Assignment 2: Planning Diversification

Problem: Quest Diagnostics' revenue decline 3% in 2013

Quest Diagnostics is the world's leading provider of diagnostic testing information services, with 14% of the $40 billion clinical laboratory market. During 2013, Quest Diagnostic generated $7.1 billion of revenue which was 3% less than the previous year. Low utilization and not being reimburse for services impacted sales performance. Consumers are utilizing fewer health services due to expensive premiums and economic conditions. The following fields are in need of services: Cancer, Infectious Disease and Immunology, Cardiovascular and Metabolic Disease, Neurology, and Women’s Health. As the population continues to grow and age, the burden of chronic diseases and unmet diagnostic needs may increase the demand for diagnostic information service. Quest Diagnostics need to generate additional revenue in order to offset the high fixed cost of clinical testing. Government regulations and high cost of goods are diminishing profit margins. The Affordable Care Act will limit the insurance coverage of clinical testing, therefore requiring patients to pay out of pocket. Laboratory Corporation of America Holdings, a competitor, is projected to increase revenue and market share. LabCorp continues to grow and increase market share through the acquisition of smaller companies. Quest Diagnostic’s revenue was greatly impact when LabCorp acquired the United Health Care contract. United Heath Group is one of the largest health insurers within the U.S. (2013 FORM 10–K, 2014). 

Opportunity: Expand its prevention and wellness business

Quest Diagnostic can diversity services by offering prevention and wellness programs for patients. Diagnostics testing improves patient health and reduces the overall cost of healthcare through early detection, prevention and treatment. The need for preventative health and wellness is growing as a result of the Affordable Health Care Act. Obamacare require employers to implement wellness programs in order to maintain the health of employees. The organization performance is evaluated based on the participation rates of wellness programs. A wellness program improves productivity and reduces health care expenses. The healthcare industry is shifting from curative care to detection and prevention care. These trends can help Quest Diagnostics expand and generate revenue (Diagnostic & Medical Laboratories, 2013)

Opportunity: Globalization

Although Quest Diagnostics has international offices, 97% of total revenue is generated within the United States. For the year ended December 31, 2013, less than 1% of Quest Diagnostic’s long-lived assets were held outside the United States. Long lived asset are long term investments of land, buildings, equipment, vehicles, and other property that can transformed into cash. Quest Diagnostic’s lack of globalization is a missed opportunity to gain new customers and profit from low cost labor. Expanding to international markets will allow Quest Diagnostics to move operations closer to suppliers. There is a growing demand for healthcare services in developing market countries. Globalization will provide an opportunity to foster the growth of the healthcare system outside of the United States. Quest Diagnostics can utilize expertise and leverage existing facilities to serve international markets. Quest Diagnostics will be to take advantage of economies of scale to purchase supplies at a discount rate. Expanding into international markets will improve supply chain operations and increase profit gains. Globalization provides an opportunity for Quest Diagnostics to satisfy the need for employer drug testing. Drug testing services are needed for companies with high employee turnover and safety incidents. Hospital-affiliated laboratories account for approximately 60% of the total clinical testing industry. Quest can expand internal operations through new partnerships with community hospitals, hospital chains and academic medical centers (Lee, 2014).

Opportunity: Veterinary Laboratory Testing Services

Diversification is the process by which an organization enters multiple markets or provides a variety of products and/or services. Offering veterinary laboratory testing services is a great way for Quest Diagnostics to diversify product offering. The U.S. veterinary diagnostics market is $2 billion industry that had a growth of 5% in 2013. This is a great industry for Quest Diagnostics to enter because they can utilize existing facilities and equipment. Veterinary diagnostics market is projected to grow over the next five years, along with participation in pet insurance. Veterinary diagnostics market will provide the benefits of low government involvement, transformable facilities, and opportunities for revenue growth (Carlson, 2014).

Opportunity: Point of care testing

The global Point-of-Care Testing (POCT) market sales revenue was $5.32 billion in 2012 and is expected to reach $9.03 billion in 2019. Point of care tests designed to be used at or near the site where the patient is located (i.e. home, hospital, or ambulance) Point of Care Testing is convenient because testing can be performed outside of the laboratory. Doctors quickly receive test results to offer rapid treatment to the patient. Point of care testing utilizes portable instruments and test kits to collect specimen and report the results. The convenience of Point of Care Testing will reduce laboratory visits. POCT provides access to test results through electronic medical records. Point of Care Testing is a cheaper alternative to building diagnostic testing labs (Korte, 2013).

References

2013 FORM 10–K. (2014). Quest Diagnostics Incorporated. Retrieved April 1, 2014, from http://www.questdiagnostics.com/home/co

Carlson, B. (2014). Veterinary Diagnostics.PRWeb. Retrieved April 2, 2014, from http://www.prweb.com/releases/2014/01/p

Diagnostic & Medical Laboratories . (2013).US Market Research. Retrieved April 2, 2014, from http://www.ibisworld.com/industry/default.aspx?indid=1575

Korte, B. (2013). Point-of-Care Diagnostic Testing. NIH Fact Sheets. Retrieved April 1, 2014, from http://report.nih.gov/NIHfactsheets/ViewFactSheet.aspx?csid=112

Lee, J. (2014). Quest reports 3% drop in revenue in 2013. Modern Healthcare. Retrieved April 1, 2014, from http://www.modernhealthcare.com/article/2