Sonic Healthcare & CPL Make First Acquisition

Clinical Path Labs of Austin, Texas buys Cognoscenti Health Institute in Orlando

CEO SUMMARY: Expanding from its base in Texas, Clinical Pathology Laboratories, Inc. (CPL) has acquired Cognoscenti Health Institute, LLC of Orlando, Florida. The deal was done discreetly and gives Sonic Healthcare, Ltd., parent of CPL, a solid foothold in Florida. Cognoscenti has also made impressive progress on building an evidence-based medicine service menu, something that CPL can introduce in other markets.

IT’S A LAB ACQUISITION that was quietly negotiated and closed before the news became public last Friday. Cognoscenti Health Institute, LLC of Orlando, Florida, has been acquired by Clinical Pathology Laboratories, Inc. (CPL) of Austin, Texas.

This transaction is notable because it is CPL’s first acquisition since it became a business division of Sonic Healthcare Ltd. of Sydney, Australia, in a sale that closed last year. (See TDR, September 12, 2005.) For this reason, the choice of Cognoscenti as the first lab acquisition provides clues as to the business strategy that CPL/Sonic intends to pursue as it expands in the United States.

THE DARK REPORT believes two factors contributed to the choice of Cognoscenti as CPL/Sonic’s first lab acquisition. First, the Orlando location was attractive, for several reasons. Florida is a large market for laboratory services, which meets CPL’s interest in growth potential. Orlando, because of Disneyworld and tourism, has an exceptional transportation network. That makes it easier for CPL to build a regional business centered around Cognoscenti’s laboratory in Orlando.

Second, Cognoscenti Health Institute brings two business resources into the CPL/Sonic family. One resource is its founder, President Philip Chen, M.D., Ph.D., who started Cognoscenti from scratch in 2002. Chen, who definitely fits the role of pathologist- entrepreneur, built his lab company into a profitable enterprise, with revenues estimated to be just under $10 million per year.

There is another resource that makes Cognoscenti Health Institute distinctive and sets it apart from other independent commercial laboratory companies. Under Chen’s leadership, Cognoscenti has actively supported evidence-based medicine initiatives in its service market. It is Chen’s conviction that laboratories should take a more active role in helping physicians get the most out of the laboratory tests they order on behalf of their patients.

Sophisticated IT Systems

To enable this type of clinical support, Cognoscenti has developed an information technology arrangement that works on three levels. First, it has a traditional LIS (laboratory information system.) Then there is a “wrap-around” tool that connects data from the LIS to other software capabilities. This makes it possible to mine data in several intriguing and useful ways. Peripheral systems make up the other major part of Cognoscenti’s informatics set-up. Included is Web-enabled electronic order entry and results reporting.

During a site visit to Cognoscenti’s laboratory in 2005, THE DARK REPORT saw, first-hand, how this informatics capability allows Cognoscenti to support evidence-based medicine initiatives in the greater Orlando area. The system can look at medical claims data in the billing module. Using diagnosis codes to select certain patients, it can then pull up the lab test results associated with those CPT codes and produce disease-specific data and analysis of that data.

Using what it calls “Medical Logic Modules,” Cognoscenti can remind physicians and patients when it is time to retest. These “interventions” can be cued either by dates or by changes in current test results for a specific patient. The system can also check patient compliance, a feature which is actively used in the business wellness programs that Cognoscenti supports.

Going one step further, Cognoscenti is sent data by several managed care plans and can add that data to the lab test information and provide detailed information about the status, individually to clinicians and collectively to the payers (and, in some cases, employers), of the patients participating in disease management and wellness programs. This includes a financial analysis of how improved patient outcomes are saving money, calculated from actual reductions in claims.

One early example of how Cognoscenti leveraged these services to expand its laboratory testing business was its participation in workforce wellness programs initiated by the Polk County School District. This diabetes-focused program resulted in an impressive reduction in healthcare claims of $456 per person annually for the employer and was featured as a model case in the 2005 Quality Profiles published by NCQA.

Chen presented on this topic at the Executive War College in Miami last May and the CPL/Sonic executives in the audience seem to have been impressed enough to launch the discussions that led to the acquisition of Cognoscenti just 16 weeks later.

Considerable List of Benefits

By acquiring Cognoscenti, CPL/Sonic has established a solid foothold in central Florida, added a visionary pathologist to its team, and gained access to a strategic added-value laboratory medicine service that can differentiate it from other lab competitors. That’s a considerable list of benefits to accrue from acquiring a young laboratory with revenues less than $10 million per year.

With this step, CPL has also served notice that Sonic Healthcare Ltd. is ready to expand its market share in the United States and has begun to spend money to make that happen.

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