
Inventory 0.4 0.5 0.5 0.6 0.4 0.3 2.0
All Other Current Assets 4.0 3.3 4.7 2.7 1.2 4.8 5.2
Total Current Assets 39.5 39.7 40.7 41.4 38.7 46.7 42.6
Fixed Assets (net) 43.3 41.9 39.3 40.8 44.9 36.1 31.8
Intangibles (net) 7.9 8.9 8.8 9.0 6.8 10.2 16.7
All Other Non-Current Assets 9.3 9.6 11.1 8.9 9.7 7.0 8.8
Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Total Assets ($m) 4,027.4 4,627.6 4,464.7 4,331.2 437.7 1,023.4 2,870.1
Liabilities, %
Notes Payable-Short Term 12.6 12.9 9.2 9.0 10.6 6.5 6.6
Current Maturities L/T/D 11.0 8.0 7.3 6.6 6.6 7.2 5.2
Trade Payables 4.8 7.3 4.1 5.9 6.3 5.0 5.8
Income Taxes Payable 0.2 0.2 0.2 0.2 n/a 0.1 1.3
All Other Current Liabilities 11.5 15.8 15.0 17.1 14.9 23.8 13.5
Total Current Liabilities 40.1 44.2 35.8 38.8 38.4 42.7 32.4
Long Term Debt 31.3 28.1 28.0 26.8 32.1 18.6 19.9
Deferred Taxes 0.1 0.2 0.1 0.1 n/a 0.2 0.5
All Other Non-Current Liabilities 7.1 4.6 4.2 4.3 3.6 3.0 10.0
Net Worth 21.4 22.9 31.9 30.0 25.9 35.6 37.2
Total Liabilities & Net Worth ($m) 4,027.4 4,627.6 4,464.7 4,331.2 437.7 1,023.4 2,870.1
Maximum Number of Statements Used 336 349 329 349 209 94 46
Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more
than 260,000 statements of member financial institutions borrowers and prospects.
Note: For a full description of the ratios refer to the Key Statistics chapter online.

Jargon & Glossary
Industry Jargon ANATOMICAL PATHOLOGY TESTA test that analyzes MANAGED-CARE ORGANIZATION (MCO)Any
diseases by examining changes in human tissues and cells. organization that contracts with physicians for the
CAPITATED PAYMENT CONTRACTA healthcare plan delivery of medical care and exercises control over the
that allows payment of a flat fee for each patient it care provided.
covers. MEDICAIDA joint federal and state program that helps
COMPUTED TOMOGRAPHY (CT)A body scan that uses pay for healthcare expense for the low-income
X-ray equipment to obtain image data from different population and certain aged and disabled individuals.
angles around the body, and then uses computer MEDICAREA federal system of health insurance for
processing to create a cross-section of body tissues, people over 65 years of age and for certain younger
organs and bony anatomy. people with disabilities.
ESOTERIC TESTSTests that analyzes rare substances or POSITRON EMISSION TOMOGRAPHY (PET)A highly
molecules that are not performed in routine clinical labs. specialized imaging technique that uses short-lived
GENOMICSThe study of DNA, genes and radioactive substances and produces three-dimensional
chromosomes. colored images.
MAGNETIC RESONANCE IMAGING (MRI)A
procedure that uses a magnet linked to a computer to
create detailed pictures of areas inside the body.
IBISWorld Glossary BARRIERS TO ENTRYHigh barriers to entry mean that ESTABLISHMENTThe smallest type of accounting unit
new companies struggle to enter an industry, while low within an enterprise, an establishment is a single
barriers mean it is easy for new companies to enter an physical location where business is conducted or where
industry. services or industrial operations are performed. Multiple
CAPITAL INTENSITYCompares the amount of money establishments under common control make up an
spent on capital (plant, machinery and equipment) with enterprise.
that spent on labor. IBISWorld uses the ratio of EXPORTSTotal value of industry goods and services sold
depreciation to wages as a proxy for capital intensity. by US companies to customers abroad.
High capital intensity is more than $0.333 of capital to IMPORTSTotal value of industry goods and services
$1 of labor; medium is $0.125 to $0.333 of capital to $1 brought in from foreign countries to be sold in the
of labor; low is less than $0.125 of capital for every $1 of United States.
labor.
INDUSTRY CONCENTRATIONAn indicator of the
CONSTANT PRICESThe dollar figures in the Key dominance of the top four players in an industry.
Statistics table, including forecasts, are adjusted for Concentration is considered high if the top players
inflation using the current year (i.e. year published) as account for more than 70% of industry revenue.
the base year. This removes the impact of changes in Medium is 40% to 70% of industry revenue. Low is less
the purchasing power of the dollar, leaving only the than 40%.
real growth or decline in industry metrics. The inflation
INDUSTRY REVENUEThe total sales of industry goods
adjustments in IBISWorlds reports are made using the
and services (exclusive of excise and sales tax); subsidies
US Bureau of Economic Analysis implicit GDP price
on production; all other operating income from outside
deflator.
the firm (such as commission income, repair and service
DOMESTIC DEMANDSpending on industry goods and income, and rent, leasing and hiring income); and
services within the United States, regardless of their capital work done by rental or lease. Receipts from
country of origin. It is derived by adding imports to interest royalties, dividends and the sale of fixed
industry revenue, and then subtracting exports. tangible assets are excluded.
EMPLOYMENTThe number of permanent, part-time, INDUSTRY VALUE ADDED (IVA)The market value of
temporary and seasonal employees, working proprietors, goods and services produced by the industry minus the
partners, managers and executives within the industry. cost of goods and services used in production. IVA is
ENTERPRISEA division that is separately managed and also described as the industrys contribution to GDP, or
keeps management accounts. Each enterprise consists profit plus wages and depreciation.
of one or more establishments that are under common
ownership or control.

Jargon & Glossary
IBISWorld Glossary INTERNATIONAL TRADEThe level of international PROFITIBISWorld uses earnings before interest and tax
trade is determined by ratios of exports to revenue and (EBIT) as an indicator of a companys profitability. It is
continued imports to domestic demand. For exports/revenue: low is calculated as revenue minus expenses, excluding
less than 5%, medium is 5% to 20%, and high is more interest and tax.
than 20%. Imports/domestic demand: low is less than VOLATILITYThe level of volatility is determined by
5%, medium is 5% to 35%, and high is more than averaging the absolute change in revenue in each of the
35%. past five years. Volatility levels: very high is more than
LIFE CYCLEAll industries go through periods of growth, 20%; high volatility is 10% to 20%; moderate
maturity and decline. IBISWorld determines an volatility is 3% to 10%; and low volatility is less than
industrys life cycle by considering its growth rate 3%.
(measured by IVA) compared with GDP; the growth rate WAGESThe gross total wages and salaries of all
of the number of establishments; the amount of change employees in the industry. The cost of benefits is also
the industrys products are undergoing; the rate of included in this figure.
technological change; and the level of customer
acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENTBusinesses with
no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.

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Diagnostic & Medical Laboratories in The US Industry Report

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WWW.IBISWORLD.

COM Diagnostic & Medical Laboratories in the USJune 2017 1

Good results: The industry will benefit from

IBISWorld Industry Report 62151

2 About this Industry 19 International Trade 36 Regulation & Policy

13 Products & Markets

www.ibisworld.com | 1-800-330-3772 | info @ibisworld.com

About this Industry

Main Activities The primary activities of this industry are

The major products and services in this industry are

Similar Industries 33911a Medical Instrument & Supply Manufacturing in the US

62111b Specialist Doctors in the US

62199 Blood & Organ Banks in the US

62211 Hospitals in the US

Provided to: University of Michigan (2126835696) | 22 August 2017

About this Industry

Additional Resources For additional information on this industry

IBISWorld writes over 1000 US

Provided to: University of Michigan (2126835696) | 22 August 2017

Key Statistics Revenue Annual Growth 12-17 Annual Growth 17-22

$7.3bn $18.1bn 29,914

Industry Structure Life Cycle Stage Growth Regulation Level Heavy

Provided to: University of Michigan (2126835696) | 22 August 2017

Key External Drivers Number of people with Total health expenditure

Provided to: University of Michigan (2126835696) | 22 August 2017

Number of people with private health Total health expenditure

Provided to: University of Michigan (2126835696) | 22 August 2017

Current Healthcare has been shifting from

costs. As a result, the trend of preventive

Furthermore, the burgeoning elderly

Provided to: University of Michigan (2126835696) | 22 August 2017

Pricing pressures As healthcare expenditures have increased,

Provided to: University of Michigan (2126835696) | 22 August 2017

Industry Operators in the Diagnostic and Medical

Healthcare reform The Patient Protection and Affordable

Provided to: University of Michigan (2126835696) | 22 August 2017

Increased The industry will continue to consolidate

Provided to: University of Michigan (2126835696) | 22 August 2017

20 Maturity Quality Growth

Key Features of a Growth Industry

Primary Care Doctors