Central Diagnostic Lab to Sell Western Unit for $85 Million

An Orange County medical firm has agreed to buy the western operations of Central Diagnostic Laboratory, the sister firm of a Pap smear lab closed this year by the state for misdiagnosing too many tests.

MetWest Inc. in Newport Beach agreed to pay $85 million for Central Diagnostic’s operations. Industry consultants said it is one of the highest prices paid for a private lab. In addition, Central Diagnostic has tentatively agreed to sell its Midwest and East operations to New Jersey lab giant MetPath for an undisclosed sum.

If the deal goes through, MetWest says it will be the sixth-largest lab chain in the country. “We want to be the premier lab in the West,� said David Bush, MetWest’s chief executive.

Tarzana-based Central Diagnostic, which performs tests including blood and urine analyses, is owned by Dr. Allen N. Levy. The 62-year old pathologist also owned Central Pathology Services Medical Group, which was closed by the state Department of Health Services in April after an inspection found that the Pap smear lab had a 21% error rate.

Name Will Probably Change

Pap smears are routine tests used to detect cervical cancer and certain other gynecological abnormalities. Central Pathology processed more than half of all smears taken in Southern California.

Because Central Pathology also did business under the name Central Diagnostic Laboratory and had the same owner, Central Diagnostic’s revenue fell by about 10% after the shutdown and has not recovered, said Central Diagnostic spokesman Martin Cooper.

Bush said MetWest wasn’t concerned about the controversy, but he added that the firm probably will change its name.

“Let me be very explicit,� Bush said. “We are not buying any of the operations that had a problem with the state. We are not assuming any of those liabilities.�

MetWest is buying the assets of Central Diagnostic’s western operations, but is not acquiring the company’s stock. Thus, Bush said, it will not be responsible for any of Central Diagnostic’s liabilities, including a $9-million judgment awarded to a former employee.

MetWest was formed last August after MetPath spun off its western operations. Unilab Corp., a publicly traded medical firm in Georgia, later bought MetWest. MetPath owns 20% of Unilab.

When it was founded in 1970, Central Diagnostic was essentially a one-man, one-room company that grew over the years to more than 60 locations across the United States, making Levy a multimillionaire.