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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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Laboratory Corporation of America gets 26 MuirLab Patient Service Centers (PSCs) in Northern California

Another hospital system is exiting the clinical laboratory outreach business. John Muir Health in Walnut Creek, California, agreed on Tuesday to sell its MuirLab business to Laboratory Corporation of America (NYSE: LH) in Burlington, North Carolina.

In the deal, LabCorp will take over and operate 26 MuirLab Patient Service Centers (PSCs) in parts of Northern California, including Contra Costa, Alameda, and Solano counties. In addition, LabCorp is purchasing the client list of office-based physicians and hospitals serve by MuirLab. LabCorp will also be the preferred provider of reference lab services for John Muir Health and its affiliates.

John Muir Health will retain its two hospital-based labs in Walnut Creek and Concord. Terms were not announced and the sale is due to close in November.

LabCorp Will Not Purchase MuirLab’s Central Clinical Lab Facility

Significantly, LabCorp is not purchasing the core laboratory facility. John Muir Health will close MuirLab’s core lab, which is a 56,000 square-foot facility that opened in Concord in 2008. Further, John Muir Health will no longer provide medical laboratory testing services through MuirLab to skilled nursing facilities. Some 540 lab employees will lose their jobs but LabCorp may hire about 150, The Contra Costa Times reported.

In its story about the sale, the San Francisco Business Times reported that it was 1994 when John Muir Health started the lab outreach business. It also said that MuirLab ran 2.7 million lab tests annually.

A California healthcare executive said the transaction was not surprising because it had been rumored for more than a year. The MuirLab outreach business had been shopped to a number of potential buyers, thus giving them access to the financial records of the lab company.

Financial Issues Played a Role in the Sale of MuirLab

Knowledgeable individuals told Dark Daily that MuirLab’s clinical laboratory outreach business was struggling to break even. MuirLab needed more specimen volume to offset the high cost of its relatively new, modern core laboratory and bring down its average cost per test.

Muir Labs

For the second time this year, a health system in California has sold its clinical laboratory outreach business to a national laboratory company. Last week, John Muir Health disclosed an agreement to sell certain assets of its MuirLab business to Laboratory Corporation of America. Pictured above is the core lab facility of MuirLab. This clinical lab facility was not purchased by LabCorp and will be closed by John Muir Health. (Photo copyright John Muir Health.)

These observers noted that one impediment to the sales program increasing specimen volume and revenue was that its high prices for lab testing discouraged office-based physicians from using the laboratory.

This problem was hinted at in a statement issued to physicians and staff, John Muir Health’s CEO, Cal Knight. He wrote, “Due to the changing health care environment, the health system could no longer afford to subsidize MuirLab’s operations, which pulls financial resources from other strategic initiatives and services that help us to grow and meet the needs of our patients.”

Knight then recognized that high lab test prices was one factor in the decision to sell the laboratory outreach business when he stated that, “With the LabCorp agreement, patients will continue to have access to lab services, but at a lower cost to them, which is increasingly important as they make health care decisions based on price, not just quality and service.”

MuirLab’s Nursing Home Clients Left Without a Laboratory Provider

It is believed that MuirLab was generating more than $70 million in annual revenue. A significant portion of that was from long term care facilities and nursing homes. As most lab managers know, the costs to serve nursing homes are substantial and the Medicare reimbursement is meager. In fact, this is probably the primary reason why LabCorp refused to acquire the nursing home business from John Muir Health.

This is the second time this year that a health system in California has sold its clinical laboratory outreach business. In April, Quest Diagnostics Incorporated (NYSE: DGX) of Madison, New Jersey, acquired the clinical laboratory outreach operations of Dignity Health, a hospital system in Sacramento. In this transaction, Quest Diagnostics reportedly purchased 56 PSCs and other lab assets.

Why Some Clinical Lab Buyers and Not Others?

It is notable that neither of the medical laboratory outreach businesses sold by health systems this year in California were purchased by a private equity company or another lab company.

Just last month, Bio-Reference Laboratories, Inc. (NASDAQ: BRLI) of Elmwood Park, New Jersey, acquired Hunter Laboratories of Campbell, California. That indicates companies like BRLI and Sonic Healthcare USA —which has purchased several lab companies in the Golden State—do want to compete in this market. But these prospective buyers were probably not willing to match the prices offered by Quest Diagnostics and LabCorp in their respective purchases.

The simplest analysis of why John Muir Health decided to sell its clinical laboratory outreach business is that MuirLabs was not making money. The more relevant question is why, with a relatively new, state-of-the-art core clinical lab facility and the advantage of Muir Health’s deployment of an electronic health record system (EHRS) in recent years, that MuirLab was not able to leverage these resources to keep its prices in line in order to build specimen volume and become profitable.

Related Material:

John Muir Health Sells Clinical Laboratory Outreach Services to LabCorp

John Muir Health to sell MuirLab business to LabCorp, lay off 540

Bio-Reference Laboratories Acquires Hunter Laboratories as a Way to Enter California’s Competitive Clinical Laboratory Marketplace

John Muir kicks off $300M e-records plan – the majority of the price tag is for training and support, says CEO Cal Knight.

Layoffs Loom as John Muir Health Announces Closure of MuirLab, Sale of Outreach Lab Services throughout N. California

Quest Diagnostics completes acquisition of Dignity Health’s off-site labs