Sonic Sees a Future in Lab JVs with Hospitals

Collaborations with hospitals and health systems can provide significant clinical, financial benefits

CEO SUMMARY: In every partnership, each member has a unique point of view. Following the announcement of a new laboratory joint venture company involving ProMedica Health System and Sonic Healthcare USA, the Sonic executive who worked with ProMedica’s administrators to develop the JV explained why Sonic is bullish on this hospital laboratory outreach joint venture and described why similar lab joint ventures can benefit each partner, both clinically and financially.

A SIGNIFICANT TREND for hospital- and health system-based laboratories may be unfolding in Toledo, Ohio. The newly-formed ProMedica Pathology Laboratories (PPL) is a bold statement of confidence in the immediate future of the laboratory outreach business by one of the nation’s largest and fastest-growing health systems.

This new laboratory company is a joint venture with ProMedica Health System and Sonic Healthcare USA as the majority and minority owners, respectively. ProMedica is on track to have annual revenue of $7 billion and Sonic Healthcare USA is itself a billion-dollar lab business.

In the previous article on pages 5-6, the principals involved in this lab joint venture described the details of the partnership. ProMedica’s Senior Vice President, Operations, Gary Akenberger, explained why this joint venture is expected to benefit ProMedica and contribute to improving inpatient and outreach lab testing services at a high level going forward.

To provide clients and readers of THEDARK REPORT with Sonic Healthcare USA’s perspectives on its endeavor with ProMedica, we interviewed Noel Maring, Sonic’s Vice President of Hospital Affiliations.

On behalf of Sonic, Maring played a key role in working with ProMedica administration to develop what will be a large new laboratory company. But Maring’s comments should be taken in a larger context.

A Successful Track Record

In recent years, Maring has developed several other lab joint ventures involving Sonic and large health systems. Previously, he served for almost two decades at Pathology Associates Medical Laboratories (PAML) in Spokane, Wash., where he worked with PAML’s then-CEO Thomas Tiffany, PhD, to establish seven hospital and commercial lab joint ventures involving 37 hospitals in the Pacific Northwest and Rocky Mountain states.

Given his experience and extensive knowledge about what it takes to design, launch, and sustain a lasting laboratory joint venture involving a hospital or health system and a commercial lab company, his comments about this new venture are important for lab administrators and pathologists in other similar hospitals and health systems.

A Strategic Alignment

“Nationally, ProMedica is recognized as a forward-thinking system,” stated Maring. “Its administrative team was deliberate and careful in designing this lab joint venture so that it aligns with their larger strategic plan.

“On the other side of this table, the ProMedica-Sonic lab joint venture fits neatly into Sonic’s strategy of partnering with health systems to improve both parties’ economies of scale,” explained Maring.

“In my opinion, this lab JV is a big deal because ProMedica is one of the largest health systems in Ohio and because this joint venture will involve hospitals in Ohio and Michigan,” he noted. “ProMedica’s existing progressive and substantial lab outreach program already extends in and around its hospitals.

“By that, I mean this is not the typical small hospital outreach operation because ProMedica’s outreach program already performs about two million tests per year,” emphasized Maring. “In addition, each year, the core lab handles about 1.9 million inpatient tests coming from ProMedica’s 13 hospitals.

“At almost four million tests annually, that level of volume is substantial,” he commented. “For its part, Sonic will contribute the more than two million lab tests it currently generates from Toledo, much of northern Ohio (including Cleveland), Columbus, and also from Indiana.

“So here is an immediate benefit for the joint venture,” Maring added. “The current ProMedica core laboratory will realize almost a 50% increase in lab test volume by adding the Sonic test volume, when ProMedica’s core laboratory becomes part of the joint venture on Sept. 1. At this time, Sonic’s existing laboratory in Toledo, called Pathology Laboratories Inc. (PLI), and its business will be consolidated into the joint venture’s (formerly ProMedica’s) new, highly-automated, state-of-the-art laboratory, which opened in April.

“For the better part of two years, Sonic has talked with ProMedica administrators about how we could work together more closely,” Maring recalled. “Part of their planning and automation for the newly-expanded lab facility was based on the fact that they saw the opportunity to consolidate the work we do in Toledo with theirs.

“That new lab has about 83,000 square feet of space and will be the core laboratory for this joint venture,” he said. “By combining our business with theirs, we expect ProMedica will gain significant economies of scale, which would be important for any health system.

More Capacity and Efficiency

“The lab business responds well to economies of scale and it does so perhaps better than is true of other areas of healthcare,” noted Maring. “ProMedica recognizes that its new lab facility of 83,000 square feet has substantial capacity and potential to deliver increased efficiency.

“More specifically, all hospital lab administrators and pathologists know that inpatient testing is performed during the day and test volume falls off dramatically in the evenings and weekends,” he added. “That creates the opportunity to use that same lab facility in the evening and weekends to do testing on outreach specimens. That’s when a good portion of Sonic’s outreach business arrives because some of it is transported to Toledo from distant areas.”

Another financial benefit will be combined purchasing. “Over time, Sonic will bring in its global procurement abilities, which will help to reduce ProMedica’s supply and equipment costs,” he added. “Those costs won’t come down right away, but will be a factor over many months and years.

“These are just a few ways this joint venture with ProMedica demonstrates what we at Sonic want to accomplish as we develop partnerships around the country,” Maring explained. “Sonic’s goal as it develops these lab joint ventures is not to take testing out of the area so that it can be moved to our distant laboratories.

“Quite the opposite,” he added. “The Sonic model is to bring volume and scale into the local market and perform testing in those laboratories. This lab JV will achieve that goal of keeping lab testing local and performed in the health system lab.

Patients Benefit as Well

“ProMedica recognized another benefit from having more volume go through its new core lab,” observed Maring. “Not only does the additional specimen volume lower lab costs, but it also benefits patients. This happens because the increased volume of tests makes it feasible to bring more tests in-house. That enables the lab to offer faster turnaround times for inpatient care, potentially contributing to reduced length of stay. This also benefits physicians and their patients.

Two Years of Negotiations

“In conclusion, I would say that this joint venture was two years in the making and in that time, it was very thoroughly reviewed by all parties,” he said. “As such, it’s a good example of a health system taking steps to get the most value from all of its lab data, including inpatient, outpatient, and outreach lab data. Having all that data in one place is very important for health systems like ProMedica.”

Major Healthcare Trends Support Unified Lab Record

BECAUSE OF HEALTHCARE’S TRANSITION to integrated care and value-based payment, health systems have reasons for their laboratories to provide all the testing done for inpatient, outpatient, and outreach testing. “The Toledo market has plenty of competition for lab tests,” noted Noel Maring, Vice President of Hospital Affiliations for Sonic Healthcare USA. “Along with ProMedica, Mercy Health System is one of three hospitals in the Toledo market that provides outreach lab testing,” he said. “Laboratory Corporation of America and Quest Diagnostics each have a bit of the outreach market and they do some reference lab work too.

“But most of the outreach testing from physician practices is consolidated in Mercy, ProMedica, and Sonic,” he commented. “ProMedica and Mercy have brought in most—if not all—of the outreach testing from the physicians they employ or have affiliations with. By doing that, they ensure that the testing from their employed or affiliated physician practices stays in their system.

“It’s likely that the model Mercy and ProMedica are using is similar to the future of where hospital labs are going,” he predicted. “That’s because health systems recognize the clinical benefits of having the same lab serve inpatient, outpatient, and outreach settings. When health systems do that, they can create a complete patient record with the same methods and reference ranges, which is a benefit when delivering integrated clinical care where providers are participating in value-based payment arrangements.

“Thus, by combining our lab with ProMedica’s, when a patient is admitted to the ProMedica hospital, physicians will have access to both the inpatient and outreach lab test results, once the joint venture is fully operational,” commented Maring. “In this way, there is a ‘big data’ benefit to our new laboratory joint venture.”

Contact Noel Maring 509-220-9872 or nmaring@sonichealthcareusa.com; Gary Akenberger at 800-477-4035.

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