JVHL Signs a Contract with UnitedHealth Group

Hospital laboratory network seizes opportunity to help fill coverage gaps throughout Michigan

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CEO SUMMARY: When UnitedHealth Group announced its exclusive national contract with Laboratory Corporation of America, Joint Venture Hospital Laboratories (JVHL) saw opportunity. That’s because LabCorp does not have a significant presence in Michigan. JVHL parlayed its statewide network of 120 hospital laboratories into a five-year contract with UnitedHealth, positioning it to capture more market share.

BEHIND THE SCENES, there is an unfolding story linked to the new, “exclusive” national lab services contract between UnitedHealth Group and Laboratory Corporation of America. It’s a story that runs counter to the public relations blitzes of both companies.

With little fanfare, UnitedHealth has quietly been negotiating with regional laboratories in selected cities to make them contract providers for laboratory testing. It’s a tacit recognition by UnitedHealth that no single national laboratory company can serve its beneficiaries in every region.

This is true in Michigan, where LabCorp has never held a substantial share of the market in either Detroit or other areas of the state. That created an opportunity for Joint Venture Hospital Laboratories (JVHL), the network owned by nine Michigan health systems, to forge a closer and expanded relationship as contract provider for UnitedHealth.

Last month, JVHL signed a five-year contract to provide laboratory testing services for physician-office-originated testing in Michigan, effective on January 1, 2007. JVHL’s success provides important lessons on how other regional laboratories can negotiate with UnitedHealth to become a regional contract provider. The cornerstones of JVHL’s contract strategy were competitive pricing for lab services and the ability to provide data that UnitedHealth can use to improve healthcare outcomes.

Seizing The Opportunity

“In Michigan, hospitals have been successful with laboratory outreach programs,” Jack Shaw, JVHL’s Executive Director, said in an interview with THE DARK REPORT. “As a starting point, this meant that the laboratory members of JVHL have good market share, an established reputation, and the loyalty of many physicians. In fact, it would be tough for any commercial lab company to wrest physicians away from these successful hospital laboratories outreach programs.

“In discussions with us, UnitedHealth indicated that it wanted to ensure that lab testing referred by office-based physicians was performed according to their national objective of lab cost reductions,” he explained. “UnitedHealth saw that by contracting with JVHL it could achieve this goal without relying solely on their national contractor.”

Smaller Book Of Business

Another factor may have been the relatively small number of UnitedHealth beneficiaries in the state. “In Michigan, UnitedHealth insures about 180,000 lives. These are primarily in the urban centers,” said Shaw. “That’s about 10% of JVHL’s current book of business. It’s also likely to be under 5% of the total book of private payer business done by all labs in Michigan.

“Several of our member hospitals had contracts with UnitedHealth for inpatient and outpatient testing,” Shaw added. “When UnitedHealth announced its contract with LabCorp, we saw an opportunity to bring the UnitedHealth lab work originating in doctors’ offices under contract.

“At the time, we had two reasons for contracting with UnitedHealth,” he continued. “First, when Quest Diagnostics was dropped from the UHC contract, we felt there was a chance for JVHL hospitals to gain some of that business. As well, we didn’t want that business to default to LabCorp,” noted Shaw.

Already Serving Physicians

“Second, our hospital labs already do a significant share of physician office testing,” he added. “Thus, we had an existing vehicle that could allow us to extend this line of business. We recognized that, if UnitedHealth followed through on its plan to have physicians direct much of their lab testing to contracted laboratories, this further opened a window of opportunity for JVHL. It was important to ensure that we were a participating laboratory provider on behalf of our hospitals. That was our contracting strategy, and UnitedHealth agreed.”

With headquarters in Allen Park, Michigan, JVHL is an umbrella contracting entity for 120 hospital laboratory outreach programs in the state. “Whenever JVHL negotiates a managed care contract, it becomes a single point of contact for the payer, despite the fact that as many as 120 hospital laboratories may provide testing under that contract,” Shaw said.

“In the case of UnitedHealth, several of our hospitals already had provider status for lab testing with UnitedHealth for lab specimens collected in hospitals,” he added. “The new contract between JVHL and UnitedHealth covers only laboratory testing that originates in physicians’ offices. It doesn’t affect the hospital work, which they can continue to perform under their hospital contracts. And, all 120 of our participating hospitals can access the physician office work.

Discounted Fee-For-Service

“Pricing is competitive with UnitedHealth’s standard fee-for-service schedule, which represents a discount from the Medicare fee schedule,” Shaw said. “We didn’t take a deeper discount than we have seen with other national contracts.

“To ensure compliance, UnitedHealth has two strategies,” he continued. “One strategy involved paying the enrollee directly and letting the out-of-network laboratory contact the enrollee for payment. The second one is to have some kind of financial sanction against the physician if the physician repeatedly sends a specimen to an out-of-network laboratory.

“During our negotiations, it was clear that UnitedHealth was interested in the laboratory data that JVHL could provide,” observed Shaw. “Further, UnitedHealth recognized that adding JVHL to their laboratory network would result in a smooth transition. That’s because most Michigan physicians currently use a JVHL laboratory for some part of their work that gets done in hospitals. Physicians are already familiar with our laboratories.

Continuum Of Care

“We believe that hospital labs have a legitimate place in the outreach market,” Shaw explained. “They provide value in the continuum of care, especially in these days of electronic medical records. If hospitals do the lab work, then they can provide continuity of data that’s absent when commercial labs do the work. The fact that UnitedHealth was willing to contract with us supports that idea.

“There were two key ingredients to JVHL’s new contract with UnitedHealth,” he said. “First, we were willing to be competitive on price. That was attractive to UnitedHealth, which wants to reduce the cost of laboratory services wherever possible.

“Second, lab data reporting was also a key ingredient,” Shaw added. “The growing emphasis on electronic patient information is consistent with the services that hospital laboratories provide. JVHL’s hospital labs have the electronic data that payers want.

“This UHC contract with JVHL shows that there’s an opportunity for hospital labs to gain market share if they want to compete in this market,” Shaw said. “When UHC signed a single-source contract with LabCorp, many in the lab industry believed this contract would hurt local laboratories. That’s not our view. We see this as an opportunity for JVHL member labs to expand their market share.”

THE DARK REPORT observes that JVHL’s contracting success with United Health shows that professionally managed hospital laboratory outreach programs can be attractive network providers to major payers. Also, it shows that hospital labs can provide a full set of lab test data that payers value.

JVHL Uses Lab Data As Contract Leverage

JACK SHAW, EXECUTIVE DIRECTOR of Joint Venture Hospital Laboratories (JVHL), said his company won a five-year contract to provide laboratory services to UnitedHealth Group (UHC) in part because the 120 hospitals in the JVHL network have the data that UHC wants.

“If a commercial lab does a test for a physician’s office, there is no way the result of that test can populate the hospital’s electronic medical record,” said Shaw. “That creates a hole in the data.

“In the meantime, the hospital lab is collecting all the data on inpatients, outpatients, those in the emergency room, and anywhere else,” he explained. “When a managed care plan has an area of testing excluded from the electronic record, it costs them later.

“If a patient has a test done by a commercial lab and then presents in the emergency room, that same laboratories test has to be redone, simply because the previous test result was unavailable to the ER physician,” Shaw explained.

“In contracting, price continues to be a primary issue,” he added. “But data is second because having a complete set of data helps managed care plans to control costs.”


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