Carilion Health Acquires Chi Lab Consultancy

Both buyer and seller are implementing new business strategies with this transaction

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CEO SUMMARY: In selling Park City Solutions Laboratory Services Group to Carilion Health System, Park City Solutions is returning to its core competency in healthcare information technology consulting services. For Carilion Health System, this acquisition puts it firmly in the national lab consulting service arena. Carilion will operate its laboratory consultancy in total independence of its existing lab services division.

THERE’S A SURPRISING NEW HOME for the laboratory consulting arm of Park City Solutions, Inc. (PCS). On March 31, 2005, it was purchased by Carilion Health System of Roanoke, Virginia.

Carilion Health System is operating the laboratory consultancy under the name Chi Solutions, Inc. and it will continue to provide consulting services to laboratories throughout the United States and Canada. Kathleen Murphy, Ph.D., is the President of Chi Solutions.

Chi Solutions is the legacy business of the lab consulting company known for years as Chi Laboratory Services, Inc., based in Ann Arbor, Michigan. Chi was a business always closely identified with its two principals, James Root and Jan Steiner, M.D. Both individuals recently retired (including the indefatigable Dr. Steiner, now 90 years old).

There are two stories to be told. One is why Carilion Health acquired Chi Solutions from Park City Solutions. The other is why Park City Solutions sold its lab consulting business.

Carilion Health’s interest in Chi Solutions developed from its ongoing strategic relationship with Park City Solutions. “Carilion Health System is investing substantially in information technology throughout our system,” stated Steve Harris, Vice President of Carilion Consolidated Laboratory. “We use a PCS product. It was through the extension of our strategic partnership with PCS that we learned that the Laboratory Services Group was for sale.

Focus On IT Services

“Our analysis showed that the Laboratory Services Group was profitable and would contribute to the system,” he continued. “It also became apparent to us that the new President and CEO at PCS wanted to refocus exclusively on IT products and services.

“Chi Solutions was acquired by Carilion Health System on March 31, 2005. It is a division of our health system and is independent of our clinical laboratory operation, known as Carilion Consolidated Laboratory. Chi Solutions will be operated as a stand-alone business and will provide services to laboratory customers throughout the United States, just as it always has,” explained Harris.

When asked about Carilion’s motivation to acquire a national lab management consulting firm, Harris had a simple answer. “We believe the acquisition of Chi Solutions is an excellent opportunity for Carilion to grow as a healthcare company. It fits well with Carilion’s economic development strategy, bringing high-tech or knowledge companies with strong growth potential into the region.

“Acquiring Chi Solutions is Carilion’s first foray into the management consulting marketplace,” added Harris. “As of now, it is the health system’s only venture of this type. I assume that if Chi Solutions does well in coming years, Carilion Health System may be encouraged to develop management consulting services in other sectors of healthcare.”

New Business Start-up

Park City Solutions was created in 1999 by Terry Pitts and Scott Holbrook, formerly executives with Sunquest (now Misys). It was funded by Golder, Thoma, Cressy, and Rauner (GTCR), the same Chicago-based private equity firm that provided capital to Dynacare and American Medical Laboratories.

Going forward, PCS acquired healthcare IT companies which had expertise in specific areas, like pharmacy, radiology, etc. Its purchase of Chi Laboratory Systems, Inc. in 2000 surprised some, since CLS was a lab management consultancy and did not have a core expertise in laboratory information systems.

Sources tell THE DARK REPORT that, in recent years, Park City Solutions struggled to hit revenue and profit goals set for it by GTCR. In August 2005, Ken Rardin purchased stock in PCS and became its new Chairman and CEO. His goal was to get Park City Solutions back on an aggressive growth track.

Not surprisingly, the laboratory consulting business came up on the radar screen. Because it was not an IT consulting division, it was marked for divestiture. That decision led to the sale of Chi Systems to Carilion Health System on March 31, 2005.

Business Evolution At Chi Laboratory Systems

IT WAS AN ACQUISITION IN EARLY 2000 that made Chi Laboratory Systems, Inc. a business unit of Park City Solutions, Inc. Renamed as Park City Solutions Laboratory Services Group, the lab management consultancy has evolved into new market niches during recent years.
(See TDR, January 24, 2000.)

In particular, the company seems to have organized around two main lines of business. One involves providing contract management to the sales and management programs for hospital labs offering lab outreach testing services.

The other is management support services for laboratories with regulatory deficiencies. Over the past two or three years, the company has been closely- involved in the turnaround of several hospital laboratories. Maryland General Hospital, in Baltimore, engaged a PCS lab consulting team to fix its serious operational problems. (See TDRs, April 5, 2004 and May 17, 2004.)

As a business unit owned by Carilion Health Systems, the newly-renamed Chi Solutions will probably continue its current emphasis on both these two areas: contract management of sales and marketing for lab outreach programs and regulatory turnaround and tune-up for needy hospital laboratories.

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