Esoterix & UnitedHealth Sign National Test Pact

Esoterix earns a place as the third national laboratory for United’s Docs

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CEO SUMMARY: Just when it is assumed that the two blood brothers have a lock on national lab testing contracts with the nation’s biggest payers, Esoterix inks an agreement with UnitedHealth Group. This now positions Esoterix to offer its higher-end reference and esoteric testing to hospitals and physicians providing care to more than 22 million Americans. It also triggers a question: will other payers follow suit?

IN AN UNEXPECTED DEVELOPMENT, UnitedHealth Group, Inc., the nation’s largest health insurer, added Esoterix, Inc. to its panel of national lab test providers under a contract that became effective June 1, 2004.

The decision to add a third laboratory company is a surprise. In recent years, the two blood brothers have enjoyed a virtual lock on national contracts with this country’s largest health insurers. UnitedHealth’s willingness to expand its national panel of laboratory test providers can be interpreted to mean it is seeking benefits beyond those currently provided by its existing network of lab test providers.

“This is a major business milestone for us,” stated Esoterix President and CEO, James McClintic. “It demonstrates the progress Esoterix has made in recent years to establish itself as a respected source of specialized lab tests nationwide.”

UnitedHealth Group currently pro- vides health benefits to 21.7 million people. According to McClintic, UnitedHealth was motivated to add Esoterix to its national lab provider panel for two primary reasons. “One, physicians would have greater choice about where to direct their specimens for laboratory testing. Two, UnitedHealth believes that Esoterix can help it control leakage, particularly in the types of reference and esoteric tests that are our company’s primary focus,” he explained.

During a site visit by THE DARK REPORT to Esoterix’s headquarters in Austin, Texas last week, McClintic ategy and how it played a role in snaring a contract with UnitedHealth.

“The story starts about two years ago,” he said. “As hospital labs reacted to regulatory problems at one of the national reference labs, Esoterix decided it was an opportune time to intensify our sales and marketing to hospital labs.

“To service this market, we needed to broaden our existing test menu,” continued McClintic. “So we added 500 tests, bringing our total menu up to 2,500 tests. For six months, we responded to plenty of RFPs and we won our share. However, the test mix for many of these RFPs was weighted significantly toward routine tests, which are reimbursed at very low rates.

Reassess Their Strategy

“That caused us to step back and reassess the outcome of this particular business strategy. Esoterix has always been a prime source for high-end, esoteric testing. We wanted to move back and emphasize marketing to hospitals and other customers who are intensive users of these tests,” observed McClintic.

“In the market segment for sophisticated reference and esoteric tests, we give nothing away to any laboratory,” he said. “That’s because even the two blood brothers have to fly most of these types of tests to a selected number of national testing centers. That allows us to compete on quality, service, and turnaround time.

“In support of this re-emphasis on high-end, esoteric testing, Esoterix developed contracting opportunities with GPOs, IPAs, and payers. We found them to be most receptive, for an interesting reason: leakage,” he added.

“The most painful leakage to a payer is not routine chemistry and CBCs. It is reference and esoteric tests,” noted McClintic. “The reason becomes obvious when you ask physicians about the service they get from their labs. They don’t discuss chem screens and CBCs. They talk about reference and esoteric tests. If service is bad, that affects their medical practice. If service is good, physicians consider the added value from that laboratory to be invaluable to helping them improve patient outcomes.

“Out Of Network” Tests

“Thus, there are two primary reasons why a physician will continually send lab tests ‘out of network.’ One, she is loyal to a certain lab providing specialty tests; or, two, she is angry about ongoing service failures by network labs. She sends tests out of network because she seeks a more reliable source for those lab tests which are ‘mission critical’ to her medical practice,” he stated.

“Esoterix offers payers a way to solve these problems,” explained McClintic. “We believe UnitedHealth Group recognized this. Leakage of high-end tests is expensive to any payer. UnitedHealth’s national contract gives Esoterix the opportunity to demonstrate that it can give physicians the level of service which motivates them to stay ‘in network.’ As we achieve that, it’s a win for Esoterix and a win for the payer.”

Time To Deliver

The newly-signed national contract between Esoterix and UnitedHealth Group is only the first chapter in this story. Esoterix must now prepare to market its services to the thousands of physicians in the UnitedHealth net- work. That will take time and money. Then it must deliver services equal to or better than its in-network laboratory competitors. That may stimulate an interesting marketing free-for-all, one that will be instructive to watch as it unfolds.

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