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Sonic Healthcare-ProMedica JV Expected to Grow Regional Lab Services

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NEW YORK (360Dx) – A new laboratory joint venture between Sonic Healthcare USA and ProMedica Health System will be housed in ProMedica's new 83,000 core laboratory completed this spring.

The joint venture, announced earlier this month, will operate under the name ProMedica Pathology Laboratories (PPL). Sonic, which operates a regional laboratory in Toledo, Ohio called Pathology Laboratories Inc. (PLI), plans to close that lab facility and move lab operations to the new ProMedica core in the transition to the joint venture, according to Noel Maring, vice president of hospital affiliations with Sonic Healthcare. ProMedica's new lab opened in April, he said.

"A lot of what other laboratories are doing is taking testing out of the local market and putting it into large labs in New Jersey or South Carolina. With this, the goal is to move more testing into the core laboratory and create economies of scale which will reduce unit cost per test," Maring said.

More than 90 percent of the testing completed by PPL will be performed in the new core lab, Maring said. Each of ProMedica's 13 hospitals will operate their own in-house rapid response laboratories, with testing that can be turned around in six hours or longer moved to PPL.

"PPL will perform tests in the core laboratory that are less time dependent. It will perform all the outpatient lab testing business in the ProMedica core laboratory. It will perform the outreach lab testing for ProMedica's current clients and PLI's current clients," Maring said.

Maring expects the new joint venture will be well-positioned to attract new outreach clients and grow the outreach business by combining the state-of-the-art lab facilities of the new core lab with Sonic's connectivity and analytics capabilities.

"From an outreach standpoint, in areas that we call preanalytical and post-analytical there is a lot of connectivity that is required to connect to disparate EMR systems and things like that. It's usually pretty hard for most hospitals to do and we can do it fairly rapidly," he said. "We have patient service centers throughout the state and beyond the region where ProMedica is located. We think we are going to create a new alternative for keeping testing local in the region and providing higher levels of service to physicians that other labs are not doing."

ProMedica executives said that the joint venture would expand the service and geographic reach of the health system's lab services.

"We expect the economies of scale from this partnership to help us bring better value to our patients and expand our service offerings," Kevin Webb, president of provider, acute, and ambulatory care for ProMedica said in a statement.

As part of the joint venture arrangement, ProMedica will transition its reference laboratory services to Sonic's reference lab in Austin, Texas, Maring said. The hospital system is currently using a different third-party reference lab.

By adding Sonic's PLI lab testing, the ProMedica core lab is expected to experience a 50 percent increase in testing volume, according to Maring. Sonic and ProMedica have been in discussions for two years, so the core lab was built with additional capacity to accommodate potential growth, he noted.

The joint venture will benefit from the relatively complementary lab testing schedules of Sonic's PLI and ProMedica, Maring noted. ProMedica has its busiest time during the day, and Sonic receives a lot of testing from locations that are farther away and that are processed in the evening. By combining the two teams in the joint venture, the core lab's evening staff will be expanded and much of the same equipment will be used for more testing at different times of the day and night, he noted.

"The nature of the lab business is high fixed or high overhead costs with low marginal costs. So by using that common lab, that's where the economies of scale really come in," he said, adding the lab will be able to further reduce costs by leveraging Sonic's global purchasing capabilities.

Maring anticipates the joint venture's lab businesses will be fully consolidated into the new core lab no later than the first quarter of 2019. While employees from Sonic's PLI will move to the new lab, most the lab's equipment will not because the new core lab has been fully outfitted with state-of-the-art, highly automated lab equipment. A few new pieces of equipment may be required in the core lab to accommodate the additional work, but the vast majority is already there, he said. Do we have details about some of these new equipment or how they made their decisions about what to buy?

The joint venture will be structured to operate in a shared revenue model, he said.

"Shared revenue, shared risk, shared profits – everything is shared," he said.