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Clinical Laboratories and Pathology Groups

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Hospital/commercial lab JV finds success in competitive Salt Lake City market

DATELINE: SALT LAKE CITY, UTAH—Since its formation less than two years ago, MountainStar Clinical Laboratories, LLC, has more than doubled in size. This unique laboratory outreach joint venture is a partnership between MountainStar Healthcare and Pathology Associates Medical Laboratories (PAML).

To learn more about this fast-growing joint venture, last week, Dark Daily traveled to Salt Lake City to visit MountainStar Clinical Laboratories, LLC . First, some background about this partnership.

“MountainStar Healthcare operates six hospitals in Utah and is owned by for-profit Hospital Corporation of America (HCA),” stated Tim Amato, PacLab Area Business Manager, of PAML, who participated in Dark Daily’s site visit. “Starting in early 2008, two of the MountainStar hospitals launched the laboratory joint venture with PAML. The two hospitals were 297-bed St Marks Hospital and 117-bed Lakeview Hospital . In November, 2008, 145-bed Ogden Regional Medical Center, a third MountainStar hospital, became part of the laboratory joint venture.” (See The Dark Report: December 10, 2007; “How PAML Built a Major Business In Lab Joint Ventures with Hospitals”  and March 3, 2008, “Hospitals Saw Several Benefits In Forming Laboratory Joint Venture.”)

MSCL Mountain Star Joint Venture

“For its part, PAML contributed the infrastructure and revenue from its existing laboratory business in Salt Lake City,” continued Amato. “PAML entered this market in 2002 when it acquired Bio Labs, followed by the acquisition of Medical Drive Laboratory in 2003.”

“Prior to the formation of MountainStar Clinical Laboratories, PAML enjoyed good growth in the Salt Lake City market,” added Dave Brown, Regional Sales Manager at MountainStar Clinical Laboratories. “Revenue doubled during this time. Since becoming operational in the first half of 2008, our lab outreach joint venture has doubled specimen volume and revenue a second time.”

Competition for lab testing referrals from office-based physicians in the Salt Lake City market is intense. There are four dominant labs in the area. Of course, both Laboratory Corporation of America (NYSE:LH ) and Quest Diagnostics Incorporated

(NYSE:DGX ) hold significant share,” observed Brown. “The laboratory outreach program at Intermountain Health and MountainStar Clinical Laboratories are the other major lab players in greater Salt Lake City.”

The central strategy behind this joint venture is that the hospital laboratories emphasize their core competencies in performing the laboratory testing while PAML provides and manages all the services and infrastructure required to compete in the outreach marketplace. That makes PAML responsible for sales and marketing, courier and logistics, managing the information technology functions, customer service, and the billing/collection activities.

As growing volumes of outreach specimens are fed into the MountainStar hospital laboratories, the hospitals benefit in two direct ways. One, the additional volume of lab tests helps to lower the overall average cost per test. In turn, this constantly reduces the cost of inpatient testing. Two, higher volumes of specimens allow the hospital lab to set up new assays, which improve turnaround times for reporting those test results for both hospital inpatients and the client physician offices on the hospitals’ campuses. For the parent health system, one primary benefit to the laboratory outreach joint venture is the operating profit from the JV which is distributed at regular intervals.

These benefits could be seen during the site visit to the laboratory at St. Marks Hospital. Across the street from the hospital is the MountainStar Medical Laboratory office in which the various services needed to support the outreach clients are located. This included courier and accessioning of outreach specimens.

Over at the St. Marks laboratory, the impact of the steady increase in specimen volume during the past two years can be seen. This compact, well-designed laboratory is clearly being utilized to the maximum. During the day, most specimens from skilled nursing facilities and selected physician clients are received, accessioned, and analyzed as they come in. The second shift is organized to perform the bulk of the specimens which are picked up from outreach clients at the end of the day and brought in during the early evening hours.

It should be noted that Salt Lake City is a fast-growing metropolitan area. It has a dynamic economy and a population that is ever-increasing. Thus, all four of the dominant laboratories serving this market enjoy increased specimen volume and higher revenues as more physicians open offices and their practices see more patients each year.

However, it is noteworthy that MountainStar Clinical Laboratories—the newest competitor in Salt Lake City—has been able to double its specimen volume and revenue during its first two years of operation. This performance mirrors what PAML has accomplished in Seattle with since the founding of PACLAB Network Labs, LLC in 1996. This laboratory joint venture includes nine hospital partners.

Pathologists and clinical lab managers will want to watch the future progress of this hospital/commercial lab outreach joint venture. At this moment, it seems to be the most aggressive laboratory competitor in Salt Lake City. If it can continue to capture market share, then it has the opportunity to become one of the larger laboratory operations in Salt Lake City. If that happened, it would also mirror what PAML and PACLAB have achieved in the Seattle Metropolitan Region.

Related Information:

PAML Partners with Mountain Star in Utah

Ogden Regional Medical Center—Newest Partner in MountainStar Clinical Laboratories Network

The Dark Report online