CEO SUMMARY: Without making an announcement, LabCorp said it would acquire the Metropolitan Medical Laboratory, a privately-held laboratory founded in 1914 in Davenport, Iowa. The local newspaper reported that some 136 employees from Metro Medical’s laboratory operations in Moline, Ill., may lose their jobs. Last month, LabCorp said Medicare and other cuts in payment to the nation’s smaller and regional labs could cause some of those labs seek joint ventures or sell out to larger labs.
ONE OF THE NATION’S OLDEST CLINICAL LABORATORIES will change hands on April 1, ending a run of 105 years in Davenport, Iowa.
Without an announcement, Laboratory Corporation of America confirmed this week that it will acquire the Metropolitan Medical Laboratory, a privately-held laboratory founded in 1914. Some 136 employees from its laboratory operations in Moline may lose their jobs, according to reporting by Alma Gaul of the Quad City Times, a newspaper in Davenport.
Last month, LabCorp’s executives told Wall Street stock analysts that more of the nation’s smaller and regional laboratories were becoming aware of the effects that reductions in Medicare payments under the Protecting Access to Medicare Act (PAMA) were having on operations and finances. As a result, many of those labs may be willing either to be acquired or to work more closely with larger labs.
LabCorp’s Chairman and CEO David King said, “This presents us with a number of attractive tuck-in lab acquisition opportunities, which typically deliver significant synergies and high return on invested capital.”
However, no official from either LabCorp or Metro Medical Labs was willing to discuss the reasons why the pathologists who own Metro Medical Labs chose to sell their business at this time. Executives and staff from Metro Medical did not return multiple messages left last week.
About the deal, LabCorp’s Donald R. von Hagen, Vice President, Corporate Communications, said, “With respect to Metropolitan Medical Laboratory, I can confirm that we still anticipate the transaction to close on April 1, and that we do not anticipate making a formal announcement about it. Other than that, we are not providing information beyond what was reported this week in the Quad City Times.” The newspaper serves the Quad Cities of Moline and Rock Island, in Western Illinois and Bettendorf and Davenport in Eastern Iowa.
It’s safe to assume the deep cuts to Medicare Part B clinical lab test prices that resulted from the PAMA private payer market price study were a factor in the decision by the owners of Metro Med Labs to sell. What’s unknown is whether those Medicare price cuts were the deciding factor in the timing of the sale.
Interviews with clinical laboratory executives familiar with the recent history of Metro Medical explained that the lab has lost lab testing volume over the past six years while continuing to retain a large and far-flung operation.
Sale of Lab Assets in 2013
In 2013, The Dark Report reported that Metro Medical sold the laboratory assets it owned at two hospitals in Davenport to Genesis Health System, also of Davenport.
At the time, The Dark Report reported that Genesis Health was a five-hospital system that served patients in 12 counties in Eastern Iowa and Western Illinois. (See “Hospital System Acquires Labs in ACO Strategy,” TDR, July 8, 2013.)
Before the sale, Metro Medical Labs ran the laboratory operations in two different hospitals known as the Genesis Medical Center in Davenport. One hospital had 252 beds and the other had 174 beds, TDR reported. At that time, Genesis hired all 90 lab employees employed in the two Metro Medical Lab facilities.
However, Metro Med Labs remained a large clinical laboratory company. Quad City Times said that, in 2015, Metro Med Labs employed more than 400 people, according to its human resources officer. The Times also noted that, in 2015, the lab company “had 3,500 ordering clients with more than 5.4 million test results for 230,000 patients seen per year.”
Metro Med Labs lost more business in April, 2017, when UnityPoint Health, a health system in the Quad Cities, acquired the lab testing services from about 30 physician clinics that had been sending their clinical lab and pathology tests to Metro Medical Labs, said a lab executive familiar with the history of lab testing in the area.
Loss of Physician Referrals
“When Metro Medical lost the lab testing work of those 30 or so physician clinics, that’s about the time when I believe Metro really started to struggle,” the lab executive said. He asked not to be named. “At the time, Metro Medical probably was left collecting lab testing work from only about two sizeable independent groups.
“And Metro Medical still had a big freestanding patient service center (PSC) presence because people had used those draw stations for years, and Metro Medical’s patients remained loyal to Medical Metro and Metro Medical remained loyal to those patients,” he said. “Looking back on it, though, it might have been better if Metro Medical closed some of those PSCs after selling parts of its hospital testing business and then losing a part of its physician outreach testing.
Did Not Cut Large Overhead
“It could be that the reason Metro Medical struggled financially was because it just didn’t have the volume to support large lab operations anymore,” he commented. “For example, the lab maintained its big reference testing menu and microbiology lab because it had done the reference lab work for two large hospital systems and all the providers in the area. Metro Med Labs didn’t downsize those operations.”
Given these facts, it’s reasonable to assume the Medicare lab fee cuts of 2017 and 2018 were the financial setbacks that led the lab’s owners to decide to sell.