Is the Joint Venture Hospital Lab an Emerging Trend?

A new joint venture hospital lab and outreach program defies the Blood Brothers' usual claims

CEO SUMMARY: THE DARK REPORT has uncovered a previously unnoticed trend that turns common wisdom on Wall Street upside down: Hospitals and health systems may be taking back control of their their laboratory outreach programs instead of selling them, and committing major resources to their inpatient labs instead of outsourcing their management. This joint venture hospital lab trend defies the message that the Blood Brothers have been preaching for decades, and might be a sign of things to come.

joint venture hospital lab - logosNEWS OF A NEW LABORATORY JOINT VENTURE involving ProMedica Health of Toledo, Ohio, and Sonic Healthcare USA, of Austin, Texas, should be of interest to lab administrators and pathologists managing hospital or health system laboratories.

This joint venture is evidence that forward-looking health systems and hospitals recognize the importance not only of retaining control of their laboratory services, but also of leveraging and expanding lab testing to support integrated clinical care in all locations.

Another interesting attribute of this partnership involves how ProMedica decided to buck the conventional wisdom by forming a laboratory joint venture with Sonic Healthcare USA and thus retain control of its hospital outreach labs and its inpatient laboratories.

After all, the oft-repeated message of national lab firms to Wall Street analysts and investors in recent years is that hospitals and health systems want to sell their lab outreach businesses and outsource hospital laboratory services to commercial lab companies.

This oft-repeated message is based on the assertion that many hospitals and health systems do not see their labs as either a core competency or a profitable clinical service line. Therefore, they would be better off selling their labs or outsourcing management of these labs to enterprises that can run them more efficiently.

In presentations to Wall Street investors, and in their quarterly conference calls to report earnings, executives at Laboratory Corporation of America and Quest Diagnostics regularly state that they each have opportunities to buy hospital laboratory outreach businesses and enter into hospital laboratory management contracts to operate the inpatient labs of hospitals and health systems.

LabCorp’s Outlook

For example, last year, 360Dx.com published a story and quoted LabCorp’s Chairman and CEO Dave King saying that, in conversations with hospitals, “We’re seeing a big push to being able to procure [hospital lab] services, the highest quality [lab] services at the most effective cost. And as hospitals and smaller laboratories are recognizing that trend, I think a lot of them are relooking at, do we belong in this business? Is it a core competency? Are we bringing value to the patient?”

But how many health networks and hospitals are actually in the market to sell or outsource their lab testing services? Even as Medicare was preparing to implement deep price cuts on Jan. 1 of this year, in the past 24 months, there were fewer than 15 transactions in which a hospital or health system contracted with a commercial lab company to sell its lab outreach business or have a commercial lab manage its inpatient laboratory.

During 2018, significantly fewer contracts have been announced involving a hospital or health system and a commercial lab company. If many health systems and hospitals are questioning whether they should unload their labs in some fashion, then why has there not been a steady, regular stream of such deals?

Substantial Lab Commitment

For these reasons, THE DARK REPORT considers this latest pact involving ProMedica and Sonic to be significant for four reasons: First, this top-tier health system (with 13 hospitals in multiple states) is making a substantial commitment to ensure that its newly minted joint-venture hospital laboratory continues to be a key clinical service into the future.

Second, ProMedica is putting up substantial capital as its part of the new lab joint venture, an indication it expects the outreach laboratory business to be financially viable, even as payers continue to pay less for lab tests.

Third, its lab joint venture with Sonic aims to reduce lab costs, but the goal of serving inpatient, outpatient, and outreach patients with a standard menu of tests and reference ranges can result in a unified patient lab test record. Such a lab test database will give ProMedica competitive advantage in the coming era of integrated care and precision medicine.

Shared Savings With Payers

Fourth, ProMedica gains access to Sonic’s advanced analytics. Sonic has already worked with large physician groups to use its analytical tool and lab test data in ways that improve patient outcomes and generate shared savings payments from certain insurers to itself and the participating physician groups. ProMedica will certainly want to implement similar programs with physician groups, payers, and employers in its communities.

Is your hospital outreach or inpatient lab considering selling or outsourcing, and if so, why? Please share your thoughts with us in the comments below.

Click here to read the full article, Do Hospitals Want to Sell or Outsource Their Labs?

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