It’s the second acquisition of a hospital lab outreach program in past six days
Several days ago, a two-part deal was announced between Quest Diagnostics Incorporated (NYSE:DGX) and Caritas Christi Health Care of Boston, Massachusetts. Caritas sold its clinical laboratory outreach business to Quest Diagnostics and both parties formed a “strategic alliance” going forward that centers upon laboratory testing and informatics integration. Caritas will continue to own and manage the laboratories in its six hospitals.
This is the second sale of a hospital laboratory outreach business in the past two weeks. On August 12, Sonic Healthcare (SYD:SHL) acquired Piedmont Medical Laboratories (PML) of Winchester, Virginia. PML was owned by Valley Health, an eight-hospital health system. (See Dark Daily, ‘Sonic Healthcare’s Latest Lab Buying Spree Nets Two U.S. Labs for $20 Million”, August 13, 2009.)
These two hospital lab outreach acquisitions, coming just six days apart, may indicate that hospital and health system administrators are waking up to the fact that their clinical laboratory outreach operations have significant capital value as a going business and a saleable asset. The current economic recession plays a role in the thinking of hospital administrators. It is tougher for their institutions to raise capital, borrow money, or solicit donations in the traditional manner. That makes selling a profitable laboratory outreach business for a significant amount of cash to be a more attractive proposition for the parent hospital.
In fact, raising substantial amounts of cash may be a major motive behind Caritas Christi’s decision to sell its outreach laboratory program. Financial issues at Caritas Christi Health Care have caught the attention of the Massachusetts Attorney General. In a report released by AG Martha Oakley’s office last year, it was noted that, in fiscal year 2007, the Caritas Physician Network, had an operating loss of nearly $30 million. The report noted that slim operating margins at Caritas Christi during the previous ten years, although in the profit column, have caused the health system “to delay or forego capital and reinvestment initiatives.” As a consequence, its hospitals have lagged competitors as they “substantially improved their financial, operating, and market positions.
Caritas Christi Health Care is the second-largest health system in Massachusetts. It owns six hospitals, totaling 1,552 beds, in and around Boston. There are 400 physicians in its physician group practice, known as Caritas Physician Network.
The sale of two hospital laboratory outreach businesses to commercial laboratory companies just six days apart, by itself, doesn’t indicate a trend. But these two clinical laboratory acquisitions may be evidence that this long-lasting economic recession is making hospital and health system administrators more willing to sell their laboratory outreach programs in exchange for substantial cash.
Caritas Christi Health Care and Quest Diagnostics announce strategic alliance
Caritas set to sell part of lab work
Attorney General Martha Oakley Releases Report on Caritas Christi Health System
Commonwealth of Massachusetts, Office of the Attorney General: Review of the Caritas Christi Health Care System Progress Report; March 6, 2008