Dive Brief:
- Quest Diagnostics has partnered with not-for-profit health system Corewell Health to build and manage a joint-owned lab in Michigan, the organizations said Tuesday.
- The joint venture, called the Diagnostic Lab of Michigan, will work out of a 100,000-square-foot facility that the partners are building. Corewell Health and Quest, which will respectively own 49% and 51% of the joint venture, expect to open the laboratory in the first quarter of 2027.
- Quest will start supporting Corewell Health’s 21 inpatient and outpatient hospital labs late this year, with laboratory management and other aspects of the agreement commencing in 2026.
Dive Insight:
Quest, like its rival Labcorp, intensified its efforts to consolidate the market by buying hospital outreach labs and regional players in 2019. After a slow start, the rate of activity increased. Last year, Quest paid a total of $2.2 billion to acquire outreach laboratory service assets from Allina Health, OhioHealth and University Hospitals to expand in Minnesota, Ohio and Wisconsin.
As well as buying facilities, Quest works with hospitals through its collaborative lab solutions program. Formerly called professional lab services, the co-lab program sees Quest collaborate with hospitals to help with lab management, workforce, supply chain and other aspects of operations.
Quest’s deal with Corewell Health covers reference laboratory testing, laboratory management services, laboratory workforce support, supply chain management and analytics. The new laboratory will feature automated microbiology and high-throughput molecular testing. Quest said Corewell Health’s existing labs will stay open after the new facility is built.
The co-lab program has grown quickly in recent years. Sales increased from around $300 million in 2019 to $800 million last year. In March, Quest forecast that sales would exceed $1 billion beyond 2025. The performance led Quest to call its partnerships “the largest opportunity to deliver above-market growth in the hospital channel.”
Quest’s expansion of the co-lab business is fueled by deals including its relationship with Hackensack Meridian Health, a healthcare network in New Jersey.
Speaking at a William Blair event in June, Quest CEO Jim Davis used the Hackensack deal as an example of how the model works. Davis said Quest runs Hackensack’s labs, stocking them with its employees and supporting them with its supply deals.
“Generally, when we do that, we can bring the hospital somewhere between 10% to 15% savings. Why? Because nobody is buying reagents at a lower price than we are,” Davis said. “We can also leverage our large regional lab that sits in New Jersey. Not every test that is done in a hospital today needs to be done in 4 hours or less. So we shrink that menu down and we move those tests to our large regional lab.”
Davis said that, in many cases, the regional lab can run the tests for 20% to 30% less than they cost at the hospital. The Quest CEO said on an earnings call in April that tariffs on imports into the U.S. could make the service more attractive to hospitals if suppliers increase prices to offset the levies.
Quest’s agreements with hospitals are part of a broader set of deals. This year, the company has agreed to buy kidney disease laboratory testing service assets from Fresenius Medical Care and partnered with The University of Texas MD Anderson Cancer Center to develop a cancer risk blood test.
