CEO SUMMARY: BeaconLBS is a new business created by Laboratory Corporation of America. It says it wants to help health insurance plans manage molecular diagnostics and genetic testing. BeaconLBS is now recruiting other clinical labs to join its network and is meeting with payers to offer its lab test pre-authorization services. What may make BeaconLBS a significant development is that it is telling health insurers that it is willing to sign capitated, full-risk contracts to manage molecular testing.
PAYERS IN THE UNITED STATES WANT to institute pre-authorization of expensive genetic tests and molecular diagnostics assays. Not surprisingly, the nation’s two biggest clinical laboratory companies see pre-authorization of the most profitable menu of diagnostic lab tests as both a threat and opportunity.
In response to this situation, Laboratory Corporation of America earlier this year incorporated a new business it calls BeaconLBS. The new company’s marketing material describes LBS as “Lab Benefit Solutions.”
LabCorp wants to position BeaconLBS as a company that health plans can use to manage the ongoing growth in volume of genetic tests and molecular diagnostics assays and the cost of reimbursing for these expensive tests. BeaconLBS hopes to interpose itself between the payer, the physician, and a network of clinical laboratories that includes LabCorp, as well as any other laboratory organizations that BeaconLBS can recruit.
Alert lab administrators and pathologists may ask how BeaconLBS–owned by LabCorp—can be an objective pre-authorization agent and responsibly delegate to other clinical laboratories the menu of laboratory tests which tend to be most profitable. In fact, this inherent conflict of interest was quickly identified by one laboratory administrator whose lab organization was recently visited by a BeaconLBS marketing development rep. The goal of the visit was to explain the BeaconLBS business plan and recruit this laboratory to join the BeaconLBS network.
A Fox in the Henhouse?
“No farmer would think it sensible to let a fox guard his henhouse,” said this lab administrator, who asked to remain anonymous. “Thus, why would a health insurer believe that BeaconLBS—a business created by and owned by LabCorp—would not have a fundamental conflict of interest in the process of reviewing a physician’s lab test request and deciding which of the BeaconLBS network labs—that includes LabCorp—should perform that test?”
Her skepticism about this arrangement seems to be shared by other lab executives. Up and down the East Coast, in recent months, reps from BeaconLBS have knocked on the doors of many clinical labs to pitch them about joining the BeaconLBS lab network.
In one letter it sent out this summer, BeaconLBS said, “We are a laboratory benefits solutions company that provides physicians with access to high quality clinical laboratory networks and physician-decision-support tools to help guide test and laboratory selection. Laboratory spending trends can be 200+% that of overall medical trends and most health plans have not yet developed tools, outside the traditional unit cost management activity, to address these developing trends.”
Creation of BeaconLBS
When contacted by THE DARK REPORT, both BeaconLBS and LabCorp declined to comment. This sensitivity to public comment may be related to how BeaconLBS came into existence, since the conception and birth of BeaconLBS demonstrates the rather incestuous nature of both the clinical laboratory industry and the health insurance industry.
The background is indeed interesting and the story begins in 2006. That’s when UnitedHealthcare (UNH), the managed care giant based in Minneapolis, Minnesota, issued a request for proposals (RFP) for a national laboratory testing contract. It was big news that year when Quest Diagnostics Incorporated lost out and LabCorp won that bid. It earned a 10-year contract to serve as the exclusive national provider of lab test services for UnitedHealth.
At the time, Paul Conlin, the current president of BeaconLBS, was at Oxford Health Care, a division of UnitedHealth. After the LabCorp contract was signed, Conlin went to Minneapolis to work at UnitedHealth’s headquarters. He later left to work for Coventry Health Care, a multi-state health plan based in Bethesda, Maryland.
By September 2010, just months after leaving Coventry, it is believed that Conlin went to work for LabCorp, in Burlington, North Carolina. Then, in February 2011, LabCorp filed the papers of incorporation for BeaconLBS.
Thus, an executive of UnitedHealth who is believed to have had a significant role in negotiating LabCorp’s 10-year national testing contract with UnitedHealth later became President of BeaconLBS, a division of LabCorp. From LabCorp’s perspective, it was a shrewd move to hire a health insurance industry insider to run BeaconLBS. Conlin understands the needs and problems that health insurers face when it comes to managing clinical laboratory test utilization.
For BeaconLBS to be successful in its business strategy, it must develop two things. First, it will need to recruit local laboratories and other national lab companies into its network. Second, these laboratories must accept prices for lab testing which meet the needs of health insurers.
BeaconLBS must also sign contracts with as many health insurance plans as possible. That is necessary because BeaconLBS wants to dangle access to these health plans as a motivation that encourages other laboratories to join the BeaconLBS lab network.
Business Strategy Dilemma
However, this business strategy leaves executives at BeaconLBS with the “chicken and egg” dilemma. Which comes first? Can it recruit labs into its network without having an adequate number of pre-authorization contracts with different health plans?
Alternatively, can BeaconLBS succeed in signing pre-authorization contracts with numerous health plans if it doesn’t first have a significant number of other local and national labs in its laboratory network?
Those unique challenges were also confirmed by a long-time health insurance executive. He noted that BeaconLBS is operating in uncharted waters.
“The problem is that BeaconLBS is neither fish nor fowl,” he observed during an off-the-record briefing. “At the same time that BeaconLBS is trying to build a lab network, it simultaneously must attempt to build a provider relationship network.
“If it can get both parties to the table, then it has a business model that could work,” he added. “But it takes two to tango, or in this case, three: health plans, physicians, and BeaconLBS. It has no business unless it has both health plans and physicians.”
Reports from the field indicate that BeaconLBS has faced an uphill battle. Since it began sending its representatives into the field to call on health insurance plans and other clinical lab companies, it has not disclosed any major agreements.
“On one hand, the time is right for any company to step in and try to manage these expensive genetic tests and molecular assays,” noted a lab CEO. “Health plans are ripe for it right now.
“On the other hand, perceptions of conflict of interest between BeaconLBS and its parent, LabCorp, would seem to be a daunting challenge for BeaconLBS to gain traction within both the payer and the lab testing communities,” he continued. “However, the opportunity is there and LabCorp is demonstrating that it is willing to devote resources to develop a solution that can meet the needs of payers, of physicians, and also of the laboratories in its network.”
Following Radiology Model
Several health insurance executives told THE DARK REPORT that the radiology pre-authorization model may be the template that BeaconLBS wants to use in promoting its service. “To achieve the goal of managing laboratory testing utilization, the implication is that, if LabCorp wants to follow the radiology model, then BeaconLBS and health plans need to preauthorize a lot of this testing,” commented one source. “BeaconLBS becomes a management company that the physician’s office calls to pre-certify any laboratory test. If the test meets the criteria, the physician can send the test to LabCorp or to another lab that is in the BeaconLBS network.”
Control of Lab Test Usage
“The critical element in such a business is that the health plans want some way to contain molecular and genetic testing costs—but they don’t want to get the physicians mad,” noted this individual. “Physicians know the value of these tests from a patient care perspective, just as health plans do. But the rising costs of genetic and molecular lab tests need to be managed, just like everything else.
“We think that no health plan wants to be first to say ‘no’ to the physicians when these tests are ordered,” he added. “Therefore, many health plans are going through the preparation steps now. However, I don’t know of a payer that currently requires pre-authorization of molecular tests.
“Payers are listening to McKesson [with its Advanced Diagnostics Management service],” continued this executive. “BeaconLBS wants these same payers to listen to its pitch as well. What these services tell payers is that innovation can be stifled if pre-authorization is handled the wrong way. That is why a health insurer needs to have a program to evaluate each genetic or molecular test on its merits. Pre-certification must be implemented in an appropriate way. Otherwise, the physicians will push back.”
Assumption of Full Risk
Another aspect of the BeaconLBS message to payers is that it is willing to assume complete risk of genetic and molecular testing. This is a significant aspect of the BeaconLBS business model that, until now, has not been publicized to the wider clinical laboratory testing profession.
In one BeaconLBS presentation seen by THE DARK REPORT, there is a description of its risk management service. It was described as follows:
Risk Management: BeaconLBS is prepared to accept full financial responsibility for all outpatient laboratory expenditures upon adoption of the BeaconLBS model. By managing laboratory economics through a capitated model, we have created a simple solution to complex laboratory trends.
Longtime clients and readers of THE DARK REPORT will recognize the implications of this lab test pricing strategy. In the 1990s, full-risk, capitated lab test pricing contracts offered to HMOs primarily by public lab companies directly caused a free-fall in the average prices paid by private payers for laboratory tests. Capitated and deeply discounted prices that are as little as 5% of Medicare Part B lab test prices can still be seen in today’s marketplace.
Thus, it is appropriate to ask: is LabCorp, through its BeaconLBS subsidiary, prepared to deeply discount the prices it will provide to contracted payers for the expensive genetic and molecular tests covered by these pre-authorization contracts? Moreover, does this mean that labs participating in the BeaconLBS lab networks will be required to also accept these low capitated prices—along with full utilization risk—in order to gain access to lab test requisitions from physicians?
In other words, is BeaconLBS actually a Trojan horse that allows LabCorp to enter the payers’ castle walls in the company of multiple labs it has recruited into the BeaconLBS lab network, then, with the payer contract in hand, LabCorp leverages its economies of scale in ways that disadvantage the network laboratories and—in some form or fashion—leaves LabCorp with access to larger volumes of tests, albeit at a deeply discounted price?
LabCorp’s BeaconLBS Business Unit Touts Four Core Competencies in Use of Lab Tests
SINCE ITS INCORPORATION EARLY THIS YEAR, BeaconLBS, a business division of Laboratory Corporation of America, has begun to get its message out in the lab testing marketplace.
In its presentations, it promotes four core competencies, as follows:
- Physician Decision Support (PDS):
- Lab Networks—Efficient and High Quality
- Pricing and Editing Support
- Risk Management
What will interest pathologists and laboratory administrators is how BeaconLBS describes its lab network. It writes that:
Our research has shown that there is a market segment of high quality labs that are also highly efficient. Consumers and providers alike, however, do not always have the tools to identify these labs. To address this network transparency issue, we are building a network of efficient labs that are committed to four quality attributes: CAP certification; second reads on complex pathology; electronic ordering and results capabilities; and, subspecialty credentialing. As the network grows, consumers need only remember the simple “Beacon Network” message when they are seeking high quality, cost effective lab services.