Pre-hire drug tests are up -- and that's good
Odd as it sounds, more screening is a sure indicator of U.S. job growth
Christopher Snowbeck

The pee cup is starting to look half full.

First-quarter financial results from New Brighton-based Medtox Scientific and two other lab companies that process pre-employment drug tests suggest there's a promising trickle of hiring in the U.S.
And reports from the trenches -- medical clinics that administer the tests -- suggest the same.
"It's as though someone flipped a switch," said Jim Sebesta, vice president for business development at Twin Cities Occupational Health & Rehabilitation, which conducts tests at clinics in Mendota Heights and Blaine. "Clearly, employers are hiring."
From January to March, Medtox Scientific saw its first year-over-year increase in sales of drug testing services since 2008.

Two larger competitors in the U.S. drug-testing business -- Quest Diagnostics and Laboratory Corp. of America -- reported similar increases.

The number crunchers have yet to embrace what can be called the "pee cup index" as a key indicator of hiring.

But pre-employment drug testing volume is moving in tandem with recovery signs such as increased online job postings in Minnesota, said Steve Hine, a researcher with the state's Department of Employment and Economic Development.

National reports also have suggested a hiring uptick in recent months, particularly in manufacturing, said Nigel Gault, chief U.S. economist with IHS Global Insight. So, an increase in pre-employment drug tests makes sense. "We've turned the corner from employment declines to employment growth," Gault said.

What's not clear is how robust the employment growth will be and how long it will take to chip away at the highest jobless rate in decades.

Minnesota posted strong job growth in January but saw declines in February and March. The state's jobless rate weighed in at 7.4 percent in March; the U.S. rate was a troubling 9.7 percent.
"It can take a long time to make a serious dent in the unemployment rate," Gault said.

That's because even as hiring picks up jobless rates can keep climbing because people who've given up looking for work resume searches and are once again counted in surveys used to calculate the statistic.

Drug testing is common in the workplace. Nearly 63 percent of companies required testing of current employees or new hires in 2004, according to the American Management Association, and Medtox Scientific officials say the percentage has remained fairly constant.

Drug testing is an estimated $500 million a year business, Medtox says. It has about 8 percent of the market, estimated Steve Crowley, an analyst with Craig-Hallum Capital in Minneapolis, and likely ranks third behind New Jersey-based Quest Diagnostics and LabCorp, which is based in North Carolina.

"Confidence appears to be building in a general economic recovery, and we're seeing hints and a little bit of evidence of a rebuild in employment," Crowley said. "Pre-employment screening is a coincident indicator with hiring activity."

After an earnings release this month from LabCorp, Wells Fargo Securities analyst Gary Lieberman agreed: "Drugs of abuse testing appears to have turned the corner," he wrote to investors.

Lab company officials remain cautious. A Quest Diagnostics executive told industry analysts this month that his company's drug-testing business had "stabilized." Kevin Wiersma, chief financial officer of Medtox Scientific, said his company's first-quarter rebound was "a little bit of good news."

Twin Cities Occupational Health & Rehabilitation, meanwhile, has seen a noticeable jump this year in the number of drug tests administered at its two Twin Cities locations.

In late 2008, the clinics administered an average of 728 tests per month. That dropped to 575 a month as the recession deepened in 2009. In the first quarter of this year, that monthly average spiked to 907, Sebesta said.

"December was sort of the bottom of the trough," Sebesta said. "An enormous percentage of our staff time now involves performing drug test collections."

Federal regulations spend no less than 49 pages outlining the procedures for how clinic workers -- called "collectors" in the rules -- should administer drug tests to prospective employees, who are identified as "donors."

After providing specimens, regulations stipulate that donors pass their cups to collectors who split the urine into two specimen bottles. With the donor watching, the collector then places a tamper-evident label/seal over each specimen bottle cap. Donors are asked to initial the labels.

Specimens are sent to lab testing companies such as Medtox Scientific for processing, and a medical review officer certifies results.

So just where does the "pee cup index" suggest this hiring is occuring?
Sebesta offers this observation: during the first three months of this year, most of those donors seemed to be linked to the service sector. But by the end of March and into April, a lot of the testing appears to be linked with jobs offered in the manufacturing sector.

Christopher Snowbeck can be reached at 651-228-5479              651-228-5479