CEO SUMMARY: In Florida, the Blue Cross Blue Shield contract is coming up for renewal and the question is whether it will renew as exclusive to one national lab company. But Florida is not the only state where BCBS plans are planning to issue new contracts. Among the Blues plans that may ask for proposals for new clinical lab-testing contracts in the coming months are plans in California, New York, and Texas. These three state plans insure an estimated 110 million members.
WILL AN UPCOMING MANAGED CARE CONTRACT AWARD in Florida be the next battleground for the nation’s two largest public lab companies? In the coming months, Blue Cross Blue Shield of Florida will renew its exclusive lab-testing contract. The question now is which of the nation’s largest labs will win this coveted prize? Will this new pact again be exclusive? Or might contracts be granted to both Laboratory Corporation of America and Quest Diagnostics?
Moreover, Florida may be just one of several Blues plans that could offer new lab-testing contracts in the coming months. Blue Cross Blue Shield plans in California, New York, and Texas also will be renewed. Those plans in California, New York, and Texas insure an estimated 110 million members, according to Steven Rusckowski, CEO of Quest Diagnostics.
In separate conference calls with Wall Street analysts last month, Rusckowski and David King, CEO of LabCorp, discussed the Florida contract and their respective companies’ prospects for being named the in-network lab for Florida Blue’s four million members. Florida Blue also serves some 15.5 million people in 16 states through its affiliated companies, according to America’s Health Insurance Plans (AHIP), a trade association for health insurers.
Hopeful about Contract
Given that Florida Blue extended its contract with Quest in 2018, Rusckowksi was hopeful about signing when the contract renews. “We feel good about our presence in Florida,” he said. “We have a strong working relationship with Florida Blue Cross Blue Shield and we feel we’re in a nice position to deliver on picking up [marketshare] … because of that relationship and the great access we have in Florida.”
He added that Quest may be able to add lives from Blues plans in California, New York, and Texas.
It’s not known when the clinical laboratory test contract will renew. Quest did not want to provide any details about the contract other than to say that the company has a policy of not commenting on client contracts. Florida Blue declined to comment, saying it considers its vendor relationships and contracts to be proprietary and confidential.
Compared with Quest, LabCorp was less hopeful about the contract, but not totally out of the picture. “Well, I think it’s pretty well known that the major remaining exclusive is the Florida Blue contract and we do not participate in that agreement,” King commented. “We have been engaged in conversations with Florida Blue on a number of fronts. We have Walgreens-located patient service centers in the Florida market.
Willing to Engage
“So, we’re hopeful that we’re going to see some progress there, but I can’t give you a firm prediction about how it’s going to turn out,” King added. “We’ve been pleased with the fact that they’ve been willing to engage with us because we’ve been out of that contract for a good number of years.”
One lab executive who asked not to be named said the big lab executives’ comments are telling. “We can probably read between the lines of what both Rusckowski and King said in their comments,” the lab executive said. “Those comments lead me to believe that an RFP is potentially forthcoming. That may mean the term of the Quest contract is up for renewal, possibly sometime next year.
“While King suggests there’s been dialogue in some capacity, we should make no mistake about Quest’s intentions,” the executive added. “Quest definitely does not want to lose its exclusive grip on Florida.
Quest, LabCorp, BRLI In Horizon Network
IN NOVEMBER, HORIZON BLUE CROSS BLUESHIELD OF NEW JERSEY announced that it would add Quest Diagnostics as an in-network lab while also retaining Laboratory Corporation of America and BioReference Laboratories.
The addition of Quest while retaining LabCorp and BRLI is significant because it may be another sign that health plans are moving away from exclusive contracts involving clinical laboratory testing services.
In its announcement, Horizon characterized the deal as “a new preferred national lab expansion strategy” for its members. As of Jan. 1, all 3.8 million Horizon members could use LabCorp for in-network lab services, Horizon said. Quest is in-network for Horizon BCBSNJ members (excuding BCBSNJ Medicaid members), the health plan added. BioReference Laboratories remains as an in-network option for Horizon BCBSNJ members with PPO and traditional plans.
Allen Karp, Horizon’s Executive Vice President for Healthcare and Transformation Management, said the increased access for members will reduce the number of out-of-network claims, thus lowering the health plan’s costs.
“Quest Diagnostics knows that it’s much easier to manage an estimated four million members operationally on a peninsula— and to control leakage and redirection— than it is to do that nationally for Aetna, even with an estimated 20 million members,” the executive explained.
“For all these reasons, Quest has had the exclusive ‘death grip’ on the Florida Blue contract going back many years,” he added. “And for much of that time, LabCorp was on the outside looking in.”
Other sources added that they believed the contract changed hands over the years and that both Quest and LabCorp each had it for some time.
But now, Quest has a firm grip on it, the lab executive added. “The relationship between Quest and the Florida Blue has been air tight,” he commented. “A contact at Florida Blue once said that if they allowed any other labs in-network that offered testing comparable to what Quest was providing, then the plan had to pay financial penalties to Quest. In addition, Quest had the right to refuse to allow any new lab providers into the Florida Blue network.”
Exclusive Network Contracts
While Quest’s contract with Florida Blue is exclusive, and LabCorp also has an exclusive contract with Independence Blue Cross in Pennsylvania, other health insurers are moving away from exclusive deals, the executive noted. “The fact that UnitedHealthcare and Aetna both have unlocked their former exclusive relationships and let both LabCorp and Quest into their national networks, that’s good news for all labs going forward. This shows that the pendulum is moving toward less exclusivity and more open contracts among most major health insurers.”
One example of less exclusivity comes from Horizon Blue Cross Blue Shield of New Jersey, which in November added Quest as an in-network provider for 2.8 million members of Horizon BCBSNJ while retaining LabCorp and BioReference Laboratories.
“That said, these big contracts also mean that both LabCorp and Quest have incentives to cannibalize the smaller regional, independent, and outreach labs that offer comparable test menus,” the lab executive concluded.
Low Price Still Important
As in many negotiations involving health plans making exclusive deals for clinical lab services, low price is an important factor, said another lab executive who asked not to be named. “The primary driver for the relationship is low prices and cost savings to the insurer,” the executive added.
“Among all of the Blues plans, Quest has been the primary lab provider in some states, and LabCorp has been primary in other states,” he continued. “Currently, Texas BCBS has both LabCorp and Quest in-network, but it seems to have a preference for Quest.”
Looking back on the history of the Florida contract over the years, another lab executive recalled that Quest had the Florida Blues contract years ago and then it went to LabCorp before going back to Quest more recently. Again, this executive did not want to be named.
“I believe the reason it went back to Quest is that Quest learned a lot about that market while it was out of the contract,” he added. “Then, it applied what it learned to win the contract back again.
“Keep in mind that in recent years, LabCorp had to roll out exclusive contracts with both Florida Blue and Humana and both of those roll-outs had to start up in a short window of time,” commented the lab executive. “At that time, there were issues with both contracts, and both Florida Blue and Quest learned from those mistakes.
Pendulum Is Swinging
“These are reasons why I believe the pendulum is indeed swinging toward manager care contracts that are less exclusive, and allow more clinical laboratories to be network providers,” he explained. “Health plans don’t have the bandwidth to manage the lab network and so it makes sense for them to let LabCorp and Quest duke it out over volume. At the same time, the plans can provide incentives to both lab companies to get them to control costs and to redirect the out-of-network work that health plans don’t want.
“And, there’s another reason to move away from exclusive contracts,” he added. “The employers have been complaining about accessibility to clinical lab test providers. Thus, those complaints give health plans another incentive to add both national lab companies to their provider networks to increase the number of access points for patients.”