Laboratory Industry Report

Medicare Part B spending on clinical laboratory services continues to move upward, with 2007 spending totaling $6.8 billion, an increase of 1.6 percent from 2006 totals, according to the latest data from Centers for Medicare & Medicaid Services’s 2008 Medicare Trustees Report.

Lab industry stakeholders expressed relief at the recent preliminary injunction against the Medicare competitive bidding demonstration project in San Diego, although warning that the fight now must continue to pass legislation to repeal the project.

For the first quarter of 2008, Quest Diagnostics pulled in $1.8 billion, which is up almost 17 percent over the first quarter of 2007. Clinical testing revenue—which account for 90 percent of the company’s total revenues—was up 17 percent compared to the previous year, with AmeriPath contributing 14 percent to this increase. Net income totaled almost $140 million, up 32 percent from $105.9 million a year ago.

Rumors continue to indicate that Roanoke, Virginia-based Carilion Labs is going on the market, with Quest Diagnostics, LabCorp, Sonic Healthcare USA, and Laboratory Partners all reportedly bidding for the business. So far, officials declined to comment specifically on the potential sale, except to say that there is no current budget for acquisitions. "The original capital allocated for acquisitions has been spent or committed," said Eric Earnhart, spokesman for Carilion Clinic, the health system that owns the laboratory. "In light of this and the company’s current point of maturation, Carilion hired Wachovia to explore all of its strategic options and advise on how best to proceed with the Lab. No definitive decisions have been made."

The global mergers and acquisitions (M&A) market for labs is off to a strong start in 2008. "Over the past few years, we’ve typically seen four to seven M&A transactions during the first quarter, and the first quarter of 2008 has had seven—four clinical chemistry and three esoteric testing focused transactions valued at nearly $38 million," said Michael Guerrero of Crosstree Capital Partners Inc. (Tampa, Fla.). "The amount of activity seems to be on track for another 30 to 40 transactions for the year despite the current economic climate."

Lab industry leaders are applauding a San Diego district court judge’s recent decision to temporarily halt the Centers for Medicare & Medicaid Services’ (CMS) competitive bidding demonstration project. Of key importance is the presiding judge’s support of the plaintiff’s complaints that the demonstration would cause irreparable harm to both laboratories and Medicare beneficiaries in the San Diego metropolitan statistical area (MSA), said Alan Mertz, president of the American Clinical Laboratory Association (ACLA) at the organization’s annual meeting, held April 17-18 in Washington, D.C.

The National Jewish Medical and Research Center’s new 3,000 foot molecular diagnostic laboratory is now up and running, with lab officials expecting to perform approximately 10,000 tests in 2008, primarily related to diagnosing respiratory and immune deficiency diseases.

More than 51 pathology groups representing approximately 300 pathologists have been granted approval to seek a class action judgment against United Healthcare of Illinois for millions of dollars of damages relating to nonpayment, according to Greg Brodek, a partner at Duane Morris LLP, the law firm representing the plaintiffs.

Indianapolis-based DCL Medical Laboratories has formed a strategic partnership with Third Wave Technologies (TWT; Madison, Wis.) under which DCL will serve as a product research partner with TWT.

With an increase of one percent over the past five weeks for the week ended April 18, 2008, the G-2 Laboratory Stock Index rebounded slightly after months of posting losses. But the economic downturn continues to impact the Nasdaq and the S&P 500 this year, although both are down less than they were in March. The Nasdaq is down 10.15 percent and the S&P 500 is down 5.96 percent so far in 2008.

Three private laboratories—Clinical Laboratories of Hawaii, Diagnostic Laboratory Services, and the diagnostic laboratories under Kaiser Permanente—have partnered with the Hawaii State Department of Health (DOH) to provide advanced molecular influenza testing over the next five years.