Skip to main content
Premium Trial:

Request an Annual Quote

Buy of Mount Sinai Outreach Labs Solidifies LabCorp's Strategy to Expand in Key Markets, CEO Says


NEW YORK (360Dx) – With its acquisition of Mount Sinai's Clinical Outreach Laboratories' assets, Laboratory Corporation of America continued on its strategy to build its presence in crucial healthcare markets through deals with key players, its chairman and CEO said.

LabCorp completed the Mount Sinai acquisition earlier this month, which adds seven patient service centers (PSCs) to its network in the New York City metropolitan area. The transaction brings LabCorp’s foothold in this market to more than 140 locations, the majority of which were organically grown by the clinical laboratory giant, according to a LabCorp spokesman.

The real importance of this transaction has little to do with how many more service centers it now has, but rather, it was an incremental step in an overall strategic play by LabCorp to build a mutually beneficial relationship with a significant health system that helps ensure LabCorp a notable presence in the health ecosystem of this important market. 

While the seven additional PSCs add improved patient access to the benefits of the partnership, David King, LabCorp's chairman and CEO noted, "They are not the raison d'etre of the transaction ... and are an ancillary benefit of the transaction." 

"This transaction was our first step toward building a durable, long-term partnership in the New York Metro market with an anchor health system," said. "It mirrors what we have done with Novant Health in the Carolinas, and Providence Health and Services in the Pacific Northwest. In each case, we contemplate long-term agreements relating to lab testing, reference testing, facilities, instruments, and patient-care enhancements through combined capabilities and enhanced use of data and analytics," he explained.

King said that Mount Sinai's clinicians will have access to LabCorp’s comprehensive menu of more than 4,400 diagnostic tests, as well as specialty tests offered by LabCorp Diagnostic's (LCD) integrated, national network. The deal also provides clinicians with sophisticated digital tools and access to a broad network of disease metrics data, he noted, and allows patients to enjoy the convenience of a greater choice of PSC locations.

Mount Sinai will continue providing laboratory testing services for inpatients and outpatients at its hospitals and ambulatory care facilities. It also will provide to its affiliated physician practices anatomic pathology, molecular pathology, and genetics testing services, including cytology and cytology-related molecular tests.

King noted that the two parties are exploring opportunities to collaborate on innovative research projects and medical education — including next-generation genomics, clinical research trials, and molecular diagnostic test development — and sharing health data analytics. "There is a range of potential for rolling out new companion diagnostics and collaborating on medical research projects," King said. "These are areas where it is beneficial to us and medical students." 

He said that LabCorp's Covance Drug Development arm provides end-to-end drug development services from early-stage research to clinical trial management and beyond, as well as enhanced IT and data analytics, standardized testing platforms, and broad patient access. Its global network also provides partners access to research and development resources, and novel cancer and rare disease diagnostics and therapeutics, worldwide. Covance was acquired by LabCorp in 2014 and offers services such as drug development to biotechnology firms and tools for risk-based patient monitoring.

Mount Sinai officials declined to speak directly about their decision to exit the outreach laboratory business, but when the Protecting Access to Medicare Act (PAMA) comes into play on Jan.1, 2018, some hospital medical laboratory outreach programs could be subject to deep cuts to their laboratory reimbursements. As a result, some hospitals are faced with the prospect of having to sell their outreach laboratory programs or converting their PCS assets to other clinical uses.

A Mount Sinai spokesperson declined to comment about any role PAMA may have had on its decision to exit the outreach laboratory business. In a statement announcing the deal in January, though, executives praised the merits of the deal.

"We are confident this transaction will provide great benefits for our patients and physicians and allows Mount Sinai to continue to invest in our core strategic programs," said Donald Scanlon, chief financial officer and chief of corporate services for the Mount Sinai System. "LabCorp's proven track record of service excellence and cost efficiency will benefit our community now and in years to come."

Carlos Cordon-Cardo, head of the Mount Sinai department of pathology, also noted LabCorp's depth and breadth of services, as well as its history of high quality. "Their unparalleled reputation and success ensures our patients will continue to receive high-quality, cost-effective, and convenient testing services," he said.

In a research note in January, Barclays analyst Jack Meehan estimated Mount Sinai generated about $100 million in lab revenue in 2014, citing cost reports from the Centers for Medicare & Medicaid Services.

"The Mount Sinai Outreach acquisition shows that LabCorp continues to be active in business development with hospital systems," Meehan said.

Evercore ISI's Ross Muken added that Mount Sinai management cited potential collaborations in cardiovascular disease services, "suggesting some level of competitive differentiation likely helped them with respect to this transaction."

King declined to provide financial details of the acquisition. A LabCorp spokesman said that the deal met company criteria for acquisitions, which requires that earnings meet cost of capital by year four and is accretive to earnings and cash flow in year one.

Also this month, LabCorp finalized its acquisition of Spokane, Washington-based Pathology Associates Medical Laboratories (PAML).  

The PAML acquisition includes PAML ownership interest in several joint ventures, according to the LabCorp spokesman. "LabCorp has reached agreement to acquire the other hospital co-owner interests in some of those joint ventures, specifically Kentucky Laboratory Services, Colorado Laboratory Services, and PACLAB Network Laboratories," he said. "However, the purchase of those joint ventures — hospital co-owner interests—will be completed through the remainder of 2017 and into 2018." 

Additionally, the hospital co-owners of two other PAML joint ventures, Tri-Cities Laboratory and MountainStar Clinical Laboratories, are still evaluating options for their ownership interests in those joint ventures, which may include a sale to LabCorp, he said. LabCorp has 1,750 laboratory PSCs nationwide.

More acquisitions in the hospital outreach space may also be forthcoming. "We are shopping around for broad hospital relationships in key strategic markets," King said.