Diagnostic Medlab CEO Arthur Morris with state-of-the-art technology in the Ellerslie laboratory. Picture / Kenny Rodger

Diagnostic Medlab CEO Arthur Morris with state-of-the-art technology in the Ellerslie laboratory. Picture / Kenny Rodger

If an Australian-owned supermarket offered to cut your $1000 monthly food bill to $800 while providing the same choice of bread, your favourite bacon and queues no longer than now, you'd line up fast. Right?

You might be curious about how they could do it so much cheaper than the existing Australian-owned supermarket, but you wouldn't let that stop you from planning how to spend the $200 saving.

That is what is happening in the market for non-hospital medical laboratory tests in the Auckland region, except that the new laboratory does not yet exist.

The buyers - the Auckland, Waitemata and Counties Manukau district health boards - have of course probed more deeply than the average supermarket shopper, but seem unable or at least unwilling to explain why the sellers, two parent companies listed on the Australian Stock Exchange, offered such apparently different prices.

Medical laboratories test for all kinds of human illnesses, from diabetes to cervical cancer.

Diagnostic Medlab and its predecessors have provided pathology services in Auckland for more than 70 years.

It has a large laboratory in Ellerslie crammed with equipment to test samples of human flesh and blood, and a network of around 85 collection centres where specimens are taken from patients.

But despite its existing facilities, knowledge of its market and good reputation, Diagnostic lost its bid to stay on.

Newcomer Labtests Auckland streaked in to win the contract, valued at more than $560 million over eight years. It takes over next July.

The health boards say the new arrangement will save them more than $15 million a year compared with their current spending and, like Labtests, want to portray the transition as business-as-usual.

Diagnostic, however, backed by the Medical Association and share market analysts, are highlighting the risks of the change.

Stockbroking firm Ord Minnett is at a loss to explain why the health boards serving nearly a third of the country's population would take the "significant risk" of switching from a trusted, established company to one that has no laboratory or other facilities.

"Any hiccup on delivering the pathology services by July 2007 start-up would seem like a potentially significant political problem," the firm says.

The Medical Association, like Diagnostic, fears instability unleashed by the changes will drive laboratory staff, particularly pathologists, overseas.