Quest sees growth through hospital, system partnerships
Quest Diagnostics, with $7.5 billion in sales in 2015, remains the world’s largest provider of laboratory testing services. But with growth slowing, CEO Stephen Rusckowski has aggressively moved to include “esoteric” testing in its offerings and expand its relationships with major hospital systems and integrated delivery networks. Modern Healthcare reporter Adam Rubenfire recently asked Rusckowski about the heightened competitive pressure in the laboratory testing market. The following is an edited transcript.
Modern Healthcare: Why have you developed a strategy of developing lab management partnerships like the one you recently signed with HCA and its HealthOne subsystem in Denver?
Stephen Rusckowski: One of our top priorities is to restore growth. We believe we can do that both through improving our organic growth performance as well as growth through acquisitions.
As part of improving our organic growth performance, the integrating of delivery systems is becoming a much stronger force in healthcare delivery. We estimate about 65% of physicians in this country are now either directly employed or closely aligned with integrated systems. So hospitals are becoming stronger and are a bigger force in the laboratory industry.
In that inpatient market, we have historically sold the most advanced diagnostics. But for most purposes, hospitals ran their inpatient laboratories themselves. It was 40% of the total laboratory market. And for the other 60%, about a third of the competition is hospitals competing with us through hospital outreach. So the hospital presence and the overall laboratory market are greater than 50%.
When we thought about our opportunities for growth, we thought it would be fabulous for us to build on our strong hospital presence. We get about 50% of sales from hospitals today, and 50% from physicians. But as hospitals acquire more and more physicians, we are no longer selling physicians separately but selling to hospitals.
MH: How do you approach hospitals and systems?
Rusckowski: We now have one combined sales force focused on integrated delivery systems. What we have found in many C-suites is that the CEO and the chief financial officer want to engage with us in a conversation around their laboratory strategy, which includes three pieces. One is can we do more with them with the advanced testing business or reference testing business. Second, can we help them become more efficient with their inpatient laboratories? Our value proposition there is we can save them anywhere from 10% to 20% of their cost structure. And third, what are they doing in this outreach business, and does it make sense for them to continue it or could they work with us? The best place for us to land is that we become the laboratory partner for an integrated delivery system—and it’s really Quest inside. We have done that in a number of places.
MH: Are you just targeting larger health systems or are you also going after community hospitals?
Rusckowski: We take all sizes and shapes. We think the best opportunities are to find those systems that realize we could make them more efficient with our expertise.
MH: Are you trying to get hospitals to entirely outsource their labs?
Rusckowski: Healthcare is all about scale. As far as the professional services portion of laboratory science, we have a variety of critical areas where we serve the integrated delivery system. What might be outsourced or what might be considered critical to keep inside all depends on the system.
We have about 45,000 employees throughout the U.S. The lab management deals that work best (are those) where there is good proximity to our large laboratories. We handle in one day what some of these systems might be doing in the course of a full year, so our cost advantage is remarkable. That’s the advantage we bring to the table with these integrated systems.
When I have a conversation with CEOs, we usually include the CFO. We say it is unconscionable to add any more capacity because we have enough. The question is how we can
“We think the best opportunities are to find those systems that realize we could make them more efficient with our expertise.”
cut a deal where they can save some money, and we can make some money through increased efficiency. That’s what we are trying to accomplish with every one of these relationships.
MH: You recently announced a deal with IBM Watson Health around tumor sequencing. What is its significance?
Rusckowski: When we launched what we call our New Quest in 2012, our vision was to empower better health with diagnostic insight. It is increasingly more important to attach useful information to laboratory science and serve it up to the physicians who make decisions every day. Physicians often need help from us to understand that information. That’s why the services component of that is so critical.
Oncology is probably the best example of diagnostic information services. A couple years ago we launched a BRCA test offering for the field of breast cancer. It’s useful information to find insights from those mutations to be able to predict when someone has a higher probability of eventually being diagnosed with breast cancer and ovarian cancer. So the field of computing, especially cognitive computing, is essential to the field of diagnostics. That simple principle is why we teamed up with IBM Watson. Watson is their broad brand. You can apply Watson to financial services; you can apply Watson to population health; you can apply Watson to general health trends. This is a specific program within Watson in the field of genomics.
It builds on relationships that we formed over two years ago with Memorial Sloan Kettering in New York City, where their research over the years found 34 genes that linked up with cancer drugs. We can test for those genes with our nextgen sequencing capabilities and be able to determine for a specific patient whether a cancer drug will work. If there is no match for that specific patient, we can also identify clinical trials that you could potentially enroll your patient in.
MH: You’ve sold off Focus Diagnostics, which sold diagnostic products. Why?
Rusckowski: We’ve taken a look at our business portfolio and decided it was not within the scope of diagnostic information services, which has plenty of growth opportunities. So we have sold off a number of businesses over the course of the past four years. With the sale of Focus, that strategy is largely complete.
Running a device business is entirely different from running a healthcare services business. And I can speak with knowledge because I used to run one of the world’s largest device businesses, Philips Healthcare.
MH: How does information technology fit into Quest’s future?
Rusckowski: With diagnostic information services as our focus, we actually have been improving our capability of using the information we generate. We have products around utilization management for laboratory tests. We have a product where we can use the laboratory values to help integrated delivery systems around population health. We have this really coveted beachhead within the workflow of physicians when they are engaging with the patient.
So IT is a strong part of our diagnostic information services.