- Labcorp has inked a deal to buy Baystate Health’s outreach laboratory business, continuing a flurry of activity that is consolidating the testing sector.
- The acquisition, Labcorp’s fourth outreach takeover since May, will give the laboratory company control of service centers that Baystate operates in Massachusetts.
- Labcorp was already the primary reference testing provider for Baystate, an integrated healthcare system that serves 800,000 people in western New England.
At the start of 2019, Labcorp and its rival Quest Diagnostics predicted they would consolidate the lab market by acquiring hospital outreach labs and regional players. The prediction reflected a belief that the smaller players would be unable to cope with the financial pressures imposed by the Protecting Access to Medicare Act. The M&A wave took longer than expected to materialize, but Labcorp has made a string of recent purchases.
Since May, the company has acquired outreach laboratory assets from Providence Health and Services, Legacy Health and Tufts Medicine. The acquisitions follow the $400 million takeover of Ascension assets that Labcorp struck last year.
Discussing the Providence and Legacy deals with investors in July, Labcorp CEO Adam Schechter said the margins on acquisitions of outreach labs “are typically lower than the company average early on” but “do improve over time.” The low but improving margins illustrate how payment changes can hit smaller labs the hardest and create M&A opportunities for bigger players that have more of a financial cushion.
As part of the latest outreach deal, Labcorp will set up a lab at a Baystate Health facility in Massachusetts. Baystate will continue to provide “professional support services for anatomic pathology and select specialty testing at its existing laboratory” but rely on Labcorp for other tests. The partners see the deal as a way to improve the efficiency of routine and specialty lab testing.
Labcorp did not disclose the value of the Baystate takeover. The company paid a combined $385 million for the outreach businesses of Legacy and Tufts and clinical labs from Enzo Biochem. The Enzo deal was worth $113 million, suggesting Labcorp paid around $272 million for the Legacy and Tufts assets.