Laboratory News

Carilion and Stanford to Sell Their Laboratory Outreach Programs

In recent weeks, officials from both Carilion Clinic  and Stanford University Medical Center publicly acknowledged that they are preparing to sell their laboratory outreach businesses. Dark Daily thinks the action of two major health systems three thousand miles apart is not a coincidence. It is a sign of an emerging trend.

In the case of Carilion Clinic, located in Roanoke, Virginia, its decision to sell its laboratory outreach business is a bit of a surprise. That's because Carilion had publicly declared a strategic goal to develop a strong business in clinical laboratory services. It then acquired what is now called Chi Solutions, Inc, a laboratory consulting company, from Park City Solutions. In the past 18 months, it had also purchased Presbyterian Laboratory Services in Charlotte, North Carolina, and Innovative Pathology Services, Inc. of Knoxville, Tennessee.

At Stanford University Medical Center, plans to sell its lab outreach business are not surprising. Since it began to ramp up its lab outreach around 2003, Stanford proved willing to spend lots of capital upfront, despite the meager reimbursement for laboratory services that has existed in California for the past 15 years. Administration finally decided that prospects were poor for its lab outreach business to deliver an acceptable return on investment. Thus, its decision to sell the laboratory outreach business at this time.

Carilion's combined annual outreach business is estimated to be around $100 million. Stanford's is in the range of $35 million per year. Although buyers have demonstrated a willingness to pay strong prices for high quality laboratory businesses during the past two years, it must be recognized that operating margins and the quality of the client base will be closely studied by buyers. Reimbursement for laboratory services is relatively more generous in the Southeast compared to the West Coast. That factor may help Carilion negotiate a better multiple of cash flow than Stanford.

What Dark Daily considers notable about these developments is that they reflect an awakening among hospital and health system CEOs and senior administrators that their laboratory outreach programs can be of substantial value-both as a growing, profitable ongoing business if well-executed in the marketplace (Pathology Associates Medical Laboratories, Inc  is a successful example), and as a valuable capital asset that can be tapped by the parent hospital (the sale of Spectrum Laboratory Network  to Apax Partners two years ago is an impressive example).

In fact, the growing investor interest in acquiring laboratory testing companies, combined with the increased number of hospitals and health systems operating aggressive laboratory outreach programs, was a major reason why this year's Executive War College  is producing the lab industry's first-ever "Mergers & Acquisitions in Pathology and Clinical Laboratories" conference. It will take place on May 15 in Miami, FL immediately after the May 13-14 Executive War College.

This special conference is designed for laboratory owners, shareholders, and pathologist-partners. There will be 27 special topics, 40 experts in laboratory mergers and acquisitions, presentations by a number of well-funded laboratory buyers, and case studies by lab and hospital outreach programs that successfully marketed themselves and were acquired by credible buyers.

For anyone responsible for a hospital/health system laboratory outreach program, this laboratory merger & acquisition conference is a must. At one time, in one place, attendees can see, meet, and talk to the leading experts in finance, capital, mergers and acquisitions, and investment banking services-plus meeting many of the lab buyers currently scouting today's marketplace. For full details and to register, visit www.exectuivewarcollege.com

Dark Daily predicts that both Carilion and Stanford will have multiple offers for their laboratory outreach business. There are plenty of buyers prepared to make a respectable offer as a way to enter these regional markets.

Related Articles:

Stanford Hospitals offers outreach lab for sale

Carilion Labs' future is uncertain 

Carilion Health System Purchases Park City Solutions' Laboratory Services Group 

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2. Call 800-560-6363. Our friendly staff can register you quickly and easily, as well as answer any questions you may have.
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