DIANON Wins Contract, Buys Kyto Meridien Lab

Oxford Health and Quest Diagnostics select DIANON Systems as anatomic path provider

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CEO SUMMARY:Anatomic pathology took another forward step on the managed care battleground. DIANON Systems, Inc. gained status as a provider of anatomic pathology services under the new master agreement announced by Oxford Health Plans. DIANON’s success demonstrates that anatomic pathology can be split from laboratory testing when ancillary contract decisions are made by managed care plans.

Many months of effort and a lot persistence finally paid off for DIANON Systems, Inc. of Stratford, Connecticut.

Late in December, DIANON announced an agreement with Quest Diagnostics Incorporated to provide anatomic pathology (AP) services and specialized testing for Oxford Health Plans, Inc.

DIANON’s success with the Oxford contract was followed by another. Today, January 11, 1999, DIANON announced its signing of a letter of intent to acquire Kyto Meridien Diagnostics, LLC, A $13 million outpatient OB/GYN laboratory with operations in Woodbury and New York City.

Lab Testing Network

Oxford Health Plans is a large managed care player, with 1.7 million members and 32,000 participating physicians in New York, New Jersey and Connecticut. DIANON joins four other commercial laboratories and a group of hospitals which Quest Diagnostics assembled as the laboratory testing network for Oxford.

“Winning a place in Oxford’s lab network was a major goal for us,” stated Kevin Johnson, President and CEO at DIANON Systems. “It’s why we are developing into a full-service provider of anatomic pathology services.”

DIANON’s acquisition of Kyto Meridien has an interesting connection with the Oxford laboratory network. Both DIANON and Kyto Meridien are providers in the Oxford laboratory network.

“The decision by DIANON and Kyto Meridien to merge was something that developed from our mutual respect for each other,” said Johnson. “Kyto Meridien provides a full range of cytology and cytopathology testing. Their clinical expertise and focus in obstetrics and gynecology strongly complements DIANON’s scope of services.

“Both companies recognized an opportunity to realize business synergies while preserving the differentiation in our pathology services,” he continued. “The addition of Kyto Meridien’s resources further expands our capacity. Of equal importance, we believe Kyto’s high-level of clinical expertise is recognized within the physician community and can be considered a ‘brand’ identity.”

Provider status in Oxford’s new laboratory services contract is a prize long-sought by DIANON. In its response to the RFP (request for proposal), DIANON Systems needed to convince both Oxford and Quest Diagnostics of its capabilities.

“Since DIANON already had a contract with Oxford, there was familiarity with our company,” stated Johnson. “Further, our development of the CarePath™ disease management services and products helped us in the selection process.

“When DIANON’s pathologists diagnose a biopsy, they are the first to know whether the patient has cancer or not,” continued Johnson. “Our CarePath services are designed to help the physician present the findings to the patient while allowing the managed care plan to provide timely and appropriate disease management support to the patient.

“Each is an opportunity for pathologists to provide added value,” he explained. “We believe that physicians would like the pathologist to take a more involved role in the diagnostic and prognostic stages. CarePath is a way to offer those enhanced services.”

Kevin Johnson describes a business opportunity that most pathologists are beginning to appreciate. Pathologists play an essential role in the diagnosis of disease. If they will take a broader view of the integrated clinical environment, their expertise can add value in non-traditional ways.

Disease Management

For example, most managed care companies tell their employer-customers that they have disease management capabilities. The HMOs also brag about individual case managers who can help beneficiaries deal with all aspects of a newly-diagnosed disease.

Pathologists, as the first to make a diagnosis of serious disease, are in a position to communicate with both the referring physician and the HMO. Early notification has value to both. But pathologists have historically not included HMOs in their primary reporting process.

What DIANON has recognized is that both the HMO and the referring physician will support increased reimbursement for the anatomic pathologist, but only if he adds value to diagnosis and management of the patient’s disease.

As a business strategy, DIANON Systems wants to learn how to package and offer anatomic pathology services which earn additional reimbursement over standard CPT code schedules. To accomplish this, it needs the opportunity to work with the more sophisticated HMOs.

Important Goal

That is why winning provider status with Oxford was such an important corporate goal. DIANON is now in a favorable position to interact with Oxford’s Medical Directors in a mutual effort to develop and refine a new class of “value-added” anatomic pathology services. Over time, DIANON hopes they can learn from their customer and develop additional anatomic pathology services which generate worthwhile revenue.

DIANON Systems is probably ahead of most pathology practices in understanding what “value-added” means to managed care companies. But there is another important lesson that DIANON’s experience can teach pathologists.

That lesson is simple: it takes money, time and business expertise to get an HMO to appreciate why a specific pathology practice should be included in its provider network. Most pathologists are reluctant to invest capital in marketing their practice.

However, in the integrated clinical environment of the future, the only survivors in the pathology profession will be those who invested money so that physicians and HMOs could appreciate why their brand of pathology was better
than any other.

Solving The Quandary Of Direct Contracting

Pathologists should consider DIANON’s success in becoming a provider in Oxford’s laboratory network as another encouraging development for the pathology profession.

One problem that impedes the field of anatomic pathology is the historical practice by health insurers of folding anatomic pathology into laboratory testing contracts. Since commercial laboratories are the usual winners of these contracts, it places anatomic pathologists at the very end of the food chain.

To reverse this situation, pathologists are going to have to convince HMOs and managed care plans that direct contracting of anatomic pathology services is necessary and appropriate. But that means overcoming inertia and the motives of commercial laboratories, who currently hold these contracts.

DIANON became an anatomic pathology provider because it spent considerable time and resources to educate both Oxford and Quest about the importance of anatomic pathology as a separate clinical resource, not an appendage to laboratory testing.

A similar case is being made by Pathology Service Associates (PSA) of South Carolina. After two years of educational efforts, this pathology network is finally getting the state’s largest health insurers to directly contract with pathologists for anatomic pathology services.

In this segment of integrated clinical services, the stakes are high for pathologists. The early victories of DIANON Systems and PSA demonstrate that the pathology profession can reclaim its rightful role as a vital physician specialty. But it will require pathologists to invest in marketing and HMO education.

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