Medical Laboratories

SIC 8071

Companies in this industry

Industry report:

This category covers establishments that provide professional analytic or diagnostic services to the medical profession or to patients upon prescription of their physicians.

Industry Snapshot

The laboratories in this classification are independent, commercial enterprises that provide bacteriological, biological, histological, blood, chemical, and pathological analysis; urinalysis; and medical and dental X-rays. Approximately 5 percent of each health care dollar is spent on laboratory testing, but up to 70 percent of health care decisions are based on the results of those tests, making medical laboratories a vital part of the U.S. health care system. While demand is high due to the increased health care needs of the country's aging population and the outbreak of new and serious diseases, intense competition, cost-cutting measures implemented by managed care organizations, and a lack of skilled workers created challenges to the industry's continued growth in the twenty-first century.

Laboratory companies have met these challenges by growing through mergers and acquisitions and by continually developing faster, less expensive, and less invasive testing procedures. One significant trend is toward more point-of-care testing, with tests performed in a doctor's office and emergency rooms--or in the case of home health care, at home--with testing, diagnosis, and treatment consolidated to one location. According to the U.S. Census Bureau, in 2010 there were 13,267 establishments in this industry, employing a combined 246,259 workers who earned a total annual payroll of more than $14.3 million.

Organization and Structure

The leading organization for the medical laboratory industry in the early 2010s was the College of American Pathologists (CAP), which pursued excellence in the practice of pathology and laboratory medicine by providing information, support, and advocacy on behalf of its members. CAP had more than 18,000 members worldwide and was considered a global leader in medical laboratory quality assurance. Approximately 7,000 labs across the country were certified by CAP, and 22,000 were enrolled in CAP's proficiency testing programs.

Founded in 1933 as the American Society for Medical Technology, the American Society for Clinical Laboratory Science (ASCLS) served clinical laboratory science practitioners, providing leadership and advocacy in all aspects of clinical laboratory science practice, education, and management. In the early 2010s, the ASCLS was considering the possibility of merging with the Clinical Laboratory Management Association, a trade organization with 53 chapters and 3,000 members as of 2012.

Background and Development

Medical laboratories are governed by the Clinical Laboratory Improvement Act of 1988 (CLIA '88). These regulations, implemented in 1992, increased requirements for proficiency testing, which raised costs 67 percent in the first eight months of 1992. However, while the new regulations caused the cost of materials to go up, the regulations also simplified administrative costs by unifying separate rules that had been established under previous programs.

National health care expenses more than doubled between 1980 and 1990, growing from $250 billion to $696 billion per year, and nearly doubled again by 2000, reaching $1.3 trillion. By the end of the decade, this figure was nearly $3 trillion. Because of these huge increases, employers and insurers sought to control costs, taking steps to substitute outpatient treatment for hospitalization when possible. Insurers and employers wanted to see laboratory tests and X-rays to determine if hospitalization recommended by physicians was really necessary. Hospitals also had a stake in making sure that unnecessary hospitalizations were not occurring. After 1983 hospitals were reimbursed for Medicare patients at a modest rate determined by the federal "diagnostic related groups (DRG)" that were standard rates based on a patient's diagnosis, age, sex, treatment modality, and discharge status. If costs exceeded DRG prices, the hospitals were required to absorb the cost. Ironically, the new emphasis on tests caused the cost of diagnostic procedures to skyrocket. Insurers and employers sought to hold down costs for these as well.

One of the most vigorous debates in medicine in the mid-1990s centered on clinical laboratories owned by doctors. In 1989 the federal government passed a law prohibiting doctors from referring Medicare or Medicaid patients to clinical laboratories in which they had invested, but critics wanted to ban doctors from referring any patients to such laboratories. Self-referral, they argued, led to unnecessary diagnostic procedures. Government studies indicated that 10 percent of the nation's doctors had invested in a business to which they sent their patients and that these doctors made more such referrals than doctors who had not invested in the facilities to which they referred patients.

Other legal issues that haunted the industry during the early 1990s included fraud and charges of unsafe practices. In 1993 state and federal officials subpoenaed the Medicaid and Medicare records of at least five of the country's largest medical labs in an effort to stop suspected fraud, such as unallowable overhead Medicare charges, overcharging, and false claims. The owner and president of Diagnostic Technology Inc. and New York Blood Components was convicted of a felony and misdemeanors and fined $25,000 for sending lab test kits containing HIV- and hepatitis B-contaminated blood through the mail. In the late 1990s, industry observers were concerned with the future direction of EPA rulings governing lab waste disposal.

Total revenues for all clinical laboratory services in the United States in 1999 were $39.2 billion. Commercial laboratories in this industry sector were responsible for more than one-third of those totals, with 1999 revenues of $14.9 billion. Other providers of clinical laboratory services were hospitals and physicians' offices. Commercial labs showed the most growth, with a compound growth rate of 5.4 percent, compared to 2.5 percent for hospitals and 1.2 percent for physicians' offices. Hospitals continued to reduce the number of laboratories they operated.

The increasing presence of managed care in the health care industry had a major effect on the continued consolidation of medical laboratories. As in other sectors of the economy, large national chains dominated and often drove out independent laboratories. While there were fewer large chains in the late 1990s, those in existence increased dramatically in size. Some analysts suggested that only large chains--or laboratories that joined to form "purchasing groups"--could afford to provide services at the extremely low costs managed care firms demanded. Some managed care groups also negotiated a "subscription" rate with laboratories, paying one total annual fee for all services instead of paying for each test individually. The trend toward managed care also compelled physicians to order fewer tests and take fewer samples for testing to cut costs.

According to the U.S. Statistical Abstract, in 2000 the medical and diagnostic laboratory industry garnered nearly $23.2 billion in revenues, up from $19.2 billion in 1998. Employment also grew steadily, reaching 216,000 in 2001, up from 166,000 in 1990. During the early years of the first decade of the 2000s the industry was struggling with a shortage of qualified laboratory workers, and laboratories were turning to automated systems for simple tests.

At the time, the diagnostic laboratory industry was undergoing a significant move to point-of-care testing, with patients going to a doctor's office for "test-and-treat" care. Physician testing facilities was the fastest growing sector of the medical laboratory industry. S. Wayne Kay, chief executive officer of Quidel Corp., which specializes in point-of-care diagnostic tools, told Medical Laboratory Observer: "The movement toward decentralization of the laboratory and the need for more accessible diagnostic testing where the physician can test and treat will contribute to this demand curve. This speed of service--fast turnaround times--combined with a medically important need to diagnose and treat as quickly as possible, makes our mission exciting." In 2001 approximately 58 percent of the nation's 170,000 medical laboratories were in doctors' offices.

Another trend in the industry was the rapid growth of molecular diagnostic testing. After the terrorist attacks against the United States on September 11, 2001, diagnostic laboratories also were on the cutting edge in developing tests and solutions in anticipation of possible future bioterrorist attacks.

In 2005 there were 14,844 medical and diagnostic offices in the United States, employing 224,792 and with revenues of $26 billion. Approximately 10,122 medical laboratories represented $11.8 billion of this total. The testing laboratories sector accounted for 1,512 labs that had more than 40,000 employees and revenues of $8 billion. There were 1,225 X-ray laboratories, including dental, employing 15,755 X-ray technicians and generating $26 billion in revenues. Ultrasound laboratories employed 7,793 technicians with reported revenues of $236.2 million. Pathological laboratories accounted for 831 laboratories and employed some 17,471 lab technicians. Other laboratories in this industry included bacteriological laboratories, biological laboratories, blood analysis laboratories, urinalysis laboratories, and neurological laboratories, which represented a total of 688 facilities and 19,451 employees.

According to the June 2005 issue of the Medical Laboratory Observer, there was a shortage of laboratory personnel in the middle of the first decade of the 2000s, which was expected to continue into the following decade. Following efforts in 2001 and 2003, the Medical Laboratory Shortage Act (H.R. 1175) was again introduced on March 8, 2005. The Act was intended to target the areas of concern authorizing educational funding through 2010, but the bill died before becoming law. Additional bills introduced in 2005 were the Allied Health Reinvestment Act of 2005 (S. 473) and the Allied Health Professions Reinvestment Act of 2005 (H.R. 215), which were efforts to provide awareness and further funding for education. One particular area of concern was the shortage of professional technicians trained in the field of molecular diagnostics.

Of concern were results of a survey conducted by the Seminal Institute of Medicine, which took a survey of 120 institutions in regard to medical errors resulting from misidentification. The research found that some 5,731 identification errors were detected prior to notification of test results to the patient, and 974 were found after the patient received his or her results. A total of 85.5 percent of lab technicians discovered identification errors within the laboratory setting prior to result notification, while 14.5 percent went undetected. The survey concluded that more than 160,000 "adverse events" per year were the direct result of patient specimen misidentification. Following the final report, the Joint Commission for Accreditation of Healthcare Organizations and the College of American Pathologists made accurate patient identification a major safety goal for the healthcare industry. Of 272 surgical pathology cases in litigation, 13 were the direct result of altered specimens between two patients.

The first decade of the 2000s continued a 50-year trend of developing better, simpler, and faster testing. However, a growing trend, which continued to expand exponentially at the end of the decade, was testing that was also "closer," Point-of-care testing was g increasingly popular and more common as testing was being done and evaluated at doctors' offices, emergency rooms, and even in patients' homes. Once the domain of stand-alone medical laboratories, by the end of the first decade of the 2000s, diagnostic companies supplied physicians' offices with systems capable of performing basic medical testing. Point-of-care testing was particularly important for emergency departments where immediate results were often vital in determining a course of action. Home health care professionals also took advantage of increased availability of point-of-care testing to limit trips to doctors, hospitals, and laboratories for their often-homebound patients.

Patients were also finding an increasing number of tests available over the counter. While simple pregnancy and glucose tests had been on the market for some time, other tests also became available, including those for limited drug screening and fertility testing. Some tests were conducted and read by the consumer, while others were sent to a lab for analysis and interpretation.

While much of the market was moving to point-of-care, traditional medical laboratories continued to handle the most complex tests and those that required interpretation to understand the implication of the test results. In addition, industry advocates questioned whether point-of-care testing was actually reducing the traditional testing workload significantly. Roger Rogoski explained in MLO, "Since most labs tend to oversee these tests and may have to duplicate certain tests if POCT results are questioned, labs are being taking on even more responsibilities." In addition, point-of-care testing, which is often used in time-sensitive situations, is often held to a lower standard, such as a plus or minus variance of 20 percent compared to 5 percent, which can lead to nurses and practitioners questioning the results and subsequently rerunning the tests in the laboratory.

Current Conditions

According to research firm IBISWorld, diagnostic and medical laboratories in the United States generated about $48 billion in revenues in 2011. This industry survived the economic recession at the end of the first decade of the 2000s better than many others, due to the need for the services and the increasing proportion of people over the age of 65 in the United States. The industry was expected to continue to grow with the passage of the federal health care reforms in 2010 that were intended to provide health insurance to more people, allowing them to gain such services as lab diagnostics. In addition, IBISWorld reported, "As chronic diseases become more prevalent, the development of more sophisticated types of testing will further drive industry growth." The U.S. Census Bureau predicted that jobs for medical and clinical lab technologists and technicians would grow 13 percent between 2010 and 2010.

Industry Leaders

Quest Diagnostics Inc., headquartered Madison, New Jersey, was a leader in this industry in the early 2010s. Quest operated more than 2,000 service centers to collect samples from patients, 30 primary medical laboratories, and 150 rapid response laboratories. The company processed more than 150 million specimens annually. In 2011 Quest, which was publicly owned, reported revenues of $7.5 billion and employed 42,000.

For 2011 Laboratory Corporation of America Holdings (LabCorp), another industry leader, reported $5.5 billion in sales. LabCorp operated 1,700 patient service centers and processed 440,000 specimens in its medical laboratories.


According to the U.S. Bureau of Labor Statistics, the medical and diagnostic laboratory industry employed 229,510 workers in 2010. Medical and clinical laboratory technologists and technicians accounted for about 24 percent of the industry's workforce. Technologists had a mean annual salary of $58,390 and technicians earned an average of $36,870.

Clinical laboratory technologists must have a bachelor's degree in medical technology or another life science. Several states require licensure and/or certification. Lab technologists can perform a variety of complex tests. In large laboratories, they generally specialize in a particular area, such as microbiology or immunology. Technicians have associate degrees or a diploma from a vocational or technical school and perform routine tests. Some states require lab personnel to obtain licenses. Certification is another way that individuals in this field prove their competence. Because technicians are less expensive to employ than technologists, many labs began to use more technicians, and at some companies, technicians comprised up to 75 percent of the staff.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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