Nichols Institute to Join in Texas Laboratory Venture

Striving for further geographic expansion of its medical laboratory network, Nichols Institute said Wednesday that it has formed a joint venture with three major hospital systems in the Dallas-Ft. Worth area.

The San Juan Capistrano-based medical laboratory firm will act as the general partner in an alliance with Baylor Health System and Presbyterian Healthcare System, both based in Dallas, and Harris Methodist Health System, based in Ft. Worth.

The partnership will operate a 58,000-square-foot central laboratory in Irving, Tex., that will be shared by 18 hospitals as well as physicians serving North Texas and Oklahoma.

While the hospitals will maintain labs for emergency and inpatient tests, they will refer outpatient work to the new Nichols Institute Laboratories North Texas Ltd. Annual revenues of the facility, which is expected to open late this year, are anticipated to exceed $15 million.

Stephen Habgood, a spokesman for Baylor Health Systems, said the hospitals sought an alliance with Nichols because of the firm’s capability for doing complex diagnostic tests that the hospitals are unable to perform.

Nichols spokeswoman Katherine Murphy said the company has tried to develop partnerships with networks of hospitals for several years, but this is the first such arrangement it has established.

The joint venture was described by Nichols’ officials as a “prototype for health-care providers through the 1990s” and as a method to contain laboratory costs through consolidation.

Securities analysts praised Nichols’ joint venture with the Texas hospitals as an effective and economical method of business expansion.

Joint venturing, the analysts noted, is less expensive than the acquisition of regional laboratories, which has been Nichols’ chief growth strategy until now. Nichols has regional laboratories in California, the Pacific Northwest and the Midwest.

It also has a laboratory in San Juan Capistrano, where it performs esoteric tests referred from less sophisticated laboratories throughout the country.

“I think it is very positive for Nichols, in that it enables them to get rapid access in the marketplace there (in North Texas) without a significant investment,” said Arda Minocherhomjee, a health care analyst with Chicago Corp.

Ken Bohringer, a securities analyst with Prudential Bache, called the joint venture “a significant development for the company. If it succeeds, it may represent a pattern of things to come.”