CEO SUMMARY: As a corporate strategy, SmithKline Beecham Clinical Laboratories wants national contracts and exclusive provider status. The Aetna U.S. Healthcare agreement is SmithKline’s latest victory. Both companies are moving rapidly to implement the contract. In many cities where Aetna has a large presence, SmithKline expects to gain a significant increase in laboratory specimens.
PERSISTENCE AND DEMONSTRATED experience allowed SmithKline Beecham Clinical Laboratories (SBCL) to capture a valuable prize in the battle for market share.
On September 18, Aetna U.S. Healthcare and SmithKline announced the signing of a laboratory services agreement between the two companies. SmithKline disclosed that the agreement was effective immediately.
“This contract represents a significant decision for both Aetna U.S. Healthcare and SBCL,” stated Vijay Aggarwal, Ph.D., Vice President and Director, U.S. Reference Laboratories, SBCL. “It reflects an emerging demand for a unified laboratory organization with advanced information technology.”
The agreement specifies that SmithKline is to be the sole-source laboratory provider for Aetna U.S. Healthcare’s HMO and Quality Point- Of-Service programs in nine states: Pennsylvania, New Jersey, New York, Massachusetts, Connecticut, Texas, Florida, Louisiana, and Illinois. Approximately 2.7 million members are covered by Aetna in these states.
For all of Aetna’s other programs and in other states where Aetna U.S. Healthcare operates, SmithKline will be a preferred provider of laboratory testing and related services.
From Aetna’s side of the table, this new lab services contract begins implementation of a long-standing company philosophy. Aetna wants close, multi- year relationships with selected vendors.
Aetna’s goal is to move away from contracts negotiated mostly on price and volume. Instead, the customer/supplier relationship should focus on how to develop win-win services which enhance the quality and profits of both companies.
“I suggest that Aetna’s decision was not driven by price,” said Aggarwal. “That is because Aetna U.S. Healthcare is already recognized for its success at controlling test utilization. Aetna’s interest in long-term strategic supplier relationships is the key to understanding this agreement.”
“Several years ago, we decided that it was important to embrace managed care. That is why SmithKline is motivated to work with as many of the national HMOs as possible.”
Vijay Aggarwal, Ph.D.
VP & Director, U.S. Reference Labs, SBCL
“You already see Aetna pursuing this strategy in the areas of home health care and radiology,” noted Aggarwal. “It wants intimate business relationships with its chosen providers. Laboratory services was the logical next clinical area to begin this same process.”
According to Aggarwal, Aetna’s search for a clinical laboratory partner finally centered on SBCL for three reasons. “One, both companies shared a similar vision on the strategic use of laboratory and clinical information. Two, the capability to provide quality service national coverage was essential. And three, uniform testing practices and standardized ranges in all locations was important to Aetna.”
Aggarwal characterizes this contract as unusual because SBCL will play multiple roles in how laboratory services are delivered to Aetna. “In some markets SBCL will be the exclusive laboratory provider,” he noted. “In other markets, SBCL will take a lead role and coordinate lab services. We will develop a network of laboratories to provide testing services in those cities.
“Aetna’s needs are what determined the level of service responsibility defined in this new agreement,” he continued. “For example, in some markets Aetna is required to use integrated health providers. In other markets there are geographic gaps between where Aetna has patients and where SBCL has existing infrastructure. In several markets, technical testing capabilities determined how nearby laboratories would complement SBCL’s capabilities.”
During Dr. Aggarwal’s interview with THE DARK REPORT, the theme of laboratory information continually popped up. “Unlike many healthcare companies, Aetna U.S. Healthcare funds an extensive internal development arm. Its use of clinical data sets is advancing rapidly.
“SBCL’s demonstrated capability to deliver uniform data sets on laboratory testing across our entire system dove-tailed neatly with Aetna’s hunger for this kind of information,” explained Aggarwal. “Both companies were impressed that each was looking at clinical information with the same intensity.”
Lab Information System
Here is where SBCL’s lab division may have a leg up on its two national competitors. SmithKline has a uniform lab information system which is functioning. Since implementation of the Cigna lab services contract in early 1996, SBCL has learned how to gather laboratory testing data and report it to its HMOs in a way that is useful to both companies.
Thus, SBCL already has two year’s experience in refining its data collection process. As a sole source laboratory provider for Prudential, it had a second opportunity to implement direct links between its national LIS and Prudential’s IS.
This experience has also given SBCL a unique value-added capability, one that laboratory executives are advised to learn more about. SBCL’s standardized test protocols and its uniform LIS system permit it to gather data and interpret that data in valuable ways.
Aggarwal explains. “In the past couple of years, we have learned that there is a remarkable variability in physician practice patterns within a managed care plan. It is a more astounding variation than anyone would have predicted without looking at the longitudinal data.
“As a result of the data sets we have, we’ve determined that there are many more short-term opportunities for appropriate intervention than we would have guessed just one year ago,” he said. “We can now create data sets from actual patient data which clearly demonstrate this.”
According to Aggarwal, when managed care executives look at blinded presentations of this data, they are quick to realize the value of this information. It permits them, in the short-term, to work with the physician outliers to improve test ordering patterns and clinical practices.
“Laboratorians generally know that physicians, when shown accurate data, want to move towards the best clinical practice,” explained Aggarwal. “For managed care plans, this kind of laboratory information is win-win. Patients get better quality of care. Physicians appreciate accurate information that guides their clinical practices. And the cost of care is reduced.”
If SBCL can bring this kind of information to managed care’s table, then it is converting simple lab test results into information of greater value. Not only does that give it a jump on its two national competitors, but it puts SBCL into the forefront of using lab data to enhance the overall performance of clinicians at improving care while lowering costs. And those are precisely the outcomes managed care hopes to get from its laboratory providers.