Franciscan Missionaries Sells Lab Outreach Business to LabCorp

Only second sale of a hospital lab outreach program since the onset of COVID-19 pandemic in February

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SINCE THE ONSET OF THE PANDEMIC IN LATE FEBRUARY, the nation’s two largest clinical lab companies have announced only two acquisitions of hospital laboratory outreach programs, one in June and one this month.

Last week, LabCorp announced its acquisition of the clinical ambulatory laboratory business of Franciscan Missionaries of Our Lady Health System (FMOLHS) in Baton Rouge, La. Earlier, on June 23, Quest Diagnostics announced an agreement to buy out the hospital partners’ share of Mid America Clinical Laboratories (MACL), a joint venture of Quest and two hospital systems with operations in Indianapolis. (See sidebar, “Quest Buys Out Hospital Partners of Mid-America Clinical Labs,” below.)

Only one other major hospital lab/commercial lab transaction happened this year. On Jan. 27, Quest Diagnostics announced a deal with 1,014-bed Memorial Hermann Health System Hospital in Houston. Quest bought the outreach laboratory division and certain lab assets. It will manage the inpatient labs in 17 Memorial Hermann hospitals. (See, “Memorial Hermann Sells Outreach Lab to Quest,” TDR, Feb. 17, 2020.)

In recent years, executives of the nation’s two largest public laboratory companies have regularly told Wall Street analysts and investors that CEOs of hospitals and health systems have strong interest in selling their laboratory outreach businesses to generate capital that can be invested in other priorities. Hospital CEOs also are described as having an interest in lowering the cost of their inpatient laboratory testing by outsourcing.

Yet, the fact that only two sales of hospital lab outreach business have been announced in the almost eight months since the SARS-CoV-2 outbreak—and just three for all of 2020—may be a sign that hospital and health system CEOs are recognizing the true clinical and financial value of a strong inpatient laboratory and a robust lab outreach program. If this proves to be true during the next 12 to 24 months, then the COVID-19 pandemic will have had an important role in demonstrating the essential value that hospital labs deliver to their parent organizations.

Sizeable Lab Acquisitions

In both of the deals since June, Quest Diagnostics and LabCorp have come away with sizeable new partners. As noted earlier, this month LabCorp acquired the clinical ambulatory laboratory business of Franciscan Missionaries of Our Lady

Health System (FMOLHS) in Baton Rouge, La. The relationship expands LabCorp’s reach in Louisiana and Mississippi.

LabCorp will take over the ambulatory laboratory services for patients, physicians, and other providers that FMOLHS had been doing in both states. LabCorp will also provide specialty reference testing services for FMOLHS’ hospitals in Louisiana and Mississippi. Terms of the transaction were not disclosed, and LabCorp said it was unable to accommodate a press interview at this time.

Hospital lab administrators will want to continue watching to see if any other major hospitals or health networks enter into deals that allow any of the billion-dollar public lab companies to acquire a lab outreach business and possibly also include a contract to manage the inpatient laboratories. As long as the pandemic continues, hospital CEOs would have a motive to retain their inpatient laboratories and keep control of the COVID-19 testing in their institutions.

Quest Diagnostics Buys Out Two Hospital Partners of Mid-America Clinical Laboratory Joint Venture

IN AUGUST, QUEST DIAGNOSTICS COMPLETED THE ACQUISITION of its joint venture partners’ interests in Mid America Clinical Laboratories (MACL), marking the end of a hospital lab/commercial lab joint venture that had lasted for almost 18 years.

It was on June 23 when Quest Diagnostics announced the agreement to do the multi-part deal that was completed on Aug. 3. In one part of the deal, Quest would buy out the hospital partners’ share of MACL.

Formed as a joint venture in 1997, MACL was a partnership of Quest and two Indianapolis hospital systems: Ascension St. Vincent and Community Health Network (CHN).

In another part of the deal, Quest said it would provide professional hospital lab services under long-term service agreements for about 30 hospital labs owned and operated by Ascension St. Vincent and CHN. CHN is a nine-hospital system in Indianapolis serving patients in nine counties in central Indiana. Ascension St. Vincent is part of Ascension Health, a 150-hospital system with facilities in 11 states and the District of Columbia. There are seven Ascension St. Vincent hospitals in Indiana.

In its announcement, Quest also said that its pathology unit—AmeriPath Indiana—would continue to provide specialized pathology services to CHN and Ascension St. Vincent and to other providers in Indiana. Financial terms were not disclosed except that Quest said it was an all-cash transaction.

The deal is a significant one for both MACL and for Quest Diagnostics, according to one healthcare executive familiar with the Indiana market who asked not to be named.

“Since MACL was founded, it has grown significantly so that it is now a substantial clinical lab company in Indiana,” the executive said. “In that way, it’s an important acquisition for Quest, in part because MACL has had such strong growth in test volume in recent years.”

Outreach Sale to Raise Cash

Frequently, hospitals and health systems are motivated to sell their clinical laboratory outreach businesses because they need or want substantial capital for other purposes. These sales can generate tens of millions of dollars in capital for the seller.

In the case of Community Health Network, the Indiana Business Journal reported that CHN lost $13.7 million on operations during the first three months of this year due to the fall-off in patients because of the pandemic. It also reported that CHN lost $201.2 million on investments during the first quarter of 2020 when the economy and financial markets tanked.

Ascension St. Vincent’s parent, Ascension Health based in St. Louis, has experienced significant swings in profit and losses in recent years. Fierce Healthcare reported that Ascension posted losses of $2.7 billion in the first quarter 2020 compared with $1.1 billion in earnings in the first quarter of 2019.

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