Jun 22, 2007 | Laboratory News
In Seattle, Washington, the two blood brothers are dealing with an upstart competitor—one that they cannot acquire nor make go away. Since it became operational in 1997, PACLAB Network Laboratories has directly challenged the national laboratories on what can be considered their “home turf,” since both national labs operate regional testing laboratories in Seattle. Not only has it made steady gains in market share, but PACLAB is poised to become the market leader in Seattle.
Since the year 2000, a growing number of community hospitals have launched laboratory outreach programs. The most successful of these lab outreach programs—with effective sales reps and a commitment to top service—are posting impressive gains in specimen volume and net revenue. These “best of class” lab outreach programs are fully competitive and, in the communities they serve, they are steadily eroding the market share of the national lab companies. PACLAB Network Laboratories should be included in this “best of class” list.
“Currently, we estimate that PACLAB holds a 30% share of the Seattle market for testing referred by office-based physicians,” stated Stewart Adelman, General Manager of PACLAB. “That makes us about equal to each of the two blood brothers, since we estimate that, in the Seattle metro, Laboratory Corporation of America (NYSE: LH) has about 30% and Quest Diagnostics Incorporated (NYSE: DGX) has about 30%. The remaining 10% of the market is shared among several other lab companies.”
Adelman made his remarks at PACLAB’s annual strategic retreat, conducted last week in Spokane. Dark Daily Editor Robert Michel was there to participate. “On several of the medical campuses of PACLAB member hospitals, we currently hold market shares of 80% and 90%,” observed Adelman. “It is powerful evidence that physicians will support their community hospital’s lab outreach program when it offers service levels that match or exceed that of competing laboratories.”
As a phenomenon, the mushrooming number of hospital laboratory networks is a natural market response to the lack of local independent laboratory companies in many cities across the United States. During the past 15 years, Laboratory Corporation of America and Quest Diagnostics Incorporated have regularly acquired any local or regional laboratory that achieved size and scale. Thus, it is not surprising that many community hospital administrators recognized the void in local laboratory services and organized a laboratory outreach program to provide more lab testing choices in the local community.
That is certainly one of the reasons why PACLAB Network Laboratories was organized. When it became operational in 1997, PACLAB’s equity members included eight hospital laboratories, with PAML, Inc. of Spokane as a partner and the manager of the regional laboratory network. During the past decade, it has grown to include 11 member hospital laboratories and serve all of the Seattle metro region, from Centralia in the south to Everett in the north.
PACLAB is also noteworthy for one other impressive achievement. It is living proof that hospital laboratories can band together and collaborate to their mutual benefit over the long term. In addition to paying for all expenses associated with the outreach business, each quarter, PACLAB distributes a sizeable dividend check to the CFO of each member hospital. Laboratory administrators and pathologists in other regions should study PACLAB as a business model that could advance the clinical and economic success of their own laboratory organizations.
P.S.: Dark Daily readers with knowledge of other successful, innovative and thriving laboratory outreach programs are invited to contact us with that information: schristensen@darkdaily.com and/or rmichel@darkdaily.com
Jun 7, 2007 | Laboratory News, Managed Care Contracts & Payer Reimbursement
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
Mar 1, 2007 | Laboratory Management and Operations, Laboratory News, Laboratory Pathology
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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Feb 2, 2007 | Laboratory News, Laboratory Pathology
Quest Diagnostics Incorporated announced yesterday that it purchased Sweden-based HemoCue for about $420 million. This purchase marks Quest Diagnostics’ first serious entry into the in vitro diagnostics (IVD) market and positions it in an unexpected segment of diagnostic testing.
HemoCue has global revenues of about $90 million per year, according to Quest Diagnostics. Its products are sold internationally. It provides point-of-care blood tests for hemoglobin, along with products for professional glucose and microalbumin testing. HemoCue’s handheld systems are used to screen for anemia and other conditions in physicians’ offices, blood banks, hospitals, diabetes clinics, and public health clinics. The company is currently developing hand-held systems to measure white blood cell count. Quest Diagnostics purchased HemoCue from a European-based private equity firm, EQT II BV.
Quest Diagnostics intends to integrate HemoCue’s handheld systems with its Care360 Portal, which gives doctors access to lab and medication records, patient medical history, and remote ordering of lab testing or prescriptions. Quest Diagnostics also said the deal will allow it to expand into international markets. “Technology is enabling diagnostic testing to move closer to the patient, and the acquisition of HemoCue and its exciting product pipeline gives us a strong presence in this emerging market,” said Surya N. Mohapatra, Chairman and CEO of Quest Diagnostics.
Dark Daily notes that Quest Diagnostics has been under stress to defend the business it gets from doctors who serve United HealthCare patients. The timing and nature of this acquisition have the appearance of a strategic move to shift the attention of investors away from Quest’s challenges with its United HealthCare book of business. As well, HemoCue’s $90 million in annual revenues will also help to replace revenue that Quest Diagnostics is expected to lose as a result of being excluded as a UnitedHealth provider in most markets since January 1, 2007.
Oct 11, 2006 | Laboratory News, Laboratory Pathology
There was plenty of reaction to last week’s news that UnitedHealth Group had awarded an exclusive, ten-year, national lab testing contract to Laboratory Corporation of America. That contract award excluded Quest Diagnostics Incorporated.
Across the laboratory industry, pathologists and lab directors are keenly interested to learn how this may affect the market for physicians’ office-based lab testing in their communities. Phones and e-mails have been flying into our offices with questions and comments. Two words describe the general reaction to this announcement: “total surprise.” That’s because laboratory professionals understand the range of challenges that UnitedHealth and LabCorp must overcome if this exclusive national lab testing contract is to prove successful.
Even the investment community was not certain how to understand this startling development- but pundits did seize the chance to engage in word play. At BusinessWeek online, the headline was “A Negative Result for Quest Diagnostics.” Over at The Motley Fool, the UnitedHealth contract award story was titled “Great Chemistry at LabCorp.”
However, the harshest criticism came from TheStreet.com. It has a regular feature named “The Five Dumbest Things on Wall Street This Week.” Listed at number four for last week was Quest Diagnostics Incorporated. TheStreet.com noted that Quest Diagnostic’s CEO, Surya Mohapatra had told the financial community that, following one year of negotiations with UnitedHealth, it had suddenly “changed direction” and demanded the right to make an eight-year deal. The Street.com continued “‘If we had signed that contract,’ Mohapatra bristled, according to Dow Jones, ‘it would have been irresponsible not only for us as a company but for the whole industry.'”
TheStreet.com next observed rather dryly that “LabCorp investors are surely applauding that principled stand.”
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It then rated the Quest Diagnostics situation thusly:
“Dumb-o-Meter score: 85. ‘Choosing a diagnostic lab with a focus on patients and quality makes a difference for your health,’ Mohapatra warns.” |
It is not often that events in the laboratory industry catch the attention of Wall Street. It is even less common for a laboratory company to do something that earns it recognition on a list of “The Five Dumbest Things on Wall Street This Week.” Judging by the 18% drop in Quest Diagnostics’ share price that followed news of the UnitedHealth contract, it seems that a number of smart investors believe LabCorp made the smartest move in this round of the chess game.
At Dark Daily, we are of the opinion that the new UnitedHealth lab testing contract strategy will be long-term negative for the entire laboratory industry. If that proves true, then both Quest Diagnostics and LabCorp will have more to lose in coming years than any immediate gains as a result of this contracting strategy.
