Quest Diagnostics on Monday completed its acquisition of select lab assets of Allina Health in a deal that builds on the industry trend of independent companies taking over the outpatient lab operations of health systems.
Quest also has transactions slated to close later this year with OhioHealth in Columbus and University Hospitals in Cleveland, in each case acquiring outreach laboratory assets. Such acquisitions benefit patients, providers and payers, said Quest Diagnostics President and CEO Jim Davis.
In an interview, Davis, who was named president and CEO in 2022 and chairman in 2023, said the deals allow providers to focus their resources on other specialties. "We are seeing more and more health systems that are willing to enter into partnerships with companies like Quest Diagnostics," Davis said.
Related: Quest Diagnostics to acquire University Hospitals lab assets
The interview has been edited for length and clarity.
How do these lab deals help providers?
There's been a realization that hospitals can't do everything really, really well. You can't be the best in neurology, the best in cardiology, the best in cancer care, the best in gynecology and obstetrics and be the best in laboratory, the best in radiology, the best in dining services.
This trend had been occurring, but I think coming out of COVID-19, health systems may have less capital to spend. Interest rates are higher, so the cost of capital is higher, and so some of this just gets down to 'What am I really, really good at?'
What is Quest's strategy in acquiring lab assets?
Hospitals do about 30% to 35% of all the outpatient or outreach work or requisitions written by physicians outside their facility. In order to grow our business, we want to be able to do more work with hospitals that are doing outpatient or outreach lab tests ordered by independent physicians outside of their facility.
If we go into a market, such as where we're doing this work with Allina Health, OhioHealth and University Hospitals, the characteristic of each of these marketplaces is that there's not many independent physicians. Most of the primary care and obstetrics and gynecological physicians are employed by a health system. In each of these markets, the independent labs really do not play that well.
It's an opportunity to get into these markets and serve that patient population.
How do the lab acquisitions factor into Quest's financial success?
OhioHealth, we expect to close early to mid-fourth quarter, with University Hospitals sometime later in the fourth quarter, so those transactions will help us in the fourth quarter.
Generally, it'll add revenue right away. But it takes time to get them integrated and there's some upfront investments that you have to make around team investments and training.
Right out of the gate, they're not going to add a lot of profitability. But by the time we get into the first, second quarter next year, they'll contribute quite a bit from a profitability standpoint.
We also recently closed a deal with LifeLabs in Canada and that will have a small impact on our third and fourth quarter numbers.
What else is Quest working on?
Another important part of our growth strategy is the investments we're making from a clinical standpoint. A few examples include areas of brain health, specifically Alzheimer's detection. Quest is also making substantial investments in the cardiovascular area. Cancer is another big area.
We've been investing in these areas and rolling out some new tests. We continue to focus on areas where the blood testing or urine testing may not be the primary initial diagnosis of disease. We look at areas where things like imaging are still the primary diagnostic tool, and we say 'You know what, blood testing is easier, faster, cheaper and more convenient for the patient.'
