Public Health Laboratories and Health System Change . Structure of the Market


Nationwide, the clinical testing market generates $30 billion in sales annually, and currently there are approximately 150,000 clinical laboratories in the United States (including PHLs). Clinical laboratories typically fall into one of three major categories: hospital-based laboratories, independent reference laboratories, and physician office laboratories.14

Previously an industry dominated by hospital-based laboratories, the clinical testing industry is rapidly consolidating, with larger independent reference laboratories acquiring increasing market share. In 1995, hospital-based laboratories comprised 55% of the total market, independent clinical laboratories made up 37% ($11 billion in sales for 1995), and physician office laboratories comprised 8% of the market. The independent reference laboratories represent the fastest growing segment of the clinical laboratory industry. 15

Figure 11: Market Share of Major Reference Laboratories, 1995


Several mergers and acquisitions in the clinical laboratory market during the past five years have resulted in the formation of large independent reference laboratories that now control a significant portion of the independent reference laboratory testing market (Figure 11). The merger of National Health Laboratories and Roche Biomedical Laboratories in 1995 to form Laboratory Corporation of America (LCA) created the largest laboratory system in the industry, with 1995 sales of $1.7 billion. ega-labs, such as LCA, SmithKline Beecham Clinical Laboratories, and Quest Diagnostics, have positioned themselves well to bid for managed care contracts because of their high volume, quick turnaround, and low cost-per-test approach to laboratory services.