Competing Against Regional Laboratories

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SINCE THE 1980S, THERE HAS BEEN COMPETITIVE TENSION between publicly traded laboratory companies and their regional counterparts—both independent labs and hospital laboratory outreach programs. It’s an understatement to say that both sectors of the laboratory community often wish the other was not around.

During the past 20 years, each class of laboratories has bedeviled the other— in ways too numerous to mention. Long-time readers of THE DARK REPORT are well-informed on these issues, as we have regularly analyzed how this competitive tension has triggered all sorts of consequences for the entire lab industry.

I believe regional laboratories will soon face another challenge, one that may threaten their access to managed care patients at reasonable reimbursement. In fact, it is a threat that THE DARK REPORT was first to identify several months ago. (See TDR, February 19, 2007.) At that time, we reported how Laboratory Corporation of America is developing a strategy to use regional “managed laboratory networks” as a managed care contracting vehicle to improve its competitive position with national health insurance companies.

LabCorp’s inspiration for this strategy is the Oxford Health Plan laboratory network developed by Quest Diagnostics Incorporated several years ago. After UnitedHealth acquired Oxford, then granted LabCorp an exclusive national lab testing contract, LabCorp assumed management of this lab network from Quest Diagnostics. LabCorp and UnitedHealth are planning to replicate this “managed laboratory network” model in many communities across the United States. (See pages 6-9.) Serious work to actualize this plan will take place in 2008.

Inspired by the original Quest/Oxford regional “managed lab network,” UnitedHealth and LabCorp intend to use these networks as a way to bring more regional labs under contract. Will it be a win-win business arrangement for the payer, the national lab managing the network, and the regional labs and hospital outreach programs in the network? Judging from the complaints that flowed from the Oxford and Empire Blue Cross Blue Shield networks developed by Quest Diagnostics, not likely. In those networks, local labs were offered reduced reimbursement, weren’t able to provide selected tests, and were excluded from participating in all the health plans offered by that payer. However, time will tell in the case of UnitedHealth. LabCorp’s new CEO has a different strategic prospective and he may have some surprises up his sleeve.

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