Labcorp to Buy Tufts Outreach Lab Assets

by Jondavid Klipp | Aug 18, 2023 | Labcorp, Hospital Outreach Laboratory, Lab Acquisition

Labcorp to Buy Tufts Outreach Lab Assets

Tufts Medicine (Boston, MA) is selling its clinical lab outreach business to Labcorp for an undisclosed amount. The transaction, which
does not involve anatomic pathology services, is expected to formally
close in October. Tufts says the sale is the first step towards a broader
partnership with Labcorp. The announcement comes as Tufts endures
prolonged financial difficulties that led Fitch Ratings to downgrade its
debt rating from BBB+ to BBB earlier this year.

Tufts Medicine (TM) includes three hospitals in the Boston area, including Tufts Medical Center (405 beds), Lowell General Hospital (390 beds) and Lawrence Memorial Hospital of Medford (216 beds). It also includes Tufts Medicine Integrated Network, which has more than 1,800 affiliated community and academic physicians.

The annual lab department budget at TM’s three hospitals is a combined $122 million, according to Medicare Hospital Cost Reports. Laboratory Economics estimates that TM’s clinical lab outreach business has annual revenue of roughly $30 million. Labcorp is expected to make job offers
to nearly all 574 TM lab employees affected by the sale.

TM lost $399 million on operations in the fiscal year ended Sept. 30, 2022. TM management estimates that approximately $129 million of the losses were related to one-time items, including the stoppage of elective surgeries due to the pandemic (a $58 million loss of revenue) and installation of the electronic medical records system Epic ($71 million). The largest component of the rest of the operating loss was $217 million for increased staffing costs. The amount TM paid for contract labor increased an incredible 1,423%, to $155 million in the 12 months that ended Sept.
30, 2022, compared to pre-pandemic in 2019.

In addition, TM is facing stiff competition for hospital patients from Massachusetts General Hospital (Boston), which is aggressively competing for managed care contracts.

Sizing Up the Boston Lab Market
The Boston-Cambridge-Newton metropolitan area has a population of 4.9 million with an estimated physician lab services market of $650 million per year.

Quest Diagnostics has by far the largest market share in the Boston area. Quest purchased the Worcester-based clinical lab outreach business of UMass Memorial Medical Center in 2013. Quest then consolidated testing at a new 200,000-square-foot lab in Marlborough (30 miles west of Boston). Quest has a total of more than 100 patient service centers in the Boston area. It generates an estimated $350 million in revenue from physician office clients in the Boston area.

Labcorp has 15 PSCs in the Boston area and estimated physician client revenue of $50 million… per year (excluding Tufts Medicine deal). Labcorp’s nearest major regional lab is located in Raritan, New Jersey (~5-hour drive)

Mass General Brigham provides lab outreach testing at several hospitals in the Boston area, including Massachusetts General Hospital (1,019 beds), Brigham and Women’s Hospital (812 beds) and Newton-Wellesley Hospital
(273 beds). Total estimated annual lab outreach revenue from the physician office market is $75 million.

Beth Israel Lahey Health operates its biggest hospital-based outreach
labs at Lahey Hospital and Medical Center Burlington (345 beds), Beth
Israel Deaconess Medical Center (743 beds) and Winchester Hospital (194 beds). Total estimated annual lab outreach revenue from the physician office market is $60 million.

Quest To Acquire Summa Health’s Outreach Lab Business

by Jondavid Klipp | Oct 18, 2022 | Hospital Outreach Laboratory, Lab Acquisition, Quest Diagnostics

Quest To Acquire Summa Health’s Outreach Lab Business

Quest Diagnostics (Secaucus, NJ) has agreed to acquire select assets of Summa Health’s (Akron, OH) clinical lab outreach business, which does business as LabCare Plus, in an all-cash transaction. Summa picked Quest as a buyer after a competitive bid. The purchase price has not been disclosed.

Summa Health operates four hospitals and a multi-specialty medical group with 300 physicians at 100 offices in northeast Ohio. Summa Health will continue to own and operate its hospital labs, which serve inpatient and hospital-based outpatient departments. In addition, Summa will maintain its pathology department and services.

Summa’s LabCare Plus outreach business is based at its flagship Summa Health System—Akron Campus (648 beds). LabCare Plus has 19 patient service centers in the greater Akron area. It generated $1.5 million in Medicare CLFS payments in 2021. Laboratory Economics estimates that the overall outreach business has revenue of $5-10 million per year.

Quest plans to shift the acquired outreach test volumes to its labs in Twinsburg, Ohio (22 miles north of Akron) and Pittsburgh (111 miles southeast).

The transaction is expected to close in the fourth quarter of 2022.

Castle Biosciences To Buy AltheaDx For Up To $140 Million

by Jondavid Klipp | Apr 15, 2022 | Castle Biosciences, Lab Acquisition

Castle Biosciences To Buy AltheaDx For Up To $140 Million

Castle Biosciences (Friendswood, TX) has agreed to acquire AltheaDx (San Diego, CA) for $65 million in initial consideration consisting of $32.5 million in cash plus $32.5 million in stock. In addition, Castle could pay up to $75 million more in cash and stock if AltheaDx hits certain revenue targets over the next three years and gets expanded Medicare coverage for its IDgenetix
test. The deal is expected to close this summer.

AltheaDx markets a laboratory-developed pharmacogenomic test under the brand name IDgenetix. The cheek-swab test analyzes a panel of 15 genes to help doctors make prescription recommendations for patients with depression. The test is performed at AltheaDx’s CAP-accredited laboratory in San Diego. The Medicare program has covered IDgenetix since the fall of 2020 at a rate of $1,569 (CPT 81479: unlisted molecular pathology procedure).

AltheaDx, which has 40 employees, generated revenues of less than $1 million in 2021. Castle anticipates that AltheaDx will record $1-3 million of revenue in 2022.

Privately-held AltheaDx’s largest investors include Alma Life Sciences, Ally Bridge Group and WuXi Healthcare Ventures. AltheaDx filed for an initial public stock offering in December 2014, but shelved the proposed stock sale in early 2015.

Castle, which has 345 employees, is headquartered in Friendswood, Texas (near Houston) and operates CLIA-certified labs in Phoenix and Pittsburgh. Its lead testing product is DecisionDxMelanoma, which analyzes 31 genes to predict metastatic risk in patients diagnosed with cutaneous (skin) melanoma. DecisionDx-Melanoma is an Advanced Diagnostic Laboratory Test (ADLT) that is reimbursed by Medicare at $7,193 (CPT 81529).

For the full year ended December 31, 2021, Castle reported a net loss of $31.3 million versus a net loss of $10.3 million in 2020; revenue increased by 50% to $94.1 million.

High Claims Denials for Pharmacogenomic Testing

To date, pharmacogenomic testing for medication selection has been a tough market for labs providing this service. The volume of allowed Medicare Part B carrier claims for four key codes used to bill for pharmacogenomic testing (aka cytochrome p450; CPT 81225, 81226, 81227 and 81231) declined from a combined total of 959,398 allowed claims in 2014 to 33,706 allowed claims in 2020, according to data from the coding and reimbursement firm CodeMap (Chicago, IL). Furthermore, CodeMap data show that denial rates for these pharmacogenomic testing codes ranged from an average of 26% (2014) to 85% (2019) over the seven-year period. This compares with average claims denials rates of less than 10% for most routine clinical lab tests.

Quest Diagnostics Pays $85 Million For Labtech

by Jondavid Klipp | Mar 15, 2022 | Lab Acquisition, Labtech Diagnostics, Quest Diagnostics

Quest Diagnostics Pays $85 Million For Labtech

The latest 10K annual report from Quest Diagnostics revealed that the company paid $85 million for its acquisition of Labtech Diagnostics (Anderson, SC). The deal, which closed on December 13, 2021, included cash consideration of $80 million and contingent consideration of $5 million dependent upon certain test volume goals. Labtech is an independent clinical lab specializing in allergy testing that serves physicians and patients primarily in South Carolina, North Carolina, Georgia and Florida. Labtech, which has 200 employees, was founded by its CEO/Owner Joseph Labash in 2011.

Labcorp Completes Acquisition of PGDx

by Jondavid Klipp | Mar 15, 2022 | Lab Acquisition, Labcorp, PGDx

Labcorp Completes Acquisition of PGDx

Labcorp completed its previously announced (see LE, January 2022) acquisition of Personal Genome Diagnostics Inc. (PGDx-Baltimore, MD) on February 18. PGDx markets an FDA-cleared comprehensive tumor profiling test, PGDx ELIO tissue complete, that is covered by Medicare under the PLA code 0250U at a rate of $2,950. Labcorp paid $450 million in cash at closing
and will pay up to an additional $125 million based on PGDx achieving future performance milestones. The $575 million purchase price, including contingent performance payments, is equal to 14.4 times PGDx’s expected revenue of $40 million in 2022.

PathGroup Acquires Pathology Consultants in South Carolina

by Jondavid Klipp | Feb 15, 2022 | Lab Acquisition, PathGroup, Pathology Consultants

PathGroup Acquires Pathology Consultants in South Carolina

PathGroup (Brentwood, TN) acquired Pathology Consultants Inc. (PCI-Greenville, SC) for an undisclosed sum in January. PCI operates a CAP-accredited pathology lab in Greenville, South Carolina. It has approximately 100 employees, including 31 pathologists.

PCI’s biggest client is Prisma Health System of South Carolina (Greenville, SC). Prisma Health is the largest health system in South Carolina, formed by the merger of Palmetto Health and the Greenville Health System in November 2017. Prisma Health includes 18 hospitals and 270 physician practices. Its largest hospitals are Greenville Memorial Hospital (746 beds) and Richland Hospital (641 beds).

Pathology Consultants was founded by Arthur Dreskin, MD, and Don Kilgore, MD, in 1959. The group is currently led by David Schammel, MD, President and Medical Director, and Jesse Stafford, MD, who is Chief Clinical Officer for Laboratory Services at Prisma Health.

Ben Davis, MD, Chief Executive at PathGroup, says the PCI lab in Greenville will remain fully operational and that Drs. Schammel and Stafford will continue in their respective leadership roles at PCI.

The acquisition of PCI represents PathGroup’s sixth deal since Pritzker Private Capital (Chicago,IL) took a majority stake in the company in the summer of 2016.

PathGroup now has more than 2,600 employees, including more than 225 pathologists, serving 100+ hospital contracts and thousands of physician clients. Annual revenue is now estimated to be more than $500 million.