Diagnostic Giants Labcorp and Quest Diagnostics Ramp Up Acquisitions Amid Health Systems Restructuring

In a trend indicative of a broader shift in the healthcare landscape, diagnostic behemoths, Labcorp and Quest Diagnostics, have been actively acquiring lab businesses from health systems across the United States. These acquisitions, which involve undisclosed amounts as well as significant deals worth $108 million and $275 million, reflect a strategic restructuring among health systems. They are increasingly partnering with larger diagnostic companies to improve their financial health and expand their diagnostic services.

Recent Acquisitions by Labcorp and Quest Diagnostics

A series of noteworthy deals have been inked in the recent past. Quest Diagnostics, for example, has acquired lab assets from Steward Health Care System, Hawthorn Medical Associates, Legacy Health, NewYork-Presbyterian, Tufts Medicine, and Northern Light Laboratory. On the other hand, Labcorp has secured lab assets from Legacy Health, Baystate Health, and Jefferson Health. Jefferson Health sold its lab assets to Labcorp for a notable $108 million, while NewYork-Presbyterian sold its lab assets to Quest Diagnostics for a whopping $275 million.

The Rationale Behind the Acquisitions

The exhaustive acquisition pipelines of both Labcorp and Quest Diagnostics were highlighted at the JP Morgan Healthcare Conference. The primary driver behind these acquisitions is that hospital systems are finding it increasingly challenging to manage their laboratory businesses. This is due to higher capital costs and a need to focus their resources on other competing priorities. Both companies see esoteric testing and oncology as key growth drivers, with Quest focusing on minimal residual disease testing and Labcorp channeling its efforts towards women's health, neurology, and autoimmune disease.

Implications of the Acquisitions

These acquisitions are not merely transactions; they represent a strategic shift in the clinical lab business. The consolidation trend has continued into 2023 as large players like Quest Diagnostics and Laboratory Corporation of America absorb smaller independent and hospital labs. This is amid major unanswered questions about the fate of laboratory developed tests and the reform of the Protecting Access to Medicare Act.

Looking Ahead

Labcorp and Tufts Medicine, in particular, are aiming for a broader partnership. This strategic collaboration is designed to expand diagnostics and provide a single-source option for patients and providers. Furthermore, Labcorp has announced a strategic collaboration with Hawthorne Effect, Inc. to advance decentralized clinical trial capabilities for pharma, biotech, and medical device sponsors. This partnership is expected to increase patient diversity and inclusion, decrease site burden, and accelerate enrollment and clinical study timelines.

In conclusion, the on-going acquisitions by Labcorp and Quest Diagnostics signify a critical restructuring within health systems. As they continue to partner with larger diagnostic companies, the landscape of healthcare is poised to evolve, potentially leading to improved financial health and expanded diagnostic services for patients.