Special Feature
Marketing the Hospital Laboratory
Lionel A. Varnadoe, MBA, MT(ASCP)
N ever before has the laboratory
manager been called upon to re-
spond to such a rapid change in en-
vironment. The laboratory has come
to accept rapid technological ad-
vances as commonplace and has
learned to develop strategies for as-
similating this new knowledge. We
must now develop similar strategies
to deal with the challenges of new
reimbursement mechanisms and the
restructuring of the laboratory deliv-
ery system.
Yesterday's Laboratory
To understand where we are today
and plan for tomorrow, it is advan-
tageous to review the laboratory of
yesterday and the market rules that
applied. The typical institutional lab-
oratory of only a year ago was hos-
pital based, serving a captive in-house
market. While lip service was given
to attracting outpatient work, it was
generally understood there was no way
a hospital laboratory could compete
with an independent laboratory for the
outpatient market because of the ex-
penses involved with providing a 24-
hour, on-demand service. With rare
exceptions, which were due to high
specialization or unique geography
advantages, this was true because of
one fact: Medicare patients had to be
From Lawnwood Regional Medical Center, Fort Pierce,
FL 33450.
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charged the lowest price offered to any
patient.
Many legal, organizational, and
marketing calisthenics were at-
tempted to circumvent this rule—all
to no avail. There was no way to
achieve a multi-tiered pricing struc-
ture. Then came DRGs.
Today's Laboratory
I do not need to explain DRGs or
describe in detail the laboratory's
present dilemma, but I do wish to
highlight a few points that are per-
tinent:
1. The laboratory's accounting en-
try under medicare has changed
along with all hospital depart-
ments, with the exception of ad-
mitting and possibly the employee
cafeteria, from a revenue profit
center, to a cost center, similar to
the ledger status of housekeep-
ing.
2. We are eyed with the hope that
we can provide a possible entry
into new areas of health care
marketing.
3. The laboratory has been iden-
tified as an "asset" that can be sold
off, or "merged," with other lab-
oratories to provide a major re-
duction in hospital expenses and
to deliver a "guaranteed . . . profit
per test regardless of occu-
pancy."1
4. With the advent of DRGs, the
LABORATORY MEDICINE • VOL. 18, NO. 6, JUNE 1987 3 9 7
hospital is released to explore se-
lective pricing and develop multi-
tiered charges for different cate-
gories of customers. These pro-
grams have varied from simply
offering discounts for payment in
cash to price breaks on a courier
route, to a complete price menu
based on different categories of
patients.
The bottom line is that the labora-
tory manager's job was previously op-
erational and did not need to deal with
generating business in addition to
trying to maintain the current clien-
tele.
Marketing the Laboratory
When articles and seminars on hos-
pital laboratory marketing have been
presented, they focused almost exclu-
sively on the opportunities afforded by
"selling off or "merger" options. The
choices proposed so far consist of joint
ventures (you have a STAT labora-
tory, and we do every thing else); lab-
oratory management agreements,
which give the laboratory operations
(and frequently ownership) to an out-
side laboratory; and merger pro-
grams, in which a central laboratory
offers shared services to several in-
stitutions. While these options may be
viable and appropriate strategically
for an institution to consider, by any
reasonable definition they are not
marketing ideas but cost-reduction
 tactics for the hospital and frequently
eliminate or capitulate competition
instead of responses. Hospital Laboratory Marketing Environment
This article will not be concerned
further with these proposals or with
other cost-reduction suggestions but
will focus on identifying and compet-
ing for new clients for the hospital-
based laboratory.
As part of a complete management
plan, it is necessary to develop a sound
strategy for maintaining and attract- Product
ing a client base t h a t will create a
stable financial position and allow for laboratory
potential growth. The classic market- test
ing approach will serve as the model
for this project. The marketing ap- Organizational
proach is designed to identify prod- Environment
ucts and customers and develop a plan
to bring the two together. This plan hospital constraints
laboratory objectives
then attempts to maneuver and ma- laboratory resources
nipulate those factors that influence
the buyer in making a purchasing de-
cision. Market
Environment
In Fig 1, many factors are shown,
mostly outside the manager's con- patient population
trol, t h a t influence the delivery of buying habits
laboratory services. The m a r k e t en- competitors
vironment is a vibrant, interacting,
ecosystem where conditions are con- Macroenvironment
stantly changing. The manager must
be alert to its evolving character and economy
develop s t r a t e g i e s t h a t will t u r n technology
public policy
these events to the laboratory's ad- culture
vantage. The extra-environment and
macroenvironment are beyond the
realm of control of either the man- Extra-Environment
ager or the organization. However,
climate, etc
these factors provide the possibili-
ties and limitations common to all
providers of laboratory services. The
radical changes in medicare reim-
bursement and the introduction of Fig 1. Factors that influence the delivery of laboratory services.
DRGs are poignant examples of the
impact these factors can have.
As we focus on the parts of the en-
vironment where the .laboratory is lo-
cated, we can isolate those elements
t h a t we will attempt to explain—the All Laboratory Tests Performed
p r o d u c t s a n d p r o v i d e r s ; t h e con-
sumer, defined as the decision maker
who selects the provider; and the fac- Hospital-based patients Non-hospital-based patients
tors t h a t influence this decision. I
The objective of this analysis will
be to develop a market proposal (plan) In-house testing Referral
testing
for our laboratory that can be imple- laboratories
mented to achieve our outreach goals.
1^ 1
The Product Free- Physicians' Walk-in Private Referral
standing offices emergency walk-in testing
Figure 2 shows where laboratory clinics centers laboratories laboratories
tests are performed. The laboratory
test is initiated by a physician re- Fig 2. Where laboratory tests are performed.

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 quest, based on the evaluation of a
patient. Once the need for a test has Laboratory Services Purchasing Decision
been determined, many options for
obtaining this service are available.
D e p e n d i n g on t h e location, price,
Institutional Physician's Third-party Patient
technological sophistication needed, assignment office payer's discretion
and payment mechanism, the test may assignment assignment assignment
be performed by t h e o r g a n i z a t i o n
( p h y s i c i a n office, h o s p i t a l , clinic, Fig 3. The buyer's decision.
HMOs, PPOs, etc) where the patient
was seen, the patient or test directly
assigned to another laboratory by the
Marketing Proposal for Laboratory Services
organization, or the patient left to de- (Outline)
termine where the test will be per-
formed. Plan objective
Except for rare examples, the lab-
I. Market overview
oratory test result is a generic prod- A. Market segments available
uct. T h e r e a r e not m a n y , if a n y , 1. Outpatients
differentiating factors in the final re- 2. Physicians' offices
port. Obviously, I am viewing the fi- 3. Institutions
n a l r e p o r t , not from a t e c h n i c a l 4. Other
B. Competition
perspective, but from the consumer's 1. Present consideration
perception—a blood glucose value is a. Institutions
a blood glucose value. b. Private (small) laboratories
The differentiation comes from the c. Independent (including national) laboratories
d. Clinics
service, or delivery end of the report. e. Other
Turnaround time, price, convenience, 2. Anticipated developments
test mix, payment options, and repu- II. SWAT (strengths, weaknesses, analysis, and tactics) analysis
tation for quality are all service-re- A. Strengths and weaknesses of competition
lated items that differentiate one test 1. Lab A
a. Strengths
and laboratory from another. These b. Weaknesses
are the variables that the laboratory 2. LabB
manager has to deal with. a. Strengths
b. Weaknesses
B. Strengths and weaknesses of your laboratory
The Customer 1. Strengths
2. Weaknesses
It is crucial to target your market-
III. Opportunities
ing effort. Your target is not simply A. Outpatients
all outpatients. You may not want or 1. Recommendation(s)
need to offer incentives to "captive" 2. Implementation
patients who must use your services. B. Physicians' offices
1. Recommendation(s)
These patients could be those gener- 2. Implementation
ated from other hospital o u t r e a c h C. Institutions
functions, such as outpatient surgery, 1. Recommendation(s)
the emergency room, or clinics where 2. Implementation
patients are automatically assigned. D. Others (clinics, satellite drawing stations, etc)
1. Recommendation(s)
You may harm your program by giv- 2. Implementation
ing discounts t h a t are not necessary IV. Approval requested
if your program does not clearly de- (Here clearly, and specifically, state what steps need to be approved by admin-
lineate these groups. istration and what resources are necessary, if any, to initiate the plan immedi-
ately.)
The target should be the discretion-
ary buyer who makes the decision
where tests will be obtained and has Fig 4. A guide to identifying the strengths, weaknesses, and opportunities involved in
marketing laboratory services.
several options available as to where
to obtain t h e s e services. F i g u r e 3
shows the buyer's decision. As you can
see, this buyer may be the patient, a ager includes the product, place, pro- tion of laboratory services. The rep-
physician, a third-party payer, or an- m o t i o n , a n d p r i c e . 2 T h e s e four utation for quality is the key element,
other institution. variables are the factors that directly and the hospital laboratory has a dis-
influence the buying decision. tinct advantage if it is well known with
a reputation for quality and is a local,
The 4 Ps readily available resource for consul-
Product
The arsenal of the marketing man- We have reviewed the differentia- tation, follow-up, and adaptation.

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 Marketing Proposal for Laboratory Services

Purpose: The purpose of this study is to identify and expand the user base for the laboratory services of the Metropolitan
Medical Center.
This program is based on the premise of a multi-tiered pricing structure.
Market Segmentation:
Three potential market segments have been identified as offering major opportunities for expanding our services:
Outpatients: This term is defined specifically to apply to the patients who make the decision as to where their laboratory
work will be performed.
Physician offices: This term is used to describe laboratory work that is drawn in a physician's office and sent to an outside
laboratory for completion.
Institutions: This segment refers to institutions that have a concentration of persons who may need laboratory work. This
category not only includes nursing homes, but can include apartment complexes and other areas that can be
processed as a single entity.
Competition:
Present Considerations:
River County is now served by two local hospitals—one small independent laboratory that only accepts walk-in clients and
three major national laboratories that cover the county using courier services.
In addition to Metropolitan, City Hospital and Clinical Medical Laboratory offer laboratory services to the outpatient clients.
The three national laboratories that compete for the physician's office business are LabCorp, ChemLab, and PathService.
Future Consideration:
By the end of the year, four additional laboratories will begin operations in the immediate area of City Hospital, covering
the southern part of the county:
• City Hospital will open a separate outpatient facility.
• General Hospital, from a neighboring county, will open an emergency walk-in center.
• A private pathologist will open a medical office complex laboratory.
• A health care corporation will open an "emergicare" facility that will accept outpatient work.
These five organizations will be competing with each other for the outpatient business in the southern part of the county.
They will, of course, make some attempts for the physician office business also.
SWAT Analysis
Strengths and Weaknesses of Competition:
This analysis is confined to the geographical area of the middle and northern parts of River County because of the market
saturation around City Hospital.
Clinical Medical Laboratory
Clinical laboratories is the only independent lab in the county at present. Located in the downtown area, Clinical has
benefitted from the price structure at Metropolitan, which has caused us to forfeit a major portion of the outpatient work.
Strengths:
• 25-year reputation in the county
Price differential advantage
Known by medical staff and patient population
• Can compete on turnaround time
• Can choose type of patient to serve (no charity, Medicaid)
• Can choose test mix on profit factors alone
Weaknesses:
• Patient base has a high sensitivity to price
• No price constraints, except to be lower than Metropolitan
• Probably has limited financial resources with which to offer services t h a t have low profit margins. This could make them
vulnerable to competition when turnaround times are important
National Laboratories
Strengths:
• Extremely low price
• Mechanism for physician or patient billing
• Courier pick-up service
• Well-trained sales staff to call on clients
Weaknesses:
• No local technical support
• Quality of services can be difficult to ascertain because of remote locations
• Slow turnaround time
• No professional or personal interface by physicians with pathologists, which creates impediments to building strong
relationships
Metropolitan Medical Center
Strengths:
• High reputation for quality and delivery of service
• Local technical and professional support for the medical staff
• Instrumentation available to support an increase in test volume, without additional capital outlays
• A captive patient base, so that services can be priced selectively, without fear of market erosion.
Weaknesses:
• High prices
• Reputation for high prices—would be a liability even if charges were lowered

Continued

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 Opportunities
Given the previously detailed analysis, the following programs would be recommended:
1. Approach nursing homes in the area about doing their laboratory work. Offer the following:
• Fast turnaround time for results
• 24-hour services
• Phlebotomy and pick-up services
• Special discount prices, which may be retailed to their patients (wholesale to retail)
Implementation:
Letter of introduction, listing programs and announcing that services are available
Personal visit to the facility to sell services and negotiate a contract'
2. Physician Offices:
Since most of the tests available from this source are not STAT, price plus turnaround time will be the competitive
factors.
• High, known, quality of services available
• Technical and professional staff available locally for problem solving
• Specimen picked up and results delivered to office several times a day
• Personalized billing programs to fit the needs of individual practices
• Technical support could be offered for in-office testing
Implementation:
Letter introducing the availability of services to the physician's office and the new discounted prices
Establish a pick-up and delivery schedule
Set up a personal meeting to sell and establish contracts
3. Outpatients:
While this market segment may appear the easiest to tap, it will prove the most difficult because:
• Patients perceive prices are high at Metropolitan
• Established habits of obtaining laboratory tests
• Patient chooses the laboratory, so advertisements and solicitations are made difficult, since you are dealing with many
individual choices, rather than a single entity.
Suggestions and implementation:
Establish a separate location, or name, that can be used to recruit patients. This could be as simple as setting up a
remote drawing station.
Explore setting up joint ventures with independent laboratories to attract business. This would reduce any costs
involved in setting up satellite stations and take advantage of their sales staff.
Develop a price schedule which undercuts Clinical lab.
4. Management services:
There are numerous physician offices that perform laboratory work for their patients but are unable to accept work from
other physicians because of licensing limitations. A relationship could be developed with these physicians so work could be
accepted. This may be a mechanism to open a laboratory in areas where there are large concentrations of physicians' offices.
Approval Requested:
1. Authorize the preparation of a letter announcing our new services.
2. Request that the hospital public relations department prepare a questionnaire to explore what types of services are
needed by the physicians.
3. Authorize a survey of charges of competing facilities with which to develop a multi-tiered price schedule.

Fig 5. Sample proposal developed for a hospital laboratory.

Place
A key decision as to the needs and
wants of the buyer is necessary in de-
signing how convenient the labora-
tory service will be. Remote drawing
stations, frequency of pick-ups, and
hours of operation are examples of
important variables to be considered.
Promotion
Advertising and personal represen-
tatives will play a major role in pre-
s e n t i n g t h e l a b o r a t o r y in t h e
marketplace. Promotional material
such as reference manuals and trade
and technical newsletters will sup-
port outreach efforts.
Price
As previously mentioned, price has
been the single crippling liability to
the marketing efforts of the hospital
laboratory. This change is providing
the opportunities for the hospital lab-
oratory to become a major competitor
for laboratory services. The ability of
the institution to develop and admin-
ister a multi-tiered pricing structure
will determine its success in any mar-
keting venture.
The Marketing Proposal (Plan)
With our product, customer, and the
4 Ps in mind, a plan to market labo-
ratory services can be developed. Fig-
ure 4 gives an outline to use as a guide
in identifying strengths, weaknesses,
and opportunities.
As leads and potential market seg-
ments are pursued, expect resistance.
Prepare to educate the financial de-
partment, as well as administration.
In this new arena of laboratory mar-
keting, successful strategies may be
as unfamiliar to the "experts" as to
yourself. Be prepared with examples
of successful projects from other hos-
pitals and utilize all sources of infor-
mation in conducting your marketing
research (Fig 5). Sales representa-
tives, personal interviews with fellow
managers, and trade publications will
prove to be useful sources. The yellow
pages, for example, will be a valuable
reference in identifying your compet-
itors. Be prepared for an exciting and
challenging future, and remember that
in marketing, as in all endeavors,
perseverance will sponsor success.
References
1. Advertisement, International Clinical Laborato-
ries. Inc. Mod Healthcare 1985;15:4.
2. Kotler P: Marketing Management, ed 5. Engle-
wood Cliffs. NJ. Prentice-Hall, 1984.

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