{"id":23418,"date":"2017-11-15T02:40:51","date_gmt":"2017-11-15T07:40:51","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/digital-transformation-at-labcorp\/"},"modified":"2017-11-15T02:40:51","modified_gmt":"2017-11-15T07:40:51","slug":"digital-transformation-at-labcorp","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/digital-transformation-at-labcorp\/","title":{"rendered":"Digital Transformation at LabCorp"},"content":{"rendered":"

Laboratory Corporation of America Holdings (LabCorp) provides diagnostic solutions and drug development solutions in approximately 60 countries. Its diagnostics subsidiary, LabCorp Diagnostics, provides over 4,800 different testing options and accounts for approximately 70% of the parent company\u2019s revenues. In the United States, the supply chain for these services depends upon the 1,750 patient service centers (PSCs), which are placed near medical facilities that order diagnostic services for their patients. Public and private health insurance providers are typically responsible for the actual payment of the services ordered, though the company also operate in fields unrelated to healthcare, e.g. forensics. Physical couriers often transport specimens from the hospital to the local PSC. Today LabCorp uses multiple digital technologies to engage the patient, provider, and payer along the healthcare value chain.[1]<\/a><\/p>\n

Future digital diagnostic technology presents a serious challenge to the current supply chain and ought to be cause for concern for LabCorp\u2019s management. First, as the actual inputs and outputs of the diagnostic process become digitized, the need for the existing widespread brick and mortar infrastructure will decrease. Second, as the actual diagnostic capital equipment itself becomes smaller, less expensive, and easier to use, testing may move to less costly locations, e.g. the household. Third, the widespread use of wearable technologies and their associated digital data structures may create proxy diagnostic methods, thereby obviating the need for traditional methods.[2]<\/a> Fourth, developments in health insurance risk analysis and pricing through digital innovations could also render many diagnostic services unnecessary.<\/p>\n

Recently LabCorp Diagnostics has been experimenting with a low cost direct-to-consumer approach to diagnostics, e.g. a home use breast cancer genetic test that costs $250 versus $4,000 for the traditional test.[3]<\/a> The subsidiary offers the ability for patients to order some diagnostic services without a doctor\u2019s order.[4]<\/a> It has also been building out its online customer interface for patients, providers, and payers. This latter effort has been the focus of its movement towards integrating digitization into its business model. This movement, while laudable, is not groundbreaking. Most of the developments are in web-based software very similar to what other players, e.g. Salesforce, have been doing in the market for years. This collective set of actions appears to be its near-term strategy, as it responds to what other competitors are doing in the field.<\/p>\n

The parent company\u2019s larger strategic moves, however, indicate it is more heavily focused on consolidating its position in the existing marketplace, as evidenced by recent acquisitions of Pathology Associates Medical Laboratories (PAML) and Chiltern International, among others.[5]<\/a> The company\u2019s vision appears to be serving as a servicing intermediary between end customers and manufacturers of diagnostic device technology \u2013 the single point in a many-to-many business model. Over the long run, the holding company\u2019s actions are not indicative of a company that is at the forefront of digitalization and it potentially disruptive effects.<\/p>\n

To address this issue over the short and medium term, I recommend LabCorp Diagnostics build an inhouse business segment titled \u201cLabCorp Digital,\u201d which would begin operating exclusively in the digital domain. Its primary task would be to identify, evaluate, and implement promising, fully digitized testing methods. I would staff this small unit with a combination of insiders and outsiders, appoint an aggressive leader, and locate the unit in Silicon Valley away from the parent company\u2019s headquarters in Burlington, NC. The primary concern with this approach is the potential cannibalization of the company\u2019s primary diagnostic business. The counter here, of course, is \u2018disrupt or be disrupted.\u2019 As the upstart digital effort begins to compete with the traditional line, management must use best judgment to determine way forward.<\/p>\n

I would also like to see LabCorp make a set of strategic moves that allow for the quick off ramp of its large physical infrastructure network. While the company already leases many of its spaces, contracts could be negotiated into more favorable exit terms or shorter leasing times. The same is possible in its capital testing equipment, which may well become outmoded sooner than expected. The company\u2019s $14 billion asset structure is dominated by $10 billion of Goodwill and Intangible Assets, which is the result of its strategic buying spree. Looking to the core of the asset structure, $1.7 billion of Plant, Property, and Equipment accounts for its key strength, while $2.3 billion consists of current assets.[6]<\/a><\/p>\n

Two questions come to mind about the ability of LabCorp to handle additional digital disruption of its supply chain. How will digital transformation of the health insurance effect diagnostic services? How, when, and where will household diagnostic equipment begin making traditional testing obsolete?[7]<\/a><\/p>\n

(753 Words)<\/p>\n

[1]<\/a> Laboratory Corporation of America Holdings, 2016 Annual Report, (Burlington: Laboratory Corporation of America Holdings, 2017), p. 4.<\/p>\n

[2]<\/a> Contributor, \u201cA digital revolution in healthcare is speeding up,\u201d The Economist<\/em>, 2 May 2017.<\/p>\n

[3]<\/a> Medidata Contributor, \u201cThe Promise of the Digital Health Revolution for Drug Trials,\u201d Forbes Medidata <\/em>(blog), 21 May 2015, https:\/\/www.forbes.com\/sites\/medidata\/2015\/05\/21\/the-promise-of-the-digital-health-revolution-for-clinical-trials\/#1ad4bfa8599c.<\/p>\n

[4]<\/a> Wasserman, Emily, \u201cLabCorp rides direct-to-consumer wave with online testing services,\u201d Fierce Biotech<\/em> (blog), 20 Apr 2015, https:\/\/www.fiercebiotech.com\/medical-devices\/labcorp-rides-direct-to-consumer-wave-online-testing-services.<\/p>\n

[5]<\/a> Vasquez, Justina, \u201cLabCorp to Buy Chiltern for $1.2B,\u201d The Wall Street Journal<\/em>, 31 Jul 2017.<\/p>\n

[6]<\/a> Laboratory Corporation of America Holdings, 2016 Annual Report, (Burlington: Laboratory Corporation of America Holdings, 2017), p. F-3.<\/p>\n

[7]<\/a> Schauff, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused<\/em>, PWC Strategy& (2016).<\/p>\n","protected":false},"excerpt":{"rendered":"

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