Quest Diagnostics has once again narrowed the field of independent laboratories with its announcement last week that it would buy AmeriPath, a company specializing in cancer diagnosis, for $2 billion, raising concerns among hospitals offering laboratory services.
The deal comes on the heels of Quests acquisition of the point-of-care testing company HemoCue for $420 million on Jan. 31.
The acquisition will accelerate Quest Diagnostics earning growth and provide compelling benefits for patients, physicians, hospitals and payers, said Surya Mohapatra, chairman and chief executive officer of Quest.
The deal is expected to close in the second quarter and is subject to clearance from the Federal Trade Commission.
But not everyone agrees with Mohapatras assessment of the consolidation. Sherry Dobis, director of contract services for the group purchasing organization Novation, said a number of her hospitals expressed concern over the acquisition. Theres so much (current) consolidation of reference laboratories that its leaving hospital labs unable to compete for local provider business, Dobis said. The acquisition, she added, will allow Quest to solicit a broader range of business from AmeriPath customers that also may be farming out diagnostic tests to hospitals.
As a result, hospitals could find themselves losing an important source of revenue. Thats a concern that came out (from hospitals) almost immediately after the deal was announced, Dobis said.
And as hospitals fear Quests continued acquisition of independent diagnostic companies will serve to erode competition, healthcare analysts question whether the AmeriPath purchase is a wise move. Standard & Poors lowered the companys financial outlook from stable to negative after the acquisition announcement last week. And, in a report issued by Cowen and Co., analyst Kemp Dolliver indicated that while the acquisition made strategic sense for Quest (it will make the laboratory the leader in anatomic pathology), the company may well be overestimating revenue growth potential as a result of the purchase. AmeriPath earns an estimated $800 million in annual revenue from its diagnostic services, but the report suggests that the deals acquired debt and high purchase price would erode the profitability of much of those earnings.
The AmeriPath deal includes $770 million in debt that will be assumed by Quest when the agreement closes. Mohapatra said the acquisition would add dermatopathology, anatomic pathology and molecular diagnostic specialists and technologies to Quests existing cancer diagnostic services, which include cervical, breast, skin and neurological cancers.