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Lab Startup Atalan Sees Potential in Hospital Outreach Business


NEW YORK – Clinical lab startup Atalan is looking to reverse recent downward trends in the hospital outreach business.

The company, launched this month by Froedtert Health, Wisconsin Diagnostic Laboratories (WDL), and HealthEco, has developed an informatics package that allows multiple laboratories to order tests from one another and track and manage results, with the initial goal of developing a network of hospital laboratories working together “to expand access to novel, innovative testing to patients across the country,” said Atalan CEO Steve Serota. Serota is also president and chief operating officer of WDL.

Longer term, Serota said, the company, which is owned and funded by Froedtert Health, aims to foster a variety of efforts meant to bolster hospital outreach businesses, including research collaborations and the collection of data to support payor negotiations.

Over the last decade, a number of hospital systems have exited the outreach business, selling to large national labs like Quest Diagnostics and Laboratory Corporation of America. According to data from lab consulting firm Accumen, between 2017 and 2022, Quest and Labcorp closed 36 hospital lab deals. This trend has continued in 2023, with Labcorp being particularly active, acquiring outreach assets from hospital systems including Jefferson Health, Providence Oregon, Legacy Health, Tuft’s Medicine, and Baystate Health.

Hospital outreach labs have been challenged by the same declines in reimbursement, inflationary pressures, and workforce shortages that have impacted the clinical lab space more broadly. However, Serota said, these operations benefit from the fact that much of the needed lab infrastructure and capacity is already in place to serve a hospital system’s inpatient population.

“These are labs that are built to accommodate hospital-based acute volume that have had to overbuild in order to meet turnaround time demands,” he said.

Effectively using that excess capacity to build an outreach business requires that hospital leadership prioritize and invest in that effort, however. Given that lab testing is a relatively small part of the overall healthcare business, outreach in many cases has not received that kind of attention. Additionally, health systems have often seen their outreach labs as assets they could sell in order to raise cash to support or invest in other parts of the business.

Outreach advocates have often characterized such decisions as shortsighted, arguing that, done well, outreach is both a good business and beneficial to patient care. Serota indicated that this view is likewise central to Atalan’s efforts.

“It is our shared belief that laboratory medicine is fundamental healthcare and that health systems need to have self-determination in healthcare,” he said. “They need to own their own laboratories. It is good for the local community.”

“I look at Atalan in part as enabling [hospital outreach] labs to be able to maintain their own independence and grow,” he said. “We want to offer an alternative to having to sell your outreach lab.”

Serota noted that WDL emerged from a dissolved outreach business joint venture between Froedtert Health and Labcorp that the two parties formed in 1997. Called United/Dynacare Laboratories, the JV was ended in 2015 with Froedtert taking full ownership of the business and renaming it WDL.

“Over the course of that partnership, Froedtert really realized that self-determination, localized expertise, and the ability to lead with laboratory medicine was essential for a system that was going to focus on patient-centered care,” he said.

Atalan’s lead product is a software package that allows labs to sell and order tests to and from other labs on the company’s network. Serota described the business as a software-as-a-service model wherein labs purchase licenses enabling them to connect to and use the network.

This, he said, will give outreach labs and their customers better access to specialty testing and expertise.

“It has become harder and harder for independent health systems to source subspecialty pathologists, and through this network we are increasing access for more patients to subspeciality pathologists,” he said, “because their expertise and insight can really be the difference in how patients are treated.”

While this testing might also be offered by large national labs, Serota said that he believes the labs participating in Atalan’s network will be able to set themselves apart by an emphasis on patient care.

“It’s about having a vetted laboratory partner with expertise not only in providing the transactional diagnostics, but also about assisting in clinical care plan design and fostering collaboration between clinicians,” he said. “This is about the provision of comprehensive care as opposed to the transactional relationship around the provision of a commoditized test.”

It is a vision that dovetails with initiatives like Clinical Lab 2.0 that similarly aim to emphasize the centrality of lab testing to patient care and to demonstrate the utility of lab data in areas like population health and value-based care.

Serota said Atalan plans through its network to help labs pursue this vision, offering a structure for research collaborations aimed at developing evidence in a variety of areas including lab best practices, workforce design, and, ultimately, how testing impacts patient outcomes. He noted that payors will be one important audience for this data.

“Part of what we are looking to do as we build out this network and start to have a substantially larger dataset is to prove out at what point interventions or access to these diagnostic tools truly impact total cost of care through differentiated clinical care plan design,” he said.

Serota said Atalan plans to announce several of its customer labs in coming weeks. Currently, the company’s network includes labs covering a wide range of US geographies and accounting for a total volume of more than 40 million tests annually.

He added that while the company is initially targeting health systems and labs with “high functioning and high value” outreach businesses, it aims in the future to add labs whose outreach businesses may be more marginal in hopes that the network could help “spark reinvestment and growth.”

“That is an area of focus for us,” he said. “Whether that’s health systems that are currently looking at potentially selling their outreach or who are looking at outsourcing or looking at bringing [outreach] back in-house, creating a path to viability is something we are really passionate about. Maintaining a healthy ecosystem of independent laboratories benefits patients immensely.”