Quest Enters Into Management Agreement with Denver-Based Hospital System

Quest Diagnostics has continued its expansion into the sphere of hospital laboratory operations, this time entering into a pact with the Denver-based HealthONE System. An affiliate of the for-profit HCA, Inc. chain, HealthONE operates eight hospitals in Colorado.

Under the terms of the agreement, Quest will manage the laboratories of six of the facilities in the Denver area: The Medical Center of Aurora; North Suburban Medical Center; Presbyterian/St. Luke’s Medical Center; Rose Medical Center; Sky Ridge Medical Center; and Swedish Medical Center.

“The partnership with Quest Diagnostics will benefit our patients, physicians and hospitals,” said Gary Winfield, M.D., HealthONE’s chief medical officer. “Quest’s experience and expertise in these operations is excellent and the partnership will bring increased efficiency to our clinical labs along with enhanced quality, consistency and communication.”

The deal is structured differently from some recent transactions involving Quest and hospital laboratories. According to Quest spokesperson Denny Moynihan, this transaction will not include the acquisition of any outreach operations. Instead, the deal will focus on inpatient laboratory operations exclusively.

Quest will operate the inpatient labs at the hospitals with the intent of reducing costs for HealthONE, according to Moynihan. Typically, Quest can reduce annual operating costs for a lab in a range of about 10 to 20 percent.

About 300 laboratory employees will remain with HealthONE, while 14 management positions will transfer to Quest.

Moynihan noted that some of the testing may be transferred to Quest’s Denver laboratory and possibly another facility in Alexa, Kansas. He did not disclose the annual test volumes of the HealthONE hospital labs.

“This is an important partnership for health care because it signifies that major hospitals and health systems are increasingly transitioning non-core businesses to independent providers in order to enhance quality and value,” he said in an email.

The deal is the seventh management partnership with a hospital or hospital system Quest has executed in recent years, with the company taking advantage of the fact that many providers don’t wish to invest the resources in operating their own labs.

The most recent deal involved the Barnabas Health hospital system in New Jersey, which was completed late last year. It involved the management of laboratories serving seven hospitals, and like HealthONE, did not include an outreach acquisition. Other deals have involved Dignity Health and MemorialCare Health in California and UMass Memorial Medical Center in Massachusetts. Those deals also included the acquisition of outreach operations.

“We are pleased to partner with HealthONE and bring our expertise to their laboratory operations, allowing HealthONE hospitals to focus on delivering great patient care,” said Quest CEO Steve Rusckowski. “Quest partners with hospitals around the country to help them build a lab strategy that benefits patients and at the same time reduces costs.”

Financial terms of the transaction were not disclosed. Moynihan said the transfer of test volumes to Quest management should be completed by the end of this year.

Takeaway: Quest is continuing to make inroads into the hospital laboratory business, but in a different way than in recent deals involving health care systems.