ADAC shuts down LabStat effort due to high cost of development

February 18, 1998

LabStat costs sank Community Health ComputingIt's not very often that ADAC Laboratories makes a misstep, but this month the Milpitas, CA, company acknowledged that its acquisition of Community Health Computing in 1995 may have been one of those

LabStat costs sank Community Health Computing

It's not very often that ADAC Laboratories makes a misstep, but this month the Milpitas, CA, company acknowledged that its acquisition of Community Health Computing in 1995 may have been one of those occasions. ADAC on Feb. 11 announced that it was discontinuing development of its LabStat laboratory information system, a product line that ADAC acquired with the CHC purchase.

ADAC said it was shutting down the LabStat project due to high development costs associated with the product line. ADAC also reported that it would discontinue its efforts in digital subtraction angiography, a peripheral business for the company. ADAC will take one-time charges in its first fiscal quarter of 1998 (end-December) of $12.9 million related to LabStat and $3.5 million related to the DSA business.

ADAC acquired CHC in April 1995, five months after the Dallas company entered Chapter 11 bankruptcy proceedings (SCAN 5/10/95). One of the factors leading to CHC's bankruptcy had been the time and money the company was spending on the development of LabStat, an LIS product based on client-server architecture.

When it bought CHC, ADAC saw LabStat as an opportunity to enter the LIS business as a complement to its existing operations in the radiology information systems market. ADAC originally planned to complete LabStat development by 1996, but in the end the company proved no more successful than CHC in finalizing the product. ADAC chairman David Lowe said his company was close to finishing work on LabStat, but decided that the additional expense of the project was not worth the potential returns the product would generate.

"We don't believe that the continued cost of completing the development and the upside from doing so was worth the drag on earnings," Lowe said. "We saw a light at the end of the tunnel, but getting there wasn't worth the cost it would take."

ADAC will continue to support the installed base of its LIS customers, which number between 40 and 50, but does not plan to enter the market for new LIS products, Lowe said. ADAC will continue to market RIS products, which have been selling briskly, and will keep its ADAC HealthCare Information Systems business based in Houston.

The discontinuation of the DSA business completes ADAC's exit from that market, a process that has been going on for several years. ADAC was active in DSA in the 1980s, but since then has focused more on nuclear medicine and information systems. ADAC sold only one or two DSA systems in 1997, Lowe said.