SA Pathology has been spared from privatisation for the next 12 months but up to 200 jobs could go over three years to cut costs.
The state government has released an independent inquiry into the operation of the service, which also recommended the closure of a number of SA Pathology outlets across the state.
Health Minister Stephen Wade said the savings and efficiency measures outlined in the report offer SA Pathology an opportunity to reset and deliver a high-quality, value-for-money public pathology service.
"SA Pathology has a guarantee there will be no privatisation in the next 12 months," Mr Wade told reporters on Tuesday.
"What we need is demonstrable proof that SA Pathology is up to the task of providing value-for-money, high-quality services. They know that they can do things better."
The independent report into the service also found it would fail to make the $25 million in savings required in the previous state budget but identified opportunities to improve financial and operational performance.
Mr Wade said no nurses or doctors positions would be cut although it remained to be determined if reductions could be achieved through attrition and voluntary redundancies.
The minister said the issue of privatisation would be revisited in another review in 12 months' time.
Nevertheless, he believed the prospects for the government-owned service were good.
"But we cannot have a situation where the South Australian community has to tolerate a pathology service which is, on one hand, high quality but is significantly more expensive than it needs to be," the minister said.
"Every dollar that we waste on inefficiency is a dollar that's not available for care."
Dr William Tam, president of the SA branch of the Australian Medical Association, welcomed the announcement the service would not be privatised in the immediate future.
"The AMA has been strongly advocating for SA Pathology services to remain in public hands," he said.
"Efficient, accessible pathology services are critical ingredients in 21st-century medicine and healthcare."
Dr Tam said the AMA would work with the government to ensure South Australians across the state have access to high-quality and affordable pathology services.
