Labcorp to Buy Tufts Outreach Lab Assets

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

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.

Labcorp Completes Outreach Lab Deal With RWJBarnabas Health

by Jondavid Klipp | Sep 20, 2022 | Hospital Outreach Laboratory, Labcorp

Labcorp Completes Outreach Lab Deal With RWJBarnabas Health

Labcorp has completed its acquisition of RWJBarnabas Health’s outreach laboratory business and select related assets (see LE, August 2022). RWJBarnabas Health (West Orange, NJ), which has 12 acute-care hospitals with 4,357 staffed beds, is New Jersey’s largest academic health system. Financial terms of the transaction were not revealed.

Clinical lab outreach testing from RWJBarnabas Health will be shifted to Labcorp’s regional laboratory in Raritan, New Jersey. Some STAT and same-day testing will be performed at select RWJBarnabas Health hospitals. Anatomic pathology services are not part of the deal and will not be affected.

In addition, any potential future reference testing relationship with RWJBarnabas Health would be independent of this transaction, according to a Labcorp spokesperson.

“This strategic business decision will provide a high-performing, streamlined outreach network to support our community,” according to John Doll, Senior Executive Vice President and Chief Operations Officer of RWJBarnabas Health. The arrangement is also expected to reduce out-of-
pocket lab costs for RWJBarnabas patients.

RWJBarnabas Health’s decision to sell its clinical lab outreach business comes as it struggles with investment losses, rising labor costs and inflation. In the six months ended June 30, 2022, RWJBarnabas Health reported a net loss of $489 million vs. a net gain of $325 million in the same period a year earlier; total revenue was up 14% to $3.651 billion.

Investment losses at RWJBarnabas Health totaled $729 million in the six months ended June 30, 2022. In addition, salaries and employee benefits increased by $264,375 or 18%; physician fees and salaries increased by $79,207 or 22%; and supplies and other expenses increased by $191,781 or 17%.

RWJBarnabas Health collected total Medicare Part B CLFS revenue of $6.3 million in full-year 2021. Laboratory Economics estimates that Medicare Part B CLFS represents 25% of the overall revenue at RWJBarnabas Health’s clinical lab outreach business (total annual revenue estimated at
$25 million).

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.

Labcorp To Buy PGDx For $575 Million

by Jondavid Klipp | Jan 15, 2022 | Lab Acquisition, Labcorp, Personal Genome Diagnostics, PGDx

Labcorp To Buy PGDx For $575 Million

Labcorp (Burlington, NC) has agreed to acquire Personal Genome Diagnostics Inc. (PGDx-Baltimore, MD) for $450 million in cash at closing plus up to an additional $125 million based on future performance milestones. The transaction is expected to close in the first half of 2022.

PGDx was founded in 2010 by two cancer scientists, Luis Diaz, MD, and Victor Velculescu, MD, PhD, from Johns Hopkins University. The company received FDA clearance to market its comprehensive tumor profiling test kit, PGDx ELIO tissue complete, in May 2020. The test analyzes 505 genes
from FFPE tissue samples from advanced cancer patients to inform treatment decisions for 35 solid tumor types. PGDx ELIO is covered by Medicare under the PLA code 0250U at a rate of $2,920.

PGDx, which has 114 employees, recorded revenue of approximately $22 million in 2021. Revenue is expected to grow nearly 82% to $40 million in 2022. Labcorp expects the acquisition of PGDx to negatively impact its earnings slightly over the next couple of years, but provide returns in excess of the cost of capital by year five.

PGDx had raised more than $200 million from outside investors, including New Enterprise Associates, Bristol-Myers Squibb and Cowen Healthcare Investments.

Publicly-Traded Lab Revenue Falls 1.4% In First-Half 2020

by Jondavid Klipp | Sep 15, 2020 | BioReference Labs, Labcorp, Quest Diagnostics, Sonic Healthcare

Publicly-Traded Lab Revenue Falls 1.4% In First-Half 2020

On a combined basis, 20 publicly-traded labs reported a revenue decrease of 1.4% to $9.8 billion during the first six months of 2020 (after adjusting for acquisitions), according to financial reports collected by Laboratory Economics.

Among five national clinic al labs (Quest Diagnostics, LabCorp, Sonic, BioReference and Enzo), combined revenue fell by 3.1% (after adjusting for acquisitions). BioReference had the strongest revenue growth, up 18% to $421.8 million, driven by Covid-19 PCR testing. BioReference processed approximately 2.2 million Covid-19 PCR tests during the first six months of 2020.

Among 15 specialty and genetic testing labs, combined pro-forma revenue increased by 7.3%.

Pro-forma revenue growth was fastest at DermTech, up 98.4% to $2.4 million. Other fast-growing companies included Castle Biosciences, up 54.9% to $30.1 million; Guardant Health, up 47.7% to $133.8 million; and CareDx, up 39.6% to $80.2 million.

Top 25 Fastest-Growing Labs by Medicare Part B Volume of Services

LabCorp Mid-Year 2020 Review

by Jondavid Klipp | Aug 15, 2020 | Labcorp

LabCorp Mid-Year 2020 Review

LabCorp (Burlington, NC) reported a net loss of $86 million for the six months ended June 30, 2020, down from net income of $376 million in the same period for 2019. Overall, LabCorp’s reported half-year revenue was down by 1.4% to $5.593 billion.

Looking specifically at LabCorp’s lab testing business, revenue was down 2.5% to $3.395 billion, including 1.4% gained from acquisitions. On July 28, the company held a conference call with analysts and investors to discuss its mid-year results. Here’s a summary of some key topics discussed:

Volume Trends
Total volume (measured by requisitions) decreased by 12%, as organic volume declined by 13.4%, partially offset by acquisition volume of 1.4%. The decline in organic volume included a 21% reduction in base business (due to the pandemic), partially offset by Covid-19 testing of 7.6%. LabCorp reports that its base business improved to an approximate decline of 17% in the month of June versus a year ago, which was more than offset by Covid-19 testing, which contributed roughly 23% to total volume in June.

Pooled Covid-19 PCR Testing
As of the end of July, LabCorp was performing an average of roughly 125,000 Covid-19 PCR tests per day and had capacity to perform up to 180,000 tests per day. LabCorp says its average turnaround time for hospitalized patients was at 1-2 days, with 2-3 day TAT for other patients.

On July 24, LabCorp received FDA emergency use authorization (EUA) to perform pooled Covid-19 PCR testing on up to five patient samples at a time. A positive result would require each sample to be individually retested “I believe that the standard PCR testing in the fall will remain the most significant by far of the testing that we do for PCR. But, I do think that the pool testing will add to our capacity and give us additional capabilities,” said LabCorp CEO Adam Schechter.

Covid-19 Antibody Testing
As of the end of July, LabCorp was performing an average of approximately 8,500 Covid-19 antibody tests per day and had capacity to perform up to 300,000 tests per day.

New Acquisitions
LabCorp acquired RDL Reference Laboratory (Los Angeles, CA) in mid-June. RDL was formed in 1977 by two UCLA-trained rheumatologists, Robert Morris, MD, and Allan Metzger, MD. RDL specializes in rheumatologic and autoimmune testing with the majority of its business coming from Southern California.

In July, LabCorp acquired the outreach testing business and entered into a comprehensive laboratory services contract with Franciscan Missionaries of Our Lady Health System (Baton Rouge, LA), one of the largest health systems serving Louisiana and Mississippi.