CEO SUMMARY: With the year end approaching, lab buyers and sellers are working to finalize deals that may have been in discussion for months. The first big lab acquisition for this season came on Nov. 27, when Quest Diagnostics announced it was acquiring Boyce and Bynum Pathology Laboratories of Columbia, Mo. The pathologists will keep their private group practice and separately sold the Boyce and Bynum long-term care business to Gamma Healthcare of Poplar Bluff, Mo.
ONCE AGAIN, THE END OF THE CALENDAR YEAR is a time when acquisitions become common. The first big acquisition announced this season was Quest Diagnostics’ purchase of Boyce and Bynum Pathology Laboratories (BBPL) in Columbia, Mo.
Announced on Nov. 27, specific terms of the sale were not disclosed. Founded in 1965, BBPL has been the major independent clinical laboratory company in central Missouri. Quest has a large regional laboratory facility in St. Louis, about two hours away from Boyce and Bynum in Columbia, Mo. Thus, it is probable that much of BBPL’s lab testing will be shifted to that and other Quest lab sites and the facilities in Columbia will be downsized.
Core Lab in Columbia, Mo.
BBPL employs 20 board-certified pathologists and more than 350 medical, technical, and support staff. The clinical lab company does 95% of its testing in its core lab facility in Columbia and has 21 patient service centers in Missouri, Arkansas, and Oklahoma.
In the press release describing the transaction, it was stated that Quest was not purchasing Boyce and Bynum’s anatomic pathology division (Boyce and Bynum Pathology Professional Services), nor its long-term care (LTC) division, which serves hundreds of nursing homes and similar facilities.
Pathologists Keep the Group
It is common for the pathologists who own an independent clinical laboratory company to keep their professional group practice when selling the lab. Also, the fact that Quest did not want the long-term care business is consistent with the actions of the two national lab companies since the mid-1990s.
The two billion-dollar lab companies do not want long-term care clients because of two factors: the costs of serving nursing homes are substantial, and many nursing homes are located in smaller communities or rural areas, which further adds to the expense for a lab to service them.
Thus, the interesting side note to the sale of Boyce and Bynum to Quest is the fact that, about one week prior to this sales agreement, BBPL sold its long-term care business to Gamma Healthcare. At the time of this sale, BBPL was serving about 500 nursing homes and other long-term care facilities. Gamma Healthcare, in Poplar Bluff, Mo., says it is a provider of laboratory and radiology services for long-term care facilities in the Midwest.
BBPL has pathologists on staff at 26 hospitals and clinics, although that part of the business will not go to Quest. Instead, those pathologists will remain in their positions, according to sources familiar with the deal Quest made.
Why a successful independent lab company would sell out to a large lab company after having annual growth rates of 10% to 20% in recent years is a cautionary tale for all clinical laboratories. Sources told The Dark Report that the lab lost approximately $1 million in profit in its long-term care division this year due to changes Congress and the federal Department of Health and Human Services (HHS) made to Medicare Part B clinical laboratory fees under the Protecting Access to Medicare Act (PAMA).
PAMA Fee Cuts a Factor
Under PAMA, HHS cut what it pays labs for clinical lab testing by 10% from what it paid for those same tests in 2016. Further, BBPL anticipated similar reductions from Medicare lab price cuts in 2019, given the lack of interest at the federal legislative level to address the flawed implementation of PAMA data collection and pricing analysis.
In addition to the financial impact of PAMA to its LTC division, BBPL saw several larger commercial payers seek similar reimbursement reductions as often happens when private health insurers tie their reimbursement to Medicare reimbursement schedules. The state of Missouri further sought a 30% reduction in Medicaid lab reimbursement without input from the laboratory community.
The Dark Report has been told that one factor in the decision to sell to Quest was that Quest was interested in bolstering its pathology resources in this region. One source said she believed that Boyce and Bynum Pathology will be the exclusive providers for Quest in the Missouri area and in the surrounding states.
She added that Quest’s AmeriPath pathology group in Greater Kansas City recently “imploded.” The Dark Report has not yet verified that statement.
Also mentioned was the opportunity that Quest may have because it is again a network provider for UnitedHealthcare.
“In Missouri, the fact that Quest will be in-network with UnitedHealthcare could benefit BBPL’s clinical lab business directly, especially if Quest takes business away from LabCorp,” sources said. “If Quest scoops up much of the UnitedHealthcare business that has been going to Laboratory Corporation of America, the pathologists at Boyce and Bynum Pathology Professional Services (BBPPL) would get a substantial increase in tissue volume.
“Plus, in Missouri, Quest has 45 sales people where BBPL has a limited sales force. Quest will be able to saturate the market a bit better than BBPL has done simply because Quest has a much larger sales force,” sources added. For all these reasons, the pathologist-owners of BBPL decided to focus their efforts on professional services, which means that in some ways they are returning to their roots, sources concluded.
Clinical Trials Business
“In addition, BBPPL has built a relatively strong clinical trials book of business that it can continue to use to boost its revenue,” said one source.
“And now the pathologists at BBPPL will no longer need to worry about all the day-to-day problems associated with running a clinical laboratory in these challenging times.”