Laboratory Corporation of America has reached a deal to acquire several clinical laboratories from Mount Sinai, a major health system in New York City. The deal will add seven testing facilities to the 120 labs that the Burlington, North Carolina-based diagnostics company already operates in the metropolitan area.
“This transaction, giving us the opportunity to serve an anchor health system in the critical New York metro market, provides us even broader opportunity to improve health and lives through the delivery of world class diagnostics,” said David King, LabCorp's CEO.
LabCorp will handle clinical pathology testing, while Mount Sinai will manage lab testing in anatomic pathology, molecular pathology and genetics.
In recent years, hospital systems have turned to outsourcing lab and diagnostic services to save money, space and other resources. Although urgent tests such as those for intensive care patients are often still managed in the hospital, other diagnostic services are viewed as conducted more efficiently elsewhere, as lab become cost centers instead of revenue generators.
“LabCorp's proven track record of service excellence, breadth of diagnostic capabilities, and cost-efficiency will benefit our community now and in years to come,” Donald Scanlon, chief financial officer and chief of corporate services for the Mount Sinai Health System, said in a press release.
Mount Sinai will continue to conduct lab testing for patients at its hospitals and outpatient centers. The clinical outreach laboratory business provides testing services for patients seen in its physicians' offices, a statement issued by the health system said.
"This particular business, while successful, is no longer a core business of Mount Sinai," the statement said. "This transaction will allow Mount Sinai to continue to invest in our core strategic programs, such as in cancer and cardiac services, and to advance our mission across the system." It added that under LabCorp, the cost of outreach lab services would be lower.
Diagnostic services companies use their volume and centralized facilities to their advantage. LabCorp's primary competitor, Madison, N.J.-based Quest Diagnostics, has said its labs can reduce costs by as much as 20% compared to a hospital's lab.
In recent years, both LabCorp and Quest sought to gain market share through acquisitions. But it has been Quest that has gone after health systems' labs, while LabCorp has tended to invest in companies that advance its technology.
In 2014, LabCorp acquired Covance for $5.6 billion. The contract research organization and laboratory and diagnostic services company offered services such drug development to biotechnology firms and tools for risk-based patient monitoring.
LabCorp's deal with Mount Sinai is expected to close in the first quarter of 2017. LabCorp did not disclose other terms of the deal.