In a tough market, why Sunrise Medical shines

July 2007
Feature Story

Karen Lusky

Numbers can speak louder than words. But Larry Siedlick, CEO of Sunrise Medical Laboratories in Hauppauge, NY, artfully combines both to create a compelling portrait of how the independent lab serving the greater New York City metropolitan area has not only survived but also thrived in a market dominated by national laboratories.

Founded in 1972 by Siedlick and Pat Lanza, both medical technologists “just trying to make a living,” Sunrise has posted strong revenue growth over the last decade. Revenues were $15.4 million in 1996 and are projected to be $72 million this year, Siedlick said in a recent talk on Sunrise’s business tactics at the 2007 Executive War College sponsored by The Dark Report.

More than $21 million of that growth, including the projected revenues for 2007, occurred since 2005, a spike Siedlick attributes to Sunrise acquiring new managed care contracts and expanding its sales force.

Staff turnover at Sunrise is under 1.5 percent company-wide, and its staff productivity metrics are on par with those of the national labs. Sunrise keeps its cash flowing, receiving payment, on average, 35 days after providing a lab service, compared with 48 days for Quest and 54 for LabCorp, according to Siedlick.

The one number that gives Siedlick pause is the roughly 0.1 percent customer turnover rate since he and his partner founded the laboratory 35 years ago. “That number looks so unbelievable,” he says, “that we just kept looking at it asking, ‘Is this right? That many people have stayed with us?’”

But the number is on the mark, and so is Sunrise’s key business strategy of keeping customer turnover extremely low. “If your goal is to retain every single customer you have, and you choose customers that are profitable for you, you will grow your business” and turn a profit.

The catchword is “profitable.” And that underscores a guiding, ironclad rule at Sunrise: “If you live by price, you die by price,” an axiom that Siedlick credits to Sunrise co-owner Lanza. “We do not sell based on price.” If the price isn’t reasonable, “we just won’t do it,” Siedlick says.

“You will have salespeople who say, ‘If only you took this health care plan, I could do so much better in sales and get so much more business.’” But the only person who makes money in such a case is the salesperson, he says.

Taking on a huge chunk of unprofitable business can undermine a lab’s ability to grow, Siedlick cautions. “Years ago we could have been in a health plan that had over a million lives in our marketplace,” he says, “but it was essentially unprofitable to be in it. You simply had to be in it because you thought you would get some magical pull-through business.” Over 15 to 20 years, Sunrise had several opportunities to join, and eventually the pricing reached the point where it could do so.

Did the labs that did participate in that intervening period before the prices came up get hurt? Siedlick suspects it damaged their ability to generate profit to build their business. “I may have been smaller in volume but I was more profitable, giving me the revenue to build the business bigger,” he says.

Even if a laboratory doesn’t participate in managed care contracts, it can still hold on to some of the physician office business, Siedlick says, noting that the national lab chains trained physicians years ago to use multiple labs. “So in our market it is very common for the doctor to use multiple labs due to managed care contracts, and they will continue to give us some of their business even though we aren’t in a plan.”

Exactly how does Sunrise hold on to its client base, including all the physicians it started out with in 1972? By understanding what physicians want from their laboratory service.

Physicians are under a lot of pressure because of managed care, and they want a lab to “conveniently run in the background,” he says. By that, Siedlick means physicians want to send out their samples and get results without having to interact with the lab about its service. “And if they have a problem, they want it resolved fast,” he says. Also important is how quickly the lab can add tests to those the physician ordered initially so he or she can make a diagnosis.

Sunrise also customizes its service by allowing physicians to select different pick-up schedules, report forms, and test request forms. The national labs “pretty much give their large customers what they want,” he says, but they may tell a smaller physician office to “take it or leave it.”

“We don’t do that. We try to accommodate every customer’s request, which is why we have such a significant portion of our marketplace.”

Quest has 62 percent of the estimated $1 billion New York metropolitan area market that Sunrise serves, according to the figures Siedlick presented from an independent source. But Sunrise runs neck and neck with LabCorp, which holds seven percent compared with Sunrise’s six percent—two numbers that Siedlick hopes fall into the margin of error so Sunrise, he jokes, is really the point ahead.

Unlike all of the other labs named in the pie chart (see box) showing market share, Sunrise wasn’t built on “other people’s money” but on “Larry and Pat’s money,” Siedlick quips. And the independent lab has relied on organic sales growth rather than acquisition to build its business.

Sunrise has 14 salespeople who knock on physician office doors regularly. As a laboratory professional, “You think, ‘Well, hey, if I have this new test or technology and produce quality results, people will want to use me.’ But what you also need is someone who goes out there and sells your new test or technology. If you don’t do that, no one will know what you are offering.”

In fact, many hospital labs that offer outreach testing assume that the hospital’s attending physicians know they can use the outreach services for their own physician office practices.

“But you’d be amazed at the number of physicians who say they didn’t know that,” Siedlick says. And they didn’t know because the hospital outreach hasn’t invested enough in sales.

Siedlick advises labs to listen carefully to salespeople who are going to tell you that your “baby is ugly.” When they say to you, “What you built, your customers don’t like, they don’t want it, and they aren’t going to buy it,” your first reaction is, “I spent half my life building this. Let me strangle you now.”

Let that emotion pass, he suggests, and realize that’s what the salesperson’s job is—to tell you what customers want.

“We had a fairly standard reporting format at one point. And the salespeople said, ‘This is not a good lab report and you need to change it,’” Siedlick says. And Sunrise did ultimately change the layout by grouping the tests in a way that the physicians wanted to see them.

Sunrise views employees as its first set of customers, a mindset Siedlick sees as critical to business success. “I cannot have happy customers out there—physicians, patients, nurse managers, office managers—if everyone on my side of the equation is unhappy.” Moreover, staff turnover “costs you a fortune,” he adds.

But if you work at your culture, your productivity benchmarks will show it, he says, noting that most people, he among them, don’t function at their maximum potential until asked to do so.

And money is not the top driver in terms of motivating people, though pay at Sunrise is competitive and even generally “out in front.” But “you can pay well and have a poor culture and people won’t stay.”

“We understand that our staff’s perception of culture is reality,” no matter what management itself thinks of the culture. So once each day Siedlick walks the four corners simply to listen to people about how the work is going. “That’s where you learn about culture,” he says. An open-door policy is also important if you want to hear what’s on the minds of staff.

With regard to hiring, he and others at Sunrise learned over time that customer service is a personality trait, not a learned skill—and he’s embarrassed to say how long it took to figure that out. “That nasty old lab tech who wants to work in customer service and knows a whole bunch of stuff…trust me…I believe in redemption, I really do…but you will not make that person a customer-service—driven person.”

And asking a job applicant if they like helping people won’t identify customer-service people, he says. If a person said no, he’d say, “Thank you, goodbye. You are too stupid to work here.”

To ferret out the caring, he has learned to ask customer service job applicants toward the end of an interview what one thing they’ve done lately to help someone. He says, “You will discover that a truly helpful person can answer that question very quickly.”

To identify born salespeople, Siedlick uses the vending machine test. “You give a salesperson a dollar bill and tell him or her to take it to a candy bar machine that sells 75-cent candy. The candy bar falls out in one spot and the quarter in another spot. If the person reaches for the candy first, you have your salesperson. If the person goes for the quarter first, he can work in accounts receivable. If the person goes for both at the same time, they can have my job,” he joked.

But the point is, he says, that to manage salespeople you have to understand they are motivated by immediate gratification and want a return on their investment now—“not next quarter or next year.”

He also advises paying close attention to couriers, who are, after all, “the face of the lab.” They have to be customer-driven, helpful people. Sunrise trains its couriers to let them know if someone else’s lab box shows up at a doctor’s office or if the physician’s staff says they haven’t seen a customer service rep in a while.

At Sunrise, no one is ever fired. “We just tell them they have more career options and we are making them available to the industry,” Siedlick says. “If you have folks—and believe me, we have made more than our share of this mistake—who don’t fit your culture and don’t do the job right, but you’re thinking it’s hard to get good employees so you kind of leave the person there, don’t. No matter how painful, cut your losses early.”

Of course, the best culture and customer service is for naught if a lab doesn’t stay on top of its customer service metrics, costs, and revenues.

“We monitor and measure everything,” Siedlick says, including the number of calls coming into the customer service center and how many are answered in a set time frame.

They also know precisely what they’re spending, if a customer is profitable for Sunrise, and what Sunrise is paid for each laboratory test it performs.

They review all the remittances to check for errors in payment amounts, then follow up with the insurer to see what the issue is. Sometimes the insurer says it was computer error. “If we hadn’t done the post-payment analysis and followup, we would continue to be paid incorrectly,” he says.

Most outreach hospital programs use hospital billing systems that write off amounts between $20 and $50, he notes, which at Sunrise would be considered “a normal bill.” He has, in fact, seen hospital systems that “literally give away millions in service when they do outreach.”

Information technology and connectivity also determine how quickly laboratory orders translate into cash, and how profitable a customer is for a lab. In that regard, the more electronic orders a laboratory has that its employees don’t have to process, the better, Siedlick says. Sixty percent of Sunrise’s orders are electronically generated in physician offices by physicians or their staffs. “None of those are done by Sunrise staff,” he says.

Siedlick suspects that when the national labs report what percentage of their orders are electronic, they may be counting orders done by their own phlebotomists either in the doctor’s office or at their patient service centers.

“So if they say 60 percent of their orders are electronic, that’s impressive.” Less impressive, he says, is if 30 percent are being done by the lab’s employees and 30 percent by the physicians’ employees.

“We feel that the real measure of success with electronic orders is the percentage done by non-employees. After all, that’s where the savings are,” Siedlick says.

How much savings? One of Sunrise’s cost metrics estimates that lab data entry costs $0.25 per requisition. “Theoretically, you would save that amount each time you got an electronic order instead of a paper one,” he says. This year Sunrise will have about 1.4 million requisitions, of which 60 percent, or 840,000, are electronic. Thus, the estimated savings will be $210,000.

When asked to identify the biggest IT mistakes he sees national labs make, he declined “for competitive reasons.” And that leads to him sharing another of Sunrise’s unbreakable rules: “Never, ever help your competitors under any circumstances.”

Siedlick continues to be amazed at how independent labs and hospital labs with outreach programs send reference work to the laboratory calling on their doctors. “Why would you do that?” he asks. “They are trying to take money out of my pocket and bread off my employees’ plates, and I’m going to send them my reference work? I don’t think so.”

About two percent of testing at Sunrise is sent to a reference lab—Mayo, ARUP, “a couple of others,” he says—that doesn’t call on physicians in Sunrise’s marketplace.

“We keep our friends close and our enemies even closer,” he says. One of the things Siedlick likes about competing with public companies is the quarterly conference call. “You just click on the company’s Web site a month after the call to hear what the company plans on doing. Then you can beat them to it.”

The public companies “even have e-mail services” whereby they will e-mail you every time they offer something new. “My biggest competitor sends me e-mails telling me what I’ll do!”

What might have been done better at Sunrise? They could have been “quicker to get a bigger sales force,” Siedlick says, given that it is a sales-driven company. “And we could have spent more time understanding the dynamics of insurers. They were always like the evil empire on the other side of the wall. We didn’t pay enough attention to what was going on there or interact with them enough.”

Did Siedlick have any idea in 1972 that Sunrise would prosper as it has? “I should say, ‘Yes, I’m a visionary,’” he says. “But, honestly, we didn’t envision how large it would become.” He’s not surprised, though, because he and his partner are very hard workers. And, he says, “We both believe that if you work hard and do your best, you will succeed.”