Acquisition gives BRLI a core laboratory facility in Northern California, along with Hunter Laboratories’ Medi-Cal license, 29 patient service centers, and its courier network

Yesterday’s announcement that BioReference Laboratories, Inc. (Nasdaq:BRLI), of Elmwood Park, New Jersey, had acquired a majority interest in Hunter Laboratories—a clinical laboratory company in Campbell, California—caught many medical laboratory executives by surprise.

It is a strategic move that gives Bio-Reference Laboratories an important beachhead for developing its laboratory testing business in the large and growing California market. This is the first time that BRLI will own and operate a licensed clinical-laboratory facility west of the Mississippi River.

Terms of the Clinical Laboratory Acquisition Were Not Announced

Terms of the deal were not announced. However, Amanda Murphy, a financial analyst at William Blair & Company, LLC, issued a note yesterday, saying – that this terms suggest that the financial impact on BRLI is small. Murphy estimated that the Hunter labs generate “roughly $15 million to $20 million in [annual] revenue.”

Although it is not a large acquisition in dollar terms, Dark Daily believes this purchase gives Bio-Reference Laboratories a platform for developing its business in several useful ways. First, BRLI gains an accredited, licensed lab in California, a state with one of the biggest markets for lab testing in the nation. Second, the acquisition gives BRLI immediate access to 29 patient service centers located throughout the state and the accompanying  courier and logistics network.

Bio-Reference Gains the Clients of Hunter Laboratories

Third, BRLI picks up the established customer relationships with physicians who use Hunter Laboratories. On this point, BRLI benefits from laboratory information system and electronic health information that cost Hunter Laboratories much expense and time to establish with these client physicians.

Fourth, Bio-Reference Laboratories now owns the Medi-Cal license held by Hunter Laboratories. This is significant because the Medi-Cal program stopped issuing Medi-Cal licenses to new clinical laboratory companies a number of years ago. This license allows Bio-Reference to serve Medi-Cal beneficiaries and be paid for those claims.

This access has extra significance because California is aggressively promoting its health insurance exchange, called “Covered California.” The state predicts that as many as three million Californians may end up enrolling in the program.

BRLI’s Buena Salud Laboratory Can Serve California’s Hispanics

Fifth, Bio-Reference Laboratories now has a local presence to serve California’s Hispanic population—one of the largest Hispanic populations in the United States—through its Laboratorio Buena Salud business unit. It seems that many in the investment community are not paying much attention to BRLI’s strategy of developing lab-testing specimens from U.S. Spanish-speaking communitiess. This aspect of the Hunter Labs’ acquisition might be the sleeper in this deal.

Commenting on his clinical laboratory company’s acquisition of Hunter Laboratories, Marc Grodman, M.D. (pictured above), Chairman and CEO of Bio-Reference Laboratories, Inc., (BRLI) stated that BRLI’s managed care contracts with national health insurers would play a role in allowing his lab company to expand Hunter Laboratories’ business. The acquisition gives BRLI an immediate and significant presence in California.

Commenting on his clinical laboratory company’s acquisition of Hunter Laboratories, Marc Grodman, M.D. (pictured above), Chairman and CEO of Bio-Reference Laboratories, Inc., (BRLI) stated that BRLI’s managed care contracts with national health insurers would play a role in allowing his lab company to expand Hunter Laboratories’ business. The acquisition gives BRLI an immediate and significant presence in California.

For Hunter Laboratories, the sale to Bio-Reference Laboratories brings it several important benefits. One of those is access to managed-care contracts held by BRLI. This was specifically mentioned in the BRLI press release. “BioReference participates as a network provider with most national payers, and we anticipate our comprehensive payer coverage should greatly enhance the existing Hunter business,” stated Marc Grodman, M.D., Chairman and CEO of BRLI. “More importantly, we believe that having a local base for operations can provide significant operational and logistical synergies as we continue to grow our national footprint throughout the Western United States.”

If there is a wild card in this deal, it may be Chris Riedel, who is the founder and was the primary owner of Hunter Laboratories. He is known to be fiercely independent in his business dealings. He is also one of the lab industry’s more outspoken critics about many business development schemes and managed-care contracting practices that national laboratory companies use regularly.

Whistleblower Lawsuit by Hunter Laboratories and Chris Riedel

In 2005, Hunter Laboratories and Riedel filed a major Medicaid whistleblower lawsuit. Four years later, in March 2009, California State Attorney General Edmund G. Brown Jr. announced that the state had joined Hunter’s qui tam lawsuit, which alleged that a number of laboratories had filed false claims on a “massive” scale, thus defrauding the California Medi-Cal program of “hundreds of millions of dollars.”

Brown characterized Riedel’s charges as “massive Medi-Cal fraud and kickbacks.” Most of the laboratory companies named in the lawsuit settled with the state and paid fines totaling many millions of dollars. More than $300 million was paid by the defendant laboratories as part of their individual settlements with the state and federal governments. As the whistleblowers in the lawsuit, Hunter Laboratories and Riedel earned payments totaling several tens of millions of dollars.

It is not likely that Riedel endeared himself with the laboratory owners and executives named as defendants in the original qui tam lawsuit. That is one reason why, assuming that Riedel remains a minority owner in Hunter Laboratories, it will be interesting to see if he takes a passive role moving forward or continues to be an active manager and executive in Hunter Laboratories’ business.

Did a Riedel Prediction of Years Ago Come True Yesterday?

Finally, BRLI’s acquisition of Hunter Laboratories yesterday allows us to see how one prediction Riedel made turned out. Several years ago, after the founding of Hunter Laboratories in 2003, Riedel made an interesting prediction at a national lab industry meeting. At the time, this prediction got much notice from those who heard him speak.

During his presentation, Riedel said that, having founded Hunter Laboratories, his goal was to take client physicians away from the two national laboratories. Then, when Hunter Laboratories had grown, his next goal was to make more money by selling those same client physicians back to one of the two national labs.

People in the audience liked the irony of a lab owner who readily admitted that he was going to take business away from the national labs, with the intent of selling that same business back to them at a future point.

Yesterday, we learned that Riedel did indeed sell that list of client physicians to a lab buyer. But that sale was not to either of the nation’s two largest clinical laboratory companies, as Riedel originally predicted years ago. Rather, it was to Bio-Reference Laboratories. Maybe this was Riedel’s latest jab at the two big lab companies, which have been his nemeses for so many years. That’s because he opened the door and let one of their more credible lab competitors enter California so it can vigorously compete for clinical laboratory testing business in that state.

Related Information:

BioReference Laboratories, Inc. Announces Strategic Acquisition; California Acquisition Provides West Coast Presence

BioReference Labs acquires Calif. lab, including deep book of business

BioReference Laboratories, Inc. Reports Record Quarterly Results Based on Sustained Growth; Quarterly Revenues Highest in Corporate History

California Whistleblower Lawsuit Ensnares Major Lab Companies

Attorney General Kamala D. Harris Announces $241 Million Settlement with Quest Diagnostics