CEO SUMMARY: It is unusual when a regional health system’s clinical lab company acquires a commercial lab company outside its geographic home. But that’s what happened in December when Rochester Regional Health System’s subsidiary, ACM Global Laboratories, acquired a toxicology testing lab and a pre-employment drug-screening company, both in Horsham, Pa., more than 300 miles from Rochester. One toxicology testing expert predicted further consolidation in this sector of the lab industry.
ROCHESTER, N.Y-BASED ACM Global Laboratories acquired DrugScan and DSI Medical Services of Horsham, Pa., last week in an effort to expand its toxicology testing business nationwide.
A full-service clinical and pathology lab, ACM global is affiliated with the Rochester Regional Health System in Upstate New York. Rochester Regional Health is an integrated healthcare system with $2.2 billion in annual revenue and 17,000 employees.
The health system’s ACM global Laboratories do 20 million tests annually and operate in more than 65 countries. Most of its international business centers provide testing for clinical trials, said John Foley, ACM global’s president.
In an interview with THE DARK REPORT, Foley said the acquisition of DrugScan, a toxicology lab outside Philadelphia that has operations in 23 states, will help ACM global meet the growing demand for toxicology testing and help physicians and other providers manage patients with complex medication needs.
ACM global completed the acquisition of DrugScan and DSI Medical Services on Dec. 31. Terms were not announced but ACM global said it would retain DrugScan and DSI Medical Services’ leadership, operations in Horsham, and its brand names. ACM global acquired the two companies from Eureka Growth Capital, a private equity company that formed Toxicology Holding Corporation (ToxCo) to manage DrugScan and DSI Medical Services. Eureka sold ToxCo to ACM global.
Great Reputation And Brand
“This acquisition expands our presence in the toxicology testing marketplace for both addiction treatment and pain management,” Foley said. “DrugScan has a great reputation and brand name. Its toxicology testing operation runs 9.5 million tests annually.
“The reason for purchasing DrugScan and DSI Medical Services is we’re making a commitment to grow ACM both organically and through acquisition,” he added. “Before this, we focused on organic growth. Now, we want to accelerate our growth, particularly in the toxicology and clinical trial markets.
Wants To Buy Tox Labs
“To do that, we will continue with further acquisitions in both of those areas,” Foley said. “Now that the word is out, perhaps some labs will get the message and let us know of their interest to be acquired.
“We saw DrugScan and DSI Medical Services as a platform for us to grow the toxicology business for several reasons,” he said. “One reason is they have a much broader geographic footprint than we do.
“For the most part, we cover New York and Connecticut,” he added. ACM global has a core lab in Rochester and a second lab in Norwalk, Conn. “But DrugScan has pain management operations in 23 states and through DSI Medical, it has a workplace screening presence in 47 states. In addition, DrugScan has sales people as far away as California,” he added.
Contracts With Health Plans
“Another important reason for this deal is that DrugScan has contracts with 114 health plans, which is four times the number of health insurance contracts that we have,” Foley added. “So, for all these reasons, the acquisition is an expansion strategy more than anything else.
“To be clear, we think of ACM global Labs as three different businesses,” he added. “One is a global business to support clinical trials for pharmaceutical sponsors and contract research organizations. For that business, we have four labs around the globe and offices in seven countries.
“The second business is a national toxicology testing operation, and the third is a regional business which is the normal medical diagnostics for hospitals and health systems,” Foley explained. “We just opened the lab in Connecticut to serve the Medicaid program there.”
Contact John Foley at 866-405-0400 or firstname.lastname@example.org.
Small Tox Labs Will Be Acquisition Targets
TOXICOLOGY TESTING COMPANIES ARE likely to be acquisition targets in the coming months and years, said Mark McSally, COO and General Counsel for Dominion Diagnostics, based in North Kingston, R.I.
The acquisition by ACM Global Laboratories in Rochester, N.Y., of two toxicology lab companies in Horsham, Pa., is a typical example, he added. “The purchase by ACM Global is consistent with our thinking the last couple of years that there will be consolidation among toxicology companies,” he explained. “Those consolidations will come either from larger labs and larger toxicology companies or from investment companies or from large health systems and maybe even from some large hospitals as well.
“Of course, there will be some closures, which we have already seen, and there will be some rolling up of smaller labs into larger organizations,” he added.
“This is all due to the cuts in what Medicare and other payers are paying,” McSally said. “We’re in year three of reimbursement reductions in what Medicare pays for toxicology testing. When Medicare lowers test prices, Medicaid programs and many commercial payers will follow with their own price reductions for toxicology testing.
“In addition, there has been a significant tightening of medical policies from the private payers in terms of frequency limits on testing,” he added. “One change payers have made is to put limits on when it’s appropriate to do definitive testing. A lot of the payers will reimburse only to confirm a follow-up on a positive initial preliminary test for a prescribed medication. When payers put limits on definitive testing, that has an impact on a lot of labs where their model was to do a large panel of definitive testing.”