Michigan Lab Network Wins Major HMO Deal

Latest contract award comes at the expense of one of the national commercial lab firms

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CEO SUMMARY: By winning the contract for Health Alliance Plan (HAP), Joint Venture Hospital Laboratories (JVHL) captured another major exclusive managed care contract for lab testing services in Southeast Michigan. Its victory demonstrates that local hospital lab outreach programs can compete on equal terms with national laboratory competitors. Service and enhanced lab data reporting are keystones to its success.

THERE’S BIG NEWS in the city of Detroit. On May 1, 2002, Joint Venture Hospital Laboratories (JVHL) becomes the exclusive provider of laboratory testing services for Health Alliance Plan (HAP), a 125,000-member HMO.

“Becoming the exclusive laboratory for HAP is a major milestone for our regional laboratory network,” stated Jack Shaw, JVHL’s Executive Director. “Our lab network now holds provider status with every major HMO in this region! JVHL services lab testing contracts that cover 1.35 million people.”

JVHL’s accomplishment is remark- able. It is the first regional laboratory network in the nation to achieve provider status with every major managed care plan in its service area. It is all the more remarkable because of another fact: JVHL competed on equal terms against the national labs. It bested them in contract awards because of the potential ace card that all hospital labs can play—it is a locally-based laboratory services organization that provides testing services that users acknowledge to be better than those offered by competing labs, including the two blood brothers.

“To say we are delighted is an understatement,” said Shaw. “It was ten years ago—in 1992—when JVHL was formed specifically to protect the outreach business of our member health systems through managed care contracting and other collaborative activities. By winning these major HMO contracts, we’ve validated that business strategy and, more importantly, we’ve helped our participating hospital laboratories protect and build their outreach testing programs.”

The HAP contract illustrates why JVHL has become a potent competitor in Southeast Michigan. For at least seven years, Quest Diagnostics Incorporated held the exclusive laboratory testing contract for HAP, an insurance plan owned by the Henry Ford Health System.

A Successful HMO

“HAP has been one of the more successful HMOs in our region,”? explained Shaw. “Although much of this HMO’s lab testing stayed captive within the health system, there was always a patient population served by outside providers and this was the lab testing contract held by Quest Diagnostics.

“Recently HAP acquired SelectCare HMO, a struggling HMO with about 70,000 lives,”? he said. “Because JVHL was the exclusive lab services provider for SelectCare, HAP began to meet with us over a variety of transition issues.

“HAP’s own lab testing contract was up for renewal, so the timing of the SelectCare acquisition helped us,” Shaw recalled. “The RFP process was intense, because both Quest Diagnostics and we wanted this contract.”

Physicians Liked JVHL

Shaw believes HAP selected JVHL for two main reasons. “First, SelectCare physicians served by JVHL’s member laboratories were quite satisfied with their laboratory services,” noted Shaw. “They were not excited about the prospect of being forced to change to a national laboratory.

“A number of these physicians contacted HAP and expressed their wish to retain their existing laboratory,”? he continued. “This played a role, along with the fact that some ongoing service issues with HAP’s current con- tract laboratory provider created an ‘unmet need’ which JVHL could fill.

“Second, JVHL can immediately provide HAP with lab data for HEDIS reporting which is more comprehensive than comparable data provided by either of the two national laboratories. This appealed to HAP,” noted Shaw.

There is another notable fact about the HAP contract won by JVHL. Price was not the sole determining factor. “I am proud to say that the HAP contract was not awarded exclusively on the basis of price,” declared Shaw. “JVHL is moving these contract award decisions based on the value of lab data that is useful to payers.

“Payers in Michigan have recognized this fact,” he continued. “In recent years, as we acquired new managed care contracts, the HEDIS scores of these HMOs climbed in the years following their conversion to our laboratory organization.

HEDIS Scores Improved

“Payers are telling us that the lab data sets we provide are more complete and include a higher percentage of the results provided for the covered population of lives than any other lab provider, including the two national labs,” added Shaw. “This was most clearly demonstrated by the HEDIS performance of the Blue Care Network, Michigan’s largest HMO, once we became the exclusive lab testing provider.”

The reason JVHL can provide more complete laboratory test data to the managed care plans is because the laboratories of its member hospitals do testing for the outpatient clinics owned and operated by these hospitals and health systems. “Commercial laboratories have never had access to these clinics and physician group practices,” observed Shaw. “Because JVHL’s hospital laboratory outreach programs serve these clinics, as well as physicians’ offices not owned by a hospital or health system, JVHL has a more comprehensive set of laboratory data that it reports to the payers.

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Customized Data Packages

“Payers tell us that these more complete data sets have value for them,” added Shaw. “Moreover, during con- tract negotiations, JVHL tells managed care companies that ‘we’ll format lab data exactly as you want it.’ Payers like this and tell us that our laboratory competitors only offer a limited number of lab data reporting formats.”

It is a powerful endorsement for any laboratory when managed care plans will attribute improved HEDIS scores to the more complete lab test data sets they get from that laboratory provider. THE DARK REPORT points out that this accomplishment of JVHL is even more remarkable because it must collect lab test data from hospital laboratories throughout Michigan before it can send reports to payers.

Monthly, lab test data from up to 130 hospital laboratories data must be formatted and put into a common data repository before it can be transmitted to the health insurer in a form that is usable. Within the United States, this capability may be unique to JVHL. THE DARK REPORT is unaware of a comparable situation where lab test data from individual hospitals and integrated delivery networks (IDN) is regularly gathered and submitted in a common format to a major insurer.

This achievement was a key part of JVHL’s competitive business strategy. “Early on, JVHL recognized that HEDIS reporting requirements were an opportunity for us to add value to payers,”? noted Shaw. “During contract negotiations, payers had begun to ask us whether we could provide lab data formatted in specific ways.

Payers Had Unmet Need

“As payers told us how they would use lab data if they could get it in these formats, we recognized that it was an unmet need,” he continued. “JVHL’s board of directors made a strategic business decision to invest the time and money necessary to make this happen. It also required considerable commitment by our hospital laboratory members, since they must feed us their lab data in a common format.

“The challenges of combining lab test data from all our member labs should not be underestimated,” commented Shaw. “It took several years of effort to develop and refine this capability. But the rewards justify the effort. JVHL is now a contract lab provider for every major HMO in Greater Detroit.”

Most Effective Lab Network

THE DARK REPORT believes it is no accident that Joint Venture Hospital Laboratories is the single most effective regional laboratory network in the United States. First, it was organized for a specific business objective: to protect existing outreach business by its member laboratories and to support continued growth of outreach testing volumes.

This stands in contrast to the many regional laboratory networks launched in the second half of the 1990s which lacked a clear business focus and the urgency to accomplish a measurable financial objective.

Second, JVHL was organized to be economically self-sustaining. This also sets it apart from many other lab networks which require monthly payments from participating hospitals to cover expenses. JVHL was structured to generate sufficient revenue to covers its operational expenses. In fact, according to Shaw, JVHL has never tapped the initial capital funded by the original four health system owners.

Third, early in its operational life, JVHL had an executive director who was empowered to make decisions and devote time to the network’s business needs. Having an executive with the time and authority to further the business interests of JVHL allowed the network to convert ideas into action and enabled it to achieve measurable financial goals.

Managed Care Contracts

Fourth, JVHL pursued managed care contracts with determination. It was professional and thorough in responding to RFPs and proved willing to invest in developing the types of lab testing services that had value to physicians, payers, and patients.

Fifth, JVHL declared that it would not compete solely on price. It wanted to differentiate itself by its ability to deliver recognizably better lab testing services daily to its client physicians. By not competing on price, JVHL was able to build a different type of business relationship with HMOs in the region.

The most important lesson that Joint Venture Hospital Laboratories teaches is that regional laboratory networks can be successful. But to achieve that, participating hospital laboratory members must move past issues of control and traditional cross- town rivalries and work with common purpose toward measurable financial goals and objectives.

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