CEO SUMMARY: Vista Clinical Diagnostics of Clermont, Fla., is betting big on the nursing home sector just when many labs serving nursing homes are worried about steep Medicare cuts coming Jan. 1. After selling its physician office referral testing, 35 patient service centers, and a mobile testing service to LabCorp, Vista will retain its nursing home business in Florida and several other states. It will continue to serve approximately 150 skilled nursing homes and more than 200 assisted living facilities.
CONCERNED ABOUT LOWER FEES coming from Medicare starting Jan. 1, Vista Clinical Diagnostics sold its retail lab testing business to Laboratory Corporation of America. The surprise twist in this transaction is that Vista will retain its nursing home business, according to reporting in The Orlando Sentinel.
Several aspects of this transaction confirm the popular wisdom that the coming Medicare lab test price cuts will undermine the financial stability of smaller independent labs, particularly those serving nursing homes.
Many lab executives and Wall Street analysts expect to see a wave of community lab company failures, bankruptcies, and sales to the national lab companies starting in 2018. Vista’s sale of its retail lab testing operations is a real-world example of how the deep cuts to Medicare lab test prices already are pushing the owners of small labs to sell.
LabCorp did not buy the nursing home business of Vista, however, and Vista told a newspaper reporter that it would continue to serve its nursing home clients in Florida, Virginia, and the Carolinas. Its decision is contrary to the popular wisdom that small labs serving nursing homes face a bleak financial future starting next year when deep Medicare cuts take effect.
Few Facts Are Known
The limited information about what business lines Vista sold and what it kept—or what Vista assets LabCorp wanted to buy and what it didn’t—make it difficult to determine the original goals both the buyer and the seller had for this sales transaction.
For example, did Vista want to sell both its retail lab testing business and its nursing home operations? If so, was LabCorp unwilling to pay enough for the nursing home business? Did this cause Vista to withhold these assets from the final sale because it wanted to sell the retail business now, when it would be worth more than after the Medicare lab test price cuts take effect Jan. 1?
Or, was Vista unwilling to sell its entire lab testing business to LabCorp because it believed LabCorp intended to stop serving those nursing homes after it acquired Vista’s lab assets? In this scenario, Vista’s owners may have wanted to do the right thing for their clients and were willing to continue serving them, despite the Medicare price cuts.
There is also the possibility that Vista’s owners believe they can continue serving nursing homes, despite the negative financial effects of the Medicare fee cuts. That strategy may include their belief that, when other small lab companies struggle financially, Vista can pick up their nursing home clients and the resulting larger size can help Vista stay financially solvent, if not profitable.
Terms Not Disclosed
LabCorp did not announce the deal and terms were not disclosed. Yet, the Sentinel noted that LabCorp acquired the retail portion of Vista’s business, meaning its 35 patient service centers (PSCs) throughout the state, its mobile testing operation, and its physician-referral business. The transition to LabCorp began in the last week of October and is expected to continue for several months, the Sentinel added.
In the article by Sentinel health reporter Naseem Miller, the newspaper reported that LabCorp will hire about 40 of Vista’s 180 employees. Miller wrote that, “Vista is also keeping some of its employees, as it plans to maintain the laboratory portion of the business and focus on servicing nursing homes.”
Based in Clermont, Fla., Vista was founded in a garage in 2004. Despite a desire to remain an independent lab, the owner, Davian Santana, found it difficult to win managed care contracts from health insurers. He also faces the prospect of steep cuts in Medicare payments beginning Jan. 1. Facing those two problems, Vista CEO Davian Santana decided to sell, Miller wrote.
“It’s been difficult, but this was the best from every aspect, including for our employees,” Santana said in the Sentinel article.
Like other clinical laboratories, Vista knows that the cuts proposed under the 2018 Part B Clinical Lab Fee Schedule will affect all sectors of the lab business. According to experts who have analyzed the proposed fee schedule, the nursing home sector will be hit particularly hard.
Vista Keeps Nursing Homes
Therefore, by retaining the nursing home business, Vista is making a major bet that it can survive. But it faces an uphill fight. When the Centers for Medicare and Medicaid Services announced the 2018 Clinical Laboratory Fee Schedule, experts estimated that lab payments from Medicare would be slashed by 20% to 38%, depending on the test involved. Small independent community labs serving rural areas and labs serving nursing homes would be affected severely, the experts predicted.
According to Vista’s website, the lab company serves more than 150 skilled nursing homes and more than 200 assisted living facilities throughout Florida and has more than 200 couriers. Recently, Vista expanded to collect specimens from nursing homes in North Carolina and Virginia.
Vista’s core lab is in Clermont. It also has labs in Lake City, Fla., and Danville, Va. The laboratories offer coagulation, chemistry, hematology, immunochemistry, microbiology, molecular testing, serology, and urinalysis.
Why Sell Now?
Other public facts about Vista can be interpreted as evidence that the decision to sell its retail lab operations at this time is based, in some part, on the financial erosion that its owners projected will happen from the Medicare Part B fee cuts in 2018. Another factor may be that private payers are expected to follow by also lowering what they pay for lab tests.
On May 31, 2015, for example, the Sentinel published a story about Vista with the headline, “Indepen dent Lab Stays Course in Niche, Resists Sale.” An optimistic Santana stated, “There is an emerging market where employers are beginning to take a very special interest in their employees’ health. We want to help them with that and in saving costs. We’ve already bought a pharmacy.”
The Sentinel also reported that Vista had “contracts with 170 nursing homes and assisted-living facilities. Some 200 mobile phlebotomists draw samples in those facilities.” At the time, Vista had five employees dedicated to custom service where, for $39, they would drive to a patient’s home or office and draw blood, rather than have the patient visit a PSC.
Expensive Lab Services
Maintaining such services is costly for any lab. Keeping 200 mobile couriers in the field, offering same-day lab results on “98.6% of test menu results,” and charging self-pay patients no more than Medicare Part B prices are features few labs can afford to offer. Many independent lab companies find that reimbursement for lab tests is generally inadequate to cover the full costs of such services.
Could the reality be that, in a competitive clinical laboratory marketplace, Vista found itself excluded from the provider networks of important health insurance plans? And, at the same time, the lab company found itself not only being paid less—if at all—as an out-of-network laboratory, but facing more and tougher audits from private payers and the Medicare program?
Whatever the answer to these questions, the biggest question about Vista’s decision to sell its retail operations and keep its nursing home business is, will this business strategy turn out to be genius or folly for Vista’s owners?
Vista Posted Rapid Growth During Its First Nine Years
IN 2012, VISTA CLINICAL DIAGNOSTICS was the subject of a story published in Clinical Lab Products. Vista’s CEO, Davian Santana, discussed the lab company’s growth and service philosophy.
In its first nine years, the lab company had experienced an average annual growth rate of 60%, Santana explained. In the article, he attributed the lab’s success to two business strategies.
First, Santana disclosed that Vista began offering same-day results in 2004, with “98.6% of their test menu results delivered the same day.”
The second strategy that fueled the multi-year growth rate is the lab’s policy of charging self-pay patients the same rates that Medicare would pay.
As a trained medical technologist, Santana noted that, after earlier working for Beckman Coulter to install and validate medical equipment in Florida, he saw how clinical laboratories worked across the state, CLP reported. From that experience, he noticed a lack of personalized care, high prices, and long wait times for patients to have their blood drawn and to get their results.
“The patient was not being put first,” Santana told CLP. “Likewise, neither were the physicians or the facilities who depended on those labs to deliver timely and accurate results. What’s good for our patient is what works for us.”
In the same CLP article published Aug. 10, 2012, the writer, Jim Huth, quoted Pat Owen, Vista Clinical’s Chief Operating Officer. “Our retention rate is extremely high, and we earn that honor every day.”
For Owen, other labs were treating clinical lab work almost as if it were a commodity. “We took something that was a commodity, and brought back humanity to it,” she told CLP. “This comes from the top and trickles all the way down.”