Dive Brief:

• Nonprofit health system Ascension has inked a strategic relationship with clinical laboratory network Labcorp, in a deal that should expand its testing capabilities.
• Under the terms of the deal, Labcorp will manage Ascension's hospital-based laboratories in 10 states, and acquire select assets of the St. Louis-based system's outreach laboratory business. The transaction is expected to close in the first half of 2022.
• The partnership — Labcorp's latest with a health system — should boost Ascension's existing lab services through use of Labcorp's technology and scale in therapeutic areas like oncology, neurology and women's health. Ascension's patients and clinicians will also have access to Labcorp's diagnostics and at-home test collection services.

Dive Insight:

Hospitals are increasingly looking to outsource back-end functions to outside companies, freeing them up to focus more specifically on providing clinical care. That includes handing over laboratory services to diagnostics giants like Labcorp, which can focus on streamlining and standardizing hospitals' testing services using analytic tools and processes. The hope is that will result in hospitals gaining more information and tools to make better decisions about patient outcomes.

The new lab management arrangement between North Carolina-based Labcorp and Catholic nonprofit Ascension applies to Ascension's hospital laboratories in Alabama, Florida, Kansas, Maryland, Michigan, New York, Oklahoma, Tennessee, Texas and Wisconsin, Labcorp said. There's significant room to scale within the deal, as Ascension — the largest nonprofit health system in the U.S. with 142 hospitals — delivers care in nine more states.

In addition, Labcorp will purchase "select assets" of Ascension's outreach laboratory business for about $400 million, Labcorp CEO Adam Schechter said in a Thursday earnings call. 

In the first year, Labcorp expects to bring in between $500 million and $600 million in revenue from the combined hospital business and lab asset acquisition. 

A Labcorp spokesperson declined to answer questions about what outreach laboratory assets it is acquiring from Ascension in the deal, or the size of the overall investment.

Additionally, Ascension will be able to link more patients and physicians to clinical trials and new therapies and treatment options through Labcorp Drug Development, Labcorp's contract research arm.

It's the latest hospital deal for Labcorp, which has strategic relationships with a number of health systems, including Seattle-area chain Swedish Health Services and Alabama-based Infirmary Health.

Schechter said the deal is about Labcorp's ability to continue to grow in geographies where the company is strong. 

"This is a very large deal. Typically, they're not near as large as this. But again, it's one of many hospital systems that we're talking to, and we continue to feel good about the pipeline," the CEO said. 

The coronavirus has driven a huge surge in testing demand, benefiting lab companies like Labcorp and Quest Diagnostics. Lab companies were overwhelmed in the pandemic's early days, but rapid expansion of capability caused labs to more or less get a handle on the demand by the summer of 2020. Surges through the winter months did slightly elongate turnaround times, as has the highly infectious omicron variant more recently.

However, Labcorp's average turnaround time for a PCR test continues to be one to two days, a spokesperson told MedTech Dive in January

Labcorp beat Wall Street expectations in its fourth-quarter results released Thursday morning, though revenue dropped 10% year over year. That declined steepest in its diagnostics division, where COVID-19 PCR and antibody testing revenues dropped 15%.