ARUP Laboratories, Ascension Health, IMPATH

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ARUP SNAGS MAJOR HOSPITAL SEND-OUT PACT WITH ASCENSION HEALTH

FOLLOWING AN EXHAUSTIVE RFP PROCESS, Ascension Health has selected ARUP Laboratories, Inc. to be its sole source provider of reference laboratory testing.

This national agreement covers all 67 hospitals Ascension Health operates in 20 states. With $8.5 billion in annual revenues, Ascension Health is one of the nation’s largest health systems.

This new contract is notable, not the least because it excludes reference testing providers like Quest Diagnostics Incorporated and Laboratory Corporation of America. Ascension Health had at least three primary objectives in putting reference testing out to bid.

One, it wanted all participating hospital labs to steadily evolve toward one primary source for reference testing. Two, it wanted a reference testing partner willing to transfer technology and help it set up sophisticated tests in its hospital labs. Three, because many of its member hospitals had competitive lab outreach programs, Ascension Health wanted a reference laboratory that would not be competing against its hospitals for specimens originating in physicians’ offices.

All of Ascension Health’s three primary objectives reflect the needs of other large hospitals and health systems in the United States. In particular, Ascension’s interest in a reference testing partner willing to help it move send-out tests back in-house to meet evolving needs of clinicians or economies of scale, and its choice of ARUP over one of the two blood brothers, may reflect the health system’s concern that publicly-traded lab companies are “specimen vacuum cleaners.” Their motivation is to maximize the volume of send-out work—and revenues—they generate from their reference testing clients.

Similarly, the stated objective that Ascension Health would prefer to select a primary reference testing laboratory that was not competing for physicians’ office testing work reflects another marketplace reality. This puts the two blood brothers, with their extensive market share of physicians’ office testing, at a disadvantage when bidding RFPs like the one completed by Ascension Health.

Over the past year, a growing number of larger hospitals and health systems have rejected one or both of the two national labs when selecting their primary reference testing provider. Taken collectively, their decisions may be early evidence that the business model used by the blood brothers is not compatible with the evolving needs of big hospitals and integrated delivery systems.

IMPATH’S PROBLEMS TRIGGER SPECULATION

TRADING IN IMPATH, INC. SHARES was suspended at the end of July when the company announced that the audit committee of its board was investigating “accounting irregularities regarding its accounts receivable.”

As of press time, trading in IMPATH shares was still suspended. This is highly unusual and points to significant troubles within the company. Another problem is that IMPATH is short of cash. At the end of first quarter, it reported $1 million in cash and $4.8 million in marketable securities. That’s not much cash to support operations for a company with 2002 annual sales of $226 million.

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