Medical Laboratories in Toronto Move Forward with Digital Pathology and Clinical Lab Consolidation

Dark Daily visits the anatomic pathology department and clinical laboratory at University Health Network

DATELINE: Toronto, Ontario, Canada—Here in the downtown area of Ontario’s largest city is a healthcare organization known as University Health Network (UHN) that operates one of the province’s larger consolidated clinical laboratory organizations. In support of its hospitals, the UHN Laboratory provides an impressive menu of medical laboratory tests.

In Canada, the United States, and other developed nations, there are ongoing efforts to consolidate clinical laboratory testing across multiple hospitals that are clustered nearby to each other. Thus, some outcomes seen today at the UHN laboratory provide useful insights into the benefits of similar projects to integrate—within one lab organization—the medical laboratory testing activities that are delivered to all the hospitals participating in the consolidated laboratory organization.


Health System Sells Centrex Clinical Laboratories to LabCorp

Consolidation continues in the lab testing sector that serves physicians’ offices

Last week it was disclosed that the health system which owns Centrex Clinical Laboratories, Inc. is selling its laboratory testing business to Laboratory Corporation of America (NYSE: LH ). Faxton-St. Luke’s Healthcare stated that it expected the transaction would be finalized by the end of the year.

Several times in recent years, Faxton-St. Luke’s Healthcare shopped Centrex Clinical Labs to interested buyers. For that reason, news of the sale to LabCorp did not surprise informed observers.


MDS Sells its Canadian Lab Test Business, With Some Noteworthy “Nots”

In Canada, MDS, Inc. of Etobicoke, Ontario announced the sale of its remaining clinical laboratory businesses for a sales price of C$900 million (US$803 million). The buyer is Borealis Infrastructure Management Inc., part of the private equity group at the $41-billion Ontario Municipal Employees Retirement Board (OMERS). The sale was announced on September 7, 2006.

In recent decades, MDS has been Canada’s largest operator of clinical laboratories. This sale represents a major shift in the laboratory marketplace. Borealis outbid a second group that included private equity fund run by Macquarie Bank Ltd. and CML Healthcare Income Fund, the country’s second-largest lab operator.

Dark Daily observes that three “nots” makes this sale noteworthy. First, the major US laboratory service providers, Quest Diagnostics Incorporated and Laboratory Corporation of America were NOT the buyers of these Canadian lab assets. That may be because Canada’s public health care system is viewed as squeezing laboratory reimbursement, not to mention the politics of an American laboratory company becoming the largest laboratory provider in Canada.

Second, the MDS laboratory services division was NOT sold in parts, because there were at least two eager buyers interested in keeping this business division intact. That is a sign that both Borealis and CML are bullish on the business prospects for clinical diagnostics in Canada.

Third, MDS laboratory services division sale did NOT fetch a low price, relative to its annual revenues of C$400 million (US$357 million). The C$900 million sales price is more than two times annual revenue-a strong price that surprised many financial analysts.

What may be most significant about this sale is that private equity investors are highly motivated to enter the diagnostic testing marketplace-and pay premium prices for desirable laboratory companies. Further, the fact that Macquarie, an Australian bank, is bidding for laboratories in Canada is certainly a sign of the growing internationalization of healthcare in developed countries. The Dark Report will have more to say about the MDS laboratory divestiture in its next issue.