The Taranaki District Health Board is to close its pathology arm - Labcare - and outsource the jobs of its 40 laboratory staff.
The DHB's general manager for planning and funding, Becky Jenkins, said the move was aimed at integrating laboratory services and making them sustainable for the long-term.
Labcare is currently responsible for hospital laboratory services while Taranaki Medlab provides community services.
The DHB is talking with Medlab about taking over all lab testing.
Mrs Jenkins said eventually all pathology and laboratory services would be delivered from a purpose-built facility on the grounds of Taranaki Base Hospital.
Consultation has begun with affected Labcare and Medlab staff.
However, the Medical Laboratory Workers' Union said the process being used to outsource the 40 jobs at the hospital had left it baffled.
The union said it was bizarre to decide to outsource to a single provider and, at the same time, name a preferred provider without first testing the market.
It said the DHB had a poor outsourcing record and it wanted to be sure whatever arrangement was decided was robust and did not put the careers of its members at risk.