Dx Deals: Outreach Deals by Quest, Labcorp Are Still Ramping Up

A decade into the practice of national laboratories acquiring the outreach businesses of hospitals and hospital systems, there appears to be no signs of such transactions easing up, with the trend accelerating in 2024.

Just over halfway through this year, Quest Diagnostics has already announced or closed acquisition of three outreach businesses this year. Labcorp has made two outreach acquisitions and entered into a relationship with Naples Comprehensive Healthcare that looks very much like an outreach-style deal.¹ The two lab testing giants have closed at least 29 outreach acquisitions or similarly structured deals since 2013, records show (see “Outreach Deals Involving Quest Diagnostics” and “Outreach Deals Involving Labcorp” tables below).

Laboratory outreach has been a longstanding business for large and medium-sized hospitals and healthcare systems. Such a business means hospitals are performing testing for regional providers such as physician practices, clinics, long-term care facilities, and other similar entities.

Although an outreach business can bring in tens of millions of dollars a year in revenue for hospitals, the logistics of running a laboratory and courier service big enough to accommodate these clients can be overwhelming. Many hospitals have found that simply reaping a big windfall and shedding numerous headaches by selling their outreach business makes more sense.

Quest announced two deals in as many weeks in late June and early July. It came to terms on June 26 to essentially operate the outreach business of Allina Health, which operates 12 hospitals in Minnesota and western Wisconsin.² On July 10, it announced a deal to acquire the outreach business of OhioHealth, which operates 15 hospitals, clinics, and other services in 47 of Ohio’s 88 counties.³

“Allina Health selected Quest Diagnostics for its specialized expertise, leadership in laboratory services, and commitment to quality, collaboration, and patient care,” said Quest spokesperson Jennifer Petrella.

For Labcorp, in April, the company announced the closing of a deal to acquire the outreach business in Northern California and Orange County, CA, of Providence, a Washington state-based system that operates 51 hospitals in five western states.⁴ Also in April, Labcorp closed a deal to acquire the outreach business of Baystate Health, which operates five hospitals in Massachusetts.⁵

Terms of outreach deals are rarely, if ever, disclosed. But some outreach businesses are of a significant size. Northwestern Medicine Central DuPage Hospital and NewYork-Presbyterian / Weill Cornell Medical Center reported revenue from Medicare Part B and Clinical Laboratory Fee Schedule (CLFS) payments of $15.5 million and $14.3 million, respectively, in 2019, according to the trade publication Laboratory Economics. The top 25 outreach programs generated combined Part B and CLFS revenue of more than $168 million in 2019.⁶

According to Bruce Carlson, publisher of the Eye on IVD Newsletter, acquiring outreach businesses serves numerous purposes for Quest and Labcorp. Not only are they profitable, but such deals eliminate regional competitors for bread-and-butter lab business. And there is still a lot of runway to make deals. Carlson cited data indicating there is still $250 million of outreach lab business in the Boston area alone that remains in the hands of hospital operators. And that’s even with Quest and Labcorp controlling $400 million of that market through outreach acquisitions from Baystate, Tufts Health, and Steward Health Care System.

Regarding the Allina deal, Quest’s focus will be on the system’s ambulatory clinic sites and not inpatient operations, according to Allina spokesperson Jennifer Steingas. Quest will provide testing services through its laboratory in Wood Dale, IL, she added.

Petrella said that many of the employees on Allina’s outreach operation were offered jobs with Quest.

The OhioHealth deal is of a similar structure, with most outreach testing being moved to Quest’s lab in the Pittsburgh, PA, area, the company said in a statement.³

References:

1. https://www.labcorp.com/labcorp-and-naples-comprehensive-healthcare-announce-strategic-agreement-lab-operations
2. https://newsroom.questdiagnostics.com/2024-06-26-Quest-Diagnostics-to-Acquire-Select-Lab-Assets-from-Allina-Health
3. https://newsroom.questdiagnostics.com/2024-07-10-Quest-Diagnostics-to-Acquire-Outreach-Laboratory-Services-of-OhioHealth
4. https://www.labcorp.com/labcorp-finalizes-acquisition-providences-outreach-laboratory-business-northern-california-and
5. https://www.labcorp.com/labcorp-and-baystate-health-finalize-strategic-relationship-diagnostics-services-0
6. https://www.laboratoryeconomics.com/top-25-hospital-outreach-labs-for-2019/

Outreach Deals Involving Quest Diagnostics

Outreach Deals Involving Labcorp

********

The following mergers, acquisitions, and joint ventures were announced by laboratories between late June and mid-July:

Mergers and Acquisitions

Strategic Alliances

Government Contracts/Grants