Healthscope bids also fuel speculation of a big clinical pathology transaction
Last week in Australia, investment insiders shared rumors that Quest Diagnostics Incorporated (NYSE: DGX) was interested in acquiring Sonic Healthcare Ltd. (ASX: SHL). However, press stories discounted the possibility of a deal between these two billion-dollar clinical pathology laboratory behemoths. Neither company has issued a public statement addressing this issue.
In assessing the possibility of Quest Diagnostics acquiring Sonic Healthcare, the Sydney Morning Herald (SMH) threw cold water on the idea. It pointed out that Sonic’s stock price is trading at a multiple of 10.8 times earnings before interest, taxes, depreciation, and amortization (EBITDA). That would make Sonic an expensive purchase for Quest Diagnostics, since Quest’s share price trades at a multiple of seven times EBITDA. Further, SMH’s reporter pointed out that Sonic’s market capitalization of A$5.7 billion would make it a major acquisition for Quest Diagnostics, which has a market capitalization of U.S.$9.5 billion.
Highly-automated hospital labs are organized to serve inpatient testing and don’t compete for “outreach” lab business from office-based physicians in the community
DATELINE: AUCKLAND, NEW ZEALAND—In this nation’s single payer health system, clinical laboratory testing services are allotted to hospital laboratories and commercial laboratories in very specific ways. Consequently, hospital laboratories in New Zealand tend to provide testing primarily for inpatients and for outpatients seen by specialists who practice within the hospital’s facilities.
This is an interesting distinction which sets New Zealand hospital laboratories apart from hospital labs in such countries as the United Kingdom, the United States, Canada, and Australia. In each of these countries, it is common for hospital laboratories to provide some laboratory testing to the outpatient and outreach sector, particularly to primary care clinics and office-based specialist physicians.
Dark Daily Commentary: Treat lab testing as a commodity and risk disrupting the entire healthcare system
Once again, the pathology profession is seeing the consequences of the “penny wise-pound foolish” philosophy relentlessly pursued by government health bureaucrats. This time it involves the Auckland District Health Boards in New Zealand. Having signed a cut-rate, back room deal back in 2006 to save about NZ$15 million per year on lab testing (against an annual healthcare budget in the region of more than NZ$2.5 billion), these health officials are reaping a harvest of voluminous problems and deficiencies in the community because of problems with their new monopoly laboratory testing provider.
Many regular Dark Daily readers know that, ever since Labtests began its contract as the exclusive provider of pathology services and lab testing to the greater Auckland region late this summer, there has been chaos across the healthcare system. Labtests is a new business division of Healthscope Limited, (SYD:HSP) a public company based in Melbourne, Australia. See Dark Daily e-briefing “Long-Awaited Lab Contract Transition in New Zealand Happens Next Monday”.
Labtests succeeds Sonic’s DML as the primary lab test provider in Auckland area
One of the world’s most interest experiments in government contracting for clinical laboratory testing services is unfolding in Auckland, New Zealand. Next Monday, September 7, Labtests will assume full responsibility for testing approximately 12,000 patients per day in a brand-new laboratory facility that has only conducted testing on a limited basis since August 10, 2008.
On that same day, Diagnostic Medlab’s (DML) existing contract with the District Health Boards in greater Auckland will terminate. Earlier, on August 18, DML’s parent company, Sonic Healthcare Ltd. (ASX:SHL) of Sydney, Australia, announced plans to shutter DML’s laboratory facility and write-off its Auckland-based business division.