LabCorp Buys MDS Labs In New York and Georgia

MDS concedes U.S. lab market and its lab automation strategy

Share on facebook
Share on twitter
Share on linkedin
Share on print
Share on email

CEO SUMMARY: It’s the final chapter of the “Canadian Invasion” of the U.S. laboratory testing market. In the mid-1990s, both MDS and Dynacare built a sizeable presence in the United States as they both worked to develop joint ventures with hospital laboratories. Dynacare was acquired by LabCorp in 2002. In selling two U.S. lab operations, MDS has taken the first steps to reposition its business in this country.

BY SELLING TWO of its U.S. laboratories to Laboratory Corporation of America, Toronto, Canada-based MDS Diagnostic Services served notice that it was ready to pursue a different business strategy in the United States.

MDS announced on March 16 that it had sold its laboratories in Atlanta, Georgia and Poughkeepsie, New York to LabCorp. The change of ownership was effective March 15. LabCorp did not issue a public statement on the acquisition and neither company disclosed a sales price or terms.

The decision by MDS to sell some of its U.S. laboratory operations was not a surprise. During 2003, Toronto, Canada-based MDS Inc., parent company of MDS Diagnostics Services, indicated it was reviewing strategic options for its laboratory testing operations in the United States. It stated these operations were failing to meet corporate goals for revenue growth and profitability.

“There’s a simple reason why MDS sold these two laboratories,” stated Cam Crawford, President of MDS Diagnostics. “Given their existing size and regional market, it was our evaluation that neither laboratory could deliver revenue growth and operational scale that would support our corporate objectives.”

Three MDS Lab Operations

Following the sale of its Poughkeepsie and Atlanta laboratories, MDS is left with three laboratory operations in the United States. They are Memphis Pathology Laboratories (MPL), in Memphis, Tennessee, a joint venture that includes Baptist Memorial Healthcare Corp. and Methodist Healthcare as partners; Integrated Regional Laboratories in Fort Lauderdale, Florida, a joint venture with HCA; and Duke University Health System Clinical Laboratories, which MDS manages under contract.

“We consider the three remaining laboratory operations in the United States to be solid partners with MDS,” noted Crawford. “Each is an example of how a hospital-centric regional laboratory organization can attain sustained improvements in clinical and operational performance.”

The sale of these two laboratories marks the end of a long-running business strategy. It was almost ten years ago when MDS announced that it would open a headquarters office in Brent- wood, Tennessee and use that as a base to develop partnerships with hospital laboratories in the United States.

MDS believed it had a unique asset to offer potential hospital lab partners. In Canada, it had developed a viable line of total laboratory automation (TLA) equipment. Part of its business proposition to U.S. labs called for MDS to install and operate its TLA system as part of the laboratory partnership.

Interest in Joint Ventures

The arrival of MDS on the national U.S. laboratory scene came almost at the same time that Dynacare, Inc. was boosting its presence in the United States. Like MDS, Dynacare also wanted to cultivate joint ventures with hospital laboratories.

However, this “Canadian Invasion” neither gained much traction nor generated many hospital joint venture agreements. In the case of Dynacare, it grew mostly by acquiring laboratories. With MDS, its biggest potential was with HCA, the for-profit hospital corporation. However, to date, the Atlanta and Fort Lauderdale laboratory projects have not encouraged both partners to replicate the business model in other regions of the United States.

“Joint ventures are tough. It’s not easy to be a partner because it requires more work,” observed Crawford. “It’s a source of pride that relations with our hospital partners have generally been great. We believe strongly in the future of diagnostics, as demonstrated by our pharma and proteomics businesses.

“Selling two laboratories reflects our recognition that the lab testing market continues to evolve,” Crawford added. “However, we remain committed to the concept of partnering and the importance of diagnostic testing to healthcare.

“These sales clear our decks for the next healthcare cycle, he said. “We want to absorb the lessons we’ve learned in the marketplace and develop a business strategy that allows us to continue our participation in laboratory testing in the United States.”

Sale Reinforces Two Lab Industry Trends

VALIDATION OF TWO IMPORTANT trends within the lab services marketplace can be seen in MDS’ decision to sell two of its U.S. laboratories to LabCorp.

First, this sale is additional evidence that joint ventures between commercial laboratories and hospital laboratories continue to be a difficult concept to execute successfully. In the case of Poughkeepsie, the laboratory joint venture evolved through several forms over three decades until the hospital owners sold their interest in order to raise capital. In Atlanta, the hoped-for benefits with HCA never materialized and MDS never developed a second phase business plan on its own that could take maximum advantage of its laboratory infrastructure in that city.

Second, one key element in MDS’ proposition to potential hospital partners was that it would install and maintain a total laboratory automation (TLA) program as part of the joint venture. The fact that, after almost ten years of effort, MDS had only five active laboratory ventures demonstrates that TLA is still not a high priority in most hospital laboratories. It is a sign that the market demand in the United States for total laboratory automation systems by larger hospitals is still unable to support more than a limited number of TLA vendors.


Leave a Reply


You are reading premium content from The Dark Report, your primary resource for running an efficient and profitable laboratory.

Get Unlimited Access to The Dark Report absolutely FREE!

You have read 0 of 1 of your complimentary articles this month

Privacy Policy: We will never share your personal information.