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Bio-Reference’s Acquisition of Hunter Labs Gives It Presence on West Coast

by | Feb 25, 2015

Hunter Laboratories has been hunted down. The Campbell, Calif.-based Hunter was acquired earlier this month by Bio-Reference Laboratories, the fast-growing, publicly traded outfit looking to expand beyond its primary operations on the East Coast. The specific terms of the deal, which was consummated after eight months of negotiations, were not disclosed. Chris Riedel, Hunter’s outspoken […]

Hunter Laboratories has been hunted down. The Campbell, Calif.-based Hunter was acquired earlier this month by Bio-Reference Laboratories, the fast-growing, publicly traded outfit looking to expand beyond its primary operations on the East Coast. The specific terms of the deal, which was consummated after eight months of negotiations, were not disclosed. Chris Riedel, Hunter’s outspoken founder, retained rights to a nascent cardiac testing business that he will spin off into another company. Riedel, who agreed to a noncompete clause as part of the sale, also informed Laboratory Industry Report that he has no plans to abandon his role of legal gadfly to Quest Diagnostics—he will continue suing the nation’s largest laboratory operator in a variety of venues. “Bio-Reference wanted nothing to do with the litigation, but it is absolutely continuing,” Riedel said enthusiastically. Partly as a result, Bio-Reference did not appear eager to parade its trophy around before nailing it to the wall. The receptionist at Hunter’s former Bay Area headquarters began answering the phone as Bio-Reference almost immediately after the deal closed on Aug. 9. “I think it is important for people to know there are new owners,” Bio-Reference Chief Information Officer Richard L. Faherty dryly observed. Faherty said the acquisition of Hunter for cash and assumption of debt gives Bio-Reference two things it wanted: a laboratory on the West Coast to more quickly process work for its growing book of business in the western United States and a license to participate in Medi-Cal, California’s Medicaid program. “It was an important consideration,” Faherty said. The California Department of Health Care Services, which oversees Medi-Cal, issued a moratorium against new licenses for labs back in the late 1990s. Initially expected to last only six months, the agency has never lifted the new license ban, although existing licenses can be transferred. California is in a minority of states planning to expand Medicaid coverage as part of the Affordable Care Act. As many as 1.5 million Californians could wind up obtaining coverage as a result, providing what could be a healthy boost in volume for those labs that are Medi-Cal providers. Hunter itself is a relatively small operation, believed to generate revenue of $15 million to $20 million a year, compared to the nearly $800 million in revenues Bio-Reference is likely to report for all of fiscal 2013. Analysts Amanda Murphy and J.P. McKim with William Blair & Co. in Chicago said the transaction will add about 2 cents per share to its fiscal 2013 earnings estimates for Bio-Reference, a bump of about 1.5 percent. Faherty noted that Hunter had been under pressure to sell after losing a key contract three years ago with Blue Shield of California. It was a state of affairs confirmed by Riedel, who noted that growth at Hunter came to a halt after that loss transpired. Riedel to Continue Litigation Despite appearing as the smaller fish swallowed by a much larger one, Hunter and Riedel’s perception in the sector has been closer to piranha or barracuda than minnow. That has been driven by almost relentless litigation in recent years against Quest, initially for Medicaid billing practices but more recently for anti-competitive business tactics. Although a federal suit against Quest for interfering with Hunter’s operations was recently tossed out of federal court in Californa, Riedel said the complaint has recently been modified and refiled. Riedel also filed a qui tam lawsuit against Quest and LabCorp in 2005, claiming they overbilled California’s Medicaid program. The two labs eventually settled the suit for a combined $290.5 million. Riedel and Hunter would have been entitled to as much as $43.8 million of that sum under federal whistleblower laws. In 2011, Riedel was named whistleblower of the year by the organization Taxpayers Against Fraud. Riedel says he currently has five lawsuits against Quest pending in Michigan, Massachusetts, Georgia, Virginia, and Nevada that are no longer under seal, suggesting that more litigation is pending in other states. All of the suits make similar claims: Quest overcharged for laboratory services for Medicaid enrollees. The Nevada suit is scheduled to go to trial later this year, Riedel said. Michigan State Attorney General Bill Schuette has joined the litigation in that state as a co-plaintiff, Quest acknowledged in a recent 10-Q filing with the Securities and Exchange Commission. “Once the government intervenes, there is almost always a settlement,” Riedel said. Takeway: Bio-Reference Labs pursued Hunter in order to expand its processing capabilities to the West Coast. Chris Riedel has left the company in order to spend more time pursuing litigation.

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