Quest Diagnostics Exits 31-Year-Old CompuNet Lab Venture

What does Quest’s loss of CompuNet say about lab acquisition trends?

This is an excerpt from a 1,362-word article in the June 26, 2017 issue of THE DARK REPORT. The complete article is available for a limited time to all readers, and available at all times to paid members of the Dark Intelligence Group.

CEO SUMMARY: For lab managers worried about being parceled out to a national lab, the news reports that Quest Diagnostics had exited the long-running CompuNet Clinical Laboratory joint venture in Dayton, Ohio, is intriguing. The only clues as to possible problems and the motivation of Premier Health, the 51% owner, to buy out Quest’s ownership share are contained in an announcement the health system issued. THE DARK REPORT analyzes that news, provides a history of the CompuNet lab joint venture, and considers the possibility of a trend in lab agreements with Quest.

ONE OF THE NATION’S LONGEST-RUNNING LABORATORY JOINT VENTURES among a hospital, a private pathology practice, and a commercial laboratory ended earlier this month.

On June 8, Premier Health of Dayton, Ohio, announced that it purchased Quest Diagnostics Lab’s ownership stake in CompuNet Clinical Laboratories, effective June 1.

The Dayton Business Journal reported that Premier Health had purchased Quest’s 33% share of CompuNet and now Premier Health holds an 84% ownership stake. Valley Pathologists, also of Dayton, holds the remaining 16% ownership stake, according to the paper.

For a hospital-commercial lab joint venture launched in 1986, it appeared to outside parties to be doing well. This end appeared to come suddenly. None of the parties was willing to speak to THE DARK REPORT about the reasons behind this change.

Important clues, however, about what motivated Premier Health to buy out Quest’s CompuNet share can be found in the press release that Premier Health.

Premier Health wrote that the “transaction is expected to ensure more rapid turn-around times for patient lab results.” It also said Premier made a “move that enhances local oversight of clinical lab services and helps to maintain laboratory testing across the Dayton region to meet patients’ needs.”

In the press release, Premier Health President and CEO Mary Boosalis added, “This transaction will help Premier Health achieve its vision of a more system-based approach to clinical laboratory testing. It enables us to build upon our existing laboratory capabilities, achieve greater economies of scale, and control the costs of laboratory services.”

Another hint of an issue that might have motivated the partners was the statement in the news release from pathologist Atef Shrit, MD, Chairman of the CompuNet Board of Directors. “The change in ownership provides CompuNet with a greater degree of independence,” he said. “With 100% local control, our ability to enhance testing capabilities which impact the community is greatly improved.”

What Motivated Premier?

Taken at face value, Premier Health was saying in the announcement that, without Quest as a CompuNet partner, it would:

  • Gain “local oversight of lab testing services… to meet patients’ needs”
  • Ensure more rapid turnaround times for patient lab results
  • Achieve greater economies of scale
  • Control the costs of lab services
  • Have 100% local control to enhance testing capabilities “which impact the local community”

All of these statements imply that Premier Health believed it was not realizing these benefits in the three-way CompuNet lab joint venture.

This development is noteworthy for at least three reasons. First, it marks the end of a durable laboratory joint venture that lasted 31 years, survived two acquisitions of the commercial laboratory company partner, and, by all outside appearances, was considered to be successful and meeting the needs of the JV’s three partners.

Second, it is the second time this year that Quest Diagnostics has lost a significant business relationship involving a laboratory services agreement with a regional health system.

Third, Premier Health’s move to buy out its commercial lab partner and become the majority owner of CompuNet is a business decision that runs contrary to the message of the nation’s two largest lab companies: that hospitals will benefit from selling or outsourcing their inpatient and outreach lab programs because commercial lab operators can cut hospitals’ lab testing costs.

Quest Diagnostics Is Up 2, Down 2

Many hospital lab directors are concerned that their parent organizations may decide to outsource management of their inpatient labs to one of the national commercial lab companies.

For this reason, they watch closely every deal involving a hospital or health system and a national lab company. Is a trend among hospitals to enter into agreements in which third parties manage inpatient labs?

That is a more difficult question to answer because the inpatient lab management agreements between hospitals and national lab companies that expire and do not renew seldom get national news coverage.

A case in point is Quest Diagnostics acquisitions. On Jan. 27, Quest announced an agreement to provide certain lab testing services to Montefiore Health System in New York. Quest will not manage the inpatient labs, but will perform “a portion of low complexity diagnostics tests.”

Then, on Feb. 15, Quest disclosed an agreement with PeaceHealth of Vancouver, Wash., to purchase PeaceHealth Laboratories’ outreach lab business.

Thus, year to date, Quest has increased its hospital inpatient laboratory arrangements by two clients.

Meanwhile, on or about Feb. 1, Quest ceased to be the manager of the inpatient labs at the four hospitals of Lovelace Health System in Albuquerque, N.M.

Thus, anyone keeping score on the net change in Quest’s hospital laboratory management agreements from January 2017 through the present, the number would be zero. Quest gained two agreements that involve its participation in hospital inpatient testing. But it also lost two agreements.

Are you concerned about a trend of commercial labs winning hospital and inpatient lab management contracts, and if so, why? Please share your thoughts with us in the comments below.

Click here to read the full article, Quest Diagnostics Exits 31-Year-Old Lab Venture

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