Quest Diagnostics to assume management of Memorial Hermann labs

Memorial Hermann Health System and Baylor Scott & White Health have signed a letter of intent to merge to create the largest health system in Texas Monday Oct. 1, 2018 in Houston. Memorial Hermann Health System and Baylor Scott & White Health have signed a letter of intent to merge to create the largest health system in Texas Monday Oct. 1, 2018 in Houston. Photo: Michael Ciaglo, Houston Chronicle / Staff Photographer Photo: Michael Ciaglo, Houston Chronicle / Staff Photographer Image 1 of / 1 Caption Close Quest Diagnostics to assume management of Memorial Hermann labs 1 / 1 Back to Gallery

Quest Diagnostics, one of the nation’s largest medical lab testing services, will take over operations of Houston-based Memorial Hermann’s diagnostic and testing labs this year.

The hospital said Monday it would transfer the ownership and management of nearly 30 standalone lab centers and nearly 60 lab sites located within physicians’ offices to Quest. Memorial Hermann will still own the diagnostic labs located within their hospitals, but Quest will provide lab management services.

Terms of the deal, which is expected to close in the second quarter, were not disclosed. After the deal is finalized, Quest will also become the preferred provider for lab services for the hospital’s health insurance plan, Memorial Hermann Health Plan.

“As part of Memorial Hermann’s commitment to lower the cost of care, the system intends to utilize Quest’s expertise and scale to improve cost-efficiencies while maintaining the high quality services and comprehensive resources needed to make Houston healthier, now and for generations to come,” Dr. David Callender, president and CEO of Memorial Hermann, said in a statement.

Callender said in a recent interview with the Chronicle that the hospital system wants to “drive down cost” and improve efficiency.

More hospitals are turning to Quest and other large services to run or outsource their testing, slashing costs as health care providers feel pressure from insurers to stop raising prices.

“Insurance companies have fought with hospitals for years about how much they charge for their lab services, especially compared to what insurance companies and other payers can get from Quest,” said Ken Janda, an adjunct professor in health care management at Rice University.

Other Houston hospitals haven’t gone down that path because lab services are profitable for many, Janda said.

The acquisition is the latest move by Secaucus, N.J.-based Quest to expand into the Houston market. Quest owns seven testing labs and offers services at several other independent testing locations in Houston. Randall’s began offering Quest’s in-store testing services at some locations in 2017 through a national partnership with the grocer’s parent company, Albertson’s.

“This relationship will also strengthen our laboratory and service network in Greater Houston, which in turn will empower more patients and providers in the area to access quality, cost effective service at the Quest Diagnostics location most convenient for them,” Steve Rusckowski, Quest’s president and CEO, said in a statement.

The company works with about half of U.S. doctors and hospitals.

gwendolyn.wu@chron.com

Twitter: @gwendolynawu