News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel

News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

Hosted by Robert Michel
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United Health Disrupts the National Contract Status Quo Between the Two Blood Brothers

It was major news yesterday when the public learned that UnitedHealth Group Incorporated had awarded an exclusive, 10-year national contract for laboratory testing services to Laboratory Corporation of America. UnitedHealth is the nation’s second largest health insurance company, with approximately 26 million beneficiaries. LabCorp says it should see an additional $3 billion in revenue during the 10-year term of its pact with UnitedHealth.

This new contract takes effect on January 1, 2007. After that date, Quest Diagnostics Incorporated ceases to be a contract provider of laboratory services to UnitedHealth beneficiaries, with a few exceptions. Quest Diagnostics acknowledges that its UnitedHealth book of business represents 7% of total revenues, or about $385 million per year. That business is now at risk, for a number of reasons.

What is big news for LabCorp and Quest Diagnostics is likely to be a “ho hum” for most other laboratories. That’s because they are already excluded from lab testing contracts with UnitedHealth. What may be of more immediate impact to hospital lab outreach programs and independent laboratory companies is the fact that LabCorp will be developing contract networks for UnitedHealth in selected regions around the United States. Depending on the prices and terms of such contract networks, local labs may find it advantageous to participate to gain access to UnitedHealth beneficiaries.

As to the two blood brothers, Dark Daily predicts the capture of UnitedHealth’s business by LabCorp will intensify competition between the two billion-dollar behemoths. Quest Diagnostics will not lie down and cede the UnitedHealth business to LabCorp. Nor will LabCorp be anything but aggressive about exploiting this opportunity. From this perspective, news that LabCorp has been granted an exclusive, 10-year lab testing services contract with UnitedHealth Group is just the first round. Stay tuned, because the battle is about to get nasty. Check out coming issues of The Dark Report for additional intelligence about this tectonic shift in national lab contracts.

CIGNA HealthCare Renews National Lab Contract with LabCorp

Laboratory Corporation of America (NYSE: LH) announced yesterday that it had executed a multi-year clinical laboratory services contract renewal with CIGNA HealthCare (NYSE: CI). An important facet of the renewal, noted in LabCorp’s press release, is that “LabCorp will no longer be contractually restricted from marketing that the Company is a fully participating, in-network provider to CIGNA HealthCare for all services in all major markets.”

“This agreement is important because we will no longer be prohibited from marketing to doctors and patients that we are a participating, in-network provider to all CIGNA HealthCare members and plans in all major markets,” said David P. King, President and Chief Executive Officer of LabCorp. “We welcome the opportunity to compete for CIGNA HealthCare business on a level playing field with all other contracted laboratories. Of course, CIGNA HealthCare’s participating physicians may continue to send all of their work to LabCorp, giving choice to those physicians who prefer using a single high-quality, full-service laboratory.”

What Dark Daily finds notable about this contract renewal is that it is not exclusive to LabCorp, so Quest Diagnostics Incorporated (NYSE: DGX) continues to be a provider for CIGNA HealthCare. CIGNA HealthCare membership grew by 3% in 2006, to 9.4 million beneficiaries. It is experiencing rapid growth in consumer-directed healthcare plans (CDHPs), with enrollment in CDHPS growing from 100,000 members in 2005 to over 250,000 in 2006, according to Cigna’s 2006 Annual Report. Cigna is also greatly expanding its membership outside of the United States. This is another example of how healthcare is globalizing.

This is also the first time since last fall that a national health insurer, when renewing national contracts for laboratory services, has not entered into an exclusive agreement with one laboratory company. In October 2006, United Healthcare (NYSE: UNH) granted an exclusive national contract to LabCorp. In May of this year Aetna (NYSE: AET) selected Quest Diagnostics to be its exclusive national laboratory provider. At the end of 2006, UnitedHealth and Aetna had 26 million and 15.4 million members, respectively.

Related Articles from Dark Daily:

LabCorp Ousted from Aetna’s National Contract

Judging the UnitedHealth Decision to Drop Quest Diagnostics in Favor of LabCorp

United Health Disrupts the National Contract Status Quo Between the Two Blood Brothers

What You Told Us: Results from the Dark Daily Survey

Thanks to everyone who participated in our first Dark Daily reader survey earlier this month. We got a fantastic turnout for our first survey and got some great feedback which we will certainly be able to use to improve Dark Daily. As promised, we wanted to share some of the results with you.

• 44% of our readers found out about Dark Daily from The Dark Report, 20% found out from a colleague of theirs, 14% from a Web search, and 13% from the Executive War College.

• 50% of our subscribers have been with us for less than 6 months! Only 10% of our subscribers have been with us for over a year.

• The vast majority of our readers are likely to read their Dark Daily e-briefings Monday through Friday, but not on Saturdays or Sundays.

• 85% of Dark Daily readers thought the frequency of Dark Dailies was just right, with an even split of the rest of our readers thinking there were too many or too few Dark Dailies.

• Our Dark Daily readers’ favorite category was, by far, Laboratory News. A close second was Laboratory Management and Operations. Other notables were Laboratory Sales & Marketing, Laboratory Compliance, Legal & Malpractice, and Laboratory Managed Care, Contracts, and Payer Reimbursement. None of Dark Dailies categories had less than 35% of our audience feeling that the category was not useful.

• The distribution of our laboratory readers is fairly evenly spread among those that work for hospital laboratories, small independent laboratories, large independent laboratories, and laboratory chains (such a Quest Diagnostics and Laboratory Corporation of America).

• We were surprised to discover that some of our most vocal readers are from outside the United States and have requested more items that pertain to an international audience. We will try to comply as we see relevant international laboratory news!

• A number of our readers cited their favorite Dark Dailies as the e-briefings based on the continuing issues resulting from the exclusive national contract between United Healthcare and LabCorp (see Judging the UnitedHealth Decision to Drop Quest Diagnostics in Favor of LabCorp and United Health Disrupts the National Contract Status Quo Between the Two Blood Brothers).

As always, we welcome your personal responses to the survey results, your ideas for other reader surveys, and your ideas for new Dark Daily e-briefings. Thanks again for your participation!

Your Editors,

Robert Michel and Sylvia Christensen

UnitedHealth Suspends Fines for New Jersey Doctors Who Continue to Use Quest Diagnostics

Last Friday brought an interesting twist to the question about whether UnitedHealth would follow through and fine doctors $50 for each of their patients who had laboratory tests done at out-of-network laboratories, effective March 1, 2007. The Associated Press published a news story revealing that the New Jersey Department of Banking had requested that UnitedHealth suspend any attempts to fine physicians under this program, pending its investigation in the situation.

The New Jersey Department of Banking said it was “not satisfied with the legality of these protocols” in an article entitled UnitedHealth suspends MD fines in N.J.. The American Medical Association has also expressed concerns about the policy because physicians can’t control where patients choose to get their medical tests. The AMA also noted that this situation is the first time a doctor could be financially punished for a patient’s behavior.

In response to the New Jersey Department of Banking and Insurance’s request, UnitedHealth spokesman Tyler Mason said the suspension was voluntary and will be temporary. He added that the company expects the review to be finished shortly and in a manner favorable to the insurer.

New Jersey regulators are responding to the negative backlash from doctors after UnitedHealth replaced Quest Diagnostics with LabCorp as their preferred laboratory for tests (see United Health Disrupts the National Contract Status Quo Between the Two Blood Brothers) effective January 1, 2007. Although the fine policy has been on file since March 1, there has been no public disclosure of whether or not UnitedHealth has actually exercised their right to fine doctors as of this date.

New Jersey’s action triggers some important new questions. If New Jersey insurance regulators decide that UnitedHealth’s policy of fining physicians in this type of situation is illegal, will this prove helpful to Quest Diagnostic’s in its efforts to hang on to as much UnitedHealth business as possible. Further, if New Jersey insurance regulators determine that such a practice is illegal, would other state insurance commissioners follow this lead and make similar determinations? On the other hand, if UnitedHealth prevails in its legal arguments in New Jersey, will this open the door for other payers to copy UnitedHealth and begin fining physicians whose patients end up getting testing done by out-of-network laboratories?

This newest episode in the three-way contest between UnitedHealth, LabCorp, and Quest Diagnostics demonstrates how the precedents established in this new contractual relationship have the potential to be copied by other national health insurance companies. Unfortunately, many of these types of precedents prove detrimental to the interests in independent lab companies and hospital outreach programs. Stayed tuned for the next chapter in this fast-moving story.

P.S. Keep Dark Daily alerted to developments in your own community. We welcome your news tips. Your local developments help us develop regional and national patterns that can help your laboratory develop effective strategies and responses to all of these trends. Please forward your news to Robert (rmichel@darkreport.com) or Sylvia (sylvia@darkreport.com).

LabCorp Ousted from Aetnas National Contract

In the heavyweight championship fight taking place between the two blood brothers, Quest Diagnostics Incorporated  has just won the next round. Earlier today, Laboratory Corporation of America issued a terse press release titled: “LabCorp Notified by Aetna of Contract Termination.”

LabCorp acknowledged that “it will no longer be a contracted laboratory provider for Aetna Inc. (NYSE:AET), effective July 1, 2007.” LabCorp further disclosed that it expects the loss of its contract relationship with Aetna to be the primary reason why it expects earnings per share in 2007 will decline from a projected $0.16 to $0.12 in 2007. That’s a 25% reduction.

This breaking development is not a total surprise. Quest Diagnostics found itself excluded from almost all UnitedHealth contracts last October (United Health Disrupts the National Contract Status Quo Between the Two Blood Brothers) and from New Jersey-based Horizon Blue Cross Blue Shield in January. In both cases, LabCorp had negotiated an exclusive relationship.

Now it’s tit for tat. Quest Diagnostics is likely to announce that it has an exclusive national contract with Aetna, effectively denying LabCorp access to Aetna’s 16 million members. Aetna is one of the five largest health insurance companies in the United States.

Each of these national managed care contracts has implications for clinical laboratory management. That’s because both of the blood brothers want to negotiate a national contract with insurer that include terms designed to exclude regional independent laboratories and hospital laboratory outreach programs. To help lab directors and pathologists stay on top of this emerging trend, this year’s Executive War College on Laboratory and Pathology Management has several sessions devoted exclusively to the latest developments in managed care contracting.

In particular, LabCorp’s new CEO, David P. King, will be discussing how managed care companies are altering their strategies for contracting laboratory testing services. This will be a unique opportunity to hear, first hand, what is likely to unfold in the next 24 months. That’s particularly important, since the developments of the past five months are pointing to a managed care contracting environment which is increasingly excludes independent lab companies and hospital laboratory outreach program in favor of the national laboratories.

Stay tuned to Dark Daily for more updates on both this story and this rapidly unfolding trend. Once LabCorp used its exclusive pact with UnitedHealth to break the managed carecontracting status quo between it and Quest Diagnostics, it set in motion forces which are already propelling the laboratory industry into uncharted territory.

PS: To get the latest news and effective strategies dealing with new trends, join us in Miami on May 10-11, 2007 for the 12th Annual Executive War College. You can access the full details using the links below. Take action today to reserve your place.

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Visit http://www.executivewarcollege.com

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Four Easy Ways to Register:
1. Register ONLINE
2. Call 800-560-6363. Our friendly staff can register you quickly and easily, as well as answer any questions you may have.
3. Fax this complete registration form PDF to 512-264-0969
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