Lower Prices, More Data in UHC’s New Lab Network?

UnitedHealthcare aims to use data to improve patient care, say experts in managed care contracting

CEO SUMMARY: It’s been a common strategy among managed care payers to seek the lowest prices for clinical laboratory testing when negotiating contracts with labs. However, lower prices may become less important over time as the health system moves away from fee-for-service payment toward value-based reimbursement. Now evidence is accumulating that at least some large health insurers are placing more value on contracting with labs that can provide more complete sets of lab data.

OVER THE PAST SEVERAL MONTHS, UnitedHealthcare (UHC) has sent termination letters to certain labs in its network in what one lab industry observer said reflected a wholesale shakeup of its contracting strategy.

“UHC is performing a house cleaning,” said a lab industry executive who asked not to be named.

“The labs that received termination letters were getting paid at higher than market rates and had been in-network providers for UHC for a decade or longer. So, those higher rates were at least one reason why their network status was terminated. Plus, UHC likely had no need to renegotiate with those labs to reduce their rates—perhaps because there were duplicate or overlap providers who had more competitive rates. Therefore, the insurer could just remove them from the network because other labs could step in to maintain service.”

This opinion is in response to changes in the lab contracting practices at several of the nation’s biggest health insurers. As reported in The Dark Report, UnitedHealthcare, Aetna, and Horizon Blue Cross Blue Shield of New Jersey, and Blue Cross Blue Shield of Georgia have added national lab companies to their provider networks for the first time in nearly a decade. All insurers want lower prices, of course, but today they also have an increased need for lab test data to help them manage patient outcomes, boost their star ratings, and fills gaps in care.

To date, UnitedHealthcare seems to be most aggressive in its pursuit of lower costs and more data as the nation’s largest health insurer has shown with three significant developments in how it contracts for clinical laboratory testing services.

Three Developments

First, as noted above, it has jettisoned smaller and regional laboratories from its provider network. (See, “UnitedHealthcare Reportedly Cutting Ties with Regional Labs as Providers,” TDR, Dec. 24, 2018.)

Second, UHC made Quest Diagnostics a national network provider, effective Jan. 1, 2019, for its approximately 49 million members nationwide.

Laboratory Corporation of America was already an in-network provider for UHC’s members, meaning this is the first time in 11 years that UHC has national contracts with both Quest and LabCorp.(See “Big Insurers Seek Value-Based Deals with LabCorp, Quest,” TDR, May 29, 2018.)

Third, in its December network bulletin, UHC disclosed that it is changing its clinical lab contracting strategy by forming what it calls a preferred lab network.

Although the health insurer has not yet disclosed the criteria it will use to select labs for this network, it did say that it is continually evaluating the clinical laboratories that participate in its network so that it can innovate to serve the “ever changing healthcare environment” more efficiently. (See “UnitedHealthcare Forming Network of Preferred Labs,” TDR, Jan. 14, 2019.)

Having watched UHC recently terminate labs from its provider network and add Quest so that both national labs are in its network, clinical lab executives are asking two questions.

Low Prices or Value?

First, is UnitedHealthcare pursuing a strategy of accessing the lowest prices for tests? If true, this would continue the practice of health insurers considering a lab test as a commodity item.

Second, will other large health insurers take similar steps to exclude regional and independent clinical labs from their provider networks in an effort to control lab test costs?

In the clinical lab industry, there’s a common perception that the nation’s largest health insurers consider lab testing to be a commodity. For this reason, UHC may cut labs from its network and shift that lab testing work to the nation’s two largest clinical laboratories, where it pays much lower prices for those same tests.

In addition, a clinical lab CEO said UHC’s strategy is designed to move business away from high-cost hospital outreach programs and accomplish that by developing a preferred network that includes the nation’s two largest clinical lab companies.

Labs with High Prices

Last year, UHC told Wall Street analysts that one component of its lab-contracting strategy and its deals with LabCorp and Quest was that it would develop ways to shift lab work away from hospital labs, either through redirecting testing or through acquisitions, according to another lab executive.

In addition to the contracts UHC has with LabCorp and Quest, it also has about 300 labs in its network and it added 25 labs in the past year, UHC told The Dark Report.

The creation of a new preferred lab network is consistent with a strategy UHC followed in Florida four years ago. In 2015, UHC required physicians to use its laboratory benefit management program administered by BeaconLBS when ordering 81 specified lab tests for its commercial members in the Sunshine State. A subsidiary of LabCorp, BeaconLBS had a network-within-a-network that UHC called “laboratories of choice.”

Preferred Lab Network

With full details about UHC’s new preferred lab network not yet known, lab executives experienced in managed care contracting say the primary goal of this network is for UHC to give better access to those laboratories willing to offer very low lab test prices.

“I don’t know what number of labs will be in UHC’s newest preferred network, but the health insurer will probably restrict or exclude higher-cost labs from this network,” commented one clinical lab executive.

Another lab executive with experience in managed care contracting said UHC is applying lessons it learned when it introduced the BeaconLBS program in Florida. Although pathologists, ordering physicians, and clinical laboratory directors were highly critical of BeaconLBS, the lab-test ordering program has remained in place since then.

Under the BeaconLBS program, if a physician didn’t notify UHC about the pending test order, the lab would not get reimbursed.

“Today, I believe UHC is applying what it learned in Florida by putting some of the fundamentals of the BeaconLBS program in place nationwide,” observed a lab executive who knows the Florida market well and who asked not to be identified. “In order to be considered for participating in the new preferred network, labs likely will need to accept lower rates in exchange for a favored position in UHC’s list of preferred providers.

“That’s what happened in Florida,” the executive added. “Laboratory of choice labs were easiest for physicians to locate on the list of labs those doctors could access. But these labs had to agree to accept less-than-competitive rates from UHC to join that network.”

To Improve Patient Care, UnitedHealthcare Wants to Collect Richer Sets of Lab Test Data

HEALTH INSURERS HAVE LONG WANTED CLINICAL LABORATORIES TO KEEP COSTS LOW, but now payers seek more advanced ways to contain the overall cost of patient care. These new ways of contracting with labs go beyond a focus on lab-test prices, lab executives said. All labs may want to consider what Quest Diagnostics and Laboratory Corporation of America are doing to build lab test volume from health insurers, they added.

“There are two separate value streams for the national labs to deliver on,” said one lab executive. “The first is reducing lab test costs—either by shifting testing from hospitals to the national labs or through an outright acquisition of a hospital’s outreach operations.

“The other value stream is found in lab test data,” he added. “UHC can use lab data to improve its numbers in Medicare’s star ratings program.”

The rewards are substantial. Last year, CMS paid $6.3 billion in quality bonus payments to Medicare Advantage (MA) plans under its star ratings program. UHC is the nation’s largest Medicare Advantage insurer by far with 25% of the 20 million Medicare beneficiaries in Medicare Advantage plans, the Kaiser Family Foundation reported.

In a report last fall, the foundation showed that the average bonus payment was $321 per enrollee. That means, each year, for every 10,000 members that UHC has in MA plans that scored four stars or more, UHC could collect roughly $3.2 million.

“Another reason UHC places a high value on healthcare data is the work it does with its subsidiary, Optum,” the executive added. “Lab data is probably a goldmine for Optum in that it not only sells that data, but it developed platforms designed to improve outcomes. In this regard, lab data would be huge.”

Another executive also commented on UHC’s work with Optum. “UnitedHealthcare has an increasing appetite for lab test data in part because of its Optum subsidiary,” he said. “Optum is a health information technology company specializing in the use of data to manage costs and quality associated with certain disease states. This need for data is one reason UHC wants accurate and complete sets of lab test results on all of its beneficiaries.”

More Nuanced Clinical Data

Optum, UHC, and other health insurers want clinical labs to provide more nuanced anddetaileddataoneachpatient’sclinical condition, the executive added.

For example, since 2016, Quest has worked with Inovalon, a health technology company in Bowie, Md., to use real-time analytics at the point of care, he explained.

Quest said Inovalon integrates large datasets with some 600 electronic health record systems to help physicians align clinical management with quality, utilization, risk, and financial performance goals to support value-based care.

As a result of using Inovalon’s data, Quest could be getting paid a separate fee for reporting member-based data services to UHC, as opposed to simply delivering the typical claims-based lab data that most labs deliver, the executive said.

In May, when UnitedHealthcare announced it would add Quest as a preferred lab provider, the health insurer said its lab services contracts “will include a broad range of value-based programs,” and that it will use lab test data “to drive more personalized care support.”

Factors Under Negotiation

Could UnitedHealthcare’s announcement of its new preferred lab network be a strategy to drive down the average rates it pays for lab tests?

“That would be my guess, since lowest price continues to be the major driver in negotiating a managed care contract for lab testing,” the executive continued.

“UHC could give preferred labs some kind of marketing push so that any physician ordering one of those 81 or so tests will be directed to the preferred labs.

“The trade-off for any preferred network labs is that they will get consistent reimbursement rates from UHC,” she noted. “That could be a big deal because it helps labs meet preauthorization requirements in ways that give them confidence those lab claims ultimately will be paid.

“While we don’t know what UHC will pay its preferred labs, we can assume it’s likely to be a deep discount off what Medicare pays, meaning something well below 100% of Medicare,” stated a vice president of managed care contracting for an independent lab company who asked not to be named.

“Those clinical laboratories that got termination letters were getting paid well, and that’s likely one reason why UHC carved them out of its provider network.”

Geographical Coverage

In addition to accepting lower rates from UHC, clinical labs also will need to serve a wide geographic area—either a state or a region—several executives said.

“Any lab serving a big area will have an advantage over smaller labs, but you’ll also need to have an edge on what Quest and LabCorp offer,” commented one executive.

“UHC is not likely to have much overlap in any areas where Quest and LabCorp have patient service centers.

“In fact, your lab may need to be a national player to be included in this new preferred network,” added another executive. “I don’t think regional labs will even be considered.”

In addition, the two national labs will be paid for other value they deliver through a bonus program and through getting the increased test volume that comes with contracting with the nation’s largest health insurer, a lab executive said.

An insight that developed from these conversations with executives is that each said a primary goal behind UHC’s changes in how it contracts for lab tests is to lower what it spends on lab tests.

But a secondary goal is to contract with those laboratories that have enriched data sets in a form the insurer finds useful. In addition, UHC may want to include labs in its provider network if they can show that they collaborate with clinicians to improve patient outcomes and can reduce the overall cost of care.

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