Quest Acquires Hartford HealthCare Outreach Business

Quest Diagnostics has made another dip into hospital laboratory outreach, acquiring those specific assets from Connecticut's largest health care system.

The New Jersey-based Quest announced the acquisition of the outreach business of Clinical Laboratory Partners (CLP) earlier this month. CLP is an affiliate of Hartford HealthCare, which operates five hospitals within Connecticut.

The deal is one of several Quest has made for hospital outreach operations in recent years, both in the eastern and western United States. The latest transaction will actually take advantage of a previous outreach deal it made in Massachusetts in 2013 involving University of Massachusetts Memorial Medical Center.

"Over the past decade, many health systems have expanded their outreach lab businesses to service physicians in their area. Now that pattern is shifting, as these same systems reconsider their outreach lab strategies in light of reimbursement pressures and the growth of high-deductible plans, which place a greater share of cost on patients," said Quest Chief Executive Officer Steve Rusckowski in a statement. "Top health systems that have developed a commercial outreach business, such as Hartford HealthCare, are increasingly entrusting the vital diagnostic information service to Quest because we have unique assets, such as clinical expertise and scale, which allow us to deliver great value."

As part of the deal, CLP will transition its laboratory testing services currently performed at its site in Newington, Conn. to Quest labs in three other Connecticut cities. Work will also be performed at Quest's 200,000 squarefoot regional lab in Marlborough, Mass., which it built to help accommodate volume from the University of Massachusetts acquisition. CLP and Quest will also collaborate on various population health and data analytics initiatives, although no specifics have yet been disclosed.

"Quest is well positioned to offer consistently excellent lab services to our customers with wider access and greater affordability," said Hartford HealthCare CEO Elliot Joseph in a statement.

Michael Cherny, an analyst with Evercore ISI, said he expected Quest "to maintain this trend of acquiring hospital outreach labs, particularly if hospitals view these as less core once the PAMA regulations are fully enacted in 2017 (creating further potential pricing pressure on these labs). All-in DGX's focus on driving 1 to 2 percent incremental growth through acquisitions remains on track." However, he added that the limited upside from this volume of deals was not likely to budge his current "hold" rating on Quest stock.

The deal is expected to close by early 2016, subject to approval by various regulators. Financial terms were not disclosed.

Takeaway: Quest continues to expand and consolidate its stable of hospital outreach acquisitions.