Two New Lab Companies Will Open in L.A. & Denver

Different laboratory joint ventures pair PAML with a major health system in each community

CEO SUMMARY: It is unprecedented for two multi-billion-dollar health systems to announce laboratory testing outreach joint ventures just days apart. In Los Angeles, Providence Health & Services will partner with PAML to start a commercial lab company in the San Fernando Valley. In Denver, Centura Health and PAML formed a similar clinical laboratory testing joint venture to compete for the laboratory test referrals of office-based physicians across greater Denver and Colorado.

MAJOR HOSPITAL LABORATORY TESTING OUTREACH joint ventures (JVs) are preparing to open in Los Angeles and Denver. Both new commercial laboratory partnerships were announced in the past two weeks.

In each case, a multi-billion-dollar integrated health system announced an agreement to establish a commercial laboratory partnership with Pathology Associates Medical Laboratories, LLC, (PAML), of Spokane, Washington. Each joint venture will represent PAML’s first presence in both Los Angeles and Denver.

It was August 31 when Providence Health & Services of California and PAML released the news that they would form a new clinical laboratory company, to be called California Laboratory Associates, LLC (CLA). The new lab company will be based in Burbank. It will utilize the recently-remodeled laboratory at 431-bed Providence Saint Joseph Medical Center.

According to the two partners, California Laboratory Associates will launch business operations early in 2011. CLA will initially serve physicians and other clients in the San Fernando Valley. It intends to eventually offer lab testing services throughout Southern California.

Just eight days later, on September 7, Centura Health of Denver, Colorado, and PAML issued a press release announcing the creation of Colorado Laboratory Services, LLC (CLS). This commercial clinical laboratory joint venture will commence operations in the coming months.

CLS will utilize the laboratory at Centura’s 593-bed St. Anthony Central Hospital, which is located in Denver. Centura Health is the largest healthcare system in Colorado.

These two new laboratory joint ventures demonstrate that PAML’s lab testing business model continues to find favor among administrators of major hospitals and health systems. PAML operates similar joint ventures with hospitals and health systems in Washington, Idaho, and Utah. (See TDR, November 19, 2007).

Further, it was in the fall of 2009 that Catholic Health Initiatives (CHI) became an investor and partner in PAML. CHI operates 78 hospitals in 38 states and has annual revenue of $8.6 billion.

Formation Of Centura Health

In fact, Centura Health has a joint operating agreement (JOA) with CHI. Centura Health was formed in 1996 when sponsoring organizations Catholic Health Initiatives and Adventist Health System brought their hospitals in the Denver region together to form the integrated delivery network. Thus, the formation of Colorado Laboratory Services might be considered “first fruits” from the new business relationship between CHI and PAML that was established in the fall of 2009. (See TDR, November 12, 2009.)

PAML’s business model for these joint ventures is simple and designed to tap the complementary core strengths of the participating partners. The hospital or health system provides the laboratory which is based in the community. It will provide most of the laboratory testing for the out- reach lab venture. It usually has a local service infrastructure of patient service centers, couriers, and established, long-standing relationships with physicians in the com- munity who refer patients to the hospital.

For its part, PAML provides a sophisticated package of all the essential services required for the lab testing joint venture to compete at a high level. PAML man- ages the joint venture, provides its well- developed suite of integrated lab informatics, and handles marketing, sales, managed care contracting, client services, and billing and collections, among other things. It also provides reference and esoteric testing for specimens not tested by its hospital partner.

Tough Competitor

With the right hospital or health system partner in a region, PAML’s joint venture business model starts with advantages that position it to be a very tough competitor. For example, in and around Denver, Centura Health operates 12 hospitals. Thus, not only will Colorado Laboratory Services immediately become a local lab competitor, with its main lab located at St. Anthony Central Hospital near downtown, but it also starts with 11 other strategically-located testing and service centers located in and around each of Centura’s other 11 hospitals.

It will be the same story with California Laboratory Associates. CLA’s primary laboratory will operate from Providence Saint Joseph Medical Center in Burbank. The other five Southern California Providence hospitals in Mission Hills, San Pedro, Santa Clara, Tarzana, and Torrance will provide CLA with service hubs that make it a local laboratory provider in each of those communities.

Interest In Laboratory JVs

The announcement of the creation of two major new laboratory testing companies coming only eight days apart signals that PAML’s joint venture business model continues to appeal to hospital/health system administrators. Moreover, reduced Medicare reimbursement in coming years may make the concept of a laboratory outreach joint venture even more attractive to hospitals and health systems.

If this is true, PAML may be positioned to have its pick of opportunities to develop laboratory joint ventures with some of the nation’s most respected hospitals and health systems.

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