Sale to LabCorp to End Most of PAML’s Lab JVs

Buyer and seller disclose some hospitals will sell their interests and exit joint ventures

CEO SUMMARY: It will take several years to understand how the market for lab testing services will change in Seattle and the Pacific Northwest, once Laboratory Corporation of America becomes the owner of PAML, based in Spokane, Wash. Price and financial terms of the sale were not disclosed. The announcement of the agreement also reported on the disposition of six of the eight lab joint ventures that PAML operates with its hospital partners.

ONCE MORE, THE NATION is about to lose another of its largest and most respected independent lab companies. When this lab sale closes, the buyer will become the dominant lab company in the Seattle metropolitan area, and in several other regions in the Northwest and other states.

These outcomes will result from the acquisition of Pathology Associates Medical Laboratories (PAML) by Laboratory Corporation of America if the proposed sale clears regulatory review.

Another consequence of this sale is that four of PAML’s eight lab joint ventures will end. Partner hospitals in two of the remaining four JVs are considering their options. No public information about the fate of the other two lab JVs has been released.·

In terms of sales price, this proposed deal is expected to be a large transaction even though neither party has provided a sales price or financial terms of any kind. Based on information from a variety of sources, PAML’s annual revenue, including that of its eight lab joint ventures, is believed to be about $300 million to $315 million. The largest JV is PACLAB, with annual revenue of about $105 million. Taken together, the seven other lab joint ventures generate $50 million to $60 million annually. That would put PAML’s yearly revenue in the range $140 million to $150 million.

For Lab JVs, The End Is Near

LabCorp and PAML’s two owners, Providence Health and Services and Catholic Health Initiatives, described the disposition of PAML’s eight lab joint ventures with various hospitals in a news release. (See sidebar for a list of the JVs.)

In three of the eight lab JVs, LabCorp will acquire PAML’s interest and the hospital co-owners will sell their interests to LabCorp. These JVs are: PACLAB Network Laboratories, Colorado Laboratory Services, and Kentucky Laboratory Services.

The process is slightly different for Alpha Medical Laboratory. The hospital co-owner intends to acquire PAML’s interest in Alpha, after which it will sell the joint venture interests to LabCorp, following a vote by its board. LabCorp is expected to have full ownership of Alpha.

For Mountain Star Clinical Laboratories and Tri-Cities Laboratory, LabCorp will purchase PAML’s interests in each JV. The hospital co-owners of these two JVs are evaluating their options, which may include selling their interests to LabCorp. PAML’s partner in the MSCL venture is a seven-hospital health system that HCA, the for-profit hospital company, owns.

Unaddressed is the disposition of two of the laboratory joint ventures: California Laboratory Associates in Burbank, Calif., and Treasure Valley Laboratory in Boise, Id.

“After the staged transactions are complete, Providence, CHI, and the hospital joint venture owners will continue to provide all existing inpatient hospital laboratory services,” the news release said. “LabCorp will then continue to provide the outreach testing services and reference laboratory services currently provided by PAML and the joint ventures that are part of the overall transactions.”

It may be noteworthy that, from the information disclosed to date, neither of the health system owners of PAML or any of the lab JV hospital partners, have contracted with LabCorp to manage their inpatient laboratories.

Hospital Lab Partners in Joint Ventures with PAML To Follow Different Paths Following Sale to LabCorp

OVER THREE DECADES, Pathology Associates Medical Laboratories was unique in its development of commercial lab-hospital joint ventures. Only International Clinical Laboratories, a company that SmithKline Beecham Clinical Laboratories (now Quest Diagnostics) acquired in 1988, had comparable success in developing multiple commercial lab-hospital lab JVs. The lab joint ventures PAML organized and serves as general partner are:

  • PACLAB Network Laboratories: Founded 1996 in Seattle and Puget Sound. Hospital partners include Providence Health System-Washington, Providence Everett Medical Center, Franciscan Health System, Overlake Hospital Medical Center, Evergreen Healthcare, Valley Medical Center.
  • Alpha Medical Laboratory: Founded 1996 in Coeur d’Alene, Idaho. Partner is Kootenai Medical Center.
  • Tri-Cities Laboratory: Founded 1999 in Central Washington. Joint Venture includes Kadlec Medical Center, Trios Health, Lourdes Health Network.
  • Treasure Valley Laboratory: Founded 1999 in Boise, Idaho. Joint venture includes Alphonsus Regional Medical Center.
  • MountainStar Clinical Laboratories: Founded 2008 in Salt Lake City. Joint venture includes St. Mark’s Hospital and Lakeview Hospital.
  • Colorado Laboratory Services: Founded 2010 in Denver. Joint venture with 11 hospitals of Centura Health.
  • California Laboratory Associates: Founded 2010 in Burbank. Joint venture with Providence Health and Services-California.
  • Kentucky Laboratory Services: Founded 2011 in Lexington. Joint venture with Saint Joseph Health System.

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