Other clinical laboratory organizations responding to the RFP were Laboratory Corporation of America, Quest Diagnostics Incorporated, and Mayo Clinic
Last Friday, Alberta Health Services (AHS) in Edmonton, Alberta, announced that Sonic Healthcare Limited (SHL.AX), of Sydney, Australia, has been selected as the medical laboratory testing provider to serve Edmonton and parts of central and northern Alberta. This agreement is worth $3 billion Canadian over 15 years and is believed to be the world’s biggest clinical laboratory testing contract currently out for bid.
Competition for this clinical laboratory testing contract was intense. Last April, four organizations were identified as having submitted responses to Alberta Health Service’s (AHS) request for proposals (RFP). They were:
- DynaLifeDx, Edmonton, Alberta. (A joint venture of Dynacare, Inc., a division of Laboratory Corporation of America [NYSE: LH], Burlington, North Carolina; and LifeLabs Medical Laboratory Services of Toronto, Ontario).
- Quest Diagnostics Incorporated (NYSE: DGX), Madison, New Jersey
- Sonic Healthcare Limited (ASX: SHL), Sydney, Australia
- Mayo Clinic, Rochester, Minnesota
Ambitious Goals for 15-Year Clinical Laboratory Test Contract
The objective of this 15-year clinical laboratory testing agreement is ambitious. AHS wants the winning proponent lab organization to construct a state-of-the-art medical laboratory facility in Edmonton, while managing the full integration of lab testing from physicians’ offices and other ambulatory providers, hospitals in the service region, and the academic medical center in Edmonton. Anatomic pathology services will also be included in this management contract.
In the press release that AHS issued announcing its decision to move forward with Sonic Healthcare, it was noted that approximately 27 million lab tests are performed annually in Edmonton and that the evaluation process has included 108 people, including front-line laboratory professionals, who worked in 13 evaluation teams.
DynaLifeDx Was the Incumbent Medical Laboratory Provider
The decision in favor of Sonic Healthcare was a disappointment for DynaLifeDx Laboratory Services, the incumbent provider of clinical laboratory testing services in Edmonton for AHS. DynaLifeDx is a joint venture that involves Dynacare, Inc. (a division of LabCorp) and LifeLabs. It has held the existing medical lab testing contract with AHS for almost 20 years.
The 15-year contract, valued at C$3 billion over the term of agreement, will generate C$200 million per year for the winning laboratory. For each of the three public lab companies−based on their annual incomes−fhe AHS contract would have represented increased revenue of about 3.4% for LabCorp ($5.8 billion in revenue), 2.8% for Quest Diagnostics ($7.1 billion in revenue), and 5.9% for Sonic Healthcare (US$3.4 billion in revenue).
Winning Lab Company Will Need To Build State-of-the-art Lab Facility
This won’t be an easy laboratory management contract to fulfill. Should Sonic Healthcare emerge from the coming negotiations as the winner, it will need to design and build a sizeable new medical laboratory facility and staff it with experienced laboratory professionals currently working in the Edmonton metropolitan area for DynaLifeDx, the local hospitals, and the academic medical center laboratory. The transition must go flawlessly, because critics of the AHS plan to contract the government health system’s lab testing to a private corporation will be waiting to pounce on any missteps.
There may be a back-up plan for Alberta Health Services. Back in April when the AHS released the names of the four organizations that had responded to the request for proposal (RFP), the Edmonton Journal reported that the proposal put forth by Mayo Clinical was being handled differently, writing that “[Mayo Clinic] provided an alternative solution for a model of delivering lab services in the zone, and it is something that is a very interesting proposal,’ said Colleen Turner, vice-president of community engagement and communications for AHS. ‘The way it is stipulated, and that Mayo has agreed to, is that if AHS does not reach an agreement with any of the other three bidders, that would be something we would have an option of further considering.’”
Other Public-Private Medical Laboratory Testing Arrangements
One factor that Sonic Healthcare may have had in its favor during this round of the selection process is that it has public-private lab testing arrangements in several different countries where it operates. For example, your Dark Daily editor has visited the Sonic Healthcare joint venture in London, England, that involves Sonic’s The Doctors Laboratory and the University College of London Hospital, which was first established in 2004.
Pictured above is Vicki Kaminski, CEO of Alberta Health Services. At a press conference last Friday, she announced the selection of Sonic Healthcare Limited of Sydney, Australia, as the preferred proponent for the 15-year medical laboratory-testing contract involving Edmonton and the central and northern regions of Alberta. Negotiations to finalize this contract are expected to take in about four months. (File photo copyright Canadian Broadcasting Company.)
Based on the performance of this joint venture, it was announced last summer that Sonic/The Doctors Laboratory was entering a partnership with University College London Hospital NHS Foundation Trust (UCLH) and the Royal Free London NHS Foundation Trust. The partnership will provide medical laboratory testing under the name of Health Services Laboratories LLP.
Some Government Health Programs Will Contract with Private Labs
Dark Daily readers worldwide should consider the Alberta Health Services medical laboratory test proposal as an example of how some government health programs are willing to contract with private clinical laboratory testing companies as a way to maintain access to innovative new technologies, to better control costs, and support improved patient access to lab testing. At the same time, this is not common practice among government health programs because the use of private providers is often viewed with skepticism by some legislators and policymakers.
This is true within Alberta, as there are critics of the plan to contract with a private medical laboratory company. At the same time, compared to other provinces in Canada, Alberta Health Services is considered progressive and proactive in reorganizing clinical services to better cope with the pressures of more chronic diseases and an aging population. This track record may auger well for the success of the 15-year lab-testing contract that AHS will award in early 2015.
Related Information:
AHS selects Sonic Healthcare as preferred lab provider; negotiations to begin
Sonic Healthcare Chosen as Preferred Proponent by Alberta Health Services
Australian company wins $3-billion contract to run lab services in Edmonton
AHS chooses ‘Sonic Healthcare’ to take over lab services in Edmonton-area
Then why would they leave it to DynaLifeDX?
Life Labs (former MetroLabs) is owned by the same conglomerate as DynaLife DX (all OMERS).
Perhaps they are looking to deal with a company who has a greater focus on health care. Health care is a very small part of OMERS portfolio.
Will in no way save the taxpayer any money. In fact it will cost them $100’s of millions over the life of the contract. for 3 reasons:
1) Most out patient lab tests have a built in profit margin of 500 – 10,000%. If they really want to save money all you need is to have every senior in Alberta go to their local hospital for all lab work.
2) All those profits go out of province never to be taxed or used to stimulate the local economy.
3) Ontario tried this several years ago with Metro Labs (now LifeLabs) and had to buy back the services at over a billion dollars to get spiraling costs under control. Once Metro had the contract the started raising prices almost immediately.