Synlab Group Price Pressure Afflicts German Laboratories

Laboratory service providers are being squeezed by cuts in the health insurance sector and intense competition. Germany's Synlab is banking on acquisitions to deliver economies of scale.
Synlab operates in a highly competitive environment.

Bartl Wimmer, chief executive of  the Germany-based lab service provider Synlab, believes that genetic testing is going to be the next big thing in laboratory diagnostics. To get ahead of the field, the Synlab Group has already bought and built genetic diagnostic facilities all over the country, including the Center for Human Genetics in the southwestern city of Mannheim.

Mr. Wimmer, himself a doctor, sees particularly high growth potential in the area of cancer diagnosis. More and more cancer drugs are coming on the market that are adapted to the molecular properties of individual tumors. Companion diagnostics – the tailoring of diagnosis and treatment based on a person's individual genetic content – is going to be the field to watch.

At the moment, statutory health insurance is not quite as forward-thinking as Mr. Wimmer and remimbursement for genetic testing not guaranteed. “We have been forced to offer services in advance if we don't want to miss out on the trend,” said Mr. Wimmer.

The Synlab Group makes its bread and butter with classic services such as the identification of blood sugars, cholesterol levels and infectious diseases. But it is a tough business. In a market worth €8 billion, or $9 billion, price competition is high, not least because of caps on health insurance benefits. Reimbursement fees have sunk to less than 90 percent, according to the professional association of German laboratory doctors.

“At 45 cents for a blood count analysis, we can't earn anything,” Mr. Wimmer said.

It often takes years before new test methods are reimbursed by health insurance. “So we are also expanding into other countries, in order not to be so strongly dependent on fees of individual countries,” he said.

Laboratory medicine cannot survive by pure analysis alone. We have to interpret the data, advise doctors and make therapy suggestions. That is the added value that we must provide. Bartl Wimmer, CEO, Synlab Group

The Synlab Group was formed in 2009 by the merger of three laboratory chains and is majority-owned by the BC Partners investment company. Since then, the group has vigorously pursued acquisitions and increased sales to €700 million. Synlab has 175 laboratories in more than 20 countries. Along with the Australia-based Sonic Healthcare Group, which has a stake in the Germany-based Schottdorf Group, Synlab is one of the leading lab service providers in Europe.

According to Mr. Wimmer, the company intends for consolidation to play a key role. “We spend between €50 and €100 million on average per year on acquisitions, for the most part financed by our own funds and borrowed capital,” he said. “We want to grow – to provide a comprehensive full service in Europe on the one hand, and on the other, to reach better economies of scale.”

Industry experts, such as Jan Edel from the Aktiva consulting company in Cologne, expect consolidation will continue in the market because of price pressure. “Providers will try to lower their costs by expanding capacity and increasing automation," said Mr. Edel.

The image of  laboratory service has suffered in recent years because a fraud scandal involving doctor-clients of Bernd Schottdorf’s lab group. The tarnished image is out of proportion to the contribution achieved by laboratory diagnostics, said Mr. Wimmer.

To help ensure correct conduct at Synlab, the group co-founded a quality-assurance association for medical laboratories years ago. The association’s code of conduct and Synlab’s anti-corruption policy clearly define proper behavior.

Mr. Wimmer sees the future of laboratory diagnostics in giving doctors more information to help them make decisions. “Laboratory medicine cannot survive by pure analysis alone. We have to interpret the data, advise doctors and make therapy suggestions. That is the added value that we must provide.”

 

Maike Telgheder in an editor on the Handelsblatt companies and markets desk. To contact the author: [email protected]