It is easy to see the bad news for diagnostic labs. The good news is kept hidden.

You only have to look at the tariff cuts and budget ceilings to assume that the lab sector really isn’t a very joyful business to do business. Who would want to work in a market where any unit volume growth is almost automatically counterbalanced by a tariff cut, where operators have little or no control over pricing and where you may find yourself operating in a country such as Germany where nearly three months into 2014 you have no idea what budget restraints you face?

And yet consolidation and rationalisation can work wonders in boosting EBITDA margins. But this good news is generally hidden by operators who fear that any sign that they are making too much money will lead to another raid.

That is true for publicly paid-for, for profit hospitals and nursing homes as well, but the situation is far more acute in labs because they have far more room to industrialise processes.

And it is also hard for an outsider to assess whether lab groups are really carrying through radical consolidation. Are they all mouth and no trousers as the English saying goes?

Suppliers to diagnostic labs are well placed to see what is really going on beneath the surface.

Recently, I’ve talked to two. What is clear is that there remains real differences between the lab groups. By common consent Sonic Healthcare has done a particularly good job at rationalising Germany and is also doing well in the United Kingdom. Other groups are still seen as trailing. Synlab is getting to grips in Germany but groups like Unilabs and Labco are still seen as lagging.

Limbach, the big privately held German group, is still trying to consolidate its various shareholdings.  Suppliers tell us that in some cases some labs are still sourcing separately through different subsidiaries in different countries and, in some cases, procuring on totally different terms.

That difference in back-end rationalisation is starting to come through in the market. Note that Sonic is now winning hospital outsourcing contracts in Germany – an area which is very price driven and where only the most efficient can make money. So the private equity groups still have margin potential to make.

The longer-term picture for labs may be rosier than you might think. These groups have strong relationships with doctors. The joke in Germany goes that a doctor is more likely to get divorced than to move from one diagnostic lab to another. Holding those relationships means these groups are well placed as the next generation genome sequencing wave hits healthcare.