IT’S THE END OF AN ERA for the strategy of being the exclusive national lab provider for a major health insurer. Last week, the two largest clinical laboratory companies announced that the 10-year-old exclusive lab testing deals each had with a different big health insurer had crumbled.
In 2007, Laboratory Corporation of America locked up an exclusive national provider contract with United-Healthcare. Early that same year, Quest Diagnostics similarly won an exclusive national provider contract with Aetna, Inc. (See TDRs, Oct. 16, 2006, and Feb. 19, 2007.) That status quo held until last week, when both lab companies announced new non-exclusive deals with UnitedHealthcare and Aetna.
Starting next year, LabCorp will no longer be the exclusive national lab test company for UHC, but it will be able to serve Aetna’s 20 million members. Also next year, Quest will lose its exclusive contract with Aetna, but will become one of UHC’s preferred providers.
Labs’ Share Prices Rise
Despite losing the exclusive contracts, the stock prices of both companies rose on Friday, according to Bertha Coombs of CNBC.
LabCorp and Quest each characterized their new contracts as positive developments even though both deals are aimed at keeping down the cost of clinical lab testing. The insurers said the deals are about delivering value-based care, a term that means the insurers expect low costs and high quality services for members.
“Insurers see ordering of unnecessary lab tests by doctors in a fee-for-service system that emphasizes volume of care delivered is in dire need of reform,” explained Bruce Japsen in Forbes. “In the future, lab tests will increasingly be subject to quality and outcome measures via various value-based care models.”
In its announcement of the LabCorp deal, UnitedHealthcare, one of the nation’s largest health insurers, said LabCorp would continue participating as a national provider of laboratory services to all UHC plan participants. It’s no surprise that, to Japsen’s point, UHC added that the deal “will include a broad range of value-based programs.” UnitedHealthcare wants high-quality, easily accessible lab services and lab test data “to drive more personalized care support.”
For Quest, UHC’s announcement is good news because Quest Diagnostics has been an in-network lab, but only for a limited number of UHC plans in some markets. Under its new agreement with UHC, Quest will be able to provide lab testing to UHC’s 48 million members, helping to offset the loss of its exclusive arrangement to provide testing services to Aetna’s 22 million members, wrote Japsen.