Inside the Lab Industry: Health Diagnostic Laboratory: A Rare Recent Success for Lab Sector

Health Diagnostic Laboratory Inc. (HDL) is a monster success story in a sector staving off contraction. And it’s one that came perilously close to ending not far from the launchpad. Less than five years ago, founder and Chief Executive Officer Tonya Mallory had made proposals to hundreds of potential investors. She and her husband had mortgaged their house and were bouncing checks for nominal sums when $4 million came in from Tipton Golias, the founder of Helena Laboratories. In 2009, when Mallory and her one full-time employee were seeking certifications in the process of ramping up, revenue didn’t quite reach $5,000. But by happenstance, Mallory’s skeletal sales staff made a connection that wound up matching HDL with Bluewave Healthcare Consultants. It very quickly made marketing inroads for the company in Alabama and then other parts of the Southeast. That’s a sweet home for HDL, which sells cardiovascular, diabetes, stroke risk, and related biomarker and lab assays. They’re melded with specialized in-person education for patients in an effort to improve their long-term health. “The obesity rates are very high there, and therefore very viable for us,” said Mallory, who decided to depart from her original plan of gradually building business in and around HDL’s corporate headquarters in Richmond, Va. As a result, HDL began racking up new physician clients with a swiftness seen by few other fledgling labs. Sales reached a remarkable $81 million in 2010. If you don’t have a calculator at hand, that’s about a 1.6 million percent annual increase. They tripled to $210 million in 2011 and then doubled to $420 million last year. At the start of 2010, the company was performing about 300 assays a day. Now, it’s performing 125,000, according to Mallory. The company operates in 48 states and has nearly 800 employees. It is spending more than $68 million on an expansion of its corporate headquarters, including an additional 60,000 square feet of laboratory space. The current lab is operating at 60 percent of capacity; the expansion will bring it down to 25 percent of capacity. That’s in addition to another smaller lab in Kansas HDL now owns as part of its recent acquisition of the U.S. division of Oncimmune, a British company that focuses on lung cancer detection. Mallory, 48, has been showered with accolades. She was recently named 2013 Virginia Business Person of the Year. In 2012, she was named Ernst & Young National Entrepreneur of the Year in the emerging business category. Mallory enjoyed a similar huge success story with the U.S. division of Wako Chemicals, the manufacturer of reagents and other lab products. She built its chemical diagnostic division from less than $5,000 a year in annual sales to more than $20 million. But because Mallory was a woman in a Japanese firm, she was told despite her success she wasn’t going to advance. “There is a lot of frustrating things about Japanese management, a lot of good things as well,” said Mallory, whose experience with Mako has made her generous with her own employees on issues such as health benefits, family leave, and even seed money to start their own ventures. “Somewhere in the middle is probably the most efficient and best situation.” She left Wako in 2004 after spending virtually her entire career with the firm, then spent three difficult years attempting to build a facility in Richmond for Berkeley Heart Lab—a project that was killed when Berkeley was acquired. That’s when she decided to strike out on her own. Sexiness and Customer Service Industry observers say HDL has been able to reach the heavens so quickly because they offer something few other labs do—a combination of test results uniquely designed and packaged to make them both appealing to doctors and patients, as well as strong customer service and personalized outreach. Peter Francis, president of Maryland-based Clinical Laboratory Sales Training, described HDL’s approach to providing test results as “sexy”—a word rarely applied to anything in the lab sector. The company color codes results in green, yellow, or red to give both clinicians and their patients a very quick of idea of where problem spots may lie. “It’s flashy, good, and colorful, and it sells,” he said. According to Mallory, the color-coding system takes any arbitrariness out of the results and improves communications between the patient and physician. But HDL also follows through on the lab results. They employ about 100 clinical health consultants who travel to the offices of the lab’s client physicians. They are medical professionals—cardiac nurses, dietitians, smoking cessation experts, and pharmacists. They will sit down with a patient whose testing has detected a current or impending health care issue and educate them on ways to change their lifestyles for the better. They will also discuss with the doctors ways to better utilize HDL’s testing panel in order to improve interactions with patients and focus on new ways of delivering care. Mallory described HDL’s business model as disease management mixed with some laboratory services. “I am not selling them testing,” she said. “What we actually do is provide answers to the disease state in the doctor’s office.” Years of working in the lab business and studying the traditional health care delivery models eventually convinced Mallory that doctors may not delve deeply enough into a patient’s conditions because of their training, professional inclination, or finances. Mallory’s mother-in-law had a fatal kidney disease go undiagnosed for a year because her doctor did not run the appropriate assay early in the diagnostic process. Her sister, a diabetic, suffered two heart attacks in a week and was moments from being discharged from the hospital because her cardiac panel indicated she was fine. The cardiac stress test Mallory insisted on for her sister proved otherwise. Instead of being discharged, she underwent double bypass surgery. That a health issue may be lurking undetected is HDL’s unofficial motto (the official motto: “beyond disease diagnosis”). The home page on the company’s Web site notes that half of heart attack victims have normal cholesterol levels, something Mallory repeats during a lengthy telephone interview. And the HDL Web site states that the U.S. market is ripe for such detective work: A third of Americans are diabetic or prediabetic, and a third have some form of cardiovascular disease. Partly as a result, HDL has obtained a following so devoted that Francis has come across doctors willing to pack their own tests and FedEx them to Richmond even though they practice right next door to a draw station. “There are those people who really latch on to wanting to delve into and get as much as a vial of blood as possible, and have some company like HDL help them out,” he said. Challenges and Questions Remain Although HDL has had a truly fantastic first five years, it is also experiencing some of the pains associated with such swift growth. Mallory noted that revenue will be flat for 2013, as the company has been victim of the same cuts in reimbursement that the rest of the sector is struggling to address. Sources have also indicated that HDL may be cutting corners to grow business, with the lab potentially paying doctors as much as $30 for a blood draw. Such a practice would violate federal and many state anti-kickback laws. Mallory denies this is the case. She noted that the company pays $3 for a blood draw per federal guidelines, as well as other phlebotomy services “like all other labs in the country.” And HDL may also be under investigation by state or federal agencies, sources say. It’s an allegation that could not be confirmed. “As a policy matter, our company does not confirm or deny or comment upon any pending or threatened legal proceedings or investigations,” Mallory said in a written response. HDL only hired a chief compliance officer in September, but Mallory said that it was a logical hire. “We grew so fast, we’re just trying to react to that growth. Our second year we tried to get things off the ground from an operational standpoint. In the third year and beyond, we’re trying to fill in the gaps with the talent to operate at this level,” she said. “It’s just a natural progression of growing up—and trying to be a good corporate citizen.” Takeaway: Health Diagnostic Laboratory’s unique perspective on the use of testing has led to phenomenal growth, but big challenges remain ahead.