ANOTHER ACADEMIC MEDICAL CENTER decided to cash in on the value of its outreach lab. On Jan. 10, Laboratory Corporation of America announced it would acquire the lab outreach business of Mount Sinai Health System of New York City.
Terms of the transaction and purchase price were not disclosed. The deal is expected to close by the end of the first quarter.
In a press release about the sales agreement, LabCorp explained that Mount Sinai will continue to provide “laboratory testing for patients registered at its hospitals and ambulatory facilities as inpatients or outpatients, as well as laboratory testing services for physicians in their professional practices in the areas of anatomic pathology, molecular pathology, and genetics.”
For its part, LabCorp, “will offer clinical pathology testing, including cytology and cytology-related molecular testing” to the Mount Sinai’s lab outreach clients. LabCorp will also take over operation of six patient service centers now operated by Mt. Sinai.
One interesting aspect of this sale is that Mount Sinai Health System is financially stable. The company has reported positive operating margins in recent years. It has been working to integrate the four Continuum hospitals it acquired in 2013, including St. Luke’s-Roosevelt Hospital Center and Beth Israel Hospital, both of which were losing money when acquired.
Modern Healthcare reported that Mount Sinai explained its interest in selling its lab outreach business with this statement: “This particular [lab outreach] business, while successful, is no longer a core business of Mount Sinai. This transaction will allow Mount Sinai to continue to invest in our core strategic programs, such as cancer and cardiac services, and to advance our mission across the system.”
Were Lab Costs a Factor?
The Mount Sinai statement further added an interesting element that may have been one motivation in the decision to sell the lab outreach business. “Under LabCorp, the cost of outreach lab services would be lower,” wrote Modern Healthcare.
This could be an indication that the outreach lab business was experiencing pricing pressure, either from payers that wanted lower prices or from patients with high-deductible health plans—or both.
If these factors were in play, it could be that financial planners at Mount Sinai predicted that the profitability of its lab outreach business would decline in coming years. Thus, they decided to sell at this time to obtain the maximum price, based on existing specimen volume.
In recent years, LabCorp has continued to acquire smaller labs and pathology groups. However, it does not announce smaller purchases. This makes it more difficult to understand the pace of lab consolidation in the United States.