Allina’s $230M sale of its medical lab helped it avoid operating loss last year

Allina Health sold a large chunk of its lab business last year for about $230 million to Quest Diagnostics, according to a recently disclosed financial statement that revealed the price tag for a deal announced last summer.

The proceeds helped Allina significantly reduce its 2024 operating loss compared with the previous year, according to the financial statement Allina released to bondholders in March.

It shows the Minneapolis-based health system posted an operating profit of $48.6 million in 2024 before restructuring expenses, compared with a loss of $321.4 million the previous year. Allina is a nonprofit, so any excess of revenue above expenses is retained in the organization.

“While Allina Health made substantial progress in stabilizing its financial performance in 2024, overall, we remain at a negative operating margin,” the health system confirmed in a statement to the Minnesota Star Tribune. “As a nonprofit organization, Alina Health invests its revenues into the services and programs we provide for our patients, care team members and the communities we serve.”

After factoring in the restructuring costs, Allina last year saw an operating loss of $16.6 million on nearly $5.8 billion in revenue.

Larger community health systems like Allina sometimes operate their own labs to process medical test results in-house, adding revenue and potentially cutting down on the turnaround time for test results, but also increasing organizational overhead and complexity.

Under the new arrangement, there’s no ongoing revenue from Allina to Quest, but patients and their health insurers now pay the New Jersey-based testing company for outpatient lab work that previously was provided by the health system.

Quest Diagnostics confirmed the acquisition price of its deal with Allina in a statement. The move, announced in July 2024, shifted most of Allina’s outpatient lab work to the for-profit company.

“We are pleased to be collaborating with Allina Health to broaden access to critical diagnostic lab services for communities in Minnesota and Wisconsin,” Quest Diagnostics said.

Quest provides testing from its full-service laboratory in Wood Dale, Ill. Allina Health clinics continue to access select lab services from the health system’s central laboratory in Minneapolis, which is the lab service provider for Allina hospitals, as well.

Allina Health is Minnesota’s seventh-largest nonprofit group and ranks eighth in size among all employers, with an in-state workforce exceeding 21,000.

In September, union doctors demanded fixes after finding the shift of outpatient lab work had been “a disastrous, chaotic mess” that raised safety concerns.

Over the past week, a union source told the Minnesota Star Tribune that lab problems remain for some patients. The source said that because of problems with conducting and processing certain tests for blood sugar levels among patients with diabetes, Allina agreed to remove this measure from 2024 quality scoring that affects individual clinicians’ compensation.

Allina did not immediately comment on that.

Quest Diagnostics said the “transition has significantly improved” and is delivering on key metrics, including patient satisfaction and turnaround times for lab results.

“Allina and Quest share a commitment to high quality, and we have worked collaboratively and with urgency to ensure that patients and providers have received the utmost care and quality during the transition,” Quest said in its statement.

Over the past 15 months, Quest Diagnostics has announced three other deals to acquire health system lab operations.

In a February disclosure to bondholders, Allina also referenced the boost from the sale.

“Allina Health’s operating margin before restructuring expenses was 1% for the twelve months ending Dec. 31, 2024, compared with -6.2% for the same period in 2023,” the health system said in the earlier disclosure. “Allina Health’s operating income improved by $379.5 million compared with the same period in 2023, due in large part to the … gain on the Quest lab transaction.”