Quest To Acquire Outreach Operations of MemorialCare Health

The slow shedding of ancillary hospital laboratory operations continues with Quest Diagnostics coming to terms to acquire the outreach services of the MemorialCare Health System in Southern California.

MemorialCare, a non-profit health care system based in Fountain Valley, Calif., is the predominant hospital operator in Long Beach and northern Orange County south of Los Angeles. It operates six hospitals in the region.

Industry observers say that hospitals have been shifting their focus away from outreach operations, which provide testing services to physicians and other providers in the institution's service area, as lab payments have been ratcheted down by both government and private payers and the logistics of such operations make it difficult to eke out any profit.

This deal was a long time in the making, with a source close to MemorialCare indicating to Laboratory Industry Report that Quest had approached the system as early as the first part of 2013 to sell its outreach operations.

Quest had reached a bigger outreach deal in California in the first part of that year, acquiring the operations of Catholic hospital chain Dignity Health, which operates 32 hospitals statewide. That deal also included Dignity's outreach operations in Nevada, where it owns three other hospitals. That transaction came on the heels of Quest's late 2012 deal to acquire the outreach operations and other lab business connected to the University of Massachusetts Memorial Medical Center.

Later in 2013, the two-hospital John Muir Health in Northern California sold its outreach operations to Quest rival LabCorp. But there have not been any significant deals announced in the past couple of years.

MemorialCare's outreach operations will be consolidated at Quest's large test facility in West Hills, a Los Angeles suburb located about 50 miles north of MemorialCare's closest hospital. Quest has a significant presence in Southern California, operating more than 200 draw centers in the region, and can offer some esoteric molecular tests that are not on the MemorialCare menu.

Both entities have been closed-mouthed about the deal. A MemorialCare spokesperson declined to disclose test volumes for its outreach operations, and a Quest spokesperson did not respond to multiple requests seeking comment.

"We are excited about the opportunity to enable a larger number of physicians and patients in southern California to benefit from our diagnostic insights," said Quest Chief Executive Officer Steve Rusckowski in a statement. "This transaction underscores the attractiveness of Quest Diagnostics as a provider of high-quality, high-value diagnostic information services for hospital systems considering strategic alternatives for their outreach businesses."

The financial terms of the deal were not disclosed. Quest said the transactions should not have any impact on earnings during calendar 2015.

Takeaway: After a lull in the acquisition of hospital outreach laboratories, Quest's deal for MemorialCare's outreach services has perked up the transaction pipeline once again.