Medlab set to quit city next year

Diagnostic Medlab will have just one laboratory, Medlab Central, in Palmerston North. Photo / File

Company ousted by Labtests in controversial circumstances will end contract with Auckland DHBs.

Diagnostic Medlab will have just one laboratory, Medlab Central, in Palmerston North. The long-established Auckland community laboratory that lost most of its state funding in a contracting wrangle will close next year.

The Australian owner of Diagnostic Medlab (DML), Sonic Healthcare, told the Herald that DML would quit in October next year, following the ending of its contract with Auckland's three district health boards.

Sonic chief executive Colin Goldschmidt said that in the interests of a smooth transition of its DHB-funded services to its private-sector competitor Labtests and to the state-owned Auckland City Hospital laboratory, DML had agreed to a one-year extension of its contract at current prices, until October next year, "at which time DML will exit the market permanently".

Sonic's DHB-funded contract in Christchurch was likewise not renewed, last year, resulting in the closure of Medlab South, leaving the parent company with just one New Zealand medical laboratory, Medlab Central, in Palmerston North.

"Reluctantly, we are forced to accept that business conditions may not be sufficiently conducive to allow us to continue operating in Auckland and Christchurch any longer," Dr Goldschmidt said.

DML lost its DHBs contract to lower-priced newcomer Labtests Auckland, which was granted an eight-year, $560 million deal in 2006, causing a medical uproar. DML fought back and the agreement was rejected by the High Court but later reinstated by the Appeal Court.

When Labtests finally started in 2009, it couldn't cope, leading to a flood of complaints from doctors and patients about delays for testing and results, mix-ups of results and GPs' access to pathologists.

Two months later, the DHBs re-hired DML to take back around 10 per cent of the Labtests workload for four years, until the end of September this year, eroding the savings on which the contract switch was based.

DML hoped that keeping a toehold could give it more work if Labtests' early disasters multiplied, but the new company stabilised, eventually satisfying even some of its harshest critics.

But DML was bleeding money, a source said, because of the volume of insufficiently funded manual tissue-testing work it had taken on, without enough of the highly profitable automated testing.

Dr Goldschmidt confirmed DML had lost money on the DHB-funded work since 2009. He said its request for a fee increase to extend the contract was declined, as was its later offer of an extension to 2017 at current prices.

Last week, the DHBs announced that DML's contract would "come to a natural end" following the one-year extension until September 30 next year.

DML's profitable, automated work will go back to Labtests. Tissue testing done now by DML and Labtests will be transferred to Auckland Hospital's LabPlus.

The Auckland DHB's chief medical officer, Dr Margaret Wilsher, said a carefully planned and staged transition was being designed that would minimise the risk of disruption. "We are applying the lessons of the last decade."

She believed DML staff would want to continue working in Auckland and said the three DHBs "will look to employing those staff".

Diagnostic Medlab

• Owned by Australia's Sonic Healthcare.

• Lost its contract with Auckland's health boards in 2006.

• The contract went to Labtests, which struggled when it took over in 2009.

• The boards rehired Diagnostic to take back 10 per cent of the workload for four years, ending in September this year.